TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data or unless otherwise indicated)
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Fair Value /
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Carrying
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Weighted-
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Principal
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Principal
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Floating Rate Receivable
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Amount of
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Average
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Amount
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Amount
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Reference
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Fixed Rate
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(Liability)
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Remaining
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NOK
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$
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Rate
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Margin
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Payable
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$
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Term (Years)
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700,000
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125,000
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NIBOR
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5.25
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%
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6.88
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%
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(11,677
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)
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3.8
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Interest Rate Risk
The Partnership enters into interest rate swaps which either exchange a receipt of floating interest for a payment of fixed interest or a payment of floating interest for a receipt of fixed interest to
reduce the Partnerships exposure to interest rate variability on its outstanding floating-rate debt and floating-rate restricted cash deposits. As at June 30, 2013, the Partnership was committed to the following interest rate swap
agreements:
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Fair Value /
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Carrying
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Weighted-
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Amount of
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Average
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Fixed
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Interest
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Principal
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Assets
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Remaining
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Interest
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Rate
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Amount
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(Liability)
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Term
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Rate
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Index
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$
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$
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(years)
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(%)
(i)
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LIBOR-Based Debt:
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U.S. Dollar-denominated interest rate swaps
(ii)
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LIBOR
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408,143
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(79,307
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)
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23.6
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4.9
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U.S. Dollar-denominated interest rate swaps
(ii)
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LIBOR
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200,083
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(45,768
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)
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5.7
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6.2
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U.S. Dollar-denominated interest rate swaps
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LIBOR
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90,000
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(14,371
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)
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5.2
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4.9
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U.S. Dollar-denominated interest rate swaps
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LIBOR
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100,000
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(16,526
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)
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3.5
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5.3
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U.S. Dollar-denominated interest rate swaps
(iii)
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LIBOR
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200,000
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(41,089
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)
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15.5
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5.2
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LIBOR-Based Restricted Cash Deposit:
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U.S. Dollar-denominated interest rate swaps
(ii)
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LIBOR
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469,018
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108,606
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23.6
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4.8
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EURIBOR-Based Debt:
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Euro-denominated interest rate swaps
(iv)
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EURIBOR
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329,480
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(31,387
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)
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11.0
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3.1
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(119,842
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(i)
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Excludes the margins the Partnership pays on its floating-rate term loans, which, at June 30, 2013, ranged from 0.30% to 2.75%.
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(ii)
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Principal amount reduces quarterly.
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(iii)
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Principal amount reduces semi-annually.
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(iv)
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Principal amount reduces monthly to 70.1 million Euros ($91.2 million) by the maturity dates of the swap agreements.
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As at June 30, 2013, the Partnership had multiple interest rate swaps governed by the same master agreement. Each of these master
agreements provide for the net settlement of all swaps subject to that master agreement through a single payment in the event of default or termination of any one swap. The fair value of these interest rate swaps are presented on a gross basis in
the Partnerships consolidated balance sheets. As at June 30, 2013, these interest rate swaps had an aggregate fair value asset amount of $108.6 million and an aggregate fair value liability amount of $171.0 million.
Credit Risk
The Partnership is exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. In order to minimize counterparty risk, the Partnership only enters
into derivative transactions with counterparties that are rated A- or better by Standard & Poors or A3 or better by Moodys at the time of the transactions. In addition, to the extent practical, interest rate swaps are entered
into with different counterparties to reduce concentration risk.
Other Derivatives
In order to reduce the variability of its revenue, the Partnership has entered into an agreement with Teekay Corporation under which
Teekay Corporation pays the Partnership any amounts payable to the charterer of the
Toledo Spirit
as a result of spot rates being below the fixed rate, and the Partnership pays Teekay Corporation any amounts payable to the Partnership by the
charterer of the
Toledo Spirit
as a result of spot rates being in excess of the fixed rate. The fair value of the derivative asset at June 30, 2013 was $3.9 million (December 31, 2012 an asset of $1.1 million).
15
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data or unless otherwise indicated)
The following table presents the location and fair value amounts of derivative
instruments, segregated by type of contract, on the Partnerships consolidated balance sheets.
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Current
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Current
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portion of
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portion of
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Accounts
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derivative
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Derivative
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Accrued
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derivative
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Derivative
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receivable
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assets
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assets
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liabilities
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liabilities
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liabilities
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As at June 30, 2013
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Interest rate swap agreements
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4,515
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16,906
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87,185
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(10,824
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)
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(69,389
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)
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(148,235
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)
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Cross currency swap agreement
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(78
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(514
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)
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(11,085
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)
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Toledo Spirit time-charter derivative
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1,400
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2,500
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4,515
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18,306
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89,685
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(10,902
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)
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(69,903
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)
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(159,320
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)
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As at December 31, 2012
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Interest rate swap agreements
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4,513
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16,927
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144,247
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(10,887
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)
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(48,046
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)
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|
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(245,287
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)
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Cross currency swap agreement
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54
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285
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(2,962
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)
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Toledo Spirit time-charter derivative
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1,100
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4,567
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17,212
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145,347
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(10,887
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)
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|
(48,046
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)
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(248,249
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)
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Realized and unrealized gains (losses) relating to interest rate swap agreements and the Toledo Spirit
time-charter derivative are recognized in earnings and reported in realized and unrealized gain (loss) on derivative instruments in the Partnerships consolidated statements of income. The effect of the gain (loss) on these derivatives on the
Partnerships consolidated statements of income is as follows:
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|
|
|
|
|
Three Months Ended June 30,
|
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|
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2013
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|
|
2012
|
|
|
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Realized
|
|
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Unrealized
|
|
|
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
gains
|
|
|
gains
|
|
|
|
|
|
gains
|
|
|
gains
|
|
|
|
|
|
|
(losses)
|
|
|
(losses)
|
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|
Total
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|
|
(losses)
|
|
|
(losses)
|
|
|
Total
|
|
Interest rate swap agreements
|
|
|
(9,496
|
)
|
|
|
19,885
|
|
|
|
10,389
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|
|
|
(9,284
|
)
|
|
|
(8,855
|
)
|
|
|
(18,139
|
)
|
Toledo Spirit time-charter derivative
|
|
|
(23
|
)
|
|
|
300
|
|
|
|
277
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,519
|
)
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|
|
20,185
|
|
|
|
10,666
|
|
|
|
(9,290
|
)
|
|
|
(8,855
|
)
|
|
|
(18,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
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|
|
2013
|
|
|
2012
|
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
Realized
|
|
|
Unrealized
|
|
|
|
|
|
|
gains
|
|
|
gains
|
|
|
|
|
|
gains
|
|
|
gains
|
|
|
|
|
|
|
(losses)
|
|
|
(losses)
|
|
|
Total
|
|
|
(losses)
|
|
|
(losses)
|
|
|
Total
|
|
Interest rate swap agreements
|
|
|
(19,022
|
)
|
|
|
18,626
|
|
|
|
(396
|
)
|
|
|
(18,363
|
)
|
|
|
(15,947
|
)
|
|
|
(34,310
|
)
|
Toledo Spirit time-charter derivative
|
|
|
(23
|
)
|
|
|
2,800
|
|
|
|
2,777
|
|
|
|
(38
|
)
|
|
|
300
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,045
|
)
|
|
|
21,426
|
|
|
|
2,381
|
|
|
|
(18,401
|
)
|
|
|
(15,647
|
)
|
|
|
(34,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized and realized (losses) gains of the cross currency swap are recognized in earnings and reported
in foreign currency exchange (loss) gain in the Partnerships consolidated statements of income. For the three and six months ended June 30, 2013, unrealized losses of ($2.7) million and ($8.9) million, respectively, and realized losses of
($0.1) million and a nominal amount, respectively, were recognized in earnings. For the three and six months ended June 30, 2012, unrealized losses of ($10.3) million and realized gains of a nominal amount were recognized in earnings.
11.
|
Commitments and Contingencies
|
a) In December 2012, the Partnership signed a contract with Daewoo Shipbuilding & Marine Engineering Co. Ltd. (or
DSME
) for the construction of two 173,400-cubic meter LNG carriers at a
total cost of approximately $412 million. These newbuilding vessels will be equipped with the M-type, Electronically Controlled, Gas Injection (or
MEGI
) twin engines, which are expected to be significantly more fuel-efficient and have lower
emission levels than other engines currently being utilized in LNG shipping. The vessels are scheduled for delivery in 2016 and upon delivery of the vessels, the vessels will be chartered to Cheniere Marketing L.L.C. at fixed rates for a period of
five years. As at June 30, 2013, costs incurred totaled $39.1 million. As at June 30, 2013, the estimated remaining costs to be incurred under these newbuilding contracts are $1.5 million (remainder of 2013), $42.1 million (2014), $43.4
million (2015) and $285.8 million (2016).
b) As described in Note 4, the Teekay Nakilat Joint Venture is the lessee under
30-year capital lease arrangements with a third party for the three RasGas II LNG Carriers (or the
RasGas II Leases
). The UK taxing authority (or
HMRC
) has been urging the lessor as well as other lessors under capital lease
arrangements that have tax benefits similar to the ones provided by the RasGas II Leases, to terminate such finance lease arrangements and has in other circumstances challenged the use of similar structures. As a result, the lessor has requested
that the Teekay Nakilat Joint Venture enter into negotiations to terminate the RasGas II Leases. The Teekay Nakilat Joint Venture has declined this
16
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data or unless otherwise indicated)
request as it does not believe that HRMC would be able to successfully challenge the availability of the tax benefits of these leases to the lessor. This assessment is partially based on a
January 2012 court decision, regarding a similar financial lease of an LNG carrier, that ruled in favor of the taxpayer. However, the HMRC is appealing that decision and the appeal was heard in April 2013; however, no verdict has been released yet.
If the HMRC were able to successfully challenge the RasGas II Leases, the Teekay Nakilat Joint Venture could be subject to significant costs associated with the termination of the lease or increased lease payments to compensate the lessor for the
lost tax benefits. The Partnership estimates its 70% share of the potential exposure to be approximately $29 million, exclusive of potential financing and interest rate swap termination costs.
The lessor for the three vessels chartered out by Teekay Nakilat Joint Venture has communicated to the joint venture that the credit
rating of the bank (or
LC Bank
) that is providing the letter of credit to Teekay Nakilat Joint Ventures lease has been downgraded. As a result, the lessor has indicated a potential increase in the lease rentals over the remaining term
of the RasGas II Leases and that an estimated $12 million additional amount of cash may need to be placed on deposit by the Teekay Nakilat Joint Venture. The Teekay Nakilat Joint Venture has engaged external legal counsel to assess these claims. The
Partnerships 70% share of the present value of the potential lease rental increase claim is approximately $10 million. The Teekay Nakilat Joint Venture is looking at alternatives to mitigate the impact of the downgrade to the LC Banks
credit rating in the event the lessor increases the rental payments.
12.
|
Total Capital and Net Income Per Unit
|
In May 2013, the Partnership implemented a continuous offering program (or
COP
) under which the Partnership may issue new common units, representing limited partner interests, at market prices up
to a maximum aggregate amount of $100 million. Through June 30, 2013, the Partnership sold an aggregate of 124,071 common units under the COP, generating proceeds of approximately $4.9 million (including the General Partners 2%
proportionate capital contribution of $0.1 million and net of approximately $0.1 million of commissions and $0.4 million of other offering costs). The Partnership used the net proceeds from the issuance of these common units for general partnership
purposes.
At June 30, 2013, approximately 63.9% of the Partnerships common units outstanding were held by the
public. The remaining common units, as well as the 2% general partner interest, were held by a subsidiary of Teekay Corporation.
Net Income Per Unit
Net income per common unit is determined by
dividing net income, after deducting the non-controlling interest and the General Partners interest, by the weighted-average number of units outstanding during the period. The computation of limited partners interest in net income per
common unit diluted assumes the exercise of all dilutive restricted units using the treasury stock method. The computation of limited partners interest in net loss per common unit diluted does not assume such exercises as the
effect would be anti-dilutive.
The General Partners and common unitholders interests in net income are calculated
as if all net income was distributed according to the terms of the Partnerships partnership agreement, regardless of whether those earnings would or could be distributed. The partnership agreement does not provide for the distribution of net
income; rather, it provides for the distribution of available cash, which is a contractually defined term that generally means all cash on hand at the end of each quarter after establishment of cash reserves determined by the Partnerships
board of directors to provide for the proper conduct of the Partnerships business, including reserves for maintenance and replacement capital expenditures and anticipated credit needs. In addition, the General Partner is entitled to incentive
distributions if the amount the Partnership distributes to unitholders with respect to any quarter exceeds specified target levels. Unlike available cash, net income is affected by non-cash items, such as depreciation and amortization, unrealized
gains or losses on non-designated derivative instruments and foreign currency translation (losses) gains.
During the three and
six months ended June 30, 2013 and 2012, cash distributions exceeded $0.4625 per unit and, consequently, the assumed distribution of net income resulted in the use of the increasing percentages to calculate the General Partners interest
in net income for the purposes of the net income per unit calculation. For more information on the increasing percentages to calculate the General Partners interest in net income, please refer to the Partnerships Annual Report on Form
20-F.
Pursuant to the partnership agreement, allocations to partners are made on a quarterly basis.
13.
|
Unit-based compensation
|
In March 2013, 7,342 common units, with an aggregate value of $0.3 million, were granted to the non-management directors of our general
partner as part of their annual compensation for 2013. Of this amount, 6,065 units were issued in June 2013.
The Partnership
grants restricted unit awards as incentive-based compensation under the Teekay LNG Partners L.P. 2005 Long-Term Incentive Plan to certain of the Partnerships employees and to certain employees of Teekay Corporations subsidiaries that
provide services to the Partnership. The Partnership measures the cost of such awards using the grant date fair value of the award and recognizes that cost, net of estimated forfeitures, over the requisite service period. The requisite service
period consists of the period from the grant date of the award to the earlier of the date of vesting or the date the recipient becomes eligible for retirement. For unit-based compensation awards subject to graded vesting, the Partnership calculates
the value for the award as if it was one single award with one expected life and amortizes the calculated expense for the entire award on a straight-line basis over the requisite service period. The compensation cost of the Partnerships
unit-based compensation awards are reflected in general and administrative in the Partnerships consolidated statements of income.
During March 2013, the Partnership granted 36,878 restricted units with a grant date fair value of $1.5 million to certain of the Partnerships employees and to certain employees of Teekay
Corporations subsidiaries, based on the Partnerships closing unit price on the grant date. Each restricted unit is equal in value to one unit of the Partnerships common units plus reinvested distributions from the grant date to the
17
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data or unless otherwise indicated)
vesting date. The restricted units vest equally over three years from the grant date. Any portion of a restricted unit award that is not vested on the date of a recipients termination of
service is cancelled, unless their termination arises as a result of the recipients retirement and in this case the restricted unit award will continue to vest in accordance with the vesting schedule. Upon vesting, the value of the restricted
unit awards is paid to each recipient in the form of units. During the three and six months ended June 30, 2013, the Partnership recorded an expense of $0.2 million and $0.7 million, respectively, (2012 nil) related to the restricted
units.
a) In
July 2013, the Partnership exercised two of its existing three options with DSME to construct two additional LNG carrier newbuildings, equipped with the MEGI twin engines, for a cost of approximately $415 million. The Partnership intends to secure
charter contracts for these vessels prior to their delivery in 2016. In connection with the exercise of these two options, the Partnership obtained options to order up to five additional LNG carrier newbuildings.
b) In July 2013, the Partnership issued 931,098 million common units in a private placement to an institutional investor for net
proceeds, including the General Partners 2% proportionate capital contribution, of $40.8 million. The Partnership used the proceeds from the private placement to fund the first installment payments on the two newbuilding LNG carriers ordered
in July 2013 and for general partnership purposes.
c) In August 2013, the Partnership agreed to acquire a 155,900-cubic meter
LNG carrier newbuilding from Norway-based Awilco LNG ASA (or
Awilco
), which is currently under construction by DSME in South Korea. The vessel is expected to deliver in September 2013, at which time Awilco will sell the vessel to the
Partnership and bareboat charter the vessel back on a five-year fixed-rate charter contract (plus a one-year extension option) with a fixed-price purchase obligation at the end of the initial term (or option period). The Partnership will purchase
the vessel for a price of $205 million less a $50 million upfront payment of charter hire by Awilco which is in addition to the daily bareboat charter rate. As part of the transaction, the Partnership may also have the opportunity to acquire and
bareboat charter back a second 155,900-cubic meter LNG carrier newbuilding from Awilco, currently under construction by DSME, under similar terms. The second LNG carrier newbuilding is expected to deliver in late-2013 or early-2014. The Partnership
intends to finance the transaction with a portion of its existing liquidity and expects to secure long-term debt financing prior to delivery.
d) In July 2013, Exmar LPG BVBA exercised its options with Hanjin Heavy Industries and Construction Co., Ltd. to construct two LPG carrier newbuildings, scheduled for delivery in 2017.
18
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
JUNE 30, 2013
PART I FINANCIAL INFORMATION
ITEM 2
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Managements Discussion and
Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and accompanying notes contained in Item 1 Financial Statements of this Report on Form 6-K and
with our audited consolidated financial statements contained in Item 18 Financial Statements and Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 5 Operating and
Financial Review and Prospects of our Annual Report on Form 20-F for the year ended December 31, 2012.
OVERVIEW
Teekay LNG Partners L.P. is an international provider of marine transportation services for liquefied natural gas (or
LNG
), liquefied petroleum gas
(or
LPG
) and crude oil. As of August 1, 2013, we have a fleet of 32 LNG carriers (including one regasification unit and five newbuilding carriers), 31 LPG/Multigas carriers (including 10 newbuilding carriers and five chartered-in
carriers) and 11 conventional tankers which generally operate under long-term, fixed-rate charters. Our interests in these vessels, excluding the five chartered-in LPG carriers, range from 33% to 100%.
SIGNIFICANT DEVELOPMENTS IN 2013
Private Placement
On July 30, 2013,
we issued 931,098 million common units in a private placement to an institutional investor for net proceeds, including the General Partners 2% proportionate capital contribution, of $40.8 million. We used the proceeds from the private
placement to fund the first installment payments on the two newbuilding LNG carriers ordered in July 2013 and for general partnership purposes.
LNG Newbuildings
On June 6, 2013,
we were awarded five-year time-charter contracts with Cheniere Marketing L.L.C. (or
Cheniere
) for the two 173,400 cubic meter (or
cbm
) LNG carrier newbuildings that we ordered in December 2012. The newbuilding LNG carriers are
currently under construction by Daewoo Shipbuilding & Marine Engineering Co., Ltd., (or
DSME
) of South Korea and are scheduled to deliver in the first half of 2016. Upon delivery, the vessels will commence their five-year charters
with Cheniere, which will export LNG from its Sabine Pass LNG export facility in Louisiana, USA. These newbuilding vessels will be equipped with the M-type, Electronically Controlled, Gas Injection (or
MEGI
) twin engines, which are expected
to be significantly more fuel-efficient and have lower emission levels than other engines currently being utilized in LNG shipping.
On
July 18, 2013, we exercised two of our existing three options with DSME to construct two additional LNG carrier newbuildings for a cost of approximately $415 million. These vessels are also equipped with the MEGI twin engines. We intend to
secure charter contracts for these vessels prior to their delivery in 2016. In connection with the exercise of these two options, we obtained options to order up to five additional LNG carrier newbuildings.
On August 5, 2013, we agreed to acquire a 155,900 cbm LNG carrier newbuilding from Norway-based Awilco LNG ASA (or
Awilco
), which is
currently under construction by DSME in South Korea. The vessel is expected to deliver in September 2013, at which time Awilco will sell the vessel to us and bareboat charter the vessel back on a five-year fixed-rate charter contract (plus a
one-year extension option) with a fixed-price purchase obligation at the end of the initial term (or option period). We will purchase the vessel for a price of $205 million less a $50 million upfront payment of charter hire by Awilco which is in
addition to the daily bareboat charter rate. As part of the transaction, we may also have the opportunity to acquire and bareboat charter back a second 155,900 cbm LNG carrier newbuilding from Awilco, currently under construction by DSME, under
similar terms. The second LNG carrier newbuilding is expected to deliver in late-2013 or early-2014. We intend to finance the transaction with a portion of our existing liquidity and we expect to secure long term debt financing prior to delivery.
Continuous Offering Program
On May 22, 2013, we implemented a continuous offering program (or
COP
) under which we may issue new common units, representing limited partner
interests, at market prices up to a maximum aggregate amount of $100 million. Through June 30, 2013, we sold an aggregate of 124,071 common units under the COP, generating proceeds of approximately $4.9 million (including the General
Partners 2% proportionate capital contribution of $0.1 million and net of approximately $0.1 million of commissions and $0.4 million of other offering costs). We used the net proceeds from the issuance of these common units for general
partnership purposes.
Exmar LPG Joint Venture
On February 12, 2013, we entered into a joint venture agreement with Belgium-based Exmar NV (or
Exmar
) to own and charter-in LPG carriers with a primary focus on the mid-size gas carrier
segment. The joint venture entity, called Exmar LPG BVBA, took economic effect as of November 1, 2012 and includes 19 owned LPG carriers (including eight newbuildings scheduled for delivery between 2014 and 2016 and taking into effect the sale
of the
Donau
LPG carrier in April 2013) and five chartered-in LPG carriers (or the
Exmar LPG Carriers
). In July 2013, Exmar LPG BVBA exercised its options to construct two additional LPG carrier newbuildings. For our 50% ownership
interest in the joint venture, including newbuilding payments made prior to the November 1, 2012 economic effective date of the joint venture, we invested approximately $133 million in exchange for equity and a shareholder loan and assumed
approximately $108 million of our pro rata share of the existing debt and lease obligations as of the economic effective date. These debt and lease obligations are secured by certain vessels in the Exmar LPG BVBA fleet. Exmar continues to
commercially and technically manage and operate the vessels. Since control of Exmar LPG BVBA is shared jointly between Exmar and us, we account for Exmar LPG BVBA using the equity method.
19
RESULTS OF OPERATIONS
There are a number of factors that should be considered when evaluating our historical financial performance and assessing our future prospects and we use a variety of financial and operational terms and
concepts when analyzing our results of operations. These factors, terms and concepts are described in Item 5 Operating and Financial Review and Prospects of our Annual Report on Form 20-F for the year ended December 31, 2012,
filed with the SEC on April 16, 2013.
We manage our business and analyze and report our results of operations on the basis of two
business segments: the liquefied gas segment and the conventional tanker segment, each of which are discussed below.
Liquefied Gas
Segment
As at June 30, 2013, our liquefied gas segment fleet included 29 LNG carriers and 29 LPG/Multigas carriers, in which our
interests ranged from 33% to 100%. However, the table below only includes 11 LNG carriers and five LPG carriers. The table excludes two newbuilding LNG carriers and the following vessels accounted for under the equity method: (i) six LNG
carriers relating to our joint venture with Marubeni Corporation (or the
MALT LNG Carriers
), (ii) four LNG carriers relating to the Angola LNG Project (or the
Angola LNG Carriers
), (iii) four LNG carriers relating to our
joint venture with QGTC Nakilat (1643-6) Holdings Corporation (or the
RasGas 3 LNG Carriers
), (iv) two LNG carriers relating to our joint ventures with Exmar (or the
Exmar LNG Carriers)
and (v) the 24 Exmar LPG Carriers.
The following table compares our liquefied gas segments operating results for the three and six months ended June 30, 2013 and
2012, and compares its net voyage revenues (which is a non-GAAP financial measure) for the three and six months ended June 30, 2013 and 2012 to voyage revenues, the most directly comparable GAAP financial measure. Non-GAAP financial measures
may not be comparable to those of other companies which may calculate similar measures differently. We principally use net voyage revenues because it provides more meaningful information to us than voyage revenues and net voyage revenues is also
widely used by investors and analysts in the shipping industry for comparing financial performance between companies and to industry averages. The following tables also provide a summary of the changes in calendar-ship-days and revenue days for our
liquefied gas segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. Dollars, except revenue days,
|
|
Three Months Ended June 30,
|
|
|
|
|
calendar-ship-days and percentages)
|
|
2013
|
|
|
2012
|
|
|
% Change
|
|
Voyage revenues
|
|
|
68,270
|
|
|
|
67,603
|
|
|
|
1.0
|
|
Voyage expenses
|
|
|
407
|
|
|
|
30
|
|
|
|
1,256.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues
|
|
|
67,863
|
|
|
|
67,573
|
|
|
|
0.4
|
|
Vessel operating expenses
|
|
|
13,683
|
|
|
|
11,774
|
|
|
|
16.2
|
|
Depreciation and amortization
|
|
|
18,329
|
|
|
|
17,309
|
|
|
|
5.9
|
|
General and administrative
(1)
|
|
|
3,233
|
|
|
|
3,043
|
|
|
|
6.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
32,618
|
|
|
|
35,447
|
|
|
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Days (A)
|
|
|
1,435
|
|
|
|
1,435
|
|
|
|
|
|
Calendar-Ship-Days (B)
|
|
|
1,456
|
|
|
|
1,456
|
|
|
|
|
|
Utilization (A)/(B)
|
|
|
98.6
|
%
|
|
|
98.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. Dollars, except revenue days,
|
|
Six Months Ended June 30,
|
|
|
|
|
calendar-ship-days and percentages)
|
|
2013
|
|
|
2012
|
|
|
% Change
|
|
Voyage revenues
|
|
|
136,300
|
|
|
|
138,336
|
|
|
|
(1.5
|
)
|
Voyage expenses
|
|
|
407
|
|
|
|
66
|
|
|
|
516.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues
|
|
|
135,893
|
|
|
|
138,270
|
|
|
|
(1.7
|
)
|
Vessel operating expenses
|
|
|
27,676
|
|
|
|
23,553
|
|
|
|
17.5
|
|
Depreciation and amortization
|
|
|
35,619
|
|
|
|
34,547
|
|
|
|
3.1
|
|
General and administrative
(1)
|
|
|
6,917
|
|
|
|
6,602
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
65,681
|
|
|
|
73,568
|
|
|
|
(10.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Days (A)
|
|
|
2,834
|
|
|
|
2,891
|
|
|
|
(2.0
|
)
|
Calendar-Ship-Days (B)
|
|
|
2,896
|
|
|
|
2,912
|
|
|
|
(0.5
|
)
|
Utilization (A)/(B)
|
|
|
97.9
|
%
|
|
|
99.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes direct
general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of resources).
|
20
During the six months ended June 30, 2013, two of our vessels were off-hire for a total of 62 days for
scheduled dry dockings compared to one vessel being off-hire for 21 days in the same period last year. As a result, our utilization decreased to 97.9% for the six months ended June 30, 2013 compared to 99.3% for the same period in 2012.
