##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F
  o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 For the transition period from  to
 Commission file number 1-12874
 TEEKAY CORPORATION
  
 th
  th
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value of $0.001 per share
    
    New York Stock Exchange
        þ o
  o þ
  þ o
  Large Accelerated Filer þ
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
  U.S. GAAP þ
    
    International Financial Reporting Standards as
    
    Other oissued by the International AccountingStandards Board o
  o o
  o þ




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##### 



TEEKAY CORPORATION
INDEX TO REPORT ON FORM 20-F
 PagePART I.Item 1. Identity of Directors, Senior Management and Advisors
    
    
    Not applicableItem 2. Offer Statistics and Expected Timetable
    
    
    Not applicableItem 3. Key Information
    
    
    4Item 4. Information on the Company
    
    
    12Item 4A. Unresolved Staff Comments
    
    
    25Item 5. Operating and Financial Review and Prospects
    
    
    25Item 6. Directors, Senior Management and Employees
    
    
    47Item 7. Major Shareholders and Related Party Transactions
    
    
    51Item 8. Financial Information
    
    
    52Item 9. The Offer and Listing
    
    
    53Item 10. Additional Information
    
    
    53Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    56Item 12. Description of Securities Other than Equity Securities
    
    
    Not applicablePART II.Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    58Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    58Item 15. Controls and Procedures
    
    
    58Item 16A. Audit Committee Financial Expert
    
    
    59Item 16B. Code of Ethics
    
    
    59Item 16C. Principal Accountant Fees and Services
    
    
    59Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    59Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    59PART III.Item 17. Financial Statements
    
    
    Not applicableItem 18. Financial Statements
    
    
    60Item 19. Exhibits
    
    
    60Signature
    
    
    62Exhibit 1.1Exhibit 1.2Exhibit 4.15Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 23.1
   2




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##### Table of Contents



PART I
 This Annual Report should be read in conjunction with the consolidated financial statements and
accompanying notes included in this report.
  
    
    our growth prospects and strategic position;
    
    expected increases in compensation costs;
    
    tanker market fundamentals, including the balance of supply and demand in the tanker
market, spot tanker charter rates, OPEC and non-OPEC oil production;
    
    expected demand in the offshore oil production sector and the demand for vessels;
    
    our expected benefits of the OMI acquisition;
    
    the sufficiency of our working capital for short-term liquidity requirements;
    
    future capital expenditure commitments and the financing requirements for such
commitments;
    
    the appropriateness of our liability insurance;
    
    delivery dates of and financing for newbuildings, and the commencement of service of
newbuildings under long-term time-charter contacts;
    
    future cash flow from vessel operations;
    
    the adequacy of restricted cash deposits to fund capital lease obligations;
    
    our ability to capture some of the value from the volatility of the spot tanker market
and from market imbalances by utilizing freight forward agreements;
    
    the ability of the counterparties to our derivative contracts to fulfill their
contractual obligations;
    
    growth prospects of the LNG shipping sector and including increased competition;
    
    our ability to utilize the recently acquired LNG vessels in a new service offering after
the expiry of the current time-charter in April 2009;
    
    the expected impact of International Maritime Organization and other regulations, as
well as our expected compliance with such regulations and the cost thereof;
    
    the expected lifespans of our vessels;
    
    the expected impact of heightened environmental and quality concerns of insurance
underwriters, regulators and charterers;
    
    the growth of the global economy and global oil demand;
    
    our exemption to tax on our U.S. source international transportation income;
    
    results of our discussions with a customer to adjust the rate under one of our floating
production, storage and offloading contracts and the potential of a required write-down of
the carrying cost of the vessel and related goodwill;
    
    our ability to competitively pursue new floating production, storage and offloading
projects; and
    
    our competitive positions in the shuttle tanker market and in the Aframax and Suezmax
tanker market.
   3




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##### Table of Contents



Item 1. Identity of Directors, Senior Management and Advisors
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 Selected Financial Data
  GAAP
 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands, except share data and ratios)Income Statement Data:Revenues
    
    
    2,406,622
    
    
    
    2,013,306
    
    
    
    1,954,618
    
    
    
    2,219,238
    
    
    
    1,576,095Total operating expenses (1)
    
    
    (2,008,718
    )
    
    
    (1,591,457
    )
    
    
    (1,322,842
    )
    
    
    (1,398,052
    )
    
    
    (1,283,131
    )Income from vessel operations
    
    
    397,904
    
    
    
    421,849
    
    
    
    631,776
    
    
    
    821,186
    
    
    
    292,964Interest expense
    
    
    (287,558
    )
    
    
    (171,643
    )
    
    
    (132,428
    )
    
    
    (121,518
    )
    
    
    (80,999
    )Interest income
    
    
    82,158
    
    
    
    56,224
    
    
    
    33,943
    
    
    
    18,528
    
    
    
    3,921Foreign exchange (loss) gain
    
    
    (22,106
    )
    
    
    (45,382
    )
    
    
    59,810
    
    
    
    (42,704
    )
    
    
    (3,855
    )Minority interest expense
    
    
    (9,663
    )
    
    
    (441
    )
    
    
    (16,628
    )
    
    
    (2,268
    )
    
    
    (3,339
    )Other  net
    
    
    20,516
    
    
    
    1,637
    
    
    
    (5,573
    )
    
    
    84,216
    
    
    
    (31,328
    )Net income
    
    
    181,251
    
    
    
    262,244
    
    
    
    570,900
    
    
    
    757,440
    
    
    
    177,364Per Common Share Data:Net income  basic (2)
    
    $
    2.47
    
    
    $
    3.58
    
    
    $
    7.30
    
    
    $
    9.14
    
    
    $
    2.22Net income  diluted (2)
    
    
    2.43
    
    
    
    3.49
    
    
    
    6.83
    
    
    
    8.63
    
    
    
    2.18Cash dividends declared (2)
    
    
    0.9875
    
    
    
    0.8600
    
    
    
    0.6200
    
    
    
    0.5125
    
    
    
    0.4475Balance Sheet Data (at end of year):Cash and cash equivalents
    
    $
    442,673
    
    
    $
    343,914
    
    
    $
    236,984
    
    
    $
    427,037
    
    
    $
    387,795Restricted cash
    
    
    686,196
    
    
    
    679,992
    
    
    
    311,084
    
    
    
    448,812
    
    
    
    2,672Vessels and equipment
    
    
    6,846,875
    
    
    
    5,308,068
    
    
    
    3,721,674
    
    
    
    3,531,287
    
    
    
    2,574,860Total assets
    
    
    10,060,153
    
    
    
    7,733,476
    
    
    
    5,294,100
    
    
    
    5,503,740
    
    
    
    3,588,044Total debt (including capital lease obligations)
    
    
    5,760,270
    
    
    
    3,719,683
    
    
    
    2,432,978
    
    
    
    2,744,545
    
    
    
    1,636,758Capital stock and additional paid in capital
    
    
    628,786
    
    
    
    596,712
    
    
    
    471,784
    
    
    
    534,938
    
    
    
    492,653Total stockholders equity
    
    
    2,687,870
    
    
    
    2,528,222
    
    
    
    2,236,542
    
    
    
    2,237,358
    
    
    
    1,651,827Number of outstanding shares of common stock (2)
    
    
    72,772,529
    
    
    
    72,831,923
    
    
    
    71,375,593
    
    
    
    82,951,275
    
    
    
    81,222,350Other Financial Data:Net revenues(3)
    
    $
    1,878,442
    
    
    $
    1,491,189
    
    
    $
    1,535,449
    
    
    $
    1,786,843
    
    
    $
    1,181,439Net operating cash flow
    
    
    255,018
    
    
    
    520,785
    
    
    
    594,949
    
    
    
    814,704
    
    
    
    455,575Total debt to total capitalization (4) (5)
    
    
    64.2
    %
    
    
    55.5
    %
    
    
    49.1
    %
    
    
    54.9
    %
    
    
    49.5
    %Net debt to total net capitalization (5) (6)
    
    
    59.0
    %
    
    
    47.5
    %
    
    
    42.8
    %
    
    
    45.3
    %
    
    
    44.5
    %Capital expenditures:Vessel and equipment purchases, gross (7)
    
    $
    910,304
    
    
    $
    442,470
    
    
    $
    555,142
    
    
    $
    548,587
    
    
    $
    372,433
 (1)
    
    Total operating expenses include (gain) / loss on sale of vessels and equipment  net of
write-downs, and restructuring charges as follows: 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands)(Gain) / loss on sale of vessels and
equipment  net of write-downs
    
    $
    (18,630
    )
    
    $
    (1,341
    )
    
    $
    (139,184
    )
    
    $
    (79,254
    )
    
    $
    90,389Restructuring charges
    
    
    
    
    
    
    8,929
    
    
    
    2,882
    
    
    
    1,002
    
    
    
    6,383(18,630
    )
    
    
    7,588
    
    
    
    (136,302
    )
    
    
    (78,252
    )
    
    
    96,772
  4




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##### Table of Contents



(2)
    
    On May 17, 2004, we effected a two-for-one stock split relating to our common stock. All
relevant per share data and number of outstanding shares of common stock give effect to this
stock split retroactively.(3)
    
    Consistent with general practice in the shipping industry, we use net revenues (defined as
revenues less voyage expenses) as a measure of equating revenues generated from voyage
charters to revenues generated from time-charters, which assists us in making operating
decisions about the deployment of our vessels and their performance. Under time-charters the
charterer pays the voyage expenses, which are all expenses unique to a particular voyage,
including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal
tolls, agency fees and commissions, whereas under voyage-charter contracts the ship-owner pays
these expenses. Some voyage expenses are fixed, and the remainder can be estimated. If we, as
the ship-owner, pay the voyage expenses, we typically pass the approximate amount of these
expenses on to our customers by charging higher rates under the contract or billing the
expenses to them. As a result, although revenues from different types of contracts may vary,
the net revenues after subtracting voyage expenses, which we call net revenues, are
comparable across the different types of contracts. We principally use net revenues, a
non-GAAP financial measure, because it provides more meaningful information to us than
revenues, the most directly comparable GAAP financial measure. Net revenues are also widely
used by investors and analysts in the shipping industry for comparing financial performance
between companies and to industry averages. The following table reconciles net revenues with
revenues. 2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands)Revenues
    
    $
    2,406,622
    
    
    $
    2,013,306
    
    
    $
    1,954,618
    
    
    $
    2,219,238
    
    
    $
    1,576,095Voyage expenses
    
    
    (528,180
    )
    
    
    (522,117
    )
    
    
    (419,169
    )
    
    
    (432,395
    )
    
    
    (394,656
    )Net revenues
    
    
    1,878,442
    
    
    
    1,491,189
    
    
    
    1,535,449
    
    
    
    1,786,843
    
    
    
    1,181,439
 (4)
    
    Total capitalization represents total debt, minority interest and total stockholders equity.(5)
    
    Until February 16, 2006, we had $143.7 million of Premium Equity Participating Security Units
due May 18, 2006 (or Equity Units)outstanding. If these Equity Units were presented as
equity, our total debt to total capitalization would have been 46.2%, 52.1% and 45.2% as of
December 31, 2005, 2004 and 2003, respectively, and our net debt to total capitalization would
have been 39.5%, 41.9% and 39.8% as of December 31, 2005, 2004 and 2003, respectively. We
believe that this presentation as equity for the purposes of these calculations is consistent
with the requirement that each Equity Unit holder purchase for $25 a specified fraction of a
share of our common stock on February 16, 2006.(6)
    
    Net debt represents total debt less cash, cash equivalents, restricted cash and short-term
marketable securities. Total net capitalization represents net debt, minority interest and
total stockholders equity.(7)
    
    Excludes vessels purchased in connection with our acquisitions of Navion AS in 2003, Teekay
Shipping Spain S.L. (or Teekay Spain)in 2004, Teekay Petrojarl ASA (or Petrojarl) in 2006,
and 50% of OMI Corporation (or OMI) in 2007. Please read Item 5  Operating and Financial
Review and Prospects. Risk Factors
 The cyclical nature of the tanker industry may lead to volatile changes in charter rates, which may
adversely affect our earnings .
   
    
    demand for oil and oil products;
 
    
    supply of oil and oil products;
 
    
    regional availability of refining capacity;
 
    
    global and regional economic conditions;
 
    
    the distance oil and oil products are to be moved by sea; and
 
    
    changes in seaborne and other transportation patterns.
  
    
    the number of newbuilding deliveries;
 
    
    the scrapping rate of older vessels;
 
    
    conversion of tankers to other uses;
 
    
    the number of vessels that are out of service; and
 
    
    environmental concerns and regulations.
   5




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Changes in the oil and natural gas markets could result in decreased demand for our vessels and
services.
 LNG
 Terrorist attacks, increased hostilities or war could lead to further economic instability,
increased costs and disruption of our business.
 LPG
 Our substantial operations outside the United States expose us to political, governmental and
economic instability, which could harm our operations.
  Our dependence on spot voyages may result in significant fluctuations in the utilization of our
vessels and our profitability.
   Reduction in oil produced from offshore oil fields could harm our shuttle tanker and FPSO
businesses.
 FPSO
 
    
    geologic factors, including general declines in production that occur naturally over
time;
 
    
    the rate of technical developments in extracting oil and related infrastructure and
implementation costs; and
 
    
    operator decisions based on revenue compared to costs from continued operations.
   6




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The redeployment risk of FPSO units is high given their lack of alternative uses and significant
costs.
  The duration of many of our shuttle tanker and FSO contracts is the life of the relevant oil field
or is subject to extension by the field operator or vessel charterer. If the oil field no longer
produces oil or is abandoned or the contract term is not extended, we will no longer generate
revenue under the related contract and will need to seek to redeploy affected vessels.
 FSO
 Over time, the value of our vessels may decline, which could adversely affect our operating
results.
  Our growth depends on continued growth in demand for LNG and LPG and LNG and LPG shipping as well
as offshore oil transportation, production, processing and storage services.
    
    
    decreases in the actual or projected price of oil, which could lead to a reduction in or
termination of production of oil at certain fields we service or a reduction in exploration
for or development of new offshore oil fields;
 
    
    increases in the production of oil in areas linked by pipelines to consuming areas, the
extension of existing, or the development of new, pipeline systems in markets we may serve,
or the conversion of existing non-oil pipelines to oil pipelines in those markets;
 
    
    decreases in the consumption of oil due to increases in its price relative to other
energy sources, other factors making consumption of oil less attractive or energy
conservation measures;
 
    
    availability of new, alternative energy sources; and
 
    
    negative global or regional economic or political conditions, particularly in oil
consuming regions, which could reduce energy consumption or its growth.
  The intense competition in our markets may lead to reduced profitability or expansion
opportunities .
   7




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The loss of any key customer could result in a significant loss of revenue in a given period.
  Our substantial debt levels may limit our flexibility in obtaining additional financing and in
pursuing other business opportunities
  
    
    our ability to obtain additional financing, if necessary, for working capital, capital
expenditures, acquisitions or other purposes may be impaired or such financing may not be
available on favorable terms;
 
    
    we will need a substantial portion of our cash flow to make principal and interest
payments on our debt, reducing the funds that would otherwise be available for operations,
future business opportunities and dividends to stockholders;
 
    
    our debt level may make us more vulnerable than our competitors with less debt to
competitive pressures or a downturn in our industry or the economy generally; and
 
    
    our debt level may limit our flexibility in responding to changing business and economic
conditions.
  Financing agreements containing operating and financial restrictions may restrict our business and
financing activities.
  
    
    pay dividends;
    
    incur or guarantee indebtedness;
    
    change ownership or structure, including mergers, consolidations, liquidations and
dissolutions;
    
    grant liens on our assets;
    
    sell, transfer, assign or convey assets;
    
    make certain investments; and
    
    enter into a new line of business.
 
