XML 29 R22.htm IDEA: XBRL DOCUMENT
v3.5.0.2

Derivative Instruments and Hedging Activities | 6 Months Ended
--- | ---
Jun. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | 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. As at June 30, 2016, the Company was committed to the following foreign currency forward contracts:
|  |  |  |  | Fair Value / Carrying Amount Of Asset (Liability) $ |  | Expected Maturity
| Contract Amount in Foreign Currency |  | Average Forward Rate (1) |  |  | 2016 |  | 2017
|  |  |  | $ |  | $
Euro | 4,500 |  |  | 0.92 |  |  | 124 |  |  | 4,886 |  |  | — |
Norwegian Kroner | 762,500 |  |  | 8.02 |  |  | (3,869 | ) |  | 47,151 |  |  | 47,947 |
Singapore Dollar | 19,637 |  |  | 1.35 |  |  | (17 | ) |  | 14,592 |  |  | — |
|  |  |  |  | (3,762 | ) |  | 66,629 |  |  | 47,947 |
(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. 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 2017 through 2020. In addition, the cross currency swaps economically hedge the interest rate exposure on the NOK bonds due in 2017 through 2020. The Company has not designated, for accounting purposes, these cross currency swaps as cash flow hedges of its NOK-denominated bonds due in 2017 through 2020. As at June 30, 2016, the Company was committed to the following cross currency swaps:
|  |  |  |  |  |  |  |  |  | Fair Value / Carrying Amount of Asset / (Liability) $ |  |
Notional Amount NOK |  | Notional Amount USD |  | Floating Rate Receivable |  |  |  |  |
|  | Reference Rate |  | Margin |  | Fixed Rate Payable |  |  | Remaining (Term (years)
700,000 |  | 125,000 |  |  | NIBOR |  | 5.25 | % |  | 6.88 | % |  | (44,079 | ) |  | 0.8
900,000 |  | 150,000 |  |  | NIBOR |  | 4.35 | % |  | 6.43 | % |  | (48,959 | ) |  | 2.2
1,000,000 |  | 134,000 |  |  | NIBOR |  | 3.70 | % |  | 5.92 | % |  | (20,923 | ) |  | 3.9
600,000 (1)(2) |  | 101,351 |  |  | NIBOR |  | 5.75 | % |  | 8.84 | % |  | (34,817 | ) |  | 2.4
800,000 (1)(3) |  | 143,536 |  |  | NIBOR |  | 5.75 | % |  | 7.58 | % |  | (55,132 | ) |  | 2.5
1,000,000 |  | 162,200 |  |  | NIBOR |  | 4.25 | % |  | 7.45 | % |  | (54,658 | ) |  | 2.6
|  |  |  |  |  |  |  |  |  | (258,568 | ) |  |
(1) | Notional amount reduces equally with NOK bond repayments (see note 8).
(2) | Excludes an economic hedge on the foreign currency exposure for a three percent premium upon maturity of the NOK bonds which exchanges NOK 7.2 million for $1.2 million (see note 8).
(3) | Excludes an economic hedge on the foreign currency exposure for a three percent premium upon maturity of the NOK bonds which exchanges NOK 19.2 million for $3.4 million (see note 8).
Interest Rate Risk The Company enters into interest rate swap agreements, which exchange a receipt of floating interest for a payment of fixed interest, to reduce the Company’s exposure to interest rate variability on its outstanding floating-rate debt. The Company designates certain of its interest rate swap agreements as cash flow hedges for accounting purposes. As at June 30, 2016, the Company was committed to the following interest rate swap agreements related to its LIBOR-based debt and EURIBOR-based debt, whereby certain of the Company’s floating-rate debt were swapped with fixed-rate obligations:
| Interest Rate Index |  | Principal Amount |  | Fair Value / Carrying Amount of Asset / (Liability) $ |  | Weighted- Average Remaining Term (years) |  | Fixed Interest Rate (%) (1)
LIBOR-Based Debt: |  |  |  |  |  |  |  |  |
U.S. Dollar-denominated interest rate swaps (2) | LIBOR |  | 3,219,730 |  |  | (411,210 | ) |  | 4.9 |  | 3.3
U.S. Dollar-denominated interest rate swaps (3) | LIBOR |  | 762,957 |  |  | (47,498 | ) |  | 4.9 |  | 2.6
U.S. Dollar-denominated interest rate swaption (4) | LIBOR |  | 155,000 |  |  | (8,404 | ) |  | 0.8 |  | 2.2
U.S. Dollar-denominated interest rate swaption (4) | LIBOR |  | 155,000 |  |  | 113 |  |  | 0.8 |  | 3.3
U.S. Dollar-denominated interest rate swaption (5) | LIBOR |  | 160,000 |  |  | (7,168 | ) |  | 1.6 |  | 2.0
U.S. Dollar-denominated interest rate swaption (5) | LIBOR |  | 160,000 |  |  | 742 |  |  | 1.6 |  | 3.1
U.S. Dollar-denominated interest rate swaption (6) | LIBOR |  | 160,000 |  |  | (6,091 | ) |  | 2.0 |  | 1.8
U.S. Dollar-denominated interest rate swaption (6) | LIBOR |  | 160,000 |  |  | 1,268 |  |  | 2.0 |  | 2.9
EURIBOR-Based Debt: |  |  |  |  |  |  |  |  |
Euro-denominated interest rate swaps (7) (8) | EURIBOR |  | 239,792 |  |  | (41,247 | ) |  | 4.5 |  | 3.1
|  |  |  |  | (519,495 | ) |  |  |  |
(1) | Excludes the margins the Company pays on its variable-rate debt, which, as of June 30, 2016, ranged from 0.3% to 4.00%.
(2) | Includes a swap in which the 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.
(3) | Inception dates range from July 2016 to April 2018. Interest rate swaps with an aggregate principal amount of $320 million are being used to economically hedge expected interest payments on new debt that is planned to be outstanding from 2017 to 2024. These interest rate swaps are subject to mandatory early termination in 2017 and 2018 whereby the swaps will be settled based on their fair value at that time.
(4) | During June 2015, as part of its hedging program, Teekay LNG entered into interest rate swaption agreements whereby it has a one-time option in April 2017 to enter into an interest rate swap at a fixed rate of 3.34% with a third party, and the third party has a one-time option in April 2017 to require Teekay LNG to enter into an interest swap at a fixed rate of 2.15%. If Teekay LNG or the third party exercises its option, there will be a cash settlement in April 2017 for the fair value of the interest rate swap, in lieu of taking delivery of the actual interest rate swap.
(5) | During August 2015, as part of its hedging program, Teekay LNG entered into interest rate swaption agreements whereby it has a one-time option in January 2018 to enter into an interest rate swap at a fixed rate of 3.10% with a third party, and the third party has a one-time option in January 2018 to require Teekay LNG to enter into an interest rate swap at a fixed rate of 1.97%. If Teekay LNG or the third party exercises its option, there will be a cash settlement in January 2018 for the fair value of the interest rate swap in lieu of taking delivery of the actual interest rate swap.
(6) | During October 2015, as part of its hedging program, Teekay LNG entered into interest rate swaption agreements whereby it has a one-time option in July 2018 to enter into an interest rate swap at a fixed rate of 2.935% with a third party, and the third party has a one-time option in July 2018 to require Teekay LNG to enter into an interest rate swap at a fixed rate of 1.83%. If Teekay LNG or the third party exercises its option, there will be a cash settlement in July 2018 for the fair value of the interest rate swap in lieu of taking delivery of the actual interest rate swap.
(7) | Principal amount reduces monthly to 70.1 million Euros ($77.9 million) by the maturity dates of the swap agreements.
(8) | Principal amount is the U.S. Dollar equivalent of 215.9 million Euros.
Stock Purchase Warrants In January 2014, Teekay and Teekay Tankers formed TIL. Teekay and Teekay Tankers purchased an aggregate of 5.0 million shares of TIL’s common stock, representing an initial 20% interest in TIL, as part of a $250 million private placement by TIL, which represents a total investment by Teekay and Teekay Tankers of $50.0 million. In addition, Teekay and Teekay Tankers received stock purchase warrants entitling them to purchase an aggregate of up to 1.5 million shares of common stock of TIL at a fixed price of $10 per share. Alternatively, if the shares of TIL’s common stock trade on a national securities exchange or over-the-counter market denominated in NOK, Teekay and Teekay Tankers may also exercise their stock purchase warrants at 61.67 NOK per share. The estimated fair value of the warrants on issuance was $6.8 million and was included in other income in the consolidated statements of (loss) income. The stock purchase warrants vest in four equally sized tranches and as at June 30, 2016, two tranches have vested. If the shares of TIL’s common stock trade on a national securities exchange or over-the-counter market denominated in NOK, each tranche will vest and become exercisable when and if the fair market value of a share of TIL’s common stock equals or exceeds 77.08 NOK, 92.50 NOK, 107.91 NOK and 123.33 NOK, respectively, for such tranche for any ten consecutive trading days. The stock purchase warrants expire on January 23, 2019. The fair value of the stock purchase warrants at June 30, 2016 was $1.8 million. The Company reports the unrealized gains from the stock purchase warrants in realized and unrealized losses on non-designated derivatives in the consolidated statements of (loss) income. Time-charter Swap Effective June 1, 2016, Teekay Tankers entered into a time-charter swap agreement for 55% of two Aframax-equivalent vessels. Under such agreement, Teekay Tankers will receive $27,776 per day, net of a 1.25% brokerage commission, and pay 55% of the net revenue distribution of two Aframax-equivalent vessels employed in Teekay Tankers' Aframax revenue sharing pooling arrangement, less $500 per day, for a period of 11 months plus an additional two months at the counterparty's option. The purpose of the agreement is to reduce Teekay Tankers’ exposure to spot tanker market rate variability for certain of its vessels that are employed in the Aframax revenue sharing pooling arrangement. Teekay Tankers has not designated, for accounting purposes, the time-charter swap as a cash flow hedge. 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.
| Prepaid Expenses and Other |  | Other Non-Current Assets |  | Accrued Liabilities |  | Current Portion of Derivative Liabilities |  | Derivative Liabilities
| $ |  | $ |  | $ |  | $ |  | $
As at June 30, 2016 |  |  |  |  |  |  |  |  |
Derivatives designated as a cash flow hedge: |  |  |  |  |  |  |  |  |
Interest rate swap agreements | — |  |  | — |  |  | (184 | ) |  | (760 | ) |  | (14,436 | )
Derivatives not designated as a cash flow hedge: |  |  |  |  |  |  |  |  |
Foreign currency contracts | 432 |  |  | 347 |  |  | — |  |  | (4,513 | ) |  | (28 | )
Interest rate swap agreements | 113 |  |  | 2,009 |  |  | (14,891 | ) |  | (79,293 | ) |  | (412,053 | )
Cross currency swap agreements | — |  |  | — |  |  | (3,048 | ) |  | (69,600 | ) |  | (185,920 | )
Stock purchase warrants | — |  |  | 1,833 |  |  | — |  |  | — |  |  | — |
Time-charter swap agreement | 1,345 |  |  | — |  |  | — |  |  | — |  |  | — |
| 1,890 |  |  | 4,189 |  |  | (18,123 | ) |  | (154,166 | ) |  | (612,437 | )
As at December 31, 2015 |  |  |  |  |  |  |  |  |
Derivatives designated as a cash flow hedge: |  |  |  |  |  |  |  |  |
Interest rate swap agreements | — |  |  | — |  |  | — |  |  | (338 | ) |  | (777 | )
Derivatives not designated as a cash flow hedge: |  |  |  |  |  |  |  |  |
Foreign currency contracts | 80 |  |  | — |  |  | — |  |  | (16,372 | ) |  | (2,534 | )
Interest rate swap agreements | — |  |  | 7,516 |  |  | (18,348 | ) |  | (198,196 | ) |  | (154,673 | )
Cross currency swap agreements | — |  |  | — |  |  | (3,377 | ) |  | (52,633 | ) |  | (256,100 | )
Stock purchase warrants | — |  |  | 10,328 |  |  | — |  |  | — |  |  | — |
| 80 |  |  | 17,844 |  |  | (21,725 | ) |  | (267,539 | ) |  | (414,084 | )
As at June 30, 2016, the Company had multiple interest rate swaps, cross currency swaps and foreign currency forward contracts with the same counterparty that are subject to the same master agreements. Each of these master agreements provides for the net settlement of all derivatives subject to that master agreement through a single payment in the event of default or termination of any one derivative. The fair value of these derivatives is presented on a gross basis in the Company’s consolidated balance sheets. As at June 30, 2016, these derivatives had an aggregate fair value asset amount of nil and an aggregate fair value liability amount of $625.8 million. As at June 30, 2016, the Company had $70.1 million on deposit with the relevant counterparties as security for swap liabilities under certain master agreements. The deposit is presented in restricted cash on the consolidated balance sheets. For the periods indicated, the following table presents the effective portion of gains (losses) on interest rate swap agreements designated and qualifying as cash flow hedges:
Three Months Ended June 30, 2016 |
Effective Portion |  | Effective Portion | Ineffective |
Recognized in AOCI(1) |  | Reclassified from AOCI(2) | Portion(3) |
$ |  | $ | $ |
(5,458 | ) |  | — |  | 1,291 |  | Interest expense
(5,458 | ) |  | — |  | 1,291 |  |
Six Months Ended June 30, 2016 |
Effective Portion |  | Effective Portion | Ineffective |
Recognized in AOCI(1) |  | Reclassified from AOCI(2) | Portion(3) |
(14,025 | ) |  | — |  | (56 | ) | Interest expense
(14,025 | ) |  | — |  | (56 | ) |
(1) Recognized in accumulated other comprehensive (loss) income (or AOCI). (2) Recorded in AOCI during the term of the hedging relationship and reclassified to earnings. (3) Recognized in the ineffective portion of gains (losses) on derivative instruments designated and qualifying as cash flow hedges. Realized and unrealized gains and (losses) from derivative instruments that are not designated for accounting purposes as cash flow hedges are recognized in earnings and reported in realized and unrealized losses on non-designated derivatives in the consolidated statements of (loss) income. The effect of the gains and (losses) on derivatives not designated as hedging instruments in the consolidated statements of (loss) income are as follows:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
| $ |  | $ |  | $ |  | $
Realized (losses) gains relating to: |  |  |  |  |  |  |
Interest rate swap agreements | (22,409 | ) |  | (27,205 | ) |  | (45,589 | ) |  | (55,094 | )
Interest rate swap agreement terminations | — |  |  | — |  |  | (8,140 | ) |  | — |
Foreign currency forward contracts | (2,336 | ) |  | (4,232 | ) |  | (7,332 | ) |  | (9,660 | )
Time charter swap agreement | 126 |  |  | — |  |  | 126 |  |  | — |
| (24,619 | ) |  | (31,437 | ) |  | (60,935 | ) |  | (64,754 | )
Unrealized (losses) gains relating to: |  |  |  |  |  |  |
Interest rate swap agreements | (62,817 | ) |  | 83,986 |  |  | (143,871 | ) |  | 40,326 |
Foreign currency forward contracts | 1,093 |  |  | 9,386 |  |  | 15,064 |  |  | 3,057 |
Stock purchase warrants | (4,274 | ) |  | 1,817 |  |  | (8,496 | ) |  | 1,737 |
Time charter swap agreement | 1,345 |  |  | — |  |  | 1,345 |  |  | — |
| (64,653 | ) |  | 95,189 |  |  | (135,958 | ) |  | 45,120 |
Total realized and unrealized (losses) gains on derivative instruments | (89,272 | ) |  | 63,752 |  |  | (196,893 | ) |  | (19,634 | )
Realized and unrealized gains (losses) of the cross currency swaps are recognized in earnings and reported in foreign currency exchange (loss) gain in the consolidated statements of income. The effect of the gains (losses) on cross currency swaps on the consolidated statements of income (loss) is as follows:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2016 |  | 2015 |  | 2016 |  | 2015
| $ |  | $ |  | $ |  | $
Realized losses on termination of cross currency swaps | — |  |  | — |  |  | (32,628 | ) |  | — |
Realized losses | (5,000 | ) |  | (3,771 | ) |  | (9,939 | ) |  | (7,934 | )
Unrealized (losses) gains | (20,993 | ) |  | 13,501 |  |  | 53,213 |  |  | (42,152 | )
Total realized and unrealized (losses) gains on cross currency swaps | (25,993 | ) |  | 9,730 |  |  | 10,646 |  |  | (50,086 | )
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.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: 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=56946850&loc=SL5624171-113959 Reference 3: 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=56946850&loc=d3e41620-113959 Reference 4: 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=56946850&loc=SL5624163-113959 Reference 5: 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=56946850&loc=SL5579240-113959 Reference 6: 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=56946850&loc=SL5624177-113959 Reference 7: 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=35736893&loc=d3e80784-113994 Reference 8: 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=56946850&loc=d3e41641-113959 Reference 9: 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=56946850&loc=SL5579245-113959 Reference 10: 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=56946850&loc=SL5624258-113959 Reference 11: 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=35736893&loc=d3e80748-113994 Reference 12: 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=56946850&loc=SL5708775-113959 Reference 13: 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=56946850&loc=SL5708773-113959 Reference 14: 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=56946850&loc=SL5618551-113959 Reference 15: 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=56946850&loc=SL5580258-113959 Reference 16: 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=56946850&loc=SL5624181-113959 Reference 17: 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 18: 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=56946850&loc=d3e41638-113959 Reference 19: 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 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration