TEEKAY CORP LTD annual report, Q4 FY2019

Business context and reporting period

Teekay Corporation (NYSE: TK) filed this Form 20-F for the fiscal year ended December 31, 2019; it is an annual filing, not a standalone fourth-quarter report. Figures below are full-year unless stated otherwise, in U.S. dollars. The company reports under U.S. GAAP and consolidates Teekay LNG and Teekay Tankers, alongside Teekay Parent, which directly owned three FPSO units at year-end. Teekay sold its remaining interest in Altera in May 2019.

Financial and operating performance

Adjusted EBITDA is a non-GAAP measure and includes substantial adjustments; it should not be read as GAAP profit or cash flow. The difference between consolidated net loss and the larger loss attributable to Teekay shareholders reflects the allocation of results to non-controlling interests.

At December 31, 2019, cash and cash equivalents were $353.2 million and restricted cash was $101.6 million. Total consolidated liquidity, including undrawn facilities, was reported as $672.0 million. Total debt, including finance lease obligations, was approximately $4.7 billion, down from $5.0 billion; debt to total capitalization rose to 64.6% from 63.5%, and net debt to total net capitalization rose to 62.3% from 61.0%. Working capital was in deficit by $20.7 million. Total assets were $8.07 billion and total equity was $2.57 billion.

Material changes versus 2018

• Revenue increased about 13%, while income from vessel operations increased about 24%. Teekay Tankers’ vessel-operating income rose to $123.9 million from $7.2 million, primarily reflecting higher spot tanker rates. Teekay LNG’s rose to $299.3 million from $148.6 million, reflecting new vessel deliveries, stronger charter contributions and lower impairments than in 2018.
• Teekay Parent’s vessel operations swung to a $219.1 million loss from $8.5 million of income, mainly because of $178.3 million in FPSO impairments, lower production and oil-price-related revenue, and maintenance shutdowns.
• Consolidated net loss widened, with $170.3 million of vessel write-downs and sale losses versus $53.7 million in 2018. Interest expense increased to $279.1 million from $254.1 million.
• Operating cash flow more than doubled. Investing cash outflow narrowed substantially as vessel and equipment expenditures fell from $693.8 million to $109.5 million; financing cash flow shifted from a $434.8 million inflow to a $382.2 million outflow.
• Teekay sold its remaining Altera interests for $100 million, recording a $64.9 million investment write-down and an $8.9 million loss on sale. Teekay Parent eliminated its common dividend beginning with the first quarter of 2019; $0.055 per share was declared for 2019.

Outlook, risks and unusual items

Management expected liquidity to meet needs for at least 12 months from the filing date, assuming no significant decline in spot tanker rates. That assessment is subject to market conditions and refinancing needs. At year-end, Teekay LNG had a $118.6 million working-capital deficit, including near-term debt maturities; it subsequently repaid $157.3 million of vessel-secured loans after two LNG carrier sales and refinanced a $225 million revolver. Teekay Tankers also arranged a $532.8 million facility in January 2020, using about $455 million to refinance facilities and a term loan. Teekay repaid the remaining $36.7 million of its 2020 Notes in January 2020.

The filing, issued April 8, 2020, highlights COVID-19 as a significant, unquantifiable risk to cargo demand, charter and spot rates, operations, customer credit, vessel values, liquidity and financing access. Management noted tanker rates had been volatile; near-term conditions were uncertain, and the longer-term impact depended on the pandemic and oil-market developments. The Hummingbird Spirit FPSO temporarily suspended production on April 4, 2020 following a COVID-19 case on board; the financial effect was unknown. Teekay Parent also entered a new contract for the Petrojarl Foinaven FPSO, receiving about $67 million upfront, with nominal daily hire and an end-of-contract lump sum intended to cover recycling costs.

Other significant exposures include the planned 2020 decommissioning of the Banff field and removal of the Petrojarl Banff FPSO and Apollo Spirit FSO, with a $30.9 million asset-retirement obligation at year-end whose final cost could exceed estimates; deferred hire owed under suspended Yemen LNG charters, with repayment dependent on a plant restart; substantial debt and financing covenants tied to vessel values; and fuel, environmental and regulatory compliance costs. The company reported compliance with debt covenants at filing. KPMG gave unqualified opinions on the financial statements and internal control over financial reporting.

Important facts for investors to verify

• Review the audited notes for debt maturities, refinancing terms, finance-lease commitments, covenant headroom and the distinction between consolidated debt and joint-venture debt or guarantees.
• Assess whether cash generation and liquidity remain adequate under materially weaker spot tanker rates or reduced distributions from Teekay LNG and Teekay Tankers.
• Check the assumptions supporting the $178.3 million FPSO impairment, future FPSO sale or redeployment prospects, Banff decommissioning costs and the Foinaven contract economics.
• Track COVID-19-related vessel disruptions, charterer credit, cargo demand, tanker rates and any resulting impairment or liquidity effects.
• Confirm collection prospects for deferred Yemen charter payments and the sustainability of Teekay LNG’s planned distribution increase; Teekay Corporation itself had suspended its common dividend.
• Use the audited annual statements for comparisons: the filing does not provide standalone Q4 financial results in the supplied text.