 Our operations are subject to substantial environmental and other regulations, which may
significantly increase our expenses.
   8




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OPA 90 IMO
  EPA
  We may be unable to make or realize expected benefits from acquisitions, and implementing our
strategy of growth through acquisitions may harm our financial condition and performance.
  
    
    interruption of, or loss of momentum in, the activities of one or more of an acquired
companys businesses and our businesses;
 
    
    additional demands on members of our senior management while integrating acquired
businesses, which would decrease the time they have to manage our existing business,
service existing customers and attract new customers;
 
    
    difficulties in integrating the operations, personnel and business culture of acquired
companies;
 
    
    difficulties of coordinating and managing geographically separate organizations;
 
    
    adverse effects on relationships with our existing suppliers and customers, and those of
the companies acquired;
 
    
    difficulties entering geographic markets or new market segments in which we have no or
limited experience; and
 
    
    loss of key officers and employees of acquired companies.
  The strain that growth places upon our systems and management resources may harm our business.
   9




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Our insurance may not be sufficient to cover losses that may occur to our property or as a result
of our operations.
    Marine transportation is inherently risky, and an incident involving significant loss of or
environmental contamination by any of our vessels could harm our reputation and business.
  
    
    marine disaster;
 
    
    bad weather;
 
    
    mechanical failures;
 
    
    grounding, fire, explosions and collisions;
 
    
    piracy;
 
    
    human error; and
 
    
    war and terrorism.
  
    
    death or injury to persons, loss of property or environmental damage or pollution;
 
    
    delays in the delivery of cargo;
 
    
    loss of revenues from or termination of charter contracts;
 
    
    governmental fines, penalties or restrictions on conducting business;
 
    
    higher insurance rates; and
 
    
    damage to our reputation and customer relationships generally.
  Our operating results are subject to seasonal fluctuations .
    10




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We expend substantial sums during construction of newbuildings and the conversion of tankers to
FPSOs or FSOs without earning revenue and without assurance that they will be completed.
    We make substantial capital expenditures to expand the size of our fleet. We generally are required
to make significant installment payments for acquisitions of newbuilding vessels prior to their
delivery and generation of revenue. Depending on whether we finance our expenditures through cash
from operations or by issuing debt or equity securities, our financial leverage could increase,
limiting our ability to pursue other business opportunities.
   Exposure to currency exchange rate and interest rate fluctuations results in fluctuations in our
cash flows and operating results.
   We may not be exempt from United States tax on our United States source income, which would reduce
our net income and cash flow by the amount of the applicable tax.
   Many seafaring employees are covered by collective bargaining agreements and the failure to renew
those agreements or any future labor agreements may disrupt operations and adversely affect our
cash flows.
   11




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We may be unable to attract and retain qualified, skilled employees or crew necessary to operate
our business.
  Maritime claimants could arrest our vessels, which could interrupt our cash flow.
  
 Item 4. Information on the Company
 A. Overview, History and Development
 Overview
 LNG Teekay LNG Teekay Offshore Petrojarl
 FSO FPSO dwt
    th
 Recent Business Acquisitions
 Acquisition of 50% of OMI Corporation
 OMI
   12




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Acquisition of Petrojarl ASA
 Petrojarl
  Public Offerings
 Initial Public Offering by Teekay Tankers Ltd.
 Teekay Tankers
 Initial Public Offering by Teekay Offshore Partners L.P.
 Teekay Offshore OPCO
 Public Offerings by Teekay LNG Partners L.P.
 Teekay LNG
 B. Operations
 Teekay Navion
Shuttle Tankers and Offshore and Petrojarl), Teekay Gas Services Teekay Tanker Services
 
    
    Teekay Navion Shuttle Tankers and Offshore and Petrojarl provides marine
transportation, processing and storage services to the offshore oil industry, including
shuttle tanker, FSO and FPSO services. Our expertise and partnerships allow us to create
solutions for customers producing crude oil from offshore installations.
 
    
    Teekay Gas Services provides gas transportation services, primarily under
long-term fixed-rate contracts to major energy and utility companies. These services
currently include the transportation of LNG and LPG.
 
    
    Teekay Tanker Services is responsible for the commercial management of our
conventional crude oil and product tanker transportation services. We offer a full range of
shipping solutions through our worldwide network of commercial offices.
 Offshore Segment
  
    
    offloading and transportation of cargo from oil field installations to onshore terminals
via dynamically positioned, offshore loading shuttle tankers;
 
    
    floating storage for oil field installations via FSO units; and
 
    
    floating production, processing and storage services via FPSO units.
  13




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Shuttle Tankers
    FSO Units
    FPSO Units
    14




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Liquefied Gas Segment
   th regasified
  cbm
   Spot Tanker Segment
     15




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VLCCs
     Fixed-Rate Tanker Segment
  Our Fleet
   Number of VesselsOwned
    
    
    Chartered-in
    
    
    NewbuildingsVessels
    
    
    Vessels
    
    
    /Conversions
    
    
    TotalOffshore SegmentShuttle Tankers
    
    
    27
    (1)
    
    
    13
    (2)
    
    
    4
    
    
    
    44FSO Units
    
    
    5
    (3)
    
    
    
    
    
    
    
    
    
    
    5FPSO Units
    
    
    4
    (4)
    
    
    
    
    
    
    1
    (5)
    
    
    5Total Offshore Segment
    
    
    36
    
    
    
    13
    
    
    
    5
    
    
    
    54Fixed-Rate Tanker SegmentConventional Tankers
    
    
    15
    (6)
    
    
    6
    
    
    
    2
    
    
    
    23Total Fixed-Rate Tanker Segment
    
    
    15
    
    
    
    6
    
    
    
    2
    
    
    
    23Liquefied Gas SegmentLNG Carriers
    
    
    9
    (7)
    
    
    
    
    
    
    10
    (8)
    
    
    19LPG Carriers
    
    
    1
    (9)
    
    
    
    
    
    
    3
    (9)
    
    
    4Total Liquefied Gas Segment
    
    
    10
    
    
    
    
    
    
    
    13
    
    
    
    23Spot Tanker SegmentSuezmax Tankers
    
    
    6
    (10)
    
    
    9
    
    
    
    10
    
    
    
    25Aframax Tankers
    
    
    20
    (11)
    
    
    16
    
    
    
    
    
    
    
    36Large Product Tankers
    
    
    14
    (12)
    
    
    7
    
    
    
    1
    
    
    
    22Small Product Tankers
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10Total Spot Tanker Segment
    
    
    40
    
    
    
    42
    
    
    
    11
    
    
    
    93Total
    
    
    101
    
    
    
    61
    
    
    
    31
    
    
    
    193
  16




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##### Table of Contents



(1)
    
    Includes 24 vessels owned by OPCO (including five through 50% controlled joint ventures), two
vessels owned by Teekay Offshore (including one through a 50% controlled joint venture), and
one owned by Petrojarl.(2)
    
    Includes 12 vessels chartered-in by OPCO.(3)
    
    Includes four FSO units owned by OPCO (including one through 89% joint venture) and one FSO
unit owned by Teekay Offshore.(4)
    
    Includes four FPSOs owned by Petrojarl.(5)
    
    Includes one vessel being converted to an FPSO by a 50/50 joint venture between Teekay and
Petrojarl.(6)
    
    Includes eight vessels owned by Teekay LNG and one vessel owned by Teekay Tankers.(7)
    
    Includes seven LNG carriers owned by Teekay LNG. Teekay LNG has agreed to acquire Teekays
100% interest in the remaining two vessels.(8)
    
    Includes Teekays 70% interest in two LNG newbuildings and its 40% interest in four LNG.
Teekay LNG has agreed to acquire these six vessels upon their delivery. Includes Teekays 33%
interest in four LNG newbuildings. Teekay is required to offer these vessels to Teekay LNG.(9)
    
    All vessels owned by Teekay LNG.
(10) Includes four Suezmax tankers that Teekay is required to offer Teekay Tankers.(11)
    
    Includes nine vessels owned by Teekay Offshore, all of which are chartered to Teekay and
seven vessels owned by Teekay Tankers.(12)
    
    Includes one product tanker owned by Teekay Tankers.     Safety, Management of Ship Operations and Administration
   ISO ISM
 OSM
   Risk of Loss and Insurance
   17




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##### Table of Contents



Operations Outside the United States
   Customers
  Classification, Audits and Inspections
 Intermediate Survey Special Survey
     
    
    adherence to our operating standards;
 
    
    the structural integrity of the vessel is being maintained;
 
    
    machinery and equipment is being maintained to give full reliability in service;
 
    
    we are optimizing performance in terms of speed and fuel consumption; and
 
    
    the vessels appearance will support our brand and meet customer expectations.
  18




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##### Table of Contents



Organizational Structure
  
    
    illuminate higher value of fixed-rate cash flows to Teekay investors;
 
    
    realize advantages of a lower cost of equity when investing in new offshore or LNG
projects; and
 
    
    enhance returns to Teekay through fee-based revenue and ownership of the limited
partnerships incentive distribution rights, which entitle the holder to disproportionate
distributions of available cash as cash distribution levels to unitholders increase.
  
 (1)
    
    Partnership is controlled by the General Partner. Teekay Corporation has a 100% beneficial
ownership in the General Partner. However in certain limited cases, approval of a majority of
the common unit holders is required to approve certain actions.(2)
    
    Proportion of voting power held is 53%.(3)
    
    Including our 64.5% interest in Teekay Petrojarl.   19




---



##### Table of Contents



C. Regulations
   RegulationInternational Maritime Organization (or IMO ).
 
    
    tankers between 25 and 30 years old must be of double-hull construction or of a
mid-deck design with double-side construction, unless they have wing tanks or
double-bottom spaces not used for the carriage of oil, which cover at least 30% of the
length of the cargo tank section of the hull, or are capable of hydrostatically balanced
loading which ensures at least the same level of protection against oil spills in the
event of collision or stranding;
    
    tankers 30 years old or older must be of double-hull construction or mid-deck design
with double-side construction; and
    
    all tankers are subject to enhanced inspections.
  
    
    is the subject of a contract for a major conversion or original construction on or
after July 6, 1993;
    
    commences a major conversion or has its keel laid on or after January 6, 1994; or
    
    completes a major conversion or is a newbuilding delivered on or after July 6, 1996.
    20




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##### Table of Contents



SOLAS ISPS MARPOL
Convention IGC Code DP
    Environmental Regulations  United States Regulations. OPA 90 CERCLA
  
    
    natural resources damages and the related assessment costs;
    
    real and personal property damages;
    
    net loss of taxes, royalties, rents, fees and other lost revenues;
    
    lost profits or impairment of earning capacity due to property or natural resources
damage;
    
    net cost of public services necessitated by a spill response, such as protection from
fire, safety or health hazards; and
    
    loss of subsistence use of natural resources.
   Coast Guard
 COFR
  21




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##### Table of Contents




    
    address a worst case scenario and identify and ensure, through contract or other
approved means, the availability of necessary private response resources to respond to a
worst case discharge;
    
    describe crew training and drills; and
    
    identify a qualified individual with full authority to implement removal actions.
    Environmental RegulationOther Environmental Initiatives.
 CLC ,
 Annex VI
    22




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##### Table of Contents



VOC equipment)
 Vessel Security Regulation
 MTSA
 Shuttle Tanker, FSO Unit and FPSO Unit Regulation
  D. Taxation of the Company
 The following discussion is a summary of the principal United States, Bahamian, Bermudian, Marshall
Islands, Norwegian and Spanish tax laws applicable to us. The following discussion of tax matters,
as well as the conclusions regarding certain issues of tax law that are reflected in such
discussion, are based on current law. No assurance can be given that changes in or interpretation
of existing laws will not occur or will not be retroactive or that anticipated future factual
matters and circumstances will in fact occur. Our views have no binding effect or official status
of any kind, and no assurance can be given that the conclusions discussed below would be sustained
if challenged by taxing authorities.
 United States Taxation
 Code
 Taxation of Operating Income. Transportation Income
 U.S. Source International Transportation Income U.S. Source
Domestic Transportation Income
 Section 883 Exemption
 The Section 883 Exemption. Section 883 Regulations
 Equivalent Exemption Ownership Test
  23




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##### Table of Contents



The 4.0% Gross Basis Tax.
 The Net Basis Tax and Branch Profits Tax. Effectively Connected
Income
    Marshall Islands, Bahamian and Bermudian Taxation
  Norwegian Taxation
   Taxation of Norwegian Subsidiaries Engaged in Business Activities.
    Taxation of Dividends. i.e.
  24




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##### Table of Contents



Correction Income Tax. correction income
tax,
 i.e.
 Taxation of Interest Paid by Norwegian Entities.
 Taxation on Distributions by Norwegian Entities.
  Spanish Taxation
 CISSR TTR
    
 Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
 Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
 LNG
 SIGNIFICANT DEVELOPMENTS IN 2007 AND JANUARY 2008
 Acquisition of 50% of OMI Corporation
 OMI
  25




---



##### Table of Contents



Angola LNG Project
  Acquisition of LNG Vessels
  Strategic Transaction with ConocoPhillips
  Public Offering by Teekay Tankers
 Teekay Tankers
 IMPORTANT FINANCIAL AND OPERATIONAL TERMS AND CONCEPTS
  Revenues.
 Forward Freight Agreements. FFAs
 Voyage Expenses.
  26




