Business context and reporting period
Teekay Corporation’s Form 20-F is an audited annual report for the fiscal year ended December 31, 2016, prepared under U.S. GAAP. Although the request references 2016 Q4, the filing reports full-year results, not standalone fourth-quarter results. Teekay consolidates its controlled subsidiaries Teekay Offshore, Teekay LNG and Teekay Tankers, despite holding minority economic interests in each. Its businesses span offshore logistics and production, LNG and LPG shipping, and conventional tankers.
Key financial metrics
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $2.329 billion | $2.450 billion |
| Net revenue (revenue less voyage expenses; non-GAAP) | $2.190 billion | $2.335 billion |
| Income from vessel operations | $384.3 million | $625.1 million |
| Net income (consolidated) | $86.7 million | $405.5 million |
| Net income (loss) attributable to Teekay shareholders | $(123.2) million | $82.2 million |
| Basic loss/earnings per share | $(1.62) | $1.13 |
| EBITDA / Adjusted EBITDA (non-GAAP) | $961.1 million / $1.269 billion | $1.135 billion / $1.394 billion |
| Operating cash flow | $620.1 million | $770.3 million |
| Capital expenditures for vessels and equipment | $648.3 million | $1.796 billion |
| Cash and cash equivalents at year-end | $568.0 million | $678.4 million |
| Total debt, including capital lease obligations | $7.032 billion | $7.443 billion |
| Total equity | $4.089 billion | $3.701 billion |
Income from vessel operations was approximately 16.5% of revenue in 2016, versus 25.5% in 2015. This measure includes impairments, vessel sale results and restructuring charges. Consolidated net income includes substantial non-controlling interests; the loss attributable to Teekay shareholders is the more direct earnings measure for common shareholders.
Year-end restricted cash was $237.2 million, in addition to cash and equivalents. Consolidated liquidity, including undrawn credit facilities, was approximately $1.0 billion. The company reported a $365 million working capital deficit and approximately $1.0 billion of scheduled debt principal repayments in 2017. Management said it expected sufficient liquidity for at least 12 months, relying in part on refinancing and other financing initiatives.
Material changes versus the prior year
- Revenue fell 5% and income from vessel operations declined 39%. Teekay attributed the deterioration chiefly to weaker spot tanker rates, the Arendal Spirit UMS being off-hire and having charter hire suspended, lost or ended contracts, and lower results at Teekay Parent.
- Operating cash flow declined 20%; dividends received from equity-accounted joint ventures fell to $38.1 million from $106.1 million.
- Adjusted EBITDA declined 9%. Interest expense rose 17% to $283.0 million, while reported derivative losses narrowed to $35.1 million from $102.2 million.
- Teekay recorded $45.8 million of asset impairments and a $66.5 million net loss on vessel and other asset sales. Other loss was $39.0 million, including provisions connected with canceled UMS newbuildings and a $19.0 million investment write-down.
- Teekay Offshore shortened estimated useful lives for shuttle-tanker components, increasing 2016 depreciation by $29.3 million and reducing Teekay’s net income by $8.6 million, or $0.10 per share.
- Teekay’s dividend was reduced to $0.055 per share quarterly from $0.55, effective with the fourth-quarter 2015 distribution, and remained at that level through 2016. Dividends declared for full-year 2016 were $0.22 per share.
Outlook, risks and unusual items
- Liquidity and refinancing: The group’s working capital deficit, upcoming maturities and committed vessel spending make continued access to financing important. The filing states that subsidiaries need additional financing to meet liquidity requirements; expected sufficiency over the following 12 months depends partly on refinancing, new financing, equity issuance, asset transactions and operating cash flows. All debt covenants were reported as met at December 31, 2016.
- Debt and guarantees: Teekay had guaranteed certain Teekay Tankers and Teekay Offshore credit facilities; outstanding balances were $150 million and $364 million, respectively. It also guaranteed certain Teekay Offshore derivatives, with a maximum guarantee amount of $387 million. Debt and derivatives expose the group to covenant, collateral, interest-rate and refinancing risks.
- Arendal Spirit: Petrobras suspended charter payments from November 2016 during an operational review following dynamic-positioning and gangway incidents. Cancellation could accelerate or reclassify related debt; the loan balance was $127.5 million at year-end. The timing and certainty of a return to service were not established in the filing.
- Other claims and contingencies: Teekay Offshore accrued $61.9 million in aggregate for claims and potential claims concerning Logitel, including canceled UMS construction contracts. Shell asserted $23.6 million in liquidated damages concerning the Petrojarl Knarr FPSO; Teekay Offshore disputed the claim. A securities class action remained pending, with potential losses not estimable. Petrobras also asserted a Piranema Spirit contract claim; $5.4 million had been accrued. A Transocean claim related to the Ocean Winner grounding had not been quantified or accrued.
- Customer and project exposure: Two international oil-company customers represented 29% of 2016 revenue. Skaugen had not paid approximately $9.2 million in hire invoices for six LPG carriers, and collection of a further $4.5 million was considered uncertain. Deferred Yemen LNG charter payments reduced Teekay LNG’s 2016 equity income by $21.2 million; the estimated 2017 reduction was $20–$30 million, with repayment dependent on the plant resuming operations and the customer paying.
- Market outlook: Management described 2017 crude tanker markets as facing headwinds from OPEC production cuts, fleet growth and higher oil prices, while expecting a potentially short and shallow downturn and improved balance from 2018. These are forward-looking expectations, not guaranteed outcomes. Lower oil prices also threaten offshore project activity, incentive revenues and vessel redeployment values.
- Capital commitments and regulation: The group had substantial vessel construction and conversion commitments, including LNG carriers, shuttle tankers, towage vessels and offshore projects. New ballast-water rules were expected to require treatment systems costing an estimated $2–$3 million per vessel. Environmental regulation, vessel values, customer performance, currency and derivative valuations remain material risks.
- Reporting and controls: KPMG issued an unqualified audit opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective at year-end. The filing cautions that non-GAAP EBITDA measures are not substitutes for GAAP earnings or cash flow.
Most important facts for investors to verify
- Whether Teekay and its subsidiaries completed the refinancings and other funding actions needed to cover 2017 maturities, committed capital spending and covenant liquidity requirements.
- Whether Petrobras resumed payments under the Arendal Spirit charter, and whether the unit returned to service without contract cancellation or debt acceleration.
- The resolution and cash impact of the Logitel/UMS, Shell/Petrojarl Knarr, securities class action, Piranema Spirit and Transocean matters.
- Collection or recovery prospects for Skaugen’s unpaid hire and Yemen LNG’s deferred charter payments.
- Actual tanker and offshore market rates, vessel utilization, impairment indicators and realized proceeds from vessel sales compared with management’s assumptions.
- Whether the reduced dividend remains sustainable given parent-level cash flows, subsidiary distributions, restrictions on upstream cash and the financing needs described in the filing.