TEEKAY CORPORATION — FY2018 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter filing; the figures below are full-year results. Financial statements are prepared under U.S. GAAP and audited by KPMG, which issued unqualified opinions on the financial statements and internal controls.
Business context
Teekay is a marine transportation and services group. It consolidates Teekay LNG and Teekay Tankers, accounts for Teekay Offshore as an equity-method investment following its 2017 deconsolidation, and directly owns three FPSO units. The combined group operates LNG/LPG carriers, conventional tankers and offshore assets; Teekay Parent said it did not intend to reinvest in offshore assets and planned to sell its FPSOs over time.
Key financial metrics
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $1.708 billion | $1.880 billion |
| Income from vessel operations | $164.3 million | $6.7 million |
| Consolidated net loss | $57.7 million | $529.1 million |
| Net loss attributable to Teekay shareholders | $79.2 million; $0.79 per share | $163.3 million; $1.89 per share |
| EBITDA (non-GAAP) | $483.9 million | $231.1 million |
| Adjusted EBITDA (non-GAAP) | $745.1 million | $893.1 million |
| Net cash from operating activities | $182.1 million | $544.3 million |
| Capital expenditures for vessels and equipment | $693.8 million | $1.054 billion |
At year-end, consolidated cash and cash equivalents were $424.2 million, restricted cash was $81.5 million, and total liquidity including undrawn facilities was $724.7 million. Total debt including capital-lease obligations was approximately $4.993 billion; total equity was $2.867 billion. The company reported compliance with debt covenants at December 31, 2018. No consolidated profit margin is stated in the filing; revenue comparisons are affected by accounting changes noted below.
Material changes versus the prior period
- Revenue declined 9% year over year, while income from vessel operations improved substantially and shareholder-attributable loss narrowed. The 2017 comparison includes Teekay Offshore only through its September 2017 deconsolidation, so consolidated year-over-year comparisons are not like-for-like.
- Operating cash flow fell by $362.1 million to $182.1 million. Management cited lower operating cash generation, deconsolidation effects, working-capital changes and lower joint-venture dividends.
- FY2018 revenue and expenses each include a $292.6 million gross-up from revenue-sharing voyages and an $82.9 million gross-up for reimbursed seafarer costs under the new revenue standard. Prior periods were not restated, and these presentation changes did not increase net income.
- Vessel write-downs and sale losses were $53.7 million, versus $270.7 million in 2017. The 2018 charges included write-downs of four multi-gas carriers, a Handymax tanker and other vessels.
- Consolidated debt and capital-lease obligations rose to about $4.993 billion from $4.578 billion. The balance included $3.320 billion of long-term debt and $1.674 billion of capital-lease obligations.
Liquidity, debt and capital allocation
- Teekay Parent: Cash was $220.2 million and total liquidity was $333.4 million. Its 8.5% senior notes had $508.6 million outstanding at year-end and mature in January 2020. The company said refinancing or repayment would require one or more financing initiatives, potentially including debt or equity issuance and asset sales. It repurchased $84.1 million principal of these notes in 2018 and another $10.9 million in early 2019.
- Debt schedule: Consolidated long-term debt principal repayments, excluding capital leases, were projected at $0.2 billion in 2019, $1.2 billion in 2020 and $0.9 billion in 2021. The filing also identifies approximately $0.3 billion of undrawn revolving credit capacity.
- Cash distributions: Teekay Corporation declared $0.22 per common share for 2018, equivalent to its $0.055 quarterly rate. Teekay LNG planned a 36% distribution increase beginning in Q1 2019, to $0.19 per common unit. Teekay Tankers eliminated its minimum dividend in May 2018; Teekay Offshore reduced its common-unit distribution to zero in January 2019.
- Capital raising and dilution: Teekay issued $125 million of 5% convertible notes and 10 million common shares in January 2018, and issued shares under its continuous offering program. These transactions increased financing capacity but diluted shareholders.
Outlook, management commentary and risks
- Management stated it expected sufficient liquidity for at least 12 months, conditional on operating cash flow and financing initiatives it considered probable. It specifically cited refinancing the parent notes, possible capital markets transactions, revolver borrowings and asset sales.
- Management described tanker spot rates as recovering in Q4 2018 from multi-year lows, but weakening in early 2019. It expected OPEC production cuts, seasonal refinery maintenance and higher fleet growth to weigh on the first half of 2019, with demand potentially strengthening later from oil demand, U.S. exports, refinery additions and IMO 2020 trade effects. These are expectations, not assured outcomes.
- Teekay LNG expected its existing liquidity and project financing to cover most near-term needs, but identified 2020 loan maturities and continuing capital commitments. Six LNG carrier newbuildings and a Bahrain receiving terminal were in the delivery or completion pipeline; several deliveries occurred in early 2019.
- Two LNG carriers serving Yemen LNG remained affected by the plant’s shutdown and deferred charter payments. A further suspension arrangement was contemplated; repayment depends on the plant resuming operations and YLNG’s ability to pay. Teekay LNG estimated a 2019 equity-income reduction of $7–8 million per quarter versus the original charter rates, partly offset by potential subcharters.
- Three parent-owned FPSOs had an aggregate carrying value of $279.4 million and estimated market values below carrying value. A sale based on existing contracts could result in a material accounting loss. The investment in Teekay Offshore had a $134.4 million carrying value versus estimated fair value of $68.5 million at year-end; no impairment was recorded, but a $67.7 million loss would have resulted if management had concluded the decline was other-than-temporary.
- Other key exposures include cyclical tanker rates and vessel values, customer and counterparty credit risk, refinancing and covenant risk, variable interest rates and foreign exchange, specialized FPSO redeployment risk, geopolitical disruption, and environmental regulation. IMO’s 0.50% global sulphur cap was scheduled for January 1, 2020; Teekay said it planned to use low-sulphur fuel and had not installed scrubbers. Ballast-water systems were estimated to cost $2–3 million per vessel.
- Management reported no off-balance-sheet arrangements expected to have a material effect and said existing legal claims were not expected to materially affect the company, taking insurance and indemnifications into account.
Most important facts for investors to verify
- Whether Teekay Parent refinanced or repaid the $508.6 million of 8.5% notes due January 2020, and the cost and dilution associated with its financing plan.
- Whether stated liquidity projections and covenant headroom remain adequate, particularly given the 2020–2021 debt maturities and capital-lease commitments.
- How much of the reported revenue decline and operating-cash-flow decline reflects underlying operations versus Teekay Offshore deconsolidation, working capital and accounting presentation changes.
- Whether the FPSOs or Teekay Offshore investment require further impairment, and whether contemplated FPSO sales realize proceeds near carrying value.
- Actual recovery in tanker rates, execution of LNG project deliveries and charters, and collection or replacement of the deferred Yemen LNG hire.
- Costs and operational impacts of IMO 2020, ballast-water compliance, and the planned Teekay LNG distribution increase.