Business context and reporting period
Teekay Corporation’s Form 20-F is an audited annual report for the fiscal year ended December 31, 2017, filed April 30, 2018. It covers Teekay’s marine transportation, liquefied gas shipping, offshore production and related businesses. This is a full-year filing, not a standalone fourth-quarter report. Teekay consolidates Teekay LNG and Teekay Tankers; following the September 25, 2017 Brookfield transaction, it deconsolidated Teekay Offshore and accounts for that investment under the equity method. This change makes year-over-year consolidated comparisons less directly comparable.
Key financial metrics
Amounts below are U.S. dollars; figures are rounded to millions unless stated otherwise.
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $1,880.3 | $2,328.6 |
| Net revenue (non-GAAP) | $1,726.6 | $2,190.2 |
| Income from vessel operations | $6.7 | $384.3 |
| Net income (loss) | $(529.1) | $86.7 |
| Net loss attributable to Teekay shareholders | $(163.3) | $(123.2) |
| Basic and diluted loss per share | $(1.89) | $(1.62) |
| EBITDA / Adjusted EBITDA (non-GAAP) | $231.1 / $898.2 | $961.1 / $1,268.7 |
| Operating cash flow | $513.7 | $620.8 |
| Capital expenditures for vessels and equipment | $1,054.1 | $648.3 |
| Cash and cash equivalents at year-end | $445.5 | $568.0 |
| Total debt, including capital leases | $4,578.2 | $7,032.4 |
| Total equity | $2,879.7 | $4,089.3 |
Calculated from reported figures, vessel-operations margin was about 0.4% in 2017 versus 16.5% in 2016; net margin was about (28.1)% versus 3.7%. The 2017 loss includes substantial impairment and transaction-related charges. The sharp decreases in assets and debt also reflect Teekay Offshore’s deconsolidation, not simply operating changes.
Year-end restricted cash was $106.7 million. Consolidated liquidity, including cash and undrawn credit facilities, was $906.9 million, excluding Teekay Offshore. The consolidated working-capital deficit was $532.2 million; Teekay LNG’s deficit was $484.6 million, largely reflecting debt maturities classified as current. Total debt to total capitalization was 61.4%, and net debt to total net capitalization was 58.3%. Teekay reported compliance with debt covenants at year-end.
Material changes versus the prior comparable period
- Revenue fell 19% and income from vessel operations declined to $6.7 million, from $384.3 million. Teekay cited 2017 impairments, weaker conventional tanker rates, lower offshore results and the effect of deconsolidating Teekay Offshore.
- Net loss was $529.1 million, compared with net income of $86.7 million in 2016. Major 2017 items included $232.7 million of asset impairments, a $104.8 million loss on deconsolidating Teekay Offshore, $50.0 million of additional Teekay Nakilat tax-indemnity liability, and $38.1 million of net losses on asset sales.
- Operating cash flow declined 17% to $513.7 million. Investing cash outflow rose to $1,054.2 million, primarily due to vessel and equipment expenditures; financing cash flow was positive $417.9 million, supported in part by vessel sale-leasebacks.
- Teekay completed the Brookfield transaction in September. Brookfield invested $610 million in Teekay Offshore and acquired a 49% general-partner interest; Teekay retained approximately 14% of common units and a 51% general-partner interest. Teekay recorded a $104.8 million deconsolidation loss and was released from prior Teekay Offshore debt and derivative guarantees.
- Teekay Tankers completed its merger with Tanker Investments Ltd. in November, issuing approximately 89.0 million Class A shares. The merger added 18 tankers and materially increased Teekay Tankers’ share count.
- Teekay’s quarterly common dividend remained $0.055 per share, or $0.22 declared per share for 2017. Teekay Offshore cut its quarterly distribution to $0.01 per unit in connection with the Brookfield transaction.
Outlook, commentary, risks and contingencies
- Liquidity and financing: Management expected sufficient liquidity for at least 12 months, but this depended on planned refinancing, additional debt or equity financing, asset financing and operating cash. The filing identifies significant current maturities and newbuilding funding needs. Excluding Teekay Offshore, scheduled long-term debt principal repayments were approximately $0.8 billion in 2018 and $1.1 billion in 2020. Teekay LNG had $1.891 billion of newbuilding and supervision commitments in the contractual-obligations table, with substantial additional commitments through joint ventures.
- Market outlook: Teekay Tankers described 2017 tanker rates as cyclical lows, citing fleet growth and OPEC supply cuts. It expected conditions to remain challenging in early 2018, with possible market recovery in late 2018 and into 2019 as fleet growth moderates, U.S. exports rise and OPEC supply potentially increases. This is management’s expectation, not guaranteed guidance.
- Operating and customer risks: Spot tanker rates are volatile; offshore and FPSO assets may be difficult and costly to redeploy; oil-price, production and field-life changes may reduce revenue. Two international oil-company customers together accounted for 24% of 2017 consolidated revenue ($442.4 million).
- Collection and contract issues: Teekay LNG reported about $25 million of unpaid hire from Skaugen, which it had not recognized as revenue because collection was uncertain; litigation and a counterclaim with unspecified amounts were disclosed. Hire payments on two LNG carriers chartered to Yemen LNG were deferred; repayment depends on the plant resuming operations and the customer’s ability to pay. Teekay LNG estimated a 2018 equity-income reduction of $4–5 million per quarter from the deferral, subject to subcharter employment.
- Tax and legal exposure: Teekay Nakilat’s estimated tax-indemnity liability rose to $62.7 million after a $50.0 million charge in 2017, as the UK tax authority challenged similar lease tax structures. Teekay disclosed allegations of improper payments involving Brazilian agents; its internal investigation found no conclusive proof, but the matter could still be challenged. The filing reported no pending or, to the company’s knowledge, contemplated proceeding concerning those allegations as of the report date.
- Other risks: Debt covenants and vessel-value tests, refinancing access, currency and interest-rate exposure, environmental requirements and ballast-water treatment costs, project execution, sanctions affecting the Yamal LNG project, and counterparty performance could materially affect results. Teekay estimated ballast-water system installation could cost $2–3 million per vessel.
- Subsequent financing: In January 2018, Teekay Parent raised approximately $120.9 million net from 5% convertible notes due 2023 and approximately $93.0 million net from a common-share offering. Teekay LNG also refinanced a 2018-maturing loan with a $197 million facility due 2022. These post-year-end actions are relevant to liquidity but do not change the December 31, 2017 balances.
KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2017.
Important facts for investors to verify
- How much of the 2017 loss reflects impairments, deconsolidation and other unusual items, and what operating earnings remain after those effects?
- Whether Teekay and Teekay LNG completed required debt refinancing and newbuilding financing, and how the working-capital deficits and 2018–2020 maturities evolved.
- Actual cash distributions received from Teekay LNG, Teekay Tankers and Teekay Offshore, and the extent to which parent liquidity depends on those distributions.
- Recoverability of Skaugen arrears and Yemen LNG deferred hire; outcome of related claims, counterclaims and charter developments.
- Final exposure under the Teekay Nakilat UK tax-indemnity arrangements and any developments in the Brazilian improper-payment allegations.
- Whether the expected tanker-market recovery and offshore project assumptions support vessel values, utilization and future impairment assessments.