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iso4217:USD tk:subsidiary xbrli:shares tk:vessel tk:segment iso4217:USD xbrli:shares xbrli:pure tk:Subsidiaries tk:SecurityLoan tk:interest_rate_swaps iso4217:NOK tk:term_loan iso4217:GBP iso4217:USD iso4217:EUR tk:joint_venture tk:lease

 
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 under
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020
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 JUNE 30, 2020
INDEX

 
PAGE
 
 


Page 2



ITEM 1 – FINANCIAL STATEMENTS
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands of U.S. Dollars, except share and per share amounts)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
$
 
$
 
$
 
$
Revenues (note 3)
482,805

 
462,397

 
1,056,859

 
949,270

Voyage expenses
(66,896
)
 
(103,410
)
 
(188,460
)
 
(212,193
)
Vessel operating expenses
(147,796
)
 
(162,621
)
 
(301,089
)
 
(319,613
)
Time-charter hire expenses (note 6)
(17,714
)
 
(28,817
)
 
(44,770
)
 
(58,655
)
Depreciation and amortization
(62,936
)
 
(73,849
)
 
(135,853
)
 
(145,956
)
General and administrative expenses
(23,668
)
 
(20,868
)
 
(41,945
)
 
(43,840
)
Write-down and gain (loss) on sale (note 7)
(10,669
)
 

 
(105,275
)
 
(3,328
)
Gain on commencement of sales-type lease (note 3)

 

 
44,943

 

Restructuring charges (note 14)
(4,622
)
 
(1,369
)
 
(7,010
)
 
(9,990
)
Income from vessel operations
148,504


71,463


277,400

 
155,695

Interest expense
(59,245
)

(70,205
)
 
(121,765
)
 
(143,876
)
Interest income
2,314

 
2,233

 
5,117

 
4,922

Realized and unrealized losses on non-designated derivative instruments (note 16)
(9,270
)
 
(10,964
)
 
(30,933
)
 
(16,387
)
Equity income (loss) (note 4 and 13b)
35,343

 
(6,284
)
 
37,656

 
(67,937
)
Foreign exchange loss (notes 10 and 16)
(8,922
)
 
(5,851
)
 
(2,276
)
 
(8,481
)
Other loss
(399
)

(11,099
)

(1,080
)
 
(11,071
)
Income (loss) before income taxes
108,325

 
(30,707
)
 
164,119

 
(87,135
)
Income tax recovery (expense) (note 17)
17,175

 
(3,404
)
 
13,383

 
(8,440
)
Net income (loss)
125,500

 
(34,111
)
 
177,502

 
(95,575
)
Net income attributable to non-controlling interests
(103,777
)
 
(5,374
)
 
(205,584
)
 
(28,167
)
Net income (loss) attributable to the shareholders of Teekay Corporation
21,723

 
(39,485
)
 
(28,082
)
 
(123,742
)
Per common share of Teekay Corporation (note 18)
 
 
 
 
 
 
 
•  Basic income (loss) attributable to shareholders of Teekay Corporation
0.21

 
(0.39
)
 
(0.28
)
 
(1.23
)
•  Diluted income (loss) attributable to shareholders of Teekay Corporation
0.21

 
(0.39
)
 
(0.28
)
 
(1.23
)
Weighted average number of common shares outstanding (note 18)
 
 
 
 
 
 
 
•  Basic
101,107,362

 
100,783,496

 
100,997,456

 
100,652,685

•  Diluted
101,196,383

 
100,783,496

 
100,997,456

 
100,652,685


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

Page 3


TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands of U.S. Dollars)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
$
 
$
 
$
 
$
Net income (loss)
125,500

 
(34,111
)
 
177,502

 
(95,575
)
Other comprehensive loss:
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications
 
 
 
 
 
 
 
Unrealized loss on qualifying cash flow hedging instruments
(11,082
)
 
(30,743
)
 
(68,634
)
 
(52,252
)
Pension adjustments, net of taxes
(19
)
 
(85
)
 
(34
)
 
(172
)
Amounts reclassified from accumulated other comprehensive loss relating to:
 
 
 
 
 
 
 
Realized loss (gain) on qualifying cash flow hedging instruments
 
 
 
 
 
 
 
To interest expense (note 16)
482

 
(157
)
 
634

 
(408
)
To equity income (loss)
2,427

 
(197
)
 
5,931

 
(697
)
Other comprehensive loss
(8,192
)
 
(31,182
)
 
(62,103
)
 
(53,529
)
Comprehensive income (loss)
117,308

 
(65,293
)
 
115,399

 
(149,104
)
Comprehensive (income) loss attributable to non-controlling interests
(98,543
)
 
15,789

 
(164,063
)
 
8,096

Comprehensive income (loss) attributable to shareholders of Teekay Corporation
18,765

 
(49,504
)
 
(48,664
)
 
(141,008
)
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
June 30,
2020
 
As at
December 31,
2019
 
$
 
$
ASSETS

 
 
Current

 
 
Cash and cash equivalents (note 10 and 19)
461,152

 
353,241

Restricted cash – current (note 19)
16,317

 
56,777

Accounts receivable, including non-trade of $9,140 (2019 – $12,793)
204,941

 
199,957

Accrued revenue
42,387

 
107,111

Prepaid expenses and other (note 16)
71,398

 
86,338

Current portion of net investments in direct financing and sales-type leases, net (notes 3 and 13b)

14,920

 
273,986

Assets held for sale

 
65,458

Total current assets
811,115

 
1,142,868

Restricted cash – non-current (note 19)
61,948

 
44,849

Vessels and equipment (note 10)


 
 
At cost, less accumulated depreciation of $1,276,912 (2019 – $1,259,404) (note 7)
2,431,495

 
2,654,466

Vessels related to finance leases, at cost, less accumulated amortization of $292,557 (2019 – $253,553) (note 6)
2,187,047

 
2,219,026

Operating lease right-of-use assets (note 6)
81,255

 
159,638

Total vessels and equipment
4,699,797

 
5,033,130

Net investment in direct financing and sales-type leases, net – non-current (notes 3 and 13b)
540,066

 
544,823

Investment in and loans, net to equity-accounted investments (notes 4,12a and 13b)
1,102,386