---



##### Table of Contents



Net Revenues. GAAP
 Vessel Operating Expenses.
 Income from Vessel Operations.
 Drydocking.
 Depreciation and Amortization.
 
    
    charges related to the depreciation and amortization of the historical cost of our fleet
(less an estimated residual value) over the estimated useful lives of our vessels;
 
    
    charges related to the amortization of drydocking expenditures over the estimated number
of years to the next scheduled drydocking; and
 
    
    charges related to the amortization of intangible assets, including the fair value of
the time-charters, contracts of affreightment, customer relationships and intellectual
property where amounts have been attributed to those items in acquisitions; these amounts
are amortized over the period in which the asset is expected to contribute to our future
cash flows.
 Time-charter Equivalent (TCE) Rates. TCE
 Revenue Days.
 Calendar-ship-days.
 Restricted Cash Deposits.
 RESULTS OF OPERATIONS
 GAAP
    27




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##### Table of Contents



Year Ended December 31, 2007 versus Year Ended December 31, 2006
 Offshore Segment
   Twelve Months EndedDecember 31,(in thousands of U.S. dollars, except calendar ship days and percentages)
    
    2007
    
    
    2006
    
    
    % ChangeRevenues
    
    
    992,326
    
    
    
    667,847
    
    
    
    48.6Voyage expenses
    
    
    117,571
    
    
    
    89,642
    
    
    
    31.2Net revenues
    
    
    874,755
    
    
    
    578,205
    
    
    
    51.3Vessel operating expenses
    
    
    301,478
    
    
    
    134,866
    
    
    
    123.5Time-charter hire expense
    
    
    161,876
    
    
    
    170,662
    
    
    
    (5.1
    )Depreciation and amortization
    
    
    172,983
    
    
    
    105,861
    
    
    
    63.4General and administrative (1)
    
    
    101,119
    
    
    
    58,048
    
    
    
    74.2(Gain) loss on sale of vessels
    
    
    (18,630
    )
    
    
    698
    
    
    
    (2,769.1
    )Income from vessel operations
    
    
    155,929
    
    
    
    108,070
    
    
    
    44.3Calendar Ship DaysOwned Vessels
    
    
    12,840
    
    
    
    9,510
    
    
    
    35.0Chartered-in Vessels
    
    
    4,619
    
    
    
    4,983
    
    
    
    (7.3
    )Total
    
    
    17,459
    
    
    
    14,493
    
    
    
    20.5
 (1)
    
    Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to the offshore segment based on estimated use of
corporate resources).  
    
    the acquisition during the third quarter of 2006 of Teekay Petrojarl ASA (or
Petrojarl), which operates four FPSO units and one shuttle tanker (please read item 18 -
Financial Statements: Note 3  Acquisition of Petrojarl ASA);
    
    the consolidation of five 50%-owned joint ventures, each of which owns one shuttle
tanker, effective December 1, 2006 upon amendments of the applicable operating
agreements, which granted us control of these joint ventures (or the Consolidation of
Joint Ventures);
    
    the transfer of the Navion Sagafrom the fixed-rate segment to the offshore segment
in connection with the completion of its conversion to an FSO unit in May 2007; and
    
    the delivery of two new shuttle tankers, the Navion Bergenand the Navion Gothenburg,
in April and July 2007, respectively (or the Shuttle Tanker Deliveries);
  
    
    a decline in the number of chartered-in shuttle tankers; and
    
    the sale of one 1981-built shuttle tanker in July 2006 and one 1987-built shuttle
tanker in May 2007 (the Shuttle Tanker Dispositions).
 Net Revenues.
 
    
    a net increase of $245.8 million relating to the Petrojarl acquisition, which
includes the effect of amortization of contract values as described below;
    
    an increase of $40.8 million due to the Consolidation of Joint Ventures;
    
    an increase of $23.0 million relating to the transfer of the Navion Sagato the
offshore segment;
    
    an increase of $12.3 million due to the Shuttle Tanker Deliveries; and
    
    an increase of $3.6 million due to the renewal of certain vessels on time-charter
contracts at higher daily rates during 2006;
  
    
    a decrease of $13.6 million in revenues due to (a) fewer revenue days for shuttle
tankers servicing contracts of affreightment during 2007 due to a decline in oil
production from mature oil fields in the North Sea and (b) the redeployment of idle
shuttle tankers servicing contracts of affreightment in the conventional spot market at
a lower average charter rate during the fourth quarter of 2007 due to a weaker spot
tanker market; and
    
    a decrease of $3.4 million due to the drydocking of the FSO unit the Dampier Spirit
during the first half of 2007.
  28




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##### Table of Contents



Vessel Operating Expenses.
 
    
    an increase of $125.3 million from the Petrojarl acquisition;
    
    an increase of $17.5 million from the Consolidation of Joint Ventures;
    
    an increase of $14.0 million in salaries for crew and officers primarily due to
general wage escalations from the renegotiation of seafarer contracts, change in crew
composition, a change in the crew rotation system and the weakening U.S. Dollar;
    
    an increase of $6.0 million relating to the transfer of the Navion Sagato the
offshore segment; and
    
    an increase of $3.4 million relating to an increase in services, non-recurring
repairs and maintenance;
  
    
    a decrease of $2.1 million relating to the Shuttle Tanker Dispositions.
 Time-Charter Hire Expense.
 Depreciation and Amortization.
 
    
    an increase of $45.1 million from the Petrojarl acquisition;
    
    an increase of $13.7 million from the Consolidation of Joint Ventures;
    
    an increase of $6.6 million from the transfer of the Navion Sagato the offshore
segment; and
    
    an increase of $3.8 million due to the Shuttle Tanker Deliveries;
  
    
    a decrease of $4.0 million relating to the Shuttle Tanker Dispositions.
 Gain on Sale of Vessels and Equipment  Net of Write-downs.
 
    
    a gain of $11.6 million from the sale of a 1987-built shuttle tanker and certain
equipment during May 2007; and
    
    a gain of $7.0 million from the sale of a 2007-built shuttle tanker to a 50%-owned joint
venture during September 2007.
 Fixed-Rate Tanker Segment
   Twelve Months EndedDecember 31,(in thousands of U.S. dollars, except calendar ship days and percentages)
    
    2007
    
    
    2006
    
    
    % ChangeRevenues
    
    
    195,942
    
    
    
    181,605
    
    
    
    7.9Voyage expenses
    
    
    2,707
    
    
    
    1,999
    
    
    
    35.4Net revenues
    
    
    193,235
    
    
    
    179,606
    
    
    
    7.6Vessel operating expenses
    
    
    51,458
    
    
    
    44,083
    
    
    
    16.7Time-charter hire expense
    
    
    25,812
    
    
    
    16,869
    
    
    
    53.0Depreciation and amortization
    
    
    36,018
    
    
    
    32,741
    
    
    
    10.0General and administrative (1)
    
    
    18,471
    
    
    
    16,000
    
    
    
    15.4Income from vessel operations
    
    
    61,476
    
    
    
    69,913
    
    
    
    (12.1
    )Calendar Ship DaysOwned Vessels
    
    
    5,390
    
    
    
    5,475
    
    
    
    (1.6
    )Chartered-in Vessels
    
    
    1,312
    
    
    
    728
    
    
    
    80.2Total
    
    
    6,702
    
    
    
    6,203
    
    
    
    8.0
 (1)
    
    Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to the fixed-rate tanker segment based on estimated use
of corporate resources).  29




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##### Table of Contents




    
    the acquisition of two Suezmax tankers from OMI Corporation on August 1, 2007 (or
the OMI Acquisition); and
    
    the transfer of two in-chartered Aframax tankers from the spot tanker segment in
July 2007 and October 2007, respectively, upon commencement of three-year time-charters
(or the Aframax Transfers).
  Net Revenues
 
    
    an increase of $9.3 million from the OMI Acquisition;
    
    an increase of $8.1 million from the Aframax Transfers;
    
    an increase of $1.4 million due to adjustments to the daily charter rate based on
inflation and increases from rising interest rates in accordance with the time-charter
contracts for five Suezmax tankers. (However, under the terms of our capital leases for
these tankers we had a corresponding increase in our lease payments, which is reflected
as an increase to interest expense. Therefore, these and future interest rate
adjustments do not and will not affect our cash flow or net income); and
    
    a relative increase of $0.3 million because one of our Suezmax tankers was off-hire
for 15.8 days for a scheduled drydocking during 2006;
  
    
    a decrease of $5.5 million from reduced revenues earned by the Teide Spiritand the
Toledo Spirit(the time-charters for both these vessels provide for additional revenues
to us beyond the fixed hire rate when spot market rates exceed threshold amounts; the
time-charter for the Toledo Spirit also provides for a reduction in revenues to us when
spot market rates are below threshold amounts).
 Vessel Operating Expenses.
 
    
    an increase of $4.1 million relating to higher crew manning and repairs, maintenance
and consumables;
    
    an increase of $1.6 million due to the effect on our Euro-denominated vessel
operating expenses (primarily crewing costs for five of our Suezmax tankers) from the
strengthening of the Euro against the U.S. Dollar during such period compared to the
same period last year. A majority of our vessel operating expenses on five of our
Suezmax tankers are denominated in Euros, which is primarily a function of the
nationality of our crew (our Euro-denominated revenues currently generally approximate
our Euro-denominated expenses and Euro-denominated loan and interest payments); and
    
    an increase of $1.1 million from the OMI Acquisition.
 Time-Charter Hire Expense.
 
    
    an increase of $4.7 million from the Aframax Transfers;
    
    an increase of $4.1 million from the OMI Acquisition; and
    
    an increase of $1.2 million due to the sale and lease-back of an Aframax tanker in
July 2007.
 Depreciation and Amortization.
 
    
    an increase of $3.4 million from the OMI Acquisition; and
    
    an increase of $1.2 million from an increase in amortization of drydocking costs;
  
    
    a decrease of $1.1 million due to the sale and lease-back of an Aframax tanker in
July 2007.
  30




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##### Table of Contents



Liquefied Gas Segment
   Twelve Months EndedDecember 31,(in thousands of U.S. dollars, except calendar ship days and percentages)
    
    2007
    
    
    2006
    
    
    % ChangeRevenues
    
    
    166,981
    
    
    
    104,489
    
    
    
    59.8Voyage expenses
    
    
    109
    
    
    
    975
    
    
    
    (88.8
    )Net revenues
    
    
    166,872
    
    
    
    103,514
    
    
    
    61.2Vessel operating expenses
    
    
    30,239
    
    
    
    18,912
    
    
    
    59.9Depreciation and amortization
    
    
    46,018
    
    
    
    33,160
    
    
    
    38.8General and administrative (1)
    
    
    21,471
    
    
    
    15,685
    
    
    
    36.9Income from vessel operations
    
    
    69,144
    
    
    
    35,757
    
    
    
    93.4Calendar Ship DaysOwned Vessels and Vessels under Capital Lease
    
    
    2,899
    
    
    
    1,887
    
    
    
    53.6
 (1)
    
    Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to the liquefied gas segment based on estimated use of
corporate resources).  
    
    the delivery of three new LNG carriers between October 2006 and February 2007 (or the
RasGas II LNG Carriers), and
    
    our December 2007 acquisition of two 1993-built LNG vessels from a joint venture between
Marathon Oil Corporation and ConocoPhillips (or the Kenai LNG Carriers).
 Madrid Spirit Madrid Spirit
 Net Revenues.
 
    
    an increase of $59.8 million from the delivery of the RasGas II LNG Carriers;
    
    an increase of $6.8 million due to the effect on our Euro-denominated revenues from
the strengthening of the Euro against the U.S. Dollar during such period compared to
the same period last year;
    
    a relative increase of $2.4 million due to the Catalunya Spiritbeing off-hire for
35.5 days during 2006 to complete repairs and for a scheduled drydock; and
    
    an increase of $2.0 million from the delivery of the Kenai LNG Carriers;
  
    
    a decrease of $5.8 million due to the Madrid Spiritbeing off-hire, as discussed
above; and
    
    a decrease of $2.0 million relating to 30.8 days of off-hire for a scheduled
drydocking for one of our LNG carriers during July 2007.
 Vessel Operating Expenses.
 
    
    an increase of $8.9 million from the delivery of the RasGas II LNG Carriers;
    
    an increase of $1.4 million due to the effect on our Euro-denominated vessel
operating expenses (primarily crewing costs) from the strengthening of the Euro against
the U.S. Dollar during such period compared to the same period last year (a majority of
our vessel operating expenses are denominated in Euros, which is primarily a function
of the nationality of our crew; our Euro-denominated revenues currently generally
approximate our Euro-denominated expenses and Euro-denominated loan and interest
payments); and
    
    an increase of $0.8 million for repair costs for the Madrid Spiritincurred during
the second quarter of 2007 in excess of insurance recoveries;
  31




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##### Table of Contents




    
    a relative decrease of $1.0 million relating to repair costs for the Catalunya
Spiritincurred during the second quarter of 2006 in excess of insurance recoveries.
 Depreciation and Amortization.
 
    
    an increase of $11.7 million from the delivery of the RasGas II LNG Carriers;
    
    an increase of $0.7 million relating to the amortization of drydock expenditures
incurred during 2007, and
    
    an increase of $0.5 million from the delivery of the Kenai LNG Carriers.
 Spot Tanker Segment
    Twelve Months EndedDecember 31,(in thousands of U.S. dollars, except calendar ship days and percentages)
    
    2007
    
    
    2006
    
    
    % ChangeRevenues
    
    
    1,051,373
    
    
    
    1,059,365
    
    
    
    (0.8
    )Voyage expenses
    
    
    407,793
    
    
    
    429,501
    
    
    
    (5.1
    )Net revenues
    
    
    643,580
    
    
    
    629,864
    
    
    
    2.2Vessel operating expenses
    
    
    81,368
    
    
    
    59,489
    
    
    
    36.8Time-charter hire expense
    
    
    279,676
    
    
    
    214,991
    
    
    
    30.1Depreciation and amortization
    
    
    74,094
    
    
    
    52,203
    
    
    
    41.9General and administrative (1)
    
    
    97,087
    
    
    
    88,182
    
    
    
    10.1Gain on sale of vessels
    
    
    
    
    
    
    (2,039
    )
    
    
    (100.0
    )Restructuring charge
    
    
    
    
    
    
    8,929
    
    
    
    (100.0
    )Income from vessel operations
    
    
    111,355
    
    
    
    208,109
    
    
    
    (46.5
    )Calendar Ship DaysOwned Vessels
    
    
    11,764
    
    
    
