6-K 1 too6-kq2x18doc.htm 6-K Document


 
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 of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2018
Commission file number 1- 33198
 
_________________________
TEEKAY OFFSHORE PARTNERS L.P.
(Exact name of Registrant as specified in its charter)
_________________________
4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08, Bermuda
(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









 




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018
INDEX

PAGE
 





ITEM 1 - FINANCIAL STATEMENTS
TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(in thousands of U.S. Dollars, except unit and per unit data)

Three Months Ended
June 30,
 
Six Months Ended
June 30,

2018
 
2017
 
2018
 
2017

$
 
$
 
$
 
$
Revenues (notes 2, 5 and 7)
320,354

 
264,792

 
643,553

 
540,930

Voyage expenses (note 2)
(36,486
)
 
(20,196
)
 
(71,492
)
 
(45,337
)
Vessel operating expenses (notes 2 and 7)
(110,298
)
 
(89,705
)
 
(225,680
)
 
(168,695
)
Time-charter hire expenses
(13,464
)
 
(19,507
)
 
(26,191
)
 
(41,263
)
Depreciation and amortization (notes 1 and 2)
(95,440
)
 
(74,287
)
 
(189,744
)
 
(149,013
)
General and administrative (notes 7 and 12)
(17,890
)
 
(13,379
)
 
(35,676
)
 
(27,996
)
(Write-down) and gain on sale of vessels (note 14)
(178,795
)
 
(1,500
)
 
(207,291
)
 
(1,500
)
Restructuring charge

 

 

 
(450
)
(Loss) income from vessel operations
(132,019
)
 
46,218

 
(112,521
)
 
106,676




 


 


 


Interest expense (notes 6, 7 and 8)
(49,662
)
 
(36,602
)
 
(91,235
)
 
(72,706
)
Interest income
734

 
406

 
1,392

 
752

Realized and unrealized gain (loss) on derivative instruments (note 8)
9,441

 
(21,797
)
 
43,892

 
(28,329
)
Equity income (note 2)
8,346

 
3,425

 
22,344

 
7,900

Foreign currency exchange loss (note 8)
(3,860
)
 
(6,564
)
 
(5,803
)
 
(6,787
)
Other expense - net
(592
)
 
(1,134
)
 
(3,863
)
 
(912
)
(Loss) income before income tax expense
(167,612
)
 
(16,048
)
 
(145,794
)
 
6,594

Income tax expense (notes 2 and 9)
(880
)
 
(418
)
 
(6,638
)
 
(1,797
)
Net (loss) income
(168,492
)
 
(16,466
)
 
(152,432
)
 
4,797




 


 


 


Non-controlling interests in net (loss) income
8

 
3,539

 
(7,852
)
 
5,911

Preferred unitholders' interest in net (loss) income (note 11)
8,038

 
12,386

 
15,409

 
24,772

General Partner’s interest in net (loss) income
(1,342
)
 
(648
)
 
(1,217
)
 
(518
)
Limited partners' interest in net (loss) income
(175,196
)
 
(31,743
)
 
(158,772
)
 
(25,368
)
Limited partners' interest in net (loss) income for basic (loss) income per common unit (note 11)
(175,196
)
 
(32,552
)
 
(158,772
)
 
(26,977
)
Limited partner's interest in net (loss) income per common unit


 


 


 


- basic (note 11)
(0.43
)
 
(0.22
)
 
(0.39
)
 
(0.18
)
- diluted (note 11)
(0.43
)
 
(0.22
)
 
(0.39
)
 
(0.18
)
Weighted-average number of common units outstanding:


 


 


 


- basic
410,310,586

 
151,364,950

 
410,206,610

 
150,006,972

- diluted
410,310,586

 
151,364,950

 
410,206,610

 
150,006,972

Cash distributions declared per unit
0.0100

 
0.0100

 
0.0200

 
0.1200

Related party transactions (note 7)
The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 1 of 48



TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands of U.S. Dollars)


Three Months Ended
June 30,
 
Six Months Ended
June 30,

2018
 
2017
 
2018
 
2017

$
 
$
 
$
 
$
Net (loss) income
(168,492
)
 
(16,466
)
 
(152,432
)
 
4,797

Other comprehensive income (loss)


 


 


 


Other comprehensive income (loss) before reclassifications
 
 
 
 
 
 
 
Unrealized gain (loss) on qualifying cash flow hedging instruments (note 8)
2,975

 
(3,035
)
 
6,017

 
(2,878
)
Amounts reclassified from accumulated other comprehensive income (loss)
 
 
 
 
 
 
 
To interest expense:
 
 
 
 
 
 
 
Realized (gain) loss on qualifying cash flow hedging instruments (note 8)
(48
)
 
706

 
52

 
762

To equity income:
 
 
 
 
 
 
 
Realized loss on qualifying cash flow hedging instruments
298

 

 
667

 

Other comprehensive income (loss)
3,225

 
(2,329
)
 
6,736

 
(2,116
)
Comprehensive (loss) income
(165,267
)
 
(18,795
)
 
(145,696
)
 
2,681

Non-controlling interests in comprehensive (loss) income
8

 
3,539

 
(7,852
)
 
5,911

Preferred unitholders' interest in comprehensive (loss) income
8,038

 
12,386

 
15,409

 
24,772

General and limited partners' interest in comprehensive (loss) income
(173,313
)
 
(34,720
)
 
(153,253
)
 
(28,002
)
The accompanying notes are an integral part of the unaudited consolidated financial statements.


Page 2 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. Dollars)
 
As at
June 30,
 
As at
December 31,
 
2018
 
2017
 
$
 
$
ASSETS
 
 
 
Current
 
 
 
Cash and cash equivalents
241,202

 
221,934

Restricted cash (notes 8 and 15)
12,425

 
28,360

Accounts receivable, including non-trade of $8,408 (December 31, 2017 - $32,387) (note 2)
134,931

 
162,691

Vessels held for sale (note 14)
8,000

 

Prepaid expenses
37,011

 
30,336

Due from affiliates (note 7c)
51,249

 
37,376

Other current assets (notes 2, 3b, 5 and 8)
10,644

 
29,249

Total current assets
495,462

 
509,946

Vessels and equipment
 
 
 
At cost, less accumulated depreciation of $1,546,249 (December 31, 2017 - $1,562,172)
4,388,304

 
4,398,836

Advances on newbuilding contracts and conversion costs (note 10g)
17,742

 
288,658

Investment in equity accounted joint ventures (notes 2 and 13)
195,082

 
169,875

Deferred tax asset (note 2)
22,674

 
28,110

Other assets (notes 2, 3b, 5 and 8)
177,254

 
113,225

Goodwill
129,145

 
129,145

Total assets
5,425,663

 
5,637,795

LIABILITIES AND EQUITY
 
 
 
Current
 
 
 
Accounts payable
12,020

 
43,317

Accrued liabilities (notes 8, 10 and 12)
142,147

 
187,687

Deferred revenues
55,786

 
69,668

Due to affiliates (note 7c)
57,331

 
108,483

Current portion of derivative instruments (note 8)
62,273

 
42,515

Current portion of long-term debt (note 6)
473,691

 
589,767

Other current liabilities (note 5)
10,437

 
9,056

Total current liabilities
813,685

 
1,050,493

Long-term debt (note 6)
2,492,517

 
2,533,961

Derivative instruments (note 8)
83,211

 
167,469

Due to affiliates (notes 7b, 7c, 7e and 7g)
290,959

 
163,037

Other long-term liabilities (notes 5 and 10)
281,798

 
249,336

Total liabilities
3,962,170

 
4,164,296

Commitments and contingencies (notes 6, 8 and 10)

 

Redeemable non-controlling interest

 
(29
)
Equity
 
 
 
Limited partners - common units (410.3 million and 410.0 million units issued and outstanding at June 30, 2018 and December 31, 2017, respectively) (notes 2, 11 and 12)
879,437

 
1,004,077

Limited partners - preferred units (15.8 million and 11.0 million units issued and outstanding at June 30, 2018 and December 31, 2017, respectively) (note 11)
384,274

