Report of Foreign Issuer (6-k)

Date : 11/26/2019 @ 9:05PM
Source : Edgar (US Regulatory)
Stock : Teekay Corporation (TK)
Quote : 2.94  0.14 (5.00%) @ 11:47PM
After Hours
Last Trade
Last $ 2.99 ▲ 0.05 (1.70%)

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 September 30, 2019
Commission file number 1- 12874
 _________________________
TEEKAY CORPORATION
(Exact name of Registrant as specified in its charter)
 _________________________
Suite 2000, Bentall 5
550 Burrard Street
Vancouver, BC, V6C 2K2, Canada
(Address of principal executive office)
 _________________________
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F  ý            Form 40- F  ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).
Yes  ¨            No   ý
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).
Yes  ¨            No   ý







 

Page 1


TEEKAY CORPORATION AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019
INDEX

 
PAGE
 
 
3
4
5
6
7
9
33
50
51


Page 2



ITEM 1 – FINANCIAL STATEMENTS
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF LOSS
(in thousands of U.S. Dollars, except share and per share amounts)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
$
 
$
 
$
 
$
Revenues (note 3)
420,696

 
416,562

 
1,359,576

 
1,216,226

Voyage expenses
(92,689
)
 
(90,899
)
 
(294,492
)
 
(271,688
)
Vessel operating expenses
(159,616
)
 
(155,985
)
 
(479,229
)
 
(475,207
)
Time-charter hire expenses (note 6)
(28,932
)
 
(20,965
)
 
(87,587
)
 
(61,024
)
Depreciation and amortization
(73,633
)
 
(69,967
)
 
(219,589
)
 
(205,238
)
General and administrative expenses
(20,016
)
 
(20,650
)
 
(63,856
)
 
(69,803
)
Write-down and loss on sales of vessels (note 7)
(175,785
)
 
(2,201
)
 
(179,113
)
 
(53,693
)
Restructuring charges (note 14)
(414
)
 
(813
)
 
(10,404
)
 
(4,065
)
(Loss) income from vessel operations
(130,389
)

55,082


25,306


75,508

Interest expense
(67,707
)

(67,343
)
 
(211,583
)
 
(181,494
)
Interest income
1,485

 
2,103

 
6,407

 
5,875

Realized and unrealized (losses) gains on non-designated derivative instruments (note 16)
(1,924
)
 
(2,168
)
 
(18,311
)
 
17,981

Equity income (loss) (note 4)
21,514

 
13,744

 
(46,423
)
 
41,698

Foreign exchange gain (loss) (notes 10 and 16)
5,628

 
3,553

 
(2,853
)
 
16,104

Loss on deconsolidation of Teekay Offshore (note 4)

 

 

 
(7,070
)
Other loss (note 10)
(1,424
)

(2,400
)

(12,495
)

(2,795
)
(Loss) income before income taxes
(172,817
)
 
2,571

 
(259,952
)
 
(34,193
)
Income tax expense (note 17)
(3,091
)
 
(4,334
)
 
(11,531
)
 
(17,197
)
Net loss
(175,908
)
 
(1,763
)
 
(271,483
)
 
(51,390
)
Net income attributable to non-controlling interests
(22,270
)
 
(10,242
)
 
(50,437
)
 
(9,494
)
Net loss attributable to the shareholders of Teekay Corporation
(198,178
)
 
(12,005
)
 
(321,920
)
 
(60,884
)
Per common share of Teekay Corporation (note 18)
 
 
 
 
 
 
 
•  Basic and diluted loss attributable to shareholders of Teekay Corporation
(1.97
)
 
(0.12
)
 
(3.20
)
 
(0.61
)
Weighted average number of common shares outstanding (note 18)
 
 
 
 
 
 
 
•  Basic and diluted
100,784,683

 
100,435,045

 
100,697,251

 
99,412,381


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 September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
$
 
$
 
$
 
$
Net loss
(175,908
)
 
(1,763
)
 
(271,483
)
 
(51,390
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Other comprehensive (loss) income before reclassifications
 
 
 
 
 
 
 
Unrealized (loss) gain on qualifying cash flow hedging instruments
(19,576
)
 
6,955

 
(71,828
)
 
16,631

Pension adjustments, net of taxes
(230
)
 
174

 
(402
)
 
550

Foreign exchange gain on currency translation

 
794

 

 
843

Amounts reclassified from accumulated other comprehensive (loss) income relating to:
 
 
 
 
 
 
 
Realized (gain) loss on qualifying cash flow hedging instruments
 
 
 
 
 
 
 
To interest expense (note 16)
(22
)
 
(37
)
 
(430
)
 
211

To equity income
401

 
(619
)
 
(296
)
 
(1,217
)
Loss on deconsolidation of Teekay Offshore (note 4)

 

 

 
7,720

Other comprehensive (loss) income
(19,427
)
 
7,267

 
(72,956
)
 
24,738

Comprehensive (loss) income
(195,335
)
 
5,504

 
(344,439
)
 
(26,652
)
Comprehensive income attributable to non-controlling interests
(9,578
)
 
(14,953
)
 
(1,482
)
 
(20,617
)
Comprehensive loss attributable to shareholders of Teekay Corporation
(204,913
)
 
(9,449
)
 
(345,921
)
 
(47,269
)
The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 4


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. Dollars, except share amounts)
 
 
As at
September 30,
2019
 
As at
December 31,
2018
 
$
 
$
ASSETS

 
 
Current

 
 
Cash and cash equivalents (note 10 and 19)
293,361

 
424,169

Restricted cash – current (note 19)
60,463

 
40,493

Accounts receivable, including non-trade of $10,688 (2018 – $7,883) and related party balance of $2,444 (2018 – $57,062)
148,891

 
174,031

Accrued revenue
61,841

 
20,249

Prepaid expenses and other (notes 3 and 16)
98,819

 
69,882

Current portion of loans to equity-accounted investments
99,314

 
169,197

Vessel held for sale (notes 7 and 13)
11,515

 

Total current assets
774,204

 
898,021

Restricted cash – non-current (note 19)
38,932

 
40,977

Vessels and equipment (note 10)


 
 
At cost, less accumulated depreciation of $1,276,554 (2018 – $1,270,460) (notes 7 and 13)
3,017,153

 
3,362,937

Vessels related to finance leases, at cost, less accumulated amortization of $234,103 (2018 – $178,178) (note 6)
2,224,142

 
2,067,254

Operating lease right-of-use assets (notes 2 and 6)
177,052

 

Advances on newbuilding contracts

 
86,942

Total vessels and equipment
5,418,347

 
5,517,133

Net investment in direct financing leases – non-current (notes 3 and 6)
548,072

 
562,528

Investment in and loans to equity-accounted investments (notes 4 and 12a)
1,034,713

 
1,193,741

Goodwill, intangibles and other non-current assets (note 16)
137,510

 
179,270

Total assets
7,951,778

 
8,391,670

LIABILITIES AND EQUITY


 
 
Current


 
 
Accounts payable, accrued liabilities and other (notes 8, 14 and 16)
341,092

 
254,380

Short-term debt (note 9)
50,000

 

Loans from equity-accounted investments
24,895

 
75,292

Current portion of derivative liabilities (note 16)
38,502

 
12,205

Current portion of long-term debt (note 10)
528,527

 
242,137

Current obligations related to finance leases (note 6)
94,536

 
102,115

Current portion of operating lease liabilities (notes 2 and 6)
62,654

 

Total current liabilities
1,140,206

 
686,129

Long-term debt (note 10)
2,292,777

 
3,077,386

Long-term obligations related to finance leases (note 6)
1,754,544

 
1,571,730

Long-term operating lease liabilities (notes 2 and 6)
102,760

 

Derivative liabilities (note 16)
73,482

 
56,352

Other long-term liabilities (note 17)
139,109

 
133,045

Total liabilities
5,502,878

 
5,524,642

Commitments and contingencies (notes 6, 10, 12, and 16)


 


Equity


 
 
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 100,784,683 shares outstanding and issued (2018 – 100,435,210)) (note 11)
1,050,898

 
1,045,659

Accumulated deficit
(558,016
)
 
(234,395
)
Non-controlling interest
1,983,896

 
2,058,037

Accumulated other comprehensive loss (note 15)
(27,878
)
 
(2,273
)
Total equity
2,448,900

 
2,867,028

Total liabilities and equity
7,951,778

 
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)
 
Nine Months Ended September 30,
 
2019
 
2018
 
$
 
$
Cash, cash equivalents and restricted cash provided by (used for)
 
 
 
OPERATING ACTIVITIES
 
 
 
Net loss
(271,483
)
 
(51,390
)
Non-cash and non-operating items:
 
 
 
Depreciation and amortization
219,589

 
205,238

Unrealized loss (gain) on derivative instruments and loss on sale of warrants (note 16)
38,803

 
(93,817
)
Write-down and loss on sales of vessels (note 7)
179,113

 
53,693

Equity loss (income), net of dividends received
71,797

 
(28,382
)
Income tax expense (note 17)
11,531

 
17,197

Foreign exchange (gain) loss including the effect of the termination of cross currency swaps
(28,532
)
 
31,098

Other
30,603

 
20,982

Direct financing lease payments received
9,242

 

Change in operating assets and liabilities
41,729

 
(41,424
)
Expenditures for dry docking
(46,266
)
 
(28,782
)
Net operating cash flow
256,126

 
84,413

FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of long-term debt, net of issuance costs
449,686

 
843,854

Prepayments of long-term debt
(774,401
)
 
(681,664
)
Scheduled repayments of long-term debt and settlement of related swaps (note 10)
(171,946
)
 
(265,868
)
Proceeds from short-term debt
125,000

 

Prepayment of short-term debt
(75,000
)
 

Proceeds from financing related to sale-leaseback of vessels
381,526

 
526,692

Prepayment of obligations related to finance leases
(111,617
)
 

Repayments of obligations related to finance leases
(72,559
)
 
(54,122
)
Net proceeds from equity issuances of Teekay Corporation (note 11)

 
103,657

Repurchase of Teekay LNG common units
(25,729
)
 

Distributions paid from subsidiaries to non-controlling interests
(46,982
)
 
(49,124
)
Cash dividends paid
(5,523
)
 
(16,637
)
Other financing activities
(580
)
 
(595
)
Net financing cash flow
(328,125
)
 
406,193

INVESTING ACTIVITIES
 
 
 
Expenditures for vessels and equipment, net of warranty settlement $44,890 (2018 $nil) (note 12a)
(98,713
)
 
(564,464
)
Proceeds from sale of equity-accounted investments and related assets (note 4)
100,000

 
54,438

Investment in equity-accounted investments
(42,171
)
 
(32,758
)
Loans to joint ventures and joint venture partners

 
(24,957
)
Cash of transferred subsidiaries on sale, net of proceeds received (note 4)

 
(25,254
)
Other investing activities

 
8,678

Net investing cash flow
(40,884
)
 
(584,317
)
Decrease in cash, cash equivalents and restricted cash
(112,883
)
 
(93,711
)
Cash, cash equivalents and restricted cash, beginning of the period
505,639

 
552,174

Cash, cash equivalents and restricted cash, end of the period
392,756

 
458,463

Supplemental cash flow information (note 19)
 
 
 
The accompanying notes are an integral part of the unaudited consolidated financial statements.

Page 6


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS 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
$
 
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 11)
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

 

 
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

Net (loss) income

 

 
(39,485
)
 

 
5,374

 
(34,111
)
Other comprehensive loss

 

 

 
(10,019
)
 
(21,163
)
 
(31,182
)
Other dividends

 

 

 

 
(16,574
)
 
(16,574
)
Employee stock compensation and other (note 11)
85

 
908

 

 

 

 
908

Changes to non-controlling interest from equity contributions and other

 

 
228

 

 
(2,734
)
 
(2,506
)
Balance as at June 30, 2019
100,784

 
1,049,531

 
(361,162
)
 
(21,143
)
 
2,005,399

 
2,672,625

Net (loss) income

 

 
(198,178
)
 

 
22,270

 
(175,908
)
Other comprehensive loss

 

 

 
(6,735
)
 
(12,692
)
 
(19,427
)
Other dividends

 

 

 

 
(16,516
)
 
(16,516
)
Employee stock compensation and other (note 11)

 
1,367

 

 

 

 
1,367

Changes to non-controlling interest from equity contributions and other

 

 
1,324

 

 
(14,565
)
 
(13,241
)
Balance as at September 30, 2019
100,784

 
1,050,898

 
(558,016
)
 
(27,878
)
 
1,983,896

 
2,448,900





















Page 7


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. Dollars, except share amounts)
 
TOTAL EQUITY
 
Thousands
of Shares
of Common
Stock
Outstanding
#
 
Common
Stock and
Additional
Paid-in
Capital
$
 
Accumulated
Deficit
$
 
Accumulated
Other
Compre-
hensive
(Loss) Income
$
 
Non-
controlling
Interests
$
 
Total
$
Balance as at December 31, 2017
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 11)
180

 
4,430

 

 

 

 
4,430

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

 
103,696

 

 

 

 
103,696

Equity component of convertible notes (note 10)

 
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

Net loss

 

 
(28,324
)
 

 
(11,323
)
 
(39,647
)
Other comprehensive income

 

 

 
2,725

 
4,413

 
7,138

Dividends declared:
 
 
 
 
 
 
 
 
 
 
 
Common stock ($0.055 per share)

 

 
(5,604
)
 

 

 
(5,604
)
Other dividends

 

 

 

 
(14,048
)
 
(14,048
)
Employee stock compensation and other (note 11)
1

 
1,488

 

 

 

 
1,488

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

 
(39
)
 

 

 

 
(39
)
Changes to non-controlling interest from equity contributions and other

 

 
81

 

 
133

 
214

Balance as at June 30, 2018
100,435

 
1,044,752

 
(193,751
)
 
5,163

 
2,077,449

 
2,933,613

Net (loss) income

 

 
(12,005
)
 

 
10,242

 
(1,763
)
Other comprehensive income

 

 

 
2,556

 
4,711

 
7,267

Dividends declared:
 
 
 
 
 
 
 
 
 
 
 
Common stock ($0.055 per share)

 

 
(5,591
)
 

 

 
(5,591
)
Other dividends

 

 

 

 
(15,252
)
 
(15,252
)
Employee stock compensation and other (note 11)

 
1,329

 

 

 

 
1,329

Changes to non-controlling interest from equity contributions and other

 

 
(32
)
 

 
342

 
310

Balance as at September 30, 2018
100,435

 
1,046,081

 
(211,379
)
 
7,719

 
2,077,492

 
2,919,913

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

Page 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)


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 Teekay 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 and nine months ended September 30, 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. In addition, the Company early adopted ASU 2019-01, which provides an exception for lessors who are not manufacturers or dealers to determine the fair value of leased property using the underlying asset's cost, instead of fair value. 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:

Under ASU 2016-02, the Company and the Company's equity-accounted joint ventures recognize a right-of-use asset and 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 resulted in an increase in the Company's and its equity-accounted joint ventures' assets and liabilities. The pattern of expense recognition of chartered-in vessels is expected to remain substantially unchanged from the prior policy, unless the right-of-use asset becomes impaired. The adoption of ASU 2016-02 results 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 of $170.0 million and a lease liability of $170.0 million were recognized for these chartered-in vessels. In addition, the existing carrying value of the Company's chartered-in vessels was reclassified from other non-current assets ($13.7 million) and from other long-term liabilities ($0.9 million) to a right-of-use asset as at January 1, 2019. The Company also recognized a right-of-use asset and liability for its office leases as at January 1, 2019, which is presented in other non-current assets and accounts payable, accrued liabilities and other, respectively. On September 30, 2019, the right-of-use asset and lease liability relating to the Company's chartered-in vessels were $177.0 million and $165.4 million, respectively, and the right-of-use asset and lease liability relating to office leases were $7.7 million and $7.7 million, respectively.

The adoption of ASU 2016-02 results in the recognition of revenue from the reimbursement of scheduled dry-dock expenditures, where a 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 decreased total equity by $3.0 million as at September 30, 2019. The cumulative decrease to opening equity as at January 1, 2019 was $3.0 million.

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)


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 Company's unaudited consolidated statement of cash flows. Direct financing lease payments received during the three and nine months ended September 30, 2019 were $3.2 million and $9.2 million, respectively (three and nine months ended September 30, 2018$3.2 million and $8.4 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 was the legal owner. Proceeds received from the sale of the vessel are recognized as an obligation related to finance lease, and bareboat charter hire payments made by the Company to the lessor are allocated between interest expense and principal repayments on the obligation related to finance lease. The adoption of ASU 2016-02 has resulted in the sale and leaseback of the Yamal Spirit, the Cascade Spirit and the Aspen Spirit during 2019 being accounted for as failed sales, and unlike the 22 vessels sold and leased back in similar transactions 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 certain other required criteria are met, 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 recorded in other comprehensive (loss) income and reclassified to earnings in the same income statement line as the hedged item when the hedged item affects earnings. 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 introduces a new credit loss methodology, which requires earlier recognition of credit losses, while providing additional transparency about credit risk. This new credit loss methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to-maturity debt securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses are subsequently adjusted each period for changes in expected lifetime credit losses. This methodology replaces the multiple existing impairment methods in current GAAP, which generally require that a loss be incurred before it is recognized. This update is effective for the Company on January 1, 2020, with a modified-retrospective approach. The Company expects that its net investments in direct financing leases, loans to equity-accounted investments, guarantees of indebtedness of equity-accounted investments and receivables related to non-operating lease revenue arrangements will be in-scope to ASU 2016-13. Consequently, the Company expects that on January 1, 2020, it will decrease the carrying value of the instruments in-scope to ASU 2016-13, resulting in a corresponding reduction to total equity on the date of adoption. 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 by providing corporate management services to such third-party 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.


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)

Revenue Table
The following tables contain the Company’s revenue for the three and nine months ended September 30, 2019 and 2018, by contract type, by segment and by business lines within segments.
 
Three Months Ended September 30, 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
129,633

1,597

1,909


12,642

(7,246
)
138,535

Voyage charters
10,846


173,034




183,880

Bareboat charters
6,196






6,196

FPSO contracts



44,558



44,558

Management fees and other
1,383


7,361


38,633

150

47,527

 
148,058

1,597

182,304

44,558

51,275

(7,096
)
420,696

 
Three Months Ended September 30, 2018
 
Teekay LNG
Liquefied
Gas
Carriers
Teekay LNG
Conventional
Tankers
Teekay
Tankers
Conventional
Tankers
Teekay
Parent
Offshore
Production
Teekay
Parent
Other
Eliminations
and Other
Total
 
 
 
$
$
$
$
$
$
$
Time charters
104,342

2,820

12,326


6,645


126,133

Voyage charters
6,279

2,220

152,047




160,546

Bareboat charters
6,001






6,001

FPSO contracts



71,583



71,583

Management fees and other
1,566

108

11,542


39,343

(260
)
52,299

 
118,188

5,148

175,915

71,583

45,988

(260
)
416,562

 
Nine Months Ended September 30, 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
394,092

6,728

6,775


26,989

(9,733
)
424,851

Voyage charters
28,864


576,256




605,120

Bareboat charters
18,387






18,387

FPSO contracts



151,824



151,824

Management fees and other
4,388


34,051


122,934

(1,979
)
159,394

 
445,731

6,728

617,082

151,824

149,923

(11,712
)
1,359,576

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

12,534

51,820


27,327

(9,418
)
376,921

Voyage charters
16,669

12,690

432,017




461,376

Bareboat charters
17,112






17,112

FPSO contracts



203,982



203,982

Management fees and other
6,970

324

32,202


116,788

551

156,835

 
335,409

25,548

516,039

203,982

144,115

(8,867
)
1,216,226



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)

The following table contains the Company's total revenue for the three and nine months ended September 30, 2019 and 2018, by those contracts or components of contracts accounted for as leases and by those contracts or components not accounted for as leases.
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
$
 
$
 
$
 
$
Lease revenue
 
 
 
 
 
 
 
 
Lease revenue from lease payments of operating leases
 
334,206

 
316,217

 
1,071,759

 
912,782

Interest income on lease receivables
 
12,978

 
8,915

 
38,741

 
28,829

Variable lease payments  cost reimbursements (1)
 
14,169

 
10,629

 
39,483

 
29,306

Variable lease payments – other (2)
 
6,542

 
24,606

 
33,686

 
76,314

 
 
367,895

 
360,367

 
1,183,669

 
1,047,231

Non-lease revenue
 
 
 
 
 
 
 
 
Non-lease revenue  related to sales-type or direct financing leases
 
5,274

 
3,896

 
16,513

 
12,160

Management fees and other income
 
47,527

 
52,299

 
159,394

 
156,835

 
 
52,801

 
56,195

 
175,907

 
168,995

Total
 
420,696

 
416,562

 
1,359,576

 
1,216,226

(1)
Reimbursement for vessel operating expenditures and dry-docking 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 based on the volume of oil produced, the price of oil, and other monthly or annual operational performance measures.
Operating Leases

As at September 30, 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 $173.4 million (remainder of 2019), $650.9 million (2020), $532.2 million (2021), $428.9 million (2022) and $320.7 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 September 30, 2019 or after December 31, 2018, as applicable, revenue from unexercised option periods of contracts that existed on September 30, 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 September 30, 2019 was $3.0 billion (December 31, 2018$3.4 billion). At September 30, 2019, the cost and accumulated depreciation of such vessels were $3.8 billion (December 31, 2018$4.3 billion) and $0.8 billion (December 31, 2018$0.8 billion), respectively.


Page 12

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

Net Investment in Direct Financing Leases and Sales-Type 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:
 
September 30, 2019
 
December 31, 2018
 
$
 
$
Total minimum lease payments to be received
849,115

 
897,130

Estimated unguaranteed residual value of leased properties
291,098

 
291,098

Initial direct costs and other
304

 
329

Less unearned revenue
(579,080
)
 
(613,394
)
Total
561,437

 
575,163

Less current portion
(13,365
)
 
(12,635
)
Long-term portion
548,072

 
562,528


As at September 30, 2019, estimated minimum lease payments to be received by Teekay LNG related to its direct financing leases in each of the next five years were approximately $15.9 million (2019), $64.3 million (2020), $64.2 million (2021), $64.2 million (2022), $64.0 million (2023) and an aggregate of $576.5 million thereafter. The leases are scheduled to end between 2029 and 2039.

As at September 30, 2019, estimated minimum lease payments to be received by Teekay LNG related to its sales-type leases were approximately $7.1 million during the remainder of 2019, and $36.4 million in 2020. As at September 30, 2019, Teekay LNG has not recognized a lease receivable in respect of these payments in its unaudited consolidated financial statements as its recoverability was not reasonably assured.

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 were approximately $63.9 million (2019), $64.3 million (2020), $64.2 million (2021), $64.2 million (2022), $64.0 million (2023) and an aggregate of $576.5 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 September 30, 2019, December 31, 2018, September 30, 2018 and on transition to ASC 606 on January 1, 2018, there were contract liabilities of $26.6 million, $26.4 million, $21.7 million and $29.5 million, respectively. During the three months ended September 30, 2019 and September 30, 2018, the Company recognized $23.3 million and $22.2 million of revenue, respectively, that was recognized as a contract liability at the beginning of such three-month periods. During the nine months ended September 30, 2019 and September 30, 2018, the Company recognized $26.4 million and $29.5 million of revenue, respectively, that was recognized as a contract liability at the beginning of such nine-month periods.
4. Related Party Transactions
On May 8, 2019, Teekay sold to Brookfield Business Partners L.P. (or Brookfield) all of the Company’s remaining interests in Teekay Offshore Partners L.P. (or 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 (described below), for total cash proceeds of $100 million (or the 2019 Brookfield Transaction). Subsequent to the 2019 Brookfield Transaction, Teekay Offshore is no longer a related party of Teekay.


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)

Subsequent to the deconsolidation of Teekay Offshore in September 2017 and prior to the 2019 Brookfield Transaction, 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 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 equity loss on the Company's unaudited consolidated statements of loss for the nine months ended September 30, 2019. The Company recognized a loss on sale of $8.9 million upon completion of the 2019 Brookfield Transaction in May 2019.

Since Teekay Offshore is no longer a related party of Teekay, advances from Teekay to Teekay Offshore and advances from Teekay Offshore to Teekay were included in accounts receivable and accounts payable, respectively, on the Company's unaudited consolidated balance sheet as at September 30, 2019. Advances from Teekay to Teekay Offshore as at December 31, 2018 were $83.1 million, and advances from Teekay Offshore to Teekay as at December 31, 2018 were $59.3 million. Such amounts were included in current portion of loans to equity-accounted investments and loans from equity-accounted investments, respectively, on the Company's consolidated balance sheet as at December 31, 2018.

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. Teekay’s $25.0 million loan to Teekay Offshore was among the assets sold by Teekay to Brookfield in the 2019 Brookfield Transaction.

On September 25, 2017, Teekay, Teekay Offshore and Brookfield completed a strategic partnership (or the 2017 Brookfield Transaction), which resulted in the deconsolidation of Teekay Offshore as of that date. 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 nine months ended September 30, 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 unaudited consolidated statements of loss.

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 recognized by the Company for services provided to Teekay Offshore during the period that Teekay Offshore was a related party to the Company from January 1, 2019 to May 8, 2019 was $7.6 million (three and nine months ended September 30, 2018 – $5.1 million and $16.2 million, respectively), which were recorded in revenues on the Company's unaudited consolidated statements of loss. Fees paid by the Company to Teekay Offshore for services provided by Teekay Offshore to the Company during the period that Teekay Offshore was a related party to the Company from January 1, 2019 to May 8, 2019 was $9.6 million (three and nine months ended September 30, 2018 – $5.9 million and $19.2 million, respectively), which were recorded in vessel operating expenses and general and administrative expenses on the Company's unaudited consolidated statements of loss.

As at September 30, 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 during the period that Teekay Offshore was a related party to the Company from January 1, 2019 to May 8, 2019 was $20.8 million (three and nine months ended September 30, 2018$14.4 million and $42.4 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 and nine months ended September 30, 2019 were $5.3 million and $14.0 million, respectively (three and nine months ended September 30, 2018$1.7 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 and nine months ended September 30, 2019, the Company earned $17.4 million and $50.0 million, respectively (three and nine months ended September 30, 2018$14.4 million and $40.1 million, respectively), of fees pursuant to these management agreements and reimbursement of costs.


Page 14

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

5. Segment Reporting
The Company’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 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 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 Daughter Entity and the Company believes this information allows a better understanding of the Company’s performance and prospects for future net cash flows.

The following table includes the Company’s revenues by segment for the three and nine months ended September 30, 2019 and 2018:
 
Revenues
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2019
2018
2019
2018
 
$
$
$
$
Teekay LNG
 
 
 
 
Liquefied Gas Carriers(1)
148,058

118,188

445,731

335,409

Conventional Tankers
1,597

5,148

6,728

25,548

 
149,655

123,336

452,459

360,957

 
 
 
 
 
Teekay Tankers
 
 
 
 
Conventional Tankers(1)
182,304

175,915

617,082

516,039

 
 
 
 
 
Teekay Parent
 
 
 
 
Offshore Production
44,558

71,583

151,824

203,982

Other
51,275

45,988

149,923

144,115

 
95,833

117,571

301,747

348,097

 
 
 
 
 
Eliminations and other
(7,096
)
(260
)
(11,712
)
(8,867
)
 
420,696

416,562

1,359,576

1,216,226


(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. Also during 2019, the Magellan Spirit was chartered by Teekay LNG to Teekay Parent. During 2018, certain vessels were chartered by Teekay LNG to Teekay Parent. Such intersegment revenue for the three and nine months ended September 30, 2019 and 2018 is as follows:
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2019
2018
2019
2018
 
$
$
$
$
Teekay LNG – Liquefied Gas Carriers
7,246


9,733

9,418

Teekay Tankers – Conventional Tankers
(150
)

1,979


 
7,096


11,712

9,418


Page 15

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


The following table includes the Company’s income (loss) from vessel operations by segment for the three and nine months ended September 30, 2019 and 2018:
 
Income (Loss) from Vessel Operations(1)
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2019
2018
2019
2018
 
$
$
$
$
Teekay LNG
 
 
 
 
Liquefied Gas Carriers
72,112

51,581

216,799

105,571

Conventional Tankers
(501
)
(4,583
)
(1,150
)
(22,926
)
 
71,611

46,998

215,649

82,645

 
 
 
 
 
Teekay Tankers
 
 
 
 
Conventional Tankers
(4,873
)
(2,166
)
32,275

(24,002
)
 
 
 
 
 
Teekay Parent
 
 
 
 
Offshore Production
(194,415
)
12,905

(212,959
)
25,328

Other
(2,712
)
(2,655
)
(9,659
)
(8,463
)
 
(197,127
)
10,250

(222,618
)
16,865

 
 
 
 
 
 
(130,389
)
55,082

25,306

75,508


(1)
Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).
Prior to its sale in May 2019, the Company accounted for its investment in Teekay Offshore's general partner and common units using the equity method and recognized an equity loss in respect of Teekay Offshore for the period from January 1, 2019 to May 8, 2019 of $3.1 million (three and nine months ended September 30, 2018 – equity losses of $0.5 million and $9.2 million, respectively). The Company wrote-down the investment in Teekay Offshore by $64.9 million in the nine months ended September 30, 2019 and recognized a loss on sale of $8.9 million in the nine months ended September 30, 2019.
A reconciliation of total segment assets to total assets presented in the accompanying unaudited consolidated balance sheets is as follows:
 
September 30, 2019
December 31, 2018
 
$
$
Teekay LNG – Liquefied Gas Carriers
5,207,158

5,188,088

Teekay LNG – Conventional Tankers
12,540

39,450

Teekay Tankers – Conventional Tankers
2,093,433

2,106,169

Teekay Parent – Offshore Production
172,858

311,550

Teekay Parent – Other
92,040

38,280

Teekay Offshore

233,225

Cash and cash equivalents
293,361

424,169

Other assets not allocated
108,404

70,153

Eliminations
(28,016
)
(19,414
)
Consolidated total assets
7,951,778

8,391,670



Page 16

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

6. Leases
Obligations Related to Finance Leases

September 30, 2019

December 31, 2018

$

$
Teekay LNG
 
 
 
LNG Carriers
1,428,146

 
1,274,569

Suezmax Tanker

 
23,987

Teekay Tankers
 
 
 
Suezmax Tankers
219,751

 
165,145

Aframax Tankers
175,920

 
184,021

LR2 Product Tanker
25,263

 
26,123

Total obligations related to finance leases
1,849,080

 
1,673,845

Less current portion
(94,536
)
 
(102,115
)
Long-term obligations related to finance leases
1,754,544

 
1,571,730


Teekay LNG

As at September 30, 2019, Teekay LNG was a party to finance leases on nine LNG carriers (December 31, 2018eight LNG carriers). These nine LNG carriers were sold by Teekay LNG to third parties (or Lessors) and leased back under 7.5- 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 unaudited consolidated balance sheets and have purchase obligations at the end of the lease terms.

Teekay LNG consolidates seven 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 Lessors' primary beneficiary.

The liabilities of the seven Lessors are loans and are non-recourse to Teekay LNG. The amounts funded to the seven 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 seven Lessors have been included in obligations related to finance leases as representing the Lessors' loans.

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. During September 2019, Teekay LNG refinanced the Torben Spirit by acquiring the Torben Spirit from its original Lessor and then selling the vessel to another Lessor and leasing it back for a period of 7.5 years. Teekay LNG is required to purchase the vessel at the end of the lease term. As a result of this refinancing transaction, Teekay LNG recognized a loss of $1.4 million for the three and nine months ended September 30, 2019 on the extinguishment of the original finance lease which was included in other loss in the unaudited consolidated statements of loss. Subsequent to the adoption of ASU 2016-02 on January 1, 2019, sale-leaseback transactions where the lessee has a purchase obligation are treated as a failed sale. Consequently, Teekay LNG has not derecognized the vessels and continues to depreciate the assets as if Teekay LNG was the legal owner. Proceeds received from the sales are set up as financial liabilities and bareboat charter hire payments made by Teekay LNG to the Lessors are allocated between interest expense and principal repayments on the financial liabilities.

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 of the date these unaudited consolidated financial statements were issued, Teekay LNG was in compliance with all covenants in respect of the obligations related to its finance leases.

As at September 30, 2019 and December 31, 2018, the remaining commitments related to the financial liabilities of these nine LNG carriers (December 31, 2018eight 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 $489.0 million (December 31, 2018$435.3 million), repayable for the remainder of 2019 through 2034, as indicated below:

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)



Commitments
 
 
At September 30, 2019
 
At December 31, 2018
Year

$
 
$
Remainder of 2019

35,389

 
119,517

2020

140,386

 
118,685

2021

138,601

 
117,772

2022

136,959

 
116,978

2023

135,459

 
116,338

Thereafter

1,330,378

 
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 May 2019, Teekay Tankers completed a $63.7 million sale-leaseback financing transaction with a financial institution relating to two of Teekay Tankers' Suezmax tankers, the Aspen Spirit and Cascade Spirit.
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 9- to 12-year terms. Teekay Tankers is obligated to purchase six of the Aframax vessels and two of the Suezmax vessels upon maturity of their respective bareboat charters. Teekay Tankers also has the option to purchase each of the 16 tankers at various times starting between July 2020 and November 2021 until the end of their respective lease terms.

Teekay Tankers consolidates 14 of the 16 Lessors for financial reporting purposes as VIEs. 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.

The liabilities of the 14 Lessors are loans that are non-recourse to Teekay Tankers. The amounts funded to the 14 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 14 Lessors considered as VIEs have been included in obligations related to finance leases as representing the Lessors' loans.

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 Tankers has not derecognized the Aspen Spirit and Cascade Spirit and continues to depreciate the assets as if it was the legal owner. Proceeds received from the sale are set up as an obligation related to finance lease and bareboat charter hire payments made by Teekay Tankers to the Lessor are allocated between interest expense and principal repayments on the obligation related to finance lease.

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 unaudited consolidated balance sheets).

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 September 30, 2019, this ratio was approximately 121% (December 31, 2018101%).
 
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 September 30, 2019, this ratio was approximately 113% (December 31, 201891%).

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)

 
Four of the 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 September 30, 2019, this ratio was approximately 153% (December 31, 2018122%).

The remaining two bareboat charters also require Teekay Tankers to maintain, for each vessel, a minimum hull coverage ratio of 75% of the total outstanding principal balance during the first year of the lease period, 78% for the second year, 80% for the following two years and 90% of the total outstanding principal balance thereafter. As at September 30, 2019, this ratio was approximately 108% (December 31, 2018nil).

Such requirements are assessed annually with reference to vessel valuations compiled by one or more agreed upon third parties. As of the date these unaudited consolidated financial statements were issued, Teekay Tankers is in compliance with all covenants in respect of its obligations related to finance leases.

The weighted average interest rate on Teekay Tankers’ obligations related to finance leases as at September 30, 2019 was 7.7% (December 31, 20187.5%).

As at September 30, 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 $615.9 million (December 31, 2018$557.1 million), including imputed interest of $195.0 million (December 31, 2018$181.8 million), repayable from 2019 through 2030, as indicated below:


Commitments
 
 
At September 30, 2019
 
At December 31, 2018
Year

$
 
$
Remainder of 2019

14,242

 
47,962

2020

56,364

 
47,373

2021

56,202

 
47,237

2022

56,193

 
47,230

2023

56,184

 
47,222

Thereafter

376,749

 
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 and nine months ended September 30, 2019, the Company incurred $25.9 million and $74.7 million, respectively, of time-charter and bareboat hire expense related to these time-charter and bareboat charter contracts, of which $18.1 million and $51.9 million, respectively, were allocable to the lease component, and $7.7 million and $22.8 million, respectively, were allocable to the non-lease component. The amounts 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 and nine months ended September 30, 2019. Three 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 September 30, 2019, the weighted-average remaining lease term and weighted-average discount rate for these time-charter-in and bareboat charter contracts were 2.8 years and 6.1%, respectively.


Page 19

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

The Company has elected to recognize the lease payments of short-term leases in its unaudited 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 and nine months ended September 30, 2019, the Company incurred $4.2 million and $13.4 million, respectively, of time-charter hire expense related to time-charter-in contracts classified as short-term leases.

During the nine months ended September 30, 2019, Teekay Tankers chartered in two LR2 vessels and one Aframax vessel for periods of 24 months each, Teekay LNG extended the charter-in contract for one LNG carrier for a period of 21 months, and Teekay Parent extended the charter-in contract for one FSO unit for a period of 12 months, which resulted in the Company recognizing right-of-use assets and lease liabilities totaling $47.6 million and $47.6 million, respectively.

A maturity analysis of the Company’s operating lease liabilities from time-charter-in and bareboat charter contracts (excluding short-term leases) at September 30, 2019 is as follows:

 
Lease Commitment

Non-Lease Commitment
 
Total Commitment
Year
 
$

$
 
$
Payments
 
 
 
 
 
 
Remainder of 2019
 
19,242

 
9,418

 
28,660

2020
 
69,617

 
37,089

 
106,706

2021
 
54,195

 
26,948

 
81,143

2022
 
22,978

 
8,189

 
31,167

2023
 
9,227

 

 
9,227

Thereafter
 
5,712

 

 
5,712

Total payments
 
180,971

 
81,644

 
262,615

Less: imputed interest
 
(15,557
)
 
 
 
 
Carrying value of operating lease liabilities
 
165,414

 
 
 
 
Less current portion
 
(62,654
)
 
 
 
 
Carrying value of long-term operating lease liabilities
 
102,760

 
 
 
 

As at September 30, 2019, minimum commitments to be incurred by the Company under short-term time-charter-in contracts were approximately $4.3 million (remainder of 2019) and $2.7 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. Write-down and Loss on Sales of Vessels
The Company's write-downs and vessel sales generally relate to vessels approaching the end of their useful lives as well as other vessels it strategically sells, or is attempting to sell, to reduce exposure to a certain vessel class.

The following tables contain the write-downs and loss on sales of vessels for the three and nine months ended September 30, 2019 and 2018:
 
 
 
 
 
 
Three Months Ended September 30,
Segment

Asset Type

Completion of Sale Date

2019
$

2018
$
Teekay Parent Segment – Offshore Production (1)
 
2 FPSOs
 
N/A
 
(175,000
)
 

Teekay LNG Segment – Conventional Tankers (2)
 
Handymax
 
Oct-2019
 
(785
)
 

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

 
(2,201
)
Total
 
 
 
 
 
(175,785
)
 
(2,201
)


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)

 
 
 
 
 
 
Nine Months Ended September 30,
Segment
 
Asset Type
 
Completion of Sale Date
 
2019
$
 
2018
$
Teekay Parent Segment  Offshore Production (1)
 
3 FPSOs
 
N/A
 
(178,328
)
 

Teekay LNG Segment – Conventional Tankers (2)
 
Handymax
 
Oct-2019
 
(785
)
 
(13,000
)
Teekay LNG Segment – Liquefied Gas Carriers (4)
 
4 Multi-gas Carriers
 
N/A
 

 
(33,000
)
Teekay LNG Segment – Conventional Tankers (3)
 
2 Suezmaxes
 
Oct/Dec-2018
 

 
(7,863
)
Other
 
 
 
 
 

 
170

Total
 
 
 
 
 
(179,113
)
 
(53,693
)

(1)
During the nine months ended September 30, 2019, the Company took impairment charges in respect of all three of its FPSO-related assets. The Company has continued to follow its strategy of contract extensions and a potential sale of any or all of the three FPSOs. Substantially all of the $178.3 million impairment in the nine months ended September 30, 2019 relates to the write-down of two of the Company’s FPSO units. The Company made changes to its expected cash flows from the two FPSO units based on recent discussions with potential buyers about the possible sale of the units and existing charterers about contract extensions. This led to the write-down of one unit to its estimated fair value, based on the expected sales price, and a write-down of the other unit to its estimated fair value, using a discounted cash flow approach based on the terms of the existing contract and expectations about future contract extensions and potential sale of the unit.
(2)
Teekay LNG commenced marketing the Alexander Spirit conventional tanker for sale in the second quarter of 2019 and sold the vessel in October 2019 for net proceeds of $11.5 million. The Alexander Spirit is presented as held for sale in the unaudited consolidated balance sheets as at September 30, 2019.
(3)
During the three and nine months ended September 30, 2018, Teekay LNG recorded write-downs on the European Spirit and African Spirit Suezmax tankers to their estimated resale value. 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.