6-K 1 tkc6-kq3x18doc.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, 2018
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


TEEKAY CORPORATION AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018
INDEX

 
PAGE
 
 


Page 2



ITEM 1 - FINANCIAL STATEMENTS
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF LOSS
(in thousands of U.S. Dollars, except share and per share amounts)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
$
 
$
 
$
 
$
Revenues (notes 2, 3 and 4)
416,562

 
500,781

 
1,216,226

 
1,558,209

Voyage expenses (notes 2 and 3)
(90,899
)
 
(42,454
)
 
(271,688
)
 
(133,891
)
Vessel operating expenses (notes 2 and 4)
(157,585
)
 
(200,456
)
 
(478,057
)
 
(599,500
)
Time-charter hire expense (note 4)
(20,965
)
 
(28,645
)
 
(61,024
)
 
(98,106
)
Depreciation and amortization
(69,967
)
 
(136,942
)
 
(205,238
)
 
(422,713
)
General and administrative expenses (note 4)
(19,050
)
 
(27,662
)
 
(66,953
)
 
(88,641
)
Write-down and loss on sales of vessels (note 7)
(2,201
)
 
(251,585
)
 
(53,693
)
 
(270,254
)
Restructuring charges (note 12)
(813
)
 
(2,883
)
 
(4,065
)
 
(5,059
)
Income (loss) from vessel operations
55,082

 
(189,846
)
 
75,508

 
(59,955
)
Interest expense
(67,343
)

(74,499
)
 
(181,494
)
 
(219,237
)
Interest income
2,103

 
1,900

 
5,875

 
4,917

Realized and unrealized (losses) gains on non-designated derivative instruments (note 15)
(2,168
)
 
(6,128
)
 
17,981

 
(43,173
)
Equity income (loss)
13,744

 
1,264

 
41,698

 
(36,373
)
Foreign exchange gain (loss) (notes 8 and 15)
3,553

 
(2,642
)
 
16,104

 
(22,888
)
Loss on deconsolidation of Teekay Offshore (note 4)

 
(103,188
)
 
(7,070
)
 
(103,188
)
Other loss
(2,400
)
 
(4,705
)
 
(2,795
)
 
(5,169
)
Income (loss) before income taxes
2,571

 
(377,844
)
 
(34,193
)
 
(485,066
)
Income tax expense (note 16)
(4,334
)
 
(5,221
)
 
(17,197
)
 
(11,767
)
Net loss
(1,763
)
 
(383,065
)
 
(51,390
)
 
(496,833
)
Net loss (income) attributable to non-controlling interests
(10,242
)
 
370,483

 
(9,494
)
 
358,843

Net loss attributable to the shareholders of Teekay Corporation
(12,005
)
 
(12,582
)
 
(60,884
)
 
(137,990
)
Per common share of Teekay Corporation (note 17)
 
 
 
 
 
 
 
•   Basic and diluted loss attributable to shareholders of Teekay Corporation
(0.12
)
 
(0.15
)
 
(0.61
)
 
(1.60
)
•  Cash dividends declared
0.055

 
0.055

 
0.165

 
0.165

Weighted average number of common shares outstanding (note 17)
 
 
 
 
 
 
 
•  Basic and diluted
100,435,045

 
86,261,330

 
99,412,381

 
86,232,315


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

Page 3


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands of U.S. Dollars)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
 
$
 
$
 
$
 
$
Net loss
(1,763
)
 
(383,065
)
 
(51,390
)
 
(496,833
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
 
 
 
 
 
 
 
Unrealized (loss) gain on marketable securities

 
(262
)
 

 
438

Unrealized gain (loss) on qualifying cash flow hedging instruments
6,955

 
(509
)
 
16,631

 
(4,094
)
Pension adjustments, net of taxes
174

 
(59
)
 
550

 
(171
)
Foreign exchange gain on currency translation
794

 
257

 
843

 
668

Amounts reclassified from accumulated other comprehensive income (loss) relating to:
 
 
 
 
 
 
 
Realized (gain) loss on qualifying cash flow hedging instruments
 
 
 
 
 
 
 
To interest expense (note 15)
(37
)
 
424

 
211

 
1,186

To equity income
(619
)
 
793

 
(1,217
)
 
1,776

Loss on deconsolidation of Teekay Offshore (note 4)

 

 
7,720

 

Other comprehensive income (loss)
7,267

 
644

 
24,738

 
(197
)
Comprehensive income (loss)
5,504

 
(382,421
)
 
(26,652
)
 
(497,030
)
Comprehensive (income) loss attributable to non-controlling interests
(14,953
)
 
370,036

 
(20,617
)
 
359,793

Comprehensive loss attributable to shareholders of Teekay Corporation
(9,449
)
 
(12,385
)
 
(47,269
)
 
(137,237
)
The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 4


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. Dollars, except share amounts)
 
 
As at
September 30,
2018
 
As at
December 31,
2017
 
$
 
$
ASSETS
 
 
 
Current
 
 
 
Cash and cash equivalents (note 8)
385,352

 
445,452

Restricted cash - current
38,231

 
38,179

Accounts receivable, including non-trade of $15,908 (2017 – $15,273) and related party balance of $27,436 (2017 – $16,068) (note 2)
158,318

 
159,859

Assets held for sale (note 7)
28,482

 
33,671

Net investment in direct financing leases (note 3)
12,273

 
9,884

Prepaid expenses and other (notes 2 and 15)
55,047

 
38,180

Current portion of loans to equity-accounted investees (note 4)
82,376

 
107,486

Total current assets
760,079

 
832,711

Restricted cash - non-current
34,880

 
68,543

Vessels and equipment (note 8)
 
 
 
At cost, less accumulated depreciation of $1,294,622 (2017 – $1,293,447)
3,332,478

 
3,491,491

Vessels related to capital leases, at cost, less accumulated amortization of $93,858 (2017 – $51,290) (note 6)
1,938,379

 
1,272,560

Advances on newbuilding contracts (note 10a)
172,248

 
444,493

Total vessels and equipment
5,443,105

 
5,208,544

Net investment in direct financing leases - non-current (note 3)
565,423

 
486,106

Investment in and advances to equity-accounted investments (notes 4 and 10b)
1,313,497

 
1,276,618

Other non-current assets (note 15)
97,571

 
83,211

Intangible assets – net
81,542

 
93,014

Goodwill
43,690

 
43,690

Total assets
8,339,787

 
8,092,437

LIABILITIES AND EQUITY
 
 
 
Current
 
 
 
Accounts payable
18,034

 
24,107

Accrued liabilities and other (notes 12 and 15)
193,213

 
296,232

Advances from affiliates (note 4)
73,109

 
49,100

Current portion of derivative liabilities (note 15)
13,036

 
80,423

Current portion of long-term debt (note 8)
259,104

 
800,897

Current obligations related to capital leases
96,988

 
114,173

Total current liabilities
653,484

 
1,364,932

Long-term debt (note 8)
3,091,911

 
2,616,808

Long-term obligations related to capital leases
1,512,710

 
1,046,284

Derivative liabilities (note 15)
31,717

 
48,388

Other long-term liabilities (note 16)
130,052

 
136,369

Total liabilities
5,419,874

 
5,212,781

Commitments and contingencies (notes 6, 8, 10, and 15)


 


Equity
 
 
 
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 100,435,096 shares outstanding and issued (2017 – 89,127,041)) (note 9)
1,046,081

 
919,078

Accumulated deficit
(211,379
)
 
(135,892
)
Non-controlling interest
2,077,492

 
2,102,465

Accumulated other comprehensive income (loss)
7,719

 
(5,995
)
Total equity
2,919,913

 
2,879,656

Total liabilities and equity
8,339,787

 
8,092,437

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

Page 5


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. Dollars)
 
 
Nine Months Ended September 30,
 
2018
 
2017
 
$
 
$
Cash, cash equivalents and restricted cash provided by (used for)
 
 
 
OPERATING ACTIVITIES

 
 
Net loss
(51,390
)
 
(496,833
)
Non-cash and non-operating items:


 
 
Depreciation and amortization
205,238

 
422,713

Unrealized gain on derivative instruments (note 15)
(93,817
)
 
(94,532
)
Write-down and loss on sales of vessels (note 7)
53,693

 
270,254

Loss on deconsolidation of Teekay Offshore (note 4)
7,070

 
103,188

Equity (income) loss, net of dividends received
(28,382
)
 
72,159

Income tax expense
17,197

 
11,767

Unrealized foreign currency exchange loss including the effect of the termination of cross-currency swaps
31,098

 
108,271

Other
13,912

 
13,144

Change in operating assets and liabilities
(41,424
)
 
67,855

Expenditures for dry docking
(28,782
)
 
(38,704
)
Net operating cash flow
84,413

 
439,282

FINANCING ACTIVITIES


 
 
Proceeds from issuance of long-term debt, net of issuance costs
843,854

 
680,261

Prepayments of long-term debt
(681,664
)
 
(314,029
)
Scheduled repayments of long-term debt and settlement of related swaps (note 8)
(265,868
)
 
(641,070
)
Proceeds from financing related to sale-leaseback of vessels
526,692

 
488,830

Repayments of obligations related to capital leases
(54,122
)
 
(29,723
)
Net proceeds from equity issuances of subsidiaries

 
8,521

Net proceeds from equity issuances of Teekay Corporation (note 9)
103,657

 

Distributions paid from subsidiaries to non-controlling interests
(49,124
)
 
