Business context and reporting period
Teekay Corporation’s Form 20-F reports the fiscal year ended December 31, 2010, not a standalone 2010 fourth quarter. The filing presents U.S. GAAP consolidated results and describes a marine transportation and offshore services group spanning shuttle tankers and FSOs, FPSOs, LNG/LPG carriers, and conventional tankers. At year-end, its fleet comprised 151 vessels, including vessels chartered in and newbuildings; Teekay also reported approximately 6,400 seagoing and shore-based employees.
Financial and operating highlights
Amounts below are in U.S. dollars; financial statement amounts are shown in millions unless otherwise stated.
| Metric | 2010 | 2009 |
|---|---|---|
| Revenue | $2,068.9 | $2,172.0 |
| Net revenue (revenue less voyage expenses; non-GAAP) | $1,823.8 | $1,878.0 |
| Income from vessel operations | $234.1 | $169.8 |
| Net income (loss), consolidated | $(166.6) | $209.8 |
| Net income (loss) attributable to Teekay shareholders | $(267.3) | $128.4 |
| Basic earnings (loss) per share | $(3.67) | $1.77 |
| EBITDA / Adjusted EBITDA (non-GAAP) | $390.8 / $696.9 | $791.3 / $563.2 |
| Net cash provided by operating activities | $411.8 | $368.3 |
| Cash and cash equivalents at year-end | $779.7 | $422.5 |
| Total debt, including capital lease obligations | $5,170.2 | $5,203.4 |
| Total assets / total equity | $9,911.1 / $3,332.0 | $9,517.4 / $3,095.7 |
- Net loss in 2010 included $299.6 million of realized and unrealized losses on non-designated derivatives, versus $140.0 million of gains in 2009. The 2010 amount included $164.3 million of realized losses and $135.3 million of unrealized losses.
- Operating cash flow improved by $43.5 million year over year, while investing activities used $413.2 million and financing activities provided $358.7 million.
- Total liquidity, including cash and undrawn credit facilities, was reported at $2.4 billion. Of $3.3 billion in revolving credit capacity, $1.6 billion was undrawn. Restricted cash was $576.3 million at year-end and is not freely available for general liquidity needs.
- Debt and capital lease obligations due within 12 months included $276.5 million of scheduled debt repayments and $267.4 million of capital lease obligations. Teekay reported compliance with all loan covenants at December 31, 2010.
- Dividends declared were $1.265 per share, unchanged from 2009; cash dividends paid were $92.7 million. The company repurchased 1.2 million shares for $40.1 million during 2010.
Material changes versus prior comparable period
- Revenue fell 4.8% and net revenue fell 2.9% from 2009, but income from vessel operations increased to $234.1 million from $169.8 million.
- Teekay swung from consolidated net income of $209.8 million to a net loss of $166.6 million. The parent-attributable result declined from income of $128.4 million to a loss of $267.3 million, reflecting, among other factors, the derivative loss and higher income attributable to non-controlling interests.
- Adjusted EBITDA increased to $696.9 million from $563.2 million, while reported EBITDA decreased to $390.8 million from $791.3 million. These non-GAAP measures exclude different items and should be read with the GAAP results and reconciliations.
- Spot-tanker net revenue fell 39.2% to $222.2 million; average spot-fleet TCE was $17,702 per revenue day versus $19,361. Management said it reduced spot exposure through vessel sales, transfers to fixed-rate employment, and redelivery of chartered-in vessels.
- FPSO revenue rose to $463.9 million from $390.6 million, including $59.2 million of payments related to prior periods under the amended Foinaven contract. FPSO vessel-operation income increased to $116.2 million from $53.1 million.
- Cash and cash equivalents rose by $357.2 million. Debt including capital leases declined modestly, while reported non-controlling interest increased to $1,353.6 million from $855.6 million, partly reflecting subsidiary equity issuances.
Outlook, commentary, risks and unusual items
- Market outlook: Management described tanker rates as weak in late 2010 and early 2011, citing vessel oversupply and higher bunker fuel costs; the expected winter rally did not materialize. The company noted industry forecasts for growth in global oil demand, but those are external market expectations, not company guidance.
- Liquidity and investment: Management said available cash, undrawn borrowings, and expected operating cash flow should meet liquidity needs for at least the next 12 months. The company had 11 newbuildings on order at year-end and substantial remaining construction commitments; financing availability, vessel values, and covenant compliance remain important sensitivities.
- Projects and contracts: The amended Foinaven contract extends operations to at least 2021. Based on oil prices when signed, Teekay expected incremental operating cash flow and net income of approximately $30–$40 million annually over the anticipated contract period; actual amounts vary with oil prices and other adjustments. The Statoil master agreement, effective September 2010, replaced a volume-dependent arrangement with fixed-rate annual renewable charters and was expected to make cash flows more seasonally stable.
- Financing and derivatives: Teekay issued $450 million of 8.5% senior notes due 2020 and repurchased most of its 8.875% notes due 2011, recording a $12.6 million repurchase loss. In January and February 2011, it paid $92.7 million to amend five interest-rate swaps, reducing their weighted-average fixed rate from 5.1% to 2.5%.
- Concentration and operating risks: Three international oil-company customers accounted for 38% of 2010 consolidated revenue. Other disclosed risks include tanker-cycle and vessel-value volatility, offshore field production and redeployment risk, regulation and environmental liabilities, piracy, currency and interest-rate movements, and substantial debt and financing covenants.
- Commitments and contingencies: Certain LNG capital lease arrangements carry tax-indemnification and early-termination exposure; adverse tax changes or a successful challenge to lease tax benefits could increase payments or cause significant termination costs. Teekay disclosed no legal proceedings it believed would materially adversely affect its financial condition or results.
- Subsequent events and governance: In March 2011, Teekay sold its remaining 49% interest in OPCO to Teekay Offshore for cash and units. The filing also reports a CEO transition effective April 1, 2011, and an $11.0 million increase to the retiring CEO’s pension benefits. Independent auditors issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Reconcile the $299.6 million derivative loss—including the $154.1 million realized interest-rate-swap loss—to cash settlements, fair-value movements, and the company’s underlying earnings and liquidity.
- Review debt maturities, capital lease purchase obligations, available and restricted cash, facility draw conditions, collateral requirements, and covenant headroom.
- Assess the sustainability of operating cash flow and dividends against weak spot-tanker rates, vessel operating costs, drydock schedules, and the 2011–2012 newbuilding commitments.
- Evaluate the Foinaven estimate’s sensitivity to oil prices and contract adjustments, and confirm the timing, financing, and transfer terms for major projects and subsidiary vessel transactions.
- Monitor customer concentration, FPSO and shuttle-tanker field production and contract extensions, vessel valuations, and potential regulatory, insurance, tax-lease, or environmental costs.