TEEKAY CORPORATION — FY2011 Form 20-F Summary
Business context and reporting period. This is Teekay Corporation’s annual report for the fiscal year ended December 31, 2011, prepared under U.S. GAAP and audited by KPMG. It is not a standalone fourth-quarter filing; the supplied filing provides annual results and some fourth-quarter market commentary. Teekay operates crude-oil and gas shipping and offshore production, storage and transportation businesses, with significant activity conducted through consolidated publicly listed subsidiaries.
Key financial metrics
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $1.954 billion | $2.096 billion |
| Net revenue (revenue less voyage expenses; non-GAAP) | $1.777 billion | $1.851 billion |
| Income from vessel operations | $98.1 million | $234.1 million |
| Net loss | $386.7 million | $166.6 million |
| Net loss attributable to Teekay Corporation stockholders | $368.9 million; $5.25 per share | $267.3 million; $3.67 per share |
| Adjusted EBITDA (non-GAAP) | $638.2 million | $696.9 million |
| Net cash from operating activities | $107.2 million | $411.8 million |
| Cash and cash equivalents | $692.1 million | $779.7 million |
| Total debt, including capital leases | $6.091 billion | $5.170 billion |
| Total equity | $3.293 billion | $3.332 billion |
| Cash dividends declared per common share | $1.265 | $1.265 |
Income from vessel operations was about 5.0% of revenue, versus 11.2% in 2010. The company reported total liquidity of approximately $1.5 billion, including cash and $0.8 billion of undrawn credit facilities; restricted cash was a further $500.2 million and is not generally available for corporate purposes. Total debt to total capitalization was 64.9% (60.8% in 2010), and net debt to total net capitalization was 59.8% (53.4% in 2010). Management said it was in compliance with all loan covenants at year-end.
Material changes versus FY2010
- Revenue declined 6.8%, while vessel operating income fell 58.1%; the company’s net loss widened to $386.7 million.
- Operating cash flow fell to $107.2 million from $411.8 million. Management cited weaker segment operating earnings, less favorable working-capital movements and higher cash interest and swap-related payments.
- Adjusted EBITDA decreased 8.4% to $638.2 million. This non-GAAP measure excludes significant items and should not be treated as operating cash flow.
- Net derivative losses increased to $342.7 million from $299.6 million, including $149.7 million of realized losses on interest-rate-swap amendments and terminations. The filing also reports a $70.1 million unrealized derivative loss.
- Asset impairments and net losses on vessel and equipment sales totaled $151.1 million; a further $36.7 million goodwill impairment was recorded. The conventional tanker business was particularly affected by weak markets and vessel oversupply.
- Spot tanker net revenue declined 34.3% to $163.7 million and the sub-segment’s vessel-operation loss widened to $190.0 million. Fixed-rate tanker vessel-operation income dropped to $10.8 million from $81.8 million, including impairment charges.
- FPSO vessel-operation income rose to $135.8 million from $116.2 million, including a $58.2 million bargain-purchase gain from the Sevan transactions. Liquefied-gas vessel-operation income rose 9.8% to $134.8 million.
Outlook, risks and unusual items
- Tanker outlook: Management expected global oil demand to grow about 1.0 million barrels per day in 2012, but forecast tanker supply growth to outpace demand at least in the first half. It anticipated weak and volatile spot rates for much of 2012, with potential support later in the year as supply growth eased. These are management expectations, not guidance on Teekay earnings.
- Banff FPSO incident: Storm damage in December 2011 shut down the Petrojarl Banff FPSO. The unit was expected to remain off hire until the second quarter of 2013. Teekay estimated lost operating cash flow of about $35 million in 2012 and $15 million in 2013; repair and emergency-response costs were expected to be insured, subject to policy terms and a $0.8 million deductible.
- Capital commitments: The filing lists approximately $1.7 billion of construction commitments for shuttle tankers and FPSO projects. It also estimates $110–$130 million of remaining Voyageur upgrade costs, with acquisition expected after completion and commencement of its contract, then targeted for Q4 2012.
- Debt and financing exposure: Scheduled debt repayments and capital lease obligations due within 12 months were $401.4 million and $47.2 million, respectively. Vessel-value declines could constrain refinancing or trigger loan-to-value covenant issues; management reported compliance at year-end. Certain facilities also restrict dividends and other actions.
- Tax-lease contingency: A challenge to tax benefits associated with three LNG-carrier leases could lead to increased lease payments or termination costs. Teekay estimated its 70% share of potential exposure at $54–$77 million; the outcome remained uncertain.
- Other principal risks: Cyclic and seasonal charter markets, offshore field production and redeployment risk, customer concentration, substantial leverage, foreign-exchange and interest-rate exposure, regulation and environmental liability, insurance sufficiency, and access to capital. Three customers accounted for 36% of consolidated revenue in 2011.
- Dividend: The company stated its intention to continue regular quarterly dividends, subject to results, board declaration, cash needs and financing restrictions. The $1.265 annual dividend is not assured.
- Controls and audit: Management and KPMG reported effective internal control over financial reporting. Management excluded acquired Sevan-related businesses from its assessment; the auditor likewise excluded those acquired businesses from its controls audit.
Investor facts to verify
- Review the reconciliation and composition of the $342.7 million derivative loss, including cash payments, swap amendments and termination accounting.
- Assess cash available for general use versus restricted cash, near-term maturities, undrawn facilities and the funding plan for construction and acquisition commitments.
- Track Banff repair progress, insurance recoveries, off-hire duration and actual cash-flow losses against management estimates.
- Test vessel and goodwill impairment assumptions against charter rates, utilization, asset values and the weak tanker-market outlook.
- Confirm the status and potential cost of the LNG tax-lease dispute, and monitor covenant headroom as asset values and financing needs change.
- Evaluate how customer concentration, subsidiary-level distributions, dividend restrictions and the stated dividend intention affect cash available to Teekay Corporation shareholders.