    9,541
    
    
    
    23.3Chartered-in Vessels
    
    
    12,730
    
    
    
    11,190
    
    
    
    13.8Total
    
    
    24,494
    
    
    
    20,731
    
    
    
    18.2
 (1)
    
    Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to the spot tanker segment based on estimated use of
corporate resources).  
    
    the delivery of four new large product tankers between November 2006 and May 2007 (or
the Spot Tanker Deliveries);
    
    the acquisition of twelve vessels from OMI Corporation on August 1, 2007 (or the OMI
Acquisition); and
    
    a net increase in the number of chartered-in vessels, primarily Suezmax and product
tankers;
  
    
    the transfer of the Navion Sagato the offshore segment in connection with the
completion of its conversion to an FSO unit in May 2007.
   32




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##### Table of Contents



Tanker Market and TCE Rates.
         STCs FFAs
 2007
    
    
    2006
    
    
    2005TCE per
    
    
    
    
    
    
    
    
    
    TCE per
    
    
    
    
    
    
    
    
    
    TCE perNet
    
    
    
    
    
    
    Revenue
    
    
    Net
    
    
    
    
    
    
    Revenue
    
    
    Net
    
    
    
    
    
    
    RevenueRevenues(1)
    
    
    Revenue
    
    
    Day
    
    
    Revenues(1)
    
    
    Revenue
    
    
    Day
    
    
    Revenues(1)
    
    
    Revenue
    
    
    DayVessel Type
    
    ($000s)
    
    
    Days
    
    
    ($)
    
    
    ($000s)
    
    
    Days
    
    
    ($)
    
    
    ($000s)
    
    
    Days
    
    
    ($)VLCC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    
    
    
    
    8,347
    
    
    
    90
    
    
    
    92,744Suezmax
    
    
    100,003
    
    
    
    3,162
    
    
    
    31,627
    
    
    
    56,981
    
    
    
    1,639
    
    
    
    34,766
    
    
    
    68,395
    
    
    
    1,862
    
    
    
    36,732Aframax
    
    
    335,445
    
    
    
    11,866
    
    
    
    28,269
    
    
    
    417,660
    
    
    
    11,675
    
    
    
    35,774
    
    
    
    536,390
    
    
    
    14,587
    
    
    
    36,769Large Product
    
    
    141,547
    
    
    
    5,567
    
    
    
    25,426
    
    
    
    96,779
    
    
    
    3,488
    
    
    
    27,747
    
    
    
    103,802
    
    
    
    3,480
    
    
    
    29,828Small Product
    
    
    51,404
    
    
    
    3,595
    
    
    
    14,299
    
    
    
    58,529
    
    
    
    3,782
    
    
    
    15,476
    
    
    
    58,868
    
    
    
    3,957
    
    
    
    14,877Totals
    
    
    628,399
    
    
    
    24,190
    
    
    
    25,978
    
    
    
    629,864
    
    
    
    20,584
    
    
    
    30,600
    
    
    
    775,802
    
    
    
    23,976
    
    
    
    32,357
 (1)
    
    Excludes the unrealized gain (loss) of STCs and FFAs. Net Revenues.
 
    
    an increase of $71.0 million relating to the OMI Acquisition;
    
    an increase of $31.9 million relating to the Spot Tanker Deliveries;
    
    an increase of $21.5 million from the effect of STCs and FFAs, which excludes the
unrealized gain (loss) of STCs and FFAs designated as cash flow hedges; and
    
    an increase of $4.5 million from a net increase in the number of chartered-in
vessels (excluding the effect of the sale and lease-back of two older Aframax tankers
during April 2007 and the Aframax tanker during July 2007) compared to 2006;
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
    
    a decrease of $100.4 million from a 15.1% decrease in our average TCE rate during
2007 compared to 2006;
    
    a decrease of $6.5 million from the transfer of the Navion Sagato the offshore
segment in May 2007; and
    
    a decrease of $5.7 million from an increase in the number of days our vessels were
off-hire due to regularly scheduled maintenance.
 Vessel Operating Expenses.
 
    
    an increase of $12.7 million from the OMI Acquisition;
    
    an increase of $7.7 million from the Spot Tanker Deliveries; and
    
    an increase of $3.3 million relating to higher crew manning costs.
 Time-Charter Hire Expense.
 
    
    an increase of $32.3 million from a net increase in the average TCE rate of our
chartered-in fleet;
    
    an increase of $22.3 million from the OMI Acquisition;
    
    an increase of $7.5 million due to the sale and lease-back of the Aframax tankers
during April and July 2007; and
    
    an increase of $4.1 million from an increase in the number of chartered-in tankers
(excluding OMI vessels) compared to 2006.
 Depreciation and Amortization.
 
    
    an increase of $21.4 million from the OMI Acquisition; and
    
    an increase of $6.1 million from the Spot Tanker Deliveries;
  
    
    a decrease of $5.5 million from the sale and lease-back of the Aframax tankers
during April and July 2007; and
    
    a decrease of $1.7 million from the transfer of the Navion Sagato the offshore
segment.
 Other Operating Results
  Twelve Months EndedDecember 31,(in thousands of U.S. dollars, except percentages)
    
    2007
    
    
    2006
    
    
    % ChangeGeneral and administrative
    
    
    (238,148
    )
    
    
    (177,915
    )
    
    
    33.9Interest expense
    
    
    (287,558
    )
    
    
    (171,643
    )
    
    
    67.5Interest income
    
    
    82,158
    
    
    
    56,224
    
    
    
    46.1Foreign exchange loss
    
    
    (22,106
    )
    
    
    (45,382
    )
    
    
    (51.3
    )Minority interest expense
    
    
    (9,663
    )
    
    
    (441
    )
    
    
    2,091.2Other  net
    
    
    20,516
    
    
    
    1,637
    
    
    
    1,153.3
 General and Administrative Expenses.
 
    
    an increase of $26.0 million from our acquisition of Petrojarl in October 2006;
    
    an increase of $20.7 million from an increase in shore-based compensation and other
personnel expenses, primarily due to weakening of the U.S. Dollar compared to other
major currencies and increases in headcount and compensation levels;
    
    an increase of $6.7 million from an increase in corporate-related expenses,
including costs associated with Teekay Tankers and Teekay Offshore becoming public
entities in December 2007 and 2006, respectively;
    
    an increase of $5.8 million from higher travel costs, due to the integration of OMI
and Petrojarl, and an increase in costs due to the weakening of the U.S. Dollar
compared to other major currencies, and
    
    an increase of $4.3 million from an increase in crew training expenses, due to
integration of new seafarers and LNG training initiatives;
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
    
    a relative decrease of $4.1 million during 2007 relating to the costs associated
with our equity-based compensation and long-term incentive program for management
(please read Item 18  Financial Statements: Note 16(d)  Commitments and Contingencies
  Long-Term Incentive Program); and
    
    a relative decrease of $2.1 million during 2007 from severance costs recorded in
2006.
 Interest Expense.
 
    
    an increase of $35.9 million resulting from interest incurred from financing our
acquisition of Petrojarl and interest incurred on debt we assumed from Petrojarl;
    
    an increase of $33.3 million relating to the increase in capital lease obligations
and term loans in connection with the delivery of the RasGas II LNG Carriers;
    
    an increase of $31.6 million relating to the increase in debt used to finance our
acquisition of 50% of OMI Corporation;
    
    an increase of $11.3 million relating to the Consolidation of Joint Ventures; and
    
    an increase of $10.9 million relating to debt used by Ras Laffan Liquefied Natural
Gas Co. Limited (3) (or RasGas 3), a joint venture company between a subsidiary of
ExxonMobil Corporation and Qatar Petroleum, to fund shipyard construction installment
payments (this increase in interest expense is offset by a corresponding increase in
interest income from advances to the joint venture);
  
    
    a decrease of $6.2 million from scheduled capital lease repayments on two of our LNG
carriers.
 Interest Income.
 
    
    an increase of $11.1 million resulting from $1.1 billion of interest-bearing loans
we made to Omaha Inc., a 50% joint venture between us and TORM, which were used,
together with comparable loans made by TORM, to acquire 100% of the outstanding shares
of OMI Corporation in June 2007;
    
    an increase of $11.0 million relating to interest-bearing advances made by us to the
RasGas 3 for shipyard construction installment payments;
    
    an increase of $6.9 million relating to additional restricted cash deposits that
will be used to pay for lease payments on the three RasGas II LNG Carriers; and
    
    an increase of $2.7 million from the interest we earned on cash we assumed as part
of the Petrojarl acquisition;
  
    
    decreases of $7.3 million resulting from scheduled capital lease repayments on two
of our LNG carriers that were funded from restricted cash deposits (please read Item 18
  Financial Statements: Note 10- Capital Leases and Restricted Cash).
 Foreign Exchange Loss.
 Minority Interest Expense.
 
    
    an increase of $3.9 million resulting from the Consolidation Joint Ventures;
    
    an increase of $7.6 million from the initial public offering of Teekay Offshore in
December 2006; and
    
    an increase of $1.0 million from the initial public offering of Teekay Tankers in
December 2007;
  
    
    a decrease of $3.5 million from a minority owners share of a gain on the disposal
of a vessel in July 2006.
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Other Income (Net).
  Net Income.
 Year Ended December 31, 2006 versus Year Ended December 31, 2005
 We acquired our 64.5% interest in Petrojarl on October 1, 2006. Consequently, our 2006 financial
results reflect Petrojarls results of operations from that date.
 Offshore Segment
  Twelve Months EndedDecember 31,(in thousands of U.S. dollars, except calendar ship days and percentages)
    
    2006
    
    
    2005
    
    
    % ChangeRevenues
    
    
    667,847
    
    
    
    559,094
    
    
    
    19.5Voyage expenses
    
    
    89,642
    
    
    
    69,137
    
    
    
    29.7Net revenues
    
    
    578,205
    
    
    
    489,957
    
    
    
    18.0Vessel operating expenses
    
    
    134,866
    
    
    
    87,059
    
    
    
    54.9Time-charter hire expense
    
    
    170,662
    
    
    
    168,178
    
    
    
    1.5Depreciation and amortization
    
    
    105,861
    
    
    
    89,177
    
    
    
    18.7General and administrative (1)
    
    
    58,048
    
    
    
    43,779
    
    
    
    32.6Gain on sale of vessels
    
    
    698
    
    
    
    2,820
    
    
    
    (75.2
    )Restructuring charge
    
    
    
    
    
    
    955
    
    
    
    Income from vessel operations
    
    
    108,070
    
    
    
    97,989
    
    
    
    10.3Calendar Ship DaysOwned Vessels
    
    
    9,510
    
    
    
    9,580
    
    
    
    (0.7
    )Chartered-in Vessels
    
    
    4,983
    
    
    
    4,963
    
    
    
    0.4Total
    
    
    14,493
    
    
    
    14,543
    
    
    
    (0.3
    )
 (1)
    
    Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to the offshore segment based on estimated use of
corporate resources).  
    
    the acquisition of Petrojarl, which operates four FPSO units and one shuttle tanker;
and
    
    the Consolidation of Joint Ventures;
  
    
    the sale of one 1981-built shuttle tanker in July 2006 (or the 2006 Shuttle Tanker
Disposition); and
    
    the sale of two older shuttle tankers in March 2005 and October 2005 (or the 2005
Shuttle Tanker Dispositions).
  Net Revenues.
 
    
    an increase of $80.7 million relating to the Petrojarl acquisition;
    
    an increase of $5.4 million from the 2006 transfer of certain of our shuttle tankers
servicing contracts of affreightment to short-term time-charter contracts, which had
higher average rates;
    
    an increase of $4.9 million from time-charter contract renewals during 2006 at higher
daily rates; and
    
    an increase of $3.8 million due to the Consolidation of Joint Ventures;
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
    
    a decrease of $8.1 million relating to the 2006 and 2005 Shuttle Tanker Dispositions;
and
    
    a decrease of $4.5 million due to an extended drydocking of the Nordic Trymduring
the second half of 2006.
  Vessel Operating Expenses.
 
    
    an increase of $38.1 million relating to the Petrojarl acquisition;
    
    an increase of $5.8 million in increased salaries for crew and officers primarily due
to a change in crew composition on one vessel upon the commencement of a new short-term
time-charter contract in 2005 and general wage escalations;
    
    an increase of $2.0 million resulting from the depreciation of the U.S. Dollar from
corresponding 2005 levels relative to other currencies in which we pay certain vessel
operating expenses;
    
    a total increase of $1.5 million relating to repairs and maintenance for certain
vessels during 2006 and an increase in the cost of lubricants as a result of higher
crude costs; and
    
    an increase of $1.2 million relating to the Consolidation of Joint Ventures;
  
    
    a decrease of $2.8 million from the 2005 Shuttle Tanker Dispositions.
 Time-Charter Hire Expense.
 
    
    a 0.6% increase in the number of vessels chartered-in; and
    
    a slight increase in the average per-day time-charter hire expense to $34,247 for
2006, from $33,886 for 2005.
 Depreciation and Amortization.
 
    
    an increase of $22.4 from the Petrojarl acquisition; and
    
    an increase of $1.2 million from the Consolidation of Joint Ventures;
  
    
    a decrease of $3.6 million relating to the 2006 and 2005 Shuttle Tanker Dispositions
and the sale and lease-back of one shuttle tanker in March 2005; and
    
    a decrease of $2.8 million relating to a reduction in amortization from the
expiration during 2005 of two contracts of affreightment and from the contracts of
affreightment acquired as part of our purchase of Navion AS in 2003, which were being
amortized over their respective lives, with the amount amortized each year being
weighted based on the projected revenue to be earned under the contracts.
 Gain on Sale of Vessels and Equipment  net of Write-downs.
 
    
    a $5.5 million write-down on a volatile organic compound (or VOC) plant on one of our
shuttle tankers which was redeployed from the North Sea to Brazil; this VOC plant will
be removed and re-installed on another shuttle tanker in our fleet; and
    
    a $2.2 million write-down of the carrying value of certain offshore equipment that
was employed under a short-term contract servicing a marginal oil field that was
prematurely shut down due to lower than expected oil production; this write-down
occurred due to a reassessment of the estimated net realizable value of the equipment
and follows a $12.2 million write-down in 2005 arising from early termination of the
contract for the equipment;
  
    
    a $6.4 million gain from the 2006 Shuttle Tanker Disposition; and
    
    a $0.5 million gain from amortization of a deferred gain on the sale and lease-back
of an older shuttle tanker in March 2005.
  