(88,133
)
Cash dividends paid
(16,637
)
 
(14,235
)
Other financing activities
(595
)
 
1,675

Net financing cash flow
406,193

 
92,097

INVESTING ACTIVITIES


 
 
Expenditures for vessels and equipment
(564,464
)
 
(694,507
)
Proceeds from sale of vessels and equipment

 
67,440

Proceeds from sale of equity-accounted investment
54,438

 

Investment in equity-accounted investments
(32,758
)
 
(109,580
)
Advances to joint ventures and joint venture partners
(24,957
)
 
(12,576
)
Cash of transferred subsidiaries on sale, net of proceeds received (note 4)
(25,254
)
 
(45,447
)
Other investing activities
8,678

 
13,481

Net investing cash flow
(584,317
)
 
(781,189
)
Decrease in cash, cash equivalents and restricted cash
(93,711
)
 
(249,810
)
Cash, cash equivalents and restricted cash, beginning of the period
552,174

 
805,242

Cash, cash equivalents and restricted cash, end of the period
458,463

 
555,432

Supplemental cash flow information (note 18)
 
 
 
The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 6


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
$
 
Accumulated
Deficit
$
 
Accumulated
Other
Compre-
hensive
(Loss) Income
$
 
Non-
controlling
Interests
$
 
Total
$
Balance as at December 31, 2017 (note 2)
89,127

 
919,078

 
(135,892
)
 
(5,995
)
 
2,102,465

 
2,879,656

Net (loss) income

 

 
(60,884
)
 

 
9,494

 
(51,390
)
Other comprehensive income

 

 

 
13,615

 
11,123

 
24,738

Dividends declared

 

 
(16,640
)
 

 
(49,124
)
 
(65,764
)
Employee stock compensation and other (note 9)
181

 
7,247

 

 

 

 
7,247

Proceeds from equity offerings, net of offering costs (note 9)
11,127

 
103,657

 

 

 

 
103,657

Equity component of convertible notes (note 8)

 
16,099

 

 

 

 
16,099

Changes to non-controlling interest from equity contributions and other

 

 
2,037

 
99

 
3,534

 
5,670

Balance as at September 30, 2018
100,435

 
1,046,081

 
(211,379
)
 
7,719

 
2,077,492

 
2,919,913

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

Page 7

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) (see Note 4).
 
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 consolidated financial statements for the year ended December 31, 2017, included in the Company’s Annual Report on Form 20-F, filed with the U.S. Securities and Exchange Commission (or SEC) on April 30, 2018. In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments, consisting of a normal recurring nature, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, cash flows and changes in total equity for the interim periods presented. The results of operations for the three and nine months ended September 30, 2018, are not necessarily indicative of those for a full fiscal year. Significant intercompany balances and transactions have been eliminated upon consolidation. In addition, because the Company has determined that the entities that have financed certain of the Teekay liquefied natural gas (or LNG) carriers or LNG carrier newbuildings through sale-leaseback transactions are variable interest entities (or VIEs) that should be consolidated, the presentation of the sale-leaseback transactions in the consolidated statements of cash flows has been adjusted to reflect these transactions as financing activities instead of investing activities in the current and comparative period.

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. Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (or FASB) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (or ASU 2014-09). ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers 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 includes (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue as each performance obligation is satisfied. ASU 2014-09 became effective for the Company as of January 1, 2018 and may be applied, at the Company’s option, retrospectively to each period presented or as a cumulative-effect adjustment as of such date. The Company has elected to apply ASU 2014-09 only to those contracts that were not completed as of January 1, 2018. The Company has adopted ASU 2014-09 as a cumulative-effect adjustment as of the date of adoption. The Company has identified the following differences on adoption of ASU 2014-09:

The Company previously presented the net allocation for its vessels participating in revenue sharing arrangements (or RSAs) as revenues. The Company has determined that it is the principal in voyages its vessels perform that are included in the RSAs. As such, the revenue from those voyages is presented in voyage revenues and the difference between this amount and the Company's net allocation from the RSA is presented as voyage expenses. This had the effect of increasing both revenues and voyage expenses for the three and nine months ended September 30, 2018 by $73.6 million and $202.4 million, respectively. There was no cumulative impact to opening equity as at January 1, 2018.

The Company manages vessels owned by its equity-accounted investments and third parties. Upon the adoption of ASU 2014-09, costs incurred by the Company for its seafarers are presented as vessel operating expenses and the reimbursement of such expenses are presented as revenue, instead of such amounts being presented on a net basis. This had the effect of increasing both revenues and vessel operating expenses for the three and nine months ended September 30, 2018 by $20.2 million and $61.3 million, respectively. There was no cumulative impact to opening equity as at January 1, 2018.

The Company previously presented all accrued revenue as a component of accounts receivable. The Company has determined that if the right to such consideration is conditioned upon something other than the passage of time, such accrued revenue should be presented apart from accounts receivable. This had the effect of increasing prepaid expenses and other and decreasing accounts receivable by $5.8 million as at September 30, 2018. There was no cumulative impact to opening equity as at January 1, 2018.


Page 8

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

The Company will sometimes incur pre-operational costs that relate directly to a specific customer contract, that generate or enhance resources of the Company that will be used in satisfying performance obligations in the future, whereby such costs are expected to be recovered via the customer contract. Such costs are now deferred and amortized over the duration of the customer contract. The Company previously expensed such costs as incurred unless the costs were directly reimbursable by the contract or if they were related to the mobilization of offshore assets to an oil field. This change had the effect of increasing prepaid expenses and other by $3.4 million, investments in and advances to equity-accounted joint ventures by $2.0 million and equity by $5.4 million as at September 30, 2018. This change did not have a material effect on the consolidated statement of loss for the three and nine months ended September 30, 2018. The cumulative increase to opening equity as at January 1, 2018 was $4.1 million.

The Company at times will enter into charter contracts that have annual performance measures that may result in the Company receiving additional consideration each year based on the annual performance measure result for such year. The Company previously recognized such consideration upon completion of the annual performance period. Upon adoption of ASU 2014-09, the portion of such consideration allocable to the non-lease element of charter contracts is included in the determination of the contract consideration and recognized over the annual performance period. This had the effect of decreasing contract liabilities included within accrued liabilities and other by approximately $5.7 million at September 30, 2018 as well as increasing revenues for the three and nine months ended September 30, 2018 by approximately $1.9 million and $5.7 million, respectively. There was no cumulative impact to opening equity as at January 1, 2018 as the end of the annual performance period is December 31st.

In February 2016, FASB issued Accounting Standards Update 2016-02, Leases (or ASU 2016-02). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For lessees, leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 requires lessors to classify leases as a sales-type, direct financing, or operating lease. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type leases or direct financing leases are operating leases. ASU 2016-02 is effective January 1, 2019, with early adoption permitted. FASB issued an additional accounting standards update in July 2018 that made further amendments to accounting for leases, including allowing the use of a transition approach whereby a cumulative effect adjustment is made as of the effective date, with no retrospective effect. The Company has elected to use this new optional transitional approach. The Company will adopt ASU 2016-02 on January 1, 2019. To determine the cumulative effect adjustment, the Company will not reassess lease classification, initial direct costs for any existing leases and whether any expired or existing contracts are or contain leases. The Company is expecting to disclose in its consolidated financial statements for the year ended December 31, 2018 the quantitative impact of adopting ASU 2016-02. The Company has identified the following differences based on the work performed to date:

The adoption of ASU 2016-02 will result in a change in the accounting method for the lease portion of the daily charter hire for the chartered-in vessels by the Company and the Company's equity-accounted joint ventures accounted for as operating leases with firm periods of greater than one year. As of September 30, 2018, the Company had less than 10 in-chartered vessels in its fleet for which the accounting will be impacted by the adoption of ASU 2016-02. Under ASU 2016-02, the Company and the Company's equity-accounted joint ventures will recognize a right-of-use asset and a lease liability on the balance sheet for these charters based on the present value of future minimum lease payments, whereas currently no right-of-use asset or lease liability is recognized. This will have the result of increasing the Company's and its equity-accounted joint ventures' assets and liabilities. The pattern of expense recognition of chartered-in vessels is expected to remain substantially unchanged, unless the right of use asset becomes impaired.

The adoption of ASU 2016-02 will require the Company to complete its lease classification assessment when a lease commences instead of when the lease is entered into. The Company has entered into charters in prior periods for certain of its vessels currently under construction and which are expected to deliver over the period from 2018 to 2020. Historically, for charters that were negotiated concurrently with the construction of the related vessels, the fair value of the constructed asset was presumed to be its newbuilding cost and no gain or loss was recognized on commencement of the charter if such charters were classified as direct finance leases. On the adoption of ASU 2016-02, the fair value of the vessel is determined based on information available at the lease commencement date and any difference in the fair value of the ship upon commencement of the charter and its carrying value is recognized as a gain or loss upon commencement of the charter.

The adoption of ASU 2016-02 will result in the recognition of revenue from the reimbursement of scheduled dry-dock expenditures, where such charter contract is accounted for as an operating lease, occurring upon completion of the scheduled dry-dock, instead of ratably over the period between the previous scheduled dry-dock and the next scheduled dry-dock.

In addition, direct financing lease payments received will be presented as an operating cash inflow instead of an investing cash inflow in the statement of cash flows.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (or ASU 2016-13). ASU 2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update is effective for the Company as of January 1, 2020, with a modified-retrospective approach. The Company is currently evaluating the effect of adopting this new guidance.


Page 9

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

In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (or ASU 2016-15), which, among other things, provides guidance on two acceptable approaches of classifying distributions received from equity method investees in the consolidated statements of cash flows and application of the predominance principle on the cash flow statement classification of cash receipts and payments that have aspects of more than one class of cash flows. ASU 2016-15 became effective for the Company as of January 1, 2018, with a retrospective approach. The Company has elected to classify distributions received from equity-method investees in the statement of cash flows based on the nature of the distribution. In addition, the adoption of ASU 2016-15 resulted in $25.7 million of cross currency swap payments that were related to the principal repayment of long-term debt for the nine months ended September 30, 2017, being reclassified from unrealized foreign currency exchange loss including the effect of the termination of cross-currency swaps in net operating cash flow to scheduled repayments of long-term debt and settlement of related swaps in net financing cash flow as the amounts related to the termination or final settlement of the cross currency swap.

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 are also required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. ASU 2016-18 became effective for the Company as of January 1, 2018. Adoption of ASU 2016-18 resulted in the Company including in its consolidated statements of cash flows changes in cash, cash equivalents and restricted cash.

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 as of January 1, 2019. The Company is currently evaluating the effect of adopting this new guidance.
3. Revenues
The Company’s primary source of revenue is chartering its vessels and offshore units to its customers. The Company utilizes four primary forms of contracts, consisting of time-charter contracts, voyage charter contracts, bareboat charter contracts and contracts for floating production, storage and offloading (or FPSO) units. The Company also generates revenue from the management and operation of vessels owned by third parties and by equity-accounted investees as well as providing corporate management services to such entities.

Time Charters
Pursuant to a time charter, the Company charters a vessel to a customer for a period of time, generally one year or more. The performance obligations within a time-charter contract, which will include the lease of the vessel to the charterer as well as the operation of the vessel, are satisfied as services are rendered over the duration of such contract, as measured using the time that has elapsed from commencement of performance. In addition, any expenses that are unique to a particular voyage, including any fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions, are the responsibility of the customer, as long as the vessel is not off-hire. Hire is typically invoiced monthly in advance for time-charter contracts, based on a fixed daily hire amount. However, certain sources of variability exist. Those include penalties, such as those that relate to periods the vessels are off-hire and where minimum speed and performance metrics are not met. In addition, certain time-charters contracts contain provisions that allow the Company to be compensated for increases in the Company’s costs during the term of the charter. Such provisions may be in the form of annual hire rate adjustments for changes in inflation indices or interest rates or in the form of cost reimbursements for vessel operating expenditures or dry-docking expenditures. Finally, in a small number of charters, the Company may earn profit share consideration, which occurs when actual spot tanker rates earned by the vessel exceed certain thresholds for a period of time. Variable consideration of the Company’s contracts is typically recognized in the period in which the changes in facts and circumstances on which the variable lease payments are based occur as either such revenue is allocated and accounted for under lease accounting requirements or alternatively such consideration is allocated to distinct periods within a contract that such variable consideration was incurred in. The Company does not engage in any specific tactics to minimize vessel residual value risk.

Voyage Charters
Voyage charters are charters for a specific voyage that are usually priced on a current or "spot" market rate and then adjusted for any pool participation based on predetermined criteria. The performance obligations within a voyage charter contract, which will typically include the lease of the vessel to the charterer as well as the operation of the vessel, are satisfied as services are rendered over the duration of the voyage, as measured using the time that has elapsed from commencement of performance. In addition, any expenses that are unique to a particular voyage, including fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions, are the responsibility of the vessel owner. The Company’s voyage charters will normally contain a lease; however, judgment is necessary to determine whether this is the case based upon the decision-making rights the charterer has under the contract. Consideration for such contracts is fixed or variable, depending on certain conditions. Delays caused by the charterer result in additional consideration. Payment for the voyage is not due until the voyage is completed. The duration of a single voyage will typically be less than three months. The Company does not engage in any specific tactics to minimize vessel residual value risk due to the short-term nature of the contracts.


Page 10

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

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

FPSO Contracts
Pursuant to an FPSO contract, the Company charters an FPSO unit to a customer for a period of time, generally more than one year. The performance obligations within an FPSO contract, which will include the lease of the FPSO unit to the charterer as well as the operation of the FPSO unit, are satisfied as services are rendered over the duration of such contract, as measured using the time that has elapsed from commencement of performance. Hire is typically invoiced monthly in arrears, based on a fixed daily hire amount. In certain FPSO contracts, the Company is entitled to a lump sum amount due upon commencement of the contract and may also be entitled to termination fees if the contract is canceled early. While the fixed daily hire amount may be the same over the term of the FPSO contract, the daily hire amount may increase or decrease over the duration of the FPSO contract. As a result of the Company accounting for compensation from such charters on a straight-line basis over the duration of the charter, FPSO contracts where revenue is recognized before the Company is entitled to such amounts under the FPSO contracts will result in the Company recognizing a contract asset and FPSO contracts where revenue is recognized after the Company is entitled to such amounts under the FPSO contracts will result in the Company recognizing deferred revenue.

Certain sources of consideration variability exist within FPSO contracts. Those include penalties, such as those that relate to periods where production on the FPSO unit is interrupted. In addition, certain FPSO contracts may contain provisions that allow the Company to be compensated for increases in the Company’s costs to operate the unit during the term of the contract. Such provisions may be in the form of annual hire rate adjustments for changes in inflation indices or in the form of cost reimbursements for vessel operating expenditures incurred. Finally, the Company may earn additional compensation from monthly production tariffs, which are based on the volume of oil produced, as well as other monthly or annual operational performance measures. Variable consideration of the Company's contracts are typically recognized as incurred as either such revenue is allocated and accounted for under lease accounting requirements or alternatively such consideration is allocated to distinct periods under a contract during which such variable consideration was incurred. The Company does not engage in any specific tactics to minimize residual value risk. Given the uncertainty involved in oil field production estimates and the result impact on oil field life, FPSO contracts typically will include extension options or options to terminate early.

Management Fees and Other
The Company also generates revenue from the management and operation of vessels owned by third parties and by equity-accounted investees as well as providing corporate management services to such entities. Such services may include the arrangement of third party goods and services for the vessel’s owner. The performance obligations within these contracts will typically consist of crewing, technical management, insurance and potentially commercial management. The performance obligations are satisfied concurrently and consecutively rendered over the duration of the management contract, as measured using the time that has elapsed from commencement of performance. Consideration for such contracts will generally consist of a fixed monthly management fee, plus the reimbursement of crewing costs for vessels being managed. Management fees are typically invoiced monthly.

Revenue Table
The following tables contain the Company’s revenue for the three and nine months ended September 30, 2018 and 2017, by contract type and by segment. The periods for the three and nine months ended September 30, 2018, do not include revenues for Teekay Offshore, as Teekay Offshore was deconsolidated subsequent to the Brookfield Transaction in September 2017 (see Note 4).
 
Three Months Ended September 30, 2018
 
Teekay LNG Liquefied Gas Carriers
Teekay LNG Conventional Tankers
Teekay Tankers Conventional Tankers
Teekay Parent Offshore Production
Teekay Parent Other
Eliminations and Other
Total
 
 
 
$
$
$
$
$
$
$
Time charters
104,342

2,820

12,326


6,645


126,133

Voyage charters (1)
6,279

2,220

152,047




160,546

Bareboat charters
6,001






6,001

FPSO contracts



71,583



71,583

Management fees and other (2)
1,566

108

11,542


39,343

(260
)
52,299

 
118,188

5,148

175,915

71,583

45,988

(260
)
416,562



Page 11

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

 
Three Months Ended September 30, 2017
 
Teekay LNG Liquefied Gas Carriers
Teekay LNG Conven-tional Tankers
Teekay Tankers Conven-tional Tankers
Teekay Parent Offshore Production
Teekay Parent Conven-tional Tankers
Teekay Parent Other
Teekay Offshore
Eliminations and Other
Total
 
 
 
 
$
$
$
$
$
$
$
$
$
Time charters
83,101

10,376

24,681



10,997

77,907

(15,810
)
191,252

Voyage charters (1)

930

25,397




11,068


37,395

Bareboat charters
6,524






19,438

(7,682
)
18,280

FPSO contracts



51,254



109,006


160,260

Net pool revenues (1)


28,246


1,041




29,287

Contracts of affreightment






38,362


38,362

Management fees and other
3,075

279

12,914



8,730


947

25,945

 
92,700

11,585

91,238

51,254

1,041

19,727

255,781

(22,545
)
500,781


 
Nine Months Ended September 30, 2018
 
Teekay LNG Liquefied Gas Carriers
Teekay LNG Conventional Tankers
Teekay Tankers Conventional Tankers
Teekay Parent Offshore Production
Teekay Parent Other
Eliminations and Other
Total
 
 
 
 
$
$
$
$
$
$
$
Time charters
294,658

12,534

51,820


27,327

(9,418
)
376,921

Voyage charters (1)
16,669

12,690

432,017




461,376

Bareboat charters
17,112






17,112

FPSO contracts



203,982



203,982

Management fees and other (2)
6,970

324

32,202


116,788

551

156,835

 
335,409

25,548

516,039

203,982

144,115

(8,867
)
1,216,226


 
Nine Months Ended September 30, 2017
 
Teekay LNG Liquefied Gas Carriers
Teekay LNG Conven-tional Tankers
Teekay Tankers Conven-tional Tankers
Teekay Parent Offshore Production
Teekay Parent Conven-tional Tankers
Teekay Parent Other
Teekay Offshore
Eliminations and Other
Total
 