 
1,173,728

Goodwill, intangibles and other non-current assets
130,200

 
133,466

Total assets
7,345,512

 
8,072,864

LIABILITIES AND EQUITY


 
 
Current


 
 
Accounts payable
137,910

 
135,496

Accrued liabilities and other (notes 8, 14 and 16)
303,947

 
295,001

Short-term debt (note 9)
10,000

 
50,000

Current portion of long-term debt (note 10)
322,831

 
523,312

Current obligations related to finance leases (note 6)
97,237

 
95,339

Current portion of operating lease liabilities (note 6)
32,753

 
61,431

Liabilities related to assets held for sale (note 7)

 
2,980

Total current liabilities
904,678

 
1,163,559

Long-term debt (note 10)
1,902,656

 
2,303,840

Long-term obligations related to finance leases (note 6)
1,681,293

 
1,730,353

Long-term operating lease liabilities (note 6)
40,229

 
87,171

Other long-term liabilities (notes 8 and 16)
229,415

 
216,348

Total liabilities
4,758,271

 
5,501,271

Commitments and contingencies (notes 6, 9, 10, 12, and 16)


 


Equity


 
 
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 101,107,355 shares outstanding and issued (2019 – 100,784,422)) (note 11)
1,054,890

 
1,052,284

Accumulated deficit
(472,252
)
 
(546,684
)
Non-controlling interest
2,058,273

 
2,089,730

Accumulated other comprehensive loss (note 15)
(53,670
)
 
(23,737
)
Total equity
2,587,241

 
2,571,593

Total liabilities and equity
7,345,512

 
8,072,864

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)
 
Six Months Ended June 30,
 
2020
 
2019
 
$
 
$
Cash, cash equivalents and restricted cash provided by (used for)
 
 
 
OPERATING ACTIVITIES
 
 
 
Net income (loss)
177,502

 
(95,575
)
Non-cash and non-operating items:
 
 
 
Depreciation and amortization
135,853

 
145,956

Unrealized loss on derivative instruments (note 16)
27,544

 
14,933

Write-down and gain (loss) on sale (note 7)
105,275

 
3,328

Gain on commencement of sales-type lease (note 3)
(44,943
)
 

Equity (income) loss, net of dividends received
(22,804
)
 
85,211

Income tax (recovery) expense (note 17)
(13,383
)
 
8,440

Foreign currency exchange loss and other
6,133

 
26,304

Change in non-cash operating assets and liabilities:
 
 
 
       Direct financing lease payments received
334,146

 
6,050

       Change in other operating assets and liabilities
75,978

 
18,427

       Expenditures for dry docking
(5,608
)
 
(34,150
)
Net operating cash flow
775,693

 
178,924

FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of long-term debt, net of issuance costs
931,871

 
376,658

Prepayments of long-term debt
(1,302,389
)
 
(759,401
)
Scheduled repayments of long-term debt and settlement of related swaps (note 10)
(240,355
)
 
(117,110
)
Proceeds from short-term debt
205,000

 
65,000

Prepayment of short-term debt
(245,000
)
 
(50,000
)
Proceeds from financing related to sale-leaseback of vessels

 
222,400

Repayments of obligations related to finance leases
(47,162
)
 
(45,928
)
Repurchase of Teekay LNG common units
(15,635
)
 
(12,056
)
Distributions paid from subsidiaries to non-controlling interests
(35,519
)
 
(30,465
)
Cash dividends paid

 
(5,523
)
Other financing activities
(794
)
 
(580
)
Net financing cash flow
(749,983
)
 
(357,005
)
INVESTING ACTIVITIES
 
 
 
Expenditures for vessels and equipment

(12,824
)
 
(89,120
)
Proceeds from sale of vessels and equipment (note 7)
60,915

 

Proceeds from the sale of assets, net of cash sold (notes 4 and 7)
12,221

 
100,000

Investment in equity-accounted investments

 
(15,555
)
Loan repayment by joint venture
3,500

 

Other investing activities
(6,430
)
 

Net investing cash flow
57,382

 
(4,675
)
Increase (decrease) in cash, cash equivalents, restricted cash and cash held for sale
83,092

 
(182,756
)
Cash, cash equivalents, restricted cash and cash held for sale, beginning of the period
456,325

 
505,639

Cash, cash equivalents, restricted cash and cash held for sale, end of the period
539,417

 
322,883

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, 2019
100,784

 
1,052,284

 
(546,684
)
 
(23,737
)
 
2,089,730

 
2,571,593

Net (loss) income

 

 
(49,805
)
 

 
101,807

 
52,002

Other comprehensive loss

 

 

 
(17,624
)
 
(36,287
)
 
(53,911
)
Dividends declared:
 
 
 
 
 
 
 
 
 
 
 
Other dividends

 

 

 

 
(16,353
)
 
(16,353
)
Employee stock compensation and other
324

 
1,238

 

 

 

 
1,238

Change in accounting policy (note 2)

 

 
(17,216
)
 

 
(36,084
)
 
(53,300
)
Changes to non-controlling interest from equity contributions and other

 

 
2,912

 
(321
)
 
(17,196
)
 
(14,605
)
Balance as at March 31, 2020
101,108

 
1,053,522

 
(610,793
)
 
(41,682
)
 
2,085,617

 
2,486,664

Net income

 

 
21,723

 

 
103,777

 
125,500

Other comprehensive loss

 

 

 
(2,958
)
 
(5,234
)
 
(8,192
)
Dividends declared:
 
 
 
 
 
 
 
 
 
 

Other dividends

 

 

 

 
(19,166
)
 
(19,166
)
Employee stock compensation and other
(1
)
 
1,368

 

 

 

 
1,368

Changes to non-controlling interest from equity contributions and other (note 4)

 

 
116,818

 
(9,030
)
 
(106,721
)
 
1,067

Balance as at June 30, 2020
101,107

 
1,054,890

 
(472,252
)
 
(53,670
)
 
2,058,273

 
2,587,241
































Page 7


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
264

 
2,964

 

 

 

 
2,964

Change in accounting policy

 

 
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
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

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, 2019, included in the Company’s Annual Report on Form 20-F, filed with the U.S. Securities and Exchange Commission (or SEC) on April 8, 2020. 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 six months ended June 30, 2020, 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 unaudited 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.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (or COVID-19) as a pandemic. Given the dynamic nature of these circumstances, the full extent to which the COVID-19 pandemic may have direct or indirect impact on the Company's business and the related financial reporting implications cannot be reasonably estimated at this time, although the pandemic could materially affect the Company's business, results of operations and financial condition in the future. Spot tanker rates have come under pressure since mid-May 2020 as a result of record OPEC+ oil production cuts and lower production from other oil producing countries which reduced crude exports, and the unwinding of floating storage. COVID-19 was also a contributing factor to the write-down of six of Teekay LNG's multi-gas vessels and one floating production storage and offloading (or FPSO) unit during the six months ended June 30, 2020 as described in Note 7 - Write-down and Gain (Loss) on Sale, as well as being a contributing factor to the reduction in certain tax accruals as described in Note 17 - Income Tax Recovery (Expense).

