0001628280-17-011798.txt : 20171122 0001628280-17-011798.hdr.sgml : 20171122 20171122155604 ACCESSION NUMBER: 0001628280-17-011798 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 106 CONFORMED PERIOD OF REPORT: 20170930 FILED AS OF DATE: 20171122 DATE AS OF CHANGE: 20171122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEEKAY CORP CENTRAL INDEX KEY: 0000911971 STANDARD INDUSTRIAL CLASSIFICATION: DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412] IRS NUMBER: 000000000 STATE OF INCORPORATION: D0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12874 FILM NUMBER: 171219847 BUSINESS ADDRESS: STREET 1: 4TH FLOOR, BELVEDERE BUILDING STREET 2: 69 PITTS BAY ROAD CITY: HAMILTON STATE: D0 ZIP: HM 08 BUSINESS PHONE: 604-683-3529 MAIL ADDRESS: STREET 1: SUITE 2000, BENTALL 5 STREET 2: 550 BURRARD STREET CITY: VANCOUVER STATE: A1 ZIP: V6C 2K2 FORMER COMPANY: FORMER CONFORMED NAME: TEEKAY SHIPPING CORP DATE OF NAME CHANGE: 19950609 FORMER COMPANY: FORMER CONFORMED NAME: VIKING STAR SHIPPING INC DATE OF NAME CHANGE: 19930914 6-K 1 tkc6-kq3x17doc.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 September 30, 2017
Commission file number 1- 12874
 _________________________
TEEKAY CORPORATION
(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







 

Page 1 of 70


TEEKAY CORPORATION AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017
INDEX

 
PAGE
 
 


Page 2 of 70



ITEM 1 - FINANCIAL STATEMENTS
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(in thousands of U.S. Dollars, except share and per share amounts)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
$
 
$
 
$
 
$
Revenues
500,781

 
547,639

 
1,558,209

 
1,776,366

Voyage expenses
(42,454
)
 
(37,213
)
 
(133,891
)
 
(97,102
)
Vessel operating expenses
(200,456
)
 
(204,156
)
 
(599,500
)
 
(625,672
)
Time-charter hire expense
(28,645
)
 
(33,810
)
 
(98,106
)
 
(111,727
)
Depreciation and amortization
(136,942
)
 
(141,688
)
 
(422,713
)
 
(426,924
)
General and administrative expenses
(27,662
)
 
(30,052
)
 
(88,641
)
 
(92,890
)
Asset impairments (note 7a)
(243,659
)
 

 
(245,159
)
 
(43,649
)
Net loss on sale of vessels, equipment and other operating assets (note 7b)
(7,926
)
 
(7,838
)
 
(25,095
)
 
(54,413
)
Restructuring charges (note 12)
(2,883
)
 
(3,117
)
 
(5,059
)
 
(22,921
)
(Loss) income from vessel operations
(189,846
)
 
89,765

 
(59,955
)
 
301,068

Interest expense
(74,499
)

(68,490
)
 
(219,237
)
 
(213,948
)
Interest income
1,900

 
1,143

 
4,917

 
3,507

Realized and unrealized (losses) gains on non-designated derivative instruments (note 14)
(6,128
)
 
29,926

 
(43,173
)
 
(166,967
)
Equity income (loss) (note 7c)
1,264

 
21,070

 
(36,373
)
 
73,706

Foreign exchange (loss) gain (notes 8 and 14)
(2,642
)
 
6,116

 
(22,888
)
 
(19,555
)
Loss on deconsolidation of Teekay Offshore (note 3)
(103,188
)
 

 
(103,188
)
 

Other (loss) income
(4,705
)
 
480

 
(5,169
)
 
(20,806
)
(Loss) income before income taxes
(377,844
)
 
80,010

 
(485,066
)
 
(42,995
)
Income tax (expense) recovery (note 15)
(5,221
)
 
133

 
(11,767
)
 
(2,366
)
Net (loss) income
(383,065
)
 
80,143

 
(496,833
)
 
(45,361
)
Less: Net loss (income) attributable to non-controlling
interests
(note 3)
370,483

 
(74,071
)
 
358,843

 
(75,159
)
Net (loss) income attributable to the shareholders of Teekay Corporation
(12,582
)
 
6,072

 
(137,990
)
 
(120,520
)
Per common share of Teekay Corporation (note 16)
 
 
 
 
 
 
 
•   Basic (loss) income attributable to shareholders of Teekay Corporation
(0.15
)
 
0.07

 
(1.60
)
 
(1.63
)
•   Diluted (loss) income attributable to shareholders of Teekay Corporation
(0.15
)
 
0.07

 
(1.60
)
 
(1.63
)
•  Cash dividends declared
0.055

 
0.055

 
0.165

 
0.165

Weighted average number of common shares outstanding (note 16)
 
 
 
 
 
 
 
•  Basic
86,261,330

 
84,887,101

 
86,232,315

 
76,887,689

•  Diluted
86,261,330

 
84,973,745

 
86,232,315

 
76,887,689


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

Page 3 of 70


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands of U.S. Dollars)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
$
 
$
 
$
 
$
Net (loss) income
(383,065
)
 
80,143

 
(496,833
)
 
(45,361
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
 
 
 
 
 
 
 
Unrealized (loss) gain on marketable securities
(262
)
 
39

 
438

 
49

Unrealized (loss) gain on qualifying cash flow hedging instruments
(509
)
 
4,664

 
(4,094
)
 
(33,529
)
Pension adjustments, net of taxes
(59
)
 
234

 
(171
)
 
665

Foreign exchange gain (loss) on currency translation
257

 
(44
)
 
668

 
43

Amounts reclassified from accumulated other comprehensive income (loss) relating to:
 
 
 
 
 
 
 
Realized loss on qualifying cash flow hedging instruments
 
 
 
 
 
 
 
To interest expense (note 14)
424

 

 
1,186

 

To equity income
793

 
902

 
1,776

 
2,723

Other comprehensive income (loss)
644

 
5,795

 
(197
)
 
(30,049
)
Comprehensive (loss) income
(382,421
)
 
85,938

 
(497,030
)
 
(75,410
)
Less: Comprehensive loss (income) attributable to non-controlling interests
370,036

 
(77,974
)
 
359,793

 
(54,060
)
Comprehensive (loss) income attributable to shareholders of Teekay Corporation
(12,385
)
 
7,964

 
(137,237
)
 
(129,470
)
The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 4 of 70


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. Dollars, except share and per share amounts)
 
 
As at
September 30,
2017
 
As at
December 31,
2016
 
$
 
$
 
(note 3)
 
 
ASSETS
 
 
 
Current
 
 
 
Cash and cash equivalents (note 8)
453,283

 
567,994

Restricted cash
27,848

 
107,672

Accounts receivable, including non-trade of $20,983 (2016 – $33,924) and related party balance of $9,459 (2016 – $26,471)
137,461

 
295,357

Assets held for sale
23,400

 
61,282

Net investment in direct financing leases (note 6)
9,683

 
154,759

Prepaid expenses and other (note 14)
36,698

 
84,899

Current portion of loans to equity-accounted investees
165,118

 
9,471

Total current assets
853,491

 
1,281,434

Restricted cash - non-current
74,301

 
129,576

Vessels and equipment (note 8)
 
 
 
At cost, less accumulated depreciation of $1,253,417 (2016 – $3,294,021)
2,946,312

 
7,666,975

Vessels under capital leases, at cost, less accumulated amortization of $40,803 (2016 – $69,072) (note 6)
874,670

 
484,253

Advances on newbuilding contracts and conversion costs (note 10a)
492,800

 
987,658

Total vessels and equipment
4,313,782

 
9,138,886

Net investment in direct financing leases - non-current (note 6)
624,122

 
505,835

Loans to equity-accounted investees and joint venture partners, bearing interest between nil and LIBOR plus margins up to 3%
145,804

 
292,209

Equity-accounted investments (notes 3 and 10b)
1,187,648

 
1,010,308

Other non-current assets (note 14)
90,059

 
190,699

Intangible assets – net
97,949

 
89,175

Goodwill
43,692

 
176,630

Total assets
7,430,848

 
12,814,752

LIABILITIES AND EQUITY
 
 
 
Current
 
 
 
Accounts payable
22,166

 
53,507

Accrued liabilities and other (notes 12 and 14)
195,605

 
395,163

Advances from affiliates
79,208

 
8,522

Current portion of derivative liabilities (note 14)
71,956

 
115,813

Current portion of long-term debt (note 8)
727,434

 
998,591

Current obligation under capital leases
115,690

 
40,353

Current portion of in-process revenue contracts
14,983

 
34,511

Total current liabilities
1,227,042

 
1,646,460

Long-term debt (note 8)
2,621,078

 
5,640,955

Long-term obligation under capital leases
739,532

 
352,486

Derivative liabilities (note 14)
62,288

 
415,041

In-process revenue contracts
27,635

 
88,179

Other long-term liabilities (note 15)
131,115

 
333,236

Total liabilities
4,808,690

 
8,476,357

Commitments and contingencies (notes 6, 8, 10, and 14)


 


Redeemable non-controlling interest (notes 3 and 10e)

 
249,102

Equity
 
 
 
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 86,262,990 shares outstanding and issued (2016 – 86,149,975)) (note 9)
892,094

 
887,075

Retained earnings
(93,802
)
 
22,893

Non-controlling interest
1,833,095

 
3,189,928

Accumulated other comprehensive loss
(9,229
)
 
(10,603
)
Total equity
2,622,158

 
4,089,293

Total liabilities and equity
7,430,848

 
12,814,752

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

Page 5 of 70


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. Dollars)
 
 
Nine Months Ended September 30,
 
2017
 
2016
 
$
 
$
Cash and cash equivalents provided by (used for)
 
 
 
OPERATING ACTIVITIES
 
 
 
Net loss
(496,833
)
 
(45,361
)
Non-cash items:
 
 
 
Depreciation and amortization
422,713

 
426,924

Amortization of in-process revenue contracts
(22,307
)
 
(21,191
)
Unrealized gains on derivative instruments
(94,532
)
 
(10,847
)
Loss on sale of vessels, equipment and other operating assets (note 7)
25,095

 
54,413

        Asset impairments (note 7)
245,159

 
43,649

Equity loss (income), net of dividends received
72,159

 
(37,393
)
Income tax expense
11,767

 
2,366

Unrealized foreign exchange loss and other
111,216

 
96,257

Deconsolidation loss (note 3)
103,188

 

Change in operating assets and liabilities
72,558

 
28,797

Expenditures for dry docking
(38,704
)
 
(33,841
)
Net operating cash flow
411,479

 
503,773

FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of long-term debt, net of issuance costs
680,261

 
1,568,348

Prepayments of long-term debt
(314,029
)
 
(1,532,606
)
Scheduled repayments of long-term debt (note 8)
(615,337
)
 
(616,343
)
Proceeds from financing related to sales and leaseback of vessels
153,000

 

Decrease in restricted cash
105,999

 
27,384

Net proceeds from equity issuances of subsidiaries (note 5)
8,521

 
190,007

Net proceeds from equity issuances of Teekay Corporation

 
101,900

Distributions paid from subsidiaries to non-controlling interests
(88,133
)
 
(98,657
)
Cash dividends paid
(14,235
)
 
(12,667
)
Other financing activities
(24,348
)
 
(17,567
)
Net financing cash flow
(108,301
)
 
(390,201
)
INVESTING ACTIVITIES
 
 
 
Expenditures for vessels and equipment
(694,507
)
 
(547,345
)
Proceeds from sale of vessels and equipment
67,440

 
163,588

Proceeds from sale-leaseback of vessels
335,830

 
355,306

Investment in equity-accounted investments
(109,580
)
 