 
 
 
$
$
$
$
$
$
$
$
$
Time charters
241,019

32,073

85,102



27,251

231,950

(43,648
)
573,747

Voyage charters (1)

2,383

94,881




34,576


131,840

Bareboat charters
22,359






68,453

(29,886
)
60,926

FPSO contracts



143,769



332,108


475,877

Net pool revenues (1)


108,535


4,965




113,500

Contracts of affreightment






129,624


129,624

Management fees and other
7,700

835

41,994



19,898


2,268

72,695

 
271,078

35,291

330,512

143,769

4,965

47,149

796,711

(71,266
)
1,558,209


(1)
The adoption of ASU 2014-09 had the impact of increasing both voyage charter revenues and voyage expenses for the three and nine months ended September 30, 2018 by $73.6 million and $202.4 million, respectively.
(2)
The Company manages vessels owned by its equity-accounted investments and third parties. Following the adoption of ASU 2014-09, costs incurred by the Company for its seafarers are presented as vessel operating expenses and the reimbursement of such expenses is presented as revenue, instead of such amounts being presented on a net basis. This had the effect of increasing both revenues and vessel operating expenses for the three and nine months ended September 30, 2018 by $20.2 million and $61.3 million, respectively.

Page 12

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

The following table contains the Company's revenue from contracts that do not contain a lease element and the non-lease element of time-charter contracts accounted for as direct financing leases for the three and nine months ended September 30, 2018 and 2017.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
$
 
$
 
$
 
$
Non-lease revenue - related to sales type or direct financing leases
3,896

 
5,797

 
12,160

 
21,084

Voyage charters - towage

 
10,686

 

 
25,813

Management fees and other
52,299

 
25,945

 
156,835

 
72,695

 
56,195

 
42,428

 
168,995

 
119,592


Operating Leases
As at September 30, 2018, the minimum scheduled future rentals to be received by the Company in each of the next five years for the lease and non-lease elements related to time-charters, bareboat charters and FPSO contracts that were accounted for as operating leases are approximately $164.6 million (remaining 2018), $547.7 million (2019), $453.7 million (2020), $390.0 million (2021), $349.6 million (2022), and $787.3 million thereafter. The minimum scheduled future revenues should not be construed to reflect total charter hire revenues for any of the years. Minimum scheduled future revenues do not include revenue generated from new contracts entered into after September 30, 2018, revenue from unexercised option periods of contracts that existed on September 30, 2018, revenue from vessels in the Company’s equity-accounted investments, or variable or contingent revenues accounted for under ASC 840 Leases. In addition, minimum scheduled future operating lease revenues presented in this paragraph have been reduced by estimated off-hire time for any periodic maintenance. The amounts may vary given unscheduled future events such as vessel maintenance.

The carrying amount of the vessels employed on time-charter contracts, bareboat charter contracts and FPSO contracts that have been accounted for as operating leases at September 30, 2018, was $3.4 billion (2017 - $3.1 billion). At September 30, 2018, the cost and accumulated depreciation of such vessels were $4.3 billion (2017 - $4.1 billion) and $917.8 million (2017 - $1.0 billion), respectively.

Direct Financing Leases
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. The time charters for the two Tangguh LNG carriers are accounted for as direct financing leases. The Tangguh LNG Carriers commenced their time-charters with their charterers in 2009. In addition, in 2013, Teekay LNG acquired two 155,900-cubic meter LNG carriers (or Awilco LNG Carriers) from Norway-based Awilco LNG ASA (or Awilco) and chartered them back to Awilco on five- and four-year fixed-rate bareboat charter contracts (plus a one-year extension option), respectively, with Awilco holding a fixed-price purchase obligation at the end of the charters. The bareboat charters with Awilco were accounted for as direct financing leases. However, in June 2017, Teekay LNG agreed to amend the charter contracts 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 charter hire of 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, both of the charter contracts with Awilco were reclassified as operating leases upon the expiry of their respective original contract terms in November 2017 and August 2018. In addition, the 21-year charter contract for the Bahrain Spirit floating storage unit (or FSU) commenced in September 2018 and is accounted for as a direct finance lease. The following table lists the components of the net investments in direct financing leases:
 
September 30, 2018
 
December 31, 2017
 
$
 
$
Total minimum lease payments to be received
913,292

 
568,710

Estimated unguaranteed residual value of leased properties
294,127

 
194,965

Initial direct costs and other
337

 
361

Less unearned revenue
(630,060
)
 
(268,046
)
Total
577,696

 
495,990

Less current portion
(12,273
)
 
(9,884
)
Long-term portion
565,423

 
486,106

    
As at September 30, 2018, estimated minimum lease payments to be received by Teekay LNG related to its direct financing leases in each of the next five succeeding fiscal years are approximately $26.0 million (remainder of 2018), $64.1 million (2019), $64.3 million (2020), $64.1 million (2021), $64.1 million (2022) and an aggregate of $630.6 million thereafter. The leases are scheduled to end between 2029 and 2039.


Page 13

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

Contract Costs
In certain cases, the Company incurs pre-operational costs that relate directly to a specific customer contract and that generate or enhance resources of the Company that will be used in satisfying performance obligations in the future, in which case such costs are expected to be recovered via the customer contract. Those costs include costs incurred to mobilize an offshore asset to an oilfield, pre-operational costs incurred to prepare for commencement of operations of an offshore asset or costs incurred to reposition a vessel to a location where a charterer will take delivery of the vessel. In certain cases, the Company must make judgments about whether costs relate directly to a specific customer contract or whether costs were factored into the pricing of a customer contract and thus expected to be recovered. Such deferred costs are amortized on a straight-line basis over the duration of the customer contract. Amortization of such costs for the three and nine months ended September 30, 2018 was $0.1 million and $0.2 million, respectively. As at September 30, 2018, repositioning costs of $3.4 million were included as part of other assets in the Company's consolidated balance sheets.
Contract Liabilities

The Company enters into certain customer contracts that result in situations where the customer will pay consideration upfront for performance to be provided in the following month or months. These receipts are contract liabilities and are presented as deferred revenue until performance is provided. As at September 30, 2018 and on transition to ASC 606 on January 1, 2018, there were contract liabilities of $21.7 million and $29.5 million, respectively. During the three and nine months ended September 30, 2018, the Company recognized $0.6 million and $29.5 million, respectively, of revenue that was included in the contract liability balance on transition.
4. Deconsolidation of 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. The Company recognized a loss of $103.2 million on deconsolidation of Teekay Offshore in the three and nine months ended September 30, 2017. This transaction and its impact is described in more detail in Note 3 of the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2017. Subsequent to the closing of the Brookfield Transaction, Teekay currently has significant influence over Teekay Offshore and accounts for its investment in Teekay Offshore using the equity method. As of September 30, 2018 and December 31, 2017, Teekay owned a 13.8% interest in the common units of Teekay Offshore.

Teekay Offshore is a related party of Teekay. As at September 30, 2018, Teekay has recorded $65.9 million in advances to Teekay Offshore (December 31, 2017 $102.8 million) and $55.7 million in advances from Teekay Offshore (December 31, 2017 $37.2 million) in current portion of loans to equity-accounted investees and advances from affiliates, respectively, on its consolidated balance sheets.

In March 2018, Teekay Offshore entered into a loan agreement for a $125.0 million senior unsecured revolving credit facility, of which up to $25.0 million is provided by Teekay and up to $100.0 million is provided by Brookfield. The facility is scheduled to mature in October 2019. The interest payments on the revolving credit facility are based on LIBOR plus a margin of 5.00% per annum until March 31, 2019 and LIBOR plus a margin of 7.00% per annum for balances outstanding after March 31, 2019. Any outstanding principal balances are due on the maturity date. As at September 30, 2018, Teekay had advanced $25.0 million to Teekay Offshore under this facility recorded in investment in and advances to equity-accounted investments in the consolidated balance sheets.

Until December 31, 2017, Teekay and its wholly-owned subsidiaries directly and indirectly provided substantially all of Teekay Offshore’s ship management, commercial, technical, strategic, business development and administrative service needs. On January 1, 2018, as part of the Brookfield Transaction, Teekay Offshore acquired a 100% ownership interest in seven subsidiaries (or the Transferred Subsidiaries) of Teekay at carrying value. The Company recognized a loss of $nil and $7.1 million for the three and nine months ended September 30, 2018, respectively, related to the sale of the Transferred Subsidiaries and the resultant release of accumulated pension losses from accumulated other comprehensive income, which is recorded in loss on deconsolidation of Teekay Offshore on the Company's consolidated statements of loss.
The Transferred Subsidiaries provide ship management, commercial, technical, strategic, business development and administrative services to Teekay Offshore, primarily related to Teekay Offshore's FPSO units, shuttle tankers and floating storage and offtake (or FSO) units. Subsequent to their transfer to Teekay Offshore, the Transferred Subsidiaries continue to provide ship management, commercial, technical, strategic, business development and administrative services to Teekay, primarily related to Teekay's FPSO units. Teekay and certain of its subsidiaries, other than the Transferred Subsidiaries, continue to provide certain other ship management, commercial, technical, strategic and administrative services to Teekay Offshore.
Revenues received by the Company for services provided to Teekay Offshore for the three and nine months ended September 30, 2018 were $5.1 million and $16.2 million, respectively, which were recorded in revenues on the Company's consolidated statements of loss. Fees paid by the Company to Teekay Offshore for services provided by Teekay Offshore for the three and nine months ended September 30, 2018 were $5.0 million and $15.7 million, respectively, which were recorded in vessel operating expenses and general and administrative expenses on the Company's consolidated statements of loss. As at September 30, 2018, two shuttle tankers and three FSO units of Teekay Offshore were employed on long-term time-charter-out or bareboat contracts to subsidiaries of Teekay. Time-charter hire expenses paid by the Company to Teekay Offshore for the three and nine months ended September 30, 2018 were $14.4 million and $42.4 million, respectively. No such amounts are included in the comparative periods when Teekay Offshore was consolidated by Teekay.


