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 September 30, 2010
Commission file number 1- 32479
TEEKAY LNG PARTNERS L.P.
(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
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
INDEX
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PAGE |
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3 |
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4 |
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5 |
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6 |
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7 |
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21 |
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33 |
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35 |
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36 |
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2
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)
UNAUDITED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(in thousands of U.S. dollars, except unit and per unit data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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$ |
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$ |
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$ |
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$ |
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VOYAGE REVENUES (note 10) |
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92,154 |
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88,389 |
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276,492 |
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247,231 |
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OPERATING EXPENSES (note 10) |
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Voyage expenses |
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723 |
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|
755 |
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1,357 |
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1,495 |
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Vessel operating expenses |
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20,963 |
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20,390 |
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64,032 |
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57,604 |
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Depreciation and amortization |
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22,126 |
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20,560 |
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66,689 |
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60,392 |
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General and administrative |
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5,252 |
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5,637 |
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15,681 |
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13,347 |
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Restructuring charge (note 16) |
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393 |
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175 |
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3,053 |
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Total operating expenses |
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49,064 |
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47,735 |
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147,934 |
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135,891 |
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Income from vessel operations |
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43,090 |
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40,654 |
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128,558 |
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111,340 |
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OTHER ITEMS |
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Interest expense (notes 5, 8 and 10a) |
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(12,708 |
) |
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(13,872 |
) |
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(36,802 |
) |
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(47,200 |
) |
Interest income (note 5) |
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2,083 |
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3,376 |
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5,385 |
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10,858 |
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Realized and unrealized loss on derivative instruments (note 11) |
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(33,423 |
) |
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(33,882 |
) |
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(105,784 |
) |
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(41,476 |
) |
Foreign currency exchange (loss) gain (note 8) |
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(39,839 |
) |
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(17,576 |
) |
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20,017 |
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(19,527 |
) |
Equity (loss) income |
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(870 |
) |
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(781 |
) |
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(2,483 |
) |
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20,353 |
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Other income net (note 9) |
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26 |
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61 |
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380 |
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239 |
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Total other items |
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(84,731 |
) |
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(62,674 |
) |
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(119,287 |
) |
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(76,753 |
) |
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Net (loss) income |
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(41,641 |
) |
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(22,020 |
) |
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9,271 |
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34,587 |
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Non-controlling interest in net (loss) income |
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(1,665 |
) |
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2,785 |
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(4,239 |
) |
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25,398 |
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Dropdown Predecessors interest in net (loss) income (note 1) |
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2,638 |
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2,258 |
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3,117 |
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General Partners interest in net (loss) income |
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858 |
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488 |
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5,141 |
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3,233 |
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Limited partners interest in net (loss) income |
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(40,834 |
) |
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(27,931 |
) |
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6,111 |
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2,839 |
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Limited partners interest in net (loss) income per unit (note 14) |
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Common unit (basic and diluted) |
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(0.76 |
) |
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(0.58 |
) |
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0.05 |
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0.04 |
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Subordinated unit (basic and diluted) |
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(0.58 |
) |
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1.52 |
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0.16 |
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Total unit (basic and diluted) |
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(0.76 |
) |
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(0.58 |
) |
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0.12 |
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0.06 |
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Weighted-average number of units outstanding: |
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Common units (basic and diluted) |
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53,755,351 |
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41,021,963 |
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50,388,092 |
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37,855,872 |
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Subordinated units (basic and diluted) |
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7,367,286 |
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2,428,776 |
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9,229,347 |
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Total units (basic and diluted) |
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53,755,351 |
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48,389,249 |
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52,816,868 |
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47,085,219 |
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Cash distributions declared per unit |
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0.60 |
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|
0.57 |
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1.77 |
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1.71 |
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The accompanying notes are an integral part of the unaudited consolidated financial statements.
3
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)
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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September 30, |
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December 31, |
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2010 |
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2009 |
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|
$ |
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|
$ |
|
ASSETS |
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Current |
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Cash and cash equivalents |
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73,085 |
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108,350 |
|
Restricted cash current (note 5) |
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35,231 |
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|
32,427 |
|
Accounts receivable, including non-trade of $8,595 (2009 $10,729) |
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|
12,452 |
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|
|
11,047 |
|
Prepaid expenses |
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|
7,858 |
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|
|
8,089 |
|
Current portion of derivative assets (note 11) |
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16,720 |
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|
|
16,337 |
|
Current portion of net investments in direct financing leases (note 5) |
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|
5,533 |
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|
|
5,196 |
|
Advances to joint venture partner (note 7) |
|
|
6,900 |
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|
|
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|
Advances to affiliates (note 10g)
and to joint venture of nil (2009 $1,646) |
|
|
5,702 |
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|
|
22,361 |
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Total current assets |
|
|
163,481 |
|
|
|
203,807 |
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|
Restricted cash long-term (note 5) |
|
|
574,107 |
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|
579,093 |
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|
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Vessels and equipment (note 8) |
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|
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At cost, less accumulated depreciation of $196,482 (2009 $161,486) |
|
|
1,087,367 |
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|
1,116,653 |
|
Vessels under capital leases, at cost, less accumulated depreciation of $163,537
(2009 $138,569) (note 5) |
|
|
888,923 |
|
|
|
903,521 |
|
Advances on newbuilding contracts (note 12) |
|
|
60,277 |
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|
|
57,430 |
|
|
|
|
|
|
|
|
Total vessels and equipment |
|
|
2,036,567 |
|
|
|
2,077,604 |
|
|
|
|
|
|
|
|
Investment in joint venture |
|
|
88,930 |
|
|
|
91,674 |
|
Net investments in direct financing leases (note 5) |
|
|
411,713 |
|
|
|
416,245 |
|
Other assets |
|
|
24,231 |
|
|
|
25,888 |
|
Derivative assets (note 11) |
|
|
103,742 |
|
|
|
15,794 |
|
Intangible assets net (note 6) |
|
|
125,828 |
|
|
|
132,675 |
|
Goodwill liquefied gas segment |
|
|
35,631 |
|
|
|
35,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
3,564,230 |
|
|
|
3,578,411 |
|
|
|
|
|
|
|
|
|
|
|
|
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LIABILITIES AND EQUITY |
|
|
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|
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|
Current |
|
|
|
|
|
|
|
|
Accounts payable (includes $982 and $1,084 for 2010 and 2009, respectively,
owing to related parties) (note 10a) |
|
|
6,178 |
|
|
|
4,741 |
|
Accrued liabilities (includes $2,183 and $2,572 for 2010 and 2009, respectively,
owing to related parties) (note 10a) |
|
|
44,304 |
|
|
|
45,274 |
|
Unearned revenue |
|
|
10,649 |
|
|
|
12,109 |
|
Current portion of long-term debt (note 8) |
|
|
77,290 |
|
|
|
77,398 |
|
Current obligations under capital lease (note 5) |
|
|
44,750 |
|
|
|
41,016 |
|
Current portion of derivative liabilities (note 11) |
|
|
52,992 |
|
|
|
50,056 |
|
Advances from joint venture partners (note 7) |
|
|
44 |
|
|
|
1,294 |
|
Advances from affiliates (note 10g) |
|
|
105,993 |
|
|
|
104,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
342,200 |
|
|
|
336,153 |
|
|
|
|
|
|
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Long-term debt (note 8) |
|
|
1,318,983 |
|
|
|
1,397,687 |
|
Long-term obligations under capital lease (note 5) |
|
|
732,147 |
|
|
|
743,254 |
|
Long-term unearned revenue |
|
|
42,100 |
|
|
|
45,061 |
|
Other long-term liabilities (note 5) |
|
|
57,529 |
|
|
|
55,267 |
|
Derivative liabilities (note 11) |
|
|
243,029 |
|
|
|
83,951 |
|
|
|
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|
|
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|
|
|
|
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|
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|
Total liabilities |
|
|
2,735,988 |
|
|
|
2,661,373 |
|
|
|
|
|
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Commitments and contingencies (notes 5, 8, 11 and 12) |
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|
|
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Equity |
|
|
|
|
|
|
|
|
Dropdown Predecessor equity (note 1) |
|
|
|
|
|
|
43,013 |
|
Non-controlling interest |
|
|
9,568 |
|
|
|
13,807 |
|
Partners equity |
|
|
818,674 |
|
|
|
860,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
828,242 |
|
|
|
917,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and total equity |
|
|
3,564,230 |
|
|
|
3,578,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidation of variable interest entities (note 12) |
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|
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|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
4
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
|
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|
|
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|
|
|
Nine Months |
|
|
Nine Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
Cash and cash equivalents provided by (used for) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
|
9,271 |
|
|
|
34,587 |
|
Non-cash items: |
|
|
|
|
|
|
|
|
Unrealized loss on derivative instruments (note 11) |
|
|
73,683 |
|
|
|
16,348 |
|
Depreciation and amortization |
|
|
66,689 |
|
|
|
60,392 |
|
Unrealized foreign currency exchange (gain) loss |
|
|
(19,670 |
) |
|
|
18,756 |
|
Equity based compensation |
|
|
106 |
|
|
|
277 |
|
Equity loss (income) |
|
|
2,483 |
|
|
|
(20,353 |
) |
Amortization of deferred debt issuance costs and other |
|
|
2,599 |
|
|
|
1,139 |
|
Change in operating assets and liabilities |
|
|
3,906 |
|
|
|
34,811 |
|
Expenditures for drydocking |
|
|
(11,128 |
) |
|
|
(5,456 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating cash flow |
|
|
127,939 |
|
|
|
140,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Distribution to Teekay Corporation for the acquisition of Alexander Spirit LLC,
Bermuda Spirit LLC and Hamilton Spirit LLC (note 10j) |
|
|
(33,997 |
) |
|
|
|
|
Proceeds from issuance of long-term debt |
|
|
39,231 |
|
|
|
162,826 |
|
Scheduled repayments of long-term debt |
|
|
(56,415 |
) |
|
|
(61,541 |
) |
Prepayments of long-term debt |
|
|
(42,000 |
) |
|
|
(95,900 |
) |
Scheduled repayments of capital lease obligations and other long-term liabilities |
|
|
(7,288 |
) |
|
|
(7,092 |
) |
Proceeds from equity offerings net of offering costs (note 3) |
|
|
50,921 |
|
|
|
68,532 |
|
Advances to and from affiliates |
|
|
(2,549 |
) |
|
|
14,360 |
|
Decrease in restricted cash |
|
|
449 |
|
|
|
1,390 |
|
Equity contribution from Teekay Corporation to Dropdown Predecessor (notes 1 and 13) |
|
|
466 |
|
|
|
720 |
|
Cash distributions paid |
|
|
(100,053 |
) |
|
|
(85,196 |
) |
Excess of purchase price over the contributed basis of Teekay Tangguh Borrower LLC (note 10e) |
|
|
|
|
|
|
(31,830 |
) |
Repayment of joint venture partners advances |
|
|
(1,250 |
) |
|
|
|
|
Other |
|
|
(131 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net financing cash flow |
|
|
(152,616 |
) |
|
|
(33,731 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Advances to joint venture partner and to joint venture |
|
|
(6,900 |
) |
|
|
(2,610 |
) |
Receipts from direct financing leases |
|
|
4,195 |
|
|
|
2,945 |
|
Expenditures for vessels and equipment |
|
|
(7,883 |
) |
|
|
(96,000 |
) |
Purchase of Teekay Tangguh Borrower LLC (note 10e) |
|
|
|
|
|
|
(37,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investing cash flow |
|
|
(10,588 |
) |
|
|
(132,924 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(35,265 |
) |
|
|
(26,154 |
) |
Cash and cash equivalents, beginning of the period |
|
|
108,350 |
|
|
|
117,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period |
|
|
73,085 |
|
|
|
91,487 |
|
|
|
|
|
|
|
|
Supplemental cash flow information (note 13). |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
5
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES (Note 1)
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. dollars and units)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY |
|
|
|
Dropdown |
|
|
Partners Equity |
|
|
Non- |
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General |
|
|
controlling |
|
|
|
|
|
|
Equity |
|
|
Common |
|
|
Subordinated |
|
|
Partner |
|
|
Interest |
|
|
Total |
|
|
|
$ |
|
|
Units |
|
|
$ |
|
|
Units |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Balance as at December 31, 2009 |
|
|
43,013 |
|
|
|
44,973 |
|
|
|
754,414 |
|
|
|
7,367 |
|
|
|
67,745 |
|
|
|
38,059 |
|
|
|
13,807 |
|
|
|
917,038 |
|
Net change in parents equity in Dropdown
Predecessor (note 1) |
|
|
466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
466 |
|
Net income and comprehensive income |
|
|
2,258 |
|
|
|
|
|
|
|
2,411 |
|
|
|
|
|
|
|
3,700 |
|
|
|
5,141 |
|
|
|
(4,239 |
) |
|
|
9,271 |
|
Cash distributions |
|
|
|
|
|
|
|
|
|
|
(85,050 |
) |
|
|
|
|
|
|
(8,620 |
) |
|
|
(6,383 |
) |
|
|
|
|
|
|
(100,053 |
) |
Equity based compensation |
|
|
|
|
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
106 |
|
Additional offering costs related to November
2009 follow-on equity offering (note 3) |
|
|
|
|
|
|
|
|
|
|
(111 |
) |
|
|
|
|
|
|
(18 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
(131 |
) |
Acquisition of Alexander Spirit LLC,
Bermuda Spirit LLC and Hamilton Spirit LLC
from Teekay Corporation (note 10j) |
|
|
(45,737 |
) |
|
|
|
|
|
|
(2,471 |
) |
|
|
|
|
|
|
(1,020 |
) |
|
|
(148 |
) |
|
|
|
|
|
|
(49,376 |
) |
Conversion of subordinated units to
common units (note 14) |
|
|
|
|
|
|
7,367 |
|
|
|
61,787 |
|
|
|
(7,367 |
) |
|
|
(61,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Direct equity placement, net of offering costs (note 3) |
|
|
|
|
|
|
1,713 |
|
|
|
49,901 |
|
|
|
|
|
|
|
|
|
|
|
1,020 |
|
|
|
|
|
|
|
50,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at September 30, 2010 |
|
|
|
|
|
|
54,053 |
|
|
|
780,985 |
|
|
|
|
|
|
|
|
|
|
|
37,689 |
|
|
|
9,568 |
|
|
|
828,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited consolidated financial statements.
6
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The unaudited interim consolidated financial statements have been prepared in accordance with
United States generally accepted accounting principles (or GAAP). These financial statements
include the accounts of Teekay LNG Partners L.P., which is a limited partnership organized under
the laws of the Republic of The Marshall Islands, its wholly owned or controlled subsidiaries,
the Dropdown Predecessor, as described below, and variable interest entities for which Teekay
LNG Partners L.P. or its subsidiaries are the primary beneficiaries (see Note 12) (collectively,
the Partnership). The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those estimates.
Certain information and footnote disclosures required by GAAP for complete annual financial
statements have been omitted and, therefore, these interim financial statements should be read
in conjunction with the Partnerships audited consolidated financial statements for the year
ended December 31, 2009. In the opinion of management of Teekay GP L.L.C., the general partner
of Teekay LNG Partners L.P. (or the General Partner), these interim consolidated financial
statements reflect all adjustments, of a normal recurring nature, necessary to present fairly,
in all material respects, the Partnerships consolidated financial position, results of
operations, and changes in total equity and cash flows for the interim periods presented. The
results of operations for the interim periods presented are not necessarily indicative of those
for a full fiscal year. Significant intercompany balances and transactions have been eliminated
upon consolidation. Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current period.
The Partnership has accounted for the acquisition of interests in vessels from Teekay
Corporation as a transfer of a business between entities under common control. The method of
accounting for such transfers is similar to the pooling of interests method of accounting. Under
this method, the carrying amount of net assets recognized in the balance sheets of each
combining entity are carried forward to the balance sheet of the combined entity, and no other
assets or liabilities are recognized as a result of the combination. The excess of the proceeds
paid, if any, by the Partnership over Teekay Corporations historical cost is accounted for as
an equity distribution to Teekay Corporation. In addition, transfers of net assets between
entities under common control are accounted for as if the transfer occurred from the date that
the Partnership and the acquired vessels were both under the common control of Teekay
Corporation and had begun operations. As a result, the Partnerships financial statements prior
to the date the interests in these vessels were actually acquired by the Partnership are
retroactively adjusted to include the results of these vessels during the periods they were
under common control of Teekay Corporation.
On March 17, 2010, the Partnership acquired two 2009-built Suezmax tankers, the Bermuda Spirit
and the Hamilton Spirit (or the Centrofin Suezmaxes), and a 2007-built Handymax Product tanker,
the Alexander Spirit, from Teekay Corporation and the related long-term, fixed-rate time-charter
contracts. These transactions were deemed to be business acquisitions between entities under
common control. As a result, the Partnerships balance sheet as at December 31, 2009 and the
consolidated statements of income, cash flows and changes in total equity for the nine months
ended September 30, 2010 and 2009 reflect these three vessels and their results of operations,
referred to herein as the Dropdown Predecessor, as if the Partnership had acquired them when
each respective vessel began operations under the ownership of Teekay Corporation. These vessels
began operations under the ownership of Teekay Corporation on May 27, 2009 (Bermuda Spirit),
June 24, 2009 (Hamilton Spirit) and September 3, 2009 (Alexander Spirit). The effect of
adjusting the Partnerships financial statements to account for these common control exchanges
up to March 17, 2010, increased the Partnerships net income by $2.3 million for the nine months
ended September 30, 2010 and $2.6 million and $3.1 million for the three and nine months ended
September 30, 2009, respectively.
The Partnerships consolidated financial statements include the financial position, results of
operations and cash flows of the Dropdown Predecessor. In the preparation of these consolidated
financial statements, general and administrative expenses and interest expense were not
identifiable as relating solely to the vessels. General and administrative expenses (consisting
primarily of salaries and other employee related costs, office rent, legal and professional
fees, and travel and entertainment) were allocated based on the Dropdown Predecessors
proportionate share of Teekay Corporations total ship-operating (calendar) days for the period
presented. In addition, the Dropdown Predecessor was capitalized in part with non-interest
bearing loans or equity from Teekay Corporation and its subsidiaries. These intercompany loans
and equity were generally used to finance the acquisition of the vessels. Interest expense
includes the allocation of interest to the Dropdown Predecessor from Teekay Corporation and its
subsidiaries based upon the weighted-average outstanding balance of these intercompany loans and
equity and the weighted-average interest rate outstanding on Teekay Corporations loan
facilities that were used to finance these intercompany loans and equity. Management believes
these allocations reasonably present the general and administrative expenses and interest
expense of the Dropdown Predecessor.
Adoption of New Accounting Pronouncements
In January 2010, the Partnership adopted an amendment to Financial Accounting Standards Board
(or FASB) Accounting Standards Codification (or ASC) 810, Consolidations, that eliminates
certain exceptions to consolidating qualifying special-purpose entities, contains new criteria
for determining the primary beneficiary, and increases the frequency of required reassessments
to determine whether a company is the primary beneficiary of a variable interest entity. This
amendment also contains a new requirement that any term, transaction, or arrangement that does
not have a substantive effect on an entitys status as a variable interest entity, a companys
power over a variable interest entity, or a companys obligation to absorb losses or its right
to receive benefits of an entity must be disregarded. The elimination of the qualifying
special-purpose entity concept and its consolidation exceptions means more entities will be
subject to consolidation assessments and reassessments. During February 2010, the scope of the
revised standard was modified to indefinitely exclude certain entities from the requirement to
be assessed for consolidation. The adoption of this amendment did not have an impact on the
Partnerships consolidated financial statements.
7
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
2. |
|
Fair Value Measurements |
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument:
Cash and cash equivalents and restricted cash The fair value of the Partnerships cash and
cash equivalents and restricted cash approximates its carrying amounts reported in the
consolidated balance sheets.
Long-term debt The fair values of the Partnerships fixed-rate and variable-rate long-term
debt are estimated using discounted cash flow analyses based on rates currently available for
debt with similar terms and remaining maturities.
Advances to and from affiliates, joint venture partners and joint venture The fair value of
the Partnerships advances to and from affiliates, joint venture partners and joint venture
approximates their carrying amounts reported in the accompanying consolidated balance sheets due
to the current nature of the balances.
Interest rate swap agreements The Partnership transacts all of its interest rate swap
agreements through financial institutions that are investment-grade rated at the time of the
transaction and requires no collateral from these institutions. The fair value of the
Partnerships interest rate swaps is the estimated amount that the Partnership would receive or
pay to terminate the agreements at the reporting date, taking into account the fixed interest
rate in the interest rate swap, current interest rates and the current credit worthiness of
either the Partnership or the swap counterparties depending on whether the swaps are in asset or
liability position. The estimated amount is the present value of future cash flows.
Other derivative The Partnerships other derivative agreement is between Teekay Corporation
and the Partnership and relates to hire payments under the time-charter contract for the Suezmax
tanker Toledo Spirit (see Note 10i). The fair value of this derivative agreement is the
estimated amount that the Partnership would receive or pay to terminate the agreement at the
reporting date, based on the present value of the Partnerships projection of future spot market
tanker rates, which have been derived from current spot market tanker rates and long-term
historical average rates.
The Partnership categorizes the fair value estimates by a fair value hierarchy based on the
inputs used to measure fair value. 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 estimated fair value of the Partnerships financial instruments and categorization using the
fair value hierarchy for those financial instruments that are measured at fair value on a
recurring basis is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
|
|
|
|
|
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
Fair Value |
|
|
Asset |
|
|
Asset |
|
|
Asset |
|
|
Asset |
|
|
|
Hierarchy |
|
|
(Liability) |
|
|
(Liability) |
|
|
(Liability) |
|
|
(Liability) |
|
|
|
Level (1) |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Cash and cash equivalents and restricted cash |
|
|
|
|
|
|
682,423 |
|
|
|
682,423 |
|
|
|
719,870 |
|
|
|
719,870 |
|
Advances to and from affiliates and joint venture |
|
|
|
|
|
|
(100,291 |
) |
|
|
(100,291 |
) |
|
|
81,904 |
|
|
|
(81,904 |
) |
Long-term debt (note 8) |
|
|
|
|
|
|
(1,396,273 |
) |
|
|
(1,283,237 |
) |
|
|
(1,475,085 |
) |
|
|
(1,318,419 |
) |
Advances to and from joint venture partners (note 7) |
|
|
|
|
|
|
6,856 |
|
|
|
6,856 |
|
|
|
(1,294 |
) |
|
|
(1,294 |
) |
Derivative instruments (note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements assets |
|
Level 2 |
|
|
124,814 |
|
|
|
124,814 |
|
|
|
36,744 |
|
|
|
36,744 |
|
Interest rate swap agreements liabilities |
|
Level 2 |
|
|
(292,490 |
) |
|
|
(292,490 |
) |
|
|
(134,946 |
) |
|
|
(134,946 |
) |
Other derivative |
|
Level 3 |
|
|
(12,100 |
) |
|
|
(12,100 |
) |
|
|
(10,600 |
) |
|
|
(10,600 |
) |
|
|
|
(1) |
|
The fair value hierarchy level is only applicable to each financial instrument on the
consolidated balance sheets that are recorded at fair value on a recurring basis. |
8
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
Changes in fair value during the nine months ended September 30, 2010 for assets and liabilities
that is measured at fair value on a recurring basis using significant unobservable inputs (Level
3) are as follows:
|
|
|
|
|
|
|
Asset/(Liability) |
|
|
|
$ |
|
|
|
|
|
|
Fair value at December 31, 2009 |
|
|
(10,600 |
) |
Total unrealized (losses) |
|
|
(1,500 |
) |
|
|
|
|
Fair value at September 30, 2010 |
|
|
(12,100 |
) |
|
|
|
|
No non-financial assets or non-financial liabilities were carried at fair value at September 30,
2010 or December 31, 2009.
On March 30, 2009, the Partnership completed an equity offering of 4.0 million common units at a
price of $17.60 per unit. As a result of the offering, the Partnership raised gross equity
proceeds of $71.8 million (including the General Partners 2% proportionate capital
contribution), and Teekay Corporations ownership in the Partnership was reduced from 57.7% to
53.05% (including its indirect 2% general partner interest). The Partnership used the total net
offering proceeds of approximately $68.7 million to prepay amounts outstanding on two of its
revolving credit facilities.
On November 20, 2009, the Partnership completed an equity offering of 3.5 million common units
at a price of $24.40 per unit, for gross proceeds of approximately $85.4 million. On November
25, 2009, the underwriters partially exercised their over-allotment option and purchased an
additional 0.5 million common units for an additional $11.0 million in gross proceeds to the
Partnership. As a result of these equity transactions, the Partnership raised gross equity
proceeds of $98.4 million (including the General Partners 2% proportionate capital
contribution), and Teekay Corporations ownership in the Partnership was reduced from 53.05% to
49.2% (including its indirect 2% general partner interest). The Partnership used the total net
offering proceeds of approximately $93.9 million to prepay amounts outstanding on two of its
revolving credit facilities.
On July 15, 2010, the Partnership completed a direct equity placement of 1.7 million common
units at a price of $29.18 per unit to an institutional investor. As a result of the offering,
the Partnership raised gross equity proceeds of $51.0 million (including the General Partners
2% proportionate capital contribution), and Teekay Corporations ownership in the Partnership
was reduced from 49.2% to 47.7% (including its indirect 2% general partner interest). The
Partnership used the total net offering proceeds of approximately $50.9 million to prepay
amounts outstanding on one of its revolving credit facilities and for general partnership
purposes.
The Partnership has two reportable segments, its liquefied gas segment and its conventional
tanker segment. The Partnerships liquefied gas segment consists of liquefied natural gas (or
LNG) and liquefied petroleum gas (or LPG) carriers subject to long-term, fixed-rate
time-charters to international energy companies and Teekay Corporation (see Note 10f). As at
September 30, 2010, the Partnerships liquefied gas segment consisted of fifteen LNG carriers
(including four LNG carriers that are accounted for under the equity method) and three LPG
carriers. The Partnerships conventional tanker segment consisted of ten Suezmax-class crude oil
tankers and one Handymax Product tanker operating on long-term, fixed-rate time-charter
contracts to international energy and shipping companies. 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 Partnerships consolidated financial
statements.
The following tables include results for these segments for the periods presented in these financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Conventional |
|
|
|
|
|
|
|
|
|
|
Conventional |
|
|
|
|
|
|
Liquefied Gas |
|
|
Tanker |
|
|
|
|
|
|
Liquefied Gas |
|
|
Tanker |
|
|
|
|
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues |
|
|
66,563 |
|
|
|
25,591 |
|
|
|
92,154 |
|
|
|
63,750 |
|
|
|
24,639 |
|
|
|
88,389 |
|
Voyage (recoveries) expenses |
|
|
(50 |
) |
|
|
773 |
|
|
|
723 |
|
|
|
465 |
|
|
|
290 |
|
|
|
755 |
|
Vessel operating expenses |
|
|
11,422 |
|
|
|
9,541 |
|
|
|
20,963 |
|
|
|
12,760 |
|
|
|
7,630 |
|
|
|
20,390 |
|
Depreciation and amortization |
|
|
15,149 |
|
|
|
6,977 |
|
|
|
22,126 |
|
|
|
13,989 |
|
|
|
6,571 |
|
|
|
20,560 |
|
General and administrative (1) |
|
|
2,921 |
|
|
|
2,331 |
|
|
|
5,252 |
|
|
|
3,118 |
|
|
|
2,519 |
|
|
|
5,637 |
|
Restructuring charge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175 |
|
|
|
218 |
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
37,121 |
|
|
|
5,969 |
|
|
|
43,090 |
|
|
|
33,243 |
|
|
|
7,411 |
|
|
|
40,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Conventional |
|
|
|
|
|
|
|
|
|
|
Conventional |
|
|
|
|
|
|
Liquefied Gas |
|
|
Tanker |
|
|
|
|
|
|
Liquefied Gas |
|
|
Tanker |
|
|
|
|
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues |
|
|
198,171 |
|
|
|
78,321 |
|
|
|
276,492 |
|
|
|
184,996 |
|
|
|
62,235 |
|
|
|
247,231 |
|
Voyage expenses |
|
|
45 |
|
|
|
1,312 |
|
|
|
1,357 |
|
|
|
723 |
|
|
|
772 |
|
|
|
1,495 |
|
Vessel operating expenses |
|
|
35,582 |
|
|
|
28,450 |
|
|
|
64,032 |
|
|
|
37,493 |
|
|
|
20,111 |
|
|
|
57,604 |
|
Depreciation and amortization |
|
|
45,781 |
|
|
|
20,908 |
|
|
|
66,689 |
|
|
|
43,660 |
|
|
|
16,732 |
|
|
|
60,392 |
|
General and administrative (1) |
|
|
8,291 |
|
|
|
7,390 |
|
|
|
15,681 |
|
|
|
7,650 |
|
|
|
5,697 |
|
|
|
13,347 |
|
Restructuring charge |
|
|
|
|
|
|
175 |
|
|
|
175 |
|
|
|
1,357 |
|
|
|
1,696 |
|
|
|
3,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
108,472 |
|
|
|
20,086 |
|
|
|
128,558 |
|
|
|
94,113 |
|
|
|
17,227 |
|
|
|
111,340 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 total assets presented in the consolidated balance
sheets is as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Total assets of the liquefied gas segment |
|
|
2,895,925 |
|
|
|
2,867,400 |
|
Total assets of the conventional tanker segment |
|
|
574,910 |
|
|
|
583,525 |
|
Cash and cash equivalents |
|
|
73,085 |
|
|
|
108,350 |
|
Accounts receivable and prepaid expenses |
|
|
20,310 |
|
|
|
19,136 |
|
|
|
|
|
|
|
|
Consolidated total assets |
|
|
3,564,230 |
|
|
|
3,578,411 |
|
|
|
|
|
|
|
|
5. |
|
Leases and Restricted Cash |
Capital Lease Obligations
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
RasGas II LNG Carriers |
|
|
470,594 |
|
|
|
470,138 |
|
Spanish-Flagged LNG Carrier |
|
|
118,385 |
|
|
|
119,068 |
|
Suezmax Tankers |
|
|
187,918 |
|
|
|
195,064 |
|
|
|
|
|
|
|
|
Total |
|
|
776,897 |
|
|
|
784,270 |
|
Less current portion |
|
|
44,750 |
|
|
|
41,016 |
|
|
|
|
|
|
|
|
Total |
|
|
732,147 |
|
|
|
743,254 |
|
|
|
|
|
|
|
|
RasGas II LNG Carriers. As at September 30, 2010, the Partnership owned a 70% interest in Teekay
Nakilat Corporation (or Teekay Nakilat), which is the lessee under 30-year capital lease
arrangements relating to three LNG carriers (or the RasGas II LNG Carriers) that operate under
time-charter contracts with Ras Laffan Liquefied Natural Gas Co. Limited (II), a joint venture
between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation. All
amounts below and in the table above relating to the RasGas II LNG Carriers capital leases
include the Partnerships 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. Lease
payments under the lease arrangements are based on certain 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.
10
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
During 2008, the Partnership agreed under the terms of its tax lease indemnification guarantee
to increase its capital lease payments for the three LNG carriers to compensate the lessor for
losses suffered as a result of changes in tax rates. The estimated increase in lease payments is
approximately $8.1 million over the term of the lease, with a carrying value of $7.7 million as
at September 30, 2010. This amount is included as part of other long-term liabilities in the
Partnerships consolidated balance sheets. In addition, the Partnerships carrying amount of the
remaining tax indemnification guarantee is $9.0 million and is also included as part of other
long-term liabilities in the Partnerships consolidated balance sheets.
The tax indemnification is for the duration of the lease contract with the third party plus the
years it would take for the lease payments to be statute barred, and ends in 2041. Although
there is no maximum potential amount of future payments, Teekay Nakilat may terminate the lease
arrangements on a voluntary basis at any time. If the lease arrangements terminate, Teekay
Nakilat will 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 September 30, 2010, the commitments
under these capital leases approximated $1.0 billion, including imputed interest of $560.5
million, repayable as follows:
|
|
|
|
|
Year |
|
Commitment |
|
Remainder of 2010 |
|
$ |
6,000 |
|
2011 |
|
$ |
24,000 |
|
2012 |
|
$ |
24,000 |
|
2013 |
|
$ |
24,000 |
|
2014 |
|
$ |
24,000 |
|
Thereafter |
|
$ |
929,128 |
|
As the payments in the next five years only cover a portion of the estimated interest expense,
the lease obligation will continue to increase. Starting 2024, the lease payments will increase
to cover both interest and principal to commence reduction of the principal portion of the lease
obligations.
Spanish-Flagged LNG Carrier. As at September 30, 2010, the Partnership was a party to a capital
lease on one LNG carrier the Madrid Spirit which is structured as a Spanish tax lease. Under
the terms of the Spanish tax lease for the Madrid Spirit, which includes the Partnerships
contractual right to full operation of the vessel pursuant to a bareboat charter, the
Partnership will purchase the vessel at the end of the lease term in December 2011. The purchase
obligation has been fully funded with restricted cash deposits described below. At its
inception, the interest rate implicit in the Spanish tax lease was 5.8%. As at September 30,
2010, the commitments under this capital lease, including the purchase obligation, approximated
91.7 million Euros ($125.1 million), including imputed interest of 8.6 million Euros ($11.7
million), repayable as follows:
|
|
|
|
|
Year |
|
Commitment |
Remainder of 2010 |
|
26,918 Euros ($36,700) |
2011 |
|
64,825 Euros ($88,382) |
Suezmax Tankers. As at September 30, 2010, the Partnership was a party to capital leases on five
Suezmax tankers. Under the terms of the lease arrangements the Partnership is required to
purchase these vessels after the end of their respective lease terms in 2011 for a fixed price.
At the inception of these leases, the weighted-average interest rate implicit in these leases
was 7.4%. These capital leases are variable-rate capital leases; however, any change in the
lease payments resulting from changes in interest rates is offset by a corresponding change in
the charter hire payments received by the Partnership. As at September 30, 2010, the remaining
commitments under these capital leases, including the purchase obligations, approximated $203.7
million, including imputed interest of $15.8 million, repayable as follows:
|
|
|
|
|
Year |
|
Commitment |
|
Remainder of 2010 |
|
$ |
5,892 |
|
2011 |
|
$ |
197,854 |
|
The Partnerships capital leases do not contain financial or restrictive covenants other than
those relating to operation and maintenance of the vessels.
Restricted Cash
Under the terms of the capital leases for the RasGas II LNG Carriers and the Madrid Spirit, the
Partnership 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 Madrid Spirit at the end of the lease period.
These cash deposits are restricted to being used for capital lease payments and have been fully
funded primarily with term loans (see Note 8).
11
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
As at September 30, 2010 and December 31, 2009, the amount of restricted cash on deposit for the
three RasGas II LNG Carriers was $477.9 million and $479.4 million, respectively. As at
September 30, 2010 and December 31, 2009, the weighted-average interest rates earned on the
deposits were 0.6% and 0.4%, respectively. These rates do not reflect the effect of related
interest rate swaps that the Partnership has used to economically hedge its floating-rate
restricted cash deposit relating to the RasGas II LNG Carriers (see Note 11).
As at September 30, 2010 and December 31, 2009, the amount of restricted cash on deposit for the
Madrid Spirit was 87.5 million Euros ($119.3 million) and 84.3 million Euros ($120.8 million),
respectively. As at September 30, 2010 and December 31, 2009, the weighted-average interest
rates earned on these deposits were 5.1%.
The Partnership also maintains restricted cash deposits relating to certain term loans, which
cash totaled 8.9 million Euros ($12.1 million) and 7.9 million Euros ($11.3 million) as at
September 30, 2010 and December 31, 2009, respectively.
Operating Lease Obligations
Teekay Tangguh Joint Venture.
On November 1, 2006, the Partnership entered into an agreement with Teekay Corporation to
purchase its 100% interest in Teekay Tangguh Borrower LLC (or Teekay Tangguh), which owns a 70%
interest in Teekay BLT Corporation (or the Teekay Tangguh Joint Venture). The Partnership
ultimately acquired 99% of Teekay Corporations interest in Teekay Tangguh, essentially giving
the Partnership a 69% interest in the Teekay Tangguh Joint Venture. As at September 30, 2010,
the Teekay Tangguh Joint Venture was a party to operating leases whereby it is leasing its two
LNG carriers (or the Tangguh LNG Carriers) to a third party company (or Head Leases). The Teekay
Tangguh Joint Venture is then leasing back the LNG carriers from the same third party company
(or Subleases). Under the terms of these leases, the third party company claims tax depreciation
on the capital expenditures it incurred to lease the vessels. As is typical in these leasing
arrangements, tax and change of law risks are assumed by the Teekay Tangguh Joint Venture. Lease
payments under the Subleases are based on certain tax and financial assumptions at the
commencement of the leases. If an assumption proves to be incorrect, the third party company is
entitled to increase the lease payments under the Sublease to maintain its agreed after-tax
margin. The Teekay Tangguh Joint Ventures carrying amount of this tax indemnification is $10.4
million and is included as part of other long-term liabilities in the accompanying consolidated
balance sheets of the Partnership. The tax indemnification is for the duration of the lease
contract with the third party plus the years it would take for the lease payments to be statute
barred, and ends in 2033. Although there is no maximum potential amount of future payments, the
Teekay Tangguh Joint Venture may terminate the lease arrangements on a voluntary basis at any
time. If the lease arrangements terminate, the Teekay Tangguh Joint Venture will be required to
pay termination sums to the third party company sufficient to repay the third party companys
investment in the vessels and to compensate it for the tax effect of the terminations, including
recapture of any tax depreciation. The Head Leases and the Subleases have 20 year terms and are
classified as operating leases. The Head Lease and the Sublease for each of the two Tangguh LNG
Carriers commenced in November 2008 and March 2009, respectively.
As at September 30, 2010, the total estimated future minimum rental payments to be received and
paid under the lease contracts are as follows:
|
|
|
|
|
|
|
|
|
|
|
Head Lease |
|
|
Sublease |
|
Year |
|
Receipts (1) |
|
|
Payments (1) |
|
Remainder of 2010 |
|
$ |
7,221 |
|
|
$ |
6,268 |
|
2011 |
|
$ |
28,875 |
|
|
$ |
25,072 |
|
2012 |
|
$ |
28,859 |
|
|
$ |
25,072 |
|
2013 |
|
$ |
28,843 |
|
|
$ |
25,072 |
|
2014 |
|
$ |
28,828 |
|
|
$ |
25,072 |
|
Thereafter |
|
$ |
303,735 |
|
|
$ |
357,387 |
|
|
|
|
|
|
|
|
Total |
|
$ |
426,361 |
|
|
$ |
463,943 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Head Leases are fixed-rate operating leases while the Subleases have a small
variable-rate component. As at September 30, 2010, the Partnership had received $84.0
million of Head Lease receipts and had paid $35.4 million of Sublease payments. |
12
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
Net Investments in Direct Financing Leases
The Tangguh LNG Carriers commenced their time-charters with The Tangguh Production Sharing
Contractors in January and May 2009, respectively. Both time-charters are accounted for as
direct financing leases with 20-year terms and the following table lists the components of the
net investments in direct financing leases:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments to be received |
|
|
711,074 |
|
|
|
739,972 |
|
Estimated unguaranteed residual value of leased properties |
|
|
194,965 |
|
|
|
194,965 |
|
Initial direct costs |
|
|
595 |
|
|
|
619 |
|
Less unearned revenue |
|
|
(489,388 |
) |
|
|
(514,115 |
) |
|
|
|
|
|
|
|
Total |
|
|
417,246 |
|
|
|
421,441 |
|
Less current portion |
|
|
5,533 |
|
|
|
5,196 |
|
|
|
|
|
|
|
|
Total |
|
|
411,713 |
|
|
|
416,245 |
|
|
|
|
|
|
|
|
As at September 30, 2010, estimated minimum lease payments to be received by the Partnership
under the Tangguh LNG Carrier leases in each of the next five succeeding fiscal years are
approximately $9.6 million (remainder of 2010), $38.5 million (2011), $38.5 million (2012),
$38.5 million (2013) and $38.5 million (2014). Both leases are scheduled to end in 2029.
As at September 30, 2010 and December 31, 2009, intangible assets consisted of time-charter
contracts with a weighted-average amortization period of 19.2 years. The carrying amount of
intangible assets for the Partnerships reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
|
|
|
|
Conventional |
|
|
|
|
|
|
|
|
|
|
Conventional |
|
|
|
|
|
|
Liquefied Gas |
|
|
Tanker |
|
|
|
|
|
|
Liquefied Gas |
|
|
Tanker |
|
|
|
|
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Gross carrying amount |
|
|
179,813 |
|
|
|
2,739 |
|
|
|
182,552 |
|
|
|
179,813 |
|
|
|
2,739 |
|
|
|
182,552 |
|
Accumulated amortization |
|
|
(54,529 |
) |
|
|
(2,195 |
) |
|
|
(56,724 |
) |
|
|
(47,889 |
) |
|
|
(1,988 |
) |
|
|
(49,877 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount |
|
|
125,284 |
|
|
|
544 |
|
|
|
125,828 |
|
|
|
131,924 |
|
|
|
751 |
|
|
|
132,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of intangible assets for the three months and nine months ended September
30, 2010 and 2009 was $2.3 million and $6.8 million, respectively. Amortization of intangible
assets in each of the next five succeeding fiscal years is approximately $2.3 million for the
remainder of 2010 and $9.1 million per year for 2011 through 2014.
7. |
|
Advances to and from Joint Venture Partners |
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Advances to BLT LNG Tangguh Corporation |
|
|
6,900 |
|
|
|
|
|
|
|
|
|
|
|
|
Advances to joint venture partner |
|
|
6,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
Advances from Qatar Gas Transport Company Ltd. (Nakilat) |
|
|
44 |
|
|
|
115 |
|
Advances from BLT LNG Tangguh Corporation |
|
|
|
|
|
|
1,179 |
|
|
|
|
|
|
|
|
Advances from joint venture partners |
|
|
44 |
|
|
|
1,294 |
|
|
|
|
|
|
|
|
Advances to and from joint venture partners are non-interest bearing and unsecured. The
Partnership did not recognize any interest income or incur any interest expense from the
advances during the three and nine months ended September 30, 2010 and 2009.
13
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
U.S. Dollar-denominated Revolving Credit Facilities due through 2018 |
|
|
163,000 |
|
|
|
181,000 |
|
U.S. Dollar-denominated Term Loans due through 2019 |
|
|
377,914 |
|
|
|
396,601 |
|
U.S. Dollar-denominated Term Loans due through 2021 |
|
|
334,906 |
|
|
|
342,644 |
|
U.S. Dollar-denominated Term Loans due through 2021 |
|
|
123,344 |
|
|
|
126,013 |
|
U.S. Dollar-denominated Unsecured Loan |
|
|
|
|
|
|
1,144 |
|
U.S. Dollar-denominated Unsecured Demand Loan |
|
|
13,664 |
|
|
|
15,265 |
|
Euro-denominated Term Loans due through 2023 |
|
|
383,445 |
|
|
|
412,418 |
|
|
|
|
|
|
|
|
Total |
|
|
1,396,273 |
|
|
|
1,475,085 |
|
Less current portion |
|
|
77,290 |
|
|
|
77,398 |
|
|
|
|
|
|
|
|
Total |
|
|
1,318,983 |
|
|
|
1,397,687 |
|
|
|
|
|
|
|
|
As at September 30, 2010, the Partnership had three long-term revolving credit facilities
available, which, as at such date, provided for borrowings of up to $537.1 million, of which
$374.1 million was undrawn. Interest payments are based on LIBOR plus margins. The amount
available under the revolving credit facilities reduces by $10.5 million (remainder of 2010),
$32.2 million (2011), $32.9 million (2012), $33.7 million (2013), $34.5 million (2014) and
$393.3 million (thereafter). All the revolving credit facilities may be used by the Partnership
to fund general partnership purposes and to fund cash distributions. The Partnership is required
to repay all borrowings used to fund cash distributions within 12 months of their being drawn,
from a source other than further borrowings. The revolving credit facilities are collateralized
by first-priority mortgages granted on seven of the Partnerships vessels, together with other
related security, and include a guarantee from the Partnership or its subsidiaries of all
outstanding amounts.
The Partnership has a U.S. Dollar-denominated term loan outstanding, which, as at September 30,
2010, totaled $377.9 million, of which $209.7 million bears interest at a fixed-rate of 5.39%
and requires quarterly payments. The remaining $168.2 million bears interest based on LIBOR plus
a margin and will require bullet repayments of approximately $56.0 million per vessel due at
maturity in 2018 and 2019. The term loan is collateralized by first-priority mortgages on three
vessels, together with certain other related security and certain guarantees from the
Partnership.
The Partnership owns a 69% interest in the Teekay Tangguh Joint Venture. The Teekay Tangguh
Joint Venture has a U.S. Dollar-denominated term loan outstanding, which, as at September 30,
2010, totaled $334.9 million. Interest payments on the loan are based on LIBOR plus margins.
Following delivery of the Tangguh LNG Carriers in November 2008 and March 2009, interest
payments on one tranche under the loan facility are based on LIBOR plus 0.30%, while interest
payments on the second tranche are based on LIBOR plus 0.625%. Commencing three months after
delivery of each vessel, one tranche (total value of up to $324.5 million) reduces in quarterly
payments while the other tranche (total value of up to $190.0 million) correspondingly is drawn
up with a final $95.0 million bullet payment per vessel due 12 years and three months from each
vessel delivery date. This loan facility is collateralized by first-priority mortgages on the
two vessels to which the loan relates, together with certain other security and is guaranteed by
the Partnership.
At September 30, 2010, the Partnership had a U.S. Dollar-denominated term loan outstanding in
the amount of $123.3 million. Interest payments on one tranche under the loan facility are based
on six month LIBOR plus 0.3%, while interest payments on the second tranche are based on
six-month LIBOR plus 0.7%. One tranche reduces in semi-annual payments while the other tranche
correspondingly is drawn up every six months with a final $20 million bullet payment per vessel
due 12 years and six months from each vessel delivery date. This loan facility is collateralized
by first-priority mortgages on the two vessels to which the loan relates, together with certain
other related security and is guaranteed by Teekay Corporation.
The Partnership has a U.S. Dollar-denominated demand loan outstanding owing to Teekay Nakilats
joint venture partner, which, as at September 30, 2010, totaled $13.7 million. Interest payments
on this loan, which are based on a fixed interest rate of 4.84%, commenced in February 2008. The
loan is repayable on demand no earlier than February 27, 2027.
The Partnership has two Euro-denominated term loans outstanding, which as at September 30, 2010
totaled 281.2 million Euros ($383.4 million). Interest payments are based on EURIBOR plus a
margin, which margins ranged from 0.60% to 0.66% as of September 30, 2010. The term loans have
varying maturities through 2023. The term loans are collateralized by first-priority mortgages
on two vessels to which the loans relate, together with certain other related security and
guarantees from one of the Partnerships subsidiaries.
Also at September 30, 2010, the Partnership had a $122.0 million credit facility that will be
secured by three LPG Carriers (or the Skaugen LPG Carriers), of which two were acquired from I.
M. Skaugen ASA (or Skaugen) in April 2009 and November 2009, and two Multigas ships to be
acquired from Skaugen in 2011 (or the Skaugen Multigas Carriers). The facility amount is equal
to the lower of $122.0 million and 60% of the aggregate purchase price of the vessels. The
facility will mature, with respect to each vessel, seven years after each vessels first
drawdown date. The Partnership expects to draw on this facility in 2011 to repay a portion of
the amount it borrowed to purchase two Skaugen LPG
Carriers in April 2009 and November 2009. As at September 30, 2010, the Partnership had access
to draw $40 million on this facility. The Partnership intends to use the remaining available
funds from the facility to assist in purchasing the remaining Skaugen LPG Carrier and the two
Skaugen Multigas Carriers.
14
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The weighted-average effective interest rate for the Partnerships long-term debt outstanding at
September 30, 2010 and December 31, 2009 was 1.7%. This rate does not reflect the effect of
related interest rate swaps that the Partnership has used to economically hedge certain of its
floating-rate debt (see Note 11). At September 30, 2010, the margins on the Partnerships
long-term debt that has been drawn on ranged from 0.3% to 0.7%.
All Euro-denominated term loans are revalued at the end of each period using the then-prevailing
Euro/U.S. Dollar exchange rate. Due primarily to the revaluation of the Partnerships
Euro-denominated term loans, capital leases and restricted cash, the Partnership recognized
foreign exchange (loss) gain of ($39.8) million, ($17.6) million, $20.0 million and ($19.5)
million for the three and nine months ended September 30, 2010 and 2009, respectively.
The aggregate annual long-term debt principal repayments required for periods subsequent to
September 30, 2010 are $21.5 million (remainder of 2010), $82.0 million (2011), $281.7 million
(2012), $79.0 million (2013), $79.6 million (2014) and $852.5 million (thereafter).
Certain loan agreements require that minimum levels of tangible net worth and aggregate
liquidity be maintained, provide for a maximum level of leverage, and require one of the
Partnerships subsidiaries to maintain restricted cash deposits. The Partnerships ship-owning
subsidiaries may not, among other things, pay dividends or distributions if the Partnership is
in default under its term loans or revolving credit facilities. One of the Partnerships term
loans is guaranteed by Teekay Corporation and contains covenants that require Teekay Corporation
to maintain the greater of a minimum liquidity (cash and cash equivalents) of at least $50.0
million and 5.0% of Teekay Corporations total consolidated debt which has recourse to Teekay
Corporation.
As at September 30, 2010, the Partnership and its affiliates were in compliance with all
covenants relating to the Partnerships credit facilities and capital leases.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Income tax (expense) recovery |
|
|
(110 |
) |
|
|
144 |
|
|
|
(146 |
) |
|
|
443 |
|
Miscellaneous |
|
|
136 |
|
|
|
(83 |
) |
|
|
526 |
|
|
|
(204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income net |
|
|
26 |
|
|
|
61 |
|
|
|
380 |
|
|
|
239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. |
|
Related Party Transactions |
a) The Partnership and certain of its operating subsidiaries have entered into services
agreements with certain subsidiaries of Teekay Corporation pursuant to which the Teekay
Corporation subsidiaries provide the Partnership with administrative, crew training, advisory,
technical and strategic consulting services. During the three and nine months ended September
30, 2010 and 2009, the Partnership incurred $3.9 million, $2.5 million, $9.3 million and $7.4
million, respectively, for these services. In addition, as a component of the services
agreements, the Teekay Corporation subsidiaries provide the Partnership with all usual and
customary crew management services in respect of its vessels. For the three and nine months
ended September 30, 2010 and 2009, the Partnership incurred $8.0 million, $8.8 million, $22.6
million and $20.8 million, respectively, for crewing and manning costs, of which $3.2 million
and $3.7 million were payable to the subsidiaries of Teekay Corporation as at September 30, 2010
and December 31, 2009, respectively, and is included as part of accounts payable and accrued
liabilities in the Partnerships consolidated balance sheets.
On March 31, 2009, a subsidiary of Teekay Corporation paid $3.0 million to the Partnership for
the right to provide certain ship management services to certain of the Partnerships vessels.
This amount is deferred and amortized on a straight-line basis until 2012 and is included as a
reduction of general and administrative expense in the Partnerships consolidated statements of
(loss) income.
During the three and nine months ended September 30, 2010 and 2009, nil, $0.7 million, $0.7
million and $0.8 million, respectively, of general and administrative expenses attributable to
the operations of the Centrofin Suezmaxes and Alexander Spirit were incurred by Teekay
Corporation and have been allocated to the Partnership as part of the results of the Dropdown
Predecessor.
During the three and nine months ended September 30, 2010 and 2009, nil, $0.1 million, $0.3
million and $0.1 million, respectively, of interest expense attributable to the operations of
the Alexander Spirit was incurred by Teekay Corporation and has been allocated to the
Partnership as part of the results of the Dropdown Predecessor.
b) The Partnership reimburses the General Partner for all expenses incurred by the General
Partner or its affiliates that are necessary or appropriate for the conduct of the Partnerships
business. During the three and nine months ended September 30, 2010 and 2009, the Partnership
incurred $0.1 million, $0.4 million, $0.6 million and $0.7 million, respectively, of these
costs.
15
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
c) The Partnership was a party to an agreement with Teekay Corporation pursuant to which
Teekay Corporation provided the Partnership with off-hire insurance for certain of its LNG
carriers. During the nine months ended September 30, 2009, the Partnership incurred $0.5 million
of these costs. The Partnership did not renew this off-hire insurance with Teekay Corporation,
which expired during the second quarter of 2009. The Partnership currently obtains third-party
off-hire insurance for certain of its LNG carriers and self-insures the remaining vessels in its
fleet.
d) In connection with the Partnerships initial public offering in May 2005, the Partnership
entered into an omnibus agreement with Teekay Corporation, the General Partner and other related
parties governing, among other things, when the Partnership and Teekay Corporation may compete
with each other and certain rights of first offer on LNG carriers and Suezmax tankers. In
December 2006, the omnibus agreement was amended in connection with the initial public offering
of Teekay Offshore Partners L.P. (or Teekay Offshore). As amended, the agreement governs, among
other things, when the Partnership, Teekay Corporation and Teekay Offshore may compete with each
other and certain rights of first offer on LNG carriers, oil tankers, shuttle tankers, floating
storage and offtake units and floating production, storage and offloading units.
e) On November 1, 2006, the Partnership agreed to acquire from Teekay Corporation its 70%
interest in the Teekay Tangguh Joint Venture, which owns the two Tangguh LNG Carriers and the
related 20-year, fixed-rate time-charters to service the Tangguh LNG project in Indonesia. The
customer under the charters for the Tangguh LNG Carriers is The Tangguh Production Sharing
Contractors, a consortium led by BP Berau Ltd., a subsidiary of BP plc. The Partnership has
operational responsibility for the vessels. The remaining 30% interest in the Teekay Tangguh
Joint Venture is held by BLT LNG Tangguh Corporation, a subsidiary of PT Berlian Laju Tanker
Tbk.
On August 10, 2009, the Partnership acquired 99% of Teekay Corporations 70% ownership interest
in the Teekay Tangguh Joint Venture (giving the Partnership a 69% interest in the joint venture)
for a purchase price of $69.1 million (net of assumed debt). This transaction was concluded
between two entities under common control and, thus, the assets acquired were recorded at
historical book value. The excess of the purchase price over the book value of the assets of
$31.8 million was accounted for as an equity distribution to Teekay Corporation. The remaining
30% interest in the Teekay Tangguh Joint Venture is held by BLT LNG Tangguh Corporation. For the
period November 1, 2006 to August 9, 2009, the Partnership consolidated Teekay Tangguh as it was
considered a variable interest entity whereby the Partnership was the primary beneficiary.
f) In April 2008, the Partnership acquired the two 1993-built LNG carriers (or the Kenai LNG
Carriers) from Teekay Corporation for $230.0 million. The Partnership financed the acquisition
with borrowings under one of its revolving credit facilities. The Partnership chartered the
vessels back to Teekay Corporation at a fixed-rate for a period of ten years (plus options
exercisable by Teekay Corporation to extend up to an additional 15 years). During the three and
nine months ended September 30, 2010 and 2009, the Partnership recognized revenues of $9.5
million, $9.8 million, $27.3 million and $29.9 million, respectively, from these charters.
g) As at September 30, 2010 and December 31, 2009, non-interest bearing advances to affiliates
totaled $5.7 million and $20.7 million, respectively, and non-interest bearing advances from
affiliates totaled $106.0 million and $104.3 million, respectively. These advances are unsecured
and have no fixed repayment terms.
h) In July 2008, Teekay Corporation signed contracts for the purchase from subsidiaries of
Skaugen the Skaugen Multigas Carriers, which are two technically advanced 12,000-cubic meter
newbuilding ships capable of carrying LNG, LPG or ethylene. The Partnership agreed to acquire
these vessels from Teekay Corporation upon delivery. The vessels are expected to be delivered in
2011 for a total cost of approximately $106 million. Each vessel is scheduled to commence
service under 15-year fixed-rate charters to Skaugen (see Note 12).
i) The Partnerships Suezmax tanker the Toledo Spirit, which was delivered in July 2005,
operates pursuant to a time-charter contract that increases or decreases the otherwise
fixed-hire rate established in the charter depending on the spot charter rates that the
Partnership would have earned had it traded the vessel in the spot tanker market. The remaining
term of the time-charter contract is 15 years, although the charterer has the right to terminate
the time-charter in July 2018. The Partnership has entered into an agreement with Teekay
Corporation under which Teekay Corporation pays the Partnership any amounts payable to the
charterer as a result of spot rates being below the fixed rate, and the Partnership pays Teekay
Corporation any amounts payable to the Partnership as a result of spot rates being in excess of
the fixed rate. The amounts payable to or receivable from Teekay Corporation are settled at the
end of each year.
j) On March 17, 2010, the Partnership acquired from Teekay Corporation two 2009-built Suezmax
tankers, the Bermuda Spirit and the Hamilton Spirit, and a 2007-built Handymax Product tanker,
the Alexander Spirit, and the associated long-term fixed-rate time-charter contracts for a total
cost of $160 million. As described in Note 1, the acquisition was accounted for as a
reorganization of entities under common control and accounted for on a basis similar to the
pooling of interest basis. The Partnership financed the acquisition by assuming $126 million of
debt, drawing $24 million on its existing revolvers and using $10 million of cash. In addition,
the Partnership acquired approximately $15 million of working capital in exchange for a
short-term vendor loan from Teekay Corporation. The excess of the purchase price over the
historical carrying value of the assets acquired was $3.6 million and is reflected as a
distribution of capital to Teekay Corporation.
16
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
11. |
|
Derivative Instruments |
The Partnership uses derivative instruments in accordance with its overall risk management
policy. The Partnership has not designated these derivative instruments as hedges for accounting
purposes.
The Partnership enters into interest rate swaps which either exchange a receipt of floating
interest for a payment of fixed interest or a payment of floating interest for a receipt of
fixed interest to reduce the Partnerships exposure to interest rate variability on its
outstanding floating-rate debt and floating-rate restricted cash deposits. As at September 30,
2010, the Partnership was committed to the following interest rate swap agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value / |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of |
|
|
Average |
|
|
Fixed |
|
|
|
Interest |
|
|
Principal |
|
|
Assets |
|
|
Remaining |
|
|
Interest |
|
|
|
Rate |
|
|
Amount |
|
|
(Liability) |
|
|
Term |
|
|
Rate |
|
|
|
Index |
|
|
$ |
|
|
$ |
|
|
(years) |
|
|
(%) (1) |
|
LIBOR-Based Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar-denominated interest rate swaps (2) |
|
LIBOR |
|
|
441,339 |
|
|
|
(101,730 |
) |
|
|
26.3 |
|
|
|
4.9 |
|
U.S. Dollar-denominated interest rate swaps (2) |
|
LIBOR |
|
|
217,082 |
|
|
|
(61,730 |
) |
|
|
8.5 |
|
|
|
6.2 |
|
U.S. Dollar-denominated interest rate swaps |
|
LIBOR |
|
|
60,000 |
|
|
|
(11,392 |
) |
|
|
7.6 |
|
|
|
4.9 |
|
U.S. Dollar-denominated interest rate swaps |
|
LIBOR |
|
|
100,000 |
|
|
|
(22,587 |
) |
|
|
6.3 |
|
|
|
5.3 |
|
U.S. Dollar-denominated interest rate swaps (3) |
|
LIBOR |
|
|
231,250 |
|
|
|
(50,641 |
) |
|
|
18.3 |
|
|
|
5.2 |
|
LIBOR-Based Restricted Cash Deposit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Dollar-denominated interest rate swaps (2) |
|
LIBOR |
|
|
472,001 |
|
|
|
124,814 |
|
|
|
26.3 |
|
|
|
4.8 |
|
EURIBOR-Based Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro-denominated interest rate swaps (4) |
|
EURIBOR |
|
|
383,444 |
|
|
|
(44,410 |
) |
|
|
13.3 |
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(167,676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes the margins the Partnership pays on its drawn floating-rate debt, which,
at September 30, 2010, ranged from 0.3% to 0.7% (see Note 8). |
|
(2) |
|
Principal amount reduces quarterly. |
|
(3) |
|
Principal amount reduces semiannually. |
|
(4) |
|
Principal amount reduces monthly to 70.1 million Euros ($95.6 million) by the
maturity dates of the swap agreements. |
The Partnership is exposed to credit loss in the event of non-performance by the counterparties
to the interest rate swap agreements. In order to minimize counterparty risk, the Partnership
only enters into derivative transactions with counterparties that are rated A- or better by
Standard & Poors or A3 by Moodys at the time of the transactions. In addition, to the extent
practical, interest rate swaps are entered into with different counterparties to reduce
concentration risk.
In order to reduce the variability of its revenue, the Partnership has entered into an agreement
with Teekay Corporation under which Teekay Corporation pays the Partnership any amounts payable
to the charterer of the Toledo Spirit as a result of spot rates being below the fixed rate, and
the Partnership pays Teekay Corporation any amounts payable to the Partnership by the charterer
of the Toledo Spirit as a result of spot rates being in excess of the fixed rate. The fair
value of the derivative at September 30, 2010 is $12,100 (December 31, 2009 $10,600).
The following table presents the location and fair value amounts of derivative instruments,
segregated by type of contract, on the Partnerships balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
portion of |
|
|
|
|
|
|
|
|
|
|
portion of |
|
|
|
|
|
|
Accounts |
|
|
derivative |
|
|
Derivative |
|
|
Accrued |
|
|
derivative |
|
|
Derivative |
|
|
|
receivable |
|
|
assets |
|
|
assets |
|
|
liabilities |
|
|
liabilities |
|
|
liabilities |
|
As at September 30, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
|
4,352 |
|
|
|
16,720 |
|
|
|
103,742 |
|
|
|
(8,569 |
) |
|
|
(52,992 |
) |
|
|
(230,929 |
) |
Toledo Spirit time-charter derivative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,352 |
|
|
|
16,720 |
|
|
|
103,742 |
|
|
|
(8,569 |
) |
|
|
(52,992 |
) |
|
|
(243,029 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
|
4,613 |
|
|
|
16,337 |
|
|
|
15,794 |
|
|
|
(11,539 |
) |
|
|
(50,056 |
) |
|
|
(73,351 |
) |
Toledo Spirit time-charter derivative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,613 |
|
|
|
16,337 |
|
|
|
15,794 |
|
|
|
(11,539 |
) |
|
|
(50,056 |
) |
|
|
(83,951 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The following tables present the gains (losses) for those derivative instruments not designated
or qualifying as hedging instruments. All gains (losses) are presented as realized and
unrealized loss on derivative instruments in the Partnerships consolidated statements of (loss)
income.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
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2010 |
|
|
2009 |
|
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
gains |
|
|
gains |
|
|
|
|
|
|
gains |
|
|
gains |
|
|
|
|
|
|
(losses) |
|
|
(losses) |
|
|
Total |
|
|
(losses) |
|
|
(losses) |
|
|
Total |
|
Interest rate swap agreements |
|
|
(10,306 |
) |
|
|
(23,917 |
) |
|
|
(34,223 |
) |
|
|
(10,491 |
) |
|
|
(24,491 |
) |
|
|
(34,982 |
) |
Toledo Spirit time-charter derivative |
|
|
|
|
|
|
800 |
|
|
|
800 |
|
|
|
|
|
|
|
1,100 |
|
|
|
1,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,306 |
) |
|
|
(23,117 |
) |
|
|
(33,423 |
) |
|
|
(10,491 |
) |
|
|
(23,391 |
) |
|
|
(33,882 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2010 |
|
|
2009 |
|
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
gains |
|
|
gains |
|
|
|
|
|
|
gains |
|
|
gains |
|
|
|
|
|
|
(losses) |
|
|
(losses) |
|
|
Total |
|
|
(losses) |
|
|
(losses) |
|
|
Total |
|
Interest rate swap agreements |
|
|
(32,101 |
) |
|
|
(72,183 |
) |
|
|
(104,284 |
) |
|
|
(25,128 |
) |
|
|
(23,103 |
) |
|
|
(48,231 |
) |
Toledo Spirit time-charter derivative |
|
|
|
|
|
|
(1,500 |
) |
|
|
(1,500 |
) |
|
|
|
|
|
|
6,755 |
|
|
|
6,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,101 |
) |
|
|
(73,683 |
) |
|
|
(105,784 |
) |
|
|
(25,128 |
) |
|
|
(16,348 |
) |
|
|
(41,476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. |
|
Commitments and Contingencies |
a) The Partnership consolidates certain variable interest entities (or VIEs). In general, a
variable interest entity is a corporation, partnership, limited-liability company, trust or any
other legal structure used to conduct activities or hold assets that either (1) has an
insufficient amount of equity to carry out its principal activities without additional
subordinated financial support, (2) has a group of equity owners that are unable to make
significant decisions about its activities, or (3) has a group of equity owners that do not have
the obligation to absorb losses or the right to receive returns generated by its operations. A
party that is a variable interest holder is required to consolidate a VIE if it has both (a) the
power to direct the activities of a VIE that most significantly impact the entitys economic
performance and (b) the obligation to absorb losses of the VIE that could potentially be
significant to the VIE or the right to receive benefits from the VIE that could potentially be
significant to the VIE.
The Partnership consolidated Teekay Tangguh in its consolidated financial statements effective
November 1, 2006. On that date Teekay Tangguh became a VIE and the Partnership became its
primary beneficiary upon the Partnerships agreement to acquire all of Teekay Corporations
interests in Teekay Tangguh (see Note 10e). Upon the Partnerships acquisition of Teekay Tangguh
on August 10, 2009, Teekay Tangguh was no longer a VIE.
The Partnership has also consolidated the Skaugen Multigas Carriers that it has agreed to
acquire from Teekay Corporation as the Skaugen Multigas Carriers became VIEs and the Partnership
became a primary beneficiary when Teekay Corporation purchased the newbuildings on July 28, 2008
(see Note 10h).
The following table summarizes the balance sheet of the Skaugen Multigas Carriers as at
September 30, 2010 and as at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
$ |
|
|
$ |
|
ASSETS |
|
|
|
|
|
|
|
|
Vessels and equipment |
|
|
|
|
|
|
|
|
Advances on newbuilding contracts |
|
|
60,277 |
|
|
|
57,430 |
|
Other assets |
|
|
651 |
|
|
|
651 |
|
|
|
|
|
|
|
|
Total assets |
|
|
60,928 |
|
|
|
58,081 |
|
|
|
|
|
|
|
|
LIABILITIES AND DEFICIT |
|
|
|
|
|
|
|
|
Accrued liabilities and other |
|
|
422 |
|
|
|
112 |
|
Advances from affiliates |
|
|
60,513 |
|
|
|
57,977 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
60,935 |
|
|
|
58,089 |
|
Total deficit |
|
|
(7 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
Total liabilities and total deficit |
|
|
60,928 |
|
|
|
58,081 |
|
|
|
|
|
|
|
|
18
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
The assets and liabilities of the Skaugen Multigas Carriers are reflected in the Partnerships
financial statements at historical cost as the Partnership and the VIEs are under common
control. The Partnerships maximum exposure to loss as of September 30, 2010 and December 31,
2009, as a result of its commitment to purchase Teekay Corporations interests in the Skaugen
Multigas Carriers is limited to the purchase price of its interest in both vessels, which is
expected to be approximately $106 million. The assets of the Skaugen Multigas Carriers cannot be
used by the Partnership and the creditors of the Skaugen Multigas Carriers have no recourse to
the general credit of the Partnership.
b) In December 2006, the Partnership announced that it agreed to acquire the three Skaugen LPG
Carriers upon delivery for approximately $33 million per vessel. The first and second vessel
delivered in April 2009 and November 2009, respectively, and the third vessel is expected to
deliver in 2011. Upon delivery, the first and second vessels were, and the third vessel will be
chartered to Skaugen at fixed rates for a period of 15 years.
13. |
|
Supplemental Cash Flow Information |
a) Net change in parents equity in the Dropdown Predecessor includes the equity of the Dropdown
Predecessor when initially pooled for accounting purposes and any subsequent non-cash equity
transactions of the Dropdown Predecessor (see Note 10j).
b) During the nine months ended September 30, 2009, the Tangguh LNG Carriers commenced their
external time-charter contract under direct financing leases. The costs of the vessels of $408.6
million that have been included as part of the investments in direct financing leases were
treated as non-cash transactions in the Partnerships consolidated statements of cash flows.
c) In June 2009, Teekay Corporation novated an interest rate swap, with a notional amount of
$30.0 million, to the Partnership for no consideration. The transaction was concluded between
related parties and thus the interest rate swap was recorded at its carrying value. The excess
of the liabilities assumed over the consideration received, amounting to $1.6 million, has been
charged to equity and treated as a non-cash transaction in the Partnerships consolidated
statements of cash flows.
14. |
|
Total Capital and Net (Loss) Income Per Unit |
|
|
At September 30, 2010, of the Partnerships total number of units outstanding, 52.3% were held
by the public and the remaining units were held by a subsidiary of Teekay Corporation. |
|
|
On July 15, 2010, the Partnership completed a direct equity placement of 1.7 million common
units. During March 2009 and November 2009, the Partnership completed equity offerings of 4.0
million common units and 3.5 million common units, respectively (see Note 3). |
|
|
On May 19, 2008, 25% of the subordinated units (3.7 million units) issued to Teekay Corporation
in connection with the Partnerships formation and initial public offering were converted into
common units on a one-for-one basis as provided for under the terms of the partnership agreement
and began participating pro rata with the other common units in distributions of available cash
commencing with the August 2008 distribution. The price of the Partnerships units at the time
of conversion was $29.07. |
|
|
On May 19, 2009, an additional 3.7 million subordinated units were converted into an equal
number of common units as provided for under the terms of the partnership agreement and
participate pro rata with the other common units in distributions of available cash commencing
with the August 2009 distribution. The price of the Partnerships units at the time of
conversion was $17.66. |
|
|
The subordination period ended on April 1, 2010 and the remaining 7.4 million subordinated units
converted into an equal number of common units. The price of the Partnerships units at time of
conversion was $29.95. |
|
|
Net (Loss) Income Per Unit |
|
|
Net (loss) income per unit is determined by dividing net (loss) income, after deducting the
amount of net (loss) income attributable to the Dropdown Predecessor, the non-controlling
interest and the General Partners interest, by the weighted-average number of units outstanding
during the period. |
|
|
The General Partners, common unitholders and subordinated unitholders interests in net (loss)
income are calculated as if all net (loss) income was distributed according to the terms of the
Partnerships partnership agreement, regardless of whether those earnings would or could be
distributed. The partnership agreement does not provide for the distribution of net (loss)
income; rather, it provides for the distribution of available cash, which is a contractually
defined term that generally means all cash on hand at the end of each quarter after
establishment of cash reserves determined by the Partnerships board of directors to provide for
the proper conduct of the Partnerships business including reserves for maintenance and
replacement capital expenditure and anticipated credit needs. In addition, the General Partner
is entitled to incentive distributions if the amount the Partnership distributes to unitholders
with respect to any quarter exceeds specified target levels. Unlike available cash, net (loss)
income is affected by non-cash items, such as depreciation and amortization, unrealized gains or
losses on non-designated derivative instruments and foreign currency translation gains (losses). |
19
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except unit and per unit data or unless otherwise indicated)
|
|
During the three and nine months ended September 30, 2010 and 2009, cash distributions exceeded
$0.4625 per unit and, consequently, the assumed distribution of net (loss) income resulted in
the use of the increasing percentages to calculate the General Partners interest in net (loss)
income for the purposes of the net (loss) income per unit calculation. |
|
|
In December 2007, a consortium in which Teekay Corporation has a 33% ownership interest agreed
to 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. The vessels will be
chartered at fixed rates, with inflation adjustments, commencing in 2011 and 2012 upon
deliveries of the vessels. Mitsui & Co., Ltd. and NYK Bulkship (Europe) have 34% and 33%
ownership interests in the consortium, respectively. In accordance with an existing agreement,
Teekay Corporation is required to offer to the Partnership its 33% ownership interest in these
vessels and related charter contracts not later than 180 days before delivery of the vessels. |
|
|
During 2009 the Partnership restructured certain ship management functions from the
Partnerships office in Spain to a subsidiary of Teekay Corporation and the change of the
nationality of certain seafarer positions. During the three and nine months ended September 30,
2010 and 2009 the Partnership incurred expenses of nil, $0.4 million, $0.2 million and $3.1
million, respectively, in connection with these restructuring plans. The carrying amount of the
liability as at September 30, 2010 and December 31, 2009 was nil and $0.6 million, which is
included as part of accrued liabilities in the Partnerships consolidated balance sheets. |
17. |
|
Accounting Pronouncements Not Yet Adopted |
|
|
In September 2009, the FASB issued an amendment to FASB ASC 605, Revenue Recognition, that
provides for a new methodology for establishing the fair value for a deliverable in a
multiple-element arrangement. When vendor specific objective or third-party evidence for
deliverables in a multiple-element arrangement cannot be determined, the Partnership will be
required to develop a best estimate of the selling price of separate deliverables and to
allocate the arrangement consideration using the relative selling price method. This amendment
will be effective for the Partnership on January 1, 2011, although earlier adoption is allowed.
The Partnership is currently assessing the potential impacts, if any, on its consolidated
financial statements. |
|
|
In July 2010, the FASB issued an amendment to FASB ASC 310, Receivables, that requires companies
to provide more information in their disclosures about the credit quality of their financing
receivables and the credit reserves held against them. The amendments that require disclosures
as of the end of a reporting period are effective for the periods ending on or after December
15, 2010. The amendments that require disclosures about activity that occurs during a reporting
period are effective for the periods beginning on or after December 15, 2010. The Partnership is
currently assessing the potential impacts, if any, on its consolidated financial statements. |
|
|
On November 4, 2010,
the Partnership acquired a 50% interest in one regas LNG carrier and
a 49% interest in one conventional LNG carrier (collectively the
Exmar Joint Venture) from Exmar NV
for a total purchase price of approximately $70.3 million. The Partnership paid $35.4 million
of the purchase price by issuing to Exmar NV 1,052,749 of its common units and the balance of
$34.9 million was financed by drawing on one of its revolving credit facilities. On the date of
the acquisition, the Exmar Joint Venture had $206.3 million of debt, of which 50% has been
guaranteed by the Partnership. Exmar NV retains a 50% percent ownership interest in the Exmar
Joint Venture. The two vessels acquired are the 2002-built Excalibur, a conventional LNG
carrier, and the 2005-built Excelsior, a specialized gas carrier which can both transport and
regasify LNG onboard. Both vessels are on long-term, fixed-rate charter contracts to Excelerate
Energy LP for firm periods until 2022 and 2025, respectively. |
|
|
On November 5, 2010, the Partnership sold one of its LPG carriers, the Dania Spirit for proceeds
of $21.5 million, resulting in a gain of $4.3 million. |
20
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER 30, 2010
PART I FINANCIAL INFORMATION
Item 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Teekay LNG Partners L.P. is an international provider of marine transportation services for
liquefied natural gas (or LNG), liquefied petroleum gas (or LPG) and crude oil. We were formed in
2004 by Teekay Corporation, the worlds largest owner and operator of medium sized crude oil
tankers, to expand its operations in the LNG shipping sector. Our primary growth strategy focuses
on expanding our fleet of LNG and LPG carriers under long-term, fixed-rate time-charters. We intend
to continue our practice of acquiring LNG and LPG carriers as needed for approved projects only
after the long-term charters for the projects have been awarded to us, rather than ordering vessels
on a speculative basis. In executing our growth strategy, we may engage in vessel or business
acquisitions or enter into joint ventures and partnerships with companies that may provide
increased access to emerging opportunities from global expansion of the LNG and LPG sectors. We
seek to leverage the expertise, relationships and reputation of Teekay Corporation and its
affiliates to pursue these opportunities in the LNG and LPG sectors and may consider other
opportunities to which our competitive strengths are well suited. We view our conventional tanker
fleet primarily as a source of stable cash flow as we seek to expand our LNG and LPG operations.
Our primary goal is to increase our quarterly distributions to unitholders. During the first
quarter of 2010, we increased distributions from $0.57 per unit for each quarter in 2009 to $0.60
per unit effective for the first quarter of 2010.
SIGNIFICANT DEVELOPMENTS IN 2010
Acquisition of Three Conventional Tankers
On March 17, 2010, we acquired from Teekay Corporation two 2009-built 159,000 deadweight tonne
Suezmax tankers, the Bermuda Spirit and Hamilton Spirit, and a 2007-built 40,083 deadweight tonne
Handymax Product tanker, the Alexander Spirit, and the associated fixed-rate contracts for a total
cost of $160 million. The remaining charter terms for these vessels are 11 years, 11 years and 9
years, respectively. We financed the acquisition by assuming $126 million of debt, borrowing
$24 million under existing revolving credit facilities and using $10 million of cash. In addition, we
acquired approximately $15 million of working capital in exchange for a short-term vendor loan from
Teekay Corporation. As a result of these acquisitions, we increased our quarterly cash distribution
by $0.03 per unit beginning with the quarterly distribution paid in May 2010.
Conversion of Subordinated Units
On April 1, 2010, our remaining 7.4 million subordinated units converted to common units on a
one-for-one basis.
Equity Offering
On July 15, 2010, we completed a direct equity placement of approximately 1.7 million common units
at a price of $29.18 per unit, for net proceeds of approximately $51 million, including our general
partners 2% proportionate capital contribution. We used the net proceeds from the
offering to prepay a portion of one of our revolving credit facilities and
for general partnership purposes.
Exmar Joint Venture
On November 4, 2010, we
acquired a 50% interest in one regas LNG carrier and a 49% interest in one
conventional LNG carrier (collectively the Exmar Joint Venture) from Exmar NV for a total purchase
price of approximately $70.3 million. We paid $35.4 million of the purchase price by issuing to
Exmar NV 1,052,749 of our common units and the balance of $34.9 million was financed by drawing on
one of our revolving credit facilities. On the date of the acquisition, the Exmar Joint Venture
had $206.3 million of debt, of which we have guaranteed 50% of this debt. Exmar NV retains a 50%
percent ownership interest in the Exmar Joint Venture. The two vessels acquired are the 2002-built
Excalibur, a conventional LNG carrier, and the 2005-built Excelsior, a specialized gas carrier
which can both transport and regasify LNG onboard. Both vessels are on long-term, fixed-rate
charter contracts to Excelerate Energy LP for firm periods until 2022 and 2025, respectively.
Sale of Dania Spirit
On November 5, 2010, we sold one of our LPG carriers, the Dania Spirit for proceeds of $21.5
million, resulting in a gain of $4.3 million.
OTHER SIGNIFICANT PROJECTS
Agreement to Purchase Skaugen Multigas Carriers
On July 28, 2008, Teekay Corporation signed contracts for the purchase from I.M. Skaugen ASA (or
Skaugen) of two technically advanced 12,000-cubic meter newbuilding Multigas vessels (or the
Skaugen Multigas Carriers) capable of carrying LNG, LPG or ethylene. We, in turn, agreed to
acquire the vessels from Teekay Corporation upon delivery for a total cost of approximately $106
million. Both vessels are scheduled to be delivered in 2011. Upon delivery, each vessel will
commence service under 15-year fixed-rate charters to Skaugen.
21
Angola LNG Project
In December 2007, a consortium in which Teekay Corporation has a 33% ownership interest agreed to
charter four newbuilding 160,400-cubic meter LNG carriers for a period of 20 years to the Angola
LNG Project. The Angola LNG Project is being developed by subsidiaries of Chevron Corporation,
Sociedade Nacional de Combustiveis de Angola EP, BP Plc, Total S.A., and Eni SpA. The vessels will
be chartered at fixed rates, subject to inflation adjustments, commencing in 2011. Mitsui & Co.,
Ltd. and NYK Bulkship (Europe) have 34% and 33% ownership interests in the
consortium, respectively. Teekay Corporation is required to offer to us its 33% ownership interest
in these vessels and related charter contracts not later than 180 days before delivery of the
vessels. Deliveries of the vessels are scheduled for 2011 and 2012.
RESULTS OF OPERATIONS
We use a variety of financial and operational terms and concepts when analyzing our results of
operations. Descriptions of key terms and concepts are included in Item 5. Operating and Financial
Review and Prospects in our Annual Report on Form 20-F for the year ended December 31, 2009, filed
with the SEC on April 29, 2010.
Items You Should Consider When Evaluating Our Results of Operations
Some factors that have affected our historical financial performance and may affect our future
performance are listed below:
|
|
|
Our financial results reflect the results of the interests in vessels acquired from
Teekay Corporation for all periods the vessels were under common control. In March 2010,
we acquired interests in two Suezmax vessels, the Bermuda Spirit and the Hamilton Spirit
(collectively, the Centrofin Suezmaxes), and a Handymax Product tanker, the Alexander
Spirit, from Teekay Corporation. These transactions were deemed to be business
acquisitions between entities under common control. Accordingly, we have accounted for
these transactions in a manner similar to the pooling of interest method whereby our
financial statements prior to the date these vessels were acquired by us are retroactively
adjusted to include the results of these acquired vessels. The periods retroactively
adjusted include all periods that we and the acquired vessels were both under common
control of Teekay Corporation and had begun operations. As a result, our financial
statements reflect these vessels and their results of operations referred to herein as the
Dropdown Predecessor as if we had acquired them when each respective vessel began
operations under the ownership of Teekay Corporation, which were May 27, 2009 (Bermuda
Spirit), June 24, 2009 (Hamilton Spirit) and September 3, 2009 (Alexander Spirit). |
|
|
|
Our financial results reflect the consolidation of Teekay Tangguh and the
Skaugen Multigas Carriers prior to our purchase of interests in those entities that own
those vessels. On November 1, 2006, we entered into an agreement with Teekay Corporation
to purchase its 100% interest in Teekay Tangguh Borrower LLC (or Teekay Tangguh), which
owns a 70% interest in Teekay BLT Corporation (or Teekay Tangguh Joint Venture). We
ultimately acquired 99% of Teekay Corporations interest in Teekay Tangguh, essentially
giving us a 69% interest in the Teekay Tangguh Joint Venture. We were required to
consolidate Teekay Tangguh in our consolidated financial statements since November 1, 2006,
even before we acquired this entity on August 10, 2009, as it was a variable interest
entity and we were its primary beneficiary. |
|
|
|
On July 28, 2008, Teekay Corporation signed contracts for the purchase of the two Skaugen
Multigas Carriers from subsidiaries of Skaugen. As described above, we have agreed to acquire
the companies that own the Skaugen Multigas Carriers from Teekay Corporation upon delivery of
the vessels. Since July 28, 2008, we have consolidated these ship-owning companies in our
financial statements as variable interest entities as we are the primary beneficiary. |
|
|
|
Please read Item 1 Financial Statements: Notes 10(e) and 10(h) Related Party
Transactions and Note 12(a) Commitments and Contingencies. |
|
|
|
Our financial results are affected by fluctuations in the fair value of our derivative
instruments. The change in fair value of our derivative instruments is included in our net
(loss) income as our derivative instruments are not designated as hedges for accounting
purposes. These changes may fluctuate significantly as interest rates and spot tanker rates
fluctuate relating to our interest rate swaps and to the agreement we have with Teekay
Corporation for the Suezmax tanker Toledo Spirit time-charter contract, respectively.
Please read Item 1 Financial Statements: Note 10(i) Related Party Transactions and
Note 11 Derivative Instruments. The unrealized gains or losses relating to the change in
fair value of our derivative instruments do not impact our cash flows. |
|
|
|
Our financial results are affected by fluctuations in currency exchange rates.
Under GAAP, all foreign currency-denominated monetary assets and liabilities
(including cash and cash equivalents, restricted cash, accounts receivable, accounts
payable, accrued liabilities, unearned revenue,
advances from affiliates, obligations under capital lease and long-term debt) are
revalued and reported based on the prevailing exchange rate at the end of the period. These
foreign currency translations fluctuate based on the strength of the U.S. dollar relative
mainly to the Euro and are included in our results of operations. The translation of all
foreign currency-denominated monetary assets and liabilities at each reporting date results
in unrealized foreign currency exchange gains or losses but do not impact our cash flows. |
22
|
|
|
The size of our fleet changes. Our historical results of operations reflect
changes in the size and composition of our fleet due to certain vessel deliveries. Please
read Liquefied Gas Segment below and Other Significant Projects above for further
details about certain prior and future vessel deliveries. |
|
|
|
One of our Suezmax tankers earns revenues based partly on spot market rates.
The time-charter for one Suezmax tanker, the Teide Spirit, contains a component providing
for additional revenues to us beyond the fixed-hire rate when spot market rates exceed
certain threshold amounts. Accordingly, even though declining spot market rates will not
result in our receiving less than the fixed-hire rate, our results at the end of each
fiscal year may continue to be influenced, in part, by the variable component of the Teide
Spirit charter. |
|
|
|
Vessel operating and other costs are facing industry-wide cost pressures. The
oil shipping industry is experiencing a global manpower shortage due to growth in the world
fleet. This shortage resulted in significant crew wage increases during 2007, 2008, to a
lesser degree in 2009 and during the first half of 2010. We expect that going forward,
there will be more upward pressure on crew compensation which will result in higher manning
costs as we keep pace with market conditions. In addition, factors such as pressure on raw
material prices and changes in regulatory requirements could also increase operating
expenditures. We continue to take measures to improve operational efficiencies and mitigate
the impact of inflation and price escalations; however, we believe that future operational
costs will increase. |
|
|
|
The amount and timing of drydockings of our vessels can significantly affect
our revenues between periods. Our vessels are off-hire at various points of time due to
scheduled and unscheduled maintenance. The financial impact from these periods of off-hire,
if material, is explained in further detail below. One vessel is scheduled for drydocking
during the fourth quarter of 2010 with an estimated 18 total off-hire days for the quarter
compared to 175 off-hire days for the first nine months of the year. |
Liquefied Gas Segment
Our fleet includes 15 LNG carriers (including our 40% interest in four LNG carriers that are
accounted for under the equity method (or the RasGas 3 LNG Carriers), our 69% interest in the
Tangguh Joint Venture, which owns the Tangguh Hiri and the Tangguh Sago (or the Tangguh LNG
Carriers), our 70% interest in Teekay Nakilat Corporation (or Teekay Nakilat), which is the lessee
under 30-year capital lease arrangements relating to three LNG carriers (or the RasGas II LNG
Carriers), and our 99% interest in the Arctic Spirit and Polar Spirit LNG carriers (or the Kenai
LNG Carriers)) and three LPG carriers. All of our LNG and LPG carriers operate under long-term,
fixed-rate time-charters. We expect our liquefied gas segment to increase due to the following:
|
|
|
We have agreed to acquire an LPG carrier for approximately $33 million upon its delivery
scheduled in 2011. Please read Item 1 Financial Statements: Note 12(b) Commitments
and Contingencies. |
|
|
|
As discussed above, we have agreed to acquire the Skaugen Multigas Carriers from Teekay
Corporation for a total cost of approximately $106 million upon their deliveries, which are
scheduled for 2011. Please read Item 1 Financial Statements: Note 10(h) Related Party
Transactions and Note 12(a) Commitments and Contingencies. |
|
|
|
As discussed above, Teekay Corporation is required to offer to us its 33% ownership
interest in the consortium relating to the Angola LNG Project not later than 180 days
before the deliveries of the related four newbuilding LNG carriers, which are scheduled for
2011 and 2012. Please read Item 1 Financial Statements: Note 15 Other Information. |
|
|
|
As discussed above, on November 4, 2010,
we acquired the Exmar Joint
Venture which owns two LNG carriers. |
23
The following tables compare our liquefied gas segments operating results for the three and nine
months ended September 30, 2010 and 2009, and compare its net voyage revenues (which is a non-GAAP
financial measure) for the three and nine months ended September 30, 2010 and 2009 to voyage
revenues, the most directly comparable GAAP financial measure. The following tables also provide a
summary of the changes in calendar-ship-days and revenue days for our liquefied gas segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except revenue days, |
|
Three Months Ended September 30, |
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues |
|
|
66,563 |
|
|
|
63,750 |
|
|
|
4.4 |
|
Voyage (recoveries) expenses |
|
|
(50 |
) |
|
|
465 |
|
|
|
(110.8 |
) |
|
|
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
66,613 |
|
|
|
63,285 |
|
|
|
5.3 |
|
Vessel operating expenses |
|
|
11,422 |
|
|
|
12,760 |
|
|
|
(10.5 |
) |
Depreciation and amortization |
|
|
15,149 |
|
|
|
13,989 |
|
|
|
8.3 |
|
General and administrative (1) |
|
|
2,921 |
|
|
|
3,118 |
|
|
|
(6.3 |
) |
Restructuring charge |
|
|
|
|
|
|
175 |
|
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
37,121 |
|
|
|
33,243 |
|
|
|
11.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Days (A) |
|
|
1,279 |
|
|
|
1,143 |
|
|
|
11.9 |
|
Calendar-Ship-Days (B) |
|
|
1,288 |
|
|
|
1,196 |
|
|
|
7.7 |
|
Utilization (A)/(B) |
|
|
99.3 |
% |
|
|
95.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except revenue days, |
|
Nine Months Ended September 30, |
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues |
|
|
198,171 |
|
|
|
184,996 |
|
|
|
7.1 |
|
Voyage expenses |
|
|
45 |
|
|
|
723 |
|
|
|
(93.8 |
) |
|
|
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
198,126 |
|
|
|
184,273 |
|
|
|
7.5 |
|
Vessel operating expenses |
|
|
35,582 |
|
|
|
37,493 |
|
|
|
(5.1 |
) |
Depreciation and amortization |
|
|
45,781 |
|
|
|
43,660 |
|
|
|
4.9 |
|
General and administrative (1) |
|
|
8,291 |
|
|
|
7,650 |
|
|
|
8.4 |
|
Restructuring charge |
|
|
|
|
|
|
1,357 |
|
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
108,472 |
|
|
|
94,113 |
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Days (A) |
|
|
3,776 |
|
|
|
3,238 |
|
|
|
16.6 |
|
Calendar-Ship-Days (B) |
|
|
3,822 |
|
|
|
3,383 |
|
|
|
13.0 |
|
Utilization (A)/(B) |
|
|
98.8 |
% |
|
|
95.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated use of resources). |
Our liquefied gas segments operating results included 11 LNG (not including the four RasGas
3 LNG Carriers that are accounted for under the equity method) and 3 LPG carriers during the nine
months ended September 30, 2010 and 2009, respectively. Our total calendar-ship-days increased by
13.0% to 3,822 days in the nine months ended September 30, 2010 from 3,383 days in the nine
months ended September 30, 2009 as a result of the Tangguh Sago, Norgas Pan and Norgas Cathinka
deliveries in March, April and November 2009, respectively.
During the nine months ended September 30, 2010, three of our gas carriers, the Arctic Spirit,
Dania Spirit and Hispania Spirit were off-hire for approximately 22 days, 22 days and 2 days,
respectively, relating to scheduled drydockings and in-water surveys, compared to 53 off-hire days
in 2009.
Net Voyage Revenues. Net voyage revenues increased for the three and nine months ended September
30, 2010, from the same periods last year, primarily as a result of:
|
|
|
increases of $0.6 million and $10.6 million for the three and nine months ended
September 30, 2010, respectively, due to the commencement of the time-charter for the
Tangguh Sago in May 2009 and an increase in the time-charter rate for the Tangguh Hiri
relating to the operating element of the time-charter; |
|
|
|
increases of $4.0 million and $4.0 million for the three and nine months ended September
30, 2010, respectively, due to the absence of any off-hire days during those periods,
compared to 53 off-hire days relating to the Galacia Spirit and Madrid Spirit during the
comparable periods of 2009; and |
|
|
|
increases of $1.0 million and $3.9 million for the three and nine months ended September
30, 2010, respectively, due to the commencement of the time-charters for the Norgas Pan and
the Norgas Cathinka in April and November 2009, respectively;
|
24
|
|
|
decreases of $1.1 million and $1.4 million for the three and nine months ended September
30, 2010, respectively, due to the effect on our Euro-denominated revenues from the
weakening of the Euro against the U.S. Dollar compared to the same periods last year; |
|
|
|
a decrease of $1.1 million for the nine months ended September 30, 2010, due to the
Arctic Spirit being off-hire for 22 days in the first quarter of 2010 for a scheduled
drydock; |
|
|
|
decreases of $0.3 million and $1.5 million for the three and nine months ended September
30, 2010, respectively, due to a decrease in the hire rates for the Arctic Spirit and Polar
Spirit as compared to the same periods last year as a result of crewing rate adjustments; |
|
|
|
decreases of $0.3 million and $0.2 million for the three and nine months ended September
30, 2010, respectively, due to timing of voyage expenses incurred; and |
|
|
|
a decrease of $0.2 million for the three and nine months ended September 30, 2010, due
to the Hispania Spirit being off-hire for 2 days in the third quarter of 2010 for a
scheduled in-water survey. |
Vessel Operating Expenses. Vessel operating expenses decreased for the three and nine months ended
September 30, 2010, from the same periods last year, primarily as a result of:
|
|
|
decreases of $0.6 million and $1.7 million for the three and nine months ended September
30, 2010, respectively, due to our electing to cancel our loss-of-hire insurance in 2009
and a reduction in manning levels for certain of our LNG carriers; |
|
|
|
decreases of $0.6 million and $1.3 million for the three and nine months ended September
30, 2010, respectively, due to the Arctic Spirit being laid up and as a result, operating
with a reduced number of crew on board and with reduced repair and maintenance activities;
and |
|
|
|
decreases of $0.8 million and $1.0 million for the three and nine months ended September
30, 2010, respectively, due to the effect on our Euro-denominated expenses from the
weakening of the Euro against the U.S. Dollar compared to the same periods last year; |
|
|
|
an increase of $1.1 million for the nine months ended September 30, 2010, due to
additional crew training expenses relating to the Al Marrouna, the Al Areesh and the Al
Daayen; |
|
|
|
an increase of $0.7 million for the three and nine months ended September 30, 2010, due
to additional crew training expenses and increased crew manning relating to the Tangguh
Hiri and Tangguh Sago and from the delivery of the Tangguh Sago in March 2009; and |
|
|
|
an increase of $0.3 million for the nine months ended September 30, 2010, due to
additional repairs and maintenance on the Dania Spirit. |
Depreciation and Amortization. Depreciation and amortization increased for the three and nine
months ended September 30, 2010, from the same periods last year, primarily as a result of:
|
|
|
increases of $0.3 million and $1.6 million for the three and nine months ended September
30, 2010, respectively, relating to depreciation of drydock expenditures incurred during
the third and fourth quarters of 2009 and the first quarter of 2010; and |
|
|
|
increases of $0.3 million and $1.0 million for the three and nine months ended September
30, 2010, respectively, from the delivery of the Norgas Pan and Norgas Cathinka in April
and November 2009, respectively; and |
|
|
|
an increase of $0.6 million for the three and nine months ended September 30, 2010, due
to revised depreciation estimates; |
|
|
|
a decrease of $1.1 million for the nine months ended September 30, 2010, from the
delivery of the Tangguh Sago in March 2009, prior to the commencement of the external
time-charter contract in May 2009 which is accounted for as a direct financing lease. |
Conventional Tanker Segment
Our fleet includes ten Suezmax-class double-hulled conventional crude oil tankers and one Handymax
Product tanker. All of our conventional tankers operate under long-term, fixed-rate time-charters.
On March 17, 2010, we purchased from Teekay Corporation the two 2009-built Centrofin Suezmaxes and
a 2007-built Handymax Product tanker, the Alexander Spirit. These vessels have been included in
our results as if they were acquired on May 27, 2009 (Bermuda Spirit), June 24, 2009 (Hamilton
Spirit) and September 3, 2009 (Alexander Spirit). As a result of these acquisitions, our total
conventional tanker segment calendar ship days increased by 23.3% to 3,003 days for the nine months
ended September 30, 2010 from 2,436 days for the nine months ended September 30, 2009.
25
The following tables compare our conventional tanker segments operating results for the three and
nine months ended September 30, 2010 and 2009, and compare its net voyage revenues (which is a
non-GAAP financial measure) for the three and nine months ended September 30, 2010 and 2009 to
voyage revenues, the most directly comparable GAAP financial measure. The following tables also
provide a summary of the changes in calendar-ship-days and revenue days for our conventional tanker
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except revenue days, |
|
Three Months Ended September 30, |
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues |
|
|
25,591 |
|
|
|
24,639 |
|
|
|
3.9 |
|
Voyage expenses |
|
|
773 |
|
|
|
290 |
|
|
|
166.6 |
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
24,818 |
|
|
|
24,349 |
|
|
|
1.9 |
|
Vessel operating expenses |
|
|
9,541 |
|
|
|
7,630 |
|
|
|
25.1 |
|
Depreciation and amortization |
|
|
6,977 |
|
|
|
6,571 |
|
|
|
6.2 |
|
General and administrative (1) |
|
|
2,331 |
|
|
|
2,519 |
|
|
|
(7.5 |
) |
Restructuring charge |
|
|
|
|
|
|
218 |
|
|
|
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
5,969 |
|
|
|
7,411 |
|
|
|
(19.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Days (A) |
|
|
924 |
|
|
|
941 |
|
|
|
(1.8 |
) |
Calendar-Ship-Days (B) |
|
|
1,012 |
|
|
|
947 |
|
|
|
6.9 |
|
Utilization (A)/(B) |
|
|
91.3 |
% |
|
|
99.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. dollars, except revenue days, |
|
Nine Months Ended September 30, |
|
|
|
|
calendar-ship-days and percentages) |
|
2010 |
|
|
2009 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage revenues |
|
|
78,321 |
|
|
|
62,235 |
|
|
|
25.8 |
|
Voyage expenses |
|
|
1,312 |
|
|
|
772 |
|
|
|
69.9 |
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues |
|
|
77,009 |
|
|
|
61,463 |
|
|
|
25.3 |
|
Vessel operating expenses |
|
|
28,450 |
|
|
|
20,111 |
|
|
|
41.5 |
|
Depreciation and amortization |
|
|
20,908 |
|
|
|
16,732 |
|
|
|
25.0 |
|
General and administrative (1) |
|
|
7,390 |
|
|
|
5,697 |
|
|
|
29.7 |
|
Restructuring charge |
|
|
175 |
|
|
|
1,696 |
|
|
|
(89.7 |
) |
|
|
|
|
|
|
|
|
|
|
Income from vessel operations |
|
|
20,086 |
|
|
|
17,227 |
|
|
|
16.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Days (A) |
|
|
2,874 |
|
|
|
2,430 |
|
|
|
18.3 |
|
Calendar-Ship-Days (B) |
|
|
3,003 |
|
|
|
2,436 |
|
|
|
23.3 |
|
Utilization (A)/(B) |
|
|
95.7 |
% |
|
|
99.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated use of corporate resources). |
During the nine months ended September 30, 2010, three of our Conventional carriers, the
Tenerife Spirit, Algeciras Spirit and Toledo Spirit, were off-hire for approximately 73 days, 41
days and 15 days, respectively, relating to scheduled drydockings, compared to no off-hire days in
2009.
Net Voyage Revenues. Net voyage revenues increased for the three and nine months ended September
30, 2010, from the same periods last year, primarily as a result of:
|
|
|
increases of $2.6 million and $19.1 million for the three and nine months ended
September 30, 2010, respectively, due to the commencement of the time-charters for the two
Centrofin Suezmaxes in May and June 2009, and the acquisition of the Alexander Spirit in
September 2009 by Teekay Corporation; |
|
|
|
decreases of $2.1 million and $3.3 million for the three and nine months ended September
30, 2010, due to the Tenerife Spirit, Algeciras Spirit and Toledo Spirit being off-hire for
73, 41 and 15 days, respectively, during the second and third quarters of 2010 for
scheduled drydockings; and |
|
|
|
decreases of $0.1 million and $0.3 million for the three and nine months ended September
30, 2010, respectively, due to interest-rate adjustments to the daily charter rates under
the time-charter contracts for five Suezmax tankers (however, under the terms of these
capital leases, we had corresponding decreases in our lease payments, which are reflected
as decreases to interest expense; therefore, these and future similar interest rate
adjustments do not affect our cash flow or net (loss) income). |
26
Vessel Operating Expenses. Vessel operating expenses increased for the three and nine months ended
September 30, 2010, from the same periods last year, primarily as a result of:
|
|
|
increases of $1.6 million and $7.3 million for the three and nine months ended September
30, 2010, respectively, from the delivery of the two Centrofin Suezmaxes in May and June
2009 and the acquisition of the Alexander Spirit by Teekay Corporation in September 2009;
and |
|
|
|
increases of $0.3 million and $1.1 million for the three and nine months ended September
30, 2010 primarily due to higher planned maintenance activities relating to scheduled
drydockings in 2010. |
Depreciation and Amortization. Depreciation and amortization increased for the three and nine
months ended September 30, 2010, from the same periods last year, primarily as a result of:
|
|
|
increases of $0.3 million and $3.7 million, respectively, due to the delivery of the
Centrofin Suezmaxes in May and June 2009 and the acquisition of the Alexander Spirit by
Teekay Corporation in September 2009; and |
|
|
|
increases of $0.1 million and $0.5 million for the three and nine months ended September
30, 2010, respectively, relating to depreciation of drydock expenditures incurred during
2010 and the fourth quarter of 2009. |
Other Operating Results
General and Administrative Expenses. General and administrative expenses decreased for the three
months ended September 30, 2010 and increased for the nine months ended September 30, 2010 from the
same periods last year, primarily as a result of:
|
|
|
an increase of $1.0 million for the nine months ended September 30, 2010 due to the
delivery of the Centrofin Suezmaxes in May and June 2009 and the acquisition of the
Alexander Spirit by Teekay Corporation in September 2009; |
|
|
|
an increase of $0.6 million for the nine months ended September 30, 2010, due to an
increase in ship management fees relating to certain Spanish vessels; |
|
|
|
an increase of $0.5 million for the nine months ended September 30, 2010, due to an
increase in corporate services provided to us by Teekay Corporation; and |
|
|
|
an increase of $0.5 million for the three and nine months ended September 30, 2010, due
to an adjustment in ship management fees relating to the Kenai LNG Carriers in September
2009; |
|
|
|
an decrease of $0.8 million for the three months ended September 30, 2010, due to a
decrease in corporate and office expenses; and |
|
|
|
decreases of $0.1 million and $0.2 million for the three and nine months ended September
30, 2010, respectively, relating to management fees charged by us to a subsidiary of Teekay
Corporation. |
Restructuring Charge. During 2009, we restructured certain ship management functions from our
office in Spain to a subsidiary of Teekay Corporation and changed the nationality of certain
seafarer positions. During the three and nine months ended September 30, 2009, we incurred $0.4
million and $3.1 million, respectively, in connection with these restructuring plans compared to an
insignificant amount for the same periods in 2010.
Interest Expense. Interest expense decreased to $12.7 million and $36.8 million for the three and
nine months ended September 30, 2010, respectively, from $13.9 million and $47.2 million for the
same periods last year. Interest expense primarily reflects interest incurred on our capital lease
obligations and long-term debt. These decreases were primarily the result of:
|
|
|
decreases of $0.3 million and $6.6 million for the three and nine months ended September
30, 2010, respectively, due to principal debt repayments made during 2010 and the third and
fourth quarters of 2009 and a decrease of the LIBOR rates relating to our variable-rate
debts for the nine months ended September 30, 2010; |
|
|
|
decreases of $0.8 million and $4.2 million for the three and nine months ended September
30, 2010, respectively, from the scheduled loan payments on the LNG carrier Catalunya
Spirit, and scheduled capital lease repayments on the LNG carrier Madrid Spirit (the Madrid
Spirit is financed pursuant to a Spanish tax lease arrangement, under which we borrowed
under a term loan and deposited the proceeds into a restricted cash account and entered
into a capital lease for the vessel; as a result, this decrease in interest expense from
the capital lease is offset by a corresponding decrease in interest income from restricted
cash); |
|
|
|
decreases of $0.6 million and $0.7 million for the three and nine months ended September
30, 2010, respectively, due to a reclassification of interest income; and |
|
|
|
decreases of $0.2 million and $0.5 million for the three and nine months ended September
30, 2010, respectively, from declining interest rates on our five Suezmax tanker capital
lease obligations (however, as described above, under the terms of the time-charter
contracts for these vessels, we have corresponding decreases in charter receipts, which are
reflected as decreases to voyage revenues); |
27
|
|
|
increases of $0.3 million and $1.1 million for the three and nine months ended September
30, 2010 relating to higher amortization of
deferred debt issuance costs; and |
|
|
|
increases of $0.3 million and $0.5 million for the three and nine months ended September
30, 2010, respectively, from the delivery of the two Centrofin Suezmaxes in May and June
2009 and the acquisition of the Alexander Spirit by Teekay Corporation in September 2009. |
Interest Income. Interest income decreased to $2.1 million and $5.4 million for the three and nine
months ended September 30, 2010, respectively, from $3.4 million and $10.9 million for the same
periods last year. Interest income primarily reflects interest earned on restricted cash deposits
that approximate the present value of the remaining amounts we owe under lease arrangements on four
of our LNG carriers. These decreases were primarily as a result of:
|
|
|
decreases of $0.9 million and $2.9 million for the three and nine months ended September
30, 2010, respectively, primarily from scheduled capital lease repayments on one of our LNG
carriers which was funded from restricted cash deposits; |
|
|
|
a decrease of $1.9 million for the nine months ended September 30, 2010, due to
decreases in LIBOR rates for the first and second quarters of 2010, compared to the first
and second quarters of 2009, relating to the restricted cash in Teekay Nakilat that is used
to fund capital lease payments for the RasGas II LNG Carriers; and |
|
|
|
decreases of $0.6 million and $0.7 million for the three and nine months ended September
30, 2010, respectively, due to a reclassification of interest expense; |
|
|
|
an increase of $0.2 million for the three months ended September 30, 2009 due to an
increase in the LIBOR rates in the third quarter of 2010, compared to the third quarter of
2009, relating to the restricted cash in Teekay Nakilat that is used to fund capital lease
payments for the RasGas II LNG Carriers. |
Realized and Unrealized Loss on Derivative Instruments. Net realized and unrealized losses on
derivative instruments decreased to a loss of ($33.4) million and increased to a loss of ($105.8)
million for the three and nine months ended September 30, 2010, respectively, from ($33.9) million
and ($41.5) million for the same periods in 2009 as set forth in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
gains |
|
|
gains |
|
|
|
|
|
|
gains |
|
|
gains |
|
|
|
|
|
|
(losses) |
|
|
(losses) |
|
|
Total |
|
|
(losses) |
|
|
(losses) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
|
(10,306 |
) |
|
|
(23,917 |
) |
|
|
(34,223 |
) |
|
|
(10,491 |
) |
|
|
(24,491 |
) |
|
|
(34,982 |
) |
Toledo Spirit time-charter derivative |
|
|
|
|
|
|
800 |
|
|
|
800 |
|
|
|
|
|
|
|
1,100 |
|
|
|
1,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,306 |
) |
|
|
(23,117 |
) |
|
|
(33,423 |
) |
|
|
(10,491 |
) |
|
|
(23,391 |
) |
|
|
(33,882 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2010 |
|
|
September 30, 2009 |
|
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
Realized |
|
|
Unrealized |
|
|
|
|
|
|
gains |
|
|
gains |
|
|
|
|
|
|
gains |
|
|
gains |
|
|
|
|
|
|
(losses) |
|
|
(losses) |
|
|
Total |
|
|
(losses) |
|
|
(losses) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
|
(32,101 |
) |
|
|
(72,183 |
) |
|
|
(104,284 |
) |
|
|
(25,128 |
) |
|
|
(23,103 |
) |
|
|
(48,231 |
) |
Toledo Spirit time-charter derivative |
|
|
|
|
|
|
(1,500 |
) |
|
|
(1,500 |
) |
|
|
|
|
|
|
6,755 |
|
|
|
6,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,101 |
) |
|
|
(73,683 |
) |
|
|
(105,784 |
) |
|
|
(25,128 |
) |
|
|
(16,348 |
) |
|
|
(41,476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Exchange (Losses) Gains. Foreign currency exchange (losses) gains were ($39.8)
million and $20.0 million for the three and nine months ended September 30, 2010, compared to
losses of ($17.6) million and ($19.5) million for the three and nine months ended September 30,
2009, respectively. These foreign currency exchange gains and losses, substantially all of which
were unrealized, are due primarily to the relevant period-end revaluation of our Euro-denominated
term loans, capital leases and restricted cash for financial reporting purposes. Losses reflect a
weaker U.S. Dollar against the Euro on the date of revaluation. Gains reflect a stronger U.S.
Dollar against the Euro on the date of revaluation.
28
Equity (Loss) Income. Equity losses were ($0.9) million and ($2.5) million for the three and nine
months ended September 30, 2010, compared to equity (loss) income of ($0.8) million and $20.4
million for the three and nine months ended September 30, 2009. These changes are primarily due to
the changes in unrealized losses on derivatives for the three and nine months ended September 30,
2010 as compared to the same periods in the prior year and lower income recognized during the nine
months ended September 30, 2010 related to direct finance leases in our equity accounted interest
in the four RasGas 3 LNG Carriers.
Liquidity and Cash Needs
As at September 30, 2010, our cash and cash equivalents were $73.1 million, compared to $102.6
million at December 31, 2009. Our total liquidity which consists of cash, cash equivalents and
undrawn medium-term credit facilities, was $487.2 million as at September 30, 2010, compared to
$479.8 million as at December 31, 2009. The 2009 cash and liquidity amounts exclude amounts
attributable to the Dropdown Predecessor. The increase in total liquidity is primarily due to the
receipt of proceeds from our direct equity placement in July 2010 and our ability to draw $40
million of our $122.0 million credit facility related to the Skaugen LPG Carriers and Skaugen
Multigas Carriers, partially offset by borrowings to partially finance the acquisition of the
Centrofin Suezmaxes and the Alexander Spirit from Teekay Corporation in March 2010, repayments of
long-term debt, advances and repayments to our joint venture partners and drydocking expenditures.
Our primary short-term liquidity needs are to pay quarterly distributions on our outstanding units
and to fund general working capital requirements and drydocking expenditures, while our long-term
liquidity needs primarily relate to expansion and maintenance capital expenditures and debt
repayment. Expansion capital expenditures primarily represent the purchase or construction of
vessels to the extent the expenditures increase the operating capacity or revenue generated by our
fleet, while maintenance capital expenditures primarily consist of drydocking expenditures and
expenditures to replace vessels in order to maintain the operating capacity or revenue generated by
our fleet. We anticipate that our primary sources of funds for our short-term liquidity needs will
be cash flows from operations, while our long-term sources of funds will be from cash from
operations, long-term bank borrowings and other debt or equity financings, or a combination
thereof.
We are required to purchase five of our Suezmax tankers, currently on capital lease arrangements,
in 2011. We anticipate that we will purchase these tankers by assuming the outstanding financing
obligations that relate to them. However, we may be required to obtain separate debt or equity
financing to complete the purchases if the lenders do not consent to our assuming the financing
obligations. In addition, as of September 30, 2010, we were also committed to acquiring one LPG
carrier from Skaugen and the two Skaugen Multigas Carriers. These additional purchase commitments,
scheduled to occur in 2011, total approximately $139 million. We intend to finance these purchases
with one or more of our existing revolving credit facilities, incremental debt, surplus cash
balances, proceeds from the issuance of additional common units, or combinations thereof. Please
read Item 1 Financial Statements: Note 12 Commitments and Contingencies.
Cash Flows. The following table summarizes our cash flow for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(in thousands of U.S. dollars) |
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Net cash flow from operating activities |
|
|
127,939 |
|
|
|
140,501 |
|
Net cash flow used for financing activities |
|
|
(152,616 |
) |
|
|
(33,731 |
) |
Net cash flow used for investing activities |
|
|
(10,588 |
) |
|
|
(132,924 |
) |
Operating Cash Flows. Net cash flow from operating activities decreased to $127.9
million for the nine months ended September 30, 2010 from $140.5 million for the same period in
2009, primarily due to an increase in the number of off-hire days and drydocking expenses related
to scheduled drydockings for the nine months ended September 30, 2010, compared to the same period
last year, the timing of lease receipts from the Teekay Tangguh Joint Ventures operating leases
and changes in working capital due to the timing of our cash receipts and payments. This decrease
was partially offset by the increase in operating cash flows from the Tangguh Sago having commenced
its charter in May 2009, the deliveries of the Norgas Pan and Norgas Cathinka in April 2009 and
November 2009, respectively, and the acquisitions of the Centrofin Suezmaxes and the Alexander
Spirit. Net cash flow from operating activities depends upon the timing and amount of drydocking
expenditures, repairs and maintenance activity, vessel additions and dispositions, foreign currency
rates, changes in interest rates, fluctuations in working capital balances and spot market hire
rates (to the extent we have vessels operating in the spot tanker market or our hire rates are
partially affected by spot market rates). The number of vessel drydockings tends to vary each
period.
Financing Cash Flows. Our investments in vessels and equipment are financed primarily with term
loans and capital lease arrangements. Proceeds from long-term debt were $39.2 million and $162.8
million for the nine months ended September 30, 2010 and 2009, respectively. From time to time we
refinance our loans and revolving credit facilities. During the nine months ended September 30,
2010, we used the proceeds from long-term debt primarily to fund a portion of the acquisition of
the Centrofin Suezmaxes and the Alexander Spirit.
On July 15, 2010, the Partnership completed a direct equity placement of 1.7 million common units
at a price of $29.18 per unit, for net proceeds of approximately $50.9 million. Please read item 1
Financial Statements: Note 3 Equity Offerings.
Cash distributions paid during the nine months ended September 30, 2010 increased to $100.1 million
from $85.2 million for the same period last year. This increase was the result of an increase in
the number of our outstanding common units as a result of the 2010 and 2009 equity offerings and an
increase in the distribution per unit from $0.57 per unit to $0.60 per unit starting with the May
2010 distribution. Please read Item 1 Financial Statements: Note 3 Equity Offerings.
Investing Cash Flows Net cash flow used for investing activities decreased to $10.6
million for the nine months ended September 30, 2010 from $132.9 million for the same period in
2009, primarily reflecting the timing of the construction payments for the two Skaugen Multigas
Carriers and the Tangguh Sago delivery in March 2009.
29
Credit Facilities
Our revolving credit facilities and term loans are described in Item 1 Financial Statements:
Note 8 Long-Term Debt. Our term loans and revolving credit facilities contain covenants and
other restrictions typical of debt financing secured by vessels, including, but not limited to, one
or more of the following that restrict the ship-owning subsidiaries from:
|
|
|
incurring or guaranteeing indebtedness; |
|
|
|
|
changing ownership or structure, including mergers, consolidations,
liquidations and dissolutions; |
|
|
|
making dividends or distributions if we are in default; |
|
|
|
making capital expenditures in excess of specified levels; |
|
|
|
making certain negative pledges and granting certain liens; |
|
|
|
selling, transferring, assigning or conveying assets; |
|
|
|
making certain loans and investments; and |
|
|
|
entering into a new line of business. |
Certain loan agreements require that minimum levels of tangible net worth and aggregate liquidity
be maintained, provide for a maximum level of leverage and require one of our subsidiaries to
maintain restricted cash deposits. Our ship-owning subsidiaries may not, among other things, pay
dividends or distributions if we are in default under our loan agreements and revolving credit
facilities. Our capital leases do not contain financial or restrictive covenants other than those
relating to operation and maintenance of the vessels. One of our term loans is guaranteed by Teekay
Corporation and contains covenants that require Teekay Corporation to maintain the greater of a
minimum liquidity (cash and cash equivalents) of at least $50.0 million and 5.0% of Teekay
Corporations total consolidated debt which has recourse to Teekay Corporation. As at September 30,
2010, we and our affiliates were in compliance with all covenants in our credit facilities and
capital leases.
Contractual Obligations and Contingencies
The following table summarizes our contractual obligations as at September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reminder |
|
|
2011 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
of |
|
|
and |
|
|
and |
|
|
Beyond |
|
|
|
Total |
|
|
2010 |
|
|
2012 |
|
|
2014 |
|
|
2014 |
|
|
|
(in millions of U.S. Dollars) |
|
U.S. Dollar-Denominated Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (1) |
|
|
1,012.9 |
|
|
|
18.3 |
|
|
|
140.2 |
|
|
|
143.2 |
|
|
|
711.2 |
|
Commitments under capital leases (2) |
|
|
203.7 |
|
|
|
5.9 |
|
|
|
197.8 |
|
|
|
|
|
|
|
|
|
Commitments under capital leases (3) |
|
|
1,031.1 |
|
|
|
6.0 |
|
|
|
48.0 |
|
|
|
48.0 |
|
|
|
929.1 |
|
Commitments under operating leases (4) |
|
|
463.9 |
|
|
|
6.3 |
|
|
|
50.1 |
|
|
|
50.1 |
|
|
|
357.4 |
|
Purchase obligations (5) |
|
|
139.0 |
|
|
|
|
|
|
|
139.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Dollar-denominated obligations |
|
|
2,850.6 |
|
|
|
36.5 |
|
|
|
575.1 |
|
|
|
241.3 |
|
|
|
1,997.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro-Denominated Obligations: (6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt (7) |
|
|
383.4 |
|
|
|
3.2 |
|
|
|
223.5 |
|
|
|
15.4 |
|
|
|
141.3 |
|
Commitments under capital leases (8) |
|
|
125.1 |
|
|
|
36.7 |
|
|
|
88.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Euro-denominated obligations |
|
|
508.5 |
|
|
|
39.9 |
|
|
|
311.9 |
|
|
|
15.4 |
|
|
|
141.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
3,359.1 |
|
|
|
76.4 |
|
|
|
887.0 |
|
|
|
256.7 |
|
|
|
2,139.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes expected interest payments of $4.8 million (remainder of 2010), $34.1
million (2011 and 2012), $28.1 million (2013 and 2014) and $49.5 million (beyond 2014).
Expected interest payments are based on the existing interest rates (fixed-rate loans) and
LIBOR at September 30, 2010, plus margins on debt that has been drawn that ranged up to 0.70%
(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 variable-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
in 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 $31.7 million to
$39.2 million per vessel. We expect to satisfy the purchase price by assuming the existing
vessel financing, although we may be required to obtain separate debt or equity financing to
complete the purchases if the lenders do not consent to our assuming the financing
obligations. We are also obligated to purchase one of our existing LNG carriers upon the
termination of the related capital leases on December 31, 2011. The purchase obligation has
been fully funded with restricted cash deposits. Please read Item 1 Financial Statements:
Note 5 Leases and Restricted Cash. |
30
|
|
|
(3) |
|
Existing restricted cash deposits of $477.9 million, together with the interest
earned on these deposits, are expected to be sufficient to repay the remaining amounts we
currently owe under the lease arrangements. |
|
(4) |
|
We have corresponding leases whereby we are the lessor and expect to receive
approximately $426.4 million for these leases from 2010 to 2029. |
|
(5) |
|
In December 2006, we entered into an agreement to acquire three LPG carriers from
Skaugen, for approximately $33 million per vessel upon their deliveries. Two of the three
vessels were delivered in 2009 and the third vessel is scheduled for delivery in 2011. In July
2008, Teekay Corporation signed contracts for the purchase of the Skaugen Multigas Carriers
and we have agreed to purchase these vessels from Teekay Corporation for a total cost of
approximately $106 million upon their deliveries. Both vessels are scheduled to be delivered
in 2011. Please read Note 12 Commitments and Contingencies. |
|
(6) |
|
Euro-denominated obligations are presented in U.S. Dollars and have been converted
using the prevailing exchange rate as of September 30, 2010. |
|
(7) |
|
Excludes expected interest payments of $1.2 million (remainder of 2010), $8.0
million (2011 and 2012), $3.8 million (2013 and 2014) and $10.6 million (beyond 2014).
Expected interest payments are based on EURIBOR at September 30, 2010, plus margins that
ranged up to 0.66%, as well as the prevailing U.S. Dollar/Euro exchange rate as of September
30, 2010. 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 variable-rate debt. |
|
(8) |
|
Existing restricted cash deposits of $119.3 million, together with the interest
earned on these deposits, are expected to equal the remaining amounts we owe under the lease
arrangement, including our obligation to purchase the vessel at the end of the lease term. |
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. We are
committed to acquire from Teekay Corporation the Skaugen Multigas Carriers upon delivery for a
total cost of approximately $106 million and one LPG carrier from Skaugen upon delivery for a total
cost of approximately $33 million.
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 discussed in this section are
those that we consider to be the most critical to an understanding of our financial statements,
because they inherently involve significant judgments and uncertainties. For a further description
of our material accounting policies, please read Item 5 Operating and Financial Review and
Prospects in our Annual Report on Form 20-F for the year ended December 31, 2009.
At September 30, 2010, we had one reporting unit with goodwill attributable to it. As of the date
of this filing, we do not believe that there is a reasonable possibility that the goodwill
attributable to this reporting unit might be impaired within the next year. However, certain
factors that impact this assessment are inherently difficult to forecast and as such we cannot
provide any assurances that an impairment will or will not occur in the future. An assessment for
impairment involves a number of assumptions and estimates that are based on factors that are beyond
our control. These are discussed in more detail in the following section entitled Forward-Looking
Statements.
FORWARD-LOOKING STATEMENTS
This Report on Form 6-K for the three and nine months ended September 30, 2010 contains certain
forward-looking statements (as such term is defined in Section 27A of the Securities Exchange Act
of 1933 as amended, and 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:
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our future financial condition; |
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results of operations and revenues and expenses, including performance of our
liquefied gas segment; |
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our ability to make cash distributions on our units or any increases in
quarterly distributions; |
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LNG, LPG and tanker market fundamentals, including the balance of supply and
demand in the LNG, LPG and tanker markets; |
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future capital expenditures and availability of capital resources to fund
capital expenditures; |
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offers of vessels and associated contracts to us from Teekay Corporation; |
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delivery dates of newbuildings; |
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the commencement of service of newbuildings under long-term contracts; |
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the duration of drydockings; |
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the future valuation of goodwill; |
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the expected timing, amount and method of financing for the purchase of joint
venture interests and vessels, including our five Suezmax tankers operated pursuant to
capital leases; |
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the timing of the acquisition of the Angola LNG project vessels; and |
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the timing of the acquisition of the Skaugen projects. |
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, plan, intend 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 LNG, LPG or oil; 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 our expenses; changes in applicable industry laws and
regulations and the timing of implementation of new laws and regulations; LNG or LPG
infrastructure constraints and community and environmental group resistance to new LNG or LPG
infrastructure; potential development of active short-term or spot LNG or LPG shipping markets;
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; changes in tax regulations; our potential inability to raise
financing to purchase additional vessels; our exposure to currency exchange rate fluctuations;
conditions in the public equity markets; LNG or LPG project delays or abandonment; and other
factors detailed from time to time in our periodic reports filed with the SEC, including our
Annual Report on Form 20-F for the year ended December 31, 2009. 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.
32
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER 30, 2010
PART I FINANCIAL INFORMATION
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 service our
debt. We use interest rate swaps to reduce our exposure to market risk from changes in interest
rates. The principal objective of these contracts is to minimize the risks and costs associated
with our floating-rate debt.
We are exposed to credit loss in the event of non-performance by the counterparties to the interest
rate swap agreements. In order to minimize counterparty risk, we only enter into derivative
transactions with counterparties that are rated A- or better by Standard & Poors or A3 by Moodys
at the time of the transactions. In addition, to the extent practical, interest rate swaps are
entered into with different counterparties to reduce concentration risk.
The table below provides information about our financial instruments at September 30, 2010, that
are sensitive to changes in interest rates. For long-term debt and capital lease obligations, the
table presents principal payments 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.
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Expected Maturity Date |
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Remainder |
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Fair |
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of |
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There- |
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Value |
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2010 |
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2011 |
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2012 |
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2013 |
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2014 |
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after |
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Total |
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Liability |
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Rate (1) |
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(in millions of U.S. dollars, except percentages) |
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Long-Term Debt: |
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Variable Rate ($U.S.) (2) |
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12.1 |
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43.4 |
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46.6 |
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46.7 |
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46.7 |
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594.0 |
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789.5 |
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(704.9 |
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0.7 |
% |
Variable Rate (Euro) (3) (4) |
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3.2 |
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13.3 |
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210.2 |
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7.4 |
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8.0 |
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141.3 |
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383.4 |
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(351.9 |
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1.3 |
% |
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Fixed-Rate Debt ($U.S.) |
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6.2 |
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25.3 |
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24.9 |
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24.9 |
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24.9 |
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117.2 |
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223.4 |
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(226.4 |
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5.4 |
% |
Average Interest Rate |
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5.4 |
% |
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5.4 |
% |
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5.4 |
% |
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5.4 |
% |
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5.4 |
% |
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5.4 |
% |
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5.4 |
% |
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Capital Lease Obligations (5) (6) |
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Fixed-Rate ($U.S.) (7) |
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2.4 |
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185.5 |
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187.9 |
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(187.9 |
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7.4 |
% |
Average Interest Rate (8) |
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7.5 |
% |
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7.4 |
% |
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7.4 |
% |
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Interest Rate Swaps: |
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Contract Amount ($U.S.) (6) (9) |
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7.6 |
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18.4 |
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18.9 |
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19.4 |
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19.9 |
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524.1 |
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608.3 |
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(146.4 |
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5.6 |
% |
Average Fixed Pay Rate (2) |
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5.4 |
% |
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5.5 |
% |
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5.5 |
% |
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5.6 |
% |
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5.6 |
% |
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5.6 |
% |
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5.6 |
% |
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Contract Amount (Euro) (4) (10) |
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3.2 |
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13.3 |
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210.2 |
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7.4 |
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8.0 |
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141.3 |
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383.4 |
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(44.4 |
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3.8 |
% |
Average Fixed Pay Rate (3) |
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3.8 |
% |
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3.8 |
% |
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3.8 |
% |
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3.8 |
% |
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3.7 |
% |
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3.7 |
% |
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3.8 |
% |
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(1) |
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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 drawn floating-rate debt, which as of September 30,
2010 ranged from 0.3% to 0.7%. Please read Item 1 Financial Statements: Note 8
Long-Term Debt. |
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Interest payments on U.S. Dollar-denominated debt and interest rate swaps are based on
LIBOR. |
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Interest payments on Euro-denominated debt and interest rate swaps are based on EURIBOR. |
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Euro-denominated amounts have been converted to U.S. Dollars using the prevailing exchange
rate as of September 30, 2010. |
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Excludes capital lease obligations (present value of minimum lease payments) of 83.1
million Euros ($113.4 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 5.1%, 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
September 30, 2010, the amount on deposit was 87.5 million Euros ($119.3 million).
Consequently, we are not subject to interest rate risk from these obligations or deposits. |
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(6) |
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Under the terms of the capital leases for the RasGas II LNG Carriers (see Item 1
Financial Statements: Note 5 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
variable-rate leases. The deposits, which as at September 30, 2010 totaled $477.9 million,
and the lease obligations, which as at September 30, 2010 totaled $470.6 million, have been
swapped for fixed-rate deposits and fixed-rate obligations. Consequently, Teekay Nakilat is
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 September 30, 2010, the contract amount, fair value and fixed interest
rates of these interest rate swaps related to Teekay Nakilats capital lease obligations and
restricted cash deposits were $441.3 million and $472.0 million, ($101.7) million and $124.8
million, and 4.9% and 4.8%, respectively. |
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(7) |
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The amount of capital lease obligations represents the present value of minimum lease
payments together with our purchase obligation, as applicable. |
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(8) |
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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) |
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The average variable receive rate for our U.S. Dollar-denominated interest rate swaps is
set quarterly at 3-month LIBOR. |
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(10) |
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The average variable receive rate for our Euro-denominated interest rate swaps is set
monthly at 1-month EURIBOR. |
Spot Market Rate Risk
One of our Suezmax tankers, the Toledo Spirit, operates pursuant to a time-charter contract that
increases or decreases the otherwise fixed-rate established in the charter depending on the spot
charter rates that we would have earned had we traded the vessel in the spot tanker market. The
remaining term of the time-charter contract is 15 years, although the charterer has the right to
terminate the time-charter in July 2018. We have entered into an agreement with Teekay Corporation
under which Teekay Corporation pays us any amounts payable to the charterer as a result of spot
rates being below the fixed rate, and we pay Teekay Corporation any amounts payable to us from the
charterer as a result of spot rates being in excess of the fixed rate. The amounts payable to or
receivable from Teekay Corporation are settled at the end of each year. At September 30, 2010, the
fair value of this derivative liability was ($12.1) million and the change from reporting period to
period has been reported in realized and unrealized loss on derivative instruments.
Foreign Currency Fluctuations
Our functional currency is U.S. dollars. Our results of operations are affected by fluctuations in
currency exchange rates. The volatility in our financial results due to currency exchange rate
fluctuations is attributed primarily to foreign currency revenues and expenses and our
Euro-denominated loans and restricted cash deposits. A portion of our voyage revenues are
denominated in Euros. A portion of our vessel operating expenses and general and administrative
expenses are denominated in Euros, which is primarily a function of the nationality of our crew and
administrative staff. We also have Euro-denominated interest expense and interest income related to
our Euro-denominated loans, Euro-denominated capital leases and Euro-denominated restricted cash
deposits, respectively. As a result, fluctuations in the Euro relative to the U.S. Dollar have
caused, and are likely to continue to cause, fluctuations in our reported voyage revenues, vessel
operating expenses, general and administrative expenses, interest expense, interest income and
realized and unrealized loss on derivative instruments.
34
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER 30, 2010
PART II OTHER INFORMATION
Item 1 Legal Proceedings
Item 1A Risk Factors
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In addition to the other information set forth in this 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 for the year ended December 31, 2009, which could
materially affect our business, financial condition or results of operations. |
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 Defaults Upon Senior Securities
Item 4 Reserved
Item 5 Other Information
Item 6 Exhibits
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION
STATEMENTS OF THE PARTNERSHIP:
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REGISTRATION STATEMENT ON FORM S-8 (NO. 333-124647) FILED WITH THE SEC ON MAY 5, 2005 |
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REGISTRATION STATEMENT ON FORM F-3 (NO. 333-162579) FILED WITH THE SEC ON OCTOBER 20, 2009 |
35
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 LNG PARTNERS L.P. |
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By: Teekay GP L.L.C., its General Partner |
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Date: November 30, 2010
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By:
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/s/ Peter Evensen
Peter Evensen
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Chief Executive Officer and Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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