(63,120
)
Advances to joint ventures and joint venture partners
(12,576
)
 
(12,259
)
Cash of Teekay Offshore upon deconsolidation, net of proceeds received
(17,977
)
 

Other investing activities
13,481

 
17,162

Net investing cash flow
(417,889
)
 
(86,668
)
(Decrease) increase in cash and cash equivalents
(114,711
)
 
26,904

Cash and cash equivalents, beginning of the period
567,994

 
678,392

Cash and cash equivalents, end of the period
453,283

 
705,296

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

Page 6 of 70


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. Dollars, except share amounts)
 
 
TOTAL EQUITY
 
 
 
Thousands
of Shares
of Common
Stock
Outstanding
#
 
Common
Stock and
Additional
Paid-in
Capital
$
 
Retained
Earnings
(Accumulated
Deficit)
$
 
Accumulated
Other
Compre-
hensive
Loss
$
 
Non-
controlling
Interests
$
 
Total
$
 
Redeemable
Non-
controlling
Interest
$
Balance as at December 31, 2016
86,150

 
887,075

 
22,893

 
(10,603
)
 
3,189,928

 
4,089,293

 
249,102

Net loss
 
 
 
 
(137,990
)
 
 
 
(358,843
)
 
(496,833
)
 
 
Reclassification of redeemable non-controlling interest in net income
 
 
 
 
 
 
 
 
(18,610
)
 
(18,610
)
 
18,610

Other comprehensive income (loss)
 
 
 
 
 
 
753

 
(950
)
 
(197
)
 
 
Dividends declared
 
 
 
 
(14,250
)
 
 
 
(87,092
)
 
(101,342
)
 
(13,699
)
Reinvested dividends
1

 
3

 
 
 
 
 
 
 
3

 
 
Employee stock compensation and other (note 9)
112

 
5,016

 
 
 
 
 
 
 
5,016

 
 
Dilution gains on equity issuances of subsidiaries (note 5)
 
 
 
 
35,545

 
 
 
 
 
35,545

 
 
Impact of deconsolidation of Teekay Offshore (note 3)
 
 
 
 
 
 
643

 
(882,473
)
 
(881,830
)
 
(255,802
)
Changes to non-controlling interest from equity contributions and other
 
 
 
 


 
(22
)
 
(8,865
)
 
(8,887
)
 
1,789

Balance as at September 30, 2017
86,263

 
892,094

 
(93,802
)
 
(9,229
)
 
1,833,095

 
2,622,158

 

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

Page 7 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

 
1.
Basis of Presentation
The unaudited interim consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (or GAAP). They include the accounts of Teekay Corporation (or Teekay), which is incorporated under the laws of the Republic of the Marshall Islands, and its wholly-owned or controlled subsidiaries (collectively, the Company). Certain of Teekay’s significant non-wholly owned subsidiaries are consolidated in these financial statements even though Teekay owns less than a 50% ownership interest in the subsidiaries. These significant subsidiaries include the following publicly traded subsidiaries (collectively, the Public Subsidiaries): Teekay LNG Partners L.P. (or Teekay LNG); Teekay Tankers Ltd. (or Teekay Tankers); and, until September 25, 2017, Teekay Offshore Partners L.P. (or Teekay Offshore). On September 25, 2017, Teekay, Teekay Offshore and Brookfield Business Partners L.P. together with its institutional partners (collectively, Brookfield) finalized a strategic partnership (or the Brookfield Transaction) which resulted in the deconsolidation of Teekay Offshore as of that date (see Note 3). Although Teekay owned less than 50% of Teekay Offshore, Teekay maintained control of Teekay Offshore until September 25, 2017 by virtue of its 100% ownership interest in the general partner of Teekay Offshore, which is a master limited partnership. In connection with Brookfield's acquisition of a 49% interest in Teekay Offshore's general partner, Teekay Offshore GP LLC (or TOO GP), Teekay and Brookfield entered into an amended limited liability company agreement whereby Brookfield obtained certain participatory rights in the management of TOO GP, which resulted in Teekay deconsolidating Teekay Offshore for accounting purposes on September 25, 2017. Subsequent to the closing of the Brookfield Transaction, Teekay has significant influence over Teekay Offshore and accounts for its investment in Teekay Offshore using the equity method.
Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2016, included in the Company’s Annual Report on Form 20-F, filed with the U.S. Securities and Exchange Commission (or SEC) on April 12, 2017. In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments, consisting solely of a normal recurring nature, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, cash flows and changes in total equity for the interim periods presented. The results of operations for the three and nine months ended September 30, 2017, are not necessarily indicative of those for a full fiscal year. Significant intercompany balances and transactions have been eliminated upon consolidation. In addition, certain of the comparative figures have been reclassified to conform to the presentation adopted in the current period relating to certain operating activities in the Company's consolidated statements of cash flows.
The preparation of 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. Given current credit markets, it is possible that the amounts recorded as derivative assets and liabilities could vary by material amounts prior to their settlement.
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 will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which 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 is effective for the Company January 1, 2018 and will be applied as a cumulative-effect adjustment as of this date. The Company expects that the adoption of ASU 2014-09 may result in a change in the method of recognizing revenue for voyage charters, whereby the Company’s method of determining proportional performance will change from discharge-to-discharge to load-to-discharge. This would result in no revenue being recognized from discharge of the prior voyage to loading of the current voyage and all revenue being recognized from loading of the current voyage to discharge of the current voyage. In addition, the Company expects that the adoption of ASU 2014-09 may result in a change in the timing of the recognition of voyage expenses incurred during the period from discharge of the prior voyage to loading of the current voyage. The Company’s current policy is to expense such costs as incurred, and following adoption of ASU 2014-09 it is expected certain costs will be deferred and amortized over the load-to-discharge period. The Company expects that these principles will also be applied to voyage charters that are included in revenue sharing arrangements and, consequently, a portion of the Company’s monthly net revenue allocation from these revenue sharing arrangements would be deferred and recognized in future months. These changes would result in revenue and voyage expenses being recognized later than under the Company’s existing revenue and expense recognition policies, which may cause additional volatility in revenue and earnings between periods. ASC 2014-09 also changes the criteria to be used in determining whether the Company is operating as a principal or an agent in an arrangement. The Company expects that it will be considered to be the principal in certain crewing services it provides to other vessel owners and consequently the revenues earned and costs incurred will be presented on a gross basis compared with its current net presentation. The Company is in the final stages of completing its assessment of ASU 2014-09 and is focused on developing process changes, determining the transitional impact and completing other items required for the adoption of ASU 2014-09.

Page 8 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

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. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company expects to adopt ASU 2016-02 on January 1, 2018. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company expects that the adoption of ASU 2016-02 will result in a change in accounting method for the lease portion of the daily charter hire for the Company’s chartered-in vessels accounted for as operating leases and office leases with firm periods of greater than one year. Under ASU 2016-02, the Company will recognize a right-of-use asset and a lease liability on the balance sheet for these charters and office leases, whereas currently no right-of-use asset or lease liability is recognized. This will have the result of increasing the Company’s assets and liabilities. The pattern of expense recognition of chartered-in vessels and office leases is expected to remain substantially unchanged, unless the right-of-use asset becomes impaired. Based on lease agreements the Company has entered into on or prior to September 30, 2017, the increase to the Company’s assets and liabilities is expected to be less than $250 million. Such amount is preliminary and is subject to change based on the Company finalizing its methodology to divide contracts into their lease and non-lease components and finalizing the determination of the rate to discount future lease payments. The Company is in the final stages of completing its assessment of ASU 2016-02, and is focused on developing process changes, determining the transitional impact and completing other items required for the adoption of ASU 2016-02.
In March 2016, the FASB issued Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (or ASU 2016-09). ASU 2016-09 simplifies aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The Company adopted ASU 2016-09 on January 1, 2017 and the impact was immaterial. This new accounting guidance changed the presentation of cash payments for tax withholdings on share-settled equity awards from an operating cash outflow to financing cash outflow on the Company's statements of cash flows, and this change was applied retrospectively.
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. This update 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 Company on January 1, 2020, with a modified-retrospective approach. The Company is currently evaluating the effect of adopting this new guidance.
In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments, which, among other things, provides guidance on two acceptable approaches of classifying distributions received from equity method investees in the statements of cash flows. This update is effective for the Company on January 1, 2018, with a retrospective approach. The Company is currently evaluating the effect of adopting this new guidance.
In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows: Restricted Cash (or ASU 2016-18). ASU 2016-18 requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. ASU 2016-18 is effective for the Company on January 1, 2018.  Adoption of ASU 2016-18 will result in the Company’s statements of cash flows to be modified to include changes in restricted cash in addition to changes in cash and cash equivalents.

In January 2017, the FASB issued Accounting Standards Update 2017-01, Clarifying the Definition of a Business, (or ASU 2017-01). ASU 2017-01 changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017-01 requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU 2017-01 also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. ASU 2017-01 is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. Early adoption is allowed and accounted for prospectively. If the adoption of ASU 2017-01 is completed prior to the closing of Teekay Tankers' merger with Tanker Investments Limited (or TIL) (see note 7c), this acquisition is expected to be accounted for as an asset acquisition, otherwise the acquisition is expected to be accounted for as a business combination. Unlike a business combination, no goodwill or bargain purchase gain is recognized as part of an asset acquisition, and transaction costs are not expensed.

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 Company January 1, 2019. The Company is currently evaluating the effect of adopting this new guidance.


3.
Deconsolidation of Teekay Offshore

On September 25, 2017, Teekay, Teekay Offshore and Brookfield finalized the Brookfield Transaction, which included, amongst others, the following:

Brookfield and Teekay invested $610.0 million and $30.0 million, respectively, in exchange for 244.0 million and 12.0 million common units of Teekay Offshore, respectively, and 62.4 million and 3.1 million common unit warrants (or the Brookfield Transaction Warrants),

Page 9 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

with an exercise price of $0.01 per unit, a term of seven years, and which are exercisable when Teekay Offshore's common unit volume-weighted average price is equal to or greater than $4.00 per common unit for 10 consecutive trading days until September 25, 2024;

Brookfield acquired from Teekay a 49% interest in Teekay Offshore's general partner in exchange for $4.0 million and an option to purchase an additional 2.0% interest in Teekay Offshore's general partner from Teekay in exchange for 1.0 million of the Brookfield Transaction Warrants initially issued to Brookfield;

Teekay Offshore repurchased and cancelled all of its outstanding Series C-1 and Series D Preferred Units at a per unit redemption value of $18.20 and $23.75 per unit, respectively, which included Teekay's investment in 1,040,000 Series D Preferred Units. The Series D tranche B Warrants to purchase Teekay Offshore common units, which were issued as part of the Series D Preferred Units on June 29, 2016, were amended to reduce the exercise price from $6.05 to $4.55 per unit; and

Brookfield acquired from a subsidiary of Teekay, the $200 million subordinated promissory note issued by Teekay Offshore on July 1, 2016 and which Brookfield extended the maturity from 2019 to 2022, in consideration for $140.0 million and 11.4 million of the Brookfield Transaction Warrants initially issued to Brookfield.

In connection with the acquisition of the 49% interest in Teekay Offshore's general partner, TOO GP, Teekay and Brookfield entered into an amended limited liability company agreement whereby Brookfield obtained certain participatory rights in the management of TOO GP, which resulted in Teekay deconsolidating Teekay Offshore for accounting purposes on September 25, 2017. Subsequent to the closing of the Brookfield Transaction, Teekay has significant influence over Teekay Offshore and accounts for its investment in Teekay Offshore using the equity method. Teekay Offshore is a related party of Teekay, and Brookfield is not a related party of Teekay.

The following table shows the accounting impact from the deconsolidation of Teekay Offshore on September 25, 2017. On such date, the Company recognized both the net cash proceeds it received from Brookfield and the fair value of its retained interests in Teekay Offshore, including common units, warrants, and vessel charters with Teekay Offshore, and derecognized the carrying value of both Teekay Offshore’s net assets and the non-controlling interest in Teekay Offshore, with the difference between the amounts recognized and derecognized being the loss on deconsolidation.
 
As of September 25, 2017
Net cash proceeds received by Teekay
139,693

Fair value of common units and General Partner interest of Teekay Offshore
150,132

Fair value of warrants
36,596

Fair value of vessel charters with Teekay Offshore
16,412

Carrying value of the non-controlling interest in Teekay Offshore
1,138,275

Subtotal
1,481,108

Less:
 
Carrying value of Teekay Offshore's net assets on deconsolidation
(1,584,296
)
Loss on deconsolidation of Teekay Offshore
(103,188
)

The $150.1 million fair value of Teekay's retained investment in Teekay Offshore, consisting of approximately 14% in its outstanding common units and a 51% interest in TOO GP, was determined with reference to the market price of Teekay Offshore's common units on September 25, 2017.
Subsequent to the formation of Teekay Offshore, Teekay sold certain vessels to Teekay Offshore. Even though Teekay Offshore was not a wholly-owned subsidiary of Teekay, all of the gain or loss on sales of these vessels was fully eliminated upon consolidation. Consequently, the portion of the gain or loss attributable to Teekay’s reduced interest in the vessels was deferred. The total unrecognized net deferred gain relating to the vessels previously sold from Teekay to Teekay Offshore was $349.6 million. Upon deconsolidation of Teekay Offshore, such amount was recognized as an increase to net loss (income) attributable to non-controlling interests for the three and nine months ended September 30, 2017. 
As at September 30, 2017, Teekay has recorded $123.6 million in advances to Teekay Offshore and $43.6 million in advances from Teekay Offshore in current portion of loans to equity-accounted investees and advances from affiliates, respectively, on the unaudited consolidated balance sheets.
Teekay Corporation and its wholly-owned subsidiaries directly and indirectly provide substantially all of Teekay Offshore’s commercial, technical, crew training, strategic, business development and administrative service needs. In connection with the Brookfield Transaction, Teekay has agreed to transfer to Teekay Offshore certain of Teekay’s subsidiaries that provide certain of these services and certain related personnel, commencing January 1, 2018. As at September 30, 2017, two shuttle tankers and three FSO units of Teekay Offshore were employed on long-term time-charter-out or bareboat contracts with subsidiaries of Teekay.

Page 10 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

4.
Segment Reporting
The Company allocates capital and assesses performance from the separate perspectives of its two publicly-traded subsidiaries Teekay LNG and Teekay Tankers (together, the Daughter Companies), Teekay and its remaining subsidiaries (or Teekay Parent), and its equity-accounted investment in Teekay Offshore, as well as from the perspective of the Company's lines of business. The primary focus of the Company’s organizational structure, internal reporting and allocation of resources by the chief operating decision maker is on the Daughter Companies, Teekay Parent and its equity-accounted investment in Teekay Offshore (the Legal Entity approach) and its segments are presented accordingly on this basis. The Company (excluding its equity-accounted investment in Teekay Offshore) has three primary lines of business: (1) offshore production (floating production, storage and off-loading (or FPSO) units), (2) liquefied gas carriers (liquefied natural gas (or LNG) and liquefied petroleum gas (or LPG) carriers), and (3) conventional tankers. The Company manages these businesses for the benefit of all stakeholders. The Company incorporates the primary lines of business within its segments, as in certain cases there is more than one line of business in each Daughter Company and the Company believes this information allows a better understanding of the Company’s performance and prospects for future net cash flows. Subsequent to the Brookfield Transaction on September 25, 2017, the Company assesses the performance of, and makes decisions to allocate resources to, its investment in Teekay Offshore as a whole and not at the level of the individual lines of business within Teekay Offshore, which are (1) offshore production (FPSO units), (2) offshore logistics (shuttle tankers, the HiLoad DP unit, floating storage and offtake (or FSO) units, a unit for maintenance and safety (or UMS) and long-distance towing and offshore installation vessels), and (3) conventional tankers. The Company has therefore determined that its equity-accounted investment in Teekay Offshore represents a separate operating segment and that individual lines of business within Teekay Offshore are no longer disclosed in the Company's operating segments. All segment information for prior periods has been retroactively adjusted to be consistent with the change in segment presentation of Teekay Offshore, beginning with the third quarter of 2017.
The following table includes results for the Company’s revenues by segment for the three and nine months ended September 30, 2017 and 2016:
 
Revenues
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2017
2016
2017
2016
 
$
$
$
$
Teekay Offshore(1)(2)
255,781

286,298

796,711

877,470

 
 
 
 
 
Teekay LNG
 
 
 
 
Liquefied Gas Carriers(2)
92,700

87,260

271,078

250,342

Conventional Tankers
11,585

13,398

35,291

45,328

 
104,285

100,658

306,369

295,670

 
 
 
 
 
Teekay Tankers(3)
 
 
 
 
Conventional Tankers(2)
91,238

109,554

330,512

427,349

 
 
 
 
 
Teekay Parent
 
 
 
 
Offshore Production
51,254

53,592

143,769

167,398

Conventional Tankers(2)
1,041

6,982

4,965

30,566

Other
19,727

17,258

47,149

60,698

 
72,022

77,832

195,883

258,662

 
 
 
 
 
Eliminations and other
(22,545
)
(26,703
)
(71,266
)
(82,785
)
 
500,781

547,639

1,558,209

1,776,366


(1)
On September 25, 2017, the Company deconsolidated Teekay Offshore (see Note 3). The revenue figures above are those of Teekay Offshore until the date of deconsolidation.
(2)
Certain vessels are chartered between the Daughter Companies or Teekay Offshore and Teekay Parent. The amounts in the table below represent revenue earned by each segment from other segments within the group. Such intersegment revenue for the three and nine months ended September 30, 2017 and 2016 is as follows:

Page 11 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2017
2016
2017
2016
 
$
$
$
$
Teekay Offshore
9,211

13,554

33,429

38,472

Teekay LNG - Liquefied Gas Carriers
9,296

9,429

26,851

28,075

Teekay Tankers - Conventional Tankers

417


5,405

Teekay Parent - Conventional Tankers




 
18,507

23,400

60,280

71,952

(3) On May 31, 2017, Teekay Tankers acquired from Teekay Parent the remaining 50% interest in Teekay Tanker Operations Ltd. (or TTOL); Teekay Tankers acquired its initial 50% interest in TTOL in August 2014. As a result of the acquisition, the financial information for Teekay Tankers prior to the date that Teekay Tankers acquired its remaining 50% interest in TTOL is retroactively adjusted to include 100% of the results of TTOL during the periods they were under common control of Teekay and had begun operations.
The following table includes results for the Company’s (loss) income from vessel operations by segment for the three and nine months ended September 30, 2017 and 2016:
 
(Loss) Income from Vessel Operations(1)
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2017
2016
2017
2016
 
$
$
$
$
Teekay Offshore(2)
40,384

61,739

147,060

174,309

 
 
 
 
 
Teekay LNG
 
 
 
 
Liquefied Gas Carriers
44,902

48,009

128,281

130,682

Conventional Tankers
(34,580
)
2,625

(42,010
)
(15,511
)

10,322

50,634

86,271

115,171


 
 
 
 
Teekay Tankers(3)
 
 
 
 
Conventional Tankers
(13,734
)
(3,207
)
(1,406
)
86,565


 
 
 
 
Teekay Parent
 
 
 
 
Offshore Production
(223,957
)
(13,116
)
(262,986
)
(39,159
)
Conventional Tankers
(3,077
)
(363
)
(8,524
)
(13,644
)
Other
216

(5,922
)
(20,370
)
(22,174
)

(226,818
)
(19,401
)
(291,880
)
(74,977
)

 
 
 
 
 
(189,846
)
89,765

(59,955
)
301,068


(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)
On September 25, 2017, the Company deconsolidated Teekay Offshore (see Note 3). The income from vessel operations figures above are those of Teekay Offshore until the date of deconsolidation.
(3)
On May 31, 2017, Teekay Tankers acquired from Teekay Parent, the remaining 50% interest in TTOL; Teekay Tankers acquired its initial 50% interest in TTOL in August 2014. As a result of the acquisition, the financial information for Teekay Tankers prior to the date that Teekay Tankers acquired its remaining 50% interest in TTOL is retroactively adjusted to include 100% of the results of TTOL during the periods they were under common control of Teekay and had begun operations.
Commencing on September 25, 2017, the Company accounts for its investment in Teekay Offshore using the equity method, and recognized an equity loss of $3.1 million for the three and nine months ended September 30, 2017. In the period after deconsolidation of Teekay Offshore to September 30, 2017, Teekay Offshore incurred impairment charges of $316.7 million which did not impact the equity loss recognized by Teekay as Teekay recorded its equity-accounted investment in Teekay Offshore at fair value on September 25, 2017.

A reconciliation of total segment assets to total assets presented in the accompanying unaudited consolidated balance sheets is as follows:


Page 12 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)


September 30, 2017
December 31, 2016

$
$
Teekay Offshore
302,706

5,354,702

Teekay LNG - Liquefied Gas Carriers
4,307,812

3,957,088

Teekay LNG - Conventional Tankers
115,168

193,553

Teekay Tankers - Conventional Tankers
1,675,347

1,870,211

Teekay Parent - Offshore Production
382,790

635,364

Teekay Parent - Conventional Tankers
32,153

55,937

Teekay Parent - Other
59,882

13,208

Cash and cash equivalents
453,283

567,994

Other assets not allocated
124,793

281,244

Eliminations
(23,086
)
(114,549
)
Consolidated total assets
7,430,848

12,814,752

 
5.
Equity Financing Transactions of the Daughter Companies and Teekay Offshore
During the nine months ended September 30, 2017, one of the Company's publicly traded subsidiaries, Teekay Tankers, and Teekay Offshore, prior to the Brookfield Transaction on September 25, 2017, completed the following equity issuances:
 
Number of shares / units
#
 
Total Proceeds
Received
$
 
Less:
Teekay
Corporation
Portion
$
 
Offering
Expenses
$
 
Net Proceeds
Received from
Non-controlling
Interests
$
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
Teekay Tankers Continuous Offering Program
3,800,000

 
8,826

 

 
(305
)
 
8,521

Teekay Tankers Private Placement
2,155,172

 
5,000

 
(5,000
)
 

 

Teekay Tankers Direct Equity Placement(1)
13,775,224

 
25,897

 
(25,897
)
 

 

Teekay Offshore Private Placements (2)
6,521,518

 
29,817


(17,160
)

(212
)
 
12,445


(1)
In May 2017, Teekay Tankers issued Class B common stock to the Company as consideration for its acquisition of the remaining 50% interest in TTOL.
(2)
In February 2017 and May 2017, respectively, Teekay Offshore issued common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the distributions on Teekay Offshore's Series C-1 and D Preferred Units and on Teekay Offshore's common units and general partner interest held by subsidiaries of Teekay.
In June 2016, Teekay Offshore agreed with Teekay that, until the Teekay Offshore's Norwegian Kroner (or NOK) bonds maturing in 2018 had been repaid, all cash distributions (other than with respect to distributions, if any, on incentive distribution rights) to be paid by Teekay Offshore to Teekay or its affiliates, including Teekay Offshore's general partner, would instead be paid in common units or from the proceeds of the sale of common units. Teekay Offshore issued Teekay 2.4 million common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the distributions on Teekay Offshore's Series D Preferred Units, common units and general partner interest held by subsidiaries of Teekay.
In April 2017 and June 2017, respectively, Teekay Offshore issued common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the interest due on Teekay Offshore's $200 million loan due to Teekay. Teekay Offshore issued Teekay 1.7 million common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the loan interest.


Page 13 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

6.
Vessel Charters
The minimum estimated charter hire and rental payments for the remainder of the year and the next four fiscal years, as at September 30, 2017, for the Company’s chartered-in and chartered-out vessels were as follows:
 
Vessel Charters(1)
Remainder
of 2017
 
2018
 
2019
 
2020
 
2021
 
(in millions of U.S. Dollars)
Charters-in – operating leases
18.0

 
57.4

 
56.1

 
52.0

 
44.9

Charters-in – capital leases(2)
44.7

 
138.9

 
119.5

 
118.9

 
110.2

Charters-in – related to capital leases(3)
4.1

 
16.3

 
16.3

 
16.3

 
16.3

 
66.8

 
212.6

 
191.9

 
187.2

 
171.4

 
 
 
 
 
 
 
 
 
 
Charters-out – operating leases(4)
146.9

 
469.8

 
392.6

 
350.5

 
289.3

Charters-out – direct financing leases(5)
15.1

 
45.9

 
39.1

 
39.2

 
39.1

 
162.0

 
515.7

 
431.7

 
389.7

 
328.4

 
(1)
Teekay LNG owns a 69% ownership interest in Teekay BLT Corporation (or the Teekay Tangguh Joint Venture), which is a party to operating leases whereby the Teekay Tangguh Joint Venture is leasing two LNG carriers (or the Tangguh LNG Carriers) to a third party, which is in turn leasing the vessels back to the joint venture. This table does not include Teekay LNG’s minimum charter hire payments to be paid and received under these leases for the Tangguh LNG Carriers, which are described in Note 9 to the audited consolidated financial statements filed with the Company’s Annual Report on Form 20-F for the year ended December 31, 2016. Under the terms of the leasing arrangement for the Tangguh LNG Carriers, whereby the Teekay Tangguh Joint Venture is the lessee, the lessor claims tax depreciation on its lease of these vessels. As is typical in these types of leasing arrangements, tax and change of law risks are assumed by the lessee. Lease payments under the lease arrangements are based on certain tax and financial assumptions at the commencement of the leases. If an assumption proves to be incorrect, the lessor is entitled to increase the lease payments to maintain its agreed after-tax margin.
The carrying amount of tax indemnification guarantees of Teekay LNG relating to the leasing arrangement through the Teekay Tangguh Joint Venture as at September 30, 2017 was $7.2 million (December 31, 2016$7.5 million) and is included as part of other long-term liabilities in Teekay LNG’s consolidated balance sheets. The tax indemnification is for the duration of the lease contracts with the third party plus the years it would take for the lease payments to be statute barred, which will end in 2033 for the vessels. Although there is no maximum potential amount of future payments, the Teekay Tangguh Joint Venture may terminate the lease arrangement on a voluntary basis at any time. If the lease arrangement terminates, the Teekay Tangguh Joint Venture will be required to pay termination sums to the lessor sufficient to repay the lessor’s investment in the vessels and to compensate it for the tax effect of the terminations, including recapture of any tax depreciation.

(2)
As at September 30, 2017, Teekay LNG was a party, as lessee, to capital leases on two Suezmax tankers, the Teide Spirit and the Toledo Spirit. Under these capital leases, the owner has the option to require Teekay LNG to purchase the two vessels. The charterer, who is also the owner, also has the option to cancel the charter contracts and the cancellation options are first exercisable in November 2017 and August 2018, respectively. The amounts in the table above assume the owner will not exercise its options to require Teekay LNG to purchase either of the vessels from the owner, but rather assume the owner will cancel the charter contracts when the cancellation right is first exercisable (in November 2017 and August 2018, respectively) and sell the vessels to a third party, upon which the remaining lease obligations will be extinguished. Therefore, the table above does not include any amounts after the expected cancellation date of the leases. In August 2017, the charterer of the Teide Spirit gave formal notification to Teekay LNG of its intention to terminate its charter, subject to certain conditions being met and third-party approvals being received. In October 2017, the charterer notified Teekay LNG that it has marketed the Teide Spirit for sale and, upon sale of the vessel, it will concurrently terminate its existing charter contract with Teekay LNG.
Teekay LNG is also a party to capital leases on three LNG carriers, the Creole Spirit, the Oak Spirit and the Torben Spirit. Upon delivery of the Creole Spirit in February 2016, the Oak Spirit in July 2016 and the Torben Spirit in March 2017, Teekay LNG sold these vessels to a third party and leased them back under 10-year bareboat charter contracts ending in 2026 and 2027. The bareboat charter contracts are accounted for as capital leases. Teekay LNG guarantees the obligations of the bareboat charter contracts. In addition, the guarantee agreements require Teekay LNG to maintain minimum levels of tangible net worth and aggregate liquidity, and not to exceed a maximum amount of leverage.
As at September 30, 2017, Teekay LNG had sale-leaseback agreements in place for five of its eight LNG carrier newbuildings scheduled to deliver during the remainder of 2017 and 2018, and at such dates, the buyers will take delivery and charter each respective vessel back to Teekay LNG. As at September 30, 2017, Teekay LNG had received $211.2 million from the buyers, which has been recorded as current portion and long-term obligations under capital lease in Teekay LNG's consolidated balance sheets, and Teekay LNG has secured a further $699 million in capital lease financing to be received in the remainder of 2017 to 2018.

(3) In July 2017, Teekay Tankers completed a 153.0 million sale-leaseback financing transaction relating to four of its Suezmax tankers, the Athens Spirit, Beijing Spirit, Moscow Spirit and Sydney Spirit. Under this arrangement, Teekay Tankers has agreed to transfer the vessels to subsidiaries of the financial institution (or collectively the Lessors) and lease the vessels back from the Lessors on bareboat charters for a 12-year term. Teekay Tankers has the option to repurchase the vessels from July 2020 to July 2029. The Lessors are companies whose only assets and operations are to hold Teekay Tankers' leases and vessels. Teekay Tankers operates the vessels during the lease term and as a result, is the primary beneficiary of the Lessors and consolidates the Lessors for financial reporting purposes. The liabilities of the Lessors are loans and are non-recourse to Teekay Tankers. The amounts funded to the Lessors materially match the funding received by Teekay Tankers' subsidiaries. As a result, the amounts due by Teekay Tankers' subsidiaries to the Lessors have been included in obligations under capital leases as representing the Lessor's loans. The bareboat charters also require that Teekay Tankers maintain minimum levels of cash and aggregate liquidity.

(4) The minimum scheduled future operating lease revenues do not include revenue generated from new contracts entered into after September 30, 2017, revenue from unexercised option periods of contracts that existed on September 30, 2017, revenues from vessels in the Company's equity-accounted investments, or variable or contingent revenues. Therefore, the minimum scheduled future operating lease revenues should not be construed to reflect total charter hire revenues that may be recognized for any of the years.


Page 14 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

(5)
The Tangguh LNG Carriers’ time-charter contracts and two bareboat charter contracts for two LNG carriers chartered to Awilco LNG ASA (or Awilco) are accounted for as direct financing leases. In June 2017, Teekay LNG amended the charters with Awilco to defer a portion of charter hire and extend the bareboat charter contracts and related purchase obligations on both vessels to December 2019. The amendments have the effect of deferring between $10,600 per day and $20,600 per day per vessel from July 1, 2017 until December 2019, with such deferred amounts added to the purchase obligation amounts. As a result of the contract amendments, the charter contracts with Awilco will be reclassified to operating leases from direct finance leases upon the expiry of the original terms of the contracts with Awilco in November 2017 and August 2018.
7.
Asset Impairments, Loss on Sale of Vessels, Equipment and Other Operating Assets and Write-Down of Equity Investment
a) Asset Impairments

In September 2017, the estimated future cash flows and carrying value of the asset groups for the Petrojarl Foinaven FPSO unit and Petrojarl Banff FPSO unit, each owned by Teekay Parent, changed upon the deconsolidation of Teekay Offshore. For the Petrojarl Foinaven FPSO, two shuttle tankers, which are owned by Teekay Offshore, were removed from the carrying value of the asset group and the estimated future cash flows of the asset group was changed to include the in-charter costs of these two vessels to be paid by Teekay to Teekay Offshore. For the Petrojarl Banff FPSO, the carrying value of an FSO, which is owned by Teekay Offshore, was removed from the carrying value of the asset group and the estimated future cash flows of the asset group was changed to include the in-charter costs of the FSO unit to be paid by Teekay to Teekay Offshore. This change in asset groups and a re-evaluation of the estimated future net cash flows of the units resulted in impairment charges of $205.7 million for the Petrojarl Foinaven FPSO and Petrojarl Banff FPSO, for the three and nine months ended September 30, 2017. The impairment charges are included in the Company's Teekay Parent Segment - Offshore Production.

In August 2017, the charterer for the African Spirit Suezmax tanker gave formal notice to Teekay LNG that it will not exercise its one-year extension option under the charter contract and will redeliver the vessel to Teekay LNG in November 2017. As a result, Teekay LNG wrote-down the vessel to its estimated resale value. The Company's consolidated statements of (loss) income for the three and nine months ended September 30, 2017, includes a write-down of $12.5 million to the estimated resale value of this vessel. The write-down is included in the Company's Teekay LNG Segment - Conventional Tankers.

Under Teekay LNG's charter contracts for the Teide Spirit and Toledo Spirit Suezmax tankers, the charterer, who is also the owner of the vessels, has the option to cancel the charter contracts 13 years following commencement of the respective charter contracts. In August 2017, the charterer of the Teide Spirit gave formal notification to Teekay LNG of its intention to terminate its charter contract subject to certain conditions being met and third-party approvals being received. In October 2017, the charterer notified Teekay LNG that it is marketing the Teide Spirit for sale and, upon sale of the vessel, it will concurrently terminate its existing charter contract with Teekay LNG. The charterer’s cancellation option for the Toledo Spirit is first exercisable in August 2018. Given Teekay LNG's prior experience with this charterer, Teekay LNG expects it will also cancel the charter contract and sell the Toledo Spirit to a third party in 2018. Teekay LNG wrote-down the vessels to their estimated fair values based on their expected future discounted cash flows and recorded a $25.5 million write down on a combined basis of the Teide Spirit and Toledo Spirit. The write-downs are included in the Company's Teekay LNG Segment - Conventional Tankers.
During the second quarter of 2016, Teekay Offshore cancelled the UMS construction contracts for two UMS newbuildings. As a result, the carrying values of these two UMS newbuildings were written down to $nil. The Company's consolidated statements of (loss) income for the nine months ended September 30, 2016 include a $43.7 million write-down related to these two UMS newbuildings. The write-down is included in the Company’s Teekay Offshore Segment.
b) Net Loss on Sale of Vessels, Equipment and Other Operating Assets
The following tables show the loss on sale of vessels, equipment and other operating assets for the three and nine months ended September 30, 2017 and 2016:

Page 15 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

 
 
 
 
 
 
Net Loss on Sale of Vessels, Equipment and Other Assets
 
 
 
 
 
 
Three Months Ended September 30,
Segment

Asset Type

Completion of Sale Date

2017
$

2016
$
Teekay Tankers Segment - Conventional Tankers
 
2 Aframaxes
 
(1) 
 
(7,926
)
 

Teekay Tankers Segment - Conventional Tankers
 
MR Tanker
 
Aug-2016
 

 
(7,903
)
Other
 
 
 
 
 

 
65

Total
 
 
 
 
 
(7,926
)
 
(7,838
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss on Sale of Vessels, Equipment and Other Assets
 
 
 
 
 
 
Nine Months Ended September 30,
Segment
 
Asset Type
 
Completion of Sale Date
 
2017
$
 
2016
$
Teekay LNG Segment - Conventional Tankers
 
Suezmax
 
(2) 
 
(12,600
)
 

Teekay Tankers Segment - Conventional Tankers
 
3 Aframaxes
 
(1) 
 
(10,669
)
 

Teekay Tankers Segment - Conventional Tankers
 
Suezmax
 
Mar-2017
 
(1,469
)
 

Teekay LNG Segment - Conventional Tankers
 
2 Suezmaxes
 
Apr/May-2016
 

 
(27,439
)
Teekay Parent Segment - Conventional Tankers
 
VLCC Tanker
 
Oct-2016
 

 
(12,536
)
Teekay Tankers Segment - Conventional Tankers
 
2 MR Tankers
 
Aug/Nov-2016
 

 
(14,323
)
Other
 
 
 
 
 
(357
)
 
(115
)
Total
 
 
 
 
 
(25,095
)
 
(54,413
)

(1) Two vessels were sold and delivered to their respective buyers in June and September 2017 and another vessel is classified as held for sale at September 30, 2017.

(2) Teekay LNG has commenced marketing the vessel for sale and the vessel is classified as held for sale at September 30, 2017.

c) Write-Down of Equity Investment

On May 31, 2017, Teekay Tankers entered into a merger agreement (or the Merger Agreement) to acquire the remaining 27.0 million issued and outstanding common shares of Tanker Investments Ltd. (or TIL), by way of a share-for-share exchange of 3.3 shares of Teekay Tankers Class A common stock for each outstanding share of TIL common stock. Teekay Tankers and Teekay currently own approximately 3.4 million and 2.5 million common shares, or 11.3% and 8.2% of TIL, respectively. As the Company accounts for its current investment in TIL under the equity method of accounting, the Company will be required to remeasure its previously held equity investment to fair value at the acquisition date. Historically, the Company had not recognized an other than temporary impairment in its equity investment in TIL as the Company expected to recover its value over the anticipated hold period.  Based on the pending transaction, the Company has recognized an other than temporary impairment and remeasured its investment in TIL to fair value at June 30, 2017 based on the TIL share price at that date, resulting in a write-down of $48.6 million included in the Company's consolidated statements of (loss) income, and included in equity income (loss), for the nine months ended September 30, 2017. When the merger transaction is completed, the Company is required to again remeasure its equity investment in TIL to fair value based on the relative share exchange value at the date of the acquisition, which could result in an additional gain or loss.  On November 17, 2017, the TIL shareholders approved the merger and the Teekay Tankers’ shareholders approved an increase in the authorized number of Teekay Tankers’ Class A common shares, to permit the issuance of Class A common shares as merger consideration. Subject to the completion of the remaining closing conditions, the Company expects the merger to close on or about November 27, 2017. Upon the closing of the merger, TIL will become a wholly-owned subsidiary of Teekay Tankers.


Page 16 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

8.
Long-Term Debt
 
September 30, 2017
 
December 31, 2016
 
$
 
$
Revolving Credit Facilities
884,749

 
1,119,808

Senior Notes (8.5%) due January 15, 2020
592,657

 
592,657

Norwegian Kroner-denominated Bonds due through 2021
389,320

 
628,257

U.S. Dollar-denominated Term Loans due through 2028
1,264,070

 
3,702,997

U.S. Dollar Bonds due through 2024

 
466,680

Euro-denominated Term Loans due through 2023
233,764

 
219,733

Other U.S. Dollar-denominated loan
10,000

 

Total Principal
3,374,560

 
6,730,132

Unamortized discount and debt issuance costs
(26,048
)
 
(90,586
)
Total debt
3,348,512

 
6,639,546

Less current portion
(727,434
)
 
(998,591
)
Long-term portion
2,621,078

 
5,640,955

As of September 30, 2017, the Company had seven revolving credit facilities (or the Revolvers) available, which, as at such date, provided for aggregate borrowings of up to $1.1 billion, of which $0.2 billion was undrawn. Interest payments on the loans under the Revolvers are based on LIBOR plus margins; at September 30, 2017 and December 31, 2016, the margins ranged between 0.45% and 4.00%. The aggregate amount available under the Revolvers is scheduled to decrease by $24.9 million (remainder of 2017), $741.6 million (2018), $nil (2019), $nil (2020) and $292.7 million (thereafter). The Revolvers are collateralized by first-priority mortgages granted on 39 of the Company’s vessels, together with other related security, and include a guarantee from Teekay or its subsidiaries for all outstanding amounts. Included in other security are 38.2 million common units of Teekay Offshore, 25.2 million common units of Teekay LNG, and 16.8 million Class A common shares in Teekay Tankers, which secure a $200.0 million credit facility. Five other revolving credit facilities as of December 31, 2016 totaling $291.8 million as of that date, related to Teekay Offshore, which was deconsolidated in September 2017.
The Company’s 8.5% senior unsecured notes are due January 15, 2020 with an original principal amount of $450 million (the Original Notes). The Original Notes issued on January 27, 2010 were sold at a price equal to 99.181% of par. In November 2015, the Company issued an aggregate principal amount of $200 million of the Company’s 8.5% senior unsecured notes due on January 15, 2020 (or the Notes) at 99.01% of face value, plus accrued interest from July 15, 2015. The Notes are an additional issuance of the Company's Original Notes (cumulatively referred to as the 8.5% Notes). The Notes were issued under the same indenture governing the Original Notes, and are fungible with the Original Notes. The discount on the 8.5% Notes is accreted through the maturity date of the notes using the effective interest rate of 8.670% per year.
The Company capitalized issuance costs of $13.3 million which will be amortized to interest expense over the term of the 8.5% Notes. As of September 30, 2017, the unamortized balance of the capitalized issuance cost was $4.3 million which is recorded in long-term debt in the unaudited consolidated balance sheet. The 8.5% Notes rank equally in right of payment with all of Teekay's existing and future senior unsecured debt and senior to any future subordinated debt of Teekay. The 8.5% Notes are not guaranteed by any of Teekay's subsidiaries and effectively rank behind all existing and future secured debt of Teekay and other liabilities of its subsidiaries.
 
The Company may redeem the 8.5% Notes in whole or in part at any time before their maturity date at a redemption price equal to the greater of (i) 100% of the principal amount of the 8.5% Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 8.5% Notes to be redeemed (excluding accrued interest), discounted to the redemption date on a semi-annual basis, at the treasury yield plus 50 basis points, plus accrued and unpaid interest to the redemption date.
Teekay LNG has a total of NOK 3.1 billion in senior unsecured bonds in the Norwegian bond market at September 30, 2017 that mature through October 2021. As of September 30, 2017, the total carrying amount of the senior unsecured bonds was $389.3 million. The bonds are listed on the Oslo Stock Exchange. The interest payments on the bonds are based on NIBOR plus margins which range from 3.70% to 6.00%. The Company entered into cross currency rate swaps to swap all interest and principal payments of the bonds into U.S. Dollars, with the interest payments fixed at rates ranging from 5.92% to 7.72%, and the transfer of the principal amount fixed at $430.5 million upon maturity in exchange for NOK 3.1 billion (see Note 14). Three other senior unsecured NOK bonds as of December 31, 2016 with a total carrying amount of $256.9 million as of that date related to Teekay Offshore, which was deconsolidated in September 2017.

Page 17 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

As of September 30, 2017, the Company had eight U.S. Dollar-denominated term loans outstanding, which totaled $1.3 billion in aggregate principal amount (December 31, 2016$3.7 billion). Interest payments on the term loans are based on LIBOR plus a margin. At September 30, 2017, the margins ranged between 0.30% and 2.8% (December 31, 2016, the margins ranged between 0.30% and 3.5%). The term loan payments are made in quarterly or semi-annual payments commencing three or six months after delivery of each newbuilding vessel financed thereby, and eight of the term loans have balloon or bullet repayments due at maturity. The term loans are collateralized by first-priority mortgages on 16 (December 31, 201646) of the Company’s vessels, together with certain other security. In addition, at December 31, 2016, all but $56.2 million of the outstanding term loans were guaranteed by Teekay or its subsidiaries. Fifteen term loans as of December 31, 2016 of $2.2 billion as of that date related to Teekay Offshore, which was deconsolidated in September 2017.
During May 2014, Teekay Offshore issued $300 million of five-year senior unsecured bonds that mature in July 2019 in the U.S. bond market. In September 2013 and November 2013, Teekay Offshore issued a total of $174.2 million of ten-year senior bonds that mature in December 2023 in a U.S. private placement. In February 2015, Teekay Offshore issued $30.0 million in senior bonds that mature in June 2024 in a U.S. private placement. These three senior U.S. Dollar bonds as of December 31, 2016 with a total carrying value of $466.7 million as of that date related to Teekay Offshore, which was deconsolidated in September 2017.
Teekay LNG has two Euro-denominated term loans outstanding, which, as at September 30, 2017, totaled 197.9 million Euros ($233.8 million) (December 31, 2016208.9 million Euros ($219.7 million)). Teekay LNG is repaying the loans with funds generated by two Euro-denominated, long-term time-charter contracts. Interest payments on the loans are based on EURIBOR plus margins. At September 30, 2017 and December 31, 2016, the margins ranged between 0.60% and 2.25%. The Euro-denominated term loans reduce in monthly payments with varying maturities through 2023, are collateralized by first-priority mortgages on two of Teekay LNG's vessels, together with certain other security, and are guaranteed by Teekay LNG and one of its subsidiaries.
Both the Euro-denominated term loans and the NOK-denominated bonds are revalued at the end of each period using the then-prevailing U.S. Dollar exchange rate. Due primarily to the revaluation of the Company’s NOK-denominated bonds, the Company’s Euro-denominated term loans, capital leases and restricted cash, and the change in the valuation of the Company’s cross currency swaps, the Company recognized foreign exchange (losses) gains of $(2.6) million (2016 - $6.1 million) and $(22.9) million (2016 - $(19.6) million) during the three and nine months ended September 30, 2017 and 2016, respectively.
The weighted-average interest rate on the Company’s aggregate long-term debt as at September 30, 2017 was 4.2% (December 31, 20164.0%). This rate does not include the effect of the Company’s interest rate swap agreements (see Note 14).
Teekay has guaranteed obligations pursuant to certain credit facilities of Teekay Tankers. As at September 30, 2017, the aggregate outstanding balance on such credit facilities was $139.2 million. In September 2017, as part of the Brookfield Transaction (see Note 3), Teekay was released from all of its previous guarantees relating to Teekay Offshore's long-term debt and interest rate swap and cross currency swap agreements.
The aggregate annual long-term debt principal repayments required to be made by the Company subsequent to September 30, 2017, including the impact of the debt refinancing by Teekay LNG in November 2017 (see note 17), are $0.1 billion (remainder of 2017), $1.1 billion (2018), $0.2 billion (2019), $1.0 billion (2020), $0.6 billion (2021) and $0.4 billion (thereafter).
Among other matters, the Company’s long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and four loan agreements require the maintenance of vessel market value to loan ratios. As at September 30, 2017, these ratios ranged from 116.4% to 232.0% compared to their minimum required ratios of 105.0% to 135.0%. The vessel values used in these ratios are the appraised values prepared by the Company based on second hand sale and purchase market data. Changes in the LNG/LPG carrier and conventional tanker markets could negatively affect the Company's compliance with these ratios. Certain loan agreements require that a minimum level of free cash be maintained and as at September 30, 2017 and December 31, 2016, this amount was $50.0 million for the Company, excluding Teekay LNG. Most of the loan agreements also require that the Company maintain an aggregate minimum level of free liquidity and undrawn revolving credit lines with at least six months to maturity of 5.0% of total debt for either Teekay Parent or Teekay Tankers, which as at September 30, 2017, such amounts were $47.3 million and $39.8 million, respectively. In addition, certain loan agreements require Teekay LNG to maintain a minimum level of tangible net worth and liquidity, and not exceed a maximum level of financial leverage. As at September 30, 2017, the Company was in compliance with all covenants under its credit facilities and other long-term debt.
9.
Capital Stock
The authorized capital stock of Teekay at September 30, 2017 and December 31, 2016 was 25 million shares of preferred stock, with a par value of $1 per share, and 725 million shares of common stock, with a par value of $0.001 per share. As at September 30, 2017, Teekay had no shares of preferred stock issued.
During the nine months ended September 30, 2017, Teekay issued 0.1 million shares of common stock pursuant to stock options, restricted stock units and restricted stock awards.
During the nine months ended September 30, 2017 and 2016, the Company granted 732,314 and 916,015 stock options with exercise prices of $10.18 and $9.44 per share, respectively, 344,319 and 238,609 restricted stock units with fair values of $3.5 million and $2.3 million, respectively, nil and 311,691 performance share units with fair values of $nil and $3.6 million, respectively, and 89,387 and 67,000 shares of restricted stock awards with fair values of $0.9 million and $0.6 million, respectively, to certain of the Company’s employees and directors. Each stock option has a ten-year term and vests equally over three years from the grant date. Each restricted stock unit, restricted stock award and performance share unit is equal in value to one share of the Company’s common stock plus reinvested dividends from the grant date to the vesting date. The restricted stock units vest equally over three years from the grant date and the performance share units vest three years from the grant date. Upon vesting, the value of the restricted stock units, restricted stock awards and performance share units

Page 18 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

are paid to each grantee in the form of shares or cash. The number of performance share units that vest will range from zero to a multiple of the original number granted, based on certain performance and market conditions.
The weighted-average grant-date fair value of stock options granted during March 2017 was $4.71 per stock option. The fair value of each stock option granted was estimated on the grant date using the Black-Scholes option pricing model. The following weighted-average assumptions were used in computing the fair value of the stock options granted: expected volatility of 62.4%; expected life of 5.5 years; dividend yield of 2.5%; risk-free interest rate of 2.0%; and estimated forfeiture rate of 7.4%. The expected life of the stock options granted was estimated using the historical exercise behavior of employees. The expected volatility was generally based on historical volatility as calculated using historical data during the five years prior to the grant date.
Share-based Compensation of Subsidiaries
During the nine months ended September 30, 2017 and 2016, 56,950 and 76,084 common units of Teekay Offshore, 17,345 and 32,723 common units of Teekay LNG and nil and 9,358 shares of Class A common stock of Teekay Tankers, respectively, with aggregate values of $0.6 million and $0.7 million, respectively, were granted and issued to the non-management directors of the general partners of Teekay Offshore and Teekay LNG and the non-management directors of Teekay Tankers as part of their annual compensation for 2017 and 2016.
Teekay Offshore, Teekay LNG and Teekay Tankers grant equity-based compensation awards as incentive-based compensation to certain employees of Teekay’s subsidiaries that provide services to Teekay Offshore, Teekay LNG and Teekay Tankers. During March 2017 and 2016, Teekay Offshore and Teekay LNG granted phantom unit awards and Teekay Tankers granted restricted stock-based compensation awards with respect to 321,318 and 601,368 common units of Teekay Offshore, 60,809 and 132,582 common units of Teekay LNG and 382,437 and 279,980 Class A common shares of Teekay Tankers, respectively, with aggregate grant date fair values of $3.5 million and $4.9 million, respectively, based on Teekay Offshore, Teekay LNG and Teekay Tankers’ closing unit or stock prices on the grant dates. Each phantom unit or restricted stock unit is equal in value to one of Teekay Offshore’s, Teekay LNG’s or Teekay Tankers’ common units or common shares plus reinvested distributions or dividends from the grant date to the vesting date. The awards vest equally over three years from the grant date. Upon vesting, the awards are paid to a substantial majority of the grantees in the form of common units or common shares, net of withholding tax. During March 2017, Teekay Tankers granted 486,329 and 396,412 stock options with an exercise price of $2.23 per share to officers and non-management directors of Teekay Tankers, respectively. Each stock option granted in March 2017 has a ten-year term and vests equally over three years from the grant date. During March 2016, Teekay Tankers granted 216,043 stock options with an exercise price of $3.74 per share to an officer of Teekay Tankers. Each stock option granted in March 2016 has a ten-year term and vests equally over three years from the grant date.
10.
Commitments and Contingencies
a.
Vessels Under Construction
As at September 30, 2017, the Company was committed to the construction of eight LNG carriers for a total cost of approximately $1.7 billion, including capitalized interest and other miscellaneous construction costs. Vessels in which the Company holds an interest through non-consolidated joint ventures are excluded from the above amounts and are described in Note 10b. Two LNG carriers are scheduled for delivery in late-2017, four LNG carriers are scheduled for delivery in 2018 and two LNG carriers are scheduled for delivery in 2019. As at September 30, 2017, payments made towards these commitments totaled $0.5 billion. As at September 30, 2017, the remaining payments required to be made under these newbuilding and conversion capital commitments were $377.0 million (remainder of 2017), $536.7 million (2018), and $252.1 million (2019).
b.
Joint Ventures and Equity-Accounted Investments

Teekay LNG’s share of commitments to fund newbuilding and other construction contract costs of its equity-accounted joint ventures as at September 30, 2017 are as follows:

Total
Remainder of 2017
2018
2019
2020
 
$
$
$
$
$
Equity-accounted joint ventures (i)
1,183,589
110,937
556,064
318,683
197,905

(i)
The commitment amounts relating to Teekay LNG’s share of costs for newbuilding and other construction contracts in Teekay LNG’s equity-accounted joint ventures are based on Teekay LNG’s ownership percentage in each respective joint venture as of September 30, 2017. These commitments are described in more detail in Note 15 of the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year-ended December 31, 2016. As of September 30, 2017, based on the Teekay LNG's ownership percentage in each respective joint venture, Teekay LNG's equity-accounted joint ventures have secured $336 million of financing related to the remaining commitments included in the table above.
c.
Liquidity
Management is required to assess if the Company will have sufficient liquidity to continue as a going concern for the one-year period following the issuance of its financial statements. The Company had a consolidated net loss of $496.8 million and consolidated cash flows from operating activities of $411.5 million during the nine months ended September 30, 2017, and ended the third quarter of 2017 with a working capital deficit of $373.6 million. This working capital deficit primarily relates to the scheduled maturities in the next 12 months and repayments of approximately $0.7 billion of outstanding consolidated debt, which amount was classified as current liabilities as at September 30, 2017. In

Page 19 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

addition to these obligations, the Company also anticipates that Teekay LNG will be required to make payments related to commitments to fund vessels under construction (see Notes 10a and 10b).
Based on these factors, over the one-year period following the issuance of their unaudited consolidated financial statements, the Company’s consolidated subsidiaries, Teekay Tankers and Teekay LNG, will need to obtain additional sources of financing, in addition to amounts generated from operations, to meet their minimum liquidity requirements under their financial covenants related to these subsidiaries. These anticipated potential sources of financing include: refinancing various loan facilities of Teekay Tankers and Teekay LNG; negotiating new secured debt financings related to vessels under construction or other unencumbered operating vessels for Teekay LNG; raising additional capital through equity and bond issuances; and negotiating extensions or redeployments of existing assets. Teekay Tankers recently announced a proposed merger with TIL which, upon completion, is expected to increase Teekay Tankers' liquidity. The success of these initiatives of the Daughter Companies may impact the liquidity of Teekay Parent as a result of certain guarantees provided by Teekay Parent and through the payment of dividends/distributions by the Daughter Companies to Teekay Parent.
The Company is actively pursuing the alternatives described above, which it considers probable of completion based on the Company’s history of being able to complete equity and bond issuances, refinance similar loan facilities and to obtain new debt financing for its vessels under construction, as well as the progress it has made on the financing process to date. The Company is in various stages of completion on these matters.
Based on the Company’s liquidity at the date these unaudited consolidated financial statements were issued, the liquidity the Company expects to generate from operations over the following year, and by incorporating the Company’s plans to raise additional liquidity that it considers probable of completion, the Company expects that it will have sufficient liquidity to continue as a going concern for at least the one-year period following the issuance of these unaudited consolidated financial statements.
d.
Legal Proceedings and Claims

The Company may, from time to time, be involved in legal proceedings and claims that arise in the ordinary course of business. The Company believes that any adverse outcome of existing claims, other than with respect to the items noted below, individually or in the aggregate, would not have a material effect on its financial position, results of operations or cash flows, when taking into account its insurance coverage and indemnifications from charterers.

Class Action Complaint

Following the Company’s announcement in December 2015 that Teekay's Board of Directors had reduced the Company’s quarterly dividend to $0.055 per share, down from a dividend of $0.55 per share in the fourth quarter of 2015 dividend payable in February 2016 and the subsequent decline of the price of the Company’s common stock, a class action complaint was filed on March 1, 2016 in the U.S. District Court for the District of Connecticut against the Company and certain of its officers. As a result of the Company's motion to transfer the action, the case was transferred to the U.S. District Court for the Western District of Washington on November 18, 2016. The lead plaintiff in the action filed an Amended Class Action Complaint on January 13, 2017. The Amended Complaint includes claims that the Company and certain of its officers violated Section 10(b) of the U.S. Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Amended Complaint alleges that the Company and certain of its officers violated U.S. federal securities laws by making materially false and misleading statements regarding the Company’s ability and intention to increase its future dividends beyond the initial dividend increase to $0.55 per share that the Company announced in September 2014 and first declared in the second quarter of 2015, thereby artificially inflating the price of its common stock. The lead plaintiff is seeking unspecified monetary damages, including reasonable costs and expenses incurred in this action. The Court held a hearing on the motion to dismiss on October 25, 2017. On November 7, 2017, the Court ruled in the Company's favor on all claims and dismissed the Amended Complaint with prejudice.

Teekay Nakilat Capital Lease

Teekay LNG owns a 70% interest in Teekay Nakilat Corporation (or Teekay Nakilat Joint Venture) that was the lessee under three separate 30-year capital lease arrangements with a third party for the three LNG carriers (or the RasGas II LNG Carriers). Under the terms of the leasing arrangements in respect of the RasGas II LNG Carriers, the lessor claimed tax depreciation on the capital expenditures it incurred to acquire these vessels. As is typical in these leasing arrangements, tax and change of law risks were assumed by the lessee, in this case the Teekay Nakilat Joint Venture. Lease payments under the lease arrangements were based on certain tax and financial assumptions at the commencement of the leases and subsequently adjusted to maintain its agreed after-tax margin. On December 22, 2014, the Teekay Nakilat Joint Venture terminated the leasing arrangements of the RasGas II LNG Carriers. However, the Teekay Nakilat Joint Venture remains obligated to the lessor to maintain the lessor’s agreed after-tax margin from the commencement of the lease to the lease termination date and placed $6.8 million on deposit with the lessor as security against any future claims, which deposit is recorded as part of restricted cash - non-current in the Company's unaudited consolidated balance sheets.

The UK taxing authority (or HMRC) has been challenging the use of similar lease structures in the UK courts. One of those challenges was eventually decided in favor of HMRC (Lloyds Bank Equipment Leasing No. 1 or LEL1), with the lessor and lessee choosing not to appeal the decision further. The LEL 1 tax case concluded that capital allowances were not available to the lessor.  On the basis of this conclusion, HMRC is now asking lessees on other leases, including the Teekay Nakilat Joint Venture, to accept that capital allowances are not available to their lessor. The Teekay Nakilat Joint Venture does not accept this contention and has informed HMRC of this position. It is not known at this time whether the Teekay Nakilat Joint Venture would eventually prevail in court. If the former lessor of the RasGas II LNG Carriers were to lose on a similar claim from HMRC, Teekay LNG’s 70% share of the potential exposure is estimated to be approximately $42 million. Such estimate is primarily based on information received from the lessor.

Page 20 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

e.
Redeemable Non-Controlling Interest
In July 2015, Teekay Offshore issued in a private placement 10.4 million of its 8.60% Series C Cumulative Convertible Perpetual Preferred Units (or Series C Preferred Units) in a private placement. The terms of the Series C Preferred Units provided that at any time after the 18-month anniversary of the closing date, at the election of each holder, the Series C Preferred Units could be converted on a one-for-one basis into common units of Teekay Offshore. In addition, if after the three-year anniversary of the closing date, the volume weighted average price of the common units exceeded $35.925, Teekay Offshore had the option to convert the Series C Preferred Units into common units. The Series C Preferred Units could be redeemed in cash if a change of control occurred in Teekay Offshore.
In June 2016, Teekay Offshore and the unitholders of the Series C Preferred Units exchanged approximately 1.9 million of the Series C Preferred Units for approximately 8.3 million common units of Teekay Offshore and also exchanged the remaining approximately 8.5 million Series C Preferred Units for approximately 8.5 million Series C-1 Preferred Units. The terms of the Series C-1 Preferred Units were equivalent to the terms of the Series C Preferred Units, with the exception that at any time after the 18-month anniversary of the original Series C Preferred Units closing date, at the election of each holder, each Series C-1 Preferred Unit was convertible into 1.474 common units of Teekay Offshore. In addition, if a unitholder of the Series C-1 Preferred Units elected to convert their Series C-1 Preferred Units into common units of Teekay Offshore, Teekay Offshore had the option to redeem these Series C-1 Preferred Units for cash based on the closing market price of the common units of Teekay Offshore instead of issuing common units. Furthermore, if after the three-year anniversary of the closing date, the volume weighted average price of the common units exceeded 150% of $16.25 per unit, Teekay Offshore had the option to convert the Series C-1 Preferred Units into common units. Consistent with the terms of the Series C Preferred Units, the Series C-1 Preferred Units might have been redeemed in cash if a change of control occurred in Teekay Offshore. As a result, the Series C-1 Preferred Units were, prior to the deconsolidation of Teekay Offshore in September 2017, included on the Company’s unaudited consolidated balance sheet as part of temporary equity which is above the equity section but below the liabilities section.
In June 2016, Teekay Offshore issued 4.0 million of its 10.50% Series D Cumulative Convertible Perpetual Preferred Units (or Series D Preferred Units). The Series D Preferred Units had no mandatory redemption date, but they were redeemable at Teekay Offshore's option after June 29, 2021 for a 10% premium to the liquidation value and for a 5% premium to the liquidation value any time after June 29, 2022. The Series D Preferred Units were exchangeable into common units of Teekay Offshore at the option of the holder at any time after June 29, 2021, based on the 10-trading day volume weighted average price at the time of the notice of exchange or $4.00. A change of control event involving the purchase of all outstanding common units for consideration of at least 90% cash or a change in ownership of the general partner of Teekay Offshore by 50% or more would have resulted in the Series D Preferred Units being redeemable for cash. As a result, the Series D Preferred Units, net of Teekay's units, were, prior to the deconsolidation of Teekay Offshore in September 2017, included on the Company’s unaudited consolidated balance sheet as part of temporary equity which is above the equity section but below the liabilities section.
As part of the Brookfield Transaction (see Note 3), Teekay Offshore repurchased and cancelled all of its outstanding Series C-1 and Series D Preferred Units.
f.
Other
The Company enters into indemnification agreements with certain officers and directors. In addition, the Company enters into other indemnification agreements in the ordinary course of business. The maximum potential amount of future payments required under these indemnification agreements is unlimited. However, the Company maintains what it believes is appropriate liability insurance that reduces its exposure and enables the Company to recover future amounts paid up to the maximum amount of the insurance coverage, less any deductible amounts pursuant to the terms of the respective policies, the amounts of which are not considered material.
11.
Financial Instruments
a.
Fair Value Measurements
For a description of how the Company estimates fair value and for a description of the fair value hierarchy levels, see Note 10 in the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2016.
The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring and non-recurring basis as well as the estimated fair value of the Company’s financial instruments that are not accounted for at fair value on a recurring basis.

Page 21 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

 
 
 
September 30, 2017
 
December 31, 2016
 
Fair
Value
Hierarchy
Level
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset
(Liability)
$
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset
(Liability)
$
Recurring
 
 
 
 
 
 
 
 
 
Cash and cash equivalents, restricted cash, and marketable securities
Level 1
 
556,194

 
556,194

 
805,567

 
805,567

Derivative instruments (note 14)
 
 
 
 
 
 
 
 
 
Interest rate swap agreements – assets(1)
Level 2
 
3,100

 
3,100

 
7,943

 
7,943

Interest rate swap agreements – liabilities(1)
Level 2
 
(86,493
)
 
(86,493
)
 
(302,935
)
 
(302,935
)
Cross currency interest swap agreement(1)
Level 2
 
(41,268
)
 
(41,268
)
 
(237,165
)
 
(237,165
)
Foreign currency contracts
Level 2
 
537

 
537

 
(2,993
)
 
(2,993
)
Stock purchase warrants
Level 3
 
32,135

 
32,135

 
575

 
575

Time-charter swap agreement
Level 3
 

 

 
208

 
208

Freight forward agreements
Level 1
 
(79
)
 
(79
)
 

 

Non-recurring
 
 
 
 
 
 
 
 
 
Vessels and equipment
Level 3
 
130,200

 
130,200

 
11,300

 
11,300

Vessels held for sale
Level 2
 
6,400

 
6,400

 
61,282

 
61,282

Vessels under capital leases
Level 3
 
52,914

 
52,914

 

 

Long-term investments
Level 2
 

 

 
6,000

 
6,000

Other
 
 
 
 
 
 
Loans to equity-accounted investees and joint venture partners – Current
(2)
 
165,118

 
(2
)
 
11,821

 
(2
)
Loans to equity-accounted investees and joint venture partners – Long-term
(2)
 
145,804

 
(2
)
 
292,209

 
(2
)
Long-term receivable included in accounts receivable and other assets(3)
Level 3
 
5,028

 
5,004

 
10,985

 
10,944

Long-term debt – public (note 8)
Level 1
 
(974,349
)
 
(996,360
)
 
(1,503,472
)
 
(1,409,996
)
Long-term debt – non-public (note 8)
Level 2
 
(2,374,163
)
 
(2,334,229
)
 
(5,136,074
)
 
(5,009,900
)
Obligations related to capital leases, including current portion
Level 2
 
(150,956
)
 
(150,671
)
 

 

 
(1)
The fair value of the Company's interest rate swap and cross currency swap agreements at September 30, 2017 includes $3.0 million (December 31, 2016 - $15.8 million) accrued interest expense which is recorded in accrued liabilities on the unaudited consolidated balance sheets.
(2)
In the unaudited interim consolidated financial statements, the Company’s loans to and equity investments in equity-accounted investees form the aggregate carrying value of the Company’s interests in entities accounted for by the equity method. The fair value of the individual components of such aggregate interests is not determinable.
(3)
As at September 30, 2017, the estimated fair value of the non-interest bearing receivable from Royal Dutch Shell plc (or Shell) is based on the remaining future fixed payments as well as an estimated discount rate. The estimated fair value of this receivable as of September 30, 2017 was $5.0 million (December 31, 2016 $10.9 million) using a discount rate of 8.0%. As there is no market rate for the equivalent of an unsecured non-interest bearing receivable from Shell, the discount rate is based on unsecured debt instruments of similar maturity held by the Company, adjusted for a liquidity premium. A higher or lower discount rate would result in a lower or higher fair value asset.
Time-charter swap agreement - Changes in fair value during the three and nine months ended September 30, 2017 for Teekay Tankers' time-charter swap agreement, which is described in Note 14 below and was measured at fair value on the recurring basis using significant unobservable inputs (Level 3), are as follows:

Page 22 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

 
 
Nine Months Ended September 30, 2017
 
 
$
Fair value asset - beginning of the period
 
875

Settlements
 
(1,106
)
Realized and unrealized gain
 
231

Fair value asset - at the end of the period
 


The estimated fair value of the time-charter swap agreement was based in part upon the Company’s projection of future Aframax spot market tanker rates, which were derived from current Aframax spot market tanker rates and estimated future rates, as well as an estimated discount rate. The time-charter swap agreement ended on April 30, 2017.
Stock purchase warrants - As at September 30, 2017, Teekay held 14.5 million Brookfield Transaction Warrants (see Note 3). The Brookfield Transaction Warrants allow the holders to acquire one common unit of Teekay Offshore for each Brookfield Transaction Warrant for an exercise price of $0.01 per common unit, which warrants become exercisable when Teekay Offshore's common unit volume-weighted average price is equal to or greater than $4.00 per common unit for 10 consecutive trading days until September 25, 2024. The fair value of the Brookfield Transaction Warrants was $34.7 million and $30.5 million on September 25, and September 30, 2017, respectively.

As of September 30, 2017, in addition to the Brookfield Transaction Warrants, Teekay held a total of 1,755,000 warrants to purchase common units of Teekay Offshore that were issued in connection with Teekay Offshore's private placement of Series D Preferred Units in June 2016 (or the Series D Warrants) with an exercise price of $4.55, which have a seven-year term and are exercisable any time after six months following their issuance date. The Series D Warrants will be net settled in either cash or common units at Teekay Offshore’s option. The fair value of the Series D Warrants was $1.9 million and $1.6 million on September 25, and September 30, 2017, respectively.

The estimated fair value of the Brookfield Transaction Warrants and the Series D Warrants was determined using a Black-Scholes pricing model and is based, in part, on the historical price of common units of Teekay Offshore, the risk-free rate, vesting conditions and the historical volatility of Teekay Offshore. The estimated fair value of these Brookfield Transaction Warrants and Series D Warrants as of September 30, 2017 was based on the historical volatility of Teekay Offshore's common units of 84.2%. A higher or lower volatility would result in a higher or lower fair value of this derivative asset.
During January 2014, the Company received from TIL stock purchase warrants entitling it to purchase up to 1.5 million shares of common stock of TIL (see Note 14). In May 2017, Teekay Tankers entered into the Merger Agreement with TIL. Under the terms of the Merger Agreement, warrants to purchase or acquire shares of common stock of TIL that have not been exercised as of the effective time of the merger, will be cancelled. As a result, no value is recorded for this warrant in the Company's balance sheet at September 30, 2017.
Changes in fair value during the three and nine months ended September 30, 2017 and 2016 for the Company’s Brookfield Transaction Warrants, Series D Warrants and the TIL stock purchase warrants, which are described above and were measured at fair value on the recurring basis using significant unobservable inputs (Level 3), are as follows: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
$
 
$
 
$
 
$
Fair value at the beginning of the period

 
1,833

 
575

 
10,328

Fair value on issuance
36,596

 

 
36,596

 

Unrealized loss included in earnings
(4,461
)
 
(399
)
 
(5,036
)
 
(8,894
)
Fair value at the end of the period
32,135

 
1,434

 
32,135

 
1,434


Vessels and equipment – In September 2017, the Company determined that two FPSO units, the Petrojarl Foinaven FPSO and the Petrojarl Banff FPSO, were impaired and wrote down the carrying values of the units to their estimated fair values, which in aggregate was approximately $113 million (see note 7a). The Company has determined the discounted cash flows using the current projected time charter rates and costs, discounted at an estimated market participant rate of 10%.  For both units, the Company has included the existing contracted time charter rates and operating costs as well as projected future use on another field.  The projected future use of each of the FPSO units takes into consideration the Company’s estimated upgrade costs and projected time charter rates that could be contracted in future periods. In establishing these estimates, the Company has considered current discussions with potential customers, available information regarding field expansions and historical experience redeploying FPSO units.  
b.
Financing Receivables
The following table contains a summary of the Company’s financing receivables by type of borrower and the method by which the Company monitors the credit quality of its financing receivables on a quarterly basis.

Page 23 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

Class of Financing Receivable
 
Credit Quality Indicator
 
Grade
 
September 30, 2017
 
December 31, 2016
$
 
$
Direct financing leases
 
Payment activity
 
Performing
 
633,805

 
660,594

Other loan receivables
 
 
 
 
 
 
 
 
Loans to equity-accounted investees and joint venture partners
 
Other internal metrics
 
Performing
 
310,922

 
304,030

Long-term receivable included in other assets
 
Payment activity
 
Performing
 
11,577

 
17,712

 
 
 
 
 
 
956,304

 
982,336

12.
Restructuring Charges
During the three and nine months ended September 30, 2017, the Company recorded restructuring charges of $2.9 million and $5.1 million, respectively. The restructuring charges primarily related to: severance costs resulting from the termination of the charter contract for the Arendal Spirit UMS in Teekay Offshore and the resulting decommissioning of the unit; reorganization and realignment of resources of certain of the Company's strategic development function to better respond to the changing business environment; and reorganization of the Company's FPSO business to create better alignment with the Company's offshore operations.
During the three and nine months ended September 30, 2016, the Company recorded restructuring charges of $3.1 million and $22.9 million, respectively. The restructuring related to the closure of two offices and seafarers' severance amounts related to a tug business in Western Australia, reorganization of the Company's FPSO business to create better alignment with the Company's offshore operations, and reductions to charges previously accrued. The charges related to the seafarers' severance were partly recovered from the customer and the recovery is included in revenues on the unaudited consolidated statements of (loss) income.
At September 30, 2017 and December 31, 2016, $1.4 million and $5.6 million, respectively, of restructuring liabilities were recorded in accrued liabilities on the unaudited consolidated balance sheets.
13.
Accumulated Other Comprehensive Loss
As at September 30, 2017 and December 31, 2016, the Company’s accumulated other comprehensive loss (or AOCI) consisted of the following components:
 
 
September 30,
 
December 31,
 
2017
 
2016
 
$
 
$
Unrealized loss on qualifying cash flow hedging instruments
398

 
(41
)
Pension adjustments, net of tax recoveries
(12,332
)
 
(12,160
)
Unrealized gain (loss) on marketable securities
22

 
(416
)
Foreign exchange gain on currency translation
2,683

 
2,014

 
(9,229
)
 
(10,603
)

Page 24 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

14.
Derivative Instruments and Hedging Activities

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

Foreign Exchange Risk
The Company economically hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts.

As at September 30, 2017, the Company was committed to the following foreign currency forward contracts:
 
 
 
 
 
Fair Value /
Carrying
Amount
Of Asset
$
 
Expected Maturity
 
Contract Amount in
Foreign Currency
 
Average
Forward Rate 
(1)
 
 
2017
 
2018
 
 
 
 
$
 
$
Norwegian Kroner
130,000

 
8.24

 
537

 
3,616

 
12,153

 
(1)
Average contractual exchange rate represents the contracted amount of foreign currency one U.S. Dollar will buy.
The Company enters into cross currency swaps, and pursuant to these swaps the Company receives the principal amount in NOK on the maturity date of the swap, in exchange for payment of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and principal amounts of the Company’s NOK-denominated bonds due in 2018, 2020 and 2021. In addition, the cross currency swaps economically hedge the interest rate exposure on the NOK bonds due in 2018, 2020 and 2021. The Company has not designated, for accounting purposes, these cross currency swaps as cash flow hedges of its NOK-denominated bonds due in 2018, 2020 and 2021. As at September 30, 2017, the Company was committed to the following cross currency swaps:
 
 
 
 
 
 
 
 
 
 
Fair Value /
Carrying
Amount of
Asset /
(Liability)
$
 
 
Notional
Amount
NOK
 
Notional
Amount
USD
 
Floating Rate Receivable
 
 
 
 
 
 
 
Reference
Rate
 
Margin
 
Fixed Rate
Payable
 
 
Remaining
Term (years)
900,000
 
150,000

 
NIBOR
 
4.35%
 
6.43%
 
(39,088
)
 
0.9
1,000,000
 
134,000

 
NIBOR
 
3.70%
 
5.92%
 
(9,862
)
 
2.6
1,200,000
 
146,500

 
NIBOR
 
6.00%
 
7.70%
 
7,682

 
4.1
 
 
 
 
 
 
 
 
 
 
(41,268
)
 
 

Interest Rate Risk
The Company enters into interest rate swap agreements, which exchange a receipt of floating interest for a payment of fixed interest, to reduce the Company’s exposure to interest rate variability on its outstanding floating-rate debt. The Company designates certain of its interest rate swap agreements as cash flow hedges for accounting purposes.
 

Page 25 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

As at September 30, 2017, the Company was committed to the following interest rate swap agreements related to its LIBOR-based debt and EURIBOR-based debt, whereby certain of the Company’s floating-rate debt were swapped with fixed-rate obligations: 
 
Interest
Rate
Index
 
Principal
Amount
 
Fair Value /
Carrying
Amount of
Asset /
(Liability)
$
 
Weighted-
Average
Remaining
Term
(years)
 
Fixed
Interest
Rate
(%) (1)
LIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
U.S. Dollar-denominated interest rate swaps (2)
LIBOR
 
1,014,701

 
(31,522
)
 
5.2
 
2.8

U.S. Dollar-denominated interest rate swaps (3)
LIBOR
 
331,933

 
(20,538
)
 
1.8
 
3.4

U.S. Dollar-denominated interest rate swaption (4)
LIBOR
 
160,000

 
(535
)
 
0.3
 
2.0

U.S. Dollar-denominated interest rate swaption (4)
LIBOR
 
160,000

 
15

 
0.3
 
3.1

EURIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
Euro-denominated interest rate swaps (5) (6)
EURIBOR
 
233,763

 
(30,813
)
 
3.2
 
3.1

 
 
 
 
 
(83,393
)
 
 
 
 

(1)
Excludes the margins the Company pays on its variable-rate debt, which, as of September 30, 2017, ranged from 0.3% to 4.0%.
(2)
Includes interest rate swaps with the notional amount reducing quarterly or semi-annually.
(3)
Forward-starting interest rate swaps with inception dates ranging from October 2017 to April 2018. Interest rate swaps are being used to economically hedge expected interest payments on new debt that is planned to be outstanding from 2017 to 2024. These interest rate swaps are subject to mandatory early termination in 2018 and 2020 whereby the swaps will be settled based on their fair value at that time.
(4)
During August 2015, as part of its hedging program, Teekay LNG entered into interest rate swaption agreements whereby it has a one-time option in January 2018 to enter into an interest rate swap at a fixed rate of 3.10% with a third party, and the third party has a one-time option in January 2018 to require Teekay LNG to enter into an interest rate swap at a fixed rate of 1.97%. If Teekay LNG or the third party exercises its option, there will be a cash settlement in January 2018 for the fair value of the interest rate swap in lieu of taking delivery of the actual interest rate swap.
(5)
Principal amount reduces monthly to 70.1 million Euros ($82.8 million) by the maturity dates of the swap agreements.
(6)
Principal amount is the U.S. Dollar equivalent of 197.9 million Euros.

Stock Purchase Warrants

During September 2017, as part of the Brookfield Transaction (see Note 3), Teekay was released from all of its previous guarantees relating to Teekay Offshore's interest rate swap and cross currency swap agreements.

As at September 30, 2017, Teekay held 14.5 million Brookfield Transaction Warrants (see Notes 3 and 11). The fair value of the Brookfield Transaction Warrants were $34.7 million and $30.5 million on September 25, and September 30, 2017, respectively.

As of September 30, 2017, Teekay held 1,755,000 Series D Warrants (see Notes 3 and 11). The fair value of the Series D Warrants were $1.9 million and $1.6 million on September 25, and September 30, 2017, respectively.
 
As of September 30, 2017, Teekay held 1,500,000 TIL common stock purchase warrants. Upon completion of the merger pursuant to the Merger Agreement (see Note 7c), the TIL stock purchase warrants will be cancelled. As a result, no value is recorded for this warrants on the Company's unaudited balance sheet as at September 30, 2017 (see Note 11).

Time-charter Swap Agreement

Effective June 1, 2016, Teekay Tankers entered into a time-charter swap agreement for 55% of two Aframax-equivalent vessels. Under such agreement, Teekay Tankers received $27,776 per day, net of a 1.25% brokerage commission, and paid 55% of the net revenue distribution of two Aframax-equivalent vessels employed in Teekay Tankers' Aframax revenue sharing arrangement, less $500 per day, for a period of 11 months plus an additional two months at the counterparty's option. The purpose of the agreement was to reduce Teekay Tankers’ exposure to spot tanker market rate variability for certain of its vessels that were employed in the Aframax revenue sharing arrangement. Teekay Tankers did not designate, for accounting purposes, the time-charter swap as a cash flow hedge. The fair value of the time-charter swap agreement at September 30, 2017 was $nil (December 31, 2016 - an asset of $0.2 million). As of May 1, 2017, the time-charter swap counter-party did not exercise the two-month option and the agreement expired during May 2017.

Page 26 of 70

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

Forward Freight Agreements
Teekay Tankers uses forward freight agreements (or FFAs) in non-hedge-related transactions to increase or decrease its exposure to spot market rates, within defined limits. Net gains and losses from FFAs are recorded within realized and unrealized (loss) gain on non-designated derivative instruments in the Company's unaudited consolidated statements of (loss) income. The fair value of the forward freight agreement at September 30, 2017 was a liability of $0.1 million.

Tabular Disclosure

The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Company’s unaudited consolidated balance sheets.
 
Prepaid Expenses and Other
 
Other Non-Current Assets
 
Accrued
Liabilities and Other
 
Current
Portion of
Derivative
Liabilities
 
Derivative
Liabilities
 
$
 
$
 
$
 
$
 
$
As at September 30, 2017
 
 
 
 
 
 
 
 
 
Derivatives designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
Interest rate swap agreements

 
587

 
(25
)
 
(1,366
)
 
(605
)
Derivatives not designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
Foreign currency contracts
537

 

 

 

 

Interest rate swap agreements
220

 
3,069

 
(2,256
)
 
(28,978
)
 
(54,039
)
Cross currency swap agreements

 
8,688

 
(700
)
 
(41,612
)
 
(7,644
)
Stock purchase warrants

 
32,135

 

 

 

Forward freight agreements
29

 

 
(108
)
 

 

 
786

 
44,479

 
(3,089
)
 
(71,956
)
 
(62,288
)
As at December 31, 2016
 
 
 
 
 
 
 
 
 
Derivatives designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
Interest rate swap agreements

 
1,340

 
(363
)
 
(1,033
)
 
(52
)
Derivatives not designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
Foreign currency contracts
119

 

 

 
(2,601
)
 
(511
)
Interest rate swap agreements
212

 
9,839

 
(11,979
)
 
(59,055
)
 
(233,901
)
Cross currency swap agreements

 

 
(3,464
)
 
(53,124
)
 
(180,577
)
Stock purchase warrants

 
575

 

 

 

Time-charter swap agreement
875

 

 
(667
)
 

 

 
1,206