TK Teekay Corporation

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Item 5.	Operating and Financial Review and Prospects

The following discussion should be read in conjunction with the financial statements and notes thereto appearing in Item 18 in this report.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated, references to Teekay Corporation, the "Company", "we”, "us" and "our" and similar terms refer to Teekay Corporation and its subsidiaries. References to “Teekay Offshore” refer to Teekay Offshore Partners L.P. (NYSE: TOO), references to Teekay LNG refer to Teekay LNG Partners L.P. (NYSE: TGP) and references to Teekay Tankers refer to Teekay Tankers Ltd. (NYSE: TNK).

Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (or GAAP).

Explanatory Note

On September 25, 2017, Teekay, Teekay Offshore and Brookfield Business Partners L.P. together with its institutional partners (collectively, Brookfield ) completed a strategic partnership (or the Brookfield Transaction ) which resulted in the deconsolidation of Teekay Offshore as of that date. Although Teekay owned less than 50% of Teekay Offshore, Teekay maintained control of Teekay Offshore until September 25, 2017, by virtue of its 100% ownership interest in the general partner of Teekay Offshore, Teekay Offshore GP LLC (or TOO GP ) . In connection with Brookfield's acquisition of a 49% interest in TOO GP as part of the Brookfield Transaction, Teekay and Brookfield entered into an amended limited liability company agreement whereby Brookfield obtained certain participatory rights in the management of TOO GP, which resulted in Teekay deconsolidating Teekay Offshore for accounting purposes on September 25, 2017. Subsequent to the closing of the Brookfield Transaction, Teekay has significant influence over Teekay Offshore and accounts for its investment in Teekay Offshore using the equity method. Prior to the Brookfield Transaction on September 25, 2017, our operating segments reflected further disaggregation within Teekay Offshore including three individual lines of business: (1) offshore production (FPSO units), (2) offshore logistics (shuttle tankers, the HiLoad DP unit, floating storage and offtake (or FSO ) units, units for maintenance and safety (or UMS ) and long-distance towing and offshore installation vessels), and (3) conventional tankers. Subsequent to September 25, 2017, we have determined that our investment in Teekay Offshore represents a single operating segment. All segment information for periods presented has been retroactively adjusted to be consistent with the change in segment presentation of Teekay Offshore described above.

All information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations has been retroactively adjusted (from that included in our 2016 Annual Report on Form 20-F originally filed with the SEC on April 12, 2017) for the change in segment presentation of Teekay Offshore for the periods presented. This includes, among other things, our results of operations for 2016, 2015 and 2014. All information that was forward looking in nature at the time our Management’s Discussion and Analysis of Financial Condition and Results of Operations was originally filed with the SEC on April 12, 2017, as part of our 2016 Annual Report on Form 20-F, has not been updated to reflect any events or changes in circumstances that have occurred after such date. Our audited financial statements as at December 31, 2016 and 2015 and for the three years ended December 31, 2016, retroactively adjusted for the change in segment presentation of Teekay Offshore, are included in Item 18 of this report. For additional information about the change in segment presentation of Teekay Offshore, please read Notes 1 and 2 to the consolidated financial statements included in Item 18.

Overview

Teekay Corporation is an operational leader and project developer in the marine midstream space. We have general partnership interests in two publicly-listed master limited partnerships, Teekay Offshore and Teekay LNG. In addition, we have a controlling ownership of publicly-listed Teekay Tankers and we have a small fleet of directly-owned vessels. Teekay provides a comprehensive set of marine services to the world’s leading oil and gas companies.

Structure

To understand our financial condition and results of operations, a general understanding of our organizational structure is required. Until the Brookfield Transaction on September 25, 2017, our organizational structure could be divided into (a) our controlling interests in three publicly-traded subsidiaries, Teekay Offshore, Teekay LNG, and Teekay Tankers (together, the Daughter Companies ), and (b) Teekay and its remaining subsidiaries, which is referred to herein as Teekay Parent . As of December 31, 2016 , we had economic interests in Teekay Offshore, Teekay LNG and Teekay Tankers of 29.0% , 33.1% and 25.4% , respectively. Since we controlled the voting interests of the Daughter Companies through our ownership of the sole general partner interests of Teekay Offshore and Teekay LNG and of Class A and Class B common shares of Teekay Tankers, we consolidated the results of these subsidiaries until the Brookfield Transaction on September 25, 2017, when we deconsolidated Teekay Offshore. Please read “Item 4C. Information on the Company – Organizational Structure.”

Teekay Offshore and Teekay LNG primarily hold assets that generate long-term fixed-rate cash flows. The strategic rationale for establishing these two master limited partnerships was to illuminate the higher value of fixed-rate cash flows to Teekay investors, realize advantages of a lower cost of equity when investing in new offshore or LNG projects, enhance returns to Teekay through fee-based revenue and ownership of the partnerships’ incentive distribution rights and increase our access to capital for growth. Teekay Tankers holds a substantial majority of our conventional tanker assets. Teekay Parent continues to own three FPSO units and to in-charter a number of vessels. However, our long-term vision is for Teekay Parent to be primarily a general partner whose role is that of portfolio manager and project developer. Our primary financial objective for Teekay Parent is to increase its free cash flow per share. To support this objective, we intend to de-lever the balance sheet of Teekay Parent by completing the sales of the remaining FPSO units to Teekay Offshore or third parties over the next several years and to seek to grow the distributions of Teekay LNG and Teekay Offshore over the long-term. However, lower oil and gas prices and the resulting impact on the capital markets has resulted in the cost of equity increasing for us, Teekay Offshore and Teekay LNG. Consequently,

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in the near-term, we do not expect to sell any of the remaining FPSO units to Teekay Offshore. In addition, in December 2015, we announced a plan to reduce our quarterly dividend, in response to announcements by the general partners of Teekay Offshore and Teekay LNG of their plans to reduce their respective quarterly cash distribution amounts to partially finance committed capital expenditures and to repay debt.

Teekay entered into an omnibus agreement with Teekay LNG, Teekay Offshore and related parties governing, among other things, when Teekay, Teekay LNG, and Teekay Offshore may compete with each other and certain rights of first offer on LNG carriers, oil tankers, shuttle tankers, FSO units and FPSO units.

We (excluding our investment in Teekay Offshore) have three primary lines of business: offshore production (FPSO units), liquefied gas carriers and conventional tankers. We manage these businesses for the benefit of all stakeholders. We allocate capital and assess performance from the separate perspectives of Teekay LNG and Teekay Tankers, Teekay Parent, and its investment in Teekay Offshore, as well as from the perspective of the lines of business (the Line of Business approach ). The primary focus of our organizational structure, internal reporting and allocation of resources by the chief operating decision maker, is on Teekay LNG and Teekay Tankers, Teekay Parent, and its investment in Teekay Offshore (the Legal Entity approach ).  As such, a substantial majority of the information provided herein has been presented in accordance with the Legal Entity approach. However, we have continued to incorporate the Line of Business approach as in certain cases there is more than one line of business in each of Teekay LNG, Teekay Tankers and Teekay Parent, and we believe this information allows a better understanding of our performance and prospects for future net cash flows. Subsequent to the Brookfield Transaction on September 25, 2017, we assess the performance of, and make decisions to allocate resources to, our investment in Teekay Offshore as a whole and not at the level of the individual lines of business within Teekay Offshore, which are (1) offshore production (FPSO units), (2) offshore logistics (shuttle tankers, the HiLoad DP unit, floating storage and offtake (or FSO ) units, units for maintenance and safety (or UMS ) and long-distance towing and offshore installation vessels), and (3) conventional tankers. We have determined that our investment in Teekay Offshore represents a separate operating segment and that individual lines of business within Teekay Offshore are no longer disclosed in our operating segments and are not discussed individually in the following sections.

Effective for the quarterly dividend and distributions of the fourth quarter of 2015, Teekay Parent reduced its quarterly cash dividend per share to $0.055 from $0.55, Teekay Offshore reduced its quarterly cash distribution per common unit to $0.11 from $0.56 and Teekay LNG reduced its quarterly cash distribution per common unit to $0.14 from $0.70. At the time these changes were made, there was a dislocation in the capital markets relative to the stability of our businesses. More specifically, the future equity capital requirements for our committed growth projects, coupled with the uncertainty regarding how long it would have taken for the energy and capital markets to normalize, resulted in us concluding that it would be in the best interests of our shareholders to conserve more of our internally generated cash flows for committed existing and future growth projects and to reduce debt levels. Teekay Parent, Teekay Offshore and Teekay LNG each maintained these reduced dividend and distribution levels for 2016. Despite the challenges in the global energy and capital markets, our cash flows from vessels operations remain largely stable and are supported by a large and well-diversified portfolio of fee-based contracts with high quality counterparties. In addition to using more of our internally generated cash flows for existing growth projects and to reduce our debt levels, we will continue to seek alternative sources of financing such as sale and leaseback transactions, asset sales, new bank borrowings and the issuance of new debt and equity securities.

Since early 2016, Teekay Parent and the Daughter Companies have been executing on a series of financing initiatives intended to contribute to the funding of our upcoming capital expenditures and debt maturities. For additional information about these initiatives, please read “Liquidity and Capital Resources”.

IMPORTANT FINANCIAL AND OPERATIONAL TERMS AND CONCEPTS

We use a variety of financial and operational terms and concepts when analyzing our performance. These include the following:

Revenues. Revenues primarily include revenues from voyage charters, pool arrangements, time charters accounted for under operating and direct financing leases, contracts of affreightment and FPSO contracts. Revenues are affected by hire rates and the number of days a vessel operates, the daily production volume on FPSO units, and the oil price for certain FPSO units. Revenues are also affected by the mix of business between time charters, voyage charters, contracts of affreightment and vessels operating in pool arrangements. Hire rates for voyage charters are more volatile, as they are typically tied to prevailing market rates at the time of a voyage.

Voyage Expenses. Voyage expenses are all expenses unique to a particular voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Voyage expenses are typically paid by the customer under time charters and FPSO contracts and by us under voyage charters and contracts of affreightment.

Net Revenues. Net revenues represent revenues less voyage expenses. The amount of voyage expenses we incur for a particular charter depends upon the form of the charter. For example, under time-charter contracts and FPSO contracts the customer usually pays the voyage expenses and for contracts of affreightment the ship-owner usually pays the voyage expenses, which typically are added to the hire rate at an approximate cost. Consequently, we use net revenues to improve the comparability between periods of reported revenues that are generated by the different forms of charters and contracts. We principally use net revenues, a non-GAAP financial measure, because it provides more meaningful information to us about the deployment of our vessels and their performance than revenues, the most directly comparable financial measure under United States generally accepted accounting principles (or GAAP ).

Vessel Operating Expenses. Under all types of charters and contracts for our vessels, except for bareboat charters, we are responsible for vessel operating expenses, which include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses. The two largest components of our vessel operating expenses are crew costs and repairs and maintenance. We expect these expenses to increase

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as our fleet matures and to the extent that it expands. We are taking steps to maintain these expenses at a stable level, but expect an increase in line with inflation in respect of crew, material, and maintenance costs. The strengthening or weakening of the U.S. Dollar relative to foreign currencies may result in significant decreases or increases, respectively, in our vessel operating expenses, depending on the currencies in which such expenses are incurred.

Income from Vessel Operations. To assist us in evaluating our operations by segment, we analyze our income from vessel operations for each segment, which represents the income we receive from the segment after deducting operating expenses, but prior to the deduction of interest expense, realized and unrealized gains (losses) on non-designated derivative instruments, income taxes, foreign currency and other income and losses.

Dry docking. We must periodically dry dock each of our vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Generally, we dry dock each of our vessels every two and a half to five years, depending upon the type of vessel and its age. In addition, a shipping society classification intermediate survey is performed on our LNG carriers between the second and third year of the five-year dry-docking cycle. We capitalize a substantial portion of the costs incurred during dry docking and for the survey, and amortize those costs on a straight-line basis from the completion of a dry docking or intermediate survey over the estimated useful life of the dry dock. We expense as incurred costs for routine repairs and maintenance performed during dry dockings that do not improve or extend the useful lives of the assets and annual class survey costs for our FPSO units. The number of dry dockings undertaken in a given period and the nature of the work performed determine the level of dry-docking expenditures.

Depreciation and Amortization. Our depreciation and amortization expense typically consists of:

•	charges related to the depreciation and amortization of the historical cost of our fleet (less an estimated residual value) over the estimated useful lives of our vessels;

•	charges related to the amortization of dry-docking expenditures over the useful life of the dry dock; and

•	charges related to the amortization of intangible assets, including the fair value of time charters, contracts of affreightment and customer relationships where amounts have been attributed to those items in acquisitions; these amounts are amortized over the period in which the asset is expected to contribute to our future cash flows.

Time-Charter Equivalent (TCE) Rates. Bulk shipping industry freight rates are commonly measured in the shipping industry at the net revenues level in terms of “time-charter equivalent” (or TCE ) rates, which represent net revenues divided by revenue days.

Revenue Days. Revenue days are the total number of calendar days our vessels were in our possession during a period, less the total number of off-hire days during the period associated with major repairs, dry dockings or special or intermediate surveys. Consequently, revenue days represent the total number of days available for the vessel to earn revenue. Idle days, which are days when the vessel is available for the vessel to earn revenue, yet is not employed, are included in revenue days. We use revenue days to explain changes in our net revenues between periods.

Calendar-Ship-Days. Calendar-ship-days are equal to the total number of calendar days that our vessels were in our possession during a period. As a result, we use calendar-ship-days primarily in explaining changes in vessel operating expenses, time-charter hire expense and depreciation and amortization.

ITEMS YOU SHOULD CONSIDER WHEN EVALUATING OUR RESULTS

You should consider the following factors when evaluating our historical financial performance and assessing our future prospects:

•	Our revenues are affected by cyclicality in the tanker markets.  The cyclical nature of the tanker industry causes significant increases or decreases in the revenue we earn from our vessels, particularly those we trade in the spot conventional tanker market.

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Tanker rates also fluctuate based on seasonal variations in demand.  Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the Northern Hemisphere but weaker in the summer months as a result of lower oil consumption in the Northern Hemisphere and increased refinery maintenance. In addition, unpredictable weather patterns during the winter months tend to disrupt vessel scheduling, which historically has increased oil price volatility and oil trading activities in the winter months. As a result, revenues generated by our vessels have historically been weaker during the quarters ended June 30 and September 30, and stronger in the quarters ended December 31 and March 31.

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The size of and types of vessels in our fleet continues to change. Our results of operations reflect changes in the size and composition of our fleet due to certain vessel deliveries, vessel dispositions and changes to the number of vessels we charter in, as well as our entry into new markets. Please read “—Results of Operations” below for further details about vessel dispositions, deliveries and vessels chartered in. Due to the nature of our business, we expect our fleet to continue to fluctuate in size and composition.

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Vessel operating and other costs are facing industry-wide cost pressures . The shipping industry continues to forecast a shortfall in qualified personnel, although weak shipping and offshore markets and slowing growth may ease officer shortages. We will continue to focus on our manning and training strategies to meet future needs, but going forward crew compensation may increase. In addition, factors such as pressure on commodity and raw material prices, as well as changes in regulatory requirements could also contribute to operating expenditure increases. We continue to take action aimed at improving operational efficiencies and to temper the effect of inflationary and other price escalations; however, increases to operational costs are still likely to occur in the future.

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Our net income is affected by fluctuations in the fair value of our derivative instruments . Most of our existing cross currency and interest rate swap agreements and foreign currency forward contracts are not designated as hedges for accounting purposes. Although we believe the non-designated derivative instruments are economic hedges, the changes in their fair value are included in our consolidated statements of income as unrealized gains or losses on non-designated derivatives. The changes in fair value do not affect our cash flows or liquidity.

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The amount and timing of dry dockings of our vessels can affect our revenues between periods.  Our vessels are off hire at various times due to scheduled and unscheduled maintenance. During 2016 and 2015 , on a consolidated basis we incurred 601 and 1,591 off-hire days relating to dry docking, respectively. The financial impact from these periods of off-hire, if material, is explained in further detail below in “—Results of Operations”. 26 of our vessels are scheduled for dry docking during 2017 .

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The division of our results of operations between the Daughter Companies and Teekay Parent is impacted by the sale of vessels from Teekay Parent to the Daughter Companies. During 2015, Teekay Parent sold certain of its vessels to Teekay Offshore. Teekay Offshore and the other Daughter Companies account for the acquisition of the vessels from Teekay as a transfer of a business between entities under common control. The method of accounting for such transfers is similar to the pooling of interests method of accounting. Under this method, the carrying amount of net assets recognized in the balance sheets of each combining entity are carried forward to the balance sheet of the combined entity, and no other assets or liabilities are recognized as a result of the combination. In addition, such transfers are accounted for as if the transfer occurred from the date that the acquiring subsidiary and the acquired vessels were both under the common control of Teekay and had begun operations. As a result, the historical financial information of Teekay Offshore included in this Annual Report reflects the financial results of the vessels acquired from Teekay Parent from the date the vessels were both under the common control of Teekay and had begun operations but prior to the date they were owned by Teekay Offshore.

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Three of Teekay LNG’s Suezmax tankers and one of its LPG carriers earned revenues based partly on spot market rates. The time-charter contract for one of Teekay LNG’s Suezmax tankers, the Teide Spirit, and one of its LPG carriers, the Norgas Napa, contain a component providing for additional revenue to Teekay LNG beyond the fixed-hire rate when spot market rates exceed certain threshold amounts. The time-charter contracts for the Bermuda Spirit and Hamilton Spirit were amended in the fourth quarter of 2012 for a period of 24 months, which ended on September 30, 2014, and during this period these charters contained a component providing for additional revenues to Teekay LNG beyond the fixed-hire rate when spot market rates exceeded certain threshold amounts. Accordingly, even though declining spot market rates did not result in Teekay LNG receiving less than the fixed-hire rate, Teekay LNG’s results of operations and cash flow from operations were influenced by the variable component of the charters in periods where the spot market rates exceeded the threshold amounts.

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Our financial results are affected by fluctuations in currency exchange rates . Under GAAP, all foreign currency-denominated monetary assets and liabilities (including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, unearned revenue, advances from affiliates, and long-term debt) are revalued and reported based on the prevailing exchange rate at the end of the period. These foreign currency translations fluctuate based on the strength of the U.S. Dollar relative to the applicable foreign currency, mainly to the Euro and NOK, and are included in our results of operations. The translation of all foreign currency-denominated monetary assets and liabilities at each reporting date results in unrealized foreign currency exchange gains or losses but do not impact our cash flows.

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The duration of many of our shuttle tanker, FSO and FPSO contracts is the life of the relevant oil field or is subject to extension by the field operator or vessel charterer. If the oil field no longer produces oil or is abandoned or the contract term is not extended, we will no longer generate revenue under the related contract and will need to seek to redeploy affected vessels. Many of our shuttle tanker contracts have a “life-of-field” duration, which means that the contract continues until oil production at the field ceases. If production terminates for any reason, we no longer will generate revenue under the related contract. Other shuttle tanker, FSO and FPSO contracts under which our vessels operate are subject to extensions beyond their initial term. The likelihood of these contracts being extended may be negatively affected by reductions in oil field reserves, low oil prices generally or other factors. If we are unable to promptly redeploy any affected vessels at rates at least equal to those under the contracts, if at all, our operating results will be harmed. Any potential redeployment may not be under long-term contracts, which may affect the stability of our cash flow and our ability to make cash distributions. FPSO units, in particular, are specialized vessels that have very limited alternative uses and high fixed costs. In addition, FPSO units typically require substantial capital investments prior to being redeployed to a new field and production service agreement. Any idle time prior to the commencement of a new contract or our inability to redeploy the vessels at acceptable rates may have an adverse effect on our business and operating results.

RECENT DEVELOPMENTS AND RESULTS OF OPERATIONS

The results of operations that follow have first been divided into (a) our controlling interests in each of our publicly traded subsidiaries Teekay Offshore, Teekay LNG and Teekay Tankers and (b) Teekay Parent. Within each of these four groups, we have further subdivided the results into their respective lines of business. The following table presents revenue and income from vessel operations for each of these three subsidiaries and Teekay Parent and how they reconcile to our consolidated financial statements.

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		Revenues									Income from Vessel Operations
(in thousands of U.S. dollars)		2016			2015			2014			2016			2015			2014
Teekay Offshore		1,152,390			1,229,413			1,019,539			230,853			283,399			256,218
Teekay LNG		396,444			397,991			402,928			153,181			181,372			183,823
Teekay Tankers  (1)		526,896			504,347			235,593			86,456			184,083			58,271
Teekay Parent		340,513			419,166			450,112			(96,496	)		(30,228	)		(73,723	)
Elimination of intercompany (2)(3)		(87,674	)		(100,535	)		(114,252	)		10,296			6,506			2,570
Teekay Corporation Consolidated		2,328,569			2,450,382			1,993,920			384,290			625,132			427,159

(1)	In December 2015, Teekay Offshore sold two Aframax tankers to Teekay Tankers and the results of the two vessels are included in Teekay Offshore up to the date of sale and in Teekay Tankers from the date of acquisition.

(2)

During 2016, Teekay Parent chartered in three FSO units, three shuttle tankers and one Aframax tanker from Teekay Offshore, two LNG carriers from Teekay LNG and two Aframax tankers from Teekay Tankers. During 2015, Teekay Parent chartered in three FSO units, two shuttle tankers and four Aframax tankers from Teekay Offshore, and two LNG carriers from Teekay LNG, and Teekay Parent chartered out one Aframax tanker to Teekay Tankers. During 2014, Teekay Parent chartered in three FSO units, two shuttle tankers and four Aframax tankers from Teekay Offshore, two LNG carriers from Teekay LNG and two Aframax tankers from Teekay Tankers. Internal charter hire between Teekay Parent and its subsidiaries Teekay Offshore, Teekay LNG and Teekay Tankers is eliminated upon consolidation.

(3)

During 2014, Teekay Parent sold to Teekay Tankers a 50% interest in Teekay Tankers Operations Ltd (or TTOL ), which owns the conventional tanker commercial management and technical management operations, including direct ownership in three commercially managed tanker pools of the Teekay group. Teekay Tankers and Teekay Parent each account for their 50% interests in TTOL as equity-accounted investments and, as such, TTOL’s results are reflected in equity income of Teekay Tankers and Teekay Parent. Upon consolidation of Teekay Tankers into Teekay Corporation, the results of TTOL are accounted for on a consolidated basis by Teekay Corporation. The impact on our income from vessel operations of consolidating TTOL in 2016 was an increase of $10.3 million (2015 - $6.5 million, 2014 - $2.6 million).

Summary

Teekay Corporation consolidated income from vessels operations decreased to $384 million for the year ended December 31, 2016 compared to $625 million in the prior year. The primary reasons for this decrease are as follows:

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in Teekay Offshore, the cancellation of the construction contracts for its two UMS newbuildings, lower revenue from its UMS being off-hire for a portion of 2016 due to damage suffered to the gangway and the suspension of charter hire payments since early-November 2016 due to an operational review being conducted by the charterer, the expiration of certain shuttle tanker time-charter and affreightment contracts, change in estimate of useful life of certain shuttle tankers which increased depreciation expense, and the termination of the contract of the Petrojarl Varg FPSO;

•	in Teekay LNG, the sale of three conventional tankers, partially offset by the delivery of two LNG newbuildings in 2016;

•	in Teekay Tankers, lower average TCE rates earned in the spot tanker market in 2016 compared to 2015; and

•	in Teekay Parent, terminations of time charters and the lay-up of the Arctic Spirit and Polar Spirit LNG carriers in 2016, loss on sale of the Shoshone Spirit tanker, lower average TCE rates earned in the spot tanker market, and a contract amendment related to the Hummingbird Spirit FPSO which reduced its revenues.

Details of the changes to our results of operations for the year ended December 31, 2016, compared to the year ended December 31, 2015 are provided in the following section.

Year Ended December 31, 2016 versus Year Ended December 31, 2015

Teekay LNG

Recent Developments in Teekay LNG

On November 15, 2016, the joint venture among National Oil & Gas Authority (or Nogaholding ), Samsung C&T (or Samsung ), Gulf Investment Corporation (or GIC ) and Teekay LNG (or the Bahrain LNG Joint Venture ), secured debt financing of $741.1 million related to the development of an LNG receiving and regasification terminal in Bahrain. The receiving and regasification terminal will be owned and operated by the Bahrain LNG Joint Venture under a 20-year agreement with Nogaholding which is scheduled to commence operations in early-2019. In conjunction with this project, Teekay LNG will supply a floating storage unit (or FSU ), which will be modified from one of Teekay LNG's nine wholly-owned LNG carrier newbuildings, and charter the FSU to the Bahrain LNG Joint Venture through a 20-year time-charter contract.

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Teekay LNG has six LPG carriers currently on bareboat charter contracts with I.M. Skaugen SE (or Skaugen ) with contract terms ending between 2019 and 2026. As at December 31, 2016 , Teekay LNG had not been paid by Skaugen for a portion of the hire invoices for the period from August 2016 to December 2016 relating to these six vessels and totaling approximately $9.2 million. As an alternative payment for a portion of these amounts, Skaugen offered to Teekay LNG its 35% ownership interest in an LPG carrier, the Norgas Sonoma , which is owned by Skaugen Gulf Petchem Carriers B.S.C.(c), a joint venture between Skaugen (35%), or Nogaholding (35%) and Suffun Bahrain W.L.L. (or Suffun ) (30%) (or the Skaugen LPG Joint Venture ). Both Nogaholding and Suffun exercised their option to participate in the purchase and sale of the Skaugen LPG Joint Venture and as a result, Teekay LNG is finalizing the acquisition of the Skaugen LPG Joint Venture for approximately $13 million. Upon closing of this transaction, Teekay LNG will apply the purchase price of $4.7 million, to be adjusted for working capital adjustments, relating to Skaugen's 35% ownership interest in the Skaugen LPG Joint Venture, to the outstanding hire invoices owed by Skaugen to Teekay LNG. As a result, as at December 31, 2016, Teekay LNG has not recognized any revenue relating to the remaining $4.5 million of hire invoices outstanding from Skaugen given the uncertainty of its collection. Upon acquisition of the Skaugen LPG Joint Venture, Teekay LNG expects to continue to trade the Norgas Sonoma in the Norgas pool. In addition, there is uncertainty about Skaugen's ability to pay future invoices for our six LPG carriers on charter to them, which may impact Teekay LNG's revenues and cash flows in future periods if Teekay LNG is not able to redeploy the vessels at similar rates. Currently, lease payments from Skaugen represent approximately $6 million of revenue each quarter.

During February and March 2016, Centrofin Management Inc. (or Centrofin ), the charterer for both the Bermuda Spirit and Hamilton Spirit Suezmax tankers of Teekay LNG, exercised its option under the charter contracts to purchase both vessels. As a result of Centrofin’s acquisition of the vessels, Teekay LNG recorded a $27.4 million loss on the sale of the vessels and associated charter contracts in the first quarter of 2016. The Bermuda Spirit was sold in April 2016 and the Hamilton Spirit was sold in May 2016. Teekay LNG used the total proceeds of $94.3 million from the sales primarily to repay existing term loans associated with these vessels.

On November 30, 2016, Teekay LNG reached an agreement to sell the Asian Spirit for net proceeds of $20.6 million. As a result, Teekay LNG recorded a $11.5 million impairment on the write-down of the vessel in the fourth quarter of 2016. Delivery of the vessel to the new owners occurred on March 21, 2017. Teekay LNG used the net proceeds from the sales primarily to repay an existing term loan associated with the vessel.

In February 2016 and July 2016, Teekay LNG took delivery of the first two of the 11 M-type, Electronically Controlled Gas Injection (or MEGI) LNG carrier newbuildings on order, which commenced their five-year charter contracts with a subsidiary of Cheniere Energy, Inc. in February 2016 and August 2016, respectively. As at December 31, 2016, Teekay LNG had nine wholly-owned LNG carrier newbuildings on order, of which one, the Torben Spirit , was delivered in February 2017, and the remaining eight are scheduled for delivery between late-2017 and early-2019.

On September 27, 2016, Teekay LNG entered into a 15-year time-charter contract with the Yamal LNG project (or the Yamal LNG Project ), sponsored by Novatek OAO, Total SA, China National Petroleum Corporation and Silk Road Fund, to provide the Yamal LNG Project with conventional LNG transportation services. The Yamal LNG Project, which is now fully financed, is currently scheduled to commence production in late-2017. The charter contract will be serviced by one of Teekay LNG's previously unchartered 174,000 cubic meter (or cbm ) MEGI LNG carrier newbuilding that is scheduled for delivery in early-2019.

Additionally, in November 2016, Teekay LNG entered into a 10-month plus one-year option charter contract with a major energy company. The charter contract commenced on March 3, 2017 and is being serviced by Teekay LNG's final previously unchartered 173,400 cbm MEGI LNG carrier newbuilding, the Torben Spirit , which was delivered to Teekay LNG on February 28, 2017. Prior to the conclusion of this charter, Teekay LNG will seek to secure a long-term contract on this vessel.

In December 2016, Teekay LNG entered into a 10-year $682.8 million sale-leaseback agreement with ICBC Financial Leasing Co., Ltd. (or ICBC Leasing ) for four of its nine wholly-owned LNG carrier newbuildings delivering in 2017 and 2018, and at such dates, ICBC Leasing will take delivery and charter each respective vessel back to Teekay LNG. At the end of the 10-year tenor of these leases, Teekay LNG has an obligation to repurchase the vessels from ICBC Leasing.

In addition to Teekay LNG's nine LNG wholly-owned carrier newbuildings, it has a 20% interest in two LNG carrier newbuildings and a 30% interest in another two LNG carrier newbuildings (or the BG Joint Venture ) scheduled for delivery between 2017 and 2019 and six LNG carrier newbuildings relating to Teekay LNG's 50% owned joint venture with China LNG Shipping (Holdings) Limited (or the Yamal LNG Joint Venture ) scheduled for delivery between 2018 and 2020. Including the transactions described above, Teekay LNG has entered into time-charter contracts for all of its remaining newbuildings.

In February, June, and November 2016, Exmar LPG BVBA (or the Exmar LPG Joint Venture ), of which Teekay LNG has a 50% ownership interest, took delivery of the sixth, seventh, and eighth of its 12 LPG carrier newbuildings on order. The five-year charter contracts for the sixth and seventh LPG carriers with an international energy company based in Norway commenced in February 2016 and August 2016, respectively. As at December 31, 2016, the Exmar LPG Joint Venture had four LPG carrier newbuildings, of which one delivered in March 2017 and the remaining three are scheduled for delivery between mid-2017 and early-2018. The Exmar LPG Joint Venture has secured financing in place upon delivery of each respective vessel.

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Two of the six LNG carriers (or MALT LNG Carriers ) in Teekay LNG's 52% joint venture with Marubeni Corporation (or the Teekay LNG-Marubeni Joint Venture ), the Marib Spirit and Arwa Spirit , are currently under long-term contracts expiring in 2029 with Yemen LNG Ltd. (or YLNG ), a consortium led by Total SA. Due to the political situation in Yemen, YLNG decided to temporarily close operation of its LNG plant in Yemen in 2015. As a result, the Teekay LNG-Marubeni Joint Venture agreed in December 2015 to defer a portion of the charter payments for the two LNG carriers from January 1, 2016 to December 31, 2016 and a further deferral was agreed and effective in August 2016 and in January 2017, the deferral period was extended to December 31, 2017. Once the LNG plant in Yemen resumes operations, it is intended that YLNG will repay the deferred amounts in full, plus interest over a period of time to be agreed upon. However, there is no assurance if or when the LNG plant will resume operations or if YLNG will repay the deferred amounts, and this deferral period may extend beyond 2017. Teekay LNG's proportionate share of the impact of the charter payment deferral for 2016 was a reduction to equity income of $21.2 million and this deferral period may extend beyond 2017. Teekay LNG's proportionate share of the estimated impact of the charter payment deferral for 2017 compared to original charter rates earned prior to December 31, 2015 is estimated to be a reduction to equity income ranging from $20 million to $30 million depending on any sub-chartering employment opportunities.

In 2015, the Magellan Spirit , one of the MALT LNG Carriers in the Teekay LNG-Marubeni Joint Venture, had a grounding incident. The charterer during that time claimed that the vessel was off-hire for more than 30 consecutive days during the first quarter of 2015, which, in the view of the charterer, permitted the charterer to terminate the charter contract. The Teekay LNG-Marubeni Joint Venture disputed both the charterer’s aggregate off-hire claims as well as the charterer’s ability to terminate the charter contract, which originally would have expired in August 2016. In May 2016, the Teekay LNG-Marubeni Joint Venture reached a settlement agreement with the charterer, under which the charter contract was deemed terminated and the charterer paid $39.0 million to the Teekay LNG-Marubeni Joint Venture for lost revenues, of which Teekay LNG's proportionate share was $20.3 million, which was received and included in equity income in the year ended December 31, 2016 .

Operating Results – Teekay LNG

The following table compares Teekay LNG’s operating results and number of calendar-ship-days for its vessels for 2016 and 2015 , and compares its net revenues (which is a non-GAAP financial measure) for 2016 and 2015 , to revenues, the most directly comparable GAAP financial measure, for the same periods.

		Liquefied Gas Carriers						Conventional Tankers						Teekay LNG Total
(in thousands of U.S. dollars, except calendar-ship-days)_____________		2016			2015			2016			2015			2016			2015
Revenues		336,530			305,056			59,914			92,935			396,444			397,991
Voyage expenses		(449	)		203			(1,207	)		(1,349	)		(1,656	)		(1,146	)
Net revenues		336,081			305,259			58,707			91,586			394,788			396,845
Vessel operating expenses		(66,087	)		(63,344	)		(22,503	)		(30,757	)		(88,590	)		(94,101	)
Depreciation and amortization		(80,084	)		(71,323	)		(15,458	)		(20,930	)		(95,542	)		(92,253	)
General and administrative expenses (1)		(15,310	)		(19,392	)		(3,189	)		(5,726	)		(18,499	)		(25,118	)
Write-down and loss on sale of vessels		—			—			(38,976	)		—			(38,976	)		—
Restructuring charges		—			—			—			(4,001	)		—			(4,001	)
Income (loss) from vessel operations		174,600			151,200			(21,419	)		30,172			153,181			181,372
Equity income		62,307			84,171			—			—			62,307			84,171
Calendar-Ship-Days (2)
Liquefied Gas Carriers		7,440			6,935			—			—			7,440			6,935
Conventional Tankers		—			—			2,439			2,920			2,439			2,920

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses allocated to the liquefied gas carriers and conventional tankers based on estimated use of corporate resources.

(2)	Calendar-ship-days presented relate to consolidated vessels.

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Teekay LNG – Liquefied Gas Carriers

As at December 31, 2016 , Teekay LNG’s liquefied gas fleet, including newbuildings, included 50 LNG carriers and 29 LPG/Multigas carriers, in which its interests ranged from 20% to 100%. The number of calendar-ship-days for Teekay LNG’s liquefied gas carriers consolidated in its financial results increased to 7,440 days in 2016 from 6,935 days in 2015 , as a result of the deliveries to Teekay LNG of the Creole Spirit and Oak Spirit i n February 2016 and July 2016, respectively. During 2016 , one of Teekay LNG's consolidated vessels in this segment was off-hire for a scheduled in-water survey, the Creole Spirit was off-hire for 32 days for repairs covered under warranty, and the Creole Spirit and Oak Spirit's time-charter contracts commenced in February 2016 and August 2016, respectively, compared to one consolidated vessel in this segment being off-hire for 47 days in 2015 . As a result, Teekay LNG's utilization decreased to 99.1% for 2016 , compared to 99.3% in 2015 .

Income from vessel operations increased to $174.6 million in 2016 compared to $151.2 million in 2015 , primarily as a result of:

•	an increase of $19.9 million as a result of the deliveries of the Creole Spirit and Oak Spirit and the commencement of their charter contracts;

•	an increase of $4.1 million as a result of lower general and administrative expenses primarily due to reimbursement from the Bahrain Joint Venture in 2016 of Teekay LNG's proportionate costs, including pre-operation, engineering and financing-related expenses, upon the joint venture securing its financing in the fourth quarter of 2016;

•	an increase of $3.8 million due to lower vessel operating expenses due to the charterer, Teekay, not being able to find employment for the Arctic Spirit and Polar Spirit for a portion of 2016, which permitted Teekay LNG to operate the vessels with a reduced average number of crew on board and reduce the amount of repair and maintenance activities performed; and

•	an increase of $2.2 million due to the Polar Spirit being off-hire for 47 days in 2015 for a scheduled dry docking;

partially offset by

•	a decrease of $4.5 million due to a revenue deferral relating to Teekay LNG's six LPG carriers on charter to Skaugen; and

•	a decrease of $2.0 million for Teekay LNG's Spanish LNG carriers primarily due to a performance claim related to the Hispania Spirit recorded in the fourth quarter of 2016 and the Catalunya Spirit being off-hire for six days in the first quarter of 2016 for a scheduled in-water survey.

Equity income related to Teekay LNG’s liquefied gas carriers decreased to $62.3 million in 2016 compared to $84.2 million in 2015 , as set forth in the table below:

(in thousands of U.S. Dollars)	Year Ended December 31,
	Angola LNG Carriers		Exmar LNG Carriers		Exmar LPG Carriers		MALT LNG Carriers		RasGas 3 LNG Carriers		Other		Total Equity Income
2016	15,713		9,038		13,674		4,503		19,817		(438	)	62,307
2015	16,144		9,332		32,733		4,620		21,527		(185	)	84,171
Difference	(431	)	(294	)	(19,059	)	(117	)	(1,710	)	(253	)	(21,864	)

Equity income from Teekay LNG's 50% ownership interest in Exmar LPG BVBA decreased by $19.1 million primarily due to more vessels trading in the spot market in 2016 compared to higher fixed rates earned in 2015; the redelivery of the in-chartered vessel Odin back to its owner in November 2015; and the write-down of the Brugge Venture recorded in the fourth quarter of 2016, which was sold in January 2017. These decreases were partially offset by the deliveries to the joint venture of four LPG carrier newbuildings between September 2015 and November 2016.

The slight decrease in equity income from Teekay LNG's 52% investment in the MALT LNG carriers was primarily due to the deferral during 2016 (and which will continue through 2017) of a significant portion of the charter payments from YLNG for the Marib Spirit and Arwa Spirit LNG carriers chartered to support the LNG plant in Yemen, and a lower charter rate on the redeployment of the Methane Spirit after its original time-charter contract expired in March 2015. These decreases were partially offset by the settlement payment awarded to Teekay LNG in 2016 for the disputed contract termination relating to the Magellan Spirit , and unscheduled off-hire relating to the Woodside Donaldson to repair a damaged propulsion motor in January 2015.

The $1.7 million decrease in equity income from Teekay LNG's 40% investment in the three RasGas 3 LNG carriers was primarily due to the scheduled maturity of the joint venture's interest rate swaps, which resulted in lower unrealized gain on non-designated derivative instruments, which was partially offset by lower combined interest expense and realized loss on non-designated derivative instruments.

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Teekay LNG – Conventional Tankers

As at December 31, 2016 , Teekay LNG’s conventional tanker fleet included five Suezmax-class double-hulled conventional crude oil tankers and one Handymax product tanker, three of which it owns and two of which it leases under capital leases. All of Teekay LNG’s conventional tankers operate under fixed-rate charters. The number of calendar-ship-days for Teekay LNG’s conventional tankers decreased to 2,439 days in 2016 from 2,920 days in 2015 , primarily as a result of the sales of the Bermuda Spirit and Hamilton Spirit in April 2016 and May 2016, respectively. During 2016, none of Teekay LNG's vessels in this segment were off-hire for scheduled dockings, compared to two of its vessels in this segment being off-hire for a total of 24 days for scheduled dry-dockings and another vessel being off-hire for 12 days related to a crew work stoppage during 2015.

Income (loss) from vessel operations decreased to a loss of $21.4 million during 2016 compared to income of $30.2 million in 2015 , primarily as a result of:

•	decreases of $32.5 million due to the sales of the Bermuda Spirit and Hamilton Spirit in 2016, resulting in a loss on sale of vessels of $27.4 million and a decrease in operating income;

•	a decrease of $11.5 million relating to the write-down of the Asian Spirit in 2016 as this vessel is classified as held for sale at December 31, 2016;

•	a decrease of $4.4 million due to lower revenues earned by the Teide Spirit relating to a profit sharing agreement between Teekay LNG and Compania Espanole de Petroleos, S.A. (or CEPSA );

•	a decrease of $3.6 million relating to the European Spirit , African Spirit and Asian Spirit upon the charterer exercising its one-year options in September 2015, November 2015 and January 2016, respectively, at lower charter rates than the original charter rates; and

•	a decrease of $2.8 million due to lower revenues earned by the Toledo Spirit in 2016 relating to a profit sharing agreement between Teekay LNG and CEPSA.

partially offset by

•	an increase of $2.5 million due to lower general and administrative expenses relating primarily to a reduced amount of business development activities in 2016.

Teekay Tankers

Recent Developments in Teekay Tankers

In October 2016, Teekay Tankers agreed to sell two Suezmax tankers, the Yamuna Spirit and Ganges Spirit . The vessels were written down to their agreed sales prices, and the resulting fourth quarter impairment in 2016 was $6.2 million. The Ganges Spirit was delivered to its buyer in January 2017 and the Yamuna Spirit was delivered to its buyer in March 2017.

In September 2016, Teekay Tankers agreed to sell one Medium Range (or MR ) tanker, the Hugli Spirit , and the sale was completed in November 2016. The vessel was written down to its agreed sales price in the third quarter of 2016.

On August 8, 2016, Teekay Tankers completed the sale of one MR tanker, the Teesta Spirit , for $14.0 million. Teekay Tankers recognized a write-down and a loss on sale of the vessel totaling $6.6 million in 2016.

On July 31, 2015, Teekay Tankers acquired the ship-to-ship transfer business (or TMS , previously referred to as SPT ) from a company jointly owned by Teekay and Skaugen, for an aggregate purchase price of approximately $47.3 million (including $1.8 million for working capital). TMS provides a full suite of ship-to-ship transfer services in the oil, gas and dry bulk industries. In addition to full service lightering and lightering support, it also provides consultancy, terminal management and project development services. TMS owns a fleet of four STS support vessels and has two in-chartered Aframax tankers. In connection with the TMS acquisition, in July 2015, Teekay Tankers issued approximately 6.5 million shares of Class B common stock to Teekay, for net proceeds of $45.5 million. These shares of Class B common stock were priced at $6.99 per share.

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Operating Results – Teekay Tankers

The following table compares Teekay Tankers’ operating results and number of calendar-ship-days for its vessels for 2016 and 2015, and compares its net revenues (which is a non-GAAP financial measure) for 2016 and 2015, to revenues, the most directly comparable GAAP financial measure, for the same periods.

		Year Ended December 31,
(in thousands of U.S. dollars, except calendar-ship-days)		2016			2015
Revenues		526,896			504,347
Voyage expenses		(55,241	)		(19,566	)
Net revenues		471,655			484,781
Vessel operating expenses		(182,598	)		(130,775	)
Time-charter hire expense		(59,647	)		(77,799	)
Depreciation and amortization		(104,149	)		(71,429	)
General and administrative expenses		(18,211	)		(16,694	)
Asset impairments		(20,462	)		—
(Loss) gain on sale of vessels		(132	)		771
Restructuring charges		—			(4,772	)
Income from vessel operations		86,456			184,083
Equity income		13,101			14,411
Calendar-Ship-Days (1)
Conventional Tankers		19,303			16,636

(1)	Calendar-ship-days presented relate to owned and in-chartered consolidated vessels.

Tanker Market

Tanker rates in 2016 softened from the highs seen in 2015, yet remained in line with the 10-year average as a result of ongoing positive demand fundamentals. Global oil demand remained strong in 2016 with growth of 1.5 million barrels per day ( mb/d) , which is 0.4 mb/d higher than the 10-year average. Global oil supply was also strong, with record high OPEC production of 32.6 mb/d. However, unexpected supply outages in Nigeria put pressure on mid-sized tanker demand in the middle of the year. Oil prices remained in the mid-$40 per barrel range for most of 2016 before ticking up in December as OPEC firmed plans for production cuts as a means to rebalance oil markets. While ongoing low prices throughout the year provided some support for tonne-mile demand through strategic and commercial stockpiling programs, record high onshore stock levels towards the second half of the year presented some negative pressure for import requirements as refiners struggled to manage bulging stockpiles. Tanker fleet growth also created some downside pressure to rates towards the second half of the year as crude tanker fleet growth reached 6% scrapping dipped to the lowest level since 1995.

Looking ahead, we anticipate 2017 to present some headwinds to the crude tanker freight market. Fleet growth is forecast to be approximately 4.5%, which is slightly lower than 2016 but in-line with the ten-year average. However, the majority of fleet growth in 2017 will come from the mid-sized segments, with mid-size fleet growth expected to be approximately 5%. The outlook for 2018 is more positive given a lack of ordering and the expectation for increased scrapping due to an aging fleet alongside changes to the regulatory landscape.

Global oil demand is forecast to grow by 1.4 mb/d in 2017 (average of the International Energy Agency, U.S. Energy Information Administration, and OPEC forecasts), which is similar growth to 2016 and above the ten-year average growth rate of 1.1 mb/d. On the supply side, OPEC production cuts of approximately 1.2 mb/d, with the majority of cuts (approximately 0.8 mb/d) coming from Middle East OPEC producers, will be negative for overall crude volumes available for transport. While OPEC production cuts may continue through the year, non-OPEC production increases of approximately 0.3 mb/d are expected as firming oil prices encourage more drilling, particularly in the US. The result could benefit mid-sized segments as they find some support from increased tonne-mile demand as supply in the Atlantic basin continues to grow. In addition, the Brent - Dubai spread has narrowed considerably as a result of OPEC cuts, and many crude buyers are sourcing Brent-benchmarked crudes as they become more economically attractive. These price / supply factors could offset some of the headwinds that face the crude tanker market in 2017 as they have the potential to introduce volatility into regional tanker demand, which is positive for spot tanker rates.

In summary, we anticipate 2017 will present some headwinds to crude tanker rates due to cuts to OPEC production, rising oil prices, and fleet growth. However, we believe this dip in the current market cycle will be relatively short and shallow. We expect that lower fleet growth and a more balanced oil market from 2018 onward will result in a market improvement in that period. In addition, lower fleet growth, strong oil demand growth, particularly in Asia, and a potential increase in long-haul movements from the Atlantic basin to the Pacific basin is expected to provide support towards the next market upturn.

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Teekay Tankers – Conventional Tankers

As at December 31, 2016, Teekay Tankers owned 43 double-hulled conventional oil tankers and four ship-to-ship lightering support vessels, time-chartered in six Aframax tankers and one LR2 product tanker from third parties and owned a 50% interest in one VLCC.

The calendar ship days increased in 2016 compared to 2015 primarily due to the full year of operations of the 12 Suezmax tankers, two LR2 product tankers and three Aframax tanker that Teekay Tankers acquired during 2015, partially offset by the net movement of in-charter tankers during 2015 and 2016 and the sale of two MR product tankers in 2015 and 2016.

Income from vessel operations decreased to $86.5 million in 2016 compared to $184.1 million in 2015, primarily as a result of:

•	a decrease of $99.8 million due to lower average realized rates earned by our Suezmax, Aframax, LR2 and MR tankers trading in the spot tanker market in 2016 compared to 2015;

•	a decrease of $20.5 million due to write-downs of two MR product tankers and two Suezmax tankers to their respective sales prices in 2016;

•	a decrease of $6.0 million due to increases in amortization of dry-docking costs during 2016 resulting from high dry-docking activity during the second half of 2015; and

•	a decrease of $3.6 million due to in-process revenue contract amortization that was recognized in revenue in late 2015 and fully amortized in the first quarter of 2016;

partially offset by

•	an increase of $15.8 million due to increased revenue days during 2016 due to fewer net off-hire days in 2016 and an additional revenue day as 2016 is a leap year;

•	an increase of $9.6 million due to higher rates earned from out-chartered Aframax tankers during 2016;

•	a net increase of $4.4 million due to results from the ship-to-ship transfer business which Teekay Tankers acquired during the third quarter of 2015; and

•	a net increase of $3.8 million due to lower pool management fees, commissions, off-hire bunker and other expenses in 2016 compared to 2015, due primarily to lower average TCE rates.

Equity income decreased to $13.1 million in 2016 from $14.4 million for 2015 primarily due to:

•	a decrease of $3.8 million due to lower equity earnings from TIL resulting from overall lower realized average spot rates earned in 2016 compared to 2015, partially offset by an increase resulting from Teekay Tankers' increased ownership interest in TIL to 11.31% in 2016 as compared to 10.20% in 2015;

partially offset by

•

an increase of $1.3 million due to higher equity earnings from Teekay Tankers' 50% interest in Teekay Tankers Operations Ltd. (or TTOL ), primarily relating to its share of cancellation fees paid to Anglo-Eastern during the first quarter of 2015 for acquiring its 49% share in Teekay Marine Ltd. and the timing of vessels which transitioned from the Gemini Suezmax pool to the Teekay Suezmax RSA in 2015. This was partially offset by overall lower realized average spot rates earned in 2016 compared to 2015; and

•	an increase of $1.1 million due to higher equity earnings from the High-Q joint venture primarily resulting from profit share recognized in the second quarter of 2016 as VLCC rates averaged above certain thresholds, triggering a profit sharing with the customer.

Teekay Parent

Recent Developments in Teekay Parent

The Banff FPSO has been operating on the Banff field since its delivery nearly 20 years ago under a charter contract with Canadian Natural Resources (or CNR ) that permitted CNR to terminate the contact at any time with six months’ notice. In January 2017, Teekay Parent entered into a contract amendment with CNR to ensure the unit will stay on the current field at least until the third quarter of 2018 and to revise the charter rate structure to include a variable component (through an oil price and oil production tariff) in addition to a fixed charter rate.

In the first half of 2016, the Hummingbird Spirit FPSO was operating in the latter part of its charter contract with Centrica Energy (or Centrica ) whereby Centrica could terminate the contract at any time with 90 days’ notice. In June 2016, Teekay Parent entered into a contract amendment with Centrica to extend the firm period to September 2017 (with Centrica's right to terminate the contract no earlier than March 1, 2017) in exchange for a lower fixed charter rate and an oil price tariff. The contract amendment took effect on July 1, 2016. In February 2017, Teekay Parent entered into a new heads of terms with Centrica to extend the contract for an additional three years from October 2017 to September 2020. This contract extension is expected to be completed during the second quarter of 2017.

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In the fourth quarter of 2015, Teekay Parent secured a 12-month, charter-out contract for the Shoshone Spirit VLCC at $49,000 per day, which was scheduled to expire in December 2016. In the second quarter of 2016, Teekay Parent entered into an agreement to sell the Shoshone Spirit VLCC to a third party and the vessel was written down to its net realizable value as a result of the expected sale. The vessel was subsequently sold and delivered to its new owner in October 2016.

In December 2014, the Board of Directors of Teekay Offshore’s general partner approved the acquisition of the Petrojarl Knarr FPSO from Teekay Parent, subject to the unit completing certain operational tests and commencing its charter contract at full rate. The Petrojarl Knarr FPSO achieved first oil and commenced its charter contract with BG Norge Limited (or BG ) in March 2015 on a partial charter rate. In June 2015, the Petrojarl Knarr FPSO completed its operational testing and commenced its full charter rate and on July 1, 2015, Teekay Parent completed the sale of the Petrojarl Knarr FPSO to Teekay Offshore. Teekay Offshore has included the results of the Petrojarl Knarr FPSO from March 9, 2015, when it commenced operations.

Operating Results – Teekay Parent

The following table compares Teekay Parent’s operating results and number of calendar-ship-days for its vessels for 2016 and 2015 , and compares its net revenues (which is a non-GAAP financial measure) for 2016 and 2015 , to revenues, the most directly comparable GAAP financial measure, for the same periods.

		Offshore Production						Conventional Tankers						Other and Corporate G&A						Teekay Parent Total
(in thousands of U.S. dollars, except calendar-ship-days)_______________		2016			2015			2016			2015			2016			2015			2016			2015
Revenues		231,435			277,842			32,967			65,777			76,111			75,547			340,513			419,166
Voyage expenses		(269	)		(36	)		(287	)		(763	)		(2,879	)		(808	)		(3,435	)		(1,607	)
Net revenues		231,166			277,806			32,680			65,014			73,232			74,739			337,078			417,559
Vessel operating expenses		(159,084	)		(200,338	)		(10,468	)		(16,051	)		(26,576	)		(24,294	)		(196,128	)		(240,683	)
Time-charter hire expense		(33,366	)		(29,978	)		(23,166	)		(38,991	)		(48,452	)		(44,448	)		(104,984	)		(113,417	)
Depreciation and amortization		(70,855	)		(69,508	)		(1,717	)		(2,852	)		449			451			(72,123	)		(71,909	)
General and administrative expenses (1)		(14,099	)		(17,261	)		(809	)		(2,136	)		(10,707	)		1,221			(25,615	)		(18,176	)
Net loss on sale of vessels and equipment		(110	)		(948	)		(12,487	)		—			—			—			(12,597	)		(948	)
Restructuring charges		(1,962	)		—			—			—			(20,165	)		(2,654	)		(22,127	)		(2,654	)
(Loss) income from vessel operations		(48,310	)		(40,227	)		(15,967	)		4,984			(32,219	)		5,015			(96,496	)		(30,228	)
Equity (loss) income		(575	)		(12,196	)		5,089			16,712			(1,838	)		(1,101	)		2,676			3,415
Calendar-Ship-Days (2)
FPSO Units		1,098			1,095			—			—			—			—			1,098			1,095
Conventional Tankers		—			—			1,278			2,516			—			—			1,278			2,516
Gas carriers		—			—			—			—			732			730			732			730
FSO Units		366			365			—			—			732			730			1,098			1,095
Shuttle Tankers		732			730			—			—			—			—			732			730
Bunker Barges		—			—			—			—			672			200			672			200

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses allocated to offshore production, conventional tankers and other and corporate G&A based on estimated use of corporate resources.

(2)	Apart from three FPSO units and one conventional tanker, all remaining calendar-ship-days presented relate to in-chartered days.

Teekay Parent – Offshore Production

Offshore Production consists primarily of our FPSO units. As at December 31, 2016, we had a direct interest in three 100% owned FPSO units.

The Hummingbird Spirit FPSO charter contract includes an incentive compensation component based on the oil price. In addition, the Petrojarl Foinaven FPSO unit’s charter contract includes incentives based on total oil production for the year, certain operational measures, and the average annual oil price. The decline in the price of oil has negatively impacted our incentive compensation under these contracts and may negatively impact our future revenues if oil prices remain at or fall below current levels.

The number of Teekay Parent’s FPSO calendar-ship days for the year ended December 31, 2016 were consistent compared to the same period last year.

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Loss from vessel operations increased to $48.3 million during 2016 compared to $40.2 million in 2015, primarily as a result of:

•	an increase in loss of $13.7 million related to the Petrojarl Banff FPSO unit as a result of off-hire in the first quarter of 2016 and higher repairs and maintenance costs due to the temporary loss of two mooring lines in the first quarter of 2016;

•	an increase in loss of $5.5 million related to the Hummingbird FPSO primarily due to the contract amendment described above that took effect on July 1, 2016, partially offset by lower operating expenses in 2016; and

•	an increase in loss of $2.0 million due to restructuring charges primarily relating to the reorganization of the Company's FPSO business in 2016;

partially offset by

•	a decrease in loss of $9.1 million primarily due to legal costs incurred in 2015 relating to repairs and upgrades to the Petrojarl Banff FPSO after the storm event in December 2011, and cost-saving initiatives in 2016; and

•	a decrease in loss of $4.8 million primarily related to the Petrojarl Foinaven FPSO, primarily due to the shutdown of the unit in 2015 for maintenance and lower operating costs in 2016.

Teekay Parent – Conventional Tankers

As at December 31, 2016, Teekay Parent chartered-in two conventional tankers from third parties. The average fleet size (including in-chartered vessels), as measured by calendar-ship-days, decreased in 2016 compared with 2015 due to the sale of one VLCC, redeliveries of three Aframax in-chartered vessels to Teekay Offshore and one Aframax in-chartered vessels to Teekay Tankers. The collective impact from the noted fleet changes are referred to below as the Net Fleet Reductions .

Loss from vessel operations for Teekay Parent’s Conventional Tankers was $16.0 million in 2016 compared to income from vessel operations of $5.0 million in 2015, primarily as a result of:

•	a decrease in income of $12.5 million due to the write-down in 2016 of one VLCC to its agreed sales price;

•	a decrease in income of $5.8 million due to lower average realized TCE rates in 2016 compared to 2015;

•	a net decrease in income of $5.7 million due to cancellation fees paid by Teekay Parent to Teekay Offshore in 2016 and 2015 related to the termination of the time-charter contracts of two Aframax tankers, partially offset by cancellations paid to Teekay Parent from Teekay Offshore and Teekay Tankers in 2015 related to the termination of bareboat contracts of two Aframax tankers; and

•	a decrease in income of $2.6 million due to a higher time-charter hire rate for an Aframax in-charter in the first quarter of 2016;

partially offset by

•

a net increase in income of $4.0 million due to lower vessel operating expenses from the termination of bareboat contracts of two Aframax tankers that Teekay Parent in-chartered from Teekay Offshore and the sale of the VLCC and lower time-charter hire expense from the redeliveries of three in-chartered conventional tankers to Teekay Offshore and Teekay Tankers, partially offset by the loss of revenue due to the redeliveries and sale of those tankers; and

•	an increase in income of $2.0 million due to a distribution received from the Gemini Pool in 2016.

Teekay Parent – Other and Corporate G&A

As at December 31, 2016, Teekay Parent had two chartered-in LNG carriers owned by Teekay LNG, two chartered-in FSO units owned by Teekay Offshore and one chartered-in bunker barge.

Loss from vessel operations was $32.2 million for the year ended December 31, 2016 compared to income from vessel operations $5.0 million for the year ended December 31, 2015, primarily as a result of:

•	an increase in loss of $32.8 million primarily due to lower revenues earned as a result of the terminations of time charters and the lay-up of the Arctic Spirit and Polar Spirit LNG carriers in 2016;

•	an increase in loss of $13.9 million due to business development fees received from Teekay Offshore in 2015 in respect of the Petrojarl Knarr FPSO unit, the Arendal Spirit UMS and the six on-the-water, long distance towing and offshore installation vessels;

•	an increase in loss of $2.7 million primarily due to office closure costs and seafarers' severance amounts relating to tug businesses in Western Australia in 2016; and

•	an increase in loss of $1.6 million due to fees received from TIL in 2015 for our arrangement of the acquisition of certain of its vessels, partially offset by fees received relating to the sale of two vessels in 2016;

partially offset by

•	a decrease in loss of $5.4 million primarily due to lower restructuring charges relating to the reorganization of our marine operations and corporate services in 2015, and lower general and administrative expenses as a result of cost saving initiatives in 2016; and

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•	a decrease in loss of $9.4 million primarily due to earnings generated on technical, crew and commercial management services provided for an increased fleet size in 2016.

Equity income was $2.7 million in 2016 compared to equity income of $3.4 million in 2015, primarily due to lower equity earnings from Petrotrans Holdings as a result of the gain on the sale of TMS from the joint venture to Teekay Tankers in 2015, and lower equity earnings from TIL resulting from lower realized average spot rates in 2016, partially offset by higher equity earnings due to a deferred tax asset write-down and unrealized foreign exchange losses relating to Teekay Parent’s 43% investment in Sevan in 2015.

Teekay Offshore

Recent Developments in Teekay Offshore

In January 2017, Teekay Offshore was awarded a new five-year shuttle tanker contract of affreightment (or CoA ), plus extension options, with a consortium of oil companies to service a development located in the UK Central North Sea. The CoA is expected to commence during the first quarter of 2018 and require the use of shuttle tankers from Teekay Offshore's existing CoA shuttle tanker fleet. The CoA will require the use of approximately 0.5 shuttle tanker equivalents per annum.

In September 2016, Teekay Offshore was awarded a new three-year shuttle tanker CoA, plus extension options, with BP plc, Royal Dutch Shell and OMV Group, to service the new Glen Lyon FPSO unit located west of Shetland in the North Sea. This CoA is expected to commence in mid-2017 and require the use of approximately two shuttle tankers from Teekay Offshore's existing CoA shuttle tanker fleet.

In June 2016, as part of its financing initiatives, Teekay Offshore canceled the construction contracts for its two UMS newbuildings. As a result, Teekay Offshore incurred a $43.7 million write-down related to these two UMS newbuildings for the year ended December 31, 2016 , which is included in Asset Impairments in Teekay's consolidated statements of income . In addition, Teekay Offshore accrued for potential damages resulting from the cancellations and reversed contingent liabilities previously recorded that were relating to the delivery of the UMS newbuildings. This net loss provision of $23.4 million for the year ended December 31, 2016 is reported in Other (loss) income in Teekay's consolidated statements of income . The newbuilding contracts are held in separate subsidiaries of Teekay Offshore and obligations of these subsidiaries are non-recourse to Teekay Offshore. For additional information, please read Item 18 - Financial Statements: Note 15d. Commitments and Contingencies.

In April 2016, during the process to lift off the gangway connecting the Arendal Spirit to an FPSO unit, the gangway of the Arendal Spirit suffered damage. The gangway was replaced and underwent extensive testing and the unit recommenced operations in early-July 2016. As a result of this incident, Teekay Offshore reversed contingent liabilities previously recorded that were subject to material defects of the UMS.

In November 2016, the Arendal Spirit UMS experienced an operational incident relating to its dynamic-positioning system. As a result of this operational incident, and a gangway incident that occurred in April 2016, the charterer, Petrobras, initiated an operational review. Until the results of the review are available, Petrobras has suspended its charter hire payments from early-November 2016. Teekay Offshore has completed an investigation to identify the cause of the incidents and has implemented corrective measures. Teekay Offshore is working to address Petrobras' concerns to bring the unit back into operation as soon as possible.

In September 2016, Teekay Offshore took delivery of the ALP Striker , the first of four state-of-the-art SX-157 Ulstein Design ultra-long distance towing and offshore installation newbuildings being constructed by Niigata Shipbuilding & Repair in Japan. In connection with the delivery, Teekay Offshore received cash compensation from the shipyard totaling approximately $7 million due to the delayed delivery of the vessel. In April 2017, Teekay Offshore received additional delayed delivery cash compensation of $24.3 million for the remaining three towing and offshore installation newbuildings, which are scheduled to deliver during 2017.

In March 2016, Teekay Offshore terminated an above-market time-charter contract of the Kilimanjaro Spirit conventional tanker with a subsidiary of Teekay. Subsequently, Teekay Offshore sold the Kilimanjaro Spirit and the Fuji Spirit conventional tankers for net proceeds of approximately $50 million. Related to the sale of these vessels, Teekay Offshore is chartering back both vessels for a period of three years with an additional one-year extension option. One vessel is fixed on a two-year time-charter-out contract that commenced during the second quarter of 2016, and the other vessel is trading in the spot conventional tanker market.

In November 2016, Teekay Offshore sold a 1995-built shuttle tanker, the Navion Europa , for net proceeds of $14.4 million , for which Teekay Offshore recorded a gain on sale of $6.8 million in a 67%-owned subsidiary.

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Operating Results – Teekay Offshore

The following table compares Teekay Offshore’s operating results and number of calendar-ship-days for its vessels for 2016 and 2015 , and compares its net revenues (which is a non-GAAP financial measure) for 2016 and 2015 , to revenues, the most directly comparable GAAP financial measure, for the same periods.

		Teekay Offshore Total
(in thousands of U.S. dollars, except calendar-ship-days)____________		2016			2015
Revenues		1,152,390			1,229,413
Voyage expenses		(80,750	)		(98,006	)
Net revenues		1,071,640			1,131,407
Vessel operating expenses		(364,441	)		(378,480	)
Time-charter hire expense		(75,485	)		(51,750	)
Depreciation and amortization		(300,011	)		(274,599	)
General and administrative expenses		(56,122	)		(72,613	)
Asset impairments and gain on sale of vessels		(40,079	)		(69,998	)
Restructuring charges		(4,649	)		(568	)
Income from vessel operations		230,853			283,399
Equity income		17,933			7,672
Calendar-Ship-Days (1)
Shuttle Tankers		11,913			12,319
FSO Units		2,562			2,395
FPSO Units		2,196			2,122
Conventional Tankers		732			1,432
UMS		366			318
Towage vessels		2,307			1,606

(1) Calendar-ship-days presented relate to owned and in-chartered consolidated vessels.

As of December 31, 2016 , Teekay Offshore’s FPSO fleet consisted of the Petrojarl Knarr, the Petrojarl Varg, the Cidade de Rio das Ostras (or Rio das Ostras ) , the Piranema Spirit , the Voyageur Spirit, and the Petrojarl I FPSO units , all of which Teekay Offshore owns 100%, and the Itajai and Libra FPSO units, of which Teekay Offshore owns 50%. One equity accounted FPSO unit, the Libra FPSO unit owned through Teekay Offshore's 50/50 joint venture with Odebrecht Oil & Gas S.A. (or OOG) has completed its conversion into an FPSO unit and is en route to the Libra field located in the Santos Basin offshore Brazil where it is scheduled to commence operations in mid-2017. The Petrojarl I FPSO unit is currently undergoing upgrades at the Damen Shipyard Group’s DSR Schiedam Shipyard (or Damen ) in the Netherlands and is scheduled to commence operations under a five-year fixed-rate charter contract with Queiroz Galvão Exploração e Produção SA (or QGEP ) at the end of 2017. Teekay Offshore acquired the Petrojarl Knarr FPSO unit from Teekay in July 2015.

In late-2015, Teekay Offshore received a termination notice for the Petrojarl Varg FPSO charter contract from Repsol S.A. (or Repsol ), based on a termination right that was specific to the Petrojarl Varg FPSO contract. In accordance with the termination provision of the charter contract, the charterer ceased paying the capital component of the charter hire six months prior to the redelivery date, which redelivery occurred at the end of July 2016.

FPSO units provide production, processing and storage services to oil companies operating offshore oil field installations. These services are typically provided under long-term, fixed-rate FPSO contracts, some of which also include certain incentive compensation or penalties based on the level of oil production and other operational measures. Historically, the utilization of FPSO units and other vessels in the North Sea, where the Voyageur Spirit and Petrojarl Knarr operate, is higher in the winter months, as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to vessels and the offshore oil platforms, which generally reduces oil production. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Brazilian Real, and British Pound may result in significant decreases or increases, respectively, in our revenues and vessel operating expenses.

The average number of Teekay Offshore’s FPSO units increased in 2016 compared to 2015 , due to the acquisition of the Petrojarl Knarr on July 1, 2015.

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As at December 31, 2016 , the shuttle tanker fleet consisted of 30 vessels that operate under fixed-rate CoAs, time charters and bareboat charters, three shuttle tanker newbuildings and the HiLoad DP unit, which is currently in lay-up. Of these 34 shuttle tankers, six are owned through 50% owned subsidiaries and three were chartered-in. The remaining vessels were owned 100% by Teekay Offshore. In November 2016, Teekay Offshore sold a 1995-built shuttle tanker, the Navion Europa. In January 2016, Teekay Offshore sold a 1992-built shuttle tanker, the Navion Torinita , which was in lay-up and classified as held for sale on Teekay's consolidated balance sheet as of December 31, 2015. In July 2016, Teekay Offshore agreed to in-charter a shuttle tanker, the Grena Knutsen , on a three-year charter contract for its North Sea fleet commencing in September 2016. All of Teekay Offshore's operating shuttle tankers, with the exception of the HiLoad DP unit, provide transportation services to energy companies in the North Sea, Brazil and the East Coast of Canada. Teekay Offshore's shuttle tankers occasionally service the conventional spot tanker market. Teekay Offshore commenced the FSO conversion of the Randgrid shuttle tanker during the second quarter of 2015. During the first quarter of 2015, Teekay Offshore sold the Navion Svenita shuttle tanker. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Euro and Brazilian Real may result in significant decreases or increases, respectively, in vessel operating expenses.

The average size of Teekay Offshore’s owned shuttle tanker fleet decreased in 2016 compared to 2015 , primarily due to the sales of the Navion Svenita, the Navion Torinita and the Navion Europa in March 2015, January 2016 and November 2016, respectively, and the commencement of the FSO conversion of the Randgrid in June 2015. Three shuttle tanker newbuildings have been excluded from calendar-ship-days until they are delivered to Teekay Offshore. The average size of Teekay Offshore’s chartered-in shuttle tanker fleet increased in 2016 compared to 2015 primarily due to the in-chartering of two shuttle tankers, the Jasmine Knutsen and the Heather Knutsen , for the East Coast of Canada contract, which commenced in June 2015, the in-chartering of the Grena Knutsen for three years which commenced in September 2016 and increased spot in-chartering of shuttle tankers, partially offset by redelivery of the Grena Knutsen and Aberdeen to their owners in June 2015 and December 2016, respectively. The Grena Knutsen was subsequently rechartered in by Teekay Offshore in September 2016.

As of December 31, 2016 , Teekay Offshore’s FSO fleet consisted of five units that operate under fixed-rate time charters or fixed-rate bareboat charters in which Teekay Offshore’s ownership interest ranged from 89% to 100%, and one shuttle tanker, the Randgrid, currently undergoing conversion into an FSO unit, in which Teekay Offshore’s ownership interest increased from 67% to 100% during the third quarter of 2015. The Navion Saga FSO unit was held for sale as at December 31, 2016 . FSO units provide an on-site storage solution to oil field installations that have no oil storage facilities or that require supplemental storage. Teekay Offshore’s revenues and vessel operating expenses for the FSO segment are affected by fluctuations in currency exchange rates, as a significant component of revenues are earned and vessel operating expenses are incurred in Norwegian Kroner and Australian Dollars for certain vessels. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner or Australian Dollar may result in significant decreases or increases, respectively, in revenues and vessel operating expenses.

The average number of Teekay Offshore’s FSO units increased in 2016 compared to 2015 , due to the commencement of the FSO conversion of the Randgrid on June 9, 2015. No earnings are expected from the Randgrid until its conversion is completed in mid-2017, when the unit is scheduled to commence operations under a three-year time-charter contract with Statoil ASA, which includes 12 additional one-year extension options. Additionally, the Navion Saga FSO unit was redelivered to Teekay Offshore in October 2016 and was classified as held for sale as at December 31, 2016 , resulting in a $1.0 million write-down of the unit.

As at December 31, 2016 , Teekay Offshore’s towage vessel fleet consisted of seven long-distance towing and offshore installation vessels and three long-distance towing and offshore installation vessel newbuildings, which are scheduled to deliver during 2017. Teekay Offshore owns a 100% interest in each of the vessels in its towage fleet. Long-distance towing and offshore installation vessels are used for the towage, station-keeping, installation and decommissioning of large floating objects such as exploration, production and storage units, including FPSO units, floating liquefied natural gas (or FLNG ) units and floating drill rigs.

The average number of Teekay Offshore’s towing and offshore installation vessels increased in 2016 compared to 2015 , due to the acquisition of three vessels during the first quarter of 2015, two vessels during the second quarter of 2015, one vessel during the third quarter of 2015, and the delivery of Teekay Offshore's first towage newbuilding vessel in September 2016.

As at December 31, 2016 , Teekay Offshore’s UMS fleet consisted of one unit, the Arendal Spirit , in which Teekay Offshore owns a 100% interest. During the second quarter of 2016, Teekay Offshore canceled the UMS construction contracts for its two UMS newbuildings, resulting in a write-down of the UMS newbuildings to $nil. The UMS unit is used primarily for offshore accommodation, storage and support for maintenance and modification projects on existing offshore installations, or during the installation and decommissioning of large floating exploration, production and storage units, including FPSO units, FLNG units and floating drill rigs. Teekay Offshore’s UMS unit is available for world-wide operations, excluding operations within the Norwegian Continental Shelf, and includes DP3 keeping systems that are capable of operating in deep water and harsh weather.

As at December 31, 2016 , Teekay Offshore's conventional tanker fleet consisted of two in-chartered conventional tankers. In March 2016, Teekay Offshore terminated the time-charter contract of the Kilimanjaro Spirit with a subsidiary of Teekay and received an early termination fee of $4.0 million from Teekay. Subsequently, Teekay Offshore sold the Kilimanjaro Spirit and the Fuji Spirit conventional tankers. The Kilimanjaro Spirit was renamed Blue Pride and the Fuji Spirit was renamed Blue Power . As part of the sales, Teekay Offshore is in-chartering these vessels for three years with additional one-year extension options. One vessel is trading on a fixed two-year time-charter-out contract which commenced during the second quarter of 2016 and the other vessel is trading in the spot conventional tanker market.

In December 2015, Teekay Offshore sold its 100% interest in SPT Explorer L.L.C. and Navigator Spirit L.L.C., which own the SPT Explorer and the Navigator Spirit conventional tankers, respectively, to Teekay Tankers.

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Income from vessel operations for Teekay Offshore’s business decreased to $230.9 million in 2016 compared to $283.4 million in 2015 , primarily as a result of:

FPSO Fleet

•	a decrease of $46.6 million for the Petrojarl Varg FPSO unit, due to the termination of the charter contract by Repsol effective at the end of July 2016, partially offset by lower vessel operating expenses as the unit is now in layup;

•	a decrease of $4.4 million relating to the restructuring costs associated with the reorganization of the FPSO business to create better alignment with the offshore operations and resulting in a lower cost organization going forward; and

•	a decrease of $2.9 million relating to the Voyageur Spirit FPSO unit due to a lower production bonus earned in 2016 compared to 2015, partially offset by lower repair and maintenance costs reimbursed by the charterer in 2016;

partially offset by

•	an increase of $28.2 million due to the Petrojarl Knarr FPSO unit commencing operations on March 9, 2015; and

•	an increase of $1.9 million for the Rio das Ostras FPSO unit , primarily due to higher incentive compensation and a bonus earned from the charterer of the unit for unused maintenance days under the service contract during 2016.

Shuttle Tanker Fleet

•	a decrease of $22.7 million due to the expiration in April 2015 of a long-term contract at the Heidrun field serviced by Teekay Offshore's CoA fleet;

•

a decrease of $19.5 million due to higher depreciation expense related to the change in the estimated useful life of the shuttle component for all shuttle tankers from 25 to 20 years, the accelerated amortization of the tanker component for eight older shuttle tankers commencing the first quarter of 2016, partially offset by a write-down of the carrying values of seven shuttle tankers during 2015, and the Navion Europ a shuttle tanker being fully amortized during the second quarter of 2015;

•	a decrease of $17.9 million due to the redelivery of two shuttle tankers to Teekay Offshore in April 2015 and June 2016, respectively, as they completed their time-charter-out agreement;

•	a decrease of $9.7 million due to fewer opportunities to trade excess shuttle tanker capacity in the conventional tanker spot market;

•	a decrease of $5.2 million due to the in-chartering of the Grena Knutsen starting September 2016; and

•	a decrease of $4.2 million related to higher repair and maintenance activities on the Navion Anglia shuttle tanker to prepare the vessel to trade in Teekay Offshore's CoA fleet in the North Sea as the vessel was redelivered to Teekay Offshore in June 2016 due to the completion of its time-charter-out agreement in Brazil;

partially offset by

•	an increase of $69.7 million due to a write-down of shuttle tankers of $66.7 million in 2015 and $6.7 million gains on the sales of vessels in 2016, partially offset by a write-down of a shuttle tanker of $2.1 million in 2016 and a $1.6 million gain on the sale of a shuttle tanker in 2016;

•	an increase of $15.9 million due to an increase in rates as provided in certain contracts in Teekay Offshore's time-chartered-out fleet and an increase in revenues in Teekay Offshore's CoA fleet due to higher average rates and higher fleet utilization;

•

an increase of $10.8 million due to an increase in net revenues from the commencement of the East Coast of Canada contract in June 2015, partially offset by lower reimbursable expenses in relation to this contract and the in-chartering of three shuttle tankers for this contract, one of which was redelivered by Teekay Offshore in August 2015 and was replaced by Teekay's own shuttle tanker, the Navion Hispania ;

•	an increase of $4.0 million due to the redeliveries by Teekay Offshore of the Grena Knutsen and Aberdeen shuttle tankers in June 2015 and December 2016, respectively, partially offset by increased spot in-chartering of shuttle tankers in 2016; and

•	an increase of $3.2 million due to lower shuttle tanker operating expenses due to lower fleet and onshore overhead mainly related to lower crew training costs in 2016, and the strengthening of the U.S. Dollar against the Norwegian Kroner, Euro and Brazilian Real, partially offset by higher crew costs relating to a change in crew composition.

FSO Fleet

•	an increase of $5.6 million due a reduction in operating expenses and amortization expense due to the commencement of the FSO conversion of the Randgrid in June 2015; and

•	an increase of $4.0 million due to the Navion Europa shuttle tanker acting as a substitute vessel while the Apollo Spirit FSO unit was undergoing a dry dock in the third quarter of 2016; and

•	an increase of $2.5 million due to lower depreciation expense due to dry-dock costs for the Navion Saga shuttle tanker being fully depreciated during the fourth quarter of 2015.

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UMS Fleet

•

a decrease of $55.6 million relating to the UMS fleet, primarily due to the write-downs relating to the cancellation of the two UMS newbuilding contracts, an increase in spare parts and consumables in 2016 due to these costs being covered under warranty during 2015, and lower revenues due to the unit being off-hire from mid-April 2016 until early-July 2016 due to damage suffered to the gangway and the suspension of charter hire payments since early-November 2016 due to an operational review being conducted by the charterer; and

•	a decrease of $2.9 million due to higher depreciation expense related to the commencement of the charter contract of the Arendal Spirit UMS in June 2015.

Towage Fleet

•

a decrease of $8.7 million relating to the towage fleet primarily due to a decrease in rates and utilization of the towing and offshore installation vessels due to volatility in the offshore market, an increase in operating expenses due to the delivery of the ALP Striker in September 2016, an increase in repairs and maintenance expenses due to engine overhauls on the ALP Winger and ALP Centre during the first quarter of 2016, and an increase in crew costs compared to 2015 due to higher crew levels, partially offset by a more cost-efficient crew composition in 2016; and

•	a decrease of $3.7 million due to higher depreciation expense related to the acquisition of the six towing and offshore installation vessels during 2015.

Conventional Tanker Fleet

•	a net decrease of $10.7 million in 2016 due to the sale of the Kilimanjaro Spirit and Fuji Spirit in March 2016, and the subsequent in-chartering of the Blue Power and Blue Pride; and

•	a decrease of $5.4 million for 2016 due to the sale of the Explorer Spirit and Navigator Spirit in December 2015;

partially offset by

•	an increase of $5.8 million relating to a $4.0 million termination fee received from Teekay due to the early termination of the time-charter-out contract for the Kilimanjaro Spirit in March 2016 and net termination fees of $1.8 million paid to Teekay due to the early terminations of bareboat and time-charter contracts for the SPT Explorer , Navigator Spirit , and Fuji Spirit in December 2015; and

•	an increase of $3.9 million due to a write-down of two conventional tankers in 2015.

General and administrative Expenses

•

an increase of $13.2 million due to lower general and administrative expenses from lower management fees relating to Teekay Offshore's shuttle tanker and FSO fleets primarily from cost saving initiatives, and a decrease in development fees to Teekay of $4.2 million in connection with Teekay Offshore's acquisition of six long-distance towing and offshore installation vessels and the Arendal Spirit UMS in 2015, partially offset by an increase in management fees due to the commencement of the charter contract of the Arendal Spirit in June 2015; and

•

an increase of $2.6 million due to lower general and administrative expenses due to (a) a decrease in business development fees paid to Teekay in 2016 compared to 2015 of $9.7 million in connection with the 2015 acquisition for the Petrojarl Knarr FPSO and (b) the redelivery and lay up of the Petrojarl Varg FPSO unit in 2016, partially offset by the increase in general and administration expenses as a result of the acquisition of the Petrojarl Knarr FPSO unit in July 2015.

Equity income increased to $17.9 million for 2016 compared to $7.7 million for 2015 , primarily due to increases in unrealized gains on derivative instruments relating to Teekay Offshore's investment in the  Libra FPSO joint venture and the Itajai FPSO joint venture, lower repairs and maintenance expenses in 2016 due to turbine repairs made during 2015 and an insurance claim payment received during 2016 relating to these turbine repairs for the Itajai FPSO unit.

Other Consolidated Operating Results

The following table compares our other consolidated operating results for 2016 and 2015 :

		Year Ended December 31,
(in thousands of U.S. dollars, except percentages)		2016			2015			% Change
Interest expense		(282,966	)		(242,469	)		16.7
Interest income		4,821			5,988			(19.5	)
Realized and unrealized loss on non-designated derivative instruments		(35,091	)		(102,200	)		(65.7	)
Foreign exchange loss		(6,548	)		(2,195	)		198.3
Other (loss) income		(39,013	)		1,566			(2,591.3	)
Income tax (expense) recovery		(24,468	)		16,767			(245.9	)

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Interest expense. Interest expense increased to $283.0 million in 2016 , compared to $242.5 million in 2015 , primarily due to:

•	an increase of $12.4 million due to additional interest incurred by Teekay Tankers to finance the acquisition of the 12 modern Suezmax tankers which were acquired in the third quarter of 2015;

•	an increase of $12.1 million relating to interest incurred on the capital lease obligations for the Creole Spirit and Oak Spirit commencing upon their deliveries in February 2016 and July 2016, respectively;

•	an increase of $10.8 million primarily due to the additional issuance of $200 million of Teekay Parent's 8.5% senior unsecured notes in November 2015, partially offset by reductions in Teekay Parent's equity margin revolving credit facility and loan facility secured by three FPSO units, and the maturity of Teekay Parent's Norwegian Kroner (or NOK ) bonds in October 2015;

•	an increase of $9.2 million due to the interest expense associated with the Petrojarl Knarr FPSO unit commencing operations in March 2015;

•	an increase of $3.4 million due to interest expense relating to Teekay Offshore's second UMS newbuilding up until its construction contract cancellation in late-June 2016; and

•	an increase of $2.1 million due to an increase in LIBOR on floating-rate debt, net of debt repayments during 2016 and 2015;

partially offset by

•	a decrease of $5.2 million due to an increase in capitalized interest on Teekay Offshore's newbuildings, conversion and upgrade projects; and

•	a decrease of $3.0 million due to the maturity of Teekay Offshore's NOK 500 million senior unsecured bond in January 2016.

Realized and unrealized (losses) gains on non-designated derivative instruments . Realized and unrealized (losses) gains related to derivative instruments that are not designated as hedges for accounting purposes are included as a separate line item in the consolidated statements of income . Net realized and unrealized losses on non-designated derivatives were $35.1 million for 2016 , compared to $102.2 million for 2015 , as detailed in the table below:

	Year Ended December 31, 2016 $			Year Ended December 31, 2015 $
Realized (losses) gains relating to:
Interest rate swap agreements	(87,320	)		(108,036	)
Interest rate swap agreement terminations	(8,140	)		(10,876	)
Foreign currency forward contracts	(11,186	)		(21,607	)
Time charter swap agreement	2,154			—
	(104,492	)		(140,519	)
Unrealized gains (losses) relating to:
Interest rate swap agreements	62,446			37,723
Foreign currency forward contracts	15,833			(418	)
Stock purchase warrants	(9,753	)		1,014
Time charter swap agreement	875			—
	69,401			38,319
Total realized and unrealized (losses) gains on derivative instruments	(35,091	)		(102,200	)

The realized losses relate to amounts we actually realized for settlements related to these derivative instruments in normal course, and amounts paid to terminate interest rate swap agreement terminations. The unrealized (losses) gains on interest rate swaps for 2016 and 2015 were primarily due to changes in the forward interest rates.

During 2016 and 2015 , we had interest rate swap agreements with aggregate average net outstanding notional amounts of approximately $3.3 billion and $3.5 billion, respectively, with average fixed rates of approximately 3.4%. Short-term variable benchmark interest rates during these periods were generally less than 2.0% and, as such, we incurred realized losses of $87.3 million and $108.0 million during 2016 and 2015 , respectively, under the interest rate swap agreements. We also incurred realized losses of $8.1 million during 2016 , compared to losses of $10.9 million during 2015 , from the termination of interest rate swaps.

We recognized realized losses of $11.2 million in 2016, compared to $21.6 million in 2015 under the foreign currency forward contracts.

Effective June 1, 2016, Teekay Tankers entered into a time-charter swap for 55% of two Aframax equivalent vessels. Under such agreement, Teekay Tankers will receive $27,776 per day, less a 1.25% brokerage commission, and pay 55% of the net revenue distribution of two Aframax

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equivalent vessels employed in its Aframax revenue sharing pooling arrangement, less $500 per day, for a period of 11 months plus an additional two months at the counterparty's option. As at December 31, 2016 , the time-charter swap had a fair value of $0.9 million which resulted in an unrealized gain of $0.9 million. Teekay Tankers also recognized realized gains of $2.2 million on the time-charter swap in the year ended December 31, 2016 .

Primarily as a result of significant changes in long-term benchmark interest rates during 2016 and 2015 , we recognized unrealized gains of $62.4 million for 2016 compared to $37.7 million for 2015 under the interest rate swap agreements. We recognized unrealized gains of $15.8 million for 2016 compared to unrealized losses of $0.4 million for 2015 under the foreign currency forward contracts.

In 2014, we and Teekay Tankers formed TIL. We and Teekay Tankers invested a total of $50.0 million for an aggregate of 5.0 million shares of TIL's common stock, representing an initial aggregate 20% interest in TIL, as part of a $250.0 million private placement by TIL. In addition, we and Teekay Tankers received stock purchase warrants entitling us and Teekay Tankers to purchase up to 1.5 million shares of common stock of TIL at a fixed price of $10 per share. Alternatively, if the shares of TIL's common stock trade on a national securities exchange or over-the-counter market denominated in NOK, we and Teekay Tankers may also exercise the stock purchase warrants at 61.67 NOK per share using a cashless exercise procedure. During 2016 , due mainly to a decrease in TIL's share price, we recognized a $9.8 million unrealized loss on the stock purchase warrants compared to an unrealized gain of $1.0 million for 2015 , which are included in our total unrealized derivative (losses) gains. Please read “Item 18. Financial Statements: Note 14—Derivative Instruments and Hedging Activities.”

Foreign Exchange Loss. Foreign currency exchange losses were $6.5 million in 2016 compared to $2.2 million in 2015 . Our foreign currency exchange losses, substantially all of which are unrealized, were due primarily to the relevant period-end revaluation of our NOK-denominated debt and our Euro-denominated term loans, capital leases and restricted cash for financial reporting purposes and the realized and unrealized gains (losses) on our cross currency swaps. Gains on NOK-denominated and Euro-denominated monetary liabilities reflect a stronger U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. Losses on NOK-denominated and Euro-denominated monetary liabilities reflect a weaker U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. For 2016 , foreign currency exchange loss includes realized losses of $38.6 million ( 2015 — $19.0 million ) and unrealized gains of $75.0 million ( 2015 — losses of $89.2 million ) on our cross currency swaps, and unrealized losses of $6.8 million ( 2015 —$123.2 million) on the revaluation of our NOK-denominated debt.

Other (Loss) Income. Other (loss) income was a loss of $(39.0) million in 2016 compared to income of $1.6 million in 2015 . This decrease in results was primarily due to contingent liabilities accrued related to Teekay Offshore's cancellation of the UMS construction contracts for its two remaining UMS newbuildings in 2016 ($25.2 million), as well as a write-down of a cost-accounted investment of $19.0 million in 2016.

Income Tax Recovery (Expense). Income tax (expense) recovery was an expense of $24.5 million in 2016 compared to a recovery of $16.8 million in 2015 .

The income tax expense for 2016 was mainly due to an increase in Teekay Offshore's deferred tax valuation allowance and deferred tax expense due to a decrease in the expected utilization of Norwegian tax losses against anticipated earnings, an income tax accrual for the Voyageur Spirit FPSO unit during 2016 due to expected taxable income and the utilization of prior year losses carried forward and an estimated tax liability relating to our Singapore and towage entities, as well as freight taxes in Teekay Tankers and Teekay Parent.

The income tax recovery for 2015 was primarily due to the acquisition of the Petrojarl Knarr FPSO unit by Teekay Offshore and the commencement of the East Coast of Canada contract during 2015, and the expected commencement of the Gina Krog FSO unit contract in early-2017. Teekay Offshore expected to utilize more of its Norwegian tax losses from the earnings anticipated from their contracts, as well as an expected increase in earnings from its existing fleet, which resulted in a decrease in Teekay Offshore’s deferred tax asset valuation allowance.

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Year Ended December 31, 2015 versus Year Ended December 31, 2014

Teekay LNG

Operating Results – Teekay LNG

The following table compares Teekay LNG’s operating results and number of calendar-ship-days for its vessels for 2015 and 2014, and compares its net revenues (which is a non-GAAP financial measure) for 2015 and 2014, to revenues, the most directly comparable GAAP financial measure, for the same periods.

		Liquefied Gas Carriers						Conventional Tankers						Teekay LNG Total
(in thousands of U.S. dollars, except   calendar-ship-days)_________________		2015			2014			2015			2014			2015			2014
Revenues		305,056			307,426			92,935			95,502			397,991			402,928
Voyage expenses		203			(1,768	)		(1,349	)		(1,553	)		(1,146	)		(3,321	)
Net revenues		305,259			305,658			91,586			93,949			396,845			399,607
Vessel operating expenses		(63,344	)		(59,087	)		(30,757	)		(36,721	)		(94,101	)		(95,808	)
Depreciation and amortization		(71,323	)		(71,711	)		(20,930	)		(22,416	)		(92,253	)		(94,127	)
General and administrative expenses (1)		(19,392	)		(17,992	)		(5,726	)		(5,868	)		(25,118	)		(23,860	)
Restructuring recovery (charges)		—			—			(4,001	)		(1,989	)		(4,001	)		(1,989	)
Income from vessel operations		151,200			156,868			30,172			26,955			181,372			183,823
Equity income		84,171			115,478			—			—			84,171			115,478
Calendar-Ship-Days (2)
Liquefied Gas Carriers		6,935			6,619			—			—			6,935			6,619
Conventional Tankers		—			—			2,920			3,202			2,920			3,202

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses allocated to the liquefied gas carriers and conventional tankers based on estimated use of corporate resources.

(2)	Calendar-ship-days presented relate to consolidated vessels.

Teekay LNG – Liquefied Gas Carriers

As at December 31, 2015, Teekay LNG’s liquefied gas fleet, including newbuildings, included 50 LNG carriers and 29 LPG/Multigas carriers, in which its interests ranged from 20% to 100%. The number of calendar-ship-days for Teekay LNG’s liquefied gas carriers consolidated in its financial results increased to 6,935 days in 2015 from 6,619 days in 2014, as a result of the acquisition and delivery of the Norgas Napa on November 13, 2014. During 2015, the Polar Spirit was off hire for 47 days for a scheduled dry docking, compared to the Galicia Spirit, Madrid Spirit and Polar Spirit being off hire for 28, 24 and 6 days, respectively, for scheduled dry dockings and an in-water survey in 2014.

Income from vessel operations decreased to $151.2 million in 2015 compared to $156.9 million in 2014, primarily as a result of:

•	a decrease of $9.3 million due to the effect on Teekay LNG’s Euro-denominated revenues from the depreciation of the Euro against the U.S. Dollar compared to 2014, partially offset by lower crew wages due to favorable foreign exchange impacts during 2015 on crew wages denominated in foreign currencies relating to certain of its LNG carriers;

•	a decrease of $1.6 million from an increase in ship management fees for Teekay LNG carriers compared to 2014; and

•	a decrease of $1.4 million from higher general and administrative expenses primarily due to a greater amount of business development, commercial activities, and legal and tax services provided to Teekay LNG by Teekay to support its growth, and higher advisory fees incurred to support its business development and commercial activities;

partially offset by

•	a net increase of $4.5 million due to less scheduled and unscheduled off-hire days in 2015 compared to the prior year; and

•	an increase of $2.0 million as a result of the acquisition and delivery of the Norgas Napa in November 2014.

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Equity income related to Teekay LNG’s liquefied gas carriers decreased to $84.2 million in 2015 compared to $115.5 million in 2014, as set forth in the table below:

(in thousands of U.S. Dollars)		Year Ended December 31,
		Angola LNG Carriers			Exmar LNG Carriers			Exmar LPG Carriers			MALT LNG Carriers			RasGas 3 LNG Carriers			Other			Total Equity Income
2015		16,144			9,332			32,733			4,620			21,527			(185	)		84,171
2014		3,472			10,651			44,114			36,805			20,806			(370	)		115,478
Difference		12,672			(1,319	)		(11,381	)		(32,185	)		721			185			(31,307	)

The $12.7 million increase for 2015 in Teekay LNG’s 33% investment in the four Angola LNG Carriers was primarily due to unrealized gains on derivative instruments in 2015 as a result of long-term LIBOR benchmark interest rates increasing for interest rate swaps compared to unrealized losses on derivative instruments last year, and an increase in voyage revenues upon amending the charter contract in the second quarter of 2015 to allow for dry docking and operating costs to pass-through to the charterer, retroactive to the beginning of the charter contract.

The $1.3 million decrease for 2015 in equity income from the two Exmar LNG Carriers, in which Teekay LNG has ownership interests ranging from 49% to 50%, was primarily due to higher interest expense as a result of the completion of the joint venture’s debt refinancing in 2015.

The $11.4 million decrease for 2015 in equity income from Teekay LNG’s 50% ownership interest in Exmar LPG BVBA was primarily due to the gains on the sales of the Flanders Tenacity , Eeklo and F landers Harmony , which were sold during the second and third quarters of 2014, a loss on sale of the Temse (formerly Kemira Gas ) in 2015, redelivery of the in-chartered vessel Odin back to its owner in November 2015, and hedge ineffectiveness of interest rate swaps in 2015. These decreases were partially offset by higher contracted charter rates from five LPG carrier newbuildings which delivered from September 2014 to September 2015, net of four disposed of LPG carriers during 2014, and a loss on the sale of the Temse in the first quarter of 2014.

The $32.2 million decrease for 2015 in Teekay LNG’s 52% investment in the MALT LNG Carriers was primarily due to fewer revenue days compared to 2014 as a result of the disputed termination of the charter contract and unscheduled off-hire days relating to a grounding incident for the Magellan Spirit in the first quarter of 2015, the scheduled expiration of the charter contract for the Methane Spirit in March 2015 and the unscheduled off-hire days relating to the Woodside Donaldson to repair a damaged propulsion motor in January 2015.

Teekay LNG – Conventional Tankers

As at December 31, 2015, Teekay LNG’s conventional tanker fleet included seven Suezmax-class double-hulled conventional crude oil tankers and one Handymax product tanker, six of which it owned and two of which it leased under capital leases. All of Teekay LNG’s conventional tankers operate under fixed-rate charters. The number of calendar-ship-days for Teekay LNG’s conventional tankers decreased to 2,920 days in 2015 from 3,202 days in 2014, as a result of the sales of the Algeciras Spirit and Huelva Spirit in February 2014 and August 2014, respectively. During 2015, the Toledo Spirit was off hire for 22 days for a scheduled dry docking, compared to the Bermuda Spirit , Hamilton Spirit and Teide Spirit being off hire for 27, 24 and 31 days, respectively, for scheduled dry dockings in 2014.

Income from vessel operations increased to $30.2 million during 2015 compared to $27.0 million in 2014, primarily as a result of:

•

an increase of $6.6 million due to higher revenues earned by the Teide Spirit and Toledo Spirit in 2015 relating to the agreement between Teekay LNG and CEPSA which resulted in additional revenue when spot tanker rates exceeded certain thresholds, and the Teide Spirit being off hire for 31 days for a scheduled dry docking in 2014, partially offset by the Toledo Spirit being off hire for 22 days for a scheduled dry docking in 2015;

partially offset by

•

a decrease of $2.3 million due to higher revenues recognized last year by the Bermuda Spirit and Hamilton Spirit relating to an agreement between Teekay LNG and the charterer that ended in October 2014, which resulted in Teekay LNG recognizing additional revenues in 2014 when Suezmax tanker spot rates exceeded a certain amount, partially offset by the Bermuda Spirit being off hire for 27 days in the first quarter of 2014 and the Hamilton Spirit being off hire for 24 days in the second quarter of 2014 for scheduled dry dockings; and

•	a decrease of $1.1 million due to CEPSA’s sales of Teekay LNG’s vessels under capital lease, the Algeciras Spirit and Huelva Spirit, in February 2014 and August 2014, respectively, including the seafarer severance payments in August 2014.

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Teekay Tankers

Operating Results – Teekay Tankers

The following table compares Teekay Tankers’ operating results and number of calendar-ship-days for its vessels for 2015 and 2014, and compares its net revenues (which is a non-GAAP financial measure) for 2015 and 2014, to revenues, the most directly comparable GAAP financial measure, for the same periods.

		Year Ended December 31,
(in thousands of U.S. dollars, except calendar-ship-days)		2015			2014
Revenues		504,347			235,593
Voyage expenses		(19,566	)		(9,984	)
Net revenues		484,781			225,609
Vessel operating expenses		(130,775	)		(93,022	)
Time-charter hire expense		(77,799	)		(22,160	)
Depreciation and amortization		(71,429	)		(50,152	)
General and administrative expenses		(16,694	)		(11,959	)
Net gain on sale of vessels and equipment		771			9,955
Restructuring charge		(4,772	)
Income from vessel operations		184,083			58,271
Equity income		14,411			5,228
Calendar-Ship-Days (1)
Conventional Tankers		16,636			11,418

(1)	Calendar-ship-days presented relate to owned and in-chartered consolidated vessels.

Teekay Tankers – Conventional Tankers

As at December 31, 2015, Teekay Tankers owned 45 double-hulled conventional oil tankers, seven ship-to-ship lightering support vessels, time-chartered in ten Aframax tankers and three LR2 product tankers from third parties and owned a 50% interest in one VLCC.

Income from vessel operations increased to $184.1 million in 2015 compared to $58.3 million in 2014, primarily as a result of:

•	an increase of $83.0 million of revenue resulting from higher average realized TCE rates earned by Teekay Tankers’ Suezmax, Aframax, LR2 and MR tankers in 2015 compared to 2014;

•

a net increase of $68.1 million resulting from the addition of 11 Suezmax tankers, three Aframax tanker and four LR2 product tankers acquired in 2015, the addition of two in-chartered Aframax tankers and one LR2 product tanker in 2015 and the addition of seven in-chartered Aframax tankers and four in-chartered LR2 product tankers in 2014 and from the recognition of in-process revenue contracts in 2015, partially offset by the addition of two VLCCs in March 2014 that were subsequently sold to TIL in May 2014 and the sale of a MR product tanker in 2015;

•	a net increase of $13.4 million for 2015 resulting from certain vessels changing employment between fixed-rate charters and voyage charters; and

•	an increase of $2.4 million from lower crewing costs during 2015 resulting from a change in the nationality of crew on a MR product tanker, favorable current year foreign currency exchange rates impacting crew wage expenditures, the timing and extent of planned vessel maintenance and repairs, and repairs on a Suezmax tanker which were incurred during 2014;

partially offset by

•	a decrease of $10.0 million resulting from the gain on sale of vessels recorded in 2014 related to the sale of two wholly-owned subsidiaries, each of which owned one VLCC, to TIL;

•	a decrease of $9.1 million resulting from the interest income recognized on Teekay Tankers’ investments in term loans in 2014;

•	a net decrease of $6.6 million resulting from higher management fees, commissions, off-hire bunker expense and other expenses in 2015 compared to 2014;

•	a decrease of $6.5 million resulting from higher time-charter rates due to profit sharing components and options Teekay Tankers exercised to extend the in-chartered contracts in 2015;

•	a net decrease of $4.9 million resulting from more off-hire days in 2015 compared to 2014, primarily as a result of higher dry-docking activity;

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•	a decrease of $2.8 million resulting from higher corporate expenses incurred during 2015 primarily as a result of legal expenses related to vessel acquisitions and to the STX arbitration (Please read “Note 15d - Commitments and Contingencies - Legal Proceedings and Claims - STX Offshore & Shipbuilding Co.”); and

•	a decrease of $2.1 million resulting from higher amortization of dry-docking expenditures in 2015 compared to 2014.

Equity income increased to $14.4 million in 2015 from $5.2 million for 2014 primarily due to:

•

an increase of $5.4 million due to higher equity earnings from TIL resulting from overall higher realized average spot rates earned in 2015 compared to 2014, the acquisition of six Suezmax vessels delivered during 2015 and one Aframax vessel delivered during 2014, partially offset by a decrease relating to a dilution gain recorded in 2014 resulting from Teekay Tankers’ reduced ownership interest in TIL from TIL's share issuance completed as part of its initial public offering (or IPO) in 2014;

•	an increase of $3.3 million due to a full year of earnings from Teekay Tankers’ 50% interest in TTOL, which it acquired in 2014; and

•	an increase of $0.5 million due to higher equity earnings from the High-Q joint venture resulting from higher unrealized gain on derivatives recognized in 2015 compared to 2014.

Teekay Parent

Operating Results – Teekay Parent

The following table compares Teekay Parent’s operating results and number of calendar-ship-days for its vessels for 2015 and 2014, and compares its net revenues (which is a non-GAAP financial measure) for 2015 and 2014, to revenues, the most directly comparable GAAP financial measure, for the same periods.

		Offshore Production						Conventional Tankers						Other and Corporate G&A						Teekay Parent Total
(in thousands of U.S. dollars, except calendar-ship-days)		2015			2014			2015			2014			2015			2014			2015			2014
Revenues		277,842			259,945			65,777			94,376			75,547			95,791			419,166			450,112
Voyage expenses		(36	)		(15	)		(763	)		(8,855	)		(808	)		263			(1,607	)		(8,607	)
Net revenues		277,806			259,930			65,014			85,521			74,739			96,054			417,559			441,505
Vessel operating expenses		(200,338	)		(212,159	)		(16,051	)		(29,633	)		(24,294	)		(26,488	)		(240,683	)		(268,280	)
Time-charter hire expense		(29,978	)		(29,623	)		(38,991	)		(54,720	)		(44,448	)		(42,426	)		(113,417	)		(126,769	)
Depreciation and amortization		(69,508	)		(78,630	)		(2,852	)		(2,216	)		451			774			(71,909	)		(80,072	)
General and administrative expenses (1)		(17,261	)		(21,778	)		(2,136	)		(3,992	)		1,221			(9,321	)		(18,176	)		(35,091	)
Loan loss provision reversal		—			2,521			—			—			—			—			—			2,521
Net (loss) gain on sale of vessels and equipment		(948	)		935			—			(502	)		—			—			(948	)		433
Restructuring charges		—			—			—			(6,865	)		(2,654	)		(1,105	)		(2,654	)		(7,970	)
(Loss) income from vessel operations		(40,227	)		(78,804	)		4,984			(12,407	)		5,015			17,488			(30,228	)		(73,723	)
Equity (loss) income		(12,196	)		(1,357	)		16,712			3,052			(1,101	)		(2,546	)		3,415			(851	)
Calendar-Ship-Days (2)
FPSO Units		1,095			1,444			—			—			—			—			1,095			1,444
Conventional Tankers		—			—			2,516			3,667			—			—			2,516			3,667
Gas Carriers		—			—			—			—			730			730			730			730
FSO Units		365			365			—			—			730			503			1,095			868
Shuttle Tankers		730			730			—			—			—			—			730			730
Bunker Barges		—			—			—			—			200			—			200			—

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses allocated to offshore production, conventional tankers and other and corporate G&A based on estimated use of corporate resources.

(2)	Apart from three FPSO units and one conventional tanker, all remaining calendar-ship-days presented relate to in-chartered days.

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Teekay Parent – Offshore Production

Offshore Production consists primarily of our FPSO units. As at December 31, 2015, we had a direct interest in three 100% owned FPSO units.

The charter contract for the Petrojarl I FPSO unit ended in April 2013 and was off hire until we sold the unit to Teekay Offshore in December 2014. The Hummingbird Spirit FPSO unit’s current charter contract was to expire on March 31, 2017 unless terminated by the charterer upon 90 days’ notice. The Hummingbird Spirit FPSO charter contract includes an incentive compensation component based on the oil price. In addition, the Foinaven FPSO unit’s charter contract includes incentives based on total oil production for the year, certain operational measures, and the average annual oil price. The declines in the price of oil has negatively impacted our incentive compensation under these contracts and may negatively impact our revenues in future periods if the oil price remains at or falls below current levels. The Banff FPSO unit completed its repairs and upgrades following storm damage in December 2011 and resumed production on the Banff field in July 2014.

In mid-March 2015, the Petrojarl Knarr FPSO unit achieved first oil and commenced its charter contract with BG Norge, and during June 2015 the unit completed operational testing and commenced at the contract’s full charter rate. On July 1, 2015 we completed the sale of the Petrojarl Knarr FPSO unit to Teekay Offshore. The Teekay Parent results for the year ended December 31, 2015 have been retrospectively adjusted to exclude the results of the Petrojarl Knarr FPSO from March 2015 when the unit commenced operations, and the results for Teekay Offshore have been retrospectively adjusted to include the results of the Petrojarl Knarr from March 2015.

The number of Teekay Parent’s FPSO calendar-ship days for the year ended December 31, 2015 decreased compared to the same period last year due to the sale of the Petrojarl I FPSO unit to Teekay Offshore in December 2014.

Loss from vessel operations improved to $40.2 million during 2015 compared to $78.8 million in 2014, primarily as a result of:

•	an increase of $31.4 million related to the Petrojarl Banff FPSO unit, excluding general and administrative expenses, due to the unit’s recommencement of operations under its time-charter contract in July 2014, partially offset by in-process contract revenue being fully amortized in 2014;

•	an increase of $21.3 million, excluding general and administrative expenses, related to lower vessel operating costs and depreciation as a result of the sale of Petrojarl I FPSO to Teekay Offshore in December 2014 subsequent to its contract expiration and lay-up in April 2013; and

•	an increase of $10.0 million, excluding general and administrative expenses, from the Knarr FPSO unit incurring pre-operating costs in 2014 prior to its mobilization to the North Sea;

partially offset by

•	a decrease of $20.2 million related to Hummingbird Spirit FPSO unit, excluding general and administrative expenses, primarily due to lower incentive revenue earned in 2015 as a result of lower oil prices, loss on disposal of mooring chains in 2015 and loan loss recovery in 2014 related to a front-end engineering and design (or FEED ) study;

•	a decrease of $3.5 million as a result of higher general and administrative expenses primarily due to legal costs associated with the Petrojarl Banff FPSO unit and increase in external consulting fees related to the FPSO fleet; and

•	a decrease of $1.5 million primarily related to Petrojarl Foinaven , excluding general and administrative expenses, due to a settlement amount received in the first quarter of 2014 and lower oil price-linked revenue in 2015, partially offset by higher production in 2015 compared to the prior year due to compressor and sub-sea issues incurred in 2014.

Teekay Parent – Conventional Tankers

As at December 31, 2015, Teekay Parent had a direct interest in one conventional tanker, two chartered-in conventional tankers from third parties, one chartered-in conventional tanker from Teekay Offshore and one chartered-in conventional tanker from Teekay Tankers. The average fleet size (including vessels chartered-in), as measured by calendar-ship-days, decreased in 2015 compared with 2014 due to the termination of the time-charter-in contract of one Aframax tanker, the redeliveries to their owners of two chartered-in Suezmax tankers, one chartered-in Aframax tanker and one chartered-in MR product tanker during 2014, and the sale of four Suezmax tankers during 2014, partially offset by a new time-charter arrangement for two Aframax tankers during 2014 and the addition of one VLCC during 2014. The collective impact from the noted fleet changes are referred to below as the Net Fleet Reductions.

Income from vessel operations increased to $5.0 million during 2015 compared to a loss from vessel operations of $12.4 million in 2014, primarily as a result of:

•	a net increase of $9.7 million due to higher average spot tanker TCE rates earned in 2015;

•	a net increase of $5.3 million due to lower vessel operating expenses from the sale of the four Suezmax tankers during 2014 and lower time-charter hire expense from redeliveries of various tankers to their owners during 2014, partially offset by the loss of revenue due to the sale and redeliveries of tankers; and

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•	a net increase of $1.8 million due to net cancellation fees paid by Teekay Offshore to Teekay Parent related to the termination of time-charter contracts in 2015.

Teekay Parent – Other and Corporate G&A

As at December 31, 2015, Teekay Parent had two chartered-in LNG carriers owned by Teekay LNG, two chartered-in FSO units owned by Teekay Offshore and two chartered-in bunker barges. The charterer of the Polar Spirit LNG carrier, which Teekay Parent has chartered-in from Teekay LNG under a time-charter contract, has not paid hire for the vessel in December 2015 or January 2016. Teekay Parent has commenced arbitration proceedings and is assessing other options. The Arctic Spirit and Polar Spirit commenced lay-up in the second quarter of 2016.

Income from vessel operations decreased to $5.0 million during 2015 compared to $17.5 million in 2014, primarily as a result of:

•	a decrease of $15.7 million due to the Arctic Spirit and Polar Spirit LNG carriers earning lower charter rates commencing in 2015 from new contracts with existing charterers and a provision for doubtful accounts in relation to the Polar Spirit LNG carrier;

•	a decrease of $6.1 million due to the interest income recognized in 2014 related to Teekay Parent’s investment in a term loan which was entered into during 2011; and

•	a decrease of $1.5 million due to restructuring charges in 2015 for the reorganization of Teekay’s marine operations and corporate services;

partially offset by

•	an increase of $10.5 million due to lower general and administrative expenses in 2015, primarily as a result of business development fees received from Teekay Offshore in respect of the Petrojarl Knarr FPSO unit, the Arendal Spirit UMS and the six on-the-water, long-distance towing and offshore installation vessels.

Equity income (loss) increased to $3.4 million in 2015 compared to ($0.9) million in 2014, primarily due to higher equity earnings from Petrotrans Holdings resulting from a gain on the sale of TMS from the joint venture to Teekay Tankers and higher equity earnings from TIL resulting from overall higher realized average spot rates in 2015 and its acquisition of six Suezmax vessels delivered during 2015, partially offset by a deferred tax asset write-down and unrealized foreign exchange losses relating to Teekay Parent’s 43% investment in Sevan for the year ended December 31, 2015.

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Teekay Offshore

Operating Results – Teekay Offshore

The following table compares Teekay Offshore’s operating results and number of calendar-ship-days for its vessels for 2015 and 2014, and compares its net revenues (which is a non-GAAP financial measure) for 2015 and 2014, to revenues, the most directly comparable GAAP financial measure, for the same periods.

(in thousands of U.S. dollars, except calendar-ship-days)		Teekay Offshore Total
		2015			2014
Revenues		1,229,413			1,019,539
Voyage expenses		(98,006	)		(112,540	)
Net revenues		1,131,407			906,999
Vessel operating expenses		(378,480	)		(352,209	)
Time-charter hire expense		(51,750	)		(31,090	)
Depreciation and amortization		(274,599	)		(198,553	)
General and administrative expenses		(72,613	)		(67,516	)
Asset impairments and gain on sale of    vessels		(69,998	)		(1,638	)
Restructuring (charges) recovery		(568	)		225
Income from vessel operations		283,399			256,218
Equity income		7,672			10,341
Calendar-Ship-Days (1)
Shuttle Tankers		12,319			12,672
FSO Units		2,395			2,190
FPSO Units		2,122			1,476
Conventional Tankers		1,432			1,460
UMS		318			—
Towage		1,606			—

(1)	Calendar-ship-days presented relate to owned and in-chartered consolidated vessels.

As of December 31, 2015, Teekay Offshore’s FPSO fleet consisted of the Petrojarl Varg , the Cidade de Rio das Ostras (or Rio das Ostras ), the Piranema Spirit , the Voyageur Spirit , the Petrojarl I , and the Petrojarl Knarr FPSO units, all of which Teekay Offshore owns 100%, and the Itajai FPSO unit and the Libra FPSO unit, of which Teekay Offshore owns 50%. In October 2014, Teekay Offshore sold a 1995-built shuttle tanker, the Navion Norvegia , to a 50/50 joint venture with OOG and the vessel is undergoing conversion into an FPSO unit for the Libra field located in the Santos Basin offshore Brazil and is scheduled to commence operations in mid-2017. Teekay Offshore acquired the Petrojarl I FPSO unit from us in December 2014. The unit is currently undergoing upgrades at the Damen Shipyard Group’s DSR Schiedam Shipyard in the Netherlands. Teekay Offshore acquired the Petrojarl Knarr FPSO unit from us in July 2015. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Brazilian Real, and British Pound may result in significant decreases or increases, respectively, in Teekay Offshore’s revenues and vessel operating expenses.

Teekay Offshore uses the FPSO units to provide production, processing and storage services to oil companies operating offshore oil field installations. These services are typically provided under long-term, fixed-rate FPSO contracts, some of which also include certain incentive compensation or penalties based on the level of oil production and other operational measures. Historically, the utilization of FPSO units and other vessels in the North Sea, where the Voyageur Spirit and Petrojarl Knarr operate, is higher in the winter months, as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to vessels and the offshore oil platforms, which generally reduces oil production. The average number of Teekay Offshore’s FPSO units increased in 2015 compared to 2014, due to the acquisitions of the Petrojarl Knarr on July 1, 2015 and the Petrojarl I on December 15, 2014.

As at December 31, 2015, the shuttle tanker fleet consisted of 31 vessels that operate under fixed-rate contracts of affreightment, time charters and bareboat charters, three shuttle tanker newbuildings, and one shuttle tanker and one HiLoad DP unit in lay-up. Of these 36 shuttle tankers, six were owned through 50% owned subsidiaries, one through a 67%-owned subsidiary and three were chartered-in. The remaining vessels are owned 100% by Teekay Offshore. In January 2016, Teekay Offshore sold a 1992-built shuttle tanker, the Navion Torinita , which was in lay-up and classified as held for sale on our consolidated balance sheet as of December 31, 2015. All of Teekay Offshore’s operating shuttle tankers, with the exception of the HiLoad DP unit, provide transportation services to energy companies, primarily in the North Sea, Brazil and the East Coast of Canada. These shuttle tankers occasionally service the conventional spot tanker market. Teekay Offshore sold the Navion

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Norvegia to its 50/50 joint venture with OOG in the fourth quarter of 2014 and the vessel is currently undergoing conversion into an FPSO unit for operation in the Libra oil field in Brazil. During the first quarter of 2015, Teekay Offshore sold the Navion Svenita . The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Euro and Brazilian Real may result in significant decreases or increases, respectively, in our vessel operating expenses.

The average size of Teekay Offshore’s owned shuttle tanker fleet decreased in 2015 compared to 2014, primarily due to the sales of the Navion Norvegia and the Navion Svenita in October 2014 and March 2015, respectively, and the commencement of the FSO conversion of the Randgrid in June 2015, partially offset by the delivery of the HiLoad DP unit in April 2014. The average size of Teekay Offshore’s chartered-in shuttle tanker fleet increased in 2015 compared to 2014 primarily due to the in-chartering of three shuttle tankers, the Karen Knutsen , the Heather Knutsen , and the Mattea for the East Coast of Canada contract, which commenced in June 2015, partially offset by redeliveries to their owners of the Grena Knutsen in June 2015 and the Karen Knutsen in January 2014, decreased spot in-chartering of shuttle tankers, and the replacement of the Mattea by one of Teekay Offshore’s owned shuttle tankers in September 2015.

As of December 31, 2015, Teekay Offshore’s FSO fleet consisted of six units that operate under fixed-rate time charters or fixed-rate bareboat charters in which Teekay Offshore’s ownership interest ranged from 89% to 100%, and one shuttle tanker, the Randgrid , currently undergoing conversion into an FSO unit, in which Teekay Offshore’s ownership interest increased from 67% to 100% during the third quarter of 2015. Teekay Offshore commenced the FSO conversion of the Randgrid shuttle tanker during the second quarter of 2015. FSO units provide an on-site storage solution to oil field installations that have no oil storage facilities or that require supplemental storage. Teekay Offshore’s revenues and vessel operating expenses for the FSO segment are affected by fluctuations in currency exchange rates, as a significant component of revenues are earned and vessel operating expenses are incurred in Norwegian Kroner and Australian Dollars for certain vessels. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner or Australian Dollar may result in significant decreases or increases, respectively, in our revenues and vessel operating expenses. The average number of Teekay Offshore’s FSO units increased in 2015 compared to 2014, due to the commencement of the FSO conversion of the Randgrid on June 9, 2015. No earnings were expected from the Randgrid until its conversion is completed in mid-2017, when the unit is scheduled to commence operations under a three-year time-charter contract with Statoil ASA (or Statoil ), which includes 12 additional one-year extension options.

As at December 31, 2015, Teekay Offshore’s towage vessel fleet consisted of six long-distance towing and offshore installation vessels and four ultra-long distance towing and offshore installation vessel newbuildings, which were scheduled to deliver during 2016. Teekay Offshore owns a 100% interest in each of the vessels in its towage fleet. Long-distance towing and offshore installation vessels are used for the towage, station-keeping, installation and decommissioning of large floating objects such as exploration, production and storage units, including FPSO units, FLNG units and floating drill rigs. The average number of Teekay Offshore’s towing and offshore installation vessels increased in 2015 compared to 2014, due to the delivery of six towing and offshore installation vessels during 2015.

As at December 31, 2015, Teekay Offshore’s UMS fleet consisted of one operational unit, the Arendal Spirit , and two newbuildings. During the second quarter of 2015, Teekay Offshore exercised its options to defer the delivery of the second UMS newbuilding by up to one year, and the delivery and all related construction work of the third UMS by 120 days. In June 2016 Teekay Offshore canceled the UMS construction contracts for its two UMS newbuildings. Teekay Offshore owned a 100% interest in all three units. The UMS fleet is used primarily for offshore accommodation, storage and support for maintenance and modification projects on existing offshore installations, or during the installation and decommissioning of large floating exploration, production and storage units, including FPSO units, FLNG units and floating drill rigs. Teekay Offshore’s UMS fleet is available for world-wide operations, excluding operations within the Norwegian Continental Shelf, and includes DP3 keeping systems that are capable of operating in deep water and harsh weather. The Arendal Spirit UMS delivered to Teekay Offshore in February, 2015 and began its three-year charter contract in June, 2015.

As at December 31, 2015, Teekay Offshore owned 100% interests in two Aframax conventional crude oil tankers, the Kilimanjaro Spirit , which operated under a fixed-rate time charter with Teekay Parent, and the Fuji Spirit , which operated in the spot conventional tanker market. Both of these vessels were classified as held for sale as at December 31, 2015. As part of the sales of Fuji Spirit and Kilimanjaro Spirit in March 2016, Teekay Offshore is in-chartering these vessels for three years each, both with an additional one-year extension option. One vessel is fixed on a two-year time-charter-out contract and the other vessel is trading in the spot conventional tanker market. In December 2015, Teekay Offshore terminated the time-charter contract of the Fuji Spirit with a subsidiary of Teekay Parent and received an early termination fee of $4.7 million from Teekay Parent. In December 2015, Teekay Offshore terminated the long-term bareboat contracts for the SPT Explorer and the Navigator Spirit conventional tankers with Teekay Parent and paid early termination fees of $6.5 million to Teekay Parent. Immediately following the contract terminations, Teekay Offshore sold its 100% interest in SPT Explorer L.L.C. and Navigator Spirit L.L.C., which own the SPT Explorer and the Navigator Spirit conventional tankers, respectively, to Teekay Tankers.

Income from vessel operations for Teekay Offshore’s business increased to $283.4 million in 2015 compared to $256.2 million in 2014, primarily as a result of:

FPSO Fleet

•	an increase of $67.0 million, excluding general and administrative expenses, due to the acquisition of the Petrojarl Knarr FPSO unit;

•	an increase of $17.2 million, excluding general and administrative expenses, for the Voyageur Spirit FPSO unit during 2015, primarily due to the charterer’s final acceptance of the charter contract in February 2014, a production bonus earned in 2015, a production penalty in 2014 and external consulting fees incurred during the first quarter of 2014 to achieve final acceptance for the unit;

•	an increase of $3.7 million, excluding general and administrative expenses, for the Rio das Ostras FPSO unit, primarily due to a decrease in operating expenses for the unit due to the strengthening of the U.S. Dollar against the Brazilian Real and Norwegian Kroner and lower repairs and maintenance expenses;

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•	an increase of $2.2 million due to lower ship management costs in 2015 related to operating the FPSO units; and

•	an increase of $2.1 million, excluding general and administrative expenses, due to an increase in crew hours reimbursed by the charterer of the Petrojarl Varg for 2015 , and due to the timing of costs related to repair and maintenance , partially offset by decreases in incentive-related compensation during 2015;

partially offset by

•	a decrease of $11.2 million due to increases in general and administrative expenses primarily related to the acquisition of the Petrojarl Knarr , partially offset by additional focus required for obtaining final charter contract acceptance for the Voyageur Spirit in the first quarter of 2014;

•

a decrease of $6.4 million, excluding general and administrative expenses, relating to the Piranema Spirit FPSO unit mainly due to unscheduled off-hire for repairs during the third and fourth quarter of 2015 and higher repairs and maintenance costs, partially offset by a reversal of an agency fee accrual during 2015 which Teekay Offshore no longer considers payable and the commencement of operations of a produced water treatment plan on the Piranema Spirit in the second quarter of 2014; and

•	a decrease of $6.2 million from increased depreciation expense for the Petrojarl I FPSO unit, which Teekay Offshore acquired from us in December 2014.

Shuttle Tanker Fleet

    

•

a decrease of $61.9 million due to vessel write-downs of $66.7 million on seven 1990s-built shuttle tankers, whose carrying values were written down to their estimated fair values using appraised values for the year ended December 31, 2015. During the first quarter of 2015, two of the vessels were written down as a result of the expected sale of a vessel and a change in the operating plan of a vessel. In the fourth quarter of 2015, five shuttle tankers, which have an average age of 17.5 years, were written down as a result of changes in Teekay Offshore’s expectations regarding their future opportunities, primarily due to their advanced age. While we expect four of the five vessels that were written down due to their advanced age to continue to actively trade as shuttle tankers over the near-term and the fifth vessel to actively trade in the conventional tanker market, Teekay Offshore anticipates the vessels will have fewer opportunities for alternative usage and encounter increased age discrimination over time. The decrease due to vessel write-downs was partially offset by a vessel write-down of $4.8 million in 2014 on the carrying value of one of Teekay Offshore’s 1990s-built shuttle tanker which was written down to its estimated fair value using an appraised value, as a result of the vessel charter contract expiring in early-2015 and the expected sale of the vessel;

•	a decrease of $31.3 million relating to the expiration of a long-term contract at the Heidrun field serviced by Teekay Offshore’s contracts of affreightment fleet;

•	a decrease of $18.4 million due to the redeliveries of two vessels to Teekay Offshore in February 2014 and April 2015 as they completed their time-charter-out agreements;

•	a decrease of $6.9 million due to the sale of a 1997-built shuttle tanker, the Navion Svenita in March 2015, partially offset by the gain on the sale of the vessel to a third party; and

•	a decrease of $3.0 million due to an increase in depreciation expense resulting from the dry docking of eight shuttle tankers from mid-2014 to late-2015;

partially offset by

•	an increase of $14.3 million from lower vessel operating expense in Teekay Offshore’s shuttle fleet due to the strengthening of the U.S. Dollar against the Norwegian Kroner, Euro and Brazilian Real;

•

an increase of $8.6 million due to lower time-charter hire expense due to the redelivery by Teekay Offshore to its owners of the in-chartered Karen Knutsen in January 2014 and the Grena Knutsen in June 2015, decreased spot in-chartering of shuttle tankers, lower time-charter hire rates on the Aberdeen and an increase in off-hire during the third quarter of 2015, partially offset by the dry docking and off-hire of the Sallie Knutsen during the first and second quarters of 2014, and the dry docking of the Aberdeen during the second quarter of 2014;

•	an increase of $8.0 million in revenues from Teekay Offshore’s contract of affreightment fleet due to higher average rates, an increase in rates as provided in certain contracts in Teekay Offshore’s time-chartered-out fleet, and an increase in revenues from the commencement of new contracts in mid-2015;

•	an increase of $6.5 million due to an increase in revenues from the commencement of the East Coast of Canada contract which commenced in June 2015, partially offset by additional in-chartering costs;

•	an increase of $3.7 million due to higher average rates earned during 2015 when trading excess shuttle tanker capacity in the conventional tanker spot market, offset by fewer conventional spot days;

•	an increase of $2.9 million due to fewer repair off-hire days in Teekay Offshore’s time-chartered-out fleet for 2015 compared to 2014;

•	an increase of $2.2 million relating to the HiLoad DP unit mainly due to mobilization expenses in 2014 partially offset by the commencement of depreciation expense of the HiLoad DP unit from January 2015;

•	an increase of $2.1 million from lower depreciation expense due to the Navion Europa being fully amortized during the second quarter of 2015; and

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•	an increase of $2.1 million due to a decrease in repairs and maintenance expenses for 2015 compared to 2014 and a decrease in crew costs for 2015 compared to 2014 due to a change in crew composition, partially offset by an increase in crew training expenses for 2015 compared to 2014.

FSO Fleet

•	an increase of $8.7 million from lower vessel operating expenses and depreciation expense, due to the commencement of an FSO conversion of the Randgrid in June 2015;

•	an increase of $3.9 million primarily due to the dry docking of the Dampier Spirit during the second quarter of 2014 and the Navion Saga during the third quarter of 2014, partially offset by lower crew costs in 2014 due to a pension adjustment recorded in the first quarter of 2014 and increased depreciation of dry-dock and upgrade costs; and

•	an increase of $2.1 million due to the commencement of operations of the Suksan Salamander FSO in the third quarter of 2014.

UMS Fleet

•	an increase of $6.2 million due to the commencement of the charter contract of the Arendal Spirit UMS in June 2015 partially offset by write-downs relating to the expiration during 2015 of two options to purchase two additional units.

Towage Fleet

•	an increase of $4.4 million due to the delivery of six towing and offshore installation vessels during 2015.

Conventional Tanker Fleet

•

a decrease of $3.4 million primarily as a result of the write-downs of the Kilimanjaro Spirit and Fuji Spirit to their estimated fair values using appraised values, the net termination fees paid to Teekay Parent in relation to the early terminations of the bareboat and time-charter contracts and the sales of the SPT Explorer and Navigator Spirit, partially offset by a higher amount of reimbursed bunkers in 2015 compared to 2014 and the dry docking of the Kilimanjaro Spirit during the third quarter of 2014.

Equity income decreased to $7.7 million for 2015 compared to $10.3 million for 2014 primarily due to increases in unrealized losses on derivative instruments relating to Teekay Offshore’s investment in the Libra FPSO unit, partially offset by a decrease in unrealized losses on derivative instruments relating to an investment in the Itajai FPSO unit and a decrease in vessel operating expenses in the Itajai FPSO joint venture mainly due to the strengthening of the U.S. Dollar against the Brazilian Real compared to the preceding year, and a credit received during 2015 relating to unused maintenance days in the Itajai FPSO joint venture.

Other Consolidated Operating Results

The following table compares our other consolidated operating results for 2015 and 2014:

		Year Ended December 31,
(in thousands of U.S. dollars, except percentages)		2015			2014			% Change
Interest expense		(242,469	)		(208,529	)		16.3
Interest income		5,988			6,827			(12.3	)
Realized and unrealized loss on non-designated derivative instruments		(102,200	)		(231,675	)		(55.9	)
Foreign exchange (loss) gain		(2,195	)		13,431			(116.3	)
Other income (loss)		1,566			(1,152	)		(235.9	)
Income tax recovery (expense)		16,767			(10,173	)		(264.8	)

Interest expense . Interest expense increased to $242.5 million in 2015, compared to $208.5 million in 2015, primarily due to:

•	an increase of $37.6 million as a result of the Petrojarl Knarr FPSO unit commencing operations in March 2015;

•	an increase of $17.0 million due to Teekay Offshore’s borrowings relating to the Suksan Salamander FSO unit (which commenced operations during the third quarter of 2014), the six towing vessels (which delivered throughout 2015), the Arendal Spirit UMS (which commenced operations during the second quarter of 2015) and the $300 million senior unsecured bonds Teekay Offshore issued in May 2014; and

•

an increase of $15.0 million as a result of further borrowing under a revolving credit facility Teekay Parent entered into in December 2012 partially offset by repayments made near the end of 2015, and additional interest incurred from two term loans which were drawn in 2015 to finance the acquisition of 12 modern Suezmax tankers, one Aframax tanker and four LR2 product tankers acquired by Teekay Tankers during 2015;

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partially offset by

•	a decrease of $10.3 million relating to lower interest expense on our NOK bonds as a result of the depreciation of the NOK against the U.S. Dollar and a decrease in Norwegian InterBank Offered Rate (or NIBOR ), maturity of our NOK bond during 2015, partially offset by the issuance of Teekay LNG’s NOK 1,000 million senior unsecured bonds during 2015;

•	a decrease of $5.1 million due to an increase in capitalized interest as a result of Teekay LNG exercising three newbuilding options with DSME in December 2014 and entering into an additional newbuilding agreement with Daewoo Shipbuilding & Marine Engineering Co. (or DSME) in February 2015 and two additional newbuilding agreements with HHI in June 2015;

•	a decrease of $3.6 million due to lower interest rates on debt facilities and elimination of interest on capital lease obligations relating to Teekay LNG’s LNG carriers in the Teekay Nakilat Joint Venture upon debt refinancing and termination of capital lease obligations in December 2014;

•	a decrease of $3.1 million relating to accelerated amortization of Teekay Nakilat Joint Venture’s deferred debt issuance cost upon completion of its debt refinancing in December 2014;

•	a decrease of $2.6 million relating to capitalized interest on the advances Teekay LNG made to the Yamal LNG Joint Venture in July 2014 to fund its proportionate share of the joint venture’s newbuilding installments;

•	a decrease of $2.6 million due to lower interest expense on Teekay LNG’s capital lease obligations associated with the sales of the Algeciras Spirit and Huelva Spirit conventional tankers in February 2014 and August 2014, respectively;

•	a decrease of $2.4 million due to lower interest expense on Teekay Parent’s 8.5% bonds as a result of bond repurchases during 2014, partially offset by the issuance of an additional $200 million of Teekay Parent’s 8.5% bonds in November 2015;

•	a decrease of $2.0 million due to an increase in capitalized interest on Teekay Offshore’s newbuildings;

•	a decrease of $1.7 million due to the impact of a decrease in EURIBOR and depreciation of the Euro against the U.S. Dollar on Teekay LNG’s Euro-denominated debt facilities; and

•	a decrease of $1.5 million mainly due to the sale of four Suezmax crude oil tankers along with their related debt facilities from Teekay Parent to TIL during February 2014.

Realized and unrealized (losses) gains on non-designated derivative instruments . Realized and unrealized (losses) gains related to derivative instruments that are not designated as hedges for accounting purposes are included as a separate line item in the consolidated statements of income. Net realized and unrealized losses on non-designated derivatives were $102.2 million for 2015, compared to $231.7 million for 2014, as detailed in the table below:

		Year Ended December 31,
(in thousands of U.S. Dollars)		2015			2014
Realized losses relating to:
Interest rate swap agreements		(108,036	)		(125,424	)
Interest rate swap agreement terminations		(10,876	)		(1,319	)
Foreign currency forward contracts		(21,607	)		(4,436	)
		(140,519	)		(131,179	)
Unrealized gains (losses) relating to:
Interest rate swap agreements		37,723			(86,045	)
Foreign currency forward contracts		(418	)		(16,926	)
Stock purchase warrants		1,014			2,475
		38,319			(100,496	)
Total realized and unrealized losses on derivative instruments		(102,200	)		(231,675	)

The realized losses relate to amounts we actually realized or paid to settle such derivative instruments and interest rate swap agreement terminations. The unrealized (losses) gains on interest rate swaps for 2015 and 2014 were primarily due to changes in the forward interest rates.

During 2015 and 2014, we had interest rate swap agreements with aggregate average net outstanding notional amounts of approximately $3.5 billion and $3.6 billion, respectively, with average fixed rates of approximately 3.4% and 3.6%, respectively. Short-term variable benchmark interest rates during these periods were generally less than 1.0% and, as such, we incurred realized losses of $108.0 million and $125.4 million during 2015 and 2014, respectively, under the interest rate swap agreements. We also incurred realized losses of $10.9 million during 2015 from the early termination of one interest rate swap, compared to losses of $1.3 million during 2014 from the termination of interest rate swaps relating to three capital leases, partially offset by a gain on an early termination of one interest rate swap.

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Primarily as a result of significant changes in long-term benchmark interest rates during 2015 and 2014, we recognized unrealized gains of $37.7 million for 2015 compared to unrealized losses of ($86.0) million for 2014 under the interest rate swap agreements. Primarily as a result of changes in NOK during 2015 from 2014, we recognized unrealized losses of $0.4 million for 2015 compared to $16.9 million for 2014 under the foreign currency forward contracts.

In 2014, we and Teekay Tankers formed TIL. In connection with the investment by Teekay Tankers and us in a $250 million private placement of common stock by TIL, we and Teekay Tankers received stock purchase warrants entitling us and Teekay Tankers to purchase an aggregate of up to 1.5 million shares of common stock of TIL at a fixed price of $10 per share. Alternatively, if the shares of TIL’s common stock trade on a National Stock Exchange or over-the-counter market denominated in NOK, we and Teekay Tankers may also exercise their stock purchase warrants at 61.67 NOK per share using a cashless exercise procedure. During 2015, we recognized a $1.0 million unrealized gain on the stock purchase warrants compared to an unrealized gain of $2.5 million for 2014, which are included in our total unrealized derivative (losses) gains. Please read “Item 18. Financial Statements: Note 14 - Derivative Instruments and Hedging Activities.”

Foreign Exchange Gain (Loss). Foreign currency exchange (losses) gains were ($2.2) million in 2015 compared to $13.4 million in 2014. Our foreign currency exchange (losses) gains, substantially all of which are unrealized, were due primarily to the relevant period-end revaluation of our NOK-denominated debt and our Euro-denominated term loans, capital leases and restricted cash for financial reporting purposes and the realized and unrealized losses on our cross currency swaps. Gains on NOK-denominated and Euro-denominated monetary liabilities reflect a stronger U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. Losses on NOK-denominated and Euro-denominated monetary liabilities reflect a weaker U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. For 2015, foreign currency exchange loss includes realized losses of $19.0 million (2014 - $4.0 million) and unrealized losses of $89.2 million (2014 - $167.3 million) on our cross currency swaps, unrealized gains of $123.2 million (2014 - $156.2 million) on the revaluation of our NOK-denominated debt and realized losses on maturity of cross currency swaps of $36.2 million offset by the realized gain on maturity of the NOK bond of $36.2 million. For 2015, foreign currency exchange (losses) gains include the gain on revaluation of our Euro-denominated restricted cash, debt and capital leases of $25.6 million as compared to $34.3 million for 2014.

Income Tax (Expense) Recovery. Income tax recovery (expense) was $16.8 million in 2015 compared to ($10.2) million in 2014. The increase in income tax recovery for 2015 was primarily due to the acquisition of the Petrojarl Knarr FPSO unit by Teekay Offshore and the commencement of the East Coast of Canada contract during 2015, and the expected commencement of the Gina Krog FSO unit contract in mid-2017, from which Teekay Offshore expects to utilize more of its Norwegian tax losses from the earnings anticipated from their contracts, as well as an expected increase in earnings from its existing fleet, which resulted in a decrease in Teekay Offshore’s deferred tax asset valuation allowance and an increase in deferred income tax recovery, and higher income tax expense in 2014 from the termination of capital lease obligations and refinancing in the Teekay LNG’s Teekay Nakilat Joint Venture.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Cash Needs

Teekay Corporation Consolidated

Overall, our consolidated operations are capital intensive. We finance the purchase of our vessels primarily through a combination of borrowings from commercial banks or our joint venture partners, the issuance of equity and debt securities (primarily by our publicly-traded subsidiaries) and cash generated from operations. In addition, we may use sale and leaseback arrangements as a source of long-term liquidity. Occasionally, we use our revolving credit facilities to temporarily finance capital expenditures until longer-term financing is obtained, at which time we typically use all or a portion of the proceeds from the longer term financings to prepay outstanding amounts under revolving credit facilities. We have pre-arranged financing of approximately $2.4 billion, which mostly relates to our remaining 2017 capital expenditure commitments. We are in the process of seeking to obtain additional debt financing from various sources for our remaining capital commitments relating to our portion of newbuildings on order as at December 31, 2016 . As at December 31, 2016 , Teekay Corporation’s total consolidated cash and cash equivalents was $568.0 million , compared to $678.4 million at December 31, 2015 . Teekay Corporation’s total consolidated liquidity, including cash, cash equivalents and undrawn credit facilities, was $1.0 billion as at December 31, 2016 , compared to $860.7 million as at December 31, 2015 .

Effective for the quarterly dividend and distributions of the fourth quarter of 2015, Teekay Parent reduced its quarterly cash dividend per share to $0.055 from $0.55, Teekay Offshore reduced its quarterly cash distribution per common unit to $0.11 from $0.56 and Teekay LNG reduced its quarterly cash distribution per common unit to $0.14 from $0.70. At the time these changes were made, there was a dislocation in the capital markets relative to the stability of our businesses. More specifically, the future equity capital requirements for our committed growth projects, coupled with the relative weakness in energy and capital markets, resulted in us concluding that it would be in the best interests of our shareholders to conserve more of our internally generated cash flows for committed growth projects and to reduce debt levels. Teekay Parent, Teekay Offshore and Teekay LNG each maintained these reduced dividend and distribution levels throughout 2016. Despite significant weakness in the global energy and capital markets, our cash flows from vessels operations remain largely stable and are supported by a large and well-diversified portfolio of fee-based contracts with high quality counterparties. In addition to using more of our internally generated cash flows for existing growth projects and to reduce our debt levels, we are also seeking alternative sources of financing such as sale and leaseback transactions, asset sales, new bank borrowings and the issuance of new debt and equity securities.

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Since early 2016, Teekay Parent and the Daughter Companies have been executing on a series of financing initiatives intended to contribute to the funding of our upcoming capital expenditures and debt maturities, which are explained in the Teekay Parent and Daughter Company sections that follow.

Our revolving credit facilities and term loans are described in Item 18 – “Financial Statements: Note 7 – Long-Term Debt.” They contain covenants and other restrictions typical of debt financing secured by vessels that restrict the ship-owning subsidiaries from, among other things: incurring or guaranteeing indebtedness; changing ownership or structure, including mergers, consolidations, liquidations and dissolutions; making dividends or distributions if we are in default; making capital expenditures in excess of specified levels; making certain negative pledges and granting certain liens; selling, transferring, assigning or conveying assets; making certain loans and investments; or entering into a new line of business. Among other matters, our long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and 11 loan agreements require the maintenance of vessel market value to loan ratios. As at December 31, 2016 , these vessel market value to loan ratios ranged from 116.6% to 433.2% compared to their minimum required ratios of 105% to 125% , respectively. Changes in the LNG/LPG, conventional tanker, FPSO, shuttle tanker, towage and UMS markets could negatively affect our compliance with these ratios. Certain loan agreements require that a minimum level of free cash be maintained and as at December 31, 2016 , this amount was $50 million for us, excluding Teekay Offshore and Teekay LNG. Most of the loan agreements also require that we maintain an aggregate minimum level of free liquidity and undrawn revolving credit lines with at least six months to maturity of 5.0% of total debt for either Teekay Parent, Teekay Offshore or Teekay Tankers, which as at December 31, 2016 such amounts were $63.8 million , $159.1 million and $46.7 million , respectively. In addition, certain loan agreements require Teekay LNG to maintain a minimum level of tangible net worth and liquidity, and not exceed a maximum level of financial leverage. As at December 31, 2016 , we were in compliance with all covenants under our credit facilities and other long-term debt.

The aggregate annual long-term debt principal repayments required to be made by us (including our Daughter Companies) subsequent to December 31, 2016 , are $1.0 billion ( 2017 ), $1.7 billion ( 2018 ), $1.0 billion ( 2019 ), $1.1 billion ( 2020 ), $0.9 billion ( 2021 ) and $1.0 billion (thereafter).

We conduct our funding and treasury activities based on corporate policies designed to minimize borrowing costs and maximize investment returns while maintaining the safety of the funds and appropriate levels of liquidity for our purposes. We hold cash and cash equivalents primarily in U.S. Dollars, with some balances held in Australian Dollars, British Pounds, Canadian Dollars, Euros, Japanese Yen, Norwegian Kroner and Singapore Dollars.

We are exposed to market risk from foreign currency fluctuations and changes in interest rates, spot tanker market rates for vessels and bunker fuel prices. We use forward foreign currency contracts, cross currency and interest rate swaps, forward freight agreements and bunker fuel swap contracts to manage currency, interest rate, spot tanker rates and bunker fuel price risks. Please read "Item 11 - Quantitative and Qualitative Disclosures About Market Risk".

The passage of any climate control legislation or other regulatory initiatives that restrict emissions of greenhouse gases could have a significant financial and operational impact on our business, which we cannot predict with certainty at this time. Such regulatory measures could increase our costs related to operating and maintaining our vessels and require us to install new emission controls, acquire allowances or pay taxes related to our greenhouse gas emissions, or administer and manage a greenhouse gas emissions program. In addition, increased regulation of greenhouse gases may, in the long term, lead to reduced demand for oil and reduced demand for our services.

Teekay Parent

Teekay Parent owns three FPSO units and continues to in-charter a number of vessels. Teekay Parent’s primary short-term liquidity needs are the payment of operating expenses, dry-docking expenditures, debt servicing costs, dividends on its shares of common stock and scheduled repayments of long-term debt, as well as funding its other working capital requirements. Teekay Parent’s primary sources of liquidity are cash and cash equivalents, cash flows provided by operations, dividends/distributions and management fees received from the Daughter Companies and other investments, its undrawn credit facilities and proceeds from the sale of vessels to external parties or Teekay Offshore (and in the past, Teekay LNG and Teekay Tankers). As at December 31, 2016 , Teekay Parent’s total cash and cash equivalents was $146.4 million, compared to $221.0 million at December 31, 2015 . Teekay Parent’s total liquidity, including cash, cash equivalents and undrawn credit facilities, was $279.5 million as at December 31, 2016 , compared to $234.5 million as at December 31, 2015 .

In addition to a series of financing initiatives at Teekay Offshore (as described below), in May and June 2016, Teekay Parent completed various initiatives to increase its financial strength and flexibility, including:

•	refinancing three existing debt facilities, including $150 million relating to Teekay Parent’s equity margin revolving credit facility, $150 million of an existing revolving credit facility relating to Teekay Parent’s three directly-owned FPSO units, and $50 million of an existing debt facility relating to the Shoshone Spirit VLCC;

•	selling Teekay Parent’s 50% interest in three infield support vessel tugs for Royal Dutch Shell’s Prelude FLNG unit; and

•	issuing $100 million of common shares at a price of $8.32 per share to a group of institutional investors and two entities established by Teekay Parent's founder, including Resolute Investments, Inc. (or Resolute ), Teekay Parent's largest shareholder.

In connection with the above initiatives, Teekay Parent sold the Shoshone Spirit tanker in October 2016 for $63.0 million and the related debt was repaid. In addition, in September 2016, Teekay sold an aggregate of 1.3 million shares of common stock as part of a continuous offering program, generating gross proceeds of $9.7 million. As of December 31, 2016 , Teekay had the ability to sell additional shares of its common stock having an aggregate offering price of up to $40.3 million under its continuous offering program.

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Teekay’s equity margin revolving credit facility is secured by common units of Teekay Offshore and Teekay LNG and shares of Class A common stock of Teekay Tankers that are owned by Teekay. In June 2016, Teekay amended the facility by further reducing its aggregate potential borrowings from $300 million to $150 million, extending its maturity date from January 2018 to December 2018 and amending the formula which further limits the amount available to borrow based on the value of the common units of Teekay Offshore and Teekay LNG and the shares of Class A common stock of Teekay Tankers which are pledged as collateral. The amendment resulted in an increase in the loan-to-value ratio which increased the availability under the facility from approximately $34 million to $150 million as of December 31, 2016 . As of December 31, 2016 , Teekay Parent had $16.9 million drawn on this facility, and $133.1 million undrawn. In April 2017, Teekay further amended the facility by increasing the aggregate potential borrowings from $150 million to $200 million.

As part of completing the financing initiatives both at Teekay Parent and Teekay Offshore, in June 2016, Teekay Parent entered into guarantee arrangements relating to Teekay Offshore up to a maximum of $495 million of obligations. The guarantees cover amounts owing under: certain existing interest rate swaps which have put option termination rights that were extended to February 2019; a new loan for Teekay Offshore’s East Coast Canada shuttle tanker project during the construction period for three newbuilding shuttle tankers scheduled for delivery in 2017 and 2018; and certain existing cross currency swaps related to two of Teekay Offshore’s NOK bonds for which the maturity dates were extended to the end of 2018 (as described below). In addition, Teekay Parent extended the maturity date for obligations in the amount of $200 million owed to Teekay Parent by Teekay Offshore from July 2016 to January 2019 and agreed with Teekay Offshore that, until Teekay Offshore’s NOK bonds maturing in 2018 have been repaid, all cash distributions to be paid to Teekay Parent or its affiliates, including the general partner of Teekay Offshore, will instead be paid in common units of Teekay Offshore. In addition, Teekay Parent agreed with its lenders that, until Teekay Offshore’s NOK bonds maturing 2018 have been repaid, Teekay Parent will raise equity capital in an amount equal to any cash dividends paid by Teekay Parent during that period.

We believe that Teekay Parent’s existing cash and cash equivalents and undrawn long-term borrowings, in addition to all other sources of cash including cash from operations, and after considering initiatives described below that are planned by the Daughter Companies, will be sufficient to meet its existing liquidity needs for at least the next 12 months.

Teekay Offshore

Teekay Offshore's business model is to employ its vessels on fixed-rate contracts with major oil companies, typically with terms between three to ten years. Prior to the fourth quarter of 2015, the operating cash flow its vessels generated each quarter, excluding a reserve for maintenance capital expenditures and distributions on Teekay Offshore's preferred units, was generally paid out to its common unitholders within approximately 45 days after the end of each quarter. As discussed in the Teekay Parent section above, Teekay Offshore reduced its quarterly cash distributions to $0.11 per common unit, a level which it has maintained throughout 2016, and its near-to-medium-term business strategy is primarily focused on funding and implementing existing growth projects and repaying or refinancing scheduled debt obligations rather than pursuing additional growth projects. Despite significant weakness in the global energy and capital markets, Teekay Offshore's operating cash flows remain largely stable and growing, supported by a large and well-diversified portfolio of fee-based contracts with high quality counterparties.

In order to manage its unfunded capital expenditures and upcoming debt maturities, in addition to reducing its quarterly cash distributions to $0.11 per common unit, Teekay Offshore completed the following series of initiatives during the second quarter of 2016:

•	obtaining additional bank financing, including a $250 million debt facility for the three East Coast of Canada newbuilding shuttle tankers, a $40 million debt facility for six previously un-mortgaged vessels, and a new $35 million tranche added to an existing debt facility secured by two shuttle tankers;

•	extending $75 million of the outstanding principal amount of an existing revolving credit facility financing for the Petrojarl Varg FPSO unit until late-2017;

•	extending the majority of the principal maturity payments to late-2018 for two of Teekay Offshore's existing NOK senior unsecured bonds, previously due in January 2017 and January 2018, and agreeing to pay a portion of the outstanding principal amount of these bonds in October 2016, October 2017 and January 2018;

•	agreeing with Teekay to pay, all distributions on Teekay Offshore's common units to Teekay Parent, including distributions to Teekay Offshore's general partner, in common units, instead of cash, until Teekay Offshore's NOK bonds maturing in 2018 have been fully repaid;

•	agreeing that, until Teekay Offshore's NOK bonds maturing in 2018 have been repaid, Teekay Offshore will only pay distributions in cash to third party holders of its common units if the amount of the cash distributions is matched or exceeded by the proceeds raised through the issuance of additional equity in advance of, or within six months following, the payment of such distributions;

•	extending to January 2019 the maturity date of $200 million in obligations owing to Teekay Parent under the terms of a subordinated promissory note, which bears interest at the rate of 10.0% per annum, one half of which will be paid in cash, and the other half of which will be paid in Teekay Offshore's common units or from the proceeds of the sale of equity securities;

•

issuing $200 million of equity, consisting of (i) $100 million of Teekay Offshore's Series D Preferred Units (with a two-year option to pay quarterly distributions in common units rather than cash) plus 4.5 million common unit warrants with an exercise price of $4.55 per common unit and 2.25 million common unit warrants with an exercise price of $6.05 per common unit, and (ii) $100 million of common units at a price of $4.55 per unit;

•	cancelling, by Teekay Offshore's subsidiary Logitel, the shipbuilding contracts for the two remaining UMS newbuildings; and

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•	amending the terms of certain interest rate swaps to defer the counterparties’ early termination options and extending and increasing the threshold of existing cross currency swaps related to Teekay Offshore's two NOK bonds that have been extended as part of these initiatives.

As part of completing the above financing initiatives, Teekay Offshore agreed to convert $46 million of face value of the $250 million of Series C Preferred Units for approximately 8.3 million common units and the remaining approximately $204 million of outstanding Series C Preferred Units for approximately 8.5 million of its newly-issued Series C-1 Preferred Units that also include a two-year option to pay quarterly distributions in the form of common units rather than cash. Teekay Offshore agreed that, until it repays amounts outstanding under its NOK bonds maturing in 2018, Teekay Offshore will only pay distributions to holders of Series C-1 Preferred Units and Series D Preferred Units in common units, except that, at any time with respect to the Series C-1 Preferred Units, and at any time after June 29, 2018 with respect to the Series D Preferred Units, Teekay Offshore may pay distributions to holders of Series C-1 Preferred Units and Series D Preferred Units, in cash, if the amount of such cash distributions are matched or exceeded by the proceeds of additional equity raised by Teekay Offshore in advance of, or within six months following, payment of the cash distributions. Teekay Offshore also issued $31 million of common units during 2016 under its continuous offering program.

As part of the financing initiatives, Teekay Parent provided financial guarantees to Teekay Offshore for liabilities associated with the long-term debt financing relating to the East Coast of Canada newbuilding shuttle tankers and for certain of Teekay Offshore's interest rate swap and cross currency swap liabilities. The guarantees cover liabilities totaling up to $495 million and have been provided at no additional cost to Teekay Offshore.

As at December 31, 2016 , Teekay Offshore's total cash and cash equivalents were $227.4 million , compared to $258.5 million as at December 31, 2015 . Teekay Offshore's total liquidity, defined as cash, cash equivalents and undrawn long-term borrowings, was $260.7 million as at December 31, 2016 , compared to $282.7 million as at December 31, 2015 . The decrease in liquidity was primarily due to: the scheduled repayments or prepayments of outstanding term loans and NOK bonds; collateral posted on the Petrojarl I term loan; and payments for committed newbuildings and conversions, partially offset by proceeds from the issuance and sale of Series D Preferred Units and common units as described above and as part of Teekay Offshore's continuous offering program; additional bank financings as described above; proceeds from the sale of the Navion Europa , Navion Torinita , Fuji Spirit and Kilimanjaro Spirit ; and a decrease in collateral on cross currency swaps.

As at December 31, 2016 , Teekay Offshore had a working capital deficit of $398.0 million , compared to a working capital deficit of $504.5 million as at December 31, 2015 . Accounts receivable decreased mainly due to the timing of collections. Vessels held for sale decreased due to the sale of the Navion Torinita , Fuji Spirit and Kilimanjaro Spirit during 2016 partially offset by the classification of the Navion Saga as held for sale as at December 31, 2016 . Accrued liabilities increased mainly due to estimated potential damages relating to the cancellation of the two UMS newbuildings. The due to affiliates balance in current liabilities decreased mainly due to the refinancing of the $100 million convertible promissory note issued to Teekay in connection with the financing of the acquisition of the Petrojarl Knarr FPSO unit, and a $100 million six-month loan made by Teekay to Teekay Offshore, with a $200 million long-term subordinated promissory note issued to a subsidiary of Teekay by Teekay Offshore, which matures in 2019. The current portion of derivative instruments in current liabilities decreased due to the amendment of terms of certain interest rate swaps to defer the counterparties’ early termination options and extend and increase the collateral threshold of existing cross currency swaps related to two of Teekay Offshore's NOK bonds as described above and an increase in long-term LIBOR benchmark rates during 2016 compared to 2015 . The current portion of long-term debt increased mainly due to reclassifying one term loan maturing in the first half of 2017 to the current portion of long-term debt as at December 31, 2016 , an increase in the current portion of long-term debt of an existing term loan as at December 31, 2016 compared to December 31, 2015, related to the refinancing of the existing debt facility and a portion of a NOK bond due in October 2017, the drawdown of existing term loans and revolving debt facilities to finance the installment payments on the four towing and offshore installation newbuildings, one of which delivered during September 2016, the Petrojarl I FPSO unit upgrades and the reclassification of a portion of the term loan relating to the Gina Krog FSO conversion to current portion of long-term debt, partially offset by the repayment of NOK 680 million of NOK bonds which matured and were paid in 2016 and other debt repayments and prepayments during 2016.

Teekay Offshore's primary liquidity needs for 2017 and 2018 are to pay existing, committed capital expenditures, to make scheduled repayments of debt, to pay debt service costs, quarterly distributions on its outstanding common and preferred units, operating expenses and dry docking expenditures, to fund general working capital requirements, to settle claims and potential claims against it, and manage its working capital deficit. Teekay Offshore anticipates that its primary sources of funds for 2017 and 2018 will be cash flows from operations, bank debt, equity and bond issuances, and proceeds from the sale of partial interests in certain assets. As at December 31, 2016 , Teekay Offshore's total future contractual obligations for vessels and newbuildings and committed conversions, including its 50% interest in the Libra FPSO conversion, were estimated to be approximately $671 million, consisting of $600.4 million (2017) and $70.6 million (2018). Of this $671 million of future contractual obligations, Teekay Offshore has pre-arranged financing in place of $436.8 million and a further $60.0 million held in escrow as funding for the Petrojarl I FPSO project, with a remaining requirement of $174.2 million, which mainly relates to 2017. Teekay Offshore expects to manage these funding requirements from existing and expected liquidity.

Primarily as a result of the working capital deficit and committed capital expenditures, over the one-year period following the issuance of its 2016 consolidated financial statements Teekay Offshore will need to obtain additional sources of financing, in addition to amounts generated from operations, to meet its minimum liquidity requirements under its financial covenants. These anticipated sources of financing include refinancing debt facilities that mature during the one-year period, raising additional capital through equity issuances, increasing amounts available under existing debt facilities and entering into new debt facilities, negotiating extensions or redeployments of existing assets and the sale of partial interests of assets. Teekay Offshore is actively pursuing the funding alternatives described above, which it considers probable of completion based on Teekay Offshore’s history of being able to raise equity, refinance loan facilities for similar types of vessels, and indicative offers received from potential investors in certain assets. Teekay Offshore is in various stages of completion on these matters.

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Teekay Offshore believes that its existing cash and cash equivalents and undrawn long-term borrowings, in addition to other sources of cash including cash from operations and the initiatives described above, will be sufficient to meet its existing liquidity needs for at least the next 12 months.

Teekay LNG

Teekay LNG's business model is to employ its vessels on fixed-rate contracts primarily with large energy companies and their transportation subsidiaries. Prior to the fourth quarter of 2015, the operating cash flow generated by Teekay LNG's vessels each quarter, excluding a reserve for maintenance capital expenditures and debt repayments, was generally paid out to Teekay LNG's unitholders and general partner as cash distributions within approximately 45 days after the end of each quarter. As discussed in the Teekay Corporation section above, Teekay LNG reduced its quarterly cash distribution per common unit to $0.14 from $0.70.

Teekay LNG's primary liquidity needs for 2017 through 2018 include payment of its quarterly distributions, including distributions on its common units and Series A Preferred Units, operating expenses, dry-docking expenditures, debt service costs, scheduled repayments of long-term debt, bank debt maturities, committed capital expenditures and the funding of general working capital requirements. Teekay LNG anticipates that its primary sources of funds for its short-term liquidity needs will be cash flows from operations, proceeds from debt financings, proceeds from equity offerings, and dividends from its equity accounted joint ventures. For 2017 through 2018, Teekay LNG expects that its existing liquidity, combined with the cash flow it expects to generate from its operations and receive as dividends from its equity accounted joint ventures will be sufficient to finance a portion of its liquidity needs, including the equity portion of its committed capital expenditures. Teekay LNG's remaining liquidity needs include the requirement to secure debt financing for an adequate portion of its committed capital expenditures, to refinance its loan facilities maturing in 2017 to 2018 and its NOK-denominated bonds due in 2018, to possibly fund the potential exposure relating to the lease arrangements that the Teekay Nakilat Joint Venture had previously entered into (please read “Item 18 - Financial Statements: Note 15c - Commitments and Contingencies"). Teekay LNG already has committed debt financing in place for the following vessels and projects: three of its LNG carriers under construction that will be chartered to a wholly-owned subsidiary of Royal Dutch Shell PLC; the Torben Spirit , which was delivered to Teekay LNG on February 28, 2017 and chartered out to a major energy company; the vessels under construction in the BG Joint Venture and the Exmar LPG Joint Venture; and the assets of the Bahrain LNG Joint Venture formed for the development of an LNG receiving and regasification terminal in Bahrain. Teekay LNG is actively seeking debt financings for its other five wholly-owned LNG carriers under construction, the six LNG carriers under construction for the Yamal LNG Joint Venture and for the other requirements described above.

Teekay LNG's liquidity needs beyond 2018 are currently expected to decline compared to 2017 to 2018, as a majority of its capital expenditures commitments relate to 2017 to 2018. Teekay LNG's ability to continue to expand the size of its fleet over the long-term is dependent upon its ability to generate operating cash flow, obtain long-term bank borrowings and other debt, as well as its ability to raise debt or equity financing through public or private offerings.

As at December 31, 2016 , Teekay LNG's consolidated cash and cash equivalents were $126.1 million , compared to $102.5 million at December 31, 2015. Teekay LNG's total liquidity, which consists of cash, cash equivalents and undrawn credit facilities, was $369.8 million as at December 31, 2016 , compared to $232.5 million as at December 31, 2015. The increase in total consolidated liquidity was primarily due to proceeds from Teekay LNG's sale-leaseback financing transactions in February 2016 and July 2016 relating to the Creole Spirit and Oak Spirit , respectively, proceeds from the issuance of Series A Preferred Units in October 2016, proceeds from the issuance of Teekay LNG's NOK bonds net of buyback in October 2016, and reduced quarterly distributions in 2016 compared to 2015. At December 31, 2016 , Teekay LNG had a working capital deficit of $29.0 million , which is primarily the result of $47.3 million of its NOK bonds maturing in May 2017, and $26.0 million of current capital lease obligations relating to one Suezmax tanker, under which the owner has the option to require Teekay LNG to purchase the vessel. Teekay LNG expects to manage its working capital deficit primarily with net operating cash flow and dividends from its equity accounted joint ventures, debt refinancings and, to a lesser extent, existing undrawn revolving credit facilities. As at December 31, 2016 , Teekay LNG had undrawn revolving credit facilities of $243.7 million . In addition, in January 2017, Teekay LNG raised in the Norwegian bond market, NOK 300 million (equivalent to approximately $36 million) in new senior unsecured bonds through an add-on to its existing NOK bonds due in October 2021 and received $40 million in cash distributions in February 2017 from its 40% owned joint venture with Qatar Gas Transport Company Ltd. (Nakilat) (or the RasGas 3 Joint Venture ) upon completion of its debt refinancing in December 2016, which were partially offset by Teekay LNG's additional equity investment of $57 million in the Teekay LNG-Marubeni Joint Venture upon completion of its debt refinancing in March 2017.

Teekay LNG believes that its existing cash and cash equivalents and undrawn long-term borrowings, in addition to other sources of cash including cash from operations and the initiatives described above, will be sufficient to meet its existing liquidity needs for at least the next 12 months.

Teekay Tankers

Teekay Tankers' primary sources of liquidity are cash and cash equivalents, cash flows provided by its operations, its undrawn credit facilities, proceeds from sales of vessels, and capital raised through financing transactions. As at December 31, 2016 , Teekay Tankers' total cash and cash equivalents were $68.1 million, compared to $96.4 million at December 31, 2015 . Teekay Tankers' cash balance at December 31, 2016 had decreased primarily as a result of repayments of its long-term debt (described below) and dividends paid on its shares of common stock which were partially offset by cash flow from Teekay Tankers' operations, proceeds received from the sale of two MR tankers and two lightering support vessels and distributions Teekay Tankers received from its equity accounted investments.

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Teekay Tankers' total liquidity, including cash, cash equivalents and undrawn credit facilities, was $102.4 million as at December 31, 2016 , compared to $111.0 million as at December 31, 2015 . Teekay Tankers anticipates that its primary sources of funds for its short-term liquidity needs will be cash flows from operations, existing cash and cash equivalents and undrawn long-term borrowings, refinancing existing loans (including one revolver maturing in 2018 with an expected balance of $65.5 million), equity issuances and other sources of financing.

Teekay Tankers' short-term liquidity requirements include the payment of operating expenses, dry-docking expenditures, debt servicing costs, dividends on its shares of common stock, scheduled repayments of long-term debt, as well as funding its other working capital requirements. Teekay Tankers' short-term charters and spot market tanker operations contribute to the volatility of its net operating cash flow, and thus its ability to generate sufficient cash flows to meet its short-term liquidity needs. Historically, the tanker industry has been cyclical, experiencing volatility in profitability and asset values resulting from changes in the supply of, and demand for, vessel capacity. In addition, tanker spot markets historically have exhibited seasonal variations in charter rates. Tanker spot markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling.

From the first quarter of 2013 through to the dividend paid in the fourth quarter of 2015, Teekay Tankers distributed a portion of its cash flow to shareholders through a fixed quarterly dividend of $0.03 per share on its common shares. Commencing with the dividend paid in the first quarter of 2016, Teekay Tankers adopted a dividend policy under which quarterly dividends are expected to range from 30% to 50% of its quarterly adjusted net income, subject to the discretion of Teekay Tankers' Board of Directors, with a minimum quarterly dividend of $0.03 per share. Adjusted net income is a non-GAAP measure which excludes specific items affecting net income that are typically excluded by securities analysts in their published estimates of Teekay Tankers' financial results. Specific items affecting net income include foreign exchange gain or losses, unrealized gains or losses on derivative instruments, asset impairments, gain or losses on sale of vessels and debt issuance costs which were written off in connection with the refinancing of Teekay Tankers' debt facilities in the first quarter of 2016.

Teekay Tankers' long-term capital needs are primarily for capital expenditures and debt repayment. Generally, Teekay Tankers expects that its long-term sources of funds will be cash balances, long-term bank borrowings and other debt or equity financings, which includes equity issuances from Teekay Tankers' continuous offering program. Teekay Tankers expects that it will rely upon external financing sources, including bank borrowings, and the issuance of debt and equity securities and other sources of financing, to fund acquisitions and expansion capital expenditures, including opportunities Teekay Tankers may pursue to purchase additional vessels from Teekay or third parties.

In January 2016, Teekay Tankers entered into a new $894.4 million long-term debt facility, consisting of both a term loan and a revolving credit facility, which is scheduled to mature in January 2021, of which $845.8 million was used to repay Teekay Tankers' two bridge loan facilities, which matured in late January 2016, and a portion of Teekay Tankers' main corporate revolving credit facility, which was scheduled to mature in 2017.

In October 2016, Teekay Tankers agreed to sell two Suezmax tankers for an aggregate sales price of $33.8 million. The sale of one Suezmax tanker was completed in January 2017 and the sale of the other Suezmax tanker was completed in March 2017. Teekay Tankers used the proceeds from these sales to repay a portion of its corporate revolving credit facility, which is scheduled to mature in 2017. As at December 31, 2016, the revolving credit facility had an outstanding balance of $55.1 million.

Teekay Tankers is exposed to market risk from changes in interest rates, foreign currency fluctuations and spot market rates. Teekay Tankers uses interest rate swaps to manage interest rate risk. Teekay Tankers does not use this financial instrument for trading or speculative purposes.

Teekay Tankers believes that its existing cash and cash equivalents and undrawn long-term borrowings, in addition to other sources of cash including cash from operations and the initiatives described above, will be sufficient to meet its existing liquidity needs for at least the next 12 months.

Cash Flows

The following table summarizes our consolidated cash and cash equivalents provided by (used for) operating, financing and investing activities for the periods presented:

		Year Ended December 31,
		2016			2015			2014
Net operating cash flows		620,120			770,309			446,317
Net financing cash flows		(555,305	)		924,457			726,761
Net investing cash flows		(175,213	)		(1,823,278	)		(980,834	)

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Operating Cash Flows

Our consolidated net cash flow from operating activities fluctuates primarily as a result of changes in vessel utilization and TCE rates, changes in interest rates, fluctuations in working capital balances, the timing and amount of dry-docking expenditures, repairs and maintenance activities, vessel additions and dispositions, and foreign currency rates. Our exposure to the spot tanker market has contributed significantly to fluctuations in operating cash flows historically as a result of highly cyclical spot tanker rates, which have increased recently after a number of years of historically low rates. In addition, the production performance of certain of our FPSO units that operate under contracts with a production-based compensation component has contributed to fluctuations in operating cash flows. As the charter contracts of two of our FPSO units include incentives based on average annual oil prices, the recent reduction in global oil prices has negatively impacted our operating cash flows.

Net consolidated cash flow from operating activities decreased to $620.1 million for the year ended December 31, 2016 , from $770.3 million for the year ended December 31, 2015 . This decrease was primarily due to a $134.5 million decrease in income from vessel operations before depreciation, amortization, asset impairments and loan loss recoveries, net gain on sale of vessels, equipment and other assets and the amortization of in-process revenue contracts of our businesses, primarily as a result of lower average spot TCE rates earned by our conventional tanker fleet in 2016 compared to 2015 and the termination of time charters and resulting lay-up of the Polar Spirit and Arctic Spirit LNG carriers. We received dividends from our joint ventures of $38.1 million for the year ended December 31, 2016, compared to $106.1 million in 2015. The decreases in cash flow were partially offset by an increase in changes to non-cash working capital items of $50.6 million, and an increase in cash flow of $22.5 million from lower expenditures for dry docking. There was also an increase in interest expense of $18.2 million in 2016 compared to 2015.

Net consolidated cash flow from operating activities increased to $770.3 million for the year ended December 31, 2015 , from $446.3 million for the year ended December 31, 2014 . This increase was primarily due to a $376.9 million increase in income from vessel operations before depreciation, amortization, asset impairments and loan loss recoveries, net gain on sale of vessels, equipment and other assets and the amortization of in-process revenue contracts of our businesses, primarily as a result of increased operating cash flows from our businesses due to higher average TCE rates earned by our conventional tanker fleet, increases in conventional tanker fleet size and increased operating cash flows from our FPSO fleet. We received dividends from our joint ventures of $106.1 million for the year ended December 31, 2015, compared to $33.4 million in 2014. The increases in cash flow was partially offset by a decrease in changes to non-cash working capital items of $72.9 million, primarily due to the timing of deferred revenue and receivables, and a $26.9 million increase in interest expense (net of interest income and including realized losses on interest rate swaps and interest rate swaps terminations) for the year ended December 31, 2015 compared to 2014.

For further discussion of changes in income from vessel operations before depreciation, amortization, asset impairments, net loss (gain) on sale of vessels and equipment and the amortization of in-process revenue contracts of our businesses, please read “Results of Operations.”

Financing Cash Flows

Teekay’s Daughter Companies hold most of our liquefied gas carriers (Teekay LNG), offshore assets, including shuttle tankers, FPSO units and FSO and offshore support units (Teekay Offshore) and our conventional tanker assets (Teekay Tankers). From and including the respective initial public offerings of these subsidiaries, Teekay Parent has been selling assets that are a part of these business lines to the Daughter Companies. Historically, the Daughter Companies have distributed operating cash flows to their owners in the form of distributions or dividends. The Daughter Companies raised net proceeds from issuances of new equity to the public and to third-party investors of $327.4 million in 2016, compared to $575.4 million in 2015 and $452.1 million in 2014. Teekay Parent raised net proceeds from issuances of new equity to the public and to third party investors and two entities established by our founder, including Resolute, our largest shareholder, of $105.5 million in 2016, compared to $nil in 2015 and 2014. As the sizes of the Daughter Companies have grown through acquisitions, whether from Teekay or otherwise, the amount of their operating cash flows generally increased, which resulted in larger aggregate distributions, primarily from Teekay Offshore and Teekay LNG. As described above, distributions from Teekay Offshore and Teekay LNG have been reduced commencing with the distributions relating to the fourth quarter of 2015. Distributions to non-controlling interests decreased to $136.2 million in 2016, compared to $360.4 million in 2015 and $360.8 million in 2014. In addition, distributions from the Daughter Companies to Teekay Parent decreased to $45.8 million in 2016 from $193.2 million in 2015 and $176.0 million in 2014. Teekay Parent has agreed with Teekay Offshore that, until Teekay Offshore's NOK bonds maturing 2018 have been repaid, all cash distributions to be paid to Teekay Parent or its affiliates, including the general partner of Teekay Offshore, will instead be paid in common units of Teekay Offshore.

We use our credit facilities to partially finance capital expenditures. Occasionally, we will use revolving credit facilities to finance these expenditures until longer-term financing is obtained, at which time we typically use all or a portion of the proceeds from the longer-term financings to prepay outstanding amounts under the revolving credit facilities. We actively manage the maturity profile of our outstanding financing arrangements. Our net proceeds from the issuance of long-term debt, which is the proceeds from the issuances of long-term debt, net of issuance costs and prepayments of long-term debt, was $202.4 million in 2016, $1.9 billion in 2015 and $2.0 billion in 2014.

Dividends paid by Teekay Corporation on its common stock during 2016 were $17.4 million, compared to $125.9 million in 2015 and $91.0 million in 2014, or $0.2200 per share for 2016, $1.7325 per share for 2015 and $1.2650 per share for 2014. During the third and fourth quarter of 2015, after the completion of the sale of the Knarr FPSO to Teekay Offshore, Teekay’s quarterly dividend payment increased primarily based on the cash flow contributions from our general partner and limited partner interests in Teekay Offshore and Teekay LNG, together with other dividends received, after deductions for parent company level corporate general and administrative expenses and any reserves determined to be required by our Board of Directors. Commencing with our dividend relating to the fourth quarter of 2015, we announced a reduction to our quarterly dividend to $0.055 from $0.55 per share.

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Investing Cash Flows

During 2016, we incurred capital expenditures for vessels and equipment of $648.3 million , primarily for capitalized vessel modifications and shipyard construction installment payments. Teekay Offshore incurred capitalized expenditures of $294.6 million for vessels and equipment, including conversion costs on the Gina Krog FSO conversion, upgrade costs on the Petrojarl I FPSO unit, installment payments on the newbuilding towing and offshore installation vessels, partially offset by credits received relating to the Petrojarl Knarr FPSO unit, Teekay LNG incurred capital expenditures of $345.8 million , primarily for newbuilding installment payments and shipbuilding supervision costs for its LNG carrier newbuildings, contributed $120.9 million to its equity accounted joint ventures, and received a $5.5 million repayment of a shareholder loan from the Exmar LPG Joint Venture. In addition, Teekay Offshore made a $54.9 million investment in its joint ventures and received proceeds of $69.8 million from the sale of the Navion Torinita and Navion Europa shuttle tankers and the Fuji Spirit and Kilimanjaro Spirit conventional tankers. Teekay LNG received proceeds of $355.3 million from the sale-leaseback financing transaction completed on the Creole Spirit and Oak Spirit in February 2016 and proceeds of $94.3 million from the sales of the Bermuda Spirit and Hamilton Spirit in April 2016 and May 2016.

During 2015, we incurred capital expenditures for vessels and equipment of $1.8 billion, primarily for capitalized vessel modifications and shipyard construction installment payments. Teekay Parent incurred $91.0 million of capital expenditures mainly for the installment payments and conversion costs of the Petrojarl Knarr FPSO unit. Teekay Offshore incurred capitalized expenditures of $664.7 million, including the six towing and offshore installation vessels delivered during 2015, the final installment on the Arendal Spirit UMS, FSO conversion costs, upgrade costs on the Petrojarl I FPSO unit, costs on the three newbuilding shuttle tankers, the four newbuilding towing and offshore installation vessels and various other vessel additions and installments. Teekay LNG incurred capital expenditures of $192.0 million primarily relating to newbuilding installments for six of its 11 LNG carrier newbuildings. Teekay Tankers incurred capital expenditures of $848.2 million relating to the acquisition of 12 Suezmax tankers from Principal Maritime Tankers, the acquisition of four LR2 product tankers and one Aframax tanker and other capital expenditures. In addition, we invested $40.6 million in our equity-accounted investees, primarily related to Teekay Offshore’s Libra FPSO joint venture and provided capital to Teekay LNG’s equity accounted investment primarily to prepay debt within the Teekay LNG-Marubeni Joint Venture and we were repaid $53.2 million from our loans to equity-accounted investees. During 2015, Teekay Offshore received proceeds of $8.9 million from the sale of a 1997-built shuttle tanker and Teekay Tankers received proceeds of $11.1 million from the sale of one MR tanker. In addition, Teekay Tankers invested $47.3 million related to the acquisition of TMS during 2015.

During 2014, we incurred capital expenditures for vessels and equipment of $994.9 million, primarily for capitalized vessel modifications and shipyard construction installment payments. This amount primarily consisted of Teekay Parent incurring $626.8 million of capital expenditures primarily for the installment payments and conversion costs of the Knarr FPSO unit, which is not yet fully in service, and Teekay Offshore incurring capitalized expenditures totaling $172.2 million related to; the four newbuilding ALP towage vessels, FSO conversion costs, installment payments on the UMS and various other vessel additions. In addition, Teekay LNG incurred capital expenditures totaling $188.9 million which related to newbuilding installments for its eight LNG newbuildings equipped with the MEGI twin engines, the early termination fee on the termination of the leasing of the RasGas II LNG Carriers (which was capitalized as part of the vessels’ costs), the funding of Teekay LNG’s acquisition of the Norgas Napa in November 2014, and certain vessel upgrades. In addition, we invested $79.6 million in our equity-accounted investees, primarily related to Teekay Tankers and Teekay Parent's $60.0 million investment in TIL and Teekay Parent's $25.0 million in a cost accounted investment. We also advanced $87.1 million to our equity-accounted investees. During 2014, Teekay Parent received proceeds of $11.1 million from the sale of four 2009-built Suezmax tankers and $2.2 million from the sale of an office building, Teekay Offshore received proceeds of $13.4 million from the sale of one 1995-built shutter tanker, and Teekay Tankers received proceeds of $154.0 million from the sale of two VLCCs.

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COMMITMENTS AND CONTINGENCIES

The following table summarizes our long-term contractual obligations as at December 31, 2016:

		Total			2017			2018			2019			2020			2021			Beyond 2021
		In millions of U.S. Dollars
Teekay Offshore
Bond repayments (1) (2)		556.9			20.8			120.4			415.7			—			—			—
Scheduled repayments of long-term debt (1)		1,993.7			348.2			412.0			332.7			243.1			220.0			437.7
Repayments on maturity of long-term debt (1)		687.1			219.7			154.1			25.0			40.0			14.9			233.4
Subordinated promissory note - repayment on maturity (3)		200.0			—			—			200.0			—			—			—
Chartered-in vessels (operating leases)		122.3			69.7			35.4			17.2			—			—			—
Newbuildings installments/conversion costs (4)		671.0			600.4			70.6			—			—			—			—
		4,231.0			1,258.8			792.5			990.6			283.1			234.9			671.1
Teekay LNG
Bond repayments (2) (5)		371.3			47.3			104.2			—			115.7			104.1			—
Scheduled repayments of long-term debt (2) (6)		539.7			117.8			97.4			62.1			62.3			41.4			158.7
Repayments on maturity of long-term debt (2) (6) (7)		893.5			25.0			518.2			20.4			—			142.9			187.0
Commitments under capital leases (8)		536.3			61.0			57.3			30.1			30.1			30.1			327.7
Commitments under operating leases (9)		295.5			24.1			24.1			24.1			24.1			24.1			175.0
Newbuildings installments/shipbuilding supervision (10)		2,876.9			1,050.0			1,067.2			561.1			198.6			—			—
		5,513.2			1,325.2			1,868.4			697.8			430.8			342.6			848.4
Teekay Tankers
Scheduled repayments of long-term debt (11)		455.0			122.3			110.1			110.0			110.0			2.6			—
Repayments on maturity of long-term debt (11)		486.7			49.1			65.5			—			—			372.1			—
Chartered-in vessels (operating leases) (12)		53.1			26.8			8.3			8.3			8.3			1.4			—
		994.8			198.2			183.9			118.3			118.3			376.1			—
Teekay Parent
Bond repayments  (13)		592.7			—			—			—			592.7			—			—
Scheduled repayments of long-term debt (13)		106.6			53.3			53.3			—			—			—			—
Repayments on maturity of long-term debt (13)		46.9			—			46.9			—			—			—			—
Chartered-in vessels (operating leases) (14)		9.5			9.1			0.4			—			—			—			—
Asset retirement obligation		23.0			—			23.0			—			—			—			—
		778.7			62.4			123.6			—			592.7			—			—
Total		11,517.7			2,844.6			2,968.4			1,806.7			1,424.9			953.6			1,519.5

(1)

Excludes expected interest payments of $108.4 million ( 2017 ), $89.6 million ( 2018 ), $53.7 million ( 2019 ), $32.5 million ( 2020 ), $24.7 million ( 2021 ) and $34.0 million (beyond 2021 ). Expected interest payments are based on existing interest rates (fixed-rate loans) and LIBOR or NIBOR as at December 31, 2016, plus margins which ranged between 0.30% and 5.75% (variable rate loans) as at December 31, 2016 . The expected interest payments do not reflect the effect of related interest rate swaps and cross currency swaps that Teekay Offshore has used as an economic hedge of certain of its variable rate debt and NOK-denominated obligations.

(2)	Euro-denominated and NOK-denominated obligations are presented in U.S. Dollars and have been converted using the prevailing exchange rate as of December 31, 2016 .

(3)

Consists of the repayment of the $200.0 million subordinated promissory note, issued to a subsidiary of Teekay effective July 1, 2016. The promissory note bears interest at an annual rate of 10.00% on the outstanding principal balance, which is payable quarterly and, one half of which will be paid in cash and the other half of which will be paid in common units or from the proceeds of the sale of equity securities. Excludes maximum expected interest payments of $20.0 million (2017) and $20.0 million (2018).

(4)

Consists of Teekay Offshore’s estimated remaining payments for the three towing and offshore installation newbuildings, three shuttle tanker newbuildings, its 50% interest in an FPSO conversion for the Libra field, upgrades of the Petrojarl I FPSO unit, and the FSO conversion for the Randgrid shuttle tanker. Teekay Offshore has pre-arranged undrawn financing of approximately $436.8 million relating to its capital expenditure commitments for 2017.

(5)

Excludes expected interest payments of $15.5 million ( 2017 ), $16.8 million ( 2018 ), $12.9 million ( 2019 ), $10.2 million ( 2020 ), and $3.7 million ( 2021 ). Expected interest payments are based on NIBOR at December 31, 2016 , plus margins that range up to 6.00%, as well as the prevailing U.S. Dollar/NOK exchange rate as of December 31, 2016 . The expected interest payments do not reflect the effect of

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the related cross-currency swaps that Teekay LNG has used as an economic hedge of its foreign exchange and interest rate exposure associated with its NOK-denominated long-term debt.

(6)

Excludes expected interest payments of $31.3 million ( 2017 ), $22.1 million ( 2018 ), $13.8 million ( 2019 ), $12.7 million ( 2020 ), $10.4 million ( 2021 ) and $30.0 million (beyond 2021 ). Expected interest payments reflect the refinancing completed in November 2016 of one of Teekay LNG's revolving credit facilities and are based on LIBOR or EURIBOR at December 31, 2016 , plus margins on debt that has been drawn that ranges up to 2.80% (variable-rate loans), as well as the prevailing U.S. Dollar/Euro exchange rate as of December 31, 2016 . The expected interest payments do not reflect the effect of related interest rate swaps or swaptions that Teekay LNG has used as an economic hedge of certain of its variable-rate debt.

(7)	Upon the completion of the Teekay-LNG Marubeni Joint Venture’s debt refinancing in March 2017, Teekay LNG invested $57.2 million of additional equity into the Teekay-LNG Marubeni Joint Venture through a $44.2 million payment in March 2017 and a $13.0 million payment in April 2017, which is not reflected in the table above.

(8)

Includes, in addition to lease payments, amounts Teekay LNG may be or is required to pay to purchase the leased vessels at the end of their respective lease terms. For two of Teekay LNG's four capital lease obligations, the lessor has the option to sell two Suezmax tankers under capital lease to Teekay LNG at any time during the remaining lease terms; however, in this table Teekay LNG has assumed the lessor will not exercise its right to sell the two Suezmax tankers to Teekay LNG until after the lease term expires, which is during the years 2017 and 2018. The purchase price for any Suezmax tanker Teekay LNG is required to purchase would be based on the unamortized portion of the vessel construction financing costs for the vessels, which are included in the table above. We expect Teekay LNG to satisfy any such purchase price by assuming the existing vessel financing, although it may be required to obtain separate debt or equity financing to complete any purchases if the lenders do not consent to its assuming the financing obligations.

(9)	Teekay LNG has corresponding leases whereby it is the lessor and expects to receive approximately $260.3 million under those leases from 2017 to 2029.

(10)

As of December 31, 2016 , Teekay LNG has agreements for the construction of nine wholly-owned LNG carrier newbuildings, for which the estimated remaining costs for these newbuildings totaled $1.5 billion , including estimated interest and construction supervision fees. Teekay LNG has secured $682.8 million of financing related to the commitments for four of the LNG carrier newbuildings included in the table above.

As part of the acquisition of an ownership interest in the BG Joint Venture, Teekay LNG agreed to assume Shell’s obligation to provide shipbuilding supervision and crew training services for the four LNG carrier newbuildings and to fund its proportionate share of the remaining newbuilding installments. The estimated remaining costs for the shipbuilding supervision and crew training services and Teekay LNG's proportionate share of newbuilding installments totaled $195.6 million as of December 31, 2016 . However, as part of this agreement with Shell, Teekay LNG expects to recover $10.9 million of the shipbuilding supervision and crew training costs from Shell between 2017 and 2019 and the BG Joint Venture has secured financing of $137.1 million based on Teekay LNG's proportionate share of newbuilding installments as of December 31, 2016 .

In July 2014, the Yamal LNG Joint Venture, in which Teekay LNG has a 50% ownership interest, entered into agreements for the construction of six LNG carrier newbuildings. As at December 31, 2016 , Teekay LNG's 50% share of the estimated remaining costs for these six newbuildings totaled $883.0 million . The Yamal LNG Joint Venture intends to secure debt financing for approximately 80% of the estimated fully built-up cost of the six newbuildings, which is estimated to be $2.1 billion.

The Bahrain LNG Joint Venture, in which Teekay LNG has a 30% ownership interest, is developing an LNG receiving and regasification terminal in Bahrain. The project will be owned and operated under a 20-year agreement commencing in early-2019 with an estimated fully-built-up cost of approximately $960.0 million . As at December 31, 2016 , Teekay LNG's 30% share of the estimated remaining costs is $224.1 million . The Bahrain LNG Joint Venture has secured debt financing for approximately 75% of the fully built-up cost of the LNG receiving and regasification terminal in Bahrain.

The table above includes Teekay LNG's proportionate share of the newbuilding costs for four LPG carrier newbuildings scheduled for delivery between 2017 and 2018 in the joint venture between the Exmar LPG Joint Venture and Teekay LNG. As at December 31, 2016 , Teekay LNG's 50% share of the estimated remaining costs for these four newbuildings totaled $77.5 million , including estimated interest and construction supervision fees. The Exmar LPG Joint Venture has secured financing for the four LPG carrier newbuildings.

(11)

Excludes expected interest payments of $22.6 million (2017), $18.7 million (2018), $15.2 million (2019), $12.2 million (2020) and $5.3 million (2021). Expected interest payments are based on the existing interest rates for variable-rate loans at LIBOR plus margins that range from 0.30% to 2.00% at December 31, 2016 . The expected interest payments do not reflect the effect of related interest rate swaps that Teekay Tankers has used to economically hedge certain of its floating-rate debt.

(12)	Excludes payments required if Teekay Tankers executes all options to extend the terms of in-chartered leases signed as of December 31, 2016 . If Teekay Tankers exercises all options to extend the terms of these in-chartered leases, Teekay Tankers would expect total payments of, $43.1 million (2017), $17.7 million (2018), $8.3 million (2019), $8.3 million (2020) and $1.4 million (2021).

(13)

Excludes expected interest payments of $56.7 million (2017), $52.9 million (2018), $50.4 million (2019), and $25.2 million (2020). Expected interest payments are based on the existing interest rate for a fixed-rate loan at 8.5% and existing interest rates for variable-rate loans that are based on LIBOR plus margins which ranged between 3.95% and 4.0% as at December 31, 2016 . The expected interest payments do not reflect the effect of related interest rate swaps that Teekay Parent uses as an economic hedge of certain of its variable rate debt.

(14)	Excludes internal time-charter-in commitments between Teekay Parent and its subsidiaries, Teekay Offshore and Teekay LNG.

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OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. Our equity-accounted investments are described in “Item 18 – Financial Statements: Note 22 – Equity-Accounted Investments.”

CRITICAL ACCOUNTING ESTIMATES

We prepare our consolidated financial statements in accordance with GAAP, which requires us to make estimates in the application of our accounting policies based on our best assumptions, judgments and opinions. On a regular basis, management reviews our accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our financial statements because they inherently involve significant judgments and uncertainties. For a further description of our material accounting policies, please read “Item 18. Financial Statements: Note 1. Summary of Significant Accounting Policies.”

Revenue Recognition

Description . We recognize voyage revenue using the proportionate performance method. Under such method, voyages may be calculated on either a load-to-load or discharge-to-discharge basis. This means voyage revenues are recognized ratably either from the beginning of when product is loaded for one voyage to when it is loaded for the next voyage, or from when product is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage.

Judgments and Uncertainties. In applying the proportionate performance method, we believe that in most cases the discharge-to-discharge basis of calculating voyages more accurately reflects voyage results than the load-to-load basis. At the time of cargo discharge, we generally have information about the next load port and expected discharge port, whereas at the time of loading we are normally less certain what the next load port will be. We use this method of revenue recognition for all spot voyages and voyages servicing contracts of affreightment, with an exception for our shuttle tankers servicing contracts of affreightment with offshore oil fields. In this case a voyage commences with tendering of notice of readiness at a field, within the agreed lifting range, and ends with tendering of notice of readiness at a field for the next lifting. However, we do not begin recognizing revenue for any of our vessels until a charter has been agreed to by the customer and us, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.

Effect if Actual Results Differ from Assumptions. Our revenues could be overstated or understated for any given period to the extent actual results are not consistent with our estimates in applying the proportionate performance method.

Contingencies

Description . We may, from time to time, be involved in legal proceedings, claims or other situations involving uncertainty as to a possible loss that will ultimately be resolved when one or more future events occur or fail to occur. We accrue a provision for such loss contingencies if it is probable as of the reporting date, that an asset had been impaired or a liability incurred, based in information available prior to the issuance of the consolidated financial statements, and if the amount of the loss can be reasonably estimated.

Judgments and Uncertainties. The amount of loss contingencies recognized as a liability in our consolidated financial statements requires management to make significant estimates that may at times be inherently difficult to make given the uncertainties involved, including estimates of whether it is probable an asset had been impaired or a liability incurred, the amount of possible losses, the ability to recover some or all of the possible loss through insurance coverage, amongst others. Our loss contingencies are disclosed in more detail in Item 18 - "Financial Statements: Note 15d Commitments and Contingencies".

Effect if Actual Results Differ from Assumptions. Our net income (loss) could be overstated or understated for any given period to the extent actual losses incurred, following resolution of our contingencies, are different than our prior estimates of recognized loss contingencies.

Vessel Lives and Impairment

Description. The carrying value of each of our vessels represents its original cost at the time of delivery or purchase less depreciation and impairment charges. We depreciate the original cost, less an estimated residual value, of our vessels on a straight-line basis over each vessel’s estimated useful life. The carrying values of our vessels may not represent their market value at any point in time because the market prices of second-hand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. Both charter rates and newbuilding costs tend to be cyclical in nature.

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We review vessels and equipment for impairment whenever events or circumstances indicate the carrying value of an asset, including the carrying value of the charter contract, if any, under which the vessel is employed, may not be recoverable. This occurs when the asset’s carrying value is greater than the future undiscounted cash flows the asset is expected to generate over its remaining useful life. If the estimated future undiscounted cash flows of an asset exceed the asset’s carrying value, no impairment is recognized even though the fair value of the asset may be lower than its carrying value. If the estimated future undiscounted cash flows of an asset are less than the asset’s carrying value and the fair value of the asset is less than its carrying value, the asset is written down to its fair value. Fair value is calculated as the net present value of estimated future cash flows, which, in certain circumstances, will approximate the estimated market value of the vessel. For a vessel under charter, the discounted cash flows from that vessel may exceed its market value, as market values may assume the vessel is not employed on an existing charter.

The following table presents, by type of vessel, the aggregate market values and carrying values of certain of our vessels that we have determined have a market value that is less than their carrying value as of December 31, 2016 . Specifically, the table below reflects all such vessels, except those operating on contracts where the remaining term is significant and the estimated future undiscounted cash flows relating to such contracts are sufficiently greater than the carrying value of the vessels such that we consider it unlikely that an impairment would be recognized in 2017 . While the market values of these vessels are below their carrying values, no impairment has been recognized on any of these vessels as the estimated future undiscounted cash flows relating to such vessels are greater than their carrying values.

The vessels included in the following table generally include those vessels employed on single-voyage, or “spot” charters, as well as those vessels near the end of existing charters. In addition, the following table also includes vessels on operational contracts with impairment indicators that are unique to those vessels. Such vessels include the Foinaven FPSO, the Banff FPSO, Hummingbird FPSO and the HiLoad DP unit.

In estimating the future undiscounted cash flows for the above-mentioned FPSO units, we made assumptions and used estimates regarding the following factors: operating costs of the units, level of oil production, average annual oil price, oil field reserves, redeployment of vessels and redeployment rates, amount of capital investments required before deployment to a new field, any idle time before redeployment. Should actual results differ significantly from our estimates and assumptions, we may be required to recognize impairments of the carrying values of the units.

We would consider the vessels reflected in the following table to be at a higher risk of future impairment than our vessels not reflected in the table. The table is disaggregated for vessels which have estimated future undiscounted cash flows that are marginally or significantly greater than their respective carrying values. Vessels with estimated future cash flows significantly greater than their respective carrying values would not necessarily represent vessels that would likely be impaired in the next 12 months. In deciding whether to dispose of a vessel, we determine whether it is economically preferable to sell the vessel or continue to operate it. This assessment includes an estimate of the net proceeds expected to be received if the vessel is sold in its existing condition compared to the present value of the vessel’s estimated future revenue, net of operating costs. Such estimates are based on the terms of the existing charter, charter market outlook and estimated operating costs, given a vessel’s type, condition and age. In addition, we typically do not dispose of a vessel that is servicing an existing customer contract. The recognition of an impairment in the future may be more likely for those vessels that have estimated future undiscounted cash marginally greater than their respective carrying value.

(in thousands of U.S. dollars, except number of vessels) Type of Vessel________________________________		Number of Vessels			Market Values (1) $			Carrying Values $
Shuttle Tankers and HiLoad DP  Unit  (2)		2			55,297			70,444
FPSO Unit (2)		1			244,000			244,188
FPSO Units  (3)		2			392,000			453,701
Liquefied Natural Gas Carriers (3)		2			73,306			150,570
Liquefied Petroleum Gas Carriers (3)		6			171,156			191,281
Conventional Tankers (2)		12			160,200			278,159
Conventional Tankers  (3)		32			856,476			1,403,661

(1)

Market values are based on second-hand market comparable values or using a depreciated replacement cost approach as at December 31, 2016 . Since vessel values can be volatile, our estimates of market value may not be indicative of either the current or future prices we could obtain if we sold any of the vessels. In addition, the determination of estimated market values for our shuttle tankers, FSO units and FPSO units may involve considerable judgment, given the illiquidity of the second-hand market for these types of vessels. The estimated market values for the HiLoad DP unit in the table above was based on the present value of expected future cash flows given that there are no market comparable values for this unit. The estimated market values for the FSO units in the table above were based on second-hand market comparable values for similar vessels. Given the advanced age of these vessels, the estimated market values substantially reflect the price of steel and amount of steel in the vessel. The estimated market values for the shuttle tankers were based on second-hand market comparable values for conventional tankers of similar age and size, adjusted for shuttle tanker specific functionality.

(2)	Undiscounted cash flows for these vessels are marginally greater than their carrying values.

(3)	Undiscounted cash flows for these vessels are significantly greater than their carrying values.

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Judgments and Uncertainties. Depreciation is calculated using an estimated useful life of 20 to 25 years for conventional tankers and shuttle tankers, 20 to 25 years for FPSO units, and 30 years for LPG carriers and 35 years for LNG carriers, commencing at the date the vessel was originally delivered from the shipyard. FSO units are depreciated over the term of the contract. UMS are depreciated over an estimated useful life of 35 years commencing the date the unit is delivered from the shipyard. Towage vessels are depreciated over an estimated useful life of 25 years commencing the date the vessel is delivered from the shipyard. However, the actual life of a vessel may be different than the estimated useful life, with a shorter actual useful life resulting in an increase in quarterly depreciation and potentially resulting in an impairment loss. The estimated useful life of our vessels takes into account design life, commercial considerations and regulatory restrictions. Our estimates of future cash flows involve assumptions about future charter rates, vessel utilization, operating expenses, dry-docking expenditures, vessel residual values, redeployment assumptions for vessels on long-term charter and the remaining estimated life of our vessels. Our estimated charter rates are based on rates under existing vessel contracts and market rates at which we expect we can re-charter our vessels. Our estimates of vessel utilization, including estimated off-hire time and the estimated amount of time our shuttle tankers may spend operating in the spot tanker market when not being used in their capacity as shuttle tankers, are based on historical experience and our projections of the number of future shuttle tanker voyages. Our estimates of operating expenses and dry-docking expenditures are based on historical operating and dry-docking costs and our expectations of future inflation and operating requirements. Vessel residual values are a product of a vessel’s lightweight tonnage and an estimated scrap rate. The remaining estimated lives of our vessels used in our estimates of future cash flows are consistent with those used in the calculations of depreciation.

Effective January 1, 2016, Teekay Offshore changed the estimated useful life of the unique shuttle tanker component of its shuttle tankers from 25 to 20 years based on the challenges that it has faced in utilizing this unique equipment during the current adverse market conditions in the energy sector and the other long-term factors associated with the global oil industry. In addition, for eight of Teekay Offshore's older shuttle tankers, Teekay Offshore has changed the estimated useful life of the tanker component of the vessels from 25 to 20 years due to its outlook for the shuttle and conventional tanker market and based on Teekay Offshore's expected operating plans. Please read Item 18 - Financial Statements: Note 1 - Summary of Significant Accounting Policies.

In our experience, certain assumptions relating to our estimates of future cash flows are more predictable by their nature, including estimated revenue under existing contract terms, on-going operating costs and remaining vessel life. Certain assumptions relating to our estimates of future cash flows require more discretion and are inherently less predictable, such as future charter rates beyond the firm period of existing contracts and vessel residual values, due to factors such as the volatility in vessel charter rates and vessel values. We believe that the assumptions used to estimate future cash flows of our vessels are reasonable at the time they are made. We can make no assurances, however, as to whether our estimates of future cash flows, particularly future vessel charter rates or vessel values, will be accurate.

Effect if Actual Results Differ from Assumptions. If we conclude that a vessel or equipment is impaired, we recognize a loss in an amount equal to the excess of the carrying value of the asset over its fair value at the date of impairment. The written-down amount becomes the new lower cost basis and will result in a lower annual depreciation expense than for periods before the vessel impairment.

Dry docking

Description . We capitalize a substantial portion of the costs we incur during dry docking and amortize those costs on a straight-line basis over the useful life of the dry dock. We expense costs related to routine repairs and maintenance incurred during dry docking that do not improve operating efficiency or extend the useful lives of the assets and for annual class survey costs on our FPSO units. When significant dry-docking expenditures occur prior to the expiration of the original amortization period, the remaining unamortized balance of the original dry-docking cost and any unamortized intermediate survey costs are expensed in the period of the subsequent dry dockings.

Judgments and Uncertainties. Amortization of capitalized dry-dock expenditures requires us to estimate the period of the next dry-docking and useful life of dry-dock expenditures. While we typically dry dock each vessel every two and a half to five years and have a shipping society classification intermediate survey performed on our LNG and LPG carriers between the second and third year of the five-year dry-docking period, we may dry dock the vessels at an earlier date, with a shorter life resulting in an increase in the depreciation.

Effect if Actual Results Differ from Assumptions. If we change our estimate of the next dry-dock date for a vessel, we will adjust our annual amortization of dry-docking expenditures.

Goodwill and Intangible Assets

Description . We allocate the cost of acquired companies to the identifiable tangible and intangible assets and liabilities acquired, with the remaining amount being classified as goodwill. Certain intangible assets, such as time-charter contracts, are being amortized over time. Our future operating performance will be affected by the amortization of intangible assets and potential impairment charges related to goodwill or intangible assets. Accordingly, the allocation of the purchase price to intangible assets and goodwill may significantly affect our future operating results. Goodwill and indefinite-lived assets are not amortized, but reviewed for impairment annually, or more frequently if impairment indicators arise. The process of evaluating the potential impairment of goodwill and intangible assets is highly subjective and requires significant judgment at many points during the analysis.

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Goodwill is not amortized, but reviewed for impairment at the reporting unit level on an annual basis or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit to below its carrying value. When goodwill is reviewed for impairment, we may elect to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. Alternatively, we may bypass this step and use a fair value approach to identify potential goodwill impairment and, when necessary, measure the amount of impairment. We use a discounted cash flow model to determine the fair value of reporting units, unless there is a readily determinable fair market value. Intangible assets are assessed for impairment when and if impairment indicators exist. An impairment loss is recognized if the carrying amount of an intangible asset is not recoverable and its carrying amount exceeds its fair value.

Judgments and Uncertainties . The allocation of the purchase price of acquired companies requires management to make significant estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate to value these cash flows. In addition, the process of evaluating the potential impairment of goodwill and intangible assets is highly subjective and requires significant judgment at many points during the analysis. The fair value of our reporting units was estimated based on discounted expected future cash flows using a weighted-average cost of capital rate. The estimates and assumptions regarding expected cash flows and the appropriate discount rates require considerable judgment and are based upon existing contracts, historical experience, financial forecasts and industry trends and conditions.

Effect if Actual Results Differ from Assumptions. As of December 31, 2016 , we had six reporting units with goodwill attributable to them. As of the date of this Annual Report, we do not believe that there is a reasonable possibility that the goodwill attributable to our three reporting units with goodwill attributable to them might be impaired within the next year. However, certain factors that impact our goodwill impairment tests are inherently difficult to forecast and as such we cannot provide any assurances that an impairment will or will not occur in the future. An assessment for impairment involves a number of assumptions and estimates that are based on factors that are beyond our control. Please read “Part I—Forward-Looking Statements.”

Valuation of Derivative Financial Instruments

Description. Our risk management policies permit the use of derivative financial instruments to manage foreign currency fluctuation, interest rate, bunker fuel price and spot tanker market rate risk. In addition, we have stock purchase warrants, a type of option agreement, to acquire up to an additional 1.5 million shares of TIL’s common stock at a fixed price. See “Item 18 – Financial Statements: Note 14 – Derivative Instruments and Hedging Activities”. Changes in fair value of derivative financial instruments that are not designated as cash flow hedges for accounting purposes are recognized in earnings in the consolidated statement of income. Changes in fair value of derivative financial instruments that are designated as cash flow hedges for accounting purposes are recorded in other comprehensive income and are reclassified to earnings in the consolidated statement of income when the hedged transaction is reflected in earnings. Ineffective portions of the hedges are recognized in earnings as they occur. During the life of the hedge, we formally assess whether each derivative designated as a hedging instrument continues to be highly effective in offsetting changes in the fair value or cash flows of hedged items. If we determine that a hedge has ceased to be highly effective, we will discontinue hedge accounting prospectively.

Judgments and Uncertainties. A substantial majority of the fair value of our derivative instruments and the change in fair value of our derivative instruments from period to period result from our use of interest rate swap agreements and our holding of stock purchase warrants. The fair value of our derivative instruments is the estimated amount that we would receive or pay to terminate the agreements in an arm’s length transaction under normal business conditions at the reporting date, taking into account current interest rates, foreign exchange rates and the current credit worthiness of us and the swap counterparties. The estimated amount for interest rate swaps is the present value of estimated future cash flows, being equal to the difference between the benchmark interest rate and the fixed rate in the interest rate swap agreement, multiplied by the notional principal amount of the interest rate swap agreement at each interest reset date. For the stock purchase warrants, we take into account the stock price of TIL, the expected volatility of the TIL stock price and an estimate of the risk-free rate over the term of the warrants.

The fair value of our interest rate swap agreements at the end of each period is most significantly impacted by the interest rate implied by the benchmark interest rate yield curve, including its relative steepness. Interest rates have experienced significant volatility in recent years in both the short and long term. While the fair value of our interest rate swap agreements is typically more sensitive to changes in short-term rates, significant changes in the long-term benchmark interest rate also materially impact our interest rate swap agreements.

The fair value of our interest rate swap agreements is also impacted by changes in our specific credit risk included in the discount factor. We discount our interest rate swap agreements with reference to the credit default swap spreads of similarly rated global industrial companies and by considering any underlying collateral. The process of determining credit worthiness requires significant judgment in determining which source of credit risk information most closely matches our risk profile.

The benchmark interest rate yield curve and our specific credit risk are expected to vary over the life of the interest rate swap agreements. The larger the notional amount of the interest rate swap agreements outstanding and the longer the remaining duration of the interest rate swap agreements, the larger the impact of any variability in these factors will be on the fair value of our interest rate swaps. We economically hedge the interest rate exposure on a significant amount of our long-term debt and for long durations. As such, we have historically experienced, and we expect to continue to experience, material variations in the period-to-period fair value of our derivative instruments.

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The fair value of our TIL stock purchase warrants at the end of each period is most significantly impacted by the stock price of TIL and the expected future volatility of the TIL stock price. TIL seeks to opportunistically acquire, operate and sell modern second hand tankers to benefit from an expected recovery in the current cyclical low of the tanker market. Pending such transactions, TIL is employing its oil tankers on the spot market. Historically, the tanker industry has been cyclical, experiencing volatility in profitability due to changes in the supply of and demand for tanker capacity and changes in the supply of and demand for oil and oil products. The cyclical nature of the tanker industry may cause significant increases or decreases in the value of TIL’s vessels, TIL’s stock price and the value of the stock purchase warrants we hold.

Effect if Actual Results Differ from Assumptions. Although we measure the fair value of our derivative instruments utilizing the inputs and assumptions described above, if we were to terminate the agreements or sell the stock purchase warrants at the reporting date, the amount we would pay or receive to terminate the derivative instruments and the amount we would receive upon sale of the stock purchase warrants may differ from our estimate of fair value. If the estimated fair value differs from the actual termination amount, an adjustment to the carrying amount of the applicable derivative asset or liability would be recognized in earnings for the current period. Such adjustments could be material. See “Item 18 – Financial Statements: Note 14 – Derivative Instruments and Hedging Activities” for the effects on the change in fair value of our derivative instruments on our consolidated statements of income .

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PART III

Item 17.	Financial Statements

Not applicable.

Item 18.	Financial Statements

The following consolidated financial statements and schedule, together with the related reports of KPMG LLP, Independent Registered Public Accounting Firm thereon, are filed as part of this Annual Report:

	Page
Reports of Independent Registered Public Accounting Firm	F - 1  to F - 2
Consolidated Financial Statements
Consolidated Statements of Income	F - 3
Consolidated Statements of Comprehensive Income	F - 4
Consolidated Balance Sheets	F - 5
Consolidated Statements of Cash Flows	F - 6
Consolidated Statements of Changes in Total Equity	F - 7
Notes to the Consolidated Financial Statements	F - 8

All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required, are inapplicable or have been disclosed in the Notes to the Consolidated Financial Statements and therefore have been omitted.

Item 19. Exhibits

The following exhibits are filed as part of this Annual Report:

1.1	Amended and Restated Articles of Incorporation of Teekay Corporation. (13)
1.2	Articles of Amendment of Articles of Incorporation of Teekay Corporation. (13)
1.3	Amended and Restated Bylaws of Teekay Corporation. (1)
2.1	Registration Rights Agreement among Teekay Corporation, Tradewinds Trust Co. Ltd., as Trustee for the Cirrus Trust, and Worldwide Trust Services Ltd., as Trustee for the JTK Trust. (2)
2.2	Specimen of Teekay Corporation Common Stock Certificate.  (2)
2.8	Indenture dated as of January 27, 2010 among Teekay Corporation and The Bank of New York Mellon Trust Company, N.A. for $450,000,000 8.5% Senior Notes due 2020. (14)
2.9	Agreement, dated October 5, 2012, for NOK 700,000,000 Senior Unsecured Bonds due October 2015, among us and Norsk Tillitsmann ASA.  (18)
2.10	First Supplemental Indenture dated November 16, 2015 among Teekay Corporation and The Bank of New York Mellon Trust Company, N.A. for $200,000,000 8.5% Senior Unsecured Notes due 2021. (22)
4.1	1995 Stock Option Plan.  (2)
4.2	Amendment to 1995 Stock Option Plan. (3)
4.3	Amended 1995 Stock Option Plan. (4)
4.4	Amended 2003 Equity Incentive Plan.  (16)
4.5	Annual Executive Bonus Plan. (5)
4.7	Form of Indemnification Agreement between Teekay and each of its officers and directors. (2)
4.8	Amended Rights Agreement, dated as of July 2, 2010 between Teekay Corporation and The Bank of New York, as Rights Agent.  (7)
4.9	Agreement dated June 26, 2003 for a $550,000,000 Secured Reducing Revolving Loan Facility among Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks. (8)
4.10	Agreement dated September 1, 2004 for a $500,000,000 Credit Facility Agreement to be made available to Teekay Nordic Holdings Incorporated by Nordea Bank Finland PLC. (5)
4.11	Supplemental Agreement dated September 30, 2004 to Agreement dated June 26, 2003, for a $550,000,000 Secured Reducing Revolving Loan Facility among Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks. (5)
4.12	Agreement dated May 26, 2005 for a $550,000,000 Credit Facility Agreement to be made available to Avalon Spirit LLC et al by Nordea Bank Finland PLC and others. (6)
4.13	Agreement dated October 2, 2006, for a $940,000,000 Secured Reducing Revolving Loan Facility among Teekay Offshore Operating L.P., Den Norske Bank ASA and various other banks.  (9)
4.14	Agreement dated August 23, 2006, for a $330,000,000 Secured Reducing Revolving Loan Facility among Teekay LNG Partners L.P., ING Bank N.V. and various other banks. (9)

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4.15	Agreement, dated November 28, 2007 for a $845,000,000 Secured Reducing Revolving Loan Facility among Teekay Corporation, Teekay Tankers Ltd., Nordea Bank Finland PLC and various other banks. (10)
4.16	Agreement dated May 16, 2007 for a $700,000,000 Credit Facility Agreement to be made available to Teekay Acquisition Holdings L.L.C. et al by HSH NordBank AG and others. (11)
4.17	Amended and Restated Omnibus Agreement dated as of December 19, 2006, among Teekay Corporation, Teekay GP L.L.C., Teekay LNG Partners L.P., Teekay LNG Operating L.L.C., Teekay Offshore GP L.L.C., Teekay Offshore Partners L.P., Teekay Offshore Operating GP. L.L.C. and Teekay Offshore Operating L.P. (12)
4.18	2013 Equity Incentive Plan.  (15)
4.19	Agreement, dated December 21, 2012 for a $200,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. (17)
4.20	Amendment Agreement, dated December 18, 2013 for a $300,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. (19)
4.21	Agreement, dated February 24, 2014 for a $815,000,000 Secure Term Loan Facility Agreement among Knarr L.L.C., Citibank, N.A. and others. (20)
4.22	Agreement dated July 7, 2014; Teekay LNG Operating L.L.C. entered into a shareholder agreement with China LNG Shipping (Holdings) Limited to form TC LNG Shipping L.L.C in connection with the Yamal LNG Project. (21)
4.23	Agreement dated December 17, 2014, for a $450,000,000 secured loan facility between Nakilat Holdco L.L.C. and Qatar National Bank SAQ. (21)
4.24	Amendment Agreement No. 2, dated December 19, 2014 for a $200,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. (21)
4.25	Amendment Agreement No. 3, dated October 2, 2015 for a $500,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. (22)
4.26	Amendment Agreement No. 4, dated December 17, 2015 for a $500,000,000 Margin Loan Agreement among Teekay Finance Limited, Citibank, N.A. and others. (22)
4.27	Agreement, dated July 31, 2015, among OOGTK Libra GmbH & Co KG, ABN AMRO Bank N.V. and various other banks for a $803,711,786.92 term loan due 2027. (22)
4.28	Purchase Agreement, dated as of November 10, 2015, between Teekay Corporation and J.P. Morgan Securities LLC, for itself and on behalf of the several initial purchasers listed in Schedule 1 thereto. (22)
4.29	Registration Rights Agreement, dated November 16, 2015 by and among Teekay Corporation and J.P. Morgan Securities LLC, for itself and as representative of the several initial purchasers listed in Schedule 1 thereto. (22)
4.30	Secured Term Loan and Revolving Credit Facility Agreement dated January 8, 2016 between Teekay Tankers Ltd., Nordea Bank Finland PLC and various other banks, for a $894.4 million long-term debt facility. (22)
4.31	Share Purchase Agreement, dated May 18, 2016, by and among Teekay Corporation and the purchasers named therein. (23)
4.32	Registration Rights Agreement, dated June 29, 2016, by and among Teekay Corporation and the investors named therein. (23)
4.33	Equity Distribution Agreement, dated September 9, 2016, between Teekay Corporation and Citigroup Global Markets Inc. (24)
4.34	Warrant Agreement dated as of September 25, 2017, between Teekay Offshore Partners L.P. and Teekay Shipping Limited (25)
4.35	Second Amended and Restated Limited Liability Company Agreement of Teekay Offshore GP L.L.C., dated as of September 25, 2017, by and between Teekay Holdings Limited and Brookfield TK TOGP L.P.  (25)
4.36	Registration Rights Agreement, dated as of September 25, 2017, by and between Teekay Offshore Partners L.P., Teekay Corporation and Brookfield TK TOLP L.P.  (25)
8.1	List of Subsidiaries. (26)
10.1	Investment Agreement, dated as of July 26, 2017, between Teekay Offshore Partners L.P. and Teekay Holdings Limited (27)
10.2	Purchase Agreement, dated as of July 26, 2017, between Teekay Holdings Limited and Brookfield TK TOGP L.P. (27)
10.3	Amended and Restated Subordinate Promissory Note, dated as of July 26, 2017, by and between Teekay Offshore Partners L.P., Teekay Corporation and Brookfield TK TOLP L.P. (27)
10.4	Master Services Agreement, dated as of September 25, 2017, by and between Teekay Corporation, Teekay Offshore Partners L.P. and Brookfield TK TOLP L.P.  (25)
10.5	Trademark License Agreement, dated as of September 25, 2017, by and between Teekay Corporation and Teekay Offshore Partners L.P.  (25)
12.1	Rule 13a-14(a)/15d-14(a) Certification of Teekay’s Chief Executive Officer.
12.2	Rule 13a-14(a)/15d-14(a) Certification of Teekay’s Chief Financial Officer.
13.1	Teekay Corporation Certification of Kenneth Hvid, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2	Teekay Corporation Certification of Vincent Lok, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
23.1	Consent of KPMG LLP, as independent registered public accounting firm.
23.2	Consolidated Financial Statements of Exmar LPG BVBA.  (26)
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase

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101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

_________________________

(1)	Previously filed as an exhibit to the Company’s Report on Form 6-K (File No.1-12874), filed with the SEC on August 31, 2011, and hereby incorporated by reference to such Report.

(2)	Previously filed as an exhibit to the Company’s Registration Statement on Form F-1 (Registration No. 33-7573-4), filed with the SEC on July 14, 1995, and hereby incorporated by reference to such Registration Statement.

(3)	Previously filed as an exhibit to the Company’s Form 6-K (File No.1-12874), filed with the SEC on May 2, 2000, and hereby incorporated by reference to such Report.

(4)	Previously filed as an exhibit to the Company’s Annual Report on Form 20-F (File No.1-12874), filed with the SEC on April 2, 2001, and hereby incorporated by reference to such Report.

(5)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 8, 2005, and hereby incorporated by reference to such Report.

(6)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 10, 2006, and hereby incorporated by reference to such Report.

(7)	Previously filed as an exhibit to the Company’s Form 8-A/A (File No.1-12874), filed with the SEC on July 2, 2010, and hereby incorporated by reference to such Report.

(8)	Previously filed as an exhibit to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on August 14, 2003, and hereby incorporated by reference to such Report.

(9)	Previously filed as an exhibit to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on December 21, 2006, and hereby incorporated by reference to such Report.

(10)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 11, 2008, and hereby incorporated by reference to such Report.

(11)	Previously filed as an exhibit to the Company’s Schedule TO - T/A, filed with the SEC on May 18, 2007, and hereby incorporated by reference to such schedule.

(12)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 19, 2007, and hereby incorporated by reference to such Report.

(13)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 7, 2009, and hereby incorporated by reference to such Report.

(14)	Previously filed as an exhibit to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on January 27, 2010, and hereby incorporated by reference to such Report.

(15)	Previously filed as an exhibit to the Company’s Registration Statement on Form S-8 (Registration No. 333-187142), filed with the SEC on March 8, 2013, and hereby incorporated by reference to such Registration Statement.

(16)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 25, 2012, and hereby incorporated by reference to such Report.

(17)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 29, 2013, and hereby incorporated by reference to such Report.

(18)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 28, 2014, and hereby incorporated by reference to such Report.

(19)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 28, 2014, and hereby incorporated by reference to such Report.

(20)	Previously filed as an exhibit to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on September 2, 2014, and hereby incorporated by reference to such Report.

(21)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 29, 2015, and hereby incorporated by reference to such Report.

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(22)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 26, 2016, and hereby incorporated by reference to such Report.

(23)	Previously filed as an exhibit to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on June 30, 2016, and hereby incorporated by reference to such Report.

(24)	Previously filed as an exhibit to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on September 9, 2016, and hereby incorporated by reference to such Report.

(25)	Previously filed as an exhibit to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on November 22, 2017, and hereby incorporated by reference to such Report.

(26)	Previously filed as an exhibit to the Company’s Report on Form 20-F (File No. 1-12874), filed with the SEC on April 12, 2017, and hereby incorporated by reference to such Report.

(27)	Previously filed as an exhibit to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on August 18, 2017, and hereby incorporated by reference to such Report.

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SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

                            

TEEKAY CORPORATION
By:		/s/ Vincent Lok
Vincent Lok
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

Dated: November 27, 2017

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

TEEKAY CORPORATION

We have audited the accompanying consolidated balance sheets of Teekay Corporation and subsidiaries (the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, cash flows and changes in total equity for each of the years in the three-year period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated April 12, 2017, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 

/s/ KPMG LLP

Chartered Professional Accountants

Vancouver, Canada

April 12, 2017, except for Notes 1 and 2, as to which the date is November 27, 2017

F- 1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

TEEKAY CORPORATION

We have audited Teekay Corporation and subsidiaries (the "Company") internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting in the accompanying Form 20-F. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, cash flows and changes in total equity for each of the years in the three-year period ended December 31, 2016, and our report dated April 12, 2017 expressed an unqualified opinion on those consolidated financial statements.

 

/s/ KPMG LLP

Chartered Professional Accountants

Vancouver, Canada

April 12, 2017

F- 2

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TEEKAY CORPORATION AND SUBSIDIARIES (NOTE 1)

CONSOLIDATED STATEMENTS OF INCOME

(in thousands of U.S. dollars, except share and per share amounts)

		Year Ended December 31, 2016 $			Year Ended December 31, 2015 $			Year Ended December 31, 2014 $
Revenues		2,328,569			2,450,382			1,993,920
Voyage expenses		(138,339	)		(115,787	)		(127,847	)
Vessel operating expenses		(825,024	)		(844,039	)		(809,319	)
Time-charter hire expense		(150,145	)		(138,548	)		(67,219	)
Depreciation and amortization		(571,825	)		(509,500	)		(422,904	)
General and administrative expenses		(119,889	)		(133,184	)		(140,917	)
Asset impairments (note 17a)		(45,796	)		(67,744	)		—
Loan loss recoveries (note 17b)		—			—			2,521
Net (loss) gain on sale of vessels, equipment and other operating assets ( note 17c )		(66,450	)		(2,431	)		8,750
Restructuring charges (note 19)		(26,811	)		(14,017	)		(9,826	)
Income from vessel operations		384,290			625,132			427,159
Interest expense		(282,966	)		(242,469	)		(208,529	)
Interest income		4,821			5,988			6,827
Realized and unrealized loss on non-designated derivative instruments ( note 14 )		(35,091	)		(102,200	)		(231,675	)
Equity income (note 22)		85,639			102,871			128,114
Foreign exchange (loss) gain (notes 7 and 14)		(6,548	)		(2,195	)		13,431
Other (loss) income (note 13)		(39,013	)		1,566			(1,152	)
Net income before income taxes		111,132			388,693			134,175
Income tax (expense) recovery (note 20)		(24,468	)		16,767			(10,173	)
Net income		86,664			405,460			124,002
Less: Net income attributable to non-controlling interests (note 1)		(209,846	)		(323,309	)		(178,759	)
Net (loss) income attributable to shareholders of Teekay Corporation		(123,182	)		82,151			(54,757	)
Per common share of Teekay Corporation (note 18)
• Basic (loss) earnings attributable to shareholders of Teekay Corporation		(1.62	)		1.13			(0.76	)
• Diluted (loss) earnings attributable to shareholders of Teekay Corporation		(1.62	)		1.12			(0.76	)
• Cash dividends declared		0.2200			1.7325			1.265
Weighted average number of common shares outstanding (note 18)
• Basic		79,211,154			72,665,783			72,066,008
• Diluted		79,211,154			73,190,564			72,066,008

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TEEKAY CORPORATION AND SUBSIDIARIES (NOTE 1)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of U.S. dollars)

		Year Ended December 31, 2016 $			Year Ended December 31, 2015 $			Year Ended December 31, 2014 $
Net income		86,664			405,460			124,002
Other comprehensive income (loss):
Other comprehensive income (loss) before reclassifications
Unrealized gain (loss) on marketable securities		47			(463	)		(1,151	)
Unrealized loss on qualifying cash flow hedging instruments		(2,183	)		(2,564	)		(3,082	)
Pension adjustments, net of taxes		7,594			14,178			(7,637	)
Foreign exchange gain (loss) on currency translation		179			(217	)		174
Amounts reclassified from accumulated other comprehensive loss
To other income:
Impairment of marketable securities		—			—			1,322
To general and administrative expenses:
Settlement of defined benefit pension plan		(3,905	)		(140	)		(3,332	)
To equity income:
Realized loss on qualifying cash flow hedging instruments		3,486			2,613			1,551
Other comprehensive income (loss)		5,218			13,407			(12,155	)
Comprehensive income		91,882			418,867			111,847
Less: Comprehensive income attributable to non-controlling interests		(211,823	)		(323,309	)		(177,713	)
Comprehensive (loss) income attributable to shareholders of Teekay Corporation		(119,941	)		95,558			(65,866	)

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TEEKAY CORPORATION AND SUBSIDIARIES (NOTE 1)

CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars)

		As at December 31, 2016 $			As at December 31, 2015 $
ASSETS
Current
Cash and cash equivalents ( note 7 )		567,994			678,392
Restricted cash		107,672			61,818
Accounts receivable, including non-trade of $33,924 (2015 - $15,623) and related party balances of $26,471 (2015 - $65,936)		295,357			395,013
Assets held for sale ( notes 10 and 17 )		61,282			55,450
Net investment in direct financing leases ( note 8 )		154,759			26,542
Prepaid expenses and other ( note 14 )		94,370			102,429
Total current assets		1,281,434			1,319,644
Restricted cash - non-current		129,576			114,619
Vessels and equipment  ( note 7 )
At cost, less accumulated depreciation of $3,294,021 (2015 - $2,894,097)		7,666,975			8,460,500
Vessels under capital leases, at cost, less accumulated amortization of $69,072 (2015 – $56,316) ( note 9 )		484,253			88,215
Advances on newbuilding contracts and conversion costs (note 15a)		987,658			817,878
Total vessels and equipment		9,138,886			9,366,593
Net investment in direct financing leases - non-current ( note 8 )		505,835			657,587
Loans to equity-accounted investees and joint venture partners, bearing interest between nil and LIBOR plus margins up to 3% ( note 2 2)		292,209			184,390
Equity-accounted investments ( notes 15b and 22 )		1,010,308			905,159
Other non-current assets		190,699			232,776
Intangible assets – net ( note 5 )		89,175			111,909
Goodwill ( note 5 )		176,630			168,571
Total assets		12,814,752			13,061,248
LIABILITIES AND EQUITY
Current
Accounts payable		53,507			64,212
Accrued liabilities and other ( notes 6 and 14 )		403,685			412,278
Current portion of derivative liabilities ( note 14 )		115,813			267,539
Current portion of long-term debt ( note 7 )		998,591			1,106,104
Current obligation under capital leases ( note 9 )		40,353			4,546
Current portion of in-process revenue contracts ( note 5 )		34,511			32,109
Total current liabilities		1,646,460			1,886,788
Long-term debt ( note 7 )		5,640,955			6,277,982
Long-term obligation under capital leases ( note 9 )		352,486			54,581
Derivative liabilities ( note 14 )		415,041			414,084
In-process revenue contracts ( note 5 )		88,179			118,690
Other long-term liabilities ( note 6 )		333,236			352,378
Total liabilities		8,476,357			9,104,503
Commitments and contingencies ( notes 3, 7, 8, 9, 14 and 15 )
Redeemable non-controlling interest ( note 15e )		249,102			255,671
Equity
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 86,149,975 shares outstanding (2015 – 72,711,371); 86,149,975 shares issued (2015 – 72,711,371)) (note 11)		887,075			775,018
Retained earnings		22,893			158,898
Non-controlling interest		3,189,928			2,782,049
Accumulated other comprehensive loss ( note 1 )		(10,603	)		(14,891	)
Total equity		4,089,293			3,701,074
Total liabilities and equity		12,814,752			13,061,248

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TEEKAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)

		Year Ended December 31, 2016 $			Year Ended December 31, 2015 $			Year Ended December 31, 2014 $
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income		86,664			405,460			124,002
Non-cash items:
Depreciation and amortization		571,825			509,500			422,904
Amortization of in-process revenue contracts		(28,109	)		(30,085	)		(40,939	)
Unrealized (gain) loss on derivative instruments		(145,116	)		51,910			267,830
Loss (gain) on sale of vessels and equipment		66,450			2,431			(8,750	)
Asset impairments and loan loss provisions		45,796			67,744			(2,521	)
Equity income, net of dividends received		(47,563	)		3,203			(94,726	)
Income tax expense (recovery)		24,468			(16,767	)		10,173
Unrealized foreign exchange gain and other		53,336			(142,416	)		(217,908	)
Change in operating assets and liabilities ( note 16 )		38,333			(12,291	)		60,631
Expenditures for dry docking		(45,964	)		(68,380	)		(74,379	)
Net operating cash flow		620,120			770,309			446,317
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net of issuance costs		2,075,014			2,452,878			3,365,045
Prepayments of long-term debt		(1,872,573	)		(554,831	)		(1,331,469	)
Scheduled repayments of long-term debt		(967,146	)		(1,040,292	)		(1,291,322	)
Repayments of capital lease obligations		(21,595	)		(4,423	)		(479,115	)
(Increase) decrease in restricted cash		(49,079	)		(21,005	)		380,953
Net proceeds from equity issuances of subsidiaries (note 4)		327,419			575,368			452,061
Net proceeds from equity issuance of Teekay Corporation		105,462			—			—
Equity contribution by joint venture partner		750			5,500			27,267
Issuance of Common Stock upon exercise of stock options		—			1,217			55,165
Distribution from subsidiaries to non-controlling interests		(136,151	)		(360,392	)		(360,820	)
Cash dividends paid		(17,406	)		(125,881	)		(91,004	)
Other financing activities		—			(3,682	)		—
Net financing cash flow		(555,305	)		924,457			726,761
INVESTING ACTIVITIES
Expenditures for vessels and equipment		(648,326	)		(1,795,901	)		(994,931	)
Proceeds from sale of vessels and equipment		252,656			20,472			180,638
Proceeds from sale-lease back of vessels		355,306			—			—
Purchase of SPT (net of cash acquired of $377)		—			(46,961	)		—
Purchase of ALP (net of cash acquired of $294)		—			—			(2,322	)
Purchase of Logitel (net of cash acquired of $8,089)		—			—			4,090
Increase in restricted cash		—			(34,290	)		—
Recovery in term loans		—			—			4,814
Investment in equity-accounted investees		(61,885	)		(40,595	)		(79,602	)
(Advances to) loan repayments from equity-accounted investees		(96,823	)		53,173			(87,130	)
Direct financing lease payments received		23,535			20,824			22,856
Investment in cost accounted investment		—			—			(25,000	)
Other investing activities		324			—			(4,247	)
Net investing cash flow		(175,213	)		(1,823,278	)		(980,834	)
(Decrease) increase in cash and cash equivalents		(110,398	)		(128,512	)		192,244
Cash and cash equivalents, beginning of the year		678,392			806,904			614,660
Cash and cash equivalents, end of the year		567,994			678,392			806,904
Supplemental cash flow information ( note 16 )

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TEEKAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN TOTAL EQUITY

(in thousands of U.S. dollars and shares)

	TOTAL EQUITY
	Thousands of Shares of Common Stock Outstanding #			Common Stock and Additional Paid-in Capital $			Retained Earnings $			Accumul- ated Other Compre- hensive Income (Loss) $			Non- controlling Interest $			Total $			Redeemable Non- controlling Interest $
Balance at December 31, 2013	70,729			713,760			435,217			(17,189	)		2,071,262			3,203,050			16,564
Net (loss) income							(54,757	)					178,759			124,002
Reclassification of redeemable non-controlling interest in net income													(7,777	)		(7,777	)		7,777
Other comprehensive loss										(11,109	)		(1,046	)		(12,155	)
Dividends declared							(93,021	)					(363,685	)		(456,706	)		(11,499	)
Reinvested dividends	1			6												6
Exercise of stock options and other (note 11)	1,771			55,165												55,165
Employee stock compensation (note 11)				1,828												1,828
Dilution gains on public offerings of Teekay LNG, Teekay Offshore, Teekay Tankers  (note 4)							68,428									68,428
Additions to non-controlling interest from share and unit issuances of subsidiaries and other													412,792			412,792
Balance at December 31, 2014	72,501			770,759			355,867			(28,298	)		2,290,305			3,388,633			12,842
Net income							82,151						323,309			405,460
Reclassification of redeemable non-controlling interest in net income													(13,280	)		(13,280	)		13,280
Other comprehensive income										13,407			—			13,407
Dividends declared							(126,391	)					(354,069	)		(480,460	)		(20,201	)
Reinvested dividends	1			10												10
Exercise of stock options and other (note 11)	209			1,217												1,217
Employee stock compensation ( note 11 )				3,032												3,032
Dilution gains on public offerings of Teekay LNG, Teekay Offshore and Teekay Tankers (note 4)							(152,729	)								(152,729	)
Additions to non-controlling interest from share and unit issuances of subsidiaries and other													535,784			535,784			249,750
Balance at December 31, 2015	72,711			775,018			158,898			(14,891	)		2,782,049			3,701,074			255,671
Net (loss) income							(123,182	)					209,846			86,664
Reclassification of redeemable non-controlling interest in net income													(25,342	)		(25,342	)		25,342
Other comprehensive income										3,241			1,977			5,218
Dividends declared							(17,562	)					(120,801	)		(138,363	)		(27,058	)
Reinvested dividends	1			4												4
Employee stock compensation and other (note 11)	102			6,591												6,591
Equity offerings (note 11)	13,336			105,462												105,462
Dilution losses on public offerings of Teekay Offshore and Teekay Tankers (note 4)							9,732									9,732
Additions to non-controlling interest from share and unit issuances of subsidiaries and other							(4,993	)		1,047			342,199			338,253			(4,853	)
Balance at December 31, 2016	86,150			887,075			22,893			(10,603	)		3,189,928			4,089,293			249,102

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1.	Summary of Significant Accounting Policies

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	Net income (loss) attributable to non-controlling interests															Controlling Interest									Net income (loss) of consolidated partially-owned entities (1)
	Non-public partially-owned subsidiaries			Preferred unit holders			Distri- buted Earnings (2)			Undistri- buted Earnings			Total Net income (loss) attribut- able			Distri- buted Earnings			Undistri- buted Earnings			Total Controlling Interest (Teekay)
Teekay Offshore	11,858			45,835			41,688			(46,155	)		53,226			18,378			(27,129	)		(8,751	)		44,475
Teekay LNG	17,514			2,719			30,444			60,545			111,222			15,026			31,717			46,743			157,965
Teekay Tankers	—			—			—			47,459			47,459			—			14,820			14,820			62,279
Other entities and eliminations	—			—			—			—			(2,061	)
For the Year Ended December 31, 2016	29,372			48,554			72,132			61,849			209,846
Teekay Offshore	13,911			28,609			119,971			(103,949	)		58,542			70,414			(38,913	)		31,501			90,043
Teekay LNG	16,627			—			120,482			(1,510	)		135,599			82,791			(880	)		81,911			217,510
Teekay Tankers	—			—			—			129,725			129,725			—			47,202			47,202			176,927
Other entities and eliminations	—			—			—			—			(557	)
For the Year Ended December 31, 2015	30,538			28,609			240,453			24,266			323,309
Teekay Offshore	10,503			10,875			136,743			(150,724	)		7,397			71,166			(60,907	)		10,259			17,656
Teekay LNG	13,489			—			143,292			(26,116	)		130,665			101,946			(13,684	)		88,262			218,927
Teekay Tankers	—			—			—			41,048			41,048			—			16,094			16,094			57,142
Other entities and eliminations	—			—			—			—			(351	)
For the Year Ended December 31, 2014	23,992			10,875			280,035			(135,792	)		178,759

(1)	Includes earnings from common shares and preferred shares.

(2)	Excludes the results of the acquisition of interests in vessels between Teekay Corporation, Teekay Offshore and Teekay Tankers during the periods the vessels were under common control and had begun operations.

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

The continuity of capitalized dry-docking costs for the years ended December 31, 2016 , 2015 , and 2014 , is summarized as follows:

	Year Ended December 31,
	2016 $			2015 $			2014 $
Balance at the beginning of the year	150,702			135,331			118,194
Costs incurred for dry dockings	47,980			69,927			74,018
Dry-dock amortization	(55,026	)		(47,271	)		(50,926	)
Write-down / sales of vessels	(7,956	)		(7,285	)		(5,955	)
Balance at the end of the year	135,700			150,702			135,331

					December 31,
Class of Financing Receivable	Credit Quality Indicator		Grade		2016 $			2015 $
Direct financing leases	Payment activity		Performing		660,594			684,129
Other loan receivables
Loans to equity-accounted investees and joint venture partners	Other internal metrics		Performing		304,030			191,517
Long-term receivable included in other assets	Payment activity		Performing		17,712			37,032
					982,336			912,678

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

Accumulated other comprehensive income (loss)

The following table contains the changes in the balances of each component of accumulated other comprehensive income (loss) attributable to shareholders of Teekay for the periods presented.

	Qualifying Cash Flow Hedging Instruments $			Pension Adjustments $			Unrealized (Loss) Gain on Available for Sale Marketable Securities $			Foreign Exchange Gain (Loss) on Currency Translation $			Total $
Balance as of December 31, 2013	17			(18,919	)		(171	)		1,884			(17,189	)
Other comprehensive (loss) income	(485	)		(10,969	)		171			174			(11,109	)
Balance as of December 31, 2014	(468	)		(29,888	)		—			2,058			(28,298	)
Other comprehensive income (loss)	49			14,038			(463	)		(217	)		13,407
Balance as of December 31, 2015	(419	)		(15,850	)		(463	)		1,841			(14,891	)
Other comprehensive income	378			3,690			47			173			4,288
Balance as of December 31, 2016	(41	)		(12,160	)		(416	)		2,014			(10,603	)

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2.	Segment Reporting

	Revenues (1)									Income from Vessel Operations (2)
	Year Ended December 31,									Year Ended December 31,
	2016			2015			2014			2016			2015			2014
Teekay Offshore	1,152,390			1,229,413			1,019,539			230,853			283,399			256,218
Teekay LNG
Liquefied Gas Carriers	336,530			305,056			307,426			174,600			151,200			156,868
Conventional Tankers	59,914			92,935			95,502			(21,419	)		30,172			26,955
	396,444			397,991			402,928			153,181			181,372			183,823
Teekay Tankers (3)
Conventional Tankers	526,896			504,347			235,593			86,456			184,083			58,271
Teekay Parent
Offshore Production	231,435			277,842			259,945			(48,310	)		(40,227	)		(78,804	)
Conventional Tankers	32,967			65,777			94,376			(15,967	)		4,984			(12,407	)
Other	76,111			75,547			95,791			(32,219	)		5,015			17,488
	340,513			419,166			450,112			(96,496	)		(30,228	)		(73,723	)
Eliminations and other	(87,674	)		(100,535	)		(114,252	)		10,296			6,506			2,570
	2,328,569			2,450,382			1,993,920			384,290			625,132			427,159

 

(1)	Certain vessels are chartered between the Daughter Companies 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 year ended 2016 , 2015 and 2014 is as follows:

	Year Ended December 31,
	2016			2015			2014
Teekay Offshore	49,514			67,993			67,014
Teekay LNG - Liquefied Gas Carriers	37,336			35,887			37,596
Teekay Tankers - Conventional Tankers	5,404			1,380			13,707
Teekay Parent - Conventional Tankers	—			3,080			—
	92,254			108,340			118,317

(2)	Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).

(3)	Financial information for Teekay Tankers includes operations of the Explorer Spirit , formerly known as the SPT Explorer , and Navigator Spirit from December 18, 2015, the date Teekay Tankers acquired the vessels from Teekay Offshore.

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

The following table presents revenues and percentage of consolidated revenues for customers that accounted for more than 10% of the Company’s consolidated revenues during the periods presented. All of these customers are international oil companies.

	Year Ended December 31,		Year Ended December 31,		Year Ended December 31,
(U.S. dollars in millions)	2016		2015		2014
Royal Dutch Shell Plc (1) (2)	$429.9 or 19%		(5)		(5)
BG Group (1) (2)	(2)		$263.4 or 11%		(5)
Petroleo Brasileiro SA (3)	$223.7 or 10%		$231.8 or 10%		$248.2 or 12%
Statoil ASA (4)	(5)		(5)		$239.8 or 12%

(1)	Teekay Offshore

(2)	In February 2016, Royal Dutch Shell Plc acquired BG Group Plc and therefore includes revenues from both Royal Dutch Shell Plc and BG Group Plc for 2016.

(3)	Teekay Offshore, Teekay Tankers - Conventional Tankers and Teekay Parent – Conventional Tankers

(4)	Teekay Offshore, Teekay Tankers—Conventional Tankers, Teekay Parent – Offshore Production and Teekay Parent – Conventional Tankers

(5)	Less than 10%

	Depreciation and Amortization									Asset Impairments, Loan Loss Recoveries, and Net (Loss) Gain on Sale of Vessels, Equipment and Other Operating Assets									Equity Income (Loss)
	Year Ended December 31,									Year Ended December 31,									Year Ended December 31,
	2016			2015			2014			2016			2015			2014			2016			2015			2014
Teekay Offshore	(300,011	)		(274,599	)		(198,553	)		(40,079	)		(69,998	)		(1,638	)		17,933			7,672			10,341
Teekay LNG
Liquefied Gas Carriers	(80,084	)		(71,323	)		(71,711	)		—			—			—			62,307			84,171			115,478
Conventional Tankers	(15,458	)		(20,930	)		(22,416	)		(38,976	)		—			—			—			—			—
	(95,542	)		(92,253	)		(94,127	)		(38,976	)		—			—			62,307			84,171			115,478
Teekay Tankers (1)
Conventional Tankers	(104,149	)		(71,429	)		(50,152	)		(20,594	)		771			9,955			13,101			14,411			5,228
Teekay Parent
Offshore Production	(70,855	)		(69,508	)		(78,630	)		(110	)		(948	)		3,456			(575	)		(12,196	)		(1,357	)
Conventional Tankers	(1,717	)		(2,852	)		(2,216	)		(12,487	)		—			(502	)		5,089			16,712			3,052
Other	449			451			774			—			—			—			(1,838	)		(1,101	)		(2,546	)
	(72,123	)		(71,909	)		(80,072	)		(12,597	)		(948	)		2,954			2,676			3,415			(851	)
Eliminations and other	—			690			—												(10,378	)		(6,798	)		(2,082	)
	(571,825	)		(509,500	)		(422,904	)		(112,246	)		(70,175	)		11,271			85,639			102,871			128,114

(1)	Financial information for Teekay Tankers includes operations of the Explorer Spirit , formerly known as the SPT Explorer and Navigator Spirit from December 18, 2015, the date Teekay Tankers acquired the vessels from Teekay Offshore.

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

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

	December 31, 2016 $			December 31, 2015 $
Teekay Offshore	5,354,702			5,372,582
Teekay LNG - Liquefied Gas Carriers	3,957,088			3,550,396
Teekay LNG - Conventional Tankers	193,553			360,527
Teekay Tankers - Conventional Tankers	1,864,317			2,073,059
Teekay Parent - Offshore Production	635,364			710,533
Teekay Parent - Conventional Tankers	55,937			142,236
Teekay Parent - Other	13,208			17,256
Cash and cash equivalents	567,994			678,392
Other assets not allocated	287,138			301,586
Eliminations	(114,549	)		(145,319	)
Consolidated total assets	12,814,752			13,061,248

	December 31, 2016 $			December 31, 2015 $
Teekay Offshore	294,581			672,476
Teekay LNG - Liquefied Gas Carriers	344,924			191,642
Teekay LNG - Conventional Tankers	63			327
Teekay Tankers - Conventional Tankers	9,226			848,250
Teekay Parent - Offshore Production	—			57,778
Teekay Parent - Conventional Tankers	—			92
Teekay Parent - Other	88			199
	648,882			1,770,764

3.	Investments

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(1)	The customer relationships and customer contracts are being amortized over weighted average amortization periods of 10 years and 7.6 years , respectively. As at December 31, 2016 , the gross carrying amount, accumulated amortization and net carrying amount were $22.5 million , $4.8 million and $17.7 million , respectively.

(2)	Goodwill recognized from this acquisition was attributed to the Company's Teekay Tankers Segment - Conventional tankers.

(3)	Prior to the SPT acquisition date, SPT had in-chartered the Explorer Spirit from the Company. Of the SPT acquisition price, $1.4 million was allocated to the settlement of this pre-existing relationship. Such amount has been accounted for as a reduction to revenue on the SPT acquisition date.

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

The following table summarizes the preliminary and final valuations of the Logitel assets and liabilities on the acquisition date. The estimates of fair values of the Logitel assets acquired and liabilities assumed by Teekay Offshore were finalized during the second quarter of 2015.

(in thousands of U.S. Dollars)	Preliminary Valuation August 11, 2014 $			Adjustments $			Final Valuation August 11, 2014 $
ASSETS
Cash and cash equivalents	8,089			—			8,089
Prepaid expenses	640			—			640
Advances on newbuilding contracts	46,809			(2,239	)		44,570
Intangible assets	—			1,000			1,000
Total assets acquired	55,538			(1,239	)		54,299
LIABILITIES
Accrued liabilities	4,098			—			4,098
Long-term debt	26,270			1,330			27,600
Total liabilities assumed	30,368			1,330			31,698
Net assets acquired	25,170			(2,569	)		22,601
Cash consideration	4,000			—			4,000
Contingent consideration	21,170			(2,569	)		18,601

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4.	Equity Financing Transactions of the Daughter Companies

	Total Proceeds Received $			Less: Teekay Corporation Portion $			Offering Expenses $			Net Proceeds Received $
2016
Teekay Offshore Preferred D Units Offering (1)	100,000			(26,000	)		(2,750	)		71,250
Teekay Offshore Common Units Offering	102,041			(2,041	)		(2,550	)		97,450
Teekay Offshore Continuous Offering Program	31,819			(636	)		(792	)		30,391
Teekay Offshore Private Placement  (2)	24,874			(13,167	)		—			11,707
Teekay LNG Preferred A Units Offering	125,000			—			(4,293	)		120,707
Teekay Tankers Continuous Offering Program	7,747			—			(189	)		7,558
2015  (3)
Teekay Offshore Preferred B Units Offering	125,000			—			(4,210	)		120,790
Teekay Offshore Preferred C Units Offering	250,000			—			(250	)		249,750
Teekay Offshore Continuous Offering Program	3,551			(71	)		(66	)		3,414
Teekay LNG Continuous Offering Program	36,274			(725	)		(900	)		34,649
Teekay Tankers Public Offering	13,716			—			(31	)		13,685
Teekay Tankers Continuous Offering Program	94,595			—			(2,155	)		92,440
Teekay Tankers Private Placement	109,907			—			—			109,907
2014 (4)
Teekay Offshore Continuous Offering Program	7,784			(156	)		(153	)		7,475
Teekay Offshore Direct Equity Placement	178,569			(3,571	)		(75	)		174,923
Teekay LNG Public Offering	140,784			(2,816	)		(299	)		137,669
Teekay LNG Continuous Offering Program	42,556			(851	)		(901	)		40,804
Teekay Tankers Public Offering	116,000			(20,000	)		(4,810	)		91,190

(1)

In June 2016, Teekay Offshore issued 4,000,000 of its 10.50% Series D Preferred Units and 4,500,000 warrants exercisable to acquire up to 4,500,000 common units at an exercise price equal to the closing price of Teekay Offshore's common units on June 16, 2016, or $4.55 per unit (or the $4.55 Warrants ) and 2,250,000 warrants exercisable to acquire up to 2,250,000 common units with an exercise price at a 33% premium to the closing price of Teekay Offshore's common units on June 16, 2016, or $6.05 per unit (or the $6.05 Warrants ) (together, the Warrants ). The Warrants have a seven -year term and are exercisable any time after six months following their issuance date. The Warrants are to be net settled in either cash or common units at Teekay Offshore's option. The gross proceeds from the sale of these securities was $100.0 million ( $97.2 million net of offering costs).

(2)

In 2016, Teekay Offshore issued 4.7 million common units for a total value of $24.9 million (including the general partner's 2% proportionate capital contribution of $0.5 million ) as a payment-in-kind for the distributions on Teekay Offshore's Series C-1 Cumulative Convertible Perpetual Preferred Units (or the Series C-1 Preferred Units ) and Series D Preferred Units and Teekay Offshore's common units and general partner interest held by subsidiaries of Teekay. In June 2016, Teekay Offshore agreed with Teekay that, until the Teekay Offshore's Norwegian Kroner bonds maturing in 2018 have been repaid, all cash distributions (other than with respect to incentive distribution rights) to be paid by Teekay Offshore to Teekay or its affiliates, including Teekay Offshore's general partner, will instead be paid in Teekay Offshore common units or from the proceeds of the sale of common units. Teekay Offshore issued Teekay 2.5 million common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the distribution on Teekay Offshore's Series D Preferred Units, common units and general partner interest held by Teekay and its subsidiaries.

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(3)

In 2015, in addition to the issuances of equity to third parties noted in the table above, Teekay purchased $30.0 million or 4.5 million shares of Class A common stock of Teekay Tankers for Teekay Tankers to partially finance the acquisition of 12 modern Suezmax tankers from Principal Maritime (see Note 3b), $300.0 million or 14.4 million common units of Teekay Offshore for Teekay Offshore to partially finance the July 1, 2015 acquisition of the Petrojarl Knarr FPSO from Teekay, and $45.5 million or 6.5 million shares of Class B common stock of Teekay Tankers to finance the acquisition of SPT (see Note 3c). These increases in Teekay’s ownership interests in Teekay Tankers and Teekay Offshore have been accounted for as equity transactions. Therefore, no gains or losses were recognized in the Company’s consolidated statements of income as a result of these purchases. However, the carrying amount of the non-controlling interests’ share of Teekay Offshore and Teekay Tankers increased by an aggregate of $168.1 million and retained earnings decreased by $168.1 million to reflect the increase in Teekay’s ownership interest in Teekay Offshore and Teekay Tankers and the increase in the carrying value of Teekay Offshore’s and Teekay Tankers’ total equity. This adjustment to non-controlling interest and retained earnings was primarily the result of Teekay Offshore’s 14.4 million common units being issued to Teekay at fair value, which was significantly greater than the carrying value.

(4)

In August 2014, Teekay Tankers purchased from Teekay a 50% interest in Teekay Tanker Operations Ltd. (or TTOL ), which owns conventional tanker commercial management and technical management operations, including the direct ownership in three commercially managed tanker pools, for an aggregate price of approximately $23.5 million , including net working capital. As consideration for this acquisition, Teekay Tankers issued to Teekay 4.2 million Class B common shares. The 4.2 million Class B common shares had an approximate aggregate value of $15.6 million , or $3.70 per share, when the purchase price was agreed to between the parties and an aggregate value of $17.0 million , or $4.03 per share, on the acquisition closing date. The purchase price, for accounting purposes, is based upon the value of the Class B common shares on the acquisition closing date. In addition, Teekay Tankers reimbursed Teekay for $6.5 million of working capital it assumed from Teekay in connection with the purchase. The book value of the assets acquired, including working capital, was $16.9 million on the date of acquisition.

5.	Goodwill, Intangible Assets and In-Process Revenue Contracts

Goodwill

The carrying amount of goodwill for the years ended December 31, 2016 and 2015 , for the Company’s reportable segments are as follows:

	Teekay Offshore $			Teekay LNG - Liquefied Gas Segment $			Conventional Tanker Segment $			Total $
Balance as of December 31, 2015 and 2014	132,940			35,631			—			168,571
Goodwill acquired	—			—			8,059			8,059
Balance as of December 31, 2016	132,940			35,631			8,059			176,630

	Gross Carrying Amount $			Accumulated Amortization $			Net Carrying Amount $
Customer contracts	317,222			(245,705	)		71,517
Customer relationships	22,500			(4,842	)		17,658
Other intangible assets	1,000			(1,000	)		—
	340,722			(251,547	)		89,175

	Gross Carrying Amount $			Accumulated Amortization $			Net Carrying Amount $
Customer contracts	316,684			(234,894	)		81,790
Customer relationships	30,879			(1,260	)		29,619
Other intangible assets	1,000			(500	)		500
	348,563			(236,654	)		111,909

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6.	Accrued Liabilities and Other and Other Long-Term Liabilities

Accrued Liabilities and Other

	December 31, 2016 $			December 31, 2015 $
Voyage and vessel expenses	177,868			168,120
Interest	64,362			66,110
Payroll and benefits and other	70,904			88,239
Deferred revenues and gains - current	78,766			76,883
Loans from affiliates	11,785			12,426
Liabilities associated with assets held for sale	—			500
	403,685			412,278

Other Long-Term Liabilities

	December 31, 2016 $			December 31, 2015 $
Deferred revenues and gains	210,434			248,984
Guarantee liability	24,373			26,467
Asset retirement obligation	44,675			25,484
Pension liabilities	8,599			14,953
Contingent consideration liability	—			6,225
Unrecognized tax benefits and deferred income tax	24,340			21,967
Other	20,815			8,298
	333,236			352,378

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

7.	Long-Term Debt

	December 31, 2016 $			December 31, 2015 $
Revolving Credit Facilities	1,119,808			1,500,848
Senior Notes (8.5%) due January 15, 2020	592,657			592,657
Norwegian Kroner-denominated Bonds due through May 2021	628,257			621,957
U.S. Dollar-denominated Term Loans due through 2028	3,702,997			4,020,665
U.S. Dollar Bonds due through 2024	466,680			502,449
Euro-denominated Term Loans due through 2023	219,733			241,798
Total principal	6,730,132			7,480,374
Less unamortized discount and debt issuance costs	(90,586	)		(96,288	)
Total debt	6,639,546			7,384,086
Less current portion	(998,591	)		(1,106,104	)
Long-term portion	5,640,955			6,277,982

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8.	Operating and Direct Financing Leases

Year	Head Lease Receipts (1) $			Sublease Payments (1)(2) $
2017	21,242			24,113
2018	21,242			24,113
2019	21,242			24,113
2020	21,242			24,113
2021	21,242			24,113
Thereafter	154,095			174,959
Total	260,305			295,524

(1)

The Head Leases are fixed-rate operating leases while the Subleases have a small variable-rate component. As at December 31, 2016 , the Teekay Tangguh Joint Venture had received $250.0 million of aggregate Head Lease receipts and had paid $187.9 million of aggregate Sublease payments. The portion of the Head Lease receipts that has not been recognized into earnings, is deferred and amortized on a straight line basis over the lease terms and, as at December 31, 2016 , $3.7 million and $36.7 million of Head Lease receipts had been deferred and included in unearned revenue and other long-term liabilities, respectively, in the Company’s consolidated balance sheets.

(2)	The amount of payments under the Subleases is updated annually to reflect any changes in the lease payments due to changes in tax law.

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	December 31, 2016 $			December 31, 2015 $
Total minimum lease payments to be received	777,334			855,655
Estimated unguaranteed residual value of leased properties	203,465			203,465
Initial direct costs and other	393			428
Less unearned revenue	(320,598	)		(375,419	)
Total	660,594			684,129
Less current portion	(154,759	)		(26,542	)
Long-term portion	505,835			657,587

9.	Capital Lease Obligations

Capital Lease Obligations

	December 31, 2016 $			December 31, 2015 $
LNG Carriers	338,257			—
Suezmax Tankers	54,582			59,127
Less current portion	(40,353	)		(4,546	)
Long-term obligations under capital lease	352,486			54,581

Year	Commitment
2017	$	30,065
2018	$	30,065
2019	$	30,065
2020	$	30,147
2021	$	30,065
Thereafter	$	327,686

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Year	Commitment
2017	$	30,953
2018	$	27,296

10.	Fair Value Measurements

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			December 31, 2016						December 31, 2015
	Fair Value Hierarchy Level		Carrying Amount Asset (Liability) $			Fair Value Asset (Liability) $			Carrying Amount Asset (Liability) $			Fair Value Asset (Liability) $
Recurring
Cash and cash equivalents, restricted cash, and marketable securities	Level 1		805,567			805,567			855,107			855,107
Derivative instruments ( note 14 )
Interest rate swap agreements - assets  (1)	Level 2		7,943			7,943			6,136			6,136
Interest rate swap agreements - liabilities (1)	Level 2		(302,935	)		(302,935	)		(370,952	)		(370,952	)
Cross currency interest swap agreement (1)	Level 2		(237,165	)		(237,165	)		(312,110	)		(312,110	)
Foreign currency contracts	Level 2		(2,993	)		(2,993	)		(18,826	)		(18,826	)
Stock purchase warrants ( note 14 )	Level 3		575			575			10,328			10,328
Time-charter swap agreement	Level 3		208			208			—			—
Logitel contingent consideration ( see below )	Level 3		—			—			(14,830	)		(14,830	)
Non-recurring
Vessels and equipment ( note 17c )	Level 2		11,300			11,300			100,600			100,600
Vessels held for sale ( note 17c )	Level 2		61,282			61,282			55,450			55,450
Long-term investments ( note 13 )	Level 2		6,000			6,000			25,000			25,000
Other
Loans to equity-accounted investees and joint venture partners - Current	(2)		11,821			(2)		7,127			(2)
Loans to equity-accounted investees and joint venture partners - Long-term	(2)		292,209			(2)			184,390			(2)
Long-term receivable   included in accounts receivable and other assets (3)	Level 3		10,985			10,944			16,453			16,427
Long-term debt - public ( note 7 )	Level 1		(1,503,472	)		(1,409,996	)		(1,493,915	)		(1,161,729	)
Long-term debt - non-public ( note 7 )	Level 2		(5,136,074	)		(5,009,900	)		(5,890,171	)		(5,881,483	)

(1)	The fair value of the Company’s interest rate swap agreements at December 31, 2016 includes $15.8 million ( December 31, 2015 - $21.7 million ) accrued interest expense which is recorded in accrued liabilities on the consolidated balance sheets.

(2)	In the consolidated financial statements, the Company’s loans to and equity investments in equity-accounted investees constitute 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 December 31, 2016 , the estimated fair value of the non-interest bearing receivable is based on the remaining future fixed payments of $10.9 million to be received from Royal Dutch Shell Plc (or Shell) (formerly BG International Limited (or BG)), as part of the ship construction support agreement, as well as an estimated discount rate of 8.0% . As there is no market rate for the equivalent of an unsecured non-interest bearing receivable from BG, the discount rate was based on unsecured debt instruments of similar maturity held, adjusted for a liquidity premium. A higher or lower discount rate would result in a lower or higher fair value asset.

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

Time-charter swap agreement - Changes in fair value during the years ended December 31, 2016 and 2015 for Teekay Tankers' time-charter swap agreement, which is described in Note 14 below and is measured at fair value on the recurring basis using significant unobservable inputs (Level 3), are as follows:

	Year Ended December 31, 2016 $			Year Ended December 31, 2015 $
Fair value asset - beginning of the year	—			—
Settlements	(2,154	)		—
Realized and unrealized gain	2,362			—
Fair value asset - at the end of the year	208			—

	Year Ended December 31,
	2016 $			2015 $
Fair value at the beginning of the year	10,328			9,314
Unrealized (loss) gain included in earnings	(9,753	)		1,014
Fair value at the end of the year	575			10,328

	Year Ended December 31,
	2016 $			2015 $
Balance at beginning of year	(14,830	)		(21,448	)
Adjustment to liability	—			2,569
Settlement of liability	—			3,540
Gain included in Other (loss) income - net ( note 13 )	14,830			509
Balance at end of year	—			(14,830	)

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11.	Capital Stock

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

A summary of the Company’s stock option activity and related information for the years ended December 31, 2016 , 2015 , and 2014 , are as follows:

	December 31, 2016						December 31, 2015						December 31, 2014
	Options (000’s) #			Weighted-Average Exercise Price $			Options (000’s) #			Weighted-Average Exercise Price $			Options (000’s) #			Weighted-Average Exercise Price $
Outstanding - beginning of year	2,800			36.84			2,710			36.61			4,237			36.33
Granted	916			9.44			265			43.99			15			56.76
Exercised	—			—			(36	)		33.79			(1,528	)		36.10
Forfeited / expired	(349	)		38.97			(139	)		46.80			(14	)		28.51
Outstanding - end of year	3,367			29.16			2,800			36.84			2,710			36.61
Exercisable - end of year	2,271			35.89			2,500			36.03			2,508			37.03

	December 31, 2016						December 31, 2015						December 31, 2014
	Options (000’s) #			Weighted-Average Grant Date Fair Value $			Options (000’s) #			Weighted-Average Grant Date Fair Value $			Options (000’s) #			Weighted-Average Grant Date Fair Value $
Outstanding non-vested stock options - beginning of year	300			8.09			202			9.37			389			9.24
Granted	916			3.60			265			7.74			15			11.50
Vested	(118	)		8.48			(167	)		9.07			(188	)		9.30
Forfeited	(2	)		3.60			—			—			(14	)		9.01
Outstanding non-vested stock options - end of year	1,096			4.30			300			8.09			202			9.37

	Outstanding Options								Exercisable Options
Range of Exercise Prices	Options (000’s) #			Weighted- Average Remaining Life (Years)		Weighted- Average Exercise Price $			Options (000’s) #			Weighted- Average Remaining Life (Years)		Weighted- Average Exercise Price $
$5.00 – $9.99	914			9.2		9.44			—			0		—
$10.00 – $19.99	188			2.2		11.84			188			2.2		11.84
$20.00 – $24.99	293			3.2		24.42			293			3.2		24.42
$25.00 – $29.99	364			5.2		27.69			364			5.2		27.69
$30.00 – $34.99	117			5.3		34.44			117			5.3		34.44
$35.00 – $39.99	25			1.6		39.99			25			1.6		39.99
$40.00 – $44.99	1,029			3.0		41.33			852			1.9		40.78
$50.00 – $54.99	422			0.2		51.40			422			0.2		51.40
$55.00 – $59.99	15			7.2		56.76			10			7.2		56.76
	3,367			4.61		29.16			2,271			2.49		35.89

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12.	Related Party Transactions

13.	Other (Loss) Income

	Year Ended December 31, 2016 $			Year Ended December 31, 2015 $			Year Ended December 31, 2014 $
Write-off of contingent consideration ( note 15d )	36,630			—			—
Accrual of contingent liability ( note 15d )	(61,862	)		—			—
Write-down of cost-accounted investment (1)	(19,000	)		—			—
TIL stock purchase warrants received ( note 14 )	—			—			6,839
Miscellaneous income (loss)	5,219			1,566			(292	)
Loss on bond repurchases	—			—			(7,699	)
Other (loss) income	(39,013	)		1,566			(1,152	)

14.	Derivative Instruments and Hedging Activities

							Fair Value / Carrying Amount Of Asset (Liability) $			Expected Maturity
	Contract  Amount in Foreign Currency			Average Forward Rate (1)						2017			2018
										$			$
Euro	13,750			0.92			(304	)		14,879			—
Norwegian Kroner	610,000			8.31			(2,689	)		60,677			12,719
							(2,993	)		75,556			12,719

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

 

Notional Amount NOK		Notional Amount USD											Fair Value / Carrying Amount of Asset / (Liability)			Remaining Term (years)
					Floating Rate Receivable
					Reference Rate		Margin			Fixed Rate Payable
408,500		72,946			NIBOR		5.25	%		6.88	%		(26,417	)		0.3
420,000 (1) (2)		70,946			NIBOR		5.75	%		8.84	%		(25,821	)		1.9
800,000 (1) (3)		143,536			NIBOR		5.75	%		7.58	%		(56,272	)		2.0
900,000		110,400			NIBOR		6.00	%		7.72	%		(3,814	)		4.8
900,000		150,000			NIBOR		4.35	%		6.43	%		(49,655	)		1.7
1,000,000		162,200			NIBOR		4.25	%		7.45	%		(55,286	)		2.1
1,000,000		134,000			NIBOR		3.70	%		5.92	%		(19,900	)		3.4
													(237,165	)

(1)	Notional amount reduces equally with NOK bond repayments (see Note 7).

(2)	Excludes an economic hedge on the foreign currency exposure for a three percent premium upon maturity of the NOK bonds which exchanges NOK 7.2 million for $1.2 million (see Note 7).

(3)	Excludes an economic hedge on the foreign currency exposure for a three percent premium upon maturity of the NOK bonds which exchanges NOK 19.2 million for $3.4 million (see Note 7).

(1)	Excludes the margins the Company pays on its variable-rate debt, which, as of December 31, 2016 , ranged from 0.3% to 4.0% .

(2)

Inception dates range from September 2017 to April 2018. Interest rate swaps with an aggregate principal amount of $320 million are being used to economically hedge expected interest payments on new debt that is planned to be outstanding from 2017 to 2024. These interest rate swaps are subject to mandatory early termination in 2017 and 2018 whereby the swaps will be settled based on their fair value at that time.

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(3)

During June 2015, as part of its hedging program, Teekay LNG entered into interest rate swaption agreements whereby it has a one-time option in April 2017 to enter into an interest rate swap at a fixed rate of 3.34% with a third party, and the third party has a one-time option in April 2017 to require Teekay LNG to enter into an interest swap at a fixed rate of 2.15% . If Teekay LNG or the third party exercises its option, there will be a cash settlement in April 2017 for the fair value of the interest rate swap, in lieu of taking delivery of the actual interest rate swap.

(4)

During August 2015, as part of its hedging program, Teekay LNG entered into interest rate swaption agreements whereby it has a one-time option in January 2018 to enter into an interest rate swap at a fixed rate of 3.10% with a third party, and the third party has a one-time option in January 2018 to require Teekay LNG to enter into an interest swap at a fixed rate of 1.97% . If Teekay LNG or the third party exercises its option, there will be a cash settlement in January 2018 for the fair value of the interest rate swap, in lieu of taking delivery of the actual interest rate swap.

(5)

During October 2015, as part of its hedging program, Teekay LNG entered into interest rate swaption agreements whereby it has a one-time option in July 2018 to enter into an interest rate swap at a fixed rate of 2.935% with a third party, and the third party has a one-time option in July 2018 to require Teekay LNG to enter into an interest swap at a fixed rate of 1.83% . If Teekay LNG or the third party exercises its option, there will be a cash settlement in July 2018 for the fair value of the interest rate swap, in lieu of taking delivery of the actual interest rate swap.

(6)	Principal amount reduces monthly to 70.1 million Euros ( $73.7 million ) by the maturity dates of the swap agreements.

(7)	Principal amount is the U.S. Dollar equivalent of 208.9 million Euros.

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

Tabular Disclosure

The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Company’s consolidated balance sheets.

	Prepaid Expenses and Other			Other Non-Current Assets			Accrued Liabilities			Current Portion of Derivative Liabilities			Derivative Liabilities
As at December 31, 2016
Derivatives designated as a cash flow hedge:
Interest rate swap agreements	—			1,340			(363	)		(1,033	)		(52	)
Derivatives not designated as a cash flow hedge:
Foreign currency contracts	119			—			—			(2,601	)		(511	)
Interest rate swap agreements	212			9,841			(11,979	)		(59,055	)		(233,903	)
Cross currency swap agreements	—			—			(3,464	)		(53,124	)		(180,577	)
Stock purchase warrants	—			575			—			—			—
Time-charter swap agreement	875			—			(667	)		—			—
	1,206			11,756			(16,473	)		(115,813	)		(415,043	)
As at December 31, 2015
Derivatives designated as a cash flow hedge:
Interest rate swap agreements	—			—			—			(338	)		(777	)
Derivatives not designated as a cash flow hedge:
Foreign currency contracts	80			—			—			(16,372	)		(2,534	)
Interest rate swap agreements	—			7,516			(18,348	)		(198,196	)		(154,673	)
Cross currency swap agreements	—			—			(3,377	)		(52,633	)		(256,100	)
Stock purchase warrants	—			10,328			—			—			—
	80			17,844			(21,725	)		(267,539	)		(414,084	)

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

For the periods indicated, the following table presents the effective portion of gains (losses) on interest rate swap agreements designated and qualifying as cash flow hedges:

Year Ended December 31, 2016
Effective Portion			Effective Portion			Ineffective
Recognized in AOCI (1)			Reclassified from AOCI (2)			Portion
$			$			$
691			(68	)		682			Interest expense
691			(68	)		682

Year Ended December 31, 2015
Effective Portion			Effective Portion			Ineffective
Recognized in AOCI (1)			Reclassified from AOCI (2)			Portion
$			$			$
(65	)		—			(1,050	)		Interest expense
(65	)		—			(1,050	)

	Year Ended December 31, 2016 $			Year Ended December 31, 2015 $			Year Ended December 31, 2014 $
Realized (losses) gains relating to:
Interest rate swap agreements	(87,320	)		(108,036	)		(125,424	)
Interest rate swap agreement terminations	(8,140	)		(10,876	)		(1,319	)
Foreign currency forward contracts	(11,186	)		(21,607	)		(4,436	)
Time charter swap agreement	2,154			—			—
	(104,492	)		(140,519	)		(131,179	)
Unrealized gains (losses) relating to:
Interest rate swap agreements	62,446			37,723			(86,045	)
Foreign currency forward contracts	15,833			(418	)		(16,926	)
Stock purchase warrants	(9,753	)		1,014			2,475
Time-charter swap agreement	875			—			—
	69,401			38,319			(100,496	)
Total realized and unrealized (losses) gains on derivative instruments	(35,091	)		(102,200	)		(231,675	)

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

Realized and unrealized losses of the cross currency swaps are recognized in earnings and reported in foreign exchange (loss) gain in the consolidated statements of income. The effect of the loss on cross currency swaps on the consolidated statements of income is as follows:

	Year Ended December 31,
	2016 $			2015 $			2014 $
Realized losses on maturity and partial termination of cross currency swap	(41,707	)		(36,155	)		—
Realized losses	(38,564	)		(18,973	)		(3,955	)
Unrealized gains (losses)	75,033			(89,178	)		(167,334	)
Total realized and unrealized losses on cross currency swaps	(5,238	)		(144,306	)		(171,289	)

15.	Commitments and Contingencies

	Total $		2017 $		2018 $		2019 $		2020 $
Yamal LNG Joint Venture  (i)	883,030		91,800		344,850		247,800		198,580
BG Joint Venture  (ii)	195,565		80,010		86,154		29,401		—
Bahrain LNG Joint Venture (iii)	224,080		110,364		80,097		33,619		—
Exmar LPG Joint Venture (iv)	77,504		58,096		19,408		—		—
	1,380,179		340,270		530,509		310,820		198,580

(i)

Teekay LNG, through the Yamal LNG Joint Venture, has a 50% ownership interest in six 172,000 -cubic meter ARC7 LNG carrier newbuildings that have an estimated total fully built-up cost of $2.1 billion . As at December 31, 2016 , Teekay LNG’s proportionate costs incurred under these newbuilding contracts totaled $153.3 million . The Yamal LNG Joint Venture intends to secure debt financing for the six LNG carrier newbuildings prior to their scheduled deliveries.

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(ii)

Teekay LNG acquired an ownership interest in the BG Joint Venture and, as part of the acquisition, agreed to assume Shell’s obligation to provide shipbuilding supervision and crew training services for the four LNG carrier newbuildings up to their delivery dates pursuant to a ship construction support agreement. The BG Joint Venture has secured financing of $137.1 million related to the commitments included in the table above and Teekay LNG is scheduled to receive $10.9 million of reimbursement directly from Shell.

(iii)

Teekay LNG has a 30% ownership interest in the Bahrain LNG Joint Venture for the development of an LNG receiving and regasification terminal in Bahrain. The project will include a FSU, which will be modified from one of the Teekay LNG’s existing MEGI LNG carrier newbuildings, an offshore gas receiving facility, and an onshore nitrogen production facility. The terminal will have a capacity of 800 million standard cubic feet per day and will be owned and operated under a 20 -year agreement commencing early-2019. The receiving and regasification terminal is expected to have a fully-built up cost of approximately $960.0 million . The Bahrain LNG Joint Venture has secured debt financing for approximately 75% of the estimated fully built-up cost of the LNG receiving and regasification terminal in Bahrain.

(iv)	Teekay LNG has a 50% ownership interest in the Exmar LPG Joint Venture which has four LPG newbuilding vessels scheduled for delivery between 2017 and 2018 and has secured financing for the four LPG carrier newbuildings.

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16.	Supplemental Cash Flow Information

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

	Year Ended December 31,
	2016			2015			2014
Accounts receivable	96,497			(6,488	)		136,660
Prepaid expenses and other	9,690			(10,607	)		(1,618	)
Accounts payable	(10,705	)		(24,727	)		(17,643	)
Accrued liabilities and other	(57,149	)		29,531			(56,768	)
	38,333			(12,291	)		60,631

b)

Cash interest paid, including realized interest rate swap settlements, during the years ended December 31, 2016 , 2015 , and 2014 , totaled $341.0 million , $318.1 million and $328.2 million , respectively. In addition, during the years ended December 31, 2016 , 2015 , and 2014 , cash interest paid relating to interest rate swap amendments and terminations totaled $8.1 million , $10.9 million and $1.3 million , respectively .

c)	In 2016, the portion of the distributions paid in kind by Teekay Offshore to the unit holders of Series C-1 Preferred Units and Series D Preferred Units, of $11.7 million was treated as a non-cash transaction in the consolidated statements of cash flows.

d)

As described in Note 3b, in August 2015, Teekay Tankers agreed to acquire 12 modern Suezmax tankers from Principal Maritime. As of December 31, 2015, all 12 of the vessels had been delivered for a total purchase price of $661.3 million , consisting of $612.0 million in cash and approximately 7.2 million shares of Teekay Tankers’ Class A common stock or $49.3 million , which was treated as a non-cash transaction in the consolidated statement of cash flows.

e)

During 2014, the Company had several transactions treated as non-cash transactions in the consolidated statements of cash flows. The Company took ownership of three VLCCs with a fair value of $222.0 million , which were collateral for all amounts owing under the investment in term loans, which was concurrently discharged. As described in Note 3f, Teekay LNG acquired BG’s ownership interest in the BG Joint Venture. As compensation, Teekay LNG assumed BG’s obligation to provide services for the four LNG carrier newbuildings up to their delivery dates. The estimated fair value of the assumed obligation of approximately $33.3 million was used to offset the purchase price. The sales of the Huelva Spirit , and Algeciras Spirit conventional tankers resulted in the vessels under capital leases being returned to the owner and the capital lease obligations being concurrently extinguished. The portion of dividends declared by the Teekay Tangguh Joint Venture that was used to settle the advances made to BLT LNG Tangguh Corporation and P.T. Berlian Laju Tanker of $14.4 million was treated as a non-cash transaction.

17.	Vessel Sales, Asset Impairments and Provisions

a) Asset Impairments

During the fourth quarter of 2016 , the carrying value of the Navion Marita was written down to its estimated fair value, using an appraised value, as a result of fewer opportunities to trade the vessel in the spot conventional tanker market. The Company’s consolidated statement of income for the year ended December 31, 2016 , includes a $2.1 million write-down related to this vessel. The write-down is included in the Teekay Offshore Segment.

In 2016 , Teekay Offshore canceled the UMS construction contracts for its two UMS newbuildings. As a result, the carrying values of these two UMS newbuildings were written down to $ nil . The Company's consolidated statement of income for the year ended December 31, 2016 includes a $43.7 million write-down related to these two UMS newbuildings. The write-down is included in the Teekay Offshore Segment.

During 2015, seven of Teekay Offshore’s 1990s-built shuttle tankers were written down to their estimated fair value, using appraised values. Of the seven shuttle tankers, during the first quarter of 2015, one shuttle tanker was written down as a result of the expected sale of the vessel and the vessel was classified as held for sale on the Company’s consolidated balance sheet as at December 31, 2015 . An additional shuttle tanker was written down during the first quarter of 2015 as a result of a change in the operating plan of the vessel. In the fourth quarter of 2015, the write-down of five shuttle tankers, which had an average age of 17.5 years , was the result of changes in Teekay Offshore’s expectations of their future opportunities, primarily due to their advanced age. The Company’s consolidated statement of income for the year ended December 31, 2015 , includes total write-downs of $66.7 million related to these seven shuttle tankers. The write-downs are included in the Teekay Offshore Segment.

b) Loan Loss Recoveries

During 2014, the Company reversed a $2.5 million loss provision for an amount receivable related to an FPSO front-end engineering and design study completed in 2013, as this receivable was recovered in 2014.

c) Net (Loss) Gain on Sale of Vessels, Equipment and Other Operating Assets

The Company's sale of vessels generally consists 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.

F- 47

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

The following table shows the net (loss) gain on sale of vessels, equipment and other operating assets for the years ended December 31, 2016 , 2015 , and 2014 :

						Net (Loss) Gain on Sale of Vessels, Equipment and Other Operating Assets
						Year Ended December 31,
Segment		Asset Type		Completion of Sale Date		2016 $		2015 $		2014 $
Teekay Offshore Segment		FSO unit		(1)		(983)		—		—
Teekay Offshore Segment		Shuttle tanker		Nov-16		6,817		—		—
Teekay Offshore Segment		Shuttle tanker		Mar-15		—		1,643		(4,759)
Teekay Offshore Segment		Shuttle tanker		Oct-14		—		—		3,121
Teekay Offshore Segment		2 Conventional Tankers		Mar-16		65		(3,897)		—
Teekay LNG Segment - Conventional Tankers		Suezmax		Mar-17		(11,537)		—		—
Teekay LNG Segment - Conventional Tankers		2 Suezmaxes		Apr/May-2016		(27,439)		—		—
Teekay Tankers Segment - Conventional Tankers		2 Suezmaxes		Jan-17		(6,276)		—		—
Teekay Tankers Segment - Conventional Tankers		MR Tanker		Nov-16		(8,094)		—		—
Teekay Tankers Segment - Conventional Tankers		MR Tanker		Aug-16		(6,556)		—		—
Teekay Tankers Segment - Conventional Tankers		2 VLCCs		May-14		—		—		9,955
Teekay Parent Segment - Conventional Tankers		VLCC		Oct-16		(12,495)		—		—
Other						48		(177)		433
Total						(66,450)		(2,431)		8,750

(1)	This vessel is expected to be sold in 2017.

See Note 2 – Segment Reporting for the asset impairments, loan loss recoveries, and net (loss) gain on sale of vessels, equipment and other operating assets, by segment for 2016 , 2015 and 2014 .

18.	(Loss) Earnings Per Share

	Year Ended December 31,
	2016 $			2015 $			2014 $
Net (loss) income attributable to shareholders of Teekay Corporation	(123,182	)		82,151			(54,757	)
The Company's portion of the Inducement Premium and Exchange Contribution charged to retained earnings by Teekay Offshore (note 15e)	(4,993	)		—			—
Net (loss) income attributable to shareholders of Teekay Corporation for basic income (loss) per share	(128,175	)		82,151			(54,757	)
Reduction in net earnings due to dilutive impact of stock-based compensation in Teekay LNG, Teekay Offshore and Teekay Tankers and Series C-1 Preferred Units in Teekay Offshore	(25	)		(227	)		—
Net (loss) income attributable to shareholders of Teekay Corporation for diluted income (loss) per share	(128,200	)		81,924			(54,757	)
Weighted average number of common shares	79,211,154			72,665,783			72,066,008
Dilutive effect of stock-based compensation	—			524,781			—
Common stock and common stock equivalents	79,211,154			73,190,564			72,066,008
(Loss) Earnings per common share:
- Basic	(1.62	)		1.13			(0.76	)
- Diluted	(1.62	)		1.12			(0.76	)

Stock-based awards, which have an anti-dilutive effect on the calculation of diluted loss per common share, are excluded from this calculation. For the years ended December 31, 2016 and 2015 , options to acquire 3.8 million shares and 1.4 million shares of Common Stock, respectively, had an anti-dilutive effect on the calculation of diluted earnings per common share. In periods where a loss attributable to shareholders has been incurred all stock-based awards are anti-dilutive.

F- 48

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

19.	Restructuring Charges

During 2016 , the Company recorded restructuring charges of $26.8 million ( $14.0 million – 2015 , $9.8 million - 2014 ).

The restructuring charges in 2016 primarily relate to the closure of two offices and seafarers' severance amounts related to the tug business in Western Australia, reorganization of the Company’s FPSO business to create better alignment with the Company’s offshore operations, and reductions to charges previously accrued. The charges related to the seafarers' severance were partly recovered from customers and the recovery is included in revenues on the consolidated statements of income .

The restructuring charges in 2015 relate to the termination of the employment of certain seafarers upon the expiration of a time-charter-out contract, the reorganization of the Company’s marine operations and corporate services, and the change in crew on a vessel as requested by a charterer. The actual restructuring charges relating to the termination of the employment of certain seafarers upon the expiration of a time-charter-out contract and the change in crew on a vessel as requested by a charterer in the amount of $8.4 million were fully reimbursed to the Company by the charterers and the net reimbursement is included in voyage revenues.

The restructuring charges in 2014 relate to the termination of the employment of certain seafarers upon the re-delivery of an in-chartered conventional tanker in December 2014 and upon the sale of a vessel under capital lease to a third party in August 2014, and the reflagging of one shuttle tanker which commenced in January 2014 and was completed in March 2014, partially offset by an adjustment to the accrual for costs related to the reorganization of the Company’s marine operations.

At December 31, 2016 and 2015 $5.6 million and $3.2 million , respectively, of restructuring liabilities were recorded in accrued liabilities on the consolidated balance sheets.

20.	Income Taxes

Teekay and a majority of its subsidiaries are not subject to income tax in the jurisdictions in which they are incorporated because they do not conduct business or operate in those jurisdictions. However, among others, the Company’s U.K. and Norwegian subsidiaries are subject to income taxes.

The significant components of the Company’s deferred tax assets and liabilities are as follows:

	December 31, 2016 $			December 31, 2015 $
Deferred tax assets:
Vessels and equipment	40,928			43,289
Tax losses carried forward (1)	276,291			321,648
Other	17,075			22,141
Total deferred tax assets	334,294			387,078
Deferred tax liabilities:
Vessels and equipment	5,974			10,577
Long-term debt	1,691			3,218
Other	11,626			15,090
Total deferred tax liabilities	19,291			28,885
Net deferred tax assets	315,003			358,193
Valuation allowance	(290,015	)		(322,491	)
Net deferred tax assets	24,988			35,702

    

Net deferred tax assets are presented in other non-current assets and other long term liabilities in the accompanying consolidated balance sheets. Certain of the balances in the comparative columns above have been adjusted with no impact on the amount of the net deferred tax assets.

(1)

Substantially all of the Company’s net operating loss carryforwards of $1.26 billion relate primarily to its Norwegian, U.K., Spanish, and Luxembourg subsidiaries and, to a lesser extent, to its Australian ship-owning subsidiaries. These net operating loss carryforwards are available to offset future taxable income in the respective jurisdictions, and can be carried forward indefinitely. The Company also has $36.4 million in disallowed finance costs that relate to its Spanish subsidiaries and are available to offset future taxable income in Spain and can also be carried forward indefinitely.

F- 49

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

The components of the provision for income taxes are as follows:

	Year Ended December 31, 2016 $			Year Ended December 31, 2015 $			Year Ended December 31, 2014 $
Current	(14,424	)		(10,440	)		(6,460	)
Deferred	(10,044	)		27,207			(3,713	)
Income tax (expense) recovery	(24,468	)		16,767			(10,173	)

The Company operates in countries that have differing tax laws and rates. Consequently, a consolidated weighted average tax rate will vary from year to year according to the source of earnings or losses by country and the change in applicable tax rates. Reconciliations of the tax charge related to the relevant year at the applicable statutory income tax rates and the actual tax charge related to the relevant year are as follows:

 

	Year Ended December 31, 2016 $			Year Ended December 31, 2015 $			Year Ended December 31, 2014 $
Net income before taxes	111,132			388,693			134,175
Net income (loss) not subject to taxes	57,862			252,604			(80,454	)
Net income subject to taxes	53,270			136,089			214,629
At applicable statutory tax rates	5,996			32,750			39,382
Permanent and currency differences, adjustments to valuation allowances and uncertain tax positions	18,198			(49,789	)		(28,027	)
Other	274			272			(1,182	)
Tax expense (recovery) related to the current year	24,468			(16,767	)		10,173

The following is a roll-forward of the Company’s unrecognized tax benefits, recorded in other long-term liabilities, from January 1, 2014 to December 31, 2016 :

	Year Ended December 31, 2016 $			Year Ended December 31, 2015 $			Year Ended December 31, 2014 $
Balance of unrecognized tax benefits as at January 1	18,390			20,335			20,304
Increases for positions related to the current year	6,422			4,578			3,643
Changes for positions taken in prior years	(3,729	)		(2,965	)		1,015
Decreases related to statute of limitations	(1,591	)		(3,558	)		(4,627	)
Balance of unrecognized tax benefits as at December 31	19,492			18,390			20,335

The majority of the net increase for positions relates to the potential tax on freight income on an increased number of voyages for the year ended December 31, 2016 .

The Company does not presently anticipate such uncertain tax positions will significantly increase or decrease in the next 12 months; however, actual developments could differ from those currently expected. The tax years 2007 through 2016 remain open to examination by some of the major jurisdictions in which the Company is subject to tax.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The interest and penalties on unrecognized tax benefits are included in the roll-forward schedule above and are approximately an increase of $1.2 million in 2016 , net of statute barred liabilities, and a reduction of $0.3 million in 2015 and $1.6 million in 2014 .

F- 50

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

21.	Pension Benefits

a) Defined Contribution Pension Plans

With the exception of certain of the Company’s employees in Australia and Norway, the Company’s employees are generally eligible to participate in defined contribution plans. These plans allow for the employees to contribute a certain percentage of their base salaries into the plans. The Company matches all or a portion of the employees’ contributions, depending on how much each employee contributes. During the years ended December 31, 2016 , 2015 , and 2014 , the amount of cost recognized for the Company’s defined contribution pension plans was $13.5 million , $15.2 million and $13.9 million , respectively.

b) Defined Benefit Pension Plans

The Company has a number of defined benefit pension plans (or the Benefit Plans ) which primarily cover certain employees in Norway and Australia. As at December 31, 2016 , approximately 65% of the defined benefit pension assets were held by the Norwegian plans and approximately 35% were held by the Australian plan. The pension assets in the Norwegian plans have been guaranteed a minimum rate of return by the provider, thus reducing potential exposure to the Company to the extent the provider honors its obligations.

The following table provides information about changes in the benefit obligation and the fair value of the Benefit Plans assets, a statement of the funded status, and amounts recognized on the Company’s balance sheets:

	Year Ended December 31, 2016 $			Year Ended December 31, 2015 $
Change in benefit obligation:
Beginning balance	82,415			121,604
Service cost	5,372			7,726
Interest cost	2,270			2,532
Contributions by plan participants	99			365
Actuarial (gain) loss	(2,943	)		(9,165	)
Benefits paid	(7,979	)		(9,651	)
Plan settlements and amendments	(34,725	)		(14,891	)
Foreign currency exchange rate changes	893			(16,001	)
Other	(95	)		(104	)
Ending balance	45,307			82,415
Change in fair value of plan assets:
Beginning balance	73,075			97,158
Actual return on plan assets	664			2,221
Contributions by the employer	5,517			7,858
Contributions by plan participants	99			365
Benefits paid	(7,974	)		(9,646	)
Plan settlements and amendments	(28,887	)		(11,420	)
Plan assets assumed on acquisition	—			203
Foreign currency exchange rate changes	726			(13,096	)
Other	(445	)		(568	)
Ending balance	42,775			73,075
Funded status deficiency	(2,532	)		(9,340	)
Amounts recognized in the balance sheets:
Other long-term liabilities	2,532			9,340
Accumulated other comprehensive loss:
Net actuarial losses (1)	(13,775	)		(17,374	)

(1)	As at December 31, 2016 , the estimated amount that will be amortized from accumulated other comprehensive (loss) income into net periodic benefit cost in 2016 is $0.5 million .

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

As of December 31, 2016 and 2015 , the accumulated benefit obligations for the Benefit Plans were $38.9 million and $67.1 million , respectively. The following table provides information for those pension plans with a benefit obligation in excess of plan assets and those pension plans with an accumulated benefit obligation in excess of plan assets:

	December 31, 2016 $			December 31, 2015 $
Benefit obligation	29,737			61,124
Fair value of plan assets	26,296			50,517
Accumulated benefit obligation	828			1,821
Fair value of plan assets	—			925

The components of net periodic pension cost relating to the Benefit Plans for the years ended December 31, 2016 , 2015 and 2014 consisted of the following:

	Year Ended December 31, 2016 $			Year Ended December 31, 2015 $			Year Ended December 31, 2014 $
Net periodic pension cost:
Service cost	5,372			7,726			8,800
Interest cost	2,270			2,532			4,975
Expected return on plan assets	(2,718	)		(2,895	)		(5,333	)
Amortization of net actuarial loss	469			1,538			7,148
Plan settlement	(3,899	)		(140	)		(3,332	)
Other	445			568			557
Net cost	1,939			9,329			12,815

The components of other comprehensive income (loss) relating to the Plans for the years ended December 31, 2016 , 2015 and 2014 consisted of the following:

	Year Ended December 31, 2016 $			Year Ended December 31, 2015 $			Year Ended December 31, 2014 $
Other comprehensive income (loss):
Net gain (loss) arising during the period	7,035			13,288			(14,954	)
Amortization of net actuarial loss	469			1,538			7,148
Plan settlement	(3,905	)		(140	)		(3,332	)
Total income (loss)	3,599			14,686			(11,138	)

The Company estimates that it will make contributions into the Benefit Plans of $2.4 million during 2017 . The following table provides the estimated future benefit payments, which reflect expected future service, to be paid by the Benefit Plans:

Year	Pension Benefit Payments $
2017	2,497
2018	2,156
2019	2,098
2020	2,123
2021	2,129
2021 – 2025	11,908
Total	22,911

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

The fair value of the plan assets, by category, as of December 31, 2016 and 2015 were as follows:

	Year Ended December 31, 2016 $			Year Ended December 31, 2015 $
Pooled Funds	28,012			52,150
Mutual Funds
Equity investments	7,972			11,089
Debt securities	1,772			2,512
Real estate	1,919			2,929
Cash and money market	1,181			1,674
Other	1,919			2,720
Total	42,775			73,075

(1)

The Company does not control the investment mix or strategy of the pooled funds. The pooled funds guarantee a minimum rate of return. If actual investment returns are less than the guarantee minimum rate, then the provider’s statutory reserves are used to top up the shortfall. The pooled funds primarily invest in hold to maturity bonds, real estate and other fixed income investments, which are expected to provide a stable rate of return.

(2)	The mutual funds primary aim is to provide investors with an exposure to a diversified mix of predominantly growth oriented assets ( 56% ) with moderate to high volatility and some defensive assets ( 44% ).

The investment strategy for all plan assets is generally to actively manage a portfolio that is diversified among asset classes, markets and regions. Certain of the investment funds do not invest in companies that do not meet certain socially responsible investment criteria. In addition to diversification, other risk management strategies employed by the investment funds include gradual implementation of portfolio adjustments and hedging currency risks.

The Company’s plan assets are primarily invested in commingled funds holding equity and debt securities, which are valued using the net asset value (or NAV ) provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares or units outstanding. Commingled funds are classified within Level 2 of the fair value hierarchy as the NAVs are not publicly available.

The Company has a pension committee that is comprised of various members of senior management. Among other things, the Company’s pension committee oversees the investment and management of the plan assets, with a view to ensuring the prudent and effective management of such plans. In addition, the pension committee reviews investment manager performance results annually and approves changes to the investment managers.

The weighted average assumptions used to determine benefit obligations at December 31, 2016 and 2015 were as follows:

	December 31, 2016		December 31, 2015
Discount rates	2.9%		3.0%
Rate of compensation increase	2.5%		3.4%

The weighted average assumptions used to determine net pension expense for the years ended December 31, 2016 , 2015 and 2014 were as follows:

	Year Ended December 31, 2016 $		Year Ended December 31, 2015 $		Year Ended December 31, 2014 $
Discount rates	2.9%		3.0%		2.9%
Rate of compensation increase	2.5%		3.4%		4.2%
Expected long-term rates of return	4.2%		4.0%		4.0%

(1)

To the extent the expected return on plan assets varies from the actual return, an actuarial gain or loss results. The expected long-term rates of return on plan assets are based on the estimated weighted-average long-term returns of major asset classes. In determining asset class returns, the Company takes into account long-term returns of major asset classes, historical performance of plan assets, as well as the current interest rate environment. The asset class returns are weighted based on the target asset allocations.

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

22.	Equity-accounted Investments

In December 2015, Teekay LNG entered into a joint venture agreement with Nogaholding, GIC, and Samsung to form a joint venture, the Bahrain LNG Joint Venture, for the development of an LNG receiving and regasification terminal in Bahrain and the supply of a FSU vessel. The Bahrain LNG Joint Venture is a joint venture between Nogaholding ( 30% ), Teekay LNG ( 30% ), GIC ( 24% ), and Samsung ( 16% ). The project will include an offshore LNG receiving jetty and breakwater, an adjacent regasification platform, subsea gas pipelines from the platform to shore, an onshore gas receiving facility, and an onshore nitrogen production facility with a total LNG terminal capacity of 800 million standard cubic feet per day and will be owned and operated under a 20 -year agreement commencing in early-2019 with an estimated fully built-up cost of approximately $960.0 million which is expected to be funded by the Bahrain LNG Joint Venture through a combination of equity capital and project-level debt through a consortium of regional and international banks. In addition, Teekay LNG will supply a FSU vessel in connection with this project, which will be modified from one of the nine MEGI LNG carrier newbuildings ordered from DSME through a 20 -year time-charter contract with the Bahrain LNG Joint Venture (see Note 3a).

As at December 31, 2016 , Teekay LNG had advanced $62.9 million ( December 31, 2015 – $ nil ) to the Bahrain LNG Joint Venture. These advances bear interest at LIBOR plus 1.25% and as at December 31, 2016 , the interest accrued on these advances was $0.1 million ( December 31, 2015 – $ nil ).

In October 2014, Teekay Offshore sold a 1995-built shuttle tanker, the Navion Norvegia , to the OOG-TK Libra GmbH & Co KG (or Libra Joint Venture ), a 50 /50 joint venture with OOG. The vessel is committed to a new FPSO unit conversion for the Libra field located in the Santos Basin offshore Brazil. The conversion project will be completed at Sembcorp Marine’s Jurong Shipyard in Singapore and the FPSO unit is scheduled to commence operations in mid-2017 under a 12 -year fixed-rate contract with Petrobras (see Note 15b).

In July 2014, Teekay LNG, entered into a 50 /50 joint venture (or the Yamal LNG Joint Venture ) with China LNG and ordered six internationally-flagged icebreaker LNG carriers for a project located on the Yamal Peninsula in Northern Russia (or the Yamal LNG Project ) (See Note 3e).

In June 2014, Teekay LNG acquired from BG (which was subsequently acquired by Shell) its ownership interests in four 174,000 -cubic meter Tri-Fuel Diesel Electric LNG carrier newbuildings, which will be constructed by Hudong-Zhonghua Shipbuilding (Group) Co., Ltd. in China for an estimated total fully built-up cost to the joint venture of approximately $1.0 billion . The vessels, upon delivery, which are scheduled between September 2017 and January 2019, will each operate under 20 -year fixed-rate time-charter contracts, plus extension options, with Methane Services Limited, a wholly-owned subsidiary of BG (see Note 3f) .

In January 2014, Teekay and Teekay Tankers formed TIL, which seeks to opportunistically acquire, operate and sell modern second-hand tankers to benefit from an expected recovery in the current cyclical low of the tanker market. Teekay and Teekay Tankers in the aggregate purchased 5.0 million shares of common stock, representing an initial 20% interest in TIL, as part of a $250 million private placement by TIL, which represents a total investment by Teekay and Teekay Tankers of $50.0 million . In October 2014, Teekay Tankers acquired an additional 0.9 million common shares in TIL, representing 2.43% of the then outstanding share capital of TIL. In October 2014, TIL authorized a share repurchase program for up to $30 million and in September 2015, TIL authorized an increase in its share repurchase program to $60 million . As of December 31, 2016 , TIL has repurchased $87.6 million of its shares at an average price of NOK 88.31  per share. The Company’s combined interests of Teekay and Teekay Tankers in TIL were 19.55% as at December 31, 2016 ( December 31, 2015 - 17.62% ) (see Note 3h). As of December 31, 2016, the aggregate value of the Company's investment in TIL, based on the quoted market price of TIL's common stock on the Oslo Stock Exchange was $24.7 million (December 31, 2015 - $72.8 million ).

In June 2013, Teekay Offshore completed the acquisition from Teekay of its 50% interest in a FPSO unit, the Cidade de Itaja i (or Itajai ). The Itajai FPSO has been operating on the Baúna and Piracaba (previously named Tiro and Sidon) fields in the Santos Basin offshore Brazil since February 2013 under a nine -year fixed-rate time-charter contract, plus extension options, with Petrobras. The remaining 50% interest in the Itajai FPSO unit is owned by OOG.

In February 2013, Teekay LNG entered into a joint venture agreement with Exmar to own and charter-in LPG carriers with a primary focus on the mid-size gas carrier segment. Exmar LPG BVBA (or the Exmar LPG Joint Venture ), took economic effect as of November 1, 2012 and, as of December 31, 2016 , its fleet included 19 LPG carriers and four LPG carrier newbuildings scheduled for delivery in 2017 and 2018. For Teekay LNG’s 50% ownership interest in the joint venture, including newbuilding payments made prior to the November 1, 2012 economic effective date of the joint venture, Teekay LNG invested $133.1 million in exchange for equity and a shareholder loan and assumed approximately $108 million of its pro rata share of existing debt and lease obligations as of the economic effective date. These debt and lease obligations are secured by certain vessels in the Exmar LPG Joint Venture fleet. The excess of the book value of net assets acquired over Teekay LNG’s investment in the Exmar LPG Joint Venture, which amounted to approximately $6.0 million , has been accounted for as an adjustment to the value of the vessels, charter agreements and lease obligations of the Exmar LPG Joint Venture and recognition of goodwill, in accordance with the final purchase price allocation. Control of the Exmar LPG Joint Venture is shared equally between Exmar and Teekay LNG. Teekay LNG accounts for its investment in the Exmar LPG Joint Venture using the equity method.

Teekay LNG has a 52% ownership interest in the joint venture between Marubeni Corporation and Teekay LNG (or the Teekay LNG-Marubeni Joint Venture ), which owns six LNG carriers. Since control of the Teekay LNG-Marubeni Joint Venture is shared jointly between Marubeni and Teekay LNG, Teekay LNG accounts for its investment in the Teekay LNG-Marubeni Joint Venture using the equity method.

F- 54

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

Teekay LNG has a 33% ownership interest in the Angola Joint Venture that owns four newbuilding 160,400 -cubic meter LNG carriers (or the Angola LNG Carriers ). The Angola LNG Carriers are chartered at fixed rates to the Angola LNG Project. The High-Q Joint Venture is a joint venture arrangement between Teekay Tankers and Wah Kwong Maritime Transport Holdings Limited (or Wah Kwong ) whereby Teekay Tankers holds a 50% interest. The RasGas 3 Joint Venture is a joint venture arrangement between Teekay LNG and QGTC Nakilat (1643-6) Holdings Corporation whereby Teekay LNG holds a 40% interest. The RasGas 3 Joint Venture owns four LNG carriers and related long-term fixed-rate time charters to service the expansion of a LNG project in Qatar. Teekay LNG has ownership interests ranging from 49% to 50% in its joint ventures with Exmar (or the Exmar LNG Joint Venture ) which owns two LNG carriers that are chartered out under long term contracts.

In November 2011, Teekay acquired a 40% interest in a recapitalized Sevan for approximately $25 million . Sevan owns (i)  two partially-completed hulls available for upgrade to FPSOs or other offshore projects; (ii) a licensing agreement with ENI SpA; (iii) an engineering and offshore project development business; and (iv) intellectual property rights, including offshore unit design patents. As of December 31, 2016 , the aggregate value of the Company’s 43% interest ( 43% interest — December 31, 2015 ) in Sevan, based on the quoted market price of Sevan’s common stock on the Oslo Stock Exchange, was $44.9 million ( $44.9 million – December 31, 2015 ).

A condensed summary of the Company’s investments in equity-accounted investees by segment is as follows (in thousands of U.S. dollars, except percentages):

			As at December 31,
Investments in Equity-accounted Investees   (1)	Ownership Percentage		2016 $			2015 $
Teekay Offshore
Libra Joint Venture	50%		69,972			17,952
Itajai	50%		71,827			59,692
Teekay LNG - Liquefied Gas
Angola LNG Carriers	33%		63,673			56,203
BG ( note 3f )	20% - 30%		33,594			25,574
Exmar LNG Joint Venture	50%		79,577			77,844
Exmar LPG Joint Venture	50%		165,064			163,730
RasGas3 Joint Venture	40%		173,037			160,684
Teekay LNG - Marubeni Joint Venture	52%		294,764			283,589
Yamal LNG Joint Venture ( note 3e )	50%		152,927			100,084
Bahrain LNG Joint Venture	30%		64,003			—
Teekay Tanker - Conventional Tankers
TIL ( note 3h )	11%		47,710			44,195
High Q Joint Venture	50%		22,025			21,166
Teekay Parent - Offshore Production
Sevan	43%		22,180			22,581
Teekay Parent - Conventional Tankers
TIL ( note 3h )	8%		36,699			34,224
Other	50%		2,802			16,072
			1,299,854			1,083,590

(1)	Investments in equity-accounted investees is presented in prepaid expenses and other, loans to equity-accounted investees, equity-accounted investments and accrued liabilities and other in the Company’s consolidated balance sheets.

F- 55

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

A condensed summary of the Company’s financial information for equity-accounted investments ( 18% to 52% owned) shown on a 100% basis are as follows:

	As at December 31,
	2016			2015
Cash and restricted cash	500,355			386,727
Other assets - current	150,378			162,414
Vessels and equipment	4,655,170			3,936,718
Net investment in direct financing leases	1,776,954			1,813,991
Other assets - non-current	74,096			80,987
Current portion of long-term debt and obligations under capital lease	360,942			345,336
Other liabilities - current and obligations under capital lease	160,312			162,076
Long-term debt and obligations under capital lease	4,208,214			3,459,187
Other liabilities - non-current	213,060			447,947

	Year Ended December 31,
	2016			2015			2014 (1)
Revenues	882,650			985,318			998,655
Income from vessel operations	365,472			433,023			454,135
Realized and unrealized (loss) gain on derivative instruments	(10,900	)		(38,955	)		(58,884	)
Net income	239,766			275,259			300,837

Certain of the comparative figures have been adjusted to conform to the presentation adopted in the current year.

(1) The results included for TIL are from the date of incorporation in January 2014.

For the year ended December 31, 2016 , the Company recorded equity income of $85.6 million ( 2015 – $102.9 million and 2014 - $128.1 million ). The income was primarily comprised of the Company’s share of net income (loss) from the Teekay LNG-Marubeni Joint Venture, Angola LNG Project, the RasGas 3 Joint Venture, Exmar LNG Joint Venture, Exmar LPG BVBA, and from the interest in the Itajai . For the year ended December 31, 2016 , $8.7 million of the equity gain related to the Company’s share of unrealized gain (loss) on interest rate swaps associated with these projects ( 2015 – $5.9 million and 2014 - $1.1 million ).

23. Subsequent Events

a)	On January 23, 2017, Teekay LNG issued in the Norwegian bond market NOK 300 million (equivalent to approximately $36 million ) in new senior unsecured bonds through an add-on to its existing NOK bonds due in October 2021, priced at 103.75% of face value. All principal and interest payments have been economically swapped into U.S. Dollars with a fixed interest rate of 7.69% .

b)

In late October 2016, Teekay Tankers entered into agreements to sell two Suezmax tankers, the Ganges Spirit and the Yamuna Spirit , for an aggregate sales price of $33.8 million . The Ganges Spirit completed its sale in January 2017. The vessel was classified as held for sale on the consolidated balance sheet as at December 31, 2016 and its net book value was written down to its sales price. In February 2017 the sales price of the Yamuna Spirit was reduced to $15.7 million and delivery to its new owner was completed in March 2017.

c)

In January 2017 Teekay Tankers sold approximately 3.8 million shares of its Class A common stock under its COP for net proceeds of $8.6 million , net of issuance costs. In addition, Teekay Tankers issued 2.2 million new shares of its Class A common stock to Teekay in a private placement for gross proceeds of $5.0 million and the price per share was set to equal the weighted average price of Teekay Tankers' Class A common stock for the ten trading days ending on the date of issuance.

d)	On February 28, 2017, Teekay LNG took delivery of its third MEGI LNG carrier newbuilding, the Torben Spirit , which commenced its 10 -month plus one -year option charter contract with a major energy company on March 3, 2017. Teekay LNG partially financed this MEGI LNG carrier newbuilding through a sales-leaseback transaction of approximately $125 million .

e)

On December 21, 2016, the RasGas 3 Joint Venture, of which Teekay LNG has a 40% ownership interest, completed its debt refinancing by entering into a $723 million secured term loan facility maturing in 2026 which replaced its outstanding term loan of $610 million . As a result, the RasGas 3 Joint Venture distributed $100 million in February 2017 to its shareholders, of which Teekay LNG's proportionate share was $40 million .

F- 56

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TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data and unless otherwise indicated)

f)

On March 31, 2017, the Teekay LNG-Marubeni Joint Venture completed the refinancing of its existing $396 million debt facility by entering into a new $335 million U.S. Dollar-denominated term loan maturing in September 2019. The term loan is collateralized by first-priority statutory mortgages over the Marib Spirit , Arwa Spirit , Methane Spirit and Magellan Spirit , first priority pledges or charges of all the issued shares of the respective vessel owning subsidiaries, and guaranteed by Teekay LNG and Marubeni Corporation on a several basis. As part of the completed refinancing, Teekay LNG invested $57 million of additional equity, based on its proportionate ownership interest, into the Teekay LNG-Marubeni Joint Venture.

F- 57

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