|
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
|
|
|
(all
tabular amounts stated in thousands of U.S. dollars, except unit
and per
unit data)
|
1. Basis
of Presentation
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. (or
Teekay LNG
), which is a limited partnership organized
under the laws of the Republic of the Marshall Islands, and its wholly owned
or
controlled subsidiaries (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
Partnership’s audited consolidated financial statements for the year ended
December 31, 2006. In the opinion of management of Teekay GP L.L.C., the general
partner of Teekay LNG (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 Partnership’s consolidated
financial position, results of operations, and changes in partners’ 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.
2. Change
in Accounting Policy
In
July
2006, the Financial Accounting Standards Board (or
FASB
) issued FASB
Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109
(or
FIN 48
). This
interpretation clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with FASB Statement No.
109,
Accounting for Income Taxes
. FIN 48 requires companies to
determine whether it is more likely than not that a tax position taken or
expected to be taken in a tax return will be sustained upon examination,
including resolution of any related appeals or litigation processes, based
on
the technical merits of the position. If a tax position meets the more likely
than not recognition threshold, it is measured to determine the amount of
benefit to recognize in the financial statements based on guidance in the
interpretation.
The
Partnership adopted FIN 48 as of January 1, 2007. The adoption of FIN 48 did
not
have a material impact on the Partnership’s financial position and results of
operations. As of January 1 and September 30, 2007, the Partnership did not
have
any material accrued interest and penalties relating to income
taxes.
As
of
January 1 and September 30, 2007, the Partnership had unrecognized tax benefits
of 3.4 million Euros (approximately $4.9 million) relating to a re-investment
tax credit in one of its 2005 annual tax filings. This filing is currently
under
review by the relevant tax authorities and the Partnership expects the
uncertainty surrounding this tax credit to be resolved within the next twelve
months. If the tax credit is approved, the Partnership will receive a refund
for
the amount of the credit, which will be reflected as a credit to equity in
the
period approval is obtained.
The
Partnership recognizes interest and penalties related to uncertain tax positions
in income tax expense. The tax years 2003 through 2006 currently remain
open to examination by the major taxing jurisdiction to which the Partnership
is
subject.
3. Public
Offering
During
May 2007, the Partnership sold 2.3 million of its common units which represent
limited partner interests, as part of a follow-on public offering, at $38.13
per
unit for proceeds of $84.2 million, net of $3.5 million of commissions and
other
expenses associated with the offering. The General Partner contributed $1.8
million to the Partnership to maintain its 2% general partner
interest.
4. Segment
Reporting
The
Partnership has two reportable segments: its liquefied gas segment and its
Suezmax tanker segment. The Partnership’s liquefied gas segment consists of
liquefied natural gas (or
LNG
) carriers and a liquefied petroleum gas
(or
LPG
) carrier subject to long-term, fixed-rate time charters to
international energy companies. As at September 30, 2007, the Partnership’s
liquefied gas segment consisted of seven LNG carriers and one LPG carrier.
The
Partnership’s Suezmax tanker segment consists of Suezmax-class crude oil tankers
operating on long-term, fixed-rate time-charter contracts to international
energy companies. As at September 30, 2007, the Partnership’s crude oil tanker
fleet consisted of eight Suezmax tankers. 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 Partnership’s
audited consolidated financial statements for the year ended December 31,
2006.
|
|
TEEKAY
LNG PARTNERS L.P. AND
SUBSIDIARIES
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS –
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
The
following table presents results for these segments for the three and nine
months ended September 30, 2007 and 2006:
|
|
|
Three
Months Ended September 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Liquefied
Gas
Segment
$
|
|
|
Suezmax
Tanker
Segment
$
|
|
|
Total
$
|
|
|
Liquefied
Gas
Segment
$
|
|
|
Suezmax
Tanker
Segment
$
|
|
|
Total
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
43,239
|
|
|
|
20,477
|
|
|
|
63,716
|
|
|
|
25,225
|
|
|
|
21,471
|
|
|
|
46,696
|
|
|
Voyage
expenses
|
|
|
73
|
|
|
|
244
|
|
|
|
317
|
|
|
|
394
|
|
|
|
269
|
|
|
|
663
|
|
|
Vessel
operating expenses
|
|
|
7,977
|
|
|
|
5,958
|
|
|
|
13,935
|
|
|
|
4,297
|
|
|
|
5,235
|
|
|
|
9,532
|
|
|
Depreciation
and amortization
|
|
|
11,490
|
|
|
|
5,011
|
|
|
|
16,501
|
|
|
|
7,959
|
|
|
|
5,013
|
|
|
|
12,972
|
|
|
General
and administrative
(1)
|
|
|
1,663
|
|
|
|
1,868
|
|
|
|
3,531
|
|
|
|
1,215
|
|
|
|
1,649
|
|
|
|
2,864
|
|
|
Income
from vessel operations
|
|
|
22,036
|
|
|
|
7,396
|
|
|
|
29,432
|
|
|
|
11,360
|
|
|
|
9,305
|
|
|
|
20,665
|
|
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Liquefied
Gas
Segment
$
|
|
|
Suezmax
Tanker
Segment
$
|
|
|
Total
$
|
|
|
Liquefied
Gas
Segment
$
|
|
|
Suezmax
Tanker
Segment
$
|
|
|
Total
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
124,807
|
|
|
|
62,520
|
|
|
|
187,327
|
|
|
|
71,444
|
|
|
|
61,927
|
|
|
|
133,371
|
|
|
Voyage
expenses
|
|
|
86
|
|
|
|
771
|
|
|
|
857
|
|
|
|
794
|
|
|
|
796
|
|
|
|
1,590
|
|
|
Vessel
operating expenses
|
|
|
24,238
|
|
|
|
17,448
|
|
|
|
41,686
|
|
|
|
13,014
|
|
|
|
15,246
|
|
|
|
28,260
|
|
|
Depreciation
and amortization
|
|
|
33,855
|
|
|
|
15,020
|
|
|
|
48,875
|
|
|
|
23,393
|
|
|
|
14,981
|
|
|
|
38,374
|
|
|
General
and administrative
(1)
|
|
|
5,322
|
|
|
|
5,486
|
|
|
|
10,808
|
|
|
|
3,902
|
|
|
|
5,055
|
|
|
|
8,957
|
|
|
Income
from vessel operations
|
|
|
61,306
|
|
|
|
23,795
|
|
|
|
85,101
|
|
|
|
30,341
|
|
|
|
25,849
|
|
|
|
56,190
|
|
|
(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,
2007
$
|
|
|
December
31,
2006
$
|
|
|
|
|
|
|
|
|
|
Liquefied
gas segment
|
|
|
2,752,365
|
|
|
|
2,056,247
|
|
|
Suezmax
tanker segment
|
|
|
415,662
|
|
|
|
430,358
|
|
|
Unallocated:
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
40,893
|
|
|
|
28,871
|
|
|
Accounts
receivable, prepaid expenses and other assets
|
|
|
22,551
|
|
|
|
15,937
|
|
|
Consolidated
total assets
|
|
|
3,231,471
|
|
|
|
2,531,413
|
|
|
|
TEEKAY
LNG PARTNERS L.P. AND
SUBSIDIARIES
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS –
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
5. Capital
Leases and Restricted Cash
Capital
Leases
Teekay
Nakilat LNG Carriers.
As at September 30, 2007, the Partnership owned an
indirect 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) (or
RasGas II
), a joint venture between Qatar
Petroleum and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation.
All amounts below relating to the RasGas II LNG Carriers capital leases include
the Partnership’s joint venture partner’s 30% share.
Under
the
terms of the RasGas II 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 rentals payable 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. However, 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
lessor’s 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. Teekay Nakilat’s interest
rate risk associated with these leases has been hedged with interest rate swap
agreements (see Note 12). As at September 30, 2007, the commitments under these
capital leases approximated $1,103.1 million, including imputed interest of
$634.4 million, repayable as follows:
|
Year
|
Commitment
|
|
2007
|
$6.0
million
|
|
2008
|
$24.0
million
|
|
2009
|
$24.0
million
|
|
2010
|
$24.0
million
|
|
2011
|
$24.0
million
|
|
Thereafter
|
$1,001.1
million
|
Spanish-Flagged
LNG Carrier.
As at September 30, 2007, the Partnership was a party to a
capital lease on one LNG carrier (the
Madrid Spirit
) which is
structured as a “Spanish tax lease”. The Partnership was a party to a similar
Spanish tax lease for another LNG carrier (the
Catalunya Spirit
) until
it purchased the vessel pursuant to the capital lease in December 2006.
Under the terms of the Spanish tax lease for the
Madrid Spirit
, which
includes the Partnership’s 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 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, 2007,
the
commitments under this capital lease, including the purchase obligation,
approximated 165.0 million Euros ($235.5 million), including imputed
interest of 23.9 million Euros ($34.1 million), repayable as
follows:
|
Year
|
Commitment
|
|
2007
|
23.3
million Euros ($33.2 million)
|
|
2008
|
24.4
million Euros ($34.8 million)
|
|
2009
|
25.6
million Euros ($36.6 million)
|
|
2010
|
26.9
million Euros ($38.4 million)
|
|
2011
|
64.8
million Euros ($92.5 million)
|
|
|
TEEKAY
LNG PARTNERS L.P. AND
SUBSIDIARIES
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS –
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
Suezmax
Tankers.
As at September 30, 2007, the Partnership was a party to capital
leases on five Suezmax tankers. Under the terms of the lease arrangements,
which
include the Partnership’s contractual right to full operation of the vessels
pursuant to bareboat charters, the Partnership is required to purchase these
vessels after the end of their respective lease terms for a fixed price. At
their inception, the weighted-average interest rate implicit in these leases
was
7.4%. These capital leases are variable-rate capital leases; however, any change
in 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, 2007, the remaining commitments under these capital leases,
including the purchase obligations, approximated $243.0 million, including
imputed interest of $27.4 million, repayable as follows:
|
Year
|
Commitment
|
|
2007
|
$ 6.2
million
|
|
2008
|
135.9
million
|
|
2009
|
8.5
million
|
|
|
8.4
million
|
|
2011
|
84.0
million
|
Restricted
Cash
Under
the
terms of the capital leases for the four LNG carriers described above, the
Partnership is required to have on deposit with financial institutions an amount
of cash that, together with interest earned on the deposit, will equal the
remaining amounts owing under the leases, including the obligation to purchase
the Spanish-flagged LNG carrier 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). The interest rates
earned on the deposits approximate the interest rates implicit in the
leases.
As
at
September 30, 2007 and December 31, 2006, the amount of restricted cash on
deposit for the three RasGas II LNG Carriers was $493.7 million and $481.9
million, respectively. As at September 30, 2007 and December 31, 2006, the
weighted-average interest rate earned on the deposits was 5.4%.
As
at
September 30, 2007 and December 31, 2006, the amount of restricted cash on
deposit for the Spanish-flagged LNG carrier was 144.3 million Euros
($205.9 million) and 139.0 million Euros ($183.5 million),
respectively. As at September 30, 2007 and December 31, 2006, the
weighted-average interest rate earned on the deposit was 5.0%.
The
Partnership also maintains restricted cash deposits relating to certain term
loans, which totaled $7.0 million and $5.3 million as at September 30, 2007
and
December 31, 2006, respectively.
6. Intangible
Assets and Goodwill
As
at
September 30, 2007 and December 31, 2006, intangible assets consisted of
time-charter contracts with a weighted-average amortization period of 19.2
years.
