Report of Foreign Issuer (6-k)

Date : 05/31/2019 @ 8:26PM
Source : Edgar (US Regulatory)
Stock : Teekay Corporation (TK)
Quote : 2.8  0.05 (1.82%) @ 11:06PM
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Last Trade
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Report of Foreign Issuer (6-k)


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  _________________________
FORM 6-K
  _________________________
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
Commission file number 1- 12874
  _________________________
TEEKAY CORPORATION
(Exact name of Registrant as specified in its charter)
  _________________________
4 th Floor, Belvedere Building
69 Pitts Bay Road
Hamilton, HM 08, Bermuda
(Address of principal executive office)
  _________________________
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F   ý             Form 40- F   ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).
Yes   ¨             No    ý
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).
Yes   ¨             No    ý







 

Page 1


TEEKAY CORPORATION AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
INDEX



Page 2



ITEM 1 - FINANCIAL STATEMENTS
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF LOSS
(in thousands of U.S. Dollars, except share and per share amounts)
 
 
Three Months Ended March 31,
 
2019
 
2018
 
$
 
$
Revenues ( note 3 )
481,213

 
394,022

Voyage expenses
(103,123
)
 
(85,877
)
Vessel operating expenses
(156,992
)
 
(157,935
)
Time-charter hire expenses ( note 6 )
(29,838
)
 
(19,411
)
Depreciation and amortization
(72,107
)
 
(67,311
)
General and administrative expenses
(22,972
)
 
(24,183
)
Asset impairments (note 7)
(3,328
)
 
(18,662
)
Restructuring charges (note 13)
(8,621
)
 
(2,138
)
Income from vessel operations
84,232

 
18,505

Interest expense
(73,671
)

(54,625
)
Interest income
2,689

 
1,677

Realized and unrealized (losses) gains on non-designated derivative instruments  (note 15 )
(5,423
)
 
9,426

Equity (loss) income ( note 4 )
(61,653
)
 
27,117

Foreign exchange (loss) gain (notes 9 and 15 )
(2,630
)
 
22

Loss on deconsolidation of Teekay Offshore ( note 4 )

 
(7,070
)
Other income (loss)
28

 
(915
)
Loss before income taxes
(56,428
)
 
(5,863
)
Income tax expense ( note 16 )
(5,036
)
 
(4,117
)
Net loss
(61,464
)
 
(9,980
)
Net income attributable to non-controlling interests
(22,793
)
 
(10,575
)
Net loss attributable to the shareholders of Teekay Corporation
(84,257
)
 
(20,555
)
Per common share of Teekay Corporation   (note 17)
 
 
 
•  Basic and diluted loss attributable to shareholders of Teekay Corporation
(0.84
)
 
(0.21
)
Weighted average number of common shares outstanding   (note 17)
 
 
 
•  Basic and diluted
100,520,421

 
97,333,503


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

Page 3


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands of U.S. Dollars)
 
 
Three Months Ended March 31,
 
2019
 
2018
 
$
 
$
Net loss
(61,464
)
 
(9,980
)
Other comprehensive (loss) income:
 
 
 
Other comprehensive (loss) income before reclassifications
 
 
 
Unrealized (loss) gain on qualifying cash flow hedging instruments
(21,509
)
 
2,622

Pension adjustments, net of taxes
(87
)
 
195

Foreign exchange loss on currency translation

 
(377
)
Amounts reclassified from accumulated other comprehensive (loss) income relating to:
 
 
 
Realized (gain) loss on qualifying cash flow hedging instruments
 
 
 
To interest expense  (note 15)
(251
)
 
250

To equity income
(500
)
 
(77
)
Loss on deconsolidation of Teekay Offshore ( note 4 )

 
7,720

Other comprehensive (loss) income
(22,347
)
 
10,333

Comprehensive (loss) income
(83,811
)
 
353

Comprehensive income attributable to non-controlling interests
(7,693
)
 
(12,574
)
Comprehensive loss attributable to shareholders of Teekay Corporation
(91,504
)
 
(12,221
)
The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 4


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. Dollars, except share amounts)
 
 
As at
March 31,
2019
 
As at
December 31,
2018
 
$
 
$
ASSETS

 
 
Current

 
 
Cash and cash equivalents (note 9)
410,724

 
424,169

Restricted cash – current ( note 18 )
47,424

 
40,493

Accounts receivable, including non-trade of $9,512 (2018 – $7,883) and related party balance of $32,791 (2018 – $57,062)
119,825

 
174,031

Accrued revenue
55,180

 
20,249

Prepaid expenses and other (notes 3 and 15)
97,822

 
69,882

Current portion of loans to equity-accounted investments (note 4)
153,409

 
169,197

Total current assets
884,384

 
898,021

Restricted cash – non-current ( note 18 )
38,155

 
40,977

Vessels and equipment  (note 9)


 
 
At cost, less accumulated depreciation of $1,307,855 (2018 – $1,270,460)
3,326,468

 
3,362,937

Vessels related to finance leases, at cost, less accumulated amortization of $191,550 (2018 – $178,178) (note 6)
2,233,989

 
2,067,254

Operating lease right-of-use assets ( notes 2 and 6 )
173,945

 

Advances on newbuilding contracts

 
86,942

Total vessels and equipment
5,734,402

 
5,517,133

Net investment in direct financing leases – non-current (note 6)
558,857

 
562,528

Investment in and loans to equity-accounted investments (notes 4 and 11a)
1,106,572

 
1,193,741

Goodwill, intangibles and other non-current assets  (note 15)
159,115

 
179,270

Total assets
8,481,485

 
8,391,670

LIABILITIES AND EQUITY


 
 
Current


 
 
Accounts payable, accrued liabilities and other ( notes 8, 13 and 15 )
268,897

 
254,380

Loans from equity-accounted investments
64,406

 
75,292

Current portion of derivative liabilities (note 15)
12,940

 
12,205

Current portion of long-term debt (note 9 )
517,957

 
242,137

Current obligations related to finance leases ( note 6 )
85,706

 
102,115

Current portion of operating lease liabilities ( notes 2 and 6)
59,291

 

Total current liabilities
1,009,197

 
686,129

Long-term debt (note 9)
2,710,534

 
3,077,386

Long-term obligations related to finance leases ( note 6 )
1,700,034

 
1,571,730

Long-term operating lease liabilities ( notes 2 and 6 )
102,188

 

Derivative liabilities (note 15)
62,304

 
56,352

Other long-term liabilities (note 16 )
141,138

 
133,045

Total liabilities
5,725,395

 
5,524,642

Commitments and contingencies  (notes 6, 9, 11, and 15 )


 


Equity


 
 
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 100,699,409 shares outstanding and issued (2018 – 100,435,210)) (note 10)
1,048,623

 
1,045,659

Accumulated deficit
(321,905
)
 
(234,395
)
Non-controlling interest
2,040,496

 
2,058,037

Accumulated other comprehensive loss
(11,124
)
 
(2,273
)
Total equity
2,756,090

 
2,867,028

Total liabilities and equity
8,481,485

 
8,391,670

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

Page 5


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. Dollars)
 
 
Three Months Ended March 31,
 
2019
 
2018
 
$
 
$
Cash, cash equivalents and restricted cash provided by (used for)
 
 
 
OPERATING ACTIVITIES
 
 
 
Net loss
(61,464
)
 
(9,980
)
Non-cash and non-operating items:
 
 
 
Depreciation and amortization
72,107

 
67,311

Unrealized loss (gain) on derivative instruments ( note 15 )
5,642

 
(37,309
)
Asset impairments ( note 7 )
3,328

 
18,662

Loss on deconsolidation of Teekay Offshore ( note 4 )

 
7,070

Equity loss (income), net of dividends received
68,661

 
(26,369
)
Income tax expense
5,036

 
4,117

Foreign exchange (gain) loss
(3,051
)
 
23,622

Other
10,287

 
6,075

Direct financing lease payments received
3,025

 

Change in operating assets and liabilities
16,295

 
(11,635
)
Expenditures for dry docking
(14,712
)
 
(8,454
)
Net operating cash flow
105,154

 
33,110

FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of long-term debt, net of issuance costs
138,082

 
263,920

Prepayments of long-term debt
(176,581
)
 
(237,824
)
Scheduled repayments of long-term debt (note 9)
(54,877
)
 
(64,501
)
Proceeds from financing related to sale-leaseback of vessels
158,680

 
126,273

Repayments of obligations related to finance leases
(23,199
)
 
(15,246
)
Net proceeds from equity issuances of Teekay Corporation ( note 10 )

 
103,696

Repurchase of Teekay LNG common units
(9,497
)
 

Distributions paid from subsidiaries to non-controlling interests
(13,892
)
 
(19,824
)
Cash dividends paid
(5,523
)
 
(5,514
)
Other financing activities
(24
)
 
(524
)
Net financing cash flow
13,169

 
150,456

INVESTING ACTIVITIES
 
 
 
Expenditures for vessels and equipment
(124,540
)
 
(168,287
)
Proceeds from sale of equity-accounted investments

 
54,438

Investment in equity-accounted investments
(2,864
)
 
(19,604
)
Cash of transferred subsidiaries on sale, net of proceeds received ( note 4 )

 
(25,254
)
Other investing activities
(255
)
 
2,358

Net investing cash flow
(127,659
)
 
(156,349
)
(Decrease) increase in cash, cash equivalents and restricted cash
(9,336
)
 
27,217

Cash, cash equivalents and restricted cash, beginning of the period
505,639

 
552,174

Cash, cash equivalents and restricted cash, end of the period
496,303

 
579,391

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

Page 6


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. Dollars, except share amounts)
 
 
TOTAL EQUITY
 
Thousands
of Shares
of Common
Stock
Outstanding
#
 
Common
Stock and
Additional
Paid-in
Capital
$
 
Accumulated
Deficit
$
 
Accumulated
Other
Compre-
hensive
(Loss) Income
$
 
Non-
controlling
Interests
$
 
Total
$
Balance as at December 31, 2018
100,435

 
1,045,659

 
(234,395
)
 
(2,273
)
 
2,058,037

 
2,867,028

Net (loss) income

 

 
(84,257
)
 

 
22,793

 
(61,464
)
Other comprehensive loss

 

 

 
(7,247
)
 
(15,100
)
 
(22,347
)
Dividends declared:
 
 
 
 
 
 
 
 
 
 
 
Common stock ($0.055 per share)

 

 
(5,385
)
 

 

 
(5,385
)
Other dividends

 

 

 

 
(13,892
)
 
(13,892
)
Employee stock compensation and other ( note 10 )
264

 
2,964

 

 

 

 
2,964

Change in accounting policy ( note 2 )

 

 
606

 
(1,604
)
 
(1,993
)
 
(2,991
)
Changes to non-controlling interest from equity contributions and other ( note 2 )

 

 
1,526

 

 
(9,349
)
 
(7,823
)
Balance as at March 31, 2019
100,699

 
1,048,623

 
(321,905
)
 
(11,124
)
 
2,040,496

 
2,756,090

 
TOTAL EQUITY
 
Thousands
of Shares
of Common
Stock
Outstanding
#
 
Common
Stock and
Additional
Paid-in
Capital
$
 
Accumulated
Deficit
$
 
Accumulated
Other
Compre-
hensive
(Loss) Income
$
 
Non-
controlling
Interests
$
 
Total
$
Balance as at December 31, 2017
89,127

 
919,078

 
(135,892
)
 
(5,995
)
 
2,102,465

 
2,879,656

Net (loss) income

 

 
(20,555
)
 

 
10,575

 
(9,980
)
Other comprehensive income

 

 

 
8,334

 
1,999

 
10,333

Dividends declared:
 
 
 
 
 
 
 
 
 
 
 
Common stock ($0.055 per share)

 

 
(5,445
)
 

 

 
(5,445
)
Other dividends

 

 

 

 
(19,824
)
 
(19,824
)
Employee stock compensation and other ( note 10 )
180

 
4,430

 

 

 

 
4,430

Proceeds from equity offerings, net of offering costs ( note 10 )
11,127

 
103,696

 

 

 

 
103,696

Equity component of convertible notes ( note 9 )

 
16,099

 

 

 

 
16,099

Changes to non-controlling interest from equity contributions and other

 

 
1,988

 
99

 
3,059

 
5,146

Balance as at March 31, 2018
100,434

 
1,043,303

 
(159,904
)
 
2,438

 
2,098,274

 
2,984,111

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

Page 7

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

 
1.
Basis of Presentation
The unaudited interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (or GAAP ). They include the accounts of Teekay Corporation (or Teekay ), which is incorporated under the laws of the Republic of the Marshall Islands, its wholly-owned or controlled subsidiaries and any variable interest entities (or VIEs ) of which it is the primary beneficiary (collectively, the Company ).

Certain of Teekay’s significant non-wholly owned subsidiaries are consolidated in these financial statements even though Teekay owns less than a  50% ownership interest in the subsidiaries. These significant subsidiaries include the publicly-traded subsidiaries Teekay LNG Partners L.P. (or  Teekay LNG ) and Teekay Tankers Ltd. (or  Teekay Tankers ).
 
Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted from these unaudited interim consolidated financial statements and, therefore, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2018 , included in the Company’s Annual Report on Form 20-F, filed with the U.S. Securities and Exchange Commission (or SEC ) on April 1, 2019. In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments, consisting of a normal recurring nature, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, cash flows and changes in total equity for the interim periods presented. The results of operations for the three months ended March 31, 2019 , are not necessarily indicative of those for a full fiscal year. Significant intercompany balances and transactions have been eliminated upon consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. It is possible that the amounts recorded as derivative assets and liabilities could vary by material amounts prior to their settlement.
2 . Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (or FASB ) issued Accounting Standards Update 2016-02, Leases (or ASU 2016-02 ). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. For lessees, leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. ASU 2016-02 requires lessors to classify leases as a sales-type, direct financing, or operating lease. A lease is a sales-type lease if any one of five criteria are met, each of which indicate that the lease, in effect, transfers control of the underlying asset to the lessee. If none of those five criteria are met, but two additional criteria are both met, indicating that the lessor has transferred substantially all of the risks and benefits of the underlying asset to the lessee and a third party, the lease is a direct financing lease. All leases that are not sales-type leases or direct financing leases are operating leases. ASU 2016-02 became effective for the Company on January 1, 2019. FASB issued an additional accounting standards update in July 2018 that made further amendments to accounting for leases, including allowing the use of a transition approach whereby a cumulative effect adjustment is made as of the effective date, with no retrospective effect and providing an optional practical expedient to lessors not to separate lease and non-lease components of a contract if certain criteria are met. The Company has elected to use this new optional transitional approach. To determine the cumulative effect adjustment, the Company has not reassessed lease classification, initial direct costs for any existing leases, or whether any expired or existing contracts are or contain leases. The Company identified the following differences:

The adoption of ASU 2016-02 resulted in a change in the accounting method for the lease portion of the daily charter hire for the chartered-in vessels by the Company and the Company's equity-accounted joint ventures accounted for as operating leases with firm periods of greater than one year, as well as a small number of office leases. On January 1, 2019, a right-of-use asset relating to vessels of $170.0 million and a lease liability of $170.0 million were recognized, equal to the present value of future minimum lease payments. On March 31, 2019 , the right-of-use asset relating to vessels was $161.5 million and the lease liability was $161.5 million . The carrying value of the Company's chartered-in vessels has also been reclassified from other non-current assets ( $12.9 million March 31, 2019 and $13.7 million January 1, 2019) and from other long-term liabilities ( $0.4 million March 31, 2019 and $0.9 million January 1, 2019) to the right-of-use asset. In addition, on March 31, 2019 the right-of-use asset relating to office leases was $7.6 million and is presented in other non-current assets. The lease liability relating to office leases, presented in accounts payable, accrued liabilities and other and other long-term liabilities, was $7.7 million , and $0.1 million was reflected as a foreign exchange loss. Under ASU 2016-02, the Company and the Company's equity-accounted joint ventures recognize a right-of-use asset and a lease liability on the balance sheet for these charters and office leases based on the present value of future minimum lease payments, whereas previously no right-of-use asset or lease liability was recognized. This has the result of increasing the Company's and its equity-accounted joint ventures' assets and liabilities. The pattern of expense recognition of chartered-in vessels and office leases is expected to remain substantially unchanged, unless the right-of-use asset becomes impaired.

The adoption of ASU 2016-02 results in the recognition of revenue from the reimbursement of scheduled dry-dock expenditures, where such charter contract is accounted for as an operating lease, occurring upon completion of the scheduled dry-dock, instead of ratably over the period between the previous scheduled dry-dock and the next scheduled dry-dock. This change decreased investment in and loans to equity-accounted investments by $3.0 million , and total equity by $3.0 million as at March 31, 2019 . The cumulative decrease to opening equity as at January 1, 2019 was $3.0 million .


Page 8

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

The adoption of ASU 2016-02 results in direct financing lease payments received being presented as an operating cash inflow instead of an investing cash inflow in the consolidated statement of cash flows. Direct financing lease payments received during the three months ended March 31, 2019 and March 31, 2018 were $3.0 million and $2.4 million , respectively.

The adoption of ASU 2016-02 results in sale and leaseback transactions where the seller lessee has a fixed price repurchase option or other situations where the leaseback would be classified as a finance lease being accounted for as a failed sale of the vessel and a failed purchase of the vessel by the buyer lessor. Prior to the adoption of ASU 2016-02 such transactions were accounted for as a completed sale and a completed purchase. Consequently, for such transactions the Company does not derecognize the vessel sold and continues to depreciate the vessel as if it were the legal owner. Proceeds received from the sale of the vessel are recognized as a financial liability and bareboat charter hire payments made by the Company to the lessor are allocated between interest expense and principal repayments on the financial liability. The adoption of ASU 2016-02 has resulted in the sale and leaseback of the Yamal Spirit during the first quarter of 2019 being accounted for as a failed sale and unlike the eight sale-leaseback transactions entered in prior years, the Company is not considered as holding a variable interest in the buyer lessor entity and thus does not consolidate the buyer lessor entity (see Note 6 ).

The Company's floating production, storage and offloading (or FPSO ) contracts, time charters and voyage charters include both a lease component, consisting of the lease of the vessel, and a non-lease component, consisting of the operation of the vessel for the customer. The Company has elected not to separate the non-lease component from the lease component for all such charters, where the lease component is classified as an operating lease, and to account for the combined component as an operating lease in accordance with Accounting Standards Codification (or ASC ) 842 Leases .

In August 2017, the FASB issued Accounting Standards Update 2017-12, Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities (or ASU 2017-12 ). ASU 2017-12 eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also modifies the accounting for components excluded from the assessment of hedge effectiveness, eases documentation and assessment requirements and modifies certain disclosure requirements. ASU 2017-12 became effective for the Company on January 1, 2019. This change decreased accumulated other comprehensive (loss) income by $4.8 million as at January 1, 2019, and correspondingly increased opening equity as at January 1, 2019 by $4.8 million .

In June 2016, the FASB issued Accounting Standards Update 2016-13,  Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (or ASU 2016-13 ). ASU 2016-13 replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update is effective for the Company on January 1, 2020, with a modified-retrospective approach. The Company is currently evaluating the effect of adopting this new guidance.
3 . Revenues
The Company’s primary source of revenue is chartering its vessels and offshore units to its customers. The Company utilizes four primary forms of contracts, consisting of time-charter contracts, voyage charter contracts, bareboat charter contracts and contracts for FPSO units. The Company also generates revenue from the management and operation of vessels owned by third parties and by equity-accounted investments as well as providing corporate management services to such entities. For a description of these contracts, see "Item 18 - Financial Statements: Note 2" in the Company’s Annual Report on Form 20-F for the year ended December 31, 2018 .

Revenue Table
The following tables contain the Company’s revenue for the three months ended March 31, 2019 and 2018 , by contract type, by segment and by business lines within segments.
 
Three Months Ended March 31, 2019
 
Teekay LNG Liquefied Gas Carriers
Teekay LNG Conventional Tankers
Teekay Tankers Conventional Tankers
Teekay Parent Offshore Production
Teekay Parent Other
Eliminations and Other
Total
 
 
 
$
$
$
$
$
$
$
Time charters
130,775

2,762

3,410


6,269


143,216

Voyage charters
9,160


216,417




225,577

Bareboat charters
6,062






6,062

FPSO contracts



49,438



49,438

Management fees and other
985


12,674


44,390

(1,129
)
56,920

 
146,982

2,762

232,501

49,438

50,659

(1,129
)
481,213



Page 9

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

 
Three Months Ended March 31, 2018
 
Teekay LNG Liquefied Gas Carriers
Teekay LNG Conven-tional Tankers
Teekay Tankers Conven-tional Tankers
Teekay Parent Offshore Production
Teekay Parent Other
Eliminations and Other
Total
 
 
 
 
$
$
$
$
$
$
$
Time charters
93,459

5,398

22,110


13,094

(7,979
)
126,082

Voyage charters
3,623

4,751

135,642




144,016

Bareboat charters
5,377






5,377

FPSO contracts



65,970



65,970

Management fees and other
2,590

108

10,713


38,850

316

52,577

 
105,049

10,257

168,465

65,970

51,944

(7,663
)
394,022

 
 
 
 
 
 
 
 
The following table contains the Company's total revenue for the three months ended March 31, 2019 and 2018 , by contracts or components of contracts accounted for as leases and those not accounted for as leases.
 
 
March 31, 2019
 
March 31, 2018
Lease revenue
 
 
 
 
Lease revenue from lease payments of operating leases
 
393,761

 
318,617

Interest income on lease receivables
 
12,794

 
9,960

Variable lease payments  cost reimbursements (1)
 
12,008

 
8,862

Variable lease payments – other   (2)
 
205

 
(134
)
 
 
418,768

 
337,305

Non-lease revenue
 
 
 
 
Non-lease revenue  related to sales-type or direct financing leases
 
5,525

 
4,140

Management fees and other income
 
56,920

 
52,577

 
 
62,445

 
56,717

Total
 
481,213

 
394,022

(1)
Reimbursement for vessel operating expenditures and drydocking expenditures received from the Company's customers relating to such costs incurred by the Company to operate the vessel for the customer.
(2)
Compensation from time-charter contracts based on spot market rates in excess of a base daily hire amount, production tariffs, which are based on the volume of oil produced, the price of oil, as well as other monthly or annual operational performance measures.
Operating Leases

As at March 31, 2019 , the minimum scheduled future rentals to be received by the Company in each of the next five years for the lease and non-lease elements related to time-charters, bareboat charters and FPSO contracts that were accounted for as operating leases were approximately $506.9 million (remainder of 2019 ), $551.5 million ( 2020 ), $487.6 million ( 2021 ), $411.3 million ( 2022 ) and $320.0 million ( 2023 ).

As at December 31, 2018 , the minimum scheduled future rentals to be received by the Company in each of the next five years for the lease and non-lease elements related to time-charters, bareboat charters and FPSO contracts that were accounted for as operating leases were approximately $630.8 million ( 2019 ), $524.6 million ( 2020 ), $457.5 million ( 2021 ), $382.0 million ( 2022 ) and $291.8 million ( 2023 ).

Minimum scheduled future revenues should not be construed to reflect total charter hire revenues for any of the years. Minimum scheduled future revenues do not include revenue generated from new contracts entered into after March 31, 2019 or after December 31, 2018 , as applicable, revenue from unexercised option periods of contracts that existed on March 31, 2019 or on December 31, 2018 , as applicable, revenue from vessels in the Company’s equity-accounted investments, or variable or contingent revenues accounted for under ASC 842 Leases. In addition, minimum scheduled future operating lease revenues presented in this paragraph have been reduced by estimated off-hire time for any periodic maintenance. The amounts may vary given unscheduled future events such as vessel maintenance.

The net carrying amount of the vessels employed on time-charter contracts, bareboat charter contracts and FPSO contracts that have been accounted for as operating leases at March 31, 2019 , was $3.6 billion ( December 31, 2018 $3.4 billion ). At March 31, 2019 , the cost and accumulated depreciation of such vessels were $4.5 billion ( December 31, 2018 $4.3 billion ) and $0.9 billion ( December 31, 2018 $0.8 billion ), respectively.


Page 10

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

Net Investment in Direct Financing Leases
Teekay LNG's time-charter contracts accounted for as direct financing leases contain both a lease component (lease of the vessel) and a non-lease component (operation of the vessel). Teekay LNG has allocated the contract consideration between the lease component and non-lease component on a relative standalone selling price basis. The standalone selling price of the non-lease component has been determined using a cost-plus approach, whereby Teekay LNG estimates the cost to operate the vessel using cost benchmarking studies prepared by a third party, when available, or internal estimates when not available, plus a profit margin. The standalone selling price of the lease component has been determined using an adjusted market approach, whereby Teekay LNG calculates a rate excluding the operating component based on a market time-charter rate from published broker estimates, when available, or internal estimates when not available. Given that there are no observable standalone selling prices for either of these two components, judgment is required in determining the standalone selling price of each component.
Teekay LNG has three liquefied natural gas (or LNG ) carriers, excluding vessels in its equity-accounted joint ventures, which are accounted for as direct financing leases. For a description of Teekay LNG's LNG carriers accounted for as direct financing leases, see "Item 18 - Financial Statements: Note 2" to the Company's Annual Report on Form 20-F for the year ended December 31, 2018. The following table lists the components of Teekay LNG's net investments in direct financing leases:
 
March 31, 2019
 
December 31, 2018
 
$
 
$
Total minimum lease payments to be received
880,978

 
897,130

Estimated unguaranteed residual value of leased properties
291,098

 
291,098

Initial direct costs and other
320

 
329

Less unearned revenue
(600,600
)
 
(613,394
)
Total
571,796

 
575,163

Less current portion
(12,939
)
 
(12,635
)
Long-term portion
558,857

 
562,528


As at March 31, 2019 , estimated minimum lease payments to be received by Teekay LNG related to its direct financing leases in each of the next five years are approximately $48.3 million ( 2019 ), $64.3 million ( 2020 ), $64.2 million ( 2021 ), $64.2 million ( 2022 ), $64.0 million ( 2023 ) and an aggregate of $576.0 million thereafter. The leases are scheduled to end between 2029 and 2039.

As at December 31, 2018 , estimated minimum lease payments to be received by Teekay LNG related to its direct financing leases in each of the next five years are approximately $64.2 million ( 2019 ), $64.3 million ( 2020 ), $64.2 million ( 2021 ), $64.2 million ( 2022 ), $64.0 million ( 2023 ) and an aggregate of $576.2 million thereafter. The leases are scheduled to end between 2029 and 2039.
Contract Liabilities

The Company enters into certain customer contracts that result in situations where the customer will pay consideration upfront for performance to be provided in the following month or months. These receipts are contract liabilities and are presented as deferred revenue until performance is provided. As at March 31, 2019 , December 31, 2018 , March 31, 2018 and on transition to ASC 606 on January 1, 2018, there were contract liabilities of $22.4 million , $26.4 million , $22.3 million and $29.5 million respectively. During each of the three months ended March 31, 2019 and 2018 , the Company recognized $26.4 million of revenue that was included in the contract liability balance as at the beginning of such three-month periods.
4 . Related Party Transactions
Teekay Offshore was a related party of Teekay as at March 31, 2019. On September 25, 2017, Teekay, Teekay Offshore and Brookfield Business Partners L.P. (or Brookfield ) completed a strategic partnership (or the 2017 Brookfield Transaction ), which resulted in the deconsolidation of Teekay Offshore as of that date. On April 29, 2019, Teekay entered into an agreement to sell to Brookfield all of the Company’s remaining interests in Teekay Offshore (or the 2019 Brookfield Transaction ), which included the Company’s 49% general partner interest, common units, warrants, and an outstanding $25 million loan from the Company to Teekay Offshore (described below), for total proceeds of $100 million in cash. The 2019 Brookfield Transaction was completed in May 2019.

The Company accounted for its investment in Teekay Offshore's general partner and common units under the equity method of accounting. Based on the 2019 Brookfield Transaction, the Company has remeasured its investment in Teekay Offshore to fair value at March 31, 2019 based on the Teekay Offshore publicly-traded unit price at that date, resulting in a write-down of $64.9 million reflected in the Company's consolidated statements of loss , included in equity loss, for the three months ended March 31, 2019 . The Company expects to recognize a loss on sale of approximately $10.0 million with respect to the completion of the 2019 Brookfield Transaction in the second quarter of 2019.

As at March 31, 2019 , Teekay had advanced $67.2 million to Teekay Offshore ( December 31, 2018 $83.1 million ) and Teekay Offshore had advanced $40.1 million to Teekay ( December 31, 2018 $59.3 million ). Such amounts are included in current portion of loans to equity-accounted investments and loans from equity-accounted investments, respectively, on the consolidated balance sheets.

Page 11

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


In March 2018, Teekay Offshore entered into a loan agreement for a $125.0 million senior unsecured revolving credit facility, of which up to $25.0 million was provided by Teekay and up to $100.0 million was provided by Brookfield. The facility is scheduled to mature in October 2019. As at March 31, 2019 , Teekay had advanced $25.0 million to Teekay Offshore under this facility, which is included in the $67.2 million recorded in current portion of loans to equity-accounted investments in the consolidated balance sheets. Teekay’s $25.0 million loan to Teekay Offshore was among the assets sold by Teekay to Brookfield in the 2019 Brookfield Transaction.

Until December 31, 2017, Teekay and its wholly-owned subsidiaries directly and indirectly provided substantially all of Teekay Offshore’s ship management, commercial, technical, strategic, business development and administrative service needs. On January 1, 2018, as part of the 2017 Brookfield Transaction, Teekay Offshore acquired a 100% ownership interest in seven subsidiaries (or the Transferred Subsidiaries ) of Teekay at carrying value. The Company recognized a loss of $7.1 million for the three months ended March 31, 2018 related to the sale of the Transferred Subsidiaries and the resultant release of accumulated pension losses from accumulated other comprehensive income, which is recorded in loss on deconsolidation of Teekay Offshore on the Company's consolidated statements of loss . Specifically, the Transferred Subsidiaries provided ship management, commercial, technical, strategic, business development and administrative services to Teekay Offshore, primarily related to Teekay Offshore's FPSO units, shuttle tankers and floating storage and offtake (or FSO ) units.

Subsequent to their transfer to Teekay Offshore, the Transferred Subsidiaries continue to provide ship management, commercial, technical, strategic, business development and administrative services to Teekay, primarily related to Teekay's FPSO units. Teekay and certain of its subsidiaries, other than the Transferred Subsidiaries, continue to provide certain other ship management, commercial, technical, strategic and administrative services to Teekay Offshore.

Revenues received by the Company for services provided to Teekay Offshore for the three months ended March 31, 2019 and March 31, 2018 were $5.3 million and $6.5 million , respectively, which were recorded in revenues on the Company's consolidated statements of loss . Fees paid by the Company to Teekay Offshore for services provided by Teekay Offshore to the Company for the three months ended March 31, 2019 and March 31, 2018 were $6.3 million and $6.5 million , respectively, which were recorded in vessel operating expenses and general and administrative expenses on the Company's consolidated statements of loss .

As at March 31, 2019 , two shuttle tankers and three FSO units of Teekay Offshore were employed on long-term time-charter-out or bareboat contracts to subsidiaries of Teekay. Time-charter hire expenses paid by the Company to Teekay Offshore for the three months ended March 31, 2019 and March 31, 2018 were $14.7 million and $14.0 million , respectively.

In September 2018, Teekay LNG entered into an agreement with its 52% -owned joint venture with Marubeni Corporation (or the Teekay LNG-Marubeni Joint Venture ) to charter in one of Teekay LNG-Marubeni Joint Venture's LNG carriers, the Magellan Spirit , for a period of two years at a fixed-rate. Time-charter hire expense for the three months ended March 31, 2019 was $5.6 million .

The Company provides ship management and corporate services to certain of its equity-accounted joint ventures that own and operate LNG carriers on long-term charters. In addition, the Company is reimbursed for costs incurred by the Company for its seafarers operating these LNG carriers. During the three months ended March 31, 2019 and March 31, 2018 , the Company earned $15.8 million and $12.6 million , respectively, of fees pursuant to these management agreements and reimbursement of costs.
5 . Segment Reporting
The Company’s segments are described in "Item 18 - Financial Statements: Note 3" to the Company’s Annual Report on Form 20-F for the year ended December 31, 2018 . The Company allocates capital and assesses performance from the separate perspectives of its two publicly-traded subsidiaries Teekay LNG and Teekay Tankers (together, the Controlled Daughter Entities ), Teekay and its remaining subsidiaries (or Teekay Parent ), and, prior to the completion of the 2019 Brookfield Transaction, its equity-accounted investment in Teekay Offshore, as well as from the perspective of the Company's lines of business. The primary focus of the Company’s organizational structure, internal reporting and allocation of resources by the chief operating decision maker is on the Controlled Daughter Entities, Teekay Parent and, prior to the completion of the 2019 Brookfield Transaction, its equity-accounted investment in Teekay Offshore, (the Legal Entity approach ), and its segments are presented accordingly on this basis. The Company (which excludes Teekay Offshore) has three primary lines of business: (1) offshore production (FPSO units), (2) LNG and liquefied petroleum gas (or LPG ) carriers, and (3) conventional tankers. The Company manages these businesses for the benefit of all stakeholders. The Company incorporates the primary lines of business within its segments, as in certain cases there is more than one line of business in each Controlled Daughter Entity and the Company believes this information allows a better understanding of the Company’s performance and prospects for future net cash flows.

Page 12

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

The following table includes the Company’s revenues by segment for the three months ended March 31, 2019 and 2018 :
 
Revenues
 
Three Months Ended March 31,
 
2019
2018
 
$
$
Teekay LNG
 
 
Liquefied Gas Carriers (1)
146,982

105,049

Conventional Tankers
2,762

10,257

 
149,744

115,306

 
 
 
Teekay Tankers
 
 
Conventional Tankers (1)
232,501

168,465

 
 
 
Teekay Parent
 
 
Offshore Production
49,438

65,970

Other
50,659

51,944

 
100,097

117,914

 
 
 
Eliminations and other
(1,129
)
(7,663
)
 
481,213

394,022


(1)
The amounts in the table below represent revenue earned by each segment from other segments within the group. During 2019, Teekay Tankers' ship-to-ship transfer business provided operational and maintenance services to Teekay LNG Bahrain Operations L.L.C., an entity wholly-owned by Teekay LNG, for the LNG receiving and regasification terminal in Bahrain. During 2018, certain vessels were chartered by Teekay LNG to Teekay Parent. Such intersegment revenue for the three months ended March 31, 2019 and 2018 is as follows:
 
Three Months Ended March 31,
 
2019
2018
 
$
$
Teekay LNG - Liquefied Gas Carriers

7,979

Teekay Tankers - Conventional Tankers
1,129


 
1,129

7,979


The following table includes the Company’s income (loss) from vessel operations by segment for the three months ended March 31, 2019 and 2018 :
 
Income (loss) from Vessel Operations (1)
 
Three Months Ended March 31,
 
2019
2018
 
$
$
Teekay LNG
 
 
Liquefied Gas Carriers
70,443

44,545

Conventional Tankers
(1,082
)
(19,403
)
 
69,361

25,142

 
 
 
Teekay Tankers
 
 
Conventional Tankers
32,097

(8,421
)
 
 
 
Teekay Parent
 
 
Offshore Production
(12,557
)
6,882

Other
(4,669
)
(5,098
)
 
(17,226
)
1,784

 
 
 
 
84,232

18,505


(1)
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).

Page 13

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

As at March 31, 2019 and 2018 , the Company accounted for its investment in Teekay Offshore's general partner and common units using the equity method, and recognized an equity loss of $68.0 million in respect of Teekay Offshore for the three months ended March 31, 2019 and equity income of $0.7 million for the three months ended March 31, 2018 .

A reconciliation of total segment assets to total assets presented in the accompanying unaudited consolidated balance sheets is as follows:
 
March 31, 2019
December 31, 2018
 
$
$
Teekay LNG – Liquefied Gas Carriers
5,289,549

5,162,756

Teekay LNG – Conventional Tankers
13,557

36,701

Teekay Tankers – Conventional Tankers
2,127,741

2,106,169

Teekay Parent – Offshore Production
374,959

311,550

Teekay Parent – Conventional Tankers
3,056

13,056

Teekay Parent – Other
83,793

25,224

Teekay Offshore
151,140

233,225

Cash and cash equivalents
410,724

424,169

Other assets not allocated
49,104

99,024

Eliminations
(22,138
)
(20,204
)
Consolidated total assets
8,481,485

8,391,670

6 . Leases
Obligations Related to Finance Leases

March 31, 2019

December 31, 2018

$

$
Teekay LNG
 
 
 
LNG Carriers
1,415,987

 
1,274,569

Suezmax Tanker

 
23,987

Teekay Tankers
 
 
 
Suezmax Tankers
162,979

 
165,145

Aframax Tankers
180,932

 
184,021

LR2 Product Tanker
25,842

 
26,123

Total obligations related to finance leases
1,785,740

 
1,673,845

Less current portion
(85,706
)
 
(102,115
)
Long-term obligations related to finance leases
1,700,034

 
1,571,730


Teekay LNG

As at March 31, 2019 , Teekay LNG was a party to finance leases on nine LNG carriers. Upon delivery of these nine LNG carriers between February 2016 and January 2019, Teekay LNG sold these vessels to third parties (or Lessors ) and leased them back under 10 - to 15 -year bareboat charter contracts ending in 2026 through to 2034. At the inception of these leases, the weighted-average interest rate implicit in these leases was 5.2% . The bareboat charter contracts are presented as obligations related to finance leases on the Company's consolidated balance sheets and have purchase obligations at the end of the lease terms.

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

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


Page 14

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

During January 2019, Teekay LNG sold the Yamal Spirit and leased it back for a period of 15 years, with an option granted to Teekay LNG to extend the lease term by an additional five years. Teekay LNG is required to purchase the vessel at the end of the lease term. Subsequent to the adoption of ASU 2016-02 on January 1, 2019, sale and leaseback transactions where the lessee has a purchase obligation are treated as a failed sale. Consequently, Teekay LNG has not derecognized the vessel and continues to depreciate the asset as if Teekay LNG was the legal owner. Proceeds received from the sale are set up as a financial liability and bareboat charter hire payments made by Teekay LNG to the Lessor are allocated between interest expense and principal repayments on the financial liability.

The obligations of Teekay LNG under the bareboat charter contracts for the nine LNG carriers are guaranteed by Teekay LNG. In addition, the guarantee agreements require Teekay LNG to maintain minimum levels of tangible net worth and aggregate liquidity, and not to exceed a maximum amount of leverage. As at March 31, 2019 , Teekay LNG was in compliance with all covenants in respect of the obligations related to its finance leases.

As at March 31, 2019 and December 31, 2018 , the remaining commitments related to the financial liabilities of these nine LNG carriers ( December 31, 2018 – eight LNG carriers) including the amounts to be paid for the related purchase obligations, approximated $1.9 billion ( December 31, 2018 $1.7 billion ), including imputed interest of $513.2 million ( December 31, 2018 $435.3 million ), repayable for the remainder of 2019 through 2034, as indicated below:


Commitments
 
 
At March 31, 2019
 
At December 31, 2018
Year

$
 
$
Remainder of 2019

101,700

 
119,517

2020

134,915

 
118,685

2021

133,542

 
117,772

2022

132,312

 
116,978

2023

131,237

 
116,338

Thereafter

1,295,440

 
1,120,670


As at December 31, 2018 , Teekay LNG was a party, as lessee, to a finance lease on one Suezmax tanker, the Toledo Spirit . As at December 31, 2018 , the remaining commitments related to the finance lease for the Suezmax tanker, including the related purchase obligation, approximated $24.2 million , including imputed interest of $0.2 million , repayable in 2019. In January 2019, the charterer, who is also the owner, sold the Toledo Spirit to a third party which resulted in Teekay LNG returning the vessel to its owner and the obligation related to finance lease concurrently being extinguished.

Teekay Tankers

In November 2018, Teekay Tankers completed an $84.7 million sale-leaseback financing transaction with a financial institution relating to four of Teekay Tankers' vessels, consisting of two Aframax tankers, one Suezmax tanker and one Long Range 2 (or LR2 ) product tanker, the Explorer Spirit , Navigator Spirit , Pinnacle Spirit and Trysil Spirit .

In September 2018, Teekay Tankers completed a $156.6 million sale-leaseback financing transaction with a financial institution relating to six of its Aframax tankers, the Blackcomb Spirit, Emerald Spirit, Garibaldi Spirit, Peak Spirit, Tarbet Spirit and Whistler Spirit .

In July 2017, Teekay Tankers completed a $153.0 million sale-leaseback financing transaction with a financial institution relating to four of its Suezmax tankers, the Athens Spirit , the Beijing Spirit , the Moscow Spirit and the Sydney Spirit .

Under these arrangements, Teekay Tankers transferred the vessels to subsidiaries of the financial institutions (or collectively, the Lessors ), and leased the vessels back from the Lessors on bareboat charters ranging from nine - to 12 -year terms. Teekay Tankers has the option to purchase each of the 14 tankers at various times starting between July 2020 and November 2021 until the end of their respective lease terms. Teekay Tankers is also obligated to purchase six of the Aframax vessels upon expiration of their respective bareboat charters.

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

The liabilities of the Lessors are loans that are non-recourse to Teekay Tankers. The amounts funded to the Lessors in order to purchase the vessels materially match the funding to be paid by Teekay Tankers' subsidiaries under these leaseback transactions. As a result, the amounts due by Teekay Tankers' subsidiaries to the Lessors have been included in obligations related to finance leases as representing the Lessors' loans.

The bareboat charters related to each of these vessels require that Teekay Tankers maintain minimum liquidity (cash, cash equivalents and undrawn committed revolving credit lines with at least six months to maturity) of $35.0 million and at least 5.0% of Teekay Tankers' consolidated debt and obligations related to finance leases (excluding applicable security deposits reflected in restricted cash – non-current on the Company's consolidated balance sheets).


Page 15

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

Four of the bareboat charters require Teekay Tankers to maintain, for each vessel, a hull coverage ratio of 90% of the total outstanding principal balance during the first three years of the lease period and 100% of the total outstanding principal balance thereafter. As at March 31, 2019 , this ratio was approximately 110% ( December 31, 2018 101% ).
 
Six of the bareboat charters require Teekay Tankers to maintain, for each vessel, a hull coverage ratio of 75% of the total outstanding principal balance during the first year of the lease period, 78% for the second year, 80% for the following two years and 90% of the total outstanding principal balance thereafter. As at March 31, 2019 , this ratio was approximately 92% ( December 31, 2018 91% ).
 
The remaining four bareboat charters also require Teekay Tankers to maintain, for each vessel, a hull overage ratio of 100% of the total outstanding principal balance. As at March 31, 2019 , this ratio was approximately 131% ( December 31, 2018 122% ).

Such requirements are assessed annually with reference to vessel valuations compiled by one or more agreed upon third parties. As at March 31, 2019 , Teekay Tankers was in compliance with all covenants in respect of its obligations related to finance leases.

As at March 31, 2019 and December 31, 2018 , the total remaining commitments related to the financial liabilities of Teekay Tankers' Suezmax, Aframax and LR2 product tankers, including the amounts to be paid for the related purchase obligations, approximated $544.7 million ( December 31, 2018 $557.1 million ), including imputed interest of $174.9 million ( December 31, 2018 $181.8 million ), repayable from 2019 through 2030, as indicated below:


Commitments
 
 
At March 31, 2019
 
At December 31, 2018
Year

$
 
$
Remainder of 2019

35,613

 
47,962

2020

47,373

 
47,373

2021

47,237

 
47,237

2022

47,230

 
47,230

2023

47,222

 
47,222

Thereafter

319,981

 
320,064

Operating Lease Liabilities

The Company charters-in vessels from other vessel owners on time-charter-in and bareboat charter contracts, whereby the vessel owner provides use of the vessel to the Company, and, in the case of time-charter-in contracts, also operates the vessel for the Company. A time-charter-in contract is typically for a fixed period of time, although in certain cases the Company may have the option to extend the charter. The Company typically pays the owner a daily hire rate that is fixed over the duration of the charter. The Company is generally not required to pay the daily hire rate for time-charters during periods the vessel is not able to operate.

The Company has determined that all of its time-charter-in contracts contain both a lease component (lease of the vessel) and a non-lease component (operation of the vessel). The Company has allocated the contract consideration between the lease component and non-lease component on a relative standalone selling price basis. The standalone selling price of the non-lease component has been determined using a cost-plus approach, whereby the Company estimates the cost to operate the vessel using cost benchmarking studies prepared by a third party, when available, or internal estimates when not available, plus a profit margin. The standalone selling price of the lease component has been determined using an adjusted market approach, whereby the Company calculates a rate excluding the operating component based on a market time-charter rate information from published broker estimates, when available, or internal estimates when not available. Given that there are no observable standalone selling prices for either of these two components, judgment is required in determining the standalone selling price of each component. The discount rate of the lease is determined using the Company’s incremental borrowing rate, which is based on the fixed interest rate the Company could obtain when entering into a secured loan facility of similar terms for an amount equal to the total minimum lease payments. The bareboat charter contracts contain only a lease component.

With respect to time-charter-in and bareboat charter contracts with an original term of more than one year, for the three months ended March 31, 2019 , the Company incurred $25.1 million of time-charter and bareboat hire expense related to these time-charter and bareboat charter contracts, of which $17.3 million was allocable to the lease component and $7.8 million was allocable to the non-lease component. The $17.3 million allocable to the lease component approximates the cash paid for the amounts included in lease liabilities and is reflected as a reduction in operating cash flows for the three months ended March 31, 2019 . Two of Teekay Tankers' time-charter-in contracts each have an option to extend the charter for an additional one-year term. Since it is not reasonably certain that Teekay Tankers will exercise the options, the lease components of the options are not recognized as part of the right-of-use assets and lease liabilities. As at March 31, 2019 , the weighted-average remaining lease term and weighted-average discount rate for these time-charter-in and bareboat charter contracts were 3.0 years and 6.5% , respectively.


Page 16

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

The Company has elected to recognize the lease payments of short-term leases in its consolidated statements of loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred, which is consistent with the recognition of payment for the non-lease component. The Company considers as short-term leases those with an original term of one year or less, excluding leases with an option to extend the lease for greater than one year or an option to purchase the underlying asset where the lessee is deemed reasonably certain to exercise the applicable option. For the three months ended March 31, 2019 , the Company incurred $4.3 million of time-charter hire expense related to time-charter-in contracts classified as short-term leases.

During the three months ended March 31, 2019 , Teekay Tankers chartered in two LR2 vessels each for a period of 24 months, which resulted in the Company recognizing a right-of-use asset of $14.7 million on the lease commencement date. In addition, Teekay Tankers has the option to extend each of these charters by an additional 12 months.

A maturity analysis of the Company’s operating lease liabilities from time-charter-in and bareboat charter contracts (excluding short-term leases) at March 31, 2019 is as follows:

 
Lease Commitment

Non-Lease Commitment
 
Total Commitment
Year
 
$

$
 
$
Payments
 
 
 
 
 
 
April to December 2019
 
51,484

 
24,831

 
76,315

2020
 
59,777

 
31,054

 
90,831

2021
 
37,002

 
15,858

 
52,860

2022
 
16,146

 
3,971

 
20,117

2023
 
9,227

 

 
9,227

Thereafter
 
5,713

 

 
5,713

Total payments
 
179,349

 
75,714

 
255,063

Less: imputed interest
 
(17,870
)
 
 
 
 
Carrying value of operating lease liabilities
 
161,479

 
 
 
 

As at March 31, 2019 , minimum commitments to be incurred by the Company under short-term time-charter-in contracts were approximately $10.5 million (remainder of 2019) and $0.6 million (2020).
As at December 31, 2018 , minimum commitments to be incurred by the Company under vessel operating leases by which the Company charters-in vessels were approximately $116.3 million ( 2019 ), $90.4 million ( 2020 ), $53.4 million ( 2021 ), $9.1 million ( 2022 ), $9.1 million ( 2023 ) and $5.6 million thereafter.
7 . Asset Impairments
The Company's write-downs generally consist of those vessels approaching the end of their useful lives as well as other vessels it strategically sells to reduce exposure to a certain vessel class.

The following table contains the write-downs for the three months ended March 31, 2019 and 2018 :
 
 
 
 
 
 
Asset Impairments
 
 
 
 
 
 
Three Months Ended March 31,
Segment

Asset Type

Completion of Sale Date

2019
$

2018
$
Teekay Parent Segment - Offshore Production (1)
 
FPSO
 
N/A
 
(3,328
)
 

Teekay LNG Segment – Conventional Tankers  (2)
 
Handymax
 
N/A
 

 
(13,000
)
Teekay LNG Segment  Conventional Tankers (3)
 
2 Suezmaxes
 
Oct/Dec-2018
 

 
(5,662
)
Total
 
 
 
 
 
(3,328
)
 
(18,662
)

(1)
In March 2019, the Company took an impairment charge in respect of certain of its FPSO-related assets.
(2)
In March 2018, the carrying value of the Alexander Spirit conventional tanker was written down to its estimated fair value, using an appraised value, as a result of changes in the Company's expectations of the vessel's future opportunities once its current charter contract ends in 2019.
(3)
In June and August 2017, the charterer for the  European Spirit  and  African Spirit  Suezmax tankers gave formal notices to Teekay LNG that it will not exercise its one-year extension option under the charter contracts and redelivered the tankers in August 2017 and November 2017, respectively. Upon receiving these notifications, Teekay LNG commenced marketing the vessels for sale. Based on second-hand market comparable values at the time, Teekay LNG wrote down the vessels to their estimated resale values and they were presented as held for sale on the consolidated balance sheets as at December 31, 2017. During the three months ended March 31, 2018, the Partnership recorded a further write-down of the vessels to their estimated resale value as at March 31, 2018. In the fourth quarter of 2018, Teekay LNG sold the  European Spirit and African Spirit for net proceeds of $15.7 million and $12.8 million , respectively, using the net proceeds from the sales primarily to repay its existing term loans associated with the vessels.

Page 17

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


8 . Accounts Payable, Accrued Liabilities and Other
 
March 31, 2019
 
December 31, 2018
 
$
 
$
Accounts payable
61,946

 
31,201

Accrued liabilities
 
 
 
Voyage and vessel expenses
100,192

 
98,135

Interest
33,461

 
47,731

Payroll and related liabilities
37,997

 
41,275

Deferred revenues and gains – current
26,339

 
30,108

In-process revenue contracts – current
5,933

 
5,930

Office lease liability ( note 2 )
3,029

 

 
268,897

 
254,380

9 . Long-Term Debt
 
March 31, 2019
 
December 31, 2018
 
$
 
$
Revolving Credit Facilities
587,997

 
642,997

Senior Notes (8.5%) due January 15, 2020
497,657

 
508,577

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

 
125,000

Norwegian Kroner-denominated Bonds due through August 2023
353,553

 
352,973

U.S. Dollar-denominated Term Loans due through 2030
1,512,153

 
1,536,499

Euro-denominated Term Loans due through 2024
187,301

 
193,781

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

 
3,300

Total principal
3,266,961

 
3,363,127

Less unamortized discount and debt issuance costs
(38,470
)
 
(43,604
)
Total debt
3,228,491

 
3,319,523

Less current portion
(517,957
)
 
(242,137
)
Long-term portion
2,710,534

 
3,077,386


As of March 31, 2019 , the Company had five revolving credit facilities (or the Revolvers ) available, which, as at such date, provided for aggregate borrowings of up to $1.0 billion , of which $0.4 billion was undrawn. Interest payments are based on LIBOR plus margins; the margins ranged between 1.40% and 3.95% at March 31, 2019 and at December 31, 2018 . The aggregate amount available under the Revolvers is scheduled to decrease by $23.9 million (remainder of 2019 ), $408.0 million ( 2020 ), $333.9 million ( 2021 ) and $192.0 million ( 2022 ). The Revolvers are collateralized by first-priority mortgages granted on 38 of the Company’s vessels, together with other related security, and include a guarantee from Teekay or its subsidiaries for all but one of the Revolvers' outstanding amounts. Included in other related security are 25.2 million common units in Teekay LNG, 40.3 million Class A common shares in Teekay Tankers and, prior to the 2019 Brookfield Transaction, 56.6 million common units in Teekay Offshore, to secure a $150 million credit facility.

The Company’s 8.5% senior unsecured notes are due January 15, 2020 with an original aggregate principal amount of $450 million (the Original Notes ). The Original Notes issued on January 27, 2010 were sold at a price equal to 99.2% of par. During 2014, the Company repurchased $57.3 million of the Original Notes. In November 2015, the Company issued an aggregate principal amount of $200 million of the Company’s 8.5% senior unsecured notes due on January 15, 2020 (or the Additional Notes ) at 99.01% of face value, plus accrued interest from July 15, 2015. The Additional Notes are an additional issuance of the Company's Original Notes (collectively referred to as the 2020 Notes ). The Additional Notes were issued under the same indenture governing the Original Notes, and are fungible with the Original Notes. The discount on the 2020 Notes is accreted through the maturity date of the notes using the effective interest rate of 8.67%  per year. During 2018, the Company repurchased  $84.1 million  in aggregate principal amount of the 2020 Notes. During the first quarter of 2019, the Company repurchased an additional $10.9 million in aggregate principal amount of the 2020 Notes. In April 2019, the Company commenced a cash tender offer to purchase any and all of its outstanding 2020 Notes. In May 2019, the Company completed the cash tender offer and purchased $460.9 million in aggregate principal amount of the 2020 Notes and issued $250.0 million in aggregate principal amount of 9.25% senior secured notes due November 2022 (or the 2022 Notes ) (see Note 19 ) for net proceeds of approximately $241 million . Accordingly, $241 million of the 2020 Notes have been classified as long-term debt as at March 31, 2019 .

The 2020 Notes rank equally in right of payment with all of Teekay's existing and future senior unsecured debt and senior to any future subordinated debt of Teekay. The 2020 Notes are not guaranteed by any of Teekay's subsidiaries and effectively rank behind all existing and future secured debt of Teekay and other liabilities of its subsidiaries.

Page 18

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

 
The Company may redeem the 2020 Notes in whole or in part at any time before their maturity date at a redemption price equal to the greater of (i)  100% of the principal amount of the 2020 Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 2020 Notes to be redeemed (excluding accrued interest), discounted to the redemption date on a semi-annual basis, at the treasury yield plus 50 basis points, plus accrued and unpaid interest to the redemption date.

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

Teekay LNG has a total of Norwegian Kroner (or NOK ) 3.1 billion in senior unsecured bonds issued in the Norwegian bond market at March 31, 2019 that mature through August 2023. As of March 31, 2019 , the total carrying amount of the senior unsecured bonds was $ 353.6 million . The bonds are listed on the Oslo Stock Exchange. The interest payments on the bonds are based on NIBOR plus a margin, which ranges from 3.70% to 6.00% . The Company entered into cross currency rate swaps to swap all interest and principal payments of the bonds into U.S. Dollars, with the interest payments fixed at rates ranging from 5.92% to 7.89% , and the transfer of the principal amount fixed at $382.5 million upon maturity in exchange for NOK 3.1 billion (see Note 15 ).

As of March 31, 2019 , the Company had 11 U.S. Dollar-denominated term loans outstanding, which totaled $1.5 billion in aggregate principal amount ( December 31, 2018 $1.5 billion ). Interest payments on the term loans are based on LIBOR plus a margin , of which two of the term loans have additional tranches with a weighted average fixed rate of 4.62% . At March 31, 2019 and December 31, 2018 , the margins ranged between 0.30% and 3.50% . All but one of the term loans, which is repayable on demand, require payments in quarterly or semi-annual installments commencing three or six months after delivery of each newbuilding vessel financed thereby, and nine of the term loans have balloon or bullet repayments due at maturity. The term loans are collateralized by first-priority mortgages on 24 ( December 31, 2018 24 ) of the Company’s vessels, together with certain other security.
 
Teekay LNG has two Euro-denominated term loans outstanding, which, as at March 31, 2019 , totaled 167.0 million Euros ( $187.3 million ) ( December 31, 2018 169.0 million Euros ( $193.8 million )). Teekay LNG is servicing the loans with funds generated by two Euro-denominated, long-term time-charter contracts. Interest payments on the loans are based on EURIBOR plus a margin. At March 31, 2019 and December 31, 2018 , the margins ranged between 0.60% and 1.95% . The Euro-denominated term loans reduce in monthly and semi-annual payments with varying maturities through 2024, are collateralized by first-priority mortgages on two of Teekay LNG's vessels, together with certain other security, and are guaranteed by Teekay LNG and one of its subsidiaries.

Both Euro-denominated term loans and NOK-denominated bonds are revalued at the end of each period using the then-prevailing U.S. Dollar exchange rate. Due primarily to the revaluation of the Company’s NOK-denominated bonds, the Company’s Euro-denominated term loans and restricted cash, and the change in the valuation of the Company’s cross currency swaps, the Company recognized a foreign exchange loss of $2.6 million ( 2018 – gain of $0.02 million ) during the three months ended March 31, 2019 .

The weighted-average interest rate on the Company’s aggregate long-term debt as at March 31, 2019 was 5.2% ( December 31, 2018 5.1% ). This rate does not include the effect of the Company’s interest rate swap agreements (see Note 15 ).

Teekay has guaranteed obligations pursuant to certain credit facilities of Teekay Tankers. As at March 31, 2019 , the aggregate outstanding balance on such credit facilities was $161.1 million .

The aggregate annual long-term debt principal repayments required to be made by the Company subsequent to March 31, 2019 , after giving effect to the 2020 Notes repurchased and the 2022 Notes issued by Teekay Parent in May 2019, are $207.8 million (remainder of 2019 ), $937.9 million ( 2020 ), $837.1 million ( 2021 ), $419.1 million ( 2022 ), $337.1 million ( 2023 ) and $528.0 million (thereafter).

The Company’s long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and five loan agreements require the maintenance of vessel market value to loan ratios. As at March 31, 2019 , these ratios ranged from 133% to 210% compared to their minimum required ratios of 115% to 135% . The vessel values used in these ratios are the appraised values provided by third parties where available, or prepared by the Company based on second-hand sale and purchase market data. Changes in the LNG/LPG carrier and conventional tanker markets could negatively affect the Company's compliance with these ratios.


Page 19

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

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

As at March 31, 2019 , the Company was in compliance with all covenants under its credit facilities and other long-term debt.
10 . Capital Stock
The authorized capital stock of Teekay at March 31, 2019 and December 31, 2018 was 25 million shares of preferred stock, with a par value of $1 per share, and 725 million shares of common stock, with a par value of $0.001 per share. As at March 31, 2019 , Teekay had no shares of preferred stock issued.

In April 2019, Teekay implemented a continuous offering program (or  COP ) under which Teekay may issue shares of its common stock, at market prices up to a maximum aggregate amount of $63.0 million

During the three months ended March 31, 2018, Teekay completed a public offering of 10.0 million common shares priced at $9.75 per share, raising net proceeds of approximately $93.0 million , issued 1.1 million shares of common stock as part of a COP initiated in 2016 generating net proceeds of $10.7 million , and issued 0.2 million shares of common stock pursuant to stock options, restricted stock units and restricted stock awards.

During the three months ended March 31, 2019 and 2018 , the Company granted 2,590,371 and 1,048,916 stock options with exercise prices of $3.98 and $8.67 per share, respectively, 796,733 and 625,878 restricted stock units with fair values of $3.2 million and $5.4 million , respectively, and 111,808 and 79,869  shares of restricted stock awards with fair values of $0.4 million and $0.7 million , respectively, to certain of the Company’s employees and directors. Each stock option has a ten -year term and vests equally over three years from the grant date. Each restricted stock unit and restricted stock award is equal in value to one share of the Company’s common stock plus reinvested dividends from the grant date to the vesting date. The restricted stock units vest equally over three years from the grant date. Upon vesting, the value of the restricted stock units and restricted stock awards are paid to each grantee in the form of shares.

The weighted-average grant-date fair value of stock options granted during March 2019 was $1.47 per stock option. The fair value of each stock option granted was estimated on the grant date using the Black-Scholes option pricing model. The following weighted-average assumptions were used in computing the fair value of the stock options granted: expected volatility of 65.2% ; expected life of 5.5 years; dividend yield of 5.9% ; risk-free interest rate of 2.5% ; and estimated forfeiture rate of 6.0% . The expected life of the stock options granted was estimated using the historical exercise behavior of employees. The expected volatility was generally based on historical volatility as calculated using historical data during the five years prior to the grant date.

Share-based Compensation of Subsidiaries and Equity-Accounted Investments

During the three months ended March 31, 2019 and 2018 , 561,420 and 293,770 common units of Teekay Offshore, respectively, 33,216 and 17,498  common units of Teekay LNG, respectively, and 159,375 and 168,029 shares of Class A common stock of Teekay Tankers, respectively, with aggregate values of $1.3 million and $1.3 million , respectively, were granted and issued to the non-management directors of the general partners of Teekay Offshore and Teekay LNG and the non-management directors of Teekay Tankers as part of their annual compensation for 2019 and 2018 .

Teekay Offshore, Teekay LNG and Teekay Tankers grant equity-based compensation awards as incentive-based compensation to certain employees of Teekay’s subsidiaries that provide services to Teekay Offshore, Teekay LNG and Teekay Tankers. During the three months ended March 31, 2019 and 2018 , Teekay Offshore granted phantom unit awards and Teekay LNG and Teekay Tankers granted restricted unit/stock-based compensation awards with respect to 2,577,626 and 936,589 common units of Teekay Offshore, 79,914 and 62,283 common units of Teekay LNG and 633,134 and 762,640 Class A common shares of Teekay Tankers, respectively, with aggregate grant date fair values of $4.8 million and $4.5 million , respectively, based on Teekay Offshore, Teekay LNG and Teekay Tankers’ closing unit or stock prices on the grant dates. Each phantom unit or restricted stock unit is equal in value to one of Teekay Offshore’s, Teekay LNG’s or Teekay Tankers’ common units or common shares plus reinvested distributions or dividends from the grant date to the vesting date. The awards vest equally over three years from the grant date. Upon vesting, the awards are paid to a substantial majority of the grantees in the form of common units or common shares, net of withholding tax.

During March 2019 , Teekay Tankers granted 747,097 and 365,625 stock options with an exercise price of $1.00 per share to officers and non-management directors of Teekay Tankers, respectively. During March 2018 , Teekay Tankers granted 736,327 and 504,097 stock options with an exercise price of $1.22 per share to officers and non-management directors of Teekay Tankers, respectively. Each stock option has a ten -year term and vests equally over three years from the grant date.
 

Page 20

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

11 . Commitments and Contingencies
a)
Equity-Accounted Investments

Teekay LNG’s share of commitments to fund newbuilding and other construction contract costs of its equity-accounted joint ventures as at March 31, 2019 totaled $449.5 million and are all due in 2019. The commitment amounts relating to Teekay LNG’s share of costs for newbuilding and other construction contracts in Teekay LNG’s equity-accounted joint ventures are based on Teekay LNG’s ownership percentage in each respective joint venture as of March 31, 2019 . These commitments are described in more detail in "Item 18 - Financial Statements: Note 16" of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018 . As of March 31, 2019 , based on Teekay LNG's ownership percentage in each respective joint venture, Teekay LNG's equity-accounted joint ventures have secured $414 million of undrawn financing related to the remaining commitments.

b)
Liquidity

Management is required to assess whether the Company will have sufficient liquidity to continue as a going concern for the one-year period following the issuance of its financial statements. The Company had a consolidated net loss of $61.5 million and consolidated cash flows from operating activities of $105.2 million during the three months ended March 31, 2019 , and as at March 31, 2019 , had a working capital deficit of $124.8 million . This working capital deficit included scheduled debt maturities in the next 12 months and repayments of approximately $518.0 million of outstanding consolidated debt which was classified as current liabilities as at March 31, 2019 , which included $256.7 million of 2020 Notes in Teekay Parent.

In May 2019, the Company sold to Brookfield all of the Company’s remaining interests in Teekay Offshore, which included the Company’s 49% general partner interest, common units, warrants, and an outstanding $25 million loan from the Company to Teekay Offshore, for total proceeds of $100 million in cash. The transaction was completed in May 2019. The Company expects to recognize a loss on sale of approximately $10.0 million upon completion of the transaction in the second quarter of 2019.

In May 2019, Teekay Parent completed a private offering of $250 million in aggregate principal amount of 9.25% Senior Secured Notes due November 2022 (or the 2022 Notes ), raising net proceeds of approximately $241 million . The 2022 Notes are guaranteed on a senior secured basis by certain of our subsidiaries and are secured by first-priority liens on two of our FPSO units, a pledge of the equity interests of our subsidiary that owns all of our common units of Teekay LNG Partners L.P. and all of Teekay’s Class A common shares of Teekay Tankers Ltd. and a pledge of the equity interests in our subsidiaries that own Teekay Parent's three FPSO units.

In April 2019, Teekay Parent commenced a cash tender offer (or the Offer ) to purchase any and all of its outstanding 2020 Notes. The Company completed the Offer and purchased $460.9 million in aggregate principal amount of the 2020 Notes in May 2019. The purchase was funded by the net proceeds from the Company’s concurrent bond offering of the 2022 Notes and the proceeds from the sale of Teekay Offshore as noted above, as well as its existing cash. The Company expects to recognize a loss on the purchase of the 2020 Notes in the second quarter of 2019.

In connection with the Offer and issuance of the 2022 Notes, the Board of Directors approved the elimination of the quarterly dividend on Teekay’s common stock commencing with the quarter ended March 31, 2019.

In April 2019, Teekay implemented a COP under which Teekay may issue shares of its common stock, at market prices up to a maximum aggregate amount of $63.0 million

Based on the Company’s liquidity at the date these consolidated financial statements were issued, including the effect of the financing transactions and the sale of the Company's interest in Teekay Offshore completed in the second quarter of 2019 described above, and the liquidity the Company expects to generate from operations over the following year, the Company expects that it will have sufficient liquidity to continue as a going concern for at least the one-year period following the issuance of these consolidated financial statements.

c)
Legal Proceedings and Claims

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

d) Other

The Company enters into indemnification agreements with certain officers and directors. In addition, the Company enters into other indemnification agreements in the ordinary course of business. The maximum potential amount of future payments required under these indemnification agreements is unlimited. However, the Company maintains what it believes is appropriate liability insurance that reduces its exposure and enables the Company to recover future amounts paid up to the maximum amount of the insurance coverage, less any deductible amounts pursuant to the terms of the respective policies, the amounts of which are not considered material.

Page 21

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

12 . Financial Instruments
a)
Fair Value Measurements

For a description of how the Company estimates fair value and for a description of the fair value hierarchy levels, see "Item 18 - Financial Statements: Note 11" in the Company’s Annual Report on Form 20-F for the year ended December 31, 2018 .

The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring and non-recurring basis as well as the estimated fair value of the Company’s financial instruments that are not accounted for at fair value on a recurring basis.
 
 
 
March 31, 2019
 
December 31, 2018
 
Fair
Value
Hierarchy
Level
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset
(Liability)
$
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset
(Liability)
$
Recurring
 
 
 
 
 
 
 
 
 
Cash, cash equivalents and restricted cash ( note 18 )
Level 1
 
496,303

 
496,303

 
505,639

 
505,639

Derivative instruments (note 15)
 
 
 
 
 
 
 
 
 
Interest rate swap agreements – assets (1)
Level 2
 
5,357

 
5,357

 
9,640

 
9,640

Interest rate swap agreements – liabilities (1)
Level 2
 
(46,070
)
 
(46,070
)
 
(43,175
)
 
(43,175
)
Cross currency interest swap agreements – liabilities (1)
Level 2
 
(30,965
)
 
(30,965
)
 
(29,122
)
 
(29,122
)
Stock purchase warrants
Level 3
 
14,342

 
14,342

 
12,026

 
12,026

Freight forward agreements
Level 2
 
(105
)
 
(105
)
 
(57
)
 
(57
)
Non-recurring
 
 
 
 
 
 
 
 
 
Equity-accounted investments ( note 4 )
Level 1
 
71,678

 
71,678

 

 

Other
 
 
 
 
 
 
Loans to equity-accounted investments
(2)
 
153,409

 
(2
)
 
169,197

 
(2
)
Loans to equity-accounted investments – Long-term
(2)
 
62,196

 
(2
)
 
62,207

 
(2
)
Long-term debt – public (note 9)
Level 1
 
(847,536
)
 
(865,202
)
 
(856,986
)
 
(851,470
)
Long-term debt – non-public (note 9)
Level 2
 
(2,380,955
)
 
(2,312,612
)
 
(2,462,537
)
 
(2,395,300
)
Obligations related to finance leases, including current portion
Level 2
 
(1,785,740
)
 
(1,788,303
)
 
(1,673,845
)
 
(1,652,345
)
 
(1)
The fair value of the Company's interest rate swap and cross currency swap agreements at March 31, 2019 includes $1.4 million ( December 31, 2018 - $3.2 million ) accrued interest expense which is recorded in accrued liabilities on the unaudited consolidated balance sheets.

(2)
In the unaudited interim consolidated financial statements, the Company’s loans to and equity investments in equity-accounted investments form the aggregate carrying value of the Company’s interests in entities accounted for by the equity method. The fair value of the individual components of such aggregate interests is not determinable.

Stock purchase warrants - As at March 31, 2019 , Teekay held 15.5 million common unit warrants issued by Teekay Offshore (or Brookfield Transaction Warrants ) (see "Item 18 - Financial Statements: Note 4" of the Company’s Annual Report on Form 20-F for the year ended December 31, 2018 ), which warrants are among those issued by Teekay Offshore to Brookfield and Teekay as part of the 2017 Brookfield Transaction. The Brookfield Transaction Warrants allow the holders to acquire one common unit of Teekay Offshore for each Brookfield Transaction Warrant for an exercise price of $0.01 per common unit, which warrants become exercisable when Teekay Offshore's common unit volume-weighted average price is equal to or greater than $4.00 per common unit for 10 consecutive trading days until September 25, 2024. The fair value of the Brookfield Transaction Warrants was $13.7 million and $11.8 million on March 31, 2019 and December 31, 2018 , respectively.

As of March 31, 2019 , in addition to the Brookfield Transaction Warrants, Teekay held a total of 1,755,000 warrants to purchase common units of Teekay Offshore that were issued in connection with Teekay Offshore's private placement of Series D Preferred Units in June 2016 (or the Series D Warrants ) with an exercise price of $4.55 , which have a  seven -year term. The Series D Warrants were to be net settled in either cash or common units at Teekay Offshore’s option. The fair value of the Series D Warrants was $0.6 million and $0.2 million on March 31, 2019 and December 31, 2018 , respectively.

On April 29, 2019, Teekay entered into an agreement to sell to Brookfield all of the Company’s remaining interests in Teekay Offshore, which included, among other things, both the Brookfield Transaction Warrants and Series D Warrants (see Note 4 ). The transaction was completed in May 2019.


Page 22

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

The estimated fair values of the Brookfield Transaction Warrants and the Series D Warrants were determined using a Black-Scholes pricing model and are based, in part, on the historical price of common units of Teekay Offshore, the risk-free rate, vesting conditions and the historical volatility of Teekay Offshore. The estimated fair values of these Brookfield Transaction Warrants and Series D Warrants as of March 31, 2019 were based on the historical volatility of Teekay Offshore's common units of 68.9% and 76.5% , respectively ( December 31, 2018 64.1% and 56.2% , respectively). A higher or lower volatility would result in a higher or lower fair value of this derivative asset.

Changes in fair value during the three months ended March 31, 2019 and 2018 for the Company’s Brookfield Transaction Warrants and the Series D Warrants, which are described above and were measured at fair value on the recurring basis using significant unobservable inputs (Level 3), are as follows: 
 
Three Months Ended March 31,
 
2019
 
2018
 
$
 
$
Fair value at the beginning of the period
12,026

 
30,749

Unrealized gain (loss) included in earnings
2,316

 
(1,684
)
Fair value at the end of the period
14,342

 
29,065


b)
Financing Receivables

The following table contains a summary of the Company’s carrying value of financing receivables by type of borrower and the method by which the Company monitors the credit quality of its financing receivables on a quarterly basis.
Class of Financing Receivable
 
Credit Quality Indicator
 
Grade
 
March 31, 2019
 
December 31, 2018
$
 
$
Direct financing leases
 
Payment activity
 
Performing
 
571,796

 
575,163

Other loan receivables
 
 
 
 
 
 
 
 
Loans to equity-accounted investments and joint venture partners
 
Other internal metrics
 
Performing
 
215,605

 
231,404

Long-term receivable and accrued revenue included in accounts receivable and other assets
 
Payment activity
 
Performing
 
5,852

 
15,694

 
 
 
 
 
 
793,253

 
822,261


13 . Restructuring Charges
During the three months ended March 31, 2019 , the Company recorded restructuring charges of $8.6 million . The restructuring charges primarily related to severance costs resulting from the termination of certain management contracts in Teekay Parent of which the costs were fully recovered from the customer and the recovery is presented in revenue, as well as from the termination of the charter contract for the  Toledo Spirit Suezmax tanker in Teekay LNG upon sale of the vessel.

During the three months ended March 31, 2018 , the Company recorded restructuring charges of $2.1 million . The restructuring charges primarily related to severance costs resulting from the termination of the charter contract for the  Teide Spirit  Suezmax tanker in Teekay LNG upon sale of the vessel, and reorganization and realignment of resources of certain of the Company's information systems function to better respond to the changing business environment.

At March 31, 2019 and December 31, 2018 , $1.0 million and $0.8 million , respectively, of restructuring liabilities were recorded in accounts payable, accrued liabilities and other on the consolidated balance sheets.


Page 23

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

14 . Accumulated Other Comprehensive Loss
As at March 31, 2019 and December 31, 2018 , the Company’s accumulated other comprehensive loss (or AOCI ) consisted of the following components:
 
March 31,
 
December 31,
 
2019
 
2018
 
$
 
$
Unrealized (loss) gain on qualifying cash flow hedging instruments
(7,870
)
 
903

Pension adjustments, net of tax recoveries
(3,254
)
 
(3,176
)
 
(11,124
)
 
(2,273
)
15 . Derivative Instruments and Hedging Activities
The Company uses derivatives to manage certain risks in accordance with its overall risk management policies.

Foreign Exchange Risk

From time to time the Company economically hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts. As at March 31, 2019 , the Company was not committed to any foreign currency forward contracts.
 
The Company enters into cross currency swaps, and pursuant to these swaps the Company receives the principal amount in NOK on the maturity date of the swap, in exchange for payment of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and principal amounts of the Company’s NOK-denominated bonds due in 2020, 2021 and 2023. In addition, the cross currency swaps economically hedge the interest rate exposure on the NOK bonds due in 2020, 2021 and 2023. The Company has not designated, for accounting purposes, these cross currency swaps as cash flow hedges of its NOK-denominated bonds due in 2020, 2021 and 2023. As at March 31, 2019 , the Company was committed to the following cross currency swaps:
 
 
 
 
 
 
 
 
 
 
Fair Value /
Carrying
Amount of
Asset /
(Liability)
$
 
 
Notional
Amount
NOK
 
Notional
Amount
USD
 
Floating Rate Receivable
 
 
 
 
 
 
 
Reference
Rate
 
Margin
 
Fixed Rate
Payable
 
 
Remaining
Term (years)
1,000,000
 
134,000

 
NIBOR
 
3.70%
 
5.92%
 
(18,231
)
 
1.1
1,200,000
 
146,500

 
NIBOR
 
6.00%
 
7.72%
 
(5,510
)
 
2.6
850,000
 
102,000

 
NIBOR
 
4.60%
 
7.89%
 
(7,224
)
 
4.4
 
 
 
 
 
 
 
 
 
 
(30,965
)
 
 

Interest Rate Risk

The Company enters into interest rate swap agreements, which exchange a receipt of floating interest for a payment of fixed interest, to reduce the Company’s exposure to interest rate variability on its outstanding floating-rate debt. The Company designates certain of its interest rate swap agreements as cash flow hedges for accounting purposes.
 
As at March 31, 2019 , the Company was committed to the following interest rate swap agreements related to its LIBOR -based debt and EURIBOR -based debt, whereby certain of the Company’s floating-rate debt were swapped with fixed-rate obligations: 
 
Interest
Rate
Index
 
Principal
Amount
 
Fair Value /
Carrying
Amount of
Asset /
(Liability)
$
 
Weighted-
Average
Remaining
Term
(years)
 
Fixed
Interest
Rate
(%) (1)
LIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
U.S. Dollar-denominated interest rate swaps (2)
LIBOR
 
1,033,024

 
(29,956
)
 
3.8
 
3.0

EURIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
Euro-denominated interest rate swaps
EURIBOR
 
82,308

 
(10,757
)
 
4.4
 
3.8

 
 
 
 
 
(40,713
)
 
 
 
 

Page 24

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


(1)
Excludes the margins the Company pays on its variable-rate debt, which, as of March 31, 2019 , ranged from 0.3% to 3.95% .
(2)
Includes interest rate swaps with the notional amount reducing quarterly or semi-annually. Two interest rate swaps are subject to mandatory early termination in 2020 and 2021, at which time the swaps will be settled based on their fair value.
Stock Purchase Warrants

As at March 31, 2019 , Teekay held 15.5 million Brookfield Transaction Warrants (see Note 12 ) with a fair value of $13.7 million on March 31, 2019 .

As of March 31, 2019 , Teekay held 1,755,000 Series D Warrants of Teekay Offshore (see Note 12 ) with a fair value of $0.6 million on March 31, 2019 .

Tabular Disclosure

The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Company’s unaudited consolidated balance sheets.
 
Prepaid Expenses and Other
 
Other Non-Current Assets
 
Accounts Payable, Accrued
Liabilities and Other
 
Current
Portion of
Derivative
Liabilities
 
Derivative
Liabilities
 
$
 
$
 
$
 
$
 
$
As at March 31, 2019
 
 
 
 
 
 
 
 
 
Derivatives designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
433

 
362

 
10

 

 
(480
)
Derivatives not designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
2,277

 
1,829

 
(813
)
 
(8,484
)
 
(35,847
)
Cross currency swap agreements

 

 
(637
)
 
(4,351
)
 
(25,977
)
Stock purchase warrants

 
14,342

 

 

 

Forward freight agreements

 

 

 
(105
)
 


 
2,710

 
16,533

 
(1,440
)
 
(12,940
)
 
(62,304
)
 
 
Prepaid Expenses and Other
 
Other Non-Current Assets
 
Accounts Payable, Accrued
Liabilities and Other
 
Current
Portion of
Derivative
Liabilities
 
Derivative
Liabilities
 
$
 
$
 
$
 
$
 
$
As at December 31, 2018
 
 
 
 
 
 
 
 
 
Derivatives designated as a cash flow hedge: