Teekay(TK) - 2021 Q4 - Annual Report

PART I Item 1. Identity of Directors, Senior Management and Advisors This section is not applicable as per the report - The report states that Item 1, concerning the identity of directors, senior management, and advisors, is not applicable[18] Item 2. Offer Statistics and Expected Timetable This section is not applicable as per the report - The report indicates that Item 2, related to offer statistics and expected timetable, is not applicable[19] Item 3. Key Information This section outlines the company's principal risks, covering industry, operations, legal, technology, and investment factors, with a focus on PFIC tax risk Risk Factors This subsection details the various categories of risks the company faces, including industry, business, legal, and tax-related challenges - The company identifies several categories of risk, including those related to its industry, business operations, legal and regulatory compliance, information technology, and investment in its securities[22][24][26] - Industry risks are primarily driven by the cyclical nature of the tanker industry and changes in oil markets, which can lead to volatile charter rates and vessel utilization[22][29] - Business risks include the inherent dangers of marine transportation, the impact of the COVID-19 pandemic, geopolitical instability such as the conflict in Ukraine, intense market competition, and reliance on key customers[24][41][43] - Legal and regulatory risks stem from extensive environmental regulations, international sanctions, anti-corruption laws, and the potential impact of climate change initiatives and ESG scrutiny[26][114][116] - A significant tax risk is the potential classification as a Passive Foreign Investment Company (PFIC), which could have adverse U.S. federal income tax consequences for U.S. shareholders. The risk increased due to substantial cash from the sale of its interest in Seapeak[28][132][133] Tax Risks This subsection focuses on the company's tax exposures, particularly the risk of being classified as a Passive Foreign Investment Company (PFIC) for U.S. tax purposes - The company faces a risk of being classified as a Passive Foreign Investment Company (PFIC) for U.S. tax purposes, particularly for the 2022 tax year, due to a significant increase in cash assets from the sale of its interests in Seapeak in January 2022[132][133] - PFIC status depends on income and asset tests. While the company does not expect to be a PFIC under the asset test for 2022, this is subject to assumptions about the tanker market and fleet value. The company intends to take the position it has never been a PFIC under the income test[133][134] - The company and its subsidiaries are subject to taxes in various jurisdictions, and changes in tax laws, operations, or ownership could result in additional tax liabilities, reducing cash available for distribution[137] Item 4. Information on the Company Teekay Corporation provides international crude oil and marine transportation services through Teekay Tankers, with Teekay Parent now net debt-free and seeking new investment opportunities A. Overview, History and Development This subsection outlines Teekay Corporation's role as a marine transportation provider, its structural components, and its strategic shift to new investments post-gas business sale - Teekay Corporation is a leading provider of international crude oil and marine transportation services, mainly through its controlling interest in Teekay Tankers Ltd. (NYSE: TNK)[139] - The company's organizational structure is divided into two main parts: its controlling interest in Teekay Tankers and 'Teekay Parent', which comprises Teekay Corporation and its remaining subsidiaries[141] - Following the sale of the Teekay Gas Business in January 2022, Teekay Parent became net debt free and holds a net cash position of over $300 million, positioning it to pursue new investment opportunities in shipping and adjacent markets[143][144] - The company's tanker fleet operations are subject to seasonal variations, typically stronger in the winter months and weaker in the summer months due to changes in oil consumption and refinery maintenance schedules in the northern hemisphere[148] B. Operations This subsection details the company's business segments, including conventional tankers and the winding down of its FPSO operations, along with its consolidated fleet composition - The company manages its business through two primary lines: conventional tankers (via Teekay Tankers) and offshore production (FPSO units, via Teekay Parent), along with operational and maintenance marine services[149] - Teekay Tankers operates its conventional crude oil and product tankers primarily in the volatile spot market or under short-term contracts, utilizing revenue sharing agreements (RSAs) to manage costs and risks[150][151] - Teekay Parent is winding down its FPSO business, with plans to decommission and/or green-recycle its remaining units. The Petrojarl Foinaven is scheduled for redelivery in August 2022, and the Sevan Hummingbird's contract terminates in May 2022[162][163][164] Consolidated Fleet under Management (as of March 1, 2022) | Vessel Type | Owned and Leased | Chartered-in | Total | | :--- | :--- | :--- | :--- | | Teekay Tankers | | | | | Aframax Tankers | 13 | 2 | 15 | | Suezmax Tankers | 25 | — | 25 | | VLCC Tanker (50% owned) | 1 | — | 1 | | Product Tankers | 9 | 1 | 10 | | STS Support Vessels | — | 2 | 2 | | Subtotal | 48 | 5 | 53 | | Teekay Parent | | | | | FPSO Units | 2 | — | 2 | | Subtotal | 2 | — | 2 | | Total | 50 | 5 | 55 | C. Organizational Structure This subsection describes the company's organizational structure, centered on its controlling interest in Teekay Tankers and agreements governing competition and business scope - The company's structure is centered around its publicly-traded subsidiary, Teekay Tankers Ltd., a Marshall Islands corporation formed to own the conventional tanker business[260][263] - As of March 1, 2022, Teekay Corporation holds a 31.3% economic interest but controls 55.6% of the voting power in Teekay Tankers through ownership of Class A and Class B common stock[262][268] - Teekay is party to an omnibus agreement with Seapeak (formerly Teekay LNG) and Altera (formerly Teekay Offshore) that governs competition and rights of first offer on certain vessel types[264] - A separate agreement with an affiliate of Stonepeak restricts Teekay from engaging in the liquefied gas carrier business for two years and the LNG carrier business for three years following the Seapeak merger[265] D. Property, Plant and Equipment This subsection states that the company's primary material property consists solely of its vessels - The company does not own any material property other than its vessels[267] E. Taxation of the Company This subsection details the company's U.S. and Marshall Islands tax considerations, focusing on the Section 883 Exemption for international shipping income - A significant portion of the company's income is from international transportation. U.S. Source International Transportation Gross Income is generally subject to U.S. federal income tax unless an exemption applies[269][271] - The company believes it qualifies for the Section 883 Exemption from U.S. federal income tax on its U.S. source international shipping income because it is organized in the Marshall Islands (which grants an equivalent exemption) and its stock is primarily and regularly traded on an established U.S. securities market[272][274] - If the Section 883 Exemption did not apply, the company would be subject to a 4% U.S. federal income tax on its U.S. Source International Transportation Gross Income. For 2021, this tax would have been approximately $5.6 million[278] - The company believes it is not subject to taxation under the laws of the Marshall Islands, other than standard corporate filing and vessel-related fees[279] Item 4A. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[281] Item 5. Operating and Financial Review and Prospects This section reviews the company's financial performance, liquidity, and capital resources, noting the impact of the Teekay Gas Business sale and the ($185.4) million consolidated loss from vessel operations in 2021 Overview This subsection provides an overview of the company's strategic shift following the $641 million sale of its Teekay Gas Business, resulting in Teekay Parent becoming net debt-free - On January 13, 2022, Teekay completed the sale of its entire interest in Teekay LNG Partners (now Seapeak LLC) to an investment vehicle managed by Stonepeak Partners L.P. for gross cash proceeds of approximately $641 million[283] - Following the sale, Teekay Parent repaid nearly all its debt, becoming net debt-free with a net cash position over $300 million[284] - The company's structure now consists of its controlling interest in Teekay Tankers Ltd., direct ownership of two FPSO units, a marine services business in Australia, and the significant net cash position[284] Recent Developments and Results of Operations This subsection details the company's operational results, highlighting a significant consolidated loss from vessel operations in 2021 due to lower spot tanker rates - Consolidated loss from vessel operations (continuing operations) was ($185.4) million in 2021, a significant decrease from income of $70.2 million in 2020[311] - The decline was primarily driven by significantly lower average spot TCE rates for Teekay Tankers' fleet and lower fixed rates on time-charters compared to the strong market in the first half of 2020[311] - Teekay Tankers' income from vessel operations fell to a loss of ($194.1) million in 2021 from income of $141.6 million in 2020, reflecting the weak tanker market[310][321] - Teekay