The
carrying amount of intangible assets as at September 30, 2007 and December
31,
2006 is as follows:
|
|
|
September
30,
2007
$
|
|
|
December
31, 2006
$
|
|
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
|
182,552
|
|
|
|
182,552
|
|
|
Accumulated
amortization
|
|
|
(29,335
|
)
|
|
|
(22,488
|
)
|
|
Net
carrying amount
|
|
|
153,217
|
|
|
|
160,064
|
|
Amortization
expense of intangible assets for the three and nine months ended September
30,
2007 and 2006 were $2.3 million ($2.3 million – 2006) and $6.9 million ($6.9
million – 2006), respectively. Amortization of intangible assets for the next
five years subsequent to September 30, 2007 is expected to be $2.3 million
(fourth quarter of 2007), $9.1 million (2008), $9.1 million (2009), $9.1
million (2010) and $9.1 million (2011).
The
carrying amount of goodwill as at September 30, 2007 and December 31, 2006
for
the Partnership’s reporting segments is as follows:
|
|
Liquefied
Gas
Segment
$
|
Suezmax
Tanker
Segment
$
|
Total
$
|
|
Balance
as at September 30, 2007 and December 31, 2006
|
35,631
|
3,648
|
39,279
|
|
|
TEEKAY
LNG PARTNERS L.P. AND
SUBSIDIARIES
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS –
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
7. Advances
from Affiliates
|
|
|
September
30,
2007
$
|
|
|
December
31,
2006
$
|
|
|
|
|
|
|
|
|
|
Advances
from Teekay Corporation (non-interest bearing and
unsecured)
|
|
|
8,966
|
|
|
|
62,680
|
|
|
Other
(non-interest bearing and unsecured)
|
|
|
31,575
|
|
|
|
38,939
|
|
|
Total
|
|
|
40,541
|
|
|
|
101,619
|
|
On
October 31, 2006, Teekay Corporation sold its interest in Teekay Nakilat to
the
Partnership in exchange for a $102.0 million non-interest bearing and unsecured
promissory note (see Note 11d). The Partnership paid $26.9 million of the note
during 2006 and $66.1 million during the nine months ended September
30, 2007.
8. Long-Term
Debt
|
|
|
September
30,
2007
$
|
|
|
December
31,
2006
$
|
|
|
|
|
|
|
|
|
|
|
U.S.
Dollar-denominated Revolving Credit Facilities due through
2018
|
|
|
-
|
|
|
|
43,000
|
|
|
U.S.
Dollar-denominated Term Loan due through 2019
(1)
|
|
|
452,663
|
|
|
|
360,661
|
|
|
U.S.
Dollar-denominated Term Loan due through 2020
(variable
interest entities)
(1)
|
|
|
343,496
|
|
|
|
60,458
|
|
|
U.S.
Dollar-denominated Unsecured Loan
(variable
interest entities)
(1)
|
|
|
44,778
|
|
|
|
-
|
|
|
U.S.
Dollar-denominated Unsecured Demand Loan
|
|
|
15,809
|
|
|
|
35,144
|
|
|
Euro-denominated
Term Loans due through 2023
|
|
|
436,819
|
|
|
|
411,319
|
|
|
|
|
|
1,293,565
|
|
|
|
910,582
|
|
|
Less
current portion
|
|
|
38,705
|
|
|
|
30,435
|
|
|
Total
|
|
|
1,254,860
|
|
|
|
880,147
|
|
|
(1)
|
As
at September 30, 2007, long-term debt related to newbuilding vessels
to be
delivered was $388.3 million (December 31, 2006 - $266.3
million).
|
As
at
September 30, 2007, the Partnership had two long-term revolving credit
facilities (or the
Revolvers
) available, which, as at such date,
provided for borrowings of up to $445.4 million, all of which was undrawn.
Interest payments are based on LIBOR plus a margin. The amount available under
the Revolvers reduces by $4.4 million (fourth quarter of 2007), $18.2 million
(2008), $18.8 million (2009), $19.4 million (2010), $20.0 million (2011) and
$364.6 million (thereafter). Both Revolvers may be used by the Partnership
to
fund general partnership purposes and to fund cash distributions. The
Partnership is required to reduce all borrowings used to fund cash distributions
to zero for a period of at least 15 consecutive days during any 12-month period.
The Revolvers are collateralized by first-priority mortgages granted on five
of
the Partnership’s vessels, together with other related collateral, 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 used to finance
certain LNG newbuildings. As at September 30, 2007, this term loan totaled
$452.7 million, of which $284.5 million bears interest at a fixed rate of 5.39%
and requires quarterly payments commencing three months after delivery of the
applicable LNG newbuilding. The remaining $168.2 million bears interest based
on
LIBOR plus a margin
and
will require bullet repayments of approximately $56 million per vessel due
at
maturity in 2018 and 2019. The term loan is collateralized by first-priority
mortgages on the vessels, together with certain other related collateral and
guarantees from the Partnership.
Teekay
Nakilat (III) Holdings Corporation (or
Teekay Nakilat (III
)) owns a 40%
interest in Teekay Nakilat (III) Corporation (or the
RasGas 3 Joint
Venture
). The RasGas 3 Joint Venture owns four LNG newbuilding carriers,
scheduled for delivery during 2008, and the related 25-year fixed-rate,
time-charter contracts. On November 1, 2006, the Partnership agreed to purchase
Teekay Corporation's 100% interest in Teekay Nakilat (III), which caused the
Partnership to become the primary beneficiary of this variable interest entity
(see Note 13). Teekay Nakilat (III) has a U.S. Dollar-denominated term loan
outstanding, which, as at September 30, 2007, totaled $240.4 million. Interest
payments on the term loan are based on LIBOR plus a margin. The term loan
requires quarterly payments commencing three months after delivery of each
related vessel, with varying maturities through 2020. The term loan is
collateralized by first-priority mortgages on the vessels, together with certain
other related collateral including an undertaking from Teekay Corporation.
Upon
transfer to the Partnership of Teekay Corporation's 100% ownership interest
in
Teekay Nakilat (III), the rights and obligations of Teekay Corporation under
the
undertaking, may, upon the fulfillment of certain conditions, be transferred
to
the Partnership.
|
|
TEEKAY
LNG PARTNERS L.P. AND
SUBSIDIARIES
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS –
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
Teekay
Tangguh Holdings Corporation (or
Teekay Tangguh
) owns a 70% interest in
Teekay BLT Corporation (or the
Teekay Tangguh Joint Venture
). The
Teekay Tangguh Joint Venture owns two LNG newbuilding carriers, scheduled for
delivery during late 2008 and early 2009, and the related 20-year fixed-rate,
time-charter contracts. On November 1, 2006, the Partnership agreed to purchase
Teekay Corporation's 100% interest in Teekay Tangguh, which caused the
Partnership to become the primary beneficiary of this variable interest entity
(see Note 13). Teekay Tangguh has a U.S. Dollar-denominated term loan
outstanding, which, as at September 30, 2007, totaled $103.1 million. Interest
payments on the term loan are based on LIBOR plus a margin. The term loan
requires quarterly payments commencing three months after delivery of each
related vessel, with varying maturities through 2020. The term loan is
collateralized by first-priority mortgages on the vessels, together with certain
other related collateral, including an undertaking from Teekay Corporation.
Upon
transfer to the Partnership of Teekay Corporation's 100% ownership interest
in
Teekay Tangguh, the rights and obligations of Teekay Corporation under the
undertaking, may, upon the fulfillment of certain conditions, be transferred
to
the Partnership.
The
Partnership has a U.S. Dollar-denominated loan outstanding owing to a joint
venture partner of Teekay Tangguh Joint Venture, which, as at September 30,
2007, totaled $44.8 million, including accrued interest. Interest payments
on
this loan are based on a fixed interest rate of 6.50%.
The
Partnership has a U.S. Dollar-denominated demand loan outstanding owing to
Teekay Nakilat’s joint venture partner, which, as at September 30, 2007, totaled
$15.8 million, including accrued interest. Interest payments on this loan,
which
are based on a fixed interest rate of 4.84%, will commence 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, 2007 totaled 306.2 million Euros ($436.8 million). These loans
were used to make restricted cash deposits that fully fund payments under
capital leases for the LNG carriers, the
Madrid Spirit
and the
Catalunya Spirit
(see Note 5). Interest payments are based on EURIBOR
plus a margin. The term loans have varying maturities through 2023 and monthly
payments that reduce over time. The term loans are collateralized by
first-priority mortgages on the vessels to which the loans relate, together
with
certain other related collateral and guarantees from one of the Partnership’s
subsidiaries.
The
weighted-average effective interest rate for the Partnership’s long-term debt
outstanding at September 30, 2007 and December 31, 2006 was 5.7% and 5.5%,
respectively. These rates do not reflect the effect of related interest rate
swaps that the Partnership has used to hedge certain of its floating-rate debt
(see Note 12). At September 30, 2007, the margins on the Partnership’s
long-term debt ranged from 0.5% to 0.9%.
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 this
revaluation, the Partnership recognized foreign exchange losses of $21.6 million
and $32.0 million for the three and nine months ended September 30, 2007,
respectively, compared to foreign exchange gains of $3.8 million and foreign
exchange losses of $24.4 million, respectively, for the same periods last
year.
Certain
loan agreements require that a minimum level of tangible net worth, a minimum
level of aggregate liquidity, and a maximum level of leverage be maintained,
and
require one of the Partnership’s subsidiaries to maintain restricted cash
deposits. The Partnership’s ship-owning subsidiaries may not, in addition to
other things, pay dividends or distributions if the Partnership is in default
under the term loans or the Revolvers.
9. Other
(Loss) Income – Net
|
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
2007
$
|
|
|
|
2006
$
|
|
|
|
2007
$
|
|
|
|
2006
$
|
|
|
Minority
interest (expense) recovery
|
|
|
(254
|
)
|
|
|
389
|
|
|
|
1,262
|
|
|
|
1,006
|
|
|
Income
tax recovery (expense)
|
|
|
91
|
|
|
|
180
|
|
|
|
(571
|
)
|
|
|
558
|
|
|
Miscellaneous
|
|
|
(61
|
)
|
|
|
-
|
|
|
|
(190
|
)
|
|
|
-
|
|
|
Other
(loss) income – net
|
|
|
(224
|
)
|
|
|
569
|
|
|
|
501
|
|
|
|
1,564
|
|
10. Comprehensive
(Loss) Income
|
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2007
$
|
|
|
|
2006
$
|
|
|
|
2007
$
|
|
|
|
2006
$
|
|
|
Net
(loss) income
|
|
|
(12,779
|
)
|
|
|
12,585
|
|
|
|
(8,916
|
)
|
|
|
(2,173
|
)
|
|
Other
comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
(loss) gain on derivative instruments
|
|
|
(21,855
|
)
|
|
|
(20,455
|
)
|
|
|
6,416
|
|
|
|
10,025
|
|
|
Reclassification
adjustment for loss on
derivative
instruments included in net (loss) income
|
|
|
851
|
|
|
|
2,099
|
|
|
|
4,567
|
|
|
|
6,542
|
|
|
Comprehensive
(loss) income
|
|
|
(33,783
|
)
|
|
|
(5,771
|
)
|
|
|
2,067
|
|
|
|
14,394
|
|
As
at
September 30, 2007 and December 31, 2006, the Partnership’s accumulated other
comprehensive loss of $38.5 million and $49.5 million, respectively, consisted
of net unrealized losses on derivative instruments.
