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DECONSOLIDATION OF GOLAR PARTNERS (Notes) | 12 Months Ended
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Dec. 31, 2012
Deconsolidation [Abstract] |
Deconsolidation of Golar Partners |
5. | DECONSOLIDATION OF GOLAR PARTNERS
Under the provisions of the partnership agreement, the general partner irrevocably delegated the authority to the Partnership's board of directors to have the power to oversee and direct the operations of, manage and determine the strategies and policies of Golar Partners. During the period from Golar Partner's IPO in April 2011 until the time of its first AGM on December 13, 2012, Golar retained the sole power to appoint, remove and replace all members of Golar Partner's board of directors. From the first AGM, majority of the board members became electable by the common unitholders and accordingly, from this date Golar no longer retains the power to control the board of directors. As a result, from December 13, 2012, Golar Partners has been considered as an affiliate entity and not as a controlled subsidiary of the Company. On December 13, 2012, based on the equity method, the Company recorded an investment in Golar Partners of $362.8 million, which represents the fair value of Golar's subordinated units (in-substance common stock) that were held by Golar on the deconsolidation date. On the same date, the Company calculated a gain on loss of control of $854.0 million. The gain on loss of control is calculated as follows:
(in thousands of $) |  | As of December 13, 2012 |
Fair value of investment in Golar Partners (a) |  | 900,926 |
Carrying value of the non-controlling interest in Golar Partners |  | 179,285 |
Subtotal |  | 1,080,211 |
Less: |  |
Carrying value of Golar Partner's net assets |  | 238,409 |
Guarantees issued to Golar Partners (d) |  | 23,266 |
Accumulated other comprehensive loss relating to Golar Partners (e) |  | 8,989 |
Deferred tax benefit on intra-group transfers of long-term assets (g) |  | (44,449 | )
Gain on loss of control of Golar Partners |  | 853,996 |
(a) Fair value of investment in Golar Partners The fair value of the Company's residual interest in Golar Partners comprised of the following:
(in thousands of $) | As of December 13, 2012 |
Common units (i) (see note 21) | 346,950 |
General Partner units and Incentive Distribution Rights ("IDRs") (ii) (see note 22) | 191,177 |
Subordinated units (iii) (see note 13) | 362,799 |
| 900,926 |
(i) Common units (available-for-sale securities) As of the deconsolidation date and December 31, 2012, the Company held 11.8 million common units representing 32.6% of the common units in issue, as a class. The Company's holding in the voting common units of Golar Partners have been accounted for under the guidance for available-for-sale securities on the basis that during the subordination period the common units have preferential dividend and liquidation rights. Accordingly, these securities are carried at fair value and any unrealized gains and losses on these securities are reflected directly in equity unless a realized loss is considered "other-than-temporary", in which case it is transferred to the statement of operations. Dividends received from its common units in Golar Partners during the subordination period will be recorded in the consolidated statement of operations in the line item "Dividend income". (ii) General Partner units and IDRs The Company's 2% general partner interest and 100% of the incentive distribution rights (IDRs) in Golar Partners have been accounted for as cost-method investments on the basis that the general partner interests have preferential liquidation and dividend rights during the subordination period. The Company's interest in the general partner units have been recorded at their fair value as of December 13, 2012, based on the share price of the publicly traded common units of Golar Partners but adjusted for restrictions over their transferability and reduction in voting rights. The fair value of the IDRs as of December 13, 2012 was determined using a Monte Carlo simulation method. This simulation was performed within the Black Scholes option pricing model then solved via an iterative process by applying the Newton-Raphson method for the fair value of the IDRs, such that the price of a unit output by the Monte Carlo simulation equalled the price observed in the market. The method took into account the historical volatility, dividend yield as well as the share price of the units as of the deconsolidation date. (iii) Subordinated units As of the deconsolidation date and December 31, 2012, the Company held 15.9 million units representing 100% of the subordinated units. The Company's holding in the subordinated units of Golar Partners have been accounted for under the equity method on the basis that the subordinated units are considered to be, in-substance, common stock for accounting purposes. The fair value on December 13, 2012, was determined based on the quoted market price of the listed common units as of the deconsolidation date but discounted principally for their non-tradability and subordinated dividend and liquidation rights during the subordination period. The subordination period will end on the satisfaction of various tests as prescribed in the Partnership Agreement, but will not end before March 31, 2016, except with the removal of the Company as the general partner. Upon the expiration of the subordination period, the subordinated units will convert into common units. (b) Gain on retained investment in Golar Partners In addition, the table below shows the portion of the gain on loss of control related to the remeasurement of the Company's retained investment (our ownership interest of 54.1%) in Golar Partners.
(in thousands of $) | As of December 13, 2012 |
Fair value of investment in Golar Partners | 900,926 |
Less: Percentage retained of carrying value of net assets in Golar Partners | (129,077 | )
Gain on retained investment in Golar Partners | 771,849 |
(c) Accounting for basis difference The investment in Golar Partners recorded under the equity method of $362.8 million included the Company's share of the basis difference between the fair value and the underlying book value of Golar Partners' assets at the deconsolidation date.
(in thousands of $) | Book value |  | Fair value |  | Basis difference |  | Golar's share of the basis difference
| 100% |  | 100% |  | 100% |  | 24.8%*
Vessels and equipment and vessels under capital leases (i) | 1,192,779 |  |  | 1,924,027 |  |  | 731,248 |  |  | 181,326 |
Charter agreements (ii) | — |  |  | 259,178 |  |  | 259,178 |  |  | 64,268 |
Goodwill (iii) | — |  |  | 457,688 |  |  | 457,688 |  |  | 113,492 |
| 1,192,779 |  |  | 2,640,893 |  |  | 1,448,114 |  |  | 359,086 |
*The Company's share of the basis difference is with reference to its holding in the subordinated units only. The basis difference has been accounted for as follows: (i) The basis difference assigned to vessels and equipment is being depreciated over the remaining estimated useful lives of the vessels and is recorded as a component of "Equity in net earnings(losses) of affiliates". (ii) The basis difference relating to the charter agreements is being amortized over the remaining term of the charters and is recorded as a component of "Equity in net earnings (losses) of affiliates". (iii) For the assigned goodwill, the Company will recognize its share of any impairment charge recorded by Golar Partners and consider the effect, if any, of the impairment on the assigned goodwill. (d) Guarantees In accordance with ASC 460, the guarantees issued by the Company in respect of Golar Partners and its subsidiaries were fair valued as of the deconsolidation date of December 13, 2012. The fair value of the guarantees amounted to a liability of $23.3 million which is recorded in "Other long-term liabilities" and comprised of the following items:
(in thousands of $) |  | As of December 13, 2012 |
Debt guarantees |  | 4,548 |
Golar Grand Option |  | 7,217 |
Methane Princess tax lease indemnity |  | 11,500 |
|  | 23,265 |
The debt guarantees were issued by Golar to third party banks in respect of certain secured debt facilities relating to Golar Partners and subsidiaries. The liability is being amortized over the remaining term of the respective debt facilities with the credit being recognized in "Other financial items". The Golar Grand Option was issued in connection with the disposal of the Golar Grand to Golar Partners in November 2012. The fair value of the Golar Grand Option was determined by discounting the difference between the guaranteed charter rate per the Option agreement less the estimated market rate at the end of the initial lease term (See note 33(d)). The Methane Princess tax lease indemnity of $11.5 million is based on the termination sum as of December 13, 2012, less the associated security deposit, but factoring in the timing and likelihood of an early termination (see note 35). (e) Golar Partners' accumulated other comprehensive income The accumulated other comprehensive loss of $9.0 million in relation to Golar Partners was released to the consolidated statement of operations on deconsolidation. (f) Deconsolidation-related expenses Deconsolidation related expenses amounting to approximately $0.4 million are included in administrative expenses in the consolidated statement of operations for the year ended December 31, 2012. (g) Deferred tax benefits on intra-group transfers of long-term assets The release of the deferred tax benefits on intra-group transfers of long-term assets amounting to $44.4 million relates to vessels owned by Golar Partners; the Golar Freeze, the Golar Spirit and the NR Satu which upon the deconsolidation of Golar Partners was released and recognized as part of the gain on loss of control (see note 29).

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