Page 14

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

5. 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 Controlled Daughter Entities), Teekay and its remaining subsidiaries (or Teekay Parent), and its equity-accounted investee, Teekay Offshore (collectively with the Controlled Daughter Entities, the Daughter Entities), 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 Controlled Daughter Entities, Teekay Parent and its equity-accounted investee, Teekay Offshore (the Legal Entity approach), and its segments are presented accordingly on this basis. The Company (which excludes Teekay Offshore) has three primary lines of business: (1) offshore production (FPSO units), (2) LNG and liquefied petroleum gas (or LPG) carriers), and (3) conventional tankers. The Company manages these businesses for the benefit of all stakeholders. The Company incorporates the primary lines of business within its segments, as in certain cases there is more than one line of business in each Controlled Daughter Entity and the Company believes this information allows a better understanding of the Company’s performance and prospects for future net cash flows.
The following table includes the Company’s revenues by segment for the three and nine months ended September 30, 2018 and 2017:
 
Revenues(1)
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2018
2017
2018
2017
 
$
$
$
$
Teekay LNG
 
 
 
 
Liquefied Gas Carriers(2)
118,188

92,700

335,409

271,078

Conventional Tankers
5,148

11,585

25,548

35,291

 
123,336

104,285

360,957

306,369

 
 
 
 
 
Teekay Tankers
 
 
 
 
Conventional Tankers
175,915

91,238

516,039

330,512

 
 
 
 
 
Teekay Parent
 
 
 
 
Offshore Production
71,583

51,254

203,982

143,769

Conventional Tankers

1,041


4,965

Other
45,988

19,727

144,115

47,149

 
117,571

72,022

348,097

195,883

 
 
 
 
 
Teekay Offshore(2)(3)

255,781


796,711

 
 
 
 
 
Eliminations and other
(260
)
(22,545
)
(8,867
)
(71,266
)
 
416,562

500,781

1,216,226

1,558,209


(1)
The comparative periods do not include the impact of the January 1, 2018 adoption of ASU 2014-09 (see Note 2).
(2)
Certain vessels are chartered between the Daughter Entities 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, 2018 and 2017 is as follows:
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2018
2017
2018
2017
 
$
$
$
$
Teekay LNG - Liquefied Gas Carriers

9,296

9,418

26,851

Teekay Offshore

9,211


33,429

 

18,507

9,418

60,280

(3) On September 25, 2017, the Company deconsolidated Teekay Offshore (see Note 4).

Page 15

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

The following table includes the Company’s income (loss) from vessel operations by segment for the three and nine months ended September 30, 2018 and 2017:
 
Income (loss) from Vessel Operations(1)
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2018
2017
2018
2017
 
$
$
$
$
Teekay LNG
 
 
 
 
Liquefied Gas Carriers
51,581

44,902

105,571

128,281

Conventional Tankers
(4,583
)
(34,580
)
(22,926
)
(42,010
)
 
46,998

10,322

82,645

86,271

 
 
 
 
 
Teekay Tankers
 
 
 
 
Conventional Tankers
(2,166
)
(13,734
)
(24,002
)
(1,406
)
 
 
 
 
 
Teekay Parent
 
 
 
 
Offshore Production
12,905

(223,957
)
25,328

(262,986
)
Conventional Tankers

(3,077
)

(8,524
)
Other
(2,655
)
216

(8,463
)
(20,370
)
 
10,250

(226,818
)
16,865

(291,880
)
 
 
 
 
 
Teekay Offshore(2)

40,384


147,060

 
 
 
 
 
 
55,082

(189,846
)
75,508

(59,955
)

(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 4).
Commencing on September 25, 2017, the Company accounts for its investment in Teekay Offshore using the equity method, and recognized equity losses of $2.7 million and $11.4 million in respect of Teekay Offshore for the three and nine months ended September 30, 2018, respectively, and an equity loss of $3.1 million for the three and nine months ended September 30, 2017.

A reconciliation of total segment assets to total assets presented in the accompanying unaudited consolidated balance sheets is as follows:
 
September 30, 2018
December 31, 2017
 
$
$
Teekay LNG - Liquefied Gas Carriers
5,081,219

4,624,321

Teekay LNG - Conventional Tankers
67,244

112,844

Teekay Tankers - Conventional Tankers
2,074,833

2,125,909

Teekay Parent - Offshore Production
335,948

366,229

Teekay Parent - Conventional Tankers
13,056

13,620

Teekay Parent - Other
35,592

26,527

Teekay Offshore
259,839

280,774

Cash and cash equivalents
385,352

445,452

Other assets not allocated
103,821

118,493

Eliminations
(17,117
)
(21,732
)
Consolidated total assets
8,339,787

8,092,437


Page 16

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

6. Vessel Charters
The minimum estimated charter hire and rental payments for the remainder of the year and the following four fiscal years, as at September 30, 2018, for the Company’s chartered-in vessels were as follows:
Vessel Charters(1)
Remainder
of 2018
 
2019
 
2020
 
2021
 
2022
 
(in millions of U.S. Dollars)
Charters-in – operating leases
18.1

 
68.5

 
59.2

 
52.7

 
9.1

Charters-in – operating leases(2)
6.0

 
23.7

 
16.1

 

 

Charters-in – related to capital leases(3)
54.4

 
119.5

 
118.7

 
117.8

 
117.0

Charters-in – related to capital leases(4)
9.6

 
38.0

 
38.1

 
37.9

 
37.9

 
88.1

 
249.7

 
232.1

 
208.4

 
164.0

 
(1)
Teekay LNG owns a 69% ownership interest in 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, 2017. 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, 2018 was $6.7 million (December 31, 2017$7.1 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, 2018, Teekay LNG is chartering in a vessel at a fixed-rate from its 52%-owned joint venture with Marubeni Corporation (or the Teekay LNG-Marubeni Joint Venture) for a period of two years until September 2020. Teekay LNG recognizes the expense from this charter on a straight-line basis over the firm period of the charter and this expense is presented as time-charter hire expense in the Company's consolidated statements of loss.

(3)
As at September 30, 2018, Teekay LNG was a party, as lessee, to capital leases on one Suezmax tanker, the Toledo Spirit. Under this capital lease, the owner has the option to require Teekay LNG to purchase the vessel. The charterer and owner, also had the option to cancel the charter contract and the cancellation option was first exercisable in August 2018. In May 2018, the charterer of the Toledo Spirit gave formal notification to Teekay LNG of its intention to terminate its charter contract subject to certain conditions being met and the receipt of certain third-party approvals. The amounts in the table above assume the owner will not exercise its option to require Teekay LNG to purchase the vessel from the owner, but rather assume the owner will cancel the charter contracts when the owner sells the vessel to a third party, upon which the remaining lease obligation will be extinguished. Therefore, the table above does not include any amounts after the expected cancellation date of the lease, which is expected to be early-2019.

Teekay LNG is also a party to capital leases on eight LNG carriers, the Creole Spirit, the Oak Spirit, the Torben Spirit, the Macoma, the Murex, the Magdala, the Myrina and the Megara. Upon delivery of these eight LNG carriers between February 2016 and July 2018, Teekay LNG sold these respective vessels to third parties (or the Lessors) and leased them back under 10-year bareboat charter contracts ending in 2026 through to 2028. The bareboat charter contracts are accounted for as obligations related to capital leases and have fixed-price purchase obligations at the end of the lease terms.

Teekay LNG understands that these vessels and lease operations are the only assets and operations of the Lessors. Teekay LNG operates the vessels during the lease term and as a result, is considered to be, under GAAP, each Lessor's primary beneficiary; therefore, Teekay LNG consolidates the Lessors for financial reporting purposes as VIEs.

The liabilities of the Lessors are loans and are non-recourse to Teekay LNG. The amounts funded to the Lessors in order to purchase the vessels materially match the funding to be paid by Teekay LNG's subsidiaries under the sale-leaseback transaction. As a result, the amounts due by Teekay LNG's subsidiaries to the Lessors have been included in obligations related to capital leases as representing the Lessors' loans.

The obligations of Teekay LNG under the bareboat charter contracts are guaranteed by Teekay LNG. 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, 2018, Teekay LNG was in compliance with all covenants in respect of the obligations related to capital leases.

(4)
In September 2018, Teekay Tankers completed a $156.6 million sale-leaseback financing transaction with a financial institution relating to six of its Aframax tankers, the Blackcomb Spirit, Emerald Spirit, Garibaldi Spirit, Peak Spirit, Tarbet Spirit and Whistler Spirit. In July 2017, Teekay Tankers completed a $153.0 million sale-leaseback financing transaction with a financial institution relating to four of its Suezmax tankers, the Athens Spirit, the Beijing Spirit, the Moscow Spirit and the Sydney Spirit. Under these arrangements, Teekay Tankers transferred the vessels to subsidiaries of the financial institution (or collectively, the Lessors), and leased the vessels back from the Lessors on bareboat charters ranging from nine- to 12-year terms. Teekay Tankers has the option to purchase each of the four Suezmax vessels at any point between July 2020 and July 2029. Teekay Tankers also has the option to purchase each of the six Aframax vessels at any point between September 2020 and the end of its respective term and is obligated to purchase the vessels on maturity of the bareboat charters.


Page 17

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

Teekay Tankers understands that these vessels and lease operations are the only assets and operations of the Lessors. Teekay Tankers operates the vessels during the lease term, and as a result, is considered to be the Lessors' primary beneficiary and therefore it consolidates the Lessors for financial reporting purposes. The liabilities of the Lessors are loans that are non-recourse to Teekay Tankers. The amounts funded to the Lessors in order to purchase the vessels materially match the funding to be paid by Teekay Tankers' subsidiaries under these lease-back transactions. As a result, the amounts due by Teekay Tankers' subsidiaries to the Lessors have been included in obligations related to capital leases as representing the Lessors' loans. The bareboat charters also require that Teekay Tankers maintain minimum levels of cash and aggregate liquidity. Teekay Tankers is required for each of the four Suezmax tankers to maintain a hull coverage ratio of 90% of the total outstanding principal balance during the first three years of the lease period and 100% of the total outstanding principal balance thereafter. Teekay Tankers is required for each of the six Aframax tankers to maintain a hull coverage ratio of 75% of the total outstanding principal balance during the first year of the lease period, 78% for the second year, 80% for the following two years and 90% of the total outstanding principal balance thereafter. As at September 30, 2018, Teekay Tankers was in compliance with all covenants in respect of the obligations related to capital leases.
7. Write-down and Loss on Sales of Vessels
The Company's write-downs and sales of vessels generally consist of those vessels approaching the end of their useful lives as well as other vessels it strategically sells to reduce exposure to a certain vessel class.

The following tables show the write-downs and loss on sales of vessels for the three and nine months ended September 30, 2018 and 2017:
 
 
 
 
 
 
Write-Down and Loss on Sales of Vessels
 
 
 
 
 
 
Three Months Ended September 30,
Segment

Asset Type

Completion of Sale Date

2018
$

2017
$
Teekay LNG Segment - Conventional Tankers
 
2 Suezmaxes
 
(1) 
 

 
(25,500
)
Teekay LNG Segment - Conventional Tankers
 
Suezmax
 
(2) 
 
(2,201
)
 
(12,500
)
Teekay Tankers Segment - Conventional Tankers
 
2 Aframaxes
 
Sep-2017 and Nov-2017
 

 
(7,926
)
Teekay Parent Segment - Offshore Segment
 
2 FPSOs
 
(3) 
 

 
(205,659
)
Total
 
 
 
 
 
(2,201
)
 
(251,585
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Write-Down and Loss on Sales of Vessels
 
 
 
 
 
 
Nine Months Ended September 30,
Segment
 
Asset Type
 
Completion of Sale Date
 
2018
$
 
2017
$
Teekay LNG Segment - Conventional Tankers
 
Handymax
 
(4) 
 
(13,000
)
 

Teekay LNG Segment - Liquefied Gas Carriers
 
4 Multi-gas Carriers
 
(5) 
 
(33,000
)
 

Teekay LNG Segment - Conventional Tankers
 
2 Suezmaxes
 
(2) 
 
(7,863
)
 
(25,100
)
Teekay LNG Segment - Conventional Tankers
 
2 Suezmaxes
 
(1) 
 

 
(25,500
)
Teekay Tankers Segment - Conventional Tankers
 
3 Aframaxes
 
Jun-2017, Sep-2017 and Nov-2017
 

 
(10,669
)
Teekay Tankers Segment - Conventional Tankers
 
Suezmax
 
Mar-2017
 

 
(1,469
)
Teekay Parent Segment - Offshore Segment
 
2 FPSOs
 
(3) 
 

 
(205,659
)
Teekay Offshore Segment
 
FSO
 
(6) 
 

 
(1,500
)
Other
 
 
 
 
 
170

 
(357
)
Total
 
 
 
 
 
(53,693
)
 
(270,254
)

(1)
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 was marketing the Teide Spirit for sale and, upon sale of the vessel, it would concurrently terminate its existing charter contract with Teekay LNG. The charterer’s cancellation option for the Toledo Spirit was first exercisable in August 2018. On May 20, 2018, the charterer of the Toledo Spirit gave formal notification to Teekay LNG of its intention to terminate its charter contract subject to certain conditions being met and the receipt of certain third-party approvals. As at September 30, 2018, the charterer was marketing the vessel for sale. Teekay LNG wrote-down the Teide Spirit and Toledo Spirit to their estimated fair values based on their expected future discounted cash flows.

Page 18

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

(2)
In June and August 2017, the charterer for the European Spirit and African Spirit Suezmax tankers gave formal notices to Teekay LNG that it will not exercise its one-year extension option under the charter contracts and redelivered the tankers in August 2017 and November 2017, respectively. Upon receiving these notifications, Teekay LNG commenced marketing the vessels for sale. Teekay LNG sold the African Spirit during October 2018 and reached an agreement to sell the European Spirit in November 2018. Based on second-hand market comparable values at the time, Teekay LNG wrote-down the vessels to their estimated resale values. Teekay LNG recorded further aggregate write-downs on these two conventional tankers in the three and nine months ended September 30, 2018. Both vessels were classified as held for sale in the consolidated balance sheets as at September 30, 2018 and December 31, 2017 (see Note 19(a)).
(3)
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. This change in asset groups and a re-evaluation of the estimated future net cash flows of the units resulted in impairment charges for the Petrojarl Foinaven FPSO and Petrojarl Banff FPSO for the three and nine months ended September 30, 2017.
(4)
In March 2018, the carrying value of the Alexander Spirit conventional tanker was written down to its estimated fair value, using an appraised value, as a result of changes in the Company's expectations of the vessel's future opportunities once its current charter contract ends in 2019.
(5)
In June 2018, the carrying value for four of Teekay LNG's seven wholly-owned multi-gas carriers, the Napa Spirit, Pan Spirit, Cathinka Spirit and Camilla Spirit, were written down to their estimated fair value, taking into consideration vessel appraised values, as a result of Teekay LNG's evaluation of alternative strategies for these assets, the current charter rate environment and the outlook for charter rates for these vessels at that time.
(6)
During the nine months ended September 30, 2017, the carrying value of the Falcon Spirit FSO was written down as a result of a decrease in the estimated residual value of the unit.
8. Long-Term Debt
 
September 30, 2018
 
December 31, 2017
 
$
 
$
Revolving Credit Facilities
660,763

 
877,343

Senior Notes (8.5%) due January 15, 2020
540,082

 
592,657

Convertible Senior Notes (5%) due January 15, 2023
125,000

 

Norwegian Kroner-denominated Bonds due through August 2023
374,040

 
377,856

U.S. Dollar-denominated Term Loans due through 2031
1,489,245

 
1,358,798

Euro-denominated Term Loans due through 2024
205,923

 
232,957

Other U.S. Dollar-denominated loan
3,300

 
10,000

Total principal
3,398,353

 
3,449,611

Less unamortized discount and debt issuance costs
(47,338
)
 
(31,906
)
Total debt
3,351,015

 
3,417,705

Less current portion
(259,104
)
 
(800,897
)
Long-term portion
3,091,911

 
2,616,808


As of September 30, 2018, 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 $0.4 billion was undrawn. Interest payments are based on LIBOR plus margins; the margins ranged between 1.25% and 4.0% at September 30, 2018 and 0.45% and 4.0% at December 31, 2017. Giving effect to the Teekay LNG revolver refinancing completed in November 2018 (see Note 19), the aggregate amount available under the Revolvers is scheduled to decrease by $250.2 million (remainder of 2018), $41.6 million (2019), $232.6 million (2020), $336.3 million (2021) and $204.3 million (thereafter). The Revolvers are collateralized by first-priority mortgages granted on 44 of the Company’s vessels, together with other related security, and include a guarantee from Teekay or its subsidiaries for all but one of the Revolvers' outstanding amounts. Included in other related security are 38.2 million common units in Teekay Offshore, 25.2 million common units in Teekay LNG, and 16.8 million Class A common shares in Teekay Tankers, which secure a $200 million credit facility.

The Company’s 8.5% senior unsecured notes are due January 15, 2020 with an original aggregate principal amount of $450 million (the Original Notes). The Original Notes issued on January 27, 2010 were sold at a price equal to 99.2% of par. During 2014, the Company repurchased $57.3 million of the Original Notes. In November 2015, the Company issued an aggregate principal amount of $200 million of the Company’s 8.5% senior unsecured notes 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 (collectively 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 8.67% per year. During the first nine months of 2018, the Company repurchased $52.6 million in aggregate principal amount of the 8.5% Notes.

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.
 

Page 19

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

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.

On January 26, 2018, Teekay Parent completed a private offering of $125.0 million of aggregate principal amount of 5% Convertible Senior Notes due January 15, 2023 (the Convertible Notes). The Convertible Notes are convertible into Teekay’s common stock, initially at a rate of 85.4701 shares of common stock per $1,000 principal amount of Convertible Notes. This represents an initial effective conversion price of $11.70 per share of common stock. The initial conversion price represents a premium of 20% to the concurrent common stock offering price of $9.75 per share. The conversion rate is subject to customary adjustments for, among other things, payments of dividends by Teekay Parent beyond the current quarterly dividend of $0.055 per share of common stock. On issuance of the Convertible Notes, $104.6 million of the net proceeds was reflected in long-term debt and is being accreted to $125.0 million over its five-year term through interest expense. The remaining amount of the net proceeds of $16.1 million was allocated to the conversion feature and reflected in additional paid-in capital.

Teekay LNG has a total of Norwegian Kroner (or NOK) 3.1 billion in senior unsecured bonds issued in the Norwegian bond market at September 30, 2018 that mature through August 2023. As of September 30, 2018, the total carrying amount of the senior unsecured bonds was $374.0 million. The bonds are listed or will be listed on the Oslo Stock Exchange. The interest payments on the bonds are based on NIBOR plus a margin, which ranges 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 7.89%, and the transfer of the principal amount fixed at $382.5 million upon maturity in exchange for NOK 3.1 billion (see Note 15).

As of September 30, 2018, the Company had 11 U.S. Dollar-denominated term loans outstanding, which totaled $1.5 billion in aggregate principal amount (December 31, 2017$1.4 billion). Interest payments on the term loans are based on LIBOR plus a margin, of which one of the term loans has an additional tranche based on a fixed rate of 5.37%. At September 30, 2018 and December 31, 2017, the margins ranged between 0.30% and 3.25%. 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 nine of the term loans have balloon or bullet repayments due at maturity. The term loans are collateralized by first-priority mortgages on 26 (December 31, 201722) of the Company’s vessels, together with certain other security. In addition, at September 30, 2018 and December 31, 2017, all of the outstanding term loans were guaranteed by Teekay or its subsidiaries.
 
Teekay LNG has two Euro-denominated term loans outstanding, which, as at September 30, 2018, totaled 177.4 million Euros ($205.9 million) (December 31, 2017194.1 million Euros ($233.0 million)). Teekay LNG is servicing the loans with funds generated by two Euro-denominated, long-term time-charter contracts. Interest payments on the loans are based on EURIBOR plus a margin. At September 30, 2018 and December 31, 2017, the margins ranged between 0.60% and 1.95%, and 0.60% and 2.25%, respectively. The Euro-denominated term loans reduce in monthly and semi-annual payments with varying maturities through 2024, are collateralized by first-priority mortgages on two of Teekay LNG's vessels, together with certain other security, and are guaranteed by Teekay LNG and one of its subsidiaries.

Both Euro-denominated term loans and NOK-denominated bonds are revalued at the end of each period using the then-prevailing U.S. Dollar exchange rate. Due primarily to the revaluation of the Company’s NOK-denominated bonds, the Company’s Euro-denominated term loans and restricted cash, and the change in the valuation of the Company’s cross-currency swaps, the Company recognized foreign exchange gains (losses) of $3.6 million (2017 $(2.6) million) and $16.1 million (2017 $(22.9) million) during the three and nine months ended September 30, 2018.

The weighted-average interest rate on the Company’s aggregate long-term debt as at September 30, 2018 was 5.0% (December 31, 20174.3%). This rate does not include the effect of the Company’s interest rate swap agreements (see Note 15).

Teekay has guaranteed obligations pursuant to certain credit facilities of Teekay Tankers. As at September 30, 2018, the aggregate outstanding balance on such credit facilities was $219.2 million.

The aggregate annual long-term debt principal repayments required to be made by the Company subsequent to September 30, 2018, after giving effect to the Teekay LNG debt facility refinancing and the Teekay Tankers sale-leaseback financing transaction completed in November 2018 (see Note 19), are $85.3 million (remainder of 2018), $239.2 million (2019), $1,251.1 million (2020), $836.7 million (2021), $188.3 million (2022) and $797.7 million (thereafter).

The Company’s long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and seven loan agreements require the maintenance of vessel market value to loan ratios. As at September 30, 2018, these ratios ranged from 122% to 190% compared to their minimum required ratios of 105% to 135%. The vessel values used in these ratios are the appraised values provided by third parties where available, or prepared by the Company based on second-hand sale and purchase market data. Changes in the LNG/LPG carrier and conventional tanker markets could negatively affect the Company's compliance with these ratios.


Page 20

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

One of Teekay Tankers’ revolvers is guaranteed by Teekay Parent and contains covenants that require Teekay Parent to maintain the greater of free liquidity (cash and cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $50.0 million and at least 5.0% of Teekay’s total consolidated debt which has recourse to Teekay Parent. Two of Teekay Tankers’ term loans require Teekay Parent and Teekay Tankers collectively to maintain the greater of (a) free cash (cash and cash equivalents) of at least $100.0 million for one of the term loans and $50.0 million for the other and (b) an aggregate of free cash and undrawn committed revolving credit lines with at least six months to maturity of at least 7.5% for one of the term loans and 5.0% for the other, of their total debt. In addition, certain loan agreements require Teekay Tankers to maintain a minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $35.0 million and at least 5.0% of Teekay Tankers' total consolidated debt. Certain loan agreements require Teekay LNG to maintain a minimum level of tangible net worth, and minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $35.0 million, and not to exceed a maximum level of financial leverage.

As at September 30, 2018, 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, 2018 and December 31, 2017 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, 2018, Teekay had no shares of preferred stock issued.

During the nine months ended September 30, 2018, Teekay completed a public offering of 10.0 million common shares priced at $9.75 per share, raising net proceeds of approximately $93.0 million, issued 1.1 million shares of common stock as part of a continuous offering program, generating net proceeds of $10.7 million, and issued 0.2 million shares of common stock pursuant to stock options, restricted stock units and restricted stock awards.

During the nine months ended September 30, 2018 and 2017, the Company granted 1,048,916 and 732,314 stock options with exercise prices of $8.67 and $10.18 per share, respectively, 625,878 and 344,319 restricted stock units with fair values of $5.4 million and $3.5 million, respectively, and 79,869 and 89,387 shares of restricted stock awards with fair values of $0.7 million and $0.9 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 and restricted stock award 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. Upon vesting, the value of the restricted stock units and restricted stock awards are paid to each grantee in the form of shares.

The weighted-average grant-date fair value of stock options granted during March 2018 was $4.21 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 64.8%; expected life of 5.5 years; dividend yield of 2.5%; risk-free interest rate of 2.6%; 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 and Equity-Accounted Investments

During the nine months ended September 30, 2018 and 2017, 293,770 and 56,950 common units of Teekay Offshore, respectively, 17,498 and 17,345 common units of Teekay LNG, respectively, and 168,029 and nil shares of Class A common stock of Teekay Tankers, respectively, with aggregate values of $1.3 million and $0.6 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 2018 and 2017.

Teekay Offshore, Teekay LNG and Teekay Tankers grant equity-based compensation awards as incentive-based compensation to certain employees of Teekay Offshore's and Teekay’s subsidiaries that provide services to Teekay Offshore, Teekay LNG and Teekay Tankers. During the nine months ended September 30, 2018 and 2017, Teekay Offshore and Teekay LNG granted phantom unit awards and Teekay Tankers granted restricted stock-based compensation awards with respect to 1,424,058 and 321,318 common units of Teekay Offshore, 62,283 and 60,809 common units of Teekay LNG and 762,640 and 382,437 Class A common shares of Teekay Tankers, respectively, with aggregate grant date fair values of $5.8 million and $3.5 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 2018, Teekay Tankers granted 736,327 and 504,097 stock options with an exercise price of $1.22 per share to officers and non-management directors of Teekay Tankers, respectively. 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 has a ten-year term and vests equally over three years from the grant date.

Page 21

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

10. Commitments and Contingencies
a)
Vessels Under Construction

As at September 30, 2018, Teekay LNG was committed to the construction of two LNG carriers for a total cost of approximately $422 million, including capitalized interest and other miscellaneous construction costs. The two LNG carriers are scheduled for delivery in 2019. As at September 30, 2018, payments made towards these commitments totaled $172.2 million. As at September 30, 2018, the remaining payments required to be made under these newbuilding and conversion capital commitments were $2.3 million (remainder of 2018) and $247.7 million (2019). Teekay LNG has secured $119 million of undrawn financing related to the remaining commitments for one of the two LNG carrier newbuildings and is in the process of securing financing for its one unfinanced LNG carrier newbuilding prior to its delivery.

b)
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, 2018 is as follows:
 
Total
2018
2019
 
$
$
$
Equity-accounted joint ventures (i)
578,811
53,102
525,709

(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, 2018. These commitments are described in more detail in Note 16 of the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2017. As of September 30, 2018, based on Teekay LNG's ownership percentage in each respective joint venture, Teekay LNG's equity-accounted joint ventures have secured $519 million of financing related to the remaining commitments included in the table above.
c)
Liquidity

Management is required to assess whether the Company will have sufficient liquidity to continue as a going concern for the one-year period following the issuance of its financial statements. The Company had a consolidated net loss of $51.4 million and consolidated cash flows from operating activities of $84.4 million during the nine months ended September 30, 2018, and as at September 30, 2018, had a working capital surplus of $106.6 million. The Company has scheduled debt maturities in the next 12 months and repayments of approximately $259.1 million of outstanding consolidated debt which was classified as current liabilities as at September 30, 2018. In 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.

During the fourth quarter of 2018, Teekay LNG refinanced and upsized its $190 million revolving credit facility with a new two-year $225 million revolving credit facility and Teekay Tankers entered into a new sale-leaseback transaction and completed a new working capital loan facility (see Note 19). Teekay LNG's refinanced revolving facility and Teekay Tankers' new sale-leaseback transaction have been taken into account in determining the current portion of long-term debt.

Based on the Company’s liquidity at the date these consolidated financial statements were issued, including the effect of the financing transactions completed in the fourth quarter of 2018 described above, and the liquidity the Company expects to generate from operations over the following year, 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 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, 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.

e) 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 11 in the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2017.

Page 22

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


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.
 
 
 
September 30, 2018
 
December 31, 2017
 
Fair
Value
Hierarchy
Level
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset
(Liability)
$
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset
(Liability)
$
Recurring
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash
Level 1
 
458,463

 
458,463

 
552,174

 
552,174

Derivative instruments (note 14)
 
 
 
 
 
 
 
 
 
Interest rate swap agreements – assets(1)
Level 2
 
16,852

 
16,852

 
6,081

 
6,081

Interest rate swap agreements – liabilities(1)
Level 2
 
(34,459
)
 
(34,459
)
 
(78,560
)
 
(78,560
)
Cross-currency interest swap agreements – assets(1)
Level 2
 
9,682

 
9,682

 
3,758

 
3,758

Cross-currency interest swap agreements – liabilities(1)
Level 2
 
(10,185
)
 
(10,185
)
 
(54,217
)
 
(54,217
)
Foreign currency contracts
Level 2
 

 

 
81

 
81

Stock purchase warrants
Level 3
 
32,228

 
32,228

 
30,749

 
30,749

Freight forward agreements
Level 2
 
102

 
102

 

 

Non-recurring
 
 
 
 
 
 
 
 
 
Vessels held for sale (note 7)
Level 2
 
28,482

 
28,482

 
16,671

 
16,671

Other
 
 
 
 
 
 
Loans to equity-accounted investees – Current
(2)
 
82,376

 
(2
)
 
107,486

 
(2
)
Advances to equity-accounted investees and joint venture partners – Long-term
(2)
 
162,154

 
(2
)
 
146,420

 
(2
)
Long-term receivable included in accounts receivable and other non-current assets(3)
Level 3
 
693

 
689

 
3,476

 
3,459

Long-term debt – public (note 8)
Level 1
 
(908,479
)
 
(934,047
)
 
(963,563
)
 
(979,773
)
Long-term debt – non-public (note 8)
Level 2
 
(2,442,536
)
 
(2,407,526
)
 
(2,454,142
)
 
(2,421,273
)
Obligations related to capital leases, including current portion
Level 2
 
(1,609,698
)
 
(1,554,773
)
 
(1,160,457
)
 
(1,148,989
)
 
(1)
The fair value of the Company's interest rate swap and cross-currency swap agreements at September 30, 2018 includes $2.0 million (December 31, 2017 - $5.7 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, 2018, 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, 2018 was $0.7 million (December 31, 2017$3.5 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.

Stock purchase warrants - As at June 30, 2018, Teekay held 14.5 million common unit warrants issued by Teekay Offshore (or Brookfield Transaction Warrants) (see Note 3 of the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2017), which warrants are among those issued by Teekay Offshore to Brookfield and Teekay as part of the Brookfield Transaction. In July 2018, Brookfield transferred to Teekay an additional 1.0 million Brookfield Transaction Warrants upon Brookfield’s exercise of its option to acquire an additional 2% of ownership interests in Teekay Offshore's general partner from Teekay. 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 $31.0 million and $29.4 million on September 30, 2018 and December 31, 2017, respectively.


Page 23

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

As of September 30, 2018, 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. 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 $1.2 million and $1.3 million on September 30, 2018 and December 31, 2017, respectively.

The estimated fair values of the Brookfield Transaction Warrants and the Series D Warrants were determined using a Black-Scholes pricing model and are 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 values of these Brookfield Transaction Warrants and Series D Warrants as of September 30, 2018 were based on the historical volatility of Teekay Offshore's common units of 58.8% and 58.9%, respectively. 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 Tanker Investments Limited (or TIL) stock purchase warrants entitling it to purchase up to 1.5 million shares of common stock of TIL. In May 2017, Teekay Tankers entered into a merger agreement with TIL, and in November 2017, on completion of the merger, TIL became a wholly-owned subsidiary of Teekay Tankers. This transaction and its effects are described in more detail in Note 4a of the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2017. Under the terms of the merger agreement, warrants to purchase or acquire shares of common stock of TIL that had not been exercised as of the effective time of the merger, were canceled. As a result, no value is recorded for this warrant in the Company's balance sheet at September 30, 2018.

Changes in fair value during the three and nine months ended September 30, 2018 and 2017 for the Company’s Brookfield Transaction Warrants, Series D Warrants and the TIL stock purchase warrants, as applicable, 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,
 
2018
 
2017
 
2018
 
2017
 
$
 
$
 
$
 
$
Fair value at the beginning of the period
35,271

 

 
30,749

 
575

Fair value on acquisition/issuance
2,330

 
36,596

 
2,330

 
36,596

Unrealized loss included in earnings
(5,373
)
 
(4,461
)
 
(851
)
 
(5,036
)
Fair value at the end of the period
32,228

 
32,135

 
32,228

 
32,135


b)
Financing Receivables

The following table contains a summary of the Company’s carrying value of 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.
Class of Financing Receivable
 
Credit Quality Indicator
 
Grade
 
September 30, 2018
 
December 31, 2017
$
 
$
Direct financing leases
 
Payment activity
 
Performing
 
577,696

 
495,990

Other loan receivables
 
 
 
 
 
 
 
 
Loans to equity-accounted investees and joint venture partners
 
Other internal metrics
 
Performing
 
244,530

 
253,906

   Long-term receivable and accrued revenue included in accounts receivable and other assets
 
Payment activity
 
Performing
 
14,043

 
12,175

 
 
 
 
 
 
836,269

 
762,071


12. Restructuring Charges
During the three and nine months ended September 30, 2018, the Company recorded restructuring charges of $0.8 million and $4.1 million, respectively. The restructuring charges primarily related to severance costs resulting from reorganization and realignment of resources of certain of the Company's business development, marine solutions and fleet operations functions to better respond to the changing business environment.

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 functions 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.


Page 24

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

At September 30, 2018 and December 31, 2017, $0.8 million and $1.3 million, respectively, of restructuring liabilities were recorded in accrued liabilities and other on the consolidated balance sheets.
13. 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 then owned approximately 3.4 million and 2.5 million common shares, or 11.3% and 8.2% of TIL, respectively. As the Company then accounted for its investment in TIL under the equity method, the Company was required to remeasure its previously held equity investment to fair value at the acquisition date. Based on the then pending transaction, the Company recognized an other than temporary impairment and remeasured its investment in TIL to fair value during the second quarter of 2017 based on the TIL share price at June 30, 2017, resulting in a write-down of $48.6 million presented in equity income (loss) on the unaudited consolidated statements of loss for the nine months ended September 30, 2017. This transaction and its impact is described in more detail in Note 4a of the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2017.
14. Accumulated Other Comprehensive Income (Loss)
As at September 30, 2018 and December 31, 2017, the Company’s accumulated other comprehensive income (loss) (or AOCI) consisted of the following components:
 
September 30,
 
December 31,
 
2018
 
2017
 
$
 
$
Unrealized gain on qualifying cash flow hedging instruments
6,007

 
1,409

Pension adjustments, net of tax recoveries
(2,426
)
 
(10,697
)
Foreign exchange gain on currency translation
4,138

 
3,293

 
7,719

 
(5,995
)
15. Derivative Instruments and Hedging Activities
The Company uses derivatives to manage certain risks in accordance with its overall risk management policies.

Foreign Exchange Risk

From time to time the Company economically hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts. As at September 30, 2018, the Company was not committed to any foreign currency forward contracts.
 
The Company enters into cross-currency swaps, and pursuant to these swaps the Company receives the principal amount in NOK on the maturity 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 2020, 2021 and 2023. In addition, the cross-currency swaps economically hedge the interest rate exposure on the NOK bonds due in 2020, 2021 and 2023. The Company has not designated, for accounting purposes, these cross-currency swaps as cash flow hedges of its NOK-denominated bonds due in 2020, 2021 and 2023. As at September 30, 2018, 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)
1,000,000
 
134,000

 
NIBOR
 
3.70%
 
5.92%
 
(10,185
)
 
1.6
1,200,000
 
146,500

 
NIBOR
 
6.00%
 
7.72%
 
7,393

 
3.1
850,000
 
102,000

 
NIBOR
 
4.60%
 
7.89%
 
2,289

 
4.9
 
 
 
 
 
 
 
 
 
 
(503
)
 
 


Page 25

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

Interest Rate Risk

The Company enters into interest rate swap agreements, which exchange a receipt of floating interest for a payment of fixed interest, to reduce the Company’s exposure to interest rate variability on its outstanding floating-rate debt. The Company designates certain of its interest rate swap agreements as cash flow hedges for accounting purposes.
 
As at September 30, 2018, 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
 
1,186,349

 
(6,189
)
 
3.9
 
2.9

EURIBOR-Based Debt: