The
following tables present our operating results by reportable segment for 2006,
2005 and 2004, and compare our net voyage revenues, a non-GAAP financial
measure, for those periods to voyage revenues, the most directly comparable
GAAP
financial measure. For ease of comparison in the following tables and the
discussion below, we have combined our results of the various time periods
set
forth in our consolidated statements of income (loss).
2006
2005
2004
(in
thousands of U.S. dollars,
LNG
Suezmax
LNG
Suezmax
LNG
Suezmax
except
Operating
Data)
Carrier
Tanker
Carrier
Tanker
Carrier
Tanker
Segment
Segment
Total
Segment
Segment
Total
Segment
Segment
Total
Voyage
revenues
99,526
83,247
182,773
97,645
47,814
145,459
59,395
64,438
123,833
Voyage
expenses
969
1,061
2,030
50
608
658
254
4,678
4,932
Net
voyage revenues
98,557
82,186
180,743
97,595
47,206
144,801
59,141
59,760
118,901
Vessel
operating expenses
17,963
20,837
38,800
15,622
13,183
28,805
10,615
20,002
30,617
Depreciation
and amortization
32,113
19,856
51,969
30,360
12,811
43,171
15,391
19,469
34,860
General
and administrative
(1)
5,973
7,238
13,211
4,689
5,268
9,957
1,962
4,516
6,478
Income
from vessel operations
42,508
34,255
76,763
46,924
15,944
62,868
31,173
15,773
46,946
Operating
Data:
Revenue
Days (A)
1,466
2,904
4,370
1,445
1,714
3,159
902
2,042
2,944
Calendar-Ship-Days
(B)
1,522
2,920
4,442
1,460
1,754
3,214
902
2,073
2,975
Utilization
(A)/(B)
96
%
99
%
98
%
99
%
98
%
98
%
100
%
99
%
99
%
(1)
Includes
direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated
use
of resources).
Year
Ended December 31, 2006 versus Year Ended December 31,
2005
LNG
Carrier Segment
We
operated four LNG carriers during 2005. We took delivery of a fifth LNG carrier,
the
Al
Marrouna
in,
October 2006. As a result, our total calendar-ship-days increased by 4.1%,
from
1,460 days in 2005 to 1,522 days in 2006.
During
May 2006, the
Catalunya
Spirit
was in
drydock undergoing its first intermediate class survey, which contributed to
19.1 days of scheduled off-hire during 2006. While in drydock, damage was
discovered on certain of the side membrane walls within the cargo tanks and
a
latent defect was discovered in the propeller. The cost of repairing the damage
to the cargo tanks and replacing the propeller was covered by the hull and
machinery insurance policy on the vessel. Insurance claims totaling $4.6 million
(net of a $1.0 million deductible) were filed in the second quarter of 2006
to
recover these costs. During 2006, we received insurance payments of $3.3 million
from these claims. We expect to receive the unpaid portion of the claims ($1.3
million, including insurance deductibles) during early 2007. In addition, we
finalized an agreement with the ship builder to recover the $500,000 deductible
from the propeller claim.
Our
claim
under our loss-of-hire insurance policy for the
Catalunya
Spirit
to
recover lost time-charter revenue resulting from the additional time required
in
drydock to make these repairs was fully recoverable and fully reimbursed from
our loss-of hire insurance provider in February 2007. The repairs took a total
of 47.4 days, in addition to the scheduled 19.1 days related to the intermediate
class survey. Coverage under the loss-of-hire insurance policy commences after
a
14-day deductible. As a result, during 2006 the total number of days of off-hire
due to the scheduled drydocking and the deductible under our loss-of-hire
insurance policy was 35.5 days. The vessel resumed normal operations in early
July 2006.
We
have
reviewed the operating history of our other LNG carriers and we believe that
the
conditions that caused the damage to the cargo tanks on the
Catalunya
Spirit
did not
occur on the other vessels.
Net
Voyage Revenues
.
Net
voyage revenues increased 1.0% to $98.6 million for 2006, from $97.6 million
for
2005. This increase was primarily the result of:
·
an
increase of $2.4 million during 2006 from the delivery of the
Al
Marrouna
;
and
·
a
relative increase of $0.8 million for 2006, relating to 15.2 days
of
off-hire for scheduled drydocking during February 2005 for one of
our LNG
carriers, the
Hispania
Spirit
,
partially
offset by
·
a
decrease of $2.4 million for 2006 due to the
Catalunya
Spirit
being off-hire for 35.5 days as described
above.
Vessel
Operating Expenses
.
Vessel
operating expenses increased 15.4% to $18.0 million for 2006, from $15.6 million
for 2005. This increase was primarily the result of:
·
an
increase of $1.3 million during 2006 relating to the delivery of
the
Al
Marrouna
;
39
·
an
increase of $1.2 million relating to higher insurance, spares, consumables
and maintenance costs in 2006;
·
an
increase of $0.5 million from the cost of the repairs completed on
the
Catalunya
Spirit
during the second quarter of 2006 in excess of estimated insurance
recoveries; and
partially
offset by
·
a
relative decrease of $0.8 million for 2006 relating to repair and
maintenance work (net of insurance proceeds) completed in 2005 on
the
Hispania
Spirit
.
Depreciation
and Amortization
.
Depreciation and amortization increased 5.6% to $32.1 million for 2006, from
$30.4 million for 2005. This increase was primarily the result of:
·
an
increase of $0.7 million relating to the delivery of the
Al
Marrouna
;
and
·
an
increase of $1.0 million relating to the amortization of drydock
expenditures incurred during 2005 and
2006.
Suezmax
Tanker Segment
During
2006 we operated eight Suezmax tankers, compared to approximately five Suezmax
tankers in 2005. The results of our Suezmax tanker segment reflect the following
fleet changes during 2005 and 2006:
·
the
delivery of a Suezmax tanker newbuilding (the
Toledo Spirit)
in
July 2005;
·
the
sale of the
Granada
Spirit
to
Teekay Shipping Corporation in December 2004, in connection with
a
significant drydocking and re-flagging of the vessel, the contribution
of
this vessel to us on May 6, 2005, and the subsequent sale back to
Teekay
Shipping Corporation on May 26, 2005 (collectively, the
Granada
Spirit Transactions
);
·
the
delivery and concurrent sale of a Suezmax tanker newbuilding (the
Santiago
Spirit
)
to Teekay Shipping Corporation in March 2005;
and
·
the
acquisition of the ConocoPhillips Tankers
from
Teekay Shipping Corporation in November
2005.
As
a
result, our total calendar-ship-days increased by 66.5% to 2,920 days in 2006
from 1,754 days in 2005.
Net
Voyage Revenues
.
Net
voyage revenues increased 74.2% to $82.2 million for 2006, from $47.2 million
for 2005. This increase was primarily the result of:
·
an
increase of $25.5 million relating to the acquisition of the
ConocoPhillips Tankers;
·
an
increase of $6.5 million relating to the delivery of the
Toledo
Spirit
;
·
an
increase of $4.0 million due to adjustments to the daily charter
rate
based on inflation and increases from rising interest rates in accordance
with the time charter contracts for five Suezmax tankers. (However,
under
the terms of our capital leases for our tankers subject to these
charter
rate fluctuations, we had a corresponding increase in our lease payments,
which is reflected as an increase to interest expense. Therefore,
these
interest rate adjustments, which will continue, did not affect our
cash
flow or net income); and
·
a
relative increase of $0.5 million for 2006 relating to off-hire for
scheduled drydocking for one of our Suemaz tankers during the fourth
quarter of 2005.
partially
offset by
·
a
decrease of $0.6 million for 2006 relating to revenues earned by
the
Teide
Spirit
(the time charter for the
Teide
Spirit
contains a component providing for additional revenues to us beyond
the
fixed hire rate when spot market rates exceed threshold
amounts);
·
a
decrease of $0.3 million for 2006, from an additional 16 days of
off-hire
for one of our Suezmax tankers during February 2006 relating to a
scheduled drydocking; and
·
revenue
of $0.6 million for 2005, earned by the
Granada
Spirit
for the period from May 6, 2005, when the vessel was contributed
to us, to
May 26, 2005, when we disposed of the vessel.
Vessel
Operating Expenses
.
Vessel
operating expenses increased 57.6% to $20.8 million for 2006, from $13.2 million
for 2005. This increase was primarily the result of:
·
an
increase of $5.9 million relating to the acquisition of the ConocoPhillips
Tankers;
·
an
increase of $1.5 million relating to the delivery of the
Toledo
Spirit
in
July 2005; and
40
·
an
increase of $0.1 million relating to higher insurance, service and
other
operating costs in 2006;
partially
offset by
·
a
decrease of $0.1 million relating to the
Granada
Spirit
Transactions.
Depreciation
and Amortization
.
Depreciation and amortization increased 55.5% to $19.9 million for 2006, from
$12.8 million for 2005. This increase was primarily the result of:
·
an
increase of $5.6 million relating to the acquisition of the ConocoPhillips
Tankers; and
·
an
increase of $1.5 million relating to the delivery of the
Toledo
Spirit
;
and
partially
offset by
·
a
relative decrease of $0.2 million for 2006, relating to the inclusion
of
the
Granada
Spirit
in
our fleet for the period from May 6, 2005 to May 26,
2005.
Other
Operating Results
General
and Administrative Expenses
.
General
and administrative expenses increased 32.0% to $13.2 million for 2006, from
$10.0 million for 2005. This increase was primarily the result of:
·
an
increase of $3.3 million associated with (a) services agreements
we and
certain of our subsidiaries entered into with subsidiaries of Teekay
Shipping Corporation in connection with our initial public offering,
our
acquisition of the ConocoPhillips Tankers, and our acquisition of
Teekay
Nakilat; and
·
an
increase of $0.6 million relating to (a) our adoption of the fair
value
recognition provisions of the Financial Accounting Standards Board
Statement No. 123(R),
Share-Based
Payment
,
using the “modified prospective” method and (b) vesting of units issued to
non-employee directors;
partially
offset by
·
a
relative decrease of $0.7 million for 2006 relating to legal costs
associated with repayment of term loans and settlement of interest
rate
swaps made in connection with our initial public offering in
2005.
Interest
Expense
.
Interest expense increased 18.0% to $86.5 million for 2006, from $73.3 million
for 2005. This increase was primarily the result of:
·
an
increase of $24.7 million from interest-bearing debt of Teekay Nakilat,
which interest was capitalized prior to the January 2006 sale and
leaseback transaction relating to the three RasGas II
vessels;
·
an
increase of $4.3 million relating to an increase in debt used to
finance
the
Toledo
Spirit
and the acquisition of the ConocoPhillips Tankers;
and
·
an
increase of $2.3 million from rising interest rates on our five Suezmax
tanker lease obligations (however, under the terms of our time charter
contracts for these vessels, we have corresponding increases in our
charter payments, which are reflected as an increase to voyage revenues);
partially
offset by
·
a
decrease of $7.3 million resulting from Teekay Shipping Corporation’s
contribution to us of interest-bearing loans in connection with our
initial public offering in May 2005;
·
a
decrease of $8.3 million resulting from the repayment of $337.3 million
of
term loans and the settlement of related interest rate swaps prior
to our
initial public offering in May 2005;
and
·
a
decrease of $2.8 million, resulting from scheduled debt repayments
and
capital lease payments during 2005 on two of our LNG vessels from
restricted cash deposits (these LNG vessels were financed pursuant
to
Spanish tax lease arrangements, under which we borrowed under term
loans
and deposited the proceeds into restricted cash accounts and entered
into
capital leases for the vessels; as a result, this decrease in interest
expense from the capital lease is offset by a corresponding decrease
in
the interest income from restricted
cash).
Interest
Income
.
Interest income increased 61.2% to $37.4 million for 2006, from $23.2 million
for 2005. Interest income primarily reflects interest earned on restricted
cash
deposits that approximate the present value of the remaining amounts we owe
under lease arrangements on four of our LNG carriers. This increase was
primarily the result of:
·
an
increase of $19.8 million, relating to additional restricted cash
deposits
which were primarily funded with the proceeds from the sale and leaseback
of the three RasGas II vessels;
41
partially
offset by
·
a
decrease of $3.7 million resulting from scheduled capital lease repayments
on two of our LNG carriers which were funded from restricted cash
deposits
and
·
a
relative decrease of $1.8 million for 2006, primarily from temporary
investments held during 2005 and interest earned on overnight deposits
in
our bank accounts.
Foreign
Currency Exchange Gains
.
Foreign
currency exchange losses were $39.5 million for 2006, compared to foreign
currency exchange gains of $81.8 million for 2005. These foreign currency
exchange gains and losses, substantially all of which were unrealized, are
due
substantially to the relevant period-end revaluation of Euro-denominated term
loans for financial reporting purposes. The gains reflect a stronger U.S. Dollar
against the Euro on the date of revaluation. The losses reflect a weaker U.S.
Dollar against the Euro on the date of revaluation.
Other
Income (Loss)
.
Other
income (loss) increased from a $15.0 million loss in 2005 to $2.2 million of
income in 2006. This increase was primarily the result of:
·
a
$7.8 million loss in 2005 that resulted from the settlement of interest
rate swaps in April 2005 that were being used to hedge the interest
rate
risk on two of our term loans that were repaid at that time;
·
a
$7.5 million loss in 2005 from the write-off of capitalized loan
costs
relating to the two term loans we repaid in April 2005;
and
·
a
$1.7 million minority interest recovery in 2006, which was the result
of
the delivery of the
Al
Marrouna
,
a
vessel in which we have a 70% interest.
Net
Income (Loss)
.
As a
result of the foregoing factors, net loss was $9.6 million for 2006, compared
to
net income of $79.5 million for 2005.
Year
Ended December 31, 2005 versus Year Ended December 31,
2004
LNG
Carrier Segment
We
operated four LNG carriers during 2005 and two LNG carriers during most of
2004.
These additional LNG carriers were delivered in July 2004 and December 2004
(collectively, the
LNG
Deliveries
).
Accordingly, our total revenue days increased by 60.2%, from 902 days in 2004
to
1,445 days in 2005.
Net
Voyage Revenues
.
Net
voyage revenues increased 65.1% to $97.6 million for 2005, from $59.1 million
for 2004. This increase was the result of:
·
an
increase of $38.6 million relating to the LNG Deliveries;
and
·
an
increase of $0.7 million due to the effect on our Euro-denominated
revenue
from the strengthening of the Euro against the U.S. Dollar during
2005;
partially
offset by
·
a
decrease of $0.8 million from 15.2 days of off-hire for one of our
LNG
carriers during February 2005.
Vessel
Operating Expenses
.
Vessel
operating expenses increased 47.2% to $15.6 million for 2005, from $10.6 million
for 2004. This increase was the result of:
·
an
increase of $4.7 million relating to the LNG Deliveries;
·
an
increase of $0.8 million relating to repair and maintenance work
(net of
insurance proceeds) completed on one of our LNG carriers in early
2005;
and
·
an
increase of $0.3 million due to the effect on our Euro-denominated
vessel
operating expenses from the strengthening of the Euro against the
U.S.
Dollar during 2005 (a majority of our vessel operating expenses are
denominated in Euros, which is primarily a function of the nationality
of
our crew);
partially
offset by
·
a
decrease of $0.8 million relating to lower insurance, service and
other
operating costs in 2005, primarily as a result of Teekay Shipping
Corporation’s volume purchasing cost savings from which we
benefit.
Depreciation
and Amortization
.
Depreciation and amortization increased 97.4% to $30.4 million for 2005, from
$15.4 million for 2004. This increase was the result of:
·
an
increase of $12.7 million relating to the LNG
Deliveries;
·
an
increase of $1.4 million from the amortization, as an intangible
asset, of
the value of the Teekay Spain time charters acquired on April 30,
2004;
and
·
an
increase of $0.9 million resulting from an increase in the book values
of
the Teekay Spain vessels acquired on April 30, 2004 to their respective
fair values.
42
Suezmax
Tanker Segment
During
most of 2004, we had six Suezmax tankers, while during most of 2005, we had
five
Suezmax tankers. In addition to the previously mentioned fleet changes during
2005, the results of our Suezmax tanker segment reflect the following fleet
changes during 2004:
·
the
sale of two Suezmax tankers (the
Sevilla
Spirit
and the
Leon
Spirit
)
in the fourth quarter of 2004 (collectively, the
Suezmax
Dispositions)
;
and
·
the
delivery of two Suezmax tanker newbuildings
(
the
Teide
Spirit
and
the
Toledo Spirit)
in
November 2004 and July 2005, respectively (collectively, the
Suezmax
Deliveries
).
As
a
result, our total revenue days decreased by 16.1% from 2,042 days in 2004 to
1,714 days in 2005.
Net
Voyage Revenues
.
Net
voyage revenues decreased 21.1% to $47.2 million for 2005, from $59.8 million
for 2004. This decrease was the result of:
·
a
decrease of $16.6 million relating to the Suezmax Dispositions;
and
·
a
decrease of $15.5 million relating to the Granada Spirit Transactions,
which include the change in employment of the
Granada
Spirit
from operating on voyage charters in the spot market during 2004
to
operating under a lower fixed-rate time charter during the period
from May
6, 2005 to May 26, 2005, when we disposed of the vessel;
partially
offset by
·
an
increase of $14.3 million relating to the Suezmax Deliveries;
·
an
increase of $2.9 million relating to the acquisition of the ConocoPhillips
Tankers; and
·
an
increase of $2.3 million due to adjustments to the daily charter
rate
based on inflation and increases from rising interest rates in accordance
with the time charter contracts for all Suezmax tankers other than
the
Granada
Spirit
.
However, under the terms of our capital leases for our tankers subject
to
these charter rate fluctuations, we had a corresponding increase
in our
lease payments, which is reflected as an increase to interest expense.
Therefore, these interest rate adjustments, which will continue,
did not
affect our cash flow or net income.
Vessel
Operating Expenses
.
Vessel
operating expenses decreased 34.0% to $13.2 million for 2005, from $20.0 million
for 2004. This decrease was the result of:
·
a
decrease of $9.5 million relating to the Suezmax Dispositions and
the
Granada Spirit Transactions;
·
a
decrease of $0.7 million relating to lower insurance, service and
other
operating costs in 2005, primarily as a result of Teekay Shipping
Corporation’s volume purchasing cost savings, from which we benefit;
and
·
a
decrease of $0.6 million relating to insurance proceeds received
during
the second half of 2005 in respect of repair costs previously
incurred;
partially
offset by
·
an
increase of $3.1 million relating to the Suezmax Deliveries;
·
an
increase of $0.6 million relating to the ConocoPhillips Tankers;
and
·
an
increase of $0.3 million due to the effect on our Euro-denominated
vessel
operating expenses from the strengthening of the Euro against the
U.S.
Dollar during 2005 (a majority of our vessel operating expenses are
denominated in Euros, which is primarily a function of the nationality
of
our crew).
Depreciation
and Amortization
.
Depreciation and amortization decreased 34.4% to $12.8 million for 2005, from
$19.5 million for 2004. This decrease was the result of:
·
a
decrease of $10.9 million relating to the Suezmax Dispositions and
the
Granada Spirit Transactions;
partially
offset by
·
an
increase of $3.1 million relating to the Suezmax Deliveries;
·
an
increase of $0.7 million relating to the ConocoPhillips Tankers;
and
·
an
increase of $0.4 million during 2005 resulting from an increase in
the
book values of the Teekay Spain vessels acquired on April 30, 2004
to
their respective fair values.
43
Other
Operating Results
General
and Administrative Expenses
.
General
and administrative expenses increased 53.8% to $10.0 million for 2005, from
$6.5
million for 2004. This increase was the result of:
·
an
increase of $2.5 million associated with (a) services agreements
we and
certain of our subsidiaries entered into with subsidiaries of Teekay
Shipping Corporation in connection with our initial public offering,
(b)
fees and cost reimbursements of our general partner and (c) additional
expenses as a result of being a publicly-traded limited partnership;
·
an
increase of $0.7 million relating to the legal costs associated with
the
repayment of term loans, settlement of interest rate swaps made in
connection with our initial public offering and restructuring of
loans;
and
·
a
number of smaller factors that increased general and administrative
expenses by $0.3 million.
Interest
Expense
.
Interest expense increased 1.8% to $73.3 million for 2005, from $72.0 million
for 2004. This increase was the result of:
·
an
increase of $11.0 million relating to an increase in debt used
to finance
the LNG Deliveries, Suezmax Deliveries, the acquisition of the
ConocoPhillips Tankers and an increase in interest rates in our
capital
leases for our Suezmax tankers, partially offset by the reduction
in
interest expense from the repayments of debt with the proceeds
of the
Suezmax Dispositions and the Granada Spirit Transactions;
and
·
an
increase of $8.9 million relating to the increase in capital lease
obligations in connection with the delivery of one LNG carrier in
December
2004, partially offset by lower interest expense resulting from scheduled
capital lease repayments on a second LNG carrier which delivered
in August
2003 (these LNG vessels have been financed pursuant to Spanish tax
lease
arrangements, under which we borrowed under term loans and deposited
the
proceeds into restricted cash accounts and entered into capital leases
for
the vessels; as a result, these increases in interest expense are
offset
by a corresponding increase in the interest income from restricted
cash);
partially
offset by
·
a
decrease of $15.9 million resulting from the repayment of $337.3
million
of term loans and the settlement of related interest rate swaps prior
to
our initial public offering; and
·
a
decrease of $2.7 million resulting from Teekay Shipping Corporation’s
contribution to us of the interest-bearing loans in connection with
our
initial public offering.
Interest
Income
.
Interest income increased 4.5% to $23.2 million for 2005, from $22.2 million
for
2004. Interest income primarily reflects interest earned on restricted cash
deposits that approximate the present value of the remaining amounts we owe
under lease arrangements on two of our LNG carriers. This increase was the
result of:
·
an
aggregate increase of $3.0 million primarily from $54.5 million of
additional cash being placed in restricted cash deposits in December
2004;
·
an
increase of $0.6 million primarily from temporary investments held
during
2005; and
·
an
increase of $0.6 million from interest earned on overnight deposits
in our
bank accounts;
partially
offset by
·
a
decrease of $3.2 million resulting from $76.3 million of cash withdrawals
during December 2004 used to make scheduled repayments of capital
lease
obligations.
Foreign
Currency Exchange Gains
.
Foreign
currency exchange gains were $81.8 million for 2005, compared to foreign
currency exchange losses of $60.8 million for 2004. These foreign currency
exchange gains and losses, substantially all of which were unrealized, are
due
substantially to the relevant period-end revaluation of Euro-denominated term
loans for financial reporting purposes. The gains reflect a stronger U.S. Dollar
against the Euro on the date of revaluation. The losses reflect a weaker U.S.
Dollar against the Euro on the date of revaluation.
Other
Loss
.
Other
loss of $15.0 million for 2005 resulted from:
·
a
$7.8 million loss from the settlement of interest rate swaps in April
2005
that were being used to hedge the interest rate risk on two of our
term
loans that were repaid at that time;
·
a
$7.5 million loss from the write-off of capitalized loan costs relating
to
the two term loans we repaid in April 2005;
and
·
$0.2
million of other miscellaneous
expense;
partially
offset by
·
$0.3 million
of income tax recoveries; and
·
a
$0.2 million gain from the sale of the
Granada
Spirit
to
Teekay Shipping Corporation during May
2005.
44
Other
loss of $4.6 million for 2004 resulted from:
·
a
$11.9 million loss on the sale of non-shipping assets by Tapias prior
to
its acquisition on April 30, 2004 by Teekay Shipping Corporation;
and
·
$0.3 million
of income taxes
;
partially
offset by
·
$4.0
million of gains resulting from changes in the fair values of our
interest
rate swaps (these interest rate swaps were not designated as hedges
under
U.S. accounting guidelines until April 30, 2004; consequently, the
changes
in fair values of these swaps that occurred prior to April 30, 2004
were
recorded in earnings);
·
$3.4
million of gains on the sale of vessels and equipment;
and
·
$0.2
million of other miscellaneous income and gains on the sale of marketable
securities.
Net
Income (Loss)
.
As a
result of the foregoing factors, net income was $79.5 million for 2005, compared
to a net loss of $68.2 million for 2004.
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