|
|
TEEKAY
LNG PARTNERS L.P. AND
SUBSIDIARIES
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS –
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
11. 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,
advisory, technical and strategic consulting services. During the three and
nine
months ended September 30, 2007 the Partnership incurred $1.3 million and $4.3
million, respectively, of these costs, compared to $0.8 million and $2.5
million, respectively, for the same periods last year.
b)
The
Partnership reimburses the General Partner for all expenses incurred by the
General Partner that are necessary or appropriate for the conduct of the
Partnership’s business. During each of the three and nine months ended September
30, 2007 and September 30, 2006, the Partnership incurred $0.1 million and
$0.3
million, respectively, of these costs.
c)
The
Partnership is a party to an agreement with Teekay Corporation pursuant to
which
Teekay Corporation provides the Partnership with off-hire insurance for its
LNG
carriers after the first anniversary of the vessel’s delivery. During the three
and nine months ended September 30, 2007, the Partnership incurred $0.4 million
and $1.1 million, respectively, in fees for the cost of this insurance, compared
to $0.2 million and $0.7 million, respectively, for the same periods last
year.
d)
On
October 31, 2006, the Partnership acquired Teekay Corporation’s 100% ownership
interest in Teekay Nakilat Holdings Corporation (or
Teekay Nakilat
Holdings
). Teekay Nakilat Holdings owns 70% of Teekay Nakilat, which in
turn has a 100% interest as the lessee under capital leases relating to the
three RasGas II LNG Carriers. The final purchase price for the 70% interest
in
Teekay Nakilat was $102.0 million. The Partnership paid $26.9 million of this
amount during 2006 and $66.1 million during the nine months ended September
30,
2007. Subsequent to September 30, 2007, the Partnership paid the remaining
$9.0
million (see Note 7). 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 was
accounted for as an equity distribution to Teekay Corporation. The purchase
occurred upon the delivery of the first LNG carrier. The remaining two LNG
carriers were delivered during the first quarter of 2007.
e)
In
July
2005, Teekay Corporation announced that it had been awarded long-term,
fixed-rate contracts to charter two LNG carriers to the Tangguh LNG project
in
Indonesia. The two LNG carriers will be chartered for a period of 20 years
to The Tangguh Production Sharing Contractors, a consortium led by BP Berau
Ltd., a subsidiary of BP plc. Teekay Corporation entered into this project
with
a joint venture partner (BLT LNG Tangguh Corporation, a subsidiary of PT Berlian
Tanker Tbk), which owns a 30% interest. All amounts below include the
joint venture partner’s 30% share. In connection with this award, Teekay
Corporation has exercised shipbuilding options with Hyundai Heavy Industries
Co.
Ltd. to construct two 155,000 cubic meter LNG carriers at a total delivered
cost
of approximately $376.9 million, excluding capitalized interest. As at September
30, 2007, payments made towards these commitments by the joint venture company
totaled $229.6 million, excluding $14.9 million of capitalized interest and
other miscellaneous construction costs. Long-term financing arrangements existed
for all of the remaining $147.3 million unpaid cost of these LNG
carriers. As at September 30, 2007, the scheduled timing for these
remaining payments were $111.2 million in 2008 and $36.1 million in 2009. The
charters will commence upon vessel deliveries, which are scheduled for late
2008
and early 2009. Pursuant to existing agreements, Teekay Corporation was required
to offer its 70% ownership interest in these two vessels and related charter
contracts to the Partnership. On November 1, 2006, the Partnership agreed to
acquire this 70% ownership interest upon delivery of the first LNG carrier
(see
Note 13a). The purchase price, which depends upon the total construction costs
of the vessels, is estimated to be approximately $61.0 million.
f)
In
August
2005, Teekay Corporation announced that it had been awarded long-term,
fixed-rate contracts to charter four LNG carriers to Ras Laffan Liquefied
Natural Gas Co. Limited (3) (or
RasGas 3
), a joint venture company
between a subsidiary of ExxonMobil Corporation and Qatar Petroleum. The vessels
will be chartered to RasGas 3 at fixed rates, with inflation adjustments,
for a period of 25 years (with options exercisable by the customer to
extend up to an additional 10 years), scheduled to commence in the first
half of 2008. Teekay Corporation entered into the project with a joint venture
partner (Qatar Gas Transport Company Ltd. (Nakilat)), which owns a 60% interest.
In connection with this award, Teekay Corporation has entered into agreements
with Samsung Heavy Industries Co. Ltd. to construct four 217,000 cubic meter
LNG
carriers at a total cost of approximately $1.0 billion (of which Teekay
Corporation’s 40% portion is $400.7 million), excluding capitalized interest. As
at September 30, 2007, payments made towards these commitments by the joint
venture company totaled $801.3 million, excluding capitalized interest and
other
miscellaneous construction costs (of which the Company’s 40% contribution was
$320.5 million), and long-term financing arrangements exist for all the
remaining $200.3 million unpaid cost of these LNG carriers, to be made in 2008.
Pursuant to existing agreements, Teekay Corporation was required to offer its
40% ownership interest in these four vessels and related charter contracts
to
the Partnership. On November 1, 2006, the Partnership agreed to acquire this
40%
ownership interest upon delivery of the first LNG carrier (see Note 13a). The
purchase price, which depends upon the total construction costs of the vessels,
is estimated to be $82.0 million.
g)
In
January 2007, the Partnership acquired a 2000-built LPG carrier, the
Dania
Spirit
, from Teekay Corporation and the related long-term, fixed-rate time
charter for a purchase price of approximately $18.5 million. This transaction
was concluded between two entities under common control and, thus, the vessel
acquired was recorded at its historical book value. The excess of the book
value
over the purchase price of the vessel was accounted for as an equity
contribution by Teekay Corporation. The purchase was financed with one of the
Partnership’s revolving credit facilities. This vessel is chartered to the
Norwegian state-owned oil company, Statoil ASA, and has a remaining contract
term of eight years.
|
|
TEEKAY
LNG PARTNERS L.P. AND
SUBSIDIARIES
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS –
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
h)
In
March
2007, one of our LNG carriers, the
Madrid Spirit
, sustained damage to
its engine boilers. The vessel was off-hire for approximately 86 days during
the
nine months ended September 30, 2007. Since Teekay Corporation provides the
Partnership with off-hire insurance for its LNG carriers, the Partnership’s
exposure was limited to fourteen days of off-hire, of which seven days was
recoverable from a third-party insurer. In July 2007, Teekay Corporation paid
approximately $6.0 million to the Partnership for loss-of-hire for the nine
months ended September 30, 2007.
12. Derivative
Instruments and Hedging Activities
The
Partnership uses derivative instruments only for hedging purposes.
The
Partnership’s Suezmax tanker, the
Toledo Spirit
, operates pursuant to a
time-charter contract that increases or decreases the 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 18 years, although
the charterer has the right to terminate the time charter 13 years after the
July 2005 delivery date. The Partnership has entered into an agreement with
Teekay Corporation under which Teekay Corporation pays the Partnership any
amounts payable to the charter party 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.
At
September 30, 2007, the fair value of this derivative liability was $10.5
million and has been reflected in accumulated other comprehensive loss. During
the three and nine months ended September 30, 2007, the Partnership incurred
$0.1 million and $2.0 million respectively, compared to $1.7 million and $3.8
million, respectively for the same periods last year, of amounts owing to Teekay
Corporation as a result of this agreement.
As
at
September 30, 2007, the Partnership was committed to the following interest
rate
swap agreements related to its EURIBOR and LIBOR-based debt, whereby certain
of
the Partnership’s floating-rate debt has been swapped with fixed-rate
obligations:
|
|
Interest
Rate
Index
|
Principal
Amount
$
|
Fair
Value /
Carrying
Amount
of
Asset
(Liability)
$
|
Weighted-
Average
Remaining
Term
(years)
|
Fixed
Interest
Rate
(%)
(1)
|
|
LIBOR-Based
Debt:
|
|
|
|
|
|
|
U.S.
Dollar-denominated interest rate swaps
(2)
|
LIBOR
|
516,979
|
22,599
|
29.3
|
4.9
|
|
U.S.
Dollar-denominated interest rate swaps
(3)
|
LIBOR
|
231,855
|
(19,895)
|
11.5
|
6.2
|
|
U.S.
Dollar-denominated interest rate swaps
(4)
|
LIBOR
|
405,000
|
(2,121)
|
13.6
|
5.2
|
|
LIBOR-Based
Restricted Cash Deposit:
|
|
|
|
|
|
|
U.S.
Dollar-denominated interest rate swaps
(2)
|
LIBOR
|
482,919
|
(30,491)
|
29.3
|
4.8
|
|
EURIBOR-Based
Debt:
|
|
|
|
|
|
|
Euro-denominated
interest rate swaps
(5)
|
EURIBOR
|
436,819
|
31,698
|
16.7
|
3.8
|
|
|
(1)
Excludes the margins the Partnership pays on its floating-rate debt,
which, at September 30, 2007, ranged from 0.5% to 0.9% (see Note
8).
|
|
|
(2)
Principal amount reduces quarterly.
|
|
|
(3)
Included in the principal amount and fair value of the interest rate
swaps
is $63.7 million and ($4.3) million, respectively, related to the
portion
of the derivative instrument that the Partnership has not designated
as a
cash flow hedge.
|
|
|
(4)
Interest rate swaps are held in Teekay Tangguh and Teekay Nakilat
(III),
variable interest entities in which the Partnership is the primary
beneficiary (see Note 13a). Commencement dates of the interest rate
swaps
are 2006 ($160.0 million), 2007 ($70.0 million) and 2009 ($175.0
million).
|
|
|
(5)
Principal amount reduces monthly to 70.1 million Euros ($100.0 million)
by
the maturity dates of the swap
agreements.
|
Changes
in the fair value of the designated interest rate swaps (cash flow hedges)
are
recognized in other comprehensive income until the hedged item is recognized
in
income. The ineffective portion of an interest rate swap’s change in fair value
is immediately recognized into income and is presented as interest expense.
During the three and nine months ended September 30, 2007, the ineffective
portion of the Partnership’s interest rate swaps was a $0.4 million loss and a
$0.5 million loss, respectively. During the three and nine months ended
September 30, 2006, the ineffective portion of the Partnership’s interest rate
swaps was nominal.
The
Partnership is exposed to credit loss in the event of non-performance by the
counterparties to the interest rate swap agreements; however, counterparties
to
these agreements are major financial institutions and the Partnership considers
the risk of loss due to non-performance to be minimal. The Partnership requires
no collateral from these institutions.
|
|
TEEKAY
LNG PARTNERS L.P. AND
SUBSIDIARIES
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS –
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
13. Commitments
and Contingencies
(a)
On
November 1, 2006, the Partnership entered into an agreement with Teekay
Corporation to purchase (i) its 100% interest in Teekay Tangguh, which owns
a
70% interest in the Teekay Tangguh Joint Venture and (ii) its 100% interest
in
Teekay Nakilat (III), which owns a 40% interest in the RasGas 3 Joint Venture
(see Notes 11e and 11f). The Teekay Tangguh Joint Venture owns two LNG
newbuildings and the related 20-year time charters. The RasGas 3 Joint Venture
owns four LNG newbuildings and the related 25-year time charters. The purchases
will occur upon the delivery of the first newbuildings for the respective
projects, which are scheduled for 2008 and early 2009. The Partnership's
purchase price for these projects, which depends upon the total construction
costs of the vessels, is estimated to be $61.0 million for the 70% interest
in the Teekay Tangguh Joint Venture and $82.0 million for the 40% interest
in the RasGas 3 Joint Venture.
In
December 2003, the FASB issued FASB Interpretation No. 46(R),
Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51
(or
FIN
46(R)
). In general, a variable interest entity (or
VIE
) 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. If a party with an
ownership, contractual or other financial interest in the VIE (a
variable
interest holder
) is obligated to absorb a majority of the risk of loss from
the VIE's activities, is entitled to receive a majority of the VIE's residual
returns (if no party absorbs a majority of the VIE's losses), or both, then
FIN
46(R) requires that this party consolidate the VIE. Prior to its purchase of
a
controlling interest in Teekay Nakilat in October 2006, the Partnership already
included Teekay Nakilat in its consolidated financial statements, as Teekay
Nakilat was a VIE and the Partnership was its primary beneficiary. In addition,
the Partnership has consolidated Teekay Tangguh and Teekay Nakilat (III) in
its
consolidated financial statements effective November 1, 2006, as both entities
are VIE’s and the Partnership became their primary beneficiary on November 1,
2006, upon its agreement to acquire all of Teekay Corporation’s interests in
these entities. The assets and liabilities of Teekay Tangguh and Teekay Nakilat
(III) are reflected in the Partnership’s financial statements at historical cost
as the Partnership and these two VIE’s are under common control.
The
following table summarizes the combined balance sheets of Teekay Tangguh and
Teekay Nakilat (III) as at September 30, 2007 and December 31,
2006:
|
|
|
September
30,
2007
$
|
|
|
December
31,
2006
$
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
1,264
|
|
|
|
3
|
|
|
Advances
on newbuilding contracts
|
|
|
235,606
|
|
|
|
84,184
|
|
|
Investment
in and advances to joint ventures
|
|
|
328,951
|
|
|
|
141,427
|
|
|
Other
assets
|
|
|
6,159
|
|
|
|
6,035
|
|
|
Total
assets
|
|
|
571,980
|
|
|
|
231,649
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Accrued
liabilities
|
|
|
4,123
|
|
|
|
562
|
|
|
Advances
from affiliates
|
|
|
16,196
|
|
|
|
7,366
|
|
|
Long-term
debt relating to newbuilding vessels to be delivered
|
|
|
388,271
|
|
|
|
60,458
|
|
|
Other
long-term liabilities
|
|
|
2,865
|
|
|
|
2,100
|
|
|
Total
liabilities
|
|
|
411,455
|
|
|
|
70,486
|
|
|
Minority
interest
|
|
|
24,480
|
|
|
|
24,559
|
|
|
Total
shareholders’ equity
|
|
|
136,045
|
|
|
|
136,604
|
|
|
Total
liabilities and shareholders’ equity
|
|
|
571,980
|
|
|
|
231,649
|
|
The
Partnership’s maximum exposure to loss at September 30, 2007, as a result of its
commitment to purchase Teekay Corporation’s interests in Teekay Tangguh and
Teekay Nakilat (III), is limited to the respective purchase prices of such
interests, which are expected to be $61 million and $82 million.
(b)
In
December 2006, the Partnership announced that it has agreed to acquire three
LPG
carriers from I.M. Skaugen ASA (or
Skaugen
), which engages in the
marine transportation of petrochemical gases and LPG and the lightering of
crude
oil, for approximately $29.3 million per vessel. The vessels are currently
under
construction and are expected to deliver between early 2008 and mid-2009.
The
Partnership will acquire the vessels upon their delivery and will finance
their
acquisition through existing or incremental debt, surplus cash balances,
issuance of additional common units or combinations thereof. Upon delivery,
the
vessels will be chartered to Skaugen, at fixed rates for a period of 15
years.
|
|
TEEKAY
LNG PARTNERS L.P. AND
SUBSIDIARIES
|
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS –
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
14. Supplemental
Cash Flow Information
a)
Cash
interest paid on long-term debt and capital lease obligations during the
nine
months ended September 30, 2007 and 2006 totaled $70.7 million and $43.4
million, respectively.
b)
No
taxes
were paid during the nine months ended September 30, 2007 and
2006.
c)
During
January and February 2007, the Partnership took delivery of two leased LNG
carriers which are being accounted for as capital leases. On delivery, the
present value of the minimum lease payments for these two vessels was $310.5
million. These transactions were treated as non-cash transactions in the
Partnership’s consolidated statement of cash flows.
15. Net
Income Per Unit
Net
income per unit is determined by dividing net income, after deducting the amount
of net income allocated to the General Partner’s interest, by the
weighted-average number of units outstanding during the period.
As
required by Emerging Issues Task Force Issue No. 03-6,
Participating
Securities and Two-Class Method under FASB Statement No. 128, Earnings Per
Share
, the General Partner’s, common unitholders’ and subordinated
unitholders’ interests in net income are calculated as if all net income for
periods subsequent to May 10, 2005 (the date of the Partnership's
initial public offering) were distributed according to the terms of the
Partnership’s Partnership Agreement, regardless of whether those earnings would
or could be distributed. The Partnership Agreement does not provide for the
distribution of net 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.
Unlike available cash, net income is affected by non-cash items, such as
depreciation and amortization, and foreign currency translation gains
(losses).
Under
the
Partnership Agreement, the holder of the incentive distribution rights in the
Partnership, which is currently the General Partner, has the right to receive
an
increasing percentage of cash distributions after the minimum quarterly
distribution. Assuming there are no cumulative arrearages on common unit
distributions, the target distribution levels entitle the General Partner to
receive 2% of quarterly cash distributions up to $0.4625 per unit, 15% of
quarterly cash distributions between $0.4625 and $0.5375 per unit, 25% of
quarterly cash distributions between $0.5375 and $0.65 per unit, and 50% of
quarterly cash distributions in excess of $0.65 per unit. During the quarters
ended September 30, 2007 and September 30, 2006, net loss and net income,
respectively, did not exceed $0.4625 per unit. Consequently, for purposes of
the
net income per unit calculation, the General Partner did not have the right
to
receive an increasing percentage of assumed distributions after a $0.4625 per
unit quarterly distribution.
Under
the
Partnership Agreement, during the subordination period the common units will
have the right to receive distributions of available cash from operating surplus
in an amount equal to the minimum quarterly distribution of $0.4125 per quarter,
plus any arrearages in the payment of the minimum quarterly distribution on
the
common units from prior quarters, before any distributions of available cash
from operating surplus may be made on the subordinated units. During
the quarter ended September 30, 2007, the Partnership incurred a net loss and,
consequently, the assumed distributions of net loss resulted in equal
distributions of net loss between the subordinated unit holders and common
unit
holders. During the quarter ended September 30, 2006, net income did not exceed
the minimum quarterly distribution of $0.4125 per unit and, consequently, the
assumed distributions of net income resulted in unequal distributions of net
income between the subordinated unit holders and common unit
holders.
16. Other
Information
In
July
2007, Teekay Corporation announced that a consortium in which it has a 33%
ownership interest has signed a letter of intent 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. Final award of the charter contract was made in December
2007. The vessels will be chartered at fixed rates, with inflation
adjustments, commencing in 2011. 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 contractually
required to offer to the Partnership its 33% ownership interest in these
vessels
and related charter contracts.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER
30, 2007
PART
I – FINANCIAL INFORMATION
|
ITEM
2 –
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
|
OVERVIEW
Teekay
LNG Partners L.P. is an international provider of liquefied natural gas (or
LNG), liquefied petroleum gas (or LPG) and crude oil marine transportation
services. Our 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. We seek to capitalize on
opportunities emerging from the global expansion of the LNG and LPG sectors
by
selectively targeting long-term, fixed-rate time charters. We may enter into
joint ventures and partnerships with companies that may provide increased access
to these opportunities or may engage in vessel or business acquisitions. We
plan
to leverage the expertise, relationships and reputation of Teekay Corporation
and its affiliates to pursue these growth opportunities in the LNG and LPG
sectors and may consider other opportunities to which our competitive strengths
are well suited.
SIGNIFICANT
DEVELOPMENTS IN 2007
Follow-On
Offering
During
May 2007, we sold, as part of a follow-on public offering, 2.3 million of our
common units, which represent limited partner interests, at $38.13 per unit
for
proceeds of $84.2 million, net of $3.5 million of commissions and other expenses
associated with the offering. Our General Partner contributed $1.8 million
to us
to maintain its 2% general partner interest. We used the net proceeds from
our
sale of common units to repay outstanding debt on one of our revolving credit
facilities.
Angola
LNG Project
In
July
2007, Teekay Corporation announced that a consortium in which it has a 33%
ownership interest has signed a letter of intent 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. Final award of the charter contract was made in December 2007. The vessels
will be chartered at fixed rates, subject to inflation adjustments, commencing
in 2011. The remaining members of the consortium are Mitsui & Co., Ltd. and
NYK Bulkship (Europe), which hold 34% and 33% ownership interests in the
consortium, respectively. In accordance with an existing agreement, Teekay
Corporation is contractually required to offer to us its 33% ownership interest
in these vessels and related charter contracts.
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, 2006.
Items
You Should Consider When Evaluating Our Results of
Operations
Some
factors that have affected our historical financial performance or will affect
our future performance are listed below:
|
·
|
Our
financial results reflect the consolidation of Teekay Tangguh and
Teekay
Nakilat (III).
On November 1, 2006, we entered into an
agreement with Teekay Corporation to purchase (a) its 100% interest
in
Teekay Tangguh Holdings Corporation (or
Teekay Tangguh
), which
owns a 70% interest in Teekay BLT Corporation (or
Teekay Tangguh Joint
Venture
), and (b) its 100% interest in Teekay Nakilat (III) Holdings
Corporation (or
Teekay Nakilat (III
)), which owns a 40% interest
in Teekay Nakilat (III) Corporation (or
RasGas 3 Joint Venture
).
Teekay Tangguh Joint Venture owns two LNG newbuildings and related
20-year
time charters. RasGas 3 Joint Venture owns four LNG
newbuildings and the related 25-year time charters. The purchases
will
occur upon the delivery of the first newbuildings for the respective
projects, which are scheduled for 2008 and early 2009, respectively;
however we have been required to consolidate Teekay Tangguh and Teekay
Nakilat (III) in our consolidated financial statements since November
1,
2006, as both entities are variable interest entities and we are
their
primary beneficiary. Please read Item 1 - Financial Statements:
Notes 11(e) and 11(f) – Related Party Transactions and Note 13(a) -
Commitments and Contingencies.
|
|
·
|
The
size of our LNG carrier and LPG carrier fleets has changed
.
Our historical results of operations reflect changes in the size
and
composition of our fleet due to certain vessel deliveries. In particular,
we increased the size of our LNG carrier fleet from four LNG carriers
during the first nine months of 2006 to seven LNG carriers by February
2007. We also purchased our first LPG carrier from Teekay Corporation
in
January 2007. Please read “– Liquefied Gas Segment” below for further
details about these 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 a certain
threshold amount. Accordingly, even though declining spot market
rates
will not result in our receiving less than the fixed hire rate, our
results may continue to be influenced, in part, by the variable component
of the
Teide Spirit
charter. Spot market rates declined in the
third quarter of 2007 and as a result, the spot market rates did
not
exceed the threshold amount during the three months ended September
30,
2007. During the nine months ended September 30, 2007, we earned
$1.9
million, and for the three and nine months ended September 30, 2006,
we
earned $1.3 million and $2.8 million, respectively, in additional
revenue
from this variable component.
|
We
manage
our business and analyze and report our results of operations on the basis
of
two business segments: a liquefied gas segment and a Suezmax tanker
segment.
