Eight of
our vessels are financed by U.K. tax leases. In the event of any
adverse tax changes to legislation affecting the tax treatment of the leases for
the U.K. vessel lessors or a successful challenge by the U.K. Revenue
authorities to the tax assumptions on which the transactions were based, or in
the event that we terminate any of our U.K. tax leases before their expiration,
we would be required to return all or a portion of, or in certain circumstances
significantly more than, the upfront cash benefits that we have received or that
have accrued over time, together with fees that were incurred in connection with
our lease financing transactions, or post additional security or make additional
payments to the U.K. vessel lessors. Any additional payments could
adversely affect our earnings and financial position. The upfront
benefits we have received equates to the cash inflow we received in connection
with the six leases we entered into during 2003 (in total a gross amount before
deduction of fees of approximately £41 million British pounds, or GBP). Two of
our U.K. tax leases accrue benefit over the term of the leases. The remaining
six UK tax leases were structured so that a cash benefit was received up
front.
Servicing
our debt and lease agreements substantially limits our funds available for other
purposes.
A large
portion of our cash flow from operations is used to repay the principal and
interest on our debt and lease agreements. As of December 31, 2009,
our net indebtedness (including loan debt, capital lease obligations, net of
restricted cash and short-term deposits and net of cash and cash equivalents)
was $878.1 million and our ratio of net indebtedness to total capital
(comprising net indebtedness plus shareholders' equity and
noncontrolling interest) was 0.57.
We may
also incur additional indebtedness to fund our possible expansion into other
areas of the LNG industry, for example in respect of our FSRU
projects. Debt payments reduce our funds available for expansion into
other parts of the LNG industry, working capital, capital expenditures and other
purposes. In addition, our business is capital intensive and requires
significant capital outlays that result in high fixed costs. We
cannot assure investors that our existing and future contracts will provide
revenues adequate to cover all of our fixed and variable costs.
An
increase in interest rates could materially and adversely affect our financial
performance.
As of December 31, 2009, we had a total
long-term debt and net capital lease obligations (net of restricted cash)
outstanding of $1,011.6 million of which currently $358.2 million is exposed to
a floating rate of interest. We use interest rate swaps to manage
interest rate risk. As of December 31, 2009, our interest rate swap
arrangements effectively fix the interest rate exposure on $643.4 million of
floating rate bank debt and capital lease obligation. In addition there is $10
million of fixed rate debt. If interest rates rise significantly, our
results of operations could be materially and adversely
affected. Increases and decreases in interest rates will affect the
cost of floating rate debt but may also affect the mark-to-market valuation of
interest rate swaps which will also affect our results. Additionally,
to the extent that our lease obligations are secured by restricted cash
deposits, our exposure to interest rate movements is hedged to a large
extent. However, movements in interest rates may require us to place
more cash into our restricted deposits and this could also materially and
adversely affect our results of operations.
Exposure
to currency exchange rate fluctuations will result in fluctuations in our cash
flows and operating results.
Currency
exchange rate fluctuations and currency devaluations could have an adverse
effect on our results of operations from quarter to
quarter. Historically our revenue has been generated in U.S. Dollars,
but we incur capital, operating and administrative expenses in multiple
currencies.
We are
exposed to foreign currency exchange fluctuations as a result of expenses paid
by certain subsidiaries in currencies other than U.S. Dollars, such as GBP, in
relation to our administrative office in the U.K., operating expenses incurred
in a variety of foreign currencies including Euros and Singapore Dollars, among
others; and multiple currencies including Euros, Singapore Dollars and Norwegian
Krone in respect of our FSRU conversion contracts. If the U.S. Dollar
weakens significantly this could increase our expenses and therefore could have
a negative effect on our financial results.
Under the
charters for the Golar
Spirit and the Golar
Winter, we will generate a portion of our revenues in Brazilian
Reais. Income under these charters is split into two
components. The component that relates to operating expenses (the
minority) is paid in Brazilian Reais, whereas the capital component is paid in
U.S. Dollars. We will incur some operating expenses in Brazilian
Reais but we will also have to convert Brazilian Reais into other currencies,
including U.S. Dollars, in order to pay the remaining operating expenses
incurred in other currencies. If the Brazilian Real weakens
significantly, we may not have sufficient Brazilian Reais to convert to other
currencies to satisfy our obligations in respect of the operating expenses
related to these charters, which would have a negative effect on our financial
results and cash flows.
We have
entered into currency forward contracts or similar derivatives to mitigate our
exposure to these foreign exchange rate fluctuations in respect of our capital
commitments relating to our FSRU conversion contracts.
Eight of
our vessels are financed by U.K. tax leases, seven of which are denominated in
GBPs. The majority of our GBP capital lease obligations are hedged by
GBP cash deposits securing the lease obligations or by currency
swap. However, these are not perfect hedges and a significant
strengthening of the U.S. Dollar could give rise to an increase in our financial
expenses and could materially affect our financial results (See Item 11- Foreign
currency risk).
Exposure
to equity price risk in our shares and in the shares of other companies could
adversely affect our financial results.
As a
result of our holding of treasury shares as of March 31, 2010 we are effectively
exposed to the movement in our share price in respect of 450,000 treasury
shares.
We
may have to pay tax on United States source income, which would reduce our
earnings.
Under the
United States Internal Revenue Code of 1986, or the Code, 50% of the gross
shipping income of a vessel owning or chartering corporation, such as ourselves
and our subsidiaries, that is attributable to transportation that begins or
ends, but that does not both begin and end, in the United States, may be subject
to a 4% U.S. federal income tax without allowance for deduction, unless that
corporation qualifies for exemption from tax under Section 883 of the Code and
the applicable Treasury Regulations recently promulgated
thereunder.
We expect
that we and each of our subsidiaries will qualify for this statutory tax
exemption and we will take this position for U.S. federal income tax return
reporting purposes. However, there are factual circumstances beyond
our control that could cause us to lose the benefit of this tax exemption and
thereby become subject to U.S. federal income tax on our U.S. source
income. Therefore, we can give no assurances on our tax-exempt status
or that of any of our subsidiaries.
If, we or
our subsidiaries, are not entitled to exemption under Section 883 of the Code
for any taxable year, we, or our subsidiaries, could be subject for those years
to an effective 4% U.S. federal income tax on the gross shipping income these
companies derive during the year that are attributable to the transport or
cargoes to or from the United States. The imposition of this tax
would have a negative effect on our business and would result in decreased
earnings available for distribution to our shareholders.
United
States tax authorities could treat us as a "passive foreign investment company",
which could have adverse United States federal income tax consequences to U.S.
holders.
A foreign
corporation will be treated as a "passive foreign investment company," or PFIC,
for U.S. federal income tax purposes if either (1) at least 75% of its gross
income for any taxable year consists of certain types of "passive income" or (2)
at least 50% of the average value of the corporation's assets produce or are
held for the production of those types of "passive income." For
purposes of these tests, "passive income" includes dividends, interest, and
gains from the sale or exchange of investment property and rents and royalties
other than rents and royalties which are received from unrelated parties in
connection with the active conduct of a trade or business. For
purposes of these tests, income derived from the performance of services does
not constitute "passive income." U.S. shareholders of a PFIC are subject to a
disadvantageous U.S. federal income tax regime with respect to the income
derived by the PFIC, the distributions they receive from the PFIC and the gain,
if any, they derive from the sale or other disposition of their shares in the
PFIC.
Based on
our current and expected future method of operation, we do not believe that we
will be a PFIC with respect to any taxable year. In this regard, we
intend to treat the gross income we derive or are deemed to derive from our time
chartering activities as services income, rather than rental
income. Accordingly, we believe that our income from our time
chartering activities does not constitute "passive income," and the assets that
we own and operate in connection with the production of that income do not
constitute passive assets.
There is,
however, no direct legal authority under the PFIC rules addressing our method of
operation. We believe there is substantial legal authority supporting
our position consisting of case law and United States Internal Revenue Service,
or IRS, pronouncements concerning the characterization of income derived from
time charters and voyage charters as services income for other tax
purposes. However, we note that there is also authority which
characterizes time charter income as rental income rather than services income
for other tax purposes. Accordingly, no assurance can be given that
the IRS or a court of law will accept our position, and there is a risk that the
IRS or a court of law could determine that we are a PFIC. Moreover,
no assurance can be given that we would not constitute a PFIC for any future
taxable year if there were to be changes in the nature and extent of our
operations.
If the
IRS were to find that we are or have been a PFIC for any taxable year, our U.S.
shareholders will face adverse U.S. tax consequences. Under the PFIC
rules, unless those shareholders make an election available under the Code
(which election could itself have adverse consequences for such shareholders),
such shareholders would be liable to pay U.S. federal income tax at the then
prevailing income tax rates on ordinary income plus interest upon excess
distributions and upon any gain from the disposition of our common stock, as if
the excess distribution or gain had been recognized ratably over the
shareholder's holding period of our common stock. Please see the
section of this annual report entitled "Taxation" under Item 10E for a more
comprehensive discussion of the U.S. federal income tax consequences if we were
to be treated as a PFIC.
We
are a holding company, and our ability to pay dividends will be limited by the
value of investments we currently hold and by the distribution of funds from our
subsidiaries.
We are a
holding company whose assets mainly comprise of equity interests in our
subsidiaries and other quoted and non-quoted companies. As a result,
should we decide to pay dividends we would be dependent on the performance of
our operating subsidiaries and other investments. If we were not able
to receive sufficient funds from our subsidiaries and other investments,
including from the sale of our investment interests, we will not be able to pay
dividends unless we obtain funds from other sources. We may not be
able to obtain the necessary funds from other sources on terms acceptable to
us.
Risks
Related to the LNG Shipping and FSRU Industry
The
operation of LNG carriers and FSRUs is inherently risky, and an incident
involving significant loss or environmental consequences involving any of
our vessels could harm our reputation and business.
The
operation of an ocean-going vessel carries inherent risks. These
risks include the possibility of:
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Environmental
accidents; and
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Business
interruptions caused by mechanical failure, human error, war, terrorism,
political action in various countries, labor strikes, or adverse weather
conditions.
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Any of
these circumstances or events could increase our costs or lower our
revenues. The involvement of our vessels in an oil spill or other
environmental disaster may harm our reputation as a safe and reliable LNG
carrier operator.
If our
vessels suffer damage, they may need to be repaired. The costs of
vessel repairs are unpredictable and can be substantial. We may have
to pay repair costs that our insurance policies do not cover. The
loss of earnings while these vessels are being repaired, as well as the actual
cost of these repairs, would decrease our results of operations. If
one of our vessels were involved in an accident with the potential risk of
environmental contamination, the resulting media coverage could have a material
adverse effect on our business, our results of operations and cash flows, weaken
our financial condition and negatively affect our ability to pay
dividends.
The
recent global financial crisis could negatively impact our
business.
Recently,
the credit markets and the financial services industry have been experiencing a
period of unprecedented turmoil and difficulties characterized by the
bankruptcy, failure, or sale of various financial institutions. The
ongoing global financial crisis affecting the banking system and financial
markets has resulted in a severe tightening in the credit markets, a low level
of liquidity in financial markets, and volatility in credit and equity
markets. This financial crisis may negatively impact our business and
financial condition in ways that we currently cannot predict. In
addition, the uncertainty about current and future global economic conditions
caused by the financial crisis may cause our customers and governments to defer
projects in response to tighter credit, decreased cash availability and
declining customer confidence which may negatively impact the demand for our
services. The recent tightening of the credit markets may further
negatively impact our operations by affecting the solvency of our suppliers or
customers which could lead to disruptions in delivery of supplies such as
equipment for conversions, cost increases for supplies, accelerated payments to
suppliers, customer bad debts or reduced revenues. Furthermore, a
further decline in our share price or significant adverse change in market
conditions could require us to take a further material impairment charge related
to our long-term assets.
The
recent economic downturn may affect our customers' ability to charter our
vessels and pay for our services and may adversely affect our business and
results of operations.
The
recent economic downturn in the global financial markets may lead to a decline
in our customers' operations or ability to pay for our services, which could
result in decreased demand for our vessels and services. Our customer's
inability to pay could also result in their default on our current contracts and
charters. The decline in the amount of services requested by our customers or
their default on our contracts with them could have a material adverse effect on
our business, financial condition and results of operations. We cannot determine
whether the difficult conditions in the economy and the financial markets will
improve or worsen in the near future.
Decreases
in charter rates for LNG carriers and FSRUs when we are seeking to re-deploy our
vessels may adversely affect our earnings.
Charter
rates for LNG carriers and FSRUs fluctuate over time as a result of changes in
the supply-demand balance relating to current and future LNG
capacity. This supply-demand relationship largely depends on a number
of factors outside our control. The LNG market is closely connected
to world natural gas prices and energy markets, which we cannot
predict. A substantial or extended decline in natural gas prices
could adversely affect our charter business as well as our business
opportunities. Our ability from time to time to charter or re-charter
any vessel at attractive rates will depend on, among other things, the
prevailing economic conditions in the LNG industry.
The
LNG transportation industry is competitive and we may not be able to compete
successfully, which would adversely affect our earnings.
The LNG
transportation industry in which we operate is competitive, especially with
respect to the negotiation of long-term charters. Competition arises
primarily from other LNG carrier owners, some of whom have substantially greater
resources than we do. Furthermore, new competitors with greater
resources could enter the market for LNG carriers and FSRUs and operate larger
fleets through consolidations, acquisitions, or the purchase of new vessels, and
may be able to offer lower charter rates and more modern fleets. If
we are not able to compete successfully, our earnings could be adversely
affected. Competition may also prevent us from achieving our goal of
profitably expanding into other areas of the LNG industry.
Our
vessels are required to trade globally and we must therefore conduct our
operations in many parts of the world, and accordingly our vessels are exposed
to international risks, which could reduce revenue or increase
expenses.
We
conduct global operations and transport LNG from politically unstable
regions. Changing economic, regulatory and political conditions in
some countries, including political and military conflicts, have from time to
time resulted in attacks on vessels, mining of waterways, piracy, terrorism and
other efforts to disrupt shipping. The terrorist attacks against
targets in the United States on September 11, 2001, the military response by the
United States and the conflict in Iraq may increase the likelihood of acts of
terrorism worldwide. Acts of terrorism, regional hostilities or other
political instability could affect LNG trade patterns and reduce our revenue or
increase our expenses. Further, we could be forced to incur
additional and unexpected costs in order to comply with changes in the laws or
regulations of the nations in which our vessels operate. These
additional costs could have a material adverse impact on our operating results,
revenue, and costs.
The
aging of our fleet may result in increased operating costs in the future, which
could adversely affect our earnings.
In
general, the cost of maintaining a vessel in good operating condition increases
with the age of the vessel. As our fleet ages, we will incur increased costs.
Older vessels are typically less fuel efficient and more costly to maintain than
more recently constructed vessels due to improvements in engine technology.
Cargo insurance rates also increase with the age of a vessel, making older
vessels less desirable to charterers. Governmental regulations, including
environmental regulations, safety or other equipment standards related to the
age of vessels may require expenditures for alterations or the addition of new
equipment, to our vessels and may restrict the type of activities in which our
vessels may engage. As our vessels age, market conditions might not justify
those expenditures or enable us to operate our vessels profitably during the
remainder of their useful lives.
Acts
of piracy on ocean-going vessels have recently increased in frequency, which
could adversely affect our business.
Acts of
piracy have historically affected ocean-going vessels trading in regions of the
world such as the South China Sea and in the Gulf of Aden off the coast of
Somalia. Throughout 2008 and 2009, the frequency of piracy incidents
against commercial shipping vessels increased significantly, particularly in the
Gulf of Aden off the coast of Somalia. For example, in November 2008,
the M/V Sirius Star, a
tanker vessel not affiliated with us, was captured by pirates in the Indian
Ocean while carrying crude oil estimated to be worth $100 million. If
these piracy attacks result in regions in which our vessels are deployed being
characterized by insurers as "war risk" zones, as the Gulf of Aden temporarily
was in May 2008, premiums payable for such coverage could increase significantly
and such insurance coverage may be more difficult to obtain. In
addition, crew costs, including those due to employing onboard security guards,
could increase in such circumstances. We may not be adequately
insured to cover losses from these incidents, which could have a material
adverse effect on us. In addition, detention hijacking as a result of
an act of piracy against our vessels, or an increase in cost, or unavailability
of insurance for our vessels, could have a material adverse impact on our
business, financial condition and results of operations.
Our
insurance coverage may be insufficient to cover losses that may occur to our
property or result from our operations.
The
operation of LNG carriers and FSRUs is inherently risky. Although we
carry protection and indemnity insurance, all risks may not be adequately
insured against, and any particular claim may not be paid. Any claims
covered by insurance would be subject to deductibles, and since it is possible
that a large number of claims may be brought, the aggregate amount of these
deductibles could be material. Certain of our insurance coverage is
maintained through mutual protection and indemnity associations, and as a member
of such associations we may be required to make additional payments over and
above budgeted premiums if member claims exceed association
reserves.
We may be
unable to procure adequate insurance coverage at commercially reasonable rates
in the future. For example, more stringent environmental regulations
have led in the past to increased costs for, and in the future may result in the
lack of availability of, insurance against risks of environmental damage or
pollution. A marine disaster could exceed our insurance coverage,
which could harm our business, financial condition and operating
results. Any uninsured or underinsured loss could harm our business
and financial condition. In addition, our insurance may be voidable
by the insurers as a result of certain of our actions, such as our ships failing
to maintain certification with applicable maritime self-regulatory
organizations.
Changes
in the insurance markets attributable to terrorist attacks may also make certain
types of insurance more difficult for us to obtain. In addition, upon
renewal or expiration of our current policies, the insurance that may be
available to us may be significantly more expensive than our existing
coverage.
We
may incur significant liability that would increase our expenses if any of our
LNG carriers or FSRUs discharged fuel oil (bunkers) into the
environment.
International
environmental conventions, laws and regulations, including United States'
federal laws, apply to our LNG carriers and FSRUs. If any of the
vessels that we own or operate were to discharge fuel oil into the environment,
we could face claims under these conventions, laws and
regulations. We must also carry evidence of financial responsibility
for our vessels under these regulations. United States law also
permits individual states to impose their own liability regimes with regard to
oil pollution incidents occurring within their boundaries, and a number of
states have enacted legislation providing for unlimited liability for oil
spills.
Any
future changes to the laws and regulations governing LNG carrier and FSRU
vessels could increase our expenses to remain in compliance.
The laws
of the nations where our vessels operate as well as international treaties and
conventions regulate the production, storage, and transportation of
LNG. Our operations are materially affected by these extensive and
changing environmental protection laws and other regulations and international
conventions, including those relating to equipping and operating our LNG
carriers and FSRUs. We have incurred, and expect to continue to
incur, substantial expenses in complying with these laws and regulations,
including expenses for vessel modifications and changes in operating
procedures. While we believe that we comply with current regulations
of the International Maritime Organization, or IMO, any future non-compliance
could subject us to increased liability, lead to decreases in available
insurance coverage for affected vessels and result in the denial of access to,
or detention in, some ports. Furthermore, future United States federal and state
laws and regulations as then in force, or future regulations adopted by the IMO,
and any other future regulations, may limit our ability to do business or we may
be forced to incur additional costs relating to such matters as LNG carrier
construction, maintenance and inspection requirements, development of
contingency plans for potential leakages and insurance coverage.
Maritime
claimants could arrest our vessels, which could interrupt our cash
flow.
If we are
in default of certain obligations, such as those to our crew members, suppliers
of goods and services to our vessels or shippers of cargo, these parties may be
entitled to a maritime lien against one or more of our vessels. In
many jurisdictions, a maritime lien holder may enforce its lien by arresting a
vessel through foreclosure proceedings. In a few jurisdictions,
claimants could try to assert "sister ship" liability against one vessel in our
fleet for claims relating to another of our vessels. The arrest or
attachment of one or more of our vessels could interrupt our cash flow and
require us to pay to have the arrest lifted. Under some of our
present charters, if the vessel is arrested or detained for as few as 14 days as
a result of a claim against us, we may be in default of our charter and the
charterer may terminate the charter.
Growth
of the LNG market may be limited by infrastructure constraints and community and
political group resistance to new LNG infrastructure over concerns about
environmental, safety and terrorism.
A
complete LNG project includes production, liquefaction, regasification, storage
and distribution facilities and LNG carriers. Existing LNG projects
and infrastructure are limited, and new or expanded LNG projects are highly
complex and capital intensive, with new projects often costing several billion
dollars. Many factors could negatively affect continued development
of LNG infrastructure and related alternatives, including FSRUs, or disrupt the
supply of LNG, including:
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increases
in interest rates or other events that may affect the availability of
sufficient financing for LNG projects on commercially reasonable
terms;
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decreases
in the price of LNG, which might decrease the expected returns relating to
investments in LNG projects;
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the
inability of project owners or operators to obtain governmental approvals
to construct or operate LNG
facilities;
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local
community resistance to proposed or existing LNG facilities based on
safety, environmental or security
concerns;
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any
significant explosion, spill or similar incident involving an LNG
facility, LNG carrier or FSRU; and
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labor
or political unrest affecting existing or proposed areas of LNG production
and regasification.
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We
believe some of the proposals to expand existing or develop new LNG liquefaction
and regasification facilities may be abandoned or significantly delayed due to
the factors mentioned above. If the LNG supply chain is disrupted or
does not continue to grow, or if a significant LNG explosion, spill or similar
incident occurs, it could have a material adverse effect on our business,
results of operations and financial condition and our ability to make cash
distributions.
Risks
Related to our Common Shares
Our
Chairman may have the ability to effectively control the outcome of significant
corporate actions.
World
Shipholding Ltd., a company indirectly controlled by Trusts established by John
Fredriksen, our chairman for the benefit of his immediate family, beneficially
owns 46.18% of our outstanding common shares. As a result, Mr.
Fredriksen and his affiliated entities have the potential ability to effectively
control the outcome of matters on which our shareholders are entitled to vote,
including the election of all directors and other significant corporate
actions.
Fluctuations
in the price and volume of shares of listed companies generally could result in
the volatility of our share price.
Generally,
stock markets have recently experienced extensive price and volume fluctuations,
and the market prices of securities of shipping companies have experienced
fluctuations that often have been unrelated or disproportionate to the operating
results of those companies. Our share price has been subject to
significant volatility. Since September 30, 2009, the closing market
price of our common shares on the NASDAQ has ranged from a high of $13.90 per
share on October 21, 2009 to a low of $10.59 per share on December 22, 2009,
largely reflecting the market for shares such as ours. As of April
27, 2010, our share price was $13.00. The market price of our common
shares may continue to fluctuate due to factors such as actual or anticipated
fluctuations in our quarterly or annual results and those of other public
companies in our industry, the suspension of our dividend payments, mergers and
strategic alliances in the shipping industry, market conditions in the LNG
shipping industry, shortfalls in our operating results from levels forecast by
securities analysts, announcements concerning us or our competitors and the
general state of the securities market. The market for common shares
in this industry may be equally volatile. Therefore, we cannot assure
you that you will be able to sell any of our common shares that you may have
purchased at a price greater than or equal to its original purchase
price.
The
company currently owns 68% (December, 31 2009: 73.8%) of Golar Energy's shares,
investor ownership in Golar Energy may be further diluted with potential
issuance of additional common shares including stock dividends.
Further
exchange listings and/or stock dividends may have the following
effects:
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Golar
Energy may issue additional common shares or we may sell all or part of
our holdings in Golar Energy further diluting your indirect ownership
interest.
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Conflicts
of interest may arise between the noncontrolling shareholders who
currently own 32% and us, the majority shareholder who own
68%.
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The
amount of cash available for paying dividends may
decrease.
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The
market price of our common shares may
decrease.
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Because
we are a Bermuda corporation, you may have less recourse against us or our
directors than shareholders of a U.S. company have against the directors of that
U.S. Company.
Because
we are a Bermuda company the rights of holders of our common shares will be
governed by Bermuda law and our memorandum of association and
bye-laws. The rights of shareholders under Bermuda law may differ
from the rights of shareholders in other jurisdictions. Among these
differences is a Bermuda law provision that permits a company to exempt a
director from liability for any negligence, default, or breach of a fiduciary
duty except for liability resulting directly from that director's fraud or
dishonesty. Our bye-laws provide that no director or officer shall be
liable to us or our shareholders unless the director's or officer's liability
results from that person's fraud or dishonesty. Our bye-laws also
require us to indemnify a director or officer against any losses incurred by
that director or officer resulting from their negligence or breach of duty
except where such losses are the result of fraud or
dishonesty. Accordingly, we carry directors' and officers' insurance
to protect against such a risk. In addition, under Bermuda law the directors of
a Bermuda company owe their duties to that company, not to the
shareholders. Bermuda law does not generally permit shareholders of a
Bermuda company to bring an action for a wrongdoing against the company, but
rather the company itself is generally the proper plaintiff in an action against
the directors for a breach of their fiduciary duties. These
provisions of Bermuda law and our bye-laws, as well as other provisions not
discussed here, may differ from the law of jurisdictions with which investors
may be more familiar and may substantially limit or prohibit shareholders
ability to bring suit against our directors.
Future
sales of our common shares could cause the market price of our common shares to
decline.
Sales of
a substantial number of our common shares in the public market, or the
perception that these sales could occur, may depress the market price for our
common shares. These sales could also impair our ability to raise additional
capital through the sale of our equity securities in the future.
Because
our offices and most of our assets are outside the United States, you may not be
able to bring suit against us, or enforce a judgment obtained against us in the
United States.
We, and
all our subsidiaries, are or will be incorporated in jurisdictions outside the
U.S. and substantially all of our assets and those of our subsidiaries and will
be located outside the U.S. In addition, most of our directors and officers are
or will be non-residents of the U.S., and all or a substantial portion of the
assets of these non-residents are or will be located outside the U.S. As a
result, it may be difficult or impossible for U.S. investors to serve process
within the U.S. upon us, our subsidiaries, or our directors and officers, or to
enforce a judgment against us for civil liabilities in U.S. courts. In addition,
you should not assume that courts in the countries in which we or our
subsidiaries are incorporated or where our or the assets of our subsidiaries are
located would enforce judgments of U.S. courts obtained in actions against us or
our subsidiaries based upon the civil liability provisions of applicable U.S.
federal and state securities laws or would enforce, in original actions,
liabilities against us or our subsidiaries based on those laws.
Investor
confidence and the market price of our common stock may be adversely impacted if
we are unable to comply with Section 404 of the Sarbanes-Oxley Act of
2002.
We are
subject to Section 404 of the Sarbanes-Oxley Act of 2002, which requires us to
include in our annual report on Form 20-F, our management's report on, and
assessment of the effectiveness of, our internal controls over financial
reporting. If we fail to maintain the adequacy of our internal
controls over financial reporting, we will not be in compliance with all of the
requirements imposed by Section 404. Any failure to comply with
Section 404 could result in an adverse reaction in the financial marketplace due
to a loss of investor confidence in the reliability of our financial statements,
which ultimately could harm our business and could negatively impact the market
price of our common stock. We believe the ongoing costs of complying
with these requirements may be substantial.
Disruptions
in world financial markets and the resulting governmental action in the United
States and in other parts of the world could have a material adverse impact on
our results of operations, financial condition and cash flows, and could cause
the market price of shares of our common stock to decline.
Over the
recent period, global financial markets have experienced extraordinary
disruption and volatility following adverse changes in the global credit
markets. The United States and other parts of the world are exhibiting
deteriorating economic trends and have been in a recession. For
example, the credit markets in the United States have experienced significant
contraction, deleveraging and reduced liquidity, and governments around the
world have taken highly significant measures in response to such events, and may
implement other significant responses in the future. Securities and futures
markets and the credit markets are subject to comprehensive statutes,
regulations and other requirements. The SEC, other regulators,
self-regulatory organizations and exchanges have enacted temporary emergency
regulations and may take other extraordinary actions in the event of market
emergencies, and may effect changes in law or interpretations of existing
laws.
Recently,
a number of financial institutions have experienced serious financial
difficulties and, in some cases, have entered into bankruptcy proceedings or are
in regulatory enforcement actions. These difficulties have resulted, in part,
from declining markets for assets held by such institutions, particularly the
reduction in the value of their mortgage and asset-backed securities portfolios.
These difficulties have been compounded by a general decline in the willingness
by banks and other financial institutions to extend credit. These difficulties
may adversely affect the financial institutions that provide our credit
facilities and may impair their ability to continue to perform under their
financing obligations to us, which could have an impact on our ability to fund
current and future obligations, including our ability to take delivery of our
new vessels.
We face
risks attendant to changes in economic environments, changes in interest rates
and instability in the banking and securities markets around the world, among
other factors. Major market disruptions and the current adverse changes in
market conditions and regulatory climate in the United States and worldwide may
adversely affect our business or impair our ability to borrow amounts under our
credit facilities or any future financial arrangements. We cannot predict how
long the current market conditions will last. However, these recent and
developing economic and governmental factors, including proposals to reform the
financial system, may have a material adverse effect on our results of
operations, financial condition or cash flows and could cause the price of
shares of our securities to decline significantly or impair our ability to make
distributions to our shareholders.
Safety,
environmental and other governmental requirements expose us to liability, and
compliance with current and future regulations could require significant
additional expenditures, which could have a material adverse effect on our
business and financial results.
Our
operations are affected by extensive and changing international, national, state
and local laws, regulations, treaties, conventions and standards in force in
international waters, the jurisdictions in which our vessels operates and the
country in which our vessels are registered, including those governing the
management and disposal of hazardous substances and wastes, the cleanup of oil
spills and other contamination, air emissions, water discharges and ballast
water management. These regulations include the United States Oil Pollution Act
of 1990, or OPA, the United States Clean Air Act and United States Clean Water
Act, the United States Marine Transportation Security Act of 2002, the
International Convention on Civil Liability for Oil Pollution Damage of 1969, as
amended, or CLC, the International Convention for the Prevention of Pollution
from Ships of 1975, the International Convention for the Safety of Life at Sea
of 1974, or SOLAS, the International Convention on Load Lines of 1966, or LL
Convention, and implementing regulations adopted by the International Maritime
Organization, or IMO (the United Nations agency for maritime safety and the
prevention of pollution by vessels), the European Union, and other
international, national and local regulatory bodies.
In
addition, vessel classification societies also impose significant safety and
other requirements on our vessels. In complying with current and future
environmental requirements, vessel-owners and operators such as ourselves may
also incur significant additional costs in meeting new maintenance and
inspection requirements, in developing contingency arrangements for potential
spills and in obtaining insurance coverage. Government regulation of vessels,
particularly in the areas of safety and environmental requirements, can be
expected to become stricter in the future and require us to incur significant
capital expenditures on our vessels to keep it then in compliance, or even to
scrap or sell our vessels altogether. For example, various jurisdictions,
including the United States, are considering or have enacted legislation
imposing more stringent requirements on air emissions and ballast water
discharges from vessels.
Many of
these requirements are designed to reduce the risk of oil spills and other
pollution, and our compliance with these requirements can be costly. These
requirements can also affect the resale value or useful life of our vessels,
require a reduction in cargo-capacity, ship modifications or operational changes
or restrictions, lead to decreased availability of insurance coverage for
environmental matters or result in the denial of access to certain
jurisdictional waters or ports, or detention in certain ports.
Under
local, national and foreign laws, as well as international treaties and
conventions, we could incur material liabilities, including cleanup obligations,
natural resource damages and third-party claims for personal injury or property
damages, in the event that there is a release of petroleum or other hazardous
substances from our vessels or otherwise in connection with our current or
historic operations. We could also incur substantial penalties, fines and other
civil or criminal sanctions, including in certain instances seizure or detention
of our vessels, as a result of violations of or liabilities under environmental
laws, regulations and other requirements. For example, OPA affects all
vessel-owners shipping oil to, from or within the United States. OPA allows for
potentially unlimited liability without regard to fault for owners, operators
and bareboat charterers of vessels for oil pollution in United States waters.
Similarly, the CLC, which has been adopted by most countries outside of the
United States, imposes liability for oil pollution in international waters. OPA
expressly permits individual states to impose their own liability regimes with
regard to hazardous materials and oil pollution incidents occurring within their
boundaries. Coastal states in the United States have enacted pollution
prevention liability and response laws, many providing for unlimited
liability.
Extensive
and changing environmental laws and other regulations, compliance with which may
entail significant expenses, including expenses for ship modifications and
changes in operating procedures, affect the operation of our
vessels. These expenses could have an adverse effect on our business
operations at any time.
ITEM
4. INFORMATION ON THE COMPANY
A. History
and Development of the Company
We are a
mid-stream LNG company engaged primarily in the transportation, regasification
and liquefaction of LNG. We are engaged in the acquisition,
ownership, operation and chartering of LNG carriers and FSRUs through our
subsidiaries and the development of liquefaction projects. As of
March 31, 2010, our fleet consisted of 13 vessels and a 50% equity interest in
one LNG carrier. We lease eight vessels under long-term financial
leases, we own four vessels including a 60% interest in the Golar Mazo that we own
through a joint arrangement with the Chinese Petroleum Corporation, the
Taiwanese state oil and gas company and we chartered-in one vessel under a
short-term charter. Seven of our vessels (LNG carriers and FSRU's)
are currently contracted under long-term charters (two of which come to an end
during 2010) and three vessels are in medium-term, five-year market related
charter contracts with Shell. The Golar Freeze is scheduled to
commence its long-term charter in May 2010. We are incorporated under
the laws of the Islands of Bermuda and maintain our principal executive
headquarters at Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton,
Bermuda. Our telephone number at that address is +1 (441)
295-4705. Our principal administrative offices are located at One
America Square, 17 Crosswall, London, United Kingdom.
Our
business was originally founded in 1946 as Gotaas-Larsen Shipping Corporation.
Gotaas-Larsen entered the LNG shipping business in 1970 and in 1997 was acquired
by Osprey Maritime Limited, or Osprey, then a Singapore listed publicly traded
company. In May 2001, World Shipholding Ltd., a company indirectly
controlled by Trusts established by John Fredriksen for the benefit of his
immediate family, acquired Osprey, which was then delisted from the Singapore
Stock Exchange. On May 21, 2001, we acquired the LNG shipping
interests of Osprey and we listed on the Oslo Stock Exchange in July 2001 and on
Nasdaq in December 2002. World Shipholding currently owns 46.18% of
our issued and outstanding common shares.
Since May
2001, our primary acquisitions and capital expenditures have been in connection
with the construction of seven newbuildings, one vessel acquisition and FSRU
conversions. During the three years ended December 31, 2009, we
invested $527.4 million in our newbuildings, vessels and equipment, FSRU
conversion costs as well as dry docking costs, included in this the
acquisition of the Golar
Arctic for the purchase price of $185 million from Shell in 2008. We
also sold the Golar
Frost to OLT Offshore Toscana S.p.A, or OLT-O, in July 2008, recognizing
a gain of $78.1 million in the period.
During
2007 and 2008, we entered into time charter agreements which required the
conversion or modification of three LNG carriers, the Golar Spirit, Golar Winter and the Golar Freeze
FSRUs. We entered into 10-year time charter agreements with Petrobras
for the Golar Spirit
and the Golar Winter
and with DUSUP for the Golar
Freeze, commencing upon delivery of each of these
vessels. Employment of the Golar Spirit commenced in
July 2008, the Golar
Winter commenced its long-term charter in early September 2009, and
we expect Golar Freeze
to commence its long-term charter in May 2010.
During
the three years ended December 31, 2009, we invested a total of $44.2 million to
acquire interests in a number of companies, principally:
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In
July 2008, we invested an initial sum of $22.0 million in a (50:50) Dutch
Antilles incorporated joint venture named Bluewater Gandria N.V., or
Bluewater Gandria, with Bluewater Energy Services B.V., or Bluewater,
formed for the purposes of pursuing opportunities to develop offshore LNG
FSRU projects. The initial equity investment was used to
acquire a 1977 built LNG carrier, the Gandria, for conversion
and use as a FSRU.
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In
2006, we purchased 23 million shares in LNGL, an Australian publicly
listed company, for a consideration of $8.6 million, making us LNGL's
largest shareholder. In November 2009, we sold 9.6 million
LNGL shares which reduced our shareholding to approximately 6.3%. The
sale realized funds of approximately $11 million and resulted in an
accounting profit of $8.4 million.
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In
November 2006, we invested $5.0 million to purchase a 20% interest in
OLT-O, an Italian unincorporated company involved in the construction,
development, operation and maintenance of a FSRU. As of
December 31, 2009, we had a 2.7%
interest.
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During
2007, we disposed of our entire interest in Korea Line Corporation, or Korea
Line, a Korean shipping company listed on the Korean stock exchange, which we
had acquired during 2003 and 2004 at a cost of $34.1 million, which resulted in
an aggregate gain of $73.6 million.
On
June 22, 2009 we formed a wholly owned subsidiary Golar LNG Energy Limited
("Golar Energy") under the laws of Bermuda. On August 12, 2009 Golar Energy
completed its corporate restructuring and private placement offering, whereby it
acquired the interests in our wholly owned subsidiaries, which collectively own
interests in eight liquefied natural gas ("LNG") vessels, a 50% equity interest
in another LNG carrier and certain other investments. As at 31 December 2009 we
owned 73.8% of Golar Energy. Golar Energy is a publicly listed Bermudan company,
listed in Norway on the Oslo Axess specializing in the acquisition, ownership,
operation and chartering of LNG carriers and floating storage regasification
units ("FSRUs") and the development of liquefaction projects. As of December 31,
2009, Golar Energy operated a fleet of eight LNG carriers and had a 50% equity
interest in another LNG carrier.
Further
details of the corporate restructuring and private placement offering are
provided below:
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We
transferred to Golar Energy capital stock in our wholly owned subsidiaries
and other equity interests and investments, in exchange for 168.5
million new common shares in the Golar Energy at a subscription price of
$2 per share, giving rise to consideration of $337 million in
addition to deferred consideration ("seller's credit") in respect of
the Golar Freeze.
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Immediately
subsequent to the corporate restructuring described above Golar Energy
issued 59.9 million new common shares to private institutional investors
at a subscription price of $2 per share as part of the private placement
resulting in aggregate gross proceeds of $119.7 million. This
includes $9.7 million of proceeds relating to the 4.8 million additional
shares issued under the "greenshoe" option which were exercised in
September 2009 in connection with the private
placement.
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In
connection with the private placement 12 million warrants were also issued
to private investors. Each warrant gives the holder the right to subscribe
for one new share in Golar Energy at a subscription price of $2 per share.
The warrants can only be exercised on December 15,
2010.
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B. Business
Overview
We are a
leading independent owner and operator of LNG carriers and FSRUs. As
of March 31, 2010, we have a fleet of 13 vessels, 10 LNG carriers, 3 FSRUs and a
50% equity interest in a further LNG carrier. We are seeking to
further develop our business in other mid-stream areas of the LNG supply chain
other than shipping, in particular innovative LNG solutions such as FSRUs and
floating LNG production.
The
Natural Gas Industry
Natural
gas is a growing energy source and its growth is expected to continue for the
next 20 years. According to the IEA new gas fired power plants and
industrial (especially petrochemicals) usage are expected to provide a
substantial part of this incremental demand. Their 2009 International
Energy Outlook reference case forecasts a rise in worldwide consumption from 104
trillion cubic feet ("Tcf") in 2006 to an estimated 114 Tcf this year
and rising to 152.5 Tcf by 2030 – an average annual rise of 1.6% from 1990 to
2030 with the largest rises over the same period being in China (5.1% p.a.) and
India (4.1% p.a.).
The
primary factors contributing to the growth of natural gas demand
include:
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Environmental: Natural
gas is a clean-burning fuel. It produces less carbon dioxide and other
pollutants and particles per unit of energy production than coal, fuel oil
and other common hydrocarbon fuel
sources.
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Demand from Industry and Power
Generation: According to the IEA, natural gas is the
fastest growing fuel source for electricity generation worldwide
accounting for around 35% of the worldwide natural gas consumption by
2030. Also by 2020 industrial consumption is forecast to
consume around 40% of worldwide gas
use.
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Market
Deregulation: Deregulation of the gas and electric power
industry in the United States, Europe and Japan, has resulted in new
entrants and an increased market for natural
gas.
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Significant Natural Gas
Reserves: As of January2009 reserves of natural gas were
estimated at approximately 6,254 Tcf or approximately more than 55 times
the 114 Tcf of natural gas estimated to be consumed worldwide in 2009 and
69 Tcf more than the previous year's
estimate.
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Emerging
economies: According to EIA's 2009 prediction projected
average increases in emerging economies (non-OECD) consumption of natural
gas will be c2.2% per year up to 2030, compared to 0.9% per annum for OECD
economies.
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The
LNG Industry
Overview
LNG is
liquefied natural gas, produced by cooling natural gas to –163°C (-256° Fahrenheit), or
just below the boiling point of LNG's main constituent, methane. LNG
is produced in liquefaction plants situated around the globe near gas
deposits. In its liquefied state, LNG occupies approximately
1/600th the
volume of its gaseous state. Liquefaction makes it possible to
transport natural gas efficiently and safely by sea in specialized vessels known
as LNG carriers. LNG is stored at atmospheric pressure in cryogenic
tanks. LNG is converted back to natural gas in regasification plants
by raising its temperature.
The first
LNG project was developed in the mid-1960s and by the mid-1970s LNG had begun to
play a larger role as energy companies developed remote gas reserves that could
not be served by pipelines in a cost-efficient manner. The LNG
industry is highly capital intensive and has historically been characterised by
long-term contracts. The long-term charter of LNG carriers to carry
the LNG is, and remains, an integral part of almost every project.
Production
of LNG has grown from 147 mt p.a. in 2005 to 188 mt p.a. in 2009 and is forecast
to rise to 302 mt p.a. by 2015. Five new producing countries entered the market
in the same period.
Production
There are
three major regional areas that supply LNG. These are (i) Southeast
Asia, including Australia, Malaysia, Brunei, Indonesia and
Russia (ii) the Middle East, including Qatar, Oman and United Arab
Emirates, with a recently commissioned facility in Yemen, and (iii) the Atlantic
Basin countries, including Algeria, Egypt, Equatorial Guinea, Libya, Nigeria,
Norway and Trinidad with facilities under construction in Angola. For
the first time, South America will enter into the LNG Liquefaction industry when
Peru completes construction of their LNG project in Q2 of this
year. The expansion of existing LNG production facilities is one of
the major sources of growth in LNG production and most projects with gas
reserves available are considering growth of production. By April
2010 there were 23 liquefaction facilities in operation in 17
countries.
Consumption
The two
major geographic areas that dominate worldwide consumption of LNG are East Asia;
including Japan, South Korea, Taiwan and China; and Europe, specifically Spain,
France, Italy, Belgium and Turkey. In 2009, East Asia (including
China) accounted for approximately 58% of the global LNG consumption a reduction
from 64% in 2008. Eight LNG import terminals operate in the United
States and a ninth is due to be commissioned shortly. In addition Costa Azul in
Baja California, Mexico provides gas to Southern California.
Argentina
became the first Latin American country to import LNG in June 2008 via its Bahia
Blanca Gasport terminal followed by Brazil via our converted LNG Carriers the
Golar Spirit, and Golar
Winter. Chile also has two LNG Import terminals.
There are
currently 23 LNG importing countries with more than 80 importing terminals with
a further 4 under construction. In 2008, Japan and South Korea
remained the two largest importers of LNG, accounting for approximately 56% of
the aggregate world LNG imports. Almost all natural gas consumption
in Japan and South Korea is based on LNG imports.
The
LNG Fleet
As of the
end of January 2010, the world LNG carrier fleet consisted of 341 LNG carriers
(including 12 FSRUs and Regasification Vessels, or RVs and 14 vessels currently
in Lay-up) with a total capacity of greater than 45 million cubic
meters. Currently there are orders for around 40 (of all sizes) new
LNG carriers (including 7 FSRU, RV vessels and Production units) with expected
delivery dates through to end 2011.
The
current 'standard' size for LNG carriers is approximately 155,000 cbm, up from
125,000 cbm during the 1970's. To assist with transportation unit
cost reduction the average size of vessels is rising steadily and we have now
seen the first deliveries of Q Max LNG Vessels of up to 266,000
cbm. There are also some smaller LNG carriers, mainly built for
dedicated short distance trades.
LNG
carriers are designed for an economic life of approximately 40
years. Therefore all but a very few of the LNG carriers built in the
1970s still actively trade. In recent contract renewals, LNG vessels
have been placed under time charters with terms surpassing their 40th
anniversaries, which demonstrate the economic life for such older
vessels. As a result, limited scrapping of LNG carriers has occurred
or is likely to occur in the near future. In view of the fact that
LNG is clean and non-corrosive when compared to other products such as oil and
given that more has tended to be spent on maintenance of LNG vessels than oil
tankers, the pressure to phase out older vessels has been much less than for
crude oil tankers. We cannot, however, say that such pressure will
not begin to build in the future.
While
there are a number of different types of LNG vessels and "containment systems,"
there are two dominant containment systems in use today:
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The
Moss system was
developed in the 1970s and uses free standing insulated spherical tanks
supported at the equator by a continuous cylindrical skirt. In
this system, the tank and the hull of the vessel are two separate
structures.
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The
Membrane system
uses insulation built directly into the hull of the vessel, along with a
membrane covering inside the tanks to maintain their
integrity. In this system, the ship's hull directly supports
the pressure of the LNG cargo.
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Illustrations
of these systems are included below:
Moss
System
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Membrane
System
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Of the
vessels currently trading and on order, approximately 66% employ the membrane
containment system, 30% employ the Moss system and the remaining 4% employ other
systems. Of the newbuilds vessels on order that have employed the
membrane containment system, have done so primarily because it most efficiently
utilizes the entire volume of a ship's hull.
The
maximum worldwide production capacity for LNG carriers is in the region of
approximately 40 ships a year after the rapid expansion of production facilities
over the past five years, particularly in Korea. The actual output
depends upon the relative cost of LNG ships to other vessels and the relative
demand for both. The construction period for an LNG carrier is
approximately 28-34 months. However, based on current yard
availability, the earliest delivery date for a new LNG vessel ordered today is
2012. Any new project/trade with LNG vessel demand before then will
have to rely on existing or ordered vessels until potential new orders can be
delivered.
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LNG
Regasification Terminals
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There are
over 70 LNG regasification terminals operating in 22 countries. The
long term outlook for global gas and demand has stimulated growth in LNG
production and trade, as well as the necessary expansion of regasification
infrastructure. Many existing regasification terminals have
considered or are currently in the process of capacity expansions. By
the end of 2010, global LNG regasification is forecasted to be approximately 563
MTA while global liquefaction capacity is forecasted to be 267
MTA. Most of the LNG regasification terminals presently in operation,
and most of those currently under development, are onshore
facilities. Many of these terminals are in heavily populated regions
and environmentally sensitive coastal areas, which face significant opposition
from a range of government, community, and environmental groups. In
many instances, this opposition has caused lengthy and costly delays in
obtaining permits and the ultimate completion of these LNG regasification
terminals. Additionally, when an importing region's natural gas
demand is seasonal, onshore regasification terminals are more likely to increase
the average cost of LNG in periods of greater demand to financially compensate
for when an onshore terminal sits underutilized during periods of low
demand.
Floating
Storage and Regasification Units
In
response to the limitations and political difficulties faced by onshore
land-based terminals, many LNG importers around the world are exploring on-shore
and offshore floating LNG regasification terminals as a cost effective and
politically attractive alternative to land based onshore
facilities.
We
believe floating storage and regasification units are economically attractive,
technically acceptable and flexible. In most cases FSRUs cost much less than
land-based schemes of a similar size. Whilst general cost comparisons must be
treated with caution, as the circumstances surrounding floating and land-based
developments can affect the cost of both significantly. Our experience to date
indicates that FSRUs of the order of 2–4 MTA are likely to
be significantly cheaper than equivalent land-based plants.
FSRUs are
generally faster to bring into operation: time is saved by not having such an
extensive planning and permitting process as that normally associated with
onshore developments; and the construction time is reduced, assuming the
conversion of an existing LNG carrier, because much of the required equipment
(storage, power and utilities) is already available and in place. The conversion
projects carried out on the Golar Spirit and the Golar Winter suggest two
years from the final investment decision to the delivery of the vessel: 18
months for engineering and procurement, and six months for the shipyard
work.
We also
believe that FSRUs are attractive because of the flexibility that they provide
in terms of location and use. Depending on their design and configuration, FSRUs
can be moved from one demand centre to another and may retain the ability to
trade as LNG carriers.
Opposition
to onshore LNG regasification plants has been strong in many places. Floating
storage and regasification offers a way of distancing the energy solution from
local opposition and potentially avoiding a lengthy and difficult approvals
process.
FSRUs are
disadvantaged to onshore terminals and GBSs because they generally have less
storage and regasification capacity, and may require an offshore natural gas
pipeline infrastructure to transport the gas to shore.
The
figure below depicts an FSRU.
In
general, FSRUs can be divided into four subcategories:
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permanently
located offshore;
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permanently
alongside (with LNG transfer being either directly ship to ship or over a
jetty);
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shuttle
carrier with regasification and discharge offshore (sometimes referred to
as energy bridge); and
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shuttle
carrier with alongside discharge.
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The
unloading process used by FSRUs involves the vaporization of LNG and injection
of natural gas directly into one or more pipelines.
Compared
to onshore terminals, FSRUs and other offshore LNG solutions are in the early
stages of commercialization. Several companies such as Golar, Exmar
SA, Excelerate Energy and Höegh LNG are actively pursuing and marketing FSRU
terminals to LNG importers around the world. We are the first
company to enter into an agreement for the long-term employment of a FSRU with a
LNG importer. Golar's first FSRU has been delivered to Petrobras and
is currently operational. Our second FSRU, Golar Winter, commenced its
long-term charter with Petrobras in early September 2009 and our third FSRU
commitment, the Golar
Freeze, is scheduled for delivery to DUSUP in May 2010. We
believe several other LNG shipping companies are currently evaluating the costs
and the technology of FSRUs, but none have entered the commercial
market.
We
believe, based on the FSRU commitments earned to date and strong market inquiry
that FSRUs are viewed as an accepted means of LNG regasification and storage,
particularly in locations where political or environmental concerns may prevent
onshore facilities or in locations where the demand for LNG is for small to mid
scale LNG import projects or seasonal.
To
address a number of the above challenges, floating storage and regasification
terminals have been successfully delivered and are now operating.
There are
currently six operational FSRU/RV terminals in the world and a further four that
have been sanctioned. Of these ten terminals three are permanently alongside
(although two of these, Golar Winter and Golar Spirit, can also transport LNG),
one is permanently located offshore (Livorno project using Golar Frost), three
use Excelerate Energy vessels as shuttle carriers with alongside discharge, and
three are shuttle carrier terminals with regasifiaction and discharge offshore
(2 Excelerate Energy and 1 GDF Suez/ Höegh LNG).
Competition
– LNG carriers and FSRUs
While the
majority of the existing world LNG carrier fleet is employed on long-term
charters, there is competition for the employment of vessels whose charters are
expiring and for the employment of vessels which are not dedicated to a
long-term contract. Competition for long-term LNG charters is based
primarily on price, vessel availability, size, age and condition of the vessel,
relationships with LNG carrier users and the quality, LNG experience and
reputation of the operator. In addition, vessels may operate in the
emerging LNG carrier spot market that covers short-term charters of one year or
less where there is currently significant competition due to an oversupply of
LNG carriers.
We
believe that we are the only independent LNG carrier and FSRU owner and operator
that focuses solely on LNG, other independent shipping companies also own and
operate LNG carriers and have new vessels under construction including BW Gas
ASA (Norway), Exmar S.A. (Belgium), Teekay LNG Partners, L.P, Höegh LNG and
three Japanese ship owning groups, Mitsui O.S.K. Lines, Nippon Yusen Kaisha and
K Line, which traditionally provided LNG shipping services exclusively to
Japanese LNG companies, are now aggressively competing in western
markets. In addition, new competitors that have recently entered the
LNG shipping market include Maran Gas Maritime and Dynagas Ltd of Greece, A P
Moller of Denmark, Overseas Shipholding Group of USA and Knutsen O.A.S Shipping
AS of Norway. There are other owners who may also attempt to
participate in the LNG market if possible.
In
addition to independent LNG operators, some of the major oil and gas producers,
including Royal Dutch Shell, BP, and BG own LNG carriers and intermittently
contract for the construction of new LNG carriers. National gas and
shipping companies also have large fleets of LNG vessels which have and will
likely continue to expand. These include Malaysian International
shipping Company, or MISC, National Gas Shipping Company (Abu Dhabi) and Qatar
Gas Transport Company, or Nakilat.
FSRUs are
in an early stage of their commercial development and thus there is less
competition than the more mature commercial market of LNG
carriers. However, interest in the sector is expected to
increase. Currently, Golar, Exmar, Excelerate Energy, Höegh LNG,
Mitsui O.S.K. lines and MISC Berhad are among the companies actively
competing for FSRU projects.
Our
Business Strategy
We are
one of the world's largest independent owners and operators of LNG carriers with
over 35 years of experience and we developed the world's first Floating Storage
and Regasification Unit based on the conversion of existing LNG carriers. Our
strategy is to grow our business and to provide competitive returns to our
shareholders with regular dividends while providing safe, reliable and efficient
LNG shipping and FSRU service to our customers.
When the
Golar Freeze has commenced its long-term charter, expected to be in May 2010, we
will have five long-term charters with expiration dates (excluding option
periods) of between 2017 and 2024. Our goal is to pay regular quarterly
dividends from the cash flow generated by these contracts. Our dividend payments
will be based on present earnings, market prospects, current capital expenditure
programs as well as investment opportunities.
Golar
LNG Energy
In
addition, through our subsidiary Golar LNG Energy Limited ("Golar Energy"), we
plan to further grow our LNG shipping and FSRU business and we are developing
opportunities to diversify into other areas of the mid-stream LNG supply chain
to enhance our margins.
Our main
focus in our development of further mid-stream LNG business is maritime based
and relatively small scale and low cost solutions.
In
respect of our shipping operations we intend to build on our relationships with
existing customers and continue to develop new relationships. We aim
to earn higher margins through maintaining strong service-based relationships
combined with flexible and innovative LNG shipping solutions. We will
also seek long-term employment for our LNG carriers within integrated LNG
projects that we may be involved in and will look to participate in
LNG trading opportunities to maximise the utilization and returns from our
vessels operating in the spot market.
In 2008
we delivered the world's first FSRU converted from a LNG carrier, in 2009 we
delivered the world's second FSRU converted from a LNG carrier and in 2010 we
will deliver the third. We intend to take advantage of our leading position in
this relatively new market, as well as our LNG experience and our shipping
assets to grow our FSRU business.
In
furtherance of our strategy to grow our business and maximise returns for our
shareholders we are actively seeking opportunities to invest upstream and
downstream in the LNG supply chain, where our shipping assets and over 35 years
of industry experience can add value. We believe we can achieve this
aim while at the same time diversifying our sources of income and thereby
strengthening the Company.
We are
investing in both established LNG operations and technologies and newly
developing technologies; including floating regasification operations, floating
LNG production and floating power production from natural gas. We
expect to continue our focus on these LNG solutions and related shipping
services as a major area for our business development.
Specific
projects we are actively pursuing include the following:
FSRU
Projects:
We have
entered into time charter agreements with Petrobras in respect of the Golar
Spirit and the Golar Winter and with DUSUP in respect of the Golar Freeze, which
requires the conversion of these vessels into FSRUs. All three FSRUs
will be chartered by Petrobras or DUSUP for 10-year periods, with options to
extend the charter for up to an additional five years. The Golar Spirit
commenced its charter in July 2008 and the Golar Winter commenced its charter in
early September 2009. The charter for the Golar Freeze is scheduled
to commence upon completion of its conversion and delivery of the vessel in
Dubai which we expect in May 2010. We are actively pursuing other
similar project opportunities, which include the provision of technical marine
and LNG expertise for other technically innovative projects.
In 2006,
we subscribed for 23 million shares in two tranches in Liquefied Natural Gas
Limited (LNGL) an Australian publicly listed company at a cost of $8.6
million. We purchased the first tranche of 13.95 million shares in
May 2006, at a cost of $5.1 million and the second tranche of the balance of the
shares in June 2006, at a cost of $3.5 million. Our subsidiary
company Golar LNG Energy Limited subsequently sold shares realising US$11
million in cash and an approximate US$8 million gain. The company's current
ownership interest in LNGL is approximately 4%. LNGL is a company
focused on developing LNG liquefaction projects acting as a link between
previously discovered but uncommercial gas reserves and potential new energy
markets. We intended to participate in LNGL's projects, as a buyer of LNG and a
provider of shipping requirements. In February 2009, we announced our
entry into a Heads of Agreement relating to our 40% participation in the
Gladstone LNG project. We expected the other project participants to
be LNGL (40%) and Arrow Energy Limited (gas supply to the project,
(20%)). We also agreed to provide certain equity funding support to
LNGL. Arrow Energy Limited has recently agreed a takeover proposed
from Royal Dutch Shell and PetroChina. Primarily as a result of this all
agreements in respect of this project have terminated. Our original
collaboration agreement with LNGL remains in place.
In
January 2010 Golar Energy and PTTEP announced the joint termination of the Heads
of Agreement and Joint Study Agreement governing their joint development of a
floating liquefied natural gas (FLNG) project based on the gas fields in North
West Australia owned by PTTEP. The two Companies also announced their
termination of a Memorandum of Understanding covering their global cooperation
to identify and develop FLNG projects.
Since
June 2002, we have been involved in an Italian offshore floating storage and
regasification project off the coast of Livorno, Italy. In November
2006, we acquired 20% of shares in OLT-O, at a cost of $5 million. In
December 2007, we entered into an agreement with OLT-O for the sale of and
conversion into a FSRU of the Golar Frost, for $231 million and the sale was
completed in July 2008. In March 2008, OLT-O signed a contract with
Saipem S.p.A. for the conversion of the Golar Frost at a cost of €390 million
(approximately $500 million) and also signed an agreement with SNAM RETE Gas for
the construction of the pipeline connecting the terminal to the national
grid. In January 2008, the board of directors of OLT-O agreed a
capital increase of €200 million (approximately $260 million). We did
not contribute to the capital increase and we have not committed to any further
contributions. The current shareholding position is Group Iride
46.79% (subdivided between Iride Mercato 41.71% and ASA Livorno 5.08%), E.ON
Ruhrgas 46.79%, OLT Energy 3.73% and Golar 2.69%. The
vessel is currently undergoing conversion in Dubai Drydocks under the EPCIC
contract with Saipem. First commercial gas delivery is expected in
2011.
In 2008,
Golar and Bluewater formed a joint venture company Bluewater Gandria for the
purposes of bidding to develop an offshore LNG FSRU opportunity with South
Africa's national oil company, PetroSA. In connection with this
bid, Bluewater Gandria acquired the 1977 built Moss type 126,000 m3 LNG Carrier,
Hoegh Gandria (renamed Gandria). The vessel was intended to be used
as a converted offshore FSRU. The bid for the offshore
LNG FSRU opportunity with PetroSA was not successful. We and Bluewater continue
to pursue other opportunities to develop an offshore FSRU project which could
potentially utilise Gandria.
We own a
14.8% ownership interest in TORP Technology AS, or TORP, which we acquired in
2005 at a cost of $3 million. We also have an option to use 33.4% of
the capacity of TORP's offshore Alabama regasification terminal. TORP holds the
rights to the HiLoad LNG Re-gasification and is planning to build an offshore
LNG regasification terminal. The HiLoad LNG Re-gasification unit is a
floating L-shaped terminal that docks onto the LNG carrier using the patented
friction based attachment system (rubber suction cups) creating no relative
motion between the carrier and the terminal. The HiLoad LNG
Re-gasification unit is equipped with standard regasification equipment (LNG
loading arms, pumps and vaporizers) and can accommodate any LNG
carrier. In June 2009, TORP re-submitted to the U.S. Coast Guard an
application for a license to build, own and operate the Bienville Offshore
Energy Terminal for receipt and regasification of LNG. TORP is also
developing other potential projects for its Hi Load LNG Regasification unit. The
ultimate size of our potential investment has yet to be determined.
In
December 2005, we signed a shareholders' agreement with The Egyptian Natural Gas
Holding Company, or EGAS, and HK Petroleum Services in respect of the setting up
of a jointly owned company named Egyptian Company for Gas Services S.A.E., or
ECGS, for the development of hydrocarbon business and in particular LNG related
business. We have 50% of the voting rights, a 45% economic interest
in ECGS and we would share in 50% of ECGS's losses. In 2008, the
company established administrative offices in Cairo. Additionally;
our activities have been registered with EGAS and Egyptian General Petroleum
Corporation, or EGPC, which allows for ECGS to participate and compete in EGAS
and EGPC sponsored tenders. In 2009, ECGS was awarded a contract to
provide anchor handling and towing services (AHTS) and to support a two well
drilling program with options for extension. ECGS continues to make positive
progress in developing its capability as a provider of offshore marine services
(to include drilling services) in conjunction with its objective to develop its
business foothold in the Egyptian LNG market. The ultimate size of
our potential investment has yet to be determined.
We
will consider the acquisition of new assets through third party acquisition or
through newbuilding contracts to support our business expansion.
Customers
We
receive a substantial majority of our revenue from long-term charter agreements
with four customers, BG, Shell, Pertamina and Petrobras.
Since
1989, we have chartered vessels to Pertamina. Our revenues from
Pertamina were $40.4 million, $37.1 million and $37.2 million for the years
ended 2009, 2008 and 2007, respectively, representing 18.0%, 16.2%, and 16.6% of
our revenues over the same period, respectively. Pertamina currently
charters one vessel from us.
Since
2000, we have chartered vessels to BG. Our revenues from BG were
$61.3 million, $75.1 million, and $84.9 million for the years ended 2009, 2008
and 2007, respectively, representing 27.0%, 32.8% and 37.8% of our revenues over
the same period, respectively. BG currently charters three vessels
from us.
Since
2006, we have chartered vessels to Shell. Our revenues from Shell
were $45.6 million, $85.3 million, and $58.8 million for the years ended 2009,
2008 and 2007, respectively, representing 20.0%, 37.3% and 26.2% of our revenues
over the same period, respectively. We currently charter three
vessels to Shell on five-year charters, which contain a variable charter hire
rate which is tied to the spot market and two vessels on short-term
charters. These agreements represent a significant extension of our
relationship base and an important strategic link with Shell, who is one of the
oldest and largest operators in the LNG market.
Since
July 2008, we have chartered a vessel to Petrobras under a 10-year
charter. We commenced a second FSRU charter in early July
2009. Our revenues from Petrobras for 2009 were $61.3 representing
27.0% of our revenues over the same period.
We
continue to develop relationships with other major players in the LNG industry
and with new customers as evidenced by our recent agreements with Petrobras for
two 10-year FSRU time charters and DUSUP for one 10-year FSRU time
charter.
Our
Fleet
Current
Fleet
As of end
April 2010, we operated a fleet of 13 vessels and we have a 50% equity interest
in another vessel. Our current fleet represents approximately 5% of the
worldwide LNG carrier fleet (of vessels larger than 100,000 cbm) by
number. We lease eight LNG carriers under long-term financial leases,
we own three vessels and we have a 60% ownership interest in another LNG carrier
through a joint arrangement with the Chinese Petroleum Corporation, the
Taiwanese state oil and gas company. We have also chartered-in one
vessel on a short-term charter.
The
following table lists the LNG carriers in our current fleet:
Vessel
Name
|
Year
of
Delivery
|
|
Capacity
cbm.
|
Flag
|
Type
|
|
Charterer
|
Current
Charter Expiration
|
Charter
Extension Options
|
Hilli
|
1975
|
|
125,000
|
UK
|
Moss
|
|
n/a
(1)
|
n/a
|
n/a
|
Gimi
|
1976
|
|
125,000
|
UK
|
Moss
|
|
BG
|
2010
|
|
Golar
Freeze
|
1977
|
|
125,000
|
MI
|
Moss/FSRU(2)
|
|
Chartered
to BG until June 2009. Thereafter chartered to DUSUP upon
conversion to an FSRU which we expect to be completed in the second
quarter of 2010.
|
2020
|
Terms
extending up to 2025
|
Khannur
|
1977
|
|
125,000
|
UK
|
Moss
|
|
BG
|
2010
|
|
Golar
Spirit
|
1981
|
|
128,000
|
MI
|
Moss/FSRU
|
|
Chartered
to Petrobras as an FSRU.
|
2018
|
A
three-year term and an additional two-year term
|
Golar
Mazo (3)
|
2000
|
|
135,000
|
LIB
|
Moss
|
|
Pertamina
|
2017
|
Two
additional five-year terms
|
Methane
Princess
|
2003
|
|
138,000
|
UK
|
Membrane
|
|
BG
|
2024
|
Two
additional five-year terms
|
Golar
Winter
|
2004
|
|
138,000
|
MI
|
Membrane/
FSRU
|
|
Commenced
its long-term charter with Petrobras as an FSRU
in September 2009
|
2019
|
A
three-year term and an additional two-year
term
|
Vessel
Name
|
Year
of
Delivery
|
|
Capacity
cbm.
|
Flag
|
Type
|
|
Charterer
|
Current
Charter Expiration
|
Charter
Extension Options
|
Golar
Viking
(formerly
known as
the
Gracilis)
|
2005
|
|
140,000
|
MI
|
Membrane
|
|
Shell
|
2011
|
|
Golar
Grand
(formerly
known as
the
Grandis)
|
2006
|
|
145,700
|
IOM
|
Membrane
|
|
Shell
|
2011
|
|
Golar
Maria
(formerly
known as
the
Granosa)
|
2006
|
|
145,700
|
MI
|
Membrane
|
|
Shell
|
2011
|
|
Golar
Arctic (formerly
known
as the Granatina)
|
2003
|
|
140,000
|
MI
|
Membrane
|
|
Spot
Trading
|
n/a
|
|
Ebisu
(4)
|
2008
|
|
145,000
|
BAH
|
Moss
|
|
Spot
Trading
|
n/a
|
|
Gandria
(5)
|
1977
|
|
126,000
|
NIS
|
Moss
|
|
n/a(1)
|
n/a
|
|
Key to
Flags:
LIB –
Liberian, UK – United Kingdom, MI – Marshall Islands, IOM – Isle of Man , BAH –
Bahamas, NIS – Netherlands Antilles
|
(1)
|
Currently,
the Hilli and
Gandria are
layed-up in Labuan, Malaysia.
|
|
(2)
|
In
2008 we entered into an agreement to convert the Golar Freeze into a
FSRU. Following its delivery to us in the second quarter of
2010, the Golar
Freeze is scheduled to commence a 10-year time charter with
DUSUP.
|
|
(3)
|
We
have a 60% ownership interest in the Golar Mazo with the
remaining 40% owned by Chinese Petroleum
Corporation.
|
|
(4)
|
In
October 2008, we chartered-in the Ebisu under a two-year
time charter party.
|
|
(5)
|
In
connection with our joint venture Bluewater Gandria we have a 50% equity
interest in the Gandria with the
remaining 50% owned by Bluewater.
|
Newbuildings
We have
entered into newbuilding contracts for the delivery of seven LNG carriers since
the beginning of 2001, six of which have already been delivered, the seventh
newbuilding was sold for gross consideration of $92.5 million, realizing a
profit of $41.0 million. The sale was completed in March
2007.
Our
Charters
Our
vessels transport LNG from various facilities around the world. Two of our
vessels serve under long-term time charter arrangements, one serving routes
between Indonesia and Taiwan, while the other is involved in the transportation
of LNG from facilities in the Middle East, North Africa and Trinidad to ports
principally in the United States and Europe but also Japan. A further
three of our vessels are or will be operating on long-term charters providing
FSRU services before the end of 2010 and a further three vessels are under
charter to Shell and operate worldwide. These charters generally
provide us with stable income and cash flows.
Two of
our current LNG carriers long-term time charters come to an end in 2010 while
the Hilli and our 50%
equity interest in the Gandria
are currently layed-up in Labuan, Malaysia providing possible FSRU
conversion opportunities. The Golar Arctic, purchased from
Shell in January 2008, is currently operating on the spot market as is the Ebisu, our chartered-in
vessel. The
Golar Mazo is chartered
by Pertamina, the state-owned oil and gas company of Indonesia. The
Golar Mazo, which we
jointly own with the Chinese Petroleum Corporation, transports LNG from
Indonesia to Taiwan under an 18-year time charter that expires at the end of
2017. Pertamina has options to extend the Golar Mazo charter for two
additional periods of five years each.
Under the
Pertamina charter, the operating and drydocking costs of the Golar Mazo are compensated by
Pertamina on a cost pass-through basis. Pertamina also pay for hire
of the vessel during scheduled drydockings up to a specified number of days for
every two to three year period.
BG Charters: BG,
through its subsidiaries, charters three of our vessels on long-term time
charters. These vessels, the Khannur and Gimi, (both
approaching the end of their long-term commitments to BG) and the Methane Princess each
transport LNG from export facilities in the Middle East and Atlantic Basin
nations to ports on the east coast of the United States, Europe and
Japan. BG determines the trading routes of these
vessels. The Golar
Freeze commenced a five–year charter with BG on March 31, 2003 and was
redelivered to us in June 2009, as noted above. The charters for the
Gimi and the Khannur
will expire in August 2010 and the last quarter of 2010
respectively.
Petrobras Charters: In
September 2007, we entered into 10-year time charter agreements with Petrobras
which required the conversion of the Golar Spirit and the Golar Winter into
FSRUs. The Petrobras charters commence on the delivery of each of the
vessels. The Golar
Spirit commenced its charter in July 2008 and the Golar Winter commenced in
September 2009. The time charter employment for these vessels is
covered by two contracts, a time charter party covering hire of the vessel
payable in United States dollars and an operating and services agreement payable
in Brazilian Reais. These two agreements are interdependent and when
combined have the same effect as the time charters for our LNG
carriers. Petrobras has the option to purchase the vessel(s) after
the second anniversary of delivery to Petrobras and they also have the option to
terminate the charter after the fifth anniversary of delivery to Petrobras for a
termination fee.
DUSUP Charter: In April 2008,
we entered into a time charter with DUSUP which requires the conversion of the
Golar Freeze into a
FSRU. The time charter is for a period of 10 years with a charterer's
option to extend the charter for an additional five years. The DUSUP
charter will commence on the delivery of the vessel, which we expect in May
2010. DUSUP has an option to terminate the charter after the fifth
anniversary of delivery to DUSUP upon payment of a termination fee.
In the
event of the late delivery of the Golar Freeze, DUSUP have the
right to receive compensation in the form of a full pass through of any
liquidated damages received by us from our suppliers, including the
shipyard.
Shell Charters: Shell
currently charters three of our vessels on five-year charters. The rates we earn
from these charters are market related, and therefore variable. As
with all our other charters we may suffer periods of off-hire when the vessel is
unable to transport cargo, however there is also the possibility of periods when
we will not receive charter hire, in the event that Shell have no requirement
for a given vessel in a given period and cannot sub-charter it to a third
party. Although this structure effectively leaves the company open to
market risk we believe that our utilization rate (i.e. the number of days for
which we are paid hire in any given period) may be improved. Shell's
international gas and LNG trading structures afford significantly more
opportunity to create and sustain ongoing vessel utilization than is available
to a stand-alone shipping company.
The
five-year charter periods on the respective vessels commenced in January 2006
for the Grand, March
2006 for the Viking and June 2006 for the
Maria, and are each
scheduled to terminate in 2011. However, Shell has termination rights
throughout the charter period.
Our
charterers may suspend their payment obligations under the charter agreements
for periods when the vessels are not able to transport cargo for various
reasons. These periods, which are also called off-hire periods, may
result from, among other causes, mechanical breakdown or other accidents, the
inability of the crew to operate the vessel, the arrest or other detention of
the vessel as the result of a claim against us, or the cancellation of the
vessel's class certification. The charters automatically terminate in
the event of the loss of a vessel.
Charter
Renewal Options
Pertamina
Charter: Pertamina has the option to extend the charter of the
Golar Mazo for up to
10-years by exercising the right to extend for one or two additional five-year
periods. Pertamina must give two years notice of any decision to
extend. The revenue during the period of charter extension will be
subject to adjustments based on our actual operating costs during the period of
the extension.
BG Charters: BG
has the option to extend the Methane Princess charter for
two, five-year periods.
Petrobras
Charters: Petrobras has the option to extend the charter
period for both vessels, the Golar Spirit and the Golar Winter for up to five
years by exercising its right to extend for an initial two year term and then a
further three year term.
DUSUP
Charter: DUSUP have the option to extend the charter of the
Golar Freeze up to
October 2025.
Golar
Management Limited and Ship Management
Golar
Management Limited (previously known as Golar Management (UK) Limited), or Golar
Management, a wholly owned subsidiary of ours which has offices in London and
Oslo provides commercial, operational and technical support and supervision and
accounting and treasury services to us.
Prior to
February 2005, Golar Management provided all services related to the management
of our vessels other than some of our crewing activities. Since
February 2005, Golar Management has subcontracted to internationally recognized
third party ship management companies the day-to-day vessel management
activities including routine maintenance and repairs; arranging supply of stores
and equipment; ensuring compliance with applicable regulations, including
licensing and certification requirements and engagement and provision of
qualified crews. Ultimate responsibility for the management of our
vessels, however, remains with Golar Management.
Our third
party ship managers are Thome Ship Management (Singapore), and Wilhelmsen Ship
Management (Norway). We recently transferred the management of our three vessels
chartered to Shell from STASCO to Thome and Wilhelmsen. Our decision to employ
third party managers was primarily driven by our need to secure long-term high
quality seafaring workforce for a growing fleet. We recognized that
external ship management companies have access to larger pools of officers that
can be trained to become LNG officers. With the expansion of the global LNG
fleet, a shortage of well-qualified officers is considered a significant threat
to operators in this shipping segment We also wanted to take advantage of
economies and efficiencies of scale afforded by these managers.
Vessel
Maintenance
We are
focused on operating and maintaining our LNG carriers to the highest safety and
industry standards and at the same time maximizing revenue from each
vessel. It is our policy to have our crews perform planned
maintenance on our vessels while underway, to reduce time required for repairs
during drydocking. This will reduce the overall off-hire period
required for dockings and repairs. Since we generally do not earn
hire from a vessel while it is in drydock we believe that the additional revenue
earned from reduced off-hire periods outweighs the expense of the additional
crewmembers or subcontractors.
Insurance
The
operation of any vessel, including LNG carriers and FSRUs, has inherent
risks. These risks include mechanical failure, personal injury,
collision, property loss, vessel or cargo loss or damage and business
interruption due to political circumstances in foreign countries and/or war risk
situations or hostilities. In addition, there is always an inherent
possibility of marine disaster, including explosion, spills and other
environmental mishaps, and the liabilities arising from owning and operating
vessels in international trade.
We
believe that our present insurance coverage is adequate to protect us against
the accident related risks involved in the conduct of our business and that we
maintain appropriate levels of environmental damage and pollution insurance
coverage consistent with standard industry practice. However, not all
risks can be insured, and there can be no guarantee that any specific claim will
be paid, or that we will always be able to obtain adequate insurance coverage at
reasonable rates.
The FSRUs
are treated as vessels by our insurers and the term "vessel" also covers FSRUs
in the following.
We have
obtained hull and machinery insurance on all our vessels against marine and war
risks, which include the risks of damage to our vessels, salvage or towing
costs, and also insure against actual or constructive total loss of any of our
vessels. However, our insurance policies contain deductible amounts
for which we will be responsible. We have also arranged additional
total loss coverage for each vessel. This coverage, which is called
hull interest and freight interest coverage, provides us additional coverage in
the event of the total loss of a vessel.
We have
also obtained loss of hire insurance to protect us against loss of income in the
event one of our vessels cannot be employed due to damage that is covered under
the terms of our hull and machinery insurance. Under our loss of hire
policies, our insurer will pay us the daily rate agreed in respect of each
vessel for each day, in excess of a certain number of deductible days, for the
time that the vessel is out of service as a result of damage, for a maximum of
240 days. The number of deductible days varies from 14 days for the
new ships to 30 days for the older ships, also depending on the type of damage;
machinery or hull damage.
Protection
and indemnity insurance, which covers our third-party legal liabilities in
connection with our shipping activities, is provided by a mutual protection and
indemnity association, or P&I club. This includes third-party
liability and other expenses related to the injury or death of crew members,
passengers and other third-party persons, loss or damage to cargo, claims
arising from collisions with other vessels or from contact with jetties or
wharves and other damage to other third-party property, including pollution
arising from oil or other substances, and other related costs, including wreck
removal. Subject to the capping discussed below, our coverage, except
for pollution, is unlimited.
Our
current protection and indemnity insurance coverage for pollution is $1 billion
per vessel per incident. The thirteen P&I clubs that comprise the
International Group of Protection and Indemnity Clubs insure approximately 90%
of the world's commercial tonnage and have entered into a pooling agreement to
reinsure each association's liabilities. Each P&I club has capped
its exposure in this pooling agreement so that the maximum claim covered by the
pool and its reinsurance would be approximately $5.45 billion per accident or
occurrence. We are a member of Gard and Skuld P&I
Clubs. As a member of these P&I clubs, we are subject to a call
for additional premiums based on the clubs' claims record, as well as the claims
record of all other members of the P&I clubs comprising the International
Group. However, our P&I clubs have reinsured the risk of
additional premium calls to limit our additional exposure. This
reinsurance is subject to a cap, and there is the risk that the full amount of
the additional call would not be covered by this reinsurance.
For our
operating FSRUs we have, due to formulations in their Time Charter Party
contracts, also placed Comprehensive General Liability ("CGL")
insurance. This type of insurance is common for offshore operations
and is additional to the P&I insurance. Our cover under the CGL
insurance is $150 million per unit.
Environmental
and Other Regulations
Governmental
and international agencies extensively regulate the handling and carriage of
LNG. These regulations include international conventions and
national, state and local laws and regulations in the countries where our
vessels operate or where our vessels are registered. We cannot
predict the ultimate cost of complying with these regulations, or the impact
that these regulations will have on the resale value or useful lives of our
vessels. Various governmental and quasi-governmental agencies require
us to obtain permits, licenses and certificates for the operation of our
vessels. Although we believe that we are substantially in compliance
with applicable environmental laws and regulations and have all permits,
licenses and certificates required for our operations, future non- compliance or
failure to maintain necessary permits or approvals could require us to incur
substantial costs or temporarily suspend operation of one or more of our
vessels.
A variety
of governmental, quasi-governmental and private organizations subject our
vessels to both scheduled and unscheduled inspections. These
organizations include the local port authorities, national authorities, harbor
masters or equivalent, classification societies, relevant flag state and
charterers, particularly terminal operators and oil companies. Some
of these entities require us to obtain permits, licenses, certificates and
approvals for the operation of our vessels. Our failure to maintain
necessary permits, licenses, certificates and approvals could require us to
incur substantial costs or temporarily suspend operation of one or more of the
vessels in our fleet, or lead to the invalidation or reduction of our insurance
coverage.
Our third
party Ship Managers are certified to the International Standards Organization
(ISO) Environmental Standard for the management of the significant environmental
aspects associated with the ownership and operation of a fleet of LNG
carriers. This certification requires that the Company commit
managerial resources to act on its environmental policy through an effective
management system.
Regulation
by the International Maritime Organization
The
International Maritime Organization (IMO) is a United Nations agency that
provides international regulations affecting the practices of those in shipping
and international maritime trade. The requirements contained in the
International Management Code for the Safe Operation of Ships and for Pollution
Prevention, or ISM Code, promulgated by the IMO, govern our
operations. The ISM Code requires the party with operational control
of a vessel to develop an extensive safety management system that includes,
among other things, the adoption of a safety and environmental protection policy
setting forth instructions and procedures for operating its vessels safely and
also describing procedures for responding to emergencies. Our Ship
Managers hold a Document of Compliance for operation of Gas
Carriers.
Vessels
that transport gas, including LNG carriers and FSRUs, are also subject to
regulation under the International Gas Carrier Code, or IGC, published by the
IMO. The IGC provides a standard for the safe carriage of LNG and
certain other liquid gases by prescribing the design and construction standards
of vessels involved in such carriage. Compliance with the IGC must be
evidenced by a Certificate of Fitness for the Carriage of Liquefied Gases in
Bulk. Each of our vessels is in compliance with the IGC and each of
our newbuilding/conversion contracts requires that the vessel receive
certification that it is in compliance with applicable regulations before it is
delivered. Non-compliance with the IGC or other applicable IMO
regulations, may subject a shipowner or a bareboat charterer to increased
liability, may lead to decreases in available insurance coverage for affected
vessels and may result in the denial of access to, or detention in, some
ports.
The IMO
also promulgates ongoing amendments to the international convention for the
Safety of Life at Sea 1974 and its protocol of 1988, otherwise known as
SOLAS. This provides rules for the construction of ships and
regulations for their operation with respect to safety issues. It
requires the provision of lifeboats and other life-saving appliances, requires
the use of the Global Maritime Distress and Safety System which is an
international radio equipment and watchkeeping standard, afloat and at shore
stations, and relates to the Treaty on the Standards of Training and
Certification of Watchkeeping Officers, or STCW, also promulgated by
IMO. Flag states, which have ratified the Convention and the Treaty
generally, employ the classification societies, which have incorporated SOLAS
and STCW requirements into their class rules, to undertake surveys to confirm
compliance.
In the
wake of increased worldwide security concerns IMO did issue "The International
Security Code for Ports and Ships" ("ISPS"). The objective of the
ISPS, which came into effect on July 1, 2004, is to detect security threats and
take preventive measures against security incidents affecting ships or port
facilities. Our Ship Managers have developed Security Plans,
appointed and trained Ship and Office Security Officers and all ships have been
certified to meet the ISPS Code.
Air
Emissions
In
September 1997, the IMO adopted Annex VI to MARPOL to address air pollution from
ships. Effective May 2005, Annex VI sets limits on sulfur oxide and
nitrogen oxide emissions from all commercial vessel exhausts and prohibits
deliberate emissions of ozone depleting substances (such as halons and
chlorofluorocarbons), emissions of volatile organic compounds from cargo tanks,
and the shipboard incineration of specific substances. Annex VI also
includes a global cap on the sulfur content of fuel oil and allows for special
areas to be established with more stringent controls on sulfur
emissions. We believe that all our vessels are currently compliant in
all material respects with these regulations. Additional or new
conventions, laws and regulations may be adopted that could require the
installation of expensive emission control systems and adversely affect our
business, results of operations, cash flows and financial
condition. In October 2008, the IMO adopted amendments to Annex VI
regarding emissions of sulfur oxide, nitrogen oxide, particular matter and
ozone-depleting substances, which amendments enter into force on July 1,
2010. The amended Annex VI will reduce air pollution from vessels by,
among other things, (i) implementing a progressive reduction of sulfur oxide
emissions from ships by reducing the global sulfur fuel cap initially to 3.50%
(from the current cap of 4.50%), effective from January 1, 2012, then
progressively to 0.50%, effective from January 1, 2020, subject to a feasibility
review to be completed no later than 2018; and (ii) establishing new tiers of
stringent nitrogen oxide emissions standards for new marine engines, depending
on their date of installation. The United States ratified the Annex
VI amendments in October 2008, and the U.S. Environmental Protection Agency, or
EPA, promulgated equivalent emissions standards in late 2009. The
European directive 2005/33/EU, which is effective from January 1, 2010, bans the
use of fuel oils containing more than 0.1% sulphur by mass by any merchant
vessel while at berth in any EU country. Our trading vessels have achieved
compliance by being arranged to allow burning gas only in their boilers when
alongside. Low sulphur marine diesel oil (LSDO) has been purchased as the only
fuel for the Diesel Generators. In addition we are in the process modifying the
boilers on some of our vessels to also allow operation on LSDO.
Ballast
Water Management Convention
IMO has
negotiated international conventions that impose liability for oil pollution in
international waters and the territorial waters of the signatory to such
conventions. For example, IMO adopted an International Convention for
the Control and Management of Ships' Ballast Water and Sediments, or the BWM
Convention, in February 2004. The BWM Convention's implementing
regulations call for a phased introduction of mandatory ballast water exchange
requirements (beginning in 2009), to be replaced in time with mandatory
concentration limits. The BWM Convention will not become effective
until 12 months after it has been adopted by 30 states, the combined merchant
fleets of which represent not less than 35% of the gross tonnage of the world's
merchant shipping. To date there has not been sufficient adoption of
this standard for it to take force.
Bunkers
Convention / CLC State certificate
The International convention on Civil
Liability for Bunker Oil Pollution 2001, or the Bunker Convention, entered into
force in State Parties to the Convention on November 21, 2008. The
Convention provides a liability, compensation and compulsory insurance system
for the victims of oil pollution damage caused by spills of bunker
oil. The Convention make the ship owner liable to pay compensation
for pollution damage (including the cost of preventive measures) caused in the
territory, including the territorial sea of a State Party, as well as its
economic zone or equivalent area. Registered owners of any sea going
vessel and seaborne craft over 1,000 gross tonnage, of any type whatsoever, and
registered in a State Party, or entering or leaving a port in the territory of a
State Party, will be required to maintain insurance which meets the requirements
of the Convention and to obtain a certificate issued by a State Party attesting
that such insurance is in force. The State issued certificate must be
carried on board at all times.
P&I Clubs in the International
Group issue the required Bunkers Convention "Blue Cards" to enable signatory
states to issue certificates. All of our vessels have received "Blue
Cards" from their P&I Club and are in possession of a CLC State-issued
certificate attesting that the required insurance cover is in
force.
The flag
state, as defined by the United Nations Convention on Law of the Sea, has
overall responsibility for the implementation and enforcement of international
maritime regulations for all ships granted the right to fly its
flag. The "Shipping Industry Guidelines on Flag State Performance"
evaluates flag states based on factors such as sufficiency of infrastructure,
ratification of international maritime treaties, implementation and enforcement
of international maritime regulations, supervision of surveys, casualty
investigations and participation at IMO meetings.
Environmental
Regulation—OPA/CERCLA
The U.S.
Oil Pollution Act of 1990, or OPA, established an extensive regulatory and
liability regime for the protection and cleanup of the environment from oil
spills. OPA affects all owners and operators whose vessels trade in
the United States, its territories and possessions or whose vessels operate in
U.S. waters, which includes the U.S. territorial sea and its 200 nautical mile
exclusive economic zone. The United States has also enacted the
Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
which applies to the discharge of hazardous substances other than oil whether on
land or at sea. Both OPA and CERCLA impact our
operations.
Under
OPA, vessel owners, operators and bareboat charterers are "responsible parties"
and are jointly, severally and strictly liable (unless the spill results solely
from the act or omission of a third party, an act of God or an act of war) for
all containment and clean-up costs and other damages arising from discharges or
threatened discharges of oil from their vessels. OPA defines these
other damages broadly to include:
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natural
resources damage and the related assessment
costs;
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real
and personal property damage;
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net
loss of taxes, royalties, rents, fees and other lost
revenues;
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lost
profits or impairment of earning capacity due to property or natural
resources damage; and
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net
cost of public services necessitated by a spill response, such as
protection from fire, safety or health hazards;
and
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loss
of subsistence use of natural
resources.
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Effective
July 31, 2009, the U.S. Coast Guard adjusted the limits of OPA liability to the
greater of $2,000 per gross ton or $17.088 million for any double-hull tanker
that is over 3,000 gross tons (subject to possible adjustment for inflation)
(relevant to the Golar LNG carriers). The Act specifically permits individual
states to impose their own liability regimes with regard to oil pollution
incidents occurring within their boundaries, and some states have enacted
legislation providing for unlimited liability for discharge of pollutants within
their waters. In some cases, states which have enacted this type of
legislation have not yet issued implementing regulations defining tanker owners'
responsibilities under these laws.
CERCLA,
which applies to owners and operators of vessels, contains a similar liability
regime and provides for cleanup, removal and natural resource
damages. Liability under CERCLA is limited to the greater of $300 per
gross ton or $5 million for vessels carrying a hazardous substance as cargo and
the greater of $300 per gross ton or $0.5 million for any other
vessel. These OPA and CERCLA limits of liability do not apply if an
incident was directly caused by violation of applicable U.S. federal safety,
construction or operating regulations or by a responsible party's gross
negligence or wilful misconduct, or if the responsible party fails or refuses to
report the incident or to cooperate and assist in connection with the substance
removal activities. OPA and CERCLA each preserve the right to recover
damages under existing law, including maritime tort law. We
anticipate that we will be in compliance with OPA, CERCLA and all applicable
state regulations in the ports where our vessels will call.
OPA and
the U.S. Coast Guard also require owners and operators of vessels to establish
and maintain with the U.S. Coast Guard evidence of financial responsibility
sufficient to meet the limit of their potential liability under OPA and
CERCLA. Vessel owners and operators may satisfy their financial
responsibility obligations by providing a proof of insurance, a surety bond,
self-insurance or a guaranty. Each of our shipowning subsidiaries
that has vessels trading in U.S. waters has applied for, and obtained from the
U.S. Coast Guard National Pollution Funds Center, three-year certificates of
financial responsibility, supported by guarantees which we purchased from an
insurance-based provider. We believe that we will be able to continue
to obtain the requisite guarantees and that we will continue to be granted
certificates of financial responsibility from the U.S. Coast Guard for each of
our vessels that is required to have one.
Other
U.S. Environmental Initiatives
The U.S.
Clean Water Act, or CWA, prohibits the discharge of oil, hazardous substances,
and ballast water in U.S. navigable waters unless authorized by a duly-issued
permit or exemption, and imposes strict liability in the form of penalties for
any unauthorized discharges. The CWA also imposes substantial
liability for the costs of removal, remediation and damages and complements the
remedies available under OPA and CERCLA. Furthermore, most U.S.
states that border a navigable waterway have enacted environmental pollution
laws that impose strict liability on a person for removal costs and damages
resulting from a discharge of oil or a release of a hazardous
substance. These laws may be more stringent than U.S. federal
law.
In
October 2009, the European Union amended a directive to impose illicit
ship-source discharges of polluting substances, including minor discharges, if
committed with intent, recklessly or with serious negligence and the discharges
individually or in the aggregate result in deterioration of the quality of
water. Criminal liability for pollution may result in substantial penalties or
fines and increased civil liability claims.
Greenhouse
Gas Regulation
In
February 2005, the Kyoto Protocol to the United Nations Framework Convention on
Climate Change, or UNFCCC, which refer to as the Kyoto Protocol, entered into
force. Pursuant to the Kyoto Protocol, adopting countries are required to
implement national programs to reduce emissions of certain gases, generally
referred to as greenhouse gases, which are suspected of contributing to global
warming. Currently, the emissions of greenhouse gases from
international shipping are not subject to the Kyoto
Protocol. However, international negotiations are continuing with
respect to a successor to the Kyoto Protocol, which sets emission reduction
targets through 2012, and restrictions on shipping emissions may be included in
any new treaty. In December 2009, more than 27 nations, including the
United States and China, signed the Copenhagen Accord, which includes a
non-binding commitment to reduce greenhouse gas emissions. The
European Union has indicated that it intends to propose an expansion of the
existing European Union emissions trading scheme to include emissions of
greenhouse gases from vessels, if such emissions are not regulated through the
IMO or the UNFCCC by December 31, 2010. In the United States, the EPA
has issued a final finding that greenhouse gases threaten public health and
safety, and has proposed regulations governing the emission of greenhouse gases
from motor vehicles and stationary sources. The EPA may decide in the
future to regulate greenhouse gas emissions from ships and has already been
petitioned by the California Attorney General to regulate greenhouse gas
emissions from ocean-going vessels. Other federal and state
regulations relating to the control of greenhouse gas emissions may follow,
including the climate change initiatives that are being considered in the U.S.
Congress. In addition, the IMO is evaluating various mandatory
measures to reduce greenhouse gas emissions from international shipping,
including market-based instruments. Any passage of climate control
legislation or other regulatory initiatives by the E.U., U.S., IMO, or other
countries where we operate that restrict emissions of greenhouse gases could
require us to make significant financial expenditures that we cannot predict
with certainty at this time.
Vessel
Security Regulations
Since the
terrorist attacks of September 11, 2001, there have been a variety of
initiatives intended to enhance vessel security. On November 25,
2002, the U.S. Maritime Transportation Security Act of 2002, or the MTSA, came
into effect. To implement certain portions of the MTSA, in July 2003,
the U.S. Coast Guard issued regulations requiring the implementation of certain
security requirements aboard vessels operating in waters subject to the
jurisdiction of the United States. Similarly, in December 2002,
amendments to SOLAS created a new chapter of the convention dealing specifically
with maritime security. The new chapter became effective in July 2004
and imposes various detailed security obligations on vessels and port
authorities, most of which are contained in the International Ship and Port
Facilities Security Code, or the ISPS Code. The ISPS Code is designed
to protect ports and international shipping against terrorism. After
July 1, 2004, to trade internationally, a vessel must attain an International
Ship Security Certificate from a recognized security organization approved by
the vessel's flag state. Among the various requirements
are:
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on-board
installation of automatic identification systems to provide a means for
the automatic transmission of safety-related information from among
similarly equipped ships and shore stations, including information on a
ship's identity, position, course, speed and navigational
status;
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on-board
installation of ship security alert systems, which do not sound on the
vessel but only alert the authorities on
shore;
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the
development of vessel security
plans;
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ship
identification number to be permanently marked on a vessel's
hull;
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a
continuous synopsis record kept onboard showing a vessel's history
including, the name of the ship and of the state whose flag the ship is
entitled to fly, the date on which the ship was registered with that
state, the ship's identification number, the port at which the ship is
registered and the name of the registered owner(s) and their registered
address; and
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compliance
with flag state security certification
requirements.
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The U.S.
Coast Guard regulations, intended to align with international maritime security
standards, exempt from MTSA vessel security measures non-U.S. vessels that have
on board, as of July 1, 2004, a valid International Ship Security Certificate
attesting to the vessel's compliance with SOLAS security requirements and the
ISPS Code. We have implemented the various security measures
addressed by the MTSA, SOLAS and the ISPS Code, and our fleet is in compliance
with applicable security requirements.
Inspection
by Classification Societies
Every
oceangoing vessel must be "classed" by a classification society. A
classification society certifies that a vessel is "in-class," signifying that
the vessel has been built and maintained in accordance with the rules of the
classification society and complies with applicable rules and regulations of the
vessel's country of registry and the international conventions of which that
country is a member. In addition, where surveys are required by
international conventions and corresponding laws and ordinances of a flag state,
the classification society will undertake them on application or by official
order, acting on behalf of the authorities concerned.
Our FSRUs
are "classed" as vessels and have obtained the additional class notation REGAS-2
signifying that the regasification installations are designed and approved for
continuous operation. The reference to "vessels" in the following,
also apply to our FSRUs.
For
maintenance of the class certificate, regular and extraordinary surveys of hull,
machinery, including the electrical plant and any special equipment classed, are
required to be performed by the classification society, to ensure continuing
compliance. Vessels are drydocked at least once during a five-year
class cycle for inspection of the underwater parts and for repairs related to
inspections. If any defects are found, the classification surveyor
will issue a "recommendation" which must be rectified by the shipowner within
prescribed time limits. The classification society also undertakes on
request other surveys and checks that are required by the regulations and
requirements of the flag state. These surveys are subject to
agreements made in each individual case and/or to the regulations of the country
concerned.
Most
insurance underwriters make it a condition for insurance coverage that a vessel
be certified as "in class" by a classification society, which is a member of the
International Association of Classification Societies. All of our
vessels have been certified as being "in class." The Golar Mazo and Golar Artic are certified by
Lloyds Register, and our other vessels are each certified by Det Norske Veritas.
Both being members of the International Association of Classification
Societies.
In-House
Inspections
Our ship
managers carry out inspections of the ships on a regular basis; both at sea and
while the vessels are in port, while we carry out inspection and ship audits to
verify conformity with managers' reports. The results of these
inspections, which are conducted both in port and underway, result in a report
containing recommendations for improvements to the overall condition of the
vessel, maintenance, safety and crew welfare. Based in part on these
evaluations, we create and implement a program of continual maintenance for our
vessels and their systems.
C. Organizational
Structure
See the
section of this annual report entitled Item 19, "Exhibits - Exhibit 8.1" for a
list of our significant subsidiaries.
D. Property,
Plant and Equipment
For
information on our fleet, please see the section of this item entitled "Our
Fleet."
We do not own any interest in real
property. We sublease approximately 7,000 square feet of office space
in London for our ship management operations.
ITEM
4A. UNRESOLVED STAFF COMMENTS
None.
ITEM
5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A.
Operating Results
Overview
and Background
The
following discussion of our financial condition and results of operations should
be read in conjunction with the sections of this annual report entitled Item 3,
"Key Information – Selected Financial Data," Item 4, "Information on the
Company" and our audited financial statements and notes thereto. Our
financial statements have been prepared in accordance with U.S.
GAAP. This discussion includes forward-looking statements based on
assumptions about our future business. Please read the section of
this annual report entitled "Cautionary Statement Regarding Forward Looking
Statements" for more information. You should also review the section
of this annual report entitled Item 3, "Key Information - Risk Factors" for a
discussion of important factors that could cause our actual results to differ
materially from the results described in or implied by the forward-looking
statements.
Market
Overview and Trends
Our
principal focus and expertise is the transportation and regasification of LNG
and liquefaction of natural gas. We are engaged in the acquisition,
ownership, operation and chartering of LNG carriers and FSRUs through our
subsidiaries and the development of liquefaction projects. As of
April 2010, our fleet consisted of 13 vessels and a 50% equity interest in a
further LNG carrier. A full fleet list is provided in Item 4.D,
"Information on the Company - Our Fleet" showing the vessels that we currently
own and charter-in.
We
currently have three vessels the Golar Arctic, the Ebisu, the Hilli and a fourth vessel,
our 50% equity interest vessel, the Gandria, not committed to
contracts for the balance of 2010 with the Hilli and Gandria are currently in
lay-up. Rates payable in the market for LNG carriers may be uncertain
and volatile. The supply and demand for LNG carriers is also
uncertain. In the period from 2004, the excess supply of vessels over
demand has negatively impacted our results and we expect this oversupply to
continue during 2010 as LNG carriers continue to be delivered ahead of LNG
production projects they were built for. While we believe there could
be up to a 16% increase in LNG production capacity during 2010 which would
increase the worldwide LNG shipping requirement the fall in demand for natural
gas worldwide due to the current economic climate and the subsequent fall in gas
prices has had and is likely to continue to have a negative impact on LNG
shipping demand. In addition, we have in recent years observed a
seasonal trend in rates with the rates earned in the summer months depressed
compared with winter rates but we cannot be sure this will continue in the
future.
The
earnings from our vessels on charter to Shell will also be impacted by the
development of charter rates and demand in the spot market. These
factors could also influence the results of operations from spot market
activities and the Shell charters beyond 2010.
Please
see the section of this annual report entitled Item 4, "Information on the
Company – Business Overview – the LNG industry" for further discussion of the
LNG market in 2009 and 2008.
Factors
Affecting the Comparability of Future Results
Our
historical results of operations and cash flows are not indicative of results of
operations and cash flows to be expected in the future, principally for the
following reasons:
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The Golar
Spirit, the Golar Winter and the Golar Freeze will be operated in a
substantially different manner. In July 2008, the Golar Spirit commenced
FSRU service under its long-term charter with Petrobras. The
Golar Spirit generated $39 million of total operating revenue for the year
ended December 31, 2009.
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The Golar Winter has operated in
the spot market under short-term time charters since its delivery in 2004 until
its entry into the shipyard for retrofitting for FSRU service in September
2008. The vessel completed its FSRU conversion and was redelivered
from the shipyard in May 2009 and commenced FSRU service in September
2009. Whilst in the shipyard, the Golar Winter did not generate
any revenue. In 2009, the Golar Winter generated $18.5
million (2008: $19.4 million) of total operating revenue.
The Golar Freeze has operated
under a long-term charter with BG since 2003, which expired in June
2009. Following the end of its BG charter, it entered the shipyard
for retrofitting for FSRU service in September 2009. Upon delivery
and acceptance by its charterer (expected in May 2010), the Golar Freeze will be operated
as a FSRU under a 10-year time charter.
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The Hilli,
Gimi and Khannur
have come or are coming to the end of their charters and may also operate
differently in the future. We anticipate that in time we
will convert some or all of these vessels for FSRU service in the
future. The Gimi and Khannur redelivery to us from long term time
charters will occur during 2010.
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FSRU
operating expenses will be higher than the operating expenses for LNG
carriers and will increase our exposure to foreign exchange
rates. Our historical operating expenses reflect the
operation of the Golar
Spirit and the Golar Winter (until the
commencement of their respective FSRU services in July 2008 and September
2009), and the Golar
Freeze as LNG carriers. Following the completion of
their retrofitting and operation as FSRUs, we expect to incur higher
operating expenses on average with respect to their operation as FSRUs
compared to conventional LNG vessels. We expect these increased
operating expenses to be offset by increased charter hire
revenues. In addition, the majority of our expenses and
revenues have in the past been denominated in U.S.
Dollars. Under the Petrobras charters, we will incur a portion
of our expenses and receive a portion of our revenues in Brazilian Reais
and, therefore, we expect to have increased exposure to foreign exchange
rates.
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We expect
to incur additional Brazilian taxes in connection with our operation of
the FSRUs in Brazil. Our operation of the Golar Spirit and the
Golar Winter will
result in our being subject to Brazilian taxes on the revenue we receive
under the operation and services agreement with Petrobras. For
the year ended December 31, 2009, we incurred $1.1 million of Brazilian
taxes in connection with the Golar Spirit and Golar Winter FSRU
charter.
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We expect a
significant increase in bank
margins as a result of the recent economic crisis should we
refinance any of our existing facilities or enter into new
facilities.
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Investment
in projects. We are continuing to invest in and develop
our various projects, the costs we have incurred historically may not be
indicative of future costs.
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Factors
Affecting Our Results of Operations
We
believe the principal factors that will affect our future results of operations
include:
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the
number of vessels in our fleet, including our ability to deliver the Golar Freeze
successfully to its charter;
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whether
Petrobras exercises its options to acquire the Golar Spirit or the
Golar Winter and,
if so, whether we can effectively redeploy the proceeds from any such
exercise;
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whether
Petrobras exercises its option to terminate the Golar Spirit or the
Golar Winter
charters upon payment of a termination
fee;
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whether
DUSUP exercises its option to terminate the Golar Freeze charter
upon payment of a termination fee;
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our
ability to maintain good relationships with our five key existing
customers (including Petrobras) and to increase the number of our customer
relationships;
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increased
demand for LNG shipping services, including FSRU services, and in
connection with this underlying demand and supply for natural gas and
specifically LNG;
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our
ability to employ our vessels operating in the spot market and rates and
levels of utilization achieved by our vessels under charter to
Shell;
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the
success or failure of the LNG infrastructure projects that we are working
on or may work on in the future;
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our
ability to successfully employ our vessels at economically attractive
rates, as our charters expire or are otherwise
terminated;
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our
ability to obtain debt financing in respect of our capital commitments in
the current difficult credit markets and the likely increase in margins
payable to our banks for new debt;
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the
effective and efficient technical management of our
vessels;
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our
ability to obtain and maintain major international energy company
approvals and to satisfy their technical, health, safety and compliance
standards; and
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economic,
regulatory, political and governmental conditions that affect the shipping
industry. This includes changes in the number of new LNG importing
countries and regions and availability of surplus LNG from projects around
the world, as well as structural LNG market changes allowing greater
flexibility and enhanced competition with other energy
sources.
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In
addition to the factors discussed above, we believe certain specific factors
have impacted, and will continue to impact, our results of
operations. These factors include:
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the
hire rate earned by our vessels and unscheduled off-hire
days;
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non-utilization
for vessels not subject to fixed rate
charters;
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pension
and share option expense;
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mark-to-market
charges in interest rate, equity swaps and foreign currency
derivatives;
|
|
·
|
foreign
currency exchange gains and losses;
|
|
·
|
our
access to capital required to acquire additional vessels and/or to
implement our business strategy;
|
|
·
|
the
performance of our equity
interests;
|
|
·
|
increases
in operating costs; and
|
|
·
|
our
level of debt and the related interest expense and amortization of
principal.
|
Please
see the section of this annual report entitled Item 3, "Key Information - Risk
Factors" for a discussion of certain risks inherent in our
business.
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:
Total Operating
Revenues. Total
operating revenues refers to time charter revenues. We recognize
revenues from time charters over the term of the charter as the applicable
vessel operates under the charter. We do not recognize revenue during
days when the vessel is off-hire, unless the charter agreement makes a specific
exception.
Off-hire
(Including Commercial Waiting Time). Our vessels may be out of
service, that is, off-hire, for three main reasons: scheduled
drydocking or special survey or maintenance, which we refer to as scheduled
off-hire; days spent waiting for a charter, which we refer to as commercial
waiting time; and unscheduled repairs or maintenance, which we refer to as
unscheduled off-hire.
Voyage and
charter-hire Expenses. Voyage expenses, which are primarily
fuel costs but which also include other costs such as port charges, are paid by
our customers under our time charters. However, we may incur voyage
related expenses during off-hire periods when positioning or repositioning
vessels before or after the period of a time charter or before or after
drydocking, which expenses will be payable by us. We also incur some
voyage expenses, principally fuel costs, when our vessels are in periods of
commercial waiting time. Charter-hire expenses being the cost of chartering in
vessels to our fleet.
Time Charter
Equivalent Earnings. In order to compare vessels trading under
different types of charters, it is standard industry practice to measure the
revenue performance of a vessel in terms of average daily time charter
equivalent earnings, or "TCE." For our time charters, this is
calculated by dividing time charter revenues by the number of calendar days
minus days for scheduled off-hire. Where we are paid a fee to
position or reposition a vessel before or after a time charter, this additional
revenue, less voyage expenses, is included in the calculation of
TCE. For shipping companies utilizing voyage charters (where the
vessel owner pays voyage costs instead of the charterer), TCE is calculated by
dividing voyage revenues, net of vessel voyage costs, by the number of calendar
days minus days for scheduled off-hire. TCE is a non-GAAP financial
measure. Please see the section of this annual report entitled Item
3, "Key Information - Selected Financial Data" for a reconciliation of TCE to
our total operating revenues.
Vessel Operating
Expenses. Vessel operating expenses include direct vessel
operating costs associated with operating a vessel, such as crew wages, which
are the most significant component, vessel supplies, routine repairs,
maintenance, lubricating oils, insurance and management fees for the provision
of commercial and technical management services.
Depreciation and
Amortization. Depreciation and amortization expense, or the
periodic cost charged to our income for the reduction in usefulness and
long-term value of our ships, is related to the number of vessels we own or
operate under long-term capital leases. We depreciate the cost of our
owned vessels, less their estimated residual value, and amortize the amount of
our capital lease assets over their estimated economic useful lives, on a
straight-line basis. We amortize our deferred drydocking costs over
two to five years based on each vessel's next anticipated
drydocking. Income derived from sale and subsequently leased assets
is deferred and amortized in proportion to the amortization of the leased
assets.
Administrative
Expenses. Administrative expenses are composed of general
overhead, including personnel costs, legal and professional fees, costs
associated with project development, property costs and other general
administration expenses. Included within administrative expenses are
pension and share option expenses. Pension expense includes costs
associated with a defined benefit pension plan we maintain for some of our
office-based employees (the U.K. Scheme). Although this scheme is now
closed to new entrants the cost of provision of this benefit will vary with the
movement of actuarial variables and the value of the pension fund
assets. Share option expense refers to the compensation cost for
employee stock options granted in 2006 and later.
Interest Expense
and Interest Income. Interest expense depends on our overall
level of borrowings and may significantly increase when we acquire or lease
ships. During a newbuilding construction or FSRU retrofitting period,
interest expense incurred is capitalized in the cost of the newbuilding or
vessel. Interest expense may also change with prevailing interest
rates, although interest rate swaps or other derivative instruments may reduce
the effect of these changes. Interest income will depend on
prevailing interest rates and the level of our cash deposits and restricted cash
deposits.
Other Financial
Items. Other financial items include financing fee arrangement
costs, amortization of deferred financing costs, market valuation adjustments
for interest rate swap, foreign currency swap and equity swap derivatives and
foreign exchange gains/losses. The market valuation adjustment for
our derivatives may have a significant impact on our results of operations and
financial position although it does not impact our liquidity. Foreign
exchange gains or losses arise primarily due to the retranslation of our capital
lease obligations and the cash deposits securing those obligations that are
denominated in GBP. Any gain or loss represents an unrealized gain or
loss and will arise over time as a result of exchange rate
movements. Our liquidity position will only be affected to the extent
that we choose or are required to withdraw monies from or pay additional monies
into the deposits securing our capital lease obligations or if the leases are
terminated.
Inflation
and Cost Increases
|
Although
inflation has had a moderate impact on operating expenses, interest costs,
drydocking expenses and overhead, we do not expect inflation to have a
significant impact on direct costs in the current and foreseeable economic
environment other than potentially in relation to insurance costs and crew
costs. It is anticipated that insurance costs, which have risen over
the last three years, will continue to rise over the next few years and rates
may exceed the general level of inflation. LNG transportation is a
specialized area and the number of vessels has increased
rapidly. Therefore, there has been an increased demand for qualified
crew, which has and will continue to the same extent to put inflationary
pressure on crew costs. Only vessels on full cost pass through
charters would be protected from any crew cost increases. The impact
of these increases will be mitigated to some extent by the following provisions
in our charters:
|
·
|
The
Golar Mazo's
charter provides for operating cost and insurance cost pass-throughs and
so we will be protected from the impact of the vast majority of such
increases.
|
|
·
|
The
Methane Princess'
charter provides that the operating cost component of the charter hire
rate, established at the beginning of the charter, will increase by a
fixed percentage per annum, except for insurance, which is covered at
cost.
|
|
·
|
Under
the OSAs for both the Golar Spirit and the
Golar Winter, the
hire amounts are payable in Brazilian Reais. The hire payable
under the OSAs covers all vessel operating expenses, other than drydocking
and insurance which are covered under the Time Charter
Party. The hire amounts payable under the OSAs were established
between the parties at the time the charter was entered into and will be
adjusted based on a specified mix of consumer price and U.S. Dollar
foreign exchange rate indices on an annual
basis.
|
Results
of Operations
Our
results for the years ended December 31, 2009, 2008 and 2007 were affected by
several key factors:
|
·
|
a
realized gain arising on the termination of the Company's equity swap in
respect of Arrow Energy which resulted in a net gain of approximately $7.8
million and the disposal of a percentage of our equity interest in
Liquified Natural Gas Limited ("LNGL") in November 2009 resulting in an
aggregate gain of $8.4 million;
|
|
·
|
the
movement in mark-to-market valuations of our derivative instruments and
the impact of the adoption of hedge accounting, effective from October 1,
2008 for certain of our interest rate swap derivatives;
and
|
|
·
|
bank
loan and other financing arrangements that we have
entered;
|
|
·
|
the
acquisition of the Golar
Arctic (formerly known as the Granatina) in January
2008;
|
|
·
|
the
gain on disposal of the Golar Frost in 2008 and
our newbuilding DSME Hull 2244 in 2007, realizing a gain of
$78.1 million and $41.1 million,
respectively;
|
|
·
|
our
vessels not on long-term charters affected by commercial waiting
time. During 2009, Golar Arctic and the
Ebisu operated in
the spot market; and the Hilli was in
lay-up. Also the three vessels on five-year charters with
Shell; the Grand,
Viking and Maria, ("Shell
vessels") are subject to variable (market) charter rates and commercial
waiting time;
|
|
·
|
periods
of time 3 of our vessels spent in shipyards undergoing retrofitting for
FSRU service;
|
|
·
|
the
disposal of our entire equity interest in Korea Line in 2007 resulting in
an aggregate gain of $73.6 million and a corresponding decrease in its
contribution to equity in net earnings of
investees;
|
The
impact of these factors is discussed in more detail below.
Year
ended December 31, 2009, compared with the year ended December 31,
2008
Operating
revenues, voyage and charter-hire expenses and average daily time charter
equivalent
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
Total
operating revenues
|
|
|
216,495 |
|
|
|
228,779 |
|
|
|
(12,284 |
) |
|
|
(5 |
%) |
Voyage
and charter-hire expenses
|
|
|
(39,463 |
) |
|
|
(33,126 |
) |
|
|
(6,337 |
) |
|
|
(19 |
%) |
The
decrease in total operating revenues in 2009 compared to 2008 can primarily be
explained by:
|
·
|
off-hire
time incurred by the Golar Freeze upon entering
the shipyard to commence its FSRU retrofitting in September 2009. The
vessel earned approximately five months of revenue in 2009 as opposed to a
full year of earnings in 2008.
|
|
·
|
an
overall decline in charter rates and lower utilization levels of our
vessels trading on the spot market or in lay-up in 2009 (the Golar Frost, Golar Arctic and the
Ebisu), including
our vessels operating under the Shell five-year charters subject to
variable (market) charter rates and commercial waiting time (the Grand, Maria and Viking). The
total operating revenues generated by these vessels in 2009 were $63.9
million as compared to $79.6 million in
2008.
|
|
·
|
the
Golar Arctic
which was acquired in January 2008 went on charter to Shell for the
remainder of 2008 whereas the vessel had a considerable period of off-hire
during 2009.
|
|
·
|
the
Hilli did not
earn revenue in 2009 compared to 4 months of 2008 after entering into
lay-up in April 2008.
|
Partially
offset by an increase in operating revenues arising from:
|
·
|
A
full year's revenue of the Golar Spirit in 2009 as
opposed to approximately 6 months in
2008.
|
Voyage
and charter-hire expenses, which largely relate to fuel costs associated with
commercial waiting time, vessel positioning costs and charterhire expenses,
increased by $6.3 million in 2009 compared to 2008, principally as a result of
reduced levels of utilization in 2009 which resulted in higher fuel costs
payable by us. While a vessel is on-hire, fuel costs are typically borne by the
charterer, whereas during periods of commercial waiting time, fuel costs are
borne by us. This increase is also a result of the increased charterhire costs
on the Ebisu which we chartered in late September 2008, thus we incurred
approximately 3 months of charterhire costs in 2008 as opposed to a full year in
2009.
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
Calendar
days less scheduled off-hire days
|
|
|
4,145 |
|
|
|
4,298 |
|
|
|
(153 |
) |
|
|
(4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
daily TCE (to the closest $100)
|
|
$ |
47,400 |
|
|
$ |
45,700 |
|
|
$ |
1,700 |
|
|
|
4 |
% |
Average
daily TCE is calculated as $47,400 and $45,700 in 2009 and 2008,
respectively. The increase in average daily TCE can be explained by
the reasons described above and primarily as a result of higher charterhire
rates received for the FSRU vessels.
The
available trading days of our vessels trading in the spot market during 2009 and
the vessels under the Shell five year charters was 1,957 and
2,640 days in 2009 and 2008, respectively. Commercial waiting days in
2009 and 2008 were 38% and 26% of available trading days for these vessels,
respectively.
Gain
on sale of vessel/ newbuilding
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
Gain
on sale of vessel/ newbuilding
|
|
|
- |
|
|
|
78,108 |
|
|
|
(78,108 |
) |
|
|
(100 |
%) |
In July
2008, we sold the Golar
Frost to OLT-O for $231.0 million, recognizing a gain on sale of $78.1
million.
Vessel
Operating Expenses
(in
thousands of $, except for average daily vessel operating
costs)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
Vessel
operating expenses
|
|
|
60,709 |
|
|
|
61,868 |
|
|
|
(1,159 |
) |
|
|
(2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
daily vessel operating costs
|
|
|
13,410 |
|
|
|
13,041 |
|
|
|
(383 |
) |
|
|
(3 |
%) |
The
decrease in vessel operating expenses is mainly due to the Hilli being in lay-up
for the entirety of 2009 and therefore incurring reduced operating costs as well
as the fact that the Golar Frost was redelivered to its new owners in May
2009.
This
decrease is partially offset by increased operating costs of the Golar Spirit
and the Golar Winter due to increased costs for operating FSRU vessels, in
particular increased crew costs as well as general operating cost
increases.
Administrative
Expenses
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
Administrative
expenses
|
|
|
19,958 |
|
|
|
17,815 |
|
|
|
2,143 |
|
|
|
12 |
% |
The
increase in administrative expenses in 2009 compared to 2008 was mainly due
to:
|
·
|
an
increase of $3.5 million in expenses relating to project business
development. These costs include legal fees, consultants and professional
expenses, contractor costs and travel
expenses;
|
This is
partially offset by
|
·
|
a
decrease of $2.4 million in the charge relating to share
options.
|
Depreciation
and Amortization
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
Depreciation
and amortization
|
|
|
63,482 |
|
|
|
62,005 |
|
|
|
1,477 |
|
|
|
2 |
% |
Depreciation
and amortization has increased mainly due to a full year's depreciation for the
Golar Spirit capitalized FSRU
assets in 2009 compared with approximately 6 months in 2008 and also the
commencement of depreciation of the costs arising from completion of the Golar Winter FSRU
retrofitting in July 2009.
This is
partially offset by the depreciation cost for the Golar Frost for 3 months in 2008 compared to
no depreciation in 2009.
Impairment
and gain on long-lived assets
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
Impairment
of long-lived assets
|
|
|
1,500 |
|
|
|
110 |
|
|
|
1,390 |
|
|
|
1,263 |
% |
Gain
on sale of long-lived assets
|
|
|
- |
|
|
|
430 |
|
|
|
(430 |
) |
|
|
(100 |
%) |
The
impairment charge in 2009 and 2008 relates to parts ordered for the FSRU
conversion project that were not required for the conversion of the Golar Spirit and therefore
reflects a lower recoverable amount for these parts. Some of these parts were
used in the retrofitting of the Golar Freeze during 2009. In
mid 2008, we sold some of these parts recognizing a gain on sale of $0.4
million. As of December 31, 2009, the total carrying value of the
remaining equipment (net of the impairment provision) is $13.6
million.
Net
Financial Expenses
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
Interest
income from capital lease restricted cash deposits
|
|
|
11,464 |
|
|
|
42,869 |
|
|
|
(31,405 |
) |
|
|
(73 |
%) |
Other
interest income
|
|
|
246 |
|
|
|
2,959 |
|
|
|
(2,713 |
) |
|
|
(92 |
%) |
Interest
Income
|
|
|
11,710 |
|
|
|
45,828 |
|
|
|
(34,118 |
) |
|
|
(74 |
%) |
Capital
lease interest expense
|
|
|
(19,730 |
) |
|
|
(53,157 |
) |
|
|
33,427 |
|
|
|
63 |
% |
Other
debt related interest expense
|
|
|
(38,144 |
) |
|
|
(43,332 |
) |
|
|
5,188 |
|
|
|
12 |
% |
Interest
Expense
|
|
|
(57,874 |
) |
|
|
(96,489 |
) |
|
|
38,615 |
|
|
|
40 |
% |
Mark-to-market
adjustments for interest rate swap derivatives
|
|
|
17,385 |
|
|
|
(30,459 |
) |
|
|
47,844 |
|
|
|
157 |
% |
Net
foreign currency adjustments for re-translation of lease related balances
and mark-to-market adjustments for the Winter lease related currency swap
derivative
|
|
|
8,387 |
|
|
|
(7,964 |
) |
|
|
16,351 |
|
|
|
205 |
% |
Mark-to-market
adjustments for foreign currency derivatives (excluding the Winter lease
related currency swap derivative)
|
|
|
9,699 |
|
|
|
(9,520 |
) |
|
|
19,219 |
|
|
|
202 |
% |
Mark-to-market
adjustments for equity swap derivatives including gain on
termination
|
|
|
17,603 |
|
|
|
(8,748 |
) |
|
|
26,351 |
|
|
|
301 |
% |
Fixed-rate
debt settlement costs
|
|
|
- |
|
|
|
(8,998 |
) |
|
|
8,998 |
|
|
|
100 |
% |
Finance
transaction-related costs previously capitalized
|
|
|
- |
|
|
|
(4,189 |
) |
|
|
4,189 |
|
|
|
100 |
% |
Other
than temporary impairment of available-for-sale securities
|
|
|
- |
|
|
|
(1,871 |
) |
|
|
1,871 |
|
|
|
100 |
% |
Other
|
|
|
(8,602 |
) |
|
|
(10,351 |
) |
|
|
1,749 |
|
|
|
17 |
% |
Other
Financial Items, net
|
|
|
44,472 |
|
|
|
(82,100 |
) |
|
|
126,572 |
|
|
|
154 |
% |
Lease
deposit interest income decreased by $31 million in 2009 compared to 2008 due
mainly to a substantial decrease in interest rates in 2009 compared to 2008.
This was also due to a lower requirement in certain of our capital lease related
restricted cash deposits in lieu of the additional security afforded to the
lessors as a result of our entry into long-term charters with the respective
vessel. The depreciation of GBP against the U.S. Dollar also impacted
our interest income earned on our letters of credit, or LC deposits, denominated
in GBP.
Capital
lease interest expense decreased to $19.7 million in 2009 compared to $53.2
million in 2008 as a result primarily of the decrease in interest rates in 2009
compared with 2008. Some of the decrease can also be attributed to the effect of
the depreciation of GBP against the U.S. Dollar on interest expense on our lease
balances denominated in GBP.
The
decrease in other debt related interest expense by $5.2 million was for the most
part driven by lower USD LIBOR interest rates in 2009.
Mark-to-market
adjustments for interest rate swap derivatives resulted in a gain of $17.4
million in 2009 compared to a loss of $30.5 million in 2008. In the year ended
2008, there was a persistent decline in long-term swap rates however throughout
the year ended December 31, 2009 interest rate swap rates began to level out and
in some cases began to increase thus in effect, cancelling out some of the loss
incurred in 2008. During 2008 we adopted hedge accounting for certain of our
interest rate swaps, effective as of October 1, 2008. Accordingly, a further
$11.6 million gain (2008: $26 million loss), which would have been recognized in
current earnings have been accounted for as a movement in other comprehensive
income.
Foreign
exchange gains and losses arise as a result of the retranslation of our capital
lease obligations, the cash deposits securing those obligations and the movement
in the fair value of the currency swap used to hedge the Golar Winter lease
obligation. The gain in 2009 was mainly due to the appreciation of
the U.S. Dollar against GBP. Of the $8.4 million net foreign exchange
gain in 2009, a gain of $21.0 million (2008: $51 million loss) arose in respect
of the mark-to-market valuation of the Golar Winter currency swap representing
the movement in the fair value. This swap hedges the currency risk
arising from lease rentals due in respect of the Golar Winter GBP lease rental
obligation, by translating GBP payments into U.S. Dollar payments at a fixed
GBP/USD exchange rate (i.e. Golar receives GBP and pays U.S.
Dollars). The gain arose due to the appreciation of the U.S Dollar
against the GBP during the year and represents an unrealized
gain. The loss on retranslation of the lease obligation in respect of
the Golar Winter lease, which this swap hedges, was $12.8 million (2008: $44.5
million gain). This loss represents an unrealized loss.
Mark-to-market
adjustments for currency swap derivatives resulting in a gain of $9.7 million
(excluding the Winter lease related currency swaps as already discussed above)
refers to currency forward contracts entered into in 2008 and 2009 in connection
with our various FSRU conversion projects.
Mark-to-market
adjustments for equity swap derivatives resulting in a gain of $17.6 million in
2009 refers to equity swap, or Total Return Swap, transactions linked to our own
shares and that of Arrow Energy Limited, a company listed on the Australian
stock exchange, under short-term arrangements. There was no
obligation by us to acquire any shares from either of the
counterparties. Both equity swaps were terminated during the year
ended December 31, 2009.
In 2008
the fixed-rate debt settlement costs of $9.0 million arose from the refinancing
of the Methane Princess loan in connection with the new Golar LNG Partners
credit revolving facility entered into in November 2008. At the time
of the refinancing, $125 million of the Methane Princess loan was fixed-rate
debt. Accordingly, simultaneous with the refinancing of the original
debt the fixed-rate debt portion was cancelled resulting in the charge. However,
we immediately entered into interest rate swaps for a similar amount of debt at
a lower interest rate.
Finance
transaction-related costs of $4.2 million in 2008 previously capitalized
associated with our plans for a corporate restructuring and financing were
written-off in 2008 due to the passage of time since these costs were initially
incurred.
The
other-than-temporary impairment charge in 2008 of $1.9 million relates to our
investment in BW Gas Limited originally acquired at a cost of $2.4 million in
2008, which is listed on the Oslo stock exchange. During the fourth
quarter of 2008, we concluded that unrealized losses on the investment were
other-than-temporary by virtue of the severity of the decline in the market
value versus the cost basis. Accordingly, amounts previously
recognized as unrealized losses amounting to $0.4 million were reclassified from
the statement of equity and recognized within the income
statement. In addition, the Company recognized losses from impairment
from available-for-sale securities totalling $1.5 million immediately in the
income statement in the fourth quarter of 2008. There was no
other-than-temporary impairment charge in 2009.
Other
items represent, amongst other things, bank charges, the amortization of debt
related expenses, foreign currency differences arising on
retranslation of foreign currency and gain or losses on short term foreign
currency forward contracts. The difference is mainly due to a
write-off of $1.5 million financing fees that occurred in 2008 as a result of
the refinancing of the Methane Princess loan and the portion of the Golar Gas
Holding loan relating to the Golar Spirit, that were
replaced by the new Golar LNG Partners revolving credit facility.
Income
Taxes
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
Income
taxes
|
|
|
1,643 |
|
|
|
510 |
|
|
|
1,133 |
|
|
|
222 |
% |
Income
taxes relate primarily to the taxation of our U.K. based vessel operating
companies and our Brazilian subsidiary recently established in connection with
our Petrobras long-term charters. The increase in income taxes from
$0.5 million in 2008 to a $1.6 million charge in 2009 was mainly due to
Brazilian taxes of $1.1 million arising from the Golar Spirit and also
the commencement
of the Golar Winter
charter with Petrobras during 2009.
Equity
in Net Losses of Investees including Gain on Sale of Investee and
Available-for-sale Securities
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
Share
of losses in other investees
|
|
|
(4,902 |
) |
|
|
(2,406 |
) |
|
|
(2,496 |
) |
|
|
104 |
% |
Equity
in net losses of investees
|
|
|
(4,902 |
) |
|
|
(2,406 |
) |
|
|
(2,496 |
) |
|
|
104 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of investee
|
|
|
8,355 |
|
|
|
- |
|
|
|
8,355 |
|
|
|
100 |
% |
Equity in
net losses of investees relates mainly to the company's 50% investment in
Bluewater Gandria NV, the owner of the vessel Gandria, and the Company's
investment in LNG Limited. The increase in our share of the loss from $2.4
million in 2008 to $4.9 million in 2009 relates principally to our share of the
losses incurred by LNG Limited ('LNGL'), as a result of expenditure incurred in
relation to LNGL's primary project, the Gladstone project and also our share of
Bluewaters' loss for a full year in 2009 as opposed to approximately six months
in 2008.
In
November 2009, we sold a block of 9.6 million LNG Limited shares which reduced
our shareholding to approximately 6.3% of LNG Limited's issued share capital.
The sale realized funds of approximately $11 million and resulted in an
accounting profit of $8.4 million.
Net
Income
As a
result of the foregoing, we recognized net income of $31.5 million in 2009,
representing an increase from a net loss of $3.3 million in 2008.
Noncontrolling
Interest
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
Change
|
Noncontrolling
interest
|
|
|
8,419 |
|
|
|
6,705 |
|
|
|
1,714 |
|
|
|
26 |
% |
Noncontrolling
interest refers to the 40% ownership interest held by Chinese Petroleum
Corporation in the Golar Mazo
and a 26.21% interest held by private investors in the Golar LNG Energy Limited, a subsidiary newly formed in
2009. The movement of $1.7 million in the year ended December
31, 2009 relates primarily to the Golar Mazo 2009 profit. The remainder relates
to the noncontrolling interest portion of the net loss of $2.2 million in Golar
LNG Energy Limited from inception to December 31, 2009.
Year
ended December 31, 2008, compared with the year ended December 31,
2007
Operating
revenues, voyage and charter-hire expenses and average daily time charter
equivalent
(in
thousands of $)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
Total
operating revenues
|
|
|
228,779 |
|
|
|
224,674 |
|
|
|
4,105 |
|
|
|
2 |
% |
Voyage
and charter-hire expenses
|
|
|
(33,126 |
) |
|
|
(10,763 |
) |
|
|
(22,363 |
) |
|
|
(208 |
%) |
The
increase in total operating revenues in 2008 compared to 2007 can primarily be
explained by:
|
·
|
the
addition to the fleet of the Golar Arctic acquired
in January 2008 and the charter-in of the Ebisu under a two year
charter in October 2008;
|
|
·
|
the
commencement of the Golar Spirit's 10-year
charter with Petrobras in July 2008, pursuant to its redelivery from the
shipyard on completion of its FSRU retrofitting in June
2008. The Golar Spirit first
entered the shipyard for conversion in October
2007.
|
Partially
offset by a decline in operating revenues arising from:
|
·
|
off-hire
time incurred by the Golar Winter upon
entering the shipyard at the end of September 2008 for its FSRU
retrofitting until its redelivery to us in May
2009;
|
|
·
|
an
overall decline in charter rates and lower utilization levels of our
vessels trading on the spot market or in lay-up in 2008 (the Golar Frost, Golar Winter, Golar Arctic, the Ebisu and the Hilli), including our
vessels operating under the Shell five-year charters subject to variable
(market) charter rates and commercial waiting time (the Grand, Maria and
Viking). The
total operating revenues generated by these vessels in 2008 were $103.9
million as compared to $139.4 million in
2007.
|
Voyage
and charter-hire expenses, which largely relate to fuel costs associated with
commercial waiting time and vessel positioning, increased by $22.4 million in
2008 compared to 2007, principally as a result of charter-hire expense for the
charter-in of the Golar Frost and Ebisu in 2008, higher fuel costs and lower
utilization. While a vessel is on-hire, fuel costs are typically
borne by the charterer, whereas during periods of commercial waiting time, fuel
costs are borne by us.
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
Calendar
days less scheduled off-hire days
|
|
|
4,298 |
|
|
|
4,197 |
|
|
|
639 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
daily TCE (to the closest $100)
|
|
$ |
45,700 |
|
|
$ |
51,000 |
|
|
$ |
(5,300 |
) |
|
|
(10 |
%) |
Average
daily TCE is calculated as $45,700 and $51,000 in 2008 and 2007,
respectively. The decrease in average daily TCE can be explained by
the reasons described above, primarily the lower spot rates and utilization of
the spot vessels and the vessels operating under the Shell five year
charters.
The
available trading days of our vessels trading in the spot market during 2008 and
the vessels under the Shell five year charters was 2,640 and 2,190
days in 2008 and 2007, respectively. Commercial waiting days in 2008
and 2007 were 26% and 20% of available trading days for these vessels,
respectively.
Gain
on sale of vessel/ newbuilding
(in
thousands of $)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
Gain
on sale of vessel/ newbuilding
|
|
|
78,108 |
|
|
|
41,088 |
|
|
|
37,020 |
|
|
|
90 |
% |
In July
2008, we sold the Golar
Frost to OLT-O for $231.0 million, recognizing a gain on sale of $78.1
million.
In
February 2007, we sold our newbuilding DSME Hull 2244 to an unrelated third
party for gross consideration of $92.5 million, resulting in a gain on sale of
$41.1 million.
Vessel
Operating Expenses
(in
thousands of $, except for average daily vessel operating
costs)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
Vessel
operating expenses
|
|
|
61,868 |
|
|
|
52,986 |
|
|
|
8,882 |
|
|
|
17 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
daily vessel operating costs
|
|
|
12,793 |
|
|
|
12,097 |
|
|
|
696 |
|
|
|
6 |
% |
The
increase in vessel operating expenses is mainly due to the addition of the Golar Arctic to our fleet in
January 2008 and the rising cost of recruiting and retaining officers for the
fleet. In addition, from January 1, 2008 we changed the base currency
of salaries paid to the majority of our seafaring officers from U.S. dollars to
Euros. Accordingly, the depreciation of the U.S. Dollar against the
Euro has contributed significantly to the increase in vessel operating
expenses. Moving forward, a stronger U.S. Dollar is likely to reduce
operating expenses.
It should
be noted that during their period of retrofitting, vessel operating expenses for
the Golar Spirit and
Golar Winter that are
not attributable to the retrofitting have been charged to the consolidated
statement of operations. The average daily operating expenses of our
vessels for 2008 and 2007 were $12,793 and $12,097,
respectively. Average daily vessel operating expenses are calculated
by dividing vessel costs by the number of calendar days.
Administrative
Expenses
(in
thousands of $)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
Administrative
expenses
|
|
|
17,815 |
|
|
|
18,645 |
|
|
|
(830 |
) |
|
|
(4 |
%) |
The
decrease in administrative expenses in 2008 compared to 2007 was mainly due
to:
|
·
|
a
decrease of $2.9 million in the charge relating to employee share options.
For further details please see the section of this annual report entitled
Item 18, "Consolidated Financial Statements: Note 26 – Share Capital and
Share Options."
|
Partially
offset by:
|
·
|
an
increase of $0.9 million in salary and related expenses mainly due to the
depreciation of GBP against the U.S. dollar, an increase in employee
numbers and higher pension costs;
|
|
·
|
higher
property related expenses, which increased by $0.5 million in 2008,
arising from the relocation to new offices in London at the end of
2008. This includes the effect of a provision for the rental
costs of our former office space until the end of its lease in mid 2009;
and
|
|
·
|
higher
legal and professional costs mainly relating to a higher level of
commercial activity.
|
Depreciation
and Amortization
(in
thousands of $)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
Depreciation
and amortization
|
|
|
62,005 |
|
|
|
60,163 |
|
|
|
1,842 |
|
|
|
3 |
% |
Depreciation
and amortization has increased mainly due to the addition of the Golar Arctic to the fleet in
January 2008 and the commencement of depreciation of the costs arising on
completion of the Golar
Spirit's FSRU retrofitting. This increase was partially offset
by the sale of the Golar
Frost in July 2008 and the cessation of depreciation upon classification
of the vessel as held-for-sale in March 2008.
Impairment
and gain on long-lived assets
(in
thousands of $)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
Impairment
of long-lived assets
|
|
|
110 |
|
|
|
2,345 |
|
|
|
(2,235 |
) |
|
|
(95 |
%) |
Gain
on sale of long-lived assets
|
|
|
430 |
|
|
|
- |
|
|
|
430 |
|
|
|
100 |
% |
The
impairment charge in 2008 and 2007 relates to parts ordered for the FSRU
conversion project that were not required for the conversion of the Golar Spirit and therefore
reflects a lower recoverable amount for these parts. In mid 2008, we
sold some of these parts recognizing a gain on sale of $0.4
million. As of December 31, 2008, the total carrying value of the
remaining equipment (net of the impairment provision) is $15.4
million.
Net
Financial Expenses
(in
thousands of $)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
Interest
income from capital lease restricted cash deposits
|
|
|
42,869 |
|
|
|
47,944 |
|
|
|
(5,075 |
) |
|
|
(11 |
%) |
Other
interest income
|
|
|
2,959 |
|
|
|
6,962 |
|
|
|
(4,003 |
) |
|
|
(57 |
%) |
Interest
Income
|
|
|
45,828 |
|
|
|
54,906 |
|
|
|
(9,078 |
) |
|
|
(17 |
%) |
Capital
lease interest expense
|
|
|
(53,157 |
) |
|
|
(60,690 |
) |
|
|
7,533 |
|
|
|
12 |
% |
Other
debt related interest expense
|
|
|
(43,332 |
) |
|
|
(51,646 |
) |
|
|
8,314 |
|
|
|
16 |
% |
Interest
Expense
|
|
|
(96,489 |
) |
|
|
(112,336 |
) |
|
|
15,847 |
|
|
|
14 |
% |
Mark-to-market
adjustments for interest rate swap derivatives
|
|
|
(30,459 |
) |
|
|
(13,689 |
) |
|
|
(16,770 |
) |
|
|
(123 |
%) |
Net
foreign currency adjustments for re-translation of lease related balances
and mark-to-market adjustments for the Winter lease related currency swap
derivative
|
|
|
(7,964 |
) |
|
|
350 |
|
|
|
(8,314 |
) |
|
|
(2,375 |
%) |
Mark-to-market
adjustments for foreign currency derivatives (excluding the Winter lease
related currency swap derivative)
|
|
|
(9,520 |
) |
|
|
- |
|
|
|
(9,520 |
) |
|
|
(100 |
%) |
Mark-to-market
adjustments for equity swap derivatives including gain on
termination
|
|
|
(8,748 |
) |
|
|
7,438 |
|
|
|
(16,186 |
) |
|
|
(218 |
%) |
Fixed-rate
debt settlement costs
|
|
|
(8,998 |
) |
|
|
- |
|
|
|
(8,998 |
) |
|
|
(100 |
%) |
Finance
transaction-related costs previously capitalized
|
|
|
(4,189 |
) |
|
|
- |
|
|
|
(4,189 |
) |
|
|
(100 |
%) |
Other
than temporary impairment of available-for-sale securities
|
|
|
(1,871 |
) |
|
|
- |
|
|
|
(1,871 |
) |
|
|
(100 |
%) |
Other
|
|
|
(10,351 |
) |
|
|
(2,261 |
) |
|
|
(8,090 |
) |
|
|
(358 |
%) |
Other
Financial Items, net
|
|
|
(82,100 |
) |
|
|
(8,162 |
) |
|
|
(73,938 |
) |
|
|
(906 |
%) |
Lease
deposit interest income decreased by $5.1 million in 2008 compared to 2007 due
to lower capital lease related restricted cash deposits following a reduction in
our lessors' security requirements in recognition of the additional security
afforded to the lessors from our entry into long-term charters with the
respective vessel and the effect of the depreciation of GBP against the U.S.
Dollar on interest income earned on our letters of credit, or LC deposits,
denominated in GBP.
Capital
lease interest expense decreased to $53.2 million in 2008 compared to $60.7
million in 2007 as a result of the effect of the depreciation of GBP against the
U.S. Dollar on interest expense on our lease balances denominated in
GBP.
The
decrease in other debt related interest expense by $8.3 million was mainly
driven by lower USD LIBOR interest rates partially offset by higher average debt
levels of $980.6 million in 2008 compared to $961.4 million in 2007. This was
due principally to the addition of the Golar Arctic $120 million loan facility;
a net incremental increase of approximately $39 million (net of the fixed debt
breakage costs of $9.0 million, but excluding the remaining $35 million not yet
drawn as of December 31, 2008) arising under the refinancing with the new Golar
LNG Partners revolving credit facility; offset by the repayment of the Golar
Frost loan facility in July 2008.
Mark-to-market
adjustments for interest swap derivatives resulted in a loss of $30.5 million in
2008 compared to $13.7 million in 2007. This is mainly due to the decline in
long-term swap rates. During 2008 we adopted hedge accounting for certain of our
interest rate swaps, effective as of October 1, 2008. Accordingly, a further
$26.0 million loss, which would have been recognized in current earnings have
been accounted for as a movement in other comprehensive income.
Foreign
exchange gains and losses arise as a result of the retranslation of our capital
lease obligations, the cash deposits securing those obligations and the movement
in the fair value of the currency swap used to hedge the Golar Winter lease
transaction. The loss in 2008 was mainly due to the appreciation of
the U.S. Dollar against GBP. Of the $8.0 million net foreign exchange
loss in 2008, a loss of $51.0 million (2007: $2.7 million gain) arose in respect
of the mark-to-market valuation of the Golar Winter currency swap representing
the movement in the fair value. This swap hedges the currency risk
arising from lease rentals due in respect of the Golar Winter GBP lease rental
obligation, by translating GBP payments into U.S. Dollar payments at a fixed
GBP/USD exchange rate (i.e. Golar receives GBP and pays U.S.
Dollars). The loss arose due to the appreciation of the U.S Dollar
against the GBP during the year and represents an unrealized
loss. The gain on retranslation of the lease obligation in respect of
the Golar Winter lease, which this swap hedges, was $44.5 million (2007: $2.7
million loss). This gain also represents an unrealized
gain.
Mark-to-market
adjustments for currency swap derivatives resulting in a loss of $9.5 million
(excluding the Winter lease related currency swaps as already discussed above)
refers to currency forward contracts entered into in 2008 in connection with our
various FSRU conversion projects.
Mark-to-market
adjustments for equity swap derivatives resulting in a loss of $8.7 million in
2008 refers to equity swap, or Total Return Swap, transactions linked to our own
shares and that of Arrow Energy Limited, a company listed on the Australian
stock exchange, under short-term arrangements. There is at present no
obligation by us to acquire any shares from either of the
counterparties.
Fixed-rate
debt settlement costs of $9.0 million arose from the refinancing of the Methane
Princess loan in connection with the new Golar LNG Partners credit revolving
facility entered into in November 2008. At the time of the
refinancing $125 million of the Methane Princess loan was fixed-rate
debt. Accordingly, simultaneous with the refinancing of the original
debt the fixed-rate debt portion was cancelled resulting in the charge. However,
we immediately entered into interest rate swaps for a similar amount of debt at
a lower interest rate.
Finance
transaction-related costs of $4.2 million previously capitalized associated with
our plans for a corporate restructuring and financing were written-off in 2008
due to the passage of time since these costs were initially
incurred.
The
other-than-temporary impairment charge of $1.9 million relates to our investment
in BW Gas Limited originally acquired at a cost of $2.4 million in 2008, which
is listed on the Oslo stock exchange. During the fourth quarter of
2008, we concluded that unrealized losses on the investment were
other-than-temporary by virtue of the severity of the decline in the market
value versus the cost basis. Accordingly, amounts previously
recognized as unrealized losses amounting to $0.4 million were reclassified from
the statement of equity and recognized within the income
statement. In addition, the Company recognized losses from impairment
from available-for-sale securities totalling $1.5 million immediately in the
income statement in the fourth quarter of 2008.
Other
items represent, amongst other things, bank charges and the amortization of debt
related expenses. The increase by $8.1 million in 2008 compared to
2007 is primarily due to foreign currency losses arising on retranslation of
foreign currency balances, principally held for the settlement of FSRU
conversion costs. In addition, in 2008, we wrote-off $1.5 million
financing fees, as a result of the refinancing of the Methane Princess loan and
the portion of the Golar Gas Holding loan relating to the Golar Spirit, that were
replaced by the new Golar LNG Partners revolving credit facility at the end of
2008.
Income
Taxes
(in
thousands of $)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
Income
taxes
|
|
|
510 |
|
|
|
(299 |
) |
|
|
809 |
|
|
|
270 |
% |
Income
taxes relate primarily to the taxation of our U.K. based vessel operating
companies and our Brazilian subsidiary recently established in connection with
our Petrobras long-term charters. The increase in income taxes from a
credit of $0.3 million in 2007 to a $0.5 million charge in 2008 was mainly due
to Brazilian taxes of $0.8 million arising upon the commencement of the Golar Spirit's charter with
Petrobras in July 2008; offset by deferred tax income in respect of Golar Spirit's unutilized
trading losses incurred during its FSRU retrofitting.
Equity
in Net (Losses) Gains of Investees including Gain on Sale of Investee and
Available-for-sale Securities
(in
thousands of $)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
Share
of net earnings in Korea Line
|
|
|
- |
|
|
|
14,922 |
|
|
|
(14,922 |
) |
|
|
(100 |
%) |
Share
of losses in other investees
|
|
|
(2,406 |
) |
|
|
(1,282 |
) |
|
|
(1,124 |
) |
|
|
(87 |
%) |
Equity
in net losses (gains) of investees
|
|
|
(2,406 |
) |
|
|
13,640 |
|
|
|
(16,046 |
) |
|
|
(118 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of available-for-sale securities
|
|
|
- |
|
|
|
46,276 |
|
|
|
(46,276 |
) |
|
|
(100 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of investee
|
|
|
- |
|
|
|
27,268 |
|
|
|
(27,268 |
) |
|
|
(100 |
%) |
The
decline in Equity in net (losses) gains of investees, Gain on sale of
investee and Gain on sale of available-for-sale securities is principally due to
the disposal of Korea Line in 2007.
Korea
Line is a Korean Shipping company listed on the Korean Stock
Exchange. From June 2004 to April 2007, we held a 21% interest in the
company. In April 2007, we disposed of 1.1 million shares in Korea
Line for a net gain of $27.3 million as presented in the line item "Gain on sale
of investee," which brought our interest down to 10%. Accordingly, as
of the date of the disposal, we ceased to equity account for our share of Korea
Line's net earnings. Between May and June 2007, we disposed of the
balance of our shareholding for a net gain of $46.3 million, which has been
shown in the line caption "Gain on sale of available-for-sale
securities."
Net
Loss
As a
result of the foregoing, we recognized a net loss of $3.3 million in 2008,
decreased from net income of $142.8 million in 2007.
Noncontrolling
Interest
(in
thousands of $)
|
|
2008
|
|
|
2007
|
|
|
Change
|
|
|
Change
|
Noncontrolling
interest
|
|
|
6,705 |
|
|
|
6,547 |
|
|
|
158 |
|
|
|
2 |
% |
Noncontrolling
interest refers to the 40% ownership interest held by Chinese Petroleum
Corporation in the Golar
Mazo.
B. Liquidity
and Capital Resources
Liquidity
and cash requirements
We
operate in a capital intensive industry and we have historically financed our
purchase of LNG carriers, FSRU conversion projects and other capital
expenditures through a combination of borrowings from and leasing arrangements
with commercial banks, cash generated from operations and equity
capital. Our liquidity requirements relate to servicing our debt,
funding investments, including the equity portion of investments in vessels and
investment in the development of our project portfolio, funding working capital,
payment of dividends and maintaining cash reserves against fluctuations in
operating cash flows.
The
majority of our revenues from our time charters are received monthly in
advance. Inventory requirements, consisting primarily of fuel,
lubricating oil and spare parts, are low due to fuel costs, which represents the
majority of these costs, being paid for by the charterer under time
charters. Although many of our vessels are on long-term time
charters, we may require additional working capital in relation to our vessels
operating in the spot market depending on their employment and possibly in
respect of the three ships we have chartered to Shell, as these charters are at
market related rates. We believe our current financial resources,
together with cash generated from operations are sufficient to meet our working
capital requirements for our current business, for at least the next 12
months. As of December 31, 2009 our working capital which is defined
as current assets less current liabilities was showing net liabilities of $23.6
million (2008: $122.2 million). However within current liabilities we include
our mark-to market valuations of our swap derivatives which represented $55.4
million of these liabilities (2008: $123.6 million). In the year ended 2008,
there was a persistent decline in long-term swap rates. However throughout the
year ended December 31, 2009 interest rate swap rates began to level out and in
some cases began to increase thus, in effect, cancelling out the
loss incurred in 2008 and reducing the liability. We have no current
intention of terminating these swaps and realizing this liability. For further
information refer to Note 21 & 27 of the Company's audited Consolidated
Financial Statements included herein for detail.
Our FSRU
conversion projects (in respect of initial capital outlays and loss of earnings
of the vessel during modification) will result in increased working capital
requirements. More specifically, additional facilities were required to meet our
capital commitments in respect of the Golar Freeze FSRU conversion
project, which will be delivered to DUSUP in May 2010. In June 2009,
we entered into an $80 million revolving credit facility with World Shipholding,
to provide short-term bridge financing. The facility accrues fixed interest at a
rate per annum of 8% together with a commitment fee of 0.75% of any undrawn
portion of the credit facility. The revolving credit facility is available for a
period of two years. All amounts due under the facility must be repaid within
two years from the date of the first draw down. We drew down an initial amount
of $20 million on June 30, 2009 and a further $10 million during the quarter to
September 30, 2009. $20 million was repaid in November 2009. The facility is
currently unsecured. However, in order to draw down amounts in excess of $35
million we will be required to provide security to the satisfaction of World
Shipholding. This is envisaged to take the form of a second priority lien over
cash generating assets.
In
February 2009, our board of directors suspended the declaration and payment of
dividends to shareholders in order to increase cash flow and strengthen the
balance sheet for near-term project opportunities.
On June
22, 2009 we formed a wholly owned subsidiary Golar LNG Energy Limited ("Golar
Energy") and on August 12, 2009 Golar Energy completed its corporate
restructuring and private placement offering, whereby it acquired the interests
in our wholly owned subsidiaries, which collectively own interests in eight
liquefied natural gas ("LNG") vessels, a 50% equity interest in another LNG
carrier and certain other investments. Golar Energy's private placement of 59.9
million new shares at a subscription price of $2 per share raised approximately
$115.4 million net of fees. At the same time Golar Energy issued 12 million
warrants to subscribe for further shares on December 15, 2010 at $2 per share.
This new equity will be used to fund the development of new business including
FSRU projects and working capital requirements. In the interim and prior to
refinancing the Golar Freeze, this new equity has also been used to fund capital
commitments in respect of the Golar Freeze. Golar Energy is a publicly listed
Bermudian company, listed in Norway on the Oslo Axess specializing in the
acquisition, ownership, operation and chartering of LNG carriers and floating
storage regasification units ("FSRUs") and the development of liquefaction
projects.
Our
funding and treasury activities are conducted within corporate policies to
maximize investment returns while maintaining appropriate liquidity for our
requirements. Cash and cash equivalents are held primarily in U.S.
dollars with some balances held in GBPs, Singapore Dollars, Norwegian Krones and
Euros. We have not made use of derivative instruments other than for
interest rate and currency risk management purposes, except in the case of our
equity swaps and natural gas forward contracts, which are discussed further,
please see the section of this item entitled "Derivatives."
Cash
flows
The
following table summarizes our cash flows from operating, investing and
financing activities:
|
|
Year
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
43.8 |
|
|
|
48.5 |
|
|
|
73.1 |
|
Net
cash provided (used in) by investing activities
|
|
|
(56.5 |
) |
|
|
(83.5 |
) |
|
|
224.4 |
|
Net
cash provided (used in) by financing activities
|
|
|
78.8 |
|
|
|
(94.6 |
) |
|
|
(168.4 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
66.1 |
|
|
|
(129.6 |
) |
|
|
129.1 |
|
Cash
and cash equivalents at beginning of year
|
|
|
56.1 |
|
|
|
185.7 |
|
|
|
56.6 |
|
Cash
and cash equivalents at end of year
|
|
|
122.2 |
|
|
|
56.1 |
|
|
|
185.7 |
|
The
increase in cash and cash equivalents in 2009 was principally due to the
completion of the equity offering in respect of Golar LNG Energy raising $115
million in the third quarter of 2009, as noted above.
In
addition to our cash and cash equivalents noted above, as of December 31, 2009
and 2008, we had short-term restricted cash of $40.6 million and $60.4 million,
respectively, that represents balances retained on restricted accounts in
accordance with certain lease, loan and equity swap
requirements. These balances act as security for and over time are
used to repay lease and loan obligations and for settlement of obligations (if
any) under our equity swaps. As of December 31, 2009 and 2008, our long-term
restricted cash balances were $594.2 million and $557.1 million,
respectively. These balances act as security for our capital lease
obligations and the majority is released over time in line with the repayment of
our lease obligations.
Net
cash provided by operating activities
Cash
generated from operations decreased by $4.7 million in 2009 compared to 2008,
primarily as a result of the lower earnings from our vessels operating on the
spot market arising both from a decline in spot rates and lower utilization, in
addition, to the fact that Golar Freeze was undergoing
conversion for approximately 6 months of 2009. This was offset by
higher earnings from the Golar
Spirit following its successful FSRU retrofitting and commencement of its
long-term charter with Petrobras in 2008.
Cash
generated from operations decreased by $24.6 million in 2008 compared to 2007,
primarily as a result of the lower earnings from our vessels operating on the
spot market arising both from a decline in spot rates and lower
utilization. In addition, the Golar Winter was offhire
throughout the last quarter of 2008 as it entered the shipyard to commence its
FSRU retrofitting. This was offset by higher earnings from the Golar Spirit following its
successful FSRU retrofitting and commencement of its long-term charter with
Petrobras and the addition of the Golar Arctic and the Ebisu to the fleet in
2008.
Net
cash used in/ provided by investing activities
Net cash
used in investing activities of $56.5 million in 2009 was mainly due to the
following:
|
·
|
Additions
to vessels and equipment of $113 million comprising payments in respect of
our various FSRU conversion
projects;
|
Partially
offset by:
|
·
|
Release
of $15 million from our deposits held as security for our capital lease
obligations mainly in recognition of the additional security afforded to
the lessors from our entry into long-term charters with the respective
vessels.
|
|
·
|
Proceeds
of $11 million from the sale of the LNG Limited
shares;
|
Net cash
used in investing activities of $83.5 million in 2008 was mainly due to
additions to vessels and equipment of $322 million comprising the acquisition of
the Golar Arctic for
consideration of $185 million with the balance primarily relating to
payment in respect of our various FSRU conversion projects. This was partially
offset by proceeds of £231 million from the sale of the Golar Frost.
Net
cash used in investing activities in 2007 of $224.4 million was primarily due to
the receipt of net proceeds from the disposal of our newbuilding DSME Hull 2244
amounting to $92.6 million and the piecemeal sale of our entire equity interest
in Korea Line, which amounted to aggregate proceeds of $171.6
million. Our other investing cash flows related to additions to
vessels and equipment (including payments relating to our FSRU conversions) of
$47.0 million.
Net
cash used in/ provided by financing activities
Net cash
provided by financing activities is principally generated from funds from new
debt and lease finance offset by debt repayments and new equity
issuances.
Net cash
provided by financing activities during the year ended December 31, 2009 of
$78.8 million was primarily a result of the proceeds of $115.4 million from the
issuance of equity in Golar LNG Energy Limited which occurred during 2009. This
was partially offset by the repayment of $71.4 million of long term debt and
proceeds from long term debt of $45 million of which $10 million relates to the
Greenwich facility and $35 million relates to the final drawdown of the Golar
LNG Partners facility in the first quarter of 2009.
Net cash
used in financing activities during the year ended December 31, 2008 of $94.6
million was a result of the payment of cash dividends of $1.00 per common share,
or a total of $67.4 million and borrowings in the aggregate of $370.0 million,
of which $120.0 million related to the financing for the Golar Arctic and $250 million
was in respect of the refinancing of existing loans under the new revolving
credit facility. We made debt repayments of $377.0 million of which
$202.2 million related to the refinancing in connection with the new Golar LNG
revolving credit facility and $94.9 million related to the repayment of the
Golar Frost facility upon receipt of proceeds from its sale.
As noted
above, in February 2009, our board of directors suspended the declaration and
payment of dividends to shareholders to increase cash flow and strengthen the
balance sheet for near-term project opportunities.
In 2007,
we utilized borrowings in the amount of $120.0 million to refinance the Viking. We made
total debt repayments of $180.7 million, of which $110.0 million related to the
Viking
refinancing. On the termination of the equity swap we received
proceeds of $8.0 million. We bought back and subsequently cancelled
1,241,300 of our shares at a net cost of $22.8 million. We purchased
an additional 400,000 of our shares at a cost of $8.2 million. In
2007, we commenced paying dividends and for the year ended December 31, 2007 had
declared and paid in the aggregate of $2.25 per common share, or a total of
$145.8 million.
Borrowing
activities
Long-Term
Debt
The
following is a summary of our long-term debt facilities. Please see
Note 23 to the Company's audited Consolidated Financial Statements included
herein for detail.
Mazo
facility
In
November 1997, Osprey, our predecessor, entered into a secured loan facility of
$214.5 million in respect of the vessel, the Golar Mazo. This
facility, which we assumed from Osprey, bears floating rate interest of LIBOR
plus a margin. The loan is repayable in bi-annual installments ending
in June 2013 at which point the facility will be repaid in full. The
debt agreement requires that certain cash balances, representing interest and
principal payments for defined future periods, be held by the trust company
during the period of the loan.
Golar
Gas Holding facility
In March
2005, we refinanced two existing loan facilities in respect of five of our
vessels with a banking consortium. This new first priority loan, or
Golar Gas Holding Facility, is for an amount of $300.0 million. The loan accrues
floating interest at a rate per annum equal to the aggregate of LIBOR plus a
margin. The loan is secured by the assignment to the lending banks of
a mortgage given to Golar Gas Holding Company Inc., a subsidiary of ours, by the
lessor of four of the five vessels that are part of the Five Ship
Leases. In November 2008, as part of the refinancing detailed below
under the new "Golar LNG Partners revolving credit facility," we repaid $46.3
million in respect of the Golar Spirit. The
loan has a term of six years and is repayable in 24 quarterly installments with
a final balloon payment of $55.7 million payable on April 14,
2011. As of December 31, 2009, the balance outstanding on the loan
facility was $90 million.
Gracilis
facility
In
January 2005, we entered into a commercial loan agreement in the amount of $120
million for the purpose of financing newbuilding hull number 1460, the Viking (formerly known as the
Gracilis). This facility was refinanced in August
2007. The refinanced Gracilis facility is for an amount of $120
million. The total amount outstanding at the time of the refinancing
was $110 million.
Under the
structure of the Gracilis facility the bank loaned us funds of $120.0 million,
which we then loaned to a newly created entity of the bank, ("Investor
Bank"). With the proceeds, the Investor Bank then subscribed for
preference shares in a Golar group company. Another Golar company
issued a put option in respect of the preference shares. The effect
of these transactions is that we are to pay out fixed preference dividends to
the Investor Bank and the Investor Bank is required to pay fixed interest due on
the loan from Golar to Investor Bank. The interest repayments to us
by Investor Bank are contingent upon receipt of these preference
dividends. In the event these dividends are not paid, the preference
dividends will accumulate until such time as there are sufficient cash proceeds
to settle all outstanding arrearages. Applying our interpretation of
the standard relating to the consolidation of variable interest entities to this
arrangement, we have concluded that we are the primary beneficiary of Investor
Bank and accordingly have consolidated it into our
group. Accordingly, as of December 31, 2009, the Consolidated Balance
Sheet and Consolidated Statement of Operations includes Investor Bank's net
assets of $nil and net income of $nil, respectively, due to elimination on
consolidation, of accounts and transactions arising between Golar and the
Investor Bank.
The
Gracilis facility accrues floating interest at a rate per annum equal to the
aggregate of LIBOR plus a margin. The loan has a term of 10 years and
is repayable in 39 quarterly installments with a final balloon payment of $71.0
million due on August 19, 2017. The loan is secured by a mortgage on
this vessel.
Granosa
facility
In April
2006, we entered into a secured loan facility for an amount of $120.0 million,
for the purpose of financing our newbuilding, the Maria (formerly known as the
Granosa), which we refer to as the Granosa facility. The
facility bears a floating rate of interest of LIBOR plus a margin and had an
initial term of five years with 20 quarterly installment repayments commencing
September 15, 2006. In March 2008, the Granosa facility was
restructured to lower the margin and extend the term of the facility to December
2014, with a revised final balloon payment of $80.8 million due in December
2014.
Golar
Arctic facility (formerly known as the Granatina)
In
January 2008, we entered into a secured loan facility for an amount of $120.0
million, for the purpose of financing the purchase of LNG carrier Golar Arctic, which we refer
to as the Golar Arctic facility. The facility bears a floating rate
of interest of LIBOR plus a margin, has an initial term of seven years and is
repayable in 27 quarterly installments commencing April 2008, and a final
balloon payment of $86.3 million.
Golar
LNG Partners revolving credit facility
In
September 2008, we entered into a new $285 million revolving credit facility
with a banking consortium to refinance existing loan facilities in respect of
two of our vessels the Methane
Princess and the Golar
Spirit. The loan is secured against the assignment to the
lending bank of a mortgage given to us by the lessors of the Methane Princess and the
Golar Spirit, with a
second priority charge over the Golar Mazo.
This new
facility accrues floating interest at a rate per annum equal to LIBOR plus a
margin. The initial draw down amounted to $250 million in November
2008. The total amount outstanding at the time of the refinancing in respect of
these two vessels' refinanced facilities was $202.2 million. We drew
down a further $25.0 million in January 2009, and the remaining $10.0 million of
the facility in March 2009. The loan has a term of 10 years and is
repayable in quarterly installments commencing in May 2009 with a final balloon
payment of $102.5 million due in February 2018.
World
Shipholding facility
In June
2009, we entered into an $80 million revolving credit facility with World
Shipholding, a company indirectly controlled by trusts established by our
Chairman, John Fredriksen for the benefit of his immediate
family. The facility accrues fixed interest at a rate per annum of 8%
together with a commitment fee of 0.75% of any undrawn portion of the credit
facility. The facility will be available for a period of two
years. All amounts due under the facility must be repaid within two
years from the date of the first drawing. We drew down an initial
amount of $20 million on June 30, 2009 and a further $10 million in July 2009.
In November 2009, we made a repayment of $20 million. The balance outstanding on
the facility at December 31, 2009 was $10 million. The facility is
currently unsecured. However, in order to draw down amounts in excess
of $35 million we will be required to provide security to the satisfaction of
World Shipholding. This is envisaged to take the form of a second
priority lien over cash generating assets.
As of
December 31, 2009 and 2008, we had total long-term debt outstanding of $782.2
million and $808.6 million, respectively.
The outstanding debt of $782.2
million as of December 31, 2009, was repayable as follows:
Year
ending December 31,
|
|
(in
millions of $)
|
|
|
|
2010
|
74.5
|
2011
|
120.3
|
2012
|
52.8
|
2013
|
46.9
|
2014
|
115.9
|
2015
and thereafter
|
371.8
|
|
782.2
|
The
margins we pay under our current loan agreements are over and above LIBOR at a
fixed or floating rate and currently range from 0.7% to 1.15%.
Capital
Lease Obligations
The
following is a summary of our Capital Lease Obligations. Refer to
Note 24 to the Company's audited Consolidated Financial Statements included
herein for detail.
Five
Ship leases
In April
2003, we entered into our first finance lease arrangement. We sold
five, 100 percent owned subsidiaries to a financial institution in the United
Kingdom (U.K.), which we refer to as the U.K. Lessor. The
subsidiaries were established in Bermuda specifically to own and operate one LNG
vessel as their sole asset. Subsequent to the sale of the five
entities, we entered into 20-year leases in respect of each of the five vessels
under five separate lease agreements, which we refer to as the Five Ship
leases. Our obligation to the U.K. Lessor is primarily secured by
letters of credit, which are themselves secured by cash deposits which since
June 2008 are now placed with the Lessor. Lease rentals are payable
quarterly. At the end of each quarter the required value of the
letters of credit to secure the present value of rentals due under the leases
will be recalculated taking into account the rental payment due at the end of
the quarter. The surplus funds, in our cash deposits securing the
LC's, released as a result of the reduction in the required LC amount are
available to pay the lease rentals due at the end of the same
quarter.
The
profiles of the Five Ship leases are such that the lease liability continues to
increase until 2008 and thereafter decreases over the period to 2023 being the
primary term of the leases. The value of deposits used to obtain
letters of credit to secure the lease obligations as of December 31, 2009, was
$426 million.
Methane
Princess lease
In August
2003, we entered into our second finance lease arrangement. We
novated the Methane Princess newbuilding contract prior to completion of
construction and subsequently leased the vessel from the same financial
institution in the U.K., which we refer to as the U.K. Lessor. Our
obligation to the U.K. Lessor is primarily secured by a letter of credit, which
is itself secured by a cash deposit which since June 2008 is now placed with the
Lessor. Lease rentals are payable quarterly. At the end of
each quarter the required value of the letter of credit to secure the present
value of rentals due under the lease will be recalculated taking into account
the rental payment due at the end of the quarter. The surplus funds,
in our cash deposits securing the LC, released as a result of the reduction in
the required LC amount are available to pay the lease rentals due at the end of
the same quarter.
The
profile of the Methane Princess lease is such that the lease liability continues
to increase until 2014 and thereafter decreases over the period to 2034 being
the primary term of the lease. The value of the deposit used to
obtain a letter of credit to secure the lease obligation as of December 31,
2009, was $153 million.
Golar
Winter lease
In April
2004, we signed a lease agreement in respect of our newbuilding the Golar Winter, to which we
refer to as the Golar Winter lease, with another U.K. bank (the "Lessor") for a
primary period of 28 years. Under the agreement we received an amount
of $166 million. Our obligations to the Lessor under the lease are
secured by (inter alia) a letter of credit provided by another U.K. bank (the
"LC Bank"). We deposited $39 million with the LC bank as security for
the letter of credit at the same time we entered into the lease. The
effective amount of net financing received is therefore $127 million before fees
and expenses. In May 2008 and October 2009 , $37 million and $15.3
million, respectively, of this deposit was released to us in consideration of
the additional security afforded to the lessor by the long-term time charter of
the Golar Winter with
Petrobras.
The Golar
Winter lease is denominated in GBP while its cash deposit is denominated in
USD. In order to hedge the currency risk arising from the GBP lease
rental obligation we have entered into a 28 year currency swap, to swap all
lease rental payments into U.S. Dollars at a fixed GBP/USD exchange rate, (i.e.
Golar receives GBP and pays U.S. Dollars).
Grandis
lease
In April
2005, we signed a lease agreement in respect of our newbuilding, the Grand (formerly known as the
Grandis), to which we refer to as the Grandis lease, with another U.K.
bank (the "Grandis Lessor") for a primary period of 30 years. Under
the agreement we received an amount of $150 million of which $47 million was
received in April 2005 with the remainder received on delivery of the vessel in
January 2006. Our obligations to the lessor under the lease are
secured by (inter alia) a letter of credit provided by another U.K.
bank. This letter of credit is secured by a cash deposit of $45
million, which we deposited at the same time as entering into the
lease. The Grandis lease obligation and associated cash deposit are
both denominated in USD. The effective amount of net financing was
therefore $105 million, before fees and expenses.
New Long Funding Finance
Lease
In March
2010, the Company terminated three of the leases within the Five Ships Leases
and immediately entered into three new long funding finance leases ("LFFL's") in
respect of the same ships. The LFFL's have an initial term of approximately 12
years from inception. The lease obligations under the LFFL's are secured by cash
deposits of the same value. The cash deposits will be used to service the
entirety of the lease obligations.
As at
December 31, 2009, the Company is committed to make minimum rental payments
under capital lease, as follows:
Year
ending December 31,
|
|
Five
Ship Leases
|
|
|
Methane
Princess
Lease
|
|
|
Golar
Winter
Lease
|
|
|
Grandis
Lease
|
|
|
Total
|
|
(in
thousands of $)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
22.7 |
|
|
|
6.9 |
|
|
|
10.4 |
|
|
|
9.3 |
|
|
|
49.4 |
|
2011
|
|
|
28.6 |
|
|
|
7.2 |
|
|
|
10.4 |
|
|
|
9.3 |
|
|
|
55.5 |
|
2012
|
|
|
30.0 |
|
|
|
7.5 |
|
|
|
10.4 |
|
|
|
9.3 |
|
|
|
57.2 |
|
2013
|
|
|
31.5 |
|
|
|
7.8 |
|
|
|
10.4 |
|
|
|
9.3 |
|
|
|
59.0 |
|
2014
|
|
|
49.7 |
|
|
|
8.1 |
|
|
|
10.4 |
|
|
|
9.3 |
|
|
|
77.6 |
|
2015
and thereafter
|
|
|
516.1 |
|
|
|
278.1 |
|
|
|
182.1 |
|
|
|
212.6 |
|
|
|
1,188.8 |
|
Total
minimum lease payments
|
|
|
678.5 |
|
|
|
315.7 |
|
|
|
234.1 |
|
|
|
259.2 |
|
|
|
1,487.5 |
|
Less:
Imputed interest
|
|
|
(251.8 |
) |
|
|
(162.9 |
) |
|
|
(103.7 |
) |
|
|
(116.2 |
) |
|
|
(634.5 |
) |
Present
value of minimum lease payments
|
|
|
426.8 |
|
|
|
152.8 |
|
|
|
130.4 |
|
|
|
142.9 |
|
|
|
852.9 |
|
For all
our leases other than the Grandis lease, lease rentals include an interest
element that is accrued at a rate based upon GBP LIBOR. In relation
to the Winter Lease, we have converted our GBP LIBOR interest obligation to USD
LIBOR by entering into the cross currency swap referred to above. We
receive interest income on our restricted cash deposits at a rate based upon GBP
LIBOR for the Five Ship leases and the Methane Princess lease, and based upon
USD LIBOR for the Winter lease. Our lease obligation in respect of
the Grand and the
associated cash deposit are denominated in USD. Seven of our leases
are therefore denominated in GBPs. The majority of this GBP capital lease
obligation is hedged by GBP cash deposits securing the lease obligations or by
currency swap. This is not however a perfect hedge and so the
movement in currency exchange rate between the U.S. Dollar and the GBP will
affect our results (please see the section of this annual report entitled "Item
11- Foreign currency risk").
In the
event of any adverse tax changes to legislation affecting the tax treatment of
the leases for the U.K. vessel lessors or a successful challenge by the U.K.
Revenue authorities to the tax assumptions on which the transactions were based,
or in the event that we terminate any of our U.K. tax leases before their
expiration, we would be required to return all or a portion of, or in certain
circumstances significantly more than, the upfront cash benefits that we have
received or that have accrued over time, together with fees that were financed
in connection with our lease financing transactions, or post additional security
or make additional payments to the U.K. vessel lessors. Any
additional payments could adversely affect our earnings and financial
position. The upfront benefits we have received equates to the cash
inflow we received in connection with the six leases we entered into during 2003
(in total a gross amount before deduction of fees of approximately £41 million
British pounds, or GBP). Two of our U.K. tax leases accrue benefit over the term
of the leases. The remaining six UK tax leases were structured so that a cash
benefit was received up front.
Debt
and lease restrictions
Our
existing financing agreements (debt and leases) impose operating and financing
restrictions on us which may significantly limit or prohibit, among other
things, our ability to incur additional indebtedness, create liens, sell capital
shares of subsidiaries, make certain investments, engage in mergers and
acquisitions, purchase and sell vessels, transfer funds from subsidiary
companies to us, enter into time or consecutive voyage charters or pay dividends
without the consent of our lenders and lessors. In addition, our
lenders and lessors may accelerate the maturity of indebtedness under our
financing agreements and foreclose upon the collateral securing the indebtedness
upon the occurrence of certain events of default, including our failure to
comply with any of the covenants contained in our financing
agreements. Our various debt and lease agreements of the Company
contain covenants that require compliance with certain financial
ratios. Such ratios include equity ratios, working capital ratios and
earnings to net debt ratio covenants, debt service coverage ratios, minimum net
worth covenants, minimum value clauses, minimum free cash restrictions in
respect of our subsidiaries and us. With regards to minimum levels of
free cash we have covenanted to maintain at least $25 million of cash and cash
equivalents on a consolidated group basis.
As of
December 31, 2009, we complied with all covenants of our various debt and lease
agreements.
In
addition to mortgage security, some of our debt is also collateralized through
pledges of shares by guarantor subsidiaries of Golar.
Derivatives
We use
financial instruments to reduce the risk associated with fluctuations in
interest rates and foreign currency exchange rates. We have a
portfolio of interest rate swaps that exchange or swap floating rate interest to
fixed rates, which from a financial perspective, hedges our obligations to make
payments based on floating interest rates. We may also enter into
derivative instruments for trading purposes, in order to manage our exposure to
the risk of movements in the price of natural gas, which can impact our charter
rates, and to some extent for speculative purposes. As of December
31, 2009, our interest rate swap agreements effectively fixed our net floating
interest rate exposure on $643 million of floating rate debt, leaving $358
million exposed to a floating rate of interest. Our swap agreements
have expiry dates between 2010 and 2015 and have fixed rates of between 1.99%
and 5.04%. We also enter into equity swaps.
In June
2008, we entered into an equity swap line with Nordea Bank of Finland PLC
("Nordea"), for a term of six months. The equity swap line allows
Nordea to acquire an amount of shares up to a maximum of 1.0 million in us
during the accumulation period, and we carry the risk of fluctuations in the
share price of those acquired shares. Nordea is compensated at their
cost of funding plus a margin. As of December 31, 2008 a total of
300,000 shares had been purchased under this scheme. Pursuant to the
termination of the equity swap in January 2009, we entered into arrangements
with the same counterparty under similar terms for a maximum of 300,000 shares
This equity swap terminated in November 2009.
In
addition to the above equity swap transactions indexed to our own securities, in
July 2008, we entered into a one-year equity swap arrangement relating to
securities in another company, Arrow, a company listed on the Australian stock
exchange. This equity swap was terminated in the third quarter of 2009 resulting
in a net gain of approximately $7.8 million.
As noted
above, we have entered into a currency swap to hedge an exposure to GBPs in
respect of the Golar Winter Lease.
We enter
into foreign currency forward contracts in order to manage our exposure to the
risk of movements in foreign currency exchange rate fluctuations. We also
receive some of the revenue in respect of the Spirit and Winter charters in
Brazilian Reais. We are affected by foreign currency fluctuations
primarily through our FSRU projects, expenditure in respect of our ships
drydocking, some operating expenses including the effect of paying the majority
of our seafaring officers in Euros and the administrative costs of our UK
office. The currencies which impact us the most include, but are not
limited to, Euros, Norwegian Krone, Singaporean Dollars and, to a lesser extent,
GBPs.
Capital
Commitments
Vessel
Conversion
As of
December 31, 2009, we had a contract with Keppel Shipyard and others for the
conversion of the Golar
Freeze into a FSRU. In April 2008, we
entered into a time charter agreement with DUSUP for the Golar Freeze, which requires
the conversion of the vessel into a FSRU. Accordingly, as of December
31, 2009 and March 31, 2010, we are committed to incurring costs in connection
with the retrofitting of the Golar Freeze into a
FSRU. In addition, we have ordered equipment in connection with the
speculative conversion of the Hilli. As of these
dates, the estimated timing of the remaining commitments under our present
contracts in connection with these conversions is below:
(in millions of
$)
|
|
March
31, 2010
|
December
31, 2009
|
2010
|
|
27.5
|
55.1
|
|
|
27.5
|
55.1
|
Critical
Accounting Estimates
The
preparation of the Company's financial statements in accordance with U.S GAAP
requires that management make estimates and assumptions affecting the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. The following is a
discussion of the accounting policies applied by the Company that are considered
to involve a higher degree of judgement in their application. Refer
to the Note 2, "Summary of Significant Accounting Policies" of the Consolidated
Financial Statements.
Vessels
and impairment
Our vessels are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. In assessing the
recoverability of our vessels' carrying amounts, we must make assumptions
regarding estimated future cash flows and estimates in respect of residual or
scrap value. Factors we consider important which could affect
recoverability and trigger impairment include significant underperformance
relative to expected operating results and significant negative industry or
economic trends.
We follow
a traditional present value approach, whereby a single set of future cash flows
is estimated. If the carrying value of a vessel were to exceed the
undiscounted future cash flows, we would write the vessel down to its fair
value, which is calculated by using a risk-adjusted rate of
interest.
During
the fourth quarter of 2009 as was the case in 2008 we considered the
deterioration in the economic environment as a continuing potential indicator of
impairment of our vessels. We assessed the potential impairment of
our vessels by comparing the undiscounted cash flows of our vessels to their
carrying values over the existing service potential of our
vessels. The projected net operating cash flows for each vessel were
determined by considering the charter revenues from existing time charters for
their fixed contracted term and an estimated daily time charter equivalent for
vessels operating in the spot market or at the end of their time charter (based
on historical average trends as well as future expectations available for each
vessel) over the vessels' remaining estimated life, which on average for our
fleet extends over a 25-year period. Expected outflows for vessel
drydockings and vessel operating expenses are based on our historical average
operating costs and assume an average annual inflation rate of
2%. Operating days take into account the periods when each vessel is
expected to undergo their drydocking, the frequency of which depends on factors
such as their age and whether operating as an FSRU. Assumptions are
in line with the Company's historical performance. Our assessment
concluded that step two of the impairment analysis was not required and no
impairment of vessels existed as of December 31, 2009, as the undiscounted
projected net operating cash flows exceeded their carrying value.
The cash
flows on which this assessment is based is highly dependent upon our forecasts,
which are subjective and although we believe the underlying assumptions
supporting this assessment are reasonable it is therefore reasonably possible
that a further decline in the economic environment could adversely impact our
business prospects over the next year. This could represent a
triggering event for a further impairment assessment of our
vessels.
Since
inception, our vessels have not been impaired. However, an impairment
charge of $1.5 million (2008: $0.1 million) was recognized, in respect of parts
ordered for the FSRU conversion project that were not required for the
conversion of the Golar
Spirit. Refer to Note 6 of the Company's audited
Consolidated Financial Statements included herein for detail.
Time
Charters
We
account for time charters of vessels to our customers as operating leases and
record the customers' lease payments as time charter revenues. We
evaluate each contract to determine whether or not the time charter should be
treated as an operating or capital lease, which involves estimates about our
vessels' remaining economic useful lives, the fair value of our vessels, the
likelihood of a lessee renewal or extension, incremental borrowing rates and
other factors.
Our estimate of the remaining
economic useful lives of our vessels is based on the common life expectancy
applied to similar vessels in the LNG shipping industry. The fair
value of our vessels is derived from our estimate of expected present value, and
is also benchmarked against open market values considering the point of view of
a potential buyer. The likelihood of a lessee renewal or extension is
based on current and projected demand and prices for similar vessels, which is
based on our knowledge of trends in the industry, historic experience with
customers in addition to knowledge of our customers'
requirements. The incremental borrowing rate we use to discount
expected lease payments and time charter revenues are based on the rates at the
time of entering into the agreement.
A change
in our estimates might impact the evaluation of our time charters, and require
that we classify our time charters as capital leases, which would include
recording an asset similar to a loan receivable and removing the vessel from our
balance sheet. The lease payments to us would reflect a declining
revenue stream to take into account our interest carrying costs, which would
impact the timing of our revenue stream.
We have
sold several of our vessels to, and subsequently leased the vessels from U.K.
financial institutions that routinely enter into finance leasing
arrangements. We have accounted for these arrangements as capital
leases. As identified in our critical accounting policy for time
charters, we make estimates and assumptions in determining the classification of
our leases. In addition, these estimates, such as incremental
borrowing rates and the fair value or remaining economic lives of the vessels,
impact the measurement of our vessels and liabilities subject to the capital
leases. Changes to our estimates could affect the carrying value of our lease
assets and liabilities, which could impact our results of
operations. To illustrate, if the incremental borrowing rate had been
lower than our initial estimate this would result in a higher lease liability
being recorded due to a lower discount rate being applied to its future lease
rental payments.
We have
also recorded deferred credits in connection with some of these lease
transactions. The deferred credits represent the upfront cash inflow
derived from undertaking financing in the form of U.K. leases. The
deferred credits are amortized over the remaining economic lives of the vessels
to which the leases relate on a straight-line basis. The benefits
under lease financings are derived primarily from tax depreciation assumed to be
available to lessors as a result of their investment in the vessels. If that tax
depreciation ultimately proves not to be available to the lessor, or is clawed
back from the lessor (e.g. on a change of tax law or adverse tax ruling), the
lessor will be entitled to adjust the rentals under the relevant lease so as to
maintain its after tax position, except in limited circumstances. Any
increase in rentals is likely to affect our ability to amortize the deferred
credits, increase our interest cost and consequently could have a negative
impact on our results and operations and our liquidity.
Pension
Benefits
The
determination of our defined benefit pension obligations and expense for pension
benefits is dependent on our selection of certain assumptions used by actuaries
in calculating such amounts. Those assumptions are described in Note
22 of the notes to our Consolidated Financial Statements included in this annual
report and include, among others, the discount rate, expected long-term rate of
return on plan assets and rates of increase in compensation. In
accordance with U.S. GAAP, actual results that differ from our assumptions are
accumulated and amortized over future periods and therefore, generally affect
our recognized expense and recorded obligation in such future
periods. We are guided in selecting our assumptions by our
independent actuaries and, while we believe that our assumptions are
appropriate, significant differences in our actual experience or significant
changes in our assumptions may materially affect our pension obligations and our
future pension expense.
Recently
Issued Accounting Standards and Securities and Exchange Commission
Rules
Effective
July 2009, the Financial Accounting Standards Board (''FASB'') codified
accounting literature into a single source of authoritative accounting
principles, except for certain authoritative rules and interpretive releases
issued by the SEC. Since the codification did not alter existing U.S. GAAP, it
did not have an impact on the Company's consolidated financial statements. All
references to pre-codified U.S. GAAP have been removed from these financial
statements.
In June
2009, the FASB issued new guidance relating to the accounting for transfers of
financial assets. The purpose of this guidance is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. These requirements are effective for us for
transfers occurring on or after January 1, 2010. The Company does not expect the
adoption of this guidance to have a material impact on its consolidated
financial statements.
In June
2009, the FASB issued new guidance relating to the consolidation of variable
interest entities. This guidance changes how a company determines when an entity
that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated and requires a company to provide
additional disclosures about its involvement with variable interest entities and
any significant changes in risk exposure due to that involvement. This guidance
is effective for interim and annual periods beginning after November 15, 2009.
The Company does not have any significant interests in variable interest
entities and therefore does not expect the adoption of this guidance to have a
material impact on its consolidated financial statements.
In
October 2009 the FASB issued new guidance related to revenue recognition for
arrangements with multiple deliverables and those which include software
elements. The issues address certain aspects of the accounting by the vendor
that involve more than one deliverable or unit of accounting. The guidance will
allow companies to allocate arrangement consideration in multiple deliverable
arrangements in a manner that better reflects the transaction's economics and
will remove non-software components of tangible products and certain software
components of tangible products from the scope of existing software revenue
guidance. For contracts with software elements this will result in the
recognition of revenue similar to that for other tangible products. This
guidance is effective for annual periods beginning after June 15, 2010. Early
adoption is permitted and may be prospective or retrospective. The Company does
not expect the adoption of this guidance to have a material impact on its
consolidated financial statements.
In
December 2007, the Financing Accounting Standards Board issued new guidance
relating to Non-controlling Interests in Consolidated Financial Statements,
which requires (1) non-controlling interests (previously referred to as minority
interest) to be reported as part of equity in the consolidated financial
statements, (2) losses to be allocated to non-controlling interests even when
such allocation might result in a deficit balance, (3) notes that changes in
ownership will be treated as equity transactions, (4) notes that
upon a loss of control any gain or loss on the interest sold will be
recognized in earnings, and; (5) notes that reported net income will consist of
the total income of all consolidated subsidiaries, with separate disclosure on
the face of the income statement of the split of that income between controlling
and non-controlling interests. It is effective for annual periods
beginning on or after December 15, 2008. On adoption of this
standard, except for the reclassification of non-controlling interest to Equity,
the adoption of this standard does not have a material impact on the Company's
consolidated results of operations, financial position or cash
flows.
C. Research
and Development, Patents and Licenses
Not Applicable
D. Trend
Information
Please see the section of this item
entitled "Market Overview and Trends."
E.
Off-Balance Sheet
Arrangements
Charter-hire payments to third parties
for certain contracted-in vessels are accounted for as operating
leases. We are also committed to make rental payments under
operating leases for office premises under operating leases. The
future minimum rental payments under our non-cancellable operating leases for
office premises are disclosed below in the tabular disclosure of contractual
obligations.
F. Contractual
Obligations
The
following table sets forth our contractual obligations for the periods indicated
as at December 31, 2009:
(in
millions of $)
|
Total
Obligation
|
Due
in
2010
|
Due
in
2011
- 2012
|
Due
in
2013
– 2014
|
Due
Thereafter
|
Long-Term Debt
(1)
Interest
Commitments on Long-Term Debt (2)
|
782.2
165.2
|
74.5
33
|
173.1
54.3
|
162.8
44.9
|
371.8
33
|
Capital Lease Obligations
(3)
Interest Commitments on Capital
Lease Obligations
|
852.9
634.5
|
7.6
41.8
|
21.6
91.1
|
32
104.5
|
791.7
397.1
|
Operating
Lease Obligations
|
14.1
|
12.2
|
1.1
|
0.8
|
-
|
Purchase
Obligations:
|
|
|
|
|
|
FSRU Conversion
(4)
Egyptian
Venture (5)
|
55.1
3.7
|
55.1
-
|
-
3.7
|
-
-
|
-
-
|
Other
Long-Term Liabilities (6)
|
-
|
-
|
-
|
-
|
-
|
Total
|
2,507.7
|
224.2
|
344.9
|
345
|
1,593.6
|
|
(1)
|
As
of December 31, 2009, taking into account the hedging effect of our
interest rate swaps, $358.2 million of our long-term debt and capital
lease obligations (net of restricted cash deposits), was floating rate
debt ,which accrued interest based on USD
LIBOR.
|
|
(2)
|
Our
interest commitment on our long-term debt is calculated based on an
assumed average USD LIBOR of 3.97% and taking into account our various
margin rates and interest rate swaps associated with each
debt.
|
|
(3)
|
In
the event of any adverse tax rate changes or rulings our lease obligations
could increase significantly (see discussion above under "Capital Lease
Obligations").
|
|
(4)
|
This
refers to the contracted costs for the retrofitting of the Golar Freeze into
FSRUs. As at December 31, 2009, we had a contract with Keppel Shipyard for
the conversion of the Golar Freeze and with
other suppliers for equipment and engineering for the conversion of the
Golar Freeze into
a FSRU.
|
|
(5)
|
In
December 2005, we signed a shareholders' agreement in connection with the
setting up of a jointly owned company named Egyptian Company for Gas
Services S.A.E ("ECGS"), established to develop hydrocarbon business and
in particular LNG related business in Egypt. As at December 31,
2009, we were committed to subscribe for common shares in ECGS for a
further consideration of $3.7 million payable within five years of
incorporation, at dates to be determined by ECGS's board of
directors.
|
Furthermore,
as at December 31, 2009, we had a commitment to pay $1.0 million to an unrelated
third party, contingent upon the conclusion of a material commercial business
transaction by ECGS as consideration for work performed in connection with the
setting up and incorporation of ECGS. This liability has been
excluded from the above table, as the timing of any cash payment is
uncertain.
|
(6)
|
Our
Consolidated Balance Sheet as of December 31, 2009, includes $76.4 million
classified as "Other long-term liabilities" of which $43.7 million
represents deferred credits related to our capital lease transactions and
$32.6 million represents liabilities under our pension
plans. These liabilities have been excluded from the above
table as the timing and/or the amount of any cash payment is
uncertain. See Note 25 of the Consolidated Financial Statements
for additional information regarding our other long-term
liabilities.
|
G. Safe
harbor
Forward-looking
information discussed in this Item 5 includes assumptions, expectations,
projections, intentions and beliefs about future events. These
statements are intended as "forward-looking statements." We caution
that assumptions, expectations, projections, intentions and beliefs about future
events may and often do vary from actual results and the differences can be
material. Please see "Cautionary Statement Regarding Forward-Looking
Statements" in this report.
ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors
and Senior Management
Information
concerning each of our directors and executive officers and certain key officers
of our subsidiary management companies who are responsible for overseeing our
management as at March 31, 2010 is set forth below.
Name
|
Age
|
Position
|
John
Fredriksen
|
65
|
Chairman
of the Board, President and Director
|
Kate
Blankenship
|
45
|
Director
and Audit Committee member
|
Frixos
Savvides
|
58
|
Director
and Audit Committee member
|
Hans
Petter Aas
|
64
|
Director
|
Katherine
Fredriksen
|
26
|
Director
|
Georgina
Sousa
|
60
|
Company
Secretary
|
|
|
|
Graham
Robjohns
|
45
|
Chief
Executive Officer - Golar LNG Management
|
Oscar
Spieler
|
49
|
Chief
Executive Officer - Golar Energy Management
|
Graeme
McDonald
|
53
|
Executive
Vice-President Business Development -
Golar Management
|
Jan
Flatseth
|
66
|
Chief
Operating Officer - Golar
Management
|
John Fredriksen has served as
the Chairman of the Board, President and a director of the company since our
inception in May 2001. He has been the Chief Executive Officer,
Chairman of the Board, President and a director of Frontline Ltd since
1997. Frontline is a Bermuda based tanker owner and operator listed
on the New York Stock Exchange (NYSE), the London Stock Exchange (LSE) and the
Oslo Stock Exchange (OSE). Mr Fredriksen has established Trusts for the benefit
of his immediate family which indirectly control World Shipholding, our largest
shareholder. He has been a director of Golden Ocean Group Limited, a Bermuda
company listed on the Oslo Stock Exchange, since November 2004 and has also
served as a director and the Chairman of Seadrill Limited, a Bermuda company
listed on the Oslo Stock Exchange and recently NYSE, since May
2005.
Kate Blankenship has served as
a director since July 2003 and was Company Secretary from our inception in 2001
until November 2005. She served as our Chief Accounting Officer from
May 2001 until May 31, 2003. She has been a director of Frontline
since August 2003 and served as Chief Accounting Officer and Secretary of
Frontline between 1994 and October 2005. Mrs. Blankenship has served
as Chief Financial Officer of Knightsbridge Tankers Limited from April 2000
until September 2007 and was Secretary of Knightsbridge from December 2000 until
March 2007. Mrs. Blankenship has served as a director of Ship Finance
since July 2003, Seadrill since May 2005, Golden Ocean since November 2004 and
Independent Tankers Corporation since February 2008. She is a member
of the Institute of Chartered Accountants in England and Wales.
Frixos Savvides has
served as a director since August 2005. Mr. Savvides was a
founder of the audit firm PKF Savvides and Partners in Cyprus and held the
position of Managing Partner until 1999 when he became Minister of Health of the
Republic of Cyprus. He held this office until 2003. Mr.
Savvides is currently a senior independent business consultant, and holds
several Board positions. Mr. Savvides has been a director of
Frontline since July 2005. He is a Fellow of the Institute of
Chartered Accountants in England and Wales.
Hans Petter Aas has served as a
director since September 2008. Mr. Aas has had a long career as
a banker in the international shipping and offshore market, and retired from his
position as Global Head of the Shipping, Offshore and Logistics Division of DnB
NOR in August 2008. He joined DnB NOR (then Bergen Bank) in 1989, and
has previously worked for the Petroleum Division of the Norwegian Ministry of
Industry and the Ministry of Energy, as well as for Vesta Insurance and Nevi
Finance. Mr. Aas is also a director and Chairman of Ship Finance and
Knutsen Offshore Tanker Co ASA and has recently become a director of the
Norwegian Export Credit Guaranty Institute.
Katherine Fredriksen has
served as a director since September 2008. Ms. Fredriksen
is a graduate of the Wang Handels Gymnas in Norway and has studied at the
European Business School in London. Ms. Fredriksen is the daughter of
Mr. John Fredriksen, our Chairman. Ms. Fredriksen is also a
director of Frontline, Seadrill and Independent Tankers Corporation
Limited.
Georgina E. Sousa has served
as Secretary of the company and its subsidiaries since November 30,
2005. She is also Head of Corporate Administration for
Frontline. Up until January 2007, she was Vice-President-Corporate
Services of Consolidated Services Limited, a Bermuda Management Company having
joined the firm in 1993 as Manager of Corporate Administration. From
1976 to 1982 she was employed by the Bermuda law firm of Appleby, Spurling &
Kempe as a Company Secretary and from 1982 to 1993 she was employed by the
Bermuda law firm of Cox & Wilkinson as Senior Company
Secretary.
Graham Robjohns has served as
Chief Executive Officer of Golar LNG Management since November 2009. He served
as our Group Financial Controller since May 2001, as our Chief Accounting
Officer since June 2003and is also currently Chief Financial Officer of Golar
Management, a position he has held since November 2005. He was
financial controller of Osprey Maritime (Europe) Ltd from March 2000 to May
2001. From 1992 to March 2000 he worked for Associated British Foods
Plc. and then Case Technology Ltd (Case), both manufacturing businesses, in
various financial management positions and as a director of
Case. Prior to 1992, he worked for PricewaterhouseCoopers in their
corporation tax department. He is a member of the Institute of
Chartered Accountants in England and Wales.
Oscar Spieler has served as
Chief Executive Officer of Golar Energy Management since August
2009. He served as Chief Executive Officer of Sea Production Ltd from
October 2006 until October 2008 and was CEO of Frontline Management AS from 2003
to 2006, and prior to that time Technical Director of Frontline Management AS
since November 1999. From 1995 until 1999, Mr. Spieler served as Fleet Manager
for Bergesen, a major Norwegian gas tanker and VLCC owner. From 1986 to 1995,
Mr. Spieler worked
with the Norwegian classification society DNV, working both with shipping marine
operations and offshore assets.
Graeme McDonald is Executive
Vice President of Business Development of Golar Management. He was previously
Chief Technical Officer and prior to that he was general manager of the fleet, a
position he held with Osprey, since 1998. He has worked in the
shipping industry since 1973 and held various positions with Royal Dutch Shell
companies, including manager of LNG shipping services at Shell International
Trading and Shipping Company Ltd. and manager of LNG marine operations at Shell
Japan Ltd.
Jan Flatseth is Chief
Operating Officer of Golar Management. He joined the company in
September 2006 as General Manager Fleet. Prior to joining Golar he held the
position of Assistant Technical Director and Fleet Manager responsible for the
LNG/C fleet of BW Gas. Mr. Flatseth has a M.Sc. degree in Naval
Architecture/Marine Engineering from the Norwegian Institute of
Technology. He spent 13 years at DNV and was the Head of Section Gas
and Chemical Carriers until 1982. After leaving DNV, he served in
senior management positions at Helge R. Myhre/Kværner Shipping from 1982
-1995. The company was a subsidiary of the industrial group,
Kvaerner, set up to own and operate gas carriers. Mr. Flatseth
remained with the company when Havtor acquired Kvaerner Shipping and a year
later when it all became part of the large shipping group Bergesen DY ASA ("BW
Gas").
Mr. Tor
Olav Trøim has, effective October 5, 2009, resigned from his position as
director and officer of Golar LNG Limited in order to fulfill his appointment as
chairman of the board of Golar LNG Energy Limited. No replacement has
been appointed.
B. Compensation
For the
year ended December 31, 2009, we paid to our directors and executive officers
aggregate cash compensation of $1,722,305 and an aggregate amount of $400,385
for pension and retirement benefits. For a description of our stock
option plan please refer to the section of this item entitled "Option Plan"
below.
C. Board
Practices
Our
directors do not have service contracts and do not receive any benefits upon
termination of their directorships. The Board established an audit
committee in July 2005, which is responsible for overseeing the quality and
integrity of our financial statements and its accounting, auditing and financial
reporting practices, our compliance with legal and regulatory requirements, the
independent auditor's qualifications, independence and performance and our
internal audit function. Our audit committee consists of two members,
Kate Blankenship and Frixos Savvides, who are also both Company
Directors. Except for an audit committee the Board does not have any
other committees.
As a
foreign private issuer we are exempt from certain requirements of the Nasdaq
Stock Exchange that are applicable to U.S. listed companies. Please
see the section of this annual report entitled Item 16G. "Corporate Governance"
for a discussion of how our corporate governance practices differ from those
required of U.S. companies listed on the Nasdaq Stock Exchange.
D. Employees
As
of December 31, 2009, we employed approximately 25 people in our offices in
London and Oslo. We contract with independent ship managers to
manage, operate and to provide crew for our vessels. We also employ
approximately 382 seagoing employees, of which approximately 32 are employed
directly by us and 350 are employed through our independent ship
managers.
E. Share
ownership
The
following table sets forth information as of March 31, 2010, regarding the total
amount of common shares owned by all of our directors and officers on an
individual basis.
Director or Officer
|
Common
Shares of
$1.00 each
|
Percentage
of
Common
Shares
Outstanding
|
John
Fredriksen*
|
31,203,900
|
46.18%
|
Kate
Blankenship
|
**
|
**
|
Graham
Robjohns
|
**
|
**
|
* Mr.
Fredriksen may be deemed to beneficially own 31,203,900 shares of common stock,
par value $1.00 per share (the "Common Shares"), of Golar LNG Limited (the
"Issuer") through his indirect influence over World Shipholding Ltd., the shares
of which are indirectly held in trusts (the "Trusts"). The beneficiaries of the
Trusts are certain members of Mr. Fredriksen's family. Mr. Fredriksen disclaims
beneficial ownership of the 31,203,900 Common Shares except to the extent of his
voting and dispositive interests in such Common Shares. Mr. Fredriksen has no
pecuniary interest in the 31,203,900 Common Shares.
Our
directors and executive officers have the same voting rights as all other
holders of our Common Shares.
Option
Plan
Our board
of directors adopted the Golar LNG Limited Employee Share Option Plan in
February 2002. The Plan authorizes our Board to award, at its discretion, options to
purchase our common shares to employees of the Company, who are contracted to
work more than 20 hours per week and to any director of the Company.
In August
2009 the board of directors of Golar LNG Energy Limited ("Golar Energy") adopted
the Golar Energy share option with similiar terms to the Golar LNG share option
plan.
Under the
terms of these plans, the Boards may determine the exercise price of the
options, provided that the exercise price per share is not lower than the then
current market value. Options that have not lapsed will become
immediately exercisable at the earlier of the vesting date, the option
holder's death or change of control of the Company. All options will
expire on the tenth anniversary of the option's grant or at such earlier date as
the board may from time to time prescribe. The Plan will expire 10
years from its date of adoption.
As of
March 31, 2010, 5.5 million of the authorized and unissued common shares were
reserved for issue pursuant to subscription under options granted under the
Company's share option plans (1.5 million in respect of Golar LNG and 4 million
in repsect of Golar Energy). For further detail on share options
please read Item 18 - Consolidated Financial Statements: Note 26 – Share Capital
and Share Options.
Details
of share options held by our directors and officers as of April 28, 2010 in both
Golar LNG Limited and Golar LNG Energy Limited are set out in the following
tables below:
Director or Officer
|
Number
of Common
Shares Subject to Option
|
Exercise
Price per
Ordinary Share
|
Expiration Date
|
John
Fredriksen
|
500,000
|
$5.75
- $11.07
|
2011
|
Frixos
Savvides
|
75,000
|
$11.07
|
2011
|
Kate
Blankenship
|
75,000
|
$11.07
|
2011
|
Graeme
McDonald
|
75,000
|
$11.07
|
2011
|
Graham
Robjohns
|
175,000
|
$11.07-
$11.32
|
2011
- 2014
|
Jan
Flatseth
|
75,000
|
$9.41
|
2012
|
Hans
Petter Aas
|
75,000
|
$11.07
|
2014
|
Katherine
Fredriksen
|
75,000
|
$11.07
|
2014
|
The
exercise price of options, granted in 2006 and later, are reduced by the value
of dividends paid, on a per share basis. Accordingly, the above
figures show the reduced exercise price as of March 31, 2010.
Golar LNG Energy
Limited
Director or Officer
|
Number
of Common
Shares Subject to Option
|
Exercise
Price per
Ordinary Share
|
Expiration Date
|
John
Fredriksen
|
50,000
|
$2.20
|
2014
|
Kate
Blankenship
|
50,000
|
$2.20
|
2014
|
Graeme
McDonald
|
286,000
|
$2.20
|
2014
|
Graham
Robjohns
|
300,000
|
$2.20
|
2014
|
Oscar
Spieler
|
600,000
|
$2.20
|
2014
|
Jan
Flatseth
|
264,000
|
$2.20
|
2014
|
ITEM
7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major
shareholders
The
Company is indirectly controlled by another corporation (see
below). The following table presents certain information regarding
the current beneficial ownership of the common shares with respect to each major
shareholder who is known by the Company to own more than 5% of the Company's
outstanding common shares as of March 31, 2010. Information for
certain holders is based on their latest filings with the SEC or information
delivered to us. The number of shares beneficially owned by each
person or entity is determined under SEC rules and the information is not
necessarily indicative of beneficial ownership for any other
purpose. Under SEC rules a person or entity beneficially owns any
shares that the person or entity has the right to acquire as of May 31, 2010 (60
days after March 31, 2010) through the exercise of any stock option or other
right.
|
Common
Shares
|
Owner
|
Amount
|
Percent
|
World
Shipholding Ltd. (1)
|
31,203,900
|
46.18%
|
Steinberg
Asset Management, LLC (2)
|
12,354,192
|
18.28%
|
(1)
Our Chairman, John Fredriksen, indirectly influences World Shipholding
Ltd.
(2)
Information derived from the Schedule 13G/A of Steinberg Asset Management, LLC
filed with the Commission on February 16, 2010.
Our major
shareholders have the same voting rights as all other holders of our Common
Shares.
The
Company is not aware of any arrangements, the operation of which may at a
subsequent date result in a change in control of the Company.
As at
March 31, 2010, 29,891,428 of the Company's common shares are held by 29
holders of record in the United States.
According
to a Schedule 13G filed on February 12, 2010, Allianz SE reported beneficial
ownership of 3.69% of our outstanding common shares.
B. Related
party transactions
There are
no provisions in our Memorandum of Association or Bye-Laws regarding related
party transactions. However, our management's policy is to enter into
related party transactions solely on terms that are at least equivalent to terms
we would be able to obtain from unrelated third parties. The Bermuda
Companies Act of 1981 provides that a company, or one of its subsidiaries, may
enter into a contract with an officer of the company, or an entity in which an
officer has a material interest, if the officer notifies the Directors of its
interest in the contract or proposed contract. The related party
transactions that we have entered into during the year ended December 31, 2009
are discussed below.
Net
(expenses) income from related parties:
(in
thousands of $)
|
2009
|
Frontline
Ltd. and subsidiaries ("Frontline")
|
(261)
|
Seatankers
Management Company Limited ("Seatankers")
|
(82)
|
Ship
Finance AS ("Ship Finance")
|
195
|
Frontline,
Seatankers and Ship Finance are each subject to the indirect control of Trusts
established by our chairman, John Fredriksen, for the benefit of his immediate
family.
Net
expense/ income from Frontline, Seatankers and Ship Finance comprise fees for
management support, corporate and insurance administrative services, net of
income from supplier rebates and income from the provision of serviced offices
and facilities.
Receivables(payables)
from related parties:
(in
thousands of $)
|
2009
|
Frontline
|
488
|
Seatankers
|
(106)
|
Ship
Finance
|
115
|
|
497
|
Receivables
and payables with related parties comprise primarily of unpaid management fees,
advisory and administrative services. In addition, certain
receivables and payables arise when the Company pays an invoice on behalf of a
related party and vice versa. Receivables and payables are generally
settled quarterly in arrears.
During
the year ended December 31, 2009, Faraway Maritime Shipping Company which is 60%
owned by us and 40% owned by China Petroleum Corporation, or CPC, paid dividends
totalling $3.4 million of which 60% was paid to CPC.
In June
2009, the Company entered into an $80 million revolving credit facility with
World Shipholding, to provide short-term bridge financing. The facility accrues
fixed interest at a rate per annum of 8% together with a commitment fee of 0.75%
of any undrawn portion of the credit facility. The revolving credit facility is
available for a period of two years. All amounts due under the facility must be
repaid within two years from the date of the first draw down. The Company drew
down an initial amount of $20 million on June 30, 2009 and a further $10 million
during the quarter to September 30, 2009. $20 million was repaid in November
2009. The facility is currently unsecured. However, in order to draw down
amounts in excess of $35 million the Company will be required to provide
security to the satisfaction of World Shipholding. This is envisaged to take the
form of a second priority lien over cash generating assets
C. Interests
of Experts and Counsel
Not Applicable
ITEM
8. FINANCIAL INFORMATION
A.
Consolidated Financial Statements and Other Financial Information
See Item 18
Legal
Proceedings
There are
no legal proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on us, our financial condition,
profitability, liquidity or our results of operations. From time to
time in the future we or our subsidiaries may be subject to various legal
proceedings and claims in the ordinary course of business.
Dividend
Distribution Policy
Our
long-term objective is to pay a regular dividend in support of our main
objective to maximise returns to shareholders. The level of our
dividends will be guided by current earnings, market prospects, capital
expenditure requirements and investment opportunities.
In
February 2009, our board of directors suspended the declaration and payment of
dividends to stockholders to increase cash flow and strengthen the balance sheet
for near-term project opportunities.
Our Board
has declared two quarterly dividends in 2010 in respect of the third and fourth
quarter of 2009. These dividends comprised the distribution of one Golar LNG
Energy Limited share for every seven Golar LNG Limited shares held. The monetary
equivalent of the first dividend was $0.25 and of the second was
$0.23.
Any
future dividends declared will be at the discretion of the board of directors
and will depend upon our financial condition, earnings and other
factors. Our ability to declare dividends is also regulated by
Bermuda law, which prohibits us from paying dividends if, at the time of
distribution, we will not be able to pay our liabilities as they fall due or the
value of our assets is less than the sum of our liabilities, issued share
capital and share premium.
In addition, since we are a holding
company with no material assets other than the shares of our subsidiaries
through which we conduct our operations, our ability to pay dividends will
depend on our subsidiaries' distributing to us their earnings and cash
flow. Some of our loan agreements limit or prohibit our and our
subsidiaries' ability to make distributions to us without the consent of our
lenders.
In 2008,
the Board declared four quarterly dividends in the aggregate amount of $1.00 per
share on our common stock in February, May, August and
November. Aggregate payments were $67.4 million for dividends
declared in 2008.
Commencing
in 2007, the Board declared three quarterly dividends and an extraordinary
dividend in the aggregate of $2.25 per share on its common stock in February,
May, June and August. Aggregate payments were $145.8 million for
dividends declared in 2007.
B.
Significant Changes
None
ITEM
9. THE OFFER AND LISTING
A. Listing
Details and Markets
Our common shares have traded on the
Oslo Stock Exchange (OSE) since July 12, 2001 under the symbol "GOL" and on the
Nasdaq National Market since December 12, 2002 under the symbol
"GLNG."
The following table sets forth, for the
five most recent fiscal years from January 1, 2005 and for the period ended
March 31, 2010, the high and low prices for the common shares on the Oslo Stock
Exchange and the Nasdaq National Market.
|
OSE
|
|
NASDAQ
|
|
High
|
Low
|
|
High
|
Low
|
|
|
|
|
|
|
Three
months ended March 31, 2010
|
|
|
|
|
|
First
Quarter
|
NOK75.75
|
NOK63.00
|
|
$13.40
|
$10.60
|
|
|
|
|
|
|
Fiscal
years ended December 31
|
|
|
|
|
|
2009
|
NOK77.75
|
NOK23.00
|
|
$13.90
|
$2.63
|
2008
|
NOK123.00
|
NOK29.00
|
|
$22.79
|
$3.96
|
2007
|
NOK154.50
|
NOK76.25
|
|
$27.70
|
$12.00
|
2006
|
NOK102.00
|
NOK71.00
|
|
$15.29
|
$12.00
|
2005
|
NOK98.50
|
NOK66.00
|
|
$15.75
|
$10.31
|
The
following table sets forth, for each full financial quarter for the two most
recent fiscal years from January 1, 2008, the high and low prices of the common
shares on the Oslo Stock Exchange and the Nasdaq National Market.
|
OSE
|
|
NASDAQ
|
|
High
|
Low
|
|
High
|
Low
|
Fiscal
year ended December 31, 2009
|
|
|
|
|
|
First
quarter
|
NOK58.00
|
NOK18.80
|
|
$8.35
|
$2.63
|
Second
quarter
|
NOK57.00
|
NOK23.00
|
|
$8.82
|
$3.02
|
Third
quarter
|
NOK67.00
|
NOK48.10
|
|
$11.45
|
$7.52
|
Fourth
quarter
|
NOK77.75
|
NOK62.00
|
|
$13.90
|
$10.59
|
|
OSE
|
|
NASDAQ
|
|
High
|
Low
|
|
High
|
Low
|
Fiscal
year ended December 31, 2008
|
|
|
|
|
|
First
quarter
|
NOK123.00
|
NOK84.50
|
|
$22.79
|
$16.79
|
Second
quarter
|
NOK110.00
|
NOK78.00
|
|
$22.00
|
$15.26
|
Third
quarter
|
NOK102.00
|
NOK68.00
|
|
$18.60
|
$11.50
|
Fourth
quarter
|
NOK76.00
|
NOK29.00
|
|
$13.04
|
$3.96
|
The following table sets forth, for the
most recent three months, the high and low prices for our common shares on the
OSE and the Nasdaq National Market.
|
OSE
|
|
NASDAQ
|
|
High
|
Low
|
|
High
|
Low
|
|
|
|
|
|
|
March
2010
|
NOK75.00
|
NOK67.75
|
|
$12.85
|
$11.35
|
February
2010
|
NOK71.75
|
NOK63.00
|
|
$12.12
|
$10.60
|
January
2010
|
NOK75.75
|
NOK68.50
|
|
$13.40
|
$11.60
|
On March
31, 2010, the exchange rate between the Norwegian Kroner and the U.S. Dollar was
NOK5.98 to one U.S. Dollar.
ITEM
10. ADDITIONAL INFORMATION
This
section summarizes our share capital and the material provisions of our
Memorandum of Association and Bye-Laws, including rights of holders of our
shares. The description is only a summary and does not describe
everything that our Articles of Association and Bye-Laws contain. The
Memorandum of Association and the Bye-Laws of the Company have previously been
filed as Exhibits 1.1 and 1.2, respectively to the Company's Registration
Statement on Form 20-F, (File No. 000-50113) filed with the Commission on
November 27, 2002, and are hereby incorporated by reference into this Annual
Report.
At the
2007 Annual General Meeting of the Company, our shareholders voted to amend the
Company's Bye-laws to ensure conformity with recent revisions to the Bermuda
Companies Act 1981, as amended. These amended Bye-laws of the Company
as adopted on September 28, 2007, were filed as Exhibit 1.2 to the Company's
Annual Report on Form 20-F for the year ended December 31, 2007, (File No.
001-50113) filed with the Commission on May 12, 2008, and is hereby incorporated
by reference into this Annual Report.
A. Share
capital
Not
Applicable
B.
Memorandum of Association and Bye-laws
Our Memorandum of Association and
Bye-laws. The object of our business, as stated in Section Six
of our Memorandum of Association, is to engage in any lawful act or activity for
which companies may be organized under The Companies Act, 1981 of Bermuda, or
the Companies Act, other than to issue insurance or re-insurance, to act as a
technical advisor to any other enterprise or business or to carry on the
business of a mutual fund. Our Memorandum of Association and Bye-laws do not
impose any limitations on the ownership rights of our shareholders.
Under our
Bye-laws, annual shareholder meetings will be held in accordance with the
Companies Act at a time and place selected by our board of
directors. The quorum at any annual or general meeting is equal to
one or more shareholders, either present in person or represented by proxy,
holding in the aggregate shares carrying 33 1/3% of the exercisable voting
rights. The meetings may be held at any place, in or outside of
Bermuda that is not a jurisdiction which applies a controlled foreign company
tax legislation or similar regime. Special meetings may be called at
the discretion of the board of directors and at the request of shareholders
holding at least one-tenth of all outstanding shares entitled to vote at a
meeting. Annual shareholder meetings and special meetings must be
called by not less than seven days' prior written notice specifying the place,
day and time of the meeting. The board of directors may fix any date
as the record date for determining those shareholders eligible to receive notice
of and to vote at the meeting.
Directors. Our
directors are elected by a majority of the votes cast by the shareholders in the
annual general meeting. The quorum necessary for the transaction of
the business of the board of directors may be fixed by the board but unless so
fixed, equals those individuals constituting a majority of the board of
directors who are present in person or by proxy. Executive directors
serve at the discretion of the board of directors.
The
minimum number of directors comprising the board of directors at any time shall
be two. The board of directors currently consists of five
directors. The minimum and maximum number of directors comprising the
board from time to time shall be determined by way of an ordinary resolution of
the shareholders of the Company. The shareholders may, at the annual general
meeting by ordinary resolution, determine that one or more vacancies in the
board of directors be deemed casual vacancies. The board of
directors, so long as a quorum remains in office, shall have the power to fill
such casual vacancies. Each director will hold office until the next
annual general meeting or until his successor is appointed or elected. The
shareholders may call a Special General Meeting for the purpose of removing a
director, provided notice is served upon the concerned director 14 days prior to
the meeting and he is entitled to be heard. Any vacancy created by
such a removal may be filled at the meeting by the election of another person by
the shareholders or in the absence of such election, by the board of
directors.
Subject
to the provisions of the Companies Act, a director of a company may,
notwithstanding his office, be a party to or be otherwise interested in any
transaction or arrangement with that company, and may act as director, officer,
or employee of any party to a transaction in which the company is
interested. Under our Bye-Laws, provided an interested director
declares the nature of his or her interest immediately or thereafter at a
meeting of the board of directors, or by writing to the directors as required by
the Companies Act, a director shall not by reason of his office be held
accountable for any benefit derived from any outside office or
employment. The vote of an interested director, provided he or she
has complied with the provisions of the Companies Act and our Bye-Laws with
regard to disclosure of his or her interest, shall be counted for purposes of
determining the existence of a quorum.
Dividends. Holders
of common shares are entitled to receive dividend and distribution payments, pro
rata based on the number of common shares held, when, as and if declared by the
board of directors, in its sole discretion. Any future dividends
declared will be at the discretion of the board of directors and will depend
upon our financial condition, earnings and other factors.
As a
Bermuda exempted company, we are subject to Bermuda law relating to the payment
of dividends. We may not pay any dividends if, at the time the
dividend is declared or at the time the dividend is paid, there are reasonable
grounds for believing that, after giving effect to that payment;
|
·
|
we
will not be able to pay our liabilities as they fall due;
or
|
|
·
|
the
realizable value of our assets, is less than an amount that is equal to
the sum of our
|
|
(b)
|
issued
share capital, which equals the product of the par value of each common
share and the number of common shares then outstanding,
and
|
|
(c)
|
share
premium, which equals the aggregate amount of consideration paid to us for
such common shares in excess of their par
value.
|
In
addition, since we are a holding company with no material assets, and conduct
our operations through subsidiaries, our ability to pay any dividends to
shareholders will depend on our subsidiaries' distributing to us their earnings
and cash flow. Some of our loan agreements currently limit or
prohibit our subsidiaries' ability to make distributions to us and our ability
to make distributions to our shareholders.
C. Material
contracts
None
D. Exchange
Controls
None
E. Taxation
The
following discussion is based upon the provisions of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed U.S. Treasury
Department regulations (the "Treasury Regulations"), administrative rulings and
pronouncements, and judicial decisions, all as of the date of this Annual
Report.
Taxation
of Operating Income
U.S.
Taxation of our Company
Shipping
income that is attributable to transportation that begins or ends, but that does
not both begin and end, in the United States will be considered to be 50%
derived from sources within the United States. Shipping income
attributable to transportation that both begins and ends in the United States
will be considered to be 100% derived from sources within the United
States. We are not permitted by law to engage in transportation that
gives rise to 100% U.S. source income.
Shipping
income attributable to transportation exclusively between non-U.S. ports will be
considered to be 100% derived from sources outside of the United
States. Shipping income derived from sources outside of the United
States will not be subject to U.S. federal income tax.
Unless
exempt from U.S. federal income tax under section 883 of the Code, we will be
subject to U.S. federal income tax, in the manner discussed below, to the extent
our shipping income is derived from sources within the United
States.
Based
upon our current and anticipated shipping operations, our vessels are and will
be operated in various parts of the world, including to or from U.S.
ports. For the 2009, 2008 and 2007 taxable years, the U.S. source
gross income that we derived from our vessels trading to or from U.S. ports was
$5,489,000, $6,321,000 and $12,652,000 respectively, and the potential U.S.
federal income tax liability resulting from this income, in the absence of our
qualification for exemption from tax under section 883 of the Code, or an
applicable U.S. income tax treaty, as described below, would have been $219,000,
$253,000 and $506,000, respectively.
Application
of Section 883 of the Code
We have
made special U.S. federal tax elections in respect of all our vessel-owning or
vessel-operating subsidiaries incorporated in the United Kingdom that are
potentially subject to U.S. federal income tax on shipping income derived from
sources within the United States. The effect of such elections is to
disregard the subsidiaries for which such elections have been made as separate
taxable entities for U.S. federal income tax purposes.
Under
section 883 of the Code and the final regulations promulgated thereunder, we,
and each of our subsidiaries, will be exempt from U.S. taxation on our
respective U.S. source shipping income, if both of the following conditions are
met:
|
·
|
we
and each subsidiary are organized in a "qualified foreign country,"
defined as a country that grants an equivalent exemption from tax to
corporations organized in the United States in respect of the shipping
income for which exemption is being claimed under section 883 of the Code
(the "Country of Organization Requirement");
and
|
|
-
|
more
than 50% of the value of our stock is treated as owned, directly or
indirectly, by individuals who are "residents" of qualified foreign
countries (the "Ownership Requirement");
or
|
|
-
|
our
stock is "primarily and regularly traded on an established securities
market" in the United States or any qualified foreign
country (the "Publicly-Traded
Requirement").
|
The U.S.
Treasury Department has recognized (i) Bermuda, our country of incorporation,
and (ii) the countries of incorporation of each of our subsidiaries that has
earned shipping income from sources within the United States as a qualified
foreign country. Accordingly, we and each such subsidiary satisfy the
Country of Organization Requirement.
Due to
the public nature of our shareholdings, we do not believe that we will be able
to substantiate that we satisfy the Ownership Requirement. However,
as described below, we believe that we will be able to satisfy the
Publicly-Traded Requirement.
The
Treasury Regulations under section 883 of the Code provide that the stock of a
foreign corporation will be considered to be "primarily traded" on an
"established securities market" if the number of shares of each class of stock
that are traded during any taxable year on all "established securities markets"
in that country exceeds the number of shares in each such class that are traded
during that year on "established securities markets" in any other single
country. Our stock was "primarily traded" on the NASDAQ stock market ("NASDAQ"),
an "established securities market" in the United States, during
2009.
Under the
Treasury Regulations, our common stock will be considered to be "regularly
traded" on an "established securities market" if one or more classes of our
stock representing more than 50% of our outstanding shares, by total combined
voting power of all classes of stock entitled to vote and total value, is listed
on the market (the "Listing Requirement"). Since our common shares
are listed on the NASDAQ, we will satisfy the Listing Requirement.
The
Treasury Regulations further require that with respect to each class of stock
relied upon to meet the Listing Requirement: (i) such class of stock is
traded on the market, other than in minimal quantities, on at least 60 days during the taxable
year or 1/6 of the days in a short taxable year (the "Trading Frequency Test"),
and (ii) the aggregate number of shares of such class of stock traded on such
market is at least 10% of the average number of shares of such class of stock
outstanding during such year, or as appropriately adjusted in the case of a
short taxable year (the "Trading Volume Test"). We believe that our
common shares satisfied the Trading Frequency Test and the Trading Volume Test
in 2009. Even if this were not the case, the Treasury Regulations
provide that the Trading Frequency Test and the Trading Volume Test will be
deemed satisfied by a class of stock if, as we expect to be the case with our
common shares, such class of stock is traded on an "established securities
market" in the United States and such class of stock is regularly quoted by
dealers making a market in such stock.
Notwithstanding
the foregoing, the Treasury Regulations provide that our common shares will not
be considered to be "regularly traded" on an "established securities market" for
any taxable year in which 50% or more of the outstanding common shares, by vote
and value, are owned, for more than half the days of the taxable year, by
persons who each own 5% or more of the vote and value of the outstanding common
shares (the "5% Override Rule"). The 5% Override Rule will not apply,
however, if in respect of each category of shipping income for which exemption
is being claimed, we can establish that individual residents of qualified
foreign countries ("Qualified Shareholders") own sufficient common shares to
preclude non-Qualified Shareholders from owning 50% or more of the total vote
and value of our common shares for more than half the number of days during the
taxable year (the "5% Override Exception").
Based on
our public shareholdings for 2009, we were not subject to the 5% Override Rule
for 2009 in respect of all U.S. source shipping income. Therefore, we
believe that we satisfy the Publicly-Traded Requirement and we and each of our
subsidiaries are entitled to exemption from U.S. federal income tax under
section 883 of the Code in respect of our U.S. source shipping
income. To the extent that we become subject to the 5% Override Rule
in future years (as a result of changes in the ownership of our common shares),
it may be difficult for us to establish that we qualify for the 5% Override
Exception.
If we
were not eligible for the exemption under section 883 of the Code, our U.S.
source shipping income would be subject to U.S. federal income tax as described
in more detail below.
Taxation
in Absence of Section 883 of the Code
To the
extent the benefits of section 883 of the Code are unavailable with respect to
any item of U.S. source shipping income earned by us or by our subsidiaries,
such U.S. source shipping income would be subject to a 4% tax imposed by section
887 of the Code on a gross basis, without benefit of
deductions. Since under the sourcing rules described above, no more
than 50% of the shipping income earned by us or our subsidiaries would be
derived from U.S. sources, the maximum effective rate of U.S. federal income tax
on such gross shipping income would never exceed 2%. For the calendar
year 2009, we and our subsidiaries would be subject to tax under section 887 of
the Code in the aggregate amount of $219,000.
Gain
on Sale of Vessels
If we and
our subsidiaries qualify for exemption from tax under section 883 of the Code in
respect of our U.S. source shipping income, the gain on the sale of any vessel
earning such U.S. source shipping income should likewise be exempt from U.S.
federal income tax. Even if we and our subsidiaries are unable to
qualify for exemption from tax under section 883 of the Code and we or any of
our subsidiaries, as the seller of such vessel, is considered to be engaged in
the conduct of a U.S. trade or business, gain on the sale of such vessel would
not be subject to U.S. federal income tax provided the sale is considered to
occur outside of the United States under United States federal income tax
principles. In general, a sale of a vessel will be considered to
occur outside of the United States for this purpose if title to the vessel, and
risk of loss with respect to the vessel, pass to the buyer outside of the United
States. If the sale is considered to occur within the United States,
any gain on such sale may be subject to U.S. federal income tax as "effectively
connected" income at a combined rate of up to 54.5%. To the extent
circumstances permit, we intend to structure sales of our vessels in such a
manner, including effecting the sale and delivery of vessels outside of the
United States, so as to not give rise to "effectively connected"
income.
U.S.
Taxation of U.S. Holders
The term
"U.S. Holder" means a beneficial owner of our common shares that is a U.S.
citizen or resident, U.S. corporation or other U.S. entity taxable as a
corporation, an estate, the income of which is subject to U.S. federal income
tax regardless of its source, or a trust if a court within the United States is
able to exercise primary jurisdiction over the administration of the trust and
one or more U.S. persons have the authority to control all substantial decisions
of the trust, and owns our common shares as a capital asset, generally, for
investment purposes.
If a
partnership holds our common shares, the tax treatment of a partner will
generally depend upon the status of the partner and upon the activities of the
partnership. If you are a partner in a partnership holding our common
shares, you are encouraged to consult your tax advisor.
Distributions
Any
distributions made by us with respect to our common shares to a U.S. Holder will
generally constitute dividends, to the extent of our current or accumulated
earnings and profits, as determined under U.S. federal income tax
principles. We expect that dividends paid by us to a non-corporate
U.S. Holder will be eligible for preferential U.S. federal income tax rates
(through 2010) provided that the non-corporate U.S. Holder has owned the common
shares for more than 60 days in the 121-day period beginning 60 days before the
date on which our common shares becomes ex-dividend and certain other conditions
are satisfied. However, there is no assurance that any dividends paid
by us will be eligible for these preferential rates in the hands of a
non-corporate U.S. Holder. Legislation has been previously introduced
in the U.S. Congress which, if enacted in its present form, would preclude our
dividends from qualifying for such preferential rates prospectively from the
date of its enactment. Any dividends paid by us, which are not
eligible for these preferential rates will be taxed as ordinary income to a
non-corporate U.S. Holder. Because we are not a U.S. corporation,
U.S. Holders that are corporations will not be entitled to claim a
dividends-received deduction with respect to any distributions they receive from
us.
Distributions in excess of our
earnings and profits will be treated first as a non-taxable return of capital to
the extent of the U.S. Holder's tax basis in his or her common shares, and
thereafter as a taxable capital gain.
Sale,
Exchange or other Disposition of Our Common Shares
Subject
to the discussion below under "Passive Foreign Investment Company," a U.S.
Holder generally will recognize taxable gain or loss upon a sale, exchange or
other disposition of our common shares in an amount equal to the difference
between the amount realized by the U.S. Holder from such sale, exchange or other
disposition and the U.S. Holder's tax basis in the common
shares. Such gain or loss will be treated as long-term capital gain
or loss if the U.S. Holder's holding period in such common shares is greater
than one year at the time of the sale, exchange or other disposition. Otherwise,
such gain or loss will be treated as short-term capital gain or
loss. An individual U.S. Holder's ability to deduct capital losses is
subject to certain limitations.
Passive
Foreign Investment Company
Notwithstanding
the above rules regarding distributions and dispositions, special rules may
apply to U.S. Holders (or, in some cases, U.S. persons who are treated as owning
our common shares under constructive ownership rules) if we are treated as a
"passive foreign investment company" (a "PFIC") for U.S. federal income tax
purposes. We will be a PFIC if either:
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at
least 75% of our gross income in a taxable year is "passive income";
or
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at
least 50% of our assets in a taxable year (averaged over the year and
generally determined based upon value) are held for the production of, or
produce, "passive income."
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For
purposes of determining whether we are a PFIC, we will be treated as earning and
owning the income and assets, respectively, of any of our subsidiary
corporations in which we own 25% or more of the value of the subsidiary's stock,
which includes Golar Energy. To date, our subsidiaries and we have
derived most of our income from time and voyage charters, and we expect to
continue to do so. This income should be treated as services income,
which is not "passive income" for PFIC purposes. We believe there is
substantial legal authority supporting our position consisting of case law and
U.S. Internal Revenue Service (the "IRS") pronouncements concerning the
characterization of income derived from time charters and voyage charters as
services income for other tax purposes. However, there is also
authority which characterizes time charter income as rental income rather than
services income for other tax purposes.
Based on
the foregoing, we believe that we are not currently a PFIC and do not expect to
be a PFIC in the foreseeable future. However, in the absence of any
legal authority specifically relating to the Code provisions governing PFICs,
the IRS or a court could disagree with our position. In
addition, however, there can be no assurance that we will not become a PFIC
if our operations change in the future.
If we
become a PFIC (and regardless of whether we remain a PFIC), each U.S. Holder who
owns or is treated as owning our common shares during any period in which we are
so classified, would be subject to U.S. federal income tax, at the then highest
applicable income tax rates on ordinary income, plus interest, upon certain
"excess distributions" and upon disposition of our common shares including,
under certain circumstances, a disposition pursuant to an otherwise tax free
reorganization, as if the distribution or gain had been recognized ratably over
the U.S. Holder's entire holding period of our common shares. An
"excess distribution" generally includes dividends or other distributions
received from a PFIC in any taxable year of a U.S. Holder to the extent that the
amount of those distributions exceeds 125% of the average distributions made by
the PFIC during a specified base period. The tax at ordinary rates
and interest resulting from an excess distribution would not be imposed if the
U.S. Holder makes a "mark-to-market" election, as discussed below.
In some
circumstances, a shareholder in a PFIC may avoid the unfavorable consequences of
the PFIC rules by making a "qualified electing fund"
election. However, a U.S. Holder cannot make a "qualified electing
fund" election with respect to us unless such U.S. Holder complies with certain
reporting requirements. We do not intend to provide the information
necessary to meet such reporting requirements.
If we
become a PFIC and, provided that, as is currently the case, our common shares
are treated as "marketable stock," a U.S. Holder may make a "mark-to-market"
election with respect to our common shares. Under this election, any
excess of the fair market value of the common shares at the close of any tax
year over the U.S. Holder's adjusted basis in the common shares is included in
the U.S. Holder's income as ordinary income. In addition, the excess,
if any, of the U.S. Holder's adjusted basis at the close of any taxable year
over the fair market value is deductible in an amount equal to the lesser of the
amount of the excess or the net "mark-to-market" gains on the common shares that
the U.S. Holder included in income in previous years. If a U.S.
Holder makes a "mark-to-market" election after the beginning of its holding
period of our common shares, the U.S. Holder does not avoid the PFIC rules
described above with respect to the inclusion of ordinary income, and the
imposition of interest thereon, attributable to periods before the
election.
Backup
Withholding and Information Reporting
In
general, dividend payments, or other taxable distributions, made within the
United States will be subject to information reporting
requirements. Such payments will also be subject to "backup
withholding" if made to a non-corporate U.S. Holder and such U.S.
Holder:
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fails
to provide an accurate taxpayer identification
number;
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provides
us with an incorrect taxpayer identification
number;
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is
notified by the IRS that it has failed to report all interest or dividends
required to be shown on its U.S. federal income tax returns;
or
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in
certain circumstances, fails to comply with applicable certification
requirements.
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If a
shareholder sells our common shares to or through a U.S. office or broker, the
payment of the proceeds is subject to both U.S. information reporting and
"backup withholding" unless the shareholder establishes an
exemption. If the shareholder sells our common shares through a
non-U.S. office of a non-U.S. broker and the sales proceeds are paid to the
shareholder outside the United States, then information reporting and "backup
withholding" generally will not apply to that payment. However, U.S.
information reporting requirements, but not "backup withholding," will apply to
a payment of sales proceeds, including a payment made to a shareholder outside
the United States, if the shareholder sells the common shares through a non-U.S.
office of a broker that is a U.S. person or has some other contacts with the
United States.
"Backup
withholding" is not an additional tax. Rather, a taxpayer generally
may obtain a refund of any amounts withheld under "backup withholding" rules
that exceed such taxpayer's U.S. federal income tax liability by filing a refund
claim with the IRS, provided that the required information is furnished to the
IRS.
Bermuda
Taxation
Bermuda
currently imposes no tax (including a tax in the nature of an income, estate,
duty, inheritance, capital transfer or withholding tax) on profits, income,
capital gains or appreciations derived by us, or dividends or other
distributions paid by us to shareholders of our common
shares. Bermuda has undertaken not to impose any such Bermuda taxes
on shareholders of our common shares prior to the year 2016 except in so far as
such tax applies to persons ordinarily resident in Bermuda.
The
Minister of Finance in Bermuda has granted the Company a tax exempt status until
March 28, 2016, under which no income taxes or other taxes (other than duty on
goods imported into Bermuda and payroll tax in respect of any Bermuda-resident
employees) are payable by the Company in Bermuda. If the Minister of Finance in
Bermuda does not grant a new exemption or extend the current tax exemption, and
if the Bermudian Parliament passes legislation imposing taxes on exempted
companies, the Company may become subject to taxation in Bermuda after March
2016.
Liberian
Taxation
The
Republic of Liberia enacted a new income tax act effective as of January 1, 2001
(the "New Act"). In contrast to the income tax law previously in
effect since 1977 (the "Prior Law"), which the New Act repealed in its entirety,
the New Act does not distinguish between the taxation of a non-resident Liberian
corporation, such as our Liberian subsidiaries, which conduct no business in
Liberia and were wholly exempted from tax under the Prior Law, and the taxation
of ordinary resident Liberian corporations.
In 2004,
the Liberian Ministry of Finance issued regulations pursuant to which a
non-resident Liberian corporation engaged in international shipping, such as our
Liberian subsidiaries, will not be subject to tax under the New Act retroactive
to January 1, 2001 (the "New Regulations"). In addition, the Liberian
Ministry of Justice issued an opinion that the New Regulations were a valid
exercise of the regulatory authority of the Ministry of
Finance. Therefore, assuming that the New Regulations are valid, our
Liberian subsidiaries will be wholly exempt from Liberian income tax as under
the Prior Law.
If our
Liberian subsidiaries were subject to Liberian income tax under the New Act,
such subsidiaries would be subject to tax at a rate of 35% on their worldwide
income. As a result, their, and subsequently our, net income and cash
flow would be materially reduced by the amount of the applicable
tax. In addition, we, as shareholder of the Liberian subsidiaries,
would be subject to Liberian withholding tax on dividends paid by such
subsidiaries at rates ranging from 15% to 20%.
F. Dividends
and Paying Agents
Not
Applicable
G. Statements by
Experts
Not Applicable
H. Documents
on display
Our
Registration Statement became effective on November 29, 2002, and we are now
subject to the informational requirements of the Securities Exchange Act of
1934, as amended. In accordance with these requirements we will file reports and
other information with the SEC. These materials, including this
document and the accompanying exhibits, may be inspected and copied at the
public reference facilities maintained by the Commission at 100 Fifth Street,
N.E., Room 1580, Washington, D.C. 20549. You may obtain information
on the operation of the public reference room by calling 1 (800) SEC-0330, and
you may obtain copies at prescribed rates from the Public Reference Section of
the Commission at its principal office in Washington, D.C. 20549. The
SEC maintains a website (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC.
I.
Subsidiary Information
Not
Applicable
ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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We are
exposed to various market risks, including interest rate and foreign currency
exchange risks. We enter into a variety of derivative instruments and
contracts to maintain the desired level of exposure arising from these
risks.
Our
policy is to hedge our exposure to risks, where possible, within boundaries
deemed appropriate by management.
A
discussion of our accounting policies for derivative financial instruments is
included in Note 2 to
our Consolidated Financial Statements. Further information on our
exposure to market risk is included in Note 27 to the Consolidated
Financial Statements.
The
following analyses provide quantitative information regarding our exposure to
foreign currency exchange rate risk and interest rate risk. There are
certain shortcomings inherent in the sensitivity analyses presented, primarily
due to the assumption that exchange rates change in a parallel fashion and that
interest rates change instantaneously.
Interest rate
risk. A significant portion of our long-term debt and capital
lease obligations is subject to adverse movements in interest
rates. Our interest rate risk management policy permits economic
hedge relationships in order to reduce the risk associated with adverse
fluctuations in interest rates. We use interest rate swaps and fixed
rate debt to manage the exposure to adverse movements in interest
rates. Interest rate swaps are used to convert floating rate debt
obligations to a fixed rate in order to achieve an overall desired position of
fixed and floating rate debt. Credit exposures are monitored on a
counterparty basis, with all new transactions subject to senior management
approval.
As of
December 31, 2009, the notional amount of the interest rate swaps outstanding in
respect of our debt and net capital lease obligation was $643.4 million (2008:
$795.4 million). The principal of the loans and net capital lease
obligations (net of restricted cash) outstanding as of December 31, 2009 was
$1,011.6 million (2008: $1,010.7 million). Based on our floating rate
debt at December 31, 2009, a one-percentage point increase in the floating
interest rate would increase interest expense by $5.8 million per
annum. For disclosure of the fair value of the derivatives and debt
obligations outstanding as of December 31, 2009, see Note 27 to the Consolidated
Financial Statements.
Foreign currency
risk. Except in the course of our vessel leases and FSRU
conversions, the majority of our transactions, assets and liabilities are
denominated in U.S. Dollars, our functional currency. Periodically,
we may be exposed to foreign currency exchange fluctuations as a result of
expenses paid by certain subsidiaries in currencies other than U.S. Dollars,
such as GBPs, in relation to our administrative office in the UK and operating
expenses incurred in a variety of foreign currencies and Brazilian Reals in
respect of our Brazilian subsidiary which receives income and pays expenses in
Brazil Reals. Based on our ongoing GBP expenses for 2009, a 10%
depreciation of the U.S. Dollar against GBP would increase our expenses by
approximately $1.3 million.
We
are exposed to some extent in respect of the lease transactions we entered into
during the year ended December 31, 2003, which are denominated in GBP, although
these are hedged by the GBP cash deposits that secure these
obligations. We use cash from the deposits to make payments in
respect of our leases. Gains or losses that we incur are unrealized
unless we choose or are required to withdraw monies from or pay additional
monies into the deposits securing our capital lease
obligations. Among other things, movements in interest rates give
rise to a requirement for us to make adjustments to the amount of GBP cash
deposits. Based on these lease obligations and related cash deposits
as at December 31, 2009, a 10% appreciation in the U.S. Dollar against GBP would
give rise to an increase in our financial expenses of approximately $0.1
million.
In April
2004, we entered into a lease arrangement in respect of the Golar Winter (as noted
above), the obligation in respect of which is also denominated in
GBP. However, the cash deposit, which secures the letter of credit,
which is used to secure the lease obligation, is significantly less than the
lease obligation itself. We refer to this as a "funded" lease. We are
therefore exposed to currency movements on the difference between the lease
obligation and the cash deposit, approximately $130.4 million as at December 31,
2009 (2008:$105.6 million). In order to hedge this exposure we
entered into a currency swap with a bank, which is also our lessor, to exchange
our GBP payment obligations into U.S. Dollar payment obligations. We
could be exposed to a currency fluctuation risk if we terminated this
lease.
We are
exposed to some extent in respect of FSRU conversion projects we are
undertaking. The costs of these conversions are mainly denominated in
Euros, Singapore Dollars and Norwegian Kroners. In order to limit our
exposure to foreign currency fluctuations, we have entered into foreign currency
forward contracts. As of December 31, 2009, we have fixed the
exchange rate of approximately 47% of the expected total foreign currency
denominated cost of our conversion projects. A 10% depreciation of
the U.S. Dollar against the currencies we have not hedged would increase our
remaining expected conversion cost by approximately $0.4 million.
The base
currency of the majority of our seafaring officers was changed in 2008 from U.S.
Dollars to Euros. Based on the expected crew costs for 2010, a 10%
depreciation of the U.S. Dollar against Euro would increase our crew cost by
approximately $1.4 million.
ITEM 12. DESCRIPTION OF
SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt securities
Not
Applicable
B. Warrants and
rights
Not
Applicable
C. Other securities
Not
Applicable
D. American depository
shares
Not
Applicable
ITEM
13. DIVIDEND ARREARAGES AND DELINQUENCIES
None
ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
HOLDERS AND USE OF PROCEEDS
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None
ITEM
15. CONTROLS AND PROCEDURES
(a) Disclosure
Controls and Procedures
Management
assessed the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities
Exchange Act of 1934, as of the end of the period covered by this annual report
as of December 31, 2009. Based upon that evaluation, the Principal
Executive Officer and Principal Financial Officer concluded that the Company's
disclosure controls and procedures are effective as of the evaluation
date.
(b) Management's annual report on
internal controls over financial reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) promulgated under
the Securities Exchange Act of 1934.
Internal
control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a process designed by,
or under the supervision of, the Company's principal executive and principal
financial officers and effected by the Company's board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that;
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Pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
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Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of Company's management and
directors; and
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Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have
a material effect on the financial
statements.
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Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree or
compliance with the policies or procedures may deteriorate.
Management
conducted the evaluation of the effectiveness of the internal controls over
financial reporting using the control criteria framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) published in its
report entitled Internal Control-Integrated Framework.
Our
management with the participation of our Principal Executive Officer and
Principal Financial Officer assessed the effectiveness of the design and
operation of the Company's internal controls over financial reporting pursuant
to Rule 13a-15 of the Securities Exchange Act of 1934, as of December 31,
2009. Based upon that evaluation, the Principal Executive Officer and
Principal Financial Officer concluded that the Company's internal controls over
financial reporting are effective as of December 31, 2009.
The
Company's independent registered public accounting firm has issued an
attestation report on the Company's internal control over financial
reporting.
(c) Attestation
report of the registered public accounting firm
The
effectiveness of the Company's internal control over financial reporting as of
December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report which appears on
page F-2 of the consolidated financial statements.
(d) Changes
in internal control over financial reporting
There
were no changes in our internal controls over financial reporting that occurred
during the period covered by this annual report that have materially affected,
or are reasonably likely to materially affect, the Company's internal control
over financial reporting.
Inherent
Limitations on Effectiveness of Controls
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree or
compliance with the policies or procedures may deteriorate.
Our
management, including our Chief Executive Officer and our Chief Financial
Officer, does not expect that our disclosure controls or our internal control
over financial reporting will prevent or detect all errors and all
fraud. A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the control system's
objectives will be met. Our disclosure controls and procedures are
designed to provide reasonable assurance of achieving their
objectives. The design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur because
of simple error or mistake. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of
controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Projections
of any evaluation of controls effectiveness to future periods are subject to
risks. Over time, controls may become inadequate because of changes
in conditions or deterioration in the degree of compliance with policies or
procedures.
ITEM
16 A. AUDIT COMMITTEE FINANCIAL EXPERT
The Board
has determined that Kate Blankenship, a director, qualifies as an audit
committee financial expert and is independent, in accordance with SEC Rule 10a-3
pursuant to Section 10A of the Exchange Act.
ITEM
16 B. CODE OF ETHICS
The
Company has adopted a Code of Ethics, filed as Exhibit 11.1 to this Annual
Report that applies to all employees. Furthermore, a copy of our Code
of Ethics can be found on our website (www.golarlng.com).
ITEM
16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit
Fees
The
following table sets forth, for the two most recent fiscal years, the aggregate
fees billed for professional services rendered by the principal accountant for
the audit of the Company's annual financial statements and services provided by
the principal accountant in connection with statutory and regulatory filings or
engagements for the two most recent fiscal years.
Fiscal
year ended December 31,
2009 $955,221
Fiscal
year ended December 31,
2008 $794,211
(b) Audit
–Related Fees
The
following table sets forth, for the two most recent fiscal years, the aggregate
fees billed for professional services in respect of assurance and related
services rendered by the principal accountant related to the performance of the
audit or review of the Company's financial statements which have not been
reported under Audit Fees above. These services comprise assurance work in
connection with financing and other agreements.
Fiscal
year ended December 31,
2009 $0
Fiscal
year ended December 31,
2008 $0
(c) Tax
Fees
The
following table sets forth, for the two most recent fiscal years, the aggregate
fees billed for professional services rendered by the principal accountant for
tax compliance, tax advice and tax planning.
Fiscal
year ended December 31,
2009 $11,955
Fiscal
year ended December 31,
2008 $0
(d) All
Other Fees
The
following table sets forth, for the two most recent fiscal years, the aggregate
fees billed for professional services rendered by the principal accountant for
other services.
Fiscal
year ended December 31,
2009 $446,998
Fiscal
year ended December 31,
2008 $1,714,000
(e) Audit
Committee's Pre-Approval Policies and Procedures
The
Company's board of directors has adopted pre-approval policies and procedures in
compliance with paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X that require
the Board to approve the appointment of the independent auditor of the Company
before such auditor is engaged and approve each of the audit and non-audit
related services to be provided by such auditor under such engagement by the
Company. All services provided by the principal auditor in 2008 were
approved by the Board pursuant to the pre-approval policy.
ITEM
16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES
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Not
Applicable
ITEM
16 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
In November 2007, we announced that
the board of directors had authorized the repurchase of up to 1,000,000 of our
common stock in the open market. During the period from November 2007
to December 2007, we repurchased 400,000 shares with a total value of
$8,202,000. For the year ended December 31, 2008, we did not acquire
any further shares under the plan, but we made piecemeal disposals of an
aggregate of 50,000 shares upon exercise of share options, bringing our total
holding of treasury shares to 350,000 as at December 31,
2008. Accordingly, the remaining shares that may be repurchased under
the plan is 600,000.
In June
2008, we entered into a new equity swap line with a bank, for an original term
of six months, whereby the bank may acquire up to a maximum of 1.0 million
shares in Golar during the accumulation period, and the Company carries the risk
of fluctuations in the share price of those acquired shares. The bank
is compensated at their cost of funding plus a margin. As of December
31, 2008, the bank had acquired 300,000 Golar shares under the program at an
average price of $19.52. The equity swap terminated in January 2009,
resulting in a realized gain of $0.2 million. Since then we have entered into
additional equity swap arrangements with the same counterparty under similar
terms for a maximum of 300,000 shares. The equity swap expired in
November 2009 resulting in a realized gain of approximately USD1.7 million after
taking into account financing costs. As of March 31, 2010 no further
shares were purchased under the scheme.
ITEM
16 F. CHANGE IN REGISTRANT'S CERTIFYING
ACCOUNTANT
|
ITEM
16 G. CORPORATE GOVERNANCE
|
As a
foreign private issuer, the Company is exempt from many of the Nasdaq corporate
governance requirements. In accordance with the Nasdaq rules, the
practices followed by the Company in lieu of these requirements are described
below:
Independence of
directors. Consistent with Bermuda law, we are exempt from Nasdaq's
requirement to maintain three independent directors. We currently
have three members of the board of directors, Frixos Savvides, Kate Blankenship
and Hans Petter Aas, who are independent according to Nasdaq's standards for
independence.
Audit
Committee. Consistent with Bermuda law, we are exempt from certain Nasdaq
requirements regarding our audit committee. The Company's management
is responsible for the proper and timely preparation of the Company's annual
reports, which are audited by independent auditors.
Compensation
Committee. In lieu of a compensation committee comprised of independent
directors, the full board of directors determines compensation.
Nomination
Committee. In lieu of a nomination committee comprised of independent
directors, the full board of directors regulates nominations.
Share
Issuance. In lieu of obtaining shareholder approval prior to the issuance
of designated securities, consistent with Bermuda law, the Company's board of
directors approves share issuances.
ITEM
17. FINANCIAL STATEMENTS
Not
Applicable.
ITEM
18. FINANCIAL STATEMENTS
We
specifically incorporate by reference in response to this item the report of the
independent registered public accounting firm, the Consolidated Financial
Statements and the notes to the Consolidated Financial Statements appearing on
pages F-1 through F-50.
ITEM
19. EXHIBITS
The
following exhibits are filed as part of this Annual report:
Number
|
Description
of Exhibit
|
1.1*
|
Memorandum
of Association of Golar LNG Limited as adopted on May 9, 2001,
incorporated by reference to Exhibit 1.1 of the Company's Registration
Statement on Form 20-F, filed with the SEC on November 27, 2002, File No.
00050113, or the Original Registration Statement.
|
1.2*
|
Amended
Bye-Laws of Golar LNG Limited dated September 28, 2007, incorporated by
reference to Exhibit 1.2 of the Company's Annual report on Form 20-F for
fiscal year ended December 31, 2007.
|
1.3*
|
Certificate
of Incorporation as adopted on May 11, 2001, incorporated by reference to
Exhibit 1.3 of the Company's Original Registration Statement.
|
1.4*
|
Articles
of Amendment of Memorandum of Association of Golar LNG Limited as adopted
by our shareholders on June 1, 2001 (increasing the Company's authorized
capital), incorporated by reference to Exhibit 1.4 of the Company's
Original Registration Statement.
|
4.1*
|
Golar
LNG Limited Stock Option Plan, incorporated by reference to Exhibit 4.6 of
the Company's Original Registration Statement.
|
4.2*
|
Management
Agreement between Golar LNG Limited and Frontline Management (Bermuda)
Limited, dated February 21, 2002, incorporated by reference to Exhibit 4.8
of the Company's Original Registration Statement.
|
4.3*
|
Five
Ship Leases Agreement, between Golar Gas Holding Company, Inc. and
Sovereign Finance Plc, dated April 8, 2003, incorporated by reference to
Exhibit 4.5 of the Company's Annual report on Form 20-F for fiscal year
ended December 31, 2005.
|
4.4*
|
Loan
Agreement, between Golar Gas Holding Company, Inc. and Citibank N.A,
Nordea Bank Norge ASA, Den norske Bank ASA and Fortis Bank (Nederland)
N.V, dated March 21, 2005, incorporated by reference to Exhibit 4.6 of the
Company's Annual Report on Form 20-F for the fiscal year ended December
31, 2005.
|
4.5
|
Bermuda
Tax Assurance, dated May 22, 2001.
|
|
|
8.1
|
Golar
LNG Limited subsidiaries
|
11.1*
|
Golar
LNG Limited Code of Ethics.
|
12.1
|
Certification
of the Principal Executive Officer under Section 302 of the Sarbanes-Oxley
Act of 2002.
|
12.2
|
Certification
of the Principal Financial Officer under Section 302 of the Sarbanes-Oxley
Act of 2002.
|
13.1
|
Certification
under Section 906 of the Sarbanes-Oxley act of 2002 of the Principal
Executive Officer.
|
13.2
|
Certification
under Section 906 of the Sarbanes-Oxley act of 2002 of the Principal
Financial Officer.
|
15.1*
|
Korea
Line Corporation financial statements for the year ended December 31, 2006
provided pursuant to Regulation S-X, Rule 3-09 incorporated by reference
to exhibit 15.1 of the Company's Annual Report on Form 20-F for the fiscal
year ended December 31, 2006.
|
*
Incorporated herein by reference.
GOLAR
LNG LIMITED
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Audited
Consolidated Statements of Operations for the years ended December 31,
2009, 2008 and 2007
|
F-4
|
Audited
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2009, 2008 and 2007
|
F-5
|
Audited
Consolidated Balance Sheets as of December 31, 2009 and
2008
|
F-6
|
Audited
Consolidated Statements of Cash Flows for the years ended December 31,
2009, 2008 and 2007
|
F-7
|
Audited
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 2009, 2008 and 2007
|
F-9
|
Notes
to Consolidated Financial Statements
|
F-10
|
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and
shareholders of Golar LNGLimited
In our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and comprehensive
income and cash flows present fairly, in all material respects, the financial
position of Golar LNG Ltd and its subsidiaries at December 31, 2009 and
December 31, 2008, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of America. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on
criteria established in
Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). The Company's
management is responsible for these financial statements, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included under
Item 15 of the Form 20-F. Our responsibility is to express opinions on
these financial statements, and on the Company's internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Report
of Independent Registered Public Accounting Firm (Continued)
As
discussed in Note 2 to the consolidated financial statements, the Company
changed the manner in which it accounts for non-controlling interests in
2009.
/s /
PricewaterhouseCoopers LLP
West
London, United Kingdom
April 29,
2010
Golar
LNG Limited
Consolidated
Statements of Operations for the years ended December 31, 2009, 2008 and
2007
(in
thousands of $, except per share data)
|
|
Note
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Operating
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
charter revenues
|
|
|
|
|
|
216,495 |
|
|
|
228,779 |
|
|
|
224,674 |
|
Total
operating revenues
|
|
|
|
|
|
216,495 |
|
|
|
228,779 |
|
|
|
224,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of vessel/newbuilding
|
|
|
15 |
|
|
|
- |
|
|
|
78,108 |
|
|
|
41,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vessel
operating expenses
|
|
|
|
|
|
|
60,709 |
|
|
|
61,868 |
|
|
|
52,986 |
|
Voyage
and charter-hire expenses
|
|
|
|
|
|
|
39,463 |
|
|
|
33,126 |
|
|
|
10,763 |
|
Administrative
expenses
|
|
|
|
|
|
|
19,958 |
|
|
|
17,815 |
|
|
|
18,645 |
|
Depreciation
and amortization
|
|
|
|
|
|
|
63,482 |
|
|
|
62,005 |
|
|
|
60,163 |
|
(Loss)
on sale of long-lived asset
|
|
|
|
|
|
|
- |
|
|
|
(430 |
) |
|
|
- |
|
Impairment
of long-lived assets
|
|
|
6 |
|
|
|
1,500 |
|
|
|
110 |
|
|
|
2,345 |
|
Total
operating expenses
|
|
|
|
|
|
|
185,112 |
|
|
|
174,494 |
|
|
|
144,902 |
|
Operating
income
|
|
|
|
|
|
|
31,383 |
|
|
|
132,393 |
|
|
|
120,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of available-for-sale securities
|
|
|
11 |
|
|
|
- |
|
|
|
- |
|
|
|
46,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
|
11,710 |
|
|
|
45,828 |
|
|
|
54,906 |
|
Interest
expense
|
|
|
|
|
|
|
(57,874 |
) |
|
|
(96,489 |
) |
|
|
(112,336 |
) |
Other
financial items, net
|
|
|
7 |
|
|
|
44,472 |
|
|
|
(82,100 |
) |
|
|
(8,162 |
) |
Net
financial expenses
|
|
|
|
|
|
|
(1,692 |
) |
|
|
(132,761 |
) |
|
|
(65,592 |
) |
Income
(loss) before equity in net earnings of investees, income taxes and
noncontrolling interest
|
|
|
|
|
|
|
29,691 |
|
|
|
(368 |
) |
|
|
101,544 |
|
Income
taxes
|
|
|
8 |
|
|
|
(1,643 |
) |
|
|
(510 |
) |
|
|
299 |
|
Equity
in net earnings of investees
|
|
|
11 |
|
|
|
(4,902 |
) |
|
|
(2,406 |
) |
|
|
13,640 |
|
Gain
on sale of investee
|
|
|
11 |
|
|
|
8,355 |
|
|
|
- |
|
|
|
27,268 |
|
Net
income (loss)
|
|
|
|
|
|
|
31,501 |
|
|
|
(3,284 |
) |
|
|
142,751 |
|
Net
loss attributable to noncontrolling interest
|
|
|
|
|
|
|
(8,419 |
) |
|
|
(6,705 |
) |
|
|
(6,547 |
) |
Net
income (loss) attributable to Golar LNG Ltd
|
|
|
|
23,082 |
|
|
|
(9,989 |
) |
|
|
136,204 |
|
Earnings
per share attributable to Golar LNG Ltd stockholders:
Per
common share amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
earnings - Basic
|
|
|
9 |
|
|
$ |
0.34 |
|
|
$ |
(0.15 |
) |
|
$ |
2.09 |
|
(Loss)
earnings - Diluted
|
|
|
9 |
|
|
$ |
0.34 |
|
|
$ |
(0.15 |
) |
|
$ |
2.07 |
|
Cash
dividends declared and paid
|
|
|
|
|
|
|
- |
|
|
$ |
1.00 |
|
|
$ |
2.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Golar
LNG Limited
Consolidated
Statements of Comprehensive Income for the years ended December 31, 2009, 2008,
and 2007
(in
thousands of $)
|
|
Note
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to Golar LNG Limited
|
|
|
|
|
|
23,082 |
|
|
|
(9,989 |
) |
|
|
136,204 |
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Losses)
gains associated with pensions
|
|
|
22 |
|
|
|
(3,455 |
) |
|
|
(1,821 |
) |
|
|
1,562 |
|
Unrealized
gains (losses) on marketable securities held by the
Company and investee
|
|
|
7 |
|
|
|
9,942 |
|
|
|
(399 |
) |
|
|
13 |
|
Other-than-temporary
impairment of available-for-sale securities reclassified to the income
statement
|
|
|
7 |
|
|
|
- |
|
|
|
399 |
|
|
|
- |
|
Unrealized
net gain (loss) on qualifying cash flow hedging
instruments
|
|
|
27 |
|
|
|
11,615 |
|
|
|
(25,916 |
) |
|
|
- |
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
18,102 |
|
|
|
(27,737 |
) |
|
|
1,575 |
|
Comprehensive
income (loss)
|
|
|
|
|
|
|
41,184 |
|
|
|
(37,726 |
) |
|
|
137,779 |
|
Comprehensive
income (loss) attributable to:
Stockholders
of Golar LNG Limited
|
|
|
38,902 |
|
|
|
(33,870 |
) |
|
|
137,779 |
|
Non-controlling
interest
|
|
|
2,282 |
|
|
|
(3,856 |
) |
|
|
- |
|
|
|
|
41,184 |
|
|
|
(37,726 |
) |
|
|
137,779 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Golar
LNG Limited
Consolidated
Balance Sheets as of December 31, 2009 and 2008
(in
thousands of $)
|
|
Note
|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
122,231 |
|
|
|
56,114 |
|
Restricted
cash and short-term investments
|
|
|
18 |
|
|
|
40,651 |
|
|
|
60,352 |
|
Trade
accounts receivable
|
|
|
13 |
|
|
|
5,879 |
|
|
|
11,352 |
|
Other
receivables, prepaid expenses and accrued income
|
|
|
14 |
|
|
|
5,690 |
|
|
|
11,666 |
|
Amounts
due from related parties
|
|
|
|
|
|
|
795 |
|
|
|
538 |
|
Inventories
|
|
|
|
|
|
|
6,882 |
|
|
|
4,748 |
|
Total
current assets
|
|
|
|
|
|
|
182,128 |
|
|
|
144,770 |
|
Long-term
assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
18 |
|
|
|
594,154 |
|
|
|
557,052 |
|
Equity
in net assets of non-consolidated investees
|
|
|
11 |
|
|
|
21,243 |
|
|
|
30,924 |
|
Vessels
and equipment, net
|
|
|
15 |
|
|
|
653,496 |
|
|
|
668,141 |
|
Vessels
under capital leases, net
|
|
|
16 |
|
|
|
992,563 |
|
|
|
893,172 |
|
Deferred
charges
|
|
|
17 |
|
|
|
8,979 |
|
|
|
10,292 |
|
Other
non-current assets
|
|
|
19 |
|
|
|
39,873 |
|
|
|
55,378 |
|
Total
assets
|
|
|
|
|
|
|
2,492,436 |
|
|
|
2,359,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
|
23 |
|
|
|
74,504 |
|
|
|
71,395 |
|
Current
portion of obligations under capital leases
|
|
|
24 |
|
|
|
8,588 |
|
|
|
6,006 |
|
Trade
accounts payable
|
|
|
|
|
|
|
23,529 |
|
|
|
21,454 |
|
Accrued
expenses
|
|
|
20 |
|
|
|
22,257 |
|
|
|
25,929 |
|
Amounts
due to related parties
|
|
|
|
|
|
|
298 |
|
|
|
140 |
|
Other
current liabilities
|
|
|
21 |
|
|
|
76,586 |
|
|
|
142,105 |
|
Total
current liabilities
|
|
|
|
|
|
|
205,762 |
|
|
|
267,029 |
|
Long-term
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
Obligations
under capital leases
|
|
|
23
24 |
|
|
|
707,722
844,355 |
|
|
|
737,226
784,421 |
|
Other
long-term liabilities
|
|
|
25 |
|
|
|
76,413 |
|
|
|
77,220 |
|
Total
liabilities
|
|
|
|
|
|
|
1,834,252 |
|
|
|
1,865,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
capital 67,576,866 common shares of $1.00 each issued and
outstanding
|
|
|
26 |
|
|
|
67,577 |
|
|
|
67,577 |
|
Treasury
shares
|
|
|
26 |
|
|
|
(6,841 |
) |
|
|
(6,834 |
) |
Additional
paid-in capital
|
|
|
|
|
|
|
96,518 |
|
|
|
291,952 |
|
Contributed
surplus
|
|
|
|
|
|
|
200,000 |
|
|
|
- |
|
Accumulated
other comprehensive loss
|
|
|
|
|
|
|
(18,819 |
) |
|
|
(34,639 |
) |
Retained
earnings
|
|
|
|
|
|
|
157,076 |
|
|
|
134,089 |
|
Total
stockholders' equity
|
|
|
|
|
|
|
495,511 |
|
|
|
452,145 |
|
Noncontrolling
interest
|
|
|
|
|
|
|
162,673 |
|
|
|
41,688 |
|
Total
equity
|
|
|
|
|
|
|
658,184 |
|
|
|
493,833 |
|
Total
liabilities and equity
|
|
|
|
|
|
|
2,492,436 |
|
|
|
2,359,729 |
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Golar
LNG Limited
Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007
(in
thousands of $)
|
Note
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
|
|
31,501 |
|
|
|
(3,284 |
) |
|
|
142,751 |
|
Adjustments
to reconcile net income (loss) to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
63,483 |
|
|
|
62,005 |
|
|
|
60,163 |
|
Amortization
of deferred charges
|
|
|
|
1,280 |
|
|
|
2,773 |
|
|
|
1,072 |
|
Undistributed
earnings of non-consolidated investees
|
|
|
|
4,559 |
|
|
|
2,406 |
|
|
|
(12,422 |
) |
Gain
on sale of available-for-sale securities
|
|
|
|
- |
|
|
|
- |
|
|
|
(46,276 |
) |
Gain
on sale of vessel and newbuilding and long-lived
assets
|
|
|
- |
|
|
|
(78,108 |
) |
|
|
(41,088 |
) |
Gain
on sale of long-lived assets
|
|
|
|
- |
|
|
|
(430 |
) |
|
|
- |
|
Gain/loss
on sale of investee
|
|
|
|
(8,355 |
) |
|
|
- |
|
|
|
(27,268 |
) |
Gain/loss
on termination of equity swap
|
|
|
|
(15,904 |
) |
|
|
(832 |
) |
|
|
(7,438 |
) |
Compensation
cost related to stock options
|
|
|
|
1,689 |
|
|
|
3,092 |
|
|
|
5,962 |
|
Unrealized
foreign exchange (gains) losses
|
|
|
|
12,955 |
|
|
|
(42,767 |
) |
|
|
2,309 |
|
Fixed-rate
debt settlement costs
|
|
|
|
- |
|
|
|
8,998 |
|
|
|
- |
|
Drydocking
expenditure
|
|
|
|
(9,807 |
) |
|
|
(19,598 |
) |
|
|
(14,694 |
) |
Impairment
of long-lived assets
|
|
|
|
(1,500 |
) |
|
|
110 |
|
|
|
(2,345 |
) |
Other
than temporary impairment of available-for-sale securities
|
|
|
- |
|
|
|
1,871 |
|
|
|
- |
|
Trade
accounts receivable
|
|
|
|
5,473 |
|
|
|
2,133 |
|
|
|
(7,194 |
) |
Inventories
|
|
|
|
(2,238 |
) |
|
|
(725 |
) |
|
|
(857 |
) |
Prepaid
expenses, accrued income and other assets
|
|
|
|
7,145 |
|
|
|
4,715 |
|
|
|
8,636 |
|
Amount
due from/to related companies
|
|
|
|
(99 |
) |
|
|
138 |
|
|
|
(11 |
) |
Trade
accounts payable
|
|
|
|
2,075 |
|
|
|
12,778 |
|
|
|
(1,130 |
) |
Accrued
expenses
|
|
|
|
(3,671 |
) |
|
|
(2,158 |
) |
|
|
(2,504 |
) |
Interest
element included in long-term lease obligations
|
|
|
|
1,182 |
|
|
|
1,908 |
|
|
|
3,163 |
|
Other
current liabilities
|
|
|
|
(46,005 |
) |
|
|
93,470 |
|
|
|
12,226 |
|
Net
cash provided by operating activities
|
|
|
|
43,763 |
|
|
|
48,495 |
|
|
|
73,055 |
|
Investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
to newbuildings
|
|
|
|
- |
|
|
|
- |
|
|
|
(1,103 |
) |
Additions
to vessels and equipment
|
|
|
|
(112,945 |
)
|
|
|
(322,183 |
)
|
|
|
(47,041 |
)
|
Long-term
restricted cash
|
|
|
|
18,168 |
|
|
|
42,352 |
|
|
|
211 |
|
Investment
in associated companies
|
|
|
|
(85 |
) |
|
|
(25,970 |
) |
|
|
- |
|
Investment
in available-for-sale securities
|
|
|
|
- |
|
|
|
(2,372 |
) |
|
|
- |
|
Proceeds
from disposal of long-lived assets
|
|
|
|
- |
|
|
|
233,244 |
|
|
|
92,618 |
|
Proceeds
from sale of investments in available-for-sale securities
|
|
|
|
- |
|
|
|
165 |
|
|
|
93,688 |
|
Proceeds
from sale of investments in investees
|
|
|
|
11,010 |
|
|
|
- |
|
|
|
77,907 |
|
Settlement
on termination of equity swaps
|
|
|
|
7,691 |
|
|
|
(538 |
) |
|
|
7,974 |
|
Restricted
cash and short-term investments
|
|
|
|
19,701 |
|
|
|
(8,246 |
) |
|
|
181 |
|
Net
cash (used in) provided by investing activities
|
|
|
|
(56,460 |
) |
|
|
(83,548 |
) |
|
|
224,435 |
|
Golar
LNG Limited
Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007
(Continued)
(in
thousands of $)
|
|
Note
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from long-term debt
|
|
|
24 |
|
|
|
44,999 |
|
|
|
370,000 |
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments
of long-term capital lease obligations
|
|
|
25 |
|
|
|
(6,883 |
) |
|
|
(5,497 |
) |
|
|
(4,770 |
) |
Repayments
of long-term debt
|
|
|
24 |
|
|
|
(71,396 |
) |
|
|
(377,044 |
) |
|
|
(180,693 |
) |
Financing
costs paid
|
|
|
|
|
|
|
- |
|
|
|
(13,600 |
) |
|
|
(168 |
) |
Cash
dividends paid
|
|
|
|
|
|
|
- |
|
|
|
(67,438 |
) |
|
|
(145,772 |
) |
Dividends
paid to noncontrolling partner
|
|
|
28 |
|
|
|
(1,360 |
) |
|
|
(2,000 |
) |
|
|
(2,000 |
) |
Payments
to repurchase treasury shares
|
|
|
|
|
|
|
(3,912 |
) |
|
|
- |
|
|
|
(31,024 |
) |
Proceeds
from disposal of treasury shares on exercise of stock options (including
receipt of dividends)
|
|
|
|
|
|
|
1,974 |
|
|
|
1,007 |
|
|
|
- |
|
Proceeds
from issuance of equity on exercise of stock
options
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
715 |
|
Proceeds
from issuance of equity
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
75,345 |
|
Proceeds
from issuance of equity in subsidiaries to noncontrolling
interest (1)
|
|
|
|
|
|
|
115,392 |
|
|
|
|
|
|
|
|
|
Net
cash provided (used in) by financing activities
|
|
|
|
|
|
|
78,814 |
|
|
|
(94,572 |
) |
|
|
(168,367 |
) |
Net increase
(decrease) in cash and cash equivalents
|
|
|
|
|
|
|
66,117 |
|
|
|
(129,625 |
) |
|
|
129,123 |
|
Cash
and cash equivalents at beginning of period
|
|
|
|
|
|
|
56,114 |
|
|
|
185,739 |
|
|
|
56,616 |
|
Cash
and cash equivalents at end of period
|
|
|
|
|
|
|
122,231 |
|
|
|
56,114 |
|
|
|
185,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid, net of capitalized interest
|
|
|
|
|
|
|
51,145 |
|
|
|
62,768 |
|
|
|
68,306 |
|
Income
taxes paid
|
|
|
|
|
|
|
950 |
|
|
|
575 |
|
|
|
1,030 |
|
Footnote:
(1)
|
Following
the successful completion of the Private Placement Offering in August
2009, Golar Energy received total cash proceeds of USD 115.4 million, net
of fees and offering expenses, from the issuance and sale of 59,843,000
shares to the private institutional investors, at a subscription price of
USD 2 per share. This included USD 9.7 million of cash proceeds relating
to 4,843,000 additional shares issued under the "Green Shoe"
option.
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Golar
LNG Limited
Consolidated
Statements of Changes in Stockholders' Equity for the years ended
December
31, 2009, 2008 and 2007
(in
thousands of $)
|
|
Share
Capital
|
|
|
Treasury
Shares
|
|
|
Additional
Paid in Capital
|
|
|
Contributed
Surplus
|
|
|
Accumulated
Other Comprehen-sive Loss
|
|
|
Accumul-ated
Earnings
|
|
|
Non-controlling
Interest
|
|
|
Total
Stockholders' Equity
|
|
Balance
at December 31, 2006
|
|
|
65,562 |
|
|
|
- |
|
|
|
214,011 |
|
|
|
- |
|
|
|
(8,477 |
) |
|
|
235,948 |
|
|
|
32,436 |
|
|
|
539,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
136,204 |
|
|
|
6,547 |
|
|
|
142,751 |
|
Cash
dividends
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(145,772 |
) |
|
|
- |
|
|
|
(145,772 |
) |
Grant
of share options
|
|
|
- |
|
|
|
- |
|
|
|
6,838 |
|
|
|
- |
|
|
|
- |
|
|
|
176 |
|
|
|
- |
|
|
|
7,014 |
|
Exercise
of share options
|
|
|
56 |
|
|
|
- |
|
|
|
377 |
|
|
|
- |
|
|
|
- |
|
|
|
282 |
|
|
|
- |
|
|
|
715 |
|
Equity
in gain on disposal of treasury shares by investee
|
|
|
- |
|
|
|
- |
|
|
|
856 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
856 |
|
Gain
on issuance of shares by investees
|
|
|
- |
|
|
|
- |
|
|
|
574 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
574 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,575 |
|
|
|
- |
|
|
|
- |
|
|
|
1,575 |
|
Share
issue
|
|
|
3,200 |
|
|
|
- |
|
|
|
72,146 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
75,346 |
|
Non-controlling
interest capital distribution
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,000 |
) |
|
|
(2,000 |
) |
Repurchase
and cancellation of ordinary shares
|
|
|
(1,241 |
) |
|
|
- |
|
|
|
(6,130 |
) |
|
|
- |
|
|
|
- |
|
|
|
(15,452 |
) |
|
|
- |
|
|
|
(22,823 |
) |
Purchase
of treasury shares
|
|
|
- |
|
|
|
(8,201 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
67,577 |
|
|
|
(8,201 |
) |
|
|
288,672 |
|
|
|
- |
|
|
|
(6,902 |
) |
|
|
211,386 |
|
|
|
36,983 |
|
|
|
589,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9,989 |
) |
|
|
6,705 |
|
|
|
(3,284 |
) |
Cash
dividends
|
|
|
- |
|
|
|
348 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(67,438 |
) |
|
|
- |
|
|
|
(67,090 |
) |
Grant
of share options
|
|
|
- |
|
|
|
- |
|
|
|
3,092 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,092 |
|
Disposal
of treasury shares on exercise of share options
|
|
|
- |
|
|
|
1,019 |
|
|
|
(479 |
) |
|
|
- |
|
|
|
- |
|
|
|
130 |
|
|
|
- |
|
|
|
670 |
|
Gain
on issuance of shares by investees
|
|
|
- |
|
|
|
- |
|
|
|
667 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
667 |
|
Non-controlling
interest capital contribution
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,856 |
|
|
|
1,856 |
|
Other
comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(27,737 |
) |
|
|
- |
|
|
|
(3,856 |
) |
|
|
(31,593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
67,577 |
|
|
|
(6,834 |
) |
|
|
291,952 |
|
|
|
- |
|
|
|
(34,639 |
) |
|
|
134,089 |
|
|
|
41,688 |
|
|
|
493,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
23,082 |
|
|
|
8,419 |
|
|
|
31,501 |
|
Grant
of share options
|
|
|
- |
|
|
|
- |
|
|
|
1,689 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,689 |
|
Share
options cancelled
|
|
|
- |
|
|
|
- |
|
|
|
(181 |
) |
|
|
- |
|
|
|
- |
|
|
|
181 |
|
|
|
- |
|
|
|
- |
|
Exercise
of share options
|
|
|
- |
|
|
|
- |
|
|
|
(1,655 |
) |
|
|
- |
|
|
|
- |
|
|
|
985 |
|
|
|
- |
|
|
|
(670 |
) |
Disposal
of treasury shares
|
|
|
- |
|
|
|
(7 |
) |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
(1,261 |
) |
|
|
- |
|
|
|
(1,268 |
) |
Gain
on issuance of shares by investees
|
|
|
- |
|
|
|
- |
|
|
|
965 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
965 |
|
Non-controlling
interest's purchase price paid in excess of net assets acquired from
parent
|
|
|
- |
|
|
|
- |
|
|
|
3,748 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,748 |
|
Transfer
to contributed surplus(1)
|
|
|
- |
|
|
|
- |
|
|
|
(200,000 |
) |
|
|
200,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Non-controlling
interest capital contribution
|
|
|
-
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
110,284 |
|
|
|
110,284 |
|
Other
comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15,820 |
|
|
|
- |
|
|
|
2,282 |
|
|
|
18,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2009
|
|
|
67,577 |
|
|
|
(6,841 |
) |
|
|
96,518 |
|
|
|
200,000 |
|
|
|
(18,819 |
) |
|
|
157,076 |
|
|
|
162,673 |
|
|
|
658,184 |
|
Footnote:
|
(1)
|
Contributed
Surplus is 'capital' that can be returned to shareholders without the need
to reduce share capital. This change took place in the third quarter of
2009 thereby giving Golar LNG greater flexibility when it comes to
declaring dividends.
|
The accompanying notes are an integral
part of these consolidated financial statements.
Golar
LNG Limited
Notes
to Consolidated Financial Statements
Golar LNG
Limited (the "Company" or "Golar") was incorporated in Hamilton, Bermuda on May
10, 2001 for the purpose of acquiring the liquefied natural gas ("LNG") shipping
interests of Osprey Maritime Limited ("Osprey"), which was owned
by World Shipholding Limited, a company indirectly controlled by Trusts
established by John Fredriksen for the benefit of his immediate family.
Mr. Fredriksen is a Director, the Chairman and President of Golar. As of
December 31, 2009, World Shipholding Limited owned 46.18% (2008: 46.17%) of
Golar.
As of
December 31, 2009, the Company operated a fleet of twelve LNG carriers and
floating storage regasification units ("FSRUs"), six of which are currently
employed under long-term charter contracts. As of April 2010, the
Company leased in eight of its vessels under long-term lease agreements, owned
three vessels including a 60% ownership interest in one other vessel, the Golar Mazo, and chartered-in
one vessel under a short-term charter. The Company also has a 50%
equity interest in a thirteenth vessel.
In
connection with a corporate restructuring of Golar and a private placement
offering in 2009, Golar LNG Energy Limited ("Golar Energy") was incorporated in
June 2009, under the laws of Bermuda. As part of this reorganisation, Golar
established Golar Energy as a wholly-owned subsidiary, and transferred interests
in eight liquefied natural gas ("LNG") vessels, a 50% equity interest in another
LNG carrier, the
Gandria and certain other investments. Golar Energy is a publicly listed
Bermudan company, specializing in the acquisition, ownership, operation and
chartering of LNG carriers and floating storage regasification units ("FSRUs")
and the development of liquefaction projects.
Through
the reorganisation on August 12, 2009, Golar retained the assets with long-term
secured employment and steady cash flow. Golar will thereby have the
potential to offer its shareholders a yield reflecting its contracts and cash
flow. Golar Energy acquired assets with significantly less contract exposure
than the assets being retained by Golar.
Further
detail of the corporate restructuring and private placement offering are
provided below:
·
|
Golar
transferred to Golar Energy capital stock in its wholly owned subsidiaries
and other equity interests in investments, in exchange for 168.5 million
new common shares in the Company at a subscription price of $2 per share,
giving rise to consideration of $337 million and deferred consideration
("seller's credit") in respect of the Golar
Freeze.
|
·
|
Immediately
subsequent to the corporate restructuring described above, Golar Energy
issued 59.8 million new common shares to private institutional investors
at a subscription price of $2 per share as part of the private placement
resulting in aggregate gross proceeds to Golar Energy of $119.7
million. This includes $9.7 million of proceeds relating to the
4.8 million additional shares issued under the "Green Shoe" option which
were exercised in September 2009 in connection with the private
placement.
|
·
|
In
connection with the private placement 12 million warrants were also issued
by Golar Energy to private investors. Each warrant gives the holder the
right to subscribe for one new share in Golar Energy at a subscription
price of $2 per share. The warrants can only be exercised on December 15,
2010.
|
Golar
Energy's ordinary shares are listed on the Oslo Stock Exchange.
2. ACCOUNTING
POLICIES
Basis
of accounting
The
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America. Investments in
companies in which the Company directly or indirectly holds more than 50% of the
voting control are consolidated in the financial statements, as well as certain
variable interest entities in which the Company is deemed to be subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns, or both. All
inter-company balances and transactions are eliminated. The non-controlling
interests of the above mentioned subsidiaries are included in the Consolidated
Balance Sheets and Statements of Operations as "Non-controlling
interests".
On
January 1, 2009, the Company adopted a newly issued accounting standard for its
non-controlling interests. In accordance with the accounting standard, the
Company changed the accounting and reporting for its minority interests by
recharacterising them as non-controlling interests and classifying them as a
component of equity in its consolidated Balance Sheet. The newly issued
accounting standard requires enhanced disclosures to clearly distinguish between
the Company's interests and the interests of non-controlling owners. At December
31, 2009 the Company's primary non-controlling interests relate to Golar LNG
Energy Limited and Faraway Maritime Shipping Corporation of which it has a
controlling interest of 73.8% and 60% respectively. The presentation and
disclosure requirements of the newly issued accounting standard were applied
retrospectively and only change the presentation of non-controlling interests
and its inclusion in equity. There was no significant impact on the Company's
ability to comply with the financial covenants contained in its debt covenant
agreements.
A
variable interest entity is defined by the accounting standard as a legal entity
where either (a) equity interest holders as a group lack the characteristics of
a controlling financial interest, including decision making ability and an
interest in the entity's residual risks and rewards, or (b) the equity holders
have not provided sufficient equity investment to permit the entity to finance
its activities without additional subordinated financial support, or (c) the
voting rights of some investors are not proportional to their obligations to
absorb the expected losses of the entity, their rights to receive the expected
residual returns of the entity, or both and substantially all of the entity's
activities either involve or are conducted on behalf of an investor that has
disproportionately few voting rights.
The
guidance further states a variable interest entity to be consolidated if any of
its interest holders are entitled to a majority of the entity's residual returns
or are exposed to a majority of its expected losses. See note 23,
describing the arrangements under the Gracilis Loan facility and note 24 in
respect of the Five Ships Leases.
Investments
in companies over which the Company exercises significant influence but, does
not consolidate are accounted for using the equity method. The
Company records its investments in equity-method investees on the consolidated
balance sheets as "Equity in net assets of non-consolidated investees" and its
share of the investees' earnings or losses in the Consolidated Statements of
Operations as "Equity in net earnings of investees." The difference,
if any, between the purchase price and the book value of the Company's
investments in equity method investees is included in the accompanying
Consolidated Balance Sheets in "Equity in net assets of non-consolidated
investees."
Investments
in which the Company has a majority interest but in which it does not control,
due to the participating rights of noncontrolling interests, are accounted for
using the equity method.
Revenue and expense
recognition
Revenues
include minimum lease payments under time charters, fees for repositioning
vessels as well as the reimbursement of certain vessel operating and drydocking
costs.
Revenues
generated from time charters, which are classified as operating leases by the
Company, are recorded over the term of the charter as service is
provided.
Reimbursement
for drydocking costs is recognized evenly over the period to the next
drydocking, which is generally between two to five
years. Repositioning fees (which are included in time charter
revenue) received in respect of time charters are recognized at the end of the
charter when the fee becomes fixed and determinable. However, where
there is a fixed amount specified in the charter, which is not dependent upon
redelivery location, the fee will be recognized evenly over the term of the
charter. Where a vessel undertakes multiple single voyage time
charters, revenue is recognized, including the repositioning fee if fixed and
determinable, on a discharge-to-discharge basis. Under this basis,
revenue is recognized evenly over the period from departure of the vessel from
its last discharge port to departure from the next discharge
port. For arrangements where operating costs are borne by the
charterer on a pass through basis, the pass through of operating costs is
reflected in revenue and expenses.
Under
time charters, voyage expenses are paid by the Company's
customers. Voyage related expenses, principally fuel, may also be
incurred when positioning or repositioning the vessel before or after the period
of time charter and during periods when the vessel is not under charter or is
offhire, for example when the vessel is undergoing repairs. These
expenses are recognized as incurred.
Revenue
includes amounts receivable from loss of hire insurance, which is recognized on
an accrual basis, to the value of $nil, $0.7 million and $nil for the years
ended December 31, 2009, 2008 and 2007, respectively.
Vessel
operating expenses, which are recognized when incurred, include crewing, repairs
and maintenance, insurance, stores, lube oils, communication expenses and third
party management fees.
Gain
on sale of vessels/ newbuildings
Gain on sale of vessels or newbuildings
is recognized when all risks have been transferred and are determined by
comparing proceeds received with the carrying value of the vessel or
newbuilding.
Cash
and cash equivalents
The
Company considers all demand and time deposits and highly liquid investments
with original maturities of three months or less to be equivalent to
cash.
Restricted
cash and short-term investments
Restricted
cash and short-term investments consist of bank deposits, which may only be used
to settle certain pre-arranged loan or lease payments and deposits made in
accordance with its contractual arrangements under Equity Swap Line
facilities. The Company considers all short-term investments as held
to maturity in accordance with guidance Accounting for Certain Investments in
Debt and Equity Securities. These investments are carried at
amortized cost. The Company places its short-term investments
primarily in fixed term deposits with high credit quality financial
institutions.
Inventories
Inventories,
which are comprised principally of fuel, lubricating oils and ship spares, are
stated at the lower of cost or market value. Cost is determined on a
first-in, first-out basis.
Vessels
and equipment
Vessels
and equipment are stated at cost less accumulated depreciation. The
cost of vessels and equipment less the estimated residual value is depreciated
on a straight-line basis over the assets' remaining useful economic
lives. Residuals values are provided by third party independent
valuers and are adjusted downwards if required.
Refurbishment
costs incurred during the period are capitalized as part of vessels and
equipment and depreciated over the vessels' remaining useful economic
lives. Refurbishment costs are costs that appreciably increase the
capacity, or improve the efficiency or safety of vessels and equipment.
Drydocking expenditures are capitalized when incurred and amortized over the
period until the next anticipated drydocking, which is generally between two and
five years. For vessels that are newly built or acquired, the Company
has adopted the "built-in overhaul" method of accounting. The
built-in overhaul method is based on the segregation of vessel costs into those
that should be depreciated over the useful life of the vessel and those that
require drydocking at periodic intervals to reflect the different useful lives
of the components of the assets. The estimated cost of the drydocking
component is amortized until the date of the first drydocking following
acquisition, upon which the cost is capitalized and the process is
repeated.
Useful
lives applied in depreciation are as follows:
Vessels 40
years
Deferred
drydocking
expenditure two
to five years
Office
equipment and
fittings three
to six years
Interest
costs capitalized in connection with the conversion of vessels into LNG Floating
Storage Regasification Units ("FSRUs") for the years ended December 31, 2009,
2008 and 2007 were $1.3 million, $1.7 million and $0.5 million,
respectively.
Vessels
under capital lease
The
Company leases certain vessels under agreements that have been accounted for as
capital leases in accordance with the guidance Accounting for Leases.
Obligations under capital leases are carried at the present value of future
minimum lease payments, and the asset balance is amortized on a straight-line
basis over the remaining economic useful lives of the
vessels. Interest expense is calculated at a constant rate over
the term of the lease.
Deferred
credit from capital leases
In
accordance with the guidance, Accounting for Sales with Leasebacks, income
derived from the sale of subsequently leased assets is deferred and amortized in
proportion to the amortization of the leased assets (See note
25). Amortization of deferred income is offset against depreciation
and amortization expense in the Consolidated Statement of
Operations.
Impairment
of long-lived assets
In
accordance with the guidance, Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company continually monitors events and changes in
circumstances that could indicate carrying amounts of long-lived asset may not
be recoverable. When `such events or changes in circumstances are
present, the Company assesses the recoverability of long-lived assets by
determining whether the carrying value of such assets will be recovered through
undiscounted expected future cash flows. If the total of the future
cash flows is less than the carrying amount of those assets, the Company
recognizes an impairment loss based on the excess of the carrying amount over
the fair value of the assets.
The
Company assessed the potential impairment of its vessels and other long-lived
assets by comparing the expected undiscounted cash flows of its long-lived
assets to their respective carrying values. The Company concluded
there was no impairment of its long-lived assets as of the fourth quarter
2009. The outlook for the world economy is currently uncertain and
therefore it is possible that the Company's business prospects could decline
over the next year. This could represent a triggering event for a
further assessment of the carrying value of the Company's long-lived assets and
may lead to a write-down of these assets. In respect of parts ordered for the
FSRU conversion project that were deemed not necessary for the completion, the
Company incurred impairment charges.
Deferred
charges
Costs
associated with long-term financing, including debt arrangement fees, are
deferred and amortized over the term of the relevant
loan. Amortization of deferred loan costs is included in "Other
financial items, net" in the Consolidated Statement of Operations. If
a loan is repaid early, any unamortized portion of the related deferred charges
is charged against income in the period in which the loan is
repaid.
Marketable
securities
In
accordance with the guidance Accounting for Certain Investments in Debt and
Equity,
the Company's investments in marketable securities in which the Company
does not have the ability to exercise significant influence over the investee
are classified as available-for-sale securities and are carried at fair
value. Net unrealized gains or losses on available-for-sale
securities are reported as a component of accumulated other comprehensive
income. Realized gains and losses on available-for-sale securities are computed
based upon the historical cost of these securities applied using the
weighted-average historical cost method.
The
Company analyzes its available-for-sale securities for impairment during each
reporting period to evaluate whether an event or change of circumstances has
occurred in that period that may have a significant adverse effect on the fair
value of the investment. The Company records an impairment charge
through current-period earnings and adjusts the cost basis for such
other-than-temporary declines in fair value when the fair value is not
anticipated to recover above cost within a reasonable period after the
measurement date, unless there are mitigating factors that indicate that an
impairment charge through earnings may not be required. If an
impairment charge is recorded, subsequent recoveries in fair value are not
reflected in earnings until sale of the security. The Company records
these investments within "Other non-current assets" in the Consolidated Balance
Sheet.
Unlisted
investments
Unlisted
investments in which the Company holds less than a 20% interest and in which it
does not have the ability to exercise significant influence over the investee
are initially recorded at cost and reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company records these investments within "Other
non-current assets" in the Consolidated Balance Sheet.
Derivatives
The
Company uses derivatives to reduce market risks associated with its
operations. The Company uses interest rate swaps for the management
of interest rate risk exposure. The interest rate swaps effectively
convert a portion of the Company's debt from a floating to a fixed rate over the
life of the transactions without an exchange of underlying
principal.
The
Company seeks to reduce its exposure to fluctuations in foreign exchange rates
through the use of foreign currency forward contracts.
From time
to time the Company enters into equity swaps. Under these facilities
the Company swaps with its counterparty (usually a major bank) the risk of
fluctuations in the Company's share price and the benefit of any dividends, for
a fixed payment of LIBOR plus margin. The counterparty may acquire
shares in the Company to hedge its own position. However, there is no
obligation by the Company to purchase any shares from the
counterparty. In addition the Company may also enter into equity swap
arrangements indexed to other companies.
All
derivative instruments are initially recorded at cost as either assets or
liabilities in the accompanying Consolidated Balance Sheet and subsequently
remeasured to fair value, regardless of the purpose or intent for holding the
derivative. Where the fair value of a derivative instrument is
a net liability, the derivative instrument is classified in "Other current
liabilities" in the Consolidated Balance Sheet. Where the fair value
of a derivative instrument is a net asset, the derivative instrument is
classified in "Other non-current assets" in the Consolidated Balance Sheet,
except if the current portion is a liability, in which case the current portion
is included in "Other current liabilities." The method of recognizing
the resulting gain or loss is dependent on whether the derivative contract is
designed to hedge a specific risk and also qualifies for hedge
accounting. Effective October 1, 2008, the Company commenced hedge
accounting for certain of its interest rate swap arrangements designated as cash
flow hedges in accordance with the guidance on Accounting for Derivatives and
Hedging Activities. For derivative instruments that are not
designated or do not qualify as hedges under the guidance, the changes in fair
value of the derivative financial instrument are recognized in earnings and
recorded each period in current earnings in "Other financial items,
net".
When a
derivative is designated as a cash flow hedge, the Company formally documents
the relationship between the derivative and the hedged item. This
documentation includes the strategy risk and risk management for undertaking the
hedge and the method that will be used to assess effectiveness of the
hedge. If the derivative is an effective hedge changes in the fair
value are initially recorded as a component of accumulated other comprehensive
income in stockholders' equity. The ineffective portion of the hedge
is recognized immediately in earnings, as are any gains or losses on the
derivative that are excluded from the assessment of hedge
effectiveness. The Company does not apply hedge accounting if it is
determined that the hedge was not effective or will no longer be effective, the
derivative was sold or exercised, or the hedged item was sold or
repaid.
In the
periods when the hedged items affect earnings, the associated fair value changes
on the hedged derivatives are transferred from stockholders' equity to the
corresponding earnings line item on the settlement of a
derivative. The ineffective portion of the change in fair value of
the derivative financial instrument is immediately recognized in
earnings. If a cash flow hedge is terminated and the originally
hedged item is still considered probable of occurring, the gains and losses
initially recognized in stockholders' equity remain there until the hedged item
impacts earnings at which point they are transferred to the corresponding
earnings line item (i.e. interest expense). If the hedged items are
no longer probable of occurring, amounts recognized in stockholders' equity are
immediately reclassified to earnings.
Cash
flows from derivative instruments that are accounted for as cash flow hedges are
classified in the same category as the cash flows from the items being
hedged.
Foreign
currencies
The
Company's and its subsidiaries' functional currency is the U.S. dollar as all
revenues are received in U.S. dollars and a majority of the Company's
expenditures are made in U.S. dollars. The Company's reporting
currency is U.S. dollars.
Transactions
in foreign currencies during the year are translated into U.S. dollars at the
rates of exchange in effect at the date of the transaction. Foreign
currency monetary assets and liabilities are translated using rates of exchange
at the balance sheet date. Foreign currency non-monetary assets and
liabilities are translated using historical rates of
exchange. Foreign currency transaction and translation gains or
losses are included in the Consolidated Statements of Operations.
Fair
Value measurements
The
Company accounts for Fair Value Measurements in accordance with the FASB
guidance using fair value to measure assets and liabilities. The guidance
provides a single definition of fair value, together with a framework for
measuring it, and requires additional disclosure about the use of fair value to
measure assets and liabilities.
Stock-based
compensation
In
accordance with the guidance on Share Based Payment the Company is required to
expense the fair value of stock options issued to employees over the period the
options vest. The Company amortizes stock-based compensation for
awards on a straight-line basis over the period during which the employee is
required to provide service in exchange for the award - the requisite service
(vesting) period. No compensation cost is recognized for stock
options for which employees do not render the requisite service. The
fair value of employee share options is estimated using the Black-Scholes
option-pricing model.
Earnings
per share
In
accordance with the guidance relevant for "Earnings per Share", basic earnings
per share ("EPS") is computed based on the income available to common
stockholders and the weighted average number of shares outstanding for basic
EPS. Treasury shares are not included in the
calculation. Diluted EPS includes the effect of the assumed
conversion of potentially dilutive instruments. Such potentially
dilutive common shares are excluded when the effect would be to increase
earnings per share or reduce a loss per share.
Pensions
Defined
benefit pension costs, assets and liabilities are recognized in accordance with
the guidance on Accounting for Defined Benefit Pension and Other Postretirement
Plans, which requires adjustment of the significant actuarial assumptions
annually to reflect current market and economic conditions. The
guidance states that full recognition of the funded status of defined benefit
pension plans to be included within a Company's balance sheet. The pension
benefit obligation is calculated by using a projected unit credit
method.
Defined
contribution pension costs represent the contributions payable to the scheme in
respect of the accounting period.
Operating
leases
In
accordance with the guidance on operating leases, initial direct costs (those
directly related to the negotiation and consummation of the lease) are deferred
and allocated to earnings over the lease term. Rental income
and expense are amortized over the lease term on a straight-line
basis.
Income
taxes
Income
taxes are based on a separate return basis. The guidance on income
taxes prescribes a recognition threshold and measurement attributes for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. On adoption of this guidance
there was no change to the Company's financial position.
Deferred
tax assets and liabilities are recognized principally for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Realization of the deferred income tax asset is dependent
on generating sufficient taxable income in future years.
Comprehensive
Income
The
Company follows the relevant guidance in Reporting Comprehensive Income and its
components in the Consolidated Financial Statements.
As at
December 31, 2009 and 2008, the Company's accumulated other comprehensive loss,
net of tax consisted of the following components:
(in
thousands of $)
|
2009
|
2008
|
Unrealized
net loss on qualifying cash flow hedging instruments
|
11,615
|
(25,916)
|
(Losses)
gains associated with pensions
Unrealised
gains on marketable securities
|
(12,178)
9,942
|
(8,723)
-
|
|
(18,819)
|
(34,639)
|
Gain
on issuance of shares by investees
The
Company recognizes a gain or loss when an equity method investee issues its
stock to third parties at a price per share in excess or below its carrying
value resulting in a reduction in the Company's ownership interest in the
investee. The gain or loss is recorded in the line "Additional
paid-in capital."
Treasury
shares
Treasury
shares are recognized as a separate component of equity at cost. Upon
subsequent disposal of treasury shares, any consideration is recognized directly
in equity.
Use
of estimates
The
preparation of financial statements in accordance with U.S. GAAP requires that
management make estimates and assumptions affecting the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
3. SUBSIDIARIES
AND INVESTMENTS
The
following table lists the Company's principal subsidiaries and their purpose as
at December 31, 2009. Unless otherwise indicated, we own a controlling interest
in each of the following subsidiaries.
Name
|
Jurisdiction
of
Incorporation
|
Purpose
|
Golar
Gas Holding Company Inc.
|
Marshall
Islands
|
Holding
Company and leases four vessels
|
Golar
Maritime (Asia) Inc.
|
Republic
of Liberia
|
Holding
Company
|
Gotaas-Larsen
Shipping Corporation
|
Marshall
Islands
|
Holding
Company
|
Oxbow
Holdings Inc.
|
British
Virgin Islands
|
Holding
Company
|
Faraway
Maritime Shipping Company
|
Republic
of Liberia
|
Owns
Golar
Mazo
|
Golar
LNG 1444 Corporation
|
Republic
of Liberia
|
Previously
owned the Golar
Frost
|
Golar
LNG 1460 Corporation
|
Marshall
Islands
|
Owns
Gracilis
|
Golar
LNG 2215 Corporation
|
Marshall
Islands
|
Leases
Methane
Princess
|
Golar
LNG 2216 Corporation
|
Marshall
Islands
|
Owns
Golar
Arctic
|
Golar
LNG 2220 Corporation
|
Marshall
Islands
|
Leases
Golar
Winter
|
Golar
LNG 2226 Corporation
|
Marshall
Islands
|
Leases
Grandis
|
Golar
LNG 2234 Corporation
|
Republic
of Liberia
|
Owns
Granosa
|
Golar
International Ltd.
|
Republic
of Liberia
|
Vessel
management
|
Gotaas-Larsen
International Ltd.
|
Republic
of Liberia
|
Vessel
management
|
Golar
Maritime Limited
|
Bermuda
|
Management
|
Golar
Management Limited
|
United
Kingdom
|
Management
|
Golar
Freeze (UK) Limited
|
United
Kingdom
|
Operates
Golar
Freeze
|
Golar
Khannur (UK) Limited
|
United
Kingdom
|
Operates
Khannur
|
Golar
Gimi (UK) Limited
|
United
Kingdom
|
Operates
Gimi
|
Golar
Hilli (UK) Limited
|
United
Kingdom
|
Operates
Hilli
|
Golar
Spirit (UK) Limited
|
United
Kingdom
|
Operates
and leases Golar
Spirit
|
Golar
Winter (UK) Limited
|
United
Kingdom
|
Operates
Golar
Winter
|
Golar
2215 (UK) Limited
|
United
Kingdom
|
Operates Methane
Princess
|
Golar
2226 (UK) Limited
|
United
Kingdom
|
Operates
Grandis
|
Golar
Servicos de Operacao de Embaracaoes Limited
|
Brazil
|
Management
company
|
Golar
Trading Corporation
|
Marshall
Islands
|
Charters-in
vessels under operating leases
|
Golar
FSRU 1 Corporation
|
Marshall
Islands
|
Contracted
for the conversion of the Golar Spirit to a
Floating Storage Regasification Unit ("FSRU")
|
Name |
Jurisdiction
of
Incorporation
|
Purpose |
Golar
FSRU 2 Corporation
|
Marshall
Islands
|
Agent
for the conversion of the Golar Freeze into a
FSRU
|
Golar
FSRU 3 Corporation
|
Marshall
Islands
|
Contracted
for the conversion of the Golar Winter into a
FSRU
|
Golar
FSRU 4 Corporation
|
Marshall
Islands
|
Provides
contribution for the conversion of the Golar Freeze
|
Golar
Energy Limited
|
Cyprus
|
Holds
licence for the construction of a floating power station for the
generation of electricity
|
Golar
Offshore Toscana Limited
|
Cyprus
|
Holds
investment in associate, OLT Offshore LNG Toscana S.p.A
|
Golar
GP LLC – Limited Liability Company
|
Marshall
Islands
|
Holding
company
|
Golar
Partners Operating LLC – Limited Liability Company
|
Marshall
Islands
|
Holding
company
|
Golar
LNG Partners LP – Limited Partnership
|
Marshall
Islands
|
Holding
company
|
Golar
LNG Management
|
Bermuda |
Management company |
Golar
Energy Management
|
Bermuda
|
Management
company
|
Golar
LNG Energy Limited
|
Bermuda
|
Holding company
|
4. RECENTLY
ISSUED ACCOUNTING STANDARDS
Effective
July 2009, the Financial Accounting Standards Board (''FASB'') codified
accounting literature into a single source of authoritative accounting
principles, except for certain authoritative rules and interpretive releases
issued by the SEC. Since the codification did not alter existing U.S. GAAP, it
did not have an impact on the Company's consolidated financial statements. All
references to pre-codified U.S. GAAP have been removed from these financial
statements.
In June
2009, the FASB issued new guidance relating to the accounting for transfers of
financial assets. The purpose of this guidance is to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. These requirements are effective for us for
transfers occurring on or after January 1, 2010. The Company does not expect the
adoption of this guidance to have a material impact on its consolidated
financial statements.
In June
2009, the FASB issued new guidance relating to the consolidation of variable
interest entities. This guidance changes how a company determines when an entity
that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated and requires a company to provide
additional disclosures about its involvement with variable interest entities and
any significant changes in risk exposure due to that involvement. This guidance
is effective for interim and annual periods beginning after November 15, 2009.
The Company does not expect the adoption of this guidance to have a material
impact on its consolidated financial statements.
In
October 2009, the FASB issued new guidance related to revenue recognition for
arrangements with multiple deliverables and those which include software
elements. The issues address certain aspects of the accounting by the vendor
that involve more than one deliverable or unit of accounting. The guidance will
allow companies to allocate arrangement consideration in multiple deliverable
arrangements in a manner that better reflects the transaction's economics and
will remove non-software components of tangible products and certain software
components of tangible products from the scope of existing software revenue
guidance. For contracts with software elements this will result in the
recognition of revenue similar to that for other tangible products. This
guidance is effective for annual periods beginning after June 15, 2010. Early
adoption is permitted and may be prospective or retrospective. The Company does
not expect the adoption of this guidance to have a material impact on its
consolidated financial statements.
5. SEGMENTAL
INFORMATION
The
Company has not presented segmental information as it considers it operates in
one reportable segment, the LNG vessel market. During 2009, 2008 and
2007, the vast majority of the Company's fleet operated under time charters and
in particular with four charterers, Pertamina, Petrobras, BG Group plc and
Shell. Pertamina is the state-owned oil and gas company of
Indonesia. Petrobras is a Brazilian energy
company. BG Group plc and Shell are both head quartered in the
United Kingdom. In time charters, the charterer, not the Company,
controls the choice of which routes the Company's vessel will
serve. These routes can be worldwide. Accordingly, the
Company's management, including the chief operating decision makers, does not
evaluate the Company's performance either according to customer or geographical
region.
In the
years ended December 31, 2009, 2008 and 2007, revenues from the following
customers accounted for over 10% of the Company's consolidated
revenues:
(in
thousands of $)
|
2009
|
|
2008
|
|
2007
|
BG
Group plc
|
61,299
|
27%
|
|
75,119
|
33%
|
|
84,930
|
38%
|
Shell
|
45,564
|
20%
|
|
85,323
|
37%
|
|
58,786
|
26%
|
Pertamina
|
40,449
|
18%
|
|
37,066
|
16%
|
|
37,247
|
17%
|
Petrobras
|
61,261
|
27%
|
|
-
|
-
|
|
-
|
-
|
6. IMPAIRMENT
OF LONG-LIVED ASSETS
The
Company continually monitors events and changes in circumstances that could
indicate carrying amounts of long-lived asset may not be
recoverable. The Company assessed the potential impairment of its
vessels by comparing the undiscounted cash flows of its vessels to their
carrying values over the existing service potential of the
vessels. The Company concluded that there was no impairment of its
vessels.
However,
in respect of parts ordered for the FSRU conversion project that were deemed not
necessary for the completion of the conversion of the Golar Spirit, the Company
incurred impairment charges for the years ended December 31, 2009, 2008 and 2007
totalling $1.5 million, $0.1 million, and $2.3 million,
respectively. During the fourth quarter of 2009, some of the assets
were used in the conversion of the Golar Freeze. In 2008, some of these parts
were sold recognizing a gain on sale of $0.4 million. As of December
31, 2009, the total carrying value of the remaining equipment (net of the
impairment provision) is $13.5 million.
7. OTHER FINANCIAL ITEMS,
NET
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Amortization
of deferred financing costs
|
|
|
(1,287 |
) |
|
|
(2,773 |
) |
|
|
(1,928 |
) |
Financing
arrangement fees and other costs
|
|
|
(1,305 |
) |
|
|
(9,265 |
) |
|
|
(818 |
) |
Finance
transaction-related costs previously capitalized
|
|
|
- |
|
|
|
(4,189 |
) |
|
|
- |
|
Other
than temporary impairment of available-for-sale securities
|
|
|
- |
|
|
|
(1,871 |
) |
|
|
- |
|
Mark-to-market
adjustment for interest rate swap derivatives (See note
27)
|
|
|
17,385 |
|
|
|
(30,459 |
) |
|
|
(13,689 |
) |
Mark-to-market
adjustment for foreign currency derivatives (See note 27)
|
|
|
31,045 |
|
|
|
(60,531 |
) |
|
|
2,658 |
|
Gain
(loss) on termination of equity swap derivatives (including
mark-to-market adjustment) (See note 27)
|
|
|
17,603 |
|
|
|
(8,748 |
) |
|
|
7,438 |
|
Natural
gas forward contract (See note 27)
|
|
|
- |
|
|
|
- |
|
|
|
386 |
|
Foreign
exchange gain (loss) on capital lease obligations and related restricted
cash, net
|
|
|
(12,959 |
) |
|
|
43,047 |
|
|
|
(2,308 |
) |
Foreign
exchange gain (loss) on operations
|
|
|
(6,010 |
) |
|
|
(7,688 |
) |
|
|
99 |
|
Other
|
|
|
- |
|
|
|
377 |
|
|
|
- |
|
|
|
|
44,472 |
|
|
|
(82,100 |
) |
|
|
(8,162 |
) |
Amortization
of deferred financing costs amounts to $1.3 million and $2.8 million for the
years ended December 31, 2009 and December 31, 2008 respectively. The
2008 balance includes a write-off of deferred finance charges relating to the
refinancing of the Methane Princess loan and the Golar Spirit portion of the
Golar Gas Holdings loan in November 2008.
Finance
arrangement fees and other costs were $1.3 million and $9.3 million for the
years ended December 31, 2009 and December 31, 2008, respectively. The cost has
decreased significantly in 2009 from 2008 due to fixed-rate debt settlement
costs of $9.0 million arising from the refinancing of the Methane Princess loan
in connection with the new Golar LNG Partners revolving credit facility entered
into in September 2008. At the time of the refinancing $125 million
of the Methane Princess loan facility was fixed-rate
debt. Accordingly, simultaneous with the refinancing of the original
debt the fixed rate debt portion was cancelled resulting in the
charge. However, the Company immediately entered into interest rate
swaps for a similar amount of debt at a lower interest rate.
Finance
transaction-related costs of $4.2 million refer to costs previously capitalized
associated with the Company's plans to separate the Company's long-term charters
from other business opportunities. These costs were written-off in
2008.
For 2008,
the Company recognized other-than-temporary impairments on available-for-sale
securities (as defined under SFAS 115) totalling $1.9 million. During
the first three quarters of 2008, the Company recognized unrealized losses on
available-for-sale securities totalling $0.4 million. These
unrealized losses were recognized and presented as a component of other
comprehensive income. During the fourth quarter of 2008, the Company
concluded unrealized losses on available-for-sale securities were
other-than-temporary based on the severity of the decline in the market value
versus the cost basis. Consequently, amounts previously recognized as
unrealized losses and presented as a component of other comprehensive income,
were reclassified and recognized within the income statement. In
addition, the Company recognized losses from impairment on available-for-sale
securities totalling $1.5 million immediately in the income statement in the
fourth quarter of 2008.
The
foreign exchange loss on capital leases and related restricted cash for the year
ended December 31, 2009 arises as a result of the retranslation of the capital
lease obligations and related restricted cash securing those
obligations.
8. TAXATION
The
Company adopted the relevant guidance in Accounting for Uncertainty in Income
Taxes, on January 1, 2007. However, the adoption of this guidance did
not result in any change to the Company's liability for unrecognized tax
benefits.
The
components of income tax expense are as follows:
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Current
tax expense:
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
U.K.
|
|
|
(218 |
) |
|
|
433 |
|
|
|
(299 |
) |
Brazil
|
|
|
1,098 |
|
|
|
805 |
|
|
|
- |
|
Total
current expense
|
|
|
880 |
|
|
|
1,238 |
|
|
|
(299 |
) |
Deferred
tax expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.K.
|
|
|
763 |
|
|
|
(728 |
) |
|
|
- |
|
Total
income tax expense (income)
|
|
|
1,643 |
|
|
|
510 |
|
|
|
(299 |
) |
Bermuda
Under
current Bermuda law, The Minister of Finance in Bermuda has granted the Company
a tax exempt status until March 28, 2016, under which no income taxes or other
taxes (other than duty on goods imported into Bermuda and payroll tax in respect
of any Bermuda-resident employees) are payable by the Company in Bermuda. If the
Minister of Finance in Bermuda does not grant a new exemption or extend the
current tax exemption, and if the Bermudian Parliament passes legislation
imposing taxes on exempted companies, the Company may become subject to taxation
in Bermuda after March 2016.
United
States
Pursuant
to the Internal Revenue Code of the United States (the "Code"), U.S. source
income from the international operations of ships is generally exempt from U.S.
tax if the Company operating the ships meets certain
requirements. Among other things, in order to qualify for this
exemption, the company operating the ships must be incorporated in a country
which grants an equivalent exemption from income taxes to U.S. citizens and U.S.
corporations and must be more than 50% owned by individuals who are residents,
as defined, in such country or another foreign country that grants an equivalent
exemption to U.S. citizens and U.S. corporations. The management of
the Company believes that it satisfied these requirements and therefore by
virtue of the above provisions, it was not subject to tax on its U.S. source
income, except in the case of certain intra group income during 2006 for which a
provision of $0.2 million has been made.
A
reconciliation between the income tax expense resulting from applying either the
U.S. Federal or Bermudan statutory income tax rate and the reported income tax
expense has not been presented herein as it would not provide additional useful
information to users of the consolidated financial statements as the Company's
net income is subject to neither Bermuda nor U.S. tax.
United
Kingdom
Current
taxation income of $0.2 million, charge of $0.4 million and income of $0.3
million for the years ended December 31, 2009, 2008 and 2007, respectively,
relates to taxation of the operations of the Company's United Kingdom
subsidiaries, which includes amounts paid by one of the U.K. subsidiary's branch
office in Oslo. Taxable revenues in the U.K. are generated by U.K.
subsidiary companies of Golar and are comprised of management fees received from
Golar group companies as well as revenues from the operation of eight of Golar's
vessels. These vessels are sub-leased from other non-U.K. Golar
companies, which in turn are leased from financial institutions. The
statutory tax rate in the U.K. is currently 28%.
In
December 2007, the U.K. tax authorities commenced an examination of the
Company's U.K. income tax returns for 2006. As of December 31, 2009,
the examination remains ongoing. The Company does not anticipate that
this examination will result in a significant change to its financial
position. As at December 31, 2009, the 2009 U.K. income tax returns
had not been filed. Accordingly, once filed these and the years 2008,
2007, 2006, 2005 and 2004 remain open for examination by the U.K. tax
authorities.
The
Company records deferred income taxes to reflect the net tax effects of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The Company recorded deferred tax assets of $0.1 million
and $0.9 million at December 31, 2009 and 2008, respectively which have been
classified as non-current and included within other long-term assets (See note
19). These assets relate to differences for depreciation and net
operating losses carried forward.
Brazil
Current
taxation charge of $1.1 million, $0.8 million and $nil for the years ended
December 31, 2009, 2008 and 2007, respectively, refers to taxation levied on the
operations of the Company's Brazilian subsidiary commencing in
2008.
Other
jurisdictions
No tax
has been levied on income derived from the Company's subsidiaries registered in
Liberia, the Marshall Islands and the British Virgin Islands.
Deferred
income tax assets are summarized as follows:
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
Deferred
tax assets, gross
|
|
|
1,083 |
|
|
|
3,182 |
|
Valuation
allowances
|
|
|
(956 |
) |
|
|
(2,292 |
) |
Deferred
tax assets, net
|
|
|
127 |
|
|
|
890 |
|
The
valuation allowances on deferred tax assets decreased by $1.4 million (2008:
increased $1.0 million). In future periods, depending upon the
financial results, managements' estimate of the amount of the deferred tax
assets considered realizable may change, and hence the valuation allowances may
increase or decrease.
9. EARNINGS
PER SHARE
Basic
earnings per share for the year ended December 31, 2009 is calculated with
reference to the weighted average number of common shares outstanding during the
year. Treasury shares are not included in the
calculation. The computation of diluted EPS for the years ended
December 31, 2009, 2008 and 2007, assumes the conversion of potentially dilutive
instruments.
The
components of the numerator for the calculation of basic and diluted EPS are as
follows:
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Net
(loss) income attributable to Golar LNG Ltd available to stockholders –
basic
|
|
|
23,082 |
|
|
|
(9,989 |
) |
|
|
136,204 |
|
|
|
|
23,082 |
|
|
|
(9,989 |
) |
|
|
136,204 |
|
The
components of the denominator for the calculation of basic EPS and diluted EPS
are as follows:
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Basic
earnings per share:
|
|
|
|
|
|
|
|
|
Weighted
average number of shares
|
|
|
67,577 |
|
|
|
67,577 |
|
|
|
65,314 |
|
Weighted
average number of treasury shares
|
|
|
(347 |
) |
|
|
(363 |
) |
|
|
(31 |
) |
Weighted
average number of common shares outstanding
|
|
|
67,230 |
|
|
|
67,214 |
|
|
|
65,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
67,230 |
|
|
|
67,214 |
|
|
|
65,283 |
|
Effect
of dilutive share options
|
|
|
105 |
|
|
|
- |
|
|
|
432 |
|
Common
stock and common stock equivalents
|
|
|
67,335 |
|
|
|
67,214 |
|
|
|
65,715 |
|
(Loss)
earnings per share are as follows:
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Basic
|
|
$ |
0.34 |
|
|
$ |
(0.15 |
) |
|
$ |
2.09 |
|
Diluted
|
|
$ |
0.34 |
|
|
$ |
(0.15 |
) |
|
$ |
2.07 |
|
For the
year ended December, 31 2008, stock options representing rights to acquire 2.7
million of common stock were excluded from the calculation of diluted loss or
earnings per share because the effect was antidilutive. Stock options
are antidilutive when the exercise price of the stock option is greater than the
average market price of the common stock or when the results from operations are
a net loss.
10. OPERATING
LEASES
Rental
income
The
minimum contractual future revenues to be received on time charters as of
December 31, 2009, were as follows:
Year
ending December 31,
|
Total
|
(in
thousands of $)
|
|
2010
|
219,266
|
2011
|
196,358
|
2012
|
196,497
|
2013
|
189,266
|
2014
|
190,012
|
2015
and thereafter
|
942,179
|
Total
|
1,933,578
|
The
long-term contract for one of the Company's vessels is a time charter but the
operating costs are borne by the charterer on a pass through
basis. The pass through of operating costs is not reflected in the
minimum lease revenues set out above.
The cost
and accumulated depreciation of vessels leased to third parties at December 31,
2009 and 2008 were $1,572 million and $273 million; and $1,390 million and $240
million, respectively.
Rental
expense
Charter
hire payments to third parties for certain contracted-in vessels commencing in
2009 are accounted for as operating leases. The Company is also
committed to making rental payments under operating leases for office
premises. The future minimum rental payments under the Company's
non-cancellable operating leases are as follows:
Year
ending December 31,
|
Total
|
(in
thousands of $)
|
|
2010
|
12,241
|
2011
|
545
|
2012
|
545
|
2013
|
545
|
2014
|
213
|
Total
minimum lease payments
|
14,089
|
Total
rental expense for operating leases was $19.9 million, $9.1 million and $0.2
million for the years ended December 31, 2009, 2008 and 2007,
respectively.
11. EQUITY
IN NET ASSETS OF NON-CONSOLIDATED INVESTEES
At
December 31, 2009, the Company has the following participation in investments
that are recorded using the equity method:
|
2009
|
2008
|
Bluewater
Gandria NV ("Bluewater Gandria")
|
50.00%
|
50.00%
|
Liquefied
Natural Gas Limited ("LNGL") (1)
|
-
|
15.96%
|
Egyptian
Company for Gas Services S.A.E ("ECGS")
|
50.00%
|
50.00%
|
(1)
|
LNGL
ceased to be accounted for under the equity method during the year ended
December 31, 2009. Please refer to note
19
|
The
carrying amounts of the Company's investments in its equity method investments
as at December 31, 2009 and 2008 are as follows:
(in
thousands of $)
|
2009
|
2008
|
Bluewater
Gandria
|
20,142
|
22,335
|
LNGL(1)
|
-
|
7,505
|
ECGS
|
1,101
|
1,084
|
Equity
in net assets of non-consolidated investees
|
21,243
|
30,924
|
The
components of equity in net assets of non-consolidated investees are as
follows:
(in
thousands of $)
|
2009
|
2008
|
Cost
|
24,207
|
32,734
|
Equity
in net earnings of investees
|
(2,964)
|
(1,810)
|
Equity
in net assets of non-consolidated investees
|
21,243
|
30,924
|
Quoted
market prices for ECGS and Bluewater Gandria are not available because shares in
ECGS and Bluewater Gandria are not publicly traded. The market value
at December 31, 2009, of the Company's investment in LNGL, based on quoted
market prices, was $13.45 million.
Bluewater
Gandria
In July
2008, the Company acquired a 50% interest in the voting rights of Bluewater
Gandria for an initial equity sum of $22.0 million. Bluewater Gandria
is a newly incorporated unlisted company, which has been formed for the purposes
of pursuing opportunities to develop offshore LNG FSRU
projects. Bluewater Gandria is jointly owned and operated together
with a third party. Accordingly, the Company has adopted the equity
method of accounting for its 50% investment in Bluewater Gandria, as it
considers it has joint significant influence.
ECGS
In March
2006, the Company acquired 0.5 million common shares in ECGS at a subscription
price of $1 per share. This represents a 50% interest in the voting
rights of ECGS. ECGS is a newly incorporated unlisted company, which has been
set up to develop hydrocarbon business and in particular LNG related business in
Egypt. ECGS is jointly owned and operated together with other third
parties. Therefore the Company has adopted the equity method of
accounting for its 50% investment in ECGS, as it considers it has joint
significant influence.
LNGL
In April 2006, the Company signed an
agreement with LNGL, an Australian publicly listed company, to subscribe for 23
million of its shares in two tranches, at A$0.50 per share. The
Company purchased the first tranche of 13.95 million shares in May 2006, at a
cost of $5.1 million, and the second tranche in June 2006, at a cost of $3.5
million. The consideration paid in excess of the fair value of the
Company's share of net assets acquired, amounted to $7.5 million and has been
recognized as goodwill. Pursuant to the issuance of shares by LNGL,
as of December 31, 2008 and 2007 the Company held a 15.96% and 16.97% interest,
in LNGL, respectively. LNGL is a company focused on acting as a link
between previously discovered but uncommercial gas reserves and potential new
energy markets. The Company had adopted the equity method of
accounting for its investment in LNGL on the basis that it considered it had
significant influence as demonstrated by its Board representation and position
as LNGL's largest shareholder. On restructuring of Golar LNG which
took place on August 12, 2009 the investment was transferred to Golar LNG Energy
Limited ("Golar Energy"), for further details on this refer to Note 1.
Subsequently in November 2009, Golar Energy sold a block of 9.6 million LNG
Limited shares which reduced its shareholding to approximately 6.3% of
LNG Limited's issued share capital. The sale realised funds of approximately $11
million and resulted in an accounting profit of $8.4 million. As a consequence
of the dilution of the Company's interest to 6.3% in 2009 and other notable
factors, the Company concluded that it no longer held significant influence.
Accordingly, the Company changed its accounting treatment of the investment from
the equity method to the cost basis as of November 10, 2009.
12. GAIN
ON ISSUANCE OF SHARES BY INVESTEES
For the
years ended December 31, 2009, 2008 and 2007, the Company's additional paid-in
capital included a gain or loss on issuance of shares by investees, as shown
below:
(in
thousands of $)
|
2009
|
2008
|
LNGL
|
965
|
533
|
Other
investments
|
-
|
134
|
|
965
|
667
|
In year
ended December 31, 2009, LNGL announced a number of share placements in which
the Company did not take part. This issue, in addition to various share options
being exercised during the year along with the sale of 9.6 million shares in the
latter part of the year, resulted in the dilution of the Company's shareholding
in LNGL to 6.3%.
13. TRADE
ACCOUNTS RECEIVABLE
As at
December 31, 2009, trade accounts receivable are presented net of allowances for
doubtful accounts. The provision for doubtful debts was $nil and $nil
for the years ended December 31, 2009 and 2008, respectively.
14. OTHER
RECEIVABLES, PREPAID EXPENSES AND ACCRUED INCOME
(in
thousands of $)
|
2009
|
2008
|
Other
receivables
|
2,619
|
2,055
|
Prepaid
expenses
|
1,531
|
1,037
|
Accrued
interest income
|
1,540
|
8,574
|
Provision
for taxes (See note 20)
|
-
|
-
|
|
5,690
|
11,666
|
15. VESSELS
AND EQUIPMENT, NET
(in
thousands of $)
|
2009
|
2008
|
Cost
|
748,372
|
746,181
|
Accumulated
depreciation
|
(94,876)
|
(78,040)
|
Net
book value
|
653,496
|
668,141
|
Drydocking
costs of $12.1 million and $10.0 million are included in the cost amounts above
as of December 31, 2009 and 2008, respectively. Accumulated
amortization of those costs as of December 31, 2009 and 2008 were $4.4 million
and $5.0 million, respectively.
As at
December 31, 2009 and 2008, included in the above amounts is equipment with a
net book value of $1.3 million and $1.5 million, respectively.
Depreciation
and amortization expense for the years ended December 31, 2009, 2008 and 2007
was $21.1 million, $21.1 million, and $19.4 million, respectively.
As at
December 31, 2009 and 2008, vessels with a net book value of $652.2 million and
$666.7 million respectively were pledged as security for certain debt facilities
(See note 23).
In July
2008, the Company sold the Golar Frost to OLT-O
recognizing a gain of $78.1 million. Accordingly, pursuant to the
acquisition of a second-hand vessel the Golar Arctic (formerly known
as the Granatina) as of
December 31, 2009, Golar owned four vessels (2008: four).
16. VESSELS
UNDER CAPITAL LEASES, NET
(in
thousands of $)
|
2009
|
2008
|
Cost
|
1,261,876
|
1,125,114
|
Accumulated
depreciation and amortization
|
(269,313)
|
(231,942)
|
Net
book value
|
992,563
|
893,172
|
As of
December 31, 2009, Golar operated eight (2008: eight) vessels under capital
leases. These leases are in respect of two refinancing transactions
undertaken during 2003, a lease financing transaction during 2004 and another in
2005.
Drydocking
costs of $32.4 million and $37.7 million are included in the cost amounts above
as of December 31, 2009 and 2008, respectively. Accumulated
amortization of those costs at December 31, 2009 and 2008 were $19.5 million and
$18.3 million respectively.
Depreciation
and amortization expense for vessels under capital leases for the years ended
December 31, 2009, 2008 and 2007 was $45.9 million, $44.6 million and $44.6
million, respectively.
17. DEFERRED
CHARGES
Deferred
charges represent financing costs, principally bank fees that are capitalized
and amortized to other financial items over the life of the debt
instrument. If a loan is repaid early any un-amortized portion of the
related deferred charges is charged against income in the period in which the
loan is repaid. The deferred charges are comprised of the following
amounts:
(in
thousands of $)
|
2009
|
2008
|
Debt
arrangement fees and other deferred financing charges
|
13,784
|
13,813
|
Accumulated
amortization
|
(4,805)
|
(3,521)
|
|
8,979
|
10,292
|
Amortization
expense of deferred charges, for the years ended December 31, 2009, 2008 and
2007 was $1.3 million, $1.2 million and $1.5 million, respectively.
18. RESTRICTED
CASH AND SHORT-TERM INVESTMENTS
The
Company's short-term and long-term restricted cash and investment balances in
respect of its debt and lease obligations and equity swap facilities are as
follows:
(in
thousands of $)
|
2009
|
2008
|
Total
security lease deposits for lease obligations
|
623,605
|
588,376
|
Restricted
cash relating to the Mazo facility
|
11,200
|
11,272
|
Restricted
cash relating to the Equity swap facilities
|
-
|
17,756
|
|
634,805
|
617,404
|
Restricted
cash does not include minimum consolidated cash balances required to be
maintained as part of the financial covenants in some of the Company's loan
facilities, as these amounts are included in "Cash and cash
equivalents".
As at
December 31, 2009, the value of deposits used to obtain letters of credit to
secure the obligations for the lease arrangements described in note 24 was
$623.6 million (2008: $588.4 million). These security deposits are
referred to in these consolidated financial statements as restricted cash and
earn interest based upon GBP LIBOR for the Five Ship Leases and the Methane
Princess Lease and based upon USD LIBOR for both the Golar Winter and Grandis
Lease. The Company's restricted cash balances in respect of its lease
obligations are as follows:
(in
thousands of $)
|
2009
|
2008
|
Five
Ship Leases security deposits
|
426,821
|
390,849
|
Methane
Princess Lease security deposits
|
151,776
|
137,511
|
Golar
Winter Lease security deposits
|
-
|
15,008
|
Grandis
Lease security deposits
|
45,008
|
45,008
|
Total
security deposits for lease obligations
|
623,605
|
588,376
|
Included
in short-term restricted cash and short-term investments
|
(29,451)
|
(31,324)
|
Long-term
restricted cash
|
594,154
|
557,052
|
The
analysis of short-term restricted cash and short-term investments at December
31, 2009 and 2008 is as follows:
(in
thousands of $)
|
2009
|
2008
|
Short-term
lease security deposits
|
29,451
|
31,324
|
Restricted
cash and short-term investments relating to the Mazo facility (See note
23)
|
11,200
|
11,272
|
Restricted
cash relating to the Equity swap facility
|
-
|
17,756
|
Short-term
restricted cash and short-term investments
|
40,651
|
60,352
|
19. OTHER
NON-CURRENT ASSETS
(in
thousands of $)
|
2009
|
2008
|
Deferred
tax asset (See note 8)
|
127
|
890
|
Other
cost-method investments
|
23,805
|
10,347
|
Available-for-sale
securities (See note 7)
|
-
|
360
|
Other
long-term assets
|
15,941
|
43,781
|
|
39,873
|
55,378
|
Other
investments relate to the Company's investment in TORP Technology AS ("TORP
Technology"), LNGL and in OLT–O. TORP Technology, which was acquired
in February 2005, is a Norwegian registered unlisted company, which is involved
in the construction of an offshore regasification terminal in the US Gulf of
Mexico. As at December 31, 2009, the Company's investment in TORP
Technology amounted to $3.0 million representing a 14.8% equity interest in the
investee's issued share capital.
LNGL is
an Australian publicly listed company, as a consequence of the dilution of the
Company's interest to 6.3% in 2009 and other notable factors, the Company
concluded that it no longer held significant influence. Accordingly, the Company
changed its accounting treatment of the investment from the equity method to the
cost basis as of November 10, 2009. As of December 31, 2009 the Company's
investment in LNGL was $13.5 million (See note 11).
OLT-O is
an Italian incorporated unlisted company, which is involved in the construction,
development, operation and maintenance of a FSRU terminal to be situated off the
Livorno coast of Italy. Prior to 2008, the Company accounted for its
investment in OLT-O under the equity method of accounting. Pursuant
to the dilution of its interest to 2.7% in 2008 the Company changed to the
cost-method of accounting. As at December 31, 2009, the Company's
investment in OLT-O was $7.3 million amounting to a 2.7% interest in OLT–O
issued share capital (See Note 11).
Other
long term assets contains $13.5 million (net of an impairment charge) which
relates to equipment which was not utilized in the Golar Spirit FSRU conversion
following changes to the original specification (See Note 6).
20. ACCRUED
EXPENSES
(in
thousands of $)
|
2009
|
2008
|
Vessel
operating and drydocking expenses
|
7,405
|
6,263
|
Administrative
expenses
|
6,151
|
4,832
|
Interest
expense
|
8,536
|
14,285
|
Provision
for taxes (See note 8)
|
165
|
549
|
|
22,257
|
25,929
|
Vessel
operating and drydocking expenses accruals are composed of vessel operating
expenses including direct vessel operating costs associated with operating a
vessel, such as crew wages, vessel supplies, routine repair, maintenance,
drydocking, lubricating oils, insurances and management fees for the provision
of commercial and technical management services.
Administrative
expenses accruals are composed of general overhead, including personnel costs,
legal and professional fees, costs associated with project development, property
costs and other general expenses.
Interest
expense accruals relate to the overall level of borrowings and may change due to
the acquiring or lease of ships, change in prevailing interest rates of interest
rate swaps and other derivative instruments.
21. OTHER
CURRENT LIABILITIES
(in
thousands of $)
|
2009
|
2008
|
Deferred
drydocking, operating cost and charterhire revenue
|
5,659
|
13,527
|
Mark-to-market
interest rate swaps valuation (See note 27)
|
36,354
|
65,329
|
Mark-to-market
currency swaps valuation (See note 27)
|
19,043
|
50,088
|
Mark-to-market
equity swaps valuation (See note 27)
|
-
|
8,211
|
Deferred
credits from capital lease transactions (See note 25)
|
3,964
|
3,964
|
Other
creditors
|
11,566
|
986
|
|
76,586
|
142,105
|
Other
creditors balance for the year ended December 31, 2009 includes among other
things charterhire that has been received in advance of the year end which
relates to 2010.
22. PENSIONS
Defined
contribution scheme
The
Company operates a defined contribution scheme. The pension cost for
the period represents contributions payable by the Company to the
scheme. The charge to net income for the year ended December 31,
2009, 2008 and 2007 was $0.7 million, $0.4 million and $0.3 million,
respectively.
Defined
benefit schemes
The
Company has two defined benefit pension plans both of which are closed to new
entrants but which still cover certain employees of the
Company. Benefits are based on the employee's years of service and
compensation. Net periodic pension plan costs are determined using
the Projected Unit Credit Cost method. The Company's plans are funded
by the Company in conformity with the funding requirements of the applicable
government regulations. Plan assets consist of both fixed income and
equity funds managed by professional fund managers.
The
Company uses a measurement date of December 31 for its pension
plans.
The
components of net periodic benefit costs are as follows:
(in
thousands of $)
|
2009
|
2008
|
2007
|
Service
cost
|
480
|
491
|
502
|
Interest
cost
|
2,742
|
2,945
|
2,850
|
Expected
return on plan assets
|
(1,130)
|
(1,564)
|
(1,695)
|
Recognized
actuarial loss
|
718
|
444
|
573
|
Net
periodic benefit cost
|
2,810
|
2,316
|
2,230
|
The
estimated net loss for the defined benefit pension plans that will be amortized
from accumulated other comprehensive income into net periodic pension benefit
cost during the year ending December 31, 2009 is $0.4 million (2008: $0.7
million).
The
change in benefit obligation and plan assets and reconciliation of funded status
as of December 31 are as follows:
(in
thousands of $)
|
2009
|
2008
|
Reconciliation
of benefit obligation:
|
|
|
Benefit
obligation at January 1
|
45,135
|
51,281
|
Service
cost
|
480
|
491
|
Interest
cost
|
2,742
|
2,945
|
Actuarial
loss (gain)
|
5,410
|
(3,777)
|
Foreign
currency exchange rate changes
|
815
|
(2,768)
|
Benefit
payments
|
(3,349)
|
(3,037)
|
Benefit
obligation at December 31
|
51,233
|
45,135
|
The
accumulated benefit obligation at December 31, 2009 and 2008 was $49.5 million
and $43.3 million, respectively.
(in thousands of
$)
|
2009
|
2008
|
Reconciliation
of fair value of plan assets:
|
|
|
Fair
value of plan assets at January 1
|
16,341
|
24,732
|
Actual
return on plan assets
|
2,587
|
(5,064)
|
Employer
contributions
|
2,358
|
2,228
|
Foreign
currency exchange rate changes
|
707
|
(2,518)
|
Benefit
payments
|
(3,349)
|
(3,037)
|
Fair
value of plan assets at December 31
|
18,644
|
16,341
|
(in thousands of
$)
|
2009
|
2008
|
Funded
status at end of year (1)
|
(32,589)
|
(28,794)
|
Unrecognized
actuarial loss
|
-
|
-
|
Net
amount recognized
|
(32,589)
|
(28,794)
|
Employer
contributions and benefits paid under the pension plans include $2.4 million and
$2.2 million paid from employer assets during the year ended December 31, 2009
and 2008, respectively.
(1) The
Company's plans are composed of two plans that are both under funded at December
31, 2009 and December 31, 2008.
The
details of these plans are as follows:
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
(in
thousands of $)
|
|
UK
Scheme
|
|
|
Marine
Scheme
|
|
|
Total
|
|
|
UK
Scheme
|
|
|
Marine
Scheme
|
|
|
Total
|
|
Projected
benefit obligation
|
|
|
(10,419 |
) |
|
|
(40,814 |
) |
|
|
(51,233 |
) |
|
|
(6,922 |
) |
|
|
(38,213 |
) |
|
|
(45,135 |
) |
Fair
value of plan assets
|
|
|
8,286 |
|
|
|
10,358 |
|
|
|
18,644 |
|
|
|
6,361 |
|
|
|
9,980 |
|
|
|
16,341 |
|
Funded
status at end of year
|
|
|
(2,133 |
) |
|
|
(30,456 |
) |
|
|
(32,589 |
) |
|
|
(561 |
) |
|
|
(28,233 |
) |
|
|
(28,794 |
) |
The
amounts recognized in accumulated other comprehensive income consist
of:
(in
thousands of $)
|
2009
|
2008
|
Net
actuarial loss
|
12,191
|
8,723
|
The asset
allocation for the Company's Marine scheme at December 31, 2009 and 2008, and
the target allocation for 2010, by asset category are as follows:
Marine
scheme
|
Target
allocation 2010 (%)
|
Target
allocation 2009 (%)
|
Target
allocation 2008 (%)
|
Equity
|
30
- 65
|
30
- 65
|
30
– 65
|
Bonds
|
10
- 50
|
10
- 50
|
10
– 50
|
Other
|
20
- 40
|
20
- 40
|
20
– 40
|
Total
|
100
|
100
|
100
|
The asset
allocation for the Company's UK scheme at December 31, 2009 and 2008, and the
target allocation for 2010, by asset category are as follows:
UK
scheme
|
Target
allocation 2010 (%)
|
Target
allocation 2009 (%)
|
Target
allocation 2008 (%)
|
Equity
|
80
|
80
|
80
|
Bonds
|
20
|
20
|
20
|
Total
|
100
|
100
|
100
|
The
Company's investment strategy is to balance risk and reward through the
selection of professional investment managers and investing in pooled
funds.
The
Company is expected to make the following contributions to the schemes during
the year ended December 31, 2010, as follows:
(in
thousands of $)
|
UK
scheme
|
Marine
scheme
|
Employer
contributions
|
558
|
1,800
|
The
Company is expected to make the following pension disbursements as
follows:
(in
thousands of $)
|
UK
scheme
|
Marine
scheme
|
2010
|
226
|
3,000
|
2011
|
259
|
3,000
|
2012
|
226
|
3,000
|
2013
|
226
|
3,000
|
2014
|
226
|
3,000
|
2015
- 2019
|
2,425
|
16,000
|
The
weighted average assumptions used to determine the benefit obligation for the
Company's plans at December 31 are as follows:
|
|
2009
|
|
|
2008
|
|
Discount
rate
|
|
|
6.02 |
% |
|
|
6.2 |
% |
Rate
of compensation increase
|
|
|
4 |
% |
|
|
3.9 |
% |
The
weighted average assumptions used to determine the net periodic benefit cost for
the Company's plans for the year ended December 31 are as follows:
|
|
2009
|
|
|
2008
|
|
Discount
rate
|
|
|
6.1 |
% |
|
|
6.0 |
% |
Expected
return on plan assets
|
|
|
6.94 |
% |
|
|
6.9 |
% |
Rate
of compensation increase
|
|
|
4.23 |
% |
|
|
4.2 |
% |
The
overall expected long-term rate of return on assets assumption used to determine
the net periodic benefit cost for the Company's plans for the years ending
December 31, 2009 and 2008 is based on the weighted average of various returns
on assets using the asset allocation as at the beginning of 2009 and
2008. For equities and other asset classes, the Company has applied
an equity risk premium over ten year governmental bonds.
23. DEBT
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
Total
long-term debt due to third parties
|
|
|
782,226 |
|
|
|
808,621 |
|
Less:
current portion of long-term debt due to third parties
|
|
|
(74,504 |
) |
|
|
(71,395 |
) |
Long-term
debt
|
|
|
707,722 |
|
|
|
737,226 |
|
The
outstanding debt as of December 31, 2009 is repayable as follows:
Year
ending December 31,
|
|
(in
thousands of $)
|
|
2010
|
74,504
|
2011
|
120,315
|
2012
|
52,811
|
2013
|
49,921
|
2014
|
115,925
|
2015
and thereafter
|
371,750
|
Total
|
782,226
|
The
Company's debt is denominated in U.S. dollars and bears floating interest rates
except for $125 million of fixed-rate debt as of December 31, 2007, which was
terminated in November 2008 upon refinancing of the Methane Princess
facility. The weighted average interest rate for the years ended
December 31, 2009 and 2008 was 2.90% and 4.82%, respectively.
As of
December 31, 2009, the margins Golar pays under its loan agreements are over and
above LIBOR at a fixed or floating rate range from 1.15% to 0.70% (2008: 1.2% to
0.70%).
At
December 31, 2009, the Company's debt was as follows:
(in
thousands of $)
|
|
Maturity
date
|
Mazo
facility
|
83,828
|
2013
|
Golar
Gas Holding facility
|
90,014
|
2011
|
Gracilis
facility
|
105,109
|
2017
|
Granosa
facility
|
104,525
|
2014
|
Golar
Arctic facility
|
111,250
|
2015
|
Golar
LNG Partners credit revolving facility
|
277,500
|
2018
|
World
Shipholding facility
|
10,000
|
2012
|
|
782,226
|
|
Mazo
facility
The Mazo
facility was assumed by the Company in May 2001 and the amount originally drawn
down under the facility totalled $214.5 million. The loan is secured
on the vessel Golar
Mazo. The facility bears floating interest rate of LIBOR plus
a margin and repayments are due bi-annually and commenced in June 2001, ending
in June 2013 at which point the facility will be repaid in full. The
debt agreement requires that certain cash balances, representing interest and
principal repayments for defined future periods, be held by a trust company
during the period of the loan. These balances are referred to in
these consolidated financial statements as restricted cash.
Golar
Gas Holding facility
In May
2001, the Company entered into a secured loan facility with a banking consortium
for an amount of $325 million and in October 2002 entered into a secured
subordinated loan facility for an amount of $60 million. These loans
were first re-financed in April 2003 and again in March 2005 when a subsidiary
of the Company, Golar Gas Holding Company Inc., entered into a refinancing
transaction with a banking consortium in respect of these loans. The
new first priority loan (the "Golar Gas Holding facility") is for an amount of
$300 million. The total amount outstanding at the time of the
refinancing was $242.3 million. The loan accrues floating interest at
a rate per annum equal to the aggregate of LIBOR plus a margin. The
loan is secured by the assignment to the lending banks of a mortgage given to
Golar by the lessor of the four vessels that are part of the Five Ship Leases
(See note 25). In November 2008, as part of the refinancing detailed
below under the new "Golar LNG Partners revolving credit facility", $46.3
million was repaid in respect of the Golar Spirit. The
loan has a term of six years and is repayable in 24 quarterly installments with
a final balloon payment of $55.7 million due on April 14, 2011. As of
December 31, 2009, the balance outstanding on the loan facility was $90
million.
Gracilis
facility
In
January 2005 the Company signed a loan agreement with a bank for an amount of
$120 million for the purpose of financing newbuilding hull number 1460, the
Viking (formerly known as the
Gracilis). This facility was refinanced in August 2007. The
refinanced loan ("Gracilis facility") is for an amount of $120 million. The
total amount outstanding at the time of the refinancing was $110
million.
The
structure of the Gracilis facility is such that the bank loaned funds of $120
million to Golar, which the Company then re-loaned to a newly created entity of
the bank, ("Investor Bank"). With the proceeds, Investor Bank then
subscribed for preference shares in a Golar group company. Another
Golar company issued a put option in respect of the preference
shares. The effect of these transactions is that Golar is required to
pay out fixed preference dividends to the Investor Bank and the Investor Bank is
required to pay fixed interest due on the loan from Golar to Investor
Bank. The interest payments to Golar by Investor Bank are contingent
upon receipt of these preference dividends. In the event these
dividends are not paid, the preference dividends will accumulate until such time
as there are sufficient cash proceeds to settle all outstanding
arrearages. Applying FIN 46(R) to this arrangement, the Company has
concluded that Golar is the primary beneficiary of Investor Bank and accordingly
has consolidated it into the Golar group. Accordingly, as at December
31, 2009, the Consolidated Balance Sheet and Consolidated Statement of
Operations includes Investor Bank's net assets of $nil and net income of $nil,
respectively, due to elimination on consolidation, of accounts and transactions
arising between Golar and the Investor Bank.
The
Gracilis facility accrues floating interest at a rate per annum equal to the
aggregate of LIBOR plus a margin. The loan has a term of 10 years and
is repayable in 39 quarterly installments with a final balloon payment of $71.0
million due on August 17, 2017. The loan is secured by a mortgage on
this vessel.
Granosa
facility
In April
2006 the Company signed a loan agreement with a bank for an amount of $120
million for the purpose of financing newbuilding hull number 2234, the Maria (formerly known as the
Granosa), which is secured by a mortgage
on this vessel. The facility bears floating interest rate of LIBOR
plus a margin and had an initial term of five years with quarterly repayments on
the loan commencing September 15, 2006. In March 2008, the facility
was restructured to lower the margin and to extend the term of the facility to
December 2014, with a revised final balloon payment of $80.8 million due in
December 2014.
Golar
Arctic facility
In
January 2008, the Company entered into a secured loan facility for an amount of
$120 million, for the purpose of financing the purchase of the LNG carrier, the
Golar Arctic (formerly
known as the Granatina), which we refer to
as the Golar Arctic facility. The facility bears a floating rate of
interest of LIBOR plus a margin, has an initial term of seven years and is
repayable in 27 quarterly installments commencing April 2008 with a final
balloon payment of $86.3 million payable on January 14, 2015.
Golar
LNG Partners revolving credit facility
In
September 2008, the Company refinanced existing loan facilities in respect of
two of our vessels the Methane
Princess and the Golar
Spirit and entered into a new $285 million revolving credit facility with
a banking consortium. The loan is secured against the assignment to
the lending of a bank mortgage given to the Company by the lessors of the Methane Princess and the
Golar Spirit, with a
second priority charge over the Golar Mazo.
This new facility accrues floating
interest at a rate per annum equal to LIBOR plus a margin. The initial draw down
amounted to $250.0 million in November 2008. The total amount
outstanding in respect of the two vessels' refinanced facilities was $202.3
million. The Company drew down a further $25.0 million in February
2009 and the remaining $10.0 million in March 2009. The loan has a
term of ten years and is repayable in quarterly installments commencing in May
2009 with a final balloon payment of $102.5 million due in February
2018.
Methane
Princess facility
In August
2003, the Company refinanced an existing loan in connection with a lease finance
arrangement in respect of newbuilding the Methane Princess. The new
facility, (the "Methane Princess facility") was for $180 million and was
repayable in monthly installments with a final balloon payment of $116.4 million
payable in August 2015. In November 2008, as part of the refinancing
detailed above under the new "Golar LNG Partners revolving credit facility", the
Methane Princess loan was repaid with the proceeds from the
refinancing. The total amount outstanding at the time of refinancing
was $156.0 million. At the time of the refinancing $125 million of the Methane
Princess facility was fixed-rate debt. Accordingly, on refinancing
these were broken incurring fixed-rate debt settlement costs of $9.0 million
(see note 7).
World
Shipholding facility
In June
2009, the Company entered into an $80 million revolving credit facility with
World Shipholding Ltd, to provide short-term bridge financing. World Shipholding
is indirectly controlled by Trusts established by John Fredriksen for the
benefit of his immediate family, the largest shareholder in the company. The
facility accrues fixed interest at a rate per annum of 8% together with a
commitment fee of 0.75% of any undrawn portion of the credit facility. The
revolving credit facility is available for a period of two years. All amounts
due under the facility must be repaid within two years from the date of the
first draw down. The Company drew down an initial amount of $20 million on June
30, 2009 and a further $10 million during the quarter to September 30, 2009. $20
million was repaid in November 2009. The facility is currently unsecured.
However, in order to draw down amounts in excess of $35 million the Company will
be required to provide security to the satisfaction of World Shipholding Ltd.
This is envisaged to take the form of a second priority lien over cash
generating assets.
Certain
of the Company's debt are collateralized by ship mortgages and, in the case of
some debt, pledges of shares by each guarantor subsidiary. The
existing financing agreements impose operating and financing restrictions which
may significantly limit or prohibit, among other things, the Company's ability
to incur additional indebtedness, create liens, sell capital shares of
subsidiaries, make certain investments, engage in mergers and acquisitions,
purchase and sell vessels, enter into time or consecutive voyage charters or pay
dividends without the consent of the Lenders. In addition, Lenders
may accelerate the maturity of indebtedness under financing agreements and
foreclose upon the collateral securing the indebtedness upon the occurrence of
certain events of default, including a failure to comply with any of the
covenants contained in the financing agreements. Various debt
agreements of the Company contain certain covenants, which require compliance
with certain financial ratios. Such ratios include equity ratio covenants and
minimum free cash restrictions. With regards to cash restrictions
Golar has covenanted to retain at least $25 million of cash and cash equivalents
on a consolidated group basis. As of December 31, 2009 and 2008, the
Company complied with the debt covenants of its various debt
agreements.
24. CAPITAL
LEASES
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
Total
long-term obligations under capital leases
|
|
|
852,943 |
|
|
|
790,427 |
|
Less:
current portion of obligations under capital leases
|
|
|
(8,588 |
) |
|
|
(6,006 |
) |
Long
term obligations under capital leases
|
|
|
844,355 |
|
|
|
784,421 |
|
As at
December 31, 2009, Golar operated eight (2008: eight) vessels under capital
leases. These leases are in respect of two refinancing transactions
undertaken during 2003, a lease financing transaction during 2004 and another in
2005.
The first
leasing transaction, which took place in April 2003, was the sale of five 100
per cent owned subsidiaries to a financial institution in the United Kingdom
(UK). The subsidiaries were established in Bermuda specifically to
own and operate one LNG vessel as their sole asset. Simultaneous to
the sale of the five entities, Golar leased each of the five vessels under five
separate lease agreements ("Five Ship Leases"). The Company
determined that the entities that owned the vessels under the Five Ship leases
were variable interest entities in which Golar had a variable interest and was
the primary beneficiary. Upon transferring the vessels to the
financial institutions, Golar measured the subsequently leased vessels at the
same amounts as if the transfer had not occurred, which was cost less
accumulated depreciation at the time of transfer.
The
second leasing transaction, which occurred in August 2003, was in relation to
the newbuilding, the Methane Princess. The Company novated the Methane Princess newbuilding
contract prior to completion of construction and leased the vessel from the same
financial institution in the UK ("Methane Princess Lease").
The third
leasing transaction, which occurred in April 2004, was in relation to the
newbuilding, the Golar
Winter. The Company novated the Golar Winter newbuilding
contract prior to completion of construction and leased the vessel from a
financial institution in the UK ("Golar Winter Lease").
The
fourth leasing transaction, which occurred in April 2005, was in relation to
hull number 2226 (Grandis). The
Company novated the Grandis
newbuilding contract prior to completion of construction and leased the
vessel from the same financial institution in the UK ("Grandis Lease").
Golar's
obligations to the lessors under the Five Ship Leases and Methane Princess Lease
are primarily secured by letters of credit ("LC") provided by other
banks. Golar's obligations to the lessor of the Golar Winter Lease
and Grandis Lease are partly secured by a LC. Details of the security
deposits provided by Golar to the banks providing the LC's are given in Note
18.
As at
December 31, 2009, the Company is committed to make quarterly minimum rental
payments under capital leases, as follows:
Year
ending December 31,
(in
thousands of $)
|
|
Five
ship
Leases
|
|
|
Methane
Princess
Lease
|
|
|
Golar
Winter
Lease
|
|
|
Grandis
Lease
|
|
|
Total
|
|
2010
|
|
|
22,698 |
|
|
|
6,942 |
|
|
|
10,401 |
|
|
|
9,324 |
|
|
|
49,365 |
|
2011
|
|
|
28,553 |
|
|
|
7,223 |
|
|
|
10,403 |
|
|
|
9,324 |
|
|
|
55,503 |
|
2012
|
|
|
29,981 |
|
|
|
7,501 |
|
|
|
10,403 |
|
|
|
9,324 |
|
|
|
57,209 |
|
2013
|
|
|
31,480 |
|
|
|
7,809 |
|
|
|
10,403 |
|
|
|
9,324 |
|
|
|
59,016 |
|
2014
|
|
|
49,731 |
|
|
|
8,109 |
|
|
|
10,403 |
|
|
|
9,324 |
|
|
|
77,567 |
|
2015
and thereafter
|
|
|
516,101 |
|
|
|
278,090 |
|
|
|
182,063 |
|
|
|
212,555 |
|
|
|
1,188,809 |
|
Total
minimum lease payments
|
|
|
678,544 |
|
|
|
315,674 |
|
|
|
234,076 |
|
|
|
259,175 |
|
|
|
1,487,469 |
|
Less:
Imputed interest
|
|
|
(251,756 |
) |
|
|
(162,885 |
) |
|
|
(103,656 |
) |
|
|
(116,229 |
) |
|
|
(634,526 |
) |
Present
value of minimum lease payments
|
|
|
426,788 |
|
|
|
152,789 |
|
|
|
130,420 |
|
|
|
142,946 |
|
|
|
852,943 |
|
The
profiles of the Five Ship Leases are such that the lease liability continues to
increase until 2008 and thereafter decreases over the period to 2023 being the
primary term of the leases. The interest element of the lease rentals
is accrued at a rate based upon floating British Pound (GBP) LIBOR.
The
profile of the Methane Princess Lease is such that the lease liability continues
to increase until 2014 and thereafter decreases over the period to 2034 being
the primary term of the lease. The interest element of the lease
rentals is accrued at a rate based upon floating British Pound (GBP)
LIBOR.
The Golar
Winter Lease is for a primary period of 28 years, expiring in April 2032. The
lease liability is reduced by lease rentals from inception. The
interest element of the lease rentals is accrued at a rate based upon floating
rate British Pound (GBP) LIBOR.
In common
with the Five Ship Leases and the Methane Princess Lease, the Golar Winter Lease
is denominated in British Pounds. However, unlike these other leases
the cash deposits securing the lease obligations are significantly less than the
lease obligation itself. In order to hedge the currency risk arising
from re-translation of the GBP lease rental obligation into US dollars, the
Company entered into a 28 year currency swap in April 2004 to hedge all lease
rental payments under the Golar Winter Lease into US dollars at a fixed GBP/USD
exchange rate. In addition as of December 31, 2009, the Company had
entered into interest rate swaps of $105 million (2008: $105 million) to fix the
interest rate in respect of its Golar Winter lease obligations for a period
ranging from three to ten years.
The
Grandis Lease is for a primary period of 30 years, expiring January
2036. The lease liability is reduced by lease rentals from
inception. The interest element of the lease rentals is accrued at a
rate based upon floating rate USD LIBOR. In contrast to the Company's
other leases the Grandis lease obligation and the cash deposits securing the
lease obligation are denominated in USD. However, in common with the
Golar Winter Lease, the cash deposits securing the lease obligation are
significantly less than the lease obligation itself. As of December
31, 2009, the Company had entered into interest rate swaps of $72 million (2008:
$82 million) to fix the interest rate in respect of its Grandis lease
obligations for a period of seven years.
In March
2010, the Company terminated three of the leases within the Five Ships Leases
and immediately entered into three new long funding finance leases ("LFFL's") in
respect of the same ships. The LFFL's have an initial term of approximately 12
years from inception. The lease obligations under the LFFL's are secured by cash
deposits of the same value. The cash deposits will be used to service the
entirety of the lease obligations.
25. OTHER
LONG-TERM LIABILITIES
(in
thousands of $)
|
2009
|
2008
|
Pension
obligations (See note 22)
|
32,589
|
28,794
|
Deferred
credits from capital lease transactions
|
43,692
|
47,656
|
Other
|
132
|
770
|
|
76,413
|
77,220
|
Deferred
credits from capital lease transactions
(in
thousands of $)
|
2009
|
2008
|
Deferred
credits from capital lease transactions
|
74,121
|
74,121
|
Less:
Accumulated amortization
|
(26,465)
|
(22,501)
|
|
47,656
|
51,620
|
|
|
|
Short-term
(See note 21)
|
3,964
|
3,964
|
Long-term
|
43,692
|
47,656
|
|
47,656
|
51,620
|
In
connection with the Five Ship Leases and the Methane Princess Lease entered into
in the year ended December 31, 2003 (See note 24), the Company recorded an
amount representing the difference between the net cash proceeds received upon
sale of the vessels and the present value of the minimum lease
payments. The amortization of the deferred credit for the year is
offset against depreciation and amortization expense in the Consolidated
Statement of Operations. The deferred credits represent the upfront
benefits derived from undertaking finance in the form of UK
leases. The deferred credits are amortized over the remaining
estimated useful economic lives of the vessels to which the leases relate on a
straight-line basis.
26. SHARE
CAPITAL AND SHARE OPTIONS
The
Company's ordinary shares are listed on the Nasdaq Stock Exchange and the Oslo
Bors Stock Exchange.
As at
December 31, 2009 and December 31, 2008, authorized and issued share capital is
as follows:
Authorized
share capital:
(in
thousands of $, except per share data)
|
2009
|
2008
|
100,000,000
common shares of $1.00 each
|
100,000
|
100,000
|
Issued
share capital:
(in
thousands of $, except per share data)
|
2009
|
2008
|
67,576,866
(2007: 67,576,866) outstanding issued common shares of $1.00
each
|
67,577
|
67,577
|
In
November 2007, the Company completed a direct equity offering of 3.2 million
common shares in a placement in Norway, at a price of NOK133 per share
($24.30).
Treasury
shares
In
October 2005, the Board of the Company approved a share buyback scheme and in
connection with this established a facility for a Stock Indexed Total Return
Swap Programme or Equity Swap Line (See note 27) with a bank. In May
2007, the Company terminated this facility, recognizing a gain of $7.4 million
in earnings (See note 7). In 2007 in connection with the termination
of this facility, the Company bought back and cancelled 1.2 million shares from
the bank at a cost of $22.8 million, which was deducted from shareholders'
equity. Accordingly, the net cost to the Company of the shares
acquired after taking account of the equity swap gain was $15.4 million in
2007.
In
November 2007, the Company's Board of Directors approved the purchase of up to a
maximum of 1.0 million shares in the
Company. Between November and December 2007, the Company, through
market purchases, acquired a total of 0.4 million shares at an average price of
$20.55 per share, for total consideration of $8.2 million.
During
2009 and 2008, the Company disposed of 200,000 and 50,000 treasury shares
respectively in connection with the exercise of share options.
In
November 2009, the Company terminated an equity swap in 300,000 of its own
shares, originally priced at NOK41, and concurrently bought 300,000 at the
market price of NOK73 (approximately $13). The total transaction realised a gain
of approximately $1.7 million of which approximately $0.6 million is recorded in
the fourth quarter.
As at
December 31, 2009 Golar holds a total of 450,000 of its own shares (2008:
350,000) at a nominal value of $1.00 per share and an aggregate market value of
$5.8 million (2008: $2.3 million).
Share
options
In July
2001, the Company's Board of Directors approved the grant of options to eligible
employees to acquire an aggregate amount of up to 2.0 million shares in the
company.
In July
2001, the Company's Board of Directors granted options to certain directors and
officers to acquire 0.4 million shares at a subscription price of $5.75 per
share. These options vested on July 18, 2002 and are exercisable for
a maximum period of nine years following the first anniversary date of the
grant.
Under the
terms of the Company's employee share option scheme, which was approved by the
Company's Board of Directors in February 2002, options may be granted to any
director or eligible employee of the Company or its subsidiaries. All
options will expire on the tenth anniversary of the option's grant or at such
earlier date as the Board of Directors may from time to time
prescribe. The exercise price for the options may not be less than
the average of the fair market value of the underlying shares for the three
trading days before the date of grant. No consideration is payable
for the grant of an option.
During
the years 2008, 2007 and 2006, the Company granted 0.6 million, 0.6 million and
1.3 million share options, respectively, to certain employees and directors of
the Company and its subsidiaries. The options have a five year term
and vest equally over three years from the grant date.
A
condition of the 1.3 million share options awarded in 2006 provided that upon
voluntary termination by an option holders' employment with the Company and its
subsidiaries, provided the first anniversary of the date of grant had elapsed, a
reduced cash settlement based on the intrinsic value would be paid. Accordingly,
those share option awards eligible for this cash settlement feature were
originally classified as a liability with the remainder classified as
equity. During 2007, the Company made an amendment to these options,
to replace the right to cash compensation feature with an equivalent right to
exercise options for a limited period of time. As the modification
impacted no other terms the incremental compensation cost was
$nil. The impact of the modification affected 16 option holders and
resulted in the reclassification of these options from liability to
equity. Therefore following the remeasurement of the fair value of
the share options at the modification date there is no further requirement to
remeasure at subsequent reporting dates.
On
October 23, 2009, the Company announced that 1,058,083 (equity classified) share
options previously awarded to employees in October 2007 and August 2008 were to
be cancelled. In consideration for the acceptance of cancellation of
these options, new share options in Golar's new consolidated subsidiary Golar
LNG Energy Ltd ("Energy") were granted to employees of Golar Management (a
subsidiary of the Company) and directors of the Company or Energy.
Golar
Energy issued share options to directors and employees totalling 3,940,000 at a
strike price of $2.20. The Company also issued 250,000 new share options with a
strike price of $11.80; additionally 200,000 options were exercised that had a
strike price of $9.89. After this new issue, cancellation and exercise the
remaining outstanding options amount to 1,546,834. All the new options issued
vest over a period of two years and eight months.
The
cancellation and concurrent reissue is accounted for as a modification in the
Golar LNG Group. Accordingly, the modified value being the
unamortized cost of the cancelled awards plus the incremental fair value of the
modification is amortized over the new vesting periods.
As at
December 31, 2009, all the Company's share options are classified as
equity. Accordingly, the grant date or the modification date fair
value for stock options not exercised is recognized in shareholders' equity as
additional paid-in capital with a corresponding charge to the Consolidated
Statement of Operations. The Company may use either authorized
unissued shares of Golar or treasury shares held by the Company to satisfy
exercised options.
The fair
value of each option award is estimated on the grant date or modification date
using the Black-Scholes option pricing model. The weighted average assumptions
used are noted in the table below:
|
|
At
modification date
|
|
At
grant date
|
|
|
|
2007
|
|
2009
|
|
2008
|
|
2007
|
Risk
free interest rate
|
|
|
4.0 |
% |
|
|
2.4 |
% |
|
|
4.0 |
% |
|
|
4.4 |
% |
Expected
volatility of common stock
|
|
|
31.5 |
% |
|
|
54.4 |
% |
|
|
33.6 |
% |
|
|
33.1 |
% |
Expected
dividend yield
|
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected
life of options (in years)
|
|
2.5
years
|
|
3.5
years
|
|
3.6
years
|
|
3.7
years
|
The
assumption for expected future volatility is based primarily on an analysis of
historical volatility of the Company's common stock. The Company uses
the simplified method for making estimates as to the expected term of options,
based on the vesting period of the award and represents the period of time that
options granted are expected to be outstanding. The dividend yield
has been estimated at 0% as the exercise price of the options, granted in 2006
and later, are reduced by the value of dividends, declared and paid on a per
share basis.
A summary
of option activity (including both the Golar LNG Limited and Golar LNG Energy
Limited options) as at December 31, 2009, 2008 and 2007, and changes during the
years then ended are presented below:
(in
thousands of $, except per share data)
|
|
Shares
(In
'000s)
|
|
|
Weighted
average exercise price
|
|
|
Weighted
average
remaining contractual term (years)
|
|
Options
outstanding at December 31, 2006
|
|
1,558 |
|
|
$ |
12.84 |
|
|
|
4.4 |
|
Granted
during the year
|
|
607 |
|
|
$ |
22.77 |
|
|
|
|
|
Exercised
during the year
|
|
(56 |
) |
|
$ |
12.55 |
|
|
|
|
|
Forfeited
during the year
|
|
(31 |
) |
|
$ |
14.30 |
|
|
|
|
|
Options
outstanding at December 31, 2007
|
|
2,078 |
|
|
$ |
14.31 |
|
|
|
3.7 |
|
Granted
during the year
|
|
642 |
|
|
$ |
18.20 |
|
|
|
|
|
Exercised
during the year
|
|
(50 |
) |
|
$ |
12.43 |
|
|
|
|
|
Options
outstanding at December 31, 2008
|
|
2,670 |
|
|
$ |
14.51 |
|
|
|
3.2 |
|
Granted
during the year
|
|
4,190 |
|
|
$ |
2.77 |
|
|
|
|
|
Exercised
during the year
|
|
(200 |
) |
|
$ |
9.89 |
|
|
|
|
|
Forfeited
during the year
|
|
(1,173 |
) |
|
$ |
20.16 |
|
|
|
|
|
Options
outstanding at December 31, 2009
|
|
5,487 |
|
|
$ |
4.51 |
|
|
|
2.2 |
|
Options
exercisable at:
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
1,272 |
|
|
$ |
10.12 |
|
|
|
1.2 |
|
December
31, 2008
|
|
1,240 |
|
|
$ |
11.59 |
|
|
|
2.5 |
|
December
31, 2007
|
|
703 |
|
|
$ |
9.49 |
|
|
|
3.4 |
|
The
exercise price of all options except for those issued in 2001, is reduced by the
amount of the dividends declared and paid; the above figures for options
granted, exercised and forfeited show the average of the prices at the time of
granting, exercising and forfeiting of the options, and for options outstanding
at the beginning and end of the year the average of the reduced option prices is
shown.
The
intrinsic value of share options exercised in the years ended December 31, 2009,
2008 and 2007 was $0.7 million, $0.3 million and $nil,
respectively.
As at
December 31, 2009, the intrinsic value of both outstanding and exercisable share
options was $3.8 million (2008: $1.7 million).
A summary
of the status of the Company's non-vested share option activity and related
information for the years ended December 31, 2009, 2008 and 2007
follows:
(in
thousands of $, except per share data)
|
|
Shares
(In
'000s)
|
|
|
Weighted
average fair value at grant date or modified date
|
|
Options
non-vested at December 31, 2006
|
|
|
1,258 |
|
|
$ |
7.92 |
|
Granted
during the year
|
|
|
607 |
|
|
$ |
7.30 |
|
Vested
during the year
|
|
|
(481 |
) |
|
$ |
5.29 |
|
Forfeited
during the year
|
|
|
(9 |
) |
|
$ |
5.02 |
|
Options
non-vested at December 31, 2007
|
|
|
1,375 |
|
|
$ |
8.66 |
|
Granted
during the year
|
|
|
642 |
|
|
$ |
4.21 |
|
Vested
during the year
|
|
|
(587 |
) |
|
$ |
8.61 |
|
Options
non-vested at December 31, 2008
|
|
|
1,430 |
|
|
$ |
6.68 |
|
Granted
during the year
|
|
|
4,190 |
|
|
$ |
1.21 |
|
Vested
during the year
|
|
|
(409 |
) |
|
$ |
9.49 |
|
Forfeited
during the year
|
|
|
(996 |
) |
|
$ |
5.59 |
|
Options
non-vested at December 31, 2009
|
|
|
4,215 |
|
|
$ |
1.22 |
|
The total
fair value of share options vested in the years ended December 31, 2009, 2008
and 2007 was $3.9 million, $5.1 million and $2.5 million,
respectively.
Compensation
cost of $1.7 million, $3.1 million and $5.9 million has been recognized in the
Consolidated Statement of Operations for the years ended December 31, 2009, 2008
and 2007, respectively. As of December 31, 2009, the total
unrecognized compensation cost relating to options outstanding of $4.3 million
(2008: $5.3 million) is expected to be recognized over a weighted average period
of 1.8 years.
27. FINANCIAL
INSTRUMENTS
Interest
rate risk management
In
certain situations, the Company may enter into financial instruments to reduce
the risk associated with fluctuations in interest rates. The Company
has entered into swaps that convert floating rate interest obligations to fixed
rates, which from an economic perspective hedge the interest rate
exposure. The Company does not hold or issue instruments for
speculative or trading purposes. The counterparties to such contracts
are major banking and financial institutions. Credit risk exists to
the extent that the counterparties are unable to perform under the contracts;
however the Company does not anticipate non-performance by any of its
counterparties.
The
Company manages its debt and capital lease portfolio with interest rate swap
agreements in U.S. dollars to achieve an overall desired position of fixed and
floating interest rates. Effective October 1, 2008, the Company
commenced hedge accounting for certain of its interest rate swap arrangements
designated as cash flow hedges. The net gains and losses have been
reported in a separate component of accumulated other comprehensive income to
the extent the hedges are effective. The amount recorded in
accumulated other comprehensive income will subsequently be reclassified into
earnings in the same period as the hedged items affect earnings. As
at December 31, 2009, the Company does not expect any material amounts to be
reclassified from accumulated other comprehensive income to earnings during the
next twelve months.
During
the years ended December 31, 2009, 2008 and 2007, the Company recognized a net
loss of $0.5 million, $0.1 million, and $nil, respectively, in earnings relating
to the ineffective portion of its interest rate swap agreements.
As of
December 31, 2009, the Company has entered into the following interest rate swap
transactions involving the payment of fixed rates in exchange for LIBOR as
summarized below. The summary also includes those that are designated
as cash flow hedges:
Instrument
(in
thousands of $)
|
Notional
value
|
Maturity
Dates
|
Fixed
Interest Rates
|
Interest
rate swaps:
|
|
|
|
Receiving
floating, pay fixed
|
643,875
|
2010-
2015
|
1.99%
to 5.04%
|
At
December 31, 2009, the notional principal amount of the debt and capital lease
obligations outstanding subject to such swap agreements was $643.9 million
(2008: $795.4 million).
Foreign
currency risk
The
majority of the vessels' gross earnings are receivable in U.S.
dollars. The majority of the Company's transactions, assets and
liabilities are denominated in U.S. dollars, the functional currency of the
Company. However, the Company incurs expenditure in other
currencies. Certain capital lease obligations and related restricted
cash deposits of the Company are denominated in British Pounds. There
is a risk that currency fluctuations will have a negative effect on the value of
the Company's cash flows.
A net
foreign exchange gain of $8.4 million arose in the year ended December 31, 2009
(2008: $8.0 million net loss) as a result of the retranslation of the Company's
capital lease obligations and the cash deposits securing those obligations net
of the gain (2008: loss) on the currency swap referred to below. The
net gain arose due to the appreciation of the British Pound against the U.S.
Dollar during the year. This net gain represents an unrealized gain
and does not therefore materially impact the Company's
liquidity. Further foreign exchange gains or losses will arise over
time in relation to Golar's capital lease obligations as a result of exchange
rate movements. Gains or losses will only be realized to the extent
that monies are, or are required to be withdrawn or paid into the deposits
securing our capital lease obligations or if the leases are
terminated.
As
described in note 24, in April 2004, the Company entered into a lease
arrangement in respect of the Golar Winter, the obligation
in respect of which is denominated in GBP. In this transaction the
restricted cash deposit, which secures the letter of credit given to the lessor
to secure part of Golar's obligations to the lessor, is much less than the
obligation and therefore, unlike the Five Ship Leases and the Methane Princess
Lease, does not provide a natural hedge. In order therefore to hedge
this exposure the Company entered into a currency swap with a bank, who is also
the lessor, to exchange GBP payment obligations into U.S. dollar payment
obligations as set out in the table below. The swap hedges the full
amount of the GBP lease obligation and the restricted cash deposit is
denominated in U.S dollars. The Company could be exposed to currency
risk if the lease was terminated.
In
addition, to limit the Company's exposure to foreign currency fluctuations from
its obligations under its various FSRU conversion projects the Company enters
into foreign currency forward contracts.
As of
December 31, 2009, the Company has entered into the following foreign currency
forward contracts as summarized below:
|
Notional
amount
|
|
|
Instrument
(in
thousands)
|
Receiving
in foreign currency
|
Pay
in USD |
Maturity
dates |
Average
forward
rate USD foreign
currency
|
Currency
rate swaps:
|
|
|
|
|
British
Pounds
|
65,546
|
105,975
|
2032
|
1.6168
|
Euros
|
2,700
|
3,869
|
2010
|
1.4329
|
Norwegian
Kroner
|
49,000
|
8,472
|
2010
|
0.1729
|
Singapore
Dollar
|
20,000
|
14,236
|
2010
|
0.7118
|
The
counterparties to the foreign currency swap contracts are major banking
institutions. Credit risk exists to the extent that the counterparty
is unable to perform under the contract; however the Company does not anticipate
non-performance by any of its swap counterparties.
As of
December 31, 2009, the company is not exposed to any equity price
risk.
Fair
values
The
carrying value and estimated fair value of the Company's financial instruments
at December 31, 2009 and 2008 are as follows:
|
2009
|
2009
|
2008
|
2008
|
(in
thousands of $)
|
Carrying
Value
|
Fair
Value
|
Carrying
Value
|
Fair
Value
|
Non-Derivatives:
|
|
|
|
|
Cash
and cash equivalents
|
122,231
|
122,231
|
56,114
|
56,114
|
Restricted
cash and short-term investments
|
40,651
|
40,651
|
60,352
|
60,352
|
Long-term
restricted cash
|
594,154
|
594,154
|
557,052
|
557,052
|
Long-term
unlisted investments
|
10,347
|
N/a
|
10,347
|
N/a
|
Marketable
securities
|
13,458
|
13.458
|
360
|
360
|
Short-term
debt – floating
|
74,504
|
74,504
|
71,395
|
71,395
|
Long-term
debt – floating
|
707,722
|
707,722
|
737,226
|
737,226
|
Short-term
obligations under capital leases
|
8,588
|
8,588
|
6,006
|
6,006
|
Long-term
obligations under capital leases
|
844,355
|
844,355
|
784,421
|
784,421
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
Interest
rate swaps liability
|
36,354
|
36,354
|
65,329
|
65,329
|
Foreign
currency swaps liability
|
19,043
|
19,043
|
50,088
|
50,088
|
Equity
swaps liability
|
-
|
-
|
8,211
|
8,211
|
The
carrying value of cash and cash equivalents, which are highly liquid, is a
reasonable estimate of fair value.
The
estimated fair value for restricted cash and short-term investments is
considered to be equal to the carrying value since they are placed for periods
of less than six months. The estimated fair value for long-term
restricted cash is considered to be equal to the carrying value since it bears
variable interest rates, which are reset on a quarterly basis.
The fair
value of the Company's marketable securities is determined using the closing
quoted market price.
As at
December 31, 2009, the Company did not identify any events or changes in
circumstances that would indicate the carrying value of its unlisted investments
in both TORP Technology, LNGL and OLT–O were not recoverable (See note
19). Accordingly, the Company did not estimate the fair value of
these investments as at December 31, 2009.
The
estimated fair value for floating long-term debt is considered to be equal to
the carrying value since it bears variable interest rates, which are reset on a
quarterly or six monthly basis. The estimated fair value for
long-term debt with fixed rates of interest of more than one year is estimated
by obtaining quotes for breaking the fixed rate at the year end, from the
related banking institution.
The
estimated fair values of long-term lease obligations under capital leases are
considered to be equal to the carrying value since they bear interest at rates,
which are reset on a quarterly basis.
The fair
value of the Company's derivative instruments is the estimated amount that the
Company would receive or pay to terminate the agreements at the reporting date,
taking into account current interest rates, foreign exchange rates, closing
quoted market prices and the creditworthiness of the Company and its swap
counterparties.
The
Company adopted the guidance on fair value measurement as of January 1,
2008. The adoption of this guidance did not have a material impact on
the financial statements of the Company. The guidance applies to all
assets and liabilities that are being measured and reported on a fair value
basis. The guidance requires new disclosure that establishes a
framework for measuring fair value in U.S. GAAP and expands disclosure about
fair value measurements. The guidance enables the reader of the
financial statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. The guidance requires
assets and liabilities carried at fair value to be classified and disclosed in
one of the following three categories
Level 1:
Quoted market prices in active markets for identical assets and
liabilities.
Level 2:
Observable market based inputs or unobservable inputs that are corroborated by
market data.
Level 3:
Unobservable inputs that are not corroborated by market data.
The
following table summarizes the valuation of the Company's financial instruments
by the above guidance on fair value measurements pricing levels as of December
31, 2009:
(in
thousands of $)
|
Quoted
market
prices
in
active markets
(Level
1)
|
Significant
Other Observable
Inputs
(
Level 2)
|
Total
|
Interest
rate swaps – liability position
|
-
|
36,354
|
36,354
|
Foreign
currency swaps – liability position
|
-
|
19,043
|
19,043
|
Marketable
Securities
|
13,458
|
-
|
13,458
|
|
|
|
|
The
guidance further states that the fair value measurement of a liability must
reflect the non-performance risk of the entity. Therefore, the impact
of the Company's creditworthiness has also been factored into the fair value
measurement of the derivative instruments in a liability position.
Concentrations
of risk
There is
a concentration of credit risk with respect to cash and cash equivalents,
restricted cash and short-term investments to the extent that substantially all
of the amounts are carried with Nordea Bank of Finland PLC, Mizuho Corporate
Bank, Lloyds TSB Bank plc, The Bank of New York, Bank of Scotland, Alliance
& Leicester and Fokus Bank. However, the Company believes this
risk is remote.
During
the year ended December 31, 2009, four customers accounted for 93% of the total
operating revenues of the company. These revenues and associated
accounts receivable are derived from its three time charters with BG Group plc,
one time charter with Pertamina, three time charters with Shell and two time
charters with Petrobras. Pertamina is a state enterprise of the Republic of
Indonesia. Credit risk is mitigated by the long-term contracts with
Pertamina being on a ship-or-pay basis. Also, under the various
contracts the Company's vessel hire charges are paid by the Trustee and Paying
Agent from the immediate sale proceeds of the delivered gas. The
Trustee must pay the ship owner before Pertamina and the gas sales contracts are
with the Chinese Petroleum Corporation. The Company considers the
credit risk of BG Group plc, Petrobas and Shell to be low.
During
the years ended December 31, 2009, 2008 and 2007, Petrobras (2009 only), BG
Group plc, Pertamina and Shell each accounted for more than 10% of gross
revenue.
During
2008, Pertamina, BG Group plc and Shell accounted for revenues of $37.1 million,
$75.1 million and $85.3 million, respectively.
During
2009, Petrobras, Pertamina, BG Group plc and Shell accounted for revenues of
$61.3 million, $40.4 million, $61.3 million and $45.6 million,
respectively.
28. RELATED PARTY
TRANSACTIONS
Net
(expenses) income from related parties:
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
Frontline
Ltd. and subsidiaries ("Frontline")
|
|
|
(261 |
) |
|
|
95 |
|
Seatankers
Management Company Limited ("Seatankers")
|
|
|
(82 |
) |
|
|
(35 |
) |
Ship
Finance AS ("Ship Finance")
|
|
|
195 |
|
|
|
37 |
|
Frontline,
Seatankers, Ship Finance, Arcadia and World Shipholding are each subject to
significant influence or the indirect control of Trusts established by our
chairman, John Fredriksen, for the benefit of his immediate
family.
Net
expense/income from Frontline, Seatankers and Ship Finance comprise fees for
management support, corporate and insurance administrative services, net of
income from supplier rebates and income from the provision of serviced offices
and facilities.
During
the years ended December 31, 2007, the Company entered into forward contracts,
which Arcadia executed on the Company's behalf for the purpose of hedging its
risk exposure to the risk of the movement in the price of natural gas effecting
charter rates and for speculative purposes. In the years ended
December 31, 2007 the realized gain on termination of these natural gas forward
contracts receivable from Arcadia was $0.4 million, and have been included
within other financial items.
During
2007, in connection with the Company's equity offering in November 2007 (See
note 26), Golar entered into a share loan with World Shipholding, whereby World
Shipholding loaned 3.2 million common shares in Golar to the Company's agent for
the purpose of satisfying sales to investors in the private
placement. Subsequently, the Company settled the share loan with a
new issue of common shares. In addition in March 2007, World
Shipholding also provided the Company with a short-term loan of $25
million. The loan was repaid on March 30, 2007 along with interest of
$37,000.
In
December 2009, the Company entered into an $80 million revolving credit facility
with World Shipholding,
to provide short-term bridge financing, please refer to note 3.
As of
December 31, 2009,
World Shipholding which is indirectly controlled by Trusts established by John
Fredriksen for the benefit of his immediate family owned 46.18% (2008: 45.97%)
of Golar. (see note 23)
Receivables
(payables) from related parties:
(in
thousands of $)
|
|
2009
|
|
|
2008
|
|
Frontline
|
|
|
488 |
|
|
|
385 |
|
Seatankers
|
|
|
(106 |
) |
|
|
(24 |
) |
Ship
Finance
|
|
|
115 |
|
|
|
37 |
|
Arcadia
|
|
|
- |
|
|
|
- |
|
|
|
|
497 |
|
|
|
398 |
|
Receivables
and payables with related parties comprise primarily of unpaid management fees,
advisory and administrative services. In addition, certain
receivables and payables arise when the Company pays an invoice on behalf of a
related party and vice versa. Receivables and payables are generally
settled quarterly in arrears.
During
the years ended December 31, 2009, 2008 and 2007, Faraway Maritime Shipping
Company, which is 60% owned by Golar and 40% owned by China Petroleum
Corporation ("CPC"), paid dividends totalling $3.4 million, $5.0 million and
$5.0 million, of which 60% was paid to Golar and 40% was paid to
CPC.
29. CAPITAL
COMMITMENTS
Vessel
Conversion
In April
2008, the Company entered into a time charter agreement with DUSUP, which
requires the conversion of the Golar Freeze into a
FSRU. As at December 31, 2009, the Company had a contract with Keppel
Shipyard and other suppliers for equipment and engineering in connection with
the conversion of the Golar
Freeze into a FSRU. Accordingly, as of December 31, 2009, the
Company had a commitment to incur costs in connection with the retrofit of the
Golar Freeze into a
FSRU. In addition, as of December 31, 2009 and 2008, the Company had
committed to incur $0.5 million and $2.5 million respectively for equipment in
connection with the speculative conversion of the Hilli.
As at December 31, 2009, the estimated
timing of the remaining payments in connection with these conversions are due to
be paid as follows:
(in
thousands of $)
|
|
|
Payable
in 12 months to December 31, 2010
|
|
55,141
|
|
|
55,141
|
30. OTHER
COMMITMENTS AND CONTINGENCIES
Assets
Pledged
(in
thousands of $)
|
December
31, 2009
|
December
31, 2008
|
Book
value of vessels secured against long-term loans
and
capital leases
|
1,644,835
|
1,559,858
|
Other
Contractual Commitments and contingencies
Insurance
The
Company insures the legal liability risks for its shipping activities with Gard
and Skuld. Both are mutual protection and indemnity associations. As
a member of a mutual association, the Company is subject to calls payable to the
associations based on the Company's claims record in addition to the claims
records of all other members of the association. A contingent
liability exists to the extent that the claims records of the members of the
association in the aggregate show significant deterioration, which results in
additional calls on the members.
Tax
lease benefits
The
benefits under lease financings are derived
primarily from tax depreciation assumed to be available to lessors as a result
of their investment in the vessels. In
the event of any adverse tax changes to legislation affecting the tax treatment
of the leases for the U.K. vessel lessors or a successful challenge by the U.K.
Revenue authorities to the tax assumptions on which the transactions were based,
or in the event that we terminate any of our U.K. tax leases before their
expiration, we would be required to return all or a portion of, or in certain
circumstances significantly more than, the upfront cash benefits that we have
received or that have accrued over time, together with fees that were financed
in connection with our lease financing transactions, or post additional security
or make additional payments to the U.K. vessel lessors. Any
additional payments could adversely affect our earnings and financial
position. The upfront benefits we have received equates to the cash
inflow we received in connection with the six leases we entered into during 2003
(in total a gross amount before deduction of fees of approximately £41 million
British pounds, or GBP). Two of our U.K. tax leases accrue benefit over the term
of the leases. The remaining six UK tax leases were structured so that a cash
benefit was received up front. As at December 31, 2008, the total unamortized balance
of deferred credits from capital lease transactions (See note 24) was $51.6
million. A termination of any of these leases would realize the
accrued currency gain or loss. As at December 31, 2008, this was a
net accrued loss of approximately $10.1
million.
Other
In
December 2005, the Company signed a shareholders' agreement in connection with
the setting up of a jointly owned company to be named Egyptian Company for Gas
Services S.A.E ("ECGS"), which was to be established to develop hydrocarbon
business and in particular LNG related business in Egypt. As at March
31, 2010, the Company was committed to subscribe for common shares in ECGS for a
further consideration of $3.7 million payable within five years of
incorporation, at dates to be determined by ECGS's Board of
Directors.
As at December 31, 2009, the Company
had a commitment to pay $1.0 million to a third party, contingent upon the
conclusion of a material commercial business transaction by ECGS as
consideration for work performed in connection with the
setting up and incorporation of ECGS.
31. SUBSEQUENT
EVENTS
In March
2010, the Company terminated three of the leases within the Five Ships Leases
and immediately entered into three new long funding finance leases ("LFFL's") in
respect of the same ships. The LFFL's have an initial term of approximately 12
years from inception. The lease obligations under the LFFL's are secured by cash
deposits of the same value. The cash deposits will be used to service the
entirety of the lease obligations.
In April
2010, the conversion of the Golar Freeze to a FSRU was completed. The ship had
been undergoing conversion in Singapore since October 2009. The ship will sail
from Singapore to Dubai to commence its 10 year time charter with Dubai Supply
Authority to commence its 10 year charter.
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant certifies that it meets all of the requirements for filing on Form
20-F and has duly caused this annual report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
Golar LNG Limited
|
|
|
|
(Registrant)
|
|
|
|
|
Date
|
April 29, 2010
|
|
By
|
/s/ Graham Robjohns
|
|
|
|
|
Graham
Robjohns
Principal
Financial and Accounting
Officer
|