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Approximate date of commencement of proposed sale to the
public: January 13, 2010
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following
box. o
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest
reinvestment plans, check the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a registration statement pursuant to General
Instruction I.C. or a post-effective amendment thereto that
shall become effective upon filing with the Commission pursuant
to Rule 462(e) under the Securities Act, check the
following
box. þ
If this Form is a post-effective amendment to a registration
statement filed pursuant to General Instruction I.C. filed
to register additional securities or additional classes of
securities pursuant to Rule 413(b) under the Securities
Act, check the following
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CALCULATION OF
REGISTRATION FEE
Proposed maximum
Proposed maximum
Amount of
Title of each class of
Amount to be
offering price per
aggregate offering
registration
securities to be registered
registered
note
price(1)
fee
Senior Notes due 2020
$450,000,000
100%
$450,000,000
$32,085(2)
(1)
Estimated solely for the purpose of calculating the registration
fee. The registration fee has been calculated in accordance with
Rule 457(r) under the Securities Act of 1933.
(2)
Includes $21,390 in registration fees already submitted to the
Securities and Exchange Commission. The balance of the
registration fee, or $10,695, is being paid on a deferred basis
in reliance upon Rules 456(b) and 457(r).
This
preliminary prospectus relates to an effective registration
statement but is not complete and may be changed. This
preliminary prospectus is not an offer to sell these notes and
is not soliciting an offer to buy these notes in any
jurisdiction where the offer or sale is not permitted.
We are offering $450,000,000 aggregate principal amount
of % Senior Notes due 2020.
The notes will mature
on ,
2020. Interest on the notes will accrue
from ,
2010 and be payable
on
and of
each year, commencing
on ,
2010.
We may redeem some or all of the notes at any time or from time
to time at a redemption price that includes a
“make-whole” premium, as described under the caption
“Description of notes—Optional redemption.” We
may also redeem up to 35% of the notes prior
to ,
2013 with cash proceeds we receive from certain equity
offerings. At your option, we may be required to repurchase the
notes in whole or in part upon a “change of control
triggering event,” as described under the caption
“Description of notes—Covenants—Repurchase of
notes upon a change of control triggering event.”
The notes will be our senior unsecured obligations and will rank
equally with our other unsecured and unsubordinated debt from
time to time outstanding. The notes will not be guaranteed by
any of our subsidiaries. The notes will effectively rank behind
all of our existing and future secured debt, to the extent of
the value of the assets securing such debt. We are a holding
company and the notes will effectively rank behind all existing
and future debt and other liabilities of our subsidiaries.
Investing in the notes involves risks. You should carefully
consider each of the factors described under “Risk
Factors” beginning on page 29 of this prospectus
before you invest in the notes.
Neither the U.S. Securities and Exchange Commission nor any
state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
Proceeds, before
Public offering
price(1)
Underwriting discount
expenses, to Teekay
Per note
$
%
$
Total
$
$
$
(1)
Plus accrued interest, if any,
from ,
2010.
The notes will not be listed on any securities exchange.
Currently, there is no public market for the notes.
We expect that delivery of the notes to purchasers will be made
on or
about
, 2010 in book-entry form through The Depository
Trust Company for the account of its participants,
including Euroclear Bank, S.A./N.V. and Clearstream Banking,
société anonyme.
Joint book-running managers
J.P.
Morgan
Citi
Deutsche Bank Securities
Co-managers
BNP
PARIBAS
DnB NOR Markets
ING Wholesale
Scotia Capital
The date of this prospectus is January , 2010.
You should rely only on the information contained in this
prospectus and the documents incorporated by reference herein
and any related free writing prospectus. We have not authorized
anyone to provide you with different information. If anyone
provides you with different or inconsistent information, you
should not rely on it. We are not, and the underwriters are not,
making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should not assume
that the information contained in this prospectus is accurate as
of any date other than the date on the front of this
prospectus.
All statements, other than statements of historical fact,
included in or incorporated by reference into this prospectus
are forward-looking statements. In addition, we and our
representatives may from time to time make other oral or written
statements that are also forward-looking statements. Such
statements include, in particular, statements about our plans,
strategies, business prospects, changes and trends in our
business, and the markets in which we operate. In some cases,
you can identify the forward-looking statements by the use of
words such as “may,”“will,”“could,”“should,”“would,”“expect,”“plan,”“anticipate,”“intend,”“forecast,”“believe,”“estimate,”“predict,”“propose,”“potential,”“continue” or the negative of
these terms or other comparable terminology.
Forward-looking statements in this prospectus or incorporated by
reference herein include, among others, statements about the
following matters:
•
our future financial condition or results of operations and
future revenues and expenses;
•
tanker market conditions and fundamentals, including the balance
of supply and demand in these markets and spot tanker charter
rates and oil production;
•
offshore, liquefied natural gas (or LNG) and liquefied
petroleum gas (or LPG) market conditions and
fundamentals, including the balance of supply and demand in
these markets;
•
our future growth prospects;
•
our expected benefits from the OMI acquisition;
•
the sufficiency of our working capital for short-term liquidity
requirements;
•
future capital expenditure commitments and the financing
requirements for such commitments;
•
delivery dates of and financing for newbuildings, and the
commencement of service of newbuildings under long-term
time-charter contacts;
•
potential newbuilding order cancellations;
•
construction and delivery delays in the tanker industry
generally;
•
the future valuation of goodwill;
•
the adequacy of restricted cash deposits to fund capital lease
obligations;
•
our compliance with covenants under our credit facilities;
•
our ability to fulfill our debt obligations;
•
compliance with financing agreements and the expected effect of
restrictive covenants in such agreements;
•
declining market values of our vessels and the effect on our
liquidity;
•
operating expenses, availability of crew and crewing costs,
number of off-hire days, drydocking requirements and durations
and the adequacy and cost of insurance;
our ability to capture some of the value from the volatility of
the spot tanker market and from market imbalances by utilizing
forward freight agreements;
•
the ability of the counterparties to our derivative contracts to
fulfill their contractual obligations;
•
our ability to maximize the use of our vessels, including the
re-deployment or disposition of vessels no longer under
long-term contracts;
•
the cost of, and our ability to comply with, governmental
regulations and maritime self-regulatory organization standards
applicable to our business;
•
the impact of future regulatory changes or environmental
liabilities;
•
taxation of our company and of distributions to our stockholders;
•
the expected life-spans of our vessels;
•
the expected impact of heightened environmental and quality
concerns of insurance underwriters, regulators and charterers;
•
anticipated funds for liquidity needs and the sufficiency of
cash flows;
•
our hedging activities relating to foreign exchange, interest
rate, spot market and bunker fuel risks;
•
the effectiveness of our risk management policies and procedures
and the ability of the counterparties to our derivative
contracts to fulfill their contractual obligations;
•
the potential for additional revenue from our Petrojarl Varg
FPSO contract based on volume of oil produced;
•
the growth of global oil demand;
•
the recent economic downturn and financial crisis in the global
market, including disruptions in the global credit and stock
markets, and potential negative effects of any reoccurrence of
such disruptions on our customers’ ability to charter our
vessels and pay for our services;
•
our exemption from tax on our U.S. source international
transportation income;
•
results of our discussions with certain customers to adjust the
rate under our floating production, storage and offloading
contracts;
•
our ability to competitively pursue new floating production,
storage and offloading projects;
•
our competitive positions in our markets;
•
our business strategy and other plans and objectives for future
operations; and
•
our ability to pay dividends on our common stock.
These and other forward-looking statements are subject to risks,
uncertainties and assumptions, including those risks discussed
in “Risk Factors” below and those risks discussed in
other reports we file with the SEC and that are incorporated in
this prospectus by reference, including, without limitation, our
Annual Report on
Form 20-F
for the year ended December 31, 2008 and our Report on
Form 6-K
for the period ended September 30, 2009. The risks,
uncertainties and
assumptions involve known and unknown risks and are inherently
subject to significant uncertainties and contingencies, many of
which are beyond our control.
Forward-looking statements are made based upon management’s
current plans, expectations, estimates, assumptions and beliefs
concerning future events affecting us and, therefore, involve a
number of risks and uncertainties, including those risks
discussed in “Risk Factors,” and the documents
incorporated by reference herein. We caution that
forward-looking statements are not guarantees and that actual
results could differ materially from those expressed or implied
in the forward-looking statements.
We undertake no obligation to update any forward-looking
statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and
it is not possible for us to predict all of these factors.
Further, we cannot assess the effect of each such factor on our
business or the extent to which any factor, or combination of
factors, may cause actual results to be materially different
from those contained in any forward-looking statement.
The following summary highlights selected information
contained elsewhere in this prospectus and the documents
incorporated by reference herein and does not contain all the
information that you should consider before deciding whether to
invest in the notes. For a more complete understanding of Teekay
Corporation and this offering of notes, we encourage you to
carefully read this entire prospectus and the other documents
incorporated by reference herein. Unless otherwise indicated or
the context otherwise requires, references in this prospectus to
“Teekay,”“we,”“us” and
“our” and similar terms refer to Teekay Corporation
and/or one
or more of its subsidiaries, except that those terms, when used
in this prospectus in connection with the notes described
herein, shall mean specifically Teekay Corporation. References
in this prospectus to “Teekay Parent” refer to the
assets, liabilities, results of operations and cash flows of
Teekay Corporation and its non-publicly traded subsidiaries,
which is explained in further detail on page 21 in
“—Summary financial and operating data.”
Financial and operating data of Teekay Parent are not calculated
or presented in accordance with generally accepted accounting
principles in the United States (or GAAP). Unless otherwise
indicated, all references in this prospectus to
“dollars” and “$” are to, and amounts are
presented in, U.S. Dollars, and financial information
presented in this prospectus is prepared in accordance with
GAAP. References in this prospectus to “independent”
fleet owners or operators mean companies other than private or
state controlled entities that operate their own fleets. Unless
otherwise indicated, we include as long-term contracts those
with an initial term of at least three years.
Overview
We are a leading provider of international crude oil and gas
marine transportation services, and transport approximately 10%
of the world’s seaborne oil, primarily under long-term,
fixed-rate contracts. We also offer offshore floating oil
production, storage and off-loading services. With an owned and
in-chartered fleet of 158 vessels (including
11 newbuildings), offices worldwide and approximately 6,300
seagoing and shore-based employees, we provide comprehensive
marine services to the world’s leading oil and gas
companies, helping them link their upstream energy production to
their downstream operations.
We are a market leader in each of the segments in which we
operate. We are the third largest independent owner of liquefied
natural gas (or LNG) carriers, with a fleet of
19 vessels (including four newbuildings) in addition to six
liquefied petroleum gas (or LPG) carriers (including
three LPG newbuildings). With a fleet of 39 shuttle tankers
(including four newbuildings), we are the world’s largest
independent owner and operator of shuttle tankers and control
over 50% of the worldwide shuttle tanker fleet. We are also one
of the largest owners and operators of floating production,
storage and off-loading (or FPSO) units in the North Sea,
with four owned units currently operating in that region, in
addition to a fifth owned FPSO unit operating off the coast of
Brazil. During 2009, our FPSO units produced an average of
approximately 95,000 barrels of oil per day under long-term
contracts. With our fleet of 83 crude oil and petroleum product
tankers, we are the largest owner and operator of mid-size
conventional oil tankers. For the 12 months ended
September 30, 2009, our total fleet generated revenues of
approximately $2.4 billion, net revenues of approximately
$2.0 billion, net loss of approximately $560.4 million
and Adjusted EBITDA of $617.2 million. Please read
“—Summary financial and operating data” for
reconciliations of our revenues to net revenues and of our net
loss to Adjusted EBITDA.
Our customers include major international oil, energy and
utility companies such as BP plc, Chevron Corporation,
ConocoPhillips, ExxonMobil Corporation, Petroleo Brasileiro S.A.
(or Petrobras), Ras
Laffan Liquified Natural Gas Company Ltd. (a joint venture
between ExxonMobil Corporation and the Government of Qatar),
Repsol YPF S.A., Shell, Statoil ASA, Talisman Energy, Inc. and
Total S.A. We believe that customers partner with us for
logistically complex projects under long-term, fixed-rate
contracts due to our extensive capabilities, diverse service
offerings, global operations platform, financial stability and
high quality fleet and customer service. As of December 31,2009, 37 of our contracts with customers exceeded 10 years
in duration, excluding options to extend.
Over the past decade, we have transformed from being primarily
an owner of ships in the cyclical spot tanker sector to being a
diversified supplier of logistics services in the “Marine
Midstream” sector. This transformation has included, among
other things:
•
Our entry into the LNG and LPG shipping sectors and into the
offshore oil production, storage and transportation sectors;
•
The reorganization of certain of our assets through our
formation of three publicly-traded subsidiaries, which are
focused on growing specific core operating segments and have
expanded our investor base and access to the capital
markets; and
•
Expansion of our fixed-rate businesses. For the
12 months ended September 30, 2009, net revenues from
fixed-rate contracts with an initial term of at least three
years represented 69% of our total net revenues, compared to 41%
of total net revenues in 2003. For the 12 months ended September30, 2009, net revenues from fixed-rate contracts with an initial
term of at least one year represented approximately 75% of our
total net revenues. As of December 31, 2009, we had under
contract a total of approximately $11.5 billion of forward,
fixed-rate revenue, with a weighted-average remaining term of
approximately 10.3 years (excluding options to extend).
Our three publicly-traded subsidiaries include: Teekay LNG
Partners L.P. (NYSE: TGP) (or Teekay LNG), which we
formed in 2005 and primarily operates in the LNG and LPG
shipping sectors; Teekay Offshore Partners L.P. (NYSE: TOO) (or
Teekay Offshore), which we formed in 2006 and primarily
operates in the offshore oil production, storage and
transportation sectors; and Teekay Tankers Ltd. (NYSE: TNK) (or
Teekay Tankers), which we formed in 2007 and engages in
the conventional tanker business. Teekay Parent, which
essentially includes all our operations other than those of our
publicly-traded subsidiaries, manages substantially all of the
vessels in the total Teekay fleet and itself owns or in-charters
a fleet of 65 vessels (including eight newbuildings),
comprised of 52 conventional tankers, four FPSO units and one
floating storage and offtake (or FSO) unit.
Through our flexible corporate structure, we have access to the
debt and equity capital markets to grow each of our core
businesses. Through vessel sales by Teekay Parent to its
publicly-traded subsidiaries and public equity financing of such
acquisitions by those subsidiaries, Teekay Parent reduced its
net debt during the 12 months ended September 30, 2009
by approximately $300 million. In November 2009, Teekay
Parent further reduced its net debt by repaying
$160 million under one of its revolving credit facilities,
using funds repaid to it by Teekay Offshore. As our
publicly-traded subsidiaries continue to issue equity to finance
their growth, structural mechanisms, including Teekay
Parent’s ownership of the sole general partnership
interests in Teekay LNG and Teekay Offshore and its 100%
ownership of Teekay Tankers’ supervoting Class B
shares, provide Teekay Parent with a significant level of
control over these entities. Certain of Teekay’s officers
and directors are also officers and directors of the
publicly-traded subsidiaries or, as applicable, their general
partners. Please read “Certain relationships and related
party transactions.” Distributions Teekay Parent receives
from these subsidiaries as well as cash flow generated by assets
owned by Teekay Parent have further reduced its debt level.
Please see “—Organizational structure” for
further information about our corporate structure.
Although our corporate structure includes our three
publicly-traded subsidiaries, our operations are divided into
the following segments: the liquefied gas segment; the shuttle
tanker and FSO segment; the FPSO segment and the conventional
tanker segment (which we further divide into the fixed-rate
tanker segment and the spot tanker segment).
Our liquefied gas segment includes our LNG and LPG operations,
with all delivered vessels currently owned by Teekay LNG. All of
our LNG and LPG carriers operate under long-term, fixed-rate
time-charter contracts, with an average remaining term of
approximately 17.2 years as of December 31, 2009
(excluding options to extend). This fleet totaled
25 carriers, including seven newbuildings on order, as
of December 31, 2009.
Our FPSO segment includes five FPSO units, four of which are
owned by Teekay Parent and one by Teekay Offshore. All of these
units operate under long-term fixed-rate contracts. As of
December 31, 2009, the average remaining term for our FPSO
contracts was approximately 4.5 years (excluding options to
extend).
Our shuttle tanker and FSO segment includes our shuttle tankers
and FSO units, all of which generally operate under long-term,
fixed-rate contracts. As of December 31, 2009, this fleet
consisted of 39 shuttle tankers (including
four newbuildings and
eight in-chartered
vessels), with contracts with an average remaining term of
approximately 4.3 years (excluding options to extend), and
six FSO units, with contracts with an average remaining
term of approximately 4.9 years (excluding options to
extend). All of the shuttle tankers and FSO units are owned or
operated by Teekay Offshore, except for four Aframax newbuilding
shuttle tankers on order and one FSO unit, which are owned by
Teekay Parent. Our shuttle tanker fleet, including newbuildings
on order, has a total capacity of approximately 4.7 million
deadweight tonnes (or dwt) and represents more than 50%
of the total world shuttle tanker fleet.
Our conventional tanker segment included 73 crude oil
tankers and 10 product tankers, representing the
world’s largest fleet of mid-size conventional oil tankers.
Of this fleet, 52 tankers are owned or operated by Teekay
Parent and 31 tankers are owned by Teekay Tankers,
Teekay LNG or Teekay Offshore. As of December 31, 2009, we
had 42 conventional tankers employed on long-term,
fixed-rate time charters, with an average remaining term of
approximately 4.8 years (excluding options to extend). The
remainder of our conventional tanker fleet operated in the spot
tanker market as of December 31, 2009.
In our conventional tanker segment, we have developed a flexible
commercial operating platform. Certain of our vessels in the
spot tanker segment operate pursuant to commercial pooling
arrangements which include our and third party vessels and are
managed either solely or jointly by us. We believe the size and
scope of our commercial pooling arrangements enhance our ability
to secure backhaul voyages, which improves pool vessel
utilization and generates higher effective time-charter
equivalent (or TCE) rates per vessel than might otherwise
be obtained in the spot market, while providing certain cost
efficiencies and a higher overall service level to customers. As
of December 31, 2009, an additional 27 tankers
controlled by third parties operated in our commercial pools
thereby increasing our overall footprint in the conventional
tanker sector from 83 to 110 vessels.
Our size, reputation and operational capabilities provide
opportunities for us to
in-charter
third party vessels to our fleet. This flexibility allows us to
expand our spot market fleet size or, by not renewing
in-charters,
reduce the fleet size in response to market conditions. Since
the fourth quarter of 2008, we have taken steps to reduce our
exposure to the weakening spot tanker market, including
redelivering in-chartered vessels, chartering out vessels on
fixed-rate
time-charter contracts and selling certain spot traded vessels.
As a result, we reduced our quarterly in-charter hire expense by
approximately $60 million for the quarter ended
September 30, 2009 compared to the quarter ended
September 30, 2008. Recent initiatives reduced our
aggregate quarterly general and administrative and vessel
operating expenses by $24 million, or approximately 11%,
for the quarter ended September 30, 2009 compared to the
quarter ended September 30, 2008.
Our
competitive strengths
Market leadership in all business segments. We are a
market leader in each of the segments in which we operate.
Teekay LNG is the third largest independent owner of LNG
carriers. We are the world’s largest independent owner and
operator of shuttle tankers and control over 50% of the world
shuttle tanker fleet. We are also the largest owner and operator
of FPSO units in the North Sea, with four units currently
operating in that region, and a fifth FPSO unit operating off
the coast of Brazil. In addition, we are the largest owner and
operator of mid-sized conventional oil tankers. We believe our
position as a market leader in these segments enhances our
reputation, which, together with the scale, diversity and
quality of our operations, provides us with further
opportunities to retain and increase our market position.
Increased operating and financial stability through
long-term, fixed-rate contracted revenue. Over the past
decade, we have diversified our revenue and cash flow mix beyond
the cyclical spot tanker market and significantly increased the
amount and proportion of fixed-rate revenue. For the
12 months ended September 30, 2009, approximately 75%
of our total net revenue was derived from fixed-rate contracts
with an initial term of at least one year. As of
December 31, 2009, approximately 83% of our total fleet
operating days (on a
ship-equivalent
basis) for 2010 were subject to fixed-rate contracts with an
initial term of at least one year. As of December 31, 2009,
we had under contract a total of approximately
$11.5 billion of forward, fixed-rate revenue with a
weighted-average remaining term of approximately 10.3 years
(excluding options to extend).
Strong credit profile, liquidity position and cash
flows. Our focus on fixed-rate contracts has enabled us
to secure significant recurring revenue and cash flows. As of
September 30, 2009, approximately 79% of our consolidated
total debt was being serviced by assets operating under
long-term, fixed-rate contracts. After giving effect to (a) this
offering and our intended use of the net offering proceeds as
described in “Use of proceeds“ and (b) the use of
$90 million of net proceeds from Teekay LNG’s
November 2009 public offering of common units to repay
indebtedness under one of its revolving credit facilities, of
our $5.3 billion in consolidated debt as of
September 30, 2009 ($4.6 billion net of restricted
cash), approximately $4.2 billion ($3.6 billion net of
restricted cash) was attributable to our three publicly-traded
subsidiaries, of which approximately 83% (93% net of restricted
cash) is non-recourse to Teekay Parent. As of December 31,2009, and after giving effect to this offering and the intended
use of the net offering proceeds, we would have had
approximately $2.1 billion of available liquidity,
consisting of cash on hand and undrawn revolving credit
facilities, with approximately $1.1 billion of this
liquidity at the Teekay Parent level. In addition, credit
facilities are currently in place to cover 98% of our current
newbuilding capital expenditure commitments. After giving effect
to this offering and the intended use of the net offering
proceeds, as of December 31, 2009, we would have had
scheduled balloon debt repayments of $0 million,
$265 million, $0 million and $388 million in
2010, 2011, 2012 and 2013, respectively. Although we have
liquidity and cash flow to support a significant amount of our
debt obligations, we generally plan to refinance our credit
facilities in advance of their maturities. During the
12 months ended September 30, 2009, Teekay Parent
reduced its net debt by approximately
$300 million and its newbuilding capital commitments by
nearly $350 million, primarily as a result of vessel sales
to its publicly-traded subsidiaries (which were financed
partially with equity offerings by each subsidiary), other
vessel dispositions and cash flow generated from operations. In
November 2009, Teekay Parent further reduced its net debt by
repaying $160 million under one of its revolving credit
facilities using funds repaid to it by Teekay Offshore .
Flexible corporate structure with increased access to capital
markets. Three of our subsidiaries, Teekay LNG, Teekay
Offshore and Teekay Tankers, are publicly-traded entities with
structural features that provide Teekay Parent with a
significant level of control over them. Our long-term objective
is to continue to grow each of these subsidiaries through
accretive acquisitions, primarily through vessel sales to them
by Teekay Parent, and further reinforce market leadership within
each sector in which these subsidiaries operate. Including the
initial public offerings of Teekay LNG, Teekay Offshore and
Teekay Tankers in May 2005, December 2006 and December 2007,
respectively, and subsequent public offerings, we have raised
over $1.3 billion in public equity through these
subsidiaries, which they primarily used to fund vessel
acquisitions from Teekay Parent. Teekay Parent has used these
sales proceeds primarily to prepay debt. In addition, Teekay
Parent is entitled to cash distributions on its general and
limited partnership interests in Teekay LNG and Teekay Offshore
and on its equity interest in Teekay Tankers. Teekay Parent also
has certain rights to receive increasing percentages of cash
distributions from these entities to the extent per unit or per
share distributions increase as a result of accretive
acquisitions or otherwise, which may further enhance Teekay
Parent’s cash flow.
Strong, long-term relationships with high credit quality
customers. We have developed strong relationships with
our customers, which include major international oil, energy and
utility companies such as BP plc, Chevron Corporation,
ConocoPhillips, ExxonMobil Corporation, Petrobras, Ras Laffan
Liquified Natural Gas Company Ltd. (a joint venture between
ExxonMobil Corporation and the Government of Qatar), Repsol YPF
S.A., Shell, Statoil ASA, Talisman Energy, Inc. and Total S.A.
We have never experienced a material default by a customer under
a long-term, fixed-rate contract. We attribute the strength of
our customer relationships, and the opportunity to partner with
our customers on many long-term, logistically complex projects,
to the diversity and depth of our service offerings, our
reputation for consistent delivery of high-quality services and
our financial stability. As of December 31, 2009, we had
37 customer contracts with terms exceeding 10 years,
excluding options to extend.
Scale, diversity and high quality of service
offerings. The size of, and broad range of vessel types
in, our fleet of 158 vessels permit us to offer to
customers a comprehensive range of midstream logistics services,
including ship-based transportation, production and storage
options. This has contributed to our playing an increasingly
prominent role in our customers’ logistics chains by
positioning us as a “one-stop-shop” for these services
and providing economies of scale. We believe we are an industry
leader in safety and environmental standards. We benefit from
higher quality control over commercial and technical management
due to our expertise in and ability to perform all significant
functions in-house, such as operational and technical support,
tanker maintenance, crewing, shipyard supervision, insurance and
financial management services.
Experienced management team. The members of
Teekay’s senior management team have on average more than
20 years of experience in the shipping industry, including
an average of approximately 11 years with Teekay. Our
executives have experience managing through multiple economic
cycles and expertise across commercial, technical, financial and
other functional management areas of our business, which helps
promote a focused marketing effort, stringent quality and cost
controls, and effective operations and safety monitoring.
Maintain segment leading positions through increased customer
adoption of our diversified service offerings and fleet
growth. We offer to our customers a
“one-stop-shop” for a comprehensive range of marine
midstream logistical services. We have over 30 years
experience in the oil tanker business and maintain worldwide
operations. Since 2004, we have expanded our service offerings
to include ship-based oil production and storage and marine
transportation of LNG and LPG. Many of our customers use more
than one of the types of major services we offer. By pursuing
new customer relationships and leveraging existing
relationships, we seek to continue to increase customer adoption
of our diversified service offerings. We intend to continue to
grow our fleet by pursuing growth opportunities through Teekay
Parent and our publicly-traded subsidiaries. We also intend to
maintain our leadership positions in the segments in which we
operate by leveraging our established reputation for maintaining
high standards of performance, reliability and safety.
Maintain a balanced chartering strategy to increase cash
flow. We will continue to focus on entering into
long-term, fixed-rate contracts with customers and expect that
these contracts will continue to generate a substantial majority
of our revenues and cash flows. We plan to continue to maintain
some of our vessels in the spot market in order to take
advantage of ongoing market opportunities. Our size, reputation
and operational capabilities also provide opportunities for us
to in-charter third party vessels, including vessels that may
trade on the spot market. This provides us flexibility in
expanding or, by not renewing in-charters, reducing our fleet
size, in response to market conditions. In addition, through
participating in and managing commercial pools of vessels, we
seek to increase returns on our spot fleet and provide
additional resources to our customers, without the need for
additional capital investments.
Continue to increase cash flows and improve our financial
position. We intend to continue to improve our cash
flows and financial condition while capitalizing on attractive
growth opportunities. As part of this strategy, Teekay Parent
intends to continue to offer to sell additional vessels from
time to time to its publicly-traded subsidiaries. We anticipate
that these transactions, if accepted by the subsidiaries, will
help Teekay Parent monetize these assets and reduce its debt
level while maintaining operating control of the vessels through
existing management agreements. Teekay Parent also has certain
rights to receive increasing percentages of cash distributions
from these entities to the extent per unit or per share
distributions increase as result of accretive acquisitions or
otherwise. We also intend to continue the strategy we employed
throughout 2009 to increase profitability and cash flows
through, among other measures, seeking to recontract certain
FPSO units and shuttle tankers at more favorable rates and
carefully managing our general and administrative and vessel
operating expenses.
Expand offshore and gas operations in high growth
regions. We continually monitor expansion opportunities
in our existing and in new markets. In particular, we seek to
expand our FPSO and FSO and shuttle tanker operations in growing
offshore markets in which we currently operate, such as Brazil,
the North Sea and Australia, and we intend to pursue
opportunities in promising offshore markets where we do not
regularly operate, such as the Arctic, Eastern Canada, the Gulf
of Mexico, Africa, the Middle East and Southeast Asia. In
addition, we seek to capitalize on opportunities emerging from
the global expansion of the LNG and LPG sectors by selectively
targeting long-term, fixed-rate charters with high credit
quality customers.
Continue our focus on maintaining high quality,
cost-effective marine operations. Our operational focus
is to continue to be an industry leader in safety and risk
management, to maintain cost-effective operations, to ensure
high quality customer service with a large,
diversified and well-maintained asset base, and to employ
well-trained onshore and offshore staff. We believe achievement
of these objectives allows us to deliver superior services to
our customers. We apply key performance indicators to facilitate
regular monitoring of our operational performance. We intend to
continue to maintain all significant operating, commercial,
technical and administrative functions in-house to ensure
stringent operational and quality control. We believe these
strategies will enhance our ability to obtain repeat business
from our customers and attract new customers, as well as to
operate our fleet with greater efficiencies.
Organizational
structure
The following chart depicts our simplified organizational
structure as of December 31, 2009. Vessel number
information includes owned, in-chartered and newbuildings.
Please read “—Fleet list.”
(1)
The partnership is controlled by
its general partner. Teekay Corporation indirectly owns a 100%
beneficial ownership in the general partner. However, in certain
limited cases, approval of a majority of the unitholders of the
partnership is required to approve certain actions.
(2)
Teekay Tankers has two classes of
shares: Class A common stock and Class B common stock.
Teekay Corporation indirectly owns 100% of the Class B
shares which have five votes each but aggregate voting power
capped at 49%. As a result of Teekay Corporation’s
ownership of Class A and Class B shares, it currently
holds aggregate voting power of 51.6%.
(3)
Includes 48 vessels owned by Teekay
Offshore Operating L.P.
As of December 31, 2009, our total fleet consisted of
158 vessels, including in-chartered vessels and
newbuildings on order but excluding vessels we commercially
manage for third parties, as summarized in the following table:
Number of vessels
Teekay Corporation fleet
list
Owned vessels
Chartered-in vessels
Newbuildings
Total
Teekay Parent
fleet(1)
Aframax
tankers(2)
6
16
22
Suezmax
tankers(3)
13
6
19
VLCC tankers
1
1
Product tankers
8
2
10
LNG
carriers(4)
4
4
Shuttle tankers
4
4
FPSO
units(5)
4
4
FSO
units(5)
1
1
Total Teekay Parent fleet
32
(10)
25
8
65
Teekay Offshore fleet
Shuttle
tankers(6)
27
8
35
FSO
units(7)
5
5
FPSO unit
1
1
Aframax
tankers(8)
11
11
Total Teekay Offshore fleet
44
8
52
Teekay LNG fleet
LNG
carriers(9)
15
15
LPG carriers
3
3
6
Suezmax tankers
8
8
Total Teekay LNG fleet
26
3
29
Teekay Tankers fleet
Aframax tankers
9
9
Suezmax tankers
3
3
Total Teekay Tankers fleet
12
12
Total Teekay consolidated fleet
114
(10)
33
11
158
(1)
Excludes the fleet of Teekay
Offshore Operating L.P. (or OPCO), which is owned 51% by
Teekay Offshore and 49% by Teekay Parent. All of OPCO’s
48 vessels are included within the Teekay Offshore fleet.
(2)
Excludes nine vessels
chartered-in from Teekay Offshore and one vessel chartered-in
from Teekay Tankers.
(3)
Includes one Suezmax tanker Teekay
Parent has agreed to offer to Teekay Tankers by June 18,2010.
(4)
Excludes two LNG carriers
chartered-in from Teekay LNG. Includes four LNG newbuildings on
order in which Teekay Parent’s ownership interest is 33%.
Teekay Parent has agreed to offer to Teekay LNG its interest in
these four vessels and related charter contracts no later than
180 days before the scheduled delivery dates of the
vessels, which are between August 2011 and January 2012.
Teekay Parent has agreed to offer
to Teekay Offshore any FPSO and FSO units that service contracts
in excess of three years in duration.
(6)
Includes two shuttle tankers owned
directly by Teekay Offshore, including one vessel in which its
ownership is 50%. Includes 25 shuttle tankers owned by OPCO
(including five vessels in which OPCO’s ownership is 50%)
and eight vessels chartered-in by OPCO.
(7)
Includes one FSO unit owned
directly by Teekay Offshore and four units owned by OPCO,
including one FSO unit in which OPCO’s ownership is 89%.
(8)
All these vessels are owned by
OPCO. Includes two lightering vessels.
(9)
Includes five LNG carriers in which
Teekay LNG’s ownership is 70% and four LNG carriers in
which its ownership is 40%.
(10)
Based on our most recent vessel
valuations and current sale and purchase market conditions, we
estimate that the fair market values of our owned fleet and of
Teekay Parent’s owned fleet, on a
charter-free
basis, are approximately $7.2 billion and
$2.5 billion, respectively.
Industry
overview
The following industry overview highlights recent growth trends
and data provided by the International Energy Agency (or the
IEA), the International Maritime Associates (or the
IMA) and Clarkson Research Services Limited (or
CRSL) for the sectors in which we operate. This summary
should be read together with the discussion under the caption
“Business — Industry Overview” included
elsewhere in this prospectus.
Liquefied
natural gas shipping
The LNG industry continues to grow as natural gas remains one of
the world’s fastest growing primary energy sources. LNG
carriers provide a cost-effective means for transporting natural
gas by supercooling it into a liquid form, which reduces its
volume to approximately 1/600th of its gaseous state. The
IEA estimates that global demand of natural gas will grow from
approximately 3,000 billion cubic meters (or Bcm) in
2007 to nearly 4,300 Bcm in 2030, representing a compounded
annual growth rate (or CAGR) of 1.5%. The IEA anticipates
that a resumption of economic growth in 2010, the favorable
environmental and practical attributes of natural gas over other
fossil fuels, and constraints on how quickly low-carbon energy
technologies can be commercially developed, are expected to
provide growth in demand for natural gas worldwide.
Between 2000 and 2007, the annual amount of LNG shipped
internationally increased by a CAGR of 7.3%, from approximately
104 million metric tonnes (or MMT) per annum to
170.8 MMT per annum as a result of improvements in
liquefaction and regasification technologies, decreases in LNG
shipping costs and increases in demand from consuming regions
located far from natural gas reserves. In its latest long-term
energy outlook published in November 2009, the IEA
forecasted that the global natural gas inter-regional trade
would grow from 677 Bcm in 2007 to 1,070 Bcm in 2030 (a CAGR of
approximately 2%), and that the percentage of this trade
represented by LNG would grow from approximately 34% in 2007 to
approximately 40% in 2030. Accordingly, global LNG
inter-regional trade is expected to grow from 225 Bcm in 2007 to
425 Bcm in 2030 (a CAGR of approximately 3%).
The charts below illustrate the historical and projected volume
of global inter-regional natural gas trade and demand for the
periods and regions presented.
LNG carriers are usually chartered to carry LNG pursuant to
time-charter contracts, where a vessel is hired for a fixed
period of time, typically between 20 and 25 years, and the
charter rate is payable to the owner on a monthly basis at a
fixed rate. LNG projects require significant capital
expenditures and typically involve an integrated chain of
dedicated facilities and cooperative activities. Accordingly,
the overall success of an LNG project depends to a large extent
on long-range planning and coordination of project activities,
including marine transportation. As of January 1, 2010, the
global LNG fleet consisted of 338 existing carriers and 43
newbuildings on order.
In recent years, niche opportunities for floating regasification
and receiving terminals have developed in Brazil, Italy and the
Middle East. There has also recently been increased demand for
development of floating liquefaction projects and we expect this
trend to continue.
Oil continues to be the world’s primary energy source as it
has been for a number of decades, with consumption of oil
accounting for approximately 35% of global energy consumption.
In November 2009, the IEA forecasted that world demand for
liquid fuels and other petroleum would grow from approximately
85.0 million barrels per day (or mb/d) in 2008
to 105.2 mb/d in 2030, representing a CAGR of 1%.
The table below illustrates historical and projected future oil
prices for the periods presented in nominal amounts and
“real” amounts (i.e. nominal amounts adjusted for
inflation).
Long-term oil
price scenarios
Source: IEA World Energy Outlook,
November 2009
As reflected in the chart above, the IEA projects oil prices to
remain on an upward trend in its reference case, which is based
on the assumption of a global economic recovery. The main
factors driving upward trend in oil prices are the rising
marginal cost of supply and demand growth in countries that are
not members of the Organisation for Economic Co-operation and
Development (or OECD). This trend is also a fundamental
driver for offshore oil production.
Offshore oil production, in which oil is obtained from
reservoirs beneath the ocean floor, is accounting for an
increasing share of total global oil production. In particular,
deepwater oil production is one of the fastest growing areas of
the global oil industry and is replacing shallow water as the
main focus of offshore oil field development. Deepwater oil
production, characterized by wells located in water depths
greater than 1,000 feet, has developed as conventional
land-based or shallow-water reserves become depleted and
exploration and production technologies have advanced to make
oil extraction from deep water oil discoveries feasible. Shuttle
tankers, FSO units and FPSO units are an important part of the
supporting infrastructure for deepwater offshore development, as
conventional offshore solutions, such as jackups and
semi-submersibles, are generally better suited for shallow water
oil production. Although the duration of FPSO contracts varies,
it typically is between five and 15 years plus extension
options. For smaller fields, FPSO units have generally been
provided by independent FPSO contractors under life-of-field
production contracts, where the contract’s duration is for
the useful life of the oil field. FPSO unit contracts generally
provide for a fixed hire rate that is
related to the cost of the unit, a fluctuating component based
on either the amount of oil produced and processed by the unit,
or both.
Brazil is a leading frontier in the offshore market where
approximately 85% of oil production currently comes from
offshore fields. Brazil’s Petrobras has announced plans to
double its oil production by 2020 and has started a large
investment plan of approximately $174.4 billion out to 2013.
Based on IMA data, the demand for FPSO units and FSO units is
projected to increase over the next few years. The main growth
regions for new projects are expected to include Brazil, Africa,
Australia and Southeast Asia. In addition to the large projects
in these areas, there is a mixture of small and
medium-sized projects which provide niche opportunities as well
(e.g. harsh weather regions, heavy oil production).
The following table shows the number of offshore projects
planned or under study as of November 2009.
170 projects
involving floating production or storage systems are planned or
under study
(as of November 2009)
The following table reflects forecast FPSO and FSO unit orders
through 2014, and related estimated aggregate capital
expenditures for those units, based on varying prices for oil
per barrel.
Forecast of FPSO
and FSO unit orders through 2014
(including redeployments)
Source: IMA, March 2009
Conventional
oil tankers
Historically the conventional oil tanker industry has been
cyclical in nature, experiencing volatility in profitability due
to changes in the supply of and demand for tanker capacity, oil
and oil products.
The following charts illustrate spot charter rates, expressed as
the quarterly average of daily TCE rates and time-charter (or
TC) rates (for three-year, time-charter contracts) for
double hull Suezmax and Aframax conventional oil tankers, as
applicable, from 2007 to 2009. Information for January 2010 is
based on average daily rates through January 8, 2010.
Suezmax Spot
Charter TCE Rates vs. Three-Year TC Rates
Source: CRSL, January 2010
Aframax Spot
Charter TCE Rates vs. Three Year TC Rates
2009 tanker market summary. According to CRSL,
average Suezmax crude tanker spot market rates were $28,361 per
day in 2009, which was lower than the average spot rate for the
five-year period from 2004 through 2008 of $60,265 per day.
Average Aframax crude tanker spot market rates were $15,780 per
day in 2009, which was lower than the average spot rate for the
five-year period from 2004 through 2008 of $42,044 per day. The
global economic downturn, which resulted in the steepest oil
demand contraction since the early 1980’s, coupled with the
growth in the global tanker fleet, were the primary causes of
the decline in rates in 2009. Since the end of the third quarter
of 2009, spot rates have increased as a result of improving
economic fundamentals, seasonal factors and the use of tankers
for floating storage, which tightened active fleet supply.
2010 tanker market fundamentals.
The table below shows the growth in the global gross domestic
product (or GDP) versus growth in demand for oil for the
periods presented.
Global GDP vs.
oil demand growth
Sources: IMF, October 2009
IEA,
December 2009
Demand. In October 2009, the IMF estimated that
global GDP will grow by 3.1% from 2009 to 2010, after
contracting by 1.1% from 2008 to 2009. The global economic
recovery is expected to be led to a large extent by
energy-intensive Asian economies such as China and India.
Vehicle sales in China in 2009 were 46% higher than sales in
2008. The IEA is currently forecasting global oil demand growth
of 1.5 mb/d, or 1.7%, in 2010, approximately half of which is
expected to come from emerging Asia and OECD North America,
which are regions dependent on seaborne oil imports. Non-OPEC
supply is estimated to grow by 0.3 mb/d in 2010, with a majority
of this growth expected to come from the Former Soviet Union (or
FSU) and Latin America, which is likely to increase
medium-sized tanker demand. If non-OPEC oil supply growth is
lower than estimated, that likely would further increase demand
for longer-haul Middle East OPEC crude.
Supply. According to CRSL, during 2009, the global
tanker fleet grew by 29.6 million deadweight tonnage (or
mdwt), or 7%, as vessel deliveries totaled 48.2 mdwt
and removals were 18.5 mdwt. The pace of tanker scrapping
increased in the second half of 2009 in
anticipation of 2010, which is the International Maritime
Organization’s mandated phase-out target for single-hull
tankers. According to CRSL, as of January 1, 2010, the
world tanker orderbook was 132.3 mdwt and there were
38.6 mdwt of existing single-hull tankers in the world
fleet. Factors which could dampen tanker fleet supply growth in
2010 include:
•
higher than expected delivery delays, which is particularly
relevant for the Suezmax sector where deliveries in 2009 totaled
7.1 mdwt compared to 10.9 mdwt expected at the
beginning of the year;
•
a well-enforced single-hull tanker phase-out; and
•
potential tanker newbuilding order cancellations, particularly
as tanker deliveries scheduled for 2010 and 2011 are the most
expensive units currently on order.
Refinancing
transaction
On January 12, 2010, we commenced a tender offer and
consent solicitation (or the Tender Offer) for our
outstanding 8.875% Senior Notes due 2011 (or the
8.875% Senior Notes), of which $176.6 million
in aggregate principal amount was outstanding as of
December 31, 2009. Pursuant to the Tender Offer, we are
(1) offering to purchase for cash any and all of the
8.875% Senior Notes validly tendered on or prior to the
expiration date of the Tender Offer for a total consideration of
up to $1,078 per $1,000 principal amount of 8.875% Senior
Notes plus accrued and unpaid interest and (2) soliciting
consents to certain proposed amendments to the indenture
governing the 8.875% Senior Notes. The total consideration
includes a tender offer premium of $60 and a consent payment of
$18, in each case per $1,000 principal amount of
8.875% Senior Notes. The consent payment will only be paid
for tenders made prior to 5:00 p.m., New York City time, on
January 26, 2010 (as such date may be extended, the
Consent Payment Deadline). The Tender Offer is scheduled
to expire at 11:59 p.m., New York City time, on February 9,2010 and is subject to the satisfaction of certain conditions,
including our issuing indebtedness having an aggregate principal
amount of at least $300 million in one or more debt financings
on terms reasonably satisfactory to us and our receipt of valid
tenders and consents from holders of not less than a majority in
aggregate principal amount of the 8.875% Senior Notes. If
the conditions to the Tender Offer have been satisfied on or
prior to the Consent Payment Deadline, we expect to accept for
purchase all 8.875% Senior Notes validly tendered and in
respect of which consents have been validly delivered on or
prior to the Consent Payment Deadline and purchase such
8.875% Senior Notes promptly thereafter.
This offering is not conditioned upon our completion of the
Tender Offer. If any condition of the Tender Offer is not
satisfied, we are not obligated to accept for purchase, or to
pay for, any of the 8.875% Senior Notes tendered and may
delay acceptance for payment of any tendered notes, in each case
subject to applicable laws. We may also terminate, extend or
amend the Tender Offer and may postpone the acceptance for
purchase of, and payment for, the 8.875% Senior Notes
tendered. This prospectus is not an offer to purchase the
8.875% Senior Notes. The Tender Offer is made only by and
pursuant to the terms of an Offer to Purchase and Consent
Solicitation Statement and the related Letter of Transmittal,
each dated January 12, 2010, as the same may be amended or
supplemented.
The Teekay organization was founded in 1973. Teekay is
incorporated under the laws of the Republic of The Marshall
Islands and we maintain our principal executive headquarters at
4th Floor, Belvedere Building, 69 Pitts Bay Road,
Hamilton, HM 08, Bermuda. Our telephone number at such
address is
(441) 298-2530.
Our principal operating office is located at Suite 2000,
Bentall 5, 550 Burrard Street, Vancouver, British
Columbia, Canada, V6C 2K2. Our telephone number at such
address is
(604) 683-3529.
We maintain a website at http://www.teekay.com. The information
on our website is not part of this prospectus, and you should
rely only on the information contained in this prospectus and
the documents we incorporate by reference herein when making a
decision as to whether to invest in the notes.
The summary below describes the principal terms of the notes.
Certain of the terms and conditions described below are subject
to important limitations and exceptions. The “Description
of notes” section of this prospectus contains a more
detailed description of the terms and conditions of the notes.
Issuer
Teekay Corporation
Notes offered
$450 million principal amount
of % Senior Notes due 2020.
Maturity
,
2020.
Issue price
%.
Interest payment dates
and of
each year,
commencing ,
2010.
Ranking
The notes will rank equally in right of payment with all of our
existing and future senior unsecured debt and senior to our
existing and future subordinated debt. The notes will
effectively rank behind all of our existing and future secured
debt, to the extent of the value of the assets securing such
debt.
We are a holding company and the notes will effectively rank
behind all existing and future debt and other liabilities of our
subsidiaries.
As of September 30, 2009 and after giving effect to (a)
this offering and the proposed application of the net offering
proceeds to (i) purchase all of the outstanding
8.875% Senior Notes in the Tender Offer and (ii) repay
all amounts outstanding under a term loan and a portion of the
borrowings outstanding under one of our revolving credit
facilities as described in “Use of proceeds,” and (b)
the use of $90 million of net proceeds from Teekay LNG’s
November 2009 public offering of common units to repay
indebtedness under one of its revolving credit facilities, we
would have had approximately $5.3 billion of debt on a
consolidated basis, of which approximately $4.8 billion
would have been debt of our subsidiaries, all of which is
secured by assets of our subsidiaries and approximately
$2.0 billion of which is guaranteed on an unsecured basis
by Teekay Corporation (including obligations under capital
leases secured by $470 million of restricted cash deposits). Our
consolidated debt as of September 30, 2009 included
obligations of our subsidiaries under capital leases secured by
$627 million of restricted cash deposits. Of our
consolidated debt, as of September 30, 2009, approximately
$4.2 billion ($3.6 billion net of restricted cash) was
attributable to our three publicly-traded subsidiaries, of which
approximately 83% (93% net of restricted cash) is non-recourse
to Teekay Parent.
In addition to our consolidated debt, as of September 30,2009, our total proportionate interest in debt of joint ventures
we do not control was $398 million, of which Teekay
Corporation has
guaranteed $58.7 million and which otherwise is
non-recourse to us.
As of September 30, 2009, and after giving effect to this
offering and the proposed application of the net offering
proceeds as described in “Use of proceeds,” Teekay
Parent would have had approximately $1.3 billion of debt,
of which $450 million would have been direct obligations of
Teekay Corporation and $813 million would have been debt
secured by assets of subsidiaries within Teekay Parent, all of
which is guaranteed by Teekay. Please read “Description of
notes—General.”
If less than all of our 8.875% Senior Notes are purchased
pursuant to the Tender Offer, Teekay Parent’s senior
unsecured debt will be higher.
For a more detailed description of our debt and that of Teekay
Parent, please read “Description of other
indebtedness.”
Guarantees
The notes will not be guaranteed by any of our subsidiaries.
Additional amounts
All payments with respect to the notes will be made without
withholding or deduction for taxes imposed by the Republic of
The Marshall Islands or any jurisdiction from or through which
payment on the notes is made unless required by law or the
interpretation or administration thereof, in which case, subject
to certain exceptions, we will pay such additional amounts as
may be necessary so that the net amount received by the holders
after such withholding or deduction will not be less than the
amount that would have been received in the absence of such
withholding or deduction. Please read “Description of
notes—Additional amounts.”
Optional redemption
We may redeem all or a portion of the notes at any time before
their maturity date at a redemption price equal to the greater
of (a) 100% of the principal amount of the notes to be
redeemed and (b) the sum of the present value of the
remaining scheduled payments of principal and interest
discounted to the redemption date at the treasury yield plus
50 basis points. Please read “Description of
notes—Optional redemption.”
In addition, prior to
,
2013, we may redeem up to 35% of the notes with the net proceeds
of certain equity offerings at a redemption price equal to
% of their principal amount
plus accrued interest to the date of redemption. Please read
“Description of notes—Redemption with proceeds from
equity offerings.”
Tax redemption
If we become obligated to pay additional amounts under the notes
as a result of changes affecting certain withholding taxes, we
may redeem all, but not less than all, of the notes at 100% of
their principal amount plus accrued interest to the date of
redemption.
Please read “Description of notes—Redemption for
changes in withholding taxes.”
Change of control offer
Upon a Change of Control Triggering Event, which requires both a
Change of Control and a Rating Decline (as defined herein), we
will be obligated to make an offer to purchase all outstanding
notes at a redemption price of 101% of the principal amount
thereof plus accrued and unpaid interest to the date of
purchase. Please read “Description of
notes—Covenants—Repurchase of notes upon a Change of
Control Triggering Event.”
The indenture governing the notes will contain covenants
limiting our ability to:
• create liens; or
• merge, or consolidate or transfer, sell or lease all
or substantially all of our assets.
These covenants are subject to a number of important limitations
and exceptions which are described under the heading
“Description of notes—Covenants.”
Use of proceeds
We intend to use the net proceeds from the issuance of the notes
in this offering to fund the Tender Offer for all of our
outstanding 8.875% Senior Notes and to repay a portion of
the borrowings outstanding under one of our revolving credit
facilities. Please read “Use of proceeds.”
Absence of public market for the notes
The notes will be new securities for which there is no market.
There can be no assurance that an active trading market for the
notes will develop, or, if it develops, will continue to exist.
Although the underwriters have informed us that they currently
intend to make a market in the notes, they are not obligated to
do so, and any such market making may be discontinued at any
time without notice. Accordingly, there can be no assurance as
to the development or liquidity of any market for the notes.
Original issue discount
The notes may be issued with original issue discount for U.S.
federal income tax purposes, referred to as OID. If the
notes are issued with OID, U.S. holders will be required to
include OID in gross income for U.S. federal tax purposes in
advance of the receipt of cash attributable to that income,
regardless of the holders’ method of accounting for U.S.
federal income tax purposes. Please read “Certain United
States federal income tax considerations—Tax consequences
to U.S. holders—Stated interest and OID on the
notes.”
The following table presents, in each case for the periods and
as at the dates indicated, (a) our summary consolidated
financial and operating data and (b) certain summary financial
and operating data of Teekay Parent.
The summary historical financial and operating data has been
prepared on the following basis:
•
the historical consolidated financial and operating data as at
and for the years ended December 31, 2006, 2007 and 2008
are derived from our audited consolidated financial statements
and the notes thereto, which are included elsewhere in this
prospectus;
•
the consolidated historical financial and operating data as at
and for the nine months ended September 30, 2008 and 2009
are derived from our unaudited interim consolidated financial
statements and the notes thereto, which, other than the
unaudited interim consolidated balance sheet as at
September 30, 2008, are included elsewhere in this
prospectus.
an amendment to Financial Accounting Standards Board (or
FASB) Accounting Standards Codification (or ASC)
810, Consolidation, which requires that non-controlling
interests in subsidiaries held by parties other than us be
identified, labeled and presented in the consolidated balance
sheet within equity, but separate from the stockholders’
equity. This amendment requires that the amount of consolidated
net income (loss) attributable to the stockholders and to the
non-controlling interest be clearly identified on the
consolidated statements of income (loss). This amendment also
requires that distributions from our publicly-traded
subsidiaries to non-controlling interests are reflected as a
financing cash outflow in our statements of cash flows; and
•
a new presentation format (the Derivatives
Reclassification) for gains (losses) from our derivative
instruments that are not designated for accounting purposes as
cash flow hedges at inception. These gains (losses) are now
reported in realized and unrealized gains (losses) on
non-designated derivative instruments within our statements of
income (loss) rather than being included in revenue, voyage
expenses, vessel operating expenses, general and administrative
expenses, interest expense, interest income and foreign exchange
gain (loss).
FASB ASC 810 is required to be applied retroactively and we
adopted the Derivatives Reclassification with retroactive
effect. However, throughout this prospectus the adoption of this
standard and presentation change are only reflected in:
our unaudited consolidated statements of income (loss),
comprehensive income (loss) and cash flows for the nine months
ended September 30, 2009 and 2008;
•
our unaudited consolidated financial and operating data as of
and for the nine months ended September 30, 2009 and 2008;
and
•
the unaudited historical and as adjusted historical financial
and operating data of us on a consolidated basis and of Teekay
Parent, in each case for the 12 months ended
September 30, 2009.
Other balance sheets, consolidated statements of income (loss),
stockholders’ equity, cash flows and related financial and
operating data as of and for each of the years in the three-year
period ended December 31, 2008, or as of or for any other
period referenced in this prospectus, have not been adjusted to
reflect our adoption of the amendment to ASC 810 and the
Derivatives Reclassification. The retroactive application of the
adoption of the amendments to ASC 810 would have decreased
our consolidated net loss by approximately $9.6 million for the
year ended December 31, 2008 and would have increased our
consolidated net income by approximately, $8.9 million and
$6.8 million for the years ended December 31, 2007 and
2006, respectively. There would be no changes to net income
resulting from the Derivative Reclassification.
•
the unaudited consolidated historical financial and operating
data for the 12 months ended September 30, 2009 have
been prepared by adding the data from our year-ended
December 31, 2008 financial statements adjusted to reflect
the adoption of the amendments to ASC 810 and the
Derivatives Reclassification (the “Adjusted
December 31, 2008 consolidated financial statements”)
to the data in our unaudited interim consolidated financial
statements for the nine months ended September 30, 2009,
and subtracting our consolidated results of operations, cash
flows and other data for the nine months ended
September 30, 2008;
•
our as adjusted consolidated financial and operating data for
the 12 months ended September 30, 2009 has been
prepared by adjusting our historical consolidated financial and
operating data for such period as prepared in the manner
described in the immediately preceding bullet point to give
effect to the following (the Adjustments):
(i) $91.9 million of net proceeds received from Teekay
LNG’s public offering of 3.95 million common units in
November 2009 and the application of $90.0 million of the
net proceeds thereof to pay down a portion of one of its
revolving credit facilities, (ii) Teekay Offshore’s
borrowing in November 2009 of $160.0 million under a new
revolving credit facility and the use of such funds to pay down
a portion of Teekay’s revolving credit facilities,
(iii) the repurchase of $17.4 million of our
outstanding 8.875% Senior Notes for an aggregate price of
$18.0 million in November 2009 and (iv) this offering
and the intended use of the net offering proceeds as described
in “Use of proceeds,” as if such events had occurred
on October 1, 2008, and assuming that all remaining
outstanding 8.875% Senior Notes are purchased in the Tender
Offer and an interest rate of 9.0% on the notes issued in this
offering; and
•
the as adjusted historical financial and operating data of
Teekay Parent as at and for the 12 months ended
September 30, 2009 have been prepared by subtracting from
our historical consolidated financial and operating data for
such period, as prepared in a manner described above, the
combined historical results of operations, cash flows and other
data of our publicly-traded subsidiaries Teekay Offshore, Teekay
LNG and Teekay Tankers as at such date and for such period, and
adjusting the results by the Adjustments. The historical results
of operations and other data of our publicly-traded subsidiaries
as at and for the 12 months ended September 30, 2009
have been prepared, for the purposes of preparing the Teekay
Parent data described above, by (a) adding the results of
operations, cash flows and other data for each such subsidiary
as reflected in the Adjusted December 31, 2008 consolidated
financial statements to the results of operations, cash flows
and other data for each such subsidiary as reflected in its
unaudited consolidated financial statements for the nine months
ended September 30, 2009, and (b) subtracting the
results of operations and other data for each subsidiary as
reflected in its adjusted unaudited consolidated financial
statements for the nine months ended September 30, 2008.
These amounts are further adjusted to subtract the results of
operations and cash flows of vessels sold from Teekay Parent to
our publicly-traded subsidiaries for periods prior to the date
the vessel was sold. The sale of vessels from Teekay Parent to
our publicly-traded subsidiaries, both entities under common
control, are accounted for by our publicly-traded subsidiaries
as if the sale occurred from the date that the acquired vessels
were first in control of Teekay Parent and had begun operations.
Consequently, as a result of our further adjustment, vessels
sold from Teekay Parent to our publicly-listed subsidiaries are
reflected in Teekay Parent for the periods prior to the sale of
the vessel and are reflected in our publicly-traded subsidiaries
for periods subsequent to the sale of the vessel. The as
adjusted financial and operating data of Teekay Parent reflects
transactions with its publicly-traded subsidiaries.
Interim results may not be indicative of full year results, and
historical and as adjusted results may not be indicative of
future results. Certain historical amounts have been
reclassified to conform to the current presentation.
Because we control the general partner of each of Teekay
Offshore and Teekay LNG, and because we hold a majority of the
voting power of Teekay Tankers, the financial results of these
entities are included in Teekay’s consolidated financial
results. However, Teekay Offshore, Teekay LNG and Teekay Tankers
function with capital structures that are independent of each
other and us, with each having publicly traded equity.
The table below includes four financial measures — net
revenues, EBITDA, Adjusted EBITDA and cash interest
expense — which we use in our business and are not
calculated or presented in accordance with generally accepted
accounting principles in the United States (or GAAP). We
explain these measures and reconcile them to their most directly
comparable financial measures calculated and presented in
accordance with GAAP in notes 9, 10 and 13, respectively,
for the three years ended December 31, 2006, 2007 and 2008
and the nine month periods ended September 30, 2008 and
2009 in the table below. In addition, the table includes
historical and financial operating data of Teekay Parent, which
are not calculated or presented in accordance with GAAP and are
also reconciled to their most directly comparable financial
measures presented in accordance into GAAP.
The following table should be read together with, and is
qualified in its entirety by reference to, the historical
consolidated financial statements and accompanying notes
included or incorporated by reference in this prospectus. This
table should also be read together with “Management’s
discussion and analysis of financial condition and results of
operations” included or incorporated by reference in this
prospectus.
Ratio of total debt (less restricted cash) to Adjusted
EBITDA(10)(14)(17)
4.4x
Ratio of total debt less total cash to Adjusted
EBITDA(10)(14)(17)
3.5x
Ratio of Adjusted EBITDA to cash interest
expense(10)(13)
2.3x
(1)
If adjusted for the adoption of the
Derivatives Reclassification, realized and unrealized gain
(loss) on non-designated derivative instruments on the
consolidated statement of income (loss) for the years ended
December 31, 2008, 2007 and 2006 would be included as a
separate line item on the statements of income (loss) rather
than in revenue, voyage expenses, vessel operating expenses,
general and administrative expenses, interest expense, interest
income and foreign exchange gain (loss), respectively.
(2)
Voyage expenses are all expenses
unique to a particular voyage, including any bunker fuel
expenses, port fees, cargo loading and unloading expenses, canal
tolls, agency fees and commissions.
(3)
Vessel operating expenses include
crewing, repairs and maintenance, insurance, stores, lube oils
and communication expenses.
Goodwill impairment charge was from
a write-down of goodwill from the Teekay Petrojarl acquisition.
Based on an impairment analysis, management concluded that the
carrying value of goodwill in the FPSO segment exceeded its fair
value by$334.2 million as of December 31, 2008. As a
result, an impairment loss of $334.2 million has been
recognized in our consolidated statement of income (loss) for
the year ended December 31, 2008.
(5)
Restructuring charges generally
include costs relating to vessel reflaggings, crew changes,
office closures, global staffing changes and business unit
reorganization.
(6)
If adjusted for the adoption of the
FASB ASC 810 amendment, (a) non-controlling interest
expense on our consolidated statements of income (loss) for the
years ended December 31, 2008, 2007 and 2006 would be
included as a component of net income and would be considered a
reconciling item from net income to net income attributable to
stockholders of Teekay Corp., (b) distributions from our
publicly-traded subsidiaries to non-controlling interests would
be reflected as a financing cash outflow in our statements of
cash flows and (c) non-controlling interest on our balance
sheets for the comparable periods would be included as a
component of stockholders’ equity.
(7)
Substantially all restricted cash
deposits relate to Teekay LNG. Under certain capital lease
arrangements, Teekay LNG maintains restricted cash deposits
that, together with interest earned on the deposits, will equal
the remaining scheduled payments it owes under the capital
leases. The interest Teekay LNG receives from those deposits is
used solely to pay interest associated with the capital leases,
and the amount of interest it receives approximates the amount
of interest it pays on the capital leases.
(8)
Total vessels and equipment
consists of (a) owned vessels, at cost less accumulated
depreciation, (b) vessels under capital leases, at cost
less accumulated amortization and (c) advances on
newbuildings.
(9)
Consistent with general practice in
the shipping industry, we use net revenues (or revenues less
voyage expenses) as a measure of equating revenues generated
from voyage charters to revenues generated from time charters,
which assists us in making operating decisions about the
deployment of our vessels and their performance. Under
time-charter contracts, the charterer typically pays the voyage
expenses, whereas under voyage charter contracts the shipowner
typically pays the voyage expenses. Some voyage expenses are
fixed, and the remainder can be estimated. If we, as the
shipowner, pay the voyage expenses, we typically pass the
approximate amount of these expenses on to our customers by
charging higher rates under the contract or billing the expenses
to them. As a result, although voyage revenues from different
types of contracts may vary, the net revenues after subtracting
voyage expenses, or net revenues, are comparable across the
different types of contracts. We principally use net revenues, a
non-GAAP financial measure, because it provides more meaningful
information than revenues, the most directly comparable GAAP
financial measure. Net revenues are also widely used by
investors and analysts in the shipping industry for comparing
financial performance between companies in the shipping industry
to industry averages. The following table reconciles net
revenues with revenues.
EBITDA represents earnings before
interest, taxes, depreciation and amortization. Adjusted EBITDA
represents EBITDA before restructuring charges, unrealized
foreign exchange gain (loss), gain on sale of vessels and
equipment — net of writedowns, goodwill impairment
charge and amortization of in-process revenue contracts,
realized losses (gains) on interest rate swaps, share of
realized and unrealized losses (gains) on interest rate swaps in
non-consolidated joint ventures, unrealized loss (gain) on
derivative instruments, and non-controlling interest. EBITDA and
Adjusted EBITDA are used as supplemental financial measures by
management and by external users of our financial statements,
such as investors, as discussed below.
•
Financial and operating performance. EBITDA and
Adjusted EBITDA assist our management and security holders by
increasing the comparability of our fundamental performance from
period to period and against the fundamental performance of
other companies in our industry that provide EBITDA or Adjusted
EBITDA-based information. This increased comparability is
achieved by excluding the potentially disparate effects between
periods or companies of interest expense, taxes, depreciation or
amortization (or other items in determining Adjusted EBITDA),
which items are affected by various and possibly changing
financing methods, capital structure and historical cost basis
and which items may significantly affect net income between
periods. We believe that including EBITDA and Adjusted EBITDA as
a financial and operating measure benefits security holders in
(a) selecting between investing in us and other investment
alternatives and (b) monitoring our ongoing financial and
operational strength and health in assessing whether to continue
to hold our equity, or debt securities, as applicable.
•
Liquidity. EBITDA and Adjusted EBITDA allow us to
assess the ability of assets to generate cash sufficient to
service debt, pay dividends and undertake capital expenditures.
By eliminating the cash flow effect resulting from our existing
capitalization and other items such as drydocking expenditures,
working capital changes and foreign currency exchange gains and
losses (which may very significantly from period to period),
EBITDA and Adjusted EBITDA provide a consistent measure of our
ability to generate cash over the long term. Management uses
this information as a significant factor in determining
(a) our proper capitalization (including assessing how much
debt to incur and whether changes to the capitalization should
be made) and (b) whether to undertake material capital
expenditures and how to finance them, all in light of our
dividend policy. Use of EBITDA and Adjusted EBITDA as liquidity
measures also permits security holders to assess the fundamental
ability of our business to generate cash sufficient to meet cash
needs, including dividends on shares of our common stock and
repayments under debt instruments.
Neither EBITDA nor Adjusted EBITDA should be considered as an
alternative to net income, income from vessel operations, cash
flow from operating activities or any other measure of financial
performance or liquidity presented in accordance with GAAP.
EBITDA and Adjusted EBITDA exclude some, but not all, items that
affect net income and operating income, and
these measures may vary among other
companies. Therefore, EBITDA and Adjusted EBITDA as presented
below may not be comparable to similarly titled measures of
other companies.
The following table reconciles our historical consolidated
EBITDA and Adjusted EBITDA to net income, and our historical
consolidated Adjusted EBITDA to net operating cash flow.
Historical consolidated
Twelve
Nine months
months
ended
ended
Year ended December 31,
September 30,
September 30,
(in thousands)
2006
2007
2008
2008
2009
2009
Income statement data:
Reconciliation of EBITDA and Adjusted EBITDA to Net income
Net income (loss)
$
302,824
$
63,543
$
(469,455
)
$
233,005
$
132,518
$
(560,381
)
Income taxes
8,811
(3,192
)
(56,176
)
(35,022
)
12,174
(8,980
)
Depreciation and amortization
223,965
329,113
418,802
312,900
321,856
427,758
Interest expense, net of interest income
68,375
312,232
721,319
141,731
95,611
149,365
EBITDA
$
603,975
$
701,696
$
614,490
$
652,614
$
562,159
$
7,762
Restructuring charges
$
8,929
$
–
$
15,629
$
11,180
$
12,017
$
16,466
Foreign exchange (gain) loss
50,416
39,912
(32,348
)
(8,323
)
39,900
15,992
Gain on sale of vessels and equipment — net of
writedowns
The following table reconciles for (a) Teekay on a
consolidated basis and (b) Teekay Parent, both individually
and with respect to each other, (i) Teekay’s
consolidated and Teekay Parent’s EBITDA and Adjusted EBITDA
to net income, each on an historical and as adjusted basis, and
(b) Teekay’s consolidated and Teekay Parent’s
Adjusted EBITDA to net operating cash flow, each on an
historical and as adjusted basis. Teekay Parent’s numbers,
which are not calculated or presented in accordance with GAAP,
are reconciled to Teekay’s consolidated numbers for the
twelve months ended September 30, 2009 which are the
financial measures most directly comparable to GAAP measures.
The combined historical results of operations and other data of
our publicly-traded subsidiaries (Teekay Offshore, Teekay LNG
and Teekay Tankers) as at and for the 12 months ended
September 30, 2009 has been prepared in the manner described
above in this “—Summary financial and operating
data.”
This data is unaudited for all
periods presented. For purposes of computing our ratio of
earnings to fixed charges on a consolidated basis, earnings is
the result of adding (a) pre-tax income from continuing
operations before adjustment for minority interests in
consolidated subsidiaries or income or loss from equity
investees, (b) fixed charges, (c) amortization of
capitalized interest, (d) distributed income of equity
investees and subtracting interest capitalized. Fixed charges
represent (i) interest expensed and capitalized,
(ii) amortized premiums, discounts and capitalized expenses
related to indebtedness, and (iii) interest within time
charter hire expense. For the year ended December 31, 2008
the ratio of earnings to fixed charges was less than 1.0x. The
amount of the deficiency for this period was $508.1 million.
(12)
In addition to our consolidated
debt, as of September 30, 2009, our total proportionate interest
in debt of joint ventures we do not control was $398 million, of
which Teekay Corporation has guaranteed $58.7 million and which
otherwise is non-recourse to us.
Cash interest expense represents
total interest expense less interest income and amortization of
capitalized loan costs plus capitalized interest and realized
losses on interest rate swaps. Management believes that cash
interest expense, as a supplemental financial measure, is useful
for analyzing the cash flow needs and debt service requirements
of Teekay.
The following table reconciles cash interest expense, a non-GAAP
financial measure, to interest expense, the most directly
comparable GAAP financial measure, for Teekay on both a
historical consolidated and as adjusted basis:
The following table reconciles cash interest expense to interest
expense of Teekay on a consolidated basis and of Teekay Parent,
both individually and with respect to each other, each on an as
adjusted basis.
The ratio of total debt (less
restricted cash) to Adjusted EBITDA represents total debt less
restricted cash as of September 30, 2009 divided by
Adjusted EBITDA for the 12 months ended September 30,2009. The ratio of total debt less total cash to Adjusted EBITDA
represents total debt less total cash and restricted cash as of
September 30, 2009 divided by Adjusted EBITDA for the
12 months ended September 30, 2009.
(15)
The aggregate amount of cash
distributions to Teekay Parent from Teekay Offshore, Teekay LNG
and Teekay Tankers for 2006, 2007, 2008 and the nine months
ended September 30, 2008 and 2009 was $43.5 million,
$62.4 million, $119.1 million, $81.6 million and
$92.6 million, respectively.
(16)
Includes cash distributions to
Teekay Parent based on its 49% ownership interest in OPCO, which
is Teekay Offshore’s primary operating subsidiary and which
had a fleet of 48 vessels as of December 31, 2009.
This interest is in addition to Teekay Parent’s indirect
ownership interest in OPCO through its ownership interest in
Teekay Offshore. Teekay Parent received $54.4 million of
distributions from OPCO during the 12 months ended
September 30, 2009.
(17)
Teekay Parent guarantees
$737 million ($268 million net of restricted cash) of
indebtedness of Teekay’s publicly-traded subsidiaries.
Investing in the notes involves risks. Before investing in the
notes, you should carefully consider all of the information
included or incorporated by reference into this prospectus. The
risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair our
business operations or affect the notes. If any of the risks
described below or other risks incorporated by reference into
this prospectus were to occur, our business, financial condition
or operating results could be materially adversely affected.
Risks related to
our ownership interests in Teekay Offshore, Teekay LNG and
Teekay Tankers
We are not the
only equity holders of Teekay Offshore, Teekay LNG and Teekay
Tankers, and the respective partnership agreements of Teekay
Offshore and Teekay LNG require them, and Teekay Tankers policy
is, to distribute all available cash to their respective equity
holders, including public unitholders and
stockholders.
Teekay Offshore and Teekay LNG are publicly-traded limited
partnerships and Teekay Tankers is a publicly-traded company. As
of December 31, 2009, we indirectly owned:
•
a 40.5% partnership interest in Teekay Offshore (including a 2%
general partner interest) and all incentive distribution rights
of Teekay Offshore;
•
a 49.2% partnership interest in Teekay LNG (including a 2%
general partner interest) and all incentive distribution rights
of Teekay LNG; and
•
a 42.2% interest in Teekay Tankers (including 1.0 million
shares of Class A Common Stock and 12.5 million shares
of Class B Common Stock).
The remainder of the outstanding limited partner interests or
capital stock in each of Teekay Offshore, Teekay LNG and Teekay
Tankers are owned by public unitholders and stockholders.
Although Teekay Offshore’s and Teekay LNG’s respective
partnership agreements require them, and Teekay Tankers’
policy is, to distribute, on a quarterly basis, 100% of their
available cash to their respective unitholders of record and
their respective general partners or stockholders of record, as
applicable, we are not the only limited partners of Teekay
Offshore and Teekay LNG or the only stockholders of Teekay
Tankers and, therefore, we receive only our proportionate share
of cash distributions from each of Teekay Offshore, Teekay LNG
and Teekay Tankers based on our partner interests or
stockholdings in each of them. The remainder of the quarterly
cash distributions is distributed, pro rata, to the public
unitholders or stockholders.
For each of Teekay Offshore, Teekay LNG and Teekay Tankers,
available cash is generally all cash on hand at the end of each
quarter, after payment of fees and expenses and the
establishment of cash reserves by their respective general
partners or, in the case of Teekay Tankers, its board of
directors. Although we own the general partner of each of Teekay
Offshore and Teekay LNG and currently possess voting control of
Teekay Tankers, Teekay Offshore’s and Teekay LNG’s
respective general partners and Teekay Tankers’ board of
directors determine the amount and timing of cash distributions
by Teekay Offshore, Teekay LNG and Teekay Tankers, respectively,
and have broad discretion to establish and make additions to the
respective entity’s reserves in amounts the general partner
or board of directors determines to be necessary or appropriate:
•
to provide for the proper conduct of partnership business and
the businesses of its operating subsidiaries (including reserves
for future capital expenditures and for anticipated future
credit needs);
•
for Teekay Offshore and Teekay LNG, to provide funds for
distributions to the respective unitholders and the respective
general partner for any one or more of the next four calendar
quarters; or
•
to comply with applicable law or any loan or other agreements.
Accordingly, cash distributions we receive on our ownership
interests in Teekay Offshore and Teekay LNG may be reduced at
any time, or we may not receive any cash distributions from
these entities, which would in turn reduce our cash available to
service our debt, including the notes.
The amount of
cash that Teekay Offshore, Teekay LNG and Teekay Tankers will be
able to distribute to its unitholders and stockholders,
including Teekay, principally depends upon the amount of cash
these entities can generate from their respective
businesses.
The amount of cash that Teekay Offshore, Teekay LNG or Teekay
Tankers will be able to distribute to its partners or
stockholders, including Teekay, each quarter principally depends
upon the amount of cash it can generate from its respective
business. The amount of cash that Teekay Offshore, Teekay LNG
and Teekay Tankers will generate may fluctuate from quarter to
quarter based on, among other things, factors described under
“Risks relating to our business.” A significant
decline in the results of operations of Teekay Offshore, Teekay
LNG or Teekay Tankers could reduce the amount of its
distributions to its partners or stockholders, including Teekay.
In addition, the actual amount of cash that Teekay Offshore,
Teekay LNG or Teekay Tankers will have available for
distribution will depend on other factors, some of which are
beyond its control, including:
•
the level of capital expenditures it makes;
•
the cost of any acquisitions;
•
its debt service requirements;
•
fluctuations in its working capital needs;
•
restrictions on distributions contained in its debt agreements;
•
prevailing economic conditions; and
•
the amount of cash reserves established by its general partner
or board of directors in its sole discretion for the proper
conduct of its business.
Because of these factors, none of Teekay Offshore, Teekay LNG or
Teekay Tankers may have sufficient available cash each quarter
to continue paying distributions to their respective partners or
stockholders, including us, at their current or historical
levels or at all. The amount of cash that Teekay Offshore,
Teekay LNG and Teekay Tankers have available for distribution
depends primarily upon their respective cash flow, including
cash flow from financial reserves and working capital
borrowings, and is not solely a function of profitability, which
will be affected by non-cash items. As a result, Teekay
Offshore, Teekay LNG or Teekay Tankers may make cash
distributions during periods when it records losses and may not
make cash distributions during periods when it records profits.
A reduction in
Teekay Offshore’s or Teekay LNG’s distributions will
disproportionately affect the amount of cash distributions to
which Teekay is currently entitled as the holder of the
incentive distribution rights of each partnership.
Teekay’s ownership of the incentive distribution rights of
Teekay Offshore and Teekay LNG entitles it to receive increasing
percentages, up to 50%, of incremental quarterly cash
distributions by Teekay Offshore and Teekay LNG. Recent
quarterly distributions by each of Teekay Offshore and Teekay
LNG have exceeded these thresholds and entitled Teekay to
greater percentages of their respective cash distributions,
including up to 25% of certain incremental distributions. A
decrease in the amount of distributions per unit by Teekay
Offshore or Teekay LNG below the incentive distribution rights
thresholds would reduce Teekay’s percentage of the
incremental cash distributions. A decrease in the amount of
distributions per unit by Teekay Offshore or Teekay LNG may be
caused by a variety of circumstances, including if Teekay
Offshore or Teekay LNG generates less cash available for
distributions or if the board of directors of their respective
general partners determines to create larger reserves in
computing cash available for distribution. Even if cash
available for distribution remained stable, Teekay Offshore or
Teekay LNG may determine to modify the incentive distribution
rights to reduce the percentage of incremental cash
distributions such incentive distribution rights are entitled to
receive.
Teekay will not
receive cash distributions on its subordinated units of Teekay
Offshore and Teekay LNG if distributions by those entities are
less than their respective minimum quarterly
distributions.
Teekay holds 9.8 million subordinated units of Teekay
Offshore and 7.4 million subordinated units of Teekay LNG.
Under the partnership agreements of Teekay Offshore and Teekay
LNG, during the applicable subordination period for the
subordinated units, the common units of Teekay Offshore or
Teekay LNG will have the right to receive distributions of
available cash from operating surplus in an amount equal to the
minimum quarterly distribution of $0.35 per quarter for Teekay
Offshore (or approximately $3.4 million per quarter based
on the current number of outstanding subordinated units) and
$0.4125 per unit for Teekay LNG (or approximately
$3.0 million per quarter based on the current number of
outstanding subordinated units), plus any arrearages in the
payment of the minimum quarterly distribution on the common
units from prior quarters, before any distributions of available
cash from operating surplus may be made on their subordinated
units. Distribution arrearages do not accrue on the subordinated
units. Accordingly, Teekay will not receive distributions on its
subordinated units of Teekay Offshore and Teekay LNG during the
subordination periods if the distributions are less than the
respective minimum quarterly distributions. For the year ended
December 31, 2008 and the nine months ended
September 30, 2009, Teekay received $16.7 million and
$13.2 million of distributions on its subordinated units
from Teekay Offshore and $26.5 million and
$14.7 million of distributions on its subordinated units
from Teekay LNG.
Each of Teekay
Offshore, Teekay LNG and Teekay Tankers have issued significant
amounts of additional common units or common shares to finance
vessel acquisitions from Teekay, which have reduced
Teekay’s percentage ownership interest in these entities.
In addition, Teekay Offshore, Teekay LNG and Teekay Tankers
may issue additional limited partner interests or other equity
securities, which may increase the risk that Teekay Offshore,
Teekay LNG or Teekay Tankers will not have sufficient available
cash to maintain or increase cash distribution levels to its
unitholders or stockholders, including Teekay.
Teekay Offshore, Teekay LNG and Teekay Tankers each has
discretion to issue additional limited partner interests or
other equity securities on the terms and conditions established
by its general partner or board of directors, as applicable.
Since their respective initial public offerings, each of Teekay
Offshore, Teekay LNG and Teekay Tankers has purchased vessels
from Teekay and issued additional common units or common shares
to the public to finance these acquisitions. Teekay is required
to offer to Teekay Offshore, Teekay LNG and Teekay Tankers
certain vessels for purchase, and intends to offer additional
vessels for purchase from time to time. The issuance by Teekay
Offshore, Teekay LNG or Teekay Tankers of additional common
units, common shares or other equity securities to third parties
to finance these or other vessel acquisitions, or otherwise:
•
may increase the risk that Teekay Offshore or Teekay LNG will be
unable to maintain or increase its quarterly cash distribution
per unit, which in turn may reduce the amount of incentive
distributions Teekay receives as the holder of incentive
distribution rights of such entities; and
•
will reduce Teekay’s ownership interest in Teekay Offshore,
Teekay LNG or Teekay Tankers, as applicable, which may reduce
the amount of the quarterly cash distributions it receives.
Teekay may sell
some or all of its equity interests in Teekay Offshore, Teekay
LNG and Teekay Tankers.
Subject to compliance with the terms of the indenture governing
the notes that restrict the sale of all or substantially all of
Teekay’s assets, Teekay may sell some or all of its equity
interests in Teekay Offshore, Teekay LNG and Teekay Tankers
without the consent of holders of the notes. The indenture will
neither limit the consideration Teekay receives nor will it
require Teekay to use the proceeds to repay indebtedness or make
reinvestments. If Teekay sold its partner and equity interests
in Teekay Offshore, Teekay LNG or Teekay Tankers, Teekay would
no longer receive distributions in respect of the sold
interests, and Teekay’s cash available to service its debt,
including the notes, may be adversely affected.
Conflicts of
interest may arise because the respective boards of directors of
the general partners of Teekay Offshore and Teekay LNG have a
fiduciary duty to manage the general partners in a manner that
is beneficial to their owners, and at the same time, in a manner
that is beneficial to the respective unitholders of Teekay
Offshore and Teekay LNG.
Teekay owns the respective sole general partners of Teekay
Offshore and Teekay LNG. Each of the board of directors of these
general partners owes a fiduciary duty to the respective
unitholders of Teekay Offshore and Teekay LNG, and not just to
Teekay as owner of the general partners. As a result of these
potential conflicts, the boards of directors of the general
partners of Teekay Offshore and Teekay LNG may favor the
interests of the public unitholders of Teekay Offshore or Teekay
LNG over the interests of Teekay as the owner of the general
partners.
None of Teekay
Offshore, Teekay LNG or Teekay Tankers are subject to the
provisions of the indenture governing the notes.
None of Teekay Offshore, Teekay LNG or Teekay Tankers is a
guarantor of the notes or party to the indenture governing the
notes. Each of these entities may, among other things, sell all
or substantially all of its assets or, with respect to Teekay
Offshore and Teekay LNG, modify the terms of their respective
partnership agreements and incentive distribution rights owned
by Teekay, in each case without the consent of holders of the
notes.
Risks relating to
our business
The cyclical
nature of the tanker industry may lead to volatile changes in
charter rates, which may adversely affect our
earnings.
Historically, the tanker industry has been cyclical,
experiencing volatility in profitability due to changes in the
supply of, and demand for, tanker capacity and changes in the
supply of and demand for oil and oil products. If the tanker
market is depressed, our earnings may decrease, particularly
with respect to our spot tanker segment (which includes vessels
operating under charters with an initial term of less than three
years), which accounted for approximately 34%, 43% and 26% of
our net revenues during 2007, 2008 and the nine months ended
September 30, 2009, respectively. Vessels in our spot
tanker segment operating under charters with an initial term of
less than one year accounted for approximately 25% of our net
revenues during the 12 months ended September 30,2009. The cyclical nature of the tanker industry may cause
significant increases or decreases in the revenue we earn from
our vessels and may also cause significant increases or
decreases in the value of our vessels. The factors affecting the
supply of and demand for tankers are outside of our control, and
the nature, timing and degree of changes in industry conditions
are unpredictable.
Factors that influence demand for tanker capacity include:
•
demand for oil and oil products;
•
supply of oil and oil products;
•
regional availability of refining capacity;
•
global and regional economic conditions;
•
the distance oil and oil products are to be moved by
sea; and
•
changes in seaborne and other transportation patterns.
Factors that influence the supply of tanker capacity include:
the number of vessels that are out of service; and
•
environmental concerns and regulations.
Changes in demand for transportation of oil over longer
distances and in the supply of tankers to carry that oil may
materially affect our revenues, profitability and cash flows.
Changes in the
oil and natural gas markets could result in decreased demand for
our vessels and services.
Demand for our vessels and services in transporting oil,
petroleum products and LNG depend upon world and regional oil
and natural gas markets. Any decrease in shipments of oil,
petroleum products or LNG in those markets could have a material
adverse effect on our business, financial condition and results
of operations. Historically, those markets have been volatile as
a result of the many conditions and events that affect the
price, production and transport of oil, petroleum products and
LNG, and competition from alternative energy sources. A slowdown
of the U.S. and world economies may result in reduced
consumption of oil, petroleum products and natural gas and
decreased demand for our vessels and services, which would
reduce vessel earnings.
Changes in the
spot tanker market may result in significant fluctuations in the
utilization of our vessels and our profitability.
During 2007, 2008 and the nine months ended September 30,2009, we derived approximately 34%, 43% and 26%, respectively,
of our net revenues from the vessels in our spot tanker segment
(which includes vessels operating under charters with an initial
term of less than three years). Vessels in our spot tanker
segment operating under charters with an initial term of less
than one year accounted for approximately 25% of our net
revenues during the 12 months ended September 30,2009. Our spot tanker segment consists of conventional crude oil
tankers and product carriers operating on the spot tanker market
or subject to time charters, or contracts of affreightment
priced on a spot-market basis or fixed-rate contracts with a
term less than three years. Part of our conventional Aframax and
Suezmax tanker fleets and our large and medium product tanker
fleets are among the vessels included in our spot tanker
segment. Our shuttle tankers may also trade in the spot tanker
market when not otherwise committed to perform under
time-charters or contracts of affreightment. Due to activity in
the spot-charter market, declining spot rates in a given period
generally will result in corresponding declines in operating
results for that period.
The spot-charter market is highly volatile and fluctuates based
upon tanker and oil supply and demand. The successful operation
of our vessels in the spot-charter market depends upon, among
other things, obtaining profitable spot charters and minimizing,
to the extent possible, time spent waiting for charters and time
spent traveling unladen to pick up cargo. During 2009, there
have been periods when spot rates have declined below the
operating cost of vessels. Before rebounding somewhat in the
fourth quarter of 2009, spot tanker rates declined to multi-year
lows in the third quarter of 2009, primarily due to the ongoing
effects of reduced global oil demand coupled with tanker fleet
growth. Future spot rates may not be sufficient to enable our
vessels trading in the spot tanker market to operate profitably
or to provide sufficient cash flow to service our debt
obligations.
Reduction in oil
produced from offshore oil fields could harm our shuttle tanker
and FPSO businesses.
As at December 31, 2009, we had 35 vessels operating
in our shuttle tanker fleet and five FPSO units operating in our
FPSO fleet. A majority of our shuttle tankers and all of our
FPSO units earn revenue that depends upon the volume of oil we
transport or the volume of oil produced from offshore oil
fields. Oil production levels are affected by several factors,
all of which are beyond our control, including:
•
geologic factors, including general declines in production that
occur naturally over time;
•
the rate of technical developments in extracting oil and related
infrastructure and implementation costs; and
•
operator decisions based on revenue compared to costs from
continued operations.
Factors that may affect an operator’s decision to initiate
or continue production include: changes in oil prices; capital
budget limitations; the availability of necessary drilling and
other governmental permits; the availability of qualified
personnel and equipment; the quality of drilling prospects in
the area; and regulatory changes. In addition, the volume of oil
we transport may be adversely affected by extended repairs to
oil field installations or suspensions of field operations as a
result of oil spills, operational difficulties, strikes,
employee lockouts or other labor unrest. The rate of oil
production at fields we service may decline from existing or
future levels, and may be terminated, all of which could harm
our business and operating results. In addition, if such a
reduction or termination occurs, the spot tanker market rates,
if any, in the conventional oil tanker trades at which we may be
able to redeploy the affected shuttle tankers may be lower than
the rates previously earned by the vessels under contracts of
affreightment, which would also harm our business and operating
results.
The redeployment
risk of FPSO units is high given their lack of alternative uses
and significant costs.
FPSO units are specialized vessels that have very limited
alternative uses and high fixed costs. In addition, FPSO units
typically require substantial capital investments prior to being
redeployed to a new field and production service agreement.
Unless extended, certain of our FPSO production service
agreements will expire during the next 10 years. Our
clients may also terminate certain of our FPSO production
service agreements prior to their expiration under specified
circumstances. Any idle time prior to the commencement of a new
contract or our inability to redeploy the vessels at acceptable
rates may have an adverse effect on our business and operating
results.
The duration of
many of our shuttle tanker and FSO contracts is the life of the
relevant oil field or is subject to extension by the field
operator or vessel charterer. If the oil field no longer
produces oil or is abandoned or the contract term is not
extended, we will no longer generate revenue under the related
contract and will need to seek to redeploy affected
vessels.
Two of our shuttle tanker contracts have a
“life-of-field”
duration, which means that the contract continues until oil
production at the field ceases. If production terminates for any
reason, we no longer will generate revenue under the related
contract. Other shuttle tanker and FSO contracts under which our
vessels operate are subject to extensions beyond their initial
term. The likelihood of these contracts being extended may be
negatively affected by reductions in oil field reserves, low oil
prices generally or other factors. If we are unable to promptly
redeploy any affected vessels at rates at least equal to those
under the contracts, if at all, our operating results will be
harmed. Any potential redeployment may not be under long-term
contracts, which may affect the stability of our business and
operating results.
Charter rates for
conventional oil and product tankers may fluctuate substantially
over time and may be lower when we are attempting to recharter
conventional oil or product tankers, which could adversely
affect our operating results. Any changes in charter rates for
LNG or LPG carriers, shuttle tankers or FSO or FPSO units could
also adversely affect redeployment opportunities for those
vessels.
Our ability to recharter our conventional oil and product
tankers following expiration of existing time-charter contracts
and the rates payable upon any renewal or replacement charters
will depend upon, among other things, the state of the
conventional tanker market. Conventional oil and product tanker
trades are highly competitive and have experienced significant
fluctuations in charter rates based on, among other things, oil,
refined petroleum product and vessel demand. For example, an
oversupply of conventional oil tankers can significantly reduce
their charter rates. There also exists some volatility in
charter rates for LNG and LPG carriers, shuttle tankers and FSO
and FPSO units, which could also adversely affect redeployment
opportunities for those vessels. As of December 31, 2009,
we have 23 time-charter contracts covering our conventional
tankers two time-charters covering our FPSO units, 10
time-charters covering our shuttle tankers and one time-charter
covering an LNG carrier that expire during the next three years.
Over time, the
value of our vessels may decline, which could adversely affect
our operating results.
Vessel values for oil and product tankers, LNG and LPG carriers
and FPSO and FSO units can fluctuate substantially over time due
to a number of different factors. Vessel values may decline
substantially from existing levels. If operation of a vessel is
not profitable, or if we cannot re-deploy a chartered vessel at
attractive rates upon charter termination, rather than continue
to incur costs to maintain and finance the vessel, we may seek
to dispose of it. Our inability to dispose of the vessel at a
reasonable value could result in a loss on its sale and
adversely affect our results of operations and financial
condition. Further, if we determine at any time that a
vessel’s future useful life and earnings require us to
impair its value on our financial statements, we may need to
recognize a significant charge against our earnings.
Our growth
depends on continued growth in demand for LNG and LPG and LNG
and LPG shipping as well as offshore oil transportation,
production, processing and storage services.
A significant portion of our growth strategy focuses on
continued expansion in the LNG and LPG shipping sectors and on
expansion in the shuttle tanker, FSO and FPSO sectors.
Expansion of the LNG and LPG shipping sectors depends on
continued growth in world and regional demand for LNG and LPG
and LNG and LPG shipping and the supply of LNG and LPG. Demand
for LNG and LPG and LNG and LPG shipping could be negatively
affected by a number of factors, such as increases in the costs
of natural gas derived from LNG relative to the cost of natural
gas generally, increases in the production of natural gas in
areas linked by pipelines to consuming areas, increases in the
price of LNG and LPG relative to other energy sources, the
availability of new energy sources, and negative global or
regional economic or political
conditions. Reduced demand for LNG or LPG and LNG or LPG
shipping would have a material adverse effect on future growth
of our liquefied gas segment, and could harm that segment’s
results. Growth of the LNG and LPG markets may be limited by
infrastructure constraints and community and environmental group
resistance to new LNG and LPG infrastructure over concerns about
the environment, safety and terrorism. If the LNG or LPG supply
chain is disrupted or does not continue to grow, or if a
significant LNG or LPG explosion, spill or similar incident
occurs, it could have a material adverse effect on growth and
could harm our business, results of operations and financial
condition.
Expansion of the shuttle tanker, FSO and FPSO sectors depends on
continued growth in world and regional demand for these offshore
services, which could be negatively affected by a number of
factors, such as:
•
decreases in the actual or projected price of oil, which could
lead to a reduction in or termination of production of oil at
certain fields we service or a reduction in exploration for or
development of new offshore oil fields;
•
increases in the production of oil in areas linked by pipelines
to consuming areas, the extension of existing, or the
development of new, pipeline systems in markets we may serve, or
the conversion of existing non-oil pipelines to oil pipelines in
those markets;
•
decreases in the consumption of oil due to increases in its
price relative to other energy sources, other factors making
consumption of oil less attractive or energy conservation
measures;
•
availability of new, alternative energy sources; and
•
negative global or regional economic or political conditions,
particularly in oil consuming regions, which could reduce energy
consumption or its growth.
Reduced demand for offshore marine transportation, production,
processing or storage services would have a material adverse
effect on our future growth and could harm our business, results
of operations and financial condition.
The intense
competition in our markets may lead to reduced profitability or
expansion opportunities.
Our vessels operate in highly competitive markets. Competition
arises primarily from other vessel owners, including major oil
companies and independent companies. We also compete with owners
of other size vessels. Our market share is insufficient to
enforce any degree of pricing discipline in the markets in which
we operate and our competitive position may erode in the future.
Any new markets that we enter could include participants that
have greater financial strength and capital resources than we
have. We may not be successful in entering new markets.
One of our objectives is to enter into additional long-term,
fixed-rate time charters for our LNG and LPG carriers, shuttle
tankers, FSO and FPSO units. The process of obtaining new
long-term time charters is highly competitive and generally
involves an intensive screening process and competitive bids,
and often extends for several months. We expect substantial
competition for providing services for potential LNG, LPG,
shuttle tanker, FSO and FPSO projects from a number of
experienced companies, including state-sponsored entities and
major energy companies. Some of these competitors have greater
experience in these markets and greater financial
resources than do we. We anticipate that an increasing number of
marine transportation companies, including many with strong
reputations and extensive resources and experience will enter
the LNG and LPG transportation, shuttle tanker, FSO and FPSO
sectors. This increased competition may cause greater price
competition for time charters. As a result of these factors, we
may be unable to expand our relationships with existing
customers or to obtain new customers on a profitable basis, if
at all, which would have a material adverse effect on our
business, results of operations and financial condition.
The loss of any
key customer or its inability to pay for our services could
result in a significant loss of revenue in a given
period.
We have derived, and believe that we will continue to derive, a
significant portion of our revenues from a limited number of
customers. One customer accounted for 14%, or
$443.5 million, of our consolidated revenues during 2008
(20% or $472.3 million—2007 and 15% or
$307.9 million—2006), and 14%, or $238.1 million, of
our consolidated revenues during the nine months ended
September 30, 2009. The loss of any significant customer or
a substantial decline in the amount of services requested by a
significant customer, or the inability of a significant customer
to pay for our services, could have a material adverse effect on
our business, financial condition and results of operations.
A recurrence of
recent adverse economic conditions, including disruptions in the
global credit markets, could adversely affect our results of
operations.
The recent economic downturn and financial crisis in the global
markets produced illiquidity in the capital markets, market
volatility, heightened exposure to interest rate and credit
risks and reduced access to capital markets in 2008 and the
first half of 2009. We may face restricted access to the capital
markets or secured debt lenders, such as our revolving credit
facilities in the future. The decreased access to such resources
could have a material adverse effect on our business, financial
condition and results of operations.
Our operations
are subject to substantial environmental and other regulations,
which may significantly increase our expenses.
Our operations are affected by extensive and changing
international, national and local environmental protection laws,
regulations, treaties and conventions in force in international
waters, the jurisdictional waters of the countries in which our
vessels operate, as well as the countries of our vessels’
registration, including those governing oil spills, discharges
to air and water, and the handling and disposal of hazardous
substances and wastes. Many of these requirements are designed
to reduce the risk of oil spills and other pollution. In
addition, we believe that the heightened environmental, quality
and security concerns of insurance underwriters, regulators and
charterers will lead to additional regulatory requirements,
including enhanced risk assessment and security requirements and
greater inspection and safety requirements on vessels. We expect
to incur substantial expenses in complying with these and future
laws and regulations, including expenses for vessel
modifications and changes in operating procedures.
These requirements can affect the resale value or useful lives
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, in the event that there is a release of petroleum
or other hazardous substances from our vessels or otherwise in
connection with our operations. We could also become subject to
personal injury or property damage claims relating to the
release of or exposure to hazardous materials associated with
our operations. In addition, failure to comply with applicable
laws and regulations may result in administrative and civil
penalties, criminal sanctions or the suspension or termination
of our operations, including, in certain instances, seizure or
detention of our vessels. For further information about
regulations affecting our business and related requirements on
us, please read “Business—Regulation.”
We may be unable
to make or realize expected benefits from acquisitions, and
implementing our strategy of growth through acquisitions may
harm our financial condition and performance.
A principal component of our strategy is to continue to grow by
expanding our business both in the geographic areas and markets
where we have historically focused as well as into new
geographic areas, market segments and services. We may not be
successful in expanding our operations and any expansion may not
be profitable. Our strategy of growth through acquisitions
involves business risks commonly encountered in acquisitions of
companies, including:
•
interruption of, or loss of momentum in, the activities of one
or more of an acquired company’s businesses and our
businesses;
•
additional demands on members of our senior management while
integrating acquired businesses, which would decrease the time
they have to manage our existing business, service existing
customers and attract new customers;
•
difficulties in integrating the operations, personnel and
business culture of acquired companies;
•
difficulties of coordinating and managing geographically
separate organizations;
•
adverse effects on relationships with our existing suppliers and
customers, and those of the companies acquired;
•
difficulties entering geographic markets or new market segments
in which we have no or limited experience; and
•
loss of key officers and employees of acquired companies.
Acquisitions may not be profitable to us at the time of their
completion and may not generate revenues sufficient to justify
our investment. In addition, our acquisition growth strategy
exposes us to risks that may harm our results of operations and
financial condition, including risks that we may: fail to
realize anticipated benefits, such as cost-savings, revenue and
cash flow enhancements and earnings accretion; decrease our
liquidity by using a significant portion of our available cash
or borrowing capacity to finance acquisitions; incur additional
indebtedness, which may result in significantly increased
interest expense or financial leverage, or issue additional
equity securities to finance acquisitions, which may result in
significant shareholder dilution; incur or assume unanticipated
liabilities, losses or costs associated with the business
acquired; or incur other significant charges, such as impairment
of goodwill or other intangible assets, asset devaluation or
restructuring charges.
The strain that
growth places upon our systems and management resources may harm
our business.
Our growth has placed and will continue to place significant
demands on our management, operational and financial resources.
As we expand our operations, we must effectively manage and
monitor operations, control costs and maintain quality and
control in geographically dispersed markets. In addition, our
three publicly-traded subsidiaries have increased our complexity
and placed additional demands on our management. Our future
growth and financial performance will also depend on our ability
to recruit, train, manage and motivate our employees to support
our expanded operations and continue to improve our customer
support, financial controls and information systems.
These efforts may not be successful and may not occur in a
timely or efficient manner. Failure to effectively manage our
growth and the system and procedural transitions required by
expansion in a cost-effective manner could have a material
adverse affect on our business.
Our insurance may
not be sufficient to cover losses that may occur to our property
or as a result of our operations.
The operation of oil and product tankers, LNG and LPG carriers,
FSO and FPSO units is inherently risky. Although we carry hull
and machinery (marine and war risk) and protection and indemnity
insurance, all risks may not be adequately insured against, and
any particular claim may not be paid. In addition, we do not
generally carry insurance on our vessels covering the loss of
revenues resulting from vessel off-hire time based on its cost
compared to our off-hire experience. Any significant off-hire
time of our vessels could harm our business, operating results
and financial condition. Any claims relating to our operations
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 catastrophic oil spill or marine disaster could
result in losses that 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, the insurance that may be
available may be significantly more expensive than our existing
coverage.
Marine
transportation is inherently risky, and an incident involving
significant loss of or environmental contamination by any of our
vessels could harm our reputation and business.
Our vessels and their cargoes are at risk of being damaged or
lost because of events such as:
•
marine disaster;
•
bad weather;
•
mechanical failures;
•
grounding, fire, explosions and collisions;
•
piracy;
•
human error; and
•
war and terrorism.
An accident involving any of our vessels could result in any of
the following:
•
death or injury to persons, loss of property or environmental
damage or pollution;
•
delays in the delivery of cargo;
•
loss of revenues from or termination of charter contracts;
•
governmental fines, penalties or restrictions on conducting
business;
•
higher insurance rates; and
•
damage to our reputation and customer relationships generally.
Any of these results could have a material adverse effect on our
business, financial condition and operating results.
Our operating
results are subject to seasonal fluctuations.
We operate our conventional tankers in markets that have
historically exhibited seasonal variations in demand and,
therefore, in charter rates. This seasonality may result in
quarter-to-quarter
volatility in our results of operations. Tanker markets are
typically stronger in the winter months as a result of increased
oil consumption in the northern hemisphere. In addition,
unpredictable weather patterns in these months tend to disrupt
vessel scheduling, which historically has increased oil price
volatility and oil trading activities in the winter months. As a
result, our revenues have historically been weaker during the
fiscal quarters ended June 30 and September 30, and
stronger in our fiscal quarters ended March 31 and
December 31.
Due to harsh winter weather conditions, oil field operators in
the North Sea typically schedule oil platform and other
infrastructure repairs and maintenance during the summer months.
Because the North Sea is our primary existing offshore oil
market, this seasonal repair and maintenance activity
contributes to
quarter-to-quarter
volatility in our results of operations, as oil production
typically is lower in the fiscal quarters ended June 30 and
September 30 in this region compared with production in the
fiscal quarters ended March 31 and December 31. Because a
significant portion of our North Sea shuttle tankers operate
under contracts of affreightment, under which revenue is based
on the volume of oil transported, the results of
our shuttle tanker operations in the North Sea under these
contracts generally reflect this seasonal production pattern.
When we redeploy affected shuttle tankers as conventional oil
tankers while platform maintenance and repairs are conducted,
the overall financial results for our North Sea shuttle tanker
operations may be negatively affected if the rates in the
conventional oil tanker markets are lower than the contract of
affreightment rates. In addition, we seek to coordinate some of
the general drydocking schedule of our fleet with this
seasonality, which may result in lower revenues and increased
drydocking expenses during the summer months.
We expend
substantial sums during construction of newbuildings and the
conversion of tankers to FPSOs or FSOs without earning revenue
and without assurance that they will be completed.
We are typically required to expend substantial sums as progress
payments during construction of a newbuilding, but we do not
derive any revenue from the vessel until after its delivery. In
addition, under some of our time charters if our delivery of a
vessel to a customer is delayed, we may be required to pay
liquidated damages in amounts equal to or, under some charters,
almost double the hire rate during the delay. For prolonged
delays, the customer may terminate the time charter and, in
addition to the resulting loss of revenues, we may be
responsible for additional substantial liquidated charges.
Substantially all of our newbuilding financing commitments have
been pre-arranged. However, if we were unable to obtain
financing required to complete payments on any of our
newbuilding orders, we could effectively forfeit all or a
portion of the progress payments previously made. As of
December 31, 2009, we had 11 newbuildings on order with
deliveries scheduled between 2010 and 2012. As of
December 31, 2009, progress payments made towards these
newbuildings, excluding payments made by our joint venture
partners, totaled $283.3 million.
In addition, conversion of tankers to FPSOs and FSOs expose us
to a numbers of risks, including lack of shipyard capacity and
the difficulty of completing the conversion in a timely and cost
effective manner. During conversion of a vessel, we do not earn
revenue from it. In addition, conversion projects may not be
successful.
We make
substantial capital expenditures to expand the size of our
fleet. Depending on whether we finance our expenditures through
cash from operations or by issuing debt or equity securities,
our financial leverage could increase or our stockholders could
be diluted.
We regularly evaluate and pursue opportunities to provide the
marine transportation requirements for various projects, and we
have currently submitted bids to provide transportation
solutions for LNG and LPG projects. We may submit additional
bids from time to time. The award process relating to LNG and
LPG transportation opportunities typically involves various
stages and takes several months to complete. If we bid on and
are awarded contracts relating to any LNG and LPG project, we
will need to incur significant capital expenditures to build the
related LNG and LPG carriers.
To fund the remaining portion of existing or future capital
expenditures, we will be required to use cash from operations or
incur borrowings or raise capital through the sale of debt or
additional equity securities. Our ability to obtain bank
financing or to access the capital markets for future offerings
may be limited by our financial condition at the time of any
such financing
or offering as well as by adverse market conditions resulting
from, among other things, general economic conditions and
contingencies and uncertainties that are beyond our control. Our
failure to obtain the funds for necessary future capital
expenditures could have a material adverse effect on our
business, results of operations and financial condition. Even if
we are successful in obtaining necessary funds, incurring
additional debt may significantly increase our interest expense
and financial leverage, which could limit our financial
flexibility and ability to pursue other business opportunities.
Issuing additional equity securities may result in significant
stockholder dilution and would increase the aggregate amount of
cash required to pay quarterly dividends.
Exposure to
currency exchange rate and interest rate fluctuations results in
fluctuations in our cash flows and operating results.
Substantially all of our revenues are earned in
U.S. Dollars, although we are paid in Euros, Australian
Dollars, Norwegian Kroner and British Pounds under some of our
charters. A portion of our operating costs are incurred in
currencies other than U.S. Dollars. This partial mismatch
in operating revenues and expenses leads to fluctuations in net
income due to changes in the value of the U.S. dollar
relative to other currencies, in particular the Norwegian
Kroner, the Australian Dollar, the Canadian Dollar, the
Singapore Dollar, the Japanese Yen, the British Pound and the
Euro. We also make payments under two Euro-denominated term
loans. If the amount of these and other Euro-denominated
obligations exceeds our Euro-denominated revenues, we must
convert other currencies, primarily the U.S. Dollar, into
Euros. An increase in the strength of the Euro relative to the
U.S. Dollar would require us to convert more
U.S. Dollars to Euros to satisfy those obligations.
Because we report our operating results in U.S. Dollars,
changes in the value of the U.S. Dollar relative to other
currencies also result in fluctuations of our reported revenues
and earnings. Under U.S. accounting guidelines, all foreign
currency-denominated monetary assets and liabilities, such as
cash and cash equivalents, accounts receivable, restricted cash,
accounts payable, long-term debt and capital lease obligations,
are revalued and reported based on the prevailing exchange rate
at the end of the period. This revaluation historically has
caused us to report significant non-monetary foreign currency
exchange gains or losses each period. For 2007 and 2008 and the
nine months ended September 30, 2009, we had foreign
exchange (losses) gains of $(39.9) million,
$32.3 million and $(39.9) million, respectively. The
primary source of these gains and losses is our Euro-denominated
term loans.
Many seafaring
employees are covered by collective bargaining agreements and
the failure to renew those agreements or any future labor
agreements may disrupt operations and adversely affect our cash
flows.
A significant portion of our seafarers are employed under
collective bargaining agreements. We may become subject to
additional labor agreements in the future. We may suffer to
labor disruptions if relationships deteriorate with the
seafarers or the unions that represent them. Our collective
bargaining agreements may not prevent labor disruptions,
particularly when the agreements are being renegotiated.
Salaries are typically renegotiated annually or bi-annually for
seafarers and annually for onshore operational staff and may
increase our cost of operation. Any labor disruptions could harm
our operations and could have a material adverse effect on our
business, results of operations and financial condition.
We may be unable
to attract and retain qualified, skilled employees or crew
necessary to operate our business.
Our success depends in large part on our ability to attract and
retain highly skilled and qualified personnel. In crewing our
vessels, we require technically skilled employees with
specialized training who can perform physically demanding work.
Competition to attract and retain qualified crew members is
intense. If crew costs increase and we are not able to increase
our rates to customers to compensate for any crew cost
increases, our financial condition and results of operations may
be adversely affected. Any inability we experience in the future
to hire, train and retain a sufficient number of qualified
employees could impair our ability to manage, maintain and grow
our business.
Terrorist
attacks, piracy, increased hostilities or war could lead to
further economic instability, increased costs and disruption of
our business.
Terrorist attacks, the current conflicts in Iraq and
Afghanistan, and other current and future conflicts may
adversely affect our business, operating results, financial
condition, and ability to raise capital or future growth.
Continuing hostilities in the Middle East may lead to additional
armed conflicts or to further acts of terrorism and civil
disturbance in the United States or elsewhere, which may
contribute further to economic instability and disruption of
oil, LNG and LPG production and distribution, which could result
in reduced demand for our services. In addition, oil, LNG and
LPG facilities, shipyards, vessels, pipelines and oil and gas
fields could be targets of future terrorist attacks and our
vessels could be targets of pirates or hijackers. Any such
attacks could lead to, among other things, bodily injury or loss
of life, vessel or other property damage, increased vessel
operational costs, including insurance costs, and the inability
to transport oil, LNG and LPG to or from certain locations.
Terrorist attacks, war, piracy, hijacking or other events beyond
our control that adversely affect the distribution, production
or transportation of oil, LNG or LPG to be shipped by us could
entitle our customers to terminate charter contracts, which
could harm our cash flow and our business.
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 2009,
the frequency of piracy incidents has increased significantly,
particularly in the Gulf of Aden of the coast of Somalia. 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, or Joint
War Committee “war and strikes” listed areas, premiums
payable for such coverage could increase significantly and such
insurance coverage may be more difficult to obtain. In addition,
crew costs, including costs which may be incurred to the extent
we employ 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 substantial
operations outside the United States expose us to political,
governmental and economic instability, which could harm our
operations.
Because our operations are primarily conducted outside of the
United States, they may be affected by economic, political and
governmental conditions in the countries where we are engaged in
business or where our vessels are registered. Any disruption
caused by these factors could harm our business. In particular,
changing laws and policies affecting trade, investment and
changes in tax regulations could have a materially adverse
effect on our business, cash flow and financial results. As
well, we derive a substantial portion of our revenues from
shipping oil, LNG and LPG from politically unstable regions.
Past political conflicts in these regions, particularly in the
Arabian Gulf, have included attacks on ships, mining of
waterways and other efforts to disrupt shipping in the area.
Future hostilities or other political instability in the Arabian
Gulf or other regions where we operate or may operate could have
a material adverse effect on the growth of our business, results
of operations and financial condition. In addition, tariffs,
trade embargoes and other economic sanctions by the United
States or other countries against countries in the Middle East,
Southeast Asia or elsewhere as a result of terrorist attacks,
hostilities or otherwise may limit trading activities with those
countries, which could also harm our business. Finally, a
government could requisition one or more of our vessels, which
is most likely during war or national emergency. Any such
requisition would cause a loss of the vessel and could harm our
business, cash flow and financial results.
Maritime
claimants could arrest our vessels, which could interrupt our
cash flow.
Crew members, suppliers of goods and services to a vessel,
shippers of cargo and other parties may be entitled to a
maritime lien against that vessel for unsatisfied debts, claims
or damages. In many jurisdictions, a maritime lienholder may
enforce its lien by arresting a vessel through foreclosure
proceedings. The arrest or attachment of one or more of our
vessels could interrupt our cash flow and require us to pay
large sums of funds to have the arrest or attachment lifted. In
addition, in some jurisdictions, such as South Africa, under the
“sister ship” theory of liability, a claimant may
arrest both the vessel that is subject to the claimant’s
maritime lien and any “associated” vessel, which is
any vessel owned or controlled by the same owner. Claimants
could try to assert “sister ship” liability against
one vessel in our fleet for claims relating to another of our
ships.
Declining market
values of our vessels could adversely affect our liquidity and
result in breaches of our financing agreements.
Market values of vessels fluctuate depending upon general
economic and market conditions affecting relevant markets and
industries and competition from other shipping companies and
other modes of transportation. In addition, as vessels become
older, they generally decline in value. Declining vessel values
of our tankers could adversely affect our liquidity by limiting
our ability to raise cash by refinancing vessels. Declining
vessel values could also result in a breach of loan covenants
and events of default under certain of our credit facilities
that require us to maintain certain
loan-to-value
ratios. If we are unable to pledge additional collateral in the
event of a decline in vessel values, the lenders under these
facilities could accelerate our debt and foreclose on our
vessels pledged as collateral for the loans. As of
September 30, 2009, the total outstanding debt under credit
facilities with this type of covenant tied to conventional
tanker values was $218 million.
Changes in the
ownership of our stock may cause us and certain of our
subsidiaries to be unable to claim an exemption from United
States tax on our United States source income.
Changes in the ownership of our stock may cause us to be unable
to claim an exemption from U.S. federal income tax under
Section 883 of the United States Internal Revenue Code (or
the Code). If we were not exempt from tax under
Section 883 of the Code, we or our subsidiaries that are
currently claiming exemptions will be subject to
U.S. federal income tax on shipping income attributable to
our subsidiaries’ transportation of cargoes to or from the
U.S. to the extent it is treated as derived from
U.S. sources. See “Business — Taxation of
the Company — United States Taxation.” Our
subsidiary Teekay Offshore currently is unable to claim this
exemption and, as a result, we estimate that it will be subject
to less than $500,000 of U.S. federal income tax annually.
To the extent we or our other subsidiaries are subject to
U.S. federal income tax on shipping income from
U.S. sources, our net income and cash flow will be reduced
by the amount of such tax. We cannot give any assurance that
future changes and shifts in ownership of our stock will not
preclude us or our other subsidiaries from being able to satisfy
an exemption under Section 883.
Risks relating to
this offering
We have
substantial debt levels and may incur additional debt.
We have substantial debt and debt service requirements. Assuming
we completed this offering on September 30, 2009, after
giving effect to the issuance of the notes and the application
of the estimated net proceeds of the offering to repurchase in
the Tender Offer our outstanding 8.875% Senior Notes and to
prepay certain of our outstanding revolving debt, our
consolidated debt and capital lease obligations would have
totaled $5.3 billion and we would have had the capacity to
borrow an additional $1.5 billion under our credit
facilities. If less than all of our outstanding
8.875% Senior Notes are tendered and repurchased, the
senior unsecured debt of Teekay Parent will be greater. Our
consolidated debt and capital lease obligations could increase
substantially. The terms of the indenture under which the notes
will be issued and, subject to certain limitations, our credit
facilities do not prohibit us from incurring additional debt.
Accordingly, should our current debt levels increase, the risks
related to the notes and our debt generally that we now face
could also increase. Our level of debt could have important
consequences to us, including:
•
our ability to obtain additional financing, if necessary, for
working capital, capital expenditures, acquisitions or other
purposes may be impaired or such financing may not be available
on favorable terms;
•
we will need a substantial portion of our cash flow to make
principal and interest payments on our debt, reducing the funds
that would otherwise be available for operations, future
business opportunities and dividends to stockholders;
•
our debt level may make us more vulnerable than our competitors
with less debt to competitive pressures or a downturn in our
industry or the economy generally; and
•
our debt level may limit our flexibility in obtaining additional
financing, pursuing other business opportunities and responding
to changing business and economic conditions.
Our ability to
service our debt will depend on certain financial, business and
other factors, many of which are beyond our control.
Our ability to service our debt, including the notes, will
depend upon, among other things, our future financial and
operating performance, which will be affected by prevailing
economic conditions and financial, business, regulatory and
other factors, many of which are beyond our control. In
addition, we rely on distributions and other intercompany cash
flows from our subsidiaries to repay our obligations. Financing
arrangements between some of our subsidiaries and their
respective lenders contain restrictions on distributions from
such subsidiaries.
If we are unable to generate sufficient cash flow to service our
debt service requirements, we may be forced to take actions such
as:
•
restructuring or refinancing our debt, including the notes;
•
seeking additional debt or equity capital;
•
seeking bankruptcy protection;
•
reducing distributions;
•
reducing or delaying our business activities, acquisitions,
investments or capital expenditures; or
•
selling assets.
Such measures might not be successful and might not enable us to
service our debt. In addition, any such financing, refinancing
or sale of assets might not be available on economically
favorable terms. In addition, our credit agreements and the
indenture governing the notes may restrict our ability to
implement some of these measures.
Financing
agreements containing operating and financial restrictions may
limit our operating and financial flexibility.
Operating and financial restrictions and covenants in our
revolving credit facilities, term loans and in any of our future
financing agreements could adversely affect our ability to
finance future operations or capital needs or to pursue and
expand our business activities. For example, these financing
arrangements restrict our ability to:
•
pay dividends;
•
incur or guarantee indebtedness;
•
change our ownership or structure, including through mergers,
consolidations, liquidations and dissolutions;
•
grant liens on our assets;
•
sell, transfer, assign or convey our assets;
•
make certain investments; and
•
enter into a new line of business.
In addition, the indenture relating to the notes restricts our
ability to:
transfer, sell, lease or otherwise dispose of all or
substantially all of our assets; and
•
consolidate with, or merge with or into any person.
Please read “Description of other indebtedness.”
Our ability to comply with covenants and restrictions contained
in debt instruments may be affected by events beyond our
control, including prevailing economic, financial and industry
conditions. If market or other economic conditions deteriorate,
we may fail to comply with these covenants. If we breach any of
the restrictions, covenants, ratios or tests in the financing
agreements or the indenture relating to the notes, our debt
obligations may become immediately due and payable, and the
lenders’ commitment under our credit facilities, if any, to
make further loans may terminate. A default under financing
agreements could also result in foreclosure on any of our
vessels and other assets securing related loans.
Our subsidiaries
conduct all of our operations and own all of our operating
assets, and your right to receive payments on the notes is
effectively subordinated to the rights of the lenders of our
subsidiaries.
We are a holding company and our subsidiaries conduct all of our
operations and own all of our operating assets. Our only
material asset is our ownership of the capital stock of or other
ownership interests in our subsidiaries. As a result, our
ability to make required payments on the notes depends on the
operations of our subsidiaries and our subsidiaries’
ability to distribute funds to us. To the extent our
subsidiaries are unable to distribute, or are restricted from
distributing, funds to us, we may be unable to fulfill our
obligations under the notes. Our subsidiaries will have no
obligation to pay amounts due on the notes, and none of our
subsidiaries will guarantee the notes.
The rights of holders of the notes will be structurally
subordinated to the rights of our subsidiaries’ lenders. A
default by a subsidiary under its debt obligations would result
in a block on distributions from the affected subsidiary to us.
The notes will be effectively junior to all liabilities of our
subsidiaries. In the event of a bankruptcy, liquidation or
reorganization of any of our subsidiaries, creditors of our
subsidiaries will generally be entitled to payment of their
claims from the assets of those subsidiaries before any assets
are made available for distribution to us. As of
September 30, 2009, our subsidiaries had $4.8 billion
of outstanding debt and capital lease obligations. In addition,
the indenture under which the notes will be issued will permit
us and our subsidiaries to incur additional debt without any
limitation.
The notes will be
unsecured obligations and will be effectively subordinated to
our secured debt and secured debt of our subsidiaries.
The notes are unsecured and therefore will be effectively
subordinated to any secured debt we or our subsidiaries maintain
or may incur to the extent of the value of the assets securing
the debt. In the event of a bankruptcy or similar proceeding
involving us or a subsidiary, the assets that serve as
collateral will be available to satisfy the obligations under
any secured debt before any payments are made on the notes.
Assuming we completed this offering on September 30, 2009,
after giving effect to the issuance of the notes and the
application of the estimated net proceeds of the offering, we
and our subsidiaries would have had an aggregate of
approximately $4.8 billion of secured debt outstanding.
Please read “Description of other indebtedness.” We
and our subsidiaries will continue to have the ability to incur
additional secured debt, subject to limitations in our credit
facilities.
We may be unable
to raise the funds necessary to finance the change of control
offer required by the indenture governing the notes.
Upon the occurrence of a change of control triggering event as
described in “Description of
notes—Covenants—Repurchase of notes upon a change of
control triggering event,” we will be required to offer to
purchase the notes at a purchase price equal to 101% of the
principal amount of the notes, plus accrued interest to the date
of the purchase. In the event of a change of control triggering
event, the total debt represented by the notes could become due
and payable. We may not have sufficient financial resources
available at the time of any change of control to repurchase the
notes. Our failure to repurchase the notes upon a change of
control triggering event would cause a default under the
indenture relating to the notes. In addition, certain of our
credit facilities provide that certain change of control events
will constitute a default and, in the event of such a default,
the holders of such debt may elect to declare all funds borrowed
to be due and payable, together with accrued and unpaid
interest. Any future debt facilities may contain similar
restrictions and provisions.
An active trading
market may not develop for the notes.
The notes will constitute a new issue of securities for which
there is no active public trading market. We do not intend to
apply for listing of the notes on a securities exchange.
Although the underwriters have advised us that they intend to
make a market in the notes, as permitted by applicable laws and
regulations, they are not obligated to do so and may discontinue
market-making activities at any time. The liquidity of the
trading market in the notes and the market prices quoted for the
notes may be adversely affected by changes in the overall market
for this type of securities and by changes in our financial
performance or prospects or in the performance or prospects for
companies in our industries generally. As a consequence, an
active trading market may not develop for the notes, you may not
be able to sell the notes or, even if you can sell the notes,
you may not be able to sell them at a price that would be
acceptable to you.
The international
nature of our operations may make the outcome of any bankruptcy
proceedings difficult to predict.
We are incorporated under the laws of the Republic of The
Marshall Islands and our subsidiaries are incorporated under the
laws of The Marshall Islands, Norway, Spain, The Bahamas and
certain other countries besides the United States, and we
conduct operations in countries around the world. Consequently,
in the event of any bankruptcy, insolvency, liquidation,
dissolution, reorganization or similar proceeding involving us
or any of our subsidiaries, bankruptcy laws other than those of
the United States could apply. We have limited operations in the
United States. If we become a debtor under U.S. bankruptcy
law, bankruptcy courts in the United States may seek to assert
jurisdiction over all of our assets, wherever located, including
property situated in other countries. There can be no assurance,
however, that we would become a debtor in the United States, or
that a U.S. bankruptcy court would be entitled to, or
accept, jurisdiction over such a bankruptcy case, or that courts
in other countries that have jurisdiction over us and our
operations would recognize a U.S. bankruptcy court’s
jurisdiction if any other bankruptcy court would determine it
had jurisdiction.
It may not be
possible for investors in the notes to enforce U.S. judgments
against us.
We are incorporated in the Republic of The Marshall Islands and
most of our subsidiaries are organized in countries other than
the United States. Substantially all of our assets and those of
our subsidiaries are located outside the United States. As a
result, it may be difficult or impossible for investors in the
notes to enforce judgments upon 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 (1) 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 (2) would entertain original
actions brought against us or our subsidiaries based upon these
laws.
If the notes are
issued with original issue discount (or OID) and you are
a U.S. holder, you generally will be required to include the OID
in income before you receive cash attributable to OID on the
notes. Additionally, in the event we enter into bankruptcy, you
may not have a claim for all or a portion of any unamortized
amount of any OID on the notes.
The notes may be issued with OID for U.S. federal income
tax purposes. If the notes are issued with OID and if you are a
U.S. holder, you generally will be required to accrue OID
on a current basis as ordinary income before you receive cash
attributable to that income regardless of your method of
accounting for U.S. federal income tax purposes. For
further discussion of the computation and reporting of OID,
please read “Certain United Stated federal income tax
considerations—Tax consequences to
U.S. holders—Stated interest and OID on the
notes.”
Additionally, a bankruptcy court may not allow a claim for all
or a portion of any unamortized amount of any OID on the notes.
We expect to receive net proceeds from the issuance of the notes
in this offering of approximately $437 million, after
deducting underwriting discounts and estimated offering expenses
payable by us. We intend to use approximately
(a) $190 million of the net offering proceeds to
repurchase in the Tender Offer all of our outstanding
8.875% Senior Notes due July 2011, subject to the tender of
such notes in the Tender Offer, and (b) $150 million
to repay all amounts outstanding under a term loan. We intend to
use the remaining net proceeds to repay a portion of our
outstanding debt under one of our revolving credit facilities.
The term loan we intend to repay has a fluctuating interest rate
based on the London Interbank Offered Rate (or LIBOR)
plus 80 basis points and matures on August 10, 2010.
The revolving credit facility we intend to partially repay has a
fluctuating interest rate currently based on LIBOR plus
55 basis points and matures on November 28, 2017. We
anticipate being able to redraw the amount we repay on the
facility in the future for general corporate purposes.
Borrowings under the revolving credit facility were incurred
primarily for working capital purposes.
We commenced the Tender Offer for the 8.875% Senior Notes
on January 12, 2010. If less than all of the outstanding
8.875% Senior Notes are purchased in the Tender Offer, we
intend to use the additional net proceeds from this offering not
used to repurchase the 8.875% Senior Notes to repay
additional debt or for general corporate purposes.
Affiliates of certain of the underwriters are currently lenders
under the revolving credit facility we intend to partially repay
and, accordingly, will receive a portion of the net proceeds
from the sale of the notes in this offering. Please read
“Underwriting.”
This data is unaudited for all
periods presented. For purposes of computing our ratio of
earnings to fixed charges on a consolidated basis, earnings is
the result of adding (a) pre-tax income from continuing
operations before adjustment for minority interests in
consolidated subsidiaries or income or loss from equity
investees, (b) fixed charges, (c) amortization of
capitalized interest, and (d) distributed income of equity
investees, and subtracting interest capitalized. Fixed charges
represent (i) interest expensed and capitalized,
(ii) amortized premiums, discounts and capitalized expenses
related to indebtedness, and (iii) interest within
time-charter hire expense.
(2)
As of September 30, 2009, we
guaranteed $58.7 million of debt of joint ventures we do
not control.
(3)
For the year ended
December 31, 2008, the ratio of earnings to fixed charges
was less than 1.0x. The amount of the deficiency was
$508.1 million.
The following table sets forth our capitalization on a
consolidated basis as of September 30, 2009:
•
on an actual basis;
•
on an as adjusted basis to give effect to
(a) $91.9 million of net proceeds received from Teekay
LNG’s public offering of 3.95 million common units in
November 2009 and the application of $90.0 million of the
net proceeds thereof to pay down a portion of one of its
revolving credit facilities; (b) Teekay Offshore’s
borrowing in November 2009 of $160.0 million under a new
revolving credit facility and the use of such funds to pay down
a portion of Teekay’s revolving credit facilities;
(c) the repurchase of $17.4 million of our outstanding
8.875% Senior Notes for an aggregate repurchase price of
$18.0 million in November 2009; and
•
on an as further adjusted basis to give effect to this offering
and the application of the estimated net proceeds, assuming that
the notes are not issued with any original issue discount and
that all of our outstanding 8.875% Senior Notes are
purchased in the Tender Offer, as described under “Use of
proceeds.” If less than all of our outstanding
8.875% Senior Notes are purchased in the Tender Offer, the
senior unsecured debt of Teekay Parent will be higher.
You should read this table in conjunction with the sections
entitled “Use of proceeds,”“Management’s
discussion and analysis of financial condition and results of
operations” and “Description of other
indebtedness” and our consolidated financial statements and
the related notes thereto included elsewhere in this prospectus.
The amounts attributable to Teekay
Parent for cash and cash equivalents, restricted cash and total
debt, respectively, would be $227.8 million,
$2.4 million and $1.1 billion.
The following table reconciles
Teekay’s consolidated and Teekay Parent’s historical
cash and cash equivalents, restricted cash and total debt,
respectively. Teekay Parent’s numbers are reconciled to
Teekay consolidated numbers, which are the most directly
comparable financial measures calculated and presented in
accordance with GAAP.
The as further adjusted data in the
following table as of September 30, 2009 for each of Teekay on a
consolidated basis, Teekay’s publicly-traded subsidiaries
(Teekay Offshore, Teekay LNG and Teekay Tankers) and Teekay
Parent has been prepared on the bases described in
“Summary—Summary financial and operating data.”
Substantially all restricted cash
deposits relate to Teekay LNG. Under certain capital lease
arrangements, Teekay LNG maintains restricted cash deposits
that, together with interest earned on the deposits, will equal
the remaining scheduled payments it owes under the capital
leases. The interest Teekay LNG receives from those deposits is
used solely to pay interest associated with the capital leases,
and the amount of interest it receives approximates the amount
of interest it pays on the capital leases.
(3)
We intend to use a portion of the
net proceeds of this offering to repurchase, in the Tender Offer
we are commencing concurrently with this offering, all of our
outstanding 8.875% Senior Notes. If less than all of our
8.875% Senior Notes are purchased in the Tender Offer, we
intend to use the additional net proceeds from this offering not
used to repurchase the 8.875% Senior Notes to repay
additional debt or for general corporate purposes.
(4)
The portions of other debt
(a) secured by assets of certain of our subsidiaries and
(b) guaranteed by us or certain of our subsidiaries are
$4.2 billion, $4.1 billion and $4.0 billion,
respectively, on an actual, as adjusted and as further adjusted
basis.
(5)
A total of $627 million of
these capital lease obligations is both (a) secured by
assets (cash collateral) of certain of our subsidiaries and
(b) guaranteed by us or certain of our subsidiaries on an
actual, as adjusted and as further adjusted basis.
The following table presents, in each case for the periods and
as at the dates indicated, our selected historical consolidated
financial and operating data.
The selected historical financial and operating data has been
prepared on the following basis:
•
the historical financial and operating data as at and for the
years ended December 31, 2004 and 2005 are derived from our
audited consolidated financial statements and the notes thereto
and their subsequent restatement which is contained in our Form
20-F/A for the year ended December 31, 2007 filed with the
SEC on April 7, 2009, which are not included or
incorporated by reference in this prospectus;
•
the historical financial and operating data as at and for the
years ended December 31, 2006, 2007 and 2008 are derived
from our audited consolidated financial statements and the notes
thereto, which are included elsewhere in this prospectus; and
•
the historical financial and operating data as at and for the
nine months ended September 30, 2008 and 2009 are derived
from our unaudited interim consolidated financial statements and
the notes thereto, which, other than the unaudited interim
consolidated balance sheet as at September 30, 2008, are
included elsewhere in this prospectus.
an amendment to FASB ASC 810, Consolidation, which
requires that non-controlling interests in subsidiaries held by
parties other than us be identified, labeled and presented in
the consolidated balance sheet within equity, but separate from
the stockholders’ equity. This amendment requires that the
amount of consolidated net income (loss) attributable to the
stockholders and to the non-controlling interest be clearly
identified on the consolidated statements of income (loss). This
amendment also requires that distributions from our
publicly-traded subsidiaries to non-controlling interests are
reflected as a financing cash outflow in our statements of cash
flows; and
•
a new presentation format (the Derivatives
Reclassification) for gains (losses) from our derivative
instruments that are not designated for accounting purposes as
cash flow hedges at inception. These gains (losses) are now
reported in realized and unrealized gains (losses) on
non-designated derivative instruments within our statements of
income (loss) rather than being included in revenue, voyage
expenses, vessel operating expenses, general and administrative
expenses, interest expense, interest income and foreign exchange
gain (loss).
The amendment to FASB ASC 810 is required to be applied
retroactively and we adopted the Derivatives Reclassification
with retroactive effect. However, throughout this prospectus the
adoption of this standard and presentation change are only
reflected in:
our unaudited consolidated statements of income (loss),
comprehensive income (loss) and cash flows for the nine months
ended September 30, 2009 and 2008;
•
our unaudited consolidated financial and operating data as of
and for the nine months ended September 30, 2009 and 2008;
and
•
the unaudited historical and as adjusted historical financial
and operating data of us on a consolidated basis and of Teekay
Parent, in each case for the 12 months ended
September 30, 2009.
Other balance sheets, consolidated statements of income (loss),
stockholders’ equity, cash flows and related financial and
operating data as of and for each of the years in the five-year
period ended December 31, 2008, or as of or for any other
period referenced in this prospectus, have not been adjusted to
reflect our adoption of the amendment to ASC 810 and the
Derivatives Reclassification. The retroactive application of the
adoption of the amendments to ASC 810 would have decreased
our consolidation net loss by approximately $9.6 million
for the year ended December 31, 2008 and would have
increased our consolidated net income by approximately
$8.9 million, $6.8 million, $13.5 million and
$2.3 million for the years ended December 31, 2007,
2006, 2005 and 2004, respectively. There would be no changes to
net income resulting from the Derivative Reclassification.
Interim results may not be indicative of full year results, and
historical results may not be indicative of future results.
Certain historical amounts have been reclassified to conform to
the current presentation.
Because we control the general partner of each of Teekay
Offshore and Teekay LNG, and because we hold a majority of the
voting power of Teekay Tankers, the financial results of these
entities are included in our consolidated financial results.
However, Teekay Offshore, Teekay LNG and Teekay Tankers function
with capital structures that are independent of each other and
us, with each having publicly traded equity.
The table below includes three financial measures, net revenues,
EBITDA and Adjusted EBITDA, which we use in our business and are
not calculated or presented in accordance with GAAP. We explain
these measures and reconcile them to their most directly
comparable financial measures calculated and presented in
accordance with GAAP in notes 9 and 10, respectively, to
the table below.
The following table should be read together with, and is
qualified in its entirety by reference to, the historical
consolidated financial statements and accompanying notes
included or incorporated by reference in this prospectus. This
table should be read together with “Management’s
discussion and analysis of financial condition and results of
operations” included or incorporated by reference in this
prospectus.
Realized and unrealized (loss) gain on non-designated derivate
instruments(1)
$
–
$
–
$
–
$
–
$
–
$
(125,542
)
$
83,066
Other income (loss), net
75,109
54,478
(40,751
)
(28,639
)
(10,473
)
(10,119
)
(1,700
)
Total other items
(87,141
)
(53,627
)
(109,126
)
(340,871
)
(731,792
)
(277,392
)
(14,245
)
Net income before non-controlling interests and income taxes
727,463
577,304
318,394
69,254
(516,070
)
197,983
144,692
Non-controlling
interests(6)
(2,268
)
(13,475
)
(6,759
)
(8,903
)
(9,561
)
–
–
Income tax recovery (expense)
(33,464
)
2,787
(8,811
)
3,192
56,176
35,022
(12,174
)
Net income
(loss)(6)
691,731
566,616
302,824
63,543
(469,455
)
233,005
132,518
Less: Net (income) loss attributable to non-controlling
interests(6)
(51,587
)
(33,902
)
Net income (loss) attributable to stockholders of Teekay
Corp.(6)
$
181,418
$
98,616
Balance sheet data: (at end of period)
Cash and cash equivalents
$
427,037
$
236,984
$
343,914
$
442,673
$
814,165
$
875,613
$
495,402
Restricted
cash(7)
448,812
311,084
679,992
686,196
650,556
734,704
652,938
Total vessels and
equipment(8)
3,531,287
3,721,674
5,603,316
6,846,875
7,267,094
7,371,364
6,890,768
Total assets
5,503,740
5,287,030
8,110,329
10,418,541
10,215,001
11,700,259
9,662,233
Total long-term debt
2,108,004
1,878,743
3,252,677
5,263,584
4,952,792
6,111,837
4,518,729
Total obligations under capital leases
636,541
554,235
853,385
857,280
817,341
852,441
824,365
Non-controlling
interest(6)
14,724
287,432
461,887
544,339
583,938
668,563
757,167
Total equity (excluding non-controlling
interest)(6)
2,237,358
2,238,818
2,519,147
2,655,954
2,068,467
–
–
Total equity (including non-controlling
interest)(6)
–
–
–
–
–
3,454,341
2,955,584
Cash flow data:
Net cash provided by (used in):
Operating
activities(6)
$
814,704
$
594,949
$
520,785
$
255,018
$
431,847
$
317,315
$
298,300
Financing
activities(6)
(370,403
)
(618,309
)
299,256
2,114,199
767,878
945,798
(400,743
)
Investing activities
(309,548
)
(166,693
)
(713,111
)
(2,270,458
)
(828,233
)
(830,173
)
(216,320
)
Other financial data:
Net
revenues(1)(9)
$
1,784,462
$
1,538,661
$
1,490,780
$
1,868,199
$
2,435,267
$
1,859,438
$
1,424,139
EBITDA(10)
1,124,943
877,463
603,975
701,696
614,490
652,614
562,159
Adjusted
EBITDA(10)
1,096,891
707,882
630,408
660,485
882,868
686,334
420,687
Ratio of earnings to fixed
charges(11)
4.1
x
3.8
x
3.1
x
1.1
x
–
1.7
x
1.7
x
Capital expenditures:
Expenditures for vessels and equipment
$
(548,587
)
$
(555,142
)
$
(442,470
)
$
(910,304
)
$
(716,765
)
$
(546,334
)
$
(431,607
)
Expenditures for drydocking
(32,889
)
(20,668
)
(31,120
)
(85,403
)
(101,511
)
(60,905
)
(58,815
)
(1)
If adjusted for the adoption of the
Derivatives Reclassification, realized and unrealized gain
(loss) on non-designated derivative instruments on the
consolidated statement of income for the years ended
December 31, 2008, 2007, 2006, 2005 and 2004 would be
included as a separate line item on
the statements of income (loss) rather than being included in
revenue, voyage expenses, vessel operating expenses, general and
administrative expenses, interest expense, interest income and
foreign exchange gain (loss), respectively.
(2)
Voyage expenses are all expenses
unique to a particular voyage, including any bunker fuel
expenses, port fees, cargo loading and unloading expenses, canal
tolls, agency fees and commissions.
(3)
Vessel operating expenses include
crewing, repairs and maintenance, insurance, stores, lube oils
and communication expenses.
(4)
Goodwill impairment charge was from
a write-down of goodwill from the Teekay Petrojarl acquisition.
Based on an impairment analysis, management concluded that the
carrying value of goodwill in the FPSO segment exceeded its fair
value by $334.2 million as of December 31, 2008. As a
result, an impairment loss of $334.2 million has been
recognized in our consolidated statement of income loss for the
year ended December 31, 2008.
(5)
Restructuring charges generally
include costs relating to vessel reflaggings, crew changes,
office closures, global staffing, changes and business unit
reorganization.
(6)
If adjusted for the adoption of the
FASB ASC 810 amendment, (a) non-controlling interest
expense on our consolidated statements of income (loss) for the
years ended December 31, 2008, 2007, 2006, 2005 and 2004
would be included as a component of net income and would be
considered a reconciling item from net income to net income
attributable to stockholders of Teekay Corp.,
(b) distributions from our publicly-traded subsidiaries to
non-controlling interests would be reflected as a financing cash
outflow in our statements of cash flows and
(c) non-controlling interest on our balance sheets for the
comparable periods would be included as a component of
stockholders’ equity.
(7)
Substantially all restricted cash
deposits relate to Teekay LNG. Under certain capital lease
arrangements, Teekay LNG maintains restricted cash deposits
that, together with interest earned on the deposits, will equal
the remaining scheduled payments it owes under the capital
leases. The interest Teekay LNG receives from those deposits is
used solely to pay interest associated with the capital leases,
and the amount of interest it receives approximates the amount
of interest it pays on the capital leases.
(8)
Total vessels and equipment
consists of (a) owned vessels, at cost less accumulated
depreciation, (b) vessels under capital leases, at cost
less accumulated amortization and (c) advances on
newbuildings.
(9)
Consistent with general practice in
the shipping industry, we use net revenues (or revenues less
voyage expenses) as a measure of equating revenues generated
from voyage charters to revenues generated from time charters,
which assists us in making operating decisions about the
deployment of our vessels and their performance. Under
time-charter contracts, the charterer typically pays the voyage
expenses, whereas under voyage charter contracts the shipowner
typically pays the voyage expenses. Some voyage expenses are
fixed, and the remainder can be estimated. If we, as the
shipowner, pay the voyage expenses, we typically pass the
approximate amount of these expenses on to our customers by
charging higher rates under the contract or billing the expenses
to them. As a result, although revenues from different types of
contracts may vary, the net revenues after subtracting voyage
expenses, or net revenues, are comparable across the different
types of contracts. We principally use net revenues, a non-GAAP
financial measure, because it provides more meaningful
information than voyage revenues, the most directly comparable
GAAP financial measure. Net revenues are also widely used by
investors and analysts in the shipping industry for comparing
financial performance between companies in the shipping industry
to industry averages. The following table reconciles net
revenues with revenues.
EBITDA represents earnings before
interest, taxes, depreciation and amortization. Adjusted EBITDA
represents EBITDA before restructuring charges, unrealized
foreign exchange gain (loss), gain on sale of vessels and
equipment — net of writedowns, goodwill impairment
charge and amortization of in-process revenue contracts,
realized losses (gains) on interest rate swaps, share of
realized and unrealized losses (gains) on interest rate swaps in
non-consolidated
joint ventures, unrealized loss (gain) on derivative instruments
and non-controlling interest. EBITDA and Adjusted EBITDA are
used as supplemental financial measures by management and by
external users of our financial statements, such as investors,
as discussed below.
•
Financial and operating performance. EBITDA and Adjusted
EBITDA assist our management and security holders by increasing
the comparability of our fundamental performance from period to
period and against the fundamental performance of other
companies in our industry that provide EBITDA or Adjusted
EBITDA-based information. This increased comparability is
achieved by excluding the potentially disparate effects between
periods or companies of interest expense, taxes, depreciation or
amortization (or other items in determining Adjusted EBITDA),
which items are affected by various and possibly changing
financing methods, capital structure and historical cost basis
and which items may significantly affect net income between
periods. We believe that including EBITDA and Adjusted EBITDA as
a financial and operating measure benefits security holders in
(a) selecting between investing in us and other investment
alternatives and (b) monitoring our ongoing financial and
operational strength and health in assessing whether to continue
to hold our equity, or debt securities, as applicable.
•
Liquidity. EBITDA and Adjusted EBITDA allow us to assess
the ability of assets to generate cash sufficient to service
debt, pay dividends and undertake capital expenditures. By
eliminating the cash flow effect resulting from our existing
capitalization and other items such as drydocking expenditures,
working capital changes and foreign currency exchange gains and
losses (which may very significantly from period to period),
EBITDA and Adjusted EBITDA provide a consistent measure of our
ability to generate cash over the long term. Management uses
this information as a significant factor in determining
(a) our proper capitalization (including assessing how much
debt to incur and whether changes to the capitalization should
be made) and (b) whether to undertake material capital
expenditures and how to finance them, all in light of our
dividend policy. Use of EBITDA and Adjusted EBITDA as liquidity
measures also permits security holders to assess the fundamental
ability of our business to generate cash sufficient to meet cash
needs, including dividends on shares of our common stock and
repayments under debt instruments.
Neither EBITDA nor Adjusted EBITDA should be considered as an
alternative to net income, operating income, cash flow from
operating activities or any other measure of financial
performance or liquidity presented in accordance with GAAP.
EBITDA and Adjusted EBITDA exclude some, but not all, items that
affect net income and operating income, and these measures may
vary among other companies. Therefore, EBITDA and Adjusted
EBITDA as presented below may not be comparable to similarly
titled measures of other companies.
Unrealized losses (gains) on derivative instruments
4,424
14,881
(11,912
)
(20,850
)
38,724
95,366
(195,048
)
Realized losses (gains) on interest rate swaps
–
–
–
–
–
28,361
91,737
Realized and unrealized losses (gains) on interest rate swaps in
non-consolidated joint ventures
–
–
–
–
32,959
2,582
(23,073
)
Realized gains (losses) on FX forwards
–
–
(4,014
)
18,334
4,128
–
–
Non-controlling interest
2,268
13,475
6,759
8,903
9,561
–
–
Adjusted EBITDA
$
1,096,891
$
707,882
$
630,408
$
660,485
$
882,868
$
686,334
$
420,687
Reconciliation of Adjusted EBITDA to Net operating cash
flow
Net operating cash flow
$
814,704
$
594,949
$
520,785
$
255,018
$
431,847
$
317,315
$
298,300
Expenditures for drydocking
32,889
20,668
31,120
85,403
101,511
60,905
58,815
Interest expense, net
162,250
108,105
68,375
312,232
721,319
141,731
95,611
Change in non-cash working capital items related to operating
activities
26,550
8,644
(50,360
)
43,871
28,816
103,055
(132,802
)
Gain on sale of marketable securities
93,175
–
1,422
9,577
4,576
4,576
–
Writedown of marketable securities
–
–
–
–
(20,157
)
(13,885
)
–
Writedown of intangible assets
–
–
–
–
(9,748
)
–
(1,076
)
Loss on bond repurchase
(769
)
(13,255
)
(375
)
(947
)
(1,310
)
(1,310
)
–
Equity income (net of dividends received)
1,154
2,670
(486
)
(11,419
)
(30,352
)
(7,278
)
26,914
Other — net
27,221
(12,552
)
(5,956
)
28,586
17,532
48,083
2,851
Employee stock compensation
–
–
(9,297
)
(9,676
)
(14,117
)
(8,981
)
(8,607
)
Restructuring charge
1,002
2,882
8,929
–
15,629
11,180
12,017
Unrealized (losses) gains on interest rate swaps and forward
contracts
(61,285
)
(18,322
)
45,334
(119,905
)
(491,559
)
–
–
Realized losses (gains) on interest rate swaps
–
–
–
–
–
28,361
91,737
Realized and unrealized losses (gains) on interest rate swaps in
non-consolidated joint ventures
–
–
–
–
32,959
2,582
(23,073
)
Realized gains (losses) on FX forwards
–
–
(4,014
)
18,334
4,128
–
–
Distributions from subsidiaries to non-controlling interests
–
14,093
24,931
49,411
91,794
–
–
Adjusted EBITDA
$
1,096,891
$
707,882
$
630,408
$
660,485
$
882,868
$
686,334
$
420,687
(11)
This data is unaudited for all
periods presented. For purposes of computing our ratio of
earnings to fixed charges on a consolidated basis, earnings is
the result of adding (a) pre-tax income from continuing
operations before adjustment for minority interests in
consolidated subsidiaries or income or loss from equity
investees, (b) fixed charges, (c) amortization of
(d) distributed income of equity investees and subtracting
interest capitalized. Fixed charges represent (i) interest
expensed and capitalized, (ii) amortized premiums,
discounts and capitalized expenses related to indebtedness, and
(iii) interest within time charter hire expense. In
addition to our consolidated debt, as of September 30, 2009, our
total proportionate interest in debt of joint ventures we do not
control was $398 million, of which Teekay Corporation has
guaranteed $58.7 million and which otherwise is non-recourse to
us. For the year ended December 31, 2008 the ratio of
earnings to fixed charges was less than 1.0x. The amount of the
deficiency for this period was $508.1 million.
We are a leading provider of both international crude oil and
gas marine transportation services, and also offer offshore oil
production, storage and offloading services, primarily under
long-term, fixed-rate contracts. As of December 31, 2009,
our owned and in-chartered fleet of 158 vessels (including
in-chartered vessels and newbuildings) consisted of 25 LNG and
LPG carriers, 39 shuttle tankers, 5 FPSO units, 6 FSO units, 73
crude oil tankers and 10 product tankers. Our customers include
major international oil, energy and utility companies.
Over the past decade, we have transformed from being primarily
an owner of ships in the cyclical spot tanker sector to being a
diversified supplier of logistics services in the “Marine
Midstream” sector. This transformation has included, among
other things:
•
Our entry into the LNG and LPG shipping sectors and into the
offshore oil production, storage and transportation sectors;
•
The reorganization of certain of our assets through our
formation of three publicly-traded subsidiaries, which are
focused on growing specific core operating segments and have
expanded our investor base and access to the capital markets; and
•
Expansion of our fixed-rate businesses, with net revenues from
fixed-rate contracts with an initial term of at least three
years representing 69% of our total net revenues for the
12 months ended September 30, 2009, compared to 41% of
our total net revenues in 2003. Net revenues from fixed-rate
contracts with an initial term of at least one year represented
approximately 75% of our total net revenues for the 12 months
ended September 30, 2009.
Our three publicly-traded subsidiaries
include: Teekay LNG, which we formed in 2005 and
primarily operates in the LNG and LPG shipping sectors; Teekay
Offshore, which we formed in 2006 and primarily operates in the
offshore oil production, storage and transportation sectors; and
Teekay Tankers, which we formed in 2007 and engages in the
conventional tanker business. We refer in this prospectus to our
remaining operations as “Teekay Parent,” which manages
substantially all of the vessels in the total Teekay fleet and
which itself owns or in-charters a fleet of 65 vessels
(including eight newbuildings), comprised of 52 conventional
tankers, four FPSO units and one FSO unit. Through vessel sales
by Teekay Parent to its publicly-traded subsidiaries and public
equity financing of such acquisitions by those subsidiaries,
Teekay Parent has significantly reduced its debt level by using
sale proceeds to repay debt.
Teekay Parent possesses a significant level of control of its
publicly-traded subsidiaries through certain structural
mechanisms, including Teekay Parent’s ownership of the sole
general partnership interests in Teekay LNG and Teekay Offshore
and its 100% ownership of Teekay Tankers’ supervoting
Class B shares. We currently own 49.2% and 40.5% of the
partnership interests in Teekay LNG and Teekay Offshore,
respectively, including in each case our 2% general partner
interest. We currently own shares of Teekay Tankers’
Class A and Class B common stock that represent an
ownership interest of 42.2% and voting power of 51.6% of Teekay
Tankers’ outstanding common stock. As a result of our
ownership interests in each of Teekay LNG, Teekay Offshore and
Teekay Tankers, their results are consolidated with ours.
We are entitled to cash distributions on our general and limited
partner interests in Teekay Offshore and Teekay LNG and on our
equity interest in Teekay Tankers. It is the intent of each of
Teekay Offshore, Teekay LNG and Teekay Tankers to pay quarterly
cash distributions of available cash, subject to certain
exceptions, to holders of its common and subordinated units or
common shares, as applicable. As part of our ownership of Teekay
Offshore’s and Teekay LNG’s general partners, we own
rights, referred to as “incentive distribution
rights,” to receive an increasing percentage of Teekay
Offshore’s and Teekay LNG’s quarterly distributions of
available cash after certain levels of cash distributions have
been achieved. Our subsidiary that manages Teekay Tankers is
also entitled to additional performance fees if distributions by
Teekay Tankers to its stockholders exceed certain amounts. Due
to our ownership interests in these companies, we received cash
distributions from Teekay Offshore, Teekay LNG and Teekay
Tankers of $21.7 million, $47.8 million and
$24.6 million, respectively, with respect to the nine
months ended September 30, 2009, and distributions of
$22.9 million, $58.6 million and $37.6 million,
respectively, with respect to 2008 These distributions do not
include distributions on our 49% ownership interest in OPCO. Due
to spot market fluctuations, distributions from Teekay Tankers
are expected to be substantially lower in the fourth quarter of
2009 than in recent quarters. The timing and amount of
dividends, if any, of Teekay Tankers will depend, among other
things, on its results of operations, financial condition, cash
requirements, restrictions in financing agreements and other
factors deemed relevant by its board of directors. Please read
“—Certain relationships and related party
transactions—Relationships with public company
subsidiaries.”
an amendment to FASB ASC 810, Consolidation, which
requires that non-controlling interests in subsidiaries held by
parties other than us be identified, labeled and presented in
the consolidated balance sheet within equity, but separate from
the stockholders’ equity. This amendment requires that the
amount of consolidated net income (loss) attributable to the
stockholders and to the non-controlling interest be clearly
identified on the consolidated statements of income (loss). This
amendment also requires that distributions from our
publicly-traded subsidiaries to non-controlling interests are
reflected as a financing cash outflow in our statements of cash
flows; and
•
a new presentation format (the Derivatives
Reclassification) for gains (losses) from our derivative
instruments that are not designated for accounting purposes as
cash flow hedges at inception. These gains (losses) are now
reported in realized and unrealized gains (losses) on
non-designated derivative instruments within our statements of
income (loss) rather than being in revenue, voyage expenses,
vessel operating expenses, general and administrative expenses,
interest expense, interest income and foreign exchange gain
(loss).
The amendment to FASB ASC 810 is required to be applied
retroactively and we adopted the Derivatives Reclassification
with retroactive effect. However, throughout this prospectus the
adoption of this standard and presentation change are only
reflected in:
our unaudited consolidated statements of income (loss),
comprehensive income (loss) and cash flows for the nine months
ended September 30, 2009 and 2008;
our unaudited consolidated financial and operating data as of
and for the nine months ended September 30, 2009 and 2008;
and
•
the unaudited historical and as adjusted historical financial
and operating data of us on a consolidated basis and of Teekay
Parent, in each case for the 12 months ended
September 30, 2009.
Other balance sheets, consolidated statements of income (loss),
stockholders’ equity, cash flows and related financial and
operating data as of and for each of the years in the three- and
five-year periods ended December 31, 2008, or as of or for
any other period referenced in this prospectus, have not been
adjusted to reflect our adoption of the amendment to ASC 810 and
the Derivatives Reclassification. The retroactive application of
the adoption of the amendments to ASC 810 would have
decreased our consolidated net loss by approximately
$9.6 million for the year ended December 31, 2008 and
would have increased our consolidated net income by
approximately $8.9 million, $6.8 million,
$13.5 million and $2.3 million for the years ended
December 31, 2007, 2006, 2005 and 2004, respectively. There
would be no changes to net income resulting from the Derivative
Reclassification.
Significant
developments in 2008 and 2009
Acquisition of remaining shares of Teekay
Petrojarl. In June and July 2008, we acquired the
remaining 35.3% interest in Teekay Petrojarl for a total
purchase price of approximately NOK 1.5 billion
($304.9 million), which was paid in cash. As a result of
these transactions, we now own 100% of Teekay Petrojarl.
Strategic transaction with ConocoPhillips. In January
2008, we entered into a multi-vessel transaction with
ConocoPhillips, in which we acquired ConocoPhillips’ rights
in six double-hull Aframax tankers. Of the six Aframax tankers
acquired, two are owned and four are bareboat chartered-in from
third parties for periods ranging from five to ten years. The
total cost of the transaction was $83.8 million. Two of the
Aframax tankers have been chartered back to ConocoPhillips for a
period of five years. Commencing in the second quarter of 2008,
we have also chartered to ConocoPhillips a very large crude
carrier (or VLCC ) for three years and two of our
Medium Range product tankers for five years.
Sale of LNG carriers to Teekay LNG. In accordance
with existing agreements, in April 2008, we sold two 1993-built
LNG carriers (the Kenai LNG Carriers) to Teekay LNG for
$230.0 million and chartered them back for ten years with
three five-year option periods. We acquired these vessels in
December 2007 from a joint venture between Marathon Oil
Corporation and ConocoPhillips for a total cost of
$230.0 million. The specialized ice-strengthened vessels
were purpose-built to carry LNG from Alaska’s Kenai LNG
plant to Japan. We believe that these specialized vessels will
provide us with the prospect of a new service offering following
the completion of the Kenai project such as delivering partial
cargoes at multiple ports or as a potential project vessel such
as serving as a floating offshore re-gasification or production
facility, subject to conversion.
We have time chartered to the Marathon Oil Corporation/Conoco
Phillips joint venture one of the Kenai LNG carriers, the
Polar Spirit, until April 2011 with the charterer’s
option to extend the contract yearly for up to two additional
years. The other Kenai LNG Carrier, the Arctic Spirit,
came off charter from the Marathon Oil
Corporation/ConocoPhillips joint venture on March 31, 2009.
We had entered into a joint development and option agreement
with Merrill Lynch Commodities, Inc. (MLCI), giving MLCI
the option to purchase the vessel for conversion to an LNG
floating
production, storage and offload unit (FLNG), which option
MLCI chose not to exercise and which has now expired. The
Arctic Spirit is scheduled for drydocking in January 2010.
Sale of RasGas 3 LNG carriers to Teekay LNG. Prior
to the end of the third quarter 2008, four LNG newbuildings (the
RasGas 3 LNG Carriers) were delivered that now service
expansion of an LNG project in Qatar. Based on a prior
agreement, on May 6, 2008, the delivery date of the first
vessel, we sold to Teekay LNG our 100% interest in Teekay
Nakilat (III) Holdings Corporation (or Teekay Nakilat
(III)), which owns a 40% interest in the joint venture that
owns the RasGas 3 LNG Carriers (or the RasGas 3 Joint
Venture), in exchange for a non-interest bearing and
unsecured promissory note from Teekay LNG in the amount of
$110.2 million.
Sale of Suezmax tankers to Teekay Tankers. During
April 2008, we sold two Suezmax tankers to Teekay Tankers for a
total cost of $186.9 million, and in June 2009 we sold
another Suezmax tanker to Teekay Tankers for a total cost of
$57.0 million. We have agreed to offer to Teekay Tankers,
prior to June 18, 2010, a fourth Suezmax tanker at fair
market value.
Sale of Aframax lightering tankers to Teekay
Offshore. On June 18, 2008, OPCO acquired from us
two 2008-built Aframax lightering tankers and their related
long-term, fixed-rate bareboat charters for a total cost of
$106.0 million, including the assumption of third-party
debt of $90.0 million and the non-cash settlement of
related party working capital of $1.2 million. The
10-year,
fixed-rate bareboat charters (with options exercisable by the
charterer to extend up to an additional five years) are with
Skaugen PetroTrans, a joint venture in which we own a 50%
interest. These two lightering tankers are specially designed to
be used in
ship-to-ship
oil transfer operations. This purchase was financed with the
assumption of debt, together with cash balances.
Tangguh LNG. During August 2009, Teekay LNG
completed the purchase 99% of our 70% interest in two
155,000-cubic meter LNG newbuildings (or the Tangguh LNG
Carriers) for approximately $70.0 million. The Tangguh
LNG Carriers, which commenced operations in November 2008 and
January 2009, provide transportation services to The Tangguh
Production Sharing Contractors, a consortium led by a subsidiary
of BP plc, to service the Tangguh LNG project in Indonesia. The
vessels have been chartered at fixed rates, with inflation
adjustments, for a period of 20 years. An Indonesian joint
venture partner owns the remaining 30% interest in these vessels.
Sale of FPSO to Teekay Offshore. On
September 10, 2009, Teekay Offshore acquired the
Petrojarl Varg FPSO unit from Teekay for a purchase price
of $320 million. Teekay provided vendor financing in the
amount of $220 million with the remainder financed by
Teekay Offshore from its existing debt facilities. A new
$260 million revolving credit facility, secured by the
Petrojarl Varg FPSO, was arranged and completed in
November 2009. A portion of the new facility was drawn to repay
$160 million of the $220 million vendor financing
provided by Teekay at the time of the Petrojarl Varg
acquisition.
The Petrojarl Varg FPSO recently commenced a new
four-year, fixed-rate contract extension with Talisman Energy on
the Varg oil field in the North Sea, where the FPSO has been
operating for over ten years. Talisman Energy also has options
to extend the new contract for up to an additional nine years.
The contract is comprised of a daily base time-charter rate plus
an incentive component based on the operational performance of
the FPSO, a tariff component based on the volume of oil produced
and an annual adjustment for cost escalations. There is
potential for additional upside from the tariff component if, as
expected, nearby oil fields become operational and are tied into
the Petrojarl Varg.
Long-term charter to Caltex Australia Petroleum Pty
Ltd. In September 2009, we purchased a 2007-built
40,000 dwt product tanker for approximately $35 million.
The vessel, renamed the Alexander Spirit, commenced a
10-year,
fixed-rate time charter to Caltex Australia Petroleum Pty Ltd.
on September 3, 2009.
Angola LNG Project. We have a 33% interest in a
consortium that will charter four 160,400-cubic meter LNG
newbuildings for a period of 20 years to the Angola LNG
Project, which is being developed by subsidiaries of Chevron
Corporation, Sociedade Nacional de Combustiveis de Angola EP, BP
Plc, Total S.A., and Eni SpA. Final award of the charter
contract was made in December 2007. The vessels will be
chartered at fixed rates, with inflation adjustments, commencing
in 2011. Mitsui & Co., Ltd. and NYK Bulkship (Europe)
Ltd., have 34% and 33% interests in the consortium,
respectively. In accordance with existing agreements, we are
required to offer to Teekay LNG our 33% interest in these
vessels and related charter contracts no later than
180 days before the scheduled delivery dates of the
vessels. Deliveries of the vessels are scheduled between August
2011 and January 2012.
Second hand vessel sales. During 2008 and 2009 we
sold (or sold and leased back) 12 vessels to third parties for
total proceeds of over $540 million.
Cost
reductions
Recent initiatives have reduced our aggregate quarterly general
and administrative and vessel operating expenses, which declined
by $24 million, or approximately 11%, for the quarter ended
September 30, 2009 compared to the quarter ended
September 30, 2008.
Public offerings
and private placements of public company subsidiaries
Including their respective initial public offerings,
Teekay’s public company subsidiaries Teekay LNG, Teekay
Offshore and Teekay Tankers have raised an aggregate of
$1.5 billion in gross proceeds through public offerings and
private placements of their equity securities, including
proportionate capital contributions by the general partners of
Teekay LNG and Teekay Offshore to preserve their 2% general
partner interests. Excluding these capital contributions and
private placements to Teekay, we have raised over
$1.3 billion in public equity from these subsidiaries.
Teekay
LNG
Teekay LNG’s offerings have included the following:
•
May 2005 issuance of 6.9 million common units in its
initial public offering for net proceeds of $135.7 million,
which Teekay LNG used to partially fund the acquisition of its
initial fleet from Teekay;
•
November 2005 offering of 4.6 million common units for net
proceeds of $122.6 million (including the general
partner’s proportionate capital contribution), which Teekay
LNG used to partially finance the acquisition from Teekay of
three Suezmax tankers;
•
May 2007 offering of 2.3 million common units for net
proceeds of $86.0 million (including the general
partner’s proportionate capital contribution), which Teekay
LNG used to repay amounts outstanding under one of its revolving
credit facilities;
•
April 2008 offering of 5.4 million common units to the
public and 1.7 million common units to Teekay in a
concurrent private placement at the same price per unit, for
aggregate net proceeds of $202.5 million (including the
general partner’s proportionate capital
contribution), which Teekay LNG used to repay amounts
outstanding under two of its revolving credit facilities which
had been used to fund vessel acquisitions;
•
March 2009 offering of 4.0 million units for net proceeds
of $68.5 million (including the general partner’s
proportionate capital contribution), which Teekay LNG used to
repay amounts outstanding under two of its revolving credit
facilities; and
•
November 2009 offering of 3.95 million common units for net
proceeds of $93.9 million (including the general
partner’s proportionate capital contribution), which Teekay
LNG used to repay amounts outstanding under one of its revolving
credit facilities.
Teekay
Offshore
Teekay Offshore’s offerings have included the following:
•
December 2006 issuance of 8.1 million common units in its
initial public offering for net proceeds of $155.3 million,
which Teekay Offshore used to partially fund the acquisition of
its initial assets from Teekay;
•
June 2008 offering of 7.4 million common units to the
public and 3.3 million common units to Teekay in a
concurrent private placement at the same price per unit, for
aggregate net proceeds of $210.8 million (including the
general partner’s proportionate capital contribution),
which Teekay Offshore used to fund the acquisition of an
additional 25% interest in OPCO from Teekay and to repay a
portion of advances to Teekay Offshore from OPCO; and
•
August 2009 offering of 7.475 million common units for net
proceeds of $104.3 million (including the general
partner’s proportionate capital contribution), which Teekay
LNG used to repay amounts outstanding under one of its revolving
credit facilities.
Teekay
Tankers
Teekay Tanker’s offerings have included the following:
•
December 2007 issuance of 11.5 million shares of
Class A common stock in its initial public offering, for
net proceeds of $208.0 million, which Teekay Tankers used
to partially fund the acquisition of its initial fleet from
Teekay; and
•
June 2009 offering of 7.0 million shares of Class A
common stock for net proceeds of $65.6 million, which
Teekay Tankers used to acquire from Teekay a Suezmax tanker and
to repay a portion of its outstanding debt under its revolving
credit facility.
We generate revenues by charging customers for the
transportation, production and storage of their crude oil using
our vessels. Historically, these transportation and storage
services generally have been provided under the following basic
types of contractual relationships:
•
Contracts of affreightment, whereby we carry an agreed
quantity of cargo for a customer over a specified trade route
within a given period of time;
•
Time charters, whereby vessels we operate and are
responsible for crewing are chartered to customers for a fixed
period of time at rates that are generally fixed, but may
contain a variable component based on inflation, interest rates
or current market rates;
Bareboat charters, whereby customers charter vessels for
a fixed period of time at rates that are generally fixed, but
the customers operate the vessels with their own crews; and
•
Voyage charters, which are charters for shorter intervals
that are priced on a current, or “spot,” market rate.
The table below illustrates the primary distinctions among these
types of charters and contracts:
Under time charters and bareboat
charters, the customer pays for bunker fuel.
(2)
Under a consecutive voyage charter,
the customer pays for idle time.
(3)
“Hire”rate refers to the basic
payment from the charterer for the use of the vessel.
(4)
Defined below under “Important
financial and operational terms and concepts.”
(5)
“Off-hire”refers to the time a
vessel is not available for service.
The duration of LNG time-charters is usually between 20 and
25 years. The duration of FPSO unit contracts is usually
between five and 15 years, excluding any extension options.
FPSO unit contracts generally provide for a fixed hire rate that
is related to the cost of the unit, a fluctuating component
based on the amount of oil produced and processed by the unit,
or both. FPSO units for smaller fields often operate under
life-of-field
production contracts, where the contract’s duration is for
the useful life of the oil field.
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:
Revenues. Revenues primarily include revenues from
voyage charters, pool arrangements, time-charters, contracts of
affreightment and FPSO service contracts. Revenues are affected
by hire rates and the number of days a vessel operates and the
daily production volume on FPSO units. Revenues are also
affected by the mix of business between time-charters, voyage
charters, contracts of affreightment and vessels operating in
pool arrangements. Hire rates for voyage charters are more
volatile, as they are typically tied to prevailing market rates
at the time of a voyage.
Forward freight agreements. We are exposed to
freight rate risk for vessels in our spot tanker segment from
changes in spot tanker market rates for vessels. In certain
cases, we use forward freight agreements (or FFAs) to
manage this risk. FFAs involve contracts to provide a fixed
number of theoretical voyages at fixed rates, thus hedging a
portion of our exposure to the spot-charter market. These
agreements are recorded as assets or liabilities and measured at
fair value. Changes in the fair value of the FFAs are recognized
in other comprehensive income (loss)
until the hedged item is recognized as revenue in income. The
ineffective portion of a change in fair value is immediately
recognized as revenue in income.
Voyage expenses. Voyage expenses are all expenses
unique to a particular voyage, including any bunker fuel
expenses, port fees, cargo loading and unloading expenses, canal
tolls, agency fees and commissions. Voyage expenses are
typically paid by the customer under time-charters and FPSO
service contracts and by us under voyage charters and contracts
of affreightment.
Net revenues. Net revenues represent revenues less
voyage expenses. Because the amount of voyage expenses we incur
for a particular charter depends upon the form of the charter,
we use net revenues to improve the comparability between periods
of reported revenues that are generated by the different forms
of charters and contracts. We principally use net revenues, a
non-GAAP financial measure, because it provides more meaningful
information to us about the deployment of our vessels and their
performance than revenues, the most directly comparable
financial measure under GAAP.
Vessel operating expenses. Under all types of
charters and contracts for our vessels, except for bareboat
charters, we are responsible for vessel operating expenses,
which include crewing, repairs and maintenance, insurance,
stores, lube oils and communication expenses. We expect these
expenses to increase as our fleet matures and to the extent that
it expands.
Income from vessel operations. To assist us in
evaluating our operations by segment, we analyze our income from
vessel operations for each segment, which represents the income
we receive from the segment after deducting operating expenses,
but prior to the deduction of interest expense, income taxes,
foreign currency and other income and losses.
Drydocking. We must periodically drydock each of our
vessels for inspection, repairs and maintenance and any
modifications to comply with industry certification or
governmental requirements. Generally, we drydock each of our
vessels every two and a half to five years, depending upon the
type of vessel and its age. In addition, a shipping society
classification intermediate survey is performed on our LNG and
LPG carriers between the second and third year of the five-year
drydocking period. We capitalize a substantial portion of the
costs incurred during drydocking and for the survey and amortize
those costs on a straight-line basis from the completion of a
drydocking or intermediate survey to the estimated completion of
the next drydocking. We expense as incurred costs for routine
repairs and maintenance performed during drydocking that do not
improve or extend the useful lives of the assets and annual
class survey costs for our FPSO units. The number of drydockings
undertaken in a given period and the nature of the work
performed determine the level of drydocking expenditures.
Depreciation and amortization. Our depreciation and
amortization expense typically consists of:
•
charges related to the depreciation and amortization of the
historical cost of our fleet (less an estimated residual value)
over the estimated useful lives of our vessels;
•
charges related to the amortization of drydocking expenditures
over the estimated number of years to the next scheduled
drydocking; and
•
charges related to the amortization of intangible assets,
including the fair value of the time-charters, contracts of
affreightment, customer relationships and intellectual property
where amounts have been attributed to those items in
acquisitions; these amounts are amortized over the period in
which the asset is expected to contribute to our future cash
flows.
Time-charter equivalent (TCE) rates. Bulk shipping
industry freight rates are commonly measured in the shipping
industry at the net revenues level in terms of TCE rates, which
represent net revenues divided by revenue days.
Revenue days. Revenue days are the total number of
calendar days our vessels were in our possession during a
period, less the total number of off-hire days during the period
associated with major repairs, drydockings or special or
intermediate surveys. Consequently, revenue days represent the
total number of days available for the vessel to earn revenue.
Idle days, which are days when the vessel is available for the
vessel to earn revenue, yet is not employed, are included in
revenue days. We use revenue days to explain changes in our net
revenues between periods.
Calendar-ship-days. Calendar-ship-days are equal to
the total number of calendar days that our vessels were in our
possession during a period. As a result, we use
calendar-ship-days primarily in explaining changes in vessel
operating expenses, time-charter hire expense and depreciation
and amortization.
Restricted cash deposits. Under the terms of the tax
leases for four of our LNG carriers, we are required to have on
deposit with financial institutions an amount of cash that,
together with interest earned on the deposit, will equal the
remaining amounts owing under the leases, including the
obligations to purchase the LNG carriers at the end of the lease
periods, where applicable. During vessel construction, however,
the amount of restricted cash approximates the accumulated
vessel construction costs. These cash deposits are restricted to
being used for capital lease payments and have been fully funded
with term loans and loans from our joint venture partners.
Please read Note 5 (Capital Leases and Restricted Cash) to
the unaudited financial statements as at and for the nine months
ended September 30, 2009, included elsewhere in this
prospectus.
Results of
operations
In accordance with GAAP, we report gross revenues in our income
statements and include voyage expenses among our operating
expenses. However, shipowners base economic decisions regarding
the deployment of their vessels upon anticipated TCE rates, and
industry analysts typically measure bulk shipping freight rates
in terms of TCE rates. This is because under time-charter
contracts and FPSO service contracts the customer usually pays
the voyage expenses, while under voyage charters and contracts
of affreightment the ship-owner usually pays the voyage
expenses, which typically are added to the hire rate at an
approximate cost. Accordingly, the discussion of revenue below
focuses on net revenues and TCE rates of our four operating
segments where applicable.
Substantially all of the technical operations of our
subsidiaries are managed by Teekay Parent. We manage our
business operationally, and analyze and report our consolidated
results of operations, on the basis of four operating segments:
the shuttle tanker and FSO segment, the FPSO segment, the
liquefied gas segment, and the conventional tanker segment. In
order to provide investors with additional information about our
conventional tanker segment, we have divided this operating
segment into the fixed-rate tanker segment and the spot tanker
segment. For additional information about our operating
segments, please read “Business—Operations.”
Our shuttle tanker and FSO segment (which includes our Teekay
Navion shuttle tankers and offshore business unit) includes our
shuttle tankers and FSO units. The shuttle tanker and FSO
segment had four shuttle tankers under construction as at
September 30, 2009. We use these vessels to provide
transportation and storage services to oil companies operating
offshore oil field installations. These services are typically
provided under long-term fixed-rate time-charter contracts or
contracts of affreightment. Historically, the utilization of
shuttle tankers in the North Sea is higher in the winter months,
as favorable weather conditions in the summer months provide
opportunities for repairs and maintenance to our vessels.
Downtime for repairs and maintenance generally reduces oil
production and, thus, transportation requirements.
The following table presents our shuttle tanker and FSO
segment’s operating results and compares its net revenues
(which is a non-GAAP financial measure) to revenues, the most
directly comparable GAAP financial measure for the nine months
ended September 30, 2009. The following table also provides
a summary of the changes in calendar-ship-days by owned and
chartered-in vessels for our shuttle tanker and FSO segment:
Nine months ended
September 30,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2009
2008
Change
Revenues
432,371
532,821
(18.9
)
Voyage expenses
58,227
132,808
(56.2
)
Net revenues
374,144
400,013
(6.5
)
Vessel operating expenses
126,911
130,038
(2.4
)
Time-charter hire expense
85,645
100,231
(14.6
)
Depreciation and amortization
88,003
88,036
(0.0
)
General and administrative
expenses(1)
40,406
45,412
(11.0
)
Loss (gain) on sale of vessels and equipment, net of write-downs
1,902
(3,771
)
(150.4
)
Restructuring charge
5,991
6,500
(7.8
)
Income from vessel operations
25,286
33,567
(24.7
)
Calendar-ship-days
Owned vessels
7,917
7,828
1.1
Chartered-in vessels
2,328
2,745
(15.2
)
Total
10,245
10,573
(3.1
)
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the shuttle tanker and FSO segment based
on estimated use of corporate resources). For additional
information, please read “—Other operating
results—General and administrative expenses” elsewhere
in this prospectus.
The average fleet size of our shuttle tanker and FSO segment
(including vessels chartered-in) decreased for the nine months
ended September 30, 2009, compared to the same period in
2008, primarily due to a decline in the number of chartered-in
shuttle tankers.
Net revenues. Net revenues decreased for the
nine months ended September 30, 2009 compared to the same
period in 2008, primarily due to:
•
a decrease of $40.7 million due to less revenue days for
shuttle tankers servicing contracts of affreightment and trading
in the conventional spot market and lower spot rates achieved in
the conventional spot market;
•
a decrease in net revenues from our FSO units of
$7.4 million primarily due to the strengthening of the
U.S. Dollar against the Norwegian Kroner and Australian
Dollar, the currencies in which we are paid under the FSO
contracts; and
•
a decrease of $2.7 million due to the recovery of certain
2008 Norwegian environmental taxes during the nine months ended
September 30, 2008;
partially offset by
•
an increase of $7.8 million due to rate increases on
certain contracts of affreightment;
•
an increase of $6.7 million due to a decrease in the number
of offhire days resulting from scheduled drydockings and
unexpected repairs; and
•
an increase of $2.8 million due to a decline in bunker
prices.
Vessel operating expenses. Vessel operating
expenses decreased for the nine months ended September 30,2009, compared to the same period in 2008, primarily due to:
•
a decrease of $9.0 million primarily due to lower crew
manning expenses from the reflagging of five of our vessels from
Norwegian flag to Bahamian flag and changing the nationality mix
of our crews, and the strengthening of the US Dollar
against the Norwegian Kroner, the currency in which certain
vessel operating expenses are paid;
•
a decrease of $4.1 million relating to repairs and
maintenance performed for certain vessels during the nine months
ended September 30, 2008; and
•
a decrease in FSO vessel operating expenses of $1.5 million
primarily due to the offhire of one vessel during the nine
months ended September 30, 2009;
partially offset by
•
a net increase of $8.6 million from changes in realized and
unrealized losses on our designated foreign currency forward
contracts; and
•
an increase of $2.9 million due to an increase in services,
consumables, lube oil and freight.
Time-charter hire expense. Time-charter hire
expense decreased for the nine months ended September 30,2009, compared to the same period in 2008, primarily due to a
net decrease in the number of vessels chartered-in.
Depreciation and amortization. Depreciation
and amortization expense increased for the nine months ended
September 30, 2009, compared to the same period in 2008,
primarily due to higher amortization expense relating to
capitalized drydock and capital upgrade costs for certain of our
shuttle tankers, partially offset by lower amortization on our
FSO units.
Restructuring charges. During the nine months
ended September 30, 2009, we incurred restructuring charges
of $6.0 million relating to costs incurred for the
reflagging of certain vessels, the closure of one of our offices
in Norway, and global staffing changes.
Our FPSO segment (which includes our Teekay Petrojarl business
unit) includes our FPSO units and other vessels used to service
our FPSO contracts. We use these units and vessels to provide
transportation, production, processing and storage services to
oil companies operating offshore oil field installations. These
services are typically provided under long-term fixed-rate
time-charter contracts or FPSO service contracts. Historically,
the utilization of FPSO units and other vessels in the North Sea
is higher in the winter months, as favorable weather conditions
in the summer months provide opportunities for repairs and
maintenance to our vessels and the offshore oil platforms, which
generally reduces oil production.
The following table presents our FPSO segment’s operating
results and also provides a summary of the changes in
calendar-ship-days for our FPSO segment for the nine months
ended September 30, 2009:
Nine months ended
September 30,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2009
2008
Change
Revenues
289,825
283,673
2.2
Vessel operating expenses
140,825
165,122
(14.7
)
Depreciation and amortization
76,869
67,759
13.4
General and administrative
expenses(1)
25,799
35,544
(27.4
)
Income from vessel operations
46,332
15,248
203.9
Calendar-ship-days
Owned vessels
2,365
2,469
(4.2
)
Total
2,365
2,469
(4.2
)
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the FPSO segment based on estimated use
of corporate resources). For additional information, please read
“—Other operating results—General and
administrative expenses.”
The average fleet size of our FPSO segment decreased for the
nine months ended September 30, 2009, compared to the same
period in 2008, as one of our shuttle tankers servicing FPSO
contracts is currently under conversion to an FSO unit.
Revenues. Revenues increased for the nine
months ended September 30, 2009 compared to the same period
in 2008, primarily due to:
•
an increase of $3.8 million from the amortization of
contract value liabilities relating to FPSO service contracts
(as discussed below), which was recognized on the date of the
acquisition by us of a controlling interest in Teekay Petrojarl;
and
•
an increase of $2.4 million primarily from the delivery of
a new FPSO unit in February 2008 (or the FPSO Delivery),
partially offset by lower revenues in other FPSO units due to
lower oil production compared to the prior period and the
conversion of a shuttle tanker to an FSO unit.
As part of our acquisition of Teekay Petrojarl, we assumed
certain FPSO service contracts that had terms that were less
favorable than prevailing market terms at the time of
acquisition. This contract value liability, which was recognized
on the date of acquisition, is being amortized to revenue over
the remaining firm period of the current FPSO contracts on a
weighted basis based on the projected revenue to be earned under
the contracts. The amount of amortization relating to these
contracts included in revenue for the nine months ended
September 30, 2009 was $53.3 million compared to
$49.5 million for the same period in 2008. The increase was
primarily due to our purchase of the remaining interest in
Teekay Petrojarl in mid-2008.
Vessel operating expenses. Vessel operating
expenses decreased during the nine months ended
September 30, 2009, compared to the same period in 2008,
primarily due to:
•
a decrease of $23.4 million from decreases in service costs
due to the timing of certain projects, cost saving initiatives,
and the strengthening of the U.S. Dollar against the
Norwegian Kroner; and
•
a decrease of and $0.9 million from lower insurance charges.
Depreciation and amortization. Depreciation
and amortization expense increased for the nine months ended
September 30, 2009, compared to the same period in 2008,
primarily due to:
•
an increase of $5.4 million primarily from the finalization
of preliminary estimates of fair value assigned to certain
assets included in our acquisition of Teekay Petrojarl; and
•
an increase of $3.7 million from the FPSO Delivery.
Liquefied gas
segment
Our liquefied gas segment consists of LNG and LPG carriers
primarily subject to long-term, fixed-rate time-charter
contracts. We accepted delivery of two new LNG carriers between
November 2008 and January 2009, and one new LPG carrier in April
2009. At September 30, 2009, we had two LPG carriers under
construction, of which one was delivered in early November 2009
and the other is scheduled for delivery in April 2010. In
addition, we have four LNG carriers under construction that are
scheduled for delivery between August 2011 and January 2012, and
two multi-gas carriers under construction that are scheduled for
delivery in 2011. Upon delivery, all of these vessels are
scheduled to commence operation under long-term, fixed-rate
time-charters.
The following table presents our liquefied gas segment’s
operating results and compares its net revenues (which is a
non-GAAP financial measure) to revenues, the most directly
comparable GAAP financial measure for the nine months ended
September 30, 2009. The following table also provides a
summary of the changes in calendar-ship-days by owned vessels
and vessels under capital lease for our liquefied gas segment:
Nine months ended
September 30,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2009
2008
Change
Revenues
176,283
167,297
5.4
Voyage expenses
723
791
(8.6
)
Net revenues
175,560
166,506
5.4
Vessel operating expenses
36,238
35,224
2.9
Depreciation and amortization
44,257
43,010
2.9
General and administrative
expenses(1)
15,875
17,520
(9.4
)
Restructuring charge
3,802
614
519.2
Income from vessel operations
75,388
70,138
7.5
Calendar-ship-days:
Owned vessels and vessels under capital lease
3,383
2,740
23.5
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the liquefied gas segment based on
estimated use of corporate resources). For additional
information, please read “—Other operating
results—General and administrative expenses” elsewhere
in this prospectus.
The increase in the average fleet size of our liquefied gas
segment was primarily due to the delivery of two new LNG
carriers in November 2008 and January 2009, respectively
(collectively the Tangguh LNG Deliveries) and the
delivery of one new LPG carrier in April 2009.
Net revenues. Net revenues increased for the
nine months ended September 30, 2009, compared to the same
period in 2008, primarily due to:
•
an increase of $19.6 million due to the commencement of the
time-charters from the Tangguh LNG Deliveries and the new LPG
carrier;
•
an increase of $3.1 million due to the Catalunya Spirit
being off-hire for 34.3 days for repairs during the
nine months ended September 30, 2008; and
•
an increase of $1.0 million due to the Polar Spirit
being off-hire for 18.5 days for a scheduled drydock
during the nine months ended September 30, 2008;
partially offset by
•
a decrease of $5.1 million due to lower net revenues from
the Arctic Spirit as a result of a decrease in the
time-charter rate;
•
a relative decrease of $2.1 million, due to the Madrid
Spirit being off-hire for 25.2 days during the third
quarter of 2009 for a scheduled drydock;
•
a relative decrease of $1.9 million due to the Galicia
Spirit being off-hire for 27.6 days during the third
quarter of 2009 for a scheduled drydock; and
•
a decrease of $5.6 million due to the effect on our
Euro-denominated revenues from the weakening of the Euro against
the U.S. Dollar.
Vessel operating expenses. Vessel operating
expenses increased for the nine months ended September 30,2009, compared to the same period in 2008, primarily due to:
•
an increase of $5.3 million from the Tangguh LNG Deliveries;
partially offset by
•
a decrease of $2.1 million relating to lower crew manning,
insurance, and repairs and maintenance costs; and
•
a decrease of $1.6 million due to the effect on our
Euro-denominated vessel operating expenses from the weakening of
the Euro against the U.S. Dollar (a majority of our vessel
operating expenses are denominated in Euros, which is primarily
a function of the nationality of our crew; our Euro-denominated
revenues currently generally approximate our Euro-denominated
expenses and Euro-denominated loan and interest payments).
Depreciation and amortization. Depreciation
and amortization expense increased for the nine months ended
September 30, 2009, from the same period in 2008, primarily
due to:
•
an increase of $1.2 million from the delivery of the
Tangguh Sago in March 2009 prior to the commencement of the
external time-charter contract in May 2009 which is accounted
for as a direct financing lease; and
•
an increase of $0.6 million from the delivery of the one
new LPG carrier in April 2009;
a decrease of $0.8 million due to revised depreciation
estimates of certain of our vessels.
Restructuring charges. During the nine months
ended September 30, 2009, we incurred restructuring charges
of $3.8 million relating to costs incurred for global
staffing and office changes.
Conventional
tanker segment
Fixed-rate tanker
segment
Our fixed-rate tanker segment includes conventional crude oil
and product tankers on long-term, fixed-rate time-charters.
The following table presents our fixed-rate tanker
segment’s operating results and compares its net revenues
(which is a non-GAAP financial measure) to revenues, the most
directly comparable GAAP financial measure. The following table
also provides a summary of the changes in calendar-ship-days by
owned and chartered-in vessels for our fixed-rate tanker segment:
Nine months ended
September 30,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2009
2008
Change
Revenues
217,574
188,519
15.4
Voyage expenses
4,614
2,904
58.9
Net revenues
212,960
185,615
14.7
Vessel operating expenses
55,540
49,626
11.9
Time-charter hire expense
35,918
32,881
9.2
Depreciation and amortization
41,803
32,447
28.8
General and administrative
expenses(1)
20,388
15,157
34.5
Loss on sale of vessels and equipment, net of write-downs
3,960
–
–
Restructuring charge
613
1,893
(67.6
)
Income from vessel operations
54,738
53,611
2.1
Calendar-ship-days
Owned vessels
6,592
4,929
33.7
Chartered-in vessels
1,661
1,826
(9.0
)
Total
8,253
6,755
22.2
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the fixed-rate tanker segment based on
estimated use of corporate resources). For additional
information, please read “—Other operating
results—General and administrative expenses.”
The average fleet size of our fixed-rate tanker segment
(including vessels chartered-in) increased for the nine months
ended September 30, 2009, compared to the same period in
2008, primarily due to:
•
the delivery of two new Aframax tankers during January and March
2008 (collectively, the Aframax Deliveries);
the transfer of two product tankers from the spot tanker segment
in April 2008 upon commencement of long-term time-charters (the
Product Tanker Transfers);
•
the transfer of two Suezmax tankers from the spot tanker segment
in June 2009 (the Suezmax Transfers);
•
the purchase of a product tanker which commenced a
10-year
fixed-rate time charter to Caltex Australia Petroleum Pty Ltd.
during September 2009; and
•
the transfer of five Aframax tankers, on a net basis, from the
spot tanker segment in 2008 and 2009 upon commencement of
long-term time-charters (the Aframax Transfers).
The Aframax Transfers consist of the transfer of five owned
vessels and one chartered-in vessel from the spot tanker
segment, and the transfer of one chartered-in vessel to the spot
tanker segment. The effect of the transaction is to increase the
fixed-rate tanker segment’s net revenues, time-charter
expenses, and vessel operating expenses.
Net revenues. Net revenues increased for the
nine months ended September 30, 2009, compared to the same
period in 2008, primarily due to:
•
an increase of $20.3 million from the Aframax Transfers;
•
an increase of $7.1 million from the Suezmax Transfers;
•
an increase of $2.8 million from the Product Tanker
Transfers;
•
an increase of $1.3 million from the Aframax Deliveries;
•
a relative increase of $1.2 million as two of our Suezmax
tankers were off-hire for 48 days for scheduled drydockings
during the nine months ended September 30, 2008; and
•
an increase of $0.9 million from the purchase of the new
product tanker.
partially offset by
•
a decrease of $4.8 million due to interest-rate adjustments
to the daily charter rates under the time-charter contracts for
five Suezmax tankers (however, under the terms of these capital
leases, we had corresponding decreases in our lease payments,
which are reflected as decreases to interest expense; therefore,
these and future interest rate adjustments do not and will not
affect our cash flow or net (loss) income); and
•
a decrease of $1.1 million due to a scheduled drydocking
during the nine months ended September 30, 2009 of the
Teesta Spirit, which is one of the vessels included in
the Product Tanker Transfers.
Vessel operating expenses. Vessel operating
expenses increased for the nine months ended September 30,2009, compared to the same period in 2008, primarily due to:
•
an increase of $6.2 million from the Aframax Transfers;
•
an increase of $1.3 million from the Suezmax Transfers; and
•
an increase of $1.8 million from the Product Tanker
Transfers;
partially offset by
•
a decrease of $2.3 million relating to lower crew manning,
insurance, and repairs and maintenance costs; and
a decrease of $1.4 million due to the effect on our
Euro-denominated vessel operating expenses from the weakening of
the Euro against the U.S. Dollar.
Time-charter hire expense. Time-charter hire
expense increased for the nine months ended September 30,2009, compared to the same period in 2008, primarily due to an
increase in the average time-charter hire rates, partially
offset by a decrease in the number of in-chartered Aframax
vessel days.
Depreciation and amortization. Depreciation
and amortization expense increased for the nine months ended
September 30, 2009, compared to the same period in 2008,
primarily due to the Aframax Transfers, Suezmax Transfers,
Product Tanker Transfers, and an increase in capitalized
drydocking expenditures being amortized.
Loss on sale of vessels and equipment. Loss
on sale of vessels and equipment for the nine months ended
September 30, 2009, primarily relates to a write-down taken
on one of our older fixed-rate vessels.
Restructuring charges. During the nine months
ended September 30, 2009, we incurred restructuring charges
of $0.6 million relating to costs incurred for global
staffing changes.
Spot tanker
segment
Our spot tanker segment consists of conventional crude oil
tankers and product carriers operating on the spot tanker market
or subject to time-charters or contracts of affreightment that
are priced on a spot-market basis or are short-term, fixed-rate
contracts. We consider contracts that have an original term of
less than three years in duration to be short-term. We took
delivery of six new Suezmax tankers during the nine months ended
September 30, 2009 and delivery of an additional new
Suezmax tanker in December 2009. Our conventional Aframax,
Suezmax, and large and medium product tankers are among the
vessels included in the spot tanker segment.
Our spot tanker market operations contribute to the volatility
of our revenues, cash flow from operations and net (loss)
income. Historically, the tanker industry has been cyclical,
experiencing volatility in profitability and asset values
resulting from changes in the supply of, and demand for, vessel
capacity. In addition, spot tanker markets historically have
exhibited seasonal variations in charter rates. Spot tanker
markets are typically stronger in the winter months as a result
of increased oil consumption in the northern hemisphere and
unpredictable weather patterns that tend to disrupt vessel
scheduling.
The following table presents our spot tanker segment’s
operating results and compares its net revenues (which is a
non-GAAP financial measure) to revenues, the most directly
comparable GAAP financial measure. The following table also
provides a summary of the changes in calendar-ship-days by owned
and chartered-in vessels for our spot tanker segment:
Nine months ended
September 30,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2009
2008
Change
Revenues
533,339
1,259,813
(57.7
)
Voyage expenses
161,689
436,182
(62.9
)
Net revenues
371,650
823,631
(54.9
)
Vessel operating expenses
77,785
89,507
(13.1
)
Time-charter hire expense
226,680
312,332
(27.4
)
Depreciation and amortization
70,924
81,648
(13.1
)
General and administrative
expenses(1)
53,605
71,102
(24.6
)
Gain on sale of vessels and equipment, net of write-downs
(16,148
)
(35,942
)
(55.1
)
Restructuring charge
1,611
2,173
(25.9
)
(Loss) income from vessel operations
(42,807
)
302,811
(114.1
)
Calendar-ship-days
Owned vessels
9,050
10,339
(12.5
)
Chartered-in vessels
8,398
13,215
(36.5
)
Total
17,448
23,554
(25.9
)
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the spot tanker segment based on
estimated use of corporate resources). For additional
information, please read “—Other operating
results—General and administrative expenses.”
The average fleet size of our spot tanker fleet (including
vessels chartered-in) decreased for the nine months ended
September 30, 2009, compared to the same period in 2008,
primarily due to:
•
the transfer of two product tankers in April 2008 to the
fixed-rate tanker segment (or the Spot Product Tanker
Transfers);
•
the transfer of four Aframax tankers in November 2008 and one
Aframax tanker in September 2009 to the fixed-rate tanker
segment (or the Spot Aframax Tanker Transfers);
•
the sale of seven product tankers between March 2008 and May
2009 (or the Spot Product Tanker Sales);
•
the sale of one Suezmax tanker in November 2008 (or the
Suezmax Tanker Sale); and
•
a net decrease in the number of chartered-in vessels, primarily
from the sale of our 50% interest in the Swift Product Tanker
Pool in November 2008, which included our interest in ten
in-chartered intermediate product tankers;
• the delivery of six new Suezmax tankers between May
2008 and September 2009 (or the Suezmax Deliveries); and
•
the delivery of one large product tanker in October 2008.
In addition, during February 2009 we sold and leased back one
older Aframax tanker. This had the effect of decreasing the
number of calendar days for our owned vessels and increasing the
number of calendar-ship-days for our chartered-in vessels.
Tanker market and
TCE rates
According to CRSL, average Suezmax crude tanker spot market
rates were $28,361 per day in 2009 which was lower than the
average spot rate for the five-year period from 2004 through
2008 of $60,265 per day. Average Aframax crude tanker spot
market rates were $15,780 per day in 2009 which was lower than
the average spot rate for the five-year period from 2004 through
2008 of $42,044 per day. The global economic downturn, which
resulted in the steepest oil demand contraction since the early
1980’s, coupled with the growth in the global tanker fleet,
were the primary causes of the decline in rates in 2009. Since
the end of the third quarter of 2009, spot rates have increased
as a result of seasonal factors, improving economic fundamentals
and short-term factors such as the use of tankers for floating
storage, which tightened active fleet supply.
The following tables outline the TCE rates earned by the vessels
in our spot tanker segment for the nine months ended
September 30, 2009 and 2008:
Spot fleet includes time-charters
and fixed-rate contracts of affreightment less than one year and
time-charter fleet includes time-charters and fixed-rate
contracts of affreightment between one and three years.
Includes realized gains and losses
on forward freight agreements and synthetic time-charter
contracts, the cost of spot in-charter vessels servicing
fixed-rate contract of affreightment cargoes, the amortization
of in-process revenue contracts and cost of fuel while offhire.
Net revenues. Net revenues decreased for the
nine months ended September 30, 2009, compared to the same
period in 2008, primarily due to:
•
a decrease of $286.4 million, primarily from decreases in
our average TCE rate;
•
a decrease of $111.7 million from a net decrease in the
number of chartered-in vessels, excluding small product tankers
discussed below;
•
a decrease of $37.3 million from a net decrease in the
number of chartered-in small product tankers primarily due to
the sale of our interest in the Swift Tanker Pool in November
2008;
•
a decrease of $30.3 million from the Spot Aframax Transfers
and Spot Product Tanker Transfers;
•
a decrease of $24.3 million from the Spot Product Tanker
Sales; and
•
a decrease $6.8 million from the Suezmax Tanker Sale;
partially offset by
•
an increase of $15.1 from a change in the number of days our
vessels were off-hire due to regularly scheduled maintenance
during the nine months ended September 30, 2009;
•
an increase of $24.0 million from the Suezmax Deliveries;
and
•
an increase of $5.6 million from the delivery of one large
product tanker.
Vessel operating expenses. Vessel operating
expenses decreased for the nine months ended September 30,2009, compared to the same period in 2008, primarily due to:
•
a decrease of $9.1 million from the Spot Aframax Tanker
Transfers; and
•
a decrease of $8.4 million from the Spot Product Tanker
Sales;
•
a decrease of $7.4 million from lower crew manning,
repairs, maintenance and consumables costs; and
partially offset by
•
an increase of $7.6 million from the Suezmax Deliveries;
•
an increase of $1.9 million from the new product tanker
delivered in October 2008.
Time-charter hire expense. Time-charter hire
expense decreased for the nine months ended September 30,2009, compared to the same period in 2008, primarily due to:
•
a decrease of $52.6 million from the decrease in the number
of chartered-in Suezmax and Aframax tankers; and
•
a decrease of $33.1 million from a decrease in the number
of chartered-in small product tankers from the sale of the Swift
Tanker Pool in November 2008.
Depreciation and amortization. Depreciation
and amortization expense decreased for the nine months ended
September 30, 2009, compared to the same period in 2009,
primarily due to:
•
a decrease of $4.9 million from the Spot Product Tanker
Sales;
•
a decrease of $4.5 million from the Spot Aframax Tanker
Transfers;
•
a decrease of $8.4 million from the amortization of a
non-compete agreement in the prior periods, which was fully
amortized by the end of 2008;
•
a decrease of $1.2 million from the Spot Product Tanker
Transfers; and
•
a decrease of $1.1 million from the Suezmax Tanker Sale;
partially offset by
•
an increase of $11.0 million from the Suezmax Tanker
Deliveries and one new product tanker.
Gain on sale of vessels and equipment, net of
write-downs. The gain on sale of vessels and
equipment, net of write-downs for the nine months ended
September 30, 2009, is primarily due to gains realized on
the disposal of two long-range product tankers during the second
quarter of 2009, partially offset by write-downs. The
write-downs were for related to two older vessels that were
written-down to their fair value.
Restructuring charges. During the nine months
ended September 30, 2009, we incurred restructuring charges
of $1.6 million relating to costs incurred for global
staffing changes.
Other operating
results
The following table compares our other operating results for the
nine months ended September 30, 2009 and 2008:
Nine months ended
September 30,
%
(in thousands of U.S. dollars,
except percentages)
2009
2008
Change
General and administrative expenses
(156,073
)
(184,735
)
(15.5
)
Interest expense
(111,505
)
(215,139
)
(48.2
)
Interest income
15,894
73,408
(78.3
)
Realized and unrealized (losses) gains on non- designated
derivative instruments
83,066
(125,542
)
(166.2
)
Foreign exchange (loss) gain
(39,900
)
8,323
(579.4
)
Equity (loss) income from joint ventures
29,857
(10,780
)
(377.0
)
Income tax (expense) recovery
(12,174
)
35,022
(134.8
)
Other income (loss)—net
8,343
(7,662
)
(208.9
)
General and administrative expenses. General
and administrative expenses decreased for the nine months ended
September 30, 2009, compared to the same period in 2008,
primarily due to:
•
a decrease of $32.5 million, in compensation for
shore-based employees and other personnel expenses primarily due
to decreases in headcount and performance based compensation
costs;
a decrease of $8.9 million from lower travel costs;
•
a decrease of $5.4 million relating to timing of seafarer
training initiatives and lower training activity; and
•
a decrease of $4.2 million in corporate-related expenses;
partially offset by
•
an increase of $19.6 million as there was a large recovery
recorded in the third quarter of 2008 relating to the costs
associated with our equity-based compensation and long-term
incentive program for management, in each case due to
significant stock market fluctuations; and
•
an increase of $2.8 million relating to the net realized
and unrealized change in fair value of our foreign currency
forward contracts.
Interest expense. Interest expense, which
excludes realized and unrealized gains and losses from interest
rate swaps, decreased to $111.5 million for the nine months
ended September 30, 2009 from $215.1 million for the
same period in 2008, primarily due to:
•
a decrease of $65.2 million primarily due to repayments of
debt drawn under long-term revolving credit facilities and term
loans, and decreases in interest rates relating to long-term
debt;
•
a decrease of $24.6 million as the debt relating to Teekay
Nakilat (III) was novated to the RasGas 3 Joint Venture on
December 31, 2008 (the interest expense on this debt is not
reflected in our 2009 consolidated interest expense as the
RasGas 3 Joint Venture is accounted for using the equity method);
•
a decrease of $10.7 million from the scheduled loan
payments on the LNG carrier Catalunya Spirit, and
scheduled capital lease repayments on the LNG carrier Madrid
Spirit (the Madrid Spirit is financed pursuant to a
Spanish tax lease arrangement, under which we borrowed under a
term loan and deposited the proceeds into a restricted cash
account and entered into a capital lease for the vessel; as a
result, this decrease in interest expense from the capital lease
is offset by a corresponding decrease in the interest income
from restricted cash);
•
a decrease of $3.3 million from declining interest rates on
our five Suezmax tanker capital lease obligations; and
•
a decrease of $2.5 million due to the effect on our
Euro-denominated debt from the weakening of the Euro against the
U.S. Dollar;
partially offset by
•
an increase of $2.7 million relating to debt to finance the
purchase of the Tangguh LNG Carriers, as the interest on this
debt was capitalized in the same period in 2008.
Realized and unrealized loss of $109.5 million relating to
interest rate swaps for the nine months ended September 30,2008, was reclassified from interest expense to realized and
unrealized (loss) gain on non-designated derivative instruments
to conform to the presentation adopted in the nine months ended
September 30, 2009.
Interest income. Interest income, which
excludes realized and unrealized gains and losses from interest
rate swaps, decreased to $15.9 million for the nine months
ended September 30, 2009 from $73.4 million, for the
same period in 2008, primarily due to:
•
a decrease of $23.2 million relating to interest-bearing
advances made by us to the RasGas 3 Joint Venture for shipyard
construction installment payments, as the loan was repaid on
December 31, 2008 when the external debt was novated to the
RasGas 3 Joint Venture;
•
a decrease of $24.5 million primarily relating to lower
interest rates on our bank account balances;
•
a decrease of $8.5 million due to decreases in LIBOR rates
relating to the restricted cash used to fund capital lease
payments for three LNG carriers;
•
a decrease of $0.6 million, due to the effect on our
Euro-denominated deposits from the weakening of the Euro against
the U.S. Dollar; and
•
a decrease of $0.7 million primarily from scheduled capital
lease repayments on one of our LNG carriers which was funded
from restricted cash deposits.
Realized and unrealized gain of $25.7 million relating to
interest rate swaps for the nine months ended September 30,2008, was reclassified from interest income to realized and
unrealized (loss) gain on non-designated derivative instruments
to conform to the presentation adopted in the nine months ended
September 30, 2009.
Realized and unrealized (losses) gains on non-designated
derivative instruments. Net realized and unrealized
gains on non-designated derivatives were $83.1 million for
the nine months ended September 30, 2009, compared to net
realized and unrealized (losses) on non-designated derivatives
of $(125.5) million for the same period in 2008, as
detailed in the table below:
Foreign exchange (loss) gain. Foreign
currency exchange (losses) were $(39.9) million for the
nine months ended September 30, 2009, compared to a gain of
$8.3 million for the same period in 2008. The changes in
our foreign exchange (losses) gains are primarily attributable
to the revaluation of our Euro-denominated term loans at the end
of each period for financial reporting purposes, and
substantially all of the gains or losses are unrealized. Gains
reflect a stronger U.S. Dollar against the Euro on the date
of revaluation. Losses reflect a weaker U.S. Dollar against
the Euro on the date of revaluation. Currently, our
Euro-denominated revenues generally approximate our
Euro-denominated operating expenses and our Euro-denominated
interest and principal repayments.
Equity (loss) income from joint ventures. Equity
income from joint ventures was $29.9 million for the nine
months ended September 30, 2009, compared to a loss of
$(10.8) million for the same period in 2008. The income or
loss was primarily comprised of our share of the Angola LNG
Project earnings (losses) and the operations of the four RasGas
3 LNG Carriers, which were delivered between May and July 2008.
Substantially all of the equity income relates to unrealized
gain on interest rate swaps of $23.1 million for the nine
months ended September 30, 2009.
Income tax (expense) recovery. Income tax
(expense) was $(12.1) million for the nine months ended
September 30, 2009, compared to a recovery of
$35.0 million for the same period in 2008. The increase to
income tax expense of $47.1 million for the nine months
ended September 30, 2009 was primarily due to an increase
in deferred income tax expense relating to unrealized foreign
exchange translation gains and to a lesser extent due to
operational income for tax purposes.
Other income (loss). Other income was
$8.3 million for the nine months ended
September 30, 2009, compared to a loss of
$(7.7) million for the same period in 2008. The increase in
other income for the nine months ended September 30, 2009,
was primarily due to the write-down of marketable securities and
losses from repurchase of bonds, partially offset by gains from
the sale of marketable securities, recognized in the same period
in 2008.
Net income. As a result of the foregoing
factors, net income was $132.5 million for the nine months
ended September 30, 2009, compared to $233.0 million
for the same period in 2008.
The following table presents our shuttle tanker and FSO
segment’s operating results and compares its net revenues
(which is a non-GAAP financial measure) to revenues, the most
directly comparable GAAP financial measure for the years ended
December 31, 2008 and 2007. The following table also
provides a summary of the changes in calendar-ship-days by owned
and chartered-in vessels for our shuttle segment:
Year ended
December 31,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2008
2007
Change
Revenues
705,461
642,047
9.9
Voyage expenses
171,599
117,571
46.0
Net revenues
533,862
524,476
1.8
Vessel operating expenses
175,449
127,372
37.7
Time-charter hire expense
134,100
160,993
(16.7
)
Depreciation and amortization
117,198
104,936
11.7
General and administrative
expenses(1)
58,725
60,234
(2.5
)
Gain on sale of vessels and equipment, net of write-downs
(3,771
)
(16,531
)
(77.2
)
Restructuring charge
10,645
–
–
Income from vessel operations
41,516
87,472
(52.5
)
Calendar-ship-days:
Owned vessels
11,595
11,015
5.3
Chartered-in vessels
3,765
4,619
(18.5
)
Total
15,360
15,634
(1.8
)
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the shuttle tanker and FSO segment based
on estimated use of corporate resources).
The average fleet size of our shuttle tanker and FSO segment
(including vessels chartered-in) increased during 2008 compared
to 2007. This was primarily the result of:
•
the transfer of the Navion Saga from the fixed-rate
segment to the shuttle tanker and FSO segment in connection with
the completion of its conversion to an FSO unit in May 2007; and
•
the delivery of two new shuttle tankers, the Navion Bergen
and the Navion Gothenburg, in April and July 2007,
respectively (collectively, the Shuttle Tanker
Deliveries);
partially offset by
•
a decline in the number of chartered-in shuttle tankers; and
•
the sale of a 1987-built shuttle tanker in May 2007 (or the
Shuttle Tanker Disposition).
Net revenues. Net revenues increased 1.8% to
$533.9 million for 2008, from $524.5 million for 2007,
primarily due to:
•
an increase of $10.1 million from the Shuttle Tanker
Deliveries;
•
an increase of $9.6 million due to more revenue days for
shuttle tankers servicing contracts of affreightment and from
shuttle tankers servicing contracts of affreightment in the
conventional spot tanker market, earning a higher average daily
charter rate, compared to the same period in 2008;
•
an increase of $6.9 million from the transfer of the
Navion Saga to the shuttle tanker and FSO segment; and
•
an increase of $2.5 million due to the redeployment of one
shuttle tanker from servicing contracts of affreightment to a
time-charter effective October 2007, and earning a higher
average daily charter rate than for the same period in 2008;
partially offset by
•
a decrease of $10.0 million due to declining oil production
at mature oil fields in the North Sea which are serviced by
certain shuttle tankers on contracts of affreightment;
•
a decrease of $3.9 million due to an increased number of
offhire days resulting from an increase in scheduled drydockings
and unexpected repairs performed compared to the same period in
2008;
•
a decrease of $3.4 million due to customer performance
claims under the terms of charter party agreements;
•
a decrease of $3.0 million due to an increase in bunker
costs which are not passed on to the charterer under certain
contracts; and
•
a decrease of $3.0 million due to redeliver of an
in-chartered shuttle tanker in May 2008.
Vessel operating expenses. Vessel operating
expenses increased 37.7% to $175.4 million for 2008, from
$127.4 million for 2007, primarily due to:
•
an increase of $33.2 million from increases in crew manning
costs;
•
an increase of $9.8 million relating to the unrealized
change in fair value of our foreign currency forward contracts;
•
an increase of $5.0 million relating to the transfer of the
Navion Saga to the shuttle tanker and FSO segment;
•
an increase of $4.4 million, from the acquisition of an
in-chartered shuttle tanker, the Navion Oslo, which was
delivered in late March 2008; and
•
an increase of $0.5 million from increases in service costs
and the price of consumables, freight and lubricants.
Time-charter hire expense. Time-charter hire
expense decreased 16.7% to $134.1 million for 2008, from
$161.0 million for 2007, primarily due to a decrease in the
number of chartered-in vessels.
Depreciation and amortization. Depreciation
and amortization expense increased 11.7% to $117.2 million
for 2008, from $105.0 million for 2007, primarily due to:
•
an increase of $6.9 million relating to the transfer of the
Navion Saga to the shuttle tanker and FSO segment; and
•
an increase of $2.8 million from the Shuttle Tanker
Deliveries.
Gain on sale of vessels and equipment—net of
write-downs. Gain on sale of vessels and equipment
for 2008 was a net gain of $3.8 million, which was
primarily due to a gain of $3.7 million from the sale of
equipment.
FPSO
segment
The following table presents our FPSO segment’s operating
results and also provides a summary of the changes in
calendar-ship-days for our FPSO segment for the years ended
December 31, 2008 and 2007:
Year ended
December 31,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2008
2007
Change
Revenues
383,752
350,279
9.6
Vessel operating expenses
227,651
156,264
45.7
Depreciation and amortization
91,734
68,047
34.8
General and administrative
expenses(1)
53,087
36,927
43.8
Loss on sale of vessels and equipment, net of write-downs
12,019
–
–
Goodwill impairment charge
334,165
–
–
(Loss) income from vessel operations
(334,904
)
89,041
(476.1
)
Calendar-ship-days:
Owned vessels
2,073
1,825
13.6
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the FPSO segment based on estimated use
of corporate resources).
The average fleet size of our FPSO segment (including vessels
chartered-in) increased during 2008 compared to 2007. This was
primarily the result of the delivery of a new FPSO unit in
February 2008 (or the FPSO Delivery).
Net revenues. Net revenues increased 10.4% to
$383.8 million for 2008, from $350.3 million for 2007,
primarily due to:
•
an increase of $40.4 million from the FPSO Delivery;
partially offset by
•
a decrease of $11.3 million in revenues from the
Foinaven FPSO due to lower oil production compared to the
prior year and a production shutdown during August and September
2008.
As part of our acquisition of Teekay Petrojarl, we assumed
certain FPSO service contracts that have terms that are less
favorable than prevailing market terms at the time of
acquisition. This contract value liability, which was recognized
on the date of acquisition, is being amortized to
revenue over the remaining firm period of the current FPSO
contracts on a weighted basis based on the projected revenue to
be earned under the contracts. The amount of amortization
relating to these contracts included in revenue for each of 2007
and 2008 was $66.6 million.
Vessel operating expenses. Vessel operating
expenses increased 45.7% to $227.7 million for 2008, from
$156.3 million for 2007, primarily due to:
•
an increase of $25.3 million relating to the unrealized
change in fair value of our foreign currency forward contracts;
•
an increase of $24.2 million from the FPSO Delivery;
•
an increase of $13.9 million from increases in service
costs and the price of consumables, freight and lubricants; and
•
an increase of $7.3 million from increases in crew manning
costs;
partially offset by
•
a decrease of $1.8 million from lower insurance charges.
Depreciation and amortization. Depreciation
and amortization expense increased 34.8% to $91.7 million
for 2008, from $68.0 million for 2007, primarily due to:
•
an increase of $13.8 million from the refinement of
preliminary estimates of fair value assigned to certain assets
included in our acquisition of Teekay Petrojarl; and
•
an increase of $9.9 million from the FPSO Delivery.
Loss on sale of vessels and equipment—net of
write-downs. Loss on sale of vessels and
equipment—net of write-downs for 2008 was due to a
$12.0 million impairment write-down of a 1986-built shuttle
tanker.
Goodwill impairment charge. Goodwill
impairment charge was from a write-down of goodwill from the
Teekay Petrojarl acquisition. Based on an impairment analysis,
management concluded that the carrying value of goodwill in the
FPSO segment exceeded its fair value by $334.2 million as
of December 31, 2008. As a result, an impairment loss of
$334.2 million has been recognized in our consolidated
statement of income (loss) for the year ended December 31,2008.
The following table presents our liquefied gas segment’s
operating results and compares its net revenues (which is a
non-GAAP financial measure) to revenues, the most directly
comparable GAAP financial measure for the years ended
December 31, 2008 and 2007. The following table also
provides a summary of the changes in calendar-ship-days by owned
vessels for our liquefied gas segment:
Year ended
December 31,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2008
2007
Change
Revenues
221,930
166,981
32.9
Voyage expenses
1,009
109
825.7
Net revenues
220,921
166,872
32.4
Vessel operating expenses
48,185
30,239
59.3
Depreciation and amortization
58,371
46,018
26.8
General and administrative
expenses(1)
23,072
20,521
12.4
Restructuring charge
634
–
–
Income from vessel operations
90,659
70,094
29.3
Calendar-ship-days:
Owned vessels and vessels under capital lease
3,701
2,899
27.7
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the liquefied gas segment based on
estimated use of corporate resources).
The increase in the average fleet size of our liquefied gas
segment from 2007 to 2008 was primarily due to:
•
the delivery of one new LNG carrier in November 2008 (the
Tangguh Hiri);
•
the delivery of two new LNG carriers in January and February
2007 (or the RasGas II Deliveries); and
•
our December 2007 acquisition of two 1993-built LNG vessels from
a joint venture between Marathon Oil Corporation and
ConocoPhillips (or the Kenai LNG Carriers).
Net revenues. Net revenues increased 32.4% to
$220.9 million for 2008, from $166.9 million for 2007,
primarily due to:
•
an increase of $38.3 million from the delivery of the Kenai
LNG Carriers;
•
an increase of $6.1 million from the RasGas II
Deliveries;
•
a relative increase of $5.5 million, due to the Madrid
Spirit being off-hire during the first half of 2007 after
sustaining damage to its engine boilers; and
•
an increase of $4.7 million due to the effect on our
Euro-denominated revenues of the strengthening of the Euro
against the U.S. Dollar during 2008 compared to 2007;
a decrease of $3.1 million, due to the Catalunya Spirit
being off-hire for 34.3 days during the first half of
2008 for scheduled drydocking.
Vessel operating expenses. Vessel operating
expenses increased 59.3% to $48.2 million for 2008, from
$30.2 million for 2007, primarily due to:
•
an increase of $10.8 million from the full year operations
in 2008 of the Kenai LNG Carriers delivered in 2007;
•
an increase of $2.3 million due to the effect on our
Euro-denominated vessel operating expenses (primarily crewing
costs) from the strengthening of the Euro against the
U.S. Dollar during 2008 compared to 2007 (a majority of our
vessel operating expenses are denominated in Euros, which is
primarily a function of the nationality of our crew; our
Euro-denominated revenues currently generally approximate our
Euro-denominated expenses and Euro-denominated loan and interest
payments);
•
an increase of $1.2 million from the RasGas II
Deliveries; and
•
an increase of $0.7 million from the delivery of the
Tangguh Hiri.
Depreciation and amortization. Depreciation
and amortization increased 26.8% to $58.4 million in 2008,
from $46.0 million in 2007, primarily due to:
•
an increase of $9.9 million from the delivery of the Kenai
LNG Carriers;
•
an increase of $1.2 million from the RasGas II
Deliveries;
•
an increase of $0.6 million from the delivery of the
Tangguh Hiri; and
•
an increase of $0.3 million relating to the amortization of
drydock expenditures incurred during 2008.
The following table presents our fixed-rate tanker
segment’s operating results and compares its net revenues
(which is a non-GAAP financial measure) to revenues, the most
directly comparable GAAP financial measure for the years ended
December 31, 2008 and 2007. The following table also
provides a summary of the changes in calendar-ship-days by owned
and chartered-in vessels for our fixed-rate tanker segment:
Year ended December 31,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2008
2007
Change
Revenues
265,849
195,942
35.7
Voyage expenses
5,010
2,707
85.1
Net revenues
260,839
193,235
35.0
Vessel operating expenses
68,065
51,458
32.3
Time-charter hire expense
43,048
25,812
66.8
Depreciation and amortization
44,578
36,018
23.8
General and administrative
expenses(1)
20,740
18,221
13.8
Loss on sale of vessels and equipment, net of write-downs
4,401
–
–
Restructuring charge
1,991
–
–
Income from vessel operations
78,016
61,725
26.4
Calendar-ship-days:
Owned vessels
6,824
5,390
26.6
Chartered-in vessels
2,363
1,312
80.1
Total
9,187
6,702
37.1
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the fixed-rate tanker segment based on
estimated use of corporate resources).
The average fleet size of our fixed-rate tanker segment
(including vessels chartered-in) increased by 37% in 2008
compared to 2007. This increase was primarily the result of:
•
the acquisition of two Suezmax tankers from OMI Corporation on
August 1, 2007 (collectively, the OMI Acquisition);
•
the addition of two new chartered-in Aframax tankers in January
2008 as part of the multi-vessel transaction with
ConocoPhillips, in which we acquired ConocoPhillips’ rights
in six double-hull Aframax tankers (collectively, the
ConocoPhillips Acquisition);
•
the delivery of two new Aframax tankers during January and March
2008 (collectively, the Aframax Deliveries);
•
the transfer of two product tankers from the spot tanker segment
in April 2008 upon commencement of long-term time-charters (the
Product Tanker Transfers); and
•
the transfer of four Aframax tankers, on a net basis during
2008, from the spot tanker segment upon commencement of
long-term time-charters (the 2008 Aframax Transfers).
The 2008 Aframax Transfers comprise the transfer of three owned
vessel and two chartered-in vessels from the spot tanker
segment, and the transfer of one owned vessels to the spot
tanker segment. The effect of the transaction is to increase the
fixed-rate tanker segment’s net revenue and time-charter
expenses, and to decrease its vessel operating expenses.
Net revenues. Net revenues increased 35.0% to
$260.8 million for 2008, from $193.2 million for 2007,
primarily due to:
•
an increase of $17.6 million from the ConocoPhillips
Acquisition;
•
an increase of $17.0 million from the OMI Acquisition;
•
an increase of $11.2 million from the Product Tanker
Transfers;
•
an increase of $9.8 million from the 2008 Aframax Transfers;
•
a increase of $9.2 million from increased revenues earned
by the Teide Spirit and the Toledo Spirit (the
time charters for both these vessels provide for additional
revenues to us beyond the fixed hire rate when spot tanker
market rates exceed threshold amounts; the time-charter for the
Toledo Spirit also provides for a reduction in revenues to us
when spot tanker market rates are below threshold
amounts); and
•
an increase of $8.6 million from the Aframax Deliveries;
partially offset by
•
a decrease of $3.3 million from lower charter rates earned
on an in-chartered VLCC.
Vessel operating expenses. Vessel operating
expenses increased 32.3% to $68.1 million for 2008, from
$51.5 million for 2007, primarily due to:
•
an increase of $7.9 million from the ConocoPhillips
acquisition;
•
an increase of $4.6 million relating to higher crew manning
and repairs, insurance, and maintenance and consumables;
•
an increase of $3.8 million from the Product Tanker
Transfers;
•
an increase of $1.7 million due to full year operations in
2008 of the Suezmax tankers acquired in the OMI
Acquisition; and
•
an increase of $1.0 million due to the effect on our
Euro-denominated vessel operating expenses (primarily crewing
costs for five of our Suezmax tankers) from the strengthening of
the Euro against the U.S. Dollar during such period
compared to the same period in 2008. A majority of our vessel
operating expenses for five of our Suezmax tankers are
denominated in Euros, which is primarily a function of the
nationality of our crew (our Euro-denominated revenues currently
generally approximate our Euro-denominated expenses and
Euro-denominated loan and interest payments);
partially offset by
•
a decrease of $3.1 million from the 2008 Aframax Transfers.
Time-charter hire expense. Time-charter hire
expense increased 66.8% to $43.0 million for 2008, compared
to $25.8 million for 2007, primarily due to:
•
an increase of $7.3 million from the ConocoPhillips
acquisition.
•
an increase of $5.6 million from the 2008 Aframax
Transfers; and
•
an increase of $4.9 million from the OMI Acquisition.
Depreciation and amortization. Depreciation
and amortization expense increased 23.8% to $44.6 million
for 2008, from $36.0 million for 2007, primarily due to:
•
an increase of $5.1 million from the OMI
Acquisition; and
•
an increase of $2.8 million from the Aframax Deliveries.
Loss on sale of vessels and equipment—net of
write-downs. For 2008, we recorded a
$4.4 million impairment charge related to a 1990-built
conventional tanker.
Restructuring charges. During the year ended
December 31, 2008, we incurred restructuring charges of
$1.3 million relating to costs incurred to change the crew
of the Samar Spirit from Australian crew to International
crew, and $0.5 million relating to reorganization of
certain business units.
Spot tanker
segment
The following table presents our spot tanker segment’s
operating results and compares its net revenues (which is a
non-GAAP financial measure) to revenues, the most directly
comparable GAAP financial measure. The following table also
provides a summary of the changes in calendar-ship-days by owned
and chartered-in vessels for our spot tanker segment:
Year ended December 31,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2008
2007
Change
Revenues
1,616,663
1,040,258
55.4
Voyage expenses
580,770
406,921
42.7
Net revenues
1,035,893
633,337
63.6
Vessel operating expenses
134,969
81,813
65.0
Time-charter hire expense
434,975
279,676
55.5
Depreciation and amortization
106,921
74,094
44.3
General and administrative
expenses(1)
88,898
95,962
(7.4
)
Gain on sale of vessels and equipment, net of write-downs
(72,664
)
–
–
Restructuring charge
2,359
–
–
Income from vessel operations
340,435
101,792
234.4
Calendar-ship-days:
Owned vessels
13,623
11,764
15.8
Chartered-in vessels
17,647
12,730
38.6
Total
31,270
24,494
27.7
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the spot tanker segment based on
estimated use of corporate resources).
The average fleet size of our spot tanker fleet increased 27.7%
from 24,494 calendar days in 2007 to 31,271 calendar days in
2008, primarily due to:
•
the acquisition of 15 owned and six chartered-in vessels from
OMI Corporation on August 1, 2007 (collectively, the OMI
Acquisition);
•
the addition of two owned and two chartered-in Aframax tankers
in January 2008 as part of the multi-vessel transaction with
ConocoPhillips, in which we acquired ConocoPhillips’ rights
in six double-hull Aframax tankers (collectively, the
ConocoPhillips Acquisition);
•
the delivery of two new large product tankers in February and
May 2007 (or the 2007 Spot Tanker Deliveries);
•
the delivery of three new Suezmax tankers between May and
October 2008 (or the 2008 Suezmax Deliveries); and
•
a net increase in the number of chartered-in vessels, primarily
Aframax and product tankers.
In addition, during April 2007 we sold and leased back two older
Aframax tankers and during July 2007 we sold and leased back two
Aframax tankers. This had the effect of decreasing the number of
calendar ship days for our owned vessels and increasing the
number of calendar ship days for our chartered-in vessels.
Tanker market and
TCE rates
The following table outlines the TCE rates earned by the vessels
in our spot tanker segment for 2008 and 2007 and includes the
realized results of synthetic time-charters (or STCs) and
forward freight agreements (or FFAs), which we enter into
at times as hedges against a portion of our exposure to spot
tanker market rates or for speculative purposes.
Spot fleet includes short-term
time-charters and fixed-rate contracts of affreightment of less
than 1 year and gains and losses from FFAs less than
1 year; and time-charter fleet includes short-term
time-charters and fixed-rate contracts of affreightment of
between 1-3 years and gains and losses from STCs and FFAs
of between 1-3 years.
(2)
Includes realized gains and losses
from STCs and FFAs.
(3)
Includes broker commissions, the
cost of spot in-charter vessels servicing fixed-rate contract of
affreightment cargoes, unrealized gains and losses from STCs and
FFAs, the amortization of in-process revenue contracts and cost
of fuel while offhire.
Net Revenues. Net revenues increased 63.6% to
$1.04 billion for 2008, from $633.3 million for 2007,
primarily due to:
•
an increase of $207.8 million from an increase in our
average TCE rate during 2008 compared to 2007;
•
an increase of $147.4 million from the OMI Acquisition;
•
an increase of $52.6 million from a net increase in the
number of chartered-in vessels;
•
an increase of $42.0 million from the ConocoPhillips
Acquisition;
•
an increase of $19.5 million from the 2007 Spot Tanker
Deliveries and the 2008 Suezmax Deliveries; and
•
an increase of $17.0 million from the transfer of two
Aframax tankers from the fixed-rate tanker segment in January
2008;
partially offset by
•
a decrease of $54.2 million from the effect of STCs and
FFAs;
•
a decrease of $13.6 million from an increase in the number
of days our vessels were off-hire due to regularly scheduled
maintenance; and
•
a decrease of $5.0 million from the transfer of a Suezmax
tanker to the offshore segment in May 2007 and the transfer of
an Aframax tanker to the fixed-rate tanker segment in December
2007.
Vessel operating expenses. Vessel operating
expenses increased 65.0% to $135.0 million for 2008, from
$81.8 million for 2007, primarily due to:
•
an increase of $18.1 million from higher crew manning
repairs, maintenance and consumables costs, insurance costs,
port expenses, safety inspections and non-recurring damages;
•
an increase of $17.2 million from the ConocoPhillips
Acquisition;
•
an increase of $10.1 million from the OMI Acquisition;
•
an increase of $4.8 million from the transfer of two
Aframax tankers from the fixed-rate segment in January
2008; and
•
an increase of $4.3 million from the 2007 Spot Tanker
Deliveries and the 2008 Suezmax Deliveries;
a decrease of $3.3 million from the transfer of a Suezmax
tanker to the shuttle tanker and FSO segment in May 2007 and the
transfer of an Aframax tanker to the fixed-rate tanker segment
in December 2007.
Time-charter hire expense. Time-charter hire
expense increased 55.5% to $435.0 million for 2008, from
$279.7 million for 2007, primarily due to:
•
an increase of $89.9 million from an increase in the number
of chartered-in tankers (excluding the OMI and ConocoPhillips
vessels) compared to the same period in 2007;
•
an increase of $2.6 million from an increase in the average
in-charter rate;
•
an increase of $39.8 million from the OMI Acquisition;
•
an increase of $16.1 million from the ConocoPhillips
Acquisition; and
•
an increase of $6.9 million due to the sale and lease-back
of three Aframax tankers during April and July 2007.
Depreciation and amortization. Depreciation
and amortization expense increased 44.3% to $106.9 million
for 2008, from $74.1 million for 2007, primarily due to:
•
an increase of $30.7 million from the OMI Acquisition;
•
an increase of $6.3 million from the ConocoPhillips
Acquisition; and
•
an increase of $3.5 million from the 2007 Spot Tanker
Deliveries and the 2008 Suezmax Deliveries;
partially offset by
•
a decrease of $2.8 million from the sale and lease-back of
three Aframax tankers during April and July 2007; and
•
a decrease of $2.2 million from the transfer of a Suezmax
tanker to the shuttle tanker and FSO segment in May 2007 and the
transfer of an Aframax to the fixed-rate tanker segment during
December 2007.
Gain on sale of vessels and equipment—net of
write-downs. Gain on sale of vessels and equipment
of $72.7 million for 2008 was due to:
•
a gain of $52.2 million from the sale of vessels; and
•
a gain of $44.4 million from the sale of our 50% interest
in the Swift Tanker Pool;
partially offset by
•
a decrease of $23.9 million from the impairment write-down
on two 1992-built Aframax tankers.
The following table compares our other operating results for
2008 and 2007.
Year ended December 31,
%
(in thousands of U.S. dollars,
except percentages)
2008
2007
Change
General and administrative expenses
(244,522
)
(231,865
)
5.5
Interest expense
(994,966
)
(422,433
)
135.5
Interest income
273,647
110,201
148.3
Foreign exchange gain (loss)
32,348
(39,912
)
(181.0
)
Equity loss from joint ventures
(36,085
)
(12,404
)
190.9
Income tax recovery
56,176
3,192
1,659.9
Non-controlling interest expense
(9,561
)
(8,903
)
7.4
Other (loss) income—net
(6,736
)
23,677
(128.4
)
General and administrative expenses. General
and administrative expenses increased 5.5% to
$244.5 million for 2008, from $231.9 million for 2007,
primarily due to:
•
an increase of $26.5 million from the unrealized change in
fair value of our foreign currency forward contracts;
•
an increase of $16.7 million in compensation for
shore-based employees and other personnel expenses, primarily
due to increase in headcount and compensation levels partially
offset by the strengthening of the U.S. Dollar compared to
other major currencies;
•
an increase of $10.3 million in corporate-related expenses,
including costs associated with Teekay Tankers becoming a public
entity in December 2007; and
•
an increase of $3.8 million in fleet overhead from the
timing of seafarer training initiatives and higher training
activity in the liquefied gas segment;
partially offset by
•
a decrease of $42.2 million relating to the costs
associated with our equity-based compensation and long-term
incentive program for management; and
•
a decrease of $2.8 million in office expenses and travel
costs due to business development and other project initiatives.
Interest expense. Interest expense increased
135.5% to $995.0 million for 2008, from $422.4 million
for 2007, primarily due to:
•
an increase of $508.4 million relating to the unrealized
change in fair value of our interest rate swaps and certain
options to enter into interest rate swaps;
•
an increase of $43.6 million due to additional debt drawn
under long-term revolving credit facilities and term loans
relating to the Shuttle Tanker Deliveries, the Aframax
Deliveries, the Spot Tanker Deliveries and other investing
activities;
an increase of $9.3 million relating to debt of Teekay
Nakilat (III) used by the RasGas 3 Joint Venture to fund
shipyard construction installment payments (this increase in
interest expense from debt is offset by a corresponding increase
in interest income from advances to the joint venture); and
•
an increase of $0.6 million relating to debt from the
delivery of the Tangguh Hiri.
We have not applied hedge accounting to our interest rate swaps
and as such, the unrealized changes in fair value of the swaps
are reflected in interest expense in our consolidated statements
of income (loss).
Interest income. Interest income increased
148.3% to $273.6 million for 2008, compared to
$110.2 million for 2007, primarily due to:
•
an increase of $171.3 million relating to the unrealized
change in fair value of our interest rate swaps; and
•
an increase of $4.5 million relating to interest-bearing
loans made by us to the RasGas 3 Joint Venture for shipyard
construction installment payments;
partially offset by
•
a decrease of $8.9 million resulting from the repayment of
interest-bearing loans we made to a 50% joint venture between us
and TORM, which were used during the second quarter of 2007,
together with comparable loans made by TORM, to acquire 100% of
the outstanding shares of OMI; and
•
a decrease of $2.4 million relating to a decrease in
restricted cash used to fund capital lease payments for the
RasGas II Deliveries.
We have not applied hedge accounting to our interest swaps and
as such, the unrealized changes in fair value of the swaps are
reflected in interest income in our consolidated statements of
income.
Foreign exchange gains (losses). Foreign
exchange gain (loss) was a gain of $32.3 million for 2008,
compared to a loss of $39.9 million for 2007. The changes
in our foreign exchange gains (losses) are primarily
attributable to the revaluation of our Euro-denominated term
loans at the end of each period for financial reporting
purposes, and substantially all of the gains or losses are
unrealized. Gains reflect a stronger U.S. Dollar against
the Euro on the date of revaluation. Losses reflect a weaker
U.S. Dollar against the Euro on the date of revaluation. As
of the date of this prospectus, our Euro-denominated revenues
generally approximate our Euro-denominated operating expenses
and our Euro-denominated interest and principal repayments.
Non-controlling interest
expense. Non-controlling interest expense increased
to $9.6 million for 2008, compared to $8.9 million for
2007, primarily due to:
•
an increase of $21.7 million from the initial public
offering of Teekay Tankers in December 2007; and
•
an increase of $3.0 million from the operating results of
the RasGas II joint venture;
partially offset by
•
a decrease of $14.6 million from a decrease in earnings
from Teekay Offshore partially offset by the follow-on public
offering of Teekay Offshore in June 2008; and
a decrease of $12.3 million from a decrease in earnings
from Teekay LNG which was primarily the result of unrealized
foreign exchange losses attributable to the revaluation of its
Euro-denominated term loans partially offset by the follow-on
public offering of Teekay LNG in April 2008.
Equity loss from joint ventures. Equity loss
of $36.1 million for 2008 was primarily comprised of our
share of the Angola LNG Project loss. The majority of the loss
relates to unrealized losses on interest rate swaps.
Income tax recovery. Income tax recovery was
$56.2 million for 2008 compared to $3.2 million for
2007. The $53.0 million increase to income tax recoveries
was primarily due to an increase in deferred income tax
recoveries relating to unrealized foreign exchange translation
losses.
Other (loss) income (net). Other loss of
$6.7 million for 2008 was primarily comprised of write-down
of marketable securities of $20.2 million, partially offset
by leasing income of $9.5 million from our volatile organic
compound emissions equipment, gain on sale of marketable
securities of $4.6 million, and gain on bond redemption of
$3.0 million.
Other income of $23.7 million for 2007 was primarily
comprised of leasing income of $11.0 million from our
volatile organic compound emissions equipment, gain on sale of
marketable securities of $9.6 million and gain on sale of
subsidiary of $6.9 million, partially offset by loss on
bond redemption of $0.9 million.
Net (loss) income. As a result of the
foregoing factors, we incurred a net loss of $469.5 million
for 2008, compared to a net income of $63.5 million for
2007.
The following table presents our shuttle tanker and FSO
segment’s operating results and compares its net revenues
(which is a non-GAAP financial measure) to revenues, the most
directly comparable GAAP financial measure for the years ended
December 31, 2007 and 2006.
The following table also provides a summary of the changes in
calendar-ship-days by owned and chartered-in vessels for our
shuttle segment:
Year ended
December 31,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2007
2006
Change
Revenues
642,047
572,392
12.2
Voyage expenses
117,571
89,642
31.2
Net revenues
524,476
482,750
8.6
Vessel operating expenses
127,372
90,798
40.3
Time-charter hire expense
160,993
170,308
(5.5
)
Depreciation and amortization
104,936
83,501
25.7
General and administrative
expense(1)
60,234
46,220
30.3
(Gain) loss on sale of vessels
(16,531
)
698
(2,468.3
)
Income from vessel operations
87,472
91,225
(4.1
)
Calendar-ship-days:
Owned vessels
11,015
9,050
21.7
Chartered-in vessels
4,619
4,983
(7.3
)
Total
15,634
14,033
11.4
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the shuttle tanker and FSO segment based
on estimated use of corporate resources).
The average fleet size of our shuttle tanker and FSO segment
(including vessels chartered-in) increased during 2007 compared
to 2006. This was primarily the result of:
•
the consolidation of five 50%-owned subsidiaries, each of which
owns one shuttle tanker, effective December 1, 2006 upon
amendments of the applicable operating agreements, which granted
us control of these entities, that were previously accounted for
as joint ventures using the equity method (or the
Consolidation of 50%-owned Subsidiaries);
•
the transfer of the Navion Saga from the fixed-rate
segment to the shuttle tanker and FSO segment in connection with
the completion of its conversion to an FSO unit in May
2007; and
•
the delivery of two new shuttle tankers, the Navion Bergen
and the Navion Gothenburg, in April and July 2007,
respectively (or the Shuttle Tanker Deliveries);
partially offset by
•
a decline in the number of chartered-in shuttle tankers; and
•
the sale of one 1981-built shuttle tanker in July 2006 and one
1987-built shuttle tanker in May 2007 (the Shuttle Tanker
Dispositions).
Net revenues. Net revenues increased 8.6% to
$524.5 million for 2007, from $482.8 million for 2006,
primarily due to:
•
an increase of $40.8 million due to the Consolidation of
50%-owned Subsidiaries;
an increase of $23.0 million relating to the transfer of
the Navion Saga to the shuttle tanker and FSO segment;
•
an increase of $12.3 million due to the Shuttle Tanker
Deliveries; and
•
an increase of $3.6 million due to the renewal of certain
vessels on time-charter contracts at higher daily rates during
2006;
partially offset by
•
a decrease of $13.1 million in revenues due to
(a) fewer revenue days for shuttle tankers servicing
contracts of affreightment during 2007 due to a decline in oil
production from mature oil fields in the North Sea and
(b) the redeployment of idle shuttle tankers servicing
contracts of affreightment in the conventional spot tanker
market at a lower average charter rate during the fourth quarter
of 2007 due to a weaker spot tanker market; and
•
a decrease of $3.4 million due to the drydocking of the FSO
unit the Dampier Spirit during the first half of 2007.
Vessel operating expenses. Vessel operating
expenses increased 40.3% to $127.4 million for 2007, from
$90.8 million for 2006, primarily due to:
•
an increase of $17.5 million from the Consolidation of
50%-owned Subsidiaries;
•
an increase of $14.0 million in salaries for crew and
officers primarily due to general wage escalations from the
renegotiation of seafarer contracts, change in crew composition,
a change in the crew rotation system and the weakening
U.S. Dollar;
•
an increase of $6.0 million relating to the transfer of the
Navion Saga to the shuttle tanker and FSO segment;
•
an increase of $3.4 million relating to an increase in
services, non-recurring repairs and maintenance; and
•
an increase of $0.2 million relating to the unrealized
change in fair value of our foreign currency forward contracts;
partially offset by
•
a decrease of $2.1 million relating to the Shuttle Tanker
Dispositions.
Time-charter hire expense. Time-charter hire
expense decreased 5.5% to $161.0 million for 2007, from
$170.3 million for 2006, primarily due to a decrease in the
number of chartered-in vessels.
Depreciation and amortization. Depreciation
and amortization expense increased 25.7% to $104.9 million
for 2007, from $83.5 million for 2006, primarily due to:
•
an increase of $13.7 million from the Consolidation of
50%-owned Subsidiaries;
•
an increase of $6.6 million from the transfer of the
Navion Saga to the shuttle tanker and FSO; and
•
an increase of $3.8 million due to the Shuttle Tanker
Deliveries;
a decrease of $4.0 million relating to the Shuttle Tanker
Dispositions.
Gain on sale of vessels and equipment—Net of
write-downs. Gain on sale of vessels for 2007 was a
net gain of $16.5 million, which was primarily comprised of:
•
a gain of $11.6 million from the sale of a 1987-built
shuttle tanker and certain equipment during May 2007; and
•
a gain of $4.9 million from the sale of a 50% interest in a
2007-built shuttle tanker during September 2007.
FPSO
segment
The following table presents our FPSO segment’s operating
results and also provides a summary of the changes in
calendar-ship-days by owned and chartered-in vessels for our
offshore segment for the years ended December 31, 2007 and
2006:
Year ended
December 31,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2007
2006
Change
Revenues
350,279
95,455
267.0
Vessel operating expenses
156,264
36,158
332.2
Depreciation and amortization
68,047
22,360
204.3
General and administrative
expenses(1)
36,927
10,549
250.1
Income from vessel operations
89,041
26,388
237.4
Calendar-ship-days:
Owned vessels
1,825
460
296.7
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the FPSO segment based on estimated use
of corporate resources).
The average fleet size of our FPSO segment increased during 2007
compared to 2006. This was primarily the result of the
acquisition during the third quarter of 2006 of Teekay Petrojarl.
Revenues. Revenues increased 267.0% to
$350.3 million for 2007, from $95.5 million for 2006,
primarily due to a net increase of $245.8 million relating
to the Teekay Petrojarl acquisition, which includes the effect
of amortization of contract values as described below;
As part of our acquisition of Teekay Petrojarl, we assumed
certain FPSO service contracts which have terms that are less
favorable than then-prevailing market terms. This contract value
liability, which was recognized on the date of acquisition, is
being amortized to revenue over the remaining firm period of the
current FPSO contracts on a weighted basis based on the
projected revenue to be earned under the contracts. The amount
of amortization relating to these contracts included in revenue
for 2007 and 2006 was $66.6 million and $22.4 million,
respectively.
Vessel operating expenses. Vessel operating
expenses increased 332.2% to $156.3 million for 2007, from
$36.2 million for 2006, primarily due to:
•
an increase of $125.3 million from the Teekay Petrojarl
acquisition;
a decrease of $4.0 million relating to the unrealized
change in fair value of our foreign currency forward contracts.
Depreciation and amortization. Depreciation
and amortization expense increased 204.3% to $68.0 million
for 2007, from $22.4 million for 2006, primarily due to an
increase of $45.1 million from the Teekay Petrojarl
acquisition.
Liquefied gas
segment
The following table presents our liquefied gas segment’s
operating results and compares its net revenues (which is a
non-GAAP financial measure) to revenues, the most directly
comparable GAAP financial measure for the years ended
December 31, 2007 and 2006. The following table also
provides a summary of the changes in calendar-ship-days by owned
vessels for our liquefied gas segment:
Year ended
December 31,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2007
2006
Change
Revenues
166,981
104,489
59.8
Voyage expenses
109
975
(88.8
)
Net revenues
166,872
103,514
61.2
Vessel operating expenses
30,239
18,912
59.9
Depreciation and amortization
46,018
33,160
38.8
General and administrative
expenses(1)
20,251
15,531
32.1
Income from vessel operations
70,094
35,911
95.2
Calendar-ship-days:
Owned vessels and vessels under capital lease
2,899
1,887
53.6
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the liquefied gas segment based on
estimated use of corporate resources).
The increase in the average fleet size of our liquefied gas
segment was primarily due to:
•
the delivery of the three RasGas II LNG Carriers between
October 2006 and February 2007, and
•
our December 2007 acquisition of the two Kenai LNG Carriers.
On March 29, 2007, the Madrid Spirit sustained
damage to its engine boilers when a condenser tube failed
resulting in seawater contamination of the boilers. The vessel
was offhire for three days during the first quarter of 2007 and
76 days during the second quarter of 2007. As a result, we
incurred a reduction to income from vessel operations of
$6.6 million in the second quarter of 2007, consisting of
$5.8 million from loss of hire and $0.8 million from
uninsured repair costs. The Madrid Spirit resumed normal
operations in early July 2007.
Net revenues. Net revenues increased 61.2% to
$166.9 million for 2007, from $103.5 million for 2006,
primarily due to:
•
an increase of $59.8 million from the delivery of the
RasGas II LNG Carriers;
•
an increase of $6.8 million due to the effect on our
Euro-denominated revenues from the strengthening of the Euro
against the U.S. Dollar during 2007 compared to 2006;
a relative increase of $2.4 million due to the Catalunya
Spirit being off-hire for 35.5 days during 2006 to
complete repairs and for a scheduled drydock; and
•
an increase of $2.0 million from the delivery of the Kenai
LNG Carriers;
partially offset by
•
a decrease of $5.8 million due to the Madrid Spirit
being off-hire, as discussed above; and
•
a decrease of $2.0 million relating to 30.8 days of
off-hire for a scheduled drydocking for one of our LNG carriers
during July 2007.
Vessel operating expenses. Vessel operating
expenses increased 59.9% to $30.2 million for 2007, from
$18.9 million for 2006, primarily due to:
•
an increase of $8.9 million from the delivery of the
RasGas II LNG Carriers;
•
an increase of $1.4 million due to the effect on our
Euro-denominated vessel operating expenses (primarily crewing
costs) from the strengthening of the Euro against the
U.S. Dollar during such period compared to the same period
last year (a majority of our vessel operating expenses are
denominated in Euros, which is primarily a function of the
nationality of our crew; our Euro-denominated revenues currently
generally approximate our Euro-denominated expenses and
Euro-denominated loan and interest payments); and
•
an increase of $0.8 million for repair costs for the
Madrid Spirit incurred during the second quarter of 2007
in excess of insurance recoveries;
partially offset by
•
a relative decrease of $1.0 million relating to repair
costs for the Catalunya Spirit incurred during the second
quarter of 2006 in excess of insurance recoveries.
Depreciation and amortization. Depreciation
and amortization increased 38.8% to $46.0 million in 2007,
from $33.2 million in 2006, primarily due to:
•
an increase of $11.7 million from the delivery of the
RasGas II LNG Carriers;
•
an increase of $0.7 million relating to the amortization of
drydock expenditures incurred during 2007; and
•
an increase of $0.5 million from the delivery of the Kenai
LNG Carriers.
The following table presents our fixed-rate tanker
segment’s operating results and compares its net revenues
(which is a non-GAAP financial measure) to revenues, the most
directly comparable GAAP financial measure for the years ended
December 31, 2007 and 2006. The following table also
provides a summary of the changes in calendar-ship-days by owned
and chartered-in vessels for our fixed-rate tanker segment:
Year ended
December 31,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2007
2006
Change
Revenues
195,942
181,605
7.9
Voyage expenses
2,707
1,999
35.4
Net revenues
193,235
179,606
7.6
Vessel operating expenses
51,458
44,083
16.7
Time-charter hire expense
25,812
16,869
53.0
Depreciation and amortization
36,018
32,741
10.0
General and administrative
expenses(1)
18,221
15,843
15.0
Income from vessel operations
61,726
70,070
(11.9
)
Calendar-ship-days:
Owned vessels
5,390
5,475
(1.6
)
Chartered-in vessels
1,312
728
80.2
Total
6,702
6,203
8.0
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the fixed-rate tanker segment based on
estimated use of corporate resources).
The average fleet size of our fixed-rate tanker segment
(including vessels chartered-in) increased by 8% in 2007
compared to 2006. This increase was primarily the result of:
•
the acquisition of two Suezmax tankers as part of the OMI
Acquisition on August 1, 2007; and
•
the transfer of two in-chartered Aframax tankers from the spot
tanker segment in July 2007 and October 2007, respectively, upon
commencement of three-year time-charters (or the 2007 Aframax
Transfers).
In addition, during July 2007 we sold and leased back an older
Aframax tanker. This had the effect of decreasing the number of
calendar ship days for our owned vessels and increasing the
number of calendar ship days for our chartered-in vessels.
Net revenues. Net revenues increased 7.6% to
$193.2 million for 2007, from $179.6 million for 2006,
primarily due to:
•
an increase of $9.3 million from the OMI Acquisition;
•
an increase of $8.1 million from the 2007 Aframax Transfers;
•
an increase of $1.4 million due to adjustments to the daily
charter rate based on inflation and increases from rising
interest rates in accordance with the time-charter contracts for
five
Suezmax tankers. (However, under the terms of our capital leases
for these tankers we had a corresponding increase in our lease
payments, which is reflected as an increase to interest expense.
Therefore, these and future interest rate adjustments do not and
will not affect our cash flow or net income); and
•
a relative increase of $0.3 million because one of our
Suezmax tankers was off-hire for 15.8 days for a scheduled
drydocking during 2006;
partially offset by
•
a decrease of $5.5 million from reduced revenues earned by
the Teide Spirit and the Toledo Spirit (the
time-charters for both these vessels provide for additional
revenues to us beyond the fixed hire rate when spot tanker
market rates exceed threshold amounts; the time-charter for the
Toledo Spirit also provides for a reduction in revenues
to us when spot tanker market rates are below threshold amounts).
Vessel operating expenses. Vessel operating
expenses increased 16.7% to $51.5 million for 2007, from
$44.1 million for 2006, primarily due to:
•
an increase of $4.1 million relating to higher crew manning
and repairs, maintenance and consumables;
•
an increase of $1.6 million due to the effect on our
Euro-denominated vessel operating expenses (primarily crewing
costs for five of our Suezmax tankers) from the strengthening of
the Euro against the U.S. Dollar during such period
compared to the same period last year. A majority of our vessel
operating expenses on five of our Suezmax tankers are
denominated in Euros, which is primarily a function of the
nationality of our crew (our Euro-denominated revenues currently
generally approximate our Euro-denominated expenses and
Euro-denominated loan and interest payments); and
•
an increase of $1.1 million from the OMI Acquisition.
Time-charter hire expense. Time-charter hire
expense increased 53.0% to $25.8 million for 2007, compared
to $16.9 million for 2006, primarily due to:
•
an increase of $4.7 million from the 2007 Aframax Transfers;
•
an increase of $4.1 million from the OMI
Acquisition; and
•
an increase of $1.2 million due to the sale and lease-back
of an Aframax tanker in July 2007.
Depreciation and amortization. Depreciation
and amortization expense increased 10.0% to $36.0 million
for 2007, from $32.7 million for 2006, primarily due to:
•
an increase of $3.4 million from the OMI
Acquisition; and
•
an increase of $1.2 million from an increase in
amortization of drydocking costs;
partially offset by
•
a decrease of $1.1 million due to the sale and lease-back
of an Aframax tanker in July 2007.
The following table presents our spot tanker segment’s
operating results and compares its net revenues (which is a
non-GAAP financial measure) to revenues, the most directly
comparable GAAP financial measure for the years ended
December 31, 2007 and 2006 . The following table also
provides a summary of the changes in calendar-ship-days by owned
and chartered-in vessels for our spot tanker segment:
Year ended
December 31,
%
(in thousands of U.S. dollars,
except calendar-ship-days and percentages)
2007
2006
Change
Revenues
1,040,258
1,059,796
(1.8
)
Voyage expenses
406,921
430,341
(5.4
)
Net revenues
633,337
629,455
0.6
Vessel operating expenses
81,813
58,088
40.8
Time-charter hire expense
279,676
214,991
30.1
Depreciation and amortization
74,094
52,203
41.9
General and administrative
expenses(1)
95,962
93,357
2.8
Gain on sale of vessels
–
(2,039
)
(100.0
)
Restructuring charge
–
8,929
(100.0
)
Income from vessel operations
101,792
203,926
(50.1
)
Calendar-ship-days:
Owned vessels
11,764
9,541
23.3
Chartered-in vessels
12,730
11,190
13.8
Total
24,494
20,731
18.2
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to the spot tanker segment based on
estimated use of corporate resources).
The average fleet size of our spot tanker fleet increased 18.2%
from 20,731 calendar days in 2006 to 24,494 calendar days in
2007, primarily due to:
•
the delivery of four new large product tankers between November
2006 and May 2007 (or the Spot Tanker Deliveries);
•
the acquisition of twelve vessels from OMI Corporation on
August 1, 2007 as part of the OMI Acquisition; and
•
a net increase in the number of chartered-in vessels, primarily
Suezmax and product tankers;
partially offset by
•
the transfer of the Navion Saga to the shuttle tanker and
FSO segment in connection with the completion of its conversion
to an FSO unit in May 2007.
In addition, during April 2007 we sold and leased back two older
Aframax tankers and during July 2007 we sold and leased back one
Aframax tanker. This had the effect of decreasing the number of
calendar days for our owned vessels and increasing the number of
calendar ship days for our chartered-in vessels.
Net revenues. Net revenues increased 0.6% to
$633.3 million for 2007, from $629.5 million for 2006,
primarily due to:
•
an increase of $71.0 million relating to the OMI
Acquisition;
•
an increase of $31.9 million relating to the Spot Tanker
Deliveries;
•
an increase of $11.6 million from the effect of STCs and
FFAs; and
•
an increase of $4.5 million from a net increase in the
number of chartered-in vessels (excluding the effect of the sale
and lease-back of two older Aframax tankers during April 2007
and the Aframax tanker during July 2007);
partially offset by
•
a decrease of $100.4 million from a 15.1% decrease in our
average TCE rate during 2007;
•
a decrease of $6.5 million from the transfer of the
Navion Saga to the offshore segment in May 2007; and
•
a decrease of $5.7 million from an increase in the number
of days our vessels were off-hire due to regularly scheduled
maintenance.
Vessel operating expenses. Vessel operating
expenses increased 40.8% to $81.8 million for 2007, from
$58.1 million for 2006, primarily due to:
•
an increase of $12.7 million from the OMI Acquisition;
•
an increase of $7.7 million from the Spot Tanker
Deliveries; and
•
an increase of $3.3 million relating to higher crew manning
costs.
Time-charter hire expense. Time-charter hire
expense increased 30.1% to $279.7 million for 2007, from
$215.0 million for 2006, primarily due to:
•
an increase of $32.3 million from a net increase in the
average TCE rate of our chartered-in fleet;
•
an increase of $22.3 million from the OMI Acquisition;
•
an increase of $7.5 million due to the sale and lease-back
of the Aframax tankers during April and July 2007; and
•
an increase of $4.1 million from an increase in the number
of chartered-in tankers (excluding OMI vessels).
Depreciation and amortization. Depreciation
and amortization expense increased 41.9% to $74.1 million
for 2007, from $52.2 million for 2006, primarily due to:
•
an increase of $21.4 million from the OMI
Acquisition; and
•
an increase of $6.1 million from the Spot Tanker Deliveries;
partially offset by
•
a decrease of $5.5 million from the sale and lease-back of
the Aframax tankers during April and July 2007; and
•
a decrease of $1.7 million from the transfer of the
Navion Saga to the shuttle tanker and FSO segment.
The following table outlines the TCE rates earned by the vessels
in our spot tanker segment for 2007 and 2006 and includes the
realized results of STCs and FFAs, which we enter into at times
as hedges against a portion of our exposure to spot tanker
market rates or for speculative purposes.
Spot fleet includes short-term
time-charters and fixed-rate contracts of affreightment of less
than 1 year and gains and losses from forward freight
agreements (FFAs) less than 1 year; and time-charter
fleet includes short-term time-charters and fixed-rate contracts
of affreightment of between 1-3 years and gains and losses
from STCs and FFAs of between 1-3 years.
(2)
Includes realized gains and losses
from STCs and FFAs.
(3)
Includes broker commissions, the
cost of spot in-charter vessels servicing fixed-rate contract of
affreightment cargoes, unrealized gains and losses from STCs and
FFAs, the amortization of in-process revenue contracts and cost
of fuel while offhire.
Net revenues. Net revenues increased 0.6% to
$633.3 million for 2007, from $629.5 million for 2006,
primarily due to:
•
an increase of $71.0 million relating to the OMI
Acquisition;
•
an increase of $31.9 million relating to the Spot Tanker
Deliveries;
•
an increase of $11.6 million from the effect of STCs and
FFAs; and
•
an increase of $4.5 million from a net increase in the
number of chartered-in vessels (excluding the effect of the sale
and lease-back of two older Aframax tankers during April 2007
and the Aframax tanker during July 2007) compared to 2006;
partially offset by
•
a decrease of $100.4 million from a 15.1% decrease in our
average TCE rate during 2007 compared to 2006;
a decrease of $6.5 million from the transfer of the
Navion Saga to the offshore segment in May 2007; and
•
a decrease of $5.7 million from an increase in the number
of days our vessels were off-hire due to regularly scheduled
maintenance.
Vessel operating expenses. Vessel operating
expenses increased 40.8% to $81.8 million for 2007, from
$58.1 million for 2006, primarily due to:
•
an increase of $12.7 million from the OMI Acquisition;
•
an increase of $7.7 million from the Spot Tanker
Deliveries; and
•
an increase of $3.3 million relating to higher crew manning
costs.
Time-charter hire expense. Time-charter hire
expense increased 30.1% to $279.7 million for 2007, from
$215.0 million for 2006, primarily due to:
•
an increase of $32.3 million from a net increase in the
average TCE rate of our chartered-in fleet;
•
an increase of $22.3 million from the OMI Acquisition;
•
an increase of $7.5 million due to the sale and lease-back
of the Aframax tankers during April and July 2007; and
•
an increase of $4.1 million from an increase in the number
of chartered-in tankers (excluding OMI vessels) compared to 2006.
Depreciation and amortization. Depreciation
and amortization expense increased 41.9% to $74.1 million
for 2007, from $52.2 million for 2006, primarily due to:
•
an increase of $21.4 million from the OMI
Acquisition; and
•
an increase of $6.1 million from the Spot Tanker Deliveries;
partially offset by
•
a decrease of $5.5 million from the sale and lease-back of
the Aframax tankers during April and July 2007; and
•
a decrease of $1.7 million from the transfer of the
Navion Saga to the offshore segment.
The following table compares our other operating results for
2007 and 2006.
Year ended
December 31,
%
(in thousands of U.S. dollars,
except percentages)
2007
2006
Change
General and administrative expenses
(231,865
)
(181,500
)
27.7
Interest expense
(422,433
)
(100,089
)
322.1
Interest income
110,201
31,714
247.5
Foreign exchange loss
(39,912
)
(50,416
)
(20.8
)
Equity (loss) income from joint ventures
(12,404
)
6,099
(303.4
)
Income tax recovery (expense)
3,192
(8,811
)
(136.2
)
Non-controlling interest expense
(8,903
)
(6,759
)
31.7
Other—net
23,677
3,566
564.0
General and administrative expenses. General and
administrative expenses increased 27.7% to $231.9 million
for 2007, from $181.5 million for 2006, primarily due to:
•
an increase of $26.0 million from our acquisition of Teekay
Petrojarl in October 2006;
•
an increase of $20.7 million from an increase in
shore-based compensation and other personnel expenses, primarily
due to weakening of the U.S. Dollar compared to other major
currencies and increases in headcount and compensation levels;
•
an increase of $6.7 million from an increase in
corporate-related expenses, including costs associated with
Teekay Tankers and Teekay Offshore becoming public entities in
December 2007 and 2006, respectively;
•
an increase of $5.8 million from higher travel costs, due
to the integration of OMI and Teekay Petrojarl, and an increase
in costs due to the weakening of the U.S. Dollar compared
to other major currencies, and
•
an increase of $4.3 million from an increase in crew
training expenses, due to integration of new seafarers and LNG
training initiatives;
partially offset by
•
a decrease of $5.6 million relating to the unrealized
change in fair value of our non-designated foreign currency
forward contracts;
•
a relative decrease of $6.7 million during 2007 relating to
the costs associated with our equity-based compensation and
long-term incentive program for management; and
•
a relative decrease of $2.1 million during 2007 from
severance costs recorded in 2006.
Interest expense. Interest expense increased
322.1% to $422.4 million for 2007, from $100.1 million
for 2006, primarily due to:
•
an increase of $205.3 million relating to the unrealized
change in fair value of our non-designated interest rate swaps;
an increase of $36.5 million resulting from interest
incurred from financing our acquisition of Teekay Petrojarl and
interest incurred on debt we assumed from Teekay Petrojarl;
•
an increase of $33.3 million relating to the increase in
capital lease obligations and term loans in connection with the
delivery of the RasGas II LNG Carriers;
•
an increase of $31.6 million relating to the increase in
debt used to finance our acquisition of 50% of OMI Corporation;
•
an increase of $26.7 million relating to additional debt of
Teekay Nakilat (III) used by the RasGas 3 Joint Venture to
fund shipyard construction installment payments (this increase
in interest expense from debt is offset by a corresponding
increase in interest income from advances to joint
venture); and
•
an increase of $11.3 million relating to the Consolidation
of 50%-owned Subsidiaries;
partially offset by
•
a decrease of $6.2 million from scheduled capital lease
repayments on two of our LNG carriers.
We have not applied hedge accounting to our interest rate swaps
and as such, the unrealized changes in fair value of the swaps
are reflected in interest expense in our consolidated statements
of income.
Interest income. Interest income increased
247.5% to $110.2 million for 2007, compared to
$31.7 million for 2006, primarily due to:
•
an increase of $36.7 million relating to the unrealized
change in fair value of our non-designated interest rate swaps;
•
an increase of $26.8 million relating to interest-bearing
loans made by us to the RasGas 3 Joint Venture for shipyard
construction installment payments;
•
an increase of $11.1 million resulting from
$1.1 billion of interest-bearing loans we made to Omaha
Inc., a 50% joint venture between us and TORM, which were used,
together with comparable loans made by TORM, to acquire 100% of
the outstanding shares of OMI Corporation in June 2007;
•
an increase of $6.9 million relating to additional
restricted cash deposits that will be used to pay for lease
payments on the three RasGas II LNG Carriers; and
•
an increase of $2.7 million from the interest we earned on
cash we assumed as part of the Teekay Petrojarl acquisition;
partially offset by
•
a decrease of $7.3 million resulting from scheduled capital
lease repayments on two of our LNG carriers that were funded
from restricted cash deposits.
We have not applied hedge accounting to our interest swaps and
as such, the unrealized changes in fair value of the swaps are
reflected in interest income in our consolidated statements of
income.
Foreign exchange loss. Foreign exchange loss
decreased 20.8% to $39.9 million for 2007, compared to
$50.4 million for 2006. The changes in our foreign exchange
losses are primarily attributable to the revaluation of our
Euro-denominated term loans at the end of each period for
financial reporting purposes, and substantially all of the gains
or losses are unrealized. Gains reflect a stronger
U.S. Dollar against the Euro on the date of revaluation.
Losses reflect a weaker U.S. Dollar against the Euro on the
date of revaluation. As of the date of this report, our
Euro-denominated revenues generally approximate our
Euro-denominated operating expenses and our Euro-denominated
interest and principal repayments.
Non-controlling interest expense. Non-controlling
interest expense increased to $8.9 million for 2007,
compared to $6.8 million for 2006, primarily due to:
•
an increase of $2.7 million resulting from the
Consolidation of 50%-owned Subsidiaries; and
•
an increase of $1.2 million from the initial public
offering of Teekay Tankers in December 2007;
partially offset by
•
a decrease of $3.5 million from a minority owner’s
share of a gain on the disposal of a vessel in July 2006.
Equity (loss) income from joint
ventures. Equity loss of $12.4 million for
2007 was primarily comprised of equity losses from the joint
ventures with SkaugenPetroTrans and with OMI.
Income tax recovery (expense). Income tax
recovery was $3.2 million for 2007 compared to an income
tax expense of $8.8 million for 2006. The
$12.0 million increase to income tax recoveries was
primarily due to deferred income tax recoveries resulting from
the financial restructuring of our Norwegian shuttle tanker
operations during 2006, partially offset by an increase in
deferred income tax expense relating to unrealized foreign
exchange translation gains.
Other (loss) income (net). Other income of
$23.7 million for 2007 was primarily comprised of leasing
income of $11.0 million from our volatile organic compound
emissions equipment, gain on sale of marketable securities of
$9.6 million and gain on sale of subsidiary of
$6.9 million, offset by loss on bond redemption of
$0.9 million.
Other income of $3.6 million for 2006 was primarily
comprised of leasing income of $11.4 million from our
volatile organic compound emissions equipment and gain on sale
of marketable securities of $1.4 million, partially offset
by loss on expiry of options to construct LNG carriers of
$6.1 million, write-off of capitalized loan costs of
$2.8 million, and loss on bond redemption of
$0.4 million.
Net (loss) income. As a result of the
foregoing factors, net income decreased to $63.5 million
for 2007, from $302.8 million for 2006.
Liquidity and
capital resources
Liquidity and
cash needs
Our primary sources of liquidity are cash and cash equivalents,
cash flows provided by our operations and our undrawn credit
facilities. Our short-term liquidity requirements are for the
payment of operating expenses, debt servicing costs, dividends,
the scheduled repayments of long-term debt, as well as funding
our working capital requirements. As at September 30, 2009,
our total cash and cash equivalents was $495.4 million,
compared to $814.2 million as at December 31, 2008.
Our total liquidity, including cash and undrawn credit
facilities, was $1.8 billion and $1.9 billion as at
September 30, 2009, and December 31, 2008,
respectively. Please read “Description of other
indebtedness” elsewhere in this prospectus.
As at September 30, 2009, we had $350.2 million of
scheduled debt repayments and $44.7 million of capital
lease obligations coming due within the following twelve months.
The cash flow generated during the 12 months ended
September 30, 2009 under fixed-rate contracts with an
initial term of at least one year would have been sufficient to
pay the aggregate scheduled amortization (excluding balloon
payments) and estimated interest payments on our total debt for
2010. We believe that our working capital is sufficient for our
present short-term liquidity requirements.
Our operations are capital intensive. We finance the purchase of
our vessels primarily through a combination of borrowings from
commercial banks or our joint venture partners, the issuance of
debt and equity securities and cash generated from operations.
In addition, we may use sale and lease-back arrangements as a
source of long-term liquidity. Occasionally we use our revolving
credit facilities to temporarily finance capital expenditures
until longer-term financing is obtained, at which time we
typically use all or a portion of the proceeds from the
longer-term financings to prepay outstanding amounts under the
revolving credit facilities. Pre-arranged debt facilities are in
place for substantially all of our remaining capital commitments
relating to our portion of newbuildings currently on order. Our
pre-arranged newbuilding debt facilities are in addition to our
undrawn credit facilities. We continue to consider strategic
opportunities, including the acquisition of additional vessels
and expansion into new markets. We may choose to pursue such
opportunities through internal growth, joint ventures or
business acquisitions. We intend to finance any future
acquisitions through various sources of capital, including
internally-generated cash flow, existing credit facilities,
additional debt borrowings, and the issuance of additional debt
or equity securities or any combination thereof.
As at September 30, 2009, our revolving credit facilities
provided for borrowings of up to $3.3 billion, of which
$1.3 billion was undrawn. The amount available under these
revolving credit facilities decreased by $74.0 million
during the fourth quarter of 2009 and decreases by
$173.0 million (2010), $205.8 million (2011),
$313.8 million (2012), $596.3 million (2013) and
$1.9 billion (thereafter). Although we have significant
cash flow to support our debt obligations, we generally plan to
refinance our credit facilities in advance of their maturities.
Our revolving credit facilities are collateralized by
first-priority mortgages granted on 62 of our vessels, together
with other related security, and are guaranteed by Teekay or our
subsidiaries.
Our unsecured 8.875% Senior Notes are due July 15,2011. We have commenced a tender offer to repurchase these notes
and intend to fund the repurchase with a portion of the net
proceeds of this offering. Our outstanding term loans reduce in
monthly, quarterly or semi-annual payments with varying
maturities through 2023. Some of our term loans also have bullet
or balloon repayments at maturity and are collateralized by
first-priority mortgages granted on 32 of our vessels, together
with other related security, and are generally guaranteed by
Teekay or our subsidiaries.
Among other matters, our long-term debt agreements generally
provide for maintenance of minimum consolidated financial
covenants and prepayment privileges, in some cases with
penalties. Certain of our loan agreements require the
maintenance of vessel market
value-to-loan
rations and that we maintain a minimum level of free cash. This
amount currently is $100.0 million. Certain of the loan
agreements also require that we maintain an aggregate
level of free liquidity and undrawn revolving credit lines (with
at least six months to maturity) of at least 7.5% of total debt.
As at September 30, 2009, this amount was
$233.4 million. We currently are in compliance with all
loan covenants.
For additional information about our credit facilities,
including new credit facilities of Teekay LNG and Teekay
Offshore in October and November 2009 respectively, please
read “Description of other indebtedness.”
We conduct our funding and treasury activities within corporate
policies designed to minimize borrowing costs and maximize
investment returns while maintaining the safety of the funds and
appropriate levels of liquidity for our purposes. We hold cash
and cash equivalents primarily in U.S. Dollars, with some
balances held in Japanese Yen, Singapore Dollars, Canadian
Dollars, Australian Dollars, British Pounds, Euros and Norwegian
Kroner.
We are exposed to market risk from foreign currency fluctuations
and changes in interest rates. We use forward foreign currency
contracts and interest rate swaps to manage currency and
interest rate risks. We do not use these financial instruments
for trading or speculative purposes. Please read
‘‘—Quantitative and qualitative disclosures about
market risk.”
Cash
flows
The following table summarizes our cash and cash equivalents
provided by (used for) operating, financing and investing
activities for the periods presented:
Nine months ended
September 30,
Year ended December 31,
(in thousands of U.S.
dollars)
2009
2008
2008
2007
2006
Net operating cash flows
298,300
317,315
431,847
255,018
520,785
Net financing cash flows
(400,743
)
945,798
767,878
2,114,199
299,256
Net investing cash flows
(216,320
)
(830,173
)
(828,233
)
(2,270,458
)
(713,111
)
Operating cash
flows
The decrease in net cash flow from operating activities for the
nine months ended September 30, 2009 compared with the same
period in 2008 was primarily due to a decrease in net revenues
and increases in expenditures for drydocking, partially offset
by an increase in changes to non-cash working capital items. The
increase in net operating cash flow for the year ended
December 31, 2008 compared with 2007 mainly reflects an
increase in net operating cash flows generated by our spot
tanker and liquefied gas segments, partially offset by a
decrease in net operating cash flows generated by our offshore
segment, which was primarily the result of an increase in crew
manning costs and vessel repair costs, and an increase in
distributions to minority owners. The decrease in net operating
cash flow for 2007 compared with 2006 mainly reflects a decrease
in net operating cash flows generated by our spot tanker
segment, which was primarily the result of a decrease in the
average TCE rate earned an increase in expenditures for
drydockings and an increase in non-cash working capital.
Net cash flow from operating activities depends upon the timing
and amount of drydocking expenditures, repairs and maintenance
activity, vessel additions and dispositions, foreign currency
rates, changes in interest rates and fluctuations in working
capital balances, tanker utilization and spot market hire rates.
The number of vessel may vary each year.
During the nine months ended September 30, 2009, our net
proceeds from long-term debt net of debt issuance costs were
$758.9 million. Our repayments of long-term debt were
$1.2 billion during the same period. The net proceeds from
long-term debt were to finance our expenditures for vessels and
equipment, which are explained in more detail below. During 2008
our proceeds from long-term debt, net of prepayments, were
$565.4 million. We used a majority of these funds to
finance our expenditures for vessels and equipment, which are
explained in more detail below. During 2007, our proceeds from
long-term debt, net of prepayments, were $2.2 billion. We
used a majority of these funds to finance our acquisition of 50%
of OMI Corporation and our expenditures for vessels and
equipment.
Equity issuances
During March 2009, our subsidiary Teekay LNG issued an
additional 4.0 million common units in a public offering
for net proceeds of $67.1 million (excluding the general
partner’s capital contribution). During June 2009, our
subsidiary Teekay Tankers issued an additional 7.0 million
shares of Class A Common Stock in a public offering for net
proceeds of $65.6 million. During August 2009, our
subsidiary Teekay Offshore issued an additional
7.475 million common units in a public offering for net
proceeds of $102.1 million (excluding the general
partner’s proportionate capital contribution). During
November 2009, our subsidiary Teekay LNG completed a public
offering of 3.95 million common units for net proceeds of
$91.9 million (excluding the general partner’s capital
contribution). Each of these entities used the net offering
proceeds to repay outstanding debt under their respective
revolving credit facilities.
During April 2008, Teekay LNG issued 5.4 million common
units in a public offering for net proceeds of
$148.3 million, and during June 2008, our subsidiary Teekay
Offshore, issued an additional 7.4 million common units in
a public offering for net proceeds of $141.5 million, in
each case excluding common units and proceeds from concurrent
private placements to Teekay and also excluding the respective
general partner’s proportionate capital contribution.
Teekay LNG used the net proceeds to repay outstanding debt under
two of its revolving credit facilities that had been used to
fund vessel acquisitions, and Teekay Offshore used the net
proceeds to fund the acquisition of an additional 25%
interest in OPCO from Teekay and to repay a portion of advances
from OPCO.
During May 2007, our subsidiary Teekay LNG issued
2.3 million common units in a public offering for net
proceeds of $84.2 million (excluding the general
partner’s capital contribution), which it used to prepay
certain of its revolving credit facilities prior to its
acquiring certain LNG projects from Teekay.
During December 2007, our subsidiary Teekay Tankers completed
its initial public offering of 11.5 million shares of its
Class A common stock for net proceeds of
$208.2 million, which it used to prepay debt.
Share repurchases and cash distributions
During March 2008, we repurchased 0.5 million shares of our
common stock for $20.5 million, or an average cost of
$41.09 per share, pursuant to previously announced share
repurchase programs. During 2007, we repurchased
1.5 million shares for $80.4 million, or an average
cost of $53.22 per share, pursuant to previously announced share
repurchase programs.
Distributions from subsidiaries to non-controlling interests
during the nine months ended September 30, 2009, the year
ended December 31, 2008 and 2007, were $83.6 million,
$91.8 million and $49.4 million, respectively.
Dividends paid by Teekay during the nine months ended
September 30, 2009 were $68.8 million, or $0.94875 per
share. Dividends paid during 2008, 2007 and 2006 were
$82.9 million, or $1.14125 per share, $72.5 million,
or $0.9875 per share, and $63.1 million, or $0.86 per
share, respectively. We have paid a quarterly dividend since
1995. Through multiple increases we have increased our quarterly
dividend per share in 2003 to $0.31625 per share in the third
quarter of 2008, which remains the current dividend amount.
Subject to financial results and declaration by our board of
directors, we currently intend to continue to declare and pay a
regular quarterly dividend in such amount per share on our
common stock.
The timing and amount of dividends, if any, will depend, among
other things, on our results of operations, financial condition,
cash requirements, restrictions in financing agreements and
other factors deemed relevant by our board of directors. Because
we are a holding company with no material assets other than the
stock of our subsidiaries, our ability to pay dividends on the
common stock depends on the earnings and cash flow of our
subsidiaries.
incurred capital expenditures for vessels and equipment of
$431.6 million, primarily for acquisition of one product
tanker and shipyard construction installment payments on our
newbuilding Suezmax tankers, shuttle tankers, LNG carriers and
LPG carriers;
•
received proceeds of $166.1 million from the sale of three
product tankers; and
•
received proceeds of $32.7 million from the sale of an
Aframax tanker through a sale-leaseback agreement.
In November 2009, Teekay LNG acquired an LNG newbuilding from
I.M. Skaugen ASA for approximately $33 million.
During 2008, we:
•
incurred capital expenditures for vessels and equipment of
$620.1 million, primarily for shipyard construction
installment payments on our newbuilding Suezmax tankers, Aframax
tankers, shuttle tankers and LNG carriers and for costs to
convert a conventional tanker to an FPSO unit;
•
acquired an additional 35.3% interest in Teekay Petrojarl for a
total cost of $304.9 million;
•
loaned $211.5 million to the RasGas 3 Joint Venture for
shipyard construction installment payments;
•
acquired two Aframax tankers for a total cost of approximately
$72.5 million as part of the multi-vessel transaction with
ConocoPhillips;
•
acquired a shuttle tanker for a total cost of $41.7 million;
•
sold our 50% interest in Swift Tankers Management AS, which
included our intermediate vessel positions within the Swift
Tanker pool for proceeds of $44.4 million; and
received proceeds of $331.6 million from the sale of three
Handysize product tankers, one Aframax product tanker, one
medium-range product tanker and one Suezmax tanker.
During 2007, we:
•
acquired 50% of OMI Corporation for a total cost of
approximately $1.1 billion;
•
incurred capital expenditures for vessels and equipment of
$680.7 million, primarily for shipyard construction
installment payments on our Suezmax tankers, Aframax tankers and
shuttle tankers and for costs to convert two of our conventional
tankers to shuttle tankers and one conventional tanker to an
FPSO unit;
•
acquired the two Kenai LNG Carriers for a total cost of
approximately $229.6 million from a joint venture between
Marathon Oil Corporation and ConocoPhillips;
•
loaned $461.3 million to the RasGas 3 Joint Venture for
shipyard construction installment payments; and
•
received proceeds of $214.8 million from the sale of six
vessels.
Commitments and
contingencies
The following table summarizes our long-term contractual
obligations as at September 30, 2009:
Remainder
2010 and
2012 and
Beyond
(in millions of U.S.
Dollars)
Total
of 2009
2011
2013
2013
U.S. Dollar-Denominated Obligations:
Long-term
debt(1)(2)
4,094.0
32.9
831.4
518.4
2,711.3
Chartered-in vessels (operating leases)
696.6
78.8
423.7
146.9
47.2
Commitments under capital
leases(3)
227.6
6.0
221.6
–
–
Commitments under capital
leases(4)
1,055.1
6.0
48.0
48.0
953.1
Commitments under operating
leases(5)
489.0
6.3
50.1
50.1
382.5
Newbuilding
installments(6)
510.3
42.5
467.8
–
–
Asset retirement obligation
22.0
–
–
–
22.0
Total U.S. Dollar-denominated obligations
7,094.6
172.5
2,042.6
763.4
4,116.1
Euro-Denominated
Obligations:(7)
Long-term
debt(8)
424.8
3.2
245.8
15.4
160.4
Commitments under capital
leases(3)(9)
171.8
37.5
134.3
–
–
Total Euro-denominated obligations
596.6
40.7
380.1
15.4
160.4
Total(2)
7,691.2
213.2
2,422.7
778.8
4,276.5
(1)
Excludes expected interest payments
of $20.8 million (balance of 2009), $147.7 million
(2010 and 2011), $95.0 million (2012 and 2013) and
$125.6 million (beyond 2013). Expected interest payments
are based on the existing interest rates (fixed-rate loans) and
LIBOR plus margins that ranged up to 3.25% at September 30,2009 (variable-rate loans). The expected interest payments do
not reflect the effect of related interest rate swaps that we
have used as an economic hedge of certain of our floating-rate
debt.
(2)
Giving effect to this offering and
the application of the estimated net proceeds as if this
offering had occurred on September 30, 2009 and assuming
all of our outstanding 8.875% Senior Notes are purchased in
the Tender Offer, our (a) U.S.
Dollar-denominated long-term debt
scheduled for repayment during (i) 2010 and 2011 and
(ii) beyond 2013 would have been $1.7 billion and
$4.5 billion, respectively, and (b) total debt
scheduled for payment during such period would have been
$2.1 billion and $4.6 billion, respectively. Please
read “Use of proceeds.”
(3)
Includes, in addition to lease
payments, amounts we are required to pay to purchase certain
leased vessels at the end of the lease terms. We are obligated
to purchase five of our existing Suezmax tankers upon the
termination of the related capital leases, which will occur at
various times in 2011. The purchase price will be based on the
unamortized portion of the vessel construction financing costs
for the vessels, which we expect to range from
$31.7 million to $39.2 million per vessel. We expect
to satisfy the purchase price by assuming the existing vessel
financing, although we may be required to obtain separate debt
or equity financing to complete the purchases if the lenders do
not consent to our assuming the financing obligations. We are
also obligated to purchase one of our existing LNG carriers upon
the termination of the related capital leases on
December 31, 2011. The purchase obligation has been fully
funded with restricted cash deposits.
(4)
Existing restricted cash deposits
of $480.4 million, together with the interest earned on the
deposits, will be sufficient to repay the remaining amounts we
currently owe under the lease arrangements.
(5)
We have corresponding leases
whereby we are the lessor and expect to receive
$455 million for these leases from the remainder of 2009 to
2029.
(6)
Represents remaining construction
costs (excluding capitalized interest and miscellaneous
construction costs) for four shuttle tankers, one Suezmax
tanker, and four LPG carriers.
(7)
Euro-denominated obligations are
presented in U.S. Dollars and have been converted using the
prevailing exchange rate as of September 30, 2009.
(8)
Excludes expected interest payments
of $2.0 million (balance of 2009), $10.1 million (2010
and 2011), $4.9 million (2012 and 2013) and
$15.3 million (beyond 2013). Expected interest payments are
based on EURIBOR at September 30, 2009, plus margins that
ranged up to 0.66%, as well as the prevailing U.S. Dollar/Euro
exchange rate as of September 30, 2009. The expected
interest payments do not reflect the effect of related interest
rate swaps that we have used as an economic hedge of certain of
our floating-rate debt.
(9)
Existing restricted cash deposits
of $159.1 million, together with the interest earned on the
deposits, are expected to equal the remaining amounts we owe
under the lease arrangement, including our obligation to
purchase the vessel at the end of the lease term.
We also have a 33% interest in a consortium that has entered
into agreements for the construction of four LNG carriers. As at
September 30, 2009, the remaining commitments on these
vessels, excluding capitalized interest and other miscellaneous
construction costs, totaled $906.0 million, of which our
share was $299.0 million. Please read Note 11(b) to
our consolidated financial statements.
Off-balance sheet
arrangements
We have no off-balance sheet arrangements that have or are
reasonably likely to have, a current or future material effect
on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Critical
accounting estimates
We prepare our consolidated financial statements in accordance
with GAAP, which require us to make estimates in the application
of our accounting policies based on our best assumptions,
judgments and opinions. On a regular basis, management reviews
the accounting policies, assumptions, estimates and judgments to
ensure that our consolidated financial statements are presented
fairly and in accordance with GAAP. However, because future
events and their effects cannot be determined with certainty,
actual results could differ from our assumptions and estimates,
and such differences could be material. Accounting estimates and
assumptions discussed below are those that we consider to be the
most critical to an understanding of our financial statements
because they inherently involve significant judgments and
uncertainties. For a further description of our material
accounting policies, please read Note 1 to our consolidated
financial statements.
Description. We generate a majority of our revenues
from spot voyages and voyages servicing contracts of
affreightment. Within the shipping industry, the two methods
used to account for revenues and expenses are the percentage of
completion and the completed voyage methods. Most shipping
companies, including us, use the percentage of completion
method. For each method, voyages may be calculated on either a
load-to-load
or
discharge-to-discharge
basis. In other words, revenues are recognized ratably either
from the beginning of when product is loaded for one voyage to
when it is loaded for another voyage, or from when product is
discharged (unloaded) at the end of one voyage to when it is
discharged after the next voyage. We recognize revenues from
time-charters daily over the term of the charter as the
applicable vessel operates under the charter. Revenues from FPSO
service contracts are recognized as service is performed. In all
cases we do not recognize revenues during days that a vessel is
off-hire.
Judgments and Uncertainties. In applying the
percentage of completion method, we believe that in most cases
the
discharge-to-discharge
basis of calculating voyages more accurately reflects voyage
results than the
load-to-load
basis. At the time of cargo discharge, we generally have
information about the next load port and expected discharge
port, whereas at the time of loading we are normally less
certain what the next load port will be. We use this method of
revenue recognition for all spot voyages and voyages servicing
contracts of affreightment, with an exception for our shuttle
tankers servicing contracts of affreightment with offshore oil
fields. In this case a voyage commences with tendering of notice
of readiness at a field, within the agreed lifting range, and
ends with tendering of notice of readiness at a field for the
next lifting. However we do not begin recognizing revenue for
any of our vessels until a charter has been agreed to by the
customer and us, even if the vessel has discharged its cargo and
is sailing to the anticipated load port on its next voyage.
Effect if Actual Results Differ from
Assumptions. Our revenues could be overstated or
understated for any given period to the extent actual results
are not consistent with our estimates in applying the percentage
of completion method.
Vessel lives and
impairment
Description. The carrying value of each of our
vessels represents its original cost at the time of delivery or
purchase less depreciation or impairment charges. We depreciate
our vessels on a straight-line basis over each vessel’s
estimated useful life, less an estimated residual value. The
carrying values of our vessels may not represent their fair
market value at any point in time because the market prices of
second-hand vessels tend to fluctuate with changes in charter
rates and the cost of newbuildings. Both charter rates and
newbuilding costs tend to be cyclical in nature. We review
vessels and equipment for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may
not be recoverable. We measure the recoverability of an asset by
comparing its carrying amount to future undiscounted cash flows
that the asset is expected to generate over its remaining useful
life.
Judgments and Uncertainties. Depreciation is
calculated using an estimated useful life of 25 years for
Aframax, Suezmax, and product tankers, 25 to 30 years for
FPSO units and 35 years for LNG and LPG carriers,
commencing the date the vessel was originally delivered from the
shipyard. However, the actual life of a vessel may be different,
with a shorter life resulting in an increase in the quarterly
depreciation and potentially resulting in an impairment loss.
The
estimates and assumptions regarding expected cash flows require
considerable judgment and are based upon existing contracts,
historical experience, financial forecasts and industry trends
and conditions. With the exception of the Foinaven FPSO unit, we
are not aware of any indicators of impairments nor any
regulatory changes or environmental liabilities that we
anticipate will have a material impact on our current or future
operations.
We have been advised that the Foinaven FPSO unit is now expected
to remain on station at the Foinaven field beyond 2010. A
portion of the revenue we receive under the related FPSO
contract is based on the amount of oil processed by this unit.
Making such long-range estimates of oil field production
requires significant judgment, and we rely on the information
provided by the operator of the field and other sources for this
information. The Foinaven contract provides for an adjustment to
the amount paid to us in connection with the Foinaven FPSO unit,
and we have requested an adjustment of the amounts payable to us
under the terms of that provision. Our cash flow projections
relating to this FPSO unit are based on our assessment of the
likely outcome of discussions with the other party to the
contract about these adjustments. While we anticipate certain
increases to the rates we will receive under this contract,
should there be a negative outcome to these discussions, we
would likely need to complete an additional impairment test on
the vessel. This could result in our having to write-down some
of the carrying value of the vessel, which could be significant
in amount.
Effect if Actual Results Differ from Assumptions. If
we consider a vessel or equipment to be impaired, we recognize a
loss in an amount equal to the excess of the carrying value of
the asset over its fair market value. The new lower cost basis
will result in a lower annual depreciation expense than before
the vessel impairment.
Drydocking
Description. We capitalize a substantial portion of
the costs we incur during drydocking and amortize those costs on
a straight-line basis from the completion of a drydocking or
intermediate survey to the estimated completion of the next
drydocking. We include in capitalized drydocking those costs
incurred as part of the drydocking to meet regulatory
requirements, or are expenditures that either add economic life
to the vessel, increase the vessel’s earnings capacity or
improve the vessel’s efficiency. We expense costs related
to routine repairs and maintenance performed during drydocking
that do not improve or extend the useful lives of the assets and
for annual class survey costs on our FPSO units. When
significant drydocking expenditures occur prior to the
expiration of the original amortization period, the remaining
unamortized balance of the original drydocking cost and any
unamortized intermediate survey costs are expensed in the period
of the subsequent drydocking.
Judgments and Uncertainties. Amortization of
capitalized drydock expenditures requires us to estimate the
period of the next drydocking. While we typically drydock each
vessel every two and a half to five years and have a shipping
society classification intermediate survey performed on our LNG
and LPG carriers between the second and third year of the
five-year drydocking period, we may drydock the vessels at an
earlier date.
Goodwill and
intangible assets
Description. We allocate the cost of acquired
companies to the identifiable tangible and intangible assets and
liabilities acquired, with the remaining amount being classified
as goodwill. Certain intangible assets, such as time-charter
contracts, are being amortized over
time. Our future operating performance will be affected by the
amortization of intangible assets and potential impairment
charges related to goodwill. Accordingly, the allocation of
purchase price to intangible assets and goodwill may
significantly affect our future operating results. Goodwill and
indefinite-lived assets are not amortized, but reviewed for
impairment annually, or more frequently if impairment indicators
arise. The process of evaluating the potential impairment of
goodwill and intangible assets is highly subjective and requires
significant judgment at many points during the analysis.
Judgments and Uncertainties. The allocation of the
purchase price of acquired companies requires management to make
significant estimates and assumptions, including estimates of
future cash flows expected to be generated by the acquired
assets and the appropriate discount rate to value these cash
flows. In addition, the process of evaluating the potential
impairment of goodwill and intangible assets is highly
subjective and requires significant judgment at many points
during the analysis. The fair value of our reporting units was
estimated based on discounted expected future cash flows using a
weighted-average cost of capital rate. The estimates and
assumptions regarding expected cash flows and the appropriate
discount rates require considerable judgment and are based upon
existing contracts, historical experience, financial forecasts
and industry trends and conditions.
As of September 30, 2009, we had three reporting units with
goodwill attributable to them. During the third quarter of 2009,
we determined there were indicators of impairment present within
our shuttle tanker reporting unit. Consequently, an interim
goodwill impairment test was conducted on this reporting unit.
This interim goodwill impairment test determined that the fair
value of the reporting unit exceeded its carrying value by
approximately 75%. As of September 30, 2009, the carrying
value of goodwill for this reporting unit was
$130.9 million. Key assumptions that impact the fair value
of the reporting unit include our ability to do the following:
maintain or improve the utilization of our vessels; redeploy
existing vessels on the expiry of their current charters;
control or reduce operating expenses, pass on operating cost
increases to our customers in the form of higher charter rates;
and continue to grow the business. Other key assumptions include
the operating life of our vessels, our cost of capital, the
volume of production from certain offshore oil fields, and the
fair value of our credit facilities. If actual future results
are less favorable than expected results, in one or more of
these key assumptions, a goodwill impairment may occur.
We currently do not believe that there is a reasonable
possibility that the goodwill attributable to our remaining two
reporting units might be impaired during 2010.
However, certain factors that impact our goodwill impairment
tests are inherently difficult to forecast and as such we cannot
provide any assurances that an impairment will or will not occur
in the future. An assessment for impairment involves a number of
assumptions and estimates that are based on factors that are
beyond our control.
Valuation of
derivative financial instruments
Description. Our risk management policies permit the
use of derivative financial instruments to manage foreign
currency fluctuation, interest rate, bunker fuel price and spot
tanker market rate risk. Changes in fair value of derivative
financial instruments that are not designated as cash flow
hedges for accounting purposes are recognized in earnings.
Changes in fair value of derivative financial instruments that
are designated as cash flow hedges for accounting purposes are
recorded in other comprehensive income and are reclassified to
earnings when the
hedged transaction is reflected in earnings. Ineffective
portions of the hedges are recognized in earnings as they occur.
During the life of the hedge, we formally assess whether each
derivative designated as a hedging instrument continues to be
highly effective in offsetting changes in the fair value or cash
flows of hedged items. If it is determined that a hedge has
ceased to be highly effective, we will discontinue hedge
accounting prospectively.
Judgments and Uncertainties. The fair value of our
derivative financial instruments is the estimated amount that we
would receive or pay to terminate the agreements in an
arm’s length transaction under normal business conditions
at the reporting date, taking into account current interest
rates, foreign exchange rates, bunker fuel prices and spot
tanker market rates. Inputs used to determine the fair value of
our derivative instruments are observable either directly or
indirectly in active markets.
Effect if Actual Results Differ from Assumptions. If
our estimates of fair value are inaccurate, this could result in
a material adjustment to the carrying amount of derivative asset
or liability and consequently the change in fair value for the
applicable period that would have been recognized in earnings or
comprehensive income.
Recent accounting
pronouncements
In June 2009, the Financial Accounting Standards Board (or
FASB) issued Statement of Financial Accounting Standards
(or SFAS) No. 168, The FASB Accounting Standards
Codificationtm
and the Hierarchy of Generally Accepted Accounting
Principles—a replacement of FASB Statement No. 162.
SFAS No. 168 identifies the source of authoritative
GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (or SEC) under
authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date of
this Statement, SFAS No. 168 will supersede all
then-existing non-SEC accounting and reporting standards. All
other non-grandfathered non-SEC accounting literature not
included in the SFAS No. 168 will become
non-authoritative. This statement is effective for financial
statements issued for interim and annual periods ending after
September 15, 2009. We are currently assessing the
potential impact, if any, of this statement on our consolidated
financial statements.
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R) (or
SFAS No. 167). SFAS No. 167
eliminates FASB Interpretation 46(R)’s exceptions to
consolidating qualifying special-purpose entities, contains new
criteria for determining the primary beneficiary, and increases
the frequency of required reassessments to determine whether a
company is the primary beneficiary of a variable interest
entity. SFAS No. 167 also contains a new requirement
that any term, transaction, or arrangement that does not have a
substantive effect on an entity’s status as a variable
interest entity, a company’s power over a variable interest
entity, or a company’s obligation to absorb losses or its
right to receive benefits of an entity must be disregarded in
applying FASB Interpretation 46(R)’s provisions. The
elimination of the qualifying special-purpose entity concept and
its consolidation exceptions means more entities will be subject
to consolidation assessments and reassessments.
SFAS No. 167 is effective for fiscal years beginning
after November 15, 2009, and for interim periods within
that first period, with earlier adoption prohibited. We are
currently assessing the potential impact, if any, of this
statement on our consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166,
Accounting for Transfers of Financial Assets—an
amendment of FASB Statement No. 140.
SFAS No. 166 eliminates the concept of a qualifying
special-purpose entity, creates more stringent conditions for
reporting a transfer of a portion of
a financial asset as a sale, clarifies other sale-accounting
criteria, and changes the initial measurement of a
transferor’s interest in transferred financial assets.
SFAS No. 166 will be effective for transfers of
financial assets in fiscal years beginning after
November 15, 2009, and in interim periods within those
fiscal years with earlier adoption prohibited. We are currently
assessing the potential impacts, if any, on our consolidated
financial statements.
In April 2009, the FASB issued
SFAS 115-2
and
SFAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments. This statement changes existing accounting
requirements for
other-than-temporary
impairment.
SFAS 115-2
is effective for interim and annual periods ending after
June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. We are currently evaluating
the potential impact, if any, of the adoption of
SFAS 115-2
on our consolidated results of operations and financial
condition.
In April 2009, the FASB issued
SFAS 157-4,
Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability has Significantly Decreased and
Identifying Transactions that are Not Orderly.
SFAS 157-4
amends SFAS 157, Fair Value Measurements to provide
additional guidance on estimating fair value when the volume and
level of transaction activity for an asset or liability have
significantly decreased in relation to normal market activity
for the asset or liability.
SFAS 157-4
also provides additional guidance on circumstances that may
indicate that a transaction is not orderly.
SFAS 157-4
supersedes
SFAS 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active. The guidance in
SFAS 157-4
is effective for interim and annual reporting periods ending
after June 15, 2009. Early adoption is permitted, but only
for periods ending after March 15, 2009. We are currently
evaluating the potential impact, if any, of the adoption of
SFAS 157-4
on our consolidated results of operations and financial
condition.
In April 2009, the FASB issued
SFAS 107-1
and APB
28-1,
Interim Disclosures About Fair Value of Financial
Instruments.
SFAS 107-1
extends the disclosure requirements of SFAS 107,
Disclosures about Fair Value of Financial Instruments to
interim financial statements of publicly traded companies as
defined in APB Opinion No. 28, Interim Financial
Reporting.
SFAS 107-1
is effective for interim reporting periods ending after
June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. We are currently evaluating
the potential impact, if any, of the adoption of
SFAS 107-1
on our consolidated results of operations and financial
condition.
In April 2009, the FASB issued SFAS 141(R)-1, Accounting
for Assets Acquired and Liabilities Assumed in a Business
Combination that Arise from Contingencies. This statement
amends SFAS 141, Business Combinations, to require
that assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair
value, in accordance with SFAS 157, if the fair value can
be determined during the measurement period. SFAS 141(R)-1
is effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We are
currently evaluating the potential impact, if any, of the
adoption of SFAS 141(R)-1 on our consolidated results of
operations and financial condition.
In October 2008, the FASB issued
SFAS No. 157-3,
Determining the Fair Value of a Financial Asset in a Market
That Is Not Active, which clarifies the application of
SFAS 157 when the market for a financial asset is inactive.
Specifically,
SFAS No. 157-3
clarifies how (1) management’s internal assumptions
should be considered in measuring fair value when observable
data are not present, (2) observable market information
from an inactive market should be taken into account, and
(3) the use of broker quotes or pricing services should be
considered in assessing the relevance of observable and
unobservable data to measure fair value. The guidance in
SFAS No. 157-3
is effective immediately but does not have any impact on our
consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of Statement of Financial Accounting
Standards No. 133 (or SFAS 161). The
statement requires qualitative disclosures about an
entity’s objectives and strategies for using derivatives
and quantitative disclosures about how derivative instruments
and related hedged items affect an entity’s financial
position, financial performance and cash flows. SFAS 161 is
effective for fiscal years, and interim periods within those
fiscal years, beginning after November 15, 2008, with early
application allowed. SFAS 161 allows but does not require,
comparative disclosures for earlier periods at initial adoption.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (or SFAS 141(R)), which
replaces SFAS No. 141, Business Combinations.
This statement establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141(R) also establishes disclosure
requirements to enable the evaluation of the nature and
financial effects of the business combination. SFAS 141(R)
is effective for fiscal years beginning after December 15,2008. We are currently evaluating the potential impact, if any,
of the adoption of SFAS 141(R) on our consolidated results
of operations and financial condition.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of Accounting Research
Bulletin No. 51 (or SFAS 160). This
statement establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than
the parent, the amount of consolidated net income attributable
to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest, and the valuation of retained
noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners. SFAS 160 is effective for fiscal years beginning
after December 15, 2008. We are currently evaluating the
potential impact, if any, of the adoption of SFAS 160 on
our consolidated results of operations and financial condition.
Accounting
pronouncements not yet adopted
In August 2009, the FASB issued an amendment to FASB ASC 820,
Fair Value Measurements and Disclosures that clarifies
the fair value measurement requirements for liabilities that
lack a quoted price in an active market and provides clarifying
guidance regarding the consideration of restrictions when
estimating the fair value of a liability. This amendment became
effective for us on October 1, 2009. We are currently
assessing the potential impacts, if any, on our consolidated
financial statements.
In September 2009, the FASB issued an amendment to FASB ASC 605,
Revenue Recognition that provides for a new methodology
for establishing the fair value for a deliverable in a
multiple-element arrangement. When vendor specific objective or
third-party evidence for deliverables in a multiple-element
arrangement cannot be determined, we will be required to develop
a best estimate of the selling price of separate deliverables
and to allocate the arrangement consideration using the relative
selling price method. This amendment will be effective for us on
January 1, 2010. We are currently assessing the potential
impacts, if any, on our consolidated financial statements.
Quantitative and
qualitative disclosures about market risk
We are exposed to market risk from foreign currency fluctuations
and changes in interest rates. We use foreign currency forward
contracts and interest rate swaps, to manage currency and
interest rate risks but do not use these financial instruments
for trading or speculative purposes.
Foreign currency
fluctuation risk
Our primary economic environment is the international shipping
market. This market utilizes the U.S. Dollar as its
functional currency. Consequently, a substantial majority of our
revenues and most of our operating costs are in
U.S. Dollars. We incur certain voyage expenses, vessel
operating expenses, drydocking and overhead costs in foreign
currencies, the most significant of which are the Singapore
Dollar, Canadian Dollar, Australian Dollar, British Pound, Euro
and Norwegian Kroner.
We reduce our exposure to this risk by entering into foreign
currency forward contracts. In most cases we hedge a substantial
majority of our net foreign currency exposure for the following
12 months. We generally do not hedge our net foreign
currency exposure beyond three years forward.
Contract amounts and fair value
amounts in millions of U.S. Dollars.
(2)
Average contractual exchange rate
represents the contractual amount of foreign currency one U.S.
Dollar will buy.
Although the majority of our transactions, assets and
liabilities are denominated in U.S. Dollars, certain of our
subsidiaries have foreign currency-denominated liabilities.
There is a risk that currency fluctuations will have a negative
effect on the value of our cash flows. We have not entered into
any forward contracts to protect against the translation risk of
our foreign currency-denominated liabilities. As at
September 30, 2009, we had Euro-denominated term loans of
290.1 million Euros ($424.8 million) included in
long-term debt and Norwegian Kroner-denominated deferred income
taxes of approximately 147.2 million ($25.5 million).
We receive
Euro-denominated revenue from certain of our time-charters.
These Euro cash receipts generally are sufficient to pay the
principal and interest payments on our Euro-denominated term
loans. Consequently, we have not entered into any foreign
currency forward contracts with respect to our Euro-denominated
term loans, although there is no assurance that our exposure to
fluctuations in the Euro will not increase in the future.
Interest rate
risk
We are exposed to the impact of interest rate changes primarily
through our borrowings that require us to make interest payments
based on LIBOR or EURIBOR. Significant increases in interest
rates could adversely affect our operating margins, results of
operations and our ability to repay our debt. We use interest
rate swaps to reduce our exposure to market risk from changes in
interest rates. Generally our approach is to hedge a substantial
majority of floating-rate debt associated with our vessels that
are operating on long-term fixed-rate contracts. We manage the
rest of our debt based on our outlook for interest rates and
other factors.
In order to minimize counterparty risk, we only enter into
derivative transactions with counterparties that are rated A-or
better by Standard & Poor’s or A3 or better by
Moody’s at the time of the transactions. In addition, to
the extent possible and practical, interest rate swaps are
entered into with different counterparties to reduce
concentration risk.
The table below provides information about our financial
instruments at September 30, 2009, which are sensitive to
changes in interest rates, including our debt and capital lease
obligations and interest rate swaps. For long-term debt and
capital lease obligations, the table presents principal cash
flows and related weighted-average interest rates by expected
maturity dates. For interest rate swaps, the table presents
notional amounts and weighted-average interest rates by expected
contractual maturity dates.
Rate refers to the weighted-average
effective interest rate for our long-term debt and capital lease
obligations, including the margin we pay on our floating-rate
debt and the average fixed pay rate for our interest rate swap
agreements. The average interest rate for our capital lease
obligations is the weighted-average interest rate implicit in
our lease obligations at the inception of the leases. The
average fixed pay rate for our interest rate swaps excludes the
margin we pay on our floating-rate debt, which as of
September 30, 2009 ranged from 0.3% to 3.25%.
Interest payments on U.S.
Dollar-denominated debt and interest rate swaps are based on
LIBOR.
(3)
Interest payments on
Euro-denominated debt and interest rate swaps are based on
EURIBOR.
(4)
Euro-denominated amounts have been
converted to U.S. Dollars using the prevailing exchange rate as
of September 30, 2009.
(5)
Excludes capital lease obligations
(present value of minimum lease payments) of 107.2 million
Euros ($156.9 million) on one of our existing LNG carriers
with a weighted-average fixed interest rate of 5.8%. Under the
terms of this fixed-rate lease obligation, we are required to
have on deposit, subject to a weighted-average fixed interest
rate of 5.0%, an amount of cash that, together with the interest
earned thereon, will fully fund the amount owing under the
capital lease obligation, including a vessel purchase
obligation. As at September 30, 2009, this amount was
108.6 million Euros ($159.1 million). Consequently, we
are not subject to interest rate risk from these obligations or
deposits.
(6)
Under the terms of the capital
leases for three LNG carriers, we are required to have on
deposit, subject to a variable rate of interest, an amount of
cash that, together with interest earned on the deposit, will
equal the remaining amounts owing under the leases. The
deposits, which as at September 30, 2009 totaled
$480.4 million, and the lease obligations, which as at
September 30, 2009 totaled $470.1 million, have been
swapped for fixed-rate deposits and fixed-rate obligations.
Consequently, we are not subject to interest rate risk from
these obligations and deposits and, therefore, the lease
obligations, cash deposits and related interest rate swaps have
been excluded from the table above. As at September 30,2009, the contract amount, fair value and fixed interest rates
of these interest rate swaps related to the capital lease
obligations and restricted cash deposits for the three LNG
carriers were $460.5 million and $474.6 million,
$(62.1) million and $76.4 million, and 4.9% and 4.8%,
respectively.
(7)
The amount of capital lease
obligations represents the present value of minimum lease
payments together with our purchase obligation, as applicable.
(8)
The average interest rate is the
weighted-average interest rate implicit in the capital lease
obligations at the inception of the leases.
(9)
The average variable receive rate
for our interest rate swaps is set monthly at the
1-month
LIBOR or EURIBOR, quarterly at the
3-month
LIBOR or semi-annually at the
6-month
LIBOR.
(10)
Includes interest rate swaps of
$300.0 million and $200.0 million that have
commencement dates of 2010 and 2011, respectively.
We are a leading provider of international crude oil and gas
marine transportation services, and transport approximately 10%
of the world’s seaborne oil, primarily under
long-term,
fixed-rate contracts. We also offer offshore floating oil
production, storage and off-loading services. With an owned and
in-chartered fleet of 158 vessels (including 11
newbuildings), offices worldwide and approximately 6,300
seagoing and shore-based employees, we provide comprehensive
marine services to the world’s leading oil and gas
companies, helping them link their upstream energy production to
their downstream operations.
We are a market leader in each of the segments in which we
operate. We are the third largest independent owner of LNG
carriers, with a fleet of 19 vessels (including four
newbuildings) in addition to six LPG carriers (including three
LPG newbuildings). With a fleet of 39 shuttle tankers (including
four newbuildings), we are the world’s largest independent
owner and operator of shuttle tankers and control over 50% of
the worldwide shuttle tanker fleet. We are also one of the
largest owners and operators of FPSO units in the North Sea,
with four owned units currently operating in that region, in
addition to a fifth owned FPSO unit operating off the coast of
Brazil. During 2009, our FPSO units produced an average of
approximately 95,000 barrels of oil per day under long-term
contracts. With our fleet of 83 crude oil and petroleum product
tankers, we are the largest owner and operator of mid-size
conventional oil tankers. For the 12 months ended
September 30, 2009, our total fleet generated revenues of
approximately $2.4 billion, net revenues of approximately
$2.0 billion, net loss of approximately $560.4 million and
Adjusted EBITDA of $617.2 million. Please read
“Summary—Summary financial and operating data”
for reconciliations of our revenues to net revenues and of our
net loss to Adjusted EBITDA.
Our customers include major international oil, energy and
utility companies such as BP plc, Chevron Corporation,
ConocoPhillips, ExxonMobil Corporation, Petrobras, Ras Laffan
Liquified Natural Gas Company Ltd. (a joint venture between
ExxonMobil Corporation and the Government of Qatar), Repsol YPF
S.A., Shell, Statoil ASA, Talisman Energy, Inc. and Total S.A.
We believe that customers partner with us for logistically
complex projects under long-term, fixed-rate contracts due to
our extensive capabilities, diverse service offerings, global
operations platform, financial stability and high quality fleet
and customer service. As of December 31, 2009, 37 of our
contracts with customers exceeded 10 years in duration,
excluding options to extend.
Over the past decade, we have transformed from being primarily
an owner of ships in the cyclical spot tanker sector to being a
diversified supplier of logistics services in the “Marine
Midstream” sector. This transformation has included, among
other things:
•
Our entry into the LNG and LPG shipping sectors and into the
offshore oil production, storage and transportation sectors;
•
The reorganization of certain of our assets through our
formation of three
publicly-traded
subsidiaries, which are focused on growing specific core
operating segments and have expanded our investor base and
access to the capital markets; and
•
Expansion of our fixed-rate businesses. For the
12 months ended September 30, 2009, net revenues from
fixed-rate contracts with an initial term of at least three
years represented 69% of our total net revenues, compared to 41%
of total net revenues in 2003. For the 12 months
ended September 30, 2009, net revenues from fixed-rate
contracts with an initial term of at least one year represented
approximately 75% of our total net revenues. As of December31, 2009, we had under contract a total of approximately
$11.5 billion of forward, fixed-rate revenue, with a
weighted-average remaining term of approximately 10.3 years
(excluding options to extend).
Our three publicly-traded subsidiaries include: Teekay LNG
(NYSE: TGP), which we formed in 2005 and primarily operates in
the LNG and LPG shipping sectors; Teekay Offshore (NYSE: TOO),
which we formed in 2006 and primarily operates in the offshore
oil production, storage and transportation sectors; and Teekay
Tankers (NYSE: TNK), which we formed in 2007 and engages in the
conventional tanker business. Teekay Parent, which essentially
includes all our operations other than those of our
publicly-traded subsidiaries, manages substantially all of the
vessels in the total Teekay fleet and itself owns or in-charters
a fleet of 65 vessels (including eight newbuildings),
comprised of 52 conventional tankers, four FPSO units and one
FSO unit.
Through our flexible corporate structure, we have access to the
debt and equity capital markets to grow each of our core
businesses. Through vessel sales by Teekay Parent to its
publicly-traded subsidiaries and public equity financing of such
acquisitions by those subsidiaries, Teekay Parent has
significantly reduced its net debt during the 12 months
ended September 30, 2009 by approximately
$300 million. In November 2009, Teekay Parent further
reduced its net debt by repaying $160 million under one of
its revolving credit facilities, using funds repaid to it by
Teekay Offshore. As our publicly-traded subsidiaries continue to
issue equity to finance their growth, structural mechanisms,
including Teekay Parent’s ownership of the sole general
partnership interests in Teekay LNG and Teekay Offshore and its
100% ownership of Teekay Tankers’ supervoting Class B
shares, provide Teekay Parent with a significant level of
control over these entities. Certain of Teekay’s officers
and directors are also officers and directors of the
publicly-traded subsidiaries or, as applicable, their general
partners. Please read “Certain relationships and related
party transactions.” Distributions Teekay Parent receives
from these subsidiaries as well as cash flow generated by assets
owned by Teekay Parent have further reduced its debt level.
Please see “—Organizational structure” for
further information about our corporate structure.
Although our corporate structure includes our three
publicly-traded subsidiaries, our operations are divided into
the following segments: the liquefied gas segment; the shuttle
tanker and FSO segment; the FPSO segment and the conventional
tanker segment (which we further divide into the fixed-rate
tanker segment and the spot tanker segment).
Our liquefied gas segment includes our LNG and LPG operations,
with all delivered vessels currently owned by Teekay LNG. All of
our LNG and LPG carriers operate under long-term, fixed-rate
time-charter contracts, with an average remaining term of
approximately 17.2 years as of December 31, 2009
(excluding options to extend). This fleet totaled 25 carriers,
including seven newbuildings on order, as of December 31,2009.
Our FPSO segment includes five FPSO units, four of which are
owned by Teekay Parent and one by Teekay Offshore. All of these
units operate under long-term fixed-rate contracts. As of
December 31, 2009, the average remaining term for our FPSO
contracts was approximately 4.5 years (excluding options to
extend).
Our shuttle tanker and FSO segment includes our shuttle tankers
and FSO units, all of which generally operate under long-term,
fixed-rate contracts. As of December 31, 2009, this fleet
consisted of 39 shuttle tankers (including four newbuildings and
eight in-chartered vessels), with contracts with an average
remaining term of approximately 4.3 years (excluding
options to extend), and six FSO units, with contracts with an
average remaining term of approximately 4.9 years
(excluding options to extend). All of the shuttle tankers and
FSO units are owned or operated by Teekay Offshore, except for
four Aframax newbuilding shuttle tankers on order and one FSO
unit, which are owned by Teekay Parent. Our shuttle tanker
fleet, including newbuildings on order, has a total capacity of
approximately 4.7 million deadweight tonnes (or dwt)
and represents more than 50% of the total world shuttle tanker
fleet.
Our conventional tanker segment included 73 crude oil tankers
and 10 product tankers, representing the world’s
largest fleet of mid-size conventional oil tankers. Of this
fleet, 52 tankers are owned or operated by Teekay Parent and
31 tankers are owned by Teekay Tankers, Teekay LNG or
Teekay Offshore. As of December 31, 2009, we had 42
conventional tankers employed on fixed-rate time charters, with
an average remaining term of approximately 4.8 years
(excluding options to extend). The remainder of our conventional
tanker fleet operated in the spot tanker market as of
December 31, 2009.
In our conventional tanker segment, we have developed a flexible
commercial operating platform. Certain of our vessels in the
spot tanker segment operate pursuant to commercial pooling
arrangements which include our and third party vessels and are
managed either solely or jointly by us. We believe the size and
scope of our commercial pooling arrangements enhance our ability
to secure backhaul voyages, which improves pool vessel
utilization and generates higher effective TCE rates per vessel
than might otherwise be obtained in the spot market, while
providing certain cost efficiencies and a higher overall service
level to customers. As of December 31, 2009, an additional
27 tankers controlled by third parties operated in our
commercial pools thereby increasing our overall footprint in the
conventional tanker sector from 83 to 110 vessels.
Our size, reputation and operational capabilities provide
opportunities for us to in-charter third party vessels to our
fleet. This flexibility allows us to expand our spot market
fleet size or, by not renewing in-charters, reduce the fleet
size in response to market conditions. Since the fourth quarter
of 2008, we have taken steps to reduce our exposure to the
weakening spot tanker market, including redelivering
in-chartered vessels, chartering out vessels on fixed-rate
time-charter contracts and selling certain spot traded vessels.
As a result, we reduced our quarterly
in-charter
hire expense by approximately $60 million for the quarter
ended September 30, 2009 compared to the quarter ended
September 30, 2008. Recent initiatives reduced our
aggregate quarterly general and administrative and vessel
operating expenses by $24 million, or approximately 11%,
for the quarter ended September 30, 2009 compared to the
quarter ended September 30, 2008.
Please read “—Operations” for additional
information about or business segments.
Our competitive
strengths
Market leadership in all business segments. We are a
market leader in each of the segments in which we operate.
Teekay LNG is the third largest independent owner of LNG
carriers. We are the world’s largest independent owner and
operator of shuttle tankers and control over 50% of the world
shuttle tanker fleet. We are also the largest owner and operator
of FPSO units in the North Seas, with four units currently
operating in that region, and a fifth FPSO unit operating off
the coast of Brazil. In addition, we are the largest owner and
operator of mid-sized conventional oil
tankers. We believe our position as a market leader in these
segments enhances our reputation, which, together with the
scale, diversity and quality of our operations, provides us with
further opportunities to retain and increase our market position.
Increased operating and financial stability through
long-term, fixed-rate contracted revenue. Over the past
decade, we have diversified our revenue and cash flow mix beyond
the cyclical spot tanker market and significantly increased the
amount and proportion of fixed-rate revenue. For the
12 months ended September 30, 2009,
approximately 75% of our total net revenue was derived from
fixed-rate contracts with an initial term of at least one year.
As of December 31, 2009, approximately 83% of our total
fleet operating days (on a ship equivalent basis) for 2010 were
subject to fixed-rate contracts with an initial term of at least
three years. As of December 31, 2009, we had under contract a
total of approximately $11.5 billion of forward, fixed-rate
revenue with a weighted-average remaining term of approximately
10.3 years (excluding options to extend).
Strong credit profile, liquidity position and cash
flows. Our focus on fixed-rate contracts has enabled us
to secure significant recurring revenue and cash flows. As of
September 30, 2009, approximately 79% of our consolidated
total debt was being serviced by assets operating under
long-term, fixed-rate contracts. After giving effect to (a)
this offering and our intended use of the net offering proceeds
us described in “Use of proceeds” and (b) the use of
$90 million of net proceeds from Teekay LNG’s November 2009
public offering of common units to repay indebtedness under one
of its revolving credit facilities, of our $5.3 billion in
consolidated debt as of September 30, 2009 ($4.6 billion net of
restricted cash) approximately $4.2 billion
($3.6 billion net of restricted cash) was attributable to
our three public company subsidiaries, of which approximately
83% (93% net of restricted cash) is non-recourse to Teekay
Parent. As of December 31, 2009, and after giving effect to
this offering and the intended use of the net offering proceeds,
we would have had approximately $2.1 billion of available
liquidity, consisting of cash on hand and undrawn revolving
credit facilities, with approximately $1.1 billion of this
liquidity at the Teekay Parent level. In addition, credit
facilities are currently in place to cover 98% of our current
newbuilding capital expenditure commitments. After giving effect
to this offering and the intended use of the net offering
proceeds, as of December 31, 2009, we would have had
scheduled balloon debt repayments of $0 million,
$265 million, $0 million and $388 million in
2010, 2011, 2012 and 2013, respectively. Although we have
liquidity and cash flow to support a significant amount of our
debt obligations, we generally plan to refinance our credit
facilities in advance of their maturities. During the
12 months ended September 30, 2009, Teekay Parent
reduced its net debt by approximately $300 million and its
newbuilding capital commitments by nearly $350 million,
primarily as a result of vessel sales to its publicly-traded
subsidiaries (which were financed partially with equity
offerings by each subsidiary), other vessel dispositions and
cash flow generated from operations. In November 2009,
Teekay Parent further reduced its net debt by repaying $160
million under one of its revolving credit facilities using funds
repaid to it by Teekay Offshore.
Flexible corporate structure with increased access to capital
markets. Three of our subsidiaries, Teekay LNG, Teekay
Offshore and Teekay Tankers, are publicly-traded entities with
structural features that provide Teekay Parent with a
significant level of control over them. Our long-term objective
is to continue to grow each of these subsidiaries through
accretive acquisitions, primarily through vessel sales to them
by Teekay Parent, and further reinforce market leadership within
each sector in which these subsidiaries operate. Including the
initial public offerings of Teekay LNG, Teekay Offshore and
Teekay Tankers in May 2005, December 2006 and December 2007,
respectively, and subsequent public offerings, we have raised
over $1.3 billion in public equity through these
subsidiaries, which they primarily used to fund vessel
acquisitions from Teekay Parent. Teekay Parent has used these
sales proceeds primarily to prepay debt. In
addition, Teekay Parent is entitled to cash distributions on its
general and limited partnership interests in Teekay LNG and
Teekay Offshore and on its equity interest in Teekay Tankers.
Teekay Parent also has certain rights to receive increasing
percentages of cash distributions from these entities to the
extent per unit or per share distributions increase as a result
of accretive acquisitions or otherwise, which may further
enhance Teekay Parent’s cash flow.
Strong, long-term relationships with high credit quality
customers. We have developed strong relationships with
our customers, which include major international oil, energy and
utility companies such as BP plc, Chevron Corporation,
ConocoPhillips, ExxonMobil Corporation, Petrobras, Ras Laffan
Liquified Natural Gas Company Ltd. (a joint venture between
ExxonMobil Corporation and the Government of Qatar), Repsol YPF
S.A., Shell, Statoil ASA, Talisman Energy, Inc. and Total S.A.
We have never experienced a material default by a customer under
a long-term, fixed-rate contract. We attribute the strength of
our customer relationships, and the opportunity to partner with
our customers on many long-term, logistically complex projects,
to the diversity and depth of our service offerings, our
reputation for consistent delivery of high-quality services and
our financial stability. As of December 31, 2009, we had 37
customer contracts with terms exceeding 10 years, excluding
options to extend.
Scale, diversity and high quality of service
offerings. The size of, and broad range of vessel types
in, our fleet of 158 vessels permit us to offer to
customers a comprehensive range of midstream logistics services,
including ship-based transportation, production and storage
options. This has contributed to our playing an increasingly
prominent role in our customers’ logistics chains by
positioning us as a “one-stop-shop” for these services
and providing economies of scale. We believe we are an industry
leader in safety and environmental standards. We benefit from
higher quality control over commercial and technical management
due to our expertise in and ability to perform all significant
functions in-house, such as operational and technical support,
tanker maintenance, crewing, shipyard supervision, insurance and
financial management services.
Experienced management team. The members of
Teekay’s senior management team have on average more than
20 years of experience in the shipping industry, including
an average of approximately 11 years with Teekay. Our
executives have experience managing through multiple economic
cycles and expertise across commercial, technical, financial and
other functional management areas of our business, which helps
promote a focused marketing effort, stringent quality and cost
controls, and effective operations and safety monitoring.
Our business
strategy
Maintain segment leading positions through increased customer
adoption of our diversified service offerings and fleet
growth. We offer to our customers a
“one-stop-shop” for a comprehensive range of midstream
marine logistical services. We have over 30 years
experience in the oil tanker business and maintain worldwide
operations. Since 2004, we have expanded our service offerings
to include ship-based oil production and storage and marine
transportation of LNG and LPG. Many of our customers use more
than one of the types of major services we offer. By pursuing
new customer relationships and leveraging existing
relationships, we seek to continue to increase customer adoption
of our diversified service offerings. We intend to continue to
grow our fleet by pursuing growth opportunities through Teekay
Parent and our publicly-traded subsidiaries. We also intend to
maintain our leadership positions in the segments in which we
operate by leveraging our established reputation for maintaining
high standards of performance, reliability and safety.
Maintain a balanced chartering strategy to increase cash
flow. We will continue to focus on entering into
long-term, fixed-rate contracts with customers and expect that
these contracts will continue to generate a substantial majority
of our revenues and cash flows. We plan to continue to maintain
some of our vessels in the spot market in order to take
advantage of ongoing market opportunities. Our size, reputation
and operational capabilities also provide opportunities for us
to in-charter third party vessels, including vessels that may
trade on the spot market. This provides us flexibility in
expanding or, by not renewing in-charters, reducing our fleet
size, in response to market conditions. In addition, through
participating in and managing commercial pools of vessels, we
seek to increase returns on our spot fleet and provide
additional resources to our customers, without the need for
additional capital investments.
Continue to increase cash flows and improve our financial
position. We intend to continue to improve our cash
flows and financial condition while capitalizing on attractive
growth opportunities. As part of this strategy, Teekay Parent
intends to continue to offer to sell additional vessels from
time to time to its publicly-traded subsidiaries. We anticipate
that these transactions, if accepted by the subsidiaries, will
help Teekay Parent monetize these assets and reduce its debt
level while maintaining operating control of the vessels through
existing management agreements. Teekay Parent also has certain
rights to receive increasing percentages of cash distributions
from these entities to the extent per unit or per share
distributions increase as result of accretive acquisitions or
otherwise. We also intend to continue the strategy we employed
throughout 2009 to increase profitability and cash flows
through, among other measures, seeking to recontract certain
FPSO units and shuttle tankers at more favorable rates and
carefully managing our general and administrative and vessel
operating expenses.
Expand offshore and gas operations in high growth
regions. We continually monitor expansion opportunities
in our existing and in new markets. In particular, we seek to
expand our FPSO and FSO and shuttle tanker operations in growing
offshore markets in which we currently operate, such as Brazil,
the North Sea and Australia, and we intend to pursue
opportunities in promising offshore markets where we do not
regularly operate, such as the Arctic, Eastern Canada, the Gulf
of Mexico, Africa, the Middle East and Southeast Asia. In
addition, we seek to capitalize on opportunities emerging from
the global expansion of the LNG and LPG sectors by selectively
targeting long-term, fixed-rate charters with high credit
quality customers.
Continue our focus on maintaining high quality,
cost-effective marine operations. Our operational focus
is to continue to be an industry leader in safety and risk
management, to maintain cost-effective operations, to ensure
high quality customer service with a large, diversified and
well-maintained asset base, and to employ well-trained onshore
and offshore staff. We believe achievement of these objectives
allows us to deliver superior services to our customers. We
apply key performance indicators to facilitate regular
monitoring of our operational performance. We intend to continue
to maintain all significant operating, commercial, technical and
administrative functions in-house to ensure stringent
operational and quality control. We believe these strategies
will enhance our ability to obtain repeat business from our
customers and attract new customers, as well as to operate our
fleet with greater efficiencies.
The following chart depicts our simplified organizational
structure as of December 31, 2009. Vessel number
information includes owned, in-chartered and newbuildings.
Please read “— Fleet list.”
(1)
The partnership is controlled by
its general partner. Teekay Corporation indirectly owns a 100%
beneficial ownership in the general partner. However, in certain
limited cases, approval of a majority of the unitholders of the
partnership is required to approve certain actions.
(2)
Teekay Tankers has two classes of
shares: Class A common stock and Class B common stock.
Teekay Corporation indirectly owns 100% of the Class B
shares which have five votes each but aggregate voting power
capped at 49%. As a result of Teekay Corporation’s
ownership of Class A and Class B shares, it currently
holds aggregate voting power of 51.6%.
(3)
Includes 48 vessels owned by Teekay
Offshore Operating L.P.
As of December 31, 2009, our total fleet consisted of
158 vessels, including in-chartered vessels and
newbuildings on order but excluding vessels we commercially
manage for third parties, as summarized in the following table:
Number of vessels
Owned
Chartered-in
Teekay Corporation fleet
list
vessels
vessels
Newbuildings
Total
Teekay Parent
fleet(1)
Aframax
tankers(2)
6
16
22
Suezmax
tankers(3)
13
6
19
VLCC tankers
1
1
Product tankers
8
2
10
LNG
carriers(4)
4
4
Shuttle tankers
4
4
FPSO
units(5)
4
4
FSO
units(5)
1
1
Total Teekay Parent fleet
32
(10)
25
8
65
Teekay Offshore fleet
Shuttle
tankers(6)
27
8
35
FSO
units(7)
5
5
FPSO unit
1
1
Aframax
tankers(8)
11
11
Total Teekay Offshore fleet
44
8
52
Teekay LNG fleet
LNG
carriers(9)
15
15
LPG carriers
3
3
6
Suezmax tankers
8
8
Total Teekay LNG fleet
26
3
29
Teekay Tankers fleet
Aframax tankers
9
9
Suezmax tankers
3
3
Total Teekay tankers fleet
12
12
Total Teekay consolidated fleet
114
(10)
33
11
158
(1)
Excludes the fleet of Teekay
Offshore Operating L.P. (or OPCO), which is owned 51% by
Teekay Offshore and 49% by Teekay Parent. All of OPCO’s
48 vessels are included within the Teekay Offshore fleet.
(2)
Excludes nine vessels chartered-in
from Teekay Offshore and one vessel chartered-in from Teekay
Tankers.
(3)
Includes one Suezmax tanker Teekay
Parent has agreed to offer to Teekay Tankers by June 18,2010.
Excludes two LNG carriers
chartered-in from Teekay LNG. Includes four LNG newbuildings on
order in which Teekay Parent’s ownership interest is 33%.
Teekay Parent has agreed to offer to Teekay LNG its interest in
these four vessels and related charter contracts no later than
180 days before the scheduled delivery dates of the
vessels, which are between August 2011 and January 2012.
(5)
Teekay Parent has agreed to offer
to Teekay Offshore any of FPSO and FSO units that service
contracts in excess of three years in duration.
(6)
Includes two shuttle tankers owned
directly by Teekay Offshore, including one vessel in which its
ownership is 50%. Includes 25 shuttle tankers owned by OPCO
(including five vessels in which OPCO’s ownership is 50%)
and eight vessels chartered-in by OPCO.
(7)
Includes one FSO unit owned
directly by Teekay Offshore and four units owned by OPCO,
including one FSO unit in which OPCO’s ownership is 89%.
(8)
All these vessels are owned by
OPCO. Includes two lightering vessels.
(9)
Includes five LNG carriers in which
Teekay LNG’s ownership is 70% and four LNG carriers in
which its ownership is 40%.
(10)
Based on our most recent vessel
valuations and current sale and purchase market conditions, we
estimate that the fair market values of our owned fleet and of
Teekay Parent’s owned fleet, on a charter-free basis, are
approximately $7.2 billion and $2.5 billion,
respectively.
Industry
overview
The following industry overview highlights recent growth trends
and data provided by the IEA, R.S. Platou Shipbrokers a.s. (or
RS Platou), the IMA and CRSL for the sectors in which we
operate.
Liquefied natural
gas shipping
The LNG industry continues to grow as natural gas remains one of
the world’s fastest growing primary energy sources. LNG
carriers provide a cost-effective means for transporting natural
gas in its supercooled, liquid form, which reduces its volume to
approximately 1/600th of its gaseous state. The carries
transport LNG between liquefaction facilities and import
terminals, where the LNG typically is offloaded and stored in
heavily insulated tanks until returned to its gaseous state and
shipped by pipeline for distribution to natural gas customers.
The IEA estimates that global demand of natural gas will grow
from approximately 3,000 billion cubic meters (or
Bcm) in 2007 to nearly 4,300 Bcm in 2030, representing a
CAGR of 1.5%. The IEA anticipates that a resumption of economic
growth in 2010, the favorable environmental and practical
attributes of natural gas over other fossil fuels, and
constraints on how quickly low-carbon energy technologies can be
commercially developed, are expected to provide growth in demand
for natural gas worldwide.
Between 2000 and 2007, the annual amount of LNG shipped
internationally increased by CAGR of 7.3%, from approximately
104 MMT per annum to 170.8 MMT per annum as a result
of improvements in liquefaction and regasification technologies,
decreases in LNG shipping costs and increases in demand from
consuming regions located far from natural gas reserves. In its
latest long-term energy outlook published in November 2009,
the IEA forecasted that the global natural gas inter-regional
trade would grow from 677 Bcm in 2007 to 1,070 Bcm in 2030 (a
CAGR of approximately 2%), and that the percentage of this trade
represented by LNG would grow from approximately 34% in 2007 to
approximately 40% in 2030. Accordingly, global LNG
inter-regional trade is expected to grow from 225 bcm in 2007 to
425 bcm in 2030 (a CAGR of approximately 3%).
The charts below illustrate the historical and projected volume
of global inter-regional natural gas trade and demand for the
periods and regions presented.
World inter-regional natural gas trade
Global natural gas demand
Source: IEA World Energy Outlook, November 2009
LNG carriers are usually chartered to carry LNG pursuant to
time-charter contracts, where a vessel is hired for a fixed
period of time, typically between 20 and 25 years, and the
charter rate is payable to the owner on a monthly basis at a
fixed rate. LNG projects require significant capital
expenditures and typically involve an integrated chain of
dedicated facilities and cooperative activities. Accordingly,
the overall success of an LNG project depends to a large extent
on long-range planning and coordination of project activities,
including marine transportation. As of December 31, 2009,
the global LNG fleet consisted of 338 existing carriers and 43
newbuildings on order.
In recent years, niche opportunities for floating regasification
and receiving terminals have developed in Brazil, Italy and the
Middle East. There has also recently been increased demand for
development of floating liquefaction projects and we expect this
trend to continue.
Oil continues to be the world’s primary energy source as it
has been for a number of decades, with consumption of oil
accounting for approximately 35% of global energy consumption.
In November 2009, the IEA forecasted that world demand for
liquid fuels and other petroleum would grow from approximately
85.0 mb/d
in 2008 to 105.2 mb/d in 2030, representing a CAGR of 1%.
The table below illustrates historical and projected future oil
prices for the periods presented in nominal amounts and
“real amounts” (i.e. nominal amounts adjusted for
inflation).
Long-term oil
price scenarios
Source: IEA World Energy Outlook, November 2009
As reflected in the chart above, the IEA projects oil prices to
remain on an upward trend in its reference case, which is based
on the assumption of a global economic recovery. The main
factors driving upward trend in oil prices are the rising
marginal cost of supply and demand growth in non-OECD countries.
This trend is also a fundamental driver for offshore oil
production.
Offshore oil production, in which oil is obtained from
reservoirs beneath the ocean floor, is accounting for an
increasing share of total global oil production. In particular,
deepwater oil production is one of the fastest growing areas of
the global oil industry and is replacing shallow water as the
main focus of offshore oil field development. Deepwater oil
production, characterized by wells located in water depths
greater than 1,000 feet, has developed as conventional
land-based or shallow-water reserves become depleted and
exploration and production technologies have advanced to make
oil extraction from deep water oil discoveries feasible. Shuttle
tankers, FSO units and FPSO units are an important part of the
supporting infrastructure for deepwater offshore development, as
conventional offshore solutions, such as jackups and
semi-submersibles, are generally better suited for shallow water
oil production. Although the duration of FPSO contracts varies,
it typically is between five and 15 years plus extension
options. For smaller fields, FPSO units have generally been
provided by independent FPSO contractors under life-of-field
production contracts, where the contract’s duration is for
the useful life of the oil field. FPSO unit contracts generally
provide for a fixed hire rate that is related to the cost of the
unit, a fluctuating component based on either the amount of oil
produced and processed by the unit, or both.
Brazil is a leading frontier in the offshore market where
approximately 85% of oil production currently comes from
offshore fields. Brazil’s Petrobras has announced plans to
double its oil production by 2020 and has started a large
investment plan of approximately $174.4 billion out to 2013.
Based on IMA data, the demand for FPSO units and FSO units is
projected to increase over the next few years. The main growth
regions for new projects are expected to include Brazil, Africa,
Australian and Southeast Asia. In addition to the large projects
in these areas, there is a mixture of small and
medium-sized projects which provide niche opportunities as well
(e.g. harsh weather regions, heavy oil production).
The following table shows the number of offshore projects
planned or under study as of November 2009:
170 projects
involving floating production or storage systems are planned or
under study
(as of November 2009)
The following table reflects forecast FPSO and FSO unit orders
through 2014, and related estimated aggregate capital
expenditures for those units, based on varying prices for oil
per barrel.
Forecast of FPSO
and FSO unit orders through 2014
(including redeployments)
Source: IMA, March 2009
Conventional oil
tankers
Historically the tanker industry has been cyclical in nature,
experiencing volatility in profitability due to changes in the
supply of and demand for tanker capacity, oil and oil products.
The following charts illustrate spot charter rates, expressed as
the quarterly average of daily TCE rates and TC rates (for
three-year, time-charter contracts) for double hull Suezmax and
Aframax conventional oil tankers, as applicable, from 2007 to
2009. Information for January 2010 is based on average daily
rates through January 8, 2010.
Suezmax Spot
Charter TCE Rates vs. Three-Year TC Rates
Source: CRSL, January 2010
Aframax Spot
Charter TCE Rates vs. Three-Year TC Rates
Source: CRSL, January 2010
2009 tanker market summary. According to CRSL,
average Suezmax crude tanker spot market rates were $28,361 per
day in 2009, which was lower than the average spot rate for the
five-year period from 2004 through 2008 of $60,265 per day.
Average Aframax crude tanker spot
market rates were $15,780 per day in 2009, which was lower
than the average spot rate for the five-year period from 2004
through 2008 of $42,044 per day. The global economic downturn,
which resulted in the steepest oil demand contraction since the
early 1980’s, coupled with the growth in the global tanker
fleet, were the primary causes of the decline in rates in 2009.
Since the end of the third quarter of 2009, spot rates have
increased as a result of improving economic fundamentals,
seasonal factors and the use of tankers for floating storage,
which tightened active fleet supply.
2010 tanker market fundamentals.
The table below shows the growth in the GDP versus growth in
demand for oil for the periods presented.
Global GDP vs.
oil demand growth
Source: IMF, October 2009
IEA, December 2009
Demand. In October 2009, the IMF estimated that
global GDP will grow by 3.1% from 2009 to 2010, after
contracting by 1.1% from 2008 to 2009. The global economic
recovery is expected to be led to a large extent by
energy-intensive Asian economies such as China and India.
Vehicle sales in China in 2009 were 46% higher than sales in
2008. The IEA is currently forecasting global oil demand growth
of 1.5 mb/d, or 1.7%, in 2010, approximately half of which is
expected to come from emerging Asia and OECD North Americas,
which are regions dependent on seaborne oil imports.
Non-OPEC
supply is estimated to grow by 0.3 mb/d in 2010, with a majority
of this growth expected to come from the FSU and Latin America,
which is likely to increase medium-sized tanker demand. If
non-OPEC oil supply growth is lower than estimated, that likely
would further increase demand for longer-haul Middle East OPEC
crude.
Supply. According to CRSL, during 2009, the global
tanker fleet grew by 29.6 mdwt, or 7%, as vessel deliveries
totaled 48.2 mdwt and removals were 18.5 mdwt. The pace of
tanker scrapping increased in the second half of 2009 in
anticipation of 2010, which is the International Maritime
Organization’s mandated phase-out target for single-hull
tankers. According to CRSL, as of January 1, 2010, the
world tanker orderbook was 132.3 mdwt and there were
38.6 mdwt of
existing single-hull tankers in the world fleet. Factors which
could dampen tanker fleet supply growth in 2010 include:
•
higher than expected delivery delays, which is particularly
relevant for the Suezmax sector where deliveries in 2009 totaled
7.1 mdwt compared to 10.9 expected at the beginning of the
year;
•
a well-enforced single-hull tanker phase-out; and
•
potential tanker newbuilding order cancellations, particularly
as tanker deliveries scheduled for 2010 and 2011 are the most
expensive units currently on order.
Operations
Although our corporate structure includes our three public
company subsidiaries Teekay Offshore, Teekay LNG and Teekay
Tankers, substantially all of the operations of these entities
are managed by Teekay and other of its subsidiaries.
Operationally, our organization is divided into the following
key areas: the shuttle tanker and FSO segment (included in our
Teekay Navion Shuttle Tankers and Offshore business
unit), the FPSO segment (included in our Teekay Petrojarl
business unit), the liquefied gas segment (included in our
Teekay Gas Services business unit), the spot tanker segment and
fixed-rate tanker segment (both included in our Teekay Tanker
Services business unit). These centers of expertise work closely
with customers to ensure a thorough understanding of our
customers’ requirements and to develop tailored solutions.
•
The Teekay Navion Shuttle Tankers and Offshore and Teekay
Petrojarl business units provide marine transportation,
processing and storage services to the offshore oil industry,
including shuttle tanker, FSO and FPSO services. Our expertise
and partnerships with third parties allow us to create solutions
for customers producing crude oil from offshore installations.
•
The Teekay Gas Services business unit provides gas
transportation services, primarily under long-term fixed-rate
contracts to major energy and utility companies. These services
currently include the transportation of LNG and LPG.
•
The Teekay Tanker Services business unit is responsible for the
commercial management of our conventional crude oil and product
tanker transportation services. We offer a full range of
shipping solutions through our worldwide network of commercial
offices.
Shuttle tanker
and FSO segment and FPSO segment
The main services our shuttle tanker and FSO segment and our
FPSO segment provide to customers are:
•
offloading and transportation of cargo from oil field
installations to onshore terminals by means of dynamically
positioned, offshore loading shuttle tankers;
•
floating storage for oil field installations using FSO units; and
•
floating production, processing and storage services using FPSO
units.
Shuttle
tankers
Shuttle tankers are specialized ships designed to transport
crude oil and condensates from offshore oil field installations
to onshore terminals and refineries. Shuttle tankers are
equipped
with sophisticated loading systems and dynamic positioning
systems that allow the vessels to load cargo safely and reliably
from oil field installations, even in harsh weather conditions.
Shuttle tankers were developed in the North Sea as an
alternative to pipelines. Shuttle tankers are often described as
“floating pipelines” because these vessels typically
shuttle oil from offshore installations to onshore facilities in
much the same way a pipeline would transport oil along the ocean
floor.
Our shuttle tankers are primarily subject to long-term,
fixed-rate time-charter contracts or bareboat charter contracts
for a specific offshore oil field, where a vessel is hired for a
fixed period of time, or under contracts of affreightment for
various fields, where we commit to be available to transport the
quantity of cargo requested by the customer from time to time
over a specified trade route within a given period of time. The
number of voyages performed under these contracts of
affreightment normally depends upon the oil production of each
field. Competition for charters is based primarily upon price,
availability, the size, technical sophistication, age and
condition of the vessel and the reputation of the vessel’s
manager. Technical sophistication of the vessel is especially
important in harsh operating environments such as the North Sea.
Although the size of the world shuttle tanker fleet has been
relatively unchanged in recent years, conventional tankers can
be converted into shuttle tankers by adding specialized
equipment to meet customer requirements. Shuttle tanker demand
may also be affected by the possible substitution of
sub-sea
pipelines to transport oil from offshore production platforms.
According to RS Platou, as of December 31, 2009, there were
approximately 75 vessels in the world shuttle tanker fleet
(including 18 newbuildings), the majority of which operate
in the North Sea. Shuttle tankers also operate in Brazil,
Canada, Russia, Australia and Africa. As of December 31,2009, we owned 31 shuttle tankers (including four newbuildings)
and chartered-in an additional eight shuttle tankers. Other
shuttle tanker owners in the North Sea include Knutsen OAS
Shipping AS, JJ Ugland Group and Transpetro, which as of
December 31, 2009 controlled small fleets of approximately three
to fifteen shuttle tankers each. We believe that we have
significant competitive advantages in the shuttle tanker market
as a result of the quality, type and dimensions of our vessels
combined with our market share in the North Sea.
FPSO
units
FPSO units are floating vessels used to provide
on-site
production, processing and storage for oil fields. An FPSO unit
carries on-board all the necessary production and processing
facilities normally associated with a fixed production platform.
FPSO units are designed to receive oil or gas from nearby
seabeds, process it to remove impurities, such as water, sand,
and stones, and then store it onboard until it can be offloaded
to a tanker or transported through a pipeline. FPSO units are
well suited for deepwater oil fields in excess of
8,000 feet where a fixed installation and pipeline may not
be feasible. FPSO units are also typically used as production
facilities to develop marginal oil fields. An FPSO unit is
usually of similar design to a conventional tanker, and can be
converted from an existing oil tanker or purpose built. A
majority of the cost of an FPSO comes from its top-side
production equipment and, thus, FPSO units are expensive
relative to conventional tankers. There are a number of
experienced companies that compete in the FPSO segment,
including state-sponsored entities and major energy companies.
Although the duration of FPSO contracts varies, it typically is
between five and 15 years plus extension options. FPSO unit
contracts generally provide for a fixed hire rate that is
related to the cost of the unit, a fluctuating component based
on the amount of oil produced and processed by the unit, or both.
Traditionally for large field developments, the major oil
companies have owned and operated new, custom-built FPSO units.
FPSO units for smaller fields have generally been provided by
independent FPSO contractors under
life-of-field
production contracts, where the contract’s duration is for
the useful life of the oil field. According to IMA, as of
December 31, 2009, there were approximately 159 FPSO units
operating and 31 FPSO units on order or under conversion in the
world fleet. At December 31, 2009, we had five FPSO units.
Most independent FPSO contractors have backgrounds in marine
energy transportation, oil field services or oil field
engineering and construction. The major independent FPSO
contractors are SBM Offshore, Modec, Prosafe, BW Offshore, Sevan
Marine, Bluewater and Maersk.
FSO
units
FPSO units provide
on-site
storage for oil field installations that have no storage
facilities or that require supplemental storage. An FSO unit is
generally used in combination with a
jacked-up
fixed production system, floating production systems that do not
have sufficient storage facilities or as supplemental storage
for fixed platform systems, which generally have some on-board
storage capacity. An FSO unit is usually of similar design to a
conventional tanker, but has specialized loading and offtake
systems required by field operators or regulators. FSO units are
moored to the seabed at a safe distance from a field
installation and receive the cargo from the production facility
via a dedicated loading system. An FSO unit is also equipped
with an export system that transfers cargo to shuttle or
conventional tankers. Depending on the selected mooring
arrangement and where they are located, FSO units may or may not
have any propulsion systems. FSO units are usually conversions
of older single-hull conventional oil tankers. These
conversions, which include installation of a loading and offtake
system and hull refurbishment, can generally extend the lifespan
of a vessel as an FSO unit by up to 20 years over the
normal conventional tanker lifespan of 25 years. Primary
competitors in this segment are conventional tanker owners, who
have access to tankers for conversion, oil field services
companies, and oil field engineering and construction companies.
FSO units are generally placed on long-term, fixed-rate time
charters or bareboat charters as an integrated part of the field
development plan.
According to IMA, as of December 31, 2009, there were
approximately 90 FSO units operating and five FSO units on order
or under conversion in the world fleet. As at December 31,2009, we had six FSO units. The major markets for FSO units are
Asia, the Middle East, Africa, South America and the North Sea.
Our primary competitors in the FSO market are conventional
tanker owners, who have access to tankers available for
conversion, and oil field services companies and oil field
engineering and construction companies who compete in the
floating production system market. Competition in the FSO market
is primarily based on price, expertise in FSO operations,
management of FSO conversions and relationships with shipyards,
as well as the ability to access vessels for conversion that
meet customer specifications.
Liquefied gas
segment
The vessels in our liquefied gas segment compete in the LNG and
LPG markets. In the LNG markets, we compete principally with
other private and state-controlled energy and utilities
companies, which generally operate captive fleets, and
independent ship owners and operators. Many major energy
companies compete directly with independent owners by
transporting LNG for third parties in addition to their own LNG.
Given the complex, long-term nature of LNG projects, major
energy companies historically have transported LNG through their
captive fleets.
However, independent fleet operators have been obtaining an
increasing percentage of charters for new or expanded LNG
projects as major energy companies have continued to divest
non-core businesses. The major operators of LNG carriers are
Malaysian International Shipping, NYK Line, Qatar Gas Transport
(Nakilat), Shell Group and Mitsui O.S.K.
LNG carriers transport LNG internationally between liquefaction
facilities and import terminals. After natural gas is
transported by pipeline from production fields to a liquefaction
facility, it is supercooled to a temperature of approximately
negative 260 degrees Fahrenheit. This process reduces its volume
to approximately 1/600th of its volume in a gaseous state.
The reduced volume facilitates economical storage and
transportation by ship over long distances, enabling countries
with limited natural gas reserves or limited access to
long-distance transmission pipelines to meet their demand for
natural gas. LNG carriers include a sophisticated containment
system that holds and insulates the LNG so it maintains its
liquid form. The LNG is transported overseas in specially built
tanks on double-hulled ships to a receiving terminal, where it
is offloaded and stored in heavily insulated tanks. In
regasification facilities at the receiving terminal, the LNG is
returned to its gaseous state (or regasified) and then
shipped by pipeline for distribution to natural gas customers.
LNG carriers are usually chartered to carry LNG pursuant to
time-charter contracts, where a vessel is hired for a fixed
period of time, usually between 20 and 25 years, and the
charter rate is payable to the owner on a monthly basis at a
fixed rate. LNG projects require significant capital
expenditures and typically involve an integrated chain of
dedicated facilities and cooperative activities. Accordingly,
the overall success of an LNG project depends to a large extent
on long-range planning and coordination of project activities,
including marine transportation.
LPG carriers are mainly chartered to carry LPG on time charters
of three to five years, on contracts of affreightment or spot
voyage charters. The two largest consumers of LPG are
residential users and the petrochemical industry. Residential
users, particularly in developing regions where electricity and
gas pipelines are not developed, do not have fuel switching
alternatives and generally are not LPG price sensitive. The
petrochemical industry, however, has the ability to switch
between LPG and other feedstock fuels depending on price and
availability of alternatives.
Most new LNG carriers, including all of our vessels, are being
built with a membrane containment system. These systems consist
of insulation between thin primary and secondary barriers and
are designed to accommodate thermal expansion and contraction
without overstressing the membrane. New LNG carriers are
generally expected to have a lifespan of approximately
40 years. New LPG carriers are generally expected to have a
lifespan of approximately 30 to 35 years. Unlike the oil
tanker industry, there are currently no regulations that require
the phase-out from trading of LNG and LPG carriers after they
reach a certain age. According to CRSL, as of January 1,2010, there were approximately 338 vessels in the world LNG
fleet, with an average age of approximately 9.8 years, and an
additional 43 LNG carriers under construction or on order for
delivery through 2012. According to CRSL, as of January 1,2010, the worldwide LPG tanker fleet consisted of approximately
1,149 vessels with an average age of approximately
16.3 years and approximately 136 additional LPG vessels
were on order for delivery through 2013. LPG carriers range in
size from approximately 500 to approximately 80,000 cbm.
Approximately 55% of the worldwide fleet is less than 5,000 cbm
(in terms of vessel numbers).
Our liquefied gas segment primarily consists of LNG and LPG
carriers subject to long-term, fixed-rate time-charter
contracts. As of December 31, 2009, we had 15 LNG carriers
and an additional
four LNG newbuildings on order, all of which were scheduled to
commence operations upon delivery under long-term fixed-rate
time-charters and in which our ownership interest is 33%. In
addition, as of December 31, 2009, we had three LPG
carriers, of which three are under construction.
Conventional
tankers
The oil tanker industry is a vital link to the global energy
chain, providing efficient, low-cost and flexible global
transportation of oil and refined petroleum products. According
to EIA estimates, oil tankers transported approximately
43 mb/d of oil of the approximately 85 mb/d of oil
consumed in the world during 2007.
Oil tankers can be divided into two main categories—crude
tankers and product tankers. Crude tankers are predominantly
engaged in the transportation of crude or unrefined oil. Product
tankers carry refined or finished oil products which require a
high degree of cleanliness in the tanker’s cargo
compartments. In contrast to crude tankers, the cargo
compartments and pipelines on product tankers are coated and the
cargo handling gear fittings are generally made of higher
quality materials.
International seaborne oil and petroleum products transportation
services are mainly provided by two types of operators: major
oil companies (both private and state-owned) and independent
shipowner fleets. Both types of operators transport oil under
spot charters and time-charters with oil companies, oil traders,
large oil customers, petroleum product producers and government
agencies.
Spot tanker
segment
The vessels in our spot tanker segment compete primarily in the
Aframax and Suezmax tanker markets. Competition for charters in
the Aframax and Suezmax spot charter market is intense and is
based upon price, location, the size, age, condition and
acceptability of the vessel, and the reputation of the
vessel’s manager.
We compete principally with other owners in the spot-charter
market through the global tanker charter market. This market is
comprised of tanker broker companies that represent both
charterers and ship-owners in chartering transactions. Within
this market, some transactions, referred to as “market
cargoes,” are offered by charterers through two or more
brokers simultaneously and shown to the widest possible range of
owners; other transactions, referred to as “private
cargoes,” are given by the charterer to only one broker and
shown selectively to a limited number of owners whose tankers
are most likely to be acceptable to the charterer and are in
position to undertake the voyage.
Certain of our vessels in the spot tanker segment operate
pursuant to pooling arrangements. Under a pooling arrangement,
different vessel owners pool their vessels, which are managed by
a pool manager, to improve utilization and reduce expenses. In
general, revenues generated by the vessels operating in a pool,
less related voyage expenses (such as fuel and port charges) and
pool administrative expenses, are pooled and allocated to the
vessel owners according to a pre-determined formula. As of
December 31, 2009, we participated in three main pooling
arrangements. These include an Aframax tanker pool, an LR2
product tanker pool and a Suezmax tanker pool (the Gemini Pool).
As of December 31, 2009, 18 of our Aframax tankers operated
in the Aframax tanker pool, four of our LR2 product tankers
operated in the LR2
tanker pool and 13 of our Suezmax tankers operated in the Gemini
Pool. Each of these pools is either solely or jointly managed by
us.
Our competition in the Aframax (80,000 to 119,999 dwt) market is
also affected by the availability of other size vessels that
compete in that market. Suezmax (120,000 to 199,999 dwt) vessels
and Panamax (55,000 to 79,999 dwt) vessels can compete for many
of the same charters for which our Aframax tankers compete.
Similarly, Aframax tankers and VLCCs can compete for many of the
same charters for which our Suezmax vessels compete. Because
VLCCs comprise a substantial portion of the total capacity of
the market, movements by such vessels into Suezmax trades or of
Suezmax vessels into Aframax trades would heighten the already
intense competition.
We believe that we have competitive advantages in the Aframax
and Suezmax tanker market as a result of the quality, type and
dimensions of our vessels and our market share in the
Indo-Pacific and Atlantic Basins. As of January 1, 2010,
our Aframax tanker fleet (excluding Aframax-size shuttle tankers
and newbuildings) had an average age of approximately
11 years and our Suezmax tanker fleet (excluding
Suezmax-size shuttle tankers and newbuildings) had an average
age of approximately six years. This compares to an average
age for the world oil tanker fleet of approximately
11.4 years, for the world Aframax tanker fleet of
approximately 8.2 years and for the world Suezmax tanker
fleet of approximately 8.7 years, according to CRSL.
As of January 1, 2010, other large operators of Aframax
tonnage (including newbuildings on order) included Malaysian
International Shipping Corporation, Sovcomflot, Aframax
International Pool, the Sigma Pool, Tanker Pacific Management,
Minerva Marine and BP Shipping. Other large operators of Suezmax
tonnage (including newbuildings on order) included Sovcomflot,
Euronav and Dynacom.
We have chartering staff located in Tokyo, Japan; Singapore;
London, England; Stavanger, Norway; Houston, Texas; and
Stamford, Connecticut. Each office serves our clients
headquartered in that office’s region. Fleet operations,
vessel positions and charter market rates are monitored around
the clock. We believe that monitoring such information is
critical to making informed bids on competitive brokered
business.
Fixed-rate tanker
segment
The vessels in our fixed-rate tanker segment primarily consist
of Aframax and Suezmax tankers that are employed on long-term
time-charters. We consider contracts that have an original term
of less than three years in duration to be short term. The only
significant difference between the vessels in the spot tanker
segment and the fixed-rate tanker segment is the duration of the
contracts under which they are employed. Charters of more than
three years are not as common as short-term charters and voyage
charters for conventional tankers.
Safety,
management of ship operations and administration
Safety and environmental compliance are our top operational
priorities. We operate our vessels in a manner intended to
protect the safety and health of our employees, the general
public and the environment. We seek to manage the risks inherent
in our business and are committed to eliminating incidents that
threaten the safety and integrity of our vessels, such as
groundings, fires, collisions and petroleum spills. In 2008, we
introduced the Quality Assurance and Training Officers (or
QATO) Program to conduct rigorous internal audits of our
processes and provide our seafarers with onboard training. In
2007, we introduced a behavior-based safety program called
“Safety in Action” to improve the safety culture in
our fleet. We are also committed to reducing our emissions and
waste generation.
Key performance indicators facilitate regular monitoring of our
operational performance. Targets are set on an annual basis to
drive continuous improvement, and indicators are reviewed
monthly to determine if remedial action is necessary to reach
the targets.
All of our vessels are operated under our comprehensive and
integrated Marine Operations Management System (or MOMS)
that complies with the International Safety Management Code (or
ISM Code), the International Standards
Organization’s (or ISO) 9001 for Quality Assurance,
ISO 14001 for Environment Management Systems, and Occupational
Health and Safety Advisory Services (or OHSAS) 18001.
MOMS is certified by Det Norske Veritas (or DNV), the
Norwegian classification society. It has also been separately
approved by the Australian and Spanish Flag administrations.
Although certification is valid for five years, compliance with
the above mentioned standards is confirmed on a yearly basis by
a rigorous auditing procedure that includes both internal audits
as well as external verification audits by DNV and certain flag
states.
Teekay provides, through certain of its other subsidiaries,
expertise in various functions critical to the operations of
Teekay Offshore, Teekay LNG and Teekay Tankers. We believe this
arrangement affords a safe, efficient and cost-effective
operation for all of Teekay’s vessels. Teekay subsidiaries
also provide to Teekay Offshore, Teekay LNG and Teekay Tankers
human resources, financial and other administrative functions
pursuant to administrative services and management agreements.
Ship management services are provided for all Teekay vessels,
other than FPSO units, by the Teekay Marine Services division, a
subsidiary of Teekay Corporation, located in various offices
around the world. Teekay Petrojarl provides ship management
services for our FPSO units. Ship management services include
such critical functions as:
•
vessel maintenance (including repairs and drydocking) and
certification;
•
crewing by competent seafarers;
•
procurement of stores, bunkers and spare parts;
•
management of emergencies and incidents;
•
supervision of shipyard and projects during new-building and
conversions;
•
insurance; and
•
financial management services.
Integrated onboard and onshore systems support the management of
maintenance, inventory control and procurement, crew management
and training and assist with budgetary controls.
Our
day-to-day
focus on cost efficiencies is applied to all aspects of our
operations. We believe that the generally uniform design of some
of our existing and new-building vessels and the adoption of
common equipment standards provides operational efficiencies,
including with respect to crew training and vessel management,
equipment operation and repair, and spare parts ordering. In
addition, in 2003, Teekay and two other shipping companies
established a purchasing alliance, Teekay Bergesen Worldwide,
which leverages the purchasing power of the combined fleets,
mainly in such commodity areas as lube oils, paints and other
chemicals.
As at December 31, 2009, we employed approximately 5,450
seagoing and 890 shore-based personnel, compared to
approximately 5,700 seagoing and 900 shore-based personnel as at
December 31, 2008, and 5,600 seagoing and 800 shore-based
personnel as at December 31, 2007. The increase in seagoing
personnel in 2008 was primarily due to the increase in the size
of our fleet.
We regard attracting and retaining motivated seagoing personnel
as a top priority. Through our global manning organization
comprised of offices in Glasgow, Scotland; Stavanger, Norway and
Trondheim, Norway; Manila, Philippines; Mumbai, India and
Madrid, Spain, we offer seafarers what we believe are
competitive employment packages and comprehensive benefits. We
also intend to provide opportunities for personal and career
development, which relate to our philosophy of promoting
internally.
During 1996, we entered into a Collective Bargaining Agreement
with the Philippine Seafarers’ Union, an affiliate of the
International Transport Workers’ Federation (or
ITF), and a Special Agreement with ITF London (which is
renewed annually) that cover substantially all of our officers
and seamen. Our Norwegian seafarers are covered by collective
bargaining agreements with Norwegian unions. We are also party
to Enterprise Bargaining Agreements with various Australian
maritime unions that cover officers and seamen employed through
our Australian operations. Our officers and seamen for our
Spanish-flagged vessels are covered by a collective bargaining
agreement with Spanish unions. We believe our relationships with
these labor unions are good.
We see our commitment to training as fundamental to the
development of the highest caliber seafarers for our marine
operations. Our entry level cadet training program is designed
to balance academic learning with hands-on training at sea. We
have relationships with training institutions in Australia,
Brazil, Canada, Croatia, India, Indonesia, Norway, Philippines,
Poland, Russia, Turkey and the United Kingdom. After receiving
formal instruction at one of these institutions, the
cadets’ training continues on board a Teekay vessel. We
also have an accredited Teekay-specific competence management
system that is designed to ensure a continuous flow of qualified
officers who are trained on our vessels and are familiar with
our operational standards, systems and policies. We believe that
high-quality manning and training will play an increasingly
important role in distinguishing leading independent tanker
companies that have in-house capabilities from companies that
must rely on outside ship managers and crewing agents.
Risk of loss and
insurance
The operation of any ocean-going vessel carries an inherent risk
of catastrophic marine disasters, death or injury of persons and
property losses caused by adverse weather conditions, mechanical
failures, human error, war, terrorism, piracy and other
circumstances or events. In addition, the transportation of
crude oil, petroleum products, LNG and LPG is subject to the
risk of spills and to business interruptions due to political
circumstances in foreign countries, hostilities, labor strikes
and boycotts. The occurrence of any of these events may result
in loss of revenues or increased costs.
We carry hull and machinery (marine and war risks) and
protection and indemnity insurance coverage to protect against
most of the accident-related risks involved in the conduct of
our business. Hull and machinery insurance covers loss of or
damage to a vessel due to marine perils such as collisions,
grounding and weather. Protection and indemnity insurance
indemnifies us
against liabilities incurred while operating vessels, including
injury to our crew or third parties, cargo loss and pollution.
The current available amount of our coverage for pollution is
$1 billion per vessel per incident. Insurance policies also
cover war risks (including piracy and terrorism). We do not
generally carry insurance on our vessels covering the loss of
revenues resulting from vessel off-hire time based on its cost
compared to our off-hire experience. We believe that our current
insurance coverage is adequate to protect against most of the
accident-related risks involved in the conduct of our business
and that we maintain appropriate levels of environmental damage
and pollution insurance coverage. However, we cannot assure that
all covered risks are adequately insured against, that any
particular claim will be paid or that we will be able to procure
adequate insurance coverage at commercially reasonable rates in
the future. In addition, more stringent environmental
regulations have resulted in increased costs for, and may result
in the lack of availability of, insurance against risks of
environmental damage or pollution.
We use in our operations a thorough risk management program that
includes, among other things, computer-aided risk analysis
tools, maintenance and assessment programs, a seafarers’
competence training program, seafarers’ workshops and
membership in emergency response organizations.
Operations
outside of the United States
Because our operations are primarily conducted outside of the
United States, we are affected by currency fluctuations and by
changing economic, political and governmental conditions in the
countries where we engage in business or where our vessels are
registered.
Past political conflicts in that region, particularly in the
Arabian Gulf, have included attacks on tankers, mining of
waterways and other efforts to disrupt shipping in the area.
Vessels trading in the region have also been subject to acts of
piracy. In addition to tankers, targets of terrorist attacks
could include oil pipelines, LNG facilities and offshore oil
fields. The escalation of existing, or the outbreak of future,
hostilities or other political instability in this region or
other regions where we operate could affect our trade patterns,
increase insurance costs, increase tanker operational costs and
otherwise adversely affect our operations and performance. In
addition, tariffs, trade embargoes, and other economic sanctions
by the United States or other countries against countries in the
Indo-Pacific Basin or elsewhere as a result of terrorist attacks
or otherwise may limit trading activities with those countries,
which could also adversely affect our operations and performance.
Customers
We have derived, and believe that we will continue to derive, a
significant portion of our revenues from a limited number of
customers. Our customers include major energy and utility
companies, major oil traders, large oil and LNG consumers and
petroleum product producers, government agencies, and various
other entities that depend upon marine transportation. One
customer, an international oil company, accounted for 14%
($238.1 million) of our consolidated revenues during the
nine months ended September 30, 2009, and 14%
($443.5 million) of our consolidated revenues during 2008
(20% or $472.3 million—2007 and 15% or
$307.9 million—2006). No other customer accounted for
more than 10% of our consolidated revenues during the nine
months ended September 30, 2009 or during 2008, 2007 or
2006.
The hull and machinery of all of our vessels have been
“classed” by one of the major classification
societies: Det Norske Veritas, Lloyd’s Register of Shipping
or American Bureau of Shipping. In addition, the processing
facilities of our FPSOs are “classed” by Det Norske
Veritias. The classification society certifies that the vessel
has been built and maintained in accordance with the rules of
that classification society. Each vessel is inspected by a
classification society surveyor annually, with either the second
or third annual inspection being a more detailed survey (an
Intermediate Survey) and the fifth annual inspection
being the most comprehensive survey (a Special Survey).
The inspection cycle resumes after each Special Survey. Vessels
also may be required to be drydocked at each Intermediate and
Special Survey for inspection of the underwater parts of the
vessel in addition to a more detailed inspection of hull and
machinery. Many of our vessels have qualified with their
respective classification societies for drydocking every five
years in connection with the Special Survey and are no longer
subject to drydocking at Intermediate Surveys. To qualify, we
were required to enhance the resiliency of the underwater
coatings of each vessel hull to accommodate underwater
inspections by divers.
The vessel’s flag state, or the vessel’s
classification society if nominated by the flag state, also
inspect our vessels to ensure they comply with applicable rules
and regulations of the country of registry of the vessel and the
international conventions of which that country is a signatory.
Port state authorities, such as the U.S. Coast Guard and
the Australian Maritime Safety Authority, also inspect our
vessels when they visit their ports. Many of our customers also
regularly inspect our vessels as a condition to chartering.
We believe that our relatively new, well-maintained and
high-quality vessels provide us with a competitive advantage in
the current environment of increasing regulation and customer
emphasis on quality of service.
Our vessels are also regularly inspected by our seafaring staff,
which perform much of the necessary routine maintenance.
Shore-based operational and technical specialists also inspect
our vessels at least twice a year. Upon completion of each
inspection, action plans are developed to address any items
requiring improvement. All action plans are monitored until they
are completed. The objectives of these inspections are to ensure:
•
adherence to our operating standards;
•
the structural integrity of the vessel is being maintained;
•
machinery and equipment is being maintained to give full
reliability in service;
•
we are optimizing performance in terms of speed and fuel
consumption; and
•
the vessel’s appearance will support our brand and meet
customer expectations.
To achieve the vessel structural integrity objective, we use a
comprehensive “Structural Integrity Management System”
we developed. This system is designed to closely monitor the
condition of our vessels and to ensure that structural strength
and integrity are maintained throughout a vessel’s life.
Regulation
Our business and the operation of our vessels are significantly
affected by international conventions and national, state and
local laws and regulations in the jurisdictions in which our
vessels operate, as well as in the country or countries of their
registration. Because these conventions, laws and regulations
change frequently, we cannot predict the ultimate cost of
compliance or their impact on the resale price or useful life of
our vessels. Additional conventions, laws and regulations may be
adopted that could limit our ability to do business or increase
the cost of our doing business and that may materially adversely
affect our operations. We are required by various governmental
and quasi-governmental agencies to obtain permits, licenses and
certificates with respect to our operations. Subject to the
discussion below, we believe that we will be able to continue to
obtain all permits, licenses and certificates material to the
conduct of our operations.
We believe that the heightened environmental and quality
concerns of insurance underwriters, regulators and charterers
will generally lead to greater inspection and safety
requirements on all vessels in the oil tanker and LNG and LPG
carrier markets and will accelerate the scrapping of older
vessels throughout these markets.
Regulation—International Maritime Organization (or
IMO). The IMO is the United Nations’ agency for
maritime safety. IMO regulations relating to pollution
prevention for oil tankers have been adopted by many of the
jurisdictions in which our tanker fleet operates, but not by the
United States. Under IMO regulations, an oil tanker must be of
double-hull construction, be of mid-deck design with double-side
construction or be of another approved design ensuring the same
level of protection against oil pollution in the event that such
tanker:
•
is the subject of a contract for a major conversion or original
construction on or after July 6, 1993;
•
commences a major conversion or has its keel laid on or after
January 6, 1994; or
•
completes a major conversion or is a newbuilding delivered on or
after July 6, 1996.
In December 2003, the IMO revised its regulations relating to
the prevention of pollution from oil tankers. These regulations,
which became effective in April 2005, accelerate the mandatory
phase-out of single-hull tankers and impose a more rigorous
inspection regime for older tankers. In July 2003, the European
Union adopted legislation that will prohibit all single-hull
tankers from entering into its ports or offshore terminals under
a phase-out schedule (depending upon age, type and cargo of
tankers) between the years 2003 and 2010. All single-hull
tankers will be banned by 2010. The European Union has already
banned all single-hull tankers carrying heavy grades of oil from
entering or leaving its ports or offshore terminals or anchoring
in areas under its jurisdiction. Commencing in April 2005,
certain single-hull tankers above 15 years of age are also
restricted from entering or leaving EU ports or offshore
terminals and anchoring in areas under EU jurisdiction. All of
the tankers that we currently operate are double-hulled and will
not be affected directly by these IMO and EU regulations.
The European Union has also adopted legislation that bans
manifestly
sub-standard
vessels (defined as vessels that have been detained twice by EU
port authorities after July 2003) from European waters,
creates obligations on the part of EU member port states to
inspect at least 24% of vessels using these ports annually,
provides for increased surveillance of vessels posing a high
risk to maritime safety or the marine environment and provides
the European Union with greater authority and control over
classification societies, including the ability to seek to
suspend or revoke the authority of negligent societies. The
European Union is also considering the adoption of criminal
sanctions for certain pollution events, including tank cleaning.
IMO regulations also include the International Convention for
Safety of Life at Sea (or SOLAS), including amendments to
SOLAS implementing the International Security Code for Ports and
Ships (or ISPS), the ISM Code, the International
Convention on Prevention of Pollution from Ships (the MARPOL
Convention), the International Convention on Civil Liability
for Oil Pollution Damage of 1969, the International Convention
on Load Lines of 1966, and, specifically with respect to LNG
carriers, the International Code for the Construction and
Equipment of Ships Carrying Liquefied Gases in Bulk (or the
IGC Code). The IMO Marine Safety Committee has also
published guidelines for vessels with dynamic positioning
(DP) systems, which would apply to shuttle tankers and
DP-assisted FSO units and FPSO units. SOLAS provides rules for
the construction of and equipment required for commercial
vessels and includes regulations for safe operation. Flag states
that have ratified the IMO regulations generally employ the
classification societies, which have incorporated SOLAS
requirements into their class rules, to undertake surveys to
confirm compliance.
SOLAS and other IMO regulations concerning safety, including
those relating to treaties on training of shipboard personnel,
lifesaving appliances, radio equipment and the global maritime
distress and safety system, are applicable to our operations.
Non-compliance with IMO regulations, including SOLAS, the ISM
Code, ISPS and the IGC Code, and the specific requirements for
shuttle tankers, FSO units and FPSO units under the NPD (Norway)
and HSE (United Kingdom) regulations may subject us to increased
liability or penalties, 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. For example,
the U.S. Coast Guard and European Union authorities have
indicated that vessels not in compliance with ISM Code will be
prohibited from trading in U.S. and European ports.
The ISM Code requires vessel operators to obtain a safety
management certification for each vessel they manage, evidencing
the ship-owner’s compliance with requirements of the ISM
Code relating to the development and maintenance of an extensive
“Safety Management System.” Such a system includes,
among other things, the adoption of a safety and environmental
protection policy setting forth instructions and procedures for
safe operation and describing procedures for dealing with
emergencies. Each of the existing vessels in our fleet currently
is ISM Code-certified, and we expect to obtain safety management
certification for each newbuilding upon delivery.
LNG and LPG carriers are also subject to regulation under the
IGC Code. Each LNG carrier must obtain a certificate of
compliance evidencing that it meets the requirements of the IGC
Code, including requirements relating to its design and
construction. Each of our LNG carriers currently is in
substantial compliance with the IGC Code, and each of our LNG
newbuilding shipbuilding contracts requires compliance prior to
delivery.
Environmental regulations—United States
regulations. The United States has enacted an extensive
regulatory and liability regime for the protection and cleanup
of the environment from oil spills, including discharges of oil
cargoes, bunker fuels or lubricants, primarily through the Oil
Pollution Act of 1990 (or OPA 90) and the Comprehensive
Environmental Response, Compensation and Liability Act (or
CERCLA). OPA 90 affects all owners, bareboat charterers
and operators whose vessels trade to the United States or its
territories or possessions or whose vessels operate in United
States waters, which include the U.S. territorial sea and
200-mile
exclusive economic zone around the United States.
Under OPA 90, 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
and the responsible party reports the incident and reasonably
cooperates with the appropriate authorities) for all containment
and clean-up
costs
and other damages arising from discharges or threatened
discharges of oil from their vessels. These other damages are
defined broadly to include:
•
natural resources damages and the related assessment costs;
•
real and personal property damages;
•
net loss of taxes, royalties, rents, fees and other lost
revenues;
•
lost profits or impairment of earning capacity due to property
or natural resources damage;
•
net cost of public services necessitated by a spill response,
such as protection from fire, safety or health hazards; and
•
loss of subsistence use of natural resources.
OPA 90 limits the liability of responsible parties. The limit
for double-hulled tank vessels is the greater of $2,000 per
gross ton or $17.1 million per double-hulled tanker per
incident, subject to possible further adjustment for inflation.
These limits of liability would not apply if the incident were
proximately caused by violation of applicable U.S. federal
safety, construction or operating regulations, including IMO
conventions to which the United States is a signatory, or by the
responsible party’s gross negligence or willful misconduct,
or if the responsible party fails or refuses to report the
incident or to cooperate and assist in connection with the oil
removal activities. In addition, CERCLA, which applies to the
discharge of hazardous substances (other than oil) whether on
land or at sea, 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, unless the incident is caused by gross
negligence, willful misconduct, or a violation of certain
regulations, in which case liability is unlimited. We currently
maintain for each vessel pollution liability coverage in the
maximum coverage amount of $1 billion per incident. A
catastrophic spill could exceed the coverage available, which
could harm our business, financial condition and results of
operations.
Under OPA 90, with limited exceptions, all newly built or
converted tankers delivered after January 1, 1994 and
operating in U.S. waters must be built with double-hulls.
All of our existing tankers are, and all of our newbuildings
will be, double-hulled.
The U.S. Coast Guard (or Coast Guard) has
implemented regulations requiring evidence of financial
responsibility in an amount equal to the applicable OPA
limitation on liability with the CERCLA liability limit of $300
per gross ton. Under the regulations, such evidence of financial
responsibility may be demonstrated by insurance, surety bond,
self-insurance, guaranty or an alternate method subject to
agency approval. Under OPA 90, an owner or operator of a fleet
of vessels is required only to demonstrate evidence of financial
responsibility in an amount sufficient to cover the tanker in
the fleet having the greatest maximum limited liability under
OPA 90 and CERCLA.
The Coast Guard’s regulations concerning certificates of
financial responsibility (or COFR) provide, in accordance
with OPA 90, that claimants may bring suit directly against an
insurer or guarantor that furnishes COFR. In addition, in the
event that such insurer or guarantor is sued directly, it is
prohibited from asserting any contractual defense that it may
have had against the responsible party and is limited to
asserting those defenses available to the responsible party and
the defense that the incident was caused by the willful
misconduct of the responsible party. Certain organizations,
which had typically provided COFR guaranties under pre-OPA 90
laws, including the major protection and indemnity organizations
have declined to furnish evidence
of insurance for vessel owners and operators if they are subject
to direct actions or required to waive insurance policy defenses.
The Coast Guard’s financial responsibility regulations may
also be satisfied by evidence of surety bond, guaranty or by
self-insurance. Under the self-insurance provisions, the
ship-owner or operator must have a net worth and working
capital, measured in assets located in the United States against
liabilities located anywhere in the world, that exceeds the
applicable amount of financial responsibility. We have complied
with the Coast Guard regulations by obtaining financial
guaranties from a third-party. If other vessels in our fleet
trade into the United States in the future, we expect to obtain
additional guarantees from third-party insurers or to provide
guarantees through self-insurance.
OPA 90 and CERCLA permit individual states to impose their own
liability regimes with regard to oil or hazardous substance
pollution incidents occurring within their boundaries, and some
states have enacted legislation providing for unlimited strict
liability for spills. Several coastal states, including
California, Washington and Alaska, require state specific COFR
and vessel response plans. We intend to comply with all
applicable state regulations in the ports where our vessels call.
Owners or operators of tank vessels operating in United States
waters are required to file vessel response plans with the Coast
Guard, and their tank vessels are required to operate in
compliance with their Coast Guard approved plans. Such response
plans must, among other things:
•
address a “worst case” scenario and identify and
ensure, through contract or other approved means, the
availability of necessary private response resources to respond
to a “worst case discharge”;
•
describe crew training and drills; and
•
identify a qualified individual with full authority to implement
removal actions.
We have filed vessel response plans with the Coast Guard for the
vessels we own and have received approval of such plans for all
vessels in our fleet to operate in United States waters. In
addition, we conduct regular oil spill response drills in
accordance with the guidelines set out in OPA 90. The Coast
Guard has announced it intends to propose similar regulations
requiring certain vessels to prepare response plans for the
release of hazardous substances.
CERCLA contains a similar liability regime to OPA 90, but
applies to the discharge of “hazardous substances”
rather than “oil.” Petroleum products and LNG should
not be considered hazardous substances under CERCLA, but
additives to oil or lubricants used on LNG carriers might fall
within its scope. CERCLA imposes strict joint and several
liability upon the owner, operator or bareboat charterer of a
vessel for cleanup costs and damages arising from a discharge of
hazardous substances.
OPA 90 and CERCLA do not preclude claimants from seeking damages
for the discharge of oil or hazardous substances under other
applicable law, including maritime tort law. Such claims could
include attempts to characterize the transportation of LNG
aboard a vessel as an ultra-hazardous activity under a doctrine
that would impose strict liability for damages resulting from
that activity. The application of this doctrine varies by
jurisdiction. There can be no assurance that a court in a
particular jurisdiction will not determine that the carriage of
oil or LNG aboard
a vessel is an ultra-hazardous activity, which would expose us
to strict liability for damages caused to parties even when we
have not acted negligently.
Although the United States is not a party, many countries have
ratified and follow the liability scheme adopted by the IMO and
set out in the International Convention on Civil Liability for
Oil Pollution Damage, 1969, as amended (or CLC),
and the Convention for the Establishment of an International
Fund for Oil Pollution of 1971, as amended. Under these
conventions, which are applicable to vessels that carry
persistent oil (not LNG) as cargo, a vessel’s registered
owner is strictly liable for pollution damage caused in the
territorial waters of a contracting state by discharge of
persistent oil, subject to certain complete defenses. Many of
the countries that have ratified the CLC have increased the
liability limits through a 1992 Protocol to the CLC. The
liability limits in the countries that have ratified this
Protocol are currently approximately $7.2 million plus
approximately $1,005 per gross registered tonne above
5,000 gross tonnes with an approximate maximum of
$143 million per vessel and the exact amount tied to a unit
of account which varies according to a basket of currencies. The
right to limit liability is forfeited under the CLC when the
spill is caused by the owner’s actual fault or privity and,
under the 1992 Protocol, when the spill is caused by the
owner’s intentional or reckless conduct. Vessels trading to
contracting states must provide evidence of insurance covering
the limited liability of the owner. In jurisdictions where the
CLC has not been adopted, various legislative schemes or common
law govern, and liability is imposed either on the basis of
fault or in a manner similar to the CLC.
In September 1997, the IMO adopted Annex VI to the
International Convention for the Prevention of Pollution from
Ships (or Annex VI) to address air pollution from
ships. Annex VI, which became effective in May 2005, sets
limits on sulfur oxide and nitrogen oxide emissions from ship
exhausts and prohibit deliberate emissions of ozone depleting
substances, such as halons, chlorofluorocarbons, emissions of
volatile compounds from cargo tanks and prohibition of 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 plan to operate our vessels in compliance
with Annex VI. Additional or new conventions, laws and
regulations may be adopted that could adversely affect our
ability to manage our ships.
In addition, the IMO, various countries and states, such as
Australia, the United States and the State of California, and
various regulators, such as port authorities, the
U.S. Coast Guard and the U.S. Environmental Protection
Agency (or the EPA), have either adopted legislation or
regulations, or are separately considering the adoption of
legislation or regulations, aimed at regulating the
transmission, distribution, supply and storage of LNG, the
discharge of ballast water and the discharge of bunkers as
potential pollutants (OPA 90 applies to discharges of bunkers or
cargoes).
The United States Clean Water Act (or the Clean Water
Act) prohibits the discharge of oil or hazardous substances
in U.S. navigable waters and imposes strict liability in
the form of penalties for unauthorized discharges. The Clean
Water Act also imposes substantial liability for the costs of
removal, remediation and damages and complements the remedies
available under OPA 90 and CERCLA discussed above. Pursuant to
regulations promulgated by the EPA in the early 1970s, the
discharge of sewage and effluent from properly functioning
marine engines was exempted from the permit requirements of the
National Pollution Discharge Elimination
System. This exemption allowed vessels in U.S. ports to
discharge certain substances, including ballast water, without
obtaining a permit to do so. However, on March 30, 2005, a
U.S. District Court for the Northern District of California
granted summary judgment to certain environmental groups and
U.S. states that had challenged the EPA regulations,
arguing that the EPA exceeded its authority in promulgating
them. On September 18, 2006, the U.S. District Court
in that action issued an order invalidating the exemption in
EPA’s regulations for all discharges incidental to the
normal operation of a vessel as of September 30, 2008, and
directing the EPA to develop a system for regulating all
discharges from vessels by that date.
The EPA appealed this decision to the Ninth Circuit Court of
Appeals, which on July 23, 2008, upheld the District
Court’s decision. In response, the EPA adopted a new Clean
Water Act permit titled the “Vessel General Permit.”
Effective February 6, 2009, container vessels (including
all vessels of the type operated by us) operating as a means of
transportation that discharge ballast water or certain other
incidental discharges into United States waters must obtain
coverage under the Vessel General Permit and comply with a range
of best management practices, reporting, inspections and other
requirements. The Vessel General Permit also incorporates
U.S. Coast Guard requirements for ballast water management
and exchange and includes specific technology-based requirements
for vessels, including oil and petroleum tankers. Under certain
circumstances, the EPA may also require a discharger of ballast
water or other incidental discharges to obtain an individual
permit in lieu of coverage under the Vessel General Permit.
These new requirements will increase the cost of operating our
vessels in U.S. waters.
Since the EPA’s adoption of the Vessel General Permit,
several U.S. states have added specific requirements to the
permit through the Clean Water Act section 401
certification process (which varies from state to state) and, in
some cases, require vessels to install ballast water treatment
technology to meet biological performance standards.
Since 2009, several environmental groups and industry
associations filed challenges in U.S. federal court to the
EPA’s issuance of the Vessel General Permit. These cases
have not yet been resolved.
In Norway, the Norwegian Pollution Control Authority (or
NPD) requires the installation of volatile organic
compound emissions equipment (or VOC equipment) on most
shuttle tankers serving the Norwegian continental shelf.
The EU Directive 33/2005 (or the Directive) came into
force on January 1, 2010. Under this legislation, vessels
are required to burn fuel with sulphur content below 0.1% while
berthed or anchored in an EU port. Currently, the only grade of
fuel meeting this low sulphur content requirement is low sulphur
marine gas oil (or LSMGO). Certain modifications of our
vessels trading in EU ports are necessary in order to optimize
operation on LSMGO of equipment originally designed to operate
on Heavy Fuel Oil (or HFO). In addition to the costs of
such modifications to the relevant vessels in our fleet, which
we estimate will total approximately $17.6 million,
operating costs of the vessels will increase as LSMGO is more
expensive than HFO that is currently in use. In most cases,
these additional operating costs will be passed on to the
charterers. Given that some equipment modification kits relating
to LSMGO are not yet available, there is uncertainty as to how
EU member states may enforce the regulations, and several
industry associations and groups have appealed to the EU on the
need for a grace period before enforcement.
The ISPS was adopted by the IMO in December 2002 in the wake of
heightened concern over worldwide terrorism and became effective
on July 1, 2004. The objective of ISPS is to enhance
maritime security by detecting security threats to ships and
ports and by requiring the development of security plans and
other measures designed to prevent such threats. The United
States implemented ISPS with the adoption of the Maritime
Transportation Security Act of 2002 (or MTSA), which
requires vessels entering U.S. waters to obtain
certification of plans to respond to emergency incidents there,
including identification of persons authorized to implement the
plans. Each of the existing vessels in our fleet currently
complies with the requirements of ISPS and MTSA.
Shuttle tanker,
FSO unit and FPSO unit regulation
Our shuttle tankers primarily operate in the North Sea. In
addition to the regulations imposed by the IMO, countries having
jurisdiction over North Sea areas impose regulatory requirements
in connection with operations in those areas, including HSE in
the United Kingdom and NPD in Norway. These regulatory
requirements, together with additional requirements imposed by
operators in North Sea oil fields, require that we make further
expenditures for sophisticated equipment, reporting and
redundancy systems on our shuttle tankers and for the training
of seagoing staff. Additional regulations and requirements may
be adopted or imposed that could limit our ability to do
business or further increase the cost of doing business in the
North Sea. In Brazil, Petrobras serves in a regulatory capacity
and has adopted standards similar to those in the North Sea.
Taxation of the
Company
The following discussion is a summary of the principal United
States, Bermudian, Marshall Islands, Norwegian and Spanish tax
laws applicable to us. The following discussion of tax matters,
as well as the conclusions regarding certain issues of tax law
that are reflected in such discussion, are based on current law.
No assurance can be given that changes in or interpretation of
existing laws will not occur or will not be retroactive or that
anticipated future factual matters and circumstances will in
fact occur. Our views have no binding effect or official status
of any kind, and no assurance can be given that the conclusions
discussed below would be sustained if challenged by taxing
authorities.
United States
taxation
The following discussion is based upon the provisions of the
U.S. Internal Revenue Code of 1986, as amended (or the
Code), existing and proposed U.S. Treasury
Department regulations, administrative rulings, pronouncements
and judicial decisions, all as of the date of this prospectus
and all of which are subject to change, possibly with
retroactive effect or are subject to different interpretations.
Taxation of operating income. A significant portion
of our gross income will be attributable to the transportation
of crude oil and related products. For this purpose, gross
income attributable to transportation (or Transportation
Income) includes income derived from, or in connection with,
the use (or hiring or leasing for use) of a vessel to transport
cargo, or the performance of services directly related to the
use of any vessel to transport cargo, and thus includes both
time-charter or bareboat charter income.
Transportation Income that is attributable to transportation
that begins or ends, but that does not both begin and end, in
the United States (or U.S. Source International
Transportation Income) will be considered to be 50.0%
derived from sources within the United States. Transportation
Income attributable to transportation that both begins and ends
in the United States (or U.S. Source Domestic
Transportation Income) will be considered to be 100.0%
derived from sources within the United States. Transportation
Income attributable to transportation exclusively between
non-U.S. destinations
will be considered to be 100% derived from sources outside the
United States. Transportation Income derived from sources
outside the United States generally will not be subject to
U.S. federal income tax.
We have made special U.S. tax elections in respect of some
of our vessel-owning or vessel-operating subsidiaries that are
or may be engaged in activities that give rise to
U.S. Source International Transportation Income. Other
subsidiaries that are engaged in activities that may give rise
to U.S. Source International Transportation Income rely on
our ability to claim exemption under Section 883 of the
Code (the Section 883 Exemption).
The Section 883 exemption. In general, the
Section 883 Exemption provides that if a
non-U.S. corporation
satisfies the requirements of Section 883 of the Code and
the Treasury Regulations thereunder (or the Section 883
Regulations), it will not be subject to the net basis and
branch taxes or 4.0% gross basis tax described below on its
U.S. Source International Transportation Income. The
Section 883 Exemption only applies to U.S. Source
International Transportation Income. As discussed below, we
believe the Section 883 Exemption will apply and we will
not be taxed on our U.S. Source International
Transportation Income. Our subsidiary Teekay Offshore and
certain of our other indirect subsidiaries currently are unable
to claim The Section 883 Exemption. The Section 883
Exemption does not apply to U.S. Source Domestic
Transportation Income.
A
non-U.S. corporation
will qualify for the Section 883 Exemption if it is
organized in a jurisdiction outside the United States that
grants an equivalent exemption from tax to corporations
organized in the United States (or an Equivalent
Exemption), it meets one of three ownership tests (or the
Ownership Test) described in the Final Section 883
Regulations and it meets certain substantiation, reporting and
other requirements.
We are organized under the laws of the Republic of The Marshall
Islands. The U.S. Treasury Department has recognized the
Republic of The Marshall Islands as a jurisdiction that grants
an Equivalent Exemption. Consequently, our U.S. Source
International Transportation Income (including for this purpose,
any such income earned by our subsidiaries that have properly
elected to be treated as partnerships or disregarded as entities
separate from us for U.S. federal income tax purposes) will
be exempt from U.S. federal income taxation provided we
meet the Ownership Test described in the Section 883
Regulations. We believe that we should satisfy the Ownership
Test because our stock is primarily and regularly traded on an
established securities market in the United States within the
meaning of the Section 883 of the Code and the Treasury
Regulations thereunder. We can give no assurance, however, that
changes in the ownership of our stock subsequent to the date of
this prospectus will permit us to continue to qualify for the
Section 883 Exemption.
The net basis tax and branch profits tax. If we earn
U.S. Source International Transportation Income and the
Section 883 Exemption does not apply, such income may be
treated as effectively connected with the conduct of a trade or
business in the United States (or Effectively Connected
Income) if we have a fixed place of business in the United
States and substantially all of our U.S. Source
International Transportation Income is attributable to regularly
scheduled transportation or, in the case of bareboat charter
income, is attributable to a fixed placed of
business in the United States. Based on our current operations,
none of our potential U.S. Source International
Transportation Income is attributable to regularly scheduled
transportation or is received pursuant to bareboat charters
attributable to a fixed place of business in the United States.
As a result, we do not anticipate that any of our
U.S. Source International Transportation Income will be
treated as Effectively Connected Income. However, there is no
assurance that we will not earn income pursuant to regularly
scheduled transportation or bareboat charters attributable to a
fixed place of business in the United States in the future,
which would result in such income being treated as Effectively
Connected Income.
U.S. Source Domestic Transportation Income generally will
be treated as Effectively Connected Income. However, we do not
anticipate that any of our income has been or will be
U.S. Source Domestic Transportation Income.
Any income we earn that is treated as Effectively Connected
Income would be subject to U.S. federal corporate income
tax (the highest statutory rate is currently 35.0%). In
addition, if we earn income that is treated as Effectively
Connected Income, a 30.0% branch profits tax imposed under
Section 884 of the Code generally would apply to such
income, and a branch interest tax could be imposed on certain
interest paid or deemed paid by us.
On the sale of a vessel that has produced Effectively Connected
Income, we could be subject to the net basis corporate income
tax and to the 30.0% branch profits tax with respect to our gain
not in excess of certain prior deductions for depreciation that
reduced Effectively Connected Income. Otherwise, we would not be
subject to U.S. federal income tax with respect to gain
realized on the sale of a vessel, provided the sale is
considered to occur outside of the United States under
U.S. federal income tax principles.
The 4.0% gross basis tax. If the Section 883
Exemption does not apply and the net basis tax does not apply,
we would be subject to a 4.0% U.S. federal income tax on
the U.S. source portion of our gross U.S. Source
International Transportation Income, without benefit of
deductions. For 2008 and 2009, we estimate the U.S. federal
income tax on such U.S. Source International Transportation
Income would have been approximately $11.3 million and less
than $8 million, respectively. In addition, we estimate
that our subsidiaries unable to claim the Section 883 Exemption
will be subject to less than $1.0 million in the aggregate
of U.S. federal income tax on the U.S. Source portion of their
U.S. Source International Transportation Income.
Marshall Islands
and Bermudian Taxation
We believe that neither we nor our subsidiaries will be subject
to taxation under the laws of The Marshall Islands or Bermuda,
or that distributions by our subsidiaries to us will be subject
to any taxes under the laws of such countries.
Norwegian
taxation
The following discussion is based upon the current tax laws of
the Kingdom of Norway and regulations, the Norwegian tax
administrative practice and judicial decisions thereunder, all
as in effect as of the date of this Annual Report and subject to
possible changes on a retroactive basis. The following
discussion is for general information purposes only and does not
purport to be a comprehensive description of all of the
Norwegian income tax considerations applicable to us.
Our Norwegian subsidiaries are subject to taxation in Norway on
their income regardless of where the income is derived. The
Norwegian corporate income tax rate is 28%.
Taxation of Norwegian Subsidiaries Engaged in Business
Activities. All of our Norwegian subsidiaries (limited
liability companies) are subject to regular Norwegian taxation
on their world wide income. The generally applicable Norwegian
income tax rate is 28%. Generally, a Norwegian resident company
is taxed on its income realized for tax purposes. The starting
point for calculating taxable income is the company’s
income as shown on its annual financial statements, calculated
under generally accepted accounting principles and as adjusted
for tax purposes. Gross income will include capital gains,
interest, dividends from certain corporations and foreign
exchange gains.
The Norwegian companies also are taxed on any gains resulting
from the sale of assets. The gain on depreciable assets is taken
into income for Norwegian tax purposes at a rate of 20% per year
on a declining balance basis.
Norway does not allow consolidation of the income of companies
in a corporate group for Norwegian tax purposes. However, a
company within a group of companies that is ultimately owned
more than 90% by a single company can transfer its Norwegian
taxable income to another Norwegian resident company in the
group by making a transfer to the other company (this is
referred to as making a “group contribution”). The
ultimate parent in the corporate group can be a foreign company,
but both the contributing and receiving company must be taxable
to Norway.
Group contributions are deductible for the contributing company
for tax purposes and are included in the taxable income of the
receiving company in the income year in which the contribution
is made. Group contributions are subject to the same rules as
dividend distributions under the Norwegian Limited Liability
Companies Act. In other words, group contributions are
restricted to the amount that is available to distribute as
dividends for corporate law purposes.
Taxation of Controlled Foreign
Corporations. Norwegian companies are also taxable on
certain income earned by controlled foreign corporations (or
CFCs) resident in low tax countries. A CFC for these purposes is
a foreign resident company in which 50% or more of the shares or
capital is owned or controlled by Norwegian resident companies
or individuals. A country is a low tax country if the CFC’s
income tax on profits is less than two-thirds of the Norwegian
tax that would apply if the company was resident in Norway.
Income earned by a CFC is directly included in the taxable
income of its Norwegian parent. Norwegian CFC taxation is not
imposed if the foreign company is resident in a low tax country
with which Norway has concluded a tax treaty, unless the income
that the foreign company earns is mainly of a passive nature.
Also, Norwegian CFC taxation is not imposed if the foreign
company is resident in a country within the European Economic
Area, and it is proved that the foreign company is genuinely
established and performs genuine business activities in the
relevant country within the European Economic Area.
Taxation of Foreign Companies and Permanent
Establishments. Foreign registered companies are
subject to Norwegian world wide taxation if the company’s
place of effective management is situated in Norway (Norwegian
resident companies). Furthermore, foreign resident companies are
taxable in Norway on business activities performed through a
permanent establishment in Norway. Foreign resident companies
engaged in activities related to the exploration or exploitation
of subsoil petroleum on the Norwegian continental shelf are
taxable in Norway under domestic law according to the Norwegian
Petroleum Tax Act. The same applies to foreign companies
participating in partnerships engaged in activities on the
Norwegian continental shelf.
Taxation of Dividends. Generally, only 3% of
dividends received by a Norwegian resident company are taxable
under the Norwegian participation exemption (at the standard
rate of
28%). The participation exemption rule does not apply to
dividends from companies resident outside the European Economic
Area if (a) the country of residence is a low-tax country
or (b) the ownership of shares in the distributing company
is considered to be a “portfolio investment”
(i.e. less than 10% share ownership or less than two
years continuous ownership period). Nor does the participation
exemption rule apply to dividends from companies’ resident
within the European Economic Area if (a) the country of
residence is a low-tax country and (b) the company is not
genuinely established or does not perform genuine business
activities in the relevant country within the European Economic
Area. Dividends that do not qualify under the participation
exemption rule are subject to the general 28% income tax rate
when received by the Norwegian resident company, unless an
applicable tax treaty provides for a reduced tax rate or an
exemption.
Correction Income Tax. Our Norwegian subsidiaries
may be subject to a tax, called correction income tax, on
their dividend distributions. Norwegian correction tax is levied
if a dividend distribution leads to the company’s balance
sheet equity at year end being lower than the company’s
paid-in share capital (including share premium), plus a
calculated amount equal to 72% of the net positive temporary
timing differences between the company’s book values and
tax values.
As a result, correction tax is effectively levied if dividend
distributions result in the company’s financial statement
equity for accounting purposes being reduced below its equity
calculated for tax purposes (i.e. when dividends are paid
out of accounting earnings that have not been subject to
taxation in Norway). In addition to dividend distributions,
correction tax may also be levied on the partial liquidation of
the share capital of the company or if the company makes group
contributions that are in excess of taxable income for the year.
Taxation of Interest Paid by Norwegian
Entities. Norway does not levy any tax or withholding
tax on interest paid by a Norwegian resident company to a
company that is not resident in Norway (provided that the
interest rate and the debt/equity ratio are based on arms-length
principles). Therefore, any interest paid by our Norwegian
subsidiaries to companies that are not resident in Norway will
not be subject to Norwegian withholding tax.
Taxation on Distributions by Norwegian
Entities. Norway levies a 25% withholding tax on
non-residents of Norway that receive dividends from a Norwegian
resident company. However, the Norwegian withholding tax may be
reduced if the recipient of the dividend is resident in a
country that has an income tax treaty with Norway. If the
recipient of the dividend is a company resident within the
European Economic Area, and the recipient is genuinely
established and performs genuine business activities in the
relevant country, the dividend will be exempt from Norwegian
withholding tax. We believe that distributions by our Norwegian
subsidiaries will be subject to a reduced amount of Norwegian
withholding tax or not be subject to Norwegian withholding tax.
We do not expect that payment of Norwegian income taxes will
have a material effect on our results.
Spanish
taxation
Spain imposes income taxes on income generated by our majority
owned Spanish subsidiary’s shipping related activities at a
rate of 30%. Two alternative Spanish tax regimes provide
incentives for Spanish companies engaged in shipping activities,
the Canary Islands Special Ship
Registry (or CISSR) and the Spanish Tonnage Tax Regime
(or TTR). As at January 1, 2010, all but two of our
vessels operated by our operating Spanish subsidiaries were
subject to the TTR.
Under the TTR, the applicable income tax is based on the weight
(measured as net tonnage) of the vessel and the number of days
during the taxable period that the vessel is at the
company’s disposal, excluding time required for repairs.
The tax base ranges from 0.20 Euros per day per 100 tonnes to
0.90 Euros per day per 100 tonnes, against which the generally
applicable tax rate of 30% applies. If the shipping company also
engages in activities other than those subject to the TTR
regime, income from those other activities is subject to tax at
the generally applicable rate of 30%. If a vessel is acquired
and disposed of by a company while it is subject to the TTR
regime, any gain on the disposition of the vessel generally is
not subject to Spanish taxation. If the company acquired the
vessel prior to becoming subject to the TTR regime or if the
company acquires a used vessel after becoming subject to the TTR
regime, the difference between the fair market value of the
vessel at the time it enters into the TTR and the tax value of
the vessel at that time is added to the taxable income in Spain
when the vessel is disposed of and generally remains subject to
Spanish taxation at the rate of 30%.
Our two Spanish subsidiary’s vessels which are registered
in the CISSR are allowed a credit, equal to 90% of the tax
payable on income from the commercial operation of the Canary
Islands registered ships, against the tax otherwise payable.
This effectively results in an income tax rate of approximately
3% on income from the operation of these vessels. Vessel sales
are subject to the full 30% Spanish tax rate. A 12% reinvestment
credit it available if the entire gross proceeds from the vessel
sale are reinvested in a qualifying asset and if the asset
disposed of has been held for a minimum period of one year.
We do not expect Spanish income taxes will have a material
effect on our results.
Our directors and executive officers as of the date of this
prospectus and their ages as of December 31, 2009 are
listed below:
Name
Age
Position
C. Sean Day
60
Director and Chairman of the Board
Bjorn Moller
52
Director, President and Chief Executive Officer
Axel Karlshoej
69
Director and Chair Emeritus
Dr. Ian D. Blackburne
63
Director
James R. Clark
59
Director
Peter S. Janson
62
Director
Thomas Kuo-Yuen Hsu
63
Director
Eileen A. Mercier
62
Director
Tore I. Sandvold
62
Director
Arthur Bensler
52
EVP, Secretary and General Counsel
Bruce Chan
37
President, Teekay Tanker Services, a division of Teekay
Peter Evensen
51
EVP and Chief Strategy Officer
David Glendinning
55
President, Teekay Gas Services and Offshore, a division of Teekay
Kenneth Hvid
41
President, Teekay Navion Shuttle Tankers and Offshore, a
division of Teekay
Vincent Lok
41
EVP and Chief Financial Officer
Peter Lytzen
52
President, Teekay Petrojarl ASA, a subsidiary of Teekay
Lois Nahirney
46
EVP, Corporate Resources
Graham Westgarth
55
President, Teekay Marine Services, a division of Teekay
Certain biographical information about each of these individuals
is set forth below:
C. Sean Day has served as a Teekay director since 1998
and as our Chairman of the Board since September 1999.
Mr. Day has also served as Chairman of Teekay GP L.L.C.,
the general partner of Teekay LNG, since its formation in
November 2004, Chairman of Teekay Offshore GP L.L.C., the
general partner of Teekay Offshore, since its formation in
August 2006, and Chairman of Teekay Tankers since its formation
in October 2007. From 1989 to 1999, he was President and Chief
Executive Officer of Navios Corporation, a large bulk shipping
company based in Stamford, Connecticut. Prior to Navios,
Mr. Day held a number of senior management positions in the
shipping and finance industries. He is currently serving as a
director of Kirby Corporation and is Chairman of Compass
Diversified Holdings. Mr. Day is engaged as a consultant to
Kattegat
Limited, the parent company of Resolute Investments, Ltd., our
largest stockholder, to oversee its investments including that
in the Teekay group of companies.
Bjorn Moller became a Teekay director and our President
and Chief Executive Officer in April 1998. Mr. Moller has
served as Vice Chairman and a Director of Teekay GP L.L.C. since
its formation in November 2004, Vice Chairman and a Director of
Teekay Offshore GP L.L.C. since its formation in November 2004,
and as the Chief Executive Officer and a director of Teekay
Tankers since its formation in October 2007. Mr. Moller has
over 25 years of experience in the shipping industry, and
has served as Chairman of the International Tanker Owners
Pollution Federation since December 2006 and on the Board of the
American Petroleum Institute since 2000. He has served in senior
management positions with Teekay for more than 15 years and
has headed our overall operations since January 1997, following
his promotion to the position of Chief Operating Officer. Prior
to this, Mr. Moller headed our global chartering operations
and business development activities.
Axel Karlshoej has served as a Teekay director since 1989
and was Chairman of the Teekay Board from June 1994 to September
1999, and has been Chairman Emeritus since stepping down as
Chairman. Mr. Karlshoej is President and serves on the
compensation committee of Nordic Industries, a California
general construction firm with which he has served for the past
30 years. He is the older brother of the late J. Torben
Karlshoej, Teekay’s founder. Please read “Certain
relationships and related party transactions.”
Dr. Ian D. Blackburne has served as a Teekay
director since 2000. Mr. Blackburne has over 25 years
of experience in petroleum refining and marketing, and in March
2000 he retired as Managing Director and Chief Executive Officer
of Caltex Australia Limited, a large petroleum refining and
marketing conglomerate based in Australia. He is currently
serving as Chairman of CSR Limited and is a director of
Suncorp-Metway Ltd. and Symbion Health Limited (formerly Mayne
Group Limited), Australian public companies in the diversified
industrial and financial sectors. Dr. Blackburne is also
the Chairman of the Australian Nuclear Science and Technology
Organization.
James R. Clark has served as a Teekay director since
2006. Mr. Clark was President and Chief Operating Officer
of Baker Hughes Incorporated from February 2004 until his
retirement in January 2008. Previously, he was Vice President,
Marketing and Technology from 2003 to 2004, having joined Baker
Hughes Incorporated in 2001 as Vice President and President of
Baker Petrolite Corporation. Mr. Clark was President and
Chief Executive Officer of Consolidated Equipment Companies,
Inc. from 2000 to 2001 and President of Sperry-Sun, a
Halliburton company, from 1996 to 1999. He has also held
financial, operational and leadership positions with FMC
Corporation, Schlumberger Limited and Grace Energy Corporation.
Mr. Clark also serves on the Board of Incorporate Members
of Dallas Theological Seminary and is a Trustee of the Center
for Christian Growth, both in Dallas, Texas.
Peter S. Janson has served as a Teekay director since
2005. From 1999 to 2002, Mr. Janson was the Chief Executive
Officer of Amec Inc. (formerly Agra Inc.), a publicly traded
engineering and construction company. From 1986 to 1994 he
served as the President and Chief Executive Officer of Canadian
operations for Asea Brown Boveri Inc., a company for which he
also served as Chief Executive Officer for U.S. operations
from 1996 to 1999. Mr. Janson has also served as a member
of the Business Round Table in the United States, and as a
member of the National Advisory Board on Sciences and Technology
in Canada. He is a director of Terra Industries Inc and IEC
Holden Inc.
Thomas Kuo-Yuen Hsu has served as a Teekay director since
1993. He is presently a director of, CNC Industries, an
affiliate of the Expedo Group of Companies that manages a fleet
of six vessels
of 70,000 dwt. He has been a Committee Director of the Britannia
Steam Ship Insurance Association Limited since 1988. Please read
“Certain relationships and related party transactions.”
Eileen A. Mercier has served as a Teekay director since
2000. She has over 37 years’ experience in a wide
variety of financial and strategic planning positions, including
Senior Vice President and Chief Financial Officer for
Abitibi-Price Inc. from 1990 to 1995. She formed her own
management consulting company, Finvoy Management Inc. and acted
as president from 1995 to 2003. She currently serves as Chairman
of the Ontario Teachers’ Pension Plan, director for ING
Bank of Canada and York University, and as a director and audit
committee member for CGI Group Inc. and ING Canada Inc.
Tore I. Sandvold has served as a Teekay director since
2003. He has over 30 years’ experience in the oil and
energy industry. From 1973 to 1987 he served in the Norwegian
Ministry of Industry, Oil & Energy in a variety of
positions in the areas of domestic and international energy
policy. From 1987 to 1990 he served as the Counselor for Energy
in the Norwegian Embassy in Washington, D.C. From 1990 to
2001 Mr. Sandvold served as Director General of the
Norwegian Ministry of Oil & Energy, with overall
responsibility for Norway’s national and international oil
and gas policy. From 2001 to 2002 he served as Chairman of the
Board of Petoro, the Norwegian state-owned oil company that is
the largest oil asset manager on the Norwegian continental
shelf. From 2002 to the present, Mr. Sandvold, through his
company, Sandvold Energy AS, has acted as advisor to companies
and advisory bodies in the energy industry. Mr. Sandvold
serves on other boards, including those of Schlumberger
Limited., E. on Ruhrgas Norge AS, Lambert Energy Advisory Ltd.,
University of Stavanger, Offshore Northern Seas, and the Energy
Policy Foundation of Norway.
Arthur Bensler joined Teekay in September 1998 as General
Counsel. He was promoted to the position of Vice President in
March 2002 and became our Corporate Secretary in May 2003. He
was appointed Senior Vice President in February 2004 and
Executive Vice President in January 2006. Prior to joining
Teekay, Mr. Bensler was a partner in a large Vancouver,
Canada, law firm, where he practiced corporate, commercial and
maritime law from 1986 until joining Teekay.
Bruce Chan joined Teekay in September
1995. Since then, in addition to spending a year in
Teekay’s London office, Mr. Chan has held a number of
finance and accounting positions with the Company, including
Vice President, Strategic Development from February 2004 until
his promotion to the position of Senior Vice President,
Corporate Resources in September 2005. In April 2008,
Mr. Chan was appointed President of the Company’s
Teekay Tanker Services division, which is responsible for the
commercial management of Teekay’s conventional crude oil
and product tanker transportation services. Prior to joining
Teekay, Mr. Chan worked as a Chartered Accountant in the
Vancouver, Canada office of Ernst & Young LLP.
Peter Evensen joined Teekay in May 2003 as Senior Vice
President, Treasurer and Chief Financial Officer. He was
appointed Executive Vice President and Chief Financial Officer
in February 2004 and was appointed Executive Vice President and
Chief Strategy Officer in November 2006. Mr. Evensen has
served as the Chief Executive Officer and Chief Financial
Officer of Teekay GP L.L.C. since its formation in November 2004
and as a director of Teekay GP L.L.C. since January 2005.
Mr. Evensen has served as the Chief Executive Officer and
Chief Financial Officer and a director of Teekay Offshore GP
L.L.C. since 2006, and as Executive Vice President and a
director of Teekay Tankers since October 2007. Mr. Evensen
has over 20 years of experience in banking and shipping
finance. Prior to joining Teekay, Mr. Evensen was Managing
Director and Head of Global Shipping at J.P. Morgan
Securities Inc. and worked in other senior positions for its
predecessor firms. His international industry experience
includes positions in New York, London and Oslo.
David Glendinning joined Teekay in January
1987. Since then, he has held a number of senior
positions, including service as Vice President, Marine and
Commercial Operations from January 1995 until his promotion to
Senior Vice President, Customer Relations and Marine Project
Development in February 1999. In November 2003,
Mr. Glendinning was appointed President of our Teekay Gas
Services division, which is responsible for our initiatives in
the LNG business and other areas of gas activity. Prior to
joining Teekay, Mr. Glendinning, who is a Master Mariner,
had 18 years of sea service on oil tankers of various types
and sizes.
Kenneth Hvid joined Teekay in October 2000 and was
responsible for leading our global procurement activities until
he was promoted in 2004 to Senior Vice President, Teekay Gas
Services. During this time, Mr. Hvid was involved in
leading Teekay through its entry and growth in the LNG business.
He held this position until the beginning of 2006, when he was
appointed President of our Teekay Navion Shuttle Tankers and
Offshore division. In this role he is responsible for our global
shuttle tanker business as well as initiatives in the floating
storage and offtake business and related offshore activities.
Mr. Hvid has 18 years of global shipping experience,
12 of which were spent with A.P. Moller in Copenhagen,
San Francisco and Hong Kong.
Vincent Lok has served as Teekay’s Executive Vice
President and Chief Financial Officer since July 2007. He has
held a number of finance and accounting positions with Teekay
Corporation, including Controller from 1997 until his promotions
to the positions of Vice President, Finance in March 2002 and
Senior Vice President and Treasurer in February 2004, and Senior
Vice President and Chief Financial Officer in November 2006.
Prior to joining Teekay Corporation, Mr. Lok worked in the
Vancouver, Canada, audit practice of Deloitte & Touche
LLP.
Peter Lytzen joined Teekay Petrojarl as President and
Chief Executive Officer in August 2007. Mr. Lytzen’s
experience includes over 20 years in the oil and gas
industry and he joined Teekay Petrojarl from Maersk Contractors,
where he most recently served as Vice President of Production.
In this role, he held overall responsibility for Maersk
Contractors’ technical tendering, construction and
operation of FPSO and other offshore production solutions. He
first joined Maersk in 1987 and held progressively responsible
positions throughout the organization.
Lois Nahirney joined Teekay in August 2008, and is
responsible for shore-based Human Resources, Corporate
Communications, Corporate Services, and IT. Ms. Nahirney
brings to the role more than 25 years of global experience
as a senior executive and consultant in human resources,
strategy, organization change, and information systems. Prior to
joining Teekay, she served as the acting Chief Human Resources
Officer of BC Hydro in Vancouver, Canada, and was a partner with
Western Management Consultants.
Graham Westgarth joined Teekay in February 1999 as Vice
President, Marine Operations. He was promoted to the position of
Senior Vice President, Marine Operations in December 1999. In
November 2003 Mr. Westgarth was appointed President of our
Teekay Marine Services division, which is responsible for all of
our marine and technical operations, as well as marketing a
range of services and products to third parties, such as marine
consulting services. He has extensive shipping industry
experience. Prior to joining Teekay, Mr. Westgarth was
General Manager of Maersk Company (UK), where he joined as
Master in 1987. He has 36 years of industry experience,
which includes 18 years’ sea service, with five years
in a command position. In November 2009, Mr. Westgarth was
elected Chairman of INTERTANKO, or the International Association
of Independent Tanker Owners.
Teekay and certain of its subsidiaries have relationships or are
parties to transactions with other Teekay subsidiaries,
including Teekay’s publicly-traded subsidiaries Teekay LNG,
Teekay Offshore and Teekay Tankers. Certain of these
relationships and transactions are described below. The
discussion below should be read together with the discussion
under the caption “Certain relationships and related party
transactions” in Teekay’s Report on
Form 6-K
for the period ended September 30, 2009.
Our major
shareholder
As of December 31, 2009, Resolute Investments Ltd., (or
Resolute), owned approximately 42% of our outstanding
common stock. The ultimate controlling person of Resolute is
Path Spirit Limited (or Path), which is the trust
protector for the trust that indirectly owns all of
Resolute’s outstanding equity. One of our directors, Thomas
Kuo-Yuen Hsu, is the President and a director of Resolute.
Another of our directors, Axel Karlshoej, is among the directors
of Path.
Our directors and
executive officers
C. Sean Day, the Chairman of Teekay’s board of
directors, is also the Chairman of Teekay Tankers, Teekay
Offshore GP L.L.C. (the general partner of Teekay Offshore) and
Teekay GP L.L.C. (the general partner of Teekay LNG). Bjorn
Moller, Teekay’s Chief Executive Officer and one of its
directors, is also the Chief Executive Officer and a director of
Teekay Tankers, as well as a director of Teekay Offshore GP
L.L.C. and Teekay GP L.L.C. Peter Evensen, Teekay’s
Executive Vice President and Chief Strategy Officer, is the
Executive Vice President and a director of Teekay Tankers and
the Chief Executive Officer and Chief Financial Officer and a
director of each of Teekay Offshore GP L.L.C. and Teekay GP
L.L.C. Vincent Lok, Teekay’s Executive Vice President and
Chief Financial Officer, is also the Chief Financial Officer of
Teekay Tankers.
Because the executive officers of Teekay Tankers and of the
general partners of Teekay Offshore and Teekay LNG are employees
of Teekay or other of its subsidiaries, their compensation
(other than any awards under the respective long-term incentive
plans of Teekay Tankers, Teekay Offshore and Teekay LNG) is set
and paid by Teekay or such other applicable subsidiaries.
Pursuant to agreements with Teekay, each of Teekay Tankers,
Teekay Offshore and Teekay LNG have agreed to reimburse Teekay
or its applicable subsidiaries for time spent by the executive
officers on management matters of such public company
subsidiaries. For the nine months ended September 30, 2009,
these reimbursement obligations totaled $0.9 million,
$1.0 million, and $1.0 million, respectively, for
Teekay Tankers, Teekay Offshore and Teekay LNG, and are included
in amounts paid as strategic fees under the management agreement
for Teekay Tankers and the services agreements for Teekay
Offshore and Teekay LNG described below. For 2006, 2007 and
2008, these reimbursement obligations for Teekay Tankers, Teekay
Offshore and Teekay LNG totaled $nil, $nil (following Teekay
Tankers’ initial public offering in December 2007) and
$1.2 million, $0.1 million (following Teekay
Offshore’s initial public offering in December 2006),
$0.2 million and $1.5 million, and $0.1 million,
$0.1 million and $1.5 million, respectively.
Relationships
with our public company subsidiaries
Teekay Tankers. Teekay Tankers is a NYSE-listed,
Marshall Islands corporation, which we formed to acquire from us
a fleet of double-hull oil tankers in connection with Teekay
Tanker’s initial public offering in December 2007. Teekay
Tanker’s business is to own oil tankers and employ a
chartering strategy that seeks to capture upside opportunities
in the spot market while using fixed-rate time charters to
reduce downside risks. Its operations are managed by our
subsidiary, Teekay Tankers Management Services Ltd. As of
December 31, 2009, we owned shares of Teekay Tankers’
Class A and Class B common stock that represent an
ownership interest of 42.2% and voting power of 51.6% of Teekay
Tankers’ outstanding common stock.
Teekay Tankers distributes to its stockholders on a quarterly
basis all of its Cash Available for Distribution, subject to any
reserves the board of directors may from time to time determine
are required for the prudent conduct of the business. Cash
Available for Distribution represents Teekay Tankers’ net
income (loss) plus depreciation and amortization, unrealized
losses from derivatives, non-cash items and any write-offs or
other non-recurring items less unrealized gains from derivatives
and net income attributable to the historical results of vessels
acquired by it from Teekay, prior to their acquisition by Teekay
Tankers, for the period when these vessels were owned and
operated by Teekay. Teekay received distributions from Teekay
Tankers of $32.3 million, for the nine months ended
September 30, 2009. Teekay received distributions from
Teekay Tankers of $nil and $37.6 million, respectively,
with respect to 2007 (following its initial public offering in
December 2007) and 2008.
Teekay Offshore and Teekay LNG. Teekay Offshore is a
NYSE-listed, Marshall Islands limited partnership, which we
formed to further develop our operations in the offshore market.
Teekay Offshore is an international provider of marine
transportation and storage services to the offshore oil
industry. We own and control Teekay Offshore’s general
partner, and as of December 31, 2009, we owned a 38.5%
limited partner (including common and subordinated units) and a
2% general partner interest in Teekay Offshore. Teekay Offshore
owns a majority of its fleet through OPCO, which is owned 51.0%
by Teekay Offshore and 49.0% by us.
Teekay LNG is a NYSE-listed, Marshall Islands limited
partnership, which we formed to expand our operations in the LNG
shipping sector. Teekay LNG is an international provider of
marine transportation services for LNG, LPG and crude oil. We
own and control Teekay LNG’s general partner, and as of
December 31, 2009, we owned a 47.2% limited partner
(including common and subordinated units) and a 2% general
partner interest in Teekay LNG.
Quarterly cash distributions. We are entitled to
distributions on our general and limited partner interests in
Teekay Offshore and Teekay LNG, respectively. In general, each
of Teekay Offshore and Teekay LNG pays quarterly cash
distributions in the following manner:
•
first, 98% to the common unitholders, pro rata, and 2% to
the general partner, until Teekay Offshore or Teekay LNG, as
applicable, distributes for each outstanding common unit an
amount equal to the minimum quarterly distribution for that
quarter;
•
second, 98% to the common unitholders, pro rata, and 2%
to the general partner, until Teekay Offshore or Teekay LNG, as
applicable, distributes for each outstanding common unit an
amount equal to any arrearages in payment of the minimum
quarterly distribution on the common units for any prior
quarters during the subordination period;
third, 98% to the subordinated unitholders, pro rata, and
2% to the general partner, until Teekay Offshore or Teekay LNG,
as applicable, distributes for each subordinated unit an amount
equal to the minimum quarterly distribution for that
quarter; and
•
thereafter, in the manner described in “—Incentive
distribution rights” below.
The minimum quarterly distributions for Teekay Offshore and
Teekay LNG are $0.35 and $0.4125, respectively. Teekay Offshore
and Teekay LNG have been making their respective current
quarterly distributions of $0.45 per unit and $0.57 per unit
since the third quarter of 2008.
Teekay currently holds 9.8 million subordinated units of
Teekay Offshore and 7.4 million subordinated units of
Teekay LNG. At the end of the respective subordination periods
for Teekay Offshore and Teekay LNG, the subordinated units will
convert into common units on a
one-for-one
basis and begin participating pro rata with the other
common units in distributions of available cash. Generally, the
subordination period will extend until the first day of any
quarter, beginning after December 31, 2009 (for Teekay
Offshore) and March 31, 2010 (for Teekay LNG), that Teekay
Offshore or Teekay LNG, as applicable, meet each of the
following tests:
•
distributions of available cash from “operating
surplus” on each of the outstanding common units and
subordinated units equaled or exceeded the minimum quarterly
distribution for each of the three, consecutive, non-overlapping
four-quarter periods immediately preceding that date;
•
the “adjusted operating surplus” generated during each
of the three consecutive, non-overlapping four-quarter periods
immediately preceding that date equaled or exceeded the sum of
the minimum quarterly distributions on all of the outstanding
common units and subordinated units during those periods on a
fully diluted basis and the related distribution on the 2%
general partner interest during those periods; and
•
there are no arrearages in payment of the minimum quarterly
distribution on the common units.
We anticipate that, pending confirmation of results for the
quarters ended December 31, 2009 and March 31, 2010,
the subordination periods for Teekay Offshore and Teekay LNG,
respectively, will end at their earliest permitted dates under
the tests described above.
If all of the subordinated units of Teekay Offshore or Teekay
LNG are converted to common units, Teekay Offshore or Teekay
LNG, as applicable, would pay distributions in the following
manner:
•
first, 98% to the common unitholders, pro rata, and 2% to
the general partner, until Teekay Offshore or Teekay LNG, as
applicable, distributes for each outstanding common unit an
amount equal to the minimum quarterly distribution for that
quarter; and
•
thereafter, in the manner described in “—Incentive
distribution rights” below.
Incentive distribution rights. The general partner
of each of Teekay Offshore and Teekay LNG is also entitled to
distributions payable with respect to incentive distribution
rights. Incentive distribution rights represent the right to
receive an increasing percentage of quarterly distributions of
available cash from operating surplus after the minimum
quarterly distribution and the target distribution levels have
been achieved.
Teekay Offshore or Teekay LNG has distributed available cash
from operating surplus to the common and subordinated
unitholders in an amount equal to the minimum quarterly
distribution; and
•
Teekay Offshore or Teekay LNG has distributed available cash
from operating surplus on outstanding common units in an amount
necessary to eliminate any cumulative arrearages in payment of
the minimum quarterly distribution;
then, Teekay Offshore or Teekay LNG, as applicable, will
distribute any additional available cash from operating surplus
for that quarter among the unitholders and its general partner
in the following manner:
•
first, 98% to all unitholders, pro rata, and 2% to the
general partner, until each unitholder has received a total of
$0.4025 (Teekay Offshore) or $0.4625 (Teekay LNG) per unit for
that quarter;
•
second, 85% to all unitholders, and 15% to the general partner,
until each unitholder has received a total of $0.4375 (Teekay
Offshore) or $0.5375 (Teekay LNG) per unit for that quarter;
•
third, 75% to all unitholders, and 25% to the general partner,
until each unitholder has received a total of $0.525 (Teekay
Offshore) or $0.65 (Teekay LNG) per unit for that
quarter; and
•
thereafter, 50% to all unitholders and 50% to the general
partner.
Teekay received total distributions, including incentive
distributions, from Teekay Offshore of $7.2 million,
$7.2 million and $7.4 million, respectively, with
respect to the first three quarters of 2009. Teekay received
total distributions, including incentive distributions, from
Teekay Offshore of $0.6 million (following Teekay
Offshore’s initial public offering in December 2006),
$17.7 million and $25.1 million, respectively, with
respect 2006, 2007 and 2008. Teekay received total
distributions, including incentive distributions, from Teekay
LNG of $16.0 million with respect to each of the first
three quarters of 2009. Teekay received total distributions,
including incentive distributions, from Teekay LNG of
$44.7 million, $50.9 million and $61.1 million,
respectively, with respect 2006, 2007 and 2008. Please refer to
above for discussion of total distributions received from Teekay
Tankers.
Competition with
Teekay Tankers, Teekay Offshore and Teekay LNG
Teekay has entered into an omnibus agreement with Teekay LNG,
Teekay Offshore and related parties governing, among other
things, when Teekay, Teekay LNG, and Teekay Offshore may compete
with each other and providing for rights of first offer on the
transfer or rechartering of certain LNG carriers, oil tankers,
shuttle tankers, FSO units and FPSO units. Subject to applicable
exceptions, the omnibus agreement generally provides that
(a) neither Teekay nor Teekay LNG will own or operate
offshore vessels (i.e. dynamically positioned shuttle tankers,
FSOs and FPSOs) that are subject to contracts with a duration of
three years or more, excluding extension options,
(b) neither Teekay nor Teekay Offshore will own or operate
LNG carriers and (c) neither Teekay LNG nor Teekay Offshore
will own or operate crude oil tankers.
In addition, Teekay Tankers has agreed that Teekay may pursue
business opportunities attractive to both parties and of which
either party becomes aware. These business opportunities may
include, among other things, opportunities to charter out,
charter in or acquire oil tankers or to acquire tanker
businesses.
Sales of vessels
and project interests by Teekay to Teekay Tankers, Teekay
Offshore and Teekay LNG
From time to time Teekay has sold to Teekay Tankers, Teekay
Offshore and Teekay LNG vessels or interests in vessel owning
subsidiaries or joint ventures. These transactions include those
described under “Management’s discussion and analysis
of financial condition and results of operations.”
Teekay currently has committed to the following vessel
transactions with its public company subsidiaries:
•
To sell to Teekay LNG a 33% interest in the Angola LNG Project.
•
To sell to Teekay LNG for a total cost of approximately
$94 million two technically advanced 12,000-cubic meter
multi-gas newbuildings capable of carrying LNG, LPG or ethylene.
This sale will occur upon delivery and purchase by Teekay of
these vessels, which is scheduled for the second half of 2010.
Upon delivery, each vessel will commence service under
15-year
fixed-rate charters to I.M. Skaugen ASA.
•
To sell to Teekay Offshore existing FPSO units of Teekay
Petrojarl that were servicing contracts in excess of three years
in length as of July 9, 2008, the date on which Teekay
Corporation acquired 100% of Teekay Petrojarl. Teekay Offshore,
at its election, may acquire these units at any time until
July 9, 2010. The purchase price for any such existing FPSO
units would be its fair market value plus any additional tax or
other similar costs to Teekay Petrojarl that would be required
to transfer the offshore vessels to Teekay Offshore.
•
To offer to Teekay Tankers a Suezmax tanker prior to
June 18, 2010. The purchase price for the vessel would be
its fair market value at the time of offer, taking into account
any existing charter contracts and based on independent ship
broker valuations.
For additional information, please read “Management’s
discussion and analysis of financial condition and results of
operations—Significant developments in 2008 and 2009.”
Time chartering
arrangements
Teekay charters in from or out to its public company
subsidiaries certain vessels, including the following charter
arrangements:
•
Nine of OPCO’s conventional tankers are chartered out to
Teekay subsidiaries under long-term time charters. Two of
OPCO’s shuttle tankers are chartered out to Teekay
subsidiaries under long-term bareboat charters. Pursuant to
these charter contracts, OPCO earned voyage revenues of
$85.3 million for the nine months ended September 30,2009, and $25.9 million, $142.6 million and
$159.3 million, respectively, for 2006 (following Teekay
Offshore’s initial public offering in December 2006), 2007
and 2008.
•
From December 2008 to June 2009, OPCO entered into a bareboat
charter contract to in-charter one shuttle tanker from a
subsidiary Teekay. Pursuant to the charter contract, OPCO
incurred time-charter hire expenses of $3.4 million for the
nine months ended September 30, 2009.
•
During 2009, two of OPCO’s shuttle tankers were employed on
single-voyage charters with a subsidiary of Teekay. Pursuant to
these charter contracts, OPCO earned voyage revenues of
$11.3 million, respectively, for the nine months ended
September 30, 2009.
•
From August 2008, Teekay has been chartering in from Teekay
Tankers the tanker Nassau Spirit under a fixed-rate time charter
currently scheduled to expire in August 2010. Teekay Tankers
earned revenues of $10.4 million during the nine months
ended September 30, 2009, and $4.9 million for 2008
under this time-charter contract.
Services,
management and pooling arrangements
Services agreements. In connection with their
initial public offerings in May 2005 and December 2006,
respectively, and subsequent thereto, Teekay LNG and Teekay
Offshore and certain of their subsidiaries have entered into
services agreements with certain other subsidiaries of Teekay,
pursuant to which the other Teekay subsidiaries provide to
Teekay LNG, Teekay Offshore and their subsidiaries
administrative, advisory and technical and ship management
services. These services are provided in a commercially
reasonably manner and upon the reasonable request of the general
partner or subsidiaries of Teekay LNG or Teekay Offshore, as
applicable. The other Teekay subsidiaries that are parties to
the services agreements provide these services directly or
subcontract for certain of these services with other entities,
including other Teekay subsidiaries. Teekay LNG and Teekay
Offshore pay arm’s-length fees for the services that
include reimbursement of the reasonable cost of any direct and
indirect expenses the other Teekay subsidiaries incur in
providing these services. During the nine months ended
September 30, 2009, Teekay LNG and Teekay Offshore incurred
$27.4 million and $29.6 million, respectively, for
these services. During 2006, 2007 and 2008, Teekay LNG and
Teekay Offshore incurred $4.8 million, $18.2 million
and $29.5 million, and $21.6 million (following Teekay
Offshore’s initial public offering in December 2006),
$52.7 million and $50.3 million, respectively, for
these services.
Management agreement. In connection with its initial
public offering, Teekay Tankers entered into the long-term
management agreement with Teekay Tankers Management Services
Ltd., a subsidiary of Teekay (the Manager). Subject to certain
limited termination rights, the initial term of the management
agreement will expire on December 31, 2022. If not
terminated, the agreement will automatically renew for five-year
periods. Termination fees are required for early termination by
Teekay Tankers under certain circumstances. Pursuant to the
management agreement, the Manager provides to Teekay Tankers the
following types of services: commercial (primarily vessel
chartering), technical (primarily vessel maintenance and
crewing), administrative (primarily accounting, legal and
financial) and strategic (primarily advising on acquisitions,
strategic planning and general management of the business). The
Manager has agreed to use its best efforts to provide these
services upon Teekay Tankers’ request in a commercially
reasonable manner and may provide these services directly to
Teekay Tankers or subcontract for certain of these services with
other entities, primarily other Teekay subsidiaries.
In return for services under the management agreement, Teekay
Tankers pays the Manager an
agreed-upon
fee for commercial services (other than for Teekay Tankers
vessels participating in pooling arrangements), a technical
services fee equal to the average rate Teekay charges third
parties to technically manage their vessels of a similar size,
and fees for administrative and strategic services that
reimburse the Manager for its related direct and indirect
expenses in providing such services and which includes a profit
margin. During the nine months ended September 30, 2009,
Teekay Tankers incurred $4.2 million for these services.
During 2007 and 2008, Teekay Tankers incurred $0.1 million
(following its initial public offering in December
2007) and $5.8 million, respectively, for these
services. The management agreement also provides for the payment
of a performance fee in order to provide the Manager an
incentive to increase cash available for distribution to Teekay
Tankers’ stockholders. Teekay Tankers incurred no
performance fees for the nine months ended September 30,2009. During 2007 and 2008, Teekay Tankers incurred $nil
(following its initial public offering in December
2007) and $1.4 million, respectively, for performance
fees.
Pooling arrangements. Certain Aframax and Suezmax
tankers of Teekay Tankers participate in vessel pooling
arrangements managed by other Teekay subsidiaries. The pool
managers provide commercial services to the pool participants
and administer the pools in exchange for a fee currently equal
to 1.25% of the gross revenues attributable to each pool
participant’s vessels and a fixed amount per vessel per day
which ranges from $275 (for the Suezmax tanker pool) to $350
(for the Aframax tanker pool). Voyage revenues and voyage
expenses of Teekay Tankers’ vessels operating in these pool
arrangements are pooled with the voyage revenues and voyage
expenses of other pool participants. The resulting net pool
revenues, calculated on a time charter equivalent basis, are
allocated to the pool participants according to an agreed
formula. Teekay Tankers incurred pool management fees during the
nine months ended September 30, 2009 of $1.1 million.
Teekay Tankers incurred pool management fees during 2007 and
2008 of $0.1 million (following its initial public offering
in December 2007) and $2.2 million, respectively.
The following is a summary of our primary indebtedness.
Our long-term
credit facilities and term loans
As of September 30, 2009, we had 13 long-term revolving
credit facilities available (or the Revolvers), which, as
at such date, provided for borrowings of up to
$3.3 billion, of which $1.3 billion was undrawn.
Interest payments are based on LIBOR plus margins, which ranged
between 0.45% and 0.95% as of September 30, 2009. At
September 30, 2009, the three-month LIBOR was 0.30%. The
total amount available under the Revolvers reduced by
$74.0 million for the fourth quarter of 2009 and will
reduce by $173.0 million (2010), $205.8 million
(2011), $313.8 million (2012), $596.3 million
(2013) and $1.9 billion (thereafter). Please read
“Management’s discussion and analysis of financial
condition and results of operations—Commitments and
contingencies.” The Revolvers are collateralized by
first-priority mortgages granted on 62 of our vessels, together
with other related security, and include a guarantee from Teekay
or its subsidiaries for all outstanding amounts.
The 8.875% Senior Notes rank equally in right of payment
with all of Teekay’s existing and future senior unsecured
debt and senior to Teekay’s existing and future
subordinated debt. The 8.875% Notes are not guaranteed by
any of Teekay’s subsidiaries and effectively rank behind
all existing and future secured debt of Teekay and other
liabilities, secured and unsecured, of its subsidiaries.
Concurrently with this offering we are commencing the Tender
Offer for all outstanding 8.875% Senior Notes. Please read
“Summary — Refinancing transaction.”
As of September 30, 2009, we had 15
U.S. Dollar-denominated term loans outstanding, which
totaled $1.9 billion. Certain of the term loans with a
total outstanding principal balance of $491.0 million as at
September 30, 2009, bear interest at a weighted-average
fixed rate of 5.19%. Interest payments on the remaining term
loans are based on LIBOR plus margins that which ranged between
0.30% and 3.25% as of September 30, 2009. The term loan
payments are made in quarterly or semi-annual payments
commencing three or six months after delivery of each
newbuilding financed thereby, and 14 of the term loans also have
balloon or bullet repayments due at maturity. The term loans are
collateralized by first-priority mortgages on 30 of our vessels,
together with certain other related security. In addition, at
September 30, 2009, all but $137.7 million of the
outstanding term loans were guaranteed by Teekay or its
subsidiaries.
We have two Euro-denominated term loans outstanding, which, as
at September 30, 2009, totaled 290.1 million Euros
($424.8 million). We repay the loans with funds generated
by two Euro-denominated long-term time-charter contracts.
Interest payments on the loans are based on EURIBOR plus
margins. As of September 30, 2009, the margins ranged
between 0.60% and 0.66% and the one-month EURIBOR was 0.44%. The
Euro-denominated term loans reduce in monthly payments with
varying maturities through 2023 and are collateralized by
first-priority mortgages on two of our vessels, together with
certain other security, and are guaranteed by a subsidiary of
Teekay.
We have two U.S. Dollar-denominated loans outstanding owing
to joint venture partners, which, as at September 30, 2009,
totaled $15.1 million and $1.1 million, respectively,
including accrued interest. Interest payments on the first loan,
which are based on a fixed interest rate of 4.84%, commenced in
February 2008. This loan is repayable on demand no earlier than
February 27, 2027.
In October 2009, Teekay LNG entered into a new credit facility
that will be secured by three LPG and two multigas newbuildings
to be acquired from I.M. Skaugen ASA, including two LPG carriers
that were delivered in April and November 2009, respectively.
The facility amount is equal to the lower of $122.0 million
and 60% of the purchase price of each vessel. The facility will
mature, with respect to each vessel, seven years after the
drawdown date of each vessel. The loan bears interest based on
LIBOR plus 2.75% and requires quarterly principal repayments and
a balloon payment at maturity.
In November 2009, Teekay Offshore entered into a new
$260 million revolving credit facility secured by the
Petrojarl Varg FPSO unit, which Teekay Offshore acquired
from Teekay in September 2009. The credit facility matures
in 2013 and bears interest based on LIBOR plus 3.25%. The
facility requires quarterly reductions and is guaranteed by
Teekay Offshore. In addition, Teekay guarantees $65 million
of the $135 million balloon payment. This guarantee will
terminate if the charterer of the FPSO unit exercises its
option, prior to June 30, 2012, to extend the contract term.
Teekay Nakilat (III) Corporation owns a 40% interest in the
RasGas 3 Joint Venture. The RasGas 3 Joint Venture owns four LNG
carriers which delivered during 2008. As at September 30,2009, Teekay Nakilat (III) Corporation has a term loan
outstanding in the amount of $846.9 million, of which our
40% share is $338.8 million. A portion of the loan bears
interest at a fixed rate of 5.36% and the remaining portion of
the loan bears interest based on LIBOR plus 0.9%. The facility
requires quarterly principal repayments and a balloon repayment
at maturity, which occurs in 2020.
In December 2007, a consortium in which we have a 33% ownership
interest, agreed to charter four LNG newbuildings for a period
of 20 years to the Angola LNG Project. As at
September 30, 2009, MiNT LNG I-IV, Ltd. had a term loan
outstanding in the amount of $177.9 million, of which our 33%
share is $58.7 million and is guaranteed by Teekay until
such time as each vessel delivers. Interest payments on the loan
are based on LIBOR plus margins. Quarterly principal repayments
will commence three months after delivery of the vessels, with a
balloon payment due at maturity, 12 years after the
delivery dates. Deliveries of the vessels are scheduled between
August 2011 and January 2012.
Interest rates noted above do not reflect the effect of related
interest rate swaps that we use to reduce our exposure to market
risk from changes in interest rates. For additional information
about these interest rate swaps, please read
“Management’s discussion and analysis of financial
condition and results of operations—Quantitative and
qualitative disclosure about market risk—Interest rate
risk.”
Covenants in our revolving credit facilities and term loans
include those that restrict our ability to, among other things:
•
pay dividends;
•
incur or guarantee indebtedness;
•
change our ownership or structure, including through mergers,
consolidations, liquidations and dissolutions;
Our long-term debt agreements also generally provide for
maintenance of minimum financial covenants and certain loan
agreements require the maintenance of vessel market
value-to-loan
ratios. Certain loan agreements require that a minimum level of
free cash which, as at September 30, 2009, was
$100.0 million. Certain of the loan agreements also require
that we maintain an aggregate level of free liquidity and
undrawn revolving credit lines with at least six months to
maturity, representing at least 7.5% of total debt. As at
September 30, 2009, this amount was $233.4 million.
Our capital leases do not contain financial or restrictive
covenants other than those relating to operation and maintenance
of the vessels. We were in compliance with our debt covenants as
at December 31, 2009.
Our capital
leases and restricted cash
Suezmax tankers. As at September 30, 2009,
Teekay LNG was a party, as lessee, to capital leases on five
Suezmax tankers. Under the terms of the lease arrangements,
Teekay LNG is required to purchase these vessels after the end
of their respective lease terms for fixed prices by assuming the
existing vessel financing upon the lenders consent. At their
inception, the weighted-average interest rate implicit in these
leases was 7.4%. These capital leases are variable-rate capital
leases; however, any change in the lease payments resulting from
changes in interest rates is offset by a corresponding change in
the charter hire payments received by Teekay LNG. As at
September 30, 2009, the remaining commitments under these
capital leases, including the purchase obligations, approximated
$227.6 million, including imputed interest of
$30.2 million, repayable as follows: $6.0 million
(fourth quarter of 2009), $23.7 million (2010) and
$197.9 million (2011).
RasGas II LNG Carriers. As at
September 30, 2009, Teekay LNG was a party, as lessee, to
30-year
capital lease arrangements for the three RasGas II LNG
Carriers that operate under time-charter contracts with Ras
Laffan Liquefied Natural Gas Co. Limited (II), a joint venture
between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary
of ExxonMobil Corporation. All amounts below relating to the
RasGas II LNG Carriers capital leases include the
non-controlling interest’s 30% share.
Under the terms of the RasGas II LNG Carriers capital lease
arrangements, the lessor claims tax depreciation on the capital
expenditures it incurred to acquire these vessels. As is typical
in these leasing arrangements, tax and change of law risks are
assumed by the lessee.
Payments under the lease arrangements are based on tax and
financial assumptions at the commencement of the leases. If an
assumption proves to be incorrect, the lessor is entitled to
increase the lease payments to maintain its agreed after- tax
margin. At inception of the leases our best estimate of the fair
value of the guarantee liability was $18.6 million. During
2008, Teekay LNG agreed under the terms of its tax lease
indemnification guarantee to increase its capital lease payments
for the three RasGas II LNG Carriers to compensate the
lessor for losses suffered as a result of changes in tax rates.
The estimated increase in lease payments is approximately
$8.1 million over the term of the leases, with a carrying
value of $7.9 million as at September 30, 2009. Teekay
LNG’s carrying amount of this tax indemnification is
$9.3 million as at September 30, 2009. Both amounts
are included as part of other long-term liabilities in the
consolidated balance sheets included in this prospectus. The tax
indemnification is for the duration of the lease contract with
the third party plus the years it would take for the lease
payments to be statute barred, and ends in 2042. Although there
is no maximum potential amount of future payments, Teekay LNG
may terminate the lease arrangements at any time. If
the lease arrangements terminate, Teekay LNG will be required to
pay termination sums to the lessor sufficient to repay the
lessor’s investment in the vessels and to compensate it for
the tax-effect of the terminations, including recapture of any
tax depreciation.
At their inception, the weighted-average interest rate implicit
in these leases was 5.2%. These capital leases are variable-rate
capital leases. As at September 30, 2009, the commitments
under these capital leases approximated $1.1 billion,
including imputed interest of $0.6 billion, repayable as
follows: $6.0 million (fourth quarter of 2009),
$24.0 million (each of 2010, 2011, 2012 and 2013) and
$953.1 million (thereafter).
Spanish-flagged LNG carrier. As at
September 30, 2009, Teekay LNG was a party, as lessee, to a
capital lease on one Spanish-flagged LNG carrier, which is
structured as a “Spanish tax lease.” Under the terms
of the Spanish tax lease, Teekay LNG will purchase the vessel at
the end of the lease term in 2011. The purchase obligation has
been fully funded with restricted cash deposits described below.
At its inception, the implicit interest rate was 5.8%. As at
September 30, 2009, the commitments under this capital
lease, including the purchase obligation, approximated
117.4 million Euros ($171.8 million), including
imputed interest of 10.2 million Euros
($14.9 million), repayable as follows: 25.7 million
Euros ($37.5 million) (fourth quarter of 2009),
26.9 million Euros ($39.4 million) (2010) and
64.8 million Euros ($94.9 million) (2011).
FPSO Units. As at September 30, 2009, we were a
party, as lessee, to capital leases on one FPSO unit, the
Petrojarl Foinaven, and the topside production equipment
for another FPSO unit, the Petrojarl Banff. However,
prior to being acquired by us, Teekay Petrojarl legally defeased
its future charter obligations for these assets by making
up-front, lump-sum payments to unrelated banks, which have
assumed Teekay Petrojarl’s liability for making the
remaining periodic payments due under the long-term charters (or
Defeased Rental Payments) and termination payments under
the leases.
The Defeased Rental Payments for the Petrojarl Foinaven
were based on assumed Sterling LIBOR of 8% per annum. If
actual interest rates are greater than 8% per annum, we will
receive rental rebates; if actual interest rates are less than
8% per annum, we will be required to pay rentals in excess of
the Defeased Rental Payments.
As is typical for these types of leasing arrangements, the
Company has indemnified the lessors of the Petrojarl Foinaven
for the tax consequence resulting from changes in tax laws
or interpretation of such laws or adverse rulings by authorities
and for fluctuations in actual interest rates from those assumed
in the leases.
Restricted cash. Under the terms of the capital
leases for the four LNG carriers described above, Teekay LNG is
required to have on deposit with financial institutions an
amount of cash that, together with interest earned on the
deposits, will equal the remaining amounts owing under the
leases, including the obligations to purchase the LNG carriers
at the end of the lease periods, where applicable. These cash
deposits are restricted to being used for capital lease payments
and have been fully funded with term loans and, for one vessel,
a loan from Teekay LNG’s joint venture partner.
As at September 30, 2009, the amount of restricted cash on
deposit for the three RasGas II LNG Carriers and the
Spanish-flagged LNG Carrier was $480.4 million and
108.6 million Euros ($159.1 million), respectively. As
at September 30, 2009, the weighted-average interest rates
earned on the deposits for the RasGas II LNG Carriers and
the Spanish-flagged LNG Carrier were 0.7% and 5.0%, respectively.
In this section, “Teekay” or the “Company”
means Teekay Corporation and not any of its subsidiaries. The
notes will be issued by Teekay pursuant to an indenture between
Teekay and The Bank of New York Mellon Trust Company,
N.A., as trustee. You may obtain a copy of the indenture
from Teekay upon request. The indenture has been filed as an
exhibit to the registration statement of which this prospectus
is a part.
The indenture is subject to and governed by the
U.S. Trust Indenture Act of 1939. The statements under
this section of this prospectus are summaries of the material
terms and provisions of the indenture and the notes. They do not
purport to be complete and are qualified in their entirety by
reference to all the provisions in the indenture. Therefore, we
urge you to read the indenture because it, and not this
description, defines your rights as holders of the notes.
Definitions relating to certain capitalized terms are set forth
under “—Certain definitions” and throughout this
description. Capitalized terms that are used but not otherwise
defined in this description have the meanings ascribed to them
in the indenture.
General
The notes:
•
are general unsecured obligations of Teekay;
•
rank equally and ratably in right of payment with all existing
and future unsecured senior debt of Teekay;
•
are senior in right of payment to all existing and future
subordinated debt of Teekay;
•
are effectively subordinated to all of Teekay’s secured
debt to the extent of the collateral securing such debt; and
•
are effectively subordinated to all existing and future debt and
other liabilities and commitments of Teekay’s subsidiaries
because Teekay is a holding company and the notes will not be
guaranteed by any of its subsidiaries.
The indenture does not put any limitation on Teekay and its
subsidiaries to incur debt.
Our
consolidated debt
As of September 30, 2009 and after giving effect to this
offering and the proposed application of the net offering
proceeds to (a) purchase all of the outstanding
8.875% Senior Notes in the Tender Offer and (b) repay
a portion of our outstanding debt under one of our revolving
credit facilities as described in “Use of proceeds,”
we would have had approximately $5.3 billion of debt on a
consolidated basis, of which:
•
$450 million would be direct obligations of Teekay
Corporation, none of which are secured by assets of Teekay
Corporation or guaranteed by Teekay subsidiaries; and
•
$4.8 billion would be direct obligations of Teekay
subsidiaries (including obligations under capital leases secured
by $627 million of restricted cash deposits)
•
none of which are secured by assets of Teekay Corporation;
all of which are secured by assets of Teekay subsidiaries
(including the $627 million of restricted cash deposits);
and
•
$2.0 billion of which are guaranteed by Teekay Corporation
(including obligations under capital leases secured by
$470 million of restricted cash deposits).
In addition to our consolidated debt, as of September 30,2009, our total proportionate interest in debt of joint ventures
we do not control was $398 million, of which Teekay
Corporation has guaranteed $58.7 million and which
otherwise is non-recourse to us.
If less than all of our 8.875% Senior Notes are purchased
pursuant to the Tender Offer, Teekay Corporation’s senior
unsecured debt will be higher.
Teekay Parent
debt
As of September 30, 2009 and after giving effect to this
offering and the proposed application of the net offering
proceeds as described in “Use of proceeds,” Teekay
Parent would have had approximately $1.3 billion of debt,
of which:
•
$450 million would be direct obligations of Teekay
Corporation, none of which are secured by assets of Teekay
Corporation or guaranteed by Teekay subsidiaries; and
•
$813 million would be direct obligations of subsidiaries
within Teekay Parent;
•
none of which are secured by assets of, but all of which is
guaranteed by, Teekay Corporation; and
•
all of which are secured by assets of subsidiaries within Teekay
Parent.
Principal,
maturity and interest
Teekay will issue up to $450 million aggregate principal
amount of notes. The indenture provides for the issuance of an
unlimited amount of additional notes having identical terms and
conditions to the notes. The notes and any additional notes
subsequently issued under the indenture would be treated as a
single class for all purposes under the indenture, including,
without limitation, waivers, amendments, redemptions and offers
to purchase. Teekay will issue notes in denominations of $2,000
and integral multiples of $1,000 in excess thereof. The notes
will mature
on ,
2020.
Interest on the notes will accrue at the rate
of % per annum and will be payable
semi-annually in arrears
on
and ,
commencing on
,
2010. Teekay will make each interest payment to the holders of
record on the immediately
preceding
and
.
Interest on the notes will accrue
from ,
2010 or, if interest has already been paid, from the date it was
most recently paid. Interest will be computed on the basis of a
360-day year
comprised of twelve
30-day
months.
Optional
redemption
At Teekay’s option, Teekay may redeem the notes in whole or
in part at any time before their maturity date at a redemption
price equal to the greater of (i) 100% of the principal
amount of
the notes to be redeemed and (ii) the sum of the present
values of the remaining scheduled payments of principal and
interest on the notes to be redeemed (excluding the portion of
any such interest accrued to the redemption date) discounted to
the redemption date on a semi-annual basis (assuming a
360-day year
consisting of twelve
30-day
months) at the Treasury Yield (as defined below), plus
50 basis points, plus, in each case, accrued and unpaid
interest to the redemption date. For this purpose, the following
terms have the following meanings:
“Treasury Yield” means, with respect to any redemption
date, the rate per year equal to the semi-annual equivalent
yield to maturity of the Comparable Treasury Issue, assuming a
price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
“Comparable Treasury Issue” means the United States
Treasury security selected by an Independent Investment Banker
as having a maturity comparable to the remaining term of the
notes that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to
the remaining term of the notes.
“Comparable Treasury Price” means, with respect to any
redemption date, (i) the average of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case
as a percentage of its principal amount) on the third business
day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated “H.15(519)
Selected Interest Rates” or (ii) if such release (or
any successor release) is not published or does not contain such
prices on such business day, (A) the average of the
Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury
Dealer Quotations for such redemption date, or (B) if the
trustee obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such Reference Treasury Dealer
Quotations.
“Independent Investment Banker” means J.P. Morgan
Securities Inc. or its successor or, if such firm is unwilling
or unable to select the Comparable Treasury Issue, one of the
remaining Reference Treasury Dealers appointed by Teekay.
“Reference Treasury Dealer” means (i) each of
J.P. Morgan Securities Inc. and any other primary
U.S. Government securities dealer in New York City (a
Primary Treasury Dealer) designated by, and not
affiliated with, J.P. Morgan Securities Inc., provided
however, that if J.P. Morgan Securities Inc. or any of
its designees shall cease to be a Primary Treasury Dealer,
Teekay will appoint another Primary Treasury Dealer as a
substitute for such entity and (ii) any other Primary
Treasury Dealer selected by Teekay.
“Reference Treasury Dealer Quotations” means, with
respect to each Reference Treasury Dealer and any redemption
date, the average, as determined by the trustee of the bid and
asked prices for the Comparable Treasury Issue (expressed, in
each case, as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer at
5:00 p.m., New York City time, on the third business day
preceding such redemption date.
At least 30 days but not more than 60 days before the
relevant redemption date, Teekay will send notice of redemption
to each holder of notes to be redeemed. If less than all of the
notes are to be redeemed, the trustee will select, by such
method as it will deem fair and appropriate, the notes to be
redeemed in whole or in part.
Unless Teekay defaults in payment of the redemption price, no
interest will accrue on the notes called for redemption for the
period from and after the redemption date.
Redemption with
proceeds from equity offerings
At any time or from time to time prior
to ,
2013, Teekay, at its option, may redeem up to 35% of the
aggregate principal amount of the notes issued under the
indenture with the net cash proceeds of one or more Qualified
Equity Offerings at a redemption price equal
to % of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest thereon,
if any, to the Redemption Date; provided that (1) at
least 65% of the aggregate principal amount of notes issued
under the indenture remains outstanding immediately after the
occurrence of such redemption and (2) the redemption occurs
within 60 days of the date of the closing of any such
Qualified Equity Offering.
Redemption for
changes in withholding taxes
The notes will be subject to redemption in whole, but not in
part, at the option of Teekay, at any time at 100% of the
principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Redemption Date, and any other
amounts owed to the holders of the notes under the terms of the
indenture or the notes, if (i) Teekay becomes obligated to
pay, on the next date on which any amount would be payable with
respect to the notes, any Additional Amounts as a result of any
generally applicable change in the laws or regulations of a
Taxing Jurisdiction which becomes effective after the date of
issuance of any of the outstanding notes and (ii) Teekay
cannot avoid its obligations to pay such Additional Amounts by
taking reasonable measures available to Teekay. However, any
such notice of redemption must be given within 60 calendar days
of the earliest date on which Teekay would be obligated to pay
such Additional Amounts if a payment in respect of the notes
were then due. Prior to the giving of any notice of redemption
described in this paragraph, Teekay will deliver to the trustee
an officer’s certificate stating that Teekay is entitled to
redeem the notes in accordance with the terms in the indenture
and stating the facts relating to such redemption. Please read
“—Additional amounts.”
Mandatory
redemption; tender offers; open market purchases
Except as set forth below under “Covenants—Repurchase
of notes upon a Change of Control Triggering Event,” Teekay
is not required to make sinking fund payments or mandatory
redemption payments prior to maturity with respect to the notes.
Teekay may acquire notes by means other than a redemption,
whether by tender offer, open market purchases, negotiated
transactions or otherwise, in accordance with applicable
securities laws, so long as such acquisition does not otherwise
violate the terms of the indenture.
Covenants
Repurchase of
notes upon a Change of Control Triggering Event
The indenture provides that upon the occurrence of a Change of
Control Triggering Event and unless Teekay has exercised its
right to redeem all of the notes as described under
“—Optional redemption,” each holder of notes will
have the right to require Teekay to repurchase such
holder’s notes, in whole or in part, in denominations of
$2,000 and integral multiples of $1,000
in excess thereof, at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest,
if any, to the date of purchase, in accordance with the
procedures set forth in the indenture. A “Change of
Control” also constitutes an event of default under several
of Teekay’s other debt agreements. There can be no
assurance that Teekay will have sufficient funds to pay the
purchase price referred to above at the time of the Change of
Control Triggering Event. The existence of a holder’s right
to require Teekay to repurchase notes upon the occurrence of a
Change of Control Triggering Event may deter a third party from
acquiring Teekay in a transaction which would constitute a
Change of Control.
The definition of “Change of Control” in
“—Certain definitions” below includes the failure
to have continuing directors comprising a majority of the board
of directors. In a recent decision, the Delaware Court of
Chancery raised the possibility that a change of control
occurring as a result of a failure to have continuing directors
comprising a majority of the board of directors may be
unenforceable on public policy grounds.
Consolidation,
merger and sale of assets
Teekay may not, in a single transaction or a series of related
transactions:
(1) consolidate with or merge with or into any other person
or permit any other person to consolidate with or merge with or
into Teekay; or
(2) directly or indirectly, transfer, sell, lease or
otherwise dispose of all or substantially all of its assets;
unless, in the case of clauses (1) or (2) of this
covenant:
(a) in a transaction in which Teekay does not survive or in
which Teekay sells, leases or otherwise disposes of all or
substantially all of its assets, the successor entity to Teekay
is organized under (i) the laws of the United States or any
State thereof or the District of Columbia, (ii) the laws of
the Republic of The Marshall Islands, (iii) the laws of the
Commonwealth of the Bahamas, (iv) the laws of the Bermuda
Islands, (v) the laws of the Republic of Liberia or
(vi) the laws of any other country recognized by the United
States of America and which, in the case of any of events under
subclause (i), (ii), (iii), (iv), (v) or (vi) of this
subclause (a), shall expressly assume, by a supplemental
indenture executed and delivered to the trustee in form
satisfactory to the trustee, all of Teekay’s obligations
under the indenture;
(b) immediately before and after giving effect to such
transaction, no Default or Event of Default shall have occurred
and be continuing; and
(c) certain other conditions are met.
Although there is limited case law interpreting the phrase
“substantially all” in the context of a sale of all or
substantially all of a person’s assets, there is no
precise, established definition of the phrase under applicable
law. Accordingly, in certain circumstances there may be a degree
of uncertainty as to whether a particular transaction would
involve “all or substantially all” of Teekay’s
assets.
Teekay may not create, incur, assume or suffer to exist any Lien
on or with respect to any property or assets now owned or
hereafter acquired to secure any present or future Relevant Debt
of Teekay without making effective provision for securing the
notes:
(1) in the event such debt is pari passu with the
notes, equally and ratably with such debt as to such property or
assets for so long as such debt will be so secured; or
(2) in the event such debt is subordinate in right of
payment to the notes, prior to such debt as to such property or
assets for so long as such debt will be so secured.
The term “Relevant Debt” shall be defined in the
indenture as meaning any debt for borrowed money in the form of
bonds, notes, debentures or other debt securities issued by way
of public offering or private placement, including any guarantee
or indemnity given in respect of debt of any third party for
money borrowed in the form of bonds, notes, debentures or other
debt securities issued by way of a public offering or private
placement, but, for greater clarity, shall not include loans (or
collateral debt securities relating to such loans) made by banks
or other financial institutions, customers or strategic partners.
Payments for
consent
Teekay may not, and may not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to
any holder of notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the
indenture or the notes unless such consideration is offered to
be paid or is paid to all holders of the notes that consent,
waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or
agreement.
Provision of
financial information
Whether or not Teekay is then subject to Section 13(a) or
15(d) of the Exchange Act, Teekay will furnish to the trustee
and the holders, so long as the notes are outstanding:
(1) within 120 days after the end of each of the first
three fiscal quarters in each fiscal year, quarterly reports on
Form 6-K
(or any successor form) containing unaudited financial
statements (including a balance sheet and statement of income,
changes in stockholders’ equity and cash flow) and a
management’s discussion and analysis of financial condition
and results of operations (or equivalent disclosure) for and as
of the end of such fiscal quarter (with comparable financial
statements for the corresponding fiscal quarter of the
immediately preceding fiscal year);
(2) within 120 days after the end of each fiscal year,
an annual report on
Form 20-F
(or any successor form) containing the information required to
be contained therein for such fiscal year; and
(3) at or prior to such times at would be required to be
filed or furnished to the SEC if Teekay was then a “foreign
private issuer” subject to Section 13(a) or 15(d) of
the Exchange Act, all such other reports and information that
Teekay would have been required pursuant thereto;
provided, however, that if Teekay ceases to qualify as a
“foreign private issuer” within the meaning of the
Exchange Act and whether or not Teekay is then subject to
Section 13(a) or 15(d) of the Exchange Act, Teekay will
furnish to the trustee and the holders, so long as any notes are
outstanding, within (1) if Teekay is then subject to
Section 13(a) or 15(d) of the Exchange Act, 30 days of
the respective dates on which Teekay is required to file such
documents pursuant to the Exchange Act, or (2) if Teekay is not
then subject to Section 13(a) or 15(d) under the Exchange
Act, the applicable time periods described above with respect to
quarterly, annual and other reports and information, all reports
and other information that would be required to be filed with or
furnished to the SEC pursuant Section 13(a) or 15(d) of the
Exchange Act if it were required to file such documents under
the Exchange Act.
In addition, whether or not required by the rules and
regulations of the SEC, Teekay will electronically file or
furnish, as the case may be, a copy of all such information and
reports with the SEC for public availability within the time
periods specified above (unless the SEC will not accept such a
filing). Notwithstanding the foregoing, Teekay will be deemed to
have furnished such reports referred to in the first paragraph
of this covenant to the trustee and the holders of notes if
Teekay has filed such reports with the SEC via the EDGAR filing
system (or any successor system) and such reports are publicly
available.
Additional
amounts
All payments made by Teekay under or with respect to the notes
will be made free and clear of, and without withholding or
deduction for or an account of, any present or future tax, duty,
levy, impost, assessment or other governmental charge
(hereinafter Taxes) imposed or levied by or on behalf of
any Taxing Jurisdiction, unless Teekay is required to withhold
or deduct Taxes by law or by the interpretation or
administration thereof. If Teekay is so required to withhold or
deduct any amount of interest for or on account of Taxes from
any payment made under or with respect to the notes, Teekay will
pay such additional amounts of interest (Additional
Amounts) as may be necessary so that the net amount received
by each holder (including Additional Amounts) after such
withholding or deduction will not be less than the amount the
holder would have received if such Taxes had not been withheld
or deducted; provided that Teekay will not pay Additional
Amounts in connection with any Taxes that are imposed due to any
of the following (Excluded Additional Amounts):
(1) the holder or beneficial owner has some connection with
the Taxing Jurisdiction other than merely holding the notes or
receiving principal or interest payments on the notes (such as
citizenship, nationality, residence, domicile, or existence of a
business, a permanent establishment, a dependent agent, a place
of business or a place of management present or deemed present
within the taxing jurisdiction);
(2) any tax imposed on, or measured by net income;
(3) the holder or beneficial owner fails to comply with any
certification, identification or other reporting requirements
concerning its nationality, residence, identity or connection
with the Taxing Jurisdiction, if (A) such compliance is
required by applicable law, regulation, administrative practice
or treaty as a precondition to exemption from all or a part of
the tax duty assessment or other governmental charge,
(B) the holder or beneficial owner is able to comply with
such requirements without undue hardship and (C) at least
30 calendar days prior to the first payment date with respect to
which such requirements under the
applicable law, regulation, administrative practice or treaty
shall apply, Teekay has notified such holder that such holder
will be required to comply with such requirements;
(4) the holder fails to present (where presentation is
required) its note within 30 calendar days after Teekay has made
available to the holder a payment of principal or interest,
provided that Teekay will pay Additional Amounts which a holder
would have been entitled to had the note owned by such holder
been presented on any day (including the last day) within such
30-day
period;
(5) any estate, inheritance, gift, value added, use or
sales taxes or any similar taxes, assessments or other
governmental charges;
(6) where any Additional Amounts are imposed on a payment
on the notes to an individual and are required to be made
pursuant to European Union Directive 2003/48/EC or any other
directive implementing the conclusions of the Economic and
Financial Council of Ministers of the member states of the
European Union (ECOFIN) Council meeting of November
26-27, 2000
on the taxation of savings or any law implementing or complying
with, or introduced in order to conform to, such
directive; or
(7) where the holder or beneficial owner could avoid any
Additional Amounts by requesting that a payment on the notes be
made by, or presenting the relevant notes for payment to,
another paying agent located in a Member State of the European
Union.
Teekay will also (1) make such withholding or deduction and
(2) remit the full amount deducted or withheld to the
relevant authority in accordance with applicable law. Teekay
will furnish to the holders of the notes, within 30 days
after the date the payment of any Taxes is due pursuant to
applicable law, certified copies of tax receipts (if available)
evidencing such payment by Teekay.
Teekay will indemnify and hold harmless each holder for the
amount (other than Excluded Additional Amounts) of (1) any
Taxes not withheld or deducted by Teekay and levied or imposed
by a Taxing Jurisdiction and paid by such holder as a result of
payments made under or with respect to the notes, (2) any
liability (including penalties, interest and expenses) arising
therefrom or with respect thereto, and (3) any Taxes
imposed by a Taxing Jurisdiction with respect to any
reimbursement under clause (1) or (2) of this
paragraph.
At least 30 days prior to each date on which any payment
under or with respect to the notes is due and payable, if Teekay
is aware that it will be obligated to pay Additional Amounts
with respect to such payment, Teekay will deliver to the trustee
an officers’ certificate stating the fact that such
Additional Amounts will be payable, the amounts so payable and
such other information necessary to enable the trustee to pay
such Additional Amounts to holders on the payment date. Whenever
in the indenture there is mentioned, in any context, the payment
of principal (and premium, if any), interest or any other amount
payable under or with respect to any note, such mention (except
where expressly mentioned) shall be deemed to include mention of
the payment of Additional Amounts provided for in this section
to the extent that, in such context, Additional Amounts are,
were or would be payable in respect thereof.
Teekay will pay any stamp, administrative, court, documentary,
excise or property taxes arising in a Taxing Jurisdiction in
connection with the Additional Amounts and will indemnify the
holders of the notes for any such taxes paid by the holders of
the notes.
The following events are defined as “Events of
Default” in the indenture:
(1) Teekay defaults in the payment of principal of (or
premium, if any, on) any notes when the same becomes due and
payable at maturity, upon acceleration, redemption or otherwise;
(2) Teekay defaults in the payment of interest on any notes
when the same become due and payable, and such default continues
for a period of 30 days;
(3) Teekay defaults in the payment of the principal and
interest (and premium, if any) on notes required to be purchased
upon the occurrence of a Change of Control Triggering Event when
due and payable;
(4) Teekay defaults in the performance of or breaches any
other covenant, warranty or agreement of Teekay in the indenture
or under the notes and such default or breach continues for a
period of 60 consecutive days (90 days in the case of a
Reporting Failure) after the date on which Teekay receives
written notice, which notice specifies such default or breach
and requires Teekay to remedy such default or breach, and which
notice has been given to Teekay by the trustee or by the holders
of at least 25% in aggregate principal amount of the notes;
(5) there occurs with respect to any issue or issues of
other Debt of Teekay or any of its Subsidiaries having an
outstanding aggregate principal amount of $50 million or
more for all such issues of all such Persons, whether such Debt
now exists or shall hereafter be created, an event of default
that has caused the holder thereof to declare such Debt to be
due and payable prior to its Stated Maturity and such Debt has
not been discharged in full or such acceleration has not been
rescinded or annulled (by cure, waiver or otherwise) within
60 days of such acceleration; provided, however,
that any secured Debt in excess of the limits set forth
above shall be deemed to have been declared due and payable if
the lender in respect thereof takes any action to enforce a
security interest against, or an assignment of, or to collect
on, seize, dispose of or apply any assets of Teekay or its
Subsidiaries (including lock-box and other similar arrangements)
securing such Debt, or to set off against any bank account of
Teekay or its Subsidiaries in excess of $50 million;
(6) any final judgment or order (not covered by insurance)
for the payment of money in excess of $50 million in the
aggregate for all such final judgments or orders against all
such Persons (treating any deductibles, self-insurance or
retention as not so covered) shall be rendered against Teekay or
any Subsidiary and shall not be paid or discharged, and there
shall be any period of 60 consecutive days following entry of
the final judgment or order that causes the aggregate amount for
all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $50 million
during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be
in effect;
(7) Teekay or any Subsidiary shall generally not pay its
debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall
be instituted by or against Teekay or any Subsidiary seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating
to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any
substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for
a period of 60 days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order
for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any
substantial part of its property) shall occur; or Teekay or any
Subsidiary shall take any corporate action to authorize any of
the actions set forth above in this subsection (7); or
(8) Teekay
and/or one
or more Subsidiaries fails to make at the final (but not any
interim) fixed maturity of one or more issues of Debt principal
payments aggregating $50 million or more and all such
defaulted payments shall not have been made, waived or extended
within 60 days of the payment default that causes the
aggregate amount described in this clause (8) to exceed
$50 million.
If an Event of Default (other than an Event of Default specified
in clause (7) above) occurs and is continuing under the
indenture, the trustee or the holders of at least 25% in
aggregate principal amount of the notes then outstanding, by
written notice to Teekay (and to the trustee if such notice is
given by the holders (the Acceleration Notice)), may, and
the trustee at the request of such holders shall, declare the
entire unpaid principal of, premium, if any, and accrued
interest on the notes to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any,
and accrued interest shall be immediately due and payable. In
the event of a declaration of acceleration because an Event of
Default set forth in clause (5) or (8) above has
occurred and is continuing, such declaration of acceleration
shall be automatically rescinded and annulled if the event
triggering such Event of Default pursuant to clause (5) or
(8) shall be remedied or cured by Teekay
and/or the
relevant Subsidiaries or waived by the holders of the relevant
Debt within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in
clause (7) above occurs, all unpaid principal of, premium,
if any, and accrued interest on the notes then outstanding shall
automatically become and be immediately due and payable without
any declaration or other act on the part of the trustee or any
holder. The holders of at least a majority in principal amount
of the outstanding notes, by written notice to Teekay and to the
trustee, may waive all past defaults and rescind and annul a
declaration of acceleration and its consequences if:
(1) Teekay has paid or deposited with the trustee a sum
sufficient to pay (A) all sums paid or advanced by the
trustee under the indenture and the reasonable compensation,
expenses, disbursements and advances of the trustee, its agents
and counsel, (B) all overdue interest on all notes,
(C) the principal of and premium, if any, on, any notes
that have become due otherwise than by such declaration or
occurrence of acceleration and interest thereon at the rate
prescribed therefor by such notes, and (D) to the extent
that payment of such interest is lawful, interest upon overdue
interest at the rate prescribed therefor by such notes;
(2) all existing Events of Default, other than the
non-payment of the principal of the notes that have become due
solely by such declaration of acceleration, have been cured or
waived; and
(3) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction.
For information as to the waiver of defaults, please read
“—Modification and waiver.”
The holders of at least a majority in aggregate principal amount
of the outstanding notes may direct the time, method and place
of conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred on the
trustee. However, the trustee may refuse to follow any direction
that conflicts with law or the indenture or that may expose the
trustee to personal liability. A holder may not pursue any
remedy with respect to the indenture or the notes unless:
(1) the holder gives to the trustee written notice of a
continuing Event of Default;
(2) the holders of at least 25% in aggregate principal
amount of outstanding notes make a written request to the
trustee to pursue the remedy;
(3) such holder or holders offer to the trustee indemnity
reasonably satisfactory to the trustee against any costs,
liabilities or expenses to be incurred in compliance with such
request;
(4) the trustee does not comply with the request within
60 days after receipt of the request and the offer of
indemnity; and
(5) during such
60-day
period, the holders of a majority in aggregate principal amount
of the outstanding notes do not give the trustee a direction
that is inconsistent with the request.
However, such limitations do not apply to the right of any
holder of a note to receive payment of the principal of,
premium, if any, or interest on, such note or to bring suit for
the enforcement of any such payment on or after the due dates
expressed in the notes, which right shall not be impaired or
affected without the consent of the holder.
The indenture requires certain officers of Teekay to certify, on
or before a date not more than 120 days after the end of
each fiscal year, that a review has been conducted of the
activities of Teekay and its Subsidiaries and Teekay’s and
its Subsidiaries’ performance under the indenture and that
Teekay has fulfilled all obligations thereunder, or, if there
has been a default in the fulfillment of any such obligation,
specifying each such default and the nature and status thereof.
Teekay is also obligated to notify the trustee of any default or
defaults in the performance of any covenants or agreements under
the indenture.
Defeasance
Defeasance and
discharge
The indenture provides that Teekay will be deemed to have paid
and will be discharged from any and all obligations in respect
of the notes and the provisions of the indenture will no longer
be in effect with respect to the notes (except for, among other
matters, certain obligations to register the transfer or
exchange of the notes, to replace stolen, lost or mutilated
notes, to maintain paying agencies and to hold monies for
payment in trust), on the 123rd day after the date referred
to below if, among other things:
(1) Teekay has deposited with the trustee, in trust, money
and/or
U.S. Government Securities that, through the payment of
interest and principal in respect thereof in accordance with
their terms, will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on the
notes on the Stated Maturity of such payments in accordance with
the terms of the indentures and the notes;
(2) Teekay has delivered to the trustee (A) either
(i) an Opinion of Counsel to the effect that holders will
not recognize income, gain or loss for U.S. federal income
tax purposes as a result of Teekay’s exercise of its option
under this “Defeasance” provision and will be subject
to federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, which
Opinion of Counsel must be based upon (and accompanied by copy
of) a ruling of the U.S. Internal Revenue Service to the
same effect or based upon a change in applicable
U.S. federal income tax law after the date of the indenture
or (ii) a ruling directed to the trustee received from the
U.S. Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (B) an Opinion of
Counsel to the effect that the creation of the defeasance trust
does not violate the Investment Company Act of 1940 and, after
the passage of 123 days following the deposit, the trust
fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law;
(3) immediately after giving effect to such deposit on a
pro forma basis, no Event of Default, or event that after the
giving of notice or lapse of time or both would become an Event
of Default, shall have occurred and be continuing on the date of
such deposit or during the period ending on the 123rd day
after the date of such deposit, and such deposit shall not
result in a breach or violation of, or constitute a default
under, any other agreement or instrument to which Teekay is a
party or by which Teekay is bound; and
(4) if at such time the notes are listed on a national
securities exchange, Teekay has delivered to the trustee an
Opinion of Counsel to the effect that the notes will not be
delisted as a result of such deposit, defeasance and discharge.
Defeasance of
certain covenants and certain events of default
The indenture provides that certain provisions of the indenture
will no longer be in effect upon, among other things, the
deposit with the trustee, in trust, of money
and/or
U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on the
notes on the Stated Maturity of such payments in accordance with
the terms of the indenture and the notes, the satisfaction of
the provisions described in clauses (2)(B), (3) and
(4) of the preceding paragraph and the delivery by Teekay
to the trustee of an Opinion of Counsel to the effect that,
among other things, the holders will not recognize income, gain
or loss for federal income tax purposes as a result of such
deposit and defeasance of certain covenants and Events of
Default and will be subject to U.S. federal income tax on
the same amount and in the same manner and at the same times as
would have been the case if such deposit and defeasance had not
occurred.
Defeasance and
certain other events of default
In the event Teekay exercises its option to omit compliance with
certain covenants and provisions of the indenture with respect
to the notes as described in the immediately preceding paragraph
and the notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the
amount of money
and/or
U.S. Government Obligations on deposit with the trustee
will be sufficient to pay amounts due on the notes at the time
of their Stated Maturity but may not be sufficient to pay
amounts due on the notes at the time of
the acceleration resulting from such Event of Default. However,
Teekay will remain liable for such payments.
Modification and
waiver
Modifications and amendments of the indenture may be made by
Teekay and the trustee with the consent of the holders of not
less than a majority in aggregate principal amount of the
outstanding notes; provided, however, that no such
modification or amendment may, without the consent of each
holder affected thereby:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, any note;
(2) reduce the principal amount of, or premium, if any, or
interest on, any note;
(3) change the place or currency of payment of principal
of, or premium, if any, or interest on, any note;
(4) impair the right to institute suit for the enforcement
of any payment on or with respect to any note;
(5) reduce the percentage of aggregate principal amount of
outstanding notes the consent of whose holders is necessary to
modify or amend the indenture;
(6) modify any provisions of the indenture relating to the
modification and amendment of the indenture, except as otherwise
specified in the indenture; or
(7) reduce the percentage of aggregate principal amount of
outstanding notes, the consent of whose holders is necessary for
waiver of compliance with certain provisions of such indenture
or for waiver of certain defaults.
No personal
liability of incorporators, shareholders, officers, directors or
employees
The indenture provides that no recourse for the payment of the
principal of, premium, if any, or interest on, any of the notes,
or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or
agreement of Teekay in the indenture, or in any of the notes, or
because of the creation of any Debt represented thereby, shall
be had against any incorporator, shareholder, officer, director,
employee, Affiliate or controlling person of Teekay or of any
successor person thereof. Each holder, by accepting such notes,
waives and releases all such liability.
The
trustee
The trustee under the indenture is the registrar and paying
agent with regard to the notes. The indenture provides that,
except during the continuance of an Event of Default, the
trustee will perform only such duties as are specifically set
forth in the indenture. During the existence of an Event of
Default, the trustee will exercise such rights and powers vested
in it under the indenture and use the same degree of care and
skill in its exercise as a prudent person would exercise under
the circumstances in the conduct of such person’s own
affairs.
The indenture is governed by the laws of the State of New York.
Consent to
jurisdiction and service
Teekay has irrevocably appointed Watson, Farley &
Williams, New York, New York, as its agent for service of
process in any suit, action or proceeding with respect to the
indenture or the notes brought in any federal or state court
located in New York City and have submitted to such jurisdiction.
Certain
definitions
Set forth below is a summary of certain of the defined terms
used in the covenants and other provisions of the indenture.
Reference is made to the indenture for the full definition of
all terms as well as any other capitalized term used herein for
which no definition is provided.
“Affiliate” of any specified person means any
other person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified
person. For purposes of this definition, “control,” as
used with respect to any person, shall mean the possession,
directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether
through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a person shall be deemed to be control. For
purposes of this definition, the terms “controlling,”“controlled by” and “under common control
with” shall have correlative meanings.
“Capital Stock” is defined to mean, with
respect to any person, any and all shares, interests,
participations or other equivalents (however designated, whether
voting or non-voting) of such person’s capital stock or
ownership interests, whether outstanding prior to or issued
after the date of the indenture, including, without limitation,
all common stock and preferred stock.
“Capitalized Lease” is defined to mean, as
applied to any person, any lease of any property (whether real,
personal or mixed) of which the discounted present value of the
rental obligations of such person, as lessee, in conformity with
GAAP, is required to be capitalized on the balance sheet of such
person; and “Capitalized Lease Obligation” is defined
to mean the rental obligations, as aforesaid, under such lease.
“Change of Control” is defined to mean such
time as:
(1) a “person” or “group” (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934), other than any Permitted Holder or
Permitted Holders, becomes the ultimate “beneficial
owner” (as defined in
Rule 13d-3
under the Exchange Act and including by reason of any change in
the ultimate “beneficial ownership” of the Capital
Stock of Teekay) of more than 50% of the total voting power of
the Voting Stock of Teekay (calculated on a fully diluted
basis); or
(2) individuals who at the beginning of any period of two
consecutive calendar years constituted the board of directors of
Teekay (together with any new directors whose election by such
board of directors or whose nomination for election was approved
by a vote of at least two-thirds of the members of such board of
directors then still in office who either were members of such
board of directors at the beginning of such period or whose
election or nomination for election was previously so approved)
cease for any reason to constitute at least 50% of the members
of such board of directors then in office.
“Change of Control Triggering Event” is defined
to mean the occurrence of a Change of Control and a Rating
Decline.
“Currency Agreement” is defined to mean any
foreign exchange contract, currency swap agreement or other
similar agreement or arrangement designed to protect Teekay or
any of its Subsidiaries against fluctuations in currency values
to or under which Teekay or any of its Subsidiaries is a party
or a beneficiary on the date of this indenture or becomes a
party or a beneficiary thereafter.
“Debt” is defined to mean, with respect to any
person at any date of determination (without duplication):
(1) all debt of such person for borrowed money;
(2) all obligations of such person evidenced by bonds,
debentures, notes or other similar instruments;
(3) all obligations of such person in respect of letters of
credit or other similar instruments (including reimbursement
obligations with respect thereto);
(4) all obligations of such person to pay the deferred
purchase price of property or services, which purchase price is
due more than six months after the date of placing such property
in service or taking delivery thereto or the completion of such
services, except trade payables;
(5) all obligations of such person as lessee under
Capitalized Leases;
(6) all Debt of persons other than such person secured by a
Lien on any asset of such person, whether or not such Debt is
assumed by such person; provided that the amount of such Debt
shall be the lesser of (A) the fair market value of such
asset at such date of determination and (B) the amount of
such Debt;
(7) all Debt of persons other than such person guaranteed
by such person to the extent such Debt is guaranteed by such
person; and
(8) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest
Rate Agreements.
The amount of Debt of any person at any date shall be the
outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided that the
amount outstanding at any time of any Debt issued with original
issue discount is the face amount of such Debt less the
remaining unamortized portion of the original issue discount of
such Debt at such time as determined in conformity with GAAP;
and provided further that Debt shall not include any liability
for federal, state, local, foreign or other taxes.
“Default” is defined to mean any event that is,
or after notice or passage of time or both would be, an Event of
Default.
“Disqualified Equity Interests” of any person
means any class of Equity Interests of such person that, by its
terms, or by the terms of any related agreement or of any
security into or for which it is convertible, puttable or
exchangeable, is, or upon the happening of any event or the
passage of time would be, required to be redeemed by such
person, whether or not at the option of the holder thereof, or
matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, in whole or in part, on or prior to the
date which is 91 days after the final maturity date of the
notes; provided, however, that any class of Equity
Interests of such person that, by its terms, authorizes such
person to satisfy in full its obligations with respect to the
payment of dividends or upon maturity, redemption (pursuant to a
sinking fund or otherwise) or repurchase thereof or otherwise by
the delivery of Equity Interests that are not Disqualified
Equity Interests, and that is not convertible, puttable or
exchangeable into or for Disqualified Equity Interests or Debt,
will not be deemed to be Disqualified Equity Interests so long
as such person satisfies its obligations with respect thereto
solely by the delivery of Equity Interests that are not
Disqualified Equity Interests; provided, further,
however, that any Equity Interests that would not constitute
Disqualified Equity Interests but for provisions thereof giving
holders thereof (or the holders of any security into or for
which such Equity Interests are convertible, exchangeable or
exercisable) the right to require Teekay to redeem such Equity
Interests upon the occurrence of a change in control occurring
prior to the 91st day after the final maturity date of the
notes shall not constitute Disqualified Equity Interests if the
change of control provisions applicable to such Equity Interests
are no more favorable to such holders than the provisions
described under “—Repurchase of notes upon a Change of
Control Triggering Event,” and such Equity Interests
specifically provide that Teekay will not redeem any such Equity
Interests pursuant to such provisions prior to Teekay’s
purchase of the notes as required pursuant to the provisions
described under “—Repurchase of notes upon a change of
control triggering event.”
“Equity Interests” of any person means
(1) any and all shares and other equity interests
(including common stock, preferred stock, limited liability
company interests and partnership interests) in such person and
(2) all rights to purchase, warrants or options (whether or
not currently exercisable), participations or other equivalents
of or interests in (however designated) such shares or other
interests in such person.
“Event of Default” has the meaning set forth
under “—Events of default.”
“GAAP” is defined to mean generally accepted
accounting principles in the United States of America as in
effect as of the date of the indenture, including, without
limitation, those set forth in the opinions and pronouncements
of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements
of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant
segment of the accounting profession. All ratios and
computations based on GAAP contained in the indenture shall be
computed in conformity with GAAP.
“Governing Board Members” means the individuals
serving as members of the protectorate or governing boards of
(x) the Trust or its trustee or (y) if the individuals
serving as members of the protectorate or governing boards of
the Trust or its trustee immediately prior to any restructuring
or dissolution of the Trust or any transfer of Capital Stock of
Teekay held directly or indirectly thereby represent at least a
majority of the members of the protectorate or governing board
of the Trust (or trustee thereof) or other entity replacing the
Trust as a direct or indirect owner of all, or substantially
all, of the Capital Stock of Teekay held directly or indirectly
by the Trust immediately prior to such restructuring,
dissolution or transfer, such replacement trust (or its trustee)
or entity, together with any new members whose election or
appointment was approved by at least two-thirds of the members
of such board.
“Gradation” is defined to mean a gradation
within a Rating Category or a change to another Rating Category,
which shall include:
(1) “+” and “−” in the case of
S&P’s current Rating Categories (e.g., a decline from
BB+ to BB would constitute a decrease of one gradation);
(2) 1 and 2 in the case of Moody’s current Rating
Categories (e.g., a decline from B1 to B2 would constitute a
decrease of one gradation); or
(3) the equivalent in respect of successor Rating
Categories of S&P or Moody’s or Rating Categories used
by Rating Agencies other than S&P and Moody’s.
“Interest Rate Agreement” means any interest
rate protection agreement, interest rate future agreement,
interest rate option agreement, interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or
arrangement designed to protect Teekay or any of its
Subsidiaries against fluctuations in interest rates to or under
which Teekay or any of its Subsidiaries is a party or a
beneficiary on the date hereof or becomes a party or a
beneficiary hereafter.
“Investment Grade” is defined to mean:
(1) BBB− or above in the case of S&P (or its
equivalent under any successor Rating Categories of S&P);
(2) Baa3 or above, in the case of Moody’s (or its
equivalent under any successor Rating Categories of
Moody’s); and
(3) the equivalent in respect of the Rating Categories of
any Rating Agencies substituted for S&P or Moody’s.
“Kattegat” means Kattegat Limited, a Bermudian
exempt company, which on the date of the indenture is wholly
owned by the Trust.
“Lien” is defined to mean any mortgage, lien,
pledge, security interest, encumbrance or charge of any kind
(including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof, any
sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
“Moody’s” is defined to mean Moody’s
Investors Service, Inc. and its successors.
“Path” means Path Spirit Limited, an English
company limited by guarantee which is the trust protector of the
Trust.
“Permitted Holder” is defined to mean the
Trust, a majority of the Governing Board Members (each in his or
her capacity as a Governing Board Member), or any other entity
(including Resolute, Kattegat and Path), more than 50% of the
total voting power of the Voting Stock or other controlling
interests of which is, at the time of any transfer of Capital
Stock of Teekay by the Trust or any such other entity,
“beneficially owned” by the Trust or by a majority of
the Governing Board Members (each in his or her capacity as a
Governing Board Member).
“Qualified Equity Interests” of any person is
defined to mean Equity Interests of such person other than
Disqualified Equity Interests; provided that such Equity
Interests shall not be deemed Qualified Equity Interests to the
extent sold or owed to a Subsidiary of such person or financed,
directly or indirectly, using funds (1) borrowed from such
person or any Subsidiary of such person until and to the extent
such borrowing is repaid or (2) contributed, extended,
guaranteed or advanced by such person or any Subsidiary of such
person (including, without limitation, in respect of any
employee stock ownership or benefit plan). Unless otherwise
specified, Qualified Equity Interests refer to Qualified Equity
Interests of Teekay.
“Qualified Equity Offering” is defined to mean
the issuance and sale of Qualified Equity Interests of Teekay to
persons other than any person who is, prior to such issuance and
sale, an Affiliate of Teekay which proceeds are contributed to
Teekay; provided, however, that cash proceeds therefrom
equal to not less than the redemption price of the notes to be
redeemed are received by Teekay as a capital contribution
immediately prior to such redemption.
“Rating Agencies” is defined to mean:
(1) S&P and Moody’s; or
(2) if S&P or Moody’s or both of them are not
making ratings of the notes publicly available, a nationally
recognized U.S. rating agency or agencies, as the case may
be, selected by Teekay, which will be substituted for S&P
or Moody’s or both, as the case may be.
“Rating Category” is defined to mean:
(1) with respect to S&P, any of the following
categories (any of which may include a “+” or
“− “): AAA, AA, A, BBB, BB, B, CCC, CC, C and D
(or equivalent successor categories);
(2) with respect to Moody’s, any of the following
categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or
equivalent successor categories); and
(3) the equivalent of any such categories of S&P or
Moody’s used by another Rating Agency, if applicable.
“Rating Decline” is defined to mean that at any
time within 90 days (which period shall be extended so long
as the rating of the notes is under publicly announced
consideration for possible downgrade by any Rating Agency) after
the date of public notice of a Change of Control, or of the
intention of Teekay or of any person to effect a Change of
Control, the rating of the notes is decreased by both Rating
Agencies by one or more Gradations and the rating by such Rating
Agencies on the notes following such downgrade is below
Investment Grade.
“Redemption Date,” when used with respect
to any note to be redeemed, is defined to mean the date fixed
for such redemption by or pursuant to the indenture.
“Reporting Failure” means the failure of Teekay
to file with or furnish to the SEC and furnish to the trustee
and noteholders, as applicable, within the time periods
specified in “Covenants-Provision of financial
information” (after giving effect to any grace period
specified under Rule 12b-25 under the Exchange Act), the
reports and information which Teekay may be required to file
with or furnish to the SEC pursuant to such provision.
“Resolute” is defined to mean Resolute
Investments, Ltd., a Bermudian exempt company, which on the date
of the indenture is wholly owned by Kattegat.
“S&P” is defined to mean
Standard & Poor’s Ratings Services, a division of
The McGraw Hill Companies, Inc., and its successors.
“Stated Maturity” is defined to mean with
respect to any note or any installment of principal or of
interest on such note, the date specified in such note as the
fixed date on which the principal of such note or such
installment of principal or interest is due and payable.
“Subsidiary” is defined to mean, with respect
to Teekay, any business entity of which more than 50% of the
outstanding Voting Stock is owned directly or indirectly by
Teekay and one or more other Subsidiaries of Teekay.
“Taxing Jurisdiction” is defined to mean the
Republic of The Marshall Islands or any jurisdiction from or
through which payment on the notes is made, or any political
subdivision thereof, or any authority or agency therein or
thereof having power to tax.
“Trust” is defined to mean The Kattegat Trust,
a Bermudian charitable trust, the trustee of which is Kattegat
Private Trustees (Bermuda) Limited.
“U.S. Government Securities” is defined to
mean securities that are direct obligations of the United States
of America, direct obligations of the Federal Home Loan Mortgage
Corporation, direct obligations of the Federal National Mortgage
Association, securities which the timely payment of whose
principal and interest is unconditionally guaranteed by the full
faith and credit of the United States of America, trust receipts
or other evidence of indebtedness of a direct claim upon the
instrument described above and money market mutual funds that
invest solely in such securities.
“Voting Stock” of any person as of any date
means the Capital Stock of such person that is at the time
entitled to vote in the election of the board of directors or
similar governing body of such person.
Book-entry;
delivery and form; global securities
The notes will be issued in the form of one or more global
securities, in definitive, fully registered form without
interest coupons, each of which we refer to as a “global
security.” Each such global security will be deposited with
the trustee as custodian for The Depository Trust Company
(DTC) and registered in the name of Cede & Co.,
as nominee of DTC.
Investors may hold their interests in a global security directly
through DTC if they are DTC participants, or indirectly through
organizations that are DTC participants. Except in the limited
circumstances described below, holders of notes represented by
interests in a global security will not be entitled to receive
their notes in fully registered certificated form.
DTC has advised us as follows: DTC is a limited-purpose trust
company organized under New York Banking Law, a “banking
organization” within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a “clearing
corporation” within the meaning of the New York Uniform
Commercial Code and a “clearing agency” registered
pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities of institutions that
have accounts with DTC (participants) and to facilitate
the clearance and settlement of securities transactions among
its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities
certificates. DTC’s participants include both U.S. and
non-U.S. securities
brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. Access to
DTC’s book-entry system is also available to others such as
both U.S. and
non-U.S. securities
brokers and dealers, banks, trust companies and clearing
corporations that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Ownership of
beneficial interests
Upon the issuance of each global security, DTC will credit, on
its book-entry registration and transfer system, the respective
principal amount of the individual beneficial interests
represented by the global security to the accounts of
participants. Ownership of beneficial interests in each global
security will be limited to participants or persons that may
hold interests through participants. Ownership of beneficial
interests in each global security will be shown on, and the
transfer of those ownership interests will be effected only
through, records maintained by DTC (with respect to
participants’ interests) and such participants (with
respect to the owners of beneficial interests in the global
security other than participants). When you purchase notes
through the DTC system, the purchases must be made by or through
a direct participant, which will receive credit for the notes on
DTC’s records. When you actually purchase the notes, you
will become their beneficial owner. Your ownership interest will
be recorded only on the direct or indirect participants’
records. DTC will have no knowledge of your individual ownership
of the notes. DTC’s records will show only the identity of
the direct participants and the amount of the notes held by or
through them. You will not receive a written confirmation of
your purchase or sale or any periodic account statement directly
from DTC. You should instead receive these from your direct or
indirect participant.
So long as DTC or its nominee is the registered holder and owner
of a global security, DTC or such nominee, as the case may be,
will be considered the sole legal owner of the notes represented
by the global security for all purposes under the indenture, the
notes and applicable law. Except as set forth below, owners of
beneficial interests in a global security will not be entitled
to receive certificated notes and will not be considered to be
the owners or holders of any debt securities represented by the
global security. We understand that under existing industry
practice, in the event an owner of a beneficial interest in a
global security desires to take any actions that DTC, as the
holder of the global security, is entitled to take, DTC would
authorize the participants to take such action, and that
participants would authorize beneficial owners owning through
such participants to take such action or would otherwise act
upon the instructions of beneficial owners owning through them.
No beneficial owner of an interest in a global security will be
able to transfer such interest except in accordance with
DTC’s applicable procedures, in addition to those provided
for under the indenture. Because DTC can only act on behalf of
participants, who in turn act on behalf of others, the ability
of a person having a beneficial interest in a global security to
pledge that interest to persons that do not participate in the
DTC system, or otherwise to take actions in respect of that
interest, may be impaired by the lack of a physical certificate
representing that interest.
All payments on the notes represented by a global security
registered in the name of and held by DTC or its nominee will be
made to DTC or its nominee, as the case may be, as the
registered owner and holder of the global security.
We expect that DTC or its nominee, upon receipt of any payment
of principal, premium, if any, or interest in respect of a
global security, will credit participants’ accounts with
payments in amounts proportionate to their respective beneficial
interests in the principal amount of the global security as
shown on the records of DTC or its nominee. We also expect that
payments by participants to owners of beneficial interests in
the global security held through such participants will be
governed by standing instructions and customary practices as is
now the
case with securities held for accounts for customers registered
in the names of nominees for such customers. These payments,
however, will be the responsibility of such participants and
indirect participants, and neither we, the trustee nor any
paying agent will have any responsibility or liability for any
aspect of the records relating to, or payments made on account
of, beneficial ownership interests in any global security or for
maintaining, supervising or reviewing any records relating to
such beneficial ownership interests or for any other aspect of
the relationship between DTC and its participants or the
relationship between such participants and the owners of
beneficial interests in the global security. Any redemption
notices will be sent by us directly to DTC, which will, in turn,
inform the direct participants (or the indirect participants),
which will then contact you as a beneficial holder.
It is DTC’s current practice, upon receipt of any payment
of principal, interest, redemption prices, distributions or
liquidation amounts, to credit direct participants’
accounts proportionately on the payment date based on their
holdings. In addition, it is DTC’s current practice to pass
through any consenting or voting rights to such participants by
using an omnibus proxy. Those participants will, in turn, make
payments to and solicit votes from you, the beneficial owner of
notes, based on their customary practices. Payments to you will
be the responsibility of the participants and not of DTC, the
trustee or our company.
Unless and until it is exchanged in whole or in part for
certificated debt securities, each global security may not be
transferred except as a whole by DTC to a nominee of DTC or by a
nominee of DTC to DTC or another nominee of DTC. Transfers
between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in
same-day
funds.
Although we expect that DTC will agree to the foregoing
procedures in order to facilitate transfers of interests in each
global security among participants of DTC, DTC is under no
obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither we,
the underwriters nor the trustee will have any responsibility
for the performance or nonperformance by DTC or its participants
or indirect participants of their respective obligations under
the rules and procedures governing their operations.
The information in this section of this prospectus concerning
DTC and DTC’s book-entry system has been obtained from
sources that we believe to be reliable, but we do not take
responsibility for this information.
Euroclear
Euroclear has advised us that it was created in 1968 to hold
securities for participants of Euroclear (Euroclear
Participants), and to clear and settle transactions between
Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the
need for physical movement of certificates and any risk from
lack of simultaneous transfers of securities and cash. Euroclear
provides various other services, including securities lending
and borrowing and interfaces with domestic markets in several
countries. Euroclear is operated by Euroclear Bank S.A./N.V.
(the Euroclear Operator), under contract with Euroclear
Clearance Systems S.C., a Belgian cooperative corporation (the
Cooperative).
All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on
behalf of Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers
and dealers and other professional financial intermediaries and
may include the underwriters. Indirect access to Euroclear is
also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either
directly or indirectly. The Euroclear Operator is regulated and
examined by the Belgian Banking and Finance Commission.
Securities clearance accounts and cash accounts with the
Euroclear Operator are governed by the Terms and Conditions
Governing Use of Euroclear and the related Operating Procedures
of the Euroclear System, and applicable Belgian law. These Terms
and Conditions govern transfer of securities and cash within
Euroclear, withdrawals of securities and cash from Euroclear,
and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific certificates to specific
securities clearance accounts. the Euroclear Operator acts under
the Terms and Conditions only on behalf of the Euroclear
Participants, and has no record of or relationship with persons
holding through Euroclear Participants. Distributions of
principal and interest with respect to notes held through
Euroclear will be credited to the case accounts of Euroclear
Participants in accordance with the relevant system’s rules
and procedures, to the extent received by the
U.S. depository for Euroclear.
Links have been established among DTC, Clearstream and Euroclear
to facilitate the initial issuance of the notes and cross-market
transfers of the notes associated with secondary market trading.
DTC will be linked indirectly to Clearstream and Euroclear
through the DTC accounts of their respective
U.S. depositaries.
Clearstream
Clearstream has advised us that it is a limited liability
company organized under Luxembourg law. Clearstream holds
securities for its participating organization (Clearstream
Participants), and facilitates the clearance and settlement
of securities transactions between Clearstream Participants
through electronic bookentry changes in accounts of Clearstream
Participants, thereby eliminating the need for physical movement
of certificates.
Clearstream provides Clearstream Participants with, among other
things, services for safekeeping, administration, clearance and
establishment of internationally traded securities and security
lending and borrowing. Clearstream interfaces with domestic
markets in several countries. Clearstream is registered as a
bank in Luxembourg and as such is subject to regulations by the
Commission de Surveillance du Secteur Financier. Clearstream
Participants are recognized financial institutions around the
world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other
organizations, and may include the underwriters. Indirect access
to Clearstream also is available to other institutions that
clear through or maintain a custodial relationship with a
Clearstream Participant, either directly or indirectly.
Distributions with respect to notes held beneficially through
Clearstream will be credited to cash accounts of Clearstream
Participants in accordance with its rules and procedure to the
extent received by the U.S. depositary for Clearstream.
The notes represented by a global security will be exchangeable
for certificated securities in fully registered form with the
same terms only if:
DTC is unwilling or unable to continue as depositary or if DTC
ceases to be a clearing agency registered or in good standing
under the Exchange Act and we do not appoint a successor
depositary within 90 days; or we decide to discontinue use
of the system of book-entry transfer through DTC or any
successor depositary; and a default under the indenture occurs
and is continuing.
The following discussion summarizes certain U.S. federal
income tax considerations and, in the case of a
non-U.S. holder
(as defined below), certain estate tax considerations that may
be relevant to the acquisition, ownership and disposition of the
notes. This discussion is based upon the provisions of the
Internal Revenue Code of 1986, as amended (or the Code),
applicable U.S. Treasury Regulations promulgated
thereunder, judicial authority and administrative
interpretations, as of the date of this document, all of which
are subject to change, possibly with retroactive effect, or are
subject to different interpretations. We cannot assure you that
the Internal Revenue Service (or the IRS) will not
challenge one or more of the tax consequences described in this
discussion, and we have not obtained, nor do we intend to
obtain, a ruling from the IRS or an opinion of counsel with
respect to the U.S. federal income tax consequences of
acquiring, owning or disposing of the notes.
This discussion is limited to holders who purchase the notes in
this offering for a price equal to the “issue price”
of the notes (i.e., the first price at which a
substantial amount of the notes is sold other than to bond
houses, brokers or similar persons or organizations acting in
the capacity of underwriters, placement agents or wholesalers)
and who hold the notes as “capital assets” (generally,
property held for investment). This discussion does not address
the tax considerations arising under the laws of any foreign,
state, local or other jurisdiction. In addition, this discussion
does not address all tax considerations that may be important to
a particular holder in light of the holder’s circumstances,
or to certain categories of investors that may be subject to
special rules, such as:
•
dealers in securities or currencies;
•
traders in securities that have elected the
mark-to-market
method of accounting for their securities;
•
U.S. holders (as defined below) whose functional currency
is not the U.S. dollar;
•
persons holding notes as part of a hedge, straddle, conversion
or other “synthetic security” or integrated
transaction;
•
certain U.S. expatriates;
•
banking, financing and similar institutions;
•
insurance companies;
•
regulated investment companies;
•
real estate investment trusts;
•
persons subject to the alternative minimum tax;
•
entities that are tax-exempt for U.S. federal income tax
purposes; and
•
partnerships and other pass-through entities and investors
therein.
If a partnership (including an entity treated as a partnership
for U.S. federal income tax purposes) holds notes, the tax
treatment of a partner generally will depend upon the status of
the partner and the activities of the partnership. If you are a
partner of a partnership acquiring the notes, you are urged to
consult your own tax advisor about the U.S. federal income
tax consequences of acquiring, owning and disposing of the notes.
In certain circumstances (see “Description of
notes—Optional redemption and—Change of
control”), we may elect to or be obligated to pay amounts
on the notes that are in excess of stated interest or principal
on the notes. These potential payments may implicate the
provisions of the U.S. Treasury Regulations relating to
“contingent payment debt instruments.” We do not
intend to treat the possibility of paying these additional
amounts as causing the notes to be treated as contingent payment
debt instruments. However, additional income will be recognized
if any additional payment is made. It is possible that the IRS
may take a different position, in which case a holder might be
required to accrue interest income at a higher rate than the
stated interest rate and to treat as ordinary interest income
any gain realized on the taxable disposition of the note. The
remainder of this discussion assumes that the notes will not be
treated as contingent payment debt instruments. Investors should
consult their own tax advisors regarding the possible
application of the contingent payment debt instrument rules to
the notes.
Tax consequences
to U.S. holders
For purposes of this discussion, you are a
“U.S. holder” if you are a beneficial owner of a
note, and for U.S. federal income tax purposes you are:
•
an individual who is a U.S. citizen or U.S. resident
alien;
•
a corporation, or other entity taxable as a corporation for
U.S. federal income tax purposes, that was created or
organized in or under the laws of the United States, any state
thereof or the District of Columbia;
•
an estate whose income is subject to U.S. federal income
taxation regardless of its source; or
•
a trust that either is subject to the supervision of a court
within the United States and has one or more United States
persons with authority to control all of its substantial
decisions of the trust or has a valid election in effect under
applicable U.S. Treasury Regulations to be treated as a
United States person.
The following discussion assumes that you have not made the
election to include all interest that accrues on a note in gross
income on a constant yield basis (as described below under
“Stated interest and OID on the notes”).
Stated interest
and OID on the notes
Stated interest on a note generally will be taxable to you as
ordinary income at the time it is received or accrued in
accordance with your regular method of accounting for
U.S. federal income tax purposes.
The notes may be issued with original issue discount (or
OID) for U.S. federal income tax purposes. The
amount of OID is equal to the excess of a note’s
“stated redemption price at maturity” over its issue
price (as defined above). The stated redemption price at
maturity of a note is the sum of all payments required to be
made on the note other than payments of “qualified stated
interest” (i.e., generally, stated interest that is
unconditionally payable in money
at least annually). All of the stated interest on a note should
constitute qualified stated interest and therefore the stated
redemption price at maturity of a note should be its stated
principal amount. If the notes are issued with OID, then
regardless of your method of tax accounting, you will be
required to accrue OID on a constant yield basis and include the
accruals in gross income (as ordinary income) in advance of the
receipt of cash attributable to that income.
The amount of OID allocable to an accrual period is equal to the
difference between (1) the product of the “adjusted
issue price” of the note at the beginning of the accrual
period and its yield to maturity (determined on the basis of a
compounding assumption that reflects the length of the accrual
period) and (2) the amount of any qualified stated interest
allocable to the accrual period. The “adjusted issue
price” of a note at the beginning of any accrual period is
the sum of the issue price of the note plus the amount of OID
allocable to all prior accrual periods. The “yield to
maturity” of a note is the interest rate that, when used to
compute the present value of all payments to be made on the
note, produces an amount equal to the issue price of the note.
Under these rules, you generally must include in income
increasingly greater amounts of OID in successive accrual
periods.
You may elect, subject to certain limitations, to include all
interest that accrues on a note in gross income on a constant
yield basis. For purposes of this election, interest includes
stated interest and OID. When applying the constant yield method
to a note for which this election has been made, the issue price
of a note will equal your basis in the note immediately after
its acquisition and the issue date of the note will be the date
of its acquisition by you. This election generally will apply
only to the note with respect to which it is made and may not be
revoked without IRS consent.
Interest paid, and OID accrued, on the notes, generally will be
foreign source income and, depending on your circumstances,
treated as either “passive” or “general”
category income for purposes of computing allowable foreign tax
credits for U.S. federal income tax purposes.
Disposition of
notes
You generally will recognize capital gain or loss on the sale,
redemption, exchange, retirement or other taxable disposition of
a note. This gain or loss will equal the difference between your
adjusted tax basis in the note and the proceeds you receive
(excluding any proceeds attributable to accrued but unpaid
stated interest, which will be recognized as ordinary interest
income to the extent you have not previously included the
accrued interest in income). The proceeds you receive will
include the amount of any cash and the fair market value of any
other property received for the note. Your adjusted tax basis in
the note generally will equal the amount you paid for the note,
increased by the amount of any OID you have previously included
in income (including any accrued OID for the taxable year that
includes the disposition). The gain or loss will be long-term
capital gain or loss if you held the note for more than one year
at the time of the sale, redemption, exchange, retirement or
other taxable disposition. Long-term capital gains of
individuals, estates and trusts generally are subject to a
reduced rate of U.S. federal income tax. Capital gain or
loss on the sale or other taxable disposition of a note
generally will be treated as U.S. source gain or loss, as
applicable, for U.S. foreign tax credit purposes. The
deductibility of capital losses may be subject to limitation.
Information
reporting and backup withholding
In general, information reporting will apply to all payments of
interest (including any OID) on, and the proceeds of the sale or
other disposition (including a retirement or redemption) of,
notes held by you unless you are an exempt recipient, such as a
corporation. Backup
withholding may apply to these payments unless you provide the
appropriate intermediary with a taxpayer identification number,
certified under penalties of perjury, as well as certain other
information or you otherwise establish an exemption from backup
withholding. Backup withholding is not an additional tax. Any
amount withheld under the backup withholding rules is allowable
as a refund or a credit against your U.S. federal income
tax liability, provided that the required information is timely
provided to the IRS.
Tax consequences
to non-U.S.
holders
A
non-U.S. holder
is a beneficial owner of notes (other than an entity treated as
a partnership for U.S. federal income tax purposes) that is
not a U.S. holder.
Interest on the
notes
Subject to the discussion of backup withholding below, you
generally will not be subject to U.S. federal income tax or
withholding tax on payments of interest (including any OID) to
you if you are not engaged in a U.S. trade or business. If
you are engaged in a U.S. trade or business, payments of
interest (including OID) to you generally will be subject to
U.S. federal income tax in the same manner as if you were a
U.S. holder to the extent those payments constitute income
effectively connected with the conduct by you of that trade or
business. However, you may be exempt from taxation under an
income tax treaty if the income represented by those payments is
not attributable to a U.S. permanent establishment
maintained by you.
Disposition of
notes
The U.S. federal income taxation of any gain resulting from
the disposition by you of the notes generally will be the same
as described above regarding interest on the notes. However, if
you are an individual present in the United States for
183 days or more during the taxable year of disposition and
certain other requirements are met, you may be subject to tax at
a 30% rate on gain resulting from the disposition of the notes
which may be offset by U.S. source capital losses.
U.S. Estate Tax
Considerations
For purposes of U.S. federal estate tax, the notes will be
treated as situated outside the United States and will not
be includible in the gross estate of a
non-U.S. holder
at the time of death.
Information
reporting and backup withholding
Information reporting and backup withholding generally will not
apply to payments of interest (including any OID) on notes held
by you if such interest is paid outside the United States by a
non-U.S. payor or U.S. middleman (within the meaning of U.S.
Treasury Regulations) or you properly certify under penalties of
perjury as to your non-U.S. status and certain other conditions
are met or you otherwise establish an exemption.
Any payment received by you from the sale, redemption or other
taxable disposition of a note to or through the U.S. office
of a broker will be subject to information reporting and backup
withholding unless you properly certify under penalties of
perjury as to your
non-U.S. status
and certain other conditions are met or you otherwise establish
an exemption. Information reporting and backup withholding
generally will not apply to any payment of the proceeds of the
sale, redemption or other taxable disposition of a note effected
outside the United States by a
non-U.S. office
of a broker. However, if the broker is considered a
U.S. payor or U.S. middleman (within the meaning of
U.S. Treasury Regulations), information reporting will
apply to the payment of the proceeds of a sale, redemption or
other taxable disposition of a
note effected outside the United States unless the broker has
documentary evidence in its records that you are a
non-U.S. holder
and certain other conditions are met. Backup withholding is not
an additional tax. The amount of any backup withholding from a
payment to you will be allowed as a credit against your
U.S. federal income tax liability, if any, and may entitle
you to a refund, provided that the required information is
timely furnished to the IRS.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE
U.S. FEDERAL, STATE AND LOCAL INCOME AND OTHER TAX
CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF THE
NOTES IN YOUR PARTICULAR CIRCUMSTANCES.
The following discussion is based upon the current laws of the
Republic of The Marshall Islands applicable to persons who do
not reside in, maintain offices in or engage in business in the
Republic of The Marshall Islands.
Because we and our subsidiaries do not, and we do not expect
that we and our subsidiaries will, conduct business or
operations in the Republic of The Marshall Islands, and because
all documentation related to the offering, will be executed
outside of the Republic of The Marshall Islands, under current
Marshall Islands law no taxes or withholding will be imposed by
the Republic of The Marshall Islands on the notes. Furthermore,
no stamp, capital gains or other taxes will be imposed by the
Republic of The Marshall Islands on the acquisition, ownership
or disposition by such persons of the notes. Such persons also
will not be required by the Republic of The Marshall Islands to
file a tax return in connection with the acquisition, ownership
or disposition by such persons of the notes.
It is the responsibility of each noteholder to investigate the
legal and tax consequences, under the laws of pertinent
jurisdictions, including The Marshall Islands, of an investment
in the notes. Accordingly, each prospective noteholder is urged
to consult its tax counsel or other advisor with regard to those
matters. Further, it is the responsibility of each noteholder to
file all state, local and
non-U.S., as
well as U.S. federal tax returns that may be required of
such noteholder.
The purchase of the notes by an employee benefit plan that is
subject to the Employee Retirement Income Security Act of 1974,
as amended (or ERISA), and the Code is subject to
additional considerations because the investments of these plans
are subject to the fiduciary responsibility and prohibited
transaction provisions of ERISA and the prohibited transaction
excise taxes (and other consequences) imposed by
Section 4975 of the Code. Other employee benefit plans may
be subject to provisions under U.S. federal, state, local,
non-U.S. or
other laws or regulations that are similar to such provisions of
the Code or ERISA (collectively, Similar Laws). For these
purposes the term “employee benefit plan” includes,
but is not limited to, qualified pension, profit-sharing and
stock bonus plans, Keogh plans, simplified employee pension
plans and tax deferred annuities or individual retirement
accounts or annuities (or IRAs) established or maintained
by an employer or employee organization, and entities whose
underlying assets are considered to include “plan
assets” of such plans, accounts and arrangements. Among
other things, consideration should be given to:
•
whether the investment is prudent under
Section 404(a)(1)(B) of ERISA and any other applicable
Similar Laws;
•
whether in making the investment, that plan will satisfy the
diversification requirements of Section 404(a)(1)(C) of
ERISA and any other applicable Similar Laws; and
•
whether making such an investment will comply with the
delegation of control and prohibited transaction provisions of
ERISA, the Code and any other applicable Similar Laws.
The person with investment discretion with respect to the assets
of an employee benefit plan, often called a fiduciary, should
determine whether the purchase of the notes is authorized by the
appropriate governing instrument and is a proper investment for
the plan. Section 406 of ERISA and Section 4975 of the
Code prohibit employee benefit plans, and also IRAs that are not
considered part of an employee benefit plan, from engaging in
specified transactions involving “plan assets” with
parties that are “parties in interest” under ERISA or
“disqualified persons” under the Code with respect to
the plan unless an exemption is available. In this regard, the
United States Department of Labor has issued prohibited
transaction class exemptions (or PTCEs) that may apply to
the acquisition and holding of the notes. These class exemptions
include
PTCE 84-14
which applies to transactions involving plan assets managed by
independent qualified professional asset managers,
PTCE 90-1
which applies to insurance company pooled separate accounts,
PTCE 91-38
which applies to bank collective investment funds,
PTCE 95-60
which applies to life insurance company general accounts, and
PTCE 96-23
which applies to transactions involving plan assets managed by
in-house asset managers, although there can be no assurance that
all of the conditions of any such exemptions will be satisfied.
A party in interest or disqualified person who engages in a
non-exempt prohibited transaction may be subject to excise taxes
and other penalties and liabilities under ERISA and the Code.
The fiduciary of the ERISA plan that engaged in such a
non-exempt prohibited transaction may be subject to penalties
and liabilities under ERISA and the Code. In addition, an IRA
that is involved in a prohibited transaction can lose its
tax-deferred status.
Plan fiduciaries contemplating a purchase of the notes should
consult with their own counsel regarding the consequences under
ERISA, the Code and other Similar Laws in light of the serious
penalties imposed on persons who engage in prohibited
transactions or other violations.
Subject to the terms and conditions in the underwriting
agreement between us and the underwriters, we have agreed to
sell to each underwriter, and each underwriter has severally
agreed to purchase from us, the principal amount of notes that
appears opposite its name in the table below:
Underwriters
Principal amount
J.P. Morgan Securities Inc.
$
Citigroup Global Markets Inc.
Deutsche Bank Securities Inc.
BNP Paribas Securities Corp.
DnB NOR Markets, Inc.
ING Financial Markets LLC
Scotia Capital (USA) Inc.
Total
$
450,000,000
The underwriting agreement provides that the obligations of the
underwriters to purchase the notes included in this offering are
subject to approval of legal matters by counsel and to other
conditions. The underwriters have agreed to purchase all of the
notes if any of them are purchased.
The underwriters initially propose to offer the notes to the
public at the public offering price that appears on the cover
page of this prospectus supplement. The underwriters may offer
the notes to selected dealers at the public offering price minus
a concession of up to % of the
principal amount. In addition, the underwriters may allow, and
those selected dealers may reallow, a concession of up
to % of the principal amount to
certain other dealers. After the initial offering, the
underwriters may change the public offering price and any other
selling terms. The underwriters may offer and sell notes through
certain of their affiliates.
The following table shows the underwriting discounts and
commissions to be paid to the underwriters in connection with
this offering (expressed as a percentage of the principal amount
of the notes).
We will not offer or sell any of our debt securities (other than
the notes) for a period of 90 days after the date of this
prospectus without the prior consent of J.P. Morgan
Securities Inc.
•
We will indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or contribute to
payments that the underwriters may be required to make in
respect of those liabilities.
The notes are new issues of securities with no established
trading market. We do not intend to apply for the notes to be
listed on any securities exchange or to arrange for the notes to
be
quoted on any quotation system. The underwriters have advised us
that they intend to make a market in the notes. However, they
are not obligated to do so and they may discontinue any market
making at any time in their sole discretion. Therefore, we
cannot assure you that a liquid trading market will develop for
the notes, that you will be able to sell your notes at a
particular time or that the prices that you receive when you
sell will be favorable.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State), with effect from and including
the date on which the Prospectus Directive is implemented in
that Relevant Member State (the Relevant Implementation
Date), each underwriter has not made and will not make an
offer of notes to the public in that Relevant Member State prior
to the publication of a prospectus in relation to the notes
which has been approved by the competent authority in that
Relevant Member State or, where appropriate, approved in another
Relevant Member State and notified to the competent authority in
that Relevant Member State, all in accordance with the
Prospectus Directive, except that it may, with effect from and
including the Relevant Implementation Date, make an offer of
notes to the public in that Relevant Member State at any time:
•
to legal entities which are authorized or regulated to operate
in the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities;
•
to any legal entity which has two or more of (1) an average
of at least 250 employees during the last financial year;
(2) a total balance sheet of more than €43,000,000;
and (3) an annual net turnover of more than
€50,000,000, as shown in its last annual or consolidated
accounts; or
•
in any other circumstances which do not require the publication
by us of a prospectus pursuant to Article 3 of the
Prospectus Directive.
For the purposes of this provision, the expression an
“offer of notes to the public” in relation to any
notes in any Relevant Member State means the communication in
any form and by any means of sufficient information on the terms
of the offer and the notes to be offered so as to enable an
investor to decide to purchase or subscribe the notes, as the
same may be varied in that Member State by any measure
implementing the Prospectus Directive in that Member State and
the expression “Prospectus Directive” means Directive
20031711EC and includes any relevant implementing measure in
each Relevant Member State.
This prospectus is only being distributed to, and is only
directed at, persons in the United Kingdom that are qualified
investors within the meaning of Article 2(1)(e) of the
Prospectus Directive (Qualified Investors) that are also
(i) investment professionals falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 (the Order) or
(ii) high net worth entities, and other persons to whom it
may lawfully be communicated, falling within
Article 49(2)(a) to (d) of the Order (all such persons
together being referred to as relevant persons). This
prospectus and its contents are confidential and should not be
distributed, published or reproduced (in whole or in part) or
disclosed by recipients to any other persons in the United
Kingdom. Any person in the United Kingdom that is not a relevant
person should not act or rely on this document or any of its
contents.
In connection with this offering of the notes, the underwriters
may engage in overallotments, stabilizing transactions and
syndicate covering transactions in accordance with
Regulation M under the U.S. Securities Exchange Act of
1934, as amended (or the Exchange Act). Overallotment
involves sales in excess of the offering size, which creates a
short position for the
underwriter. Stabilizing transactions involve bids to purchase
the notes in the open market for the purpose of pegging, fixing
or maintaining the price of the notes, as applicable. Syndicate
covering transactions involve purchases of the notes in the open
market after the distribution has been completed in order to
cover short positions. Stabilizing transactions and syndicate
covering transactions may cause the price of the notes to be
higher than it would otherwise be in the absence of those
transactions. If any of the underwriters engages in stabilizing
or syndicate covering transactions, it may discontinue them at
any time.
We estimate that our total expenses of this offering, exclusive
of the underwriting discount, will be approximately
$1.3 million.
Under
Rule 15c6-1
of the Exchange Act, trades in the secondary market generally
are required to settle in three business days, unless the
parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade notes on the date of
this prospectus supplement or the next succeeding business day
will be required, by virtue of the fact that the notes will
settle in T+7, to specify an alternate settlement cycle at the
time of any such trade to prevent a failed settlement.
Purchasers of the notes who wish to make such trades should
consult their own advisor.
The underwriters have performed commercial banking, investment
banking and advisory services for us from time to time for which
they have received customary fees and reimbursement of expenses.
The underwriters may, from time to time, engage in transactions
with and perform services for us in the ordinary course of their
business for which they may receive customary fees and
reimbursement of expenses. Affiliates of J.P. Morgan Securities
Inc. Citigroup Global Markets Inc., Deutsche Bank Securities
Inc. BNP Paribas Securities Corp., DnB NOR Markets, Inc., ING
Financial Markets LLC and Scotia Capital (USA) Inc. are lenders
under our revolving credit facilities. Affiliates of Citigroup
Global Markets Inc., Deutsche Bank Securities Inc. BNP Paribas
Securities Corp., ING Financial Markets LLC and Scotia Capital
(USA) Inc. are lenders under the revolving credit facility which
we intend to partially repay with a portion of the net proceeds
of this offering. In addition, J.P. Morgan Securities Inc.,
one of the underwriters in this offering, together with its
affiliates, beneficially owns more than 5% of the issued and
outstanding common stock of Teekay (most of which is owned in a
fiduciary capacity for others) and is the sole dealer manager in
connection with the tender offer with respect to all of our
outstanding 8.875% Senior Notes.
Teekay is organized under the laws of the Republic of The
Marshall Islands as a corporation. The Republic of The Marshall
Islands has a less developed body of securities laws as compared
to the United States and provides protections for investors to a
significantly lesser extent.
Many of our directors and officers and those of our subsidiaries
are residents of countries other than the United States.
Substantially all of our and our subsidiaries’ assets and a
substantial portion of the assets of our directors and officers
are located outside of the United States. As a result, it may be
difficult or impossible for United States investors to effect
service of process within the United States upon us, our
subsidiaries or our directors or officers or to realize against
us or them judgments obtained in United States courts, including
judgments predicated upon the civil liability provisions of the
securities laws of the United States or any state in the United
States. However, we have expressly submitted to the jurisdiction
of the U.S. federal and New York state courts sitting in
the City of New York for the purpose of any suit, action or
proceeding arising under the securities laws of the United
States or any state in the United States, and we have
appointed Watson, Farley & Williams (New York) LLP to
accept service of process on our behalf in any such action.
Watson, Farley & Williams (New York) LLP, our counsel
as to Marshall Islands law, has advised us that there is
uncertainty as to whether the courts of the Republic of The
Marshall Islands would (1) recognize or enforce against us
or our directors and officers judgments of courts of the United
States based on civil liability provisions of applicable
U.S. federal and state securities laws or (2) impose
liabilities against us or our directors and officers or those of
our subsidiaries in original actions brought in the Republic of
The Marshall Islands, based on these laws.
The validity of the notes under New York law and certain other
legal matters with respect to the laws of the Republic of The
Marshall Islands will be passed upon for us by our counsel as to
New York and Marshall Islands law, Watson, Farley &
Williams (New York) LLP. Certain other legal matters will be
passed upon for us by Perkins Coie LLP, Portland, Oregon, who
may rely upon the opinion of Watson, Farley & Williams
(New York) LLP, for all matters of Marshall Islands law. Certain
matters will be passed upon for the underwriters by
Vinson & Elkins LLP.
The consolidated financial statements of Teekay appearing
elsewhere in this prospectus as at December 31, 2008 and
2007 and for each of the three years in the period ended
December 31, 2008, and the effectiveness of Teekay
Corporation’s internal controls over financial reporting as
of December 31, 2008, have been audited by
Ernst & Young LLP, an independent registered public
accounting firm, as set forth in their reports thereon included
and incorporated by reference therein. Such financial statements
are, and any audited financial statements to be included in
subsequently filed documents will be, included or incorporated
herein in reliance upon the reports of Ernst & Young
LLP pertaining to such financial statements (to the extent
covered by consents filed with the SEC), given on the authority
of such firm as experts in accounting and auditing.
We have filed with the SEC a registration statement on
Form F-3
regarding the securities covered by this prospectus. This
prospectus does not contain all of the information found in the
registration statement. For further information regarding us and
the securities offered in this prospectus, you may wish to
review the full registration statement, including its exhibits.
In addition, we file annual and other reports with and furnish
information to the SEC. You may inspect and copy any document we
file with or furnish to the SEC at the public reference
facilities maintained by the SEC at 100 F Street, NE,
Washington, D.C. 20549. Copies of this material can also be
obtained upon written request from the Public Reference Section
of the SEC at that address, at prescribed rates, or from the
SEC’s web site on the Internet at www.sec.gov free of
charge. Please call the SEC at
1-800-SEC-0330
for further information on public reference rooms. You can also
obtain information about us at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York10005.
As a foreign private issuer, we are exempt under the
U.S. Securities Exchange Act of 1934 (or the Exchange
Act) from, among other things, certain rules prescribing the
furnishing and content of proxy statements, and our executive
officers, directors and principal stockholders are exempt from
the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition,
we are not required under the Exchange Act to file periodic
reports and financial statements with the SEC as frequently or
as promptly as U.S. companies whose securities are
registered under the Exchange Act, including the filing of
quarterly reports or current reports on
Form 8-K.
However, we intend to make available quarterly reports
containing our unaudited interim financial information for the
first three fiscal quarters of each fiscal year.
The SEC allows us to “incorporate by reference” into
this prospectus information that we file with the SEC. This
means that we can disclose important information to you without
actually including the specific information in this prospectus
by referring you to other documents filed separately with the
SEC. The information incorporated by reference is an important
part of this prospectus. Information that we later provide to
the SEC, and which is deemed to be “filed” with the
SEC, automatically will update information previously filed with
the SEC, and may replace information in this prospectus.
our Annual Report on
Form 20-F
for the year ended December 31, 2008;
•
all subsequent Annual Reports on
Form 20-F
filed prior to the termination of this offering;
•
our Reports on
Form 6-K
furnished to the SEC on August 28, October 1, and
December 16, 2009, respectively; and
•
all subsequent Reports on
Form 6-K
furnished prior to the termination of this offering that we
identify in such Reports as being incorporated by reference into
the registration statement of which this prospectus is a part.
These reports contain important information about us, our
financial condition and our results of operations.
You may obtain any of the documents incorporated by reference in
this prospectus from the SEC through its public reference
facilities or its website at the addresses provided above. You
also may request a copy of any document incorporated by
reference in this prospectus (excluding any exhibits to those
documents, unless the exhibit is specifically incorporated by
reference in this document), at no cost, by visiting our
Internet website at www.teekay.com, or by writing or calling us
at the following address:
Teekay
Corporation
4th Floor, Belvedere Building
69 Pitts Bay Road,
Hamilton, HM 08, Bermuda
Attention: Corporate Secretary
Telephone:
(441) 298-2530
You should rely only on the information incorporated by
reference or provided in this prospectus. We have not authorized
anyone else to provide you with any information. You should not
assume that the information incorporated by reference or
provided in this prospectus is accurate as of any date other
than the date on the front of each document.
Each of CRSL, IMA and RS Platou has provided us with industry
statistical and graphical information contained in the sections
of this prospectus entitled “Summary—Industry
overview” and “Business—Industry overview”
relating to the oil tanker industry and demand and orders for
FPSO and FSO units, respectively. We believe that, and act as
if, the information provided by CRSL, IMA and RS Platou is
accurate in all material respects. Each of CRSL, IMA and RS
Platou has advised us that this information is drawn from its
respective database and other sources and that: (a) some
information in their respective databases is derived from
estimates or subjective judgments; (b) the information in
the databases of other maritime data collection agencies may
differ from the information in their respective databases; and
(c) while they each have taken reasonable care in the
compilation of their respective statistical and graphical
information and believe it to be accurate and correct, data
compilation is subject to limited audit and validation
procedures.
The following table sets forth costs and expenses, other than
any underwriting discounts and commissions, we expect to incur
in connection with the issuance and distribution of the
securities covered by this prospectus. All amounts are estimated
except the SEC registration fee.
U.S. Securities and Exchange Commission registration fee
An oil tanker generally between 80,000 and 120,000 dwt in size.
Certain external statistical compilations define an
“Aframax tanker” slightly differently, some as high as
125,000 dwt and others as low at 70,000 dwt. External data used
in this prospectus has been adjusted so that the definition is
consistent throughout.
Bareboat charter
A charter in which the customer (the charterer) pays a fixed
daily rate for a fixed period of time for the full use of the
vessel and becomes responsible for all crewing, management and
navigation of the vessel and the expenses therefor.
Bunker fuel
Any hydrocarbon mineral oil used or intended to be used for the
operation or propulsion of a ship.
Charter
The hiring of a vessel, or use of its carrying capacity, for
either (1) a specified period of time or (2) a
specific voyage or set of voyages.
Chartered in
Vessels to which the operator has access pursuant to a charter.
Also commonly referred to as “in-chartered” vessels.
Charterer
The party that charters a vessel.
Commercial management
Management of the employment of a vessel, including marketing
the vessel for hire under time charters or under voyage charters
in the spot market.
A contract where the vessel operator commits to be available to
transport the quantity of cargo requested by the customer from
time to time over a specified trade route within a given period
of time.
Deepwater
Water with depths of more than 1,000 feet.
Double-hull
Hull construction technique by which a ship has an inner and
outer hull, separated by void space, usually several feet in
width.
Drydock
A dock that may be drained of water to allow for the inspection
and repair of a ship’s hull.
Dwt
Deadweight, a measure of oil tanker carrying capacity, usually
in tonnes, based upon weight of cargo and other items necessary
to submerge the vessel to its maximum permitted draft.
EBITDA
Earnings before interest, taxes, depreciation and amortization.
Forward freight agreement
A derivative instrument that provides for the sale of a
contracted charter rate along a specified route and period of
time. The instrument settles in cash based on the difference
between the contracted charter rate and the average rate of an
identified index.
FPSO unit
Floating production, storage and offloading unit. An FPSO unit
is a type of floating tank system designed to process and store
crude oil.
An FPSO unit typically has onboard the capability to carry out
the oil separation process, obviating the need for such
facilities to be located on the fixed platform. The processed
oil is periodically offloaded onto shuttle tankers or
ocean-going barges for transport to shore.
FSO unit
Floating storage and offtake unit. An FSO unit is an oil tanker
that has been moored in an oil field and modified to store oil.
GAAP
Accounting principles generally accepted in the United States.
General and administrative expenses
Employment costs of shore staff and cost of facilities, as well
as legal, audit and other administrative costs.
Hire rate
The agreed sum or rate to be paid by the customer for the use of
the vessel.
Lightering
Conveying cargo with another vessel known as a
“lighter” from a ship to shore or vessel.
Liquefaction
The process of liquefying natural gas.
LNG
Liquefied natural gas.
LNG carrier
A tank ship designed for transporting liquefied natural gas.
Long-term charter
A charter for a term three years or more.
LPG
Liquefied petroleum gas.
LPG carrier
A tank ship designed for transporting liquefied petroleum gas.
Newbuilding
A new vessel under construction.
OECD
Organisation for Economic co-operation and Development.
Off-hire
The time during which a vessel is not available for service.
Pooling arrangement
Arrangements that enable participating vessels to combine their
revenues. Pools are administered by a pool manager that secures
employment for the participating vessels.
Product tanker
A vessel designed to carry a variety of liquid products varying
from crude oil to clean or refined petroleum products, acids and
other chemicals, as well as edible oils. The tanks are coated to
prevent product contamination and hull corrosion. The vessel may
have equipment designed for the loading and unloading of cargoes
with a high viscosity.
Scrapping
The process by which a vessel is stripped of equipment and
broken up, generally for reprocessing of its steel.
Ship-equivalent basis
A weighted-average calculation method, used in this prospectus,
based on the relative value of vessels in our fleet.
A dynamically-positioned vessel generally between 80,000 and
150,000 dwt in size that contains sophisticated equipment
designed to transport oil from offshore production platforms or
FPSO units or FSO units to onshore storage and refinery
facilities, often in harsh weather conditions.
Spot market
The market for chartering a vessel for single voyages.
Suezmax tanker
A vessel with capacity ranging from 120,000 dwt to 200,000 dwt.
The term is derived from the maximum length, breadth and draft
of a vessel capable of passing fully loaded through the Suez
Canal.
Teekay Parent
Teekay Parent includes all the assets, liabilities, results of
operations and cash flows from Teekay Corporation and its
non-publicly-traded subsidiaries as more fully described on
page 21.
Time charter
A charter in which the customer pays for the use of a
vessel’s cargo capacity for a specified period of time. The
shipowner provides the vessel with crew, stores and provisions,
ready in all aspects to load cargo and proceed on a voyage as
directed by the customer. The customer usually pays for
bunkering and all voyage-related expenses, including canal tolls
and port charges.
Time charter equivalent
Bulk shipping industry freight rates are commonly measured in
the shipping industry at the net revenues level in terms of
“time-charter equivalent” (or TCE) rates, which
represent net revenues divided by revenue days.
VLCC tanker
Very large crude carriers.
Voyage charter
A charter in which the customer pays for the use of a
vessel’s cargo capacity for one, or sometimes more than
one, voyage between specified ports. Under this type of charter,
the shipowner pays all the operating costs of the vessel
(including bunker fuel, canal and port charges, pilotage, towage
and vessel’s agency) while payment for cargo handling
charges are subject of agreement between the parties. Freight is
generally paid per unit of cargo, such as a ton, based on an
agreed quantity, or as a lump sum irrespective of the quantity
loaded.
(all tabular amounts stated
in thousands of U.S. dollars,
except share data)
1.
Summary of
significant accounting policies
Basis of
presentation
The unaudited interim consolidated financial statements have
been prepared in conformity with United States generally
accepted accounting principles (or GAAP). They include
the accounts of Teekay Corporation (or Teekay), which is
incorporated under the laws of the Republic of The Marshall
Islands, and its wholly-owned or controlled subsidiaries
(collectively, the Company). Certain information and
footnote disclosures required by GAAP for complete annual
financial statements have been omitted and, therefore, it is
suggested that these interim financial statements be read in
conjunction with the Company’s audited financial statements
for the year ended December 31, 2008, included on the
Company’s
Form 20-F
filed with the Securities Commission (or the SEC) on
June 30, 2009. In the opinion of management, these
unaudited financial statements reflect all adjustments, of a
normal recurring nature, necessary to present fairly, in all
material respects, the Company’s consolidated financial
position, results of operations, and cash flows for the interim
periods presented. The results of operations for the nine months
ended September 30, 2009, are not necessarily indicative of
those for a full fiscal year.
Certain of the comparative figures have been reclassified to
conform with the presentation adopted in the current period.
The Company evaluated events and transactions occurring after
the balance sheet date and through the day the financial
statements were issued. The date of issuance of the financial
statements was December 16, 2009.
Changes in
accounting policies
a) In January 2009, the Company adopted an amendment
to Financial Accounting Standards Board (or FASB)
Accounting Standards Codification (or ASC) 810,
Consolidation, which requires the Company to make certain
changes to the presentation of our financial statements. This
amendment requires that non-controlling interests in
subsidiaries held by parties other than the Company be
identified, labeled and presented in the statement of financial
position within equity, but separate from the stockholders’
equity. This amendment requires that the amount of consolidated
net income (loss) attributable to the stockholders and to the
non-controlling interest be clearly identified on the
consolidated statements of income (loss). In addition, this
amendment provides for consistency regarding changes in
stockholders’ ownership including when a subsidiary is
deconsolidated. Any retained non-controlling equity investment
in the former subsidiary will be initially measured at fair
value. Except for the presentation and disclosure provisions of
this amendment, which were adopted retrospectively to the
Company’s consolidated financial statements, this amendment
was adopted prospectively.
Consolidated net income attributable to the stockholders of
Teekay Corporation would have been different in the nine months
ended September 30, 2009, had the amendment to FASB ASC
810 not been adopted. Losses attributable to the non-controlling
interest that exceed the entities’ equity capital would
have been charged against the majority interest, as there was no
obligation of the non-controlling interest to cover such losses.
However, if future earnings do materialize, the majority
interest should have been credited to the extent of such losses
previously absorbed. Pro forma consolidated net income
attributable to non-controlling interest and to the stockholders
of Teekay Corporation and pro forma earnings per share had the
amendment to FASB ASC 810 not been adopted is as follows:
Pro forma net income attributable to the stockholders of Teekay
Corporation
104,260
Pro forma earnings per share:
Basic
1.44
Diluted
1.43
b) In January 2009, the Company adopted an amendment
to FASB ASC 805, Business Combinations. This amendment
requires an acquirer to recognize the assets acquired, the
liabilities assumed, and any non-controlling interest in the
acquiree at the acquisition date, measured at their fair values
as of that date. This amendment also requires that the acquirer
in a business combination achieved in stages to recognize the
identifiable assets and liabilities, as well as the
non-controlling interest in the acquiree, at the full fair
values of the assets and liabilities as if they had occurred on
the acquisition date. In addition, this amendment requires that
all acquisition related costs be expensed as incurred, rather
than capitalized as part of the purchase price and those
restructuring costs that an acquirer expected, but was not
obligated to incur, to be recognized separately from the
business combination. This amendment applies prospectively to
business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The adoption of
this amendment did not have a material impact on the
consolidated financial statements.
c) In January 2009, the Company adopted an amendment
to FASB ASC 323, Investments—Equity Method and Joint
Ventures, which addresses the accounting for the acquisition
of equity method investments for changes in ownership levels.
The adoption of this amendment did not have a material impact on
the consolidated financial statements.
d) In January 2009, the Company adopted an amendment
to FASB ASC 820, Fair Value Measurements and Disclosures,
which defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value
measurements for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed
at fair value in the financial statements on a recurring basis
(at least annually). Non-financial assets and non-financial
liabilities include all assets and liabilities other than those
meeting the definition of a financial asset or financial
liability. The Company’s adoption of this amendment did not
have a material impact on the consolidated financial statements.
See Note 12 of the notes to the consolidated financial
statements.
e) In January 2009, the Company adopted an amendment
to FASB ASC 815, Derivatives and Hedging, which requires
expanded disclosures about a company’s derivative
instruments and
hedging activities, including increased qualitative, and
credit-risk disclosures. See Note 16 of the notes to the
consolidated financial statements.
f) In January 2009, the Company adopted an amendment
to FASB ASC 350, Intangibles—Goodwill and Other,
which amends the factors that should be considered in developing
renewal or extension of assumptions used to determine the useful
life of a recognized intangible asset. The adoption of this
amendment did not have a material impact on the consolidated
financial statements.
g) In April 2009, the Company adopted an amendment
to FASB ASC 825, Financial Instruments, which requires
disclosure of the fair value of financial instruments to be
disclosed on a quarterly basis and that disclosures provide
qualitative and quantitative information on fair value estimates
for all financial instruments not measured on the balance sheet
at fair value, when practicable, with the exception of certain
financial instruments. See Note 12 of the notes to the
consolidated financial statements.
h) In April 2009, the Company adopted an amendment
to FASB ASC 855, Subsequent Events, which established
general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial
statements are issued or are available to be issued. This
amendment requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for
selecting that date, that is, whether that date represents the
date the financial statements were issued or were available to
be issued. This amendment is effective for interim and annual
reporting periods ending after June 15, 2009. The adoption
of this amendment did not have a material impact on the
consolidated financial statements. See Note 20 of the notes
to the consolidated financial statements.
i) In June 2009, the FASB issued the FASB ASC
effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The ASC identifies
the source of GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the
SEC under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. On the effective
date, the ASC superseded all then-existing non-SEC accounting
and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the ASC will become
non-authoritative. The Company adopted the ASC on July 1,2009, and incorporated it in the notes to the consolidated
financial statements.
2.
Segment
reporting
The Company is primarily engaged in the international marine
transportation of crude oil and clean petroleum products through
the operation of its tankers, and of liquefied natural gas (or
LNG) and liquefied petroleum gas (or LPG) through the operation
of its tankers and LNG and LPG carriers, and in the offshore
processing and storage of crude oil. The Company’s revenues
are earned in international markets.
The Company has four operating segments: its shuttle
tanker and floating storage and offtake (or FSO) segment
(or Teekay Navion Shuttle Tankers and Offshore), its
floating production storage and offtake (or FPSO) segment
(or Teekay Petrojarl), its liquefied gas segment (or
Teekay Gas Services) and its conventional tanker segment
(or Teekay Tanker Services). In order to provide
investors with additional information about its conventional
tanker segment, the Company has divided this operating segment
into the fixed-rate tanker segment and the spot tanker segment.
The Company’s shuttle tanker and FSO segment consists of
shuttle tankers and
FSO units. The Company’s FPSO segment consists of FPSO
units and other vessels used to service its FPSO contracts. The
Company’s liquefied gas segment consists of LNG and LPG
carriers. The Company’s fixed-rate tanker segment consists
of conventional crude oil and product tankers subject to
long-term, fixed-rate time-charter contracts. The Company’s
spot tanker segment consists of conventional crude oil tankers
and product carriers operating in the spot tanker market or
subject to time-charters or contracts of affreightment that are
priced on a
spot-market
basis or are short-term, fixed-rate contracts. The Company
considers contracts that have an original term of less than
three years in duration to be short-term. Segment results are
evaluated based on income from vessel operations. The accounting
policies applied to the reportable segments are the same as
those used in the preparation of the Company’s consolidated
financial statements.
The following tables present results for these segments for the
nine months ended September 30, 2009 and 2008:
Gain on sale of vessels and equipment, net of write-downs
(3,771
)
–
–
–
(35,942
)
(39,713
)
Restructuring charge
6,500
–
614
1,893
2,173
11,180
Income from vessel operations
33,567
15,248
70,138
53,611
302,811
475,375
(1)
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to each segment based on estimated use of
corporate resources).
Acquisition of
additional 35.3% of Teekay Petrojarl ASA
As of October 1, 2006, the Company acquired a 64.7%
interest in Petrojarl ASA (subsequently renamed Teekay Petrojarl
ASA, or Teekay Petrojarl). In June and July 2008, the Company
acquired the remaining 35.3% interest (26.5 million common
shares) in Teekay Petrojarl at a price between NOK 59 and NOK
62.95 per share. The total purchase price of approximately NOK
1.5 billion ($304.9 million) for this remaining
interest was paid in cash. As a result of these transactions,
the Company’s owns 100% of Teekay Petrojarl.
Teekay Petrojarl’s operating results are reflected in the
Company’s consolidated financial statements from
October 1, 2006, the designated effective date of the
Company’s acquisition of the original 64.7% interest in
Teekay Petrojarl, which was accounted for using the purchase
method of accounting. The acquisition of the remaining 35.3%
interest has also been accounted for using the purchase method
of accounting, based upon estimates of fair value.
4.
Net investment in
direct financing leases
Two of the Company’s LNG carriers are employed on
20-year
time-charters. In addition, the Company leases equipment that
reduces volatile organic compound emissions (or VOC
equipment). The two time charters and leasing of the VOC
equipment are accounted for as direct financing leases. The
following table lists the components of the net investments in
direct financing leases:
As at September 30, 2009, minimum lease payments to be
received by the Company in each of the next five succeeding
fiscal years were approximately $15.7 million (remainder of
2009), $59.0 million (2010), $56.7 million (2011),
$52.3 million (2012) and $40.8 million (2013).
The VOC equipment leases will expire in 2014 and the time
charters will both expire in 2029.
5.
Public
offerings
During August 2009, Teekay Offshore Partners L.P. (or Teekay
Offshore) completed a follow-on public offering of
7.475 million common units (including 975,000 units
issued upon the exercise in full of the underwriter’s
overallotment option) at a price of $14.32 per unit, for total
gross proceeds of $107.0 million (including the general
partner’s $2.2 million proportionate capital
contribution). As a result, the Company’s ownership of
Teekay Offshore was reduced from 50.0% to 40.5% (including the
Company’s 2% general partner interest), and the Company
recorded an increase to stockholders’ equity of
$26.9 million, which represents the Company’s dilution
gain from the issuance of units. Teekay maintains control of
Teekay Offshore by virtue of its control of the general partner
and continues to consolidate this subsidiary. The total net
offering proceeds of approximately $104.3 million were used
to reduce amounts outstanding under one of Teekay
Offshore’s revolving credit facilities.
During June 2009, the Company’s subsidiary Teekay Tankers
Limited (or Teekay Tankers) completed a follow-on public
offering by issuing an additional 7.0 million shares of its
Class A Common Stock at a price of $9.80 per share, for
gross proceeds of $68.6 million. As a result, the
Company’s ownership of Teekay Tankers has been reduced from
54.0% to 42.2%, and the Company recorded an increase to
stockholders’ equity of $1.7 million, which represents
the Company’s dilution gain from the issuance of shares.
Teekay maintains voting control of Teekay Tankers and continues
to consolidate the subsidiary. Teekay Tankers used the total net
offering proceeds of approximately $65.6 million to acquire
a 2003-built Suezmax tanker from Teekay for $57.0 million
and to repay a portion of its outstanding debt under its
revolving credit facility.
During March 2009, the Company’s subsidiary Teekay LNG
Partners L.P. (or Teekay LNG) completed a follow-on public
offering by issuing an additional 4.0 million of its common
units at a price of $17.60 per unit, for gross proceeds of
$71.8 million (including the general partner’s
proportionate capital contribution). As a result, the
Company’s ownership of Teekay LNG was reduced from 57.7% to
53.1% (including the Company’s 2% general partner
interest), and the Company recorded a decrease to
stockholders’ equity of $2.3 million, which represents
the Company’s dilution loss from the issuance of units.
Teekay LNG used the total net offering proceeds of approximately
$68.5 million to prepay amounts outstanding on two of its
revolving credit facilities.
In connection with Teekay LNG’s initial public offering in
May 2005, Teekay entered into an omnibus agreement with Teekay
LNG, Teekay LNG’s general partner and others governing,
among other things, when the Company and Teekay LNG may compete
with each other and to provide the applicable parties certain
rights of first offer on LNG carriers and Suezmax tankers. In
December 2006, the omnibus agreement was amended in
connection with the initial public offering of the
Company’s subsidiary Teekay Offshore to govern, among other
things, when the Company, Teekay LNG and Teekay Offshore may
compete with each other and to provide the applicable parties
certain rights of first offer on LNG carriers, oil tankers,
shuttle tankers, FSO units and FPSO units.
See Note 20(c) of the notes to the consolidated financial
statements for the information relating to a follow-on public
offering by Teekay LNG in November 2009.
Aggregate amortization expense of intangible assets for the nine
months ended September 30, 2009 was $25.6 million
($35.1 million—2008) and is recorded in
depreciation and amortization expense. Amortization of
intangible assets for the next five years is expected to be
$8.5 million (remainder of 2009), $27.2 million
(2010), $34.3 million (2011), $31.8 million (2012),
$17.8 million (2013), and $118.8 million (thereafter).
As part of the Company’s acquisitions of Teekay Petrojarl
in 2006 and 2008 and of 50% of OMI Corporation (or OMI)
in 2007, the Company assumed certain FPSO service contracts and
charter-out contracts with terms that were less favorable than
prevailing market terms at the time of acquisition. The Company
has recognized a liability based on the estimated fair value of
these contracts. The Company is amortizing this liability over
the remaining term of the contracts on a weighted basis based on
the projected revenue to be earned under the contracts.
Amortization of these in-process revenue contracts for the nine
months ended September 30, 2009 was $56.7 million
($55.7 million—2008) and is recorded in revenues.
Amortization for the next five years is expected to be
$17.0 million (remainder of 2009), $60.0 million
(2010), $47.0 million (2011), $41.3 million (2012),
$39.5 million (2013) and $59.4 million
(thereafter).
7.
Supplemental cash
flow information
The changes in non-cash working capital items related to
operating activities for the nine months ended
September 30, 2009 and 2008 are as follows:
USD-denominated Unsecured Demand Loan due to Joint Venture
Partners
16,229
17,343
4,518,729
4,952,792
Less current portion
350,239
245,043
4,168,490
4,707,749
As of September 30, 2009, the Company had thirteen
long-term revolving credit facilities (or the Revolvers)
available, which, as at such date, provided for borrowings of up
to $3.3 billion, of which $1.3 billion was undrawn.
Interest payments are based on LIBOR plus margins; at
September 30, 2009, and December 31, 2008, the margins
ranged between 0.45% and 0.95%. At September 30, 2009 and
December 31, 2008, the three-month LIBOR was 0.30% and
1.43%, respectively. The total amount available under the
Revolvers reduces by $74.0 million (remainder of 2009),
$173.0 million (2010), $205.8 million (2011),
$313.8 million (2012), $596.3 million (2013) and
$1.9 billion (thereafter). The Revolvers are collateralized
by first-priority mortgages granted on 62 of the Company’s
vessels, together with other related security, and include a
guarantee from Teekay or its subsidiaries for all outstanding
amounts.
The 8.875% Senior Notes due July 15, 2011 (or the
8.875% Notes) rank equally in right of payment with
all of Teekay’s existing and future senior unsecured debt
and senior to Teekay’s
existing and future subordinated debt. The 8.875% Notes are
not guaranteed by any of Teekay’s subsidiaries and
effectively rank behind all existing and future secured debt of
Teekay and other liabilities, secured and unsecured, of its
subsidiaries. During the nine months ended September 30,2009, the Company repurchased $nil
(2008—$19.7 million) principal amount of the
8.875% Notes (see also Note 14b).
As of September 30, 2009, the Company had fifteen
U.S. Dollar-denominated term loans outstanding, which
totaled $1.9 billion. Certain of the term loans with a
total outstanding principal balance of $491.0 million as at
September 30, 2009, bear interest at a weighted-average
fixed rate of 5.19%. Interest payments on the remaining term
loans are based on LIBOR plus a margin. At September 30,2009, and December 31, 2008, the margins ranged between
0.30% and 3.25%. At September 30, 2009, and
December 31, 2008, the three-month LIBOR was 0.30% and
1.43%, respectively. The term loan payments are made in
quarterly or semi-annual payments commencing three or six months
after delivery of each newbuilding vessel financed thereby, and
fourteen of the term loans also have balloon or bullet
repayments due at maturity. The term loans are collateralized by
first-priority mortgages on 30 of the Company’s vessels,
together with certain other security. In addition, at
September 30, 2009, all but $137.7 million
(December 31, 2008—$126.1 million) of the
outstanding term loans were guaranteed by Teekay or its
subsidiaries.
The Company has two Euro-denominated term loans outstanding,
which, as at September 30, 2009, totaled 290.1 million
Euros ($424.8 million). The Company repays the loans with
funds generated by two Euro-denominated long-term time-charter
contracts. Interest payments on the loans are based on EURIBOR
plus a margin. At September 30, 2009 and December 31,2008, the margins ranged between 0.60% and 0.66% and the
one-month EURIBOR at September 30, 2009, was 0.44%
(December 31, 2008—2.6%). The Euro-denominated term
loans reduce in monthly payments with varying maturities through
2023 and are collateralized by first-priority mortgages on two
of the Company’s vessels, together with certain other
security, and are guaranteed by a subsidiary of Teekay.
Both Euro-denominated term loans are revalued at the end of each
period using the then prevailing Euro/U.S. Dollar exchange
rate. Due substantially to this revaluation, the Company
recognized unrealized foreign exchange losses of
$39.9 million (2008—gain of $8.3 million) during
the nine months ended September 30, 2009.
The Company has two U.S. Dollar-denominated loans
outstanding owing to joint venture partners, which, as at
September 30, 2009, totaled $15.1 million and
$1.1 million, respectively, including accrued interest.
Interest payments on the first loan, which are based on a fixed
interest rate of 4.84%, commenced in February 2008. This loan is
repayable on demand no earlier than February 27, 2027.
Among other matters, the Company’s long-term debt
agreements generally provide for maintenance of minimum
financial covenants and certain loan agreements require the
maintenance of vessel market
value-to-loan
ratios. Certain loan agreements require that a minimum level of
free cash be maintained. As at September 30, 2009, and
December 31, 2008, this amount was $100.0 million.
Certain of the loan agreements also require that the Company
maintain an aggregate level of free liquidity and undrawn
revolving credit lines with at least six months to maturity, of
at least 7.5% of total debt. As at September 30, 2009, and
December 31, 2008, this amount was $233.4 million and
$293.0 million, respectively. The Company was in compliance
with its debt covenants as at September 30, 2009.
Suezmax Tankers. As at September 30, 2009, the
Company was a party, as lessee, to capital leases on five
Suezmax tankers. Under the terms of the lease arrangements, the
Company is required to purchase these vessels after the end of
their respective lease terms for fixed prices by assuming the
existing vessel financing upon the lenders consent. At their
inception, the weighted-average interest rate implicit in these
leases was 7.4%. These capital leases are variable-rate capital
leases; however, any change in the lease payments resulting from
changes in interest rates is offset by a corresponding change in
the charter hire payments received by the Company. As at
September 30, 2009, the remaining commitments under these
capital leases, including the purchase obligations, approximated
$227.6 million, including imputed interest of
$30.2 million, repayable as follows:
Year
Commitment
Remainder of 2009
$
6.0 million
2010
$
23.7 million
2011
$
197.9 million
RasGas II LNG Carriers. As at
September 30, 2009, the Company was a party, as lessee, to
30-year
capital lease arrangements for the three LNG carriers (or the
RasGas II LNG Carriers) that operate under
time-charter contracts with Ras Laffan Liquefied Natural Gas Co.
Limited (II) (or RasGas II), a joint venture between
Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of
ExxonMobil Corporation. All amounts below relating to the
RasGas II LNG Carriers capital leases include the
non-controlling interest’s 30% share.
Under the terms of the RasGas II LNG Carriers capital lease
arrangements, the lessor claims tax depreciation on the capital
expenditures it incurred to acquire these vessels. As is typical
in these leasing arrangements, tax and change of law risks are
assumed by the lessee.
Payments under the lease arrangements are based on tax and
financial assumptions at the commencement of the leases. If an
assumption proves to be incorrect, the lessor is entitled to
increase the lease payments to maintain its agreed after-tax
margin. At inception of the leases the Company’s best
estimate of the fair value of the guarantee liability was
$18.6 million. During 2008, the Company has agreed under
the terms of its tax lease indemnification guarantee to increase
its capital lease payments for the three RasGas II LNG
Carriers to compensate the lessor for losses suffered as a
result of changes in tax rates. The estimated increase in lease
payments is approximately $8.1 million over the term of the
leases, with a carrying value of $7.9 million as at
September 30, 2009. The Company’s carrying amount of
this tax indemnification is $9.3 million as at
September 30, 2009. Both amounts are included as part of
other long-term liabilities in the accompanying consolidated
balance sheets. The tax indemnification is for the duration of
the lease contract with the third party plus the years it would
take for the lease payments to be statute barred, and ends in
2042. Although there is no maximum potential amount of future
payments, the Company may terminate the lease arrangements at
any time. If the lease arrangements terminate, the Company will
be required to pay termination sums to the lessor sufficient to
repay the lessor’s investment in the vessels and to
compensate it for the tax-effect of the terminations, including
recapture of any tax depreciation.
At their inception, the weighted-average interest rate implicit
in these leases was 5.2%. These capital leases are variable-rate
capital leases. As at September 30, 2009, the commitments
under these capital leases approximated $1.1 billion,
including imputed interest of $0.6 billion, repayable as
follows:
Year
Commitment
Remainder of 2009
$
6.0 million
2010
$
24.0 million
2011
$
24.0 million
2012
$
24.0 million
2013
$
24.0 million
Thereafter
$
953.1 million
Spanish-Flagged LNG Carrier. As at
September 30, 2009, the Company was a party, as lessee, to
a capital lease on one Spanish-flagged LNG carrier, which is
structured as a “Spanish tax lease.” Under the terms
of the Spanish tax lease, the Company will purchase the vessel
at the end of the lease term in 2011. The purchase obligation
has been fully funded with restricted cash deposits described
below. At its inception, the implicit interest rate was 5.8%. As
at September 30, 2009, the commitments under this capital
lease, including the purchase obligation, approximated
117.4 million Euros ($171.8 million), including
imputed interest of 10.2 million Euros
($14.9 million), repayable as follows:
Year
Commitment
Remainder of 2009
25.7 million Euros ($
37.5 million
)
2010
26.9 million Euros ($
39.4 million
)
2011
64.8 million Euros ($
94.9 million
)
FPSO Units. As at September 30, 2009, the
Company was a party, as lessee, to capital leases on one FPSO
unit, the Petrojarl Foinaven, and the topside production
equipment for another FPSO unit, the Petrojarl Banff.
However, prior to being acquired by Teekay Corporation, Teekay
Petrojarl legally defeased its future charter obligations for
these assets by making up-front, lump-sum payments to unrelated
banks, which have assumed Teekay Petrojarl’s liability for
making the remaining periodic payments due under the long-term
charters (or Defeased Rental Payments) and termination
payments under the leases.
The Defeased Rental Payments for the Petrojarl Foinaven
were based on assumed Sterling LIBOR of 8% per annum. If
actual interest rates are greater than 8% per annum, the Company
receives rental rebates; if actual interest rates are less than
8% per annum, the Company is required to pay rentals in excess
of the Defeased Rental Payments. For accounting purposes, this
contract feature is an embedded derivative, and has been
separated from the underlying lease and is separately accounted
for as a derivative instrument.
As is typical for these types of leasing arrangements, the
Company has indemnified the lessors of the Petrojarl Foinaven
for the tax consequence resulting from changes in tax laws
or interpretation of such laws or adverse rulings by authorities
and for fluctuations in actual interest rates from those assumed
in the leases.
Under the terms of the capital leases for the four LNG carriers
described above in this Note 9, the Company is required to
have on deposit with financial institutions an amount of cash
that, together with interest earned on the deposits, will equal
the remaining amounts owing under the leases, including the
obligations to purchase the LNG carriers at the end of the lease
periods, where applicable. These cash deposits are restricted to
being used for capital lease payments and have been fully funded
with term loans and, for one vessel, a loan from the
Company’s joint venture partner (see Note 8).
As at September 30, 2009, and December 31, 2008, the
amount of restricted cash on deposit for the three
RasGas II LNG Carriers was $480.4 million and
$487.4 million, respectively. As at September 30,2009, and December 31, 2008, the weighted-average interest
rates earned on the deposits were 0.7% and 4.8%, respectively.
As at September 30, 2009, and December 31, 2008, the
amount of restricted cash on deposit for the Spanish-flagged LNG
carrier was 108.6 million Euros ($159.1 million) and
104.7 million Euros ($146.2 million), respectively. As
at September 30, 2009, and December 31, 2008, the
weighted-average interest rate earned on these deposits was 5.0%.
The Company also maintains restricted cash deposits relating to
certain term loans and other obligations, which cash deposits
totaled $2.4 million and $17.0 million as at
September 30, 2009, and December 31, 2008,
respectively.
10.
Capital
stock
The authorized capital stock of Teekay at September 30,2009, and December 31, 2008, was 25,000,000 shares of
Preferred Stock, with a par value of $1 per share, and
725,000,000 shares of Common Stock, with a par value of
$0.001 per share. As at September 30, 2009, Teekay had
73,068,523 shares of Common Stock (December 31,2008—73,011,488) issued and no shares of Preferred Stock
issued. As at September 30, 2009, Teekay had
72,569,326 shares of Common Stock outstanding
(December 31, 2008—72,512,291).
Dividends may be declared and paid out of surplus only, but if
there is no surplus, dividends may be declared or paid out of
the net profits for the fiscal year in which the dividend is
declared and for the preceding fiscal year. Subject to
preferences that may apply to any shares of preferred stock
outstanding at the time, the holders of common stock are
entitled to share equally in any dividends that the board of
directors may declare from time to time out of funds legally
available for dividends.
During 2008, Teekay announced that its Board of Directors had
authorized the repurchase of up to $200 million of shares
of its Common Stock in the open market. As at September 30,2009, Teekay had not repurchased any shares of Common Stock
pursuant to such authorization.
During the nine months ended September 30, 2009, the
Company issued 0.1 million common shares for
$0.4 million on exercise of stock options and recorded
employee stock option compensation expense of $8.6 million,
which increased additional paid-in capital by a total of
$9.0 million. For the same period in 2008, the Company
issued 0.2 million common shares for $5.0 million on
exercise of stock options, partially offset by a repurchase of
0.5 million common shares for $4.2 million, and
recorded employee stock option compensation expense of
$8.2 million, which increased additional paid-in capital by
a net amount of $9.0 million.
As at September 30, 2009, the Company was committed to the
construction of one Suezmax tanker, four LPG carriers, and four
shuttle tankers. One LPG carrier was delivered in November 2009
with the remaining vessels scheduled for delivery between
December 2009 and August 2011, at a total cost of approximately
$687.0 million, excluding capitalized interest. As at
September 30, 2009, payments made towards these commitments
totaled $176.6 million (excluding $19.9 million of
capitalized interest and other miscellaneous construction
costs), and long- term financing arrangements existed for
$510.3 million of the unpaid cost of these vessels. As at
September 30, 2009, the remaining payments required to be
made under these newbuilding contracts were $42.5 million
(2009), $316.1 million (2010), and $151.7 million
(2011).
b)
Joint
ventures
The Company has a 33% interest in a consortium that will charter
four newbuilding 160,400-cubic meter LNG carriers for a period
of 20 years to the Angola LNG Project, which is being
developed by subsidiaries of Chevron Corporation, Sociedade
Nacional de Combustiveis de Angola EP, BP Plc, Total S.A. and
ENI SpA. Final award of the charter was made in December 2007.
The vessels will be chartered at fixed rates, with inflation
adjustments, commencing in 2011. The remaining members of the
consortium are Mitsui & Co., Ltd. and NYK Bulkship
(Europe) Ltd., which hold 34% and 33% interests in the
consortium, respectively. In connection with this award, the
consortium has entered into agreements with Samsung Heavy
Industries Co. Ltd. to construct the four LNG carriers at a
total cost of approximately $906.0 million (of which the
Company’s 33% portion is $299.0 million), excluding
capitalized interest. As at September 30, 2009, payments
made towards these commitments by the joint venture company
totaled $181.2 million (of which the Company’s 33%
contribution was $59.8 million), excluding capitalized
interest and other miscellaneous construction costs. As at
September 30, 2009, the remaining payments required to be
made under these contracts were $113.2 million (2010),
$475.6 million (2011) and $135.9 million (2012).
In accordance with existing agreements, the Company is required
to offer to Teekay LNG its 33% interest in these vessels and
related charter contracts no later than 180 days before the
scheduled delivery dates of the vessels. Deliveries of the
vessels are scheduled between August 2011 and January 2012. The
Company has also provided certain guarantees in relation to the
performance of the joint venture company.
For the nine months ended September 30, 2009, the Company
recorded equity (loss) income of $17.9 million for its
share of the Angola LNG Project earnings. This amount is
included in equity income (loss) from joint ventures in the
consolidated statement of income. Substantially all of the
equity (loss) income related to unrealized (losses) gains on
interest rate swaps.
One of the Kenai LNG Carriers, the Arctic Spirit, came
off charter from the Marathon Oil Corporation/ConocoPhillips
joint venture on March 31, 2009, and the Company entered
into a joint development and option agreement with Merrill Lynch
Commodities, Inc. (MLCI), giving MLCI the option to
purchase the vessel for conversion to an LNG floating
production, storage and offload unit (FLNG). The
agreement provides for a purchase price of $105 million if
the Company chooses to participate in the project (as described
below), or $110 million if the Company chooses not to
participate. Under the option agreement, the Arctic Spirit
is reserved for MLCI until December 31, 2009 and MLCI
may extend the option quarterly through 2010. If
MLCI exercises the option and purchases the vessel from the
Company, it is expected that MLCI will convert the vessel to an
FLNG (although it is not required to do so) and charter it under
a long-term charter contract to a third party. The Company has
the right to participate up to 50% in the conversion and charter
project on terms that will be determined as the project
progresses. The agreement with MLCI also provides that if the
conversion of the Arctic Spirit to an FLNG proceeds, the
Company will offer a similar option for a designee of MLCI to
purchase the second Kenai LNG carrier for $125 million when
it comes off charter.
c)
Legal proceedings
and claims
The Company may, from time to time, be involved in legal
proceedings and claims that arise in the ordinary course of
business. The Company believes that any adverse outcome of
existing claims, individually or in the aggregate, would not
have a material effect on its financial position, results of
operations or cash flows, when taking into account its insurance
coverage and indemnifications from charterers.
d)
Long-term
incentive plan
In 2005, the Company adopted the Vision Incentive Plan (or the
VIP) to reward exceptional corporate performance and
shareholder returns. This plan will result in an award pool for
senior management based on the following two measures:
(a) economic profit from 2005 to 2010 (or the Economic
Profit); and (b) market value added from 2001 to 2010
(or the MVA). The Plan terminates on December 31,2010. Under the VIP, the Economic Profit is the difference
between the Company’s annual return on invested capital and
its weighted-average cost of capital multiplied by its average
invested capital employed during the year, and the increase in
MVA from January 1, 2001 to December 31, 2010, where
the MVA is the amount by which the average market value of the
Company for the preceding 18 months exceeds the average
book value of the Company for the same period.
During the nine months ended September 30, 2009, the
Company recorded an expense (recovery) related to the VIP of
$nil (2008—$(16.4) million) which is included in
general and administrative expense. As at September 30,2009, and December 31, 2008, the VIP liability was $nil.
e)
Other
The Company enters into indemnification agreements with certain
officers and directors. In addition, the Company enters into
other indemnification agreements in the ordinary course of
business. The maximum potential amount of future payments
required under these indemnification agreements is unlimited.
However, the Company maintains what it believes is appropriate
liability insurance that reduces its exposure and enables the
Company to recover future amounts paid up to the maximum amount
of the insurance coverage, less any deductible amounts pursuant
to the terms of the respective policies, the amounts of which
are not considered material.
12.
Fair value
measurements
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments and other
non-financial assets.
Cash and cash equivalents and restricted cash—The
fair value of the Company’s cash and cash equivalents
approximates their carrying amounts reported in the accompanying
consolidated balance sheets.
Vessels held for sale—The fair value of the
Company’s vessels held for sale is based on selling prices
of similar vessels and approximates their carrying amounts
reported in the accompanying consolidated balance sheets.
Loans to joint ventures—The fair value of the
Company’s loans to joint ventures approximates their
carrying amounts reported in the accompanying consolidated
balance sheets.
Loans from joint venture partners—The fair value of
the Company’s loans from joint venture partners
approximates their carrying amounts reported in the accompanying
consolidated balance sheet.
Long-term debt—The fair value of the Company’s
fixed-rate and variable-rate long-term debt is either based on
quoted market prices or estimated using discounted cash flow
analyses, based on current rates currently available for debt
with similar terms and remaining maturities and the current
credit worthiness of the Company.
Derivative instruments—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, as
applicable, current interest rates, foreign exchange rates, and
the current credit worthiness of both the Company and the swap
counterparties. Given the current volatility in the credit
markets, it is reasonably possible that the amounts recorded as
derivative assets and liabilities could vary by material amounts
in the near term.
The Company categorizes its fair value estimates using a fair
value hierarchy based on the inputs used to measure fair value.
The fair value hierarchy has three levels based on the
reliability of the inputs used to determine fair value as
follows:
Level 1. Observable inputs such as quoted prices in
active markets;
Level 2. Inputs, other than the quoted prices in
active markets, that are observable either directly or
indirectly; and
Level 3. Unobservable inputs in which there is little
or no market data, which require the reporting entity to develop
its own assumptions.
The estimated fair value of the Company’s financial
instruments and other non-financial assets and categorization
using the fair value hierarchy are as follows:
The Company transacts all of its
derivative instruments through investment-grade rated financial
institutions at the time of the transaction and requires no
collateral from these institutions.
(2)
The fair value of the
Company’s interest rate swap agreements includes
$29.0 million of accrued interest which is recorded in
accrued liabilities on the balance sheet.
The Company has determined that other than Vessels Held for
Sale, there are no other non-financial assets or non-financial
liabilities carried at fair value less costs to sell at
September 30, 2009. See Note 13(b) of the notes to the
consolidated financial statements.
13.
Vessel sales and
write-downs of Vessels and equipment
a)
Vessel
sales
During January and February 2009, the Company sold a 2009-built
product tanker and a
1993-built
Aframax tanker through a sale-leaseback agreement, respectively,
which were presented on the December 31, 2008 balance sheet
as vessels held for sale. Both vessels were part of the
Company’s spot tanker segment. The Company realized a gain
of approximately $17.7 million as a result of these
transactions, of which $17.6 million was deferred and will
be amortized over the four-year term of the bareboat charter
leaseback.
During May 2009, the Company sold a 2007-built product tanker
and a 2005-built product tanker. Both vessels were part of the
Company’s spot tanker segment. The Company realized a gain
of approximately $29.8 million as a result of these
transactions.
During July 2009, the Company entered into an agreement to sell
a 1992-built Aframax tanker. The vessel was part of the
Company’s spot tanker segment and is presented on the
September 30, 2009 balance sheet as a vessel held for sale.
The vessel was written-down by $7.1 million to its fair
market value less costs to sell. The vessel sale was completed
during the fourth quarter of 2009.
During September 2009, the Company entered into an agreement to
sell a 1989-built product tanker. The vessel was part of the
Company’s fixed-rate tanker segment and is presented on the
September 30, 2009 balance sheet as a vessel held for sale.
During the nine months ended
September 30, 2009, the vessel was written-down by
$4.0 million to its fair market value less costs to sell.
The vessel sale was completed during the fourth quarter of 2009.
b)
Vessels and
equipment write-down
The Company’s consolidated statement of income (loss) for
the nine months ended September 30, 2009, includes a
$17.1 million write-down for impairment of three older
vessels due to lower fair values compared to carrying values.
The Company used recent sale prices of similar age and size of
vessels to determine the fair value. These vessels are presented
on the September 30, 2009, balance sheet as vessels held
for sale.
14.
Restructuring
charge and other income (loss)
a)
Restructuring
charge
During the nine months ended September 30, 2009, the
Company incurred $12.0 million of restructuring costs. The
restructuring costs were primarily comprised of the reflagging
of certain vessels, transfer of certain ship management
functions from the Spain office to a subsidiary of Teekay,
global staffing changes and closure of one of the Company’s
three offices in Norway. The Company expects to incur
approximately $4.0 million of additional restructuring
costs relating to these changes in operations. At
September 30, 2009, $1.2 million of restructuring
liability is recorded in accrued liabilities on the balance
sheet.
The Company uses derivatives in accordance with its overall risk
management policies. The following summarizes the Company’s
risk strategies with respect to market risk from foreign
currency fluctuations and changes in interest rates.
Foreign
currency fluctuation risk
The Company hedges portions of its forecasted expenditures
denominated in foreign currencies with foreign currency forward
contracts. Certain of these foreign currency forward contracts
are designated as cash flow hedges of forecasted foreign
currency expenditures. Where such instruments are designated and
qualify as cash flow hedges for accounting purposes, the
effective portion of the changes in their fair value is recorded
in accumulated other comprehensive income (loss), until the
hedged item is recognized in earnings. At such time, the
respective amount in accumulated other comprehensive income
(loss) is released to earnings and is recorded within operating
expenses, based on the nature of the expense. The ineffective
portion of these foreign currency forward contracts consists of
a $1.1 million gain for the nine months ended
September 30, 2009, and has been reported as a reduction of
operating expenses, based on the nature of the expense.
During the nine months ended September 30, 2009 and 2008,
the Company recognized the following realized and unrealized
gains (losses) relating to foreign currency forward contracts
that are designated as cash flow hedges for accounting purposes:
Realized and unrealized gains (losses) of foreign currency
forward contracts that are not designated for accounting
purposes as cash flow hedges, are recognized in earnings and
reported in realized and unrealized gains (losses) on
non-designated derivative instruments in the consolidated
statements of income (loss). During the nine months ended
September 30, 2009, the Company recognized net realized and
unrealized gains on foreign currency forward contracts of
$6.3 million. During the nine months ended
September 30, 2008, the Company recognized net realized and
unrealized gains (losses) on foreign currency forward contracts
of $(1.6) million. Realized and unrealized (losses) gains
of $(0.1) million, relating to foreign currency forwards
contracts for the nine months ended September 30, 2008,
were reclassified from general and administrative expenses to
realized and unrealized (losses) gains on non-designated
derivative instruments for comparative purposes. Realized and
unrealized gains (losses) of $(3.7) million, relating to
foreign currency forwards contracts for the nine months ended
September 30, 2008, were reclassified from vessel operating
expenses to realized and unrealized (losses) gains on
non-designated derivative instruments for comparative purposes.
Realized and unrealized (losses) gains of $2.3 million,
relating to foreign currency forwards contracts for the nine
months ended September 30, 2008, were reclassified from
time-charter hire and foreign exchange expenses to realized and
unrealized (losses) gains on non-designated derivative
instruments for comparative purposes.
Average forward rate represents the
contracted amount of foreign currency one U.S. Dollar will buy.
As at September 30, 2009, the Company’s accumulated
other comprehensive loss included $0.2 million of
unrealized losses on foreign currency forward contracts
designated as cash flow hedges (December 31,2008—$58.7 million of unrealized losses). As at
September 30, 2009, the Company estimated, based on current
foreign exchange rates, that it would reclassify approximately
$1.3 million of net losses on foreign currency forward
contracts from accumulated other comprehensive loss to earnings
during the next twelve months.
Interest rate
risk
The Company enters into interest rate swaps which exchange a
receipt of floating interest for a payment of fixed interest to
reduce the Company’s exposure to interest rate variability
on its outstanding floating-rate debt. In addition, the Company
holds interest rate swaps, which exchange a payment of floating
rate interest for a receipt of fixed interest in order to reduce
the Company’s exposure to the variability of interest
income on its restricted cash deposits. The Company has not
designated its interest rate swaps as cash flow hedges for
accounting purposes.
Realized and unrealized gains (losses) relating to the
Company’s interest rate swaps have been reported in
realized and unrealized gains (losses) on non-designated
derivative instruments in the consolidated statements of income
(loss). During the nine months ended September 30, 2009,
the Company recognized net realized and unrealized (losses)
gains of $72.6 million relating to its interest rate swaps.
During the nine months ended September 30, 2008, the
Company recognized net realized and unrealized losses of
$(83.8) million relating to its interest rate swaps. The
realized and unrealized losses of $(83.8) million, relating
to interest rate swaps for the nine months ended
September 30, 2008, were reclassified from interest income
and interest expense to realized and unrealized (loss) gain on
non-designated derivative instruments for comparative purposes.
As at September 30, 2009, the Company was committed to the
following interest rate swap agreements related to its
LIBOR-based debt, restricted cash deposits and EURIBOR-based
debt, whereby certain of the Company’s floating-rate debt
and restricted cash deposits were swapped with fixed-rate
obligations or fixed-rate deposits:
Fair Value/
carrying
Weighted-
amount of
average
Fixed
Principal
asset
remaining
interest
Interest
amount
(liability)
term
rate
rate index
$
$
(years)
(%)(1)
LIBOR-Based Debt:
U.S. Dollar-denominated interest rate
swaps(2)
LIBOR
460,480
(62,138
)
27.3
4.9
U.S. Dollar-denominated interest rate swaps
LIBOR
3,061,635
(352,642
)
8.8
5.0
U.S. Dollar-denominated interest rate
swaps(3)
LIBOR
835,000
(83,899
)
12.9
4.2
LIBOR-Based Restricted Cash Deposit:
U.S. Dollar-denominated interest rate
swaps(2)
LIBOR
474,567
76,368
27.3
4.8
EURIBOR-Based Debt:
Euro-denominated interest rate
swaps(4)(5)
EURIBOR
424,782
(14,264
)
14.7
3.8
(1)
Excludes the margins the Company
pays on its variable-rate debt, which at of September 30,2009, ranged from 0.30% to 3.25%.
(2)
Principal amount reduces quarterly.
(3)
Inception dates of swaps are 2009
($335.0 million), 2010 ($300.0 million) and 2011
($200.0 million).
(4)
Principal amount reduces monthly to
70.1 million Euros ($102.6 million) by the maturity
dates of the swap agreements.
(5)
Principal amount is the U.S. Dollar
equivalent of 290.1 million Euros.
The Company is exposed to credit loss in the event of
non-performance by the counterparties to the foreign currency
forward contracts and interest rate swap agreements; however,
the Company does not anticipate non-performance by any of the
counterparties. In order to minimize counterparty risk, the
Company only enters into derivative transactions with
counterparties that are rated A- or better by
Standard & Poor’s or A3 or better by Moody’s
at the time of the transaction. In addition, to the extent
possible and practical, interest rate swaps are entered into
with different counterparties to reduce concentration risk.
Net income attributable to stockholders’ of Teekay
Corporation
98,616
181,418
Weighted average number of common shares
72,535,438
72,496,564
Dilutive effect of employee stock options and restricted stock
awards
341,120
751,976
Common stock and common stock equivalents
72,876,558
73,248,540
Earnings per common share:
- Basic
1.36
2.50
- Diluted
1.35
2.48
For the nine months ended September 30, 2009, the
anti-dilutive effect of 4.5 million shares
(2.8 million shares—2008), attributable to outstanding
stock options was excluded from the calculations of diluted
earnings per share.
18.
Income tax
(expense) recovery
The legal jurisdictions in which Teekay and several of its
subsidiaries are incorporated do not impose income taxes upon
shipping-related activities. However, among others, the
Company’s Australian ship-owing subsidiaries and its
Norwegian subsidiaries are subject to income taxes.
The components of the provision for income tax (expense)
recovery are as follows:
a) In June 2009, the FASB issued Statement of
Financial Accounting Standards (or SFAS) No. 167,
Amendments to FASB Interpretation No. 46(R).
SFAS No. 167 eliminates FASB Interpretation
46(R)’s exceptions to consolidating qualifying
special-purpose entities, contains new criteria for determining
the primary beneficiary, and increases the frequency of required
reassessments to determine whether a company is the primary
beneficiary of a variable interest entity. SFAS No. 167
also contains a new requirement that any term, transaction, or
arrangement that does not have a substantive effect on an
entity’s status as a variable interest entity, a
company’s power over a variable interest entity, or a
company’s obligation to absorb losses or its right to
receive benefits of an entity must be disregarded in applying
FASB Interpretation 46(R)’s provisions. The elimination of
the qualifying special-purpose entity concept and its
consolidation exceptions means more entities will be subject to
consolidation assessments and reassessments.
SFAS No. 167 is effective for fiscal years beginning
after November 15, 2009, and for interim
periods within that first period, with earlier adoption
prohibited. The Company is currently assessing the potential
impact, if any, of this statement on its consolidated financial
statements. SFAS No. 167 will remain authoritative
until such time that it is integrated into the Codification.
b) In June 2009, the FASB issued
SFAS No. 166, Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140.
SFAS No. 166 eliminates the concept of a qualifying
special-purpose entity, creates more stringent conditions for
reporting a transfer of a portion of a financial asset as a
sale, clarifies other sale-accounting criteria, and changes the
initial measurement of a transferor’s interest in
transferred financial assets. SFAS No. 166 will be
effective for transfers of financial assets in fiscal years
beginning after November 15, 2009, and in interim periods
within those fiscal years with earlier adoption prohibited. The
Company is currently assessing the potential impacts, if any, on
its consolidated financial statements. SFAS No. 166
will remain authoritative until such time that it is integrated
into the Codification.
c) In August 2009, the FASB issued an amendment to
FASB ASC 820, Fair Value Measurements and Disclosures
that clarifies the fair value measurement requirements for
liabilities that lack a quoted price in an active market and
provides clarifying guidance regarding the consideration of
restrictions when estimating the fair value of a liability. This
amendment became effective for the Company on October 1,2009. The Company is currently assessing the potential impacts,
if any, on its consolidated financial statements.
d) In September 2009, the FASB issued an amendment
to FASB ASC 605, Revenue Recognition that provides for a
new methodology for establishing the fair value for a
deliverable in a multiple-element arrangement. When vendor
specific objective or third-party evidence for deliverables in a
multiple-element arrangement cannot be determined, the Company
will be required to develop a best estimate of the selling price
of separate deliverables and to allocate the arrangement
consideration using the relative selling price method. This
amendment will be effective for the Company on January 1,2010. The Company is currently assessing the potential impacts,
if any, on its consolidated financial statements.
20.
Subsequent
events
a) On October 27, 2009, Teekay LNG entered into
a new $122.0 million credit facility that will be secured
by the Skaugen LPG Carriers and Skaugen Multigas Carriers. The
facility amount is equal to the lower of $122.0 million and
60% of the purchase price of each vessel. The facility will
mature, with respect to each vessel, seven years after each
vessels’ first drawdown date. Teekay LNG expects to draw on
this facility to repay a portion of the amount borrowed to
purchase the Skaugen LPG Carrier delivered in April 2009 and the
Skaugen LPG Carrier that delivered in November 2009. Teekay LNG
will use the remaining available funds from the facility to
assist in purchasing, or facilitate the purchase of, the third
Skaugen LPG Carrier and the two Skaugen Multigas Carriers upon
delivery of each vessel.
b) On November 12, 2009, Teekay Offshore
entered into a $260 million revolving credit facility
secured by the Petrojarl Varg, a Floating Production
Storage and Offloading unit. A portion of this facility was used
to repay the $160 million tranche of the $220 million
vendor financing obtained from Teekay at the time of the
acquisition of the Petrojarl Varg.
c) On November 20, 2009, Teekay LNG completed a
follow-on public offering of 3.5 million common units at a
price of $24.40 per unit, for gross proceeds of approximately
$87.1 million (including the general partner’s 2%
proportionate capital contribution). On November 25, 2009,
the underwriters partially exercised their over-allotment option
to purchase an additional
450,650 common units for gross proceeds for $11.2 million
(including the general partner’s 2% proportionate capital
contribution). As a result of these equity transactions, Teekay
LNG raised gross proceeds of approximately $98.4 million
(including the general partner’s 2% proportionate capital
contribution), and the Company’s ownership of Teekay LNG
was reduced from 53.1% to 49.2% (including the Company’s 2%
general partner interest). The total net proceeds from the
offering will be used to reduce amounts outstanding under one or
more of Teekay LNG’s revolving credit facilities.
d) On December 2, 2009, the Company entered
into an agreement to purchase a 55% interest in an FPSO unit for
$105 million. The completion of the acquisition is expected
to be December 29, 2009. The party holding the remaining
45% interest in the vessel has a pre-emptive right to acquire
the 55% interest that the Company is intending to purchase. The
pre-emptive right can only be exercised prior to
December 29, 2009. The vessel is currently being employed
on a bareboat charter contract until July 2020, with the
charterer’s option to terminate the contract with
12 months notice.
Report of
independent registered public accounting firm
To the Board of Directors and Stockholders of
TEEKAY CORPORATION
We have audited the accompanying consolidated balance sheets of
Teekay Corporation and subsidiaries as of December 31, 2008
and 2007, and the related consolidated statements of income
(loss), changes in stockholders’ equity and cash flows for
each of the three years in the period ended December 31,2008. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our 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 audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes 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. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Teekay Corporation and subsidiaries at
December 31, 2008 and 2007, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, on January 1, 2006, the Company adopted the
provisions of Statement of Financial Accounting Standards
No. 123(R), Share-Based Payment.
As discussed in Note 21 to the consolidated financial
statements, on January 1, 2007, the Company adopted the
provisions of Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement
No. 109.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Teekay Corporation’s internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated June 24, 2009 expressed an
unqualified opinion thereon.
We have audited Teekay Corporation’s internal control over
financial reporting as of December 31, 2008, based on
criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (or the COSO criteria).
Teekay Corporation’s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
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 (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
Company; (2) 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 (3) 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.
In our opinion, Teekay Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008 based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
2008 consolidated financial statements of Teekay Corporation and
our report dated June 24, 2009, expressed an unqualified
opinion thereon.
(all tabular
amounts stated in thousands of U.S. dollars, other than share
data)
1.
Summary of
significant accounting policies
Basis of
presentation
The consolidated financial statements have been prepared in
conformity with United States generally accepted accounting
principles. They include the accounts of Teekay Corporation (or
Teekay), which is incorporated under the laws of The
Republic of the Marshall Islands, and its wholly owned or
controlled subsidiaries (collectively, the Company).
Significant intercompany balances and transactions have been
eliminated upon consolidation. Additionally, the Company
consolidates variable interest entities (or VIEs) for
which it is deemed to be the primary beneficiary.
The preparation of financial statements in conformity with
United States generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. Given
the current credit markets, it is possible that the amounts
recorded as derivative assets and liabilities could vary by
material amounts.
Certain of the comparative figures have been reclassified to
conform with the presentation adopted in the current period.
Reporting
currency
The consolidated financial statements are stated in
U.S. Dollars. The functional currency of the Company is
U.S. Dollars because the Company operates in international
shipping markets, which typically utilize the U.S. Dollar
as the functional currency. Transactions involving other
currencies during the year are converted into U.S. Dollars
using the exchange rates in effect at the time of the
transactions. At the balance sheet date, monetary assets and
liabilities that are denominated in currencies other than the
U.S. Dollar are translated to reflect the year-end exchange
rates. Resulting gains or losses are reflected separately in the
accompanying consolidated statements of income.
Operating
revenues and expenses
The Company recognizes revenues from time-charters and bareboat
charters daily over the term of the charter as the applicable
vessel operates under the charter. The Company does not
recognize revenue during days that the vessel is off-hire. When
the time-charter contains a profit-sharing agreement, the
Company recognizes the profit-sharing or contingent revenue only
after meeting the profit sharing threshold. All revenues from
voyage charters are recognized on a percentage of completion
method. The Company uses a
discharge-to-discharge
basis in determining percentage of completion for all spot
voyages and voyages servicing contracts of affreightment,
whereby it recognizes revenue ratably from when product is
discharged (unloaded) at the end of one voyage to when it is
discharged after the next voyage.
The Company does not begin recognizing revenue until a charter
has been agreed to by the customer and the Company, even if the
vessel has discharged its cargo and is sailing to the
anticipated load port on its next voyage. Shuttle tanker voyages
servicing contracts of affreightment with offshore oil fields
commence with tendering of notice of readiness at a field,
within the agreed lifting range, and ends with tendering of
notice of readiness at a field for the next lifting. Revenues
from FPSO service contracts are recognized as service is
performed. The consolidated balance sheets reflect the deferred
portion of revenues and expenses, which will be earned in
subsequent periods.
Revenues and voyage expenses of the Company’s vessels
operating in pool arrangements are pooled with the revenues and
voyage expenses of other pool participants. The resulting net
pool revenues, calculated on the time-charter-equivalent basis,
are allocated to the pool participants according to an agreed
formula. The Company accounts for the net allocation from the
pool as revenues and amounts due from the pool are included in
accounts receivable.
Voyage expenses are all expenses unique to a particular voyage,
including bunker fuel expenses, port fees, cargo loading and
unloading expenses, canal tolls, agency fees and commissions.
Vessel operating expenses include crewing, repairs and
maintenance, insurance, stores, lube oils and communication
expenses. Voyage expenses and vessel operating expenses are
recognized when incurred. For periods prior to October 1,2006, the Company recognized voyage expenses ratably over the
length of each voyage. The impact of recognizing voyage expenses
ratably over the length of each voyage was not materially
different on a quarterly and annual basis from recognizing such
costs when incurred.
Cash and cash
equivalents
The Company classifies all highly liquid investments with a
maturity date of three months or less at inception as cash
equivalents.
Accounts
receivable and allowance for doubtful accounts
Accounts receivable are recorded at the invoiced amount and do
not bear interest. The allowance for doubtful accounts is the
Company’s best estimate of the amount of probable credit
losses in existing accounts receivable. The Company determines
the allowance based on historical write-off experience and
customer economic data. The Company reviews the allowance for
doubtful accounts regularly and past due balances are reviewed
for collectability. Account balances are charged off against the
allowance when the Company believes that the receivable will not
be recovered.
Marketable
securities
The Company’s investments in marketable securities are
classified as
available-for-sale
securities and are carried at fair value. Net unrealized gains
and losses on
available-for-sale
securities are reported as a component of accumulated other
comprehensive income (loss). 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 in 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 three-month period after the
measurement date, unless there are mitigating factors that
indicate 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.
Vessels and
equipment
All pre-delivery costs incurred during the construction of
newbuildings, including interest, supervision and technical
costs, are capitalized. The acquisition cost and all costs
incurred to restore used vessels purchased by the Company to the
standard required to properly service the Company’s
customers are capitalized.
Depreciation is calculated on a straight-line basis over a
vessel’s estimated useful life, less an estimated residual
value. Depreciation is calculated using an estimated useful life
of 25 years for crude oil tankers, 25 to 30 years for
FPSO units and 35 years for liquefied natural gas (or
LNG) and liquefied petroleum gas (or LPG)
carriers, commencing the date the vessel is delivered from the
shipyard, or a shorter period if regulations prevent the Company
from operating the vessels for 25 years or 35 years,
respectively. Depreciation includes depreciation on all owned
vessels and amortization of vessels accounted for as capital
leases. Depreciation of vessels and equipment for the years
ended December 31, 2008, 2007 and 2006 aggregated
$340.7 million, $279.7 million and
$186.6 million, respectively, of which $31.6 million,
$30.9 million and $21.3 million relate to amortization
of vessels accounted for as capital leases.
Vessel capital modifications include the addition of new
equipment or can encompass various modifications to the vessel
that are aimed at improving or increasing the operational
efficiency and functionality of the asset. This type of
expenditure is amortized over the estimated useful life of the
modification. Expenditures covering recurring routine repairs
and maintenance are expensed as incurred.
Interest costs capitalized to vessels and equipment for the
years ended December 31, 2008, 2007 and 2006 aggregated
$32.5 million, $35.0 million and $15.9 million,
respectively.
Gains on vessels sold and leased back under capital leases are
deferred and amortized over the remaining estimated useful life
of the vessel. Losses on vessels sold and leased back under
capital leases are recognized immediately when the fair value of
the vessel at the time of sale and lease-back is less than its
book value. In such case, the Company would recognize a loss in
the amount by which book value exceeds fair value.
Effective January 1, 2008, the Company increased its
estimate of the residual value of its vessels due to an increase
in the estimated scrap rate per lightweight ton from $150 per
lightweight ton to $325 per lightweight ton. The Company’s
estimate of salvage values took into account the then current
scrap prices and the historical scrap rates over the five years
prior to December 31, 2007. As a result, depreciation and
amortization expense has decreased by $13.2 million, and
net income has increased by $10.0 million, or $0.14 per
share for the year ended December 31, 2008, respectively.
Generally, the Company drydocks each vessel every two and a half
to five years. The Company capitalizes a substantial portion of
the costs incurred during drydocking and amortizes those costs
on a straight-line basis from the completion of a drydocking or
intermediate survey to the
estimated completion of the next drydocking. The Company
includes in capitalized drydocking those costs incurred as part
of the drydocking to meet regulatory requirements, or are
expenditures that either add economic life to the vessel,
increase the vessel’s earnings capacity or improve the
vessel’s efficiency. The Company expenses costs related to
routine repairs and maintenance performed during drydocking that
do not improve or extend the useful lives of the assets and for
annual class survey costs on the Company’s FPSO units. When
significant drydocking expenditures occur prior to the
expiration of the original amortization period, the remaining
unamortized balance of the original drydocking cost and any
unamortized intermediate survey costs are expensed in the period
of the subsequent drydocking. Amortization of drydocking
expenditures for the years ended December 31, 2008, 2007
and 2006 aggregated $33.1 million, $23.4 million and
$15.4 million, respectively.
Drydocking activity included in vessels and equipment on the
consolidated balance sheet for the three years ended
December 31, 2008 is summarized as follows:
Vessels and equipment that are “held and used” are
assessed for impairment when events or circumstances indicate
the carrying amount of the asset may not be recoverable. If the
asset’s net carrying value exceeds the net undiscounted
cash flows expected to be generated over its remaining useful
life, the carrying amount of the asset is reduced to its
estimated fair value. Estimated fair value is determined based
on discounted cash flows or appraised values depending on the
nature of the asset.
The contract relating to the Company’s Foinaven
floating, production, storage and offloading (or
FPSO) unit provides for an adjustment to the amount paid
to the Company in connection with the FPSO unit, and the Company
has requested an adjustment of the amounts payable to it under
the terms of that provision. The Company’s cash flow
projections relating to this FPSO unit are based on its
assessment of the likely outcome of these discussions. While the
Company anticipates certain increases to the rates it will
receive under this contract, should there be a negative outcome
to these discussions, the Company will likely need to complete
an additional impairment test on the FPSO unit, which could
result in a write-down in the carrying value of the vessel.
Direct financing
leases
The Company assembles, installs, operates and leases equipment
that reduces volatile organic compound emissions (or VOC
Equipment) during loading, transportation and storage of oil
and oil products. Leasing of the VOC Equipment is accounted for
as a direct financing lease, with lease payments received by the
Company being allocated between the net investment in the lease
and other income using the effective interest method so as to
produce a constant periodic rate of return over the lease term.
Investments in companies over which the Company exercises
significant influence, but does not consolidate are accounted
for using the equity method, whereby the investment is carried
at the Company’s original cost plus its proportionate share
of undistributed earnings or loss and is adjusted for impairment
whenever facts and circumstances determine that a decline in
fair value below the cost basis is other than temporary. The
excess carrying value of the Company’s investment over its
underlying equity in the net assets is included in the
consolidated balance sheet as investment in joint ventures.
Debt issuance
costs
Debt issuance costs, including fees, commissions and legal
expenses, are deferred and presented as other non-current
assets. Debt issuance costs of revolving credit facilities are
amortized on a straight-line basis over the term of the relevant
facility. Debt issuance costs of term loans are amortized using
the effective interest rate method over the term of the relevant
loan. Amortization of debt issuance costs is included in
interest expense.
Derivative
instruments
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.
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.
The Company generally does not apply hedge accounting to its
derivative instruments, except for certain foreign exchange
currency contracts.
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 and risk management objective for undertaking the hedge
and the method that will be used to assess the effectiveness of
the hedge. Any hedge ineffectiveness is recognized immediately
in earnings, as are any gains and 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.
For derivative financial instruments designated and qualifying
as cash flow hedges, changes in the fair value of the effective
portion of the derivative financial instruments are initially
recorded as a component of accumulated other comprehensive
income in stockholders’ equity. In the periods when the
hedged items affect earnings, the associated fair value changes
on the hedging derivatives are transferred from
stockholders’ equity to the corresponding earnings line
item. The ineffective portion of the change in fair value of the
derivative financial instruments is immediately recognized in
earnings. If a cash flow hedge is terminated and the originally
hedged item is still considered possible 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
possible of occurring, amounts recognized in stockholders’
equity are immediately transferred to earnings.
For derivative financial instruments that are not designated or
that do not qualify as hedges under Statement of Financial
Accounting Standards (or SFAS) No. 133,
Accounting for Derivative Instruments and Hedging
Activities, the changes in the fair value of the derivative
financial instruments are recognized in earnings. Gains and
losses from the Company’s non-designated interest rate
swaps related to long-term debt or capital lease obligations are
recorded in interest expense. Gains and losses from the
Company’s interest rate swaps related to restricted cash
deposits are recorded in interest income. Gains and losses from
the Company’s foreign currency forward contracts are
recorded mainly in vessel operating expenses and general and
administrative expense. Gains and losses from the Company’s
non-designated bunker fuel swap contracts and forward freight
agreements are recorded in revenues.
Goodwill and
intangible assets
Goodwill and indefinite-lived intangible assets are not
amortized, but reviewed for impairment annually, or more
frequently if impairment indicators arise. A fair value approach
is used to identify potential goodwill impairment and, when
necessary, measure the amount of impairment. The Company uses a
discounted cash flow model to determine the fair value of
reporting units, unless there is a readily determinable fair
market value. Reporting units may be operating segments as a
whole or an operation one level below an operating segment,
referred to as a component. Intangible assets with finite lives
are amortized over their useful lives.
The Company’s amortizable intangible assets consist
primarily of acquired time-charter contracts, contracts of
affreightment, and time-charter contracts and a Suezmax tanker
pool agreement. The value ascribed to the time-charter contracts
and contracts of affreightment are being amortized over the life
of the associated contract, with the amount amortized each year
being weighted based on the projected revenue to be earned under
the contracts. The value ascribed to the Suezmax tanker pool
agreement is being amortized on a straight-line basis over the
expected term of the agreement.
Asset retirement
obligation
The Company has an asset retirement obligation (or ARO)
relating to the
sub-sea
production facility associated with the Petrojarl Banff
FPSO unit operating in the North Sea. This obligation
generally involves restoration of the environment surrounding
the facility and removal and disposal of all production
equipment. This obligation is expected to be settled at the end
of the contract under which the FPSO unit currently operates,
which is anticipated no later than 2014. The ARO will be covered
in part by contractual payments from FPSO contract
counterparties.
The Company records the fair value of an ARO as a liability in
the period when the obligation arises. The fair value of the ARO
is measured using expected future cash outflows discounted at
the Company’s credit-adjusted risk-free interest rate. When
the liability is recorded, the Company capitalizes the cost by
increasing the carrying amount of the related equipment. Each
period, the liability is increased for the change in its present
value, and the capitalized cost is depreciated over the useful
life of the related asset. Changes in the amount or timing of
the estimated ARO are recorded as an adjustment to the related
asset and liability. As at December 31, 2008, the ARO and
associated receivable from third parties were $19.0 million
and $2.7 million, respectively
(2007—$24.5 million and $7.4 million,
respectively).
The Company accounts for repurchases of common stock by debiting
common stock by the par value of the stock repurchased. In
addition, the excess of the repurchase price over the par value
is allocated between additional paid in capital and retained
earnings. The amount allocated to additional paid in capital is
the pro-rata share of the capital paid in and the balance is
allocated to retained earnings.
The Company accounts for gains or losses from the issuance of
shares or units by its subsidiaries as an adjustment to
stockholders’ equity.
Accounting for
share-based payments
Effective January 1, 2006, the Company adopted the fair
value recognition provisions of SFAS No. 123(R),
“Share-Based Payment”, using the “modified
prospective” method. Under this transition method,
compensation cost is recognized in the 2006 financial statements
for all share-based payments granted after January 1, 2006
and for all awards granted to employees prior to, but not yet
vested as of January 1, 2006.
The compensation cost of the Company’s stock options is
primarily included in general and administrative expense. For
stock options subject to graded vesting, the Company calculates
the value for the award as if it was one single award with one
expected life and amortizes the calculated expense for the
entire award on a straight-line basis over the vesting period of
the award.
The Company grants restricted stock units as incentive-based
compensation to certain employees. Each restricted stock unit is
equal in value to one share of the Company’s Common Stock
plus reinvested dividends from the grant date to the vesting
date. Upon vesting, the value of these restricted stock units
was paid to each grantee in the form of cash. Restricted stock
units vest in three tranches. The Company recognized the cost of
each of the three payments over the period from the grant date
to the vesting date of each tranche. The cost of these
restricted stock units is primarily included in general and
administrative expense.
In 2005, the Company adopted the Vision Incentive Plan (or the
VIP) to reward exceptional corporate performance and
shareholder returns. This plan will result in an award pool for
senior management based on the following two measures:
(a) economic profit from 2005 to 2010 (or the Economic
Profit); and (b) market value added from 2001 to 2010
(or the MVA). The Plan terminates on December 31,2010. Under the VIP, the Economic Profit is the difference
between the Company’s annual return on invested capital and
its weighted-average cost of capital multiplied by its average
invested capital employed during the year, and the increase in
MVA from January 1, 2001 to December 31, 2010, where
the MVA is the amount by which the average market value of the
Company for the preceding 18 months exceeds the average
book value of the Company for the same period.
In 2008, if the VIP’s award pool has a cumulative positive
balance based on the Economic Profit contributions for the
preceding three years, an interim distribution may be made to
certain participants in an amount not greater than half of their
share of the award pool from Economic Profit contributions and
to certain participants up to 100% of their share of the award
pool from Economic Profit contributions. In 2011, the balance of
the VIP award pool will be
distributed to the participants. An interim distribution from
the award pool with a value of $13.3 million was paid in
March 2008 in restricted stock units, with vesting of the
interim distribution in three equal amounts on November 2008,
November 2009 and November 2010. At least fifty percent of any
distribution from the balance of the VIP award pool in 2011 must
be paid in a form that is equity-based, with vesting on half of
this percentage deferred for one year and vesting on the
remaining half of this percentage deferred for two years.
The fair value of the VIP, excluding the portion not expected to
vest, is recognized over the vesting periods. Participants that
resign, retire or have their employment terminated, forfeit all
rights to any distribution that is approved by the Board
subsequent to their termination date. The fair value of the VIP
is measured on the grant date and is remeasured at each
reporting date thereafter. To comply with the provisions for
fair value measurement in SFAS 123R, the Company has prepared a
model to estimate the fair value of the VIP considering both the
Economic Profit and MVA components. For each period, the
assumptions used in the model were updated to take into account
actual results, then current facts, information, business plans
and the impacts of historical volatility on future estimates. As
at December 31, 2008, the portion of the VIP liability
related to the final distribution is included in other long-term
liabilities and the portion related to the interim distribution
is included in accrued liabilities. During the year ended
December 31, 2008, the Company recorded an expense
(recovery) from the VIP of $(23.6) million
($9.7 million—2007 and $15.4 million—2006),
which is included in general and administrative expense. As at
December 31, 2008, the VIP liability was nil
($27.4 million—2007).
Income
taxes
The Company accounts for income taxes using the liability method
pursuant to SFAS No. 109, Accounting for Income Taxes.
Under the liability method, deferred tax assets and liabilities
are recognized for the anticipated future tax effects of
temporary differences between the financial statement basis and
the tax basis of the Company’s assets and liabilities using
the applicable jurisdictional tax rates. A valuation allowance
for deferred tax assets is recorded when it is more likely than
not that some or all of the benefit from the deferred tax asset
will not be realized.
Comprehensive
(loss) income
The Company follows SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for
reporting and displaying comprehensive income and its components
in the consolidated financial statements.
As at December 31, 2008 and 2007, the Company’s
accumulated other comprehensive (loss) income consisted of the
following components:
The Company has various defined contribution and defined benefit
pension plans that provide benefits to substantially all of its
employees.
The Company has several defined contribution pension plans
covering the majority of its employees. Pension costs associated
with the Company’s required contributions under its defined
contribution pension plans are based on a percentage of
employees’ salaries and are charged to earnings in the year
incurred. The Company’s expense related to these plans was
$5.7 million for the year ended December 31, 2008
(2007—$3.9 million; 2006—$3.4 million),
which is included in vessel operating expenses and general and
administrative in the Consolidated Statement of Income (Loss).
The Company also has a number of defined benefit pension plans
covering certain of its employees. The Company accrues the costs
and related obligations associated with its defined benefit
pension plans based on actuarial computations using the
projected benefits obligation method and management’s best
estimates of expected plan investment performance, salary
escalation, and other relevant factors. For the purpose of
calculating the expected return on plan assets, those assets are
valued at fair value. In accordance with SFAS No. 158,
Employer’s Accounting for Defined Benefit Pension and
Other Postretirement Plans, an Amendment of FASB Statement Nos.
87, 88, 106 and 132R (or SFAS 158) the
overfunded or underfunded status of the defined benefit pension
plans are recognized as assets or liabilities in the statement
of financial position. The statement also requires the Company
to recognize as a component of other comprehensive income the
gains or losses that arise during a period but that are not
recognized as part of net periodic benefit costs in the current
period. The Company’s expense related to these defined
benefit pension plans was $8.1 million for the year ended
December 31, 2008 (2007—$10.8 million;
2006—$9.7 million), which is included in vessel
operating expenses and general and administrative in the
Consolidated Statement of Income (Loss). The change in the
underfunded status recorded in other comprehensive income (loss)
for the year ended December 31, 2008 was $17.1 million
(2007—$6.3 million; 2006—nil). The net pension
liability related to the defined benefit pension plans is
included in Other long-term liabilities on the Consolidated
Balance Sheets and was $33.0 million as at
December 31, 2008 (2007—$20.2 million). For the
year ended December 31, 2008, the fair value of plan assets
is $106 million and the accrued benefit obligation is
$73 million.
Recent accounting
pronouncements
In April 2009, the Financial Accounting Standards Board (or
FASB) issued Statement of Financial Accounting Standards
(or SFAS)
115-2 and
SFAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments. This statement changes existing accounting
requirements for
other-than-temporary
impairment.
SFAS 115-2
is effective for interim and annual periods ending after
June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. The Company is currently
evaluating the potential impact, if any, of the adoption of
SFAS 115-2
on its consolidated results of operations and financial
condition.
In April 2009, the FASB issued
SFAS 157-4,
Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability has Significantly Decreased and
Identifying Transactions that are Not Orderly.
SFAS 157-4
amends SFAS 157, Fair Value Measurements to provide
additional guidance on estimating fair value when the volume and
level of transaction activity for an asset or liability have
significantly decreased in relation to normal market activity
for the asset or
liability.
SFAS 157-4
also provides additional guidance on circumstances that may
indicate that a transaction is not orderly.
SFAS 157-4
supersedes
SFAS 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active. The guidance in
SFAS 157-4
is effective for interim and annual reporting periods ending
after June 15, 2009. Early adoption is permitted, but only
for periods ending after March 15, 2009. The Company is
currently evaluating the potential impact, if any, of the
adoption of
SFAS 157-4
on its consolidated results of operations and financial
condition.
In April 2009, the FASB issued
SFAS 107-1
and APB
28-1,
Interim Disclosures About Fair Value of Financial
Instruments.
SFAS 107-1
extends the disclosure requirements of SFAS 107,
Disclosures about Fair Value of Financial Instruments to
interim financial statements of publicly traded companies as
defined in APB Opinion No. 28, Interim Financial
Reporting.
SFAS 107-1
is effective for interim reporting periods ending after
June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. The Company is currently
evaluating the potential impact, if any, of the adoption of
SFAS 107-1
on its consolidated results of operations and financial
condition.
In April 2009, the FASB issued SFAS 141(R)-1, Accounting
for Assets Acquired and Liabilities Assumed in a Business
Combination that Arise from Contingencies. This statement
amends SFAS 141, Business Combinations, to require
that assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair
value, in accordance with SFAS 157, if the fair value can be
determined during the measurement period. SFAS 141(R)-1 is
effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company
is currently evaluating the potential impact, if any, of the
adoption of SFAS 141(R)-1 on its consolidated results of
operations and financial condition.
In October 2008, FASB issued
SFAS No. 157-3,
Determining the Fair Value of a Financial Asset in a Market
That Is Not Active, which clarifies the application of
SFAS 157 when the market for a financial asset is inactive.
Specifically,
SFAS No. 157-3
clarifies how (1) management’s internal assumptions
should be considered in measuring fair value when observable
data are not present, (2) observable market information
from an inactive market should be taken into account, and
(3) the use of broker quotes or pricing services should be
considered in assessing the relevance of observable and
unobservable data to measure fair value. The guidance in
SFAS No.
157-3 is
effective immediately but does not have any impact on the
Company’s consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161:
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of Statement of Financial Accounting
Standards No. 133 (or SFAS 161). The statement
requires qualitative disclosures about an entity’s
objectives and strategies for using derivatives and quantitative
disclosures about how derivative instruments and related hedged
items affect an entity’s financial position, financial
performance and cash flows. SFAS 161 is effective for
fiscal years, and interim periods within those fiscal years,
beginning after November 15, 2008, with early application
allowed. SFAS 161 allows but does not require, comparative
disclosures for earlier periods at initial adoption.
In December 2007, the FASB issued SFAS No. 141(R):
Business Combinations (or SFAS 141(R)), which
replaces SFAS No. 141, Business Combinations.
This statement establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed, any
noncontrolling interest in the acquiree and the goodwill
acquired. SFAS 141(R) also establishes disclosure
requirements to enable the
evaluation of the nature and financial effects of the business
combination. SFAS 141(R) is effective for fiscal years beginning
after December 15, 2008. The Company is currently
evaluating the potential impact, if any, of the adoption of
SFAS 141(R) on its consolidated results of operations and
financial condition.
In December 2007, the FASB issued SFAS No. 160:
Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of Accounting Research
Bulletin No. 51 (or SFAS 160). This
statement establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than
the parent, the amount of consolidated net income attributable
to the parent and to the noncontrolling interest, changes in a
parent’s ownership interest, and the valuation of retained
noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure
requirements that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners. SFAS 160 is effective for fiscal years beginning
after December 15, 2008. The Company is currently
evaluating the potential impact, if any, of the adoption of
SFAS 160 on its consolidated results of operations and
financial condition.
2.
Segment
reporting
The Company is primarily engaged in the international marine
transportation of crude oil and clean petroleum products through
the operation of its tankers, and of LNG and LPG through the
operation of its tankers and LNG and LPG carriers, and in the
offshore processing and storage of crude oil. The Company’s
revenues are earned in international markets.
StatoilHydro ASA, an international oil company, accounted for
14% ($443.5 million) of the Company’s consolidated
revenues during the year ended December 31, 2008. The same
customer accounted for 20% ($472.3 million) of the
Company’s consolidated revenues during 2007 and 15%
($307.9 million) during 2006. No other customer accounted
for over 10% of the Company’s consolidated revenues during
any of those years. Revenues from StatoilHydro were primarily
earned by the shuttle tanker and FSO, FPSO and spot tanker
segments.
The Company has four operating segments: its shuttle tanker
segment (or Teekay Navion Shuttle Tankers and Offshore),
its FPSO segment (or Teekay Petrojarl), its liquefied gas
segment (or Teekay Gas Services) and its conventional
tanker segment (or Teekay Tanker Services). In order to provide
investors with additional information about its conventional
tanker segment, the Company has divided this operating segment
into the fixed-rate tanker segment and the spot tanker segment.
The Company’s shuttle tanker and FSO segment consists of
shuttle tankers and floating storage and offtake (or FSO)
units. The Company’s FPSO segment consists of FPSOs and
other vessels used to service its FPSO contracts. The
Company’s fixed-rate tanker segment consists of
conventional crude oil and product tankers subject to long-term,
fixed-rate time-charter contracts. The Company’s liquefied
gas segment consists of LNG and LPG carriers. The Company’s
spot tanker segment consists of conventional crude oil tankers
and product carriers operating in the spot tanker market or
subject to time-charters or contracts of affreightment that are
priced on a spot-market basis or are short-term, fixed-rate
contracts. The Company considers contracts that have an original
term of less than three years in duration to be short-term.
Segment results are evaluated based on income from vessel
operations. The accounting policies applied to the reportable
segments are the same as those used in the preparation of the
Company’s consolidated financial statements.
Includes direct general and
administrative expenses and indirect general and administrative
expenses (allocated to each segment based on estimated use of
corporate resources).
(3)
Excludes vessels purchased as part
of the Company’s acquisition of (a) 50% of OMI
Corporation in August 2007 and (b) Teekay Petrojarl in
October 2006.
A reconciliation of total segment assets to amounts presented in
the accompanying Consolidated Balance Sheets is as follows:
Acquisition of
additional 35.3% of Teekay Petrojarl ASA
As of October 1, 2006, the Company acquired a 64.7%
interest in Petrojarl ASA (subsequently renamed Teekay Petrojarl
ASA, or Teekay Petrojarl). In June and July 2008, the Company
acquired the remaining 35.3% interest (26.5 million common
shares) in Teekay Petrojarl primarily from Prosafe Production at
a price between NOK 59 and NOK 62.95 per share. The total
purchase price of approximately NOK 1.5 billion
($304.9 million) for this remaining interest was paid in
cash. As a result of these transactions, the Company’s owns
100% of Teekay Petrojarl.
Teekay Petrojarl’s operating results are reflected in the
Company’s consolidated financial statements from
October 1, 2006, the designated effective date of the
Company’s acquisition of the original 64.7% interest in
Teekay Petrojarl, which was accounted for using the purchase
method of accounting. The Company revised its purchase price
allocation during the second quarter of 2007. The effect of this
revision was a reduction to the Company’s income from
vessel operations and net income for the second quarter of 2007
of $2.7 million, or $0.04 per share.
The acquisition of the remaining 35.3% interest has also been
accounted for using the purchase method of accounting, based
upon estimates of fair value. The estimated fair values of
certain assets and liabilities have been determined with the
assistance of third-party valuation specialists.
The following table summarizes the preliminary fair values of
the 35.3% of the Teekay Petrojarl assets acquired and
liabilities assumed by the Company at June 30, 2008:
The goodwill was subsequently determined to be impaired as
described in note 6.
The following table shows comparative summarized consolidated
pro forma financial information for the Company for the years
ended December 31, 2008, 2007 and 2006, giving
effect to the Company’s 100% acquisition of the outstanding
shares of Teekay Petrojarl as if it had taken place on January 1
of each of the periods presented:
On June 8, 2007, the Company and A/S Dampskibsselskabet
TORM (or TORM) acquired, through a jointly-owned
subsidiary all of the outstanding shares of OMI Corporation (or
OMI). The Company and TORM divided most of OMI’s
assets equally between the two companies in August 2007. The
price of the OMI assets acquired by the Company was
approximately $1.1 billion, including approximately
$0.2 billion of assumed indebtedness. The Company funded
its portion of the acquisition with a combination of cash and
borrowings under revolving credit facilities and a new
$700 million credit facility.
The Company acquired seven Suezmax tankers, three Medium-Range
product tankers and three Handysize product tankers from OMI.
Teekay also assumed OMI’s in-charters of an additional six
Suezmax tankers and OMI’s third-party asset management
business (principally the Gemini pool). The Company and TORM
continued to hold two Medium-Range product tankers jointly in
OMI, as well as two Handysize product tanker newbuildings
scheduled to deliver in 2009. The parties divided these
remaining assets equally in the third and fourth quarter of 2008.
The assets acquired from OMI on August 1, 2007 are
reflected in the Company’s consolidated financial
statements from that date. The acquisition of OMI has been
accounted for using the purchase method of accounting, based
upon estimates of fair value. The estimated fair values of
certain assets and liabilities were determined with the
assistance of third-party valuation specialists. This work was
completed during the third quarter of 2008.
The following table shows summarized consolidated pro forma
financial information for the Company for the years ended
December 31, 2007 and 2006, giving effect to the
acquisition of OMI assets by the Company as if it had taken
place on January 1 of each of the periods presented:
Gain on sale of vessels and equipment—net of write-downs
16,531
79,558
Net income
59,352
407,803
Earnings per common share:
- Basic
0.81
5.57
- Diluted
0.79
5.43
5.
Public
offerings
During April 2008, the Company’s subsidiary Teekay LNG
Partners L.P. (or Teekay LNG), completed a follow-on
public offering by issuing an additional 5.0 million of its
common units at a price of $28.75 per unit. Subsequently the
underwriters exercised their over-allotment option and purchased
375,000 common units resulting in an additional
$10.8 million in gross
proceeds to Teekay LNG. Concurrent with the public offering, the
Company acquired 1.74 million common units of Teekay LNG at
the same public offering price for a total cost of
$50.0 million. During June 2008, the Company’s
subsidiary Teekay Offshore Partners L.P. (or Teekay
Offshore), completed a follow-on public offering by issuing
10.25 million of its common units at a price of $20.00 per
unit. During July 2008, the underwriters exercised their
over-allotment option and purchased 375,000 common units at
$20.00 per unit.
As a result of these offerings, the Company recorded total
increases to stockholders’ equity of $23.8 million and
$29.8 million, respectively, which represents the
Company’s dilution gain from the issuance of units, in
Teekay LNG and Teekay Offshore, during the year ended
December 31, 2008.
During December 2007, the Company’s subsidiary Teekay
Tankers Ltd. (or Teekay Tankers), completed its initial
public offering of 11.5 million shares of its Class A
common stock at a price of $19.50 per share. During May 2007,
the Company’s subsidiary Teekay LNG Partners L.P. (or
Teekay LNG) completed a follow-on public offering by
issuing an additional 2.3 million of its common units at a
price of $38.13 per unit. As a result of these offerings, the
Company recorded increases to stockholders’ equity of
$141.0 million and $25.1 million, respectively, which
represents the Company’s dilution gain from the issuance of
shares and units.
During December 2006, the Company’s subsidiary Teekay
Offshore Partners L.P. (or Teekay Offshore), completed
its initial public offering of 8.1 million of its common
units representing limited partner interests at a price of
$21.00 per unit. As a result of this offering, the Company
recorded an increase to stockholders’ equity of
$99.7 million, which represent the Company’s dilution
gain from the issuance of units.
The proceeds received from the offerings and the use of those
proceeds, are summarized as follows:
Teekay
Teekay
Teekay
Teekay
Teekay
Tankers
offshore
offshore
LNG
LNG
initial
follow-on
initial
follow-on
follow-on
offering
offering
offering
offering
offering
2007
2008
2006
2008
2007
$
$
$
$
$
Proceeds received
224,250
212,500
169,050
154,531
87,699
Offering expenses
16,064
6,192
13,788
6,186
3,494
Net proceeds received
208,186
206,308
155,262
148,345
84,205
Teekay Tankers is a Marshall Islands corporation formed by the
Company to provide international marine transportation of crude
oil. The Company owns 54% of the capital stock of Teekay
Tankers, including Teekay Tankers’ outstanding shares of
Class B common stock, which entitle the holders to five
votes per share, subject to a 49% aggregate Class B Common
Stock voting power maximum. Teekay Tankers initially owned a
fleet of nine double-hull Aframax-class oil tankers, which it
acquired from the Company with net proceeds of its initially
public offering and which a wholly owned subsidiary of the
Company manages under a mix of spot-market trading and short- or
medium-term fixed-rate time-charter contracts. In addition, the
Company has offered to Teekay Tankers Ltd. the opportunity to
purchase up to four of its existing Suezmax-class oil tankers,
of which two were sold to Teekay Tankers in April 2008.
Teekay Offshore is a Marshall Islands limited partnership formed
by the Company as part of its strategy to expand its operations
in the offshore oil marine transportation, production,
processing and storage sectors. Teekay Offshore owns 51% of
Teekay Offshore Operating L.P. (or OPCO), including an
additional 25% limited partner interest it acquired from the
Company with net proceeds of its 2008 follow-on public offering
and its 0.01% general partner interest. OPCO owns and operates a
fleet of 34 shuttle tankers (including ten chartered-in vessels
and five vessels owned by 50% owned joint ventures), four FSO
vessels, nine conventional oil tankers, and two lightering
vessels. Teekay Offshore also owns through wholly owned
subsidiaries two additional shuttle tankers (including one
through a 50%-owned joint venture) and one FSO unit. All of
Teekay Offshore’s and OPCO’s vessels operate under
long-term, fixed-rate contracts. The Company indirectly owns the
remaining 49% of OPCO and 49.99% of Teekay Offshore, including
its 2% general partner interest. As a result, the Company
effectively owns 74.5% of OPCO. Teekay Offshore also has rights
to participate in certain FPSO opportunities involving Teekay
Petrojarl.
Teekay LNG is a Marshall Islands limited partnership formed by
the Company as part of its strategy to expand its operations in
the LNG shipping sector. Teekay LNG provides LNG, LPG and crude
oil marine transportation services under long-term, fixed-rate
contracts with major energy and utility companies through its
fleet of LNG and LPG carriers and Suezmax tankers. The Company
owns a 57.7% interest in Teekay LNG, including common units,
subordinated units and its 2% general partner interest.
In connection with Teekay LNG’s initial public offering in
May 2005, Teekay entered into an omnibus agreement with Teekay
LNG, Teekay LNG’s general partner and others governing,
among other things, when the Company and Teekay LNG may compete
with each other and to provide the applicable parties certain
rights of first offer on LNG carriers and Suezmax tankers. In
December 2006, the omnibus agreement was amended in connection
with Teekay Offshore’s initial public offering to govern,
among other things, when the Company, Teekay LNG and Teekay
Offshore may compete with each other and to provide the
applicable parties certain rights of first offer on LNG
carriers, oil tankers, shuttle tankers, FSO units and FPSO units.
The Company performed its annual test for impairment of goodwill
in the fourth quarter of 2008.
During the fourth quarter of 2008, management concluded that
sufficient indicators of impairment existed and consequently,
the Company was required to perform another goodwill impairment
analysis as of December 31, 2008. This assessment was made
by management based on a number of factors including a
significant and sustained decline in the Company’s market
capitalization below book value, deteriorating market conditions
and tightening credit markets.
Fair value was estimated by management using a discounted cash
flow model that estimates fair value based upon estimated future
cash flows discounted to their present value using the
Company’s estimated weighted average cost of capital. The
fair value may vary depending on the assumptions and estimated
used, most significantly the discount rate applied.
Based on the analysis performed, management concluded that the
carrying value of goodwill in the FPSO segment exceeded its fair
value by $334.2 million as of December 31, 2008. As a
result, an impairment loss of $334.2 million has been
recognized in the Company’s consolidated statement of
income (loss) for the year ended December 31, 2008.
The Company’s 2008 consolidated financial statements
include a $9.8 million write-down of other intangible
assets due to lower fair value of certain bareboat contracts
compared to carrying values. This amount is included in other
(loss) income on the consolidated statement of income (loss).
Aggregate amortization expense of intangible assets for the year
ended December 31, 2008 was $45.0 million
(2007—$26.8 million, 2006—$23.5 million),
which is included in depreciation and amortization. Amortization
of intangible assets for the five fiscal years subsequent to
2008 is expected to be $34.1 million (2009),
$27.2 million (2010), $24.0 million (2011),
$19.6 million (2012), $14.2 million (2013), and
$145.7 million (thereafter).
As part of the Teekay Petrojarl and OMI acquisitions, the
Company assumed certain FPSO service contracts and charter-out
contracts with terms that are less favorable than the then
-prevailing market terms. The Company has recognized a liability
based on the estimated fair value of these contracts. The
Company is amortizing this liability over the remaining term of
the contracts on a weighted basis based on the projected revenue
to be earned under the contracts.
Amortization of in-process revenue contracts for the year ended
December 31, 2008 was $74.4 million
(2007—$71.0 million), which is included in revenues on
the consolidated statement of income (loss). Amortization for
the next five years is expected to be $74.8 million (2009),
$60.9 million (2010), $48.0 million (2011),
$42.3 million (2012) and $40.5 million
(2013) and $60.4 million (thereafter).
USD-denominated Unsecured Demand Loan due to Joint Venture
Partners
17,343
17,146
4,952,792
5,263,584
Less current portion
245,043
331,594
4,707,749
4,931,990
As of December 31, 2008, the Company had fifteen long-term
revolving credit facilities (or the Revolvers) available,
which, as at such date, provided for borrowings of up to
$3.7 billion, of which $1.1 billion was undrawn.
Interest payments are based on LIBOR plus margins; at
December 31, 2008, the margins ranged between 0.45% and
0.95% (2007—0.50% and 0.75%) and the three-month LIBOR was
1.43% (2007—4.70%). The total amount available under the
Revolvers reduces by $214.3 million (2009),
$221.7 million (2010), $807.0 million (2011),
$237.4 million (2012), $315.1 million (2013) and
$1.9 billion (thereafter). The Revolvers are collateralized
by first-priority mortgages granted on 67 of the Company’s
vessels, together with other related security, and include a
guarantee from Teekay or its subsidiaries for all outstanding
amounts.
The 8.875% Senior Notes due July 15, 2011 (or the
8.875% Notes) rank equally in right of payment with
all of Teekay’s existing and future senior unsecured debt
and senior to Teekay’s existing and future subordinated
debt. The 8.875% Notes are not guaranteed by any of
Teekay’s subsidiaries and effectively rank behind all
existing and future secured debt of Teekay and other
liabilities, secured and unsecured, of its subsidiaries. During
the year ended December 31, 2008, the Company repurchased a
principal amount of $51.2 million
(2007—$16.0 million) of the 8.875% Notes (see
also Note 14).
As of December 31, 2008, the Company had fourteen
U.S. Dollar-denominated term loans outstanding, which, as
at December 31, 2008, totaled $1.7 billion
(2007—$2.2 billion). Certain of the term loans with a
total outstanding principal balance of $501.6 million, as
at December 31, 2008, (2007—$509.4 million) bear
interest at a weighted-average fixed rate of 5.12%
(2007—5.09%). Interest payments on the remaining term loans
are based on LIBOR plus a margin. At
December 31, 2008, the margins ranged between 0.3% and 1.0%
(2007—0.3% and 1.0%) and the three-month LIBOR was 1.43%
(2007—4.7%). The term loan payments are made in quarterly
or semi-annual payments commencing three or six months after
delivery of each newbuilding vessel financed thereby, and twelve
of them also have balloon or bullet repayments due at maturity.
The term loans are collateralized by first-priority mortgages on
31 (2007—34) of the Company’s vessels, together
with certain other security. In addition, all but
$126.1 million (2007—$103.8 million) of the
outstanding term loans were guaranteed by Teekay or its
subsidiaries. Included in the total of USD-denominated term
loans is nil (2007—$601.0 million) which in 2007
represented 100% of the RasGas 3 term loan which was used to
fund advances on similar terms and condition to a joint venture.
Interest payments on the term loan are based on LIBOR plus a
margin. On December 31, 2008 Teekay Nakilat (III) and
QGTC Nakilat
(1643-6)
Holdings Corporation (or QGTC 3) novated the RasGas 3
term loan and related interest rate swap agreements to the
RasGas 3 Joint Venture for no consideration. As a result, the
RasGas 3 Joint Venture assumed all the rights, liabilities and
obligations of Teekay Nakilat (III) and QGTC 3 under the
terms of the RasGas 3 term loan and the interest rate swap
agreements. Teekay Nakilat (III) has guaranteed 40% of the
RasGas 3 Joint Venture’s obligations that exceeds 20% of
the notional amounts of each of the realized interest rate swap
agreements. As such, the loan no longer forms part of the debt
obligation of the Company.
The Company has two Euro-denominated term loans outstanding,
which, as at December 31, 2008 totaled 296.4 million
Euros ($414.1 million). The Company repays the loans with
funds generated by two Euro-denominated long-term time-charter
contracts. Interest payments on the loans are based on EURIBOR
plus a margin. At December 31, 2008, the margins ranged
between 0.6% and 0.66% (2007—0.6% and 0.66%) and the
one-month EURIBOR was 2.6% (2007—4.3%). The
Euro-denominated term loans reduce in monthly payments with
varying maturities through 2023 and are collateralized by
first-priority mortgages on two of the Company’s vessels,
together with certain other security, and are guaranteed by a
subsidiary of Teekay.
Both Euro-denominated term loans are revalued at the end of each
period using the then prevailing Euro/U.S. Dollar exchange
rate. Due substantially to this revaluation, the Company
recognized an unrealized foreign exchange gain of
$32.3 million during the year ended December 31, 2008
($39.9 million loss—2007, $50.4 million
loss—2006).
The Company has two U.S. Dollar-denominated loans
outstanding owing to joint venture partners, which, as at
December 31, 2008, totaled $16.2 million and
$1.1 million, respectively, including accrued interest.
Interest payments on the first loan, which are based on a fixed
interest rate of 4.84%, commenced in February 2008. This loan is
repayable on demand no earlier than February 27, 2027.
The weighted-average effective interest rate on the
Company’s long-term aggregate debt as at December 31,2008 was 3.6% (December 31, 2007—5.2%). This rate does
not reflect the effect of the Company’s interest rate swaps
(see Note 15).
Among other matters, the Company’s long-term debt
agreements generally provide for maintenance of certain vessel
market
value-to-loan
ratios and minimum consolidated financial covenants. Certain
loan agreements require that a minimum level of free cash be
maintained. As at December 31, 2008 and 2007, this amount
was $100.0 million. Certain of the loan agreements also
require that the Company maintain an aggregate level of free
liquidity and undrawn revolving credit lines with at least six
months to maturity, of at least 7.5% of total debt. As at
December 31, 2008, this amount was $293.0 million
(2007—$326.0 million). The Company is in compliance
with debt covenants as at December 31, 2008.
The aggregate annual long-term debt principal repayments
required to be made subsequent to December 31, 2008 are
$245.0 million (2009), $446.7 million (2010),
$1.3 billion (2011), $260.7 million (2012),
$280.5 million (2013) and $2.4 billion
(thereafter).
9.
Leases
Charters-out
Time-charters and bareboat charters of the Company’s
vessels to third parties are accounted for as operating leases.
As at December 31, 2008, minimum scheduled future revenues
to be received by the Company on time-charters and bareboat
charters then in place were approximately $7.7 billion,
comprised of $1.0 billion (2009), $831.5 million
(2010), $708.9 million (2011), $608.8 million (2012),
$534.8 million (2013) and $4.0 billion
(thereafter). The carrying amount of the vessels employed on
operating leases at December 31, 2008 was $3.1 billion
(2007—$3.2 billion).
The minimum scheduled future revenues should not be construed to
reflect total charter hire revenues for any of the years. In
addition, minimum scheduled future revenues have been reduced by
estimated off-hire time for period maintenance.
Charters-in
As at December 31, 2008, minimum commitments to be incurred
by the Company under vessel operating leases by which the
Company charters-in vessels were approximately
$971.9 million, comprised of $424.1 million
(2009) $240.1 million (2010), $139.0 million
(2011), $88.3 million (2012), $51.4 million
(2013) and $29.0 million (thereafter). The Company
recognizes the expense from these charters, which is included in
time-charter expense, on a straight-line basis over the firm
period of the charters.
Direct financing
leases
As at December 31, 2008, minimum scheduled future revenues
under direct financing leases to be received by the Company were
approximately $94.5 million, including unearned income of
$15.9 million, comprised of $29.9 million (2009),
$25.2 million (2010), $21.1 million (2011),
$14.9 million (2012), $2.5 million (2013) and
$0.9 million (thereafter).
10.
Capital leases
and restricted cash
Capital
leases
Suezmax Tankers. As at December 31, 2008, the
Company was a party, as lessee, to capital leases on five
Suezmax tankers. Under the terms of the lease arrangements, the
Company is required to purchase these vessels after the end of
their respective lease terms for fixed prices as well as
assuming the existing vessel financing upon the lenders consent.
At their inception, the weighted-average interest rate implicit
in these leases was 7.4%. These capital leases are variable-rate
capital leases; however, any change in our lease payments
resulting from changes in interest rates is offset by a
corresponding change in the charter hire payments received by
the Company. As at December 31, 2008, the remaining
commitments under these capital leases,
including the purchase obligations, approximated
$226.8 million, including imputed interest of
$22.4 million, repayable as follows:
Year
Commitment
2009
$
134.4 million
2010
$
8.4 million
2011
$
84.0 million
RasGas II LNG Carriers. As at December 31,2008, the Company was a party, as lessee, to
30-year
capital lease arrangements for the three LNG carriers (or the
RasGas II LNG Carriers) that operate under
time-charter contracts with Ras Laffan Liquefied Natural Gas Co.
Limited (II) (or RasGas II), a joint venture between
Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of
ExxonMobil Corporation. All amounts below relating to the
RasGas II LNG Carrier capital leases include the
Company’s non-controlling interest’s 30% share.
Under the terms of the RasGas II LNG Carriers capital lease
arrangements, the lessor claims tax depreciation on the capital
expenditures it incurred to acquire these vessels. As is typical
in these leasing arrangements, tax and change of law risks are
assumed by the lessee.
Payments under the lease arrangements are based on tax and
financial assumptions at the commencement of the leases. If an
assumption proves to be incorrect, the lessor is entitled to
increase the lease payments to maintain its agreed after-tax
margin. During 2008 the Company has agreed under the terms of
its tax lease indemnification guarantee to increase its capital
lease payments for its three LNG carriers to compensate the
lessor for losses suffered as a result of changes in tax rates.
The estimated increase in lease payments is approximately
$8.1 million over the term of the lease and as a result the
Company’s carrying amount of this tax indemnification is
$9.5 million which is included as part of other long-term
liabilities in the accompanying consolidated balance sheets. The
tax indemnification would be for a total 36 years, which is
the duration of the lease contract with the third party plus the
years it would take for the lease payments to be statute barred.
There is no maximum potential amount of future payments however,
the Company may terminate the lease arrangements at any time. If
the lease arrangements terminate, the Company would be required
to pay termination sums to the lessor sufficient to repay the
lessor’s investment in the vessels and to compensate it for
the tax-effect of the terminations, including recapture of any
tax depreciation.
At their inception, the weighted-average interest rate implicit
in these leases was 5.2%. These capital leases are variable-rate
capital leases. As at December 31, 2008, the commitments
under these capital leases approximated $1.1 billion,
including imputed interest of $603.7 million, repayable as
follows:
Year
Commitment
2009
$
24.0 million
2010
$
24.0 million
2011
$
24.0 million
2012
$
24.0 million
2013
$
24.0 million
Thereafter
$
953.1 million
Spanish-Flagged LNG Carrier. As at December 31,2008, the Company was a party, as lessee, to a capital lease on
one Spanish-flagged LNG carrier, which is structured as a
“Spanish tax lease.”
Under the terms of the Spanish tax lease, the Company will
purchase the vessel at the end of the lease term in 2011. The
purchase obligation has been fully funded with restricted cash
deposits described below. At its inception, the implicit
interest rate was 5.8%. As at December 31, 2008, the
commitments under this capital lease, including the purchase
obligation, approximated 117.4 million Euros
($164.0 million), including imputed interest of
14.7 million Euros ($20.5 million), repayable as
follows:
Year
Commitment
2009
25.6 million Euros ($
35.8 million
)
2010
26.9 million Euros ($
37.6 million
)
2011
64.8 million Euros ($
90.6 million
)
FPSO Units. As at December 31, 2008, the
Company was a party, as lessee, to capital leases on one FPSO
unit, the Petrojarl Foinaven, and the topside production
equipment for another FPSO unit, the Petrojarl Banff.
However, prior to being acquired by Teekay Corporation, Teekay
Petrojarl has legally defeased its future charter obligations
for these assets by making up-front, lump-sum payments to
unrelated banks, which have assumed Teekay Petrojarl’s
liability for making the remaining periodic payments due under
the long-term charters (or Defeased Rental Payments) and
termination payments under the leases.
The Defeased Rental Payments for the Petrojarl Foinaven
were based on assumed Sterling LIBOR of 8% per annum. If
actual interest rates are greater than 8% per annum, the Company
receives rental rebates; if actual interest rates are less than
8% per annum, the Company is required to pay rentals in excess
of the Defeased Rental Payments. For accounting purposes, this
contract feature is an embedded derivative, and has been
separated from the host contract and is separately accounted for
as a derivative instrument.
As is typical for these types of leasing arrangements, the
Company has indemnified the lessors of the Petrojarl Foinaven
for the tax consequence resulting from changes in tax laws
or interpretation of such laws or adverse rulings by authorities
and for fluctuations in actual interest rates from those assumed
in the leases.
Restricted
cash
Under the terms of the capital leases for the four LNG carriers
described above, the Company is required to have on deposit with
financial institutions an amount of cash that, together with
interest earned on the deposits, will equal the remaining
amounts owing under the leases, including the obligations to
purchase the LNG carriers at the end of the lease periods, where
applicable. These cash deposits are restricted to being used for
capital lease payments and have been fully funded with term
loans and, for one vessel, a loan from the Company’s joint
venture partner (see Note 8). The interest rates earned on
the deposits approximate the interest rate implicit in the
applicable leases.
As at December 31, 2008 and 2007, the amount of restricted
cash on deposit for the three RasGas II LNG Carriers was
$487.4 million and $492.2 million, respectively. As at
December 31, 2008 and 2007, the weighted-average interest
rates earned on the deposits were 4.8% and 5.3%, respectively.
As at December 31, 2008 and 2007, the amount of restricted
cash on deposit for the Spanish-flagged LNG carrier was
104.7 million Euros ($146.2 million) and
122.8 million Euros
($179.2 million), respectively. As at December 31,2008 and 2007, the weighted-average interest rate earned on
these deposits was 5.0%.
The Company also maintains restricted cash deposits relating to
certain term loans and other obligations, which cash totaled
$17.0 million and $14.8 million as at
December 31, 2008 and 2007, respectively.
11.
Fair value
measurements
Effective January 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements. In
accordance with Financial Accounting Standards Board Staff
Position
No. FAS 157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2),
the Company deferred the adoption of SFAS No. 157 for
its non-financial assets and non-financial liabilities, except
those items recognized or disclosed at fair value on an annual
or more frequently recurring basis, until January 1, 2009.
The adoption of SFAS No. 157 did not have a material
impact on the Company’s fair value measurements.
SFAS No. 157 clarifies the definition of fair value,
prescribes methods for measuring fair value, establishes a fair
value hierarchy based on the inputs used to measure fair value
and expands disclosures about the use of fair value
measurements. The fair value hierarchy has three levels based on
the reliability of the inputs used to determine fair value as
follows:
Level 1. Observable inputs such as quoted prices in
active markets;
Level 2. Inputs, other than the quoted prices in
active markets, that are observable either directly or
indirectly; and
Level 3. Unobservable inputs in which there is little
or no market data, which require the reporting entity to develop
its own assumptions.
The following tables present the Company’s assets and
liabilities that are measured at fair value on a recurring basis
and are categorized using the fair value hierarchy.
Cash and cash equivalents and restricted cash—The
fair value of the Company’s cash and cash equivalents
approximates their carrying amounts reported in the accompanying
consolidated balance sheets.
Marketable securities—The fair value of the
Company’s marketable securities has been determined using
the closing price on the date of determination for those
securities.
Loans to joint ventures—The fair value of the
Company’s loans to joint ventures approximate their
carrying amounts reported in the accompanying consolidated
balance sheet.
Long-term debt—The fair value of the Company’s
fixed-rate and variable-rate long-term debt is either based on
quoted market prices or estimated using discounted cash flow
analyses, based on current credit spreads available for debt
with similar terms and remaining maturities.
Derivative instruments—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, as
applicable, current interest rates, foreign exchange rates,
bunker fuel prices, spot tanker market rates for vessels, and
the current credit worthiness of both the Company and the swap
counterparties. Given the current volatility in the credit
markets, it is
The authorized capital stock of Teekay at December 31, 2008
and 2007 was 25,000,000 shares of Preferred Stock, with a
par value of $1 per share, and 725,000,000 shares of Common
Stock, with a par value of $0.001 per share. During 2008, the
Company issued 0.2 million shares upon the exercise of
stock options, and repurchased 0.5 million shares for a
total cost of $20.5 million. As at December 31, 2008,
Teekay had 73,011,488 shares of Common Stock
(2007—95,327,329) and no shares of Preferred Stock issued.
As at December 31, 2008, Teekay had 72,512,291 shares
of Common Stock outstanding (2007—72,772,529).
Dividends may be declared and paid out of surplus only, but if
there is no surplus, dividends may be declared or paid out of
the net profits for the fiscal year in which the dividend is
declared and for the preceding fiscal year. Subject to
preferences that may apply to any shares of preferred stock
outstanding at the time, the holders of common stock are
entitled to share equally in any dividends that the board of
directors may declare from time to time out of funds legally
available for dividends.
During 2008, Teekay announced that its Board of Directors had
authorized the repurchase of up to $200 million of shares
of its Common Stock in the open market. As at December 31,2008, Teekay had not repurchased any shares of Common Stock
pursuant to such authorizations. The total remaining share
repurchase authorization at December 31, 2008 was
$200 million.
During 2005 and June 2006, Teekay announced that its Board of
Directors had authorized the repurchase of up to
$655 million and $150 million, respectively, of shares
of its Common Stock in the open market. Since the date of the
authorized repurchase, Teekay had repurchased
18,930,600 shares of Common Stock subsequent to such
authorizations at an average price of $42.52 per share, for a
total cost of $805 million.
As at December 31, 2008, the Company had reserved pursuant
to its 1995 Stock Option Plan and 2003 Equity Incentive Plan
(collectively referred to as the Plans)
6,256,497 shares of Common Stock (2007—6,435,911) for
issuance upon exercise of options or equity awards granted or to
be granted. During the years ended December 31, 2008, 2007
and 2006, the Company granted options under the Plans to acquire
up to 1,476,100, 836,100, and 1,045,200 shares of Common
Stock, respectively, to certain eligible officers, employees and
directors of the Company. The options under the Plans have
ten-year terms and vest equally over three years from the grant
date. All options outstanding as of December 31, 2008,
expire between June 1, 2009 and September 12, 2018,
ten years after the date of each respective grant.
During 2008, the Company granted 10,500 (2007—19,040 and
2006—20,090) shares of restricted stock awards with a fair
value of $0.4 million, based on the quoted market price, to
certain of the Company’s directors. The shares of
restricted stock are issued when granted.
A summary of the Company’s stock option activity and
related information for the year ended December 31, 2008,
is as follows:
As of December 31, 2008, there was $14.2 million of
total unrecognized compensation cost related to non-vested stock
options granted under the Plans. Recognition of this
compensation is expected to be $8.5 million (2009),
$4.9 million (2010) and $0.8 million (2011).
During the years ended December 31, 2008 and 2007, the
Company recognized $12.9 million and $9.7 million,
respectively, of compensation cost relating to stock options
granted under the Plans. The intrinsic value of options
exercised during 2008 was $4.5 million
(2007—$42.9 million; 2006 - $16.1 million).
As at December 31, 2008, the intrinsic value of the
outstanding stock options and exercisable stock options were
each $1.8 million. As at December 31, 2008, the
weighted-average remaining life of options vested and expected
to vest was 6.7 years.
The weighted-average grant-date fair value of options granted
during 2008 was $9.31 per option (2007—$13.72,
2006—$11.30). The fair value of each option granted was
estimated on the date of the grant using the Black-Scholes
option pricing model. The following weighted-average assumptions
were used in computing the fair value of the options granted:
expected volatility of 30% in 2008, 28% in 2007 and 31% in 2006;
expected life of five years; dividend yield of 2.5% in 2008,
2.0% in 2007 and 2.0% in 2006; and risk-free interest rate of
2.4% in 2008, 4.5% in 2007, and 4.8% in 2006. The expected life
of the options granted was estimated using the historical
exercise behavior of employees. The expected volatility was
generally based on historical volatility as calculated using
historical data during the five years prior to the grant date.
During 2008, 101,000 restricted stock units with a market value
of $2.0 million vested and that amount was paid to grantees
by issuing 42,098 shares of common stock and less than
$0.5 million in cash. During 2007, 383,005 restricted stock
units with a market value of $20.8 million vested and that
amount was paid to grantees in cash. During the year ended
December 31, 2008, the Company recorded a (recovery)
expense of $(0.7) million
($7.6 million—2007) related to the restricted
stock units.
During March 2009, the Company granted 1,432,000 options at a
weighted average exercise price of $11.84 per share, 380,970
restricted stock units with a total fair value of
$4.5 million, and 47,570 shares of restricted stock
awards with a total fair value of $0.6 million, based on
the quoted market price, to certain of the Company’s
employees and directors.
13.
Related party
transactions
As at December 31, 2008 Resolute Investments, Ltd. (or
Resolute) owned 42.0% (December 31, 2007—41.8%
and December 31, 2006—44.8%) of the Company’s
outstanding Common Stock. One of the Company’s directors,
Thomas Kuo-Yuen Hsu, is the President and a director of
Resolute. Another of the Company’s directors, Axel
Karlshoej, is among the directors of Path
Volatile organic compound emission plant lease income
9,469
10,960
11,445
Write-off of deferred debt issuance costs
–
–
(2,790
)
Loss on expiry of options to construct LNG carriers
–
–
(6,102
)
Miscellaneous (expense) income
(3,633
)
4,087
(34
)
Other (loss) income—net
(6,736
)
23,677
3,566
15.
Derivative
instruments and hedging activities
The Company uses derivatives in accordance with its overall risk
management policies. The following summarizes the Company’s
risk strategies with respect to market risk from foreign
currency fluctuations, changes in interest rates, spot tanker
market rates for vessels and bunker fuel prices.
Foreign currency
fluctuation risk
The Company hedges portions of its forecasted expenditures
denominated in foreign currencies with foreign currency forward
contracts. Certain of these foreign currency forward contracts
are designated as cash flow hedges of forecasted foreign
currency expenditures. Where such instruments are designated and
qualify as cash flow hedges for accounting purposes, the
effective portion of the changes in their fair value is recorded
in accumulated other comprehensive income (loss), until the
hedged item is recognized in earnings. At such time, the
respective amount in accumulated other comprehensive income
(loss) is released to earnings and is recorded within operating
expenses, based on the nature of the related expense. The
ineffective portion of these foreign currency forward contracts
has also been reported in operating expenses, based on the
nature of the related expense. During the year ended
December 31, 2008, the Company recognized unrealized gains
of $4.7 million in general and administrative expenses and
in vessel operating expenses, relating to the ineffective
portion of its foreign currency forward contracts;
(2007—$0.1 million unrealized losses; 2006—nil).
For foreign currency forward contracts that are not designated
or that do not qualify as hedges under SFAS No. 133,
the changes in their fair value are recognized in earnings and
are reported in operating expenses, based on the nature of the
related expense. During the year ended December 31, 2008,
the Company recognized unrealized losses of $18.3 million
in general and
administrative expenses, $35.3 million in vessel operating
expenses, $1.1 million in time-charter hire expenses, and
$4.0 million in foreign exchange gain (loss), respectively,
relating to foreign currency forward contracts that are not
designated or that do not qualify as hedges. During the year
ended December 31, 2007, the Company recognized unrealized
gains of $8.0 million in general and administrative
expenses, $11.3 million in vessel operating expenses,
$0.8 million in time-charter hire expenses, and
$3.4 million in foreign exchange gain, respectively,
relating to foreign currency forward contracts that are not
designated or that do not qualify as hedges. During the year
ended December 31, 2006, the Company recognized unrealized
gains of $2.3 million in general and administrative
expenses, $9.5 million in vessel operating expenses, and
$0.5 million in time-charter hire expenses, respectively,
relating to foreign currency forward contracts that are not
designated or that do not qualify as hedges.
As at December 31, 2008, the Company was committed to the
following foreign currency forward contracts for the forward
purchase of foreign currency:
Average contractual exchange rate
represents the contractual amount of foreign currency one U.S.
Dollar will buy.
As at December 31, 2008, the Company’s accumulated
other comprehensive income (loss) included $58.7 million of
unrealized losses on foreign currency forward contracts
designated as cash flow hedges. As at December 31, 2008,
the Company estimated, based on then current foreign exchange
rates, that it would reclassify approximately $41.0 million
of net losses on foreign currency forward contracts from
accumulated other comprehensive income (loss) to earnings during
the next 12 months.
Interest rate
risk
The Company enters into interest rate swaps which exchange a
receipt of floating interest for a payment of fixed interest to
reduce the Company’s exposure to interest rate variability
on its outstanding floating-rate debt. In addition, the Company
holds interest rate swaps which exchange a payment of floating
rate interest for a receipt of fixed interest in order to reduce
the Company’s exposure to the variability of interest
income on its restricted cash deposits. The Company has not
designated its interest rate swaps as cash flow hedges for
accounting purposes. Unrealized gains or losses relating to
changes in fair value of the Company’s interest rate swaps
have been reported in interest expense or interest income in the
consolidated statements of income (loss). During the year ended
December 31, 2008, the Company recognized an unrealized
loss in interest expense of $634.2 million
(2007—$133.0 million unrealized loss;
2006—$71.1 million unrealized gain), and an unrealized
gain in interest income of $182.2 million
(2007—$10.9 million unrealized gain;
2006—$25.8 million unrealized loss) relating to the
changes in fair value of its interest rate swaps.
As at December 31, 2008, the Company was committed to the
following interest rate swap agreements related to its
LIBOR-based debt, restricted cash deposits and EURIBOR-based
debt, whereby certain of the Company’s floating-rate debt
and restricted cash deposits were swapped with fixed-rate
obligations or fixed-rate deposits:
Excludes the margins the Company
pays on its variable-rate debt, which at of December 31,2008 ranged from 0.3% to 1.0%.
(6)
Principal amount reduces quarterly.
(7)
Inception dates of swaps are 2009
($408.5 million), 2010 ($300.0 million) and 2011
($200.0 million).
(8)
Principal amount reduces monthly to
70.1 million Euros ($97.9 million) by the maturity
dates of the swap agreements.
(9)
Principal amount is the U.S. Dollar
equivalent of 296.4 million Euro.
During May 2006, the Company sold to a third party two swaptions
for $2.4 million. The Company has not applied hedge
accounting to these instruments and they have been recorded at
fair value. These options, if exercised by the other party, will
obligate the Company to enter into interest rate swap agreements
whereby certain of the Company’s floating-rate debt will be
swapped with fixed-rate obligations. At December 31, 2008,
the terms of these swaptions are as follows:
Principal amount reduces
$5.0 million semi-annually ($150.0 million) and
$2.6 million quarterly ($109.4 million).
Spot Tanker
market risk
In order to reduce variability in revenues from fluctuations in
certain spot tanker market rates, from time to time, the Company
has entered into forward freight agreements (FFAs) and
synthetic time-charters (STCs). FFAs involve contracts to move a
theoretical volume of freight at fixed-rates, thus hedging a
portion of the Company’s exposure to spot tanker market
rates. STCs are a means of achieving the equivalent of a
time-charter for a vessel that trades in the spot tanker market
by taking the short position in a long-term FFA. As at
December 31, 2008, the Company had six STCs which were
equivalent to 3.5 Suezmax vessels. As at December 31, 2008,
the FFAs, which include STCs, had an aggregate notional value of
$27.5 million, which is an aggregate of both long and short
positions, and a net fair value liability of $0.6 million.
The FFAs, which include STCs, expire between June 2009 and
September 2009. The Company has not designated these contracts
as cash flow hedges for accounting purposes. Net gains and
losses from FFAs and STCs are recorded within revenues in the
consolidated statements of income (loss).
The Company also uses FFAs in non-hedge-related transactions to
increase or decrease its exposure to spot tanker market rates,
within strictly defined limits. Historically, the Company has
used a number of different tools, including the sale/purchase of
vessels and the in-charter/out-charter of vessels, to increase
or decrease this exposure. The Company believes that it can
capture some of the value from the volatility of the spot tanker
market and from market imbalances by utilizing FFAs. As at
December 31, 2008, the Company had no commitments to
non-hedge related FFAs. As at December 31, 2007, the
Company was committed to non-hedge-related FFAs totaling
7.0 million metric tonnes with a notional principal amount
of $69.9 million and a fair value of $0.3 million.
These FFAs expired between January 2008 and December 2008.
Commodity price
risk
The Company hedges a portion of its bunker fuel expenditures
with bunker fuel swap contracts. The Company has not designated
its bunker fuel swap contracts as cash flow hedges for
accounting purposes. As at December 31, 2008, the Company
was committed to contracts totalling 13,500 metric tonnes with a
weighted-average price of $470.8 per tonne and a fair value
liability of $3.1 million. The bunker fuel swap contracts
expire between January and September 2009.
Counterparty
credit risk
The Company is exposed to credit loss in the event of
non-performance by the counterparties to the foreign currency
forward contracts, interest rate swap agreements, FFAs and
bunker fuel swap contracts; however, the Company does not
anticipate non-performance by any of the counterparties. In
order to minimize counterparty risk, the Company only enters
into derivative transactions with counterparties that are rated
A or better by Standard & Poor’s or Aa3 by
Moody’s at the time of the transaction. In addition, to the
extent possible and practical, interest rate swaps are entered
into with different counterparties to reduce concentration risk.
16.
Commitments and
contingencies
a)
Vessels under
construction
As at December 31, 2008, the Company was committed to the
construction of seven Suezmax tankers, five LPG carriers and
four shuttle tankers scheduled for delivery between January 2009
and August 2011, at a total cost of approximately
$1.1 billion, excluding capitalized interest. As at
December 31, 2008, payments made towards these commitments
totaled $340.7 million (excluding $46.5 million of
capitalized interest and other miscellaneous construction
costs), and
long-term financing arrangements existed for $634.6 million
of the unpaid cost of these vessels. The Company intends to
finance the remaining amount of $169.6 million through
incremental debt or surplus cash balances, or a combination
thereof. As at December 31, 2008, the remaining payments
required to be made under these newbuilding contracts were
$383.6 million (2009), $257.4 million (2010) and
$163.2 million (2011).
As at December 31, 2008, the Company was committed to the
construction of one LNG carrier which delivered in March 2009.
The Company has entered into these transactions with a party who
has taken a 30% interest in the vessel and related long-term,
fixed-rate time-charter contract. All amounts below include the
non-controlling interest’s 30% share. The total cost of the
LNG carrier is approximately $186.2 million, excluding
capitalized interest. As at December 31, 2008, payments
made towards these commitments totaled $150.2 million
(excluding $21.6 million of capitalized interest and other
miscellaneous construction costs), and long-term financing
arrangements existed for the remaining $36.1 million unpaid
cost of these LNG carriers. As at December 31, 2008, the
remaining payments required to be made in year 2009 under these
contracts was $36.1 million. Following delivery, this LNG
carrier will become subject to
20-year,
fixed-rate time-charters to The Tangguh Production Sharing
Contractors, a consortium led by BP Berau, a subsidiary of BP
plc. Pursuant to existing agreements, the Company expects Teekay
LNG to purchase the Company’s 70% interest in the entity in
2009 for approximately $85 million plus the assumption of
approximately $350 million in debt. However, Teekay LNG is
seeking to structure the project in a tax efficient manner and
has requested a ruling from the U.S. Internal Revenue
Service related to the type of structure it would use for this
project. If Teekay LNG does not receive a favorable ruling, it
would, among other alternatives, seek to restructure the project
or may elect not to acquire the Company’s interest in the
entity.
b)
Joint
ventures
The Company has a 33% interest in a consortium that will charter
four newbuilding 160,400-cubic meter LNG carriers for a period
of 20 years to the Angola LNG Project, which is being
developed by subsidiaries of Chevron Corporation, Sociedade
Nacional de Combustiveis de Angola EP, BP Plc, Total S.A. and
ENI SpA. Final award of the charter was made in December 2007.
The vessels will be chartered at fixed rates, with inflation
adjustments, commencing in 2011. The remaining members of the
consortium are Mitsui & Co., Ltd. and NYK Bulkship
(Europe) Ltd., which hold 34% and 33% interests in the
consortium, respectively. In connection with this award, the
consortium has entered into agreements with Samsung Heavy
Industries Co. Ltd. to construct the four LNG carriers at a
total cost of approximately $921.4 million (of which the
Company’s 33% portion is $304.1 million), excluding
capitalized interest. As at December 31, 2008, payments
made towards these commitments by the joint venture company
totaled $106.0 million (of which the Company’s 33%
contribution was $35.0 million), excluding capitalized
interest and other miscellaneous construction costs. As at
December 31, 2008, the remaining payments required to be
made under these contracts were $203.9 million (2010),
$475.6 million (2011) and $135.9 million (2012).
In accordance with existing agreements, the Company is required
to offer to Teekay LNG its 33% interest in these vessels and
related charter contracts, no later than 180 days before
the scheduled delivery dates of the vessels. Deliveries of the
vessels are scheduled between August 2011 and January 2012. The
Company has also provided certain guarantees in relation to the
performance of the joint venture company.
For the year ended December 31, 2008, the Company recorded
$33.0 million (2007—nil) of its share of the Angola
LNG Project loss. This amount is included in equity (loss)
income from joint
ventures in the consolidated statement of income (loss).
Substantially all of the loss relates to unrealized losses on
interest rate swaps.
c)
Legal proceedings
and claims
The Company may, from time to time, be involved in legal
proceedings and claims that arise in the ordinary course of
business. The Company believes that any adverse outcome of
existing claims, individually or in the aggregate, would not
have a material effect on its financial position, results of
operations or cash flows, when taking into account its insurance
coverage and indemnifications from charterers.
d)
Other
The Company enters into indemnification agreements with certain
officers and directors. In addition, the Company enters into
other indemnification agreements in the ordinary course of
business. The maximum potential amount of future payments
required under these indemnification agreements is unlimited.
However, the Company maintains what it believes is appropriate
liability insurance that reduces its exposure and enables the
Company to recover future amounts paid up to the maximum amount
of the insurance coverage, less any deductible amounts pursuant
to the terms of the respective policies, the amounts of which
are not considered material.
17.
Supplemental cash
flow information
a) The changes in non-cash working capital items related to
operating activities for the years ended December 31, 2008,
2007 and 2006 are as follows:
b) On October 31, 2006, the first of the
Company’s three RasGas II LNG Carriers delivered and
commenced operations under a capital lease. During 2006, the
Company recorded the costs of two RasGas II LNG Carriers
under construction and the related lease obligation amounting to
$295.2 million. Upon delivery of the two RasGas II LNG
Carriers in 2007, the remaining vessel costs and related lease
obligations amounting to $15.3 million were recorded. These
transactions are treated as non-cash transactions in the
Company’s consolidated statement of cash flows for the
years ended December 31, 2006 and 2007, respectively.
c) Cash interest paid during the years ended
December 31, 2008, 2007 and 2006 totaled
$372.2 million, $320.6 million and
$182.9 million, respectively.
d) On December 31, 2008 Teekay Nakilat (III) and
QGTC 3 assigned their interest rate swap obligations to the
RasGas 3 Joint Venture for no consideration. This transaction
was treated as a non-cash transaction in the Company’s
consolidated statement of cash flows.
e) On December 31, 2008 Teekay Nakilat (III) and
QGTC 3 assigned their external long-term debt of
$867.5 million and related deferred debt issuance costs of
$4.1 million to the RasGas 3 Joint Venture. As a result of
this transaction, the Company’s long-term debt decreased by
$867.5 million and other assets decreased by
$4.1 million offset by a decrease in the Company’s
advances to the RasGas 3 Joint Venture. These transactions were
treated as non-cash transactions in the Company’s
consolidated statement of cash flows.
18.
Vessel sales and
write-downs on Vessels and equipment
a)
Vessel
sales
During March 2008, the Company sold two Handysize product
tankers. The Company also entered into an agreement to sell a
third Handysize product tanker upon the expiration of its
time-charter, which occurred during September 2008. All three
vessels were part of the Company’s spot tanker segment. As
a result of these sales, the Company realized a gain of
$7.2 million.
During June 2008, the Company entered into an agreement to sell
an Aframax tanker which delivered in September 2008. During
September the Company sold a medium-range product tanker upon
the expiration of its time-charter. Both vessels were part of
the Company’s spot tanker segment. As a result of these
sales, the Company realized a gain of $28.4 million.
In November 2008, the Company sold its 50% interest in the Swift
Product Tanker Pool, which included the Company’s interest
in its ten in-chartered intermediate product tankers. The
Company realized a gain of $44.4 million.
During November 2008, the Company sold a 2008-built Suezmax
tanker from its spot tanker segment. The Company realized a gain
of $18.1 million.
During April 2007, the Company sold two Aframax tankers from its
spot tanker segment and chartered them back under bareboat
charters for a period of five years. The Company realized a gain
of $26.6 million, which has been deferred and will be
amortized over the terms of the bareboat charters.
During May 2007, the Company sold a 1987-built shuttle tanker
and certain equipment, resulting in a gain of
$11.6 million. The vessel, which was a part of the shuttle
tanker and FSO segment.
During July 2007, the Company sold two Aframax tankers. One of
the vessels operates in the Company’s spot tanker segment
and the second operates in the Company’s fixed-rate tanker
segment. The vessels have been chartered back through bareboat
charters for a period of four years. The Company realized a gain
of $33.1 million, which is deferred and being amortized
over the term of the bareboat charters.
During 2006, the Company sold a 1981-built, 50.5%-owned shuttle
tanker and recorded a gain of $6.4 million and a
non-controlling interest expense of $3.2 million relating
to the sale. In addition, the Company sold shipbuilding
contracts for three LNG carriers to SeaSpirit and was
reimbursed for previously paid shipyard installments and other
construction costs in the amount of $313.0 million (see
Note 10).
b)
Vessels and
equipment write-downs
The Company’s 2008 consolidated financial statements
include a $40.4 million write-down for impairment of
certain older vessels due to lower fair values compared to
carrying values. The Company used discounted cashflows to
determine the fair value.
The Company’s 2006 consolidated financial statements
include $2.2 write-down of certain offshore equipment due to a
lower estimated net realizable value arising from the early
termination of a contract in June 2005. In addition, during the
year ended December 31, 2006, the Company recorded a
write-down of $5.5 million on a volatile organic compound
(or VOC) plant on one of the Company’s shuttle
tankers that was redeployed from the North Sea to Brazil. During
2007 the VOC plant was removed and re-installed on another
shuttle tanker in the Company’s fleet.
Net (loss) income available for common stockholders
(469,455
)
63,543
302,824
Weighted average number of common shares
72,493,429
73,382,197
73,180,193
Dilutive effect of employee stock options and restricted stock
awards
–
1,317,879
1,589,914
Dilutive effect of equity units
–
35,280
358,617
Common stock and common stock equivalents
72,493,429
74,735,356
75,128,724
Earnings (loss) per common share:
- Basic
(6.48
)
0.87
4.14
- Diluted
(6.48
)
0.85
4.03
For the years ended December 31, 2007 and 2006, the
anti-dilutive effect of 1.0 million and 1.1 million
shares attributable to outstanding stock options and the Equity
Units were excluded from the calculation of diluted earnings per
share.
The legal jurisdictions in which Teekay and several of its
subsidiaries are incorporated do not impose income taxes upon
shipping-related activities. However, among others, the
Company’s Australian ship-owning subsidiaries and its
Norwegian subsidiaries are subject to income taxes.
In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation
of FASB Statement No. 109 (or FIN 48). This
interpretation clarifies the accounting for uncertainty in
income taxes recognized in financial statements in accordance
with FASB Statement No. 109, Accounting for Income
Taxes. FIN 48 requires companies to determine whether
it is more-likely-than-not that a tax position taken or expected
to be taken in a tax return will be sustained upon examination,
including resolution of any related appeals or litigation
processes, based on the technical merits of the position. If a
tax position meets the more-likely-than-not recognition
threshold, it is measured to determine the amount of benefit to
recognize in the financial statements based on guidance in the
interpretation.
The Company adopted FIN 48 as of January 1, 2007. The
following is a roll-forward of the Company’s FIN 48
unrecognized tax benefits for 2008 and 2007:
Balance of unrecognized tax benefits as at January 1,
8,630
1,000
Increase for positions taken in prior years
–
–
Increases for positions related to the current year
3,602
7,630
Amounts of decreases related to settlements
(5,000
)
–
Reductions due to lapse of statues of limitations
–
–
Balance of unrecognized tax benefits as at December 31,
7,232
8,630
The majority of the increase for positions for the current year
relate to potential tax on foreign sourced income on a
time-charter with a related party. The reduction is a result of
the Company receiving a refund for a re-investment tax credit
that was included in one of its 2005 annual tax filings.
The Company does not presently anticipate such uncertain tax
positions will significantly increase or decrease in the next
12 months; however actual developments could differ from
those currently expected. The tax years 2004 through 2008 remain
open to examination by some of the major taxing jurisdictions to
which the Company is subject to tax in.
The Company recognizes interest and penalties related to
uncertain tax positions in income tax expense. The interest and
penalties on unrecognized tax benefits are included in the
roll-forward schedule above and were approximately
$1.4 million in 2008 and $0.4 million in 2007.
Substantially all of the
Company’s net operating loss carryforwards of
$630.0 million relate to its Australian ship-owning
subsidiaries and its Norwegian subsidiaries. These net operating
loss carryforwards are available to offset future taxable income
in the respective jurisdictions, and can be carried forward
indefinitely.
(2)
The change in the net deferred tax
liabilities is related to the change in temporary differences
and foreign exchange gains.
The components of the provision for income taxes are as follows:
The Company operates in countries that have differing tax laws
and rates. Consequently, a consolidated weighted average tax
rate will vary from year to year according to the source of
earnings or losses by country and the change in applicable tax
rates. Reconciliations of the tax
charge related to the relevant year at the applicable statutory
income tax rates and the actual tax charge related to the
relevant year are as follows:
Permanent differences and adjustments related to currency
differences
(53,137
)
22,708
12,682
Temporary differences and adjustments to valuation allowance
(47,763
)
(7,285
)
19,030
Other
(2,169
)
(5,221
)
195
Tax (recovery) charge related to current year
(56,176
)
(3,192
)
8,811
22.
Restructuring
charge
During the year ended December 31, 2008, the Company
incurred restructuring charges of $9.2 million relating to
the closure of one of the Company’s three offices in
Norway, $3.1 million relating to global staffing changes,
$1.8 million relating to the reorganization of a business
unit, and $1.4 million relating to costs incurred to change
the crew of the Samar Spirit from Australian crew to
International crew. The Company did not incur any significant
restructuring costs in 2007. During the year ended
December 31, 2006, the Company incurred $8.9 million
of restructuring costs to complete the relocation of certain
operational functions that commenced in 2005.
23.
Subsequent
events
a) In January 2009, the Company announced that its Board of
Directors has approved the Company’s quarterly cash
dividend of $0.31625 per share. This dividend was paid on
January 30, 2009 to shareholders of record as at
January 16, 2009. In April 2009, the Company announced that
its Board of Directors has approved the Company’s quarterly
cash dividend of $0.31625 per share. This dividend was paid on
April 24, 2009 to shareholders of record as at
April 10, 2009. In June 2009, the Company announced that
its Board of Directors has approved the Company’s quarterly
cash dividend of $0.31625 per share. This dividend will be paid
on July 24, 2009 to shareholders of record as at
July 10, 2009.
b) On March 30, 2009, Teekay LNG completed a follow-on
public offering of 4.0 million common units at a price of
$17.60 per unit, for gross proceeds of approximately
$70.4 million. As a result of the above transactions,
Teekay LNG has raised gross equity proceeds of
$71.8 million (including the General Partner’s
proportionate capital contribution), and Teekay
Corporation’s ownership of Teekay LNG has been reduced from
57.7% to 53.0% (including its 2% General Partner interest).
Teekay LNG used the total net offering proceeds of approximately
$68.5 million to prepay amounts outstanding on two of its
revolving credit facilities.
On June 24, 2009, Teekay Tankers completed a follow-on
public offering of 7.0 million common shares at a price of
$9.80 per share, for gross proceeds of $68.6 million.
Teekay Tankers has granted the underwriters a
30-day
option to purchase up to an additional 1.05 million shares
to cover any over-allotments. As a result of the above
transaction, Teekay Corporation’s ownership of Teekay
Tankers has been reduced from 54.0% to 42.2%. Teekay Tankers
used the total net offering proceeds of approximately
$65.9 million to acquire a 2003-built Suezmax tanker from
Teekay Corporation for $57.0 million and to repay a portion
of its outstanding debt under its revolving credit facility.
c) One of the Kenai vessels, the Arctic Spirit, has
come off charter from the Marathon Oil
Corporation/ConocoPhillips joint venture on March 31, 2009,
and the Company has entered into a joint development and option
agreement with Merrill Lynch Commodities, Inc. (MLCI),
giving MLCI the option to purchase the vessel for conversion to
an LNG FPSO unit. The agreement provides for a purchase price of
$105 million if the Company chooses to participate in the
project, or $110 million if the Company chooses not to
participate. Under the option agreement, the Arctic Spirit
is reserved for MLCI until December 31, 2009 and MLCI
may extend the option quarterly through 2010. If MLCI exercises
the option and purchases the vessel from the Company, it is
expected that MLCI will convert the vessel to an FPSO unit
(although it is not required to do so) and charter it under a
long-term charter contract to a third party. The Company has the
right to participate up to 50% in the conversion and charter
project on terms that will be determined as the project
progresses. The agreement with MLCI also provides that if the
conversion of the Arctic Spirit to an FPSO unit proceeds,
the Company will negotiate, along with an equity investment, a
similar option for a designee of MLCI to purchase the second
Kenai LNG carrier for $125 million when it comes off
charter.
d) During May 2009, the Company sold a 2007-built product
tanker and a 2005-built product tanker. These vessels did not
meet the held for sale criteria at December 31, 2008 and
accordingly, are not presented on the December 31, 2008
balance sheet as vessels held for sale. Both vessels are part of
the Company’s spot tanker segment. The Company expects to
realize a gain of approximately $28.5 million as a result
of these transactions.
During January and February 2009, the Company sold a 1993-built
Aframax tanker through a sale leaseback agreement and a
2009-built product tanker, respectively, which are presented on
the December 31, 2008 balance sheet as vessels held for
sale. Both vessels were part of the Company’s spot tanker
segment. The Company expects to realize a gain of approximately
$16.8 million as a result of these transactions, of which
$16.6 million will be deferred and amortized over the
4 year term of the bareboat charter.
Teekay Corporation (or Teekay) is a Marshall Islands
corporation. The Marshall Islands Business Corporations Act (or
MIBCA) provides that a Marshall Islands corporation shall
have the power to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is
or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including
attorneys’ fees, judgments, fines and amounts paid in
settlement) actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of no contest, or its equivalent,
shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe his conduct was
unlawful.
A Marshall Islands corporation also has the power to indemnify
any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by
or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request
of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys’ fees)
actually and reasonably incurred by him or in connection with
the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except
that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of
his duty to the corporation unless and only to the extent that
the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
To the extent that a director or officer of a Marshall Islands
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in the
preceding paragraphs, or in the defense of a claim, issue or
matter therein, he shall be indemnified against expenses
(including attorneys’ fees) actually and reasonably
incurred by him in connection therewith. Expenses incurred in
defending a civil or criminal action, suit or proceeding may be
paid in advance of the final disposition of such action, suit or
proceeding as authorized by the board of directors in the
specific case upon receipt of an undertaking by or on behalf of
the director or officer to repay such amount unless it shall
ultimately be
determined that he is entitled to be indemnified by the
corporation as authorized in the MIBCA.
In addition, a Marshall Islands corporation has the power to
purchase and maintain insurance on behalf of any person who is
or was a director or officer of the corporation or is or was
serving at the request of the corporation as a director or
officer against any liability asserted against him and incurred
by him in such capacity whether or not the corporation would
have the power to indemnify him against such liability under the
provisions of the MIBCA.
Section F of Teekay’s Articles of Incorporation, as
amended, provides that to the fullest extent permitted under the
MIBCA, a director of Teekay shall not be liable to Teekay or its
stockholders for monetary damages for breach of fiduciary duty
as a director. Section 10.00 of Teekay’s Bylaws
provides that any person who is made party to a proceeding by
virtue of being an officer or director of Teekay or, being or
having been such a director or officer or an employee of Teekay,
serving at the request of Teekay as a director, officer,
employee or agent of another corporation or other enterprise,
shall be indemnified and held harmless to the fullest extent
permitted by the MIBCA against any and all expense, liability,
loss (including attorneys’ fees), judgments, fines or
penalties and amounts paid in settlement actually incurred or
suffered by such person in connection with the proceeding.
Teekay maintains a directors’ and officers’ liability
insurance policy that, subject to the limitations and exclusions
stated therein, covers its officers and directors for certain
actions or inactions that they may take or omit in their
capacities as officers and directors. In addition, Teekay has
entered into separate indemnification agreements with some of
its executive officers and directors. These indemnification
agreements provide for indemnification of the director or
officer against all expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative, except to the extent that such person is
otherwise indemnified, such action, suit or proceeding arose out
of such person’s intentional misconduct, knowing violation
of law or out of a transaction in which such director or officer
is finally judicially determined to have derived an improper
personal benefit, or if it shall be determined by a final
judgment or other final adjudication that such indemnification
was not lawful.
1. To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
a. To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933, as amended
(the Securities Act);
b. To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration
statement;
c. To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs 1(a), 1(b) and
1(c) of this section do not apply if the information required to
be included in a post-effective amendment by those paragraphs is
contained in reports filed with or furnished to the Commission
by the Registrant pursuant to
section 13 or 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration
statement, or is contained in a form of prospectus filed
pursuant to Rule 424(b) that is part of the registration
statement.
2. That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
4. To file a post-effective amendment to the registration
statement to include any financial statements required by
Item 8.A. of
Form 20-F
at the start of any delayed offering or throughout a continuous
offering. Financial statements and information otherwise
required by section 10(a)(3) of the Securities Act need not
be furnished, provided that the registrant includes in
the prospectus, by means of a post-effective amendment,
financial statements required pursuant to this paragraph 4
and other information necessary to ensure that all other
information in the prospectus is at least as current as the date
of those financial statements. Notwithstanding the foregoing,
with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial
statements and information required by section 10(a)(3) of
the Securities Act or § 210.3-19 of this chapter if
such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by
the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by
reference in the
Form F-3.
5. That, for the purpose of determining liability under the
Securities Act of 1933 to any purchaser:
a. Each prospectus filed by the registrant pursuant to
Rule 424(b)(3) shall be deemed to be part of the
registration statement as of the date the filed prospectus was
deemed part of and included in the registration
statement; and
b. Each prospectus required to be filed pursuant to
Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration
statement in reliance on Rule 430B relating to an offering
made pursuant to Rule 415(a)(1)(i), (vii), or (x) for
the purpose of providing the information required by
Section 10(a) of the Securities Act shall be deemed to be
part of and included in the registration statement as of the
earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As
provided in Rule 430B, for liability purposes of the issuer
and any person that is at that date an underwriter, such date
shall be deemed to be a new effective date of the registration
statement relating to the securities in the registration
statement to which that prospectus relates, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof. Provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such effective date, supersede or
modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or
made in any such document immediately prior to such effective
date.
6. That, for the purpose of determining liability of the
registrant under the Securities Act to any purchaser in the
initial distribution of the securities, the undersigned
registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell
the securities to the purchaser, if the securities are offered
or sold to such purchaser by means of any of the following
communications, the undersigned registrant will be a seller to
the purchaser and will be considered to offer or sell such
securities to such purchaser:
a. Any preliminary prospectus or prospectus of the
Registrant relating to the offering required to be filed
pursuant to Rule 424;
b. Any free writing prospectus relating to the offering
prepared by or on behalf of the Registrant or used or referred
to by the Registrant;
c. The portion of any other free writing prospectus
relating to the offering containing material information about
the Registrant or its securities provided by or on behalf of the
Registrant; and
d. Any other communication that is an offer in the offering
made by the Registrant to the purchaser.
The Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing
of the Registrant’s annual report pursuant to
section 13(a) or section 15(d) of the Securities
Exchange Act that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to file an
application for the purpose of determining the eligibility of
the trustee to act under subsection (a) of Section 310
of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under
Section 305(b)(2) of the Trust Indenture Act.
Pursuant to the requirements of the Securities Act of 1933, as
amended, the undersigned registrant certifies that it has
reasonable grounds to believe that it meets all of the
requirements for filing on
Form F-3
and has duly caused this Post-Effective Amendment No. 1 to
be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Vancouver, British Columbia, on
January 15, 2010.
TEEKAY CORPORATION
By:
/s/ Bjorn
Moller
Name: Bjorn Moller
Title:
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment No. 1 has been
signed by the following persons in the capacities indicated
below on January 15, 2010.
Signature
Title
/s/ Bjorn
Moller
Bjorn
Moller
Director, President and Chief Executive Officer (Principal
Executive Officer)
*
Vincent
Lok
Executive Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