 
266,925

General Partner
15,032

 
15,996

Warrants (note 11)
132,225

 
132,225

Accumulated other comprehensive income (loss)
6,213

 
(523
)
Non-controlling interests
46,312

 
54,828

Total equity
1,463,493

 
1,473,528

Total liabilities and total equity
5,425,663

 
5,637,795

Subsequent events (note 16)
The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 3 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. Dollars)
 
 
Six Months Ended June 30,
 
2018
 
2017
 
$
 
$
Cash, cash equivalents, and restricted cash provided by (used for)

 

OPERATING ACTIVITIES

 

Net (loss) income
(152,432
)
 
4,797

Non-cash items:

 

Unrealized gain on derivative instruments (note 8)
(67,795
)
 
(5,526
)
Equity income, net of dividends received of $4,700 (2017 - $7,000)
(17,644
)
 
(900
)
Depreciation and amortization
189,744

 
149,013

Write-down and (gain) on sale of vessels (note 14)
207,291

 
1,500

Deferred income tax expense (note 9)
5,435

 
762

Amortization of in-process revenue contracts
(6,101
)
 
(6,319
)
Unrealized foreign currency exchange (gain) loss and other
(992
)
 
35,143

Change in non-cash working capital items related to operating activities
(70,456
)
 
14,909

Expenditures for dry docking
(9,995
)
 
(2,815
)
Net operating cash flow
77,055

 
190,564

FINANCING ACTIVITIES

 

Proceeds from long-term debt (note 6)
226,520

 
207,464

Scheduled repayments of long-term debt (note 6)
(345,970
)
 
(263,169
)
Prepayments of long-term debt (note 6)
(40,000
)
 

Debt issuance costs
(8,346
)
 
(2,214
)
Proceeds from issuance of preferred units (note 11)
120,000

 

Proceeds from issuance of common units

 
585

Expenses relating to equity offerings
(3,997
)
 
(212
)
Proceeds from credit facility due to affiliates (note 7g)
125,000

 

Cash distributions paid by the Partnership
(22,330
)
 
(34,412
)
Cash distributions paid by subsidiaries to non-controlling interests
(664
)
 
(660
)
Other
(715
)
 
(483
)
Net financing cash flow
49,498

 
(93,101
)
INVESTING ACTIVITIES


 


Net payments for vessels and equipment, including advances on newbuilding contracts and conversion costs
(160,175
)
 
(118,601
)
Proceeds from sale of vessels and equipment (note 14)
10,410

 

Investment in equity accounted joint ventures
(1,700
)
 
(12,339
)
Direct financing lease payments received
2,991

 
3,177

Acquisition of companies from Teekay Corporation (net of cash acquired of $26.6 million) (note 7f)
25,254

 

Net investing cash flow
(123,220
)
 
(127,763
)
Increase (decrease) in cash, cash equivalents and restricted cash
3,333

 
(30,300
)
Cash, cash equivalents and restricted cash, beginning of the period
250,294

 
342,287

Cash, cash equivalents and restricted cash, end of the period
253,627

 
311,987

Supplemental cash flow disclosure (note 15)
The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 4 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. Dollars and units)

 
PARTNERS’ EQUITY
 
 
 
 
 
 
 
Limited Partners
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common
Units
#
 
Common
Units and
Additional
Paid-in Capital
$
 
Preferred
Units
#
 
Preferred
Units
$
 

Warrants
$
 
General
Partner
$
 
Accumulated Other Comprehensive (Loss) Income
$
 
Non-
controlling
Interests
$
 
Total
Equity
$
 
Redeemable
Non-
controlling
Interest
$
Balance as at December 31, 2017
410,045

 
1,004,077

 
11,000

 
266,925

 
132,225

 
15,996

 
(523
)
 
54,828

 
1,473,528

 
(29
)
Net (loss) income

 
(158,772
)
 

 
15,409

 

 
(1,217
)
 

 
(7,852
)
 
(152,432
)
 

Other comprehensive income (note 8)

 

 

 

 

 

 
6,736

 

 
6,736

 

Cash distributions

 
(8,204
)
 

 
(14,063
)
 

 
(63
)
 

 
(664
)
 
(22,994
)
 

Proceeds from equity offerings, net of offering costs (note 11)

 

 
4,800

 
116,003

 

 

 

 

 
116,003

 

Change in accounting policy (note 2)

 
41,381

 

 

 

 
316

 

 

 
41,697

 

Equity based compensation and other (note 12)
270

 
955

 

 

 

 

 

 

 
955

 
29

Balance as at June 30, 2018
410,315

 
879,437

 
15,800

 
384,274

 
132,225

 
15,032

 
6,213

 
46,312

 
1,463,493

 

The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 5 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit 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). These financial statements include the accounts of Teekay Offshore Partners L.P., which is a limited partnership organized under the laws of the Republic of the Marshall Islands, and its wholly-owned or controlled subsidiaries (collectively, the Partnership). Unless the context otherwise requires, the terms "we," "us," or "our," as used herein, refer to the Partnership.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with the Partnership’s audited consolidated financial statements for the year ended December 31, 2017, which are included in the Partnership’s Annual Report on Form 20-F, filed with the U.S. Securities and Exchange Commission (or SEC) on March 21, 2018. In the opinion of management of the Partnership’s general partner, Teekay Offshore GP L.L.C. (or the general partner), these interim unaudited consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly, in all material respects, the Partnership’s consolidated financial position, results of operations, changes in total equity and cash flows for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of those for a full fiscal year. Historically, the utilization of shuttle tankers in the North Sea is higher in the winter months as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to the Partnership’s vessels and the offshore oil platforms. Downtime for repairs and maintenance generally reduces oil production and, thus, transportation requirements. Intercompany balances and transactions have been eliminated upon consolidation.

The Partnership's shuttle tankers are comprised of two components: i) a conventional tanker (or the tanker component) and ii) specialized shuttle equipment (or the shuttle component). The Partnership differentiates these two components on the principle that a shuttle tanker can also operate as a conventional tanker without the use of the shuttle component. The economics of this alternate use depend on the supply and demand fundamentals in the two segments. Historically, the Partnership has assessed the useful life of the tanker component as being 25 years and the shuttle component as being 20 years. During the six months ended June 30, 2018, the Partnership has considered challenges associated with shuttle tankers approaching 20 years of age in recent years and has reassessed the useful life of the tanker component to 20 years. This change in estimate, commencing January 1, 2018, affects 21 vessels in the Partnership's shuttle tanker fleet. The effect of this change in estimate was an increase in depreciation and amortization expense and net loss of $4.3 million and $8.5 million, or $0.01 and $0.02 per basic and diluted common unit, respectively, for the three and six months ended June 30, 2018.
2.
Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (or FASB) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (or ASU 2014-09). ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue as each performance obligation is satisfied. ASU 2014-09 became effective for the Partnership January 1, 2018, and has been applied, at the Partnership’s option, retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Partnership has adopted ASU 2014-09 as a cumulative-effect adjustment as of this date. The Partnership has elected to apply ASU 2014-09 only to those contracts that are not completed as of January 1, 2018. The Partnership identified the following differences:
Voyage revenues from towage vessels will be recognized over the period where the tow is being performed instead of the period of the tow and the mobilization and demobilization of the towage vessel. The cumulative-effect adjustment on January 1, 2018 and the impact for the three and six months ended June 30, 2018 was insignificant.
Revenue from time-charter contracts with fixed annual increases in the daily hire rate during the firm period of the charter to compensate for expected inflationary cost increases will be recognized on a smoothed basis over the term of the time-charter, instead of recognized when due under the contract. For time-charters with a termination fee owing if the contract is not extended past the contract term, the non-lease portion of such termination fee will be recognized over the contract term, instead of recognized when the termination fee is incurred. These changes had the impact of increasing revenue by $0.7 million and $1.5 million, respectively, for the three and six months ended June 30, 2018, as well as increasing other assets by $10.0 million, decreasing deferred tax assets by $0.8 million and increasing equity by $9.1 million as at June 30, 2018. The cumulative-effect adjustment on January 1, 2018 was an increase to equity of $7.7 million.
In certain cases, the Partnership will incur pre-operational costs that relate directly to a specific customer contract, that generate or enhance resources of the Partnership that will be used in satisfying performance obligations in the future, whereby such costs are expected to be recovered via the customer contract. Such costs will be deferred and amortized over the duration of the customer contract. The Partnership previously expensed such costs as incurred unless the costs were directly reimbursable by the contract or if they were related to the mobilization of offshore assets to an oil field. This change had the impact of decreasing (increasing) voyage expenses by $0.6 million and $1.8 million, vessel operating expenses by $(1.0) million and $(0.3) million, depreciation and amortization by $0.4 million and $1.1 million and equity income by $0.4 million and $0.4 million, respectively, for the three and six months ended June 30, 2018, as

Page 6 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



well as increasing other assets by $30.1 million, investments in equity accounted joint ventures by $1.4 million, and equity by $31.5 million as at June 30, 2018. The cumulative increase to opening equity as at January 1, 2018 was $29.4 million.
The Partnership manages floating production storage and offloading (or FPSO) units owned by Teekay Corporation and other vessels. Upon the adoption of ASU 2014-09, costs incurred by the Partnership for its onshore staff and seafarers will be presented as vessel operating expenses and the reimbursement of such expenses will be presented as revenue, instead of such amounts being presented on a net basis. This had the impact of increasing revenues and vessel operating expenses by $11.6 million and $23.0 million, respectively, for the three and six months ended June 30, 2018. There was no cumulative impact to opening equity as at January 1, 2018.
Operating costs for the Partnership's Volatile Organic Compounds (or VOC) plants on certain shuttle tankers will be presented as vessel operating expenses and the reimbursement of such expenses will be presented as revenue instead of such amounts being presented on a net basis. This had the impact of increasing revenues and vessel operating expenses by $1.2 million and $2.6 million, respectively, for the three and six months ended June 30, 2018. There was no cumulative impact to opening equity as at January 1, 2018.
The Partnership previously presented the net allocation for its vessels participating in revenue sharing arrangements as revenues. The Partnership has determined that it is the principal in voyages its vessels perform that are included in the revenue sharing arrangements. As such, the revenue from those voyages will be presented in voyage revenues and the difference between this amount and the Partnership's net allocation from the revenue sharing arrangement will be presented as voyage expenses. This had the impact of increasing revenues and voyage expenses by $3.0 million and $6.3 million, respectively, for the three and six months ended June 30, 2018. There was no cumulative impact to opening equity as at January 1, 2018.
The Partnership previously presented all accrued revenue as a component of accounts receivable. The Partnership has determined that if the right to such consideration is conditional upon something other than the passage of time before payment of that consideration is due, such accrued revenue should be presented apart from accounts receivable. This had the impact of increasing other current assets and decreasing accounts receivable by $2.3 million at June 30, 2018. There was no cumulative impact to opening equity as at January 1, 2018.
Deferred costs have presented solely as a long-term asset if the remaining charter contract is more than one year or presented solely as a short-term asset if the charter contract is less than one year. This had the impact of decreasing other current assets and increasing long term assets by $14.5 million as of June 30, 2018. There was no cumulative impact to opening equity as at January 1, 2018.
In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (or ASU 2016-15), which, among other things, provides guidance on two acceptable approaches of classifying distributions received from equity method investees in the statements of cash flows. ASU 2016-15 became effective for the Partnership January 1, 2018, with a retrospective approach. The Partnership has elected to classify distributions received from equity method investees in the statement of cash flows based on the nature of the distribution. The adoption of this update did not have a material impact on the Partnership.
In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows: Restricted Cash (or ASU 2016-18). ASU 2016-18 requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities are also required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. ASU 2016-18 became effective for the Partnership January 1, 2018. Adoption of ASU 2016-18 resulted in the Partnership including in its statement of cash flows changes in cash, cash equivalents and restricted cash.
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (or ASU 2016-02). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right of use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For lessees, leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 requires lessors to classify leases as a sales-type, direct financing, or operating lease. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type leases or direct financing leases are operating leases. ASU 2016-02 is effective January 1, 2019, with early adoption permitted. FASB issued an additional accounting standards update in July 2018 that made further amendments to accounting for leases, including allowing the use of a transition approach whereby a cumulative effect adjustment is made as of the effective date, with no retrospective effect. The Partnership has elected to use this new optional transition approach. The Partnership is currently assessing whether it will adopt ASU 2016-02 during 2018 or on January 1, 2019. To determine the cumulative effect adjustment, the Partnership will not reassess whether any expired or existing contracts are, or contain leases, will not reassess lease classification, and will not reassess initial direct costs for any existing leases. The adoption of ASU 2016-02 will result in a change in the accounting method for the lease portion of the daily charter hire for the Partnership's chartered-in vessels accounted for as operating leases with firm periods of greater than one year. Under ASU 2016-02, the Partnership will recognize a right-of-use asset and a lease liability on the balance sheet for these charters based on the present value of future minimum lease payments, whereas currently no right-of-use asset or lease liability is recognized. This will have the result of increasing the Partnership’s assets and liabilities. The pattern of expense recognition of chartered-in vessels is expected to remain substantially unchanged, unless the right of use asset becomes impaired. In addition, direct financing lease payments received will be presented as an operating cash inflow instead of an investing cash inflow in the statement of cash flows. The cumulative effect adjustment to the Partnership's consolidated financial statements from the adoption of ASU 2016-02 will vary depending on the period in which the Partnership chooses to adopt ASU 2016-02. The Partnership is expecting to disclose in its consolidated financial statements for the third quarter of 2018 the quantitative impact of adopting ASU 2016-02, once the Partnership has determined the date on which it will adopt the new standard.

Page 7 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



In June 2016, the 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 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update is effective for the Partnership January 1, 2020, with a modified-retrospective approach. The Partnership is currently evaluating the effect of adopting this new guidance.
In August 2017, the FASB issued Accounting Standards Update 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities (or ASU 2017-12). ASU 2017-12 eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also modifies the accounting for components excluded from the assessment of hedge effectiveness, eases documentation and assessment requirements and modifies certain disclosure requirements. ASU 2017-12 will be effective for the Partnership January 1, 2019. The Partnership is currently evaluating the effect of adopting this new guidance.
3.
Financial Instruments

a)
Fair Value Measurements

For a description of how the Partnership estimates fair value and for a description of the fair value hierarchy levels, see Item 18 - Financial Statements: Note 4 in the Partnership’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2017. The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring and non-recurring basis, as well as the estimated fair value of the Partnership’s financial instruments that are not accounted for at fair value on a recurring basis.
 
 
 
June 30, 2018
 
December 31, 2017
 
Fair Value
Hierarchy
Level
 
Carrying
Amount
Asset
 (Liability)
$
 
Fair Value
Asset 
(Liability)
$
 
Carrying
Amount
Asset 
(Liability)
$
 
Fair Value
Asset 
(Liability)
$
Recurring:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents and restricted cash
Level 1
 
253,627

 
253,627

 
250,294

 
250,294

Derivative instruments (note 8)

 
 
 
 
 
 
 
 
Interest rate swap agreements
Level 2
 
(96,121
)
 
(96,121
)
 
(168,247
)
 
(168,247
)
Cross currency swap agreements
Level 2
 
(42,118
)
 
(42,118
)
 
(44,006
)
 
(44,006
)
Foreign currency forward contracts
Level 2
 
(2,362
)
 
(2,362
)
 
(357
)
 
(357
)


 
 
 
 
 
 
 
 
Non-Recurring:

 
 
 
 
 
 
 
 
Vessels held for sale (note 14)
Level 2
 
8,000

 
8,000

 

 

Vessel and equipment (note 14)
Level 2
 
8,000

 
8,000

 

 

Vessels and equipment (note 14)
Level 3
 
83,991

 
83,991

 

 



 
 
 
 
 
 
 
 
Other:

 
 
 
 
 
 
 
 
Long-term debt - public (note 6)
Level 1
 
(668,182
)
 
(677,861
)
 
(666,427
)
 
(671,635
)
Long-term debt - non-public (note 6)
Level 2
 
(2,298,026
)
 
(2,311,182
)
 
(2,457,301
)
 
(2,475,946
)
Due to affiliates - long term (notes 7b, 7c, 7e and 7g)
Level 2
 
(290,959
)
 
(329,981
)
 
(163,037
)
 
(210,089
)

Vessels and equipment – In June 2018, as a result of a reassessment of the future redeployment assumptions for the Cidade de Rio das Ostras and Piranema Spirit FPSO units, the Partnership determined that the units were impaired and wrote down the carrying value of the units to their estimated fair value based on a discounted cash flow approach.

The Partnership determined the discounted cash flows for the Cidade de Rio das Ostras FPSO using the current contracts time charter rates and operating costs, estimated residual value and estimated sales price, discounted at an estimated market participant rate of 10%. In establishing these estimates, the Partnership has considered the specific attributes of this FPSO, current discussions with potential customers and historical experience redeploying FPSOs.


Page 8 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



The Partnership determined the discounted cash flows for the Piranema Spirit FPSO using the current contracts time-charter rates and operating costs, projected future use on the existing field, projected future use on other fields, and an estimated residual value, discounted at an estimated market participant rate of 10%. The projected future uses take into consideration the Partnership’s projected time-charter rates that could be contracted in future periods. In establishing these estimates, the Partnership has considered current discussions with existing and potential customers, available field expansions and historical experience redeploying FPSOs.




b)
Financing Receivables
The following table contains a summary of the Partnership’s financing receivables by type of borrower and the method by which the Partnership monitors the credit quality of its financing receivables on a quarterly basis:
 
Credit Quality
Indicator
 
Grade
 
June 30,
2018
 
December 31,
2017
 
 
 
$
 
$
Direct financing leases
Payment activity
 
Performing
 
14,216

 
17,207

4.
Segment Reporting

The following tables include results for the Partnership’s FPSO unit segment; shuttle tanker segment; floating storage and off-take (or FSO) unit segment; Units for Maintenance and Safety (or UMS) segment; towage segment; and conventional tanker segment for the periods presented in these consolidated financial statements.
Three Months Ended June 30, 2018
FPSO Segment

Shuttle Tanker Segment

FSO
Segment

UMS Segment

Towage
Segment

Conventional Tanker Segment

Eliminations

Total
Revenues
124,053

 
142,047

 
33,840

 

 
15,510

 
4,904

 

 
320,354

Voyage expenses

 
(26,951
)
 
(202
)
 
(4
)
 
(6,290
)
 
(3,039
)
 

 
(36,486
)
Vessel operating expenses
(55,040
)
 
(37,982
)
 
(10,360
)
 
(893
)
 
(6,023
)
 

 

 
(110,298
)
Time-charter hire expenses

 
(9,277
)
 

 

 

 
(4,187
)
 

 
(13,464
)
Depreciation and amortization
(37,179
)
 
(39,840
)
 
(11,643
)
 
(1,653
)
 
(5,125
)
 

 

 
(95,440
)
General and administrative(1)
(8,140
)
 
(6,849
)
 
(351
)
 
(1,311
)
 
(1,149
)
 
(90
)
 

 
(17,890
)
(Write-down) and gain on sale of vessels
(180,200
)
 
1,405

 

 

 

 

 

 
(178,795
)
(Loss) income from vessel operations
(156,506
)
 
22,553

 
11,284

 
(3,861
)
 
(3,077
)
 
(2,412
)
 

 
(132,019
)
Three Months Ended June 30, 2017
FPSO Segment
 
Shuttle Tanker Segment
 
FSO
Segment
 
UMS Segment
 
Towage
Segment
 
Conventional Tanker Segment
 
Eliminations
 
Total
Revenues
110,247

 
132,964

 
10,798

 
3,089

 
4,229

 
3,465

 

 
264,792

Voyage expenses

 
(17,319
)
 
(430
)
 

 
(2,409
)
 
(38
)
 

 
(20,196
)
Vessel operating expenses
(35,079
)
 
(28,410
)
 
(4,693
)
 
(17,333
)
 
(4,190
)
 

 

 
(89,705
)
Time-charter hire expenses

 
(15,387
)
 

 

 

 
(4,120
)
 

 
(19,507
)
Depreciation and amortization
(36,497
)
 
(30,049
)
 
(2,588
)
 
(1,634
)
 
(3,519
)
 

 

 
(74,287
)
General and administrative(1)
(7,070
)
 
(3,506
)
 
(409
)
 
(1,172
)
 
(1,132
)
 
(90
)
 

 
(13,379
)
Write-down of vessels

 

 
(1,500
)
 

 

 

 

 
(1,500
)
Income (loss) from vessel operations
31,601

 
38,293

 
1,178

 
(17,050
)
 
(7,021
)
 
(783
)
 

 
46,218


Page 9 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



Six Months Ended June 30, 2018
FPSO Segment

Shuttle Tanker Segment

FSO
Segment

UMS Segment

Towage
Segment

Conventional Tanker Segment

Eliminations(2)

Total
Revenues 
258,291

 
285,903

 
67,237

 

 
23,121

 
9,921

 
(920
)
 
643,553

Voyage expenses

 
(53,838
)
 
(365
)
 
(35
)
 
(11,086
)
 
(6,350
)
 
182

 
(71,492
)
Vessel operating expenses
(110,719
)
 
(78,005
)
 
(21,175
)
 
(2,405
)
 
(13,492
)
 

 
116

 
(225,680
)
Time-charter hire expenses

 
(17,879
)
 

 

 

 
(8,312
)
 

 
(26,191
)
Depreciation and amortization
(72,013
)
 
(81,202
)
 
(23,284
)
 
(3,306
)
 
(10,043
)
 

 
104

 
(189,744
)
General and administrative(1)
(17,331
)
 
(12,755
)
 
(1,095
)
 
(2,429
)
 
(1,886
)
 
(180
)
 

 
(35,676
)
(Write-down) and gain on sale of vessels
(180,200
)
 
(27,091
)
 

 

 

 

 

 
(207,291
)
(Loss) income from vessel operations
(121,972
)
 
15,133

 
21,318

 
(8,175
)
 
(13,386
)
 
(4,921
)
 
(518
)
 
(112,521
)

Six Months Ended June 30, 2017
FPSO Segment

Shuttle Tanker Segment

FSO
Segment

UMS Segment

Towage
Segment

Conventional Tanker Segment

Eliminations

Total
Revenues
223,102


269,197


22,287


3,916


15,127


7,301




540,930

Voyage expenses


(38,597
)

(755
)



(5,919
)

(66
)



(45,337
)
Vessel operating (expenses) recoveries
(70,172
)

(55,839
)

(9,772
)

(23,818
)

(9,104
)

10




(168,695
)
Time-charter hire expenses


(32,085
)





(925
)

(8,253
)



(41,263
)
Depreciation and amortization
(72,999
)

(60,662
)

(5,140
)

(3,267
)

(6,945
)





(149,013
)
General and administrative(1)
(14,900
)

(6,649
)

(910
)

(3,164
)

(2,193
)

(180
)



(27,996
)
Write-down of vessels




(1,500
)









(1,500
)
Restructuring charge
(450
)













(450
)
Income (loss) from vessel operations
64,581


75,365


4,210


(26,333
)

(9,959
)

(1,188
)



106,676


(1)
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).
(2)
Includes revenues and expenses earned and incurred between segments of the Partnership during the six months ended June 30, 2018.
A reconciliation of total segment assets to total assets presented in the accompanying consolidated balance sheets is as follows:
 
June 30, 2018
 
December 31, 2017
 
$
 
$
FPSO segment
2,338,302

 
2,506,660

Shuttle tanker segment
1,718,549

 
1,765,664

FSO segment
485,646

 
516,567

UMS segment
188,175

 
190,440

Towage segment
424,377

 
398,610

Conventional tanker segment
3,804

 
3,360

Unallocated:
 
 
 
Cash and cash equivalents and restricted cash
253,627

 
250,294

Other assets
13,183

 
6,200

Consolidated total assets
5,425,663

 
5,637,795


Page 10 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



5.
Revenues

The Partnership’s primary source of revenues is chartering its vessels and offshore units to its customers. The Partnership utilizes five primary forms of contracts, consisting of FPSO contracts, contracts of affreightment (or CoAs), time-charter contracts, bareboat charter contracts and voyage charter contracts. During the six months ended June 30, 2018, the Partnership also generated revenues from the operation of VOC systems on 13 of the Partnership’s shuttle tankers, and the management of three FPSO units, one FSO unit and two shuttle tankers on behalf of third parties who are the disponent owners or charterers of these assets.
FPSO Contracts

Pursuant to an FPSO contract, the Partnership charters an FPSO unit to a customer for a fixed period of time, generally more than one year. The performance obligations within an FPSO contract, which will include the lease of the FPSO unit to the charterer as well as the operation of the FPSO unit, are satisfied as services are rendered over the duration of such contract, as measured using the time that has elapsed from commencement of performance. Fees relating to the lease and operation of the FPSO (or hire) are typically invoiced monthly in arrears, based on a fixed daily hire amount. In certain FPSO contracts, the Partnership is entitled to a lump sum amount due upon commencement of the contract and may also be entitled to termination fees if the contract is canceled early. While the fixed daily hire amount may be the same over the term of the FPSO contract, in certain cases, the daily hire amount declines over the duration of the FPSO contract. As a result of the Partnership accounting for compensation from such charters on a straight-line basis over the duration of the charter, FPSO contracts where revenues are recognized before the Partnership is entitled to such amounts under the FPSO contracts will result in the Partnership recognizing a contract asset and FPSO contracts where revenues are recognized after the Partnership is entitled to such amounts under the FPSO contracts will result in the Partnership recognizing deferred revenues. Some FPSO contacts include variable consideration components in the form of expense adjustments or reimbursements, incentive compensation and penalties. For example, some FPSO contracts contain provisions that allow the Partnership to be compensated for increases in the Partnership's costs to operate the unit during the term of the contract. Such provisions may be in the form of annual hire rate adjustments for changes in inflation indices or foreign currency rates, or in the form of cost reimbursements for vessel operating expenditures incurred. The Partnership may also earn additional compensation from periodic production tariffs, which are based on the volume of oil produced, the price of oil, as well as other monthly or annual operational performance measures. During periods in which production on the FPSO unit is interrupted, penalties may be imposed. Variable consideration under the Partnership’s contracts is typically recognized as incurred as either such revenues are allocated and accounted for under lease accounting requirements or alternatively such consideration is allocated to the distinct period in which such variable consideration was earned. The Partnership does not engage in any specific tactics to minimize residual value risk. Given the uncertainty involved in oil field production estimates and the resulting impact on oil field life, FPSO contracts typically will include extension options for periods up to 14 years, or options to terminate early.
Contracts of Affreightment

Voyages performed pursuant to a CoA for the Partnership’s shuttle tankers are priced based on the pre-agreed terms in the CoA. The performance obligations within a voyage performed pursuant to a CoA, which will typically include the lease of the vessel to the charterer as well as the operation of the vessel, are satisfied as services are rendered over the duration of the voyage, as measured using the time that has elapsed from commencement of performance. In addition, any expenses that are unique to a particular voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions, are the responsibility of the vessel owner. Consideration for such voyages consists of a fixed daily hire rate for the duration of the voyage, the reimbursement of costs incurred from fuel consumed during the voyage, as well as a fixed lump sum intended to compensate for time necessary for the vessel to return to the field following completion of the voyage. While such consideration is generally fixed, certain sources of variability exist, including variability in the duration of the voyage and the actual quantity of fuel consumed during the voyage. Payment for the voyage is not due until the voyage is completed. The duration of a single voyage will typically be less than two weeks. The Partnership does not engage in any specific tactics to minimize residual value risk due to the short-term nature of the contracts.
Time Charters

Pursuant to a time charter contract, the Partnership charters a vessel or FSO unit to a customer for a fixed period of time, generally one year or more. The performance obligations within a time-charter contract, which will include the lease of the vessel to the charterer as well as the operation of the vessel, are satisfied as services are rendered over the duration of such contract, as measured using the time that has elapsed from commencement of performance. In addition, any expenses that are unique to a particular voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions, are the responsibility of the customer, as long as the vessel is not off-hire. Hire is typically invoiced monthly in advance for time-charter contracts, based on a fixed daily hire amount. In certain long-term time-charters, the fixed daily hire amount will increase on an annual basis by a fixed amount to offset expected increases in operating costs. As a result of the Partnership accounting for compensation from such charters on a straight-line basis over the duration of the charter, such fixed increases in rate will result in revenues being accrued in the first half of the charter and such amount drawn down in the last half of the charter. Some time charters include variable consideration components in the form of expense adjustments or reimbursements, incentive compensation and penalties. For example, certain time charters contain provisions that allow the Partnership to be compensated for increases in the Partnership's costs during the term of the charter. Such provisions may be in the form of annual hire rate adjustments for changes in inflation indices or in the form of cost reimbursements for vessel operating expenditures or drydocking expenditures. During periods in which the vessels go off-hire or minimum speed and performance metrics are not met, penalties may be imposed. Variable consideration under the Partnership’s contracts is typically recognized as incurred as either such revenues are allocated and accounted for under lease accounting requirements or alternatively such consideration is allocated to the distinct period in which such variable consideration was earned. The Partnership does not engage in any specific tactics to minimize residual value risk.

Page 11 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



The time charters for the three shuttle tankers servicing the East Coast Canada project can be canceled upon two years' notice. The time charters for four shuttle tankers in Brazil can be extended by up to ten years, at the election of the charterer. The time charters for the vessels servicing the Equinor ASA (or Equinor) (formerly Statoil ASA) North Sea requirements under the terms of a master agreement are one year in length and may be renewed for subsequent one-year periods. The number of vessels required under the terms of the master agreement may be adjusted annually based on the requirements of the fields serviced. The time charter contracts for three FSO units can be extended for periods between five and 12 years or terminated early.
Bareboat Charters

Pursuant to a bareboat charter contract, the Partnership charters a vessel or FSO unit to a customer for a fixed period of time, generally one year or more, at rates that are generally fixed. However, the customer is responsible for operation and maintenance of the vessel with their own crew as well as any expenses that are unique to a particular voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. If the vessel goes off-hire due to a mechanical issue or any other reason, the monthly hire received by the vessel owner is normally not impacted by such events. The performance obligations within a bareboat charter, which will include the lease of the vessel to the charterer, are satisfied as over the duration of such contract, as measured using the time that has elapsed from commencement of the lease. Hire is typically invoiced monthly in advance for bareboat charters, based on a fixed daily hire amount.
Voyage Charters

Voyage charters are charters for a specific voyage. Voyage charters for the Partnership’s shuttle tankers, conventional tankers and towage vessels are priced on a current or “spot” market rate. The performance obligations within a voyage charter contract, which will typically include the lease of the vessel to the charterer as well as the operation of the vessel, are satisfied as services are rendered over the duration of the voyage, as measured using the time that has elapsed from commencement of performance. In addition, expenses that are unique to a particular voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions, are the responsibility of the vessel owner. The Partnership’s voyage charters for shuttle tankers and conventional tankers will normally contain a lease, whereas for towage vessels such contracts will not normally contain a lease. Such determination involves judgment about the decision-making rights the charterer has within the contract. Consideration for such contracts is generally fixed, however certain sources of variability exist. Delays caused by the charterer result in additional consideration. Payment for the voyage is not due until the voyage is completed. The duration of a single voyage will typically be less than three months. The Partnership does not engage in any specific tactics to minimize residual value risk due to the short-term nature of the contracts.
Management Fees and Other

During the six months ended June 30, 2018, the Partnership also generated revenues from the operation of VOC systems on 13 of the Partnership’s shuttle tankers, and the management of three FPSO units, one FSO unit and two shuttle tankers on behalf of third parties who are the disponent owners or charterers of these assets. Such services include the arrangement of third party goods and services for the asset’s disponent owner or charterer. The performance obligations within these contracts will typically consist of crewing, technical management, insurance and potentially commercial management. The performance obligations are satisfied concurrently and consecutively rendered over the duration of the management contract, as measured using the time that has elapsed from commencement of performance. Consideration for such contracts will generally consist of a fixed monthly management fee, plus the reimbursement of crewing costs for vessels being managed and all operational costs for the VOC systems. Management fees are typically invoiced monthly.
Revenue Table

The following tables contain the Partnership’s revenue for the three and six months ended June 30, 2018 and 2017, by contract type and by segment:
Three Months Ended June 30, 2018
FPSO Segment

Shuttle Tanker Segment

FSO Segment

UMS Segment

Towage Segment

Conventional Tanker Segment

Eliminations

Total
FPSO contracts
110,643













 
110,643

Contracts of affreightment


43,002











 
43,002

Time charters


73,557


28,379









 
101,936

Bareboat charters


13,950


4,715









 
18,665

Voyage charters


7,346






15,510


4,904



 
27,760

Management fees and other
13,410


4,192


746









 
18,348


124,053


142,047


33,840




15,510


4,904



 
320,354


Page 12 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



Three Months Ended June 30, 2017
FPSO Segment

Shuttle Tanker Segment

FSO Segment

UMS Segment

Towage Segment

Conventional Tanker Segment

Eliminations

Total
FPSO contracts
110,247













110,247

Contracts of affreightment


43,602











43,602

Time charters


70,073


6,118


3,089




2,278



81,558

Bareboat charters


16,867


4,680









21,547

Voyage charters


2,422






4,229


1,187



7,838


110,247


132,964


10,798


3,089


4,229


3,465



264,792

Six Months Ended June 30, 2018
FPSO Segment
 
Shuttle Tanker Segment
 
FSO Segment
 
UMS Segment
 
Towage Segment
 
Conventional Tanker Segment
 
Eliminations
 
Total
FPSO contracts
231,417

 

 

 

 

 

 

 
231,417

Contracts of affreightment

 
88,178

 

 

 

 

 

 
88,178

Time charters

 
149,692

 
56,281

 

 

 

 

 
205,973

Bareboat charters

 
26,681

 
9,378

 

 

 

 

 
36,059

Voyage charters

 
13,108

 

 

 
23,121

 
9,921

 
(920
)
 
45,230

Management fees and other
26,874

 
8,244

 
1,578

 

 

 

 

 
36,696

 
258,291

 
285,903

 
67,237

 

 
23,121

 
9,921

 
(920
)
 
643,553

Six Months Ended June 30, 2017
FPSO Segment

Shuttle Tanker Segment

FSO Segment

UMS Segment

Towage Segment

Conventional Tanker Segment

Eliminations

Total
FPSO contracts
223,102














223,102

Contracts of affreightment


91,262












91,262

Time charters


132,839


12,760


3,916




4,528




154,043

Bareboat charters


39,488


9,527










49,015

Voyage charters


5,608






15,127


2,773




23,508


223,102


269,197


22,287


3,916


15,127


7,301




540,930


The following table contains the Partnership’s revenue from contracts that do not contain a lease element and the non-lease element of time-charters accounted for as direct financing leases for the three and six months ended June 30, 2018 and 2017:

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
$
 
$
 
$
 
$
Non-lease revenue - related to sales type or direct financing leases
1,361

 
1,453

 
2,707

 
3,076

Voyage charters - towage
15,510

 
4,229

 
23,121

 
15,127

Management fees and other
18,348

 

 
36,696

 

Total
35,219

 
5,682

 
62,524

 
18,203

Contract Assets and Liabilities

Certain of the customer contracts that the Partnership enters into will result in situations where the customer will pay consideration for performance to be provided in the following month or months. These receipts are a contract liability and will be presented as deferred revenue until performance is provided. In other cases, the Partnership will provide performance in the month or months prior to it being entitled to invoice for such performance. This will result in such receipts being reflected as a contract asset that is presented within other current assets. In addition to these short-term timing differences between the timing of revenue recognition and when the entity’s right to consideration in exchange for goods or services is unconditional, the Partnership has long-term charter arrangements whereby it has received payments that are larger in the early periods of the arrangements and long-term charter arrangements whereby it will receive payments that are larger in

Page 13 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



the latter periods of the arrangements. The following table presents the contract assets and contract liabilities associated with these long-term charter arrangements from contracts with customers on the Partnership’s consolidated balance sheets.
 
June 30, 2018
 
December 31, 2017
 
$
 
$
Contract assets
 
 
 
Current
4,012

 

Non-current
40,474

 
36,084

 
44,486

 
36,084

 
 
 
 
Contract liabilities
 
 
 
Current
45,528

 
46,444

Non-current
156,261

 
176,755

 
201,789

 
223,199


During the three and six months ended June 30, 2018, the Partnership recognized $9.7 million and $19.3 million, respectively, of revenue that was included in the contract liability at the beginning of the period and $5.5 million and $9.7 million, respectively, for the three and six months ended June 30, 2017.
Contract Costs

In certain cases, the Partnership incurs pre-operational costs that relate directly to a specific customer contract, that generate or enhance resources of the Partnership that will be used in satisfying performance obligations in the future, whereby such costs are expected to be recovered via the customer contract. These costs include costs incurred to mobilize an offshore asset to an oil field, pre-operational costs incurred to prepare for commencement of operations of an offshore asset or costs incurred to reposition a vessel to a location where a charterer will take delivery of the vessel. In certain cases, the Partnership will need to make judgments about whether costs relate directly to a specific customer contract and whether costs were factored into the pricing of a customer contract and thus expected to be recovered. Such deferred costs are amortized over the duration of the customer contract. Amortization of such costs for the Partnership for the three and six months ended June 30, 2018 was $5.2 million and $9.2 million, respectively, and $14.0 million and $18.6 million, respectively, for the three and six months ended June 30, 2017.

The balances of assets recognized from the costs to fulfill a contract with a customer classified as other current assets and other assets on the Partnership's balance sheet, by main category, excluding balances in the Partnership’s equity accounted joint ventures, are as follows:
 
June 30, 2018
 
December 31, 2017
 
$
 
$
Pre-operational costs
18,782

 
4,522

Offshore asset mobilization costs
58,887

 
57,818

Vessel repositioning costs
16,218

 

 
93,887

 
62,340



Page 14 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



6.
Long-Term Debt
 
June 30, 2018
 
December 31, 2017
 
$
 
$
U.S. Dollar-denominated Revolving Credit Facilities due through 2022
598,750

 
629,667

Norwegian Kroner Bonds due through 2019
122,739

 
121,889

U.S. Dollar-denominated Term Loans due through 2021
76,821

 
85,574

U.S. Dollar-denominated Term Loans due through 2030
1,508,122

 
1,623,440

U.S. Dollar Non-Public Bonds due through 2024
158,196

 
162,659

U.S. Dollar Bonds due through 2022
550,000

 
550,000

Total principal
3,014,628

 
3,173,229

Less debt issuance costs and other
(48,420
)
 
(49,501
)
Total debt
2,966,208

 
3,123,728

Less current portion
(473,691
)
 
(589,767
)
Long-term portion
2,492,517

 
2,533,961


As at June 30, 2018, the Partnership had two revolving credit facilities (December 31, 2017 - three), which, as at such date, provided for total borrowings of up to $598.8 million (December 31, 2017 - $629.7 million), and were fully drawn (December 31, 2017 - fully drawn). The total amount available under the revolving credit facilities reduces by $75.6 million (remainder of 2018), $148.2 million (2019), $100.0 million (2020), $100.0 million (2021), and $175.0 million (2022). One revolving credit facility is guaranteed by the Partnership for all outstanding amounts and contains covenants that require the Partnership to maintain a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) in an amount equal to the greater of $75.0 million and 5.0% of the Partnership’s total consolidated debt. The other revolving credit facility is guaranteed by subsidiaries of the Partnership, and contains covenants that require Teekay Shuttle Tankers L.L.C. (a wholly-owned subsidiary of the Partnership which was formed during 2017 to hold the Partnership’s shuttle tanker fleet) to maintain a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) in an amount equal to the greater of $35.0 million and 5.0% of Teekay Shuttle Tankers L.L.C.'s total consolidated debt, a minimum ratio of 12 months' historical EBITDA relative to total interest expense and installments of 1.20 times and a net debt to total capitalization ratio no greater than 75.0%. The revolving credit facilities are collateralized by first-priority mortgages granted on 20 of the Partnership’s vessels, together with other related security.
As at June 30, 2018, the Partnership had Norwegian Kroner (or NOK) 1,000 million outstanding in senior unsecured bonds that mature in January 2019 listed on the Oslo Stock Exchange. As at June 30, 2018, the carrying amount of the bonds was $122.7 million. The interest payments on the bonds are based on NIBOR plus a margin of 4.25%. The Partnership has entered into cross currency swaps to swap all interest and principal payments into U.S. Dollars, with the interest payments fixed at a rate of 7.45%, and the transfer of the principal amount fixed at $162.2 million upon maturity in exchange for NOK 1,000 million (see note 8). In July 2018, the Partnership completed a tender offer for these bonds, in which an aggregate principal amount of NOK 910 million was repurchased by the Partnership (see note 16).

As at June 30, 2018, three of the Partnership’s 50%-owned subsidiaries had a total of two outstanding term loans (December 31, 2017 - two), which in the aggregate totaled $76.8 million (December 31, 2017 - $85.6 million). The term loans reduce over time with quarterly and semi-annual payments and have varying maturities through 2021. These term loans are collateralized by first-priority mortgages on the three shuttle tankers to which the loans relate, together with other related security. As at June 30, 2018, a subsidiary of the Partnership guaranteed $38.4 million of the term loans, which represents its 50% share of the outstanding term loans, and the other owner had guaranteed the remaining $38.4 million of the term loans.

As at June 30, 2018, the Partnership had term loans outstanding for three shuttle tankers, two FSO units, three FPSO units, 10 towing and offshore installation vessels, and for the Arendal Spirit UMS, which totaled $1.5 billion in the aggregate. The term loans reduce over time with quarterly or semi-annual payments. These term loans have varying maturities through 2030 and are collateralized by first-priority mortgages on the vessels to which the loans relate, together with other related security. As at June 30, 2018, the Partnership or a subsidiary of the Partnership had guaranteed all of these term loans.

In February 2015, the Partnership issued $30.0 million in senior bonds that mature in July 2024 in a U.S. private placement. The interest payments on the bonds are fixed at a rate of 4.27%. The bonds are collateralized by a first-priority mortgage on the Dampier Spirit FSO unit, together with other related security, and are guaranteed by subsidiaries of the Partnership. The Partnership makes semi-annual repayments on the bonds and as at June 30, 2018, the carrying amount of the bonds was $20.3 million.

In September 2013 and November 2013, the Partnership issued, in a U.S. private placement, a total of $174.2 million of ten-year senior bonds that mature in January 2024 to finance the Bossa Nova Spirit and Sertanejo Spirit shuttle tankers. The bonds accrue interest at a fixed combined rate of 4.96%. The bonds are collateralized by first-priority mortgages on the two vessels to which the bonds relate, together with other related security. The Partnership makes semi-annual repayments on the bonds and as at June 30, 2018, the carrying amount of the bonds was $137.9 million.


Page 15 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



In May 2014, the Partnership issued $300.0 million in five-year senior unsecured bonds that mature in July 2019 in the U.S. bond market. As at June 30, 2018, the carrying amount of the bonds was $300.0 million. The bonds are listed on the New York Stock Exchange. The interest payments on the bonds are fixed at a rate of 6.00%. In July 2018, the Partnership completed a tender offer for these bonds, in which an aggregate principal amount of $225.2 million was repurchased by the Partnership (see note 16).

In August 2017, the Partnership issued $250.0 million in senior unsecured bonds in the Norwegian bond market that mature in August 2022. These bonds are listed on the Oslo Stock Exchange. As at June 30, 2018, the carrying amount of the bonds was $250.0 million. The interest payments on the bonds are fixed at a rate of 7.125%.

Interest payments on the revolving credit facilities and the term loans are based on LIBOR plus margins, except for $84.1 million of one tranche of the term loan for the ALP Maritime Services (or ALP) newbuilding towing and offshore installation vessels, which is fixed at 2.93%. At June 30, 2018, the margins ranged between 0.90% and 4.30% (December 31, 2017 - 0.90% and 3.75%). The weighted-average interest rate on the Partnership’s U.S. Dollar variable rate long-term debt as at June 30, 2018 was 4.7% (December 31, 2017 - 4.1%). This rate does not include the effect of the Partnership’s interest rate swaps (see note 8) or fixed rate facilities.

The aggregate annual long-term debt principal repayments required to be made subsequent to June 30, 2018 are $254.7 million (remainder of 2018), $537.3 million (2019), $349.0 million (2020), $303.0 million (2021), $596.3 million (2022), and $974.3 million (thereafter).

Certain of the Partnership’s revolving credit facilities and term loans contain covenants, debt-service coverage ratio (or DSCR) requirements and other restrictions typical of debt financing secured by vessels that restrict the ship-owning subsidiaries from incurring or guaranteeing indebtedness; changing ownership or structure, including mergers, consolidations, liquidations and dissolutions; making dividends or distributions if the Partnership is in default or do not meet minimum DSCR requirements; making capital expenditures in excess of specified levels; making certain negative pledges and granting certain liens; selling, transferring, assigning or conveying assets; making certain loans and investments; or entering into a new line of business. Obligations under the Partnership’s credit facilities are secured by certain vessels, and if the Partnership is unable to repay debt under the credit facilities, the lenders could seek to foreclose on those assets. The Partnership has one revolving credit facility and seven term loans that require the Partnership to maintain vessel values to drawn principal balance ratios of a minimum range of 100% to 125%. Such requirement is assessed either on a semi-annual or annual basis, with reference to vessel valuations compiled by one or more agreed upon third parties. Should the ratio drop below the required amount, the lender may request the Partnership to either prepay a portion of the loan in the amount of the shortfall or provide additional collateral in the amount of the shortfall, at the Partnership's option. As at June 30, 2018, these ratios were estimated to range from 120% to 273% and the Partnership was in compliance with the minimum ratios required. The vessel values used in calculating these ratios are the appraised values provided by third parties where available, or prepared by the Partnership based on second-hand sale and purchase market data. Changes in the shuttle tanker, towing and offshore installation, UMS or FPSO markets could negatively affect these ratios.
Please read Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity and Cash Needs for a description of certain covenants contained in the Partnership’s credit facilities and loan agreements. As at June 30, 2018, the Partnership was in compliance with all covenants related to the credit facilities and consolidated long-term debt.
7.
Related Party Transactions and Balances

a)
During the three and six months ended June 30, 2018, three shuttle tankers and three FSO units of the Partnership were employed on long-term time-charter-out or bareboat contracts with subsidiaries of Teekay Corporation.
b)
Until December 31, 2017, Teekay Corporation and its wholly-owned subsidiaries directly and indirectly provided the Partnership with the majority of its commercial, technical, crew training, strategic, business development and administrative service needs. As described in note 7f, the majority of these services were assumed by the Partnership through the acquisition, on January 1, 2018, of certain management companies from Teekay Corporation that provide the bulk of their services to the Partnership's assets. In addition, the Partnership reimburses the general partner for expenses incurred by the general partner that are necessary or appropriate for the conduct of the Partnership’s business. As at June 30, 2018, Teekay Corporation and Brookfield Business Partners L.P. and its institutional investors (or Brookfield) owned 51% and 49%, respectively, of the general partner ownership interests. In early-July 2018, Brookfield, through an affiliate, exercised its option to acquire an additional 2% of the general partner ownership interests from an affiliate of Teekay Corporation (see note 16). The Partnership's related party transactions were as follows for the periods indicated:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
$
 
$
 
$
 
$
Revenues (1)
30,661

 
14,207

 
60,378

 
24,218

Vessel operating expenses (2)
(1,528
)
 
(7,871
)
 
(3,114
)
 
(15,633
)
General and administrative (3)
(5,799
)
 
(7,239
)
 
(10,710
)
 
(14,380
)
Interest expense (4)(5)(6)(7)
(7,918
)
 
(7,031
)
 
(13,836
)
 
(13,894
)
 
_______________

Page 16 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



(1)
Includes revenue from time-charter-out or bareboat contracts with subsidiaries of Teekay Corporation, including management fees from ship management services provided by the Partnership to subsidiaries of Teekay Corporation.
(2)
Includes ship management and crew training services provided by Teekay Corporation.
(3)
Includes commercial, technical, strategic, business development and administrative management fees charged by Teekay Corporation and reimbursements to Teekay Corporation and the general partner for costs incurred on the Partnership’s behalf.
(4)
Includes interest expense of $5.0 million and $9.9 million, respectively, for the three and six months ended June 30, 2017, incurred on a $200.0 million subordinated promissory note issued to a subsidiary of Teekay Corporation effective July 1, 2016 (the 2016 Teekay Corporation Promissory Note) (see note 7d).
(5)
Includes a guarantee fee related to the Partnership's liabilities associated with the long-term debt financing relating to the East Coast of Canada shuttle tanker newbuildings and certain of the Partnership's interest rate swaps and cross currency swaps until September 25, 2017.
(6)
Includes interest expense of $5.0 million and $9.9 million, respectively, for the three and six months ended June 30, 2018 (three and six months ended June 30, 2017 - nil), and accretion expense of $1.7 million and $2.7 million, respectively, for the three and six months ended June 30, 2018 (three and six months ended June 30, 2017 - nil), incurred on the Brookfield Promissory Note, previously the 2016 Teekay Corporation Promissory Note, which Brookfield acquired from a subsidiary of Teekay Corporation on September 25, 2017 (or the Brookfield Promissory Note) (see note 7e). The Brookfield Promissory Note was recorded at the relative fair value at its acquisition date of $163.6 million and is recorded net of debt issuance costs on the Partnership's consolidated balance sheet as at June 30, 2018 and December 31, 2017. The outstanding principal balance, together with accrued interest, is payable in full on January 1, 2022. In early-July 2018, the Partnership repurchased the Brookfield Promissory Note (see note 16).
(7)
Includes interest expense of $1.3 million for the three and six months ended June 30, 2018 (three and six months ended June 30, 2017 - nil) incurred on an unsecured revolving credit facility provided by Teekay Corporation and Brookfield, which the Partnership entered into on March 31, 2018 (see note 7g).
c)
At June 30, 2018, the carrying value of amounts due from affiliates totaled $51.2 million (December 31, 2017 - $37.4 million) and the carrying value of amounts due to affiliates totaled $348.3 million (December 31, 2017 - $271.5 million). Amounts due to and from affiliates, other than the Brookfield Promissory Note and the unsecured revolving credit facility provided by Teekay Corporation and Brookfield, are non-interest bearing and unsecured, and all current due to and from affiliates balances are expected to be settled within the next fiscal year in the normal course of operations or from financings.
d)
Effective July 1, 2016, the Partnership issued the 2016 Teekay Corporation Promissory Note to a subsidiary of Teekay Corporation. The 2016 Teekay Corporation Promissory Note bore interest at an annual rate of 10.00% on the outstanding principal balance. On September 25, 2017, the Partnership, Teekay Corporation and Brookfield entered into an agreement to amend and restate this subordinated promissory note (see note 7e).
e)
Effective September 25, 2017, the Partnership, Teekay Corporation and Brookfield amended and restated the 2016 Teekay Corporation Promissory Note to create the Brookfield Promissory Note, concurrently with Brookfield’s acquisition of the promissory note from a subsidiary of Teekay Corporation. The Brookfield Promissory Note bears interest at an annual rate of 10.00% on the outstanding principal balance, which is payable quarterly. The outstanding principal balance of the Brookfield Promissory Note, which as at June 30, 2018, was $200.0 million, together with accrued interest, is payable in full on January 1, 2022. The Brookfield Promissory Note was recorded at its relative fair value based on the allocation of net proceeds invested by Brookfield, as at September 25, 2017. In July 2018, the Partnership repurchased the Brookfield Promissory Note (see note 16).
f)
As a condition of Brookfield's acquisition of 60% of the common units of the Partnership in September 2017, on January 1, 2018, the Partnership acquired a 100% ownership interest in seven subsidiaries of Teekay Corporation for cash consideration of $1.4 million. These subsidiaries provide ship management, commercial, technical, strategic, business development and administrative services to the Partnership, primarily related to the Partnership's FPSO units, shuttle tankers and FSO units.
g)
On March 31, 2018, the Partnership entered into a credit agreement for an unsecured revolving credit facility provided by Teekay Corporation and Brookfield, which provides for borrowings of up to $125.0 million ($25.0 million by Teekay Corporation and $100.0 million by Brookfield) and as at June 30, 2018 was fully drawn. The revolving credit facility matures on October 1, 2019. The interest payments on the revolving credit facility are based on LIBOR plus a margin of 5.00% per annum until March 31, 2019 and LIBOR plus a margin of 7.00% per annum for balances outstanding after March 31, 2019, which is payable monthly. Any outstanding principal balances are due on the maturity date. The revolving credit facility contains covenants that require the Partnership to maintain a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) in an amount equal to the greater of $75.0 million and 5.0% of the Partnership’s total consolidated debt. As at June 30, 2018, the Partnership was in compliance with these covenants.
8.
Derivative Instruments and Hedging Activities

The Partnership uses derivatives to manage certain risks in accordance with its overall risk management policies.

Foreign Exchange Risk

The Partnership economically hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts. The Partnership has not designated, for accounting purposes, any of the foreign currency forward contracts held during the six months ended June 30, 2018 and 2017 as cash flow hedges.


Page 17 of 48




TEEKAY OFFSHORE PARTNERS L.P. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, except unit and per unit data)



As at June 30, 2018, the Partnership was committed to the following foreign currency forward contracts:
 
Contract Amount
in Foreign
Currency
(thousands)
 
Fair Value / Carrying
Amount of Asset (Liability)
(in thousands of U.S. Dollars)
Non-hedge
 

Average
Forward
Rate (1)
Expected Maturity
 
 
 
 
2018
2019
 
 
 
 
(in thousands of U.S. Dollars)
Norwegian Kroner
500,000

 
(2,062
)
 
7.86

 
31,764

 
31,825

Euro
6,000

 
(300
)
 
0.82

 
7,280

 

 
 
 
(2,362
)
 
 
 
39,044

 
31,825

(1)Average forward rate represents the contracted amount of foreign currency one U.S. Dollar will buy.
In connection with its issuance of NOK bonds, the Partnership entered into a cross currency swap pursuant to which it receives the principal amount in NOK on the repayment and maturity date, in exchange for payments of a fixed U.S. Dollar amount. In addition, the cross currency swap exchanges 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 swap is to economically hedge the foreign currency exposure on the payment of interest and repayments of principal amounts of the Partnership’s NOK bonds due in 2019 (see note 6). In addition, the cross currency swap economically hedges the interest rate exposure on the NOK bonds. The Partnership has not designated, for accounting purposes, this cross currency swap as a cash flow hedge of its NOK bonds.
As at June 30, 2018, the Partnership was committed to the following cross currency swap:
Notional
Amount
NOK
(thousands)
 
Principal
Amount
USD
(thousands)
 
Floating Rate Receivable
 
Fixed Rate
Payable
 
Fair Value /
Asset (Liability)
$
 
Remaining
Term
(years)
 
 
Reference
Rate
 
Margin
 
 
 
 
 
1,000,000
 
162,200

 
NIBOR
 
4.25
%
 
7.45
%
 
(42,118
)
 
0.6
 
 
 
 
 
 
 
 
 
 
 
 
 
In July 2018, the Partnership settled NOK 905 million aggregate notional amount ($146.8 million principal amount) of the cross currency swap in connection with the partial repurchase of the NOK bonds (see note 16).

Interest Rate Risk
The Partnership enters into interest rate swaps, which exchange a receipt of floating interest for a payment of fixed interest, to reduce the Partnership’s exposure to interest rate variability on its outstanding floating-rate debt. Certain of these interest rate swaps are designated and accounted for as hedges in the consolidated financial statements or within our equity-accounted for investments.
As at June 30, 2018, the Partnership and its consolidated subsidiaries were committed to the following interest rate swap agreements:
 
Interest
Rate
Index
 
Notional
Amount
$
 
Fair Value /
Carrying
Amount of
Asset (Liability)
$
 
Weighted-
Average
Remaining
Term
(years)
 
Fixed
Interest
Rate
(%) (1)
U.S. Dollar-denominated interest rate swaps (2)
LIBOR
 
700,000

 
(80,136
)
 
7.0
 
4.2
%
U.S. Dollar-denominated interest rate swaps (3) 
LIBOR
 
831,835

 
(15,985
)
 
4.1
 
3.1
%
 
 
 
1,531,835

 
(96,121
)