Net Voyage Revenues
. Net voyage revenues decreased for the six months ended June 30, 2013 from the same period last year and
remained consistent for the three months ended June 30, 2013 compared to the same period last year, primarily as a result of:
|
|
a decrease of $2.1 million for the six months ended June 30, 2013 due to the
Arctic Spirit
being off-hire for 41 days in the first quarter of 2013 for a
scheduled dry docking;
|
|
|
a decrease of $2.1 million for the three and six months ended June 30, 2013 due to the
Catalunya Spirit
being off-hire for 21 days in the second quarter of
2013 for a scheduled dry docking; and
|
|
|
a decrease of $0.8 million for the six months ended June 30, 2013 due to one less calendar day during 2013 compared to 2012;
|
partially offset by:
|
|
an increase of $1.4 million for the three and six months ended June 30, 2013 due to the
Hispania Spirit
being off-hire for 21 days in the second quarter of
2012 for a scheduled dry docking;
|
|
|
an increase of $0.9 million for the three and six months ended June 30, 2013 due to a one-time payment made to the charterer of the
Galicia Spirit
for
delaying the scheduled dry docking in the second quarter of 2012; and
|
|
|
increases of $0.1 million and $0.5 million for the three and six months ended June 30, 2013, respectively, due to the effect on our Euro-denominated revenues from
the strengthening of the Euro against the U.S. Dollar compared to the same periods last year.
|
Vessel Operating
Expenses
. Vessel operating expenses increased for the three and six months ended June 30, 2013 from the same periods last year, primarily as a result of:
|
|
increases of $0.4 million and $2.3 million for the three and six months ended June 30, 2013, respectively, due to main engine overhauls and spares and consumables
purchased for the
Tangguh Hiri
and
Tangguh Sago
for the dry docking of these vessels in 2013;
|
|
|
increases of $0.6 million and $1.3 million for the three and six months ended June 30, 2013, respectively, due to maintenance and repair costs for certain of our
LNG carriers in 2013; and
|
|
|
increases of $1.0 million and $0.7 million for the three and six months ended June 30, 2013, respectively, as a result of higher manning costs due to wage
increases in certain of our LNG carriers.
|
Depreciation and Amortization
. Depreciation and amortization increased for the
three and six months ended June 30, 2013 from the same periods last year, primarily as a result of the amortization of dry-dock expenditures incurred in 2012 and the first and second quarters of 2013.
Conventional Tanker Segment
Our
fleet includes 10 Suezmax-class double-hulled conventional crude oil tankers and one Handymax Product tanker, six of which we own and five of which we lease under capital leases. All of our conventional tankers operate under fixed-rate charters. The
Bermuda Spirits
and
Hamilton Spirits
time-charter contracts were amended in the fourth quarter of 2012 to reduce the daily hire rate on each by $12,000 per day for a duration of 24 months, commencing October 1, 2012.
However, during this renegotiated period, if Suezmax tanker spot rates exceed the renegotiated charter rate, the charterer will pay us the excess amount up to a maximum of the original charter rate. The impact of the change in hire rates is not
fully reflected in the table below as the change in the lease payments are being recognized on a straight-line basis over the term of the lease.
In addition, the time-charter contracts for three of the five Suezmax tankers on charter to Compania Espanole de Petroleos, S.A. (or
CEPSA
) have cancellation options first exercisable in August
2013, November 2013 and April 2014, respectively. In July 2013, we received notification of termination from the owner for two of the five vessels, subject to approval by its board of directors and sale of the vessel to a third-party. Upon sale
of the vessels, we will not be required to repay the capital lease obligations, as the vessels under capital leases will be returned to the owner and the capital lease obligations will be concurrently extinguished. In addition, if vessels are sold
to a third party, we may be subject to future seafarer severance related costs.
The following table compares our conventional tanker
segments operating results for the three and six months ended June 30, 2013 and 2012, and compares its net voyage revenues (which is a non-GAAP financial measure) for the three and six months ended June 30, 2013 and 2012 to voyage
21
revenues, the most directly comparable GAAP financial measure. We principally use net voyage revenues because it provides more meaningful information to us than voyage revenues and net voyage
revenues is also widely used by investors and analysts in the shipping industry for comparing financial performance between companies and to industry averages. The following tables also provide a summary of the changes in calendar-ship-days and
revenue days for our conventional tanker segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. Dollars, except revenue days,
|
|
Three Months Ended June 30,
|
|
|
|
|
calendar-ship-days and percentages)
|
|
2013
|
|
|
2012
|
|
|
% Change
|
|
Voyage revenues
|
|
|
28,349
|
|
|
|
28,874
|
|
|
|
(1.8
|
)
|
Voyage expenses
|
|
|
817
|
|
|
|
212
|
|
|
|
285.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues
|
|
|
27,532
|
|
|
|
28,662
|
|
|
|
(3.9
|
)
|
Vessel operating expenses
|
|
|
11,131
|
|
|
|
10,403
|
|
|
|
7.0
|
|
Depreciation and amortization
|
|
|
6,827
|
|
|
|
7,487
|
|
|
|
(8.8
|
)
|
General and administrative
(1)
|
|
|
1,511
|
|
|
|
1,390
|
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
8,063
|
|
|
|
9,382
|
|
|
|
(14.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Days (A)
|
|
|
976
|
|
|
|
1,001
|
|
|
|
(2.5
|
)
|
Calendar-Ship-Days (B)
|
|
|
1,001
|
|
|
|
1,001
|
|
|
|
|
|
Utilization (A)/(B)
|
|
|
97.5
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. Dollars, except revenue days,
|
|
Six Months Ended June 30,
|
|
|
|
|
calendar-ship-days and percentages)
|
|
2013
|
|
|
2012
|
|
|
% Change
|
|
Voyage revenues
|
|
|
57,426
|
|
|
|
57,481
|
|
|
|
(0.1
|
)
|
Voyage expenses
|
|
|
1,208
|
|
|
|
519
|
|
|
|
132.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net voyage revenues
|
|
|
56,218
|
|
|
|
56,962
|
|
|
|
(1.3
|
)
|
Vessel operating expenses
|
|
|
22,454
|
|
|
|
21,011
|
|
|
|
6.9
|
|
Depreciation and amortization
|
|
|
13,680
|
|
|
|
15,006
|
|
|
|
(8.8
|
)
|
General and administrative
(1)
|
|
|
3,296
|
|
|
|
3,091
|
|
|
|
6.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from vessel operations
|
|
|
16,788
|
|
|
|
17,854
|
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Days (A)
|
|
|
1,966
|
|
|
|
2,002
|
|
|
|
(1.8
|
)
|
Calendar-Ship-Days (B)
|
|
|
1,991
|
|
|
|
2,002
|
|
|
|
(0.5
|
)
|
Utilization (A)/(B)
|
|
|
98.7
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes direct
general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).
|
During the six months ended June 30, 2013, one of our vessels was off-hire for 25 days for scheduled dry docking, compared to having no vessels off-hire during the same period in 2012. As a result,
our utilization decreased to 98.7% for the six months ended June 30, 2013 compared to 100.0% for the same period in 2012.
Net Voyage
Revenues
. Net voyage revenues decreased for the three and six months ended June 30, 2013 from the same periods last year, primarily as a result of:
|
|
decreases of $0.5 million and $1.0 million for the three and six months ended June 30, 2013, respectively, relating to the reduced charter rates on the
Bermuda
Spirit
and
Hamilton Spirit
commencing in the fourth quarter of 2012; and
|
|
|
a decrease of $0.9 million for the three and six months ended June 30, 2013 due to the
European Spirit
being off-hire for 25 days in the second quarter of
2013;
|
partially offset by:
|
|
increases of $0.4 million and $1.2 million for the three and six months ended June 30, 2013 due to adjustments to the daily charter rates based on inflation and an
increase in interest rates in accordance with the time-charter contracts for five Suezmax tankers subject to capital leases (however, under the terms of these capital leases, we had corresponding increases in our lease payments, which are reflected
as increases to interest expense; therefore, these and future similar interest rate adjustments do not affect our cash flow or net income).
|
22
Vessel Operating Expenses
. Vessel operating expenses increased for the three and six months ended
June 30, 2013 from the same periods last year, primarily due to timing of service and maintenance activities performed and higher manning costs as a result of wage increases.
Depreciation and Amortization
. Depreciation and amortization decreased for the three and six months ended June 30, 2013, from the same periods last year, primarily as a result of:
|
|
decreases of $1.8 million and $3.4 million for the three and six months ended June 30, 2013, respectively, due to the effect of vessel write-downs in the fourth
quarter of 2012 relating to the
Algeciras Spirit
,
Huelva Spirit
and
Tenerife Spirit
;
|
partially offset by:
|
|
increases of $1.1 million and $2.1 million for the three and six months ended June 30, 2013, respectively, due to the accelerated amortization of the intangible
assets relating to the charter contracts of three Suezmax tankers as we expect the life of these intangible assets to be shorter than originally assumed in the prior periods.
|
Other Operating Results
General and Administrative Expenses
. General and
administrative expenses increased slightly to $4.7 million and $10.2 million for the three and six months ended June 30, 2013, respectively, from $4.4 million and $9.7 million, respectively, for the same periods last year, primarily as a result
of a greater amount of corporate services provided to us by Teekay Corporation to support our growth.
Equity Income.
Equity income
increased to $39.4 million and $65.8 million for the three and six months ended June 30, 2013, respectively, from $11.1 million and $28.1 million, respectively, for the same periods last year, primarily as a result of:
|
|
increases of $20.0 million and $18.6 million for the three and six months ended June 30, 2013, respectively, in our 33% investment in the four Angola LNG Carriers,
primarily due to the change in unrealized gains (losses) on derivative instruments as a result of long-term LIBOR benchmark interest rates increasing, as compared to the same periods last year;
|
|
|
increases of $1.5 million and $10.1 million for the three and six months ended June 30, 2013, respectively, due to the acquisition of a 52% ownership interest in
the six MALT LNG Carriers in February 2012, charter contracts entered into in 2012 with higher charter rates for certain of the MALT LNG Carriers, and acquisition fees incurred in 2012, which are partially offset by the dry docking of the
Methane
Spirit
resulting in 28 off-hire days in 2013;
|
|
|
increases of $4.4 million and $5.7 million for the three and six months ended June 30, 2013, respectively, due to the acquisition of a 50% ownership interest in
Exmar LPG BVBA in February 2013; and
|
|
|
increases of $2.5 million and $3.3 million for the three and six months ended June 30, 2013, respectively, in our 40% investment in Teekay Nakilat (III)
Corporation, primarily due to the change in unrealized gains (losses) on derivative instruments as a result of long-term LIBOR benchmark interest rates increasing, as compared to the same periods last year.
|
Interest Expense
. Interest expense decreased to $13.1 million and $26.4 million for the three and six months ended June 30, 2013,
respectively, from $13.7 million and $26.5 million, respectively, for the same periods last year. Interest expense primarily reflects interest incurred on our capital lease obligations and long-term debt. These changes were primarily the result of:
|
|
decreases of $1.4 million and $2.9 million for the three and six months ended June 30, 2013, respectively, due to decreased LIBOR and lower principal
U.S. Dollar debt balances due to debt repayments during 2012 and the first and second quarters of 2013; and
|
|
|
decreases of $0.3 million and $0.9 million for the three and six months ended June 30, 2013, respectively, due to lower EURIBOR relating to Euro-denominated debt;
|
partially offset by
|
|
increases of $0.7 million and $2.9 million for the three and six months ended June 30, 2013, respectively, as a result of the NOK bond issuance in May 2012; and
|
|
|
increases of $0.4 million and $0.8 million for the three and six months ended June 30, 2013, respectively, due to an interest rate adjustment on our five Suezmax
tanker capital lease obligations (however, as described above, under the terms of the time-charter contracts for these vessels, we have a corresponding increase in charter receipts, which are reflected as an increase to voyage revenues).
|
Interest Income
. Interest income decreased to $0.8 million and $1.3 million for the three and six months ended
June 30, 2013, respectively, from $0.9 million and $1.9 million, respectively, for the same periods last year. These changes were primarily due to lower LIBOR relating to our restricted cash deposits.
23
Realized and Unrealized Gains and Losses on Derivative Instruments
. Net realized and unrealized gains
on derivative instruments increased to gains of $10.7 million and $2.4 million for the three and six months ended June 30, 2013, respectively, from losses of $18.1 million and $34.0 million in the same periods last year, as set forth in the
tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of U.S. Dollars)
|
|
Three Months Ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Realized
gains
(losses)
|
|
|
Unrealized
gains
(losses)
|
|
|
Total
|
|
|
Realized
gains
(losses)
|
|
|
Unrealized
gains
(losses)
|
|
|
Total
|
|
Interest rate swap agreements
|
|
|
(9,496
|
)
|
|
|
19,885
|
|
|
|
10,389
|
|
|
|
(9,284
|
)
|
|
|
(8,855
|
)
|
|
|
(18,139
|
)
|
Toledo Spirit time-charter derivative
|
|
|
(23
|
)
|
|
|
300
|
|
|
|
277
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,519
|
)
|
|
|
20,185
|
|
|
|
10,666
|
|
|
|
(9,290
|
)
|
|
|
(8,855
|
)
|
|
|
(18,145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Realized
gains
(losses)
|
|
|
Unrealized
gains
(losses)
|
|
|
Total
|
|
|
Realized
gains
(losses)
|
|
|
Unrealized
gains
(losses)
|
|
|
Total
|
|
Interest rate swap agreements
|
|
|
(19,022
|
)
|
|
|
18,626
|
|
|
|
(396
|
)
|
|
|
(18,363
|
)
|
|
|
(15,947
|
)
|
|
|
(34,310
|
)
|
Toledo Spirit time-charter derivative
|
|
|
(23
|
)
|
|
|
2,800
|
|
|
|
2,777
|
|
|
|
(38
|
)
|
|
|
300
|
|
|
|
262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,045
|
)
|
|
|
21,426
|
|
|
|
2,381
|
|
|
|
(18,401
|
)
|
|
|
(15,647
|
)
|
|
|
(34,048
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2013 and 2012, we had interest rate swap agreements with an aggregate average net outstanding
notional amount of approximately $860.0 million and $904.4 million, respectively, with average fixed rates of 4.6% for both periods. The increases in realized losses from 2012 to 2013 relating to our interest rate swaps were primarily due to lower
short-term variable interest rates in 2013 compared to 2012.
Long-term LIBOR benchmark interest rates increased during the three and six
months ended June 30, 2013 and decreased during the three and six months ended June 30, 2012, which resulted in us recognizing unrealized losses of $36.6 million and $57.1 million for the three and six months ended June 30, 2013,
respectively, and unrealized gains of $33.1 million and $7.0 million for the three and six months ended June 30, 2012, respectively, from our interest rate swaps associated with our restricted cash deposits.
During the three and six months ended June 30, 2013, we recognized unrealized gains on our interest rate swaps associated with our
U.S. Dollar-denominated long-term debt and capital leases. The unrealized gains resulted from the transfer of $12.5 million and $24.7 million of previously recognized unrealized losses, respectively, to realized losses related to actual cash
settlements and an additional $37.4 million and $41.0 million of unrealized gains, respectively, relating to increases in long-term LIBOR benchmark interest rates relative to the first quarter and beginning of 2013. During the three and six months
ended June 30, 2012, we recognized unrealized losses on our interest rate swaps associated with our U.S. Dollar-denominated long-term debt and capital leases. The unrealized losses of $37.6 million and $13.6 million, respectively, relate
to decreases in long-term LIBOR benchmark interest rates relative to the first quarter and beginning of 2012.
Long-term EURIBOR benchmark
interest rates increased during the three and six months ended June 30, 2013 and decreased during the three and six months ended June 30, 2012, which resulted in us recognizing unrealized gains of $6.6 million and $10.0 million for the
three and six months ended June 30, 2013, respectively, and unrealized losses of $4.4 million and $9.3 million for the three and six months ended June 30, 2012, respectively, on our interest rate swaps associated with our Euro-denominated
long-term debt.
The projected average tanker rates in the tanker market decreased for the three and six months ended June 30, 2013
compared to the first quarter and beginning of the year, which resulted in $0.3 million and $2.8 million of unrealized gains, respectively, on our Toledo Spirit time-charter derivative. The Toledo Spirit time-charter derivative is the agreement with
Teekay Corporation under which Teekay Corporation pays us any amounts payable to the charterer of the
Toledo Spirit
as a result of spot rates being below the fixed rate, and we pay Teekay Corporation any amounts payable to us by the charterer
of the
Toledo Spirit
as a result of spot rates being in excess of the fixed rate.
Please see Item 5 - Operating and Financial
Review and Prospects: Valuation of Derivative Instruments in our Annual Report of Form 20-F for the year ending December 31, 2012, which explains how our derivative instruments are valued, including the significant factors and uncertainties in
determining the estimated fair value and why changes in these factors result in material variances in realized and unrealized gains (losses) on derivative instruments.
Foreign Currency Exchange (Losses) and Gains
. Foreign currency exchange (losses) and gains were ($2.8) million and $5.4 million for the three and six months ended June 30, 2013, respectively,
compared to $13.9 million and to $4.3 million, respectively, for the same periods last year. Our foreign currency exchange (losses) gains, substantially all of which are unrealized, are due primarily to the relevant period-end revaluation of our
Norwegian Kroner-denominated debt and our Euro-denominated term loans, capital leases and restricted cash for financial reporting purposes and the realized and unrealized (losses) gains on our cross currency swap. Losses on Norwegian
Kroner-denominated and Euro-denominated monetary liabilities reflect a weaker U.S. Dollar against the Norwegian Kroner and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning
24
of the period. Gains on Norwegian Kroner-denominated and Euro-denominated monetary liabilities reflect a stronger U.S. Dollar against the Norwegian Kroner and Euro on the date of revaluation
or settlement compared to the rate in effect at the beginning of the period. For the three and six months ended June 30, 2013, foreign currency exchange (losses) gains include realized losses of $0.1 million and a nominal amount, respectively,
and unrealized losses of $2.7 million and $8.9 million, respectively, on our cross currency swap, and unrealized gains of $4.5 million and $10.5 million, respectively, on the revaluation of our Norwegian Kroner-denominated debt. For the three and
six months ended June 30, 2012, foreign currency exchange (losses) gains include realized gains of a nominal amount and unrealized losses of ($10.3) million on our cross currency swap and an unrealized gain of $7.6 million on the revaluation of
our Norwegian Kroner-denominated debt. For the three and six months ended June 30, 2013, foreign currency exchange (losses) gains include the revaluation of our Euro-denominated restricted cash, debt and capital leases of ($4.5) million and
$3.6 million, respectively, as compared to $17.0 million and $7.4 million, respectively, for the same periods last year.
Other Income.
Other income increased to $0.9 million for the six months ended June 30, 2013, from $0.7 million for the same period last year, primarily due to the amortization of a guarantee liability related to our acquisition of the six MALT LNG
Carriers in February 2012. Other income remained consistent for the three months ended June 30, 2013 and 2012.
Income Tax (Expense)
Recovery.
Income tax expense increased to $0.8 million and $1.6 million for the three and six months ended June 30, 2013, respectively, from an income tax (expense) recovery of ($0.1) million and $0.1 million, respectively, for the same
periods last year, primarily due to higher expected taxable income in taxable jurisdictions and a reversal of an uncertain tax position in the first quarter of 2012.
Liquidity and Cash Needs
Our business model is to employ our vessels on long-term,
fixed-rate contracts with major oil companies. The operating cash flow our vessels generate each quarter, excluding a reserve for maintenance capital expenditures and debt repayments, are generally paid out to our unitholders within approximately 45
days after the end of each quarter. Our primary short-term liquidity needs are to pay these quarterly distributions on our outstanding units, payment of operating expenses, dry-docking expenditures, debt service costs and to fund general working
capital requirements. We anticipate that our primary sources of funds for our short-term liquidity needs will be cash flows from operations.
Our long-term liquidity needs primarily relate to expansion and maintenance capital expenditures and debt repayment. Expansion capital expenditures
primarily represent the cost to purchase, convert or construct vessels to the extent the expenditures increase the operating capacity or revenue generated by our fleet. In contrast, maintenance capital expenditures primarily consist of dry-docking
expenditures and expenditures to replace vessels in order to maintain the operating capacity or revenue generated by our fleet. Our primary sources of funds for our long-term liquidity needs are from cash from operations, long-term bank borrowings
and other debt or equity financings, or a combination thereof. Consequently, our ability to continue to expand the size of our fleet is dependent upon our ability to obtain long-term bank borrowings and other debt, as well as raising equity.
Our revolving credit facilities and term loans are described in Item 1 Financial Statements: Note 7 Long-Term Debt. They
contain covenants and other restrictions typical of debt financing secured by vessels, that restrict the ship-owning subsidiaries from: incurring or guaranteeing indebtedness; changing ownership or structure, including through 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 of our revolving credit facilities and term loans require us to maintain financial covenants. If we do not meet these financial
covenants, the lender may accelerate the repayment of the revolving credit facilities and term loans, thus having a significant impact on our short-term liquidity requirements. As at June 30, 2013, we and our affiliates were in compliance with
all covenants relating to our credit facilities and term loans.
We have two facilities that require us to maintain vessel value to
outstanding loan principal balance ratios of 110% and 115%, respectively. As at June 30, 2013, we had vessel value to outstanding loan principal balance ratios of 165% and 141%, respectively. The vessel values are determined using second-hand
market comparables or using a depreciated replacement cost approach. Since vessel values can be volatile, our estimates of market value may not be indicative of either the current or future prices that could be obtained if we sold any of the
vessels.
As at June 30, 2013, our cash and cash equivalents were $97.6 million, compared to $113.6 million at December 31, 2012.
Our total liquidity which consists of cash, cash equivalents and undrawn medium-term credit facilities, was $262.3 million as at June 30, 2013, compared to $495.0 million as at December 31, 2012. The decrease in total liquidity is
primarily due to borrowings to fund the acquisition of our 50% interest in the Exmar LPG Carriers in February 2013, to fund newbuilding installments for vessels of Exmar LPG BVBA and repayments of long-term debt; partially offset by proceeds
received as a result of the COP that commenced during the second quarter of 2013.
As of June 30, 2013, we had a working capital deficit
of $207.0 million. The working capital deficit includes $160.3 million of current capital lease obligations for five Suezmax tankers, under which the owner has the option to require us to purchase the vessels. The owner also has cancellation rights,
as the charterer, under the charter contracts for these five Suezmax tankers. For three of the five Suezmax tankers, the cancellation options are first exercisable in August 2013, November 2013 and April 2014, respectively. In July 2013, we
received notification of termination from the owner for two of the five vessels, subject to approval by its board of directors and sale of the vessels to a third-party. Upon sale of the vessels to a third party, we will not be required to repay the
capital lease obligations as the vessels under capital leases will be returned to the owner and the capital lease obligations will be concurrently extinguished. While we do not expect the owner to exercise its option to require us to purchase the
five Suezmax tankers, such exercise would require us to satisfy the purchase price either by assuming the existing vessel financing, if the lenders consent, or by financing the purchase using existing liquidity or by obtaining new debt or equity
financing. We expect to manage the remaining working capital deficit primarily with net operating cash flow generated in 2013 and, to a lesser extent, existing undrawn revolving credit facilities. As at June 30, we had undrawn medium-term
credit facilities of $164.7 million.
25
Cash Flows.
The following table summarizes our cash flow for the periods presented:
|
|
|
|
|
|
|
|
|
(in thousands of U.S. Dollars)
|
|
Six Months Ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Net cash flow from operating activities
|
|
|
75,750
|
|
|
|
88,772
|
|
Net cash flow from financing activities
|
|
|
42,644
|
|
|
|
99,233
|
|
Net cash flow used for investing activities
|
|
|
(134,350
|
)
|
|
|
(166,716
|
)
|
|
|
|
|
|
|
|
|
|
Operating Cash Flows.
Net cash flow from operating activities decreased to $75.8 million for the six months
ended June 30, 2013, from $88.8 million for the same period last year, primarily due to a greater amount of dry docking expenditures incurred in the six months ended June 30, 2013. Net cash flow from operating activities depends upon the
timing and amount of dry-docking expenditures, repair and maintenance activity, the impact of vessel additions and dispositions on operating cash flows, foreign currency rates, changes in interest rates, timing of dividends from equity accounted
investments, 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 dry dockings
tends to vary each period depending on the vessels maintenance schedule.
Financing Cash Flows.
Our investments in vessels
and equipment are financed primarily with term loans and capital lease arrangements. Proceeds from long-term debt were $219.7 million and $395.4 million for the six months ended June 30, 2013 and 2012, respectively. From time to time, we
refinance our loans and revolving credit facilities. During the six months ended June 30, 2013, we primarily used the proceeds from long-term debt to fund the acquisition of our 50% interest in the Exmar LPG Carriers for $135.8 million
(including a $2.7 million acquisition fee), to provide an advance of $13.8 million to Exmar LPG BVBA for the purpose of funding newbuildings, to prepay and repay outstanding debt under our revolving credit facilities and for general partnership
purposes.
Cash distributions paid during the six months ended June 30, 2013 increased to $105.9 million from $93.6 million for the same
period last year. This increase was the result of an increase in the number of units eligible to receive the cash distribution as a result of one common unit public offering during 2012, units issued as a result of the COP that commenced during the
second quarter of 2013 and a 7.1% increase in the quarterly cash distribution per unit commencing in the first quarter of 2012 and paid in May 2012.
Other financing activities during the six months ended June 30, 2013 included net proceeds of $4.9 million from our issuance of units under our COP.
Investing Cash Flows.
Net cash flow used in investing activities decreased to $134.4 million for the six months ended June 30, 2013,
from $166.7 million for the same period last year. During the six months ended June 30, 2013, we used cash of $135.8 million to fund our 50% interest in the Exmar LPG Carriers. During the six months ended June 30, 2012, we used cash of
$170.1 million to fund our acquisition of a 52% interest in six LNG carriers from A.P. Moller Maersk A/S and of a 33% interest in one LNG carrier chartered to Angola LNG Supply Services LLC.
Contractual Obligations and Contingencies
The following table summarizes our contractual
obligations as at June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Remainder
of
2013
|
|
|
2014
and
2015
|
|
|
2016
and
2017
|
|
|
Beyond
2017
|
|
|
|
(in millions of U.S. Dollars)
|
|
U.S. Dollar-Denominated Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
(1)
|
|
|
1,120.1
|
|
|
|
35.9
|
|
|
|
196.9
|
|
|
|
178.9
|
|
|
|
708.4
|
|
Commitments under capital leases
(2)
|
|
|
179.2
|
|
|
|
69.5
|
|
|
|
43.8
|
|
|
|
38.6
|
|
|
|
27.3
|
|
Commitments under capital leases
(3)
|
|
|
965.1
|
|
|
|
12.0
|
|
|
|
48.0
|
|
|
|
48.0
|
|
|
|
857.1
|
|
Commitments under operating leases
(4)
|
|
|
390.4
|
|
|
|
12.4
|
|
|
|
49.6
|
|
|
|
49.5
|
|
|
|
278.9
|
|
Purchase obligations
(5)
|
|
|
372.8
|
|
|
|
1.5
|
|
|
|
85.5
|
|
|
|
285.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Dollar-Denominated obligations
|
|
|
3,027.6
|
|
|
|
131.3
|
|
|
|
423.8
|
|
|
|
600.8
|
|
|
|
1,871.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro-Denominated Obligations:
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
(7)
|
|
|
329.5
|
|
|
|
7.4
|
|
|
|
32.4
|
|
|
|
37.2
|
|
|
|
252.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Euro-Denominated obligations
|
|
|
329.5
|
|
|
|
7.4
|
|
|
|
32.4
|
|
|
|
37.2
|
|
|
|
252.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Norwegian Kroner-Denominated Obligations:
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
(8)
|
|
|
115.3
|
|
|
|
|
|
|
|
|
|
|
|
115.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Norwegian Kroner-Denominated obligations
|
|
|
115.3
|
|
|
|
|
|
|
|
|
|
|
|
115.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
3,472.4
|
|
|
|
138.7
|
|
|
|
456.2
|
|
|
|
753.3
|
|
|
|
2,124.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
(1)
|
Excludes expected interest payments of $13.6 million (remainder of 2013), $31.8 million (2014 and 2015), $23.9 million (2016 and 2017) and $19.5
million (beyond 2017). Expected interest payments are based on the existing interest rates (fixed-rate loans) and LIBOR at June 30, 2013, plus margins on debt that has been drawn that ranges up to 2.75% (variable-rate loans). The expected
interest payments do not reflect the effect of related interest rate swaps that we have used as an economic hedge of certain of our variable-rate debt.
|
(2)
|
Includes, in addition to lease payments, amounts we may be required to pay to purchase five leased vessels from 2014 to the end of the period when
cancellation options are first exercisable. For two of the vessels, the owner has notified us that it intends to terminate the capital leases. The purchase price for any vessels we are required to purchase would be based on the unamortized portion
of the vessel construction financing costs for the vessels, which are included in the table above. We expect to satisty any such purchase price by assuming the existing vessel financing, although we may be required to obtain separate debt or equity
financing to complete any purchases if the lenders do not consent to our assuming the financing obligations. Please read Item 1 Financial Statements: Note 4 Vessel Charters.
|
(3)
|
Existing
restricted cash deposits of $475.4 million, together with the interest earned on these deposits, are expected to be sufficient to repay the remaining amounts we currently owe under the lease arrangements.
|
(4)
|
We have
corresponding leases whereby we are the lessor and expect to receive approximately $347.0 million for these leases from 2013 to 2029.
|
(5)
|
In December 2012, we entered into an agreement for the construction of two LNG newbuildings. The remaining cost for these two newbuildings totals
$372.8 million, including estimated interest and construction supervision fees. Please read Item 1 Financial Statements: Note 11 Commitments and Contingencies. The purchase obligations shown in the table above does not include the
two additional LNG newbuildings that were ordered in July 2013.
|
(6)
|
Euro-denominated and Norwegian Kroner-denominated obligations are presented in U.S. Dollars and have been converted using the prevailing exchange rate
as of June 30, 2013.
|
(7)
|
Excludes expected interest payments of $4.0 million (remainder of 2013), $10.1 million (2014 and 2015), $9.0 million (2016 and 2017) and $4.9 million
(beyond 2017). Expected interest payments are based on EURIBOR at June 30, 2013, plus margins that range up to 2.25%, as well as the prevailing U.S. Dollar/Euro exchange rate as of June 30, 2013. The expected interest payments do not
reflect the effect of related interest rate swaps that we have used as an economic hedge of certain of our variable-rate debt.
|
(8)
|
Excludes expected interest payments of $6.2 million (remainder of 2013), $16.4 million (2014 and 2015), and $10.9 million (2016 and 2017). Expected
interest payments are based on NIBOR at June 30, 2013, plus a margin of 5.25%, as well as the prevailing U.S. Dollar/Norwegian Kroner exchange rate as of June 30, 2013. The expected interest payments do not reflect the effect of the
related cross currency swap that we have used as an economic hedge of our foreign exchange and interest rate exposure associated with our Norwegian Kroner-denominated long-term debt.
|
Off-Balance Sheet Arrangements
We have
no off-balance sheet arrangements. The details of our equity accounted investments are shown in Item 18 Financial Statements: Note 19 Equity Method Investments of our Annual Report on Form 20-F for the year ended December 31,
2012. In addition, please read Item 1 Financial Statements: Note 5 Equity Method Investments, relating to the acquisition of our 50% interest in the Exmar LPG BVBA joint venture in February 2013.
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 materially differ from our assumptions and estimates. Accounting estimates and assumptions discussed in Item 5 Operating and Financial Review and Prospects Critical Accounting Estimates of our Annual Report on
Form 20-F for the year ended December 31, 2012 are those that we consider to be the most critical to an understanding of our financial statements, because they inherently involve significant judgments and uncertainties. For a further
description of our critical accounting policies, please read Item 5 Operating and Financial Review and Prospects in our Annual Report on Form 20-F for the year ended December 31, 2012. There have been no significant changes in
accounting estimates and assumptions from those discussed in the Form 20-F.
At June 30, 2013, we had one reporting unit with goodwill
attributable to it. Based on conditions that existed at June 30, 2013, we do not believe that there is a reasonable possibility that the goodwill attributable to this reporting unit might be impaired for the remainder of the year. However,
certain factors that impact this assessment are inherently difficult to forecast and, as such, we cannot provide any assurance that an impairment will or will not occur in the future. An assessment for impairment involves a number of assumptions and
estimates that are based on factors that are beyond our control. These are discussed in more detail in the following section entitled Forward-Looking Statements.
27
FORWARD-LOOKING STATEMENTS
This Report on Form 6-K for the three months ended June 30, 2013 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 and the performance and expected cash flows of our various joint
ventures;
|
|
|
our plan for managing our working capital deficit;
|
|
|
the collectability of advances to our joint venture partner, BLT LNG Tangguh Corporation, and its parent company, PT Berlian Laju Tanker;
|
|
|
our ability to make cash distributions on our units or any increases in quarterly distributions;
|
|
|
LNG, LPG and tanker market fundamentals, including the balance of supply and demand in the LNG, LPG and tanker markets and spot charter rates;
|
|
|
Future charter hire payments for chartered-in and chartered-out vessels;
|
|
|
future capital expenditures and availability of capital resources to fund capital expenditures;
|
|
|
the exercise of any counterpartys rights to terminate a lease, or to obligate us to purchase a leased vessel, or failure to exercise such rights, including the
rights under the leases and charters for five of our Suezmax tankers;
|
|
|
the outcome of ongoing tax proceedings, including the HMRCs legal challenge of tax benefits similar to the ones provided under the RasGas II Leases;
|
|
|
the duration of dry dockings;
|
|
|
fluctuations in our reported voyage revenues, vessel operating expenses, general and administrative expenses, interest expense, interest income, realized and unrealized
loss on derivative instruments and foreign currency exchange gain (loss);
|
|
|
the future valuation or impairment of goodwill;
|
|
|
expected delivery dates of newbuilding carriers, and our ability to secure charter contracts for these carriers;
|
|
|
the expected timing, amount and method of financing for the purchase of vessels within the Partnership, including our five Suezmax tankers operated pursuant to capital
leases, the four LNG carrier newbuildings ordered from DSME, the LNG carrier newbuilding from Awilco and the two LPG carrier newbuildings ordered from Hanjin Heavy Industries and Construction Co., Ltd.; and
|
|
|
the impact of the LC Banks downgraded credit rating on the related lease payments and required cash deposits by the Teekay Nakilat Joint Venture along with our
ability to restructure the restricted cash structure to mitigate any impact of the LC Banks downgraded credit rating.
|
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; changes in anticipated levels of vessel newbuilding orders or rates of vessel scrapping; changes in the financial stability of our charterers; changes in financial stability of banks providing letters of credit for us
or our joint ventures; changes in trading patterns; changes in our expenses; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; LNG or LPG infrastructure constraints and community and
environmental group resistance to new LNG or LPG infrastructure; potential development of active short-term or spot LNG or LPG shipping markets; spot tanker market rate fluctuations; 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 ability to renew or replace long-term contracts; our ability to secure charter contracts for our newbuilding carriers; loss of any customer,
time-charter or vessel; shipyard production or vessel delivery delays; changes in tax regulations or the outcome of tax positions; our potential inability to raise financing to purchase additional vessels; our exposure to currency exchange rate
fluctuations; conditions in the public equity markets; LNG or LPG project delays or abandonment; ability of the counterparty to our
28
Suezmax tanker leases to receive board approval to sell two of the five leased vessels; 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, 2012. 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.
29
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
JUNE 30, 2013
PART I FINANCIAL INFORMATION
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our borrowings that require us to make interest payments based on LIBOR, EURIBOR
or NIBOR. Significant increases in interest rates could adversely affect our operating margins, results of operations and our ability to service our debt. We use interest rate swaps to reduce our exposure to market risk from changes in interest
rates. The principal objective of these contracts is to minimize the risks and costs associated with our floating-rate debt.
We are exposed
to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. In order to minimize counterparty risk, we only enter into derivative transactions with counterparties that are rated A- or better by
Standard & Poors or A3 or better by Moodys at the time of the transactions. In addition, to the extent practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.
The table below provides information about our financial instruments at June 30, 2013, that are sensitive to changes in interest rates. For
long-term debt and capital lease obligations, the table presents principal payments and related weighted-average interest rates by expected contractual maturity dates. For interest rate swaps, the table presents notional amounts and weighted-average
interest rates by expected contractual maturity dates. The expected contractual maturity dates do not reflect potential prepayments of long-term debt and capital lease obligations as well as the potential exercise of early termination options for
certain of our interest rate swaps.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder
of
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
There-
after
|
|
|
Total
|
|
|
Fair
Value
Liability
|
|
|
Rate
(1) (5)
|
|
|
|
(in millions of U.S. Dollars, except percentages)
|
|
Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate ($U.S.)
(2)
|
|
|
23.4
|
|
|
|
49.9
|
|
|
|
97.2
|
|
|
|
63.7
|
|
|
|
65.4
|
|
|
|
666.0
|
|
|
|
965.6
|
|
|
|
(868.4
|
)
|
|
|
1.1
|
%
|
Variable Rate (Euro)
(3) (4)
|
|
|
7.4
|
|
|
|
15.6
|
|
|
|
16.8
|
|
|
|
18.0
|
|
|
|
19.2
|
|
|
|
252.5
|
|
|
|
329.5
|
|
|
|
(300.4
|
)
|
|
|
1.4
|
%
|
Variable Rate (NOK)
(4) (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115.3
|
|
|
|
|
|
|
|
115.3
|
|
|
|
(117.8
|
)
|
|
|
7.1
|
%
|
Fixed-Rate Debt ($U.S.)
|
|
|
12.5
|
|
|
|
24.9
|
|
|
|
24.9
|
|
|
|
24.9
|
|
|
|
24.9
|
|
|
|
42.4
|
|
|
|
154.5
|
|
|
|
(157.0
|
)
|
|
|
5.3
|
%
|
Average Interest Rate
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
|
|
5.2
|
%
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
Capital Lease Obligations:
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate ($U.S.)
(7)
|
|
|
65.1
|
|
|
|
31.7
|
|
|
|
4.4
|
|
|
|
4.5
|
|
|
|
28.3
|
|
|
|
26.3
|
|
|
|
160.3
|
|
|
|
(160.3
|
)
|
|
|
7.4
|
%
|
Average Interest Rate
(8)
|
|
|
9.2
|
%
|
|
|
7.7
|
%
|
|
|
5.4
|
%
|
|
|
5.4
|
%
|
|
|
4.6
|
%
|
|
|
6.4
|
%
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
Interest Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Amount ($U.S.)
(6) (9)
|
|
|
9.8
|
|
|
|
19.9
|
|
|
|
20.6
|
|
|
|
21.2
|
|
|
|
151.9
|
|
|
|
366.7
|
|
|
|
590.1
|
|
|
|
(117.8
|
)
|
|
|
5.5
|
%
|
Average Fixed Pay Rate
(2)
|
|
|
5.6
|
%
|
|
|
5.6
|
%
|
|
|
5.6
|
%
|
|
|
5.6
|
%
|
|
|
5.3
|
%
|
|
|
5.6
|
%
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
Contract Amount (Euro)
(4) (10)
|
|
|
7.4
|
|
|
|
15.6
|
|
|
|
16.8
|
|
|
|
18.0
|
|
|
|
19.3
|
|
|
|
252.4
|
|
|
|
329.5
|
|
|
|
(31.4
|
)
|
|
|
3.1
|
%
|
Average Fixed Pay Rate
(3)
|
|
|
3.1
|
%
|
|
|
3.1
|
%
|
|
|
3.1
|
%
|
|
|
3.1
|
%
|
|
|
3.1
|
%
|
|
|
3.1
|
%
|
|
|
3.1
|
%
|
|
|
|
|
|
|
|
|
(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 term loans, which as of June 30, 2013 ranged from 0.30% to 2.75%. Please read Item 1 Financial Statements: Note 7 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 and Norwegian Kroner-denominated amounts have been converted to U.S. Dollars using the prevailing exchange rate as of June 30, 2013.
|
30
(5)
|
Interest payments on our NOK-denominated debt and on our cross currency swap are based on NIBOR. Our NOK-denominated debt has been economically hedged with a cross
currency swap, to swap all interest and principal payments into U.S. Dollars, with the interest payments fixed at a rate of 6.88%, and the transfer of principal locked in at $125.0 million upon maturity in exchange for NOK 700 million.
|
(6)
|
Under the terms of the capital leases for the RasGas II LNG Carriers (see Item 1 Financial Statements: Note 4 Vessel Charters), 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 June 30, 2013
totaled $475.4 million, and the lease obligations, which as at June 30, 2013 totaled $472.4 million, have been swapped for fixed-rate deposits and fixed-rate obligations. Consequently, Teekay Nakilat Corporation 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 June 30, 2013, the contract amount, fair value and fixed interest rates
of these interest rate swaps related to Teekay Nakilat Corporations capital lease obligations and restricted cash deposits were $408.1 million and $469.0 million, ($79.3) million and $108.6 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. Please read
Item 1 Financial Statements: Note 4 Vessel Charters.
|
(8)
|
The average interest rate is the weighted-average interest rate implicit in the capital lease obligations at the inception of the leases. Interest rate adjustments on
these leases have corresponding adjustments in charter receipts under the terms of the charter contracts to which these leases relate to.
|
(9)
|
The average variable receive rate for our U.S. Dollar-denominated interest rate swaps is set at 3-month or 6-month LIBOR.
|
(10)
|
The average variable receive rate for our Euro-denominated interest rate swaps is set at 1-month EURIBOR.
|
Spot Market Rate Risk
One of our
Suezmax tankers, the
Toledo Spirit
, operates pursuant to a time-charter contract that increases or decreases the otherwise fixed-rate established in the charter depending on the spot charter rates that we would have earned had we traded the
vessel in the spot tanker market. The remaining term of the time-charter contract is 12 years, although the charterer has the right to terminate the time-charter in July 2018. We have entered into an agreement with Teekay Corporation under which
Teekay Corporation pays us any amounts payable to the charterer as a result of spot rates being below the fixed rate, and we pay Teekay Corporation any amounts payable to us from the charterer as a result of spot rates being in excess of the fixed
rate. The amounts payable to or receivable from Teekay Corporation are settled at the end of each year. At June 30, 2013, the fair value of this derivative asset was $3.9 million and the change from December 31, 2012 to the reporting
period has been reported in realized and unrealized gain (loss) on derivative instruments.
Foreign Currency Fluctuation Risk
Our functional currency is U.S. Dollars. Our results of operations are affected by fluctuations in currency exchange rates. The volatility
in our financial results due to currency exchange rate fluctuations is attributed primarily to foreign currency revenues and expenses, our Euro-denominated loans and restricted cash deposits and our Norwegian Kroner-denominated bonds. A portion of
our voyage revenues are denominated in Euros. A portion of our vessel operating expenses and general and administrative expenses are denominated in Euros, which is primarily a function of the nationality of our crew and administrative staff. We have
Euro-denominated interest expense and Euro-denominated interest income related to our Euro-denominated loans and Euro-denominated restricted cash deposits, respectively. We also incur Norwegian Kroner-denominated interest expense on our Norwegian
Kroner-denominated bonds; however, we entered into a cross currency swap to economically hedge the foreign exchange risk on the principal and interest for these bonds. Please read Item 1 Financial Statements: Note 10 Derivative
Instruments. At June 30, 2013, the fair value of this derivative liability was $11.7 million and the change from December 31, 2012 to the reporting period has been reported in foreign currency exchange (loss) gain. As a result,
fluctuations in the Euro and Norwegian Kroner relative to the U.S. Dollar have caused, and are likely to continue to cause, fluctuations in our reported voyage revenues, vessel operating expenses, general and administrative expenses, interest
expense, interest income and realized and unrealized gain (loss) on derivative instruments.
31
TEEKAY LNG PARTNERS L.P. AND SUBSIDIARIES
JUNE 30, 2013
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-Risk Factors in our Annual Report on Form 20-F for the year ended December 31, 2012, which could materially affect our business, financial condition or results of
operations.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
On July 30, 2013, the Partnership issued approximately 931,098 million common units to an institutional investor for net
proceeds, including the General Partners 2% proportionate capital contribution, of $40.8 million. The Partnership used the proceeds from the issuance of common units to partially fund its previously announced order of two fuel-efficient LNG
carrier newbuildings ordered in July 2013, scheduled for delivery in 2016, and for general partnership purposes. The common units were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as
amended.
Item 3 Defaults Upon Senior Securities
None
Item 4 Mine Safety Disclosures
None
Item 5
Other Information
None
Item 6 Exhibits
None
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION STATEMENTS OF THE PARTNERSHIP:
REGISTRATION STATEMENT ON FORM S-8 (NO.333-124647) FILED WITH THE SEC ON MAY 5, 2005
REGISTRATION STATEMENT ON FORM F-3ASR (NO.333-170838) FILED WITH THE SEC ON NOVEMBER 24, 2010
REGISTRATION STATEMENT ON FORM F-3ASR (NO.333-174220) FILED WITH THE SEC ON MAY 13, 2011
REGISTRATION STATEMENT ON FORM F-3 (NO.333-188387) FILED WITH THE SEC ON MAY 6, 2013
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