Teekay Corp Ltd 6-K, filed Nov 24, 2020
Teekay Corp Ltd (TK)
6-K
2020-11-24
For: 2020-09-30
View Original
Added on
April 12, 2026
About this 6-K
Teekay Corp Ltd filed this 6-K on November 24, 2020.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM 6-K
_________________________
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 under
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2020
Commission file number 1-12874
_________________________
TEEKAY CORPORATION
(Exact name of Registrant as specified in its charter)
_________________________
Suite 2000, Bentall 5
550 Burrard Street
Vancouver, BC, V6C 2K2, Canada
(Address of principal executive office)
_________________________
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. | ||
Form 20-F ý Form 40-F ¨ | ||
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1). | ||
Yes ¨ No ý | ||
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7). | ||
Yes ¨ No ý | ||
Page 1
TEEKAY CORPORATION AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
INDEX
| PAGE | |||||
Page 2
ITEM 1 – FINANCIAL STATEMENTS
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(in thousands of U.S. Dollars, except share and per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
Revenues (note 3) | |||||||||||||||||||||||
Voyage expenses | ( | ( | ( | ( | |||||||||||||||||||
Vessel operating expenses | ( | ( | ( | ( | |||||||||||||||||||
Time-charter hire expenses (note 6) | ( | ( | ( | ( | |||||||||||||||||||
Depreciation and amortization | ( | ( | ( | ( | |||||||||||||||||||
General and administrative expenses | ( | ( | ( | ( | |||||||||||||||||||
Write-down and (loss) gain on sale (note 7) | ( | ( | ( | ( | |||||||||||||||||||
Gain on commencement of sales-type lease (note 3) | |||||||||||||||||||||||
Restructuring charges (note 14) | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) from vessel operations | ( | ||||||||||||||||||||||
Interest expense | ( | ( | ( | ( | |||||||||||||||||||
Interest income | |||||||||||||||||||||||
Realized and unrealized losses on non-designated derivative instruments (note 16) | ( | ( | ( | ( | |||||||||||||||||||
Equity income (loss) (note 4 and 13b) | ( | ||||||||||||||||||||||
Foreign exchange (loss) gain (notes 10 and 16) | ( | ( | ( | ||||||||||||||||||||
| Other loss | ( | ( | ( | ( | |||||||||||||||||||
| (Loss) income before income taxes | ( | ( | ( | ||||||||||||||||||||
Income tax (expense) recovery (note 17) | ( | ( | ( | ||||||||||||||||||||
| Net (loss) income | ( | ( | ( | ||||||||||||||||||||
| Net loss (income) attributable to non-controlling interests | ( | ( | ( | ||||||||||||||||||||
| Net loss attributable to the shareholders of Teekay Corporation | ( | ( | ( | ( | |||||||||||||||||||
Per common share of Teekay Corporation (note 18) | |||||||||||||||||||||||
| • Basic loss attributable to shareholders of Teekay Corporation | ( | ( | ( | ( | |||||||||||||||||||
| • Diluted loss attributable to shareholders of Teekay Corporation | ( | ( | ( | ( | |||||||||||||||||||
Weighted average number of common shares outstanding (note 18) | |||||||||||||||||||||||
| • Basic and Diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 3
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands of U.S. Dollars)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Net (loss) income | ( | ( | ( | ||||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Other comprehensive loss before reclassifications | |||||||||||||||||||||||
| Unrealized loss on qualifying cash flow hedging instruments | ( | ( | ( | ( | |||||||||||||||||||
| Pension adjustments, net of taxes | ( | ( | ( | ( | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) relating to: | |||||||||||||||||||||||
| Realized loss (gain) on qualifying cash flow hedging instruments | |||||||||||||||||||||||
To interest expense (note 16) | ( | ( | |||||||||||||||||||||
| To equity income (loss) | ( | ||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||
| Comprehensive (loss) income | ( | ( | ( | ||||||||||||||||||||
| Comprehensive loss (income) attributable to non-controlling interests | ( | ( | ( | ||||||||||||||||||||
| Comprehensive loss attributable to shareholders of Teekay Corporation | ( | ( | ( | ( | |||||||||||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 4
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. Dollars, except share amounts)
| As at September 30, 2020 | As at December 31, 2019 | ||||||||||
$ | $ | ||||||||||
| ASSETS | |||||||||||
| Current | |||||||||||
Cash and cash equivalents (note 10 and 19) | |||||||||||
Restricted cash – current (note 19) | |||||||||||
Accounts receivable, including non-trade of $ | |||||||||||
| Accrued revenue | |||||||||||
Prepaid expenses and other (note 16) | |||||||||||
Current portion of net investments in direct financing and sales-type leases, net (notes 3 and 13b) | |||||||||||
| Assets held for sale | |||||||||||
| Total current assets | |||||||||||
Restricted cash – non-current (note 19) | |||||||||||
Vessels and equipment (note 10) | |||||||||||
At cost, less accumulated depreciation of $ | |||||||||||
Vessels related to finance leases, at cost, less accumulated amortization of $ | |||||||||||
Operating lease right-of-use assets (note 6) | |||||||||||
| Total vessels and equipment | |||||||||||
Net investment in direct financing and sales-type leases, net – non-current (notes 3 and 13b) | |||||||||||
Investment in and loans, net to equity-accounted investments (notes 4,12a and 13b) | |||||||||||
| Goodwill, intangibles and other non-current assets | |||||||||||
| Total assets | |||||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current | |||||||||||
| Accounts payable | |||||||||||
Accrued liabilities and other (notes 8, 14 and 16) | |||||||||||
Short-term debt (note 9) | |||||||||||
Current portion of long-term debt (note 10) | |||||||||||
Current obligations related to finance leases (note 6) | |||||||||||
Current portion of operating lease liabilities (note 6) | |||||||||||
Liabilities related to assets held for sale (note 7) | |||||||||||
| Total current liabilities | |||||||||||
Long-term debt (note 10) | |||||||||||
Long-term obligations related to finance leases (note 6) | |||||||||||
Long-term operating lease liabilities (note 6) | |||||||||||
Other long-term liabilities (notes 8 and 16) | |||||||||||
| Total liabilities | |||||||||||
Commitments and contingencies (notes 6, 9, 10, 12, and 16) | |||||||||||
| Equity | |||||||||||
Common stock and additional paid-in capital ($ | |||||||||||
| Accumulated deficit | ( | ( | |||||||||
| Non-controlling interest | |||||||||||
Accumulated other comprehensive loss (note 15) | ( | ( | |||||||||
| Total equity | |||||||||||
| Total liabilities and equity | |||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 5
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. Dollars)
| Nine Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
$ | $ | ||||||||||
| Cash, cash equivalents and restricted cash provided by (used for) | |||||||||||
OPERATING ACTIVITIES | |||||||||||
| Net income (loss) | ( | ||||||||||
| Non-cash and non-operating items: | |||||||||||
| Depreciation and amortization | |||||||||||
Unrealized loss on derivative instruments (note 16) | |||||||||||
Write-down and loss on sale (note 7) | |||||||||||
Gain on commencement of sales-type lease (note 3) | ( | ||||||||||
| Equity (income) loss, net of dividends received and return of capital | ( | ||||||||||
Income tax (recovery) expense (note 17) | ( | ||||||||||
| Foreign currency exchange loss and other | |||||||||||
| Change in operating assets and liabilities: | |||||||||||
| Direct financing lease payments received | |||||||||||
| Change in other operating assets and liabilities | |||||||||||
| Asset retirement obligation expenditures | ( | ||||||||||
| Expenditures for dry docking | ( | ( | |||||||||
Net operating cash flow | |||||||||||
FINANCING ACTIVITIES | |||||||||||
| Proceeds from issuance of long-term debt, net of issuance costs | |||||||||||
| Prepayments of long-term debt | ( | ( | |||||||||
Scheduled repayments of long-term debt and settlement of related swaps (note 10) | ( | ( | |||||||||
| Proceeds from short-term debt | |||||||||||
| Prepayment of short-term debt | ( | ( | |||||||||
| Proceeds from financing related to sale-leaseback of vessels | |||||||||||
| Repayments of obligations related to finance leases | ( | ( | |||||||||
| Prepayment of obligations related to finance leases | ( | ||||||||||
| Repurchase of Teekay LNG common units | ( | ( | |||||||||
| Distributions paid from subsidiaries to non-controlling interests | ( | ( | |||||||||
| Cash dividends paid | ( | ||||||||||
| Other financing activities | ( | ( | |||||||||
Net financing cash flow | ( | ( | |||||||||
INVESTING ACTIVITIES | |||||||||||
Expenditures for vessels and equipment | ( | ( | |||||||||
Proceeds from sale of vessels and equipment (note 7) | |||||||||||
Proceeds from the sale of assets, net of cash sold (notes 4 and 7) | |||||||||||
| Investment in equity-accounted investments | ( | ||||||||||
| Loan repayment by joint venture | |||||||||||
| Other investing activities | ( | ||||||||||
Net investing cash flow | ( | ||||||||||
| Decrease in cash, cash equivalents, restricted cash and cash held for sale | ( | ( | |||||||||
| Cash, cash equivalents, restricted cash and cash held for sale, beginning of the period | |||||||||||
Cash, cash equivalents, restricted cash and cash held for sale, end of the period | |||||||||||
Supplemental cash flow information (note 19) | |||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 6
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. Dollars, except share amounts)
| 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 Interests $ | Total $ | ||||||||||||||||||||||||||||||
| Balance as at December 31, 2019 | ( | ( | |||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | ( | — | |||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||
Dividends declared: | |||||||||||||||||||||||||||||||||||
Other dividends | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Employee stock compensation and other | — | — | — | ||||||||||||||||||||||||||||||||
Change in accounting policy (note 2) | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||
Changes to non-controlling interest from equity contributions and other | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||
| Balance as at March 31, 2020 | ( | ( | |||||||||||||||||||||||||||||||||
Net income | — | — | — | ||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||
Dividends declared: | — | ||||||||||||||||||||||||||||||||||
Other dividends | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Employee stock compensation and other | ( | — | — | — | |||||||||||||||||||||||||||||||
Changes to non-controlling interest from equity contributions and other (note 4) | — | — | ( | ( | |||||||||||||||||||||||||||||||
Balance as at June 30, 2020 | ( | ( | |||||||||||||||||||||||||||||||||
Net (loss) | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | ||||||||||||||||||||||||||||||||
Dividends declared: | — | ||||||||||||||||||||||||||||||||||
Other dividends | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Employee stock compensation and other | — | — | — | ||||||||||||||||||||||||||||||||
Changes to non-controlling interest from equity contributions and other | — | — | |||||||||||||||||||||||||||||||||
Balance as at September 30, 2020 | ( | ( | |||||||||||||||||||||||||||||||||
Page 7
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. Dollars, except share amounts)
| 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 Interests $ | Total $ | ||||||||||||||||||||||||||||||||||||
| Balance as at December 31, 2018 | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||
Dividends declared: | |||||||||||||||||||||||||||||||||||||||||
Common stock ($ | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||
Other dividends | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
Employee stock compensation and other | — | — | — | ||||||||||||||||||||||||||||||||||||||
Change in accounting policy | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
Changes to non-controlling interest from equity contributions and other | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| Balance as at March 31, 2019 | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net (loss) income | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||
Other dividends | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
Employee stock compensation and other | — | — | — | ||||||||||||||||||||||||||||||||||||||
Changes to non-controlling interest from equity contributions and other | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||
| Balance as at June 30, 2019 | ( | ( | |||||||||||||||||||||||||||||||||||||||
Net (loss) income | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||||||||
Other dividends | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
Employee stock compensation and other | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Changes to non-controlling interest from equity contributions and other | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||
| Balance as at September 30, 2019 | ( | ( | |||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of the unaudited consolidated financial statements.
Page 8
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
1.Basis of Presentation
The unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (or GAAP). They include the accounts of Teekay Corporation (or Teekay), which is incorporated under the laws of the Republic of the Marshall Islands, 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 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 publicly-traded subsidiaries Teekay LNG Partners L.P. (or Teekay LNG) and Teekay Tankers Ltd. (or Teekay Tankers).
Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted from these unaudited interim consolidated financial statements and, therefore, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019, included in the Company’s Annual Report on Form 20-F, filed with the U.S. Securities and Exchange Commission (or SEC) on April 8, 2020. In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments, consisting of a normal recurring nature, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, cash flows and changes in total equity for the interim periods presented. The results of operations for the three and nine months ended September 30, 2020, are not necessarily indicative of those for a full fiscal year. Significant intercompany balances and transactions have been eliminated upon consolidation.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited financial statements and accompanying notes. Actual results could differ from those estimates. It is possible that the amounts recorded as derivative assets and liabilities could vary by material amounts prior to their settlement.
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (or COVID-19) as a pandemic. Given the dynamic 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 a contributing factor to the decline in short-term charter rates and the increase in certain crewing-related costs, which has had an impact on our cash flows, and was a contributing factor to the write-down of certain tankers owned by Teekay Tankers during the three months ended September 30, 2020, as described in Note 7 - Write-down and (Loss) Gain on Sale. During the nine months ended September 30, 2020, COVID-19 was also a contributing factor to the write-down of six of Teekay LNG's multi-gas vessels and one floating production storage and offloading (or FPSO) unit, as described in Note 7 - Write-down and (Loss) Gain on Sale, as well as being a contributing factor to the reduction in certain tax accruals as described in Note 17 - Income Tax (Expense) Recovery.
2. Recent Accounting Pronouncements
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 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 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 type of assets, which generally required that a loss be incurred before it was recognized.
The Company adopted this update on January 1, 2020 with a modified-retrospective approach, whereby a cumulative-effect adjustment was made to increase accumulated deficit on January 1, 2020 without any retroactive application to prior periods. The Company's net investment in direct financing and sales-type leases, loans to equity-accounted investments, guarantees of indebtedness of equity-accounted investments and receivables related to non-operating lease revenue arrangements are subject to ASU 2016-13. On adoption, the Company decreased the carrying value of investment in and loans to equity-accounted investments by $40.0 million, non-controlling interest by $36.1 million and net investment in direct financing and sales-type leases by $11.2 million and increased accumulated deficit by
Page 9
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
$17.2 million and its other long-term liabilities by $2.1 million. The cumulative adjustment recorded on initial adoption of this update does not reflect an increase in credit risk exposure to the Company compared to previous periods presented.
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. It is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. This update permits the use of either the modified retrospective or fully retrospective method of transition. The Company is currently evaluating the effect of adopting this new guidance.
3. 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 by providing corporate management services to such third-party entities. For a description of these contracts, see "Item 18 – Financial Statements: Note 2" in the Company’s Annual Report on Form 20-F for the year ended December 31, 2019.
Revenue Table
The following tables contain the Company’s revenue for the three and nine months ended September 30, 2020 and 2019, by contract type, by segment and by business lines within segments.
| Three Months Ended September 30, 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 | |||||||||||||||||||||||
| Voyage charters | |||||||||||||||||||||||
| Bareboat charters | |||||||||||||||||||||||
FPSO contracts | |||||||||||||||||||||||
Management fees and other | |||||||||||||||||||||||
Page 10
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
| Three Months Ended September 30, 2019 | |||||||||||||||||||||||
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 | ( | ||||||||||||||||||||||
| Voyage charters | |||||||||||||||||||||||
| Bareboat charters | |||||||||||||||||||||||
FPSO contracts | |||||||||||||||||||||||
Management fees and other | |||||||||||||||||||||||
| ( | |||||||||||||||||||||||
| Nine Months Ended September 30, 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 | |||||||||||||||||||||||
| Voyage charters | |||||||||||||||||||||||
Bareboat charters | |||||||||||||||||||||||
FPSO contracts | |||||||||||||||||||||||
Management fees and other | |||||||||||||||||||||||
| Nine Months Ended September 30, 2019 | |||||||||||||||||||||||
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 | ( | ||||||||||||||||||||||
| Voyage charters | |||||||||||||||||||||||
Bareboat charters | |||||||||||||||||||||||
FPSO contracts | |||||||||||||||||||||||
Management fees and other | ( | ||||||||||||||||||||||
| ( | |||||||||||||||||||||||
Page 11
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
The following table contains the Company's total revenue for the three and nine months ended September 30, 2020 and 2019, by those contracts or components of contracts accounted for as leases and by those contracts or components not accounted for as leases.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||||||
| Lease revenue | ||||||||||||||||||||||||||
Lease revenue from lease payments of operating leases | ||||||||||||||||||||||||||
Interest income on lease receivables | ||||||||||||||||||||||||||
Variable lease payments – cost reimbursements (1) | ||||||||||||||||||||||||||
Variable lease payments – other (2) | ||||||||||||||||||||||||||
Non-lease revenue | ||||||||||||||||||||||||||
Non-lease revenue – related to sales-type or direct financing leases | ||||||||||||||||||||||||||
Management fees and other income | ||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||
(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 September 30, 2020, the minimum scheduled future rentals to be received by the Company in each of the next five years for time charters, bareboat charters and FPSO contracts that were accounted for as operating leases were approximately $172.8 million (remainder of 2020), $573.6 million (2021), $444.9 million (2022), $334.5 million (2023) and $259.3 million (2024).
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 September 30, 2020, revenue from unexercised option periods of contracts that existed on September 30, 2020, revenue from vessels in the Company’s equity-accounted investments or variable or contingent revenues accounted for under ASC 842 Leases. 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.
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 Petrojarl Foinaven 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 Petrojarl Foinaven FPSO and related customer contract, and recognized a gain of $44.9 million in the three months ended March 31, 2020. As at September 30, 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.
As at September 30, 2020, Teekay LNG had three liquefied natural gas (or LNG) carriers, excluding vessels in its equity-accounted joint ventures, which are accounted for as direct financing leases. For a description of Teekay LNG's LNG carriers accounted for as direct financing leases, see "Item 18 – Financial Statements: Note 2" to the Company's Annual Report on Form 20-F for the year ended December 31, 2019.
As at December 31, 2019, Teekay LNG had two additional LNG carriers, the WilForce and the WilPride, that were chartered to Awilco LNG ASA (or Awilco) and were accounted for as sales-type leases. 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 million relating to these two vessels.
Page 12
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
As at September 30, 2020, estimated minimum lease payments to be received related to direct financing and sales-type leases in each of the next five years were approximately $16.4 million (remainder of 2020), $64.6 million (2021), $64.6 million (2022), $64.4 million (2023), $64.7 million (2024) and an aggregate of $522.3 million thereafter. The leases are scheduled to end between 2025 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 September 30, 2020 and December 31, 2019, there were contract liabilities of $32.7 million and $32.4 million, respectively. During the three and nine months ended September 30, 2020, the Company recognized revenues of $36.0 million and $32.4 million, respectively (three and nine months ended September 30, 2019 – $23.3 million and $26.4 million, respectively), included in contract liability at the beginning of such periods.
4. Related Party Transactions
The 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 reimbursed for costs incurred by the Company for its seafarers operating these LNG carriers. During the three and nine months ended September 30, 2020, the Company earned $21.1 million and $58.5 million, respectively (three and nine months ended September 30, 2019 – $17.4 million and $50.0 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, for a period of two years at a fixed-rate. Time-charter hire expenses for the three and nine months ended September 30, 2020 were $6.0 million and $17.3 million, respectively (three and nine months ended September 30, 2019 – $5.3 million and $14.0 million, respectively).
On May 11, 2020, Teekay and Teekay 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 LNG. The common units were valued at $122.6 million, based on the prevailing unit price at the time of issuance. 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 LNG and is credited directly to equity, and the $9.0 million represents the change in Teekay's interest in Teekay LNG's accumulated other comprehensive loss.
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 L.P (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.
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 unaudited consolidated statements of (loss) income for the nine months ended September 30, 2019. The Company recognized a loss on sale of $8.9 million upon completion of the 2019 Brookfield Transaction in May 2019.
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, as part of the 2017 Brookfield Transaction, Altera acquired a 100 % ownership interest in seven subsidiaries (or the Transferred Subsidiaries) of Teekay at carrying value.
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, continue to provide certain other ship management, commercial, technical, strategic and administrative services to Altera.
Revenues recognized by the Company for services provided to Altera during the period that Altera was a related party to the Company, from January 1, 2019 to May 8, 2019, were $7.6 million, which were recorded in revenues on the Company's unaudited consolidated statements of (loss) income. 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, from January 1, 2019 to May 8, 2019, were $9.6 million, which were recorded in vessel operating expenses and general and administrative expenses on the Company's unaudited consolidated statements of (loss) income.
Page 13
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
5. Segment Reporting
The Company’s segments are described in "Item 18 – Financial Statements: Note 3" to the Company’s Annual Report on Form 20-F for the year ended December 31, 2019. The Company allocates capital and assesses performance from the separate perspectives of its two publicly-traded subsidiaries Teekay LNG and Teekay Tankers (together, the Daughter Entities), Teekay and its remaining subsidiaries (or Teekay Parent), and, prior to the completion of the 2019 Brookfield Transaction, its equity-accounted investment in Altera, 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 Daughter Entities, Teekay Parent and, prior to the completion of the 2019 Brookfield Transaction, its equity-accounted investment in Altera, and its segments are presented accordingly on this basis. The Company (which excludes Altera) has three primary lines of business: (1) offshore production (FPSO units), (2) 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 Daughter Entity and the Company believes this information allows a better understanding of the Company’s performance and prospects for future net cash flows.
The following table includes the Company’s revenues by segment for the three and nine months ended September 30, 2020 and 2019:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||
| $ | $ | $ | $ | |||||||||||
| Teekay LNG | ||||||||||||||
| Liquefied Gas Carriers | ||||||||||||||
| Conventional Tankers | ||||||||||||||
| Teekay Tankers | ||||||||||||||
Conventional Tankers(1) | ||||||||||||||
| Teekay Parent | ||||||||||||||
| Offshore Production | ||||||||||||||
| Other | ||||||||||||||
Eliminations and other(1) | ( | ( | ||||||||||||
Page 14
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
The following table includes the Company’s income (loss) from vessel operations by segment for the three and nine months ended September 30, 2020 and 2019:
Income (Loss) from Vessel Operations(1) | ||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||
| $ | $ | $ | $ | |||||||||||
| Teekay LNG | ||||||||||||||
| Liquefied Gas Carriers | ||||||||||||||
| Conventional Tankers | ( | ( | ||||||||||||
| Teekay Tankers | ||||||||||||||
| Conventional Tankers | ( | ( | ||||||||||||
| Teekay Parent | ||||||||||||||
| Offshore Production | ( | ( | ( | ( | ||||||||||
| Other | ( | ( | ( | ( | ||||||||||
| ( | ( | ( | ( | |||||||||||
| ( | ||||||||||||||
Prior to its sale in May 2019, the Company accounted for its investment in Altera's general partner and common units using the equity method and recognized equity losses in respect of Altera for the period from January 1, 2019 to May 8, 2019 of $3.1 million. The Company wrote-down the investment in Altera by $64.9 million in the nine months ended September 30, 2019 and recognized a loss on sale of $8.9 million in the nine months ended September 30, 2019.
A reconciliation of total segment assets to total assets presented in the accompanying unaudited consolidated balance sheets is as follows:
| September 30, 2020 | December 31, 2019 | |||||||
| $ | $ | |||||||
| Teekay LNG – Liquefied Gas Carriers | ||||||||
| Teekay Tankers – Conventional Tankers | ||||||||
| Teekay Parent – Offshore Production | ||||||||
| Teekay Parent – Other | ||||||||
| Cash and cash equivalents | ||||||||
| Other assets not allocated | ||||||||
| Eliminations | ( | ( | ||||||
| Consolidated total assets | ||||||||
6. Leases
Obligations Related to Finance Leases
| September 30, 2020 | December 31, 2019 | ||||||||||
$ | $ | ||||||||||
| Teekay LNG | |||||||||||
LNG Carriers | |||||||||||
| Teekay Tankers | |||||||||||
Conventional Tankers | |||||||||||
| Total obligations related to finance leases | |||||||||||
Less current portion | ( | ( | |||||||||
Long-term obligations related to finance leases | |||||||||||
Page 15
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
Teekay LNG
As at September 30, 2020, Teekay LNG was a party to finance leases on nine LNG carriers (December 31, 2019 – nine LNG carriers). These nine LNG carriers were sold by Teekay LNG to third parties (or Lessors) and leased back under 7.5 - to 15 -year bareboat charter contracts ending in 2026 through 2034. At the inception of these leases, the weighted-average interest rate implicit in these leases was 5.1 %. The bareboat charter contracts are presented as obligations related to finance leases on the Company's unaudited consolidated balance sheets and have purchase obligations at the end of the lease terms.
The obligations of Teekay LNG under the bareboat charter contracts for the nine LNG carriers are guaranteed by Teekay LNG. 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. These covenants are the same as Teekay LNG's other corporate debt covenants (see Note 10). As of the date these unaudited consolidated financial statements were issued, Teekay LNG was in compliance with all covenants in respect of the obligations related to its finance leases.
As at September 30, 2020, the remaining commitments related to the financial liabilities of these nine LNG carriers, including the amounts to be paid for the related purchase obligations, approximated $1.8 billion, including imputed interest of $417.7 million, repayable through 2034, as indicated below:
Commitments | ||||||||
| At September 30, 2020 | ||||||||
Year | $ | |||||||
Remainder of 2020 | ||||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
Thereafter | ||||||||
Teekay Tankers
From 2017 to 2019, Teekay Tankers completed sale-leaseback financing transactions with financial institutions relating to 16 of Teekay Tankers' vessels. Under these arrangements, Teekay Tankers transferred the vessels to subsidiaries of the financial institutions (collectively, the Lessors), and leased the vessels back from the Lessors on bareboat charters ranging from 9 - to 12 -year terms. Teekay Tankers is obligated to purchase eight of the vessels upon maturity of their respective bareboat charters. Teekay Tankers also has the option to purchase each of the 16 vessels at various times starting between July 2020 and November 2021 until the end of their respective lease terms. In October 2020, Teekay Tankers completed the repurchases of two of these vessels for a total cost of $29.6 million and in November 2020, Teekay Tankers declared purchase options to acquire two more of these vessels for a total cost of $56.7 million with an expected completion date of May 2021 (see Note 20).
The bareboat charters related to these vessels require that Teekay Tankers maintain minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $35.0 million and at least 5.0 % of Teekay Tankers' consolidated debt and obligations related to finance leases.
Page 16
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
Such requirements are assessed annually or quarterly with reference to vessel valuations compiled by one or more agreed upon third parties. As of the date these unaudited consolidated financial statements were issued, Teekay Tankers was in compliance with all covenants in respect of its obligations related to finance leases.
The weighted average interest rate on Teekay Tankers’ obligations related to finance leases as at September 30, 2020 was 7.6 % (December 31, 2019 – 7.6 %).
As at September 30, 2020, the total remaining commitments related to the financial liabilities of Teekay Tankers' Suezmax tankers, Aframax tankers and LR2 product tankers, including the amounts to be paid for the related purchase obligations, approximated $559.7 million, including imputed interest of $163.6 million, repayable from 2020 through 2030, as indicated below:
Commitments | ||||||||
| At September 30, 2020 | ||||||||
Year | $ | |||||||
| Remainder of 2020 | ||||||||
| 2021 | ||||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
Thereafter | ||||||||
Operating Lease Liabilities
The Company charters-in vessels from other vessel owners on time-charter-in and bareboat charter contracts, whereby the vessel owner provides use of the vessel to the Company, and, 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 typically pays the owner 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 3, 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.
As at September 30, 2020, minimum commitments to be incurred by the Company under time-charter-in and bareboat charter contracts were approximately $17.2 million (remainder of 2020), $43.4 million (2021), $21.8 million (2022), $9.2 million (2023) and $5.7 million (2024).
7. Write-down and (Loss) Gain 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. During the third quarter of 2020, the Company recognized impairment charges in respect of five Aframax tankers due to the lower near-term market outlook.
The following table contains the write-downs, gains and losses on sales of vessels for the three and nine months ended September 30, 2020 and 2019:
| Three Months Ended September 30, | ||||||||||||||||||||||||||
Segment | Asset Type | Completion of Sale Date | 2020 | 2019 | ||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
Teekay Parent Segment – Offshore Production (1) | N/A | ( | ( | |||||||||||||||||||||||
Teekay Parent Segment – Other (2) | Operating lease ROU asset | N/A | ( | |||||||||||||||||||||||
| Teekay LNG Segment – Conventional Tankers | Oct-2019 | ( | ||||||||||||||||||||||||
Teekay Tankers Segment – Conventional Tankers (3) | N/A | ( | ||||||||||||||||||||||||
| Teekay Tankers Segment – Conventional Tankers | Operating lease ROU asset | N/A | ( | |||||||||||||||||||||||
| Total | (66,273) | (175,785) | ||||||||||||||||||||||||
Page 17
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
| Nine Months Ended September 30, | ||||||||||||||||||||||||||
Segment | Asset Type | Completion of Sale Date | 2020 | 2019 | ||||||||||||||||||||||
| $ | $ | |||||||||||||||||||||||||
Teekay Parent Segment – Offshore Production (1) | N/A | ( | ( | |||||||||||||||||||||||
Teekay Parent Segment – Offshore Production (4) | N/A | ( | ||||||||||||||||||||||||
Teekay Parent Segment – Other (2) | Operating lease ROU asset | N/A | ( | |||||||||||||||||||||||
Teekay LNG Segment – Liquefied Gas Carriers (5) | N/A | ( | ||||||||||||||||||||||||
| Teekay LNG Segment – Conventional Tankers | Oct-2019 | ( | ||||||||||||||||||||||||
Teekay Tankers Segment – Conventional Tankers (3) | N/A | ( | ||||||||||||||||||||||||
Teekay Tankers Segment – Conventional Tankers (6) | (6) | Apr-2020 | ||||||||||||||||||||||||
| Teekay Tankers Segment – Conventional Tankers | Feb/Mar-2020 | ( | ||||||||||||||||||||||||
| Teekay Tankers Segment – Conventional Tankers | Operating lease ROU asset | N/A | ( | |||||||||||||||||||||||
| Total | ( | ( | ||||||||||||||||||||||||
(1)During the first three quarters of 2020 and 2019, Teekay Parent recognized impairment charges of $72.3 million and $175.0 million, respectively, in respect of two of its FPSO units. In the first quarter of 2020, CNR International (U.K.) Limited (or CNR) 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 in 2021. The Company expects to recycle the FPSO unit, which is currently in lay-up, and the sub-sea equipment following removal from the field. The Company redelivered the FSO unit to its owner in the third quarter 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. During 2020, the Company also made changes to its expected cash flows from the Sevan Hummingbird FPSO unit based on the market environment and oil prices, and contract discussions with the customer. The carrying value of the unit was fully written down in the third quarter of 2020.
(2)In the third quarter of 2020, the Company made changes to its expected cash flows from the Suksan Salamander FSO unit, which it in-charters from Altera under an operating lease, to take into account recent progress relating to the early termination of the in-charter and the novation of the charter contracts with the customer to Altera. The ROU asset was written down to its estimated fair value, using a discounted cash flow approach. See Note 13.
(3)During the three and nine months ended September 30, 2020, the carrying values of five
(4)On March 27, 2020, the Company entered into a bareboat charter agreement for 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 in the three months ended March 31, 2020. See Note 3.
(5)In March 2020, the carrying values for six of Teekay LNG's seven wholly-owned multi-gas carriers were written down to their estimated fair values, using appraised values, primarily due to the lower near-term outlook for these type of vessels as a result of the economic environment at that time (including the COVID-19 pandemic), as well as Teekay LNG receiving notification that its then-existing commercial management agreement with a third-party commercial manager will dissolve and be replaced by a new commercial management agreement in September 2020.
Page 18
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
8. Accrued Liabilities and Other and Other Long-Term Liabilities
Accrued Liabilities and Other
| September 30, 2020 | December 31, 2019 | ||||||||||
$ | $ | ||||||||||
| Accrued liabilities | |||||||||||
| Voyage and vessel expenses | |||||||||||
| Interest | |||||||||||
| Payroll and related liabilities | |||||||||||
| Distributions payable and other | |||||||||||
| Deferred revenues – current | |||||||||||
| In-process revenue contracts – current | |||||||||||
Current portion of derivative liabilities (note 16) | |||||||||||
| Office lease liability – current | |||||||||||
Loans from equity-accounted investments | |||||||||||
| Asset retirement obligation – current | |||||||||||
Other Long-Term Liabilities
| September 30, 2020 | December 31, 2019 | ||||||||||
| $ | $ | ||||||||||
Deferred revenues and gains | |||||||||||
Guarantee liabilities | |||||||||||
Asset retirement obligation | |||||||||||
Pension liabilities | |||||||||||
In-process revenue contracts | |||||||||||
Derivative liabilities (note 16) | |||||||||||
Unrecognized tax benefits (note 17) | |||||||||||
| Office lease liability – long-term | |||||||||||
Other | |||||||||||
Page 19
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
Asset Retirement Obligations
In the first quarter of 2020, CNR 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 in 2021. The Company expects to recycle the FPSO unit, which is currently in lay-up, and the sub-sea 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 September 30, 2020, the present value of the Petrojarl Banff FPSO unit's estimated asset retirement obligations relating to the remediation of the subsea infrastructure was $42.9 million, of which $38.0 million is recorded in accrued liabilities and $4.9 million recorded in other long-term liabilities. The Company has also recorded $8.7 million in other non-current assets as at September 30, 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 September 30, 2020, the carrying value of the related lease asset was $14.8 million. As of September 30, 2020, the present value of the Petrojarl Foinaven FPSO unit's estimated asset retirement obligation relating to recycling costs was $6.8 million.
9. Short-Term Debt
In November 2018, Teekay Tankers Chartering Pte. Ltd. (or TTCL) a wholly-owned subsidiary of Teekay Tankers, entered into a working capital revolving loan facility (or the Working Capital Loan), which initially provided available aggregate borrowings of up to $40.0 million for TTCL, and had an initial maturity date in May 2019, subject to extension as described below. The maximum available aggregate borrowings were subsequently increased to $80.0 million, effective December 2019. The amount available for drawdown is limited to a percentage of certain receivables and accrued revenue, which is assessed weekly. The next maturity date of the Working Capital Loan is in November 2020. The Working Capital Loan maturity date is continually extended for further periods of six months thereafter unless and until the lender gives notice in writing that no further extensions shall occur. Proceeds of the Working Capital Loan are used to provide working capital in relation to certain vessels subject to revenue sharing agreements (or RSAs). Interest payments are based on LIBOR plus a margin of 3.5 %.
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 September 30, 2020, $20.0 million (December 31, 2019 – $50.0 million) was owing under this facility, and the interest rate on the facility was 3.6 % (December 31, 2019 – 5.0 %). As of the date these unaudited consolidated financial statements were issued, Teekay Tankers was in compliance with all covenants in respect of this facility.
10. Long-Term Debt
| September 30, 2020 | December 31, 2019 | ||||||||||
| $ | $ | ||||||||||
| Revolving Credit Facilities | |||||||||||
Senior Notes ( | |||||||||||
Senior Notes ( | |||||||||||
Convertible Senior Notes ( | |||||||||||
| Norwegian Krone-denominated Bonds due through September 2025 | |||||||||||
| U.S. Dollar-denominated Term Loans due through 2030 | |||||||||||
| Euro-denominated Term Loans due through 2024 | |||||||||||
| Other U.S. Dollar-denominated loan | |||||||||||
| Total principal | |||||||||||
| Less unamortized discount and debt issuance costs | ( | ( | |||||||||
| Total debt | |||||||||||
| Less current portion | ( | ( | |||||||||
| Long-term portion | |||||||||||
Page 20
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
As of September 30, 2020, the Company had four revolving credit facilities (collectively, the Revolvers) available. The Revolvers, as at such date, provided for aggregate borrowings of up to $928.2 million, of which $648.2 million was undrawn. Interest payments are based on LIBOR plus a margin. The margins ranged between 1.40 3.95 135.0 million (remainder of 2020), $115.8 million (2021), $410.8 million (2022), $65.3 million (2023) and $201.3 million (2024). The Revolvers are collateralized by first-priority mortgages granted on 33 of the Company’s vessels, together with other related security, and include a guarantee from Teekay or its subsidiaries for all but one of the Revolvers' outstanding amounts. Included in other related security are 25.2 million common units in Teekay LNG and 5.0 million Class A common shares in Teekay Tankers to secure a $150 million credit facility. On October 1, 2020, Teekay Parent completed the refinancing of its revolving credit facility, and as part of this refinancing, 10.75 million Teekay LNG common units were included as additional security. Subsequent to this refinancing, the Revolvers provided for aggregate borrowings of up to $957.6 million, of which $677.6 million was undrawn, and the aggregate amount available under the Revolvers is scheduled to decrease by $47.2 million (remainder of 2020), $115.8 million (2021), $528.0 million (2022), $65.3 million (2023) and $201.3 million (2024).
The Company’s 8.5 % senior unsecured notes were due January 15, 2020 with an original aggregate principal amount of $450 million (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 which were due on January 15, 2020 (or the Additional Notes) at 99.0 % of face value, plus accrued interest from July 15, 2015. Prior to 2020, the Company repurchased $613.3 million in aggregate principal amount and in January 2020, the Company 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 guaranteed on a senior secured basis by certain of our subsidiaries and are secured by first-priority liens on two of Teekay's FPSO units, a pledge of the equity interests in Teekay's subsidiary that owned all of Teekay's common units of Teekay LNG Partners L.P. and all of Teekay’s Class A common shares of Teekay Tankers Ltd. and a pledge of the equity interests in Teekay's subsidiaries that own Teekay Parent's three FPSO units.
The Company may redeem the 2022 Notes in whole or in part at any time prior to November 15, 2020 at a redemption price equal to 100 % of the principal amount of the 2022 Notes to be redeemed, plus the greater of (i) 1.0% of the principal amount of such 2022 Notes and (ii) the excess, if any, of the sum of the present values of the remaining scheduled payments of principal and interest on the 2022 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 over the principal amount of such 2022 Notes, plus accrued and unpaid interest to, but excluding, the redemption date.
The Company may redeem the 2022 Notes in whole or in part at a redemption price equal to a percentage of the principal amount of the 2022 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption 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.
In September 2020, Teekay Parent commenced repurchasing some of its Convertible Notes in the open market, acquiring $10.8 million of the principal of the Convertible Notes for total consideration of $8.8 million and recognized a gain of $1.1 million in the third quarter of 2020, included in other loss on the Company's unaudited consolidated statements of (loss) income.
Subsequently, in October and November 2020, Teekay Parent acquired an additional $2.0 million of the principal of the Convertible Notes for total consideration of $1.7 million and $6.6 million of the principal of its existing 2022 Notes for total consideration of $6.2 million.
As at September 30, 2020, Teekay LNG had a total of Norwegian Krone (or NOK) 3.1 billion in senior unsecured bonds issued in the Norwegian bond market that mature through 2025 (December 31, 2019 – NOK 3.1 billion). As of September 30, 2020, the total carrying amount of the senior unsecured bonds was $326.8 million (December 31, 2019 – $347.2 million). The bonds are either listed or subject to an application for listing on the Oslo Stock Exchange. The interest payments on the bonds are based on Norwegian Interbank Offered Rate (or NIBOR) plus a margin, which ranges from 4.60 % to 6.00 % as at September 30, 2020. 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 %, and the transfer of the principal amount fixed at $360.5 million upon maturity in exchange for NOK 3.1 billion (see Note 16).
Page 21
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
As of September 30, 2020, the Company had six U.S. Dollar-denominated term loans outstanding, which totaled $962.8 million in aggregate principal amount (December 31, 2019 – $1.3 billion). Interest payments on the term loans are based on LIBOR plus a margin, of which one of the term loans has an additional tranche with a weighted average fixed rate of 4.26 %. At September 30, 2020 and at December 31, 2019, the margins ranged between 0.30 % and 3.25 %. Term loans require payments in quarterly or semi-annual installments commencing three or six months after delivery of each newbuilding vessel financed thereby, and five of the term loans have balloon or bullet repayments due at maturity. The term loans are collateralized by first-priority mortgages on 20 (December 31, 2019 – 24 ) of the Company’s vessels, together with certain other security.
Teekay LNG has two Euro-denominated term loans outstanding, which, as at September 30, 2020, totaled 134.1 million Euros ($157.2 million) (December 31, 2019 – 147.5 million Euros ($165.4 million)). Teekay LNG is servicing the loans with funds generated by two Euro-denominated, long-term time-charter contracts. Interest payments for one of the term loans are based on 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 September 30, 2020 and December 31, 2019, the margins ranged between 0.60 % and 1.95 %. The Euro-denominated term loans reduce in monthly and semi-annual payments with varying maturities through 2024, are collateralized by first-priority mortgages on two of Teekay LNG's vessels, together with certain other security, and are guaranteed by Teekay LNG and one 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 and restricted cash and the change in the valuation of the Company’s cross currency swaps, the Company recognized a foreign exchange loss of $5.9 million (2019 – gain of $5.6 million) and a loss of $8.2 million (2019 – loss of $2.9 million) during the three and nine months ended September 30, 2020 and 2019, respectively.
The weighted-average interest rate on the Company’s aggregate long-term debt as at September 30, 2020 was 3.7 % (December 31, 2019 – 4.6 %). This rate does not include the effect of the Company’s interest rate swap agreements (see Note 16).
The aggregate annual long-term debt principal repayments required to be made by the Company subsequent to September 30, 2020, are $38.0 million (remainder of 2020), $423.9 million (2021), $474.0 million (2022), $363.6 million (2023), $258.4 million (2024) and $533.0 million (thereafter).
The Company’s long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and five loan agreements require the maintenance of vessel market value to loan ratios. As at September 30, 2020, these ratios were 483 %, 234 %, 140 %, 203 % and 182 % compared to their minimum required ratios of 125 %, 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-hand sale and purchase market data. Changes in the LNG/LPG carrier and conventional tanker markets could affect the Company's compliance with these 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 $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 $35.0 million and at least 5.0 % of Teekay Tankers' total consolidated debt and obligations related to finance leases.
As of the date these unaudited consolidated financial statements were issued, the Company is in compliance with all covenants under its credit facilities and other long-term debt.
11. Capital Stock
Page 22
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
12. 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 September 30, 2020 are as follows:
| Total $ | Remainder of 2020 $ | 2021 $ | 2022 $ | |||||||||||
Certain consolidated LNG carriers (i) | ||||||||||||||
Bahrain LNG Joint Venture (ii) | ||||||||||||||
(i)In June 2019, Teekay LNG entered into an agreement with a contractor to supply equipment on certain of Teekay LNG's LNG carriers in 2021 and 2022, for an estimated installed cost of $59.5 million. As at September 30, 2020, the estimated remaining cost of this installation is $42.9 million.
(ii)Teekay LNG has a 30 % ownership interest in the Bahrain LNG Joint Venture which has an LNG receiving and regasification terminal in Bahrain. As at September 30, 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 million, which is undrawn, of which $7 million relates to Teekay LNG's proportionate share of the construction commitments included in the table above.
b)Liquidity
Management is required to assess whether 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 a consolidated net income of $136.1 million and consolidated cash flows from operating activities of $894.1 million during the nine months ended September 30, 2020 and had a working capital deficit of $229.7 million as at September 30, 2020.
Based on the Company’s liquidity at the date these unaudited consolidated financial statements were issued, the liquidity the Company expects to generate from operations over the following year and the dividends it expects to receive from its equity-accounted joint ventures, 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 unaudited consolidated financial statements.
c)Legal Proceedings and Claims
The Company may, from time to time, be involved in legal proceedings and claims that arise in the ordinary course of business. The Company believes that any adverse outcome of existing claims, individually or in the aggregate, would not have a material effect on its financial position, results of operations or cash flows, when taking into account its insurance coverage and indemnifications from charterers.
d)Other
The Company enters into indemnification agreements with certain officers and directors. In addition, the Company enters into other indemnification agreements in the ordinary course of business. The maximum potential amount of future payments required under these indemnification agreements is unlimited. However, the Company maintains what it believes is appropriate liability insurance that reduces its exposure and enables the Company to recover future amounts paid up to the maximum amount of the insurance coverage, less any deductible amounts pursuant to the terms of the respective policies, the amounts of which are not considered material.
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 September 30, 2020 was $1.4 billion. As of the date these unaudited consolidated financial statements were issued, Teekay LNG's equity-accounted joint ventures were in compliance with all covenants relating to these loan facilities and interest rate swaps that Teekay LNG guarantees.
13. Financial Instruments
a)Fair Value Measurements
For a description of how the Company estimates fair value and for a description of the fair value hierarchy levels, see "Item 18 – Financial Statements: Note 12" in the Company’s Annual Report on Form 20-F for the year ended December 31, 2019.
Page 23
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
| September 30, 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 (note 19) | Level 1 | ||||||||||||||||||||||||||||
Derivative instruments (note 16) | |||||||||||||||||||||||||||||
Interest rate swap agreements – assets (1) | Level 2 | ||||||||||||||||||||||||||||
Interest rate swap agreements – liabilities (1) | Level 2 | ( | ( | ( | ( | ||||||||||||||||||||||||
Cross currency interest swap agreements – liabilities (1) | Level 2 | ( | ( | ( | ( | ||||||||||||||||||||||||
| Foreign currency contracts | Level 2 | ( | ( | ||||||||||||||||||||||||||
Forward freight agreements | Level 2 | ( | ( | ( | ( | ||||||||||||||||||||||||
| Non-recurring | |||||||||||||||||||||||||||||
Vessels and equipment (note 7) (3) | Level 2 | ||||||||||||||||||||||||||||
Vessels related to finance leases (note 7) (3) | Level 2 | ||||||||||||||||||||||||||||
Vessels held for sale (note 7) | Level 2 | ||||||||||||||||||||||||||||
Operating lease right-of-use assets (note 7) (4) | Level 3 | ||||||||||||||||||||||||||||
Operating lease right-of-use assets (note 7) | Level 2 | ||||||||||||||||||||||||||||
Other (2) | |||||||||||||||||||||||||||||
Short-term debt (note 9) | Level 2 | ( | ( | ( | ( | ||||||||||||||||||||||||
Long-term debt – public (note 10) | Level 1 | ( | ( | ( | ( | ||||||||||||||||||||||||
Long-term debt – non-public (note 10) | Level 2 | ( | ( | ( | ( | ||||||||||||||||||||||||
Obligations related to finance leases, including current portion (note 6) | Level 2 | ( | ( | ( | ( | ||||||||||||||||||||||||
(1)The fair value of the Company's interest rate swap and cross currency swap agreements at September 30, 2020 includes $4.6 million (December 31, 2019 – $3.4 million) accrued interest expense which is recorded in accrued liabilities on the unaudited consolidated balance sheet.
(2)In these unaudited interim 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 September 2020, the carrying values of five of Teekay Tankers' Aframax tankers were written down to their estimated fair values, using appraised values, primarily due to the lower near-term tanker market outlook, a reduction of charter rates and a decline in vessel values as a result of the current economic environment, which has been impacted by the COVID-19 global pandemic. Three of these vessels were classified as vessels and equipment and two were classified as vessels related to finance leases on the Company's unaudited consolidated balance sheet as at September 30, 2020.
(4)Includes an operating lease right-of-use asset relating to one FSO unit which was written down to its estimated fair value, using a discounted cash flow approach. The discounted cash flow approach was based on the expected novation of the existing customer contract in 2021. Cash flow projections have been discounted at an estimated market participant rate of 10.8 %. Cash flow projections are based on current and projected charter rates and operating costs.
(5)One FPSO unit was written down its estimated fair value, which is a nominal amount, as the expected remaining cash flows generated by the unit is estimated to be offset by the costs to decommission and recycle the unit. Cash flow projections are based on current and projected charter rates as well as operating, decommissioning and recycling costs.
b) Credit Losses
The Company's exposure to potential credit losses within the scope of ASC 2016-13 includes Teekay Parent's one sales-type lease (the Foinaven FPSO – see Note 3) and Teekay LNG's three direct financing leases, its two 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, one FSU and an LNG regasification terminal within the Yamal LNG Joint Venture, the Bahrain LNG Joint Venture, the Pan Union Joint Venture, the RasGas III Joint Venture and the Angola Joint Venture. For a description of these equity-accounted investments, see "Item 18 – Financial Statements: Note 23" in the Company’s Annual Report on Form 20-F for the year ended December 31, 2019.
Page 24
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
| Amortized Cost Basis by Origination Year | ||||||||||||||||||||||||||||||||||||||
Credit Quality Grade (1) | 2020 | 2018 | 2016 | Prior to 2016 | Total | |||||||||||||||||||||||||||||||||
| As at September 30, 2020 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Sales-type lease – Teekay Parent | ||||||||||||||||||||||||||||||||||||||
Foinaven FPSO | Performing | |||||||||||||||||||||||||||||||||||||
| Direct financing leases – Teekay LNG | ||||||||||||||||||||||||||||||||||||||
| Tangguh Hiri and Tangguh Sago | Performing | |||||||||||||||||||||||||||||||||||||
| Bahrain Spirit | Performing | |||||||||||||||||||||||||||||||||||||
| Loans to equity-accounted joint ventures | ||||||||||||||||||||||||||||||||||||||
| Exmar LPG Joint Venture | Performing | |||||||||||||||||||||||||||||||||||||
| Bahrain LNG Joint Venture | Performing | |||||||||||||||||||||||||||||||||||||
(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, 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 September 30, 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.
Changes in the allowance for credit losses for the three and nine months ended September 30, 2020 are as follows:
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 | |||||||||||||||||||||||||||||
| Provision for potential credit losses | ( | ||||||||||||||||||||||||||||
As at March 31, 2020 | |||||||||||||||||||||||||||||
| Provision for potential credit losses | ( | ( | ( | ||||||||||||||||||||||||||
As at June 30, 2020 | |||||||||||||||||||||||||||||
| Provision for potential credit losses | ( | ||||||||||||||||||||||||||||
| As at September 30, 2020 | |||||||||||||||||||||||||||||
(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 nine months ended September 30, 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 September 30, 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 assets, and (b) a second LNG project to reflect a larger potential risk of loss given 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 contracts. The provision for potential
Page 25
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
credit loss as at January 1, 2020 and September 30, 2020 has been developed in part based on Teekay LNG's understanding that LNG production is critical infrastructure.
The changes in credit loss provision for Teekay LNG's consolidated vessels for the three and nine months ended September 30, 2020 of $13.8 million and $14.2 million, respectively, are included in other expense and primarily reflects a decline in the estimated charter-free valuations for certain types of its 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 based on the underlying LNG shipping market fundamentals. The changes in the credit loss provision for Teekay LNG's consolidated vessels for the three and nine months ended September 30, 2020 do 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 such periods.
The changes in credit loss provision of $7.1 million and $15.7 million for the three and nine months ended September 30, 2020, respectively, 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 reflects 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 three months ended September 30, 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. The Exmar LPG Joint Venture owns and charters-in LPG carriers with a primary focus on mid-size gas carriers. Their vessels are trading 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 called on its guarantees.
14. Restructuring Charges
During the three and nine months ended September 30, 2020, the Company recorded restructuring charges of $2.1 million and $9.1 million, respectively. The restructuring charges primarily related to the cessation of production of the Petrojarl Banff FPSO unit in June 2020, and the restructuring of the Company's tanker services and operations. In addition, the restructuring charges for the nine months ended September 30, 2020 also related to severance costs resulting from the termination of the management contract for an FSO unit based in Australia (the severance costs were fully 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 4), and the recovery was presented in revenue.
During the three and nine months ended September 30, 2019, the Company recorded restructuring charges of $0.4 million and $10.4 million. The restructuring charges primarily related to severance costs resulting from the termination of certain management contracts in Teekay Parent of which the costs were fully recovered from the customer and the recovery was presented in revenue, as well as from the termination of the charter contract for the Toledo Spirit Suezmax tanker in Teekay LNG upon the sale of the vessel in January 2019.
At September 30, 2020 and December 31, 2019, $7.8 million and $0.8 million, respectively, of restructuring liabilities were recorded in accrued liabilities and other on the unaudited consolidated balance sheets.
15. Accumulated Other Comprehensive Loss
As at September 30, 2020 and December 31, 2019, the Company’s accumulated other comprehensive loss consisted of the following components:
| September 30, | December 31, | ||||||||||
| 2020 | 2019 | ||||||||||
| $ | $ | ||||||||||
| Unrealized loss on qualifying cash flow hedging instruments | ( | ( | |||||||||
| Pension adjustments, net of tax recoveries | ( | ( | |||||||||
| ( | ( | ||||||||||
Page 26
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
16. Derivative Instruments and Hedging Activities
The Company uses derivative instruments to manage certain risks in accordance with its overall risk management policies.
Foreign Exchange Risk
From time to time, the Company economically hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts. As at September 30, 2020, the Company was not committed to any foreign currency forward contracts.
The Company enters into cross currency swaps, and pursuant to these swaps the Company receives the principal amount in NOK on the maturity dates of the 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 amounts of the Company’s NOK-denominated bonds due in 2021, 2023 and 2025. In addition, the cross currency swaps economically hedge the interest rate exposure on the NOK bonds due in 2021, 2023 and 2025. The Company has not designated, for accounting purposes, these cross currency swaps as cash flow hedges of its NOK-denominated bonds due in 2021, 2023 and 2025. As at September 30, 2020, the Company was committed to the following cross currency swaps:
Fair Value / Carrying Amount of Asset / (Liability) $ | ||||||||||||||||||||||||||||||||||||||
Notional Amount NOK | Notional Amount USD | Floating Rate Receivable | ||||||||||||||||||||||||||||||||||||
Reference Rate | Margin | Fixed Rate Payable | Remaining Term (years) | |||||||||||||||||||||||||||||||||||
| NIBOR | ( | |||||||||||||||||||||||||||||||||||||
| NIBOR | ( | |||||||||||||||||||||||||||||||||||||
| NIBOR | ( | |||||||||||||||||||||||||||||||||||||
| ( | ||||||||||||||||||||||||||||||||||||||
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 September 30, 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 debts were swapped with fixed-rate obligations:
Interest Rate Index | Principal Amount | Fair Value / Carrying Amount of Asset / (Liability) $ | Weighted- Average Remaining Term (years) | Fixed Swap Rate (%)(1) | |||||||||||||||||||||||||
| LIBOR-Based Debt: | |||||||||||||||||||||||||||||
U.S. Dollar-denominated interest rate swaps (2) | LIBOR | ( | |||||||||||||||||||||||||||
| EURIBOR-Based Debt: | |||||||||||||||||||||||||||||
Euro-denominated interest rate swaps | EURIBOR | ( | |||||||||||||||||||||||||||
| ( | |||||||||||||||||||||||||||||
(1)Excludes the margins the Company pays on its variable-rate debt which, as of September 30, 2020, ranged from 0.3 % to 3.95 %.
(2)Includes interest rate swaps with the notional amount reducing quarterly or semi-annually. Three 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.
Stock Purchase Warrants
Prior to the 2019 Brookfield Transaction, Teekay held 15.5 million common unit warrants issued by Altera to Teekay in connection with the 2017 Brookfield Transaction (or the Brookfield Transaction Warrants) (see Note 4) and 1,755,000 warrants to purchase common units of Altera issued to Teekay in connection with Altera's private placement of Series D Preferred Units in June 2016 (or the Series D Warrants). 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.
Page 27
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
Tabular Disclosure
The following tables present the location and fair value amounts of derivative instruments, segregated by type of contract, on the Company’s unaudited consolidated balance sheets.
| Prepaid Expenses and Other | Other Non-Current Assets | Accrued Liabilities and Other (1) | Accrued Liabilities and Other (2) | Other Long-Term Liabilities | |||||||||||||||||||||||||
| $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| As at September 30, 2020 | |||||||||||||||||||||||||||||
| Derivatives designated as a cash flow hedge: | |||||||||||||||||||||||||||||
| Interest rate swap agreements | ( | ( | ( | ||||||||||||||||||||||||||
| Derivatives not designated as a cash flow hedge: | |||||||||||||||||||||||||||||
| Interest rate swap agreements | ( | ( | ( | ||||||||||||||||||||||||||
| Cross currency swap agreements | ( | ( | ( | ||||||||||||||||||||||||||
| Forward freight agreements | ( | ||||||||||||||||||||||||||||
| ( | ( | ( | |||||||||||||||||||||||||||
| Prepaid Expenses and Other | 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 | ( | ( | ( | ||||||||||||||||||||||||||
| Derivatives not designated as a cash flow hedge: | |||||||||||||||||||||||||||||
| Foreign currency forward contracts | ( | ||||||||||||||||||||||||||||
| Interest rate swap agreements | ( | ( | ( | ||||||||||||||||||||||||||
| Cross currency swap agreements | ( | ( | ( | ||||||||||||||||||||||||||
| Forward freight agreements | ( | ||||||||||||||||||||||||||||
| ( | ( | ( | |||||||||||||||||||||||||||
(1)Represents accrued interest related to derivative instruments presented in accrued liabilities and other on the consolidated balance sheets (see Note 8).
(2)Represents the current portion of derivative liabilities presented in accrued liabilities and other on the consolidated balance sheets (see Note 8).
As at September 30, 2020, the Company had multiple interest rate swaps and cross currency swaps 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 unaudited consolidated balance sheets. As at September 30, 2020, these derivatives had an aggregate fair value asset amount of nil and an aggregate fair value liability amount of $100.5 million. As at September 30, 2020, the Company had $8.9 million on deposit with the relevant counterparties as security for swap liabilities under certain master agreements. The deposit is presented in restricted cash – current and long-term on the consolidated balance sheets.
Page 28
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
For the periods indicated, the following tables present the gains (losses) on interest rate swap agreements designated and qualifying as cash flow hedges (excluding such agreements in equity-accounted investments):
| Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | ||||||||||||||||||||||
| Amount of Gain Recognized in OCI | Amount of Loss Reclassified from Accumulated OCI to Interest Expense | Amount of Loss Recognized in OCI | Amount of Gain Reclassified from Accumulated OCI to Interest Expense | ||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||
| Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | ||||||||||||||||||||||
| Amount of Loss Recognized in OCI | Amount of Loss Reclassified from Accumulated OCI to Interest Expense | Amount of Loss Recognized in OCI | Amount of Gain Reclassified from Accumulated OCI to Interest Expense | ||||||||||||||||||||
| ( | ( | ( | |||||||||||||||||||||
Realized and unrealized (losses) 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) gains on non-designated derivatives in the unaudited consolidated statements of (loss) income as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Realized (losses) gains relating to: | |||||||||||||||||||||||
| Interest rate swap agreements | ( | ( | ( | ( | |||||||||||||||||||
| Foreign currency forward contracts | |||||||||||||||||||||||
| Stock purchase warrants | ( | ||||||||||||||||||||||
| Forward freight agreements | ( | ( | |||||||||||||||||||||
| ( | ( | ( | ( | ||||||||||||||||||||
| Unrealized gains (losses) relating to: | |||||||||||||||||||||||
| Interest rate swap agreements | ( | ( | ( | ||||||||||||||||||||
| Foreign currency forward contracts | ( | ( | ( | ||||||||||||||||||||
| Stock purchase warrants | |||||||||||||||||||||||
| Forward freight agreements | ( | ( | |||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||
| Total realized and unrealized losses on derivative instruments | ( | ( | ( | ( | |||||||||||||||||||
Realized and unrealized (losses) gains from cross currency swaps are recognized in earnings and reported in foreign exchange (loss) gain in the unaudited consolidated statements of (loss) income as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Realized losses on maturity and termination of cross currency swaps | ( | ||||||||||||||||||||||
| Realized losses | ( | ( | ( | ( | |||||||||||||||||||
| Unrealized gains (losses) | ( | ( | ( | ||||||||||||||||||||
| Total realized and unrealized losses on cross currency swaps | ( | ( | ( | ( | |||||||||||||||||||
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 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.
Page 29
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
17. Income Tax (Expense) Recovery
The components of the provision for income tax (expense) recovery are as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Current | ( | ( | ( | ||||||||||||||||||||
| Deferred | ( | ( | ( | ||||||||||||||||||||
| Income tax (expense) recovery | ( | ( | ( | ||||||||||||||||||||
The following table reflects changes in uncertain tax positions relating to freight tax liabilities, which are recorded in other long-term liabilities and accrued liabilities on the Company's unaudited consolidated balance sheets:
| Nine Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| $ | $ | ||||||||||
| Balance of unrecognized tax benefits as at January 1 | |||||||||||
| Increases for positions related to the current year | |||||||||||
| Changes for positions taken in prior years | ( | ||||||||||
| Settlements with tax authority | ( | ||||||||||
| Decrease related to statute limitations | ( | ||||||||||
| Balance of unrecognized tax benefits as at September 30 | |||||||||||
Included in the Company's current income tax expense are provisions for uncertain tax positions relating to freight taxes. In the nine months ended September 30, 2020, the Company obtained further legal advice regarding the applicable tax rate in respect of freight taxes in a certain jurisdiction and subsequently secured an agreement in principle with a tax authority relating to an outstanding uncertain tax liability. The agreement in principle was based in part on a recent initiative of the tax authority in response to COVID-19, which included the waiver of interest and penalties on unpaid taxes. Based on this and other clarifications of tax regulations, the Company reversed $24.4 million of freight tax liabilities as at June 30, 2020. In August 2020, the Company made a tax payment of $8.5 million to this jurisdiction, with respect to open tax years up to and including 2019, with the remaining balance for 2020 recorded in accrued liabilities on the Company's unaudited consolidated balance sheets as of September 30, 2020.
The Company does not presently anticipate that its provisions for uncertain tax positions relating to freight taxes will significantly increase in the next 12 months; however, this is dependent on the jurisdictions in which vessel trading 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 the time. Such information may include legal advice as to the applicability of freight taxes in relevant jurisdictions. Freight tax regulations are subject to change and interpretation; therefore, the amounts recorded by the Company may change accordingly. The tax years 2008 through 2020 remain open to examination by some of the major jurisdictions in which the Company is subject to tax.
18. Net Loss Per Share
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Net loss attributable to the shareholders of Teekay Corporation – basic and diluted | ( | ( | ( | ( | |||||||||||||||||||
| Weighted average number of common shares | |||||||||||||||||||||||
| Common stock and common stock equivalents | |||||||||||||||||||||||
| - Basic | ( | ( | ( | ( | |||||||||||||||||||
| - Diluted | ( | ( | ( | ( | |||||||||||||||||||
Page 30
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)
19. Supplemental Cash Flow Information
Total cash, cash equivalents, restricted cash, and cash and restricted cash held for sale are as follows:
| September 30, 2020 | December 31, 2019 | September 30, 2019 | December 31, 2018 | ||||||||||||||||||||
$ | $ | $ | $ | ||||||||||||||||||||
| Cash and cash equivalents | |||||||||||||||||||||||
| Restricted cash – current | |||||||||||||||||||||||
| Restricted cash – non-current | |||||||||||||||||||||||
| Assets held for sale – cash | |||||||||||||||||||||||
| Assets held for sale – restricted cash | |||||||||||||||||||||||
The Company maintains restricted cash deposits relating to certain term loans, collateral for cross currency swaps (see Note 16), performance bond collateral, leasing arrangements, project tenders and amounts received from charterers to be used only for dry-docking expenditures and emergency repairs.
On March 27, 2020, Teekay Parent sold Golar-Nor to Altera (see Note 6). Among the assets and liabilities of Golar-Nor that were deconsolidated concurrent with the sale were Golar-Nor's operating lease right-of-use assets and operating lease liabilities relating to the Petroatlantic and Petronordic shuttle tankers totaling $50.7 million and $50.7 million, respectively.
The sale of the Toledo Spirit by its owner in January 2019 resulted in the vessel being returned to its owner with the obligation related to finance lease being concurrently extinguished. As a result, the sale of the vessel and the concurrent extinguishment of the corresponding obligation related to finance lease of $23.6 million for the nine months ended September 30, 2019, was treated as a non-cash transaction in the Company's unaudited consolidated statements of cash flows.
20. Subsequent Events
a)On October 1, 2020, Teekay Parent completed the refinancing of its revolving credit facility of up to $150 million, and as part of this refinancing, 10.75 million Teekay LNG common units were included as additional security.
b)In October and November 2020, Teekay Parent repurchased $2.0 million of principal of its existing Convertible Notes for total consideration of $1.7 million and $6.6 million of the principal of its existing 2022 Notes for total consideration of $6.2 million.
c)On October 19 and 22, 2020, Teekay Tankers completed the purchases of two Aframax tankers previously under the sale-leaseback arrangement described in Note 6 for a total cost of $29.6 million, using available cash.
d)On November 13, 2020, Teekay Tankers declared purchase options on two Suezmax tankers for a total cost of $56.7 million, as part of the repurchase options under the sale-leaseback arrangements described in Note 6. The Company expects to complete the purchase and delivery of these vessels in May 2021.
Page 31
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited consolidated financial statements and accompanying notes contained in “Item 1 – Financial Statements” of this Report on Form 6-K and with our audited consolidated financial statements contained in “Item 18 – Financial Statements” and with Management’s Discussion and Analysis of Financial Condition and Results of Operations in “Item 5 – Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2019. Included in our Annual Report on Form 20-F is important information about items that you should consider when evaluating our results, including an explanation of our organizational structure, information about the types of contracts we enter into and certain non-GAAP measures we utilize to measure our performance. Unless otherwise indicated, references in this Report to “Teekay,” the “Company,” “we,” “us” and “our” and similar terms refer to Teekay Corporation and its subsidiaries.
Overview
Teekay Corporation (or Teekay) is an operational leader and project developer in the marine midstream space. Teekay provides a comprehensive set of marine services to the world'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.
ITEMS YOU SHOULD CONSIDER WHEN EVALUATING OUR RESULTS
There are a number of factors that should be considered when evaluating our historical financial performance and assessing our future prospects and we use a variety of financial and operational terms and concepts when analyzing our results of operations. These items can be found in "Item 5 – Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2019.
Novel Coronavirus (COVID-19) Pandemic
The novel coronavirus pandemic (or COVID-19) is dynamic, and its ultimate scope, duration and effects on us, our customers and suppliers and our industry are uncertain.
COVID-19 has resulted and may continue to result in a significant decline in global demand for LNG, 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 nine months ended September 30, 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 has had an impact on our cash flows, and was a contributing factor to the non-cash write-down of six of Teekay LNG's multi-gas vessels, certain tankers owned by Teekay Tankers and one floating production storage and offloading (or FPSO) unit, as described in Note 7 - Write-down and (Loss) Gain on Sale, as well as being a contributing factor to the reduction in certain tax accruals as described in Note 17 - Income Tax (Expense) Recovery. We are continuing to monitor the potential impact of the pandemic on us, including monitoring counterparty risk associated with our vessels under contract, and the impact on vessel impairments and have introduced a number of measures intended 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, including due to a potential slowdown in oil demand due to a current resurgence of COVID-19 cases in many regions and the potential for renewed restrictions and lockdowns over the winter months; 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 dry docking 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 conventional tankers or LNG projects (including production, liquefaction, regasification, storage and distribution facilities), which could reduce 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, 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.
Page 32
Key Information - Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2019 for additional information about the potential risks of COVID-19 on our business.
IMO 2020 Low Sulfur Fuel Regulation
Effective January 1, 2020, the International Maritime Organization (or IMO) 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 Teekay LNG’s time charters, as both the LNG and compliant fuel is supplied by the charterers, there has been minimal impact on net voyage revenues for its fleet.
Teekay Tankers transitioned to burning compliant low sulfur fuel on January 1, 2020, which transition 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 compliant low sulfur fuel is anticipated to result in an increase in voyage expenses. We expect that Teekay Tankers will be able to recover fuel price increases from the charterers of its vessels through higher revenues from voyage charters.
RECENT DEVELOPMENTS AND RESULTS OF OPERATIONS
The following table (a) presents revenues and income (loss) from vessel operations for Teekay LNG, Teekay Tankers and Teekay Parent, and (b) reconciles these amounts to our unaudited consolidated financial statements. Please read "Item 1 – Financial Statements: Note 5 – Segment Reporting" for information about our lines of business and segments.
| Revenues | Income (Loss) from Vessel Operations | ||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
| September 30, | September 30, | September 30, | September 30, | ||||||||||||||||||||||||||||||||||||||||||||
| (in thousands of U.S. dollars) | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||
| Teekay LNG | 148,935 | 149,655 | 437,027 | 452,459 | 69,597 | 71,611 | 160,924 | 215,649 | |||||||||||||||||||||||||||||||||||||||
| Teekay Tankers | 170,240 | 187,444 | 758,632 | 632,612 | (29,193) | (4,873) | 183,919 | 32,275 | |||||||||||||||||||||||||||||||||||||||
| Teekay Parent | 77,342 | 95,833 | 257,717 | 301,747 | (29,020) | (197,127) | (56,059) | (222,618) | |||||||||||||||||||||||||||||||||||||||
Elimination of intercompany | — | (7,096) | — | (11,712) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Teekay Corporation Consolidated | 396,517 | 425,836 | 1,453,376 | 1,375,106 | 11,384 | (130,389) | 288,784 | 25,306 | |||||||||||||||||||||||||||||||||||||||
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SUMMARY
Teekay's consolidated income from vessel operations increased to $288.8 million for the nine months ended September 30, 2020 compared to $25.3 million for the same period last year. The primary reasons for this increase in our consolidated results are as follows:
•a decrease in loss from vessel operations in Teekay Parent of $166.6 million primarily due to lower impairment charges relating to FPSO units in 2020, the gain on commencement of a sales-type lease and improved results as a result of a new bareboat charter agreement for the Petrojarl Foinaven FPSO unit in 2020, and improved results for the Sevan Hummingbird FPSO unit primarily due to a new contract that took effect in the fourth quarter of 2019 at a higher rate and lower depreciation as a result of a write-down of the unit to its estimated fair value in the third quarter of 2019, partially offset by decommissioning costs incurred for the Petrojarl Banff FPSO unit in the second and third quarters of 2020 and the removal of the unit from the Banff field in the third quarter of 2020 following cessation of production in June 2020;
•an increase in income from vessel operations in Teekay Tankers of $151.6 million primarily due to higher overall average realized spot TCE rates earned by its Suezmax, Aframax 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 all compared to the same period in the prior year, partially offset by impairment charges of $45.2 million in 2020;
partially offset by
•a decrease in income from vessel operations in Teekay LNG of $54.7 million primarily due to a $45.0 million write-down of six multi-gas carriers during the first quarter of 2020.
Teekay LNG
As at September 30, 2020, Teekay LNG’s liquefied gas fleet consisted of a controlling interest in 22 LNG carriers and seven multi-gas carriers. In addition, Teekay LNG has interests ranging from 20% to 52% in 25 LNG carriers, 23 LPG carriers and one LNG regasification terminal in Bahrain that are accounted for using the equity method.
Recent Developments in Teekay LNG
During April and May 2020, the MALT Joint Venture 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 prior 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.
The MALT Joint Venture also secured an eight-month charter contract for the Methane Spirit, which commenced in July 2020 after its prior charter contract ended.
In March 2020, Teekay LNG received notice from its third-party commercial manager (or the Manager), which commercially manages its seven wholly-owned multi-gas vessels, that the Manager 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 vessels that resulted from the economic environment at that time (including the COVID-19
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pandemic), impacted Teekay LNG's assessment of the expected earnings for these vessels, resulting in a write-down of six of its multi-gas carriers in March 2020. See "Item 1 - Financial Statements: Note 7 - Write-down and (Loss) Gain on Sale".
In July 2020, Teekay LNG entered into a new commercial management agreement with the Manager to commercially manage its seven wholly-owned multi-gas vessels for a two-year term, which came into effect in September 2020 upon the vessels redelivering from the previous pool arrangement and termination of the prior commercial management agreement.
On January 3 and January 7, 2020, Awilco LNG ASA repurchased the WilPride and WilForce LNG Carriers, respectively, and paid Teekay LNG the associated vessel purchase obligations, deferred hire amounts and interest on deferred hire amounts totaling $260.4 million relating to these two vessels. Teekay LNG used the proceeds from the sales to repay $157 million of term loans that were collateralized by these vessels and to fund working capital requirements.
In November 2019, Teekay LNG's joint venture with National Oil & Gas Authority (or NOGA), Gulf Investment Corporation and Samsung C&T (or the Bahrain LNG Joint Venture), in which Teekay LNG has a 30% interest, completed the mechanical construction and commissioning of the LNG receiving and regasification terminal in Bahrain. The project began receiving terminal use payments in January 2020 under its terminal use agreement with NOGA which ends in February 2039.
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 the three and nine months ended September 30, 2020 and 2019. Please read "Item 1 – Financial Statements: Note 5 – Segment Reporting" for information about our lines of business and segments.
| (in thousands of U.S. Dollars, except calendar-ship-days) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues | 148,935 | 149,655 | 437,027 | 452,459 | |||||||||||||||||||
| Voyage expenses | (3,950) | (4,961) | (11,596) | (16,759) | |||||||||||||||||||
| Vessel operating expenses | (30,642) | (27,321) | (85,153) | (80,879) | |||||||||||||||||||
| Time-charter hire expenses | (5,980) | (5,336) | (17,270) | (14,007) | |||||||||||||||||||
| Depreciation and amortization | (32,601) | (34,248) | (96,869) | (103,712) | |||||||||||||||||||
General and administrative expenses (1) | (6,165) | (5,393) | (20,215) | (17,692) | |||||||||||||||||||
Write-down of vessels | — | (785) | (45,000) | (785) | |||||||||||||||||||
Restructuring charges | — | — | — | (2,976) | |||||||||||||||||||
| Income from vessel operations | 69,597 | 71,611 | 160,924 | 215,649 | |||||||||||||||||||
Liquefied Gas Carriers (1) | 69,597 | 72,112 | 160,924 | 216,799 | |||||||||||||||||||
Conventional Tankers (1)(2) | — | (501) | — | (1,150) | |||||||||||||||||||
| 69,597 | 71,611 | 160,924 | 215,649 | ||||||||||||||||||||
| Equity Income – Liquefied Gas Carriers | 24,346 | 21,296 | 56,874 | 28,612 | |||||||||||||||||||
Calendar-Ship-Days (3) | |||||||||||||||||||||||
| Liquefied Gas Carriers | 2,760 | 3,220 | 8,230 | 8,982 | |||||||||||||||||||
| Conventional Tankers | — | 92 | — | 296 | |||||||||||||||||||
(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)Further information on Teekay LNG’s conventional tanker results can be found in “Item 1 – “Financial Statements: Note 5 – Segment Reporting.” Teekay LNG sold its two remaining conventional tankers, the Toledo Spirit and the Alexander Spirit, in January and October 2019, respectively.
(3)Calendar-ship-days presented relate to consolidated vessels.
Income from vessel operations for Teekay LNG decreased to $69.6 million and $160.9 million for the three and nine months ended September 30, 2020, respectively, compared to $71.6 million and $215.6 million for the same periods in the prior year, primarily as a result of:
•a decrease of $45.0 million for the nine months ended September 30, 2020, due to the write-down of six multi-gas carriers during the first quarter of 2020 to their estimated fair values as described above in "Recent Developments in Teekay LNG";
•decreases of $4.3 million and $12.6 million for the three and nine months ended September 30, 2020, respectively, due to the sale of the WilPride and WilForce in January 2020;
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•a decrease of $2.6 million for the nine months ended September 30, 2020, due to increases in performance claims on certain LNG vessels;
•decreases of $1.3 million and $0.9 million the three and nine months ended September 30, 2020, respectively, primarily due to 32 off-hire days for a scheduled dry docking of the Polar Spirit commencing in August 2020;
•decreases of $0.8 million and $2.5 million for the three and nine months ended September 30, 2020, primarily due to an increase in general and administrative expenses related to professional fees associated with the elimination of Teekay LNG's incentive distribution rights and an increase in insurance premiums and annual subscription fees; and
•decreases of $0.8 million and $2.5 million for the three and nine months ended September 30, 2020, respectively, from the Bahrain Spirit primarily due to the vessel earning higher rates when it traded as an LNG carrier in 2019 prior to the completion of the mechanical construction and commissioning of the Bahrain LNG Joint Venture's LNG terminal in Bahrain in November 2019 compared to trading as a floating storage unit (or FSU) for the majority of the nine months ended September 30, 2020;
partially offset by
•increases of $4.5 million and $5.9 million for the three and nine months ended September 30, 2020, from the Galicia Spirit and the Madrid Spirit, primarily due to fewer off-hire days in 2020;
•an increase of $2.8 million for the nine months ended September 30, 2020, from the seven multi-gas carriers primarily due to higher charter rates earned and less off-hire days in 2020;
•an increase of $2.0 million for the three months ended September 30, 2020, due to lower performance claims on certain LNG vessels;
•an increase of $1.6 million for the nine months ended September 30, 2020, due to the delivery of the Yamal Spirit in January 2019; and
•an increase of $1.6 million for the nine months ended September 30, 2020, from the Magellan Spirit, primarily due to 70 off-hire days between March and May 2019 for repositioning and a scheduled dry docking, net of lower rates earned upon the redeployment in May 2019.
Equity income related to Teekay LNG’s liquefied gas carriers was $24.3 million and $56.9 million for the three and nine months ended September 30, 2020, respectively, compared to equity income of $21.3 million and $28.6 million for the same periods in the prior year. The changes were primarily as a result of:
•increases of $7.3 million and $29.3 million for the three and nine months ended September 30, 2020, respectively, from Teekay LNG's 50%-owned investment in the six ARC7 LNG carriers (or the Yamal LNG Carriers) relating to the Yamal LNG Joint Venture, primarily due to the deliveries of four ARC7 LNG carrier newbuildings, the Nikolay Yevgenov, the Vladimir Voronin, the Georgiy Ushakov, and the Yakov Gakkel in June 2019, August 2019, November 2019, and December 2019, respectively;
•an increase of $8.5 million for the three months ended September 30, 2020 from the Bahrain LNG Joint Venture, primarily due to the commencement of the terminal use agreement in January 2020;
•an increase of $6.7 million for the nine months ended September 30, 2020, in Teekay LNG's 52%-owned investment in the LNG carriers relating to its Teekay LNG-Marubeni Joint Venture (or the MALT LNG Carriers), primarily due to higher charter rates earned for the Arwa Spirit and Marib Spirit as the vessels commenced one-year, fixed-rate charter contracts in June and July 2019, respectively, as well as scheduled dry dockings and main engine overhauls for certain vessels during the same periods of the prior year; and
•increases of $0.6 million and $8.7 million for the three and nine months ended September 30, 2020, respectively, from Teekay LNG's 50%-ownership interest in Exmar LPG BVBA (or the Exmar LPG Joint Venture), primarily due to higher LPG charter rates earned, fewer off-hire days, and a new vessel chartered in commencing in October 2019;
partially offset by
•a decrease of $10.6 million for the nine months ended September 30, 2020, from the Bahrain LNG Joint Venture, primarily due to an increase in unrealized losses on the joint venture's interest rate swaps due to a decrease in long-term LIBOR benchmark interest rates relative to the beginning of 2020, and the recognition of a credit loss provision in 2020 upon commencement of the terminal use agreement, which was subsequent to the adoption of the new credit loss standard on January 1, 2020; partially offset by the commencement of the terminal use agreement;
•a decrease of $6.1 million for the three months ended September 30, 2020, in Teekay LNG's 52%-owned investment in the LNG carriers relating to its Teekay LNG-Marubeni Joint Venture (or the MALT LNG Carriers), primarily due to lower charter rates upon redeployment of the Marib Spirit and Arwa Spirit during the second quarter of 2020 and the Methane Spirit in July 2020 and recognition of dry dock revenue for the Meridian Spirit upon completion of its scheduled dry dock during the same period of the prior year; and
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•decreases of $1.8 million and $2.4 million for the three and nine months ended September 30, 2020, respectively, from the Angola LNG Joint Venture, primarily due to a credit loss provision adjustment recorded in the third quarter of 2020. The credit loss provision in the third quarter of 2020 primarily relates to a decline of the estimated charter-free valuations of the Angola LNG Carriers, which are servicing time-charter contracts accounted for as direct financing leases, and the impact of such declines on our expectation of the value of such vessels upon completion of their existing charter contracts. This was partially offset by a decrease in unrealized losses on the joint venture's interest rate swap agreements.
Teekay Tankers
As at September 30, 2020, Teekay Tankers owned 52 double-hulled conventional oil and product tankers, time-chartered-in two Aframax and two LR2 tankers, and owned a 50% interest in one Very Large Crude Carrier (or VLCC).
Recent Developments in Teekay Tankers
On November 13, 2020, Teekay Tankers declared purchase options to acquire two Suezmax tankers for a total cost of $56.7 million, as part of the repurchase options under the sale-leaseback arrangements described in "Item 1 - Financial Statements: Note 6 – Leases" of this report. Teekay Tankers expect to complete the purchase and delivery of these vessels in May 2021.
On October 19 and 22, 2020, Teekay Tankers completed the purchases of two Aframax tankers previously under the sale-leaseback arrangement described in “Item 1 – Financial Statements: Note 6 – Leases" of this report, for a total cost of $29.6 million, using available cash.
In September 2020, Teekay Tankers entered into a time charter-out contract for one Aframax tanker with a one-year term at a daily rate of $18,700. This charter-out contract commenced in October 2020.
Between March and May 2020, Teekay Tankers entered 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. All charter-out contracts commenced between April 2020 and June 2020.
In January 2020, Teekay Tankers reached an agreement to sell the non-U.S. portion of its ship-to-ship transfer business, as well as its LNG terminal management business for approximately $27.1 million, including an adjustment for the final amounts of cash and other working capital present on the closing date. The sale closed on April 30, 2020, resulting in a gain on sale of approximately $3.1 million. Of the total proceeds, $14.3 million was received in May 2020 and the remaining $12.7 million was received in July 2020.
During the first quarter of 2020, Teekay Tankers completed the sale 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.
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Operating Results – Teekay Tankers
The following table compares Teekay Tankers’ operating results, equity income and number of calendar-ship-days for its vessels for the three and nine months ended September 30, 2020 and 2019.
| (in thousands of U.S. Dollars, except calendar-ship-days) | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Revenues | 170,240 | 187,444 | 758,632 | 632,612 | |||||||||||||||||||
| Voyage expenses | (57,777) | (92,866) | (238,576) | (293,263) | |||||||||||||||||||
| Vessel operating expenses | (46,336) | (48,539) | (143,203) | (156,726) | |||||||||||||||||||
| Time-charter hire expense | (9,070) | (10,637) | (28,245) | (30,877) | |||||||||||||||||||
| Depreciation and amortization | (29,992) | (31,536) | (89,170) | (92,059) | |||||||||||||||||||
| General and administrative | (9,887) | (8,739) | (28,957) | (27,412) | |||||||||||||||||||
| Write-down and loss on sale of assets | (44,973) | — | (45,164) | — | |||||||||||||||||||
| Restructuring charges | (1,398) | — | (1,398) | — | |||||||||||||||||||
| (Loss) income from vessel operations | (29,193) | (4,873) | 183,919 | 32,275 | |||||||||||||||||||
| Equity income | 46 | 68 | 5,174 | 652 | |||||||||||||||||||
Calendar-Ship-Days (1) | |||||||||||||||||||||||
| Conventional Tankers | 5,141 | 5,637 | 15,537 | 16,678 | |||||||||||||||||||
(1)Calendar-ship-days presented relate to owned and in-chartered consolidated vessels.
Tanker Market
Crude tanker spot rates fell during the third quarter of 2020 due to a combination of seasonal weakness, reduced oil demand due to the impact of COVID-19, and low trade volumes as a result of oil supply cuts by the OPEC+ group of producers. The return of some ships to the spot trading fleet from floating storage further compounded the weakness in rates.
Global oil demand has been gradually recovering since the low point in April 2020, when oil demand plummeted by over 20 million barrels per day (mb/d) due to severe restrictions and lockdowns in the wake of the COVID-19 outbreak. These restrictions, which were at their height in the second quarter of 2020, eased during the third quarter, leading to a corresponding increase in oil demand. However, as of November 2020, global oil demand remains several million barrels per day below pre-pandemic levels and renewed coronavirus lockdowns during the fourth quarter of 2020 may slow the oil demand recovery over the winter months. Although global crude oil and refined product inventories have been falling since the third quarter of 2020, they remain well above long-term averages.
The OPEC+ group of oil producers, who implemented supply cuts of 9.7 mb/d in May 2020, returned 2 mb/d of supply to the market in August 2020. Although this was a positive step, crude trade volumes are still well below pre-pandemic levels, which has depressed crude spot tanker rates into the early part of the fourth quarter of 2020.
Typically, spot tanker rates would find some support during the winter months due to the seasonal impacts of higher oil demand and an increase in vessel delays due to poor weather and shorter daylight hours. While these seasonal factors are still expected to be positive for the tanker market, the potential increase in spot rates this winter is expected to be tempered by the underlying imbalance between tanker supply and demand. Mid-size tankers could find some support from an increase in Libyan crude oil production, which reached 1.0 mb/d during November 2020, having averaged only 0.1 mb/d during the third quarter of 2020. However, this could be counter-balanced by a slowdown in demand due to a resurgence of COVID-19 cases in Europe and North America, with the IEA lowering its oil demand forecast for the fourth quarter of 2020 by 1.2 mb/d in its November 2020 "Oil Market Report".
Looking ahead, we expect that tanker demand will continue to recover during 2021 as oil demand increases and oil inventories are brought back to pre-pandemic levels. However, the timing and extent of this recovery remains uncertain and depends to a large extent on how the COVID-19 pandemic evolves over the coming months. The OPEC+ group is scheduled to return a further 2.0 mb/d of oil supply to the market from January 2021 onwards, which would be positive for tanker demand; however, a slowdown in oil demand over the winter due to renewed coronavirus lockdowns and higher oil supply from Libya may cause OPEC+ to delay the return of this supply until later in 2021. A more definitive determination is expected to be made at the next OPEC meeting on November 30, 2020.
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Fleet supply fundamentals continue to look very positive due to a significantly reduced level of newbuild ordering, a diminishing tanker orderbook, and the potential for higher scrapping due to an aging world fleet. As of November 2020, the tanker orderbook totaled 49.4 million deadweight tonnes (mdwt), or just over 7.5 percent of the existing fleet size. When measured as a proportion of the total fleet this is the lowest orderbook since 1996. 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 scrapping has been very low this year, scrapping facilities have now returned to full operation, and the level may pick up during periods of potentially weaker spot tanker rates in 2021.
In summary, the tanker market has come off the highs seen during the first half of the year and the next few months look to be challenging. However, tanker demand should continue to gradually recover through the course of 2021 which, coupled with a positive fleet supply outlook, should help the tanker market begin to rebalance.
(Loss) income from vessel operations was $(29.2) million and $183.9 million for the three and nine months ended September 30, 2020, respectively, compared to $(4.9) million and $32.3 million for the same periods in the prior year, primarily as a result of:
•increases of $6.1 million and $152.5 million for the three and nine months ended September 30, 2020, respectively, due to higher overall average realized spot TCE rates earned by Suezmax tankers, Aframax tankers and LR2 product tankers, as well as a higher extension rate from one time-charter out contract compared to the same periods in the prior year;
•increases of $26.6 million and $45.9 million for the three and nine months ended September 30, 2020, respectively, due to a higher number of vessels on time-charter out contracts earning higher rates compared to spot rates for the first three quarters of 2019, as well as higher earnings from FSL dedicated vessels, partially offset by early exit fees related to vessels leaving the RSA to commence time-charter out contracts in the second quarter of 2020; and
•an increase of $24.3 million for the nine months ended September 30, 2020, due to fewer off-hire days related to dry dockings and off-hire bunker expenses compared to the same period in the prior year;
partially offset by
•a decrease of $45.6 million for the three and nine months ended September 30, 2020, due to the impairment of five Aframax tankers and four right-of-use assets in the third quarter of 2020 due to the lower near-term tanker market outlook, a reduction of charter rates as a result of the current economic environment and lower vessel values;
•decreases of $1.6 million and $8.5 million for the three and nine months ended September 30, 2020, respectively, due to the sale of one Suezmax tanker in the fourth quarter of 2019 and three Suezmax tankers in the first quarter of 2020; and
•decreases of $4.8 million and $8.0 million for the three and nine months ended September 30, 2020, respectively, primarily due to increased crewing related costs resulting from the COVID-19 global pandemic, a higher amount of repair and maintenance activities, and higher insurance premiums compared to the same periods in the prior year.
Teekay Parent
As at September 30, 2020, Teekay Parent had direct interests in three 100%-owned operating 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. Teekay Parent 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.
Recent Developments in Teekay Parent
In the third quarter of 2020, 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-charters from Altera under an operating lease, to take into account recent progress relating to the early termination of the in-charter and the novation of the charter contracts with the customer to Altera.
During 2020, Teekay Parent made changes to its expected cash flows from the Sevan Hummingbird FPSO unit based on the market environment and oil prices, and contract discussions with the customer. The carrying value of the unit was fully written down in the third quarter of 2020, resulting in impairment charges of $12.2 million and $37.2 million for the three and nine months ended September 30, 2020.
In the first quarter of 2020, CNR International (U.K.) Limited (or CNR) provided formal notice to Teekay of its intention to decommission the Banff field and remove the Petrojarl Banff FPSO and the Apollo Spirit 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 nine months ended September 30, 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, resulting in impairment charges of $35.1 million for the nine months ended September 30, 2020.
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In March 2020, Teekay Parent entered into a new bareboat charter contract with the existing charterer of the Petrojarl Foinaven FPSO, which can be extended up to December 2030. Under the terms of 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 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. This transaction resulted in an accounting gain of $44.9 million for the nine months ended September 30, 2020.
Operating Results – Teekay Parent
The following tables compare Teekay Parent’s operating results, and the number of calendar-ship-days for its vessels for the three and nine months ended September 30, 2020 and 2019.
| (in thousands of U.S. Dollars, except calendar-ship-days) | Offshore | Other and | Teekay Parent | ||||||||||||||||||||||||||||||||
| Production | Corporate G&A | Total | |||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Revenues | 16,245 | 44,558 | 61,097 | 51,275 | 77,342 | 95,833 | |||||||||||||||||||||||||||||
| Voyage expenses | (9) | (9) | — | — | (9) | (9) | |||||||||||||||||||||||||||||
| Vessel operating expenses | (21,563) | (43,179) | (55,223) | (40,427) | (76,786) | (83,606) | |||||||||||||||||||||||||||||
| Time-charter hire expenses | (2) | (9,617) | (3,744) | (10,588) | (3,746) | (20,205) | |||||||||||||||||||||||||||||
Depreciation and amortization | (1,759) | (7,811) | — | (38) | (1,759) | (7,849) | |||||||||||||||||||||||||||||
General and administrative expenses (1) | (398) | (3,357) | (1,623) | (2,720) | (2,021) | (6,077) | |||||||||||||||||||||||||||||
Write-down of vessels | (12,200) | (175,000) | (9,100) | — | (21,300) | (175,000) | |||||||||||||||||||||||||||||
| Restructuring charges | (900) | — | 159 | (214) | (741) | (214) | |||||||||||||||||||||||||||||
| Loss from vessel operations | (20,586) | (194,415) | (8,434) | (2,712) | (29,020) | (197,127) | |||||||||||||||||||||||||||||
Calendar-Ship-Days (2) | |||||||||||||||||||||||||||||||||||
| FPSO Units | 276 | 276 | — | — | 276 | 276 | |||||||||||||||||||||||||||||
| FSO Units | 62 | 92 | 91 | 92 | 153 | 184 | |||||||||||||||||||||||||||||
| Shuttle Tankers | — | 140 | — | — | — | 140 | |||||||||||||||||||||||||||||
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| (in thousands of U.S. Dollars, except calendar-ship-days) | Offshore | Other and | Teekay Parent | ||||||||||||||||||||||||||||||||
| Production | Corporate G&A | Total | |||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Revenues | 90,965 | 151,824 | 166,752 | 149,923 | 257,717 | 301,747 | |||||||||||||||||||||||||||||
| Voyage expenses | (24) | (27) | — | — | (24) | (27) | |||||||||||||||||||||||||||||
| Vessel operating expenses | (82,237) | (121,333) | (144,260) | (122,270) | (226,497) | (243,603) | |||||||||||||||||||||||||||||
| Time-charter hire expenses | (7,972) | (32,231) | (10,079) | (20,205) | (18,051) | (52,436) | |||||||||||||||||||||||||||||
Depreciation and amortization | (14,166) | (23,658) | — | (160) | (14,166) | (23,818) | |||||||||||||||||||||||||||||
General and administrative expenses (1) | (1,675) | (9,206) | (9,171) | (10,119) | (10,846) | (19,325) | |||||||||||||||||||||||||||||
Write-down of vessels | (72,284) | (178,328) | (9,100) | — | (81,384) | (178,328) | |||||||||||||||||||||||||||||
Gain on commencement of sales-type lease | 44,943 | — | — | — | 44,943 | — | |||||||||||||||||||||||||||||
| Restructuring charges | (1,944) | — | (5,807) | (6,828) | (7,751) | (6,828) | |||||||||||||||||||||||||||||
| Loss from vessel operations | (44,394) | (212,959) | (11,665) | (9,659) | (56,059) | (222,618) | |||||||||||||||||||||||||||||
Calendar-Ship-Days (2) | |||||||||||||||||||||||||||||||||||
| FPSO Units | 822 | 819 | — | — | 822 | 819 | |||||||||||||||||||||||||||||
| FSO Units | 244 | 273 | 273 | 385 | 517 | 658 | |||||||||||||||||||||||||||||
| Shuttle Tankers | 113 | 502 | — | — | 113 | 502 | |||||||||||||||||||||||||||||
(1)Includes direct general and administrative expenses and indirect general and administrative expenses allocated to offshore production, and other and corporate G&A based on estimated use of corporate resources.
(2)Apart from three FPSO units, all remaining calendar-ship-days presented relate to in-chartered vessels.
Teekay Parent – Offshore Production
Loss from vessel operations for Teekay Parent’s Offshore Production business was $20.6 million and $44.4 million for the three and nine months ended September 30, 2020, respectively, compared to loss from vessel operations of $194.4 million and $213.0 million for the same periods in the prior year. The changes are primarily a result of:
•decreases in loss of $162.8 million and $106.0 million for the three and nine months ended September 30, 2020, respectively, due to lower impairment charges in 2020;
•decreases in loss of $14.2 million and $74.0 million for the three and nine months ended September 30, 2020, respectively, primarily due to the gain on commencement of a sales-type lease and improved results associated with the new bareboat charter agreement for the Petrojarl Foinaven FPSO unit in 2020; and
•decreases in loss of $4.2 million and $12.2 million for the three and nine months ended September 30, 2020, respectively, related to the Sevan Hummingbird FPSO unit, primarily due to a new contract that took effect in the fourth quarter of 2019 at a higher rate as well as lower depreciation as a result of a write-down of the unit to its estimated fair value in the third quarter of 2019;
partially offset by
•increases in loss of $7.5 million and $20.4 million for the three and nine months ended September 30, 2020, respectively, related to the Petrojarl Banff FPSO unit, primarily due to decommissioning costs incurred in the second and third quarters of 2020, and the removal of the Petrojarl Banff FPSO unit from the Banff field in the third quarter of 2020 following cessation of production in June 2020.
Teekay Parent – Other and Corporate G&A
Loss from vessel operations for Teekay Parent’s Other and Corporate G&A segment was $8.4 million and $11.7 million for the three and nine months ended September 30, 2020, respectively, compared to loss from vessel operations of $2.7 million and $9.7 million in the same periods in the prior year. The increase in loss for the three and nine months ended September 30, 2020 was primarily due to the write-down of the Suksan Salamander FSO unit, as described above in "Recent Developments in Teekay Parent".
Equity-Accounted Investment in Altera
For the period from January 1, 2019 to May 8, 2019, we recognized equity losses in respect of Altera of $3.1 million. We wrote down the investment in Altera by $64.9 million and recognized a loss on sale of $8.9 million in the nine months ended September 30, 2019.
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Other Consolidated Operating Results
The following table compares our other consolidated operating results for the three and nine months ended September 30, 2020 and 2019:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| (in thousands of U.S. dollars) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Interest expense | (53,175) | (67,707) | (174,940) | (211,583) | |||||||||||||||||||
| Interest income | 1,754 | 1,485 | 6,871 | 6,407 | |||||||||||||||||||
| Realized and unrealized losses on non-designated derivative instruments | (1,471) | (1,924) | (32,404) | (18,311) | |||||||||||||||||||
| Foreign exchange (loss) gain | (5,943) | 5,628 | (8,219) | (2,853) | |||||||||||||||||||
| Other loss | (14,627) | (1,424) | (15,707) | (12,495) | |||||||||||||||||||
| Income tax (expense) recovery | (3,702) | (3,091) | 9,681 | (11,531) | |||||||||||||||||||
Interest Expense. Interest expense decreased to $53.2 million and $174.9 million for the three and nine months ended September 30, 2020, respectively, from $67.7 million and $211.6 million for the same periods in the prior year, primarily due to:
•decreases of $7.7 million and $11.9 million for the three and nine months ended September 30, 2020, respectively, relating to Teekay LNG primarily due to a decrease in LIBOR in 2020 and principal repayments during 2019 and 2020;
•decreases of $2.3 million and $6.9 million for the three and nine months ended September 30, 2020, respectively, as part of the proceeds from the sale of the WilForce and WilPride were used to the repay Teekay LNG's term loans that were collateralized by these vessels;
•a decrease of $2.0 million for the nine months ended September 30, 2020, relating to Teekay LNG's extinguishment of debt issuance costs upon completion of the debt refinancing on the Sean Spirit in January 2019;
•decreases of $3.6 million and $8.5 million for the three and nine months ended September 30, 2020, respectively, primarily due to Teekay Tankers' significant prepayments of loan principal during the fourth quarter of 2019 and during the first three quarters of 2020, and its debt refinancings completed in the first and third quarters of 2020 which resulted in lower principal balances and interest rates in comparison to those under the refinanced facilities, along with overall lower average LIBOR rates, partially offset by the write-off of previously capitalized loan costs and non-capitalized loan costs associated with the debt refinancings; and
•decreases of $0.9 million and $6.8 million for the three and nine months ended September 30, 2020, respectively, relating to Teekay Parent as a result of the repurchase in 2019 and maturity in January 2020 of the 8.5% senior notes (or the 2020 Notes), partially offset by an increase in debt 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 gains (losses) on non-designated derivative instruments. For the nine months ended September 30, 2020 and 2019, we had interest rate swap agreements with aggregate average net outstanding notional amounts of approximately $1.0 billion and $1.1 billion, respectively, with average fixed rates of approximately 3.0% and 3.0%, respectively. Short-term variable benchmark interest rates during these periods were generally less than 2.9% and, as such, we incurred realized losses of $5.3 million and $11.9 million, respectively, during the three and nine months ended September 30, 2020, compared to realized losses of $2.2 million and $5.7 million for the same periods in the prior year under the interest rate swap agreements.
Primarily as a result of significant changes in the long-term benchmark interest rates during the three and nine months ended September 30, 2020, compared with the same periods in 2019, we recognized unrealized gain of $4.0 million and an unrealized loss of $20.1 million, respectively, in the three and nine months ended September 30, 2020, compared to unrealized losses of $0.6 million and $14.8 million for the same periods in the prior year under the interest rate swap agreements.
Prior to the 2019 Brookfield Transaction, Teekay held 15.5 million common unit warrants issued by Altera to Teekay in connection with the 2017 Brookfield Transaction (or the Brookfield Transaction Warrants) and 1,755,000 warrants to purchase common units of Altera issued to Teekay in connection with Altera's private placement of Series D Preferred Units in June 2016 (or the Series D Warrants). Please read “Item 1 – Financial Statements: Note 16 – Derivative Instruments and Hedging Activities.” During the nine months ended September 30, 2019, we recognized an unrealized gain of $26.9 million on these warrants, which was partially offset by a realized loss of $25.6 million. 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.
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Foreign Exchange (Loss) Gain. Foreign currency exchange losses were $5.9 million and $8.2 million for the three and nine months ended September 30, 2020, respectively, compared to gain of $5.6 million and loss of $2.9 million for the same periods in the prior year. Our foreign currency exchange gains and 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, finance leases and restricted cash for financial reporting purposes and the realized and unrealized (losses) gains 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 the three and nine months ended September 30, 2020 foreign currency exchange gains (losses) included realized losses of $1.7 million and $4.9 million, respectively, (2019 – losses of $1.4 million and $4.0 million, respectively) and an unrealized gain of $1.5 million and an unrealized loss of $2.2 million, respectively, (2019 – losses of $23.8 million and $25.8 million, respectively), on cross currency swaps, and an unrealized loss of $1.8 million and an unrealized gain of $32.2 million, respectively, (2019 – gains of $22.2 million and $17.7 million, respectively), on the revaluation of our NOK-denominated debt.
Other loss. Other loss increased to $14.6 million and $15.7 million for the three and nine months ended September 30, 2020, respectively, compared to $1.4 million and $12.5 million for the same periods in the prior year primarily due to a credit loss provision recognized in the three months ended September 30, 2020 as a result of declines of estimated charter-free valuations of certain types of LNG vessels, 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 value of such vessels upon completion of their existing charter contracts, partially offset by losses on the repurchase of 2020 Notes in the nine months ended September 30, 2019.
Income Tax (Expense) Recovery. Income tax (expense) recovery was an expense of $3.7 million and a recovery of $9.7 million for the three and nine months ended September 30, 2020, respectively, compared to expenses of $3.1 million and $11.5 million for the same periods in the prior year. The decrease for the nine months ended September 30, 2020, compared to the same period in the prior year, was primarily due to decreases in freight tax accruals in the first half of 2020.
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 Daughter Entities) 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 capital expenditures until longer-term financing is obtained, at which time we typically use all or a portion of the proceeds from the longer-term financings to prepay outstanding amounts under revolving credit facilities. As at September 30, 2020, Teekay Corporation’s total consolidated cash and cash equivalents were $376.6 million, compared to $354.4 million at December 31, 2019 (which included cash presented in assets held for sale). Teekay Corporation’s total consolidated liquidity, including cash, cash equivalents, undrawn credit facilities and the undrawn portion of a loan, which is determined based on certain borrowing criteria, to finance Teekay Tankers' pool management operations, was $1.0 billion as at September 30, 2020 and $672.0 million as at December 31, 2019.
Our revolving credit facilities and term loans are described in “Item 1 – Financial Statements: Note 10 – Long-Term Debt.” They contain covenants and other restrictions typical of debt financing secured by vessels that restrict our 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 new lines of business.
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 September 30, 2020, these ratios were 483%, 234%, 140%, 203% and 182% compared to their minimum required ratios of 125%, 115%, 120%, 135% and 125%, respectively. Our long-term debt agreements contain other covenants that are discussed in this section and in “Item 5 – Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2019. As of the date these unaudited consolidated financial statements were issued, we are in compliance with all covenants under our credit facilities and other long-term debt.
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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.
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 foreign currency forward contracts, cross currency and interest rate swaps and forward freight agreements to manage currency, interest rate and spot tanker rates.
Teekay Parent
Teekay Parent primarily owns an equity ownership interest in the Daughter Entities, 100% ownership interests in the general partner of Teekay LNG and three FPSO units, provides management services to the Daughter Entities and third-parties, and in-charters one vessel. Teekay Parent’s primary short-term liquidity needs are the payment of operating expenses, asset retirement obligations and decommissioning costs associated with the Petrojarl Banff FPSO unit, debt servicing costs 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 Altera). As at September 30, 2020, Teekay Parent’s total cash and cash equivalents was $54.7 million, compared to $104.2 million at December 31, 2019. Teekay Parent’s total liquidity, including cash, cash equivalents and undrawn credit facilities, was $142.5 million as at September 30, 2020, compared to $195.3 million as at December 31, 2019.
On October 1, 2020, Teekay Parent secured a new 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, is secured by common units of Teekay LNG and shares of Class A common stock of Teekay Tankers that are owned by Teekay Parent. As part of the refinancing, 10.75 million Teekay LNG common units were included as additional security. Should the value of the collateral decrease beyond a certain threshold, any outstanding amounts are to be repaid in full. As of October 1, 2020, Teekay Parent did not have any amounts drawn on its equity margin revolving credit facility and had $117.2 million available to be drawn based on the value of the collateral as of that date.
In September 2020, Teekay Parent commenced repurchasing some of its Convertible Notes in the open market, acquiring $10.8 million of the principal of the Convertible Notes for total consideration of $8.8 million and recognized a gain of $1.1 million in the third quarter of 2020, included in other loss on the Company's unaudited consolidated statements of (loss) income. Subsequently, in October and November 2020, Teekay Parent acquired an additional $2.0 million of the principal of the Convertible Notes for total consideration of $1.7 million and $6.6 million of the principal of its existing 2022 Notes for total consideration of $6.2 million.
On May 11, 2020, Teekay Parent and Teekay LNG agreed to eliminate all of Teekay LNG’s incentive distribution rights in exchange for the issuance to a subsidiary of Teekay Corporation of 10.75 million newly-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 LNG and remains the sole owner of its general partner, which together represents an economic interest of approximately 42% in Teekay LNG.
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.
In April 2019, Teekay filed a continuous offering program (or COP) under which Teekay may issue shares of its common stock, at market prices up to a maximum aggregate amount of $63.0 million. No shares of common stock have been issued under this COP as of September 30, 2020.
We believe that Teekay Parent’s existing cash and cash equivalents and undrawn long-term borrowings following the transactions described above, in addition to all other sources of cash including cash from operations, will be sufficient to meet its existing liquidity needs for at least the next 12 months.
Teekay LNG
Teekay LNG's primary liquidity needs for the remainder of 2020 through 2021 include payment of operating expenditures, 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 Series A and Series B Preferred Units and common units and funding any common and preferred unit repurchases it may undertake. Teekay LNG anticipates that its primary sources of funds for its liquidity needs will be cash flows from operations, proceeds from financings, cash distributions that it expects to receive from its equity-accounted joint ventures, and, to a lesser extent, existing undrawn revolving credit facilities.
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Teekay LNG's ability to continue to expand the size of its fleet over the long-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 September 30, 2020, Teekay LNG's consolidated cash and cash equivalents were $201.0 million, compared to $160.2 million at December 31, 2019. Teekay LNG's total liquidity, which consists of cash, cash equivalents and undrawn credit facilities, was $430.8 million as at September 30, 2020, compared to $326.4 million as at December 31, 2019. The increase in liquidity is primarily from receipts from sales-type leases upon the sale of the WilForce and WilPride in January 2020.
As at September 30, 2020, Teekay LNG had a working capital deficit of $301.9 million. This working capital deficit primarily arose from $291.7 million of long-term debt being classified as current at September 30, 2020 relating to scheduled maturities and repayments in the 12 months following September 30, 2020. Scheduled debt maturities include $93.2 million of debt maturing in February 2021 and $92.0 million due by June 2021. As at September 30, 2020, Teekay LNG had available liquidity from undrawn revolving credit facilities of $229.8 million.
Teekay LNG also 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 September 30, 2020 was $1.4 billion. As of the date these consolidated financial statements were issued, Teekay LNG's equity-accounted joint ventures were in compliance with all covenants relating to these loan facilities that Teekay LNG guarantees.
In December 2018, Teekay LNG announced that its general partner's board of directors had authorized a repurchase program for the repurchase of up to $100 million of Teekay LNG's common units. During the three months ended September 30, 2020, Teekay LNG did not repurchase any common units. During the nine months ended September 30, 2020, Teekay LNG repurchased 1.4 million common units for $15.3 million and associated general partnership interest of $0.3 million. As at November 24, 2020 the remaining dollar value of units that may be purchased under the program is approximately $55.8 million.
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 GP LLC (or the General Partner), in exchange for the issuance to a subsidiary of Teekay of 10.75 million newly-issued Teekay LNG common units. Following the completion of this transaction on May 11, 2020, Teekay Parent now owns approximately 36 million common units of Teekay LNG and remains the sole owner of its general partner, which together represents an economic interest of approximately 42% in Teekay LNG. The conflicts committee of the board of directors of Teekay LNG’s general partner negotiated and approved the transaction, with the assistance of independent legal and financial advisors.
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 debt and for general corporate purposes. Teekay LNG is in the process of listing these bonds on the Oslo Stock Exchange.
As part of its balanced capital allocation strategy, Teekay LNG increased its quarterly cash distributions on 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.
For at least the one-year period following the date of this filing, Teekay LNG believes that its existing liquidity, combined with the cash flow it expects to generate from its operations and receive as dividends from its equity-accounted joint ventures, will be sufficient to finance the majority of its liquidity needs. Teekay LNG's remaining liquidity needs include the need to refinance or repay certain of its loan facilities and bonds maturing during 2021, 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, and capital raised through financing transactions.
As at September 30, 2020, Teekay Tankers' total consolidated cash and cash equivalents were $120.9 million, compared to $89.9 million at December 31, 2019. Teekay Tankers' total liquidity, including cash, cash equivalents and undrawn credit facilities that was determined on certain borrowing criteria, was $469.8 million as at September 30, 2020, compared to $150.3 million as at December 31, 2019. Teekay Tankers' total liquidity as at September 30, 2020 increased primarily as a result of net operating cash flow and net proceeds received from the sale of three Suezmax vessels, the sale of the non-US portion of Teekay Tankers' ship-to-ship support services business as well as its LNG terminal management business and the refinancing in January 2020 as described below.
In August 2020, Teekay Tankers entered into a $67.4 million term loan facility (or the 2020 Term Loan) which is scheduled to mature in August 2023, and which had an outstanding balance of $67.4 million as at September 30, 2020. The proceeds from the 2020 Term Loan were used to repay a portion of the $85.1 million then outstanding under one previous term loan facility, which was scheduled to mature in 2021. Following completion of the refinancing, Teekay Parent no longer guarantees any of Teekay Tankers' debt facilities.
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In January 2020, Teekay Tankers entered into a new $532.8 million long-term revolving credit facility which is scheduled to mature at the end of 2024, and which had an outstanding balance of $155.0 million as at September 30, 2020. The proceeds from the new debt facility were used to repay a portion of the $455.3 million then outstanding under Teekay Tankers' prior two revolving facilities, which were scheduled to mature in 2021 and 2022, and two term loan facilities, which were scheduled to mature in 2020 and 2021.
In November 2019, Teekay Tankers made the determination to transition away from its previous formulaic dividend policy, which was based on a payout of 30 to 50 percent of its quarterly adjusted net income, to primarily focus on building net asset value through balance sheet delevering and reducing its cost of capital.
Teekay Tankers anticipates that its primary sources of funds for its short-term liquidity needs will be cash flows from operations, existing cash and cash equivalents and undrawn short-term and long-term borrowings, which Teekay Tankers believes will be sufficient to meet its existing liquidity needs for at least the next 12 months.
Teekay Tankers' short-term charters and spot market tanker operations contribute to the volatility of its net operating cash flow, and thus impact 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 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. However, this typical seasonality might be counter-balanced this year by a potential slowdown in demand due to a resurgence of COVID-19 cases in many regions and the potential for renewed restrictions and lockdowns over the winter months.
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:
| (in thousands of U.S. Dollars) | Nine Months Ended September 30, | ||||||||||
| 2020 | 2019 | ||||||||||
| $ | $ | ||||||||||
| Net operating cash flows | 894,136 | 256,126 | |||||||||
| Net financing cash flows | (973,558) | (328,125) | |||||||||
| Net investing cash flows | 65,644 | (40,884) | |||||||||
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, the production performance of certain of our FPSO units that operated under contracts with a production-based compensation component has contributed to fluctuations in operating cash flows. As the charter contracts of some of our FPSO units included incentives based on oil prices, changes in global oil prices during recent years have also impacted our operating cash flows.
Teekay LNG does not have control over the operations of, nor does it have any legal claim to the revenue and expenses of its investments in its equity-accounted joint ventures. Consequently, the cash flow generated by its investments in equity-accounted joint ventures may not be available for use by Teekay LNG in the period that such cash flows are generated.
Consolidated net cash flow from operating activities increased to $894.1 million for the nine months ended September 30, 2020, from $256.1 million for the nine months ended September 30, 2019. This increase was primarily due to a $328.1 million increase in direct 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 Petrojarl Foinaven FPSO. There was also a $192.6 million increase in income from operations (before depreciation, amortization, write-downs and gain on commencement of sales-type lease) of our businesses. For a further discussion of changes in income from operations from our businesses, please read “Results of Operations.” In addition, there was a $50.6 million increase in cash flows from changes to non-cash working capital, expenditures for dry docking decreased $36.6 million, interest expense, including realized losses on interest rate swaps and cross currency swaps, decreased by a net amount of $30.0 million, and distributions from equity-accounted joint ventures increased by $6.9 million, compared to the corresponding period of 2019. These increases to operating cash flows were partially offset by asset retirement obligation expenditures of $15.2 million relating to the Petrojarl Banff FPSO unit.
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Financing Cash Flows
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, net of debt issuance costs and prepayments of long-term debt, were $530.0 million in the nine months ended September 30, 2020 compared to $324.7 million in the same period last year. Scheduled debt repayments increased by $96.0 million in the nine months ended September 30, 2020, compared to the same period last year.
Teekay LNG received $317.8 million during the nine months ended September 30, 2019 from the sale-leaseback financing transaction completed for the Yamal Spirit and Torben Spirit. Teekay Tankers received $63.7 million from sale-leaseback financing transactions completed in the nine months ended September 30, 2019.
Investing Cash Flows
During the nine months ended September 30, 2020, we incurred capital expenditures for vessels and equipment of $18.5 million, primarily for capitalized vessel modifications. 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 the nine months ended September 30, 2019, we received $100.0 million from Brookfield from the sale of our remaining interests in Altera (please read "Item 1 - Financial Statements: Note 4 – Related Party Transactions"). We incurred capital expenditures for vessels and equipment of $98.7 million (net of $45 million received from a shipyard related to warranty claims on certain vessels), primarily for capitalized vessel modifications and shipyard construction installment payments. Teekay LNG contributed $42.2 million to its equity-accounted joint ventures, primarily to fund project expenditures in the Yamal LNG Joint Venture and the Bahrain LNG Joint Venture.
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CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
The following table summarizes our long-term contractual obligations as at September 30, 2020, excluding expected interest payments where applicable:
| Remainder of | Beyond | ||||||||||||||||||||||||||||||||||||||||
| Total | 2020 | 2021 | 2022 | 2023 | 2024 | 2024 | |||||||||||||||||||||||||||||||||||
| In millions of U.S. Dollars | |||||||||||||||||||||||||||||||||||||||||
| Teekay LNG | |||||||||||||||||||||||||||||||||||||||||
Bond repayments (1)(2) | 326.8 | — | 128.6 | — | 91.0 | — | 107.2 | ||||||||||||||||||||||||||||||||||
Scheduled repayments of long-term debt (1)(2) | 537.6 | 35.2 | 99.0 | 87.7 | 116.3 | 48.5 | 150.9 | ||||||||||||||||||||||||||||||||||
Repayments on maturity of long-term debt (1)(2) | 640.0 | — | 185.1 | 125.0 | — | 54.9 | 275.0 | ||||||||||||||||||||||||||||||||||
Scheduled repayments of obligations related to finance leases (3) | 1,776.3 | 34.8 | 138.6 | 137.0 | 135.5 | 132.0 | 1,198.4 | ||||||||||||||||||||||||||||||||||
Commitments under operating leases (4) | 244.2 | 12.0 | 47.6 | 34.9 | 23.9 | 23.9 | 101.9 | ||||||||||||||||||||||||||||||||||
Equipment and other construction contract costs(5) | 54.2 | 3.3 | 35.9 | 15.0 | — | — | — | ||||||||||||||||||||||||||||||||||
| 3,579.1 | 85.3 | 634.8 | 399.6 | 366.7 | 259.3 | 1,833.4 | |||||||||||||||||||||||||||||||||||
| Teekay Tankers | |||||||||||||||||||||||||||||||||||||||||
Scheduled repayments of long-term and other debt (2) | 60.5 | 22.8 | 11.2 | 11.2 | 8.5 | 6.8 | — | ||||||||||||||||||||||||||||||||||
Repayments on maturity of long-term and other debt (2) | 181.9 | — | — | — | 33.7 | 148.2 | — | ||||||||||||||||||||||||||||||||||
Scheduled repayments of obligations related to finance leases (2)(6) | 396.1 | 6.7 | 27.3 | 29.5 | 31.9 | 34.6 | 266.1 | ||||||||||||||||||||||||||||||||||
Chartered-in vessels (operating leases) (7) | 20.9 | 8.9 | 10.5 | 1.5 | — | — | — | ||||||||||||||||||||||||||||||||||
| 659.4 | 38.4 | 49.0 | 42.2 | 74.1 | 189.6 | 266.1 | |||||||||||||||||||||||||||||||||||
| Teekay Parent | |||||||||||||||||||||||||||||||||||||||||
Bond repayments (2) | 364.2 | — | — | 250.0 | 114.2 | — | — | ||||||||||||||||||||||||||||||||||
Chartered-in vessels (operating leases) (8) | 35.6 | 2.3 | 9.2 | 9.2 | 9.2 | 5.7 | — | ||||||||||||||||||||||||||||||||||
Asset retirement obligations (9)(10) | 49.8 | 7.6 | 35.4 | — | — | — | 6.8 | ||||||||||||||||||||||||||||||||||
| 449.6 | 9.9 | 44.6 | 259.2 | 123.4 | 5.7 | 6.8 | |||||||||||||||||||||||||||||||||||
| Total | 4,688.1 | 133.6 | 728.4 | 701.0 | 564.2 | 454.6 | 2,106.3 | ||||||||||||||||||||||||||||||||||
(1)Euro-denominated and NOK-denominated obligations are presented in U.S. Dollars and have been converted using the prevailing exchange rate as of September 30, 2020.
(2)Our interest-bearing obligations include bonds, commercial bank debt and obligations related to finance leases. Please read “Item 1 – Financial Statements: Note 6 – Leases" and “Item 1 – Financial Statements: Note 10 – Long-Term Debt” for the terms upon which future interest payments are determined as well as “Item 1 – Financial Statements: Note 16 – Derivative Instruments and Hedging Activities" for a summary of the terms of our derivative instruments which hedge certain of our floating rate interest-bearing obligations.
(3)Includes, in addition to lease payments, amounts Teekay LNG is required to pay to purchase the leased assets at the end of their respective lease terms.
(4)Teekay LNG has corresponding leases whereby it is the lessor and expects to receive approximately $230.4 million under those leases from the remainder of 2020 to 2029.
(5)The Bahrain LNG Joint Venture, in which Teekay LNG has a 30% ownership interest, has receiving and regasification terminal in Bahrain. The Bahrain LNG Joint Venture completed the mechanical construction and commissioning of the Bahrain terminal in late-2019 and began receiving terminal use payments in early-2020 under its 20-year agreement with NOGA. As at September 30, 2020, its 30% share of the estimated remaining costs included in the table above is $11.3 million, of which the Bahrain LNG Joint Venture has secured undrawn debt financing of $7 million related to its proportionate share.
In June 2019, Teekay LNG entered into an agreement with a contractor to supply equipment on certain of Teekay LNG's LNG carriers in 2021 and 2022, for an estimated installed cost of $59.5 million. As at September 30, 2020, Teekay LNG's estimated remaining costs of this installation was $42.9 million.
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(6)In October 2020, Teekay Tankers completed the purchases of two Aframax tankers for a total cost of $29.6 million and in November 2020, Teekay Tankers declared purchase options to acquire two Suezmax tankers in May 2021 for a total cost of $56.7 million, under the sale-leaseback arrangements described in "Item 1 - Financial Statements: Note 6 – Leases". Giving effect to these transactions, the scheduled repayments of obligations related to finance leases are $35.9 million (remainder of 2020), $79.9 million (2021), $23.3 million (2022), $25.2 million (2023), $27.2 million (2024), and $205.9 million (thereafter).
(7)Excludes payments required if Teekay Tankers execute options to extend the terms of in-chartered leases signed as of September 30, 2020. If Teekay Tankers exercise all options to extend the terms of signed in-chartered leases, Teekay Tankers would expect total payments of $9.6 million (remainder of 2020), $29.5 million (2021), $6.9 million (2022) and $1.5 million (2023).
(8)Teekay Parent in-charters one FSO unit from Altera, which is on a back-to-back out-charter to a third party.
(9)Teekay Parent has an asset retirement obligation (or ARO) relating to the sub-sea production facility associated with the Petrojarl Banff FPSO unit operating in the North Sea. 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 million, presented in other non-current assets on our consolidated balance sheet, to be received from the FPSO contract counterparty.
(10)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 an amount from the charterer at the end of the bareboat charter that is currently expected to cover the costs of the ARO. The $6.8 million amount is the present value of the estimated Petrojarl Foinaven ARO as at September 30, 2020.
CRITICAL ACCOUNTING ESTIMATES
Accounting estimates and assumptions that we consider to be the most critical to an understanding of our consolidated financial statements because they inherently involve significant judgments and uncertainties, are discussed in “Item 5 – Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2019. There were no significant changes in accounting estimates or assumptions from those discussed in such Annual Report on Form 20-F except relating to the impairment of Teekay Parent's two FPSOs, the impairment of six of Teekay LNG's seven wholly-owned multi-gas carriers and the impairment of Teekay Tankers' five Aframax tankers during the nine months ended September 30, 2020, as discussed in "Item 1 – Financial Statements: Note 7 – Write-down and (Loss) Gain on Sale" and the following "Vessel Lives and Impairment" and "Credit Losses" sections.
The following contains those sections of our critical accounting estimates that have been updated for significant developments up to September 30, 2020:
Vessel Lives and Impairment
The following contains an update from our Annual Report on Form 20-F for the year ended December 31, 2019 for significant developments up to September 30, 2020 to our critical accounting estimates with respect to Vessel Lives and Impairment for vessels in our Teekay Tankers - Conventional Tankers segment where undiscounted cash flows are marginally greater than the carrying values. The table below presents the aggregate market values and carrying values of our vessels that we have determined have a market value that is less than their carrying value and which have estimated future undiscounted cash flows that are only marginally greater than their respective carrying values as of September 30, 2020. While the market values of these vessels are below their carrying values, no impairment has been recognized on any of these vessels in the nine months ended September 30, 2020 as the estimated future undiscounted cash flows relating to such vessels are greater than their carrying values and GAAP does not allow an impairment to be recognized under this circumstance. We consider the vessels reflected in the following table to be at a higher risk of future impairment as compared to other vessels in our fleet:
Aframax, Suezmax and Product Tankers (in thousands of U.S. dollars, except number of vessels) | # Vessels | Market Values (1) | Carrying Values | ||||||||||||||
| Tankers | 15 | 312,200 | 486,346 | ||||||||||||||
(1)Market values are determined using 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 could obtain if we sold any of the vessels.
Our estimates of future cash flows involve assumptions about future charter rates, vessel utilization, operating expenses, dry-docking expenditures, vessel residual values, the probability of the vessel 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. Our estimates of vessel utilization, including estimated off-hire time, are based on historical experience and our projections of the number of future 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 per tonne. 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, on-going operating costs and remaining vessel life. Certain assumptions relating to 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
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contracts, the probability and timing of vessels being sold and vessel residual values, due to their volatility. 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.
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 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. Given the volatility in vessel values, the selection of the method to estimate the credit loss provision for the residual value component involves judgment.
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. To the extent the methods, and judgments used in applying these methods, that we use 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 adjusted historical loss rate for one or more direct financing and sales-type leases results in an adjusted historical loss rate that results in a credit loss provision that is lower (higher) than actual results, our earnings in one or more periods would be overstated (understated) and our total equity in one or more periods would be overstated (understated). In addition, if our estimates of the residual value of the vessels is understated (overstated) and actual results are higher (lower), our earnings in one or more periods may be understated (overstated) and our total equity in one or more periods would be understated (overstated).
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FORWARD-LOOKING STATEMENTS
This Report on Form 6-K for the three and nine months ended September 30, 2020, contains certain forward-looking statements (as such term is defined in Section 21A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) concerning future events and our operations, performance and financial condition, including, among others, statements regarding:
•the expected scope, duration and effects of the COVID-19 pandemic, including the effects on our industry and business, including our liquidity and the potential effect on typical seasonal variations in tanker rates;
•conditions and fundamentals of the markets in which we operate, including the balance of supply and demand in these markets and spot tanker charter rates and volatility and oil production and competition for providing services;
•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;
•forecasts of worldwide tanker fleet growth;
•OPEC+ oil production or oil supply cuts and floating storage demand;
•meeting our going concern requirements and our liquidity needs, and the liquidity needs of Teekay LNG and Teekay Tankers, 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 future financial condition and results of operations and our future revenues, expenses and capital expenditures, and our expected financial flexibility to pursue capital expenditures, acquisitions and other expansion opportunities, including vessel acquisitions;
•our future growth prospects;
•our business strategy and other plans and objectives for future operations;
•expected uses of proceeds from vessel or securities transactions;
•our ability and plans to obtain financing for new and existing projects, refinance existing debt obligations and fulfill our debt obligations;
•compliance with financing agreements and the expected effect of restrictive covenants in such agreements;
•our expectations regarding the amounts and our ability to settle the asset retirement obligations related to the subsea production facility associated with the Petrojarl Banff FPSO unit operating in the North Sea and the asset retirement obligations related to the clean-up and disposal of the Petrojarl Foinaven FPSO unit also operating in the North Sea;
•our expectations regarding the recycling, redelivery and clean-up of the Petrojarl Banff FPSO, Apollo Spirit FSO and subsea equipment in the North Sea;
•the expected timing and cost relating to the additional equipment to be installed for certain of Teekay LNG's LNG carriers;
•the impact and expected cost of, and our ability to comply with, new and existing governmental regulations and maritime self-regulatory organization standards applicable to our business and the effect of IMO 2020;
•our expectation of being able to pass along the higher cost of low sulphur fuel to our customers;
•expected costs, capabilities, acquisitions and conversions, and the commencement of any related charters or other contracts;
•operating expenses, availability of crew and crewing costs, number of off-hire days, dry-docking requirements and durations and the adequacy and cost of insurance;
•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;
•our hedging activities relating to foreign exchange, interest rate and spot market risks, and the effects of fluctuations in foreign exchange, interest rate and spot market rates on our business and results of operations;
•our expectations regarding tax positions, liabilities and classifications;
•our expectations regarding, and our accounting estimates and the level of expected changes in our provisions for uncertain tax positions relating to freight taxes in the next 12 months;
•the future valuation or impairment of our assets, including our goodwill;
•our expectations regarding pattern of expense recognition of chartered-in vessels; and
•the potential impact of proposed accounting treatment or new accounting guidance.
Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe”, “anticipate”, “expect”, “estimate”, “project”, “will be”, “will continue”, “will likely result”, or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement: failure to achieve or the delay in achieving expected benefits of our financing initiatives; changes in oil prices; changes in vessel values; changes in production of or demand for oil, petroleum products, LNG and LPG, either generally or in particular regions; changes in anticipated improvements to pipeline capacity to the U.S. Gulf coast and its effect on U.S. crude exports; changes in anticipated levels of vessel newbuilding orders or rates of vessel scrapping; OPEC+ production and supply levels; the duration and extent of the COVID-19 pandemic and any resulting effects on the markets in which we operate; the impact of the COVID-19 pandemic on our ability to maintain safe and efficient operations; higher than expected costs and/or delays associated with the remediation or the decommissioning/
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recycling of the Petrojarl Banff FPSO unit; competitive factors in the markets in which we operate; loss of any customer, time charter or vessel; potential delays or cancellations of anticipated vessel delivery; changes in the financial stability of our charterers; changes in trading patterns significantly affecting overall vessel tonnage requirements; the timing of implementation of new laws and regulations; political, governmental and economic instability in the regions and markets in which we operate; the application of sanctions to us or any of our counterparties or joint venture parties; the effects of the effectiveness of the IMO's 2020 fuel regulations; spot tanker market rate fluctuations; changes in the typical seasonal variations in tanker charter rates; changes in the offshore production of oil or demand for FPSOs, LNG or LPG carriers; effects of the issuance of additional shares of common stock and other equity securities on cash distributions by Teekay LNG and Teekay Tankers; the outcome of discussions or legal action with third parties relating to existing or potential disputes or claims; potential inability to obtain charters; decreases in oil production by or increased operating expenses for FPSO units; trends in prevailing charter rates for FPSO contract renewals; the potential for early termination of long-term contracts and our ability to renew or replace long-term contracts or complete existing contract negotiations; cost overruns; our exposure to interest rate and currency exchange rate fluctuations; changes in our expenses; changes in tax regulations or the outcome of tax positions; our future capital expenditure requirements and the inability to secure financing for such requirements; our potential inability to raise financing to refinance debt maturities; conditions in the capital markets and lending markets; potential inability to implement our growth strategy; and other factors discussed in our filings from time to time with the SEC, including in our Annual Report on Form 20-F for the fiscal year ended December 31, 2019. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.
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TEEKAY CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 2020
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
See “Part I – Item 1 – Financial Statements: Note 12c – Commitments and Contingencies – Legal Proceedings and Claims” in this Report.
Item 1A – Risk Factors
In addition to the other information set forth in this Report on Form 6-K, you should carefully consider the risk factors discussed in Part I, “Item 3. Key Information – Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2019, which could materially affect our business, financial condition or results of operations and the price and value of our securities.
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 – Defaults Upon Senior Securities
None
Item 4 – Mine Safety Disclosures
Not applicable
Item 5 – Other Information
None
Item 6 – Exhibits
None
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION STATEMENTS OF THE COMPANY:
•REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 033-97746) FILED WITH THE SEC ON OCTOBER 4, 1995;
•REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-42434) FILED WITH THE SEC ON JULY 28, 2000;
•REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-119564) FILED WITH THE SEC ON OCTOBER 6, 2004;
•REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-147683) FILED WITH THE SEC ON NOVEMBER 28, 2007;
•REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-166523) FILED WITH THE SEC ON MAY 5, 2010;
•REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-187142) FILED WITH THE SEC ON MARCH 8, 2013;
•REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-212787) FILED WITH THE SEC ON JULY 29, 2016;
•REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-221806) FILED WITH THE SEC ON NOVEMBER 29, 2017; AND
•REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-231003) FILED WITH THE SEC ON APRIL 24, 2019.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TEEKAY CORPORATION | |||||||||||
| Date: November 24, 2020 | By: | /s/ Vincent Lok | |||||||||
Vincent Lok Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) | |||||||||||
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