0000911971tk:LiquefiedGasCarriersMembertk:YamalLngJointVentureMembertk:TeekayLngMember2020-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
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(Mark One)
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¨☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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ý☒ | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172020
OR
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¨☐ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
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¨☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission file number 1-12874
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TEEKAY CORPORATION
(Exact name of Registrant as specified in its charter)
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Republic of The Marshall Islands
(Jurisdiction of incorporation or organization)
Not Applicable
(Translation of Registrant’s name into English)
4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
Telephone: (441) 298-2530
(Address and telephone number of principal executive offices)
Edith Robinson
N. Angelique Burgess
4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
Telephone: (441) 298-2530
Fax: (441) 292-3931
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered, or to be registered, pursuant to Section 12(b) of the Act.
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| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, par value of $0.001 per share | TK | New York Stock Exchange |
Securities registered, or to be registered, pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
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Indicate the number of outstanding shares of each issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
89,127,041101,108,886 shares of Common Stock, par value of $0.001 per share.
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No ý
Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No ¨☐
Indicate by check mark if the registrant (1) has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer", "accelerated filer,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ¨ Accelerated Filer ý Non-Accelerated Filer ¨ Emerging growth company ¨☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ý No ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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U.S. GAAPx | x | International Financial Reporting Standards as issued
by the International Accounting Standards Board¨
| ¨ | Other | ¨ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý
TEEKAY CORPORATION
INDEX TO REPORT ON FORM 20-F
INDEX
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| Item 1. | | | Item 1. | | |
| Item 2. | | | Item 2. | | |
| Item 3. | | | Item 3. | | |
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| Item 4. | | | Item 4. | | |
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| Item 4A. | | | Item 4A. | | |
| Item 5. | | | Item 5. | | |
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| Item 6. | | | Item 6. | | |
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| Item 7. | | | Item 7. | | |
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| Item 8. | | | Item 8. | | |
| Item 9. | | | Item 9. | | |
| Item 10. | | | Item 10. | | |
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| Item 11. | | |
| Item 12. | | |
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| Item 13. | | |
| Item 14. | | |
| Item 15. | | |
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| Item 16A. | | |
| Item 16B. | | |
| Item 16C. | | |
| Item 16D. | | |
| Item 16E. | | |
| Item 16F. | | |
| Item 16G. | | |
| Item 16H. | | |
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| Item 17. | | |
| Item 18. | | |
| Item 19. | | |
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PART I
This annual report of Teekay Corporation on Form 20-F for the year ended December 31, 20172020 (or Annual Report) should be read in conjunction with the consolidated financial statements and accompanying notes included in this report.
Unless otherwise indicated, references in this Annual Report to “Teekay,” “the Company,” “we,” “us” and “our” and similar terms refer to Teekay Corporation and its subsidiaries. References in this Annual Report to Teekay LNG"Teekay LNG" refer to Teekay LNG Partners L.P. (NYSE: TGP), references in this Annual Reportand to Teekay Tankers"Teekay Tankers" refer to Teekay Tankers Ltd. (NYSE: TNK), and. In addition, references in this Annual Report to “Teekay Offshore”"Altera" refer to Altera Infrastructure L.P., previously known as Teekay Offshore Partners L.P. (NYSE: TOO)., which was a subsidiary of Teekay Corporation until September 2017, and an equity-accounted investment until May 8, 2019.
In addition to historical information, this Annual Report contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements relate to future events and our operations, objectives, expectations, performance, financial condition and intentions. When used in this Annual Report, the words “expect,” “intend,” “plan,” “believe,” “anticipate,” “estimate” and variations of such words and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this Annual Report include, in particular, statements regarding:
•our future financial condition and results of operations and our future revenues, expenses and capital expenditures, and our expected financial flexibility and sources of liquidity to pursue capital expenditures, acquisitions and other expansion opportunities;opportunities, including vessel acquisitions;
•our dividend policy and our ability to pay cash dividends on our shares of common stock or any increases in quarterly distributions, and the distribution and dividend policies of our publicly-listed subsidiaries, Teekay LNG and Teekay Tankers (or the Controlled Daughter Entities), and our publicly-listed equity-accounted investee Teekay Offshore (together with the Controlled Daughter Entities, the Daughter Entities), including the ability to increase theany increases in distribution or dividend levels of the Daughter Entities in the future;
Entities;•our liquidity needs and meeting our going concern requirements, and our liquidity needs, and the liquidity needs of Teekay LNG and Teekay Tankers, including our working capital deficit, anticipated funds and sources of financing for liquidity needs and the sufficiency of cash flows, and our estimation that we will have sufficient liquidity for at least the next 12 months;
•our ability and plans to obtain financing for new projects and existing projects, including unfinanced newbuildings,commitments (including Teekay Tankers’ recent declarations of purchase options on certain tankers), refinance existing debt obligations and fulfill our debt obligations;
•our plans for Teekay Parent, which excludes our controlling interests in the Controlled Daughter Entities and our equity-accounted investment inincludes Teekay Offshore, and includes TeekayCorporation and its remaining subsidiaries, not to have a direct ownershipreduce or eliminate operational risk in any floating production, storage and offloading (or FPSO) units, and to increase its free cash flow per share, and reduce its net debt levels;
and further strengthen its balance sheet;offshore,•the expected scope, duration and effects of the novel coronavirus pandemic, including its impact on global supply and demand for liquefied natural gas (or LNG), liquefied petroleum gas (or LPG), Long Range 2 (or LR2)crude oil and tanker market petroleum products and fleet utilization, and the consequences of any future epidemic or pandemic crises;
•conditions and fundamentals of the markets in which we operate, including the balance of supply and demand in these markets and charter and spot tanker charter rates, fleetestimated growth price of oil,in world fleets and vessel scrapping, and oil production, in the tanker market,refinery capacity and competition for providing services;
•our expectations regarding tax liabilities, including the expected tanker market recovery during the latter part of 2018 and into 2019;
whether applicable tax authorities may agree with our tax positions;the expected lifespan of our vessels, including •our expectations as to any impairmentthe useful lives of our vessels;
•our future growth prospects and future trends of the markets in which we operate;prospects;
•the impact of future changes in the demand for and price of oil, and the related effects on the demand for and price of natural gas;
certainty of completion, estimated delivery•expected costs, capabilities, acquisitions and completion dates, commencement dates and rates of charters and charter extensions, intended financing and estimated costs,conversions, and the locationcommencement of service and intended use for newbuildings, acquisitions and conversions;any related charters or other contracts;
our expectations regarding the ability of Awilco LNG ASA (or Awilco), and our other customers to make charter payments to us, and the ability of our customers to fulfill purchase obligations at the end of charter contracts, including obligations relating to two of Teekay LNG's LNG carriers completing charters with Awilco in 2019;
•our ability to maximize the use of our vessels, including the redeploymentre-deployment or disposition of vessels no longer under long-term time charter or whoseon a short-term charter contract is expiring;contracts;
•our expectations regarding the ability of our customers to make charter payments to us;
•the possibility of future resumption of athe LNG plant in Yemen operated by Yemen LNG Company Limited (or YLNG), and the expected repayment of deferred hire amounts from YLNG on Teekay LNG's two 52% owned-owned vessels, the Marib Spirit and Arwa Spirit, on charter to YLNG, and the ;
•expected reduction to Teekay LNG's equity income in 2018 as a resultresults of the charter payment deferral;
expected funding of Teekay LNG's proportionate share of the remaining shipyard installment payments for its joint venture with China LNG, CETS Investment Management (HK) Co. Ltd. and BW LNG Investments Pte. Ltd. (or the Pan Union Joint Venture);
the cost of supervision and crew training in relation to the Pan Union Joint Venture, and our expected recovery of a portion of those costs;
our expectation that the owner of Teekay LNG’s Suezmax tanker under capital lease, the Toledo Spirit, will cancel the charter contract for the vessel and sell it to a third party, rather than requiring Teekay LNG to purchase the vessel under capital lease;
the expected technical and operational capabilities of newbuildings, including the benefitsmodifications of the M-type, Electronically Controlled, Gas Injection (or MEGI) twin engines in certain LNG carrier newbuildings;
carriers;
•our expectations regarding the timing and schedule and performancefor completion of the receiving and regasification terminal in Bahrain which will be ownedin accordance with all necessary conditions, requirements and operatedapplicable consents by a new joint venture, Bahrain LNG W.L.L., a joint venture owned by Teekay LNG (30%), National Oil & Gas Authority (or NogaholdingNOGA) (30%), Gulf Investment Corporation (or GIC) (24%) and Samsung C&T (or Samsung) (16%) (or the Bahrain LNG Joint Venture), as well as the current and future performance of the terminal (including assumptions concerning its operational status) and our expectations regardingexpectation of continued receipt of terminal use payments from the supply, modificationcustomer under its long-term contract;
•the status and charteroutcome of a floating storage unit (or FSU) vesselany pending legal claims, actions or disputes;
•Teekay Tankers’ expected recovery of fuel price increases from the charterers of its vessels through higher rates for the project;
voyage charters;Teekay Offshore’s ability to recover the lower day rate on the Petrojarl I FPSO unit under the amended variable rate contract;
•the future valuation or impairment of our assets, including goodwill;
•our expectations and estimates regarding future charter business, including with respect to minimum charter hire payments, revenues and our vessels’vessels' ability to perform to specifications and maintain their hire rates in the future;
•compliance with financing agreements and the expected effect of restrictive covenants in such agreements;
•operating expenses, availability of crew and crewing costs, number of off-hire days, dry-dockingdrydocking requirements our ability to recover dry-docking expenses from charterers, and durations and the adequacy and cost of insurance;insurance, and expectations as to cost-saving initiatives;
•the effectiveness of our risk management policies and procedures and the ability of the counterparties to our derivative and other contracts to fulfill their contractual obligations;
•the impact on us and the shipping industry of environmental liabilities and developments, including climate change;
•the impact of any sanctions on our operations and our ongoing compliance with such sanctions;
•the expected impact of the cessation of the London Inter-Bank Offered Rate (or LIBOR), Brexit, the adoption of the “Poseidon Principles” by financial institutions or any change in jurisdictional economic substance requirements;
•the impact and expected cost of, and our ability to comply with, new and existing governmental regulations and maritime self-regulatory organization standards and environmental liabilities applicable to our business, including, among others, the expected cost to install ballast water treatment systems (or BWTS) on our vessels in compliancevessels;
•the impact of increasing scrutiny and changing expectations from investors, lenders, customers and other stakeholders with respect to environmental, social and governance (or ESG) policies and practices, and the International Marine Organization (or IMO) proposals;
Company’s ability to meet its corporate ESG goals;•our ability to obtain all permits, licenses and certificates with respect to the outcome of the investigation into allegations of improper payments by oneconduct of our subsidiariesoperations;
•the expectations as to Brazilian agents;the chartering of unchartered vessels;
the timing of the new shuttle tanker contract of affreightment (or CoA) contracts and the number of shuttle tankers to serve these new CoAs;
the ability of Teekay Offshore to grow its long-distance ocean towage and offshore installation services business;
expected uses of proceeds from vessel or securities transactions;
•our entering into joint ventures or partnerships with companies;
our expectations regarding the benefits of the Brookfield Transaction (as defined below in Item 5);
our expectations regarding whether the UK taxing authority can successfully challenge the tax benefits available under certain of our former and current leasing arrangements, and the potential financial exposure to us if such a challenge is successful;
•our hedging activities relating to foreign exchange, interest rate and spot market risks, and the effects of fluctuations in foreign currency exchange, interest rate and spot market rates on our business and results of operations;
our expectations regarding uncertain tax positions;
•the potential impact of new accounting guidance;guidance or the adoption of new accounting standards; and
•our business strategy and other plans and objectives for future operations.
Forward-looking statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to, those factors discussed below in “Item 3.3 – Key Information—Information – Risk Factors” and other factors detailed from time to time in other reports we file with the U.S. Securities and Exchange Commission (or the SEC).
We do not intend to revise any forward-looking statements in order to reflect any change in our expectations or events or circumstances that may subsequently arise. You should carefully review and consider the various disclosures included in this Annual Report and in our other filings made with the SEC that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
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Item 1. | Identity of Directors, Senior Management and Advisors |
Item 1.Identity of Directors, Senior Management and Advisors
Not applicable.
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Item 2. | Offer Statistics and Expected Timetable |
Item 2.Offer Statistics and Expected Timetable
Not applicable.
Item 3.Key Information
Selected Financial Data
Set forth below is selected consolidated financial and other data of Teekay for fiscal years 20132016 through 2017,2020, which have been derived from our consolidated financial statements. The data below should be read in conjunction with the consolidated financial statements and the notes thereto and the Reports of the Independent Registered Public Accounting Firm thereon with respect to fiscal years in the three-year period ended December 31, 20172020 (which are included herein) and “Item 5.5 – Operating and Financial Review and Prospects.”
Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (or GAAP).
| | | | | Years Ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 | | | Years Ended December 31, |
| | | (in thousands of U.S. Dollars, except share and per share data) | | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Income Statement Data: | | | | | | | | | | | Income Statement Data: | | (in thousands of U.S. Dollars, except share and per share data) |
| Revenues | | $ | 1,880,332 |
| | $ | 2,328,569 |
| | $ | 2,450,382 |
| | $ | 1,993,920 |
| | $ | 1,830,085 |
| Revenues | | $ | 1,815,672 | | | $ | 1,945,391 | | | $ | 1,707,758 | | | $ | 1,880,332 | | | $ | 2,328,569 | |
Income from vessel operations (1) | | 6,700 |
| | 384,290 |
| | 625,132 |
| | 427,159 |
| | 62,746 |
| Income from vessel operations (1) | | 314,579 | | | 204,042 | | | 164,319 | | | 6,700 | | | 384,290 | |
| Interest expense | | (268,400 | ) | | (282,966 | ) | | (242,469 | ) | | (208,529 | ) | | (181,396 | ) | Interest expense | | (225,647) | | | (279,059) | | | (254,126) | | | (268,400) | | | (282,966) | |
| Interest income | | 6,290 |
| | 4,821 |
| | 5,988 |
| | 6,827 |
| | 9,708 |
| Interest income | | 8,342 | | | 7,804 | | | 8,525 | | | 6,290 | | | 4,821 | |
Realized and unrealized (loss) gain on non-designated derivative instruments | | (38,854 | ) | | (35,091 | ) | | (102,200 | ) | | (231,675 | ) | | 18,414 |
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| Equity (loss) income | | (37,344 | ) | | 85,639 |
| | 102,871 |
| | 128,114 |
| | 136,538 |
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| Realized and unrealized losses on non-designated derivative instruments | | Realized and unrealized losses on non-designated derivative instruments | | (35,857) | | | (13,719) | | | (14,852) | | | (38,854) | | | (35,091) | |
| Equity income (loss) | | Equity income (loss) | | 77,333 | | | (14,523) | | | 61,054 | | | (37,344) | | | 85,639 | |
| Foreign exchange (loss) gain | | (26,463 | ) | | (6,548 | ) | | (2,195 | ) | | 13,431 |
| | (13,304 | ) | Foreign exchange (loss) gain | | (20,718) | | | (13,574) | | | 6,140 | | | (26,463) | | | (6,548) | |
| Other (loss) income | | (53,981 | ) | | (39,013 | ) | | 1,566 |
| | (1,152 | ) | | 5,646 |
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| Income tax (expense) recovery | | (12,232 | ) | | (24,468 | ) | | 16,767 |
| | (10,173 | ) | | (2,872 | ) | |
| Net (loss) income | | (529,072 | ) | | 86,664 |
| | 405,460 |
| | 124,002 |
| | 35,480 |
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Less: Net loss (income) attributable to non- controlling interests | | 365,796 |
| | (209,846 | ) | | (323,309 | ) | | (178,759 | ) | | (150,218 | ) | |
Net (loss) income attributable to shareholders of Teekay Corporation | | (163,276 | ) | | (123,182 | ) | | 82,151 |
| | (54,757 | ) | | (114,738 | ) | |
Loss on deconsolidation of Altera (2) | | Loss on deconsolidation of Altera (2) | | — | | | — | | | (7,070) | | | (104,788) | | | — | |
| Other loss | | Other loss | | (18,062) | | | (14,475) | | | (2,013) | | | (53,981) | | | (39,013) | |
| Income tax expense | | Income tax expense | | (8,988) | | | (25,482) | | | (19,724) | | | (12,232) | | | (24,468) | |
| Net income (loss) | | Net income (loss) | | 90,982 | | | (148,986) | | | (57,747) | | | (529,072) | | | 86,664 | |
| Net (income) loss attributable to non-controlling interests | | Net (income) loss attributable to non-controlling interests | | (173,915) | | | (161,591) | | | (21,490) | | | 365,796 | | | (209,846) | |
| Net loss attributable to shareholders of Teekay Corporation | | Net loss attributable to shareholders of Teekay Corporation | | (82,933) | | | (310,577) | | | (79,237) | | | (163,276) | | | (123,182) | |
| Per Common Share Data: | | | | | | | | | | | Per Common Share Data: | |
Basic (loss) earnings attributable to shareholders of Teekay Corporation | | (1.89 | ) | | (1.62 | ) | | 1.13 |
| | (0.76 | ) | | (1.63 | ) | |
Diluted (loss) earnings attributable to shareholders of Teekay Corporation | | (1.89 | ) | | (1.62 | ) | | 1.12 |
| | (0.76 | ) | | (1.63 | ) | |
| Basic and diluted loss attributable to shareholders of Teekay Corporation | | Basic and diluted loss attributable to shareholders of Teekay Corporation | | (0.82) | | | (3.08) | | | (0.79) | | | (1.89) | | | (1.62) | |
| | Cash dividends declared | | 0.2200 |
| | 0.2200 |
| | 1.7325 |
| | 1.2650 |
| | 1.2650 |
| Cash dividends declared | | — | | | 0.0550 | | | 0.2200 | | | 0.2200 | | | 0.2200 | |
| Balance Sheet Data (at end of year): | | | | | | | | | | | Balance Sheet Data (at end of year): | |
| Cash and cash equivalents | | $ | 445,452 |
| | $ | 567,994 |
| | $ | 678,392 |
| | $ | 806,904 |
| | $ | 614,660 |
| Cash and cash equivalents | | $ | 348,785 | | | $ | 353,241 | | | $ | 424,169 | | | $ | 445,452 | | | $ | 567,994 | |
| Restricted cash | | 106,722 |
| | 237,248 |
| | 176,437 |
| | 119,351 |
| | 502,732 |
| Restricted cash | | 57,105 | | | 101,626 | | | 81,470 | | | 106,722 | | | 237,248 | |
| Vessels and equipment | | 5,208,544 |
| | 9,138,886 |
| | 9,366,593 |
| | 8,106,247 |
| | 7,351,144 |
| Vessels and equipment | | 4,483,430 | | | 5,033,130 | | | 5,517,133 | | | 5,208,544 | | | 9,138,886 | |
| Net investments in direct financing leases | | 495,990 |
| | 660,594 |
| | 684,129 |
| | 704,953 |
| | 727,262 |
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| Net investments in direct financing and sales-type leases | | Net investments in direct financing and sales-type leases | | 528,641 | | | 818,809 | | | 575,163 | | | 495,990 | | | 660,594 | |
| Total assets | | 8,092,437 |
| | 12,814,752 |
| | 13,061,248 |
| | 11,779,690 |
| | 11,506,393 |
| Total assets | | 6,945,912 | | | 8,072,864 | | | 8,391,670 | | | 8,092,437 | | | 12,814,752 | |
| Total debt (including obligations related to capital leases) | | 4,578,162 |
| | 7,032,385 |
| | 7,443,213 |
| | 6,715,526 |
| | 6,658,491 |
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Total debt (3) | | Total debt (3) | | 3,766,072 | | | 4,702,844 | | | 4,993,368 | | | 4,578,162 | | | 7,032,385 | |
| Capital stock and additional paid-in capital | | 919,078 |
| | 887,075 |
| | 775,018 |
| | 770,759 |
| | 713,760 |
| Capital stock and additional paid-in capital | | 1,057,319 | | | 1,052,284 | | | 1,045,659 | | | 919,078 | | | 887,075 | |
| Non-controlling interest | | 2,102,465 |
| | 3,189,928 |
| | 2,782,049 |
| | 2,290,305 |
| | 2,071,262 |
| Non-controlling interest | | 1,989,883 | | | 2,089,730 | | | 2,058,037 | | | 2,102,465 | | | 3,189,928 | |
| Total equity | | 2,879,656 |
| | 4,089,293 |
| | 3,701,074 |
| | 3,388,633 |
| | 3,203,050 |
| Total equity | | 2,471,291 | | | 2,571,593 | | | 2,867,028 | | | 2,879,656 | | | 4,089,293 | |
| Number of outstanding shares of common stock | | 89,127,041 |
| | 86,149,975 |
| | 72,711,371 |
| | 72,500,502 |
| | 70,729,399 |
| Number of outstanding shares of common stock | | 101,108,886 | | | 100,784,422 | | | 100,435,210 | | | 89,127,041 | | | 86,149,975 | |
| Other Financial Data: | | | | | | | | | | | Other Financial Data: | |
Net revenues (2) | | $ | 1,726,566 |
| | $ | 2,190,230 |
| | $ | 2,334,595 |
| | $ | 1,866,073 |
| | $ | 1,717,867 |
| |
EBITDA (3) | | 231,099 |
| | 961,102 |
| | 1,134,674 |
| | 758,781 |
| | 641,126 |
| |
Adjusted EBITDA (3) | | 898,246 |
| | 1,268,668 |
| | 1,393,696 |
| | 1,037,284 |
| | 817,382 |
| |
Total debt to total capitalization (4) | | 61.4 | % | | 63.2 | % | | 66.8 | % | | 66.5 | % | | 67.5 | % | |
Net debt to total net capitalization (5) | | 58.3 | % | | 60.4 | % | | 64.0 | % | | 63.1 | % | | 63.4 | % | |
EBITDA (4) | | EBITDA (4) | | $ | 578,406 | | | $ | 438,423 | | | $ | 483,885 | | | $ | 231,099 | | | $ | 961,102 | |
Adjusted EBITDA (4) | | Adjusted EBITDA (4) | | 1,086,126 | | | 951,913 | | | 775,633 | | | 951,118 | | | 1,287,003 | |
Total debt to total capitalization (5) | | Total debt to total capitalization (5) | | 60.4 | % | | 64.6 | % | | 63.5 | % | | 61.4 | % | | 63.2 | % |
Net debt to total net capitalization (6) | | Net debt to total net capitalization (6) | | 57.6 | % | | 62.3 | % | | 61.0 | % | | 58.3 | % | | 60.4 | % |
| Capital expenditures: | | | | | | | | | | | Capital expenditures: | |
| Expenditures for vessels and equipment | | $ | 1,054,052 |
| | $ | 648,326 |
| | $ | 1,795,901 |
| | $ | 994,931 |
| | $ | 753,755 |
| Expenditures for vessels and equipment | | $ | 26,507 | | | $ | 109,523 | | | $ | 693,792 | | | $ | 1,054,052 | | | $ | 648,326 | |
(1)Income from vessel operations includes, among other things, the following:
| |
(1) | Income from vessel operations includes, among other things, the following: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| | | (in thousands of U.S. Dollars) |
| Write-down and loss on sale | | $ | (200,238) | | | $ | (170,310) | | | $ | (53,693) | | | $ | (270,743) | | | $ | (112,246) | |
| Gain on commencement of sales-type lease | | 44,943 | | | — | | | — | | | — | | | — | |
| Restructuring charges | | (10,719) | | | (12,040) | | | (4,065) | | | (5,101) | | | (26,811) | |
| | $ | (166,014) | | | $ | (182,350) | | | $ | (57,758) | | | $ | (275,844) | | | $ | (139,057) | |
(2)On September 25, 2017, Teekay, Altera and Brookfield Business Partners L.P., together with its institutional partners (collectively, Brookfield), completed a strategic partnership (or the 2017 Brookfield Transaction), which resulted in the deconsolidation of Altera as of that date. For additional information regarding the deconsolidation of Altera, please read "Item 18 – Financial Statements: Note 13" in the Company’s Annual Report on Form 20-F for the year ended December 31, 2019.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | (in thousands of U.S. Dollars) |
Asset impairments and net (loss) gain on sale
of vessels, equipment and other operating assets | | $ | (270,743 | ) | | $ | (112,246 | ) | | $ | (70,175 | ) | | $ | 11,271 |
| | $ | (166,358 | ) |
| Restructuring charges | | (5,101 | ) | | (26,811 | ) | | (14,017 | ) | | (9,826 | ) | | (6,921 | ) |
| | | $ | (275,844 | ) | | $ | (139,057 | ) | | $ | (84,192 | ) | | $ | 1,445 |
| | $ | (173,279 | ) |
| |
(2) | Net revenues is a non-GAAP financial measure. consistent with general practice in the shipping industry, we use net revenues (defined as 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 charters, the charterer pays the voyage expenses, which 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, whereas under voyage-charter contracts the ship-owner pays these expenses. Some voyage expenses are fixed, and the remainder can be estimated. If we, as the ship-owner, 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, which we call “net revenues,” are comparable across the different types of contracts. We principally use net revenues because it provides more meaningful information to us 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 and to industry averages. Net revenues should not be considered as an alternative to revenues or any other measure of financial performance in accordance with GAAP. Net revenues is adjusted for expenses that we classify as voyage expenses and, therefore, may not be comparable to similarly titled measures of other companies. The following table reconciles net revenues with revenues.
|
(3)Total debt represents short-term debt, the current portion of long-term debt and long-term debt, and the current and long-term portion of obligations related to finance leases. |
| | | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | (in thousands of U.S. Dollars) |
| Revenues | | $ | 1,880,332 |
| | $ | 2,328,569 |
| | $ | 2,450,382 |
| | $ | 1,993,920 |
| | $ | 1,830,085 |
|
| Voyage expenses | | (153,766 | ) | | (138,339 | ) | | (115,787 | ) | | (127,847 | ) | | (112,218 | ) |
| Net revenues | | $ | 1,726,566 |
| | $ | 2,190,230 |
| | $ | 2,334,595 |
| | $ | 1,866,073 |
| | $ | 1,717,867 |
|
| |
(3) | (4)EBITDA and Adjusted EBITDA are non-GAAP financial measures.EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA before restructuring charges, foreign exchange loss (gain), items included in other loss (income),asset impairments, and net loss (gain) on sale of vessels, equipment and other operating assets, amortization of in-process revenue contracts, unrealized (gains) loss on derivative instruments, realized losses on interest rate swaps, realized losses on interest rate swap amendments and terminations, loss on deconsolidation of Teekay Offshore, write-downs related to equity-accounted investments, and our share of the above items in non-consolidated joint ventures which are accounted for using the equity method of accounting. 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.Adjusted EBITDA are non-GAAP financial measures.EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA before foreign exchange (loss) gain, other loss, write-down and loss on sale of assets, adjustments for direct financing and sales-type leases to a cash basis,amortization of in-process revenue contracts, credit loss provision adjustments, unrealized gains (losses) on derivative instruments, realized losses on stock purchase warrants and interest rate swaps, realized losses on interest rate swap amendments and terminations, loss on deconsolidation of Altera, write-downs related to equity-accounted investments, and our share of the above items in non-consolidated joint ventures which are accounted for using the equity method of accounting. EBITDA and Adjusted EBITDA are used as supplemental financial performance measures by management and by external users of our financial statements, such as investors. 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 financial and operating measures 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 order to assess 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 dry-docking expenditures, working capital changes and foreign currency exchange gains and losses (which may vary significantly from period to period), EBITDA and Adjusted EBITDA provide consistent measures of our ability to generate cash over the long term. Management uses this information as a significant factor in determining (a) our proper capitalization structure (including assessing how much debt to incur and whether changes to our 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 our financial and operational 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.
The following table reconciles our historical consolidated EBITDA and Adjusted EBITDA to net income (loss).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| Income Statement Data: | | (in thousands of U.S. Dollars) |
| Reconciliation of EBITDA and Adjusted EBITDA to Net income (loss) | | | | | | | | | | |
| Net income (loss) | | $ | 90,982 | | | $ | (148,986) | | | $ | (57,747) | | | $ | (529,072) | | | $ | 86,664 | |
| Income tax expense | | 8,988 | | | 25,482 | | | 19,724 | | | 12,232 | | | 24,468 | |
| Depreciation and amortization | | 261,131 | | | 290,672 | | | 276,307 | | | 485,829 | | | 571,825 | |
| Interest expense, net of interest income | | 217,305 | | | 271,255 | | | 245,601 | | | 262,110 | | | 278,145 | |
| EBITDA | | 578,406 | | | 438,423 | | | 483,885 | | | 231,099 | | | 961,102 | |
Foreign exchange loss (gain) (a) | | 20,718 | | | 13,574 | | | (6,140) | | | 26,463 | | | 6,548 | |
Other loss (b) (c) | | 18,062 | | | 14,475 | | | 2,013 | | | 53,981 | | | 39,013 | |
| Write-down and loss on sale | | 200,238 | | | 170,310 | | | 53,693 | | | 270,743 | | | 112,246 | |
| Gain on commencement of sales-type lease | | (44,943) | | | — | | | — | | | — | | | — | |
| Direct finance lease payments received in excess of revenue recognized | | 13,164 | | | 21,636 | | | 11,082 | | | 18,737 | | | 28,348 | |
| Amortization of in-process revenue contracts and other | | (1,402) | | | (4,131) | | | (10,217) | | | (13,460) | | | (24,195) | |
| Realized and unrealized losses on non-designated derivative instruments | | 35,857 | | | 13,719 | | | 14,852 | | | 38,854 | | | 35,091 | |
| Realized gains (losses) from the settlements of non-designated derivative instruments | | (864) | | | 1,532 | | | — | | | 2,047 | | | (8,646) | |
| Loss on deconsolidation of Altera | | — | | | — | | | 7,070 | | | 104,788 | | | — | |
Adjustments related to equity (loss) income (d) | | 266,890 | | | 282,375 | | | 219,395 | | | 217,866 | | | 137,496 | |
| Adjusted EBITDA | | 1,086,126 | | | 951,913 | | | 775,633 | | | 951,118 | | | 1,287,003 | |
(a)Foreign currency exchange loss (gain) includes an unrealized gain of $26.8 million in 2020 (2019 – loss of $13.2 million, 2018 – gain of $21.2 million, 2017 – gain of $82.7 million, and 2016 – gain of $75.0 million) on cross currency swaps.
(b)In June 2016, as part of its financing initiatives, Altera canceled the construction contracts for its two UMS newbuildings. As a result, Altera accrued for potential damages resulting from the cancellations and reversed contingent liabilities previously recorded that were relating to the delivery of the UMS newbuildings. This net loss provision of $23.4 million for the year ended December 31, 2016 was reported in other loss in our consolidated statement of income. The newbuilding contracts were held in Altera's separate subsidiaries and obligations of these subsidiaries were non-recourse to Altera.
(c)During the year ended December 31, 2016, the Company recorded a write-down of a cost-accounted investment of $19.0 million. This investment was subsequently sold in 2017, resulting in a gain on sale of $1.3 million. During 2017, the Company recognized an additional tax indemnification guarantee liability of $50.0 million relating to Teekay LNG's 70%-owned consolidated subsidiary Teekay Nakilat Corporation.
(d)Adjustments related to equity (loss) income is a non-GAAP financial measure and should not be considered as an alternative to equity income or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjustments related to equity (loss) income exclude some, but not all, items that affect equity (loss) income, and these measures may vary among other companies. Therefore, adjustments related to equity (loss) income as presented in this Annual Report may not be comparable to similarly titled measures of other companies. Adjustments related to equity (loss) income includes depreciation and amortization, net interest expense, income tax expense, amortization of in-process revenue contracts, adjustments for direct financing and sales-type lease to a cash basis, write-down and loss (gain) on sales of vessels, realized and unrealized loss (gain) on derivative instruments and other items, realized loss (gain) on foreign currency forward contracts, and write-down and gain on sale of equity-accounted investments, in each case related to our historical consolidated Adjusted EBITDAequity-accounted entities, on the basis of our ownership percentages of such entities. Adjustments related to net operating cash flow.
equity (loss) income are as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | (in thousands of U.S. Dollars) |
| Income Statement Data: | | | | | | | | | | |
Reconciliation of EBITDA and Adjusted EBITDA to Net (loss) income | | | | | | | | | | |
| Net (loss) income | | $ | (529,072 | ) | | $ | 86,664 |
| | $ | 405,460 |
| | $ | 124,002 |
| | $ | 35,480 |
|
| Income tax expense (recovery) | | 12,232 |
| | 24,468 |
| | (16,767 | ) | | 10,173 |
| | 2,872 |
|
| Depreciation and amortization | | 485,829 |
| | 571,825 |
| | 509,500 |
| | 422,904 |
| | 431,086 |
|
| Interest expense, net of interest income | | 262,110 |
| | 278,145 |
| | 236,481 |
| | 201,702 |
| | 171,688 |
|
| EBITDA | | 231,099 |
| | 961,102 |
| | 1,134,674 |
| | 758,781 |
| | 641,126 |
|
| Restructuring charges | | 5,101 |
| | 26,811 |
| | 14,017 |
| | 9,826 |
| | 6,921 |
|
Foreign exchange loss (gain) (a) | | 26,463 |
| | 6,548 |
| | 2,195 |
| | (13,431 | ) | | 13,304 |
|
Items included in other loss (income) (b) (c) | | 48,750 |
| | 42,401 |
| | — |
| | 7,699 |
| | — |
|
Asset impairments and net loss (gain) on sale of vessels, equipment and other operating assets | | 270,743 |
| | 112,246 |
| | 70,175 |
| | (11,271 | ) | | 166,358 |
|
| Amortization of in-process revenue contracts | | (26,958 | ) | | (28,109 | ) | | (30,085 | ) | | (40,939 | ) | | (61,700 | ) |
| Unrealized (gains) losses on derivative instruments | | (13,634 | ) | | (69,401 | ) | | (38,319 | ) | | 100,496 |
| | (178,731 | ) |
| Realized losses on interest rate swaps | | 53,921 |
| | 87,320 |
| | 108,036 |
| | 125,424 |
| | 122,439 |
|
Realized losses on interest rate swap amendments and terminations | | 610 |
| | 8,140 |
| | 10,876 |
| | 1,319 |
| | 35,985 |
|
| Loss on deconsolidation of Teekay Offshore (note 3) | | 104,788 |
| | — |
| | — |
| | — |
| | — |
|
| Write-downs related to equity-accounted investments | | 46,168 |
| | 2,357 |
| | — |
| | — |
| | — |
|
Adjustments relating to equity income (d) | | 151,195 |
| | 119,253 |
| | 122,127 |
| | 99,380 |
| | 71,680 |
|
| Adjusted EBITDA | | 898,246 |
| | 1,268,668 |
| | 1,393,696 |
| | 1,037,284 |
| | 817,382 |
|
Reconciliation of Adjusted EBITDA to net operating cash flow | | | | | | | | | | |
| Net operating cash flow | | 513,745 |
| | 620,783 |
| | 775,832 |
| | 456,177 |
| | 299,295 |
|
| Expenditures for dry docking | | 50,899 |
| | 45,964 |
| | 68,380 |
| | 74,379 |
| | 72,205 |
|
| Interest expense, net of interest income | | 262,110 |
| | 278,145 |
| | 236,481 |
| | 201,702 |
| | 171,688 |
|
Change in non-cash working capital items related to operating activities | | (106,567 | ) | | (38,333 | ) | | 12,291 |
| | (60,631 | ) | | (64,184 | ) |
| Equity income (loss), net of dividends received | | (87,602 | ) | | 47,563 |
| | (3,203 | ) | | 94,726 |
| | 121,144 |
|
Other items (b) (c) | | 54,834 |
| | 73,022 |
| | 48,859 |
| | 34,982 |
| | (19,791 | ) |
| Restructuring charges | | 5,101 |
| | 26,811 |
| | 14,017 |
| | 9,826 |
| | 6,921 |
|
| Realized losses on interest rate swaps | | 53,921 |
| | 87,320 |
| | 108,036 |
| | 125,424 |
| | 122,439 |
|
Realized losses on interest rate swap resets and terminations | | 610 |
| | 8,140 |
| | 10,876 |
| | 1,319 |
| | 35,985 |
|
Adjustments relating to equity income (d) | | 151,195 |
| | 119,253 |
| | 122,127 |
| | 99,380 |
| | 71,680 |
|
| Adjusted EBITDA | | 898,246 |
| | 1,268,668 |
| | 1,393,696 |
| | 1,037,284 |
| | 817,382 |
|
| |
(a) | Foreign exchange loss (gain) includes the unrealized gain of $82.7 million in 2017 (2016 – gain of $75.0 million, 2015 – loss of $89.2 million, 2014 – loss of $167.3 million, and 2013 – loss of $65.4 million) on cross currency swaps. |
| |
(b) | In June 2016, as part of its financing initiatives, Teekay Offshore canceled the construction contracts for its two UMS newbuildings. As a result, Teekay Offshore accrued for potential damages resulting from the cancellations and reversed contingent liabilities previously recorded that were relating to the delivery of the UMS newbuildings. This net loss provision of $23.4 million for the year ended December 31, 2016 is reported in Other (loss) income in our consolidated statements of income. The newbuilding contracts are held in Teekay Offshore's separate subsidiaries and obligations of these subsidiaries are non-recourse to Teekay Offshore. |
| |
(c) | The Company held cost-accounted investments at cost. During the year ended December 31, 2016, the Company recorded a write-down of an investment of $19.0 million. This investment was subsequently sold in 2017, resulting in a gain on sale of cost-accounted investment of $1.3 million. During 2017, the Company recognized an additional tax indemnification guarantee liability of $50 million related to the Teekay Nakilat capital leases. For additional information regarding the Teekay Nakilat capital leases, please read "Item 18 - Financial Statements: Note 16d – Commitments and Contingencies". |
| |
(d) | Adjustments relating to equity income, which is a non-GAAP measure, should not be considered as an alternative to equity income or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjustments relating to equity income exclude some, but not all, items that affect equity income and these measures may vary among other companies. Therefore, adjustments relating to equity income as presented in this Annual Report may not be comparable to similarly titled measures of other companies. When using Adjusted EBITDA as a measure of liquidity it should be noted that this measure includes the Adjusted EBITDA from our equity accounted for investments. We do not have control over the operations, nor do we have any legal claim to the revenue and expenses of our equity accounted for investments. Consequently, the cash flow generated by our equity accounted for investments may not be available for use by us in the period generated. Equity income from equity accounted investments is adjusted for depreciation and amortization, interest expense, net of interest income, income tax expense (recovery), amortization of in-process revenue contracts, foreign currency exchange loss (gain), realized and unrealized loss (gain) on derivative instruments and certain other items. Adjustments relating to equity income from our equity accounted investments are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| | (in thousands of U.S. Dollars) |
| Depreciation and amortization | | 53,065 | | | 68,921 | | | 111,019 | | | 82,706 | | | 69,702 | |
| Interest expense, net of interest income | | 112,259 | | | 99,567 | | | 98,731 | | | 57,956 | | | 45,962 | |
| Income tax expense | | 1,504 | | | 1,757 | | | 900 | | | 503 | | | 245 | |
| Amortization of in-process revenue contracts and other | | (3,792) | | | (3,793) | | | (5,424) | | | (4,418) | | | (5,482) | |
| Adjustments for direct financing and sales-type lease to a cash basis | | 38,118 | | | 24,574 | | | 19,486 | | | 14,402 | | | 13,231 | |
| Write-down and loss on sale | | 17,000 | | | — | | | 16,277 | | | 5,479 | | | 5,304 | |
| Other items including realized and unrealized loss (gain) on derivative instruments | | 48,736 | | | 18,746 | | | (18) | | | 12,667 | | | 8,534 | |
| | | | | | | | | | |
| Write-down and (gain) on sale of equity-accounted investments | | — | | | 72,603 | | | (21,576) | | | 48,571 | | | — | |
| Adjustments related to equity (loss) income | | 266,890 | | | 282,375 | | | 219,395 | | | 217,866 | | | 137,496 | |
|
| | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | (in thousands of U.S. Dollars) |
| Depreciation and amortization | | 82,513 |
| | 69,781 |
| | 69,103 |
| | 61,367 |
| | 56,188 |
|
| Interest expense, net of interest income | | 63,189 |
| | 45,584 |
| | 47,799 |
| | 42,713 |
| | 37,863 |
|
| Income tax expense (recovery) | | 503 |
| | 724 |
| | 476 |
| | (188 | ) | | (21 | ) |
| Amortization of in-process revenue contracts | | (4,307 | ) | | (5,482 | ) | | (7,153 | ) | | (8,295 | ) | | (14,173 | ) |
| Foreign currency exchange loss (gain) | | 366 |
| | 132 |
| | (527 | ) | | (441 | ) | | 709 |
|
| Asset impairments and net loss (gain) on sale of vessels, equipment and other operating assets | | 5,479 |
| | 4,763 |
| | (7,472 | ) | | (16,923 | ) | | — |
|
| Realized and unrealized loss (gain) on derivative instruments | | 3,452 |
| | 3,075 |
| | 15,027 |
| | 21,147 |
| | (8,886 | ) |
| Other | | — |
| | 676 |
| | 4,874 |
| | — |
| | — |
|
| Adjustments relating to equity income | | 151,195 |
| | 119,253 |
| | 122,127 |
| | 99,380 |
| | 71,680 |
|
| |
(4) | Total capitalization represents total debt and total equity. |
| |
(5) | (6)Net debt is a non-GAAP financial measure. Net debt represents total debt less cash, cash equivalents and restricted cash. Total net capitalization represents net debt and total equity. Net debt is a non-GAAP financial measure.Net debt represents total debt less cash, cash equivalents and restricted cash. Total net capitalization represents net debt and total equity.
|
Risk Factors
Some of the risks summarized below and discussed in greater detail in the following riskspages relate principally to the industry in which we operate and to our business in general. Other risks relate principally to the securities market and to ownership of our common stock. The occurrence of any of the events described in this section could materially and adversely affect our business, financial condition, operating results and ability to pay interest or principal or dividends on, and the trading price of our public debt and common stock.
Risk Factor Summary
Risks Related to Our Industry
•Changes in the oil and natural gas markets could result in decreased demand for our vessels and services.
Demand for our vessels and services•A decline in transporting, production and storage of oil, petroleum products, LNG and LPG depend upon world and regional oil, petroleum and natural gas markets. Any decrease in shipments of oil, petroleum products, LNG or LPG 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, LNG or LPG, 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.
A decline in oil prices may adversely affect our growth prospects and results of operations.
Global crude oil prices have declined since mid-2014. The decline in oil prices has also contributed to depressed natural gas prices. Although global crude oil prices have increased since early-2016, a continuation of lower oil prices or a further decline in oil prices may adversely affect our business, results of operations and financial condition and our ability to make cash distributions, as a result of, among other things:
a reduction in exploration for or development of new offshore oil fields, or the delay or cancelation of existing offshore projects as energy companies lower their capital expenditures budgets, which may reduce our growth opportunities;
a reduction in or termination of production of oil at certain fields we service, which may reduce our revenues under production-based components of our FPSO unit contracts or life-of-field contracts;
a reduction in both the competitiveness of natural gas as a fuel for power generation and the market price of natural gas, to the extent that natural gas prices are benchmarked to the price of crude oil;
lower demand for vessels of the types we own and operate, which may reduce available charter rates and revenue to us upon redeployment of our vessels, in particular FPSO units, following expiration or termination of existing contracts or upon the initial chartering of vessels, or which may result in extended periods of our vessels being idle between contracts;
customers potentially seeking to renegotiate or terminate existing vessel contracts, failing to extend or renew contracts upon expiration, or seeking to negotiate cancelable contracts;
the inability or refusal of customers to make charter payments to us, including purchase obligations at the end of certain charter contracts, due to financial constraints or otherwise; or
declines in vessel values, which may result in losses to us upon vessel sales or impairment charges against our earnings.
Current market conditions limit our access to capital and our growth.
We have relied primarily upon bank financing and debt and equity offerings, primarily by our Daughter Entities, to fund our growth. Current market conditions generally in the energy sector and for master limited partnerships have significantly reduced our and our Daughter Entities’ access to capital, particularly equity capital, compared to periods prior to mid-2014. Debt financing and refinancing are more challenging to obtain, and terms are less attractive to us. Issuing additional common equity given current market conditions is more dilutive and costly than it has been in the past. Lack of access to debt or equity capital at reasonable rates would adversely affect our growth prospects and our ability to refinance debt and pay dividends to our equityholders.
The ability of us and our Controlled Daughter Entities to repay or refinance debt obligations and to fund capital expenditures will depend on certain financial, business and other factors, many of which are beyond our control. We and our Controlled Daughter Entities will need to obtain additional financing, which financing may limit our and their ability to make cash dividends and distributions, increase our or their financial leverage and result in dilution to our or their equityholders.
To fund existing and future debt obligations and capital expenditures of us and our Controlled Daughter Entities and to meet the minimum liquidity requirements under the financial covenants in our or their credit facilities, we and they will be required to obtain additional sources of financing, in addition to amounts generated from operations. These anticipated sources of financing include: raising additional capital through equity issuances; refinancing and increasing amounts available under various loan facilities of Teekay Tankers and Teekay LNG; negotiating new secured debt financings related to vessels under construction or other unencumbered operating vessels for Teekay Tankers and Teekay LNG.
The ability of us and our Controlled Daughter Entities to obtain external financing may be limited by our and their financial condition at the time of any such financing as well as by adverse market conditions in general. Even if we or our Controlled Daughter Entities are successful in obtaining necessary funds, the terms of such financings could limit our or their ability to pay cash dividends or distributions to security holders or operate our or their businesses as currently conducted. In addition, incurring additional debt may significantly increase interest expense and financial leverage, and issuing additional equity securities may result in significant equityholder dilution and would increase the aggregate amount of cash required to maintain quarterly dividends and distributions. The sale of certain assets will reduce cash from operations and the cash available for distribution to equityholders. For more information on our and our Controlled Daughter Entities’ liquidity requirements, please read “Item 18 - Financial Statements: Note 16c — Commitments and Contingencies - Liquidity."
We have guaranteed significant debt of certain of our Controlled Daughter Entities, and will be directly obligated to make related payments if the Controlled Daughter Entities default in their payment obligations.
We have guaranteed obligations pursuant to certain credit facilities of Teekay Tankers. As at December 31, 2017, the aggregate outstanding balance on such credit facilities was $252.7 million. If Teekay Tankers defaults in paying these obligations, we will be obligated to make the required payments.
We have experienced significant dilution of our ownership interest in Teekay Offshore and reduced control over the management of Teekay Offshore as a result of the issuance of Teekay Offshore common units and warrants to Brookfield and the sale of part of our interest in Teekay Offshore’s general partner to Brookfield.
On September 25, 2017, Teekay, Teekay Offshore and Brookfield Business Partners L.P. together with its institutional partners (collectively, Brookfield) completed a strategic partnership (or the Brookfield Transaction) which resulted in the deconsolidation of Teekay Offshore as of that date. Although Teekay owned less than 50% of Teekay Offshore prior to the completion of the Brookfield Transaction, Teekay maintained control of Teekay Offshore until September 25, 2017, by virtue of its 100% ownership interest in the general partner of Teekay Offshore. Subsequent to the closing of the Brookfield Transaction, Teekay accounts for its investment in Teekay Offshore using the equity method.
As part of the Brookfield Transaction, Teekay Offshore issued to Brookfield and Teekay Parent approximately 244 million and 12 million common units, respectively, plus warrants to purchase approximately 62.4 million and 3.1 million common units, respectively, which diluted the percentage of Teekay Offshore’s common units outstanding held by Teekay Parent from approximately 29% to approximately 14%.
Additionally, Brookfield acquired from Teekay Parent a 49% interest in Teekay Offshore's general partner and an option to purchase an additional 2% interest in Teekay Offshore's general partner. If Brookfield exercises its option to purchase from Teekay Parent the additional 2% interest in Teekay Offshore’s general partner, Teekay Parent will no longer have the right to elect a majority of the general partner’s board of directors. Brookfield has the right to appoint four of nine directors of the general partner and reasonably approve three of the remaining nine directors prior to any exercise of the 2% option, and the terms of the amended and restated general partner LLC agreement entered into upon closing of the Brookfield Transaction restricts Teekay Offshore’s general partner from, with respect to Teekay Offshore, making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and expenditures, commencing or settling litigation or disputes, repurchasing or issuing securities outside of existing equity award programs, and taking other specified actions without Brookfield consent, until Brookfield exercises its 2% option and directors elected by Brookfield constitute a majority of the general partner’s board of directors. These restrictions could have the effect of delaying or preventing strategic transactions involving Teekay Offshore at any time while these restrictions remain in place.
We or Teekay Offshore may fail to realize the anticipated benefits of the Brookfield Transaction, and the transition of services could adversely impact our and Teekay Offshore’s ongoing operations.
We, Brookfield and Teekay Offshore entered into the Brookfield Transaction with the expectation that the investment and related transactions would result in various benefits, including, among other things, the ability to fully finance Teekay Offshore’s existing growth projects, resulting in significant near-term cash flow growth, the ability to better service Teekay Offshore’s customers and take advantage of future growth opportunities, and the ability to separate Teekay Offshore’s shuttle tanker business into a wholly-owned subsidiary, with the subsidiary’s indebtedness having no recourse to Teekay Parent, Teekay Offshore, or Teekay Offshore’s subsidiaries, other than the newly-created shuttle tanker subsidiary and its subsidiaries. The success of the Brookfield Transaction will depend, in part, on our and Teekay Offshore’s ability to realize such anticipated benefits. The anticipated benefits of the Brookfield Transaction may not be realized fully, or at all, or may take longer to realize than expected. Failure to achieve anticipated benefits could result in increased costs and decreases in the amounts of expected revenues or operating results of Teekay Offshore or us.
In connection with the Brookfield Transaction, Teekay entered into a transition services agreement with Teekay Offshore and its general partner which provided for, among other things, the transfer from Teekay to Teekay Offshore and its subsidiaries (a) the employment of Ingvild Sæther (President and Chief Executive Officer of Teekay Offshore Group Ltd.) and David Wong (Chief Financial Officer of Teekay Offshore Group Ltd.) and certain other persons who devoted all, or substantially all of their professional time providing services to Teekay Offshore and its subsidiaries pursuant to existing services agreements and (b) as of January 1, 2018, the Teekay subsidiaries (or the assets of such subsidiaries) that were devoted exclusively or nearly exclusively toproviding services to Teekay Offshore and its subsidiaries pursuant to existing services agreements. Although the transferred personnel and assets were devoted exclusively or nearly exclusively to Teekay Offshore and its subsidiaries, it is possible that the transfer could result in the loss of key employees, the disruption of the ongoing businesses or inconsistencies in standards, controls, procedures or policies that adversely affect our and Teekay Offshore’s ability to achieve the anticipated benefits of the Brookfield Transaction.
Our cash flow depends substantially on the ability of our subsidiaries and equity-accounted investees, primarily our Daughter Entities, to make distributions to us. Our Daughter Entities have significantly reduced their distribution levels.
The source of our cash flow includes cash distributions from our subsidiaries and equity-accounted investees, primarily Teekay Offshore and Teekay LNG. The amount of cash our subsidiaries and equity-accounted investees can distribute to us principally depends upon the amount of distributions declared by each of their board of directors and the amount of cash they generate from their operations.
Effective for the quarterly distribution of the fourth quarter of 2015, we reduced our quarterly cash dividend per share to $0.055 from $0.55, Teekay LNG reduced its quarterly cash distribution per common unit to $0.14 from $0.70, and Teekay Offshore reduced its quarterly cash distribution per common unit to $0.11 from $0.56. At the time these changes were made, there was a dislocation in the capital markets relative to the stability of our businesses. More specifically, the future equity capital requirements for our committed growth projects, coupled with the relative weakness in energy and capital markets, resulted in our conclusion that it would be in the best interests of our shareholders to conserve more of our internally generated cash flows to fund committed existing growth projects and to reduce debt levels. We and Teekay LNG each maintained these reduced dividend and distribution levels throughout 2016 and 2017. Teekay Offshore maintained its reduced distribution level throughout 2016, and in September 2017, Teekay Offshore further reduced its quarterly cash distribution per common unit to $0.01 in connection with the Brookfield Transaction. Pursuant to the terms of the amended limited liability company agreement entered into upon closing of the Brookfield Transaction, Teekay Offshore’s general partner and we have agreed not to declare or pay (or cause the general partner to declare or to pay) any quarterly distribution on the Teekay Offshore common units in an amount over $0.01 per unit without the prior consent of Brookfield. There is no guarantee that quarterly cash distributions payable to common unit holders of Teekay Offshore will return to historical levels. These distribution reductions by Teekay Offshore and Teekay LNG substantially reduced our cash flows from them, including by currently eliminating any distributions on our incentive distribution rights in such Daughter Entities.
The amount of cash our subsidiaries and equity-accounted investees generate from their operations may fluctuate from quarter to quarter based on, among other things:
the rates they obtain from their charters, voyages and contracts;
the price and level of production of, and demand for, crude oil, LNG and LPG, including the level of production at the offshore oil fields Teekay Offshore services under contracts of affreightment;
the operating performance of our and Teekay Offshore's FPSO units, whereby receipt of incentive-based revenue from the FPSO units is dependent upon the fulfillment of the applicable performance criteria;
the level of their operating costs, such as the cost of crews and repairs and maintenance;
the number of off-hire days for their vessels and the timing of, and number of days required for, dry docking of vessels;
the rates, if any, at which Teekay Offshore may be able to redeploy shuttle tankers in the spot market as conventional oil tankers during any periods of reduced or terminated oil production at fields serviced by contracts of affreightment;
the rates, if any, at which our subsidiaries and equity-accounted investees may be able to redeploy vessels, particularly FPSO units, after they complete their charters or contracts and are redelivered to us;
the rates, if any, and ability, at which our subsidiaries and equity-accounted investees may be able to contract our newbuilding vessels, including our newbuilding towage vessels;
delays in the delivery of any newbuildings and the beginning of payments under charters relating to those vessels;
prevailing global and regional economic and political conditions;
currency exchange rate fluctuations; and
the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of business.
The actual amount of cash our subsidiaries and equity-accounted investees have available for distribution also depends on other factors such as:
the level of their capital expenditures, including for maintaining vessels or converting existing vessels for other uses and complying with regulations;
their debt service requirements and restrictions on distributions contained in their debt agreements, including financial ratio covenants which may indirectly restrict loans, distributions or dividends;
fluctuations in their working capital needs;
their ability to make working capital borrowings; and
the amount of any cash reserves, including reserves for future maintenance capital expenditures, working capital and other matters, established by the boards of directors of our Daughter Entities at their discretion.
The amount of cash our subsidiaries and equity-accounted investees generate from operations may differ materially from their profit or loss for the period, which will be affected by non-cash items and the timing of debt service payments. As a result of this and the other factors mentioned above, our subsidiaries and equity-accounted investees may make cash distributions during periods when they record losses and may not make cash distributions during periods when they record net income.
The cyclical nature of the tanker industry may lead to volatile changes in charter rates and significant fluctuations in the utilization of our vessels, which may adversely affect our earnings and profitability.
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. 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. If the tanker market is depressed, our earnings may decrease, particularly with respect to the conventional tanker vessels owned by Teekay Tankers, which accounted for approximately 20% and 23% of our net revenues during 2017 and 2016, respectively. These vessels are primarily employed on the spot-charter market, which is highly volatile and fluctuates based upon tanker and oil supply and demand. Declining spot rates in a given period generally will result in corresponding declines in operating results for that period. 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. 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. 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 and political 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 newbuilding deliveries;
the scrapping rate of older vessels;
conversion of tankers to other uses;
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.
Reduction in oil produced from offshore oil fields could harm our shuttle tanker and FPSO businesses.
As at December 31, 2017, we had 30 vessels operating in Teekay Offshore's shuttle tanker fleet and eleven FPSO units operating in our and Teekay Offshore's FPSO fleet (of which two are operating in joint ventures). The revenue earned by certain shuttle tankers and FPSO units 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; mechanical failure or operator error; 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. These factors increase the redeployment risk of FPSO units. Unless extended, one of our and one of Teekay Offshore's FPSO production service agreements will expire in 2018 and two further agreements of Teekay Offshore's will expire in 2019. 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, FSO and FPSO 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.
Many of Teekay Offshore's shuttle tanker contracts have a “life-of-field” duration, which means that the contract continues until oil production at the field ceases. If production at a field terminates or a field is abandoned for any reason, we no longer will generate revenue under the related contract. Other shuttle tanker, FSO and FPSO 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 and towage vessels may fluctuate substantially over time and may be lower when we are attempting to re-charter these vessels, which could adversely affect our operating results. Any changes in charter rates for LNG or LPG carriers, shuttle tankers, FSO or FPSO units, or UMS could also adversely affect redeployment opportunities for those vessels.
Our ability to re-charter 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. Our ability to charter our towage vessels will depend, among other things, on the state of the towage market. Towage contracts are highly competitive and are based on the level of projects undertaken by the customer base. There also exists some volatility in charter rates for LNG and LPG carriers, shuttle tankers, FSO and FPSO units, and UMS, which could also adversely affect redeployment opportunities for those vessels.
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, UMS, and FPSO and FSO units can fluctuate substantially over time due to a number of different factors, including:
prevailing economic conditions in oil and energy markets;
a substantial or extended decline in demand for oil or natural gas;
increases in the supply of vessel capacity;
competition from more technologically advanced vessels;
the cost of retrofitting or modifying existing vessels, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, or otherwise; and
a decrease in oil reserves in the fields and other fields in which our FPSO units or other vessels might otherwise be deployed.
Vessel values may decline from existing levels. If operation of a vessel is not profitable, or if we cannot redeploy 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 fair market value or the disposal of the vessel at a fair market value that is lower than its book 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. We recognized asset impairment charges, excluding impairment charges recognized by Teekay Offshore subsequent to its deconsolidation on September 25, 2017, of $233 million, $46 million and $68 million in 2017, 2016, 2015, respectively, and net loss on sale of assets of $38 million, $66 million and $2 million in 2017, 2016 and 2015, respectively.
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 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 December 31, 2017, the total outstanding debt under credit facilities (excluding credit facilities of Teekay Offshore) with this type of loan-to-value covenant tied to conventional tanker values was $805.7 million and tied to LNG carrier values was $61.1 million. We have five financing arrangements that require us to maintain vessel value to outstanding loan principal balance ratios ranging from 105% to 135%. At December 31, 2017, we were in compliance with these required ratios.
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 FPSO, shuttle tanker, and FSO sectors.
Expansion of the LNG and LPG shipping sectors depends on growth in world and regional demand for LNG and LPG and marine transportation of LNG and LPG, as well as the supply of LNG and LPG. Demand for LNG and LPG and for the marine transportation of LNG and LPG could be negatively affected by a number of factors, such as:
increases in the cost of natural gas derived from LNG relative to the cost of natural gas generally;
increases in the cost of LPG relative to the cost of naphtha and other competing petrochemicals;
increases in the production of natural gas 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-natural gas pipelines to natural gas pipelines in those markets;
decreases in the consumption of natural gas due to increases in its price relative to other energy sources or other factors making consumption of natural gas less attractive;
additional sources of natural gas, including shale gas;
availability of alternative energy sources; and
negative global or regional economic or political conditions, particularly in LNG and LPG consuming regions, which could reduce energy consumption or its rate of growth.
Reduced demand for LNG or LPG and LNG or LPG shipping could have a material adverse effect on future growth of Teekay LNG, and could harm its 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 demand for LNG or LPG and could harm our business, results of operations and financial condition.
Expansion of the FPSO, shuttle tanker, FSO, and towing 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, delays or cancellations of projects under development 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, storage services, offshore accommodation or towing and offshore installation 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 reduced 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 charters for our LNG and LPG carriers, shuttle tankers, UMS, FPSO and FSO 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 competition for providing services for potential gas and offshore projects from other experienced companies, including state-sponsored entities. Our competitors may have greater financial resources than us. This increased competition may cause greater price competition for 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. Two customers, international oil companies, accounted for an aggregate of 24%, or $442.4 million of our consolidated revenues during 2017 (2016 – two customers for 29%, or $653.6 million, 2015 – two customers for 21%, or $495.2 million). During these periods, no other customer accounted for over 10% of our revenues for the applicable period. 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.
We could lose a customer or the benefits of a contract if:
the customer fails to make payments because of its financial inability, disagreements with us or otherwise;
we agree to reduce the payments due to us under a contract because of the customer’s inability to continue making the original payments;
the customer exercises certain rights to terminate the contract; or
the customer terminates the contract because we fail to deliver the vessel within a fixed period of time, the vessel is lost or damaged beyond repair, there are serious deficiencies in the vessel or prolonged periods of off-hire, or we default under the contract.
If we lose a key customer, we may be unable to obtain replacement long-term charters or contracts of affreightment and may increase our exposure, with respect to any shuttle tankers redeployed on conventional oil tanker trades, to the volatile spot market, which is highly competitive and subject to significant price fluctuations. If a customer exercises its right under some charters to purchase the vessel, or terminate the charter, we may be unable to acquire an adequate replacement vessel or charter. Any replacement newbuilding would not generate revenues during its construction and we may be unable to charter any replacement vessel on terms as favorable to us as those of the terminated charter.
The loss of any of our significant customers or a reduction in revenues from them could have a material adverse effect on our business, results of operations and financial condition and our ability to pay dividends and service our debt.
Future adverse•Adverse economic conditions, including disruptions in the global credit markets, could adversely affect our business, financial condition and results of operations.
Economic downturns and financial crises in the global markets could produce illiquidity in the capital markets, market volatility, increased exposure to interest rate and credit risks and reduced access to capital markets. If global financial markets and economic conditions significantly deteriorate in the future, we may face restricted access to the capital markets or bank lending, which may make it more difficult and costly to fund future growth. Decreased access to such resources could have a material adverse effect on our business, financial condition and results of operations.
Future adverse economic conditions or other developments may affect our customers’ ability to charter our vessels and pay for our services and may adversely affect our business and results of operations.
Future adverse economic conditions or other developments relating directly to our customers may lead to a decline in our customers’ operations or ability to pay for our services, which could result in decreased demand for our vessels and services. Our customers’ inability to pay for any reason could also result in their default on our current contracts and charters. The decline in the amount of services requested by our customers or their default on our contracts with them could have a material adverse effect on our business, financial condition and results of operations.
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 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 clean-up 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 “Item 4. Information on the Company—B. Operations—Regulations.”
We may be unable to make or realize expected benefits from acquisitions, and implementing our long-term strategy of growth through acquisitions may harm our financial condition and performance.
A principal component of our long-term 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 long-term 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 integrating the operations, personnel and business culture of acquired companies;
difficulties 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.
Unlike newbuildings, existing vessels typically do not carry warranties as to their condition. While we generally inspect existing vessels prior to purchase, such an inspection would normally not provide us with as much knowledge of a vessel’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flow and reduce our liquidity.
The strain that growth places upon our systems and management resources may harm our business.
Our growth has placed, and we believe it 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 Daughter Entities have increased the complexity of our operations and placed additional demands on our management. Any future joint venture, partnering or other similar transactions may further increase our complexity and 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 transitions in systems and procedures required by expansion in a cost-effective manner could have a material adverse effect 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, lightering vessels, LNG and LPG carriers, FPSO and FSO units, UMS, towage vessels, and the HiLoad DP unit 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, with the exception of the Petrojarl Knarr FPSO unit and Libra FPSO unit, 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, marine disaster or natural disaster could result in losses that exceed our insurance coverage, which could harm our business, financial condition and operating results. Any uninsured or under-insured 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 regulatory organizations.
Changes in the insurance markets attributable to terrorist attacks, environmental catastrophes or political changes 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.
Past port calls by our vessels, or third-party vessels from which we derived pooling revenues, to countries that are subject to sanctions imposed by the United States and the European Union may impact investors’ decisions to invest in our securities.
The United States has imposed sanctions on Syria and Sudan. The United States and the European Union (or EU) also had imposed sanctions on trade with Iran. The EU lifted these sanctions in January 2016. At that time, the U.S. lifted its secondary sanctions on Iran which applied to foreign persons, but has retained its primary sanctions which apply to U.S. entities and their foreign subsidiaries. In the past, conventional oil tankers owned or chartered-in by us, or third-party vessels participating in commercial pooling arrangements from which we derive revenue, made limited port calls to those countries for the loading and discharging of oil products. Those port calls did not violate U.S. or EU sanctions at the time and we intend to maintain our compliance with all U.S. and EU sanctions. In addition, we have no future contracted loadings or discharges in any of those countries and intend not to enter into voyage charter contracts for the transport of oil or gas to or from Iran or Syria.
We believe that our compliance with these sanctions and our lack of any future port calls to those countries does not and will not adversely impact our revenues, because port calls to these countries have never accounted for any material amount of our revenues. However, some investors might decide not to invest in us simply because we have previously called on, or through our participation in pooling arrangements have previously received revenue from calls on, ports in these sanctioned countries. Any such investor reaction could adversely affect the market for our common shares.
•Marine transportation and oil production isare inherently risky, and an incident involving loss or damage to a vessel, significant loss of product or environmental contamination by any of our vessels could harm our reputation and business.
Our vessels•The cyclical nature of the tanker industry may lead to volatile changes in charter rates and their cargoes are at risk of being damaged or lost because of events such as:
marine disaster;
bad weather or natural disasters;
mechanical failures;
grounding, fire, explosions and collisions;
piracy;
cyber-attack;
human error; and
war and terrorism.
An accident involving anysignificant fluctuations in the utilization of our vessels could result in anyvessels.
•The novel coronavirus (or COVID-19) pandemic is dynamic. The continuation of this pandemic, and the following:
deathemergence of other epidemic 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 resultspandemic crises, could have a material adverse effect on our business, financial condition and operating results. In addition, any damage to, or environmental contamination involving, oil production facilities serviced by our vessels could result in the suspension or curtailment of operations by our customer, which would in turn result in loss of revenues to us.
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 number of Teekay Offshore's 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 dry-docking schedule of our fleet with this seasonality, which may result in lower revenues and increased dry-docking expenses during the summer months.
We expend substantial sums during construction of newbuildings and the conversion of tankers to FPSO or FSO units 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 or vessel conversion, 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.
Our newbuilding financing commitments typically have been pre-arranged. However, if we are 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, 2017, Teekay LNG had 15 LNG carrier newbuildings scheduled for delivery between 2018 and 2020 (of which six are 50%-owned, two are 20%-owned and one is 30%-owned), three 50%-owned LPG carrier newbuildings scheduled for delivery during 2018 and one 30%-owned LNG receiving and regasification terminal under construction scheduled for completion in 2019. As of December 31, 2017, Teekay Offshore had five shuttle tanker newbuildings, one of which was delivered in March 2018, and one long-distance towing and offshore installation vessel newbuilding, which was delivered in February 2018. Our obligations to purchase the newbuilding vessels is not conditional upon our ability to obtain financing for such purchases. As at December 31, 2017, Teekay LNG had in place $1.7 billion of financing for its remaining newbuilding vessels and Teekay LNG was seeking further debt financing for two newbuilding vessels. Although we believe we will obtain the remainder of the uncommitted financing for our newbuildings during 2018, there is no assurance that we will do so.
In addition, conversion of tankers to FPSO and FSO units exposes us to a number of risks, including lack of shipyard capacity and the difficulty of completing the conversions 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 incurring debt or issuing equity securities, our financial leverage could increase or our shareholders could be diluted.
We regularly evaluate and pursue opportunities to provide the marine transportation requirements for various projects, and we have recently submitted bids to provide transportation solutions for LNG and LPG, towage, FPSO and FSO projects. We may submit additional bids from time to time. The award process relating to LNG and LPG transportation, and FPSO and FSO 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, FPSO and FSO projects, we will need to incur significant capital expenditures to build the related LNG and LPG carriers, and FPSO and FSO units.
To fund the remaining portion of existing or future capital expenditures, we will be required to use existing liquidity, cash from operations or incur borrowings or raise capital through the incurrence of debt or issuance of additional equity, debt or hybrid 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 effecteffects on our business, results of operations, andor financial condition. Even if
•Terrorist attacks, increased hostilities, political change or war could lead to further economic instability, increased costs and business disruption.
•Acts of piracy on ocean-going vessels continue to be a risk, which could adversely affect our business.
Risks Related to Our Business
•Adverse economic conditions or other developments may affect our customers’ ability to charter our vessels and pay for our services and may adversely affect our business and results of operations.
•The intense competition in our markets may lead to reduced profitability or reduced expansion opportunities.
•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.
•Our ability to repay or refinance debt obligations and to fund capital expenditures will depend on certain financial, business and other factors, many of which are beyond our control. We will need to obtain additional financing, which financing may limit our ability to make cash dividends and distributions, increase our financial leverage and result in dilution to our equityholders.
•Charter rates for conventional oil and product tankers may fluctuate substantially over time and may be lower when we are successfulattempting to re-charter these vessels. Any changes in obtaining necessary funds, incurring additional debt may significantly increase our interest expensecharter rates for LNG and financial leverage, whichLPG carriers could adversely affect redeployment opportunities.
•Current market conditions limit our financial flexibilityaccess to capital and our growth.
•Our future performance and ability to pursue other business opportunities. Issuing additionalsecure future employment for our LNG and LPG vessels depends on continued growth in LNG production, demand and supply for LNG and LPG, and associated demand and supply for LNG and LPG shipping.
•Teekay LNG may have more difficulty entering into long-term, fixed-rate LNG time-charters if the active short-term, medium-term or spot LNG shipping markets continue to develop.
•Reductions to the value of the Teekay LNG common units and Teekay Tankers common stock pledged as collateral for our equity securities maymargin credit facility could result in significant shareholder dilutionbreaches of such credit facility.
•Declining market values of our vessels could adversely affect our liquidity and would increaseresult in breaches of our financing agreements.
•Over time, the aggregate amountvalue of our vessels may decline, which could result in both write-downs and an adverse effect on our operating results.
•We have recognized asset impairments in the past and we may recognize additional impairments in the future.
•Our cash requiredflow depends substantially on the ability of our subsidiaries, primarily our Daughter Entities, to pay quarterly dividends.make distributions to us.
•Teekay Parent may need to divest assets or issue additional securities to raise capital to meet its future liquidity needs.
•Our insurance may not be sufficient to cover losses that may occur to our property or as a result of our operations.
•The duration of our FPSO contracts is the life of the relevant oil field or is subject to early termination options by the field operator or vessel charterer. If a unit is not redeployed or sold on termination of its contract, we may incur costs to decommission and scrap the unit.
•We have substantial debt levels and may incur additional debt.
•Exposure to currency exchange rate and interest rate fluctuations resultswill result in fluctuations in our cash flows and operating results.
Substantially all•Use of LIBOR is scheduled to cease, and interest rates on 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 British Pound, the Euro, Singapore Dollar, Australian Dollar, and Canadian Dollar. We also make payments under two Euro-denominated term loans. If the amount of these and other Euro-denominatedLIBOR-based obligations exceeds our Euro-denominated revenues, we must convert other currencies, primarily the U.S. Dollar, into Euros. Anmay 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.future.
•Financing agreements containing operating and financial restrictions may restrict our business and financing activities.
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•Our and many of our reported revenuescustomers’ substantial operations outside the United States expose us and earnings. Under U.S. accounting guidelines, all foreign currency-denominated monetary assetsthem to political, governmental and liabilities, such aseconomic instability.
•Maritime claimants could arrest, or port authorities could detain, our vessels, which could interrupt our cash and cash equivalents, accounts receivable, restricted cash, accounts payable, accrued liabilities, advances from affiliates and long-term debt are revalued and reported based on the prevailing exchange rate at the end of the applicable period. This revaluation historically has caused us to report significant unrealized foreign currency exchange gains or losses each period. The primary source of these gains and losses is our Euro-denominated term loans and our Norwegian Kroner-denominated bonds. We have entered into foreign currency forward contracts to economically hedge portions of our forecasted expenditures denominated in Norwegian Kroner. We also incur interest expense on our Norwegian Kroner-denominated bonds. We have entered into cross currency swaps to economically hedge the foreign exchange risk on the principal and interest payments of our Norwegian Kroner-denominated bonds.flow.
We are exposed to the impact of interest rate changes primarily through our borrowings that require us to make interest payments based on LIBOR, EURIBOR or NIBOR. Significant increases in interest rates could adversely affect our operating margins, results of operations and our ability to service our debt. From time to time, we use interest rate swaps to reduce our exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize the risks and costs associated with our floating-rate debt.
•Many of our 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 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 and certain of our joint venture partners may be unable to attract and retain qualified, skilled employees or crew necessary to operate our business.
•Exposure to currency exchange rate fluctuations results in fluctuations in our cash flows and operating results.
•Our success depends in large part on our abilityoperating results are subject to attractseasonal fluctuations.
•We may experience operational problems with vessels that reduce revenue and retain highly skilledincrease costs.
•Actual results of new technologies or technology upgrades may differ from expected results and qualified personnel. In crewing our vessels, we require technically skilled employees with specialized training who can perform physically demanding work. 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, political change or war could lead to further economic instability, increased costs and disruption of business.
Terrorist attacks, piracy and the current or future conflicts in the Middle East, West Africa (Nigeria), Libya and elsewhere, and political change, may adversely affect our business, operating results, financial condition, and ability to raise capital and future growth. Continuing hostilities in the Middle East especially among Qatar, Saudi Arabia, the United Arab Emirates, Yemen and elsewhere may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may contribute to economic instability and disruption of oil production and distribution, which could result in reduced demand for our services and have an adverse impact on our operations and or our ability to conduct business.
In addition, oil facilities, shipyards, vessels, pipelines and oil fields could be targets of future terrorist attacks and warlike operations and our vessels could be targets of pirates, hijackers, terrorists or warlike operations. 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 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 to be shipped by us could entitle customers to terminate charters, which would harm our cash flow and business.
Acts of piracy on ocean-going vessels continue to be a risk, 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, Gulf of Guinea and the Indian Ocean off the coast of Somalia. While there continues to be a significant risk of piracy incidents in the Gulf of Aden and Indian Ocean, recently there have been increases in the frequency and severity of piracy incidents off the coast of West Africa and a resurgent piracy risk in the Straits of Malacca and surrounding waters. If these piracy attacks result in regions in which our vessels are deployed being named on the Joint War Committee Listed Areas, war risk insurance premiums payable for such coverage can increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including costs which are incurred to the extent we employ on-board armed security guards and escort vessels, 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, 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 and many of our customers’ substantial operations outside the United States expose us to political, governmental and economic instability, which could harm our operations.
Because our operations, and the operations of certain of our customers, are primarily conducted outside of the United States, they may be affected by economic, political and governmental conditions in the countries where we engage in business, including Brazil, or where our vessels are registered. Any disruption caused by these factors could harm our business, including by reducing the levels of oil exploration, development and production activities in these areas. We derive some of our revenues from shipping oil and gas from politically and economically unstable regions. Conflicts in these regions have included attacks on ships and other efforts to disrupt shipping.
Hostilities, strikes, or other political or economic instability in regions where we operate or where we may operate could have a material adverse effect on the growth of our business, results of operations and financial condition and ability to make cash distributions. In addition, tariffs, trade embargoes and other economic sanctions by the United States or other countries against countries in which we operate or to which we trade could harm our business and ability to make cash distributions. 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 cash flow and financial results.
Two vessels owned by the Teekay LNG-Marubeni Joint Venture, the Marib Spirit and Arwa Spirit, are currently under long-term contracts expiring in 2029 with YLNG, a consortium led by Total SA. Due to the political situation in Yemen, YLNG decided to temporarily close operation of its LNG plant in Yemen in 2015. As a result, the Teekay LNG-Marubeni Joint Venture agreed in December 2015 to defer a portion of the charter payments for the two LNG carriers from January 1, 2016 to December 31, 2016 and further deferrals were agreed with YLNG to extend the deferral period to the end of the short-term sub-charter contracts for the Marib Spirit and Arwa Spirit, which is currently anticipated to be in August 2018 and March 2019, respectively, unless the short-term sub-charter contracts are further extended in accordance with their terms. Should the LNG plant in Yemen resume operations, it is intended that YLNG will repay the deferred amounts in full, plus interest over a period of time to be agreed upon. However, there is no assurance if or when the LNG plant will resume operations or if YLNG will repay the deferred amounts, and this deferral period may extend beyond 2018 and 2019 as it relates to the Marib Spirit and Arwa Spirit, respectively. Teekay LNG's proportionate share of the estimated impact of the charter payment deferral for 2018 compared to original charter rates earned prior to December 31, 2015 is estimated to be a reduction to equity income ranging from $4 million to $5 million per quarter, depending on any sub-chartering employment opportunities for the Marib Spirit and Arwa Spirit in 2018.
A cyber-attack could materially disrupt our business
We rely on information technology systems and networks in our operations and the administration of our business. Cyber-attacks have increased in number and sophistication in recent years. Our operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information on our systems. Any such attack or other breach of our information technology systems could have a material adverse effect on our business and results of operations.
The ARC7 LNG carrier newbuildings for the Yamal LNG Project are customized vessels and Teekay LNG's financial condition, results of operations and ability to make distributions to us could be substantially affected if the Yamal LNG Project is not completed.
On July 9, 2014, Teekay LNG entered into a 50/50 joint venture with China LNG (or the Yamal LNG Joint Venture) and ordered six internationally-flagged icebreaker LNG carriers for a project located on the Yamal Peninsula in Northern Russia (or the Yamal LNG Project), one of which newbuilding carriers delivered in January 2018. The Yamal LNG Project is a joint venture between Russia-based Novatek OAO (50.1%), France-based Total S.A. (20%), China-based China National Petroleum Corporation (20%) and Silk Road Fund (9.9%).
The five remaining ARC7 LNG carrier newbuildings ordered by the Yamal LNG Joint Venture, which are scheduled for delivery between the remainder of 2018 and 2020, are being specifically built for the Arctic requirements of the Yamal LNG Project and will have limited redeployment opportunities to operate as conventional trading LNG carriers if the project is abandoned or cancelled. If the project is abandoned or cancelled or not completed for any reason, either before or after commencement of operations, the Yamal LNG Joint Venture may be unable to reach an agreement with the shipyard allowing for the termination of the shipbuilding contracts (since no such optional termination right exists under these contracts), change the vessel specifications to reflect those applicable to more conventional LNG carriers and which do not incorporate ice-breaking capabilities, or find suitable alternative employment for the newbuilding vessels on a long-term basis with other LNG projects or otherwise.
The Yamal LNG Project may be abandoned or not completed for various reasons, including, among others:
failure to achieve expected operating results;
changes in demand for LNG;
adverse changes in Russian regulations or governmental policy relating to the project or the export of LNG;
technical challenges of completing and operating the complex project, particularly in extreme Arctic conditions;
labor disputes; and
environmental regulations or potential claims.
If the project is not completed or is abandoned, proceeds if any, received from limited Yamal LNG project sponsor guarantees and potential alternative employment, if any, of the vessels and from potential sales of components and scrapping of the vessels likely would fall substantially short of the cost of the vessels to the Yamal LNG Joint Venture. Any such shortfall could have a material adverse effect on Teekay LNG's financial condition, results of operations and ability to make distributions to us.
•Sanctions against key participants in the Yamal LNG Project could impede completion or performance of the Yamal LNG Project, which could have a materialProject.
•Failure, shutdown or other adverse effect on us.
The U.S. Treasury Department’s Office of Foreign Assets Control (or OFAC) placed Russia-based Novatek OAO (or Novatek), a 50.1% owner ofevents impacting the Yamal LNG Project onmay result in Teekay LNG’s inability to re-deploy the Sectoral Sanctions Identifications List. OFAC previously imposed sanctions on an investor in Novatek and these sanctions also remain in effect. Effective as of November 2017, the restrictions on Novatek prohibit U.S. persons (and their subsidiaries) from participating in debt financing transactions of greater than 60 days maturity with Novatek and, by virtue of Novatek’s 50.1% ownership interest, the YamalARC7 LNG Project. The European Union also imposed certain sanctions on Russia. These sanctions require a European Union licensecarriers.
•Teekay LNG or authorization before a party can provide certain technologies or technical assistance, financing, financial assistance, or brokering with regard to these technologies. However, the technologies being currently sanctioned by the EU appear to focus on oil exploration projects, not gas projects. In addition, OFAC and other governments or organizations may impose additional sanctions on Novatek, the Yamal LNG Project or other project participants, which may further hinder the ability of the Yamal LNG Project to receive necessary financing. Although we believe that we are in compliance with all applicable sanctions laws and regulations, and intend to maintain such compliance, the scope of these sanctions laws may be subject to change. Future sanctions may prohibit the Yamal LNG Joint Venture from performing under its contracts with the Yamal LNG Project, which could have a material adverse effect on Teekay LNG's financial condition, results of operations and ability to make distributions.
Failure of the Yamal LNG Project to achieve expected results could lead to a default under the time-charter contracts by the charter party.
The charter party under the Yamal LNG Joint Venture’s time-charter contracts for the Yamal LNG Project is Yamal Trade Pte. Ltd., a wholly-owned subsidiary of Yamal LNG, the project’s sponsor. If the Yamal LNG Project does not achieve expected results, the risk of charter party default may increase. If the charter party defaults on the time-charter contracts, Teekay LNGjoint venture partners may be unable to redeploy the vessels under other time-charter contracts oroperate an LNG receiving and regasification terminal and may be forcedexposed from time to scrap the vessels. Any such default couldtime to conditions, developments, or requirements that may adversely affect Teekay LNG’s results of operations and ability to make distributions to us.
Maritime claimants could arrest,LNG or port authorities could detain, 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. In addition, port authorities may seek to detain our vessels in port, which could adversely affect our operating results or relationships with customers.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
Due to concern over the risk of climate change, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures include, among others, adoption of cap and trade regimes, carbon taxes, increased efficiency standards, and incentives or mandates for renewable energy. Compliance with changes in laws, regulations and obligations relating to climate change could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions, or administer and manage a greenhouse gas emissions program. Revenue generation and strategic growth opportunities may also be adversely affected.
Adverse effects upon the oil and gas industry relating to climate change may also adversely affect demand for our services. Although we do not expect that demand for oil and gas will lessen dramatically over the short-term, in the long-term, climate change may reduce the demand for oil and gas or increased regulation of greenhouse gases may create greater incentives for use of alternative energy sources. Any long-term material adverse effect on the oil and gas industry could have a significant financial and operational adverse impact on our business that we cannot predict with certainty at this time.
We have substantial debt levels and may incur additional debt.
As of December 31, 2017, our consolidated debt and obligations related to capital leases totaled $4.6 billion and we had the capacity to borrow an additional $0.5 billion under our revolving credit facilities. These credit facilities may be used by us for general corporate purposes. Our consolidated debt and obligations related to capital leases could increase substantially. We will continue to have the ability to incur additional debt, subject to limitations in our credit facilities. 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, and our ability to refinance our credit facilities may be impaired or such financing may not be available on favorable terms, if at all;
we will need to use 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 shareholders;
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.
Financing agreements containing operating and financial restrictions may restrict our business and financing activities.
The operating and financial restrictions and covenants in our revolving credit facilities, term loans, indentures 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 ownership or structure, including mergers, consolidations, liquidations and dissolutions;
grant liens on our assets;
sell, transfer, assign or convey assets;
make certain investments; and
enter into new lines of business.
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 our financing agreements or indentures, our obligations may become immediately due and payable, and the lenders’ commitment under our credit facilities, if any, to make further loans may terminate. This could lead to cross-defaults under other financing agreements and result in obligations becoming due and commitments being terminated under such agreements. A default under financing agreements could also result in foreclosure on any of our vessels and other assets securing related loans.
Furthermore, the termination of any of our charter contracts by our customers could result in the repayment of the debt facilities to which the chartered vessels relate.
Certain of Teekay LNG’s lease arrangements contain provisions whereby it has provided a tax indemnification to third parties, which may result in increased lease payments or termination of favorable lease arrangements.
Teekay LNG and certain of its joint ventures are party and were party to lease arrangements whereby the lessor could claim 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. The rentals payable under the lease arrangements are predicated on the basis of certain tax and financial assumptions at the commencement of the leases. If an assumption proves to be incorrect or there is a change in the applicable tax legislation or the interpretation thereof by the United Kingdom (U.K.) taxing authority, the lessor is entitled to increase the rentals so as to maintain its agreed after-tax margin. Under the capital lease arrangements, Teekay LNG does not have the ability to pass these increased rentals onto its charter party. However, the terms of the lease arrangements enable Teekay LNG and its joint venture partner to jointly terminate the lease arrangements on a voluntary basis at any time. In the event of an early termination of the lease arrangements, the lessee is obliged to pay termination sums to the lessor sufficient to repay its investment in the vessels and to compensate it for the tax effect of the terminations, including recapture of tax depreciation, if any.venture.
Teekay LNG owns a 70% interest in Teekay Nakilat Corporation (or Teekay Nakilat Joint Venture) a subsidiary of the lessee under three separate 30-year capital lease arrangements with a third party for three LNG carriers (or the RasGas II LNG Carriers). Under the terms of the leases in respect of the RasGas II LNG Carriers, the lessor claimed tax depreciation on the capital expenditures it incurred to acquire these vessels. As is typical in these leases, tax and change of law risks were assumed by the lessee, in this case the Teekay Nakilat Joint Venture. Lease payments under the leases were based on certain tax and financial assumptions at the commencement of the leases and subsequently adjusted to maintain its agreed after-tax margin. On December 22, 2014, the Teekay Nakilat Joint Venture terminated the leasing of the RasGas II LNG Carriers. However, the Teekay Nakilat Joint Venture remains obligated to the lessor to maintain the lessor’s agreed after-tax margin from the commencement of the lease to the lease termination date and as at December 31, 2017, the Teekay Nakilat Joint Venture’s carrying amount of this estimated tax indemnification guarantee was $62.7 million or GBP 46.4 million (December 31, 2016 - $13.3 million or GBP 10.8 million) which is included as part of accrued liabilities and other in our consolidated balance sheets. Additionally, as at December 31, 2017, the Teekay Nakilat Joint Venture had $7.0 million (December 31, 2016 - $6.8 million) on deposit with the lessor as security against any future claims and recorded as part of restricted cash in our consolidated balance sheets.
The UK taxing authority (or HMRC) has been challenging the use of similar lease structures in the UK courts. One of those challenges was eventually decided in favor of HMRC (Lloyds Bank Equipment Leasing No. 1 or LEL1), with the lessor and lessee choosing not to appeal further. The LEL1 tax case concluded that capital allowances were not available to the lessor. On the basis of this conclusion, HMRC is now asking lessees on other leases, including the Teekay Nakilat Joint Venture, to accept that capital allowances are not available to their lessor. Under the terms of the lease, the lessor is entitled to make a determination that additional rentals are due, even where a court has not made a determination on whether capital allowances are available or where discussions are otherwise ongoing with HMRC on the matter. The Teekay Nakilat Joint Venture now believes that it is probable that the lessor will make such a determination, and demand additional rentals. As a result, in the three months ended December 31, 2017, the Teekay Nakilat Joint Venture recognized an additional tax indemnification guarantee liability of $50.0 million (which is included in the afore-mentioned total accrued liability of $62.7 million as at December 31, 2017) as estimated primarily based on information received from the lessor and presented in other (loss) income on the consolidated statements of (loss) income for the year ended December 31, 2017.
In addition, Teekay LNG’s subsidiaries of another joint venture formed to service the Tangguh LNG project in Indonesia have lease arrangements with a third party for two LNG carriers. The terms of the lease arrangements provide similar tax and change of law risk assumption by this joint venture as Teekay LNG had with the three RasGas II LNG Carriers.
•Our joint venture arrangements impose obligations upon us but limit our control of the joint ventures, which may affect our ability to achieve our joint venture objectives.ventures.
For financial or strategic reasons, we conduct a portion of our business through joint ventures. Generally, we are obligated to provide proportionate financial support for the joint ventures although our control of the business entity may be substantially limited. Due to this limited control, we generally have less flexibility to pursue our own objectives through joint ventures or to access available cash of the joint ventures than we would with our own subsidiaries. There is no assurance that our joint venture partners will continue their relationships with us in the future or that we will be able to achieve our financial or strategic objectives relating to the joint ventures and the markets in which they operate. In addition, our joint venture partners may have business objectives that are inconsistent with ours, experience financial and other difficulties that may affect the success of the joint venture, or be unable or unwilling to fulfill their obligations under the joint ventures, which may affect our financial condition or results of operations.
Allegations of improper payments may harm our reputation and business
In May 2016, a former executive of Transpetro, the transportation and logistics subsidiary of Petrobras S.A. (or Petrobras), alleged in a plea bargain that a subsidiary of Teekay Offshore, among a number of other third-party shipping companies, purportedly made improper payments to obtain shuttle tanker business with Transpetro. Such payments were alleged to have been made by the subsidiary between 2004 and 2006, in an aggregate amount of approximately 1.5 million Brazilian Reals (less than $0.5 million at the December 31, 2017 exchange rate). We conducted an extensive internal investigation, with the assistance of United States, Brazilian and Norwegian counsel and forensic accountants, to evaluate these allegations. Based on the information reasonably available and reviewed as part of the investigation, the investigation did not identify conclusive proof that we, Teekay Offshore or any of our or Teekay Offshore's subsidiaries made the alleged improper payments or that any of our or our subsidiaries’ current or former employees intended for the alleged improper payments to be made. However, there is no assurance the conclusions of the investigation are accurate or will not be challenged, or that other information may not exist or become available that would affect such conclusions, and such conclusions are not binding on regulatory or governmental authorities. It is uncertain how these allegations ultimately may affect us or Teekay Offshore, if at all, including the possibility of penalties that could be assessed by relevant authorities. Any claims against us or Teekay Offshore may adversely affect our reputation, business, financial condition and operating results. In addition, any dispute with Petrobras in connection with this matter may adversely affect our relationship with Petrobras. As of the date of this Annual Report, no legal or governmental proceedings are pending or, to our knowledge, contemplated against us or Teekay Offshore relating to these allegations.
In January 2015, Teekay Offshore, through the Libra joint venture, its 50/50 joint venture with Ocyan S.A. (or Ocyan, formerly Odebrecht Oil & Gas S.A), finalized the contract with Petrobras to provide an FPSO unit for the Libra field located in the Santos Basin offshore Brazil. The contract is being serviced by the Pioneiro de Libra (or Libra), an FPSO unit converted from Teekay Offshore's 1995-built shuttle tanker, the Navion Norvegia, which was sold by Teekay Offshore to the joint venture. The converted unit commenced operations in late-2017 under a 12-year firm period fixed-rate contract with Petrobras and its international partners. Senior Odebrecht S.A. personnel, including a former executive of Ocyan, have been implicated in corruption charges related to improper payments to Brazilian politicians and political parties. Any adverse effect of these charges against Ocyan may harm our growth prospects, reputation, financial condition and results of operations.
•We depend on certain joint venture partners to assist us in operating our businesses and competing in our markets.
Our ability•We may be unable to compete for offshore oil marine transportation, processing, floating accommodation, towagerealize benefits from acquisitions and storage projects and to enter into new charters or contracts of affreightment and expand our customer relationships depends on our ability to leverage our relationship with our joint venture partners and their reputation and relationships in the shipping industry. If our joint venture partners suffer material damage to its financial condition, reputation or relationships, itgrowth through acquisitions may harm the ability of us or our subsidiaries to:
renew existing charters and contracts of affreightment upon their expiration;
obtain new charters and contracts of affreightment;
successfully interact with shipyards during periods of shipyard construction constraints;
obtain financing on commercially acceptable terms, if at all; or
maintain satisfactory relationships with suppliers and other third parties.
If our or our subsidiaries’ ability to do any of the things described above is impaired, it could have a material adverse effect on our business, results of operations and financial condition and performance.
•The Daughter Entities may expend substantial sums during the construction of future potential newbuildings or upgrades to their existing vessels, without earning revenue and without assurance that they will be completed.
•We may make substantial capital expenditures to expand the size of our abilityfleet and generally are required to make cash distributions.significant installment payments for acquisitions of newbuilding vessels. Depending on how we finance our expenditures, our financial leverage could increase or our shareholders could be diluted.
We may experience operational problems with vessels that reduce revenue and increase costs.
Shuttle tankers, FSO and FPSO units, towing and offshore installation vessels and UMS are complex and their operations are technically challenging. Marine transportation and oil production operations are subject to mechanical risks and problems as well as environmental risks. Operational problems may lead to loss of revenue or higher than anticipated operating expenses or require additional capital expenditures. Any of these results could harm our business, financial condition and operating results.
•Teekay Tankers’ U.S. Gulf lightering business competes with alternative methods of delivering crude oil to ports, which may limit its earnings in this area of its operations.
Teekay Tankers’ U.S. Gulf lightering business faces competition from alternative methods of delivering crude oil shipments to port, including offshore offloading facilities. While we believe that lightering offers advantages over alternative methods of delivering crude oil to U.S. Gulf ports, Teekay Tankers’ lightering revenues may be limited due to the availability of alternative methods.
•Teekay Tankers’ full service lightering operations are subject to specific risks that could lead to accidents, oil spills or property damage.
Lightering isLegal and Regulatory Risks
•Past port calls by our vessels, or third-party vessels from which we derived revenue sharing agreements (or RSA) revenues, to countries that are subject to specific risks arising fromsanctions imposed by the process of safely bringing two large moving tankers nextUnited States and the European Union could harm our business.
•Failure to eachcomply with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act, the UK Criminal Finances Act, and other similar legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and mooring them for lightering operations. Thesean adverse effect on our business.
•Our operations require a high degree of expertise and present a higher risk of collision compared to when docking a vessel at port. Lightering operations, similar to marine transportation in general, are also subject to substantial environmental and other regulations, which may significantly increase our expenses.
•Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
•Increasing scrutiny and changing expectations from investors, lenders, customers and other market participants with respect to ESG policies and practices may impose additional costs on us or expose us to additional risks.
•Regulations relating to ballast water discharge may adversely affect our operational results and financial condition.
•Our operations may be subject to economic substance requirements in the Marshall Islands and other offshore jurisdictions.
Information and Technology Risks
•A cyber-attack could materially disrupt our business.
•Our failure to comply with data privacy laws could damage our customer relationships and expose us to litigation risks dueand potential fines.
Risks Related to events such as mechanical failures, human error, and weather conditions.an Investment in Our Securities
•Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management. Tax Risks
•U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.
•We are subject to taxes. The imposition of taxes, including as a result of a change in tax law or accounting requirements, may reduce our cash available for distribution to shareholders.
Risks Related to Our Industry
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, production of oil, petroleum products, LNG and LPG depend upon world and regional oil, petroleum and natural gas markets. Any decrease in shipments of oil, petroleum products, LNG or LPG 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, LNG or LPG, 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.
A decline in natural gas or oil prices may adversely affect our growth prospects and results of operations.
Oil prices are volatile and have recently reached their lowest levels since 1998 for certain crude oil grades. Low energy prices may negatively affect both the competitiveness of natural gas as a fuel for power generation and the market price of natural gas, to the extent that natural gas prices are benchmarked to the price of crude oil. Low energy prices have adversely affected, and may continue to adversely affect energy and master limited partnership capital markets and available sources of financing for our capital expenditures and debt repayment obligations. A sustained low energy price environment may adversely affect our business, results of operations and financial condition and our ability to make cash distributions, as a result of a number of factors, some of which may be beyond our control, including:
•fluctuations in worldwide and regional supply of, demand for and price of natural gas;
•the termination of production of oil at the fields we service, which may result in early termination of FPSO contracts;
•lower demand for vessels of the types we own and operate, which may reduce available charter rates and revenue to us upon redeployment of our vessels following expiration or termination of existing contracts or upon the initial chartering of vessels, or which may result in extended periods of our vessels being idle between contracts;
•customers potentially seeking to renegotiate or terminate existing vessel contracts, failing to extend or renew contracts upon expiration, or seeking to negotiate cancelable contracts;
•the inability or refusal of customers to make charter payments to us due to financial constraints or otherwise; or
•declines in vessel values, which may result in losses to us upon vessel sales or impairment charges against our earnings.
Adverse economic conditions, including disruptions in the global credit markets, could adversely affect our business, financial condition and results of operations.
Economic downturns and financial crises in the global markets could produce illiquidity in the capital markets, market volatility, increased exposure to interest rate and credit risks and reduced access to capital markets. If global financial markets and economic conditions significantly deteriorate in the future, we may face restricted access to the capital markets or bank lending, which may make it more difficult and costly to fund future growth. Decreased access to such resources could have a material adverse effect on our business, financial condition and results of operations.
The United Kingdom exited the European Union (or EU) on January 31, 2020. On December 24, 2020, the United Kingdom reached a trade agreement with the EU. While the trade agreement did not impose any new tariffs or quotas on goods, there is a risk that the disruption of free movement between the United Kingdom and the EU could result in disruption of the exchange of people, business and services. As a result, uncertainty regarding the relationship between the United Kingdom and the EU following this exit may create economic instability in the United Kingdom and elsewhere, which could affect our operations, including our access to bank loans, and may lead to an adverse effect on our business. While we will seek to minimize associated risk by implementing mitigation plans, any such plans may not be effective.
Marine transportation and oil production are inherently risky, and an incident involving loss or damage to a vessel, significant loss of product or environmental contamination by any of our vessels could harm our reputation and business.
Our vessels, crew and cargoes are at risk of being damaged, injured or lost because of events such as:
•marine disaster;
•bad weather or natural disasters;
•mechanical failures;
•grounding, fire, explosions and collisions;
•piracy (hijacking and kidnapping);
•cyber-attack;
•acute-onset illness in connection with global or regional pandemics or similar public health crises;
•mental health of crew members;
•human error; and
•war and terrorism.
An accident involving any of our vessels could result in any of the following:
•significant litigation with our customers and other third parties;
•death or injury to persons, loss of property or environmental damage or pollution;
•delays in the delivery of cargo;
•liabilities or costs to recover any spilled oil and to restore the environment affected by the spill;
•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. In addition, any damage to, or environmental contamination involving, oil production facilities serviced by our vessels could result in the suspension or curtailment of operations by our customer, which would in turn result in loss of revenues to us.
The cyclical nature of the tanker industry may lead to volatile changes in charter rates and significant fluctuations in the utilization of our vessels, which may adversely affect our earnings and profitability.
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. 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. If the tanker market is depressed, our earnings may decrease, particularly with respect to the conventional tanker vessels owned by Teekay Tankers, which accounted for approximately 49% of our consolidated revenues during each of 2020 and 2019. These vessels are primarily employed on the spot-charter market, which is highly volatile and fluctuates based upon tanker and oil supply and demand. Declining spot rates in a given period generally will result in corresponding declines in operating results for that period. 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. 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. 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 and political conditions;
•the distance oil and oil products are to be moved by sea;
•demand for floating storage of oil; and
•changes in seaborne and other transportation patterns.
Factors that influence the supply of tanker capacity include:
•the number of newbuilding deliveries;
•the scrapping rate of older vessels;
•conversion of tankers to other uses;
•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.
The COVID-19 pandemic is dynamic. The continuation of this pandemic, and the emergence of other epidemic or pandemic crises, could have material adverse effects on our business, results of operations, or financial condition.
The novel coronavirus pandemic is dynamic, including the developments of variants of the virus, and its ultimate scope, duration and effects are uncertain. We expect that this pandemic, and any future epidemic or pandemic crises, could result in direct and indirect adverse effects on our industry and customers, which in turn may impact our business, results of operations and financial condition. Although global demand for LNG has remained relatively stable, the pandemic has resulted and may continue to result in a significant decline in global demand for LPG, crude oil and petroleum products. As our business includes the transportation of LNG, LPG, oil and petroleum products on behalf of our customers, any significant decrease in demand for the cargo we transport could adversely affect demand for our vessels and services. COVID-19 has been a contributing factor to the decline in spot tanker rates and short-term time charter rates since mid-May 2020 and has also increased certain crewing-related costs, which has reduced our cash flows, and was a contributing factor to the non-cash write-down of certain of Teekay LNG's multi-gas vessels, certain tankers owned by Teekay Tankers and one FPSO unit, as described in "Item 18 – Financial Statements: Note 18 - Write-down and Loss on Sale.”
Other effects of the current pandemic include, or may include, among others:
•disruptions to our operations as a result of the potential health impact on our employees and crew, and on the workforces of our customers and business partners;
•disruptions to our business from, or additional costs related to, new regulations, directives or practices implemented in response to the pandemic, such as travel restrictions (including for any of our onshore personnel or any of our crew members to timely embark or disembark from our vessels), increased inspection regimes, hygiene measures (such as quarantining and physical distancing) or increased implementation of remote working arrangements;
•potential delays in the loading and discharging of cargo on or from our vessels, and any related off hire due to quarantine, worker health, vetting requirements, or regulations, which in turn could disrupt our operations and result in a reduction of revenue;
•potential shortages or a lack of access to required spare parts for our vessels, or potential delays in any repairs to, scheduled or unscheduled maintenance or modifications, or drydocking of, our vessels, as a result of a lack of berths available by shipyards from a shortage in labor or due to other business disruptions;
•potential delays in vessel inspections and related certifications by class societies, customers or government agencies;
•potential reduced cash flows and financial condition, including potential liquidity constraints;
•reduced access to capital, including the ability to refinance any existing obligations, as a result of any credit tightening generally or due to declines in global financial markets, including to the prices of publicly-traded securities of us, our peers and of listed companies generally;
•a reduced ability to opportunistically sell any of our vessels on the second-hand market, either as a result of a lack of buyers or a general decline in the value of second-hand vessels;
•a decline in the market value of our vessels, which may cause us to (a) incur additional impairment charges or (b) breach certain covenants under our financing agreements (including our secured facility agreements and financial leases) relating to vessel-to-loan covenants; and
•potential deterioration in the financial condition and prospects of our customers, or joint venture or business partners, or attempts by customers or third parties to invoke force majeure contractual clauses as a result of delays or other disruptions.
Although disruption and effects from the COVID-19 pandemic may be temporary or moderated by expanding vaccine accessibility, given the dynamic nature of these circumstances and the worldwide nature of our business and operations, the duration of any potential business disruption and the related potential financial impact to us cannot be reasonably estimated at this time but could materially affect our business, results of operations and financial condition in the future.
Terrorist attacks, increased hostilities, political change or war could lead to further economic instability, increased costs and business disruption.
Terrorist attacks, and the current or future conflicts in Libya, the Middle East, East Asia, South East Asia, West Africa and elsewhere, and political change, may adversely affect our business, operating results, financial condition, and ability to raise capital and future growth. Recent hostilities in the Middle East especially among Qatar, Saudi Arabia, the United Arab Emirates, Iran, Yemen and elsewhere may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may contribute to economic instability and disruption of oil, LNG and LPG production and distribution, which could result in reduced demand for our services and have an adverse impact on our operations and or our ability to conduct business.
In addition, oil facilities, shipyards, vessels, pipelines and oil fields could be targets of future terrorist attacks and warlike operations and our vessels could be targets of hijackers, terrorists or warlike operations. 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 to or from certain locations. Terrorist attacks, war, hijacking or other events beyond our control that adversely affect the distribution, production or transportation of oil, LNG and LPG to be shipped by us could entitle customers to terminate charters, which would harm our cash flow and business.
Acts of piracy on ocean-going vessels continue to be a risk, 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, Gulf of Guinea and the Indian Ocean off the coast of Somalia. While there continues to be a significant risk of piracy incidents in the Southern Red Sea, Gulf of Aden and Indian Ocean, recently there have been increases in the frequency and severity of piracy incidents off the coast of West Africa and a resurgent risk of piracy and/or armed robbery in the Straits of Malacca, Sulu & Celebes Sea, Gulf of Mexico and surrounding waters. If these piracy attacks result in regions in which our vessels are deployed being named on the Joint War Committee Listed Areas, war risk insurance premiums payable for such coverage may increase significantly and such insurance coverage may be more difficult to obtain. In addition, crew costs, including costs which are incurred to the extent we employ on-board security guards and escort vessels, 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, 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.
Risks Related to Our Business
Adverse economic conditions or other developments may affect our customers’ ability to charter our vessels and pay for our services and may adversely affect our business and results of operations.
Adverse economic conditions or other developments relating directly to our customers may lead to a decline in our customers’ operations or ability to pay for our services, which could result in decreased demand for our vessels and services. Our customers’ inability to pay for any reason could also result in their default on our current contracts and charters. The decline in the amount of services requested by our customers or their default on our contracts with them could have a material adverse effect on our business, financial condition and results of operations.
The intense competition in our markets may lead to reduced profitability or reduced 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 charters for our LNG and LPG carriers. 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 competition for providing services for potential gas and offshore projects from other experienced companies, including state-sponsored entities. Our competitors may have greater financial resources than us. This increased competition may cause greater price competition for 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. No customer accounted for over 10% of our consolidated revenues during 2020 (2019 – one customer for 12%, or $227.6 million; 2018 – one customer for 11%, or $195.0 million). 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.
We could lose a customer or the benefits of a contract if:
•the customer fails to make payments because of its financial inability, disagreements with us or otherwise;
•we agree to reduce the payments due to us under a contract because of the customer’s inability to continue making the original payments;
•upon our breach of the relevant contract, the customer exercises certain rights to terminate the contract;
•the customer terminates the contract because we fail to deliver the vessel within a fixed period of time, the vessel is lost or damaged beyond repair, there are serious deficiencies in the vessel or prolonged periods of off-hire, or we default under the contract;
•under some of our contracts, the customer terminates the contract because of the termination of the customer's sales agreement or a prolonged force majeure affecting the customer, including damage to or destruction of relevant facilities, war or political unrest preventing us from performing services for that customer; or
•the customer becomes subject to applicable sanctions laws which prohibit our ability to lawfully charter our vessel to such customer.
If we lose a key customer, we may be unable to obtain replacement long-term charters. If a customer exercises its right under some charters to purchase the vessel, or terminate the charter, we may be unable to acquire an adequate replacement vessel or charter. Any replacement newbuilding would not generate revenues during its construction and we may be unable to charter any replacement vessel on terms as favorable to us as those of the terminated charter.
The loss of any of our significant customers or a reduction in revenues from them could have a material adverse effect on our business, results of operations and financial condition and our ability to pay dividends and service our debt.
Two of the six MALT LNG Carriers in Teekay LNG's 52%-owned MALT Joint Venture, the Marib Spirit and Arwa Spirit, were chartered-out to Yemen LNG under long-term charter contracts with YLNG. However, due to the political unrest in Yemen, YLNG decided to temporarily close operation of its LNG plant in Yemen in 2015. As a result, commencing January 1, 2016, the MALT Joint Venture agreed to successive deferral arrangements with YLNG pursuant to which a portion of the charter payments were deferred. Concurrently with the expiration of the most recent deferral arrangement, in April 2019, the MALT Joint Venture entered into a suspension agreement with YLNG (the Suspension Agreement) pursuant to which the MALT Joint Venture and YLNG agreed to suspend the two charter contracts for a period of up to three years from the date of the agreement.
Our ability to repay or refinance debt obligations and to fund capital expenditures will depend on certain financial, business and other factors, many of which are beyond our control. We will need to obtain additional financing, which financing may limit our ability to make cash dividends and distributions, increase our financial leverage and result in dilution to our equityholders.
To fund existing and future debt obligations and capital expenditures and to meet the minimum liquidity requirements under the financial covenants in our credit facilities, we will be required to obtain additional sources of financing, in addition to amounts generated from operations. These anticipated sources of financing include raising additional debt and capital, including equity issuances.
Our ability to obtain external financing may be limited by our financial condition at the time of any such financing as well as by adverse market conditions in general. Even if we are successful in obtaining necessary funds, the terms of such financings could limit our ability to pay cash dividends or distributions to security holders or operate our businesses as currently conducted. In addition, issuing additional equity securities may result in significant equityholder dilution and would increase the aggregate amount of cash required to maintain quarterly dividends and distributions. The sale of certain assets will reduce cash from operations and the cash available for distribution to equityholders. For more information on our liquidity requirements, please read “Item 18 – Financial Statements: Note 16b – Commitments and Contingencies – Liquidity."
Charter rates for conventional oil and product tankers may fluctuate substantially over time and may be lower when we are attempting to re-charter these vessels, which could adversely affect our operating results. Any changes in charter rates for LNG carriers and LPG carriers could also adversely affect redeployment opportunities for those vessels.
Our ability to re-charter 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 volatility in charter rates for LNG and LPG carriers, which could also adversely affect redeployment opportunities for those vessels. If upon scheduled expiration or any early termination we are unable to renew or replace fixed-rate charters on favorable terms, if at all, or if we choose not to renew or replace fixed-rate charters, we may employ applicable vessels in the volatile spot market. Increasing our exposure to the spot market, particularly during periods of unfavorable market conditions, could harm our results of operations and make them more volatile.
Current market conditions limit our access to capital and our growth.
We have relied primarily upon bank financing and debt and equity offerings, primarily by the Daughter Entities, to fund our growth. Current market conditions generally in the energy and shipping sectors and for master limited partnerships have significantly reduced our and the Daughter Entities’ access to capital, particularly equity capital, compared to periods prior to mid-2014. Issuing additional common equity given current market conditions is more dilutive and costly than it has been in the past. Lack of access to debt or equity capital at reasonable rates would adversely affect our growth prospects and our ability to refinance debt and pay dividends to our equityholders.
Our future performance and ability to secure future employment for our LNG and LPG vessels depends on continued growth in LNG production, demand and supply for LNG and LPG, and associated demand and supply for LNG and LPG shipping.
A significant portion of our future performance will depend on growth in LNG production, demand and supply for LNG and LPG, and associated demand and supply for LNG and LPG shipping services.
Expansion of the LNG and LPG shipping sectors depends on growth in world and regional demand and supply for LNG and LPG and marine transportation of LNG and LPG, as well as the supply of LNG and LPG. Demand or supply for LNG and LPG and for the marine transportation of LNG and LPG could be negatively affected by a number of factors, such as:
•increases in the cost of natural gas derived from LNG relative to the cost of natural gas generally;
•increases in the cost of LPG relative to the cost of naphtha and other competing petrochemicals;
•increases in the production of natural gas 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-natural gas pipelines to natural gas pipelines in those markets;
•decreases in the consumption of natural gas due to increases in its price relative to other energy sources or other factors making consumption of natural gas less attractive;
•increases in availability of additional sources of natural gas, including shale gas;
•increases in the number of LNG or LPG newbuilding vessels, which could lead to an oversupply of vessels in the market and in turn create downward pressure on the demand for LNG and LPG shipping services;
•changes in weather patterns leading to warmer winters in the Northern Hemisphere and lower gas demand in the tradition peak heating season;
•increases in availability of alternative or renewable energy sources; and
•negative global or regional economic or political conditions, particularly in LNG and LPG consuming regions, which could reduce energy consumption or its rate of growth, including labor or political unrest or military conflicts affecting existing or proposed areas of LNG production or regasification.
Furthermore, spot charter rates initially came under pressure commencing in February 2020 due to the impact of the COVID-19 pandemic. In addition, trading prices of our equity securities have been volatile due in part to the recent impact of the pandemic on the energy and financial markets overall. The ongoing pandemic may significantly impact global economic activity (including the demand for LNG and LPG, and associated shipping rates, which may in turn negatively affect our spot chartered vessels) and may disrupt, delay or lead to cancellations of the construction of new LNG projects (including production, liquefaction, regasification, storage and distribution facilities), which in turn could negatively affect our business, results of operations and financial condition.
Reduced demand for LNG and LPG shipping could have a material adverse effect on our future growth and could harm our business, results of operations and financial condition.
Teekay LNG may have more difficulty entering into long-term, fixed-rate LNG time-charters if the active short-term, medium-term or spot LNG shipping markets continue to develop.
LNG shipping historically has been transacted with long-term, fixed-rate time-charters, usually with terms ranging from 15 to 20 years. One of Teekay LNG’s principal strategies is to enter into additional long-term, fixed-rate LNG time-charters. In recent years, the amount of LNG traded on a spot and short-term basis (defined as contracts with a duration of three years or less) has been increasing.
If the active spot, short-term or medium-term markets continue to develop, Teekay LNG may have increased difficulty entering into long-term, fixed-rate time-charters for its LNG carriers and, as a result, its cash flow may decrease and be less stable. In addition, an active short-term, medium-term or spot LNG shipping market may require Teekay LNG to enter into charters with rates based on changing market prices, as opposed to contracts based on a fixed rate, which could result in a decrease in its cash flow in periods when the market price for shipping LNG is depressed.
Reductions to the value of the Teekay LNG common units and Teekay Tankers common stock pledged as collateral for our equity margin credit facility could result in breaches of such credit facility.
Teekay Parent’s $150 million equity margin revolving credit facility is secured by common units of Teekay LNG and shares of Class A common stock of Teekay Tankers that are owned by Teekay Parent. Availability under the credit facility relates to the value of the common units and common stock pledged as collateral for the facility. The value of the pledged securities of Teekay LNG and Teekay Tankers will likely vary significantly over time due to various factors affecting the trading prices of such securities, including many factors outside our or their control. If the value of the collateral were to decline and to cause loan-to-value requirements in the credit facility not to be satisfied, and we are unable to effect a cure within the applicable grace period, our lenders could accelerate our debt and require us to repay all outstanding amounts in full and/or terminate the commitments under the facility. If we are unable to repay such amounts from our liquidity reserves or other sources of financing, our lenders could enforce on our collateral security under the facility (including the pledged securities), which could adversely affect our business, results of operations and financial condition. No amount is drawn under the equity margin revolving credit facility as of the date of this Annual Report.
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 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 and obligations under finance lease 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 cure any such breach within the prescribed cure period in a particular financing facility, the lenders under these facilities could accelerate our debt or obligations under finance lease and foreclose on our vessels pledged as collateral or require an early termination of the credit facility or finance lease. In certain circumstances, such a breach could result in cross-defaults under our other financing agreements. As of December 31, 2020, the total outstanding debt credit facilities and obligations under finance leases with this type of loan-to-value covenant tied to conventional tanker values was $609.6 million and tied to LNG carrier values was $359.4 million. We have nine financing arrangements that require us to maintain vessel value to outstanding loan and lease principal balance ratios ranging from 77.5% to 135%. As of December 31, 2020, we were in compliance with these required ratios.
Over time, the value of our vessels may decline, which could adversely affect our operating results.
Vessel values for oil and product tankers, and LNG and LPG carriers can fluctuate substantially over time due to a number of different factors, including:
•prevailing economic conditions in oil and energy markets;
•a substantial or extended decline in demand for oil or natural gas;
•increases in the supply of vessel capacity;
•the age of the vessel relative to other alternative vessels that are available in the market;
•competition from more technologically advanced vessels; and
•the cost of retrofitting or modifying existing vessels, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, or otherwise.
Vessel values may decline from existing levels. If operation of a vessel is not profitable, or if we cannot redeploy 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 fair market value or the disposal of the vessel at a fair market value that is lower than its book 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 impairment charge against our earnings. Such a determination involves numerous assumptions and estimates, some of which require more discretion and are less predictable. We recognized asset impairment charges of $188.7 million, $182.3 million and $53.9 million in 2020, 2019, and 2018, respectively. The 2020 charge included impairments of $70.7 million for two of our FPSO units, the Petrojarl Banff and Sevan Hummingbird, $51.0 million for seven of Teekay LNG’s multi-gas carriers and $67.0 million for nine of Teekay Tankers’ Aframax tankers. The 2019 charge included impairments of $178.3 million for three of our FPSO units, the Petrojarl Banff, Sevan Hummingbirdand Petrojarl Foinaven. The FPSO units were fully written down in 2020. If a unit is not redeployed or sold on termination of its contract, we may incur costs to decommission and scrap the unit.
We have recognized asset impairments in the past and we may recognize additional impairments in the future, which will reduce our earnings and net assets.
If we determine at any time that an asset has been impaired, we may need to recognize an impairment charge that will reduce our earnings and net assets. We review our vessels for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable, which occurs when an asset's carrying value is greater than the estimated undiscounted future cash flows the asset is expected to generate over its remaining useful life. We review our goodwill for impairment annually and if a reporting unit's goodwill carrying value is greater than the estimated fair value, the goodwill attributable to that reporting unit is impaired. We evaluate our investments in equity-accounted joint ventures for impairment when events or circumstances indicate that the carrying value of such investment may have experienced an other-than-temporary decline in value below its carrying value.
Our cash flow depends substantially on the ability of our subsidiaries, primarily our Daughter Entities, to make distributions to us.
The source of our cash flow includes cash distributions and dividends from our subsidiaries, primarily Teekay LNG and Teekay Tankers. The amount of cash our subsidiaries can distribute to us principally depends upon the amount of distributions or dividend declared by each of their Boards of Directors and the amount of cash they generate from their operations. Teekay LNG has paid a quarterly distribution of $0.25 per common unit commencing with its quarterly distribution paid in May 2020 and anticipates increasing the distribution amount to $0.2875 per common unit commencing with the first quarter of 2021 quarterly distributions to be paid in May 2021. Teekay Tankers has not paid a quarterly dividend since March 2018, as it focuses on building net asset value through balance sheet delevering and reducing its cost of capital.
The amount of cash our subsidiaries generate from their operations may fluctuate from quarter-to-quarter based on, among other things:
•the rates they obtain from their charters, voyages and contracts;
•the price and level of production of, and demand for, crude oil, LNG and LPG;
•the level of their operating costs, such as the cost of crews and repairs and maintenance;
•the number of off-hire days for their vessels and the timing of, and number of days required for, dry docking of vessels;
•the rates, if any, at which our subsidiaries may be able to redeploy vessels, after they complete their charters or contracts and are redelivered to us;
•the rates, if any, at which Teekay Tankers can deploy tankers in the spot market;
•delays in the delivery of any future newbuildings or in any future conversions of upgrades of existing vessels, and the beginning of payments under charters relating to those vessels;
•the utilization levels of their vessels trading in the spot or short-term market;
•prevailing global and regional economic and political conditions;
•currency exchange rate fluctuations; and
•the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of business.
The actual amount of cash our subsidiaries have available for distribution also depends on other factors such as:
•the level of their capital expenditures, including for maintaining vessels or converting existing vessels for other uses and complying with regulations;
•their debt service and cash reserve requirements, financial covenants and restrictions on distributions contained in their debt agreements, including financial ratio covenants which may indirectly restrict loans, distributions or dividends;
•fluctuations in their working capital needs;
•their ability to make working capital borrowings; and
•the amount of any cash reserves, including reserves for future working capital and other matters, established by the Boards of Directors of the Daughter Entities at their discretion.
The amount of cash our subsidiaries generate from operations may differ materially from their profit or loss for the period, which will be affected by non-cash items and the timing of debt service payments. As a result of this and the other factors mentioned above, our subsidiaries may make cash distributions during periods when they record losses and may not make cash distributions during periods when they record net income.
Teekay Parent may need to divest assets or issue additional securities to raise capital to meet its future liquidity needs.
As at December 31, 2020, Teekay Parent had total cash and cash equivalents of $44.8 million and total liquidity, including cash, cash equivalents and undrawn credit facilities, of $173.4 million. As at December 31, 2020, the outstanding principal amounts of Teekay Parent’s 9.25% senior notes that mature in November 2022 and of its 5.0% convertible senior notes that mature in January 2023 were $243.4 million and $112.2 million, respectively. If we are unable to meet these or other liquidity needs or to refinance these future obligations, we may need to evaluate alternatives such as divesting of interests in the Daughter Entities or other assets or seeking to raise capital through the issuance of debt, hybrid or equity securities. However, there can be no assurance that we would be able to complete any such transactions on acceptable terms, if at all.
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, lightering vessels, oil and gas transfer operations, LNG and LPG carriers, FPSO units and LNG Facilities is inherently risky. Although we carry hull and machinery (marine and war risk) and protection and indemnity insurance, and other liability insurance covers, all risks may not be adequately insured against, and any particular claim may not be paid or paid in full. In addition, only certain of our LNG and LPG carriers carry insurance 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. In addition, the cost of this protection and indemnity coverage has significantly increased and may continue to increase. Even if our insurance coverage is adequate to cover our losses, we may not be able to obtain a timely replacement vessel in the event of a total loss of a vessel.
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, marine disaster or natural disaster could result in losses that exceed our insurance coverage, which could harm our business, financial condition and operating results. Any uninsured or under-insured 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 regulatory organizations.
Changes in the insurance markets attributable to structural changes in insurance markets, economic factors, the impact of the COVID-19 pandemic, outbreaks of communicable diseases, terrorist attacks, environmental catastrophes or political changes 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 or be available only with restrictive terms.
The duration of our FPSO contracts is the life of the relevant oil field or is subject to early termination options by the field operator or vessel charterer. If the oil field no longer produces oil or is abandoned or the contract term is terminated early or not extended, we will no longer generate revenue under the related contract and will need to seek to redeploy, sell or scrap the affected vessels.
As at December 31, 2020, we had two FPSO units operating in our fleet. The duration of our FPSO contract for the Sevan Hummingbird FPSO unit is subject to early termination options. The likelihood of the contract being terminated early may be negatively affected by reductions in oil field reserves, low oil prices generally or other factors. If we are unable to promptly redeploy the unit at rates at least equal to those under the existing contract, if at all, our operating results will be harmed. Any potential redeployment may not be under a long-term contract, which may affect the stability of our business and operating results. If the unit is not redeployed or sold, we may incur costs to decommission and scrap the unit.
On termination of the FPSO contract for the Petrojarl Foinaven FPSO unit, it will be recycled in accordance with EU ship recycling regulations. We expect to receive a lump sum payment from the customer at the end of the contract, which may not cover the costs of recycling the FPSO unit.
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. The rate of oil production at fields we service may decline from existing or future levels, and may be terminated, which could harm our business and operating results. 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; mechanical failure or operator error; 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.
In the first quarter of 2020, CNR International (U.K.) Limited (or CNRI) provided formal notice to Teekay of its intention to decommission the Banff field and remove the Petrojarl Banff FPSO and the ApolloSpirit FSO from the field in 2020. The oil production under the existing contract for the Petrojarl Banff FPSO unit ceased on June 1, 2020, at which time Teekay Parent began incurring decommissioning/asset retirement costs. The actual asset retirement and decommissioning costs may exceed our current estimates.
We have substantial debt levels and may incur additional debt.
As of December 31, 2020, our consolidated long-term debt and obligations related to finance leases totaled $3.8 billion and we had the capacity to borrow an additional $0.6 billion under our revolving credit facilities. These credit facilities may be used by us for general corporate purposes. In addition to our consolidated debt, our total proportionate interest in debt of joint ventures we do not control was $2.1 billion as of December 31, 2020, of which Teekay Tankers or Teekay LNG has guaranteed $1.2 billion and the remaining $0.9 billion has limited or no recourse to Teekay LNG. Our consolidated debt, finance lease obligations and joint venture debt could increase substantially. We will continue to have the ability to incur additional debt, subject to limitations in our credit facilities. 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, and our ability to refinance our credit facilities may be impaired or such financing may not be available on favorable terms, if at all;
•we will need to use 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, repurchases of equity securities and dividends to shareholders;
•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.
Exposure to interest rate fluctuations will result in fluctuations in our cash flows and operating results.
We are exposed to the impact of interest rate changes primarily through our borrowings that require us to make interest payments based on LIBOR, EURIBOR or NIBOR. Significant increases in interest rates could adversely affect our profit margins, results of operations and our ability to service our debt and finance lease obligations. In accordance with our risk management policy, we use interest rate swaps on certain of our debt and cross currency swaps on the NOK bonds to reduce our exposure to market risk from changes in interest rates. The principal objective of these contracts is to minimize the risks and costs associated with our floating rate debt. However, any hedging activities entered into by us may not be effective in fully mitigating our interest rate risk from our variable rate indebtedness.
In addition, we are exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. For further information about our financial instruments at December 31, 2020, that are sensitive to changes in interest rates, please read "Item 11 - Quantitative and Qualitative Disclosures About Market Risk."
Use of LIBOR is currently scheduled to cease in the future, and interest rates on our LIBOR-based obligations may increase in the future.
LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. In March 2021, the UK Financial Conduct Authority, which regulates LIBOR, announced that it will cease the publication of LIBOR after December 31, 2021, with the exception of certain tenors of U.S. dollar LIBOR which will cease publication after June 30, 2023. It is unclear whether an extension will be granted or new methods of calculating LIBOR will be established such that it continues to exist after the scheduled expiration dates, or if alternative rates will be adopted. Global regulators are working with the financial sector to transition away from the use of LIBOR and towards the adoption of alternative reference rates. For example, the U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by Treasury securities (or SOFR). SOFR is observed and backward-looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members. Whether or not SOFR attains market acceptance as a LIBOR replacement tool remains in question and there can be no assurance that the transition to a new benchmark rate or other financial metric will be an adequate alternative to LIBOR or produce the economic equivalent of LIBOR. As a result, it is not possible at this time to know the ultimate impact that a phase-out of LIBOR may have.
While some of the agreements governing our revolving credit facilities, term loan facilities, interest rate swaps and finance lease facilities provide for an alternate method of calculating interest rates in the event that a LIBOR rate is unavailable, if LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, there may be adverse impacts on the financial markets generally and interest rates on borrowings under our revolving credit facilities, term loan facilities, interest rate swaps and finance lease facilities may be materially adversely affected.
In addition, we may need to renegotiate certain LIBOR-based revolving credit facilities, term loan facilities, interest rate swaps and finance lease facilities, which could adversely impact our cost of debt. There can be no assurance that we will be able to modify existing documentation or renegotiate existing transactions before the discontinuation of LIBOR.
Financing agreements containing operating and financial restrictions may restrict our business and financing activities.
The operating and financial restrictions and covenants in our revolving credit facilities, term loans, lease obligations, indentures 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:
•incur additional indebtedness and guarantee indebtedness;
•pay dividends or make other distributions or repurchase or redeem our capital stock;
•prepay, redeem or repurchase certain debt;
•issue certain preferred shares or similar equity securities;
•make loans and investments;
•enter into a new line of business;
•incur or permit certain liens to exist;
•enter into transactions with affiliates;
•create unrestricted subsidiaries;
•transfer, sell, convey or otherwise dispose of assets;
•make certain acquisitions and investments;
•enter into agreements restricting our subsidiaries’ ability to pay dividends; and
•consolidate, merge or sell all or substantially all of our assets.
In addition, certain of our debt agreements require us to comply with certain financial covenants. Our ability to comply with covenants and restrictions contained in debt instruments and finance lease obligations may be affected by events beyond our control, including prevailing economic, financial and industry conditions. If any such events were to occur, we may fail to comply with these covenants. If we breach any of the restrictions, covenants, ratios or tests in our financing agreements or indentures and we are unable to cure such breach within the prescribed cure period, our obligations may, at the election of the relevant lender, become immediately due and payable, and the lenders’ commitment under our credit facilities, if any, to make further loans available to us may terminate. In certain circumstances, this could lead to cross-defaults under our other financing agreements which in turn could result in obligations becoming due and commitments being terminated under such agreements. A default under financing agreements could also result in foreclosure on any of our vessels and other assets securing related loans and finance leases or our need to sell assets or take other actions in order to meet our debt obligations.
Furthermore, the termination of any of our charter contracts by our customers could result in the repayment of the debt facilities to which the chartered vessels relate.
Our and many of our customers’ substantial operations outside the United States expose us and them to political, governmental and economic instability, which could harm our operations.
Because our operations, and the operations of certain of our customers, are primarily conducted outside of the United States, they may be affected by economic, political and governmental conditions in the countries where we or our customers engage in business, or where our vessels are registered. Any disruption caused by these factors could harm our business, including through reduction in the levels of oil exploration, development and production activities in these areas or restricting the pool of customers. We derive some of our revenues from shipping oil and gas from politically and economically unstable regions. Conflicts in these regions have included attacks on ships and other efforts to disrupt shipping.
Hostilities, strikes, or other political or economic instability in regions where we operate or where we may operate could have a material adverse effect on the growth of our business, results of operations and financial condition and ability to make cash distributions. In addition, tariffs, trade embargoes and other economic sanctions by the United States or other countries against countries in which we operate, or to which we trade, or to which we or any of our customers, joint venture partners or business partners become subject, could harm our business and ability to make cash distributions. For example, general trade tensions between the United States and China escalated in 2018 and continued through much of 2019, with the United States imposing a series of tariffs on China and China responding by imposing tariffs on United States products. Although during the last quarter of 2019, the United States and China negotiated an agreement to reduce trade tensions which became effective in February 2020, our business could be harmed by increasing trade protectionism or trade tensions between the United States and China, as well as any trade embargoes or other economic sanctions by the United States or other countries against countries in the Middle East, Asia, Russia or elsewhere as a result of terrorist attacks, hostilities, or diplomatic or political pressures that limit trading activities with those countries. In addition, 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 cash flow and financial results.
Maritime claimants could arrest, or port authorities could detain, 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. In addition, port authorities may seek to detain our vessels in port, which could adversely affect our operating results or relationships with customers.
Many of our 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 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 and certain of our joint venture partners 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. 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.
Exposure to currency exchange 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, 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 British Pound, the Euro, Singapore Dollar, Australian Dollar, and Canadian Dollar. 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, accrued liabilities, advances from affiliates and long-term debt are revalued and reported based on the prevailing exchange rate at the end of the applicable period. This revaluation historically has caused us to report significant unrealized foreign currency exchange gains or losses each period. The primary source of these gains and losses is our Euro-denominated term loans and our Norwegian Krone-denominated bonds.
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.
We may experience operational problems with vessels that reduce revenue and increase costs.
FPSO units are complex and their operations are technically challenging. Marine transportation and oil production operations are subject to mechanical risks and problems as well as environmental risks. Operational problems may lead to loss of revenue or higher than anticipated operating expenses or require additional capital expenditures. Any of these results could harm our business, financial condition and operating results.
Actual results of new technologies or technology upgrades may differ from expected results and affect our results of operations.
Teekay LNG has invested and is investing in vessel technology upgrades such as MEGI engines and other equipment and designs for certain LNG carriers, including, among other things, to improve fuel efficiency and vessel performance. These new engine designs and other equipment may not perform to expectations during actual operations, which may result in our exposure to performance claims based on failure to achieve specified performance requirements included in certain charter party agreements. During certain operations, actual fuel consumption for Teekay LNG’s MEGI LNG carriers may exceed specified levels in certain charter party agreements, which may result in reimbursement by Teekay LNG to the charterer for the cost of the excess fuel consumed. Teekay LNG is in the process of installing additional equipment on certain of its MEGI LNG carriers to lower fuel consumption on these vessels. Continued reimbursement obligations, unrecovered capital expenditures, delays in the installation of the equipment, or new equipment installations not performing to our expectations could harm our results of operations or financial condition.
Sanctions against key participants in the Yamal LNG Project could impede performance of the Yamal LNG Project, which could have a material adverse effect on us.
The U.S. Treasury Department’s Office of Foreign Assets Control (or OFAC) placed Russia-based Novatek, a 50.1% owner of the Yamal LNG Project, on the Sectoral Sanctions Identifications List. OFAC also previously imposed sanctions on an investor in Novatek and these sanctions also remain in effect. The current restrictions on Novatek prohibit U.S. persons (and their subsidiaries) from participating in debt financing transactions of greater than 60 days maturity with Novatek and, by virtue of Novatek’s 50.1% ownership interest, the Yamal LNG Project. The EU also imposed certain sanctions on Russia. These sanctions require an EU license or authorization before a party can provide certain technologies or technical assistance, financing, financial assistance, or brokering with regard to these technologies. However, the technologies being currently sanctioned by the EU appear to focus on oil exploration projects, not gas projects. In addition, OFAC and other governments or organizations may impose additional sanctions on Novatek, the Yamal LNG Project or other project participants, which may further hinder the ability of the Yamal LNG Project to receive necessary financing. Although we believe that we are in compliance with all applicable sanctions, laws and regulations, and intend to maintain such compliance, the scope of these sanctions laws may be subject to change.
In September 2019, OFAC imposed sanctions on COSCO Shipping Tanker (Dalian) Co., Ltd. (or COSCO Dalian). At the time, COSCO Dalian owned 50% of China LNG Shipping (Holdings) Limited (or CLNG), which in turn, owns a 50% interest in our Yamal LNG joint venture (or the Yamal LNG Joint Venture), which owns six on-the-water ARC7 LNG carriers. As a result of COSCO Dalian’s 50% ownership of CLNG and CLNG’s 50% interest in the Yamal LNG Joint Venture, both CLNG and the joint venture at the time qualified as “Blocked Persons" under OFAC's deeming rules. In October 2019, the COSCO group completed an ownership restructuring on arms'-length terms pursuant to which its 50% interest in CLNG was transferred from COSCO Dalian to a non-sanctioned COSCO entity, which automatically resulted in CLNG and the Yamal LNG Joint Venture no longer being classified as “Blocked Persons.” Although, CLNG and, by implication, our Yamal LNG Joint Venture were absolved from sanctions as a result of the October 2019 restructuring, OFAC subsequently lifted its sanctions against COSCO Dalian in January 2020. We do not expect any material financial impact to us from these resolved issues.
Future sanctions may prohibit the Yamal LNG Joint Venture from performing under its contracts with the Yamal LNG Project, which could have a material adverse effect on our financial condition, results of operations and ability to make cash distributions on our units.
In addition to the Yamal LNG Joint Venture, participants in other projects in which we are involved (including, with respect to such other projects, our joint venture partners, customers, and their respective shareholders or management) may be subject to sanctions, which sanctions may have a material adverse effect on the success of those projects or our joint ventures and, in turn, on our business, financial condition and results of operations.
Failure, shutdown or other adverse events impacting the Yamal LNG Project may result in Teekay LNG's inability to re-deploy the ARC7 LNG carriers.
The charter party under the Yamal LNG Joint Venture’s time-charter contracts for the Yamal LNG Project is Yamal Trade Pte. Ltd., a wholly-owned subsidiary of Yamal LNG, the project’s sponsor. If the Yamal LNG Project were to shut down or face other adverse events, in either case on a permanent or even temporary basis, Teekay LNG may be unable to redeploy the ARC7 LNG carriers under other time-charter contracts or may be forced to scrap the vessels. Any such events could adversely affect our results of operations and Teekay LNG's ability to make cash distributions.
Teekay LNG or its joint venture partners may be unable to operate an LNG receiving and regasification terminal and may be exposed from time to time to conditions, developments, or requirements that may adversely affect Teekay LNG or its joint venture.
Teekay LNG has a 30% ownership interest in an LNG regasification and receiving terminal in Bahrain. Although the Bahrain LNG Joint Venture has completed mechanical construction and commissioning of the Bahrain terminal and is currently receiving terminal use payments, certain handover arrangements in respect of the Bahrain terminal remain subject to the approval of the lenders of the Bahrain LNG Joint Venture. As a result, the Bahrain LNG Joint Venture may experience associated delays in the formal acceptance of the terminal and the commencement of commercial operations if the Bahrain LNG Joint Venture does not satisfy all applicable conditions and obtain all necessary consents in accordance with its financing agreements. Accordingly, Teekay LNG or its joint venture partners may be unable to operate the LNG receiving and regasification terminal properly, whether due to a lack of satisfaction of such conditions, a lack of obtaining such consents, a lack of industry experience, or otherwise, which could affect their ability to operate the terminal, including as a result of a reduction in the expected output of the terminal. Any such reduction could decrease revenues to the Bahrain LNG Joint Venture which may harm our business, results of operations and financial condition.
In addition, the development, construction and operation of large-scale energy and regasification projects, such as the Bahrain terminal, are inherently subject to unforeseen conditions or developments. Such conditions or developments may include, among others: shortages or delays in deliveries of equipment, materials or labor; significant cost over-runs; labor disruptions; government issues; regulatory changes; legal disputes with third-parties, including contractors, sub-contractors and customers; investigations involving various authorities; adverse weather conditions; unanticipated increases in equipment, material or labor costs; reductions in access to financing, an increase in the amount of required support from shareholders of the Bahrain LNG Joint Venture under the terms of the financing, the ability to comply with all conditions and requirements under the terms of the financing, and the ability to obtain any applicable waivers or consents from our lenders on a timely basis, or at all; unforeseen engineering, technical and technological design, environmental, infrastructure or engineering issues; the inability to operate the Bahrain terminal at its full designed capacity; a temporary shutdown of the Bahrain terminal; and a general inability to realize the anticipated benefits of the Bahrain terminal, including all the benefits associated with the long-term contract with the customer. In the event that one or more of these conditions or developments were to materialize or continue for a prolonged period (in particular, any legal disputes with third parties or the Bahrain LNG Joint Venture’s inability to comply with all conditions and requirements under the terms of its financing or obtain any applicable waivers or consents from its lenders under the terms of its financing), our business, results of operations and financial condition could be harmed.
Our joint venture arrangements impose obligations upon us but limit our control of the joint ventures, which may affect our ability to achieve our joint venture objectives.
For financial or strategic reasons, we conduct a portion of our business through joint ventures. Generally, we are obligated to provide proportionate financial support for the joint ventures although our control of the business entity may be substantially limited. Due to this limited control, we generally have less flexibility to pursue our own objectives through joint ventures or to access available cash of the joint ventures than we would with our own subsidiaries. There is no assurance that our joint venture partners will continue their relationships with us in the future or that we will be able to achieve our financial or strategic objectives relating to the joint ventures and the markets in which they operate. In addition, our joint venture partners may have business objectives that are inconsistent with ours, experience financial and other difficulties (including under relevant sanctions and anti-bribery and corruption laws) that may affect the success of the joint venture or be unable or unwilling to fulfill their obligations under the joint ventures, which may affect our financial condition or results of operations. In addition, we do not have control over the operations of, nor do we have any legal claim to the revenues and expenses of our equity-accounted investments. Consequently, the cash flow generated by our equity-accounted investments may not be available for use by us in the period that such cash flows are generated, if at all.
We depend on certain joint venture partners to assist us in operating our businesses and competing in our markets.
Our ability to compete for certain projects, enter into new charters, secure financings and expand our customer relationships depends in part on our ability to leverage our relationship with our joint venture partners and their reputation and relationships in the shipping industry. If our joint venture partners suffer material damage to its financial condition, reputation or relationships, it may harm the ability of us or our subsidiaries to:
•renew existing charters and contracts of affreightment upon their expiration;
•obtain new charters and contracts of affreightment;
•successfully interact with shipyards during periods of shipyard construction constraints;
•obtain financing on commercially acceptable terms, if at all; or
•maintain satisfactory relationships with suppliers and other third parties.
If our or our subsidiaries’ ability to do any of the things described above is impaired, it could have a material adverse effect on our business, results of operations and financial condition and our ability to make cash distributions.
We may be unable to make or realize expected benefits from acquisitions and growth through acquisitions may harm our financial condition and performance.
A principal component of our long-term 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. In order to achieve growth, we may acquire new companies or businesses which transactions may involve 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 identifying suitable acquisition candidates;
•difficulties integrating the operations, personnel and business culture of acquired companies;
•difficulties 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.
Unlike newbuildings, existing vessels typically do not carry warranties as to their condition. While we generally inspect existing vessels prior to purchase, such an inspection would normally not provide us with as much knowledge of a vessel’s condition as we would possess if it had been built for us and operated by us during its life. Repairs and maintenance costs for existing vessels are difficult to predict and may be substantially higher than for vessels we have operated since they were built. These costs could decrease our cash flow and reduce our liquidity.
The Daughter Entities may expend substantial sums during the construction of potential future newbuildings or upgrades to their existing vessels, without earning revenue and without assurance that they will be completed.
We may be required to expend substantial sums as progress payments during the construction of any potential future newbuildings or any vessel upgrades, but we may not derive any revenue from the vessel until after its delivery or completion of such upgrades. 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.
Our newbuilding financing commitments typically have been pre-arranged. However, if we are unable to obtain financing required to complete payments on any potential future newbuilding orders, we could effectively forfeit all or a portion of the progress payments previously made.
We may make substantial capital expenditures to expand the size of our fleet and generally are required to make significant installment payments for acquisitions of newbuilding vessels. Depending on whether we finance our expenditures through cash from operations or by incurring debt or issuing equity securities, our financial leverage could increase, or our shareholders could be diluted.
We regularly evaluate and pursue opportunities to provide the marine transportation requirements for new or expanding LNG and LPG projects. The award process relating to LNG transportation opportunities typically involves various stages and takes several months to complete. We may not be awarded charters relating to any of the projects we pursue. If we bid on and are awarded contracts relating to any LNG and LPG projects, we will need to incur significant capital expenditures to build the related LNG and LPG carriers.
To fund any 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 shareholder dilution and would increase the aggregate amount of cash required to pay quarterly dividends.
In addition, although delivery of the completed vessel will not occur until much later (approximately two to three years from the time the order is placed), we typically must pay an initial installment up-front upon signing the purchase contract. During the construction period, we generally are required to make installment payments on newbuildings prior to their delivery, in addition to incurring financing, miscellaneous construction and project management costs, but we do not derive any income from the vessel until after its delivery. If we finance these payments by issuing debt or equity securities, we will increase the aggregate amount of interest or cash required to maintain our current level of quarterly distributions/dividends to unitholders/shareholders prior to generating cash from the operation of the newbuilding.
Teekay Tankers’ U.S. Gulf lightering business competes with alternative methods of delivering crude oil to ports, which may limit its earnings in this area of its operations.
Teekay Tankers’ U.S. Gulf lightering business faces competition from alternative methods of delivering crude oil shipments to port, including offshore offloading facilities. While we believe that lightering offers advantages over alternative methods of delivering crude oil to U.S. Gulf ports, Teekay Tankers’ lightering revenues may be limited due to the availability of alternative methods.
Teekay Tankers’ full service lightering operations are subject to specific risks that could lead to accidents, oil spills or property damage.
Lightering is subject to specific risks arising from the process of safely bringing two large moving tankers next to each other and mooring them for lightering operations. These operations require a high degree of expertise and present a higher risk of collision compared to when docking a vessel or transferring cargo at port. Lightering operations, similar to marine transportation in general, are also subject to risks due to events such as mechanical failures, human error, and weather conditions.
Legal and Regulatory Risks
Past port calls by our vessels, or third-party vessels from which we derived RSA revenues, to countries that are subject to sanctions imposed by the United States and the European Union may impact investors’ decisions to invest in our securities.
The United States has imposed sanctions on several countries or regions such as Cuba, North Korea, Syria, Sudan, Iran, Yemen and Venezuela. The EU lifted its previously enacted sanctions on Iran in January 2016. At that time, the U.S. lifted its secondary sanctions on Iran which applied to foreign persons but has retained its primary sanctions which apply to U.S. entities and their foreign subsidiaries. In the past, conventional oil tankers owned or chartered-in by us, or third-party vessels participating in RSAs from which we derive revenue, made limited port calls to those countries for the loading and discharging of oil products. Those port calls did not violate U.S. or EU sanctions at the time, and we intend to maintain our compliance with all U.S. and EU sanctions. In addition, we have no future contracted loadings or discharges in any of those countries and intend not to enter into voyage charter contracts for the transport of oil or gas to or from Iran or Syria.
We believe that our compliance with these sanctions and our lack of any future port calls to those countries does not and will not adversely impact our revenues, because port calls to these countries have never accounted for any material amount of our revenues. However, some investors might decide not to invest in us simply because we have previously called on, or through our participation in RSAs have previously received revenue from calls on, ports in these sanctioned countries. Any such investor reaction could adversely affect the market for our common shares.
Failure to comply with the U.S. Foreign Corrupt Practices Act, the UK Bribery Act, the UK Criminal Finances Act and other similar legislation in other jurisdictions could result in fines, criminal penalties, contract terminations and an adverse effect on our business.
We operate our vessels worldwide, which may require our vessels to trade in countries known to have a reputation for corruption. We are committed to doing business in accordance with applicable anti-corruption laws and have adopted a code of business conduct and ethics which is consistent and in full compliance with the U.S. Foreign Corrupt Practices Act of 1977 (or the FCPA), the Bribery Act 2010 of the United Kingdom (or the UK Bribery Act) and the Criminal Finances Act 2017 of the United Kingdom (the CFA). We are subject, however, to the risk that we, our affiliated entities or our or their respective officers, directors, employees and agents may take actions determined to be in violation of such anti-corruption and anti-money laundering laws, including the FCPA, the UK Bribery Act and the CFA. Any such violation could result in substantial fines, sanctions, civil and/or criminal penalties, or curtailment of operations in certain jurisdictions, and might adversely affect our business, results of operations or financial condition. In addition, actual or alleged violations could damage our reputation and ability to do business. Furthermore, detecting, investigating, and resolving actual or alleged violations is expensive and can consume significant time and attention of our senior management.
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 which are 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. For example, new or amended legislation relating to ship recycling, sewage systems, emission control (including emissions of greenhouse gases and other pollutants) as well as ballast water treatment and ballast water handling may be adopted. The IMO has also established progressive standards limiting emissions from ships starting from 2023 towards 2030 and 2050 goals. These and other laws or regulations may require significant additional capital expenditures or operating expenses in order for us to comply with the laws and regulations and maintain our vessels in compliance with international and national regulations. In addition, the higher emissions of Teekay LNG’s steam vessels relative to more modern vessels could make it more difficult to secure employment for these vessels and reduce the rates at which Teekay LNG can charter these vessels to its customers.
The environmental and other laws and regulations applicable to us 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 clean-up 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.
Climate change and greenhouse gas restrictions may adversely impact our operations and markets.
An increasing concern for, and focus on climate change has promoted extensive existing and proposed international, national and local regulations intended to reduce greenhouse gas emissions (including from various jurisdictions and the IMO). These regulatory measures may include the adoption of cap and trade regimes, carbon taxes, increased efficiency standards and incentives or mandates for renewable energy. Compliance with these or other regulations and our efforts to participate in reducing greenhouse gas emissions will likely increase our compliance costs, require additional capital expenditures to reduce vessel emissions and require changes to our business.
Our business includes transporting oil, refined petroleum products, LNG and LPG. Regulatory changes and growing public concern about the environmental impact of climate change may lead to reduced demand for hydrocarbon products and decreased demand for our services, while increasing or creating greater incentives for use of alternative energy sources. We expect regulatory and consumer efforts aimed at combating climate change to intensify and accelerate. Although we do not expect demand for oil and gas to decline dramatically over the short-term, in the long-term, climate change initiatives will likely significantly affect demand for oil and gas and for alternatives. Any such change could adversely affect our ability to compete in a changing market and our business, financial condition and results of operations.
Increasing scrutiny and changing expectations from investors, lenders, customers and other market participants with respect to ESG policies and practices may impose additional costs on us or expose us to additional risks.
Companies across all industries are facing increasing scrutiny relating to their ESG policies. Investor advocacy groups, certain institutional investors, investment funds, lenders and other market participants are increasingly focused on ESG practices and, in recent years, have placed increasing importance on the implications and social cost of their investments. The increased focus and activism related to ESG and similar matters may hinder access to capital, as investors and lenders may decide to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG practices. Companies that do not adapt to or comply with investor, lender or other industry shareholder expectations and standards, which are evolving, or which are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and their business, financial condition and stock price may be adversely affected.
We may face increasing pressures from investors, lenders, customers and other market participants, which are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability. As a result, we may be required to implement more stringent ESG procedures or standards so that our existing and future investors and lenders remain invested in us and make further investments in us, or in order for customers to consider conducting future business with us,especially given our business of transporting oil, refined petroleum products, LNG and LPG. In addition, it is likely we will incur additional costs and require additional resources to monitor, report and comply with wide-ranging ESG requirements. The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
Regulations relating to ballast water discharge which came into effect during September 2017 may adversely affect our operational results and financial condition.
The International Maritime Organization, the United Nations agency for maritime safety and the prevention of pollution by vessels (or the IMO) has imposed updated guidelines for ballast water management systems specifying the maximum amount of viable organisms allowed to be discharged from a vessel’s ballast water. Depending on the date of the International Oil Pollution Prevention renewal survey, existing vessels constructed before September 8, 2017 were required to comply with updated applicable standards on or after September 8, 2019. For most vessels, compliance with the applicable standard will involve installing on-board systems to treat ballast water and eliminate unwanted organisms. Ships constructed on or after September 8, 2017 are required to comply with the applicable standards on or after September 8, 2017. We are currently implementing ballast water management system upgrades on certain of our vessels in accordance with the required timelines imposed by the IMO. The cost of compliance with these regulations, including as a result of installing such systems, may be substantial and may adversely affect our results of operation and financial condition. In addition to the requirements under the IMO, the U.S. Coast Guard (or USCG) has imposed mandatory ballast water management practices for all vessels equipped with ballast water tanks and entering U.S. waters. These USCG regulations may have the effect of restricting our vessels from entering U.S. waters, unless we equip our vessels with pre-approved BWTS or receive authorization by a duly-issued permit or exemption.
As a Marshall Islands corporation with our headquarters in Bermuda and with a majority of our subsidiaries being Marshall Islands entities and also having subsidiaries in other offshore jurisdictions, our operations may be subject to economic substance requirements, which could impact our business.
Finance ministers of the EU rate jurisdictions for tax transparency, governance, real economic activity and corporate tax rate. Countries that do not adequately cooperate with the finance ministers are put on a “grey list” or a “blacklist”. Bermuda and the Marshall Islands were removed from the blacklist in May and October 2019, respectively. Subsequently, in February 2020, Bermuda and the Marshall Islands were "white-listed" by the EU and continue to remain on the white list.
EU member states have agreed upon a set of measures, which they can choose to apply against the listed countries, including increased monitoring and audits, withholding taxes, special documentation requirements and anti-abuse provisions. The European Commission has stated it will continue to support member states' efforts to develop a more coordinated approach to sanctions for the listed countries. EU legislation prohibits EU funds from being channeled or transited through entities in countries on the blacklist. Jurisdictions in which we operate could be put on the blacklist in the future.
We are a Marshall Islands corporation with our headquarters in Bermuda. A majority of our subsidiaries are Marshall Islands entities and a number of our subsidiaries are either organized or registered in Bermuda. These jurisdictions have enacted economic substance laws and regulations with which we are obligated to comply. We believe that we and our subsidiaries are compliant with the Bermuda and the Marshall Islands economic substance requirements and do not foresee that these requirements will have a material adverse effect on our business, financial condition and operating results. However, if there were a change in the requirements or interpretation thereof, or if there were an unexpected change to our operations, any such change could result in non-compliance with the economic substance legislation and related fines or other penalties, increased monitoring and audits, and dissolution of the non-compliant entity, which could have an adverse effect on our business, financial condition or operating results.
Information and Technology Risks
A cyber-attack could materially disrupt our business.
We rely on information technology systems and networks in our operations and the administration of our business. Cyber-attacks have increased in number and sophistication in recent years. Our operations could be targeted by individuals or groups seeking to sabotage or disrupt our information technology systems and networks, or to steal data. A successful cyber-attack could materially disrupt our operations, including the safety of our operations, or lead to unauthorized release of information or alteration of information on our systems. Any such attack or other breaches of our information technology systems could have a material adverse effect on our business and results of operations.
Our failure to comply with data privacy laws could damage our customer relationships and expose usto litigation risks and potential fines.
Data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions and countries in which we provide services and continue to develop in ways which we cannot predict, including with respect to evolving technologies such as cloud computing. The EU adopted the General Data Privacy Regulation (or GDPR), a comprehensive legal framework to govern data collection, use and sharing and related consumer privacy rights, which took effect in May 2018. The GDPR includes significant penalties for non-compliance. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace, which could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to an Investment in Our Securities
Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.
We are organized under the laws of the Marshall Islands, and all of our assets are located outside of the United States. In addition, a majority of our directors and officers are non-residents of the United States, and all or a substantial portion of the assets of these non-residents are located outside the United States. As a result, it may be difficult or impossible to bring an action against us or against these individuals in the United States. Even if successful in bringing an action of this kind, the laws of the Marshall Islands and of other jurisdictions may prevent or restrict the enforcement of a judgment against us or our assets or our directors and officers.
Tax Risks
In addition to the following risk factors, you should read "Item 4E —– Taxation of the Company", "Item 10 —– Additional Information —– Material U.S.United States Federal Income Tax Considerations" and "Item 10 —– Additional Information —– Non-United States Tax Consequences"Considerations" for a more complete discussion of the expected material U.S. federal and non-U.S. income tax considerations relating to us and the ownership and disposition of our common stock.
U.S. tax authorities could treat us as a “passive foreign investment company,” which could have adverse U.S. federal income tax consequences to U.S. shareholders.
A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a “passive foreign investment company” (or PFIC) for such purposes in any taxable year forin which, after taking into account the income and assets of the corporation and, pursuant to a “look-through” rule, any other corporation or partnership in which the corporation directly or indirectly owns at least 25% of the stock or equity interests (by value), either (a)(i) at least 75% of its gross income consists of “passive income” or (b)(ii) at least 50% of the average value of the entity’s assets is attributable to assets that produce or are held for the production of “passive income.” For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property and rents and royalties (otherother than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business).business. By contrast, income derived from the performance of services does not constitute “passive income.”
There are legal uncertainties involved in determining whether the income derived from our and our look-through subsidiaries' time-chartering activities constitutes rental income or income derived from the performance of services, including the decision in Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), which held that income derived from certain time-chartering activities should be treated as rental income rather than services income for purposes of a foreign sales corporation provision of the Internal Revenue Code of 1986, as amended (or the Code). However, the Internal Revenue Service (or the IRS) stated in an Action on Decision (AOD 2010-01) that it disagrees with, and will not acquiesce to, the way that the rental versus services framework was applied to the facts in the Tidewater decision, and in its discussion stated that the time charters at issue in Tidewater would be treated as producing services income for PFIC purposes. The IRS’s statement with respect to Tidewater cannot be relied upon or otherwise cited as precedent by taxpayers. Consequently, in the absence of any binding legal authority specifically relating to the statutory provisions governing PFICs, there can be no assurance that the IRS or a court would not follow the Tidewater decision in interpreting the PFIC provisions of the Code. Nevertheless, based on theour and our look-through subsidiaries' current composition of our assets and operations, (and those of our subsidiaries), we intend to take the position that we are not now and have never been a PFIC. No assurance can be given, however, that this position would be sustained by a court if contested by the IRS or that we would not constitute a PFIC for any future taxable year if there were to be changes in our and our look-through subsidiaries' assets, income or operations.
If the IRS were to determine that we are or have been a PFIC for any taxable year during which a U.S. Holder (as defined below under "Item 10 —– Additional Information —– Material U.S.United States Federal Income Tax Considerations") held our common stock, such U.S. Holder would face adverse U.S. federal income tax consequences. For a more comprehensive discussion regarding the tax consequences to U.S. Holders if we are treated as a PFIC, please read "Item 10 —– Additional Information —– Material U.S.United States Federal Income Tax Considerations —– United States Federal Income Taxation of U.S. Holders —– Consequences of Possible PFIC Classification".
We may beare subject to taxes, which could affectreduces our operating results.cash available for distribution to shareholders.
We or our subsidiaries are subject to tax in certain jurisdictions in which we or our subsidiaries are organized, own assets or have operations, which reduces the amount of our operating results.cash available for distribution. In computing our tax obligations in these jurisdictions, we are required to take various tax accounting and reporting positions, including in certain cases estimates, on matters that are not entirely free from doubt and for which we may not have not received rulings from the governing authorities. We cannot assure you that upon review of these positions, the applicable authorities will agree with our positions. A successful challenge by a tax authority could result in additional tax imposed on us or our subsidiaries, further reducing the cash available for distribution. We have established reserves in our operating results.financial statements that we believe are adequate to cover our liability for any such additional taxes. We cannot assure you, however, that such reserves will be sufficient to cover any additional tax liability that may be imposed on our subsidiaries. In addition, changes in our operations or ownership could result in additional tax being imposed on us or on our subsidiaries in jurisdictions in which operations are conducted. For example, 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 Code. If we were not exempt from tax under Section 883 of the Code, we would be subject to U.S. federal income tax on shipping income attributable to our subsidiaries’ transportationwe earn from voyages into or out of cargoes to or from the U.S.,United States, the amount of which is not within our complete control. Also,In addition, we may rely on an exemption to be deemed non-resident in Canada for Canadian tax purposes under subsection 250(6) of the Canada Income Tax Act for (i) corporations whose principal business is international shipping and that derive all or substantially all of their revenue from international shipping, and (ii) corporations that are holding companies that have over half of the cost base of their investments in eligible international shipping subsidiaries and receive substantially all of their revenue as dividends from those eligible international shipping subsidiaries exempt under subsection 250(6). If we were to cease to qualify for the subsection 250(6) exemption, we could be subject to Canadian income tax and also Canadian withholding tax on outbound distributions, which could have an adverse effect on our operating results. In addition, to the extent Teekay Corporation were to distribute dividends as a corporation determined to be resident in Canada, stockholders who are not resident in Canada for purposes of the Canada Income Tax Act would generally be subject to Canadian withholding tax in respect of such dividends paid by Teekay Corporation.
Typically, most of our and our subsidiaries' time-charter and spot-voyage charter contracts require the charterer to reimburse us for a certain period of time in respect of taxes incurred as a consequence of the voyage activities of our vessels, while performing under the relevant charter. However, our rights to reimbursement under charter contracts may not survive for as long as the applicable tax statutes of limitations in the jurisdictions in which we or our subsidiaries are organized, own assets or have operations may change their tax laws, oroperate. As such, we may enter into new business transactions relatingnot be able to such jurisdictions, which could result in increased tax liability and reduceobtain reimbursement from our operating results. Please read "Item 4 — charterers where any applicable taxes that are not paid before the contractual claim period has expired.
Item 4.Information on the Company — Taxation of the Company".
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Item 4. | Information on the Company |
A.Overview, History and Development | |
A. | Overview, History and Development |
Overview
Teekay Corporation is an operational leader, project developer and portfolio manager in the marine midstream space. We are a leading provider of international crudeprimarily provide oil and gas marine transportation services to the world’s leading oil and we also offer offshore oil production, storage and offloading services, primarily undergas companies. We generate a significant portion of revenue from long-term, fixed-rate contracts.contracts with a diverse base of energy and utility companies. Over the past decade,20 years, we have undergone a major transformation from being primarily an owner of ships in the cyclical spot tanker business to being a growth-oriented asset manager in the “Marine Midstream” sector. This transformation has included our expansionexpanding into the liquefied natural gas (or LNG) and liquefied petroleum gas (or LPG) shipping sectors through our publicly-listed subsidiary Teekay LNG Partners L.P. (NYSE: TGP) (or Teekay LNG), the continuation ofcontinuing our conventional tanker business through our publicly-listed subsidiary Teekay Tankers Ltd. (NYSE: TNK) (or Teekay Tankers), and further growth of our operationsnow operating on a limited basis in the offshore production storage and transportation sector through our ownership of TPO Investments AS and through our equity-accounted investment Teekay Offshore Partners L.P. (NYSE: TOO) (or Teekay Offshore). AS.
The combined Teekay entities operate total assets under management of approximately $13$9 billion, comprised of approximately 220135 liquefied gas, offshore, and conventional tanker assets (excluding vessels managed for third parties). With offices in 1410 countries and approximately 8,3005,350 seagoing and shore-based employees, Teekay provides a comprehensive set of marine services to the world’s leading oil and gas companies. We are one of the world’s largest independent owners and operators of LNG carriers and one of the world’s largest owners and operators of mid-sized crude tankers. Our organizational structure can be divided into (a) our controlling interests in our publicly-listed subsidiaries, Teekay LNG and Teekay Tankers (or the Controlled Daughter Entities), our equity-accounted investment in Teekay Offshore (together with the Controlled Daughter Entities, the Daughter Entities), and (b) Teekay and its remaining subsidiaries which is referred to herein as (or Teekay Parent).
Our business strategy across the Teekay Group is focused on the following:
•Generate attractive long-term risk-adjusted returns, utilizing our market leading positions, global footprint and operational excellence;
•Offer a wide breadth of marine midstream solutions to meet our customers’ needs; and
•Provide superior customer service by maintainmaintaining high reliability, safety, environmental and quality standards.
As of January 1, 2021, the Teekay group had approximately $9 billion of contracted, forward fixed-rate revenues. The revenue-weighted average remaining term of the Teekay group’s contracts was approximately 10.4 years as of January 1, 2021, excluding spot market contracts and extension options. “Revenue-weighted average” represents the average remaining fixed contract duration of the applicable contracts, weighted on the basis of aggregate fixed forward payments to be received from each operating segment, excluding extension options. Fixed forward payments for our equity-accounted investments and joint ventures are proportionately adjusted in the calculation to reflect our ownership interests in such investments and joint ventures.
Teekay LNG includes all of our LNG and LPG carriers. LNG carriers are usually chartered to carry LNG pursuant to time-charter contracts, where a vessel is hired for a fixed period of time. LPG carriers are mainly chartered to carry LPG and ammonia on time charters, on contracts of affreightment or spot voyage charters. As of December 31, 2017,2020, Teekay LNG’s fleet including newbuildings on order, had a total cargo carrying capacity of approximately 9.18.9 million cubic meters. Please read “—“– B. Operations—Operations – Our Fleet.”
Teekay Tankers includes a substantial majorityall of our conventional crude oil tankers and product carriers. Teekay Tankers' conventional crude oil tankers and product tankers primarily operate in the spot-tankerspot tanker market or are subject to time charters or contracts of affreightment that are priced on a spot-marketspot market basis or are short-term, fixed-rate contracts. Teekay Tankers considers contracts that have an original term of less than one year in duration to be short-term. Certain of its conventional crude oil tankers and product tankers are on fixed-rate time-charter contracts with an initial duration of at least one year. Our conventional Aframax, Suezmax, and large product tankers are among the vessels included in Teekay Tankers. Please read “—“– B. Operations—Operations – Our Fleet.”
We have chartering staff located in Singapore; London, England; and Houston, USA. 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.
Teekay Offshore includes shuttle tanker operations, FPSO units, FSO units, and offshore support which includes UMS, which primarily operate under long-term fixed-rate contracts, and long-distance towing and offshore installation vessels. As of December 31, 2017, our shuttle tanker fleet, including newbuildings, had a total cargo capacity of approximately 4.8 million deadweight tonnes (or dwt), which represented approximately 47% of the total tonnage of the world shuttle tanker fleet. Please read “-B. Operations-Our Fleet.”
Teekay Parent currently owns three FPSO units. Our long-term vision is forunits; however, Teekay Parent does not intend to have a direct ownership in any vessels.retain these assets over the long term. Please read “– B. Operations – Teekay Parent.”
The Teekay organization was founded in 1973. We are incorporated under the laws of the Republic of The Marshall Islands as Teekay Corporation and maintain our principal executive office at 4th floor,Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda. Our telephone number at such address is (441) 298-2530.
The SEC maintains an Internet site at www.sec.gov, that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our website is www.teekay.com. The information contained on our website is not part of this annual report.
Our Ownership of the Daughter Entities and Recent Equity Offerings and Transactions by Daughter Entities
Our ownership of Teekay Tankers was 28.8%28.6% as of March 1, 2018.December 31, 2020. We maintain voting control of Teekay Tankers through our ownership of shares of Class A and Class B Common Stock and continue to consolidate this subsidiary. Our ownership of Teekay LNG was 33.0%42.4% (including our 2% general partner interest) as of March 1, 2018.December 31, 2020. We maintain control of Teekay LNG by virtue of our control of the general partner and will continue to consolidate this subsidiary. Our ownership interest in Teekay Offshore was 14.1% (including 13.8% of the outstanding publicly traded common units and 51% of the general partner interest) as of March 1, 2018. We have significant influence over Teekay Offshore and account for our investment in Teekay Offshore using the equity method. Please read “Item 18.18 – Financial Statements: Note 5 —4 – Equity Financing Transactions of the Daughter Entities.”
In May 2019, we sold our then remaining interests in Altera to Brookfield (or the 2019 Brookfield Transaction).
Please read “Item 5.5 – Operating and Financial Review and Prospects—Prospects – Management’s Discussion and Analysis of Financial Condition and Results of Operations—Operations – Recent Developments and Results of Operations” for more information on recent transactions.
We (excludingSeasonality of our investmentoperations
Our tankers operate in Teekay Offshore)markets that have historically exhibited seasonal variations in tanker demand and, therefore, in spot-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 but weaker in the summer months as a result of lower oil consumption in the northern hemisphere and refinery maintenance. In addition, unpredictable weather patterns during the winter months tend to disrupt vessel scheduling, which historically has increased oil price volatility and oil trading activities in the winter months. As a result, revenues generated by the tankers in our fleet have historically been weaker during our fiscal quarters ended June 30 and September 30, and stronger in our fiscal quarters ended December 31 and March 31.
B.Operations
We have three primary lines of business: offshore production (FPSO units), liquefied gas carriers, conventional tankers, and conventional tankers.offshore production (FPSO units). We manage these businesses for the benefit of all stakeholders. We allocate capital and assess performance from the separate perspectives of Teekay LNG and Teekay Tankers, and Teekay Parent, and its investment in Teekay Offshore, as well as from the perspective of the lines of business (the Line of Business approach). The primary focus of our organizational structure, internal reporting and allocation of resources by the chief operating decision maker, is on Teekay LNG and Teekay Tankers, and Teekay Parent and Teekay Parent's investment in Teekay Offshore (the Legal Entity approach). However, we have continuedcontinue to incorporate the Line of Business approach as in certain cases there is more than one line of business in each of Teekay LNG, Teekay Tankers and Teekay Parent, and we believe this information allows a better understanding of our performance and prospects for future net cash flows. Subsequent to the Brookfield Transaction on September 25, 2017, we assess the performance of, and make decisions to allocate resources to, our investment in Teekay Offshore as a whole and not at the level of the individual lines of business within Teekay Offshore, which are (1) offshore production (FPSO units), (2) offshore logistics (shuttle tankers, the HiLoad DP unit, floating storage and offtake (or FSO) units, units for maintenance and safety (or UMS) and long-distance towing and offshore installation vessels), and (3) conventional tankers. We have determined that our investment in Teekay Offshore represents a separate operating segment and as such, individual lines of business within Teekay Offshore are no longer disclosed in our operating segments and are not discussed individually in the following sections.
Teekay LNG
Teekay LNG’s vessels primarily compete in the LNG and LPG markets. LNG carriers are usually chartered to carry LNG pursuant to time-charter contracts, where a vessel is hired for a fixed period of time and the charter rate is payable to the owner on a monthly basis.basis and in advance. LNG shipping historically has been transacted with long-term, fixed-rate time-charter contracts. 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 heavily on long-range planning and coordination of project activities, including marine transportation. Most shipping requirements for new LNG projects continue to be provided on a long-term basis, though the level of spot voyages (typically consisting of a single voyage), short-term time-charters and medium-term time-charters have grown in the past fewrecent years. The amount of LNG traded on a spot and short-term basis (defined as contracts with a duration of four years or less) has increased from approximately 19% of total LNG trade in 2010 to approximately 27% in 2017.
In the LNG markets,market, Teekay LNG competes principally with other private and state-controlled energy and utilities companies that 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 some major energy companies have continued to divest non-core businesses. Other major operators of LNG carriers include Qatar Gas Transport (Nakilat), Malaysian International Shipping Company, Mitsui O.S.K. Lines, Maran Gas Maritime, BW Gas, GasLog, NYK Line, and Golar LNG.
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 the LNG and provides insulation to reduce the amount of LNG that boils off naturally. That natural boil off is either used as fuel to power the engines on the ship or it can be reliquified and put back into the tanks. LNG is transported overseas in specially built tanks on double-hulled ships to a receiving terminal, where it is offloaded and stored in 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.
With the exception of the Arctic Spirit and Polar Spirit, which are the only two ships in the world that utilize the Ishikawajima Harima Heavy Industries Self Supporting Prismatic Tank IMO Type B (or IHI SPB) independent tank technology, Teekay LNG's fleet makes use of one of the Gaz Transport and Technigaz (or GTT) membrane containment systems. The GTT membrane systems are used in the majority of LNG tankers now being constructed. New LNG carriers generally have an expected lifespan of approximately 35 to 40 years. Unlike the oil tanker industry, there are currently no regulations that require the phase-out from trading of LNG carriers after they reach a certain age. As at December 31, 2020, Teekay LNG's LNG carriers, including equity-accounted vessels, had an average age of approximately eight years, compared to the world LNG carrier fleet average age of approximately 10 years. In addition, as at that date, there were approximately 622 vessels in the world LNG fleet and approximately 163 additional LNG carriers under construction or on order for delivery through 2023, inclusive of floating storage units and floating storage regasification units.
In the LPG market, Teekay LNG competes principally with independent ship owners and operators, and other private and state-controlled energy and chemical companies that generally operate captive fleets.
LPG shipping involves the transportation of three main categories of cargo: liquid petroleum gases, including propane, butane and ethane; petrochemical gases including ethylene, propylene and butadiene; and ammonia. LPG carriers are mainly chartered to carry LPG on time-charters, 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.
With the exception of the Arctic Spirit and Polar Spirit, which are the only two ships in the world that utilize the Ishikawajima Harima Heavy Industries Self Supporting Prismatic Tank IMO Type B (or IHI SPB) independent tank technology, Teekay LNG's fleet makes use of one of the Gaz Transport and Technigaz (or GTT) membrane containment systems. The GTT membrane systems are used in the majority of LNG tankers now being constructed. New LNG carriers generally have an expected lifespan of approximately 35 to 40 years. Unlike the oil tanker industry, there are currently no regulations that require the phase-out from trading of LNG carriers after they reach a certain age. As at December 31, 2017, there were approximately 502 vessels in the worldwide LNG fleet, with2020, Teekay LNG's LPG and multi-gas carriers had an average age of approximately 11ten years and an additional 119 LNG carriers under construction or on order for delivery throughcompared to world average of 15 years as of December 31, 2020.
As of December 31, 2017,2020, the worldwide LPG tankercarrier fleet consisted of approximately 1,4521,498 vessels with an average age of approximately 15 years and approximately 7199 additional LPG vessels on order for delivery through 2020.2023. LPG carriers range in size from approximately 100 to approximately 88,00098,000 cubic meters (or cbm). Approximately 43%41% (in terms of vessel numbers) of the worldwide fleet is less than 5,000 cbm. New LPG carriers generally have an expected lifespan of approximately 30 to 35 years.
Teekay LNG includes substantially all of our LNG and LPG carriers. As at December 31, 2017,2020, Teekay LNG had ownership interests in 3547 LNG carriers, as well as 15 additional newbuilding LNG carriers on order.carriers. In addition, as at December 31, 2017,2020, Teekay LNG had full ownership of seven LPG carriers and 50% ownership, through its 50% joint venture agreement with Exmar LPG BVBA (or the Exmar LPG Joint Venture), in another 1820 LPG carriers three newbuilding LPG carriers on order, and twothree chartered-in LPG carriers.
Teekay Tankers
Teekay Tankers owns a substantial majorityall of our conventional crude oil tankers and product carriers. Our conventional crude oil tankers and product tankers primarily operate in the spot-tanker market or are 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 one year in duration to be short-term. Certain of our conventional crude oil tankers and product tankers are on fixed-rate time-charter contracts with an initial duration of at least one year.
Most of Teekay Tankers’ conventional tankers operate pursuant to revenue sharing agreements (or RSAs). The RSAs are designed to spread the costs and risks associated with operation of vessels and to share the net revenues (revenues less voyage expenses and other applicable expenses) earned by all of the vessels in the RSA, based on the actual earning days each vessel is available and the relative performance capabilities, including speed and bunker consumption of each vessel. The performance capabilities of each vessel are adjusted on standard intervals based on current data. In addition, Teekay Tankers' share of the net revenues includes additional amounts, consisting of a per vessel per day fee and a percentage of the gross revenues related to the vessels of third-party vessel owners, based on their responsibilities in employing the vessels subject to the RSAs on voyage charters or time-charters. As of December 31, 2020, 43 of Teekay Tankers' owned and leased vessels and three of Teekay Tankers' time-chartered in vessels operated in the spot market through employment on spot voyage charters. 21 of Teekay Tankers' Suezmax tankers, 12 of the Aframax tankers and six of the LR2 product tankers in its fleet, as well as 18 vessels not in its fleet and owned by third parties, were subject to RSAs. The vessels subject to the RSAs are employed and operated in the spot market or pursuant to time charters of less than one year.
Teekay Tankers’ vessels compete primarily in the Aframax and Suezmax tanker markets. In these markets, international seaborne oil and other petroleum products transportation services are provided by two main types of operators: captive fleets of major oil companies (both private and state-owned) and independent ship-owner fleets. Many major oil companies and other oil trading companies, the primary charterers of our vessels, also operate their own vessels and transport their own oil and oil for third-party charterers in direct competition with independent owners and operators. 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.
Teekay Tankers competes 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.
Most of Teekay Tankers’ conventional tankers operate pursuant to pooling or revenue sharing commercial management arrangements. Under such arrangements, 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 or revenue sharing commercial management arrangement, less related voyage expenses (such as fuel and port charges) and administrative expenses, are pooled and allocated to the vessel owners according to a pre-determined formula. As of December 31, 2017, 36 of Teekay Tankers' owned vessels, four of Teekay Tankers' capital lease vessels and one of Teekay Tankers' time-chartered in vessels operated in the spot market through participation in Teekay-managed RSAs or on spot voyage charters. 24 of Teekay Tankers' owned and capital lease vessels operated in the Teekay Suezmax RSA, seven of Teekay Tankers' owned vessels operated in the Teekay Aframax RSA and six of Teekay Tankers' owned vessels operated in the Taurus Tankers LR2 RSA. In addition, three of Teekay Tankers' owned vessels and one time-chartered in vessel operated in the spot market on voyage charters.
Teekay Tankers’ competition in the Aframax (80,000(85,000 to 124,999 dwt) market is also affected by the availability of other size vessels that compete in that market. Suezmax (125,000 to 199,999 dwt) vessels and Panamax (55,000 to 79,99984,999 dwt) vessels can compete for many of the same charters for which our Aframax tankers compete; Aframax size vessels and VLCCs (200,000 to 319,999 dwt) can compete for many of the same charters for which our Suezmax tankers may compete. Because of their large size, Very Large Crude Carriers (or VLCCs) and Ultra Large Crude Carriers (or ULCCs) (320,000+ dwt) rarely compete directly with Aframax tankers, and ULCCs rarely compete with Suezmax tankers for specific charters. However, because VLCCs and ULCCs comprise a substantial portion of the total capacity of the market, movements by such vessels into Suezmax trades and of Suezmax vessels into Aframax trades would heighten the already intense competition.
Teekay Tankers also competes in the Long Range 2 (or LR2) (80,000(85,000 to 119,999109,999 dwt) product tanker market. Competition in the LR2 product tanker market is affected by the availability of other size vessels that compete in the market. Long Range 1 (or LR1) (60,000-79,999(55,000-84,999 dwt) size vessels can compete for many of the same charters for which ourTeekay Tankers' LR2 tankers compete.
We believeThe operation of tanker vessels, as well as the seaborne transportation of crude oil and refined petroleum products, is a competitive market. There are several large operators of Aframax, Suezmax, and LR2 tonnage that we haveprovide these services globally.
Teekay Tankers believes that it has competitive advantages in the Aframax and Suezmax tanker market as a result of the quality, type and dimensions of ourits vessels and ourits market share in the Indo-Pacific and Atlantic Basins. As of December 31, 2017, our Aframax2020, its Aframax/LR2 tanker fleet (excluding Aframax-size shuttle tankers and newbuildings) had an average age of approximately 10.212.2 years and ourits Suezmax tanker fleet (excluding Suezmax-size shuttle tankers and newbuildings) had an average age of approximately 8.711.0 years. This compares to an average age for the world oil tanker fleet of approximately 10.411.3 years, for the world AframaxAframax/LR2 tanker fleet of approximately 10.211.2 years and for the world Suezmax tanker fleet of approximately 9.510.3 years.
As of December 31, 2017, other large operators of Aframax tonnage (including newbuildings on order) included Sovcomflot (approximately 48 vessels), Malaysian International Shipping Corporation (approximately 43 Aframax vessels), Sigma Pool (approximately 36 vessels), and the Navig8 Pool (approximately 17 vessels). Other large operators of Suezmax tonnage (including newbuildings on order) as of such date included the Nordic American Tankers (approximately 33 vessels), the Blue Fin Pool (approximately 23 vessels), Euronav (approximately 22 vessels), the Stena Sonangol Pool (18 vessels), Navig8 (approximately 16 vessels), and Sovcomflot (approximately 15 vessels).
Teekay Tankers completed a merger with TIL in November 2017, acquiring all of the remaining 27.0 million issued and outstanding common shares of TIL, in a share-for-share exchange at a ratio of 3.3 shares of Teekay Tankers' Class A common stock for each share of TIL common stock. As a result of the merger, TIL became a wholly-owned subsidiary of Teekay Tankers. At the time of the merger, TIL owned a modern fleet of 10 Suezmax tankers, six Aframax tankers and two LR2 product tankers. For additional information, please read "Item 18 - Financial Statements: Note 14a - Investments".
In May 2017, Teekay Tankers completed the acquisition from Teekay Holdings Ltd., a wholly-owned subsidiary of Teekay, of the remaining 50% interest in Teekay Tanker Operations Ltd. (or TTOL), which owns conventional tanker commercial management and technical management operations and directly administers four commercially managed tanker revenue sharing arrangements (or RSAs).
Teekay Tankers acquired SPTa ship-to-ship transfer business (now known as Teekay Marine Solutions or TMS) in July 2015 from a company jointly owned by Teekay and I.M. Skaugen SE (or Skaugen). TMS providesprovided a full suite of ship-to-ship transfer services in the oil, gas and dry bulk industries. In addition to full service lightering and lightering support, it also providesprovided consultancy, terminal management and project development services. In April 2020, Teekay Tankers completed the sale of its non-U.S. portion of the TMS owns a fleet of four STS support vessels and has two in-chartered Aframax tankers.business, as well as its LNG terminal management business.
Teekay OffshoreParent
Our long-term vision is for Teekay Parent to be primarily a portfolio manager and project developer with the Teekay Group’s fixed assets primarily owned directly by its Daughter Entities. Our primary financial objectives for Teekay Parent are to increase the value of our investments in Teekay LNG and Teekay Tankers, increase Teekay Parent’s free cash flow per share and, as a service provider to its Daughter Entities and to third parties, provide scale and other benefits across the Teekay Group. We also intend to (a) continue to reduce debt of Teekay Parent, including by selling assets in the future and using the net proceeds to repay debt and (b) seek to increase the distributions of Teekay LNG in a sustainable manner and consider paying dividends from Teekay Tankers from time to time, balanced with other capital allocation priorities.
FPSO Units
FPSO units are offshore production facilities that are ship-shaped or cylindrical-shaped and store processed crude oil in tanks located in the hull of the vessel. FPSO units are typically used as production facilities to develop marginal oil fields or deepwater areas remote from existing pipeline infrastructure. Of four major types of floating production systems, FPSO units are the most common type. Typically, the other types of floating production systems do not have significant storage and need to be connected into a pipeline system or use an FSO unit for storage. FPSO units are less weight-sensitive than other types of floating production systems and their extensive deck area provides flexibility in process plant layouts. In addition, the ability to utilize surplus or aging tanker hulls for conversion to an FPSO unit provides a relatively inexpensive solution compared to the new construction of other floating production systems. 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. An FPSO unit carries on board all the necessary production and processing facilities normally associated with a fixed production platform. As the name suggests, FPSO units are not fixed permanently to the seabed but are designed to be moored at one location for long periods of time. In a typical FPSO unit installation, the untreated well-stream is brought to the surface via subsea equipment on the sea floor that is connected to the FPSO unit by flexible flow lines called risers. The risers carry oil, gas and water from the ocean floor to the vessel, which processes it on board. The resulting crude oil is stored in the hull of the vessel and subsequently transferred to tankers either via a buoy or tandem loading system for transport to shore.
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. FPSO units have been used to develop offshore fields around the world since the late 1970s. Most independent FPSO contractors have backgrounds in marine energy transportation, oil field services or oil field engineering and construction. As of December 31, 2017, there were approximately 176
The Sevan Hummingbird FPSO units operating and 22 FPSO unitsunit is on order in the world fleet. At December 31, 2017, Teekay Offshore owned six FPSO units, in which it has 100% ownership interests, and two FPSO units, in which it has 50% ownership interests. Other major independent FPSO contractors are SBM Offshore N.V., BW Offshore, MODEC, Bumi Armada and Bluewater.
Shuttle Tankers
A shuttle tanker is a specialized ship designed to transport crude oil and condensates from offshore oil field installations to onshore terminals and refineries. Shuttle tankers are equippedcharter contract 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 developedSpirit Energy Ltd (or Spirit Energy) in the North Sea as an alternative to pipelines.until March 2023. The first cargo from an offshore field in the North Sea was shipped in 1977,contract is based on a fixed charter rate and the first dynamically positioned shuttle tankers were introduced in the early 1980s. 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.
Teekay Offshore’s shuttle tankers are primarilyis subject to long-term, fixed-rate time-charter contracts forearly termination options.
In March 2020, Teekay Parent entered into a specific offshore oil field or under contracts of affreightment for various fields. The number of voyages performed under these contracts of affreightment normally depends uponnew bareboat charter contract with the oil production of each field. Competition for charters is primarily based upon price, availability, the size, technical sophistication, age and conditionexisting charterer of the vessel and the reputation of the vessel’s manager. Although the size of the world shuttle tanker fleet has been relatively unchanged in recent years, conventional tankers could 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. The shuttle tankers in Teekay Offshore's contract of affreightment fleet may operate in the conventional spot market during downtime or maintenance periods for oil field installations or otherwise, which provides greater capacity utilization for the fleet.
As of December 31, 2017, there were approximately 81 vessels in the world shuttle tanker fleet (including seven newbuildings), the majority of which operate in the North Sea and Brazil. Shuttle tankers also operate off the East Coast of Canada and in the U.S. Gulf. As of December 31, 2017, Teekay Offshore owned 34 shuttle tankers (including five vessels under construction and the HiLoad DP unit), in which their ownership interests ranged from 50% to 100%, and chartered-in an additional three shuttle tankers. Other shuttle tanker owners include Knutsen NYK Offshore Tankers AS, KNOT Offshore Partners LP, SCF Group, Viken Shipping and AET Inc. Limited (or AET), which, as of December 31, 2017, controlled fleets of 5 to 29 shuttle tankers each. We believe that we have 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, Brazil and the East Coast of Canada.
FSO Units
FSO units provide on-site storage for oil field installations that have no storage facilities or that require supplemental storage. An FSOPetrojarl Foinaven FPSO 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 off-take systems required by field operators or regulators. FSO units are moored to the seabed at a safe distance from a field installation and receive 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 off-take 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.
Teekay Offshore’s FSO units are generally placed on long-term, fixed-rate time charters or bareboat charters as an integrated part of the field development plan, which provides more stable cash flow to Teekay Offshore.
As of December 31, 2017, there were approximately 94 FSO units operating and five FSO units on order in the world fleet. As at December 31, 2017, Teekay Offshore had ownership interests in six FSO units, in which their ownership interests ranged from 89% to 100%. The major markets for FSO units are Asia, West Africa, Northern Europe, the Mediterranean and the Middle East. 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.
UMS
UMS are used primarily for offshore accommodation, storage and support for maintenance and modification projects on existing offshore installations, or during the installation and decommissioning of large floating exploration, production and storage units, including FPSO units, FLNG units and floating drill rigs. Teekay Offshore’s UMS unit is available for world-wide operations, excluding operations on the Norwegian Continental Shelf, and includes DP3 keeping systems that are capable of operating in deep water and harsh weather.
As of December 31, 2017, there were approximately 51 DP UMS operating and 13 units on order in the world fleet. As at December 31, 2017, Teekay Offshore's fleet consisted of one unit, the Arendal Spirit, in which Teekay Offshore owns a 100% interest.
Towage Vessels
Long-distance towing and offshore installation vessels are used for the towing, station-keeping, installation and decommissioning of large floating objects, such as exploration, production and storage units, including FPSO units, floating liquefied natural gas (or FLNG) units and floating drill rigs. Teekay Offshore operates with high-end vessels which can be defined as long-distance towingextended up to December 2030. Under the terms of the new contract, Teekay Parent received a cash payment of $67 million in April 2020 and offshore installation vessels withwill receive a bollard pull of greater than 190 tonnes and a fuel capacity of more than 2,000 metric tonnes. Teekay Offshore’s focus is on intercontinental towages requiring trans-ocean movements.
Teekay Offshore’s towage vessels operate on voyage-charter and spot contracts. Voyage-charter contract revenue is less volatile than revenue from spot market rates, as project budgets are prepared and maintained well in advancenominal per day rate over the life of the contract commencement.
Asand a lump sum payment at the end of December 31, 2017, there were approximately 31 long-distance towing and offshore installation vessels with a bollard pull greater than 150 tonnes,the contract period, which is expected to cover the minimum specificationcosts of recycling the FPSO unit in accordance with the EU ship recycling regulations.
Oil production under the existing contract for vessels in direct competition with us, operating and one long-distance towing and offshore installation vesselsthe Petrojarl Banff FPSO unit ceased on order in the world fleet. At December 31, 2017, Teekay Offshore’s fleet included ten long-distance towing and offshore installation vessels (including one newbuildingJune 1, 2020, at which was delivered in February 2018), all of which Teekay Offshore has 100% ownership interests.
Teekay Parent
In addition to Teekay Parent’s significant investments in Teekay LNG, Teekay Tankers and Teekay Offshore,time Teekay Parent continues to own and operate three FPSO units. Our long-term vision is forbegan incurring decommissioning/asset retirement costs. Under the agreement with the customer, Teekay Parent has until June 2023 to be primarily a portfolio manager and project developer withcomplete the Teekay Group’s fixed assets primarily owned directly by its Daughter Entities. Our primary financial objectives forrequired decommissioning work. In December 2020, Teekay Parent isentered into a contract to increaserecycle the value of our three Petrojarl Banff FPSO units and the value of our investmentsunit in Teekay LNG, Teekay Tankers and Teekay Offshore, increase Teekay Parent’s free cash flow per share and, as a service provider to its Daughter Entities, provide scale and other benefits across the Teekay Group.Denmark in 2021.
Our Consolidated Fleet under Management
As at December 31, 2017, the combined2020, Teekay entitiesand its Daughter Entities operated under management a fleet of 217140 vessels (excluding vessels managed for third parties), including chartered-in vessels and newbuildings/conversions on order.but excluding an Aframax tanker newbuilding that is scheduled to be delivered in the fourth quarter of 2022 under a seven-year time charter-in contract. The following table summarizes our fleet under management as at December 31, 2017:2020:
| | | | | | | | | | | | | | | | | | | | |
| | Owned and Leased Vessels | | Chartered-in
Vessels | | Total |
| Teekay LNG | | | | | | |
| Gas | | | | | | |
| LNG Vessels | | 47 | | (1) | — | | | 47 | |
| LPG/Multigas Vessels | | 27 | | (2) | 3 | | (3) | 30 | |
| | 74 | | | 3 | | | 77 | |
| Teekay Tankers | | | | | | |
| Conventional Tankers | | | | | | |
| Aframax Tankers | | 17 | | | 2 | | | 19 | |
| Suezmax Tankers | | 26 | | | — | | | 26 | |
| VLCC Tanker | | 1 | | (4) | — | | | 1 | |
| Product Tankers | | 9 | | | 1 | | | 10 | |
| STS Support Vessels | | — | | | 3 | | | 3 | |
| | 53 | | | 6 | | | 59 | |
Teekay Parent | | | | | | |
| FPSO Units | | 3 | | | — | | | 3 | |
| FSO Unit | | — | | | 1 | | (5) | 1 | |
| | 3 | | | 1 | | | 4 | |
| Total | | 130 | | | 10 | | | 140 | |
(1)Includes a 70% interest in five LNG carriers, a 52% interest in six LNG carriers, a 50% interest in seven LNG carriers, a 40% interest in four LNG carriers, a 33% interest in four LNG carriers, a 30% interest in two LNG carriers, and a 20% interest in two LNG carriers.
|
| | | | | | | | | | | | |
| | | Owned Vessels | | Chartered-in Vessels | | Newbuildings / Conversions | | Total |
| Teekay LNG | | | | | | | | |
| LNG Vessels | | 35 |
| (1) | — |
| | 15 |
| (2) | 50 |
|
| LPG/Multigas Vessels | | 25 |
| (3) | 2 |
| | 3 |
| (4) | 30 |
|
| Suezmax Tankers | | 4 |
| (5) | — |
| | — |
| | 4 |
|
| Handymax Product Tanker | | 1 |
| | — |
| | — |
| | 1 |
|
| | | 65 |
| | 2 |
| | 18 |
| | 85 |
|
| Teekay Tankers | | | | | | | | |
| Aframax Tankers | | 17 |
| | 1 |
| | — |
| | 18 |
|
| Suezmax Tankers | | 30 |
| | — |
| | — |
| | 30 |
|
| VLCC | | 1 |
| (6) | — |
| | — |
| | 1 |
|
| Product Tankers | | 9 |
| | — |
| | — |
| | 9 |
|
| STS Support Vessels | | 3 |
| | 3 |
| | — |
| | 6 |
|
| | | 60 |
| | 4 |
| | — |
| | 64 |
|
Teekay Parent (7) | | | | | | | | |
| FPSO Units | | 3 |
| | — |
| | — |
| | 3 |
|
| Bunker Barge | | — |
| | 1 |
| | — |
| | 1 |
|
| | | 3 |
| | 1 |
| | — |
| | 4 |
|
| Teekay Offshore | | | | | | | | |
| FPSO Units | | 8 |
| | — |
| | — |
| | 8 |
|
| Shuttle Tankers | | 28 |
| (8) | 3 |
| | 5 |
| (9) | 36 |
|
| FSO Units | | 6 |
| (10) | — |
| | — |
| | 6 |
|
| Unit for Maintenance and Safety (UMS) | | 1 |
| | — |
| | — |
| | 1 |
|
| Towage Vessels | | 9 |
| | — |
| | 1 |
| (11) | 10 |
|
| HiLoad Dynamic Positioning Unit | | 1 |
| | — |
| | — |
| | 1 |
|
| Aframax Tankers | | — |
| | 2 |
| | — |
| | 2 |
|
| | | 53 |
| | 5 |
| | 6 |
| | 64 |
|
| Total | | 181 |
| | 12 |
| | 24 |
| | 217 |
|
| |
(1) | Includes a 52% interest in six LNG carriers, a 50% interest in one LNG carrier which was sold in January 2018, a 49% interest in one LNG carrier, a 40% interest in four LNG carriers, a 33% interest in four LNG carriers, and a 30% interest in one LNG carrier. |
| |
(2) | Includes a 99% interest in three LNG newbuildings, one of which, the Magdala, was delivered in February 2018, a 50% interest in six LNG newbuildings, one of which, the Eduard Toll, was delivered in January 2018, a 30% interest in one LNG newbuilding, the Pan Americas, that was delivered in January 2018, and a 20% interest in two LNG newbuildings.
|
| |
(3) | Includes 18 LPG carriers 50%-owned by Teekay LNG. Includes one LPG carrier 50%-owned by Teekay LNG, Courcheville, that was sold in January 2018.
|
| |
(4) | All LPG newbuildings are 50%-owned by Teekay LNG. Includes one LPG carrier 50%-owned by Teekay LNG, Kapellen, that was delivered in March 2018.
|
(3)Includes a 50% interest in all three LPG carriers.
| |
(5) | Includes two vessels, the African Spirit and the European Spirit, that were classified as held-for-sale as at December 31, 2017.
|
| |
(6) | VLCC is 50%-owned by Teekay Tankers. |
| |
(7) | Excludes two LNG carriers chartered from Teekay LNG, and two shuttle tankers and three FSO units chartered from Teekay Offshore, all of which are included in the respective Daughter Entity totals in this table. |
| |
(8) | Includes six shuttle tankers 50%-owned by Teekay Offshore. |
| |
(9) | Includes one shuttle tanker newbuilding, the Dorset Spirit, which was delivered in March 2018.
|
| |
(10) | Includes one FSO unit 89%-owned by Teekay Offshore. |
| |
(11) | Includes one towage and offshore installation newbuilding, the ALP Keeper, which was delivered in February 2018.
|
(4)VLCC is 50%-owned by Teekay Tankers.
(5)The in-charter contract for the Suksan Salamander FSO unit was terminated in March 2021.
Our vessels are of Bahamian, Belgian, Canadian, Cyprus, Danish Greek,International Register, Hong Kong, Isle of Man, Liberian, Malta, Marshall Islands, Netherlands, Norwegian, Panama, Singapore, and Spanish registry.
Many of our Aframax and Suezmax vessels and some of our shuttle tankers have been designed and constructed as substantially identical sister ships. These vessels can, in many situations, be interchanged, providing scheduling flexibility and greater capacity utilization. In addition, spare parts and technical knowledge can be applied to all the vessels in the particular series, thereby generating operating efficiencies. In addition to the vessels shown in the above table, Teekay LNG also owns a 30% interest in an LNG receiving and regasification terminal in Bahrain.
Please read “Item 18.18 – Financial Statements: Note 8 —– Long-Term Debt” for information with respect to major encumbrances against our vessels.
Safety, Management of Ship Operations and Administration
Safety and environmental complianceEnvironmental Compliance are our top operational priorities. We operate our vessels in a manner intended to protect the safety and health of our employees, and to minimize the general publicimpact on the environment and the environment.society. We seek to effectively manage risk in the risks inherentorganization using a three-tiered approach at an operational, management and corporate level, enabling a clear line of sight throughout the organization. All of our operational employees receive training in the use of risk tools and the management system. We also have an approved competency management system in place to ensure our businessseafarers continue their professional development and are committedcompetent before being promoted to eliminating incidents that threaten themore senior roles.
We believe in continuous improvement, which has seen our safety and integrityenvironmental culture develop over a significant time period. Health, Safety and Environmental Program milestones include the roll-out of our vessels, such as groundings, fires, collisions and petroleum spills. In 2008, we introduced theEnvironmental Leadership Program (2005), Safety in Action (2007), Quality Assurance and Training OfficersOfficer Program (or QATO) to conduct rigorous internal audits of(2008), Operational Leadership - The Journey (2010), E-Colours (2014), Significant Incident Potential (2015), Navigation Handbook (2016), Risk Tool Handbook (2017), Safety Management System upgrade (2018), and our processes and provide our seafarers with on-board 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. In 2010, we introduced a training program for our employees titled “Operationalrecently revised Operational Leadership - The Journey” whichJourney. The Operational Leadership booklet sets out our operational expectations theand responsibilities of individualand contains our safety commitments, environmental commitments, leadership commitments and our Health, Safety, Security and Environmental & Quality Assurance Policy, which is signed by all employees and our commitment to empowering our employeesempowers them to work safely, andto live Teekay’s vision, through a positive and responsible attitude. In 2016, we introduced a 5-year "Safety Road Map" that comprises a number of safety projects to further enhance the culture of safety on board Teekay's vessels.look after one another.
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 quarterly to determine if remedial action is necessary to reach the targets.
We, through certain of our subsidiaries, assist our operating subsidiaries in managing their ship operations. All vessels are operated under our comprehensive and integrated Safety Management System 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, ISO 45001 for Occupational Health and Safety Advisory Services (or OHSAS) 18001Management System and the Maritime Labour Convention 2006 (MLC 2006) that became effective in 2013. The management system is certified by Det Norske Veritas Germanischer Lloyd (or DNV-GL), 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-GL and certain flag states.
Since 2010, we have produced a publicly available sustainability report that reflects the efforts, achievements, results and challenges faced by us and our affiliates relating to several key areas, including emissions, climate change, corporate social responsibility, diversity and health, safety environment and quality. We recognize the significance of ESG considerations and in 2020, set an ESG strategy foundation which will direct our efforts and performance in the years ahead. Our strategy is focused on three broad areas; allocate capital to support the global energy transition, operate our existing fleets as safely and efficiently as possible, and further strengthen our ESG profile. Annual targets are set for the organization and are closely monitored.
We provide, through certain of our subsidiaries, expertise in various functions critical to the operations of our operating subsidiaries. We believe this arrangement affords a safe, efficient and cost-effective operation. Our subsidiaries also provide to us access to human resources, financial and other administrative functions pursuant to administrative services agreements.
Critical ship management functions undertaken by our subsidiaries are:
•vessel maintenance (including repairs and dry docking) 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, conversions, lay up and conversions;recycling;
•terminal support;
•insurance; and
•financial management services.
These functions are supported by onboard and onshore systems for maintenance, inventory, purchasing and budget management.
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, we2003, Teekay Corporation and two other shipping companies haveestablished a purchasing alliance, Teekay Bergesen Worldwide,cooperation agreement called the TBW Alliance, which leverages the purchasing power of the combined fleets, mainly in such commodity areas as lube oils, paintsmarine lubricants, coatings and other chemicals.chemicals and gases.
Risk of Loss and Insurance
The operation of any ocean-going vessel or facility 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 and transfer/lightering 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, sanctions and boycotts.boycotts, whether relating to us or any of our joint venture partners, suppliers or customers. 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, and other liability insurance, 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 collision, 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 maximum amount of our coverage for pollution is $1 billion per vessel per incident. We also carry insurance policies covering war risks (including piracy and terrorism) and, for some of our LNG carriers, and for two FPSO units, loss of revenues resulting from vessel off-hire time due to a marine casualty.
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 guarantee 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. 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. In addition, the cost of protection and indemnity insurance has significantly increased during 2021.
In our operations, we use a thorough risk management program that includes, among other things, risk analysis tools, maintenance and assessment programs, a seafarers' competence training program, seafarers' workshops and membership in emergency response organizations.
We have achieved certification under the standards reflected in ISO 9001 for quality assurance, ISO 14001 for environment management systems, OHSAS 18001,ISO 45001:2018, and the IMO’s International Management Code for the Safe Operation of Ships and Pollution Prevention on a fully integrated basis.
Operations Outside of the United States
Because our operations are primarily conducted outside of the United States, we are affected by currency fluctuations, to the extent we do not contract in U.S. dollars, 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 those regions, 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 certain regions 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 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. Two customers, international oil companies, accounted for an aggregate of 24%, or $442.4 million of our consolidated revenues during 2017 (2016 – two customers for 29%, or $653.6 million, 2015 – two customers for 21%, or $495.2 million). During these periods, no otherNo customer accounted for over 10% of our revenues for the applicable period. No other customer accounted for more than 10% of our consolidated revenues during 2017, 2016,2020 (2019 – one customer for 12%, or 2015.$227.6 million; 2018 – one customer for 11%, or $195.0 million). 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.
Flag, Classification, Audits and Inspections
Our vessels are registered with reputable flag states, and the hull and machinery of all of our vessels have been “Classed” by one of the major classification societies and members of International Association of Classification Societies ltd (or IACS): Bureau Veritas (or BV), Lloyd’s Register of Shipping, the American Bureau of Shipping or DNV-GL.
The applicable classification society certifies that the vessel’s design and build conform to the applicable Class rules and meets the requirements of the applicable rules and regulations of the country of registry of the vessel and the international conventions to which that country is a signatory. The classification society also verifies throughout the vessel’s life that it continues to be maintained in accordance with those rules. In order to validate this, the vessels are surveyed by the classification society, in accordance towith the classification society rules, which in the case of our vessels follows a comprehensive five-year special survey cycle, renewed every fifth year. During each five-year period, the vessel undergoes annual and intermediate surveys, the scrutiny and intensity of which is primarily dictated by the age of the vessel. As our vessels are modern and we have enhanced the resiliency
In addition to class surveys, the vessel’s flag state also verifies the condition of the vessel during annual flag state inspections, either independently or by additional authorization to class. Also, port state authorities of a vessel’s port of call are authorized under international conventions to undertake regular and spot checks of vessels visiting their jurisdiction.
Processes followed onboard are audited by either the flag state or the classification society acting on behalf of the flag state to ensure that they meet the requirements of the ISM Code. DNV-GL typically carries out this task. We also follow an internal process of internal audits undertaken annually at each office and vessel.
We follow a comprehensive inspections scheme supported by our sea staff, shore-based operational and technical specialists and members of our QATO program. We typically carry out a minimum of two such inspections annually, which helps ensure us that:
•our vessels and operations adhere to our operating standards;
•the structural integrity of the vessel is being maintained;
•machinery and equipment isare being maintained to give reliable service;
•we are optimizing performance in terms of speed and fuel consumption; and
•our vessels’ appearance supports our brand and meets customer expectations.
Our customers also often carry out vetting inspections under the Ship Inspection Report Program, which is a significant safety initiative introduced by the Oil Companies International Marine Forum to specifically address concerns about sub-standard vessels. The inspection results permit charterers to screen a vessel to ensure that it meets their general and specific risk-based shipping requirements.
We believe that the heightened environmental and quality concerns of insurance underwriters, regulators and charterers will generally lead to greater scrutiny, inspection and safety requirements on all vessels in the oil tanker and LNG and LPG carrier markets and will accelerate the scrapping or phasing out of older vessels throughout these markets.
Overall, we believe that our 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.
Regulations
General
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 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 and to the fact that the kinds of permits, licenses and certificates required for the operations of the vessels we own will depend on a number of factors, we believe that we will be able to continue to obtain all permits, licenses and certificates material to the conduct of our operations.
International Maritime Organization (or IMO)
The IMO is the United Nations’ agency for maritime safety and prevention of pollution. IMO regulations relating to pollution prevention for oil tankers have been adopted by many of the jurisdictions in which our tanker fleet operates. Under IMO regulations and subject to limited exceptions, a tanker must be of double-hull construction in accordance with the requirements set out in these regulations or be of another approved design ensuring the same level of protection against oil pollution. All of our tankers and gas carriers are double hulled.double-hulled.
Many countries, but not the United States, have ratified and follow the liability regime adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended (or CLC). Under this convention, 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 (e.g., crude oil, fuel oil, heavy diesel oil or lubricating oil), subject to certain defenses. The right to limit liability to specified amounts that are periodically revised is forfeited under the CLC when the spill is caused by the owner’s actual fault or 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 regimes or common law governs, and liability is imposed either on the basis of fault or in a manner similar to the CLC.
IMO regulations also include the International Convention for Safety of Life at Sea (or SOLAS), including amendments to SOLAS implementing the International Ship and Port Facility Security Code (or ISPS), the ISM Code, the International Convention on Load Lines of 1966, and, specifically with respect to LNG and LPG carriers, the International Code for Construction and Equipment of Ships Carrying Liquefied Gases in Bulk (the IGC Code) and International Code for Ships operating in Polar Waters (or Polar 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 the equipment required for commercial vessels and includes regulations for their safe operation. Flag states which have ratified the convention and the treaty 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 the training of shipboard personnel, lifesaving appliances, navigation, 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 theCode, IGC Code for LNG and LPG carriers and the specific requirements for shuttle tankers, FSO units and FPSO units under the NPD (Norway) and HSE (United Kingdom) regulations,Polar Code 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 United States Coast Guard (or USCG) and European Union authorities have indicated that vessels not in compliance with the ISM Code will be prohibited from trading in the United States and European Union ports. The ISM Code requires vessel operators to obtain a safety management certification for each vessel they manage, evidencing the shipowner’s development and maintenance of an extensive safety management system. Each of the existing vessels in our fleet is currently ISM Code-certified, and we expect to obtain, a safety management certificatescertificate for each newbuilding vessel uponon delivery.
With regard to offshore support vessels, such as UMS, SOLAS permits certain exemptions and equivalents to be allowed by the relevant vessel’s flag state. The International Code on Intact Stability, 2008 also applies generally to offshore support vessels. In 2016, the IMO’s Maritime Safety Committee (or MSC) adopted amendments to the IS Code relating to ships engaged in anchor handling operations and to ships engaged in lifting and towing operations, including escort towing. These amendments are expected to enter into force on January 1, 2020. The IMO has also developed non-mandatory codes and guidelines which apply to various types or aspects of offshore support vessels.
LNG and LPG carriers are also subject to regulation under the IGC Code. Each LNG and LPG 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 and LPG carriers is currently IGC Code compliant, and each ofCode-compliant. Amendments to the shipbuilding contracts for our LNG newbuildings, and for the LPG newbuildings requires ICG Code compliance prior to delivery. A revised and updated IGC Code, which takes account of advancesaligning wheelhouse window fire-rating requirements with those in scienceSOLAS chapter II-2, were adopted in 2016 and technology, was adopted by the IMO’s MSC on May 22, 2014 and entered into forcebecame effective on January 1, 2016 with an implementation/application date of July 1, 2016.2020.
In addition, the IMO’s MSC has adopted the International Code of Safety for Ships using Gases or other Low-flashpoint Fuels (the IGF Code), which is mandatory for ships fueled by gases or other low-flashpoint fuels, setting out mandatory provisions for the arrangement, installation, control and monitoring of machinery, equipment and systems using low-flashpoint fuel.
Annex VI to the IMO’s International Convention for the Prevention of Pollution from Ships ((or MARPOL) (or Annex VI) sets limits on sulfur oxide (or SOx) and nitrogen oxide (or NOx) emissions from ship exhausts and prohibits emissions of ozone depleting substances, emissions of volatile compounds from cargo tanks and the incineration of specific substances. Annex VI also includes a world-wide cap on the sulfur content of fuel oil and allows for special “emission control areas” (or ECAs) to be established with more stringent controls on sulfur emissions. Annex VI provides for a three-tier reduction in NOx emissions from marine diesel engines, with the final tier (or Tier III) to apply to engines installed on vessels constructed on or after January 1, 2016, and which operate in the North American ECA or the U.S. Caribbean Sea ECA as well as ECAs designated in the future by the IMO. Tier III limits are 80% below Tier I and these cannot be achieved without additional means such as Selective Catalytic Reduction (or SCR). In October 2016, the IMO’s Marine Environment Protection Committee (or MEPC) approved the designation of the North Sea (including the English Channel) and the Baltic Sea as ECAs for NOx emissions; these ECAs and the related amendments to Annex VI of MARPOL (with some exceptions) shall enterentered into effect on January 1, 2019.This requirement will be applicable for new ships constructed on or after January 1, 2021 if they visit the Baltic or North Sea (including the English Channel) and requires the future trading area of a ship to be assessed at the contract stage. There are exemption provisions to allow ships with only Tier II engines, to navigate in a NOx Tier III ECA if the ship is departing from a shipyard where the ship is newly built or visiting a shipyard for conversion/repair/maintenance without loading/unloading cargoes.
Effective January 1, 2020, Annex VI imposes a global limit for sulfur in fuel oil used on board ships of 0.50% m/m (mass by mass), regardless of whether a ship is operating outside a designated ECA. The ECA limit of 0.10% will still apply, as will any applicable local regulations. Effective March 1, 2020, the carriage of non-compliant fuel is prohibited. To comply with the 2020 global sulfur limit for fuel, ships may utilize different fuels containing low or very low sulfur (e.g., low sulfur fuel oil (or LSFO), very low sulfur fuel oil (VLSFO), low sulfur marine gas oil (or LSMGO), biofuels or other compliant fuels such as LNG), or utilize exhaust gas cleaning systems, known as “scrubbers”. Amendments to the information to be included in bunker delivery notes relating to the supply of marine fuel oil to ships fitted with alternative mechanisms to address sulfur emission requirements (e.g., scrubbers) became effective January 1, 2019. At present, we have not installed any scrubbers on our existing gas fleet (nor do we have plans to do so). All of our LNG vessels are in compliance with 2020 global sulfur fuel regulations. Our fuel strategy is to use LNG as the primary fuel (except the Q-Flex LNG vessels) and compliant fuels as a secondary fuel.
We have implemented procedures to comply with the 2020 sulfur limit in our conventional tanker fleet. We switched to burning compliant low sulfur fuel before the January 1, 2020 implementation date; we have not installed any scrubbers on our conventional tanker fleet. Although the IMO has issued ISO 8217:2017 and PAS 23263:19, at present, neither the IMO nor the International Organization for Standardization has implemented globally accepted quality standards for 0.50% m/m fuel oil. We intend, and where applicable, expect our charterers to procure 0.50% m/m fuel oil from top tier suppliers. However, until such time that a globally accepted quality standard is issued, the quality of 0.50% m/m fuel oil that is supplied to the entire industry (including in respect of our vessels) is inherently uncertain. Low quality or a lack of access to high-quality low sulfur fuel may lead to a disruption in our operations (including mechanical damage to our vessels), which could impact our business, financial condition, and results of operations.
As of March 1, 2018, amendments to Annex VI impose new requirements for ships of 5,000 gross tonnage and above to collect fuel oil consumption data for each type of fuel oil they use,ships, as well as certain other data including proxies for transport work. Amendments to MARPOL Annex VI that make the data collection system for fuel oil consumption of ships mandatory were adopted at the 70th session of the MEPC held in October 2016 and entered into force on March 1, 2018. The amendments require operators to update the vessels' Ship Energy Efficiency Management Plan (or SEEMP) to include a part II describing the ship-specific methodology that will be used for collecting and measuring data for fuel oil consumption, distance travelled, hours underway, ensuring data quality is maintained and the processes that will be used to report the data to the Administration. This has been verified as compliant on all ships for calendar year 2019. The data collection period for the 2020 calendar year has been completed, and the verification of the data is on-going. A Confirmation of Compliance has been provided by the Ship's Flag State Administration / Recognized Organization on behalf of Flag State and is kept on board.
IMO regulations required that as of January 1, 2015, all vessels operating within ECAs worldwide recognized under MARPOL Annex VI must comply with 0.1% sulfur requirements. Certain modifications were necessary in order to optimize operation on LSMGO of equipment originally designed to operate on Heavy Fuel Oil (or HFO), and to ensure our compliance with the EU Directive. In addition, LSMGO is more expensive than HFO, and this impacts the costs of operations. We are primarily exposed to increased fuel costs through in our spot trading vessels, although our competitors bear a similar cost increase as this is a regulatory item applicable to all vessels. All required vessels in our fleet trading to and within regulated low sulfur areas are able to comply with fuel requirements.
The IMO has issued guidance regarding protecting against acts of piracy off the coast of Somalia. We comply with these guidelines.
IMO Guidance for countering acts of piracy and armed robbery is published by the IMO’s Maritime Safety Committee (or MSC). MSC.1/Circ.1339 (Piracy and armed robbery against ships in waters off the coast of Somalia) outlines Best Management Practices for protection against Somalia based Piracy. Specifically, MSC.1/Circ.1339 provides guidance to shipowners and ship operators, shipmasters, and crews on preventing and suppressing acts of piracy and armed robbery and was adopted by the IMO through Resolution MSC.324(89). The Best Management Practices (or
BMP) is a joint industry publication by BIMCO, ICS, IGP&I Clubs, INTERTANKO and OCIMF VIQ Version 7 as the latest. Our fleet follows the guidance within BMP 5 when transiting in other regions with recognized threat levels for piracy and armed robbery, including West Africa.
The IMO's Ballast Water Management Convention entered into force on September 8, 2017. As of December 31, 2017, there were 67 contracting states to the convention. The convention stipulates two standards for discharged ballast water. The D-1 standard covers ballast water exchange while the D-2 standard covers ballast water treatment. The convention requires the implementation of either the D-1 or D-2 standard. There will be a transitional period from the entry into force to the International Oil Pollution Prevention (or IOPP) renewal survey in which ballast water exchange (reg. D-1) can be employed. The IMO’s Marine Environment Protection Committee (or MEPC) agreed to a compromise on the implementation dates for the D-2 discharge standard: ships constructed on or after September 8, 2017 must comply with the D-2 standard upon delivery. Existing ships should be D-2 compliant on the first IOPP renewal following entry into force if the survey is completed on or after September 8, 2019, or a renewal IOPP survey iswas completed on or after September 8, 2014 but prior to September 8,
2017. Ships should be D-2 compliant on the second IOPP renewal survey after September 8, 2017 if the first renewal survey after that date iswas completed prior to September 8, 2019 and if the previous two conditions are not met. Vessels will be required to meet the discharge standard D-2 by installing an approved Ballast Water Management System (or BWMS). BWTS.
Besides the IMO convention, ships sailing in U.S. waters are required to employdeploy a type-approved BWMStype approved BWTS which is compliant with USCG regulations. The USCG has approved a number of BWMS.BWTSs both nationally and internationally, out of which Alfa Laval (Sweden), Ocean Saver (Norway), Techcross, and De Nora are under Teekay’s approved list for retrofit. We estimate that the installation of approved BWMS mayBWTS will cost between $2 million and $3 million per vessel.
The IMO has also adopted an International Code for Ships Operating in Polar Waters (or Polar Code) which deals with matters regarding design, construction, equipment, operation, search and rescue and environmental protection in relation to ships operating in waters surrounding the two poles. The Polar Code includes both safety and environmental provisions. The Polar Code and related amendments entered into force in January 2017. The Polar Code is mandatory for new vessels built after January 1, 2017. For existing ships, this code will be applicable from the first intermediate or renewal survey, whichever occurs first, beginning on or after January 1, 2018.
MARPOL Annex I also statesstate that oil residue may be discharged directly from the sludge tank to the shore reception facility through standard discharge connections. They may also be discharged to the incinerator or to an auxiliary boiler suitable for burning the oil by means of a dedicated discharge pump. Amendments to Annex I expand on the requirements for discharge connections and piping to ensure residues are properly disposed of. Annex I is applicable for existing vessels with a first renewal survey beginning on or after January 1, 2017.
Amendments to MARPOL Annex V were adopted at the 70th session of the MEPC held in October 2016 and entered into force on March 1, 2018. The changes include criteria for determining whether cargo residues are harmful to the marine environment and a new Garbage Record Book (or GRB) format with a new garbage category for e-waste. Solid bulk cargo as per regulation VI/1-1.2 of SOLAS, other than grain, shall now be classified as per the criteria in the new Appendix I of MARPOL Annex V, and the shipper shall then declare whether or not the cargo is harmful to the marine environment. A new form of the GRB has been included in Appendix II to MAROL Annex V. The GRB is now divided into two parts: Part I - for all garbage other than cargo residues, applicable to all ships. PART II - for cargo residues only applicable to ships carrying solid bulk cargo. These changes are reflected in the vessels latest revised GRB.
The IMO has also adopted an International Code for Ships Operating in Polar Waters (or Polar Code) which deals with matters regarding the design, construction, equipment, operation, search and rescue and environmental protection in relation to ships operating in waters surrounding the two poles. The Polar Code includes both safety and environmental provisions. The Polar Code and related amendments entered into force in January 2017. The Polar Code is mandatory for new vessels built after January 1, 2017. For existing ships, this code will be applicable from the first intermediate or renewal survey, whichever occurs first, beginning on or after January 1, 2018. All of our vessels trading in this area are fully compliant with the Polar Code.
MSC 91 adopted amendments to SOLAS Regulation II-2/10 to clarify that a minimum of two-way portable radiotelephone apparatus for each fire party for firefighters' communication shall be carried on board. These radio devices shall be of explosion proof type or intrinsically safe type. All existing ships built before July 1, 2014 should comply with this requirement by the first safety equipment survey after July 1, 2018. All new vessels constructed (keel laid) on or after July 1, 2014 must comply with this requirement at the time of delivery. Amendments to SOLAS Regulation II-1/3/-12 on protection against noise, Regulation II-2/1 and II 2/10 on firefighting came into force on July 1, 2014. Existing ships built before July 1, 2014 were required to comply by July 1, 2019.
As per MSC. 338(91), requirements have been highlighted for audio and visual indicators for breathing apparatus which will alert the user before the volume of the air in the cylinder has been reduced to no less than 200 liters. This applies to ships constructed on or after July 1, 2014. Ships constructed before July 1, 2014 mustwere required to comply no later than July 1, 2019. As of December 31, 2020, all of our vessels are in compliance with these requirements.
Cyber-related risks are operational risks that are appropriately assessed and managed in accordance with the safety management requirements of the ISM Code. Cyber risks are required to be appropriately addressed in our safety management system no later than the first annual verification of the company's Document of Compliance after January 1, 2021.
The Maritime Labour Convention (MLC) 2006 was adopted by the International Labour Conference at its 94th (Maritime) Session (2006), establishing minimum working and living conditions for seafarers. The convention entered into force August 20, 2013, with further amendments approved by the International Labour Conference at its 103rd Session (2014). The MLC establishes a single, coherent instrument embodying all up-to-date standards of existing international maritime labour conventions and recommendations, as well as the fundamental principles to be found in other international labour conventions. All of our maritime labour contracts comply with the MLC.
The IMO continues to review and introduce new regulations;regulations and as such, it is impossibledifficult to predict what additional requirements, if any, may be adopted by the IMO and what effect, if any, such regulations might have on our operations.operations.
European Union (or EU)
The EU has adopted legislation that: bans from European waters manifestly sub-standard vessels (defined as vessels that have been detained twice by EU port authorities in the preceding two years); creates obligations on the part of EU member port states to inspect minimum percentages 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 EU with greater authority and control over classification societies, including the ability to seek to suspend or revoke the authority of negligent societies.
Two regulations were introduced by the European Commission in September 2010, asthat are part of the implementation of the Port State Control Directive. TheseDirective, came into force on January 1, 2011 and introduced a ranking system (published on a public website and updated daily) displaying shipping companies operating in the EU with the worst safety records. The ranking is judged upon the results of the technical inspections carried out on the vessels owned by a particular shipping company. Those shipping companies that have the most positive safety records are rewarded by subjecting them to fewer inspections, while those with the most safety shortcomings or technical failings recorded upon inspection will in turn be subject to a greater frequency of official inspections to their vessels.
The EU has, by way of Directive 2005/35/EC, which has beenas amended by Directive 2009/123/EC, created a legal framework for imposing criminal penalties in the event of discharges of oil and other noxious substances from ships sailing in its waters, irrespective of their flag. This relates to discharges of oil or other noxious substances from vessels. Minor discharges shall not automatically be considered as offenses,offences, except where repetition leads to deterioration in the quality of the water. The persons responsible may be subject to criminal penalties if they have acted with intent, recklessly or with serious negligence and the act of inciting, aiding and abetting a person to discharge a polluting substance may also lead to criminal penalties.
The EU has adopted a Directive requiring the use of low sulfur fuel. Since January 1, 2015, vessels have been required to burn fuel with sulfur content not exceeding 0.1% while within EU member states’ territorial seas, exclusive economic zones and pollution control zones that are included in SOX Emission Control Areas. Other jurisdictions have also adopted similar regulations. Since January 1, 2014, the California Air Resources Board has
All ships above 5,000 gross tonnage calling EU waters are required vessels to burn fuel with 0.1% sulfur content or less within 24 nautical miles of California. China also established emission control areas and continues to establish such areas, restricting the maximum sulfur content of the fuel to be used by vessels within those areas, which limits become progressively stricter over time.
IMO regulations require that as of January 1, 2015, all vessels operating within ECAs worldwide recognized under MARPOL Annex VI must comply with 0.1% sulfur requirements. Currently, the only grade of fuel meeting 0.1% sulfur content requirement is low sulfur marine gas oil (or LSMGO). Certain modifications were completed on our Suezmax tankers in order to optimize operation on LSMGO of equipment originally designed to operate on Heavy Fuel Oil (or HFO), and to ensure our compliance with the EU Directive. In addition, LSMGO is more expensive than HFO and this impacts the costs of operations. Our exposure to increased cost is in our spot trading vessels, although our competitors bear a similar cost increase as this is a regulatory item applicable to all vessels. All required vessels in our fleet trading to and within regulated low sulfur areas are able to comply with fuel requirements.EU-MRV regulations. These regulations came into force on July 1, 2015 and aim to reduce greenhouse gas (or GHG) emissions within the EU. It requires ships carrying out maritime transport activities to or from European Economic Area (or EEA) ports to monitor and report information including verified data on their CO2 emissions from January 1, 2018 onwards. Data collection takes place on a per voyage basis and started from January 1, 2018. The global cap on the sulfur content of fuel oil is currently 3.5%reported CO2 emissions, together with additional data (e.g. cargo, energy efficiency parameters), are to be reducedverified by independent verifiers and sent to 0.5%a central database, managed by January 1, 2020.the European Maritime Safety Agency (or EMSA). Teekay Corporation signed an agreement with DNV-GL for monitoring, verification & reporting as required by this regulation. We are presently using IMOS/Veslink forms which will have smooth interface with DNV-GL. The reporting period for the 2019 calendar year has been completed and emission reports for the vessels which have carried out EU voyages have been submitted in the THETIS Database. Based on emission reports submitted in THETIS, a document of compliance has been issued and is placed on board.
The EU Ship Recycling Regulation was adopted in 2013. This regulation aims to prevent, reduce and minimize accidents, injuries and other negative effects on human health and the environment when ships are recycled and the hazardous waste they contain is removed. The legislation applies to all ships flying the flag of an EU country and to vessels with non-EU flags that call at an EU port or anchorage. It sets out responsibilities for ship owners and for recycling facilities both in the EU and in other countries. Each new ship hasis required to have on board an inventory of the hazardous materials (such as asbestos, lead or mercury) it contains in either its structure or equipment. The use of certain hazardous materials is forbidden. Before a ship is recycled, its owner must provide the company carrying out the work with specific information about the vessel and prepare a ship recycling plan. Recycling may only take place at facilities listed on the EU ‘List of facilities’.
The EU Ship Recycling Regulation generally entered into force on December 31, 2018, with certain provisions applicable from December 31, 2020. Compliance timelines are as follows: EU-flagged newbuildings were required to have onboard a verified Inventory of Hazardous Materials (or IHM) with a Statement of Compliance by December 31, 2018, existing EU-flagged vessels are required to have onboard a verified IHM with a Statement of Compliance by December 31, 2020, and non-EU-flagged vessels calling at EU ports are also required to have onboard a verified IHM with a Statement of Compliance latest by December 31, 2020. Teekay LNG and Teekay Tankers contracted a class-approved HazMat expert company to assist in the preparation of Inventory of Hazardous Materials and obtaining Statements of Compliance for its vessels. The EU Commission also adopted a European List of approved ship recycling facilities, as well as four further decisions dealing with certification and other administrative requirements set out in the EU Ship Recycling Regulation. In 2014, the Council Decision 2014/241/EU authorized EU countries having ships flying their flag or registered under their flag to ratify or to accede to the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships. The EU Ship Recycling RegulationHong Kong Convention is to apply generally not later than December 31, 2018, with certain provisions applicable from December 31, 2020. The EU Commission also adopted a European List of approved ship recycling facilities, as well as four further implementing decisions dealing with certification and other administrative requirements set out in the EU Ship Recycling Regulation.yet ratified.
North Sea Canada, and Brazil
Our shuttle tankers and FPSO units primarily operate in the North Sea and Brazil.Sea.
There is no international regime in force which deals with compensation for oil pollution from offshore craft such as FPSOs. Whether the CLC and the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1971, as amended by the 1992 Protocol (or the Fund Convention), which deal with liability and compensation for oil pollution and the Convention on Limitation of Liability for Maritime Claims 1976, as amended by the 1996 Protocol (or the 1976 Limitation of Liability Convention), which deals with limitation of liability for maritime claims, apply to FPSOs is neither straightforward nor certain. This is due to the definition of “ship” under these conventions and the requirement that oil is “carried” on boardonboard the relevant vessel. Nevertheless, the wording of the 1992 Protocol to the CLC leaves room for arguing that FPSOs and oil pollution caused by them can come under the ambit of these conventions for the purposes of liability and compensation. However, the application of these conventions also depends on their implementation by the relevant domestic laws of the countries which are parties to them.
The UK’s Merchant Shipping Act 1995, as amended (or MSA), implements the CLC but uses a wider definition of a “ship” than the one used in the CLC and in its 1992 Protocol but still refers to the criteria used by the CLC. It is therefore doubtful that FPSOs fall within its wording. However, the MSA also includes separate provisions for liability for oil pollution. These apply to vessels which fall within a much wider definition and include non-seagoing vessels. It is arguable that the wording of these MSA provisions is wide enough to cover oil pollution caused by offshore crafts such as FPSOs. The liability regime under these MSA provisions is similar to that imposed under the CLC but limitation of liability is subject to the 1976 Limitation of Liability Convention regime (as implemented in the MSA).
With regard to the 1976 Limitation of Liability Convention, it is, again, doubtful whether it applies to FPSOs, as it contains certain exceptions in relation to vessels constructed for or adapted to and engaged in drilling and in relation to floating platforms constructed for the purpose of exploring or exploiting natural resources of the seabed or its subsoil. However, these exceptions are not included in the legislation implementing the 1976 Limitation of Liability Convention in the UK, which is also to be found in the MSA. In addition, the MSA sets out a very wide definition of “ship” in
relation to which the 1976 Limitation of Liability Convention is to apply and there is room for argument that if FPSOs fall within that definition of “ship”, they are subject in the UK to the limitation provisions of the 1976 Limitation of Liability Convention.
In the absence of an international regime regulating liability and compensation for oil pollution caused by offshore oil and gas facilities, the Offshore Pollution Liability Agreement 1974 was entered into by a number of oil companies and became effective in 1975. This is a voluntary industry oil pollution compensation scheme which is funded by the parties to it. These are operators or intending operators of offshore facilities used in the exploration for and production of oil and gas located within the jurisdictions of a number of “Designated States” which include the UK, Denmark, Norway, Germany, France, Greenland, Ireland, the Netherlands, the Isle of Man and the Faroe Islands. The scheme provides for strict liability of the relevant operator for pollution damage and remedial costs, subject to a limit, and the operators must provide evidence of financial responsibility in the form of insurance or other security to meet the liability under the scheme.
With regard to FPSOs, Chapter 7 of Annex I of MARPOL (which contains regulations for the prevention of oil pollution) sets out special requirements for fixed and floating platforms, including, amongst others, FPSOs and FSUs. The IMO’s Marine Environment Protection CommitteeMEPC has issued guidelines for the application of MARPOL Annex I requirements to FPSOs and FSUs.
The EU’s Directive 2004/35/CE on environmental liability with regard to the prevention and remedying of environmental damage (or the Environmental Liability Directive)Directive) deals with liability for environmental damage on the basis of the “polluter pays” principle. Environmental damage includes damage to protected species and natural habitats and damage to water and land. Under this Directive, operators whose activities caused the environmental damage or the imminent threat of such damage are to be held liable for the damage (subject to certain exceptions). With regard to environmental damage caused by specific activities listed in the Directive, operators are strictly liable. This is without prejudice to their right to limit their liability in accordance with national legislation implementing the 1976 Limitation of Liability Convention. The Directive applies both to damage which has already occurred and where there is an imminent threat of damage. It also requires the relevant operator to take preventive action, to report an imminent threat and any environmental damage to the regulators and to perform remedial measures, such as clean-up. The Environmental Liability Directive has beenis implemented in the UK by the Environmental Damage (Prevention and Remediation) Regulations 2009.2015.
In June 2013, the EU adopted Directive 2013/30/EU on safety of offshore oil and gas operations and amending Directive 2004/35/EC (or the Offshore Safety Directive). This new Directive lays down minimum requirements for member states and the European Maritime Safety Agency for the purposes of reducing the occurrence of major accidents related to offshore oil and gas operations, thus increasing protection of the marine environment and coastal economies against pollution, establishing minimum conditions for safe offshore exploration and exploitation of oil and gas, and limiting disruptions to the EU’s energy production and improving responses to accidents. The Offshore Safety Directive sets out extensive requirements, such as preparation of a major hazard report with risk assessment, emergency response plan and safety and environmental management system applicable to the relevant oil and gas installation before the planned commencement of the operations, independent verification of safety and environmental critical elements identified in the risk assessment for the relevant oil and gas installation, and ensuring that factors such as the applicant’s safety and environmental performance and its financial capabilities or security to meet potential liabilities arising from the oil and gas operations are taken into account when considering granting a license.
Under the Offshore Safety Directive, Member States are to ensure that the relevant licensee is financially liable for the prevention and remediation of environmental damage (as defined in the Environmental Liability Directive) caused by offshore oil and gas operations carried out by or on behalf of the licensee or the operator. Member States must lay down rules on penalties applicable to infringements of the legislation adopted pursuant to this Directive. Member States were required to bring into force laws, regulations and administrative provisions necessary to comply with this Directive by July 19, 2015. The Offshore Safety Directive has been implemented in the UK by a number of different UK Regulations, including the Environmental Damage (Prevention and Remediation) (England) Regulations 2015, as amended, (which revoked and replaced the Environmental Damage (Prevention and Remediation) Regulations 2009)2015)) and the Offshore Installations (Offshore Safety Directive) (Safety Case etc.) Regulations 2015, as amended, both of which entered into force on July 19, 2015.
In addition to the regulations imposed by the IMO and EU, 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 the shuttle tankersFPSOs 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 Norway, the Norwegian Pollution Control Authority requires the installation of volatile organic compound emissions (or VOC) reduction units on most shuttle tankers serving the Norwegian continental shelf. Customers bear the cost to install and operate the VOC equipment on board the shuttle tankers.
In addition to the requirements of major IMO shipping conventions, the exploration for and production of oil and gas within the Newfoundland & Labrador (or NL) offshore area is conducted pursuant to the Canada Newfoundland and Labrador Atlantic Accord Implementation Act (the Accord Act) in accordance with the conditions of a license and authorization issued by the Canada-Newfoundland and Labrador Offshore Petroleum Board (or CNLOPB). Various regulations dealing with environmental, occupational health and safety, and other aspects of offshore oil and gas activities have been enacted under the Accord Act. The CNLOPB has also issued interpretive guidelines concerning compliance with the regulations, and compliance with CNLOPB guidelines may be a condition of the issuance or renewal of the license and authorizations. These regulations and guidelines require that the shuttle tankers in the NL offshore area meet stringent standards for equipment, reporting and redundancy systems, and for the training and equipping of seagoing staff. Further, licensees are required by the Accord Act to provide a benefits plan satisfactory to CNLOPB. Such plans generally require the licensee to: establish an office in NL; give NL residents first consideration for training and employment; make expenditures for research and development and education and training to be carried out in NL; and give first consideration to services provided from within NL and to goods manufactured in NL. These regulatory requirements may change as regulations and CNLOPB guidelines are amended or replaced from time to time.
In addition to the regulations imposed by the IMO, Brazil imposes regulatory requirements in connection with operations in its territory, including specific requirements for the operations of vessels flagged in countries other than Brazil. Brazil has several maritime regulations and frequent amendments and updates. With respect to environmental protection while operating under Brazilian waters, the Federal Constitution establishes that the State shall regulate and impose protections to the environment, establishing liability in the civil, administrative and criminal spheres. Law no. 6938/1981 sets the National Environmental Policy and Law no. 9966/2000, known as “The Oil Law”, institutes several rules, liabilities and penalties regarding the handling oil or other dangerous substances, being applicable to foreign vessels and platforms operating in Brazilian waters.
Regulating the exploitation and production of oil and natural gas, Law no. 9.478/1997, known as “The Petroleum Law”, created the National Petroleum Agency (or ANP), responsible for regulating and supervising the industry through directives and resolutions. After the discovery of the pre-salt, the mentioned law was altered in some points by Law no. 12.351/2010 being the industry also regulated by several administrative Regulations issued by the ANP.
Additional requirements and restrictions for the operation of offshore vessels and shuttle tankers are imposed by Law 9.432/97 and by the National Waterway Transport Agency (or ANTAQ), instituted by Law 10.233/2001, by way of frequently updated administrative resolutions.
The transit of vessels and permanence and operation of offshore units in Brazil are further regulated by the Maritime Authorities, through law and administrative Ordinances known as “NORMAM”. Under Brazil’s environmental laws, owners and operators of vessels are strictly liable for damages to the environment. Other penalties for non-compliance with environmental laws include fines, loss of tax incentives and suspension of activities. Operators such as Petrobras may impose additional requirements, such as compliance with specific health, safety and environmental standards or the use of local labor. 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 Brazil.
United States
The United States has enacted an extensive regulatory and liability regime for the protection and clean-up 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. CERCLA applies to the discharge of “hazardous substances” rather than “oil” and imposes strict joint and several liabilitiesliability upon the owners, operators or bareboat charterers of vessels for clean-up costs and damages arising from discharges of hazardous substances. We believe that petroleum products, and LNG and LPG should not be considered hazardous substances under CERCLA, but additives to oil or lubricants used on LNG or LPG carriers and other vessels might fall within its scope.
Under OPA 90, vessel owners, operators and bareboat charterers are “responsible parties” and are jointly, severally, and strictly liable (unless the oil 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 in an amount it periodically updates. The liability limits do not apply if the incident was 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. Liability under CERCLA is also subject to limits unless the incident is caused by gross negligence, willful misconduct, or a violation of certain regulations. We currently maintain for each of our vessels 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 double-hulled. All of our tankers and gas carriers are double-hulled.
OPA 90 also requires owners and operators of vessels to establish and maintain with the United States Coast Guard (or Coast Guard)USCG evidence of financial responsibility in an amount at least equal to the relevant limitation amount for such vessels under the statute. The Coast GuardUSCG has implemented regulations requiring that an owner or operator of a fleet of vessels must demonstrate evidence of financial responsibility in an amount sufficient to cover the vessel in the fleet having the greatest maximum limited liability under OPA 90 and CERCLA. Evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance, guaranty or an alternate method subject to approval by the Coast Guard.USCG. Under the self-insurance provisions, the ship owners or operators 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 GuardUSCG regulations by using self-insurance for certain vessels and obtaining financial guaranties from a third party for the remaining vessels. If other vessels in our fleet trade into the United States in the future, we expect to obtain guaranties from third-party insurers.
OPA 90 and CERCLA permit individual U.S. 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, such as California, Washington and Alaska require state-specific evidence of financial responsibility and vessel response plans. We intend to comply with all applicable state regulations in the ports where our vessels call.
Owners or operators of vessels, including tankers operating in U.S. waters, are required to file vessel response plans with the Coast Guard,USCG, and their tankers are required to operate in compliance with their Coast GuardUSCG 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.
WeAll our vessels have filedUSCG approved vessel response plans with the Coast Guard and have received its approval of such plans. In addition, we conduct regular oil spill response drills in accordance with the guidelines set out in OPA 90. The Coast GuardUSCG has announced it intends to propose similar regulations requiring certain vessels to prepare response plans for the release of hazardous substances. Similarly, we also have California Vessel Contingency Plans on board vessels which are likely to call ports in State of California.
OPA 90 and CERCLA do not preclude claimants from seeking damages resulting from the discharge of oil and hazardous substances under other applicable law, including maritime tort law. Such claims could include attempts to characterize the transportation of LNG or LPG 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.
The U.S. Clean Water Act (or the Clean Water Act) also 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 imposes substantial liability for the costs of removal, remediation and damages and complements the remedies available under OPA 90 and CERCLA discussed above.
Our vessels that discharge certain effluents, including ballast water, in U.S. waters must obtain a Clean Water Act permit from the Environmental Protection Agency (or EPA) titled the “Vessel General Permit” (or VGP) and comply with a range of effluent limitations, best management practices, reporting, inspections and other requirements. The current Vessel General Permit incorporates Coast Guardincorporated USCG requirements for ballast water exchange and includes specific technology-based requirements for vessels, and includesas well as an implementation schedule to require vessels to meet the ballast water effluent limitations by the first dry docking after January 1, 2016, depending on the vessel size. This permitThe Vessel Incidental Discharge Act (or VIDA) was signed into law on December 4, 2018 and establishes a new framework for the regulation of vessel incidental discharges under the CWA. VIDA requires the EPA to develop performance standards for approximately 30 discharges by December 2020 (similar to the discharges in the EPA 2013 VGP). In most cases, the future standards will be at least as stringent as the existing EPA 2013 VGP requirements and will be technology-based. Two years thereafter, the USCG is effectiverequired to December 18, 2018.develop corresponding implementation, compliance, and enforcement regulations. These may include requirements governing the design, construction, testing, approval, installation and use of devices to achieve the EPA national standards of performance (or NSPs). Under VIDA, all provisions of the VGP remain in force and effect as currently written until the USCG regulations are finalized. Vessels that are constructed after December 1, 2013 are subject to the ballast water numeric effluent limitations. Several U.S. states have added specific requirements to the Vessel General Permit and, in some cases, may require vessels to install ballast water treatment technology to meet biological performance standards. Every five years the Vessel General Permit gets reissued, however the provisions of the 2013 VGP, as currently written, will apply beyond 2018, until the EPA publishes new NSPsand the USCG develops implementing regulations for those NSPs which could take up to four years.
Since January 1, 2014, the California Air Resources Board has required that vessels that burn fuel within 24 nautical miles of California burn fuel with 0.1% sulfur content or less.
China
China previously established ECAs in the Pearl River Delta, Yangtze River Delta and Bohai Sea, which took effect on January 1, 2016. The Hainan ECA took effect on January 1, 2019. From January 1, 2019, all the ECAs have merged, and the scope of Domestic Emission Controls Areas (or DECAs) were extended to 12 nautical miles from the coastline, covering the Chinese mainland territorial coastal areas as well as the Hainan Island territorial coastal waters. From January 1, 2019, all vessels navigating within the Chinese mainland territorial coastal DECAs and at berths are required to use marine fuel with sulfur content of maximum 0.50% m/m. As per the new regulation, ships can also use alternative methods such as an Exhaust Gas Scrubber, LNG or other clean fuel that reduces the SOx to the same level or lower than the maximum required limits of sulfur when using fossil fuel in the DECA areas or when at berth. All the vessels without an exhaust gas cleaning system entering the emission control area are only permitted to carry and use the compliant fuel oil specified by the new regulation.
From July 1, 2019, vessels engaged on international voyages (except tankers) that are equipped to connect to shore power must use shore power if they berth for more than three hours (or for more than two hours for inland river control area) in berths with shore supply capacity in the coastal control areas.
From January 1, 2020, all vessels navigating within the Chinese mainland territorial coastal DECAs should use marine fuel with a maximum 0.5% m/m sulfur cap. All the vessels entering China inland waterway emission control area are to use the fuel oil with sulfur content not exceeding 0.1% m/m. Any vessel using or carrying non-compliant fuel oil due to the non-availability of compliant fuel oil is to submit a fuel oil non-availability report to the China Maritime Safety Administration (or CMSA) of the next arrival port before entering waters under the jurisdiction of China.
From March 1, 2020, all vessels entering waters under the jurisdiction of the People’s Republic of China are prohibited to carry fuel oil of sulfur content exceeding 0.50% m/m on board ships. Any vessel carrying non-compliant fuel oil in the waters under the jurisdiction of China is to:
•discharge the non-compliant fuel oil; or
•as permitted by the CMSA of calling port, to retain the non-compliant fuel oil on board with a commitment letter stating it will not be used in waters under the jurisdiction of China.
New Zealand
New Zealand's Craft Risk Management Standard (or CRMS) requirements are based on the IMO's guidelines for the control and management of ships' biofouling to minimize the transfer of invasive aquatic species.
Marine pests and diseases brought in on vessel hulls (or biofouling) are a threat to New Zealand's marine resources. From May 15, 2018, all vessels arriving in New Zealand will need to have a clean hull. Vessels staying up to 20 days and only visiting designated ports (places of first arrival) will be allowed a slight amount of biofouling. Vessels staying longer and visiting other places will only be allowed a slime layer and goose barnacles.
Republic of Korea
The Korean Ministry of Oceans and Fisheries announced an air quality control program that defines selected South Korean ports and areas as ECAs. The ECAs cover Korea’s five major port areas: Incheon, Pyeongtaek & Dangjin, Yeosu & Gwangyang, Busan and Ulsan. From September 1, 2020, ships at berth or at anchor in the new Korean ECAs must burn fuel with a maximum sulfur content of 0.10%. Ships must switch to compliant fuel within one hour of mooring/anchoring and burn compliant fuel until not more than one hour before departure. From January 1, 2022, the requirements will be expanded, and the 0.10% sulfur limit will apply at all times while operating within the ECAs.
A Vessel Speed Reduction Program has also been introduced as a part of an air quality control program on voluntary compliance basis to certain types of ships (Crude, Chemical and LNG carriers) calling at ports Busan, Ulsan, Yeosu, Gwangyang and Incheon.
India
On October 2, 2019, the Government of India urged its citizens and government agencies to take steps towards phasing out single-use plastics (or SUP). As a result, all shipping participants operating in Indian waters are required to contribute to the Indian government’s goal of phasing out SUPs.
The Directorate General of Shipping, India (or DGS) has mandated certain policies as a result, and in order to comply with these required policies, all cargo vessels are required as of January 31, 2020 to prepare a vessel-specific Ship Execution Plan (or SEP) detailing the inventory of all SUP used on board the vessel and which has not been exempted by DGS. This SEP will be reviewed to determine the prohibition of SUP on the subject vessel.
Vessels will be allowed to use an additional 10% of SUP items in the SEP that have not been prohibited. Amendments to the finalized SEP are discouraged save for material corrections.
Foreign vessels visiting Indian ports are not allowed to use prohibited items while at a place or port in India. However, these items are allowed to be on board provided they are stored at identified locations. SEPs are also required to detail the prevention steps that will be implemented during a vessel’s call at an Indian port to prevent unsanctioned usage of SUPs. This includes the preparation and use of a deck and official log entry identifying all SUP items on board the vessel.
Greenhouse Gas Regulation
In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change (or the Kyoto Protocol) entered into force.took effect. Pursuant to the Kyoto Protocol, adopting countries are required to implement national programs to reduce emissions of greenhouse gases. In December 2009, more than 27 nations, including the United States, entered into the Copenhagen Accord. The Copenhagen Accord is non-binding but is intended to pave the way for a comprehensive, international treaty on climate change. In December 2015, the Paris Agreement (or the Paris Agreement) was adopted by a large number of countries at the 21st Session of the Conference of Parties (commonly known as COP 21, a conference of the countries which are parties to the United Nations Framework Convention on Climate Change; the COP is the highest decision-making authority of this organization). The Paris Agreement, which entered into force on November 4, 2016, deals with greenhouse gas emission reduction measures and targets from 2020 in order to limit the global temperature increases to well below 2˚ Celsius above pre-industrial levels. Although shipping was ultimately not included in the Paris Agreement, it is expected that the adoption of the Paris Agreement may lead to regulatory changes in relation to curbing greenhouse gas emissions from shipping.
In July 2011, the IMO adopted regulations imposing technical and operational measures for the reduction of greenhouse gas emissions. These new regulations formed a new chapter in MARPOL Annex VI and became effective on January 1, 2013. The new technical and operational measures include the “Energy Efficiency Design Index” (or the EEDI), which is mandatory for newbuilding vessels, and the “Ship Energy Efficiency Management Plan,” which is mandatory for all vessels. In October 2016, the IMO’s Marine Environment Protection Committee (or MEPC) adopted updated guidelines for the calculation of the EEDI. In addition, the IMO is evaluating various mandatory measures to reduce greenhouse gas emissions from international shipping, which may include market-based instruments or a carbon tax. In October 2014, the IMO’s MEPC agreed in principle to develop a system of data collection regarding fuel consumption of ships. In October 2016, the IMO adopted a mandatory data collection system under which vessels of 5,000 gross tonnages and above are to collect fuel consumption and other data and to report the aggregated data so collected to their flag state at the end of each calendar year. The new requirements entered into force on March 1, 2018.
All vessels are required to submit fuel consumption data to their respective administration/registered organizations for onward submission to the IMO for analysis and to help with decision making on future measures. The amendments require operators to update the vessel's SEEMP to include descriptions of the ship-specific methodology that will be used for collecting and measuring data for fuel oil consumption, distance travelled, hours underway and processes that will be used to report the data to the Administration, in order to ensure data quality is maintained.
All of our vessels were verified as being compliant before December 31, 2018, with the first data collection period being for the 2019 calendar year. A Confirmation of Compliance was issued by the administration/registered organization, which must be kept on board the ship. The IMO also approved a roadmap for the development of a comprehensive IMO strategy on the reduction of greenhouse gas emissions from ships with an initial strategy to be adopted inon April 13, 2018 (July 7, 2017 saw the MEPC agree on a draft outline of the IMO’s strategy for reducing greenhouse gas emissions in the shipping sector) and a revised strategy to be adopted in 2023.Further, the MEPC adopted two other sets of amendments to MARPOL Annex VI related to carbon intensity regulations. The MEPC agreed on combining the technical and operational measures with an entry into force date on January 1, 2023. The Energy Efficiency Existing Ships Index (or EEXI) will be implemented for existing ships as a technical measure to reduce CO2 emissions. The Carbon Intensity Index (or CII) will be implemented as an operational carbon intensity measure to benchmark and improve efficiency. Regulations and frameworks are expected to be fully defined at the next MEPC meeting in June 2021.
The EU has also has indicated that it intends to propose an expansion of an existing EU emissions trading regime to include emissions of greenhouse gases from vessels, and individual countries in the EU may impose additional requirements. The EU has adopted Regulation (EU) 2015/757 on the monitoring, reporting and verification (or MRV) of CO2 emissions from vessels (or the MRV Regulation), which entered into force on July 1, 2015. The MRV Regulation aims to quantify and reduce CO2 emissions from shipping. It lists the requirements on the MRV of carbon dioxide emissions and requires ship owners and operators to annually monitor, report and verify CO2 emissions for vessels larger than 5,000 gross tonnage calling at any EU and EFTA (Norway and Iceland) port (with a few exceptions, such as fish-catching or fish-processing vessels). Data collection takes place on a per voyage basis and started on January 1, 2018. The reported CO2 emissions, together with additional data, such as cargo and energy efficiency parameters, are to be verified by independent verifiers and sent to a central inspection database managedhosted by the European Maritime Safety Agency. To comply withAgency to collate all the MRV Regulation, we have prepared andata applicable to the EU MRV monitoring plan andregion. Companies responsible for the operation of large ships using EU MRV monitoring template in line with legislative requirement.ports are required to report their CO2 emissions. While the EU was considering a proposal for the inclusion of shipping in the EU Emissions Trading System as from 2021 (in the absence of a comparable system operating under the IMO), it appears that the decision to include shipping may be deferred until 2023.
In the United States, the EPA issued an “endangerment finding” regarding greenhouse gases under the Clean Air Act. While this finding in itself does not impose any requirements on our industry, it authorizes the EPA to regulate GHG emissions directly greenhouse gas emissions through a rule-making process. In addition, climate change initiatives are being considered in the United States Congress and by individual states. Any passage of new climate control legislation or other regulatory initiatives by the IMO, EU, the United States or other countries or states where we operate that restrict emissions of greenhouse gases could have a significant financial and operational impact on our business that we cannot predict with certainty at this time.
Many financial institutions that lend to the maritime industry have adopted the Poseidon Principles, which establish a framework for assessing and disclosing the climate alignment of ship finance portfolios. The Poseidon Principles set a benchmark for the banks who fund for the maritime sector, which is based on the IMO GHG strategy. The IMO approved an initial GHG strategy in April 2018 to reduce GHG emissions generated from shipping activity, which represents a significant shift in climate ambition for a sector that currently accounts for 2%-3% of global carbon dioxide emissions. As a result, the Poseidon Principles are expected to enable financial institutions to align their ship finance portfolios with responsible environmental behavior and incentivize international shipping's decarbonization.
Vessel Security
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. Each of the existing vessels in our fleet currently complies with the requirements of ISPS and Maritime Transportation Security Act of 2002 (U.S. specific requirements). Procedures are in place to inform the relevant reporting regimes such as Maritime Security Council Horn of Africa, (or MSCHOA), the Maritime Domain Awareness for Trade - Gulf of Guinea, (or MDAT-GoG), the Information Fusion Center (or IFC) whenever our vessels are calling in the Indian Ocean Region, or West Coast of Africa (or WAC) or Southeast Asia high-risk areas respectively. In order to mitigate the security risk, security arrangements are required for vessels which travel through these high-risk areas.
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C. | Organizational Structure |
C.Organizational Structure
Our organizational structure includes, among others, our interests in Teekay LNG and Teekay Tankers, which are our publicly-traded subsidiaries, and our publicly-traded equity-accounted investment Teekay Offshore. We created Teekay LNG and Teekay Offshore primarily to hold assets that generate long-term fixed-rate cash flows. The strategic rationale for establishing these two limited partnerships was to:subsidiaries.
illuminate higher value of fixed-rate cash flows to Teekay investors;
realize advantages of a lower cost of equity when investing in new offshore or LNG projects; and
enhance returns to Teekay through fee-based revenue and ownership of the limited partnership’s incentive distribution rights, which entitle the holder to disproportionate distributions of available cash as cash distribution levels to unitholders increase.
We also established Teekay LNG, Teekay Tankers and Teekay Offshore to increase our access to capital to grow each of our businesses in the LNG, conventional tanker and offshore markets.
The following chart provides an overview of our organizational structure as at March 1, 2018.2021. Please read Exhibit 8.1 to this Annual Report for a list of our subsidiaries as at March 1, 2018.2021.
(1)Teekay LNG 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 Teekay LNG is required to approve certain actions.
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(1) | Teekay LNG 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 Teekay LNG is required to approve certain actions. |
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(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 holds aggregate voting power of 54.1% as of March 1, 2018. |
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(3) | Teekay Offshore is controlled by its general partner. Teekay Corporation and an affiliate of Brookfield Business Partners L.P. (NYSE:BBU) (TSX:BBU.UN) (or Brookfield) indirectly have ownership interests of 51% and 49% of the general partner, respectively. However, in certain limited cases, approval of a majority of the unitholders of Teekay Offshore is required to approve certain actions. Teekay Corporation has granted to Brookfield an option, exercisable upon certain conditions, to acquire an additional 2% interest in the general partner. As a result of the Brookfield Transaction described below, Teekay Offshore is no longer a consolidated subsidiary of Teekay Corporation.
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(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 up to 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 holds aggregate voting power of 53.9% as of March 1, 2021.
(3)We are entitled to distributions on our general and limited partner interests in Teekay LNG. Prior to the elimination of Teekay LNG’s incentive distribution rights in May 2020, the general partner of Teekay LNG was 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 LNG is a Marshall Islands limited partnership formed by us in 2004 as part of our strategy to expand our operations in the LNG and LPG shipping sectors. Teekay LNG provides LNG LPG and crude oilLPG marine transportation serviceservices, primarily under long-term, fixed-rate contracts with major energy and utility companies. As of December 31, 2017,2020, Teekay LNG’s fleet, including its equity investees, included 5047 LNG carriers (including 15 newbuildings),and 30 LPG/multigas carriers (including three newbuildings, one of which was delivered in March 2018), four conventional tankers and one Handymax product tanker.multi-gas carriers. Teekay LNG’s ownership interests in these vessels range from 20% to 100%. Teekay LNG also has a 30% interest in an LNG receiving and regasification terminal in Bahrain.
Teekay Offshore is a Marshall Islands limited partnership formed by us in 2006 as part of our strategy to expand our operations in the offshore oil marine transportation, processing and storage sectors. As of December 31, 2017, Teekay Offshore’s fleet included eight FPSO units, 36 shuttle tankers (including three chartered-in vessels and five newbuildings (including one newbuilding that was delivered in March 2018)), six FSO units, one UMS, ten towage vessels (including one newbuilding that was delivered in February 2018), one HiLoad DP unit, and two in-chartered conventional Aframax tankers. Teekay Offshore’s ownership interests in its owned vessels range from 50% to 100%. Most of Teekay Offshore’s vessels operate under long-term, fixed-rate contracts. Teekay Parent owns three FPSO units which pursuant to an omnibus agreement we entered into in connection with Teekay Offshore’s initial public offering in 2006, we have agreed to offer to Teekay Offshore in the future. Please read "Item 7. Major Shareholders and Certain Relationships with Related Party Transactions - Competition with Teekay Tankers, Teekay Offshore and Teekay LNG" for information with respect to the omnibus agreement.
In December 2007, we added Teekay Tankers to our structure. Teekay Tankers is a Marshall Islands corporation formed by us to own our conventional tanker business. As of December 31, 2017,2020, Teekay Tankers’ fleet included 1719 double-hull Aframax tankers (including onetwo chartered-in vessel)vessels), 3026 double-hull Suezmax tankers, nineten product tankers six ship-to-ship (or STS) support vessels (including threeone chartered-in vessels)vessel), and one VLCC, all of which trade either in the spot tanker market or under short- or medium-term, fixed-rate time-charter contracts. Teekay Tankers owns 100% of its fleet, other than a 50% interest in the VLCC and the in-chartered vessels. Teekay Tankers’ primary objective isPrior to grow through the acquisition of conventional tanker assets from third parties and from us. Through a wholly-owned subsidiary,October 1, 2018, we provideprovided Teekay Tankers with certain commercial, technical, administrative, and strategic services under a long-term management agreement.agreement through a wholly-owned subsidiary. As of October 1, 2018, Teekay Tankers elected to receive commercial and technical management services directly from its wholly-owned subsidiaries, who receive various services from us and our affiliates.
We entered into an omnibus agreement with Teekay LNG, Teekay OffshoreAltera and related parties governing, among other things, when we, Teekay LNG, and Teekay OffshoreAltera may compete with each other and certain rights of first offer on LNG carriers, oil tankers, shuttle tankers, FSO units and FPSO units.
Teekay Parent owns three FPSO units, in addition to its interests in its subsidiaries. For additional information about Teekay LNG and Teekay Tankers please read "Item 4B – Information on the Company – Operations".
D.Property, Plant and Equipment
Other than our vessels, and Teekay LNG’s 30% interest, through the Bahrain LNG Joint Venture, in an LNG receiving and regasification terminal, we do not have any material property. Please read “Item 18.18 – Financial Statements: Note 8 —– Long-Term Debt for information about major encumbrances against our vessels.
E.Taxation of the Company
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E. | Taxation of the Company |
United States Taxation
The following is a discussion of the expected material U.S. federal income tax considerations applicable to us. This discussion is based upon the provisions of the Internal Revenue Code, of 1986, as amended (or the Code), legislative history, applicable U.S. Treasury Regulations (or Treasury Regulations), judicial authority and administrative interpretations, all as in effect on the date of this Annual Report, and which are subject to change, possibly with retroactive effect, or are subject to different interpretations. Changes in these authorities may cause the tax consequences to vary substantially from the consequences described below.
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 income from time charters, contracts of affreightment, bareboat charters, and voyage charters.
Fifty percent (50%) of Transportation Income that either begins or ends, but that does not both begin and end, in the United States (or U.S. Source International Transportation Gross Income) is considered to be derived from sources within the United States. Transportation Income that both begins and ends in the United States (or U.S. Source Domestic Transportation Gross Income) is considered to be 100% derived from sources within the United States. Transportation Income exclusively between non-U.S. destinations is considered to be 100% derived from sources outside the United States. Transportation Income derived from sources outside the United States generally is not subject to U.S. federal income tax.
Based on our current operations, and the operations of our subsidiaries, a substantial portion of our Transportation Income is from sources outside the United States and not subject to U.S. federal income tax. However, certain of our subsidiaries which have made special U.S. tax elections to be treated as partnerships or disregarded as entities separate from us for U.S. federal income tax purposes are potentially engaged in activities which could give rise to U.S. Source International Transportation Income. Unless the exemption from U.S. taxation under Section 883 of the Code (or the Section 883 Exemption) applies, our U.S. Source International Transportation Gross Income generally will beis subject to U.S. federal income taxation under either the net basis and branch profits taxes or the 4% gross basis tax, each of which is discussed below. Furthermore, certain of our subsidiaries engaged in activities which could give rise to U.S. Source International Transportation Gross Income rely on our ability to claim the Section 883 Exemption.
The Section 883 Exemption.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 profits taxes or the 4% gross basis tax described below on its U.S. Source International Transportation Gross 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 Gross Income. The Section 883 Exemption does not apply to U.S. Source Domestic Transportation Gross Income.
A non-U.S. corporation will qualify for the Section 883 Exemption if, among other things, it (i) is organized in a jurisdiction outside the United States that grants an exemption from tax to U.S. corporations on international Transportation Gross Income (or an Equivalent Exemption), (ii) meets one of three ownership tests (or Ownership Tests) described in the Section 883 Regulations, and (iii) meets certain substantiation, reporting and other requirements (or the Substantiation Requirements).
We are organized under the laws of the Republic of Thethe Marshall Islands. The U.S. Treasury Department has recognized the Republic of Thethe Marshall Islands as a jurisdiction that grants an Equivalent Exemption. We also believe that we will be able to satisfy the Substantiation Requirements necessary to qualify for the Section 883 Exemption. Consequently, our U.S. Source International Transportation Gross Income (including for this purpose, our share of 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 satisfy one of the Ownership Tests. We believe that we should satisfy one of the Ownership Tests because our stock is primarily and regularly traded on an established securities market in the United States within the meaning of Section 883 of the Code and the Section 883 Regulations. We can give no assurance, however, that changes in the ownership of our stock subsequent to the date of this report will permit us to continue to qualify for the Section 883 exemption.
The Net Basis Tax and Branch Profits Taxes.Tax. If the Section 883 Exemption does not apply, our U.S. Source International Transportation Gross 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 Gross Income is attributable to regularly scheduled transportation or, in the case of income derived from bareboat charters, is attributable to a fixed place of business in the United States. Based on our current operations, none of our potential U.S. Source International Transportation Gross Income is attributable to regularly scheduled transportation or is derived from 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 Gross 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 wouldwill result in such income being treated as Effectively Connected Income. U.S. Source Domestic Transportation Gross Income generally will be treated as Effectively Connected Income.
Any income we earn that is treated as Effectively Connected Income would be subject to U.S. federal corporate income tax (the highestcurrent statutory rate for 2018 onwards is 21%) and a 30% branch profits tax imposed under Section 884 of the Code. In addition, 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 generally would be subject to the net basis and branch profits taxes with respect to our gain recognized up to the amount 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% Gross Basis Tax.Tax. If the Section 883 Exemption does not apply and we are not subject to the net basis and branch profits taxes described above, we will be subject to a 4% U.S. federal income tax on our subsidiaries’ grosssubsidiaries' U.S. Source International Transportation Gross Income, without benefit of deductions. For 2017,2020, we estimate that, if the Section 883 Exemption and the net basis tax did not apply, the U.S. federal income tax on such U.S. Source International Transportation Gross Income would have been approximately $5.5$9.1 million. In addition, we estimate that certain of
our subsidiaries that are unable to claim the Section 883 Exemption were subject to less than $0.2approximately $2.0 million in the aggregate of U.S. federal income tax on the U.S. source portion of their U.S. Source International Transportation Gross Income for 2017 and we estimate that these subsidiaries will be subject to less than $0.2 million in2020. If the aggregate of U.S. federal income tax onSection 883 Exemption does not apply, the U.S. source portion of their U.S. Source International Transportation Income in subsequent years. The amount of such tax for which we or our subsidiaries may be liable in any year will depend upon the amount of income we earn from voyages into or out of the United States in such year, however, which is not within our complete control.
Marshall Islands Taxation
We believe that neither we nor our subsidiaries will be subject to taxation under the laws of the Marshall Islands, ornor that distributions by our subsidiaries to us will be subject to any taxes under the laws of the Marshall Islands, other than taxes, fines, or fees due to (i) the incorporation, dissolution, continued existence, merger, domestication (or similar concepts) of legal entities registered in the Republic of the Marshall Islands, (ii) filing certificates (such as certificates of incumbency, merger, or re-domiciliation) with the Marshall Islands registrar, (iii) obtaining certificates of good standing from, or certified copies of documents filed with, the Marshall Islands registrar, (iv) compliance with Marshall Islands law concerning vessel ownership, such as tonnage tax, or (v) non-compliance with economic substance regulations or with requests made by the Marshall Islands registrarRegistrar of corporationsCorporations relating to our books and records and the books and records of our subsidiaries.
Other Taxation
In certain non-U.S. jurisdictions, weWe and our subsidiaries are subject to taxation in certain non-U.S. jurisdictions because we or our subsidiaries are either organized, in, or conduct business or operations in thosesuch jurisdictions. In other non-U.S. jurisdictions, we and our subsidiaries rely on statutory exemptions from tax. WeHowever, we cannot assure that any statutory exemptions from tax on which we or our subsidiaries rely will continue to be available as tax laws in those jurisdictions may change or we or our subsidiaries may enter into new business transactions relating to such jurisdictions, which could affect our and our subsidiaries' tax liability. Please read “Item 18.18 – Financial Statements: Note 21 —– Income Taxes".Taxes."
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Item 4A. | Unresolved Staff Comments |
Item 4A.Unresolved Staff Comments
None.
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Item 5. | Operating and Financial Review and Prospects |
Item 5.Operating and Financial Review and Prospects
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. In addition, refer to Item 5 in our Annual Report on Form 20-F for the year ended December 31, 2019 for our discussion and analysis comparing financial condition and results of operations from 2019 to 2018.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Teekay Corporation (or Teekay) is an operational leader and project developer in the marine midstream space. We have general partnership interests in two publicly-listed master limited partnerships, Teekay Offshore and Teekay LNG. In addition, we have a controlling ownership of publicly-listed Teekay Tankers and we have a small fleet of directly-owned vessels. Teekay provides a comprehensive set of marine services to the world’sworld's leading oil and gas companies. We have a 100% general partnership interest in one publicly-listed master limited partnership, Teekay LNG Partners L.P. (or Teekay LNG), a controlling interest in publicly-listed Teekay Tankers Ltd. (or Teekay Tankers, and together with Teekay LNG, the Daughter Entities), and we directly own three floating production storage and offloading (or FPSO) units. Until May 2019, when we sold our remaining interest, we had a 49% general partnership interest and other equity and debt interests in another publicly-listed master limited partnership, Altera Infrastructure L.P., (or Altera) previously known as Teekay Offshore Partners L.P. (or Teekay Offshore).Teekay and its subsidiaries, other than Teekay LNG and Teekay Tankers, are referred to herein as Teekay Parent.
Structure
To understand our financial condition and results of operations, a general understanding of our organizational structure is required. Our organizational structure can be divided into (a) our controlling interests in two publicly-traded subsidiaries, Teekay LNGthe Daughter entities and Teekay Tankers (together, the Controlled Daughter Entities), (b) Teekay and its remaining subsidiaries, which is referred to herein as Teekay Parent, and (c) our equity-accounted investee Teekay Offshore (together with the Controlled Daughter Entities, the Daughter Entities).Parent. Since we control the voting interests of the Controlled Daughter Entities through our ownership of the sole general partner interest of Teekay LNG and of Class A and Class B common shares of Teekay Tankers, we consolidate the results of these subsidiaries. On September 25, 2017, Teekay, Teekay Offshore and Brookfield Business Partners L.P. together with its institutional partners (collectively, Brookfield) completed a strategic partnership (or the Brookfield Transaction) which resulted in the deconsolidation of Teekay Offshore as of that date. Although Teekay owned less than 50% of Teekay Offshore, Teekay maintained control of Teekay Offshore until September 25, 2017, by virtue of its 100% ownership interest in the general partner of Teekay Offshore, Teekay Offshore GP L.L.C. (or TOO GP). In connection with Brookfield's acquisition of a 49% interest in TOO GP as part of the Brookfield Transaction, Teekay and Brookfield entered into an amended limited liability company agreement whereby Brookfield obtained certain participatory rights in the management of TOO GP, which resulted in Teekay deconsolidating Teekay Offshore for accounting purposes on September 25, 2017. Subsequent to the closing of the Brookfield Transaction, Teekay has significant influence over Teekay Offshore and accounts for its investment in Teekay Offshore using the equity method.
As of December 31, 2017,2020, we had economic interests in Teekay LNG and Teekay Tankers of 42.4% and Teekay Offshore (collectively, the Daughter Entities) of 33.0%28.6%, 28.8% and 14.1% respectively. Please read “Item 4.C.4C – Information on the Company – Organizational Structure.”
Teekay Offshore and Teekay LNG primarily holdholds assets that generate long-term fixed-rate cash flows. The strategic rationale for establishing these twothis master limited partnershipspartnership in 2004 was to illuminate the higher value of fixed-rate cash flows to Teekay investors, realize advantages of a lower cost of equity when investing in new offshore or liquefied natural gas (or LNG) projects, enhance returns to Teekay through fee-based revenue and ownership of the partnerships’partnership's incentive distribution rights (which Teekay LNG repurchased from us in May 2020) and increase our access to capital for growth. In 2007, as part of our continued asset management strategy, we formed Teekay Tankers to expand our conventional oil tanker business. Teekay Tankers holds a substantial majorityall of our conventional tanker assets.assets and engages in a mix of short to medium term fixed-rate charter contracts and spot tanker market trading. Teekay Tankers also owns a ship-to-ship transfer business that performs full service lightering and lightering support operations in the U.S. Gulf and Caribbean. In addition to Teekay Parent’s significant investments in Teekay LNG Teekay Tankers and Teekay Offshore,Tankers, Teekay Parent continues to own and operate three FPSO units. units, conducts business in Australia through the provision of operational and maintenance marine services, and provides marine and corporate services to Teekay LNG (and certain of its joint ventures) and to Teekay Tankers.
Our long-term vision is for Teekay Parent to be primarily a portfolio manager and project developer with the Teekay Group’sof various fixed assets primarily owned directly by its Daughter Entities.and businesses within our area of expertise. Our primary financial objectives for Teekay Parent are to increase the value of our three FPSO units and the value of our investments in Teekay LNG, Teekay Tankers and Teekay Offshore,our assets, increase Teekay Parent’s free cash flow per share, continue to reduce the debt of Teekay Parent (including by potentially selling assets in the future and using the net proceeds to repay debt), and, as a service provider to its Daughter Entities and third parties, provide scale and other benefits across the Teekay Group.
Teekay previously entered into an omnibus agreement with Teekay LNG, Teekay OffshoreAltera and related parties governing, among other things, when Teekay, Teekay LNG and Teekay OffshoreAltera may compete with each other and certain rights of first offer on LNG carriers, oil tankers, shuttle tankers, floating storage and offtake (or FSO) units and FPSO units.
We (excluding our investment in Teekay Offshore) have three primary lines of business: liquefied gas carriers, conventional tankers and offshore production (FPSO units), liquefied gas carriers and conventional tankers.. We manage these businesses for the benefit of all stakeholders. We allocate capital and assess performance from the separate perspectives of Teekay LNG and Teekay Tankers, and Teekay Parent, and its investment in Teekay Offshore, as well as from the perspective of the lines of business (the Line of Business approach). The primary focus of our organizational structure, internal reporting and allocation of resources by the chief operating decision maker, is on Teekay LNG and Teekay Tankers, and Teekay Parent and its investment in Teekay Offshore (the Legal Entity approach). As such,a result, a substantial majority of the information provided herein has beenin this Annual Report is presented in accordance with the Legal Entity approach. However, we have continued to incorporate the Line of Business approach asin our financial reporting because in certain cases there is more than one line of business in each of Teekay LNG, Teekay Tankers and Teekay Parent, and we believe this information allows a better understanding of our performance and prospects for future net cash flows. Subsequent to the Brookfield Transaction on September 25, 2017, we assess the performance of, and make decisions to allocate resources to,We presented our investment in Teekay OffshoreAltera as a whole and not at the level of the individual lines of business within Teekay Offshore, which are (1) offshore production (FPSO units), (2) offshore logistics (shuttle tankers, the HiLoad DP unit, FSO units, units for maintenance and safety (or UMS) and long-distance towing and offshore installation vessels), and (3) conventional tankers. We have determined that our investment in Teekay Offshore represents a separate operating segment and that individual lines of business within Teekay Offshore are no longer discloseduntil its sale to Brookfield in our operating segments and are not discussed individually in the following sections.May 2019.
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 accounted for under operating, and direct financing and sales-type leases, contracts of affreightment and FPSO contracts. Revenues are affected by hire rates and the number of days a vessel operates, and previously also the daily production volume on FPSO units, andand/or the oil price for certain FPSO units. Revenues are also affected by the mix of business between time charters and voyage charters contracts of affreightment and to a lesser extent whether our vessels operating in pool arrangements.are subject to an RSA. Hire rates for voyage charters are more volatile, as they are typically tied to prevailing market rates at the time of a voyage.
Voyage Expenses. Voyage expenses are all expenses unique to a particular voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Voyage expenses are typically paid by the customer under time charters and FPSO contracts and by us under voyage charters and contracts of affreightment.charters.
Net Revenues. Net revenues represent revenues less voyage expenses. The amount of voyage expenses we incur for a particular charter depends upon the form of the charter. For example, under time-charter contracts and FPSO contracts the customer usually pays the voyage expenses and for contracts of affreightment the ship-owner usually pays the voyage expenses, which typically are added to the hire rate at an approximate cost. Consequently, 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 United States generally accepted accounting principles (or 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. The two largest components of our vessel operating expenses are crew costs and repairs and maintenance. We expect these expenses to increase as our fleet matures and to the extent that it expands. We are taking steps to maintain these expenses at a stable level but expect an increase in line with inflation in respect of crew, material, and maintenance costs. The strengthening or weakening of the U.S. Dollar relative to foreign currencies may result in significant decreases or increases, respectively, in our vessel operating expenses, depending on the currencies in which such expenses are incurred.
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, realized and unrealized gains (losses) on non-designated derivative instruments, income taxes, foreign currency and other income and losses.
Dry docking. We must periodically dry dock each of our vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Generally, we dry dock 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 carriers between the second and third year of the five-year dry-docking cycle. We capitalize a substantial portion of the costs incurred during dry docking and for the survey and amortize those costs on a straight-line basis from the completion of a dry docking or intermediate survey over the estimated useful life of the dry dock. We expense as incurred costs for routine repairs and maintenance performed during dry dockings that do not improve or extend the useful lives of the assets and annual class survey costs for our FPSO units. The number of dry dockings undertaken in a given period and the nature of the work performed determine the level of dry-docking 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 dry-docking expenditures over the useful life of the dry dock; and
•charges related to the amortization of intangible assets, including the fair value of time charters contracts of affreightment and customer relationships 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 “time-charter equivalent” (or TCE) rates, which represent net revenues less voyage expenses 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, dry dockings 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.
ITEMS YOU SHOULD CONSIDER WHEN EVALUATING OUR RESULTS
You should consider the following factors when evaluating our historical financial performance and assessing our future prospects:
•Our voyage revenues are affected by cyclicality in the tanker markets. The cyclical nature of the tanker industry causes significant increases or decreases in the revenue we earn from our vessels, particularly those we trade in the spot conventional tanker market.
•Tanker rates also fluctuate based on seasonal variations in demand.demand. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the Northern Hemispherenorthern hemisphere but weaker in the summer months as a result of lower oil consumption in the Northern Hemispherenorthern hemisphere and increasedrefinery maintenance. In addition, unpredictable weather patterns during the winter months tend to disrupt vessel scheduling, which historically has increased oil price volatility and oil trading activities in the winter months. As a result, revenues generated by our vessels have historically been weaker during the quarters ended June 30 and September 30, and stronger in the quarters ended December 31 and March 31. However, there may be years where other events override typical seasonality. This was the case in 2020 when high global oil production and a rise in floating storage led to strong tanker rates in the first and second quarters of the year before giving way to much weaker rates in the third and fourth quarters due to lower oil demand as a result of COVID-19, a significant reduction in global oil supply, and the return of ships from floating storage.
•The COVID-19 pandemic is dynamic, and its ultimate scope, duration and effects on us, our customers and suppliers and our industry are uncertain.
Although global demand for LNG has remain relatively stable, COVID-19 has resulted and may continue to result in a significant decline in global demand for LPG and crude oil. As our business includes the transportation of LNG, LPG and oil on behalf of our customers, any significant decrease in demand for the cargo we transport could adversely affect demand for our vessels and services.
For the year ended December 31, 2020, we did not experience any material business interruptions as a result of the COVID-19 pandemic. COVID-19 has been a contributing factor to the decline in spot tanker rates and short-term time charter rates since mid-May 2020 and has also increased certain crewing-related costs, which reduced our cash flows, and was a contributing factor to the non-cash write-down of certain of Teekay LNG's multi-gas vessels, certain tankers owned by Teekay Tankers and one FPSO unit, as described in "Item 18 – Financial Statements: Note 18 - Write-down and Loss on Sale." The pandemic was also a contributing factor to the reduction in certain tax accruals as described in "Item 18 – Financial Statements: Note 21 - Income Tax Expense". We are continuing to monitor the potential impact of the pandemic on us, including monitoring counterparty risk associated with our vessels under contract and monitoring the impact on potential vessel impairments. We have also introduced a number of measures to protect the health and safety of our crews on our vessels, as well as our onshore staff.
Effects of the current pandemic may include, among others: deterioration of worldwide, regional or national economic conditions and activity and of demand for LNG, LPG and oil; operational disruptions to us or our customers due to worker health risks and the effects of new regulations, directives or practices implemented in response to the pandemic (such as travel restrictions for individuals and vessels and quarantining and physical distancing); potential delays in (a) the loading and discharging of cargo on or from our vessels, (b) vessel inspections and related certifications by class societies, customers or government agencies, (c) maintenance, modifications or repairs to, or drydocking of, our existing vessels due to worker health or other business disruptions, and (d) the timing of crew changes; reduced cash flow and financial condition, including potential liquidity constraints; potential reduced access to capital as a result of any credit tightening generally or due to continued declines in global financial markets; potential reduced ability to opportunistically sell any of our vessels on the second-hand market, either as a result of a lack of buyers or a general decline in the value of second-hand vessels; potential decreases in the market values of our vessels and any related impairment charges or breaches relating to vessel-to-loan financial covenants; potential disruptions, delays or cancellations in the construction of new LNG projects (including production, liquefaction, regasification, storage and distribution facilities), which could reduce our future growth opportunities; and potential deterioration in the financial condition and prospects of our customers or business partners.
Given the dynamic nature of the pandemic, including the development of variants of the virus, the duration of any potential business disruption and the related financial impact cannot be reasonably estimated at this time and could materially affect our business, results of operations and financial condition. Please read “Item 3 - Key Information - Risk Factors” for additional information about potential risks of COVID-19 on our business.
•IMO 2020 Low Sulfur Fuel Regulation
Effective January 1, 2020, the International Maritime Organization imposed a 0.50% m/m (mass by mass) global limit for sulfur in fuel oil used onboard ships. To comply with this new regulatory standard, ships may utilize different fuels containing low or zero sulfur or utilize exhaust gas cleaning systems, known as “scrubbers”. To date, neither Teekay LNG nor Teekay Tankers has installed any scrubbers on their existing fleets, but each has taken and continues to take steps to comply with the 2020 sulfur limit. Detailed plans to address this changeover have been successfully implemented.
Teekay LNG communicated with its charterers in seeking to promote the use of LNG as the primary fuel whenever possible. All charterers accepted the rationale as a logical means of compliance. Vessels are supplied with compliant low sulfur heavy fuel oil and low sulfur marine gas oil which are used as pilot fuels, maneuvering or heel out situations, or in the case of heavy fuel oil only vessels, as the primary fuel. Under time charters, as both the LNG and compliant fuel is supplied by the charterers, there has been minimal impact on revenues and voyage expenses for our LNG fleet.
Teekay Tankers' transition to low sulfur fuel did not have a significant impact on its operating results. The future fuel price spread between high sulfur fuel and low sulfur fuel is uncertain; however, the use of higher cost low sulfur fuel has and is expected to continue to increase Teekay Tankers' voyage expenses. Teekay Tankers expects that it will be able to recover fuel price increases from the charterers of its vessels through higher revenues from voyage charters.
•The size of and types of vessels in our fleet continues to change. Our results of operations reflect changes in the size and composition of our fleet due to certain vessel deliveries, vessel dispositions and changes to the number of vessels we charter in, as well as our entry into new markets. Please read “—“– Results of Operations” below for further details about vessel dispositions, deliveries and vessels chartered in. Due to the nature of our business, we expect our fleet to continue to fluctuate in size and composition.
•Vessel operating and other costs are facing industry-wide cost pressures. The shipping industry continues to forecast a shortfall in qualified personnel, although weak shipping and offshore markets and slowing growth may ease officer shortages. We will continue to focus on our manning and training strategies to meet future needs, but going forward crew compensation may increase. In addition, factors such as pressure on commodity and raw material prices, as well as changes in regulatory requirements could also contribute to operating expenditure increases. We continue to take action aimedmaintain our operating expense increases at improvingnear inflationary levels; however, regulatory compliance has increased cost pressures on operators in recent years which may lead to increased operational efficiencies and to temper the effect of inflationary and other price escalations; however, increases to operational costs are still likely to occurexpenses in the future.
In 2020, we have been impacted by COVID-19 and the implications of resulting logistical challenges across our fleet. We had to defer the scheduled maintenance for certain of our vessels from 2020 to 2021. Additionally, due to increased length of stay for seafarers on board the vessels, we have had an increase in crewing costs.•Our net income is affected by fluctuations in the fair value of our derivative instruments. Most of our existing cross currency and interest rate swap agreements and foreign currency forward contracts are not designated as hedges for accounting purposes. Although we believe the non-designated derivative instruments are economic hedges, the changes in their fair value are included in our consolidated statements of income (loss) income as unrealized gains or losses on non-designated derivatives. The unrealized changes in fair value do not affect our cash flows or liquidity.
•The amount and timing of dry dockings of our vessels can affect our revenues between periods. Our vessels are off hireoff-hire at various times due to scheduled and unscheduled maintenance. During 20172020 and 2016,2019, on a consolidated basis and excluding vessels in our equity-accounted joint ventures,- we incurred 796591 and 601886 off-hire days relating to dry docking, respectively. The financial impact from these periods of off-hire, if material, is explained in further detail below in “—"– Results of Operations”. During 2021, 17 of our vessels are scheduled for dry docking, excluding vessels in our equity-accounted joint ventures, compared to 13 vessels which dry docked during 2018.
2020.The division of our results of operations between the Daughter Entities and Teekay Parent is impacted by the sale of vessels or operations from Teekay Parent to the Daughter Entities. The Controlled Daughter Entities (and Teekay Offshore until its deconsolidation on September 25, 2017) account for the acquisition of the vessels or operations from Teekay as a transfer of a business between entities under common control. The method of accounting for such transfers is similar to the pooling of interests method of accounting. Under this method, the carrying amount of net assets recognized in the balance sheets of each combining entity are carried forward to the balance sheet of the combined entity, and no other assets or liabilities are recognized as a result of the combination. In addition, such transfers are accounted for as if the transfer occurred from the date that the acquiring subsidiary and the acquired vessels were both under the common control of Teekay and had begun operations. As a result, the historical financial information of the Controlled Daughter Entities (and of Teekay Offshore until its deconsolidation on September 25, 2017) included in this Annual Report reflects the financial results of the vessels or operations acquired from Teekay Parent from the date the vessels or operations were both under the common control of Teekay and had begun operations but prior to the date they were owned by the Controlled Daughter Entity (or Teekay Offshore until its deconsolidation on September 25, 2017).
•Our financial results are affected by fluctuations in currencyexchange rates. Under GAAP, all foreign currency-denominated monetary assets and liabilities (including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, unearned revenue, advances from affiliates, and long-term debt) are revalued and reported based on the prevailing exchange rate at the end of the period. These foreign currency translations fluctuate based on the strength of the U.S. Dollar relative to the applicable foreign currency, mainly to the Euro and NOK and are included in our results of operations. The translation of all foreign currency-denominated monetary assets and liabilities at each reporting date results in unrealized foreign currency exchange gains or losses but do not currently impact our cash flows.
•The duration of many ofour FPSO contract for the shuttle tanker, FSO andSevan Hummingbird FPSO contracts is the life of the relevant oil field orunit is subject to extension by the field operator or vessel charterer.early termination options. If the oil field no longer produces oil or is abandoned or the contract term is not extended,charterer exercised its early termination option, we will no longer generate revenue under the related contract and will need to seek to redeploy, affected vessels. Many ofsell or scrap the 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 or Teekay Offshore no longer will generate revenue under the related contract. Other shuttle tanker, FSO and FPSO contracts under which our and Teekay Offshore's vessels operate are subject to extensions beyond their initial term.unit. The likelihood of these contractsthe contract being extended may be negativelyterminated early is affected by reductions in oil field reserves, low oil prices generally or other factors. If we or Teekay Offshore are unable to promptly redeploy any affected vesselsthe unit at ratesa rate at least equal to those under the contracts,existing contract, if at all, our operating results will be harmed. Any potential redeployment may not be under a long-term contracts,contract, which may affect the stability of our cash flowflow. If the unit is not redeployed or sold, we may incur costs to decommission and our ability to make cash distributions.scrap the unit. FPSO units, in particular, 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. Any idle time prior to the commencement of a new contract or our inability to redeploy the vesselsvessel at an acceptable ratesrate may have an adverse effect on our business and operating results.
•Certain of Teekay LNG's consolidated and equity-accounted vessels earned revenues based partly on spot market rates. All of Teekay LNG's wholly-owned multi-gas carriers,and certain of our LPG carriers in our 50%-owned Exmar LPG Joint Venture were either trading or are currently trading in the spot market. Volatility of spot rates will affect our results from period to period.
•We do not control access to cash flow generated by our investments in equity-accounted joint ventures. We do not have control over the operations of, nor do we have any legal claim to the revenue and expenses of our investments in, our equity-accounted joint ventures. Consequently, the cash flow generated by our investments in equity-accounted joint ventures may not be available for use by us in the period that such cash flows are generated.
RECENT DEVELOPMENTS AND RESULTS OF OPERATIONS
The results of operations that follow have first been divided into (a) our controlling interests in our publicly-traded subsidiaries Teekay LNG and Teekay Tankers and (b) Teekay Parent, and (c) the results of Teekay Offshore until its deconsolidation on September 25, 2017.Parent. Within the first two of these three groups, we have further subdivided the results into their respective lines of business. The following table (a) presents revenues and income (loss) from vessel operations for each of Teekay LNG and Teekay Tankers, for Teekay Parent, and for Teekay Offshore until its deconsolidation on September 25, 2017,Parent, and (b) reconciles these amounts to our consolidated financial statements.
| | | | | Revenues | | Income from Vessel Operations | | | Revenues | | Income (loss) from vessel operations |
| (in thousands of U.S. dollars) | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | (in thousands of U.S. dollars) | | 2020 | | 2019 | | 2020 | | 2019 |
| Teekay LNG | | 432,676 |
| | 396,444 |
| | 397,991 |
| | 148,649 |
| | 153,181 |
| | 181,372 |
| Teekay LNG | | 591,103 | | | 601,256 | | | 226,093 | | | 299,253 | |
Teekay Tankers (1)(2) | | 431,178 |
| | 550,543 |
| | 524,834 |
| | 1,416 |
| | 96,752 |
| | 190,589 |
| |
| Teekay Tankers | | Teekay Tankers | | 886,434 | | | 943,917 | | | 141,572 | | | 123,883 | |
| Teekay Parent | | 303,566 |
| | 340,513 |
| | 419,166 |
| | (290,425 | ) | | (96,496 | ) | | (30,228 | ) | Teekay Parent | | 338,135 | | | 413,806 | | | (53,086) | | | (219,094) | |
Teekay Offshore (3) | | 796,711 |
| | 1,152,390 |
| | 1,229,413 |
| | 147,060 |
| | 230,853 |
| | 283,399 |
| |
Elimination of intercompany (1)(4) | | (83,799 | ) | | (111,321 | ) | | (121,022 | ) | | — |
| | — |
| | — |
| |
Elimination of intercompany (1) | | Elimination of intercompany (1) | | — | | | (13,588) | | | — | | | — | |
| Teekay Corporation Consolidated | | 1,880,332 |
| | 2,328,569 |
| | 2,450,382 |
| | 6,700 |
| | 384,290 |
| | 625,132 |
| Teekay Corporation Consolidated | | 1,815,672 | | | 1,945,391 | | | 314,579 | | | 204,042 | |
| |
(1) | During 2014, Teekay sold to Teekay Tankers a 50% interest in Teekay Tankers Operations Ltd. (or TTOL), which owns our conventional tanker commercial management and technical management operations, including direct ownership in five commercially managed revenue sharing arrangements of the Teekay group. Following that sale, Teekay Tankers and Teekay Parent each accounted for their 50% interests in TTOL as equity-accounted investments and, as such, TTOL’s results were reflected in equity income of Teekay Tankers and Teekay Parent. Upon consolidation of Teekay Tankers into Teekay, the results of TTOL were accounted for on a consolidated basis by Teekay. On May 31, 2017, Teekay Tankers acquired from Teekay Parent the remaining 50% interest in TTOL. As a result of the acquisition, the financial information for Teekay Tankers prior to the date that Teekay Tankers acquired interests in TTOL are retroactively adjusted to include the results of TTOL on a consolidated basis during the periods they were under common control of Teekay and had begun operations.(1)During 2019, Teekay Tankers' ship-to-ship transfer business provided operational and maintenance services to Teekay LNG Bahrain Operations L.L.C., an entity wholly-owned by Teekay LNG, for the LNG receiving and regasification terminal in Bahrain. Also during 2019, the Magellan Spirit LNG carrier was chartered by Teekay LNG to Teekay Parent for a short period of time.
|
| |
(2) | In December 2015, Teekay Offshore sold two Aframax tankers to Teekay Tankers and the results of the two vessels are included in Teekay Offshore up to the date of sale and in Teekay Tankers from the date of acquisition. |
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(3) | On September 25, 2017, Teekay deconsolidated Teekay Offshore (see “Item 5. Operating and Financial Review and Prospects - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments and Results of Operations - Recent Developments in Teekay Offshore” for additional information). The figures above are those of Teekay Offshore until the date of deconsolidation. |
| |
(4) | During 2017, Teekay Parent chartered in three FSO units and two shuttle tankers from Teekay Offshore, and two LNG carriers from Teekay LNG. During 2016, Teekay Parent chartered in three FSO units, three shuttle tankers and one Aframax tanker from Teekay Offshore, two LNG carriers from Teekay LNG and two Aframax tankers from Teekay Tankers. During 2015, Teekay Parent chartered in three FSO units, two shuttle tankers and four Aframax tankers from Teekay Offshore, and two LNG carriers from Teekay LNG, and Teekay Parent chartered out one Aframax tanker to Teekay Tankers. |
Summary
Teekay CorporationCorporation's consolidated income from vessels operations decreasedincreased to $6.7$314.6 million for the year ended December 31, 20172020 compared to $384.3$204.0 million in the prior year. The primary reasons for this decreaseincrease are as follows:
•a decrease in loss from vessel operations in Teekay Parent the write-downs of the Petrojarl Foinaven and Petrojarl Banff $166.0 million primarily due to lower impairment charges relating to FPSO units lowerin 2020, a gain on commencement of a sales-type lease and improved results on the Petrojarl Foinaven as a result of a new bareboat charter agreement for the temporary scheduled shutdownPetrojarl Foinaven FPSO unit in the third quarter of 2017, and a contract amendment related to the Hummingbird Spirit FPSO which reduced its revenues,2020, partially offset by a contract amendment related todecommissioning costs incurred for the Petrojarl Banff FPSO which increased its revenues and the loss on sale of the Shoshone Spirit VLCCunit after it ceased operations in 2016;
June 2020;•an increase in Teekay LNG, the write-downs of the European Spirit, African Spirit, Teide Spirit and Toledo Spirit conventional tankers in 2017 and a decrease in revenue due to uncertainty of collection of hire relating to Teekay LNG's six LPG carriers on charter to I.M. Skaugen SE (or Skaugen) in 2017;
income from vessel operations in Teekay Tankers lowerof $17.7 million primarily due to higher overall average realized spot TCE rates earned by its Suezmax and LR2 product tankers, fewer off-hire days related to dry dockings and lower off-hire bunker expenses, a higher number of vessels on time-charter out contracts earning higher rates, as well as higher earnings from Teekay Tankers' full service lightering (or FSL) dedicated vessels in the spot tanker market in 2017 compared to 2016, and various vessel employment changes, in-chartered vessel redeliveries and vessel sales in 2016 and 2017; and
in Teekay Offshore, primarily the impact of deconsolidating Teekay Offshore on September 25, 2017, the termination of the charter contract of the Petrojarl Varg FPSO in 2016, lower towage fleet rates and utilization in 2017, and the redelivery of the Navion Saga FSO,2020, partially offset by the write-downimpairment charges of $66.7 million in 2016 relating to the cancellation of two UMS newbuildings contracts;
2020;partially offset by
•a decrease in income from vessel operations in Teekay LNG of $73.2 million primarily due to a $51.0 million write-down of seven multi-gas carriers during 2020 and due to the loss on sale of conventional tankers recordedthe WilPride and WilForce LNG carriers in 2016 upon the charterer, Centrofin Management Inc. (or Centrofin), exercising its purchase options on the Bermuda Spirit and Hamilton Spirit in February 2016 and March 2016, respectively, and the deliveries of the Oak Spirit, Creole Spirit, Torben Spirit, Macoma and Murex LNG carrier newbuildingsin 2016 and 2017.
January 2020.Details of the changes to our results of operations for the year ended December 31, 2017,2020, compared to the year ended December 31, 20162019 are provided in the following section.
Year Ended December 31, 20172020 versus Year Ended December 31, 2016
Teekay LNG
As at December 31, 2020, Teekay LNG’s liquefied gas fleet consisted of a controlling interest in 22 LNG carriers and seven LPG/multi-gas carriers. In addition, Teekay LNG also has interests of 20% to 52% in 25 LNG carriers, 23 LPG/multi-gas carriers and one LNG regasification terminal in Bahrain that are accounted for using the equity method.
Recent Developments in Teekay LNG
In January 2018,During March 2021, Teekay LNG secured a one-year, variable-rate charter contract, with a one-year option at a fixed rate for the Creole Spirit LNG carrier, which commenced in March 2021.
During July 2020, Teekay LNG's 50/5052%-owned joint venture with China LNG Shipping (Holdings) LimitedMarubeni Corporation (or the Yamal LNGMALT Joint Venture)took delivery of its first ARC7 LNG carrier newbuilding, the Eduard Toll. The vessel concurrently commenced its 28-year secured an eight-month charter contract with Yamal Trade Pte. Ltd.
In January 2018, Teekay LNG soldfor the Methane Spirit, after its 50% ownership interest in the Excelsior Joint Venture to a third party for net proceeds of approximately $44 million after repaying outstanding debt obligations within the joint venture.
During November 2017, Teekay LNG terminated the bareboatprevious charter contracts for its six LPG carriers chartered to wholly-owned subsidiaries of I.M. Skaugen SE (or Skaugen) due to Skaugen's breach of the charters resulting from its failure to pay charter hire amounts owed thereunder. The six bareboat charter contracts had terms ending between 2019 and 2026.contract ended. In addition, in December 2017,2020, the MALT Joint Venture secured a two-year, fixed-rate charter contract, with a one-year option, for the Methane Spirit which is expected to commence in April 2021.
During April and May 2020, the MALT Joint Venture also secured the following charter contracts: a one-year, fixed-rate charter contract, with a one-year option, for the Arwa Spirit which commenced in May 2020 after its previous charter contract ended; and a six-month charter contract for the Marib Spirit which commenced in June 2020 after its prior charter contract ended. In October 2020, the charterer of the Marib Spirit exercised its options to extend the current charter by 14 months at a higher charter rate, extending the vessel's charter coverage to early-2022, and has another one-year option available. In March 2021, the charterer of the Arwa Spirit exercised its one-year option to extend the charter contract to May 2022.
In March 2020, Teekay LNG withdrew the Sonoma Spirit (formerly Norgas Sonoma)received notice from the Norgas Pool and transferredManager, which commercially manages its seven wholly-owned multi-gas vessels, that it would dissolve the pool in which these seven multi-gas vessels were then being managed, effective September 2020, in accordance with its rights in the then-existing commercial management agreement. This notice, along with the lower near-term outlook for these types of allvessels that resulted from the economic environment at that time (including the COVID-19 pandemic), impacted its assessment of the expected earnings for these vessels which resulted in a write-down of its seven of these LPGmulti-gas carriers during 2020 - see "Item 18 – Financial Statements: Note 18 – Write-down and Loss on Sale". In July 2020, Teekay LNG entered into a newly formed in-housenew commercial management solutionagreement with its third-party commercial manager (or the Manager) to commercially manage its seven wholly-owned multi-gas vessels for ethylene-capable LPGa two-year term, which came into effect in September 2020 upon the vessels redelivering from the previous pool arrangement and small-scaletermination of the prior commercial management agreement. In early-2021, Teekay LNG's commercial manager publicly announced that it intends to merge its business and operations with another third-party commercial manager. The transaction is expected to close in the first half of 2021, upon which the surviving entity will continue to commercially manage Teekay LNG's seven wholly-owned multi-gas vessels for the remaining two-year term under the current commercial management agreement.
In January 2020, Awilco LNG vessels,ASA (or Awilco) repurchased the Teekay Multigas Pool, whichWilPride and WilForce LNG carriers, respectively, and paid Teekay LNG launched in November 2017. As at December 31, 2017, as a result of Skaugen's breach of the six charters, Skaugen owedassociated vessel purchase obligations, deferred hire amounts and interest on deferred hire amounts totaling $260.4 million relating to these two vessels. Teekay LNG an aggregate amountused the proceeds from the sales to repay $157 million of approximately $25 million in unpaid hireterm loans that remains in arrears calculated based on the contracted charter rates,were collateralized by these vessels and such amount has not been recorded as revenue given the uncertainty of its collection.to fund working capital requirements.
In November 2019, Teekay LNG has commenced legal claims against Skaugen to recover all outstanding amounts, damages and losses. Skaugen has filed a counter-suit against us for amounts unspecified at this time.
During 2017, as an alternative payment for a portion of unpaid amounts Skaugen owed to Teekay LNG, Skaugen offered to Teekay LNG its 35% ownership interest in an LPG carrier, the Norgas Sonoma, which was owned by Skaugen Gulf Petchem Carriers B.S.C.(c), aLNG's joint venture between Skaugen (35%), Thewith National Oil & Gas Authority B.S.C.(c) (or NogaholdingNOGA) (35%), Gulf Investment Corporation and Suffun Bahrain W.L.L. (or Suffun) (30%)Samsung C&T (or the Skaugen LPGBahrain LNG Joint Venture). Both Nogaholding and Suffun exercised their options to participate, in the sale of the Norgas Sonoma and as a result, on April 20, 2017, Teekay LNG acquired a 100% ownership interest in the Skaugen LPG Joint Venture for an aggregate purchase price of $13.2 million, including the application of $4.6 million of the outstanding hire owing to Teekay LNG by Skaugen to acquire Skaugen's 35% ownership interest in the Skaugen LPG Joint Venture.
In October 2017, Teekay LNG's joint venture with China LNG, CETS Investment Management (HK) Co. Ltd. and BW LNG Investments Pte. Ltd. (or the Pan Union Joint Venture), took delivery of its first LNG carrier newbuilding, the Pan Asia. In January 2018, the Pan Union Joint Venture took delivery of its second LNG carrier newbuilding, the Pan Americas. which Teekay LNG has a 30% ownership interest, in both vessels throughcompleted the Pan Union Joint Venturemechanical construction and both vessels concurrently commenced their 20-year charter contracts with Shell Royal Dutch Plc (or Shell) upon delivery.
In August 2017, Compania Espanole de Petroleos, S.A. (or CEPSA), the charterer (who is also the owner) of a vessel related to a capital lease, the Teide Spirit, gave formal notification to Teekay LNG of its intention to terminate its charter contract subject to certain conditions being met and third-party approvals being received. In October 2017, the charterer notified Teekay LNG that it is marketing the Teide Spirit for sale and, upon salecommissioning of the vessel, the charterer would concurrently terminate its existing charter contract with Teekay LNG.LNG receiving and regasification terminal in Bahrain. The same charterer’s cancellation option for the Toledo Spirit is first exercisable in August 2018. Given Teekay LNG's prior experience with this charterer, Teekay LNG expects the charterer will also cancel the charter contract and sell the Toledo Spirit to a third party in 2018. Teekay LNG recorded a write-down of $25.5 million on a combined basis related to the Teide Spirit and Toledo Spirit for the third quarter of 2017.
In February 2018, CEPSA sold the Teide Spirit to a third party. As a result of this sale, Teekay LNG returned the vessel to CEPSA and the full amount of the associated obligation related to the capital lease was concurrently extinguished. In addition, Teekay LNG incurred seafarer severanceproject began receiving terminal use payments in 2018 of approximately $1.4 million upon the sale of the vessel.
In late-June 2017, the charterer for the European Spirit Suezmax tanker gave formal notice to Teekay LNG that it would not exerciseJanuary 2020 under its one-year extension option under the charter contract and the charterer redelivered the vessel to Teekay LNG in August 2017. Upon receiving this notification, Teekay LNG commenced marketing the vessel for sale and recorded a $12.6 million write-down of the vessel during the second quarter of 2017. In addition, during the third quarter of 2017, Teekay LNG recorded a write-down of the AfricanSpirit of $12.5 million as Teekay LNG received notification from the charterer of the vessel in August 2017 that it would redeliver the vessel to Teekay LNG upon completion of its charter contract in November 2017. Upon the redelivery of the African Spirit, Teekay LNG has commenced marketing the vessel for sale.
In March 2017 and July 2017, Teekay LNG's 50/50 joint venture with Exmar (or the Exmar LPG Joint Venture), of which Teekay LNG has a 50% ownership interest, took delivery of the Kallo LPG carrier and Kruibeke LPG carrier, respectively, and upon delivery sold and leased back the vessels. In April 2017, the Exmar LPG Joint Venture entered into a shipbuildingterminal use agreement with Hyundai Heavy Industries Co., Ltd. for one additional LPG carrier newbuilding scheduled for deliveryNOGA which ends in mid-2018. As at December 31, 2017, the Exmar LPG Joint Venture had three LPG carrier newbuildings scheduled for delivery in 2018. On March 5, 2018, the Exmar LPG Joint Venture took deliveryFebruary 2039.
Teekay LNG has two LNG carriers currently on bareboat charter contracts with Awilco LNG ASA (or Awilco) with original fixed contract terms ending in November 2017 and August 2018 with one-year extension options. Awilco had purchase obligations under the charter contracts to repurchase each vessel from Teekay LNG at the end of their respective terms. As a result of Awilco facing financial challenges, including going concern issues, in June 2017, Teekay LNG amended the charter contracts with Awilco to defer a portion of charter hire and extend the bareboat charter contracts and related purchase obligations on both vessels to December 2019. A key condition of the amendments required Awilco to raise a minimum of $25 million of equity, which was successfully completed in May 2017. The amendments have the effect of deferring between $10,600 per day and $20,600 per day per vessel of charter hire from July 2017 until December 2019, with such deferred amounts added to the purchase obligation amounts.
On February 28, 2017, Teekay LNG took delivery of the Torben Spirit LNG carrier newbuilding and concurrently sold this vessel to a third party and leased it back under a 10-year bareboat charter contract. The Torben Spirit commenced its charter contract with a major energy company in March 2017, with a firm charter period ending in June 2018 plus four consecutive extension options ending in June 2021.
Three of Teekay LNG's LNG carrier newbuildings delivered between October 2017 and February 2018: the Macoma, Murex andMagdala. Upon delivery, these vessels were sold to third parties and leased back under 10-year bareboat charter contracts with purchase obligations for each respective vessel and concurrently commenced their six to eight-year charter contracts with Shell.
Teekay LNG currently has five wholly-owned LNG carrier newbuildings on order, including a FSU, which are scheduled for delivery between mid-2018 and early-2019. All five LNG carrier newbuildings have fixed-rate, time-charter contracts in place and four of Teekay LNG's five LNG carrier newbuildings have financing in place.
Two of the six LNG carriers (or MALT LNG Carriers) in the Teekay LNG-Marubeni Joint Venture, the Marib Spirit and Arwa Spirit, are currently under long-term contracts expiring in 2029 with Yemen LNG Ltd. (or YLNG), a consortium led by Total SA. Due to the political situation in Yemen, YLNG decided to temporarily close operation of its LNG plant in Yemen in 2015. As a result, the Teekay LNG-Marubeni Joint Venture agreed in December 2015 to defer a portion of the charter payments for the two LNG carriers from January 1, 2016 to December 31, 2016 and further deferrals were agreed in August 2016 and in January 2017 to extend the deferral period to the end of the short-term sub-charter contracts for the Marib Spirit and Arwa Spirit, which are currently anticipated to bein August 2018 and March 2019, respectively, unless the short-term sub-charter contracts are further extended in accordance with their terms. Should the LNG plant in Yemen resume operations, it is intended that YLNG will repay the deferred amounts in full, plus interest over a period of time to be agreed upon. However, there is no assurance if or when the LNG plant will resume operations or if YLNG will repay the deferred amounts, and this deferral period may extend beyond 2018 and 2019 as it relates to the Marib Spirit and Arwa Spirit, respectively. Teekay LNG's proportionate share of the estimated impact of the charter payment deferral for 2018 compared to original charter rates earned prior to January 1, 2016 is estimated to be a reduction to equity income ranging from $4 million to $5 million per quarter (2017 - $5.7 million per quarter), which we expected will be partially offset by sub-chartering employment opportunities for the Marib Spirit and Arwa Spirit in 2018.
Between July and December 2017, the Teekay LNG-Marubeni Joint Venture secured short-term charter contracts for four of its vessels trading in the short-term market. These short-term charter contracts were secured in respect of the Magellan Spirit (which was delivered to the charterer in July 2017), the Marib Spirit (which was delivered to the charterer in October 2017), the Arwa Spirit (which was delivered to the charterer in December 2017) and the Methane Spirit (which was delivered to the charterer in December 2017). It is anticipated that the contractual redeliveries under these various short-term charter contracts will occur during mid-2018 through to early-2019, unless extended in accordance with their terms.
Operating Results – Teekay LNG
The following table compares Teekay LNG’s operating results, equity income and number of calendar-ship-days for its vessels for 20172020 and 2016, and compares its net revenues (which is a non-GAAP financial measure) for 2017 and 2016, to revenues, the most directly comparable GAAP financial measure, for the same periods.2019:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands of U.S. dollars, except calendar-ship-days) | | 2020 | | 2019 |
| Revenues | | 591,103 | | | 601,256 | |
| Voyage expenses | | (17,394) | | | (21,387) | |
| Vessel operating expenses | | (116,396) | | | (111,585) | |
| Time-charter hire expense | | (23,564) | | | (19,994) | |
| Depreciation and amortization | | (129,752) | | | (136,765) | |
General and administrative expenses (1) | | (26,904) | | | (22,521) | |
| Write-down of and sale of vessels | | (51,000) | | | 13,564 | |
| Restructuring charges | | — | | | (3,315) | |
| Income from vessel operations | | 226,093 | | | 299,253 | |
| | | | |
Liquefied Gas Carriers (1) | | 226,093 | | | 300,520 | |
Conventional Tankers (1)(2) | | — | | | (1,267) | |
| | 226,093 | | | 299,253 | |
| | | | |
| Equity income – Liquefied Gas Carriers | | 72,233 | | | 58,819 | |
| | | | |
Calendar-Ship-Days (3) | | | | |
| Liquefied Gas Carriers | | 10,990 | | | 11,650 | |
| Conventional Tankers | | — | | | 317 | |
|
| | | | | | | | | | | | | | | | | | |
| | | Liquefied Gas Carriers | | Conventional Tankers | | Teekay LNG Total |
| (in thousands of U.S. dollars, except calendar-ship-days) | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
| Revenues | | 385,683 |
| | 336,530 |
| | 46,993 |
| | 59,914 |
| | 432,676 |
| | 396,444 |
|
| Voyage expenses | | (3,020 | ) | | (449 | ) | | (5,182 | ) | | (1,207 | ) | | (8,202 | ) | | (1,656 | ) |
| Net revenues | | 382,663 |
| | 336,081 |
| | 41,811 |
| | 58,707 |
| | 424,474 |
| | 394,788 |
|
| Vessel operating expenses | | (84,928 | ) | | (66,087 | ) | | (18,211 | ) | | (22,503 | ) | | (103,139 | ) | | (88,590 | ) |
| Depreciation and amortization | | (95,025 | ) | | (80,084 | ) | | (10,520 | ) | | (15,458 | ) | | (105,545 | ) | | (95,542 | ) |
General and administrative expenses (1) | | (14,034 | ) | | (15,310 | ) | | (2,507 | ) | | (3,189 | ) | | (16,541 | ) | | (18,499 | ) |
| Write-down and loss on sale of vessels | | — |
| | — |
| | (50,600 | ) | | (38,976 | ) | | (50,600 | ) | | (38,976 | ) |
| Income (loss) from vessel operations | | 188,676 |
| | 174,600 |
| | (40,027 | ) | | (21,419 | ) | | 148,649 |
| | 153,181 |
|
| Equity income | | 9,789 |
| | 62,307 |
| | — |
| | — |
| | 9,789 |
| | 62,307 |
|
Calendar-Ship-Days (2) | | | | | | | | | | | | |
| Liquefied Gas Carriers | | 8,357 |
| | 7,440 |
| | — |
| | — |
| | 8,357 |
| | 7,440 |
|
| Conventional Tankers | | — |
| | — |
| | 1,904 |
| | 2,439 |
| | 1,904 |
| | 2,439 |
|
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(1) | (1)Includes direct general and administrative expenses and indirect general and administrative expenses allocated to the liquefied gas carriers and conventional tankers based on estimated use of corporate resources. |
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(2) | Calendar-ship-days presented relate to consolidated vessels. |
Teekay LNG – Liquefied Gas Carriers
As at December 31, 2017, Teekay LNG’s liquefied gas fleet, including newbuildings, included 50 LNG carriers and 30 LPG/Multigas carriers, in which its interests ranged from 20% to 100%. The number of calendar-ship-days for Teekay LNG’s liquefied gas carriers consolidatedand conventional tankers based on estimated use of corporate resources.
(2)Further information on Teekay LNG’s conventional tanker results can be found in its financial results increased“Item 18 – Financial Statements: Note 3 – Segment Reporting.”
(3)Calendar-ship-days presented relate to 8,357 days in 2017 from 7,440 days in 2016, as a result of the deliveries to Teekay LNG of the Creole Spirit and Oak Spirit during 2016 and the deliveries of the Torben Spirit, Macoma, and Murex during 2017. During 2017, three of Teekay LNG's consolidated vessels in this segment were off-hire for scheduled dry dockings, and the Torben Spirit was idle for three days prior to its charter contract commencement, compared to three consolidated vessels in this segment being off-hire for repairs, and the Creole Spirit and Oak Spirit being idle for 12 days and 15 days, respectively, prior to their charter contract commencements in 2016. As a result, Teekay LNG's liquefied gas fleet utilization decreased to 98.6% in 2017, compared to 99.1% in 2016.only.
Income from vessel operations increasedfor Teekay LNG decreased to $188.7$226.1 million in 20172020 compared to $174.6$299.3 million in 2016,2019, primarily as a result of:
•a decrease of $64.6 million due to the write-down of seven multi-gas carriers in 2020 compared to a write-down of one conventional tanker in 2019 and a gain recognized on the derecognition of the WilPride and WilForce LNG carriers in 2019;
•a decrease of $10.5 million due to the sales of the Toledo Spirit, Alexander Spirit, WilPride, and WilForce LNG carriers between January 2019 and January 2020;
•a decrease of $8.0 million during 2020, primarily due to an increase of $26.6 million as a result of the deliveries of the Creole Spirit, Oak Spirit, Torben Spirit, Macoma, and Murex and the commencement of their charter contracts; and
an increase of $6.9 million primarily related to additional revenue recognized relating to the accelerated dry docking of two LNG carriers, the costs of which will be recoverable from the charterer, and higher pass-throughin vessel operating expenses due to timing of main engine maintenance;repairs and maintenance expenditures, and an increase in general and administrative expenses related to professional fees associated with the elimination of Teekay LNG's incentive distribution rights, and higher insurance premiums; and
•a decrease of $4.6 million due to lower rates earned for the Bahrain Spirit in 2020 as the vessel was trading primarily as a floating storage unit (or FSU) for the majority of 2020 compared to higher rates earned when it traded as an LNG carrier in 2019 prior to the completion of the LNG terminal in Bahrain in November 2019, and lower rates earned on the redeployment of the Magellan Spirit in May 2019;
partially offset by
a decrease
•an increase of $4.8$13.3 million due to uncertainty of collection of hire receipts relating to Teekay LNG's six LPG carriers on charter to Skaugen in 2017;
a decrease of $4.1 million due to higher dry-docking amortization due to recentfewer off-hire days during 2020, primarily for scheduled dry dockings;
a decrease of $3.0 milliondockings and unscheduled repairs for two of Teekay LNG's LNG carriers as a result of timing of main engine maintenance;
a decrease of $2.4 million relating to 35 days of unscheduled off-hire in the second quarter of 2017 due to repairs required for one of Teekay LNG's LNG carriers; and
a decrease of $2.3 million as a result of the acquisition of the Sonoma Spirit in April 2017 and due to the six LPG carriers, which were previously on bareboat charter contracts, following their redelivery from Skaugen during 2017.
certain vessels.Equity income related to Teekay LNG’s liquefied gas carriers decreasedincreased to $9.8$72.2 million in 20172020 compared to $62.3$58.8 million in 2016, as set forth in the table below:2019. The changes were primarily a result of:
|
| | | | | | | | | | | | | | | | |
| (in thousands of U.S. Dollars) | Year Ended December 31, |
| | Angola
LNG
Carriers | Exmar
LNG
Carriers | Exmar
LPG
Carriers | MALT
LNG
Carriers | RasGas 3
LNG
Carriers | Pan Union LNG Carriers | Other | Total
Equity
Income |
| 2017 | 16,755 |
| 7,397 |
| (7,863 | ) | (16,547 | ) | 16,324 |
| 496 |
| (6,773 | ) | 9,789 |
|
| 2016 | 15,713 |
| 9,038 |
| 13,674 |
| 4,503 |
| 19,817 |
| (104 | ) | (334 | ) | 62,307 |
|
| Difference | 1,042 |
| (1,641 | ) | (21,537 | ) | (21,050 | ) | (3,493 | ) | 600 |
| (6,439 | ) | (52,518 | ) |
The $1.0 million increase in Teekay LNG's 33% investment in the four Angola LNG Carriers was primarily due to •an increase in unrealized gains on non-designated derivative instruments due to mark-to-market changes. The mark-to-market changes resulted from changes in long-term LIBOR benchmark interest rates for interest rate swaps compared to 2016.
The $1.6of $45.3 million decrease in Teekay LNG's 50% investment in the two Exmar LNG Carriers was primarily due to the Excalibur being off-hiredeliveries of four ARC7 LNG carrier newbuildings (the Nikolay Yevgenov, the Vladimir Voronin, the Georgiy Ushakov and the Yakov Gakkel) in 2017 for a scheduled dry docking.
The $21.5 million decrease in equity income from Teekay LNG's 50% ownership interest in Exmar LPG BVBA was primarily due to more vessels trading in the spot market at lower rates during 2017 compared to higher fixed rates earned in 2016, the scheduled dry dockingsJune 2019, August 2019, November 2019, and December 2019, respectively; delivery of the EupenPan Africa in January 2019; and Brussels in the second and third quarters of 2017, respectively, the write-downscommencement of the Courcheville and Temse recorded in 2017, and the saleterminal use agreement of the Brugge Venture in January 2017. These decreases were partially offset by income earned from five LPG carrier newbuildings that were delivered to the Exmar LPG Joint Venture between February 2016 and July 2017, and a write-down of the Brugge Venture recorded in 2016.
The $21.1 million decrease in equity income from Teekay LNG's 52% investment in the MALT LNG Carriers was primarily due to a settlement payment awarded to the joint venture in 2016 for the disputed contract termination relating to the Magellan Spirit, of which Teekay LNG's proportionate share was $20.3 million; a further deferral effective August 2016 of a portion of the charter payments for the Marib Spirit and Arwa Spirit that are chartered to service the YLNG plant in Yemen, which has been closed since 2015. These decreases were partially offset by higher fleet utilization in the second half of 2017 due to commencements of short-term charter contracts for certain vessels which were previously trading in the spot market.
The $3.5 million decrease in equity income from Teekay LNG's 40% investment in the RasGas 3 LNG Carriers was primarily due to higher interest expense resulting from the completion of debt refinancing in December 2016.
The $6.4 million decrease in Teekay LNG's other equity-accounted investments was primarily due to unrealized losses on interest rate swaps relating to Teekay LNG's 30% ownership interest in the Bahrain LNG Joint Venture in 2017, andearly-2020;
•an increase of $9.5 million due to higher crew training expenses forcharter rates earned by certain vessels in Teekay LNG's 50/50 LPG joint venture with Exmar NV (or the Yamal LNGExmar LPG Joint Venture in preparation for its vessel deliveries commencing in 2018.); and
Teekay LNG – Conventional Tankers
As at December 31, 2017, Teekay LNG’s conventional tanker fleet included four Suezmax-class double-hulled conventional crude oil tankers and one Handymax product tanker, three•an increase of which it owns (including the European Spirit and African Spirit which are classified as held for sale) and two of which it leases under capital leases. Three of Teekay LNG’s five conventional tankers operate under fixed-rate charters. The European Spirit and African Spirit have been trading in the spot market since August and November 2017, respectively, as Teekay LNG continues$3.4 million due to market these vessels for sale. The number of calendar-ship-days for Teekay LNG’s conventional tankers decreased to 1,904 days in 2017 from 2,439 days in 2016, primarily as a result of the sales of the Bermuda Spirit, Hamilton Spirit and Asian Spirit in April 2016, May 2016 and March 2017, respectively. During 2017, the Asian Spirit was idle for 34 days between the time its firm charter contract ended in January 2017 and the time the vessel was sold and the European Spirit was off-hire for two days for vessel maintenance, compared to nofewer off-hire days during 2016. As a result, Teekay LNG's conventional tanker fleet utilization decreased to 98.1%2020, primarily for scheduled dry dockings and unscheduled repairs for certain vessels in 2017 compared to 100.0% in 2016.
Loss from vessel operations was $40.0 million during 2017 compared to $21.4 million in 2016, primarily as a result of:
a decrease of $25.5 million due to the combined write-downs of the Teide Spirit and Toledo Spirit. In August 2017, the charterer of the Teide Spirit gave formal notification to Teekay LNG of its intention to terminate its charter contract subject to certain conditions being met and third-party approvals being received. In February 2018, the charterer sold the Teide Spirit and concurrently terminated its existing charter contract with Teekay LNG. The charterer’s cancellation option for the Toledo Spirit is first exercisable in August 2018. Given Teekay LNG's prior experience with this charterer, Teekay LNG expects it will also cancel the charter contract and sell the Toledo Spirit to a third party in 2018;
a decrease of $12.6 million due to the write-down of the European Spirit as Teekay LNG commenced marketing the vessel for sale upon receiving notification from the charterer of the vessel that it would redeliver the vessel to Teekay LNG upon completion of its charter contract in August 2017;
a decrease of $12.5 million due to the write-down of the African Spirit as Teekay LNG received notification from the charterer of the vessel in August 2017 that it would redeliver the vessel to Teekay LNG upon completion of its charter contract in November 2017; and
a decrease of $1.3 million due to lower revenues earned by the Toledo Spirit in 2017 relating to the profit-sharing agreement between Teekay LNG and CEPSA;
MALT Joint Venture;partially offset by
•a decrease of $29.4 million due to higher unrealized losses on non-designated interest rate swaps relating to decreases in long-term forward LIBOR benchmark interest rates relative to the salesbeginning of 2020 and credit loss provisions recognized during 2020 that followed the adoption of ASC 326 on January 1, 2020 (please see "Item 18 – Financial Statements: Note 1: Summary of Significant Accounting Policies" and "Item 18 - Financial Statements: Note 11: Fair Value Measurements and Financial Instruments") which were primarily due to the commencement of the Bermuda Spirit sales-type lease for the Bahrain regasification terminal and Hamilton Spirit associated FSU in 2016January 2020 and Asian Spirit declines in estimated charter-free valuations for certain types of LNG carriers servicing time-charter contracts accounted for as direct financing and sales-type leases; and
•a decrease of $17.0 million due to impairment charges recorded on four LPG carriers in the first quarter of 2017, comprised of a $39.0 million loss on the sales of the vesselsExmar LPG Joint Venture in 2016, partially offset by a resulting decrease in operating income in 2017.
2020.Teekay Tankers
As at December 31, 2020, Teekay Tankers owned and leased 52 double-hulled conventional oil and product tankers, time chartered-in two Aframax and one Long Range 2 (or LR2) product tankers, and owned a 50% interest in one Very Large Crude Carrier (or VLCC).
Recent Developments in Teekay Tankers
In November 2017,March 2021, Teekay Tankers completed a merger with Tanker Investments Ltd. (or TIL) by acquiring all of the remaining 27.0 million issued and outstanding common shares of TIL, by way of a share-for-share exchange of 3.3 shares of Teekay Tankers' Class A common stock for each share of TIL common stock, and as a result TIL became a wholly-owned subsidiary of Teekay Tankers. As consideration for the merger, Teekay Tankers issued 88,977,544 Class A common sharesdeclared purchase options to the TIL shareholders, including 8,250,000 shares to Teekay. At the time of the merger, TIL owned a modern fleet of 10 Suezmax tankers,acquire six Aframax tankers and two LR2 product tankers with an average agefor a total cost of 7.3 years$128.8 million, as part of November 2017. Commencing on November 27, 2017,the repurchase options under the sale-leaseback arrangements described in "Item 18 – Financial Statements: Note 10 - Obligations Related to Finance Leases" of this Annual Report. Teekay Tankers consolidatesexpects to complete the resultspurchase and delivery of TIL. Priorthese vessels in September 2021.
In February 2021, Teekay Tankers agreed to sell two Aframax tankers for a combined sales price of $32.0 million. Both tankers were delivered in March 2021.
In December 2020, Teekay Tankers entered into a time charter-in contract for one Aframax tanker newbuilding for a firm period of seven years at an initial daily rate of $18,700. The contract includes three one-year option periods and a purchase option at the completionend of the merger,second option period. The vessel is expected to be delivered to Teekay Tankers equity accountedduring the fourth quarter of 2022.
In November 2020, Teekay Tankers declared purchase options to acquire two Suezmax tankers for its interest in TIL.
Prior to the completiona total cost of $56.7 million, as part of the merger, Teekay Tankers' shareholders votedrepurchase options under the sale-leaseback arrangements described in favor"Item 18 – Financial Statements: Note 10 - Obligations Related to Finance Leases" of increasing the authorized number of its Class A common shares to permit the issuance of Class A common shares as consideration for the merger with TIL.this Annual Report. Teekay Tankers amended its amendedexpects to complete the purchase and restated articlesdelivery of incorporation on November 27, 2017, increasing the authorized Class A common shares from 200,000,000 to 285,000,000 and the total authorized capital stock from 400,000,000 to 485,000,000. In September 2017, Teekay Tankers announced that the Board of Directors had authorized a share repurchase program for the repurchase of up to $45.0 million of its shares of Class A common stockthese vessels in the open market.May 2021.
In July 2017, Teekay Tankers completed a $153.0 million sale-leaseback financing transaction relating to four of its Suezmax tankers. The transaction was structured as a 12-year bareboat charter at an average rate of approximately $11,100 per day, with purchase options for all four vessels throughout the lease term beginning in July 2020.
In May 2017,October 2020, Teekay Tankers completed the acquisition from Teekayrepurchase of two Aframax tankers previously under the remaining 50% interestsale-leaseback arrangements described in TTOL"Item 18 – Financial Statements: Note 10 - Obligations Related to Finance Leases" of this Annual Report, for $39.0a total cost of $29.6 million, which included $13.1 million for assumed working capital, in exchange for Teekay Tankers' issuance to Teekay of approximately 13.8 million shares of its Class B common stock and working capital consideration of $13.1 million. Prior to May 31, 2017,using available cash.
In September 2020, Teekay Tankers owned 50%entered into a time charter-out contract for one Aframax tanker with a one-year term at a daily rate of TTOL$18,700. This charter-out contract commenced in October 2020.
Between March and accounted for this investment using the equity method of accounting. SinceMay 2020, Teekay Tankers acquiredentered into time charter-out contracts for five Suezmax tankers and one LR2 tanker with one-year terms at average daily rates of $45,600 and $29,000, respectively, and two Aframax tankers with one to two-year terms at an average daily rate of $25,600. These charter-out contracts commenced between April and June 2020.
During the remaining 50%first quarter of TTOL on May 31,
2017, Teekay Tankers owns 100% of TTOL and now consolidates its results. Periods prior to May 31, 2017 have been recast to include 100% of TTOL results in Teekay Tankers on a consolidated basis in accordance with common control accounting as required under GAAP.
In June, September and November 2017,2020, Teekay Tankers completed the salessale of three Suezmax tankers in separate transactions for a combined sales price of approximately $60.9 million. Two Suezmax tankers were delivered in February 2020, and one Suezmax tanker was delivered in March 2020.
In April 2020, Teekay Tankers sold the non-U.S. portion of its older Aframax tankers,ship-to-ship business, as well as its LNG terminal management business, for approximately $27.1 million, including an adjustment for the Kyeema Spirit, Kanata Spiritfinal amounts of cash and Kareela Spirit, resultingother working capital present on the closing date. The sale resulted in an aggregate lossa gain on sale of approximately $3.1 million. Of the vessels of $11.2 million.total proceeds, $14.3 million was received in May 2020 and the remaining $12.7 million was received in July 2020.
In January and March 2017, Teekay Tankers completed the sales of two Suezmax tankers, the Ganges Spirit and Yamuna Spirit, for an aggregate sales price of $32.6 million. Teekay Tankers recognized a loss on sale of the vessels of $1.8 million in 2017.
Operating Results – Teekay Tankers
The following table compares Teekay Tankers’ operating results, equity income and number of calendar-ship-days for its vessels for 20172020 and 2016,2019.
| | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| (in thousands of U.S. dollars, except calendar-ship-days) | | 2020 | | 2019 |
| Revenues | | 886,434 | | | 943,917 | |
| Voyage expenses | | (297,225) | | | (402,294) | |
| Vessel operating expenses | | (184,233) | | | (208,601) | |
| Time-charter hire expense | | (36,341) | | | (43,189) | |
| Depreciation and amortization | | (117,212) | | | (124,002) | |
| General and administrative expenses | | (39,006) | | | (36,404) | |
| Write-down and loss on sale of assets | | (69,446) | | | (5,544) | |
| Restructuring charges | | (1,398) | | | — | |
| Income from vessel operations | | 141,573 | | | 123,883 | |
| | | | |
| Equity income | | 5,100 | | | 2,345 | |
| | | | |
Calendar-Ship-Days (1) | | | | |
| Conventional Tankers | | 20,673 | | | 22,350 | |
(1)Calendar-ship-days presented relate to owned and compares its net revenues (which is a non-GAAP financial measure) for 2017 and 2016, to revenues, the most directly comparable GAAP financial measure, for the same periods.in-chartered consolidated vessels only.
|
| | | | | | |
| | | Year Ended December 31, |
| (in thousands of U.S. dollars, except calendar-ship-days) | | 2017 | | 2016 |
| Revenues | | 431,178 |
| | 550,543 |
|
| Voyage expenses | | (77,368 | ) | | (53,604 | ) |
| Net revenues | | 353,810 |
| | 496,939 |
|
| Vessel operating expenses | | (175,389 | ) | | (182,598 | ) |
| Time-charter hire expense | | (30,661 | ) | | (59,647 | ) |
| Depreciation and amortization | | (100,481 | ) | | (104,149 | ) |
| General and administrative expenses | | (32,879 | ) | | (33,199 | ) |
| Asset impairments | | — |
| | — |
|
| Loss on sale of vessels | | (12,984 | ) | | (20,594 | ) |
| Restructuring charges | | — |
| | — |
|
| Income from vessel operations | | 1,416 |
| | 96,752 |
|
| Equity (loss) income | | (25,370 | ) | | 7,680 |
|
Calendar-Ship-Days (1) | | | | |
| Conventional Tankers | | 16,654 |
| | 19,303 |
|
| |
(1) | Calendar-ship-days presented relate to owned and in-chartered consolidated vessels. |
Tanker Market
For 2017,2020 was a year of two distinct halves in the tanker rates fellmarket, with a strong first half of the year giving way to cyclical lowsa much weaker second half. The tanker market started 2020 on a positive note as firm supply and demand fundamentals existing during the fourth quarter of 2019 continued into the early part of the year. Rates were boosted by an increase in oil production during March and April due to the combined impactshort-lived oil price war between Russia and Saudi Arabia which resulted in an increase in cargos. This increased production occurred just as oil demand started to plummet as a result of highCOVID-19 lockdowns across the globe which led to a significant mismatch between global oil supply and demand and a historic build in global oil inventories. The rapid build in inventories drove oil prices to multi-year lows and pushed the crude oil futures curve into a steep contango, which encouraged oil traders to charter ships for floating storage. The increasing number of tankers being utilized for storage led to a tightening of available fleet growth and OPEC supply cuts. The globalwhich, in combination with healthy cargo supply, resulted in increased tanker fleet grew by 26.6utilization. As a result, spot tanker rates increased to multi-year highs during the first and second quarters of the year.
Tanker market dynamics shifted towards the end of the second quarter of 2020 due to steep oil production cuts from the OPEC+ group of suppliers in response to lower oil demand. The OPEC+ group implemented record oil production cuts of 9.7 million deadweight tonnes (mdwtbarrels per day (or mb/d), or 4.8% from May 2020 which negatively affected tanker demand. Although the OPEC+ group brought 2.0 mb/d of supply back in 2017, following 31.4 mdwt, or 6.0% growth in 2016. In addition, numerous vessels thatAugust 2020, this still left tanker trade volumes well below pre-COVID levels. Spot rates deteriorated further during the fourth quarter of the year as a number of ships which were being used as floating storage returned to the trading fleet, in 2017 as the crude oil curve flipped into backwardation, further adding tothus increasing available fleet supply. OnIn addition, a resurgence in COVID-19 cases during the demand side, OPEC implemented 1.2 million barrels per day (mb/d) of supply cutsfourth quarter, particularly in January 2017Europe and maintained a high rate of compliance with these cuts throughout the year. ThisNorth America, led to renewed lockdowns and caused both a reductionslowdown in cargoes fromoil demand and reduced refinery throughput. This weakness in rates has carried on into early 2021.
Looking ahead, Teekay Tankers expects that tanker demand will start to recover during 2021 as oil demand increases and oil inventories are brought back to more normal levels. However, the Middle East, which in turn forced more Very Large Crude Carriers (or VLCC) tankers to compete with Suezmax Tankers for Atlantic cargoes, thus putting pressure on mid-size tanker rates. An increase in U.S. crude exportstiming of this recovery remains uncertain and depends to a record high of 2.0 mb/d by October 2017 gave some support to crude tankerlarge extent on how the COVID-19 pandemic evolves over the coming months. As per the International Energy Agency (or IEA), global oil demand however, it was not enough to fully offset the negative impact of OPEC supply cuts.
Looking ahead to 2018, there are signs of improving fundamentals on both the supply and demand fronts. First, tanker fleet growth is expected to moderate due to a combination of lower deliveries and higher scrapping. Tanker scrapping for the global fleet totaled 11.5 mdwtgrow by 5.5 mb/d in 2017, the highest level of tanker scrapping since 2012, and has remained firm with 1.6 mdwt scrapped2021 following an 8.8 mb/d decline in January 2018.2020. The level of newbuild tanker deliveriesdemand recovery is expected to reduce during 2018, particularlyaccelerate during the second half of the year, and is set to fall further in 20192021 as the orderbook rolls off. As such, we estimate that tanker fleet growth will fall to approximately 3% in 2018 and 2% in 2019.
COVID-19 vaccination programs are rolled-out worldwide. Global oil demandsupply is estimatedlikely to grow by 1.5 mb/d in 2018 (average of IEA, EIA and OPEC forecasts), which is above long-term average growth levels. This high level of demand, combined with OPEC supply cuts, is leading to a rapid decline in global oil inventories back towards five-year average levels. Inventory drawdowns are negative for tanker demandremain constrained in the short-term; however,near-term, particularly with Saudi Arabia announcing a rebalancing in oil markets could lead OPEC to exit its supply agreement sooner than expected, which would be positive for the mid-size tanker market as it would draw VLCC tankers away from the Atlanticcut of 1.0 mb/d during February and back to the Middle East, thus reducing competition between the asset classes. Finally, a continued increase in U.S. crude oil production - which recently hit 10 mb/d for the first time since 1970 - will likely lead to higher U.S. crude oil exports, which is positive for mid-size tanker demand as well as U.S. Gulf lightering demand.
Overall,March 2021. However, Teekay Tankers expects the tanker marketoil supply volumes to remain challenging over the near-term as ongoing OPEC supply cuts and the need to absorb recent fleet growth will likely keep the market subdued through the first few quarters of 2018. However, we expect that lower fleet
growth, an expected increase in U.S. crude exports, and the potential for an increase in OPEC supply later in the year should lead to a tanker market recovery during the latter part of 2018the year in tandem with the oil demand recovery, which will be positive for tanker demand.
Fleet supply fundamentals continue to look very positive due to a significantly reduced level of newbuild ordering, a diminishing tanker orderbook, and into 2019.the potential for higher scrapping due to an aging world fleet. As of January 2021, the tanker orderbook totaled 54.2 million deadweight tonnes (or mdwt), or just over eight percent of the existing fleet size. The level of newbuild orders remains low, and is expected to remain so due to uncertainty over vessel technology and a more restrictive financial landscape. Although the level of tanker scrapping was very low in 2020, scrapping facilities have now returned to full operation, and the level may pick up during periods of potentially weaker spot tanker rates in 2021.
Teekay Tankers – Conventional Tankers
As at December 31, 2017, Teekay Tankers owned 52 double-hulled conventional oil tankers, time-chartered in one AframaxIn summary, the tanker had capital leases for four Suezmax tankers from third partiesmarket has weakened since the middle of 2020 and ownedthe next few months look to be challenging. However, tanker demand should continue to gradually recover through 2021 which, coupled with a 50% interest in one VLCC,positive fleet supply outlook, should help the results of which are included in equity (loss) income.tanker market begin to rebalance.
Teekay Tankers' calendar ship days decreased in 2017 compared to 2016 primarily due to the redeliveries of various in-charters to their owners at various times during 2016 and 2017 and the sale of two Suezmax product tankers, three Aframax tankers and two MR product tankers in 2016 and 2017, partially offset by the addition of 18 vessels that Teekay Tankers acquired as part of the TIL merger in November 2017 and three Aframax in-charters that were delivered to Teekay Tankers during 2016 and 2017.
Incomeincome from vessel operations decreasedincreased to $1.4$141.6 million in 20172020 compared to $96.8$123.9 million in 2016,2019, primarily as a result of:
•a net increase of $70.1 million due to higher overall average realized spot TCE rates earned by Suezmax tankers and LR2 product tankers, as well as a higher extension rate from one time-charter out contract, partially offset by lower overall average realized spot TCE rates earned by Aframax tankers and lower earnings from FSL dedicated vessels; and
•a net increase of $39.7 million primarily due to a higher number of vessels on time-charter out contracts earning higher rates compared to spot rates for 2019;
partially offset by
•a decrease of $66.5$66.7 million due to lower average realized rates earned byan increase in write-downs mainly related to the Suezmax,impairment of nine Aframax tankers and LR2 tankers trading infour right-of-use assets due to the spotweak near-term tanker market outlook, a reduction of charter rates as a result of the current economic environment, and a decline in 2017 compared to 2016;vessel values during 2020;
•a net decrease of $27.9$11.2 million due to the expirysale of time-charter out contracts for various vessels which subsequently traded on spot voyages at lower average realized ratesone Suezmax tanker in the fourth quarter of 2019 and more vessels transitioned from voyage charter to full service lightering employmentthree Suezmax tankers in 2017 compared to 2016;the first quarter of 2020;
•a net decrease of $7.2$6.3 million primarily due to the redeliveries of various in-chartersdepreciation related to their owners at various timescapitalized expenditures for vessels which dry docked during 20162019 and 20172020; and the sale of two Suezmax product tankers, three Aframax tankers and two MR product tankers in 2016 and 2017, partially offset by the addition of 18 vessels that Teekay Tankers acquired as part of the TIL merger and three Aframax in-charters that were delivered to Teekay Tankers during 2016 and 2017; and
•a decrease of $1.2 million due to in-process revenue contract amortization that Teekay Tankers recognized in revenue in the first quarter of 2016;
partially offset by
a net increase of $3.0 million due to the scope of repairs and planned maintenance activities in 2017 as compared to 2016;
an increase of $2.9 million due to higher transition costs incurred in 2016 compared to 2017 directly relating to 12 Suezmax tankers which were acquired in the latter part of 2015; and
an increase of $1.3 million due to higher corporate expenses incurred during 2016 primarily as a result of legal expenses related to the vessel construction and option agreements with STX Offshore & Shipbuilding Co. Ltd (or STX) of South Korea.
Equity (loss) income decreased to a loss of $25.4 million in 2017 from income of $7.7 million for 2016 primarily due to:
a decrease of $31.9$5.2 million primarily due to a $26.7increased crewing-related costs that have been impacted by disruptions resulting from the COVID-19 global pandemic.
Equity income increased to $5.1 million net write-down ofin 2020 from $2.3 million in 2019 primarily due to higher spot rates realized by Teekay Tankers' investment50% ownership interest in TIL to its fair market valuea VLCC, which has been trading in June 2017 and prior to the TIL merger completion, and lower equity earnings from TIL resulting from overall lower realized average spot rates earned in 2017 compared to 2016; anda third party-managed VLCC pooling arrangement.
a decrease of $1.3 million due to lower equity earnings from the High-Q Investment Ltd (or High-Q) joint venture primarily resulting from profit share recognized in the second quarter of 2016 as VLCC rates averaged above certain thresholds, triggering a profit sharing with the customer.
Teekay Parent
As at December 31, 2020, Teekay Parent had direct interests in three 100%-owned FPSO units, which are included in Teekay Parent’s Offshore Production business. In addition, included in Teekay Parent’s Other and Corporate G&A segment was one FSO unit in-chartered from Altera until March 2021. Teekay Parent also redelivered one FSO unit to Altera in August 2020, one bunker barge to a third party in May 2020, two shuttle tankers to Altera in March 2020, and one FSO unit to Altera in April 2019. The remaining portion of the Other and Corporate G&A segment primarily relates to Teekay Parent's marine services business in Australia as well as marine and corporate services provided to Teekay LNG's equity-accounted joint ventures and Altera.
Recent Developments in Teekay Parent
In October 2017, Teekay Parent terminated, prior to their expiration dates, the charter-in contracts for its last two remaining in-chartered conventional tankers, the Constitution Spirit and Sentinel Spirit, resulting in a total net termination fee payment of approximately $1.6 million. The vessels were redelivered in October 2017.
In September 2017, Teekay and Teekay Offshore completed the Brookfield Transaction, which is explained more fully in “Item 5. Operating and Financial Review and Prospects-Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments and Results of Operations - Recent Developments in Teekay Offshore.” Teekay Parent directly and indirectly provides substantially all of Teekay Offshore’s commercial, technical, crew training, strategic, business development and administrative service needs. In the fourth quarter of 2017, Teekay Parent presented the fees received from Teekay Offshore for providing these services in revenues, and the related costs to provide such services, in vessel operating expenses.
The Banff FPSO has been operating on the Banff field since its delivery nearly 20 years ago under a charter contract with Canadian Natural Resources (or CNR) that permitted CNR to terminate the contract at any time with six months’ notice. In January 2017, Teekay Parent entered
into a contract amendment with CNR to ensure the unit will stay on the current field at least until the third quarter of 20182020, Teekay Parent recognized an impairment charge of $9.1 million relating to its right-of-use asset for the Suksan Salamander FSO unit. Teekay Parent reduced its expected cash flows from the Suksan Salamander FSO unit, which it in-chartered from Altera under an operating lease, to take into account progress relating to the early termination of the in-charter and to revisethe novation of the charter rate structurecontracts with the customer to include a variable component (through an oil priceAltera. The novation of the charter contracts was completed in March 2021 and the in-charter terminated at the same time.
During 2020, Teekay Parent made changes to its expected cash flows from the Sevan Hummingbird FPSO unit based on the market environment and oil production tariff)prices, and contract discussions with the customer. The carrying value of the unit was fully written down in addition to a fixed charter rate.the third quarter of 2020, resulting in impairment charges of $37.2 million for the year ended December 30, 2020.
In the first halfquarter of 2016,2020, CNR International (U.K.) Limited (or CNRI) provided formal notice to Teekay of its intention to decommission the Hummingbird SpiritBanff field and remove the Petrojarl Banff FPSO and the ApolloSpirit FSO from the field in 2020. The oil production under the existing contract for the Petrojarl Banff FPSO unit ceased on June 1, 2020, at which time Teekay Parent began incurring decommissioning/asset retirement costs. Accordingly, during the year ended December 31, 2020, the asset retirement obligation for the Petrojarl Banff FPSO unit was operatingincreased based on changes to cost estimates and the carrying value of the unit was fully written down in the latter partthird quarter of its charter contract with Spirit Energy Limited (or Spirit Energy, previously Centrica Energy) whereby Spirit Energy could terminate2020, resulting in impairment charges of $33.5 million for the contract at any time with 90 days’ notice.year ended December 31, 2020. In June 2016,December 2020, Teekay Parent entered into a contract amendment with Spirit Energy to extendrecycle the firm periodPetrojarl Banff FPSO unit in Denmark in 2021. The cost of recycling the unit, including lay-up and towage costs, is estimated to September 2017 (with Spirit Energy's right to terminate the contract no earlier thanbe approximately $10 million.
In March 1, 2017) in exchange for a lower fixed charter rate and an oil price tariff. The contract amendment took effect on July 1, 2016. In February 2017,2020, Teekay Parent entered into a new headsbareboat charter contract with the existing charterer of the Petrojarl Foinaven FPSO, which can be extended up to December 2030. Under the terms with Spirit Energy to extendof the new contract, Teekay Parent received a cash payment of $67 million in April 2020 and will receive a nominal per day rate over the life of the contract for an additional three years from October 2017 to September 2020. This contract extension was completed duringand a lump sum payment at the second quarter of 2017.
In the second quarter of 2016, Teekay Parent entered into an agreement to sell the Shoshone Spirit VLCC to a third party and the vessel was written down to its net realizable value as a resultend of the contract period, which is expected sale. The vessel was subsequently sold and delivered to its new ownercover the costs of recycling the FPSO unit in October 2016.accordance with the EU ship recycling regulations. This transaction resulted in a gain on commencement of sales-type lease of $44.9 million for the year ended December 31, 2020.
Operating Results – Teekay Parent
The following table compares Teekay Parent’s operating results and the number of calendar-ship-days for its vessels for 20172020 and 2016,2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Offshore Production | | Other and
Corporate G&A | | Teekay Parent
Total |
| (in thousands of U.S. dollars, except calendar-ship-days) | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| Revenues | | 108,952 | | | 210,816 | | | 229,183 | | | 202,990 | | | 338,135 | | | 413,806 | |
| Voyage expenses | | (24) | | | (36) | | | 10 | | | (7) | | | (14) | | | (43) | |
| Vessel operating expenses | | (94,945) | | | (159,822) | | | (204,230) | | | (166,416) | | | (299,175) | | | (326,238) | |
| Time-charter hire expense | | (7,972) | | | (41,813) | | | (12,406) | | | (25,326) | | | (20,378) | | | (67,139) | |
| Depreciation and amortization | | (14,166) | | | (29,710) | | | — | | | (195) | | | (14,166) | | | (29,905) | |
General and administrative expenses (1) | | (1,872) | | | (9,272) | | | (11,446) | | | (13,248) | | | (13,318) | | | (22,520) | |
| Write-down and loss on sales of vessels | | (70,692) | | | (178,330) | | | (9,100) | | | — | | | (79,792) | | | (178,330) | |
| Gain on commencement of sales-type lease | | 44,943 | | | — | | | — | | | — | | | 44,943 | | | — | |
| Restructuring charges | | (2,278) | | | — | | | (7,043) | | | (8,725) | | | (9,321) | | | (8,725) | |
| Loss from vessel operations | | (38,054) | | | (208,167) | | | (15,032) | | | (10,927) | | | (53,086) | | | (219,094) | |
| | | | | | | | | | | | |
Calendar-Ship-Days (2) | | | | | | | | | | | | |
| FPSO Units | | 1,098 | | | 1,095 | | | — | | | — | | | 1,098 | | | 1,095 | |
| FSO Units | | 244 | | | 365 | | | 366 | | | 477 | | | 610 | | | 842 | |
| Shuttle Tankers | | 113 | | | 642 | | | — | | | — | | | 113 | | | 642 | |
(1)Includes direct general and compares its net revenues (which is a non-GAAP financial measure) for 2017administrative expenses and 2016,indirect general and administrative expenses allocated to revenues, the most directly comparable GAAP financial measure, for the same periods.offshore production, and other and corporate G&A based on estimated use of corporate resources.
(2)Apart from three FPSO units in 2020 and 2019, all remaining calendar-ship-days presented relate to in-chartered days.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Offshore Production | | Conventional Tankers | | Other and Corporate G&A | | Teekay Parent Total |
| (in thousands of U.S. dollars, except calendar-ship-days) | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 |
Revenues (1) | | 209,394 |
| | 231,435 |
| | 5,065 |
| | 32,967 |
| | 89,107 |
| | 76,111 |
| | 303,566 |
| | 340,513 |
|
| Voyage expenses | | (186 | ) | | (269 | ) | | (81 | ) | | (287 | ) | | (1,426 | ) | | (2,879 | ) | | (1,693 | ) | | (3,435 | ) |
| Net revenues | | 209,208 |
| | 231,166 |
| | 4,984 |
| | 32,680 |
| | 87,681 |
| | 73,232 |
| | 301,873 |
| | 337,078 |
|
Vessel operating expenses (1) | | (144,325 | ) | | (159,084 | ) | | (5,481 | ) | | (10,468 | ) | | (53,179 | ) | | (26,576 | ) | | (202,985 | ) | | (196,128 | ) |
| Time-charter hire expense | | (38,346 | ) | | (33,366 | ) | | (12,461 | ) | | (23,166 | ) | | (47,847 | ) | | (48,452 | ) | | (98,654 | ) | | (104,984 | ) |
| Depreciation and amortization | | (60,560 | ) | | (70,855 | ) | | — |
| | (1,717 | ) | | 163 |
| | 449 |
| | (60,397 | ) | | (72,123 | ) |
General and administrative expenses (1)(2) | | (16,966 | ) | | (14,099 | ) | | (432 | ) | | (809 | ) | | (5,251 | ) | | (10,707 | ) | | (22,649 | ) | | (25,615 | ) |
| Asset impairments | | (205,659 | ) | | — |
| | — |
| |
|
| | — |
| | — |
| | (205,659 | ) | | — |
|
Net loss on sale of vessels and equipment | | — |
| | (110 | ) | | — |
| | (12,487 | ) | | — |
| | — |
| | — |
| | (12,597 | ) |
| Restructuring charges | | (110 | ) | | (1,962 | ) | | — |
| | — |
| | (1,844 | ) | | (20,165 | ) | | (1,954 | ) | | (22,127 | ) |
| (Loss) income from vessel operations | | (256,758 | ) | | (48,310 | ) | | (13,390 | ) | | (15,967 | ) | | (20,277 | ) | | (32,219 | ) | | (290,425 | ) | | (96,496 | ) |
| Equity (loss) income | | (7,861 | ) | | (575 | ) | | (20,677 | ) | | 132 |
| | (2,792 | ) | | (1,838 | ) | | (31,330 | ) | | (2,281 | ) |
Calendar-Ship-Days (3) | | | | | | | | | | | | | | | | |
| FPSO Units | | 1,095 |
| | 1,098 |
| | — |
| | — |
| | — |
| | — |
| | 1,095 |
| | 1,098 |
|
| Conventional Tankers | | — |
| | — |
| | 587 |
| | 1,278 |
| | — |
| | — |
| | 587 |
| | 1,278 |
|
| Gas carriers | | — |
| | — |
| | — |
| | — |
| | 730 |
| | 732 |
| | 730 |
| | 732 |
|
| FSO Units | | 365 |
| | 366 |
| | — |
| | — |
| | 730 |
| | 732 |
| | 1,095 |
| | 1,098 |
|
| Shuttle Tankers | | 730 |
| | 732 |
| | — |
| | — |
| | — |
| | — |
| | 730 |
| | 732 |
|
| Bunker Barges | | — |
| | — |
| | — |
| | — |
| | 365 |
| | 672 |
| | 365 |
| | 672 |
|
| |
(1) | Revenues and vessel operating expenses for 2017 include $17.8 million and $16.1 million, respectively, related to intercompany transactions between Teekay Offshore and Teekay Parent, which as a result of the deconsolidation of Teekay Offshore, are no longer eliminated upon consolidation. The intercompany transactions relate to services for ship management, crew training, commercial, technical, project management, strategic, business development and administrative services provided by Teekay Parent to Teekay Offshore. |
| |
(2) | Includes direct general and administrative expenses and indirect general and administrative expenses allocated to offshore production, conventional tankers and other and corporate G&A based on estimated use of corporate resources. |
| |
(3) | Apart from three FPSO units and one conventional tanker, all remaining calendar-ship-days presented relate to in-chartered days. |
Teekay Parent – Offshore Production
Offshore Production consists primarily of our FPSO units. As at December 31, 2017, we had a direct interest in three 100%-owned FPSO units, and we in-chartered two shuttle tankers and one FSO unit from Teekay Offshore.
The Hummingbird Spirit FPSO charter contract includes an incentive compensation component based on the oil price. In addition, the PetrojarlFoinaven FPSO unit’s charter contract includes incentives based on total oil production for the year, certain operational measures, and the
average annual oil price. The decline in the price of oil since 2014 has negatively impacted our incentive compensation under these contracts and may negatively impact our future revenues if oil prices remain at or fall below current levels.
Asset impairments for the year ended December 31, 2017, primarily relate to the impairments of the Petrojarl Banff and Petrojarl Foinaven FPSO units. Factors contributing to the impairments included changes to the estimated cash flows and carrying values of the asset groups as a result of the deconsolidation of Teekay Offshore on September 25, 2017, and a re-evaluation of the estimated future net cash flows of the units. Please read "Item 18 - Financial Statements: Note 18a - Asset Impairments".
Loss from vessel operations increased to $256.8 million during 2017 compared to $48.3 million in 2016, primarily as a result of:
an increase in loss of $205.7 million from impairment charges in respect of the Petrojarl Banff and Petrojarl Foinaven FPSO units, described above;
an increase in loss of $14.2 million related to the Hummingbird Spirit FPSO unit primarily due to the contract amendment described above that took effect on July 1, 2016; and
an increase in loss of $18.5 million related to the Petrojarl Foinaven FPSO unit primarily due to lower revenue earned and higher repairs and maintenance costs incurred during the shutdown in the third quarter for 2017, and insurance proceeds recognized in 2016;
partially offset by
a decrease in loss of $25.4 million related to the Petrojarl Banff FPSO unit primarily due to higher day rate and tariff earned in 2017 due to the contract amendment described above and higher repairs and maintenance costs in 2016 due to the temporary loss of two mooring lines in the second quarter of 2016, partially offset by insurance proceeds received in 2016; and
a decrease in loss of $1.9 million for the year ended December 31, 2017 primarily due to reorganization of the FPSO business in 2016.
Teekay Parent – Conventional Tankers
As at December 31, 2017, Teekay Parent had no conventional tankers remaining in the fleet. The average fleet size (including in-chartered vessels), as measured by calendar-ship-days, decreased in 2017 compared with 2016 due to the redeliveries of two Aframax in-chartered vessels to their owners, one Aframax in-chartered vessel to Teekay Offshore and two Aframax in-chartered vessels to Teekay Tankers, and due to the sale of one VLCC during 2016. The collective impact from the noted fleet changes are referred to below as the Net Fleet Reductions.
Loss from vessel operations for Teekay Parent’s Conventional TankersOffshore Production business was $13.4$38.1 million in 2017for 2020, compared to loss from vessel operations of $16.0$208.2 million in 2016,for 2019. The changes are primarily as a result of:
•a decrease in loss of $12.5$107.6 million due to the write-down of the VLCC to its agreed sales pricelower impairment charges in the second quarter of 2016; and2020;
•a decrease in loss of $2.4$74.0 million for 2020, primarily due to a cancellation fee paid by Teekay Parent to Teekay Offshore$44.9 million gain on commencement of the sales-type lease and improved results associated with the new bareboat charter agreement for the Petrojarl Foinaven FPSO unit in the first quarter2020; and
•a decrease in loss of 2016$10.9 million for 2020, related to the termination ofSevan Hummingbird FPSO unit, primarily due to a time-charternew contract partially offset by a cancellation fee paid to the ownersthat took effect in the fourth quarter of 2017 related2019 at a higher rate as well as lower depreciation as a result of write-downs of the unit to its estimated fair value in the terminationthird quarter of two bareboat charter-in contracts;2019, and then to nil in the third quarter of 2020;
partially offset by
•an increase in loss of $6.2$22.3 million for 2020, related to the Petrojarl Banff FPSO unit, primarily due to cessation of production on the Net Fleet Reductions;
an increaseBanff field in loss of $5.1 million due to lower average realized TCE rates earned in 2017 compared to 2016;June 2020 and
an increase in loss of $2.0 million due to a distribution received from Gemini Pool L.L.C. in the first quarter of 2016.associated decommissioning costs incurred.
Teekay Parent – Other and Corporate G&A
As at December 31, 2017, Teekay Parent had two chartered-in LNG carriers owned by Teekay LNG, two chartered-in FSO units owned by Teekay Offshore and one chartered-in bunker barge owned by a third party.
Loss from vessel operations for Teekay Parent’s Other and Corporate G&A segment was $20.3$15.0 million for 2020, compared to loss from vessel operations of $10.9 million for 2019. The increase in loss was primarily due to the write-down of the Suksan Salamander FSO unit, as described above in "Recent Developments in Teekay Parent," partially offset by decreases in corporate expenses and restructuring charges.
Equity-Accounted Investment in Altera
We recognized equity losses from Altera of $75.8 million for the year ended December 31, 2017 compared to loss from vessel operations of $32.2 million for the year ended December 31, 2016, primarily as2019. Included in that amount was a result of:
a decrease in loss of $14.5 million from Teekay Parent's in-chartered LNG carriers primarily due to the start of a one-year charter contract for the Polar Spirit LNG carrier in the second quarter of 2017 and the start of a seven-month charter contract for the Arctic Spirit LNG carrier in the third quarter of 2017;
partially offset by
an increase in loss of $1.8 million in 2017, due to transaction fees received from TIL in 2016 for our arrangement of the sale of the Voss Spirit and Hemsedal Spirit by TIL; and
an increase in loss of $1.7 million relating to the Suksan Salamander FSO unit from amortization of the off-market in-charter contract subsequent to the deconsolidation of Teekay Offshore and contract amendments during 2017.
Equity loss was $31.3 million for the year ended December 31, 2017, compared to equity income of $2.3 million for the year ended December 31, 2016, primarily due to a $20.5 million write-down of Teekay Parent'sour investment in TIL in June 2017 and lower equity earnings from lower average realized spot rates earned by TIL in the 2017 periods, and losses from Sevan Marine AS.
Teekay Offshore
Recent Developments in Teekay Offshore
In September 2017, Teekay, Teekay Offshore and Brookfield finalized the strategic partnership with Brookfield and related transactions (or the Brookfield Transaction), which included, among other things, the following:
Brookfield and Teekay invested $610.0Altera of $64.9 million and $30.0 million, respectively, in exchange for 244.0 million and 12.0 million common units of Teekay Offshore, respectively, at a price of $2.50 per common unit and 62.4 million and 3.1 million common unit warrants (or the Brookfield Transaction Warrants), with an exercise price of $0.01 per unit and which warrants are exercisable at any time until September 25, 2024 if Teekay Offshore's common unit volume-weighted average price is equal to or greater than $4.00 per unit for 10 consecutive trading days prior to that date. Following the investment, Brookfield owns approximately 59.5% and Teekay owns approximately 13.8% of Teekay Offshore's outstanding common units;
Brookfield acquired from Teekay a 49% interest in Teekay Offshore's general partner in exchange for $4.0 million and an option to purchase an additional 2.0% interest in Teekay Offshore's general partner from Teekay in exchange for 1.0 million of the Brookfield Transaction Warrants initially issued to Brookfield;
Teekay Offshore repurchased and canceled all of its outstanding Series C-1 and Series D Preferred Units from existing unitholders, for an aggregate of approximately $250.0 million in cash. Concurrently, the per unit exercise price of Teekay Offshore's Series D tranche B warrants to purchase common units issued on June 29, 2016 was reduced from $6.05 to $4.55;
Brookfield acquired, from a subsidiary of Teekay, the $200 million subordinated promissory note issued by Teekay Offshore on July 1, 2016, which was amended and restated in connection with the acquisition by Brookfield to, among other things, extend the maturity from 2019 to 2022 (as amended, the Brookfield Promissory Note). Brookfield purchased the Brookfield Promissory Note from Teekay for $140.0 million and 11.4 million of the Brookfield Transaction Warrants initially issued to Brookfield;
Teekay Offshore agreed with the lenders of the Arendal Spirit UMS debt facility to extend the mandatory prepayment date to September 30, 2018, in exchange for a principal prepayment of $30 million, which was paid in October 2017;
Certain financial institutions providing interest rate swaps to Teekay Offshore (i) lowered the fixed interest rate on the swaps, (ii) extended the termination option of the swaps by two years to 2021, and (iii) eliminated the financial guarantee and security package previously provided by Teekay in return for a prepayment amount and fees; and
Teekay Offshore acquired certain management companies from Teekay that focus on the operations or operations management of its shuttle and FPSO segments. These companies became a part of Teekay Offshore's consolidated group, effective January 1, 2018.
As part of the Brookfield Transaction, Teekay Offshore reduced its quarterly common unit distribution to $0.01 per common unit to reinvest cash in the business and further strengthen Teekay Offshore’s balance sheet.
In April 2018, Teekay Offshore finalized the previously announced contract extension with Premier Oil to extend the employment of the Voyageur Spirit FPSO unit on the Huntington field for at least an additional twelve months to April 2019. The new contract, which took effect in April 2018, includes a fixed charter rate component plus and a component based on oil production and oil price.
In February 2018, ALP Maritime, Teekay Offshore's towage subsidiary, was awarded a contract by Interoil / Saipem to provide five towage vessels to perform towage and field installation services for the Kaombo Norte FPSO project in spring 2018. Two ALP vessels will tow the FPSO from its shipyard in South East Asia to its field in West Africa, where it will be met by a further three ALP vessels to perform field installation. The contract requires approximately 330 vessel equivalent days throughout the project.
In January 2018, Teekay Offshore entered into a contract extension with Petroleo Brasileiro S.A. (or Petrobras) to extend the employment of the Petrojarl Cidade de Rio das Ostras (or Ostras) FPSO for four months at a slightly lower fixed rate. Petrobras also has an option to extend the contract a further two months out to July 2018.
In November 2017, the Pioneiro de Libra (or Libra)FPSO, which was converted from one of Teekay Offshore's shuttle tankers at Sembcorp’s Jurong shipyard in Singapore, commenced its 12-year charter contract with a consortium of international oil companies, including Petrobras, Total S.A., Shell, CNPC and CNOOC Limited, on the Libra oil field.
In November 2017, Teekay Offshore delivered the Navion Marita to its buyers. Teekay Offshore received gross proceeds of $5.7 million, resulting in a loss on sale of approximately $0.2 million recorded during the fourth quarterAltera of 2017.
In early-October 2017, the Randgrid FSO, which was converted from one of Teekay Offshore's shuttle tankers at Sembcorp’s Sembawang shipyard in Singapore, commenced its three-year charter contract with Statoil ASA (Statoil), including 12 additional one-year extension options, on the Gina Krog oil and gas field in the Norwegian sector of the North Sea.
In October 2017, November 2017 and March 2018, Teekay Offshore took delivery of three East Coast of Canada shuttle tanker newbuildings, the Beothuk Spirit, the Norse Spirit and the Dorset Spirit, respectively. The Beothuk Spirit and the Norse Spirit commenced operations under the 15-year charter contracts (of which approximately 12.5 years remain), plus extension options in December 2017 and January 2018, respectively, with a group of oil companies, and the Dorset Spirit is expected to commence operations under the 15-year charter contract (of which approximately 12.5 years remain), plus extension options, in mid-2018, with the same group of oil companies. These newbuildings are replacing the existing in-chartered vessels servicing the East Coast of Canada, with the first replaced vessel redelivering to its owner and the second and third replaced vessels transferring to the North Sea to operate in Teekay Offshore's contract of affreightment (or CoA) fleet.
In October 2017, the Navion Saga FSO unit was delivered to its buyers. Teekay Offshore received gross proceeds of $7.4 million, resulting in a gain on sale of approximately $0.5 million recorded during the fourth quarter of 2017.
In July 2017, Teekay Offshore entered into shipbuilding contracts with Samsung Heavy Industries Co. Ltd., to construct two Suezmax DP2 shuttle tanker newbuildings, for an aggregate fully built-up cost of approximately $294 million, with options to order up to two additional vessels. These newbuilding vessels will be constructed based on Teekay Offshore's New Shuttle Spirit design which incorporates technologies to increase fuel efficiency and reduce emissions, including LNG propulsion technology. Upon delivery in late-2019 and early-2020, these vessels will provide shuttle tanker services in the North Sea under Teekay Offshore's existing master agreement with Statoil, which will add vessel capacity to service Teekay Offshore's CoA portfolio in the North Sea. In late-November 2017, Teekay Offshore declared options with Samsung for the construction of two additional, Suezmax-sized, DP2 shuttle tanker newbuildings for a total fully-built-up cost of approximately $293$8.9 million. Upon scheduled delivery of these two vessels in 2020, they will join Teekay Offshore's CoA portfolio in the North Sea.
In July 2017, Teekay Offshore signed an amendment to the Petrojarl I FPSO five-year charter contract with Queiroz Galvão Exploração e Produção SA (or QGEP). The amended charter contract includes an extension to the delivery window for the project and an adjusted charter rate profile which reduces the day rate for the FPSO unit during the first 18 months of production. During the final 3.5 years of the contract, the charter contract will revert to a rate that is higher than the original day rate plus oil price and production tariffs, which will provide the potential for Teekay Offshore to recover more than the reduction given in the first 18 months of the charter contract. The unit sailed away from Aibel AS shipyard (or Aibel) in Norway in December 2017 and arrived on the field in Brazil in January 2018 for field installation and testing. The start-up of oil production on the Atlanta Field is expected to occur during the second quarter of 2018.
In June 2017, October 2017 and January 2018, Teekay Offshore took delivery of the ALP Defender, ALP Sweeper and the ALP Keeper, respectively, the final three units of four state-of-the-art SX-157 Ulstein Design ultra-long distance towing and offshore installation newbuildings, constructed by Niigata Shipbuilding & Repair in Japan. Due to the delayed delivery of the vessels, Teekay Offshore received damages from the shipyard of $24.6 million during the second quarter of 2017.
In June 2017, Teekay Offshore finalized a three-year shuttle tanker CoA to service a development in the U.K. North Sea. The CoA, which commenced during the third quarter of 2017, requires the use of up to approximately 0.6 shuttle tanker equivalents per annum, and is serviced by Teekay Offshore's existing CoA shuttle tanker fleet.
In May 2017, Teekay Offshore completed a five-year contract extension, plus extension options, for the Falcon Spirit FSO unit, which extension commenced June 1, 2017. The contract extension includes a termination fee payable if the contract is terminated prior to mid-2018. The Falcon Spirit FSO unit operates on the Al Rayyan field located offshore Qatar.
In April 2017, Petroleo Netherlands B.V. notified Logitel Offshore Norway AS, a subsidiary of Teekay Offshore, that Petroleo Netherlands B.V. was terminating the charter contract for the Arendal Spirit UMS and would not pay the charter hire payments from November 2016. Teekay Offshore has disputed the termination and has initiated a claim for unpaid standby fees and damages for wrongful termination of the time-charter contract. The unit is currently in lay-up.
In March 2017, Teekay Offshore finalized a five-year shuttle tanker CoA, plus extension options, with a consortium of oil companies to service a development located in the U.K. Central North Sea. This CoA commenced during the first quarter of 2018 and is serviced by Teekay Offshore's existing CoA shuttle tanker fleet. The CoA requires the use of up to approximately 0.6 shuttle tanker equivalents per annum.
In March 2017, Teekay Offshore entered into a six-month, customer-funded, front-end engineering and design (or FEED) study agreement for the Petrojarl Varg FPSO unit with Alpha Petroleum Resources Limited, which is backed by private equity firm Petroleum Equity, for the development of the Cheviot field, formerly known as the Emerald field, located in the U.K. sector of the North Sea. The purpose of the FEED study is to define the modifications required for the Petrojarl Varg FPSO unit and use it to negotiate the terms of a potential FPSO contract for the development of the Cheviot field. The FEED study was completed in early-2018.
Operating Results – Teekay Offshore
The following table compares Teekay Offshore’s operating results and number of calendar-ship-days for its vessels for the period up to September 25, 2017 and the year ended December 31, 2016, and compares its net revenues (which is a non-GAAP financial measure) for such periods, to revenues, the most directly comparable GAAP financial measure, for the same periods.
|
| | | | | |
| | Teekay Offshore Total |
| (in thousands of U.S. dollars, except calendar-ship-days) | 2017 (1) | | 2016 |
| Revenues | 796,711 |
| | 1,152,390 |
|
| Voyage expenses | (68,802 | ) | | (80,750 | ) |
| Net revenues | 727,909 |
| | 1,071,640 |
|
| Vessel operating expenses | (249,805 | ) | | (364,441 | ) |
| Time-charter hire expense | (60,592 | ) | | (75,485 | ) |
| Depreciation and amortization | (219,406 | ) | | (300,011 | ) |
| General and administrative expenses | (46,399 | ) | | (56,122 | ) |
Asset impairments and net gain on sale of vessels (2) | (1,500 | ) | | (40,079 | ) |
| Restructuring charges | (3,147 | ) | | (4,649 | ) |
| Income from vessel operations | 147,060 |
| | 230,853 |
|
| Equity income | 12,028 |
| | 17,933 |
|
Calendar-Ship-Days (3) | | | |
| FPSO Units | 1,602 |
| | 2,196 |
|
| Shuttle Tankers | 8,378 |
| | 11,913 |
|
| FSO Units | 1,869 |
| | 2,562 |
|
| UMS | 267 |
| | 366 |
|
| Towage vessels | 2,018 |
| | 2,307 |
|
| Conventional Tankers | 534 |
| | 732 |
|
| |
(1) | On September 25, 2017, we deconsolidated Teekay Offshore (please read "Item 18 - Financial Statements: Note 3 - Deconsolidation of Teekay Offshore"). Figures represent Teekay Offshore's results for the period up to September 25, 2017. |
| |
(2) | Commencing on September 25, 2017, Teekay accounts for its investment in Teekay Offshore using the equity method, and recognized an equity loss of $2.5 million for the year ended December 31, 2017. In the period after deconsolidation of Teekay Offshore to September 30, 2017, Teekay Offshore incurred impairment charges of $316.7 million which did not impact the equity loss recognized by Teekay as Teekay recognized its equity-accounted investment in Teekay Offshore at fair value on September 25, 2017. |
(3)Calendar-ship-days presented relate to owned and in-chartered consolidated vessels.
As at December 31, 2017, Teekay Offshore's FPSO fleet consisted of the Petrojarl Knarr,the Petrojarl Varg, the Ostras, the Piranema Spirit, the Voyageur Spirit, andthe Petrojarl I FPSO units, all of which Teekay Offshore owns 100%, and the Itajai and the Libra FPSO units, of which Teekay Offshore owns 50%. One equity accounted FSPO unit, the Libra FPSO unit owned through Teekay Offshore's 50/50 joint venture with Ocyan, achieved first oil and commenced its 12-year charter contract in late-November 2017. The Petrojarl I FPSO unit completed its upgrades and arrived on the Atlanta field in early-January 2018 and is currently undergoing field installation and testing prior to commencing its five-year charter contract with QGEP during the second quarter of 2018.
In late-2015, Teekay Offshore received a termination notice for the Petrojarl Varg FPSO charter contract from Repsol S.A. (or Repsol), based on a termination right that was specific to the Petrojarl Varg FPSO contract. In accordance with the termination provision of the charter contract, the charterer ceased paying the capital component of the charter hire six months prior to the July 2016 redelivery date. The unit is now in lay-up in Norway.
FPSO units provide production, processing and storage services to oil companies operating offshore oil field installations. These services are typically provided under long-term, fixed-rate FPSO contracts, some of which also include certain incentive compensation or penalties based on the level of oil production and other operational measures. Historically, the utilization of FPSO units and other vessels in the North Sea, where the Petrojarl Knarr and Voyageur Spirit operate, is higher in the winter months, as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to Teekay Offshore's units and the offshore oil platforms, which generally reduces oil production. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Brazilian Real, and British Pound may result in significant decreases or increases, respectively, in Teekay Offshore's revenues and vessel operating expenses.
As at December 31, 2017, Teekay Offshore's shuttle tanker fleet consisted of 30 vessels that operate under fixed-rate CoAs, time charters and bareboat charters, one shuttle commenced operations under a fixed-rate CoA in the East Coast of Canada in January 2018, five shuttle tanker newbuildings (one of which was delivered in March 2018) and the HiLoad DP unit, which is currently in lay-up. Of these 37 shuttle tankers, six are owned through 50%-owned subsidiaries and three were chartered-in. The remaining vessels are owned 100% by Teekay Offshore. All of Teekay Offshore's operating shuttle tankers, with the exception of two shuttle tankers that are currently trading as conventional tankers and the HiLoad DP unit, provide transportation services to energy companies in the North Sea, Brazil and the East Coast of Canada. Teekay Offshore's shuttle tankers occasionally service the conventional spot tanker market. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Euro and Brazilian Real may result in significant decreases or increases, respectively, in Teekay Offshore's vessel operating expenses.
As at December 31, 2017, Teekay Offshore's FSO fleet consisted of six units that operate under fixed-rate time charters or fixed-rate bareboat charters, for which Teekay Offshore's ownership interests range from 89% to 100%. The Randgrid completed its conversion from a shuttle tanker to an FSO unit in June 2017 and commenced operations in early-October 2017 at the Gina Krog oil and gas field located in the North Sea, under a three-year time-charter contract, which includes 12 additional one-year extension options. The Navion Saga FSO unit was sold in October 2017.
FSO units provide an on-site storage solution to oil field installations that have no oil storage facilities or that require supplemental storage. Teekay Offshore's revenues and vessel operating expenses for the FSO segment are affected by fluctuations in currency exchange rates, as a significant component of revenues are earned and vessel operating expenses are incurred in Norwegian Kroner and Australian Dollars for certain vessels. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner or Australian Dollar may result in significant decreases or increases, respectively, in Teekay Offshore's revenues and vessel operating expenses.
As at December 31, 2017, Teekay Offshore's UMS fleet consisted of one unit, the Arendal Spirit, in which Teekay Offshore owns a 100% interest. The Arendal Spirit was off-hire from mid-April 2016 until early-July 2016 due to damage suffered to the gangway of the unit. No revenue has been recognized for this unit since November 2016, for the reasons described above.
As at December 31, 2017, Teekay Offshore's towage vessel fleet consisted of nine long-distance towing and offshore installation vessels and one long-distance towing and offshore installation vessel newbuilding which was delivered in February 2018. Two of the vessels are currently in lay-up. Teekay Offshore owns a 100% interest in each of the vessels in Teekay Offshore's towage fleet. Long-distance towing and offshore installation vessels are used for the towage, station-keeping, installation and decommissioning of large floating objects, such as exploration, production and storage units, including FPSO units, FLNG and floating drill rigs.
As at December 31, 2017, Teekay Offshore's conventional tanker fleet consisted of two in-chartered conventional tankers. Both vessels are currently trading in the spot conventional tanker market.
Income from vessel operations for Teekay Offshore decreased to $147.1 million for the period up to September 25, 2017 compared to $230.9 million for the year ended December 31, 2016, primarily a result of:
FPSO Fleet
a decrease of $13.7 million for the nine months ended September 30, 2017 for the Petrojarl Varg due to no longer receiving the capital portion of the charter hire for the Petrojarl Varg FPSO since February 1, 2016 and the unit being in lay-up since August 1, 2016 subsequent to the termination of the charter contract by Repsol and net revenue received for offshore field studies in 2016;
a decrease of $4.2 million for the nine months ended September 30, 2017 for the Voyageur Spirit FPSO primarily due to a decrease in incentive compensation;
a decrease of $2.6 million for the nine months ended September 30, 2017 for the Piranema Spirit primarily due to the timing of repair and maintenance costs; and
a decrease of $1.0 million for the nine months ended September 30, 2017 for the Petrojarl I FPSOprimarily due to higher pre-operational costs incurred as the unit continues upgrades and is undergoing installation before commencing operations during the second quarter of 2018;
partially offset by
an increase of $6.5 million for the nine months ended September 30, 2017 for the Petrojarl Knarr FPSO primarily due to a one-time performance bonus earned during the third quarter of 2017 and crew and repair and maintenance costs in 2016 relating to the unit preparing for its final performance test, which was completed during the third quarter of 2016; and
an increase of $4.2 million for the nine months ended September 30, 2017 for the Petrojarl Varg primarily due to lower costs from the unit being in lay-up since August 1, 2016.
Shuttle Tanker Fleet
an increase of $11.3 million for the nine months ended September 30, 2017 due to an increase in project revenues, mainly due to providing offloading services to Statoil for the Gina Krog field as an interim measure pending the start-up of the recently converted Randgrid FSO unit in October 2017;
an increase of $9.2 million for the nine months ended September 30, 2017 primarily due to an increase in revenues in Teekay Offshore's CoA fleet mainly due to higher fleet utilization and higher average rates; and
an increase of $2.7 million for the nine months ended September 30, 2017, due to cost savings as a result of the sale of one vessel in November 2016;
partially offset by
a decrease of $13.1 million for the nine months ended September 30, 2017 due to the in-chartering of one vesselfrom September 2016.
FSO Fleet
a decrease of $10.3 million for the nine months ended September 30, 2017 due to the redelivery to Teekay Offshore of the Navion Saga in October 2016 and the write-down of the Falcon Spirit as a result of a decrease in the estimated residual value of the unit.
UMS Fleet
an increase of $11.4 million for the nine months ended September 30, 2017 primarily due to the termination of the Arendal Spirit UMS charter contract in April 2017, partially offset by the write-down relating to the cancellation of two UMS newbuilding contracts in June 2016.
Towage Fleet
a decrease of $8.8 million for the nine months ended September 30, 2017 mainly due to lower utilization for the towage fleet as a result of lower demand in the offshore market, and increased costs associated with the delivery of the ALP Striker and ALP Defender in September 2016 and June 2017, respectively, partially offset by an increase in the owned and chartered-in fleet size.
Conventional Tanker Fleet
a decrease of $7.6 million for the nine months ended September 30, 2017 primarily due to a $4.0 million termination fee received from Teekay Parent for the early termination of the time-charter-out contract of the Kilimanjaro Spirit in March 2016, and the in-chartering of the Blue Pride and the Blue Power conventional tankers from March 2016, partially offset by lower costs as a result of the sale of two conventional tankers in March 2016.
General and Administrative Expenses
General and administrative expenses increased by $4.4 million for the nine months ended September 30, 2017 mainly due to costs associated with the Brookfield Transaction and higher business development fees relating to its FPSO segment, partially offset by lower management fees relating to the FPSO and shuttle tanker segments primarily from its cost saving initiatives and lower expenses as a result of the redelivery and lay-up of the Petrojarl Varg FPSO unit in August 2016.
Impact of Deconsolidation of Teekay Offshore
a decrease of $59.1 million in 2017, including $56.5 million of income from vessel operations of Teekay Offshore for the fourth quarter of 2016 and $2.6 million of income from vessel operations of Teekay Offshore for the five days subsequent to its deconsolidation on September 25, 2017, of which our 14% share was recognized in equity loss, and which is not included in the above results (please read "Item 18 - Financial Statements: Note 3 - Deconsolidation of Teekay Offshore"). The Company recognized an equity loss of $2.5 million from September 25, 2017 to December 31, 2017.
Other Consolidated Operating Results
The following table compares our other consolidated operating results for 2017 and 2016:
|
| | | | | | | | | |
| | | Year Ended December 31, | | |
| (in thousands of U.S. dollars, except percentages) | | 2017 | | 2016 | | % Change |
| Interest expense | | (268,400 | ) | | (282,966 | ) | | (5.1 | ) |
| Interest income | | 6,290 |
| | 4,821 |
| | 30.5 |
|
| Realized and unrealized loss on non-designated derivative instruments | | (38,854 | ) | | (35,091 | ) | | 10.7 |
|
| Foreign exchange loss | | (26,463 | ) | | (6,548 | ) | | 304.1 |
|
| Loss on deconsolidation of Teekay Offshore | | (104,788 | ) | | — |
| | 100.0 |
|
| Other loss | | (53,981 | ) | | (39,013 | ) | | 38.4 |
|
| Income tax expense | | (12,232 | ) | | (24,468 | ) | | (50.0 | ) |
Interest expense. Interest expense decreased to $268.4 million in 2017, compared to $283.0 million in 2016, primarily due to:
a decrease of $5.2 million primarily due to a termination fee and write-off in 2016 of deferred loan costs due to the cancellation of a portion of Teekay Parent's equity margin loan in 2016;
a decrease of $4.8 million due to interest expense incurred relating to costs associated with the delay in the delivery of a UMS newbuilding in the first and second quarters of 2016 up until its construction contract cancellation by subsidiaries of Teekay Offshore in late-June 2016;
a decrease of $4.1 million due to increases in capitalized interest relating to additional advances and capital contributions to the Yamal LNG Joint Venture and Bahrain LNG Joint Venture for newbuilding installments and construction costs;
a decrease of $3.0 million due to decreases in Teekay Offshore's average debt balance;
a decrease of $1.5 million due to the repayment of the bridge loan relating to the Shoshone Spirit upon its sale by Teekay Parent in 2016; and
a decrease of $0.9 million due to the partial repayment of Teekay Parent's revolving credit facility in 2017;
partially offset by
an increase of $16.3 million primarily relating to interest incurred on the obligations related to capital leases for the Creole Spirit, Oak Spirit,Torben Spirit, Murex, and Macoma commencing upon their deliveries in 2016 and 2017;
an increase of $7.9 million due to an increase in the weighted-average interest rates on Teekay Offshore's long-term debt;
an increase of $4.6 million as a result of Teekay LNG's issuances of NOK bonds in October 2016 and January 2017, net of NOK bond repurchases in October 2016 and the maturity of certain of the NOK bonds in May 2017;
an increase of $4.1 million as a result of interest expense accretion on the Pan Union Joint Venture crew training and site supervision obligation, and higher LIBOR rates net of debt principal repayments;
an increase of $2.3 million due to the ineffective portion of the unrealized loss, and the reclassification of the realized loss from accumulated other comprehensive loss to interest expense, on interest rate swaps designated as cash flow hedges relating to Teekay Offshore's towage segment; and
an increase of $1.5 million primarily due to additional interest incurred related to the sale and leaseback of four Suezmax tankers and the completion of the TIL merger in November 2017, partially offset by higher expenses incurred in 2016 due to the refinancing of Teekay Tanker's debt facilities in the first quarter of 2016.
On September 25, 2017, we deconsolidated Teekay Offshore (please read "Item 18 - Financial Statements: Note 3 - Deconsolidation of Teekay Offshore"). As a result, consolidated interest expense decreased by $30.0 million for the year ended December 31, 2017, compared to the same period of the prior year.
Realized and unrealized (losses) gains on non-designated derivative instruments. Realized and unrealized (losses) gains related to derivative instruments that are not designated as hedges for accounting purposes are included as a separate line item in the consolidated statements of (loss) income. Net realized and unrealized losses on non-designated derivatives were $38.9 million for 2017, compared to $35.1 million for 2016, as detailed in the table below:
|
| | | | | |
| | Year Ended
December 31, 2017
$ | | Year Ended
December 31, 2016
$ |
| Realized (losses) gains relating to: | | | |
| Interest rate swap agreements | (53,921 | ) | | (87,320 | ) |
| Interest rate swap agreement terminations | (610 | ) | | (8,140 | ) |
| Foreign currency forward contracts | 667 |
| | (11,186 | ) |
| Time charter swap agreement | 1,106 |
| | 2,154 |
|
| Forward freight agreements | 270 |
| | — |
|
| | (52,488 | ) | | (104,492 | ) |
| Unrealized gains (losses) relating to: | | | |
| Interest rate swap agreements | 17,005 |
| | 62,446 |
|
| Foreign currency forward contracts | 3,925 |
| | 15,833 |
|
| Stock purchase warrants | (6,421 | ) | | (9,753 | ) |
| Time charter swap agreement | (875 | ) | | 875 |
|
| | 13,634 |
| | 69,401 |
|
| Total realized and unrealized losses on derivative instruments | (38,854 | ) | | (35,091 | ) |
The realized losses relate to amounts we actually realized for settlements related to these derivative instruments in normal course, and amounts paid to terminate interest rate swap agreement terminations.
During 2017 and 2016, we had interest rate swap agreements with aggregate average net outstanding notional amounts of approximately $2.6 billion and $3.3 billion, respectively, with average fixed rates of approximately 3.1% and 3.4%. The decrease in the notional amounts is mainly due to the deconsolidation of Teekay Offshore, which had interest rate swaps with aggregate average notional amount of $1.8 billion. Short-term variable benchmark interest rates during these periods were generally less than 2.0% and, as such, we incurred realized losses of $53.9 million and $87.3 million during 2017 and 2016, respectively, under the interest rate swap agreements. We also incurred realized losses of $0.6 million during 2017, compared to losses of $8.1 million during 2016, from the termination of interest rate swaps.
We recognized realized gains of $0.7 million in 2017, compared to realized losses of $11.2 million in 2016 under the foreign currency forward contracts.
We recognized realized gains on a time charter swap agreement of $1.1 million in 2017 and $2.2 million in 2016. The time-charter swap agreement ended on April 30, 2017.
Primarily as a result of significant changes in long-term benchmark interest rates during 2017 and 2016, we recognized unrealized gains of $17.0 million for 2017 compared to $62.4 million for 2016 under the interest rate swap agreements. We recognized unrealized gains of $3.9 million for 2017 compared to unrealized losses of $15.8 million for 2016 under the foreign currency forward contracts.
As at December 31, 2017, Teekay held 14.5 million Brookfield Transaction Warrants. Please read “Item 18 - Financial Statements: Note 3 – Deconsolidation of Teekay Offshore". The fair value of the Brookfield Transaction Warrants was $29.4 million as at December 31, 2017. We recognized $5.2 million of unrealized losses on these warrants in 2017. Please read “Item 18 Financial Statements: Note 15 — Derivative Instruments and Hedging Activities.”
As of December 31, 2017, Teekay held 1,755,000 Teekay Offshore stock purchase warrants with an exercise price of $4.55, which have a seven-year term and are exercisable any time after six months following their issuance date. The fair value of these warrants was $1.3 million as at December 31, 2017. We recognized $0.6 million of unrealized losses on these warrants. Please read “Item 18 - Financial Statements: Note 15 — Derivative Instruments and Hedging Activities.”
In January 2014, we and Teekay Tankers received TIL stock purchase warrants which entitled us and Teekay Tankers to purchase up to 1.5 million shares of common stock of TIL at a fixed price of $10 per share. On May 31, 2017, TIL entered into a definitive agreement to merge with Teekay Tankers (Please read “Item 18 - Financial Statements: Note 4 – Investments”). Following the completion of the merger, TIL became a wholly-owned subsidiary of Teekay Tankers, and as a result, the stock purchase warrants are valued at $nil at December 31, 2017. We recognized $0.6 million and $9.8 million of unrealized losses on the stock purchase warrants, respectively, during 2017 and 2016. Please read “Item 18 - Financial Statements: Note 15 — Derivative Instruments and Hedging Activities.”
Foreign Exchange Loss. Foreign currency exchange losses were $26.5 million in 2017 compared to $6.5 million in 2016. Our foreign currency exchange losses, substantially all of which are unrealized, are due primarily to the relevant period-end revaluation of our NOK-denominated debt and our Euro-denominated term loans, capital leases and restricted cash for financial reporting purposes and the realized and unrealized gains (losses) on our cross currency swaps. Gains on NOK-denominated and Euro-denominated monetary liabilities reflect a stronger U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. Losses on NOK-denominated and Euro-denominated monetary liabilities reflect a weaker U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. For 2017, foreign currency exchange loss includes realized losses of $18.5 million (2016—$38.6 million) and unrealized gains of $82.7 million (2016 — $75.0 million) on our cross currency swaps, realized losses on maturity and termination of NOK bonds of $25.7 million (2016 — $41.7 million) offset by the NOK bond gain, and unrealized losses of $23.3 million (2016—$6.8 million) on the revaluation of our NOK-denominated debt.
Loss on deconsolidation of Teekay Offshore. Loss on deconsolidation of Teekay Offshore was $104.8 million in 2017. Please read "Item 18 - Financial Statements: Note 3 - Deconsolidation of Teekay Offshore".
Other Loss.Other Loss was $54.0 million in 2017 compared to $39.0 million in 2016. Other loss in 2017 includes a $50.0 million increase in the tax indemnification guarantee liability related to the Teekay Nakilat capital lease (please read "Item 18 - Financial Statements: Note 16d — Commitments and Contingencies"), $4.5 million related to a settlement agreement entered into between CeFront Technology AS and certain subsidiaries of Teekay Offshore, partially offset by a gain on sale of a cost-accounted investment. Other loss in 2016 includes the recognition of an expense relating to estimated potential damages of $38.0 million as a result of the cancellation by subsidiaries of Teekay Offshore of the two UMS construction contracts, partially offset by a $14.5 million gain associated with the extinguishment of contingent liabilities relating to the UMS newbuildings and a $2.1 million gain relating to the reassessment of a contingent liability fair value associated with the Arendal Spirit UMS in 2016. Other loss in 2016 also includes a write-down of a cost-accounted investment of $19.0 million in 2016.
Income Tax Expense. Income tax expense was $12.2 million in 2017 compared to $24.5 million in 2016. This decrease in income tax expense was primarily due to valuation allowances relating to our Australian operations and Teekay Offshore in 2016, the deconsolidation of Teekay Offshore on September 25, 2017, and lower freight taxes in Teekay Tankers in 2017.
Year Ended December 31, 2016 versus Year Ended December 31, 2015
Teekay LNG
Operating Results – Teekay LNG
The following table compares Teekay LNG’s operating results and number of calendar-ship-days for its vessels for 2016 and 2015, and compares its net revenues (which is a non-GAAP financial measure) for 2016 and 2015, to revenues, the most directly comparable GAAP financial measure, for the same periods.
|
| | | | | | | | | | | | | | | | | | |
| | | Liquefied Gas Carriers | | Conventional Tankers | | Teekay LNG Total |
| (in thousands of U.S. dollars, except calendar-ship-days) | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Revenues | | 336,530 |
| | 305,056 |
| | 59,914 |
| | 92,935 |
| | 396,444 |
| | 397,991 |
|
| Voyage expenses | | (449 | ) | | 203 |
| | (1,207 | ) | | (1,349 | ) | | (1,656 | ) | | (1,146 | ) |
| Net revenues | | 336,081 |
| | 305,259 |
| | 58,707 |
| | 91,586 |
| | 394,788 |
| | 396,845 |
|
| Vessel operating expenses | | (66,087 | ) | | (63,344 | ) | | (22,503 | ) | | (30,757 | ) | | (88,590 | ) | | (94,101 | ) |
| Depreciation and amortization | | (80,084 | ) | | (71,323 | ) | | (15,458 | ) | | (20,930 | ) | | (95,542 | ) | | (92,253 | ) |
General and administrative expenses (1) | | (15,310 | ) | | (19,392 | ) | | (3,189 | ) | | (5,726 | ) | | (18,499 | ) | | (25,118 | ) |
| Write-down and loss on sale of vessels | | — |
| | — |
| | (38,976 | ) | | — |
| | (38,976 | ) | | — |
|
| Restructuring charges | | — |
| | — |
| | — |
| | (4,001 | ) | | — |
| | (4,001 | ) |
| Income (loss) from vessel operations | | 174,600 |
| | 151,200 |
| | (21,419 | ) | | 30,172 |
| | 153,181 |
| | 181,372 |
|
| Equity income | | 62,307 |
| | 84,171 |
| | — |
| | — |
| | 62,307 |
| | 84,171 |
|
Calendar-Ship-Days (2) | | | | | | | | | | | | |
| Liquefied Gas Carriers | | 7,440 |
| | 6,935 |
| | — |
| | — |
| | 7,440 |
| | 6,935 |
|
| Conventional Tankers | | — |
| | — |
| | 2,439 |
| | 2,920 |
| | 2,439 |
| | 2,920 |
|
| |
(1) | Includes direct general and administrative expenses and indirect general and administrative expenses allocated to the liquefied gas carriers and conventional tankers based on estimated use of corporate resources. |
| |
(2) | Calendar-ship-days presented relate to consolidated vessels. |
Teekay LNG – Liquefied Gas Carriers
As at December 31, 2016, Teekay LNG’s liquefied gas fleet, including newbuildings, included 50 LNG carriers and 29 LPG/Multigas carriers, in which its interests ranged from 20% to 100%. The number of calendar-ship-days for Teekay LNG’s liquefied gas carriers consolidated in its financial results increased to 7,440 days in 2016 from 6,935 days in 2015, as a result of the deliveries to Teekay LNG of the Creole Spirit and Oak Spirit in February 2016 and July 2016, respectively. During 2016, one of Teekay LNG's consolidated vessels in this segment was off-hire for a scheduled in-water survey, the Creole Spirit was off-hire for 32 days for repairs covered under warranty, and the Creole Spirit and Oak Spirit's time-charter contracts commenced in February 2016 and August 2016, respectively, compared to one consolidated vessel in this segment being off-hire for 47 days in 2015. As a result, Teekay LNG's liquefied gas fleet utilization decreased to 99.1% in 2016, compared to 99.3% in 2015.
Income from vessel operations increased to $174.6 million in 2016 compared to $151.2 million in 2015, primarily as a result of:
an increase of $19.9 million as a result of the deliveries of the Creole Spirit and Oak Spirit and the commencement of their charter contracts;
an increase of $4.1 million as a result of lower general and administrative expenses primarily due to reimbursement from the Bahrain Joint Venture in 2016 of Teekay LNG's proportionate costs, including pre-operation, engineering and financing-related expenses, upon the joint venture securing its financing in the fourth quarter of 2016;
an increase of $3.8 million due to lower vessel operating expenses due to the charterer, Teekay, not being able to find employment for the Arctic Spirit and Polar Spirit for a portion of 2016, which permitted Teekay LNG to operate the vessels with a reduced average number of crew on board and reduce the amount of repair and maintenance activities performed; and
an increase of $2.2 million due to the Polar Spirit being off-hire for 47 days in 2015 for a scheduled dry docking;
partially offset by
a decrease of $4.5 million due to a revenue deferral relating to Teekay LNG's six LPG carriers on charter to Skaugen; and
a decrease of $2.0 million for Teekay LNG's Spanish LNG carriers primarily due to a performance claim related to the Hispania Spirit recorded in the fourth quarter of 2016 and the Catalunya Spirit being off-hire for six days in the first quarter of 2016 for a scheduled in-water survey.
Equity income related to Teekay LNG’s liquefied gas carriers decreased to $62.3 million in 2016 compared to $84.2 million in 2015, as set forth in the table below:
|
| | | | | | | | | | | | | | |
| (in thousands of U.S. Dollars) | Year Ended December 31, |
| | Angola
LNG
Carriers | Exmar
LNG
Carriers | Exmar
LPG
Carriers | MALT
LNG
Carriers | RasGas 3
LNG
Carriers | Other | Total
Equity
Income |
| 2016 | 15,713 |
| 9,038 |
| 13,674 |
| 4,503 |
| 19,817 |
| (438 | ) | 62,307 |
|
| 2015 | 16,144 |
| 9,332 |
| 32,733 |
| 4,620 |
| 21,527 |
| (185 | ) | 84,171 |
|
| Difference | (431 | ) | (294 | ) | (19,059 | ) | (117 | ) | (1,710 | ) | (253 | ) | (21,864 | ) |
Equity income from Teekay LNG's 50% ownership interest in Exmar LPG BVBA decreased by $19.1 million primarily due to more vessels trading in the spot market in 2016 compared to higher fixed rates earned in 2015; the redelivery of the in-chartered vessel Odin back to its owner in November 2015; and the write-down of the Brugge Venture recorded in the fourth quarter of 2016, which was sold in January 2017. These decreases were partially offset by the deliveries to the joint venture of four LPG carrier newbuildings between September 2015 and November 2016.
The slight decrease in equity income from Teekay LNG's 52% investment in the MALT LNG carriers was primarily due to the deferral during 2016 (and which will continue through 2017) of a significant portion of the charter payments from YLNG for the Marib Spirit and Arwa Spirit LNG carriers chartered to support the LNG plant in Yemen, and a lower charter rate on the redeployment of the Methane Spirit after its original time-charter contract expired in March 2015. These decreases were partially offset by the settlement payment awarded to Teekay LNG in 2016 for the disputed contract termination relating to the Magellan Spirit, and unscheduled off-hire relating to the Woodside Donaldson to repair a damaged propulsion motor in January 2015.
The $1.7 million decrease in equity income from Teekay LNG's 40% investment in the three RasGas 3 LNG carriers was primarily due to the scheduled maturity of the joint venture's interest rate swaps, which resulted in lower unrealized gain on non-designated derivative instruments, which was partially offset by lower combined interest expense and realized loss on non-designated derivative instruments.
Teekay LNG – Conventional Tankers
As at December 31, 2016, Teekay LNG’s conventional tanker fleet included five Suezmax-class double-hulled conventional crude oil tankers and one Handymax product tanker, three of which it owns and two of which it leases under capital leases. All of Teekay LNG’s conventional tankers operate under fixed-rate charters. The number of calendar-ship-days for Teekay LNG’s conventional tankers decreased to 2,439 days in 2016 from 2,920 days in 2015, primarily as a result of the sales of the Bermuda Spirit and Hamilton Spirit in April 2016 and May 2016, respectively. During 2016, none of Teekay LNG's vessels in this segment were off-hire for scheduled dockings, compared to two of its vessels in this segment being off-hire for a total of 24 days for scheduled dry-dockings and another vessel being off-hire for 12 days related to a crew work stoppage during 2015.
Income (loss) from vessel operations decreased to a loss of $21.4 million during 2016 compared to income of $30.2 million in 2015, primarily as a result of:
decreases of $32.5 million due to the sales of the Bermuda Spirit and Hamilton Spirit in 2016, resulting in a loss on sale of vessels of $27.4 million and a decrease in operating income;
a decrease of $11.5 million relating to the write-down of the Asian Spirit in 2016 as this vessel is classified as held for sale at December 31, 2016;
a decrease of $4.4 million due to lower revenues earned by the Teide Spirit relating to a profit sharing agreement between Teekay LNG and Compania Espanole de Petroleos, S.A. (or CEPSA);
a decrease of $3.6 million relating to the European Spirit, African Spirit and Asian Spirit upon the charterer exercising its one-year options in September 2015, November 2015 and January 2016, respectively, at lower charter rates than the original charter rates; and
a decrease of $2.8 million due to lower revenues earned by the Toledo Spirit in 2016 relating to a profit sharing agreement between Teekay LNG and CEPSA;
partially offset by
an increase of $2.5 million due to lower general and administrative expenses relating primarily to a reduced amount of business development activities in 2016.
Teekay Tankers
Operating Results – Teekay Tankers
The following table compares Teekay Tankers’ operating results and number of calendar-ship-days for its vessels for 2016 and 2015, and compares its net revenues (which is a non-GAAP financial measure) for 2016 and 2015, to revenues, the most directly comparable GAAP financial measure, for the same periods.
|
| | | | | | |
| | | Year Ended December 31, |
| (in thousands of U.S. dollars, except calendar-ship-days) | | 2016 | | 2015 |
| Revenues | | 550,543 |
| | 524,834 |
|
| Voyage expenses | | (53,604 | ) | | (18,477 | ) |
| Net revenues | | 496,939 |
| | 506,357 |
|
| Vessel operating expenses | | (182,598 | ) | | (130,774 | ) |
| Time-charter hire expense | | (59,647 | ) | | (77,799 | ) |
| Depreciation and amortization | | (104,149 | ) | | (71,428 | ) |
| General and administrative expenses | | (33,199 | ) | | (29,743 | ) |
| Asset impairments | | (20,462 | ) | | — |
|
| (Loss) gain on sale of vessels | | (132 | ) | | 771 |
|
| Restructuring charges | | — |
| | (6,795 | ) |
| Income from vessel operations | | 96,752 |
| | 190,589 |
|
| Equity income | | 7,680 |
| | 11,528 |
|
Calendar-Ship-Days (1) | | | | |
| Conventional Tankers | | 19,303 |
| | 16,636 |
|
| |
(1) | Calendar-ship-days presented relate to owned and in-chartered consolidated vessels. |
Teekay Tankers – Conventional Tankers
As at December 31, 2016, Teekay Tankers owned 43 double-hulled conventional oil tankers and four ship-to-ship lightering support vessels, time-chartered in six Aframax tankers and one LR2 product tanker from third parties and owned a 50% interest in one VLCC.
The calendar ship days increased in 2016 compared to 2015 primarily due to the full year of operations of the 12 Suezmax tankers, two LR2 product tankers and three Aframax tanker that Teekay Tankers acquired during 2015, partially offset by the net movement of in-charter tankers during 2015 and 2016 and the sale of two MR product tankers in 2015 and 2016.
Income from vessel operations decreased to $96.8 million in 2016 compared to $190.6 million in 2015, primarily as a result of:
a decrease of $99.8 million due to lower average realized rates earned by Suezmax, Aframax, LR2 and MR tankers trading in the spot tanker market in 2016 compared to 2015;
a decrease of $20.5 million due to write-downs of two MR product tankers and two Suezmax tankers to their respective sales prices in 2016;
a decrease of $6.0 million due to increases in amortization of dry-docking costs during 2016 resulting from high dry-docking activity during the second half of 2015; and
a decrease of $3.6 million due to in-process revenue contract amortization that was recognized in revenue in late 2015 and fully amortized in the first quarter of 2016;
partially offset by
an increase of $15.8 million due to increased revenue days during 2016 due to fewer net off-hire days in 2016 and an additional revenue day as 2016 is a leap year;
an increase of $9.6 million due to higher rates earned from out-chartered Aframax tankers during 2016;
an increase of $4.4 million due to higher commissions and management fees earned by TTOL from the management of external vessels trading in the RSAs and bunker rebates;
a net increase of $4.4 million due to results from the ship-to-ship transfer business which Teekay Tankers acquired during the third quarter of 2015; and
a net increase of $3.8 million due to lower pool management fees, commissions, off-hire bunker and other expenses in 2016 compared to 2015, due primarily to lower average TCE rates.
Equity income decreased to $7.7 million in 2016 from $11.5 million for 2015 primarily due to:
a decrease of $3.8 million due to lower equity earnings from TIL resulting from overall lower realized average spot rates earned in 2016 compared to 2015, partially offset by an increase resulting from our increased ownership interest in TIL to 11.3% in 2016 as compared to 10.2% in 2015; and
a decrease of $1.2 million due to the winding down of operations of the Gemini Tankers L.L.C. joint venture in 2015;
partially offset by
an increase of $1.1 million due to higher equity earnings from our High-Q Investment Ltd (or High-Q) joint venture primarily resulting from profit share recognized in the second quarter of 2016 as VLCC rates averaged above certain thresholds, triggering a profit sharing with the customer.
Teekay Parent
Operating Results – Teekay Parent
The following table compares Teekay Parent’s operating results and number of calendar-ship-days for its vessels for 2016 and 2015, and compares its net revenues (which is a non-GAAP financial measure) for 2016 and 2015, to revenues, the most directly comparable GAAP financial measure, for the same periods.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Offshore Production | | Conventional Tankers | | Other and Corporate G&A | | Teekay Parent Total |
| (in thousands of U.S. dollars, except calendar-ship-days) | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 | | 2016 | | 2015 |
| Revenues | | 231,435 |
| | 277,842 |
| | 32,967 |
| | 65,777 |
| | 76,111 |
| | 75,547 |
| | 340,513 |
| | 419,166 |
|
| Voyage expenses | | (269 | ) | | (36 | ) | | (287 | ) | | (763 | ) | | (2,879 | ) | | (808 | ) | | (3,435 | ) | | (1,607 | ) |
| Net revenues | | 231,166 |
| | 277,806 |
| | 32,680 |
| | 65,014 |
| | 73,232 |
| | 74,739 |
| | 337,078 |
| | 417,559 |
|
| Vessel operating expenses | | (159,084 | ) | | (200,338 | ) | | (10,468 | ) | | (16,051 | ) | | (26,576 | ) | | (24,294 | ) | | (196,128 | ) | | (240,683 | ) |
| Time-charter hire expense | | (33,366 | ) | | (29,978 | ) | | (23,166 | ) | | (38,991 | ) | | (48,452 | ) | | (44,448 | ) | | (104,984 | ) | | (113,417 | ) |
| Depreciation and amortization | | (70,855 | ) | | (69,508 | ) | | (1,717 | ) | | (2,852 | ) | | 449 |
| | 451 |
| | (72,123 | ) | | (71,909 | ) |
General and administrative expenses (1) | | (14,099 | ) | | (17,261 | ) | | (809 | ) | | (2,136 | ) | | (10,707 | ) | | 1,221 |
| | (25,615 | ) | | (18,176 | ) |
Net loss on sale of vessels and equipment | | (110 | ) | | (948 | ) | | (12,487 | ) | | — |
| | — |
| | — |
| | (12,597 | ) | | (948 | ) |
| Restructuring charges | | (1,962 | ) | | — |
| | — |
| | — |
| | (20,165 | ) | | (2,654 | ) | | (22,127 | ) | | (2,654 | ) |
| (Loss) income from vessel operations | | (48,310 | ) | | (40,227 | ) | | (15,967 | ) | | 4,984 |
| | (32,219 | ) | | 5,015 |
| | (96,496 | ) | | (30,228 | ) |
| Equity (loss) income | | (575 | ) | | (12,196 | ) | | 132 |
| | 12,797 |
| | (1,838 | ) | | (1,101 | ) | | (2,281 | ) | | (500 | ) |
Calendar-Ship-Days (2) | | | | | | | | | | | | | | | | |
| FPSO Units | | 1,098 |
| | 1,095 |
| | — |
| | — |
| | — |
| | — |
| | 1,098 |
| | 1,095 |
|
| Conventional Tankers | | — |
| | — |
| | 1,278 |
| | 2,516 |
| | — |
| | — |
| | 1,278 |
| | 2,516 |
|
| Gas carriers | | — |
| | — |
| | — |
| | — |
| | 732 |
| | 730 |
| | 732 |
| | 730 |
|
| FSO Units | | 366 |
| | 365 |
| | — |
| | — |
| | 732 |
| | 730 |
| | 1,098 |
| | 1,095 |
|
| Shuttle Tankers | | 732 |
| | 730 |
| | — |
| | — |
| | — |
| | — |
| | 732 |
| | 730 |
|
| Bunker Barges | | — |
| | — |
| | — |
| | — |
| | 672 |
| | 200 |
| | 672 |
| | 200 |
|
| |
(1) | Includes direct general and administrative expenses and indirect general and administrative expenses allocated to offshore production, conventional tankers and other and corporate G&A based on estimated use of corporate resources. |
| |
(2) | Apart from three FPSO units and one conventional tanker, all remaining calendar-ship-days presented relate to in-chartered days. |
Teekay Parent – Offshore Production
Offshore Production consists primarily of our FPSO units. As at December 31, 2016, we had a direct interest in three 100% owned FPSO units.
The Hummingbird Spirit FPSO charter contract includes an incentive compensation component based on the oil price. In addition, the PetrojarlFoinaven FPSO unit’s charter contract includes incentives based on total oil production for the year, certain operational measures, and the average annual oil price. The decline in the price of oil has negatively impacted our incentive compensation under these contracts.
The number of Teekay Parent’s FPSO calendar-ship days for the year ended December 31, 2016 were consistent compared to the same period last year.
Loss from vessel operations increased to $48.3 million during 2016 compared to $40.2 million in 2015, primarily as a result of:
an increase in loss of $13.7 million related to the Petrojarl Banff FPSO unit as a result of off-hire in the first quarter of 2016 and higher repairs and maintenance costs due to the temporary loss of two mooring lines in the first quarter of 2016;
an increase in loss of $5.5 million related to the Hummingbird FPSO primarily due to the contract amendment described above that took effect on July 1, 2016, partially offset by lower operating expenses in 2016; and
an increase in loss of $2.0 million due to restructuring charges primarily relating to the reorganization of the Company's FPSO business in 2016;
partially offset by
a decrease in loss of $9.1 million primarily due to legal costs incurred in 2015 relating to repairs and upgrades to the Petrojarl Banff FPSO after the storm event in December 2011, and cost-saving initiatives in 2016; and
a decrease in loss of $4.8 million primarily related to the Petrojarl Foinaven FPSO, primarily due to the shutdown of the unit in 2015 for maintenance and lower operating costs in 2016.
Teekay Parent – Conventional Tankers
As at December 31, 2016, Teekay Parent chartered-in two conventional tankers from third parties. The average fleet size (including in-chartered vessels), as measured by calendar-ship-days, decreased in 2016 compared with 2015 due to the sale of one VLCC, redeliveries of three Aframax in-chartered vessels to Teekay Offshore and one Aframax in-chartered vessel to Teekay Tankers. The collective impact from the noted fleet changes are referred to below as the Net Fleet Reductions.
Loss from vessel operations for Teekay Parent’s Conventional Tankers was $16.0 million in 2016 compared to income from vessel operations of $5.0 million in 2015, primarily as a result of:
a decrease in income of $12.5 million due to the write-down in 2016 of one VLCC to its agreed sales price;
a decrease in income of $5.8 million due to lower average realized TCE rates in 2016 compared to 2015;
a net decrease in income of $5.7 million due to cancellation fees paid by Teekay Parent to Teekay Offshore in 2016 and 2015 related to the termination of the time-charter contracts of two Aframax tankers, partially offset by cancellations paid to Teekay Parent from Teekay Offshore and Teekay Tankers in 2015 related to the termination of bareboat contracts of two Aframax tankers; and
a decrease in income of $2.6 million due to a higher time-charter hire rate for an Aframax in-charter in the first quarter of 2016;
partially offset by
a net increase in income of $4.0 million due to lower vessel operating expenses from the termination of bareboat contracts of two Aframax tankers that Teekay Parent in-chartered from Teekay Offshore and the sale of the VLCC and lower time-charter hire expense from the redeliveries of three in-chartered conventional tankers to Teekay Offshore and Teekay Tankers, partially offset by the loss of revenue due to the redeliveries and sale of those tankers; and
an increase in income of $2.0 million due to a distribution received from the Gemini Pool in 2016.
Teekay Parent – Other and Corporate G&A
As at December 31, 2016, Teekay Parent had two chartered-in LNG carriers owned by Teekay LNG, two chartered-in FSO units owned by Teekay Offshore and one chartered-in bunker barge.
Loss from vessel operations was $32.2 million for the year ended December 31, 2016 compared to income from vessel operations $5.0 million for the year ended December 31, 2015, primarily as a result of:
an increase in loss of $32.8 million primarily due to lower revenues earned as a result of the terminations of time charters and the lay-up of the Arctic Spirit and Polar Spirit LNG carriers in 2016;
an increase in loss of $13.9 million due to business development fees received from Teekay Offshore in 2015 in respect of the Petrojarl Knarr FPSO unit, the Arendal Spirit UMS and the six on-the-water, long distance towing and offshore installation vessels;
an increase in loss of $2.7 million primarily due to office closure costs and seafarers' severance amounts relating to tug businesses in Western Australia in 2016; and
an increase in loss of $1.6 million due to fees received from TIL in 2015 for our arrangement of the acquisition of certain of its vessels, partially offset by fees received relating to the sale of two vessels in 2016;
partially offset by
a decrease in loss of $9.4 million primarily due to earnings generated on technical, crew and commercial management services provided for an increased fleet size in 2016; and
a decrease in loss of $5.4 million primarily due to lower restructuring charges relating to the reorganization of our marine operations and corporate services in 2015, and lower general and administrative expenses as a result of cost saving initiatives in 2016.
Equity loss was $2.3 million in 2016 compared to $0.5 million in 2015, primarily due to lower equity earnings from Petrotrans Holdings as a result of the gain on the sale of TMS from the joint venture to Teekay Tankers in 2015, and lower equity earnings from TIL resulting from lower realized average spot rates in 2016, partially offset by higher equity earnings due to a deferred tax asset write-down and unrealized foreign exchange losses relating to Teekay Parent’s 43% investment in Sevan in 2015.
Teekay Offshore
Operating Results – Teekay Offshore
The following table compares Teekay Offshore’s operating results and number of calendar-ship-days for its vessels for 2016 and 2015, and compares its net revenues (which is a non-GAAP financial measure) for 2016 and 2015, to revenues, the most directly comparable GAAP financial measure, for the same periods.
|
| | | | | |
| | Year ended December 31, |
| (in thousands of U.S. dollars, except calendar-ship-days) | 2016 | | 2015 |
| Revenues | 1,152,390 |
| | 1,229,413 |
|
| Voyage expenses | (80,750 | ) | | (98,006 | ) |
| Net revenues | 1,071,640 |
| | 1,131,407 |
|
| Vessel operating expenses | (364,441 | ) | | (378,480 | ) |
| Time-charter hire expense | (75,485 | ) | | (51,750 | ) |
| Depreciation and amortization | (300,011 | ) | | (274,599 | ) |
| General and administrative expenses | (56,122 | ) | | (72,613 | ) |
Asset impairments and gain on sale of vessels | (40,079 | ) | | (69,998 | ) |
| Restructuring charges | (4,649 | ) | | (568 | ) |
| Income from vessel operations | 230,853 |
| | 283,399 |
|
| Equity income | 17,933 |
| | 7,672 |
|
Calendar-Ship-Days (1) | | | |
| FPSO units | 2,196 |
| | 2,122 |
|
| Shuttle Tankers | 11,913 |
| | 12,319 |
|
| FSO units | 2,562 |
| | 2,395 |
|
| UMS | 366 |
| | 318 |
|
| Towage vessels | 2,307 |
| | 1,606 |
|
| Conventional Tankers | 732 |
| | 1,432 |
|
| |
(1) | Calendar-ship-days presented relate to owned and in-chartered consolidated vessels. |
As of December 31, 2016, Teekay Offshore’s FPSO fleet consisted of the Petrojarl Knarr, the Petrojarl Varg, the Cidade de Rio das Ostras (or Rio das Ostras), the Piranema Spirit, the Voyageur Spirit, and the Petrojarl I FPSO units, all of which Teekay Offshore owns 100%, and the Itajai and Libra FPSO units, of which Teekay Offshore owns 50%. Teekay Offshore acquired the Petrojarl Knarr FPSO unit from Teekay in July 2015.
In late-2015, Teekay Offshore received a termination notice for the Petrojarl Varg FPSO charter contract from Repsol S.A. (or Repsol), based on a termination right that was specific to the Petrojarl Varg FPSO contract. In accordance with the termination provision of the charter contract, the charterer ceased paying the capital component of the charter hire six months prior to the redelivery date, which redelivery occurred at the end of July 2016.
FPSO units provide production, processing and storage services to oil companies operating offshore oil field installations. These services are typically provided under long-term, fixed-rate FPSO contracts, some of which also include certain incentive compensation or penalties based on the level of oil production and other operational measures. Historically, the utilization of FPSO units and other vessels in the North Sea, where the Voyageur Spirit and Petrojarl Knarr operate, is higher in the winter months, as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to vessels and the offshore oil platforms, which generally reduces oil production. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Brazilian Real, and British Pound may result in significant decreases or increases, respectively, in our revenues and vessel operating expenses.
The average number of Teekay Offshore’s FPSO units increased in 2016 compared to 2015, due to the acquisition of the Petrojarl Knarr on July 1, 2015.
As at December 31, 2016, the shuttle tanker fleet consisted of 30 vessels that operate under fixed-rate CoAs, time charters and bareboat charters, three shuttle tanker newbuildings and the HiLoad DP unit. Of these 34 shuttle tankers, six are owned through 50% owned subsidiaries and three were chartered-in. The remaining vessels were owned 100% by Teekay Offshore. In November 2016, Teekay Offshore sold a 1995-built shuttle tanker, the Navion Europa. In January 2016, Teekay Offshore sold a 1992-built shuttle tanker, the Navion Torinita, which was in lay-up and classified as held for sale on Teekay's consolidated balance sheet as of December 31, 2015. In July 2016, Teekay Offshore agreed to in-charter a shuttle tanker, the Grena Knutsen, on a three-year charter contract for its North Sea fleet commencing in September 2016. All of Teekay Offshore's operating shuttle tankers, with the exception of the HiLoad DP unit, provide transportation services to energy companies in the North Sea, Brazil and the East Coast of Canada. Teekay Offshore's shuttle tankers occasionally service the conventional spot tanker market. Teekay Offshore commenced the FSO conversion of the Randgrid shuttle tanker during the second quarter of 2015. During the first quarter of 2015, Teekay Offshore sold the Navion Svenita shuttle tanker. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Euro and Brazilian Real may result in significant decreases or increases, respectively, in vessel operating expenses.
The average size of Teekay Offshore’s owned shuttle tanker fleet decreased in 2016 compared to 2015, primarily due to the sales of the Navion Svenita, the Navion Torinita and the Navion Europa in March 2015, January 2016 and November 2016, respectively, and the commencement of the FSO conversion of the Randgrid in June 2015. Three shuttle tanker newbuildings have been excluded from calendar-ship-days until they are delivered to Teekay Offshore. The average size of Teekay Offshore’s chartered-in shuttle tanker fleet increased in 2016 compared to 2015 primarily due to the in-chartering of two shuttle tankers, the Jasmine Knutsen and the Heather Knutsen, for the East Coast of Canada contract, which commenced in June 2015, the in-chartering of the Grena Knutsen for three years which commenced in September 2016 and increased spot in-chartering of shuttle tankers, partially offset by redelivery of the Grena Knutsen and Aberdeen to their owners in June 2015 and December 2016, respectively. The Grena Knutsen was subsequently rechartered in by Teekay Offshore in September 2016.
As of December 31, 2016, Teekay Offshore’s FSO fleet consisted of five units that operate under fixed-rate time charters or fixed-rate bareboat charters in which Teekay Offshore’s ownership interest ranged from 89% to 100%, and one shuttle tanker, the Randgrid, currently undergoing conversion into an FSO unit, in which Teekay Offshore’s ownership interest increased from 67% to 100% during the third quarter of 2015. The Navion Saga FSO unit was held for sale as at December 31, 2016. FSO units provide an on-site storage solution to oil field installations that have no oil storage facilities or that require supplemental storage. Teekay Offshore’s revenues and vessel operating expenses for the FSO segment are affected by fluctuations in currency exchange rates, as a significant component of revenues are earned and vessel operating expenses are incurred in Norwegian Kroner and Australian Dollars for certain vessels. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner or Australian Dollar may result in significant decreases or increases, respectively, in revenues and vessel operating expenses.
The average number of Teekay Offshore’s FSO units increased in 2016 compared to 2015, due to the commencement of the FSO conversion of the Randgrid on June 9, 2015. The Navion Saga FSO unit was redelivered to Teekay Offshore in October 2016 and was classified as held for sale as at December 31, 2016, resulting in a $1.0 million write-down of the unit.
As at December 31, 2016, Teekay Offshore’s UMS fleet consisted of one unit, the Arendal Spirit, in which Teekay Offshore owns a 100% interest. During the second quarter of 2016, Teekay Offshore canceled the UMS construction contracts for its two UMS newbuildings, resulting in a write-down of the UMS newbuildings to $nil. The UMS unit is used primarily for offshore accommodation, storage and support for maintenance and modification projects on existing offshore installations, or during the installation and decommissioning of large floating exploration, production and storage units, including FPSO units, FLNG units and floating drill rigs. Teekay Offshore’s UMS unit is available for world-wide operations, excluding operations within the Norwegian Continental Shelf, and includes DP3 keeping systems that are capable of operating in deep water and harsh weather.
As at December 31, 2016, Teekay Offshore’s towage vessel fleet consisted of seven long-distance towing and offshore installation vessels and three long-distance towing and offshore installation vessel newbuildings. Teekay Offshore owns a 100% interest in each of the vessels in its towage fleet. Long-distance towing and offshore installation vessels are used for the towage, station-keeping, installation and decommissioning of large floating objects such as exploration, production and storage units, including FPSO units, floating liquefied natural gas (or FLNG) units and floating drill rigs.
The average number of Teekay Offshore’s towing and offshore installation vessels increased in 2016 compared to 2015, due to the acquisition of three vessels during the first quarter of 2015, two vessels during the second quarter of 2015, one vessel during the third quarter of 2015, and the delivery of Teekay Offshore's first towage newbuilding vessel in September 2016.
As at December 31, 2016, Teekay Offshore's conventional tanker fleet consisted of two in-chartered conventional tankers. In March 2016, Teekay Offshore terminated the time-charter contract of the Kilimanjaro Spirit with a subsidiary of Teekay and received an early termination fee of $4.0 million from Teekay. Subsequently, Teekay Offshore sold the Kilimanjaro Spirit and the Fuji Spirit conventional tankers. The Kilimanjaro Spirit was renamed Blue Pride and the Fuji Spirit was renamed Blue Power. As part of the sales, Teekay Offshore is in-chartering these vessels for three years with additional one-year extension options. One vessel is trading on a fixed two-year time-charter-out contract which commenced during the second quarter of 2016 and the other vessel is trading in the spot conventional tanker market.
In December 2015, Teekay Offshore sold its 100% interest in SPT Explorer L.L.C. and Navigator Spirit L.L.C., which own the SPT Explorer and the Navigator Spirit conventional tankers, respectively, to Teekay Tankers.
Income from vessel operations for Teekay Offshore’s business decreased to $230.9 million in 2016 compared to $283.4 million in 2015, primarily as a result of:
FPSO Fleet
a decrease of $46.6 million for the Petrojarl Varg FPSO unit, due to the termination of the charter contract by Repsol effective at the end of July 2016, partially offset by lower vessel operating expenses as the unit is now in layup;
a decrease of $4.4 million relating to the restructuring costs associated with the reorganization of the FPSO business to create better alignment with the offshore operations and resulting in a lower cost organization going forward; and
a decrease of $2.9 million relating to the Voyageur Spirit FPSO unit due to a lower production bonus earned in 2016 compared to 2015, partially offset by lower repair and maintenance costs reimbursed by the charterer in 2016;
partially offset by
an increase of $28.2 million due to the Petrojarl Knarr FPSO unit commencing operations on March 9, 2015; and
an increase of $1.9 million for the Rio das Ostras FPSO unit, primarily due to higher incentive compensation and a bonus earned from the charterer of the unit for unused maintenance days under the service contract during 2016.
Shuttle Tanker Fleet
a decrease of $22.7 million due to the expiration in April 2015 of a long-term contract at the Heidrun field serviced by Teekay Offshore's CoA fleet;
a decrease of $19.5 million due to higher depreciation expense related to the change in the estimated useful life of the shuttle component for all shuttle tankers from 25 to 20 years, the accelerated amortization of the tanker component for eight older shuttle tankers commencing the first quarter of 2016, partially offset by a write-down of the carrying values of seven shuttle tankers during 2015, and the Navion Europa shuttle tanker being fully amortized during the second quarter of 2015;
a decrease of $17.9 million due to the redelivery of two shuttle tankers to Teekay Offshore in April 2015 and June 2016, respectively, as they completed their time-charter-out agreement;
a decrease of $9.7 million due to fewer opportunities to trade excess shuttle tanker capacity in the conventional tanker spot market;
a decrease of $5.2 million due to the in-chartering of the Grena Knutsen starting September 2016; and
a decrease of $4.2 million related to higher repair and maintenance activities on the Navion Anglia shuttle tanker to prepare the vessel to trade in Teekay Offshore's CoA fleet in the North Sea as the vessel was redelivered to Teekay Offshore in June 2016 due to the completion of its time-charter-out agreement in Brazil;
partially offset by
an increase of $69.7 million due to a write-down of shuttle tankers of $66.7 million in 2015 and $6.7 million gains on the sales of vessels in 2016, partially offset by a write-down of a shuttle tanker of $2.1 million in 2016 and a $1.6 million gain on the sale of a shuttle tanker in 2016;
an increase of $15.9 million due to an increase in rates as provided in certain contracts in Teekay Offshore's time-chartered-out fleet and an increase in revenues in Teekay Offshore's CoA fleet due to higher average rates and higher fleet utilization;
an increase of $10.8 million due to an increase in net revenues from the commencement of the East Coast of Canada contract in June 2015, partially offset by lower reimbursable expenses in relation to this contract and the in-chartering of three shuttle tankers for this contract, one of which was redelivered by Teekay Offshore in August 2015 and was replaced by Teekay's own shuttle tanker, the Navion Hispania;
an increase of $4.0 million due to the redeliveries by Teekay Offshore of the Grena Knutsen and Aberdeen shuttle tankers in June 2015 and December 2016, respectively, partially offset by increased spot in-chartering of shuttle tankers in 2016; and
an increase of $3.2 million due to lower shuttle tanker operating expenses due to lower fleet and onshore overhead mainly related to lower crew training costs in 2016, and the strengthening of the U.S. Dollar against the Norwegian Kroner, Euro and Brazilian Real, partially offset by higher crew costs relating to a change in crew composition.
FSO Fleet
an increase of $5.6 million due a reduction in operating expenses and amortization expense due to the commencement of the FSO conversion of the Randgrid in June 2015;
an increase of $4.0 million due to the Navion Europa shuttle tanker acting as a substitute vessel while the Apollo Spirit FSO unit was undergoing a dry dock in the third quarter of 2016; and
an increase of $2.5 million due to lower depreciation expense due to dry-dock costs for the Navion Saga shuttle tanker being fully depreciated during the fourth quarter of 2015.
UMS Fleet
a decrease of $55.6 million relating to the UMS fleet, primarily due to the write-downs relating to the cancellation of the two UMS newbuilding contracts, an increase in spare parts and consumables in 2016 due to these costs being covered under warranty during 2015, and lower revenues due to the unit being off-hire from mid-April 2016 until early-July 2016 due to damage suffered to the gangway and the suspension of charter hire payments since early-November 2016 due to an operational review being conducted by the charterer; and
a decrease of $2.9 million due to higher depreciation expense related to the commencement of the charter contract of the Arendal Spirit UMS in June 2015.
Towage Fleet
a decrease of $8.7 million relating to the towage fleet primarily due to a decrease in rates and utilization of the towing and offshore installation vessels due to volatility in the offshore market, an increase in operating expenses due to the delivery of the ALP Striker in September 2016, an increase in repairs and maintenance expenses due to engine overhauls on the ALP Winger and ALP Centre during the first quarter of 2016, and an increase in crew costs compared to 2015 due to higher crew levels, partially offset by a more cost-efficient crew composition in 2016; and
a decrease of $3.7 million due to higher depreciation expense related to the acquisition of the six towing and offshore installation vessels during 2015.
Conventional Tanker Fleet
a net decrease of $10.7 million in 2016 due to the sale of the Kilimanjaro Spirit and Fuji Spirit in March 2016, and the subsequent in-chartering of the Blue Power and Blue Pride; and
a decrease of $5.4 million for 2016 due to the sale of the Explorer Spirit and Navigator Spirit in December 2015.
partially offset by
an increase of $5.8 million relating to a $4.0 million termination fee received from Teekay due to the early termination of the time-charter-out contract for the KilimanjaroSpirit in March 2016 and net termination fees of $1.8 million paid to Teekay due to the early terminations of bareboat and time-charter contracts for the SPT Explorer, Navigator Spirit, and Fuji Spirit in December 2015; and
an increase of $3.9 million due to a write-down of two conventional tankers in 2015.
General and administrative expenses
an increase of $13.2 million due to lower general and administrative expenses from lower management fees relating to Teekay Offshore's shuttle tanker and FSO fleets primarily from cost saving initiatives, and a decrease in development fees to Teekay of $4.2 million in connection with Teekay Offshore's acquisition of six long-distance towing and offshore installation vessels and the Arendal Spirit UMS in 2015, partially offset by an increase in management fees due to the commencement of the charter contract of the Arendal Spirit in June 2015; and
an increase of $2.6 million due to lower general and administrative expenses due to (a) a decrease in business development fees paid to Teekay in 2016 compared to 2015 of $9.7 million in connection with the 2015 acquisition for the Petrojarl Knarr FPSO and (b) the redelivery and lay up of the Petrojarl Varg FPSO unit in 2016, partially offset by the increase in general and administration expenses as a result of the acquisition of the Petrojarl Knarr FPSO unit in July 2015.
Equity income increased to $17.9 million for 2016 compared to $7.7 million for 2015, primarily due to increases in unrealized gains on derivative instruments relating to Teekay Offshore's investment in the Libra FPSO joint venture and the Itajai FPSO joint venture, lower repairs and maintenance expenses in 2016 due to turbine repairs made during 2015 and an insurance claim payment received during 2016 relating to these turbine repairs for the Itajai FPSO unit.
Other Consolidated Operating Results
The following table compares our other consolidated operating results for 20162020 and 2015:2019:
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | |
| (in thousands of U.S. dollars, except percentages) | | 2020 | | 2019 | | |
| Interest expense | | (225,647) | | | (279,059) | | | |
| Interest income | | 8,342 | | | 7,804 | | | |
| Realized and unrealized losses on non-designated derivative instruments | | (35,857) | | | (13,719) | | | |
| Foreign exchange loss | | (20,718) | | | (13,574) | | | |
| | | | | | |
| Other loss | | (18,062) | | | (14,475) | | | |
| Income tax expense | | (8,988) | | | (25,482) | | | |
|
| | | | | | | | | |
| | | Year Ended December 31, | | |
| (in thousands of U.S. dollars, except percentages) | | 2016 | | 2015 | | % Change |
| Interest expense | | (282,966 | ) | | (242,469 | ) | | 16.7 |
|
| Interest income | | 4,821 |
| | 5,988 |
| | (19.5 | ) |
| Realized and unrealized loss on non-designated derivative instruments | | (35,091 | ) | | (102,200 | ) | | (65.7 | ) |
| Foreign exchange loss | | (6,548 | ) | | (2,195 | ) | | 198.3 |
|
| Other (loss) income | | (39,013 | ) | | 1,566 |
| | (2,591.3 | ) |
| Income tax (expense) recovery | | (24,468 | ) | | 16,767 |
| | (245.9 | ) |
Interest expense. Interest expense increaseddecreased to $283.0$225.6 million in 2016,2020, compared to $242.5$279.1 million in 2015,2019, primarily due to:
an increase•a decrease of $12.4 million due to additional interest incurred by Teekay Tankers to finance the acquisition of the 12 modern Suezmax tankers which were acquired in the third quarter of 2015;
an increase of $12.1$20.5 million relating to interest incurred on the obligations relatedTeekay LNG primarily due to capital leases for the Creole Spirit and Oak Spirit commencing upon their deliveriesa decrease in February 2016LIBOR and July 2016, respectively;
reduction in debt balances as a result of principal and bond repayments throughout 2019 and 2020;an increase•a decrease of $10.8$13.8 million primarily due to Teekay Tankers' significant prepayments of loan principal during the additional issuancefourth quarter of $200 million of Teekay Parent's 8.5% senior unsecured notes2019 and during 2020, and the debt refinancings completed during 2020, which resulted in November 2015,lower interest rates in comparison to those under the previous facilities, along with overall lower average LIBOR rates, partially offset by reductions in Teekay Parent's equity margin revolving credit facilitythe write-off of previously capitalized loan costs and non-capitalized loan facility secured by three FPSO units, and the maturity of Teekay Parent's Norwegian Kroner (or NOK) bonds in October 2015;
an increase of $9.2 million due to the interest expensecosts associated with the Petrojarl Knarr FPSO unit commencing operations in March 2015;
debt refinancings;an increase•a decrease of $3.4$8.9 million dueas part of the proceeds from the sale of the WilForce and WilPride were used to interest expensethe repay Teekay LNG's term loans that were collateralized by these vessels; and
•a decrease of $7.9 million relating to Teekay Offshore's second UMS newbuilding up until its construction contract cancellationParent as a result of the repurchase in late-June 2016;2019 and
an increase at maturity of $2.1 million due tothe 8.5% senior notes (or the 2020 Notes) in January 2020, partially offset by an increase in LIBORdebt issuance cost amortization, and the higher interest rate for the 9.25% senior secured notes due November 2022 (or the 2022 Notes) issued by Teekay Parent in May 2019.
Realized and unrealized losses on floating-rate debt, net of debt repayments during 2016 and 2015;
partially offset by
a decrease of $5.2 million due to an increase in capitalized interest on Teekay Offshore's newbuildings, conversion and upgrade projects; and
a decrease of $3.0 million due to the maturity of Teekay Offshore's NOK 500 million senior unsecured bond in January 2016.
non-designated derivative instruments.Realized and unrealized (losses) gains on non-designated derivative instruments. Realized and unrealized (losses) gains related to derivative instruments that are not designated as hedges for accounting purposes are included as a separate line item in the consolidated statements of income.income (loss). Net realized and unrealized losses on non-designated derivatives were $35.1$35.9 million for 2016,2020, compared to $102.2$13.7 million for 2015,2019, as detailed in the table below:
| | | | | | | | | | | |
| Year Ended
December 31, 2020
$ | | Year Ended
December 31, 2019
$ |
| Realized (losses) gains relating to: | | | |
| Interest rate swap agreements | (17,483) | | | (8,296) | |
| | | |
| Foreign currency forward contracts | 138 | | | (147) | |
| Stock purchase warrants | — | | | (25,559) | |
| Forward freight agreements | (1,242) | | | 1,490 | |
| (18,587) | | | (32,512) | |
| Unrealized (losses) gains relating to: | | | |
| Interest rate swap agreements | (17,558) | | | (7,878) | |
| Foreign currency forward contracts | 202 | | | (200) | |
| Stock purchase warrants | — | | | 26,900 | |
| Forward freight agreements | 86 | | | (29) | |
| (17,270) | | | 18,793 | |
| Total realized and unrealized losses on derivative instruments | (35,857) | | | (13,719) | |
|
| | | | | |
| | Year Ended
December 31, 2016
$ | | Year Ended
December 31, 2015
$ |
| Realized (losses) gains relating to: | | | |
| Interest rate swap agreements | (87,320 | ) | | (108,036 | ) |
| Interest rate swap agreement terminations | (8,140 | ) | | (10,876 | ) |
| Foreign currency forward contracts | (11,186 | ) | | (21,607 | ) |
| Time charter swap agreement | 2,154 |
| | — |
|
| | (104,492 | ) | | (140,519 | ) |
| Unrealized gains (losses) relating to: | | | |
| Interest rate swap agreements | 62,446 |
| | 37,723 |
|
| Foreign currency forward contracts | 15,833 |
| | (418 | ) |
| Stock purchase warrants | (9,753 | ) | | 1,014 |
|
| Time charter swap agreement | 875 |
| | — |
|
| | 69,401 |
| | 38,319 |
|
| Total realized and unrealized (losses) gains on derivative instruments | (35,091 | ) | | (102,200 | ) |
The realized losses relate to amounts we actually realized for settlements related to these derivative instruments in normal course and amounts paid to terminate interest rate swap agreement terminations. The unrealized (losses) gains on interest rate swaps for 2016 and 2015 were primarily due to changes in the forward interest rates.
During 20162020 and 2015,2019, we had interest rate swap agreements with aggregate average net outstanding notional amounts of approximately $3.3$0.9 billion and $3.5$1.1 billion, respectively, with average fixed rates of approximately 3.4%.3.1% and 3.0%, respectively. Short-term variable benchmark interest rates during these periods were generally lesslower than 2.0%these fixed rates, and, as such, we incurred realized losses of $87.3$17.5 million and $108.0$8.3 million during 20162020 and 2015,2019, respectively, under the interest rate swap agreements. We also incurred realized losses of $8.1 million during 2016, compared to losses of $10.9 million during 2015, from the termination of interest rate swaps.
We recognized realized losses of $11.2 million in 2016, compared to $21.6 million in 2015 under the foreign currency forward contracts.
Effective June 1, 2016, Teekay Tankers entered into a time-charter swap for 55% of two Aframax equivalent vessels. Under such agreement, Teekay Tankers will receive $27,776 per day, less a 1.25% brokerage commission, and pay 55% of the net revenue distribution of two Aframax equivalent vessels employed in its Aframax revenue sharing pooling arrangement, less $500 per day, for a period of 11 months plus an additional two months at the counterparty's option. As at December 31, 2016, the time-charter swap had a fair value of $0.9 million which resulted in an unrealized gain of $0.9 million. Teekay Tankers also recognized realized gains of $2.2 million on the time-charter swap in the year ended December 31, 2016.
Primarily as a result of significant changes in long-term benchmark interest rates during 20162020 and 2015,2019, we recognized unrealized losses of $17.6 million in 2020 compared to unrealized gains of $62.4$7.9 million for 2016 compared to $37.7 million for 2015in 2019 under the interest rate swap agreements. We recognized unrealized gains
Prior to the 2019 Brookfield Transaction, Teekay held 15.5 million for 2016 comparedcommon unit warrants issued by Altera to unrealized lossesTeekay in connection with the 2017 Brookfield Transaction (or the Brookfield Transaction Warrants) and 1,755,000 warrants to purchase common units of $0.4 million for 2015 under the foreign currency forward contracts.
In 2014, we andAltera issued to Teekay Tankers formed TIL. We and Teekay Tankers invested a total of $50.0 million for an aggregate of 5.0 million shares of TIL's common stock, representing an initial aggregate 20% interest in TIL, as part of a $250.0 millionconnection with Altera's private placement by TIL. In addition,of Series D Preferred Units in June 2016 (or the Series D Warrants). Please read “Item 18 – Financial Statements: Note 15 – Derivative Instruments and Hedging Activities. During the year ended December 31, 2019, we and Teekay Tankers received stock purchase warrants entitling us and Teekay Tankers to purchase up to 1.5 million shares of common stock of TIL at a fixed price of $10 per share. During 2016, due mainly to a decrease in TIL's share price, we recognized a $9.8 million unrealized loss on the stock purchase warrants compared to an unrealized gain of $1.0$26.9 million for 2015,on these warrants, which arewas partially offset by a realized loss of $25.6 million during the same period. As part of the 2019 Brookfield Transaction, Teekay sold to Brookfield all of the Company’s remaining interests in Altera, which included, in our total unrealized derivative (losses) gains. Please read “Item 18. Financial Statements: Note 15—Derivative Instrumentsamong other things, both the Brookfield Transaction Warrants and Hedging Activities.”Series D Warrants.
Foreign Exchange Loss. Foreign currency exchange losses were $6.5$20.7 million in 20162020 compared to $2.2losses of $13.6 million in 2015.2019. Our foreign currency exchange gains and losses, substantially all of which are unrealized, wereare primarily due primarily to the relevant period-end revaluation of our NOK-denominatedNorwegian-Krone (or NOK)-denominated debt and our Euro-denominated term loans, capitalfinance leases and restricted cash for financial reporting purposes and the realized and unrealized (losses) gains (losses) on our cross currency swaps. Gains on NOK-denominated and Euro-denominated monetary liabilities reflect a stronger U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. Losses on NOK-denominated and Euro-denominated monetary liabilities reflect a weaker U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period.
For 2016,2020, foreign currency exchange loss includesincluded realized losses of $38.6$6.6 million (2015—$19.0(2019 – $5.1 million) and unrealized gains of $75.0$26.8 million (2015 —(2019 – losses of $89.2$13.2 million) on our cross currency swaps, realized losses on maturity and termination of cross currency swaps of $33.8 million (2019 – nil) and an unrealized lossesgain of $6.8$3.5 million (2015—$123.2(2019 – gain of $5.8 million) on the revaluation of our NOK-denominated debt.
Other (Loss) Income.loss.Other (loss) income was a loss of $(39.0)increased to $18.1 million in 20162020 compared to income of $1.6$14.5 million in 2015. This decrease in results was2019 primarily due to contingent liabilities accrued related to Teekay Offshore's cancellationunrealized credit loss provisions recognized in 2020 as a result of declines of estimated charter-free valuations of certain LNG vessels (new credit loss accounting standard adopted January 1, 2020), which are servicing time-charter contracts accounted for as direct financing and sales-type leases, and the impact of such declines on our expectation of the UMS constructionvalue of such vessels upon completion of their existing charter contracts, for its two remaining UMS newbuildings in 2016 ($25.2 million), as well as a write-downpartially offset by losses on the repurchase of a cost-accounted investment of $19.02020 Notes during 2019.
Income Tax Expense. Income tax expense was $9.0 million in 2016.
Income Tax Recovery (Expense). Income tax (expense) recovery was an expense of $24.52020 compared to $25.5 million in 2016 compared to a recovery of $16.8 million in 2015.
2019. The income tax expense for 2016in 2020 includes the reversal of freight tax liabilities as a result of an agreement with a tax authority, which was mainly duebased in part on an initiative of the tax authority in response to the COVID-19 global pandemic and included the waiver of interest and penalties on unpaid taxes, which was partially offset by an increase in Teekay Offshore's deferred tax valuation allowance and deferred tax expensefreight taxes recognized in a certain jurisdiction due to uncertainty surrounding a decreaserecent tax law change and the limited transparency into the actions of the tax authority in the expected utilizationthis jurisdiction. For additional information, please read "Item 18 - Financial Statements: Note 21 - Income Tax Expense" of Norwegian tax losses against anticipated earnings, an income tax accrualthis Annual Report.
Year Ended December 31, 2019 versus Year Ended December 31, 2018
For a discussion of our operating results for the Voyageur Spirit FPSO unit during 2016 due to expected taxable incomeyear ended December 31, 2019 compared with the year ended December 31, 2018, please see "Item 5 – Recent Developments and Results of Operations" in our Annual Report on Form 20-F for the utilization of prior year losses carried forward and an estimated tax liability relating to our Singapore and towage entities, as well as freight taxes in Teekay Tankers and Teekay Parent.ended December 31, 2019.
The income tax recovery for 2015 was primarily due to the acquisition of the Petrojarl Knarr FPSO unit by Teekay Offshore and the commencement of the East Coast of Canada contract during 2015, and the expected commencement of the Gina Krog FSO unit contract in early-2017. Teekay Offshore expected to utilize more of its Norwegian tax losses from the earnings anticipated from their contracts, as well as an expected increase in earnings from its existing fleet, which resulted in a decrease in Teekay Offshore’s deferred tax asset valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Cash Needs
Teekay Corporation Consolidated
Overall, our consolidated 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 equity and debt securities (primarily by our publicly-traded subsidiaries)Daughter Entities), through partnering with joint venture partners and cash generated from operations. In addition, we may use sale and leaseback arrangements as a source of long-term liquidity. We use certain of our revolving credit facilities to temporarily finance changes in working capital or other 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 revolving credit facilities. We have pre-arranged financing of approximately $1.7 billion, which mostly relates to Teekay LNG's remaining capital expenditure commitments. We are in the process of seeking to obtain additional debt financing from various sources for Teekay LNG's remaining capital commitments relating to its portion of newbuildings on order as at December 31, 2017.may arise. As at December 31, 2017,2020, Teekay Corporation’s total consolidated cash and cash equivalents was $445.5$348.8 million, compared to $568.0$354.4 million at December 31, 2016.2019 (which included cash presented in assets held for sale). Teekay Corporation’s total consolidated liquidity, including cash, cash equivalents, and undrawn credit facilities and the undrawn portion of a loan, which is determined based on certain borrowing criteria to finance Teekay Tankers' RSAs, was $906.9 million as at December 31, 2017, compared to $1.0 billion as at December 31, 2016. Teekay Corporation's total consolidated liquidity2020 and $672.0 million as at December 31, 2017 excludes Teekay Offshore as a result of its deconsolidation on September 25, 2017.2019.
The completion of the Brookfield Transaction on September 25, 2017 improved Teekay Parent’s current liquidity and our estimate of Teekay Parent’s future liquidity. As part of the transaction, Teekay Parent received approximately $140 million in cash on a net basis, which included the $140 million of cash proceeds from the sale of the $200 million Teekay Offshore promissory note to Brookfield, the $25.7 million, including accrued and unpaid distributions, received from Teekay Offshore from its repurchase of the Series D preferred units and the $4 million received from the sale of 49% of the general partner of Teekay Offshore, partially offset by an investment of $30 million in additional common units and warrants of Teekay Offshore. We used $110 million of these proceeds to pay down our equity margin revolving credit facility and the balance for general corporate purposes.
We expect these transactions will have a positive impact on the amount of cash available to Teekay Parent on a quarterly basis going forward due to a reduction in borrowing costs on the equity margin revolving credit facility and as the interest on the $200 million Teekay Offshore promissory note and the distributions on the Series D preferred units were previously being paid in common units of Teekay Offshore, rather than cash. In addition, while Teekay Offshore concurrently reduced its quarterly common unit distribution from $0.11 to $0.01 upon completion of the Brookfield Transaction, such reduction did not have a material impact to Teekay Parent’s quarterly cash flow as the common unit distributions to Teekay were previously being paid in common units of Teekay Offshore rather than cash. Furthermore, as part of the Brookfield Transaction, certain financial institutions providing loans and interest rate swaps to Teekay Offshore, eliminated the financial guarantee and security package previously provided by Teekay Parent, thus eliminating a potential risk to Teekay Parent’s liquidity position.
Since early 2016, Teekay Parent and the Daughter Entities have been executing on a series of financing initiatives intended to contribute to the funding of our upcoming capital expenditures and debt maturities, which are explained in the Teekay Parent and Daughter Entity sections that follow.
Our revolving credit facilities and term loans are described in "Item 18 – Financial Statements: Note 8 —– Long-Term Debt.” They contain covenants and other restrictions typical of debt financing secured by vessels that restrict theour ship-owning subsidiaries from, among other things: incurring or guaranteeing indebtedness; changing ownership or structure, including mergers, consolidations, liquidations and dissolutions; making dividends or distributions if we are in default; making capital expenditures in excess of specified levels; making certain negative pledges and granting certain liens; selling, transferring, assigning or conveying assets; making certain loans and investments; or entering into a new linelines of business. Among other matters, our
Our long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and five of our loan agreements require the maintenance of vessel market value to loan ratios. As at December 31, 2017,2020, these vessel market value to loan ratios ranged from 118.5% to 243.2%were 405%, 273%, 142%, 215% and 190% compared to their minimum required ratios of 105% to125%, 115%, 120%, 135%. and 125%, respectively. The vessel values used in these ratios are the appraised values provided by third parties where available or prepared by us based on second handsecond-hand sale and purchase market data. Certain loan agreements require that a minimum level of free cash be maintained and this amount was $100.0 million as at December 31, 2017 and $50 million as at December 31, 2016 forChanges in the Company, excluding Teekay LNG. Most of the loan agreements also require that we maintain an aggregate minimum level of free liquidity and undrawn revolving credit linesLNG/LPG carrier or conventional tanker markets could negatively affect our compliance with at least six months to maturity of 5.0% to 7.5% of total debt for either Teekay Parent or Teekay Tankers, which as at December 31, 2017 such amounts were $46.0 million and $55.1 million, respectively. In addition, certainthese ratios.
Certain loan agreements require Teekay LNG to maintain a minimum level of tangible net worth, and minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of the greater of $35.0 million, and not to exceed a maximum level of financial leverage. Certain loan agreements require Teekay Tankers to maintain minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of the greater of $35.0 million and at least 5.0% of Teekay Tankers' total consolidated debt and obligations related to finance leases.
The indenture that governs our 2022 Notes (further described in the Teekay Parent section below) contains covenants that, among other things, restrict our and the guarantors’ ability to: incur additional indebtedness and guarantee indebtedness; pay dividends or make other distributions or repurchase or redeem our equity interests; prepay, redeem or repurchase certain debt; issue certain preferred stock or similar equity securities; make investments; sell assets; incur liens, including the granting of any lien on any of the 2022 Note collateral, or further pledging any of the 2022 Note collateral as security, subject to permitted liens; enter into transactions with affiliates; and consolidate, merge or sell all or substantially all of our assets. The indenture also provides that under specific circumstances we may be required to offer to use all or a portion of the net proceeds of sales of our FPSO units or sales of Class B common stock of Teekay Tankers consummated prior to a specified date to repurchase 2022 Notes at a premium. The indenture further provides that we may be required, under certain circumstances, to offer to use all or a portion of the net proceeds of certain asset sales (other than a sale of an FPSO unit or shares of Class B common stock of Teekay Tankers prior to the specified date) to repurchase 2022 Notes.
As at December 31, 2017, we were2020, the Company was in compliance with all covenants under our credit facilities and other long-term debt.
The aggregate annual long-term debt principal repayments excluding capital lease payments, required to be made by us (excluding Teekay Offshore) subsequent to December 31, 2017, including the impact of the revolving credit2020, excluding payments made related to our finance lease obligations and after giving effect to Teekay LNG's term loan facility refinancing completed by Teekay LNG in February 2018,2021, are $0.8 billion (2018), $0.2 billion (2019), $1.1 billion (2020), $0.7 billion$262.3 million (2021), $0.3 billion$463.5 million (2022), $392.8 million (2023), $310.9 million (2024), $187.8 million (2025) and $0.3 billion$469.8 million (thereafter).
We conduct our funding and treasury activities based on 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 Australian Dollars, British Pounds, Canadian Dollars, Euros, Japanese Yen, Norwegian KronerKrone and Singapore Dollars.
We are exposed to market risk from foreign currency fluctuations and changes in interest rates, spot tanker market rates for vessels and bunker fuel prices. We use forward foreign currency forward contracts, cross currency and interest rate swaps and forward freight agreements and bunker fuel swap contracts to manage currency, interest rate and spot tanker rates and bunker fuel price risks.rates. Please read "Item 11 -– Quantitative and Qualitative Disclosures About Market Risk".Risk.
Our business includes transporting oil and gas products. Regulatory changes and growing public concern about the environmental impact of climate change may lead to reduced demand for these products and decreased demand for our services, while increasing or creating greater incentives for use of alternative energy sources. Please read "Item 3 - Key Information - Risk Factors - Climate change and greenhouse gas restrictions may adversely impact our operations and markets" for further discussion on potential impacts on our business.
Based on our liquidity at the date of this Annual Report and the liquidity we expect to generate from operations over the following year, assuming no further significant decline in spot tanker rates, we expect that we will have sufficient liquidity to meet our existing liquidity needs for at least the one-year period following the date of this Annual Report.
Teekay Parent
Teekay Parent primarily owns an equity ownership interest in itsthe Daughter Entities, 100% ownership interests in the general partner of Teekay LNG and three FPSO units, provides management services to itsthe Daughter Entities and third-parties, and in-charters a small number of vessels.in-chartered one FSO unit which was redelivered in March 2021. Teekay Parent’s primary short-term liquidity needs are the payment of operating expenses, asset retirement obligations, decommissioning costs and recycling costs associated with the Petrojarl Banff FPSO unit, debt servicing costs dividends on its shares of common stock and scheduled repayments of long-term debt, as well as funding its other working capital requirements. Teekay Parent’s primary sources of liquidity are cash and cash equivalents, cash flows provided by operations, dividends/distributions and management fees received from the Daughter Entities and other investments, its undrawn credit facilities and proceeds from the sale of vessels to external parties (and in the past, to Teekay LNG, Teekay Tankers and Teekay Offshore)Altera). As at December 31, 2017,2020, Teekay Parent’s total cash and cash equivalents was $129.8$44.8 million, compared to $146.4$104.2 million at December 31, 2016.2019. Teekay Parent’s total liquidity, including cash, cash equivalents and undrawn credit facilities, was $313.2$173.4 million as at December 31, 2017,2020, compared to $279.5$195.3 million as at December 31, 2016.2019.
In December 2017 and January 2018,2020, Teekay Parent sold anfiled a continuous offering program (or COP) under which Teekay Parent may issue shares of its common stock, at market prices up to a maximum aggregate amount of 4.0 million$65.0 million. As of the date of filing this Annual Report, no shares of common stock as part of a continuous offering program, generating gross proceeds of $36.9 million, of which $25.7 million was received as of December 31, 2017.have been issued under the COP.
On October 1, 2020, Teekay Parent currently has the ability to sell additional shares of common stock having an aggregate offering amount of up to $3.4 million under its existing continuous offering program.
In January 2018, Teekay Parent completedsecured a private offering of $125 million of aggregate principal amount of 5% Convertible Senior Notes due 2023 (Convertible Notes), raising net proceeds of approximately $120.9 million. The Convertible Notes will be convertible into Teekay’s common stock, initially at a rate of 85.4701 shares of common stock per $1,000 principal amount of Convertible Notes. This represents an initial effective conversion price of $11.70 per share of common stock. The conversion rate is subject to customary adjustments for, among other things, payments of dividends by Teekay Parent beyond the current quarterly rate of $0.055 per share of common stock, other distributions of Teekay Parent’s common stock, other securities, assets or rights to Teekay Parent’s shareholders or a Teekay Parent tender or exchange offer. In addition, following certain corporate events that occur prior to the maturity date of the Convertible Notes or following any notice of optional redemption given by Teekay Parent, Teekay Parent will, under certain circumstances, increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or for Convertible Notes that are surrendered for conversion following such notice of redemption.
Concurrently with the offering of Convertible Notes in January 2018, Teekay Parent completed a public offering through the issuance of 10.0 million common shares priced at $9.75 per share, raising net proceeds of approximately $93.0 million.
Teekay’snew equity margin revolving credit facility maturing in June 2022 to refinance its previous facility which was scheduled to mature in December 2020. The equity margin revolving credit facility provides for aggregate potential borrowings of up to $150 million and is secured by common units of Teekay Offshore and Teekay LNG and shares of Class A common stock of Teekay Tankers that are owned by Teekay. In June 2016, Teekay amendedParent. Availability under the credit facility by reducing its aggregate potential borrowings from $300 millionrelates to $150 million, extending its maturity date from January 2018 to December 2018 and amending the formula which further limits the amount available to borrow based on the value of the common units and common stock pledged as collateral for the facility. As part of Teekay Offshore andthe refinancing, 10.75 million Teekay LNG andcommon units were included as additional security. Should the sharesvalue of Class A common stock of Teekay Tankers whichthe collateral decrease beyond a certain threshold, any outstanding amounts are pledged as collateral. The amendment resultedto be repaid in an increase in the loan-to-value ratio which increased the availability under the facility from approximately $34 million to $150 million. In April 2017, Teekay further amended the facility by increasing the aggregate potential borrowings from $150 million to $200 million.full. As of December 31, 2017,2020, Teekay Parent did not have any amounts drawn on thisits equity margin revolving credit facility and $183.4had $128.6 million available to be drawn based on the value of the collateral.collateral as of that date.
We believe thatDuring 2020, Teekay Parent’sParent commenced repurchasing some of its Convertible Senior Notes due January 15, 2023 (the Convertible Notes) and its 9.25% senior secured notes due November 2022 (or the 2022 Notes) in the open market. Teekay Parent acquired $12.8 million of the principal of the Convertible Notes for total consideration of $10.5 million and $6.6 million principal of its existing cash2022 Notes for total consideration of $6.2 million, recognizing a gain of $1.5 million in 2020, included in other loss on the Company's consolidated statements of income (loss), in relation to the repurchases. Please see "Item 18 – Financial Statements: Note 8 – Long-Term Debt" for a description of the Convertible Notes.
On May 11, 2020, Teekay Parent and cash equivalentsTeekay LNG agreed to eliminate all of Teekay LNG’s incentive distribution rights in exchange for the issuance to a subsidiary of Teekay Parent of 10.75 million newly-issued Teekay LNG common units. See Teekay LNG section below.
In January 2020, Teekay Parent used $36.7 million to repay all remaining 2020 Notes at maturity.
Our Board of Directors approved the elimination of the quarterly dividend on Teekay’s common stock commencing with the first quarter of 2019.
Based on Teekay Parent's liquidity at the date of this Annual Report and undrawn long-term borrowings, in additionthe liquidity Teekay Parent expects to all other sources of cash including cashgenerate from operations and after considering initiatives described below that are planned byover the Controlled Daughter Entities, will befollowing year, Teekay Parent expects to have sufficient liquidity to meet its existing liquidity needs for at least the next 12 months. Inone-year period following the future, we believe we will need to pursue additional debt financings and asset sales in order to refinance our bond maturity in January 2020. We are considering, subject to market conditions, among other factors, appropriate debt instruments and asset sales to refinancedate of this bond maturity.Annual Report.
Teekay LNG
Teekay LNG's business modelstrategy is primarily to employ a substantial majority of its vessels on fixed-rate contracts mainlyprimarily with large energy companies and their transportation subsidiaries. Teekay LNG'sIts primary liquidity needs for 20182021 through 20192022 include payment of operating expenses, dry-docking expenditures, the funding of general working capital requirements, scheduled repayments and maturities of long-term debt and obligations related to finance leases, debt service costs, committed capital expenditures, its quarterly distributions, including payments of distributions on its common units and Series A and Series B Preferred Units operating expenses, dry-docking expenditures, debt service costs, scheduled repayments of long-term debt, bank debt maturities, committed capital expenditures and thecommon units, and funding of general working capital requirements. any common and preferred unit repurchases it may undertake.
Teekay LNG anticipates that its primary sources of funds for its short-term liquidity needs will be cash flows from operations, proceeds from debt and capital lease financings, proceeds from equity offerings, and dividends thatcash distributions it expects to receive from its equity-accounted joint ventures. For 2018 through 2019, Teekay LNG expects that its existing liquidity, combined with the cash flow Teekay LNG expects to generate from its operationsventures, and, receive as dividends from its equity-accounted joint ventures, will be sufficient to finance a portion of its liquidity needs, including the equity portion of its committed capital expenditures.
Teekay LNG's remaining liquidity needs include the requirement to secure financing for an adequate portion of its committed capital expenditures, to refinance its loan facilities maturing in 2018 and 2019, to repay or refinance its NOK-denominated bonds due in 2018 and, possibly, to fund the potential tax exposure relating to the lease arrangements that the Teekay Nakilat Joint Venture had previously entered into (please read "Item 18 - Financial Statements: Note 16d — Commitments and Contingencies"). Teekay LNG already has committed debt financing in place for the following vessels and projects: all three of Teekay LNG's wholly-owned LNG carriers under construction (of which one was delivered to Teekay LNG in February 2018) that will be chartered to a wholly-owned subsidiary of Shell; its wholly-owned LNG carrier under conversion to a FSU for the Bahrain LNG Joint Venture; its wholly-owned LNG carrier newbuilding to be chartered on a 13-year charter contract with BP; the three vessels under construction in the Pan Union Joint Venture, of which one was delivered in January 2018; two of the three LPG carrier newbuildings in the Exmar LPG Joint Venture of which one was delivered in March 2018; the six LNG carriers under construction for the Yamal LNG Joint Venture, of which one was delivered in January 2018; and the assets of the Bahrain LNG Joint Venture formed for the development of an LNG receiving and regasification terminal in Bahrain. Teekay LNG is in the process of securing debt financing for one wholly-owned LNG carrier under construction which delivers in 2019, one LPG carrier newbuilding in the Exmar LPG Joint Venture which delivers in 2018, and for the other requirements described above.lesser extent, existing undrawn revolving credit facilities.
Teekay LNG's annual liquidity needs beyond 2018 are currently expected to decline compared to 2018, as a majority of its capital expenditure commitments relate to 2018. Teekay LNG's ability to continue to expand the size of its fleet over the long-termlong term is dependent upon its ability to generate operating cash flow, obtain long-term bank borrowings, sale-leaseback financing and other debt, as well as its ability to raise debt or equity financing through public or private offerings.
As at December 31, 2017,2020, Teekay LNG's consolidated cash and cash equivalents were $244.2$206.8 million, compared to $126.1$160.2 million at December 31, 2016. Teekay LNG's2019. Its total liquidity, which consists of cash, cash equivalents and undrawn credit facilities, was $433.6$461.6 million as at December 31, 2017,2020, compared to $369.8$326.4 million as at December 31, 2016. The increase in total consolidated liquidity was primarily due to proceeds from Teekay LNG's NOK bond issuance in January 2017, proceeds from Teekay LNG's sale-leaseback transactions completed during 2017, the issuance of Teekay LNG's Series B Preferred Units in October 2017, and dividends and return of capital received from Teekay LNG's equity-accounted joint ventures. These cash proceeds were partially offset by the repayment of NOK bonds in May 2017; funding of Teekay LNG's committed projects, including advances and capital contributions in the Bahrain LNG Joint Venture, Yamal LNG Joint Venture and the Pan Union Joint Venture; and an equity contribution into the Teekay LNG-Marubeni Joint Venture upon completion of its debt refinancing in 2017.2019.
As at December 31, 2017,2020, Teekay LNG had a working capital deficit of $484.6 million, which is$259.1 million. This working capital deficit primarily the result of: an aggregate amount of $236.9arose from $250.5 million of Teekay LNG's credit facilitieslong-term debt being classified as current portion of long-term debt dueat December 31, 2020 relating to their maturity datesscheduled maturities and repayments in mid-2018; $109.7the 12 months following December 31, 2020, including $139.9 million of Teekay LNG's NOK bonds being classified as current due to their maturity datesmaturing in September 2018; and $49.9 million of current obligations related to capital leases relating to two Suezmax tankers, under which the owner has the option to require Teekay LNG to purchase the vessels. In February 2018, the owner sold the first vessel to a third party and concurrently terminated the charter contract with Teekay LNG. Similarly, Teekay LNG believes that the owner will not exercise its options to require Teekay LNG to purchase the second vessel, but rather Teekay LNG expects that the owner will cancel the charter contract relating to the second vessel when the cancellation right is first exercisable in August 2018 and sell the second vessel to a third party, upon which the remaining lease obligations would be extinguished without any expected cash flow impact directly relating to such extinguishment.October 2021. Teekay LNG expects to manage its working capital deficit primarily with net operating cash flow and expected cash distributions from its equity-accounted joint ventures, expected debt refinancings, and, if necessary, availability under existing undrawn revolving credit facilities. As at December 31, 2020, Teekay LNG had undrawn revolving credit facilities of $254.8 million.
In December 2018, Teekay LNG announced that its general partner's board of directors had authorized a common unit repurchase program for the repurchase of up to $100 million of its common units. During 2020, Teekay LNG repurchased 1.4 million common units for $15.3 million and associated general partnership interest of $0.3 million. As at April 1, 2021, the remaining dollar value of units that may be purchased under the program is approximately $55.8 million.
In September 2020, Teekay LNG issued, in the Norwegian bond market, NOK 1 billion in senior unsecured bonds that mature in September 2025. The aggregate principal amount of the bonds was equivalent to $112.0 million and all interest and principal payments have been swapped into U.S. Dollars at a fixed interest rate of 5.74%. Teekay LNG used the net proceeds from the bond offering to repay revolving credit facilities and for general corporate purposes. These bonds are listed on the Oslo Stock Exchange.
On May 11, 2020, Teekay Parent and Teekay LNG agreed to eliminate all of Teekay LNG's incentive distribution rights, which were held by Teekay LNG's general partner (which is a wholly-owned subsidiary of Teekay Parent), in exchange for the issuance to a subsidiary of Teekay Parent of 10.75 million newly-issued common units of Teekay LNG. The terms of the transaction were approved by the conflicts committee of the general partner's board of directors. The conflicts committee, which is comprised of independent members of the board of directors of the general partner, retained independent legal and financial advisors to assist it in evaluating and negotiating the transaction. Following the completion of this transaction on May 11, 2020, Teekay Parent now owns approximately 36 million of Teekay LNG's common units and remains the sole owner of the general partner, which together represents an economic interest of approximately 42% in Teekay LNG.
As part of its balanced capital allocation strategy, Teekay LNG increased its quarterly cash distributions on its common units by 32% in 2020 from $0.19 per common unit to $0.25 per common unit commencing with the quarterly distribution paid in May 2020. Teekay LNG has announced that it intends to increase its quarterly cash distributions on its common units by 15% from $0.25 per common unit to $0.2875 per common unit commencing with the quarterly distribution to be paid in May 2021.
For at least the one-year period following the date at the date of this Annual Report, Teekay LNG expects that its existing liquidity, combined with the cash flow it expects to generate from its operations and expects to receive as dividends from its equity-accounted joint ventures, potential bond or equity issuances such as its recent issuance of its preferred units in 2017, debt refinancings, sale-leaseback financings, and, to a lesser extent, existing undrawn revolving credit facilities. Teekay LNG does not have control over the operations, nor does it have any legal claim to the revenue and expenses of its equity-accounted investments; consequently, the cash flow generated by Teekay LNG’s equity-accounted investments may not be available for use by Teekay LNG in the period generated.
Teekay LNG believes that its existing cash and cash equivalents and undrawn long-term borrowings, in addition to other sources of cash including cash from operations and the initiatives described above, will be sufficient to meetfinance the majority of its existingliquidity needs. Teekay LNG's remaining liquidity needs for at leastinclude the next 12 months.need to refinance or repay certain of its loan facilities and to repay its bonds maturing during 2021 and 2022, which it expects to complete.
Teekay Tankers
Teekay Tankers' primary sources of liquidity are cash and cash equivalents, cash flows provided by its operations, its undrawn credit facilities, proceeds from sales of vessels, and its capital raised through financing transactions.
As at December 31, 2017,2020, Teekay Tankers' total consolidated cash and cash equivalents were $71.4was $97.2 million, compared to $94.2$89.9 million, including cash in assets held for sale, at December 31, 2016.2019. Teekay Tankers' total consolidated liquidity, including cash, balancecash equivalents, cash held for sale and undrawn credit facilities, was $372.6 million as at December 31, 2017 decreased2020, compared to $150.3 million as at December 31, 2019. Teekay Tankers' increased liquidity at December 31, 2020 compared to December 31, 2019 was primarily as a result of repayments of its long-term debt and dividends paid on its shares of common stock, which were partially offset bynet operating cash flow from its operations, proceeds received from the salesgenerated in 2020,
and three Aframax tankers, net proceeds received from the sale and leaseback of fourthree Suezmax tankers, cash acquired in the TIL mergervessels and proceeds Teekay Tankers received from the sale of the non-US portion of its common stock throughship-to-ship support services business as well as its LNG terminal management business and the continuous offering programdebt refinancing completed in January 2020 as described below.
In August 2020, Teekay Tankers entered into a $67.4 million term loan facility, which is scheduled to mature in August 2023, and a private placement to Teekay.
Teekay Tankers' total liquidity, including cash and undrawn credit facilities, was $160.0which had an outstanding balance of $64.6 million as at December 31, 2017, compared2020. Teekay Tankers used proceeds from the new term loan facility to $102.4repay a portion of the $85.1 million then outstanding under a prior term loan facility, which was scheduled to mature in 2021.
In January 2020, Teekay Tankers entered into a $532.8 million long-term revolving credit facility, which is scheduled to mature in December 2024, and which had an outstanding balance of $185.0 million drawn as at December 31, 2016.2020. Teekay Tankers' 2017 liquidity increased, in part, asTankers used proceeds from the new revolving credit facility to repay a resultportion of the TIL merger.$455.3 million then outstanding under its prior two revolving facilities, which were scheduled to mature in 2021 and 2022, respectively, and two term loans facilities, which were scheduled to mature in 2020 and 2021, respectively.
In November 2019, Teekay Tankers anticipates thatmade the determination to transition away from its primary sourcesprevious formulaic dividend policy, which was based on a payout of funds for30 to 50 percent of its short-term liquidity needs will be cash flows from operations, existing cashquarterly adjusted net income, to primarily focus on building net asset value through balance sheet delivering and cash equivalents and undrawn long-term borrowings, refinancing existing loans, and proceedsreducing its cost of new financings or equity issuances, which Teekay Tankers believes will be sufficient to meet its existing liquidity needs for at least the next 12 months; however, such financing may not be available on acceptable terms, if at all.capital.
Teekay Tankers' short-term liquidity requirements are forinclude the payment of operating expenses, dry-docking expenditures, debt servicing costs, dividends on its shares of common stock, scheduled repayments and prepayments of long-term debt, andscheduled repayments of its obligations related to capitalfinance leases (including the purchase price for the eight repurchase options declared under existing finance leases expected to complete in May 2021 and September 2021, which it intends to finance with future debt facilities or finance leases together with existing cash and undrawn credit facilities), as well as funding its other working capital requirements. Teekay Tankers' short-term charters and spot market tanker operations contribute to the volatility of its net operating cash flow, and thus may impact Teekay Tankers'its ability to generate sufficient cash flows to meet its short-term liquidity needs. 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, tanker spot markets historically have exhibited seasonal variations in-charterin charter rates. Tanker spot 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.
Commencing with However, there may be years where other events override typical seasonality. This was the dividend paidcase in 2020 when high global oil production and a rise in floating storage led to strong rates in the first quarterand second quarters of 2016, Teekay Tankers adoptedthe year before giving way to much weaker rates in the third and fourth quarters due to lower oil demand as a dividend policy under which quarterly dividends are expected to rangeresult of COVID-19, a significant reduction in global oil supply, and the return of ships from 30% to 50% of its quarterly adjusted net income, subject to the discretion of Teekay Tankers' Board of Directors, with a minimum quarterly dividend of $0.03 per share under its current dividend policy, which is subject to change. Adjusted net income is a non-GAAP measure which excludes specific items affecting net income that are typically excluded by securities analysts in their published estimates of Teekay Tankers' financial results. Specific items affecting net income include foreign exchange gain or losses, unrealized gains or losses on derivative instruments, gain or losses on sales of vessels and debt issuance costs which were written off in connection with the refinancing of Teekay Tankers' debt facilities.floating storage.
Teekay Tankers' long-term capital needs are primarily forinclude capital expenditures and debt repayment.repayment of its loan facilities and obligations related to finance leases. Generally, Teekay Tankers expects that its primary long-term sources of funds will primarily be cash balances,from operations, cash flow from operations,balances, long-term bank borrowings and other debt or equity financings, which may include equity issuances.financings. Teekay Tankers expects that it will rely upon external financing sources, including bank borrowings and the issuance of debt and equity securities, to fund acquisitions and expansion capital expenditures, including opportunities Teekay Tankersit may pursue to purchase additional vessels.
In December 2017, Teekay Tankers entered into a new $270 million revolving credit facility which is scheduled to mature in December 2022, of which $215.8 million was used to refinance two of its revolvers which Teekay Tankers assumed in the merger with TIL. As at December 31, 2017, the $270 million revolving credit facility had an outstanding balance of $220.0 million and $50.0 million available to be drawn.
In November 2017, Teekay Tankers completed a merger with TIL by acquiring all of the remaining 27.0 million issued and outstanding common shares of TIL, by way of a share-for-share exchange of 3.3 shares of its Class A common stock for each share of TIL common stock and as a result TIL became a wholly-owned subsidiary. As consideration for the merger, Teekay Tankers issued 88,977,544 Class A common shares to the TIL shareholders, including 8,250,000 shares to Teekay. The transaction increased Teekay Tankers' liquidity by $93.8 million based on TIL's cash balances and amounts available to be drawn on the TIL revolving credit facilities at the time of the merger.
In July 2017, Teekay Tankers completed a $153 million sale-leaseback financing transaction relating to four of its Suezmax tankers. The transaction was structured as a 12-year bareboat charter at an average rate of approximately $11,100 per day, with purchase options for all four vessels throughout the lease term beginning in July 2020. Teekay Tankers used the proceeds from this transaction to repay a portion of one of its corporate revolving credit facilities.
In June, September and November 2017, Teekay Tankers completed the sales of three Aframax tankers for an aggregate sales price of $20.2 million. Teekay Tankers used the proceeds from these sales to repay a portion of one of its corporate revolving credit facilities. In January and March 2017, Teekay Tankers completed the sales of two Suezmax tankers for an aggregate sales price of $32.6 million. Teekay Tankers used the proceeds from these sales to repay a portion of one of its corporate revolving credit facilities.
Teekay Tankers believesanticipates that its primary sources of funds for its short-term liquidity needs will be cash flows from operations, existing cash and cash equivalents, undrawn short-term and undrawn long-term borrowings, in addition to otherand expected sources of cash including cashproceeds from operations andrefinancing the initiativeseight vessel repurchases described above, which it expects will be sufficient to meet its existing liquidity needs for at least the next 12 months.
Teekay Offshore
Asone-year period following the date of September 25, 2017, as a result of the Brookfield Transaction, Teekay deconsolidated Teekay Offshore. Teekay retains ownership of approximately 14% of Teekay Offshore's outstanding common units and a 51% interest in Teekay Offshore's general partner, but no longer has in place any financial guarantees with respect to Teekay Offshore's long-term debt and interest rate swap and cross currency swap agreements. As at December 31, 2017, Teekay has recorded $65.6 million in net advances to Teekay Offshore, of which $50.0 million was repaid in January 2018.this Annual Report.
On March 31, 2018, Teekay Offshore entered into a loan agreement for a $125.0 million senior unsecured revolving credit facility, of which up to $25.0 million is provided by Teekay Parent and up to $100.0 million is provided by Brookfield. The facility is scheduled to mature in October 2019.
Cash Flows
Cash Flows
The following table summarizes our consolidated cash and cash equivalents provided by (used for) operating, financing and investing activities for the periods presented:
| | | | | Year Ended December 31, | |
| (in thousands of U.S. Dollars) | | (in thousands of U.S. Dollars) | | Year Ended December 31, |
| | | 2017 | | 2016 | | 2015 | | | 2020 | | 2019 |
| Net operating cash flows | | 513,745 |
| | 620,783 |
| | 775,832 |
| Net operating cash flows | | 984,017 | | | 383,306 | |
| Net financing cash flows | | 417,884 |
| | (200,662 | ) | | 918,934 |
| Net financing cash flows | | (1,097,513) | | | (382,229) | |
| Net investing cash flows | | (1,054,171 | ) | | (530,519 | ) | | (1,823,278 | ) | Net investing cash flows | | 63,061 | | | (50,391) | |
Operating Cash Flows
Our consolidated net cash flow from operating activities fluctuates primarily as a result of changes in vessel utilization and TCE rates, changes in interest rates, fluctuations in working capital balances, the timing and amount of dry-docking expenditures, repairs and maintenance activities, vessel additions and dispositions, and foreign currency rates. Our exposure to the spot tanker market has contributed significantly to fluctuations in operating cash flows historically as a result of highly cyclical spot tanker rates. In addition, up until June 2020, the production performance of certain of our FPSO units that operateoperated under contracts with a production-based compensation component has contributed to fluctuations in operating cash flows. AsUp until June 2020, as the charter contracts of some of our FPSO units includeincluded incentives based on average annual oil prices, the reductionchanges in global oil prices during recent years has negativelyhave also impacted our operating cash flows.
Net consolidatedTeekay LNG and Teekay Tankers do not have control over the operations of, nor do they have any legal claim to the revenue and expenses of their investments in its equity-accounted joint ventures. Consequently, the cash flow generated by their investments in equity-accounted joint ventures may not be available for use by Teekay LNG and Teekay Tankers in the period that such cash flows are generated.
Consolidated net cash flow from operating activities decreasedincreased to $513.7$984.0 million for the year ended December 31, 2017,2020, from $620.8$383.3 million for the year ended December 31, 2016.2019. This decreaseincrease was primarily due to a $288.1$323.9 million increase in net lossdirect financing lease payments received, which mainly related to payments received by Teekay LNG upon the sale of the WilForce and WilPride LNG carriers in January 2020 and payment received by Teekay Parent in April 2020 as part of the bareboat charter with Britoil Limited (or BP) for the PetrojarlFoinaven FPSO. There was also an increase of $118.8 million in income from operations (before depreciation, amortization, asset impairments, losswrite-downs and gain on salecommencement of vessels, equipment and other operating assets, and the amortization of in-process revenue contracts)sales-type lease) of our businesses. This decreaseFor further discussion of changes in income from vessel operations from our businesses, please read “Item 5 – Operating and Financial Review and Prospects: Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments and Results of Operations.” In addition, during 2020, there was also due to ana $104.0 million increase of $4.9 million in dry-dock expenditures for the year ended December 31, 2017, compared to 2016. These decreases were partially offset by an increasecash flows from changes to non-cash working capital, items of $68.2distributions from equity-accounted joint ventures increased by $31.5 million, primarily due to the deconsolidation of Teekay Offshore in September 2017, a decrease inexpenditures for dry docking decreased by $30.7 million and interest expense, including realized losses on interest rate swaps and cross currency swaps, decreased by a net amount of $94.5 million, a decrease in realized losses in foreign currency forward contracts and time charter swap agreements of $11.1 million and an increase in dividends from joint ventures of $12.2$9.4 million.
Net consolidated These increases to operating cash flow from operating activities decreased to $620.8 million for the year ended December 31, 2016, from $775.8 million for the year ended December 31, 2015. This decrease was primarily due to a $134.5 million decrease in income from vessel operations before depreciation, amortization, asset impairments and loan loss recoveries, net gain on sale of vessels, equipment and other assets and the amortization of in-process revenue contracts of our businesses, primarily as a result of lower average spot TCE rates earned by our conventional tanker fleet in 2016 compared to 2015 and the termination of time charters and resulting lay-up of the Polar Spirit and Arctic Spirit LNG carriers. We received dividends from our joint ventures of $38.1 million for the year ended December 31, 2016, compared to $106.1 million in 2015. The decreases in cash flowflows were partially offset by an increase in changesasset retirement obligation expenditures of $17.5 million during 2020 relating to non-cash working capital items of $50.6 million, and an increase in cash flow of $22.4 million from lower expenditures for dry docking. There was also an increase in interest expense of $18.2 million in 2016 compared to 2015.
For further discussion of changes in income from vessel operations before depreciation, amortization, asset impairments, net loss (gain) on sale of vessels and equipment and the amortization of in-process revenue contracts of our businesses, please read “Results of Operations.”Petrojarl Banff FPSO unit.
Financing Cash Flows
The Controlled Daughter Entities hold most of our liquefied gas carriers (Teekay LNG) and our conventional tanker assets (Teekay Tankers). From and including the respective initial public offerings of these subsidiaries, Teekay has been selling assets that are a part of these businesses to the Daughter Entities. Historically, the Daughter Entities have distributed operating cash flows to their owners in the form of distributions or dividends. The Daughter Entities raised net proceeds from issuances of new equity to the public and to third-party investors of $172.9 million for the year ended December 31, 2017, compared to $327.4 million in 2016 and $575.4 million in 2015. Teekay Parent raised net proceeds from issuances of new equity to the public and to third party investors and two entities established by our founder (including Resolute, our largest shareholder) of $25.6 million in 2017, compared to $105.5 million in 2016 and $nil in 2015. There was a decrease in restricted cash of $104.1 million in 2017, primarily due to the deconsolidation of Teekay Offshore in September 2017, compared to an increase of $49.1 million and $21.0 million in 2016 and 2015, respectively.
We use our credit facilities to partially finance capital expenditures. Occasionally, we will use revolving credit facilities to finance these 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. We actively manage the maturity profile of our outstanding financing arrangements. Our net payments on long-term debt, which are the proceeds from the issuance of long-term debt, which is the proceeds from the issuancesnet of long-term debt net of issuance costs and prepayments of long-term debt, was $175.1were $570.6 million in 2017, $202.42020, compared to $277.3 million in 2016 and $1.9 billion in 2015.2019. Scheduled debt repayments decreasedincreased by $279.6$72.2 million in 20172020 compared to 2016. We2019.
Teekay LNG received $317.8 million of net proceeds of $809.9from the sale-leaseback financing transactions for the Yamal Spirit and Torben Spirit for the year ended December 31, 2019. Teekay Tankers received $63.7 million and $355.3 million in 2017 and 2016, respectively, from sale-leaseback financing related totransactions completed for the sales and leaseback of certain vessels.
year ended December 31, 2019.
Investing Cash Flows
During 2017,2020, we incurred capital expenditures for vessels and equipment of $1.1 billion,$26.5 million, primarily for capitalized vessel modifications. During 2020, Teekay Tankers received proceeds of $25.0 million from the sale of the non-US portion of its ship-to-ship support services business as well as its LNG terminal management business, and also received proceeds on the sale of three Suezmax tankers of $60.9 million.
During 2019, we received $100 million from Brookfield for the sale of our remaining interests in Altera. We incurred capital expenditures for vessels and equipment of $109.5 million primarily for capitalized vessel modifications and shipyard construction installment payments relating to the Gina Krog FSO conversion, the Petrojarl I FPSO unit, the newbuilding towing and offshore installation vessels, and thein Teekay LNG. Teekay LNG carrier newbuildings. We received proceeds of $73.7$11.5 million as a result of Teekay LNG'sfrom the sale of the AsianAlexander Spirit and Teekay Tankers' sales of two Suezmax tankers, two Aframax tankers and one lightering support vessel during 2017. Teekay LNG contributed $183.9$72.4 million to its equity-accounted joint ventures and loans to joint ventures for the year ended December 31, 2017,2019, primarily to fund newbuilding installmentsproject expenditures in the Yamal LNG Joint Venture and project expenditures for the Bahrain LNG project. Teekay LNG received $40.3 million and $52.0 million as returns of capital from its joint venture with QGTC Nakilat (1643-6) Holdings Corporation (or the RasGas 3 Joint Venture) and the Yamal LNG Joint Venture, respectively, upon completion of their debt refinancings. Teekay LNG has a 40% ownership interest in the Ras Gas 3 Joint Venture and 50% ownership in the Yamal Joint Venture. Teekay incurred a net $18.0 million cash outflow as a result of the Brookfield Transaction (please read "Item 18 - Financial Statements: Note 3 - Deconsolidation of Teekay Offshore"). Teekay Tankers acquired $30.8 million of cash through its merger with TIL, net of costs.
During 2016, we incurred capital expenditures for vessels and equipment of $648.3 million, primarily for capitalized vessel modifications and shipyard construction installment payments. Teekay Offshore incurred capitalized expenditures of $294.6 million for vessels and equipment, including conversion costs on the Gina Krog FSO conversion, upgrade costs on the Petrojarl I FPSO unit, installment payments on the newbuilding towing and offshore installation vessels, partially offset by credits received relating to the Petrojarl Knarr FPSO unit, Teekay LNG incurred capital expenditures of $345.8 million, primarily for newbuilding installment payments and shipbuilding supervision costs for its LNG carrier newbuildings, contributed $120.9 million to its equity accounted joint ventures, and received a $5.5 million repayment of a shareholder loan from the Exmar LPG Joint Venture. In addition, Teekay Offshore made a $54.9 million investment in its joint ventures and received proceeds of $69.8 million from the sale of the Navion Torinita and Navion Europa shuttle tankers and the Fuji Spirit and Kilimanjaro Spirit conventional tankers. Teekay LNG received proceeds of $94.3 million from the sales of the Bermuda Spirit and Hamilton Spirit in April 2016 and May 2016.
During 2015, we incurred capital expenditures for vessels and equipment of $1.8 billion, primarily for capitalized vessel modifications and shipyard construction installment payments. Teekay Parent incurred $91.0 million of capital expenditures mainly for the installment payments and conversion costs of the Petrojarl Knarr FPSO unit. Teekay Offshore incurred capitalized expenditures of $664.7 million, including the six towing and offshore installation vessels delivered during 2015, the final installment on the Arendal Spirit UMS, FSO conversion costs, upgrade costs on the Petrojarl I FPSO unit, costs on the three newbuilding shuttle tankers, the four newbuilding towing and offshore installation vessels and various other vessel additions and installments. Teekay LNG incurred capital expenditures of $192.0 million primarily relating to newbuilding installments for six of its 11 LNG carrier newbuildings. Teekay Tankers incurred capital expenditures of $848.2 million relating to the acquisition of 12 Suezmax tankers from Principal Maritime Tankers, the acquisition of four LR2 product tankers and one Aframax tanker and other capital expenditures. In addition, we invested $40.6 million in our equity-accounted investees, primarily related to Teekay Offshore’s Libra FPSO joint venture and provided capital to Teekay LNG’s equity accounted investment primarily to prepay debt within the Teekay LNG-Marubeni Joint Venture and we were repaid $53.2 million from our loans to equity-accounted investees. During 2015, Teekay Offshore received proceeds of $8.9 million from the sale of a 1997-built shuttle tanker and2019, Teekay Tankers received proceeds of $11.1$19.6 million fromrelated to the sale of one MRSuezmax tanker. In addition, Teekay Tankers invested $47.3 million related to the acquisition
COMMITMENTS AND CONTINGENCIES
The following table summarizes our long-term contractual obligations as at December 31, 2017 (excluding Teekay Offshore):2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Beyond 2025 |
| | | In millions of U.S. Dollars |
| Teekay LNG | | | | | | | | | | | | | | |
Bond repayments (1)(2) | | 355.5 | | | 139.9 | | | — | | | 99.0 | | | — | | | 116.6 | | | — | |
Scheduled repayments of long-term debt (1) (3) | | 591.6 | | | 111.1 | | | 109.0 | | | 102.7 | | | 91.6 | | | 71.2 | | | 106.0 | |
Repayments on maturity of long-term debt (1) (3) | | 534.8 | | | — | | | 99.9 | | | 36.8 | | | 34.3 | | | — | | | 363.8 | |
Scheduled repayments of obligations related to finance leases (4) | | 1,741.4 | | | 138.6 | | | 137.0 | | | 135.5 | | | 132.0 | | | 129.7 | | | 1,068.6 | |
Commitments under operating leases (5) | | 232.4 | | | 47.7 | | | 35.0 | | | 24.0 | | | 23.9 | | | 23.9 | | | 77.9 | |
Equipment and other construction contract costs (6) | | 51.7 | | | 36.1 | | | 15.6 | | | — | | | — | | | — | | | — | |
| | 3,507.4 | | | 473.4 | | | 396.5 | | | 398.0 | | | 281.8 | | | 341.4 | | | 1,616.3 | |
| Teekay Tankers | | | | | | | | | | | | | | |
Scheduled repayments of long-term debt and other debt (7) | | 77.7 | | | 21.2 | | | 11.2 | | | 8.5 | | | 36.8 | | | — | | | — | |
Repayments on maturity of long-term debt and other debt (7) | | 181.9 | | | — | | | — | | | 33.7 | | | 148.2 | | | — | | | — | |
Scheduled repayments of obligations related to finance leases (8)(9) | | 360.0 | | | 78.4 | | | 23.3 | | | 25.2 | | | 27.2 | | | 29.3 | | | 176.6 | |
Chartered-in vessels (operating leases) (10)(11) | | 59.0 | | | 10.3 | | | 3.3 | | | 6.8 | | | 6.8 | | | 6.8 | | | 25.0 | |
| | 678.6 | | | 109.9 | | | 37.8 | | | 74.2 | | | 219.0 | | | 36.1 | | | 201.6 | |
| Teekay Parent | | | | | | | | | | | | | | |
Bond repayments (12) | | 355.6 | | | — | | | 243.4 | | | 112.2 | | | — | | | — | | | — | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Chartered-in vessels (operating leases) (13) | | 33.3 | | | 9.2 | | | 9.2 | | | 9.2 | | | 5.7 | | | — | | | — | |
Asset retirement obligations (14)(15) | | 50.0 | | | 12.0 | | | 17.6 | | | 13.0 | | | — | | | 7.4 | | | — | |
| | 438.9 | | | 21.2 | | | 270.2 | | | 134.4 | | | 5.7 | | | 7.4 | | | — | |
| Total | | 4,624.9 | | | 604.5 | | | 704.5 | | | 606.6 | | | 506.5 | | | 384.9 | | | 1,817.9 | |
|
| | | | | | | | | | | | | | | | | | | | | |
| | | Total | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Beyond 2022 |
| | | In millions of U.S. Dollars |
| Teekay LNG | | | | | | | | | | | | | | |
Bond repayments (1) (2) | | 377.9 |
| | 109.7 |
| | — |
| | 121.9 |
| | 146.3 |
| | — |
| | — |
|
Scheduled repayments of long-term debt (1) (3) | | 508.6 |
| | 114.0 |
| | 83.9 |
| | 78.8 |
| | 45.1 |
| | 64.8 |
| | 122.0 |
|
Repayments on maturity of long-term debt (1) (3) | | 923.9 |
| | 331.7 |
| | — |
| | 158.8 |
| | 155.3 |
| | 80.0 |
| | 198.1 |
|
Scheduled repayments of obligations related to capital leases (4) | | 1,442.8 |
| | 162.7 |
| | 119.6 |
| | 118.9 |
| | 117.9 |
| | 117.1 |
| | 806.6 |
|
Commitments under operating leases (5) | | 268.7 |
| | 23.8 |
| | 23.9 |
| | 23.9 |
| | 23.9 |
| | 23.9 |
| | 149.3 |
|
Newbuildings installments/shipbuilding supervision (6) | | 1,891.0 |
| | 1,125.0 |
| | 566.8 |
| | 199.2 |
| | — |
| | — |
| | — |
|
| | | 5,412.9 |
| | 1,866.9 |
| | 794.2 |
| | 701.5 |
| | 488.5 |
| | 285.8 |
| | 1,276.0 |
|
| Teekay Tankers | | | | | | | | | | | | | | |
Scheduled repayments of long-term debt (7) | | 435.7 |
| | 103.4 |
| | 105.7 |
| | 131.9 |
| | 72.1 |
| | 22.6 |
| | — |
|
Repayments on maturity of long-term debt (7) | | 527.5 |
| | 63.8 |
| | — |
| | — |
| | 330.8 |
| | 132.9 |
| | — |
|
Scheduled repayments of obligations related to capital leases (8) | | 148.9 |
| | 7.2 |
| | 7.7 |
| | 8.2 |
| | 8.7 |
| | 9.3 |
| | 107.8 |
|
| Chartered-in vessels (operating leases) | | 29.7 |
| | 11.7 |
| | 8.3 |
| | 8.3 |
| | 1.4 |
| | — |
| | — |
|
| | | 1,141.8 |
| | 186.1 |
| | 121.7 |
| | 148.4 |
| | 413.0 |
| | 164.8 |
| | 107.8 |
|
| Teekay Parent | | | | | | | | | | | | | | |
Bond repayments (9) | | 592.7 |
| | — |
| | — |
| | 592.7 |
| |
|
| | — |
| | — |
|
Scheduled repayments of long-term debt (9) | | 53.3 |
| | 53.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Repayments on maturity of long-term debt (9) | | 30.0 |
| | 30.0 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Chartered-in vessels (operating leases) (10) | | 248.2 |
| | 57.0 |
| | 54.4 |
| | 49.0 |
| | 53.1 |
| | 20.0 |
| | 14.7 |
|
| Asset retirement obligation | | 27.1 |
| | 27.1 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | | 951.3 |
| | 167.4 |
| | 54.4 |
| | 641.7 |
| | 53.1 |
| | 20.0 |
| | 14.7 |
|
| Total | | 7,506.0 |
| | 2,220.4 |
| | 970.3 |
| | 1,491.6 |
| | 954.6 |
| | 470.6 |
| | 1,398.5 |
|
| |
(1) | (1)Euro-denominated and NOK-denominated obligations are presented in U.S. Dollars and have been converted using the prevailing exchange rate as of December 31, 2017. |
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(2) | Excludes expected interest payments of $18.3 million (2018), $15.5 million (2019), $12.7 million (2020) and $5.0 million (2021). Expected interest payments are based on NIBOR at December 31, 2017, plus margins that range up to 7.72%, as well as the prevailing U.S. Dollar/NOK exchange rate as of December 31, 2017. The expected interest payments do not reflect the effect of the related cross currency swaps that Teekay LNG has used as an economic hedge of its foreign exchange and interest rate exposure associated with its NOK-denominated long-term debt. |
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(3) | Excludes expected interest payments of $33.6 million (2018), $26.8 million (2019), $21.8 million (2020), $15.4 million (2021), $11.4 million (2022) and $28.3 million (beyond 2022). Expected interest payments give effect to the refinancing completed in November 2017 of one of Teekay LNG's revolving credit facilities and are based on LIBOR or EURIBOR at December 31, 2017, plus margins on debt that has been drawn that range up to 3.25% (variable-rate loans), as well as the prevailing U.S. Dollar/Euro exchange rate as of December 31, 2017. The expected interest payments do not reflect the effect of related interest rate swaps or swaptions that Teekay LNG has used as an economic hedge of certain of its variable-rate debt. The repayment amounts reflect the November 2017 refinancing. |
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(4) | Includes, in addition to lease payments, amounts Teekay LNG may be or is required to pay to purchase the leased vessels at the end of their respective lease terms. For two of Teekay LNG's 10 obligations related to capital leases, the lessor has the option to sell two Suezmax tankers to Teekay LNG at any time during the remaining lease terms; however, in this table Teekay LNG has assumed the lessor will not exercise its right to sell the two Suezmax tankers to it until after the lease terms expire, which is during 2018. The purchase price for any Suezmax tanker Teekay LNG is required to purchase would be based on the unamortized portion of the vessel construction financing costs for the vessels, which are included in the table above. We expect Teekay LNG to satisfy any such purchase price by assuming the existing vessel financing, although it may be required to obtain separate debt or equity financing to complete any purchases if the lenders do not consent to its assuming the financing obligations. |
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(5) | Teekay LNG has corresponding leases whereby it is the lessor and expects to receive approximately $239.1 million under those leases from 2018 to 2029. |
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(6) | As of December 31, 2017, Teekay LNG has agreements for the construction of six wholly-owned LNG carrier newbuildings, of which the estimated remaining costs for these newbuildings totaled $804.5 million, including estimated interest and construction supervision fees. Teekay LNG has secured $681 million of financing related to the commitments for five of the six LNG carrier newbuildings included in the table above. |
As part of the acquisition of an ownership interest in the Pan Union Joint Venture, Teekay LNG agreed to assume Shell’s obligation to provide shipbuilding supervision and crew training services for the four LNG carrier newbuildings and to fund its proportionate share of the remaining newbuilding installments. The estimated remaining costs for the shipbuilding supervision and crew training services and Teekay LNG's proportionate share of newbuilding installments totaled $116.6 million as of December 31, 2017. However, as part2020.
(2)Excludes expected interest payments of this agreement with Shell, Teekay LNG expects to recover $3.5$15.8 million of the shipbuilding supervision(2021), $11.3 million (2022), $8.9 million (2023), $6.4 million (2024) and crew training costs from Shell between 2018 and 2020 and the Pan Union Joint Venture has secured financing of $87.0$3.2 million (2025). Expected interest payments are based on Teekay LNG's proportionate share of newbuilding installmentsNIBOR at December 31, 2020, plus margins that range up to 6.0%, as well as the prevailing U.S. Dollar/NOK exchange rate as of December 31, 2017.
In July 2014,2020. The expected interest payments do not reflect the Yamal LNG Joint Venture, in whicheffect of the related cross currency swaps that Teekay LNG has a 50% ownershipused as an economic hedge of its foreign exchange and interest entered into agreements forrate exposure associated with its NOK-denominated long-term debt.
(3)Gives effect to the constructiondebt refinancing completed in February 2021, excludes expected interest payments of six LNG carrier newbuildings. As$23.6 million (2021), $20.6 million (2022), $17.6 million (2023), $15.1 million (2024), $12.9 million (2025) and $6.0 million (beyond 2025). Expected interest payments are based on existing interest rates (fixed-rate loans), LIBOR or EURIBOR at December 31, 2017, Teekay LNG's 50% share of2020, plus margins on debt that has been drawn that range up to 3.25% (variable-rate loans), as well as the estimated remaining costs for these six newbuildings totaled $781.3 million. The Yamal LNG Joint Venture has secured debt financing of $816 million related to Teekay LNG's proportionate share of the remaining newbuilding installmentsprevailing U.S. Dollar/Euro exchange rate as of December 31, 2017.2020. The expected interest payments do not reflect the effect of related interest rate swaps that Teekay LNG has used as an economic hedge for certain of its variable-rate debt. In addition, the above table does not reflect scheduled debt repayments in Teekay LNG's equity-accounted joint ventures.
(4)Includes, in addition to lease payments, amounts Teekay LNG are required to pay to purchase the leased vessels at the end of their respective lease terms.
(5)Teekay LNG has corresponding leases whereby it is the lessor and expects to receive approximately $217.8 million under those leases from 2021 to 2029.
(6)The Bahrain LNG Joint Venture, in which Teekay LNG has a 30% ownership interest, is developinghas an LNG receiving and regasification terminal in Bahrain. The project will be ownedBahrain LNG Joint Venture completed the mechanical construction and operatedcommissioning of the Bahrain terminal in late-2019 and began receiving terminal use payments in early-2020 under aits 20-year agreement commencing in early-2019 with a fully-built-up cost of approximately $960.0 million.NOGA. As atat December 31, 2017,2020, Teekay LNG's 30% share of the estimated remaining costs included in the table above is $134.0 million. The$11.3 million, of which the Bahrain LNG Joint Venture has secured undrawn debt financing of $134$7 million related to its proportionate share.
In June 2019, Teekay LNG's proportionate shareLNG entered into an agreement with a contractor to supply reliquefaction equipment on certain of its LNG carriers in 2021 and 2022, for an estimated installed cost of $59.5 million. As at December 31, 2020, the estimated remaining construction costscost of this installation is $40.3 million.
(7)Excludes expected interest payments of $6.5 million (2021), $6.0 million (2022), $5.4 million (2023) and $2.4 million (2024). Expected interest payments are based on the existing interest rates for variable-rate loans at LIBOR plus margins that range from 2.25% to 3.5% at December 31, 2020. The expected interest payments do not reflect the effect of the related interest rate swap that Teekay Tankers has used to hedge certain of its floating-rate debt.
(8)Gives effect to the purchase options declared by Teekay Tankers in November 2020 to acquire two Suezmax tankers in May 2021 under the sale-leaseback arrangements described in "Item 18 - Financial Statements: Note 10 - Obligations Related to Finance Leases"; excludes imputed interest payments of $24.6 million (2021), $20.2 million (2022), $18.4 million (2023), $16.4 million (2024), $14.2 million (2025) and $27.0 million (thereafter).
(9)In March 2021, Teekay Tankers declared purchase options to acquire six Aframax tankers in September 2021 for a total cost of $128.8 million, under the sale-leaseback arrangements described in "Item 18 - Financial Statements: Note 10 - Operating Leases and Obligations Related to Finance Leases". Giving effect to this transaction, the scheduled repayments of obligations related to finance leases, excluding imputed interest payments, are $201.2 million (2021), $12.3 million(2022), $13.1 million (2023), $13.9 million (2024), $14.8 million (2025) and $104.7 million (thereafter).
(10)Includes one newbuilding Aframax tanker expected to be delivered to Teekay Tankers in late-2022 under a seven-year time charter-in contract.
(11)Excludes payments required if Teekay Tankers exercise all options to extend the terms of in-chartered leases signed as of December 31, 2017.2020. If Teekay Tankers exercise all options to extend the terms of signed in-chartered leases, it expects total payments of $13.4 million (2021), $8.6 million (2022), $8.4 million (2023), $6.8 million (2024), $6.8 million (2025) and $47.9 million (thereafter).
The table above includes Teekay LNG's proportionate share(12)Excludes expected interest payments of $28.1 million (2021), $16.9 million (2022) and $2.8 million (2023). Expected interest payments are based on the newbuilding costsexisting interest rate for three LPG carrier newbuildings scheduledfixed-rate loans at 8.5% and 9.25%, and the existing interest rate for delivery in 2018 in the Exmar LPG Joint Venture. Asvariable-rate loan that is based on LIBOR plus a margin which was 4.25% as at December 31, 2017,2020. The expected interest payments do not reflect the effect of related interest rate swap that Teekay LNG's 50% shareParent uses as an economic hedge of certain of its variable rate debt.
(13)Teekay Parent in-chartered one FSO unit from Altera, which was on a back-to-back out-charter to a third party. In the first quarter of 2021, the out-charter contract was novated to Altera and the in-charter contract terminated at the same time. Giving effect to the termination, our commitments for the FSO unit are $1.5 million during 2021 and $nil thereafter instead of the amounts shown in the table above.
(14)Teekay Parent has an asset retirement obligation (or ARO) relating to the subsea production facility associated with the Petrojarl Banff FPSO unit operating in the North Sea. The obligation generally involves the costs associated with the restoration of the environment surrounding the facility and removal and disposal of all production equipment. We expect that the ARO will be covered in part by contractual payments of approximately $9.3 million, presented in other non-current assets on our consolidated balance sheet, to be received from the customer.
(15)Teekay Parent recognized an ARO relating to the clean-up and disposal of the Petrojarl Foinaven FPSO unit. This obligation is expected to be settled at the end of the bareboat charter, currently assumed to be in 2025. Teekay Parent is entitled to receive $11.6 million from the charterer at the end of the bareboat charter, which is currently expected to cover the costs of the ARO. The present value of this receivable was $8.4 million as at December 31, 2020 and is included in net investments in direct financing leases and sales-type leases, net - non-current on our consolidated balance sheet. The present value of the estimated remaining costs for these three newbuildings totaled $54.6Petrojarl Foinaven ARO was $7.4 million including estimated interest and construction supervision fees. The Exmar LPG Joint Venture has secured $56 million of financing for two of three LPG carrier newbuildings.as at December 31, 2020.
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(7) | Excludes all expected interest payments of $31.7 million (2018), $27.5 million (2019), $23.3 million (2020), $13.9 million (2021) and $3.4 million (2022). Expected interest payments are based on the existing interest rates for fixed-rate loans of 5.4% and existing interest rates for variable-rate loans at LIBOR plus margins that range from 0.30% to 2.75% at December 31, 2017. The expected interest payments do not reflect the effect of related interest rate swaps that we have used to hedge certain of our floating-rate debt. |
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(8) | Excludes imputed interest payments of $9.0 million (2018), $8.5 million (2019), $8.1 million (2020), $7.5 million (2021), $7.0 million (2022) and $29.1 million (thereafter). |
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(9) | Excludes expected interest payments of $52.7 million (2018), $50.4 million (2019), and $25.2 million (2020). Expected interest payments are based on the existing interest rate for a fixed-rate loan at 8.5% and existing interest rates for variable-rate loans that are based on LIBOR plus margins which ranged between 3.95% and 4.0% as at December 31, 2017. The expected interest payments do not reflect the effect of related interest rate swaps that Teekay Parent uses as an economic hedge of certain of its variable rate debt. |
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(10) | Excludes internal time-charter-in commitments between Teekay Parent and its subsidiary, Teekay LNG. |
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. Our equity-accounted investments are described in “Item 18 – Financial Statements: Note 22 — Equity-Accounted– Equity-accounted Investments.”
CRITICAL ACCOUNTING ESTIMATES
We prepare our consolidated financial statements in accordance with GAAP, which requires 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 our accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. For a further description of our material accounting policies, please read “Item 18.18 – Financial Statements: Note 1 —– Summary of Significant Accounting Policies.”
Revenue Recognition
Description. We recognize revenue from voyage charters on either a load-to-discharge or discharge-to-discharge basis. Voyage revenues are recognized ratably from the beginning of when product is loaded to when it is discharged if using a load-to-discharge basis, or from when product is discharged (unloaded) at the end of the prior voyage to when it is discharged after the current voyage, if using a discharge-to-discharge basis. However, we do not begin recognizing voyage 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.
Judgments and Uncertainties. Whether to use the load-to-discharge basis or the discharge-to-discharge basis depends on whether the customer directs the use of the vessel throughout the period of use, pursuant to the terms of the voyage charter. This is a matter of judgement.judgment. However, we believe that if the customer has the right to direct the vessel to different load and discharge ports, among other things, a voyage charter contract contains a lease, and the lease term begins on the later of the vessel’s last discharge or inception of the voyage charter contract. As such, in this case revenue is recognized on a discharge-to-discharge basis. Otherwise, it is recognized on a load-to-discharge basis.
Effect if Actual Results Differ from Assumptions. If our assessment of whether the customer directs the use of the vessel throughout the period of use is not consistent with actual results, then the period over which voyage revenue is recognized would be different and as such our revenues could be overstated or understated for any given period by the amount of such difference.
Contingencies
Description. We may, from time to time, be involved in legal proceedings, claims or other situations involving uncertainty as to a possible loss, such as uncertain tax positions, that will ultimately be resolved when one or more future events occur or fail to occur. We accrue a provision for such loss contingencies if it is probable as of the reporting date, that an asset had been impaired or a liability incurred, based in information available prior to the issuance of the consolidated financial statements, and if the amount of the loss can be reasonably estimated.
Judgments and Uncertainties. The amount of loss contingencies recognized as a liability in our consolidated financial statements requires management to make significant estimates that may at times be inherently difficult to make given the uncertainties involved, including estimates of whether it is probable an asset had been impaired or a liability incurred, the amount of possible losses, the ability to recover some or all of the possible loss through insurance coverage, amongst others. Our loss contingencies are disclosed in more detail in "Item 18 -– Financial Statements: Note 16d —– Commitments and Contingencies" and "Item 18 – Financial Statements: Note 21 – Income Taxes".
Effect if Actual Results Differ from Assumptions. Our net income (loss) income could be overstated or understated for any given period to the extent actual losses incurred, following resolution of our contingencies, are different than our prior estimates of recognized loss contingencies.
Vessel Lives and ImpairmentDepreciation
Description. The carrying value of each of our vessels represents its original cost at the time of delivery or purchase less depreciation and impairment charges. We depreciate the original cost, less an estimated residual value, of our vessels on a straight-line basis over each vessel’s estimated useful life. The carrying values of our vessels may not represent their 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.newbuildings, among other factors. Both charter rates and newbuilding costs tend to be cyclical in nature.
Judgments and Uncertainties. Depreciation is calculated using an estimated useful life of 25 years for tankers carrying crude oil and refined product, 30 years for LPG carriers and 35 years for LNG carriers, commencing the date the vessel is delivered from the shipyard, or a shorter period if regulations prevent us from operating the vessels for those periods of time. The Company’s current FPSO units are depreciated using an initial estimated useful life of 25 years commencing the date the unit is installed at the oil field and is in a condition that is ready to operate, or a shorter period if commercial considerations dictate otherwise. The estimated useful life of our vessels involves an element of judgment, which takes into account design life, commercial considerations and regulatory restrictions.
Effect if Actual Results Differ from Assumptions. The actual life of a vessel may be different than the estimated useful life, with a shorter actual useful life resulting in an increase in depreciation expense and potentially resulting in an impairment loss. A longer actual useful life will result in a decrease in depreciation expense.
Vessel Lives and Impairment
Description.We review vessels and equipment for impairment whenever events or circumstances indicate the carrying value of an asset, including the carrying value of the charter contract, if any, under which the vessel is employed, may not be recoverable. This occurs when the asset’s carrying value is greater than the future undiscounted cash flows the asset is expected to generate over its remaining useful life. If the estimated future undiscounted cash flows of an asset exceed the asset’s carrying value, no impairment is recognized even though the fair value of the asset may be lower than its carrying value. If the estimated future undiscounted cash flows of an asset are less than the asset’s carrying value and the fair value of the asset is less than its carrying value, the asset is written down to its fair value. Fair value is determined based on appraised values or discounted cash flows. In cases where an active second-hand sale and purchase market exists, an appraised value is generally the amount we would expect to receive if we were to sell the vessel. The appraised values are provided by third parties where available or prepared by us based on second-hand sale and purchase market data. In cases where an active second-hand sale and purchase market does not exist, or in certain other cases, fair value is calculated as the net present value of estimated future cash flows, which, in certain circumstances, will approximate the estimated market value of the vessel. For a vessel under charter, the discounted cash flows from that vessel may exceed or be less than its market value, as market values may assume the vessel is not employed on an existing charter.
Judgments and Uncertainties. Our estimates of future undiscounted cash flows used to determine whether a vessel's carrying value is recoverable involves assumptions about future charter rates, vessel utilization, operating expenses, dry-docking expenditures, vessel residual values, redeployment assumptions for vessels on long-term charter, the probability of the vessels being sold and the remaining estimated life of our vessels. Our estimated charter rates are based on rates under existing vessel contracts and market rates at which we expect we can re-charter our vessels. For conventional tankers, such market rates for the first three years are based on prevailing market three-year time-charter rates and thereafter, a ten-year historical average of actual spot charter rates earned by our vessels, adjusted to exclude years which management has determined are outliers. We consider years that have been impacted by rare events or circumstances that have distorted the historical ten-year trailing average to such a degree that this average will not be representative of what a reasonable outlook would be if we did not exclude such years as outliers. We have identified such outlier events or circumstances in the current ten-year historical period as at December 31, 2020, which has resulted in the exclusion of the three years from 2011 to 2013 from our averages. Our estimated charter rates are also discounted for the years when the vessel age is 15 years and older, as compared to the estimated charter rates for years when the vessel is younger than 15 years. Such discounts reflect expectations of lower utilization and higher fuel consumption for older vessels. During the fourth quarter of 2020, we determined that a five-year historical average of actual spot charter rates earned by our vessels resulted in an estimate of future charter rates that was inconsistent with our forward view of the tanker market. As such, we changed our historical reference period used to estimate future charter rate rates from the average of the most recent five historical years to the average of the most recent ten historical years, adjusted for years which management has determined as outliers. For LNG carriers, market rates at which we expect we can re-charter such vessels are based on a ten-year historical industry average of spot charter rates taking into account the propulsion type and size of the vessel, except for LNG carriers with a steam turbine propulsion system in which case a five-year historical industry average is used due to this type of vessel being less efficient than newer vessels and management viewing the five-year historical average as more representative of the future outlook for this type of vessel. Our estimates of vessel utilization, including estimated off-hire time, are based on historical experience. Our estimates of operating expenses and dry-docking expenditures are based on historical operating and dry-docking costs and our expectations of future inflation and operating requirements. Vessel residual values are a product of a vessel’s lightweight tonnage and an estimated scrap rate. The probability of the vessel being sold is based on our current plans and expectations. The remaining estimated lives of our vessels used in our estimates of future cash flows are consistent with those used in the calculations of depreciation.
In our experience, certain assumptions relating to our estimates of future cash flows are more predictable by their nature, including estimated revenue under existing contract terms, ongoing operating costs and remaining vessel life. Certain assumptions relating to our estimates of future cash flows require more judgment and are inherently less predictable, such as future charter rates beyond the firm period of existing contracts, the probability and timing of vessels being sold and vessel residual values, due to factors such as the volatility in vessel charter rates and vessel values. We believe that the assumptions used to estimate future cash flows of our vessels are reasonable at the time they are made. We can make no assurances, however, as to whether our estimates of future cash flows, particularly future vessel charter rates or vessel values, will be accurate.
Effect if Actual Results Differ from Assumptions. If we conclude that a vessel or equipment is impaired, we recognize a loss in an amount equal to the excess of the carrying value of the asset over its fair value at the date of impairment. The written-down amount becomes the new lower cost basis and will result in a lower annual depreciation expense in periods subsequent to the vessel impairment. Consequently, any changes in our estimates of future undiscounted cash flows may result in a different conclusion as to whether a vessel or equipment is impaired, leading to a different impairment amount, including no impairment, and a different future annual depreciation expense.
The following table presents, by type of vessel, the aggregate market values and carrying values of certain of our vessels that we have determined have a market value that ismay be less than their carrying valuevalues as of December 31, 2017. Specifically, the table below reflects all such vessels, except2020. We have excluded those assets operating on charter contracts where the remaining term is significant and the estimated future undiscounted cash flows relating to such charter contracts are sufficiently greater than the carrying value of the vessels such that we consider it unlikely that an impairment would be recognized in 2018.2021. While the market values of these vessels aremay be below their carrying values, no impairment has been recognized on any of these vessels as the estimated future undiscounted cash flows relating to such vessels are greater than their carrying values.
The vessels included in the following table generally include those vessels employed on single-voyage, or “spot” charters, as well as those vessels near the end of existing charters. In addition, the following table also includes vessels on operational contracts with impairment indicators that are unique to those vessels.charter contracts.
In estimating the future undiscounted cash flows for the above-mentioned FPSO units, we made assumptions and used estimates regarding the following factors: operating costs of the units, level of oil production, average annual oil price, oil field reserves, redeployment of vessels and redeployment rates, amount of capital investments required before deployment to a new field, any idle time before redeployment. Should actual results differ significantly from our estimates and assumptions, we may be required to recognize impairments of the carrying values of the units.
We would consider the vessels reflected in the following table to be at a higher risk of future impairment thancompared to other vessels in our vessels not reflected in the table. Thefleet. This table is disaggregated for vessels which have estimated future undiscounted cash flows that are marginally or significantly greater than their respective carrying values. The recognition of an impairment in the future may be more likely for those vessels that have estimated future undiscounted cash marginally greater than their respective carrying values. Vessels with estimated future cash flows significantly greater than their respective carrying values would not likely be impaired in the next 12 months unless they are disposed of. In deciding whether to dispose of a vessel, we determine whether it is economically preferable to sell the vessel or continue to operate it. This assessment includes an estimate of the net proceeds expected to be received if the vessel is sold in its existing condition compared to the present value of the vessel’s estimated future revenue, net of operating costs.cash flows. Such estimates are based on the terms of the existing charter, charter market outlook, future vessel values, and estimated operating costs, given a vessel’s type, condition and age. In addition,
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Type of Vessel (in thousands of U.S. dollars, except number of vessels) | | Number of Vessels | | Market Values (1) | | Carrying Values |
Conventional Tankers (2) | | 18 | | | 338,700 | | | 577,371 | |
Conventional Tankers (3) | | 26 | | | 660,400 | | | 866,354 | |
Liquefied Natural Gas Carriers (3) | | 4 | | | 154,000 | | | 316,717 | |
| Total | | 48 | | | 1,153,100 | | | 1,760,442 | |
(1)Market values are determined in reference to second-hand market comparables. Since vessel values can be volatile, our estimates of market value shown above may not be indicative of either the current or future prices we typically do not disposecould obtain if we sold any of a vessel that is servicing an existing customer contract. The recognition of an impairment in the future may be more likelyvessels.
(2)Undiscounted cash flows for thosethese vessels that have estimated futureare marginally greater than their carrying values.
(3)Undiscounted cash flows for these vessels are significantly greater than their carrying values. There were no LNG carriers whose undiscounted cash flows were marginally greater than their respective carrying value.values.
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(in thousands of U.S. dollars, except number of vessels) Type of Vessel | | Number of Vessels | | Market Values (1) $ | | Carrying Values $ |
FPSO Unit (1) | | 1 |
| | 179,000 |
| | 195,854 |
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Conventional Tanker Segment (2) | | 11 |
| | 153,500 |
| | 293,088 |
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Conventional Tanker Segment (3) | | 28 |
| | 717,076 |
| | 1,222,499 |
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Liquefied Gas Segment (3) | | 8 |
| | 226,402 |
| | 325,125 |
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(1) | Market values are based on second-hand market comparable values or using a depreciated replacement cost approach as at December 31, 2017. Since vessel values can be volatile, our estimates ofThe table above excludes Teekay LNG's seven wholly-owned multi-gas carriers whose aggregate estimated market value may not be indicative of either the current or future prices we could obtain if we sold any of the vessels. In addition, the determination of estimated market values for our FPSO units may involve considerable judgment, given the illiquidity of the second-hand market for these types of vessels. |
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(2) | Undiscounted cash flows for these vessels are marginally greater than their carrying values. |
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(3) | Undiscounted cash flows for these vessels are significantly greater than their carrying values. |
Judgments and Uncertainties. 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 tankersaggregate carrying crude oilvalue at December 31, 2020 were $105.8 million and refined product, 30 years for LPG carriers and 35 years for LNG carriers, commencing the date the vessel is delivered from the shipyard, or a shorter period if regulations prevent us from operating the vessels for those periods of time. We consider shuttle tankers to be comprised of two components: (i) a conventional tanker (or the tanker component) and (ii) specialized shuttle equipment (or the shuttle component). We differentiate these two components on the principle that a shuttle tanker can also operate as a conventional tanker without the use of the shuttle component. The economics of this alternate use depend on the supply and demand fundamentals in the two segments. We have assessed the useful life of the tanker component as being 25 years and the shuttle component as being 20 years. FPSO units are depreciated using an estimated useful life of 20 to 25 years commencing the date the unit is installed at the oil field and is in a condition that is ready to operate. FSO units are depreciated over the estimated term of the contract. UMS are depreciated over an estimated useful life of 35 years commencing the date the unit arrives at the oil field and is in a condition that is ready to operate. Long-distance towing and offshore installation$103.1 million, respectively. Such vessels are depreciated over an estimated useful lifeat a higher risk of 25 years commencing the date the vessel is delivered from the shipyard.
However, the actual life of a vessel may be different than the estimated useful life, with a shorter actual useful life resulting in an increase in quarterly depreciation and potentially resulting in an impairment loss. The estimated useful life of our vessels takes into accountdue to their design life, commercial considerations and regulatory restrictions. Our estimates of future cash flows involve assumptions about future charter rates, vessel utilization, operating expenses, dry-docking expenditures, vessel residual values, redeployment assumptions for vessels on long-term charter and the remaining estimated life of our vessels. Our estimated charter rates are based on rates under existing vessel contracts and market rates at which we expect we can re-charter our vessels. Our estimates of vessel utilization, including estimated off-hire time and the estimated amount of time our shuttle tankers may spend operating in the spot tanker market when not being used in their capacity as shuttle tankers, are based on historical experience and our projections of the number of future shuttle tanker voyages. Our estimates of operating expenses and dry-docking expenditures are based on historical operating and dry-docking costs and our expectations of future inflation and operating requirements. Vessel residual values are a product of a vessel’s lightweight tonnage and an estimated scrap rate. The remaining estimated lives of our vessels used in our estimates of future cash flows are consistent with those used in the calculations of depreciation.performance.
In our experience, certain assumptions relating to ourOur estimates of future cash flows are more predictablesensitive to changes in certain assumptions, such as future charter rates. For example, if at December 31, 2020 the 10-year historical average of actual spot charter rates earned by our conventional tankers, adjusted to exclude years which management has determined as outliers, was increased by 5% or greater, then we would not have written down any of the four vessels we wrote down in the fourth quarter of 2020 by $21.9 million to their nature, including estimated revenue under existing contract terms, ongoing operating costs and remaining vessel life. Certain assumptions relatingfair value at such date. In addition, for those 18 conventional tankers in the table above where the undiscounted cash flows are marginally greater than the carrying values, if at December 31, 2020 the 10-year historical average of actual spot charter rates earned by our conventional tankers, adjusted to exclude years which management has determined as outliers, was reduced by either 5% or 10%, 8 or 17, respectively, of the 18 conventional tankers would have been impaired, resulting in an additional impairment of $136.1 million or $220.3 million, respectively. For those 26 conventional tankers in the table above where the undiscounted cash flows are significantly greater than the carrying values, even if, at December 31, 2020, the 10-year historical average of actual spot charter rates earned by our conventional tankers, adjusted to exclude years which management has determined as outliers, was reduced by 10%, none of those 26 vessels would be impaired. For the four LNG carriers in the table above, even if, at December 31, 2020, our estimates of future cash flows require more discretion and are inherently less predictable, such as future charter rates beyond the firm period of existing contracts was reduced by 10%, none of those four vessels would be impaired.
Credit Losses
In June 2016, the Financial Accounting Standards Board (or FASB) issued Accounting Standards Update 2016-13, Financial Instruments Credit Losses: Measurement of Credit Losses on Financial Instruments (or ASU 2016-13). ASU 2016-13 introduced a new credit loss methodology, which requires earlier recognition of credit losses, while providing additional transparency about credit risk. This new credit loss methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses are subsequently adjusted each period for changes in expected lifetime credit losses. This methodology replaced multiple impairment methods under previous GAAP for these types of assets, which generally required that a loss be incurred before it was recognized. The Company adopted ASU 2016-13 on January 1, 2020. A substantial majority of our exposure to potential credit losses relates to Teekay LNG's direct financing and sales-type leases, including those within its equity-accounted joint ventures. See "Item 18 – Financial Statements: Note 13 - Financial Instruments" for a description of these direct financing and sales-type leases.
Judgments and Uncertainties. ASU 2016-13 gives entities the flexibility to select an appropriate method to measure the estimate of expected credit losses. That is, entities are permitted to use estimation techniques that are practical and relevant to their circumstances, as long as they are applied consistently over time and aim to faithfully estimate expected credit losses. We have determined the credit loss provision related to the lease receivable component of the net investment in direct financing and sales-type leases using an internal historical loss rate method. We concluded that using a loss rate method which is primarily based on internal historical data is inherently more representative than primarily using external data, which may include all industries, or all oil and gas or all marine transportation, which are not as comparable. In addition, a substantial majority of our customers are private single-purpose entities or subsidiaries or joint ventures of larger listed-entities that do not publish financial information nor do they have published credit ratings determined by credit rating agencies. In the limited circumstances where relevant and reliable external data is available and where judged to be appropriate, we have considered such data in making adjustments to our internally derived loss rate. Judgment is required to determine the applicability and reliability of the external data used. The credit loss provision for the residual value component is based on the current estimated fair value of the vessel residual values, dueas depreciated to factorsthe end of the charter contract as compared to the expected carrying value, with such aspotential gain or loss on maturity being included in the credit loss provision in increasing magnitude on a straight-line basis the closer the contract is to its maturity. Given the volatility in vessel charter rates and vessel values. values, the selection of the method to estimate the credit loss provision for the residual value component involves judgment.
We believe that the assumptions used to estimate future cash flows of our vesselsexpected credit losses are reasonable at the time they are made. We can make no assurances, however, as to whether our estimates of future cash flows, particularly future vessel charter rates or vessel values, will be accurate.
In addition to the judgment used in selecting the methods to measure the credit loss provision, there is also judgment used in applying the methods. We have used judgment in determining whether or not the risk characteristics of a specific direct financing lease or sales-type lease at the measurement date are consistent with those used to measure the internal historical loss rate, and to determine whether we expect current conditions and reasonable and supportable forecasts to differ from the conditions that existed to measure the internal historical loss rate. In addition, judgment has been used to determine the internal historical loss rate, as it is based in part on estimates of the occurrence or non-occurrence of future events which will dictate the amount of recoveries earned or additional losses incurred associated with known losses incurred to date. Judgment has also been used to determine the adjustment required to the internal historical loss rate, in those circumstances where relevant and reliable external data was identified. Furthermore, the current estimated fair value of the vessels used in our estimate of expected credit losses for direct financing and sales-type leases has been determined based on second-hand market comparable values. Judgment is used when vessels sold are different in age, size and technical specifications compared to our vessels. Since vessel values can be volatile, our estimates may not be indicative of either the current or future prices we could obtain if we sold any of the vessels.
Effect if Actual Results Differ from Assumptions. IfTo the extent the methods, and judgments used in applying these methods, that we concludeuse to measure our estimate of expected credit losses results in a credit loss provision that is different from actual results, our credit loss provision at the end of each period and the change in the credit loss provision in each period will be different than what would have otherwise been. More specifically, if the judgments used in determining our unadjusted historical loss rate for our direct financing and sales-type leases results were changed and such changes resulted in a vessel or equipment is impaired,5% increase (decrease) to our unadjusted historical loss rate, our 2020 net income before non-controlling interest and total equity would have both decreased (increased) by $1.9 million. In addition, if we recognize a loss in an amount equal to the excesshad increased (decreased) our estimates of the carryingresidual value of the asset over its fair value at the date of impairment. The written-down amount becomes the new lower cost basisvessels by 5%, our 2020 net income before non-controlling interest and will result in a lower annual depreciation expense than for periods before the vessel impairment.
Dry docking
Description. We capitalize a substantial portion of the costs we incur during dry docking and amortize those costs on a straight-line basis over the useful life of the dry dock. We expense costs related to routine repairs and maintenance incurred during dry docking that do not improve operating efficiency or extend the useful lives of the assets and for annual class survey costs on our FPSO units. When significant dry-docking expenditures occur prior to the expiration of the original amortization period, the remaining unamortized balance of the original dry-docking cost and any unamortized intermediate survey costs are expensed in the period of the subsequent dry dockings.
Judgments and Uncertainties. Amortization of capitalized dry-dock expenditures requires us to estimate the period of the next dry-docking and useful life of dry-dock expenditures. While we typically dry dock each vessel every two and a half to five years andtotal equity would have a shipping society classification intermediate survey performed on our LNG and LPG carriers between the second and third year of the five-year dry-docking period, we may dry dock the vessels at an earlier date, with a shorter life resulting in an increase in the depreciation.
Effect if Actual Results Differ from Assumptions. If we change our estimate of the next dry-dock date for a vessel, we will adjust our annual amortization of dry-docking expenditures.
Goodwill and Intangible Assets
Description. We allocate the cost of acquired businesses 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 affectedboth increased (decreased) by the amortization of intangible assets and potential impairment charges related to goodwill or intangible assets. Accordingly, the allocation of the 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.$9.9 million.
Goodwill is not amortized, but reviewed for impairment at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit to below its carrying value. When goodwill is reviewed for impairment, we may elect to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. Alternatively, we may bypass this step and use a fair value approach to identify potential goodwill impairment and, when necessary, measure the amount of impairment. We use a discounted cash flow model to determine the fair value of reporting units, unless there is a readily determinable fair market value. Intangible assets are assessed for impairment when and if impairment indicators exist. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value.
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.
Effect if Actual Results Differ from Assumptions. As of December 31, 2017, we had four reporting units with goodwill attributable to them. As of the date of this Annual Report, we do not believe that there is a reasonable possibility that the goodwill attributable to our four reporting units with goodwill attributable to them might be impaired within the next year. 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. Please read “Part I—Forward-Looking Statements.”
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. In addition, we have stock purchase warrants, a type of option agreement, to acquire up to an additional 16.3 million shares of Teekay Offshore’s common units at a fixed price. See “Item 18 – Financial Statements: Note 15 —– Derivative Instruments and Hedging Activities”. Changes in fair value of derivative financial instruments that are not designated as cash flow hedges for accounting purposes are recognized in earnings in the consolidated statementstatements of income.income (loss). 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 in the consolidated statementstatements of income (loss) 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 we determine that a hedge has ceased to be highly effective, we will discontinue hedge accounting prospectively.
Judgments and Uncertainties. A substantial majority of the fair value of our derivative instruments and the change in fair value of our derivative instruments from period to period result from our use of interest rate and cross currency swap agreements and our holding of stock purchase warrants.agreements. The fair value of our derivative 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 and the current credit worthiness of us and the swap counterparties. The estimated amount for interest rate and cross currency swaps is the present value of estimated future cash flows, being equal to the difference between the benchmark interest rate and the fixed rate in the interest rate and cross currency swap agreement, multiplied by the notional principal amount of the interest rate and cross currency swap agreement at each interest reset date. For the stock purchase warrants, we take into account the stock price of Teekay Offshore, the expected volatility of the Teekay Offshore stock price and an estimate of the risk-free rate over the term of the warrants.
The fair value of our interest rate and cross currency swap agreements at the end of each period is most significantly impacted by the interest rate implied by the benchmark interest rate yield curve, including its relative steepness. Interest rates have experienced significant volatility in recent years in both the short and long term.long-term. While the fair value of our interest rate swap agreements is typically more sensitive to changes in short-term rates, significant changes in the long-term benchmark interest rate and foreign currency exchange rates also materially impact our interest rate and cross currency swap agreements.
The fair value of our interest rate swap agreements is also impacted by changes in our specific credit risk included in the discount factor. We discount our interest rate swap agreements with reference to the credit default swap spreads of similarly rated global industrial companies and by considering any underlying collateral. The process of determining credit worthiness requires significant judgment in determining which source of credit risk information most closely matches our risk profile.
The benchmark interest rate yield curve and our specific credit risk are expected to vary over the life of the interest rate and cross currency swap agreements. The larger the notional amount of the interest rate and cross currency swap agreements outstanding and the longer the remaining
duration of the interest rate and cross currency swap agreements, the larger the impact of any variability in these factors will be on the fair value of our interest rate and cross currency swaps. We economically hedge the interest rate exposure on a significant amount of our long-term debt and for long durations. As such, we have historically experienced, and we expect to continue to experience, material variations in the period-to-period fair value of our derivative instruments.
The fair value of our Teekay Offshore stock purchase warrants at the end of each period is most significantly impacted by the stock price of Teekay Offshore and the expected future volatility of the Teekay Offshore stock price. The cyclical nature of the offshore industry may cause significant increases or decreases in the value of Teekay Offshore’s vessels, Teekay Offshore’s stock price and the value of the stock purchase warrants we hold.
Effect if Actual Results Differ from Assumptions. Although we measure the fair value of our derivative instruments utilizing the inputs and assumptions described above, if we were to terminate the agreements or sell the stock purchase warrants at the reporting date, the amount we would pay or receive to terminate the derivative instruments and the amount we would receive upon sale of the stock purchase warrants may differ from our estimate of fair value. If the estimated fair value differs from the actual termination amount, an adjustment to the carrying amount of the applicable derivative asset or liability would be recognized in earnings for the current period. Such adjustments could be material. See “Item 18 – Financial Statements: Note 15 —– Derivative Instruments and Hedging Activities” for the effects on the change in fair value of our derivative instruments on our consolidated statements of income (loss).
Taxes
Description. The expenses we recognize relating to taxes are based on our income, statutory tax rates and our interpretations of the tax regulations in the various jurisdictions in which we operate. We review our tax positions quarterly and adjust the balances as new information becomes available.
Judgments and Uncertainties. We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. The future realization of deferred tax assets depends on the existence of sufficient taxable income of the appropriate character in either the carryback or carryforward period. This analysis requires, among other things, the use of estimates and projections in determining future reversals of temporary differences, forecasts of future profitability and evaluating potential tax-planning strategies. In addition, we recognize the tax benefits of uncertain tax positions only if 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 by the taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in evaluating uncertainties.
Effect if Actual Results Differ from Assumptions. If we determined that we were able to realize a net deferred tax asset in the future or if an uncertain tax position was sustained upon examination, and such amount was in excess of the net amount previously recognized, we would increase our net income in the period such determination was made. Likewise, if we determined that we were not able to realize all or a part of our deferred tax asset in the future or if an uncertain tax position was not sustained upon examination, we would decrease our net income in the period such determination was made. See “Item 18 - Financial Statements: Note 21 - Income Taxes”.
Impairment of Investments in Equity-Accounted Joint Ventures.
Description. We evaluate our investments in equity-accounted joint ventures for impairment when events or circumstances indicate that the carrying value of such investments may have experienced an other-than-temporary decline in value below its carrying value. If this is the case, the carrying value of the investment in equity-accounted joint venture is written down to its estimated fair value and the resulting impairment is recognized in our consolidated statement of income (loss).
Judgments and Uncertainties. The process of evaluating the potential impairment of investments in equity-accounted joint ventures requires significant judgment in determining whether the estimated value of an investment in an equity-accounted joint venture has declined below its carrying value and if so, whether this is an other-than-temporary decline in value. Such judgments include, among other things, estimates of future charter rates, operating expenses and vessel values, timing of vessels sales and deliveries and future growth prospects. In determining whether an impairment of an equity method investment is other-than-temporary, factors to consider include the length of time and extent to which the fair value of the investment is less than its carrying value; the financial condition and near-term prospects of the equity method investee, including recent operating losses or specific events that may negatively influence the future earnings potential of the investee; and the intent and ability of the holder to retain its investment in the investee for a period of time sufficient to allow for any anticipated recovery in market value. As at December 31, 2020, we conducted an impairment test for Teekay LNG's investment in the MALT Joint Venture and determined that its estimated fair value had declined below its carrying value, although it was determined that such decline was not other-than-temporary.
Effect if Actual Results Differ from Assumptions. If we determine that an investment in an equity-accounted joint venture is impaired, we recognize a loss in an amount equal to the excess of the carrying value of the investment over its estimated fair value at the date of impairment. The written-down amount becomes the new lower cost basis of the investment. In addition, we may assign the impairment to individual assets held by the equity-accounted joint venture, such as vessels and equipment, and this would result in an increase in our proportionate share of comprehensive earnings of the joint venture in future periods due to lower depreciation expense of the vessels and equipment of the equity-accounted joint venture. Consequently, differences in conclusions about whether an investment in an equity-accounted joint venture is impaired and the amount of such impairment may result in a different impairment amount, including no impairment, and a different equity income (loss) income.in future periods.
Item 6.Directors, Senior Management and Employees
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Item 6. | Directors, Senior Management and Employees |
Directors and Senior Management
Our directors and executive officers as of the date of this Annual Report and their ages as of December 31, 20172020 are listed below:
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| Name | | Age | | Position |
C. Sean DayDavid Schellenberg | | 6857 | | Chairman Emeritus, Director Chair (1)(2)(3)
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Peter S. JansonAntturi | | 7062 | | Director |
| Rudolph Krediet | | 4043 | | Director (2) (3) |
| Heidi Locke Simon | | 5053 | | Director(2)(4)(5) |
Bjorn Moller | | 60 | | Director |
Tore I. Sandvold | | 70 | | Director |
| Alan Semple | | 5861 | | Director |
David Schellenberg | | 54 | | Director (2)(6) |
Bill Utt | | 60 | | Director (3)
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| Arthur Bensler | | 6063 | | Executive Vice President, Secretary and General Counsel |
| William Hung | | 4649 | | Executive Vice President, Strategic Development |
| Kenneth Hvid | | 4952 | | Director (5), President and Chief Executive Officer |
| Mark Kremin | | 4750 | | President and Chief Executive Officer, Teekay Gas Group Ltd. |
| Vincent Lok | | 4952 | | Executive Vice President and Chief Financial Officer |
| Kevin Mackay | | 4952 | | President and Chief Executive Officer, Teekay Tankers Ltd. |
Ingvild Saether | | 49 | | President and Chief Executive Officer, Teekay Offshore Group Ltd. |
(1) Retired as Chair on June 15, 2017; remains on Board of Directors.Nominating and Governance Committee.
(2) Appointed on September 12, 2017.Member of Audit Committee.
(3) Appointed Member of Compensation and Human Resources Committee.
(4)Chair on June 15, 2017.of Compensation and Human Resources Committee.
(5)Member of Nominating and Governance Committee.
(6)Chair of Audit Committee.
Certain biographical information about each of these individuals included in the table above is set forth below:
C. Sean Day has served as directorDavid Schellenberg joined the board of Teekay Corporation since 1998, taking onin 2017 and was appointed as its Chair in June 2019. Mr. Schellenberg joined the role as Chair of the Board from 1999 until June 2017. He continues to serve on the Board as Chair Emeritus. He currently also serves as directorboard of Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P., where he also served as Chair until 2015. In addition, he served asin May 2019 and the Chair of Teekay Offshore GP L.L.C., the general partner of Teekay Offshore Partners L.P. from 2006 to 2017, and as Chairboard of Teekay Tankers LtdLtd. in June 2019. He is a member of the Audit Committees of both Teekay Corporation and Teekay Tankers Ltd. Mr. Schellenberg brings over 25 years of financial and operating leadership experience to these roles. He is currently a Managing Director and Principal with Highland West Capital, a private equity firm in Vancouver, Canada. Prior to that, Mr. Schellenberg was with specialty aviation and aerospace businesses, Conair Group and its subsidiary Cascade Aerospace, from 20072000 to 2013. From 1989 to 1999, Mr. Day was2013 and served as President and Chief Executive Officer of Navios Corporation,from 2007 to 2013. Mr. Schellenberg also acted as a large bulk shipping company based in Stamford, Connecticut. Prior to Navios, Mr. Day held a number of senior management positionsManaging Director in the shipping and finance industries. He currently serves as a directorCorporate Office of Kirby Corporation andthe Jim Pattison Group, Canada’s second largest private company, from 1991 to 2000. Mr. Schellenberg is Chair of Compass Diversified Holdings. Mr. Day is engaged as a consultant to Kattegat Limited, the parent company of Resolute Investments, Ltd., our largest shareholder, to oversee its investments, including that in the Teekay group of companies.
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 TableYoung Presidents’ Organization, holds an MBA and is a Fellow of the Chartered Professional Accountants of Canada (FCPA, FCA).
Peter Antturi joined the board of Teekay Corporation in June 2019 and brings over 30 years of financial and operational experience in the United States,shipping industry to this role. Mr. Antturi serves as an executive officer and director of Teekay Corporation’s largest shareholder, Resolute Investments, Ltd. (Resolute), as well as other subsidiaries and affiliates of Kattegat Limited, a memberparent company of Resolute. Mr. Antturi previously worked with Teekay from 1991 through 2005, serving as President of Teekay’s shuttle tanker division, as Senior Vice President, Chief Financial Officer and Controller and in other finance and accounting positions. Prior to joining Teekay, Mr. Antturi held various accounting and finance roles in the National Advisory Board on Sciences and Technology in Canada.shipping industry since 1985.
Rudolph Krediet joined the board of Teekay Board on September 12, 2017. Mr. KredietCorporation in 2017 and brings over 1520 years of experience as a financial investment professional.professional to this role. He has served as a Partnerpartner at Anholt Services (USA), Inc., a wholly ownedwholly-owned subsidiary of Kattegat Trust, which oversees the trust’s globally diversediversified investment portfolio, since 2013. Mr. Krediet has acted as Principal at Compass Group Management L.L.C.,LLC, the manager of Compass Diversified Holdings, a publicly traded investment holding company, from 2010 to 2013, and as Vice President from 2006 to 2009. He acted as Vice President at CPM Roskamp Champion, a global leader in the design of manufacturing of oil seed processing equipment, from 2003 to 2004. Mr. Krediet has an MBA from the Darden Graduate School of Business at the University of Virginia.
Heidi Locke Simon joined the board of Teekay Board on September 12, 2017. Ms. Locke SimonCorporation in 2017 and brings over 2025 years of strategic management experience to the Teekay Board.this role. She was formerly a Partnerpartner at Bain & Company, a global management consulting organization, where she worked from 1993 to 2012. Prior to this, Ms. Locke Simon was an Investment Banking Analyst at Goldman, Sachs & Co. She has contributed to HBS Community Partners, a volunteer consulting organization, from 2013 to 2106.2016. She hasalso served as a Board Observer with Teekay sinceCorporation from 2016 to 2017 and as a director of KQED Public Media from 2008 to 2014, and she has served as a director of Turning Green since 2004. Ms. Locke Simon holds an MBA from 2004 to present. Harvard Business School.
Bjorn MollerAlan Semple has served as a director of Teekay directorCorporation since 1998. Mr. Moller also served as Teekay's President2015, and Chief Executive Officer from 1998 until 2011. Mr. Moller also served as Vice Chairjoined the board of Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P., Vice Chair of Teekay Offshore GP L.L.C., the general partner of Teekay Offshore Partners L.P. and as a director and the Chief Executive Officer of Teekay Tankers Ltd. Mr. Moller remains a director of Teekay Tankers Ltd. Mr. Moller has over 35 years of experience in the shipping industry, and served as Chairman of the International Tanker Owners Pollution Federation from 2006 to 2013.May 2019. He served in senior management positions with Teekay for more than 20 years and headed our overall operations beginning in 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. Mr. Moller is also a director of Kattegat Limited, the parent company of Resolute Investments, Ltd., the largest shareholder of Teekay Corporation.
Tore I. Sandvold has served as a Teekay director since 2003. He has over 35 years of 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 servedcurrently serves 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 Chair of the BoardAudit Committees 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 companiesboth Teekay Corporation and advisory bodies in the energy industry. Mr. Sandvold serves on other boards, including those of Schlumberger Limited, Lambert Energy Advisory Ltd., Energy Policy Foundation of Norway, Rowan Companies plc and Njord Gas Infrastructure.
Alan Semple has served as a Teekay director since 2015.GP L.L.C. Mr. Semple brings over 30 years of finance experience, primarily in the energy industry, to the Teekay Board.these roles. He was formerly Directora director and Chief Financial Officer at John Wood Group PLC (Wood Group)(Wood Group), a provider of engineering, production support and maintenance management services to the oil and gas and power generation industries, a role he held from 2000 until his retirement in May 2015. Prior to this, heMr. Semple held a number of senior finance roles in the Wood Group from 1996. Mr. Semple currently serves on the Boardboard of Cactus, Inc. (NYSE) where he is Chair of the Audit Committee. He serves on the Board of Cobham PLC (LSE),(NYSE: WHD) where he is the Chair of the Audit Committee.
David Schellenberg joined the Teekay Board on September 12, 2017. Mr. Schellenberg brings over 25 years of financial and operating leadership to the Teekay Board and is currently a Managing Director and Principal with Highland West Capital, a Private Equity firm in Vancouver. Prior to that, he was with Conair Group and its subsidiary Cascade Aerospace, specialty aviation and aerospace businesses, from 2000 to 2013 and was President and CEO from 2007 to 2013. Mr. Schellenberg He also acted as a Managing Director in the Corporate Office of the Jim Pattison Group, Canada’s second largest private company, from 1991 to 2000. Mr. Schellenberg is a member of the Young Presidents’ Organization.
Bill Utt has served as a Teekay director since 2015 and was appointed Chair on June 15, 2017. He was also appointed Chair and director of Teekay Offshore GP L.L.C., the general partner of Teekay Offshore Partners L.P. on June 15, 2017. Mr. Utt brings over 30 years of engineering and energy industry experience to the Teekay Board. From 2006 until his retirement in 2014, he served as Chair, President and Chief Executive Officer of KBR Inc., a global engineering, construction and services company. From 1995 to 2006, Mr. Utt served as the President and CEO of SUEZ Energy North America and President and CEO of Tractebel’s North American energy businesses. Prior to 1995, he held senior management positions with CRSS, Inc., which was a developer and operator of independent power and industrial energy facilities prior to its merger with Tractebel in 1995. Mr. Utt also currently serves as Chair on the Board of Directors at Cobalt International Energy and is a member of the BoardAudit Committee of Directors for Brand Energy & Infrastructure Services, a Clayton, Dubilier & Rice, L.L.C. portfolio company.Cobham PLC (LSE: COB) until 2018.
Arthur Bensler joined Teekay in 1998 as General Counsel. He was promoted to the position of Vice President and General Counsel in 2002, and became the Corporate Secretary in 2003. He2003, and was appointedfurther promoted to Senior Vice President and General Counsel in 2004 and to Executive Vice President and General Counsel in 2006. In June 2013, Mr. Bensler was appointed Director and Chairhas served as a director of Teekay Tankers Ltd. havingsince 2013, and also served as its Chair from 2013 until June 2019. Mr. Bensler served as Corporate Secretary of Teekay Tankers Ltd. from 2007 to September 2014.until 2014 and was reappointed in July 2019. Prior to joining Teekay, Mr. Bensler was a partner in a large Vancouver, CanadaCanada-based law firm, where he practiced corporate, commercial and maritime law from 1987 until joining Teekay.1998.
William Hung joined Teekay in 1995 and has served as Executive Vice President, Strategic Development since February 2016. Prior to this position, Mr. Hung had worked in a variety of roles at Teekay including Chartering, Business Development, Finance and Accounting, Commercial and Strategic Development. Additionally, Mr. Hung served as Chief Executive Officer of Tanker Investments Ltd. from January 2014 until its merger with Teekay Tankers Ltd. in November 2017.
Kenneth Hvid was appointed has served as Teekay’s President and CEOChief Executive Officer since 2017 and joined the board of Teekay on February 1, 2017 andCorporation in June 2019. He has served as a director of Teekay OffshoreTankers Ltd. since 2017 and was appointed as its Chair in June 2019. He has also served as a director of Teekay GP L.L.C., the general partner of Teekay OffshoreLNG Partners L.P., since 2018, having previously served as a director from 2011 to 2015, and was appointed as director of Teekay Tankers Ltd. since February 2017. Heits Chair in May 2019. Mr. Hvid joined Teekay Corporation in 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 involvedServices, in leading Teekay through its entry2004 and growth in the LNG business. He held this position until the beginning of 2006, when he was appointedto President of ourthe Teekay Navion Shuttle Tankers and Offshore division. In that role, he was responsible for our global shuttle tanker businessdivision in 2006. He served as well as initiatives in the floating storage and offtake business and related offshore activities. Mr. Hvid served asTeekay Corporation’s Chief Strategy Officer and Executive Vice President from 2011 to 2015,2015. He also served as a director of TeekayAltera Infrastructure GP L.L.C. (formerly known as Teekay Offshore GP L.L.C.) from 2011 to 2015June 2020, and as President and CEOChief Executive Officer of Teekay Offshore Group Ltd., from 2015 until January 2017.to 2016. Mr. Hvid has 2830 years of global shipping experience, 12 of which were spent with A.P. Moller in Copenhagen, San Francisco and Hong Kong. In 2007, Mr. Hvid joined the board of Gard P.& I. (Bermuda) Ltd.
Mark Kremin was appointed as President & CEOand Chief Executive Officer of Teekay Gas Group Ltd., a company that provides services to Teekay LNG Partners L.P. and its subsidiaries, in February 2017. He washad previously been appointed as President of Teekay Gas Services in 2015, having acted as its Vice President since 2006. Mr. Kremin has over 20 years of experience in shipping. In 2000, he joined Teekay Corporation as in-house counsel. Hecounsel in 2000, and subsequently held various commercial roles within Teekay Gas Services.Gas. He represents Teekay Gas on the boards of joint ventures with partners in Asia, Europe and the Middle East. Mr. Kremin has over 20 years’ experience in shipping. Prior to joining Teekay, he was an attorney in an admiralty law firm in Manhattan. Prior to attending law school in New York City, he worked for a leading owner and operator of containerships.container ships.
Vincent Lok has served as Teekay’s Executive Vice President and Chief Financial Officer since 2007. He has held a number of finance and accountingfinancial positions withsince joining Teekay in 1993, including Controller from 1997 until his promotions to the positions of Vice President, Finance in 2002, Senior Vice President and Treasurer in 2004, and Senior Vice President and Chief Financial Officer in 2006. Mr. Lok was appointedserved as a director of Teekay GP L.L.C., the general partner of Teekay LNG Partners L.P. in June 2015. He, from 2015 to 2018 and also served as the Chief Financial Officer of Teekay Tankers Ltd. from 2007 tountil 2017. Prior to joining Teekay, Mr. Lok worked as a Chartered Professional Accountant within the audit practice of Deloitte & Touche LLP. Mr. Lok is alsoa Chartered Professional Accountant (CPA, CA) and a Chartered Financial Analyst.Analyst (CFA) charterholder.
Kevin Mackay was appointed as President and Chief Executive Officer of Teekay Tankers LtdLtd., a controlled subsidiary of Teekay Corporation, in 2014 and leads a global network of commercial offices in Asia, Europe and North America, with the responsibility of marketing Teekay's fleet of conventional tankers.2014. Mr. Mackay joined Teekay Tankers Ltd. from Phillips 66, where he headed the global marine business unit, and held a similar role as the General Manager, Commercial Marine, at ConocoPhillips from 2009 to 2012 before the formation of Phillips 66. Mr. Mackay started his career working for Neptune Orient Lines in Singapore from 1991 to 1995. He then joined AET Inc. Limited (AET) (formerly American Eagle Tankers Inc.) in Houston, becoming the Regional Director -– Americas, Senior Vice President.
Ingvild Sæther was appointed President and CEO Mr. Mackay holds a B.Sc. (Econ) Honours from the London School of Teekay Offshore Group Ltd., a company that provides services to Teekay Offshore Partners L.P. and its subsidiaries, in February 2017. Ms. Sæther joined Teekay in 2002 as a result of Teekay’s acquisition of Navion AS from Statoil ASA. Since joining Teekay, Ms. Sæther has held management positions in Teekay’s conventional tanker business until 2007, when she assumed the commercial responsibility for Teekay’s shuttle tanker activities in the North Sea and in 2011, Ms. Sæther assumed the position of President, Teekay Offshore Logistics. Ms. Sæther has over 25 years of experience in the shipping and offshore sectorEconomics & Political Science and has been engaged in a number of boards and associations related to the industry.extensive international experience.
Compensation of Directors and Senior Management
Director Compensation
The aggregate cash fees received by the ninefive non-employee directors listed above under Directors and Senior Management two individuals who were non-employee directors during 2017 and who retired in September 2017 and the one individual who served as a non-employee director in 2017 and retired in March 2018,June 2020, for their service as directors, plus reimbursement of their out-of-pocket expenses, was approximately $1.2$0.7 million. Each non-employee director receives an annual cash retainer of $90,000. The Chair of the Board also receives an annual cash retainer of $325,000, $187,500 of which was paid to Sean Day, the Chair of the Board from January 1, 2017 to June 15, 2017 and the remaining $137,500 of which was paid to Bill Utt, the Chair of the Board from June 15, 2017 to December 31, 2017.$215,000. Members of the Audit Committee, Compensation and Human Resources Committee, and Nominating and Governance Committee each receive an annual cash fee of $10,000. The Chairs of the Audit Committee, Compensation and Human Resources Committee, and Nominating and Governance Committee each receive an annual cash fee of $20,000, $17,500 and $15,000, respectively. The Chair of the Board does not receive an additional cash retainer for being a member of the Audit Committee or the Compensation and Human Resources Committee or serving as the Chair of the Nominating and Governance Committee.
Each non-employee director also receives a $110,000 annual retainer to be paid by way of a grant of, at the director’s election, restricted stock or stock options under our 2013 Equity Incentive Plan (or the 2013 Plan). Pursuant to this annual retainer, during 20172020, we granted stock options to purchase an aggregate of 72,576 shares of our common stock at an exercise price of $10.18 per share and 54,023156,150 shares of restricted stock.stock in June 2020.
The Chair of the Board also receives a $360,000$150,000 annual retainer to be paid by way of a grant of, at the Chair’s election, restricted stock or stock options under our 2013 Equity Incentive Plan. Pursuant to this annual retainer, during 2017,2020, we paid $247,500 in the form of 24,313 restricted stock to Sean Day, the Chair of the Board from January 1, 2017 to June 15, 2017 and we paid the remaining $112,500 in the form of 11,051granted 47,318 shares of restricted stock to Bill Utt, the Chair of the Board from June 15, 2017 to December 31, 2017.David Schellenberg.
The restricted stock optionsawards described in this section expire March 6, 2027, ten years after the date of their grant. The stock options and restricted stock vestvests as to one-third of the shares on each of the first three anniversaries of their respective grant dates.
Annual Executive Compensation
The aggregate compensation earned in 20172020 by Teekay’s sevensix executive officers listed above under Directors and Senior Management (or the Executive Officers), and one additional individual who was an executive officer in 2017 and is now retired, excluding equity-based compensation described below, was $6.4$6.5 million. This is comprised of base salary ($3.02.7 million), annual bonus ($2.72.8 million) and pension and other benefits ($0.71.0 million). These amounts were paid primarily in Canadian Dollars, but are reported here in U.S. Dollars using an average exchange rate of 1.301.34 Canadian Dollars for each U.S. Dollar for 2017.2020. Teekay’s annual bonus plan considers both company performance and team performance.
Long-Term Incentive Program
Teekay’s long-term incentive program focuses on the returns realized by our shareholders and is intended to acknowledge and retain those executives who can influence our long-term performance. The long-term incentive plan provides a balance against short-term decisions and encourages a longer time horizon for decisions. This program consists of grants of stock option and restricted stock units. All grants in 20172020 were made under our 2013 Plan.
During March 2017,June 2020, we granted stock options to purchase an aggregate of 448,669 shares of our common stock at an exercise price of $10.18 and 83,653 shares of631,422 restricted stock units to Teekay's Executive Officers under our 2013 Plan. The stock options expire March 6, 2027, ten years after the date of grant. The stock options and restricted stock units vest as to one-third of the shares on each of the first three anniversaries of their grant dates.
Options to Purchase Securities from Registrant or Subsidiaries
In March 2013, we adopted the 2013 Plan and suspended the 1995 Stock Option Plan and the 2003 Equity Incentive Plan (collectively referred to as the Plans). As at December 31, 2017,2020, we had reserved pursuant to our 2013 Plan 5,115,3085,581,663 shares (December 201631, 2019 – 4,780,371)5,606,429) of common stock.
During 2017, 20162019 and 2015,2018, we granted options under the 2013 Plan to acquire up to 732,314, 916,0152,620,582 and 265,1351,048,916 shares of Common Stock, respectively, to eligible officers, employees and directors. There were no granted options in 2020, only restricted stock units were granted. Each option under the Plans has a 10-year term and vests equally over three years from the grant date. The outstanding options under the Plans as at December 31, 20172020 are exercisable at prices ranging from $9.44$3.98 to $56.76 per share, with a weighted-average exercise price of $22.96$10.02 per share and expire between March 7, 201814, 2021 and March 6, 2027.14, 2029.
Starting in 2013, employees who provide services to our publicly-traded subsidiaries (Teekay LNG and Teekay Tankers) and our equity-accounted investee (Teekay Offshore) (collectively, the Daughter Entities), received a proportion of their annual equity compensation award under the equity compensation plan of the applicable Daughter Entity (the Teekay LNG Partners L.P. 2005 Long-Term Incentive Plan or the Teekay Tankers Ltd. 2007 Long-Term Incentive Plan, or the Teekay Offshore Partners L.P. 2006 Long-Term Incentive Plan), depending on their level of contribution towards the applicable subsidiary. These awards generally took the form of Restricted Stock Units (or RSUs), which are described as Phantom Units under the Teekay OffshoreLNG Partners L.P. 2006 Long-Term Incentive Plan and the Teekay LNG Partners L.P.
2005 Long-Term Incentive Plan, but we refer to all of these awards as RSUs for purposes of this disclosure. Teekay Tankers also granted stock options starting in 2014 to certain senior employees. The RSUs vest and become payable with respect to one-third of the shares on each of the first three years following the grant date and accrue distributions or dividends from the date of the grant to the date of vesting. Stock options vest one-third on each of the first three years and expire ten years after the date of their grant.
Board Practices
As at December 31, 2017, theOur Board of Directors consistedcurrently consists of tensix members as listed above under Directors and Senior Management, including one individual who served as a non-employee director in 2017 and retired in March 2018.Management. The Board of Directors is divided into three classes, with members of each class elected to hold office for a term of three years in accordance with the classification indicated below or until his or her successor is elected and qualified.
Directors Heidi Locke Simon and Rudolph Krediet were elected at the 2020 annual meeting, while Director Bjorn Moller did not stand for re-election at the annual meeting and retired from the Board of Directors at such time. Directors Kenneth Hvid and Alan Semple Bill Utt, and C. Sean Day have terms expiring in 2018.2021, and Messrs. Hvid and Semple intend to stand for re-election at the 2021 annual meeting. Directors Peter S. Janson,Antturi and David Schellenberg and Tore I. Sandvoldeach have terms expiring in 2019.2022. David Schellenberg currently serves as Chair of the Board.
There are no service contracts between us and any of our directors providing for benefits upon termination of their employment or service.
The Board of Directors has determined that each of the current members of the Board, other than Kenneth Hvid, Teekay’s President and Chief Executive Officer, has no material relationship with Teekay (either directly or as a partner, shareholder or officer of an organization that has a relationship with Teekay), and is independent within the meaning of our director independence standards, which reflect the New York Stock Exchange (or NYSE) director independence standards as currently in effect and as they may be changed from time to time. In making this determination, the Board considered the relationships of C. Sean DayRudolph Krediet, Heidi Locke Simon and Bjorn MollerPeter Antturi with our largest shareholder or its affiliates and concluded these relationships do not materially affect their independence as directors. Please read “Item 7 -– Major Shareholders and Certain Relationships and Related Party Transactions.”
The Board of Directors has adopted Corporate Governance Guidelines that address, among other things, director qualification standards, director functions and responsibilities, director access to management, director compensation and management succession. This document is available under “Investors – Teekay Corporation – Governance” from the home page of our web site at www.teekay.com.
The NYSE does not require a company like ours, which is a “foreign private issuer”, to have a majority of independent directors on the Board of Directors or to establish compensation or nominating/corporate governance committees composed of independent directors.
The Board of Directors has the following three committees: Audit Committee, Compensation and Human Resources Committee, and Nominating and Governance Committee. The membership of these committees during 20172020 and the function of each of the committees are described below. Each of the committees is currently comprised of independent members, other than Mr. Hvid’s membership on the Nominating and Governance Committee, and operates under a written charter adopted by the Board. All of the committee charters are available under “Corporate“Investors – Teekay Corporation – Governance” infrom the Investor Centrehome page of our website at www.teekay.com. During 2017,2020, the Board held tenfour meetings. Each director attended all Board meetings, withmeetings. During 2020, the exception of four directors, three of whom missed one meeting each and one of whom missed twoBoard held 18 regular committee meetings. Each director who was a member of a regular committee attended all applicable committee meetings.
In addition to the committees and meetings except for onediscussed above, the Board of Directors also struck an ad hoc special committee in 2020 in connection with the sale of Teekay’s interest in the incentive distribution rights of Teekay LNG. The committee consisted of Board members Heidi Locke Simon, Peter Antturi and Alan Semple, and held two meetings during 2020. Each committee member who missed one meeting.attended both meetings.
Our Audit Committee is composed entirely of directors who satisfy applicable NYSE and SEC audit committee independence standards. Our Audit Committee is currently comprised of Alan Semple (Chairman)(Chair), Heidi Locke Simon and David Schellenberg. All members of the committee are financially literate and the Board has determined that Mr. Semple qualifies as an audit committee financial expert.
The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of:
•the integrity of our consolidated financial statements;
•our compliance with legal and regulatory requirements;
•the independent auditors’ qualifications and independence; and
•the performance of our internal audit function and independent auditors.
Our Compensation and Human Resources Committee is composed entirely of directors who satisfy applicable NYSE compensation committee independence standards. This committee is currently comprised of Peter S. Janson (Chairman)Heidi Locke Simon (Chair), C. Sean Day, Rudolph Krediet and David Schellenberg.
The Compensation and Human Resources Committee:
•reviews and approves corporate goals and objectives relevant to the Chief Executive Officer’s compensation, evaluates the Chief Executive Officer’s performance in light of these goals and objectives, and determines the Chief Executive Officer’s compensation;
•reviews and approves the evaluation process and compensation structure for executive officers, other than the Chief Executive Officer, evaluates their performance and sets their compensation based on this evaluation;
•reviews and makes recommendations to the Board regarding compensation for directors;
•establishes and administersoversees long-term incentive compensation and equity-based plans; and
•oversees our other compensation plans, policies and programs.
Our Nominating and Governance Committee is currently comprised of Bjorn Moller (Chairman)David Schellenberg (Chair), Tore I. Sandvold, Bill Utt,Kenneth Hvid, and Heidi Locke Simon.
The Nominating and Governance Committee:
•identifies individuals qualified to become Board members;
selectsmembers and recommends to the Board directorof Directors nominees for election as directors;
•maintains oversight of the operation and committee member candidates;effectiveness of the Board and our corporate governance;
•develops, updates and recommends to the Board corporate governance principles and policies applicable to us, and monitors compliance with these principles and policiespolicies; and recommends to the Board appropriate changes; and
•oversees the evaluation of the Board and management.its committees.
The Board's Role in Oversight of Environmental, Social and Corporate Governance
Our Corporate Governance Guidelines outline the Board’s role in oversight of our health, safety and environmental performance and our performance on sustainability and diversity efforts. In addition, the Board is responsible for evaluating and overseeing compliance with our policies, practices and contributions made in fulfillment of our social responsibilities and commitment to sustainability.
Crewing and Staff
As at December 31, 2017,2020, we employed approximately 7,2004,710 seagoing staff serving on our consolidated and equity-accounted vessels managed by us, and 1,100approximately 640 shore-based personnel, compared to approximately 6,8005,050 seagoing and 1,100650 shore-based personnel as at December 31, 2016,2019, and approximately 6,5004,800 seagoing and 1,100780 shore-based personnel as at December 31, 2015.2018.
We regard attracting and retaining motivated seagoing personnel as a top priority. Through our global manning organization comprised of offices in Glasgow, Scotland; Manila, Philippines; Mumbai, India; Sydney, Australia; 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 fiscal 1996, we entered into
We are a party to a collective bargaining agreement with the Philippine Seafarers’ Union, an affiliate of the International Transport Workers’ Federation (or ITF), and an agreement with ITF London that cover substantially all of our junior officers and seamenseafarers that operate our Bahamian-flagged vessels. We are also party to collective bargaining agreements with various Australian maritime unions that cover officers and seamenseafarers employed through our Australian operations. Our officers and seamenseafarers for our Spanish-flagged vessels are covered by a collective bargaining agreement with Spain’s Union General de Trabajadores and Comisiones Obreras. Substantially all of the officers and seamen for our Norwegian, Brazilian and Canadian-flagged vessels in our equity-accounted investment Teekay Offshore are covered by collective bargaining agreements. Substantially all officers and seamen for the Norway-flagged vessels are covered by a collective bargaining agreement with Norwegian unions (Norwegian Maritime Officers’ Association, Norwegian Union of Marine Engineers and the Norwegian Seafarers’ Union). In addition, we have entered into a collective bargaining agreement with Sindicato dos Trabalhadores Offshore do Brasil (or SINDITOB), which covers substantially all Brazilian resident offshore employees on board the FPSO units Rio das Ostras and Piranema Spirit. We have entered into a collective bargaining agreement with Norwegian offshore unions (SAFE, Industry Energi and DSO), through its membership in Norwegian Shipowners Association (or NSA). The agreement covers substantially all of the offshore employees on board our FPSOs on the Norwegian Continental Shelf. We have entered into a collective bargaining agreement with the Fish, Food and Allied Workers Union of Newfoundland and Labrador and the Canadian Merchant Service Guild in Canada. The agreement covers substantially all of the offshore employees on board Teekay Offshore’s shuttle tankers operating in the East Coast of Canada. We believe our relationships with these labor unions are good, with long-term collective bargaining agreements that demonstrate commitment from both parties.
Our commitment to training is fundamental to the development of the highest caliber seafarers for our marine operations. Our cadet training program is designed to balance academic learning with hands-on training at sea. We have relationships with training institutions in Canada, Croatia, India, Norway, Philippines, Turkey and the United Kingdom. After receiving formal instruction at one of these institutions, the cadets’ training continues on boardon-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 policies will play an increasingly important role in distinguishing larger independent tanker companies that have in-house, or affiliate, capabilities from smaller companies that must rely on outside ship managers and crewing agents.
Share Ownership
The following table sets forth certain information regarding beneficial ownership, as of December 31, 2017,2020, of our common stock by the tenfive directors including one individual that retired from the Board in March 2018, and sevensix Executive Officers as a group, described above under Directors and Senior Management. The information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules, a person or entity beneficially owns any shares that the person or entity (a) has or shares voting or investment power over or (b) has the right to acquire as of March 1, 20182021 (60 days after December 31, 2017)2020) through the exercise of any common stock option or other right. Unless otherwise indicated, each person or entity has sole voting and investment power (or shares such powers with his or her spouse) with respect to the shares set forth in the following table. Information for certain holders is based on information delivered to us.
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| Identity of Person or Group | | Shares Owned | | Percent of Class |
All directors and executive officers as a group (17(11 persons) (1)(2) | | 2,171,779 | | 1,643,9552)
| | 1.8% 2.2% (3)
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(1) | (1)Includes 1,815,855 shares of common stock subject to stock options exercisable as of March 1, 2021 under our equity incentive plans with a weighted-average exercise price of $9.05 that expire between March 6, 2022 and June 10, 2029. Excludes 1,561,979 shares of common stock subject to stock options that may become exercisable after March 1, 2021 under the plans with a weighted average exercise price of $4.77, that expire between March 12, 2028 and June 10, 2029. Excludes shares held by our largest shareholder, Resolute, whose ultimate parent is Path Spirit Limited (or Path), which is the trust protector for the trust that indirectly owns all of Resolute’s outstanding equity. For additional information on the relationships between Resolute and certain of our directors, please see the section titled “Item 7 – Major Shareholders and Certain Relationships and Related Party Transactions – Relationships with our Major Shareholder”, below. (2)Each director is expected to hold shares of Teekay having a value of at least four times the value of the annual cash retainer paid to them for their Board service (excluding fees for Chair or Committee service) no later than March 1, 2021 or the fifth anniversary of the date on which the director joined the Board, whichever is later. In addition, each Executive Officer is expected to acquire shares of Teekay’s common stock equivalent in value to one to three times their annual base salary by 2018 or, for executive officers subsequently joining Teekay or achieving a position covered by the guidelines, within five years after the guidelines become applicable to them. (3)Based on a total of 101.1 million outstanding shares of our common stock as of December 31, 2020. Each director and Executive Officer beneficially owns less than 1% of the outstanding shares of common stock. Item 7.Major Shareholders and Certain Relationships and Related Party Transactions Includes 1,037,486 shares of common stock subject to stock options exercisable as of March 1, 2018 under our equity incentive plans with a weighted-average exercise price of $31.27 that expire between March 7, 2018 and March 6, 2027. Excludes 693,101 shares of common stock subject to stock options that may become exercisable after March 1, 2018 under the plans with a weighted average exercise price of $11.20, that expire between March 9, 2025 and March 6, 2027. Excludes shares held by our largest shareholder, Resolute, whose ultimate parent is Path Spirit Limited (or Path), which is the trust protector for the trust that indirectly owns all of Resolute’s outstanding equity. Our Chairman, C. Sean Day, is engaged as a consultant to Kattegat Limited, the parent company of Resolute, to oversee its investments, including those in the Teekay group of companies. Another of our directors, Bjorn Moller, is a director of Kattegat Limited. Also excludes shares beneficially owned by our former Chief Executive Officer and an Executive Committee Member of Teekay Offshore Group Ltd., both whom retired on January 31, 2017.
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(2) | Each director is expected to have acquired shares having a value of at least four times the value of the annual cash retainer paid to them for their Board service (excluding fees for Chair or Committee service) no later than March 1, 2018 or the fifth anniversary of the date on which the director joined the Board, whichever is later. In addition, each Executive Officer is expected to acquire shares of Teekay’s common stock equivalent in value to one to three times their annual base salary by 2018 or, for executive officers subsequently joining Teekay or achieving a position covered by the guidelines, within five years after the guidelines become applicable to them. |
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(3) | Based on a total of 89.1 million outstanding shares of our common stock as of December 31, 2017. Each director and Executive Officer beneficially owns less than 1% of the outstanding shares of common stock. |
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Item 7. | Major Shareholders and Certain Relationships and Related Party Transactions |
Major Shareholders
The following table sets forth information regarding beneficial ownership, as of March 1, 2018,December 31, 2020, of Teekay’s common stock by each person we know to beneficially own more than 5% of the common stock. Information for certain holders is based on their latest filings with the SEC or information delivered to us.SEC. The number of shares beneficially owned by each person or entity is determined under SEC rules and the information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules, a person or entity beneficially owns any shares as to which the person or entity has or shares voting or investment power. In addition, a person or entity beneficially owns any shares that the person or entity has the right to acquire as of April 30, 2018March 1, 2021 (60 days after March 1, 2018)December 31, 2020) through the exercise of any stock option or other right. Unless otherwise indicated, each person or entity has sole voting and investment power with respect to the shares set forth in the following table.
| | | Identity of Person or Group | | Shares Owned | | Percent of Class (3) | Identity of Person or Group | | Shares Owned | | Percent of Class (3) |
Resolute Investments, Ltd. (1) | | 31,936,012 | | 31.9% | Resolute Investments, Ltd. (1) | | 31,936,012 | | 31.6% |
FMR L.L.C. (2) | | 8,606,135 | | 8.6% | |
Cobas Asset Management, SGIIC, S.A. (2) | | Cobas Asset Management, SGIIC, S.A. (2) | | 15,620,271 | | 15.4% |
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(1) | Includes shared voting and shared dispositive power. The ultimate controlling person of Resolute is Path, which is the trust protector for the trust that indirectly owns all of Resolute’s outstanding equity. This information is based in part on the Schedule 13D/A (Amendment No. 8) filed by Resolute and Path with the SEC on January 29, 2018. Resolute’s beneficial ownership was 31.9% on March 1, 2018, and 37.1% on March 1, 2017. One of our directors, C. Sean Day, is engaged as a consultant to Kattegat Limited, the parent company of Resolute, to oversee its investments, including those in the Teekay group of companies. Another of our directors, Bjorn Moller, is a director of Kattegat Limited. |
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(2) | Includes sole voting power and sole dispositive power. This information is based on the Schedule 13G filed by this investor with the SEC on February 13, 2018. |
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(3) | Based on a total of 100.3 million outstanding shares of our common stock as of March 1, 2018. |
(1)Includes shared voting and shared dispositive power. The ultimate controlling person of Resolute is Path, which is the trust protector for the trust that indirectly owns all of Resolute’s outstanding equity. This information is based in part on the Schedule 13D/A (Amendment No. 10) filed by Resolute and Path with the SEC on January 29, 2018. Resolute’s beneficial ownership was 31.6% on December 31, 2020, and 31.7% on December 31, 2019. For additional information on the relationships between Resolute and certain of our directors, please see the section titled "Item 7 – Major Shareholders and Certain Relationships and Related Party Transactions – Relationships with our Major Shareholder”, below.
(2)Includes sole and shared voting power. This information is based on the Schedule 13G/A filed by this investor with the SEC on February 16, 2021.
(3)Based on a total of 101.1 million outstanding shares of our common stock as of December 31, 2020.
Our major shareholders have the same voting rights as our other shareholders. No corporation or foreign government or other natural or legal person owns more than 50% of our outstanding common stock. We are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of Teekay.
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 and Teekay Tankers and Teekay's publicly-traded equity-accounted investee, Teekay Offshore.Tankers. Certain of these relationships and transactions are described below.
As of March 1, 2018, we had 30 common shareholders of record located in the United States, one of which is Cede & Co., a nominee of The Depository Trust Company, which held an aggregate of 100,232,610 shares of our common stock, representing approximately 99.98% of our outstanding common shares. We believe that the common stock held by Cede & Co. include shares beneficially owned by both holders in the United States and non-U.S. beneficial owners.
Relationships with Our Major Shareholder
As of March 1, 2018,December 31, 2020, Resolute owned approximately 31.9%31.6% of our outstanding common stock. The ultimate controlling person of Resolute is Path, which is the trust protector for the trust that indirectly owns all of Resolute’s outstanding equity. One of our current directors, C. Sean Day,Heidi Locke Simon, is engaged as a consultant to Kattegat Limited, the parent company of Resolute, to oversee its investments, including that in the Teekay group of companies. Another of our directors, Bjorn Moller,Director Rudolph Krediet is partner at Anholt Services (USA), a directorwholly-owned subsidiary of Kattegat Limited. Please read “Item 18. Financial Statements: Note 13 — Related Party Transactions.”Director Peter Antturi serves as an executive officer and director of Resolute and other Kattegat Limited subsidiaries and affiliates.
Our Directors and Executive Officers
C. Sean Day,Our current Chair of the former Chairman of Teekay’s board of directors, isBoard, David Schellenberg, also serves as a director of Teekay GP L.L.C. (the general partner of Teekay LNG). He retired as Chairman from Teekay Corporation and Teekay Offshore GP L.L.C. effective June 15, 2017, but continues as a director of Teekay Corporation. On June 15, 2017, Bill Utt succeeded Sean DayTankers Ltd. Kenneth Hvid, our President and Chief Executive Officer, also serves as Chairman of Teekay and was appointed a director of Teekay Offshore GP L.L.C. and became Chairman of its board of directors. Mr. Day also served as ChairmanChair of Teekay GP L.L.C from 2004 until 2015. He was also the Chairman of Teekay Tankers Ltd. from 2007 until 2013. Bjorn Moller is one of Teekay’s current directors and is also a director of Teekay Tankers Ltd. Arthur Bensler, Teekay’sour Executive Vice President, Secretary and General Counsel, has served as the Chairmanis a director of Teekay Tankers Ltd. since June 2013.
Vincent Lok, Teekay’s Executive Vice President and Chief Financial Officer,Tankers. Our director, Alan Semple, is also a director of Teekay GP L.L.C. Kenneth Hvid was appointed President and Chief Executive Officer
Other of Teekay effective January 31, 2017 and was previously Teekay’s Executive Vice President and Chief Strategy Officer until December 2015. Mr. Hvid isour officers currently a director of Teekay Offshore GP L.L.C. and was also a director of Teekay GP L.L.C until June 2015. Kevin Mackay isserve as the President and Chief Executive Officer of Teekay Tankers Ltd. and Chief Executive Officer of Teekay Tanker Services, a division of Teekay. Mark Kremin is President andas the Chief Executive Officer of Teekay Gas Group Ltd., which provides executive personnel and other services to Teekay LNG pursuant to a services agreement. Ingvild Sæther is President andLNG.
Because the Chief Executive Officer of Teekay Offshore Group Ltd., which provides services to Teekay Offshore pursuant to a services agreement.
Because each of the executive officersand Chief Financial Officer of Teekay Tankers two executive officersLtd. and the Chief Executive Officer and Chief Financial Officer of Teekay Gas Group Ltd., a company that provideswho provide or provided services to Teekay LNG, Partners L.P. effective from February 1, 2017, an executive officer of Teekay Offshore Group Ltd., a company that provides services to Teekay Offshore Partners L.P. effective from February 1, 2017, and an executive officer of the general partners of Teekay LNG and Teekay Offshore who is now retired, were 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 LNG and Teekay Offshore)LNG) is or was paid by Teekay or such other applicable entities. Pursuant to agreements with Teekay, each of Teekay Tankers Teekay LNG and Teekay Offshore haveLNG agreed to reimburse Teekay or its applicable subsidiaries for time spent by the executive officers on providing services to such public entities and their subsidiaries. For 2017,2020, these reimbursement obligations totaled approximately $1.3 million, $0.9$1.9 million and $0.4$1.4 million, respectively, for Teekay Tankers Teekay LNG, and Teekay OffshoreLNG. For both 2019 and are included in amounts paid as strategic management fees under the management agreement2018, these reimbursement obligations totaled approximately $1.8 million and $1.4 million, respectively, for Teekay Tankers and the services agreements for Teekay LNG and Teekay Offshore.LNG.
Relationships with Our Public Entity Subsidiaries and Equity-accounted Investeethe Daughter Entities
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 Tankers’ initial public offering in December 2007. Teekay Tankers’ 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 March 1, 2018, we owned shares of Teekay Tankers’ Class A and Class B common stock that represented an ownership interest of 28.8% and voting power of 54.1% of Teekay Tankers’ outstanding common stock.
Until December 31, 2012, Teekay Tankers distributed to its shareholders on a quarterly basis all of its Cash Available for Distribution, subject to any reserves its board of directors may from time to time determine are required for the prudent conduct of the business. Cash Available for Distribution represented 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 Teekay Tankers from us, prior to their acquisition by Teekay Tankers, for the period when these vessels were owned and operated by us. Effective January 1, 2013, Teekay Tankers changed to a fixed dividend policy of $0.12 per share per annum. Effective December 14, 2015, Teekay Tankers changed its dividend policy, under which Teekay Tankers intends to pay out 30% to 50% of its quarterly adjusted net income, with a minimum quarterly dividend of $0.03 per share, subject to any reserves determined to be required by its Board of Directors. Adjusted net income is a non-GAAP measure which excludes specific items affecting net income that are typically excluded by securities analysts in their published estimates of our financial results. We received distributions from Teekay Tankers of $5.9 million, $12.1 million and $3.9 million in 2017, 2016, and 2015, respectively.
Please see “Item 5. Operating and Financial Review and Prospects—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments and Results of Operations—Recent Developments4C – Information on the Company – Organizational Structure” for information about our ownership interests in Teekay Tankers” for additional information.
Tankers and Teekay LNG. Please see “Item 4.4A – Information on the Company—A.Company – Overview, History and Development—Development – Our Ownership of the Daughter Entities and Recent Equity Offerings and Transactions by Daughter Entities” for information about Class A and Class B common stockcertain equity issuances by Teekay Tankers to Teekay in 2015 and 2017.
Teekay LNG and Teekay Offshore
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 March 1, 2018, we owned a 31.7% limited partner interest and a 2% general partner interest in 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 owned and controlled Teekay Offshore’s general partner, Teekay Offshore GP LLC (or TOO GP) by virtue of our 100% ownership interest in TOO GP until September 25, 2017, when Brookfield acquired a 49% interest in TOO GP. Teekay and Brookfield entered into an amended limited liability company agreement whereby Brookfield obtained certain participatory rights in the management of TOO GP, which resulted in Teekay deconsolidating Teekay Offshore for accounting purposes on September 25, 2017. Subsequent to September 25, 2017, we have significant influence over Teekay Offshore and account for our investment in Teekay Offshore using the equity method. As of March 1, 2018, we owned a 14.1% combined general and limited partner interest in Teekay Offshore.
Please see “Item 4. Information on the Company—A. Overview, History and Development—Our Ownership of the Daughter Entities and Recent Equity Offerings and Transactions by Daughter Entities” for information about common stock, preferred units and common unit warrant issuances by Teekay Offshore to Teekay in 2015, 2016 and 2017.
Quarterly Cash Distributions
We are entitled to distributions onTeekay. In May 2019, we sold our general and limited partnerremaining interests in each of Teekay LNG and Teekay Offshore. The general partner of each of Teekay LNG and Teekay Offshore is also entitledour equity-accounted investment, Altera, to distributions payable with respect to incentive distribution rights. Incentive distribution rights representBrookfield (or 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. In general, if for any quarter Teekay LNG or Teekay Offshore, as applicable, has distributed available cash from operating surplus to its common unitholders in an amount equal to the applicable minimum quarterly distribution for the common units, then Teekay LNG or Teekay Offshore will distribute any additional available cash from operating surplus for that quarter among the common unitholders and its general partner in the following manner:
Teekay LNG:
first, 98% to all unitholders, pro rata, and 2% to the general partner, until each unitholder has received a total of $0.4625 per unit for that quarter;
second, 85% to all unitholders, and 15% to the general partner, until each unitholder has received a total of $0.5375 per unit for that quarter;
third, 75% to all unitholders, and 25% to the general partner, until each unitholder has received a total of $0.65; and
thereafter, 50% to all unitholders and 50% to the general partner.
Teekay Offshore:
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• | first, 99.24% to all unitholders, pro rata, and 0.76%(i) to the general partner, until each unitholder has received a total of $0.4025 per unit for that quarter;
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second, 86.24% to all unitholders, and 13.76% to the general partner, until each unitholder has received a total of $0.4375 per unit for that quarter;
third, 76.24% to all unitholders, and 23.76% to the general partner, until each unitholder has received a total of $0.525 per unit for that quarter; and
thereafter, 51.24% to all unitholders and 48.76% to the general partner.
(i) The general partner had a 2% interest in Teekay Offshore until September 25, 2017, when its interest decreased to 0.76%2019 Brookfield Transaction).
Teekay received total distributions, including incentive distributions, from Teekay LNG of $15.0 million, $15.0 million, and $105.3 million, respectively, with respect to 2017, 2016, and 2015.
Teekay received total distributions, including incentive distributions, from Teekay Offshore of $10.8 million, $18.0 million, and $84.1 million, respectively, with respect to 2017, 2016, and 2015.
In June 2016, Teekay Offshore agreed with Teekay that, until Teekay Offshore's NOK bonds maturing in 2018 have been repaid, all cash distributions (other than with respect to any incentive distribution rights) to be paid by Teekay Offshore to Teekay or its affiliates, including Teekay Offshore's general partner, would instead be paid in Teekay Offshore common units or from the proceeds of the sale of Teekay Offshore common units. During 2017 and 2016, Teekay Offshore issued Teekay 2.4 million and 2.5 million common units, respectively, in lieu of cash for the distributions on Teekay Offshore's Series D Preferred Units, common units and general partner interest held by Teekay and its subsidiaries.
Competition with Teekay Tankers, Teekay LNG and Teekay OffshoreAltera
We have entered into an omnibus agreement with Teekay LNG, Teekay OffshoreAltera and related parties governing, among other things, when Teekay, Teekay LNG, and Teekay OffshoreAltera 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, without the approval of the other applicable parties, (a) neither Teekay nor Teekay LNG will own or operate offshore vessels (i.e. dynamically positioned shuttle tankers, FSO units and FPSO units) that are subject to contracts with a duration of three years or more, excluding extension options, (b) neither Teekay nor Teekay OffshoreAltera will own or operate LNG carriers and (c) neither Teekay LNG nor Teekay OffshoreAltera will own or operate crude oil tankers, other than crude oil tankers included in their respective fleets as of the dates of their respective initial public offerings.offerings and certain replacement tankers. If Teekay or its affiliates no longer control the general partner of Teekay LNG or Altera or if there is a change of control of Teekay, the general partner of Teekay LNG or Altera or Teekay, as applicable, may terminate relevant noncompetition and rights of first offer provisions of the omnibus agreement. During 2018, Brookfield acquired a 51% ownership interest in the general partner of Altera and thereby obtained the right to appoint a majority of the directors of the general partner’s Board of Directors. This transaction constituted a change of control, giving Altera the right to elect to terminate the omnibus agreement. Teekay divested its remaining ownership interest in Altera and its general partner in 2019. To date, Altera has not terminated the omnibus agreement.
In addition, Teekay Tankers’ organization documents provide 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 LNG and Teekay Offshore
From time to time, Teekay has sold to Teekay Tankers Teekay LNG and Teekay OffshoreLNG vessels or interests in vessel owningvessel-owning subsidiaries or joint ventures. These transactions include those described under “Item 5.5 – Operating and Financial Review and Prospects—Prospects – Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Teekay currently has committed to the following vessel transactions with its Daughter Entities:
Teekay Parent is obligated to offer to sell the Petrojarl Foinaven FPSO unit to Teekay Offshore, subject to approvals required from the charterer. The purchase price for the Foinaven FPSO unit would be its fair market value plus any additional tax or other similar costs to Teekay Petrojarl that would be required to transfer the FPSO unit to Teekay Offshore.
Teekay Parent owns the Petrojarl Banff and the Hummingbird Spirit FPSO units, which we will be obligated to offer to Teekay Offshore in the future under the omnibus agreement following the commencement of a charter contract with a firm period of greater than three years' duration (which is not currently the case).
Time Chartering and Bareboat Chartering Arrangements
Teekay chartersCommencing in from or out to its Daughter Entities certain vessels, including the following charter arrangements:
During 2016 and 2015, one and four, respectively, of Teekay Offshore’s conventional tankers were chartered out to Teekay subsidiaries under long-term time charters. Two of Teekay Offshore’s shuttle tankers were chartered out to Teekay subsidiaries until March 31, 2017, under long-term bareboat charters, and as from April 1, 2017, have been chartered out to Teekay subsidiaries under long-term time charters. Pursuant to these charter contracts, Teekay Offshore earned revenues of $33.3 million, $30.6 million, and $53.8 million, respectively, for 2017, 2016, and 2015.
During 2017, three (three in 2016 and 2015) of Teekay Offshore’s FSO units were chartered out to Teekay subsidiaries under long-term bareboat charters. Pursuant to these charter contracts, Teekay Offshore earned revenues of $16.2 million, $15.1 million, and $13.6 million, respectively, for 2017, 2016, and 2015.
Since April 2008, Teekay hasParent had chartered in from Teekay LNG the LNG carriers Arctic Spirit and Polar Spirit under a fixed-rate time charter for a period of ten years, plus options exercisable byyears. The contracts for Arctic Spirit and Polar Spirit terminated in March and April 2018, respectively. Commencing in May 2019, Teekay to extend up to an additional 15 years.LNG chartered in the Magellan Spirit LNG carrier from Teekay Parent on a short-term time-charter contract until October 31, 2019. During 2017, 2016,2019, and 2015,2018, Teekay LNG earned revenues of $36.4 million, $37.3$11.6 million, and $35.9$9.4 million, respectively, under these time-charter contracts.
Services and Management and Pooling ArrangementsAgreements
Services Agreements. In connection with theirits initial public offeringsoffering in May 2005 and December 2006, respectively, and subsequent thereto, Teekay LNG and Teekay Offshore and certain of theirits subsidiaries have entered into services agreements with certain other subsidiaries of Teekay, pursuant to which the other Teekay subsidiaries agreed to provide to Teekay LNG Teekay Offshore and their operating subsidiaries administrative, crew training, strategic, consulting services, business development, advisory, technicalcommercial and ship management services. These services are provided in a commercially reasonable 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. Under the agreements, Teekay LNG and Teekay Offshore paypays arm’s-length fees for the services that include reimbursement of any direct and indirect expenses the other Teekay subsidiaries incur in providing these services.
During 2017, 2016,2020, 2019 and 2015,2018, Teekay LNG and Teekay Offshore incurred expenses of $33.9$20.3 million, $32.9$20.4 million and $34.4 million; and $63.7 million, $65.6 million, and $92.0$31.6 million, respectively, for services rendered to them by us for these services.
In connection with the Brookfield Transaction, Teekay entered into a master services agreement (or Master Services Agreement) with Teekay Offshore. The primary purpose of the Master Services Agreement was to provide for the transfer, following the closing of the Brookfield Transaction, of Teekay subsidiaries (or the assets of such subsidiaries) that had been devoted exclusively or nearly exclusively to providing services to Teekay Offshore and its subsidiaries pursuant to the services agreement. The transfer of these certain Teekay subsidiaries to Teekay Offshore was effective on January 1, 2018. As a result of the transfer of these subsidiaries, certain services, which Teekay previously provided to Teekay Offshore will now be provided to Teekay by Teekay Offshore.
In addition, for a one-year period following the closing of the Brookfield Transaction, other Teekay subsidiaries will continue to provide services to Teekay Offshore and its subsidiaries under existing service agreements. During this period, Teekay and Teekay Offshore will evaluate which remaining services Teekay Offshore will continue to receive from Teekay subsidiaries, and which remaining services will be transitioned to Teekay Offshore. Teekay and Teekay Offshore will enter into new or amended service agreements as needed to provide for any such continued 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. (TTMS, or the Manager), a subsidiary of Teekay. On October 1, 2018, TTMS merged with Teekay Shipping Ltd. (or TSL), a subsidiary of Teekay (the Manager). Subject to certain limited termination rights,and assumed 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. role as Manager.
Pursuant to the management agreement,Management Agreement, the Manager provideshas agreed to Teekay Tankersprovide the following types of services:services to Teekay Tankers: 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). TheSince commencement of the Management Agreement, the Manager has agreedsubcontracted with Teekay Tankers Operations Ltd. (or TTOL) 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, through its subsidiaries or subcontractaffiliates, commercial management and technical services for certainmost of theseTeekay Tankers’ fleet. In August 2014, Teekay Tankers purchased from us a 50% interest in TTOL and in May 2017, Teekay Tankers acquired the remaining 50% interest in TTOL. On October 1, 2018, Teekay Tankers elected to provide its own commercial and technical services, with other entities, primarily other Teekay subsidiaries.effectively eliminating the prior subcontracting arrangement between the Manager and TTOL.
In return for commercial and technical services under the management agreement,Management Agreement, prior to October 1, 2018, Teekay Tankers payspaid the Manager an agreed-upon fee for the commercial services (other than for Teekay TankersTankers' vessels participating in pooling arrangements), and a technical services fee equal to the average rate Teekay charges third parties to technically manage their vessels of a similar size, andsize. In addition, Teekay Tankers pays 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 2017, 2016,2020, 2019, and 2015,2018, Teekay Tankers incurred $30.0$31.8 million, $19.3$32.6 million, and $15.4$43.3 million, respectively, for all of these services.services, and during 2020, 2019 and 2018 the Manager paid to the Teekay Tankers subsidiaries with which it subcontracted for certain services, $0.7 million, $0.8 million and $13.8 million, respectively.
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’ shareholders. Teekay Tankers did not incur any performance fees for 2017, 2016,2020, 2019, or 2015.2018.
Pooling Arrangements. Certain Aframax tankers, Suezmax tankers and LR2 product 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 LR2 product tanker pool) to $325 (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 2017, 2016, and 2015 of $2.8 million, $9.8 million, and $10.4 million, respectively.Other
Teekay Tanker Operations Ltd. (or TTOL)
On May 31, 2017, Teekay Tankers acquired from Teekay Holdings Ltd., a wholly-owned subsidiary of Teekay, the remaining 50% interest in TTOL for $39.0 million, which included $13.1 million for assumed working capital. Teekay Tankers issued approximately 13.8 million shares of its Class B common stock to Teekay as consideration in addition to the working capital consideration of $13.1 million. Prior to May 31, 2017, Teekay Tankers owned 50% of TTOL and accounted for this investment using the equity method of accounting. Since Teekay Tankers acquired the remaining 50% of TTOL on May 31, 2017, it owns 100% of TTOL and now consolidates TTOL.
Teekay Tankers Acquisition of Ship-to-Ship Transfer Business
In July 2015, Teekay Tankers acquired TMS from a company jointly-owned by Teekay and Skaugen, for an aggregate purchase price of approximately $47.3 million (including $1.8 million for working capital). TMS provides a full suite of ship-to-ship transfer services in the oil, gas and dry bulk industries. In addition to full service lightering and lightering support, it also provides consultancy, terminal management and project development services. TMS owns a fleet of four STS support vessels and has two in-chartered Aframax tankers. In connection with the TMS acquisition, in July 2015, Teekay Tankers issued approximately 6.5 million shares of Class B common stock to Teekay for net proceeds of $45.5 million. These shares of Class B common stock were priced at $6.99 per share.
Relationship with Tanker Investments Ltd. (or TIL)
In January 2014, Teekay and Teekay Tankers formed TIL. On November 27, 2017, Teekay Tankers completed a merger with TIL acquiring all of the remaining 27.0 million issued and outstanding common shares of TIL, in a share-for-share exchange at a ratio of 3.3 shares of Teekay Tankers’ Class A common stock for each share of TIL common stock, and as a result TIL became a wholly-owned subsidiary. As consideration for the merger, Teekay Tankers issued 88,977,544 Class A common shares to the TIL shareholders, including 8,250,000 shares to Teekay. Commencing on November 27, 2017, Teekay Tankers consolidates the results of TIL.
For further information regarding TIL, please read “Item 18.Please see "Item 18 – Financial Statements: Note 4(a)13 –Investments.” Related Party Transactions” for information about other related party transactions.
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Item 8. | Financial Information |
Item 8.Financial Information
Consolidated Financial Statements and Notes
Please see Item"Item 18 – Financial Statements" below for additional information required to be disclosed under this Item.
Legal Proceedings
From time to time we have been, and we expect to continue to be, subject to legal proceedings and claims in the ordinary course of our business, principally personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We believe that any adverse outcome of existing claims, other than with respect to the items noted in “Item 18. Financial Statements: Note 16d — Legal Proceedings and Claims”, individually or in the aggregate, would not have a material effect on our financial position, results of operations or cash flows, when taking into account our insurance coverage and rights to seek indemnification from charterers. For information about recent legal proceedings, please read “Item 18.18 – Financial Statements: Note 16d —16c – Legal Proceedings and Claims.”
Dividend Policy
Since our initial public offering in 1995 until the quarter ended December 31, 2018, we havehad declared and paid a regular cash dividend. The amountOur Board of Directors approved the elimination of the quarterly dividend increased fromon Teekay’s common stock commencing with the quarter ended September 30, 1995 toMarch 31, 2019.
Commencing with the quarter ended September 30, 2015. Effective for the quarterly distribution for the fourth quarter of 2015, we decreased our quarterly cash distribution from $0.55 per common share to $0.055 per common share.
Our quarterly dividend payment is primarily based on the cash flow contributions from our general partner and limited partner interests in Teekay LNG, together with other dividends received, after deductions for parent company level corporate general and administrative expenses and any reserves determined to be required byMarch 31, 2019, our Board of Directors. Based onDirectors has not declared or paid a cash dividend, consistent with our strategy to further strengthen our balance sheet and the equity capital requirements for committed growth projects, coupled with weakness in energy and capital markets, we believeBoard's belief that it is in the best interests of our shareholders to conserve more of our internally generated cash flows to fund future growth projects and to reduce debt levels. Consequently, effective for the quarterly distribution for the fourth quarter of 2015,
In 2020, Teekay LNG reducedincreased its quarterly cash distributiondistributions on common units by 32% from $0.19 per common unit to $0.14 from $0.70,$0.25 per common unit commencing with the quarterly distribution paid in May 2020. Teekay Offshore reducedLNG intends to further increase its quarterly cash distributiondistributions by 15% to $0.2875 per common unit commencing with the distribution for the first quarter of 2021 payable in May 2021.
In 2018, Teekay Tankers eliminated its regular dividend payments in order to $0.11 from $0.56,preserve liquidity during the cyclical downturn of the tanker spot market. With a current focus on building net asset value through balance sheet delevering and we reduced our quarterly cash distribution per common share to $0.055 from $0.55. In September 2017,reducing its cost of capital, any future dividends by Teekay Offshore further reduced its distribution to $0.01.Tankers would be paid when, as and if determined by the Board of Directors.
Pursuant to our dividend reinvestment program, holders of shares of our common stock are permitted to choose, in lieu of receiving cash dividends, to reinvest any dividends in additional shares of common stock at then-prevailing market prices, but without brokerage commissions or service charges.
The timing and amount of our 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. BecauseSince we primarily are a holding company, with no materiallimited assets other than the stock ofownership interests in our subsidiaries, equity-accounted investees, and investments in joint ventures, our ability to pay dividends on the common stock depends on the earnings and cash flow of our subsidiaries and distributions from our equity-accounted investees and joint ventures.subsidiaries. Our Board of Directors may change our common stock dividends at any time.
Significant Changes
Please read “Item 18.18 – Financial Statements: Note 23 —– Subsequent Events.Events for descriptions of significant changes that have occurred since December 31, 2020”. Please read “Item 5 – Operating and Financial Review and Prospects: Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Development and Results of Operations.”
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Item 9. | The Offer and Listing |
Item 9.The Offer and Listing
Our common stock is traded on the NYSE under the symbol “TK”. The following table sets forth the high and low prices for our common stock on the NYSE for each of the periods indicated.
Item 10.Additional Information |
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| Years Ended | | Dec. 31, 2017 | | Dec. 31, 2016 | | Dec. 31, 2015 | | Dec. 31, 2014 | | Dec. 31, 2013 | | | | | | | | |
| High | | $11.77 | | $11.85 | | $51.39 | | $67.98 | | $48.13 | | | | | | | | |
| Low | | $5.14 | | $4.37 | | $6.65 | | $44.01 | | $32.49 | | | | | | | | |
| Quarters Ended | | Mar. 31, 2018 | | Dec. 31, 2017 | | Sept. 30, 2017 | | Jun. 30, 2017 | | Mar. 31, 2017 | | Dec. 31, 2016 | | Sept. 30, 2016 | | Jun. 30, 2016 | | Mar. 31, 2016 |
| High | | $10.90 | | $9.55 | | $10.25 | | $10.12 | | $11.77 | | $8.95 | | $8.22 | | $11.85 | | $10.23 |
| Low | | $7.37 | | $7.80 | | $6.35 | | $5.14 | | $8.21 | | $5.76 | | $5.45 | | $6.69 | | $4.37 |
| Months Ended | | Mar. 31,
2018 | | Feb. 28,
2018 | | Jan. 31,
2018 | | Dec. 31,
2017 | | Nov. 30,
2017 | | Oct. 31,
2017 | | | | | | |
| High | | $8.74 | | $8.38 | | $10.90 | | $9.55 | | $9.30 | | $9.25 | | | | | | |
| Low | | $7.52 | | $7.37 | | $8.15 | | $7.98 | | $7.93 | | $7.80 | | | | | | |
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Item 10. | Additional Information |
Memorandum and Articles of Association
Our Amended and Restated Articles of Incorporation, as amended, have been filed as exhibitsExhibits 1.1 and 1.2 to our Annual Report on Form 20-F (File No. 1-12874), filed with the SEC on April 7, 2009, and are hereby incorporated by reference into this Annual Report. Our Bylaws have previously been filed as exhibit 1.3 to our Report on Form 6-K (File No. 1-12874), filed with the SEC on August 31, 2011, and are hereby incorporated by reference into this Annual Report.
The rights, preferences and restrictions attaching to each class of our capital stock are described in Exhibit 2.3 (entitled ““Description of Securities Registered Under Section 12 of the section entitled “Description of Capital Stock” ofExchange Act”) to our Rule 424(b) prospectus (RegistrationAnnual Report on Form 20-F (File No. 333-52513)1-12874), filed with the SEC on June 10, 1998,April 9, 2020, and are hereby incorporated by reference into this Annual Report, provided that since the date of such prospectus (1) the par value of our capital stock has been changed to $0.001 per share, (2) our authorized capital stock has been increased to 725,000,000 shares of common stock and 25,000,000 shares of Preferred Stock, (3) we have been domesticated in the Republic of The Marshall Islands and (4) we have adopted a staggered Board of Directors, with directors serving three-year terms.Report.
The necessary actions required to change the rights of holders of our capital stock and the conditions governing the manner in which annual and special meetings of shareholders are convened are described in our Bylaws filed as exhibit 1.3 to our Report on Form 6-K (File No. 1-12874), filed with the SEC on August 31, 2011, and hereby incorporated by reference into this Annual Report.
We have in place a rights agreement that would have the effect of delaying, deferring or preventing a change in control of Teekay. The amended and restated rights agreement has been filed as part of our Form 8-A/A (File No. 1-12874), filed with the SEC on July 2, 2010, and hereby incorporated by reference into this Annual Report.
There are no limitations on the rights to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities imposed by the laws of the Republic of The Marshall Islands or by our Articles of Incorporation or Bylaws.
Material Contracts
The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to which we or any of our subsidiaries is a party, for the two years immediately preceding the dateparty:
(a)Amended 2003 Equity Incentive Plan.
(b)Amended 1995 Stock Option Plan.
(c)Form of this Annual Report:Indemnification Agreement between Teekay and each of its officers and directors.
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(a) | Agreement, dated August 23, 2006 for a $330,000,000 Secured Reducing Revolving Loan Facility among Teekay LNG Partners L.P., ING Bank N.V. and various other banks. Please read Note 7 to the Consolidated Financial Statements of Teekay Corporation included herein for a summary of certain contract terms relating to our loan facilities. |
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(b) | Agreement, dated November 28, 2007 for a $845,000,000 Secured Reducing Revolving Loan Facility among Teekay Corporation, Teekay Tankers Ltd., Nordea Bank Finland PLC and various other banks. |
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(c) | Annual Executive Bonus Plan. |
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(d) | Amended 2003 Equity Incentive Plan. |
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(e) | Amended 1995 Stock Option Plan. |
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(f) | Amended and Restated Rights Agreement, dated as of July 2, 2010, between Teekay Corporation and The Bank of New York, as Rights Agent. |
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(g) | (d)Amended and Restated Omnibus Agreement dated as of December 19, 2006, among Teekay Corporation, Teekay GP L.L.C., Teekay LNG Partners L.P., Teekay LNG Operating L.L.C., Teekay Offshore GP L.L.C., Teekay Offshore Partners L.P., Teekay Offshore Operating GP. L.L.C. and Teekay Offshore Operating L.P. govern, among other things, when Teekay Corporation, Teekay LNG L.P. and Teekay |
Offshore L.P., Altera and related parties, which governs, among other things, when Teekay Corporation, Teekay LNG Partners L.P. and Altera 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.
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(h) | Indenture dated January 27, 2010 among Teekay Corporation and The Bank of New York Mellon Trust Company, N.A. for $450,000,000 8.5% Senior Unsecured Notes due 2020. |
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(i) | 2013 Equity Incentive Plan. |
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(j) | Agreement, dated December 21, 2012 for a $200,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. |
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(k) | Amendment Agreement, dated December 18, 2013 for a $300,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. |
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(l) | Agreement, dated February 24, 2014 for a $815,000,000 Secure Term Loan Facility Agreement among Knarr L.L.C., Citibank, N.A. and others. |
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(m) | Agreement dated July 7, 2014; between Teekay LNG Operating L.L.C. and China LNG Shipping (Holdings) Limited to form TC LNG Shipping L.L.C. in connection with the Yamal LNG Project. |
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(n) | Agreement dated December 17, 2014, for a $450,000,000 secured loan facility between Nakilat Holdco L.L.C. and Qatar National Bank SAQ. The loan bears interest at LIBOR plus a margin of 1.85%. The facility requires quarterly repayments, with a bullet payment in 2026. |
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(o) | Amendment Agreement No. 2, dated December 19, 2014 for a $500,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. |
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(p) | Amendment Agreement No. 3, dated October 5, 2015 for a $500,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. |
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(q) | Amendment Agreement No. 4, dated December 17, 2015 for a $300,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. |
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(r) | First Supplemental Indenture dated November 16, 2015 among Teekay Corporation and The Bank of New York Mellon Trust Company, N.A. for $200,000,000 8.5% Senior Unsecured Notes due 2021. |
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(s) | Agreement, dated July 31, 2015, among OOGTK Libra GmbH & Co KG, ABN AMRO Bank N.V. and various other banks for a $803,711,786.92 term loan due 2027. |
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(t) | Purchase Agreement, dated as of November 10, 2015, between Teekay Corporation and J.P. Morgan Securities LLC, for itself and on behalf of the several initial purchasers listed in Schedule 1 thereto. |
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(u) | Registration Rights Agreement, dated November 16, 2015 by and among Teekay Corporation and J.P. Morgan Securities LLC, for itself and as representative of the several initial purchasers listed in Schedule 1 thereto. |
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(v) | Secured Term Loan and Revolving Credit Facility Agreement dated January 8, 2016 between Teekay Tankers Ltd., Nordea Bank Finland PLC and various other banks, for a $894.4 million long-term debt facility, consisting of both a term loan and a revolving credit facility, which is scheduled to mature in January 2021. |
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(w) | Share Purchase Agreement, dated May 18, 2016, by and among Teekay Corporation and the purchasers named therein. |
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(x) | Registration Rights Agreement, dated June 29, 2016, by and among Teekay Corporation and the investors named therein. |
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(y) | Equity Distribution Agreement, dated September 9, 2016, between Teekay Corporation and Citigroup Global Markets Inc. |
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(z) | Warrant Agreement dated September 25, 2017, between Teekay Offshore Partners L.P. and Teekay Shipping Limited |
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(aa) | Second Amended and Restated Limited Liability Company Agreement of Teekay Offshore GP L.L.C., dated September 25, 2017, by and between Teekay Holdings Limited and Brookfield TK TOGP L.P. |
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(ab) | Registration Rights Agreement, dated September 25, 2017, by and between Teekay Offshore Partners L.P., Teekay Corporation and Brookfield TK TOLP L.P. |
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(ac) | Investment Agreement, dated July 26, 2017, between Teekay Offshore Partners L.P. and Teekay Holdings Limited |
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(ad) | Purchase Agreement, dated July 26, 2017, between Teekay Holdings Limited and Brookfield TK TOGP L.P. |
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(ae) | Amended and Restated Subordinate Promissory Note, dated July 26, 2017, by and between Teekay Offshore Partners L.P., Teekay Corporation and Brookfield TK TOLP L.P. |
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(af) | Master Services Agreement, dated September 25, 2017, by and between Teekay Corporation, Teekay Offshore Partners L.P. and Brookfield TK TOLP L.P. |
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(ag) | Trademark License Agreement, dated September 25, 2017, by and between Teekay Corporation and Teekay Offshore Partners L.P. |
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(ah) | (e)2013 Equity Incentive Plan. (f)Agreement Regarding Registration Rights Agreement, dated May 30, 2014, between Kattegat Private Trustees (Bermuda) Ltd., as sole trustee of the Kattegat Trust, and Teekay Corporation
(g)Agreement dated July 7, 2014, between Teekay LNG Operating L.L.C. and China LNG Shipping (Holdings) Limited to form TC LNG Shipping L.L.C. in connection with the Yamal LNG Project. (h)Agreement dated December 17, 2014, for a $450,000,000 secured loan facility between Nakilat Holdco L.L.C. and Qatar National Bank SAQ. The loan bears interest at LIBOR plus a margin of 1.85%. The facility requires quarterly repayments, with a bullet payment in 2026. (i)Registration Rights Agreement dated June 29, 2016, by and among Teekay Corporation and the investors named therein. (j)Master Services Agreement dated September 25, 2017, by and between Teekay Corporation, Altera and Brookfield TK TOLP L.P. (k)Indenture dated as of January 26, 2018, between Teekay Corporation and The Bank of New York Mellon, as Trustee relating to 5.000% Convertible Senior Notes due 2023. (l)Indenture dated May 13, 2019, among Teekay Corporation and Wilmington Trust, National Association, for $250,000,000 9.250% Senior Secured Notes due 2022. (m)Purchase Agreement dated May 2, 2019, for $250,000,000 9.250% Senior Secured Notes due 2022. (n)Secured Revolving Credit Facility Agreement dated January 28, 2020, between Teekay Tankers Ltd., Nordea Bank Abp, New York Branch and various other banks, for a $532.8 million long-term debt facility which is scheduled to mature in December 2024. (o)Margin Loan Agreement dated September 29, 2020, among Teekay Finance Limited, Citibank, N.A. and others, for an equity margin revolving credit facility that provides aggregate potential borrowings of up to $150 million, scheduled to mature in June 2022. (p)Equity Distribution Agreement dated December 29, 2020, between Teekay Corporation and Citigroup Global Markets Inc. (q)Exchange Agreement dated May 9, 2020 between Teekay GP L.L.C. and Teekay LNG Partners L.P. Indenture dated as of January 26, 2018 between Teekay Corporation and The Bank of New York Mellon, as Trustee.
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(ai) | Underwriting Agreement, dated January 24, 2018, by and between Teekay Corporation, Morgan Stanley & Co. LLC, and J.P. Morgan Securities LLC, acting on behalf of themselves and on behalf of the several purchases listed on Schedule I thereto. |
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(aj) | Purchase Agreement, dated January 24, 2018, by and between Teekay Corporation, Morgan Stanley & Co. LLC, and J.P. Morgan Securities LLC, acting on behalf of themselves and on behalf of the several purchases listed on Schedule I thereto. |
Exchange Controls and Other Limitations Affecting Security Holders
We are not aware of any governmental laws, decrees or regulations, including foreign exchange controls, in the Republic of Thethe Marshall Islands that restrict the export or import of capital or that affect the remittance of dividends, interest or other payments to holders of our securities that are non-resident and not citizens.citizens and otherwise not conducting business or transactions in the Marshall Islands.
We are not aware of any limitations on the right of non-resident or foreign owners to hold or vote our securities imposed by the laws of the Republic of Thethe Marshall Islands or our Articles of Incorporation and Bylaws.
Taxation
Teekay Corporation was incorporated in the Republic of Liberia on February 9, 1979 and was domesticated in the Republic of Thethe Marshall Islands on December 20, 1999. Its principal executive offices are located in Bermuda. The following provides information regarding taxes to which a U.S. Holder of our common stock may be subject.
Material U.S.United States Federal Income Tax Considerations
The following is a discussion of certain material U.S. federal income tax considerations that may be relevant to shareholders. This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended (or the Code), legislative history, applicable U.S. Treasury Regulations (or Treasury Regulations), judicial authority and administrative interpretations, all as in effect on the date of this Annual Report and which are subject to change, possibly with retroactive effect, or are subject to different interpretations. Changes in these authorities may cause the tax consequences to vary substantially from the consequences described below. Unless the context otherwise requires, references in this section to “we,” “our” or “us” are references to Teekay Corporation.
This discussion is limited to shareholders who hold their common stock as a capital asset for tax purposes. This discussion does not address all tax considerations that may be important to a particular shareholder in light of the shareholder’s circumstances, or to certain categories of shareholders that may be subject to special tax rules, such as:
•dealers in securities or currencies,
•traders in securities that have elected the mark-to-market method of accounting for their securities,
•persons whose functional currency is not the U.S. dollar,
•persons holding our common stock as part of a hedge, straddle, conversion or other “synthetic security” or integrated transaction,
•certain U.S. expatriates,
•financial institutions,
•insurance companies,
•persons subject to the alternative minimum tax,
•persons that actually or under applicable constructive ownership rules own 10% or more of our common stock (by vote or value);, and
•entities that are tax-exempt for U.S. federal income tax purposes.
If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. Partners in partnerships holding our common stock should consult their tax advisors to determine the appropriate tax treatment of the partnership’s ownership of our common stock.
This discussion does not address any U.S. estate tax considerations or tax considerations arising under the laws of any state, local or non-U.S. jurisdiction. Each shareholder is urged to consult its tax advisor regarding the U.S. federal, state, local, non-U.S. and other tax consequences of the ownership or disposition of our common stock.
United States Federal Income Taxation of U.S. Holders
As used herein, the term U.S. Holder means a beneficial owner of our common stock that is, for U.S. federal income tax purposes: (i) a U.S. citizen or U.S. resident alien (or a U.S. Individual Holder), (ii) a corporation or other entity taxable as a corporation, that was created or organized under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source, or (iv) a trust that either is subject to the supervision of a court within the United States and has one or more U.S. persons with authority to control all of its substantial decisions or has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
Distributions
Subject to the discussion of passive foreign investment companies (or PFICs) below, any distributions made by us with respect to our common stock to a U.S. Holder generally will constitute dividends, which may be taxable as ordinary income or “qualified dividend income” as described in more detail below, to the extent of our current and accumulated earnings and profits allocated to the U.S. Holder's common stock, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits allocated to the U.S. Holder's common stock will be treated first as a nontaxablenon-taxable return of capital to the extent of the U.S. Holder’s tax basis in our common stock and thereafter as capital gain, which will be either long termlong-term or short-term capital gain depending upon whether the U.S. Holder has held the common stock for more than one year. U.S. Holders that are corporations for U.S. federal income tax purposes generally will not be entitled to claim a dividends received deduction with respect to any distributions they receive from us. For purposes of computing allowable foreign tax credits for U.S. federal income tax purposes, dividends received with respect to our common stock will be treated as foreign source income.income and generally will be treated as “passive category income.”
Subject to holding period requirements and certain other limitations, dividends received with respect to our common stock by a U.S. Holder who is an individual, trust or estate (or a Non-Corporate U.S. Holder) will be treated as “qualified dividend income” that is taxable to such Non-Corporate U.S. Holder at preferential capital gain tax rates provided that we are not classified as a PFIC for the taxable year during which the dividend is paid or the immediately preceding taxable year (we intend to take the position that we are not now and have never been classified as a PFIC, as discussed below). Any dividends received with respect to our common stock not eligible for these preferential rates will be taxed as ordinary income to a Non-Corporate U.S. Holder.
Special rules may apply to any “extraordinary dividend” paid by us. Generally, an extraordinary dividend is a dividend with respect to a share of common stock if the amount of the dividend is equal to or in excess of 10% of a common stockholder’s adjusted tax basis (or fair market value in certain circumstances) in such common stock. In addition, extraordinary dividends include dividends received within a one-year period that, in the aggregate, equal or exceed 20% of a stockholder’s adjusted tax basis (or fair market value in certain circumstances). If we pay an “extraordinary dividend” on our common stock that is treated as “qualified dividend income,” then any loss recognized by a Non-Corporate U.S. Holder from the sale or exchange of such common stock will be treated as long-term capital loss to the extent of the amount of such dividend.
Certain Non-Corporate U.S. Holders are subject to a 3.8% tax on certain investment income, including dividends. Non-Corporate U.S. Holders should consult their tax advisors regarding the effect, if any, of this tax on their ownership of our common stock.
Sale, Exchange or Other Disposition of Common Stock
Subject to the discussion of PFICs below, a U.S. Holder generally will recognize capital gain or loss upon a sale, exchange or other disposition of our common stock in an amount equal to the difference between the amount realized by the U.S. Holder from such sale, exchange or other disposition and the U.S. Holder’s tax basis in such stock. Subject to the discussion of extraordinary dividends above, such gain or loss generally will be treated as (a)(i) long-term capital gain or loss if the U.S. Holder’s holding period is greater than one year at the time of the sale, exchange or other disposition, or short -term capital gain or loss otherwise and (b)(ii) U.S.-source gain or loss, as applicable, for foreign tax credit purposes. Non-Corporate U.S. Holders may be eligible for preferential rates of U.S. federal income tax in respect of long-term capital gains. A U.S. Holder’s ability to deduct capital losses is subject to certain limitations.
Certain Non-Corporate U.S. Holders are subject to a 3.8% tax on certain investment income, including capital gains from the sale or other disposition of stock. Non-Corporate U.S. Holders should consult their tax advisors regarding the effect, if any, of this tax on their disposition of our common stock.
Consequences of Possible PFIC Classification
A non-U.S. entity treated as a corporation for U.S. federal income tax purposes will be treated as a PFIC in any taxable year in which, after taking into account the income and assets of the corporation and certain subsidiaries pursuant to a “look through” rule, any other corporation or partnership in which the corporation directly or indirectly owns at least 25% of the stock or equity interests (by value), either: (i) at least 75% of its gross income is “passive” income;income, or (ii) at least 50% of the average value of its assets is attributable to assets that produce, or are held for the production of, passive income. For purposes of these tests, “passive income” includes dividends, interest, gains from the sale or exchange of investment property and rents and
royalties other than rents and royalties that are received from unrelated parties in connection with the active conduct of a trade or business. By contrast, income derived from the performance of services does not constitute “passive income.”
There are legal uncertainties involved in determining whether the income derived from our and our look-through subsidiaries’ time-chartering activities constitutes rental income or income derived from the performance of services, including legal uncertainties arising from the decision in Tidewater Inc. v. United States, 565 F.3d 299 (5th Cir. 2009), which held that income derived from certain time-chartering activities should be treated as rental income rather than services income for purposes of a foreign sales corporation provision of the Code. However, the Internal Revenue Service (or IRS)IRS stated in an Action on Decision (AOD 2010-01) that it disagrees with, and will not acquiesce to, the way that the rental versus services framework was applied to the facts in the Tidewater decision, and in its discussion stated that the time charters at issue in Tidewater would be treated as producing services income for PFIC purposes. The IRS’s statement with respect to Tidewater cannot be relied upon or otherwise cited as precedent by taxpayers. Consequently, in the absence of any binding legal authority specifically relating to the statutory provisions governing PFICs, there can be no assurance that the IRS or a court would not follow the Tidewater decision in interpreting the PFIC provisions of the Code. Moreover, the market value of our common stock and our publicly tradedpublicly-traded look-through subsidiaries may be treated as reflecting the value of our assets, and our publicly traded look-through subsidiaries’ assets, respectively, at any given time. Therefore, a decline in the market value of our common stock, or the stock of our publicly tradedpublicly-traded look-through subsidiaries, (whichwhich is not within our control)control, may impact the determination of whether we are a PFIC. Nevertheless, based on our and our look-through subsidiaries’ current assets and operations, we intend to take the position that we are not now and have never been a PFIC. No assurance can be given, however, that the IRS or a court of law will accept our position or that we would not constitute a PFIC for any future taxable year if there were to be changes in our or our subsidiarieslook-through subsidiaries' assets, income or operations.
As discussed more fully below, if we were to be treated as a PFIC for any taxable year, a U.S. Holder generally would be subject to different taxation rules depending on whether the U.S. Holder makes a timely and effective election to treat us as a “Qualified Electing Fund” (a“qualified electing fund” (or a QEF election). As an alternative to making a QEF election, a U.S. Holder should be able to make a “mark-to-market” election with respect to our common stock, as discussed below.
Taxation of U.S. Holders Making a Timely QEF Election. A U.S. Holder who makes a timely QEF election (an (or an Electing Holder)Holder) must report the Electing Holder’s pro rata share of our ordinary earnings and net capital gain, if any, for each taxable year for which we are a PFIC that ends with or within the Electing Holder’s taxable year, regardless of whether or not the Electing Holder received distributions from us in that year. Such income inclusions would not be eligible for the preferential tax rates applicable to qualified dividend income. The Electing Holder’s adjusted tax basis in our common stock will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that were previously taxed will result in a corresponding reduction in the Electing Holder’s adjusted tax basis in our common stock and will not be taxed again once distributed. An Electing Holder generally will recognize capital gain or loss on the sale, exchange or other disposition of our common stock. A U.S. Holder makes a QEF election with respect to any year that we are a PFIC by filing IRS Form 8621 with the U.S. Holder’s timely filed U.S. federal income tax return (including extensions).
If a U.S. Holder has not made a timely QEF election with respect to the first year in the U.S. Holder’s holding period of our common stock during which we qualified as a PFIC, the U.S. Holder may be treated as having made a timely QEF election by filing a QEF election with the U.S. Holder’s timely filed U.S. federal income tax return (including extensions) and, under the rules of Section 1291 of the Code, a “deemed sale election” to include in income as an “excess distribution” (described below) the amount of any gain that the U.S. Holder would otherwise recognize if the U.S. Holder sold the U.S. Holder’s common stock on the “qualification date.” The qualification date is the first day of our taxable year in which we qualified as a “qualified electing fund” with respect to such U.S. Holder. In addition to the above rules, under very limited circumstances, a U.S. Holder may make a retroactive QEF election if the U.S. Holder failed to file the QEF election documents in a timely manner. If a U.S. Holder makes a timely QEF election for one of our taxable years, but did not make such election with respect to the first year in the U.S. Holder’s holding period of our common stock during which we qualified as a PFIC and the U.S. Holder did not make the deemed sale election described above, the U.S. Holder also will be subject to the more adverse rules described below.
A U.S. Holder’s QEF election will not be effective unless we annually provide the U.S. Holder with certain information concerning our income and gain, calculated in accordance with the Code, to be included with the U.S. Holder’s U.S. federal income tax return. We have not provided our U.S. Holders with such information in prior taxable years and do not intend to provide such information in the current taxable year. Accordingly, U.S. Holders will not be able to make an effective QEF election at this time. If, contrary to our expectations, we determine that we are or will be a PFIC for any taxable year, we will provide U.S. Holders with the information necessary to make an effective QEF election with respect to our common stock.
Taxation of U.S. Holders Making a Mark-to-Market Election. If we were to be treated as a PFIC for any taxable year and, as we anticipate, our common stock was treated as “marketable stock”, then, as an alternative to making a QEF election, a U.S. Holder would be allowed to make a “mark-to-market” election with respect to our common stock, provided the U.S. Holder completes and files IRS Form 8621 in accordance with the relevant instructions and related Treasury Regulations. If that election is made for the first year a U.S. Holder holds or is deemed to hold our common stock and for which we are a PFIC, the U.S. Holder generally would include as ordinary income in each taxable year that we are a PFIC the excess, if any, of the fair market value of the U.S. Holder’s common stock at the end of the taxable year over the U.S. Holder’s adjusted tax basis in the common stock.
The U.S. Holder also would be permitted an ordinary loss in respect of the excess, if any, of the U.S. Holder’s adjusted tax basis in the common stock over the fair market value thereof at the end of the taxable year that we are a PFIC, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. A U.S. Holder’s tax basis in our common stock would be adjusted to reflect any such income or loss recognized. Gain recognized on the sale, exchange or other disposition of our common stock in taxable years that we are a PFIC would be treated as ordinary income, and any loss recognized on the sale, exchange or other disposition of our common stock in taxable years that we are a PFIC would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included in income by the U.S. Holder. Because the mark-to-market election only appliesmay not be applicable to marketable stock held indirectly through a foreign corporation that is not a controlled foreign corporation, however, it wouldmay not apply to a U.S. Holder’s indirect interest in any of our subsidiaries that were also determined to be PFICs.
If a U.S. Holder makes a mark-to-market election for one of our taxable years and we were a PFIC for a prior taxable year during which such U.S. Holder held our common stock and for which (i) we were not a QEF with respect to such U.S. Holder and (ii) such U.S. Holder did not make a timely mark-to-market election, such U.S. Holder would also be subject to the more adverse rules described below in the first taxable year for which the mark-to-market election is in effect and also to the extent the fair market value of the U.S. Holder’s common stock exceeds the U.S. Holder’s adjusted tax basis in the common stock at the end of the first taxable year for which the mark-to-market election is in effect.
Taxation of U.S. Holders Not Making a Timely QEF or Mark-to-Market Election. If we were to be treated as a PFIC for any taxable year, a U.S. Holder who does not make either a QEF election or a “mark-to-market” election for that year (a Non-Electing Holder) would be subject to special rules resulting in increased tax liability with respect to (i) any excess distribution (i.e., the portion of any distributiondistributions received by the Non-Electing Holder on our common stock in a taxable year in excess of 125% of the average annual distributions received by the Non-Electing Holder in the three preceding taxable years, or, if shorter, the Non-Electing Holder’s holding period for our common stock), and (ii) any gain realized on the sale, exchange or other disposition of our common stock. Under these special rules:
•the excess distribution or gain would be allocated ratably over the Non-Electing Holder’s aggregate holding period for our common stock;
•the amount allocated to the current taxable year and any taxable year prior to the taxable year we were first treated as a PFIC with respect to the Non-Electing Holder would be taxed as ordinary income in the current taxable year;
•the amount allocated to each of the other taxable years would be subject to U.S. federal income tax at the highest rate of tax in effect for the applicable class of taxpayer for that year; and
•an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year.
Additionally, for each year during which a U.S. Holder ownsholds our common stock, we are a PFIC, and the total value of all PFIC stock that such U.S. Holder directly or indirectly ownsholds exceeds certain thresholds, such U.S. Holder will be required to file IRS Form 8621 with its annual U.S. federal income tax return to report its ownership of our common stock. In addition, if a Non-Electing Holder, who is an individual, dies while owning our common stock, such Non-Electing Holder’s successor generally would not receive a step-up in tax basis with respect to such common stock.
U.S. Holders are urged to consult their tax advisors regarding the PFIC rules, including the PFIC annual reporting requirements, as well as the applicability, availability and advisability of, and procedure for, making QEF, Mark-to-Market and other available elections with respect to us and our subsidiaries, and the U.S. federal income tax consequences of making such elections.
U.S. Return Disclosure Requirements for U.S. Individual Holders
U.S. Individual Holders who hold certain specified foreign financial assets, including stock in a foreign corporation that is not held in an account maintained by a financial institution, with an aggregate value in excess of $50,000 on the last day of a taxable year, or $75,000 at any time during that taxable year, may be required to report such assets on IRS Form 8938 with their U.S. federal income tax return for that taxable year. This reporting requirement does not apply to U.S. Individual Holders who report their ownership of our common stock under the PFIC annual reporting rules described above. Penalties apply for failure to properly complete and file IRS Form 8938. U.S. Individual Holders are encouraged to consult with their tax advisors regarding the possible application of this disclosure requirement.requirement to their investment in our common stock.
United States Federal Income Taxation of Non-U.S. Holders
A beneficial owner of our common stock (other than a partnership, including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Holder is a Non-U.S. Holder.
Distributions
In general, a Non-U.S. Holder will not be subject to U.S. federal income tax on distributions received from us with respect to our common stock unless the distributions are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that the Non-U.S. Holder maintains in the United States). If a Non-U.S. Holder is engaged in a trade or business within the United States and the distributions are deemed to be effectively connected to that trade or business (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that the Non-U.S. Holder maintains in the United States), the Non-U.S. Holder generally will be subject to U.S. federal income tax on those distributions in the same manner as if it were a U.S. Holder. In addition, a Non-U.S. Holder that is a foreign corporation for U.S. federal income tax purposes may be subject to branch profits tax at a rate of 30% (or lower applicable treaty rate) on the after-tax earnings and profits attributable to such distributions.
Sale, Exchange or Other Disposition of Common Stock
In general, a Non-U.S. Holder is not subject to U.S. federal income tax on any gain resulting from the disposition of our common stock unless (a)(i) such gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment that the Non-U.S. Holder maintains in the United States) or (b)(ii) the Non-U.S. Holder is an individual who is present in the United States for 183 days or more during the taxable year in which such disposition occurs and meets certain other requirements. If a Non-U.S. Holder is engaged in a trade or business within the United States and the disposition of our common stock is deemed to be effectively connected to that trade or business (and, if required by an applicable income tax treaty, are attributable to a permanent establishment that the Non-U.S. Holder maintains in the United States), the Non-U.S. Holder generally will be subject to U.S. federal income tax on the resulting gain in the same manner as if it were a U.S. Holder. In addition, a Non-U.S. Holder that is a foreign corporation for U.S. federal income tax purposes may be subject to branch profits tax at a rate of 30% (or lower applicable treaty rate) on the after-tax earnings and profits attributable to such gain.
Information Reporting and Backup Withholding
In general, payments of distributions taxable as dividends with respect to, or the proceeds offrom a sale, redemption or other taxable disposition of, our common stock toheld by a Non-Corporate U.S. Holder will be subject to information reporting requirements.requirements, unless such distribution taxable as a dividend is paid and received outside the United States by a non-U.S. payor or non-U.S. middleman (within the meaning of U.S. Treasury Regulations), or such proceeds are effected through an office outside the U.S. of a broker that is considered a non-U.S. payor or non-U.S. middleman (within the meaning of U.S. Treasury Regulations). These payments to a Non-Corporate U.S. Holderamounts also maygenerally will be subject to backup withholding if the Non-Corporate U.S. Holder:
•fails to timely provide an accurate taxpayer identification number;
•is notified by the IRS that it has failed to report all interest or distributions required to be shown on its U.S. federal income tax returns; or
•in certain circumstances, fails to comply with applicable certification requirements.
Non-U.S. Holders may be required to establish their exemption from informationInformation reporting and backup withholding generally will not apply to distributions taxable as dividends on payments madeour common stock to them withina Non-U.S. Holder if such dividend is paid and received outside the United States by a non-U.S. payor or through anon-U.S. middleman (within the meaning of U.S. payor by certifying theirTreasury Regulations) or the Non-U.S. Holder properly certifies under penalties of perjury as to its non-U.S. status (generally on IRS Form W-8BEN, W-8BEN-E, W-8ECI, or W-8EXP, as applicable) and certain other conditions are met or W-8IMY,the Non-U.S. Holder otherwise establishes an exemption.
Payment of proceeds to a Non-U.S. Holder from a sale, redemption or other taxable disposition of our common stock to or through the U.S. office of a broker, or through a broker that is considered a U.S. payor or U.S. middleman (within the meaning of U.S. Treasury Regulations), generally will be subject to information reporting and backup withholding, unless the Non-U.S. Holder properly certifies under penalties of perjury as applicable.to its non-U.S. status (generally on IRS Form W-8BEN, W-8BEN-E, W-8ECI, or W-8EXP, as applicable) and certain other conditions are met or the Non-U.S. Holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Rather, a shareholderNon-Corporate U.S. Holder or Non-U.S. Holder generally may obtain a credit for any amount withheld against its liability for U.S. federal income tax (and obtain a refund of any amounts withheld in excess of such liability) by accurately completing and timely filing a U.S. federal income tax return with the IRS.
Non-United States Tax Considerations
Marshall Islands Tax Considerations. Because Teekaywe and our subsidiaries do not, and do not expect that we or they will, conduct business, operations,transactions or transactionsoperations in the Republic of Thethe Marshall Islands, and because all documentation related to issuances of shares of our common stock was and is expected to be executed outside of the Republic of Thethe Marshall Islands, under current Marshall Islands law, no taxes or withholdings will be imposed by the Republic of The Marshall Islands on distributions made to holders of shares of our common stock so long as such personsthat are not citizens of and do not reside in, maintain offices in, or engage in business, operations, or transactions in the Republic of Thethe Marshall Islands. Furthermore, noIslands will not be subject to Marshall Islands taxation or withholding on dividends we make to our shareholders. In addition, such shareholders will not be subject to Marshall Islands stamp, capital gains or other taxes will be imposed by the Republic of The Marshall Islands on the purchase, ownership or disposition by such persons of shares of our common stock, and they will not be required by the Republic of the Marshall Islands to file a tax return relating to the common stock.
It is the responsibility of each shareholder to investigate the legal and tax consequences, under the laws of pertinent jurisdictions, including the Marshall Islands, of such shareholder's investment in us. Accordingly, each shareholder is urged to consult a tax counsel or other advisor with regard to those matters. Further, it is the responsibility of each shareholder to file all state, local and non-U.S., as well as U.S. federal tax returns that may be required of such shareholder.
Documents on Display
Documents concerning us that are referred to herein may be accessed on our website under “Investors – Teekay Corporation – Financials & Presentations” from the home page of our web site at www.teekay.com, or may be inspected at our principal executive offices at 4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda. Those documents electronically filed via the Electronic Data Gathering, Analysis, and Retrieval (or EDGAR) system may also be obtained from the SEC’s website at www.sec.gov, free of charge, or from the Public Reference Section of the SEC at 100 F Street, NE, Washington, D.C. 20549, at prescribed rates. Further information on the operation of the SEC public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330.charge.
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Item 11. | Quantitative and Qualitative Disclosures About Market Risk |
Item 11.Quantitative and Qualitative Disclosures About Market Risk
We as in Teekay Corporation and its subsidiaries, are exposed to market risk from foreign currency fluctuations and changes in interest rates, bunker fuel prices and spot tanker market rates for vessels. We use foreign currency forward contracts, cross currency and interest rate swaps bunker fuel swap contracts and forward freight agreements to manage currency, interest rate, bunker fuel price and spot tanker market rate risks but we do not use these financial instruments for trading or speculative purposes. Please read “Item 18.18 – Financial Statements: Note 15 —– Derivative Instruments and Hedging Activities.”
Foreign Currency Fluctuation Risk
Our primary economic environment is the international shipping market. Transactions in this market generally utilize the U.S. Dollar. 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, dry docking and overhead costs in foreign currencies, the most significant of which are the Australian Dollar, Brazilian Real, British Pound, Canadian Dollar, Euro, Norwegian KronerKrone and SingaporeSingaporean Dollar. There is a risk that currency fluctuations will have a negative effect on the value of cash flows.
We reduce our exposure by entering into foreign currency forward contracts. In mostsome cases, we hedge a portion of our netnear-term foreign currency exposure for the following nine to 12 months. We generally dobut this hedging does not hedge our net foreign currency exposure beyondexceed three years forward.
As at December 31, 2017,2020, we had the followingwere not committed to any foreign currency forward contracts:contracts.
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| | | Contract Amount in Foreign Currency | | Average Forward Rate (1) | | Fair Value / Carrying Amount of Asset $ | | Expected Maturity |
| | | | | |
| | | | | | 2018 $ |
| Norwegian Kroner | | 100,000 |
| | 8.23 |
| | 81 |
| | 12,153 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(1) | Average forward 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 December 31, 2017,2020, we had Euro-denominated term loans of 194.1125 million Euros ($233.0152.7 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 net exposure to fluctuations in the Euro will not increase in the future.
We enter into cross currency swaps in connection with our NOK bond issuances, and pursuant to these swaps we receive the principal amount in NOK on the maturity date of the swap, in exchange for payment of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and principal of ourTeekay LNG's NOK-denominated bonds due in 2018, 2020 and 2021.2021 through 2025. In addition, the cross currency swaps economically hedge the interest rate exposure on the NOK bonds due in 2018, 2020 and 2021.2021 through 2025. We have not designated, for accounting purposes, these cross currency swaps as cash flow hedges of ourTeekay LNG's NOK-denominated bonds due in 2018, 2020 and 2021. 2021 through 2025.
As at December 31, 2017,2020, we were committed to the following cross currency swaps:
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Notional Amount NOK (1) | | Notional Amount USD (1) | | Floating Rate Receivable | | Fixed
Rate
Payable | | | | |
Reference
Rate | | Margin | | Fair Value (1) $ | | Remaining
Term (years) |
| 1,200,000 | | 146,500 | | NIBOR | | 6.00% | | 7.72% | | (9,051) | | 0.8 |
| 850,000 | | 102,000 | | NIBOR | | 4.60% | | 7.89% | | (10,971) | | 2.7 |
| 1,000,000 | | 112,000 | | NIBOR | | 5.15% | | 5.74% | | 4,505 | | 4.7 |
| | | | | | | | | | (15,517) | | |
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Notional Amount NOK (1) | | Notional Amount USD (1) | | Floating Rate Receivable | | Fixed Rate Payable | | | | |
Reference Rate | | Margin | | Fair Value (1) $ | | Remaining Term (years) |
| 900,000 | | 150,000 | | NIBOR | | 4.35% | | 6.43% | | (41,664) | | 0.7 |
| 1,000,000 | | 134,000 | | NIBOR | | 3.70% | | 5.92% | | (12,553) | | 2.4 |
| 1,200,000 | | 146,500 | | NIBOR | | 6.00% | | 7.72% | | 3,758 | | 3.8 |
| | | | | | | | | | | (50,459) | | |
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(1) | In thousands of Norwegian Kroner and U.S. Dollars. |
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, NIBOR or EURIBOR. Significant increases in interest rates could adversely affect our operating margins, results of operations and our ability to service our debt. We use interest rate swaps to reduce our exposure to market risk from changes in interest rates. Generally, our approach is to economically 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. Please read "Item 3 – Risk Factors" for more details on the potential phasing out of LIBOR as an interest “benchmark”.
We are exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. In order to minimize counterparty risk, we only enter into derivative transactions with counterparties that are rated A- or better by Standard & 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.
The table below provides information about our financial instruments at December 31, 2017,2020, that are sensitive to changes in interest rates, including our debt and obligations related to capitalfinance leases and interest rate swaps.swaps, but excluding any amounts related to our equity-accounted investments. For long-term debt and obligations related to capitalfinance leases, 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.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | Expected Maturity Date | | | | | | |
| | | | | | | Expected Maturity Date | | | | | | | | | | | 2021 | | 2022 | | 2023 | | 2024 | | 2025 | | Thereafter | | Total | | Fair Value
Asset /
(Liability) | | Rate (1) |
| | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total | | Fair Value Asset / (Liability) | | Rate (1) | | | (in millions of U.S. dollars) |
| | | (in millions of U.S. dollars) | |
| Short-Term Debt: | | Short-Term Debt: | | |
Variable Rate ($U.S.) (2) | | Variable Rate ($U.S.) (2) | | 10.0 | | — | | — | | — | | — | | — | | 10.0 | | (10.0) | | 3.6% |
| Long-Term Debt: | | | | | | | | | | | | | | | | | | | Long-Term Debt: | |
Variable Rate ($U.S.) (2) | | 543.8 |
| | 169.3 |
| | 338.6 |
| | 554.3 |
| | 287.8 |
| | 275.0 |
| | 2,168.8 |
| | (2,128.9 | ) | | 3.3 | % | Variable Rate ($U.S.) (2) | | 75.7 | | 171.9 | | 99.9 | | 262.4 | | 53.1 | | 381.5 | | 1,044.5 | | (1,040.5) | | 3.7% |
Variable Rate (Euro) (3) (4) | | 142.4 |
| | 10.2 |
| | 11.0 |
| | 11.7 |
| | 12.6 |
| | 45.1 |
| | 233.0 |
| | (226.2 | ) | | 1.2 | % | Variable Rate (Euro) (3) (4) | | 28.6 | | 30.1 | | 63.6 | | 30.4 | | — | | — | | 152.7 | | (155.6) | | 1.1% |
Variable Rate (NOK) (4) (5) | | 109.7 |
| | — |
| | 121.9 |
| | 146.3 |
| | — |
| | — |
| | 377.9 |
| | (384.8 | ) | | 5.6 | % | Variable Rate (NOK) (4) (5) | | 139.9 | | — | | 99.0 | | — | | 116.6 | | — | | 355.5 | | (359.6) | | 5.7% |
| Fixed-Rate Debt ($U.S.) | | 10.0 |
| | 10.0 |
| | 602.6 |
| | 37.3 |
| | — |
| | — |
| | 659.9 |
| | (661.1 | ) | | 8.2 | % | Fixed-Rate Debt ($U.S.) | | 18.1 | | 261.5 | | 130.3 | | 18.1 | | 18.1 | | 88.3 | | 534.4 | | (522.7) | | 6.7% |
| Average Interest Rate | | 5.4 | % | | 5.4 | % | | 8.4 | % | | 5.4 | % | | — | % | | — | % | | 8.2 | % | | | | | Average Interest Rate | | 4.3% | | 8.9% | | 4.9% | | 4.3% | | 4.3% | | 4.3% | | 6.7% | |
| Obligations Related to Capital Leases: | | | | | | | | | | | | | | | | | | | |
| Obligations Related to Finance Leases: | | Obligations Related to Finance Leases: | |
Variable-Rate ($U.S.) (6) | | 73.4 |
| | 26.1 |
| | 26.6 |
| | 27.1 |
| | 27.7 |
| | 243.3 |
| | 424.2 |
| | (421.6 | ) | | 5.2 | % | Variable-Rate ($U.S.) (6) | | 27.1 | | 27.1 | | 27.2 | | 25.4 | | 24.8 | | 302.1 | | 433.7 | | (452.4) | | 4.6% |
Fixed-Rate ($U.S.) (6) | | 42.1 |
| | 39.6 |
| | 43.7 |
| | 42.9 |
| | 45.1 |
| | 522.8 |
| | 736.2 |
| | (727.4 | ) | | 4.5 | % | |
Average Interest Rate (7) | | 4.6 | % | | 4.6 | % | | 4.6 | % | | 4.6 | % | | 4.6 | % | | 4.4 | % | | 4.5 | % | | | | | |
Fixed-Rate ($U.S.) (6) (7) (8) | | Fixed-Rate ($U.S.) (6) (7) (8) | | 123.2 | | 70.1 | | 74.2 | | 78.3 | | 82.7 | | 838.8 | | 1,267.3 | | (1,416.3) | | 6.1% |
Average Interest Rate (9) | | Average Interest Rate (9) | | 6.1% | | 6.1% | | 6.1% | | 6.1% | | 6.1% | | 6.1% | | 6.1% | |
| Interest Rate Swaps: | | | | | | | | | | | | | | | | | | | Interest Rate Swaps: | |
Contract Amount ($U.S.) (8) | | 309.2 |
| | 226.9 |
| | 244.4 |
| | 275.9 |
| | 25.9 |
| | 215.4 |
| | 1,297.7 |
| | (43.2 | ) | | 2.9 | % | |
Contract Amount ($U.S.) (10) | | Contract Amount ($U.S.) (10) | | 249.3 | | 44.4 | | 159.4 | | 196.5 | | 28.0 | | 133.6 | | 811.2 | | (73.4) | | 3.0% |
Average Fixed Pay Rate (2) | | 3.3 | % | | 2.6 | % | | 3.0 | % | | 2.1 | % | | 3.7 | % | | 3.4 | % | | 2.9 | % | | | | | Average Fixed Pay Rate (2) | | 3.6% | | 3.2% | | 3.4% | | 1.5% | | 3.6% | | 3.2% | | 3.0% | |
Contract Amount (Euro) (4) (9) | | 142.4 |
| | 10.2 |
| | 11.0 |
| | 11.7 |
| | 12.6 |
| | 45.1 |
| | 233.0 |
| | (29.2 | ) | | 3.1 | % | |
Contract Amount (Euro) (4) (11) | | Contract Amount (Euro) (4) (11) | | 11.9 | | 12.9 | | 45.9 | | — | | — | | — | | 70.7 | | (6.4) | | 3.9% |
Average Fixed Pay Rate (3) | | 2.6 | % | | 3.7 | % | | 3.7 | % | | 3.7 | % | | 3.7 | % | | 3.9 | % | | 3.1 | % | | | | | Average Fixed Pay Rate (3) | | 3.7% | | 3.7% | | 3.9% | | —% | | —% | | —% | | 3.9% | |
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(1) | (1)Rate refers to the weighted-average effective interest rate for our long-term debt and obligations related to capital leases, including the margin we pay on our floating-rate debt, which, as of December 31, 2017, ranged from 0.3% to 4.0% for U.S. Dollar denominated debt. The average interest rate for our obligations related to capital leases is the weighted-average interest rate implicit in our obligations related to capital leases at the inception of the leases. |
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(2) | Interest payments on U.S. Dollar-denominated debt and interest rate swaps are based on LIBOR. The repayment amounts exclude a non-interest bearing loan of $10.0 million and reflect the refinancing completed in February 2018 of one of Teekay LNG's revolving facilities scheduled to mature in 2018 with a new $197 million revolving credit facility maturing in 2022. |
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(3) | Interest payments on Euro-denominated debt and interest rate swaps are based on EURIBOR. |
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(4) | Euro-denominated and NOK-denominated amounts have been converted to U.S. Dollars using the prevailing exchange rate as of December 31, 2017. |
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(5) | Interest payments on our NOK-denominated debt and on our cross currency swaps are based on NIBOR. Our NOK-denominated debt has been economically hedged with cross currency swaps, to swap all interest and principal payments at maturity into U.S. Dollars, with the interest payments fixed at rates between 5.92% to 7.72%, and the transfer of principal fixed at $430.5 million upon maturities. |
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(6) | The amount of obligations related to capital leases represents the present value of minimum lease payments together with our purchase obligation, as applicable. |
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(7) | The average interest rate is the weighted-average interest rate implicit in the obligations related to fixed-rate capital leases at the inception of the leases. |
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(8) | The average variable receive rate for our interest rate swaps is set quarterly at the 3-month LIBOR or semi-annually at the 6-month LIBOR. The table above does not reflect Teekay LNG's interest rate swaption agreements, whereby Teekay LNG has a one-time option to enter into an interest rate swap at a fixed rate with a third party, and the third party has a one-time option to require Teekay LNG to enter into an interest rate swap at a fixed rate. If Teekay LNG or the third party exercises its option, there will be cash settlements for the fair value of the interest rate swap in lieu of taking delivery of the actual interest rate swap. The net fair value of the interest rate swaption agreements as at December 31, 2017 was nominal. Please read “Item 18 – Financial Statements: Note 15 — Derivative Instruments and Hedging Activities”. |
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(9) | The average variable receive rate for our Euro-denominated interest rate swaps is set at 1-month EURIBOR. |
Equity Price Risk
We are exposed to the changesweighted-average effective interest rate for our short-term debt, long-term debt and obligations related to finance leases, including the margin we pay on our floating-rate debt, which, as of December 31, 2020, ranged from 0.3% to 4.25% for U.S. Dollar-denominated debt. The average interest rate for our obligations related to finance leases is the weighted-average interest rate implicit in our obligations related to finance leases at the inception of the leases.
(2)Interest payments on U.S. Dollar-denominated debt and interest rate swaps are based on LIBOR. The repayment amounts give effect to the refinancing completed in February 2021 of one of Teekay LNG's term loans scheduled to mature in 2021 with a new $191.5 million term loan maturing in 2026 (please read “Item 18 – Financial Statements: Note 23 – Subsequent Events").
(3)Interest payments on Euro-denominated debt and interest rate swaps are based on EURIBOR.
(4)Euro-denominated and NOK-denominated amounts have been converted to U.S. Dollars using the prevailing exchange rate as of December 31, 2020.
(5)Interest payments on Teekay LNG's NOK-denominated debt and on Teekay LNG's cross currency swaps are based on NIBOR. Teekay LNG's NOK-denominated debt has been economically hedged with cross currency swaps, to swap all interest and principal payments at maturity into U.S. Dollars, with the interest payments fixed at rates between 5.74% to 7.89%, and the transfer of principal fixed at $360.5 million upon maturities.
(6)The amount of obligations related to finance leases represents the present value of minimum lease payments together with our purchase obligation, as applicable.
(7)Gives effect to the purchase options declared by Teekay Tankers in November 2020 to acquire two Suezmax tankers in May 2021 under the sale-leaseback arrangements described in "Item 18 - Financial Statements: Note 10 - Obligations Related to Finance Leases".
(8)In March 2021, Teekay Tankers declared purchase options to acquire six Aframax tankers in September 2021 for a total cost of $128.8 million, under the sale-leaseback arrangements described in "Item 18 - Financial Statements: Note 10 - Obligations Related to Finance Leases". Giving effect to this transaction, the scheduled repayments of obligations related to finance leases are $246.0 million (2021), $59.1 million (2022), $62.1 million (2023), $65.0 million (2024), $68.2 million (2025) and $766.9 million (thereafter).
(9)The average interest rate is the weighted-average interest rate implicit in the unit priceobligations related to fixed-rate finance leases at the inception of Teekay Offshore. We have stock purchase warrants entitling us to purchase an aggregate of 14.5 million common units of Teekay Offshorethe leases.
(10)The average variable receive rate for an exercise price of $0.01 per common unit, which warrants become exercisable when Teekay Offshore's common unit volume-weightedour U.S. Dollar-denominated interest rate swaps is set at 3-month or 6-month LIBOR.
(11)The average pricevariable receive rate for our Euro-denominated interest rate swaps is equal toset at 1-month EURIBOR or greater than $4.00 per common unit for 10 consecutive trading days until September 25, 2024. In addition, we hold 1.8 million warrants to purchase common units of Teekay Offshore that were issued in connection with Teekay Offshore's private placement of Series D Preferred Units in June 2016 with an exercise price of $4.55, which have a seven-year term and are exercisable any time and will be net settled in either cash or common units at Teekay Offshore’s option.6-month EURIBOR.
Commodity Price Risk
From time to time, we may use bunker fuel swap contracts relating to a portion of our bunker fuel expenditures. As at December 31, 2017,2020, we were not committed to any bunker fuel swap contracts.
Spot Tanker Market Rate Risk
We are exposed to fluctuations in spot tanker market rates which can adversely affect our revenues. To reduce its exposure, Teekay Tankers uses forward freight agreements (or FFAs) in non-hedge-related transactions to increase or decrease its exposure to spot market rates, within defined limits. Net gains and losses from FFAs are recorded within realized and unrealized losses on non-designated derivative instruments in our consolidated statements of income (loss) income.. As at December 31, 2017, we were2020, Teekay Tankers was not committed to any FFAs.forward freight agreements.
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Item 12. | Description of Securities Other than Equity Securities |
Item 12.Description of Securities Other than Equity Securities
Not applicable.
PART II
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Item 13. | Defaults, Dividend Arrearages and Delinquencies |
Item 13.Defaults, Dividend Arrearages and Delinquencies
None.
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Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable.
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Item 15. | Controls and Procedures |
Item 15.Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended (or the Exchange Act)) that are designed to ensure that (i) information required to be disclosed in our reports that are filed or submitted under the Exchange Act, are recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We conducted an evaluation of our disclosure controls and procedures under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures arewere effective as of December 31, 2017.2020.
The Chief Executive Officer and Chief Financial Officer do not expect that our disclosure controls or internal controls will prevent all errors and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining for us adequate internal control over financial reporting.reporting for us.
Our internal controls are designed to provide reasonable assurance as to the reliability of our financial reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Our 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 our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made in accordance with authorizations of management and the directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
We conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements even when determined to be effective and can only provide reasonable assurance with respect to financial statement preparation and presentation. 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 and procedures may deteriorate. However, based on the evaluation, management believes that we maintained effective internal control over financial reporting as of December 31, 2017.2020.
Our independent auditors, KPMG LLP, an independent registered public accounting firm, have audited the accompanying consolidated financial statements and the effectiveness of our internal control over financial reporting.reporting as of December 31, 2020. Their attestation report on the effectiveness of our internal control over financial reporting can be found on page F-2F-3 of this Annual Report.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2020, we completed the implementation of a new global accounting system designed for greater system enablement and automation of the accounting and financial reporting processes. Although this implementation digitized certain accounting activities and allowed for enhanced capabilities within the accounting function, it did not significantly affect the overall control and procedures followed by us in establishing internal controls over financial reporting.
There werehave been no changes in our internal controlscontrol over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the year ended December 31, 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting (as defined in Rule 13a – 15 (f) under the Exchange Act) that occurred during the year ended December 31, 2017.reporting.
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Item 16A. | Audit Committee Financial Expert |
Item 16A. Audit Committee Financial Expert
The Board has determined that directorDirector and Chair of the Audit Committee, Alan Semple, qualifies as an audit committee financial expert and is independent under applicable NYSE and SEC standards.
Item 16B. Code of Ethics
We have adopted a Standards of Business Conduct Policy that applies to all employees and directors. This document is available under “Investors – Teekay Corporation – Governance” from the home page of our website (www.teekay.com). We also intend to disclose under “Investors – Teekay Corporation – Governance” in the Investors section of our web site any waivers to or amendments of our Standards of Business Conduct Policy that benefit our directors and executive officers.
Item 16C. Principal Accountant Fees and Services | |
Item 16C. | Principal Accountant Fees and Services |
Our principal accountant for 20172020 and 20162019 was KPMG LLP, Chartered Professional Accountants. The following table shows the fees Teekay and our subsidiaries paid or accrued for audit and other services provided by KPMG LLP for 20172020 and 2016.2019.
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| | | | | | | | |
Fees(1) (in thousands of U.S. dollars) | | 2017 | | 2016 |
Audit Fees (2) | | $ | 3,547 |
| | $ | 3,542 |
|
Audit-Related Fees (3) | | 64 |
| | 20 |
|
Tax Fees (4) | | 57 |
| | 61 |
|
| Total | | $ | 3,668 |
|
| $ | 3,623 |
|
| | | | | | | | | | | | | | |
Fees (in thousands of U.S. dollars) | | 2020 | | 2019 |
Audit Fees (1) | | 2,833 | | | 2,723 | |
Audit-Related Fees (2) | | 49 | | | 33 | |
Tax Fees (3) | | — | | | 23 | |
| Total | | 2,882 | | | 2,779 | |
___________________________(1)Audit fees represent fees for professional services provided in connection with the audits of our consolidated financial statements and effectiveness of internal control over financial reporting, reviews of our quarterly consolidated financial statements and audit services provided in connection with other statutory or regulatory filings for Teekay or our subsidiaries including professional services in connection with the review of our regulatory filings for public offerings of our subsidiaries. Audit fees for 2020 and 2019 include approximately $1,099,700 and $928,300, respectively, of fees paid to KPMG LLP by Teekay LNG that were approved by the Audit Committee of the Board of Directors of the general partner of Teekay LNG. Audit fees for 2020 and 2019 include approximately $645,900 and $588,200, respectively, of fees paid to KPMG LLP by our subsidiary Teekay Tankers that were approved by the Audit Committee of the Board of Directors of Teekay Tankers.
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(1) | The fees for the period include the fees of Teekay Offshore Partners L.P. for the period from January 1, 2017 to September 25, 2017. |
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(2) | Audit fees represent fees for professional services provided in connection with the audits of our consolidated financial statements and effectiveness of internal controls over financial reporting, reviews of our quarterly consolidated financial statements and audit services provided in connection with other statutory or regulatory filings for Teekay or our subsidiaries including professional services in connection with the review of our regulatory filings for public offerings of our subsidiaries. Audit fees for 2017 and 2016 include approximately $930,000 and $745,000, respectively, of fees paid to KPMG LLP by Teekay LNG that were approved by the Audit Committee of the Board of Directors of the general partner of Teekay LNG. Audit fees for 2017 and 2016 include approximately $437,000 and $1,136,000, respectively, of fees paid to KPMG LLP by our equity-accounted investee, Teekay Offshore, that were approved by the Audit Committee of the Board of Directors of the general partner of Teekay Offshore. Audit fees for 2017 and 2016 include approximately $545,000 and $408,000, respectively, of fees paid to KPMG LLP by our subsidiary Teekay Tankers that were approved by the Audit Committee of the Board of Directors of Teekay Tankers. |
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(3) | Audit-related fees consisted primarily of accounting consultations, employee benefit plan audits, services related to business acquisitions, divestitures and other attestation services. |
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(4) | For 2017 and 2016, tax fees principally included corporate tax compliance fees. |
(2)Audit-related fees consisted of employee benefit plan audits and attestation services for regulatory requirements.
(3)For 2019, tax fees principally included corporate tax compliance fees.
The Audit Committee has the authority to pre-approve audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees. Engagements for proposed services either may be separately pre-approved by the Audit Committee or entered into pursuant to detailed pre-approval policies and procedures established by the Audit Committee, as long as the Audit Committee is informed on a timely basis of any engagement entered into on that basis. The Audit Committee separately pre-approved all engagements and fees paid to our principal accountants in 20172020 and 2016.2019.
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Item 16D. | Exemptions from the Listing Standards for Audit Committees |
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
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Item 16E. | Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
In October 2008, we announced that our Board of Directors had authorizedEquity Securities by the repurchase of up to $200 million of shares of our common stock. As at December 31, 2016, Teekay had repurchased 5.2 million shares of Common Stock for $162.3 million pursuant to suchIssuer and Affiliated Purchasers
authorizations. The total remaining share repurchase authorization at December 31, 2017, was $37.7 million. Neither Teekay nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any shares of our common stock during 20162019 and 2017.2020.
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Item 16F. | Change in Registrant’s Certifying Accountant |
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
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Item 16G. | Corporate Governance |
Item 16G. Corporate Governance
The following are the significant ways in which our corporate governance practices differ from those followed by domestic companies:companies, and which difference are permitted by New York Stock Exchange (or NYSE) rules for “foreign private issuers” such as Teekay Corporation:
•In lieu of obtaining shareholder approval prior to the adoption of equity compensation plans or prior to certain equity issuances (including, among others, issuing 20% or more of our outstanding shares of common stock or voting power in a transaction), the boardBoard of directorsDirectors approves such adoption as permitted by New York Stock Exchange rules for foreign private issuers.or issuance; and
•One member of the Board of Directors’ Nominating and Governance Committee is not independent under NYSE standards.
There are no other significant ways in which our corporate governance practices differ from those followed by U.S. domestic companies under the listing requirements of the New York Stock Exchange.NYSE.
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Item 16H. | Mine Safety Disclosure |
Item 16H. Mine Safety Disclosure
Not applicableapplicable.
PART III
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Item 17. | Financial Statements |
Item 17.Financial Statements
Not applicable.
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Item 18. | Financial Statements |
Item 18.Financial Statements
The following consolidated financial statements and schedule, together with the related reports of KPMG LLP, Independent Registered Public Accounting Firm thereon, are filed as part of this Annual Report:
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| Page |
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| Consolidated Financial Statements | |
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All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required, are inapplicable or have been disclosed in the Notes to the Consolidated Financial Statements and therefore have been omitted.
Item 19.Exhibits
The following exhibits are filed as part of this Annual Report:
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| | | | |
| Amended and Restated Articles of Incorporation of Teekay Corporation. (10)(1) |
| Articles of Amendment of Articles of Incorporation of Teekay Corporation. (10)(1) |
| Amended and Restated Bylaws of Teekay Corporation. (1)(2) |
| Agreement Regarding Registration Rights Agreement, among Teekay Corporation, Tradewinds Trust Co.dated May 30, 2014, between Kattegat Private Trustees (Bermuda) Ltd., as Trustee forsole trustee of the CirrusKattegat Trust, and Worldwide Trust Services Ltd., as Trustee for the JTK Trust. (2) Teekay Corporation |
| Specimen of Teekay Corporation Common Stock Certificate. (2) |
| Indenture dated asDescription of January 27, 2010 among Teekay Corporation and The BankSecurities Registered Under Section 12 of New York Mellon Trust Company, N.A. for $450,000,000 8.5% Senior Notes due 2020. (11)
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| First Supplemental Indenture dated November 16, 2015 among Teekay Corporation and The Bank of New York Mellon Trust Company, N.A. for $200,000,000 8.5% Senior Unsecured Notes due 2021. (18)the Exchange Act. (3)
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| Underwriting Agreement, dated January 24, 2018, by and between Teekay Corporation, Morgan Stanley & Co. LLC, and J.P. Morgan Securities LLC, acting on behalf of themselves and on behalf of the several purchases listed on Schedule I thereto. (23)
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| Indenture dated as of January 26, 2018, between Teekay Corporation and The Bank of New York Mellon, as Trustee. (23)Trustee relating to 5.000% Convertible Senior Notes due 2023. (4) |
| Purchase Agreement, dated January 24, 2018, between Teekay Corporation and J.P. Morgan Securities LLC, for itself and on behalf of the several initial purchasers listed in Schedule 1 thereto. (23)
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| 1995 Stock Option Plan. (2)
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4.2 | Amendment to 1995 Stock Option Plan. (3)
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| Amended 1995 Stock Option Plan. (4)(5) |
| Amended 2003 Equity Incentive Plan. (13) (6) |
| Annual Executive Bonus Plan. (5)
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4.7 | Form of Indemnification Agreement between Teekay and each of its officers and directors.(2) |
| Amended Rights Agreement, dated as of July 2, 2010 between Teekay Corporation and The Bank of New York, as Rights Agent. (6)
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| Agreement dated August 23, 2006, for a $330,000,000 Secured Reducing Revolving Loan Facility among Teekay LNG Partners L.P., ING Bank N.V. and various other banks. (7)
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| Agreement, dated November 28, 2007 for a $845,000,000 Secured Reducing Revolving Loan Facility among Teekay Corporation, Teekay Tankers Ltd., Nordea Bank Finland PLC and various other banks. (8)
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| Amended and Restated Omnibus Agreement dated as of December 19, 2006, among Teekay Corporation, Teekay GP L.L.C., Teekay LNG Partners L.P., Teekay LNG Operating L.L.C., Teekay Offshore GP L.L.C., Teekay Offshore Partners L.P., Teekay Offshore Operating GP. L.L.C. and Teekay Offshore Operating L.P. (9)(7) |
| 2013 Equity Incentive Plan. (12) (8) |
| Agreement, dated December 21, 2012 for a $200,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. (14)
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| Amendment Agreement, dated December 18, 2013 for a $300,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. (15)
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| Agreement, dated February 24, 2014 for a $815,000,000 Secure Term Loan Facility Agreement among Knarr L.L.C., Citibank, N.A. and others. (16)
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| Agreement dated July 7, 2014; Teekay LNG Operating L.L.C. entered into a shareholder agreement with China LNG Shipping (Holdings) Limited to form TC LNG Shipping L.L.C in connection with the Yamal LNG Project. (17)(9) |
| Agreement dated December 17, 2014, for a $450,000,000 secured loan facility between Nakilat Holdco L.L.C. and Qatar National Bank SAQ. (17)(9) |
| Amendment Agreement No. 2, dated December 19, 2014 for a $500,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. (17)
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| Amendment Agreement No. 3, dated October 5, 2015 for a $500,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. (18)
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| Amendment Agreement No. 4, dated December 17, 2015 for a $300,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. (18)
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| Agreement, dated July 31, 2015, among OOGTK Libra GmbH & Co KG, ABN AMRO Bank N.V. and various other banks for a $803,711,786.92 term loan due 2027. (18)
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| Purchase Agreement, dated November 10, 2015, between Teekay Corporation and J.P. Morgan Securities LLC, for itself and on behalf of the several initial purchasers listed in Schedule 1 thereto. (18)
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| Registration Rights Agreement, dated November 16, 2015 by and among Teekay Corporation and J.P. Morgan Securities LLC, for itself and as representative of the several initial purchasers listed in Schedule 1 thereto. (18)
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| Secured Term Loan and Revolving Credit Facility Agreement dated January 8, 2016 between Teekay Tankers Ltd., Nordea Bank Finland PLC and various other banks, for a $894.4 million long-term debt facility. (18)
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| Share Purchase Agreement, dated May 18, 2016, by and among Teekay Corporation and the purchasers named therein.(19)
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| Registration Rights Agreement, dated June 29, 2016, by and among Teekay Corporation and the investors named therein.(19)(10) |
| Equity Distribution Agreement, dated September 9, 2016, between Teekay Corporation and Citigroup Global Markets Inc.(20)
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| Warrant Agreement dated as of September 25, 2017, between Teekay Offshore Partners L.P. and Teekay Shipping Limited. (21)
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| Second Amended and Restated Limited Liability Company Agreement of Teekay Offshore GP L.L.C., dated as of September 25, 2017, by and between Teekay Holdings Limited and Brookfield TK TOGP L.P. (21)
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| Registration Rights Agreement, dated as of September 25, 2017, by and between Teekay Offshore Partners L.P., Teekay Corporation and Brookfield TK TOLP L.P. (21)
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| Investment Agreement, dated as of July 26, 2017, between Teekay Offshore Partners L.P. and Teekay Holdings Limited (22)
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| Purchase Agreement, dated as of July 26, 2017, between Teekay Holdings Limited and Brookfield TK TOGP L.P. (22)
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| Amended and Restated Subordinate Promissory Note, dated as of July 26, 2017, by and between Teekay Offshore Partners L.P., Teekay Corporation and Brookfield TK TOLP L.P. (22)
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| Master Services Agreement dated as of September 25, 2017, by and between Teekay Corporation, Teekay Offshore Partners L.P. and Brookfield TK TOLP L.P. (21)(11) |
| Trademark LicenseIndenture dated May 13, 2019, among Teekay Corporation and Wilmington Trust, National Association, for $250,000,000 9.250% Senior Secured Notes due 2022. (12)
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| Purchase agreement dated May 2, 2019, for $250,000,000 9.250% Senior Secured Notes due 2022. (13) |
| Secured Revolving Credit Facility Agreement dated asJanuary 28, 2020, between Teekay Tankers Ltd., Nordea Bank Abp, New York Branch and various other banks, for a $532.8 million long-term debt facility. (14) |
| Margin Loan Agreement dated September 29, 2020, among Teekay Finance Limited, Citibank, N.A. and others, for an equity margin revolving credit facility that provides aggregate potential borrowings of September 25, 2017, by andup to $150 million, scheduled to mature in June 2022. |
| Equity Distribution Agreement dated December 29, 2020, between Teekay Corporation and Teekay Offshore Partners L.P. (21)Citigroup Global Markets Inc. |
| Exchange Agreement dated May 9, 2020 between Teekay GP L.L.C. and Teekay LNG Partners L.P. |
| List of Subsidiaries. |
| Rule 13a-14(a)/15d-14(a) Certification of Teekay’s Chief Executive Officer. |
| Rule 13a-14(a)/15d-14(a) Certification of Teekay’s Chief Financial Officer. |
| Teekay Corporation Certification of Kenneth Hvid, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Teekay Corporation Certification of Vincent Lok, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| Consent of KPMG LLP, as independent registered public accounting firm. |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase |
_________________________
| |
(1) | Previously filed as an exhibit to the Company’s Report on Form 6-K (File No.1-12874), filed with the SEC on August 31, 2011, and hereby incorporated by reference to such Report. |
| |
(2) | Previously filed as an exhibit to the Company’s Registration Statement on Form F-1 (Registration No. 33-7573-4), filed with the SEC on July 14, 1995, and hereby incorporated by reference to such Registration Statement. |
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(3) | Previously filed as an exhibit to the Company’s Form 6-K (File No.1-12874), filed with the SEC on May 2, 2000, and hereby incorporated by reference to such Report. |
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(4) | Previously filed as an exhibit to the Company’s Annual Report on Form 20-F (File No.1-12874), filed with the SEC on April 2, 2001, and hereby incorporated by reference to such Report. |
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(5) | Previously filed as exhibit 4.28 to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 8, 2005, and hereby incorporated by reference to such Report. |
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(6) | Previously filed as exhibit 1.2 to the Company’s Form 8-A/A (File No.1-12874), filed with the SEC on July 2, 2010, and hereby incorporated by reference to such Report. |
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(7) | Previously filed as an exhibit to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on December 21, 2006, and hereby incorporated by reference to such Report. |
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(8) | Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 11, 2008, and hereby incorporated by reference to such Report. |
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(9) | Previously filed as exhibit 4.15 to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 19, 2007, and hereby incorporated by reference to such Report. |
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(10) | Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 7, 2009, and hereby incorporated by reference to such Report. |
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(11) | Previously filed as exhibit 1.1 to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on January 27, 2010, and hereby incorporated by reference to such Report. |
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(12) | Previously filed as exhibit 99.1 to the Company’s Registration Statement on Form S-8 (Registration No. 333-187142), filed with the SEC on March 8, 2013, and hereby incorporated by reference to such Registration Statement. |
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(13) | Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 25, 2012, and hereby incorporated by reference to such Report. |
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(14) | Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 29, 2013, and hereby incorporated by reference to such Report. |
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(15) | Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 28, 2014, and hereby incorporated by reference to such Report. |
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(16) | Previously filed as exhibit 4.1 to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on September 2, 2014, and hereby incorporated by reference to such Report. |
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(17) | Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 29, 2015, and hereby incorporated by reference to such Report. |
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(18) | Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 26, 2016, and hereby incorporated by reference to such Report. |
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(19) | Previously filed as exhibits 10.1 and 4.1 to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on June 30, 2016, and hereby incorporated by reference to such Report. |
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(20) | Previously filed as exhibit 1.1 to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on September 9, 2016, and hereby incorporated by reference to such Report. |
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(21) | Previously filed as exhibits 4.1, 4.2, 4.3, 10.4 and 10.5 to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on November 22, 2017, and hereby incorporated by reference to such Report. |
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(22) | Previously filed as exhibits 10.1, 10.2 and 10.3 to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on August 1, 2017, and hereby incorporated by reference to such Report. |
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(23) | Previously filed as exhibits 1.1, 4.1 and 10.1 to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on January 26, 2018, and hereby incorporated by reference to such Report. |
(1)Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 7, 2009, and hereby incorporated by reference to such Report.
(2)Previously filed as an exhibit to the Company’s Report on Form 6-K (File No.1-12874), filed with the SEC on August 31, 2011, and hereby incorporated by reference to such Report.
(3)Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 9, 2020, and hereby incorporated by reference to such Report.
(4)Previously filed as an exhibit to the Company’s Form 6-K (File No.1-12874), filed with the SEC on January 26, 2018, and hereby incorporated by reference to such Report.
(5)Previously filed as an exhibit to the Company’s Form 20-F (File No.1-12874), filed with the SEC on April 2, 2001, and hereby incorporated by reference to such Report.
(6)Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 25, 2012, and hereby incorporated by reference to such Report.
(7)Previously filed as exhibit 4.15 to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 19, 2007, and hereby incorporated by reference to such Report.
(8)Previously filed as exhibit 99.1 to the Company’s Registration Statement on Form S-8 (Registration No. 333-187142), filed with the SEC on March 8, 2013, and hereby incorporated by reference to such Registration Statement.
(9)Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 29, 2015, and hereby incorporated by reference to such Report.
(10)Previously filed as exhibit 4.1 to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on June 30, 2016, and hereby incorporated by reference to such Report.
(11)Previously filed as exhibit 10.4 to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on November 22, 2017, and hereby incorporated by reference to such Report.
(12)Previously filed as exhibits 4.1 and 4.2 to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on May 14, 2019, and hereby incorporated by reference to such Report.
(13)Previously filed as exhibit 10.1 to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on November 26, 2019, and hereby incorporated by reference to such Report.
(14)Previously filed as exhibit 4.32 to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 9, 2020, and hereby incorporated by reference to such Report.
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
|
| | | | | | | |
| TEEKAY CORPORATION |
| By: | | /s/ Vincent Lok |
| Vincent Lok |
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Dated: April 30, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
TEEKAY CORPORATION
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Teekay Corporation andsubsidiaries (the “Company”)Company) as of December 31, 20172020 and 2016,2019, the related consolidated statements of (loss) income (loss), comprehensive income (loss) income,, cash flows, and changes in total equity for each of the years in the three‑year period ended December 31, 2017,2020, and the related notes and financial statement schedule I (collectively, the “consolidatedconsolidated financial statements”)statements).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2017,2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017,2020, based on the criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 30, 20181, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting PrinciplePrinciples
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for Business Combinationspolicies as of OctoberJanuary 1, 2017,2019 due to the adoption of ASU 2016-02 Leases and ASU 2017-12 Derivatives and Hedging – Targeted Improvements to Accounting Standards Update 2017-01 Clarifyingfor Hedging Activities, and has changed its accounting policies as of January 1, 2020 due to the Definitionadoption of a Business.
ASU 2016-13 Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB and in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada.PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Recoverability of vessels and equipment in the Teekay LNG liquefied gas carriers segment and Teekay Tankers conventional tankers segment
As discussed in Note 18 to the consolidated financial statements, the Company recognized an impairment charge of $51.0 million in the year ended December 31, 2020 in relation to 7 multi-gas carriers in the Teekay LNG liquefied gas carriers segment, and an impairment charge of $65.4 million in the year ended December 31, 2020 in relation to 9 conventional tankers in the Teekay Tankers conventional tankers segment. As discussed in Note 1 to the consolidated financial statements, the Company assesses vessels and equipment that are intended to be held and used in the Company’s business for impairment when events or circumstances indicate the carrying value of the asset may not be recoverable. If the asset’s carrying value exceeds the undiscounted cash flows expected to be generated over its remaining useful life, the carrying value of the asset is reduced to its estimated fair value. Estimates of undiscounted expected cash flows involve, amongst others, assumptions about estimated future charter rates. The carrying value of vessels and equipment reported on the consolidated balance sheet as of December 31, 2020, was $4,483.4 million, which includes vessels and equipment in the Teekay LNG liquefied gas carriers and Teekay Tankers conventional tankers segments.
We identified the assessment of the recoverability of vessels and equipment in the Teekay LNG liquefied gas carriers and Teekay Tankers conventional tankers segments as a critical audit matter. Subjective auditor judgment was required to evaluate the estimated future charter rates used in determining the undiscounted expected cash flows. Changes in estimated future charter rates could have had a significant impact on the recoverability of vessels and equipment in these two segments.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control related to the determination of the estimated future charter rates. We assessed a selection of estimated future charter rates by comparing them to historical rates and third-party industry publications for vessels with similar characteristics, including type and size. We compared the Company’s historical revenue projections to actual results to assess the Company’s ability to accurately project future revenue.
Allowance for credit losses of net investment in direct financing and sales-type leases
As discussed in Note 11b to the consolidated financial statements, as a result of the adoption of ASU 2016-13 on January 1, 2020, the Company recorded an allowance for expected credit losses for its net investment in direct financing and sales-type leases (net investment in leases), including those within equity-accounted joint ventures, totaling $51.3 million on January 1, 2020 and $86.0 million on December 31, 2020. The credit loss provision relates to the lease receivable component of these direct financing and sales-type leases and is determined using a historical loss rate method.
We identified the assessment of the allowance for expected credit losses for the Company’s net investment in leases as a critical audit matter. In particular, subjective auditor judgment was required to evaluate certain assumptions and inputs involved in determining the historical loss rate. Certain of the assumptions and inputs in the determination of the historical loss rate were based in part on estimates of the occurrence or non-occurrence of future events which impact the amount of recoveries earned or additional losses incurred. Changes in the historical loss rate could have had a significant impact on the credit loss provision for the Company’s net investment in leases.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s allowance for expected credit losses process. This included controls related to the determination of certain of the assumptions and inputs used to estimate the historical loss rate. We evaluated the Company’s historical loss rate estimate by testing certain inputs and assumptions that the Company used and considered the relevance and reliability of such inputs and assumptions. We compared the losses incurred to date to historical financial results, historical charter rates, and contractual agreements. We assessed a selection of projected charter rates used to estimate the amount of future recoveries earned by comparing them to historical rates and third-party industry publications for vessels with similar characteristics, including type, size, and age and to recent experience.
|
| |
| /s/ KPMG LLP |
| Chartered Professional Accountants |
We have served as the Company’s auditor since 2011.
|
| Vancouver, Canada |
April 30, 20181, 2021 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
TEEKAY CORPORATION
Opinion on Internal Control Over Financial Reporting
We have audited Teekay Corporation and subsidiaries’ (the “Company”)Company) internal control over financial reporting as of December 31, 2017,2020, based on the criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on the criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172020 and 2016,2019, the related consolidated statements of (loss) income (loss), comprehensive income (loss) income,, cash flows, and changes in total equity for each of the years in the three-year period ended December 31, 2017,2020, and the related notes and financial statement schedule I (collectively, the “consolidatedconsolidated financial statements”)statements), and our report dated April 30, 20181, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB and in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada.
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’sAn entity’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’sAn entity’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;entity; (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 companyentity are being made only in accordance with authorizations of management and directors of the company;entity; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’sentity’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.
|
| |
| /s/ KPMG LLP |
| Chartered Professional Accountants |
| Vancouver, Canada |
April 30, 20181, 2021 |
TEEKAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) INCOME
(in thousands of U.S. dollars, except share and per share amounts)
|
| | | | | | | | | |
|
| Year Ended
December 31, 2017
$ | | Year Ended
December 31, 2016
$ | | Year Ended
December 31, 2015
$ |
Revenues (note 13) |
| 1,880,332 |
| | 2,328,569 |
| | 2,450,382 |
|
| Voyage expenses |
| (153,766 | ) | | (138,339 | ) | | (115,787 | ) |
Vessel operating expenses (note 13) |
| (731,150 | ) | | (825,024 | ) | | (844,039 | ) |
| Time-charter hire expense |
| (120,893 | ) | | (150,145 | ) | | (138,548 | ) |
| Depreciation and amortization |
| (485,829 | ) | | (571,825 | ) | | (509,500 | ) |
General and administrative expenses (note 13) |
| (106,150 | ) | | (119,889 | ) | | (133,184 | ) |
Asset impairments (note 18a) |
| (232,659 | ) | | (45,796 | ) | | (67,744 | ) |
Net loss on sale of vessels, equipment and other operating assets (note 18b) |
| (38,084 | ) | | (66,450 | ) | | (2,431 | ) |
Restructuring charges (note 20) |
| (5,101 | ) | | (26,811 | ) | | (14,017 | ) |
| Income from vessel operations |
| 6,700 |
|
| 384,290 |
|
| 625,132 |
|
| Interest expense |
| (268,400 | ) | | (282,966 | ) | | (242,469 | ) |
| Interest income |
| 6,290 |
| | 4,821 |
| | 5,988 |
|
Realized and unrealized loss on non-designated derivative instruments (note 15) |
| (38,854 | ) | | (35,091 | ) | | (102,200 | ) |
Equity (loss) income (notes 4a and 22) |
| (37,344 | ) | | 85,639 |
| | 102,871 |
|
Foreign exchange loss (notes 8 and 15) |
| (26,463 | ) | | (6,548 | ) | | (2,195 | ) |
Loss on deconsolidation of Teekay Offshore (note 3) |
| (104,788 | ) | | — |
| | — |
|
Other (loss) income (note 14) |
| (53,981 | ) | | (39,013 | ) | | 1,566 |
|
| Net (loss) income before income taxes |
| (516,840 | ) |
| 111,132 |
|
| 388,693 |
|
Income tax (expense) recovery (note 21) |
| (12,232 | ) | | (24,468 | ) | | 16,767 |
|
| Net (loss) income |
| (529,072 | ) |
| 86,664 |
|
| 405,460 |
|
Less: Net loss (income) attributable to non-controlling interests (note 1) |
| 365,796 |
| | (209,846 | ) | | (323,309 | ) |
| Net (loss) income attributable to shareholders of Teekay Corporation |
| (163,276 | ) |
| (123,182 | ) |
| 82,151 |
|
Per common share of Teekay Corporation (note 19) |
|
| | | | |
| • Basic (loss) earnings attributable to shareholders of Teekay Corporation |
| (1.89 | ) | | (1.62 | ) | | 1.13 |
|
| • Diluted (loss) earnings attributable to shareholders of Teekay Corporation |
| (1.89 | ) | | (1.62 | ) | | 1.12 |
|
| • Cash dividends declared |
| 0.2200 |
| | 0.2200 |
| | 1.7325 |
|
Weighted average number of common shares outstanding (note 19) |
|
| | | | |
| • Basic |
| 86,335,473 |
| | 79,211,154 |
| | 72,665,783 |
|
| • Diluted |
| 86,335,473 |
| | 79,211,154 |
| | 73,190,564 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, 2020
$ | | Year Ended
December 31, 2019
$ | | Year Ended
December 31, 2018
$ |
Revenues (notes 2 and 13) | | 1,815,672 | | | 1,945,391 | | | 1,728,488 | |
| Voyage expenses | | (314,633) | | | (423,677) | | | (409,617) | |
Vessel operating expenses (note 13) | | (599,804) | | | (644,445) | | | (637,474) | |
Time-charter hire expenses (note 13) | | (80,283) | | | (118,761) | | | (86,458) | |
| Depreciation and amortization | | (261,131) | | | (290,672) | | | (276,307) | |
General and administrative expenses (note 13) | | (79,228) | | | (81,444) | | | (96,555) | |
Write-down and loss on sale (note 18) | | (200,238) | | | (170,310) | | | (53,693) | |
Gain on commencement of sales-type lease (note 2) | | 44,943 | | | 0 | | | 0 | |
Restructuring charges (note 20) | | (10,719) | | | (12,040) | | | (4,065) | |
| Income from vessel operations | | 314,579 | | | 204,042 | | | 164,319 | |
| Interest expense | | (225,647) | | | (279,059) | | | (254,126) | |
| Interest income | | 8,342 | | | 7,804 | | | 8,525 | |
Realized and unrealized losses on non-designated derivative instruments (note 15) | | (35,857) | | | (13,719) | | | (14,852) | |
Equity income (loss) (note 22) | | 77,333 | | | (14,523) | | | 61,054 | |
Foreign exchange (loss) gain (notes 8 and 15) | | (20,718) | | | (13,574) | | | 6,140 | |
Loss on deconsolidation of Altera (note 13) | | 0 | | | 0 | | | (7,070) | |
Other loss (note 14) | | (18,062) | | | (14,475) | | | (2,013) | |
| Net income (loss) before income taxes | | 99,970 | | | (123,504) | | | (38,023) | |
Income tax expense (note 21) | | (8,988) | | | (25,482) | | | (19,724) | |
| Net income (loss) | | 90,982 | | | (148,986) | | | (57,747) | |
Net (income) attributable to non-controlling interests (note 1) | | (173,915) | | | (161,591) | | | (21,490) | |
| Net loss attributable to the shareholders of Teekay Corporation | | (82,933) | | | (310,577) | | | (79,237) | |
Per common share of Teekay Corporation (note 19) | | | | | | |
| • Basic and diluted loss attributable to shareholders of Teekay Corporation | | (0.82) | | | (3.08) | | | (0.79) | |
| | | | | | |
| • Cash dividends declared | | 0 | | | 0.055 | | | 0.220 | |
Weighted average number of common shares outstanding (note 19) | | | | | | |
| • Basic and diluted | | 101,053,095 | | | 100,719,224 | | | 99,670,176 | |
The accompanying notes are an integral part of the consolidated financial statements.
TEEKAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) INCOME
(in thousands of U.S. dollars)
|
| | | | | | | | | |
| | | Year Ended
December 31, 2017
$ | | Year Ended
December 31, 2016
$ | | Year Ended
December 31, 2015
$ |
| Net (loss) income | | (529,072 | ) | | 86,664 |
| | 405,460 |
|
| Other comprehensive income (loss): | | | | | | |
| Other comprehensive income (loss) before reclassifications | | | | | | |
| Unrealized gain (loss) on marketable securities | | 438 |
| | 47 |
| | (463 | ) |
| Unrealized loss on qualifying cash flow hedging instruments | | (1,895 | ) | | (2,183 | ) | | (2,564 | ) |
| Pension adjustments, net of taxes | | 1,463 |
| | 7,594 |
| | 14,178 |
|
| Foreign exchange gain (loss) on currency translation | | 1,279 |
| | 179 |
| | (217 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | | | | | |
| To other income: | | | | | | |
| Sale of marketable securities | | (22 | ) | | — |
| | — |
|
| To general and administrative expenses: | | | | | | |
| Settlement of defined benefit pension plan | | — |
| | (3,905 | ) | | (140 | ) |
| To interest expense: | | | | | | |
| Realized loss on qualifying cash flow hedging instruments | | 1,614 |
| | — |
| | — |
|
| To equity income: | | | | | | |
| Realized loss on qualifying cash flow hedging instruments | | 2,470 |
| | 3,486 |
| | 2,613 |
|
| Other comprehensive income | | 5,347 |
|
| 5,218 |
|
| 13,407 |
|
| Comprehensive (loss) income | | (523,725 | ) | | 91,882 |
| | 418,867 |
|
| Less: Comprehensive loss (income) attributable to non-controlling interests | | 364,422 |
| | (211,823 | ) | | (323,309 | ) |
| Comprehensive (loss) income attributable to shareholders of Teekay Corporation | | (159,303 | ) |
| (119,941 | ) |
| 95,558 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, 2020
$ | | Year Ended
December 31, 2019
$ | | Year Ended
December 31, 2018
$ |
| Net income (loss) | | 90,982 | | | (148,986) | | | (57,747) | |
| Other comprehensive (loss) income: | | | | | | |
| Other comprehensive income (loss) before reclassifications | | | | | | |
| Unrealized loss on qualifying cash flow hedging instruments | | (66,958) | | | (57,615) | | | (11) | |
| Pension adjustments, net of taxes | | (548) | | | (1,153) | | | (196) | |
| Foreign exchange loss on currency translation | | 0 | | | 0 | | | (132) | |
| Amounts reclassified from accumulated other comprehensive loss | | | | | | |
| To interest expense: | | | | | | |
| Realized loss (gain) on qualifying cash flow hedging instruments | | 2,320 | | | (376) | | | 152 | |
| To equity income: | | | | | | |
| Realized loss (gain) on qualifying cash flow hedging instruments | | 15,570 | | | 537 | | | (1,291) | |
| Foreign exchange gain on currency translation | | 0 | | | 0 | | | (3,161) | |
Loss on deconsolidation of Altera (note 13) | | 0 | | | 0 | | | 7,720 | |
| Other comprehensive (loss) income: | | (49,616) | | | (58,607) | | | 3,081 | |
| Comprehensive income (loss) | | 41,366 | | | (207,593) | | | (54,666) | |
| Comprehensive income attributable to non-controlling interests | | (140,106) | | | (122,844) | | | (20,948) | |
| Comprehensive loss attributable to shareholders of Teekay Corporation | | (98,740) | | | (330,437) | | | (75,614) | |
The accompanying notes are an integral part of the consolidated financial statements.
TEEKAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
|
| | | | | | |
| | | As at
December 31, 2017
$ | | As at
December 31, 2016
$ |
| ASSETS | | | | |
| Current | | | | |
Cash and cash equivalents (note 8) | | 445,452 |
| | 567,994 |
|
Restricted cash (notes 10 and 15) | | 38,179 |
| | 107,672 |
|
| Accounts receivable, including non-trade of $15,273 (2016 - $33,924) and related party balances of $16,068 (2016 - $26,471) | | 159,859 |
| | 295,357 |
|
Assets held for sale (note 18) | | 33,671 |
| | 61,282 |
|
Net investment in direct financing leases (note 9) | | 9,884 |
| | 154,759 |
|
Prepaid expenses and other (note 15) | | 38,180 |
| | 84,899 |
|
Current portion of loans to equity-accounted investees (note 22) | | 107,486 |
| | 9,471 |
|
| Total current assets | | 832,711 |
|
| 1,281,434 |
|
Restricted cash - non-current (note 16d) | | 68,543 |
| | 129,576 |
|
Vessels and equipment (note 8) | | | | |
| At cost, less accumulated depreciation of $1,293,447 (2016 - $3,294,021) | | 3,491,491 |
| | 7,666,975 |
|
Vessels related to capital leases, at cost, less accumulated amortization of $51,290 (2016 – $69,072) (note 10) | | 1,272,560 |
| | 484,253 |
|
Advances on newbuilding contracts and conversion costs (note 16a) | | 444,493 |
| | 987,658 |
|
| Total vessels and equipment | | 5,208,544 |
|
| 9,138,886 |
|
Net investment in direct financing leases - non-current (note 9) | | 486,106 |
| | 505,835 |
|
Loans to equity-accounted investees and joint venture partners, bearing interest between nil and LIBOR plus margins up to 1.25% (note 22) | | 146,420 |
| | 292,209 |
|
Equity-accounted investments (notes 16b and 22) | | 1,130,198 |
| | 1,010,308 |
|
| Other non-current assets | | 83,211 |
| | 190,699 |
|
Intangible assets – net (note 6) | | 93,014 |
| | 89,175 |
|
Goodwill (note 6) | | 43,690 |
| | 176,630 |
|
| Total assets | | 8,092,437 |
| | 12,814,752 |
|
| LIABILITIES AND EQUITY | | | | |
| Current | | | | |
| Accounts payable | | 24,107 |
| | 53,507 |
|
Accrued liabilities and other (notes 7, 15 and 20) | | 282,352 |
| | 391,900 |
|
| Advances from affiliates | | 49,100 |
| | 11,785 |
|
Current portion of derivative liabilities (note 15) | | 80,423 |
| | 115,813 |
|
Current portion of long-term debt (note 8) | | 800,897 |
| | 998,591 |
|
Current obligation related to capital leases (note 10) | | 114,173 |
| | 40,353 |
|
Current portion of in-process revenue contracts (note 6) | | 13,880 |
| | 34,511 |
|
| Total current liabilities | | 1,364,932 |
|
| 1,646,460 |
|
Long-term debt (note 8) | | 2,616,808 |
| | 5,640,955 |
|
Long-term obligation related to capital leases (note 10) | | 1,046,284 |
| | 352,486 |
|
Derivative liabilities (note 15) | | 48,388 |
| | 415,041 |
|
In-process revenue contracts (note 6) | | 24,313 |
| | 88,179 |
|
Other long-term liabilities (note 7) | | 112,056 |
| | 333,236 |
|
| Total liabilities | | 5,212,781 |
|
| 8,476,357 |
|
Commitments and contingencies (notes 4, 8, 9, 10, 15 and 16) | |
| |
|
Redeemable non-controlling interest (note 16e) | | — |
| | 249,102 |
|
| Equity | | | | |
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 89,127,041 shares outstanding and issued (2016 – 86,149,975)) (note 12) | | 919,078 |
| | 887,075 |
|
| (Accumulated deficit) retained earnings | | (135,892 | ) | | 22,893 |
|
| Non-controlling interest | | 2,102,465 |
| | 3,189,928 |
|
Accumulated other comprehensive loss (note 1) | | (5,995 | ) | | (10,603 | ) |
| Total equity | | 2,879,656 |
|
| 4,089,293 |
|
| Total liabilities and equity | | 8,092,437 |
|
| 12,814,752 |
|
| | | | | | | | | | | | | | |
| | As at
December 31, 2020
$ | | As at
December 31, 2019
$ |
| ASSETS | | | | |
| Current | | | | |
Cash and cash equivalents (notes 8 and 17) | | 348,785 | | | 353,241 | |
Restricted cash – current (notes 10, 15 and 17) | | 11,144 | | | 56,777 | |
| Accounts receivable, including non-trade of $7,931 (2019 – $12,793) and related party balances of NaN (2019 – $1,677) | | 150,997 | | | 199,957 | |
| Accrued revenue | | 50,952 | | | 107,111 | |
| Prepaid expenses | | 63,521 | | | 77,165 | |
Current portion of net investments in direct financing and sales-type leases, net (note 2) | | 14,826 | | | 273,986 | |
Assets held for sale (note 18) | | 32,974 | | | 65,458 | |
Other current assets (note 15) | | 16,772 | | | 9,173 | |
| Total current assets | | 689,971 | | | 1,142,868 | |
Restricted cash – non-current (notes 10, 15 and 17) | | 45,961 | | | 44,849 | |
Vessels and equipment (note 8) | | | | |
| At cost, less accumulated depreciation of $1,161,658 (2019 – $1,259,404) | | 2,325,097 | | | 2,654,466 | |
Vessels related to finance leases, at cost, less accumulated amortization of $281,786 (2019 – $253,553) (note 10) | | 2,105,372 | | | 2,219,026 | |
Operating lease right-of-use assets (notes 1 and 9) | | 52,961 | | | 159,638 | |
| Total vessels and equipment | | 4,483,430 | | | 5,033,130 | |
Net investment in direct financing and sales-type leases, net – non-current (note 2) | | 513,815 | | | 544,823 | |
Investments in and loans, net to equity-accounted investments (note 22) | | 1,075,653 | | | 1,173,728 | |
Goodwill, intangibles and other non-current assets (notes 5 and 15) | | 137,082 | | | 133,466 | |
| Total assets | | 6,945,912 | | | 8,072,864 | |
| LIABILITIES AND EQUITY | | | | |
| Current | | | | |
| Accounts payable | | 124,066 | | | 135,496 | |
Accrued liabilities and other (notes 6 and 15) | | 332,086 | | | 295,001 | |
Short-term debt (note 7) | | 10,000 | | | 50,000 | |
Current portion of long-term debt (note 8) | | 261,366 | | | 523,312 | |
Current obligations related to finance leases (note 10) | | 150,408 | | | 95,339 | |
Current portion of operating lease liabilities (notes 1 and 9) | | 25,108 | | | 61,431 | |
| Liabilities related to assets held for sale | | 0 | | | 2,980 | |
| Total current liabilities | | 903,034 | | | 1,163,559 | |
Long-term debt (note 8) | | 1,793,741 | | | 2,303,840 | |
Long-term obligations related to finance leases (note 10) | | 1,550,557 | | | 1,730,353 | |
Long-term operating lease liabilities (notes 1 and 9) | | 29,182 | | | 87,171 | |
Other long-term liabilities (notes 6 and 15) | | 198,107 | | | 216,348 | |
| Total liabilities | | 4,474,621 | | | 5,501,271 | |
Commitments and contingencies (notes 8, 9, 10, 15 and 16) | | | | |
| Equity | | | | |
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 101,108,886 shares outstanding and issued (2019 – 100,784,422)) (note 12) | | 1,057,319 | | | 1,052,284 | |
| Accumulated deficit | | (527,028) | | | (546,684) | |
| Non-controlling interest | | 1,989,883 | | | 2,089,730 | |
Accumulated other comprehensive loss (note 1) | | (48,883) | | | (23,737) | |
| Total equity | | 2,471,291 | | | 2,571,593 | |
| Total liabilities and equity | | 6,945,912 | | | 8,072,864 | |
Subsequent events (note 23)
The accompanying notes are an integral part of the consolidated financial statements.
TEEKAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
|
| | | | | | | | | |
| | | Year Ended
December 31, 2017
$ | | Year Ended
December 31, 2016
$ | | Year Ended
December 31, 2015
$ |
| Cash and cash equivalents provided by (used for) | | | | | | |
| OPERATING ACTIVITIES | | | | | | |
| Net (loss) income | | (529,072 | ) | | 86,664 |
| | 405,460 |
|
| Non-cash items: | | | | | | |
| Depreciation and amortization | | 485,829 |
| | 571,825 |
| | 509,500 |
|
| Amortization of in-process revenue contracts | | (26,958 | ) | | (28,109 | ) | | (30,085 | ) |
| Unrealized (gain) loss on derivative instruments | | (95,556 | ) | | (145,116 | ) | | 51,910 |
|
| Asset impairments | | 232,659 |
| | 45,796 |
| | 67,744 |
|
| Loss on sale of vessels and equipment | | 38,084 |
| | 66,450 |
| | 2,431 |
|
Loss on deconsolidation of Teekay Offshore (note 3) | | 104,788 |
| | — |
| | — |
|
| Equity loss (income), net of dividends received | | 87,602 |
| | (47,563 | ) | | 3,203 |
|
| Income tax expense (recovery) | | 12,232 |
| | 24,468 |
| | (16,767 | ) |
| Unrealized foreign exchange loss (gain) and other | | 148,469 |
| | 53,999 |
| | (136,893 | ) |
Change in operating assets and liabilities (note 17) | | 106,567 |
| | 38,333 |
| | (12,291 | ) |
| Expenditures for dry docking | | (50,899 | ) | | (45,964 | ) | | (68,380 | ) |
| Net operating cash flow | | 513,745 |
| | 620,783 |
| | 775,832 |
|
| FINANCING ACTIVITIES | | | | | | |
| Proceeds from issuance of long-term debt, net of issuance costs | | 1,007,010 |
| | 2,075,014 |
| | 2,452,878 |
|
| Prepayments of long-term debt | | (831,901 | ) | | (1,872,573 | ) | | (554,831 | ) |
| Scheduled repayments of long-term debt | | (687,544 | ) | | (967,146 | ) | | (1,040,292 | ) |
| Proceeds from financing related to sales and leaseback of vessels | | 809,935 |
| | 355,306 |
| | — |
|
| Repayments of obligations related to capital leases | | (46,090 | ) | | (21,595 | ) | | (4,423 | ) |
| Decrease (increase) in restricted cash | | 104,142 |
| | (49,079 | ) | | (21,005 | ) |
Net proceeds from equity issuances of subsidiaries (note 5) | | 172,930 |
| | 327,419 |
| | 575,368 |
|
| Net proceeds from equity issuances of Teekay Corporation | | 25,636 |
| | 105,462 |
| | — |
|
| Acquisition of shares in Teekay Tankers | | (19,444 | ) | | — |
| | — |
|
| Distribution from subsidiaries to non-controlling interests | | (103,150 | ) | | (136,151 | ) | | (360,392 | ) |
| Cash dividends paid | | (18,977 | ) | | (17,406 | ) | | (125,881 | ) |
| Other financing activities | | 5,337 |
| | 87 |
| | (2,488 | ) |
| Net financing cash flow | | 417,884 |
| | (200,662 | ) | | 918,934 |
|
| INVESTING ACTIVITIES | | | | | | |
| Expenditures for vessels and equipment | | (1,054,052 | ) | | (648,326 | ) | | (1,795,901 | ) |
| Proceeds from sale of vessels and equipment | | 73,712 |
| | 252,656 |
| | 20,472 |
|
| Investment in equity-accounted investees | | (98,774 | ) | | (61,885 | ) | | (40,595 | ) |
| (Advances to) loan repayments from equity-accounted investees | | (12,946 | ) | | (96,823 | ) | | 53,173 |
|
| Increase in restricted cash | | — |
| | — |
| | (34,290 | ) |
Cash of Tankers Investments Ltd. upon acquisition, net of transaction costs (note 4a) | | 30,831 |
| | — |
| | — |
|
| Cash of Teekay Offshore upon deconsolidation, net of proceeds received | | (17,977 | ) | | — |
| | — |
|
| Purchase of SPT (net of cash acquired $377) | | — |
| | — |
| | (46,961 | ) |
| Direct financing lease payments received | | 17,422 |
| | 23,535 |
| | 20,824 |
|
| Other investing activities | | 7,613 |
| | 324 |
| | — |
|
| Net investing cash flow | | (1,054,171 | ) | | (530,519 | ) | | (1,823,278 | ) |
| Decrease in cash and cash equivalents | | (122,542 | ) | | (110,398 | ) | | (128,512 | ) |
| Cash and cash equivalents, beginning of the year | | 567,994 |
| | 678,392 |
| | 806,904 |
|
| Cash and cash equivalents, end of the year | | 445,452 |
| | 567,994 |
| | 678,392 |
|
Supplemental cash flow information (note 17) | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31, 2020
$ | | Year Ended
December 31, 2019
$ | | Year Ended
December 31, 2018
$ |
| Cash, cash equivalents, restricted cash and cash held for sale provided by (used for) | | | | | | |
| OPERATING ACTIVITIES | | | | | | |
| Net income (loss) | | 90,982 | | | (148,986) | | | (57,747) | |
| Non-cash and non-operating items: | | | | | | |
| Depreciation and amortization | | 261,131 | | | 290,672 | | | 276,307 | |
Unrealized (gain) loss on derivative instruments and loss on sale of warrants (note 15) | | (9,563) | | | 20,007 | | | (34,570) | |
Write-down and loss on sale (note 18) | | 200,238 | | | 170,310 | | | 53,693 | |
Gain on commencement of sales-type lease (note 2) | | (44,943) | | | 0 | | | 0 | |
| Equity (income) loss, net of dividends received and return of capital | | (5,575) | | | 54,826 | | | (44,312) | |
Income tax expense (note 21) | | 8,988 | | | 25,482 | | | 19,724 | |
| Foreign currency exchange loss including the effect of the termination of cross currency swaps and other | | 90,028 | | | 19,353 | | | 28,484 | |
Change in operating assets and liabilities (note 17) | | 392,731 | | | (48,358) | | | (59,444) | |
| Net operating cash flow | | 984,017 | | | 383,306 | | | 182,135 | |
| FINANCING ACTIVITIES | | | | | | |
| Proceeds from issuance of long-term debt, net of issuance costs | | 1,182,249 | | | 527,465 | | | 1,325,482 | |
| Prepayments of long-term debt | | (1,712,828) | | | (804,748) | | | (771,827) | |
Scheduled repayments of long-term debt and settlement of related swaps (note 8) | | (305,971) | | | (233,734) | | | (671,803) | |
| Proceeds from short-term debt | | 235,000 | | | 200,000 | | | 0 | |
| Prepayment of short-term debt | | (275,000) | | | (150,000) | | | 0 | |
| Proceeds from financing related to sale-leaseback of vessels | | 0 | | | 381,526 | | | 611,388 | |
| Repayments of obligations related to finance leases | | (95,131) | | | (95,946) | | | (74,680) | |
| Extinguishment of obligations related to finance leases | | (29,596) | | | (111,617) | | | 0 | |
| Net proceeds from equity issuances of Teekay Corporation | | 0 | | | 0 | | | 103,655 | |
| Repurchase of Teekay LNG common units | | (15,635) | | | (25,729) | | | 0 | |
| Distribution paid from subsidiaries to non-controlling interests | | (79,803) | | | (63,343) | | | (64,676) | |
| Cash dividends paid | | 0 | | | (5,523) | | | (22,082) | |
| Other financing activities | | (798) | | | (580) | | | (671) | |
| Net financing cash flow | | (1,097,513) | | | (382,229) | | | 434,786 | |
| INVESTING ACTIVITIES | | | | | | |
| Expenditures for vessels and equipment, net of warranty settlement | | (26,507) | | | (109,523) | | | (693,792) | |
Proceeds from sale of vessels and equipment (note 18) | | 60,915 | | | 31,523 | | | 28,837 | |
Proceeds from sale of assets, net of cash sold (notes 13 and 18) | | 24,977 | | | 100,000 | | | 81,823 | |
| Capital contributions and advances to equity-accounted joint ventures | | (991) | | | (72,391) | | | (65,952) | |
| Proceeds from repayments of advances to equity-accounted joint ventures | | 14,650 | | | 0 | | | 0 | |
| Cash of transferred subsidiaries on sale, net of proceeds received | | 0 | | | 0 | | | (25,254) | |
| Other investing activities | | (9,983) | | | 0 | | | 10,882 | |
| Net investing cash flow | | 63,061 | | | (50,391) | | | (663,456) | |
| Decrease in cash, cash equivalents, restricted cash and cash held for sale | | (50,435) | | | (49,314) | | | (46,535) | |
| Cash, cash equivalents, restricted cash and cash held for sale, beginning of the year | | 456,325 | | | 505,639 | | | 552,174 | |
| Cash, cash equivalents, restricted cash and cash held for sale, end of the year | | 405,890 | | | 456,325 | | | 505,639 | |
Supplemental cash flow information (note 17) | | | | | | |
The accompanying notes are an integral part of the consolidated financial statements.
TEEKAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. dollars and shares)
|
| | | | | | | | | | | | | | | | | | | | |
| | TOTAL EQUITY | | |
| | Thousands
of Shares
of Common
Stock
Outstanding
# | | Common
Stock and
Additional
Paid-in
Capital
$ | | Retained Earnings (Accu-
mulated Deficit) | | Accumul-
ated Other
Compre-
hensive
Loss
$ | | Non-
controlling
Interest
$ | | Total
$ | | Redeemable
Non-
controlling
Interest
$ |
| Balance at December 31, 2014 | 72,501 |
| | 770,759 |
| | 355,867 |
| | (28,298 | ) | | 2,290,305 |
| | 3,388,633 |
| | 12,842 |
|
| Net income | | | | | 82,151 |
| | | | 323,309 |
| | 405,460 |
| | |
| Reclassification of redeemable non-controlling interest in net income | | | | | | | | | (13,280 | ) | | (13,280 | ) | | 13,280 |
|
| Other comprehensive income | | | | | | | 13,407 |
| | — |
| | 13,407 |
| | |
| Dividends declared | | | | | (126,391 | ) | | | | (354,069 | ) | | (480,460 | ) | | (20,201 | ) |
| Reinvested dividends | 1 |
| | 10 |
| | | | | | | | 10 |
| | |
Exercise of stock options and other (note 12) | 209 |
| | 1,217 |
| | | | | | | | 1,217 |
| | |
Employee stock compensation (note 12) | | | 3,032 |
| | | | | | | | 3,032 |
| | |
Dilution loss on equity issuances of subsidiaries (note 5) | | | | | (152,729 | ) | | | | | | (152,729 | ) | | |
| Changes to non-controlling interest from equity contributions and other | | | | | | | | | 535,784 |
| | 535,784 |
| | 249,750 |
|
| Balance at December 31, 2015 | 72,711 |
| | 775,018 |
| | 158,898 |
| | (14,891 | ) | | 2,782,049 |
| | 3,701,074 |
| | 255,671 |
|
| Net (loss) income | | | | | (123,182 | ) | | | | 209,846 |
| | 86,664 |
| | |
| Reclassification of redeemable non-controlling interest in net income | | | | | | | | | (25,342 | ) | | (25,342 | ) | | 25,342 |
|
| Other comprehensive income | | | | | | | 3,241 |
| | 1,977 |
| | 5,218 |
| | |
| Dividends declared | | | | | (17,562 | ) | | | | (120,801 | ) | | (138,363 | ) | | (27,058 | ) |
| Reinvested dividends | 1 |
| | 4 |
| | | | | | | | 4 |
| | |
Employee stock compensation and other (note 12) | 102 |
| | 6,591 |
| | | | | | | | 6,591 |
| | |
Equity offerings (note 12) | 13,336 |
| | 105,462 |
| | | | | | | | 105,462 |
| | |
Dilution gains on equity issuances of subsidiaries (note 5) | | | | | 9,732 |
| | | | | | 9,732 |
| | |
| Changes to non-controlling interest from equity contributions and other | | | | | (4,993 | ) | | 1,047 |
| | 342,199 |
| | 338,253 |
| | (4,853 | ) |
| Balance at December 31, 2016 | 86,150 |
| | 887,075 |
| | 22,893 |
| | (10,603 | ) | | 3,189,928 |
| | 4,089,293 |
| | 249,102 |
|
| Net loss | | | | | (163,276 | ) | | | | (365,796 | ) | | (529,072 | ) | | |
| Reclassification of redeemable non-controlling interest in net income | | | | | | | | | (18,610 | ) | | (18,610 | ) | | 18,610 |
|
| Other comprehensive income | | | | | | | 3,973 |
| | 1,374 |
| | 5,347 |
| | |
| Dividends declared | | | | | (19,039 | ) | | | | (107,609 | ) | | (126,648 | ) | | (13,699 | ) |
| Reinvested dividends | 1 |
| | 4 |
| | | | | | | | 4 |
| | |
Employee stock compensation and other (note 12) | 112 |
| | 6,363 |
| | | | | | | | 6,363 |
| | |
Equity offerings (note 12) | 2,864 |
| | 25,636 |
| | | | | | | | 25,636 |
| | |
Dilution gains on equity issuances of subsidiaries (note 5) | | | | | 23,530 |
| | | | | | 23,530 |
| | |
Impact of deconsolidation of Teekay Offshore (note 3) | | | | | | | 643 |
| | (882,473 | ) | | (881,830 | ) | | (255,802 | ) |
| Changes to non-controlling interest from equity contributions and other | | | | |
| | (8 | ) | | 285,651 |
| | 285,643 |
| | 1,789 |
|
| Balance at December 31, 2017 | 89,127 |
| | 919,078 |
| | (135,892 | ) | | (5,995 | ) | | 2,102,465 |
| | 2,879,656 |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | TOTAL EQUITY |
| Thousands
of Shares
of Common
Stock
Outstanding
# | | Common
Stock and
Additional
Paid-in
Capital
$ | | Accumulated
Deficit
$ | | Accumulated Other
Compre-
hensive
Loss
$ | | Non-
controlling
Interest
$ | | Total
$ |
| Balance at December 31, 2017 | 89,127 | | | 919,078 | | | (135,892) | | | (5,995) | | | 2,102,465 | | | 2,879,656 | |
| Net (loss) income | — | | | — | | | (79,237) | | | — | | | 21,490 | | | (57,747) | |
| Other comprehensive income | — | | | — | | | — | | | 3,623 | | | (542) | | | 3,081 | |
| Dividends declared: | | | | | | | | | | | |
| Common stock ($0.220 per share) | — | | | — | | | (22,231) | | | — | | | — | | | (22,231) | |
| Other dividends | — | | | — | | | — | | | — | | | (64,676) | | | (64,676) | |
| Reinvested dividends | 1 | | | 4 | | | — | | | — | | | — | | | 4 | |
Employee stock compensation and other (note 12) | 180 | | | 6,823 | | | — | | | — | | | — | | | 6,823 | |
Equity offerings (note 12) | 11,127 | | | 103,655 | | | — | | | — | | | — | | | 103,655 | |
Equity component of convertible notes (note 8) | — | | | 16,099 | | | — | | | — | | | — | | | 16,099 | |
Change in accounting policy (note 1) | — | | | — | | | 2,556 | | | 0 | | | 2,101 | | | 4,657 | |
| Changes to non-controlling interest from equity contributions and other | — | | | — | | | 409 | | | 99 | | | (2,801) | | | (2,293) | |
| Balance at December 31, 2018 | 100,435 | | | 1,045,659 | | | (234,395) | | | (2,273) | | | 2,058,037 | | | 2,867,028 | |
| Net (loss) income | — | | | — | | | (310,577) | | | — | | | 161,591 | | | (148,986) | |
| Other comprehensive loss | — | | | — | | | — | | | (19,860) | | | (38,747) | | | (58,607) | |
| Dividends declared: | | | | | | | | | | | |
| Common stock ($0.055 per share) | — | | | — | | | (5,385) | | | — | | | — | | | (5,385) | |
| Other dividends | — | | | — | | | — | | | — | | | (63,343) | | | (63,343) | |
| Reinvested dividends | 1 | | | 2 | | | — | | | — | | | — | | | 2 | |
Employee stock compensation and other (note 12) | 348 | | | 6,623 | | | — | | | — | | | — | | | 6,623 | |
Change in accounting policies (note 1) | — | | | — | | | 606 | | | (1,604) | | | (1,993) | | | (2,991) | |
| Changes to non-controlling interest from equity contributions and other | — | | | — | | | 3,067 | | | 0 | | | (25,815) | | | (22,748) | |
| Balance at December 31, 2019 | 100,784 | | | 1,052,284 | | | (546,684) | | | (23,737) | | | 2,089,730 | | | 2,571,593 | |
| Net (loss) income | — | | | — | | | (82,933) | | | — | | | 173,915 | | | 90,982 | |
| Other comprehensive loss | — | | | — | | | — | | | (15,807) | | | (33,809) | | | (49,616) | |
| Dividends declared: | | | | | | | | | | | |
| Other dividends | — | | | — | | | — | | | — | | | (79,803) | | | (79,803) | |
Employee stock compensation and other (note 12) | 325 | | | 5,035 | | | — | | | — | | | — | | | 5,035 | |
Change in accounting policy (note 1) | — | | | — | | | (17,666) | | | 0 | | | (37,434) | | | (55,100) | |
| Changes to non-controlling interest from equity contributions and other | — | | | — | | | 120,255 | | | (9,339) | | | (122,716) | | | (11,800) | |
| Balance at December 31, 2020 | 101,109 | | | 1,057,319 | | | (527,028) | | | (48,883) | | | 1,989,883 | | | 2,471,291 | |
The accompanying notes are an integral part of the consolidated financial statements.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
1. Summary of Significant Accounting Policies
Basis of presentation
These consolidated financial statements have been prepared in conformityaccordance with U.S.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 Thethe Marshall Islands, and its wholly-owned or controlled subsidiaries and any variable interest entities (or VIEs) of which Teekay is the primary beneficiary (collectively, the Company).
Certain of Teekay’s significant non-wholly ownednon-wholly-owned subsidiaries are consolidated in these financial statements even though Teekay owns less than a 50% ownership interest in the subsidiaries. These significant subsidiaries include the following publicly traded subsidiaries (collectively, the Public Subsidiaries): Teekay LNG Partners L.P. (or Teekay LNG); and Teekay Tankers Ltd. (orTeekay Tankers); and until September 25, 2017, Teekay Offshore Partners L.P. (or Teekay Offshore).
On September 25, 2017, Teekay, Teekay Offshore and Brookfield Business Partners L.P. together with its institutional partners (collectively, Brookfield) finalized a strategic partnership (or the Brookfield Transaction) which resulted in the deconsolidation of Teekay Offshore as of that date (see Note 3). Although Teekay owned less than 50% of Teekay Offshore, Teekay maintained control of Teekay Offshore until September 25, 2017, by virtue of its 100% ownership interest in the general partner of Teekay Offshore, which is a master limited partnership. In connection with Brookfield's acquisition of a 49% interest in Teekay Offshore's general partner, Teekay Offshore GP LLC (or TOO GP), Teekay and Brookfield entered into an amended limited liability company agreement whereby Brookfield obtained certain participatory rights in the management of TOO GP, which resulted in Teekay deconsolidating Teekay Offshore for accounting purposes on September 25, 2017. Subsequent to the closing of the Brookfield Transaction, Teekay has significant influence over Teekay Offshore and accounts for its investment in Teekay Offshore using the equity method. As of December 31, 2017,2020, Teekay owned a 13.8% interest in the common units of Teekay Offshore (27.5% - December 31, 2016).
As of December 31, 2017, Teekay owned a 33.0%42.4% interest in Teekay LNG (33.1% -(33.9% – December 31, 2016)2019), including common units and its 2% general partner interest, and 28.8%28.6% of the capital stock of Teekay Tankers (25.4% -(28.7% – December 31, 2016)2019), including Teekay Tankers’ outstanding shares of Class B common stock, which entitle the holders to five5 votes per share, subject to a 49% aggregate Class B Common Stock voting power maximum. While Teekay owns less than 50% of Teekay LNG and Teekay Tankers, Teekay maintains control of Teekay LNG by virtue of its 100% ownership interest in the general partner of Teekay LNG, , which is a master limited partnership, and maintains control of Teekay Tankers through its ownership of a sufficient number of Class A common shares and Class B common shares, which provide increased voting rights, to maintain a majority voting interest in Teekay Tankers and thus consolidates these subsidiaries.
Teekay has entered into an omnibus agreement with Teekay LNG and Teekay Offshore to govern, among other things, when Teekay, Teekay LNG and Teekay Offshore may compete with each other and to provide the applicable parties certain rights of first offer on liquefied natural gas (or LNG) carriers, oil tankers, shuttle tankers, floating storage and off-take (or FSO) units and floating, production, storage and offloading (or FPSO) units.
The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates. Given the current condition of the credit markets, it is possible that the amounts recorded as derivative assets and liabilities could vary by material amounts prior to their settlement.
Significant intercompany balances and transactions have been eliminated upon consolidation. Certain
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (or COVID-19) as a pandemic. Given the comparative figuresdynamic nature of these circumstances, the full extent to which the COVID-19 pandemic may have direct or indirect impact on the Company's business and the related financial reporting implications cannot be reasonably estimated at this time, although it could materially affect the Company's business, results of operations and financial condition in the future. COVID-19 has resulted and may continue to result in a significant decline in global demand for oil. As the Company's business includes the transportation of crude oil and refined petroleum products on behalf of customers, any significant decrease in demand for the cargo the Company transports could adversely affect demand for the Company's vessels and services. Spot tanker rates have come under pressure since mid-May 2020 as a result of record OPEC+ oil production cuts and lower production from other oil producing countries, which reduced crude exports, and the unwinding of floating storage. COVID-19 has also been reclassified to conforma contributing factor to the presentation adopteddecline in short-term charter rates and the current period relating toincrease in certain operating activities increwing-related costs, which has had an impact on the Company's consolidated statements of cash flows. In addition, as the Company has determined that the entities that have financed certain of Teekay LNG's LNG carriers or LNG carrier newbuildings through sale-leaseback transactions are variable interest entities that should be consolidated, the presentation of the sale-leaseback transactions in the consolidated statements of cash flows, has been adjustedand was a contributing factor to reflect these transactions as financing activities insteadthe write-down of investing activities in the current and comparative period. This has resulted in a decrease in net investing cash flow of $355 million and an increase in net financing cash flow of $355 million forcertain tankers owned by Teekay Tankers during the year ended December 31, 2016.2020, as described in Note 18 - Write-down and Loss on Sale. During the year ended December 31, 2020, COVID-19 was also a contributing factor to the write-down of certain of Teekay LNG's 7 multi-gas vessels and 1 floating production storage and offloading (or FPSO) unit, as described in Note 18 - Write-down and Loss on Sale, as well as being a contributing factor to the reduction in certain tax accruals as described in Note 21 - Income Taxes.
Non-Controlling Interests
Where Teekay’s ownership interest in a consolidated subsidiary is less than 100%, the non-controlling interests’ share of these non-wholly- ownednon-wholly-owned subsidiaries is reported in the Company’s consolidated balance sheets as a separate component of equity. The non-controlling interests’ share of the net income of these non-wholly ownednon-wholly-owned subsidiaries is reported in the Company’s consolidated statements of income (loss) income as a deduction from the Company’s net income (loss) income to arrive at net (loss) income attributable to the shareholders of Teekay.
The basis for attributing net income or loss of each non-wholly ownednon-wholly-owned subsidiary to the controlling interest and the non-controlling interests with(with the exception of Teekay LNG until May 11, 2020, when Teekay and Teekay Offshore, until its deconsolidation on September 25, 2017, wasLNG agreed to eliminate all of Teekay LNG's incentive distribution rights) is based on the relative ownership interests of the non-controlling interests compared to the controlling interest (Teekay), which is consistent with how dividends and distributions were paid or were payable for these non-wholly ownednon-wholly-owned subsidiaries. In periods when vessels are sold by Teekay LNG or Teekay Tankers that were previously purchased from wholly-owned subsidiaries of Teekay, the amount of the gain or loss from sale allocated to the controlling interest and non-controlling interest is adjusted to reflect the non-controlling interest’s share of the deferred gain or loss that was incurred when Teekay previously sold these vessels from its wholly-owned subsidiaries to its non-wholly-owned subsidiaries Teekay LNG or Teekay Tankers. As reflected in the table below, during 2018 and 2019, such vessel sales by Teekay LNG resulted in increases (decreases) in net income of Teekay LNG attributable to the controlling interest (non-controlling interest) by $6.1 million and $7.5 million, respectively. As reflected in the table below, during 2019 and 2020, such vessel sales by Teekay Tankers resulted in an increases (decreases) in net income of Teekay Tankers attributable to the non-controlling interest (controlling interest) by $18.4 million and $43.2 million, respectively.
Teekay LNG has limited partners and 1 general partner. Teekay LNG's general partner is wholly-owned by Teekay. Teekay LNG's limited partners hold common units and preferred units. For each quarterly period, the method of attributing Teekay LNG’s net income (loss) of that period to the non-controlling interests of Teekay LNG begins by attributing net income (loss) of Teekay LNG to the non-controlling interests which hold 100% of the preferred units of Teekay LNG based on the amount of preferred unit distributions declared for the quarterly period.
Until May 11, 2020, when Teekay and Teekay LNG agreed to eliminate all of Teekay LNG's incentive distribution rights, the remaining net income (loss) to be attributed to the controlling interest and the non-controlling interests of Teekay LNG was then divided into two components. The first component consisted of the cash distribution that Teekay LNG would declare and pay to limited and general partners for that quarterly period (or the Distributed Earnings). The second component consisted of the difference between (a) the net income (loss) of Teekay LNG that was available to be allocated to the common unitholders and the general partner and (b) the amount of the first component cash distribution (or the Undistributed Earnings). The portion of the Distributed Earnings that was allocated to the non-controlling interests was the amount of the cash distribution that Teekay LNG would declare and pay to the non-controlling interests for that quarterly period. The portion of the Undistributed Earnings that was allocated to the non-controlling interests was based on the relative ownership percentages of the non-controlling interests of Teekay LNG compared to the controlling interest. The controlling interests included both limited partner common units and the general partner interest.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Teekay LNG and Teekay Offshore each have limited partners and one general partner. Teekay LNG's general partner is wholly-owned by Teekay, and until September 25, 2017, Teekay Offshore's general partner was wholly owned by Teekay. For both Teekay LNG and Teekay Offshore, the limited partners hold common units and preferred units. For each quarterly period (with regards to Teekay Offshore, until its deconsolidation on September 25, 2017), the method of attributing Teekay LNG’s and Teekay Offshore’s net income (loss) of that period to the non-controlling interests of Teekay LNG and Teekay Offshore began by attributing net income (loss) of Teekay Offshore and Teekay LNG to the non-controlling interests which hold 100% of the preferred units of Teekay Offshore, except for Series D Preferred Units, of which they held 74% until redemption in September 2017, and 100% of the preferred units of Teekay LNG based on the amount of preferred unit distributions declared for the quarterly period. The remaining net income (loss) to be attributed to the controlling interest and the non-controlling interests of Teekay LNG and Teekay Offshore was then divided into two components. The first component consists of the cash distribution that Teekay LNG or Teekay Offshore will declare and pay to limited and general partners for that quarterly period (or the Distributed Earnings). The second component consists of the difference between (a) the net income (loss) of Teekay LNG or Teekay Offshore that is available to be allocated to the common unitholders and the general partner of such entity and (b) the amount of the first component cash distribution (or the Undistributed Earnings). The portion of the Distributed Earnings that is allocated to the non-controlling interests is the amount of the cash distribution that Teekay LNG or Teekay Offshore will declare and pay to the non-controlling interests for that quarterly period. The portion of the Undistributed Earnings that is allocated to the non-controlling interests is based on the relative ownership percentages of the non-controlling interests of Teekay LNG and Teekay Offshore compared to the controlling interest. The controlling interests include both limited partner common units and the general partner interests.
The total net income (loss) of Teekay’s consolidated partially-owned entities and the attribution of that net income (loss) to controlling and non-controlling interests is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) attributable to non-controlling interests | | Controlling Interest | | Net income (loss) of consolidated partially-owned entities (1) |
| Non-public partially-owned subsidiaries | | Preferred unit-holders | | Distri- buted Earnings | | Undistri- buted Earnings | | Total Non-Controlling Interest | | Distri- buted Earnings | | Undistri- buted Earnings | | Total Controlling Interest (Teekay) | |
| Teekay LNG | 9,955 | | | 25,702 | | | 0 | | | 32,816 | | | 68,473 | | | 0 | | | 28,839 | | | 28,839 | | | 97,312 | |
| Teekay Tankers | — | | | — | | | — | | | 105,455 | | | 105,455 | | | — | | | (18,138) | | | (18,138) | | | 87,317 | |
| Other entities and eliminations | — | | | — | | | — | | | — | | | (13) | | | | | | | | | |
For the Year Ended December 31, 2020 | 9,955 | | | 25,702 | | | 0 | | | 138,271 | | | 173,915 | | | | | | | | | |
| Teekay LNG | 11,814 | | | 25,702 | | | 40,138 | | | 36,007 | | | 113,661 | | | 20,368 | | | 30,575 | | | 50,943 | | | 164,604 | |
| Teekay Tankers | — | | | — | | | — | | | 47,887 | | | 47,887 | | | — | | | (6,525) | | | (6,525) | | | 41,362 | |
| Other entities and eliminations | — | | | — | | | — | | | — | | | 43 | | | | | | | | | |
For the Year Ended December 31, 2019 | 11,814 | | | 25,702 | | | 40,138 | | | 83,894 | | | 161,591 | | | | | | | | | |
| Teekay LNG | 13,506 | | | 25,701 | | | 30,463 | | | (10,807) | | | 58,863 | | | 15,026 | | | 2,986 | | | 18,012 | | | 76,875 | |
| Teekay Tankers | — | | | — | | | — | | | (37,423) | | | (37,423) | | | — | | | (15,125) | | | (15,125) | | | (52,548) | |
| Other entities and eliminations | — | | | — | | | — | | | — | | | 50 | | | | | | | | | |
For the Year Ended December 31, 2018 | 13,506 | | | 25,701 | | | 30,463 | | | (48,230) | | | 21,490 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net income (loss) attributable to non-controlling interests | | Controlling Interest | | Net income (loss) of consolidated partially-owned entities (1) |
| | Non-public partially-owned subsidiaries | | Preferred unit holders | | Distri- buted Earnings(2) | | Undistri- buted Earnings | | Total Net income (loss) attributable | | Distri- buted Earnings | | Undistri- buted Earnings | | Total Controlling Interest (Teekay) | |
| Teekay Offshore | 8,262 |
| | 36,339 |
| | 16,312 |
| | (398,185 | ) | (3 | ) | (337,272 | ) | | 5,981 |
| | 334,033 |
| (3 | ) | 340,014 |
| | 2,742 |
|
| Teekay LNG | (54 | ) | | 13,979 |
| | 30,474 |
| | (41,520 | ) | | 2,879 |
| | 15,027 |
| | (18,995 | ) | | (3,968 | ) | | (1,089 | ) |
| Teekay Tankers | — |
| | — |
| | — |
| | (28,893 | ) | | (28,893 | ) | | — |
| | (30,434 | ) | | (30,434 | ) | | (59,327 | ) |
| Other entities and eliminations | — |
| | — |
| | — |
| | — |
| | (2,510 | ) | | | | | | | | |
| For the Year Ended December 31, 2017 | 8,208 |
| | 50,318 |
| | 46,786 |
| | (468,598 | ) | | (365,796 | ) | | | | | | | | |
| Teekay Offshore | 11,858 |
| | 45,835 |
| | 41,688 |
| | (46,155 | ) | | 53,226 |
| | 18,378 |
| | (27,129 | ) | | (8,751 | ) | | 44,475 |
|
| Teekay LNG | 17,514 |
| | 2,719 |
| | 30,444 |
| | 60,545 |
| | 111,222 |
| | 15,026 |
| | 31,717 |
| | 46,743 |
| | 157,965 |
|
| Teekay Tankers | — |
| | — |
| | — |
| | 47,459 |
| | 47,459 |
| | — |
| | 15,396 |
| | 15,396 |
| | 62,855 |
|
| Other entities and eliminations | — |
| | — |
| | — |
| | — |
| | (2,061 | ) | |
| |
| |
| |
|
| For the Year Ended December 31, 2016 | 29,372 |
| | 48,554 |
| | 72,132 |
| | 61,849 |
| | 209,846 |
| | | | | | | | |
| Teekay Offshore | 13,911 |
| | 28,609 |
| | 119,971 |
| | (103,949 | ) | | 58,542 |
| | 70,414 |
| | (38,913 | ) | | 31,501 |
| | 90,043 |
|
| Teekay LNG | 16,627 |
| | — |
| | 120,482 |
| | (1,510 | ) | | 135,599 |
| | 82,791 |
| | (880 | ) | | 81,911 |
| | 217,510 |
|
| Teekay Tankers | — |
| | — |
| | — |
| | 129,725 |
| | 129,725 |
| | — |
| | 47,202 |
| | 47,202 |
| | 176,927 |
|
| Other entities and eliminations | — |
| | — |
| | — |
| | — |
| | (557 | ) | |
| |
| |
| | |
| For the Year Ended December 31, 2015 | 30,538 |
| | 28,609 |
| | 240,453 |
| | 24,266 |
| | 323,309 |
| | | | | | | | |
| |
(1) | Includes earnings from common shares and preferred shares. |
| |
(2) | Excludes the results of the acquisition of interests in vessels between Teekay Corporation, Teekay Offshore and Teekay Tankers during the periods the vessels were under common control and had begun operations. |
| |
(3) | Subsequent to the formation of Teekay Offshore, Teekay sold certain vessels to Teekay Offshore. As Teekay Offshore was a non-wholly-owned consolidated subsidiary of Teekay at the date of the sales, all of the gain or loss on sales of these vessels was fully eliminated upon consolidation. Consequently, the portion of the gain or loss attributable to Teekay’s reduced interest in the vessels was deferred. The total unrecognized net deferred gain relating to the vessels previously sold from Teekay to Teekay Offshore was $349.6 million. Upon deconsolidation of Teekay Offshore, such amount was recognized as an increase to net loss attributable to non-controlling interests for the year ended December 31, 2017. |
When Teekay’s non-wholly-owned subsidiaries declare dividends or distributions to their owners or require all of their owners to contribute capital to the non-wholly-owned subsidiaries, such amounts are paid to, or received from, each of the owners of the non-wholly-owned subsidiaries based on the relative ownership interests in the non-wholly-owned subsidiary. As such, any dividends or distributions paid to, or capital contributions received from, the non-controlling interests are reflected as a reduction (dividends or distributions) or an increase (capital contributions) in non-controlling interest in the Company’s consolidated balance sheets.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
When Teekay’s non-wholly-owned subsidiaries issue additional equity interests to non-controlling interests, Teekay is effectively selling a portion of the non-wholly-owned subsidiaries. Consequently, the proceeds received by the subsidiaries from their issuance of additional equity interests are allocated between non-controlling interestinterests and retained earnings in the Company’s consolidated balance sheets. The portion allocated to non-controlling interestinterests on the Company’s consolidated balance sheets consists of the carrying value of the portion of the non-wholly-owned subsidiary that is effectively disposed of, with the remaining amount attributable to the controlling interest,interests, which consists of the Company’s dilution gain or loss that is reflected in retained earnings.
ReportingForeign currency
The consolidated financial statements are stated in U.S. Dollars. TheDollars and the functional currency of the Company is the U.S. Dollar because the Company operates in the international shipping market, which typically utilizes the U.S. Dollar as the functional currency.Dollar. 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 in foreign exchange (loss) gain in the accompanying consolidated statements of income (loss) income..
Operating revenues
Revenues
The Company's FPSO contracts, time charters and expensesvoyage charters include both a lease component, consisting of the lease of the vessel, and a non-lease component, consisting of the operation of the vessel for the customer. The Company has elected not to separate the non-lease component from the lease component for all such charters where the lease component is classified as an operating lease and certain other required criteria are met, and to account for the combined component as an operating lease. Time-charter contracts accounted for as direct financing leases and sales type leases contain both a lease component (lease of the vessel) and a non-lease component (operation of the vessel). The Company has allocated the contract consideration between the lease component and non-lease component on a relative standalone selling price basis. The standalone selling price of the non-lease component has been determined using a cost-plus approach, whereby the Company estimates the cost to operate the vessel using cost benchmarking studies prepared by a third party, when available, or internal estimates when not available, plus a profit margin. The standalone selling price of the lease component has been determined using an adjusted market approach, whereby the Company calculates a rate excluding the operating component based on a market time-charter rate from published broker estimates, when available, or internal estimates when not available. Given that there are no observable standalone selling prices for either of these two components, judgment is required in determining the standalone selling price of each component.
Contracts of Affreightment
FPSO contracts and Voyage Charterstime charters
Revenues from FPSO contracts and time charters accounted for as operating leases are recognized by the Company on a straight-line basis daily over the term of affreightmentthe contract. If collectability of the receipts from these contracts accounted for as operating leases is not probable, revenue that would have otherwise been recognized is limited to the amount collected from the charterer.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Upon commencement of an FPSO contract or time charter accounted for as a sales-type lease or direct financing lease, the carrying value of the vessel is derecognized and the net investment in the lease is recognized, based on the fair value of the vessel. For direct financing leases and sales-type leases, the lease element of time charter hire receipts is allocated to the lease receivable and revenues over the term of the lease using the effective interest rate method. The non-lease element of receipts is recognized by the Company on a straight-line basis daily over the term of the contract. Drydock cost reimbursements allocable to the non-lease element of a time-charter are recognized on a straight-line basis over the period between the previous scheduled dry dock and the next scheduled dry dock. In addition, if collectability of non-lease receipts of payments from a customer is not probable, any such receipts are recognized as a liability unless the receipts are non-refundable and either the contract has been terminated or the Company has no remaining performance obligations.
The Company does not recognize revenues during days that the vessel is off-hire. When the FPSO contract or time charter contains a profit-sharing agreement, drydock cost reimbursements for time charters accounted for as operating leases, or other variable consideration, including performance-based metrics such as production tariffs and other operational performance measures, the Company recognizes this revenue in the period in which the changes in facts and circumstances on which the variable charter hire payments are based occur. In addition, performance based revenue based on a multi-period performance-based metric that is allocable to non-lease services provided is estimated and to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved and recognize such estimate of revenue over the performance period. Where the charterer is responsible for the operation of the vessel, the Company offsets any vessel operating expenses it incurs against reimbursements from the charterer.
The Company's accounting policy for the reimbursement of drydocking expenditures was impacted by the adoption of ASU 2016-02 (see accounting pronouncements below).
Voyage charters
Revenues from voyage charters are recognized on a proportionate performance method. The Company uses a discharge-to-discharge basis in determining proportionate performance for all voyage charters, 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. Shuttle tankerspot voyages servicing contracts of affreightment with offshore oil fields commence with tendering of notice of readiness atthat contain a field, within the agreed lifting range,lease and ends with tendering of notice of readiness at a fieldload-to-discharge basis in determining proportionate performance for the next lifting.all spot voyages that do not contain a lease. 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. Revenues from the Company’s vessels performing voyage charters subject to revenue sharing agreements (or RSAs) follow the same revenue recognition policy as voyage charters not subject to RSAs. The difference between the net revenue earned by a vessel of the Company performing voyage charters subject to RSAs and its allocated share of the aggregate net contribution is reflected within voyage expenses. The consolidated balance sheets reflect in accrued revenue the accrued portion of revenues for those voyages that commence prior to the balance sheet date and complete after the balance sheet date, and reflect in deferred revenues or other long-term liabilities the deferred portion of revenues which will be earned in subsequent periods.
Time Charters,
Bareboat Charters and FPSO Contractscharters
Operating Leases - The Company recognizes revenues
Revenues from time charters, bareboat charters and FPSO contracts accounted for as operating leases are recognized by the Company on a straight-line basis daily over the term of the chartercharter. If collectability of the bareboat hire receipts from bareboat charters accounted for as operating leases is not probable, revenue that would have otherwise been recognized is limited to the applicable vessel operates under the charter. Receipt of incentive-based revenueamount collected from the Company’s FPSO units is dependent upon its operating performance and such revenue is recognized when earned by fulfillmentcharterer.
Upon commencement of a bareboat charter accounted for as a sales-type lease, the applicable performance criteria. The Company does not recognize revenue during days thatcarrying value of the vessel is off hire unlessderecognized and the contract provides for compensation while off hire.
Direct Financing Leases - Charter contracts that are accounted for asnet investment in the lease is recognized, based on the fair value of the vessel. For direct financing leases and sales-type leases, bareboat hire receipts are reflected onallocated to the consolidated balance sheets as net investments in direct financing leases. The lease revenue is recognized on an effective interest rate methodreceivable and voyage revenues over the lease term so as to produce a constant periodic rate of return over the lease terms and is included in revenues. Revenue from rendering of services is recognized as the service is performed. Revenues are not recognized during days that the vessel is off hire unless the contract provides for compensation while off hire.
The Company employs four LNG carriers, and until September 2017, employed an FSO unit and volatile organic compound emissions (or VOC) equipment relating to Teekay Offshore, on long-term time charters which are accounted for as direct financing leases. The lease payments received by the Company under these lease arrangements are allocated between the net investments in the leases and revenues or other income using the effective interest method so as to produce a constant periodic rate of return over the lease terms.method.
Pooling Arrangements
Management fees and other
Revenues and voyage expenses of the vessels operating in pool arrangements are pooled and the resulting net pool revenues, calculated on a time-charter equivalent basis, are allocated to the pool participants according to an agreed formula. The agreed formula used to allocate net pool revenues varies between pools; however, the formula generally allocates revenues to pool participants on the basis of the number of days a vessel operates in the pool with weighting adjustments made to reflect vessels’ differing capacities and performance capabilities. The same revenue and expense recognition principles stated above for voyage charters are applied in determining the net pool revenues of the pool. The pools are responsible for paying voyage expenses and distributing net pool revenues to the participants. The Company accounts for the net allocation from the pool as revenues and amounts due from the pool are included in accounts receivable.
Other Revenue
Other revenues are earned from the offshore ship-to-ship transfer of commodities, primarily crude oil and refined oil products, but also liquid gases and various other products which are referred to as support operations. In addition, other revenues are also earned from other technical activities such asthe management of third-party vessels and, until the April 2020 sale by Teekay Tankers of its LNG terminal management consultancy, procurement and equipment rental, and from services provided such as commercial, technical, crew training, strategic, business, development, administrative, project management and engineering. Other revenues from short-term contracts are recognized as services are completed basedLNG terminals. The Company recognizes fixed revenue on percentage of completion or in the case of long-term contracts, are recognizeda straight-line basis over the duration of the management contract period.and variable revenue, such as monthly commissions, in the month they are earned. The Company presents the reimbursement of expenditures it incurs to provide the promised goods or services as revenue if it controls such goods or services before they are transferred to the customer and presents such reimbursement of expenditures as an offset against the expenditures if the Company does not control the goods or services them before they are transferred to the customer.
Operating expenses
Voyage expenses are all expenses unique to a particular voyage, including fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. In addition, the difference between the net revenue earned by a vessel of the Company performing voyage charters subject to an RSA and its allocated share of the aggregate net contribution is reflected within voyage expenses. The Company, as shipowner, pays voyage expenses under voyage charters. The Company’s customers pay voyage expenses under time charters, except when the vessel is off-hire during the term of a time charter in which case the Company pays voyage expenses.
Vessel operating expenses include crewing, ship management services, repairs and maintenance, insurance, stores, lube oils and communication expenses.
Voyage expenses and vessel operating expenses are recognized when incurred, except when the Company incurs pre-operational costs related to the repositioning of a vessel that relates directly to a specific customer contract, that generates or enhances resources of the Company that will be used in satisfying performance obligations in the future, whereby such costs are expected to be recovered via the customer contract. In this case, such costs are deferred and amortized over the duration of the customer contract.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Operating Expenses
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, ship management services, repairs and maintenance, insurance, stores, lube oils and communication expenses. Voyage expenses and vessel operating expenses are recognized when incurred.
Cash and cash equivalents
The Company classifies all highly liquid investments with aan original maturity date of three months or less at their inception as cash and cash equivalents.
Restricted Cashcash
The Company maintains restricted cash deposits relating to certain term loans, collateral for derivatives, project tenders, leasing arrangements, amounts received from charterers to be used only for dry-docking expenditures and emergency repairs and other obligations.
Accounts receivable and allowance for doubtful accountsother loan receivables
Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowanceconsolidated balance sheets reflect in accounts receivable, any amounts where the right to consideration is conditioned upon the passage of time, and, in prepaid expenses and other, any accrued revenue where the right to consideration is conditioned upon something other than the passage of time.
The Company’s advances to equity-accounted for doubtful accounts is the Company’s best estimate of the amount of probable credit lossesinvestments and any other investments 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 balancesloan receivables are reviewed for collectability. Account balances are charged off against the allowance when the Company believes that the receivable will not be recovered. There were no significant amounts recorded as allowance for doubtful accounts as at December 31, 2017 and 2016.cost.
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.
Interest costs capitalized to vessels and equipment for the years ended December 31, 2020, 2019, and 2018, aggregated $NaN, $0.3 million and $14.8 million, respectively.
Vessel capital modifications include the addition of new equipment or certain modifications to the vessel that are aimed at improving or increasing the operational efficiency and functionality of the asset. This type of expenditure is amortizedcapitalized and depreciated 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, 2017, 2016, and 2015, aggregated $36.3 million, $36.9 million and $22.0 million, respectively.
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 tankers carrying crude oil and refined product, 30 years for liquefied petroleum gas (or LPG) carriers and 35 years for LNG 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 those periods of time. The Company considers shuttle tankers to be comprised of two components: (i) a conventional tanker (or the tanker component) and (ii) specialized shuttle equipment (or the shuttle component). The Company differentiates these two components on the principle that a shuttle tanker can also operate as a conventional tanker without the use of the shuttle component. The economics of this alternate use depend on the supply and demand fundamentals in the two segments. The Company has assessed the useful life of the tanker component as being 25 years, and the shuttle component as being 20 years.30 years, or 35 years, respectively. FPSO units are depreciated using an estimated useful life of 20 to 25 years commencing the date the unit is installed at the oil field and is in a condition that is ready to operate. FSO units are depreciated over the estimated term of the contract. Units for maintenance and safety (or UMS) are depreciated over an estimated useful life of 35 years commencing the date the unit arrives at the oil field and is inoperate, or a condition that is ready to operate. Long-distance towing and offshore installation vessels are depreciated over an estimated useful life of 25 years commencing the date the vessel is delivered from the shipyard. Depreciation includes depreciation on all owned vessels and amortization of vessels accounted for as capital leases.shorter period if commercial considerations dictate otherwise. Depreciation of vessels and equipment, excluding amortization of dry-docking expenditures, for the years ended December 31, 2017, 2016,2020, 2019, and 20152018 aggregated $397.6$209.6 million, $492.0$239.9 million and $445.2$244.0 million, respectively. AmortizationDepreciation includes depreciation of all owned vessels and amortization of vessels related to capital leases was $28.0 million, $12.8 million and $5.4 millionaccounted for the years ended December 31, 2017, 2016, and 2015, respectively.as finance leases.
Generally, the Company dry docks each conventional oil tanker and gas carrier every two and a half years to five years. FPSO units are generally not dry docked and maintenance is performed on these units while at sea. The Company capitalizes a substantial portion of thecertain costs incurred during dry docking and amortizes those costs on a straight-line basis over their estimated useful life, which typically is from the completion of a dry docking or intermediate survey to the estimated completion of the next dry docking. The Company includes in capitalized dry-docking costs those costs incurred as part of the dry docking to meet classification and regulatory requirements. The Company expenses costs related to routine repairs and maintenance performed during dry docking, and for annual class survey costs on the Company’s FPSO units.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
The continuity offollowing table summarizes the change in the Company’s capitalized dry-docking costs for the years endedfrom January 1, 2018 to December 31, 2017, 2016, and 2015, is summarized as follows:2020:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020
$ | | 2019
$ | | 2018
$ |
| Balance at the beginning of the year | 110,571 | | | 96,384 | | | 89,372 | |
| Costs incurred for dry dockings | 35,514 | | | 56,371 | | | 43,155 | |
| Dry-dock amortization | (41,578) | | | (39,283) | | | (33,684) | |
| Write-down / sales of vessels | (5,741) | | | (2,901) | | | (2,459) | |
| Balance at the end of the year | 98,766 | | | 110,571 | | | 96,384 | |
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2017
$ | | 2016
$ | | 2015
$ |
| Balance at the beginning of the year | 135,700 |
| | 150,702 |
| | 135,331 |
|
| Costs incurred for dry dockings | 52,677 |
| | 47,980 |
| | 69,927 |
|
| Dry-dock amortization | (49,686 | ) | | (55,026 | ) | | (47,271 | ) |
| Write-down / sales of vessels | (49,319 | ) | | (7,956 | ) | | (7,285 | ) |
| Balance at the end of the year | 89,372 |
| | 135,700 |
| | 150,702 |
|
Vessels and equipment that are intended to be held and used in the Company's business are assessed for impairment when events or circumstances indicate the carrying amountvalue of the asset may not be recoverable. If the asset’s net carrying value exceeds the estimated net undiscounted cash flows expected to be generated over its remaining useful life, and the fair value of the asset is less than its carrying value, the carrying amountvalue of the asset is reduced to its estimated fair value. The estimated fair value for the Company’s impaired vessels is determined using discounted cash flows or appraised values. In cases where an active second handsecond-hand sale and purchase market does not exist, or in certain other cases, the Company uses a discounted cash flow approach to estimate the fair value of an impaired vessel. In cases where an active second handsecond-hand sale and purchase market exists, an appraised value is used to estimate the fair value of an impaired vessel. An appraised value is generally the amount the Company would expect to receive if it were to sell the vessel. Such appraisal is normally completed by the Company and is based on second-hand sale and purchase data.data, and other information provided by third parties.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Vessels and equipment that are “held for sale” are measured at the lower of their carrying amount or fair value less costs to sell and are not depreciated while classified as held for sale. Interest and other expenses and related liabilities attributable to vessels and equipment classified as held for sale or to their related liabilities, continue to be recognized as incurred.
Gains on vessels sold and leased back under capital leases are deferred and amortized over the remaining term of the capital lease. Losses on vessels sold and leased back under capital leases are recognized immediately when the fair value of the vessel at the time of a sale-leaseback transaction 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.
Other loan receivablesEquity-accounted investments
The Company’s investments in loan receivables are recorded at cost. The Company analyzes its loans for collectability during each reporting period. A loan is impaired when, based on current informationcertain joint ventures and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors the Company considersother partially-owned entities in determining that a loan is impaired include, among other things, an assessment of the financial condition of the debtor, payment history of the debtor, general economic conditions, the credit rating of the debtor (when available) any information provided by the debtor regarding its ability to repay the loan and the fair value of the underlying collateral. When a loan is impaired, the Company measures the amount of the impairment based on the present value of expected future cash flows discounted at the loan’s effective interest rate and recognizes the resulting impairment in the consolidated statements of (loss) income. The carrying value of the loans will be adjusted each subsequent reporting period to reflect any changes in the present value of estimated future cash flows.
The following table contains a summary of the Company’s financing receivables by type of borrower, the method by which the Company monitorsdoes not control the credit qualityentity but has the ability to exercise significant influence over the operating and financial policies of its financing receivables on a quarterly basis, and the grade as of December 31, 2017.
|
| | | | | | | | | |
| | | | | | December 31, |
| Class of Financing Receivable | Credit Quality Indicator | | Grade | | 2017
$ | | 2016
$ |
| Direct financing leases | Payment activity | | Performing | | 495,990 |
| | 660,594 |
|
| Other loan receivables | | | | | | | |
| Loans to equity-accounted investees and joint venture partners | Other internal metrics | | Performing | | 253,906 |
| | 304,030 |
|
| Long-term receivable included in other assets | Payment activity | | Performing | | 12,175 |
| | 17,712 |
|
| | | | | | 762,071 |
| | 982,336 |
|
Joint ventures
The Company’s investments in joint venturesentity are accounted for using the equity method of accounting. Under the equity method of accounting, investments are stated at initial cost and are adjusted for subsequent additional investments and the Company’s proportionate share of earnings or losses and distributions. The Company evaluates its equity-accounted for investments in joint ventures for impairment when events or circumstances indicate that the carrying value of such investments may have experienced an other than temporaryother-than-temporary decline in value below theirits carrying value. If an equity-accounted for investment experiences an other-than-temporary decline in value and if the estimated fair value is less than the carrying value, and is considered an other than temporary decline, the carrying value is written down to its estimated fair value and the resulting impairment is recorded in the Company's consolidated statements of income (loss) income.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
.
Debt issuance costs
Debt issuance costs related to a recognized debt liability, including fees, commissions and legal expenses, are deferred and presented as a direct reduction from the carrying amount of that debt liability and amortized on an effective interest rate method over the term of the relevant loan. Debt issuance costs relatedwhich are not attributable to loan facilities without a recognizedspecific debt liability or where the debt issuance costs exceed the carrying value of the related debt liability (primarily undrawn revolving credit facilities) are deferred and presented as non-current assets in the Company's consolidated balance sheets. Amortization of debt issuance costs is included in interest expense.expense in the Company's consolidated statements of income (loss).
Fees paid to substantially amend a non-revolving credit facility shall beare associated with the extinguishment of the old debt instrument and included in determining the debt extinguishment gain or loss to be recognized. AnyOther costs incurred with third parties directly related to the extinguishment are deferred and presented as a direct reduction from the carrying amount of the replacement debt instrument and amortized using the effective interest rate method. In addition, any unamortized debt issuance costs would beassociated with the old debt instrument are written off. If the amendment is considered not to be a substantial amendment, then the fees would be associated with the replacement or modified debt instrument and, along with any existing unamortized premium, or discount and unamortized debt issuance costs, would be amortized as an adjustment of interest expense over the remaining term of the replacement or modified debt instrument using the effective interest method. Other related costs incurred with third parties directly related to the modification, other than the loan amendment fee, are expensed as incurred.
Fees paid to amend a revolving credit facilitiesfacility are deferred and amortized over the term of the modified revolving credit facility. If the borrowing capacity underof the revolving credit facility is increasedincreases as a result of the amendment, unamortized loandebt issuance costs of the original revolving credit facility would be deferred andare amortized over the remaining term of the modified revolving credit facility. If the borrowing capacity is decreasedof the revolving credit facility decreases as a result of the amendment, a proportionate amount, based on the reduction in borrowing capacity, of the unamortized debt issuance costs of the original revolving credit facility would beare written off and the remaining amount would be deferred andis amortized over the remaining term of the modified revolving credit facility.
Credit losses
The Company utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for net investments in direct financing and sales-type leases, loans to equity accounted joint ventures, guarantees of secured loan facilities of equity-accounted joint ventures, non-operating lease accounts receivable, contract assets and other receivables at the time the financial asset is originated or acquired. The expected credit losses are subsequently adjusted each period for changes in expected lifetime credit losses. The Company discontinues accrual of interest on financial assets if collection of required payments is no longer probable, and in those situations, recognizes payments received on non-accrual assets on a cash basis method, until collection of required payments becomes probable. The Company considers a financial asset to be past due when payment is not made with 30 days of it being owed, assuming there is no dispute or other uncertainty regarding the amount owing.
Expected credit loss provisions are presented on the consolidated balance sheets as a reduction to the carrying value of the related financial asset and as an other long-term liability for expected credit loss provisions that relate to guarantees of secured loan facilities of equity-accounted joint ventures. Changes in expected credit loss provisions are presented within other loss within the consolidated statements of income (loss).
Prior to the adoption of Accounting Standards Update ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (or ASU 2016-13) on January 1, 2020, the Company:
•recognized an allowance for doubtful accounts consisting of the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determined the allowance based on historical write-off experience and customer economic data. The Company reviewed the allowance for doubtful accounts regularly and past due balances were reviewed for collectability. Account balances were charged off against the allowance when the Company believed that the receivable would not be recovered. There were no significant amounts recorded as allowance for doubtful accounts as at December 31, 2020 and 2019.
•analyzed its loans for collectability during each reporting period. A loan loss provision was recognized when, based on current information and events, it was probable that the Company would be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors the Company considered in determining if a loan loss provision was required included, among other things, an assessment of the financial condition of the debtor, payment history of the debtor, general economic conditions, the credit rating of the debtor (when available) any information provided by the debtor regarding its ability to repay the loan and the fair value of the underlying collateral. When a loan loss provision was recognized, the Company measured the amount of the loss provision based on the present value of expected future cash flows discounted at the loan’s effective interest rate and recognized the resulting loss in the consolidated statements of income (loss). The carrying value of the loan was adjusted each subsequent reporting period to reflect any changes in the present value of expected future cash flows.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
For charter contracts being accounted for as operating leases, if the remaining lease payments are no longer probable of being collected, any unpaid accounts receivable and any accrued revenue will be reversed against revenue and any subsequent payments will be recognized as revenue when collected until such time that the remaining lease payments are probable of being collected.
Derivative instruments
All derivative instruments are initially recorded at fair value as either assets or liabilities in the accompanying consolidated balance sheets and subsequently remeasured to fair value each period end, 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 whether the contract qualifies for hedge accounting. The Company does not apply hedge accounting to its derivative instruments, except for certain types of interest rate swaps designated as cash flow hedges (See Note 15).
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.effectiveness are recognized immediately in earnings. The Company does not apply hedge accounting if it is determined that the hedge wasis not effective or will no longer be effective, the derivative wasis sold or exercised, or the hedged item wasis sold, repaid or repaid.no longer probable of occurring.
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 loss in total equity. In the periods when the hedged items affect earnings, the associated fair value changes on the hedging derivatives are transferred from total equity to the corresponding earnings line item (e.g. interest expense) in the Company's consolidated statements of income (loss) income. The ineffective portion of the change in fair value of the derivative financial instruments is immediately recognized in the corresponding earnings line item (e.g. interest expense) in the consolidated statements of (loss) income.. If a cash flow hedge is terminated or de-designated and the originally hedged item is still considered possibleprobable of occurring, the gains and losses initially recognized in total equity remain there until the hedged item impacts earnings, at which point they are transferred to the corresponding earnings line item (e.g. interest expense) in the Company's consolidated statements of income (loss) income.. If the hedged items are no longer possibleprobable of occurring, amounts recognized in total equity are immediately transferred to the corresponding earnings line item (e.g. interest expense) in the Company's consolidated statements of income (loss) income..
For derivative financial instruments that are not designated or that do not qualify as hedges under Financial Accounting Standards Board (or FASB) Accounting Standards Codification (or ASC) 815, Derivatives and Hedging, 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, non-designated bunker fuel swap contracts and forward freight agreements, and non-designated foreign currency forward contracts are recorded in realized and unrealized loss on non-designated derivative instruments.instruments in the Company's consolidated statements of income (loss). Gains and losses from the Company’s non-designated cross currency swaps are recorded in foreign exchange loss(loss) gain in the Company's consolidated statements of income (loss) income..
Goodwill and intangible assets
Goodwill is not amortized but is reviewed for impairment at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. A reporting unit is a component of the Company that constitutes a business for which discrete financial information is available and regularly reviewed by management. When goodwill is reviewed for impairment, the Company may elect to assess qualitative factors to determine whether it is more likely than not thatwill measure the amount by which a reporting unit's carrying value exceeds its fair value, of a reporting unit is less than itswith the maximum impairment not to exceed the carrying amount, includingvalue of goodwill. Alternatively, the Company may bypass this step and use a fair value approach 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. Intangible assets are assessed forGoodwill impairment when and if impairment indicators exist. An impairment loss is recognized ifmeasured as the amount by which a reporting unit’s carrying amount of an intangible asset is not recoverable and its carrying amountvalue exceeds its fair value.value, not to exceed the carrying value of goodwill.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
The Company’sCustomer-related intangible assets consist primarily of acquired time-charter contracts, contracts of affreightment, and customer relationships. The value ascribed to the acquired time-charter contracts and contracts of affreightment is 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 customer relationships intangible assets isare amortized over the expected life of a customer contract or the expected duration that the customer relationships are estimated to contribute to the cash flows of the Company. The amount amortized each year is weighted based on the projected revenue to be earned under the contracts or projected revenue to be earned as a result of the customer relationships. Intangible assets are assessed for impairment when and if impairment indicators exist. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value.
Lease obligations and right-of-use assets
For its chartered-in vessels and office leases, as of the lease commencement date, the Company recognizes a liability for its lease obligation, initially measured at the present value of lease payments not yet paid, and an asset for its right to use the underlying asset, initially measured equal to the lease liability and adjusted for lease payments made at or before lease commencement, lease incentives, and any initial direct costs. The discount rate used to determine the present value of the lease payments is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments in a similar economic environment. The initial recognition of the lease obligation and right-of-use asset excludes short-term leases for the Company's chartered-in vessels and office leases. Short-term leases are leases with an original term of one year or less, excluding those leases with an option to extend the lease for greater than one year or an option to purchase the underlying asset that the lessee is deemed reasonably certain to exercise. The initial recognition of this lease obligation and right-of-use asset excludes variable lease payments that are based on the usage or performance of the underlying asset and the portion of payments related to non-lease elements of vessel charters.
For those leases classified as operating leases, lease interest and right-of-use asset amortization in aggregate result in a straight-line expense profile that is presented in time charter hire expense for vessels and general and administrative expense for office leases, unless the right-of-use asset becomes impaired. For those leases classified as finance leases, the Company uses the effective interest rate method to subsequently account for the lease liability, whereby interest is recognized in interest expense in the Company's consolidated statements of income (loss). For
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
those leases classified as finance leases, the right-of-use asset is amortized on a straight-line basis over the remaining life of the vessel, with such amortization included in depreciation and amortization in the Company's consolidated statements of income (loss). Variable lease payments that are based on the usage or performance of the underlying asset are recognized as an expense when incurred, unless achievement of a specified target triggers the lease payment, in which case an expense is recognized in the period when achievement of the target is considered probable.
The Company recognizes the expense from short-term leases and any non-lease components of vessels time chartered from other owners, on a straight-line basis over the firm period of the charters. The expense is included in time charter hire expense for vessel charters and general and administrative expenses for office leases.
The right-of-use asset is assessed for impairment when events or circumstances indicate the carrying amount of the asset may not be recoverable. If the right-of-use 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 right-of-use asset is reduced to its estimated fair value. The estimated fair value for the Company's impaired right-of-use assets from in-chartered vessels is determined using a discounted cash flow approach to estimate the fair value. Subsequent to an impairment, a right-of-use asset related to an operating lease is amortized on a straight-line basis over its remaining life.
The Company has determined that all of its time-charter-in contracts contain both a lease component (lease of the vessel) and a non-lease component (operation of the vessel). The Company has allocated the contract consideration between the lease component and non-lease component on a relative standalone selling price basis. The standalone selling price of the non-lease component has been determined using a cost-plus approach, whereby the Company estimates the cost to operate the vessel using cost benchmarking studies prepared by a third party, when available, or internal estimates when not available, plus a profit margin. The standalone selling price of the lease component has been determined using an adjusted market approach, whereby the Company calculates a rate excluding the operating component based on a market time-charter rate information from published broker estimates, when available, or internal estimates when not available. Given that there are no observable standalone selling prices for either of these two components, judgment is required in determining the standalone selling price of each component. The bareboat charter contracts contain only a lease component.
Vessels sold and leased back by the Company, where the Company has a fixed price repurchase obligation or other situations where the leaseback would be classified as a finance lease, are accounted for as a failed sale of the vessel. For such transactions, the Company does not derecognize the vessel sold and continues to depreciate the vessel as if it was the legal owner. Proceeds received from the sale of the vessel are recognized as an obligation related to finance lease and bareboat charter hire payments made by the Company to the lessor are allocated between interest expense and principal repayments on the obligation related to finance lease.
In periods prior to the adoption of Accounting Standards Update 2016-02, Leases (or ASU 2016-02) (see note 2), the Company's accounting policy was to recognize the expense from vessels time-chartered from other owners, which was included in time-charter hire expense, on a straight-line basis over the firm period of the charters.
Asset retirement obligation
The Company has an asset retirement obligationobligations (or AROAROs) relating to (a) the sub-searecycling of the Petrojarl Foinaven FPSO unit in accordance with EU ship recycling regulations on completion of its current contract, and (b) the subsea production facility associated with the Petrojarl Banff FPSO unit operatingwhich operated in the North Sea. ThisThe obligation relating to the Petrojarl Banff FPSO unit generally involves the costs associated with the 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. The AROAROs will be covered in part by contractual payments to be received from the 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.
In the first quarter of 2020, CNR International (U.K.) Limited (or CNRI), provided formal notice to Teekay of its intention to cease production in June 2020 and decommission the Banff field shortly thereafter. As such, the Company removed the Petrojarl Banff FPSO and Apollo Spirit FSO from the Banff field in the third quarter of 2020 and expects to remove the subsea equipment by June 2023. The ARO for the FPSO unit was increased during 2020 based on changes to cost estimates. As at December 31, 2017,2020, the ARO and associated receivable, which is recorded in goodwill, intangibles, and other non-current assets, were $27.3$42.4 million and $7.4$9.3 million, respectively (2016 - $44.7(2019 – $30.9 million and $27.9$8.4 million, respectively). Teekay Offshore was deconsolidated on September 25, 2017. As of December 31, 2016, the ARO of $44.7 million included $21.7 million related to Teekay Offshore and the associated receivable of $27.9 million included $21.7 million related to Teekay Offshore.(See Note 6).
Repurchase of common stock
The Company accounts for repurchases of common stock by decreasing 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.
Share-based compensation
The Company grants stock options, restricted stock units, performance share units and restricted stock awards as incentive-based compensation to certain employees and directors. The Company measures the cost of such awards using the grant date fair value of the award and recognizes that cost, net of estimated forfeitures, over the requisite service period, which generally equals the vesting period. For stock-based compensation awards 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.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Compensation cost for awards with performance conditions is recognized when it is probable that the performance condition will be achieved. The compensation cost of the Company’s stock-based compensation awards is substantially reflected in general and administrative expense.
Income taxes
The Company accounts for income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the consolidated 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 determined that it is more likely than not that some or all of the benefit from the deferred tax asset will not be realized.
RecognitionThe Company recognizes the tax benefits of uncertain tax positions is dependent upon whetheronly if 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 by the taxing authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. If aThe tax position meets the more-likely-than-not recognition threshold, it is measured to determine the amount of benefit to recognizebenefits recognized in the Company’s consolidated financial statements.statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to uncertain tax positions in income tax (expense) recovery.expense in the Company's consolidated statements of income (loss).
The Company believes that it and its subsidiaries are not subject to income taxation under the laws of the Republic of The Marshall Islands or Bermuda, orand that distributions by its subsidiaries to the Company will not be subject to any income taxes under the laws of such countries, and that itcountries. The Company qualifies for the Section 883 exemption under U.S. federal income tax purposes.purposes, with the exception of Teekay LNG.
Accumulated other comprehensive income (loss)loss
The following table contains the changes in the balances of each component of accumulated other comprehensive income (loss) attributable to shareholders of Teekay for the periods presented.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
|
| | | | | | | | | | | | | | |
| | Qualifying Cash Flow Hedging Instruments
$ | | Pension Adjustments
$ | | Unrealized (Loss) Gain on Available for Sale Marketable Securities
$ | | Foreign Exchange Gain (Loss) on Currency Translation
$ | | Total
$ |
| Balance as of December 31, 2014 | (468 | ) | | (29,888 | ) | | — |
| | 2,058 |
| | (28,298 | ) |
| Other comprehensive income (loss) | 49 |
| | 14,038 |
| | (463 | ) | | (217 | ) | | 13,407 |
|
| Balance as of December 31, 2015 | (419 | ) | | (15,850 | ) | | (463 | ) | | 1,841 |
| | (14,891 | ) |
| Other comprehensive income and other | 378 |
| | 3,690 |
| | 47 |
| | 173 |
| | 4,288 |
|
| Balance as of December 31, 2016 | (41 | ) | | (12,160 | ) | | (416 | ) | | 2,014 |
| | (10,603 | ) |
| Other comprehensive income and other | 1,450 |
| | 1,463 |
| | 416 |
| | 1,279 |
| | 4,608 |
|
| Balance as of December 31, 2017 | 1,409 |
| | (10,697 | ) | | — |
| | 3,293 |
| | (5,995 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Qualifying Cash Flow Hedging Instruments
$ | | Pension Adjustments
$ | | | | Foreign Exchange Gain (Loss) on Currency Translation
$ | | Total
$ |
| Balance as of December 31, 2017 | 1,409 | | | (10,697) | | | | | 3,293 | | | (5,995) | |
| Other comprehensive (loss) income and other | (506) | | | 7,521 | | | | | (3,293) | | | 3,722 | |
| Balance as of December 31, 2018 | 903 | | | (3,176) | | | | | 0 | | | (2,273) | |
| Other comprehensive (loss) income and other | (20,311) | | | (1,153) | | | | | 0 | | | (21,464) | |
| Balance as of December 31, 2019 | (19,408) | | | (4,329) | | | | | 0 | | | (23,737) | |
| Other comprehensive loss and other | (15,259) | | | (548) | | | | | 0 | | | (15,807) | |
| Changes to non-controlling interest in AOCI from equity contributions | (9,339) | | | — | | | | | — | | | (9,339) | |
| Balance as of December 31, 2020 | (44,006) | | | (4,877) | | | | | 0 | | | (48,883) | |
Employee pension plans
The Company has 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. With the exception of certain of the Company’s employees in Australia, and Norway, the Company’s employees are generally eligible to participate in defined contribution plans. These plans allow for the employees to contribute a certain percentage of their base salaries into the plans. The Company matches all or a portion of the employees’ contributions, depending on how much each employee contributes. During the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, the amount of cost recognized for the Company’s defined contribution pension plans was $11.8$8.3 million, $13.5$8.1 million and $15.2$7.9 million, respectively.
The Company also has defined benefit pension plans (or the Benefit Plans) covering certain of its employees in Norway and Australia. 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. The overfunded or underfunded status of the defined benefit pension plans is recognized as assets or liabilities in the consolidated balance sheets. The Company recognizes as a component of other comprehensive loss, the gains or losses that arise during a period but that are not recognized as part of net periodic benefit costs. As at December 31, 2017, approximately 65% of the defined benefit pension assets were held by the Norwegian plans and approximately 35% were held by the Australian plan. The pension assets in the Norwegian plans have been guaranteed a minimum rate of return by the provider, thus reducing potential exposure to the Company to the extent the provider honors its obligations. The Company's funded status deficiency was $1.5 million and $2.5a deficit of $2.8 million at December 31, 20172020 and 2016, respectively.a deficit of $1.7 million at December 31, 2019.
(Loss) earningsLoss per common share
The computation of basic earnings (loss)loss per share is based on the weighted average number of common shares outstanding during the period. The computation of diluted earnings per share assumes the exercise of all dilutive stock options and restricted stock awards using the treasury stock method. The computation of diluted loss per share does not assume such exercises.
Accounting pronouncements not yet adopted
In May 2014, the Financial Accounting Standards Board (or FASB) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (or ASU 2014-09). ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which includes (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue as each performance obligation is satisfied. ASU 2014-09 is effective for the Company January 1, 2018 and shall be applied, at the Company’s option, retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company has elected to apply ASU 2014-09 only to those contracts that are not completed as of January 1, 2018. The Company will adopt ASU 2014-09 as a cumulative-effect adjustment as of the date of adoption. The Company has identified the following differences based on the work performed to date:
The Company currently presents the net allocation for its vessels participating in revenue sharing arrangements as revenues. The Company has determined that it is the principal in voyages its vessels perform that are included in the revenue sharing arrangements. As such, the revenue from those voyages will be presented in voyage revenues and the difference between this amount and the Company's net allocation from the revenue sharing arrangement will be presented as voyage expenses. There will be no cumulative impact to opening equity as at January 1, 2018.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Accounting pronouncements
The Company manages vessels owned by its equity accounted investments and third parties. Upon the adoption ofadopted ASU 2014-09, costs incurred by the Company for its seafarers will be presented as vessel operating expenses and the reimbursement of such expenses will be presented as revenue, instead of such amounts being presented2016-02 on a net basis. The Company is in the process of finalizing which vessels this applies to. There will be no cumulative impact to opening equity as at January 1, 2018.
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (or ASU 2016-02).2019. ASU 2016-02 establishesestablished a right-of-use model that requires a lessee to record a right of useright-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For lessees, leases will beare classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 requires lessors to classify leases as a sales-type, direct financing or operating lease. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type leases or direct financing leases are operating leases.
ASU 2016-02 is effective January 1, 2019, with early adoption permitted. The Company currently intends to adopt ASU 2016-02 effective January 1, 2018was adopted using a transition approach whereby a cumulative effect adjustment is made as of the effective date, of January 1, 2018, with no retrospective effect. ASU 2016-02 provides an optional practical expedient to lessors not to separate lease and non-lease components of a contract if certain criteria are met. The Company has elected to use this new optional transitional approach. In addition, the Company early adopted ASU 2019-01, which provides an exception for lessors who are not manufacturers or dealers to determine the fair value of leased property using the underlying asset's cost, instead of fair value. To determine the cumulative effect adjustment, the Company has not reassessed lease classification, initial direct costs for any existing leases, or whether any expired or existing contracts are or contain leases, has not reassessed lease classification, and has not reassessed initial direct costs for any existing leases. The quarter in which the Company adopts ASU 2016-02 and the estimated impact from adoption contained below is based upon the expectation that FASB will issue an additional ASU prior to the filing of our consolidated financial statements for the first quarter of 2018. The Company is currently considering the potential impact of a delay in the finalization of this additional ASU on its adoption date. The Company has identified the following differences based on the work performed to date:differences:
•The adoption of ASU 2016-02 will resultresulted in a change in the accounting method for the Company's office leases and the lease portion of the daily charter hire for the chartered-in vessels by the Company and the Company's equity-accounted joint ventures accounted for as operating leases with firm periods of greater than one year.year, as well as a small number of office leases. Under ASU 2016-02, the Company and the Company's equity accountedequity-accounted joint ventures will recognize arecognized an operating lease right-of-use asset and aoperating lease liability on the consolidated balance sheet for these charters and office leases based on the present value of future minimum lease payments, whereas currentlypreviously no right-of-use asset or lease liability iswas recognized. This will haveresulted in an increase in the result of increasing the CompanyCompany's and its equity-accounted joint venture’sventures' assets and liabilities. The pattern of expense recognition of chartered-in vessels is expected to remainremains substantially unchanged from the prior policy, unless the right of useright-of-use asset becomes impaired. On January 1, 2019, a right-of-use asset of $170.0 million and a lease liability of $170.0 million were recognized for these chartered-in vessels. In addition, the existing carrying value of the Company's chartered-in vessels was reclassified from other non-current assets ($13.7 million) and from other long-term liabilities ($0.9 million) to a right-of-use asset as at January 1, 2019. The Company also recognized a right-of-use asset and liability for its office leases as at January 1, 2019, which is presented in other non-current assets and accrued liabilities and other, respectively. On December 31, 2019, the right-of-use asset and lease liability relating to the Company's chartered-in vessels were $148.6 million and $148.6 million, respectively, and the right-of-use asset and lease liability relating to office leases were $13.7 million and $13.9 million, respectively, and $0.2 million was reflected as a foreign exchange loss for the year ended December 31, 2019.
•The adoption of ASU 2016-02 will result in the Company completing its lease classification assessment when a lease commences instead of when the lease is entered into. The Company has entered into charters in prior periods for certain of its vessels currently under construction and which are expected to deliver over the period from 2018 to 2020. Historically, for charters that were negotiated concurrently with the construction of the related vessels, the fair value of the constructed asset was presumed to be its newbuilding cost and no gain or loss was recognized on commencement of the charter if such charters were classified as direct finance leases. On the adoption of ASU 2016-02, the fair value of the vessel is determined based on information available at the lease commencement date and any difference in the fair value of the ship upon commencement of the charter and its carrying value is recognized as a gain or loss upon commencement of the charter.
The adoption of ASU 2016-02 will resultresulted in the recognition of revenue from the reimbursement of scheduled dry-dock expenditures, where sucha charter contract is accounted for as an operating lease, occurring upon completion of the scheduled dry-dock, instead of ratably over the period between the previous scheduled dry-dock and the next scheduled dry-dock. This change decreased investment in and loans to equity-accounted investments by $0.1 million and decreased total equity by $0.1 million as at December 31, 2019. The Company is in the process of determining which vessels this applies to and the cumulative impactdecrease to opening equity as at January 1, 2018.2019 was $0.1 million.
•The Company expects that certain pre-operational costs it currently expenses as incurred will be deferred and amortized over the contract termadoption of a customer contract that the costs relate to. The Company isASU 2016-02 resulted in the process of determining which pre-operational costs this applies to and the cumulative impact to opening equity as at January 1, 2018.
In addition, direct financing and sales-type lease payments received will bebeing presented as an operating cash inflow instead of an investing cash inflow in the statement of cash flows.
In March 2016, the FASB issued Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (or ASU 2016-09). ASU 2016-09 simplifies aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on theCompany's consolidated statement of cash flows. Direct financing and sales-type lease payments received during the years ended December 31, 2020, 2019, and 2018 were $340.9 million, $17.1 million and $10.9 million, respectively.
•The adoption of ASU 2016-09 became effective2016-02 resulted in sale and leaseback transactions where the seller lessee has a fixed price repurchase option or other situations where the leaseback would be classified as a finance lease being accounted for as a failed sale of the vessel and a failed purchase of the vessel by the buyer lessor. Prior to the adoption of ASU 2016-02, such transactions were accounted for as a completed sale and a completed purchase. Consequently, for such transactions, the Company January 1, 2017.did not derecognize the vessel sold and continues to depreciate the vessel as if it was the legal owner. Proceeds received from the sale of the vessel were recognized as a financial liability and bareboat charter hire payments made by the Company to the lessor were allocated between interest expense and principal repayments on the financial liability. The impactadoption of adopting this new accounting guidanceASU 2016-02 resulted in the sale and leaseback of the Yamal Spirit, the Torben Spirit, the Cascade Spirit and the Aspen Spirit during 2019 being accounted for as failed sales, and unlike the 22 vessels sold and leased back in similar transactions in prior years, the Company was not considered as holding a changevariable interest in presentation of cash payments for tax withholdings on share-settled equity awards from an operating cash outflow to financing cash outflow on the Company's statement of cash flows.buyer lessor entity and thus, did not consolidate the buyer lessor entities (see Note 10).
In June 2016, the FASB issued Accounting Standards UpdateASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (or (or ASU 2016-13). ASU 2016-13 replacesintroduced a new credit loss methodology, which requires earlier recognition of potential credit losses, while also providing additional transparency about credit risk. This new credit loss methodology utilizes a lifetime “expected credit loss” measurement objective for the incurred loss impairment methodology with a methodology that reflectsrecognition of credit losses for loans, held-to-maturity debt securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses and requires considerationare subsequently adjusted each period for changes in expected lifetime credit losses. This methodology replaced multiple existing impairment methods under previous GAAP for these types of assets, which generally required that a broader range of reasonable and supportable information to inform credit loss estimates. Thisbe incurred before it was recognized.
The Company adopted this update is effective for the Company on January 1, 2020 with a modified-retrospective approach. The Company is currently evaluating the effect of adopting this new guidance.
In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (or ASU 2016-15), which, among other things, provides guidance on two acceptable approaches of classifying distributions received fromapproach, whereby a cumulative-effect adjustment was made to reduce partner's equity method investees in the statement of cash flows. ASU 2016-15 is effective for the Company on January 1, 2018, with a retrospective approach.2020 without any retroactive application to prior periods. The Company's net investments in direct financing and sales-type leases, advances to equity-accounted joint ventures, guarantees of indebtedness of equity-accounted joint ventures and receivables related to non-operating lease revenue arrangements are subject to ASU 2016-13. On adoption, the Company is currently evaluatingdecreased the effectcarrying value of adoptinginvestments in and loans, net to equity-accounted investments by $40.0 million, non-controlling interest by $37.4 million, net investments in direct financing and sales-type leases by $15.1 million and increased accumulated deficit by $17.7 million, goodwill, intangibles and other non-current assets by $1.4 million and other long-term liabilities by $1.4 million. The cumulative adjustment recorded on initial adoption of this new guidance.update does not reflect an increase in credit risk exposure to the Company compared to previous periods presented.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows: Restricted Cash (or ASU 2016-18). ASU 2016-18 requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. ASU 2016-18 is effective for the Company on January 1, 2018. Adoption of ASU 2016-18 will require the Company’s statements of cash flows being modified to include changes in restricted cash in addition to changes in cash and cash equivalents.
In January 2017, the FASB issued Accounting Standards Update 2017-01, Clarifying the Definition of a Business, (or ASU 2017-01). ASU 2017-01 changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017-01 requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU 2017-01 also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. ASU 2017-01 is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. The Company adopted this standard effective October 1, 2017, and this standard was applied to the acquisition of Tanker Investment Ltd (or TIL) (See Note 4a).
In August 2017, the FASB issued Accounting Standards Update 2017-12, Derivatives and Hedging -– Targeted Improvements to Accounting for Hedging Activities (or ASU 2017-12). ASU 2017-12 eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presentedrecorded in other comprehensive (loss) income and reclassified to earnings in the same income statement line as the hedged item.item when the hedged item affects earnings. The guidance also modifies the accounting for components excluded from the assessment of hedge effectiveness, eases documentation and assessment requirements and modifies certain disclosure requirements. ASU 2017-12 will bebecame effective for the Company on January 1, 2019. This change decreased accumulated other comprehensive loss by $1.6 million as at January 1, 2019, and correspondingly increased opening equity as at January 1, 2019 by $1.6 million.
In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (or ASU 2019-12), as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences, among other changes. The guidance becomes effective for annual reporting periods beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the effect of adopting this new guidance.
In March 2020, the FASB issued ASU 2020-04 - Reference Rate Reform(Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (or LIBOR). This update applies only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued. This update is effective through December 31, 2022. The Company is currently evaluating the effect of adopting this new guidance.
In August 2020, the FASB issued ASU 2020-06 - Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). This update simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This update also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance. The Company is expected to adopt this update effective January 1, 2021 using the modified retrospective method of transition. The adoption of ASU 2020-06 is expected to impact the accounting for the Company’s Convertible Senior Notes due January 15, 2023 (the Convertible Notes) whereby the existing debt and equity components will be recombined into a single component accounted for as a single liability, at its amortized cost. In addition, the adoption of ASU 2020-06 is expected to result in the Company having to change from the use of the treasury stock method to the if-converted method to determine the dilutive impact of the Convertible Notes when calculating diluted earnings per share.
2. Revenues
The Company’s primary source of revenue is chartering its vessels and offshore units to its customers. The Company utilizes four primary forms of contracts, consisting of time charter contracts, voyage charter contracts, bareboat charter contracts and contracts for FPSO units. The Company also generates revenue from the management and operation of vessels owned by third parties and by equity-accounted investments as well as providing corporate management services to such entities.
Time Charters
Pursuant to a time charter, the Company charters a vessel to a customer for a period of time, generally one year or more. The performance obligations within a time charter contract, which will include the lease of the vessel to the charterer as well as the operation of the vessel, are satisfied as services are rendered over the duration of such contract, as measured using the time that has elapsed from commencement of performance. In addition, any expenses that are unique to a particular voyage, including any fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions, are the responsibility of the customer, as long as the vessel is not off-hire.
Hire is typically invoiced monthly in advance for time charter contracts, based on a fixed daily hire amount. However, certain sources of variability exist. Those include penalties, such as those that relate to periods the vessels are off-hire and where minimum speed and performance metrics are not met. In addition, certain time charters contracts contain provisions that allow the Company to be compensated for increases in the Company’s costs during the term of the charter. Such provisions may be in the form of annual hire rate adjustments for changes in inflation indices or interest rates or in the form of cost reimbursements for vessel operating expenditures or dry-docking expenditures. Finally, in a small number of charters, the Company may earn profit share consideration, which occurs when actual spot tanker rates earned by the vessel exceed certain thresholds for a period of time. The Company does not engage in any specific tactics to minimize vessel residual value risk.
Voyage Charters
Voyage charters are charters for a specific voyage that are usually priced on a current or "spot" market rate. The performance obligations within a voyage charter contract, which will typically include the lease of the vessel to the charterer as well as the operation of the vessel, are satisfied as services are rendered over the duration of the voyage, as measured using the time that has elapsed from commencement of performance. In addition, any expenses that are unique to a particular voyage, including fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions, are the responsibility of the vessel owner. The Company’s voyage charters will normally contain a lease; however, judgment is necessary to determine whether this is the case based upon the decision-making rights the charterer has under the contract. Consideration for such contracts is fixed or variable, depending on certain conditions. Delays caused by the charterer result in additional consideration. Payment for the voyage is not due until the voyage is completed. The duration of a single voyage will typically be less than three months. As such, accrued revenue at the end of a period will be invoiced and paid in the subsequent period. The amount of accrued revenue at any point in time will depend on the percent completed of each voyage in progress as well as the freight rate agreed for those specific voyages. The Company does not engage in any specific tactics to minimize vessel residual value risk due to the short-term nature of the contracts.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Bareboat Charters
Pursuant to a bareboat charter, the Company charters a vessel to a customer for a fixed period of time, generally one year or more, at rates that are generally fixed. However, the customer is responsible for operation and maintenance of the vessel with its own crew as well as any expenses that are unique to a particular voyage, including any fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. If the vessel goes off-hire due to a mechanical issue or any other reason, the monthly hire received by the vessel owner is normally not impacted by such events. The performance obligations within a bareboat charter, which will include the lease of the vessel to the charterer, are satisfied over the duration of such contract, as measured using the time that has elapsed from commencement of the lease. Hire is typically invoiced monthly in advance for bareboat charters, based on a fixed daily hire amount.
FPSO Contracts
Pursuant to an FPSO contract, the Company charters an FPSO unit to a customer for a period of time, generally more than one year. The performance obligations within an FPSO contract, which include the lease of the FPSO unit to the charterer as well as the operation of the FPSO unit, are satisfied as services are rendered over the duration of such contract, as measured using the time that has elapsed from commencement of performance. Hire is typically invoiced monthly in arrears, based on a fixed daily hire amount. In certain FPSO contracts, the Company is entitled to a lump sum amount due upon commencement of the contract and may also be entitled to termination fees if the contract is canceled early. While the fixed daily hire amount may be the same over the term of the FPSO contract, in some FPSO contracts, the fixed daily hire amount may increase or decrease over the duration of the FPSO contract. As a result of the Company accounting for compensation from such charters on a straight-line basis over the duration of the charter, FPSO contracts where revenue is recognized before the Company is entitled to such amounts under the FPSO contracts will result in the Company recognizing a contract asset and FPSO contracts where revenue is recognized after the Company is entitled to such amounts under the FPSO contracts will result in the Company recognizing deferred revenue.
Certain sources of consideration variability exist within FPSO contracts. Those include penalties, such as those that relate to periods where production on the FPSO unit is interrupted. In addition, certain FPSO contracts may contain provisions that allow the Company to be compensated for increases in the Company’s costs to operate the unit during the term of the contract. Such provisions may be in the form of annual hire rate adjustments for changes in inflation indices or in the form of cost reimbursements for vessel operating expenditures incurred. Finally, the Company may earn additional compensation from monthly production tariffs, which are based on the volume of oil produced, the price of oil, as well as other monthly or annual operational performance measures. Variable consideration of the Company's contracts is typically recognized as incurred as either such revenue is allocated and accounted for under lease accounting requirements or alternatively such consideration is allocated to distinct periods under a contract during which such variable consideration was incurred. Since June 2020, the Company no longer earns variable or tariff revenues from its FPSO contracts.
The Company does not engage in any specific tactics to minimize residual value risk. Given the uncertainty involved in oil field production estimates and the result impact on oil field life, FPSO contracts typically will include extension options or options to terminate early.
Management Fees and Other
The Company also generates revenue from the management and operation of vessels owned by third parties and by equity-accounted investments as well as providing corporate management services to such entities. Such services may include the arrangement of third-party goods and services for the vessel’s owner. The performance obligations within these contracts will typically consist of crewing, technical management, insurance and potentially commercial management. The performance obligations are satisfied concurrently and consecutively rendered over the duration of the management contract, as measured using the time that has elapsed from commencement of performance. Consideration for such contracts will generally consist of a fixed monthly management fee, plus the reimbursement of crewing costs for vessels being managed. Management fees are typically invoiced monthly.
Revenue Table
The following tables contain the Company’s total revenue for the years ended December 31, 2020, 2019 and 2018, by contract type, by segment and by business line within segments.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Teekay LNG Liquefied Gas Carriers | Teekay LNG Conventional Tankers | Teekay Tankers Conventional Tankers | Teekay Parent Offshore Production | Teekay Parent Other | Eliminations and Other | Total |
|
|
| $ | $ | $ | $ | $ | $ | $ |
| Time charters | 543,408 | | 0 | | 127,598 | | 0 | | 17,152 | | 0 | | 688,158 | |
| Voyage charters | 38,687 | | 0 | | 741,804 | | 0 | | 0 | | 0 | | 780,491 | |
| | | | | | | |
| FPSO contracts | 0 | | 0 | | 0 | | 108,952 | | 0 | | 0 | | 108,952 | |
| Management fees and other | 9,008 | | 0 | | 17,032 | | 0 | | 212,031 | | 0 | | 238,071 | |
| 591,103 | | 0 | | 886,434 | | 108,952 | | 229,183 | | 0 | | 1,815,672 | |
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| Teekay LNG Liquefied Gas Carriers | Teekay LNG Conven-tional Tankers | Teekay Tankers Conventional Tankers | Teekay Parent Offshore Production | Teekay Parent Other | Eliminations and Other | Total |
|
|
| $ | $ | $ | $ | $ | $ | $ |
| Time charters | 533,294 | | 6,742 | | 17,495 | | 0 | | 33,961 | | (11,562) | | 579,930 | |
| Voyage charters | 36,351 | | 0 | | 881,603 | | 0 | | 0 | | 0 | | 917,954 | |
| Bareboat charters | 18,387 | | 0 | | 0 | | 0 | | 0 | | 0 | | 18,387 | |
| FPSO contracts | 0 | | 0 | | 0 | | 210,816 | | 0 | | 0 | | 210,816 | |
| Management fees and other | 6,482 | | 0 | | 44,819 | | 0 | | 169,029 | | (2,026) | | 218,304 | |
| 594,514 | | 6,742 | | 943,917 | | 210,816 | | 202,990 | | (13,588) | | 1,945,391 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| Teekay LNG Liquefied Gas Carriers | Teekay LNG Conven-tional Tankers | Teekay Tankers Conventional Tankers | Teekay Parent Offshore Production | Teekay Parent Other | Eliminations and Other | Total |
|
|
| $ | $ | $ | $ | $ | $ | $ |
| Time charters | 420,262 | | 17,405 | | 59,976 | | 0 | | 33,737 | | (9,418) | | 521,962 | |
| Voyage charters | 23,922 | | 14,591 | | 671,928 | | 0 | | 0 | | 0 | | 710,441 | |
| Bareboat charters | 23,820 | | 0 | | 0 | | 0 | | 0 | | 729 | | 24,549 | |
| FPSO contracts | 0 | | 0 | | 0 | | 261,736 | | 0 | | 0 | | 261,736 | |
| Management fees and other | 10,435 | | 327 | | 44,589 | | 0 | | 156,186 | | (1,737) | | 209,800 | |
| 478,439 | | 32,323 | | 776,493 | | 261,736 | | 189,923 | | (10,426) | | 1,728,488 | |
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
The following table contains the Company's total revenue by those contracts or components of contracts accounted for as leases and by those contracts or components not accounted for as leases for the years ended December 31, 2020, 2019 and 2018:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| | $ | | $ | | $ |
| Lease revenue | | | | | | |
| Lease revenue from lease payments of operating leases | | 1,450,742 | | | 1,554,883 | | | 1,322,259 | |
| Interest income on lease receivables | | 51,378 | | | 51,676 | | | 41,963 | |
Variable lease payments – cost reimbursements (1) | | 49,099 | | | 50,024 | | | 39,233 | |
Variable lease payments – other (2) | | 5,218 | | | 48,813 | | | 96,679 | |
| | 1,556,437 | | | 1,705,396 | | | 1,500,134 | |
| Non-lease revenue | | | | | | |
| Non-lease revenue – related to sales-type or direct financing leases | | 21,164 | | | 21,691 | | | 18,554 | |
| Management fees and other income | | 238,071 | | | 218,304 | | | 209,800 | |
| | 259,235 | | | 239,995 | | | 228,354 | |
| Total | | 1,815,672 | | | 1,945,391 | | | 1,728,488 | |
(1)Reimbursement for vessel operating expenditures and dry-docking expenditures received from the Company's customers relating to such costs incurred by the Company to operate the vessel for the customer.
(2)Compensation from time charter contracts based on spot market rates in excess of a base daily hire amount, production tariffs based on the volume of oil produced, the price of oil, and other monthly or annual operational performance measures.
Operating Leases
As at December 31, 2020, the minimum scheduled future rentals to be received by the Company in each of the next five years for the lease and non-lease elements related to time charters, bareboat charters and FPSO contracts that were accounted for as operating leases were approximately $573.8 million (2021), $440.0 million (2022), $333.5 million (2023), $259.3 million (2024) and $196.3 million (2025).
Minimum scheduled future revenues should not be construed to reflect total charter hire revenues for any of the years. Minimum scheduled future revenues do not include revenue generated from new contracts entered into after December 31, 2020, revenue from unexercised option periods of contracts that existed on December 31, 2020, revenue from vessels in the Company’s equity-accounted investments, or variable or contingent revenues. In addition, minimum scheduled future operating lease revenues presented in this paragraph have been reduced by estimated off-hire time for any periodic maintenance and do not reflect the impact of revenue sharing arrangements whereby time-charter revenues are shared with other revenue sharing arrangement participants. The amounts may vary given unscheduled future events such as vessel maintenance.
The net carrying amount of the vessels employed on time charter contracts, bareboat charter contracts and FPSO contracts that have been accounted for as operating leases at December 31, 2020, was $3.2 billion (2019 – $3.1 billion, 2018 – $3.4 billion). At December 31, 2020, the cost and accumulated depreciation of such vessels were $4.2 billion (2019 – $3.9 billion, 2018 – $4.3 billion) and $1.0 billion (2019 – $0.8 billion, 2018 – $0.8 billion), respectively.
Net Investment in Direct Financing Leases and Sales-Type Leases
On March 27, 2020, the Company entered into a bareboat charter with Britoil Limited (or BP), a subsidiary of BP p.l.c., for the PetrojarlFoinaven FPSO for a period up to December 2030. BP may cancel the charter on six-months' notice. Under the terms of this charter, Teekay received a cash payment of approximately $67 million in April 2020 and will receive a nominal per day rate over the life of the contract and a lump sum payment at the end of the contract period, which is expected to cover the costs of recycling the FPSO unit in accordance with EU ship recycling regulations. The charter was classified and accounted for as a sales-type lease. Consequently, the Company recognized a net investment in sales-type lease of $81.9 million and an asset retirement obligation of $6.1 million, derecognized the carrying value of the PetrojarlFoinaven FPSO and related customer contract, and recognized a gain of $44.9 million in the three months ended March 31, 2020, which is reflected in gain on commencement of sales-type leases on the Company's consolidated statements of income for the year ended December 31, 2020. As at December 31, 2020, the net investment in sales-type lease was $14.8 million, with the majority of the reduction relating to the cash payment of $67 million received in April 2020.
Teekay LNG owns a 70% ownership interest in Teekay BLT Corporation (or the Teekay Tangguh Joint Venture), which is a party to operating leases whereby the Teekay Tangguh Joint Venture leases 2 LNG carriers (or the Tangguh LNG Carriers) to a third party, which in turn leases the vessels back to the joint venture. The time charters for the 2 Tangguh LNG carriers are accounted for as direct financing leases. The Tangguh LNG Carriers commenced their time charters with their charterers in 2009.
In addition, the 21-year charter contract for the Bahrain Spirit floating storage unit (or FSU) commenced in September 2018 and is accounted for as a direct finance lease.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
In 2013, Teekay LNG acquired 2 LNG carriers, the WilPride and WilForce, from Norway-based Awilco LNG ASA (or Awilco) and chartered them back to Awilco on five- and four-year fixed-rate bareboat charter contracts, respectively, with Awilco holding fixed-price purchase obligations at the end of the charter contracts. These charter contracts were subsequently extended to February 2020, with the ownership of both vessels transferring to Awilco at the end of this extension. In addition, in October 2019, Awilco obtained credit approval for a financing facility that would provide the funds necessary for Awilco to fulfill its purchase obligation of the 2LNG carriers. As a result, both vessels were derecognized and sales-type lease receivables were recognized based on the remaining amounts owing to Teekay LNG, including the purchase obligations. Teekay LNG recognized a gain of $14.3 million upon derecognition of the vessels for the year ended December 31, 2019, which was included in write-down and loss on sale of vessels in the Company's consolidated statements of loss (see Note 18). In January 2020, Awilco purchased both carriers from Teekay LNG and paid Teekay LNG the associated purchase obligation, deferred hire amounts and interest on deferred hire amounts, totaling $260.4 million relating to these two vessels.
The following table lists the components of the net investments in direct financing leases and sales-type leases:
| | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 |
| $ | | $ |
| Total minimum lease payments to be received | 780,360 | | | 1,115,968 | |
| Estimated unguaranteed residual value of leased properties | 292,277 | | | 284,277 | |
| Initial direct costs and other | 264 | | | 296 | |
| Less unearned revenue | (513,182) | | | (581,732) | |
| Total net investments in direct financing and sales-type leases | 559,719 | | | 818,809 | |
| Less credit loss provision | (31,078) | | | 0 | |
| Total net investments in direct financing and sales-type leases, net | 528,641 | | | 818,809 | |
| Less current portion | (14,826) | | | (273,986) | |
| Net investments in direct financing and sales-type leases, net | 513,815 | | | 544,823 | |
As at December 31, 2020, estimated minimum lease payments to be received by the Company related to its direct financing leases and sales-type leases in each of the next five succeeding fiscal years were approximately $64.6 million (2021), $64.6 million (2022), $64.4 million (2023), $64.7 million (2024), $75.9 million (2025) and an aggregate of $446.3 million thereafter. The leases are scheduled to end between 2028 and 2039.
Contract Liabilities
The Company enters into certain customer contracts that result in situations where the customer will pay consideration upfront for performance to be provided in the following month or months. These receipts are contract liabilities and are presented as deferred revenue until performance is provided. As at December 31, 2020 and December 31, 2019, there were contract liabilities of $30.7 million and $32.4 million, respectively. During the years ended December 31, 2020 and December 31, 2019, the Company recognized $32.4 million and $26.4 million, respectively, of revenue that was included in the contract liability balance at the beginning of the respective periods.
3. Segment Reporting
The Company allocates capital and assesses performance from the separate perspectives of its two2 publicly-traded subsidiaries Teekay LNG and Teekay Tankers (together, the Controlled Daughter Entities), and Teekay and its remaining subsidiaries (or Teekay Parent), and its equity-accounted investee, Teekay Offshore, (collectively with the Controlled Daughter Entities, the Daughter Entities), as well as from the perspective of the Company's lines of business. The primary focus of the Company’s organizational structure, internal reporting and allocation of resources by the chief operating decision maker is on the Controlled Daughter Entities and Teekay Parent and its equity-accounted investee, Teekay Offshore, (the Legal Entity approach), and its segments are presented accordingly on this basis. The Company (excluding Teekay Offshore) has three3 primary lines of business: (1) offshore production (floating production, storage and off-loading (or FPSO)(FPSO units), (2) liquefied gasLNG and LPG carriers, (liquefied natural gas (or LNG) and liquefied petroleum gas (or LPG) carriers), and (3) conventional tankers. The Company manages these businesses for the benefit of all stakeholders. The Company incorporates the primary lines of business within its segments, as in certain cases there is more than one line of business in each Controlled Daughter Entity and the Company believes this information allows a better understanding of the Company’s performance and prospects for future net cash flows.
Prior to the Brookfield Transaction on September 25, 2017, the Company's operating segments reflected further disaggregation within Teekay
Offshore including three individual lines of business: (1) offshore production (FPSO units), (2) offshore logistics (shuttle tankers, the HiLoad
DP unit, floating storage and offtake (or FSO) units, units for maintenance and safety (or UMS) and long-distance towing and offshore installation vessels), and (3) conventional tankers. Subsequent to September 25, 2017 and prior to May 8, 2019, Teekay owned a 13.8% interest in the common units of Altera and a 49% interest in the general partner of Altera, and accounted for its interest in Altera using the equity method and presented such interest as a separate segment. On May 8, 2019, Teekay sold to Brookfield Business Partners L.P. (or Brookfield) all of the Company's remaining interests in Altera, which included the Company’s 49% general partner interest, common units, warrants, and an outstanding $25 million loan from the Company has determined that its investment in Teekay Offshore represents a single operating segment.to Altera (or the 2019 Brookfield Transaction).
The following table includes results for the Company’s revenue and income from vessel operations by segment for the periods presented in these financial statements.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
The following table includes the Company’s revenues and income (loss) from vessel operations by segment for the periods presented in these financial statements:
|
| | | | | | | | | | | | | | | | | |
| | Revenues (1) | | Income from Vessel Operations (2) |
| | Year Ended
December 31, | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
Teekay Offshore (3) | 796,711 |
| | 1,152,390 |
| | 1,229,413 |
| | 147,060 |
| | 230,853 |
| | 283,399 |
|
| | | | | | | | | | | | |
| Teekay LNG | | | | | | | | | | | |
| Liquefied Gas Carriers | 385,683 |
| | 336,530 |
| | 305,056 |
| | 188,676 |
| | 174,600 |
| | 151,200 |
|
| Conventional Tankers | 46,993 |
| | 59,914 |
| | 92,935 |
| | (40,027 | ) | | (21,419 | ) | | 30,172 |
|
| | 432,676 |
| | 396,444 |
| | 397,991 |
| | 148,649 |
| | 153,181 |
| | 181,372 |
|
Teekay Tankers (4) | | | | | | | | | | | |
| Conventional Tankers | 431,178 |
| | 550,543 |
| | 524,834 |
| | 1,416 |
| | 96,752 |
| | 190,589 |
|
| Teekay Parent | | | | | | | | | | | |
| Offshore Production | 209,394 |
| | 231,435 |
| | 277,842 |
| | (256,758 | ) | | (48,310 | ) | | (40,227 | ) |
| Conventional Tankers | 5,065 |
| | 32,967 |
| | 65,777 |
| | (13,390 | ) | | (15,967 | ) | | 4,984 |
|
| Other | 89,107 |
| | 76,111 |
| | 75,547 |
| | (20,277 | ) | | (32,219 | ) | | 5,015 |
|
| | 303,566 |
| | 340,513 |
| | 419,166 |
| | (290,425 | ) | | (96,496 | ) | | (30,228 | ) |
| Eliminations and other | (83,799 | ) | | (111,321 | ) | | (121,022 | ) | | — |
| | — |
| | — |
|
| | 1,880,332 |
| | 2,328,569 |
| | 2,450,382 |
| | 6,700 |
| | 384,290 |
| | 625,132 |
|
| |
(1) | Certain vessels are chartered between the Daughter Entities and Teekay Parent. The amounts in the table below represent revenue earned by each segment from other segments within the group. Such intersegment revenue for the year ended 2017, 2016 and 2015 is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues (1) | | Income (loss) from Vessel Operations (2) |
| Year Ended December 31, | | Year Ended December 31, |
| 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| $ | | $ | | $ | | $ | | $ | | $ |
| Teekay LNG | | | | | | | | | | | |
| Liquefied Gas Carriers | 591,103 | | | 594,514 | | | 478,439 | | | 226,093 | | | 300,520 | | | 169,918 | |
| Conventional Tankers | 0 | | | 6,742 | | | 32,323 | | | 0 | | | (1,267) | | | (21,319) | |
| 591,103 | | | 601,256 | | | 510,762 | | | 226,093 | | | 299,253 | | | 148,599 | |
| | | | | | | | | | | |
| Teekay Tankers | | | | | | | | | | | |
| Conventional Tankers | 886,434 | | | 943,917 | | | 776,493 | | | 141,572 | | | 123,883 | | | 7,204 | |
| | | | | | | | | | | |
| Teekay Parent | | | | | | | | | | | |
| Offshore Production | 108,952 | | | 210,816 | | | 261,736 | | | (38,054) | | | (208,167) | | | 22,958 | |
| Other | 229,183 | | | 202,990 | | | 189,923 | | | (15,032) | | | (10,927) | | | (14,442) | |
| 338,135 | | | 413,806 | | | 451,659 | | | (53,086) | | | (219,094) | | | 8,516 | |
| | | | | | | | | | | |
| Eliminations and other | 0 | | | (13,588) | | | (10,426) | | | 0 | | | 0 | | | 0 | |
| 1,815,672 | | | 1,945,391 | | | 1,728,488 | | | 314,579 | | | 204,042 | | | 164,319 | |
|
| | | | | | | | |
| | Year Ended
December 31, |
| | 2017 | | 2016 | | 2015 |
| Teekay Offshore | 34,232 |
| | 49,514 |
| | 67,993 |
|
| Teekay LNG - Liquefied Gas Carriers | 36,358 |
| | 37,336 |
| | 35,887 |
|
| Teekay Tankers - Conventional Tankers | — |
| | 5,404 |
| | 1,380 |
|
| Teekay Parent - Conventional Tankers | — |
| | — |
| | 3,080 |
|
| | 70,590 |
| | 92,254 |
| | 108,340 |
|
| |
(2) | Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources). |
| |
(3) | On September 25, 2017, the Company deconsolidated Teekay Offshore (see Note 3). The figures above include those of Teekay Offshore until the date of deconsolidation.
|
| |
(4) | Financial information for Teekay Tankers includes operations of the Explorer Spirit, formerly known as the SPT Explorer, and Navigator Spirit from December 18, 2015, the date Teekay Tankers acquired the vessels from Teekay Offshore.
|
(1)The amounts in the table below represent revenue earned by each segment from other segments within the group. Such intersegment revenue for the years ended 2020, 2019 and 2018 are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| $ | | $ | | $ |
| Teekay LNG – Liquefied Gas Carriers | 0 | | | 11,562 | | | 9,418 | |
| Teekay Tankers – Conventional Tankers | 0 | | | 1,979 | | | 1,689 | |
| 0 | | | 13,541 | | | 11,107 | |
(2)Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).
The following table presents revenues and percentage of consolidated revenues for customers that accounted for more than 10% of the Company’s consolidated revenues during the periods presented. All of these customers are international oil companies.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| (U.S. dollars in millions) | 2020 | | 2019 | | 2018 |
BP Plc (1) | (2) | | $227.6 or 12% | | $195.0 or 11% |
|
| | | | | |
| | Year Ended
December 31, | | Year Ended
December 31, | | Year Ended
December 31, |
| (U.S. dollars in millions) | 2017 | | 2016 | | 2015 |
Royal Dutch Shell Plc (1) (2) (3) | $259.4 or 14% | | $429.9 or 19% | | (7) |
BG Group (1) (2) (3) | (2) | | (2) | | $263.4 or 11% |
Petroleo Brasileiro SA (1) (4) | (7) | | $223.7 or 10% | | $231.8 or 10% |
Statoil ASA (1) (5) | (7) | | (7) | | (7) |
BP Exploration Operating Co. Ltd. (1) (6)
| $183.0 or 10% | | (7) | | (7) |
(2)Less than 10%.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
| |
(1) | On September 25, 2017, the Company deconsolidated Teekay Offshore (see Note 3). The figures above include those of Teekay Offshore until the date of deconsolidation.
|
| |
(2) | In February 2016, Royal Dutch Shell Plc acquired BG Group Plc and therefore includes revenues from both Royal Dutch Shell Plc and BG Group Plc for 2016. |
| |
(3) | Teekay Offshore Segment, Teekay LNG Segment — Liquefied Gas Carriers, Teekay Tankers Segment — Conventional Tankers, and Teekay Parent Segment — Conventional Tankers |
| |
(4) | Teekay Offshore Segment, and Teekay Tankers Segment — Conventional Tankers |
| |
(5) | Teekay Offshore Segment, Teekay Tankers Segment — Conventional Tankers, and Teekay Parent Segment — Conventional Tankers |
| |
(6) | Teekay Offshore Segment, Teekay LNG Segment — Liquefied Gas Carriers, Teekay Tankers Segment — Conventional Tankers, Teekay Parent Segment — Offshore Production, and Teekay Parent Segment — Conventional Tankers |
The following table includes other income statement items by segment for the periods presented in these financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Depreciation and Amortization | | Write-down and loss on sale | | Equity Income (Loss) |
| Year Ended
December 31, | | Year Ended
December 31, | | Year Ended
December 31, |
| 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 | | 2020 | | 2019 | | 2018 |
| $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ |
| Teekay LNG | | | | | | | | | | | | | | | | | |
| Liquefied Gas Carriers | (129,752) | | | (136,069) | | | (119,108) | | | (51,000) | | | 14,349 | | | (33,000) | | | 72,233 | | | 58,819 | | | 53,546 | |
| Conventional Tankers | 0 | | | (696) | | | (5,270) | | | 0 | | | (785) | | | (20,863) | | | 0 | | | 0 | | | 0 | |
| (129,752) | | | (136,765) | | | (124,378) | | | (51,000) | | | 13,564 | | | (53,863) | | | 72,233 | | | 58,819 | | | 53,546 | |
| Teekay Tankers | | | | | | | | | | | | | | | | | |
| Conventional Tankers | (117,213) | | | (124,002) | | | (118,514) | | | (69,446) | | | (5,544) | | | 170 | | | 5,100 | | | 2,345 | | | 1,220 | |
| Teekay Parent | | | | | | | | | | | | | | | | | |
| Offshore Production | (14,166) | | | (29,710) | | | (33,271) | | | (70,692) | | | (178,330) | | | 0 | | | 0 | | | 0 | | | 15,089 | |
| Conventional Tankers | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (510) | |
| Other | 0 | | | (195) | | | (144) | | | (9,100) | | | 0 | | | 0 | | | 0 | | | 127 | | | (1,384) | |
| (14,166) | | | (29,905) | | | (33,415) | | | (79,792) | | | (178,330) | | | 0 | | | 0 | | | 127 | | | 13,195 | |
| | | | | | | | | | | | | | | | | |
Altera (1) | — | | | — | | | — | | | — | | | — | | | — | | | 0 | | | (75,814) | | | (6,907) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| (261,131) | | | (290,672) | | | (276,307) | | | (200,238) | | | (170,310) | | | (53,693) | | | 77,333 | | | (14,523) | | | 61,054 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Depreciation and Amortization | | Asset Impairments and Net Loss on Sale of Vessels, Equipment and Other Operating Assets | | Equity (Loss) Income |
| | Year Ended
December 31, | | Year Ended
December 31, | | Year Ended
December 31, |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
Teekay Offshore (1) | (219,406 | ) | | (300,011 | ) | | (274,599 | ) | | (1,500 | ) | | (40,079 | ) | | (69,998 | ) | | 12,028 |
| | 17,933 |
| | 7,672 |
|
| | | | | | | | | | | | | | | | | | |
Teekay Offshore (2) |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| | (2,461 | ) | | — |
| | — |
|
| | | | | | | | | | | | | | | | | | |
| Teekay LNG | | | | | | | | | | | | | | | | | |
| Liquefied Gas Carriers | (95,025 | ) | | (80,084 | ) | | (71,323 | ) | | — |
| | — |
| | — |
| | 9,789 |
| | 62,307 |
| | 84,171 |
|
| Conventional Tankers | (10,520 | ) | | (15,458 | ) | | (20,930 | ) | | (50,600 | ) | | (38,976 | ) | | — |
| | — |
| | — |
| | — |
|
| | (105,545 | ) | | (95,542 | ) | | (92,253 | ) | | (50,600 | ) | | (38,976 | ) | | — |
| | 9,789 |
| | 62,307 |
| | 84,171 |
|
Teekay Tankers (3) | | | | | | | | | | | | | | | | | |
| Conventional Tankers | (100,481 | ) | | (104,149 | ) | | (71,429 | ) | | (12,984 | ) | | (20,594 | ) | | 771 |
| | (25,370 | ) | | 7,680 |
| | 11,528 |
|
| Teekay Parent | | | | | | | | | | | | | | | | | |
| Offshore Production | (60,560 | ) | | (70,855 | ) | | (69,508 | ) | | (205,659 | ) | | (110 | ) | | (948 | ) | | (7,861 | ) | | (575 | ) | | (12,196 | ) |
| Conventional Tankers | — |
| | (1,717 | ) | | (2,852 | ) | | — |
| | (12,487 | ) | | — |
| | (20,677 | ) | | 132 |
| | 12,797 |
|
| Other | 163 |
| | 449 |
| | 451 |
| | — |
| | — |
| | — |
| | (2,792 | ) | | (1,838 | ) | | (1,101 | ) |
| | (60,397 | ) | | (72,123 | ) | | (71,909 | ) | | (205,659 | ) | | (12,597 | ) | | (948 | ) | | (31,330 | ) | | (2,281 | ) | | (500 | ) |
| Eliminations and other | — |
| | — |
| | 690 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| | (485,829 | ) | | (571,825 | ) | | (509,500 | ) | | (270,743 | ) | | (112,246 | ) | | (70,175 | ) | | (37,344 | ) | | 85,639 |
| | 102,871 |
|
| |
(1) | On September 25, 2017, the Company deconsolidated Teekay Offshore (see Note 3). The figures above include those of Teekay Offshore until the date of deconsolidation.
|
| |
(2) | Commencing on September 25, 2017, the Company accounts for its investment in Teekay Offshore using the equity method, and recognized an equity loss of $2.5 million for the post-deconsolidation period ended December 31, 2017. |
| |
(3) | Financial information for Teekay Tankers includes operations of the Explorer Spirit, formerly known as the SPT Explorer and Navigator Spirit from December 18, 2015, the date Teekay Tankers acquired the vessels from Teekay Offshore.
|
A reconciliation of total segment assets to total assets presented in the accompanying consolidated balance sheets is as follows:
| | | | | | | | | | | |
| December 31, 2020
$ | | December 31, 2019
$ |
| Teekay LNG – Liquefied Gas Carriers | 4,647,242 | | | 5,249,465 | |
| | | |
| Teekay Tankers – Conventional Tankers | 1,743,013 | | | 2,140,652 | |
| Teekay Parent – Offshore Production | 30,845 | | | 161,096 | |
| Teekay Parent – Other | 60,002 | | | 80,455 | |
| Cash and cash equivalents | 348,785 | | | 353,241 | |
| Other assets not allocated | 132,425 | | | 102,701 | |
| Eliminations | (16,400) | | | (14,746) | |
| Consolidated total assets | 6,945,912 | | | 8,072,864 | |
The following table includes capital expenditures by segment for the periods presented in these financial statements.
| | | | | | | | | | | |
| December 31, 2020
$ | | December 31, 2019
$ |
| Teekay LNG – Liquefied Gas Carriers | 10,482 | | | 96,357 | |
| Teekay LNG – Conventional Tankers | 0 | | | 1,538 | |
| Teekay Tankers – Conventional Tankers | 16,025 | | | 11,628 | |
| | | |
| 26,507 | | | 109,523 | |
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
4. Equity Financing Transactions of the Daughter Entities
|
| | | | | |
| | December 31, 2017
$ | | December 31, 2016
$ |
| Teekay Offshore | 280,774 |
| | 5,354,702 |
|
| Teekay LNG - Liquefied Gas Carriers | 4,624,321 |
| | 3,957,088 |
|
| Teekay LNG - Conventional Tankers | 112,844 |
| | 193,553 |
|
| Teekay Tankers - Conventional Tankers | 2,125,909 |
| | 1,870,211 |
|
| Teekay Parent - Offshore Production | 366,229 |
| | 635,364 |
|
| Teekay Parent - Conventional Tankers | 13,620 |
| | 55,937 |
|
| Teekay Parent - Other | 26,527 |
| | 13,208 |
|
| Cash and cash equivalents | 445,452 |
| | 567,994 |
|
| Other assets not allocated | 118,493 |
| | 281,244 |
|
| Eliminations | (21,732 | ) | | (114,549 | ) |
| Consolidated total assets | 8,092,437 |
| | 12,814,752 |
|
The following table includes capital expenditures by segment for the periods presented in these financial statements.
|
| | | | | |
| | December 31, 2017
$ | | December 31, 2016
$ |
| Teekay Offshore | 340,705 |
| | 294,581 |
|
| Teekay LNG - Liquefied Gas Carriers | 708,608 |
| | 344,924 |
|
| Teekay LNG - Conventional Tankers | — |
| | 63 |
|
| Teekay Tankers - Conventional Tankers | 4,732 |
| | 9,226 |
|
| Teekay Parent - Other | 7 |
| | 88 |
|
| | 1,054,052 |
| | 648,882 |
|
3. DeconsolidationOn May 11, 2020, Teekay Parent and Teekay LNG agreed to eliminate all of Teekay Offshore
On September 25, 2017, Teekay, Teekay Offshore and Brookfield finalized the Brookfield Transaction, which included, among other things, the following:
Brookfield and Teekay invested $610.0 million and $30.0 million, respectively,LNG’s incentive distribution rights in exchange for 244.0the issuance to a subsidiary of Teekay Corporation of 10.75 million and 12.0newly-issued Teekay LNG common units. Following the completion of this transaction on May 11, 2020, Teekay Parent owns approximately 36 million common units of Teekay Offshore, respectively,LNG and 62.4remains the sole owner of its general partner, which together represents an economic interest of approximately 42% in Teekay LNG.
On November 25, 2019, Teekay Tankers effected a one-for-eight reverse stock split of Teekay Tankers' Class A and Class B common shares, which reduced the number of issued and outstanding Class A and B common shares of Teekay Tankers as at December 31, 2019 from approximately 232.0 million and 3.137.0 million to approximately 29.0 million and 4.6 million, respectively.
In December 2018, Teekay LNG announced that its Board of Directors had authorized a common unit warrants (orrepurchase program for the Brookfield Transaction Warrants), with an exercise pricerepurchase of $0.01 per unit,up to $100 million of Teekay LNG's common units. During the years ended December 31, 2020, December 31, 2019 and December 31, 2018, Teekay LNG repurchased 1.4 million, 1.9 million and 0.3 million of its common units for a termtotal cost of seven years,$15.3 million, $25.2 million and which are exercisable when Teekay Offshore's$3.7 million, respectively, under its common unit volume-weighted average price is equalrepurchase program.
5. Goodwill and Intangible Assets
In 2015, Teekay Tankers acquired a ship-to-ship transfer business (previously referred to as SPT and now known as Teekay Marine Solutions or greater than $4.00 per common unitTMS) from a company jointly owned by Teekay Corporation and a Norway-based marine transportation company, I.M. Skaugen SE and recognized goodwill and intangible assets relating to customer relationships at the time of acquisition.
On April 30, 2020, Teekay Tankers completed the sale of the non-US portion of its ship-to-ship support services business, as well as its LNG terminal management business. Following the sale, Teekay Tankers' remaining ship-to-ship support operations were integrated into Teekay Tankers' tanker business. As a result, effective April 30, 2020, Teekay Tankers has one reportable segment. Teekay Tankers’ goodwill and intangible assets for 10 consecutive trading days until September 25, 2024;
Brookfield acquiredDecember 31, 2019 have been retroactively adjusted whereby the remaining ship-to-ship support operations amounts have been reallocated from Teekay a 49% interest in Teekay Offshore's general partner in exchange for $4.0the ship-to-ship transfer segment to the tanker segment. The proportionate share of goodwill of $5.6 million and an optionintangible assets of $6.9 million attributable to purchase an additional 2.0% interestthe business which was sold was reclassified to assets held for sale as at December 31, 2019.
Goodwill
The carrying amount of goodwill for the years ended December 31, 2020 and 2019, for the Company’s reportable segments are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Teekay LNG – Liquefied Gas Segment
$ | | Conventional Tanker Segment
$ | | Total
$ |
| Balance as of December 31, 2020 | | 35,631 | | | 2,426 | | | 38,057 | |
| Balance as of December 31, 2019 | | 35,631 | | | 2,426 | | | 38,057 | |
Intangible Assets
As at December 31, 2020, the Company’s intangible assets consisted of:
| | | | | | | | | | | | | | | | | |
| Gross Carrying Amount
$ | | Accumulated Amortization
$ | | Net Carrying Amount
$ |
| Customer contracts | 179,813 | | | (145,303) | | | 34,510 | |
| Customer relationships | 5,706 | | | (3,717) | | | 1,989 | |
| 185,519 | | | (149,020) | | | 36,499 | |
As at December 31, 2019, the Company’s intangible assets consisted of:
| | | | | | | | | | | | | | | | | |
| Gross Carrying Amount
$ | | Accumulated Amortization
$ | | Net Carrying Amount
$ |
| Customer contracts | 192,938 | | | (149,558) | | | 43,380 | |
| Customer relationships | 5,706 | | | (3,162) | | | 2,544 | |
| 198,644 | | | (152,720) | | | 45,924 | |
Aggregate amortization expense of intangible assets for the year ended December 31, 2020, was $9.4 million (2019 – $11.3 million, 2018 – $15.2 million), including $9.4 million presented in Teekay Offshore's general partner from Teekaydepreciation and amortization (2019 – $11.3 million, 2018 – $12.0 million), and $NaN presented in exchange for 1.0 milliontime-charter hire expenses (2019 – $NaN, 2018 – $3.2 million) as a result of the Brookfield Transaction Warrants initially issued to Brookfield;
Teekay Offshore repurchased and cancelled alladoption of its outstanding Series C-1 and Series D Preferred Units at a per unit redemption value of $18.20 and $23.75 per unit, plus accrued and unpaid distributions, respectively, which included Teekay's investment in 1,040,000 Series D Preferred Units. The Series D tranche B Warrants to purchase Teekay Offshore common units, which were issued as part of the Series D Preferred UnitsASU 2016-02 on June 29, 2016, were amended to reduce the exercise price from $6.05 to $4.55 per unit; and
Brookfield acquired from a subsidiary of Teekay the $200 million subordinated promissory note issued by Teekay Offshore on JulyJanuary 1, 2016, the maturity of which Brookfield extended from 2019 to 2022, in consideration for $140.0 million in cash on a net basis and 11.4 million of the Brookfield Transaction Warrants initially issued to Brookfield.
In connection with the acquisition of the 49% interest in Teekay Offshore's general partner, TOO GP, Teekay and Brookfield entered into an amended limited liability company agreement whereby Brookfield obtained certain participatory rights in the management of TOO GP, which resulted in Teekay deconsolidating Teekay Offshore for accounting purposes on September 25, 2017. Subsequent to the closing of the Brookfield Transaction, Teekay has significant influence over Teekay Offshore and accounts for its investment in Teekay Offshore using the equity method. Teekay Offshore is a related party of Teekay, and Brookfield is not a related party of Teekay (see Note 13)1). Amortization of intangible assets following 2020 is expected to be $9.4 million (2021), $8.8 million (2022), $6.6 million (2023), $4.9 million (2024), $1.8 million (2025) and $5.1 million (thereafter).
The following table shows the accounting impact from the deconsolidation of Teekay Offshore on September 25, 2017. On such date, the Company recognized both the net cash proceeds it received from Brookfield and the fair value of its retained interests in Teekay Offshore, including common units, warrants, and vessel charters with Teekay Offshore, and derecognized the carrying value of both Teekay Offshore’s net assets and the non-controlling interest in Teekay Offshore, with the difference between the amounts recognized and derecognized being the loss on deconsolidation.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
|
| | |
| As of September 25, 2017 |
Net cash proceeds received by Teekay | 139,693 |
|
Fair value of common units and general partner interest of Teekay Offshore (note 22)
| 150,132 |
|
Fair value of warrants (note 15)
| 36,596 |
|
Fair value of vessel charters with Teekay Offshore (notes 6 and 7)
| 14,812 |
|
Carrying value of the non-controlling interest in Teekay Offshore | 1,138,275 |
|
Subtotal | 1,479,508 |
|
Less: | |
Carrying value of Teekay Offshore's net assets on deconsolidation | (1,584,296 | ) |
Loss on deconsolidation of Teekay Offshore | (104,788 | ) |
The $150.1 million fair value of Teekay's retained investment in Teekay Offshore, consisting of approximately 14% in its outstanding common units and a 51% interest in TOO GP, was determined with reference to the market price of Teekay Offshore's common units on September 25, 2017. The $14.8 million fair value of vessel charters was determined using an income approach and with reference to market rates, contract term, and a discount rate of 10%.
Subsequent to the formation of Teekay Offshore, Teekay sold certain vessels to Teekay Offshore. As Teekay Offshore was a non-wholly owned consolidated subsidiary of Teekay at the date of the sales, all of the gain or loss on sales of these vessels was fully eliminated upon consolidation. Consequently, the portion of the gain or loss attributable to Teekay’s reduced interest in the vessels was deferred. The total unrecognized net deferred gain relating to the vessels previously sold from Teekay to Teekay Offshore was $349.6 million. Upon deconsolidation of Teekay Offshore, such amount was recognized as an increase to net loss attributable to non-controlling interests for the year ended December 31, 2017.
4. Investments
a)Tanker Investments Ltd.
In January 2014, Teekay and Teekay Tankers formed Tanker Investments Ltd. (or TIL), which sought to own and operate modern second-hand tankers. Teekay and Teekay Tankers in the aggregate purchased 5.0 million shares of common stock, representing an initial 20% interest in TIL, as part of a $250 million private placement by TIL, which represented a total investment by Teekay and Teekay Tankers of $50.0 million. In October 2014, Teekay Tankers acquired an additional 0.9 million common shares in TIL, representing 2.43% of the then outstanding share capital of TIL.
On May 31, 2017, Teekay Tankers entered into a merger agreement (or the Merger Agreement) to acquire the remaining 27.0 million issued and outstanding common shares of TIL, by way of a share-for-share exchange of 3.3 shares of Teekay Tankers Class A common stock for each outstanding share of TIL common stock (or the TIL merger). Teekay Tankers and Teekay then owned approximately 3.4 million and 2.5 million common shares, or 11.3% and 8.2% of TIL, respectively. As the Company then accounted for its investment in TIL under the equity method, the Company was required to remeasure its previously held equity investment to fair value at the acquisition date. Based on the then pending transaction, the Company recognized an other than temporary impairment and remeasured its investment in TIL to fair value during the second quarter of 2017 based on the TIL share price at June 30, 2017, resulting in a write-down of $48.6 million presented in equity (loss) income on the consolidated statements of (loss) income. On November 27, 2017, Teekay Tankers completed the merger with TIL and the Company remeasured its equity investment in TIL to fair value based on the relative share exchange value at the date of the acquisition, which resulted in the recognition of a gain of $2.4 million presented in equity (loss) income on the consolidated statements of (loss) income.
On completion of the TIL merger, TIL became a wholly-owned subsidiary of Teekay Tankers. As consideration for the merger, Teekay Tankers issued 88,977,544 Class A common shares (including 8,250,000 Class A common shares to Teekay) to the TIL shareholders (other than Teekay Tankers) for $151.3 million, or $1.70 per share. The merger with TIL was accounted for as an acquisition of assets. The purchase price was determined based on the value of Teekay Tankers shares issued on the merger date and transaction costs associated with the merger, which amounted to $6.8 million. Together with the fair value of the Company's 8.2% and Teekay Tankers' 11.3% ownership in TIL and the total number of Class A common shares issued at the close of the merger, the total acquisition cost was $177.3 million. The assets acquired and liabilities assumed were recognized at their fair values on November 27, 2017, with the difference between the purchase price and the net fair value of the net assets acquired allocated on a relative fair value basis to the vessels acquired. Net working capital and long-term debt assumed were recognized at their fair values on November 27, 2017, of $47.1 million and $337.1 million, respectively. The remaining amount of the purchase price was allocated to vessels ($467.1 million) and existing time-charter contracts ($0.2 million), on a relative fair value basis.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
b)Teekay LNG – Bahrain LNG Joint Venture
In December 2015, Teekay LNG entered into an agreement with National Oil & Gas Authority (or Nogaholding), Samsung C&T (or Samsung) and Gulf Investment Corporation (or GIC) to form a joint venture, Bahrain LNG W.L.L. (or the Bahrain LNG Joint Venture), for the development of an LNG receiving and regasification terminal in Bahrain. The Bahrain LNG Joint Venture is a joint venture between Nogaholding (30%), Teekay LNG (30%), Samsung (16%) and GIC (24%). The project will include an offshore LNG receiving jetty and breakwater, an adjacent regasification platform, subsea gas pipelines from the platform to shore, an onshore gas receiving facility, and an onshore nitrogen production facility with a total LNG terminal capacity of 800 million standard cubic feet per day and will be owned and operated under a 20-year agreement commencing in early-2019. In addition, Teekay LNG will supply a FSU in connection with this project, which will be modified specifically from one of the Teekay LNG’s four M-type, Electronically Controlled, Gas Injection (or MEGI) LNG carrier newbuildings ordered from Daewoo Shipbuilding & Marine Engineering Co. (or DSME), through a 20-year time-charter contract with the Bahrain LNG Joint Venture.
As at December 31, 2017, Teekay LNG had advanced $79.1 million (December 31, 2016 – 62.9 million) to the Bahrain LNG Joint Venture. These advances bear interest at LIBOR plus 1.25% and as at December 31, 2017, the interest accrued on these advances was $0.1 million (December 31, 2016 – $0.1 million).
c)Teekay Tankers – Principal Maritime
In August 2015, Teekay Tankers agreed to acquire 12 modern Suezmax tankers from Principal Maritime Tankers Corporation (or Principal Maritime). All 12 of the vessels were delivered in 2015 for a total purchase price of $661.3 million, consisting of $612.0 million in cash and approximately 7.2 million shares of Teekay Tankers’ Class A common stock with a value of $49.3 million. To finance the cash portion of the acquisition price, Teekay Tankers secured a $397.2 million loan facility which matured in January 2016, and which was refinanced as part of a comprehensive Teekay Tankers refinancing in January 2016 (see Note 8). In addition, in August 2015 Teekay Tankers issued in a public offering and concurrent private placement approximately 13.6 million shares of its Class A common stock for net proceeds of $90.6 million, including approximately 4.5 million shares which were issued to Teekay Parent. Teekay Tankers financed the remainder of the cash purchase price with existing liquidity.
d)Teekay Tankers – Ship-to-Ship Transfer Business
In July 2015, Teekay Tankers acquired a ship-to-ship transfer business (or SPT) from a company jointly-owned by Teekay and a Norway-based marine transportation company, I.M. Skaugen SE (or Skaugen), for a cash purchase price of $47.3 million (including $1.8 million for working capital). To finance this acquisition, Teekay subscribed for approximately 6.5 million shares of Teekay Tankers’ Class B common stock at a subscription price of approximately $6.99 per share. SPT provides a full suite of ship-to-ship (or STS) transfer services in the oil, gas and dry bulk industries. In addition to full service lightering and lightering support, it also provides consultancy and terminal management services. This acquisition established Teekay Tankers as a global company in the STS transfer business, which is expected to increase Teekay Tankers’ fee-based revenue and its overall fleet utilization. On the transaction closing date of July 31, 2015, SPT owned and operated a fleet of six STS support vessels and one chartered-in Aframax Tanker.
The acquisition of SPT was accounted for as a business acquisition using the acquisition method of accounting.
Operating results of SPT are reflected in the Company’s consolidated financial statements commencing July 31, 2015, the effective date of acquisition. Pro forma revenues and net income as if the acquisition of SPT had occurred at the beginning of 2015 would not be materially different than actual operating results reported. The Company’s prior 50% interest in SPT was remeasured to its estimated fair value on the acquisition date and the resulting gain of $8.7 million was recognized in equity income in 2015.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
5. Equity Financing Transactions of the Daughter Entities
During the years ended December 31, 2017, 2016, and 2015, the Company’s publicly-traded subsidiaries, Teekay Tankers and Teekay LNG, and Teekay Offshore, prior to the Brookfield Transaction on September 25, 2017, completed the following public offerings and private placements of equity securities:
|
| | | | | | | | | | | | | | |
| | Number of shares / units # | | Total Proceeds Received
$ | | Less:
Teekay Corporation Portion
$ | | Offering Expenses
$ | | Net Proceeds Received
$ |
| 2017 | | | | | | | | | |
| Teekay Tankers Continuous Offering Program | 3,800,000 |
| | 8,826 |
| | — |
| | (305 | ) | | 8,521 |
|
| Teekay Tankers Private Placement | 2,155,172 |
| | 5,000 |
| | (5,000 | ) | | — |
| | — |
|
Teekay Tankers Direct Equity Placement (1) | 13,775,224 |
| | 25,897 |
| | (25,897 | ) | | — |
| | — |
|
Teekay Offshore Private Placements (2) | 6,521,518 |
| | 29,817 |
| | (17,160 | ) | | (212 | ) | | 12,445 |
|
Teekay Tankers Direct Equity Placement (3) | 88,977,544 |
| | 151,262 |
| | (14,025 | ) | | — |
| | 137,237 |
|
| Teekay LNG Preferred B Units Offering | 6,800,000 |
| | 170,000 |
| | — |
| | (5,589 | ) | | 164,411 |
|
| 2016 | | | | | | | | | |
| Teekay Offshore Preferred D Units Offering | (4) | | 100,000 |
| | (26,000 | ) | | (2,750 | ) | | 71,250 |
|
| Teekay Offshore Common Units Offering | 21,978,022 |
| | 102,041 |
| | (2,041 | ) | | (2,550 | ) | | 97,450 |
|
| Teekay Offshore Continuous Offering Program | 5,525,310 |
| | 31,819 |
| | (636 | ) | | (792 | ) | | 30,391 |
|
| Teekay Offshore Private Placement | (5) | | 24,874 |
| | (13,167 | ) | | — |
| | 11,707 |
|
| Teekay LNG Preferred A Units Offering | 5,000,000 |
| | 125,000 |
| | — |
| | (4,293 | ) | | 120,707 |
|
| Teekay Tankers Continuous Offering Program | 3,020,000 |
| | 7,747 |
| | — |
| | (189 | ) | | 7,558 |
|
2015 (6) | | | | | | | | | |
| Teekay Offshore Preferred B Units Offering | 5,000,000 |
| | 125,000 |
| | — |
| | (4,210 | ) | | 120,790 |
|
| Teekay Offshore Preferred C Units Offering | 10,400,000 |
| | 250,000 |
| | — |
| | (250 | ) | | 249,750 |
|
| Teekay Offshore Continuous Offering Program | 211,077 |
| | 3,551 |
| | (71 | ) | | (66 | ) | | 3,414 |
|
| Teekay LNG Continuous Offering Program | 1,173,428 |
| | 36,274 |
| | (725 | ) | | (900 | ) | | 34,649 |
|
| Teekay Tankers Public Offering | 3,000,000 |
| | 13,716 |
| | — |
| | (31 | ) | | 13,685 |
|
| Teekay Tankers Continuous Offering Program | 13,391,100 |
| | 94,595 |
| | — |
| | (2,155 | ) | | 92,440 |
|
| Teekay Tankers Private Placement | 13,310,158 |
| | 109,907 |
| | — |
| | — |
| | 109,907 |
|
| |
(1) | In May 2017, Teekay Tankers issued Class B common stock to the Company as consideration for its acquisition of the remaining 50% interest in TTOL. |
| |
(2) | During 2017, Teekay Offshore issued common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the distributions on Teekay Offshore's 8.60% Series C-1 Cumulative Convertible Perpetual Preferred Units (or the Series C-1 Preferred Units) and 10.50% Series D Cumulative Convertible Perpetual Preferred Units (or the Series D Preferred Units) and on Teekay Offshore's common units and general partner interest held by subsidiaries of Teekay.
|
In June 2016, Teekay Offshore agreed with Teekay that, until the Teekay Offshore's Norwegian Kroner (or NOK) bonds maturing in 2018 had been repaid, all cash distributions (other than with respect to distributions, if any, on incentive distribution rights) to be paid by Teekay Offshore to Teekay or its affiliates, including Teekay Offshore's general partner, would instead be paid in common units or from the proceeds of the sale of common units. During 2017, Teekay Offshore issued Teekay 2.4 million common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the distributions on Teekay Offshore's Series D Preferred Units, common units and general partner interest held by subsidiaries of Teekay. During 2017, Teekay Offshore issued common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the interest due on Teekay Offshore's $200 million loan due to Teekay. Teekay Offshore issued Teekay 1.7 million common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the loan interest.
| |
(3) | In November 2017, Teekay Tankers issued Class A common shares to the shareholders of TIL as consideration for the Teekay Tankers' acquisition of the remaining 88.7% interest (including Teekay Parent's 8.2% interest) in TIL. The shares had an approximate value of $151.3 million, or $1.70 per share, when the purchase price was agreed between the parties. |
| |
(4) | In June 2016, Teekay Offshore issued 4,000,000 of its Series D Preferred Units and 4,500,000 warrants exercisable to acquire up to 4,500,000 common units at an exercise price equal to the closing price of Teekay Offshore's common units on June 16, 2016, or $4.55 per unit (or the $4.55 Warrants) and 2,250,000 warrants exercisable to acquire up to 2,250,000 common units with an exercise price at a 33% premium to the closing price of Teekay Offshore's common units on June 16, 2016, or $6.05 per unit (or the $6.05 Warrants) (together, the Warrants). The Warrants have a seven-year term and became exercisable any time six months following their issuance date. The Warrants are to be net settled in either cash or common units at Teekay Offshore's option. The gross proceeds from the sale of these securities were $100.0 million ($97.2 million net of offering costs). Also in June 2016, Teekay Offshore exchanged approximately 1.9 million of the Series C Preferred Units for approximately 8.3 million common units of Teekay Offshore and also exchanged the remaining approximately 8.5 million Series C Preferred Units for approximately 8.5 million Series C-1 Preferred Units. In connection with the repurchase of the Series C-1 and Series D Preferred Units on September 25, 2017, the exercise price of the $6.05 Warrants was reduced to $4.55 per unit.
|
Teekay purchased for $26.0 million a total of 1,040,000 of Teekay Offshore's Series D Preferred Units. Teekay also received 1,170,000 of the $4.55 Warrants and 585,000 of the $6.05 Warrants. The purchase of Teekay Offshore Series D Preferred Units has been accounted for as an equity transaction. Therefore, no gains or losses were recognized in the Company’s consolidated statements of (loss) income as a result of this purchase.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Net cash proceeds from the sale of these securities of $71.3 million, which excludes Teekay's investment, was allocated on a relative fair value basis to the Series D Preferred Units ($61.1 million), to the $4.55 Warrants ($7.0 million) and to the $6.05 Warrants ($3.1 million). The Warrants qualify as freestanding financial instruments and are accounted for separately from the Series D Preferred Units. The Series D Preferred Units were presented in the Company's consolidated balance sheets as redeemable non-controlling interest in temporary equity which is above the equity section but below the liabilities section as they were not mandatorily redeemable and the prospect of a forced redemption paid with cash due to a change of control event was not probable. The Warrants were recorded as non-controlling interests in the Company's consolidated balance sheets. The Series D Preferred Units were redeemed in September 2017 upon the deconsolidation of Teekay Offshore (see Note 3).
| |
(5) | In 2016, Teekay Offshore issued 4.7 million common units for a total value of $24.9 million (including the general partner's 2% proportionate capital contribution of $0.5 million) as a payment-in-kind for the distributions on Teekay Offshore's Series C-1 Preferred Units and Series D Preferred Units and Teekay Offshore's common units and general partner interest held by subsidiaries of Teekay. In June 2016, Teekay Offshore agreed with Teekay that, until the Teekay Offshore's Norwegian Kroner bonds maturing in 2018 have been repaid, all cash distributions (other than with respect to incentive distribution rights) to be paid by Teekay Offshore to Teekay or its affiliates, including Teekay Offshore's general partner, would instead be paid in Teekay Offshore common units or from the proceeds of the sale of common units. During 2016, Teekay Offshore issued Teekay 2.5 million common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the distribution on Teekay Offshore's Series D Preferred Units, common units and general partner interest held by Teekay and its subsidiaries. The Series C-1 Preferred Units and Series D Preferred Units were redeemed in September 2017 upon the deconsolidation of Teekay Offshore (see Note 3). |
| |
(6) | In 2015, in addition to the issuances of equity to third parties noted in the table above, Teekay purchased $30.0 million or 4.5 million shares of Class A common stock of Teekay Tankers for Teekay Tankers to partially finance the acquisition of 12 modern Suezmax tankers from Principal Maritime (See Note 4c), $300.0 million or 14.4 million common units of Teekay Offshore for Teekay Offshore to partially finance the July 1, 2015 acquisition of the Petrojarl Knarr FPSO from Teekay, and $45.5 million or 6.5 million shares of Class B common stock of Teekay Tankers to finance the acquisition of SPT (see Note 4d). These increases in Teekay’s ownership interests in Teekay Tankers and Teekay Offshore have been accounted for as equity transactions. Therefore, no gains or losses were recognized in the Company’s consolidated statements of (loss) income as a result of these purchases. However, the carrying amount of the non-controlling interests’ share of Teekay Offshore and Teekay Tankers increased by an aggregate of $168.1 million and retained earnings decreased by $168.1 million to reflect the increase in Teekay’s ownership interest in Teekay Offshore and Teekay Tankers and the increase in the carrying value of Teekay Offshore’s and Teekay Tankers’ total equity. This adjustment to non-controlling interest and retained earnings was primarily the result of Teekay Offshore’s 14.4 million common units being issued to Teekay at fair value, which was significantly greater than the carrying value.
|
As a result of the public offerings and equity placements of Teekay Tankers and Teekay LNG, and Teekay Offshore prior to the Brookfield Transaction on September 25, 2017, the Company recorded increases (decreases) to retained earnings of $23.5 million (2017), $9.7 million (2016) and $(152.7) million (2015). These amounts represent Teekay’s dilution gains (losses) from the issuance of units and shares by these consolidated subsidiaries.
6. Goodwill, Intangible Assets and In-Process Revenue Contracts
Goodwill
The carrying amount of goodwill for the years ended December 31, 2017 and 2016, for the Company’s reportable segments are as follows:
|
| | | | | | | | | | | |
| | Teekay Offshore
$ | | Teekay LNG - Liquefied Gas Segment
$ | | Conventional Tanker Segment
$ | | Total
$ |
| Balance as of December 31, 2016 | 132,940 |
| | 35,631 |
| | 8,059 |
| | 176,630 |
|
| Decrease due to deconsolidation of Teekay Offshore (Note 3) | (132,940 | ) | | — |
| | — |
| | (132,940 | ) |
| Balance as of December 31, 2017 | — |
| | 35,631 |
| | 8,059 |
| | 43,690 |
|
Intangible Assets
As at December 31, 2017, the Company’s intangible assets consisted of:
|
| | | | | | | | |
| | Gross Carrying Amount
$ | | Accumulated Amortization
$ | | Net Carrying Amount
$ |
| Customer contracts | 193,194 |
| | (131,647 | ) | | 61,547 |
|
| Customer relationships | 22,500 |
| | (8,005 | ) | | 14,495 |
|
Off-market in-charter contracts (1) | 17,900 |
| | (928 | ) | | 16,972 |
|
| | 233,594 |
| | (140,580 | ) | | 93,014 |
|
(1) Represents the off-market in-charter contracts between the Company and Teekay Offshore for two Floating Storage and Offloading (or FSO) units.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
As at December 31, 2016, the Company’s intangible assets consisted of:
|
| | | | | | | | |
| | Gross Carrying Amount
$ | | Accumulated Amortization
$ | | Net Carrying Amount
$ |
| Customer contracts | 317,222 |
| | (245,705 | ) | | 71,517 |
|
| Customer relationships | 22,500 |
| | (4,842 | ) | | 17,658 |
|
| Other intangible assets | 1,000 |
| | (1,000 | ) | | — |
|
| | 340,722 |
| | (251,547 | ) | | 89,175 |
|
In July 2015, as part of Teekay Tankers’ acquisition of SPT (see Note 4d), Teekay Tankers ascribed a value of $30.9 million to the customer relationships assumed as part of the acquisition of the STS transfer business. The Company is amortizing those customer relationships over a period of 10 years. The estimates of fair value were finalized in the first quarter of 2016 and resulted in a decrease in intangible assets of $8.4 million from preliminary estimates. Amortization expense relating to this acquisition for the years ended December 31, 2017 and 2016 were $3.2 million and $3.6 million, respectively, which is included in depreciation and amortization expenses.
Aggregate amortization expense of intangible assets for the year ended December 31, 2017, was $14.0 million (2016 - $14.9 million, 2015 - $13.6 million), including $13.1 million presented in depreciation and amortization (2016 - $14.9 million, 2015 - $13.6 million) and $0.9 million presented in time-charter hire expenses (2016 - $nil, 2015 - $nil). Amortization of intangible assets following 2017 is expected to be $15.3 million (2018), $13.8 million (2019), $13.3 million (2020), $13.1 million (2021), $12.9 million (2022) and $24.6 million (thereafter).
In-Process Revenue Contracts
As part of the Company’s previous acquisition of FPSO units from Sevan Marine ASA (or Sevan) and Petrojarl ASA (subsequently renamed Teekay Petrojarl AS, or Teekay Petrojarl), and Teekay LNG’s acquisition of BG’s ownership interests in four LNG carrier newbuildings, the Company assumed certain FPSO contracts and time-charter-out contracts with terms that were less favorable than the then prevailing market terms, and a service obligation for shipbuilding supervision and crew training services for the four LNG carrier newbuildings. At the time of the acquisitions, the Company recognized liabilities based on the estimated fair value of these contracts and service obligations. One FPSO contract as at December 31, 2016 of $63.0 million related to Teekay Offshore, which was deconsolidated in September 2017. The Company is amortizing the remaining liabilities over the estimated remaining terms of their associated 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, 2017 was $27.2 million (2016 - $28.1 million, 2015 - $30.1 million), which is included in revenues on the consolidated statements of (loss) income. Amortization of in-process revenue contracts following 2017 is expected to be $14.1 million (2018), $6.3 million (2019), $5.9 million (2020), $5.9 million (2021), and $5.9 million (2022).
7. Accrued Liabilities and Other and Other Long-Term Liabilities
Accrued Liabilities and Other
| | | | | | | | | | | |
| December 31, 2020
$ | | December 31, 2019
$ |
| Accrued liabilities | | | |
| Voyage, vessel and corporate expenses | 140,029 | | | 121,937 | |
| Interest | 25,337 | | | 29,371 | |
| Payroll and related liabilities | 37,349 | | | 33,494 | |
| Distributions payable and other | 6,428 | | | 6,487 | |
| Deferred revenues - current | 34,461 | | | 36,242 | |
| In-process revenue contracts - current | 0 | | | 5,933 | |
Current portion of derivative liabilities (note 15) | 58,186 | | | 39,263 | |
Office lease liability – current (note 1) | 1,607 | | | 3,627 | |
| Loans from equity-accounted investments | 16,689 | | | 18,647 | |
| Asset retirement obligation - current | 12,000 | | | 0 | |
| 332,086 | | | 295,001 | |
|
| | | | | |
| | December 31, 2017
$ | | December 31, 2016 (1)
$ |
| Voyage and vessel expenses | 69,544 |
| | 177,868 |
|
| Interest | 42,028 |
| | 64,362 |
|
| Payroll and benefits and other | 137,659 |
| | 70,904 |
|
| Deferred revenues and gains - current | 33,121 |
| | 78,766 |
|
| | 282,352 |
| | 391,900 |
|
| |
(1) | Accrued liabilities related to Teekay Offshore as of December 31, 2016 totaled $207.7 million. Teekay Offshore was deconsolidated on September 25, 2017. This balance was comprised of $118.6 million of voyage and vessel expenses, $22.4 million of interest, $9.3 million of payroll and benefits and other, and $57.4 million of deferred revenues and gains - current. |
Other Long-Term Liabilities
| | | | | | | | | | | |
| December 31, 2020
$ | | December 31, 2019
$ |
Deferred revenues and gains (note 2) | 23,732 | | | 28,612 | |
| Guarantee liabilities | 11,818 | | | 10,113 | |
| Asset retirement obligation | 37,996 | | | 31,068 | |
| Pension liabilities | 9,172 | | | 7,238 | |
| In-process revenue contracts | 0 | | | 11,866 | |
Derivative liabilities (note 15) | 33,566 | | | 51,914 | |
Unrecognized tax benefits (note 21) | 70,738 | | | 62,958 | |
Office lease liability – long-term (note 1) | 9,396 | | | 10,254 | |
| Other | 1,689 | | | 2,325 | |
| 198,107 | | | 216,348 | |
Asset Retirement Obligations
In the first quarter of 2020, CNRI provided formal notice to Teekay of its intention to cease production in June 2020 and decommission the Banff field shortly thereafter. As such, the Company removed the Petrojarl Banff FPSO and Apollo Spirit FSO from the Banff field in the third quarter of 2020 and expects to remove the subsea equipment by June 2023. The Company expects to recycle the FPSO unit, which is currently in lay-up, and the subsea equipment following removal from the field. The Company redelivered the FSO unit to its owner in the third quarter of 2020. During the first half of 2020, the asset retirement obligation for the Petrojarl Banff FPSO unit was increased based on changes to cost estimates and the carrying value of the unit was fully written down. As of December 31, 2020, the present value of the Petrojarl Banff FPSO unit's estimated asset retirement obligations relating to the remediation of the subsea infrastructure was $42.4 million, of which $12.0 million is recorded in accrued liabilities and $30.4 million recorded in other long-term liabilities. The Company has also recorded $9.3 million in other non-current assets as at December 31, 2020 for the expected recovery of a portion of these costs from the customer upon the completion of the remediation work.
In March 2020, Teekay Parent entered into a new bareboat charter contract with the existing charterer of the Petrojarl Foinaven FPSO unit, which can be extended up to December 2030. Under the terms of the new contract, Teekay received a cash payment of $67 million in April 2020 and will receive a nominal per day rate over the life of the contract and a lump sum payment at the end of the contract period, which is expected to cover the costs of recycling the FPSO unit in accordance with the EU ship recycling regulations. As of December 31, 2020, the carrying value of the related lease asset was $14.6 million. As of December 31, 2020, the present value of the Petrojarl Foinaven FPSO unit's estimated asset retirement obligation relating to recycling costs was $7.4 million.
7. Short-Term Debt
|
| | | | | |
| | December 31, 2017
$ | | December 31, 2016 (2)
$ |
| Deferred revenues and gains | 33,363 |
| | 210,434 |
|
| Guarantee liability | 10,633 |
| | 24,373 |
|
| Asset retirement obligation | 27,302 |
| | 44,675 |
|
| Pension liabilities | 6,529 |
| | 8,599 |
|
| Unrecognized tax benefits and deferred income tax | 31,061 |
| | 24,340 |
|
| Other | 3,168 |
| | 20,815 |
|
| | 112,056 |
| | 333,236 |
|
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
| |
(2) | Other long-term liabilities related to Teekay Offshore as of December 31, 2016 totaled $211.6 million. Teekay Offshore was deconsolidated on September 25, 2017. This balance was comprised of $162.7 million of deferred revenues and gains, $21.7 million of asset retirement obligation, $7.0 million of unrecognized tax benefits and deferred income tax and $20.2 million of other. |
The Working Capital Loan is collateralized by the assets of TTCL. The Working Capital Loan requires Teekay Tankers to maintain its paid-in capital contribution under the RSAs and the retained distributions of the RSA counterparties in an amount equal to the greater of (a) an amount equal to the minimum average capital contributed by the RSA counterparties per vessel in respect of the RSA (including cash, bunkers or other working capital contributions and amounts accrued to the RSA counterparties but unpaid) and (b) a minimum capital contribution ranging from $20.0 million to $30.0 million based on the amount borrowed. As at December 31, 2020, $10.0 million (December 31, 2019 – $50.0 million) was owing under this facility, the aggregate available borrowings were $32.0 million (December 31, 2019 - $80.0 million) and the interest rate on the facility was 3.6% (December 31, 2019 – 5.0%). As at December 31, 2020, Teekay Tankers was in compliance with all covenants in respect of this facility.
8. Long-Term Debt
| | | | | | | | | | | |
| December 31, 2020
$ | | December 31, 2019
$ |
| Revolving Credit Facilities | 285,000 | | | 603,132 | |
| Senior Notes (8.5%) due January 15, 2020 | 0 | | | 36,712 | |
| Senior Notes (9.25%) due November 15, 2022 | 243,395 | | | 250,000 | |
| Convertible Senior Notes (5%) due January 15, 2023 | 112,184 | | | 125,000 | |
| Norwegian Krone-denominated Bonds due through September 2025 | 355,514 | | | 347,163 | |
| U.S. Dollar-denominated Term Loans due through 2030 | 938,280 | | | 1,336,437 | |
| Euro-denominated Term Loans due through 2024 | 152,710 | | | 165,376 | |
| Other U.S. Dollar-denominated loan | 0 | | | 3,300 | |
| Total principal | 2,087,083 | | | 2,867,120 | |
| Less unamortized discount and debt issuance costs | (31,976) | | | (39,968) | |
| Total debt | 2,055,107 | | | 2,827,152 | |
| Less current portion | (261,366) | | | (523,312) | |
| Long-term portion | 1,793,741 | | | 2,303,840 | |
|
| | | | | |
| | December 31, 2017
$ | | December 31, 2016
$ |
| Revolving Credit Facilities | 877,343 |
| | 1,119,808 |
|
| Senior Notes (8.5%) due January 15, 2020 | 592,657 |
| | 592,657 |
|
| Norwegian Kroner-denominated Bonds due through October 2021 | 377,856 |
| | 628,257 |
|
| U.S. Dollar-denominated Term Loans due through 2031 | 1,358,798 |
| | 3,702,997 |
|
| U.S. Dollar Bonds due through 2024 | — |
| | 466,680 |
|
| Euro-denominated Term Loans due through 2023 | 232,957 |
| | 219,733 |
|
| Other U.S. Dollar-denominated loan | 10,000 |
| | — |
|
| Total principal | 3,449,611 |
| | 6,730,132 |
|
| Less unamortized discount and debt issuance costs | (31,906 | ) | | (90,586 | ) |
| Total debt | 3,417,705 |
| | 6,639,546 |
|
| Less current portion | (800,897 | ) | | (998,591 | ) |
| Long-term portion | 2,616,808 |
| | 5,640,955 |
|
As of December 31, 2017,2020, the Company had 84 revolving credit facilities (or(collectively, the Revolvers) available, which,available. The Revolvers, as at such date, provided for aggregate borrowings of up to $1.3 billion,$921.7 million, of which $461.4$636.7 million was undrawn. Interest payments are based on LIBOR plus margins;margins. The margins ranged between 1.40% and 4.25% as at December 31, 20172020 and between 1.40% and 3.95% as at December 31, 2016, the margins ranged between 0.45% and 4.00%.2019. The aggregate amount available under the Revolvers is scheduled to decrease by $624.3 million (2018), $52.6 million (2019), $53.6 million (2020), $347.3$115.8 million (2021), $539.4 million (2022), $65.3 million (2023) and $261.0$201.3 million (thereafter)(2024). The Revolvers are collateralized by first-priority mortgages granted on 5233 of the Company’s vessels, together with other related security, and include a guarantee from Teekay or its subsidiaries for all but 1 of the Revolvers' outstanding amounts. Included in other related security are 38.2 million common units in Teekay Offshore, 25.236.0 million common units in Teekay LNG and 16.85.0 million Class A common shares in Teekay Tankers whichto secure a $200$150 million credit facility. Five other revolving credit facilities totaling $291.8 million as of December 31, 2016, related to Teekay Offshore, which was deconsolidated on September 25, 2017.
The Company’s 8.5% senior unsecured notes arewere due January 15, 2020 with an original aggregate principal amount of $450 million (or the Original Notes). The Original Notes issued on January 27, 2010 were sold at a price equal to 99.2% of par. During 2014, the Company repurchased $57.3 million of the Original Notes. In November 2015, the Company issued an aggregate principal amount of $200 million of the Company’s 8.5% senior unsecured notes due on January 15, 2020 (or the Additional Notes) at 99.01%99.0% of face value, plus accrued interest from July 15, 2015. The Notes are an additional issuance ofPrior to 2020, the Company’s Original Notes (collectively referred to asCompany repurchased $613.3 million in aggregate principal amount and in January 2020, the 8.5% Notes). The Notes were issued under the same indenture governing theCompany repaid all remaining Original Notes and Additional Notes at maturity.
In May 2019, the Company issued $250.0 million in aggregate principal amount of 9.25% senior secured notes at par due November 2022 (or the 2022 Notes). The 2022 Notes are fungible with the Original Notes. The discountguaranteed on the 8.5% Notes is accreted through the maturity datea senior secured basis by certain of the notes using the effective interest rateCompany's subsidiaries and are secured by first-priority liens on 2 of 8.67% per year.
The Company capitalized aggregate issuance costs of $13.3 million which are amortized to interest expense over the termTeekay's FPSO units, a pledge of the 8.5% Notes. Asequity interests in Teekay's subsidiary that owns all of December 31, 2017, the unamortized balanceTeekay's common units of the capitalized issuance cost was $3.8 million which is recorded in long-term debt in the consolidated balance sheet. The 8.5% Notes rank equally in right of payment withTeekay LNG Partners L.P. and all of Teekay’s existing and future senior unsecured debt and senior to any future subordinated debt of Teekay. The 8.5% Notes are not guaranteed by any of Teekay’s subsidiaries and effectively rank behind all existing and future secured debtClass A common shares of Teekay Tankers Ltd. and other liabilitiesa pledge of its subsidiaries.the equity interests in Teekay's subsidiaries that own Teekay Parent's 3 FPSO units.
The Company may redeem the 8.5%2022 Notes in whole or in part at any time before their maturity date at a redemption price equal to the greater of (i) 100%a percentage of the principal amount of the 8.5%2022 Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 8.5% Notes to be redeemed (excluding accrued interest), discounted to the redemption date on a semi-annual basis, at the treasury yield plus 50 basis points, plus accrued and unpaid interest to, but excluding, the redemption date.date, as follows: 104.625% at any time on or after November 15, 2020, but prior to November 15, 2021; 102.313% at any time on or after November 15, 2021, but prior to August 15, 2022; and 100% at any time on or after August 15, 2022.
On January 26, 2018, Teekay Parent completed a private offering of $125.0 million in aggregate principal amount of 5% Convertible Senior Notes due January 15, 2023 (the Convertible Notes). The Convertible Notes are convertible into Teekay’s common stock, initially at a rate of 85.4701 shares of common stock per $1,000 principal amount of Convertible Notes. This represents an initial effective conversion price of $11.70 per share of common stock. The initial conversion price represents a premium of 20% to the concurrent common stock offering price of $9.75 per share. On issuance of the Convertible Notes, $104.6 million of the net proceeds was reflected in long-term debt, including unamortized discount, and is being accreted to $125.0 million over its five-year term through interest expense. The remaining amount of the net proceeds of $16.1 million was allocated to the conversion feature and reflected in additional paid-in capital.
During 2020, Teekay Parent commenced repurchasing some of its Convertible Notes and 2022 Notes in the open market. Teekay Parent acquired $12.8 million of the principal of the Convertible Notes for total consideration of $10.5 million and $6.6 million of principal of the 2022 Notes for total consideration of $6.2 million, recognizing a gain of $1.5 million in 2020, included in other loss on the Company's audited consolidated statements of income (loss), in relation to the repurchases.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
As at December 31, 2020, Teekay LNG has a total of Norwegian Krone (or NOK) 3.1 billion in senior unsecured bonds issued in the Norwegian bond market at December 31, 2017 that mature through October 2021.2025. As at December 31, 2017,2020, the total carrying amount of the senior unsecured bonds, was $377.9 million. The bondswhich are listed on the Oslo Stock Exchange.Exchange was $355.5 million (December 31, 2019 – $347.2 million). The interest payments on the bonds are based on NIBOR plus a margin, which ranges from 4.60% to 6.00% as at December 31, 2020 (December 31, 2019 - 3.70% to 6.00%). The Company entered into cross currency rate swaps to swap all interest and principal payments of the bonds into U.S. Dollars, with the interest payments fixed at rates ranging from 5.74% to 7.89% (December 31, 2019 - 5.92% to 7.72%,7.89%) and the transfer of the principal amount fixed at $430.5$360.5 million upon maturity in exchange for NOK 3.1 billion (see Note 15). Three other senior unsecured NOK bonds with a total carrying amount of $256.9 million as of December 31, 2016, related to Teekay Offshore, which was deconsolidated in September 2017.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
As of December 31, 2017,2020, the Company had 106 U.S. Dollar-denominated term loans outstanding, which totaled $1.4 billion$938.3 million in aggregate principal amount (December 31, 20162019 – $3.7$1.3 billion). Interest payments on the term loans are based on LIBOR plus a margin, of which one1 of the term loans has an additional tranche based ontranches with a weighted average fixed rate of 5.37%4.26%. At December 31, 20172020 and December 31, 2016,2019, the margins ranged between 0.30% and 3.25%. The term loanloans require payments are made in quarterly or semi-annual paymentsinstallments commencing three or six months after delivery of each newbuilding vessel financed thereby,first drawdown and nine5 of the term loans have balloon or bullet repayments due at maturity. The term loans are collateralized by first-priority mortgages on 2220 (December 31, 20162019 – 46)24) of the Company’s vessels, together with certain other security. In addition, at December 31, 2016, all but $56.2 millionFebruary 2021, 1 of the outstanding term loans, were guaranteed by Teekay or one of its subsidiaries. Fifteen term loans totaling $2.2 billioncoming due over the next 12 months, was refinanced and as a result, $177.0 million was reclassified from current portion to long-term debt in the Company's consolidated balance sheet as of December 31, 2016, related to Teekay Offshore, which was deconsolidated in September 2017.2020 (see Note 23).
During May 2014, Teekay Offshore issued $300 million in five-year senior unsecured bonds that mature in July 2019 in the U.S. bond market. In September 2013 and November 2013, Teekay Offshore issued $174.2 million of ten-year senior bonds that mature in December 2023 in a U.S. private placement. In February 2015, Teekay Offshore issued $30.0 million in senior bonds that mature in June 2024 in a U.S. private placement. These three senior U.S. Dollar bonds with a total carrying value of $466.7 million as of December 31, 2016, related to Teekay Offshore, which was deconsolidated in September 2017.
Teekay LNG has two2 Euro-denominated term loans outstanding, which, as at December 31, 2017,2020, totaled 194.1125.0 million Euros ($233.0152.7 million) (December 31, 20162019 – 208.9147.5 million Euros ($219.7165.4 million)). Teekay LNG is repayingservicing the loans with funds generated by twofrom 2 Euro-denominated, long-term time-charter contracts. Interest payments onfor one of the term loans are based on the Euro Interbank Offered Rate (or EURIBOR) plus a margin. Interest payments on the remaining term loan are based on EURIBOR where EURIBOR is limited to zero or above zero values, plus a margin. At December 31, 20172020 and December 31, 2016,2019, the margins ranged between 0.6%0.60% and 2.25%1.95%. The Euro-denominated term loans reduce in monthly and semi-annual payments with varying maturities through 2023,2024, are collateralized by first-priority mortgages on two2 of Teekay LNG’s vessels, together with certain other security, and are guaranteed by Teekay LNG and one1 of its subsidiaries.
Both Euro-denominated term loans and NOK-denominated bonds are revalued at the end of each period using the then-prevailing U.S. Dollar exchange rate. Due primarily to the revaluation of the Company’s NOK-denominated bonds, the Company’s Euro-denominated term loans capital leases and restricted cash and the change in the valuation of the Company’s cross currency swaps, the Company recognized a foreign exchange loss during 20172020 of $26.5$20.7 million (2016(2019 – $6.5loss of $13.6 million, 20152018 – $2.2gain of $6.1 million).
The weighted-average interest rate on the Company’s aggregate long-term debt as at December 31, 20172020 was 4.3%3.8% (December 31, 20162019 – 4.0%4.6%). This rate does not include the effect of the Company’s interest rate swap agreements (see Note 15).
Teekay Corporation has guaranteed obligations pursuant to credit facilities of Teekay Tankers. As at December 31, 2017, the aggregate outstanding balance on such credit facilities was $252.7 million. In September 2017, as part of the Brookfield Transaction (see Note 3), Teekay was released from all of its previous guarantees relating to Teekay Offshore's long-term debt and interest rate swap and cross currency swap agreements.
The aggregate annual long-term debt principal repayments required to be made by the Company subsequent to December 31, 2017,2020, after giving effect to the impact of the revolving credit facilityFebruary 2021 term loan refinancing completed by Teekay LNG in February 2018,described above, are $0.8 billion (2018), $0.2 billion (2019), $1.1 billion (2020), $0.7 billion$262.3 million (2021), $0.3 billion$463.5 million (2022), $392.8 million (2023), $310.9 million (2024), $187.8 million (2025) and $0.3 billion$469.8 million (thereafter).
Among other matters, theThe Company’s long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and five5 loan agreements require the maintenance of vessel market value to loan ratios. As at December 31, 2017,2020, these ratios ranged from 118.5% to 243.2%were 405%, 273%, 142%, 215% and 190% compared to their minimum required ratios of 105% to125%, 115%, 120%, 135%. and 125%, respectively. The vessel values used in these ratios are the appraised values provided by third parties where available or prepared by the Company based on second handsecond-hand sale and purchase market data. Changes in the LNG/LPG carrier and conventional tanker markets could negatively affect the Company’sCompany's compliance with these ratios.
Certain loan agreements require that a minimum level of free cash be maintained, which minimum level was $100.0 million as at December 31, 2017 and $50 million as at December 31, 2016 for the Company, excluding Teekay LNG. Most of the loan agreements also require that the Company maintain an aggregate minimum level of free liquidity and undrawn revolving credit lines with at least six months to maturity of 5.0% to 7.5%of total debt for Teekay Parent and Teekay Tankers. As at December 31, 2017, such amounts for Teekay Parent and Teekay Tankers were $46.0 million and $55.1 million, respectively. In addition, certain loan agreements require Teekay LNG to maintain a minimum level of tangible net worth, and minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $35.0 million, and not to exceed a maximum level of financial leverage. Certain loan agreements require Teekay Tankers to maintain minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of the greater of $35.0 million and at least 5.0% of Teekay Tankers' total consolidated debt and obligations related to finance leases.
As at December 31, 2017,2020, the Company was in compliance with all covenants under its credit facilities and other long-term debt.
9. Operating and Direct Financing Leases
Charters-in
As at December 31, 2017, minimum commitments to be incurred by the Company under vessel operating leases by which theThe Company charters-in vessels were approximately $277.9 million, comprisedfrom other vessel owners on time-charter-in and bareboat charter contracts, whereby the vessel owner provides use of $68.7 million (2018), $62.7 million (2019), $57.4 million (2020), $54.4 million (2021), $20.0 million (2022)the vessel to the Company, and, $14.7 million (thereafter).in the case of time-charter-in contracts, also operates the vessel for the Company. A time-charter-in contract is typically for a fixed period of time, although in certain cases the Company may have the option to extend the charter. The Company recognizestypically pays the expense from theseowner a daily hire rate that is fixed over the duration of the charter. The Company is generally not required to pay the daily hire rate for time charters during periods the vessel is not able to operate.
On March 27, 2020, concurrently with the Petrojarl Foinaven FPSO transaction with BP described in Note 2, the Company sold its subsidiary Golar-Nor (UK) Limited (or Golar-Nor) to Altera for a nominal amount plus outstanding working capital. Golar-Nor was in-chartering the Petroatlantic and Petronordic shuttle tankers. This transaction resulted in the Company derecognizing right-of-use assets and lease liabilities totaling $50.7 million and $50.7 million, respectively.
For the year ended December 31, 2020, the Company incurred $73.8 million of time-charter and bareboat hire expenses related to time-charter-in and bareboat charter contracts with an original term of more than one year, of which is$48.5 million was allocable to the lease component and $25.3 million was allocable to the non-lease component. The amounts allocable to the lease component approximate the cash paid for the amounts included in time-charter hire expense, onlease liabilities and are reflected as a straight-line basis overreduction in operating cash flows for the firm periodyear ended December 31, 2020. NaN of Teekay Tankers' time-charter-in contracts each have an option to extend the charter for an additional one-year term. Since it is not reasonably certain that Teekay Tankers will exercise the options, the lease components of the charters.options are not recognized as part of the right-of-use assets and lease
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Charters-out
Time charters and bareboat charters of the Company’s vessels to third parties (except as noted below) are accounted for as operating leases. Certain of these charters provide the charterer with the option to acquire the vessel or the option to extend the charter.liabilities. As at December 31, 2017, minimum scheduled future revenues2020, the weighted-average remaining lease term and weighted-average discount rate for these time-charter-in and bareboat charter contracts were 2.4 years and 5.6%, respectively.
For the year ended December 31, 2020, the Company incurred $6.3 million of time-charter hire expense related to time-charter-in contracts with an original term of one year or less.
During the year ended December 31, 2020, Teekay Tankers chartered-in 1 lightering support vessel for a period of 24 months, which resulted in the Company recognizing right-of-use assets and lease liabilities totaling $0.8 million and $0.8 million, respectively. In December 2020, Teekay Tankers entered into a time charter-in contract for 1 Aframax tanker newbuilding for a period of seven years, with 3 additional one-year extension options, which is expected to be received bydelivered to Teekay Tankers in the fourth quarter of 2022. The Company on time chartersexpects to recognize a right-of-use asset and lease liability upon delivery of the vessel.
A maturity analysis of the Company’s operating lease liabilities from time-charter-in and bareboat charters then in place were approximately $2.4 billion, comprised of $517.7 million (2018), $404.7 million (2019), $361.9 million (2020), $295.8 million (2021), $273.7 million (2022) and $582.1 million (thereafter). The minimum scheduled future revenues should not be construed to reflect total charter hire revenues for any of the years. Minimum scheduled future revenues do not include revenue generated from new contracts entered into after December 31, 2017, revenue from unexercised option periods of contracts that existed on December 31, 2017, revenue from vessels in the Company’s equity accounted investments, or variable or contingent revenues. In addition, minimum scheduled future operating lease revenues presented in this paragraph have been reduced by estimated off-hire time for any periodic maintenance. The amounts may vary given unscheduled future events such as vessel maintenance.
The carrying amount of the vessels accounted for as operating leases(excluding short-term leases) at December 31, 2017, was $3.1 billion (2016 - $6.6 billion). The cost and accumulated depreciation of the vessels employed on operating leases2020 is as at December 31, 2017 were $4.1 billion (2016 - $9.1 billion) and $1.0 billion (2016 - $2.5 billion), respectively. The carrying amount, cost and accumulated depreciation of the vessels employed on operating leases as at December 31, 2016, related to Teekay Offshore, which was deconsolidated on September 25, 2017, was $3.5 billion, $4.7 billion and $1.2 billion, respectively.follows:
Operating Lease Obligations | | | | | | | | | | | | | | | | | | | | |
| | Lease Commitment | | Non-Lease Commitment | | Total Commitment |
| | $ | | $ | | $ |
| Payments | | | | | | |
| 2021 | | 27,641 | | | 13,290 | | | 40,931 | |
| 2022 | | 16,378 | | | 5,444 | | | 21,822 | |
| 2023 | | 9,227 | | | 0 | | | 9,227 | |
| 2024 | | 5,713 | | | 0 | | | 5,713 | |
| 2025 | | 0 | | | 0 | | | 0 | |
| Thereafter | | 0 | | | 0 | | | 0 | |
| Total payments | | 58,959 | | | 18,734 | | | 77,693 | |
| Less: imputed interest | | (4,669) | | | | | |
| Carrying value of operating lease liabilities | | 54,290 | | | | | |
| Less current portion | | (25,108) | | | | | |
| Carrying value of long-term operating lease liabilities | | 29,182 | | | | | |
Teekay Tangguh Joint Venture
As at December 31, 2017,2020, the Teekay BLT Corporation (or the Teekay Tangguh Joint Venture) was a partytotal minimum commitments to operating leases (or Head Leases) whereby it is leasing its two LNG carriers (or the Tangguh LNG Carriers) to a third party company. The Teekay Tangguh Joint Venture is then leasing back the LNG carriers from the same third-party company (or the Subleases). Under the terms of these leases, the third-party company claims tax depreciation on the capital expenditures itbe incurred to lease the vessels. As is typical in these leasing arrangements, tax and change of law risks are assumed by the Teekay Tangguh Joint Venture. Lease paymentsCompany under the Subleases are based on certain taxtime-charter-in contracts were approximately $43.2 million (2021), $23.6 million (2022), $16.0 million (2023), $12.5 million (2024), $6.8 million (2025), and financial assumptions at the commencement of the leases. If an assumption proves$25.0 million (thereafter), including 1 Aframax tanker newbuilding expected to be incorrect,delivered to the lease payments are increased or decreased under the Sublease to maintain the agreed after-tax margin. The Teekay Tangguh Joint Venture’s carrying amounts of this tax indemnification guarantee as at December 31, 2017 and December 31, 2016 were $7.1 million and $7.5 million, respectively, and are included as part of other long-term liabilitiesCompany in the consolidated balance sheetsfourth quarter of the Company. The tax indemnification is for the duration of the lease contract with the third party plus the years it would take for the lease payments2022 to be statute barred, and ends in 2033. Although there is no maximum potential amount of future payments, the commence a seven-year time charter-in contract.
10. Obligations Related to Finance Leases
| | | | | | | | | | | |
| December 31, 2020
$ | | December 31, 2019
$ |
| Teekay LNG | | | |
| LNG Carriers | 1,340,922 | | | 1,410,904 | |
| | | |
| Teekay Tankers | | | |
| Conventional Tankers | 360,043 | | | 414,788 | |
| | | |
| | | |
| Total obligations related to finance leases | 1,700,965 | | | 1,825,692 | |
| Less current portion | (150,408) | | | (95,339) | |
| Long-term obligations related to finance leases | 1,550,557 | | | 1,730,353 | |
Teekay Tangguh Joint Venture may terminate the lease arrangements on a voluntary basis at any time. If the lease arrangements terminate, the Teekay Tangguh Joint Venture will be required to make termination payments to the third-party company sufficient to repay the third-party company’s investment in the vessels and to compensate it for the tax effect of the terminations, including recapture of any tax depreciation. The Head Leases and the Subleases have 20 year terms and are classified as operating leases. The Head Lease and the Sublease for the two Tangguh LNG Carriers commenced in November 2008 and March 2009, respectively.
As at December 31, 2017, the total estimated future minimum rental payments to be received2020 and paid under the lease contracts are as follows:
|
| | | | | |
| Year | Head Lease
Receipts(1) $ | | Sublease
Payments(1)(2) $ |
| 2018 | 21,242 |
| | 23,875 |
|
| 2019 | 21,242 |
| | 23,875 |
|
| 2020 | 21,242 |
| | 23,875 |
|
| 2021 | 21,242 |
| | 23,875 |
|
| 2022 | 21,242 |
| | 23,875 |
|
| Thereafter | 132,853 |
| | 149,360 |
|
| Total | 239,063 |
| | 268,735 |
|
| |
(1) | The Head Leases are fixed-rate operating leases while the Subleases have a small variable-rate component. As at December 31, 2017, Teekay LNG had received $271.3 million of aggregate Head Lease receipts and had paid $212.1 million of aggregate Sublease payments. The portion of the Head Lease receipts that has not been recognized into earnings, are deferred and amortized on a straight-line basis over the lease terms and, as at December 31, 2017, $3.7 million (December 31, 2016 - $3.7 million) and $33.0 million (December 31, 2016 - $36.7 million) of Head Lease receipts had been deferred and included in accrued liabilities and other and other long-term liabilities, respectively, in the Company’s consolidated balance sheets. |
| |
(2) | The amount of payments under the Subleases is updated annually to reflect any changes in the lease payments due to changes in tax law. |
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Net Investment in Direct Financing Leases
The time charters for the two Tangguh LNG carriers are accounted for as direct financing leases. The Tangguh LNG Carriers commenced their time-charters with their charterers in 2009. In addition, in 2013, Teekay LNG acquired two 155,900-cubic meter LNG carriers (or Awilco LNG Carriers) from Norway-based Awilco LNG ASA (or Awilco) and chartered them back to Awilco on a five- and four-year fixed-rate bareboat charter contract (plus a one-year extension option), respectively, with Awilco holding a fixed-price purchase obligation at the end of the charter. The bareboat charters with Awilco were accounted for as direct financing leases. However, in June 2017, Teekay LNG agreed to amend the charter contracts with Awilco to defer a portion of charter hire and extend the bareboat charter contracts and related purchase obligations on both vessels to December 2019. The amendments have the effect of deferring between $10,600 per day and $20,600 per day per vessel from July 1, 2017 until December 2019, with such deferred amounts added to the purchase obligation amounts. As a result of the contract amendments, one of the charter contracts with Awilco has been reclassified as an operating lease upon the expiry of its original contract terms in November 2017. The second charter contract with Awilco will be reclassified as an operating lease upon the expiry of its original contract terms in August 2018, and at that time, approximately $131 million will be recorded as part of vessels and equipment. The following table lists the components of the net investments in direct financing leases:
|
| | | | | |
| | December 31, 2017
$ | | December 31, 2016(1)
$ |
| Total minimum lease payments to be received | 568,710 |
| | 777,334 |
|
| Estimated unguaranteed residual value of leased properties | 194,965 |
| | 203,465 |
|
| Initial direct costs and other | 361 |
| | 393 |
|
| Less unearned revenue | (268,046 | ) | | (320,598 | ) |
| Total | 495,990 |
| | 660,594 |
|
| Less current portion | (9,884 | ) | | (154,759 | ) |
| Long-term portion | 486,106 |
| | 505,835 |
|
(1)The direct financing leases for one FSO unit and certain VOC equipment as at December 31, 2016 totaling $17.6 million as of that date related to Teekay Offshore, which was deconsolidated on September 25, 2017.
As at December 31, 2017, estimated minimum lease payments to be received by Teekay LNG under the Tangguh LNG Carrier leases in each of the next five succeeding fiscal years are approximately $39.1 million per year from 2018 through 2022. Both leases are scheduled to end in 2029. In addition, the estimated minimum lease payments to be received by Teekay LNG in 2018 under the Awilco LNG Carrier lease, up to its original contract terms in August 2018, were approximately $6.8 million.
10. Obligations Related to Capital Leases
|
| | | | | |
| | December 31, 2017
$ | | December 31, 2016
$ |
| LNG Carriers | 961,711 |
| | 338,257 |
|
| Suezmax Tankers | 198,746 |
| | 54,582 |
|
| Total obligations related to capital leases | 1,160,457 |
| | 392,839 |
|
| Less current portion | (114,173 | ) | | (40,353 | ) |
| Long-term obligations related to capital leases | 1,046,284 |
| | 352,486 |
|
LNG Carriers. As at December 31, 2017, Teekay LNG was a party to capitalfinance leases on five9 LNG carriers. These 9 LNG carriers the Creole Spirit, the Oak Spirit, the Torben Spirit, the Macoma, and the Murex. Upon delivery of the Creole Spirit in February 2016, the Oak Spirit in July 2016, the Torben Spirit in March 2017, the Macoma in October 2017, andthe Murex in November 2017,were sold by Teekay LNG sold these vessels to third parties (or Lessors) and leased them back under 10-year7.5- to 15-year bareboat charter contracts ending in 2026 and 2027. Four ofthrough to 2034. At the bareboat charter contracts are fixed-rate capital leases and one is a variable-rate capital lease, and all with a fixed-price purchase obligation at the end of the lease terms. At inception of these leases, the weighted-average interest rate implicit in these leases was 5.2%5.1%.
In addition, as at December 31, 2017, Teekay LNG had sale-leaseback agreements in place for three LNG carrier newbuildings scheduled to deliver during 2018, and at such dates, the buyers will take delivery and The bareboat charter each respective vessel back to Teekay LNG. As at December 31, 2017, Teekay LNG had received $193 million from the buyers, which has been recordedcontracts are presented as current and long-term obligations related to capital lease in Teekay LNG'sfinance leases on the Company's consolidated balance sheets and have purchase obligations at the end of the lease terms.
Teekay LNG has secured a further $375 million in capital lease financing to be received in 2018 upon deliveryconsolidates 7 of the vessels.
9 Lessors for financial reporting purposes as VIEs. Teekay LNG understands that these vessels and lease operations are the only assets and operations of the Lessors. Teekay LNG operates the vessels during the lease term and as a result, is considered to be, under U.S. GAAP, the Lessor'sLessors' primary beneficiary; therefore,beneficiary. The sale and leaseback of 2 of Teekay LNG's vessels are accounted for as failed sales. Teekay LNG consolidates the Lessors for financial reporting purposesis not considered as VIEs.holding a variable interest in these buyer Lessor entities and thus, does not consolidate these entities (see Note 1).
The liabilities of the 7 Lessors considered as VIEs are loans and are non-recourse to Teekay LNG. The amounts funded to the 7 Lessors in order to purchase the vessels materially match the funding to be paid by Teekay LNG's subsidiaries under the sale-leaseback transaction.transactions. As a result, the amounts due by Teekay LNG's subsidiaries to the Lessors have been included in obligations related to capital lease as representing the Lessors' loans.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
result, the amounts due by Teekay LNG's subsidiaries to the 7 Lessors considered as VIEs have been included in obligations related to finance leases as representing the Lessors' loans.
During September 2019, Teekay LNG guaranteesrefinanced the Torben Spirit by acquiring the Torben Spirit from its original Lessor and then selling the vessel to another Lessor and leasing it back for a period of 7.5 years. Teekay LNG is required to purchase the vessel at the end of the lease term. As a result of this refinancing transaction, Teekay LNG recognized a loss of $1.4 million for the year ended December 31, 2019 on the extinguishment of the original finance lease, which was included in other loss in the consolidated statements of income (loss).
The obligations of Teekay LNG under the bareboat charter contracts.contracts for the 9 LNG carriers are guaranteed by Teekay LNG. In addition, the guarantee agreements require Teekay LNG to maintain minimum levels of tangible net worth and aggregate liquidity, and not to exceed a maximum amount of leverage. As at December 31, 2017,2020, Teekay LNG was in compliance with all covenants in respect of the obligations related to its capitalfinance leases.
As at December 31, 2017,2020, the remaining commitments related to the eight capitalfinance leases for Teekay LNG'sof these 9 LNG carriers, and LNG carrier newbuildings, including the amounts to be paid for the related purchase obligations, approximated $1.4$1.7 billion, including imputed interest of $429.9$400.5 million, repayable from 20182021 through 2027,2034, as indicated below:
| | | | | | | |
| Commitments |
| December 31, 2020 | | |
| Year | $ | | |
| 2021 | 138,601 | | |
| 2022 | 136,959 | | |
| 2023 | 135,459 | | |
| 2024 | 132,011 | | |
| 2025 | 129,725 | | |
| Thereafter | 1,068,641 | | |
|
| | | |
| Year | Commitment |
| 2018 | $ | 111,678 |
|
| 2019 | $ | 119,564 |
|
| 2020 | $ | 118,901 |
|
| 2021 | $ | 117,904 |
|
| 2022 | $ | 117,109 |
|
| Thereafter | $ | 806,458 |
|
Teekay Tankers
Suezmax Tankers. As at December 31,
From 2017 Teekay LNG was a party to capital leases on two Suezmax tankers, the Teide Spirit and the Toledo Spirit. Under these capital leases, the owner has the option to require Teekay LNG to purchase the two vessels. The charterer, who is also the owner, also has the option to cancel the charter contracts and the cancellation options are first exercisable in October 2017 and July 2018, respectively.
The amounts in the table below assume the owner will not exercise its options to require Teekay LNG to purchase either of the two remaining vessels, but rather it assumes the owner will cancel the charter contracts when the cancellation right is first exercisable (in February 2018 and July 2018, respectively), and sell the vessels to third parties, upon which the lease obligations will be extinguished. In December 2017, the owner agreed to sell one of the Suezmax tankers to a third party. At the inception of these leases, the weighted-average interest rate implicit in these leases was 5.5%. 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.
In July 2017,2019, Teekay Tankers completed a $153.0 million sale-leaseback financing transactiontransactions with a financial institutioninstitutions relating to four16 of Teekay Tankers' Suezmax tankers, the Athens Spirit, Beijing Spirit, Moscow Spirit and Sydney Spirit.vessels. Under this arrangement,these arrangements, Teekay Tankers transferred the vessels to subsidiaries of the financial institution (or collectivelyinstitutions (collectively, theLessors), and leased the vessels back from the Lessors on bareboat charters for aranging from 9- to 12-year term.terms. Teekay Tankers is obligated to purchase 8 of the vessels upon maturity of their respective bareboat charters. Teekay Tankers also has the option to purchase each of the four16 vessels at any pointvarious times starting between July 2020 and July 2029.November 2021 until the end of their respective lease terms. In October 2020, Teekay Tankers completed the purchases of 2 of these vesselsfor a total cost of $29.6 million.
As at December 31, 2020, Teekay Tankers consolidates 12 of the remaining 14 Lessors for financial reporting purposes as VIEs. Teekay Tankers understands that these vessels and lease operations are the only assets and operations of the Lessors. Teekay Tankers operates the vessels during the lease termterms, and as a result, is considered to be under U.S. GAAP, the Lessor's primary beneficiary and therefore Teekay Tankers consolidates the Lessors for financial reporting purposes.beneficiary.
The liabilities of the 12 Lessors are loans andthat are non-recourse to Teekay Tankers. The amounts funded to the 12 Lessors in order to purchase the vessels materially match the funding to be paid by Teekay Tankers' subsidiaries under thethese lease-back transaction.transactions. As a result, the amounts due by Teekay Tankers' subsidiaries to the 12 Lessors considered as VIEs have been included in obligations related to capitalfinance leases as representing the Lessor'sLessors' loans.
Subsequent to the adoption of ASU 2016-02 on January 1, 2019, sale and leaseback transactions where the lessee has a purchase obligation are treated as a failed sale. Consequently, the sale-leaseback of the Aspen Spirit and Cascade Spirit during the second quarter of 2019 is accounted for as a failed sale and Teekay Tankers has not derecognized the assets and continues to depreciate the assets as if it was the legal owner. Proceeds received from the sale are set up as an obligation related to finance lease and bareboat charter hire payments made by Teekay Tankers to the Lessor are allocated between interest expense and principal repayments on the obligation related to finance lease.
The bareboat charters alsorelated to each of these vessels require that Teekay Tankers maintain a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least 6six months to maturity) of the greater of $35.0 million and at least 5.0% of Teekay Tankers' consolidated debt and obligations related to capital leases (excluding applicable security deposits reflected in restricted cash - long-term on Teekay Tankers' consolidated balance sheets). In addition,finance leases.
NaN bareboat charters were entered into by Teekay Tankers is requiredwith subsidiaries of a financial institution in July 2017 and November 2018. NaN of these bareboat charters, entered into in July 2017, require Teekay Tankers to maintain, for each vessel, to maintain a hull coverage ratio of 90% of the total outstanding principal balance during the first three years of the lease period and 100% of the total outstanding principal balance thereafter. Such requirement is assessed annually with reference to vessel valuations compiled by one or more agreed upon third parties. As at December 31, 2017, this2020, these ratios ranged from 121% to 143% (December 31, 2019 – ranged from 110% to 132%). The remaining two of these bareboat charters, entered into in November 2018, require the Company to maintain, for each vessel, a minimum hull coverage ratio was approximately 105%.of 100% of the total outstanding principal balance. As at December 31, 2017,2020, these ratios ranged from 145% to 156% (2019 - ranged from 140% to 144%). Should any of these ratios drop below the required amount, the Lessor may request that the Company prepay additional charter hire.
NaN bareboat charters were entered into with subsidiaries of a financial institution in September 2018 and May 2019. NaN of these bareboat charters, entered into in September 2018, require Teekay Tankers was in compliance with all covenants in respectto maintain, for each vessel, a hull coverage ratio of its obligations related to capital leases.
75% of the total outstanding principal balance during the first year of the lease period, 78% for the second year, 80% for the following two years and 90% of the total outstanding principal balance thereafter. As at December 31, 2017, the remaining commitments related2020, these ratios ranged from 80% to the six capital leases for Suezmax tankers, including the related purchase obligations, approximated $269.0 million, including imputed interest of $70.3 million, repayable88% (December 31, 2019 – ranged from 2018 through 2029, as indicated below:106% to 123%).
|
| | | |
| Year | Commitment |
| 2018 | $ | 67,214 |
|
| 2019 | $ | 16,236 |
|
| 2020 | $ | 16,279 |
|
| 2021 | $ | 16,233 |
|
| 2022 | $ | 16,232 |
|
| Thereafter | $ | 136,846 |
|
Teekay Tankers maintains restricted cash deposits relating to leasing arrangements which cash totaled $2.7 million as at December 31, 2017.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
The remaining 2 of these bareboat charters, entered into in May 2019, require Teekay Tankers to maintain, for each vessel, a minimum hull coverage ratio of 75% of the total outstanding principal balance during the first year of the lease period, 78% for the second year, 80% for the following two years and 90% of the total outstanding principal balance thereafter. As at December 31, 2020, this ratio was approximately 81% (December 31, 2019 – 109%). Should any of these ratios drop below the required amount, and Teekay Tankers is unable to cure any such breach within the prescribed cure period, Teekay Tankers' obligations may become immediately due and payable at the election of the relevant lessor. In certain circumstances, this could lead to cross-defaults under our other financing agreements, which in turn could result in obligations becoming due and commitments being terminated under such agreements. In November 2020, Teekay Tankers declared purchase options to acquire 2 of these vessels for a total cost of $56.7 million with an expected completion date of May 2021 and, in March 2021, Teekay Tankers declared purchase options to acquire the remaining 6 vessels for a total cost of $128.8 million with an expected completion date of September 2021 (see Note 23).
Such requirements are assessed annually with reference to vessel valuations compiled by one or more agreed upon third parties. As at December 31, 2020, Teekay Tankers was in compliance with all covenants in respect of the obligations related to finance leases.
The weighted average interest rate on Teekay Tankers’ obligations related to finance leases as at December 31, 2020 was 7.8% (December 31, 2019 – 7.6%).
As at December 31, 2020, Teekay Tankers' total remaining commitments (including vessel purchase options declared as of that date) related to financial liabilities of these vessels were approximately $480.9 million (December 31, 2019 – $601.7 million), including imputed interest of $120.9 million (December 31, 2019 – $186.9 million), repayable from 2021 through 2030, as indicated below:
| | | | | | | |
| Commitments |
| December 31, 2020 | | |
| Year | $ | | |
| 2021 | 103,033 | | |
| 2022 | 43,552 | | |
| 2023 | 43,545 | | |
| 2024 | 43,656 | | |
| 2025 | 43,528 | | |
| Thereafter | 203,630 | | |
11. Fair Value Measurements and Financial Instruments
a) 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 and restricted cash approximates their carrying amounts reported in the accompanying consolidated balance sheets.
Vessels and equipment and assets held for sale – The estimated fair value of the Company’s vessels and equipment and assets held for sale was determined based on discounted cash flows, or appraised values.values and contractual sales prices. In cases where an active second-hand sale and purchase market does not exist, the Company uses a discounted cash flow approach to estimate the fair value of an impaired vessel. In cases where an active second-hand sale and purchase market exists, an appraised value is generally the amount the Company would expect to receive if it were to sell the vessel. Such appraisal is normally completed by the Company. Other assets held for sale include working capital balances and the fair value of such amounts generally approximate their carrying value.
Long-term investments included in non-current assets - The estimated fair value of the Company’s long-term investments was determined based on discounted cash flows or appraised values. As an active second-hand sale and purchase market exists, the appraised value is the amount the Company would expect to receive if it were to sell the vessel. Such appraisal is normally completed by the Company. Long-term investments include variable-rate long-term debt balances and the fair value of such amounts is estimated using discounted cash flow analyses, based on rates currently available for debt with similar terms and remaining maturities and the current credit worthiness of the Company. Long-term investments also include working capital balances and the fair value of such amounts generally approximate their carrying value.
Loans to equity-accounted investees and joint venture partners – The fair value of the Company’s loans to joint ventures and joint venture partners approximates their carrying amounts reported in the accompanying consolidated balance sheets.
Long-term receivable included in accounts receivable and other assets – The fair value of the Company’s long-term loan receivable is estimated using discounted cash flow analysis based on rates currently available for debt with similar terms and remaining maturities and the current credit worthiness of the counterparty.
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 by the Company using discounted cash flow analyses, based on rates currently available for debt with similar terms and remaining maturities and the current credit worthiness of the Company. Alternatively, if the fixed-rate and variable-rate long-term debt is held for sale the fair value is based on the estimated sales price.
Long-term obligation related to capitalfinance leases -– The fair value of the Company's long-term obligation related to capitalfinance leases is estimated by the Company using discounted cash flow analyses, based on rates currently available for debt with similar terms and remaining maturities.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, fixed interest rates on interest rate swaps, current interest rates, foreign exchange rates, and the current credit worthiness of both the Company and the derivative counterparties. The estimated amount is the present value of future cash flows. 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. 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.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring and non-recurring basis, as well as the estimated fair value of the Company’s financial instruments that are not accounted for at a fair value on a recurring basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2020 | | December 31, 2019 |
| Fair Value
Hierarchy
Level | | Carrying
Amount
Asset (Liability)
$ | | Fair
Value
Asset (Liability)
$ | | Carrying
Amount
Asset (Liability)
$ | | Fair
Value
Asset (Liability)
$ |
| Recurring | | | | | | | | | |
| Cash, cash equivalents and restricted cash | Level 1 | | 405,890 | | | 405,890 | | | 454,867 | | | 454,867 | |
Derivative instruments (note 15) | | | | | | | | | |
Interest rate swap agreements – assets (1) | Level 2 | | 0 | | | 0 | | | 3,099 | | | 3,099 | |
Interest rate swap agreements – liabilities (1) | Level 2 | | (77,873) | | | (77,873) | | | (52,453) | | | (52,453) | |
Cross currency interest swap agreements – assets (1) | Level 2 | | 4,505 | | | 4,505 | | | 0 | | | 0 | |
Cross currency interest swap agreements – liabilities (1) | Level 2 | | (20,022) | | | (20,022) | | | (42,104) | | | (42,104) | |
| Foreign currency contracts | Level 2 | | 0 | | | 0 | | | (202) | | | (202) | |
| Freight forward agreements | Level 2 | | 0 | | | 0 | | | (86) | | | (86) | |
| Non-recurring | | | | | | | | | |
Vessels and equipment (3) (4) (note 18) | Level 2 | | 99,967 | | | 99,967 | | | 0 | | | 0 | |
Assets held for sale (note 18) | Level 2 | | 31,680 | | | 31,680 | | | 37,240 | | | 37,240 | |
Operating lease right-of-use assets (note 18) | Level 2 | | 1,799 | | | 1,799 | | | 0 | | | 0 | |
Other (2) | | | | | | | | | |
Short-term debt (note 7) | Level 2 | | (10,000) | | | (10,000) | | | (50,000) | | | (50,000) | |
Long-term debt – public (note 8) | Level 1 | | (587,913) | | | (597,281) | | | (619,794) | | | (655,977) | |
Long-term debt – non-public (note 8) | Level 2 | | (1,467,194) | | | (1,481,093) | | | (2,207,358) | | | (2,180,440) | |
Obligations related to finance leases, including current portion (note 10) | Level 2 | | (1,700,965) | | | (1,868,667) | | | (1,825,692) | | | (1,877,558) | |
(1)The fair value of the Company’s interest rate swap and cross currency swap agreements at December 31, 2020 includes $6.1 million (December 31, 2019 – $3.4 million) accrued interest expense which is recorded in accrued liabilities on the consolidated balance sheets.
(2)In the consolidated financial statements, the Company’s loans to and investments in equity-accounted investments form the aggregate carrying value of the Company’s interests in entities accounted for by the equity method. The fair value of the individual components of such aggregate interests is not determinable.
(3)In December 2020, the carrying values of 4 Aframax tankers were written down to their estimated fair values, using appraised values. See Note 18.
(4)In December 2020, the carrying value of 4 LNG multi-gas carriers were written down to their estimated fair values. See Note 18.
b) Credit Losses
The Company's exposure to potential credit losses within the scope of ASC 2016-13 includes Teekay Parent's 1 sales-type lease (the Foinaven FPSO – see Note 2) and Teekay LNG's 3 direct financing leases, 3 of its loans to equity-accounted joint ventures and its guarantees of its proportionate share of secured loan facilities.
In addition, Teekay LNG's exposure to potential credit losses within its equity-accounted joint ventures under ASC 2016-13 primarily includes direct financing and sales-types leases for 18 LNG carriers within its 50/50 joint venture with China LNG Shipping (Holdings) Limited (or China LNG) (or the Yamal LNG Joint Venture); its joint venture with China LNG, CETS Investment Management (HK) Co. Ltd. and BW Investments Pte. Ltd (or the Pan Union Joint Venture); its 40% ownership interest in Teekay Nakilat (III) Corporation (or the RasGas III Joint Venture); its 33% ownership interest in a joint venture with NYK Energy Transport (or NYK) and Mitsui & Co. Ltd. (or the Angola Joint Venture); and 1 floating storage unit (or FSU) and an LNG regasification terminal joint venture within Bahrain LNG W.L.L (or the Bahrain LNG Joint Venture). See Note 22.
The following table includes the amortized cost basis of the Company's direct interests in financing receivables and net investment in direct financing leases by class of financing receivables and by period of origination and their associated credit quality.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost Basis by Origination Year | | |
| | Credit Quality Grade (1) | | 2020 | | 2018 | | 2016 | | Prior to 2016 | | Total |
| As at December 31, 2020 | | | $ | | $ | | $ | | $ | | $ |
| Sales-type lease – Teekay Parent | | | | | | | | | | | | |
Foinaven FPSO | | Performing | | 15,472 | | | 0 | | | 0 | | | 0 | | | 15,472 | |
| | | | | | | | | | | | |
| Direct financing leases – Teekay LNG | | | | | | | | | | | | |
| Tangguh Hiri and Tangguh Sago | | Performing | | 0 | | | 0 | | | 0 | | | 332,308 | | | 332,308 | |
| Bahrain Spirit | | Performing | | 0 | | | 211,939 | | | 0 | | | 0 | | | 211,939 | |
| | | | 0 | | | 211,939 | | | 0 | | | 332,308 | | | 544,247 | |
| Loans to equity-accounted joint ventures | | | | | | | | | | | | |
| Exmar LPG Joint Venture | | Performing | | 0 | | | 0 | | | 0 | | | 42,266 | | | 42,266 | |
| Bahrain LNG Joint Venture | | Performing | | 0 | | | 0 | | | 73,375 | | | 0 | | | 73,375 | |
| Other | | Performing | | 991 | | | 0 | | | 0 | | | 0 | | | 991 | |
| | | | 991 | | | 0 | | | 73,375 | | | 42,266 | | | 116,632 | |
| | | | 16,463 | | | 211,939 | | | 73,375�� | | | 374,574 | | | 676,351 | |
|
| | | | | | | | | | | | | | |
| | | | December 31, 2017 | | December 31, 2016 | |
| | Fair Value
Hierarchy
Level | | Carrying
Amount
Asset (Liability)
$ | | Fair
Value
Asset (Liability)
$ | | Carrying
Amount
Asset (Liability)
$ | | Fair
Value
Asset (Liability)
$ | |
| Recurring | | | | | | | | | | |
Cash and cash equivalents, restricted cash, and marketable securities | Level 1 | | 552,186 |
| | 552,186 |
| | 805,567 |
| | 805,567 |
| |
Derivative instruments (note 15) | | | | | | | | | | |
Interest rate swap agreements - assets (1) | Level 2 | | 6,081 |
| | 6,081 |
| | 7,943 |
| | 7,943 |
| |
Interest rate swap agreements - liabilities (1) | Level 2 | | (78,560 | ) | | (78,560 | ) | | (302,935 | ) | | (302,935 | ) | |
Cross currency interest swap agreement (1) | Level 2 | | (50,459 | ) | | (50,459 | ) | | (237,165 | ) | | (237,165 | ) | |
| Foreign currency contracts | Level 2 | | 81 |
| | 81 |
| | (2,993 | ) | | (2,993 | ) | |
| Stock purchase warrants | Level 3 | | 30,749 |
| | 30,749 |
| | 575 |
| | 575 |
| |
| Time-charter swap agreement | Level 3 | | — |
| | — |
| | 208 |
| | 208 |
| |
| Non-recurring | | | | | | | | | | |
| Vessels and equipment | Level 2 | | — |
| | — |
| | 11,300 |
| | 11,300 |
| |
Vessels held for sale (note 18b) | Level 2 | | 16,671 |
| | 16,671 |
| | 61,282 |
| | 61,282 |
| |
| Long-term investments | Level 2 | | — |
| | — |
| | 6,000 |
| | 6,000 |
| |
| Other |
| | | | | | | | | |
| Loans to equity-accounted investees and joint venture partners - Current | (2) | | 107,486 |
| | (2) | | 11,821 |
| | (2) | |
| Loans to equity-accounted investees and joint venture partners - Long-term | (2) | | 146,420 |
| | (2) | | 292,209 |
| | (2) | |
Long-term receivable included in accounts receivable and other assets (3) | Level 3 | | 3,476 |
| | 3,459 |
| | 10,985 |
| | 10,944 |
| |
Long-term debt - public (note 8) | Level 1 | | (963,563 | ) | | (979,773 | ) | | (1,503,472 | ) | | (1,409,996 | ) | |
Long-term debt - non-public (note 8) | Level 2 | | (2,454,142 | ) | | (2,421,273 | ) | | (5,136,074 | ) | | (5,009,900 | ) | |
| Obligations related to capital leases, including current portion | Level 2 | | (1,160,457 | ) | | (1,148,989 | ) | | (392,839 | ) | | (400,072 | ) | |
| |
(1) | The fair value of the Company’s interest rate swap and cross currency swap agreements at December 31, 2017 includes $5.7 million (December 31, 2016 - $15.8 million) accrued interest expense which is recorded in accrued liabilities on the consolidated balance sheets. |
| |
(2) | In the consolidated financial statements, the Company’s loans to and equity investments in equity-accounted investees constitute the aggregate carrying value of the Company’s interests in entities accounted for by the equity method. The fair value of the individual components of such aggregate interests is not determinable. |
| |
(3) | As at December 31, 2017, the estimated fair value of the non-interest bearing receivable from Royal Dutch Shell Plc (or Shell) is based on the remaining future fixed payments as well as an estimated discount rate. The estimated fair value of this receivable as of December 31, 2017 was $3.5 million (December 31, 2016 - $10.9 million) using a discount rate of 8.0%. As there is no market rate for the equivalent of an unsecured non-interest bearing receivable from Shell, the discount rate was based on unsecured debt instruments of similar maturity held by the Company, adjusted for a liquidity premium. A higher or lower discount rate would result in a lower or higher fair value asset.
|
(1)The Company's credit quality grades are based on internal risk credit ratings whereby a credit quality grade of performing is consistent with a low likelihood of loss. The Company assesses the credit quality of its direct financing leases and loan to the Exmar LPG Joint Venture on whether there are no past due payments (30 days late), no concessions granted to the counterparties and whether the Company is aware of any other information that would indicate that there is a material increase of likelihood of loss. The same policy is applied by the equity-accounted joint ventures. The Company assesses the credit quality of its loan to the Bahrain LNG Joint Venture based on whether there are any past due payments from the Bahrain LNG Joint Venture’s primary customer, whether the Bahrain LNG Joint Venture has granted any concessions to its primary customer and whether the Company is aware of any other information that would indicate that there is a material increase of likelihood of loss. As at December 31, 2020, all direct financing and sales-type leases held by Teekay LNG and Teekay LNG's equity-accounted joint ventures had a credit quality grade of performing.
Time-charter swap agreement -
Changes in fair value during the yearsallowance for credit losses for the year ended December 31, 2017 and 2016 for Teekay Tankers' time-charter swap agreement, which is described in Note 15 below and is measured at fair value on the recurring basis using significant unobservable inputs (Level 3),2020 are as follows:
|
| | | | | |
| | Year Ended
December 31, 2017
$ | | Year Ended
December 31, 2016
$ |
| Fair value asset - beginning of the year | 208 |
| | — |
|
| Settlements | (1,106 | ) | | (2,154 | ) |
| Realized and unrealized gain | 898 |
| | 2,362 |
|
| Fair value asset - at the end of the year | — |
| | 208 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Direct financing and sales-type leases (1) $ | | Direct financing and sales-type leases and other within equity-accounted joint ventures (1) $ | | Loans to equity-accounted joint ventures (2) $ | | Guarantees of debt (3) $ | | Total $ |
| As at January 1, 2020 | 15,055 | | 36,292 | | 3,714 | | 2,139 | | 57,200 |
| Provision for potential credit losses | 16,023 | | 18,645 | | 1,012 | | (59) | | 35,621 |
| As at December 31, 2020 | 31,078 | | 54,937 | | 4,726 | | 2,080 | | 92,821 |
(1)The credit loss provision related to the lease receivable component of the net investment in direct financing and sales-type leases is based on an internal historical loss rate, as adjusted when asset-specific risk characteristics of the existing lease receivables at the reporting date are not consistent with those used to measure the internal historical loss rate and as further adjusted when management expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed to measure the internal historical loss rate. During the year ended December 31, 2020, two of Teekay LNG's LNG project counterparties maintained investment-grade credit ratings. As such, the internal historical loss rate used to determine the credit loss provision at both January 1, 2020 and December 31, 2020 was adjusted downwards to reflect a lower risk profile for these two LNG projects at such dates compared to the average LNG project used to determine the internal historical loss rate. In addition, the internal historical loss rate was adjusted upwards for (a) one LNG project to reflect a lower credit rating for the counterparty, including consideration of the critical infrastructure nature of LNG production, and (b) a second LNG project to reflect a larger potential risk of loss upon potential default as the vessels servicing this project have fewer opportunities for redeployment compared to Teekay LNG's other LNG carriers. The credit loss provision for the residual value component is based on a reversion methodology whereby the current estimated fair value of the vessel as depreciated to the end of the charter contract as compared to the expected carrying value, with such potential gain or loss on maturity being included in the credit loss provision in increasing magnitude on a straight-line basis the closer the contract is to its maturity. Risks related to the net investments in direct financing and sales-type leases consist of risks related to the underlying LNG projects and demand for LNG carriers at the end of the time-charter swap agreement was based in part upon the Company’s projection of future Aframax spot market tanker rates, which were derived from current Aframax spot market tanker rates and estimated future rates, as well as an estimated discount rate. The time-charter swap agreement ended on April 30, 2017.contracts.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Stock purchase warrants – As at December 31, 2017, Teekay held 14.5The changes in credit loss provision of $16.0 million Brookfield Transaction Warrants (see Note 3). The Brookfield Transaction Warrants allow the holders to acquire one common unit of Teekay Offshore for each Brookfield Transaction Warrant for an exercise price of $0.01 per common unit, which warrants become exercisable when Teekay Offshore's common unit volume-weighted average price is equal to or greater than $4.00 per common unit for 10 consecutive trading days until September 25, 2024. The fair value of the Brookfield Transaction Warrants was $29.4 million on December 31, 2017.
As of December 31, 2017, in addition to the Brookfield Transaction Warrants, Teekay held a total of 1,755,000 warrants to purchase common units of Teekay Offshore that were issued in connection with Teekay Offshore's private placement of Series D Preferred Units in June 2016 (or the Series D Warrants) with an exercise price of $4.55, which have a seven-year term. The Series D Warrants will be net settled in either cash or common units at Teekay Offshore’s option. The fair value of the Series D Warrants was $1.3 million on December 31, 2017.
The estimated fair value of the Brookfield Transaction Warrants and the Series D Warrants was determined using a Black-Scholes pricing model and is based, in part, on the historical price of common units of Teekay Offshore, the risk-free rate, vesting conditions and the historical volatility of Teekay Offshore. The estimated fair value of these Brookfield Transaction Warrants and Series D Warrants as of December 31, 2017 was based on the historical volatility of Teekay Offshore's common units of 74.9%. A higher or lower volatility would result in a higher or lower fair value of this derivative asset.
During January 2014, the Company received from TIL stock purchase warrants entitling it to purchase up to 1.5 million shares of the common stock of TIL (see Note 15). In May 2017, Teekay Tankers entered into the Merger Agreement with TIL (see Note 4a). Under the terms of the Merger Agreement, warrants to purchase or acquire shares of common stock of TIL that had not been exercised as of the effective time of the merger, were cancelled. As a result, no value is recorded for these warrants in the Company's balance sheet at December 31, 2017.
Changes in fair value during the years ended December 31, 2017 and 2016 for the Company's Brookfield Transaction Warrants, Series D Warrants and the TIL stock purchase warrants, which are described above and are measured at fair value on the recurring basis using significant unobservable inputs (Level 3), are as follows:
|
| | | | | |
| | Year Ended December 31, |
| | 2017
$ | | 2016
$ |
| Fair value at the beginning of the year | 575 |
| | 10,328 |
|
| Fair value on issuance | 36,596 |
| | — |
|
| Unrealized loss included in earnings | (6,422 | ) | | (9,753 | ) |
| Fair value at the end of the year | 30,749 |
| | 575 |
|
Contingent consideration liability – In August 2014, Teekay Offshore acquired 100% of the outstanding shares of Logitel, a Norway-based company focused on high-end UMS, from CeFront Technology AS (or CeFront) for $4.0 million, which was paid in cash at closing, plus a commitment to pay an additional amount of up to $27.6 million, depending upon certain performance criteria. During the second quarter of 2016, Teekay Offshore canceled the UMS construction contracts for its two remaining UMS newbuildings. This eliminated any future purchase price contingent consideration payments. Consequently, the contingent liability was reversed in the second quarter of 2016. The gain associated with this reversal is included in Other (loss) income on the Company's consolidated statement of (loss) income for the year ended December 31, 2016.2020 was included in other expense and primarily reflects a decline in the estimated charter-free valuations for certain types of Teekay LNG's LNG carriers at the end of their servicing time-charter contract which are accounted for as direct financing and sales-type leases. These estimated future charter-free values are subject to change from period to period based on the underlying LNG shipping market fundamentals. The changes in the credit loss provision for Teekay LNG's consolidated vessels for the year ended December 31, 2020 does not reflect any material changes in expectations of the charterers' ability to make their time-charter hire payments as they come due compared to the beginning of the year.
The changes in credit loss provision of $18.6 million for the year ended December 31, 2020, relating to the direct financing and sales-type leases and other within Teekay LNG's equity-accounted joint ventures are included in equity income and reflect a decline in the estimated charter-free valuations for certain types of LNG carriers at the end of their time-charter contract which are accounted for as direct financing and sales-type leases for the year ended December 31, 2020, combined with the initial credit loss provision recognition upon commencement of the sales-type lease for the LNG regasification terminal and associated FSU in the Bahrain LNG Joint Venture in January 2020.(2)The determination of the credit loss provision for such loans is based on their expected duration and on an internal historical loss rate of Teekay LNG and its affiliates, as adjusted when asset-specific risk characteristics of the existing loans at the reporting date are not consistent with those used to measure the internal historical loss rate and as further adjusted when management expects current conditions and reasonable and supportable forecasts to differ from the conditions that existed to measure the internal historical loss rate. These two loans rank behind secured debt in each equity-accounted joint venture. As such, they are similar to equity in terms of risk. Teekay LNG's 50/50 LPG related joint venture with Exmar NV (or Exmar) (or Exmar LPG Joint Venture) owns and charters-in LPG carriers with a primary focus on mid-size gas carriers. Their vessels trade on the spot market or short-term charters. Adverse changes in the spot market for mid-size LPG carriers, as well as operating costs for such vessels, may impact the ability of the Exmar LPG Joint Venture to repay its loan to Teekay LNG. The Bahrain LNG Joint Venture owns an LNG receiving and regasification terminal in Bahrain. The ability of Bahrain LNG Joint Venture to repay its loan to Teekay LNG is primarily dependent upon the Bahrain LNG Joint Venture’s customer, a company owned by the Kingdom of Bahrain, fulfilling its obligations under the 20-year agreement, as well as the Bahrain LNG Joint Venture’s ability to operate the terminal in accordance with the agreed upon operating criteria.
(3)The determination of the credit loss provision for such guarantees was based on a probability of default and loss given default methodology. In determining the overall estimated loss from default as a percentage of the outstanding guaranteed share of secured loan facilities and finance leases, Teekay LNG considers current and future operational performance of the vessels securing the loan facilities and finance leases and current and future expectations of the proceeds that could be received from the sale of the vessels securing the loan facilities and finance leases in comparison to the outstanding principal amount of the loan facilities and finance leases if Teekay LNG was required to fulfill its obligations under the guarantees.
12. Capital Stock
The authorized capital stock of Teekay at December 31, 2017, 2016,2020, 2019, and 2015,2018, was 25,000,00025 million shares of Preferred Stock, with a par value of $1 per share, and 725,000,000725 million shares of Common Stock, with a par value of $0.001 per share. As at December 31, 2017, 89,127,0412020, 101,108,886 shares of Common Stock (2016 - 86,149,975)(2019 – 100,784,422) were issued and outstanding and no0 shares of Preferred Stock issued.
During 2017,
In December 2020, Teekay issued 0.1 million shares of common stock upon the exercise or issuance of stock options, restricted stock units and restricted stock awards. During 2016, Teekay issued 0.1 million shares of common stock upon the exercise or issuance of stock options, restricted stock units and restricted stock awards and issued approximately 12.0 million shares of common stock in a private placement for net proceeds of approximately $96.2 million.
In 2016, Teekay implementedfiled a continuous offering program (or COP)COP) under which Teekay may issue newshares of its common stock, at market prices up to a maximum aggregate amount of $50.0$65.0 million. As of the date of filing this Annual Report, 0 shares of common stock have been issued under this COP.
During 2017,2018, Teekay sold an aggregatecompleted a public offering of 2.910.0 million common shares priced at $9.75 per share, raising net proceeds of approximately $93.0 million and issued 1.1 million shares of common stock under theas part of a COP initiated in 2016 generating net proceeds of $25.6$10.7 million. During 2016, Teekay sold an aggregate of 1.3 million shares of common stock under the COP, generating net proceeds of approximately $9.3 million (net of approximately $0.4 million of offering costs). Teekay used the net proceeds from the issuance of these shares of common stock for general corporate purposes.
Dividends may be declared and paid out of surplus, 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. Surplus is the excess of the net assets of the Company over the aggregated par value of the issued shares of the Teekay. 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.
Stock-based compensation
In March 2013, the Company adopted the 2013 Equity Incentive Plan (or the 2013 Plan) and suspended the 1995 Stock Option Plan and the 2003 Equity Incentive Plan (collectively referred to as the Plans). As at December 31, 2020, the Company had reserved 5,581,663 (2019 – 5,606,429) shares of Common Stock pursuant to the 2013 Plan, for issuance upon the exercise of options or equity awards granted or to be granted.
During 2020, 0 stock options were granted by the Company. During the years ended December 31, 2019 and 2018, the Company granted options under the 2013 Plan to acquire up to 2,620,582 and 1,048,916 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, 2020, expire between March 8, 2021 and March 14, 2029, ten years after the date of each respective grant.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
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, subject to cancellation upon approval by the Board of Directors. As at December 31, 2017, Teekay had repurchased approximately 5.2 million shares of Common Stock for $162.3 million pursuant to such authorization. The total remaining share repurchase authorization at December 31, 2017, was $37.7 million.
On July 2, 2010, the Company amended and restated its Shareholder Rights Agreement (the Rights Agreement), which was originally adopted by the Board of Directors in September 2000. In September 2000, the Board of Directors declared a dividend of one common share purchase right (or a Right) for each outstanding share of the Company’s common stock. These Rights continue to remain outstanding and will not be exercisable and will trade with the shares of the Company’s common stock until after such time, if any, as a person or group becomes an “acquiring person” as set forth in the amended Rights Agreement. A person or group will be deemed to be an “acquiring person,” and the Rights generally will become exercisable, if a person or group acquires 20% or more of the Company’s common stock, or if a person or group commences a tender offer that could result in that person or group owning more than 20% of the Company’s common stock, subject to certain higher thresholds for existing shareholders that owned in excess of 15% of the Company’s common stock when the Rights Agreement was amended. Once exercisable, each Right held by a person other than the “acquiring person” would entitle the holder to purchase, at the then-current exercise price, a number of shares of common stock of the Company having a value of twice the exercise price of the Right. In addition, if the Company is acquired in a merger or other business combination transaction after any such event, each holder of a Right would then be entitled to purchase, at the then-current exercise price, shares of the acquiring company’s common stock having a value of twice the exercise price of the Right. The amended Rights Agreement will expire on July 1, 2020, unless the expiry date is extended or the Rights are earlier redeemed or exchanged by the Company.
Stock-based compensation
In March 2013, the Company adopted the 2013 Equity Incentive Plan (or the 2013 Plan) and suspended the 1995 Stock Option Plan and the 2003 Equity Incentive Plan (collectively referred to as the Plans). As at December 31, 2017, the Company had reserved 5,115,308 (2016 - 4,780,371) shares of Common Stock pursuant to the 2013 Plan, for issuance upon the exercise of options or equity awards granted or to be granted.
During the years ended December 31, 2017, 2016 and 2015, the Company granted options under the 2013 Plan to acquire up to 732,314, 916,015 and 265,135 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, 2017, expire between March 10, 2018 and March 6, 2027, ten years after the date of each respective grant.
A summary of the Company’s stock option activity and related information for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 | | December 31, 2018 |
| Options
(000’s)
# | | Weighted-Average
Exercise Price
$ | | Options
(000’s)
# | | Weighted-Average
Exercise Price
$ | | Options
(000’s)
# | | Weighted-Average
Exercise Price
$ |
| Outstanding – beginning of year | 6,066 | | | 10.77 | | | 3,754 | | | 15.54 | | | 3,600 | | | 22.96 | |
| Granted | 0 | | | 0 | | | 2,620 | | | 3.98 | | | 1,052 | | | 8.67 | |
| Exercised | 0 | | | 0 | | | 0 | | | 0 | | | (2) | | | 9.44 | |
| Forfeited / expired | (491) | | | 19.35 | | | (308) | | | 11.07 | | | (896) | | | 37.44 | |
| Outstanding – end of year | 5,575 | | | 10.02 | | | 6,066 | | | 10.77 | | | 3,754 | | | 15.54 | |
| Exercisable – end of year | 3,490 | | | 13.17 | | | 2,565 | | | 18.25 | | | 1,954 | | | 21.35 | |
|
| | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
| | Options
(000’s)
# | | Weighted-Average
Exercise Price
$ | | Options
(000’s)
# | | Weighted-Average
Exercise Price
$ | | Options
(000’s)
# | | Weighted-Average
Exercise Price
$ |
| Outstanding - beginning of year | 3,367 |
| | 29.16 |
| | 2,800 |
| | 36.84 |
| | 2,710 |
| | 36.61 |
|
| Granted | 732 |
| | 10.18 |
| | 916 |
| | 9.44 |
| | 265 |
| | 43.99 |
|
| Exercised | (3 | ) | | 9.44 |
| | — |
| | — |
| | (36 | ) | | 33.79 |
|
| Forfeited / expired | (496 | ) | | 46.27 |
| | (349 | ) | | 38.97 |
| | (139 | ) | | 46.80 |
|
| Outstanding - end of year | 3,600 |
| | 22.96 |
| | 3,367 |
| | 29.16 |
| | 2,800 |
| | 36.84 |
|
| Exercisable - end of year | 2,221 |
| | 29.76 |
| | 2,271 |
| | 35.89 |
| | 2,500 |
| | 36.03 |
|
A summary of the Company’s non-vested stock option activity and related information for the years ended December 31, 2017, 20162020, 2019 and 2015,2018, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 | | December 31, 2018 |
| Options
(000’s)
# | | Weighted-Average
Grant Date Fair Value
$ | | Options
(000’s)
# | | Weighted-Average
Grant Date Fair Value
$ | | Options
(000’s)
# | | Weighted-Average
Grant Date Fair Value
$ |
Outstanding non-vested stock options – beginning of year | 3,501 | | | 2.26 | | | 1,800 | | | 4.25 | | | 1,379 | | | 4.44 | |
| Granted | 0 | | | 0 | | | 2,620 | | | 1.53 | | | 1,052 | | | 4.21 | |
| Vested | (1,384) | | | 2.64 | | | (807) | | | 4.18 | | | (609) | | | 4.65 | |
| Forfeited | (32) | | | 4.71 | | | (112) | | | 3.33 | | | (22) | | | 3.93 | |
Outstanding non-vested stock options – end of year | 2,085 | | | 1.97 | | | 3,501 | | | 2.26 | | | 1,800 | | | 4.25 | |
|
| | | | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 | | December 31, 2015 |
| | Options
(000’s)
# | | Weighted-Average
Grant Date Fair Value
$ | | Options
(000’s)
# | | Weighted-Average
Grant Date Fair Value
$ | | Options
(000’s)
# | | Weighted-Average
Grant Date Fair Value
$ |
| Outstanding non-vested stock options - beginning of year | 1,096 |
| | 4.30 |
| | 300 |
| | 8.09 |
| | 202 |
| | 9.37 |
|
| Granted | 732 |
| | 4.71 |
| | 916 |
| | 3.60 |
| | 265 |
| | 7.74 |
|
| Vested | (399 | ) | | 4.62 |
| | (118 | ) | | 8.48 |
| | (167 | ) | | 9.07 |
|
| Forfeited | (50 | ) | | 3.94 |
| | (2 | ) | | 3.60 |
| | — |
| | — |
|
| Outstanding non-vested stock options - end of year | 1,379 |
| | 4.44 |
| | 1,096 |
| | 4.30 |
| | 300 |
| | 8.09 |
|
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
The weighted average grant date fair value for non-vested options forfeited in 20172020 was $0.2 million (2016 - $0.0(2019 – $0.4 million, 2015 - $0.02018 – $0.1 million).
As of December 31, 2017,2020, there was $2.3$1.2 million of total unrecognized compensation cost related to non-vested stock options granted under the Plans. Recognition of this compensation cost over the next three years is expected to be $1.3$1.0 million (2018), $0.9(2021) and $0.2 million (2019) and $0.1 million (2020)(2022). During the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, the Company recognized $1.7$1.9 million, $1.5$3.0 million and $1.7$2.8 million, respectively, of compensation cost relating to stock options granted under the Plans. No options were exercised during 2016. The intrinsic value of options exercised during 20172020 was $0.03 million,$NaN, during 20162019 was $nil$NaN and during 20152018 was $0.5 million.$NaN.
As at December 31, 2017,2020, the intrinsic value of outstanding and exercisable stock options was $nil (2016 - $nil)$NaN (2019 – $3.3 million). As at December 31, 2017,2020, the weighted-average remaining life of options vested and expected to vest was 5.16.7 years (2016(2019 – 4.57.3 years).
Further details regarding the Company’s outstanding and exercisable stock options at December 31, 20172020 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Outstanding Options | | Exercisable Options |
| Range of Exercise Prices | Options
(000’s)
# | | Weighted- Average
Remaining Life
(Years) | | Weighted-
Average Exercise Price
$ | | Options
(000’s)
# | | Weighted- Average
Remaining Life
(Years) | | Weighted-
Average Exercise Price
$ |
| $0.00 – $4.99 | 2,590 | | | 8.2 | | 3.98 | | | 845 | | | 8.2 | | 3.98 | |
| $5.00 – $9.99 | 1,699 | | | 6.4 | | 8.98 | | | 1,359 | | | 6.2 | | 9.05 | |
| $10.00 – $19.99 | 595 | | | 6.2 | | 10.18 | | | 595 | | | 6.2 | | 10.18 | |
| $20.00 – $59.99 | 691 | | | 2.3 | | 35.09 | | | 691 | | | 2.3 | | 35.09 | |
| 5,575 | | | 6.7 | | 10.02 | | | 3,490 | | | 5.9 | | 13.17 | |
|
| | | | | | | | | | | | | | | |
| | Outstanding Options | | Exercisable Options |
| Range of Exercise Prices | Options
(000’s)
# | | Weighted- Average
Remaining Life
(Years) | | Weighted-
Average Exercise Price
$ | | Options
(000’s)
# | | Weighted- Average
Remaining Life
(Years) | | Weighted-
Average Exercise Price
$ |
| $5.00 – $9.99 | 869 |
| | 8.2 | | 9.44 |
| | 299 |
| | 8.2 | | 9.44 |
|
| $10.00 – $19.99 | 910 |
| | 7.5 | | 10.52 |
| | 188 |
| | 1.2 | | 11.84 |
|
| $20.00 – $24.99 | 287 |
| | 2.2 | | 24.42 |
| | 287 |
| | 2.2 | | 24.42 |
|
| $25.00 – $29.99 | 364 |
| | 4.2 | | 27.69 |
| | 364 |
| | 4.2 | | 27.69 |
|
| $30.00 – $34.99 | 113 |
| | 4.4 | | 34.42 |
| | 113 |
| | 4.4 | | 34.42 |
|
| $35.00 – $39.99 | 25 |
| | 0.6 | | 39.99 |
| | 25 |
| | 0.6 | | 39.99 |
|
| $40.00 – $49.99 | 1,017 |
| | 2.0 | | 41.34 |
| | 930 |
| | 1.5 | | 41.09 |
|
| $50.00 – $59.99 | 15 |
| | 6.2 | | 56.76 |
| | 15 |
| | 6.2 | | 56.76 |
|
| | 3,600 |
| | 5.2 | | 22.96 |
| | 2,221 |
| | 3.1 | | 29.76 |
|
During 2020, no stock options were granted. The weighted-average grant-date fair value of options granted during 2017 was $4.71 per option (2016 - $3.60, 2015 - $7.74).2019 and 2018 were $1.53 and $4.21, respectively. 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 62.4%65.2% in 2017, 55.1%2019 and 64.8% in 2016 and 31.1% in 2015;2018; expected life of 65.5 years in 20172019 and 2016 and 55.5 years in 2015;2018; dividend yield of 5.9% in 2019 and 2.5% in 2017, 3.2% in 2016 and 4.4% in 2015;2018; risk-free interest rate of 2.0%2.5% in 2017, 1.3%2019, and 2.6% in 2016, and 1.4% in 2015;2018; and estimated forfeiture rate of 7%6.0% in 2017, 7%2019 and 7.4% in 2016 and 8% 2015.2018. The expected life of the options granted was
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
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.
The Company grants restricted stock units and performance share units to certain eligible officers and employees of the Company. Each restricted stock unit and performance share unitrestricted stock award is equivalentequal in value to one1 share of the Company’s common stock plus reinvested dividends from the grant date to the vesting date. The restricted stock units vest equally over three years from the grant date and the performance share units vest three years from the grant date. Upon vesting, the value of the restricted stock units and restricted stock awards and performance shares are paid to each grantee in the form of shares. The number of performance share units that vest will range from zero to a multiple of the original number granted, based on certain performance and market conditions.
During 2017,2020, the Company granted 349,175986,314 restricted stock units with a fair value of $3.6$3.1 million, to certain of the Company’s employees. During 2017,2020, a total of 129,106480,498 restricted stock units with a market value of $3.2$3.0 million vested and that amount, net of withholding taxes, was paid to grantees by issuing 73,078256,780 shares of common stock. During 2016,2019, the Company granted 238,609831,118 restricted stock units with a fair value of $2.3$3.3 million, and 311,691 performance share units with a fair value of $3.6 million, based on the quoted market price and a Monte Carlo valuation model, to certain of the Company’s employees. During 2016,2019, a total of 98,844317,283 restricted stock units with a market value of $4.3$3.0 million vested and that amount, net of withholding taxes, was paid to grantees by issuing 59,518182,653 shares of common stock. During 2015,2018, the Company granted 63,912625,878 restricted stock units with a fair value of $2.8$5.4 million, and 61,774 performance share units with a fair value of $3.4 million, based on the quoted market price and a Monte Carlo valuation model, to certain of the Company’s employees. During 2015,2018, a total of 101,419206,420 restricted stock units with a market value of $4.3$2.7 million vested and that amount, net of withholding taxes, was paid to grantees by issuing 98,381118,209 shares of common stock. For the year ended December 31, 2017,2020, the Company recorded an expense of $4.0$5.2 million (2016 - $4.2(2019 – $3.3 million, 2015 - $4.52018 – $3.0 million) related to the restricted stock units and performance share units.
During 2017,2020, the Company also granted 89,387 (2016203,468 (2019 – 67,000111,808 and 20152018 – 22,502)79,869) shares as restricted stock awards with a fair value of $0.9 million (2016 – $0.6 million (2019 – $0.4 million and 20152018 – $1.0$0.7 million), based on the quoted market price, to certain of the Company’s directors. The shares of restricted stock are issued when granted.
Share-based Compensation of Subsidiaries
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
During the years ended December 31, 2017, 20162020, 2019 and 2015, 56,950, 76,0842018, 29,595, 35,419 and 14,603 common units of Teekay Offshore, 17,345, 32,723 and 10,44717,498 common units of Teekay LNG, respectively, and nil, 9,35813,125, 19,918 and 51,94821,004 shares of Class A common stock of Teekay Tankers, respectively, with aggregate values of $0.6 million, $0.7 million, and $1.0$0.5 million, respectively, were granted and issued to the non-management directors of the general partnerspartner of Teekay Offshore and Teekay LNG and the non-management directors of Teekay Tankers as part of their annual compensation for 2017, 20162020, 2019 and 2015.2018.
Teekay Offshore, Teekay LNG and Teekay Tankers grant equity-based compensation awards as incentive-based compensation to certain employees of Teekay’s subsidiaries that provide services to Teekay Offshore, Teekay LNG and Teekay Tankers. During March 2017, 20162020, 2019 and 2015, Teekay Offshore and2018, Teekay LNG granted phantomrestricted unit awards and Teekay Tankers granted restricted stock-based compensation awards with respect to 321,318, 601,368243,940, 80,100 and 102,843 units of Teekay Offshore, 60,809, 132,582 and 32,05462,283 units of Teekay LNG and 382,437, 279,980182,120, 99,064 and 192,38795,330 Class A common shares of Teekay Tankers, respectively, with aggregate grant date fair values of $3.5$6.2 million, $4.9$2.0 million and $4.2$2.1 million, respectively, based on Teekay Offshore, Teekay LNG and Teekay Tankers’ closing unit or stock prices on the grant dates.
Each phantomrestricted unit or restricted stock unit is equal in value to one of Teekay Offshore’s, Teekay LNG’s or Teekay Tankers’ common units or common shares plus reinvested distributions or dividends from the grant date to the vesting date. The awards vest equally over three years from the grant date. Any portion of an award that is not vested on the date of a recipient’s termination of service is cancelled,canceled, unless their termination arises as a result of the recipient’s retirement, in which case the award will continue to vest in accordance with the vesting schedule. Upon vesting, the awards are paid to a substantial majority of the grantees in the form of common units or common shares, net of withholding tax.
During 2020, no stock options were granted by Teekay LNG and Teekay Tankers. During March 2017, 20162019 and 2015, respectively,2018, Teekay Tankers granted 486,329, 216,043218,223 and 58,43492,041 stock options, respectively, with an exercise price of $2.23, $3.74$8.00 and $5.39$9.76 per share that have a ten-yearten-year term and vest equally over three years from the grant date to an officer of Teekay Tankers and to certain employees at Teekay that provide services to Teekay Tankers. During March 20172019 and 2016, respectively,2018, Teekay Tankers also granted 396,41258,843 and 284,69363,012 stock options, respectively, with an exercise price of $2.23$8.00 and $3.74$9.76 per share that have a ten-yearten-year term and vest immediately to non-management directors of Teekay Tankers.
13. Related Party Transactions
Teekay OffshoreThe Company provides ship management and corporate services to certain of its equity-accounted joint ventures that own and operate LNG carriers on long-term charters. In addition, the Company is a related party of Teekay. As at December 31, 2017, Teekay has recorded $102.8 million in advances to Teekay Offshore and $37.2 million in advances from Teekay Offshore in current portion of loans to equity-accounted investees and advances from affiliates, respectively, on the consolidated balance sheets.
On March 31, 2018, Teekay Offshore entered into a loan agreementreimbursed for a $125.0 million senior unsecured revolving credit facility, of which up to $25.0 million is provided by Teekay Parent and up to $100.0 million is provided by Brookfield. The facility is scheduled to mature in October 2019.
Teekay Corporation and its wholly-owned subsidiaries directly and indirectly provide substantially all of Teekay Offshore’s commercial, technical, crew training, strategic, business development and administrative service needs. Revenues receivedcosts incurred by the Company for such related party transactionsits seafarers operating these LNG carriers. During the years ended December 31, 2020, December 31, 2019 and December 31, 2018, the Company earned $78.3 million, $68.8 million and $55.2 million, respectively, of fees pursuant to these management agreements and reimbursement of costs.
In September 2018, Teekay LNG entered into an agreement with its 52%-owned joint venture with Marubeni Corporation (or the MALT Joint Venture) to charter in one of the MALT Joint Venture's LNG carriers, the Magellan Spirit,which charter had an original term of two years and was further extended by 21 months to June 2022. Time-charter hire expense for the period from deconsolidation on September 25, 2017 toyear ended December 31, 2017 were $17.8 million. In connection with the Brookfield Transaction, Teekay transferred to Teekay Offshore certain of Teekay’s subsidiaries that provide certain of these services and certain related personnel, effective January 1, 2018.
During the fourth quarter of 2017, Teekay Offshore received $0.82020 was $23.6 million in fees from the Company for technical services rendered to the Company's conventional tanker fleet. As at(December 31, 2019 – $20.0 million, December 31, 2017, two shuttle tankers2018 - $7.7 million).
On May 11, 2020, Teekay and three FSOTeekay LNG agreed to eliminate all of Teekay LNG's incentive distribution rights, which were held by Teekay GP LLC, in exchange for the issuance to a subsidiary of Teekay Corporation of 10.75 million newly-issued common units of Teekay OffshoreLNG. The common units were employedvalued at $122.6 million, based on long-term time-charter-out or bareboat contracts with subsidiariesthe prevailing unit price at the time of Teekay. Time-charter hire expense paid byissuance. As a result of the share issuance of Teekay LNG, the Company recorded a decrease to accumulated deficit of $116.6 million and an increase to accumulated other comprehensive loss of $9.0 million with a corresponding decrease in non-controlling interests of $107.6 million. The $116.6 million represents Teekay’s dilution gain from the issuance of new common units by Teekay Offshore for such related party transactions forLNG and is credited directly to equity, and the post-consolidation period were $14.3 million.$9.0 million represents the change in Teekay's interest in Teekay LNG's accumulated other comprehensive loss.
As at December 31, 2017, Resolute Investments, Ltd. (or Resolute) owned 31.9% (2016 – 37.1%, 2015 – 39.1%) of the Company’s outstanding Common Stock. One of the Company’s directors, C. Sean Day, is engaged as a consultant to Kattegat Limited, the parent company of Resolute, to oversee its investments, including those in the Teekay group of companies. Another of the Company’s directors, Bjorn Moller, is a director of Kattegat Limited.
14. Other (Loss) Income
|
| | | | | | | | |
| | Year Ended
December 31,
2017
$ | | Year Ended
December 31,
2016
$ | | Year Ended
December 31,
2015
$ |
Tax indemnification guarantee liability (1) | (50,000 | ) | | — |
| | — |
|
Write-off of contingent consideration (2) | — |
| | 36,630 |
| | — |
|
Contingent liability (3) | (4,500 | ) | | (61,862 | ) | | — |
|
Gain on sale / (write-down) of cost-accounted investment (4) | 1,250 |
| | (19,000 | ) | | — |
|
| Miscellaneous (loss) income | (731 | ) | | 5,219 |
| | 1,566 |
|
| Other (loss) income | (53,981 | ) | | (39,013 | ) | | 1,566 |
|
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
| |
(1) | Related to the Teekay Nakilat capital lease (see Note 16d). |
| |
(2) | Related to reversals of contingent liabilities as a result of the cancellation of units for maintenance and safety (or UMS) construction contracts in Teekay Offshore, which was deconsolidated in September 2017 (see Note 3).
|
| |
(3) | Related to settlements and accruals made prior to September 2017 as a result of claims and potential claims made against Logitel Offshore Holding AS (or Logitel), a company acquired by Teekay Offshore in 2014. Teekay Offshore was deconsolidated in September 2017 (see Note 3).
|
| |
(4) | The Company holds cost-accounted investments at cost. During the year ended December 31, 2016, the Company recorded a write-down of an investment of $19.0 million. This investment was subsequently sold in 2017, resulting in a gain on sale of cost-accounted investment of $1.3 million. |
On May 8, 2019, Teekay sold to Brookfield Business Partners L.P. (or Brookfield) all of the Company’s remaining interests in Altera Infrastructure L.P. (or Altera) (previously known as Teekay Offshore Partners (or Teekay Offshore)), which included the Company’s 49% general partner interest, common units, warrants, and an outstanding $25 million loan from the Company to Altera (described below), for total cash proceeds of $100 million (or the 2019 Brookfield Transaction). Subsequent to the 2019 Brookfield Transaction, Altera is no longer a related party of Teekay (see Note 3).
Subsequent to the deconsolidation of Altera in September 2017 and prior to the 2019 Brookfield Transaction, the Company accounted for its investment in Altera's general partner and common units under the equity method of accounting. Based on the 2019 Brookfield Transaction, the Company remeasured its investment in Altera to fair value at March 31, 2019 based on the Altera publicly-traded unit price at that date, resulting in a write-down of $64.9 million reflected in equity loss on the Company's consolidated statements of loss for the year December 31, 2019. The Company recognized a loss on sale of $8.9 million upon completion of the 2019 Brookfield Transaction in May 2019, reflected in equity loss on the Company's consolidated statements of loss for the year December 31, 2019.
In March 2018, Altera entered into a loan agreement for a $125.0 million senior unsecured revolving credit facility, of which up to $25.0 million was provided by Teekay and up to $100.0 million was provided by Brookfield. The facility was scheduled to mature in October 2019. Teekay's $25.0 million loan to Altera was among the assets sold by Teekay to Brookfield in the 2019 Brookfield Transaction.
On September 25, 2017, Teekay, Altera and Brookfield completed a strategic partnership (or the 2017 Brookfield Transaction), which resulted in the deconsolidation of Altera as of that date. Until December 31, 2017, Teekay and its wholly-owned subsidiaries directly and indirectly provided substantially all of Altera’s ship management, commercial, technical, strategic, business development and administrative service needs. On January 1, 2018, Altera acquired a 100% ownership interest in 7 subsidiaries (or the Transferred Subsidiaries) of Teekay at carrying value. The Company recognized a loss of $7.1 million for the year ended December 31, 2018 related to the sale of the Transferred Subsidiaries and the resultant release of accumulated pension losses from accumulated other comprehensive income, which is recorded in loss on deconsolidation of Altera on the Company's consolidated statements of income (loss).
Subsequent to their transfer to Altera, the Transferred Subsidiaries continue to provide ship management, commercial, technical, strategic and administrative services to Teekay, primarily related to Teekay's FPSO units. Teekay and certain of its subsidiaries, other than the Transferred Subsidiaries, continued to provide certain other ship management, commercial, technical, strategic and administrative services to Altera; however,.most of these services are no longer provided as of the end of 2020.
Revenues recognized by the Company for services provided to Altera during the periods that Altera was a related party to the Company for the years ended December 31, 2019 and December 31, 2018, were $7.6 million and $21.0 million, respectively, which were recorded in revenues on the Company's consolidated statements of income (loss). Fees paid by the Company to Altera for services provided by Altera to the Company during the period that Altera was a related party to the Company for the years ended December 31, 2019 and December 31, 2018 were $9.6 million and $25.7 million, respectively, and were recorded in vessel operating expenses and general and administrative expenses on the Company's consolidated statements of income (loss).
During the period that Altera was a related party to the Company, 2 shuttle tankers and 3 FSO units of Altera were employed on long-term time-charter-out or bareboat contracts with subsidiaries of Teekay. Time-charter hire expense paid by the Company to Altera during the periods that Altera was a related party to the Company for the years ended December 31, 2019 and December 31, 2018 were $20.8 million and $56.3 million, respectively.
14. Other loss
| | | | | | | | | | | | | | | | | |
| Year Ended
December 31,
2020
$ | | Year Ended
December 31,
2019
$ | | Year Ended
December 31,
2018
$ |
Credit loss provision (Note 11b) | (16,997) | | | 0 | | | 0 | |
Gain (loss) on bond repurchases (1) (2) | 1,470 | | | (10,601) | | | (1,772) | |
Loss on lease extinguishment (3) | 0 | | | (1,417) | | | 0 | |
| Miscellaneous loss | (2,535) | | | (2,457) | | | (241) | |
| Other loss | (18,062) | | | (14,475) | | | (2,013) | |
(1)During 2020, the Company repurchased some of its Convertible Notes and 2022 Notes in the open market. The Company acquired $12.8 million of the principal of the Convertible Notes for total consideration of $10.5 million and $6.6 million principal of the 2022 Notes for total consideration of $6.2 million. The Company recognized a gain of $1.5 million in 2020 related to these repurchases (see note 9).
(2)In May 2019, the Company completed a cash tender offer and purchased $460.9 million in aggregate principal amount of the 2020 Notes and issued $250.0 million in aggregate principal amount of 9.25% senior secured notes at par due November 2022. The Company recognized a loss of $10.6 million on the purchase of the 2020 Notes for the year ended December 31, 2019.
(3)During September 2019, Teekay LNG refinanced the Torben Spirit by acquiring the Torben Spirit from its original Lessor and then selling the vessel to another Lessor and leasing it back for a period of 7.5 years. As a result of this refinancing transaction, Teekay LNG recognized a loss of $1.4 million for the year ended December 31, 2019 on the extinguishment of the original finance lease (see Note 11).
..
15. Derivative Instruments and Hedging Activities
The Company uses derivatives to manage certain risks in accordance with its overall risk management policies.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Foreign Exchange Risk
TheFrom time to time the Company economically hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts.
As at December 31, 2017,2020, the Company was not committed to the followingany foreign currency forward contracts:contracts.
|
| | | | | | | | | | | |
| | Contract Amount in Foreign Currency | | Average Forward Rate (1) | | Fair Value / Carrying Amount Of Asset $ | | Expected Maturity |
| | | | | 2018 |
| | | | | $ |
| Norwegian Kroner | 100,000 |
| | 8.23 |
| | 81 |
| | 12,153 |
|
(1)Average contractual exchange rate represents the contracted amount of foreign currency one U.S. Dollar will buy.
The Company enters into cross currency swaps, and pursuant to these swaps the Company receives the principal amount in NOK on the maturity datedates of the swap,swaps, in exchange for payment of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and principal at maturityamounts of the Company’s NOK-denominated bonds due in 2018, 20202021, 2023 and 2021.2025. In addition, the cross currency swaps economically hedge the interest rate exposure on the NOK bonds due in 2018, 20202021, 2023 and 2021.2025. The Company has not designated, for accounting purposes, these cross currency swaps as cash flow hedges of its NOK-denominated bonds due in 2018, 20202021, 2023 and 2021.2025. As at December 31, 2017,2020, the Company was committed to the following cross currency swaps:
| | | Notional Amount NOK | | Notional Amount USD | | | | | | | | Fair Value / Carrying Amount of (Liability) / Asset | | Remaining
Term (years) | Notional Amount NOK | | Notional Amount USD | | | | | | | | Fair Value / Carrying Amount of Asset / (Liability) | | Remaining
Term (years) |
| Floating Rate Receivable | | | | Floating Rate Receivable | | | |
| Reference Rate | | Margin | | Fixed Rate Payable | | Reference Rate | | Margin | | Fixed Rate Payable | |
| 900,000 | | 150,000 |
| | NIBOR | | 4.35 | % | | 6.43 | % | | (41,664 | ) | | 0.7 | |
| 1,200,000 | | 1,200,000 | | 146,500 | | | NIBOR | | 6.00 | % | | 7.72 | % | | (9,051) | | | 0.8 |
| 850,000 | | 850,000 | | 102,000 | | | NIBOR | | 4.60 | % | | 7.89 | % | | (10,971) | | | 2.7 |
| 1,000,000 | | 134,000 |
| | NIBOR | | 3.70 | % | | 5.92 | % | | (12,553 | ) | | 2.4 | 1,000,000 | | 112,000 | | | NIBOR | | 5.15 | % | | 5.74 | % | | 4,505 | | | 4.7 |
| 1,200,000 | | 146,500 |
| | NIBOR | | 6.00 | % | | 7.72 | % | | 3,758 |
| | 3.8 | |
| | | | | | | | | (50,459 | ) | | | (15,517) | | |
Interest Rate Risk
The Company enters into interest rate swap agreements, 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. The Company designates certain of its interest rate swap agreements as cash flow hedges for accounting purposes.
As at December 31, 2017,2020, the Company was committed to the following interest rate swap agreements related to its LIBOR-based debt and EURIBOR-based debt, whereby certain of the Company’s floating-rate debt obligations were swapped with fixed-rate obligations:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest
Rate
Index | | Principal
Amount
$ | | Fair Value /
Carrying
Amount of
Asset /
(Liability)
$ | | Weighted-
Average
Remaining
Term
(years) | | Fixed
Interest
Rate
(%) (1) |
| LIBOR-Based Debt: | | | | | | | | | |
U.S. Dollar-denominated interest rate swaps (2) | LIBOR | | 811,166 | | | (71,714) | | | 3.7 | | 3.0 |
| EURIBOR-Based Debt: | | | | | | | | | |
| Euro-denominated interest rate swaps | EURIBOR | | 70,708 | | | (6,159) | | | 2.7 | | 3.9 |
| | | | | (77,873) | | | | | |
(1)Excludes the margins the Company pays on its variable-rate debt, which, as of December 31, 2020, ranged from 0.3% to 4.25%.
(2)Includes interest rate swaps with the notional amount reducing quarterly or semi-annually. NaN interest rate swaps are subject to mandatory early termination in 2021 and 2024, at which time the swaps will be settled based on their fair value. In February 2021, 1 of the three swaps was terminated.
Stock Purchase Warrants
Prior to the 2019 Brookfield Transaction, Teekay held 15.5 million Brookfield Transaction Warrants and 1,755,000 Series D Warrants of Altera (see Note 13). As part of the 2019 Brookfield Transaction, Teekay sold to Brookfield all of the Company’s remaining interests in Teekay Offshore, which included, among other things, both the Brookfield Transaction Warrants and Series D Warrants.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
|
| | | | | | | | | | | |
| | Interest
Rate
Index | | Principal
Amount
$ | | Fair Value /
Carrying
Amount of
Asset /
(Liability)
$ | | Weighted-
Average
Remaining
Term
(years) | | Fixed
Interest
Rate
(%) (1) |
| LIBOR-Based Debt: | | | | | | | | | |
U.S. Dollar-denominated interest rate swaps (2) | LIBOR | | 1,137,671 |
| | (33,882 | ) | | 4.8 | | 2.8 |
U.S. Dollar-denominated interest rate swaps (3) | LIBOR | | 160,000 |
| | (9,360 | ) | | 0.3 | | 3.5 |
U.S. Dollar-denominated interest rate swaption (4) | LIBOR | | 160,000 |
| | (2 | ) | | 0.1 | | 2.0 |
U.S. Dollar-denominated interest rate swaption (4) | LIBOR | | 160,000 |
| | — |
| | 0.1 | | 3.1 |
| EURIBOR-Based Debt: | | | | | | | | | |
Euro-denominated interest rate swaps (5) (6) | EURIBOR | | 232,957 |
| | (29,235 | ) | | 3.0 | | 3.1 |
| | | | | | (72,479 | ) | | | | |
| |
(1) | Excludes the margins the Company pays on its variable-rate debt, which, as of December 31, 2017, ranged from 0.3% to 4.0%. |
| |
(2) | Includes interest rate swaps with the notional amount reducing quarterly or semi-annually. |
| |
(3) | Forward starting swap with inception date in April 2018. This interest rate swap is being used to economically hedge expected interest payments on new debt that is planned to be outstanding from 2018 to 2024. This interest rate swap is subject to mandatory early termination in 2018 whereby the swap will be settled based on its fair value at that time. |
| |
(4) | During August 2015, as part of its hedging program, Teekay LNG entered into interest rate swaption agreements whereby it has a one-time option in January 2018 to enter into an interest rate swap at a fixed rate of 3.10% with a third party, and the third party has a one-time option in January 2018 to require Teekay LNG to enter into an interest swap at a fixed rate of 1.97%. If Teekay LNG or the third party exercises its option, there will be a cash settlement in January 2018 for the fair value of the interest rate swap, in lieu of taking delivery of the actual interest rate swap. Neither party exercised their option in January 2018. |
| |
(5) | Principal amount reduces monthly to 70.1 million Euros ($84.2 million) by the maturity dates of the swap agreements. |
| |
(6) | Principal amount is the U.S. dollar equivalent of 194.1 million Euros.
|
Stock Purchase Warrants
As at December 31, 2017, Teekay held 14.5 million Brookfield Transaction Warrants (see Notes 3 and 11). The fair value of the Brookfield Transaction Warrants was $29.4 million as at December 31, 2017.
As of December 31, 2017, Teekay held 1,755,000 Series D Warrants (see Notes 3 and 11). The fair value of the Series D Warrants was $1.3 million as at December 31, 2017.
Upon completion of the TIL merger, TIL stock purchase warrants previously held by the Company were cancelled. As a result, no value is recorded for these warrants on the Company's consolidated balance sheet as at December 31, 2017 (see Note 11).
Time-charter Swap
Effective June 1, 2016, Teekay Tankers entered into a time-charter swap agreement for 55% of two Aframax-equivalent vessels. Under such agreement, Teekay Tankers received $27,776 per day, net of a 1.25% brokerage commission, and paid 55% of the net revenue distribution of two Aframax-equivalent vessels employed in Teekay Tankers' Aframax revenue sharing arrangement, less $500 per day, for a period of 11 months plus an additional two months at the counterparty's option. The purpose of the agreement was to reduce Teekay Tankers’ exposure to spot tanker market rate variability for certain of its vessels that are employed in the Aframax revenue sharing pooling arrangement. Teekay Tankers had not designated, for accounting purposes, the time-charter swap as a cash flow hedge. As of May 1, 2017, the time-charter swap counter-party did not exercise the two-month option and the agreement expired during May 2017. The fair value of the time-charter swap agreement at December 31, 2016 was an asset of $0.2 million.
Forward Freight Agreements
Teekay Tankers uses forward freight agreements (or FFAs) in non-hedge-related transactions to increase or decrease its exposure to spot market rates, within defined limits. Net gains and losses from FFAs are recorded within realized and unrealized loss on non-designated derivative instruments in the Company's unaudited consolidated statements of (loss) income. The fair value of the forward freight agreement at December 31, 2017 was $nil.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
Tabular Disclosure
The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Company’s consolidated balance sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Prepaid Expenses and Other | | Goodwill, Intangibles and Other Non-Current Assets | | Accrued Liabilities and Other (1) | | Accrued Liabilities and Other (2) | | Other long-term liabilities |
| As at December 31, 2020 | | | | | | | | | |
| Derivatives designated as a cash flow hedge: | | | | | | | | | |
| Interest rate swap agreements | 0 | | | 0 | | | (70) | | | (3,162) | | | (9,631) | |
| Derivatives not designated as a cash flow hedge: | | | | | | | | | |
| | | | | | | | | |
| Interest rate swap agreements | 0 | | | 0 | | | (5,372) | | | (43,590) | | | (16,048) | |
| Cross currency swap agreements | 0 | | | 4,505 | | | (701) | | | (11,434) | | | (7,887) | |
| | | | | | | | | |
| 0 | | | 4,505 | | | (6,143) | | | (58,186) | | | (33,566) | |
| | | | | | | | | |
| Prepaid Expenses and Other | | Goodwill, Intangibles and Other Non-Current Assets | | Accrued Liabilities and Other (1) | | Accrued Liabilities and Other (2) | | Other long-term liabilities |
| As at December 31, 2019 | | | | | | | | | |
| Derivatives designated as a cash flow hedge: | | | | | | | | | |
| Interest rate swap agreements | 0 | | | 0 | | | (13) | | | (836) | | | (3,475) | |
| Derivatives not designated as a cash flow hedge: | | | | | | | | | |
| Foreign currency contracts | 0 | | | 0 | | | 0 | | | (202) | | | 0 | |
| Interest rate swap agreements | 932 | | | 1,916 | | | (2,948) | | | (15,478) | | | (29,452) | |
| Cross currency swap agreements | 0 | | | 0 | | | (456) | | | (22,661) | | | (18,987) | |
| | | | | | | | | |
| Forward freight agreements | 0 | | | 0 | | | 0 | | | (86) | | | 0 | |
| 932 | | | 1,916 | | | (3,417) | | | (39,263) | | | (51,914) | |
|
| | | | | | | | | | | | | | |
| | Prepaid Expenses and Other | | Other Non-Current Assets | | Accrued Liabilities and Other | | Current
Portion of
Derivative
Liabilities | | Derivative
Liabilities |
| As at December 31, 2017 | | | | | | | | | |
| Derivatives designated as a cash flow hedge: | | | | | | | | | |
| Interest rate swap agreements | — |
| | 1,037 |
| | (18 | ) | | (751 | ) | | (7 | ) |
| Derivatives not designated as a cash flow hedge: |
| |
| |
| |
| |
|
| Foreign currency contracts | 96 |
| | — |
| | — |
| | (15 | ) | | — |
|
| Interest rate swap agreements | 1,124 |
| | 4,319 |
| | (4,836 | ) | | (35,134 | ) | | (38,213 | ) |
| Cross currency swap agreements | — |
| | 5,042 |
| | (810 | ) | | (44,523 | ) | | (10,168 | ) |
| Stock purchase warrants | — |
| | 30,749 |
| | — |
| | — |
| | — |
|
| | 1,220 |
| | 41,147 |
| | (5,664 | ) | | (80,423 | ) | | (48,388 | ) |
| As at December 31, 2016 | | | | | | | | | |
| | | | | | | | | |
| Derivatives designated as a cash flow hedge: | | | | | | | | | |
| Interest rate swap agreements | — |
| | 1,340 |
| | (363 | ) | | (1,033 | ) | | (52 | ) |
| Derivatives not designated as a cash flow hedge: | | | | | | | | | |
| Foreign currency contracts | 119 |
| | — |
| | — |
| | (2,601 | ) | | (511 | ) |
| Interest rate swap agreements | 212 |
| | 9,839 |
| | (11,979 | ) | | (59,055 | ) | | (233,901 | ) |
| Cross currency swap agreements | — |
| | — |
| | (3,464 | ) | | (53,124 | ) | | (180,577 | ) |
| Stock purchase warrants | — |
| | 575 |
| | — |
| | — |
| | — |
|
| Time -charter swap agreement | 875 |
| | — |
| | (667 | ) | | — |
| | — |
|
| | 1,206 |
| | 11,754 |
| | (16,473 | ) | | (115,813 | ) | | (415,041 | ) |
(2)Represents the current portion of derivative liabilities recorded in accrued liabilities and other on the consolidated balance sheets (see Note 6).
As at December 31, 2017,2020, the Company had multiple interest rate swaps and cross currency swaps and foreign currency forward contracts with the same counterparty that are subject to the same master agreements. Each of these master agreements provides for the net settlement of all derivatives subject to that master agreement through a single payment in the event of default or termination of any one derivative. The fair value of these derivatives is presented on a gross basis in the Company’s audited consolidated balance sheets. As at December 31, 2017,2020, these derivatives had an aggregate fair value asset amount of $9.8$4.5 million (December 31, 2016 - $7.22019 – $3.1 million) and an aggregate fair value liability amount of $86.1$73.7 million (December 31, 2016 - $398.72019 – $74.3 million). As at December 31, 2017,2020, the Company had $22.3$3.8 million on deposit with the relevant counterparties as security for swap liabilities under certain master agreements (December 31, 2016 - $68.02019 – $14.3 million). The deposit is presented in restricted cash – current and long-term on the consolidated balance sheets.
During 2017, as part of the Brookfield Transaction (see Note 3), Teekay was released from all of its previous guarantees relating to Teekay Offshore's interest rate swap and cross currency swap agreements.
For the periods indicated, the following table presents the effective portion of (losses) gains on consolidated interest rate swap agreements designated and qualifying as cash flow hedges:hedges (excluding such agreements in equity-accounted investments):
| | | | | | | | |
| Year Ended December 31, 2020 |
| Amount of Loss Recognized in OCI (effective portion) | | Amount of Loss Reclassified from Accumulated OCI to Interest Expense (1) |
| $ | | $ |
| (8,481) | | | (2,320) | |
|
| | | | | | | | | |
| Year Ended December 31, 2017 |
| Effective Portion | | Effective Portion | | Ineffective | | |
Recognized in AOCI (1) | | Reclassified from AOCI (2) | | Portion | | |
| $ | | $ | | $ | | |
| (31 | ) | | (1,614 | ) | | (746 | ) | | Interest expense |
| (31 | ) | | (1,614 | ) | | (746 | ) | | |
| | | | | | | | | | |
| Year Ended December 31, 2019 |
| Amount of Loss Recognized in OCI (effective portion) | | Amount of Loss Reclassified from Accumulated OCI to Interest Expense (1) | | |
| $ | | $ | | |
| (7,458) | | | 376 | | | |
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
| | | | | | | | | | | | | | |
| Year Ended December 31, 2018 |
| Amount of Gain Recognized in OCI (effective portion) | | Amount of Loss Reclassified from Accumulated OCI to Interest Expense (1) | | Amount of Gain Recognized in Interest Expense (ineffective portion) |
| $ | | $ | | $ |
| 2,128 | | | (152) | | | 740 | |
(1)See Note 1 – adoption of ASU 2017-12.
|
| | | | | | | | | |
| Year Ended December 31, 2016 |
| Effective Portion | | Effective Portion | | Ineffective | | |
Recognized in AOCI (1) | | Reclassified from AOCI (2) | | Portion | | |
| $ | | $ | | $ | | |
| 691 |
| | (68 | ) | | 682 |
| | Interest expense |
| 691 |
| | (68 | ) | | 682 |
| | |
(1) Recognized in accumulated other comprehensive loss (or AOCI).
(2) Recorded in AOCI during the term of the hedging relationship and reclassified to earnings.
(3) Recognized in the ineffective portion of (losses) gains on derivative instruments designated and qualifying as cash flow hedges.
As at December 31, 2017, the Company estimated, based on then current interest rates, that it would reclassify approximately $0.6 million of net losses on interest rate swaps from accumulated other comprehensive loss to earnings during the next 12 months.
Realized and unrealized (losses) and gains from derivative instruments that are not designated for accounting purposes as cash flow hedges, are recognized in earnings and reported in realized and unrealized losses on non-designated derivatives in the consolidated statements of income (loss) income.. The effect of the (losses) and gains on derivatives not designated as hedging instruments in the consolidated statements of income (loss) income are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended
December 31, 2020
$ | | Year Ended
December 31, 2019
$ | | Year Ended
December 31, 2018
$ |
| Realized (losses) gains relating to: | | | | | |
| Interest rate swap agreements | (17,483) | | | (8,296) | | | (13,898) | |
| Interest rate swap agreement terminations | 0 | | | 0 | | | (13,681) | |
| Foreign currency forward contracts | 138 | | | (147) | | | 0 | |
| Stock purchase warrants | 0 | | | (25,559) | | | 0 | |
| | | | | |
| Forward freight agreements | (1,242) | | | 1,490 | | | 137 | |
| (18,587) | | | (32,512) | | | (27,442) | |
| Unrealized (losses) gains relating to: | | | | | |
| Interest rate swap agreements | (17,558) | | | (7,878) | | | 33,700 | |
| Foreign currency forward contracts | 202 | | | (200) | | | 0 | |
| Stock purchase warrants | 0 | | | 26,900 | | | (21,053) | |
| | | | | |
| Forward Freight Agreements | 86 | | | (29) | | | (57) | |
| (17,270) | | | 18,793 | | | 12,590 | |
| Total realized and unrealized losses on derivative instruments | (35,857) | | | (13,719) | | | (14,852) | |
|
| | | | | | | | |
| | Year Ended
December 31, 2017
$ | | Year Ended
December 31, 2016
$ | | Year Ended
December 31, 2015
$ |
| Realized (losses) gains relating to: | | | | | |
| Interest rate swap agreements | (53,921 | ) | | (87,320 | ) | | (108,036 | ) |
| Interest rate swap agreement terminations | (610 | ) | | (8,140 | ) | | (10,876 | ) |
| Foreign currency forward contracts | 667 |
| | (11,186 | ) | | (21,607 | ) |
| Time charter swap agreement | 1,106 |
| | 2,154 |
| | — |
|
| Forward freight agreements | 270 |
| | — |
| | — |
|
| | (52,488 | ) | | (104,492 | ) | | (140,519 | ) |
| Unrealized gains (losses) relating to: | | | | | |
| Interest rate swap agreements | 17,005 |
| | 62,446 |
| | 37,723 |
|
| Foreign currency forward contracts | 3,925 |
| | 15,833 |
| | (418 | ) |
| Stock purchase warrants | (6,421 | ) | | (9,753 | ) | | 1,014 |
|
| Time-charter swap agreement | (875 | ) | | 875 |
| | — |
|
| | 13,634 |
| | 69,401 |
| | 38,319 |
|
| Total realized and unrealized losses on derivative instruments | (38,854 | ) | | (35,091 | ) | | (102,200 | ) |
Realized and unrealized losses of the cross currency swaps are recognized in earnings and reported in foreign exchange (loss) gain in the consolidated statements of income (loss) income.. The effect of the gains (losses)losses on cross currency swaps on the consolidated statements of income (loss) income is as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020
$ | | 2019
$ | | 2018
$ |
| Realized losses on maturity and/or partial termination of cross currency swaps | (33,844) | | | 0 | | | (42,271) | |
| Realized losses | (6,588) | | | (5,062) | | | (6,533) | |
| Unrealized gains (losses) | 26,832 | | | (13,239) | | | 21,240 | |
| Total realized and unrealized losses on cross currency swaps | (13,600) | | | (18,301) | | | (27,564) | |
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2017
$ | | 2016
$ | | 2015
$ |
| Realized losses on maturity and/or partial termination of cross currency swap | (25,733 | ) | | (41,707 | ) | | (36,155 | ) |
| Realized losses | (18,494 | ) | | (38,564 | ) | | (18,973 | ) |
| Unrealized gains (losses) | 82,668 |
| | 75,033 |
| | (89,178 | ) |
| Total realized and unrealized gains (losses) on cross currency swaps | 38,441 |
| | (5,238 | ) | | (144,306 | ) |
The Company is exposed to credit loss to the extent the fair value represents an asset in the event of non-performance by the counterparties to the foreign currency forward contracts, and cross currency 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.
16. Commitments and Contingencies
a)Vessels Under Construction and Upgrades
Teekay LNG's share of commitments to fund equipment installation and other construction contract costs as at December 31, 2020 are as follows:
| | | | | | | | | | | |
| Total | 2021 | 2022 |
| $ | $ | $ |
Consolidated LNG carriers (i) | 40,312 | | 24,760 | | 15,552 | |
Bahrain LNG Joint Venture (ii) | 11,339 | | 11,339 | | 0 | |
| 51,651 | | 36,099 | | 15,552 | |
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
16. Commitments(i)In June 2019, Teekay LNG entered into an agreement with a contractor to supply reliquefaction equipment on certain of Teekay LNG's carriers in 2021 and Contingencies
a)Vessels under Construction
As at December 31, 2017, the Company was committed to the construction of six LNG carriers2022, for a totalan estimated installed cost of approximately $1.2 billion, including capitalized interest and other miscellaneous construction costs. Vessels in which the Company holds an interest through non-consolidated joint ventures are excluded from the above amounts and are described in Note 16b. Four LNG carriers are scheduled for delivery in 2018 and two LNG carriers are scheduled for delivery in 2019. As at December 31, 2017, payments made towards these commitments totaled $444.5$59.5 million. As at December 31, 2017,2020, the estimated remaining payments required to be made undercost of these newbuildinginstallations was $40.3 million.
(ii)Teekay LNG has a 30% ownership interest in the Bahrain LNG Joint Venture which has an LNG receiving and conversion capital commitments were $552.4 million (2018) and $252.1 million (2019).
b)Joint Ventures
Teekay LNG’s share of commitments to fund newbuilding and other construction contract costs of its non-consolidated joint ventures asregasification terminal in Bahrain. As at December 31, 2017 are as follows:2020, Teekay LNG's proportionate share of the estimated remaining cost of $11.3 million relates to the final construction installment on the LNG terminal. The Bahrain LNG Joint Venture has remaining debt financing of $24.0 million, of which $7.0 million relates to Teekay LNG's proportionate share of the construction commitments included in the table above.
|
| | | | | | | | |
| | Total
$ | 2018
$ | 2019
$ | 2020
$ |
Yamal LNG Joint Venture (i) | 781,300 |
| 350,100 |
| 232,000 |
| 199,200 |
|
Pan Union Joint Venture (ii) | 116,629 |
| 87,102 |
| 29,527 |
| — |
|
Bahrain LNG Joint Venture (iii) | 133,936 |
| 80,733 |
| 53,203 |
| — |
|
Exmar LPG Joint Venture (iv) | 54,570 |
| 54,570 |
| — |
| — |
|
| | 1,086,435 |
| 572,505 |
| 314,730 |
| 199,200 |
|
| |
(i) | Teekay LNG, through the Yamal LNG Joint Venture, has a 50% ownership interest in six 172,000-cubic meter ARC7 LNG carrier newbuildings that have an estimated total fully built-up cost of approximately $2.1 billion. As at December 31, 2017, Teekay LNG’s proportionate costs incurred under these newbuilding contracts totaled $240.1 million. The Yamal LNG Joint Venture had secured debt financing of $816.0 million for the six LNG carrier newbuildings, of which $751.5 million was undrawn at December 31, 2017, related to Teekay LNG's proportionate share of the commitments included in the table above. |
| |
(ii) | Through the Pan Union Joint Venture, Teekay LNG has an ownership interest ranging from 20% to 30% in three LNG carrier newbuildings scheduled for delivery in 2018 and 2019. The Pan Union Joint Venture had secured financing of $87.0 million related to Teekay LNG's proportionate share of the commitments included in the table above and Teekay LNG is scheduled to receive $3.5 million of reimbursement directly from Shell. |
| |
(iii) | Teekay LNG has a 30% ownership interest in the Bahrain LNG Joint Venture for the development of an LNG receiving and regasification terminal in Bahrain. The project will include a FSU, which will be modified from one of the Teekay LNG’s existing MEGI LNG carrier newbuildings, an offshore gas receiving facility, and an onshore nitrogen production facility. The terminal will have a capacity of 800 million standard cubic feet per day and will be owned and operated under a 20-year agreement commencing early-2019. The receiving and regasification terminal is expected to have a fully-built up cost of approximately $960.0 million. The Bahrain LNG Joint Venture has secured debt financing for approximately 75% of the estimated fully built-up cost of the LNG receiving and regasification terminal in Bahrain. |
| |
(iv) | Teekay LNG has a 50% ownership interest in the Exmar LPG Joint Venture which has three LPG newbuilding vessels scheduled for delivery in 2018 and has secured $56.0 million of financing for two of the three LPG carrier newbuildings related to the commitments included in the table above. |
c)b)Liquidity
Management is required to assess if the Company will have sufficient liquidity to continue as a going concern for the one-year period following the issuance of its financial statements. The Company had $513.7consolidated net income of $91.0 million and $984.0 million of consolidated cash flows from operating activities during the year ended December 31, 2017,2020 and ended the year with a working capital deficit of $532.2$213.1 million. This working capital deficit is driven primarily fromincluded approximately $261.4 million related to scheduled maturities and repayments of debt in the next 12 months and repayment obligations of approximately $800.9 million of outstanding consolidated debt, which were classified as current liabilities as at December 31, 2017. In addition to these obligations, the Company also anticipates that Teekay LNG will be required to make payments related to commitments to fund vessels under construction and may be required to make a payment under a tax lease indemnification (see Notes 16a, 16b and 16d).months.
Based on these factors, over the one-year period following the issuance of their consolidated financial statements, the Company’s consolidated subsidiaries, Teekay Tankers and Teekay LNG, will need to obtain additional sources of financing, in addition to amounts generated from operations, to meet their minimum liquidity requirements under their financial covenants. These anticipated potential sources of financing include: refinancing various loan facilities of Teekay LNG and Teekay Tankers; negotiating new secured debt financings related to vessels under construction or other unencumbered operating vessels for Teekay LNG; potentially raising capital through equity and/or bond issuances; and negotiating extensions or redeployments of existing assets. The success of these initiatives of the Controlled Daughter Entities may impact the liquidity of Teekay Parent through the payment of dividends/distributions by the Controlled Daughter Entities to Teekay Parent.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
The Company is actively pursuing the alternatives described above, which it considers probable of completion based on the Company’s history of being able to complete equity and bond issuances, refinance similar loan facilities and to obtain new debt financing for its vessels under construction, as well as the progress it has made on the financing process to-date. The Company is in various stages of completion on these matters.
Based on the Company’s liquidity at the date these consolidated financial statements were issued, the liquidity the Company expects to generate from operations over the following year, the dividends it expects to receive from its equity-accounted joint ventures, and by incorporating the Company’s plans to raise additional liquidity that it considers probable of completion,expected debt refinancings, the Company expects that it will have sufficient liquidity to continue as a going concern for at least the one-year period following the issuance of these consolidated financial statements.
d)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, other than with respect to the items noted below, 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.
Teekay Nakilat Capital Lease
Teekay LNG owns a 70% interest in Teekay Nakilat Corporation (or Teekay NakilatThe Tangguh Joint Venture), is currently undergoing a subsidiarytax audit related to its tax returns filed for the 2010 and subsequent fiscal years. The UK taxing authority has challenged the deductibility of certain transactions not directly related to the lessee under three separate 30-year capitallong funding lease arrangements with a third party for three LNG carriers (orand the RasGas II LNG Carriers). Under the terms of the leases in respect of the RasGas II LNG Carriers, the lessor claimed tax depreciation on the capital expenditures it incurred to acquire these vessels. As is typical in these leases, tax and change of law risks were assumed by the lessee, in this case the Teekay Nakilat Joint Venture. Lease payments under the leases were based on certain tax and financial assumptions at the commencement of the leases and subsequently adjusted to maintain its agreed after-tax margin. On December 22, 2014, the Teekay NakilatTangguh Joint Venture terminated the leasinghas recorded a provision of the RasGas II LNG Carriers. However, the$1.6 million in 2017 (of which Teekay Nakilat Joint Venture remains obligated to the lessor to maintain the lessor’s agreed after-tax margin from the commencement of the lease to the lease termination date and as at December 31, 2017, the Teekay Nakilat Joint Venture’s carrying amount of this estimated tax indemnification guarantee was $62.7 million or GBP 46.4 million (December 31, 2016 - $13.3 million or GBP 10.8LNG’s 70% share is $1.1 million) which is included as partpresented net of accrued liabilities and otherincome tax receivable in accounts receivable in the Company's consolidated balance sheets. Additionally,sheets as at December 31, 2017, the Teekay Nakilat Joint Venture had $7.0 million2020 (December 31, 2016 – $6.8 million) on deposit with the lessor as security against any future claims and2019 - $1.6 million recorded as part of restricted cash in the Company's consolidated balance sheets.accrued liabilities).
The UK taxing authority (or HMRC) has been challenging the use of similar lease structures in the UK courts. One of those challenges was eventually decided in favor of HMRC (Lloyds Bank Equipment Leasing No. 1 or LEL1), with the lessor and lessee choosing not to appeal further. The LEL1 tax case concluded that capital allowances were not available to the lessor. On the basis of this conclusion, HMRC is now asking lessees on other leases, including the Teekay Nakilat Joint Venture, to accept that capital allowances are not available to their lessor. Under the terms of the lease, the lessor is entitled to make a determination that additional rentals are due, even where a court has not made a determination on whether capital allowances are available or where discussions are otherwise ongoing with HMRC on the matter. The Teekay Nakilat Joint Venture now believes that it is probable that the lessor will make such a determination, and demand additional rentals. As a result, in the three months ended December 31, 2017, the Teekay Nakilat Joint Venture recognized an additional tax indemnification guarantee liability of $50.0 million (which is included in the afore-mentioned total accrued liability of $62.7 million as at December 31, 2017) as estimated primarily based on information received from the lessor and presented in other (loss) income on the consolidated statements of (loss) income for the year ended December 31, 2017.
e)Redeemable Non-Controlling Interest
In July 2015, Teekay Offshore issued in a private placement 10.4 million of its 8.60% Series C Cumulative Convertible Perpetual Preferred Units (or Series C Preferred Units). The terms of the Series C Preferred Units provided that at any time after the 18-month anniversary of the closing date, at the election of each holder, the Series C Preferred Units could be converted on a one-for-one basis into common units of Teekay Offshore. In addition, if after the three-year anniversary of the closing date, the volume weighted average price of the common units exceeded $35.925, Teekay Offshore had the option to convert the Series C Preferred Units into common units. The Series C Preferred Units could be redeemed in cash if a change of control occurred in Teekay Offshore.
In June 2016, Teekay Offshore and the unitholders of the Series C Preferred Units exchanged approximately 1.9 million of the Series C Preferred Units for approximately 8.3 million common units of Teekay Offshore and also exchanged the remaining approximately 8.5 million Series C Preferred Units for approximately 8.5 million Series C-1 Preferred Units. The terms of the Series C-1 Preferred Units were equivalent to the terms of the Series C Preferred Units, with the exception that at any time after the 18-month anniversary of the original Series C Preferred Units closing date, at the election of each holder, each Series C-1 Preferred Unit was convertible into 1.474 common units of Teekay Offshore. In addition, if a unitholder of the Series C-1 Preferred Units elected to convert their Series C-1 Preferred Units into common units of Teekay Offshore, Teekay Offshore had the option to redeem these Series C-1 Preferred Units for cash based on the closing market price of the common units of Teekay Offshore instead of issuing common units. Furthermore, if after the three-year anniversary of the closing date, the volume weighted average price of the common units exceeded 150% of $16.25 per unit, Teekay Offshore had the option to convert the Series C-1 Preferred Units into common units. Consistent with the terms of the Series C Preferred Units, the Series C-1 Preferred Units could have been redeemed in cash if a change of control occurred in Teekay Offshore. As a result, the Series C-1 Preferred Units were, prior to the deconsolidation of Teekay Offshore in September 2017, included on the Company’s unaudited consolidated balance sheet as part of temporary equity which is above the equity section but below the liabilities section.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
In June 2016, Teekay Offshore issued 4.0 million of its 10.50% Series D Cumulative Convertible Perpetual Preferred Units (or Series D Preferred Units). The Series D Preferred Units had no mandatory redemption date, but they were redeemable at Teekay Offshore's option after June 29, 2021 for a 10% premium to the liquidation value and for a 5% premium to the liquidation value any time after June 29, 2022. The Series D Preferred Units were exchangeable into common units of Teekay Offshore at the option of the holder at any time after June 29, 2021, based on the 10-trading day volume weighted average price at the time of the notice of exchange or $4.00. A change of control event involving the purchase of all outstanding common units for consideration of at least 90% cash of a change in ownership of the general partner of Teekay Offshore by 50% or more would have resulted in the Series D Preferred Units being redeemable for cash. As a result, the Series D Preferred Units, net of Teekay's units, were, prior to the deconsolidation of Teekay Offshore in September 2017, included on the Company’s consolidated balance sheet as part of temporary equity which is above the equity section but below the liabilities section.
As part of the Brookfield Transaction (see Note 3), Teekay Offshore repurchased and cancelled all of its outstanding Series C-1 and Series D Preferred Units, and as a result redeemable non-controlling interest is no longer included in the Company's consolidated balance sheet.
f)d)Other
The Company enters into indemnification agreements with certain Officersofficers and Directors.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.
Teekay LNG guarantees its proportionate share of certain loan facilities and obligations on interest rate swaps for its equity-accounted joint ventures for which the aggregate principal amount of the loan facilities and fair value of the interest rate swaps as at December 31, 2020 was $1.4 billion. As at December 31, 2020, with the exception of a debt service coverage ratio breach for one of the vessels in the Angola Joint Venture, Teekay LNG's equity-accounted joint ventures were in compliance with all covenants relating to these loan facilities that Teekay LNG guarantees. In March 2021, the Angola Joint Venture obtained a waiver for the covenant requirement that was not met at December 31, 2020.
17. Supplemental Cash Flow Information
a)Total cash, cash equivalents, restricted cash, and cash and restricted cash held for sale are as follows:
| | | | | | | | | | | | | | | | | |
| December 31, 2020 | | December 31, 2019 | | December 31, 2018 |
| $ | | $ | | $ |
| Cash and cash equivalents | 348,785 | | | 353,241 | | | 424,169 | |
| Restricted cash – current | 11,144 | | | 56,777 | | | 40,493 | |
| Restricted cash – non-current | 45,961 | | | 44,849 | | | 40,977 | |
| Assets held for sale - cash | 0 | | | 1,121 | | | 0 | |
| Assets held for sale - restricted cash | 0 | | | 337 | | | 0 | |
| 405,890 | | | 456,325 | | | 505,639 | |
The Company maintains restricted cash deposits relating to certain term loans, collateral for cross currency swaps (see Note 15), leasing arrangements, project tenders and amounts received from charterers to be used only for dry-docking expenditures and emergency repairs.
b)The changes in operating assets and liabilities for the years ended December 31, 2017, 2016,2020, 2019, and 2015,2018, are as follows:
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Accounts receivable | (1,925 | ) | | 96,497 |
| | (6,488 | ) |
| Prepaid expenses and other | 2,608 |
| | 9,690 |
| | (10,607 | ) |
| Accounts payable | (14,499 | ) | | (10,705 | ) | | (24,727 | ) |
| Accrued liabilities and other | 120,383 |
| | (57,149 | ) | | 29,531 |
|
| | 106,567 |
| | 38,333 |
| | (12,291 | ) |
| |
b) | Cash interest paid, including realized interest rate swap settlements, during the years ended December 31, 2017, 2016, and 2015, totaled $319.6 million, $341.0 million and $318.1 million, respectively. In addition, during the years ended December 31, 2017, 2016, and 2015, cash interest paid relating to interest rate swap amendments and terminations totaled $0.6 million, $8.1 million and $10.9 million, respectively. |
| |
c) | As described in Note 4a, in November 2017, Teekay Tankers acquired the outstanding shares of TIL through issuing 89.0 million Class A common shares, which was treated as a non-cash transaction in the Company's consolidated statement of cash flows. As a result of this transaction, Teekay Tankers acquired $37.6 million in cash and paid $6.8 million in legal fees.
|
| |
d) | In 2017 and 2016, the portion of the distributions paid in kind by Teekay Offshore to the unit holders of Series C-1 Preferred Units and Series D Preferred Units, of $12.7 million and $11.7 million, respectively, was treated as a non-cash transaction in the consolidated statements of cash flows. |
| |
e) | As described in Note 4c, in August 2015, Teekay Tankers agreed to acquire 12 modern Suezmax tankers from Principal Maritime. As of December 31, 2015, all 12 of the vessels had been delivered for a total purchase price of $661.3 million, consisting of $612.0 million in cash and approximately 7.2 million shares of Teekay Tankers’ Class A common stock or $49.3 million, which was treated as a non-cash transaction in the consolidated statement of cash flows. |
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
| $ | | $ | | $ |
| Accounts receivable | 38,589 | | | (38,811) | | | (25,090) | |
| Prepaid expenses and other | 65,589 | | | (103,712) | | | (30,808) | |
| Accounts payable | (6,576) | | | 104,579 | | | 8,929 | |
| Accrued liabilities and other | 1,570 | | | 33,121 | | | 32,215 | |
Receipts from direct financing and sales-type leases (1) | 340,931 | | | 17,073 | | | 0 | |
| Asset retirement obligation expenditures | (17,458) | | | 0 | | | 0 | |
| Expenditures for drydocking | (29,914) | | | (60,608) | | | (44,690) | |
| 392,731 | | | (48,358) | | | (59,444) | |
18. Asset Impairments and Loss on Sales of Vessels, Equipment and Other Operating Assets
a) Asset Impairments
In September 2017,(1)Included in the estimated future cash flows and carrying value of the asset groups for the Petrojarl Foinaven FPSO unit and Petrojarl Banff FPSO unit, each owned by Teekay Parent, changed upon the deconsolidation of Teekay Offshore. For the Petrojarl Foinaven FPSO, two shuttle tankers, which are owned by Teekay Offshore, were removed from the carrying value of the asset group and the estimated future cash flows of the asset group was changed to include the in-charter costs of these two vessels to be paid by Teekay Parent to Teekay Offshore. For the Petrojarl Banff FPSO, the carrying value of an FSO, which is owned by Teekay Offshore, was removed from the carrying value of the asset group and the estimated future cash flows of the asset group was changed to include the in-charter costs of the FSO unit to be paid by Teekay Parent to Teekay Offshore. This change in asset groups and a re-evaluation of the estimated future net cash flows of the units resulted in a write down of the carrying values of the units to their estimated fair values, which in aggregate was approximately $113.0 million and resulted in impairment charges of $205.7 million for the Petrojarl Foinaven FPSO and Petrojarl Banff FPSO,balance for the year ended December 31, 2017. The impairment charges2020 are includedpayments received by the Company upon the sale of 2 LNG carriers in January 2020 and a payment received by the Company in April 2020 as part of the bareboat charter with BP for the Petrojarl Foinaven FPSO. See Note 2.
c)Cash interest paid, including realized interest rate swap settlements, during the years ended December 31, 2020, 2019, and 2018, totaled $227.5 million, $290.3 million and $242.9 million, respectively. In addition, during the years ended December 31, 2020, 2019, and 2018, cash interest paid relating to interest rate swap amendments and terminations totaled $NaN, $NaN and $13.7 million, respectively.
d)On May 11, 2020, Teekay Parent and Teekay LNG eliminated all of the Teekay LNG's incentive distribution rights, which were held by the Teekay GP LLC, in exchange for the issuance to a subsidiary of Teekay Corporation of newly-issued common units of Teekay LNG. This transaction was treated as a non-cash transaction in the Company's consolidated statements of cash flows.
e)On March 27, 2020, Teekay Parent Segment - Offshore Production. The Company has determinedsold Golar-Nor to Altera (see Note 9). Among the discounted cash flows usingassets and liabilities of Golar-Nor that were deconsolidated concurrently with the current projected time charter ratessale were Golar-Nor's operating lease right-of-use assets and costs, discounted at an estimated market participant rate of 10%. For both units,operating lease liabilities relating to the Petroatlantic and Petronordic shuttle tankers totaling $50.7 million and $50.7 million, respectively.
f)During the years ended December 31, 2020 and December 31, 2019, the Company has includedentered into new or extended operating leases, primarily for in-chartered vessels, which resulted in the existing contracted time charter ratesrecognition of additional operating lease right-of-use assets and operating costs as well as projected future use on another field. lease liabilities of $0.8 million and $47.7 million, respectively.
g)The projected future use of eachassociated sales of the FPSO units takes into considerationToledo Spirit and Teide Spirit by its owner during the Company’s estimated upgrade costsyears ended December 31, 2019 and projected time charter rates that could be contractedDecember 31, 2018, respectively, resulted in future periods. In establishing these estimates, the Company has considered current discussionsvessels being returned to their owner with potential customers, available information regarding field expansions and historical experience redeploying FPSO units.
Under Teekay LNG's charter contracts for the Teide Spirit and Toledo Spirit Suezmax tankers,obligations related to finance lease being concurrently extinguished. As a result, the charterer, who is also the ownersales of the vessels hasand the option to cancel the charter contracts 13 years following commencementconcurrent extinguishment of the respective charter contracts. In August 2017, the charterercorresponding obligations related to finance lease of the Teide Spirit gave formal notification to Teekay LNG of its intention to terminate its charter contract subject to certain conditions being met$23.6 million and third-party approvals being received. In October 2017, the charterer notified Teekay LNG that it is marketing the Teide Spirit for sale and, upon sale of the vessel, it will concurrently terminate its existing charter contract with Teekay LNG. The charterer’s cancellation option$23.1 million for the Toledo Spirit is first exercisable in August 2018. Given Teekay LNG's prior experience with this charterer, Teekay LNG expects it will also cancel the charter contractyears ended December 31, 2019 and sell the Toledo Spirit to a third party in 2018. Teekay LNG wrote-down the vessels to their estimated fair values based on their expected future discounted cash flows and recorded a $25.5 million write down on a combined basis of the Teide Spirit and Toledo Spirit. The write-downs are includedDecember 31, 2018, respectively, were treated as non-cash transactions in the Company's consolidated statements of cash flows.
h)As at December 31, 2018, Teekay LNG Segment - Conventional Tankers.
In 2016,had advanced $79.1 million to the carrying valueBahrain LNG Joint Venture and these advances were repayable on November 14, 2019. On the repayment date, Teekay LNG agreed to convert $7.9 million of advances into equity and agreed to convert the Navion Marita was written down to its estimated fair value, usingremaining advances of $71.2 million into a subordinated loan at an appraised value,interest rate of 6% with no fixed repayment terms. Both of these transactions were treated as a result of fewer opportunities to trade the vesselnon-cash transactions in the spot conventional tanker market. The Company’sCompany's consolidated statementstatements of (loss) incomecash flows for the year ended December 31, 2016, includes a $2.1 million write-down related to this vessel. The write-down is included in the Company’s Teekay Offshore Segment.2019.
In 2016, Teekay Offshore canceled the UMS construction contracts for its two UMS newbuildings. As a result, the carrying values of these two UMS newbuildings were written down to $nil. The Company's consolidated statement of (loss) income for the year ended December 31, 2016 includes a $43.7 million write-down related to these two UMS newbuildings. The write-down is included in the Company’s Teekay Offshore Segment.
In 2015, seven of Teekay Offshore’s 1990s-built shuttle tankers were written down to their estimated fair value, using appraised values. Of the seven shuttle tankers, during the first quarter of 2015, one shuttle tanker was written down as a result of the expected sale of the vessel and the vessel was classified as held for sale on the Company’s consolidated balance sheet as at December 31, 2015. An additional shuttle tanker was written down during the first quarter of 2015 as a result of a change in the operating plan of the vessel. In the fourth quarter of 2015, the write-down of five shuttle tankers, which had an average age of 17.5 years, was the result of changes in Teekay Offshore’s expectations of their future opportunities, primarily due to their advanced age. The Company’s consolidated statements of (loss) income for the year ended December 31, 2015, includes total write-downs of $66.7 million related to these seven shuttle tankers. The write-downs are included in the Company’s Teekay Offshore Segment.
b) Loss on Sales of Vessels, Equipment and Other Operating Assets
The Company's sale of vessels generally consists of those vessels approaching the end of their useful lives as well as other vessels it strategically sells to reduce exposure to a certain vessel class.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
18. Write-down and Loss on Sale
The Company's write-downs and vessel sales generally relate to vessels approaching the end of their useful lives as well as other vessels it strategically sells, or is attempting to sell, to reduce exposure to a certain vessel class.
The following table shows the write-downs and net (loss) gain on sale of vessels equipment and other operating assets for the years ended December 31, 2017, 2016,2020, 2019, and 2015:2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Write-down and (Loss) Gain on Sales of Vessels |
| | | | | | Year Ended December 31, |
| Segment | | Asset Type | | Completion of Sale Date | | 2020
$ | | 2019
$ | | 2018
$ |
Teekay Parent Segment – Offshore Production (1) | | 2 FPSO units | | N/A | | (70,693) | | | (175,000) | | | 0 | |
Teekay Parent Segment - Offshore Production (2) | | 1 FPSO unit | | N/A | | 0 | | | (3,330) | | | 0 | |
Teekay Parent Segment - Other (3) | | Operating lease right-of-use asset | | N/A | | (9,100) | | | 0 | | | 0 | |
Teekay LNG Segment – Liquefied Gas Carriers (4) | | 7 Multi-gas Carriers | | N/A | | (51,000) | | | 0 | | | (33,000) | |
Teekay LNG Segment – Liquefied Gas Carriers | | 2 LNG Carriers | | Jan-2020 | | 0 | | | 14,349 | | | 0 | |
Teekay LNG Segment – Conventional Tankers | | 2 Suezmaxes | | Oct/Dec-2018 | | 0 | | | 0 | | | (7,863) | |
Teekay LNG Segment – Conventional Tankers | | 1 Handymax | | Oct-2019 | | 0 | | | (785) | | | (13,000) | |
Teekay Tankers Segment – Conventional Tankers (5) | | 9 Aframaxes | | N/A | | (67,018) | | | 0 | | | 0 | |
Teekay Tankers Segment – Conventional Tankers (6) | | (6) | | Apr-2020 | | 3,081 | | | 0 | | | 0 | |
| Teekay Tankers Segment – Conventional Tankers | | 3 Suezmaxes | | Feb/Mar-2020 | | (2,627) | | | 0 | | | 0 | |
| Teekay Tankers Segment – Conventional Tankers | | 3 Suezmaxes | | Dec-2019/Feb-2020 | | 0 | | | (5,544) | | | 0 | |
| Teekay Tankers Segment – Conventional Tankers | | Operating lease right-of-use asset | | N/A | | (2,881) | | | 0 | | | 0 | |
| Other | | | | | | 0 | | | 0 | | | 170 | |
| Total | | | | | | (200,238) | | | (170,310) | | | (53,693) | |
|
| | | | | | | | | | | | | |
| | | | | | | Net (Loss) Gain on Sales of Vessels, Equipment and Other Operating Assets |
| | | | | | | Year Ended December 31, |
| Segment | | Asset Type | | Completion of Sale Date | | 2017 $ | | 2016 $ | | 2015 $ |
| Teekay Offshore Segment | | FSO unit | | Oct-2017 | | — |
| | (983 | ) | | — |
|
| Teekay Offshore Segment | | 2 Shuttle Tankers | | Mar-2015/Nov-2016 | | — |
| | 6,817 |
| | 1,643 |
|
| Teekay Offshore Segment | | 2 Conventional Tankers | | Mar-2016 | | — |
| | 65 |
| | (3,897 | ) |
| Teekay LNG Segment - Conventional Tankers | | 2 Suezmaxes | | (1) | | (25,100 | ) | | — |
| | — |
|
| Teekay LNG Segment - Conventional Tankers | | Suezmax | | Mar-2017 | | — |
| | (11,537 | ) | | — |
|
| Teekay LNG Segment - Conventional Tankers | | 2 Suezmaxes | | Apr/May-2016 | | — |
| | (27,439 | ) | | — |
|
| Teekay Tankers Segment - Conventional Tankers | | 3 Aframaxes | | June/Sept/Nov-2017 | | (11,158 | ) | | | | |
| Teekay Tankers Segment - Conventional Tankers | | 2 Suezmaxes | | Jan/Mar-2017 | | (1,797 | ) | | (6,276 | ) | | — |
|
| Teekay Tankers Segment - Conventional Tankers | | 2 MR Tankers | | Aug/Nov-2016 | | — |
| | (14,650 | ) | | — |
|
| Teekay Parent Segment - Conventional Tankers | | VLCC | | Oct-2016 | | — |
| | (12,495 | ) | | — |
|
| Other | | | | | | (29 | ) | | 48 |
| | (177 | ) |
| Total | | | | | | (38,084 | ) | | (66,450 | ) | | (2,431 | ) |
| |
(1) | Teekay LNG has commenced marketing these vessels for sale and the vessels are classified as held for sale at December 31, 2017. |
(2)On March 27, 2020, the Company entered into a bareboat charter agreement for the Petrojarl Foinaven FPSO unit, which was accounted for as a sales-type lease and resulted in the recognition of a gain of $44.9 million during the year ended December 31, 2020. See Note 2.
(3)During the year ended December 31, 2020, the Company made changes to its expected cash flows from the Suksan Salamander FSO unit, which it in-chartered from Altera under an operating lease, to take into account progress relating to the early termination of the in-charter and the novation of the charter contracts with the customer to Altera. The novation of the charter contracts was completed in the first quarter of 2021 and the in-charter terminated at the same time. The ROU asset was written down to its estimated fair value, using a discounted cash flow approach.
(4)During the year ended December 31, 2020, the carrying values of Teekay LNG's 7 wholly-owned multi-gas carriers (the Unikum Spirit, Vision Spirit, Pan Spirit, Cathinka Spirit, Camilla Spirit, Sonoma Spirit and Napa Spirit), were written down to their estimated fair values, using appraised values, primarily due to the lower near-term outlook for these types of vessels partly as a result of the economic environment at that time (including the COVID-19 pandemic), as well as Teekay LNG receiving notification during the year that its then-existing commercial management agreement with a third-party commercial manager was terminated and replaced by a new commercial management agreement in September 2020. In addition, in June 2018, the carrying values for 4 of Teekay LNG's seven wholly-owned multi-gas carriers (the Napa Spirit, Pan Spirit, Camilla Spirit and Cathinka Spirit), were written down to their estimated fair values, using appraised values, as a result of Teekay LNG's evaluation of alternative strategies for these assets, the then-current charter rate environment and the outlook for charter rates for these vessels at that time.
(5)During the year ended December 31, 2020, the carrying values of 9 Aframax tankers were written down to their estimated fair values, using appraised values, primarily due to the lower near-term tanker market outlook and a reduction of charter rates as a result of the current economic environment, which has been impacted by the COVID-19 global pandemic. Teekay Tankers recorded a write-down of $65.4 million related to these vessels. In February 2021, Teekay Tankers agreed to the sale of 2 of these vessels for an aggregate sales price of $32.0 million. The vessels were delivered to their new owners in March 2021 and therefore, both vessels and their related bunkers and lube oil inventory are classified as held for sale on the Company's consolidated balance sheet of Teekay Tankers as at December 31, 2020. The vessels were written down to their agreed sales price less selling costs.
(6)On April 30, 2020, Teekay Tankers completed the sale of the non-US portion of its ship-to-ship support services business as well as its LNG terminal management business for proceeds of $27.1 million, including an adjustment of $1.1 million for the final amounts of cash and other working capital present on the closing date. The vessels and the related bunkers, were classified as held for sale as at December 31, 2019.
See Note 2 —3 – Segment Reporting for the asset impairments,write-downs and loss on sales of vessels, equipment and other operating assets and write-down of equity investment, by segment for 2017, 20162020, 2019 and 2015.2018.
19. Net (Loss) Income Per Share
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2017
$ | | 2016
$ | | 2015
$ |
| Net (loss) income attributable to shareholders of Teekay Corporation | (163,276 | ) | | (123,182 | ) | | 82,151 |
|
| The Company's portion of the Inducement Premium and Exchange Contribution charged to retained earnings by Teekay Offshore (note 16e) | — |
| | (4,993 | ) | | — |
|
| Net (loss) income attributable to shareholders of Teekay Corporation for basic income (loss) per share | (163,276 | ) | | (128,175 | ) | | 82,151 |
|
| Reduction in net earnings due to dilutive impact of stock-based compensation in Teekay LNG, Teekay Offshore and Teekay Tankers and stock purchase warrants in Teekay Offshore | (90 | ) | | (25 | ) | | (227 | ) |
| Net (loss) income attributable to shareholders of Teekay Corporation for diluted income (loss) per share | (163,366 | ) | | (128,200 | ) | | 81,924 |
|
| Weighted average number of common shares | 86,335,473 |
| | 79,211,154 |
| | 72,665,783 |
|
| Dilutive effect of stock-based compensation | — |
| | — |
| | 524,781 |
|
| Common stock and common stock equivalents | 86,335,473 |
| | 79,211,154 |
| | 73,190,564 |
|
| (Loss) Earnings per common share: | | | | | |
| - Basic | (1.89 | ) | | (1.62 | ) | | 1.13 |
|
| - Diluted | (1.89 | ) | | (1.62 | ) | | 1.12 |
|
Stock-based awards, which have an anti-dilutive effect on the calculation of diluted loss per common share, are excluded from this calculation. For the years ended December 31, 2017 and 2016, options to acquire 3.6 million shares and 3.8 million shares of Common Stock, respectively, had an anti-dilutive effect on the calculation of diluted earnings per common share. In periods where a loss attributable to shareholders has been incurred all stock-based awards are anti-dilutive.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
19. Net Loss Per Share
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| 2020
$ | | 2019
$ | | 2018
$ |
| Net loss attributable to the shareholders of Teekay Corporation – basic and diluted | (82,933) | | | (310,577) | | | (79,237) | |
| Weighted average number of common shares | 101,053,095 | | | 100,719,224 | | | 99,670,176 | |
| | | | | |
| Common stock and common stock equivalents | 101,053,095 | | | 100,719,224 | | | 99,670,176 | |
| Loss per common share - basic and diluted | (0.82) | | | (3.08) | | | (0.79) | |
The Company intends to settle the principal of the Convertible Notes in cash on conversion and calculates diluted earnings per share using the treasury-stock method. Stock-based awards and the conversion feature on the Convertible Notes that have an anti-dilutive effect on the calculation of diluted loss per common share, are excluded from this calculation. For the years ended December 31, 2020, 2019 and 2018, the number of Common Stock from stock-based awards and the conversion feature on the Convertible Notes that had an anti-dilutive effect on the calculation of diluted earnings per common share were 7.2 million, 3.5 million and 4.0 million respectively. In periods where a loss attributable to shareholders has been incurred all stock-based awards and the conversion feature on the Convertible Notes are anti-dilutive.
20. Restructuring Charges
During 2017,2020, the Company recorded restructuring charges of $5.1$10.7 million ($26.8(2019 – $12.0 million, 2018 – 2016, $14.0 million - 2015)$4.1 million).
The restructuring charges in 20172020 primarily related to:to the cessation of production of the PetrojarlBanff FPSO unit in June 2020, and the restructuring of the Company's tanker services and operations. In addition, the restructuring charges for the year ended December 31, 2020 also related to severance costs resulting from the termination of the management contract for anFSO unit based in Australia (the severance costs were partially recoverable from the customer and the recovery was presented in revenue), and severance costs resulting from the reorganization and realignment of resources of the Company's shared service function of which a portion of the costs were recovered from the customer, Altera (see Note 13), and the recovery was presented in revenue.
The restructuring charges in 2019 primarily related to severance costs resulting from the termination of certain management contracts in Teekay Parent of which these costs were fully recovered from the customer and the recovery is presented in revenue, severance costs resulting from the reorganization and realignment of resources of the Company's shared service function, as well as from the termination of the charter contract for the ArendalToledo SpiritUMS Suezmax tanker in Teekay Offshore andLNG upon the resulting decommissioningsale of the unit;vessel in January 2019.
The restructuring charges in 2018 primarily related to severance costs resulting from reorganization and realignment of resources of certain of the Company's strategicbusiness development, functionmarine solutions and fleet operations functions to better respond to the changing business environment; and reorganization of the Company'senvironment.
FPSO business to create better alignment with the Company's offshore operations.
The restructuring charges in 2016 primarily relate to the closure of two offices and seafarers' severance amounts related to the tug business in Western Australia, reorganization of the Company’s FPSO business to create better alignment with the Company’s offshore operations, and reductions to charges previously accrued. The charges related to the seafarers' severance were partly recovered from customers and the recovery is included in revenues on the consolidated statements of (loss) income.
The restructuring charges in 2015 relate to the termination of the employment of certain seafarers upon the expiration of a time-charter-out contract, the reorganization of the Company’s marine operations and corporate services, and the change in crew on a vessel as requested by a charterer. The actual restructuring charges relating to the termination of the employment of certain seafarers upon the expiration of a time-charter-out contract and the change in crew on a vessel as requested by a charterer in the amount of $8.4 million were fully reimbursed to the Company by the charterers and the net reimbursement is included in voyage revenues.
At December 31, 20172020 and 2016 $1.32019, $2.4 million and $5.6$0.8 million, respectively, of restructuring liabilities were recorded in accrued liabilities on the consolidated balance sheets.
21. Income Taxes
Teekay and a majority of its subsidiaries are not subject to income tax in the jurisdictions in which they are incorporated because they do not conduct business or operate in those jurisdictions. However, among others, the Company’s U.K. and Norwegian subsidiaries are subject to income taxes.
The significant components of the Company’s deferred tax assets and liabilities are as follows:
| | | | | | | | | | | |
| December 31,
2020
$ | | December 31,
2019
$ |
| Deferred tax assets: | | | |
| Vessels and equipment | 17,707 | | | 1,646 | |
Tax losses carried forward and disallowed finance costs (1) | 167,179 | | | 164,009 | |
| Other | 17,697 | | | 19,674 | |
| Total deferred tax assets | 202,583 | | | 185,329 | |
| Deferred tax liabilities: | | | |
| Vessels and equipment | 1,256 | | | 22,913 | |
| Provisions | 0 | | | 6,512 | |
| Other | 21,232 | | | 0 | |
| Total deferred tax liabilities | 22,488 | | | 29,425 | |
| Net deferred tax assets | 180,095 | | | 155,904 | |
| Valuation allowance | (172,867) | | | (153,302) | |
| Net deferred tax assets | 7,228 | | | 2,602 | |
|
| | | | | |
| | December 31,
2017
$ | | December 31,
2016
$ |
| Deferred tax assets: | | | |
| Vessels and equipment | 5,377 |
| | 40,928 |
|
Tax losses carried forward (1) | 193,501 |
| | 276,291 |
|
| Other | 29,355 |
| | 17,075 |
|
| Total deferred tax assets | 228,233 |
| | 334,294 |
|
| Deferred tax liabilities: | | | |
| Vessels and equipment | 9,053 |
| | 5,974 |
|
| Provisions | 5,153 |
| | — |
|
| Other | 8,417 |
| | 13,317 |
|
| Total deferred tax liabilities | 22,623 |
| | 19,291 |
|
| Net deferred tax assets | 205,610 |
| | 315,003 |
|
| Valuation allowance | (202,513 | ) | | (290,015 | ) |
| Net deferred tax assets | 3,097 |
| | 24,988 |
|
(1) Substantially all of the Company’s net operating loss carryforwards of $979.2 million relate primarily to its Norwegian, U.K., Spanish, and Luxembourg subsidiaries and, to a lesser extent, to its Australian ship-owning subsidiaries. These net operating loss carryforwards are available to offset future taxable income in the respective jurisdictions, and can be carried forward indefinitely, except for losses which arose during 2017 in Luxembourg, which losses can be carried forward for 17 years. The Company also has $30.2 million in disallowed finance costs that relate to its Spanish subsidiaries and are available to offset future taxable income in Spain and can also be carried forward indefinitely.
Deferred tax balances are presented in other non-current assets and other long-term liabilities in the accompanying consolidated balance sheets. Certain of the balances in the comparative columns above have been adjusted with no impact on the amount of the net deferred tax assets.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
(1)Substantially all of the Company's estimated net operating loss carryforwards of $838.5 million relate primarily to its U.K., Spanish, Norwegian and Luxembourg subsidiaries and, to a lesser extent, to its Australian subsidiaries. The Company had estimated disallowed finance costs in Spain and Norway of approximately $9.2 million and $15.4 million, respectively, at December 31, 2020, which are available indefinitely and 10 years, respectively, from the year the costs are incurred for offset against future taxable income in Spain and Norway, respectively. The Company's estimated tax losses in Luxembourg are available for offset against taxable future income in Luxembourg, either indefinitely for losses arising prior to 2017, or for 17 years for losses arising subsequent to 2016.
Deferred tax balances are presented in other non-current assets in the accompanying consolidated balance sheets.
The components of the provision for income taxestax expense are as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended
December 31,
2020
$ | | Year Ended
December 31,
2019
$ | | Year Ended
December 31,
2018
$ |
| Current | (11,089) | | | (25,563) | | | (17,458) | |
| Deferred | 2,101 | | | 81 | | | (2,266) | |
| Income tax expense | (8,988) | | | (25,482) | | | (19,724) | |
|
| | | | | | | | |
| | Year Ended
December 31,
2017
$ | | Year Ended
December 31,
2016
$ | | Year Ended
December 31,
2015
$ |
| Current | (11,997 | ) | | (14,424 | ) | | (10,440 | ) |
| Deferred | (235 | ) | | (10,044 | ) | | 27,207 |
|
| Income tax (expense) recovery | (12,232 | ) | | (24,468 | ) | | 16,767 |
|
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: | | | | | | | | | Year Ended
December 31,
2020
$ | | Year Ended
December 31,
2019
$ | | Year Ended
December 31,
2018
$ |
| | Year Ended
December 31,
2017
$ | | Year Ended
December 31,
2016
$ | | Year Ended
December 31,
2015
$ | |
| Net (loss) income before taxes | (516,840 | ) | | 111,132 |
| | 388,693 |
| |
| Net (loss) income not subject to taxes | (297,688 | ) | | 57,862 |
| | 252,604 |
| |
| Net income (loss) before taxes | | Net income (loss) before taxes | 99,970 | | | (123,504) | | | (38,023) | |
| Net income (loss) not subject to taxes | | Net income (loss) not subject to taxes | 141,639 | | | (91,925) | | | (104,465) | |
| Net (loss) income subject to taxes | (219,152 | ) | | 53,270 |
| | 136,089 |
| Net (loss) income subject to taxes | (41,669) | | | (31,579) | | | 66,442 | |
| At applicable statutory tax rates | (51,471 | ) | | 5,996 |
| | 32,750 |
| At applicable statutory tax rates | (9,957) | | | (4,352) | | | 15,177 | |
| Permanent and currency differences, adjustments to valuation allowances and uncertain tax positions | 64,164 |
| | 18,198 |
| | (49,789 | ) | Permanent and currency differences, adjustments to valuation allowances and uncertain tax positions | 10,650 | | | 25,177 | | | 4,639 | |
| Other | (461 | ) | | 274 |
| | 272 |
| Other | 8,295 | | | 4,657 | | | (92) | |
| Tax expense (recovery) related to the year | 12,232 |
| | 24,468 |
| | (16,767 | ) | |
| Tax expense related to the year | | Tax expense related to the year | 8,988 | | | 25,482 | | | 19,724 | |
The following is a roll-forward of the Company’s unrecognizedtable reflects changes in uncertain tax benefits,positions relating to freight tax liabilities, which are recorded in other long-term liabilities from January 1, 2015 to December 31, 2017:and accrued liabilities on the Company’s consolidated balance sheets:
| | | | | | | | | | | | | | | | | |
| Year Ended
December 31,
2020
$ | | Year Ended
December 31,
2019
$ | | Year Ended
December 31,
2018
$ |
| Balance of unrecognized tax benefits as at January 1 | 62,958 | | | 40,556 | | | 31,061 | |
| Increases for positions related to the current year | 19,084 | | | 5,829 | | | 9,297 | |
| Increases for positions related to prior years | 16,799 | | | 19,721 | | | 5,270 | |
| Decreases for positions related to prior years | (17,021) | | | 0 | | | 0 | |
| Settlements with tax authority | (9,372) | | | 0 | | | 0 | |
| Decreases related to statute of limitations | (3,176) | | | (2,546) | | | (783) | |
| Foreign exchange loss (gain) | 1,466 | | | (602) | | | (4,289) | |
| Balance of unrecognized tax benefits as at December 31 | 70,738 | | | 62,958 | | | 40,556 | |
|
| | | | | | | | |
| | Year Ended
December 31,
2017
$ | | Year Ended
December 31,
2016
$ | | Year Ended
December 31,
2015
$ |
| Balance of unrecognized tax benefits as at January 1 | 19,492 |
| | 18,390 |
| | 20,335 |
|
| Increases for positions related to the current year | 2,631 |
| | 6,422 |
| | 4,578 |
|
| Changes for positions taken in prior years | 3,475 |
| | (3,729 | ) | | (2,965 | ) |
| Decreases related to statute of limitations | (1,562 | ) | | (1,591 | ) | | (3,558 | ) |
| Increase due to acquisition of TIL | 8,528 |
| | — |
| | — |
|
| Decrease due to deconsolidation of Teekay Offshore | (1,503 | ) | | — |
| | — |
|
| Balance of unrecognized tax benefits as at December 31 | 31,061 |
| | 19,492 |
| | 18,390 |
|
The majority ofIncluded in the net increaseCompany's current income tax expense are provisions for positions relates to the potential tax on freight income on an increased number of voyages for the year ended December 31, 2017.
The Company does not presently anticipate such uncertain tax positions relating to freight taxes. Freight taxes recognized for positions related to the current year will significantly increase or decreasevary between years based upon changes in the next 12 months; however, actual developments could differ from those currently expected. The tax years 2008 through 2017 remain open to examination by sometrading patterns of the major jurisdictions in which the Company is subject to tax.Company's vessels.
The Company recognizes interestInterest and penalties related to uncertain tax positions in income tax expense. The interestfreight taxes during the years ended December 31, 2020, 2019 and penalties on unrecognized tax benefits2018 are included in the roll-forward scheduletable above, and arewere approximately an increase of $3.1$19.7 million, in 2017, net of statute barred liabilities,$13.2 million, and an increase of $1.2$9.2 million, in 2016 and a reduction of $0.3 million in 2015.
22. Equity-accounted Investments
On September 25, 2017, Teekay, Teekay Offshore and Brookfield finalized the Brookfield Transaction (see Note 3). As a result, Teekay has included the results of Teekay Offshore as an equity-accounted investment in its financial results as at December 31, 2017, and for the period from September 25, 2017 to December 31, 2017. At September 25, 2017, when the Company initially recorded its equity investment in Teekay Offshore, the difference between the Company's investment and the carrying value of Teekay Offshore's net assets was substantially attributable to basis differences between the fair value and carrying amounts of the vessels.respectively. As at December 31, 2017,2020, 2019, and 2018, total interest and penalties recognized were $39.7 million, $30.7 million, and $19.9 million respectively.
In 2020, the excessCompany obtained further advice regarding freight taxes in a certain jurisdiction due to the uncertainty surrounding a recent tax law change and the limited transparency into the actions of the carrying valuetax authority in this jurisdiction. Based on this new information and other considerations related to the future application of the Company's investment overtax law to past periods, the carrying value of Teekay Offshore's net assets was $3.8Company increased its uncertain tax liabilities for this jurisdiction for periods prior to 2020 by $9.3 million.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
PriorIn addition, in 2020, the Company secured an agreement with a tax authority, which was based in part on an initiative of the tax authority in response to the Brookfield Transaction, Teekay OffshoreCOVID-19 global pandemic and included the waiver of interest and penalties on unpaid taxes. As a result, the Company reduced its freight tax liabilities for this jurisdiction by $16.3 million to $9.4 million, of which $8.5 million was consolidatedpaid in August 2020 with respect to open tax years up to and the equity investees of Teekay Offshore were includedincluding 2019.
The Company does not presently anticipate that its provisions for these uncertain tax positions will significantly increase in the financial results of Teekay, which includenext 12 months; however, this is dependent on the following:
In October 2014, Teekay Offshore sold a 1995-built shuttle tanker, the Navion Norvegia, to OOG-TK Libra GmbH & Co KG (or Libra Joint Venture), a 50/50 joint venture of Teekay Offshore and Ocyan S.A. (or Ocyan) (formerly Odebrecht Oil & Gas S.A.),jurisdictions in which vessel was convertedtrading activity occurs. The Company reviews its freight tax obligations on a regular basis and may update its assessment of its tax positions based on available information at that time. Such information may include legal advice as to a new FPSO unit forapplicability of freight taxes in relevant jurisdictions. Freight tax regulations are subject to change and interpretation; therefore, the Libra field in Brazil. The FPSO unit commenced operations in late-2017. In conjunction withamounts recorded by the conversion project, in late-2015, the Libra Joint Venture entered into a ten-year plus construction period term loan facility, which as at December 31, 2017 had an outstanding balance of $804 million.
Company may change accordingly.
In June 2013, Teekay Offshore acquired Teekay Corporation’s 50% interest in OOG-TKP FPSO GmbH & Co KG, a joint venture with Ocyan, which owns the Itajai FPSO unit. Included in the joint venture is an eight-year loan facility, which as at December 31, 2017 had an outstanding balance of $169 million.
As at September 25, 2017, the investments in Libra and Itajai are no longer on the consolidated balance sheets as a result of Teekay Offshore now being accounted for using the equity method.
22. Equity-accounted Investments
The equity investeesinvestments of Teekay LNG include the following:
•A 33% ownership interest in the Angola Joint Venture that owns 4 160,400-cubic meter LNG carriers (or the Angola LNG Carriers). The other partners of the Angola Joint Venture are NYK (33%) and Mitsui & Co. Ltd. (34%).
Teekay LNG has guaranteed its 33% share of the secured loan facilities and interest rate swaps of the Angola Joint Venture for which the aggregate principal amount of the secured loan facilities and fair value of the interest rate swaps was $203.4 million as at December 31, 2020. As a result, Teekay LNG has recorded a guarantee liability which has a carrying value of $0.3 million as at December 31, 2020 (December 31, 2019 – $0.5 million), and is included as part of other long-term liabilities in the consolidated balance sheets.
•In December 2015, Teekay LNG (30%) entered into a joint venturean agreement with Nogaholding, GIC,National Oil & Gas Authority (or NOGA) (30%), Gulf Investment Corporation (24%), and Samsung C&T (16%) to form a joint venture, theBahrain LNG Joint Venture, for the development of an LNG receiving and regasification terminal in BahrainBahrain. The LNG terminal includes an offshore LNG receiving jetty and breakwater, an adjacent regasification platform, subsea gas pipelines from the supplyplatform to shore, an onshore gas receiving facility, and an onshore nitrogen production facility with a total LNG terminal capacity of 800 million standard cubic feet per day and will be owned and operated under a FSU vessel (See Note 4b).20-year customer contract. In addition, Teekay LNG has supplied an FSU in connection with this terminal commencing in September 2018 through a 30% ownership interest in21-year time-charter contract with the Bahrain LNG Joint Venture.
As at December 31, 2020, Teekay LNG had advanced $73.4 million (December 31, 2019 – $73.4 million) to the Bahrain LNG Joint Venture. These advances bear interest at 6.0%. For the years ended December 31, 2020 and 2019, the interest earned on these loans amounted to $4.6 million and $2.8 million, respectively.
A
•As at December 31, 2020, Teekay LNG has a 50/50 joint venture agreement with China LNG Shipping (Holdings) LimitedExmar (or the YamalExcalibur Joint Venture). On January 31, 2018, Teekay LNG Joint Venture) and thesold its interest in another 50/50 joint venture has ordered six internationally-flagged icebreakerwith Exmar relating to the Excelsior LNG carriers for a project located on the Yamal Peninsula in Northern Russiacarrier (or the YamalExcelsior Joint Venture) for gross proceeds of approximately $54 million. As a result of the sale, Teekay LNG Project). Duringrecorded a gain of $5.6 million for the year ended December 31, 2017,2018, which is included in equity income (loss) in the Yamal LNG Joint Venture converted the $195 million advances from each joint venture partner, including accrued interest, into contributed capitalconsolidated statements of the joint venture. As at December 31, 2016, Teekay LNG had advanced $146.7 million to the Yamal LG Joint Venture and the interest accrued on these advances was $9.4 million. In December 2017, the Yamal LNG Joint Venture secured a $1.6 billion long-term debt facility to finance all six of its ARC7 LNG carrier newbuildings. As part of the completed financing, the Yamal LNG Joint Venture returned a total of $104 million of capital back to the joint venture partners in December 2017, of which Teekay LNG's share was $52 million.income (loss). Teekay LNG has guaranteed its 50%ownership share of a $816 millionthe secured loan facility inof the Yamal LNGExcalibur Joint Venture and,for which the principal amount of the secured loan facility was $15.9 million as at December 31, 2020. As a result, Teekay LNG has recorded a guarantee liability. Theliability which has a carrying value of the guarantee liability$0.1 million as at December 31, 2017 was $0.6 million (December 31, 2016 –$nil) and is included as part of other long-term liabilities in the consolidated balance sheets.
In June 2014, Teekay LNG acquired from Shell its ownership interests in four LNG carrier newbuildings. As compensation for Shell’s ownership interests in these four LNG carrier newbuildings, Teekay LNG assumed Shell’s obligation to provide the shipbuilding supervision and crew training services for the four LNG carrier newbuildings up to their delivery date pursuant to a ship construction support agreement. Teekay LNG estimates it would incur approximately $36.9 million of costs to provide these services, of which Shell has agreed to pay a fixed amount of $20.3 million. Teekay LNG estimated that the fair value of the service obligation was $33.3 million and the fair value of the amount due from Shell was $16.5 million. As at December 31, 2017, the carrying value of the service obligation of $8.2 million (December 31, 2016 – $22.6 million) is included in both the current portion of in-process contracts and in-process contracts and the carrying value of the receivable from Shell of $3.5 million (December 31, 2016 – $10.9 million) is included in accounts receivable in the Company’s consolidated balance sheets.
As at December 31, 2017, Teekay LNG has a 30% ownership interest in one LNG carrier, the Pan Asia, and one LNG carrier newbuilding and a 20% ownership interest in the remaining two LNG carrier newbuildings (or collectively, the Pan Union Joint Venture). The Pan Asia was delivered on October 13, 2017 and concurrently commenced its 20-year charter contract with Shell.
2020.
On initial acquisition, the basis difference between Teekay LNG's investment and the carrying value of the Pan UnionExcalibur Joint Venture's net assets was substantially attributed to ship construction support agreements and the time-charter contracts. As at December 31, 2017, the excess of the carrying value of Teekay LNG's investment overan increase to the carrying value of the Pan Unionvessel of the Excalibur Joint Venture's net assetsVenture in accordance with the finalized purchase price allocation. At December 31, 2020, the unamortized amount of the basis difference was $11.4$12.0 million (December 31, 20162019 – $16.8$12.5 million).
A•As at December 31, 2020, Teekay LNG has a 50/50 joint venture agreement with Exmar NV (or Exmar) (or the Exmar LPG Joint Venture).NV. Teekay LNG has guaranteed its 50% share of a secured loan facilityfacilities and four capital4 finance leases in the Exmar LPG Joint Venture for which the aggregate principal amount of the secured loan facilities and finance leases as at December 31, 2020 was $238.2 million. As a result, Teekay LNG has recorded a guarantee liability. Theliability which has a carrying value of the guarantee liability$1.3 million as at December 31, 2017 was $1.6 million2020 (December 31, 20162019 – $1.3$0.9 million), and is included as part of other long-term liabilities in the consolidated balance sheets.
As at December 31, 2017, the2020, Teekay LNG had advanced $52.3$42.3 million (December 31, 20162019 – $52.3 million) to the Exmar LPG Joint Venture, which bears interest at LIBOR plus 0.50% and has no fixed repayment terms. As at December 31, 2017,2020, the interest accruedreceivable on these advances was $0.2 millionloans amounted to $NaN (December 31, 20162019 – $1.1$0.3 million). These amounts are included in the table below.
On initial acquisition, the basis difference between Teekay LNG's investment and the carrying value of the Exmar LPG Joint Venture's net assets was substantially attributed to the value of the vessels and charter agreements of the Exmar LPG Joint Venture and goodwill in accordance with the finalized purchase price allocation. At December 31, 2017,2020, the unamortized amount of the basis difference was $25.5$18.2 million (December 31, 20162019 – $30.2$23.6 million).
•As at December 31, 2020, Teekay LNG has a 52% ownership interest in its LNG-related joint venture agreement with Marubeni Corporation (or the MALT Joint Venture). Teekay LNG has guaranteed its 52% share of certain of the MALT Joint Venture's secured loan facilities, for which the principal amount of the secured loan facilities was $134.6 million as at December 31, 2020. As a result, Teekay LNG has recorded a guarantee liability, which has a carrying value of $0.2 million as at December 31, 2020 (December 31, 2019 – $0.3 million) and is included as part of other long-term liabilities in the consolidated balance sheets.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
A 50/50 joint venture with Exmar (or the Excalibur Joint Venture and the Excelsior Joint Ventures).•As at December 31, 2020, Teekay LNG has guaranteeda 30% ownership interest in 2 LNG carriers, the Pan Asia and the Pan Americas, and a 20% ownership interest in 2 LNG carriers, the Pan Europe and the Pan Africa, through its 50% share of the secured loan facilities of the Excalibur and ExcelsiorPan Union Joint Ventures and, as a result, has recorded a guarantee liability. The carrying value of the guarantee liability as of December 31, 2017 was $0.2 million (December 31, 2016 – $0.2 million) and is included as part of other long-term liabilities in the consolidated balance sheets.
Venture. On initial acquisition, the basis difference between Teekay LNG's investment and the carrying value of the Excalibur and ExcelsiorPan Union Joint Venture's net assets was substantially attributed to an increase toship construction support agreements and the carrying value of the vessels of the Excalibur and Excelsior Joint Ventures in accordance with the finalized purchase price allocation. Attime-charter contracts. As at December 31, 2017,2020, the unamortized amount of the basis difference was $35.6$10.0 million (December 31, 20162019 – $37.2$10.5 million).
A 52%•As at December 31, 2020, Teekay LNG has a 40% ownership interest in the RasGas III Joint Venture, and the remaining 60% is held by Qatar Gas Transport Company Ltd. (Nakilat).
•As at December 31, 2020, Teekay LNG has a 50/50 joint venture, between Marubeni Corporation and Teekaythe Yamal LNG (or the Teekay LNG-Marubeni Joint Venture). On March 31, 2017, the Teekay LNG-Marubeni Joint Venture, completedwhich has 6 icebreaker LNG carriers that carry out international transportation of LNG for a project located on the refinancing of its previous $396 million debt facility by entering into a new $335 million U.S. Dollar-denominated term loan maturingYamal Peninsula in September 2019. As part of the completed refinancing, Teekay LNG invested $57 million of additional equity, based on its proportionate ownership interest, into the Teekay LNG-Marubeni Joint Venture.Northern Russia. Teekay LNG has guaranteed its 52%50% share of thea secured loan facilitiesfacility and interest rate swaps in the Yamal LNG Joint Venture for which the aggregate principal amount of the Teekay LNG-Marubeni Joint Ventureloan facility and fair value of the interest rate swaps as at December 31, 2020 was $807.7 million. As a result, Teekay LNG has recorded a guarantee liability. Theliability, which has a carrying value of the guarantee liability$2.2 million as at December 31, 2017 was $0.5 million2020 (December 31, 20162019 – $0.1$2.2 million) and is included as part of other long-term liabilities in the consolidated balance sheets.
A 33% ownership interest in the Angola Joint Venture that owns four newbuilding 160,400-cubic meter LNG carriers (or the Angola LNG Carriers). The other partners of the Angola Joint Venture are NYK Energy Transport (or NYK) (33%) and Mitsui & Co. Ltd. (34%).
Teekay LNG has guaranteed its 33% share of the secured loan facilities and interest rate swaps of the Angola Joint Venture and, as a result, has recorded a guarantee liability. The carrying value of the guarantee liability as at December 31, 2017 was $0.7 million (December 31, 2016 – $1.0 million) and is included as part of other long-term liabilities in the consolidated balance sheets.
A 40% interest in the RasGas 3 Joint Venture between Teekay LNG and QGTC Nakilat (1643-6) Holdings Corporation. The RasGas 3 Joint Venture owns four LNG carriers and related long-term fixed-rate time charters to service the expansion of a LNG project in Qatar.
In January 2014, Teekay and Teekay Tankers formed TIL, which sought to opportunistically acquire, operate and sell modern second-hand tankers to benefit from an expected recovery in the current cyclical low of the tanker market. Teekay and Teekay Tankers in the aggregate purchased 5.0 million shares of common stock, representing an initial 20% interest in TIL, as part of a $250 million private placement by TIL, which represented a total investment by Teekay and Teekay Tankers of $50.0 million. In October 2014, Teekay Tankers acquired an additional 0.9 million common shares in TIL, representing 2.43% of the then outstanding share capital of TIL. On May 31, 2017, Teekay Tankers entered into a Merger Agreement to acquire the remaining 27.0 million issues and outstanding common shares of TIL. Teekay Tankers and TIL completed the merger on November 27, 2017 and TIL became a wholly-owned subsidiary of Teekay Tankers (See Note 4a). As a result, Teekay has included the results of TIL as a part of equity (loss) income for the period up to November 27, 2017.
Teekay Tankers also owns a 50% interest in a joint venture arrangement between Teekay Tankers and Wah Kwong Maritime Transport Holdings Limited (or Wah Kwong Joint Venture) which owns a1 single VLCC tanker undertanker. The vessel is currently trading on spot voyage charters in an RSA managed by a long-term contract.third party.
On May 8, 2019, Teekay sold to Brookfield all of the Company's remaining interests in Altera, which included the Company’s 49% general partner interest, common units, warrants, and an outstanding $25 million loan from the Company to Altera for total cash proceeds of $100 million. Prior to the sale in May 2019, Teekay included the results of Altera as an equity-accounted investment in its financial results. The Company wrote-down the investment in Altera by $64.9 million and recognized a loss on sale of $8.9 million which are included in equity loss on the consolidated statements of income (loss) for the year ended December 31, 2019.
In November 2011, Teekay acquired a 40% interest in a recapitalized Magnora ASA (or Magnora, previously Sevan Marine ASA) for approximately $25 million. Sevan owns an engineeringmillion and offshore project development business and intellectual property rights, including offshore unit design patents. As ofas at December 31, 2017, the aggregate valueCompany had a 43.5% interest in Magnora. In November 2018, Teekay sold its ownership interest in Magnora for approximately $27 million and recognized a gain of $15.3 million, which is presented in equity income on the consolidated statements of income (loss) for the year ended December 31, 2018.
A condensed summary of the Company’s 43.5% interest (43.5% interest —December 31, 2016)investments in Sevan, based onequity-accounted investments by segment, which includes loans and net advances to equity-accounted investments, is as follows (in thousands of U.S. dollars, except percentages):
| | | | | | | | | | | | | | | | | |
| | | | As at December 31, |
Equity-accounted Investments (1) | Ownership Percentage | | 2020
$ | | 2019
$ |
| Teekay LNG – Liquefied Gas | | | | | |
| Angola Joint Venture | 33% | | 81,786 | | | 84,474 | |
| Bahrain LNG Joint Venture | 30% | | 36,220 | | | 64,017 | |
| Excalibur Joint Venture | 50% | | 35,897 | | | 32,717 | |
| MALT Joint Venture | 52% | | 353,804 | | | 344,571 | |
| Exmar LPG Joint Venture | 50% | | 131,025 | | | 149,024 | |
| Pan Union Joint Venture | 20%-30% | | 77,924 | | | 75,403 | |
| RasGas III Joint Venture | 40% | | 96,210 | | | 120,917 | |
| Yamal LNG Joint Venture | 50% | | 234,265 | | | 264,088 | |
| Teekay Tankers - Conventional Tankers | | | | | |
| Wah Kwong Joint Venture | 50% | | 28,560 | | | 28,111 | |
| | | 1,075,691 | | | 1,163,322 | |
(1)Investments in equity-accounted investments is presented in prepaid expenses and other, investments in and loans, net to equity-accounted investments and accrued liabilities and other in the quoted market price of Sevan’s common stock on the Oslo Stock Exchange, was $40.4 million ($44.9 million – December 31, 2016).Company’s consolidated balance sheets.
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
A condensed summary of the Company’s investments in equity-accounted investees by segment is as follows (in thousands of U.S. dollars, except percentages):
|
| | | | | | | |
| | | | As at December 31, |
Investments in Equity-accounted Investees (1) | Ownership Percentage | | 2017
$ | | 2016
$ |
Teekay Offshore (2) | | | | | |
| Libra Joint Venture | 50% | | — |
| | 69,972 |
|
| Itajai | 50% | | — |
| | 71,827 |
|
| Teekay LNG - Liquefied Gas | | | | | |
| Angola LNG Carriers | 33% | | 73,316 |
| | 63,673 |
|
| Pan Union Joint Venture | 20% - 30% | | 38,298 |
| | 33,594 |
|
| Exmar LNG Joint Venture | 50% | | 79,915 |
| | 79,577 |
|
| Exmar LPG Joint Venture | 50% | | 157,926 |
| | 165,064 |
|
| RasGas3 Joint Venture | 40% | | 123,034 |
| | 173,037 |
|
| Teekay LNG - Marubeni Joint Venture | 52% | | 335,897 |
| | 294,764 |
|
| Yamal LNG Joint Venture | 50% | | 194,715 |
| | 152,927 |
|
| Bahrain LNG Joint Venture | 30% | | 77,786 |
| | 64,003 |
|
| Teekay Tanker - Conventional Tankers | | | | | |
| TIL | 11% | | — |
| | 47,710 |
|
| Wah Kwong Joint Venture | 50% | | 24,546 |
| | 22,025 |
|
| Teekay Parent - Offshore Production | | | | | |
| Sevan | 44% | | 15,589 |
| | 22,180 |
|
| Teekay Parent - Other | | | | | |
Teekay Offshore (2) (note 3) | 14% | | 208,871 |
| | — |
|
TOO GP (2) (note 3) | 51% | | 4,061 |
| | — |
|
| Teekay Parent - Conventional Tankers | | | | | |
| TIL | 8% | | — |
| | 36,699 |
|
| Other | 50% | | 1,169 |
| | 2,802 |
|
| | | | 1,335,123 |
| | 1,299,854 |
|
| |
(1) | Investments in equity-accounted investees is presented in current portion of loans to equity-accounted investees, loans to equity-accounted investees, equity-accounted investments and advances from affiliates in the Company’s consolidated balance sheets. |
| |
(2) | The results included for Teekay Offshore are from the date of deconsolidation on September 25, 2017. Itajai and Libra Joint Venture results were included up until September 25, 2017. |
A condensed summary of the Company’s financial information for certain equity-accounted investments (14%(20% to 52%-owned) shown on a 100% basis (excluding the impact from purchase price adjustments arising from the acquisition of Joint Ventures) are as follows:
| | | | | | | | | | | |
| | As at December 31, |
| | 2020
$ | | 2019
$ |
| Cash and restricted cash | 400,816 | | | 375,800 | |
| Other assets – current | 180,673 | | | 146,637 | |
| Vessels and equipment, including vessels related to finance leases and advances on newbuilding contracts | 1,912,776 | | | 3,045,393 | |
| Net investment in direct financing leases | 5,237,791 | | | 4,469,861 | |
| Other assets – non-current | 216,331 | | | 169,925 | |
| Current portion of long-term debt and obligations related to finance leases | 582,767 | | 557,685 | |
| Other liabilities – current | 232,466 | | | 188,665 | |
| Long-term debt and obligations related to finance leases | 4,853,791 | | 5,130,656 | |
| Other liabilities – non-current | 350,057 | | | 224,903 | |
|
| | | | | |
| | As at December 31, |
| | 2017 | | 2016 |
| Cash and restricted cash | 555,566 |
| | 500,355 |
|
| Other assets - current | 370,790 |
| | 150,378 |
|
Vessels and equipment, including vessels related to capital leases and advances on newbuilding contracts
| 8,056,504 |
| | 4,655,170 |
|
| Net investment in direct financing leases | 1,973,307 |
| | 1,776,954 |
|
| Other assets - non-current | 500,108 |
| | 74,096 |
|
| Current portion of long-term debt and obligations related to capital leases | 764,098 |
| | 360,942 |
|
| Other liabilities - current | 593,968 |
| | 160,312 |
|
| Long-term debt and obligations related to capital leases | 5,957,406 |
| | 4,208,214 |
|
| Other liabilities - non-current | 751,416 |
| | 213,060 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020
$ | | 2019
$ | | 2018
$ |
| Revenues | 1,008,112 | | | 1,103,255 | | | 2,042,483 | |
| Income from vessel operations | 584,685 | | | 482,767 | | | 401,966 | |
| Realized and unrealized (loss) gain on non-designated derivative instruments | (94,760) | | | (72,305) | | | 21,768 | |
| Net income (loss) | 152,144 | | | 141,235 | | | (6,188) | |
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Revenues | 980,078 |
| | 882,650 |
| | 985,318 |
|
| Income from vessel operations | 258,006 |
| | 365,472 |
| | 433,023 |
|
| Realized and unrealized (loss) gain on non-designated derivative instruments | (17,438 | ) | | (10,900 | ) | | (38,955 | ) |
| Net income | 38,646 |
| | 239,766 |
| | 275,259 |
|
Certain of the comparative figures have been adjusted to conform to the presentation adopted in the current year. The results included for TIL are until its consolidation on November 27, 2017. The results included for Teekay Offshore are from the date of deconsolidation on September 25, 2017. Itajai and Libra Joint Venture results were included up until September 25, 2017.
For the year ended December 31, 2017,2020, the Company recorded an equity income of $77.3 million (2019 – loss of $37.3$14.5 million, (2016and 2018 – income of $85.6 million, and 2015 - income of $102.9$61.1 million). The equity lossincome in 20172020 was primarily comprised of the write-down of the carrying value of the investment in TIL (note 4a) anddue to the Company’s share of net (loss) income from the Teekay LNG-MarubeniYamal LNG Joint Venture, Exmar LPGthe MALT Joint Venture, Sevan, Angola LNG Carriers, the RasGas3Pan Union Joint Venture, Itajaithe RasGas III Joint Venture and the ExmarWah Kwong Joint Venture; partially offset by the share of net loss from the Bahrain LNG Joint Venture. For the year ended December 31, 2017,2020, equity (loss) income included $7.7$19.1 million related to the Company’s share of unrealized gainslosses on interest rate swaps in the equity-accounted investees (2016investments (2019 – $8.7losses of $12.9 million and 2015 - $5.92018 – gains of $17.6 million).
23. Subsequent Events
| |
a) | In January 2018, Teekay Parent sold an aggregate of 1.1 million shares of common stock as part of a continuous offering program, generating gross proceeds of $11.2 million. |
| |
b) | In January 2018, Teekay Parent completed a private offering of $125 million of aggregate principal amount of 5.00% Convertible Senior Notes due 2023 (or Convertible Notes), raising net proceeds of approximately $120.9 million. The Convertible Notes will be convertible into Teekay’s common stock, initially at a rate of 85.4701 shares of common stock per $1,000 principal amount of Convertible Notes. This represents an initial effective conversion price of $11.70 per share of common stock. The initial conversion price represents a premium of 20 percent to the concurrent common stock offering price of $9.75 per share described below. The conversion rate is subject to customary adjustments for, among other things, payments of dividends by Teekay Parent beyond the current quarterly rate of $0.055 per share of common stock, other distributions of Teekay Parent’s common stock, other securities, assets or rights to Teekay Parent’s shareholders or a Teekay Parent tender or exchange offer. In addition, following certain corporate events that occur prior to the maturity date of the Convertible Notes or following any notice of optional redemption given by Teekay Parent, Teekay Parent will, under certain circumstances, increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or for Convertible Notes that are surrendered for conversion following such notice of redemption.a)On February 8, 2021, the Tangguh Joint Venture, of which Teekay LNG has a 70% ownership interest, refinanced its $191.5 million term loan which was scheduled to mature in 2021, by entering into a new $191.5 million term loan maturing in February 2026.
b)In February 2021, Teekay Tankers entered into agreements to sell 2 Aframax tankers for an aggregate price of $32.0 million. The vessels and related bunkers and lube oil inventory were classified as held for sale on the consolidated balance sheet as at December 31, 2020, and the vessels were written down to the agreed sales price less selling costs. Both vessels were delivered in March 2021.
c)In March 2021, Teekay Tankers declared purchase options to acquire 6 Aframax tankers for a total cost of $128.8 million, as part of the repurchase options under the sale-leaseback arrangements described in note 10. Teekay Tankers expects to complete the purchase and delivery of these vessels in September 2021.
|
| |
c) | In January 2018, concurrently with the offering of Convertible Notes, Teekay Parent completed a public offering of 10.0 million common shares priced at $9.75 per share, raising net proceeds of approximately $93.0 million. Teekay Parent intends to use the net proceeds from the offerings for general corporate purposes, which may include, among other things, repaying a portion of its outstanding indebtedness and funding working capital. |
| |
d) | On January 12, 2018, the Yamal LNG Joint Venture took delivery of its first ARC7 LNG carrier newbuilding, the Eduard Toll, in which Teekay LNG has a 50% ownership interest. The vessel concurrently commenced its 28-year charter contract with Yamal Trade Pte. Ltd.
|
| |
e) | On January 30, 2018, the Exmar LPG Joint Venture sold an LPG carrier, the Courcheville, to a third party for gross proceeds of $4.4 million.
|
| |
f) | On January 31, 2018, the Pan Union Joint Venture took delivery of its second LNG carrier newbuilding, the Pan Americas, in which Teekay LNG has a 30% ownership interest. The vessel concurrently commenced its 20-year charter contract with Shell.
|
| |
g) | On January 31, 2018, Teekay LNG sold its 50% ownership interest in the Excelsior Joint Venture for net proceeds of approximately $44 million after repaying outstanding debt obligations. |
| |
h) | On February 8, 2018, CEPSA, the charterer (who is also the owner) of Teekay LNG's vessel related to capital lease, the Teide Spirit, sold the vessel to a third party. As a result of this sale, Teekay LNG returned the vessel to CEPSA and the full amount of the associated capital lease obligation was concurrently extinguished. In addition, Teekay LNG incurred seafarer severance payments of approximately $1.4 million upon the sale of the vessel.
|
| |
i) | On February 8, 2018, Teekay LNG refinanced a loan maturing in 2018, with a new $197 million revolving credit facility maturing in 2022. |
| |
j) | On February 9, 2018, Teekay LNG took delivery of an LNG carrier newbuilding, the Magdala, which concurrently commenced its eight-year charter contract with Shell. Upon delivery of the vessel, Teekay LNG sold and leased back the vessel under a sale-leaseback financing transaction which includes a purchase obligation at the end of the 10-year bareboat charter contract.
|
| |
k) | On March 5, 2018, Teekay LNG's 50%-owned joint venture Exmar LPG BVBA, took delivery of its seventh LPG carrier newbuilding, the Kapellen. In March 2018, Exmar LPG BVBA sold and leased back the vessel under a sale-leaseback financing transaction which includes purchase options throughout the 15-year bareboat charter contract.
|
TEEKAY CORPORATION
SCHEDULE I
CONDENSED NON-CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS (NOTE 1)
(in thousands of U.S. dollars)
| | | | | As at December 31, 2017 $ | | As at December 31, 2016 $ | | | As at
December 31, 2020
$ | | As at
December 31, 2019
$ |
| ASSETS | | | | | ASSETS | | | | |
| Current | | | | | Current | | |
| Cash and cash equivalents | | 22,050 |
| | 8,585 |
| Cash and cash equivalents | | 9,604 | | | 49,655 | |
| Accounts receivable | | 699 |
| | 3,241 |
| Accounts receivable | | 309 | | | 199 | |
| Prepaid expenses and other | | 175 |
| | 49 |
| Prepaid expenses and other | | 57 | | | 0 | |
| Due from affiliates | | 736,938 |
| | 786,110 |
| Due from affiliates | | 166,219 | | | 249,197 | |
| Total current assets | | 759,862 |
| | 797,985 |
| Total current assets | | 176,189 | | | 299,051 | |
Investments in subsidiaries (note 1) | | 1,117,291 |
| | 3,122,738 |
| |
Investments in and advances to subsidiaries (note 1) | | Investments in and advances to subsidiaries (note 1) | | 635,060 | | | 756,140 | |
| Other assets | | 297 |
| | 1,586 |
| Other assets | | 9 | | | 0 | |
| Total assets | | 1,877,450 |
| | 3,922,309 |
| Total assets | | 811,258 | | | 1,055,191 | |
| LIABILITIES AND EQUITY | | | | | LIABILITIES AND EQUITY | | | | |
| Current | | | | | Current | | |
| Accounts payable | | 1,660 |
| | 344 |
| Accounts payable | | 16,170 | | | 13,995 | |
| Accrued liabilities | | 24,972 |
| | 26,036 |
| Accrued liabilities | | 7,269 | | | 8,684 | |
| Due to affiliates | | 254,983 |
| | 1,951,901 |
| Due to affiliates | | 247,425 | | | 351,618 | |
| Current portion of long-term debt | | Current portion of long-term debt | | 0 | | | 36,674 | |
| Other current liabilities | | 2,239 |
| | 2,441 |
| Other current liabilities | | 971 | | | 718 | |
| Total current liabilities | | 283,854 |
| | 1,980,722 |
| Total current liabilities | | 271,835 | | | 411,689 | |
Long-term debt (note 2) | | 586,982 |
| | 584,349 |
| Long-term debt (note 2) | | 339,933 | | | 349,977 | |
| Other long-term liabilities | | 10,783 |
| | 11,981 |
| Other long-term liabilities | | 8,183 | | | 9,360 | |
| Total liabilities | | 881,619 |
| | 2,577,052 |
| Total liabilities | | 619,951 | | | 771,026 | |
| Equity | | | | | Equity | | | | |
| Common stock and additional paid-in capital | | 919,078 |
| | 887,075 |
| Common stock and additional paid-in capital | | 1,057,321 | | | 1,052,284 | |
| Retained earnings | | 76,753 |
| | 458,182 |
| |
| Accumulated deficit | | Accumulated deficit | | (866,014) | | | (768,119) | |
| Total equity | | 995,831 |
| | 1,345,257 |
| Total equity | | 191,307 | | | 284,165 | |
| Total liabilities and equity | | 1,877,450 |
| | 3,922,309 |
| Total liabilities and equity | | 811,258 | | | 1,055,191 | |
The accompanying notes are an integral part of the condensed non-consolidated financial information.
TEEKAY CORPORATION
SCHEDULE I
CONDENSED NON-CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF LOSS (NOTE 1)
(in thousands of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended
December 31,
2020
$ | | Year Ended
December 31,
2019
$ | | Year Ended
December 31,
2018
$ |
| Revenues | | 0 | | | 0 | | | 345 | |
| Voyage expenses | | 0 | | | 0 | | | 20 | |
| Operating expenses | | 0 | | | (412) | | | (26) | |
| General and administrative expenses | | (16,659) | | | (19,463) | | | (23,799) | |
| Loss from operations | | (16,659) | | | (19,875) | | | (23,460) | |
| Interest expense | | (37,674) | | | (46,243) | | | (60,166) | |
| Interest income | | 267 | | | 1,561 | | | 2,839 | |
Impairments of investments and advances (note 1) | | (123,753) | | | (103,420) | | | (651,473) | |
Dividend income (note 1) | | 58,563 | | | 62,100 | | | 32,751 | |
| Other | | 20,572 | | | (5,662) | | | (6,008) | |
| Net loss before income taxes | | (98,684) | | | (111,539) | | | (705,517) | |
| Income tax recovery (expense) | | 790 | | | 7 | | | (208) | |
| Net loss | | (97,894) | | | (111,532) | | | (705,725) | |
|
| | | | | | | | | |
| | | Year ended December 31, 2017 $ | | Year ended December 31, 2016 $ | | Year ended December 31, 2015 $ |
| Revenues | | 5,089 |
| | 14,142 |
| | 34,373 |
|
| Voyage expenses | | (242 | ) | | (59 | ) | | (499 | ) |
| Vessel operating expenses | | — |
| | (30 | ) | | (652 | ) |
| Time-charter hire expense | | (17,765 | ) | | (24,477 | ) | | (43,013 | ) |
| General and administrative expenses | | (20,549 | ) | | (20,583 | ) | | (27,708 | ) |
| Loss from vessel operations | | (33,467 | ) | | (31,007 | ) | | (37,499 | ) |
| Interest expense | | (53,103 | ) | | (53,164 | ) | | (38,196 | ) |
| Interest income | | 422 |
| | 18,430 |
| | 7,781 |
|
Impairments of investments (note 1) | | (338,749 | ) | | — |
| | (1,360,705 | ) |
Dividend income (note 1) | | 58,000 |
| | 1,039 |
| | 109 |
|
| Other | | 4,764 |
| | (981 | ) | | (46,190 | ) |
| Net loss before income taxes | | (362,133 | ) | | (65,683 | ) | | (1,474,700 | ) |
| Income tax (expense) recovery | | (251 | ) | | (525 | ) | | 52 |
|
| Net loss | | (362,384 | ) | | (66,208 | ) | | (1,474,648 | ) |
The accompanying notes are an integral part of the condensed non-consolidated financial information.
TEEKAY CORPORATION
SCHEDULE I
CONDENSED NON-CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended
December 31,
2020
$ | | Year Ended
December 31,
2019
$ | | Year Ended
December 31,
2018
$ |
| Cash and cash equivalents provided by (used for) | | | | | | |
| OPERATING ACTIVITIES | | | | | | |
| Net loss | | (97,894) | | | (111,532) | | | (705,725) | |
| Non-cash and non-operating items: | | | | | | |
| Unrealized gain on derivative instruments | | (656) | | | (270) | | | (2,932) | |
| Impairments of investments and advances | | 123,753 | | | 103,420 | | | 651,473 | |
| Stock-based compensation | | 5,165 | | | 7,400 | | | 7,329 | |
| Dividends-in-kind | | (31,763) | | | (10,000) | | | (10,000) | |
| Other | | 7,925 | | | 19,153 | | | 7,661 | |
| Change in operating assets and liabilities | | 8,508 | | | (15,314) | | | (36,296) | |
| Net operating cash flow | | 15,038 | | | (7,143) | | | (88,490) | |
| FINANCING ACTIVITIES | | | | | | |
| Proceeds from issuance of long-term debt, net of issuance costs | | 0 | | | 250,000 | | | 120,713 | |
| Debt issuance costs | | 0 | | | (15,029) | | | 0 | |
| Scheduled repayments of long-term debt | | (36,712) | | | (480,851) | | | (85,654) | |
| Prepayments of long-term debt | | (18,249) | | | 0 | | | 0 | |
| Advances from affiliates | | 0 | | | 227,157 | | | 39,293 | |
| Net proceeds from equity issuances | | 0 | | | 0 | | | 103,655 | |
| Cash dividends paid | | 0 | | | (5,523) | | | (22,081) | |
| Other financing activities | | (128) | | | (637) | | | (651) | |
| Net financing cash flow | | (55,089) | | | (24,883) | | | 155,275 | |
| INVESTING ACTIVITIES | | | | | | |
| Investments in subsidiaries | | 0 | | | 0 | | | (7,109) | |
| Other investing activities | | 0 | | | 0 | | | (45) | |
| Net investing cash flow | | 0 | | | 0 | | | (7,154) | |
| (Decrease) increase in cash and cash equivalents | | (40,051) | | | (32,026) | | | 59,631 | |
| Cash and cash equivalents, beginning of the year | | 49,655 | | | 81,681 | | | 22,050 | |
| Cash and cash equivalents, end of the year | | 9,604 | | | 49,655 | | | 81,681 | |
Supplemental cash flow information (note 3) | | | | | | |
|
| | | | | | | | | |
| | | Year Ended
December 31, 2017
$ | | Year Ended
December 31, 2016
$ | | Year Ended
December 31, 2015
$ |
| Cash and cash equivalents provided by (used for) | | | | | | |
| OPERATING ACTIVITIES | | | | | | |
| Net loss | | (362,384 | ) | | (66,208 | ) | | (1,474,648 | ) |
| Non-cash items: | | | | | | |
| Unrealized (gain) loss on derivative instruments | | (2,336 | ) | | 604 |
| | (34,871 | ) |
| Impairments of investments | | 338,749 |
| | — |
| | 1,360,705 |
|
| Income tax expense (recovery) | | 251 |
| | 525 |
| | (52 | ) |
| Stock-based compensation | | 6,952 |
| | 7,106 |
| | 8,054 |
|
| Dividends-in-kind | | (58,000 | ) | | (1,039 | ) | | — |
|
| Other | | 3,262 |
| | 529 |
| | (6,907 | ) |
| Change in operating assets and liabilities | | 718 |
| | 17,050 |
| | 25,499 |
|
| Net operating cash flow | | (72,788 | ) | | (41,433 | ) | | (122,220 | ) |
| FINANCING ACTIVITIES | | | | | | |
| Proceeds from issuance of long-term debt, net of issuance costs | | — |
| | — |
| | 194,358 |
|
| Scheduled repayments of long-term debt | | — |
| | — |
| | (86,645 | ) |
| Decrease in restricted cash | | — |
| | — |
| | 22,520 |
|
| Advances from (to) affiliates | | 103,400 |
| | (15,802 | ) | | 179,095 |
|
| Net proceeds from equity issuances | | 25,636 |
| | 105,462 |
| | — |
|
| Cash dividends paid | | (18,967 | ) | | (17,406 | ) | | (125,881 | ) |
| Other financing activities | | (662 | ) | | (666 | ) | | (4,306 | ) |
| Net financing cash flow | | 109,407 |
| | 71,588 |
| | 179,141 |
|
| INVESTING ACTIVITIES | | | | | | |
| Investments in subsidiaries | | (24,443 | ) | | (62,714 | ) | | (54,215 | ) |
| Other investing activities | | 1,289 |
| | 660 |
| | 1,250 |
|
| Net investing cash flow | | (23,154 | ) | | (62,054 | ) | | (52,965 | ) |
| Increase (decrease) in cash and cash equivalents | | 13,465 |
| | (31,899 | ) | | 3,956 |
|
| Cash and cash equivalents, beginning of the year | | 8,585 |
| | 40,484 |
| | 36,528 |
|
| Cash and cash equivalents, end of the year | | 22,050 |
| | 8,585 |
| | 40,484 |
|
Supplemental cash flow information (note 4)
| | | | | | |
The accompanying notes are an integral part of the condensed non-consolidated financial information.
TEEKAY CORPORATION
SCHEDULE I
NOTES TO CONDENSED NON-CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT
1. Summary of Significant Accounting Policies
Basis of presentation
The accompanying condensed non-consolidated financial information is required by SEC Regulation S-X 5-04 for Teekay Corporation (or Teekay), which requires the inclusion of financial information for Teekay on a stand-alone basis if the restricted net assets of consolidated subsidiaries exceed 25% of total consolidated net assets as of the last day of its most recent fiscal year. The restricted net assets of consolidated subsidiaries was $276.3 million, or 57% of total consolidated net assets, as at December 31, 2020.
Teekay’s investments in subsidiaries are presented in this financial information under the cost method of accounting, whereby Teekay’s investment in subsidiaries is measured initially at cost. Under the cost method of accounting for investments in common stock, dividends are the basis for recognition of earnings from an investment. Under this method, an investor recognizes as income dividends received that are distributed from net accumulated earnings of the investee since the date of acquisition by the investor. The net accumulated earnings of an investee subsequent to the date of investment are recognized by the investor only to the extent distributed by the investee as dividends. Dividends received in excess of earnings subsequent to the date of investment are considered a return of investment and are recorded as reductions of cost of the investment. Teekay received dividends from its subsidiaries of $58.0$58.6 million (2017)(2020), $1.0$62.1 million (2016)(2019) and $0.1$32.8 million (2015)(2018), respectively.
Teekay recognizes an impairment loss on its investments in its subsidiaries when a decline in fair value is considered to be other-than-temporary. During the years ended December 31, 2017, 2016 and 2015, Teekay recognized impairment losses of $338.7 million, nil and $1.4 billion, respectively, in relation to other-than-temporary declines in the fair value of its investments.investments is lower than the carrying value. The fair value of Teekay's investments in its subsidiaries is primarily influenced by the publicly-traded price of Teekay LNG's common units, the publicly-traded share price of Teekay Tankers' common shares, and the fair value of the three FPSO units, as of the respective balance sheet dates.
A substantial amount of Teekay’s operating, investing and financing activities are conducted by its affiliates and not reflected in this financial information. The condensed non-consolidated financial information should be read in conjunction with Teekay’s consolidated financial statements.
2. Long-term debt
| | | | | | | | | | | |
| December 31, 2020
$ | | December 31, 2019
$ |
| Senior Notes (8.5%) due January 15, 2020 | 0 | | | 36,712 | |
| Senior Notes (9.25%) due November 15, 2022 | 243,395 | | | 250,000 | |
| Convertible Senior Notes (5%) due January 15, 2023 | 112,184 | | | 125,000 | |
| Total principal | 355,579 | | | 411,712 | |
| Less unamortized discount and debt issuance costs | (15,646) | | | (25,061) | |
| Total debt | 339,933 | | | 386,651 | |
| Less current portion | 0 | | | (36,674) | |
| Long-term portion | 339,933 | | | 349,977 | |
|
| | | | | |
| | December 31, 2017 $ | | December 31, 2016 $ |
| Senior Notes (8.5%) due January 15, 2020 | 592,657 |
| | 592,657 |
|
| Less unamortized discount and debt issuance costs | (5,675 | ) | | (8,308 | ) |
| Total debt | 586,982 |
| | 584,349 |
|
| Long-term portion | 586,982 |
| | 584,349 |
|
The Company’s 8.5% senior unsecured notes arewere due January 15, 2020 with an original aggregate principal amount of $450 million (or the Original Notes). The Original Notes issued on January 27, 2010 were sold at a price equal to 99.2% of par. During 2014, the Company repurchased $57.3 million of the Original Notes. In November 2015, the Company issued an aggregate principal amount of $200 million of the Company’s 8.5% senior unsecured notes due on January 15, 2020 (or the Additional Notes) at 99.01%99.0% of face value, plus accrued interest from July 15, 2015. The Notes are an additional issuance ofPrior to 2020, the Company’s Original Notes (collectively referred to asCompany repurchased $613.3 million in aggregate principal amount, and in January 2020, the 8.5%Notes). The Notes were issued under the same indenture governing theCompany repaid all remaining Original Notes and Additional Notes at maturity.
In May 2019, the Company issued $250.0 million in aggregate principal amount of 9.25% senior secured notes at par due November 2022 (or the 2022 Notes). The 2022 Notes are fungible with the Original Notes. The discountguaranteed on the 8.5% Notes is accreted through the maturity datea senior secured basis by certain of the notes using the effective interest rateCompany's subsidiaries and are secured by first-priority liens on 2 of 8.67% per annum.
The Company capitalized aggregate issuance costs of $13.3 million which are amortized to interest expense over the termTeekay's FPSO units, a pledge of the 8.5% Notes. Asequity interests in Teekay's subsidiary that owns all of December 31, 2017, the unamortized balanceTeekay's common units of the capitalized issuance cost was $3.8 million which is recorded in long-term debt in the condensed balance sheet. The 8.5% Notes rank equally in right of payment withTeekay LNG Partners L.P. and all of Teekay’s existing and future senior unsecured debt and senior to any future subordinated debt of Teekay. The 8.5% Notes are not guaranteed by any of Teekay’s subsidiaries and effectively rank behind all existing and future secured debtClass A common shares of Teekay Tankers Ltd. and other liabilitiesa pledge of its subsidiaries.the equity interests in Teekay's subsidiaries that own Teekay Parent's 3 FPSO units.
The Company may redeem the 8.5%2022 Notes in whole or in part at any time before their maturity date at a redemption price equal to the greater of (i) 100%a percentage of the principal amount of the 8.5%2022 Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 8.5% Notes to be redeemed (excluding accrued interest), discounted to the redemption date on a semi-annual basis, at the treasury yield plus 50 basis points, plus accrued and unpaid interest to, but excluding, the redemption date.date, as follows: 104.625% at any time on or after November 15, 2020, but prior to November 15, 2021; 102.313% at any time on or after November 15, 2021, but prior to August 15, 2022; and 100% at any time on or after August 15, 2022.
3. Guarantees
Teekay Corporation has guaranteed obligations pursuantOn January 26, 2018, the Company completed a private offering of $125.0 million in aggregate principal amount of 5% Convertible Senior Notes due January 15, 2023 (the Convertible Notes). The Convertible Notes are convertible into Teekay’s common stock, initially at a rate of 85.4701 shares of common stock per $1,000 principal amount of Convertible Notes. This represents an initial effective conversion price of $11.70 per share of common stock. The initial conversion price represents a premium of 20% to certain credit facilitiesthe concurrent common stock offering price of $9.75 per share. On issuance of the Convertible Notes, $104.6 million of the net proceeds was reflected in long-term debt, including unamortized discount, and is being accreted to $125.0 million over its five-year term through interest expense. The remaining amount of the net proceeds of $16.1 million was allocated to the conversion feature and reflected in additional paid-in capital.
During 2020, the Company commenced repurchasing some of its subsidiaries. As at December 31, 2017,Convertible Notes and 2022 Notes in the aggregate outstanding balance on such credit facilitiesopen market. Teekay Parent acquired $12.8 million of Teekay Tankers was $252.7 million. As at December 31, 2016, the aggregate outstanding balance on such credit facilitiesprincipal of Teekay Tankers and Teekay Offshore was $150.0the Convertible Notes for total consideration of $10.5 million and $364.0$6.6 million, respectively. In September 2017, Teekay was released from all principal of its previous guarantees relating to Teekay Offshore's long-term debt and interest rate swap and cross currency swap agreements.the 2022 Notes for total consideration of $6.2 million, recognizing a gain of $1.5 million in 2020, included in other on the Company's audited statements of loss.
4.3. Supplemental Cash Flow Information
During 2017,2020, 2019 and 2018, the Company received dividends of $31.8 million, $10.0 million and $10.0 million, respectively, paid-in-kind, which were treated as non-cash transactions in the Company's condensed statement of cash flows.
During2018, one of the Company's subsidiaries returned capital in the amount of $1.7 billion,million, paid-in-kind, which was treated as a non-cash transaction in the Company's condensed statement of cash flows.
During 2017 and 2016, the Company received dividends of $58.0 million and $1.0 million, respectively, paid-in-kind, which were treated as non-cash transactions in the Company's condensed statement of cash flows
