June 4, 2009
Teekay reports improved net income
Teekay Corporation (NYSE:TK) ) today 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.
The company's share, which opened at $15.50 were trading at $16.85 (up more than 8 percent) shortly before noon today, despite its reporting 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 for the quarter increased to $615.9 million from $501.5 million for the same period of the prior year.
The company reported a net loss for the year ended December 31, 2008 , 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 prior year.
Contributing to the fourth quarter GAAP red ink were a non-cash goodwill impairment charge related to the Teekay Petrojarl FPSO operation and "an unusually large unrealized loss" on mark-to-market changes in the fair value of interest rate swaps.
"Since the unrealized losses are non-cash, they have no impact on our actual interest costs, liquidity, or any of our loan covenants," noted President and CEO Bjorn Moller. "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."
"Teekay achieved good operating results in the fourth quarter," said Mr. Moller. "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."
"Although we are experiencing a weaker spot tanker market in 2009," he continued, "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."
During 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.
Teekay'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 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 thesegment 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 Segment
Teekay'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 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 fleet included the addition of two in-chartered Aframax tankers that delivered in January 2008 as part of a 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 Segment
The liquefied gas segment includes liquefied natural gas (LNG) and liquefied petroleum gas (LPG) carriers.
Cash flow from vessel operations from Teekay's 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 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
Teekay'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 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 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.
During the fourth quarter of 2008, the Company sold and delivered two vessels for proceeds of $145.5 million, resulting in a total gain of approximately $16.7 million. The Company also completed the previously-announced sale of its 50 percent interest in the Swift Product Tanker Pool in November 2008, which included the Company's ten in-chartered intermediate product tankers, for a total gain of approximately $44.4 million.
During 2009 to date, the Company sold and delivered one newbuilding Handymax product tanker for proceeds of $50.5 million, sold and delivered two LR product tankers for proceeds of $113.7 million and completed the sale and four-year lease-back of one Aframax tanker for proceeds for $32.7 million. The total gain recorded on the sale of these vessels was approximately $46.2 million.
Liquidity and Capital Expenditures
As of December 31, 2008, the company had current liquidity of approximately $1.9 billion, consisting of $804.8 million cash and $1,066.0 million of undrawn revolving credit facilities. In addition, the company has pre-arranged newbuilding financing commitments of $1.07 billion, bringing total liquidity to approximately $3.0 billion.
Teekay had capital expenditure commitments of approximately $1.1 billion remaining as at December 31, 2008, of which $1.07 billion has pre-arranged financing leaving only $36 million to be funded from operating cash flow or other sources.
Goodwill and Vessel Impairments
The company's fourth quarter 2008 results include a non-cash goodwill impairment charge of $330.5 million, which relates to the Company's investment in Teekay Petrojarl. This impairment mainly reflects the decline in the Company's share price and an increase in discount rates used to assess fair value, due to the economic and financial market downturn.
In the fourth quarter of 2008, the Company also recorded non-cash vessel impairment charges of $40.4 million related to the carrying value of four older vessels and $9.7 million of impairments to intangible assets related to certain bareboat charter-in contracts.
While these impairment charges will reduce reported earnings results under GAAP, such charges are non-cash in nature and do not affect Teekay's cash flows, liquidity, or loan covenants.
On June 4, 2009, the Company declared a cash dividend of $0.31625 per share for the quarter ended June 30, 2009. The cash dividend is payable on July 24, 2009 to all shareholders of record as of July 10, 2009.
On April 2, 2009, the Company declared a cash dividend of $0.31625 per share for the quarter ended March 31, 2009. The cash dividend was paid on April 24, 2009 to all shareholders of record as of April 10, 2009.