Teekay - Fourth Quarter and Annual Results

Friday, 05 June 2009

Teekay Corporation yesterday reported adjusted net income of $53.2 million, or $0.73 per share, for the quarter ended December 31, 2008 , compared to adjusted net income of $23.0 million, or $0.31 per share, for the same period of the prior year. This excludes a number of specific items which had the net effect of decreasing net income by $714.1 million (or $9.85 per share) and $137.8 million (or $1.86 per share), respectively, as detailed in Appendix A to this release. Including these items, the Company reported a net loss, on a GAAP basis, of $660.8 million, or $9.12 per share, for the quarter ended December 31, 2008, compared to a net loss, on a GAAP basis, of $114.8 million, or $1.55 per share, for the same period of the prior year.

Net revenues(2) for the fourth quarter of 2008 increased to $615.9 million from $501.5 million for the same period of the prior year.For the year ended December 31, 2008, the Company reported adjusted net income of $285.3 million, or $3.94 per share, compared to $197.5 million, or $2.64 per share, for the prior year, excluding a number of specific items which had the net effect of decreasing net income by $764.7 million (or $10.55 per share) and $134.0 million (or $1.79 per share), respectively, as detailed in Appendix A to this release. Including these items, the Company reported a 2008 net loss, on a GAAP basis, of $479.4 million, or $6.61 per share, compared to net income, on a GAAP basis, of $63.5 million, or $0.85 per share, for the same period of the prior year.

Net revenues for the year ended December 31, 2008 increased to $2.4 billion from $1.9 billion in the prior year."Teekay achieved good operating results in the fourth quarter. Despite the rapid slowdown in the global economy during the quarter, our adjusted net income more than doubled to $0.73 per share compared to $0.31 per share in the same quarter last year," commented Bjorn Moller, Teekay Corporation's President and Chief Executive Officer.

"Although we are experiencing a weaker spot tanker market in 2009, Teekay is well-positioned given its substantial long-term fixed-rate businesses, $1.9 billion of liquidity, and fully-funded capital expenditure program. In addition, during the fourth quarter and continuing into 2009, we have taken steps to further strengthen the company. We have reduced our spot market exposure through a number of additional fixed-rate out-charters at attractive rates while allowing existing in-charters to roll-off at the end of their contracts. We also sold a number of ships in our spot tanker fleet, generating a gain of $107 million and proceeds of over $380 million during the fourth quarter of 2008 and 2009 to date, which have been used to reduce our debt.

Further, we have made significant progress on company-wide cost reduction initiatives, which so far has resulted in overhead expense reductions of approximately 20 percent commencing in the fourth quarter of 2008."Mr. Moller continued, "As with many other companies that made acquisitions during the last few years, due to the significant decline in the stock market and the increase in market discount rates, Teekay recorded a non-cash goodwill impairment charge for accounting purposes in the fourth quarter of 2008.

The goodwill impairment is related to our ownership of Teekay Petrojarl, which owns and operates five floating production, storage and offloading (FPSO) units. It is important to note that this non-cash charge does not affect our operations, cash flows, liquidity, or any of our loan covenants and we continue to have a positive outlook on the long-term fundamentals of our FPSO business."Mr. Moller added, "Teekay currently uses interest rate swaps to economically hedge its fixed-rate cash flows. However, since we are not currently applying hedge accounting to our interest rate swaps, the mark-to-market changes in their fair value are shown as gains or losses on our income statement each quarter.

The significant decline in swap rates during the fourth quarter led to an unusually large unrealized loss which lowered our reported GAAP-based net earnings for the quarter. Since the unrealized losses are non-cash, they have no impact on our actual interest costs, liquidity, or any of our loan covenants. With swap rates generally increasing so far in 2009, we expect this will result in unrealized gains on our interest rate swaps during the first half of 2009.

"Operating ResultsDuring the fourth quarter of 2008, approximately 71 percent of the Company's cash flow from vessel operations was generated from its fixed-rate segments, compared to 82 percent in the fourth quarter of the prior year. This change is primarily due to increases in spot tanker rates in the fourth quarter of 2008, compared to the same period of the prior year, partially offset by the continued growth of the Company's fixed-rate segments.Offshore SegmentThe Company's offshore segment is comprised of shuttle tankers, floating storage and off-take (FSO) units, and floating production storage and offloading (FPSO) units.

Cash flow from vessel operations from the Company's offshore segment increased to $63.2 million in the fourth quarter of 2008 from $56.8 million in the same period of the prior year, primarily due to the increase in net revenues from the delivery of the FPSO Siri in February 2008, partially offset by increases in crewing costs, repair and maintenance expenditures, and business development costs.Vessel operating expenses for the Company's offshore segment increased to $99.0 million in the fourth quarter of 2008 from $89.3 million in the fourth quarter of prior year.

The fourth quarter of 2008 figure includes an unrealized loss of $3.9 million due to the change in the fair value of foreign exchange forward contracts not designated as cash flow hedges pursuant to US GAAP. Also contributing to the increase were additional operating expenses relating to the Siri FPSO, as well as increases in crewing costs and repair and maintenance expenditures.In December 2008, the Company entered into a contract extension with Talisman Energy for the FPSO Petrojarl Varg. The new terms under the contract extension commence on July 1, 2009, and provide that the Petrojarl Varg will continue to be chartered to Talisman for an additional four years, with its option to extend the contract for up to an additional nine years thereafter.

The contract extension provides an increased base daily time-charter rate plus an incentive component based on the operational performance of the unit and a tariff component based on the volume of oil produced. The new contract terms are expected to increase the annual cash flow from vessel operations from the Petrojarl Varg with opportunities for additional upside from the tariff component if nearby oil fields that would be covered by the contract become operational, as is expected. In accordance with an existing agreement, Teekay's publicly-traded subsidiary Teekay Offshore Partners, L.P. (Teekay Offshore) has the right to purchase the Petrojarl Varg at any time prior to December 4, 2009 at its fair market value when such right is exercised.

Fixed-Rate Tanker SegmentThe Company's fixed-rate tanker segment includes its conventional tankers that operate under fixed-rate charter contracts with an initial term of three or more years.Cash flow from vessel operations from the Company's fixed-rate tanker segment increased to $41.8 million in the fourth quarter of 2008 compared to $24.0 million in the same period of the prior year.

This increase was primarily due to an increase in the size of the Company's fixed-rate tanker fleet, partially offset by an increase in vessel operating expenses.The increase in the fixed-rate tanker fleet included the addition of two in-chartered Aframax tankers that delivered in January 2008 as part of the previously-announced multi-vessel transaction with ConocoPhillips and the delivery of two newbuilding Aframax tankers, which commenced long-term out-charters.During 2008, the fixed-rate tanker fleet also increased by the net transfer of three vessels from the spot tanker segment upon commencing time-charters with durations of three or more years.Liquefied Gas SegmentThe liquefied gas segment includes liquefied natural gas (LNG) and liquefied petroleum gas (LPG) carriers.

The Company's cash flow from vessel operations from its LNG and LPG carriers during the fourth quarter of 2008 increased to $36.6 million from $35.1 million in the same period of the prior year. This increase was primarily due to the contribution from the two Kenai LNG carriers acquired in December 2007, partially offset by an increase in vessel operating expenses and foreign currency exchange differences.During the fourth quarter of 2008 and first quarter of 2009, the Company took delivery of two newbuilding LNG carriers, which have subsequently commenced service under 20-year fixed-rate time-charter contracts for the Tangguh project.

Spot Tanker Segment

The Company's spot tanker segment includes its conventional tankers that operate on voyage and time-charters with an initial term of less than three years.Cash flow from vessel operations from the Company's spot tanker segment increased to $57.6 million for the fourth quarter of 2008 from $25.8 million for the same period of the prior year, primarily due to increases in spot tanker rates in the fourth quarter of 2008 compared to the same period of the prior year and an increase in the size of the Company's spot tanker fleet. This was partially offset by an increased time-charter hire expense and higher vessel crewing and service costs.

On a net basis, fleet changes increased the total number of revenue days in the Company's spot tanker segment to 7,635 for the fourth quarter of 2008, compared to 7,446 for the same period of the prior year. Revenue days increased in 2008 as a result of two vessel purchases, three newbuilding deliveries and additional in-charters, partially offset by the reduction of revenue days related to the net transfer of three vessels to the fixed-rate tanker segment. Revenue days represent the total number of vessel calendar days less off-hire associated with major repairs, drydockings, or mandated surveys.

Average spot rates for very large crude carriers (VLCCs) declined in the fourth quarter of 2008 as OPEC producers implemented production cutbacks in response to declining oil prices. In comparison, rates for medium-sized crude oil tankers remained relatively firm due to seasonal factors, rising volumes of non-OPEC production corresponding with the completion of summer maintenance in the North Sea, and weather-related delays, particularly in the Bosphorus Straits and United States Gulf ports.In 2009 to date, spot tanker rates have experienced significant declines compared to 2008 as a result of the contraction in the global economy.

The economic downturn has led to shrinking global oil demand and OPEC production cutbacks of approximately 3.0 million barrels per day (mb/d) since September 2008. The impact of the OPEC supply reduction has been amplified by the above average growth of the world tanker fleet.In the first four months of 2009, the pace of tanker newbuilding deliveries increased, resulting in world tanker fleet growth of 13.4 million deadweight tonnes (mdwt), or 3.3 percent. The 2009 and 2010 newbuilding delivery schedule is higher than previous years, although factors such as newbuilding order cancellations and the IMO mandated phase-out target in 2010 for single-hull tankers are expected to moderate tanker fleet growth.As of May 14, 2009, the International Energy Agency forecasted global oil demand to average 83.2 mb/d for 2009 which represents a 2.6 mb/d, or a 3.0 percent decline from the prior year.

Source: Teekay Corp.