Liquefied
Gas Segment
Our
fleet
includes seven LNG carriers and one LPG carrier. All of our LNG and LPG carriers
operate under long-term, fixed-rate time charters. In addition, we expect our
liquefied gas segment to increase due to the following:
|
·
|
As
discussed above, we have agreed to acquire from Teekay Corporation
all of
its interests in Teekay Tangguh and Teekay Nakilat (III), which hold
interests of 70% and 40%, respectively, in long-term, fixed-rate
time
charter contracts to transport six LNG carriers in connection with
these
awards. Partners in each of these LNG projects will participate in
30% and
60%, respectively, of the ownership of the related time charters
and
related vessels. Please read Item 1 – Financial Statements: Note 13(a) –
Commitments and Contingencies.
|
|
·
|
In
December 2006, we announced that we have agreed to acquire three
LPG
carriers from I.M. Skaugen ASA (or
Skaugen
), for approximately
$29.3 million per vessel. The vessels are currently under construction
and
are expected to deliver between early 2008 and mid-2009. Please read
Item
1 – Financial Statements: Note 13(b) – Commitments and
Contingencies.
|
|
·
|
As
discussed above, in accordance with an existing agreement, Teekay
Corporation is contractually required to offer to us its 33% ownership
interest in the consortium relating to the Angola LNG Project.
Please read
Item 1 – Financial Statements: Note 16 – Other
Information.
|
The
following table compares our liquefied gas segment’s operating results for the
three and nine months ended September 30, 2007 and 2006, and compares its net
voyage revenues (which is a non-GAAP financial measure) for three and nine
months ended September 30, 2007 and 2006 to voyage revenues, the most directly
comparable GAAP financial measure. The following table also provides a summary
of the changes in calendar-ship-days and revenue days for our liquefied gas
segment:
|
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
(in
thousands of U.S. dollars,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
except
revenue days, calendar-ship- days and percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
43,239
|
|
|
|
25,225
|
|
|
|
71.4
|
|
|
|
124,807
|
|
|
|
71,444
|
|
|
|
74.7
|
|
|
Voyage
expenses
|
|
|
73
|
|
|
|
394
|
|
|
|
(81.5
|
)
|
|
|
86
|
|
|
|
794
|
|
|
|
(89.2
|
)
|
|
Net
voyage revenues
|
|
|
43,166
|
|
|
|
24,831
|
|
|
|
73.8
|
|
|
|
124,721
|
|
|
|
70,650
|
|
|
|
76.5
|
|
|
Vessel
operating expenses
|
|
|
7,977
|
|
|
|
4,297
|
|
|
|
85.6
|
|
|
|
24,238
|
|
|
|
13,014
|
|
|
|
86.2
|
|
|
Depreciation
and amortization
|
|
|
11,490
|
|
|
|
7,959
|
|
|
|
44.4
|
|
|
|
33,855
|
|
|
|
23,393
|
|
|
|
44.7
|
|
|
General
and administrative
(1)
|
|
|
1,663
|
|
|
|
1,215
|
|
|
|
36.9
|
|
|
|
5,322
|
|
|
|
3,902
|
|
|
|
36.4
|
|
|
Income
from vessel operations
|
|
|
22,036
|
|
|
|
11,360
|
|
|
|
94.0
|
|
|
|
61,306
|
|
|
|
30,341
|
|
|
|
102.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Days (A)
|
|
|
705
|
|
|
|
366
|
|
|
|
92.6
|
|
|
|
2,054
|
|
|
|
1,057
|
|
|
|
94.3
|
|
|
Calendar-Ship-Days
(B)
|
|
|
736
|
|
|
|
368
|
|
|
|
100.0
|
|
|
|
2,126
|
|
|
|
1,092
|
|
|
|
94.7
|
|
|
Utilization
(A)/(B)
|
|
|
95.8
|
%
|
|
|
99.5
|
%
|
|
|
|
|
|
|
96.6
|
%
|
|
|
96.8
|
%
|
|
|
|
|
|
(1)
|
Includes
direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated
use
of corporate resources).
|
We
operated four LNG carriers during the three and nine months ended September
30,
2006. We subsequently took delivery the following three LNG carriers:
the
Al Marrouna
in October 2006; the
Al Areesh
in January
2007; and the
Al Daayen
in February 2007 (collectively, the
RasGas
II LNG Carriers
). We also took delivery of one LPG carrier, the
Dania
Spirit
, in January 2007. As a result, our total calendar-ship-days
increased by 100% and 95% to 736 days and 2,126 days, respectively, for the
three and nine months ended September 30, 2007, from 368 days and 1,092 days,
respectively, for the three and nine months ended September 30,
2006.
On
March
29, 2007, the
Madrid Spirit
sustained damage to its engine boilers when
a condenser tube failed resulting in seawater contamination of the boilers.
The
cost of the repairs is estimated to be approximately $9.7 million and will
be
recoverable by the hull and machinery insurance policy on the vessel, net of
a
$0.5 million deductible, and approximately $0.3 million in unrecoverable
costs.
The
Madrid Spirit
was off-hire for a total of approximately 86 days during
the nine months ended September 30, 2007, of which all but 7 days (approximately
3 days in the first quarter and four days in the second quarter) were covered
by
loss-of-hire insurance provided by Teekay Corporation to recover lost
time-charter revenue. Coverage under the loss-of-hire insurance policy commences
after a 7-day deductible, net of the vessel’s strike and delay insurance which
covers 7 days of loss-of-hire. In July 2007, Teekay Corporation reimbursed
us
approximately $6.0 million in loss-of-hire losses. The
Madrid Spirit
resumed normal operations in early July 2007.
We
have
reviewed the operating history of our other LNG carriers and we believe that
the
conditions that caused the damage to the condenser tube on the
Madrid
Spirit
are not present on the other vessels.
Net
Voyage Revenues
. Net voyage revenues increased for the three and nine
months ended September 30, 2007, from the same periods last year, primarily
as a
result of:
|
·
|
increases
of $18.5 million and $48.8 million, respectively, during the three
and
nine months ended September 30, 2007 from the delivery of the RasGas
II
LNG Carriers and the
Dania
Spirit
;
|
|
·
|
increases
of $1.7 million and $5.3 million, respectively, for the three and
nine
months ended September 30, 2007, due to the effect on our Euro-denominated
revenues from the strengthening of the Euro against the U.S. Dollar
during
such period compared to the same periods last year;
and
|
|
·
|
increases
of $0.2 million and $2.4 million for the three and nine months ended
September 30, 2007, due to the
Catalunya Spirit
being off-hire
for 35.5 days during 2006 undergoing repairs on its cargo tanks and
replaced its propeller after a scheduled
drydocking;
|
partially
offset by:
|
·
|
a
decrease of $2.0 million for the three and nine months ended September
30,
2007, relating to 30.8 days of off-hire for a scheduled drydocking
for one
of our LNG carriers during July 2007;
and
|
|
·
|
a
decrease of $0.5 million for the nine months ended September 30,
2007, due
to the
Madrid Spirit
being off-hire, as discussed
above.
|
Vessel
Operating Expenses
. Vessel operating expenses increased for the three and
nine months ended September 30, 2007, from the same periods last year, primarily
as a result of:
|
·
|
increases
of $2.8 million and $9.7 million, respectively, during the three
and nine
months ended September 30, 2007 from the delivery of the RasGas II
LNG
Carriers and the
Dania
Spirit
;
|
|
·
|
an
increase of $0.8 million for the nine months ended September 30,
2007,
relating to the cost of the repairs completed on the
Madrid
Spirit
during the second quarter of 2007 net of estimated insurance
recoveries;
|
|
·
|
increases
of $0.6 million and $0.7 million, respectively, for the three and
nine
months ended September 30, 2007, relating to higher salaries for
crew and
officers primarily due to general wage escalations, and higher insurance
and repairs and maintenance costs;
and
|
|
·
|
increases
of $0.3 million and $1.1 million, respectively, for the three and
nine
months ended September 30, 2007, due to the effect on our Euro-denominated
vessel operating expenses from the strengthening of the Euro against
the
U.S. Dollar during such period compared to the same periods last
year (a
majority of our vessel operating expenses are denominated in Euros,
which
is primarily a function of the nationality of our crew. Our
Euro-denominated revenues currently generally approximate our
Euro-denominated expenses and Euro-denominated loan and interest
payments.);
|
partially
offset by
|
·
|
a
decrease of $1.0 million from the cost of repairs completed on the
Catalunya Spirit
during the second quarter of 2006 net of
estimated insurance recoveries.
|
Depreciation
and Amortization
. Depreciation and amortization expense increased for the
three and nine months ended September 30, 2007, from the same periods last
year,
primarily as a result of:
|
·
|
increases
of $3.5 million and $9.9 million, respectively, during the three
and nine
months ended September 30, 2007 from the delivery of the RasGas II
LNG
Carriers and the
Dania Spirit
;
and
|
|
·
|
increases
of $0.1 million and $0.5 million relating to amortization of drydock
expenditures incurred during the three and nine months ended September
30,
2007.
|
Suezmax
Tanker Segment
We
have
eight Suezmax-class double-hulled conventional crude oil tankers. All of our
Suezmax tankers operate under long-term, fixed-rate time charters.
The
following table compares our Suezmax tanker segment’s operating results for the
three and nine months ended September 30, 2007 and 2006, and compares its net
voyage revenues (which is a non-GAAP financial measure) for the three and nine
months ended September 30, 2007 and 2006 to voyage revenues, the most directly
comparable GAAP financial measure. The following table also provides a summary
of the changes in calendar-ship-days and revenue days for our Suezmax tanker
segment:
|
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands of U.S. dollars,
except revenue days, calendar-ship-days
and percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
2007
|
|
|
2006
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
20,477
|
|
|
|
21,471
|
|
|
|
(4.6
|
)
|
|
|
62,520
|
|
|
|
61,927
|
|
|
|
1.0
|
|
|
Voyage
expenses
|
|
|
244
|
|
|
|
269
|
|
|
|
(9.3
|
)
|
|
|
771
|
|
|
|
796
|
|
|
|
(3.1
|
)
|
|
Net
voyage revenues
|
|
|
20,233
|
|
|
|
21,202
|
|
|
|
(4.6
|
)
|
|
|
61,749
|
|
|
|
61,131
|
|
|
|
1.0
|
|
|
Vessel
operating expenses
|
|
|
5,958
|
|
|
|
5,235
|
|
|
|
13.8
|
|
|
|
17,448
|
|
|
|
15,246
|
|
|
|
14.4
|
|
|
Depreciation
and amortization
|
|
|
5,011
|
|
|
|
5,013
|
|
|
|
-
|
|
|
|
15,020
|
|
|
|
14,981
|
|
|
|
0.3
|
|
|
General
and administrative
(1)
|
|
|
1,868
|
|
|
|
1,649
|
|
|
|
13.3
|
|
|
|
5,486
|
|
|
|
5,055
|
|
|
|
8.5
|
|
|
Income
from vessel operations
|
|
|
7,396
|
|
|
|
9,305
|
|
|
|
(20.5
|
)
|
|
|
23,795
|
|
|
|
25,849
|
|
|
|
(7.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Days (A)
|
|
|
736
|
|
|
|
736
|
|
|
|
-
|
|
|
|
2,184
|
|
|
|
2,168
|
|
|
|
0.7
|
|
|
Calendar-Ship-Days
(B)
|
|
|
736
|
|
|
|
736
|
|
|
|
-
|
|
|
|
2,184
|
|
|
|
2,184
|
|
|
|
-
|
|
|
Utilization
(A)/(B)
|
|
|
100
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
99.3
|
%
|
|
|
|
|
|
(1)
|
Includes
direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated
use
of corporate resources).
|
We
operated eight Suezmax tankers during the three and nine months ended September
30, 2007 and 2006 and, therefore, our total calendar-ship-days remained the
same
for both periods.
Net
Voyage Revenues
. Net voyage revenues decreased for the three months ended
September 30, 2007 and increased for the nine months ended September 30, 2007,
from the same periods last year, primarily as a result of:
|
·
|
decreases
of $1.3 million and $1.0 million, respectively, for the three and
nine
months ended September 30, 2007, relating to revenues earned by the
Teide Spirit
(the time charter for the
Teide Spirit
contains a component providing for additional revenues to us beyond
the
fixed hire rate when spot market rates exceed threshold
amounts);
|
partially
offset by
|
·
|
increases
of $0.3 million and $1.2 million, respectively, for the three and
nine
months ended September 30, 2007, due to inflation and 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 a corresponding increase in our lease payments, which
is
reflected as an increase to interest expense; therefore, these and
future
interest rate adjustments do not and will not affect our cash flow
or net
income); and
|
|
·
|
a
relative increase of $0.3 million for the nine months ended September
30,
2007, relating to 15.8 days of off-hire for a scheduled drydocking
for one
of our Suezmax tankers during February
2006.
|
Vessel
Operating Expenses
. Vessel operating expenses increased for the three and
nine months ended September 30, 2007, from the same periods last year, primarily
as a result of:
|
·
|
increases
of $0.4 million and $1.3 million, respectively, for the three and
nine
months ended September 30, 2007, relating to higher salaries for
crew and
officers primarily due to general wage escalations, and higher insurance
and repairs and maintenance costs;
and
|
|
·
|
increases
of $0.3 million and $1.1 million, respectively, for the three and
nine
months ended September 30, 2007, due to the effect on our Euro-denominated
vessel operating expenses from the strengthening of the Euro against
the
U.S. Dollar during such period compared to the same periods last
year (a
majority of our vessel operating expenses are denominated in Euros,
which
is primarily a function of the nationality of our crew. Our
Euro-denominated revenues currently generally approximate our
Euro-denominated expenses and Euro-denominated loan and interest
payments.).
|
Depreciation
and Amortization.
Depreciation and amortization expense for the three and
nine months ended September 30, 2007 remained substantially unchanged from
the
same periods last year.
Other
Operating Results
General
and Administrative Expenses
. General and administrative expenses increased
to $3.5 million and $10.8 million, respectively, for the three and nine months
ended September 30, 2007, from $2.9 million and $9.0 million for the same
periods last year. These increases were primarily the result of additional
ship
management services provided by Teekay Corporation subsidiaries relating to
the
delivery of the RasGas II LNG Carriers and the
Dania
Spirit.
Interest
Expense
. Interest expense increased to $32.6 million and $98.8 million,
respectively, for the three and nine months ended September 30, 2007, from
$22.3
million and $62.3 million for the same periods last year. These increases were
primarily the result of:
|
·
|
increases
of $8.3 million and $27.1 million, respectively, for the three and
nine
months ended September 30, 2007, relating to the increase in capital
lease
obligations in connection with the delivery of the RasGas II LNG
Carriers
and an increase in debt of Teekay Nakilat used to finance restricted
cash
deposits and repay advances from Teekay Corporation (see Note
5);
|
|
·
|
increases
of $2.9 million and $7.2 million, respectively, for the three and
nine
months ended September 30, 2007, relating to debt of Teekay Nakilat
(III)
used by the RasGas 3 Joint Venture to fund shipyard construction
installment payments (this increase in interest expense from debt
is
offset by a corresponding increase in interest income from advances
to
joint venture);
|
|
·
|
increases
of $1.1 million and $4.3 million, respectively, for the three and
nine
months ended September 30, 2007, relating to changes in the fair
value of
interest rate swaps not designated as
hedges;
|
|
·
|
increases
of $2.0 million for the nine months ended September 30, 2007, relating
to
debt incurred to finance the acquisition of Teekay Nakilat and the
Dania Spirit
;
|
|
·
|
increases
of $0.4 million and $0.5 million, respectively, for the three and
nine
months ended September 30, 2007, from the ineffective portion of
our
interest rate swaps designated as
hedges;
|
|
·
|
increases
of $0.1 million and $0.6 million, respectively, for the three and
nine
months ended September 30, 2007, from rising 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
received corresponding increases in charter payments, which are reflected
as an increase to voyage revenues);
and
|
|
·
|
increases
of $0.1 million and $0.4 million, respectively, for the three and
nine
months ended September 30, 2007, due to the effect on our Euro-denominated
debt from the strengthening of the Euro against the U.S. Dollar
during
such period compared to the same periods last year (our Euro-denominated
revenues currently generally approximate our Euro-denominated expenses
and
Euro-denominated loan and interest
payments);
|
partially
offset by
|
·
|
decreases
of $1.8 million and $5.1 million, respectively, for the three and
nine
months ended September 30, 2007, from the purchase in December
2006 of the
Catalunya Spirit
, which was on a capital lease prior
to such purchase, and from scheduled capital lease repayments on
the
Madrid Spirit
(these LNG vessels were financed pursuant to
Spanish tax lease arrangements, under which we borrowed under term
loans
and deposited the proceeds into restricted cash accounts and entered
into
capital lease for the vessels; as a result, this decrease in interest
expense from the capital lease is offset by a corresponding decrease
in
the interest income from restricted
cash).
|
Interest
Income
. Interest income increased to $12.2 million and $36.3 million,
respectively, for the three and nine months ended September 30, 2007, from
$9.9
million and $26.8 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 increases were primarily the result
of:
|
·
|
increases
of $2.9 million and $7.1 million, respectively, for the three and
nine
months ended September 30, 2007, relating to interest-bearing
advances made by us to the RasGas 3 Joint Venture for shipyard
construction installment payments;
|
|
·
|
increases
of $1.0 million and $6.5 million, respectively, for the three and
nine
months ended September 30, 2007, relating to additional restricted
cash
deposits for the RasGas II LNG Carriers, which were funded by
debt;
|
|
·
|
increases
of $0.1 million and $0.8 million, respectively for the three and
nine
months ended September 30, 2007, due to an increase in average cash
balances compared to the same periods last year;
and
|
|
·
|
increases
of $0.2 million and $0.6 million, respectively, for the three and
nine
months ended September 30, 2007, due to the effect on our Euro-denominated
deposits from the strengthening of the Euro against the U.S. Dollar
during
such period compared to the same period last
year;
|
partially
offset by
|
·
|
decreases
of $1.8 million and $5.3 million, respectively, for the three and
nine
months ended September 30, 2007, resulting from the purchase in
December 2006 of the
Catalunya Spirit
, which was on a capital
lease prior to such purchase, and from scheduled capital lease repayments
on the
Madrid Spirit
which were funded with restricted cash
deposits.
|
Foreign
Currency Exchange (Losses) Gains
. Foreign currency exchange losses were
$21.6 million and $32.0 million, respectively, for the three and nine months
ended September 30, 2007, compared to a foreign currency exchange gain of $3.8
million and a foreign currency exchange loss of $24.4 million, respectively,
for
the same periods last year. These foreign currency exchange losses and gains,
substantially all of which were unrealized, are due substantially to the
relevant period-end revaluation of Euro-denominated term loans for financial
reporting purposes. The 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.
Net
(Loss) Income
. As a result of the foregoing factors, net loss was $12.8
million and $8.9 million, respectively, for the three and nine months ended
September 30, 2007, compared to net income of $12.6 million and net loss of
$2.2
million for the same periods last year.
Liquidity
and Capital Resources
Liquidity
and Cash Needs
As
at
September 30, 2007, our cash and cash equivalents were $40.9 million, compared
to $28.9 million at December 31, 2006. Our total liquidity including cash,
cash
equivalents and undrawn long-term borrowings, was $486.3 million as at September
30, 2007, compared to $444.5 million as at December 31, 2006. The increase
in
liquidity was primarily the result of our follow-on public offering in May
2007
which generated net proceeds of $84.2 million (which was used to prepay
outstanding debt on one of our revolving credit facilities), our receiving
a 70%
share of the tax lease benefit on the RasGas II LNG Carriers, and by cash
generated by our operating activities during the nine months ended September
30,
2007, partially offset by the purchase of the
Dania Spirit
and a
partial repayment made on the promissory note due to Teekay Corporation for
the
purchase of Teekay Nakilat. We financed this purchase and partial repayment
with
borrowings under our revolving credit facilities.
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
believe that cash flows from operations will be sufficient to meet our liquidity
needs for at least the next 12 months. We will need to use certain of our
available liquidity or we may need to raise additional capital to finance
existing capital commitments. We are required to purchase five of our Suezmax
tankers, currently on capital lease arrangements, at various times from mid-2008
to 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, we are committed to acquiring Teekay Corporation’s 70% interest in the
Teekay Tangguh Joint Venture and its 40% interest in the RasGas 3 Joint Venture
as well as acquiring three LPG carriers from I.M. Skaugen ASA. These additional
purchase commitments, which occur in 2008 and 2009, total $230.9 million.
These
purchases will be financed with one of our existing revolving credit facilities,
incremental debt, surplus cash balances, issuance of additional common units,
or
combinations thereof. Please read Item 1 – Financial Statements: Note 13
Commitments and Contingencies.
Cash
Flows.
The following table summarizes our sources and
uses of cash for the periods presented:
|
|
|
Nine
Months Ended
September
30,
|
|
|
|
|
2007
($000’s)
|
|
|
2006
($000’s)
|
|
|
|
|
|
|
|
|
|
|
Net
cash flow from operating activities:
|
|
|
81,406
|
|
|
|
59,416
|
|
|
Net
cash flow from financing activities:
|
|
|
358,359
|
|
|
|
(384,852
|
)
|
|
Net
cash flow from investing activities:
|
|
|
(427,743
|
)
|
|
|
311,559
|
|
Operating
Cash Flows.
Net cash flow from operating activities increased to
$81.4 million for the nine months ended September 30, 2007, from $59.4 million
for the same period in 2006, primarily reflecting the increase in operating
cash
flows from the delivery of the three RasGas II LNG Carriers, which commenced
their 20-year fixed-rate charters in the fourth quarter of 2006 and the first
quarter of 2007, the acquisition of the
Dania Spirit
in January 2007, a
$1.7 million decrease in drydocking expenditures, and the timing of our cash
receipts and payments. 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 be uneven between years.
Financing
Cash Flows.
Our investments in vessels and equipment have been
financed primarily with term loans and capital lease
arrangements. Proceeds from long-term debt were $534.6 million and
$138.2 million, respectively, for the nine months ended September 30, 2007
and
2006. During the nine months ended September 30, 2007, we used these
funds primarily to fund LNG newbuilding construction payments in the Teekay
Tangguh Joint Venture and RasGas 3 Joint Venture, partially repay the promissory
note due to Teekay Corporation for the purchase of Teekay Nakilat, the purchase
of the
Dania Spirit
, and to fund restricted cash deposits for the
RasGas II LNG Carriers. From time to time we refinance our loans and revolving
credit facilities.
During
the nine months ended September 30, 2007, Teekay Nakilat (III) and Teekay
Tangguh, variable interest entities for which we are the primary beneficiary,
received and $103.1 million, respectively, of proceeds from long-term debt
and
loaned these funds to the RasGas 3 Joint Venture and the Teekay Tangguh Joint
Venture, respectively, and Teekay Tangguh received $44.2 million from its other
joint venture partner, which were used to fund LNG newbuilding construction
payments. Please read Item 1 – Financial Statements: Note 13(a) – Commitments
and Contingencies.
During
May 2007, we sold 2.3 million of our common units as part of a follow-on public
offering, at $38.13 per unit for proceeds of $84.2 million, net of $3.5 million
of commissions and other expenses associated with the offering. Our general
partner contributed $1.8 million to us to maintain its 2% general partner
interest. The net proceeds from our sale of common units were used to repay
outstanding debt on one of our revolving credit facilities.
Cash
distributions paid during the nine months ended September 30, 2007 increased
to
$53.6 million from $47.7 million for the same period last year. We increased
our
quarterly distribution from $0.4125 per unit to $0.4625 per unit during the
second quarter of 2006 and from $0.4625 per unit to $0.53 per unit during the
third quarter of 2007. Subsequent to September 30, 2007, cash distributions
declared and payable on November 14, 2007 for the three months ended September
30, 2007 totaled $20.6 million.
Investing
Cash Flows.
During the nine months ended September 30, 2007,
Teekay Nakilat (III), a variable interest entity for which we are the primary
beneficiary, advanced $187.6 million to the RasGas 3 Joint Venture. These
advances, which were used by the RasGas 3 Joint Venture to fund LNG newbuilding
construction payments, were primarily funded with long-term debt.
During
the nine months ended September 30, 2007, we incurred $155.5 million in
expenditures for vessels and equipment. These expenditures represent
construction payments for the Teekay Tangguh Joint Venture’s two LNG carrier
newbuildings.
During
2006, we acquired a 70% interest in Teekay Nakilat for approximately $102.0
million of which we paid $26.9 million in 2006. During the nine months ended
September 30, 2007, we borrowed under our revolving credit facilities and paid
an additional $66.1 million towards the purchase price as discussed above.
Subsequent to September 30, 2007, we paid the remaining $9.0 million. Please
read Item 1 – Financial Statements: Note 11(d) – Related Party
Transactions.
During
2006, the three subsidiaries of Teekay Nakilat, each of which has contracted
to
have built one of the three RasGas II Carriers, sold their shipbuilding
contracts to SeaSpirit Leasing Ltd. for $313.0 million and entered into 30-year
capital leases for these three LNG Carriers, to commence upon completion of
vessel construction. SeaSpirit reimbursed Teekay Nakilat for previously paid
shipyard installments and other construction costs in the amount of $313.0
million.
Credit
Facilities
As
at
September 30, 2007, we had two long-term revolving credit facilities available
which provided for borrowings of up to $445.4 million, all of which was undrawn.
The amount available under the credit facilities reduces by $4.4 million (fourth
quarter of 2007), $18.2 million (2008), $18.8 million (2009), $19.4 million
(2010), $20.0 million (2011) and $364.6 million (thereafter). Interest payments
are based on LIBOR plus a margin. Both revolving credit facilities may be used
by us to fund general partnership purposes and to fund cash distributions.
We
are required to reduce all borrowings used to fund cash distributions to zero
for a period of at least 15 consecutive days during any 12-month period. The
revolving credit facilities are collateralized by first-priority mortgages
granted on five of our vessels, together with other related collateral, and
include a guarantee from us or our subsidiaries of all outstanding
amounts.
We
have a
U.S. Dollar-denominated term loan outstanding, which, as at September 30, 2007,
totaled $452.7 million, of which $284.5 million of the term loan bears interest
at a fixed rate of 5.39% and has quarterly payments that reduce over time.
The
remaining $168.2 million bears interest based on LIBOR plus a margin and is
repayable at maturity in 2019. The term loan is collateralized by first-priority
mortgages on the vessels, together with certain other related collateral and
guarantees from us.
Teekay
Nakilat (III) and Teekay Tangguh, variable interest entities for which we are
the primary beneficiary, have U.S. Dollar-denominated term loans outstanding,
which, as at September 30, 2007, totaled $240.4 million and $103.1 million,
respectively. Interest payments on the term loans are based on LIBOR plus a
margin. The term loans reduce in quarterly payments commencing three months
after delivery of each related vessel, with varying maturities through 2020.
The
term loans are collateralized by first-priority mortgages on the vessels to
which the loans relate, together with certain other related collateral including
an undertaking from Teekay Corporation. Upon transfer of the ownership of Teekay
Nakilat (III) and Teekay Tangguh from Teekay Corporation to us, the rights
and
obligations of Teekay Corporation under the undertaking, may, upon the
fulfillment of certain conditions, be transferred to us.
We
have
two Euro-denominated term loans outstanding, which, as at September 30, 2007
totaled 306.2 million Euros ($436.8 million). These loans were used to make
restricted cash deposits that fully fund payments under capital leases. Interest
payments are based on EURIBOR plus margins. The term loans have varying
maturities through 2023 and monthly payments that reduce over time. These loans
are collateralized by first-priority mortgages on the vessels to which the
loans
relate, together with certain other related collateral and guarantees from
one
of our subsidiaries.
The
weighted-average effective interest rates for our long-term debt outstanding
at
September 30, 2007 and December 31, 2006 were 5.7% and 5.5%, respectively.
These
rates do not reflect the effect of related interest rate swaps that we have
used
to hedge certain of our floating-rate debt. At September 30, 2007, the margin
on
our long-term debt ranged from 0.5% to 0.9%.
Our
term
loans and revolving credit facilities contain typical covenants and other
restrictions including, but not limited to, one or more of the following that
restrict the applicable ship-owning subsidiaries from:
|
·
|
incurring
or guaranteeing indebtedness;
|
|
·
|
changing
ownership or structure, including by 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 a minimum level of tangible net worth, a minimum
level of aggregate liquidity, and a maximum level of leverage be maintained,
and
require one of the our subsidiaries to maintain restricted cash deposits. Our
ship-owning subsidiaries may not, in addition to other things, pay dividends
or
distributions if we are in default under the term loans and the revolving credit
facilities. Our capital leases do not contain financial or restrictive covenants
other than those relating to operation and maintenance of the vessels. As at
September 30, 2007, we were in compliance with all covenants in our credit
facilities and capital leases.
Contractual
Obligations and Contingencies
The
following table summarizes our long-term contractual obligations as at September
30, 2007:
|
|
|
Total
|
|
|
Fourth
Quarter
of
2007
|
|
|
2008
and
2009
|
|
|
2010
and
2011
|
|
|
Beyond
2011
|
|
|
|
|
(in
millions of U.S. Dollars)
|
|
|
U.S.
Dollar-Denominated Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
(1)
|
|
|
856.7
|
|
|
|
6.3
|
|
|
|
69.1
|
|
|
|
78.4
|
|
|
|
702.9
|
|
|
Commitments
under capital leases
(2)
|
|
|
243.0
|
|
|
|
6.2
|
|
|
|
144.4
|
|
|
|
92.4
|
|
|
|
-
|
|
|
Commitments
under capital leases
(3)
|
|
|
1,103.1
|
|
|
|
6.0
|
|
|
|
48.0
|
|
|
|
48.0
|
|
|
|
1,001.1
|
|
|
Advances
from affiliates
|
|
|
40.5
|
|
|
|
9.0
|
|
|
|
31.5
|
|
|
|
-
|
|
|
|
-
|
|
|
Purchase
obligations
(4)
|
|
|
230.9
|
|
|
|
-
|
|
|
|
230.9
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
U.S. Dollar-denominated obligations
|
|
|
2,474.2
|
|
|
|
27.5
|
|
|
|
523.9
|
|
|
|
218.8
|
|
|
|
1,704.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro-Denominated
Obligations:
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
(6)
|
|
|
436.8
|
|
|
|
2.7
|
|
|
|
23.2
|
|
|
|
239.5
|
|
|
|
171.4
|
|
|
Commitments
under capital leases
(2)
(7)
|
|
|
235.5
|
|
|
|
33.2
|
|
|
|
71.4
|
|
|
|
130.9
|
|
|
|
-
|
|
|
Total
Euro-denominated obligations
|
|
|
672.3
|
|
|
|
35.9
|
|
|
|
94.6
|
|
|
|
370.4
|
|
|
|
171.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
3,146.5
|
|
|
|
63.4
|
|
|
|
618.5
|
|
|
|
589.2
|
|
|
|
1,875.4
|
|
|
(1)
|
Excludes
expected interest payments of $12.6 million (fourth quarter of 2007),
$95.2 million (2008 and 2009), $86.9 million (2010 and 2011) and
$262.4
million (beyond 2011). Expected interest payments are based on the
existing interest rates (fixed-rate loans) and LIBOR at September
30,
2007, plus margins that ranged up to 0.9% (variable-rate loans).
The
expected interest payments do not reflect the effect of related interest
rate swaps that we have used to hedge certain of our floating-rate
debt.
|
|
(2)
|
Includes,
in addition to lease payments, amounts we are required to pay to
purchase
certain leased vessels at the end of the lease terms. We are obligated
to
purchase five of our existing Suezmax tankers upon the termination
of the
related capital leases, which will occur at various times from mid-2008
to
2011. The purchase price will be based on the unamortized portion
of the
vessel construction financing costs for the vessels, which we expect
to
range from $37.3 million to $40.7 million per vessel. We expect to
satisfy
the purchase price by assuming the existing vessel financing. We
are also
obligated to purchase one of our 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 – Capital Lease
Obligations and Restricted Cash.
|
|
(3)
|
Existing
restricted cash deposits of $493.7 million, together with the interest
earned on the deposits, will be sufficient to repay the remaining
amounts
we currently owe under the lease
arrangements.
|
|
(4)
|
On
November 1, 2006, we entered into an agreement with Teekay Corporation
to
purchase its 70% interest in Teekay Tangguh and its 40% interest
in Teekay
Nakilat (III). The purchases will occur upon the delivery of the
first
newbuildings, which are scheduled for 2008 and early 2009. Please
read
Item 1 – Financial Statements: Notes 11(e) and 11(f) – Related Party
Transactions and Note 13(a) – Commitments and
Contingencies.
|
In
December 2006, we entered into an agreement to acquire three LPG carriers
from
I.M. Skaugen ASA, for approximately $29.3 million per vessel upon their delivery
between early 2008 and mid-2009. Please read Item 1 – Financial Statements: Note
13(b) - Commitments and Contingencies.
|
(5)
|
Euro-denominated
obligations are presented in U.S. Dollars and have been converted
using
the prevailing exchange rate as of September 30,
2007.
|
|
(6)
|
Excludes
expected interest payments of $5.8 million (fourth quarter of 2007),
$45.4 million (2008 and 2009), $36.8 million (2010 and 2011) and
$68.6
million (beyond 2011). Expected interest payments are based on EURIBOR
at
September 30, 2007, plus margins that ranged up to 0.66%, as well
as the
prevailing U.S. Dollar / Euro exchange rate as of September 30, 2007.
The
expected interest payments do not reflect the effect of related interest
rate swaps that we have used to hedge certain of our floating-rate
debt.
|
|
(7)
|
Existing
restricted cash deposits of $205.9 million, together with the interest
earned on the deposits, will 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.
Critical
Accounting Estimates
We
prepare our consolidated financial statements in accordance with GAAP, which
require us to make estimates in the application of our accounting policies
based
on our best assumptions, judgments and opinions. On a regular basis, management
reviews the accounting policies, assumptions, estimates and judgments to ensure
that our consolidated financial statements are presented fairly and in
accordance with GAAP. However, because future events and their effects cannot
be
determined with certainty, actual results could differ from our assumptions
and
estimates, and such differences could be material. Accounting estimates and
assumptions that we consider to be the most critical to an understanding of
our
financial statements, because they inherently involve significant judgments
and
uncertainties, can be found in Item 5. Operating and Financial Review and
Prospects in our Annual Report on Form 20-F for the year ended December 31,
2006.
FORWARD-LOOKING
STATEMENTS
This
Report on Form 6-K for the three and nine months ended September 30, 2007
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:
|
·
|
our
future financial condition;
|
|
·
|
results
of operations and revenues and expenses, including performance
of our
liquefied gas segment;
|
|
·
|
LNG,
LPG and tanker market fundamentals, including the balance of supply
and
demand in the LNG, LPG and tanker
markets;
|
|
·
|
future
capital expenditures and availability of capital resources to fund
capital
expenditures;
|
|
·
|
offers
of LNG and LPG carriers and associated contracts from Teekay
Corporation;
|
|
·
|
obtaining
LNG projects that we or Teekay Corporation bid on or have been
awarded;
|
|
·
|
delivery
dates of and financing for
newbuildings;
|
|
·
|
the
commencement of service of newbuildings under long-term
contracts;
|
|
·
|
the
expected outcome of a review by the tax authorities regarding a
3.4
million Euro (approximately $4.9 million) re-investment tax
credit;
|
|
·
|
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;
|
|
·
|
the
timing of the commencement of the RasGas 3 and Tangguh LNG projects
and
the Skaugen LPG project; and
|
|
·
|
the
losses and costs associated with damage to the
Madrid Spirit
in
March 2007, and our belief that the conditions that caused the
damage to
the condenser tube on the
Madrid Spirit
are not present on the
other vessels.
|
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 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; 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, 2006. 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.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER
30, 2007
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 unhedged
floating-rate borrowings. 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.
Changes in the fair value of our interest rate swaps are recognized in other
comprehensive income until the hedged item is recognized in income. The
ineffective portion of an interest rate swap’s change in fair value is
immediately recognized in income.
The
table
below provides information about our financial instruments at September 30,
2007, that are sensitive to changes in interest rates. For debt 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.
|
|
|
Expected
Maturity Date
|
|
|
|
|
|
|
|
Fourth
Quarter of
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
There-after
|
|
|
Total
|
|
|
Fair
Value
Asset/
(Liability)
|
|
|
Rate
(1)
|
|
|
|
|
(in
millions of U.S. dollars, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Rate ($U.S.)
(2)
|
|
|
-
|
|
|
|
5.0
|
|
|
|
12.4
|
|
|
|
12.9
|
|
|
|
13.1
|
|
|
|
468.2
|
|
|
|
511.6
|
|
|
|
(511.6
|
)
|
|
|
6.2
|
%
|
|
Variable
Rate (Euro)
(3)
(4)
|
|
|
2.7
|
|
|
|
11.2
|
|
|
|
12.0
|
|
|
|
12.9
|
|
|
|
226.6
|
|
|
|
171.4
|
|
|
|
436.8
|
|
|
|
(436.8
|
)
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate
Debt ($U.S.)
|
|
|
6.3
|
|
|
|
25.2
|
|
|
|
26.5
|
|
|
|
26.2
|
|
|
|
26.2
|
|
|
|
234.7
|
|
|
|
345.1
|
|
|
|
(328.1
|
)
|
|
|
5.5
|
%
|
|
Average
Interest Rate
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
|
|
5.5
|
%
|
|
|
5.6
|
%
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Lease Obligations
(5)
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate
($U.S.)
(7)
|
|
|
2.2
|
|
|
|
125.6
|
|
|
|
3.8
|
|
|
|
3.9
|
|
|
|
80.1
|
|
|
|
-
|
|
|
|
215.6
|
|
|
|
(215.6
|
)
|
|
|
7.4
|
%
|
|
Average
Interest Rate
(8)
|
|
|
7.5
|
%
|
|
|
8.8
|
%
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
|
|
5.5
|
%
|
|
|
-
|
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
Amount ($U.S.)
(6)
(9)
|
|
|
1.1
|
|
|
|
4.6
|
|
|
|
9.4
|
|
|
|
14.2
|
|
|
|
14.6
|
|
|
|
593.0
|
|
|
|
636.9
|
|
|
|
(22.0
|
)
|
|
|
5.5
|
%
|
|
Average
Fixed Pay Rate
(2)
|
|
|
6.2
|
%
|
|
|
6.2
|
%
|
|
|
5.7
|
%
|
|
|
5.6
|
%
|
|
|
5.6
|
%
|
|
|
5.5
|
%
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
Contract
Amount (Euro)
(4)
(10)
|
|
|
2.7
|
|
|
|
11.2
|
|
|
|
12.0
|
|
|
|
12.9
|
|
|
|
226.6
|
|
|
|
171.4
|
|
|
|
436.8
|
|
|
|
31.7
|
|
|
|
3.8
|
%
|
|
Average
Fixed Pay Rate
(3)
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
(1)
|
Rate
refers to the weighted-average effective interest rate for our long-term
debt and capital lease obligations, including the margin we pay on
our
floating-rate debt and the average fixed pay rate for our interest
rate
swap agreements. The average interest rate for our capital lease
obligations is the weighted-average interest rate implicit in our
lease
obligations at the inception of the leases. The average fixed pay
rate for
our interest rate swaps excludes the margin we pay on our floating-rate
debt, which as of September 30, 2007 ranged from 0.5% to 0.9%. Please
read
Item 1 – Financial Statements: Note 8 – Long-term
debt.
|
|
(2)
|
Interest
payments on U.S. Dollar-denominated debt and interest rate swaps
are based
on LIBOR.
|
|
(3)
|
Interest
payments on Euro-denominated debt and interest rate swaps are based
on
EURIBOR.
|
|
(4)
|
Euro-denominated
amounts have been converted to U.S. Dollars using the prevailing
exchange
rate as of September 30, 2007.
|
|
(5)
|
Excludes
capital lease obligations (present value of minimum lease payments)
of
141.1 million Euros ($201.4 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 5.0%, an amount
of
cash that, together with the interest earned thereon, will fully
fund the
amount owing under the capital lease obligation, including a vessel
purchase obligation. As at September 30, 2007, this amount was 144.3
million Euros ($205.9 million). Consequently, we are not subject
to
interest rate risk from these obligations or
deposits.
|
|
(6)
|
Under
the terms of the capital leases for the RasGas II LNG Carriers (see
Item 1
– Financial Statements: Note 5 – Capital Leases and Restricted Cash), we
are required to have on deposit, subject to a variable rate of interest,
an amount of cash that, together with interest earned on the deposit,
will
equal the remaining amounts owing under the variable-rate leases.
The
deposits, which as at September 30, 2007 totaled $493.7 million,
and the
lease obligations, which as at September 30, 2007 totaled $468.7
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, 2007, the contract amount, fair value
and fixed
interest rates of these interest rate swaps related to Teekay Nakilat’s
capital lease obligations and restricted cash deposits were $517.0
million
and $482.9 million, $22.6 million and ($30.5) million, and 4.9% and
4.8%
respectively.
|
|
(7)
|
The
amount of capital lease obligations represents the present value
of
minimum lease payments together with our purchase obligation, as
applicable.
|
|
(8)
|
The
average interest rate is the weighted-average interest rate implicit
in
the capital lease obligations at the inception of the
leases.
|
|
(9)
|
The
average variable receive rate for our U.S. Dollar-denominated interest
rate swaps is set quarterly at 3-month
LIBOR.
|
|
(10)
|
The
average variable receive rate for our Euro-denominated interest rate
swaps
is set monthly at 1-month EURIBOR.
|
Counterparties
to these financial instruments expose us to credit-related losses in the event
of nonperformance; however, counterparties to these agreements are major
financial institutions, and we consider the risk of loss due to nonperformance
to be minimal. We do not require collateral from these institutions. We do
not
hold or issue interest rate swaps for trading purposes.
Spot
Market Rate Risk
One
of
our Suezmax tankers, the
Toledo Spiri
t
operates pursuant to a
time-charter contract that increases or decreases the 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 18 years, although the charterer has the right to
terminate the time charter 13 years after its July 2005 delivery date. 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.
At September 30, 2007, the fair value of this derivative liability was $10.5
million and has been reflected in accumulated other comprehensive loss. During
the three and nine months ended September 30, 2007, we incurred $0.1 million
and
$2.0 million, respectively, compared to $1.7 million and $3.8 million,
respectively, for the same periods last year, of amounts owing to Teekay
Corporation as a result of this agreement.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
SEPTEMBER
30, 2007
PART
II – OTHER INFORMATION
Item
1
– Legal Proceedings
None
Item
1A – Risk Factors
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” in our Annual Report on Form 20-F for the year
ended December 31, 2006, which could materially affect our business,
financial condition or results of operations. There have been no material
changes in our risk factors from those disclosed in our 2006 Annual Report
on
Form 20-F.
Item
2
– Unregistered Sales of Equity Securities and Use of Proceeds
None
Item
3
– Defaults Upon Senior Securities
None
Item
4
– Submission of Matters to a Vote of Security Holders
None
Item
5
– Other Information
None
Item
6
– Exhibits
The following exhibits are filed as part of this
Report:
|
3.1
|
Certificate
of Limited Partnership of Teekay LNG Partners L.P. (1)
|
|
3.2
|
First
Amended and Restated Agreement of Limited Partnership of Teekay LNG
Partners L.P., as amended (2)
|
|
3.3
|
Certificate
of Formation of Teekay G.P. L.L.C. (1)
|
|
3.4
|
Form
of Second Amended and Restated Limited Liability Company Agreement
of
Teekay GP L.L.C. (3)
|
|
4.18
|
Agreement,
dated December 15, 2004, for a $468,108,023 Loan Facility Agreement
between Al Marrouna Inc., Al
Areesh
Inc., Al Daayen Inc., Calyon, The Export-Import Bank of Korea and other
banks
|
|
10.1
|
Agreement
between Teekay Shipping Corporation and Teekay LNG Partners L.P.
(4)
|
|
15.1
|
Acknowledgement
of Independent Registered Public Accounting
Firm
|
(1) Previously
filed as an exhibit to the Partnership’s Registration Statement on Form F-1
(File No. 333-120727), filed with the SEC on November 24, 2004, and hereby
incorporated by reference to such Registration Statement.
(2) Previously
filed as an exhibit to the Partnership’s Report on Form 6-K (File No. 1-32479),
filed with the SEC on August 17, 2006, and hereby incorporated by reference
to
such Report.
(3) Previously
filed as an exhibit to the Partnership’s Amendment No. 3 to Registration
Statement on Form F-1 (File No. 333-120727), filed with the SEC on April 11,
2005, and hereby incorporated by reference to such Registration
Statement.
(4) Previously
filed as an exhibit to the Partnership’s Report on Form 6-K (File No. 1-32479),
filed with the SEC on May 14, 2007, and hereby incorporated by reference to
such
Report.
THIS
REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING
REGISTRATION STATEMENTS OF THE PARTNERSHIP:
·
REGISTRATION
STATEMENT ON FORM S-8 (NO. 333-124647) FILED WITH THE SEC ON MAY 5,
2005
·
REGISTRATION
STATEMENT ON FORM F-3 (NO. 333-137697) FILED WITH THE SEC ON SEPTEMBER 29,
2006