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Derivative Instruments and Hedging Activities | 6 Months Ended
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Jun. 30, 2013
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | 14. 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 of these foreign currency forward contracts are designated, for accounting purposes, as cash flow hedges of forecasted foreign currency expenditures. As at June 30, 2013, the Company was committed to the following foreign currency forward contracts:
|  | Contract Amount in Foreign Currency (millions) |  |  | Average Forward Rate (1) |  |  | Fair Value / Carrying Amount of Asset (Liability) |  |  | Expected Maturity |
|  |  |  | Hedge |  |  | Non-hedge |  |  | 2013 |  |  | 2014 |
|  |  |  | $ |  |  | $ |  |  | $ |  |  | $ |
|  |  |  | (in millions of U.S. Dollars) |  |  | (in millions of U.S. Dollars) |
Norwegian Kroner |  |  | 1,039.4 |  |  |  | 5.97 |  |  |  | — |  |  |  | (4.3 | ) |  |  | 106.1 |  |  |  | 68.1 |
Euro |  |  | 2.0 |  |  |  | 0.75 |  |  |  | — |  |  |  | (0.1 | ) |  |  | 2.7 |  |  |  | — |
Canadian Dollar |  |  | 10.5 |  |  |  | 1.03 |  |  |  | (0.1 | ) |  |  | (0.1 | ) |  |  | 10.2 |  |  |  | — |
British Pound |  |  | 1.8 |  |  |  | 0.63 |  |  |  | (0.1 | ) |  |  | — |  |  |  | 2.9 |  |  |  | — |
|  |  |  |  |  |  |  |  |  |  | (0.2 | ) |  |  | (4.5 | ) |  |  | 121.9 |  |  |  | 68.1 |
(1) | Average contractual exchange rate represents the contracted amount of foreign currency one U.S. Dollar will buy.
The Company enters into cross currency swaps, and pursuant to these swaps the Company receives the principal amount in NOK on the maturity date of the swap, in exchange for payment of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest or U.S. Dollar floating interest based on LIBOR plus a margin. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and principal at maturity of the Company’s NOK-denominated bonds due in 2013 through 2018. In addition, the cross currency swaps due in 2018 economically hedge the interest rate exposure on the NOK-denominated bonds due in 2018. The Company has not designated, for accounting purposes, these cross currency swaps as cash flow hedges of its NOK-denominated bonds due in 2013 through 2018. As at June 30, 2013, the Company was committed to the following cross currency swaps:
|  | Notional |  |  | Floating Rate Receivable |  |  | Floating Rate Payable |  |  |  |  |  | Fair Value / Carrying Amount |  |  | Remaining |
Notional Amount NOK |  | Amount USD |  |  | Reference Rate |  |  | Margin |  |  | Reference Rate |  |  | Margin |  |  | Fixed Rate Payable |  |  | of Asset / (Liability) |  |  | Term (years) |
211,500 |  |  | 34,721 | (1) |  |  | NIBOR |  |  |  | 4.75 | % |  |  | LIBOR | (2) |  |  | 5.04 | % |  |  |  |  |  |  | 120 |  |  |  | 0.4 |
700,000 |  |  | 122,800 |  |  |  | NIBOR |  |  |  | 4.75 | % |  |  |  |  |  |  |  |  |  |  | 5.52 | % |  |  | (7,734 | ) |  |  | 2.3 |
500,000 |  |  | 89,710 |  |  |  | NIBOR |  |  |  | 4.00 | % |  |  |  |  |  |  |  |  |  |  | 4.80 | % |  |  | (7,328 | ) |  |  | 2.6 |
600,000 |  |  | 101,351 |  |  |  | NIBOR |  |  |  | 5.75 | % |  |  |  |  |  |  |  |  |  |  | 7.49 | % |  |  | (4,716 | ) |  |  | 3.6 |
700,000 |  |  | 125,000 |  |  |  | NIBOR |  |  |  | 5.25 | % |  |  |  |  |  |  |  |  |  |  | 6.88 | % |  |  | (11,677 | ) |  |  | 3.8 |
800,000 |  |  | 143,536 |  |  |  | NIBOR |  |  |  | 4.75 | % |  |  |  |  |  |  |  |  |  |  | 5.93 | % |  |  | (9,628 | ) |  |  | 4.6 |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (40,963 | ) |  |  |  |
(1) | Teekay Offshore partially terminated the cross currency swap in connection with its repurchase in January 2013 of NOK 388.5 million of Teekay Offshore’s original NOK 600 million bond issue (see note 7).
(2) | LIBOR subsequently fixed at 1.1%, subject to a LIBOR rate receivable cap of 3.5% (see next section).
Interest Rate Risk The Company enters into interest rate swap agreements that 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 that 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. As at June 30, 2013, the Company has not designated any of its interest rate swap agreements as cash flow hedges for accounting purposes. As at June 30, 2013, 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 / Carrying Amount of Asset / (Liability) |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  | Weighted- Average Remaining Term |  |  |  |
|  |  |  |  |  |  |  |  |  | Fixed Interest Rate |
|  | Interest Rate Index |  |  | Principal Amount |  |  |  |
|  |  |  |  | $ |  |  | $ |  |  | (years) |  |  | (%) (1) |
LIBOR-Based Debt: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Dollar-denominated interest rate swaps (2) |  |  | LIBOR |  |  |  | 408,143 |  |  |  | (79,307 | ) |  |  | 23.6 |  |  |  | 4.9 |
U.S. Dollar-denominated interest rate swaps (3) |  |  | LIBOR |  |  |  | 2,923,688 |  |  |  | (391,903 | ) |  |  | 7.0 |  |  |  | 4.2 |
U.S. Dollar-denominated interest rate swaps (4) |  |  | LIBOR |  |  |  | 713,672 |  |  |  | 8,661 |  |  |  | 3.2 |  |  |  | 1.4 |
U.S. Dollar-denominated interest rate swaps (5) |  |  | LIBOR |  |  |  | 98,500 |  |  |  | (415 | ) |  |  | 0.4 |  |  |  | 1.1 |
LIBOR-Based Restricted Cash Deposit: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Dollar-denominated interest rate swaps (2) |  |  | LIBOR |  |  |  | 469,018 |  |  |  | 108,605 |  |  |  | 23.6 |  |  |  | 4.8 |
EURIBOR-Based Debt: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Euro-denominated interest rate swaps (6) (7) |  |  | EURIBOR |  |  |  | 329,480 |  |  |  | (31,387 | ) |  |  | 7.5 |  |  |  | 3.1 |
|  |  |  |  |  |  |  |  |  |  | (385,746 | ) |  |  |  |  |  |  |  |
(1) | Excludes the margins the Company pays on its variable-rate debt, which, as of June 30, 2013, ranged from 0.3% to 4.5%.
(2) | Principal amount reduces quarterly.
(3) | Principal amount of $200 million is fixed at 2.14%, unless LIBOR exceeds 6%, in which case the Company pays a floating rate of interest.
(4) | Inception date of swaps are 2013 ($413.7 million) and 2014 ($300.0 million).
(5) | The floating LIBOR rate receivable is capped at 3.5%, which effectively results in a fixed rate of 1.12% unless LIBOR exceeds 3.5%, in which case the Company’s related interest rate effectively floats at LIBOR reduced by 2.38%.
(6) | Principal amount reduces monthly to 70.1 million Euros ($91.2 million) by the maturity dates of the swap agreements.
(7) | Principal amount is the U.S. Dollar equivalent of 253.3 million Euros.
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 June 30, 2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives designated as a cash flow hedge: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (142 | ) |  |  | — |
Derivatives not designated as a cash flow hedge: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  |  | 161 |  |  |  | 1 |  |  |  | — |  |  |  | (4,238 | ) |  |  | (453 | )
Interest rate swap agreements |  |  | 22,336 |  |  |  | 96,582 |  |  |  | (22,033 | ) |  |  | (175,596 | ) |  |  | (307,035 | )
Cross currency swap agreements |  |  | 909 |  |  |  | — |  |  |  | 222 |  |  |  | (748 | ) |  |  | (41,346 | )
|  |  | 23,406 |  |  |  | 96,583 |  |  |  | (21,811 | ) |  |  | (180,724 | ) |  |  | (348,834 | )
As at December 31, 2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives designated as a cash flow hedge: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  |  | 441 |  |  |  | — |  |  |  | — |  |  |  | (1 | ) |  |  | — |
Derivatives not designated as a cash flow hedge: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency contracts |  |  | 2,506 |  |  |  | — |  |  |  | — |  |  |  | (60 | ) |  |  | — |
Interest rate swap agreements |  |  | 16,927 |  |  |  | 144,247 |  |  |  | (22,312 | ) |  |  | (115,774 | ) |  |  | (525,225 | )
Cross currency swap agreements |  |  | 11,795 |  |  |  | 4,334 |  |  |  | 719 |  |  |  | — |  |  |  | (2,962 | )
|  |  | 31,669 |  |  |  | 148,581 |  |  |  | (21,593 | ) |  |  | (115,835 | ) |  |  | (528,187 | )
As at June 30, 2013, the Company had multiple interest rate swaps and cross currency swaps with the same counterparty that are subject to the same master agreement. Each of these master agreements provides for the net settlement of all swaps subject to that master agreement through a single payment in the event of default or termination of any one swap. The fair value of these interest rate swaps are presented on a gross basis in the Company’s consolidated balance sheets. As at June 30, 2013, these interest rate swaps and cross currency swaps had an aggregate fair value asset amount of $111.5 million and an aggregate fair value liability amount of $395.1 million. Realized and unrealized (losses) gains from derivative instruments that are not designated for accounting purposes as cash flow hedges are recognized in earnings and reported in realized and unrealized gain (loss) on non-designated derivatives in the consolidated statements of income (loss). The effect of the gain (loss) on derivatives not designated as hedging instruments in the consolidated statements of income (loss) are as follows:
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |
|  | $ |  |  | $ |  |  | $ |  |  | $ |
Realized (losses) gains relating to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  |  | (30,899 | ) |  |  | (29,669 | ) |  |  | (61,251 | ) |  |  | (60,085 | )
Interest rate swap agreement terminations |  |  | (4,187 | ) |  |  | — |  |  |  | (4,187 | ) |  |  | — |
Foreign currency forward contracts |  |  | (1,873 | ) |  |  | 147 |  |  |  | (1,452 | ) |  |  | 1,384 |
Foinaven embedded derivative |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11,452 |
|  |  | (36,959 | ) |  |  | (29,522 | ) |  |  | (66,890 | ) |  |  | (47,249 | )
Unrealized gains (losses) relating to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap agreements |  |  | 96,911 |  |  |  | (58,425 | ) |  |  | 116,115 |  |  |  | (41,290 | )
Foreign currency forward contracts |  |  | (3,917 | ) |  |  | (6,651 | ) |  |  | (6,979 | ) |  |  | 2,141 |
Foinaven embedded derivative |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,385 | )
|  |  | 92,994 |  |  |  | (65,076 | ) |  |  | 109,136 |  |  |  | (42,534 | )
Total realized and unrealized gains (losses) on derivative instruments |  |  | 56,035 |  |  |  | (94,598 | ) |  |  | 42,246 |  |  |  | (89,783 | )
Realized and unrealized gains of the cross currency swaps are recognized in earnings and reported in foreign currency exchange gain (loss) in the consolidated statements of income (loss). The effect of the gain (loss) on cross currency swaps on the consolidated statements of income (loss) is as follows:
|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2013 |  |  | 2012 |  |  | 2013 |  |  | 2012 |
|  | $ |  |  | $ |  |  | $ |  |  | $ |
Realized gain on partial termination of cross currency swap |  |  | — |  |  |  | — |  |  |  | 6,800 |  |  |  | — |
Realized gains |  |  | 503 |  |  |  | 744 |  |  |  | 1,565 |  |  |  | 1,738 |
Unrealized losses |  |  | (16,399 | ) |  |  | (21,046 | ) |  |  | (54,353 | ) |  |  | (13,167 | )
Total realized and unrealized losses on cross currency swaps |  |  | (15,896 | ) |  |  | (20,302 | ) |  |  | (45,988 | ) |  |  | (11,429 | )
As at June 30, 2013, the Company’s accumulated other comprehensive loss included $0.2 million of unrealized losses on foreign currency forward contracts designated as cash flow hedges. As at June 30, 2013, the Company estimated, based on then current foreign exchange rates, that it would reclassify approximately $0.2 million of net losses on foreign currency forward contracts from accumulated other comprehensive loss to earnings during the next 12 months. The Company is exposed to credit loss to the extent the fair value represents an asset in the event of non-performance by the counterparties to the foreign currency forward contracts, and cross currency and interest rate swap agreements; however, the Company does not anticipate non-performance by any of the counterparties. In order to minimize counterparty risk, the Company only enters into derivative transactions with counterparties that are rated A- or better by Standard & Poor’s or A3 or better by Moody’s at the time of the transaction. In addition, to the extent possible and practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 + Details
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