Teekay LNG Partners L.P. Form 6k for the Quarter Ended March 31, 2007
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
6-K
Report
of
Foreign Private Issuer
Pursuant
to Rule 13a-16 or 15d-16 of
the
Securities Exchange Act of 1934
For
the
quarterly period ended March
31, 2007
Commission
file number 1- 32479
TEEKAY
LNG PARTNERS L.P.
(Exact
name of Registrant as specified in its charter)
Bayside
House
Bayside
Executive Park
West
Bay
Street & Blake Road
P.O.
Box
AP-59212, Nassau, Bahamas
(Address
of principal executive office)
Indicate
by check mark whether the registrant files or will file annual reports under
cover Form 20-F or Form 40-F.
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1).
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7).
Indicate
by check mark whether the registrant by furnishing the information contained
in
this Form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
If
“Yes”
is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):82-_______
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
REPORT
ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
INDEX
PART I:
FINANCIAL INFORMATION
|
PAGE
|
Item
1.
Financial Statements (Unaudited) |
|
|
|
Report
of Independent Registered Public Accounting Firm
|
3
|
|
|
Unaudited
Consolidated Statements of Income for
the three months ended March 31, 2007 and 2006
|
4
|
|
|
Unaudited
Consolidated Balance Sheets as
at March 31, 2007 and December 31, 2006
|
5
|
|
|
Unaudited
Consolidated Statements of Cash Flows for
the three months ended March 31, 2007 and 2006
|
6
|
|
|
Unaudited
Consolidated Statement of Changes in Partners’ Equity for
the three months ended March 31, 2007
|
7
|
|
|
Notes
to the Unaudited Consolidated Financial Statements
|
8
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
17
|
|
|
|
Item
3. Quantitative and Qualitative Disclosures about Market Risk
|
29
|
|
|
PART
II: OTHER INFORMATION
|
31
|
|
|
SIGNATURES
|
32
|
ITEM
1 - FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Unitholders of
Teekay
LNG Partners L.P.
We
have
reviewed the consolidated balance sheet of Teekay LNG Partners L.P. and
subsidiaries (or the
Partnership)
as of
March 31, 2007, the related consolidated statements of income and cash flows
for
the three months ended March 31, 2007 and 2006, and changes in consolidated
partners’ equity for the three months ended March 31, 2007. These financial
statements are the responsibility of the Partnership's management.
We
conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States),
the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
Based
on
our review, we are not aware of any material modifications that should be made
to the consolidated financial statements referred to above for them to be in
conformity with U.S. generally accepted accounting principles.
We
have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet
of
the Partnership as of December 31, 2006, the related consolidated statements
of
income, changes in partners’ equity and cash flows for the year then ended (not
presented herein) and in our report dated March 12, 2007, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as
of
December 31, 2006, is fairly stated, in all material respects, in relation
to
the consolidated balance sheet from which it has been derived.
Vancouver, Canada
May 21, 2007
|
/s/ ERNST & YOUNG LLP
Chartered Accountants
|
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF INCOME
(in
thousands of U.S. dollars, except unit and per unit data)
|
|
Three
Months Ended March 31,
|
|
|
|
2007
$
|
|
2006
$
|
|
|
|
|
|
|
|
VOYAGE
REVENUES (note
10)
|
|
|
58,329
|
|
|
44,141
|
|
OPERATING
EXPENSES (note
10)
|
|
|
|
|
|
|
|
Voyage
expenses
|
|
|
266
|
|
|
277
|
|
Vessel
operating expenses
|
|
|
13,821
|
|
|
8,961
|
|
Depreciation
and amortization
|
|
|
15,819
|
|
|
12,659
|
|
General
and administrative
|
|
|
3,518
|
|
|
3,095
|
|
Total
operating expenses
|
|
|
33,424
|
|
|
24,992
|
|
Income
from vessel operations
|
|
|
24,905
|
|
|
19,149
|
|
OTHER
ITEMS
|
|
|
|
|
|
|
|
Interest
expense (notes
4 and 7)
|
|
|
(30,347
|
)
|
|
(18,601
|
)
|
Interest
income
|
|
|
11,097
|
|
|
7,437
|
|
Foreign
currency exchange loss (note
7)
|
|
|
(4,800
|
)
|
|
(7,825
|
)
|
Other
income - net (note
8)
|
|
|
547
|
|
|
608
|
|
Total
other items
|
|
|
(23,503
|
)
|
|
(18,381
|
)
|
Net
income
|
|
|
1,402
|
|
|
768
|
|
General
partner’s interest in net income
|
|
|
28
|
|
|
15
|
|
Limited
partners’ interest: (note
14)
|
|
|
|
|
|
|
|
Net
income
|
|
|
1,374
|
|
|
753
|
|
Net
income per:
|
|
|
|
|
|
|
|
•
Common unit (basic and diluted)
|
|
|
0.07
|
|
|
0.04
|
|
•
Subordinated unit (basic and diluted)
|
|
|
0.00
|
|
|
0.00
|
|
•
Total unit (basic and diluted)
|
|
|
0.04
|
|
|
0.02
|
|
Weighted-average
number of units outstanding:
|
|
|
|
|
|
|
|
•
Common units (basic and diluted)
|
|
|
20,240,547
|
|
|
20,238,072
|
|
•
Subordinated units (basic and diluted)
|
|
|
14,734,572
|
|
|
14,734,572
|
|
•
Total units (basic and diluted)
|
|
|
34,975,119
|
|
|
34,972,644
|
|
Cash
distributions declared per unit
|
|
|
0.4625
|
|
|
0.4125
|
|
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED BALANCE SHEETS
(in
thousands of U.S. dollars)
|
|
|
|
|
|
|
|
As
at
March
31,
2007
$
|
|
As
at
December
31,
2006
$
|
|
ASSETS
|
|
|
|
|
|
Current |
|
|
|
|
|
Cash
and cash equivalents
|
|
|
35,407
|
|
|
28,871
|
|
Restricted
cash - current (note
4)
|
|
|
91,164
|
|
|
55,009
|
|
Accounts
receivable
|
|
|
6,189
|
|
|
8,167
|
|
Prepaid
expenses
|
|
|
4,094
|
|
|
6,566
|
|
Other
assets
|
|
|
1,218
|
|
|
1,204
|
|
Total
current assets
|
|
|
138,072
|
|
|
99,817
|
|
Restricted
cash - long-term (note
4)
|
|
|
666,687
|
|
|
615,749
|
|
Vessels
and equipment (note
7)
At
cost, less accumulated depreciation of $70,717 (2006 -
$60,849)
|
|
|
676,273
|
|
|
662,814
|
|
Vessels
under capital leases, at cost, less accumulated depreciation of
$50,072
(2006 - $42,604) (note
4)
|
|
|
956,913
|
|
|
654,022
|
|
Advances
on newbuilding contracts (note
12a)
|
|
|
84,759
|
|
|
84,184
|
|
Total
vessels and equipment
|
|
|
1,717,945
|
|
|
1,401,020
|
|
Investment
in and advances to joint venture (notes
10g and 12a)
|
|
|
202,993
|
|
|
141,427
|
|
Other
assets (note
11)
|
|
|
82,619
|
|
|
74,057
|
|
Intangible
assets - net (note
5)
|
|
|
157,782
|
|
|
160,064
|
|
Goodwill
(note
5)
|
|
|
39,279
|
|
|
39,279
|
|
Total
assets
|
|
|
3,005,377
|
|
|
2,531,413
|
|
LIABILITIES
AND PARTNERS’ EQUITY
|
|
|
|
|
|
|
|
Current
Accounts
payable
|
|
|
6,285
|
|
|
5,069
|
|
Accrued
liabilities
|
|
|
16,067
|
|
|
13,599
|
|
Unearned
revenue
|
|
|
6,594
|
|
|
6,708
|
|
Current
portion of long-term debt (note
7)
|
|
|
34,884
|
|
|
30,435
|
|
Current
obligation under capital leases (note
4)
|
|
|
152,365
|
|
|
150,762
|
|
Advances
from affiliate (note
6)
|
|
|
23,714
|
|
|
38,939
|
|
Total
current liabilities
|
|
|
239,909
|
|
|
245,512
|
|
Long-term
debt (note
7)
|
|
|
1,112,923
|
|
|
880,147
|
|
Long-term
obligation under capital leases (note
4)
|
|
|
719,270
|
|
|
407,375
|
|
Advances
from affiliate (note
6)
|
|
|
8,954
|
|
|
62,680
|
|
Other
long-term liabilities (note
11)
|
|
|
52,032
|
|
|
51,473
|
|
Total
liabilities
|
|
|
2,133,088
|
|
|
1,647,187
|
|
Commitments
and contingencies (notes
4, 7, 10, 11 and 12)
|
|
|
|
|
|
|
|
Minority
interest
|
|
|
165,675
|
|
|
165,729
|
|
Partners’
equity
Partners’
equity
|
|
|
751,556
|
|
|
767,949
|
|
Accumulated
other comprehensive loss (note
9)
|
|
|
(44,942
|
)
|
|
(49,452
|
)
|
Total
partners’ equity
|
|
|
706,614
|
|
|
718,497
|
|
Total
liabilities and partners’ equity
|
|
|
3,005,377
|
|
|
2,531,413
|
|
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands of U.S. dollars)
|
|
Three
Months Ended March 31,
|
|
|
|
2007
$
|
|
2006
$
|
|
Cash
and cash equivalents provided by (used
for) |
|
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
Net
income
|
|
|
1,402
|
|
|
768
|
|
Non-cash
items:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
15,819
|
|
|
12,659
|
|
Deferred
income tax expense (recovery)
|
|
|
453
|
|
|
(300
|
)
|
Foreign
currency exchange loss
|
|
|
4,597
|
|
|
8,611
|
|
Equity
based compensation
|
|
|
92
|
|
|
-
|
|
Accrued
interest and other - net
|
|
|
(544
|
)
|
|
(407
|
)
|
Change
in non-cash working capital items related to operating activities
|
|
|
(7,849
|
)
|
|
(3,334
|
)
|
Expenditures
for drydocking
|
|
|
(164
|
)
|
|
(1,609
|
)
|
Net
operating cash flow
|
|
|
13,806
|
|
|
16,388
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds
from long-term debt
|
|
|
236,439
|
|
|
91,627
|
|
Capitalized
loan costs
|
|
|
(232
|
)
|
|
(2,512
|
)
|
Scheduled
repayments of long-term debt
|
|
|
(4,422
|
)
|
|
(2,009
|
)
|
Scheduled
repayments of capital lease obligations
|
|
|
(2,185
|
)
|
|
(2,134
|
)
|
Prepayments
of long-term debt
|
|
|
-
|
|
|
(29,000
|
)
|
Advances
from affiliate
|
|
|
-
|
|
|
16,523
|
|
Repayment
of joint venture partner advances
|
|
|
(3,676
|
)
|
|
-
|
|
Increase
in restricted cash
|
|
|
(81,966
|
)
|
|
(392,506
|
)
|
Cash
distributions paid
|
|
|
(16,506
|
)
|
|
(14,721
|
)
|
Other
|
|
|
-
|
|
|
(154
|
)
|
Net
financing cash flow
|
|
|
127,452
|
|
|
(334,886
|
)
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
Advances
to joint ventures
|
|
|
(61,601
|
)
|
|
-
|
|
Purchase
of Teekay Nakilat Holdings Corporation (note
10d)
|
|
|
(53,726
|
)
|
|
-
|
|
Purchase
of Dania Spirit LLC (note
10h)
|
|
|
(18,546
|
)
|
|
-
|
|
Expenditures
for vessels and equipment
|
|
|
(849
|
)
|
|
(1,542
|
)
|
Proceeds
from sale of vessels and equipment
|
|
|
-
|
|
|
312,972
|
|
Net
investing cash flow
|
|
|
(134,722
|
)
|
|
311,430
|
|
Increase
(decrease) in cash and cash equivalents
|
|
|
6,536
|
|
|
(7,068
|
)
|
Cash
and cash equivalents, beginning of the period
|
|
|
28,871
|
|
|
34,469
|
|
Cash
and cash equivalents, end of the period
|
|
|
35,407
|
|
|
27,401
|
|
Supplemental
Cash Flow Information (note
13)
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ EQUITY
(in
thousands of U.S. dollars and units)
|
|
PARTNERS’
EQUITY
|
|
|
|
|
|
|
|
Limited
Partners
|
|
|
|
|
|
|
|
|
|
Common
|
|
Subordinated
|
|
General
Partner
|
|
Accumulated
Other Comprehensive Loss
|
|
Total
|
|
|
|
Units
|
|
$
|
|
Units
|
|
$
|
|
$
|
|
$
|
|
$
|
|
Balance
as at December 31, 2006
|
|
|
20,240
|
|
|
425,253
|
|
|
14,735
|
|
|
321,277
|
|
|
21,419
|
|
|
(49,452
|
)
|
|
718,497
|
|
Net
income
|
|
|
-
|
|
|
1,374
|
|
|
-
|
|
|
-
|
|
|
28
|
|
|
-
|
|
|
1,402
|
|
Cash
distributions
|
|
|
-
|
|
|
(9,361
|
)
|
|
-
|
|
|
(6,815
|
)
|
|
(330
|
)
|
|
-
|
|
|
(16,506
|
)
|
Unrealized
gain on derivative instruments (notes
9 and 11)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,809
|
|
|
3,809
|
|
Reclassification
adjustment for loss on derivative instruments included in net income
(notes
9 and 11)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
701
|
|
|
701
|
|
Purchase
of Teekay Nakilat from Teekay Shipping
Corporation (note
10d)
|
|
|
-
|
|
|
(1,460
|
)
|
|
-
|
|
|
(1,063
|
)
|
|
(51
|
)
|
|
-
|
|
|
(2,574
|
)
|
Equity
based compensation
|
|
|
-
|
|
|
52
|
|
|
-
|
|
|
38
|
|
|
2
|
|
|
-
|
|
|
92
|
|
Purchase
of Dania Spirit LLC from Teekay Shipping
Corporation
(note
10h)
|
|
|
-
|
|
|
677
|
|
|
-
|
|
|
492
|
|
|
24
|
|
|
-
|
|
|
1,193
|
|
Balance
as at March 31, 2007
|
|
|
20,240
|
|
|
416,535
|
|
|
14,735
|
|
|
313,929
|
|
|
21,092
|
|
|
(44,942
|
)
|
|
706,614
|
|
The
accompanying notes are an integral part of the unaudited consolidated financial
statements.
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)
1.
Basis
of Presentation
The
unaudited interim consolidated financial statements have been prepared in
accordance with United
States generally accepted accounting principles (or GAAP).
These
financial statements include the accounts of Teekay LNG Partners L.P. (or
Teekay
LNG),
which
is a limited partnership organized under the laws of the Republic of the
Marshall Islands, and its wholly owned or controlled subsidiaries (collectively,
the Partnership).
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates. Certain information and footnote disclosures required by GAAP
for complete annual financial statements have been omitted and, therefore,
these
interim financial statements should be read in conjunction with the
Partnership’s audited consolidated financial statements for the year ended
December 31, 2006. In the opinion of management of Teekay GP L.L.C., the general
partner of Teekay LNG (or the General
Partner),
these
interim consolidated financial statements reflect all adjustments, of a normal
recurring nature, necessary to present fairly, in all material respects,
the Partnership’s consolidated financial position, results of operations, and
changes in partners’ equity and cash flows for the interim periods presented.
The results of operations for the interim periods presented are not necessarily
indicative of those for a full fiscal year. Significant intercompany balances
and transactions have been eliminated upon consolidation.
2.
Change
in Accounting Policy
In
July
2006, the Financial Accounting Standards Board (or FASB)
issued
FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, an Interpretation of FASB Statement No.
109
(or
FIN
48).
This
interpretation clarifies the accounting for uncertainty in income taxes
recognized in financial statements in accordance with FASB Statement No.
109,
Accounting for Income Taxes.
FIN 48
requires companies to determine whether it is more-likely-than-not that a tax
position taken or expected to be taken in a tax return will be sustained upon
examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. If a tax position
meets the more-likely-than-not recognition threshold, it is measured to
determine the amount of benefit to recognize in the financial statements based
on guidance in the interpretation.
The
Partnership adopted FIN 48 as of January 1, 2007. The adoption of FIN 48 did
not
have a material impact on the Partnership’s financial position and results of
operations. As of January 1 and March 31, 2007, the Partnership did not have
any
material accrued interest and penalties relating to taxes.
As
of
January 1 and March 31, 2007, the Partnership had unrecognized tax benefits
of
3.4 million Euros ($4.5 million) relating to a re-investment tax credit in
one
of its 2005 annual tax filings. This filing is currently under review by the
relevant tax authorities and the Partnership expects the uncertainty surrounding
this tax credit to be resolved within the next twelve months. If the tax credit
is approved, the Partnership will receive a refund for the amount of the credit,
which will be reflected as a credit to equity in the period of
approval.
The
Partnership recognizes interest and penalties related to uncertain tax positions
in income tax expense. The tax years 2002 through 2006 remain open to
examination by the major taxing jurisdictions to which the Partnership is
subject.
3. Segment
Reporting
The
Partnership has two reportable segments: its liquefied gas segment and its
Suezmax tanker segment. The Partnership’s liquefied gas segment consists of
liquefied natural gas (or LNG)
carriers and a liquefied petroleum gas (or LPG)
carrier
subject to long-term, fixed-rate time charters to international energy
companies. As at March 31, 2007, the Partnership’s liquefied gas segment
consisted of seven LNG carriers and one LPG carrier. The Partnership’s Suezmax
tanker segment consists of Suezmax-class conventional crude oil tankers
operating on long-term, fixed-rate time-charter contracts to international
energy companies. As at March 31, 2007, the Partnership’s conventional crude oil
tanker fleet consisted of eight Suezmax tankers. Segment results are evaluated
based on income from vessel operations. The accounting policies applied to
the
reportable segments are the same as those used in the preparation of the
Partnership’s audited consolidated financial statements for the year ended
December 31, 2006.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
The
following table presents results for these segments for the three months ended
March 31, 2007 and 2006:
|
|
Three
Months Ended March 31,
|
|
|
|
2007
|
|
2006
|
|
|
|
Liquefied
Gas
Segment
$
|
|
Suezmax
Tanker
Segment
$
|
|
Total
$
|
|
Liquefied
Gas
Segment
$
|
|
Suezmax
Tanker
Segment
$
|
|
Total
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
37,476
|
|
|
20,853
|
|
|
58,329
|
|
|
23,700
|
|
|
20,441
|
|
|
44,141
|
|
Voyage
expenses
|
|
|
5
|
|
|
261
|
|
|
266
|
|
|
-
|
|
|
277
|
|
|
277
|
|
Vessel
operating expenses
|
|
|
8,167
|
|
|
5,654
|
|
|
13,821
|
|
|
3,802
|
|
|
5,159
|
|
|
8,961
|
|
Depreciation
and amortization
|
|
|
10,814
|
|
|
5,005
|
|
|
15,819
|
|
|
7,678
|
|
|
4,981
|
|
|
12,659
|
|
General
and administrative (1)
|
|
|
1,788
|
|
|
1,730
|
|
|
3,518
|
|
|
1,403
|
|
|
1,692
|
|
|
3,095
|
|
Income
from vessel operations
|
|
|
16,702
|
|
|
8,203
|
|
|
24,905
|
|
|
10,817
|
|
|
8,332
|
|
|
19,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures
for vessels and equipment
|
|
|
19,198
|
|
|
197
|
|
|
19,395
|
|
|
1,542
|
|
|
-
|
|
|
1,542
|
|
(1)
|
Includes
direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated
use
of corporate resources).
|
A
reconciliation of total segment assets to total assets presented in the
consolidated balance sheets is as follows:
|
|
March
31,
2007
$
|
|
December
31,
2006
$
|
|
|
|
|
|
|
|
Liquefied
gas segment
|
|
|
2,532,938
|
|
|
2,056,247
|
|
Suezmax
tanker segment
|
|
|
425,531
|
|
|
430,358
|
|
Unallocated:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
35,407
|
|
|
28,871
|
|
Accounts
receivable, prepaid expenses and other assets
|
|
|
11,501
|
|
|
15,937
|
|
Consolidated
total assets
|
|
|
3,005,377
|
|
|
2,531,413
|
|
4.
Capital
Leases and Restricted Cash
Capital
Leases
Teekay
Nakilat LNG Carriers. As
at
March 31, 2007, the Partnership owned an indirect 70% interest in Teekay
Nakilat Corporation (or Teekay
Nakilat),
which
is
a party
to 30-year
capital lease arrangements relating to three LNG carriers (or the RasGas
II LNG Carriers)
that
operate under time-charter contracts with Ras Laffan Liquefied Natural Gas
Co.
Limited (II) (or RasGas II),
a
joint venture between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary
of ExxonMobil Corporation. All amounts below relating to the RasGas II LNG
carrier capital leases include the Partnership’s joint venture partner’s 30%
share.
Under
the
terms of the RasGas II capital lease arrangements, the lessor claims tax
depreciation on the capital expenditures it incurred to acquire these vessels.
As is typical in these leasing arrangements, tax and change of law risks are
assumed by the lessee. Lease payments under the rentals payable under the lease
arrangements are predicated on the basis of certain tax and financial
assumptions at the commencement of the leases. If an assumption proves to be
incorrect, the lessor is entitled to increase the lease payments so as to
maintain its agreed after-tax margin. However, Teekay Nakilat may terminate
the
lease arrangements on a voluntary basis at any time. In the event of a
termination of the lease arrangements, Teekay Nakilat would be obliged to pay
termination sums to the lessor sufficient to repay the lessor’s investment in
the vessels and to compensate it for the tax effect of the terminations,
including recapture of any tax depreciation.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per
unit
data)
At
the
inception of these leases, the weighted-average interest rate implicit in these
leases was 5.2%. These capital leases are variable-rate capital leases. Teekay
Nakilat’s interest rate risk associated with these leases has been hedged with
interest rate swap agreements (see Note 11). As at March 31, 2007, the
commitments under these capital leases approximated $1,114.2 million,
including imputed interest of $645.7 million, repayable as
follows:
Year
|
Commitment
|
2007
|
$17.0
million
|
2008
|
$24.0
million
|
2009
|
$24.0
million
|
2010
|
$24.0
million
|
2011
|
$24.0
million
|
Thereafter
|
$1,001.2
million
|
Spanish-Flagged
LNG Carrier. As
at
March 31, 2007, the Partnership was a party to a capital lease on one LNG
carrier (the Madrid
Spirit)
which
is structured as a “Spanish tax lease”. The Partnership was a party to a similar
Spanish tax lease for another LNG carrier (the Catalunya
Spirit)
until
it purchased the vessel pursuant to the capital lease in December 2006.
Under the terms of the Spanish tax lease, for the Madrid
Spirit,
the
Partnership will purchase the vessel at the end of the lease term in 2011.
The
purchase obligation has been fully funded with restricted cash deposits
described below. At the inception of this lease, the interest rate implicit
in
the Spanish tax lease was 5.8%. As at March 31, 2007, the commitments under
this
capital lease, including the purchase obligation, approximated
165.0 million Euros ($220.4 million), including imputed interest of
28.0 million Euros ($37.3 million), repayable as follows:
Year
|
Commitment
|
2007
|
23.3
million Euros ($31.1 million)
|
2008
|
24.4
million Euros ($32.6 million)
|
2009
|
25.6
million Euros ($34.2 million)
|
2010
|
26.9
million Euros ($35.9 million)
|
2011
|
64.8
million Euros ($86.6 million)
|
Suezmax
Tankers. As
at
March 31, 2007, the Partnership was a party to capital leases on five Suezmax
tankers. Under the terms of the lease arrangements, which include the
Partnership’s contractual right to full operation of the vessels pursuant to
bareboat charters, the Partnership is required to purchase these vessels after
the end of their respective lease terms for a fixed price. At the inception
of
these leases, the weighted-average interest rate implicit in these leases was
7.4%. These capital leases are variable-rate capital leases; however, any change
in the lease payments resulting from changes in interest rates is offset by
a
corresponding change in the charter hire payments received by the Partnership.
As at March 31, 2007, the remaining commitments under these capital leases,
including the purchase obligations, approximated $244.0 million, including
imputed interest of $24.0 million, repayable as follows:
Year
|
Commitment
|
2007
|
$
138.8 million
|
2008
|
8.6
million
|
2009
|
8.5
million
|
2010
|
88.1
million
|
Restricted
Cash
Under
the
terms of the capital leases for the four LNG carriers described above, the
Partnership is required to have on deposit with financial institutions an amount
of cash that, together with interest earned on the deposit, will equal the
remaining amounts owing under the leases, including the obligation to purchase
the Spanish-flagged LNG carrier at the end of the lease period. These cash
deposits are restricted to being used for capital lease payments and have been
fully funded primarily with term loans (see Note 7). The interest rates
earned on the deposits approximate the interest rates implicit in the
leases.
As
at
March 31, 2007 and December 31, 2006, the amount of restricted cash on deposit
for the three RasGas
II
LNG carriers was
$564.1 million and $481.9 million, respectively. As at March 31, 2007 and
December 31, 2006, the weighted-average interest rate earned on the deposits
was
5.4%.
As
at
March 31, 2007 and December 31, 2006, the amount of restricted cash on deposit
for the Spanish-flagged LNG carrier was 140.8 million Euros
($188.0 million) and 139.0 million Euros ($183.5 million), respectively. As
at March 31, 2007 and December 31 2006, the weighted-average interest rates
earned on these deposits was 5.0%.
The
Partnership also maintains restricted cash deposits relating to certain term
loans, which totaled $5.7 million and $5.3 million as at March 31, 2007 and
December 31, 2006, respectively.
TEEKAY
LNG PARTNERS L.P. AND
SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS - (Cont'd)
(all
tabular amounts stated in thousands of
U.S. dollars, except unit and per unit data)
5. Intangible
Assets and Goodwill
As
at
March 31, 2007 and December 31, 2006, intangible assets consisted of
time-charter contracts with a weighted-average amortization period of 19.2
years.
The
carrying amount of intangible assets as at March 31, 2007 and December 31,
2006
is as follows:
|
|
March
31,
2007
$
|
|
December
31, 2006
$
|
|
|
|
|
|
|
|
Gross
carrying amount
|
|
|
182,552
|
|
|
182,552
|
|
Accumulated
amortization
|
|
|
(24,770
|
)
|
|
(22,488
|
)
|
Net
carrying amount
|
|
|
157,782
|
|
|
160,064
|
|
Amortization
expense of intangible assets for each of the three-month periods ended March
31,
2007 and 2006 was $2.3 million.
The
carrying amount of goodwill as at March 31, 2007 and December 31, 2006 for
the
Partnership’s reporting segments is as follows:
|
|
Liquefied
Gas
Segment
$
|
|
Suezmax
Tanker
Segment
$
|
|
Total
$
|
|
Balance
as at March 31, 2007 and December 31, 2006
|
|
|
35,631
|
|
|
3,648
|
|
|
39,279
|
|
6. Advances
from Affiliates
|
|
March
31,
2007
$
|
|
December
31, 2006
$
|
|
|
|
|
|
|
|
Advances
from Teekay Shipping Corporation (non-interest bearing and
unsecured)
|
|
|
8,954
|
|
|
62,680
|
|
Other
(non-interest bearing and unsecured)
|
|
|
23,714
|
|
|
38,939
|
|
Total
|
|
|
32,668
|
|
|
101,619
|
|
On
October 31, 2006, Teekay Shipping Corporation sold its interest in Teekay
Nakilat to the Partnership in exchange for an $89.5 million non-interest bearing
and unsecured promissory note (see Note 10d). The Partnership paid $26.9 million
of the note during 2006 and $53.7 million during the first quarter of 2007.
The
Partnership refinanced amounts owing under the note with borrowings under the
Partnership's revolving credit facilities.
7. Long-Term
Debt
|
|
March
31,
2007
$
|
|
December
31,
2006
$
|
|
|
|
|
|
|
|
U.S.
Dollar-denominated Revolving Credit Facilities due through 2018
|
|
|
113,000
|
|
|
43,000
|
|
U.S.
Dollar-denominated Term Loan due through 2019(1)
|
|
|
465,122
|
|
|
360,661
|
|
U.S.
Dollar-denominated Term Loan due through 2020 (variable
interest entities)(1)
|
|
|
120,373
|
|
|
60,458
|
|
U.S.
Dollar-denominated Unsecured Demand Loan
|
|
|
35,549
|
|
|
35,144
|
|
Euro-denominated
Term Loans due through 2023
|
|
|
413,763
|
|
|
411,319
|
|
|
|
|
1,147,807
|
|
|
910,582
|
|
Less
current portion
|
|
|
34,884
|
|
|
30,435
|
|
Total
|
|
|
1,112,923
|
|
|
880,147
|
|
(1) |
As
at March 31, 2007, long-term debt related to newbuilding vessels
to be
delivered was $120.4 million (December 31, 2006 - $266.3
million).
|
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
As
at
March 31, 2007, the Partnership had two long-term revolving credit facilities
(or
the
Revolvers)
available, which, as at such date, provided for borrowings of up to $454.3
million, of which $341.3 million was undrawn. Interest payments are based on
LIBOR plus a margin. The amount available under the Revolvers reduces by $13.3
million (remainder of 2007), $18.2 million (2008), $18.8 million (2009), $19.4
million (2010), $20.0 million (2011) and $364.6 million (thereafter). Both
Revolvers may be used by the Partnership to fund general partnership purposes
and to fund cash distributions. The Partnership is required to reduce all
borrowings used to fund cash distributions to zero for a period of at least
15
consecutive days during any 12-month period. The Revolvers are collateralized
by
first-priority mortgages granted on five of the Partnership’s vessels, together
with other related collateral, and include a guarantee from the Partnership
or
its subsidiaries of all outstanding amounts.
The
Partnership has a U.S. Dollar-denominated term loan outstanding, which, as
at
March 31, 2007, totaled $465.1 million. Of
the
total amount of this term loan, $296.9 million bears interest at a fixed rate
of
5.39% and reduces in quarterly payments commencing three months after delivery
of the applicable LNG newbuilding. The remaining $168.2 million bears interest
based on LIBOR plus a margin and
will
require bullet repayments of approximately $56 million per vessel. The term
loan
is collateralized by first-priority mortgages on the vessels, together with
certain other related collateral and guarantees from the Partnership.
Teekay
Nakilat (III) Holdings Corporation (or Teekay
Nakilat (III))
owns a
40% interest in Teekay Nakilat (III) Corporation (or RasGas
3 Joint Venture).
RasGas
3 Joint Venture owns four LNG newbuilding carriers, scheduled for delivery
during 2008, and the related 25-year fixed-rate, time-charter contracts. On
November 1, 2006, the Partnership agreed to purchase Teekay Shipping
Corporation's 100% interest in Teekay Nakilat (III), which caused the
Partnership to become the primary beneficiary of this variable interest entity
(See Note 12). Teekay Nakilat (III) has a U.S.
Dollar-denominated term loan outstanding, which, as at March 31, 2007, totaled
$120.4 million. Interest payments on the term loan is based on LIBOR plus a
margin. The term loan reduces in quarterly payments commencing three months
after delivery of each related vessel, with varying maturities through 2020.
The
term loan is collateralized by first-priority mortgages on the vessels, together
with certain other related collateral including an undertaking from Teekay
Shipping Corporation. Upon transfer to the Partnership of Teekay Shipping
Corporation's 100% ownership interest in Teekay Nakilat (III), the rights and
obligations of Teekay Shipping Corporation under the undertaking, may, upon
the
fulfillment of certain conditions, be transferred to the
Partnership.
The
Partnership has one U.S. Dollar-denominated demand loan outstanding owing to
a
joint venture partner, which, as at March 31, 2007, totaled $35.5 million,
including accrued interest. Interest payments on this loan, which are based
on a
fixed interest rate of 4.84%, commence February 2008. The loan is repayable
on
demand no earlier than February 27, 2027.
The
Partnership has two Euro-denominated term loans outstanding, which, as at March
31, 2007 totaled 309.8 million Euros ($413.8 million). These loans were used
to
make restricted cash deposits that fully fund payments under capital leases
for
the LNG carriers, the Madrid
Spirit and
the
Catalunya
Spirit
(see
Note 4). Interest payments are based on EURIBOR plus a margin. The term loans
reduce in monthly payments with varying maturities through 2023 and are
collateralized by first-preferred mortgages on the vessels to which the loans
relate, together with certain other related collateral and guarantees from
one
of the Partnership’s subsidiaries.
The
weighted-average effective interest rate for the Partnership’s long-term
debt
outstanding at March 31, 2007 and December 31, 2006 was 5.5%. These rates do
not
reflect the effect of related interest rate swaps that the Partnership has
used
to hedge certain of its floating-rate debt (see Note 11). At March 31,
2007, the margins on the Partnership’s long-term debt ranged from 0.50% to
1.30%.
All
Euro-denominated term loans are revalued at the end of each period using the
then-prevailing Euro/U.S. Dollar exchange rate. Due substantially to this
revaluation, the Partnership recognized foreign exchange losses of $4.8 million
and $7.8 million during the three months ended March 31, 2007 and 2006,
respectively.
Certain
loan agreements require that a minimum level of tangible net worth, a minimum
level of aggregate liquidity, and a maximum level of leverage be maintained,
and
requires one of the Partnership’s subsidiaries to maintain restricted cash
deposits. The Partnership’s ship-owning subsidiaries may not, in addition to
other things, pay dividends or distributions if the Partnership is in default
under the term loans and the Revolvers.
8. Other
Income - Net
|
|
Three
Months Ended March 31,
|
|
|
|
2007
$
|
|
2006
$
|
|
Minority
interest recovery
|
|
|
1,067
|
|
|
-
|
|
Income
tax (expense) recovery
|
|
|
(453
|
)
|
|
300
|
|
Miscellaneous
|
|
|
(67
|
)
|
|
308
|
|
Other
income - net
|
|
|
547
|
|
|
608
|
|
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
9. Comprehensive
Income
|
|
Three
Months Ended March 31,
|
|
|
|
2007
$
|
|
2006
$
|
|
Net
income
|
|
|
1,402
|
|
|
768
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
Unrealized
gain on derivative instruments
|
|
|
3,809
|
|
|
17,812
|
|
Reclassification
adjustment for loss on derivative instruments included in net
income
|
|
|
701
|
|
|
2,230
|
|
Comprehensive
income
|
|
|
5,912
|
|
|
20,810
|
|
As
at
March 31, 2007 and December 31, 2006, the Partnership’s accumulated other
comprehensive loss of $44.9 million and $49.5 million, respectively, consisted
of net unrealized losses on derivative instruments.
10. Related
Party Transactions
a) The
Partnership and certain of its operating subsidiaries have entered into services
agreements with certain subsidiaries of Teekay Shipping Corporation pursuant
to
which the Teekay Shipping Corporation subsidiaries provide the Partnership
with
administrative, advisory, technical and strategic consulting services. During
the three months ended March 31, 2007 and 2006 the Partnership incurred $1.4
million and $0.9 million, respectively, of these costs.
b) The
Partnership reimburses the General Partner for all expenses incurred by the
General Partner that are necessary or appropriate for the conduct of the
Partnership’s business. During each of the three months ended March 31, 2007 and
2006 the Partnership incurred $0.1 million of these costs.
c) The
Partnership is a party to an agreement with Teekay Shipping Corporation pursuant
to which Teekay Shipping Corporation has provided the Partnership with off-hire
insurance for its Spanish-flagged LNG carriers since January 1, 2006. During
each of the three-month periods ended March 31, 2007 and 2006, the Partnership
incurred $0.1 million of these costs.
d) On
October 31, 2006, the Partnership acquired Teekay Shipping Corporation’s 100%
ownership interest in Teekay Nakilat Holdings Corporation (or Teekay
Nakilat Holdings).
Teekay
Nakilat Holdings owns 70% of Teekay Nakilat, which in turn has a 100% interest
in capital leases relating to the three RasGas II LNG carriers. The purchase
price for the 70% interest in Teekay Nakilat was $89.5 million; however, this
amount is subject to adjustment upon determination of the final construction
costs of all three LNG carriers. The Partnership paid $26.9 million of this
amount during 2006 and $53.7 million during the first quarter of 2007 (see
Note
6). This transaction was concluded between two entities under common control
and, thus, the assets acquired were recorded at historical book value. The
excess of the purchase price over the book value of the assets was accounted
for
as an equity distribution to Teekay Shipping Corporation. The purchase occurred
upon the delivery of the first LNG carrier. The remaining two LNG carriers
were
delivered during the first quarter of 2007.
e) The
Partnership’s Suezmax tanker, the Toledo
Spirit,
which
was delivered in July 2005, operates pursuant to a time-charter contract that
increases or decreases the fixed rate established in the charter, depending
on
the spot charter rates that the Partnership would have earned had it traded
the
vessel in the spot tanker market. The Partnership has entered into an agreement
with Teekay Shipping Corporation under which Teekay Shipping Corporation pays
the Partnership any amounts payable to the charter party as a result of spot
rates being below the fixed rate, and the Partnership pays Teekay Shipping
Corporation any amounts payable to the Partnership as a result of spot rates
being in excess of the fixed rate. During the three months ended March 31,
2007
and 2006, the Partnership incurred $0.8 million and $1.8 million, respectively,
of amounts owing to Teekay Shipping Corporation as a result of this agreement.
f) In
July
2005, Teekay Shipping Corporation announced that it had been awarded long-term,
fixed-rate contracts to charter two LNG carriers to the Tangguh LNG project
in
Indonesia. The two LNG carriers will be chartered for a period of 20 years
to The Tangguh Production Sharing Contractors, a consortium led by BP Berau
Ltd., a subsidiary of BP plc. Teekay Shipping Corporation entered into this
project with a joint venture partner (BLT LNG Tangguh Corporation, a subsidiary
of PT Berlian Tanker Tbk), which owns a 30% interest. All amounts below include
the joint venture partner’s 30% share. In connection with this award, Teekay
Shipping Corporation has exercised shipbuilding options with Hyundai Heavy
Industries Co. Ltd. to construct two 155,000 cubic meter LNG carriers at a
total
delivered cost of approximately $376.9 million, excluding capitalized interest.
As at March 31, 2007 payments made towards these commitments by the joint
venture company totaled $82.3 million, excluding $10.4 million of capitalized
interest and other miscellaneous construction costs. Long-term financing
arrangements existed for all of the remaining $294.6 million unpaid cost of
these LNG carriers. As at March 31, 2007, the remaining payments required to
be
made under these newbuilding contracts were $183.4 million in 2007, $75.1
million in 2008 and $36.1 million in 2009. The charters will commence upon
vessel deliveries, which are scheduled for late 2008 and early 2009. Pursuant
to
existing agreements, Teekay Shipping Corporation was required to offer its
70%
ownership interest in these two vessels and related charter contracts to the
Partnership. On November 1, 2006, the Partnership agreed to acquire this 70%
ownership interest upon delivery of the first LNG carrier (see Note 12a).
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
g) In
August
2005, Teekay Shipping Corporation announced that it had been awarded long-term,
fixed-rate contracts to charter four LNG carriers to Ras Laffan Liquefied
Natural Gas Co. Limited (3) (or RasGas 3),
a
joint venture company between a subsidiary of ExxonMobil Corporation and Qatar
Petroleum. The vessels will be chartered to RasGas 3 at fixed rates, with
inflation adjustments, for a period of 25 years (with options exercisable
by the customer to extend up to an additional 10 years), scheduled to
commence in the first half of 2008. Teekay Shipping Corporation entered into
the
project with a joint venture partner (Qatar Gas Transport Company Ltd.
(Nakilat)), which owns a 60% interest. In connection with this award, Teekay
Shipping Corporation has entered into agreements with Samsung Heavy Industries
Co. Ltd. to construct four 217,000 cubic meter LNG carriers at a total cost
of
approximately $1.0 billion (of which Teekay Shipping Corporation’s 40%
portion is $400.7 million), excluding capitalized interest. As at March 31,
2007, payments made towards these commitments by the joint venture company
totaled $551.8 million, excluding capitalized interest and other miscellaneous
construction costs (of which the Company’s 40% contribution was $220.7 million),
and long-term financing arrangements existed for all the remaining $449.8
million unpaid cost of these LNG carriers. As at March 31, 2007, the remaining
payments required to be made under these newbuilding contracts (including the
joint venture partners’ 60% share) were $249.5 million in 2007 and $200.3
million in 2008. Pursuant to existing agreements, Teekay Shipping Corporation
was required to offer its 40% ownership interest in these four vessels and
related charter contracts to the Partnership. On November 1, 2006, the
Partnership agreed to acquire this 40% ownership interest upon delivery of
the
first LNG carrier (see Note 12a).
h) In
January 2007, the Partnership acquired a 2000-built LPG carrier from Teekay
Shipping Corporation and the related long-term, fixed-rate time charter for
a
purchase price of approximately $18.5 million. This
transaction was concluded between two entities under common control and, thus,
the vessel acquired was recorded at its historical book value. The excess of
the
book value over the purchase price of the vessel was accounted for as an equity
contribution by Teekay Shipping Corporation.
The
purchase was financed with one of the Partnership’s revolving credit facilities.
This vessel is chartered to the Norwegian state-owned oil company, Statoil
ASA,
and has a remaining contract term of nine years.
11.
Derivative
Instruments and Hedging Activities
The
Partnership uses derivatives only for hedging purposes. As at March 31, 2007,
the Partnership was committed to the following interest rate swap agreements
related to its EURIBOR and LIBOR-based debt, whereby certain of the
Partnership’s floating-rate debt has been swapped with fixed-rate
obligations:
|
|
Interest
Rate
Index
|
|
Principal
Amount
$
|
|
Fair
Value / Carrying Amount of Liability
$
|
|
Weighted-Average
Remaining Term
(years)
|
|
Fixed
Interest Rate
(%)(1)
|
|
LIBOR-Based
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Dollar-denominated interest rate swaps(2)
|
|
|
LIBOR
|
|
|
491,314
|
|
|
23,184
|
|
|
29.8
|
|
|
4.9
|
|
U.S.
Dollar-denominated interest rate swaps
|
|
|
LIBOR
|
|
|
233,647
|
|
|
(20,247
|
)
|
|
11.9
|
|
|
6.2
|
|
U.S.
Dollar-denominated interest rate swaps(3)
|
|
|
LIBOR
|
|
|
405,000
|
|
|
(1,562
|
)
|
|
13.9
|
|
|
5.2
|
|
LIBOR-Based
Restricted Cash Deposit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Dollar-denominated interest rate swaps(2)
|
|
|
LIBOR
|
|
|
468,293
|
|
|
(30,114
|
)
|
|
29.8
|
|
|
4.8
|
|
EURIBOR-Based
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro-denominated
interest rate swaps(4)
|
|
|
EURIBOR
|
|
|
413,764
|
|
|
18,198
|
|
|
17.2
|
|
|
3.8
|
|
(1)
Excludes the margins the Partnership pays on its floating-rate debt, which,
at
March 31, 2007, ranged from 0.5% to 1.3% (see Note 7).
(2)
Principal amount reduces quarterly.
(3)
Interest rate swaps are held in Teekay Tangguh and Teekay Nakilat (III),
variable interest entities in which the Partnership is the primary beneficiary
(See Note 12a). Inception dates of swaps are 2006 ($160.0 million), 2007
($70.0 million) and 2009 ($175.0 million).
(4)
Principal amount reduces monthly to 70.1 million Euros ($93.6 million) by the
maturity dates of the swap agreements.
Changes
in the fair value of the designated interest rate swaps (cash flow hedges)
are
recognized in other comprehensive income until the hedged item is recognized
in
income. The ineffective portion of an interest rate swap’s change in fair value
is immediately recognized into income and is presented as interest expense.
During each of the three months ended March 31, 2007 and 2006, the ineffective
portion of the Partnership’s interest rate swaps was nominal.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
The
Partnership is exposed to credit loss in the event of non-performance by the
counterparties to the interest rate swap agreements; however, counterparties
to
these agreements are major financial institutions and the Partnership considers
the risk of loss due to non-performance to be minimal. The Partnership requires
no collateral from these institutions.
12.
Commitments
and Contingencies
(a) On
November 1, 2006, the Partnership entered into an agreement with Teekay Shipping
Corporation to purchase its 100% interest in Teekay Tangguh Holdings Corporation
(or Teekay
Tangguh)
which
owns a 70% interest in Teekay BLT Corporation (or Teekay
Tangguh Joint Venture)
and its
100% interest in Teekay Nakilat (III) Holdings Corporation (or Teekay
Nakilat (III))
which
owns a 40% interest in Teekay Nakilat (III) Corporation (or RasGas
3 Joint Venture)
(see
Notes 10f and 10g). Teekay Tangguh Joint Venture owns two LNG newbuildings
and
the related 20-year time charters. RasGas 3 Joint Venture owns four LNG
newbuildings and the related 25-year time charters. The purchases will occur
upon the delivery of the first newbuildings for the respective projects, which
are scheduled for 2008. The Partnership's purchase price for these projects,
which depends upon the total construction costs of the vessels, is estimated
to
be $60.0 million for the 70% interest in the Teekay Tangguh Joint Venture
and $80.0 million for the 40% interest in the RasGas 3 Joint Venture.
In
January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, an Interpretation of ARB No. 51
(or
FIN
46).
In
general, a variable interest entity (or VIE)
is a
corporation, partnership, limited-liability company, trust or any other legal
structure used to conduct activities or hold assets that either (1) has an
insufficient amount of equity to carry out its principal activities without
additional subordinated financial support, (2) has a group of equity owners
that
are unable to make significant decisions about its activities, or (3) has a
group of equity owners that do not have the obligation to absorb losses or
the
right to receive returns generated by its operations. If a party with an
ownership, contractual or other financial interest in the VIE (a variable
interest holder)
is
obligated to absorb a majority of the risk of loss from the VIE's activities,
is
entitled to receive a majority of the VIE's residual returns (if no party
absorbs a majority of the VIE's losses), or both, then FIN 46 requires that
this
party consolidate the VIE. Prior to its purchase of a controlling interest
in
Teekay Nakilat in October 2006, the Partnership already included Teekay Nakilat
in its consolidated financial statements, as Teekay Nakilat was a VIE and the
Partnership was its primary beneficiary. In addition, the Partnership has
consolidated Teekay Tangguh and Teekay Nakilat (III) in its consolidated
financial statements effective November 1, 2006, as both entities are VIE’s and
the Partnership became their primary beneficiary on November 1, 2006, upon
its
agreement to acquire all of Teekay Shipping Corporation’s interests in these
entities. The assets and liabilities of Teekay Tangguh and Teekay Nakilat (III)
are reflected in the Partnership’s financial statements at historical cost as
the Partnership and these two VIE’s are under common control.
The
following table summarizes the combined balance sheets of Teekay Tangguh and
Teekay Nakilat (III) as at March 31, 2007 and December 31, 2006:
|
|
March
31,
2007
$
|
|
December
31,
2006
$
|
|
ASSETS
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
2
|
|
|
3
|
|
Advances
on newbuilding contracts
|
|
|
84,759
|
|
|
84,184
|
|
Investment
in and advances to joint ventures
|
|
|
202,993
|
|
|
141,427
|
|
Other
assets
|
|
|
5,753
|
|
|
6,035
|
|
Total
assets
|
|
|
293,507
|
|
|
231,649
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Accrued
liabilities
|
|
|
1,308
|
|
|
562
|
|
Advances
from affiliates
|
|
|
9,074
|
|
|
7,366
|
|
Long-term
debt relating to newbuilding vessels to be delivered
|
|
|
120,373
|
|
|
60,458
|
|
Other
long-term liabilities
|
|
|
2,219
|
|
|
2,100
|
|
Total
liabilities
|
|
|
132,974
|
|
|
70,486
|
|
Minority
interest
|
|
|
24,559
|
|
|
24,559
|
|
Total
shareholders’ equity
|
|
|
135,974
|
|
|
136,604
|
|
Total
liabilities and shareholders’ equity
|
|
|
293,507
|
|
|
231,649
|
|
The
Partnership’s maximum exposure to loss at March 31, 2007, as a result of its
commitment to purchase Teekay Shipping Corporation’s interests in Teekay Tangguh
and Teekay Nakilat (III), is limited to the respective purchase prices of such
interests, which are expected to be $60 million and $80
million.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -
(Cont'd)
(all
tabular amounts stated in thousands of U.S. dollars, except unit and per unit
data)
(b) In
December 2006, the Partnership announced that it has agreed to acquire three
LPG
carriers from I.M. Skaugen ASA (or Skaugen),
which
engages in the marine transportation of petrochemical gases and LPG and the
lightering of crude oil, for approximately $29.2 million per vessel. The vessels
are currently under construction and are expected to deliver between early
2008
and mid-2009. The Partnership will acquire the vessels upon their delivery
and
will finance the acquisition of these vessels through existing or incremental
debt, surplus cash balances, issuance of additional common units or combinations
thereof. Upon delivery, the vessels will be chartered to Skaugen, at fixed
rates
for a period of 15 years.
13.
Supplemental
Cash Flow Information
a) Cash
interest paid on long-term debt and capital lease obligations during the three
months ended March 31, 2007 and 2006 totaled $24.7 million and $11.6 million,
respectively.
b) No
taxes
were paid during the three months ended March 31, 2007 and 2006.
c) During
the three months ended March 31, 2007, the Partnership took delivery of two
leased LNG carriers which are being accounted for as capital leases. As at
March
31, 2007, the present value of the minimum lease payments for these vessels
was
$310.6 million. These transactions were treated as non-cash transactions in
the
Partnership’s consolidated statement of cash flows.
14. Net
Income Per Unit
Net
income per unit is determined by dividing net income, after deducting the amount
of net income allocated to the General Partner’s interest, by the
weighted-average number of units outstanding during the period.
As
required by Emerging Issues Task Force Issue No. 03-6, Participating
Securities and Two-Class Method under FASB Statement No. 128, Earnings Per
Share,
the
General Partner’s, common unitholders’ and subordinated unitholders’ interests
in net income are calculated as if all net income for periods subsequent to
May
10, 2005 (the date of the Partnership's initial public offering) were
distributed according to the terms of the Partnership Agreement, regardless of
whether those earnings would or could be distributed. The Partnership Agreement
does not provide for the distribution of net income; rather, it provides for
the
distribution of available cash, which is a contractually defined term that
generally means all cash on hand at the end of each quarter after establishment
of cash reserves. Unlike available cash, net income is affected by non-cash
items such as depreciation and amortization, and foreign currency translation
gains (losses).
Under
the
Partnership Agreement, the holder of the incentive distribution rights in the
Partnership, which is currently the General Partner, has the right to receive
an
increasing percentage of cash distributions after the minimum quarterly
distribution. Assuming there are no cumulative arrearages on common unit
distributions, the target distribution levels entitle the General Partner to
receive 2% of quarterly cash distributions up to $0.4625 per unit, 15% of
quarterly cash distributions between $0.4625 and $0.5375 per unit, 25% of
quarterly cash distributions between $0.5375 and $0.65 per unit, and 50% of
quarterly cash distributions in excess of $0.65 per unit. During the quarters
ended March 31, 2007 and March 31, 2006, net income did not exceed $0.4625
per
unit and, consequently, the General Partner did not have the right to receive
an
increasing percentage of assumed distributions after a $0.4625 per unit
quarterly distribution, for purposes of the net income per unit calculation.
Under
the
Partnership Agreement, during the subordination period the common units will
have the right to receive distributions of available cash from operating surplus
in an amount equal to the minimum quarterly distribution of $0.4125 per quarter,
plus any arrearages in the payment of the minimum quarterly distribution on
the
common units from prior quarters, before any distributions of available cash
from operating surplus may be made on the subordinated units. During the
quarters ended March 31, 2007 and March 31, 2006, net income did not exceed
the
minimum quarterly distribution of $0.4125 per unit and, consequently, the
assumed distributions of net income resulted in unequal distributions of net
income between the subordinated unit holders and common unit holders.
15.
Subsequent
Events
During
May 2007, the Partnership sold, as part of a follow-on public offering of
2.3
million of its common units, which represent limited partner interests, at
$38.13 per unit for proceeds of $84.2 million, net of $3.5 million of
commissions and other expenses associated with the offering. The Partnership’s
General Partner contributed $1.8 million to the Partnership to maintain its
2%
general partner interest.
The
Partnership has granted the underwriters a 30-day option to purchase up to
an
additional 345,000 units to cover over-allotments, if any.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
MARCH
31, 2007
PART
I - FINANCIAL INFORMATION
ITEM
2 - MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
General
Teekay
LNG Partners L.P. is an international provider of liquefied natural gas (or
LNG),
liquefied petroleum gas (or LPG)
and
crude oil marine transportation services. Our growth strategy focuses on
expanding our fleet of LNG and LPG carriers under long-term, fixed-rate time
charters. We intend to continue our practice of acquiring LNG and LPG carriers
as needed for approved projects only after the long-term charters for the
projects have been awarded to us, rather than ordering vessels on a speculative
basis. We seek to capitalize on opportunities emerging from the global expansion
of the LNG and LPG sectors by selectively targeting long-term, fixed-rate time
charters. We may enter into joint ventures and partnerships with companies
that
may provide increased access to these opportunities or may engage in vessel
or
business acquisitions. We plan to leverage the expertise, relationships and
reputation of Teekay Shipping Corporation and its affiliates to pursue these
growth opportunities in the LNG and LPG sectors and may consider other
opportunities to which our competitive strengths are well suited. In December
2006, we announced that we will be acquiring four LPG carriers, as discussed
below. LPG is a by-product of natural gas separation and crude oil refining.
We
believe that LPG transportation services are a natural extension of our core
LNG
transportation business. We view our Suezmax tanker fleet primarily as a source
of stable cash flow as we expand our liquefied gas operations.
We
manage
our business and analyze and report our results of operations on the basis
of
the following two business segments:
Liquefied
Gas Segment.
We have
seven LNG carriers, including the Al
Marrouna,
that
delivered in October 2006, the Al
Areesh
that
delivered in January 2007 and the Al
Daayen
that
delivered in February 2007 (collectively, the RasGas
II LNG Carriers).
All of
our LNG carriers operate under long-term, fixed-rate time charters.
In
addition, in July and August 2005, Teekay Shipping Corporation announced that
it
has been awarded long-term, fixed-rate time charter contracts to transport
LNG
and has entered into agreements to construct a total of six LNG carriers in
connection with these awards. Two of the LNG carriers will be chartered for
a
period of 20 years to The Tangguh Production Sharing Contractors, and four
will
be chartered for a period of 25 years (with options to extend up to an
additional 10 years) to Ras Laffan Liquefied Natural Gas Co. Limited (3).
Partners in each of these projects will participate in 30% and 60%,
respectively, of the ownership of the related time charters and related vessels.
On November 1, 2006, we agreed to acquire from Teekay Shipping Corporation,
upon
delivery of the first vessel for each project, its interest in these vessels
and
related charter contracts. Please read Item 1 - Financial Statements: Note
12(a)
- Commitments and Contingencies.
We
have
one LPG carrier, the 2000-built Dania
Spirit,
which
we
acquired
on January 1, 2007 from Teekay Shipping Corporation, together with the
related long-term, fixed-rate time charter. This vessel is chartered to the
Norwegian state-owned oil company, Statoil ASA, and has a remaining contract
term of nine years.
In
December 2006, we announced that we have agreed to acquire three LPG carriers
from I.M. Skaugen ASA (or Skaugen),
for
approximately $29.2 million per vessel. The vessels are currently under
construction and are expected to deliver between early 2008 and mid-2009. We
will finance the acquisition of these vessels through existing or incremental
debt, surplus cash balances, issuance of additional common units or combinations
thereof. Upon delivery, the vessels will be chartered to Skaugen at fixed-rates
for a period of 15 years.
During
the three months ended March 31, 2007 and 2006, our liquefied gas segment
generated 64.5% and 54.0%, respectively, of our total net voyage revenues.
Suezmax
Tanker Segment. We
have
eight Suezmax-class double-hulled conventional crude oil tankers. All of our
Suezmax tankers operate under long-term, fixed-rate time charters.
During
the three months ended March 31, 2007 and 2006, our Suezmax tanker segment
generated 35.5% and 46.0%, respectively, of our total net voyage revenues.
Our
original fleet was established by Naviera F. Tapias S.A. (or Tapias),
a
Spanish company founded in 1991. Teekay Shipping Corporation, through its
subsidiary Teekay Luxembourg S.a.r.l. (or Luxco),
acquired Tapias on April 30, 2004 and changed its name to Teekay Shipping Spain
S.L. (or Teekay
Spain).
Teekay
Shipping Corporation acquired Tapias for $298.2 million in cash, plus the
assumption of existing debt and newbuilding commitments.
Follow-On
Offering
During
May 2007, we sold, as part of a follow-on offering of 2.3 million of our
common
units, which represent limited partner interests, at $38.13 per unit for
proceeds of $84.2 million, net of $3.5 million of commissions and other expenses
associated with the offering. The Partnership’s General Partner contributed $1.8
million to the Partnership to maintain its 2% general partner interest. The
net
proceeds from our sale of common units will be used to repay outstanding
debt on
one of our revolving credit facilities.
We
granted the underwriters a 30-day option to purchase up to an additional 345,000
units to cover over-allotments, if any.
Our
Charters
We
generate revenues by charging customers for the transportation of their LNG,
LPG
and crude oil using our vessels. Historically, we generally have provided these
services under the following basic types of contractual
relationships:
· |
Time
charters,
where vessels are chartered to customers for a fixed period of time
at
rates that are generally fixed but may contain a variable component,
based
on inflation, interest rates or current market rates;
and
|
· |
Voyage
charters,
which are charters for shorter intervals, usually a single round
trip,
that are priced on a current, or “spot” market
rate.
|
During
the three months ended March 31, 2007 and 2006, we derived 100% of our revenues
from time charters. We have not provided services under voyage charters since
2004 and do not anticipate earning revenues directly from voyage charters in
the
foreseeable future.
"Hire"
rate refers to the basic payment from the customer for the use of a vessel.
Hire
is payable monthly, in advance, in U.S. Dollars or Euros, as specified in the
charter. The hire rate generally includes two components - a capital cost
component and an operating expense component. The capital component typically
approximates the amount we are required to pay under vessel financing
obligations and, for five of our eight Suezmax tankers, adjusts for changes
in
the floating interest rates relating to the underlying vessel financing. The
operating component, which adjusts annually for inflation, is intended to
compensate us for vessel operating expenses. For most of our charters, we earn
a
profit from a margin built into the operating or capital component of the hire
rate.
The
time
charters for our other three Suezmax tankers include a fixed monthly rate for
their initial 12-year term, which increases to another fixed amount for any
extensions of the initial term. These time charters do not include separately
identified capital or operating components or adjust for inflation.
In
addition, we may receive additional revenues beyond the fixed hire rate when
current market rates exceed specified amounts under our time charter for one
Suezmax tanker, the Teide
Spirit.
Hire
payments may be reduced or, under some charters, we must pay liquidated damages,
if the vessel does not perform to certain of its specifications, such as if
the
average vessel speed falls below a guaranteed speed or the amount of fuel
consumed to power the vessel under normal circumstances exceeds a guaranteed
amount. Historically, we have had few instances of hire rate reductions and
none
that have had a material impact on our operating results.
When
a
vessel is “off-hire”—or not available for service—generally the customer is not
required to pay the hire rate and we are responsible for all costs. Prolonged
off-hire may lead to vessel substitution or termination of the time charter.
A
vessel
will be deemed to be off-hire if it is in drydock. We must periodically drydock
each of our vessels for inspection, repairs and maintenance and any
modifications to comply with industry certification or governmental
requirements. In addition, a
vessel
generally will be deemed off-hire if there is a loss of time due to, among
other
things: operational deficiencies; equipment breakdowns; delays due to accidents,
crewing strikes, certain vessel detentions or similar problems; or our failure
to maintain the vessel in compliance with its specifications and contractual
standards or to provide the required crew. We carry loss-of-hire insurance
for
our LNG carriers.
The
average remaining term of our existing long-term, fixed-rate time charters
is
approximately 18 years for our LNG and LPG carriers, and 13 years for our
Suezmax tankers, subject, in certain circumstances, to termination or purchase
rights.
Our
customers include major energy companies and their affiliates. We derive a
substantial majority of our revenues from a limited number of customers. During
the three months ended March 31, 2007 and 2006, we derived 79% and 100%,
respectively, of our revenues from five customers - Compania Espanola de
Petroleos, S.A. (24% and 30%), Repsol YPF, S.A. (21% and 27%), ConocoPhillips
(12% and 16%), Gas Natural SDG, S.A. (12% and 14%), and Unión Fenosa Gas, S.A
(10% and 13%). In addition, as a result of our acquisition of the RasGas II
LNG
Carriers and related time charters from Teekay Shipping Corporation, for the
three months ended March 31, 2007, we derived 19% of our revenues from Ras
Laffan Liquefied Natural Gas Co. Limited (II). The loss of any customer or
time
charter, or a significant decline in payments under any of our time charters,
could materially and adversely affect our revenues, cash flows and operating
results.
Important
Financial and Operational Terms and Concepts
We
use a
variety of financial and operational terms and concepts when analyzing our
performance. These include the following:
Voyage
Revenues.
Voyage
revenues currently include revenues only from time charters. Voyage revenues
are
affected by hire rates and the number of calendar-ship-days a vessel operates.
Voyage revenues are also affected by the mix of business between time and voyage
charters. Hire rates for voyage charters are more volatile, as they are
typically tied to prevailing market rates at the time of a voyage.
Voyage
Expenses.
Voyage
expenses are all expenses unique to a particular voyage, including any bunker
fuel expenses, port fees, cargo loading and unloading expenses, canal tolls,
agency fees and commissions. Voyage expenses are typically paid by the customer
under time charters and by us under voyage charters. When we pay voyage
expenses, we typically add them to our hire rates at an approximate
cost.
Net
Voyage Revenues.
Net
voyage revenues represent voyage revenues less voyage expenses. Because the
amount of voyage expenses we incur for a particular charter depends upon the
form of the charter, we use net voyage revenues to improve the comparability
between periods of reported revenues that are generated by the different forms
of charters. We principally use net voyage revenues, a non-GAAP financial
measure, because it provides more meaningful information to us about the
deployment of our vessels and their performance than voyage revenues, the most
directly comparable financial measure under United States generally accepted
accounting principles (or GAAP).
Vessel
Operating Expenses.
We are
responsible for vessel operating expenses, which include crewing, repairs and
maintenance, insurance, stores, lube oils and communication expenses. The two
largest components of vessel operating expenses are crews and repairs and
maintenance.
Income
from Vessel Operations.
To
assist us in evaluating our operations by segment, at times we analyze the
income we receive from each segment after deducting operating expenses, but
prior to the deduction of interest expense, taxes, foreign currency and other
income and losses. For more information, please read Item 1 - Financial
Statements: Note 3 - Segment Reporting.
Drydocking.
We must
periodically drydock each of our vessels for inspection, repairs and maintenance
and any modifications required to comply with industry certification or
governmental requirements. Generally, we drydock each of our vessels every
five
years. In addition, a shipping society classification intermediate survey is
performed on our LNG and LPG carriers between the second and third year of
a
five-year drydocking period. We capitalize a substantial portion of the costs
incurred during drydocking and for the survey and amortize those costs on a
straight-line basis from the completion of a drydocking or intermediate survey
to the estimated completion of the next drydocking or intermediate survey.
We
expense costs related to routine repairs and maintenance incurred during
drydocking or intermediate survey that do not improve or extend the useful
lives
of the assets. The number of drydockings undertaken in a given period and the
nature of the work performed determine the level of drydocking
expenditures.
Depreciation
and Amortization.
Our
depreciation and amortization expense typically consists of the following three
components:
· |
charges
related to the depreciation of the historical cost of our fleet (less
an
estimated residual value) over the estimated useful lives of our
vessels;
|
· |
charges
related to the amortization of drydocking expenditures over the estimated
number of years to the next scheduled drydocking or intermediate
survey;
and
|
· |
charges
related to the amortization of the fair value of the time charters
acquired in the Teekay Spain acquisition (over the remaining terms
of the
charters), which was initially determined at approximately $183 million
in
April 2004 when Teekay Shipping Corporation acquired Teekay Spain.
|
Revenue
Days.
Revenue
days are the total number of calendar days our vessels were in our possession
during a period less the total number of off-hire days during the period
associated with major repairs, drydockings or special or intermediate surveys.
Consequently, revenue days represents the total number of days available for
the
vessel to earn revenue. Idle days, which are days when the vessel is available
to earn revenue yet is not employed, are included in revenue days. We use
revenue days to explain changes in our net voyage revenues between
periods.
Calendar-Ship-Days.
Calendar-ship-days are equal to the total number of calendar days that our
vessels were in our possession during a period. As a result, we use
calendar-ship-days primarily in explaining changes in vessel operating expenses
and depreciation and amortization.
Utilization.
Utilization is an indicator of the use of our fleet during a given period,
and
is determined by dividing our revenue days by our calendar-ship-days for the
period.
Restricted
Cash Deposits.
Under
capital lease arrangements for four of our LNG carriers, we are required to
have
on deposit with financial institutions an amount of restricted cash deposits
that, together with interest earned on the deposits, will equal the remaining
amounts we owe under the lease arrangements, including our obligation to
purchase the vessels at the end of the lease terms, where applicable. For more
information, please read Item 1 - Financial Statements: Note 4 - Capital Leases
and Restricted Cash.
Foreign
Currency Fluctuations.
Our
results of operations are affected by fluctuations in currency exchange rates.
The volatility in our financial results due to currency exchange rate
fluctuations are attributed primarily to the following factors:
· |
Unrealized
end-of-period revaluations.
Under U.S. accounting guidelines, all foreign currency-denominated
monetary assets and liabilities, such as cash and cash equivalents,
restricted cash, long-term debt and capital lease obligations, are
revalued and reported based on the prevailing exchange rate at the
end of
the period. A substantial majority of our foreign currency gains
and
losses are attributable to this revaluation in respect of our
Euro-denominated term loans. Substantially all of these gains and
losses
are unrealized.
|
· |
Foreign
currency revenues and expenses.
A
portion of our voyage revenues are denominated in Euros. A substantial
majority of our vessel operating expenses and general and administrative
expenses are denominated in Euros, which is primarily a function
of the
nationality of our crew and administrative staff. We also have
Euro-denominated interest expense and interest income related to
our
Euro-denominated loans and Euro-denominated restricted cash deposits,
respectively. As a result, fluctuations in the Euro relative to the
U.S.
Dollar have caused, and are likely to continue to cause, fluctuations
in
our income statement, including our reported voyage revenues, vessel
operating expenses, general and administrative expenses, interest
expense
and interest income.
|
On
a cash
basis, our Euro-denominated revenues currently generally approximate our
Euro-denominated expenses and Euro-denominated loan and interest payments.
For
this reason, we have not entered into any forward contracts or similar
arrangements to protect against the risk of foreign currency-denominated
revenues, expenses or monetary assets or liabilities. If our foreign
currency-denominated revenues and expenses become sufficiently disproportionate
in the future, we may engage in hedging activities. For more information, please
read Item 3 - Quantitative and Qualitative Disclosures About Market
Risk.
Items
You Should Consider When Evaluating Our Results of
Operations
Some
factors that have affected our historical financial performance or will affect
our future performance are listed below:
· |
Our
financial results reflect the consolidation of Teekay Tangguh and
Teekay
Nakilat (III), variable interest entities for which we are their
primary
beneficiary. On
November 1, 2006, we entered into an agreement with Teekay Shipping
Corporation to purchase its 100% interest in Teekay Tangguh Holdings
Corporation (or Teekay
Tangguh),
which owns a 70% interest in Teekay BLT Corporation (or Teekay
Tangguh Joint Venture)
and its 100% interest in Teekay Nakilat (III) Holdings Corporation
(or
Teekay
Nakilat (III)),
which owns a 40% interest in Teekay Nakilat (III) Corporation (or
RasGas
3 Joint Venture).
Teekay Tangguh Joint Venture owns two LNG newbuildings and the related
20-year time charters. RasGas 3 Joint Venture owns four LNG newbuildings
and the related 25-year time charters. The purchases will occur upon
the
delivery of the first newbuildings for the respective projects, which
are
scheduled for 2008; however we were required to consolidate Teekay
Tangguh
and Teekay Nakilat (III) in our consolidated financial statements,
effective November 1, 2006, as both entities are variable interest
entities and we are their primary beneficiary. Please read Item 1
-
Financial Statements: Notes 10(f) and 10(g) - Related Party Transactions
and Note 12(a) - Commitments and
Contingencies.
|
· |
The
size of our LNG carrier and LPG carrier fleets has
changed.
Our historical results of operations reflect changes in the size
and
composition of our fleet due to certain vessel deliveries and vessel
dispositions. In particular, we increased the size of our LNG carrier
fleet from four LNG carriers during the first three months of 2006
to
seven LNG carriers by February 2007. We also purchased our first
LPG
carrier from Teekay Shipping Corporation in January 2007. Please
read “--
Results of Operations - Liquefied Gas Segment” below for further details
about our vessel dispositions and deliveries.
|
· |
One
of our Suezmax tankers earns revenues based partly on spot market
rates.
The
time charter for one Suezmax tanker, the Teide
Spirit,
contains a component providing for additional revenues to us beyond
the
fixed hire rate when spot market rates exceed certain threshold amounts.
Accordingly, even though declining spot market rates will not result
in
our receiving less than the fixed hire rate, our results may continue
to
be influenced, in part, by the variable component of the Teide
Spirit
charter. During the three months ended March 31, 2007 and 2006, we
earned
$0.9 million and $1.4 million, respectively, in additional revenue
from
this variable component.
|
The
following table presents our operating results by reportable segment for the
three months ended March 31, 2007 and 2006, and compares our net voyage revenues
(which is a non-GAAP financial measure) by reportable segment for the three
months ended March 31, 2007 and 2006, to voyage revenues, the most directly
comparable GAAP financial measure:
|
|
Three
Months Ended
March
31, 2007
|
|
Three
Months Ended
March
31, 2006
|
|
|
|
Liquefied
|
|
Suezmax
|
|
|
|
Liquefied
|
|
Suezmax
|
|
|
|
|
|
Gas
|
|
Tanker
|
|
|
|
Gas
|
|
Tanker
|
|
|
|
(in
thousands of U.S. dollars, except Operating
Data)
|
|
Segment
|
|
Segment
|
|
Total
|
|
Segment
|
|
Segment
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voyage
revenues
|
|
|
37,476
|
|
|
20,853
|
|
|
58,329
|
|
|
23,700
|
|
|
20,441
|
|
|
44,141
|
|
Voyage
expenses
|
|
|
5
|
|
|
261
|
|
|
266
|
|
|
-
|
|
|
277
|
|
|
277
|
|
Net
voyage revenues
|
|
|
37,471
|
|
|
20,592
|
|
|
58,063
|
|
|
23,700
|
|
|
20,164
|
|
|
43,864
|
|
Vessel
operating expenses
|
|
|
8,167
|
|
|
5,654
|
|
|
13,821
|
|
|
3,802
|
|
|
5,159
|
|
|
8,961
|
|
Depreciation
and amortization
|
|
|
10,814
|
|
|
5,005
|
|
|
15,819
|
|
|
7,678
|
|
|
4,981
|
|
|
12,659
|
|
General
and administrative (1)
|
|
|
1,788
|
|
|
1,730
|
|
|
3,518
|
|
|
1,403
|
|
|
1,692
|
|
|
3,095
|
|
Income
from vessel operations
|
|
|
16,702
|
|
|
8,203
|
|
|
24,905
|
|
|
10,817
|
|
|
8,332
|
|
|
19,149
|
|
Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Days (A)
|
|
|
625
|
|
|
720
|
|
|
1,345
|
|
|
360
|
|
|
704
|
|
|
1,064
|
|
Calendar-Ship-Days
(B)
|
|
|
662
|
|
|
720
|
|
|
1,382
|
|
|
360
|
|
|
720
|
|
|
1,080
|
|
Utilization
(A)/(B)
|
|
|
94.4
|
%
|
|
100.0
|
%
|
|
97.3
|
%
|
|
100.0
|
%
|
|
97.8
|
%
|
|
98.5
|
%
|
(1) |
Includes
direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated
use
of resources).
|
Three
Months Ended March 31, 2007 versus Three Months Ended March 31,
2006
Liquefied
Gas Segment
We
operated four LNG carriers during the three months ended March 31, 2006. We
subsequently took delivery of the following three RasGas II LNG carriers:
the Al
Marrouna
in
October 2006; the
Al
Areesh
in
January 2007; and the Al
Daayen
in
February 2007. We also took delivery of one LPG carrier, the Dania
Spirit,
in
January 2007. As
a
result, our total calendar-ship-days increased by 83.9%, to 662 days for the
three months ended March 31, 2007 from 360 days for the three months ended
March 31, 2006.
On
March
29, 2007, one of our LNG carriers, the Madrid
Spirit,
sustained damage to its engine boilers. We expect the vessel will be off-hire
for approximately 60 days during the second quarter of 2007. However, this
off-hire will have only a limited financial impact to us, since Teekay Shipping
Corporation provides us with off-hire insurance coverage. As a result, our
net
exposure is only expected to be seven days of off-hire (of which approximately
three days was incurred in the first quarter and four days will be incurred
in
the second quarter) and a $500,000 deductible under insurance for
repairs.
Net
Voyage Revenues.
Net
voyage revenues increased 58.2% to $37.5 million for the three months ended
March 31, 2007, from $23.7 million for the same period last year. This increase
was primarily the result of:
· |
an
increase of $12.2 million during the three months ended March 31,
2007
from the delivery of the RasGas II LNG Carriers and the Dania
Spirit;
and
|
· |
an
increase of $1.7 million for the three months ended March 31, 2007,
due to
the effect on our Euro-denominated revenues from the strengthening
of the
Euro against the U.S. Dollar during such period compared to the same
period last year;
|
partially
offset by
· |
a
decrease of $0.2 million for the three months ended March 31, 2007,
relating to 3 days of off-hire for one of our LNG carriers, the
Madrid
Spirit,
as discussed above.
|
Vessel
Operating Expenses.
Vessel
operating expenses increased 115.8% to $8.2 million for the three months ended
March 31, 2007, from $3.8 million for the same period last year. This increase
was primarily the result of:
·
|
an
increase of $3.9 million during the three months ended March 31,
2007 from
the delivery of the RasGas II LNG Carriers and the Dania
Spirit;
and
|
· |
an
increase of $0.4 million for the three months ended March 31, 2007,
due to
the effect on our Euro-denominated vessel operating expenses from
the
strengthening of the Euro against the U.S. Dollar during such period
compared to the same period last year (a majority of our vessel operating
expenses are denominated in Euros, which is primarily a function
of the
nationality of our crew).
|
Depreciation
and Amortization.
Depreciation and amortization increased 40.3% to $10.8 million for the three
months ended March 31, 2007, from $7.7 million for the same period last year.
This increase was primarily the result of:
· |
an
increase of $2.9 million during the three months ended March 31,
2007 from
the delivery of the RasGas II LNG Carriers and the Dania
Spirit;
and
|
· |
an
increase of $0.2 million relating to amortization of drydock expenditures
incurred during the second half of 2006.
|
Suezmax
Tanker Segment
We
operated eight Suezmax tankers during the three months ended March 31, 2007
and
2006 and, therefore, our total calendar-ship-days remained the same for both
periods.
Net
Voyage Revenues.
Net
voyage revenues increased 2.0% to $20.6 million for the three months ended
March
31, 2007, from $20.2 million for the same period last year. This increase was
primarily the result of:
·
|
an
increase of $0.6 million due to adjustments to the daily charter
rate
based on inflation and increases from rising interest rates in accordance
with the time charter contracts for five Suezmax tankers. (However,
under
the terms of our capital leases for our tankers subject to these
charter
rate fluctuations, we had a corresponding increase in our lease payments,
which is reflected as an increase to interest expense. Therefore,
these
and future interest rate adjustments do not and will not affect our
cash
flow or net income); and
|
·
|
an
increase of $0.3 million for the three months ended March 31, 2007
relating to 15.8 days of off-hire for a scheduled drydocking for
one of
our Suezmax tankers during February 2006;
|
partially
offset by
· |
a
decrease of $0.5 million for the three months ended March 31, 2007,
relating to revenues earned by the Teide
Spirit
(the time charter for the Teide
Spirit
contains a component providing for additional revenues to us beyond
the
fixed hire rate when spot market rates exceed threshold
amounts).
|
Vessel
Operating Expenses.
Vessel
operating expenses increased 9.6% to $5.7 million for the three months ended
March 31, 2007, from $5.2 million for the same period last year. This increase
was primarily the result of an
increase of $0.5 million for the three months ended March 31, 2007, due to
the
effect on our Euro-denominated vessel operating expenses from the strengthening
of the Euro against the U.S. Dollar during the three months ended March 31,
2007, compared to the same period last year (a majority of our vessel operating
expenses are denominated in Euros, which is primarily a function of the
nationality of our crew).
Depreciation
and Amortization.
Depreciation and amortization for the three months ended March 31, 2007 remained
substantially unchanged from the same period last year.
Other
Operating Results
General
and Administrative Expenses.
General
and administrative expenses increased 12.9% to $3.5 million for the three months
ended March 31, 2007, from $3.1 million for the same period last year. This
increase was primarily the result of:
· |
an
increase of $0.1 million relating to stock-based compensation expense
recognized in the three months ended March 31, 2007;
|
· |
an
increase of $0.1 million in services provided under services agreements
between us and certain of our subsidiaries and subsidiaries of Teekay
Shipping Corporation; and
|
· |
a
number of smaller factors that increased general and administrative
expenses by $0.2 million.
|
Interest
Expense.
Interest expense increased 62.9% to $30.3 million for the three months ended
March 31, 2007, from $18.6 million for the same period last year. This increase
was primarily the result of:
· |
an
increase of $9.8 million relating to the increase in capital lease
obligations in connection with the delivery of the RasGas II LNG
Carriers
and an increase in debt of Teekay Nakilat used to finance restricted
cash
deposits and repay advances from Teekay Shipping Corporation;
|
· |
an
increase of $1.7 million, relating to debt of Teekay Nakilat (III)
used by
the RasGas 3 Joint Venture to fund shipyard construction installment
payments (this increase in interest expense from debt is offset by
a
corresponding increase in interest income from advances to joint
venture);
|
· |
an
increase of $1.0 million relating to debt incurred to finance the
acquisition of Teekay Nakilat and the Dania
Spirit;
|
· |
an
increase of $0.5 million for the three months ended March 31, 2007,
due to
the effect on our Euro-denominated debt from the strengthening of
the Euro
against the U.S. Dollar during such period compared to the same period
last year; and
|
· |
an
increase of $0.4 million from rising interest rates on our five Suezmax
tanker capital lease obligations (however, as described above, under
the
terms of the time charter contracts for these vessels, we received
corresponding increases in charter payments, which are reflected
as an
increase to voyage revenues);
|
partially
offset by
· |
a
decrease of $1.5 million from the purchase in December 2006 of the
Catalunya
Spirit,
which was on a capital lease prior to such purchase, and from scheduled
capital lease repayments on the Madrid
Spirit
(these LNG vessels were financed pursuant to Spanish tax lease
arrangements, under which we borrowed under term loans and deposited
the
proceeds into restricted cash accounts and entered into capital lease
for
the vessels; as a result, this decrease in interest expense from
the
capital lease is offset by a corresponding decrease in the interest
income
from restricted cash).
|
Interest
Income.
Interest income increased 50.0% to $11.1 million for the three months ended
March 31, 2007, from $7.4 million for the same period last year. Interest income
primarily reflects interest earned on restricted cash deposits that approximate
the present value of the remaining amounts we owe under lease arrangements
on
four of our LNG carriers. This increase was primarily the result
of:
· |
an
increase of $3.4 million, relating to additional restricted cash
deposits
for the RasGas II LNG Carriers, which were funded by debt;
|
· |
an
increase of $1.7 million, relating to interest-bearing advances made
by us
to the RasGas 3 Joint Venture for shipyard construction installment
payments; and
|
· |
an
increase of $0.2 million for the three months ended March 31, 2007,
due to
the effect on our Euro-denominated deposits from the strengthening
of the
Euro against the U.S. Dollar during such period compared to the same
period last year;
|
partially
offset by
· |
a
decrease of $1.7 million resulting from the purchase in December
2006 of
the Catalunya
Spirit,
which was on a capital lease prior to such purchase, and from scheduled
capital lease repayments on the Madrid
Spirit
which were funded with restricted cash
deposits.
|
Foreign
Currency Exchange Losses.
Foreign
currency exchange losses were $4.8 million for the three months ended March
31,
2007, compared to foreign currency exchange losses of $7.8 million for the
same
period last year. These foreign currency exchange losses, substantially all
of
which were unrealized, are due substantially to the relevant period-end
revaluation of Euro-denominated term loans for financial reporting purposes.
The
losses reflect a weaker U.S. Dollar against the Euro on the date of revaluation.
Other
Income.
Other
income of $0.5 million for the three months ended March 31, 2007 was
primarily comprised of $1.1 million in minority interest recovery, partially
offset by $0.5 million in income tax expense and $0.1 million of miscellaneous
expenses.
Other
income of $0.6 million for the three months ended March 31, 2006 was
comprised of $0.3 million of income tax recoveries and $0.3 million of
miscellaneous income.
Net
Income.
As a
result of the foregoing factors, net income was $1.4 million for the three
months ended March 31, 2007, compared to net income of $0.8 million for the
same
period last year.
Liquidity
and Capital Resources
Liquidity
and Cash Needs
As
at
March 31, 2007, our cash and cash equivalents was $35.4 million, compared
to
$28.9 million at December 31, 2006. Our total liquidity including cash, cash
equivalents and undrawn long-term borrowings, was $376.7 million as at March
31,
2007, compared to $444.5 million as at December 31, 2006. The decrease in
liquidity was primarily the result of the purchase of the Dania
Spirit
and a
partial repayment made on the promissory note due to Teekay Shipping Corporation
for the purchase of Teekay Nakilat. Both purchases were financed with borrowings
under our revolving credit facilities. The net proceeds from our sale of
2.3
million common units, in connection with our follow-on offering during May
2007,
will be used to repay outstanding debt on one of our revolving credit
facilities.
Our
primary short-term liquidity needs are to pay quarterly distributions on our
outstanding units and to fund general working capital requirements and
drydocking expenditures, while our long-term liquidity needs primarily relate
to
expansion and maintenance capital expenditures and debt repayment. Expansion
capital expenditures primarily represent the purchase or construction of vessels
to the extent the expenditures increase the operating capacity or revenue
generated by our fleet, while maintenance capital expenditures primarily consist
of drydocking expenditures and expenditures to replace vessels in order to
maintain the operating capacity or revenue generated by our fleet. We anticipate
that our primary sources of funds for our short-term liquidity needs will be
cash flows from operations, while our long-term sources of funds will be from
cash from operations, long-term bank borrowings and other debt or equity
financings, or a combination thereof.
We
believe that cash flows from operations will be sufficient to meet our liquidity
needs for at least the next 12 months. We will need to use certain of our
available liquidity or we may need to raise additional capital to finance
existing capital commitments. We are required to purchase five of our Suezmax
tankers, currently on capital lease arrangements, at various times from late
2007 to 2010. We anticipate that we will purchase these tankers by assuming
the
outstanding financing obligations that relate to them. However, we may be
required to obtain separate debt or equity financing to complete the purchases
if the lenders do not consent to our assuming the financing obligations. In
addition, we are committed to acquiring Teekay Shipping Corporation’s 70%
interest in the Teekay Tangguh Joint Venture and its 40% interest in the RasGas
3 Joint Venture as well as acquiring three LPG carriers from I.M. Skaugen ASA.
These additional purchase commitments, which occur in 2008, total $140.0
million. Please read Item 1 - Financial Statements: Note 12 Commitments and
Contingencies.
Cash
Flows. The
following table summarizes our sources and uses of cash for the periods
presented:
|
|
Three
Months Ended March 31,
|
|
|
|
2007
($000’s)
|
|
2006
($000’s)
|
|
|
|
|
|
|
|
Net
cash flow from operating activities:
|
|
|
13,806
|
|
|
16,388
|
|
Net
cash flow from financing activities:
|
|
|
127,452
|
|
|
(334,886
|
)
|
Net
cash flow from investing activities:
|
|
|
(134,722
|
)
|
|
311,430
|
|
Operating
Cash Flows. Net
cash
flow from operating activities decreased to $13.8 million for the three months
ended March 31, 2007, from $16.4 million for the same period in 2006, primarily
reflecting higher operational expenses incurred due to anticipated one-time
start-up costs for the two RasGas II LNG carriers, which delivered in the first
quarter of 2007, and the timing of our cash receipts and payments. Net cash
flow
from operating activities depends upon the timing and amount of drydocking
expenditures, repairs and maintenance activity, vessel additions and
dispositions, foreign currency rates, changes in interest rates, fluctuations
in
working capital balances and spot market hire rates (to the extent we have
vessels operating in the spot tanker market or our hire rates are partially
affected by spot market rates). The number of vessel drydockings tends to be
uneven between years.
Financing
Cash Flows. Our
investments in vessels and equipment have been financed primarily with term
loans and capital lease arrangements. Net proceeds from long-term debt were
$236.4 million and $91.6 million, respectively, for the three months ended
March
31, 2007 and 2006. During the three months ended March 31, 2007, we used these
funds primarily to partially repay the promissory note due to Teekay Shipping
Corporation for the purchase of Teekay Nakilat, the purchase of the Dania
Spirit,
and to
fund restricted cash deposits for the RasGas II LNG Carriers. From time to
time
we refinance our loans and revolving credit facilities.
During
the three months ended March 31, 2007, Teekay
Nakilat (III), a variable interest entity for which we are the primary
beneficiary, received $59.9 million of proceeds from long-term debt and loaned
these funds to the RasGas 3 Joint Venture, which were used to fund LNG
newbuilding construction payments.
During
the first quarter of 2007, we used $2.2 million of restricted cash deposits
to
pay for scheduled lease payments on three of our LNG carriers.
As
at
March 31, 2007, we had two long-term revolving credit facilities available
which
provided for borrowings of up to $454.3 million, of which $341.3 million was
undrawn. The amount available under the credit facilities reduces by $13.3
million (remainder of 2007), $18.2 million (2008), $18.8 million (2009), $19.4
million (2010), $20.0 million (2011) and $364.6 million (thereafter). Interest
payments are based on LIBOR plus margins. Both
revolving credit facilities may be used by us to fund general partnership
purposes. In addition, one credit facility may be used to fund cash
distributions. We are required to reduce all borrowings used to fund cash
distributions to zero for a period of at least 15 consecutive days during any
12-month period. The revolving credit facilities are collateralized by
first-priority mortgages granted on five of our vessels, together with other
related collateral, and include a guarantee from us or our subsidiaries of
all
outstanding amounts.
We
have a
U.S. Dollar-denominated term loan outstanding, which, as at March 31, 2007,
totaled $465.1 million. $296.9 million of the term loan bears interest at a
fixed rate of 5.39% and reduces in quarterly payments. The remaining $168.2
million bears interest based on LIBOR plus a margin and is repayable at maturity
in 2019. The term loan is collateralized by first-priority mortgages on the
vessels, together with certain other related collateral and guarantees from
us.
Teekay
Nakilat (III), a variable interest entity for which we are the primary
beneficiary, has a U.S.
Dollar-denominated term loan outstanding, which, as at March 31, 2007, totaled
$120.4 million. Interest payments on the term loan is based on LIBOR plus a
margin. The term loan reduces in quarterly payments commencing three months
after delivery of each related vessel, with varying maturities through 2020.
The
term loan is collateralized by first-priority mortgages on the vessels to which
the loan relates, together with certain other related collateral including
an
undertaking from Teekay Shipping Corporation. Upon transfer of the ownership
of
Teekay Nakilat (III) from Teekay Shipping Corporation to us, the rights and
obligations of Teekay Shipping Corporation under the undertaking, may, upon
the
fulfillment of certain conditions, be transferred to us.
We
have
two Euro-denominated term loans outstanding, which, as at March 31, 2007 totaled
309.8 million Euros ($413.8 million). These loans were used to make restricted
cash deposits that fully fund payments under capital leases. Interest payments
are based on EURIBOR plus margins. The term loans reduce in monthly payments
with varying maturities through 2023 and are collateralized by first-preferred
mortgages on the vessels to which the loans relate, together with certain other
related collateral and guarantees from Teekay Spain.
The
weighted-average effective interest rates for our long-term debt
outstanding at March 31, 2007 and 2006 were 5.5% and 4.6%, respectively. These
rates do not reflect the effect of related interest rate swaps that we have
used
to hedge certain of our floating-rate debt. At March 31, 2007, the margins
on
our long-term debt ranged from 0.50% to 1.30%.
Our
ship-owning subsidiaries may not pay dividends or distributions if we are in
default under our loan agreements and revolving credit facilities. Our capital
leases do not contain financial or restrictive covenants other than those
relating to operation and maintenance of the vessels.
Our
term
loans and revolving credit facilities contain typical covenants and other
restrictions including, but not limited to, one or more of the following that
restrict the ship-owning subsidiaries from:
· |
incurring
or guaranteeing indebtedness;
|
· |
changing
ownership or structure, including mergers, consolidations, liquidations
and dissolutions;
|
· |
making
dividends or distributions if we are in
default;
|
· |
making
capital expenditures in excess of specified
levels;
|
· |
making
certain negative pledges and granting certain
liens;
|
· |
selling,
transferring, assigning or conveying
assets;
|
· |
making
certain loans and investments; and
|
· |
entering
into a new line of business.
|
Certain
loan agreements require that a minimum level of tangible net worth, a minimum
level of aggregate liquidity, and a maximum level of leverage be maintained,
and
requires one of our subsidiaries to maintain restricted cash deposits.
Cash
distributions paid during the first quarter of 2007 increased to $16.5 million
from $14.7 million for the same period last year. This increase was the result
of a change in our quarterly distribution to $0.4625 per unit from $0.4125
per
unit, during the second quarter of 2006. Subsequent to March 31, 2007, cash
distributions declared and payable on May 14, 2007 for the three months ended
March 31, 2007 totaled $16.5 million. Commencing in the second quarter of 2007,
we anticipate increasing quarterly distributions to $0.53 per unit (or $2.12
per
unit on an annualized basis).
Investing
Cash Flows. During
2006, we acquired a 70% interest in Teekay Nakilat for $89.5 million of which
we
paid $26.9 million in 2006. In the first quarter of 2007, we paid another $53.7
million using existing undrawn revolving credit facilities, as discussed above.
Please read Item 1 - Financial Statements: Note 10(d) - Related Party
Transactions.
During
the first quarter of 2007, we acquired a 2000-built LPG carrier and the related
long-term, fixed-rate time charter from Teekay Shipping Corporation for a
purchase price of $18.5 million. Please read Item 1 - Financial Statements:
Note
10(h) - Related Party Transactions.
Contractual
Obligations and Contingencies
The
following table summarizes our long-term contractual obligations as at March
31,
2007:
|
|
Total
|
|
Balance
of
2007
|
|
2008
and
2009
|
|
2010
and
2011
|
|
Beyond
2011
|
|
|
|
(in
millions of U.S. Dollars)
|
|
U.S.
Dollar-Denominated Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt (1)
|
|
|
734.0
|
|
|
18.7
|
|
|
68.3
|
|
|
77.6
|
|
|
569.4
|
|
Commitments
under capital leases (2)
|
|
|
244.0
|
|
|
138.8
|
|
|
17.1
|
|
|
88.1
|
|
|
-
|
|
Commitments
under capital leases (3)
|
|
|
1,114.2
|
|
|
17.0
|
|
|
48.0
|
|
|
48.0
|
|
|
1,001.2
|
|
Advances
from affiliates
|
|
|
32.7
|
|
|
9.0
|
|
|
-
|
|
|
-
|
|
|
23.7
|
|
Purchase
obligations (4)
|
|
|
227.6
|
|
|
-
|
|
|
227.6
|
|
|
-
|
|
|
-
|
|
Total
U.S. Dollar-denominated obligations
|
|
|
2,352.5
|
|
|
183.5
|
|
|
361.0
|
|
|
213.7
|
|
|
1,594.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro-Denominated
Obligations: (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt (6)
|
|
|
413.8
|
|
|
7.4
|
|
|
21.8
|
|
|
224.2
|
|
|
160.4
|
|
Commitments
under capital leases (2)
(7)
|
|
|
220.4
|
|
|
31.1
|
|
|
66.8
|
|
|
122.5
|
|
|
-
|
|
Total
Euro-denominated obligations
|
|
|
634.2
|
|
|
38.5
|
|
|
88.6
|
|
|
346.7
|
|
|
160.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
2,986.7
|
|
|
222.0
|
|
|
449.6
|
|
|
560.4
|
|
|
1,754.7
|
|
(1) |
Excludes
expected interest payments of $41.4 million (remainder of 2007),
$78.7
million (2008 and 2009), $72.2 million (2010 and 2011) and $250.1
million
(beyond 2011). Expected interest payments are based on the existing
interest rates (fixed-rate loans) and LIBOR at March 31, 2007, plus
margins that ranged up to 1.05% (variable-rate loans). The expected
interest payments do not reflect the effect of related interest rate
swaps
that we have used to hedge certain of our floating-rate debt.
|
(2) |
Includes,
in addition to lease payments, amounts we are required to pay to
purchase
certain leased vessels at the end of the lease terms. We are obligated
to
purchase five of our existing Suezmax tankers upon the termination
of the
related capital leases, which will occur at various times from late
2007
to 2010. The purchase price will be based on the unamortized portion
of
the vessel construction financing costs for the vessels, which we
expect
to range from $39.4 million to $41.9 million per vessel. We expect
to
satisfy the purchase price by assuming the existing vessel financing.
We
are also obligated to purchase one of our existing LNG carriers upon
the
termination of the related capital leases on December 31, 2011. The
purchase obligation has been fully funded with restricted cash deposits.
Please read Item 1 - Financial Statements: Note 4 - Capital Lease
Obligations and Restricted Cash.
|
(3) |
Existing
restricted cash deposits of $564.1 million, together with the interest
earned on the deposits, will equal the remaining amounts we owe under
the
lease arrangements.
|
(4) |
On
November 1, 2006, we entered into an agreement with Teekay Shipping
Corporation to purchase its 70% interest in Teekay Tangguh and its
40%
interest in Teekay Nakilat (III). The purchases will occur upon the
delivery of the first newbuildings, which are scheduled for 2008.
Please
read Item 1 - Financial Statements: Notes 10(g) and 10(h) - Related
Party
Transactions and Note 12(a) - Commitments and
Contingencies.
|
In
December 2006, we entered into an agreement to acquire three LPG carriers from
I.M. Skaugen ASA, for approximately $29.2 million per vessel upon their delivery
between early 2008 and mid-2009. Please read Item 1 - Financial Statements:
Note
12(b) - Commitments and Contingencies.
(5) |
Euro-denominated
obligations are presented in U.S. Dollars and have been converted
using
the prevailing exchange rate as of March 31,
2007.
|
(6) |
Excludes
expected interest payments of $20.7 million (remainder of 2007),
$40.0
million (2008 and 2009), $32.6 million (2010 and 2011) and $64.0
million
(beyond 2011). Expected interest payments are based on EURIBOR at
March
31, 2007, plus margins that ranged up to 1.3%, as well as, the prevailing
U.S. Dollar / Euro exchange rate as of March 31, 2007. The expected
interest payments do not reflect the effect of related interest rate
swaps
that we have used to hedge certain of our floating-rate
debt.
|
(7) |
Existing
restricted cash deposits of $193.7 million, together with the interest
earned on the deposits, will equal the remaining amounts we owe under
the
lease arrangement, including our obligation to purchase the vessel
at the
end of the lease term.
|
Off-Balance
Sheet Arrangements
We
have
no off-balance sheet arrangements that have or are reasonably likely to have,
a
current or future material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
Critical
Accounting Estimates
We
prepare our consolidated financial statements in accordance with GAAP, which
require us to make estimates in the application of our accounting policies
based
on our best assumptions, judgments and opinions. On a regular basis, management
reviews the accounting policies, assumptions, estimates and judgments to ensure
that our consolidated financial statements are presented fairly and in
accordance with GAAP. However, because future events and their effects cannot
be
determined with certainty, actual results could differ from our assumptions
and
estimates, and such differences could be material. Accounting estimates and
assumptions discussed in this section are those that we consider to be the
most
critical to an understanding of our financial statements because they inherently
involve significant judgments and uncertainties. For a further description
of
our material accounting policies, please read Note 1 to our consolidated
financial statements for the year ended December 31, 2006, included in our
Annual Report on Form 20-F filed with the SEC.
Vessel
Lives and Impairment
Description.
The
carrying value of each of our vessels represents its original cost at the time
of delivery or purchase less depreciation or impairment charges. We depreciate
our vessels on a straight-line basis over a vessel's estimated useful life,
less
an estimated residual value. The carrying values of our vessels may not
represent their fair market value at any point in time since the market prices
of second-hand vessels tend to fluctuate with changes in charter rates and
the
cost of newbuildings. Both charter rates and newbuilding costs tend to be
cyclical in nature. We review vessels and equipment for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset
may
not be recoverable. We measure the recoverability of an asset by comparing
its
carrying amount to future undiscounted cash flows that the asset is expected
to
generate over its remaining useful life.
Judgments
and Uncertainties. Depreciation
is calculated using an estimated useful life of 25 years for Suezmax tankers,
35
years for LNG carriers, and 25 years for LPG carriers from the date the
vessel was originally delivered from the shipyard. In the shipping industry,
the
use of a 25-year vessel life for Suezmax tankers has become the prevailing
standard. In addition, the use of a 30 to 40 year vessel life for LNG carriers
and 25 to 35 years for LPG carriers is typical. However, the actual life of
a vessel may be different, with a shorter life resulting in an increase in
the
quarterly depreciation and potentially resulting in an impairment loss. The
estimates and assumptions regarding expected cash flows require considerable
judgment and are based upon existing contracts, historical experience, financial
forecasts and industry trends and conditions. We are not aware of any indicators
of impairments nor any regulatory changes or environmental liabilities that
we
anticipate will have a material impact on our current or future
operations.
Effect
if Actual Results Differ from Assumptions.
If we
consider a vessel or equipment to be impaired, we recognize impairment in an
amount equal to the excess of the carrying value of the asset over its fair
market value. The new lower cost basis will result in a lower annual
depreciation than before the vessel impairment.
Drydocking
Description.
We
capitalize a substantial portion of the costs we incur during drydocking and
an
intermediate survey and amortize those costs on a straight-line basis from
the
completion of a drydocking or intermediate survey to the estimated completion
of
the next drydocking or survey. We expense costs related to routine repairs
and
maintenance incurred during drydocking that do not improve or extend the useful
lives of the assets.
Judgments
and Uncertainties. Amortization
of capitalized drydock expenditures requires us to estimate the period of the
next drydocking. While we typically drydock each LNG and LPG carrier and Suezmax
tanker every five years and have a shipping society classification intermediate
survey performed on our LNG and LPG carriers between the second and third year
of the five-year drydocking period, we may drydock the vessels at an earlier
date.
Effect
if Actual Results Differ from Assumptions.
If we
change our estimate of the next drydock date for a vessel, we will adjust our
annual amortization of drydocking expenditures.
Goodwill
and Intangible Assets
Description.
We
allocate the cost of acquired companies to the identifiable tangible and
intangible assets and liabilities acquired, with the remaining amount being
classified as goodwill. Certain intangible assets, such as time charter
contracts, are being amortized over time. Our future operating performance
will
be affected by the amortization of intangible assets and potential impairment
charges related to goodwill. Accordingly, the allocation of purchase price
to
intangible assets and goodwill may significantly affect our future operating
results. Goodwill and indefinite lived assets are
not
amortized, but reviewed for impairment annually, or more frequently if
impairment indicators arise. The process of evaluating the potential impairment
of goodwill and intangible assets is highly subjective and requires significant
judgment at many points during the analysis.
Judgments
and Uncertainties. The
allocation of the purchase price of acquired companies to intangible assets
and
goodwill requires management to make significant estimates and assumptions,
including estimates of future cash flows expected to be generated by the
acquired assets and the appropriate discount rate to value these cash flows.
In
addition, the process of evaluating the potential impairment of goodwill and
intangible assets is highly subjective and requires significant judgment at
many
points during the analysis. The fair value of our reporting units was estimated
based on discounted expected future cash flows using a weighted-average cost
of
capital rate. The estimates and assumptions regarding expected cash flows and
the discount rate require considerable judgment and are based upon existing
contracts, historical experience, financial forecasts and industry trends and
conditions.
Effect
if Actual Results Differ from Assumptions. Our
acquisition of Teekay Spain resulted in us allocating $183.1 million of the
purchase price to intangible assets and $39.3 million of the purchase price
to
goodwill. In the fourth quarter of 2006, we completed our annual impairment
testing of goodwill using the methodology described herein, and determined
there
was no impairment. If actual results are not consistent with our assumptions
and
estimates, we may be exposed to a goodwill impairment charge. As at March 31,
2007 and December 31, 2006, the net book value of goodwill was
$39.3 million. If actual results are not consistent with our estimates used
to value our intangible assets, we may be exposed to an impairment charge and
a
decrease in the annual amortization expense of our intangible assets. As at
March 31, 2007 and December 31, 2006, the net book value of intangible assets
was $157.8 million and $160.1 million, respectively.
Taxes
Description.
We
adopted FIN 48 as of January 1, 2007. FIN 48 requires us to determine whether
it
is more-likely-than-not that a tax position taken or expected to be taken in
a
tax return will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical merits of the
position. If a tax position meets the more-likely-than-not recognition
threshold, it is measured to determine the amount of benefit to recognize in
the
financial statements based on guidance in the interpretation. If we determined
that we were more-likely-than-not able to realize a net deferred tax asset
in
the future, in excess of the net recorded amount, an adjustment to the deferred
tax assets would typically increase our net income in the period such
determination was made.
Judgments
and Uncertainties. Management
must use judgment to estimate whether it is more-likely-than-not that a tax
position taken or expected to be taken in a tax return will be sustained
upon
examination. Management must also use judgment to estimate the amounts and
probabilities of the outcomes that could be realized upon ultimate settlement
using the facts, circumstances, and information available at the reporting
date.
Effect
if Actual Results Differ from Assumptions. We
have
unrecognized tax benefits of 3.4 million Euro ($4.5 million) relating to a
re-investment tax credit in one of our 2005 annual tax filings. This filing
is
currently under review by the relevant tax authorities and we expect the
uncertainty surrounding this tax credit to be resolved within the next twelve
months. If the tax credit is approved, we will receive a refund for the amount
of the credit which will be reflected as a credit to equity in the period of
approval.
FORWARD-LOOKING
STATEMENTS
This
Report on Form 6-K for the three months ended March 31, 2007 contains certain
forward-looking statements (as such term is defined in Section 27A of the
Securities Exchange Act of 1933 as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended) concerning future events and our operations,
performance and financial condition, including, in particular, statements
regarding: our future financial condition, results of operations and revenues
and expenses; LNG, LPG and tanker market fundamentals, including the balance
of
supply and demand in the LNG, LPG and tanker markets; future capital
expenditures and availability of capital resources to fund capital expenditures;
delivery dates of and financing for newbuildings; the commencement of service
of
newbuildings under long-term contracts; our liquidity needs; anticipated
increases in our quarterly distributions; the expected outcome of a review
by
the tax authorities regarding a 3.4 million Euro ($4.5 million) re-investment
tax credit; the expected timing, amount and method of financing for the purchase
of joint venture interests and vessels, including our five Suezmax tankers
operated pursuant to capital leases; the timing of the commencement of the
RasGas II, RasGas 3 and Tangguh LNG projects; the expected receipt of proceeds
from a 30-day option provided to our underwriters to purchase up to an
additional 345,000 units to cover over-allotments; the losses and costs
associated with damage to the Madrid
Spirit
on March
29, 2007. Forward-looking statements include, without limitation, any statement
that may predict, forecast, indicate or imply future results, performance or
achievements, and may contain the words “believe”, “anticipate”, “expect”,
“estimate”, “project”, “will be”, “will continue”, “will likely result”, “plan”,
“intend” or words or phrases of similar meanings. These statements involve known
and unknown risks and are based upon a number of assumptions and estimates
that
are inherently subject to significant uncertainties and contingencies, many
of
which are beyond our control. Actual results may differ materially from those
expressed or implied by such forward-looking statements. Important factors
that
could cause actual results to differ materially include, but are not limited
to:
changes in production of LNG, LPG or oil; greater or less than anticipated
levels of vessel newbuilding orders or greater or less than anticipated rates
of
vessel scrapping; changes in trading patterns; changes in applicable industry
laws and regulations and the timing of implementation of new laws and
regulations; LNG or LPG infrastructure constraints and community and
environmental group resistance to new LNG or LPG infrastructure; potential
development of an active short-term or spot LNG or LPG shipping markets;
potential inability to implement our growth strategy; competitive factors in
the
markets in which we operate; potential for early termination of long-term
contracts and our potential inability to renew or replace long-term contracts;
loss of any customer, time charter or vessel; shipyard production or vessel
delivery delays; changes in tax regulations; our potential inability to raise
financing to purchase additional vessels; our exposure to currency exchange
rate
fluctuations; conditions in the public equity markets; and other factors
detailed from time to time in our periodic reports, including our Annual Report
on Form 20-F for the year ended December 31, 2006, filed with the SEC. We do
not
intend to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in our expectations with
respect thereto or any change in events, conditions or circumstances on which
any such statement is based.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
MARCH
31, 2007
PART
I - FINANCIAL INFORMATION
Item
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Interest
Rate Risk
We
are
exposed to the impact of interest rate changes primarily through our unhedged
floating-rate borrowings. Significant increases in interest rates could
adversely affect our operating margins, results of operations and our ability
to
service our debt. We use interest rate swaps to reduce our exposure to market
risk from changes in interest rates. The principal objective of these contracts
is to minimize the risks and costs associated with our floating-rate debt.
Changes in the fair value of our interest rate swaps are recognized in other
comprehensive income until the hedged item is recognized in income. The
ineffective portion of an interest rate swap’s change in fair value is
immediately recognized in income.
The
table
below provides information about our financial instruments at March 31, 2007,
that are sensitive to changes in interest rates. For debt obligations, the
table
presents principal payments and related weighted-average interest rates by
expected maturity dates. For interest rate swaps, the table presents notional
amounts and weighted-average interest rates by expected contractual maturity
dates.
|
|
Expected
Maturity Date
|
|
|
|
|
|
Balance
of
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
There-after
|
|
Total
|
|
Fair
Value
Asset/
(Liability)
|
|
Rate
(1)
|
|
|
|
(in
millions of U.S. dollars, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Rate ($U.S.) (2)
|
|
|
-
|
|
|
4.6
|
|
|
13.9
|
|
|
13.9
|
|
|
13.9
|
|
|
355.3
|
|
|
401.6
|
|
|
(401.6
|
)
|
|
6.0
|
%
|
Variable
Rate (Euro) (3)
(4)
|
|
|
7.4
|
|
|
10.5
|
|
|
11.3
|
|
|
12.1
|
|
|
212.1
|
|
|
160.4
|
|
|
413.8
|
|
|
(413.8
|
)
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate
Debt ($U.S.)
|
|
|
18.7
|
|
|
24.9
|
|
|
24.9
|
|
|
24.9
|
|
|
24.9
|
|
|
214.1
|
|
|
332.4
|
|
|
(324.8
|
)
|
|
5.4
|
%
|
Average
Interest Rate
|
|
|
5.4
|
%
|
|
5.4
|
%
|
|
5.4
|
%
|
|
5.4
|
%
|
|
5.4
|
%
|
|
5.4
|
%
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Lease Obligations (5)
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-Rate
($U.S.) (7)
|
|
|
128.5
|
|
|
3.7
|
|
|
3.8
|
|
|
84.0
|
|
|
-
|
|
|
-
|
|
|
220.0
|
|
|
(220.0
|
)
|
|
7.4
|
%
|
Average
Interest Rate (8)
|
|
|
8.8
|
%
|
|
5.4
|
%
|
|
5.4
|
%
|
|
5.5
|
%
|
|
-
|
|
|
-
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swaps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
Amount ($U.S.) (6)
(9)
|
|
|
1.8
|
|
|
4.5
|
|
|
9.3
|
|
|
14.1
|
|
|
14.5
|
|
|
594.4
|
|
|
638.6
|
|
|
(21.8
|
)
|
|
5.5
|
%
|
Average
Fixed Pay Rate (2)
|
|
|
6.2
|
%
|
|
6.2
|
%
|
|
5.7
|
%
|
|
5.6
|
%
|
|
5.6
|
%
|
|
5.5
|
%
|
|
5.5
|
%
|
|
|
|
|
|
|
Contract
Amount (Euro) (4)
(10)
|
|
|
7.4
|
|
|
10.5
|
|
|
11.3
|
|
|
12.1
|
|
|
212.1
|
|
|
160.4
|
|
|
413.8
|
|
|
18.2
|
|
|
3.8
|
%
|
Average
Fixed Pay Rate (3)
|
|
|
3.8
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
|
3.8
|
%
|
|
|
|
|
|
|
(1) |
Rate
refers to the weighted-average effective interest rate for our long-term
debt and capital lease obligations, including the margin we pay on
our
floating-rate debt and the average fixed pay rate for our interest
rate
swap agreements. The average interest rate for our capital lease
obligations is the weighted-average interest rate implicit in our
lease
obligations at the inception of the leases. The average fixed pay
rate for
our interest rate swaps excludes the margin we pay on our floating-rate
debt, which as of March 31, 2007 ranged from 0.50% to 1.30%. 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
amounts have been converted to U.S. Dollars using the prevailing
exchange
rate as of March 31, 2007.
|
(5) |
Excludes
capital lease obligations (present value of minimum lease payments)
of
137.0 million Euros ($183.1 million) on one of our existing LNG carriers
with a weighted-average fixed interest rate of 5.8%. Under the terms
of
this fixed-rate lease obligation, we are required to have on deposit,
subject to a weighted-average fixed interest rate of 5.0%, an amount
of
cash that, together with the interest earned thereon, will fully
fund the
amount owing under the capital lease obligation, including a vessel
purchase obligation. As at March 31, 2007, this amount was 140.8
million
Euros ($188.0 million). Consequently, we are not subject to interest
rate
risk from these obligations or
deposits.
|
(6) |
Under
the terms of the capital leases for the RasGas II LNG Carriers (see
Item 1
- Financial Statements: Note 4 - Capital Leases and Restricted Cash),
we
are required to have on deposit, subject to a variable rate of interest,
an amount of cash that, together with interest earned on the deposit,
will
equal the remaining amounts owing under the variable-rate leases.
The
deposits, which as at March 31, 2007 totaled $564.1 million, and
the lease
obligations, which as at March 31, 2007 totaled $468.5 million, have
been
swapped for fixed-rate deposits and fixed-rate obligations. Consequently,
Teekay Nakilat is not subject to interest rate risk from these obligations
and deposits and, therefore, the lease obligations, cash deposits
and
related interest rate swaps have been excluded from the table above.
As at
March 31, 2007, the contract amount, fair value and fixed interest
rates
of these interest rate swaps related to Teekay Nakilat’s capital lease
obligations and restricted cash deposits were $491.3 million and
$468.5
million, $23.2 million and ($30.1) million, and 4.9% and 4.8%
respectively.
|
(7) |
The
amount of capital lease obligations represents the present value
of
minimum lease payments together with our purchase obligation, as
applicable.
|
(8) |
The
average interest rate is the weighted-average interest rate implicit
in
the capital lease obligations at the inception of the leases.
|
(9) |
The
average variable receive rate for our U.S. Dollar-denominated interest
rate swaps is set quarterly at 3-month
LIBOR.
|
(10) |
The
average variable receive rate for our Euro-denominated interest rate
swaps
is set monthly at 1-month EURIBOR.
|
Counterparties
to these financial instruments expose us to credit-related losses in the event
of nonperformance; however, counterparties to these agreements are major
financial institutions, and we consider the risk of loss due to nonperformance
to be minimal. We do not require collateral from these institutions. We do
not
hold or issue interest rate swaps for trading purposes.
Foreign
Currency Fluctuation Risk
We
are
exposed to the impact of changes in foreign currency exchange rates. Revenues
generated from three of our time charters are either partially or solely
denominated in Euros. During the first quarters of 2007 and 2006, we earned
approximately 14.8 million Euros ($19.5 million) and 15.2 million Euros ($19.0
million), respectively, in Euro-denominated revenues from these three time
charters. The Euro-denominated cash received from these charters is used for
payment of Euro-denominated expenditures, including vessel operating expenses
for our Spanish crew, general and administrative expenses for our Madrid office
and interest and principal repayments for our Euro-denominated debt. Our
Euro-denominated revenues currently approximate our Euro-denominated expenses
and Euro-denominated loan and interest payments. For this reason, we have not
entered into any forward contracts or similar arrangements to protect against
the currency risk of foreign currency-denominated revenues, expenses, monetary
assets or monetary liabilities. If our foreign currency-denominated revenues
and
expenses become sufficiently disproportionate in the future, we may engage
in
hedging activities.
TEEKAY
LNG PARTNERS L.P. AND SUBSIDIARIES
MARCH
31, 2007
PART
II - OTHER INFORMATION
Item
1
- Legal Proceedings
None
Item
1A - Risk Factors
In
addition to the other information set forth in this Report on Form 6-K, you
should carefully consider the risk factors discussed in Part I,
“Item 3. Key Information” in our Annual Report on Form 20-F for the year
ended December 31, 2006, which could materially affect our business,
financial condition or results of operations. There have been no material
changes in our risk factors from those disclosed in our 2006 Annual Report
on
Form 20-F.
Item
2
- Unregistered Sales of Equity Securities and Use of Proceeds
None
Item
3
- Defaults Upon Senior Securities
None
Item
4
- Submission of Matters to a Vote of Security Holders
None
Item
5
- Other Information
None
Item
6
- Exhibits
The
following exhibits are filed as part of this Report:
3.1
|
Certificate of Limited Partnership of
Teekay LNG Partners L.P. (1) |
3.2
|
First
Amended and Restated Agreement of
Limited Partnership of Teekay LNG Partners L.P., as amended
(2)
|
3.3
|
Certificate of Formation of Teekay G.P.
L.L.C. (1) |
3.4
|
Form of Second Amended and Restated
Limited Liability Company Agreement of Teekay GP L.L.C. (3) |
10.1
|
Agreement between Teekay Shipping
Corporation and Teekay LNG Partners L.P. (4) |
15.1
|
Acknowledgement of Independent
Registered Public Accounting Firm |
(1)
Previously filed as an exhibit to the Partnership’s Registration Statement on
Form F-1 (File No. 333-120727), filed with the SEC on November 24, 2004, and
hereby incorporated by reference to such Registration Statement.
(2)
Previously filed as an exhibit to the Partnership’s Report on Form 6-K (File No.
1-32479), filed with the SEC on August 17, 2006, and hereby incorporated by
reference to such Report.
(3)
Previously filed as an exhibit to the Partnership’s Amendment No. 3 to
Registration Statement on Form F-1 (File No. 333-120727), filed with the SEC
on
April 11, 2005, and hereby incorporated by reference to such Registration
Statement.
(4)
Previously filed as an exhibit to the Partnership’s Report on Form 6-K (File No.
1-32479), filed with the SEC on May 14, 2007, and hereby incorporated by
reference to such Report.
THIS
REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING
REGISTRATION STATEMENTS OF THE PARTNERSHIP:
· REGISTRATION
STATEMENT ON FORM S-8 (NO. 333-124647) FILED WITH THE SEC ON MAY 5,
2005
· REGISTRATION
STATEMENT ON FORM F-3 (NO. 333-137697) FILED WITH THE SEC ON SEPTEMBER 29,
2006
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: May
29, 2007
|
TEEKAY
LNG PARTNERS L.P.
By:
Teekay GP L.L.C., its general partner
By:
/s/
Peter
Evensen
Peter
Evensen
Chief
Executive Officer and Chief Financial Officer
(Principal
Executive Financial and Accounting
Officer)
|
Exhibit
15.1
ACKNOWLEDGEMENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
May
29,
2007
To
the
Board of Directors and Unitholders of Teekay LNG Partners L.P.
We
are
aware of the incorporation by reference in the Registration Statement (Form
S-8
No. 333-124647) pertaining to the Teekay LNG Partners L.P. 2005 Long Term
Incentive Plan and in the Registration Statement (Form F-3 No. 333-137697)
and
related prospectus of Teekay LNG Partners L.P. for the registration of up to
$400,000,000 in total aggregate offering price of an indeterminate number of
common units and debt securities of our report dated May 21, 2007 relating
to
the unaudited interim consolidated financial statements of Teekay LNG Partners
L.P. and its subsidiaries that is included in its interim report (Form 6-K)
for
the three months ended March 31, 2007.
Pursuant
to Rule 436(c) of the Securities Act of 1933, our report is not a part of the
registration statement prepared or certified by accountants within the meaning
of Section 7 or 11 of the Securities Act of 1933.
/s/
Ernst
& Young LLP
Chartered
Accountants
Vancouver,
Canada