Voyage expenses incurred that are recoverable from the Teekay Tankers' customers in connection with its voyage charter contracts are reflected in voyage charter revenues and voyage expenses. The Company recast prior periods to reflect this presentation. This had the impact of increasing both voyage charter revenues and voyage expenses by $4.7 million and $10.4 million for the three and six months ended June 30, 2019, respectively.
2. Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (or 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 introduced a new credit loss methodology, which requires earlier recognition of potential credit losses, while also 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 replaced multiple impairment methods under previous GAAP for these type of assets, which generally required that a loss be incurred before it was recognized.

The Company adopted this update on January 1, 2020 with a modified-retrospective approach, whereby a cumulative-effect adjustment was made to increase accumulated deficit on January 1, 2020 without any retroactive application to prior periods. The Company's net investment in direct financing and sales-type leases, loans to equity-accounted investments, guarantees of indebtedness of equity-accounted investments and receivables related to non-operating lease revenue arrangements are subject to ASU 2016-13. On adoption, the Company decreased the carrying value of investment in and loans to equity-accounted investments by $40.0 million, non-controlling interest by $36.1 million and net investment in direct financing and sales-type leases by $11.2 million and increased accumulated deficit by $17.2 million and its other long-term liabilities by $2.1 million. The cumulative adjustment recorded on initial adoption of this update does not reflect an increase in credit risk exposure to the Company compared to previous periods presented.


Page 9

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

In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (or ASU 2019-12), as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences, among other changes. The guidance becomes effective for annual reporting periods beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted, including adoption in any interim period. The Company is currently evaluating the effect of adopting this new guidance.

In March 2020, the FASB issued ASU 2020-04 - Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting (or ASU 2020-04). This ASU provides optional guidance for a limited period of time to ease potential accounting impacts associated with transitioning away from reference rates that are expected to be discontinued, such as the London Interbank Offered Rate (or LIBOR). This ASU applies only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued. This ASU is effective through December 31, 2022. 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, 2019.

Revenue Table
The following tables contain the Company’s revenue for the three and six months ended June 30, 2020 and 2019, by contract type, by segment and by business lines within segments.
 
Three Months Ended June 30, 2020
 
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
135,761


34,986


4,096


174,843

Voyage charters
10,383


207,926




218,309

FPSO contracts



28,787



28,787

Management fees and other
2,061


3,580


55,225


60,866

 
148,205


246,492

28,787

59,321


482,805



 
Three Months Ended June 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
133,684

2,369

1,496


8,078

(2,487
)
143,140

Voyage charters
8,858


191,495




200,353

Bareboat charters
6,129






6,129

FPSO contracts



57,828



57,828

Management fees and other
2,020


14,016


39,911

(1,000
)
54,947

 
150,691

2,369

207,007

57,828

47,989

(3,487
)
462,397



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)

 
Six Months Ended June 30, 2020
 
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
266,306


50,553


9,053


325,912

Voyage charters
17,700


525,404




543,104

FPSO contracts



74,720



74,720

Management fees and other
4,086


12,435


96,602


113,123

 
288,092


588,392

74,720

105,655


1,056,859


 
Six Months Ended June 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
264,459

5,131

4,906


14,347

(2,487
)
286,356

Voyage charters
18,018


413,572




431,590

Bareboat charters
12,191






12,191

FPSO contracts




107,266



107,266

Management fees and other
3,005


26,690


84,301

(2,129
)
111,867

 
297,673

5,131

445,168

107,266

98,648

(4,616
)
949,270



The following table contains the Company's total revenue for the three and six months ended June 30, 2020 and 2019, 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 June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
 
 
$
 
$
 
$
 
$
Lease revenue
 
 
 
 
 
 
 
 
Lease revenue from lease payments of operating leases
 
390,407

 
359,140

 
876,590

 
747,933

Interest income on lease receivables
 
12,877

 
12,969

 
25,543

 
25,763

Variable lease payments  cost reimbursements (1)
 
13,658

 
13,307

 
26,848

 
25,316

Variable lease payments – other (2)
 

 
16,320

 
5,218

 
27,152

 
 
416,942

 
401,736

 
934,199

 
826,164

Non-lease revenue
 
 
 
 
 
 
 
 
Non-lease revenue  related to sales-type or direct financing leases
 
4,997

 
5,714

 
9,537

 
11,239

Management fees and other income
 
60,866

 
54,947

 
113,123

 
111,867

 
 
65,863

 
60,661

 
122,660

 
123,106

Total
 
482,805

 
462,397

 
1,056,859

 
949,270

(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 June 30, 2020, 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 $372.6 million (remainder of 2020), $587.1 million (2021), $447.5 million (2022), $335.0 million (2023) and $259.3 million (2024).


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)

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 June 30, 2020, revenue from unexercised option periods of contracts that existed on June 30, 2020, 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 and do not reflect the impact of revenue sharing arrangements whereby time-charter revenues are shared with other revenue sharing arrangement participants. 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 June 30, 2020 was $3.1 billion. At June 30, 2020, the cost and accumulated depreciation of such vessels were $4.0 billion and $0.9 billion, respectively.

Net Investment in Direct Financing Leases and Sales-Type Leases
On March 27, 2020, the Company entered into a bareboat charter with Britoil Limited (or BP), a subsidiary of BP p.l.c., for the Petrojarl Foinaven FPSO for a period up to December 2030. BP may cancel the charter on six-months notice. Under the terms of this charter, Teekay received a cash payment of approximately $67 million in April 2020 and will receive a nominal per day rate over the life of the contract and a lump sum payment at the end of the contract period, which is expected to cover the costs of recycling the FPSO unit in accordance with EU ship recycling regulations. The charter was classified and accounted for as a sales-type lease. Consequently, the Company recognized a net investment in sales-type lease of $81.9 million and an asset retirement obligation of $6.1 million, derecognized the carrying value of the Petrojarl Foinaven FPSO and related customer contract, and recognized a gain of $44.9 million in the three months ended March 31, 2020.

As at June 30, 2020, Teekay LNG had 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, 2019.

As at December 31, 2019, Teekay LNG had two additional LNG carriers, the WilForce and the WilPride, that were chartered to Awilco LNG ASA (or Awilco) and were accounted for as sales-type leases. In January 2020, Awilco purchased both carriers from Teekay LNG and paid Teekay LNG the associated purchase obligation, deferred hire amounts and interest on deferred hire amounts, totaling over $260 million relating to these two vessels.

As at June 30, 2020, estimated minimum lease payments to be received related to direct financing and sales-type leases in each of the next five years were approximately $32.6 million (remainder of 2020), $64.6 million (2021), $64.6 million (2022), $64.4 million (2023), $64.7 million (2024) and an aggregate of $522.3 million thereafter. The leases are scheduled to end between 2025 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 June 30, 2020, December 31, 2019, June 30, 2019 and January 1, 2019, there were contract liabilities of $34.1 million, $32.4 million, $27.2 million and $26.4 million, respectively. During the three and six months ended June 30, 2020, the Company recognized revenues of $28.1 million and $32.4 million, respectively (three and six months ended June 30, 2019 $20.4 million and $26.4 million, respectively), included in contract liability at the beginning of such periods.
4. Related Party Transactions
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 six months ended June 30, 2020, the Company earned $19.9 million and $37.4 million, respectively (three and six months ended June 30, 2019 $16.8 million and $32.6 million, respectively), of fees pursuant to these management agreements and reimbursement of costs.

In September 2018, Teekay LNG entered into an agreement with its 52%-owned joint venture with Marubeni Corporation (or the MALT Joint Venture) to charter in one of the MALT Joint Venture's LNG carriers, the Magellan Spirit, for a period of two years at a fixed-rate. Time-charter hire expenses for the three and six months ended June 30, 2020 were $5.4 million and $11.3 million, respectively (three and six months ended June 30, 2019 $3.1 million and $8.7 million, respectively).

On May 11, 2020, Teekay and Teekay LNG agreed to eliminate all of the Teekay LNG's incentive distribution rights, which were held by Teekay GP LLC, in exchange for 10.75 million newly-issued common units of Teekay LNG. As a result of the share issuance of Teekay LNG, the Company recorded a decrease to accumulated deficit of $116.6 million and an increase to accumulated other comprehensive loss of $9.0 million with a corresponding decrease in non-controlling interests of $107.6 million. The $116.6 million represents Teekay’s dilution gain from the issuance of new common units by Teekay LNG and is credited directly to equity, and the $9.0 million represents the change in Teekay's interest in Teekay LNG's accumulated other comprehensive loss.


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)

On May 8, 2019, Teekay sold to Brookfield Business Partners L.P. (or Brookfield) all of the Company’s remaining interests in Altera Infrastructure L.P. (or Altera) (previously known as 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 Altera (described below), for total cash proceeds of $100 million (or the 2019 Brookfield Transaction). Subsequent to the 2019 Brookfield Transaction, Altera is no longer a related party of Teekay.

Subsequent to the deconsolidation of Altera in September 2017 and prior to the 2019 Brookfield Transaction, the Company accounted for its investment in Altera's general partner and common units under the equity method of accounting. Based on the 2019 Brookfield Transaction, the Company remeasured its investment in Altera to fair value at March 31, 2019 based on the Altera 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 income (loss) for the six months ended June 30, 2019. The Company recognized a loss on sale of $8.9 million upon completion of the 2019 Brookfield Transaction in May 2019.

In March 2018, Altera 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 Altera was among the assets sold by Teekay to Brookfield in the 2019 Brookfield Transaction.

On September 25, 2017, Teekay, Altera and Brookfield completed a strategic partnership (or the 2017 Brookfield Transaction), which resulted in the deconsolidation of Altera as of that date. Until December 31, 2017, Teekay and its wholly-owned subsidiaries directly and indirectly provided substantially all of Altera’s ship management, commercial, technical, strategic, business development and administrative service needs. On January 1, 2018, as part of the 2017 Brookfield Transaction, Altera acquired a 100% ownership interest in seven subsidiaries (or the Transferred Subsidiaries) of Teekay at carrying value.

Subsequent to their transfer to Altera, the Transferred Subsidiaries continue to provide ship management, commercial, technical, strategic, 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 Altera.

Revenues recognized by the Company for services provided to Altera for the periods from April 1, 2019 to May 8, 2019 and January 1, 2019 to May 8, 2019 were $2.3 million and $7.6 million, respectively, which were recorded in revenues on the Company's unaudited consolidated statements of income (loss). Fees paid by the Company to Altera for services provided by Altera to the Company for the periods from April 1, 2019 to May 8, 2019 and January 1, 2019 to May 8, 2019 were $3.3 million and $9.6 million, respectively, which were recorded in vessel operating expenses and general and administrative expenses on the Company's unaudited consolidated statements of income (loss).

As at June 30, 2019, two shuttle tankers and two FSO units of Altera were employed on long-term time-charter out or bareboat contracts to subsidiaries of Teekay. Time-charter hire expenses paid by the Company to Altera for the periods from April 1, 2019 to May 8, 2019 and January 1, 2019 to May 8, 2019 were $6.1 million and $20.8 million, respectively.
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, 2019. 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 Altera, 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 Altera, and its segments are presented accordingly on this basis. The Company (which excludes Altera) 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 six months ended June 30, 2020 and 2019:

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)

 
Three Months Ended June 30,
Six Months Ended June 30,
 
2020
2019
2020
2019
 
$
$
$
$
Teekay LNG
 
 
 
 
Liquefied Gas Carriers
148,205

150,691

288,092

297,673

Conventional Tankers

2,369


5,131

 
148,205

153,060

288,092

302,804

 
 
 
 
 
Teekay Tankers
 
 
 
 
Conventional Tankers(1)
246,492

207,007

588,392

445,168

 
 
 
 
 
Teekay Parent
 
 
 
 
Offshore Production
28,787

57,828

74,720

107,266

Other
59,321

47,989

105,655

98,648

 
88,108

105,817

180,375

205,914

 
 
 
 
 
Eliminations and other(1)

(3,487
)

(4,616
)
 
482,805

462,397

1,056,859

949,270


(1)
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.

The following table includes the Company’s income (loss) from vessel operations by segment for the three and six months ended June 30, 2020 and 2019:
 
Income (Loss) from Vessel Operations(1)
 
Three Months Ended June 30,
Six Months Ended June 30,
 
2020
2019
2020
2019
 
$
$
$
$
Teekay LNG
 
 
 
 
Liquefied Gas Carriers
69,589

74,244

91,327

144,687

Conventional Tankers

433


(649
)
 
69,589

74,677

91,327

144,038

 
 
 
 
 
Teekay Tankers
 
 
 
 
Conventional Tankers
92,986

5,051

213,112

37,148

 
 
 
 
 
Teekay Parent
 
 
 
 
Offshore Production
(11,540
)
(5,987
)
(23,808
)
(18,544
)
Other
(2,531
)
(2,278
)
(3,231
)
(6,947
)
 
(14,071
)
(8,265
)
(27,039
)
(25,491
)
 
 
 
 
 
 
148,504

71,463

277,400

155,695


(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 Altera's general partner and common units using the equity method and recognized equity losses in respect of Altera for the periods from April 1, 2019 to May 8, 2019 and January 1, 2019 to May 8, 2019 of $nil and $3.1 million, respectively. The Company wrote-down the investment in Altera by $64.9 million in the six months ended June 30, 2019 and recognized a loss on sale of $8.9 million in the three and six months ended June 30, 2019.
A reconciliation of total segment assets to total assets presented in the accompanying unaudited consolidated balance sheets is as follows:

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)

 
June 30, 2020
December 31, 2019
 
$
$
Teekay LNG – Liquefied Gas Carriers
4,762,748

5,249,465

Teekay Tankers – Conventional Tankers
1,904,059

2,140,652

Teekay Parent – Offshore Production
48,867

161,096

Teekay Parent – Other
52,848

80,455

Cash and cash equivalents
461,152

353,241

Other assets not allocated
126,197

102,701

Eliminations
(10,359
)
(14,746
)
Consolidated total assets
7,345,512

8,072,864



6. Leases
Obligations Related to Finance Leases

June 30, 2020

December 31, 2019

$

$
Teekay LNG
 
 
 
LNG Carriers
1,376,011

 
1,410,904

Teekay Tankers
 
 
 
Conventional Tankers
402,519

 
414,788

Total obligations related to finance leases
1,778,530

 
1,825,692

Less current portion
(97,237
)
 
(95,339
)
Long-term obligations related to finance leases
1,681,293

 
1,730,353



Teekay LNG

As at June 30, 2020, Teekay LNG was a party to finance leases on nine LNG carriers (December 31, 2019 nine 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 2034. At the inception of these leases, the weighted-average interest rate implicit in these leases was 5.1%. 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.

The obligations of Teekay LNG under the bareboat charter contracts for the nine LNG carriers are guaranteed by Teekay LNG. 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. These covenants are the same as Teekay LNG's other corporate debt covenants (see Note 10). 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 June 30, 2020, the remaining commitments related to the financial liabilities of these nine LNG carriers, including the amounts to be paid for the related purchase obligations, approximated $1.8 billion, including imputed interest of $435.3 million, repayable through 2034, as indicated below:


Commitments
 
 
At June 30, 2020
Year

$
Remainder of 2020

69,886
2021

138,601
2022

136,959
2023

135,459
2024

132,011
Thereafter

1,198,366



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)

Teekay Tankers

From 2017 to 2019, Teekay Tankers completed sale-leaseback financing transactions with financial institutions relating to 16 of Teekay Tankers' vessels. Under these arrangements, Teekay Tankers transferred the vessels to subsidiaries of the financial institutions (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 eight of the vessels upon maturity of their respective bareboat charters. Teekay Tankers also has the option to purchase each of the 16 vessels at various times starting between July 2020 and November 2021 until the end of their respective lease terms.

The bareboat charters related to 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 minimum 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 June 30, 2020, this ratio was approximately 129% (December 31, 2019 122%).
 
Six of the bareboat charters require Teekay Tankers to maintain, for each vessel, a minimum hull coverage ratio of 78% of the total outstanding principal balance during the first two years of the lease period, 80% for the following two years and 90% of the total outstanding principal balance thereafter. As at June 30, 2020, this ratio was approximately 110% (December 31, 2019 115%).
 
Four of the bareboat charters require Teekay Tankers to maintain, for each vessel, a minimum hull overage ratio of 100% of the total outstanding principal balance. As at June 30, 2020, this ratio was approximately 163% (December 31, 2019 158%).

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 June 30, 2020, this ratio was approximately 102% (December 31, 2019 109%).

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 was 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 June 30, 2020 was 7.6% (December 31, 2019 7.6%).

As at June 30, 2020, the total remaining commitments related to the financial liabilities of Teekay Tankers' Suezmax tankers, Aframax tankers and LR2 product tankers, including the amounts to be paid for the related purchase obligations, approximated $573.9 million, including imputed interest of $171.4 million, repayable from 2020 through 2030, as indicated below:


Commitments
 
 
At June 30, 2020
Year

$



Remainder of 2020

28,449
2021

56,222
2022

56,213
2023

56,204
2024
 
56,348
Thereafter

320,481

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.

On March 27, 2020, concurrently with the Petrojarl Foinaven FPSO transaction with BP described in Note 3, the Company sold its subsidiary Golar-Nor (UK) Limited (or Golar-Nor) to Altera for a nominal amount plus outstanding working capital. Golar-Nor was in-chartering the Petroatlantic and Petronordic shuttle tankers. This transaction resulted in the Company derecognizing right-of-use assets and lease liabilities totaling $50.7 million and $50.7 million, 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)

As at June 30, 2020, minimum commitments to be incurred by the Company under time-charter-in and bareboat charter contracts were approximately $34.9 million (remainder of 2020), $39.4 million (2021), $20.3 million (2022), $9.2 million (2023) and $5.7 million (2024).
7. Write-down and Gain (Loss) on Sale
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 table contains the write-downs, gains and losses on sales of vessels for the three and six months ended June 30, 2020 and 2019:
 
 
 
 
 
 
Three Months Ended June 30,
Segment

Asset Type

Completion of Sale Date

2020
$

2019
$
Teekay Parent Segment – Offshore Production (1)
 
1 FPSO unit
 
N/A
 
(13,566
)
 

Teekay Tankers Segment – Conventional Tankers (2)
 
(2) 
 
Apr-2020
 
3,081

 

Teekay Tankers Segment – Conventional Tankers (3)
 
1 Suezmax
 
N/A
 
460

 

Teekay Tankers Segment – Conventional Tankers
 
Operating lease right-of-use
 
N/A
 
(644
)
 

Total
 
 
 
 
 
(10,669
)
 

 
 
 
 
 
 
Six Months Ended June 30,
Segment
 
Asset Type
 
Completion of Sale Date
 
2020
$
 
2019
$
Teekay Parent Segment – Offshore Production (1)
 
2 FPSO units
 
N/A
 
(60,085
)
 

Teekay Parent Segment – Offshore Production (4)
 
1 FPSO unit
 
N/A
 

 
(3,328
)
Teekay LNG Segment – Liquefied Gas Carriers (5)
 
6 Multi-gas Carriers
 
N/A
 
(45,000
)
 

Teekay Tankers Segment – Conventional Tankers (2)
 
(2) 
 
Apr-2020
 
3,081

 

Teekay Tankers Segment – Conventional Tankers (3)
 
1 Suezmax
 
N/A
 

 

Teekay Tankers Segment – Conventional Tankers
 
3 Suezmaxes
 
Feb/Mar-2020
 
(2,627
)
 

Teekay Tankers Segment – Conventional Tankers
 
Operating lease right-of-use
 
N/A
 
(644
)
 

Total
 
 
 
 
 
(105,275
)
 
(3,328
)

(1)
During the first half of 2020, Teekay Parent recognized impairment charges of $60.1 million in respect of two of its FPSO units. In the first quarter of 2020, CNR International (U.K.) Limited (or CNR) provided formal notice to Teekay of its intention to cease production in June 2020 and decommission the Banff field shortly thereafter. As such, the Company expects to remove the Petrojarl Banff FPSO and Apollo Spirit FSO from the Banff field in 2020 and the subsea equipment in 2021. The Company expects to scrap the FPSO unit and sub-sea equipment and redeliver the FSO unit to its owner following removal from the field. Accordingly, the asset retirement obligation for the Petrojarl Banff FPSO unit was increased based on recent changes to cost estimates and the carrying value of the unit was fully written down. During the first quarter of 2020, the Company also made changes to its expected cash flows from the Sevan Hummingbird FPSO unit based on the market environment and oil prices at that time, and recent discussions with a potential buyer about the possible sale of the unit. This led to the write-down of the unit to its estimated fair value, using a discounted cash flow approach. See Note 13.
(2)
On April 30, 2020, Teekay Tankers completed the sale of the non-US portion of its ship-to-ship support services business as well as its LNG terminal management business for proceeds of $27.1 million, including an adjustment of $1.1 million for the final amounts of cash and other working capital present on the closing date. $14.3 million of the total proceeds were received on closing and the remaining $12.7 million was received in July 2020.
(3)
As at March 31, 2020, Teekay Tankers classified one Suezmax tanker as held for sale. The vessel cost, net of the estimated closing cost, was written down by $0.5 million to its estimated sales price. As at June 30, 2020, this vessel no longer met the requirements to be classified as held for sale and the asset was reinstated as held for use. The previous write-down of $0.5 million was reversed when the asset was reinstated as held for use.
(4)
On March 27, 2020, the Company entered into a bareboat charter agreement for Petrojarl Foinaven FPSO unit which was accounted for as a sales-type lease. See Note 3.
(5)
In March 2020, the carrying values for six of Teekay LNG's seven wholly-owned multi-gas carriers were written down to their estimated fair values, using appraised values, primarily due to the lower near-term outlook for these type of vessels as a result of the current economic environment as well as Teekay LNG receiving notification that its commercial management agreement with a third-party commercial manager will dissolve in September 2020.


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. Accrued Liabilities and Other and Other Long-Term Liabilities
Accrued Liabilities and Other
 
June 30, 2020
 
December 31, 2019
 
$
 
$
Accrued liabilities
 
 
 
Voyage and vessel expenses
109,925

 
121,937

Interest
25,079

 
29,371

Payroll and related liabilities
39,298

 
33,494

Distributions payable and other
6,425

 
6,487

Deferred revenues – current
39,749

 
36,242

In-process revenue contracts – current

 
5,933

Current portion of derivative liabilities (note 16)

36,375

 
39,263

Office lease liability – current
2,654

 
3,627

Loans from equity-accounted investments

25,442

 
18,647

Asset retirement obligation – current
19,000

 

 
303,947

 
295,001


Other Long-Term Liabilities
 
June 30, 2020
 
December 31, 2019
 
$
 
$
Deferred revenues and gains
26,222

 
28,612

Guarantee liabilities
12,053

 
10,113

Asset retirement obligation
39,565

 
31,068

Pension liabilities
7,512

 
7,238

In-process revenue contracts

 
11,866

Derivative liabilities (note 16)
89,778

 
51,914

Unrecognized tax benefits (note 17)
41,188

 
62,958

Office lease liability – long-term
10,016

 
10,254

Other
3,081

 
2,325

 
229,415

 
216,348



Asset Retirement Obligations

In the first quarter of 2020, CNR provided formal notice to Teekay of its intention to cease production in June 2020 and decommission the Banff field shortly thereafter. As such, the Company expects to remove the Petrojarl Banff FPSO and Apollo Spirit FSO from the Banff field in 2020 and the subsea equipment in 2021. The Company expects to recycle the FPSO unit and sub-sea equipment and redeliver the FSO unit to its owner following removal from the field. Accordingly, the asset retirement obligation for the Petrojarl Banff FPSO unit was increased based on recent changes to cost estimates and the carrying value of the unit was fully written down. As of June 30, 2020, the present value of the Petrojarl Banff FPSO unit's estimated asset retirement obligations relating to the remediation of the subsea infrastructure was $52.1 million, of which $19.0 million is recorded in accrued liabilities and $33.1 million recorded in other long-term liabilities. The Company has also recorded $8.1 million in other non-current assets as at June 30, 2020 for the expected recovery of a portion of these costs from the customer upon the completion of the remediation work.

In March 2020, Teekay Parent entered into a new bareboat charter contract with the existing charterer of the Petrojarl Foinaven FPSO unit, which can be extended up to December 2030. Under the terms of the new contract, Teekay received a cash payment of $67 million in April 2020 and will receive a nominal per day rate over the life of the contract and a lump sum payment at the end of the contract period, which is expected to cover the costs of recycling the FPSO unit in accordance with the EU ship recycling regulations. As of June 30, 2020, the carrying value of the related lease asset was $15.2 million. As of June 30, 2020, the present value of the Petrojarl Foinaven FPSO unit's estimated asset retirement obligation relating to recycling costs was $6.3 million.


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)

9. Short-Term Debt

In November 2018, Teekay Tankers Chartering Pte. Ltd. (or TTCL) a wholly-owned subsidiary of Teekay Tankers, entered into a working capital revolving loan facility (or the Working Capital Loan), which initially provided available aggregate borrowings of up to $40.0 million for TTCL, and had an initial maturity date in May 2019, subject to extension as described below. The aggregate borrowings were subsequently increased to $80.0 million, effective December 2019. The next maturity date of the Working Capital Loan is in November 2020. The Working Capital Loan maturity date is continually extended for further periods of six months thereafter unless and until the lender gives notice in writing that no further extensions shall occur. Proceeds of the Working Capital Loan are used to provide working capital in relation to certain vessels subject to revenue sharing agreements (or RSAs). Interest payments are based on LIBOR plus a margin of 3.5%.

The Working Capital Loan is collateralized by the assets of TTCL. The Working Capital Loan requires Teekay Tankers to maintain its paid-in capital contribution under the RSAs and the retained distributions of the RSA counterparties in an amount equal to the greater of (a) an amount equal to the minimum average capital contributed by the RSA counterparties per vessel in respect of the RSA (including cash, bunkers or other working capital contributions and amounts accrued to the RSA counterparties but unpaid) and (b) a minimum capital contribution ranging from $20.0 million to $30.0 million based on the amount borrowed. As at June 30, 2020, $10.0 million (December 31, 2019 $50.0 million) was owing under this facility, and the average interest rate on the facility was 3.7% (December 31, 2019 5.0%). As of the date these unaudited consolidated financial statements were issued, Teekay Tankers was in compliance with all covenants in respect of this facility.
10. Long-Term Debt
 
June 30, 2020
 
December 31, 2019
 
$
 
$
Revolving Credit Facilities
521,594

 
603,132

Senior Notes (8.5%) due January 15, 2020

 
36,712

Senior Notes (9.25%) due November 15, 2022
250,000

 
250,000

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

 
125,000

Norwegian Krone-denominated Bonds due through August 2023
212,985

 
347,163

U.S. Dollar-denominated Term Loans due through 2030
1,002,761

 
1,336,437

Euro-denominated Term Loans due through 2024
153,200

 
165,376

Other U.S. Dollar-denominated loan
446

 
3,300

Total principal
2,265,986

 
2,867,120

Less unamortized discount and debt issuance costs
(40,499
)
 
(39,968
)
Total debt
2,225,487

 
2,827,152

Less current portion
(322,831
)
 
(523,312
)
Long-term portion
1,902,656

 
2,303,840



As of June 30, 2020, the Company had four revolving credit facilities (collectively, the Revolvers) available. The Revolvers, as at such date, provided for aggregate borrowings of up to $950.8 million, of which $429.2 million was undrawn. Interest payments are based on LIBOR plus a margin. The margins ranged between 1.40% and 3.95% at June 30, 2020 and at December 31, 2019. The aggregate amount available under the Revolvers is scheduled to decrease by $157.6 million (remainder of 2020), $115.8 million (2021), $410.8 million (2022), $65.3 million (2023) and $201.3 million (2024). The Revolvers are collateralized by first-priority mortgages granted on 33 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 and 5.0 million Class A common shares in Teekay Tankers to secure a $150 million credit facility.

The Company’s 8.5% senior unsecured notes were due January 15, 2020 with an original aggregate principal amount of $450 million (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 which were due on January 15, 2020 (or the Additional Notes) at 99.0% of face value, plus accrued interest from July 15, 2015. Prior to 2020, the Company repurchased $613.3 million in aggregate principal amount and in January 2020, the Company repaid all remaining Original Notes and Additional Notes at maturity.

In May 2019, the Company issued $250.0 million in aggregate principal amount of 9.25% senior secured notes at par due November 2022 (or the 2022 Notes). 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 Teekay's FPSO units, a pledge of the equity interests in Teekay's subsidiary that owns all of Teekay's 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 Teekay's subsidiaries that own Teekay Parent's three FPSO units.

The Company may redeem the 2022 Notes in whole or in part at any time prior to November 15, 2020 at a redemption price equal to 100% of the principal amount of the 2022 Notes to be redeemed, plus the greater of (i) 1.0% of the principal amount of such 2022 Notes and (ii) the excess, if any, of the sum of the present values of the remaining scheduled payments of principal and interest on the 2022 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 over the principal amount of such 2022 Notes, plus accrued and unpaid interest to, but excluding, the redemption date.

Page 19

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


The Company may redeem the 2022 Notes in whole or in part at a redemption price equal to a percentage of the principal amount of the 2022 Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date, as follows: 104.625% at any time on or after November 15, 2020, but prior to November 15, 2021; 102.313% at any time on or after November 15, 2021, but prior to August 15, 2022; and 100% at any time on or after August 15, 2022.

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. 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.

As at June 30, 2020, Teekay LNG had a total of Norwegian Krone (or NOK) 2.1 billion in senior unsecured bonds issued in the Norwegian bond market that mature through 2023 (December 31, 2019 – NOK 3.1 billion). As of June 30, 2020, the total carrying amount of the senior unsecured bonds was $213.0 million (December 31, 2019 $347.2 million). The bonds are listed on the Oslo Stock Exchange. The interest payments on the bonds are based on Norwegian Interbank Offered Rate (or NIBOR) plus a margin, which ranges from 4.60% 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 7.72% to 7.89%, and the transfer of the principal amount fixed at $248.5 million upon maturity in exchange for NOK 2.1 billion (see Note 16).

As of June 30, 2020, the Company had six U.S. Dollar-denominated term loans outstanding, which totaled $1.0 billion in aggregate principal amount (December 31, 2019 $1.3 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 4.47%. At June 30, 2020 and at December 31, 2019, the margins ranged between 0.30% and 3.25%. Term loans require payments in quarterly or semi-annual installments commencing three or six months after delivery of each newbuilding vessel financed thereby, and five of the term loans have balloon or bullet repayments due at maturity. The term loans are collateralized by first-priority mortgages on 20 (December 31, 2019 24) of the Company’s vessels, together with certain other security.
 
Teekay LNG has two Euro-denominated term loans outstanding, which, as at June 30, 2020, totaled 136.4 million Euros ($153.2 million) (December 31, 2019 147.5 million Euros ($165.4 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 Euro Interbank Offered Rate (or EURIBOR) plus a margin. At June 30, 2020 and December 31, 2019, 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 $8.9 million (2019 – loss of $5.9 million) and a loss of $2.3 million (2019 – loss of $8.5 million) during the three and six months ended June 30, 2020 and 2019, respectively.

The weighted-average interest rate on the Company’s aggregate long-term debt as at June 30, 2020 was 3.7% (December 31, 2019 4.6%). This rate does not include the effect of the Company’s interest rate swap agreements (see Note 16).

The aggregate annual long-term debt principal repayments required to be made by the Company subsequent to June 30, 2020, including the impact of Teekay Tankers' debt refinancing completed in August 2020, are $83.1 million (remainder of 2020), $416.4 million (2021), $634.4 million (2022), $402.9 million (2023), $303.4 million (2024) and $425.8 million (thereafter).

The Company’s long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and four loan agreements require the maintenance of vessel market value to loan ratios. As at June 30, 2020, these ratios were 379%, 218%, 138% and 192% compared to their minimum required ratios of 125%, 115%, 120% and 135%, respectively. 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.

Teekay Tankers’ term loan, which was scheduled to mature in 2021, was guaranteed by Teekay. This term loan contained covenants that required Teekay Parent and Teekay Tankers collectively to maintain the greater of (a) free cash (cash and cash equivalents) of at least $100.0 million 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% of Teekay's total consolidated debt and obligations related to finance leases (excluding Teekay LNG). As at June 30, 2020, the outstanding balance on Teekay Tankers' credit facility was $86.7 million. In August 2020, Teekay Tankers refinanced the term loan facility and replaced the guarantee from Teekay Parent with a guarantee from five of Teekay Tankers' wholly-owned subsidiaries. The new term loan facility is scheduled to mature in 2023 (see Note 20). 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 and obligations related to finance leases.


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)

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 of the date these unaudited consolidated financial statements were issued, the Company is in compliance with all covenants under its credit facilities and other long-term debt.
11. Capital Stock
The authorized capital stock of Teekay at June 30, 2020 and December 31, 2019 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 June 30, 2020, Teekay had no shares of preferred stock issued.

In April 2019, Teekay filed 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. As of June 30, 2020, no shares of common stock have been issued under this COP.
12. Commitments and Contingencies
a)
Vessels Under Construction and Upgrades

Teekay LNG's share of commitments to fund equipment installation and other construction contract costs as at June 30, 2020 are as follows:
 
Total
$
Remainder of
2020
$
2021
$
2022
$
Certain consolidated LNG carriers (i)
41,626

4,058

22,917

14,651

Bahrain LNG Joint Venture (ii)
11,351

11,351



 
52,977

15,409

22,917

14,651


(i)
In June 2019, Teekay LNG entered into an agreement with a contractor to supply equipment on certain of Teekay LNG's LNG carriers in 2021 and 2022, for an estimated installed cost of $58.1 million. As at June 30, 2020, the estimated remaining cost of this installation is $41.6 million.

(ii)
Teekay LNG has a 30% ownership interest in the Bahrain LNG Joint Venture which has an LNG receiving and regasification terminal in Bahrain. As at June 30, 2020, Teekay LNG's proportionate share of the estimated remaining cost of $11.4 million relates to the final construction installment on the LNG terminal. The Bahrain LNG Joint Venture has remaining debt financing of $24 million, which is undrawn, of which $7 million relates to Teekay LNG's proportionate share of the construction commitments included in the table above.

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 income of $177.5 million and consolidated cash flows from operating activities of $775.7 million during the six months ended June 30, 2020 and had a working capital deficit of $93.6 million as at June 30, 2020.

Based on the Company’s liquidity at the date these unaudited consolidated financial statements were issued, the liquidity the Company expects to generate from operations over the following year and the dividends it expects to receive from its equity-accounted joint ventures, the Company expects that it will have sufficient liquidity to continue as a going concern for at least the one-year period following the issuance of these unaudited consolidated financial statements.

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)

Teekay LNG guarantees its proportionate share of certain loan facilities and obligations on interest rate swaps for its equity-accounted joint ventures for which the aggregate principal amount of the loan facilities and fair value of the interest rate swaps as at June 30, 2020 was $1.4 billion. As of the date these unaudited consolidated financial statements were issued, Teekay LNG's equity-accounted joint ventures were in compliance with all covenants relating to these loan facilities that Teekay LNG guarantees.
13. 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 12" in the Company’s Annual Report on Form 20-F for the year ended December 31, 2019.

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.
 
 
 
June 30, 2020
 
December 31, 2019
 
Fair
Value
Hierarchy
Level
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset
(Liability)
$
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset