Form 6-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
Report
of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2008
Commission file number 1- 12874
TEEKAY CORPORATION
(Exact name of Registrant as specified in its charter)
4th Floor, Belvedere Building
69 Pitts Bay Road
Hamilton, HM 08 Bermuda
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover Form
20-F or Form 40-F.
Form 20-F þ Form 40- F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by
Regulation S-T Rule 101(b)(1).
Yes o No þ
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by
Regulation S-T Rule 101(b)(7).
Yes o No þ
Indicate by check mark whether the registrant by furnishing the information contained in this Form
is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Yes o No þ
If Yes is marked, indicate below the file number assigned to the registrant in connection with
Rule 12g3-2(b):82-
_____
TEEKAY CORPORATION AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008
INDEX
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PAGE |
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3 |
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3 |
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5 |
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25 |
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41 |
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44 |
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46 |
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Page 2 of 46
ITEM 1 FINANCIAL STATEMENTS
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of U. S. dollars, except share amounts)
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Three Months Ended June 30 |
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Six Months Ended June 30 |
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2008 |
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2007 |
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2008 |
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2007 |
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$ |
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$ |
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$ |
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$ |
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(Restated - |
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(Restated - |
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Note 19) |
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Note 19) |
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REVENUES (note 16) |
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769,399 |
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565,736 |
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1,512,771 |
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1,143,984 |
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OPERATING EXPENSES |
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Voyage expenses |
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189,515 |
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122,508 |
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358,976 |
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239,987 |
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Vessel operating expenses (note 16) |
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159,470 |
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103,903 |
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302,519 |
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199,093 |
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Time-charter hire expense (note 16) |
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142,682 |
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100,958 |
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287,166 |
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199,315 |
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Depreciation and amortization (note 21) |
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106,700 |
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68,095 |
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204,407 |
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147,358 |
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General and administrative expenses (note 16) |
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70,882 |
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56,265 |
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135,521 |
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115,245 |
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Gain on sale of vessels and equipment (note 13) |
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(2,925 |
) |
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(11,613 |
) |
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(3,421 |
) |
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(11,613 |
) |
Restructuring charge (note 14) |
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4,617 |
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6,117 |
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Total operating expenses |
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670,941 |
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440,116 |
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1,291,285 |
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889,385 |
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Income from vessel operations |
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98,458 |
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125,620 |
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221,486 |
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254,599 |
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OTHER ITEMS |
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Interest gain (expense) (note 16) |
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113,962 |
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68,956 |
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(168,286 |
) |
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13,051 |
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Interest (loss) income (note 16) |
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(2,149 |
) |
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422 |
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58,460 |
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15,376 |
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Foreign exchange loss (note 8) |
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(1,807 |
) |
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(8,635 |
) |
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(33,799 |
) |
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(10,311 |
) |
Minority interest expense |
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(38,822 |
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(24,076 |
) |
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(12,262 |
) |
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(31,831 |
) |
Other net (note 14) |
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13,777 |
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5,330 |
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12,691 |
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11,716 |
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Total other items |
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84,961 |
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41,997 |
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(143,196 |
) |
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(1,999 |
) |
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Net income |
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183,419 |
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167,617 |
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78,290 |
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252,600 |
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Per common share amounts |
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Basic earnings (note 17) |
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2.53 |
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2.27 |
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1.08 |
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3.44 |
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Diluted earnings (note 17) |
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2.50 |
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2.23 |
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1.07 |
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3.37 |
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Cash dividends declared |
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0.2750 |
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0.2375 |
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0.5500 |
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0.4750 |
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Weighted average number of common shares (note 17) |
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Basic |
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72,377,684 |
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73,843,784 |
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72,511,041 |
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73,488,668 |
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Diluted |
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73,279,213 |
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75,310,567 |
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73,357,190 |
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74,929,991 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 3 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
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As at |
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As at |
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June 30, 2008 |
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December 31, 2007 |
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$ |
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$ |
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ASSETS |
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Current |
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Cash and cash equivalents (note 8) |
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498,933 |
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442,673 |
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Restricted cash current (note 9) |
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53,067 |
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33,479 |
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Accounts receivable |
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336,607 |
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262,420 |
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Vessels held for sale (note 13) |
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18,203 |
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79,689 |
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Net investment in direct financing leases current |
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21,727 |
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22,268 |
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Prepaid expenses |
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135,691 |
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126,761 |
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Other assets |
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67,481 |
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57,609 |
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Total current assets |
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1,131,709 |
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1,024,899 |
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Restricted cash long-term (note 9) |
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661,758 |
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652,717 |
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Vessels and equipment (note 8) |
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At cost, less accumulated depreciation of $1,185,062 (2007 $1,061,619) |
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5,738,013 |
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5,295,751 |
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Vessels under capital lease, at cost, less accumulated amortization of $90,095
(2007 $74,442) (note 9) |
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926,140 |
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934,058 |
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Advances on newbuilding contracts (note 11) |
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693,292 |
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617,066 |
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Total vessels and equipment |
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7,357,445 |
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6,846,875 |
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Net investment in direct financing leases non-current |
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68,181 |
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78,908 |
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Investment in joint ventures (note 11) |
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135,941 |
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135,515 |
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Derivative instruments (note 16) |
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41,493 |
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39,381 |
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Loans to joint ventures |
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912,597 |
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729,429 |
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Other non-current assets |
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200,157 |
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219,923 |
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Intangible assets net (note 6) |
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256,070 |
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259,952 |
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Goodwill (note 6) |
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491,911 |
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434,590 |
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Total assets |
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11,257,262 |
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10,422,189 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current |
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Accounts payable |
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94,082 |
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89,691 |
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Accrued liabilities |
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347,135 |
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278,587 |
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Current portion of long-term debt (note 8) |
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289,717 |
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331,594 |
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Current obligation under capital leases (note 9) |
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41,925 |
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150,791 |
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Current portion of in-process revenue contracts (note 6) |
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76,784 |
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82,704 |
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Total current liabilities |
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849,643 |
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933,367 |
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Long-term debt (note 8) |
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5,457,031 |
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4,931,990 |
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Long-term obligation under capital leases (note 9) |
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830,639 |
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706,489 |
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Derivative instruments (note 16) |
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158,048 |
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164,769 |
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Deferred income tax |
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|
74,715 |
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|
78,623 |
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Asset retirement obligation |
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25,506 |
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|
24,549 |
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In-process revenue contracts (note 6) |
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285,989 |
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205,429 |
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Other long-term liabilities |
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174,813 |
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176,680 |
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Total liabilities |
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7,856,384 |
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7,221,896 |
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Commitments and contingencies (notes 9, 11 and 16) |
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Minority interest |
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670,193 |
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544,339 |
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Stockholders equity |
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Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares
authorized; 72,458,908 shares outstanding (2007 72,772,529); 72,958,108 shares
issued (2007 95,327,329)) (note 10) |
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634,755 |
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628,786 |
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Retained earnings |
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2,096,949 |
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2,022,601 |
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Accumulated other comprehensive (loss) income (note 15) |
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(1,019 |
) |
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4,567 |
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Total stockholders equity |
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2,730,685 |
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2,655,954 |
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Total liabilities and stockholders equity |
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11,257,262 |
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10,422,189 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 4 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
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Six Months Ended June 30 |
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2008 |
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2007 |
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$ |
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$ |
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(Restated - |
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Note 19) |
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Cash and cash equivalents provided by (used for) |
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OPERATING ACTIVITIES |
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Net income |
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78,290 |
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|
252,600 |
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Non-cash items: |
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Depreciation and amortization |
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204,407 |
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|
147,358 |
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Amortization of in-process revenue contracts |
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(34,870 |
) |
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|
(30,547 |
) |
Gain on sale of marketable securities |
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(4,576 |
) |
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|
(6,653 |
) |
Gain on sale of vessels and equipment |
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(3,421 |
) |
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|
(11,613 |
) |
Loss on repurchase of bonds |
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|
1,310 |
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|
Equity income (net of dividends received: June 30, 2008 and 2007 $nil) |
|
|
5,672 |
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|
3,687 |
|
Income taxes |
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|
(8,718 |
) |
|
|
(3,041 |
) |
Employee stock-based compensation |
|
|
6,183 |
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|
|
4,708 |
|
Foreign exchange loss and other net |
|
|
34,412 |
|
|
|
49,805 |
|
Unrealized gains on derivative instruments |
|
|
24,058 |
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|
|
(136,597 |
) |
Change in non-cash working capital items related to operating activities |
|
|
(75,554 |
) |
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|
(60,028 |
) |
Expenditures for drydocking |
|
|
(28,227 |
) |
|
|
(40,623 |
) |
Distribution from subsidiaries to minority owners |
|
|
(34,546 |
) |
|
|
(16,354 |
) |
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|
Net operating cash flow |
|
|
164,420 |
|
|
|
152,702 |
|
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|
FINANCING ACTIVITIES |
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|
|
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|
|
Proceeds from issuance of long-term debt |
|
|
1,284,496 |
|
|
|
1,998,316 |
|
Debt issuance costs |
|
|
(5,108 |
) |
|
|
(4,382 |
) |
Repayments of long-term debt |
|
|
(837,641 |
) |
|
|
(737,938 |
) |
Repayments of capital lease obligations |
|
|
(4,495 |
) |
|
|
(4,384 |
) |
Proceeds from loan from joint venture partner |
|
|
1,041 |
|
|
|
22,093 |
|
Increase in restricted cash |
|
|
(11,503 |
) |
|
|
(79,230 |
) |
Net proceeds from sale of Teekay LNG Partners L.P. units |
|
|
148,345 |
|
|
|
84,186 |
|
Net proceeds from sale of Teekay Offshore Partners L.P. units |
|
|
134,265 |
|
|
|
|
|
Issuance of Common Stock upon exercise of stock options |
|
|
4,009 |
|
|
|
27,326 |
|
Repurchase of Common Stock |
|
|
(20,512 |
) |
|
|
(3,035 |
) |
Cash dividends paid |
|
|
(40,028 |
) |
|
|
(34,897 |
) |
Other financing activities |
|
|
(2,715 |
) |
|
|
(3,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing cash flow |
|
|
650,154 |
|
|
|
1,264,412 |
|
|
|
|
|
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|
|
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|
|
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|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment |
|
|
(410,495 |
) |
|
|
(356,104 |
) |
Proceeds from sale of vessels and equipment |
|
|
79,224 |
|
|
|
118,975 |
|
Purchases of marketable securities |
|
|
(542 |
) |
|
|
(28,636 |
) |
Proceeds from sale of marketable securities |
|
|
11,058 |
|
|
|
49,059 |
|
Acquisition of 50% of OMI Corporation |
|
|
|
|
|
|
(896,841 |
) |
Acquisition of additional 30.1% of Teekay Petrojarl ASA |
|
|
(257,142 |
) |
|
|
|
|
Loans to joint ventures |
|
|
(211,491 |
) |
|
|
(354,341 |
) |
Investment in direct financing lease assets |
|
|
(30 |
) |
|
|
(7,530 |
) |
Direct financing lease payments received |
|
|
11,298 |
|
|
|
10,399 |
|
Other investing activities |
|
|
19,806 |
|
|
|
(3,677 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investing cash flow |
|
|
(758,314 |
) |
|
|
(1,468,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
|
56,260 |
|
|
|
(51,582 |
) |
Cash and cash equivalents, beginning of the period |
|
|
442,673 |
|
|
|
343,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period |
|
|
498,933 |
|
|
|
292,332 |
|
|
|
|
|
|
|
|
Supplemental cash flow information (note 7)
The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 5 of 46
TEEKAY
CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
1. Basis of Presentation
The unaudited interim consolidated financial statements have been prepared in conformity with
United States generally accepted accounting principles. They include the accounts of Teekay
Corporation (or Teekay), which is incorporated under the laws of the Republic of The Marshall
Islands, and its wholly owned or controlled subsidiaries (collectively, the Company). Certain
information and footnote disclosures required by United States generally accepted accounting
principles for complete annual financial statements have been omitted and, therefore, it is
suggested that these interim financial statements be read in conjunction with the Companys
restated audited financial statements for the year ended December 31, 2007, included on Form 20-F/A
filed on April 6, 2009. In the opinion of management, these financial statements reflect all
adjustments, of a normal recurring nature, necessary to present fairly, in all material respects,
the Companys consolidated financial position, results of operations, and cash flows for the
interim periods presented. The results of operations for the six months ended June 30, 2008 are not
necessarily indicative of those for a full fiscal year.
Certain of the accompanying consolidated financial statements have been restated. The nature of the
restatements and the effect on the consolidated financial statement line items is discussed in Note
19 of the Notes to the Unaudited Consolidated Financial Statements. In addition, certain
disclosures in the following notes have been restated to be consistent with the consolidated
financial statements.
2. Segment Reporting
The Company has four reportable segments: its offshore segment, its fixed-rate tanker segment, its
liquefied gas segment, and its spot tanker segment. The Companys offshore segment consists of
shuttle tankers, floating production storage and offloading (or FPSO) units and floating storage
and offtake (or FSO) units. The Companys fixed-rate tanker segment consists of conventional crude
oil and product tankers subject to long-term, fixed-rate time-charter contracts. The Companys
liquefied gas segment consists of liquefied natural gas (or LNG) carriers and liquefied petroleum
gas (or LPG) carriers. The Companys spot tanker segment consists of conventional crude oil tankers
and product carriers operating in the spot tanker market or subject to time-charters or contracts
of affreightment that are priced on a spot-market basis or are short-term, fixed-rate contracts.
The Company considers contracts that have an original term of less than three years in duration to
be short-term. Segment results are evaluated based on income from vessel operations. The accounting
policies applied to the reportable segments are the same as those used in the preparation of the
Companys consolidated financial statements.
The following tables present results for these segments for the three and six months ended June 30,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate |
|
|
Liquefied |
|
|
Spot |
|
|
|
|
|
|
Offshore |
|
|
Tanker |
|
|
Gas |
|
|
Tanker |
|
|
|
|
Three months ended June 30, 2008 |
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
273,961 |
|
|
|
66,218 |
|
|
|
53,496 |
|
|
|
375,724 |
|
|
|
769,399 |
|
Voyage expenses |
|
|
46,024 |
|
|
|
948 |
|
|
|
452 |
|
|
|
142,091 |
|
|
|
189,515 |
|
Vessel operating expenses |
|
|
101,596 |
|
|
|
16,387 |
|
|
|
13,125 |
|
|
|
28,362 |
|
|
|
159,470 |
|
Time-charter hire expense |
|
|
32,242 |
|
|
|
11,445 |
|
|
|
|
|
|
|
98,995 |
|
|
|
142,682 |
|
Depreciation and amortization |
|
|
53,772 |
|
|
|
11,289 |
|
|
|
14,209 |
|
|
|
27,430 |
|
|
|
106,700 |
|
General and administrative expenses(1) |
|
|
26,957 |
|
|
|
7,263 |
|
|
|
6,070 |
|
|
|
30,592 |
|
|
|
70,882 |
|
Gain on sale of vessels and equipment |
|
|
(3,150 |
) |
|
|
|
|
|
|
|
|
|
|
225 |
|
|
|
(2,925 |
) |
Restructuring charge |
|
|
3,327 |
|
|
|
58 |
|
|
|
221 |
|
|
|
1,011 |
|
|
|
4,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
13,193 |
|
|
|
18,828 |
|
|
|
19,419 |
|
|
|
47,018 |
|
|
|
98,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate |
|
|
Liquefied |
|
|
Spot |
|
|
|
|
|
|
Offshore |
|
|
Tanker |
|
|
Gas |
|
|
Tanker |
|
|
|
|
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
Three months ended June 30, 2007 |
|
(restated) |
|
|
(restated) |
|
|
(restated) |
|
|
(restated) |
|
|
(restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
236,233 |
|
|
|
45,787 |
|
|
|
38,496 |
|
|
|
245,220 |
|
|
|
565,736 |
|
Voyage expenses |
|
|
26,064 |
|
|
|
592 |
|
|
|
8 |
|
|
|
95,844 |
|
|
|
122,508 |
|
Vessel operating expenses |
|
|
69,325 |
|
|
|
11,822 |
|
|
|
7,881 |
|
|
|
14,875 |
|
|
|
103,903 |
|
Time-charter hire expense |
|
|
39,260 |
|
|
|
3,981 |
|
|
|
|
|
|
|
57,717 |
|
|
|
100,958 |
|
Depreciation and amortization |
|
|
35,627 |
|
|
|
8,260 |
|
|
|
11,571 |
|
|
|
12,637 |
|
|
|
68,095 |
|
General and administrative expenses(1) |
|
|
23,164 |
|
|
|
4,473 |
|
|
|
5,163 |
|
|
|
23,465 |
|
|
|
56,265 |
|
Gain on sale of vessels and equipment |
|
|
(11,613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
54,406 |
|
|
|
16,659 |
|
|
|
13,873 |
|
|
|
40,682 |
|
|
|
125,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 6 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate |
|
|
Liquefied |
|
|
Spot |
|
|
|
|
|
|
Offshore |
|
|
Tanker |
|
|
Gas |
|
|
Tanker |
|
|
|
|
Six months ended June 30, 2008 |
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
532,749 |
|
|
|
127,033 |
|
|
|
109,628 |
|
|
|
743,361 |
|
|
|
1,512,771 |
|
Voyage expenses |
|
|
84,925 |
|
|
|
1,628 |
|
|
|
602 |
|
|
|
271,821 |
|
|
|
358,976 |
|
Vessel operating expenses |
|
|
185,416 |
|
|
|
32,757 |
|
|
|
24,748 |
|
|
|
59,598 |
|
|
|
302,519 |
|
Time-charter hire expense |
|
|
67,280 |
|
|
|
23,165 |
|
|
|
|
|
|
|
196,721 |
|
|
|
287,166 |
|
Depreciation and amortization |
|
|
99,846 |
|
|
|
20,962 |
|
|
|
28,404 |
|
|
|
55,195 |
|
|
|
204,407 |
|
General and administrative expenses(1) |
|
|
54,019 |
|
|
|
12,553 |
|
|
|
11,555 |
|
|
|
57,394 |
|
|
|
135,521 |
|
Gain on sale of vessels and equipment |
|
|
(3,150 |
) |
|
|
|
|
|
|
|
|
|
|
(271 |
) |
|
|
(3,421 |
) |
Restructuring charge |
|
|
3,327 |
|
|
|
1,558 |
|
|
|
221 |
|
|
|
1,011 |
|
|
|
6,117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
41,086 |
|
|
|
34,410 |
|
|
|
44,098 |
|
|
|
101,892 |
|
|
|
221,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate |
|
|
Liquefied |
|
|
Spot |
|
|
|
|
|
|
Offshore |
|
|
Tanker |
|
|
Gas |
|
|
Tanker |
|
|
|
|
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
Six months ended June 30, 2007 |
|
(restated) |
|
|
(restated) |
|
|
(restated) |
|
|
(restated) |
|
|
(restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
485,108 |
|
|
|
90,376 |
|
|
|
75,973 |
|
|
|
492,527 |
|
|
|
1,143,984 |
|
Voyage expenses |
|
|
54,790 |
|
|
|
1,152 |
|
|
|
13 |
|
|
|
184,032 |
|
|
|
239,987 |
|
Vessel operating expenses |
|
|
129,615 |
|
|
|
23,512 |
|
|
|
14,339 |
|
|
|
31,627 |
|
|
|
199,093 |
|
Time-charter hire expense |
|
|
80,433 |
|
|
|
7,818 |
|
|
|
|
|
|
|
111,064 |
|
|
|
199,315 |
|
Depreciation and amortization |
|
|
81,349 |
|
|
|
16,728 |
|
|
|
22,365 |
|
|
|
26,916 |
|
|
|
147,358 |
|
General and administrative expenses(1) |
|
|
48,068 |
|
|
|
9,106 |
|
|
|
10,163 |
|
|
|
47,908 |
|
|
|
115,245 |
|
Gain on sale of vessels and equipment |
|
|
(11,613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
102,466 |
|
|
|
32,060 |
|
|
|
29,093 |
|
|
|
90,980 |
|
|
|
254,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to each segment based on estimated use of corporate resources). |
A reconciliation of total segment assets to amounts presented in the consolidated balance sheets is
as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
|
$ |
|
|
$ |
|
Offshore segment |
|
|
3,497,589 |
|
|
|
3,187,635 |
|
Fixed-rate tanker segment |
|
|
876,009 |
|
|
|
795,775 |
|
Liquefied gas segment |
|
|
3,664,550 |
|
|
|
3,366,049 |
|
Spot tanker segment |
|
|
2,032,268 |
|
|
|
1,966,166 |
|
Cash and restricted cash |
|
|
501,678 |
|
|
|
446,102 |
|
Accounts receivable and other assets |
|
|
685,168 |
|
|
|
660,462 |
|
|
|
|
|
|
|
|
Consolidated total assets |
|
|
11,257,262 |
|
|
|
10,422,189 |
|
|
|
|
|
|
|
|
3. Acquisition of Additional 30.1% of Teekay Petrojarl ASA
On June 20, 2008, the Company acquired an additional 30.1 percent interest (22.6 million common
shares) in Teekay Petrojarl ASA (or Teekay Petrojarl) from Prosafe Production at a price of NOK 59
per share. Teekay Petrojarl is a leading operator of FPSO units in the North Sea. The total
purchase price of approximately NOK 1.3 billion ($257 million) was paid in cash. As a result of
this transaction, the Companys ownership of Teekay Petrojarl increased to 94.8 percent from 64.7
percent.
In July 2008 the Company exercised its right to effect a compulsory acquisition pursuant to Section
4-25 of the Norwegian Public Limited Liability Companies Act of all of Teekay Petrojarls shares
not previously owned by the Company. Pursuant to this process, the Company automatically became the
owner of all shares of Teekay Petrojarl. The total purchase price for the remaining shares of
approximately NOK 229.8 million ($45.1 million) was paid in cash.
Teekay Petrojarls operating results are reflected in the Companys consolidated financial
statements from October 1, 2006, the designated effective date of the Companys acquisition of an
original 64.7 percent interest in Teekay Petrojarl, which was accounted for using the purchase
method of accounting. The acquisition of the additional 30.1 percent interest has also been
accounted for using the purchase method of accounting, based upon estimates of fair value. The
estimated fair values of certain assets and liabilities are being determined with the assistance of
third-party valuation specialists. The Company expects this work to be completed during the first
half of 2009.
Page 7 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
4. Acquisition of 50% of OMI Corporation
On June 8, 2007, the Company and A/S Dampskibsselskabet TORM (or TORM) acquired, through a
jointly-owned subsidiary all of the outstanding shares of OMI Corporation (or OMI). The Company and
TORM divided most of OMIs assets equally between the two companies in August 2007. The price of
the OMI assets acquired or to be acquired by the Company was approximately $1.1 billion, including
approximately $0.2 billion of assumed indebtedness. The Company funded its portion of the
acquisition with a combination of cash and borrowings under revolving credit facilities.
The Company acquired seven Suezmax tankers, three Medium-Range product tankers and three Handysize
product tankers from OMI. Teekay also assumed OMIs in-charters of an additional six Suezmax
tankers and OMIs third-party asset management business (principally the Gemini pool). The Company
and TORM continue to hold two Medium-Range product tankers jointly in OMI, as well as two Handysize
product tanker newbuildings scheduled to deliver in 2009. The parties divided these remaining
assets equally in September 2008.
The assets acquired from OMI on August 1, 2007 are reflected in the Companys consolidated
financial statements from that date. The acquisition of OMI has been accounted for using the
purchase method of accounting, based upon estimates of fair value. The estimated fair values of
certain assets and liabilities are being determined with the assistance of third-party valuation
specialists. This work was completed during the third quarter of 2008. As such, certain estimates
of fair value are preliminary and are subject to further adjustment.
The following table summarizes the preliminary fair values of the assets acquired and liabilities
assumed by the Company at August 1, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original at |
|
|
|
|
|
|
Revised at |
|
|
|
August 1, 2007 |
|
|
Revisions |
|
|
August 1, 2007 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term restricted cash |
|
|
577 |
|
|
|
|
|
|
|
577 |
|
Other current assets |
|
|
67,159 |
|
|
|
(40,331 |
) |
|
|
26,828 |
|
Vessels and equipment |
|
|
923,670 |
|
|
|
|
|
|
|
923,670 |
|
Other assets long-term |
|
|
6,820 |
|
|
|
31,680 |
|
|
|
38,500 |
|
Investment in joint venture |
|
|
64,244 |
|
|
|
5,785 |
|
|
|
70,029 |
|
Intangible assets subject to amortization |
|
|
60,540 |
|
|
|
8,407 |
|
|
|
68,947 |
|
Goodwill ($41.7 million spot tanker segment, and
$7.1 million fixed rate tanker segment) |
|
|
31,961 |
|
|
|
16,852 |
|
|
|
48,813 |
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired |
|
|
1,154,971 |
|
|
|
22,393 |
|
|
|
1,177,364 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
21,006 |
|
|
|
(1,429 |
) |
|
|
19,577 |
|
Other long-term liabilities |
|
|
|
|
|
|
15,873 |
|
|
|
15,873 |
|
In-process revenue contracts |
|
|
25,402 |
|
|
|
(3,811 |
) |
|
|
21,591 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed |
|
|
46,408 |
|
|
|
10,633 |
|
|
|
57,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired (cash consideration) |
|
|
1,108,563 |
|
|
|
11,760 |
|
|
|
1,120,323 |
|
|
|
|
|
|
|
|
|
|
|
5. Public Offerings
During June 2008, the Companys subsidiary Teekay Offshore Partners L.P. (or Teekay Offshore),
completed a follow-on public offering by issuing an additional 10.25 million of its common units at
a price of $20.00 per unit. In connection with the follow-on public offering, the Company
contributed $4.2 million to Teekay Offshore to maintain its 2% general partner interest. As a
result of the above transactions, the Companys ownership of Teekay Offshore has been reduced from
59.8 percent to 50.6 percent (including the Companys 2 percent general partner interest), and the
Company recorded an increase to stockholders equity of $28.5 million, which represents the
Companys gain from the issuance of units. During July 2008, the underwriters exercised their
over-allotment option and purchased 375,000 common units at $20.00 per unit for proceeds of $7.2
million, net of $0.3 million of commissions. As a result, the Company contributed a further $0.2
million to Teekay Offshore to maintain its 2% general partner interest and the Companys ownership
of Teekay Offshore reduced further to 49.9%.
Teekay Offshore is a Marshall Islands limited partnership formed by the Company as part of its
strategy to expand its operations in the offshore oil marine transportation, production, processing
and storage sectors. Prior to its June 2008 public offering, Teekay Offshore owned 26% of Teekay
Offshore Operating L.P. (or OPCO), including its 0.01% general partner interest. Concurrently with
the closing of Teekay Offshores follow-on offering, it acquired from the Company an additional 25%
interest in OPCO for $205.0 million, thereby increasing its ownership interest in OPCO to 51%. OPCO
owns and operates a fleet of 36 shuttle tankers (including nine chartered-in vessels and five
vessels owned by 50% owned joint ventures), four FSO units, and eleven conventional Aframax
tankers. Teekay Offshore also owns through wholly owned subsidiaries two additional shuttle tankers
(including one through a 50%-owned joint venture) and one additional FSO unit. All of Teekay
Offshores and OPCOs vessels operate under long-term, fixed-rate contracts. The Company indirectly
owns the remaining 49% of OPCO and 50.6% of Teekay Offshore, including its 2% general partner
interest. As a result, the Company effectively owns 74.8% of OPCO. Teekay Offshore also has rights
to participate in certain FPSO opportunities involving Teekay Petrojarl.
Page 8 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
During April 2008, the Companys subsidiary Teekay LNG Partners L.P. (or Teekay LNG) completed a
follow-on public offering by issuing an additional 5.0 million of its common units at a price of
$28.75 per unit. Subsequently the underwriters exercised their over-allotment option and purchased
an additional 375,000 common units resulting in an additional $10.8 million in gross proceeds to
Teekay LNG. Concurrently with the public offering, the Company acquired 1.74 million common units
of Teekay LNG at the same public offering price for a total cost of $50.0 million. As a result of
the above transactions, the Companys ownership of Teekay LNG has been reduced from 63.7 percent to
57.7 percent (including the Companys 2% general partner interest), and the Company recorded an
increase to stockholders equity of $23.8 million, which represents the Companys gain from the
issuance of units.
Teekay LNG is a Marshall Islands limited partnership formed by the Company as part of its strategy
to expand its operations in the LNG shipping sector. Teekay LNG provides LNG, LPG and crude oil
marine transportation services under long-term, fixed-rate contracts with major energy and utility
companies through its fleet of LNG and LPG carriers and Suezmax class crude oil tankers. As of June
30, 2008 the Company owned a 57.7% interest in Teekay LNG, including common units, subordinated
units and its 2% general partner interest.
In connection with Teekay LNGs initial public offering in May 2005, Teekay entered into an omnibus
agreement with Teekay LNG, Teekay LNGs general partner and others governing, among other things,
when the Company and Teekay LNG may compete with each other and to provide the applicable parties
certain rights of first offer on LNG carriers and Suezmax tankers. In December 2006, the omnibus
agreement was amended in connection with Teekay Offshores initial public offering to govern, among
other things, when the Company, Teekay LNG and Teekay Offshore may compete with each other and to
provide the applicable parties certain rights of first offer on LNG carriers, oil tankers, shuttle
tankers, FSO units and FPSO units.
6. Goodwill, Intangible Assets and In-Process Revenue Contracts
Goodwill
The changes in the carrying amount of goodwill for the six months ended June 30, 2008 for the
Companys reporting segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate |
|
|
|
|
|
|
|
|
|
|
|
|
Offshore |
|
|
Tanker |
|
|
Liquefied Gas |
|
|
Spot Tanker |
|
|
|
|
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Balance as of December 31, 2007 |
|
|
359,231 |
|
|
|
3,648 |
|
|
|
35,631 |
|
|
|
36,080 |
|
|
|
434,590 |
|
Goodwill acquired (note 3) |
|
|
44,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,589 |
|
Adjustment to goodwill acquired (note 4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,732 |
|
|
|
12,732 |
|
Reallocation of goodwill acquired
between segments |
|
|
|
|
|
|
7,163 |
|
|
|
|
|
|
|
(7,163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2008 |
|
|
403,820 |
|
|
|
10,811 |
|
|
|
35,631 |
|
|
|
41,649 |
|
|
|
491,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets
As at June 30, 2008, the Companys intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
|
Amortization Period |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
|
(years) |
|
|
$ |
|
|
$ |
|
|
$ |
|
Contracts of affreightment |
|
|
10.2 |
|
|
|
124,250 |
|
|
|
(73,927 |
) |
|
|
50,323 |
|
Time-charter contracts |
|
|
15.5 |
|
|
|
243,427 |
|
|
|
(49,126 |
) |
|
|
194,301 |
|
Other intangible assets |
|
|
2.8 |
|
|
|
20,398 |
|
|
|
(8,952 |
) |
|
|
11,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.1 |
|
|
|
388,075 |
|
|
|
(132,005 |
) |
|
|
256,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2007, the Companys intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|
|
Amortization Period |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
|
(years) |
|
|
$ |
|
|
$ |
|
|
$ |
|
Contracts of affreightment |
|
|
10.2 |
|
|
|
124,250 |
|
|
|
(68,895 |
) |
|
|
55,355 |
|
Time-charter contracts |
|
|
16.0 |
|
|
|
232,049 |
|
|
|
(37,374 |
) |
|
|
194,675 |
|
Other intangible assets |
|
|
5.0 |
|
|
|
10,797 |
|
|
|
(875 |
) |
|
|
9,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.7 |
|
|
|
367,096 |
|
|
|
(107,144 |
) |
|
|
259,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate amortization expense of intangible assets for the three and six months ended June 30,
2008 was $12.0 million ($3.5 million 2007) and $24.9 million ($10.0 million 2007),
respectively. Amortization of intangible assets for the next five years is expected to be $20.1
million (remainder of 2008), $34.7 million (2009), $27.7 million (2010), $26.6 million (2011),
$22.5 million (2012), and $124.5 million (thereafter).
Page 9 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
In-Process Revenue Contracts
As part of the Companys acquisitions of Teekay Petrojarl in 2006 and 50% of OMI in 2007, the
Company assumed certain FPSO service contracts and charter-out contracts with terms that are less
favorable than prevailing market terms at the time of acquisition. The Company has recognized a
liability based on the estimated fair value of these contracts. The Company is amortizing this
liability over the remaining term of the contracts on a weighted basis based on the projected
revenue to be earned under the contracts.
Amortization of these in-process revenue contracts for the three and six months ended June 30, 2008
was $13.7 million ($7.0 million 2007) and $34.9 million ($30.5 million 2007), respectively.
Amortization for the next five years is expected to be $58.7 million (remainder of 2008), $86.8
million (2009), $75.0 million (2010), $50.7 million (2011), $33.8 million (2012) and $57.7 million
(thereafter).
7. Supplemental Cash Flow Information
Upon delivery of the last two RasGas II LNG Carriers (as defined in Note 9) in the first quarter of
2007, the remaining vessel costs and related lease obligations amounting to $15.3 million were
recorded. These transactions were treated as non-cash transactions in the Companys consolidated
statements of cash flows.
8. Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Revolving Credit Facilities |
|
|
2,585,730 |
|
|
|
2,393,967 |
|
Senior Notes (8.875%) due July 15, 2011 |
|
|
226,259 |
|
|
|
246,059 |
|
USD-denominated Term Loans due through 2021 |
|
|
2,444,481 |
|
|
|
2,162,420 |
|
Euro-denominated Term Loans due through 2023 |
|
|
473,320 |
|
|
|
443,992 |
|
USD-denominated Unsecured Demand Loan |
|
|
16,958 |
|
|
|
17,146 |
|
|
|
|
|
|
|
|
|
|
|
5,746,748 |
|
|
|
5,263,584 |
|
Less current portion |
|
|
289,717 |
|
|
|
331,594 |
|
|
|
|
|
|
|
|
|
|
|
5,457,031 |
|
|
|
4,931,990 |
|
|
|
|
|
|
|
|
As of June 30, 2008, the Company had thirteen long-term revolving credit facilities (or the
Revolvers) available, which, as at such date, provided for borrowings of up to $3,838.5 million, of
which $1,252.7 million was undrawn. Interest payments are based on LIBOR plus margins; at June 30,
2008 and December 31, 2007, the margins ranged between 0.45% and 0.80% and the three-month LIBOR
was 2.78% and 4.70%, respectively. The total amount available under the Revolvers reduces by $102.9
million (remainder of 2008), $211.1 million (2009), $218.4 million (2010), $803.7 million (2011),
$236.0 million (2012) and $2,266.4 million (thereafter). All of the Revolvers are collateralized by
first-priority mortgages granted on 67 of the Companys vessels, together with other related
security, and include a guarantee from Teekay or its subsidiaries for all outstanding amounts.
The 8.875% Senior Notes due July 15, 2011 (or the 8.875% Notes) rank equally in right of payment
with all of Teekays existing and future senior unsecured debt and senior to Teekays existing and
future subordinated debt. The 8.875% Notes are not guaranteed by any of Teekays subsidiaries and
effectively rank behind all existing and future secured debt of Teekay and other liabilities,
secured and unsecured, of its subsidiaries. During the six months ended June 30, 2008, the Company
repurchased $19.7 million principal amount of the 8.875% Notes
(see also Note 14).
The Company has sixteen U.S. Dollar-denominated term loans outstanding, which, as at June 30, 2008,
totaled $2,444.5 million. Certain of the term loans with a total outstanding principal balance of
$838.6 million as at June 30, 2008, bear interest at a weighted-average fixed rate of 5.21%.
Interest payments on the remaining term loans are based on LIBOR plus a margin. At June 30, 2008
the margins ranged between 0.3% and 1.0% and the three-month LIBOR was 2.78%. The term loans reduce
in quarterly or semi-annual payments commencing three or six months after delivery of newbuilding
vessels financed with the loans, and thirteen of the term loans also have balloon or bullet
repayments due at maturity. The term loans are collateralized by first-preferred mortgages on 33 of
the Companys vessels, together with certain other security. In addition, at June 30,2008, all but
$150.1 million (December 31, 2007 $103.8 million) of the outstanding term loans were guaranteed
by Teekay or its subsidiaries. Included in the total of $2,444.5 million (December 31, 2007 -
$2,162.4 million) is a loan for $808.1 million (December 31, 2007 $601.0 million) which is in
place to fund the RasGas 3 joint venture project and for which the Company is liable on a joint and
several basis together with its unrelated project partner (see Note 11(b)). The Company has
reported 100% of the obligation under this borrowing agreement. The funds received have been
advanced to the RasGas 3 joint venture, which is accounted for using the equity method and the
entire amount advanced is included in Loans to Joint Ventures.
The Company has two Euro-denominated term loans outstanding, which, as at June 30, 2008 totaled
300.4 million Euros ($473.3 million). The Company repays the loans with funds generated by two
Euro-denominated long-term time-charter contracts. Interest payments on the loans are based on
EURIBOR plus a margin. At June 30, 2008, the margins ranged between 0.6% and 0.66% and the
one-month EURIBOR was 4.44%. The Euro-denominated term loans reduce in monthly payments with
varying maturities through 2023 and are collateralized by first-priority mortgages on two of the
Companys vessels, together with certain other security, and are guaranteed by a subsidiary of
Teekay.
Page 10 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
Both Euro-denominated term loans are revalued at the end of each period using the then prevailing
Euro/U.S. Dollar exchange rate. Due substantially to this revaluation, the Company recognized an
unrealized foreign exchange loss of $1.8 million (2007 $8.6 million) and an unrealized foreign
exchange loss of $33.8 million (2007 $10.3 million) during the three and six months ended June
30, 2008, respectively.
The Company has two U.S. Dollar-denominated loans outstanding owing to joint venture partners,
which, as at June 30, 2008, totaled $15.8 million and $1.1 million, respectively, including accrued
interest. Interest payments on the first loan, which are based on a fixed interest rate of 4.84%,
commenced in February 2008. This loan is repayable on demand no earlier than February 27, 2027.
Among other matters, the Companys long-term debt agreements generally provide for maintenance of
certain vessel market value-to-loan ratios and minimum consolidated financial covenants. Certain
loan agreements require that a minimum level of free cash be maintained. As at June 30, 2008 and
December 31, 2007, this amount was $100.0 million. Certain of the loan agreements also require that
the Company maintain an aggregate level of free liquidity and undrawn revolving credit lines with
at least six months to maturity, of at least 7.5% of total debt. As at June 30, 2008 and December
31, 2007, this amount was $354.3 million and $326.0 million, respectively.
9. Capital Leases and Restricted Cash
Capital Leases
Suezmax Tankers. As at June 30, 2008, the Company was a party, as lessee, to capital leases on five
Suezmax tankers. Under the terms of the lease arrangements, the Company is required to purchase
these vessels after the end of their respective lease terms for fixed prices. At their inception,
the weighted-average interest rate implicit in these leases was 7.4%. These capital leases are
variable-rate capital leases; however, any change in our lease payments resulting from changes in
interest rates is offset by a corresponding change in the charter hire payments received by the
Company. As at June 30, 2008, the remaining commitments under these capital leases, including the
purchase obligations, approximated $239.1 million, including imputed interest of $30.2 million,
repayable as follows:
|
|
|
|
|
Year |
|
Commitment |
|
2008 |
|
$ |
12.3 million |
2009 |
|
$ |
134.4 million |
2010 |
|
$ |
8.4 million |
2011 |
|
$ |
84.0 million |
RasGas II LNG Carriers. As at June 30, 2008, the Company was a party, as lessee, to 30-year capital
lease arrangements for the three LNG carriers (or the RasGas II LNG Carriers) that operate under
time-charter contracts with Ras Laffan Liquefied Natural Gas Co. Limited (II) (or RasGas II), a
joint venture between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil
Corporation. All amounts below relating to the RasGas II LNG Carriers capital leases include the
Companys joint venture partners 30% share.
Under the terms of the RasGas II LNG Carriers capital lease arrangements, the lessor claims tax
depreciation on the capital expenditures it incurred to acquire these vessels. As is typical in
these leasing arrangements, tax and change of law risks are assumed by the lessee. Payments under
the lease arrangements are based on tax and financial assumptions at the commencement of the
leases. If an assumption proves to be incorrect, the lessor is entitled to increase the lease
payments to maintain its agreed after-tax margin. However, the Company may terminate the lease
arrangements at any time. If the lease arrangements terminate, the Company would be required to pay
termination sums to the lessor sufficient to repay the lessors investment in the vessels and to
compensate it for the tax-effect of the terminations, including recapture of any tax depreciation.
At their inception, the weighted-average interest rate implicit in these leases was 5.2%. These
capital leases are variable-rate capital leases. As at June 30, 2008, the commitments under these
capital leases approximated $1,085.1 million, including imputed interest of $615.9 million,
repayable as follows:
|
|
|
|
|
Year |
|
Commitment |
|
2008 |
|
$ |
12.0 million |
2009 |
|
$ |
24.0 million |
2010 |
|
$ |
24.0 million |
2011 |
|
$ |
24.0 million |
2012 |
|
$ |
24.0 million |
Thereafter |
|
$ |
977.1 million |
Page 11 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
Spanish-Flagged LNG Carrier. As at June 30, 2008, the Company was a party, as lessee, to a capital
lease on one Spanish-flagged LNG carrier, which is structured as a Spanish tax lease. Under the
terms of the Spanish tax lease, the Company will purchase the vessel at the end of the lease term
in 2011. The purchase obligation has been fully funded with restricted cash deposits described
below. At its inception, the implicit interest rate was 5.8%. As at June 30, 2008, the commitments
under this capital lease, including the purchase obligation, approximated 141.7 million Euros
($223.4 million), including imputed interest of 18.3 million Euros ($28.9 million), repayable as
follows:
|
|
|
|
|
Year |
|
Commitment |
|
2008 |
|
24.4 million Euros ($38.5 million) |
|
2009 |
|
25.6 million Euros ($40.4 million) |
|
2010 |
|
26.9 million Euros ($42.4 million) |
|
2011 |
|
64.8 million Euros ($102.1million) |
|
FPSO Units. As at June 30, 2008, the Company was a party, as lessee, to capital leases on one FPSO
unit, the Petrojarl Foinaven, and the topside production equipment for another FPSO unit, the
Petrojarl Banff. However, Teekay Petrojarl has legally defeased its future charter obligations for
these assets by making up-front, lump-sum payments to unrelated banks, which have assumed Teekay
Petrojarls liability for making the remaining periodic payments due under the long-term charters
(or Defeased Rental Payments) and termination payments under the leases.
The Defeased Rental Payments for the Petrojarl Foinaven are based on assumed Sterling LIBOR of 8%
per annum. If actual interest rates are greater than 8% per annum, the Company receives rental
rebates; if actual interest rates are less than 8% per annum, the Company is required to pay
rentals in excess of the Defeased Rental Payments. For accounting purposes, this embedded
derivative has been separated from the host contract and is accounted for as a derivative
instrument.
As is typical for these types of leasing arrangements, the Company has indemnified the lessors of
the Petrojarl Foinaven for the tax consequence resulting from changes in tax laws or interpretation
of such laws or adverse rulings by authorities and for fluctuations in actual interest rates from
those assumed in the leases.
Restricted Cash
Under the terms of the capital leases for the four LNG carriers described above in this Note 9, the
Company is required to have on deposit with financial institutions an amount of cash that, together
with interest earned on the deposits, will equal the remaining amounts owing under the leases,
including the obligations to purchase the LNG carriers at the end of the lease periods, where
applicable. These cash deposits are restricted to being used for capital lease payments and have
been fully funded with term loans and, for one vessel, a loan from the Companys joint venture
partner (see Note 8). The interest rates earned on the deposits approximate the interest rates
implicit in the applicable leases.
As at June 30, 2008 and December 31, 2007, the amount of restricted cash on deposit for the three
RasGas II LNG Carriers was $487.3 million and $492.2 million, respectively. As at June 30, 2008
and December 31, 2007, the weighted-average interest rates earned on the deposits were 2.8% and
5.3%, respectively.
As at June 30, 2008 and December 31, 2007, the amount of restricted cash on deposit for the
Spanish-flagged LNG carrier was 125.9 million Euros ($198.4 million) and 122.8 million Euros
($179.2 million), respectively. As at June 30, 2008 and December 31, 2007, the weighted-average
interest rate earned on these deposits was 5.0%.
The Company also maintains restricted cash deposits relating to certain term loans and other
obligations, which cash deposits totaled $29.1 million and $14.8 million as at June 30, 2008 and
December 31, 2007, respectively.
10. Capital Stock
The authorized capital stock of Teekay at June 30, 2008 was 25,000,000 shares of Preferred Stock,
with a par value of $1 per share, and 725,000,000 shares of Common Stock, with a par value of
$0.001 per share. During the six months ended June 30, 2008, the Company issued 0.2 million shares
upon the exercise of stock options and repurchased 0.5 million shares for a total cost of $20.5
million. At June 30, 2008 there was no remaining share repurchase authorization. As at June 30,
2008, Teekay had 72,958,108 shares of Common Stock (2007 95,327,329) and no shares of Preferred
Stock issued. As at June 30, 2008, Teekay had 72,458,908 shares of Common Stock outstanding (2007
72,772,529).
As at June 30, 2008, the Company had reserved pursuant to its 1995 Stock Option Plan and 2003
Equity Incentive Plan (collectively referred to as the Plans) 6,267,518 shares of Common Stock for
issuance upon exercise of options or equity awards granted or to be granted. During the six months
ended June 30, 2008, the Company granted options under the Plans to acquire up to 1,443,900 shares
of Common Stock to certain eligible officers, employees and directors of the Company. The options
under the Plans have ten-year terms and vest equally over three years from the grant date. All
options outstanding as of June 30, 2008, expire between June 1, 2009 and March 7, 2018, ten years
after the date of each respective grant.
During March 2008, the Company granted 10,500 shares of restricted stock awards with a fair value
of $0.4 million, based on the quoted market price, to certain of the Companys directors. The
shares of restricted stock are issued when granted and are subject to potential forfeiture. If at
any time during the three-year period after the date of grant a recipient of these shares ceases to
be a director of the Company, the shares of restricted stock that remain subject to forfeiture must
be returned to the Company. These shares of restricted stock are released from this forfeiture
provision equally over three years.
Page 12 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
11. Commitments and Contingencies
a) Vessels Under Construction
As at June 30, 2008, the Company was committed to the construction of nine Suezmax tankers, five
LPG carriers, one product tanker and four shuttle tankers scheduled for delivery between August
2008 and July 2011, at a total cost of approximately $1.3 billion, excluding capitalized interest.
As at June 30, 2008, payments made towards these commitments totaled $323.0 million (excluding
$34.5 million of capitalized interest and other miscellaneous construction costs), and long-term
financing arrangements existed for $769.5 million of the unpaid cost of these vessels. The Company
intends to finance the remaining amount of $244.1 million through incremental debt or surplus cash
balances, or a combination thereof. As at June 30, 2008, the remaining payments required to be made
under these newbuilding contracts were $300.8 million (2008), $309.8 million (2009), $239.8 million
(2010) and $163.2 million (2011).
As at June 30, 2008, the Company was committed to the construction of two LNG carriers which
delivered in November 2008 and March 2009. The Company has entered into these transactions with a
joint venture partner who has taken a 30% interest in the vessels and related long-term, fixed-rate
time-charter contracts. All amounts below include the joint venture partners 30% share. The total
cost of these LNG carriers is approximately $376.9 million, excluding capitalized interest. As at
June 30, 2008, payments made towards these commitments totaled $303.3 million (excluding $32.9
million of capitalized interest and other miscellaneous construction costs), and long-term
financing arrangements existed for the remaining $73.6 million unpaid cost of these LNG carriers.
As at June 30, 2008, the remaining payments required to be made under these contracts were $37.6
million (2008) and $36.1 million (2009). Following delivery, these two LNG carriers became or will
become subject to 20-year, fixed-rate time-charters to The Tangguh Production Sharing Contractors,
a consortium led by BP Berau, a subsidiary of BP plc. Pursuant to existing agreements, the Company
expects Teekay LNG to purchase the Companys 70% interest in the joint venture in May 2009 for
approximately $85 million plus the assumption of approximately $350 million in debt. However,
Teekay LNG is seeking to structure the project in a tax efficient manner and has requested a ruling
from the U.S. Internal Revenue Service related to the type of structure it would use for this
project. If Teekay LNG does not receive a favorable ruling, it would, among other alternatives,
seek to restructure the project or may elect not to acquire the Companys interest in the joint
venture.
b) Joint Ventures
In August 2005, the Company announced that it had been awarded long-term, fixed-rate contracts to
charter four LNG carriers to Ras Laffan Liquefied Natural Gas Co. Limited (3) (or RasGas 3), a
joint venture company between a subsidiary of ExxonMobil Corporation and Qatar Petroleum.
Commencing in the second and third quarters of 2008, the vessels are chartered to RasGas 3 at fixed
rates, with inflation adjustments, for a period of 25 years (with options to extend up to an
additional 10 years). The Company has entered into these transactions with its joint venture
partner, Qatar Petroleum, which has taken a 60% interest in the vessels and time-charters. In
connection with this award, the joint venture entered into agreements with Samsung Heavy Industries
Co. Ltd. to construct four 217,000-cubic meter LNG carriers at a total cost of approximately $1.0
billion (of which the Companys 40% portion is $400.7 million), excluding capitalized interest. As
at June 30, 2008, three vessels had been delivered and the fourth delivered on July 30, 2008. As
at June 30, 2008 payments made towards the commitment by the joint venture company for the fourth
vessel totaled $248.4 million (of which the Companys 40% contribution was $99.3 million),
excluding capitalized interest and other miscellaneous construction costs. Long-term financing
arrangements existed for all of the remaining $49.7 million unpaid cost of this LNG carrier
(including the joint venture partners 60% share). Pursuant to existing agreements, on November 1,
2006, Teekay LNG agreed to acquire the Companys ownership interest in these four vessels and
related charter contracts upon delivery of the first LNG carrier, which occurred on May 6, 2008.
The Company has a 33% interest in a consortium that will charter four newbuilding 160,400-cubic
meter LNG carriers for a period of 20 years to the Angola LNG Project, which is being developed by
subsidiaries of Chevron Corporation, Sociedade Nacional de Combustiveis de Angola EP, BP Plc, Total
S.A. and ENI SpA. Final award of the charter was made in December 2007. The vessels will be
chartered at fixed rates, with inflation adjustments, commencing in 2011. The remaining members of
the consortium are Mitsui & Co., Ltd. and NYK Bulkship (Europe) Ltd., which hold 34% and 33%
interests in the consortium, respectively. In connection with this award, the consortium has
entered into agreements with Samsung Heavy Industries Co. Ltd. to construct the four LNG carriers
at a total cost of approximately $921.4 million (of which the Companys 33% portion is $304.1
million), excluding capitalized interest. As at June 30, 2008, payments made towards these
commitments by the joint venture company totaled $106.0 million (of which the Companys 33%
contribution was $35.0 million), excluding capitalized interest and other miscellaneous
construction costs. As at June 30, 2008, the remaining payments required to be made under these
contracts were $90.6 million (2009), $113.2 million (2010), $475.6 million (2011) and $135.9
million (2012). In accordance with existing agreements, the Company is required to offer to Teekay
LNG its 33% interest in these vessels and related charter contracts no later than 180 days before
the scheduled delivery dates of the vessels. Deliveries of the vessels are scheduled between August
2011 and January 2012.
c) Long-Term Incentive Program
In 2005, the Company adopted the Vision Incentive Plan (or the VIP) to reward exceptional corporate
performance and shareholder returns. This plan will result in an award pool for senior management
based on the following two measures: (a) economic profit from 2005 to 2010 (or the Economic
Profit); and (b) market value added from 2001 to 2010 (or the MVA). The Plan terminates on December
31, 2010. Under the VIP, the Economic Profit is the difference between the Companys annual return
on invested capital and its weighted-average cost of capital multiplied by its average invested
capital employed during the year, and the increase in MVA from January 1, 2001 to December 31,
2010, where the MVA is the amount by which the average market value of the Company for the
preceding 18 months exceeds the average book value of the Company for the same period.
Page 13 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
Under the terms of the VIP, an interim award may only be made to VIP participants in 2008 and the
final award may only be made in 2011. During March 2008, the 2008 interim award, with a value of
$13.3 million, was paid to participants in the form of 328,600 restricted stock units. These
restricted stock units vest in three equal amounts in November 2008, November 2009 and November
2010. Each restricted stock unit is equal in value to one share of the Companys Common Stock and
reinvested dividends from the date of the grant to the vesting of the restricted stock unit. At
least 50 percent of any distribution from the balance of the VIP award pool in 2011 must be paid in
a form that is equity-based, with vesting on half of this percentage deferred for one year and
vesting on the remaining half of this percentage deferred for two years.
During the three and six months ended June 30, 2008, the Company recorded an expense related to the
VIP of $2.5 million (2007 $3.8 million) and $3.0 million (2007 $7.3 million), respectively,
which are included in general and administrative expense.
d) Legal proceedings and claims
The Company may, from time to time, be involved in legal proceedings and claims that arise in the
ordinary course of business. The Company believes that any adverse outcome of existing claims,
individually or in the aggregate, would not have a material effect on its financial position,
results of operations or cash flows, when taking into account its insurance coverage and
indemnifications from charterers.
e) Other
The Company enters into indemnification agreements with certain officers and directors. In
addition, the Company enters into other indemnification agreements in the ordinary course of
business. The maximum potential amount of future payments required under these indemnification
agreements is unlimited. However, the Company maintains what it believes is appropriate liability
insurance that reduces its exposure and enables the Company to recover future amounts paid up to
the maximum amount of the insurance coverage, less any deductible amounts pursuant to the terms of
the respective policies, the amounts of which are not considered material.
12. Fair Value Measurements
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (or
SFAS) No. 157, Fair Value Measurements. In accordance with Financial Accounting Standards Board
Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), the Company
deferred the adoption of SFAS No. 157 for its non-financial assets and non-financial liabilities,
except those items recognized or disclosed at fair value on an annual or more frequently recurring
basis, until January 1, 2009. The adoption of SFAS No. 157 did not have a material impact on the
Companys fair value measurements.
SFAS No. 157 clarifies the definition of fair value, prescribes methods for measuring fair value,
establishes a fair value hierarchy based on the inputs used to measure fair value and expands
disclosures about the use of fair value measurements. The fair value hierarchy has three levels
based on the reliability of the inputs used to determine fair value as follows:
Level 1. Observable inputs such as quoted prices in active markets;
Level 2. Inputs, other than the quoted prices in active markets, that are observable either
directly or indirectly; and
Level 3. Unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its
own assumptions.
The following tables present the Companys assets and liabilities that are measured at fair value
on a recurring basis and are categorized using the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at |
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Asset / (Liability) |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements (1) |
|
|
(168,978 |
) |
|
|
|
|
|
|
(168,978 |
) |
|
|
|
|
Interest rate swap agreements (1) |
|
|
45,328 |
|
|
|
|
|
|
|
45,328 |
|
|
|
|
|
Foreign currency forward contracts (1) |
|
|
29,071 |
|
|
|
|
|
|
|
29,071 |
|
|
|
|
|
Interest rate swaptions (1) |
|
|
(3,309 |
) |
|
|
|
|
|
|
(3,309 |
) |
|
|
|
|
Bunker fuel swap contracts (1) |
|
|
638 |
|
|
|
|
|
|
|
638 |
|
|
|
|
|
Freight forward agreements (1) |
|
|
(25,133 |
) |
|
|
|
|
|
|
(25,133 |
) |
|
|
|
|
Foinaven embedded derivative (1) |
|
|
(13,493 |
) |
|
|
|
|
|
|
(13,493 |
) |
|
|
|
|
Marketable securities(2) |
|
|
32,209 |
|
|
|
32,209 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The fair value of the Companys derivative instruments is the estimated amount that the
Company would receive or pay to terminate the agreements at the reporting date, taking into
account, as applicable, current interest rates, foreign exchange rates, bunker fuel prices,
spot tanker market rates for vessels, and the current credit worthiness of both the Company
and the swap counterparties. Given the current volatility in the credit markets, it is
reasonably possible that the amounts recorded as derivative liabilities could vary by material
amounts in the near term. |
|
(2) |
|
The fair value of the Companys marketable securities is the quoted market price as at the
reporting date. |
Page 14 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
13. Vessel Sales
a) |
|
During March 2008, the Company sold two Handysize product tankers, one of which was delivered
in April 2008. During March 2008, the Company also entered into an agreement to sell a third
Handysize product tanker upon the expiration of its current time-charter, which occurred
during September 2008. All three vessels are part of the Companys spot tanker segment. |
|
b) |
|
During June 2008, the Company entered into an agreement to sell an Aframax product tanker
which delivered in September 2008, and which is presented on the June 30, 2008 balance sheet
as vessel held for sale. During June 2008, the Company also entered into an agreement to sell
a medium-range product tanker upon the expiration of its current time-charter, which occurred
during September 2008. Both vessels are part of the Companys spot tanker segment. |
14. Restructuring Charge and Other net
During the six months ended June 30, 2008, the Company incurred restructuring charges of $3.0
million relating to the closure of one of the Companys three offices in Norway, $1.7 million
relating to the reorganization of a business unit, and $1.3 million relating to costs incurred to
change the crew of the Samar Spirit from Australian crew to International crew. The Company expects
to incur approximately $18.0 million of additional restructuring costs relating to these changes in
operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
(restated) |
|
|
|
|
|
(restated) |
|
Equity loss from joint ventures |
|
|
(2,063 |
) |
|
|
(2,092 |
) |
|
|
(5,672 |
) |
|
|
(3,687 |
) |
Gain on sale of marketable securities |
|
|
1,868 |
|
|
|
4,836 |
|
|
|
4,576 |
|
|
|
6,653 |
|
Loss on bond repurchase |
|
|
(712 |
) |
|
|
|
|
|
|
(1,310 |
) |
|
|
|
|
Income tax (expense) recovery |
|
|
11,201 |
|
|
|
(845 |
) |
|
|
8,718 |
|
|
|
3,041 |
|
Volatile organic compound emission plant lease income |
|
|
2,395 |
|
|
|
2,715 |
|
|
|
4,965 |
|
|
|
5,488 |
|
Miscellaneous income |
|
|
1,088 |
|
|
|
716 |
|
|
|
1,414 |
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net |
|
|
13,777 |
|
|
|
5,330 |
|
|
|
12,691 |
|
|
|
11,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
(restated) |
|
|
|
|
|
(restated) |
|
Net income |
|
|
183,419 |
|
|
|
167,617 |
|
|
|
78,290 |
|
|
|
252,600 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on marketable securities |
|
|
2,068 |
|
|
|
2,858 |
|
|
|
(3,766 |
) |
|
|
10,711 |
|
Reclassification adjustment for gain on sale of
marketable securities |
|
|
(1,868 |
) |
|
|
(4,836 |
) |
|
|
(4,575 |
) |
|
|
(6,653 |
) |
Minimum pension liability |
|
|
|
|
|
|
|
|
|
|
1,058 |
|
|
|
|
|
Net effect from qualifying cash flow hedging instruments |
|
|
(1,153 |
) |
|
|
|
|
|
|
1,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
182,466 |
|
|
|
165,639 |
|
|
|
72,704 |
|
|
|
256,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2008 and December 31, 2007, the Companys accumulated other comprehensive (loss)
income consisted of the following components:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2008 |
|
|
December 31, 2007 |
|
|
|
$ |
|
|
$ |
|
Unrealized gain on derivative instruments |
|
|
5,217 |
|
|
|
3,520 |
|
Minimum pension liability |
|
|
(5,220 |
) |
|
|
(6,278 |
) |
Unrealized (loss) gain on marketable securities |
|
|
(1,016 |
) |
|
|
7,325 |
|
|
|
|
|
|
|
|
|
|
|
(1,019 |
) |
|
|
4,567 |
|
|
|
|
|
|
|
|
Page 15 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
16. Derivative Instruments and Hedging Activities
The Company uses derivatives in accordance with its overall risk management policies. The following
summarizes the Companys risk strategies with respect to market risk from foreign currency
fluctuations, changes in interest rates, spot tanker market rates for vessels and bunker fuel
prices.
Foreign Currency Fluctuation Risk
The Company hedges portions of its forecasted expenditures denominated in foreign currencies with
foreign currency forward contracts. These foreign currency forward contracts are generally
designated as cash flow hedges of forecasted foreign currency expenditures. Where such instruments
are designated and qualify as cash flow hedges for accounting purposes, the effective portion of
the changes in their fair value is recorded in accumulated other comprehensive loss, until the
hedged item is recognized in earnings. At such time, the respective amount in accumulated other
comprehensive loss is released to earnings and is recorded within operating expenses, based on the
nature of the related expense. The ineffective portion of these foreign currency forward contracts
has also been reported in operating expenses, based on the nature of the related expense. During
the three and six months ended June 30, 2008, the Company did not recognize any significant amounts
of unrealized gains or losses due to ineffectiveness (2007 nil).
Changes in fair value of foreign currency forward contracts that are not designated, for accounting
purposes, as cash flow hedges are recognized in earnings and are reported in operating expenses,
based on the nature of the expense being economically hedged. During the three and six month
periods ended June 30, 2008 and 2007, the Company recognized unrealized (gains) losses relating to
foreign currency forward contracts that are not designated as cash flow hedges as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Vessel operating expenses |
|
|
4,048 |
|
|
|
(4,393 |
) |
|
|
3,623 |
|
|
|
(6,161 |
) |
Time-charter hire expenses |
|
|
431 |
|
|
|
(227 |
) |
|
|
365 |
|
|
|
(371 |
) |
General and administrative |
|
|
3,075 |
|
|
|
(2,720 |
) |
|
|
2,509 |
|
|
|
(4,527 |
) |
Foreign currency exchange (gain) loss |
|
|
(763 |
) |
|
|
(3,531 |
) |
|
|
1,708 |
|
|
|
(10,109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,791 |
|
|
|
(10,871 |
) |
|
|
8,205 |
|
|
|
(21,168 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2008, the Company was committed to the following foreign exchange contracts for the
forward purchase of foreign currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract amount in |
|
|
Average |
|
|
|
|
|
|
foreign currency |
|
|
contractual |
|
|
Expected maturity |
|
|
|
(millions) |
|
|
exchange rate(1) |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
(in millions of U.S. Dollars) |
|
Norwegian Kroner: |
|
|
1,083.7 |
|
|
|
5.93 |
|
|
$ |
86.2 |
|
|
$ |
87.1 |
|
|
$ |
9.5 |
|
Euro: |
|
|
43.3 |
|
|
|
0.65 |
|
|
$ |
35.6 |
|
|
$ |
29.1 |
|
|
$ |
1.6 |
|
Canadian Dollar: |
|
|
50.1 |
|
|
|
1.01 |
|
|
$ |
21.8 |
|
|
$ |
24.9 |
|
|
$ |
2.7 |
|
British Pounds: |
|
|
30.3 |
|
|
|
0.52 |
|
|
$ |
26.3 |
|
|
$ |
28.3 |
|
|
$ |
4.2 |
|
Australian Dollar: |
|
|
1.3 |
|
|
|
0.85 |
|
|
$ |
1.1 |
|
|
|
|
|
|
|
|
|
Singapore Dollar: |
|
|
3.6 |
|
|
|
1.37 |
|
|
$ |
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Average contractual exchange rate represents the contractual amount of foreign currency
one U.S. Dollar will buy. |
In addition, certain of the Companys forward contracts obligate the Company to enter into forward
purchase contracts for approximately 45.0 million Norwegian Kroner at a rate of 6.34 Norwegian
Kroner per U.S. Dollar at the discretion of the counterparty during 2008.
As at June 30, 2008, the Companys accumulated other comprehensive income included $5.2 million of
unrealized gains on foreign currency forward contracts designated as cash flow hedges (December 31,
2007 $3.5 million).
Interest Rate Risk
The Company enters into interest rate swaps which exchange a receipt of floating interest for a
payment of fixed interest to reduce the Companys exposure to interest rate variability on its
outstanding floating-rate debt. In addition, the Company holds interest rate swaps, which exchange
a payment of floating rate interest for a receipt of fixed interest, in order to reduce the
Companys exposure to the variability of interest income on its restricted cash deposits. The
Company has not designated, for accounting purposes, its interest rate swaps as cash flow hedges. Unrealized gains or losses relating to changes in fair value of the
Companys interest rate swaps have been reported in interest expense or interest income in the
consolidated statements of income.
During the three months ended June 30, 2008, the Company recognized an unrealized gain in interest
gain (expense) of $190.8 million (2007 $138.2 million unrealized gain), and an unrealized loss
in interest (loss) income of $23.2 million (2007 $27.0 million unrealized loss) relating to the
changes in fair value of its interest rate swaps. During the six months ended June 30, 2008, the
Company recognized an unrealized loss in interest expense of $10.9 million (2007 $144.3 million
unrealized gain), and an unrealized gain in interest income of $14.4 million (2007 $31.1 million
unrealized loss) relating to the changes in fair value of its interest rate swaps. The Company
expects to record a material unrealized loss during the second half of 2008 from the decrease in
the fair value of its interest rate swap agreements.
Page 16 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
As at June 30, 2008, the Company was committed to the following interest rate swap agreements
related to its LIBOR-based debt, restricted cash deposits and EURIBOR-based debt, whereby certain
of the Companys floating-rate debt and restricted cash deposits were swapped with fixed-rate
obligations or fixed-rate deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value / |
|
|
Weighted- |
|
|
Fixed |
|
|
|
Interest |
|
Principal |
|
|
Carrying Amount |
|
|
Average |
|
|
Interest |
|
|
|
Rate |
|
Amount |
|
|
of Asset (Liability) |
|
|
Remaining Term |
|
|
Rate |
|
|
|
Index |
|
$ |
|
|
$ |
|
|
(years) |
|
|
(%)(1) |
|
LIBOR-Based Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar-denominated interest rate swaps (2) |
|
LIBOR |
|
|
491,954 |
|
|
|
(4,548 |
) |
|
|
28.6 |
|
|
|
4.9 |
|
U.S. Dollar-denominated interest rate swaps |
|
LIBOR |
|
|
3,267,344 |
|
|
|
(131,810 |
) |
|
|
7.4 |
|
|
|
5.0 |
|
U.S. Dollar-denominated interest rate swaps (3) |
|
LIBOR |
|
|
938,536 |
|
|
|
(32,620 |
) |
|
|
18.3 |
|
|
|
5.3 |
|
LIBOR-Based Restricted Cash Deposit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar-denominated interest rate swaps (2) |
|
LIBOR |
|
|
479,074 |
|
|
|
1,686 |
|
|
|
28.6 |
|
|
|
4.8 |
|
EURIBOR-Based Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro-denominated interest rate swaps (4) (5) |
|
EURIBOR |
|
|
473,320 |
|
|
|
43,642 |
|
|
|
16.0 |
|
|
|
3.8 |
|
|
|
|
(1) |
|
Excludes the margins the Company pays on its variable-rate debt, which at of June 30, 2008
ranged from 0.3% to 1.0%. |
|
(2) |
|
Principal amount reduces quarterly. |
|
(3) |
|
Inception dates of swaps are 2008 ($30.0 million), 2009 ($408.5 million), 2010 ($300.0
million) and 2011 ($200.0 million). |
|
(4) |
|
Principal amount reduces monthly to 70.1 million Euros ($110.4 million) by the maturity dates
of the swap agreements. |
|
(5) |
|
Principal amount is the U.S. Dollar equivalent of 300.4 million Euros. |
During May 2006, the Company sold to a third party two swaptions for $2.4 million. The Company has
not applied hedge accounting to these instruments and they have been recorded at fair value. These
options, if exercised by the other party, will obligate the Company to enter into interest rate
swap agreements whereby certain of the Companys floating-rate debt will be swapped with fixed-rate
obligations. At June 30, 2008, the terms of these swaptions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
Principal |
|
|
|
|
|
|
|
|
|
Rate |
|
Amount(1) |
|
|
|
|
Remaining Term |
|
|
Fixed Interest Rate |
|
Index |
|
$ |
|
|
Start Date |
|
(years) |
|
|
(%) |
|
LIBOR |
|
|
150,000 |
|
|
August 31, 2009 |
|
|
12.0 |
|
|
|
4.3 |
|
LIBOR |
|
|
114,583 |
|
|
August 15, 2008 |
|
|
10.8 |
|
|
|
4.0 |
|
|
|
|
(1) |
|
Principal amount reduces $5.0 million semi-annually ($150.0 million) and $2.6 million quarterly
($114.6 million). |
Spot Tanker Market Risk
In order to reduce variability in revenues from fluctuations in certain spot tanker market rates,
the Company has entered into forward freight agreements (FFAs) and synthetic time-charters (STCs).
FFAs involve contracts to move a theoretical volume of freight at fixed-rates, thus attempting to
reduce the Companys exposure to spot tanker market rates. STCs are a means of achieving the
equivalent of a time-charter for a vessel that trades in the spot tanker market by taking the short
position in a long-term FFA. As at June 30, 2008, the Company had six STCs which were equivalent
to 3.5 Suezmax vessels. As at June 30, 2008, the FFAs, which include STCs, had an aggregate
notional value of $53.0 million, which is an aggregate of both long and short positions, and a net
fair value of ($27.1) million. The FFAs, which include STCs, expire between July 2008 and September
2009. The Company has not designated these contracts as cash flow hedges for accounting purposes.
Net gains and losses from FFAs and STCs are recorded within revenues in the consolidated statements
of income.
The Company also uses FFAs in non-hedge-related transactions to increase or decrease its exposure
to spot tanker market rates, within strictly defined limits. Historically, the Company has used a
number of different tools, including the sale/purchase of vessels and the in-charter/out-charter of
vessels, to increase or decrease this exposure. The Company believes that it can capture some of
the value from the volatility of the spot tanker market and from market imbalances by utilizing
FFAs. As at June 30, 2008, the Company was committed to non-hedge-related FFAs totaling 5.9 million
metric tonnes with a notional principal amount of $58.9 million and a fair value of $2.4 million.
These FFAs expired between July 2008 and December 2008.
Commodity Price Risk
The Company hedges a portion of its bunker fuel expenditures with bunker fuel swap contracts. The
Company has not designated these contracts as cash flow hedges for accounting purposes. As at June
30, 2008, the Company was committed to contracts totalling 17,820 metric tonnes with a
weighted-average price of $420.73 per tonne and a fair value of $0.6 million. The bunker fuel swap
contracts expired between July and December 2008.
Page 17 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
The Company is exposed to credit loss in the event of non-performance by the counterparties to the
foreign currency forward contracts, interest rate swap agreements, FFAs and bunker fuel swap
contracts; however, the Company does not anticipate non-performance by any of the counterparties.
In order to minimize counterparty risk, the Company only enters into derivative transactions with
counterparties that are rated A or better by Standard & Poors or Aa3 by Moodys at the time of the
transaction. In addition, to the extent possible and practical, interest rate swaps are entered
into with different counterparties to reduce concentration risk.
17. Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
Six Months Ended June 30 |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
(restated) |
|
|
|
|
|
(restated) |
|
|
Net income available for common stockholders |
|
|
183,419 |
|
|
|
167,617 |
|
|
|
78,290 |
|
|
|
252,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares |
|
|
72,377,684 |
|
|
|
73,843,784 |
|
|
|
72,511,041 |
|
|
|
73,488,668 |
|
Dilutive effect of employee stock options
and restricted stock awards |
|
|
901,529 |
|
|
|
1,466,783 |
|
|
|
846,149 |
|
|
|
1,441,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock and common stock equivalents |
|
|
73,279,213 |
|
|
|
75,310,567 |
|
|
|
73,357,190 |
|
|
|
74,929,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic |
|
|
2.53 |
|
|
|
2.27 |
|
|
|
1.08 |
|
|
|
3.44 |
|
- Diluted |
|
|
2.50 |
|
|
|
2.23 |
|
|
|
1.07 |
|
|
|
3.37 |
|
For the three and six months ended June 30, 2008, the anti-dilutive effect of 2.2 million shares
(0.8 million shares 2007) and 2.5 million shares (1.1 million shares 2007), respectively,
attributable to outstanding stock options was excluded from the calculations of diluted earnings
per share.
18. Subsequent events
a) |
|
In October 2008 the Company announced that its Board of Directors approved a 15 percent
increase in the Companys quarterly cash dividend, commencing with the dividend for the
quarter ended September 30, 2008. The dividend increased to $0.31625 per share, from $0.275
per share in the previous quarter. This dividend was paid on October 31, 2008 to shareholders
of record as at October 17, 2008. The Company also announced that its Board of Directors
authorized the repurchase of $200 million shares of its common stock, which represented
approximately 14 percent of the Companys total market capitalization as of October 6, 2008. |
|
b) |
|
In November 2008, the Company sold its 50 percent interest in the Swift Product Tanker Pool,
which included the Companys rights in 10 of its in-chartered intermediate product tankers,
for gross proceeds of $49 million. |
|
c) |
|
During November 2008 the Company sold a 2008-built Suezmax tanker. The vessel operated in the
Companys spot tanker segment and was delivered in November 2008. The Company expects to
realize a gain on the transaction. |
|
d) |
|
During September 2008, the Company drew $310 million on one of its Revolvers and during
October 2008 the Company drew $10 million and $60 million, respectively, on two of its
Revolvers. |
|
e) |
|
On December 31, 2008 Teekay Nakilat (III) and QGTC 3 novated the RasGas 3 term loan and their
interest rate swap agreements to the RasGas 3 Joint Venture for no consideration. As a
result, the RasGas 3 Joint Venture shall assume all the rights, liabilities and obligations of
Teekay Nakilat (III) and QGTC 3 under the terms of the RasGas 3 term loan and the interest
rate swap agreements. However, Teekay Nakilat (III) has guaranteed 40% of the RasGas 3 Joint
Ventures obligations under these interest rate swap agreements. The Company owns a 40%
interest in the RasGas 3 Joint Venture and accounts for it under the equity method. |
|
f) |
|
During March 2009, Teekay LNG completed a public offering of 4.0 million common units at a
price of $17.60 per unit, for gross proceeds of $71.8 million (including the general partners
$1.4 million proportionate capital contribution). As result, the Companys ownership, as of
March 31, 2009, of Teekay LNG was reduced from 57.7 percent to 53.0 percent (including the
Companys 2 percent general partner interest). The total net proceeds from the offering and
private placement of approximately $68.5 million were used to reduce amounts outstanding under
one of Teekay LNGs revolving credit facilities. Teekay LNG has granted the underwriters a
30-day option, from March 30, 2009, to purchase up to an additional 600,000 units to cover
over-allotments, if any. |
|
g) |
|
One of the Kenai vessels, the Arctic Spirit, has come off charter from the Marathon Oil
Corporation/ConocoPhillips joint venture on March 31, 2009, and the Company has entered into a
joint development and option agreement with Merrill Lynch Commodities, Inc. (MLCI), giving
MLCI the option to purchase the vessel for conversion to an LNG floating production, storage
and offload unit (FPSO). The agreement provides for a purchase price of $105 million if the
Company exercises its option to participate in the project, or $110 million if the Company
chooses not to participate. Under the option agreement, the Arctic Spirit is reserved for MLCI
until December 31, 2009 and MLCI may extend the option quarterly through 2010. If MLCI
exercises the option and purchases the vessel from the Company, it is expected that MLCI will
convert the vessel to an FPSO (although it is not required to do so) and charter it under a
long-term charter contract to a third party. The Company has the right to participate up to
50% in the conversion and charter project on terms that will be determined as the project
progresses. The agreement with MLCI also provides that if the conversion of the Arctic Spirit
to an FPSO proceeds, the Company will negotiate, along with an equity investment, a similar
option for a designee of MLCI to purchase the Polar Spirit for $125 million when it comes off
charter. |
Page 18 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
19. Restatement of Previously Issued Financial Statements
a) |
|
Derivative Instruments and Hedging Activities |
|
|
|
In August 2008, the Company commenced a review of its application of
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended. Based on its review the Company concluded that
certain of its interest rate swap agreements, foreign currency forward
contracts, bunker fuel swap contracts and forward freight agreements
did not qualify for hedge accounting treatment under SFAS No. 133 for
the three and six months ended June 30, 2007. The Companys findings
were as follows: |
|
|
|
One of the requirements of SFAS No. 133 is that hedge accounting is appropriate only for
those hedging relationships that a company expects will be highly effective in achieving
offsetting changes in fair value or cash flows attributable to the risk being hedged. To
determine whether transactions satisfy this requirement, entities must periodically assess
the effectiveness of hedging relationships both prospectively and retrospectively. Based on
the Companys review, the Company concluded that the hedge effectiveness assessment that
was conducted for certain of the Companys derivative instruments on the date of
designation was not sufficient to conclude that the derivative instruments would be highly
effective, in accordance with the technical requirements of SFAS No. 133, in achieving
offsetting changes in cash flows attributable to the risk being hedged. |
|
|
|
|
To conclude that hedge accounting is appropriate, another requirement of SFAS No. 133 is
that the applicable hedge documentation specifies the method that will be used to assess,
retrospectively and prospectively, the hedging instruments effectiveness, and the method
that will be used to measure hedge ineffectiveness. Documentation for certain of the
Companys derivative instruments did not clearly specify the method to be used to measure
hedge ineffectiveness. |
|
|
|
|
Certain of the Companys derivative instruments were designated as hedges when the
derivative instruments had a non-zero fair value. However, this designation was not
appropriate as the Company used certain methods of measuring ineffectiveness that are
prohibited in the case of non-zero fair value derivatives. |
For accounting purposes the Company should have reflected changes in fair value of these
derivative instruments as increases or decreases to the Companys net income on its consolidated
statements of income, instead of being reflected as increases or decreases to accumulated other
comprehensive income (loss), a component of stockholders equity on the consolidated balance
sheets and statements of changes in stockholders equity.
The change in accounting for these transactions does not affect the Companys cash flows or
liquidity.
b) |
|
Non-Routine, Complex Financial Structures and Arrangements, and Other |
Subsequent to the release of its preliminary second quarter financial results, the Company
reviewed and revised its financial statement presentation of debt and interest rate swap
obligations related to its joint venture interests in the RasGas 3 LNG carriers. As a result,
certain of the Companys assets and liabilities have been grossed up for accounting presentation
purposes. These adjustments, which do not affect the Companys net income, cash flow,
liquidity, cash distributions or stockholders equity in any period, are described below.
Through a wholly-owned subsidiary, the Company owns a 40 percent interest in the four RasGas 3
LNG carriers. The joint venture partner, a wholly-owned subsidiary of Qatar Gas Transport
Company, owns the remaining 60 percent interest. Both wholly-owned subsidiaries are joint and
several co-borrowers with respect to the RasGas 3 term loan and related interest rate swap
agreements. Previously, the Company recorded 40 percent of the RasGas 3 term loan and interest
rate swap obligations in its financial statements. The Company has now made adjustments to its
balance sheet to reflect 100 percent of the RasGas 3 term loan (December 31, 2007 $360.6
million) and interest rate swap obligations (December 31, 2007 $9.6 million), as well as
offsetting increases in assets, for the fourth quarter of 2006 through the second quarter of
2008 (see note 8). The Company has also made adjustments to its statement of income to reflect
100 percent of the interest expense (three and six months ended June 30, 2007 $4.1 million and
$6.9 million, respectively) on the RasGas 3 term loan with an offsetting amount to interest
income from its advances to the joint venture. These adjustments do not result in any increase
to the Companys net exposure in this joint venture.
In 2005, the Company adopted the long-term share-based VIP for senior management (see note
11(c)). During 2005, the Company recognized the VIP expense when incurred instead of over the
vesting period. Upon transition to SFAS 123R on January 1, 2006, the Company was required to
account for the VIP based on the fair value of the award as the VIP has a share-based component
in determining the amount of the ultimate grant. However, the Company continued to calculate
compensation expense for the VIP under the methodology it had followed in 2005, as it did not
identify the VIP as within the scope of SFAS 123R. The Company has now made adjustments to its
statements of income (loss) to increase general and administrative expenses for the three and
six months ended June 30, 2007 $1.4 million and $3.4 million, respectively. The Company has
also made adjustments to its balance sheet as at December 31, 2007 to decrease other long-term
liabilities by $8.1 million and increase accrued liabilities by $3.6 million. These accounting
adjustments associated with the VIP do not impact amounts paid out under the plan.
The Company has also restated certain other items primarily relating to amounts attributable to
minority interests (other assets: December 31, 2007 $8.4 million; minority interest: December
31, 2007 $18.8 million; minority interest expense: three and six months ended June 30, 2007
$(0.2) million and $0.9 million, respectively) and the measurement of the fair value of certain
derivative instruments (derivative instruments: December 31, 2007 $6.2 million) and has
reclassified an embedded derivative from long-term liabilities to derivative instruments
(December 31, 2007 $19.6 million).
Page 19 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
As a result of the accounting treatment assessment conclusions described above in this Note 19, the
Company is restating herein its statements of income for the three and six months ended June 30,
2007 and its statement of cash flows for the six months ended June 30, 2007.
The following table sets forth a reconciliation of the Companys previously reported and restated
net income and retained earnings as of the date and for the periods shown (in thousands of US
dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
Retained Earnings |
|
|
|
Three Months |
|
|
Six Months Ended |
|
|
|
|
|
|
Ended June 30, |
|
|
June 30, |
|
|
At December 31, |
|
|
|
2007 |
|
|
2007 |
|
|
2006 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported |
|
|
78,411 |
|
|
|
154,786 |
|
|
|
1,943,397 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments, net of minority interest |
|
|
90,426 |
|
|
|
102,110 |
|
|
|
(26,785 |
) |
Non-routine, complex financial structures and
arrangements, and other |
|
|
(1,220 |
) |
|
|
(4,296 |
) |
|
|
223 |
|
|
|
|
|
|
|
|
|
|
|
As restated |
|
|
167,617 |
|
|
|
252,600 |
|
|
|
1,916,835 |
|
|
|
|
|
|
|
|
|
|
|
Page 20 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
The following table presents the effect of the restatement on the Companys unaudited consolidated
statement of income for the three months ended June 30, 2007 (in thousands of U.S. dollars, except
share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 |
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Routine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complex |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structures and |
|
|
|
|
|
|
As |
|
|
Derivative |
|
|
Arrangements, |
|
|
As |
|
|
|
Reported |
|
|
Instruments |
|
|
and Other |
|
|
Restated |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
|
566,127 |
|
|
|
(391 |
) |
|
|
|
|
|
|
565,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses |
|
|
123,554 |
|
|
|
(1,046 |
) |
|
|
|
|
|
|
122,508 |
|
Vessel operating expenses |
|
|
108,851 |
|
|
|
(4,948 |
) |
|
|
|
|
|
|
103,903 |
|
Time-charter hire expense |
|
|
101,247 |
|
|
|
(289 |
) |
|
|
|
|
|
|
100,958 |
|
Depreciation and amortization |
|
|
68,095 |
|
|
|
|
|
|
|
|
|
|
|
68,095 |
|
General and administrative expenses |
|
|
58,358 |
|
|
|
(3,467 |
) |
|
|
1,374 |
|
|
|
56,265 |
|
Gain on sale of vessels and equipment |
|
|
(11,613 |
) |
|
|
|
|
|
|
|
|
|
|
(11,613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
448,492 |
|
|
|
(9,750 |
) |
|
|
1,374 |
|
|
|
440,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
117,635 |
|
|
|
9,359 |
|
|
|
(1,374 |
) |
|
|
125,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ITEMS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) gain |
|
|
(64,158 |
) |
|
|
137,193 |
|
|
|
(4,079 |
) |
|
|
68,956 |
|
Interest income |
|
|
23,390 |
|
|
|
(27,047 |
) |
|
|
4,079 |
|
|
|
422 |
|
Foreign exchange gain (loss) |
|
|
1,214 |
|
|
|
(9,849 |
) |
|
|
|
|
|
|
(8,635 |
) |
Minority interest expense |
|
|
(6,341 |
) |
|
|
(17,889 |
) |
|
|
154 |
|
|
|
(24,076 |
) |
Other net |
|
|
6,671 |
|
|
|
(1,341 |
) |
|
|
|
|
|
|
5,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other items |
|
|
(39,224 |
) |
|
|
81,067 |
|
|
|
154 |
|
|
|
41,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
78,411 |
|
|
|
90,426 |
|
|
|
(1,220 |
) |
|
|
167,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings |
|
|
1.06 |
|
|
|
|
|
|
|
|
|
|
|
2.27 |
|
Diluted earnings |
|
|
1.04 |
|
|
|
|
|
|
|
|
|
|
|
2.23 |
|
Cash dividends declared |
|
|
0.2375 |
|
|
|
|
|
|
|
|
|
|
|
0.2375 |
|
Weighted average number of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
73,843,784 |
|
|
|
|
|
|
|
|
|
|
|
73,843,784 |
|
Diluted |
|
|
75,310,567 |
|
|
|
|
|
|
|
|
|
|
|
75,310,567 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 21 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
The following table presents the effect of the restatement on the Companys unaudited consolidated
statement of income for the six months ended June 30, 2007 (in thousands of U.S. dollars, except
share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007 |
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Routine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complex |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structures and |
|
|
|
|
|
|
As |
|
|
Derivative |
|
|
Arrangements, |
|
|
As |
|
|
|
Reported |
|
|
Instruments |
|
|
and Other |
|
|
Restated |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
|
1,144,522 |
|
|
|
(538 |
) |
|
|
|
|
|
|
1,143,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage expenses |
|
|
242,493 |
|
|
|
(2,506 |
) |
|
|
|
|
|
|
239,987 |
|
Vessel operating expenses |
|
|
206,292 |
|
|
|
(7,199 |
) |
|
|
|
|
|
|
199,093 |
|
Time-charter hire expense |
|
|
199,748 |
|
|
|
(433 |
) |
|
|
|
|
|
|
199,315 |
|
Depreciation and amortization |
|
|
147,358 |
|
|
|
|
|
|
|
|
|
|
|
147,358 |
|
General and administrative expenses |
|
|
117,155 |
|
|
|
(5,342 |
) |
|
|
3,432 |
|
|
|
115,245 |
|
Gain on sale of vessels and equipment |
|
|
(11,613 |
) |
|
|
|
|
|
|
|
|
|
|
(11,613 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
901,433 |
|
|
|
(15,480 |
) |
|
|
3,432 |
|
|
|
889,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
243,089 |
|
|
|
14,942 |
|
|
|
(3,432 |
) |
|
|
254,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ITEMS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense) gain |
|
|
(124,541 |
) |
|
|
144,518 |
|
|
|
(6,926 |
) |
|
|
13,051 |
|
Interest income |
|
|
39,558 |
|
|
|
(31,108 |
) |
|
|
6,926 |
|
|
|
15,376 |
|
Foreign exchange loss |
|
|
(4,674 |
) |
|
|
(5,637 |
) |
|
|
|
|
|
|
(10,311 |
) |
Minority interest expense |
|
|
(11,981 |
) |
|
|
(18,986 |
) |
|
|
(864 |
) |
|
|
(31,831 |
) |
Other net |
|
|
13,335 |
|
|
|
(1,619 |
) |
|
|
|
|
|
|
11,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other items |
|
|
(88,303 |
) |
|
|
87,168 |
|
|
|
(864 |
) |
|
|
(1,999 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
154,786 |
|
|
|
102,110 |
|
|
|
(4,296 |
) |
|
|
252,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common share amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings |
|
|
2.11 |
|
|
|
|
|
|
|
|
|
|
|
3.44 |
|
Diluted earnings |
|
|
2.07 |
|
|
|
|
|
|
|
|
|
|
|
3.37 |
|
Cash dividends declared |
|
|
0.4750 |
|
|
|
|
|
|
|
|
|
|
|
0.4750 |
|
Weighted average number of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
73,488,668 |
|
|
|
|
|
|
|
|
|
|
|
73,488,668 |
|
Diluted |
|
|
74,929,991 |
|
|
|
|
|
|
|
|
|
|
|
74,929,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 22 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
The following table presents the effect of the restatement on the Companys unaudited statement of
cash flows for the six months ended June 30, 2007 (in thousands of U.S. dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007 |
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Routine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Complex |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structures and |
|
|
|
|
|
|
As |
|
|
Derivative |
|
|
Arrangements, |
|
|
As |
|
|
|
Reported |
|
|
Instruments |
|
|
and Other |
|
|
Restated |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Cash and cash equivalents provided by (used for) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
154,786 |
|
|
|
102,110 |
|
|
|
(4,296 |
) |
|
|
252,600 |
|
Non-cash items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
147,358 |
|
|
|
|
|
|
|
|
|
|
|
147,358 |
|
Amortization of in-process revenue contracts |
|
|
(30,547 |
) |
|
|
|
|
|
|
|
|
|
|
(30,547 |
) |
Gain on sale of marketable securities |
|
|
(6,653 |
) |
|
|
|
|
|
|
|
|
|
|
(6,653 |
) |
Gain on sale of vessels and equipment |
|
|
(11,613 |
) |
|
|
|
|
|
|
|
|
|
|
(11,613 |
) |
Equity income (net of dividends received: June 30, 2007 $nil) |
|
|
3,687 |
|
|
|
|
|
|
|
|
|
|
|
3,687 |
|
Income taxes |
|
|
(3,795 |
) |
|
|
754 |
|
|
|
|
|
|
|
(3,041 |
) |
Employee stock-based compensation |
|
|
4,708 |
|
|
|
|
|
|
|
|
|
|
|
4,708 |
|
Foreign exchange loss and other net |
|
|
11,776 |
|
|
|
33,733 |
|
|
|
4,296 |
|
|
|
49,805 |
|
Unrealized gains on derivative instruments |
|
|
|
|
|
|
(136,597 |
) |
|
|
|
|
|
|
(136,597 |
) |
Change in non-cash working capital items related to operating
activities |
|
|
(60,028 |
) |
|
|
|
|
|
|
|
|
|
|
(60,028 |
) |
Expenditures for drydocking |
|
|
(40,623 |
) |
|
|
|
|
|
|
|
|
|
|
(40,623 |
) |
Distribution from subsidiaries to minority owners |
|
|
(16,354 |
) |
|
|
|
|
|
|
|
|
|
|
(16,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flow |
|
|
152,702 |
|
|
|
|
|
|
|
|
|
|
|
152,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
1,788,245 |
|
|
|
|
|
|
|
210,071 |
|
|
|
1,998,316 |
|
Debt issuance costs |
|
|
(4,382 |
) |
|
|
|
|
|
|
|
|
|
|
(4,382 |
) |
Repayments of long-term debt |
|
|
(737,938 |
) |
|
|
|
|
|
|
|
|
|
|
(737,938 |
) |
Repayments of capital lease obligations |
|
|
(4,384 |
) |
|
|
|
|
|
|
|
|
|
|
(4,384 |
) |
Proceeds from loan from joint venture partner |
|
|
22,093 |
|
|
|
|
|
|
|
|
|
|
|
22,093 |
|
Increase in restricted cash |
|
|
(79,230 |
) |
|
|
|
|
|
|
|
|
|
|
(79,230 |
) |
Net proceeds from sale of Teekay LNG Partners L.P. units |
|
|
84,186 |
|
|
|
|
|
|
|
|
|
|
|
84,186 |
|
Issuance of Common Stock upon exercise of stock options |
|
|
27,326 |
|
|
|
|
|
|
|
|
|
|
|
27,326 |
|
Repurchase of Common Stock |
|
|
(3,035 |
) |
|
|
|
|
|
|
|
|
|
|
(3,035 |
) |
Cash dividends paid |
|
|
(34,897 |
) |
|
|
|
|
|
|
|
|
|
|
(34,897 |
) |
Other financing activities |
|
|
(3,643 |
) |
|
|
|
|
|
|
|
|
|
|
(3,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing cash flow |
|
|
1,054,341 |
|
|
|
|
|
|
|
210,071 |
|
|
|
1,264,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for vessels and equipment |
|
|
(356,104 |
) |
|
|
|
|
|
|
|
|
|
|
(356,104 |
) |
Proceeds from sale of vessels and equipment |
|
|
118,975 |
|
|
|
|
|
|
|
|
|
|
|
118,975 |
|
Purchases of marketable securities |
|
|
(28,636 |
) |
|
|
|
|
|
|
|
|
|
|
(28,636 |
) |
Proceeds from sale of marketable securities |
|
|
49,059 |
|
|
|
|
|
|
|
|
|
|
|
49,059 |
|
Acquisition of 50% of OMI Corporation |
|
|
(896,841 |
) |
|
|
|
|
|
|
|
|
|
|
(896,841 |
) |
Loans to joint ventures |
|
|
(144,270 |
) |
|
|
|
|
|
|
(210,071 |
) |
|
|
(354,341 |
) |
Investment in direct financing lease assets |
|
|
(7,530 |
) |
|
|
|
|
|
|
|
|
|
|
(7,530 |
) |
Direct financing lease payments received |
|
|
10,399 |
|
|
|
|
|
|
|
|
|
|
|
10,399 |
|
Other investing activities |
|
|
(3,677 |
) |
|
|
|
|
|
|
|
|
|
|
(3,677 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investing cash flow |
|
|
(1,258,625 |
) |
|
|
|
|
|
|
(210,071 |
) |
|
|
(1,468,696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(51,582 |
) |
|
|
|
|
|
|
|
|
|
|
(51,582 |
) |
Cash and cash equivalents, beginning of the period |
|
|
343,914 |
|
|
|
|
|
|
|
|
|
|
|
343,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period |
|
|
292,332 |
|
|
|
|
|
|
|
|
|
|
|
292,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 23 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
20. Recent Accounting Pronouncement
In October 2008, the Financial Accounting Standards Board issued SFAS No. 157-3, Determining the
Fair Value of a Financial Asset in a Market That Is Not Active, which clarifies the application of
SFAS 157 when the market for a financial asset is inactive. Specifically, SFAS No. 157-3 clarifies
how (1) managements internal assumptions should be considered in measuring fair value when
observable data are not present, (2) observable market information from an inactive market should
be taken into account, and (3) the use of broker quotes or pricing services should be considered in
assessing the relevance of observable and unobservable data to measure fair value. The guidance in
SFAS No. 157-3 is effective immediately but does not have any impact on the Companys consolidated
financial statements.
In December 2007, the FASB issued SFAS No. 141(R): Business Combinations (or SFAS 141(R)), which
replaces SFAS No. 141, Business Combinations. This statement establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to enable the
evaluation of the nature and financial effects of the business combination. SFAS 141(R) is
effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating
the potential impact, if any, of the adoption of SFAS 141(R) on its consolidated results of
operations and financial condition.
In December 2007, the FASB issued SFAS No. 160: Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of Accounting Research Bulletin No. 51 (or SFAS 160). This statement
establishes accounting and reporting standards for ownership interests in subsidiaries held by
parties other than the parent, the amount of consolidated net income attributable to the parent and
to the noncontrolling interest, changes in a parents ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160 also
establishes disclosure requirements that clearly identify and distinguish between the interests of
the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years
beginning after December 15, 2008. The Company is currently evaluating the potential impact, if
any, of the adoption of SFAS 160 on its consolidated results of operations and financial condition.
In March 2008, the FASB issued SFAS No. 161: Disclosures about Derivative Instruments and Hedging
Activities, an amendment of Statement of Financial Accounting Standards No. 133 (or SFAS 161). The
statement requires qualitative disclosures about an entitys objectives and strategies for using
derivatives and quantitative disclosures about how derivative instruments and related hedged items
affect an entitys financial position, financial performance and cash flows. SFAS 161 is effective
for fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008,
with early application allowed. SFAS 161 allows but does not require, comparative disclosures for
earlier periods at initial adoption.
21. Change in Accounting Estimate
Effective January 1, 2008, the Company increased its estimate of the residual value of its vessels
due to an increase in the estimated scrap rate per lightweight ton. The Companys estimate of
salvage values took into account the then current scrap prices and the historical scrap rates over
the five years prior to December 31, 2007. As a result, depreciation and amortization expense has
decreased by $3.3 million and $6.6 million, and net income has increased by $2.2 million and $5.0
million, or $0.03 and $0.07 per share for the three and six months ended June 30, 2008,
respectively.
Page 24 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
June 30, 2008
PART I FINANCIAL INFORMATION
|
|
|
ITEM 2 |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Restatement of Previously Issued Financial Statements
The discussion and analysis below reflects the impact of our restatement. Please read Note 19 of
the notes to the consolidated financial statements for a more detailed discussion of our restated
results and the basis for them. The following table sets forth a reconciliation of previously
reported and restated net income for the periods shown (in thousands of US dollars):
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, 2007 |
|
|
June 30, 2007 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
As previously reported |
|
|
78,411 |
|
|
|
154,786 |
|
Adjustments: |
|
|
|
|
|
|
|
|
Derivative instruments, net of minority interest |
|
|
90,426 |
|
|
|
102,110 |
|
Non-routine, complex financial structures and arrangements, and other |
|
|
(1,220 |
) |
|
|
(4,296 |
) |
|
|
|
|
|
|
|
As restated |
|
|
167,617 |
|
|
|
252,600 |
|
|
|
|
|
|
|
|
OVERVIEW
We are a leading provider of international crude oil and petroleum product marine transportation
services. Over the past five years, we have undergone a major transformation from an owner of
ships in the cyclical spot tanker business to a growth-oriented asset manager in the Marine
Midstream sector. This transformation has included the expansion into the liquefied natural gas
(or LNG) shipping sector through our publicly-listed subsidiary, Teekay LNG Partners L.P. (or
Teekay LNG), and further growth of our operations in the offshore production, storage and
transportation sector through our publicly-listed subsidiary, Teekay Offshore Partners L.P. (or
Teekay Offshore), and through our acquisition of Teekay Petrojarl ASA (or Teekay Petrojarl). We
continue to expand our conventional tanker business through our publicly-listed subsidiary Teekay
Tankers Ltd. (or Teekay Tankers). With a fleet of approximately 189 vessels, offices in 22
countries and approximately 6,400 seagoing and shore-based employees, we provide comprehensive
marine services to the worlds leading oil and gas companies, helping them seamlessly link their
upstream energy production to their downstream processing operations. Our goal is to create the
industrys leading asset management company, focused on the Marine Midstream space.
SIGNIFICANT DEVELOPMENTS IN 2008 and 2009
Acquisition of Remaining Shares of Teekay Petrojarl
In June 2008, we acquired an additional 30.1 percent interest in Teekay Petrojarl from Prosafe
Production for a total purchase price of approximately NOK 1.3 billion ($257 million), which was
paid in cash. As a result of this transaction, our total ownership of Teekay Petrojarl increased to
approximately 94.8 percent from 64.7 percent. In July 2008 we exercised our right to effect the
compulsory acquisition pursuant to Section 4-25 of the Norwegian Public Limited Liability Companies
Act of all of Teekay Petrojarls shares not previously owned by us. Pursuant to this process, we
automatically became the owner of all shares of Teekay Petrojarl.
Strategic Transaction with ConocoPhillips
In January 2008, we entered into a multi-vessel transaction with ConocoPhillips, in which we
acquired ConocoPhillips rights in six double-hull Aframax tankers. Of the six Aframax tankers
acquired, two are owned and four are bareboat chartered-in from third parties for periods ranging
from five to ten years. The total cost of the transaction was $83.8 million. Two of the Aframax
tankers have been chartered back to ConocoPhillips for a period of five years. Commencing in the
second quarter of 2008, we have also chartered to ConocoPhillips a Very Large Crude Carrier (or
VLCC) for three years and two of our Medium Range product tankers for five years.
Sale of LNG Vessels to Teekay LNG
In accordance with existing agreements, in April 2008, we sold two 1993-built LNG vessels (the
Kenai LNG Carriers) to Teekay LNG for $230.0 million and chartered them back for ten years with
three five-year option periods. We acquired these vessels in December 2007 from a joint venture
between Marathon Oil Corporation and ConocoPhillips for a total cost of $230.0 million. The
specialized ice-strengthened vessels were purpose-built to carry LNG from Alaskas Kenai LNG plant
to Japan. The vessels have been time-chartered back to the joint venture until April 2009 with
charterers option to extend the contracts up to an additional seven years. We believe that these
specialized vessels will provide us with the prospect of a new service offering following the
completion of the Kenai project such as delivering partial cargoes at multiple ports or as a
potential project vessel such as serving as a floating offshore re-gasification or production
facility, subject to conversion.
One of the Kenai vessels, the Arctic Spirit, has come off charter from the Marathon Oil
Corporation/ConocoPhillips joint venture on March 31, 2009, and we have entered into a joint
development and option agreement with Merrill Lynch Commodities, Inc. (MLCI), giving MLCI the
option to purchase the vessel for conversion to an LNG floating production, storage and offload
unit (FPSO). The agreement provides for a purchase price of $105 million if we exercise our option
to participate in the project, or $110 million if we choose not to participate. Under the option
agreement, the Arctic Spirit is reserved for MLCI until December 31, 2009 and MLCI may extend the
option quarterly through 2010. If MLCI exercises the option and purchases the vessel from us, we
expect MLCI to convert the vessel to an FPSO (although it is not required to do so) and charter it
under a long-term charter contract to a third party. We have the right to participate up to 50% in
the conversion and charter
project on terms that will be determined as the project progresses. The agreement with MLCI also
provides that if the conversion of the Arctic Spirit to an FPSO proceeds, we will negotiate, along
with an equity investment, a similar option for a designee of MLCI to purchase the Polar Spirit for
$125 million when it comes off charter.
Page 25 of 46
Sale of RasGas 3 LNG Vessels to Teekay LNG
During the second quarter of 2008, three of four newbuilding carriers (the RasGas 3 LNG Carriers)
delivered that will service expansion of an LNG project in Qatar. In July 2008, the fourth vessel
delivered. Based on a November 1, 2006 agreement that Teekay LNG entered into with us, upon
delivery of the first vessel, we sold to Teekay LNG our 100% interest in Teekay Nakilat (III)
Holdings Corporation (or Teekay Nakilat (III)), which owns a 40% interest in Teekay Nakilat (III)
Corporation (or RasGas 3 Joint Venture), in exchange for a non-interest bearing and unsecured
promissory note from Teekay LNG in the amount of $110.2 million.
Sale of Suezmax Tankers to Teekay Tankers
During April 2008, we sold two Suezmax tankers to Teekay Tankers for a total cost of $186.9
million. In connection with an existing agreement, Teekay will offer to Teekay Tankers by July
2009 the opportunity to purchase up to an additional two Suezmax-class oil tankers.
Public Offerings by Teekay LNG Partners L.P.
During April 2008, Teekay LNG completed a public offering of 5.0 million common units at a price of
$28.75 per unit, for gross proceeds of $143.75 million. On May 8, 2008, the underwriters exercised
their over-allotment option and purchased an additional 375,000 common units resulting in an
additional $10.8 million in gross proceeds to Teekay LNG. Concurrently with the public offering, we
acquired 1.74 million common units of Teekay LNG at the same public offering price for a total cost
of $50.0 million. As a result of the above transactions, Teekay LNG raised gross equity proceeds
of $208.7 million (including the general partners proportionate capital contribution), and our
ownership, as of June 30, 2008, of Teekay LNG was reduced from 63.7 percent to 57.7 percent
(including our 2 percent general partner interest). The total net proceeds from the offering and
private placement of approximately $202.5 million were used to reduce amounts outstanding under
Teekay LNGs revolving credit facilities which were, and will be used to fund the acquisitions of
the interests in the Kenai and RasGas 3 LNG carriers.
During March 2009, Teekay LNG completed a public offering of 4.0 million common units at a price of
$17.60 per unit, for gross proceeds of $71.8 million (including the general partners $1.4 million
proportionate capital contribution). As result, our ownership as of March 31, 2009, of Teekay LNG
was reduced from 57.7 percent to 53.0 percent (including our 2 percent general partner interest).
The total net proceeds from the offering and private placement of approximately $68.5 million were
used to reduce amounts outstanding under one of Teekay LNGs revolving credit facilities. Teekay
LNG has granted the underwriters a 30-day option, from March 30, 2009, to purchase up to an
additional 600,000 units to cover over-allotments, if any.
Public Offering by Teekay Offshore Partners L.P.
During June 2008, Teekay Offshore completed a public offering of 10.25 million common units at a
price of $20.00 per unit. In connection with the follow-on public offering, we contributed $4.2
million to Teekay Offshore to maintain our 2% general partner interest. As a result of the above
transactions, our ownership of Teekay Offshore was reduced from 59.8 percent to 50.6 percent
(including our 2 percent general partner interest), and we recorded an increase to stockholders
equity of $28.5 million, which represents our gain from the issuance of units. During July 2008,
the underwriters exercised their over-allotment option and purchased an additional 375,000 common
units at $20.00 per unit for proceeds of $7.2 million, net of $0.3 million of commissions. As a
result, we contributed a further $0.2 million to Teekay Offshore to maintain our 2% general partner
interest and our ownership of Teekay Offshore reduced further to 49.9%.
The total net proceeds from the offerings of approximately $210.8 million were used to fund the
acquisition by Teekay Offshore from us of an additional 25% interest in Teekay Offshore Operating
L.P. (or OPCO) and to repay a portion of advances from OPCO.
Sale of Aframax Lightering Tankers to Teekay Offshore
On June 18, 2008, OPCO acquired from us two ship owning subsidiaries (SPT Explorer L.L.C. and the
SPT Navigator L.L.C.) for a total cost of approximately $106.0 million, including the assumption of
third-party debt of approximately $90.0 million and the non-cash settlement of related party
working capital of $1.2 million. The acquired subsidiaries own two 2008-built Aframax lightering
tankers (the SPT Explorer and the SPT Navigator) and their related 10-year, fixed-rate bareboat
charters (with options exercisable by the charterer to extend up to an additional five years)
entered into with Skaugen PetroTrans, a joint venture in which we own a 50% interest. These two
lightering tankers are specially designed to be used in ship-to-ship oil transfer operations. This
purchase was financed with the assumption of debt, together with cash balances.
RESULTS OF OPERATIONS
We use a variety of financial and operational terms and concepts when analyzing our results of
operations, which can be found in Item 5. Operating and Financial Review and Prospects in our
Annual Report on Form 20-F/A for the year ended December 31, 2007. In accordance with United States
generally accepted accounting principles (or GAAP), we report gross revenues in our income
statements and include voyage expenses among our operating expenses. However, ship-owners base
economic decisions regarding the deployment of their vessels upon anticipated time-charter
equivalent (or TCE) rates, and industry analysts typically measure bulk shipping freight rates in
terms of TCE rates. This is because under time-charter contracts and floating production, storage
and offloading (or FPSO) service contracts the customer usually pays the voyage expenses, while
under voyage charters and contracts of affreightment the ship-owner usually pays the voyage
expenses, which typically are added to the hire rate at an approximate cost. Accordingly, the
discussion of revenue below focuses on net revenues and TCE rates of our four reportable segments
where applicable.
We manage our business and analyze and report our results of operations on the basis of four
segments: the offshore segment, the fixed-rate segment, the liquefied gas segment and the spot
tanker segment. Please read Item 1 Financial Statements: Note 2 Segment Reporting.
Page 26 of 46
Offshore Segment
Our offshore segment includes our shuttle tankers, FPSO units, and floating storage and offtake (or
FSO) units. The offshore segment has four shuttle tankers under construction. Please read Item 1
Financial Statements: Note 11 Commitments and Contingencies. We took delivery of one FPSO during
February 2008 and acquired one shuttle tanker during March 2008. We use the vessels in this segment
to provide transportation, production, processing and storage services to oil companies operating
offshore oil field installations. These services are typically provided under long-term, fixed-rate
time-charter contracts, contracts of affreightment or FPSO service contracts. Historically, the
utilization of shuttle tankers and FPSO units in the North Sea is higher in the winter months, as
favorable weather conditions in the summer months provide opportunities for repairs and maintenance
to vessels and the offshore oil platforms, which generally reduces oil production.
The following table presents our offshore segments operating results and compares its net revenues
(which is a non-GAAP financial measure) to revenues, the most directly comparable GAAP financial
measure. The following table also provides a summary of the changes in calendar-ship-days by owned
and chartered-in vessels for our offshore segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
|
|
June 30, |
|
|
|
|
(in thousands of U.S. dollars, except |
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
calendar-ship-days and percentages) |
|
|
|
|
(restated) |
|
|
|
|
|
|
|
|
(restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
273,961 |
|
|
|
236,233 |
|
|
|
16.0 |
|
|
|
532,749 |
|
|
|
485,108 |
|
|
|
9.8 |
|
Voyage expenses |
|
|
46,024 |
|
|
|
26,064 |
|
|
|
76.6 |
|
|
|
84,925 |
|
|
|
54,790 |
|
|
|
55.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
227,937 |
|
|
|
210,169 |
|
|
|
8.5 |
|
|
|
447,824 |
|
|
|
430,318 |
|
|
|
4.1 |
|
Vessel operating expenses |
|
|
101,596 |
|
|
|
69,325 |
|
|
|
46.6 |
|
|
|
185,416 |
|
|
|
129,615 |
|
|
|
43.1 |
|
Time-charter hire expense |
|
|
32,242 |
|
|
|
39,260 |
|
|
|
(17.9 |
) |
|
|
67,280 |
|
|
|
80,433 |
|
|
|
(16.4 |
) |
Depreciation and amortization |
|
|
53,772 |
|
|
|
35,627 |
|
|
|
50.9 |
|
|
|
99,846 |
|
|
|
81,349 |
|
|
|
22.7 |
|
General and administrative expenses(1) |
|
|
26,957 |
|
|
|
23,164 |
|
|
|
16.4 |
|
|
|
54,019 |
|
|
|
48,068 |
|
|
|
12.4 |
|
Gain on sale of vessels |
|
|
(3,150 |
) |
|
|
(11,613 |
) |
|
|
(72.9 |
) |
|
|
(3,150 |
) |
|
|
(11,613 |
) |
|
|
(72.9 |
) |
Restructuring charge |
|
|
3,327 |
|
|
|
|
|
|
|
|
|
|
|
3,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
13,193 |
|
|
|
54,406 |
|
|
|
(75.8 |
) |
|
|
41,086 |
|
|
|
102,466 |
|
|
|
(59.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels |
|
|
3,459 |
|
|
|
3,181 |
|
|
|
8.7 |
|
|
|
6,801 |
|
|
|
6,240 |
|
|
|
9.0 |
|
Chartered-in Vessels |
|
|
897 |
|
|
|
1,143 |
|
|
|
(21.5 |
) |
|
|
1,899 |
|
|
|
2,307 |
|
|
|
(17.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,356 |
|
|
|
4,324 |
|
|
|
0.7 |
|
|
|
8,700 |
|
|
|
8,547 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the offshore segment based on estimated use of corporate resources). |
The average fleet size of our offshore segment (including vessels chartered-in) increased for the
three and six months ended June 30, 2008, compared to the same periods last year, primarily due to:
|
|
|
the delivery of a new FPSO unit in February 2008 (or the FPSO Delivery); |
|
|
|
|
the transfer of the Navion Saga from the fixed-rate segment to the offshore segment in
connection with the completion of its conversion to an FSO unit in May 2007; and |
|
|
|
|
the delivery of two new shuttle tankers, the Navion Bergen and the Navion Gothenburg, in
April and July 2007, respectively (collectively, the Shuttle Tanker Deliveries); |
partially offset by
|
|
|
a decline in the number of chartered-in shuttle tankers; and |
|
|
|
|
the sale of a 1987-built shuttle tanker in May 2007 (or the Shuttle Tanker Disposition). |
Net Revenues. Net revenues increased for the three and six months ended June 30, 2008
compared to the same periods in 2007, primarily due to:
|
|
|
increases of $9.6 million and $16.4 million, respectively, for the three and six months
ended June 30, 2008, from the FPSO Delivery; |
|
|
|
|
an increase of $5.0 million for the three months ended June 30, 2008, in shuttle tanker
revenue due to more revenue days for shuttle tankers servicing contracts of affreightment
in the conventional spot tanker market during the three months ended June 30, 2008,
compared to the same period last year; |
|
|
|
|
an increase of $4.9 million for the three months ended June 30, 2008, from the
amortization of contract value liability relating to FPSO service contracts (as discussed
below), which was recognized on the date of the acquisition by us of a controlling interest
in Teekay Petrojarl in 2006 and adjusted in the second quarter of 2007; |
|
|
|
|
increases of $3.6 million and $9.1 million, respectively, for the three and six months
ended June 30, 2008, from the Shuttle Tanker Deliveries; |
Page 27 of 46
|
|
|
increases of $2.3 million and $9.9 million, respectively, for the three and six months
ended June 30, 2008, from the transfer of the Navion Saga to the offshore segment; |
|
|
|
increases of $1.2 million and $2.5 million, respectively, for the three and six months
ended June 30, 2008, due to the redeployment of one shuttle tanker from servicing contracts
of affreightment to a time-charter effective October 2007, and earning a higher average
daily charter rate than the same periods last year; and |
|
|
|
an increase of $1.3 million for the six months ended June 30, 2008, due to more revenue
days for shuttle tankers servicing contracts of affreightment, partially offset by fewer
revenue days from shuttle tankers servicing contracts of affreightment in the conventional
spot tanker market, earning a higher average daily charter rate, compared to the same
period last year; |
partially offset by
|
|
|
decreases of $2.3 million and $3.9 million, respectively, for the three and six months
ended June 30, 2008, due to an increase in bunker costs which are not passed on to the
charterer under certain contracts; |
|
|
|
decreases of $2.2 million and $5.3 million, respectively, for the three and six months
ended June 30, 2008, due to declining oil production at mature oil fields in the North Sea
which are serviced by certain shuttle tankers on contracts of affreightment; |
|
|
|
a decrease of $4.0 million for the six months ended June 30, 2008, due to an increased
number of offhire days resulting from an increase in scheduled drydockings and unexpected
repairs performed during the six months ended June 30, 2008, compared to the same period
last year; and |
|
|
|
decreases of $1.6 million and $3.8 million, respectively, for the three and six months
ended June 30, 2008, due to customer performance claims under the terms of charter party
agreements. |
As part of our acquisition of Teekay Petrojarl, we assumed certain FPSO service contracts that have
terms that are less favourable than prevailing market terms at the time of the acquisition. This
contract value liability, which was recognized on the date of acquisition, is being amortized to
revenue over the remaining firm period of the current FPSO contracts, on a weighted basis based on
the projected revenue to be earned under the contracts. The amount of amortization relating to
these contracts included in revenue for the three and six months ended June 30, 2008 was $11.9
million ($7.0 million 2007) and $30.2 million ($30.5 million 2007), respectively. Please read
Item 1 Financial Statements: Note 6 Goodwill, Intangible Assets and In-Process Revenue
Contracts.
Vessel Operating Expenses. Vessel operating expenses increased during the three and six
months ended June 30, 2008, compared to the same periods in 2007, primarily due to:
|
|
|
increases of $9.5 million and $14.4 million, respectively, for the three and six months
ended June 30, 2008, from increases in the price of consumables, freight and lubricants; |
|
|
|
increases of $9.2 million and $17.2 million, respectively, for the three and six months
ended June 30, 2008, from increases in crew manning costs; |
|
|
|
increases of $7.9 million and $10.0 million, respectively, for the three and six months
ended June 30, 2008, relating to the unrealized change in fair value of our foreign
currency forward contracts; |
|
|
|
increases of $6.0 million and $11.3 million, respectively, for the three and six months
ended June 30, 2008, from the FPSO Delivery; |
|
|
|
an increase of $3.6 million for the six months ended June 30, 2008, relating to the
transfer of the Navion Saga to the offshore segment; and |
|
|
|
increases of $1.5 million and $1.7 million, respectively, for the three and six months
ended June 30, 2008, from the acquisition of an in-chartered shuttle tanker, the Navion
Oslo, which was delivered in late March 2008. |
Time-Charter Hire Expense. Time-charter hire expense decreased for the three and six months
ended June 30, 2008, compared to the same periods in 2007, primarily due to a net decrease in the
number of vessels chartered-in.
Depreciation and Amortization. Depreciation and amortization expense increased for the
three and six months ended June 30, 2008, compared to the same periods in 2007, primarily due to:
|
|
|
increases of $8.7 million and $4.6 million, respectively, for the three and six months
ended June 30, 2008, from the refinement of preliminary estimates of fair value assigned to
certain assets included in our acquisition of Teekay Petrojarl; |
|
|
|
an increase of $3.7 million for the three months ended June 30, 2008, from the FPSO
Delivery; |
|
|
|
increases of $3.1 million and $5.6 million, respectively, for the three and six months
ended June 30, 2008, relating to the transfer of the Navion Saga to the offshore
segment; and |
|
|
|
increases of $1.0 million and $2.7 million, respectively, for the three and six months
ended June 30, 2008, from the Shuttle Tanker Deliveries. |
Page 28 of 46
Fixed-Rate Tanker Segment
Our fixed-rate tanker segment includes conventional crude oil and product tankers on long-term,
fixed-rate time-charters.
The following table presents our fixed-rate tanker segments operating results and compares its net
revenues (which is a non-GAAP financial measure) to revenues, the most directly comparable GAAP
financial measure. The following table also provides a summary of the changes in calendar-ship-days
by owned and chartered-in vessels for our fixed-rate tanker segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
(in thousands of U.S. dollars, except |
|
June 30, |
|
|
|
|
|
|
June 30, |
|
|
|
|
calendar-ship-days and percentages) |
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
|
|
|
(restated) |
|
|
|
|
|
|
|
|
(restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
66,218 |
|
|
|
45,787 |
|
|
|
44.6 |
|
|
|
127,033 |
|
|
|
90,376 |
|
|
|
40.6 |
|
Voyage expenses |
|
|
948 |
|
|
|
592 |
|
|
|
60.1 |
|
|
|
1,628 |
|
|
|
1,152 |
|
|
|
41.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
65,270 |
|
|
|
45,195 |
|
|
|
44.4 |
|
|
|
125,405 |
|
|
|
89,224 |
|
|
|
40.6 |
|
Vessel operating expenses |
|
|
16,387 |
|
|
|
11,822 |
|
|
|
38.6 |
|
|
|
32,757 |
|
|
|
23,512 |
|
|
|
39.3 |
|
Time-charter hire expense |
|
|
11,445 |
|
|
|
3,981 |
|
|
|
187.5 |
|
|
|
23,165 |
|
|
|
7,818 |
|
|
|
196.3 |
|
Depreciation and amortization |
|
|
11,289 |
|
|
|
8,260 |
|
|
|
36.7 |
|
|
|
20,962 |
|
|
|
16,728 |
|
|
|
25.3 |
|
General and administrative expenses(1) |
|
|
7,263 |
|
|
|
4,473 |
|
|
|
62.4 |
|
|
|
12,553 |
|
|
|
9,106 |
|
|
|
37.9 |
|
Restructuring charge |
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
1,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
18,828 |
|
|
|
16,659 |
|
|
|
13.0 |
|
|
|
34,410 |
|
|
|
32,060 |
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels |
|
|
1,728 |
|
|
|
1,365 |
|
|
|
26.6 |
|
|
|
3,181 |
|
|
|
2,715 |
|
|
|
17.2 |
|
Chartered-in Vessels |
|
|
627 |
|
|
|
181 |
|
|
|
246.4 |
|
|
|
1,257 |
|
|
|
360 |
|
|
|
249.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,355 |
|
|
|
1,546 |
|
|
|
52.3 |
|
|
|
4,438 |
|
|
|
3,075 |
|
|
|
44.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the fixed-rate tanker segment based on estimated use of corporate
resources). |
The average fleet size of our fixed-rate tanker segment (including vessels chartered-in) increased
for the three and six months ended June 30, 2008, compared to the same periods last year, primarily
due to:
|
|
|
the acquisition of two Suezmax and two product tankers from OMI on August 1, 2007
(collectively, the OMI Acquisition); |
|
|
|
the addition of two new chartered-in Aframax tankers in January 2008 as part of the
multi-vessel transaction with ConocoPhillips, in which we acquired ConocoPhillips rights
in six double-hull Aframax tankers (collectively, the ConocoPhillips Acquisition); |
|
|
|
the delivery of two new Aframax tankers during January and March 2008 (collectively, the
Aframax Deliveries); |
|
|
|
the transfer of two product tankers from the spot tanker segment in April 2008 upon
commencement of long-term time-charters (the Product Tanker Transfers); and |
|
|
|
the transfer of one Aframax tanker, on a net basis, from the spot tanker segment in 2007
upon commencement of long-term time-charters (the Aframax Transfers). |
The Aframax Transfers comprises the transfer of one owned vessel and two chartered-in vessels from
the spot tanker segment, and the transfer of two owned vessels to the spot tanker segment. The
effect of the transaction is to increase the fixed tanker segments net revenue and time-charter
expenses, and to decrease its vessel operating expenses.
Net Revenues. Net revenues increased for the three and six months ended June 30, 2008,
compared to the same periods last year, primarily due to:
|
|
|
increases of $10.3 million and $16.1 million, respectively, for the three and six months
ended June 30, 2008, from the OMI Acquisition; |
|
|
|
increases of $4.4 million and $8.6 million, respectively, for the three and six months
ended June 30, 2008, from the ConocoPhillips Acquisition; |
|
|
|
increases of $3.9 million and $9.9 million, respectively, for the three and six months
ended June 30, 2008, from the Aframax Transfers; |
|
|
|
an increase of $3.5 million for the three months ended June 30, 2008, from the Product Tanker
Transfers; and |
|
|
|
increases of $2.5 million and $3.7 million, respectively, for the three and six months
ended June 30, 2008, from the Aframax Deliveries; |
Page 29 of 46
partially offset by
|
|
|
decreases of $2.1 million and $3.8 million, respectively, for the three and six months
ended June 30, 2008, from reduced revenues earned by the Teide Spirit and the Toledo Spirit
(the time-charters for both these vessels provide for additional revenues to us beyond
the fixed hire rate when spot tanker market rates exceed threshold amounts; the time-charter
for the Toledo Spirit also provides for a reduction in revenues to us when spot tanker market
rates are below threshold amounts); and |
|
|
|
a decrease of $1.3 million for the three months ended June 30, 2008, because two of our
Suezmax tankers were off-hire for 50 days for scheduled drydocking during the period. |
Vessel Operating Expenses. Vessel operating expenses increased for the three and six months
ended June 30, 2008, compared to the same periods last year, primarily due to:
|
|
|
increases of $1.7 million and $3.7 million, respectively, for the three and six months
ended June 30, 2008, from the ConocoPhillips Acquisition; |
|
|
|
an increase of $1.1 million for the three months ended June 30, 2008, from the Product Tanker
Transfers; |
|
|
|
increases of $1.4 million and $2.2 million, respectively, for the three and six months
ended June 30, 2008, in crew manning expenses; |
|
|
|
increases of $0.6 million and $1.2 million, respectively, for the three and six months
ended June 30, 2008, from the OMI Acquisition; and |
|
|
|
increases of $0.5 million and $1.3 million, respectively, for the three and six months
ended June 30, 2008, due to the effect on our Euro-denominated vessel operating expenses
from the strengthening of the Euro against the U.S. Dollar during the periods compared to
the same periods last year (a majority of our vessel operating expenses on five of our
Suezmax tankers are denominated in Euros, which is primarily a function of the nationality
of our crew: our Euro-denominated revenues currently generally approximate our
Euro-denominated expenses and Euro-denominated loan and interest payments); |
partially offset by
|
|
|
decreases of $1.1 million and $1.4 million, respectively, for the three and six months
ended June 30, 2008, from the Aframax Transfers. |
Time-Charter Hire Expense. Time-charter hire expense increased for the three and six months
ended June 30, 2008, compared to the same periods in 2007, primarily due to:
|
|
|
increases of $3.2 million and $6.3 million, respectively, for the three and six months
ended June 30, 2008, from the Aframax Transfers; |
|
|
|
increases of $2.4 million and $4.8 million, respectively, for the three and six months
ended June 30, 2008, from the OMI Acquisition; and |
|
|
|
increases of $ 1.8 million and $3.6 million, respectively, for the three and six months
ended June 30, 2008, from the ConocoPhillips Acquisition. |
Depreciation and Amortization. Depreciation and amortization expense increased for the
three and six months ended June 30, 2008, compared to the same periods last year, primarily due to
the OMI Acquisition.
Restructuring Charges. During the six months ended June 30, 2008, we incurred restructuring
charges of $1.3 million relating to costs incurred to change the crew of the Samar Spirit from
Australian crew to International crew, and restructuring charges of $0.2 million relating to
reorganization of certain business units.
Liquefied Gas Segment
Our liquefied gas segment consists of LNG and LPG carriers subject to long-term, fixed-rate
time-charter contracts. We accepted delivery of three new LNG carriers during May and June 2008. At
June 30, 2008, we had three LNG carriers and one LPG carrier under construction, which have
delivered since then. We also have two LPG carriers under construction that are scheduled for
delivery between April and August 2009. In addition, we have four LNG carriers under construction
that are scheduled for delivery between August 2011 and January 2012, and two multigas carriers
under construction that are scheduled for delivery between August and October 2010. Upon delivery,
all of these vessels will commence operation under long-term, fixed-rate time-charters. Please read
Item 1 Financial Statements: Note 11(a) Commitments and Contingencies Vessels Under
Construction and Note 11(b) Commitments and Contingencies Joint Ventures.
Page 30 of 46
The following table presents our liquefied gas segments operating results and compares its net
revenues (which is a non-GAAP financial measure) to revenues, the most directly comparable GAAP
financial measure. The following table also provides a summary of the changes in calendar-ship-days
by owned vessels and vessels under capital lease for our liquefied gas segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
(in thousands of U.S. dollars, except |
|
June 30, |
|
|
|
|
|
|
June 30, |
|
|
|
|
calendar-ship-days and percentages) |
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
|
|
|
(restated) |
|
|
|
|
|
|
|
|
(restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
53,496 |
|
|
|
38,496 |
|
|
|
39.0 |
|
|
|
109,628 |
|
|
|
75,973 |
|
|
|
44.3 |
|
Voyage expenses |
|
|
452 |
|
|
|
8 |
|
|
|
5,550.0 |
|
|
|
602 |
|
|
|
13 |
|
|
|
4,530.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
53,044 |
|
|
|
38,488 |
|
|
|
37.8 |
|
|
|
109,026 |
|
|
|
75,960 |
|
|
|
43.5 |
|
Vessel operating expenses |
|
|
13,125 |
|
|
|
7,881 |
|
|
|
66.5 |
|
|
|
24,748 |
|
|
|
14,339 |
|
|
|
72.6 |
|
Depreciation and amortization |
|
|
14,209 |
|
|
|
11,571 |
|
|
|
22.8 |
|
|
|
28,404 |
|
|
|
22,365 |
|
|
|
27.0 |
|
General and administrative expenses(1) |
|
|
6,070 |
|
|
|
5,163 |
|
|
|
17.6 |
|
|
|
11,555 |
|
|
|
10,163 |
|
|
|
13.7 |
|
Restructuring charge |
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
19,419 |
|
|
|
13,873 |
|
|
|
40.0 |
|
|
|
44,098 |
|
|
|
29,093 |
|
|
|
51.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels and Vessels under Capital Lease |
|
|
910 |
|
|
|
728 |
|
|
|
25.0 |
|
|
|
1,820 |
|
|
|
1,390 |
|
|
|
30.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the liquefied gas segment based on estimated use of corporate
resources). |
The increase in the average fleet size of our liquefied gas segment was primarily due to the
acquisition of two 1993-built LNG vessels during December 2007 (collectively the Kenai LNG Carrier
Acquisition) and the delivery of two new LNG carriers in January and February 2007 (collectively
the 2007 RasGas II Deliveries).
Net Revenues. Net revenues increased for the three and six months ended June 30, 2008,
compared to the same periods in 2007, primarily due to:
|
|
|
increases of $8.9 million and $19.1 million, respectively, for the three and six months
ended June 30, 2008, from the Kenai LNG Carrier Acquisition; |
|
|
|
an increase of $5.9 million for the six months ended June 30, 2008, from the 2007 RasGas
II Deliveries; |
|
|
|
relative increases of $5.3 million and $5.5 million, respectively, for the three and six
months ended June 30, 2008, due to the Madrid Spirit being off-hire during the first half
of 2007 after sustaining damage to its engine boilers;
and |
|
|
|
increases of $2.5 million and $5.4 million, respectively, for the three and six months
ended June 30, 2008, due to the effect on our Euro-denominated revenues from the
strengthening of the Euro against the U.S. Dollar during such periods compared to the same
periods last year; |
partially offset by
|
|
|
decreases of $2.6 million and $3.1 million, respectively, for the three and six months
ended June 30, 2008, due to the Catalunya Spirit being off-hire for 34.3 days during the
first half of 2008 for scheduled drydocks. |
Vessel Operating Expenses. Vessel operating expenses increased for the three and six months
ended June 30, 2008, compared to the same periods in 2007, primarily due to:
|
|
|
increases of $2.5 million and $5.5 million, respectively, for the three and six months
ended June 30, 2008, from the Kenai LNG Carrier Acquisition; |
|
|
|
increases of $ 1.0 million and $1.8 million, respectively, for the three and six months ended June 30, 2008,
due to the effect on our Euro-denominated vessel operating expenses from the strengthening of
the Euro against the U.S. Dollar during such period compared to the same period last year (a
majority of our vessel operating expenses are denominated in Euros, which is primarily a
function of the nationality of our crew; our Euro-denominated revenues currently generally
approximate our Euro-denominated expenses and Euro-denominated loan and interest payments);
and |
|
|
|
increases of $0.4 million and $1.4 million, respectively, for the three and six months
ended June 30, 2008, from the 2007 RasGas II Deliveries. |
Depreciation and Amortization. Depreciation and amortization expense increased for the
three and six months ended June 30, 2008, compared to the same periods in 2007, primarily due to:
|
|
|
increases of $2.5 million and $5.2 million, respectively, for the three and six months
ended June 30, 2008, from the Kenai LNG Carrier Acquisition; and |
|
|
|
an increase of $0.7 million for the six months ended June 30, 2008, from the 2007 RasGas
II Deliveries. |
Page 31 of 46
Spot Tanker Segment
Our spot tanker segment consists of conventional crude oil tankers and product carriers operating
on the spot tanker market or subject to time-charters or contracts of affreightment that are priced
on a spot-market basis or are short-term, fixed-rate contracts. We accepted delivery of one new
Suezmax tanker during May 2008. At June 30, 2008, we had four Suezmax tankers under construction,
which have delivered since then. We also have five Suezmax tankers under construction which are
scheduled to be delivered between May and August 2009 and are expected to be included in this
segment. We consider contracts that have an original term of less than three years in duration to
be short term. Substantially all of our conventional Aframax, Suezmax, large product, medium
product and small product tankers are among the vessels included in the spot tanker segment.
Our spot tanker market operations contribute to the volatility of our revenues, cash flow from
operations and net income. Historically, the tanker industry has been cyclical, experiencing
volatility in profitability and asset values resulting from changes in the supply of, and demand
for, vessel capacity. In addition, spot tanker markets historically have exhibited seasonal
variations in charter rates. Spot tanker markets are typically stronger in the winter months as a
result of increased oil consumption in the northern hemisphere and unpredictable weather patterns
that tend to disrupt vessel scheduling.
The following table presents our spot tanker segments operating results and compares its net
revenues (which is a non-GAAP financial measure) to revenues, the most directly comparable GAAP
financial measure. The following table also provides a summary of the changes in calendar-ship-days
by owned and chartered-in vessels for our spot tanker segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
(in thousands of U.S. dollars, except |
|
June 30, |
|
|
|
|
|
|
June 30, |
|
|
|
|
calendar-ship-days and percentages) |
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
|
|
|
(restated) |
|
|
|
|
|
|
|
|
(restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
375,724 |
|
|
|
245,220 |
|
|
|
53.2 |
|
|
|
743,361 |
|
|
|
492,527 |
|
|
|
50.9 |
|
Voyage expenses |
|
|
142,091 |
|
|
|
95,844 |
|
|
|
48.3 |
|
|
|
271,821 |
|
|
|
184,032 |
|
|
|
47.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
233,633 |
|
|
|
149,376 |
|
|
|
56.4 |
|
|
|
471,540 |
|
|
|
308,495 |
|
|
|
52.9 |
|
Vessel operating expenses |
|
|
28,362 |
|
|
|
14,875 |
|
|
|
90.7 |
|
|
|
59,598 |
|
|
|
31,627 |
|
|
|
88.4 |
|
Time-charter hire expense |
|
|
98,995 |
|
|
|
57,717 |
|
|
|
71.5 |
|
|
|
196,721 |
|
|
|
111,064 |
|
|
|
77.1 |
|
Depreciation and amortization |
|
|
27,430 |
|
|
|
12,637 |
|
|
|
117.1 |
|
|
|
55,195 |
|
|
|
26,916 |
|
|
|
105.1 |
|
General and administrative expenses(1) |
|
|
30,592 |
|
|
|
23,465 |
|
|
|
30.4 |
|
|
|
57,394 |
|
|
|
47,908 |
|
|
|
19.8 |
|
Gain on sale of vessels |
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
(271 |
) |
|
|
|
|
|
|
|
|
Restructuring charge |
|
|
1,011 |
|
|
|
|
|
|
|
|
|
|
|
1,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
47,018 |
|
|
|
40,682 |
|
|
|
15.6 |
|
|
|
101,892 |
|
|
|
90,980 |
|
|
|
12.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar-Ship-Days |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned Vessels |
|
|
3,326 |
|
|
|
2,472 |
|
|
|
34.5 |
|
|
|
6,953 |
|
|
|
5,040 |
|
|
|
38.0 |
|
Chartered-in Vessels |
|
|
4,225 |
|
|
|
2,790 |
|
|
|
51.4 |
|
|
|
8,468 |
|
|
|
5,399 |
|
|
|
56.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,551 |
|
|
|
5,262 |
|
|
|
43.5 |
|
|
|
15,421 |
|
|
|
10,439 |
|
|
|
47.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and administrative
expenses (allocated to the spot tanker segment based on estimated use of corporate resources). |
The average fleet size of our spot tanker fleet (including vessels chartered-in) increased for the
three and six months ended June 30, 2008, compared to the same periods last year, primarily due to:
|
|
|
the acquisition of 12 owned and five chartered-in vessels from OMI Corporation on August
1, 2007 (collectively, the OMI Acquisition); |
|
|
|
the addition of two owned and two chartered-in Aframax tankers in January 2008 as part
of the multi-vessel transaction with ConocoPhillips, in which we acquired ConocoPhillips
rights in six double-hull Aframax tankers (collectively, the ConocoPhillips Acquisition); |
|
|
|
the delivery of two new Large product tankers in February and May 2007 (or the Spot
Tanker Deliveries); |
|
|
|
the delivery of one new Suezmax tankers in May 2008 (or the Suezmax Delivery); and |
|
|
|
a net increase in the number of chartered-in vessels, primarily Aframax and product
tankers. |
In addition, during April 2007 we sold and leased back two older Aframax tankers and during July
2007 we sold and leased back one Aframax tanker. This had the effect of decreasing the number of
calendar days for our owned vessels and increasing the number of calendar-ship-days for our
chartered-in vessels.
Tanker Market and TCE Rates.
Average spot tanker freight rates during the third quarter of 2008 were the highest ever for a
third quarter. This counter-seasonal strength in tanker freight rates was primarily due to higher
oil production volumes from ton-mile intensive OPEC producers, as well as other factors, including
port delays in the United States and Japan and stockpiling of oil ahead of the Olympics in China.
During the fourth quarter of 2008, rates for very large crude carriers (VLCCs) declined as OPEC
producers implemented production cutbacks in response to declining oil prices. In comparison,
rates for medium-sized crude oil tankers remained relatively firm primarily 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.
Page 32 of 46
The global tanker fleet grew by approximately 5.7 percent (approximately 22 million deadweight
tonnes) in 2008 which is slightly lower than average annual fleet growth of 6.1 percent from 2003
to 2007.
TCE rates for the vessels in our spot tanker segment primarily depend on global oil production and
consumption levels, the number of vessels in the worldwide tanker fleet scrapped, the number of
newbuildings delivered and charterers preference for modern tankers. As a result of our exposure
to the spot tanker market, fluctuations in TCE rates affect our revenues and earnings.
The following tables outline the TCE rates earned by the vessels in our spot tanker segment for the
three and six months ended June 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, 2008 |
|
|
June 30, 2007 |
|
|
|
Net |
|
|
|
|
|
|
TCE |
|
|
Net |
|
|
|
|
|
|
TCE |
|
|
|
Revenues |
|
|
Revenue |
|
|
Rate |
|
|
Revenues |
|
|
Revenue |
|
|
Rate |
|
Vessel Type |
|
($000s) |
|
|
Days |
|
|
$ |
|
|
($000s) |
|
|
Days |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot Fleet (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suezmax Tankers (2) |
|
|
31,690 |
|
|
|
432 |
|
|
|
73,356 |
|
|
|
7,924 |
|
|
|
197 |
|
|
|
40,221 |
|
Aframax Tankers (2) |
|
|
158,508 |
|
|
|
3,635 |
|
|
|
43,606 |
|
|
|
90,794 |
|
|
|
2,729 |
|
|
|
33,270 |
|
Large/Medium Product Tankers (2) |
|
|
35,686 |
|
|
|
1,156 |
|
|
|
30,870 |
|
|
|
27,637 |
|
|
|
876 |
|
|
|
31,549 |
|
Small Product Tankers (2) |
|
|
12,196 |
|
|
|
887 |
|
|
|
13,750 |
|
|
|
13,935 |
|
|
|
901 |
|
|
|
15,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Charter Fleet (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suezmax Tankers (2) |
|
|
22,651 |
|
|
|
740 |
|
|
|
30,609 |
|
|
|
2,535 |
|
|
|
140 |
|
|
|
18,108 |
|
Aframax Tankers (2) |
|
|
5,725 |
|
|
|
180 |
|
|
|
31,803 |
|
|
|
2,594 |
|
|
|
91 |
|
|
|
28,500 |
|
Large/Medium Product Tankers (2) |
|
|
12,135 |
|
|
|
431 |
|
|
|
28,156 |
|
|
|
7,969 |
|
|
|
273 |
|
|
|
29,191 |
|
Small Product Tankers (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (3) |
|
|
(44,958 |
) |
|
|
|
|
|
|
|
|
|
|
(4,012 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
233,633 |
|
|
|
7,461 |
|
|
|
31,314 |
|
|
|
149,376 |
|
|
|
5,207 |
|
|
|
28,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, 2008 |
|
|
June 30, 2007 |
|
|
|
Net |
|
|
|
|
|
|
TCE |
|
|
Net |
|
|
|
|
|
|
TCE |
|
|
|
Revenues |
|
|
Revenue |
|
|
Rate |
|
|
Revenues |
|
|
Revenue |
|
|
Rate |
|
Vessel Type |
|
($000s) |
|
|
Days |
|
|
$ |
|
|
($000s) |
|
|
Days |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot Fleet (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suezmax Tankers (2) |
|
|
57,095 |
|
|
|
985 |
|
|
|
57,964 |
|
|
|
20,303 |
|
|
|
439 |
|
|
|
46,249 |
|
Aframax Tankers (2) |
|
|
292,934 |
|
|
|
7,343 |
|
|
|
39,893 |
|
|
|
192,851 |
|
|
|
5,407 |
|
|
|
35,667 |
|
Large/Medium Product Tankers (2) |
|
|
64,961 |
|
|
|
2,218 |
|
|
|
29,288 |
|
|
|
48,302 |
|
|
|
1,735 |
|
|
|
27,840 |
|
Small Product Tankers (2) |
|
|
24,595 |
|
|
|
1,789 |
|
|
|
13,748 |
|
|
|
28,287 |
|
|
|
1,797 |
|
|
|
15,741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time-Charter Fleet (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Suezmax Tankers (2) |
|
|
41,446 |
|
|
|
1,408 |
|
|
|
29,436 |
|
|
|
7,507 |
|
|
|
322 |
|
|
|
23,314 |
|
Aframax Tankers (2) |
|
|
10,234 |
|
|
|
322 |
|
|
|
31,784 |
|
|
|
2,594 |
|
|
|
91 |
|
|
|
28,500 |
|
Large/Medium Product Tankers (2) |
|
|
30,661 |
|
|
|
1,244 |
|
|
|
24,647 |
|
|
|
15,583 |
|
|
|
534 |
|
|
|
29,181 |
|
Small Product Tankers (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (3) |
|
|
(50,386 |
) |
|
|
|
|
|
|
|
|
|
|
(6,932 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
471,540 |
|
|
|
15,309 |
|
|
|
30,801 |
|
|
|
308,495 |
|
|
|
10,325 |
|
|
|
29,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Spot fleet includes short-term time-charters and fixed-rate contracts of affreightment
less than 1 year and gains and losses from forward freight agreements (FFAs) less than 1
year and time-charter fleet includes short-term time-charters and fixed-rate contracts of
affreightment between 1-3 years and gains and losses from synthetic time-charters (STCs)
and FFAs between 1-3 years. |
|
(2) |
|
Includes realized gains and losses from STCs and FFAs. |
|
(3) |
|
Includes broker commissions, the cost of spot in-charter vessels servicing fixed-rate
contract of affreightment cargoes, unrealized gains and losses from STCs and FFAs, the
amortization of in-process revenue contracts and cost of fuel while offhire. |
Net Revenues. Net revenues increased for the three and six months ended June 30, 2008,
compared to the same periods in 2007, primarily due to:
|
|
|
increases of $68.5 million and $119.9 million, respectively, for the three and six
months ended June 30, 2008, from the OMI Acquisition; |
|
|
|
increases of $25.8 million and $52.2 million, respectively, for the three and six months
ended June 30, 2008, from a net increase in
the number of chartered-in vessels; |
Page 33 of 46
|
|
|
increases of $24.5 million and $11.2 million, respectively, for the three and six months
ended June 30, 2008, from an increase in our average TCE rate during the periods compared
to the same periods in 2007; |
|
|
|
increases of $9.5 million and $20.3 million, respectively, for the three and six months
ended June 30, 2008, from the ConocoPhillips Acquisition; |
|
|
|
increases of $7.4 million and $12.6 million, respectively, for the three and six months
ended June 30, 2008, from the transfer of two Aframax tankers from the fixed-rate tanker
segment in January 2008; and |
|
|
|
increases of $2.9 million and $6.9 million, respectively, for the three and six months
ended June 30, 2008, from the Spot Tanker Deliveries and the Suezmax Delivery; |
partially offset by
|
|
|
decreases of $43.3 million and $41.5 million, respectively, for the three and six months
ended June 30, 2008, from the effect of STCs and FFAs; |
|
|
|
decreases of $6.6 million and $6.8 million, respectively, for the three and six months
ended June 30, 2008, from an increase in the number of days our vessels were off-hire due
to regularly scheduled maintenance; and |
|
|
|
decreases of $4.5 million and $11.8 million, respectively, for the three and six months
ended June 30, 2008, from the transfer of an Aframax tanker to the offshore segment in May
2007 and the transfer of a Suezmax tanker to the fixed-rate tanker segment in December 2007. |
Vessel Operating Expenses. Vessel operating expenses increased for the three and six months
ended June 30, 2008, compared to the same periods in 2007, primarily due to:
|
|
|
increases of $4.6 million and $11.3 million, respectively, for the three and six months
ended June 30, 2008, from the OMI Acquisition; |
|
|
|
increases of $4.0 million and $8.6 million, respectively, for the three and six months
ended June 30, 2008, from the ConocoPhillips Acquisition; |
|
|
|
increases of $3.4 million and $6.9 million, respectively, for the three and six months
ended June 30, 2008, from higher crew manning, repairs, maintenance and consumables costs,
and non-recurring damages; |
|
|
|
increases of $1.6 million and $2.9 million, respectively, for the three and six months
ended June 30, 2008, from the transfer of two Aframax tankers from the fixed-rate tanker
segment in January 2008; and |
|
|
|
increases of $0.7 million and $1.9 million, respectively, for the three and six months
ended June 30, 2008, from the Spot Tanker Deliveries and the Suezmax Delivery; |
partially offset by
|
|
|
decreases of $0.9 million and $2.3 million, respectively, for the three and six months
ended June 30, 2008, from the transfer of an Aframax tanker to the offshore segment in May
2007 and the transfer of a Suezmax tanker to the fixed-rate tanker segment in December
2007. |
Time-Charter Hire Expense. Time-charter hire expense increased for the three and six months
ended June 30, 2008, compared to the same periods in 2007, primarily due to:
|
|
|
increases of $16.2 million and $35.2 million, respectively, for the three and six months
ended June 30, 2008, from an increase in the number of chartered-in tankers (excluding OMI
and ConocoPhillips vessels) during the three and six months ended June 30, 2008 compared to
the same periods in 2007 ; |
|
|
|
increases of $16.5 million and $30.6 million, respectively, for the three and six months
ended June 30, 2008, from the OMI Acquisition; |
|
|
|
increases of $4.3 million and $8.3 million, respectively, for the three and six months
ended June 30, 2008, from the increase in the average in-charter rate; |
|
|
|
increases of $3.2 million and $7.5 million, respectively, for the three and six months
ended June 30, 2008, from the ConocoPhillips Acquisition; and |
|
|
|
increases of $1.1 million and $4.1 million, respectively, for the three and six months
ended June 30, 2008, due to the sale and leaseback of the Aframax tankers during April and
July 2007. |
Page 34 of 46
Depreciation and Amortization. Depreciation and amortization expense increased for the
three and six months ended June 30, 2008, compared to the same periods in 2007, primarily due to:
|
|
|
increases of $13.3 million and $28.9 million, respectively, for the three and six months
ended June 30, 2008, from the OMI Acquisition; |
|
|
|
increases of $2.5 million and $3.1 million, respectively, for the three and six months
ended June 30, 2008, from the ConocoPhillips Acquisition; and |
|
|
|
increases of $0.6 million and $1.1 million, respectively, for the three and six months
ended June 30, 2008, from the Spot Tanker Deliveries and the Suezmax Delivery; |
partially offset by
|
|
|
decreases of $0.8 million and $2.8 million, respectively, for the three and six months
ended June 30, 2008, from the sale and leaseback of the Aframax tankers during April and
July 2007; and |
|
|
|
decreases of $0.4 million and $1.5 million, respectively, for the three and six months
ended June 30, 2008, from the transfer of an Aframax tanker to the offshore segment in May
2007 and the transfer of a Suezmax tanker to the fixed-rate tanker segment in December
2007. |
Other Operating Results
The following table compares our other operating results for the three and six months ended June
30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
(in thousands of U.S. dollars, |
|
June 30, |
|
|
|
|
|
|
June 30, |
|
|
|
|
except percentages) |
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
|
|
|
(restated) |
|
|
|
|
|
|
|
|
(restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
(70,882 |
) |
|
|
(56,265 |
) |
|
|
26.0 |
|
|
|
(135,521 |
) |
|
|
(115,245 |
) |
|
|
17.6 |
|
Interest gain (expense) |
|
|
113,962 |
|
|
|
68,956 |
|
|
|
65.3 |
|
|
|
(168,286 |
) |
|
|
13,051 |
|
|
|
(1,389.4 |
) |
Interest (loss) income |
|
|
(2,149 |
) |
|
|
422 |
|
|
|
(609.2 |
) |
|
|
58,460 |
|
|
|
15,376 |
|
|
|
280.2 |
|
Foreign exchange loss |
|
|
(1,807 |
) |
|
|
(8,635 |
) |
|
|
(79.1 |
) |
|
|
(33,799 |
) |
|
|
(10,311 |
) |
|
|
227.8 |
|
Minority interest expense |
|
|
(38,822 |
) |
|
|
(24,076 |
) |
|
|
61.2 |
|
|
|
(12,262 |
) |
|
|
(31,831 |
) |
|
|
(61.5 |
) |
Other net |
|
|
13,777 |
|
|
|
5,330 |
|
|
|
158.5 |
|
|
|
12,691 |
|
|
|
11,716 |
|
|
|
8.3 |
|
General and Administrative Expenses. General and administrative expenses increased for the
three and six months ended June 30, 2008, compared to the same period in 2007, primarily due to:
|
|
|
increases of $5.4 million and $7.1 million, respectively, for the three and six months
ended June 30, 2008 relating to the unrealized change in fair value of our foreign currency
forward contracts; |
|
|
|
increases of $3.5 million and $10.0 million, respectively, for the three and six months
ended June 30, 2008, in compensation for shore-based employees and other personnel
expenses, primarily due to weakening of the U.S. Dollar compared to other major currencies
and increases in headcount and compensation levels; |
|
|
|
increases of $2.3 million and $4.5 million, respectively, for the three and six months
ended June 30, 2008, in corporate-related expenses, including costs associated with Teekay
Tankers becoming a public entity in December 2007; |
|
|
|
increases of $2.1 million and $3.9 million, respectively, for the three and six months
ended June 30, 2008, in fleet overhead from the timing of seafarer training initiatives and
higher training activity in the liquefied gas segment; and |
|
|
|
increases of $1.6 million and $3.4 million, respectively, for the three and six months
ended June 30, 2008, in travel costs due to business development and other project
initiatives; |
partially offset by
|
|
|
a decrease of $7.8 million for the six months ended June 30, 2008, relating to the costs
associated with our equity-based compensation and long-term incentive program for
management (please read Item 1 Financial Statements: Note 11(c) Commitments and
Contingencies Long-Term Incentive Program). |
Interest Gain (Expense). Interest gain increased for the three months ended June 30, 2008,
compared to the same period in 2007, primarily due to:
|
|
|
an increase of $52.6 million relating to the unrealized change in fair value of our
interest rate swaps and swaptions (please read Item 1 Financial Statements: Note 16 -
Derivative Instruments and Hedging Activities); |
partially offset by
|
|
|
an increase in interest expense of $3.1 million relating to the increase in debt used to
finance our acquisition of 50% of OMI; and |
|
|
|
an increase in interest expense of $3.0 million due to additional debt drawn under long-term
revolving credit facilities and term loans relating to the Shuttle Tanker Deliveries, the
Aframax Deliveries, the Spot Tanker Deliveries and other investing activities. |
Page 35 of 46
Interest expense increased for the six months ended June 30, 2008, compared to the same period in
2007, primarily due to:
|
|
|
an increase of $155.2 million relating to the unrealized change in fair value of our
interest rate swaps and swaptions (please read Item 1 Financial Statements: Note 16 -
Derivative Instruments and Hedging Activities); |
|
|
|
an increase of $11.7 million relating to the increase in debt used to finance our
acquisition of 50% of OMI; |
|
|
|
an increase of $6.4 million, due to additional debt drawn under long-term revolving
credit facilities and term loans relating to the Shuttle Tanker Deliveries, the Aframax
Deliveries, the Spot Tanker Deliveries and other investing activities; and |
|
|
|
an increase of $4.7 million relating to debt of Teekay Nakilat (III) used by the RasGas
3 Joint Venture to fund shipyard construction installment payments (this increase in
interest expense from debt is offset by a corresponding increase in interest income from
advances to joint venture as described below). |
Interest (Loss) Income. Interest loss increased for the three months ended June 30, 2008,
compared to the same period in 2007, primarily due to:
|
|
|
an increase of $4.0 million resulting from the repayment of interest-bearing loans we
made to a 50% joint venture between us and TORM, which were used during the second quarter
of 2007, together with comparable loans made by TORM, to acquire 100% of the outstanding
shares of OMI; and |
|
|
|
an increase of $1.1 million relating to a decrease in restricted cash used to fund
capital lease payments for the RasGas II LNG Carriers (please read Item 1 Financial
Statements: Note 9 Capital Leases and Restricted Cash); |
partially offset by
|
|
|
a decrease of $3.8 million relating to the unrealized change in fair value of our
interest rate swaps (please read Item 1 Financial Statements: Note 16 Derivative
Instruments and Hedging Activities). |
Interest income increased for the six months ended June 30, 2008, compared to the same period in
2007, primarily due to:
|
|
|
an increase of $45.5 million relating to the unrealized change in fair value of our
interest rate swaps (please read Item 1 Financial Statements: Note 16 Derivative
Instruments and Hedging Activities); and |
|
|
|
an increase of $3.8 million relating to interest-bearing loans made by us to the RasGas
3 Joint Venture for shipyard construction installment payments; |
partially offset by
|
|
|
a decrease of $2.5 million resulting from the repayment of interest-bearing loans we
made to a 50% joint venture between us and TORM, which were used during the second quarter
of 2007, together with comparable loans made by TORM, to acquire 100% of the outstanding
shares of OMI; and |
|
|
|
a decrease of $1.8 million relating to a decrease in restricted cash used to fund
capital lease payments for the RasGas II LNG Carriers (please read Item 1 Financial
Statements: Note 9 Capital Leases and Restricted Cash). |
Foreign Exchange Gains (Losses). The changes in our foreign exchange gains (losses) are
primarily attributable to the revaluation of our Euro-denominated term loans at the end of each
period for financial reporting purposes, and substantially all of the gains or losses are
unrealized. Gains reflect a stronger U.S. Dollar against the Euro on the date of revaluation.
Losses reflect a weaker U.S. Dollar against the Euro on the date of revaluation. Currently, our
Euro-denominated revenues generally approximate our Euro-denominated operating expenses and our
Euro-denominated interest and principal repayments.
Minority Interest (Expense) Income. Minority interest expense increased for the three
months ended June 30, 2008, compared to the same period in 2007, primarily due to:
|
|
|
an increase of $10.3 million from the initial public offering of Teekay Tankers in
December 2007; |
partially offset by
|
|
|
a decrease of $6.0 million resulting from a decrease in earnings from Teekay Petrojarl,
which was primarily the result of higher operating costs and our acquisition of an
additional 30.1% in Teekay Petrojarl. |
Minority interest expense decreased for the six months ended June 30, 2008, compared to the same
period in 2007, primarily due to:
|
|
|
a decrease of $17.7 million for the six months ended June 30, 2008, resulting from a
decrease in earnings from Teekay LNG which was primarily the result of unrealized foreign
exchange losses attributable to the revaluation of its Euro-denominated term loans
partially offset by the follow-on public offering of Teekay LNG in April 2008; and |
|
|
|
a decrease of $12.0 million resulting from a decrease in earnings from Teekay Petrojarl,
which was primarily the result of higher operating costs and the acquisition of an
additional 30.1% of Teekay Petrojarl; |
partially offset by
|
|
|
an increase of $14.3 million from the initial public offering of Teekay Tankers in
December 2007. |
Page 36 of 46
Other Income (Net). Other income (net) was $13.8 million and $12.7 million for the three
and six months ended June 30, 2008 compared to other income (net) of $5.3 million and $11.7 million
for the three and six months ended June 30, 2007. The change of $8.4 million for the three months
ended June 30, 2008, was primarily due to an increase in deferred income tax expense relating to
unrealized foreign exchange translation gains for the three months ended June 30, 2008.
Net Income. As a result of the foregoing factors, net income was $183.4 million and $78.3
million for the three and six months ended June 30, 2008, respectively, compared to $167.6 million
and $252.6 million for the same respective periods last year.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Cash Needs
Our primary sources of liquidity are cash and cash equivalents, cash flows provided by our
operations and our undrawn credit facilities. Our short-term liquidity requirements are for the
payment of operating expenses, debt servicing costs, dividends, the scheduled repayments of
long-term debt, as well as funding our working capital requirements. As at June 30, 2008, our total
cash and cash equivalents was $498.9 million, compared to $442.7 million as at December 31, 2007.
Our total liquidity, including cash and undrawn credit facilities, was $1.8 billion and $1.7
billion as at June 30, 2008 and December 31, 2007, respectively.
Our spot tanker market operations contribute to the volatility of our net operating cash flow, and,
thus, our ability to generate sufficient cash flows to meet our short-term liquidity needs.
Historically, the tanker industry has been cyclical, experiencing volatility in profitability and
asset values resulting from changes in the supply of, and demand for, vessel capacity. In addition,
spot tanker markets historically have exhibited seasonal variations in charter rates. Spot tanker
markets are typically stronger in the winter months as a result of increased oil consumption in the
northern hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling.
As at June 30, 2008, we had $289.7 million of scheduled debt repayments coming due within the
following twelve months. We believe that our working capital is sufficient for our present
short-term liquidity requirements.
Our operations are capital intensive. We finance the purchase of our vessels primarily through a
combination of borrowings from commercial banks or our joint venture partners, the issuance of debt
and equity securities and cash generated from operations. In addition, we may use sale and
lease-back arrangements as a source of long-term liquidity. Occasionally we use our revolving
credit facilities to temporarily finance capital expenditures until longer-term financing is
obtained, at which time we typically use all or a portion of the proceeds from the longer-term
financings to prepay outstanding amounts under the revolving credit facilities. Excluding the three
LPG carriers to be delivered between October 2008 and July 2009 and the two multigas carriers to be
delivered between October 2009 and March 2010, pre-arranged debt facilities were in place as at
June 30, 2008 for all of our remaining capital commitments relating to our portion of newbuildings
then on order. Our pre-arranged debt facilities do not include our undrawn credit facilities. We
regularly consider strategic opportunities, including the acquisition of additional vessels and
expansion into new markets. We may choose to pursue such opportunities through internal growth,
joint ventures or business acquisitions. We intend to finance any future acquisitions through
various sources of capital, including internally-generated cash flow, existing credit facilities,
additional debt borrowings, and the issuance of additional debt or equity securities or any
combination thereof.
As at June 30, 2008, our revolving credit facilities provided for borrowings of up to $3.8 billion,
of which $1.3 billion was undrawn. The amount available under these revolving credit facilities
decreases by $102.9 million (remainder of 2008), $211.1 million (2009), $218.4 million (2010),
$803.7 million (2011), $236.0 million (2012) and $2,266.4 million (thereafter). Our revolving
credit facilities are collateralized by first-priority mortgages granted on 67 of our vessels,
together with other related security, and are guaranteed by Teekay or our subsidiaries. Please read
Item 1 Financial Statements: Note 8 Long-Term Debt.
Our unsecured 8.875% Senior Notes are due July 15, 2011. Our outstanding term loans reduce in
monthly, quarterly or semi-annual payments with varying maturities through 2023. Some of our term
loans also have bullet or balloon repayments at maturity and are collateralized by first-priority
mortgages granted on 35 of our vessels, together with other related security, and are generally
guaranteed by Teekay or our subsidiaries.
Among other matters, our long-term debt agreements generally provide for the maintenance of certain
vessel market value-to-loan ratios and minimum consolidated financial covenants and prepayment
privileges, in some cases with penalties. Certain of the loan agreements require that we maintain a
minimum level of free cash. As at June 30, 2008, this amount was $100.0 million. Certain of the
loan agreements also require that we maintain an aggregate level of free liquidity and undrawn
revolving credit lines (with at least six months to maturity) of at least 7.5% of total debt. As at
June 30, 2008, this amount was $354.3 million. We were in compliance with all loan covenants at
June 30, 2008.
We conduct our funding and treasury activities within corporate policies designed to minimize
borrowing costs and maximize investment returns while maintaining the safety of the funds and
appropriate levels of liquidity for our purposes. We hold cash and cash equivalents primarily in
U.S. Dollars, with some balances held in Japanese Yen, Singapore Dollars, Canadian Dollars,
Australian Dollars, British Pounds, Euros and Norwegian Kroner.
We are exposed to market risk from foreign currency fluctuations and changes in interest rates,
spot tanker market rates for vessels and bunker fuel prices. We use forward foreign currency
contracts, interest rate swaps, forward freight agreements and bunker fuel swap contracts to manage
currency, interest rate, spot tanker rates and bunker fuel price risks. With the exception of some
of our forward freight agreements, we do not use these financial instruments for trading or
speculative purposes. Please read Item 3 Quantitative and Qualitative Disclosures About Market
Risk.
Page 37 of 46
Cash Flows
The following table summarizes our cash and cash equivalents provided by (used for) operating,
financing and investing activities for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30 |
|
|
|
2008 |
|
|
2007 |
|
|
|
($000s) |
|
|
($000s) |
|
|
|
|
|
|
(restated) |
|
Net operating cash flows |
|
|
164,420 |
|
|
|
152,702 |
|
Net financing cash flows |
|
|
650,154 |
|
|
|
1,264,412 |
|
Net investing cash flows |
|
|
(758,314 |
) |
|
|
(1,468,696 |
) |
Operating Cash Flows
The increase in net operating cash flow mainly reflects an increase in net operating cash flows
generated by our spot tanker and liquefied gas segments and a decrease in expenditures for
drydockings, partially set off by a decrease in net operating cash flows generated by our offshore
segment, which was primarily the result of an increase in crew manning costs and vessel repair
costs, and an increase in distributions to minority owners.
Financing Cash Flows
During the six months ended June 30, 2008, our proceeds from long-term debt, net of repayments and
debt issuance costs, were $441.8 million. We used a majority of these funds to finance our
expenditures for vessels and equipment, which are explained in more detail below.
During April 2008, our subsidiary Teekay LNG, issued an additional 5.0 million common units in a
public offering for net proceeds of $148.3 million and during June 2008, our subsidiary Teekay
Offshore, issued an additional 10.25 million common units in a public offering for net proceeds of
$134.3 million. Please read Item 1 Financial Statements: Note 5 Public Offerings. The proceeds
were used for repayment of debt and general corporate purposes.
During March 2008, we repurchased 0.5 million of our common stock for $20.5 million, or an average
cost of $41.09 per share, pursuant to previously announced share repurchase programs. Please read
Item 1 Financial Statements: Note 10 Capital Stock.
Dividends paid during the six months ended June 30, 2008 were $40.0 million, or $0.550 per share.
We have paid a quarterly dividend since 1995. We increased our quarterly dividend during each of
the last five years from $0.125 per share in 2003 to $0.31625 per share for the third quarter of
2008. Subject to financial results and declaration by our board of directors, we currently intend
to continue to declare and pay a regular quarterly dividend in such amount per share on our common
stock.
Investing Cash Flows
During the six months ended June 30, 2008, we:
|
|
|
incurred capital expenditures for vessels and equipment of $296.3 million, primarily for
shipyard construction installment payments on our newbuilding Suezmax tankers, Aframax
tankers, shuttle tankers and LNG carriers and for costs to convert a conventional tanker to
an FPSO unit; |
|
|
|
acquired an additional 30.1% interest in Teekay Petrojarl for a total cost of $257.1
million; |
|
|
|
loaned $211.5 million to the RasGas 3 joint venture for shipyard construction
installment payments; |
|
|
|
acquired two Aframax tankers for a total cost of approximately $72.5 million as part of
the multi-vessel transaction with ConocoPhillips; |
|
|
|
acquired a shuttle tanker for a total cost of $41.7 million; and |
|
|
|
received proceeds of $79.2 million from the sale of two Handysize product tankers. |
Page 38 of 46
Commitments and Contingencies
The following table summarizes our long-term contractual obligations as at June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of |
|
|
2009 and |
|
|
2011 and |
|
|
|
|
In millions of U.S. Dollars |
|
Total |
|
|
2008 |
|
|
2010 |
|
|
2012 |
|
|
Beyond 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar-Denominated Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1) |
|
|
5,273.4 |
|
|
|
133.3 |
|
|
|
775.8 |
|
|
|
1,174.4 |
|
|
|
3,189.9 |
|
Chartered-in vessels (operating leases) |
|
|
1,170.5 |
|
|
|
282.4 |
|
|
|
585.0 |
|
|
|
227.2 |
|
|
|
75.9 |
|
Commitments under capital leases (2) |
|
|
239.1 |
|
|
|
12.3 |
|
|
|
142.8 |
|
|
|
84.0 |
|
|
|
|
|
Commitments under capital leases (3) |
|
|
1,085.1 |
|
|
|
12.0 |
|
|
|
48.0 |
|
|
|
48.0 |
|
|
|
977.1 |
|
Newbuilding installments (4) |
|
|
1,087.2 |
|
|
|
338.4 |
|
|
|
585.6 |
|
|
|
163.2 |
|
|
|
|
|
Asset retirement obligation |
|
|
41.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Dollar-denominated obligations |
|
|
8,896.8 |
|
|
|
778.4 |
|
|
|
2,137.2 |
|
|
|
1,696.8 |
|
|
|
4,284.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro-Denominated Obligations: (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (6) |
|
|
473.3 |
|
|
|
6.3 |
|
|
|
27.6 |
|
|
|
258.2 |
|
|
|
181.2 |
|
Commitments under capital leases (2) (7) |
|
|
223.4 |
|
|
|
38.5 |
|
|
|
82.8 |
|
|
|
102.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Euro-denominated obligations |
|
|
696.7 |
|
|
|
44.8 |
|
|
|
110.4 |
|
|
|
360.3 |
|
|
|
181.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
9,593.5 |
|
|
|
823.2 |
|
|
|
2,247.6 |
|
|
|
2,057.1 |
|
|
|
4,465.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes expected interest payments of $91.4 million (balance of 2008), $343.9 million (2009
and 2010), $245.5 million (2011 and 2012) and $384.0 million (beyond 2012). Expected interest
payments are based on the existing interest rates (fixed-rate loans) and LIBOR plus margins
that ranged up to 1.0% at June 30, 2008 (variable-rate loans). The expected interest payments
do not reflect the effect of related interest rate swaps that we have used as an economic
hedge of certain of our floating-rate debt. |
|
(2) |
|
Includes, in addition to lease payments, amounts we are required to pay to purchase certain
leased vessels at the end of the lease terms. We are obligated to purchase five of our
existing Suezmax tankers upon the termination of the related capital leases, which will occur
at various times from late 2009 to 2011. The purchase price will be based on the unamortized
portion of the vessel construction financing costs for the vessels, which we expect to range
from $35.6 million to $39.2 million per vessel. We expect to satisfy the purchase price by
assuming the existing vessel financing. We are also obligated to purchase one of our LNG
carriers upon the termination of the related capital lease on December 31, 2011. The purchase
obligation has been fully funded with restricted cash deposits. Please read Item 1
Financial Statements: Note 9 Capital Leases and Restricted Cash. |
|
(3) |
|
Existing restricted cash deposits of $487.3 million, together with the interest earned on the
deposits, will equal the remaining amounts we owe under the lease arrangements. |
|
(4) |
|
Represents remaining construction costs (including the joint venture partners 30% interest,
as applicable, but excluding capitalized interest and miscellaneous construction costs) for
four shuttle tankers, nine Suezmax tankers, three LPG carriers, two LNG carriers, two
multi-gas carriers and one product tanker. Please read Item 1 Financial Statements: Note 11
Commitments and Contingencies Vessels Under Construction. |
|
(5) |
|
Euro-denominated obligations are presented in U.S. Dollars and have been converted using the
prevailing exchange rate as of June 30, 2008. |
|
(6) |
|
Excludes expected interest payments of $12.0 million (balance of 2008), $46.4 million (2009
and 2010), $25.6 million (2011 and 2012) and $67.2 million (beyond 2012). Expected interest
payments are based on EURIBOR plus margins that ranged up to 0.66% at June 30, 2008, as well
as the prevailing U.S. Dollar/Euro exchange rate as of June 30, 2008. The expected interest
payments do not reflect the effect of related interest rate swaps that we have used as an
economic hedge of certain of our floating-rate debt. |
|
(7) |
|
Existing restricted cash deposits of $198.4 million, together with the interest earned on the
deposits, will equal the remaining amounts we owe under the lease arrangements, including our
obligation to purchase the vessels at the end of the lease terms. |
In addition, we have entered into a joint venture agreement with our 60% partner to construct four
LNG carriers. As at June 30, 2008, three vessels had been delivered and the fourth delivered on
July 30, 2008. As at June 30, 2008, the remaining commitments for the fourth vessel, excluding
capitalized interest and other miscellaneous construction costs, totaled $49.7 million, of which
our share was $19.9 million. Pursuant to existing agreements, on November 1, 2006, Teekay LNG
agreed to acquire our ownership interest in these four vessels and related charter contracts upon
delivery of the first LNG carrier, which occurred on May 6, 2008. Please read Item 1 Financial
Statements: Note 11 Commitments and Contingencies Joint Ventures.
We also have a 33% interest in a consortium that has entered into agreements for the construction
of four LNG carriers. As at June 30, 2008, the remaining commitments on these vessels, excluding
capitalized interest and other miscellaneous construction costs, totaled $921.4 million, of which
our share was $304.1 million. Please read Item 1 Financial Statements: Note 11 Commitments
and Contingencies Joint Ventures.
Page 39 of 46
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have, a current or
future material effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in accordance with GAAP, which require us to make
estimates in the application of our accounting policies based on our best assumptions, judgments
and opinions. On a regular basis, management reviews the accounting policies, assumptions,
estimates and judgments to ensure that our consolidated financial statements are presented fairly
and in accordance with GAAP. However, because future events and their effects cannot be determined
with certainty, actual results could differ from our assumptions and estimates, and such
differences could be material. Accounting estimates and assumptions that we consider to be the most
critical to an understanding of our financial statements because they inherently involve
significant judgments and uncertainties, are described in Item 5. Operating and Financial Review
and Prospects in our Annual Report on Form 20-F/A for the year ended December 31, 2007.
The sharp decline of economic and market conditions during the second half of 2008 and continuing
to date during 2009, including the significant disruptions in the global financial and credit
markets, have affected the estimates used in the valuation of a broad range of assets and
liabilities. For the second half of 2008, the Company will assess whether these events have caused
any of its assets to be impaired and if so, the amount of any writedown. Any writedowns will not
have an effect on the cash flows of the Company.
FORWARD-LOOKING STATEMENTS
This Report on Form 6-K for the six months ended June 30, 2008 contains certain forward-looking
statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as
amended) concerning future events and our operations, performance and financial condition,
including, in particular, statements regarding:
|
|
our future growth prospects; |
|
|
tanker market fundamentals, including the balance of supply and demand in the tanker market
and spot tanker charter rates; |
|
|
the sufficiency of working capital for short-term liquidity requirements; |
|
|
future capital expenditure commitments and the financing requirements for such commitments; |
|
|
delivery dates of and financing for newbuildings, and the commencement of service of
newbuildings under long-term time-charter contracts; |
|
|
the adequacy of restricted cash deposits to fund capital lease obligations; |
|
|
our ability to capture some of the value from the volatility of the spot tanker market and
from market imbalances by utilizing FFAs and STCs; |
|
|
the effectiveness of our risk management policies and procedures and the ability of the
counter-parties to our derivative contracts to fulfill their contractual obligations; |
|
|
the condition of financial and economic markets, including the recent credit crisis,
interest rate volatility and the availability and cost of capital; and |
|
|
the growth of global oil demand. |
Forward-looking statements include, without limitation, any statement that may predict, forecast,
indicate or imply future results, performance or achievements, and may contain the words believe,
anticipate, expect, estimate, project, will be, will continue, will likely result, or
words or phrases of similar meanings. These statements involve known and unknown risks and are
based upon a number of assumptions and estimates that are inherently subject to significant
uncertainties and contingencies, many of which are beyond our control. Actual results may differ
materially from those expressed or implied by such forward-looking statements. Important factors
that could cause actual results to differ materially include, but are not limited to: changes in
production of oil from offshore oil fields; changes in the demand for offshore oil transportation,
processing and storage services; changes in demand for LNG and LPG; greater or less than
anticipated levels of vessel newbuilding orders or greater or less than anticipated rates of vessel
scrapping; changes in trading patterns; changes in applicable industry laws and regulations and the
timing of implementation of new laws and regulations; potential inability to implement our growth
strategy; competitive factors in the markets in which we operate; potential for early termination
of long-term contracts and our potential inability to renew or replace long-term contracts; loss of
any customer, time-charter or vessel; shipyard production or vessel delivery delays; our potential
inability to raise financing to purchase additional vessels; our exposure to foreign currency
exchange rate and interest rate fluctuations; conditions in the public equity markets; and other
factors detailed from time to time in our periodic reports filed with the SEC, including our Annual
Report on Form 20-F/A for the year ended December 31, 2007. We do not intend to release publicly
any updates or revisions to any forward-looking statements contained herein to reflect any change
in our expectations with respect thereto or any change in events, conditions or circumstances on
which any such statement is based.
Page 40 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
JUNE 30, 2008
PART I FINANCIAL INFORMATION
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from foreign currency fluctuations and changes in interest rates,
bunker fuel prices and spot tanker market rates for vessels. We use foreign currency forward
contracts, interest rate swaps, bunker fuel swap contracts and forward freight agreements to manage
currency, interest rate, bunker fuel price and spot tanker market rate risks but do not use these
financial instruments for trading or speculative purposes, except as noted below under Spot Tanker
Market Rate Risk. Please read Item 1 Financial Statements: Note 16 Derivative Instruments
and Hedging Activities.
Foreign Currency Fluctuation Risk
Our primary economic environment is the international shipping market. This market utilizes the
U.S. Dollar as its functional currency. Consequently, a substantial majority of our revenues and
most of our operating costs are in U.S. Dollars. We incur certain voyage expenses, vessel operating
expenses, drydocking and overhead costs in foreign currencies, the most significant of which are
Singapore Dollar, Canadian Dollar, Australian Dollar, British Pound, Euro and Norwegian Kroner.
We reduce our exposure to this risk by entering into foreign currency forward contracts. In most
cases we hedge a substantial majority of our net foreign currency exposure for the following 12
months. We generally do not hedge our net foreign currency exposure beyond 3 years forward.
As at June 30, 2008, we had the following foreign currency forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected maturity date |
|
|
|
|
|
|
|
|
|
Remainder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of 2008 |
|
|
2009 |
|
|
2010 |
|
|
Total |
|
|
Total |
|
|
|
Contract |
|
|
Contract |
|
|
Contract |
|
|
Contract |
|
|
Fair value (1) |
|
|
|
amount (1) |
|
|
amount (1) |
|
|
amount (1) |
|
|
amount (1) |
|
|
Asset (Liability) |
|
Norwegian Kroner: |
|
$ |
86.2 |
|
|
$ |
87.1 |
|
|
$ |
9.5 |
|
|
$ |
182.8 |
|
|
$ |
26.0 |
|
Average contractual exchange rate(2) |
|
|
6.13 |
|
|
|
5.75 |
|
|
|
5.72 |
|
|
|
5.93 |
|
|
|
|
|
Euro: |
|
$ |
35.6 |
|
|
$ |
29.1 |
|
|
$ |
1.6 |
|
|
$ |
66.3 |
|
|
$ |
1.4 |
|
Average contractual exchange rate(2) |
|
|
0.65 |
|
|
|
0.66 |
|
|
|
0.65 |
|
|
|
0.65 |
|
|
|
|
|
Canadian Dollar: |
|
$ |
21.8 |
|
|
$ |
24.9 |
|
|
$ |
2.7 |
|
|
$ |
49.4 |
|
|
$ |
(0.5 |
) |
Average contractual exchange rate(2) |
|
|
1.01 |
|
|
|
1.01 |
|
|
|
1.02 |
|
|
|
1.01 |
|
|
|
|
|
British Pounds: |
|
$ |
26.3 |
|
|
$ |
28.3 |
|
|
$ |
4.2 |
|
|
$ |
58.8 |
|
|
$ |
0.5 |
|
Average contractual exchange rate(2) |
|
|
0.51 |
|
|
|
0.52 |
|
|
|
0.52 |
|
|
|
0.52 |
|
|
|
|
|
Australian Dollar: |
|
$ |
1.1 |
|
|
|
|
|
|
|
|
|
|
$ |
1.1 |
|
|
$ |
0.1 |
|
Average contractual exchange rate(2) |
|
|
1.18 |
|
|
|
|
|
|
|
|
|
|
|
1.18 |
|
|
|
|
|
Singapore Dollar: |
|
$ |
2.6 |
|
|
|
|
|
|
|
|
|
|
$ |
2.6 |
|
|
$ |
0.0 |
|
Average contractual exchange rate(2) |
|
|
1.37 |
|
|
|
|
|
|
|
|
|
|
|
1.37 |
|
|
|
|
|
|
|
|
(1) |
|
Contract amounts and fair value amounts in millions of U.S. Dollars. |
|
(2) |
|
Average contractual exchange rate represents the contractual amount of foreign currency one
U.S. Dollar will buy. |
Although the majority of our transactions, assets and liabilities are denominated in U.S. Dollars,
certain of our subsidiaries have foreign currency-denominated liabilities. There is a risk that
currency fluctuations will have a negative effect on the value of our cash flows. We have not
entered into any forward contracts to protect against the translation risk of our foreign
currency-denominated liabilities. As at June 30, 2008, we had Euro-denominated term loans of 300.4
million Euros ($473.3 million) included in long-term debt and Norwegian Kroner-denominated deferred
income taxes of approximately 362.0 million NOK ($71.1 million). We receive Euro-denominated
revenue from certain of our time-charters. These Euro cash receipts generally are sufficient to pay
the principal and interest payments on our Euro-denominated term loans. Consequently, we have not
entered into any foreign currency forward contracts with respect to our Euro-denominated term
loans, although there is no assurance that our exposure to fluctuations in the Euro will not
increase in the future.
Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our borrowings that require
us to make interest payments based on LIBOR or EURIBOR. Significant increases in interest rates
could adversely affect our operating margins, results of operations and our ability to repay our
debt. We use interest rate swaps to reduce our exposure to market risk from changes in interest
rates. Generally our approach is to hedge a substantial majority of floating-rate debt associated
with our vessels that are operating on long-term fixed-rate contracts. We manage the rest of our
debt based on our outlook for interest rates and other factors.
In order to minimize counterparty risk, we only enter into derivative transactions with
counterparties that are rated A or better by Standard & Poors or Aa3 by Moodys at the time of the
transactions. In addition, to the extent possible and practical, interest rate swaps are entered
into with different counterparties to reduce concentration risk.
Page 41 of 46
The table below provides information about our financial instruments at June 30, 2008, which are
sensitive to changes in interest rates, including our debt and capital lease obligations and
interest rate swaps. For long-term debt and capital lease obligations, the table presents principal
cash flows and related weighted-average interest rates by expected maturity dates. For interest
rate swaps, the table presents notional amounts and weighted-average interest rates by expected
contractual maturity dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date |
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
|
Remainder |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset / |
|
|
|
|
|
|
of 2008 |
|
|
2009 |
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
Thereafter |
|
|
Total |
|
|
(Liability) |
|
|
Rate(1) |
|
|
|
(in millions of U.S. dollars, except percentages) |
|
Long-Term Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate ($U.S.) (2) |
|
|
97.0 |
|
|
|
239.9 |
|
|
|
388.7 |
|
|
|
585.2 |
|
|
|
214.1 |
|
|
|
2,666.7 |
|
|
|
4,191.6 |
|
|
|
(4,191.6 |
) |
|
|
3.4 |
% |
Variable Rate (Euro) (3) (4) |
|
|
6.3 |
|
|
|
13.3 |
|
|
|
14.3 |
|
|
|
250.2 |
|
|
|
8.0 |
|
|
|
181.2 |
|
|
|
473.3 |
|
|
|
(473.3 |
) |
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate Debt ($U.S.) |
|
|
36.3 |
|
|
|
72.8 |
|
|
|
74.4 |
|
|
|
300.7 |
|
|
|
74.4 |
|
|
|
523.2 |
|
|
|
1,081.8 |
|
|
|
(916.5 |
) |
|
|
5.9 |
% |
Average Interest Rate |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
7.8 |
% |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
5.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Lease Obligations (5)(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate ($U.S.) (7) |
|
|
4.6 |
|
|
|
120.3 |
|
|
|
3.9 |
|
|
|
80.1 |
|
|
|
|
|
|
|
|
|
|
|
208.9 |
|
|
|
(208.9 |
) |
|
|
7.4 |
% |
Average Interest Rate (8) |
|
|
7.5 |
% |
|
|
8.8 |
% |
|
|
5.4 |
% |
|
|
5.5 |
% |
|
|
|
|
|
|
|
|
|
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount ($U.S.) (6)
(9) (10) |
|
|
67.0 |
|
|
|
626.0 |
|
|
|
358.9 |
|
|
|
59.8 |
|
|
|
60.9 |
|
|
|
3,033.3 |
|
|
|
4,205.9 |
|
|
|
(164.4 |
) |
|
|
5.1 |
% |
Average Fixed Pay Rate (2) |
|
|
5.1 |
% |
|
|
4.7 |
% |
|
|
4.9 |
% |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
5.2 |
% |
|
|
5.1 |
% |
|
|
|
|
|
|
|
|
Contract Amount (Euro) (4) (9) |
|
|
6.3 |
|
|
|
13.3 |
|
|
|
14.3 |
|
|
|
250.2 |
|
|
|
8.0 |
|
|
|
181.2 |
|
|
|
473.3 |
|
|
|
43.6 |
|
|
|
3.8 |
% |
Average Fixed Pay Rate (3) |
|
|
3.8 |
% |
|
|
3.8 |
% |
|
|
3.8 |
% |
|
|
3.8 |
% |
|
|
3.7 |
% |
|
|
3.8 |
% |
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Rate refers to the weighted-average effective interest rate for our long-term debt and
capital lease obligations, including the margin we pay on our floating-rate debt and the
average fixed pay rate for our interest rate swap agreements. The average interest rate for
our capital lease obligations is the weighted-average interest rate implicit in our lease
obligations at the inception of the leases. The average fixed pay rate for our interest rate
swaps excludes the margin we pay on our floating-rate debt, which as of June 30, 2008 ranged
from 0.3% to 1.0%. |
|
(2) |
|
Interest payments on U.S. Dollar-denominated debt and interest rate swaps are based on LIBOR. |
|
(3) |
|
Interest payments on Euro-denominated debt and interest rate swaps are based on EURIBOR. |
|
(4) |
|
Euro-denominated amounts have been converted to U.S. Dollars using the prevailing exchange
rate as of June 30, 2008. |
|
(5) |
|
Excludes capital lease obligations (present value of minimum lease payments) of 123.4 million
Euros ($194.5 million) on one of our existing LNG carriers with a weighted-average fixed
interest rate of 5.8%. Under the terms of this fixed-rate lease obligation, we are required to
have on deposit, subject to a weighted-average fixed interest rate of 5.0%, an amount of cash
that, together with the interest earned thereon, will fully fund the amount owing under the
capital lease obligation, including a vessel purchase obligation. As at June 30, 2008, this
amount was 125.9 million Euros ($198.4 million). Consequently, we are not subject to interest
rate risk from these obligations or deposits. |
|
(6) |
|
Under the terms of the capital leases for the three RasGas II LNG Carriers (see Item 1
Financial Statements: Note 9 Capital Leases and Restricted Cash), we are required to have
on deposit, subject to a variable rate of interest, an amount of cash that, together with
interest earned on the deposit, will equal the remaining amounts owing under the leases. The
deposits, which as at June 30, 2008 totaled $487.3 million, and the lease obligations, which
as at June 30, 2008 totaled $469.2 million, have been swapped for fixed-rate deposits and
fixed-rate obligations. Consequently, we are not subject to interest rate risk from these
obligations and deposits and, therefore, the lease obligations, cash deposits and related
interest rate swaps have been excluded from the table above. As at June 30, 2008, the contract
amount, fair value and fixed interest rates of these interest rate swaps related to the RasGas
II LNG Carrier capital lease obligations and restricted cash deposits were $492.0 million and
$479.1 million, ($4.5) million and $1.7 million, and 4.9% and 4.8%, respectively. |
|
(7) |
|
The amount of capital lease obligations represents the present value of minimum lease
payments together with our purchase obligation, as applicable. (See Item 1 Financial
Statements: Note 9 Capital Leases and Restricted Cash.) |
|
(8) |
|
The average interest rate is the weighted-average interest rate implicit in the capital lease
obligations at the inception of the leases. |
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(9) |
|
The average variable receive rate for our interest rate swaps is set monthly at the 1-month
LIBOR or EURIBOR, quarterly at the 3-month LIBOR or semi-annually at the 6-month LIBOR. |
|
(10) |
|
Includes interest rate swaps of $30.0 million, $408.5 million, $300.0 million and $200.0
million that have commencement dates of 2008, 2009, 2010 and 2011, respectively. |
Page 42 of 46
Commodity Price Risk
From time to time we use bunker fuel swap contracts as economic hedges to protect against changes
in forecasted bunker fuel costs for certain vessels being time-chartered-out and for vessels
servicing certain contracts of affreightment. As at June 30, 2008, we were committed to contracts
totaling 17,820 metric tonnes with a weighted-average price of $420.73 per tonne and a fair value
of $0.6 million. The bunker fuel swap contracts expired in between July and December 2008.
Spot Tanker Market Rate Risk
We use forward freight agreements (or FFAs) and synthetic time-charters (or STCs) as economic
hedges to protect against changes in spot tanker market rates earned by some of our vessels in our
spot tanker market segment. FFAs involve contracts to move a theoretical volume of freight at fixed
rates. STCs are a means of achieving the equivalent of a time-charter for a vessel that trades in
the spot tanker market by taking the short position in an FFA. As at June 30, 2008, we had six
STCs, which were equivalent to 3.5 Suezmax vessels. As at June 30, 2008, we were committed to FFAs,
which include STCs, with an aggregate notional principal amount (including both long and short
positions) of $53.3 million and a net fair value of ($26.8)
million. Those FFAs, which include STCs,
expire between July 2008 and September 2009.
We use FFAs in non-hedge-related transactions to increase or decrease our exposure to spot tanker
market rates, within strictly defined limits. Historically, we have used a number of different
tools, including the sale/purchase of vessels and the in-charter/out-charter of vessels, to
increase or decreases this exposure. We believe that we can capture some of the value from the
volatility of the spot tanker market and from market imbalances by utilizing FFAs. As at June 30,
2008, we were committed to non-hedge-related FFAs totaling 5.9 million metric tonnes with a
notional principal amount of $58.9 million and a fair value of
$1.7 million. Those FFAs expired
between July 2008 and December 2008.
Page 43 of 46
TEEKAY CORPORATION AND SUBSIDIARIES
JUNE 30, 2008
PART II OTHER INFORMATION
Item 1 Legal Proceedings
None
Item 1A Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 6-K, you should
carefully consider the risk factors discussed in Part I, Item 3. Key Information Risk Factors
in our Annual Report on Form 20-F/A for the year ended December 31, 2007, which could materially
affect our business, financial condition or results of operations. There has been no material
changes in our risk factors from those disclosed in our 2007 Annual Report on Form 20-F/A except
for the addition of the following:
The continuation of recent economic conditions, including disruptions in the global credit markets,
could adversely affect our results of operations.
The recent economic downturn and financial crisis in the global markets have produced illiquidity
in the capital markets, market volatility, heightened exposure to interest rate and credit risks
and reduced access to capital markets. If this economic downturn continues, we may face restricted
access to the capital markets or secured debt lenders, such as our revolving credit facilities.
The decreased access to such resources could have a material adverse effect on our business,
financial condition and results of operations.
The recent economic downturn may affect our customers ability to charter our vessels and pay for
our services and may adversely affect our business and results of operations.
The recent economic downturn in the global financial markets may lead to a decline in our
customers operations or ability to pay for our services, which could result in decreased demand
for our vessels and services. Our customers inability to pay could also result in their default
on our current contracts and charters. The decline in the amount of services requested by our
customers or their default on our contracts with them could have a material adverse effect on our
business, financial condition and results of operations. We cannot determine whether the difficult
conditions in the economy and the financial markets will improve or worsen in the near future.
An
impairment of goodwill could reduce our earnings.
At June 30, 2008, we had $491.9 million of goodwill recorded on our balance sheet. United States
generally accepted accounting principles require us to test goodwill for impairment on an annual
basis or when events or circumstances occur indicating that goodwill might be impaired. For the
fourth quarter of 2008, we will assess whether the decline in market conditions has caused any of
our assets to be impaired and, if so, we would be required to take an immediate charge to earnings
with a corresponding reduction of stockholders equity and increase in balance sheet leverage as
measured by debt to total capitalization.
In 2008, we identified material weaknesses in our internal controls over financial reporting and,
as a result, we restated our financial statements and concluded that our internal control over
financial reporting and our disclosure controls and procedures were ineffective as of December 31,
2007. Although we believe we have fully remediated these material weaknesses, our auditors are
currently auditing our financial statements as at and for the year ended December 31, 2008 and our
internal controls and may conclude that as of December 31, 2008 we had not maintained effective
internal control over financial reporting.
On April 6, 2009, we filed an Annual Report on Form 20-F/A to amend our Annual Report on Form 20-F
for the year ended December 31, 2007 and Form 6-K/A for the first quarter of 2008 in order to
restate our previously reported financial results of operation, including results for 2003 through
2007 and the first quarter of 2008. For a more complete description of this restatement, please see
our Annual Report on Form 20-F/A for the year ended December 31, 2007, including the Explanatory
Note beginning on page 3 and Item 15. Controls and Procedures beginning on page 65.
The restatement adjusted our accounting treatment primarily for derivative transactions, our
financial statement presentation of our interests in the RasGas 3 joint venture, and for our Vision
Incentive Plan. The adjustments were all non-cash in nature and therefore affected net income but
not our cash flows or liquidity.
In connection with the restatement, we also reevaluated the assessment of our disclosure controls
and procedures. Solely as a result of the material weaknesses in our internal controls over
financial reporting, we concluded that our disclosure controls and procedures were not effective as
of December 31, 2007.
The audit of our consolidated financial statements for the year ended December 31, 2008 and the
auditors evaluation of the effectiveness of our internal controls over financial reporting have
not yet been completed. The steps we have taken to remediate the identified material weaknesses may
prove ineffective and our independent auditors may conclude that as of December 31, 2008 we had not
maintained effective internal control over financial reporting, which might have an adverse effect
on the price of our common stock.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 Defaults Upon Senior Securities
None
Page 44 of 46
Item 4 Submission of Matters to a Vote of Security Holders
The Companys 2008 Annual Meeting of Shareholders was held on June 3, 2008. The following persons
were elected directors for a term of three years by the votes set forth opposite their names:
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Votes Against or |
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Shares Which |
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Broker |
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Terms Expiring in 2011 |
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Votes For |
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Withheld |
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Abstained |
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Non-Votes |
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Thomas Kuo-Yuen Hsu |
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55,209,481 |
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13,087,797 |
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N/A |
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N/A |
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Axel Karlshoej |
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67,400,849 |
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896,429 |
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N/A |
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N/A |
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Bjorn Moller |
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67,631,856 |
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665,422 |
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N/A |
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N/A |
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The terms of Directors Peter S. Janson, Eileen A. Mercier, Tore I. Sandvold, Dr. Ian D. Blackburne,
James R. Clark and C. Sean Day continued after the meeting.
Shareholders also ratified the selection of Ernst & Young LLP, Chartered Accountants, as
independent auditors of the Company for the fiscal year ending December 31, 2008, as set forth
below:
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Votes against or |
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Shares Which |
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Broker |
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Votes For |
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Withheld |
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Abstained |
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Non-Votes |
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Ernst & Young LLP |
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67,678,690 |
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16,654 |
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601,932 |
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Item 5 Other Information
None
Item 6 Exhibits
None
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION
STATEMENTS OF THE COMPANY.
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REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 33-97746) FILED WITH THE SEC ON OCTOBER 4,
1995; |
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REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-42434) FILED WITH THE SEC ON JULY 28,
2000; |
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REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-119564) FILED WITH THE SEC ON OCTOBER 6,
2004; AND |
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REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-147683) FILED WITH THE SEC ON NOVEMBER 28,
2007 |
Page 45 of 46
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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TEEKAY CORPORATION
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Date: April 6, 2009 |
By: |
/s/ Vincent Lok
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Vincent Lok |
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Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer) |
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Page 46 of 46