TEEKAY CORPORATION — 2012 Form 20-F
Reporting period: Fiscal year ended December 31, 2012; this is an annual report, not a standalone fourth-quarter filing. Amounts are U.S. dollars. Financial statements use U.S. GAAP. Teekay is a shipping and offshore-services holding company with publicly traded subsidiaries in LNG/LPG shipping, offshore operations and conventional tankers.
Key financial results and position
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $1.956 billion | $1.954 billion |
| Net revenue (revenue less voyage expenses; non-GAAP) | $1.818 billion | $1.777 billion |
| Loss from vessel operations | $150.4 million | Income of $108.4 million |
| Net loss attributable to Teekay shareholders | $160.2 million; $2.31 per share | $358.6 million; $5.11 per share |
| Adjusted EBITDA (non-GAAP) | $768.8 million | $638.2 million |
| Net operating cash flow | $288.9 million | $107.2 million |
| Cash and cash equivalents at year-end | $639.5 million | $692.1 million |
| Total debt, including capital leases | $6.197 billion | $6.091 billion |
| Total assets / total equity | $11.002 billion / $3.191 billion | $11.138 billion / $3.304 billion |
- Total operating expenses rose to $2.107 billion from $1.845 billion, driven principally by $434.1 million of asset impairments, including $405.3 million on conventional tankers. Net loss improved from 2011, but the company remained loss-making.
- Reported vessel-operation results were also affected by $80.4 million of realized and unrealized losses on non-designated derivatives, $167.6 million of interest expense, and $79.2 million of equity income from joint ventures. Derivative fair-value movements can affect earnings without corresponding current-period cash flows.
- Cash flow from operations improved by $181.7 million year over year. Investing activities used $641.2 million, including vessel spending and investments in joint ventures; financing activities provided $299.7 million.
- Year-end liquidity, defined by the company as cash plus undrawn credit facilities, was $1.9 billion, including $1.2 billion of undrawn facilities. Restricted cash was $533.8 million and is not generally available for operations.
- Debt to total capitalization was 66.0%; net debt to total net capitalization was 61.2%. The company reported compliance with its debt covenants at year-end. Scheduled debt repayments for 2013 were $797.4 million.
- The company declared $1.265 per common share in dividends for 2012 and paid $83.3 million in cash dividends. Continuation is subject to financial results, board approval and financing restrictions.
Material changes versus 2011
- Revenue was essentially flat, while net revenue increased 2.3%. Segment performance diverged: liquefied gas income from vessel operations increased to $148.9 million from $134.8 million; shuttle tanker and FSO income increased to $66.7 million from $6.7 million; FPSO income fell to $46.4 million from $146.1 million; and conventional tanker operations recorded a $412.5 million loss versus a $179.2 million loss.
- Conventional tanker impairments rose sharply, reflecting weaker market expectations and the delayed anticipated recovery. Total 2012 vessel impairments were $434.1 million versus $155.3 million in 2011.
- Operating cash flow increased, partly because 2011 included a $149.7 million cash payment to amend and terminate interest-rate swaps. Do not treat the year-over-year increase as solely a change in recurring vessel performance.
- Interest expense increased to $167.6 million from $137.6 million, reflecting additional bond and vessel-related borrowing. Equity income from joint ventures swung to $79.2 million from a $35.3 million loss, including contributions from the LNG joint venture acquired with Marubeni.
Outlook, commentary and material risks
- Management described crude tanker rates as weak and volatile: rates strengthened in the first half of 2012, fell to historically low levels in the second half, and partly rebounded seasonally in the fourth quarter. The filing estimated 2013 net tanker fleet growth of approximately 3.5% and forecast oil-demand growth of 0.9 million barrels per day, while noting potential lower crude-tanker tonne-mile demand.
- Management said it reduced spot-market exposure through vessel sales, chartering some vessels at fixed rates and redelivering chartered-in vessels, seeking greater cash-flow stability. No company-wide earnings or revenue guidance is provided in the supplied filing text.
- The Petrojarl Banff FPSO remained off-hire after 2011 storm damage; return to service was expected in the fourth quarter of 2013. Teekay had no off-hire insurance for the unit. Repairs were expected to be primarily insured, subject to a $750,000 deductible, but approximately $90 million of mooring-system upgrades for Banff and the Apollo Spirit could be unrecovered pending negotiation or arbitration.
- The company had $1.096 billion of remaining newbuilding and conversion commitments at year-end and said additional financing was being arranged for remaining capital commitments. It had made $708.0 million of progress payments on vessels on order, excluding joint-venture partners’ payments.
- In January 2013, a borrower on term loans with $185 million principal outstanding failed to pay interest in full. The loans are secured by mortgages on three VLCCs; recovery depends on borrower cash flows, parent support and collateral realization.
- Tax-related lease exposures include potential increased payments or termination costs on LNG-carrier leases. The filing estimated Teekay LNG’s 70% share of possible RasGas II lease exposure at approximately $29 million, plus potential financing and swap-termination costs; a separate rental-increase claim had an estimated $10 million present-value share pending legal review.
- Other key risks include cyclical tanker rates and vessel values, customer concentration, offshore field production and FPSO redeployment, high leverage and covenant restrictions, environmental and casualty liabilities, foreign exchange and interest-rate exposure, and regulatory costs. Two international oil-company customers represented 30% of 2012 revenue; three customers together represented 39%.
Most important facts for investors to verify
- Whether operating cash flow and adjusted EBITDA can support scheduled debt service, dividends and committed capital spending, given 2013 debt repayments and the company’s reliance on undrawn facilities and external financing.
- The valuation assumptions behind the $434.1 million of impairments, and the remaining exposure to further vessel write-downs if tanker markets or vessel values weaken.
- Collection prospects for the $185 million term-loan investment after the borrower’s missed interest payment, including collateral values and any subsequent repayment or restructuring.
- Actual timing, repair costs, insurance recoveries and upgrade-cost allocation for the Banff FPSO, along with its expected return to operations.
- Closing and financing conditions for the Voyageur Spirit sale to Teekay Offshore, and funding and delivery progress for newbuildings and other announced projects.
- Developments in the UK tax-lease matters, customer concentration, and any changes to the board’s dividend decision or debt-covenant compliance.