Parent's income from vessel operations improved to $8.7 million in 2021 from a loss of ($71.4) million in 2020, mainly due to a $33.0 million gain from derecognizing an asset retirement obligation for the Petrojarl Banff FPSO and fewer asset write-downs compared to the prior year[310][311] Consolidated (Loss) Income from Vessel Operations (Continuing Operations) | (in thousands of U.S. dollars) | 2021 | 2020 | | :--- | :--- | :--- | | Teekay Tankers | (194,095) | 141,572 | | Teekay Parent | 8,742 | (71,375) | | Teekay Corporation Consolidated | (185,353) | 70,197 | Liquidity and Capital Resources This subsection analyzes the company's liquidity and capital resources, noting Teekay Parent's net cash position and Teekay Tankers' decreased liquidity due to vessel repurchases and negative cash flow - As of March 31, 2022, Teekay Parent's primary sources of liquidity are its net cash proceeds from the sale of the Teekay Gas Business, cash from operations, and management fees. Its remaining debt consists of $23.4 million in Convertible Notes[407] - Teekay Tankers' total consolidated liquidity decreased from $372.6 million at year-end 2020 to $144.8 million at year-end 2021, primarily due to a $184.1 million payment to repurchase eight vessels from sale-leaseback arrangements and negative operating cash flow[433] - Consolidated net cash flow from continuing operations was ($141.9) million in 2021, a sharp reversal from $354.9 million in 2020, driven by lower income from operations and changes in working capital[413][415] Teekay Parent Contractual Obligations (as of Dec 31, 2021) | (in millions of U.S. Dollars) | Total | 2022 | 2023 | Beyond 2023 | | :--- | :--- | :--- | :--- | :--- | | Bond repayments | 355.6 | 243.4 | 112.2 | — | | Asset retirement obligations | 15.5 | 6.9 | 8.6 | — | | Total | 371.1 | 250.3 | 120.8 | — | Teekay Tankers Contractual Obligations (as of Dec 31, 2021) | (in millions of U.S. Dollars) | Total | 2022 | 2023 | 2024 | Beyond 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Debt Repayments (Scheduled & Maturity) | 349.5 | 40.8 | 107.4 | 201.3 | — | | Obligations related to finance leases | 295.8 | 27.3 | 28.1 | 29.0 | 211.4 | | Chartered-in vessels (operating leases) | 81.2 | 24.8 | 18.2 | 6.8 | 31.4 | | Total | 726.5 | 92.9 | 153.7 | 237.1 | 242.8 | Critical Accounting Estimates This subsection identifies key accounting estimates, with vessel impairment being critical due to subjective assumptions about future charter rates and residual values - The company identifies several critical accounting estimates, including revenue recognition, taxes, vessel lives, vessel impairment, credit losses, and valuation of derivatives[442] - Vessel impairment is a key estimate. The company reviews vessels for impairment when their carrying value may not be recoverable based on future undiscounted cash flows. This involves significant assumptions about future charter rates, operating expenses, and vessel residual values[452][453] Vessels with Market Value Potentially Below Carrying Value (as of Dec 31, 2021) | Type of Vessel | Number of Vessels | Market Values ($M) | Carrying Values ($M) | | :--- | :--- | :--- | :--- | | Continuing Operations | | | | | Conventional Tankers (Marginal) | 10 | 206.9 | 329.2 | | Conventional Tankers (Significant) | 25 | 626.0 | 810.6 | | Discontinued Operations | | | | | LNG Carriers (Marginal) | 5 | 169.0 | 417.0 | | LNG Carrier (Significant) | 1 | 168.0 | 172.0 | | Total | 41 | 1,169.9 | 1,728.8 | - For 10 conventional tankers where undiscounted cash flows are marginally greater than carrying values, a 10% reduction in the 10-year historical average spot rate assumption would result in an impairment charge of $85.2 million[459] Non-GAAP Financial Measures This subsection explains the company's use of non-GAAP financial measures like EBITDA and Adjusted EBITDA to enhance comparability, excluding specific non-cash or non-recurring items - The company uses EBITDA and Adjusted EBITDA as supplemental performance measures to increase comparability. Adjusted EBITDA excludes items such as foreign exchange gains/losses, asset write-downs, and unrealized gains/losses on derivatives[475] EBITDA and Adjusted EBITDA Reconciliation (Consolidated) | (in thousands of U.S. Dollars) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Net (loss) income | (3,368) | 90,982 | (148,986) | | EBITDA | 420,178 | 578,406 | 438,423 | | Adjusted EBITDA | 721,260 | 1,086,126 | 951,913 | Item 6. Directors, Senior Management and Employees This section details the company's board of directors, executive officers, and compensation, noting the six-member board and the employment of approximately 4,150 seagoing and 645 shore-based personnel - The Board of Directors consists of six members, with David Schellenberg serving as Chair and Kenneth Hvid as President and CEO[482][503] - Aggregate cash fees for the five non-employee directors in 2021 were approximately $0.7 million. Non-employee directors also receive an annual equity retainer of $110,000 ($150,000 for the Chair)[491][492][493] - Aggregate compensation for the three executive officers and three former executive officers in 2021 was $7.3 million, consisting of base salary ($3.0M), annual bonus ($3.2M), and pension/other benefits ($1.1M)[495] - As of December 31, 2021, the company employed approximately 4,150 seagoing staff and 645 shore-based personnel[515] Item 7. Major Shareholders and Certain Relationships and Related Party Transactions This section details major shareholders, with Resolute Investments holding 31.4%, and outlines significant related party transactions, including management agreements with Teekay Tankers Major Shareholders (as of Dec 31, 2021) | Identity of Person or Group | Shares Owned | Percent of Class | | :--- | :--- | :--- | | Resolute Investments, Ltd. | 31,936,012 | 31.4% | | Cobas Asset Management, SGIIC, S.A. | 12,228,356 | 12.0% | - Resolute Investments, Ltd. is the company's largest shareholder. Directors Rudolph Krediet, Peter Antturi, and Heidi Locke Simon have relationships with Resolute or its parent company, Kattegat Limited[525] - Teekay has a long-term management agreement with its subsidiary, Teekay Tankers, to provide administrative and strategic services. In 2021, Teekay Tankers incurred $34.6 million for these services[531][533] - Teekay Tankers reimbursed Teekay approximately $2.0 million in 2021 for time spent by Teekay's executive officers providing services to Teekay Tankers[528] Item 8. Financial Information This section addresses legal proceedings, which are not expected to be material, and details the elimination of quarterly dividends for both Teekay Corporation and Teekay Tankers - The company is subject to legal proceedings and claims in the ordinary course of business but believes any adverse outcomes would not be material, considering insurance coverage and indemnification rights[537] - The Board of Directors eliminated the quarterly dividend on Teekay Corporation's common stock commencing with the quarter ended March 31, 2019[538] - Teekay Tankers eliminated its regular dividend payments in 2018 to preserve liquidity. Future dividends depend on the discretion of its Board of Directors, with a current focus on deleveraging[538] Item 9. The Offer and Listing The company's common stock is traded on the New York Stock Exchange (NYSE) under the ticker symbol 'TK' - Teekay Corporation's common stock is listed and traded on the New York Stock Exchange (NYSE) under the symbol "TK"[542] Item 10. Additional Information This section covers corporate documents, material contracts, and tax considerations, focusing on U.S. federal income tax treatment of distributions and the significant risk of PFIC classification Material United States Federal Income Tax Considerations This subsection details U.S. federal income tax implications for shareholders, particularly regarding distributions and the significant adverse consequences of potential PFIC classification - Distributions to U.S. Holders are generally treated as dividends to the extent of the company's earnings and profits. These may be taxed at preferential rates as "qualified dividend income" provided the company is not classified as a PFIC[558] - The company faces a risk of being classified as a PFIC due to the composition of its income and assets. The company intends to take the position that it has never been a PFIC, but there is no assurance this position will be sustained[563][564] - If classified as a PFIC, U.S. Holders would face adverse tax consequences, including special rules for excess distributions and gains on sale, unless a timely QEF or mark-to-market election is made. The company does not currently intend to provide the information necessary for a QEF election[565][568][572] - Non-U.S. Holders are generally not subject to U.S. federal income tax on distributions or gains from the sale of stock, unless the income is effectively connected with a U.S. trade or business[577][578] Non-United States Tax Considerations This subsection clarifies that non-Marshall Islands shareholders are generally exempt from Marshall Islands taxation on dividends or capital gains from the company's common stock - Under current Marshall Islands law, shareholders who are not citizens of, do not reside in, and do not conduct business in the Republic of the Marshall Islands will not be subject to Marshall Islands taxation or withholding on dividends or capital gains from the company's common stock[582][583] Item 11. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, including foreign currency, interest rate, bunker fuel, and spot tanker rates, and its use of derivative instruments for risk management - The company's primary market risks are foreign currency fluctuations (mainly AUD, GBP, CAD, EUR, SGD), interest rate changes on its variable-rate debt, bunker fuel prices, and spot tanker market rates[586][587] - The company uses derivative instruments, including interest rate swaps and foreign currency forward contracts, to manage these risks[586] Interest Rate Sensitive Financial Instruments (Continuing Operations, as of Dec 31, 2021) | (in millions of U.S. dollars) | Total Principal | Fair Value | Weighted-Avg Rate | | :--- | :--- | :--- | :--- | | Short-Term Debt | | | | | Variable Rate ($U.S.) | 25.0 | (25.0) | 3.6% | | Long-Term Debt | | | | | Variable Rate ($U.S.) | 324.5 | (325.5) | 2.5% | | Fixed-Rate Debt ($U.S.) | 355.6 | (352.4) | 7.9% | | Obligations Related to Finance Leases | | | | | Variable-Rate ($U.S.) | 137.2 | (137.2) | 3.0% | | Fixed-Rate ($U.S.) | 158.6 | (169.2) | 6.3% | | Interest Rate Swap | | | | | Notional Amount ($U.S.) | 50.0 | 0.6 | 0.8% (Fixed Pay Rate) | Item 12. Description of Securities Other than Equity Securities This section is not applicable as per the report - The report states that this item is not applicable[599] PART II Item 13. Defaults, Dividend Arrearages and Delinquencies The company reports no defaults, dividend arrearages, or delinquencies - The company reports that there were no defaults, dividend arrearages, or delinquencies[600] Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds This section is not applicable as per the report - The report states that this item is not applicable[601] Item 15. Controls and Procedures Management and auditors concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[603] - Management's assessment concluded that the company maintained effective internal control over financial reporting as of December 31, 2021, based on the COSO framework[607][608] - The independent registered public accounting firm, KPMG LLP, audited and provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting[609] - There were no material changes in internal control over financial reporting during the year ended December 31, 2021[610] Item 16. Corporate Governance and Other Matters This section details corporate governance, including the audit committee financial expert, code of ethics, $3.56 million in principal accountant fees, and differences in governance practices as a foreign private issuer Item 16A. Audit Committee Financial Expert This subsection identifies Alan Semple, Director and Chair of the Audit Committee, as the designated audit committee financial expert - The Board of Directors has determined that Alan Semple, Director and Chair of the Audit Committee, qualifies as an audit committee financial expert[611] Item 16B. Code of Ethics This subsection confirms the company's adoption of a Standards of Business Conduct Policy applicable to all employees and directors - The company has adopted a Standards of Business Conduct Policy that applies to all employees and directors, which is available on its website[612] Item 16C. Principal Accountant Fees and Services This subsection details the fees paid to KPMG LLP for audit and audit-related services, totaling $3.56 million in 2021 Principal Accountant Fees (KPMG LLP) | Fees (in thousands of U.S. dollars) | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fees | 3,524 | 2,833 | | Audit-Related Fees | 39 | 49 | | Total | 3,563 | 2,882 | Item 16G. Corporate Governance This subsection highlights differences in corporate governance practices as a foreign private issuer compared to NYSE standards, such as equity compensation plan approvals - As a foreign private issuer, Teekay's corporate governance practices differ from NYSE standards for domestic companies. Key differences include not requiring shareholder approval for equity compensation plans and having a non-independent director on the Nominating and Governance Committee[618] PART III Item 18. Financial Statements This section presents the audited consolidated financial statements for the three years ended December 31, 2021, with an unqualified auditor's opinion, noting the recoverability of conventional tankers as a critical audit matter - The report includes the audited consolidated financial statements for the fiscal years ended December 31, 2021, 2020, and 2019, prepared in accordance with U.S. GAAP[621][633] - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[633][634] - A critical audit matter identified by the auditor was the assessment of the recoverability of conventional tankers, due to the significant measurement uncertainty and subjective judgment involved in estimating future charter rates[639][640] Item 19. Exhibits This section lists all exhibits filed with the annual report, encompassing corporate governance documents, material contracts, certifications, and XBRL data files - The report includes a list of all filed exhibits, such as Articles of Incorporation, Bylaws, material contracts, and certifications by the CEO and CFO[622][626]