UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2010

Commission file number 1- 12874

TEEKAY CORPORATION

(Exact name of Registrant as specified in its charter)

4^th Floor, Belvedere Building
69 Pitts Bay Road
Hamilton, HM 08 Bermuda
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F þ Form 40-F o

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 o No þ

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 o No þ

 

 

TEEKAY CORPORATION AND SUBSIDIARIES

REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010

INDEX

		PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Unaudited Consolidated Statements of Income (Loss) for the three months ended March 31, 2010 and 2009			3
Unaudited Consolidated Balance Sheets as at March 31, 2010 and December 31, 2009			4
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009			5
Unaudited Consolidated Statement of Changes in Total Equity for the three months ended March 31, 2010			6
Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2010 and 2009			7
Notes to the Unaudited Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures about Market Risk			37
PART II: OTHER INFORMATION			40
SIGNATURES			41

ITEM 1 — FINANCIAL STATEMENTS

TEEKAY CORPORATION AND SUBSIDIARIES

		Three Months Ended
		March 31,				March 31,
		2010				2009
		$				$
REVENUES			564,537				616,551
OPERATING EXPENSES
Voyage expenses			72,550				90,669
Vessel operating expenses (note 16)			154,535				152,760
Time-charter hire expense			70,913				136,828
Depreciation and amortization			108,230				106,553
General and administrative (note 16)			48,091				47,708
Loss on sale of vessels and equipment — net of write-downs (note 13)			760				958
Restructuring charge (note 3)			3,783				5,558
Total operating expenses			458,862				541,034
Income from vessel operations			105,675				75,517
OTHER ITEMS
Interest expense			(32,152	)			(43,767	)
Interest income			4,274				6,678
Realized and unrealized (loss) gain on non-designated derivative instruments (note 16)			(87,847	)			46,822
Equity (loss) income from joint ventures (note 11b)			(2,666	)			11,422
Foreign exchange gain (notes 8 and 16)			29,026				11,312
Loss on bond repurchase (note 8)			(12,108	)			—
Other income (note 14)			2,422				2,658
Net income before income taxes			6,624				110,642
Income tax recovery (expense) (note 18)			7,307				(5,868	)
Net income			13,931				104,774
Less: Net income attributable to non-controlling interests			(27,933	)			(23,269	)
Net (loss) income attributable to stockholders of Teekay Corporation			(14,002	)			81,505
Per common share of Teekay Corporation (note 17)
• Basic (loss) earnings attributable to stockholders of Teekay Corporation			(0.19	)			1.12
• Diluted (loss) earnings attributable to stockholders of Teekay Corporation			(0.19	)			1.12
• Cash dividends declared			0.3163				0.3163
Weighted average number of common shares outstanding (note 17)
• Basic			72,788,591				72,516,193
• Diluted			72,788,591				72,745,781

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

TEEKAY CORPORATION AND SUBSIDIARIES

		As at				As at
		March 31,				December 31,
		2010				2009
		$				$
ASSETS
Current
Cash and cash equivalents (note 8)			635,361				422,510
Restricted cash (note 9)			35,001				36,068
Accounts receivable, including non-trade of $36,007 (2009 — $19,521)			248,251				234,676
Vessels held for sale (note 13)			16,725				10,250
Net investment in direct financing leases (note 4)			27,661				27,210
Prepaid expenses			106,452				96,549
Current portion of derivative assets (note 16)			28,573				29,996
Other assets			6,977				7,119
Total current assets			1,105,001				864,378
Restricted cash — long-term (note 9)			573,256				579,243
Vessels and equipment (note 8)
At cost, less accumulated depreciation of $1,760,671 (2009 — $1,673,380)			5,727,879				5,793,864
Vessels under capital leases, at cost, less accumulated amortization of $146,850 (2009 — $138,569) (note 9)			896,506				903,521
Advances on newbuilding contracts (notes 11a and 11b)			176,680				138,212
Total vessels and equipment			6,801,065				6,835,597
Net investment in direct financing leases — non-current (note 4)			482,855				485,202
Marketable securities			17,127				18,904
Loans to joint ventures, bearing interest between 4.4% to 6.5%			20,384				21,998
Derivative assets (note 16)			19,471				18,119
Deferred income tax asset (note 18)			6,765				6,516
Investment in joint ventures (note 11b)			137,422				139,790
Other non-current assets			131,902				130,624
Intangible assets — net (note 6)			206,437				213,870
Goodwill (note 6)			203,191				203,191
Total assets			9,704,876				9,517,432
LIABILITIES AND EQUITY
Current
Accounts payable			58,066				57,242
Accrued liabilities (note 16)			262,316				289,757
Current portion of derivative liabilities (note 16)			141,457				136,454
Current portion of long-term debt (note 8)			242,772				231,209
Current obligation under capital leases (note 9)			40,942				41,016
Current portion of in-process revenue contracts (note 6)			56,402				56,758
Loan from joint venture partners			130				1,294
Total current liabilities			802,085				813,730
Long-term debt, including amounts due to joint venture partners of $13,338 (2009 — $16,410) (note 8)			4,287,951				4,187,962
Long-term obligation under capital leases (note 9)			736,002				743,254
Derivative liabilities (note 16)			270,636				223,025
Deferred income tax liability (note 18)			2,927				11,628
Asset retirement obligation			21,172				22,092
In-process revenue contracts (note 6)			174,523				187,602
Other long-term liabilities			218,490				232,469
Total liabilities			6,513,786				6,421,762
Commitments and contingencies (notes 4, 9, 11 and 16)
Redeemable non-controlling interest (note 11d)			43,133				—
Equity
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 72,943,838 shares outstanding (2009 — 72,694,345); 73,443,038 shares issued (2009 — 73,193,545)) (note 10)			668,155				656,193
Retained earnings			1,566,592				1,585,431
Non-controlling interest			918,642				855,580
Accumulated other comprehensive loss (note 15)			(5,432	)			(1,534	)
Total equity			3,147,957				3,095,670
Total liabilities and equity			9,704,876				9,517,432

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

TEEKAY CORPORATION AND SUBSIDIARIES

		Three Months Ended March 31,
		2010				2009
		$				$
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income			13,931				104,774
Non-cash items:
Depreciation and amortization			108,230				106,553
Amortization of in-process revenue contracts			(13,435	)			(19,055	)
Loss (gain) on sale of vessels and equipment			239				(118	)
Write-down of intangible assets and other			—				1,076
Write-down of vessels and equipment			521				—
Loss on repurchase of bonds			12,108				—
Equity loss (income)			2,666				(11,442	)
Income tax (recovery) expense			(7,307	)			5,868
Employee stock option compensation			3,923				3,637
Foreign exchange gain and other			(23,884	)			(26,541	)
Unrealized loss (gain) on derivative instruments			49,763				(77,717	)
Change in operating assets and liabilities (note 7)			(48,279	)			58,261
Expenditures for drydocking			(3,695	)			(8,464	)
Net operating cash flow			94,781				136,832
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt (note 8)			771,249				182,872
Debt issuance costs			(9,565	)			(332	)
Scheduled repayments of long-term debt			(38,413	)			(47,500	)
Prepayments of long-term debt			(609,928	)			(261,250	)
Repayments of capital lease obligations			(727	)			(2,300	)
Proceeds from loans from joint venture partner			591				1,188
Repayment of loans from joint venture partner			(1,164	)			(1,257	)
(Increase) decrease in restricted cash			(428	)			6,734
Net proceeds from issuance of Teekay LNG Partners L.P. units			—				68,524
Net proceeds from issuance of Teekay Offshore Partners L.P. units (note 5)			94,114				—
Issuance of Common Stock upon exercise of stock options			1,974				1,885
Distribution from subsidiaries to non-controlling interests			(33,083	)			(26,154	)
Cash dividends paid			(22,999	)			(22,928	)
Net financing cash flow			151,621				(100,518	)
INVESTING ACTIVITIES
Expenditures for vessels and equipment (note 7)			(44,696	)			(171,303	)
Proceeds from sale of vessels and equipment			10,045				83,405
Investment in joint ventures			(145	)			88
Advances to joint ventures			651				273
Investment in direct financing lease assets			(4,199	)			—
Direct financing lease payments received			4,827				5,596
Other investing activities			(34	)			1,912
Net investing cash flow			(33,551	)			(80,029	)
Increase (decrease) in cash and cash equivalents			212,851				(43,715	)
Cash and cash equivalents, beginning of the period			422,510				814,165
Cash and cash equivalents, end of the period			635,361				770,450

Supplemental cash flow information (note 7)

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

TEEKAY CORPORATION AND SUBSIDIARIES

		TOTAL EQUITY
						Common								Accumulated
		Thousands				Stock and								Other
		of Common				Additional								Comprehensive				Non-
		Shares				Paid-in				Retained				Income				controlling
		Outstanding				Capital				Earnings				(Loss)				Interest				Total
		#				$				$				$				$				$
Balance as at December 31, 2009			72,694				656,193				1,585,431				(1,534	)			855,580				3,095,670
Net (loss) income											(14,002	)							27,933				13,931
Other comprehensive income (loss):
Unrealized loss on marketable securities															(1,777	)							(1,777	)
Pension adjustments, net of taxes															349								349
Unrealized net loss on qualifying cash flow hedging instruments (note 16)															(3,265	)			(675	)			(3,940	)
Realized net loss on qualifying cash flow hedging instruments (note 16)															795				218				1,013
Comprehensive income																			27,476				9,576
Dividends declared											(23,003	)							(33,083	)			(56,086	)
Reinvested dividends			2				4																4
Exercise of stock options and other			247				1,973																1,973
Employee stock option compensation and other (note 10)							9,985																9,985
Dilution gain on equity offering of Teekay Offshore (note 5)											23,342												23,342
Dilution loss on initiation of majority owned subsidiary (note 11d)											(5,176	)							(2,256	)			(7,432	)
Addition of non-controlling interest from unit issuances and other																			70,925				70,925
Balance as at March 31, 2010			72,943				668,155				1,566,592				(5,432	)			918,642				3,147,957

TEEKAY CORPORATION AND SUBSIDIARIES

		Three Months Ended
		March 31,
		2010				2009
		$				$
Net income			13,931				104,774
Other comprehensive (loss) income:
Unrealized loss on marketable securities			(1,777	)			(2,441	)
Pension adjustments			349				437
Unrealized loss on qualifying cash flow hedging instruments			(3,940	)			(117	)
Realized loss on qualifying cash flow hedging instruments			1,013				12,744
Other comprehensive (loss) income			(4,355	)			10,623
Comprehensive income			9,576				115,397
Less: Comprehensive income attributable to non-controlling interests			(27,476	)			(25,226	)
Comprehensive (loss) income attributable to stockholders of Teekay Corporation			(17,900	)			90,171

TEEKAY CORPORATION AND SUBSIDIARIES

1. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited interim consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (or GAAP). They include the accounts of Teekay Corporation (or Teekay), which is incorporated under the laws of the Republic of the Marshall Islands, and its wholly-owned or controlled subsidiaries (collectively, the Company). Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, it is suggested that these interim financial statements be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2009, included in the Company’s Annual Report on Form 20-F. In the opinion of management, these unaudited financial statements reflect all adjustments, of a normal recurring nature, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, and cash flows for the interim periods presented. The results of operations for the three months ended March 31, 2010, 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. Given the current credit markets, it is possible that the amounts recorded as derivative assets and liabilities could vary by material amounts.

Certain of the comparative figures have been reclassified to conform with the presentation adopted in the current period, primarily relating to the reclassification of unrecognized tax benefits of $32.1 million at December 31, 2009 from accrued liabilities to other long-term liabilities in the consolidated balance sheets, and certain crew training expenses of $3.4 million for the three months ended March 31, 2009 from general and administrative expenses to vessel operating expenses in the consolidated statements of income (loss).

Adoption of New Accounting Pronouncements

In January 2010, the Company adopted an amendment to Financial Accounting Standards Board (or FASB) Accounting Standards Codification (or ASC) 810, Consolidations that eliminates certain exceptions to consolidating qualifying special-purpose entities, contains new criteria for determining the primary beneficiary, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity. This amendment also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity’s status as a variable interest entity, a company’s power over a variable interest entity, or a company’s obligation to absorb losses or its right to receive benefits of an entity must be disregarded. The elimination of the qualifying special-purpose entity concept and its consolidation exceptions means more entities will be subject to consolidation assessments and reassessments. During February 2010, the scope of the revised standard was modified to indefinitely exclude certain entities from the requirement to be assessed for consolidation. The adoption of this amendment did not have an impact on the Company’s consolidated financial statements.

2. Segment Reporting

The Company has four operating segments: its shuttle tanker and floating storage and offtake (or FSO) segment (or Teekay Navion Shuttle Tankers and Offshore), its floating production, storage and offloading (or FPSO) segment (or Teekay Petrojarl), its liquefied gas segment (or Teekay Gas Services) and its conventional tanker segment (or Teekay Tanker Services). The Company’s shuttle tanker and FSO segment consists of shuttle tankers and FSO units. The Company’s FPSO segment consists of FPSO units and other vessels used to service its FPSO contracts. The Company’s liquefied gas segment consists of LNG and LPG carriers. The Company’s conventional tanker segment consists of conventional crude oil and product tankers that are subject to: long-term, fixed-rate time-charter contracts; operate in the spot tanker market; or are subject to time-charters or contracts of affreightment that are priced on a spot-market basis or are short-term, fixed-rate contracts. Segment results are evaluated based on income from vessel operations. The accounting policies applied to the reportable segments is the same as those used in the preparation of the Company’s consolidated financial statements.

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)

The following tables present results for these segments for the three months ended March 31, 2010 and 2009:

		Shuttle
		Tanker and								Liquefied				Conventional
		FSO				FPSO				Gas				Tanker
Three months ended March 31, 2010		Segment				Segment				Segment				Segment				Total
Revenues (1)			162,069				125,877				62,534				214,057				564,537
Voyage expenses			29,303				—				(27	)			43,274				72,550
Vessel operating expenses			43,321				47,965				11,370				51,879				154,535
Time-charter hire expense			25,038				—				—				45,875				70,913
Depreciation and amortization			30,559				23,748				15,527				38,396				108,230
General and administrative (2)			12,145				8,826				4,771				22,349				48,091
Loss on sale of vessels and equipment, net of write-downs			—				—				—				760				760
Restructuring charge			325				—				119				3,339				3,783
Income from vessel operations			21,378				45,338				30,774				8,185				105,675
Total assets of operating segments at March 31, 2010			1,700,867				1,201,301				2,836,617				2,844,239				8,583,024

		Shuttle
		Tanker and								Liquefied				Conventional
		FSO				FPSO				Gas				Tanker
Three months ended March 31, 2009		Segment				Segment				Segment				Segment				Total
Revenues			155,688				86,103				57,583				317,177				616,551
Voyage expenses			18,408				—				292				71,969				90,669
Vessel operating expenses			45,784				44,429				11,787				50,760				152,760
Time charter hire expense			32,178				—				—				104,650				136,828
Depreciation and amortization			29,252				25,779				14,598				36,924				106,553
General and administrative (2)			13,129				9,786				5,158				19,635				47,708
Loss on sale of vessels and equipment, net of write-downs			—				—				—				958				958
Restructuring charge			2,762				—				2,182				614				5,558
Income from vessel operations			14,175				6,109				23,566				31,667				75,517
Total assets of operating segments at March 31, 2009			1,696,664				1,309,747				2,910,847				2,879,882				8,797,140

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

		March 31, 2010				December 31, 2009
		$				$
Total assets of all segments			8,583,024				8,640,315
Cash and restricted cash			635,361				422,510
Accounts receivable and other assets			486,491				454,607
Consolidated total assets			9,704,876				9,517,432

3. Restructuring Charge

During the three months ended March 31, 2010, the Company incurred $3.8 million of restructuring costs. The restructuring costs primarily relate to the reflagging of certain vessels, crew changes, and global staffing changes. At March 31, 2010 and December 31, 2009, $nil and $2.0 million, respectively, of restructuring liability were recorded in accrued liabilities on the consolidated balance sheet.

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)

4. Operating and Direct Financing Leases

Operating Lease Obligations

Teekay Tangguh Subsidiary

As at March 31, 2010, the Teekay Tangguh Subsidiary was a party to operating leases (or Head Leases) whereby it is the lessor and is leasing its two LNG carriers (or the Tangguh LNG Carriers) to a third party company. The Teekay Tangguh Subsidiary is then leasing back the LNG carriers from the same third party company (or Subleases). Under the terms of these leases, the third party company claims tax depreciation on the capital expenditures it incurred to lease the vessels. As is typical in these leasing arrangements, tax and change of law risks are assumed by the Teekay Tangguh Subsidiary. Lease payments under the Subleases are based on certain tax and financial assumptions at the commencement of the leases. If an assumption proves to be incorrect, the third party company is entitled to increase the lease payments under the Sublease to maintain its agreed after-tax margin. The Teekay Tangguh Subsidiary’s carrying amount of this tax indemnification is $10.7 million at March 31, 2010, and is included as part of other long-term liabilities in the accompanying consolidated balance sheets of the Company. The tax indemnification is for the duration of the lease contract with the third party plus the years it would take for the lease payments to be statute barred, and ends in 2034. Although there is no maximum potential amount of future payments, the Teekay Tangguh Subsidiary may terminate the lease arrangements on a voluntary basis at any time. If the lease arrangements terminate, the Teekay Tangguh Subsidiary will be required to pay termination sums to the third party company sufficient to repay the third party company’s investment in the vessels and to compensate it for the tax effect of the terminations, including recapture of any tax depreciation. The Head Leases and the Subleases have 20 year terms and are classified as operating leases. The Head Lease and the Sublease for each of the two Tangguh LNG Carriers commenced in November 2008 and March 2009, respectively.

As at March 31, 2010, the total estimated future minimum rental payments to be received and paid under the lease contracts are as follows:

		Head Lease				Sublease
Year		Receipts(1)				Payments(1)
Remainder of 2010		$	21,667			$	18,804
2011		$	28,875			$	25,072
2012		$	28,860			$	25,072
2013		$	28,843			$	25,072
2014		$	28,828			$	25,072
Thereafter		$	303,735			$	357,387
Total		$	440,808			$	476,479

Net Investment in Direct Financing Leases

The time-charters for two of the Company’s LNG carriers, one FSO unit and equipment that reduce volatile organic compound emissions (or VOC equipment) are accounted for as direct financing leases. The following table lists the components of the net investments in direct financing leases:

		March 31,				December 31,
		2010				2009
		$				$
Total minimum lease payments to be received			849,903				869,268
Estimated unguaranteed residual value of leased properties			203,465				203,465
Initial direct costs and other			1,933				1,134
Less unearned revenue			(544,785	)			(561,455	)
Total			510,516				512,412
Less current portion			27,661				27,210
Total			482,855				485,202

As at March 31, 2010, minimum lease payments to be received by the Company in each of the next five succeeding fiscal years are approximately $53.1 million (remainder of 2010), $68.2 million (2011), $62.0 million (2012), $49.5 million (2013) and $48.1 million (2014). The VOC equipment lease is scheduled to expire in 2014, the FSO contract is scheduled to expire in 2017, and the LNG time-charters are both scheduled to expire in 2029.

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

5. Equity Offerings by Subsidiaries

During March 2010, the Company’s subsidiary Teekay Offshore Partners L.P. (or Teekay Offshore) completed a public offering of 5.06 million common units (including 660,000 units issued upon the exercise of the underwriter’s overallotment option) at a price of $19.48 per unit, for total gross proceeds of $100.6 million (including the general partner’s $2.0 million proportionate capital contribution). As a result, the Company’s ownership of Teekay Offshore was reduced from 40.5% to 35.9% (including the Company’s 2% general partner interest). Teekay maintains control of Teekay Offshore by virtue of its control of the general partner and continues to consolidate this subsidiary. As a result of the offering, the Company recorded an increase to retained earnings of $23.3 million, which represents the Company’s dilution gain from the issuance of units in Teekay Offshore during the three months ended March 31, 2010.

See Note 20 to these unaudited consolidated financial statements for information relating to a follow-on public offering by the Company’s subsidiary Teekay Tankers Ltd. (or Teekay Tankers) in April 2010.

6. Intangible Assets and In-Process Revenue Contracts

Intangible Assets

		Weighted-Average				Gross Carrying				Accumulated				Net Carrying
		Amortization Period				Amount				Amortization				Amount
		(Years)				$				$				$
As at March 31, 2010:
Contracts of affreightment			10.2				124,251				(90,134	)			34,117
Time-charter contracts			16.0				230,668				(88,038	)			142,630
Vessel purchase options			—				23,900				—				23,900
Other intangible assets			4.5				11,430				(5,640	)			5,790
			12.9				390,249				(183,812	)			206,437
As at December 31, 2009:
Contracts of affreightment			10.2				124,251				(88,015	)			36,236
Time-charter contracts			16.0				231,221				(83,823	)			147,398
Vessel purchase options			—				23,900				—				23,900
Other intangible assets			2.8				20,731				(14,395	)			6,336
			12.6				400,103				(186,233	)			213,870

Aggregate amortization expense of intangible assets for the three months ended March 31, 2010, was $7.2 million (2009 — $8.5 million), which is included in depreciation and amortization. Amortization of intangible assets for the next five fiscal years is expected to be $18.7 million (remainder of 2010), $23.2 million (2011), $31.4 million (2012), $14.2 million (2013), $13.2 million (2014) and $105.7 million (thereafter).

In-Process Revenue Contracts

As part of the Company’s previous acquisitions of Petrojarl ASA (subsequently renamed Teekay Petrojarl AS, or Teekay Petrojarl) and OMI Corporation (or OMI), the Company assumed certain FPSO service contracts and time charter-out contracts with terms that were less favorable than the then prevailing market terms. The Company has recognized a liability based on the estimated fair value of these contracts. The Company is amortizing this liability over the remaining terms of the contracts on a weighted basis based on the projected revenue to be earned under the contracts.

Amortization of in-process revenue contracts for the three months ended March 31, 2010 was $13.4 million (2009 — $19.1 million), which is included in revenues on the consolidated statements of income (loss). Amortization for the next five years is expected to be $34.2 million (remainder of 2010), $43.3 million (2011), $41.0 million (2012) and $37.6 million (2013), $26.3 million (2014) and $48.5 million (thereafter).

7. Supplemental Cash Flow Information

The changes in operating assets and liabilities for the three months ended March 31, 2010 and 2009 are as follows:

		Three Months Ended March 31,
		2010				2009
		$				$
Accounts receivable			(13,575	)			103,119
Prepaid expenses and other assets			(9,761	)			15,034
Accounts payable			824				(5,934	)
Accrued and other liabilities			(25,767	)			(53,958	)
			(48,279	)			58,261

During the three months ended March 31, 2010, an unrelated party contributed a shuttle tanker with a value of $35.0 million to a 67% owned subsidiary in exchange for an equity interest of the subsidiary as described in Note 11(d) to these unaudited consolidated financial statements. This contribution has been treated as a non-cash transaction in the Company’s consolidated statement of cash flows.

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)

8. Long-Term Debt

		March 31, 2010				December 31, 2009
		$				$
Revolving Credit Facilities			1,958,314				1,975,360
Senior Notes (8.875%) due July 15, 2011			25,551				177,004
Senior Notes (8.5%) due January 15, 2020			446,363				—
USD-denominated Term Loans due through 2022			1,701,081				1,837,980
Euro-denominated Term Loans due through 2023			386,076				412,417
USD-denominated Unsecured Demand Loan due to Joint Venture Partners			13,338				16,410
			4,530,723				4,419,171
Less current portion			242,772				231,209
			4,287,951				4,187,962

As of March 31, 2010, the Company had fourteen long-term revolving credit facilities (or the Revolvers) available, which, as at such date, provided for borrowings of up to $3.5 billion, of which $1.5 billion was undrawn. Interest payments are based on LIBOR plus margins; at March 31, 2010, the margins ranged between 0.45% and 3.25% (2009 — 0.45% and 3.25%). At March 31, 2010 and December 31, 2009, the three-month LIBOR was 0.29% and 0.25%, respectively. The total amount available under the Revolvers reduces by $186.7 million (remainder of 2010), $239.2 million (2011), $349.2 million (2012), $756.1 million (2013), $770.4 million (2014) and $1.2 billion (thereafter). The Revolvers are collateralized by first-priority mortgages granted on 63 of the Company’s vessels, together with other related security, and include a guarantee from Teekay or its subsidiaries for all outstanding amounts.

In January 2010, the Company completed a public offering of $450 million senior unsecured notes due January 15, 2020 (or the 8.5% Notes). The 8.5% Notes were sold at a price equal to 99.181% of par and the discount is accreted using the effective interest rate of 8.625% per year. The Company capitalized issuance costs of $8.6 million, which is recorded in other non-current assets in the consolidated balance sheet, and is amortized over the term of the senior unsecured notes. The 8.5% Notes and the 8.875% senior unsecured notes due July 15, 2011 (or the 8.875% Notes) rank equally in right of payment with all of Teekay’s existing and future senior unsecured debt and senior to Teekay’s existing and future subordinated debt. The 8.5% Notes and 8.875% Notes are not guaranteed by any of Teekay’s subsidiaries and effectively rank behind all existing and future secured debt of Teekay and other liabilities, secured and unsecured, of its subsidiaries. During the three months ended March 31, 2010, the Company repurchased a principal amount of $151.1 million (2009 — $17.4 million) of the 8.875% Notes, using a portion of the proceeds of the 8.5% Notes offering, and recognized a loss on repurchase of $12.1 million.

The Company may redeem the 8.5% Notes in whole or in part at any time before their maturity date at a redemption price equal to the greater of (i) 100% of the principal amount of the 8.5% Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 8.5% Notes to be redeemed (excluding accrued interest) discounted to the redemption date on a semi-annual basis, plus 50 basis points, plus accrued and unpaid interest to the redemption date. In addition, at any time or from time to time prior to January 15, 2013, the Company may redeem up to 35% of the aggregate principal amount of the 8.5% Notes issued under the indenture with the net cash proceeds of one or more qualified equity offerings at a redemption price equal to 108.5% of the principal amount of the 8.5% Notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date; provided certain conditions are met.

As of March 31, 2010, the Company had fifteen U.S. Dollar-denominated term loans outstanding, which totaled $1.7 billion (2009 — $1.8 billion). Certain of the term loans with a total outstanding principal balance of $477.4 million, as at March 31, 2010 (December 31, 2009 — $480.1 million) bear interest at a weighted-average fixed rate of 5.2% (December 31, 2009 — 5.2%). Interest payments on the remaining term loans are based on LIBOR plus a margin. At March 31, 2010, the margins ranged between 0.3% and 3.25% (December 31, 2009 — 0.3% and 3.25%). At March 31, 2010 and December 31, 2009, the three-month LIBOR was 0.29% and 0.25%, respectively. The term loan payments are made in quarterly or semi-annual payments commencing three or six months after delivery of each newbuilding vessel financed thereby, and fourteen of the term loans have balloon or bullet repayments due at maturity. The term loans are collateralized by first-priority mortgages on 30 (December 31, 2009 — 30) of the Company’s vessels, together with certain other security. In addition, at March 31, 2010, all but $131.8 million (December 31, 2009 — $134.3 million) of the outstanding term loans were guaranteed by Teekay or its subsidiaries.

The Company has two Euro-denominated term loans outstanding, which, as at March 31, 2010, totaled 285.8 million Euros ($386.1 million). The Company repays the loans with funds generated by two Euro-denominated long-term time-charter contracts. Interest payments on the loans are based on EURIBOR plus a margin. At March 31, 2010 and December 31, 2009, the margins ranged between 0.6% and 0.66% and the one-month EURIBOR at March 31, 2010, was 0.40% (December 31, 2009 — 0.45%). The Euro-denominated term loans reduce in monthly payments with varying maturities through 2023 and are collateralized by first-priority mortgages on two of the Company’s vessels, together with certain other security, and are guaranteed by a subsidiary of Teekay.

Both Euro-denominated term loans are revalued at the end of each period using the then prevailing Euro/U.S. Dollar exchange rate. Due substantially to this revaluation, the Company recognized an unrealized foreign exchange gain of $29.0 million during the three months ended March 31, 2010 (2009 — $11.3 million gain).

The Company has one U.S. Dollar-denominated loan outstanding owing to a joint venture partner, which, as at March 31, 2010, totaled $13.3 million, including accrued interest. Interest payments on the loan, which is based on a fixed interest rate of 4.84%, commenced in February 2008. This loan is repayable on demand no earlier than February 27, 2027.

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)

The weighted-average effective interest rate on the Company’s long-term aggregate debt as at March 31, 2010, was 2.3% (December 31, 2009 — 2.0%). This rate does not reflect the effect of the Company’s interest rate swaps (see Note 16).

Among other matters, the Company’s long-term debt agreements generally provide for maintenance of certain vessel market value-to-loan ratios and minimum consolidated financial covenants. Certain loan agreements require that a minimum level of free cash be maintained. As at March 31, 2010 and December 31, 2009, this amount was $100.0 million. Certain of the loan agreements also require that the Company maintain an aggregate level of free liquidity and undrawn revolving credit lines with at least six months to maturity, of at least 7.5% of total debt. As at March 31, 2010, this amount was $230.9 million (December 31, 2009 — $230.3 million).

The aggregate annual long-term debt principal repayments required to be made by the Company subsequent to March 31, 2010, are $205.5 million (remainder of 2010), $340.2 million (2011), $489.9 million (2012), $457.2 million (2013), $876.9 million (2014) and $2.2 billion (thereafter).

As at March 31, 2010, the Company was in compliance with all covenants related to the credit facilities and long-term debt.

9. Capital Lease Obligations and Restricted Cash

Capital Lease Obligations

		March 31,				December 31,
		2010				2009
		$				$
RasGas II LNG Carriers			470,284				470,138
Spanish-Flagged LNG Carrier			113,961				119,068
Suezmax Tankers			192,699				195,064
Total			776,944				784,270
Less current portion			40,942				41,016
Total			736,002				743,254

RasGas II LNG Carriers. As at March 31, 2010, the Company was a party, as lessee, to 30-year capital lease arrangements for the three LNG carriers (or the RasGas II LNG Carriers) that operate under time-charter contracts with Ras Laffan Liquefied Natural Gas Co. Limited (II) (or RasGas II), a joint venture between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation. All amounts below relating to the RasGas II LNG Carrier capital leases include the non-controlling interest’s 30% share.

Under the terms of the RasGas II LNG Carriers capital lease arrangements, the lessor claims tax depreciation on the capital expenditures it incurred to acquire these vessels. As is typical in these leasing arrangements, tax and change of law risks are assumed by the lessee. Lease payments under the lease arrangements are based on tax and financial assumptions at the commencement of the leases. If an assumption proves to be incorrect, the lessor is entitled to increase the lease payments to maintain its agreed after-tax margin. At inception of the leases the Company’s best estimate of the fair value of the guarantee liability was $18.6 million. The Company’s carrying amount of the remaining tax indemnification guarantee is $9.2 million and is included as part of other long-term liabilities in the Company’s consolidated balance sheets.

During 2008, the Company agreed under the terms of its tax lease indemnification guarantee to increase its capital lease payments for the three RasGas II LNG Carriers to compensate the lessor for losses suffered as a result of changes in tax rates. The estimated increase in lease payments is approximately $8.1 million over the term of the leases, with a carrying value of $7.8 million as at March 31, 2010. This amount is included as part of other long-term liabilities in the Company’s consolidated balance sheets.

The tax indemnification is for the duration of the lease contract with the third party plus the years it would take for the lease payments to be statute barred, and ends in 2042. Although there is no maximum potential amount of future payments, the Company may terminate the lease arrangements at any time. If the lease arrangements terminate, the Company will be required to pay termination sums to the lessor sufficient to repay the lessor’s investment in the vessels and to compensate it for the tax-effect of the terminations, including recapture of any tax depreciation.

At their inception, the weighted-average interest rate implicit in these leases was 5.2%. These capital leases are variable-rate capital leases. As at March 31, 2010, the commitments under these capital leases approximated $1.0 billion, including imputed interest of $0.6 billion, repayable as follows:

Year		Commitment
Remainder of 2010		$	18,000
2011		$	24,000
2012		$	24,000
2013		$	24,000
2014		$	24,000
Thereafter		$	929,000

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)

Spanish-Flagged LNG Carrier. As at March 31, 2010, the Company was a party, as lessee, to a capital lease on one Spanish-flagged LNG carrier, which is structured as a “Spanish tax lease.” Under the terms of the Spanish tax lease, the Company will purchase the vessel at the end of the lease term in December 2011. The purchase obligation has been fully funded with restricted cash deposits described below. At its inception, the implicit interest rate was 5.8%. As at March 31, 2010, the commitments under this capital lease, including the purchase obligation, approximated 91.7 million Euros ($124.0 million), including imputed interest of 7.4 million Euros ($10.0 million), repayable as follows:

Year		Commitment
Remainder of 2010		26,900 Euros ($36,400		)
2011		64,800 Euros ($87,600		)

Suezmax Tankers. As at March 31, 2010, the Company was a party, as lessee, to capital leases on five Suezmax tankers. Under the terms of the lease arrangements, the Company is required to purchase these vessels after the end of their respective lease terms for fixed prices as well as assuming the existing vessel financing subject to the lenders consent. At their inception, the weighted-average interest rate implicit in these leases was 7.4%. These capital leases are variable-rate capital leases; however, any change in the lease payments resulting from changes in interest rates is offset by a corresponding change in the charter hire payments received by the Company. As at March 31, 2010, the remaining commitments under these capital leases, including the purchase obligations, approximated $215.6 million, including imputed interest of $22.9 million, repayable as follows:

Year		Commitment
Remainder of 2010		$	17,700
2011		$	197,900

The Company’s capital leases do not contain financial or restrictive covenants other than those relating to operation and maintenance of the vessels.

FPSO Units. As at March 31, 2010, the Company was a party, as lessee, to capital leases on one FPSO unit, the Petrojarl Foinaven, and the topside production equipment for another FPSO unit, the Petrojarl Banff. However, prior to being acquired by Teekay, Teekay Petrojarl legally defeased its future charter obligations for these assets by making up-front, lump-sum payments to unrelated banks, which have assumed Teekay Petrojarl’s liability for making the remaining periodic payments due under the long-term charters (or Defeased Rental Payments) and termination payments under the leases.

The Defeased Rental Payments for the Petrojarl Foinaven were based on assumed Sterling LIBOR of 8% per annum. If actual interest rates are greater than 8% per annum, the Company receives rental rebates; if actual interest rates are less than 8% per annum, the Company is required to pay rentals in excess of the Defeased Rental Payments. For accounting purposes, this contract feature is an embedded derivative, and has been separated from the host contract and is separately accounted for as a derivative instrument.

As is typical for these types of leasing arrangements, the Company has indemnified the lessors of the Petrojarl Foinaven for the tax consequence resulting from changes in tax laws or interpretation of such laws or adverse rulings by authorities and for fluctuations in actual interest rates from those assumed in the leases.

Restricted Cash

Under the terms of the capital leases for the RasGas II LNG Carriers and the Spanish-Flagged LNG Carrier described above, the Company is required to have on deposit with financial institutions an amount of cash that, together with interest earned on the deposits, will equal the remaining amounts owing under the leases, including the obligations to purchase the Spanish-Flagged LNG Carrier at the end of the lease period, where applicable. These cash deposits are restricted to being used for capital lease payments and have been fully funded primarily with term loans (see Note 8).

As at March 31, 2010 and December 31, 2009, the amount of restricted cash on deposit for the three RasGas II LNG Carriers was $478.6 million and $479.4 million, respectively. As at March 31, 2010 and December 31, 2009, the weighted-average interest rates earned on the deposits were 0.3% and 0.4%, respectively.

As at March 31, 2010 and December 31, 2009, the amount of restricted cash on deposit for the Spanish-Flagged LNG carrier was 85.4 million Euros ($115.4 million) and 84.3 million Euros ($120.8 million), respectively. As at March 31, 2010 and December 31, 2009, the weighted-average interest rate earned on these deposits was 5.0%.

The Company also maintains restricted cash deposits relating to certain term loans and other obligations, which totaled $14.3 million and $15.1 million as at March 31, 2010 and December 31, 2009, respectively.

10. Capital Stock

The authorized capital stock of Teekay at March 31, 2010 and December 31, 2009, was 25,000,000 shares of Preferred Stock, with a par value of $1 per share, and 725,000,000 shares of Common Stock, with a par value of $0.001 per share. During the three months ended March 31, 2010, the Company issued 0.2 million common shares upon the exercise of stock options, and had no share repurchases. As at March 31, 2010, Teekay had 73,443,038 shares of Common Stock (December 31, 2009 — 73,193,545) and no shares of Preferred Stock issued. As at March 31, 2010, Teekay had 72,943,838 shares of Common Stock outstanding (December 31, 2009 — 72,694,345).

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)

During 2008, Teekay announced that its Board of Directors had authorized the repurchase of up to $200 million of shares of its Common Stock in the open market, subject to cancellation upon approval by the Board of Directors. As at March 31, 2010, Teekay had not repurchased any shares of Common Stock pursuant to such authorizations. The total remaining share repurchase authorization at March 31, 2010, was $200 million.

The Company grants restricted stock units to certain eligible officers, employees and directors of the Company. Each restricted stock unit is equal in value to one share of the Company’s common stock plus reinvested dividends from the grant date to the vesting date. The restricted stock units vest equally over two or three years from the grant date. Upon vesting, the value of the restricted stock unit is paid to each grantee in the form of shares.

During March 2010, the Company granted 733,167 stock options at a weighted average exercise price of $24.42 per share, 263,620 restricted stock units with a total fair value of $6.4 million, 87,054 performance shares with a total fair value of $2.1 million and 27,028 shares of restricted stock awards with a total fair value of $0.7 million, based on the quoted market price, to certain of the Company’s employees and directors.

The weighted-average grant-date fair value of options granted during March 2010 was $8.16 per option. The fair value of each option granted was estimated on the date of the grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used in computing the fair value of the options granted: expected volatility of 52.7%; expected life of four years; dividend yield of 3.3%; risk-free interest rate of 2.6%; and estimated forfeiture rate of 9.8%. The expected life of the options granted was estimated using the historical exercise behavior of employees. The expected volatility was generally based on historical volatility as calculated using historical data during the five years prior to the grant date.

During the three months ended March 31, 2010, the Company issued 0.2 million common shares for $2.0 million on exercise of stock options and recorded stock option compensation expense of $4.0 million, which increased additional paid-in capital by a total of $6.0 million. In addition, the Company modified its settlement terms for restricted stock units during the three months ended March 31, 2010, which decreased accrued liabilities by $4.0 million, decreased other long-term liabilities by $2.0 million, and increased additional paid-in capital by a total of $6.0 million. For the same period in 2009, the Company issued nominal number of common shares for $0.1 million on exercise of stock options and recorded stock option compensation expense of $3.5 million, which increased additional paid-in capital by a total amount of $3.6 million.

11. Commitments and Contingencies

a) Vessels Under Construction

As at March 31, 2010, the Company was committed to the construction of three LPG carriers and four shuttle tankers scheduled for delivery between June 2010 and July 2011, at a total cost of approximately $586.8 million, excluding capitalized interest. As at March 31, 2010, payments made towards these commitments totaled $158.1 million (excluding $18.8 million of capitalized interest and other miscellaneous construction costs), and long-term financing arrangements existed for $428.7 million of the unpaid cost of these vessels. As at March 31, 2010, the remaining payments required to be made under these newbuilding contracts were $247.5 million (remainder of 2010), and $181.2 million (2011).

b) Joint Ventures

The Company has a 33% interest in a joint venture that will charter four newbuilding 160,400-cubic meter LNG carriers for a period of 20 years to the Angola LNG Project, which is being developed by subsidiaries of Chevron Corporation, Sociedade Nacional de Combustiveis de Angola EP, BP Plc, Total S.A. and ENI SpA. Final award of the charter was made in December 2007. The vessels will be chartered at fixed rates, with inflation adjustments, commencing in 2011. The remaining members of the joint venture are Mitsui & Co., Ltd. and NYK Bulkship (Europe) Ltd., which hold 34% and 33% interests in the joint venture, respectively. In connection with this award, the joint venture has entered into agreements with Samsung Heavy Industries Co. Ltd. to construct the four LNG carriers at a total cost of approximately $906.0 million (of which the Company’s 33% portion is $299.0 million), excluding capitalized interest. As at March 31, 2010, payments made towards these commitments by the joint venture company totaled $181.2 million (of which the Company’s 33% contribution was $59.8 million and is included in investment in joint ventures in the consolidated balance sheets), excluding capitalized interest and other miscellaneous construction costs. As at March 31, 2010, the remaining payments required to be made under these contracts were $113.2 million (remainder of 2010), $475.6 million (2011) and $135.9 million (2012), of which the Company’s share is 33% of these amounts. In accordance with existing agreements, the Company is required to offer to its subsidiary Teekay LNG Partners L.P. (or Teekay LNG) its 33% interest in these vessels and related charter contracts, no later than 180 days before the scheduled delivery dates of the vessels. Deliveries of the vessels are scheduled between August 2011 and January 2012. The Company has also provided certain guarantees in relation to the performance of the joint venture company.

For the three months ended March 31, 2010, the Company recorded equity (loss) income of $(2.7) million (2009 — $11.4 million income). This amount is included in equity (loss) income from joint ventures in the consolidated statements of income (loss). The income or loss was primarily comprised of the Company’s share of the Angola LNG Project net income (loss) and the operations of the Company’s 40% interest in four RasGas 3 LNG Carriers. For the three months ended March 31, 2010, $6.1 million of the equity loss relates to the Company’s share of unrealized loss on interest rate swaps (2009 — gain of $8.5 million).

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)

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) Redeemable Non-Controlling Interest

During the three months ended March 31, 2010, an unrelated party contributed a shuttle tanker with a value of $35.0 million to a subsidiary of Teekay Offshore for a 33% equity interest of the subsidiary. The equity issuance resulted in a dilution loss of $7.4 million. The non-controlling interest owner of Teekay Offshore’s 67% owned subsidiary holds a put option which, if exercised, would obligate Teekay Offshore to purchase the non-controlling interest owner’s 33% share in the entity for cash in accordance with a defined formula. The redeemable non-controlling interest is subject to remeasurement if the formulaic redemption amount exceeds the carrying value.

e) Other

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

12. Fair Value Measurements

The following methods and assumptions were used to estimate the fair value of each class of financial instruments and other non-financial assets.

Cash and cash equivalents, restricted cash and marketable securities — The fair value of the Company’s cash and cash equivalents approximates their carrying amounts reported in the accompanying consolidated balance sheets.

Vessels held for sale — The fair value of the Company’s vessels held for sale is based on selling prices of similar vessels and approximates their carrying amounts reported in the accompanying consolidated balance sheets.

Loans to and loans from joint ventures and joint venture partners — The fair value of the Company’s loans to and loans from joint ventures and joint venture partners approximates their carrying amounts reported in the accompanying consolidated balance sheets.

Long-term debt — The fair value of the Company’s fixed-rate and variable-rate long-term debt is either based on quoted market prices or estimated using discounted cash flow analyses, based on current rates currently available for debt with similar terms and remaining maturities and the current credit worthiness of the Company.

Derivative instruments — The fair value of the Company’s derivative instruments is the estimated amount that the Company would receive or pay to terminate the agreements at the reporting date, taking into account, as applicable, fixed interest rates on interest rate swaps, current interest rates, foreign exchange rates, and the current credit worthiness of both the Company and the derivative counterparties. For the Foinaven embedded derivative, the calculation of the fair value takes into account the fixed rate in the contract, current interest rates and foreign exchange rates. Given the current volatility in the credit markets, it is reasonably possible that the amounts recorded as derivative assets and liabilities could vary by material amounts in the near term.

The Company categorizes its fair value estimates using a fair value hierarchy based on the inputs used to measure fair value. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value as follows:

Level 1. Observable inputs such as quoted prices in active markets;

Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)

The estimated fair value of the Company’s financial instruments and other non-financial assets and categorization using the fair value hierarchy for those financial instruments that are measured at fair value on a recurring basis is as follows:

				March 31, 2010								December 31, 2009
				Carrying				Fair				Carrying				Fair
		Fair Value		Amount				Value				Amount				Value
		Hierarchy		Asset (Liability)				Asset (Liability)				Asset (Liability)				Asset (Liability)
		Level(1)		$				$				$				$
Cash and cash equivalents, restricted cash, and marketable securities		Level 1			1,260,745				1,260,745				1,056,725				1,056,725
Vessels held for sale					16,725				17,300				10,250				10,250
Loans to joint ventures					20,384				20,384				21,998				21,998
Loans from joint venture partners					(130	)			(130	)			(1,294	)			(1,294	)
Long-term debt					(4,530,723	)			(4,208,555	)			(4,419,171	)			(4,055,367	)
Derivative instruments (note 16) (2)
Interest rate swap agreements (3)		Level 2			(432,682	)			(432,682	)			(378,407	)			(378,407	)
Interest rate swap agreements (3)		Level 2			40,145				40,145				36,744				36,744
Foreign currency contracts		Level 2			1,311				1,311				10,461				10,461
Bunker fuel swap contracts		Level 2			501				501				612				612
Forward freight agreements		Level 2			2,752				2,752				(504	)			(504	)
Foinaven embedded derivative		Level 2			(9,680	)			(9,680	)			(8,769	)			(8,769	)

The Company has determined that other than vessels held for sale at December 31, 2009, there are no other non-financial assets or non-financial liabilities carried at fair value at March 31, 2010 and December 31, 2009. See Note 13 to these unaudited consolidated financial statements.

13. Vessel Sales

During February 2010, the Company sold a 1992-built Aframax tanker, which was presented on the December 31, 2009 consolidated balance sheet as vessel held for sale. The vessel was part of the Company’s conventional tanker segment. The Company realized a loss of $0.2 million as a result of this vessel sale.

In late March, 2010, the Company executed an agreement to sell a 1995-built Aframax tanker for $17.3 million. On April 19, 2010, the terms and conditions of the agreement had been met and the vessel was delivered to the buyer. The vessel is presented on the March 31, 2010 consolidated balance sheet as vessel held for sale, and is recorded at carrying value. The vessel was part of the Company’s conventional tanker segment. The Company realized a gain of $0.3 million as a result of this vessel sale which will be recorded in the second quarter of 2010.

14. Other Income

		Three Months Ended March 31,
		2010				2009
		$				$
Volatile organic compound emission plant lease income			1,430				1,894
Miscellaneous income			992				764
Other income			2,422				2,658

15. Accumulated Other Comprehensive Loss

As at March 31, 2010 and December 31, 2009, the Company’s accumulated other comprehensive loss consisted of the following components:

		March 31,				December 31,
		2010				2009
		$				$
Unrealized gain on qualifying cash flow hedging instruments			454				2,923
Pension adjustments, net of tax recoveries			(9,946	)			(10,294	)
Unrealized gain on marketable securities			4,060				5,837
			(5,432	)			(1,534	)

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)

16. Derivative Instruments and Hedging Activities

The Company uses derivatives to manage certain risks in accordance with its overall risk management policies.

Foreign Exchange Risk

The Company economically hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts. Certain foreign currency forward contracts are designated, for accounting purposes, as cash flow hedges of forecasted foreign currency expenditures.

As at March 31, 2010, the Company was committed to the following foreign currency forward contracts:

										Fair Value / Carrying Amount
		Contract Amount								of Asset / (Liability)								Expected Maturity
		In Foreign				Average												Remainder of
		Currency				Forward				Hedge				Non-Hedge				2010				2011				2012
		(millions)				Rate(1)				(in millions of U.S. Dollars)								(in millions of U.S. Dollars)
Norwegian Kroner			1,307.0				6.12			$	4.1			$	(0.4	)		$	121.8			$	73.6			$	18.1
Euro			62.8				0.71				(1.5	)			(2.1	)			49.0				33.5				5.9
Canadian Dollar			42.5				1.10				3.2				—				31.9				6.7				—
British Pounds			43.3				0.64				(1.8	)			(0.2	)			39.6				24.0				4.1
										$	4.0			$	(2.7	)		$	242.3			$	137.8			$	28.1

Interest Rate Risk

The Company enters into interest rate swaps which exchange a receipt of floating interest for a payment of fixed interest to reduce the Company’s exposure to interest rate variability on its outstanding floating-rate debt. In addition, the Company holds interest rate swaps which exchange a payment of floating rate interest for a receipt of fixed interest in order to reduce the Company’s exposure to the variability of interest income on its restricted cash deposits. The Company has not designated its interest rate swaps as cash flow hedges for accounting purposes.

As at March 31, 2010, the Company was committed to the following interest rate swap agreements related to its LIBOR-based debt, restricted cash deposits and EURIBOR-based debt, whereby certain of the Company’s floating-rate debt and restricted cash deposits were swapped with fixed-rate obligations or fixed-rate deposits:

								Fair Value /				Weighted-
								Carrying Amount				Average				Fixed
		Interest		Principal				of Asset /				Remaining				Interest
		Rate		Amount				(Liability)(1)				Term				Rate
		Index		$				$				(Years)				(%)(2)
LIBOR-Based Debt:
U.S. Dollar-denominated interest rate swaps (3)		LIBOR			450,271				(40,717	)			26.8				4.9
U.S. Dollar-denominated interest rate swaps		LIBOR			3,422,307				(351,498	)			9.4				4.7
U.S. Dollar-denominated interest rate swaps (4)		LIBOR			200,000				(21,296	)			20.0				5.7
LIBOR-Based Restricted Cash Deposit:
U.S. Dollar-denominated interest rate swaps (3)		LIBOR			473,104				40,145				26.8				4.8
EURIBOR-Based Debt:
Euro-denominated interest rate swaps (5) (6)		EURIBOR			386,076				(19,171	)			14.2				3.8

Spot Tanker Market Risk

In order to reduce variability in revenues from fluctuations in certain spot tanker market rates, from time to time the Company has entered into forward freight agreements (or FFAs). FFAs involve contracts to move a theoretical volume of freight at fixed-rates, thus attempting to reduce the Company’s exposure to spot tanker market rates. As at March 31, 2010, the FFAs had an aggregate notional value of $35.2 million, which is an aggregate of both long and short positions. The FFAs expire between April 2010 and December 2010. The Company has not designated these contracts as cash flow hedges for accounting purposes.

TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)

Commodity Price Risk

The Company enters into bunker fuel swap contracts relating to a portion of its bunker fuel expenditures. The Company has not designated its bunker fuel swap contracts as cash flow hedges for accounting purposes. As at March 31, 2010, the Company was committed to contracts totalling 40,905 metric tonnes with a weighted-average price of $455.65 per tonne. These bunker fuel swap contracts expire between April 2010 and December 2010. As at December 31, 2009, the Company was committed to contracts totalling 23,400 metric tonnes with a weighted-average price of $439.23 per tonne.

Tabular Disclosure

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

		Current												Current
		Portion of												Portion of
		Derivative				Derivative				Accrued				Derivative				Derivative
		Assets				Assets				Liabilities				Liabilities				Liabilities
As at March 31, 2010:
Derivatives designated as a cash flow hedge:
Foreign currency contracts			7,862				34				—				(3,141	)			(801	)
Derivative not designated as a cash flow hedge:
Foreign currency contracts			642				44				—				(2,618	)			(712	)
Interest rate swaps			16,816				19,393				(33,567	)			(135,698	)			(259,443	)
Forward freight agreements			2,752				—				—				—				—
Bunker fuel swap contracts			501				—				—				—				—
Foinaven embedded derivative			—				—				—				—				(9,680	)
			28,573				19,471				(33,567	)			(141,457	)			(270,636	)
As at December 31, 2009:
Derivatives designated as a cash flow hedge:
Foreign currency contracts			11,697				250				—				(2,021	)			(71	)
Derivative not designated as a cash flow hedge:
Foreign currency contracts			1,351				174				—				(705	)			(214	)
Interest rate swaps			16,336				17,695				(28,499	)			(133,224	)			(213,971	)
Forward freight agreements			—				—				—				(504	)			—
Bunker fuel swap contracts			612				—				—				—				—
Foinaven embedded derivative			—				—				—				—				(8,769	)
			29,996				18,119				(28,499	)			(136,454	)			(223,025	)