    
    a $12.2 million write-down of the carrying value of certain offshore equipment as
described above;
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
    
    a $9.1 million gain from the 2005 Shuttle Tanker Dispositions; and
    
    a $0.3 million gain from amortization of a deferred gain on the sale and lease-back
of an older shuttle tanker in March 2005.
 Restructuring Charges.
 Fixed-Rate Tanker Segment
  Twelve Months EndedDecember 31,(in thousands of U.S. dollars, except calendar ship days and percentages)
    
    2006
    
    
    2005
    
    
    % ChangeRevenues
    
    
    181,605
    
    
    
    170,256
    
    
    
    6.7Voyage expenses
    
    
    1,999
    
    
    
    2,919
    
    
    
    (31.5
    )Net revenues
    
    
    179,606
    
    
    
    167,337
    
    
    
    7.3Vessel operating expenses
    
    
    44,083
    
    
    
    39,731
    
    
    
    11.0Time-charter hire expense
    
    
    16,869
    
    
    
    26,082
    
    
    
    (35.3
    )Depreciation and amortization
    
    
    32,741
    
    
    
    29,702
    
    
    
    10.2General and administrative (1)
    
    
    16,000
    
    
    
    12,720
    
    
    
    25.8Income from vessel operations
    
    
    69,913
    
    
    
    59,102
    
    
    
    18.3Calendar Ship DaysOwned Vessels
    
    
    5,475
    
    
    
    4,973
    
    
    
    10.1Chartered-in Vessels
    
    
    728
    
    
    
    1,194
    
    
    
    (39.0
    )Total
    
    
    6,203
    
    
    
    6,167
    
    
    
    0.6
 (1)
    
    Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to the fixed-rate tanker segment based on estimated use
of corporate resources).  
    
    the delivery of a Suezmax tanker newbuilding in July 2005 (or the 2005 Suezmax
Delivery);
    
    the inclusion of an Aframax tanker, which previously operated in our spot tanker
segment and, commenced service under a long-term time-charter during the fourth quarter
of 2005 (or the 2005 Aframax Transfer); and
    
    the inclusion of a chartered-in VLCC, previously operating in our spot tanker
segment, that commenced service under a long-term time-charter in April 2005 (or the
VLCC Transfer);
  
    
    a reduction in our chartered-in fleet resulting from the expiry of our methanol
carrier charter agreements.
 Net Revenues
 
    
    an increase of $8.9 million relating to the 2005 Suezmax Delivery;
    
    an increase of $6.7 million relating to the 2005 Aframax Transfer;
    
    an increase of $4.9 million relating to the VLCC Transfer; and
    
    an increase of $4.0 million due to adjustments to the daily charter rate based on
inflation and increases from rising interest rates in accordance with the time-charter
contracts for five Suezmax tankers. (However, under the terms of our capital leases
for these tankers we had a corresponding increase in our lease payments, which is
reflected as an increase to interest expense; therefore, these interest rate
adjustments, which will continue, did not affect our cash flow or net income);
  
    
    a decrease of $11.9 million relating to the completion of a contract of affreightment
primarily serviced by the chartered-in methanol carriers.
 Vessel Operating Expenses.
 
    
    an increase of $1.8 million relating to the 2005 Aframax Transfer;
    
    an increase of $1.5 million relating to the 2005 Suezmax Delivery; and
    
    an increase of $1.0 million due to increased repairs and maintenance activities.
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Time-Charter Hire Expense.
 
    
    a decrease of $11.6 million relating to the expiry of our chartered-in methanol
carrier contracts;
  
    
    an increase of $2.3 million related to the VLCC transfer.
 Depreciation and Amortization.
 
    
    an increase of $1.5 million relating to the delivery of the 2005 Suezmax Delivery;
and
    
    an increase of $1.3 million from the 2005 Aframax transfer.
 Liquefied Gas Segment
  Twelve Months EndedDecember 31,(in thousands of U.S. dollars, except calendar ship days and percentages)
    
    2006
    
    
    2005
    
    
    % ChangeRevenues
    
    
    104,489
    
    
    
    102,423
    
    
    
    2.0Voyage expenses
    
    
    975
    
    
    
    70
    
    
    
    1,292.9Net revenues
    
    
    103,514
    
    
    
    102,353
    
    
    
    1.1Vessel operating expenses
    
    
    18,912
    
    
    
    17,434
    
    
    
    8.5Depreciation and amortization
    
    
    33,160
    
    
    
    31,545
    
    
    
    5.1General and administrative (1)
    
    
    15,685
    
    
    
    13,743
    
    
    
    14.1Income from vessel operations
    
    
    35,757
    
    
    
    39,631
    
    
    
    (9.8
    )Calendar Ship DaysOwned Vessels and Vessels under Capital Leases
    
    
    1,887
    
    
    
    1,825
    
    
    
    3.4
 (1)
    
    Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to the liquefied gas segment based on estimated use of
corporate resources). Al Marrouna,
 Net Revenues.
 
    
    an increase of $2.4 million relating to the delivery of the Al Marrounaon October
31, 2006; and
    
    a relative increase of $0.8 million in 2006 from 15.2 days of off-hire for one of
our LNG carriers during February 2005;
  
    
    a relative decrease of $2.4 million due to the Catalunya Spiritbeing off-hire for
35.5 days during 2006 resulting from a scheduled drydock and cargo tank damages
discovered while in drydock. The vessel resumed normal operations in early July 2006.
 Catalunya Spirit
 Vessel Operating Expenses.
 
    
    an increase of $1.2 million relating to higher insurance, service and other
operating costs in 2006;
    
    an increase of $0.5 million from the cost of the repairs completed on the Catalunya
Spiritduring the second quarter of 2006 in excess of insurance recoveries; and
    
    an increase of $0.5 million relating to the delivery of the Al Marrouna;
  
    
    a decrease of $0.8 million primarily relating to repair and maintenance work
completed on one of our LNG carriers during February 2005.
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Depreciation and Amortization.
 
    
    an increase of $1.0 million relating to the amortization of drydock expenditures
incurred during 2005 and 2006; and
    
    an increase of $0.7 million relating to the delivery of the Al Marrouna.
 Spot Tanker Segment
   Twelve Months EndedDecember 31,(in thousands of U.S. dollars, except calendar ship days and percentages)
    
    2006
    
    
    2005
    
    
    % ChangeRevenues
    
    
    1,059,365
    
    
    
    1,122,845
    
    
    
    (5.7
    )Voyage expenses
    
    
    429,501
    
    
    
    347,043
    
    
    
    23.8Net revenues
    
    
    629,864
    
    
    
    775,802
    
    
    
    (18.8
    )Vessel operating expenses
    
    
    59,489
    
    
    
    62,525
    
    
    
    (4.9
    )Time-charter hire expense
    
    
    214,991
    
    
    
    273,730
    
    
    
    (21.5
    )Depreciation and amortization
    
    
    52,203
    
    
    
    55,105
    
    
    
    (5.3
    )General and administrative (1)
    
    
    88,182
    
    
    
    89,465
    
    
    
    (1.4
    )Gain on sale of vessels
    
    
    (2,039
    )
    
    
    (142,004
    )
    
    
    (98.6
    )Restructuring charge
    
    
    8,929
    
    
    
    1,927
    
    
    
    363.4Income from vessel operations
    
    
    208,109
    
    
    
    435,054
    
    
    
    (52.2
    )Calendar Ship DaysOwned Vessels
    
    
    9,541
    
    
    
    10,733
    
    
    
    (11.1
    )Chartered-in Vessels
    
    
    11,190
    
    
    
    13,552
    
    
    
    (17.4
    )Total
    
    
    20,731
    
    
    
    24,285
    
    
    
    (14.6
    )
 1)
    
    Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to the spot tanker segment based on estimated use of
corporate resources).  
    
    the sale of 13 older Aframax tankers and one older Suezmax tanker in 2005 (or the
2005 Spot Tanker Dispositions);
    
    the net decrease of the number of chartered-in vessels, primarily Aframax tankers;
and
    
    the 2005 Aframax Transfer and the VLCC Transfer;
  
    
    the delivery of one large product tanker in both 2006 and 2005, as well as two
Aframax tankers in 2005 (or the Spot Tanker Deliveries).
 Net Revenues.
 
    
    a decrease of $97.1 million from the reduction in the number of chartered-in vessels
and the reduction in our average TCE rates;
    
    a decrease of $54.1 million relating to the 2005 Spot Tanker Dispositions; and
    
    a decrease of $17.8 million relating to the VLCC Transfer and 2005 Aframax Transfer;
  
    
    an increase of $23.1 million relating to the Spot Tanker Deliveries.
 Vessel Operating Expenses.
 
    
    a decrease of $8.4 million relating to the 2005 Spot Tanker Dispositions; and
    
    a decrease of $1.7 million relating to the 2005 Aframax Transfer;
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
    
    an increase of $4.5 million relating to the Spot Tanker Deliveries; and
    
    an increase of $2.6 million due to increased repairs and maintenance activities.
 Time-Charter Hire Expense.
 
    
    a decrease of $56.5 million relating to the net decrease of the number of
chartered-in vessels and a decrease of 4.9% in our average per-day time-charter hire
expense to $19,213 per day for 2006, from $20,198 per day for 2005; and
    
    a decrease of $2.2 million relating to the VLCC Transfer.
 Depreciation and Amortization.
 
    
    a decrease of $5.2 million relating to the 2005 Spot Tanker Dispositions; and
    
    a decrease of $1.1 million relating to the 2005 Aframax Transfer;
  
    
    an increase of $3.4 million relating to Spot Tanker Deliveries.
 Gain on Sale of Vessels.
 Restructuring Charges.
 Other Operating Results
  Twelve Months EndedDecember 31,(in thousands of U.S. dollars, except percentages)
    
    2006
    
    
    2005
    
    
    % ChangeGeneral and administrative
    
    
    (177,915
    )
    
    
    (159,707
    )
    
    
    11.4Interest expense
    
    
    (171,643
    )
    
    
    (132,428
    )
    
    
    29.6Interest income
    
    
    56,224
    
    
    
    33,943
    
    
    
    65.6Foreign exchange (loss) gain
    
    
    (45,382
    )
    
    
    59,810
    
    
    
    (175.9
    )Minority interest income (expense)
    
    
    (441
    )
    
    
    (16,628
    )
    
    
    (97.3
    )Other  net
    
    
    1,637
    
    
    
    (5,573
    )
    
    
    (129.4
    )
 General and Administrative Expenses.
 
    
    an increase of $12.1 million relating to our acquisition of Petrojarl in October
2006;
    
    an increase of $9.0 million relating to employee stock option compensation,
described in further detail below;
    
    an increase of $7.5 million from the depreciation of the U.S. Dollar from
corresponding 2005 levels relative to other currencies in which we pay certain general
and administrative expenses; and
    
    an increase of $2.1 million in severance costs;
  
    
    a relative decrease of $12.1 million in 2006 relating to the costs associated with
our long-term incentive program for management (please read Item 18  Financial
Statements: Note 16(d)  Commitments and Contingencies  Long-Term Incentive Program);
and
    
    a relative decrease of $3.3 million during 2006 from expenses relating to the grant
of 0.6 million restricted stock units to employees in March 2005 (please read Item 18 -
Financial Statements: Note 12  Capital Stock).
   41




---



##### Table of Contents



Interest Expense.
 
    
    an increase of $21.4 million from interest-bearing debt of Teekay Nakilat
Corporation (the lessor under the capital lease arrangements for the three RasGas II
LNG Carriers in which we own a 70% interest), which interest was capitalized prior to
the January 2006 sale and lease-back of the RasGas II LNG Carriers under construction;
    
    an increase of $17.2 million resulting from the interest incurred from financing our
acquisition of Petrojarl and interest incurred on debt we assumed from Petrojarl;
    
    an increase of $8.7 million resulting from an increase in interest rates applicable
to our floating-rate debt;
  
    
    a decrease of $7.6 million from the conversion of our 7.25% Premium Equity
Participating Security Units into shares of our common stock in February 2006.
 Interest Income.
 
    
    an increase of $19.8 million, relating to additional restricted cash deposits that
were primarily funded with the proceeds from the sale and lease-back of the three
RasGas II LNG Carriers during January 2006 (please read Item 18  Financial Statements:
Note 10- Capital Leases and Restricted Cash); and
    
    an increase of $5.5 million from an increase in interest rate we earned on our
average outstanding cash balances;
  
    
    a decrease of $3.7 million resulting from scheduled capital lease repayments on two
of our LNG carriers that were funded from restricted cash deposits.
 Foreign Exchange Gains (Losses).
 Minority interest expense
 Other Income (Loss).
   Net Income.
 LIQUIDITY AND CAPITAL RESOURCES
 Liquidity and Cash Needs
    42




---



##### Table of Contents



Cash Flows
  2007
    
    
    2006($000s)
    
    
    ($000s)Net operating cash flows
    
    
    255,018
    
    
    
    520,785Net financing cash flows
    
    
    1,844,292
    
    
    
    208,569Net investing cash flows
    
    
    (2,000,551
    )
    
    
    (622,424
    )
 Operating Cash Flows
  Financing Cash Flows
      43




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##### Table of Contents



Investing Cash Flows
  
    
    acquired 50% of OMI Corporation for a total cost of approximately $1.1 billion,
including approximately $0.2 billion of assumed indebtedness;
    
    incurred capital expenditures for vessels and equipment of $680.7 million, primarily
for shipyard construction installment payments on our Suezmax tankers, Aframax tankers
and shuttle tankers and for costs to convert two of our conventional tankers to shuttle
tankers and one conventional tanker to an FPSO unit;
    
    acquired two 1993-built LNG vessels for a total cost of approximately $229.6 million
from a joint venture between Marathon Oil Corporation and ConocoPhillips;
    
    loaned $219.3 million to the RasGas 3 joint venture for shipyard construction
installment payments; and
    
    received proceeds of $214.8 million from the sale of six vessels.
 COMMITMENTS AND CONTINGENCIES
  2009 and
    
    
    2011 and
    
    
    BeyondIn millions of U.S. Dollars
    
    Total
    
    
    2008
    
    
    2010
    
    
    2012
    
    
    2012U.S. Dollar-Denominated Obligations:Long-term debt (1)
    
    
    4,459.0
    
    
    
    312.6
    
    
    
    657.5
    
    
    
    1,165.2
    
    
    
    2,323.7Chartered-in vessels (operating leases)
    
    
    1,421.5
    
    
    
    542.6
    
    
    
    542.3
    
    
    
    249.7
    
    
    
    86.9Commitments under capital leases (2)
    
    
    236.8
    
    
    
    135.9
    
    
    
    16.9
    
    
    
    84.0
    
    
    
    Commitments under capital leases (3)
    
    
    1,097.1
    
    
    
    24.0
    
    
    
    48.0
    
    
    
    48.0
    
    
    
    977.1Newbuilding installments (4)
    
    
    1,244.7
    
    
    
    526.9
    
    
    
    554.7
    
    
    
    163.2
    
    
    
    Vessel purchases (5)
    
    
    41.7
    
    
    
    41.7
    
    
    
    
    
    
    
    
    
    
    
    Asset retirement obligation
    
    
    38.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38.7Total U.S. Dollar-denominated obligations
    
    
    8,539.5
    
    
    
    1,583.7
    
    
    
    1,819.4
    
    
    
    1,710.1
    
    
    
    3,426.4Euro-Denominated Obligations:(6)Long-term debt (7)
    
    
    444.0
    
    
    
    11.5
    
    
    
    25.5
    
    
    
    239.1
    
    
    
    167.9Commitments under capital leases (2) (8)
    
    
    206.9
    
    
    
    35.6
    
    
    
    76.7
    
    
    
    94.6
    
    
    
    Total Euro-denominated obligations
    
    
    650.9
    
    
    
    47.1
    
    
    
    102.2
    
    
    
    333.7
    
    
    
    167.9Total
    
    
    9,190.4
    
    
    
    1,630.8
    
    
    
    1,921.6
    
    
    
    2,043.8
    
    
    
    3,594.3
 (1)
    
    Excludes expected interest payments of $247.2 million (2008), $443.8 million (2009 and
2010), $307.1 million (2011 and 2012) and $431.2 million (beyond 2012). Expected interest
payments are based on the existing interest rates (fixed-rate loans) and LIBOR plus margins
that ranged up to 1.0% at December 31, 2007 (variable-rate loans). The expected interest
payments do not reflect the effect of related interest rate swaps that we have used to
hedge certain of our floating-rate debt.(2)
    
    Includes, in addition to lease payments, amounts we are required to pay to purchase
certain leased vessels at the end of the lease terms. We are obligated to purchase five of
our existing Suezmax tankers upon the termination of the related capital leases, which will
occur at various times from 2008 to 2011. The purchase price will be based on the
unamortized portion of the vessel construction financing costs for the vessels, which we
expect to range from $37.3 million to $40.7 million per vessel. We expect to satisfy the
purchase price by assuming the existing vessel financing. We are also obligated to purchase
one of our LNG carriers upon the termination of the related capital lease on December 31,
2011. The purchase obligation has been fully funded with restricted cash deposits. Please
read Item 18  Financial Statements: Note 10  Capital Leases and Restricted Cash.(3)
    
    Existing restricted cash deposits of $492.2 million, together with the interest earned
on the deposits, will equal the remaining amounts we owe under the lease arrangements.(4)
    
    Represents remaining construction costs, including a joint venture partners 30%
interest, as applicable, but excluding capitalized interest and miscellaneous construction
costs, for four shuttle tankers, two Aframax tankers, ten Suezmax tankers, one product
tanker, three LPG carriers and two LNG carriers. Please read Item 18  Financial
Statements: Note 16  Commitments and Contingencies  Vessels Under Construction.(5)
    
    Represents the purchase commitment for a 2001-built shuttle tanker. Please read Item 18
- Financial Statements: Note 16  Commitments and Contingencies  Vessel Purchases and
Conversion.  44




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##### Table of Contents



(6)
    
    Euro-denominated obligations are presented in U.S. Dollars and have been converted
using the prevailing exchange rate as at December 31, 2007.(7)
    
    Excludes expected interest payments of $22.2 million (2008), $42.6 million (2009 and
2010), $23.5 million (2011 and 2012) and $61.5 million (beyond 2012). Expected interest
payments are based on EURIBOR plus margins that ranged up to 0.66% at December 31, 2007, as
well as the prevailing U.S. Dollar/Euro exchange rate as at December 31, 2007. The expected
interest payments do not reflect the effect of related interest rate swaps that we have
used to hedge certain of our floating-rate debt.(8)
    
    Existing restricted cash deposits of $179.2 million, together with the interest earned
on the deposits, will equal the remaining amounts we owe under the lease arrangements,
including our obligation to purchase the vessels at the end of the lease terms.   Off-Balance Sheet Arrangements
  Critical Accounting Estimates
  Revenue Recognition
 Description
 Judgments and Uncertainties.
 Effect if Actual Results Differ from Assumptions.
 Vessel Lives and Impairment
 Description
 Judgments and Uncertainties.
  45




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##### Table of Contents



Effect if Actual Results Differ from Assumptions.
 Drydocking
 Description
 Judgments and Uncertainties.
 Effect if Actual Results Differ from Assumptions.
 Goodwill and Intangible Assets
 Description
 Judgments and Uncertainties
 Recent Accounting Pronouncements
 Business Combinations SFAS 141(R) , Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statements, an Amendment of Accounting Research Bulletin SFAS 160
 FASB The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS No.115 SFAS 159
  46




---



##### Table of Contents



Fair Value Measurements SFAS 157
 
 Item 6. Directors, Senior Management and Employees
 Directors and Senior Management
  Name
    
    Age
    
    
    PositionC. Sean Day
    
    
    58
    
    
    Director and Chair of the BoardBjorn Moller
    
    
    50
    
    
    Director, President and Chief Executive OfficerAxel Karlshoej
    
    
    67
    
    
    Director and Chair EmeritusDr. Ian D. Blackburne
    
    
    61
    
    
    DirectorJ. Rod Clark
    
    
    57
    
    
    DirectorPeter S. Janson
    
    
    60
    
    
    DirectorThomas Kuo-Yuen Hsu
    
    
    61
    
    
    DirectorEileen A. Mercier
    
    
    60
    
    
    DirectorTore I. Sandvold
    
    
    60
    
    
    DirectorArthur Bensler
    
    
    50
    
    
    EVP, Secretary and General CounselBruce Chan
    
    
    35
    
    
    President, Teekay Tanker Services, a division of TeekayPeter Evensen
    
    
    49
    
    
    EVP and Chief Strategy OfficerDavid Glendinning
    
    
    53
    
    
    President, Teekay Gas Services and Offshore, a division of TeekayKenneth Hvid
    
    
    39
    
    
    President, Teekay Navion Shuttle Tankers and Offshore, a division of TeekayVincent Lok
    
    
    39
    
    
    EVP and Chief Financial OfficerPeter Lytzen
    
    
    50
    
    
    President, Teekay Petrojarl ASA, a subsidiary of TeekayGraham Westgarth
    
    
    53
    
    
    President, Teekay Marine Services, a division of Teekay
  C. Sean Day
 Bjorn Moller
 Axel Karlshoej
 Dr. Ian D. Blackburne
 J. Rod Clark
  47




---



##### Table of Contents



Peter S. Janson
 Thomas Kuo-Yuen Hsu
 Eileen A. Mercier
 Tore I. Sandvold
 Arthur Bensler
 Bruce Chan
 Peter Evensen
 David Glendinning
 Kenneth Hvid
 Vincent Lok
 Peter Lytzen
  48




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##### Table of Contents



Graham Westgarth
 Compensation of Directors and Senior Management
 Director Compensation
   Annual Executive Compensation
 Executive Officers
 Long-Term Incentive Program
   Vision Incentive Plan
 VIP
  TSR
  49




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##### Table of Contents



Options to Purchase Securities from Registrant or Subsidiaries
 Plans
 Board Practices
    NYSE
    
    
    the integrity of our financial statements;
    
    our compliance with legal and regulatory requirements;
    
    the independent auditors qualifications and independence; and
    
    the performance of our internal audit function and independent auditors.
   
    
    reviews and approves corporate goals and objectives relevant to the Chief Executive
Officers compensation, evaluates the Chief Executive Officers performance in light of
these goals and objectives and determines the Chief Executive Officers compensation;
    
    reviews and approves the evaluation process and compensation structure for executive
officers, other than the Chief Executive Officer, evaluates their performance and sets
their compensation based on this evaluation;
    
    reviews and makes recommendations to the Board regarding compensation for directors;
    
    establishes and administers long-term incentive compensation and equity-based plans; and
    
    oversees our other compensation plans, policies and programs.
   50




---



##### Table of Contents




    
    identifies individuals qualified to become Board members;
    
    selects and recommends to the Board director and committee member candidates;
    
    develops and recommends to the Board corporate governance principles and policies
applicable to us, monitors compliance with these principles and policies and recommends to
the Board appropriate changes; and
    
    oversees the evaluation of the Board and management.
 Crewing and Staff
   ITF
  Share Ownership
  Identity of Person or Group
    
    Shares Owned

    
    Percent of ClassAll directors and Executive Officers (17 persons)
    
    
    1,521,047
    (1) (3)
    
    
    2.1
    %(2)
 (1)
    
    Includes 1,356,860 shares of common stock subject to stock options exercisable by May
14, 2008 under the Plans with a weighted-average exercise price of $31.33 that expire
between June 12, 2008 and March 13, 2017. Excludes (a) 1,173,560 shares of common stock
subject to stock options exercisable after May 14, 2008 under the Plans with a weighted
average exercise price of $42.63, that expire between June 1, 2015 and March 13, 2017 and
(b) 30,880 shares of restricted stock which vest after May 14, 2008.(2)
    
    Based on a total of 72.8 million outstanding shares of our common stock as of March 15,
2008. Each director and Executive Officer beneficially owns less than one percent of the
outstanding shares of common stock.(3)
    
    Each director is expected to acquire shares having a value of at least four times the
value of the annual cash retainer paid to them for their Board service (excluding fees for
Chair or Committee service) no later than May 14, 2008 or the fifth anniversary of the date
on which the director joined the Board, whichever is later. In addition, each Executive
Officer is expected to acquire shares of Teekays common stock equivalent in value to one
to three times their annual base salary by 2010 or, for executive officers subsequently
joining Teekay or achieving a position covered by the guidelines, within five years after
the guidelines become applicable to them. 
 Item 7. Major Shareholders and Related Party Transactions
 Major Shareholders
   51




---



##### Table of Contents



Identity of Person or Group
    
    Shares Owned
    
    

Percent
of
Class(5)Resolute Investments, Ltd. (1)
    
    
    30,431,380
    
    
    
    41.8
    %FMR Corp., Edward C. Johnson 3rd(2)
    
    
    8,243,375
    
    
    
    11.3
    %Neuberger Berman Inc.(3)
    
    
    6,599,239
    
    
    
    9.1
    %Iridian Asset Management, LLC (4)
    
    
    6,214,992
    
    
    
    8.5
    %
 
 (1)
    
    Includes shared voting and shared dispositive power as to 30,431,380 shares. The ultimate
controlling person of Resolute Investments, Ltd. (or Resolute) is Path Spirit Limited (or
Path), which is the trust protector for the trust that indirectly owns all of Resolutes
outstanding equity. This information is based on the
Schedule 13D/A (Amendment No. 2) filed by Resolute and Path
with the SEC on April 2, 2008. Resolutes beneficial ownership was 44.8% on December 31, 2006
and 45.7% on December 31, 2005. During 2007, the number of shares of our common stock owned by
Resolute decreased by 2.2 million. This decrease, which in part
relates to a restructuring of Resolutes affairs, is explained in further detail in Schedule 13D/A
(Amendment No. 2) filed by Resolute and Path
with the SEC on April 2, 2008. One of our directors, Thomas Kuo-Yuen Hsu, is the President and
a director of Resolute. Another of our directors, Axel Karlshoej, is among the directors of
Path. Please read Related Party Transactions.(2)
    
    Includes sole voting power as to 124,400 shares and sole dispositive power as to 8,243,375
shares. This information is based on the Schedule 13G/A filed by this group with the SEC on
February 13, 2008. Based on prior information filed with the SEC, FMR Corp.s beneficial
ownership in Teekay was 15.4% on March 15, 2007, 15.5% on March 15, 2006 and 13.9% on March
15, 2005.(3)
    
    Includes shared voting power as to 6,269,867 shares and shared dispositive power as to
6,599,239 shares. This information is based on the Schedule 13G/A filed by this investor with
the SEC on February 12, 2008. Neuberger Bermans beneficial ownership in Teekay was less than
5% on March 15, 2007, 6.8% on March 15, 2006 and 10.1% on March 15, 2005.(4)
    
    Includes shared voting power and shared dispositive power as to 6,214,992 shares. This
information is based on the Schedule 13G/A filed by this investor with the SEC on February 4,
2008. Iridian Asset Managements beneficial ownership was 11.0% on March 15, 2007 and 6.8% on
March 15, 2006.(5)
    
    Based on a total of 72.8 million outstanding shares of our common stock as of March 15, 2008.  Related Party Transactions
 Resolute
 
 Item 8. Financial Information
 Consolidated Financial Statements and Notes
  Legal Proceedings
  Dividend Policy
    52




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##### Table of Contents



Significant Changes
  
 Item 9. The Offer and Listing
 (1)
 Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,
    
    
    Dec. 31,Years Ended
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003High
    
    $
    62.6600
    
    
    $
    45.8000
    
    
    $
    50.0100
    
    
    $
    54.4500
    
    
    $
    28.6750Low
    
    
    42.5200
    
    
    
    35.6000
    
    
    
    37.2500
    
    
    
    27.9500
    
    
    
    17.8550Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,Quarters Ended
    
    2007
    
    
    2007
    
    
    2007
    
    
    2007
    
    
    2006
    
    
    2006
    
    
    2006
    
    
    2006High
    
    $
    59.6400
    
    
    $
    62.0500
    
    
    $
    62.6600
    
    
    $
    54.1100
    
    
    $
    45.7700
    
    
    $
    45.8000
    
    
    $
    42.0500
    
    
    $
    40.9000Low
    
    
    47.2000
    
    
    
    51.0000
    
    
    
    54.3600
    
    
    
    42.5200
    
    
    
    39.2200
    
    
    
    39.4000
    
    
    
    35.6000
    
    
    
    36.7700Mar. 31,
    
    
    Feb. 29,
    
    
    Jan. 31,
    
    
    Dec. 31,
    
    
    Nov. 30,
    
    
    Oct. 31Months Ended
    
    2008
    
    
    2008
    
    
    2008
    
    
    2007
    
    
    2007
    
    
    2007High
    
    $
    44.8400
    
    
    $
    46.9000
    
    
    $
    53.3000
    
    
    $
    59.6400
    
    
    $
    56.9500
    
    
    $
    59.5000Low
    
    
    36.2100
    
    
    
    42.9800
    
    
    
    41.2500
    
    
    
    53.1500
    
    
    
    47.2000
    
    
    
    53.7500
 (1)
    
    On May 17, 2004, we effected a two-for-one stock split relating to our common stock;
applicable per-share information above gives effect to this stock split retroactively. 
 Item 10. Additional Information
 Memorandum and Articles of Association
      Material Contracts
  (a)
    
    Indenture dated June 22, 2001 among Teekay Corporation and The Bank of New York Trust Company
of Florida (formerly U.S. Trust Company of Texas, N.A.) for U.S. $250,000,000 8.875% Senior
Notes due 2011.(b)
    
    First Supplemental Indenture dated as of December 6, 2001, among Teekay Corporation and The
Bank of New York Trust Company of Florida, N.A. for U.S. $100,000,000 8.875% Senior Notes due
2011.(c)
    
    Agreement, dated June 26, 2003, for a U.S. $550,000,000 Secured Reducing Revolving Loan
Facility among Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks.(d)
    
    Agreement, dated September 1, 2004 for a U.S. $500,000,000 Credit Facility Agreement to be
made available to Teekay Nordic Holdings Incorporated by Nordea Bank Finland PLC, New York
Branch.
  53




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##### Table of Contents



(e)
    
    Supplemental Agreement dated September 30, 2004 to Agreement, dated June 26, 2003, for a U.S.
$550,000,000 Secured Reducing Revolving Loan Facility among Norsk Teekay Holdings Ltd., Den
Norske Bank ASA and various other banks.(f)
    
    Agreement, dated May 26, 2005 for a U.S. $550,000,000 Credit Facility Agreement to be made
available to Avalon Spirit LLC et al by Nordea Bank Finland PLC and others.(g)
    
    Agreement, dated October 2, 2006 for a U.S. $940,000,000 Secured Reducing Revolving Loan
Facility among Teekay Offshore Operating L.P., Den Norske Bank ASA and various other banks.
Please read Note 8 to the Consolidated Financial Statements of Teekay Corporation included
herein for a summary of certain contract terms relating to our revolving loan facilities.(h)
    
    Agreement, dated August 23, 2006 for a U.S. $330,000,000 Secured Reducing Revolving Loan
Facility among Teekay LNG Partners L.P., ING Bank N.V. and various other banks. Please read
Note 8 to the Consolidated Financial Statements of Teekay Corporation included herein for a
summary of certain contract terms relating to our revolving loan facilities.(i)
    
    Agreement, dated November 28, 2007 for a U.S. $845,000,000 Secured Reducing Revolving Loan
Facility among Teekay Corporation, Teekay Tankers Ltd., Nordea Bank Finland PLC and various
other banks. Please read Note 8 to the Consolidated Financial Statements of Teekay Corporation
included herein for a summary of certain contract terms relating to our revolving loan
facilities.(j)
    
    Agreement dated May 16, 2007 for a U.S. $700,000,000 Credit Facility Agreement to be made
available to Teekay Acquisition Holdings LLC et al by HSH NordBank AG and others.(k)
    
    Annual Executive Bonus Plan.(l)
    
    Vision Incentive Plan.(m)
    
    2003 Equity Incentive Plan.(n)
    
    Amended 1995 Stock Option Plan.(o)
    
    Rights Agreement, dated as of September 8, 2000, between Teekay Corporation and The Bank of New York, as Rights Agent.
 Exchange Controls and Other Limitations Affecting Security Holders
   Taxation
  Marshall Islands Tax Consequences.
 United States Tax Consequences. PFICs
 U.S. Individual Holder
  54




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##### Table of Contents




    
    the excess distribution or gain will be allocated ratably over the stockholders
holding period;
    
    the amount allocated to the current taxable year and any year prior to the first year
in which we were a PFIC will be taxed as ordinary income in the current year;
    
    the amount allocated to each of the other taxable years in the stockholders holding
period will be subject to U.S. federal income tax at the highest rate in effect for the
applicable class of taxpayer for that year; and
    
    an interest charge for the deemed deferral benefit will be imposed with respect to
the resulting tax attributable to each such other taxable year.
   United States Stockholder CFC
  Bermudian
Tax Consequences.
 Documents on Display
 th EDGAR www.sec.gov
  55




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##### Table of Contents



Item 11. Quantitative and Qualitative Disclosures About Market Risk
  Foreign Currency Fluctuation Risk
    Expected maturity date2008
    
    
    2009
    
    
    2010
    
    
    TotalContract
    
    
    Contract
    
    
    Contract
    
    
    Contractamount
    
    
    amount
    
    
    amount
    
    
    amount
    
    
    Fair valueNorwegian Kroner:
    
    $
    276.6
    
    
    $
    74.6
    
    
    $
    5.0
    
    
    $
    356.1
    
    
    $
    30.5Average contractual exchange rate(2)
    
    
    5.97
    
    
    
    5.83
    
    
    
    6.05
    
    
    
    5.94Euro:
    
    $
    24.3
    
    
    $
    4.1
    
    
    
    
    
    
    $
    28.4
    
    
    $
    1.1Average contractual exchange rate(2)
    
    
    0.72
    
    
    
    0.70
    
    
    
    
    
    
    
    0.71Canadian Dollar:
    
    $
    57.8
    
    
    $
    14.7
    
    
    
    
    
    
    $
    72.5
    
    
    $
    2.4Average contractual exchange rate(2)
    
    
    1.04
    
    
    
    1.01
    
    
    
    
    
    
    
    1.03British Pounds:
    
    $
    52.3
    
    
    $
    17.6
    
    
    $
    1.9
    
    
    $
    71.8
    
    
    $
    1.0Average contractual exchange rate(2)
    
    
    0.51
    
    
    
    0.52
    
    
    
    0.52
    
    
    
    0.51Australian Dollar:
    
    $
    4.0
    
    
    
    
    
    
    
    
    
    
    $
    4.0
    
    
    $
    0.4Average contractual exchange rate(2)
    
    
    1.25
    
    
    
    
    
    
    
    
    
    
    
    1.25Singapore Dollar:
    
    $
    9.7
    
    
    
    
    
    
    
    
    
    
    $
    9.7
    
    
    $
    0.0Average contractual exchange rate(2)
    
    
    1.44
    
    
    
    
    
    
    
    
    
    
    
    1.44
 (1)
    
    Contract amounts and fair value amounts in millions of U.S. Dollars.(2)
    
    Average contractual exchange rate represents the contractual amount of foreign currency one
U.S. Dollar will buy.  Interest Rate Risk
     56




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##### Table of Contents



Fair ValueExpected Maturity Date
    
    
    
    
    
    
    Asset /2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter
    
    
    Total
    
    
    (Liability)
    
    

Rate (1)(in millions of U.S. dollars, except percentages)Long-Term Debt:Variable Rate ($U.S.) (2)
    
    
    268.2
    
    
    
    220.3
    
    
    
    346.7
    
    
    
    641.3
    
    
    
    186.7
    
    
    
    2,023.1
    
    
    
    3,686.3
    
    
    
    (3,686.3
    )
    
    
    5.6
    %Variable Rate (Euro) (3) (4)
    
    
    11.5
    
    
    
    12.3
    
    
    
    13.2
    
    
    
    231.7
    
    
    
    7.4
    
    
    
    167.9
    
    
    
    444.0
    
    
    
    (444.0
    )
    
    
    5.1
    %Fixed-Rate Debt ($U.S.)
    
    
    44.4
    
    
    
    44.9
    
    
    
    45.6
    
    
    
    291.6
    
    
    
    45.6
    
    
    
    300.6
    
    
    
    772.7
    
    
    
    (755.8
    )
    
    
    6.2
    %Average Interest Rate
    
    
    5.1
    %
    
    
    5.1
    %
    
    
    5.1
    %
    
    
    8.2
    %
    
    
    5.1
    %
    
    
    5.1
    %
    
    
    6.2
    %Capital Lease Obligations(5) (6)Fixed-Rate ($U.S.) (7)
    
    
    125.6
    
    
    
    3.8
    
    
    
    3.9
    
    
    
    80.1
    
    
    
    
    
    
    
    
    
    
    
    213.4
    
    
    
    (213.4
    )
    
    
    7.4
    %Average Interest Rate (8)
    
    
    8.8
    %
    
    
    5.4
    %
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    
    
    
    
    
    
    
    
    7.4
    %Interest Rate Swaps:Contract Amount ($U.S.) (6) (9)
    
    
    80.8
    
    
    
    626.0
    
    
    
    358.9
    
    
    
    59.8
    
    
    
    60.9
    
    
    
    2,793.3
    
    
    
    3,979.7
    
    
    
    (131.9
    )
    
    
    5.1
    %Average Fixed Pay Rate (2)
    
    
    5.1
    %
    
    
    4.7
    %
    
    
    4.9
    %
    
    
    5.2
    %
    
    
    5.2
    %
    
    
    5.2
    %
    
    
    5.1
    %Contract Amount (Euro) (4) (10)
    
    
    11.5
    
    
    
    12.3
    
    
    
    13.2
    
    
    
    231.7
    
    
    
    7.4
    
    
    
    167.9
    
    
    
    444.0
    
    
    
    33.6
    
    
    
    3.8
    %Average Fixed Pay Rate (3)
    
    
    3.8
    %
    
    
    3.8
    %
    
    
    3.8
    %
    
    
    3.8
    %
    
    
    3.8
    %
    
    
    3.8
    %
    
    
    3.8
    %
 
 (1)
    
    Rate refers to the weighted-average effective interest rate for our long-term debt and
capital lease obligations, including the margin we pay on our floating-rate debt and the
average fixed pay rate for our interest rate swap agreements. The average interest rate for
our capital lease obligations is the weighted-average interest rate implicit in our lease
obligations at the inception of the leases. The average fixed pay rate for our interest rate
swaps excludes the margin we pay on our floating-rate debt, which as of December 31, 2007
ranged from 0.30% to 1.00%.(2)
    
    Interest payments on U.S. Dollar-denominated debt and interest rate swaps are based on LIBOR.(3)
    
    Interest payments on Euro-denominated debt and interest rate swaps are based on EURIBOR.(4)
    
    Euro-denominated amounts have been converted to U.S. Dollars using the prevailing exchange
rate as of December 31, 2007.(5)
    
    Excludes capital lease obligations (present value of minimum lease payments) of 119.8 million
Euros ($175.0 million) on one of our existing LNG carriers with a weighted-average fixed
interest rate of 5.8%. Under the terms of this fixed-rate lease obligation, we are required to
have on deposit, subject to a weighted-average fixed interest rate of 5.0%, an amount of cash
that, together with the interest earned thereon, will fully fund the amount owing under the
capital lease obligation, including a vessel purchase obligation. As at December 31, 2007,
this amount was 122.8 million Euros ($179.2 million). Consequently, on a net basis we are not
subject to interest rate risk from these obligations or deposits.(6)
    
    Under the terms of the capital leases for the three RasGas II LNG Carriers (see Item 18 -
Financial Statements: Note 9  Capital Leases and Restricted Cash), we are required to have on
deposit, subject to a variable rate of interest, an amount of cash that, together with
interest earned on the deposit, will equal the remaining amounts owing under the leases. The
deposits, which as at December 31, 2007 totaled $492.2 million, and the lease obligations,
which as at December 31, 2007 totaled $468.9 million, have been swapped for fixed-rate
deposits and fixed-rate obligations. Consequently, on a net basis we are not subject to
interest rate risk from these obligations and deposits and, therefore, the lease obligations,
cash deposits and related interest rate swaps have been excluded from the table above. As at
December 31, 2007, the contract amount, fair value and fixed interest rates of these interest
rate swaps related to the RasGas II LNG Carriers capital lease obligations and restricted cash
deposits were $508.6 million and $481.5 million, ($0.9) million and ($3.9) million, and 4.9%
and 4.8%, respectively.(7)
    
    The amount of capital lease obligations represents the present value of minimum lease
payments together with our purchase obligation, as applicable.(8)
    
    The average interest rate is the weighted-average interest rate implicit in the capital lease
obligations at the inception of the leases.(9)
    
    The average variable receive rate for our interest rate swaps is set monthly at the 1-month
LIBOR or EURIBOR, quarterly at the 3-month LIBOR or semi-annually at the 6-month LIBOR.(10)
    
    Includes interest rate swaps of $151.0 million, $408.5 million, $300.0 million and $200.0
million that have inception dates of 2008, 2009, 2010 and 2011, respectively. Commodity Price Risk
   57




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##### Table of Contents



Spot Market Rate Risk
 FFA STC
  
 Item 12. Description of Securities Other than Equity Securities
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
    Managements Report on Internal Control over Financial Reporting
   Internal Control  Integrated Framework
    58




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##### Table of Contents



Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
  
 Item 16C. Principal Accountant Fees and Services
  Fees
    
    2007
    
    
    2006Audit Fees (1)
    
    $
    3,156,900
    
    
    $
    2,561,300Audit-Related Fees (2)
    
    
    189,400
    
    
    
    101,500Tax Fees (3)
    
    
    279,100
    
    
    
    226,500All Other Fees (4)
    
    
    1,500
    
    
    
    2,200Total
    
    $
    3,626,900
    
    
    $
    2,891,500
 
 (1)
    
    Audit fees represent fees for professional services provided in connection with the audit of
our consolidated financial statements and review of our quarterly consolidated financial
statements and audit services provided in connection with other statutory or regulatory
filings for Teekay or our subsidiaries. Audit fees for 2007 and 2006 include $611,800 and
$334,400, respectively, of fees paid to Ernst & Young LLP by Teekay LNG that were approved by
the Audit Committee of the Board of Directors of Teekay LNG. Audit fees for 2007 and 2006
include approximately $429,300 and $575,400, respectively, of fees paid to Ernst & Young LLP
by our subsidiary Teekay Offshore that were approved by the Audit Committee of the Board of
Directors of Teekay Offshore. Audit fees for 2007 include approximately $303,800 of fees paid
to Ernst & Young LLP by our subsidiary, Teekay Tankers that were approved by the Audit
Committee of the Board of Directors of Teekay.(2)
    
    Audit-related fees consisted primarily of accounting consultations, employee benefit plan
audits, services related to business acquisitions, divestitures and other attestation
services.(3)
    
    For 2007 and 2006, respectively, tax fees principally included international tax planning
fees of $26,200 and $8,700, corporate tax compliance fees of $64,400 and $103,100, and
personal and expatriate tax services fees of $188,500 and $121,600.(4)
    
    All other fees principally include subscription fees to an internet database of accounting
information.  
 Item 16D. Exemptions from the Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  Total Number of
    
