Teekay Corporation (NYSE: TK) — FY2014 Form 20-F
Reporting period: Fiscal year ended December 31, 2014; filed April 29, 2015. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP and consolidate Teekay LNG, Teekay Offshore and Teekay Tankers, despite Teekay’s minority economic ownership stakes in them.
Business context and financial results
Teekay provides crude oil and gas marine transportation and offshore production, storage and logistics services. Its four main segments are shuttle tankers/FSO/offshore support, FPSOs, liquefied gas carriers and conventional tankers. Much of the offshore and gas business operates under long-term contracts; conventional tankers have greater exposure to spot rates.
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | $1,993.9 million | $1,830.1 million |
| Income from vessel operations | $427.2 million | $62.7 million |
| Net income, consolidated | $124.0 million | $35.5 million |
| Net loss attributable to Teekay shareholders | $54.8 million; $0.76 loss per share | $114.7 million; $1.63 loss per share |
| Adjusted EBITDA | $1,037.3 million | $817.4 million |
| Net operating cash flow | $446.3 million | $292.6 million |
| Cash dividends declared per share | $1.265 | $1.265 |
Revenue rose about 9% year over year. The improvement in vessel operations reflected, among other items, stronger results at Teekay Offshore and Teekay Tankers and materially lower impairment charges. Consolidated net income exceeded earnings attributable to Teekay shareholders because $178.8 million of net income was attributable to non-controlling interests.
Net income included a $231.7 million realized and unrealized loss on non-designated derivatives, versus an $18.4 million gain in 2013. The company said the unrealized component did not affect cash flow; realized interest-rate-swap losses were $125.4 million. Interest expense increased to $208.5 million from $181.4 million.
Cash, debt and investment
- Year-end cash and cash equivalents were $806.9 million; restricted cash was $119.4 million. Total debt, including capital lease obligations, was approximately $6.8 billion. Total debt to capitalization was 66.7%.
- Teekay reported $0.6 billion of undrawn capacity under consolidated credit facilities. Management stated that the principal operating subsidiaries and Teekay Parent expected available liquidity and other cash sources to meet existing needs for at least 12 months.
- Capital expenditures for vessels and equipment were $994.9 million, up from $753.8 million. Total contractual obligations were reported at $11.6 billion, including debt, leases and construction commitments; this is not solely incremental debt.
- Operating cash flow increased by about $153.7 million. Investing cash outflow was $980.8 million, while financing cash inflow was $726.8 million. Financing included $452.1 million of subsidiary equity proceeds and substantial debt issuance and repayment activity.
- Six debt agreements had vessel-value-to-loan covenants; Teekay reported compliance at year-end. It also reported compliance with all loan covenants. Debt principal repayments due in 2015 were $654.1 million.
Material changes and developments
- Teekay Offshore income from vessel operations rose to $256.2 million from $98.9 million, helped by lower 2013 impairments and added FPSO/shuttle capacity. Teekay Tankers improved to $58.3 million from $3.4 million, with higher tanker rates and a $10.0 million vessel-sale gain contributing.
- Teekay Parent’s vessel-operations loss narrowed to $73.7 million from $213.2 million, largely because 2013 included a $92.7 million tanker impairment. The FPSO business continued to face operating issues and contract-related costs.
- 2014 acquisitions and expansion included ALP Maritime, entering long-distance towage and offshore installation, and Logitel, adding floating accommodation units. Teekay LNG advanced LNG projects, including the six-vessel Yamal LNG joint venture and four BG-related newbuildings.
- Teekay LNG terminated leases on three RasGas II LNG carriers and refinanced associated debt. Restricted cash fell substantially as lease-related deposits were released.
- Teekay’s year-end fleet comprised 196 vessels, including chartered-in vessels and vessels/newbuildings under construction. Significant projects carried large future capital and financing requirements.
Outlook, risks and unusual items
- Outlook: Management cited a positive tanker-market outlook for 2015, with low oil prices, stockpiling and fleet fundamentals expected to support tanker demand, particularly in the first half. This is commentary, not quantified company-wide earnings guidance.
- Dividend policy: Teekay said its 2015 quarterly dividend would primarily reflect distributions from its Teekay LNG and Teekay Offshore interests, other dividends, parent-level costs and board-determined reserves. Payment remains subject to results, financing restrictions and board approval.
- Oil-price exposure: Lower prices could delay offshore projects, reduce production or volume-linked revenues, weaken new charter opportunities and pressure asset values. Three customers accounted for 33% of 2014 consolidated revenue; Petrobras and Statoil each represented 12%, and BP 10%.
- Yamal project: Six specialized Arctic LNG carriers had estimated total cost of $2.1 billion, with no financing in place for those vessels as of the report. Teekay disclosed project-completion, charter-party, Russia-sanctions and limited-redeployment risks.
- Other significant exposures: A UK tax challenge involving RasGas II lease structures could expose Teekay LNG to an estimated $60 million at its 70% share, though management did not consider the outcome probable. A separate Banff FPSO recovery of approximately $181 million in capital upgrade costs remained subject to negotiation or arbitration.
- Operational and asset risks: Petrobras said Teekay Offshore’s HiLoad DP unit did not meet certain test criteria; alternatives were being assessed. Teekay identified vessels with market values below carrying amounts, but reported no impairment for them because estimated undiscounted cash flows exceeded carrying values.
- Audit and controls: KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective at year-end.
Important facts for investors to verify
- Reconcile consolidated net income with the continuing net loss attributable to Teekay shareholders and assess the effect of non-controlling interests.
- Review cash availability by legal entity, restrictions on subsidiary distributions, debt maturities and the financing plan for the construction pipeline.
- Test the sensitivity of earnings, asset values and covenants to oil prices, tanker rates, charter renewals and vessel utilization.
- Track Yamal LNG financing, sanctions exposure, project timing and long-term charter performance.
- Monitor resolution and recoveries related to the Banff upgrades, the HiLoad unit, and the RasGas II tax-indemnity exposure.
- Confirm the implementation and sustainability of the revised dividend policy against parent-level cash flow, subsidiary distributions and debt covenants.