    
    Maximum DollarShares Purchased as
    
    
    Value of Shares thatPart of Publicly
    
    
    May Yet BeTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    Purchased Under theMonth of Repurchase
    
    Shares Purchased
    
    
    per Share
    
    
    Program
    
    
    Plans or ProgramMarch 2007
    
    
    60,000
    
    
    $
    50.59
    
    
    
    60,000
    
    
    $
    97,902,000August 2007
    
    
    856,200
    
    
    $
    54.93
    
    
    
    856,200
    
    
    $
    50,863,000October 2007
    
    
    122,200
    
    
    $
    53.87
    
    
    
    122,200
    
    
    $
    44,285,000November 2007
    
    
    472,900
    
    
    $
    50.28
    
    
    
    472,900
    
    
    $
    20,507,0001,511,300
    
    
    $
    53.22
    
    
    
    1,511,300
  59




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##### Table of Contents



PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  PageReports
of Independent Registered Public Accounting Firm
    
    F-1 and F-2Consolidated Financial StatementsConsolidated
Statements of Income
    
    F-3Consolidated
Balance Sheets
    
    F-4Consolidated
Statements of Cash Flows
    
    F-5Consolidated
Statements of Changes in Stockholders Equity
    
    F-6Notes
to the Consolidated Financial Statements
    
    F-7
  
 Item 19. Exhibits
  1.1
    
    Amended and Restated Articles of Incorporation of Teekay Corporation.1.2
    
    Articles of Amendment of Articles of Incorporation of Teekay Corporation.1.3
    
    Amended and Restated Bylaws of Teekay Corporation. (1)2.1
    
    Registration Rights Agreement among Teekay Corporation, Tradewinds Trust Co. Ltd., as Trustee for the Cirrus Trust, and
Worldwide Trust Services Ltd., as Trustee for the JTK Trust. (2)2.2
    
    Specimen of Teekay Corporation Common Stock Certificate. (2)2.3
    
    Indenture dated June 22, 2001 among Teekay Corporation and The Bank of New York Trust Company of Florida (formerly U.S.
Trust Company of Texas, N.A.). for U.S. $250,000,000 8.875% Senior Notes due 2011. (3)2.4
    
    First Supplemental Indenture dated as of December 6, 2001 among Teekay Corporation and The Bank of New York Trust Company
of Florida, N.A. for U.S. $100,000,000 8.875% Senior Notes due 2011. (4)2.5
    
    Exchange and Registration Rights Agreement dated June 22, 2001 among Teekay Corporation and Goldman, Sachs & Co., Morgan
Stanley & Co. Incorporated, Salomon Smith Barney Inc., Deutsche Banc Alex. Brown Inc. and Scotia Capital (USA) Inc. (3)2.6
    
    Exchange and Registration Rights Agreement dated December 6, 2001 between Teekay Corporation and Goldman, Sachs & Co. (4)2.7
    
    Specimen of Teekay Corporations 8.875% Senior Notes due 2011. (3)4.1
    
    1995 Stock Option Plan. (2)4.2
    
    Amendment to 1995 Stock Option Plan. (5)4.3
    
    Amended 1995 Stock Option Plan. (6)4.4
    
    2003 Equity Incentive Plan. (7)4.5
    
    Annual Executive Bonus Plan. (8)4.6
    
    Vision Incentive Plan. (9)4.7
    
    Form of Indemnification Agreement between Teekay and each of its officers and directors. (2)4.8
    
    Rights Agreement, dated as of September 8, 2000 between Teekay Corporation and The Bank of New York, as Rights Agent. (10)4.9
    
    Agreement dated June 26, 2003 for a U.S. $550,000,000 Secured Reducing Revolving Loan Facility among Norsk Teekay
Holdings Ltd., Den Norske Bank ASA and various other banks.(11)4.10
    
    Agreement dated September 1, 2004 for a U.S. $500,000,000 Credit Facility Agreement to be made available to Teekay Nordic
Holdings Incorporated by Nordea Bank Finland PLC. (8)4.11
    
    Supplemental Agreement dated September 30, 2004 to Agreement dated June 26, 2003, for a U.S. $550,000,000 Secured
Reducing Revolving Loan Facility among Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks. (8)4.12
    
    Agreement dated May 26, 2005 for a U.S. $550,000,000 Credit Facility Agreement to be made available to Avalon Spirit LLC
et al by Nordea Bank Finland PLC and others. (9)4.13
    
    Agreement dated October 2, 2006, for a U.S. $940,000,000 Secured Reducing Revolving Loan Facility among Teekay Offshore
Operating L.P., Den Norske Bank ASA and various other banks. (12)4.14
    
    Agreement dated August 23, 2006, for a U.S. $330,000,000 Secured Reducing Revolving Loan Facility among Teekay LNG
Partners L.P., ING Bank N.V. and various other banks. (12)4.15
    
    Agreement, dated November 28, 2007 for a U.S. $845,000,000 Secured Reducing Revolving Loan Facility among Teekay
Corporation, Teekay Tankers Ltd., Nordea Bank Finland PLC and various other banks.4.16
    
    Agreement dated May 16, 2007 for a U.S. $700,000,000 Credit Facility Agreement to be made available to Teekay Acquisition
Holdings LLC et al by HSH NordBank AG and others. (13)4.17
    
    Amended and Restated Omnibus Agreement (14)
  60




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##### Table of Contents



8.1
    
    List of Significant Subsidiaries.12.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Teekays Chief Executive Officer.12.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Teekays Chief Financial Officer.13.1
    
    Teekay Corporation Certification of Bjorn Moller, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.13.2
    
    Teekay Corporation Certification of Vincent Lok, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.23.1
    
    Consent of Ernst & Young LLP, as independent registered public accounting firm.
 
 (1)
    
    Previously filed as an exhibit to the Companys Annual Report on Form 20-F (File No.1-12874),
filed with the SEC on March 30, 2000, and hereby incorporated by reference to such Annual
Report.(2)
    
    Previously filed as an exhibit to the Companys Registration Statement on Form F-1
(Registration No. 33-7573-4), filed with the SEC on July 14, 1995, and hereby incorporated by
reference to such Registration Statement.(3)
    
    Previously filed as an exhibit to the Companys Registration Statement on Form F-4
(Registration No. 333-64928), filed with the SEC on July 11, 2001, and hereby incorporated by
reference to such Registration Statement.(4)
    
    Previously filed as an exhibit to the Companys Registration Statement on Form F-4
(Registration No. 333-76922), filed with the SEC on January 17, 2002, and hereby incorporated
by reference to such Registration Statement.(5)
    
    Previously filed as an exhibit to the Companys Form 6-K (File No.1-12874), filed with the
SEC on May 2, 2000, and hereby incorporated by reference to such Report.(6)
    
    Previously filed as an exhibit to the Companys Annual Report on Form 20-F (File No.1-12874),
filed with the SEC on April 2, 2001, and hereby incorporated by reference to such Annual
Report.(7)
    
    Previously filed as an exhibit to the Companys Registration Statement on Form S-8 (File No.
333-119564), filed with the SEC on October 6, 2004, and hereby incorporated by reference to
such Registration Statement.(8)
    
    Previously filed as an exhibit to the Companys Report on Form 20-F (File No. 1-12874),
filed with the SEC on April 8, 2005, and hereby incorporated by reference to such Report.(9)
    
    Previously filed as an exhibit to the Companys Report on Form 20-F (File No. 1-12874),
filed with the SEC on April 10, 2006, and hereby incorporated by reference to such Report.(10)
    
    Previously filed as an exhibit to the Companys Form 8-A (File No.1-12874), filed with the
SEC on September 11, 2000, and hereby incorporated by reference to such Annual Report.(11)
    
    Previously filed as an exhibit to the Companys Report on Form 6-K (File No. 1-12874), filed
with the SEC on August 14, 2003, and hereby incorporated by reference to such Report.(12)
    
    Previously filed as an exhibit to the Companys Report on Form 6-K (File No. 1-12874), filed
with the SEC on December 21, 2006, and hereby incorporated by reference to such Report.(13)
    
    Previously filed as an exhibit to the Companys Schedule TO  T/A, filed with the SEC on May
18, 2007, and hereby incorporated by reference to such schedule.(14)
    
    Previously filed as an exhibit to the Companys Report on Form 20-F (File No. 1-12874), filed
with the SEC on April 19, 2007, and hereby incorporated by reference to such Report.  61




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##### Table of Contents



SIGNATURE
  TEEKAY CORPORATIONBy:
    /s/ Vincent LokVincent LokExecutive Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)   62




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TEEKAY CORPORATION
 Teekay Corporation and subsidiaries
   Share-Based
Payment.
 Accounting for Uncertainty in Income Taxes,
an Interpretation of FASB Statement No. 109
  Vancouver, Canada,
    
    /s/ ERNST & YOUNG LLPMarch 9, 2008
    
    Chartered Accountants
  F-1




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TEEKAY CORPORATION
 Internal ControlIntegrated Framework
      Vancouver, Canada,
    
    /s/ ERNST & YOUNG LLPMarch 9, 2008
    
    Chartered Accountants
  F-2




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of U.S. dollars, except share amounts)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005$
    
    
    $
    
    
    $REVENUES
    
    
    2,406,622
    
    
    
    2,013,306
    
    
    
    1,954,618OPERATING EXPENSESVoyage expenses
    
    
    528,180
    
    
    
    522,117
    
    
    
    419,169Vessel operating expenses
    
    
    464,543
    
    
    
    257,350
    
    
    
    206,749Time-charter hire expenses
    
    
    467,364
    
    
    
    402,522
    
    
    
    467,990Depreciation and amortization
    
    
    329,113
    
    
    
    223,965
    
    
    
    205,529General and administrative
    
    
    238,148
    
    
    
    177,915
    
    
    
    159,707Gain on sale of vessels and equipment  net of write-downs (note 18)
    
    
    (18,630
    )
    
    
    (1,341
    )
    
    
    (139,184
    )Restructuring charge (note 14)
    
    
    
    
    
    
    8,929
    
    
    
    2,882Total operating expenses
    
    
    2,008,718
    
    
    
    1,591,457
    
    
    
    1,322,842Income from vessel operations
    
    
    397,904
    
    
    
    421,849
    
    
    
    631,776OTHER ITEMSInterest expense
    
    
    (287,558
    )
    
    
    (171,643
    )
    
    
    (132,428
    )Interest income
    
    
    82,158
    
    
    
    56,224
    
    
    
    33,943Foreign exchange (loss) gain (note 8)
    
    
    (22,106
    )
    
    
    (45,382
    )
    
    
    59,810Minority interest expense
    
    
    (9,663
    )
    
    
    (441
    )
    
    
    (16,628
    )Other  net (note 14)
    
    
    20,516
    
    
    
    1,637
    
    
    
    (5,573
    )Total other items
    
    
    (216,653
    )
    
    
    (159,605
    )
    
    
    (60,876
    )Net income
    
    
    181,251
    
    
    
    262,244
    
    
    
    570,900Per common share amounts Basic earnings (note 19)
    
    
    2.47
    
    
    
    3.58
    
    
    
    7.30 Diluted earnings (note 19)
    
    
    2.43
    
    
    
    3.49
    
    
    
    6.83 Cash dividends declared
    
    
    0.9875
    
    
    
    0.8600
    
    
    
    0.6200Weighted-average number of common shares(note 19) Basic
    
    
    73,382,197
    
    
    
    73,180,193
    
    
    
    78,201,996 Diluted
    
    
    74,735,356
    
    
    
    75,128,724
    
    
    
    83,547,686
 The accompanying notes are an integral part of the consolidated financial statements.
  F-3




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
 As at
    
    
    As atDecember 31, 2007
    
    
    December 31, 2006$
    
    
    $ASSETSCurrentCash and cash equivalents (note 8)
    
    
    442,673
    
    
    
    343,914Restricted cash  current (note 10)
    
    
    33,479
    
    
    
    64,243Accounts receivable, including non-trade of $35,410 (2006 - $7,969)
    
    
    262,420
    
    
    
    191,963Vessels held for sale (note 18a)
    
    
    79,689
    
    
    
    20,754Net investment in direct financing leases  current
    
    
    22,268
    
    
    
    21,926Prepaid expenses
    
    
    126,761
    
    
    
    78,495Other assets
    
    
    50,097
    
    
    
    25,845Total current assets
    
    
    1,017,387
    
    
    
    764,156Restricted cash  long term (note 10)
    
    
    652,717
    
    
    
    615,749Vessels and equipment(note 8)At cost,
less accumulated depreciation of $1,061,619 (2006 - $859,014)
    
    
    5,295,751
    
    
    
    4,271,387Vessels under capital leases, at cost, less accumulated depreciation of $74,442
(2006  $42,609) (note 10)
    
    
    617,066
    
    
    
    654,022Advances on newbuilding contracts (note 16)
    
    
    934,058
    
    
    
    382,659Total vessels and equipment
    
    
    6,846,875
    
    
    
    5,308,068Net investment in direct financing leases
    
    
    78,908
    
    
    
    86,470Investment in joint ventures (note 16)
    
    
    135,515
    
    
    
    124,295Derivative instruments (note 15)
    
    
    39,148
    
    
    
    54,383Loans to joint ventures
    
    
    366,716
    
    
    
    74,333Other non-current assets
    
    
    228,345
    
    
    
    158,745Intangible assets  net (note 6)
    
    
    259,952
    
    
    
    280,559Goodwill (note 6)
    
    
    434,590
    
    
    
    266,718Total assets
    
    
    10,060,153
    
    
    
    7,733,476LIABILITIES AND STOCKHOLDERS EQUITYCurrentAccounts payable
    
    
    89,691
    
    
    
    69,593Accrued liabilities (note 7)
    
    
    274,944
    
    
    
    243,163Current portion of long-term debt (note 8)
    
    
    324,082
    
    
    
    218,281Current obligation under capital leases (note 10)
    
    
    150,791
    
    
    
    150,762Current portion of in-process revenue contracts (note 6)
    
    
    82,704
    
    
    
    93,938Total current liabilities
    
    
    922,212
    
    
    
    775,737Long-term debt (note 8)
    
    
    4,578,908
    
    
    
    2,943,265Long-term obligation under capital leases (note 10)
    
    
    706,489
    
    
    
    407,375Derivative instruments (note 15)
    
    
    129,079
    
    
    
    50,471Deferred income tax (note 1)
    
    
    77,023
    
    
    
    72,393Asset retirement obligation (note 1)
    
    
    24,549
    
    
    
    21,215In-process revenue contracts (note 6)
    
    
    205,429
    
    
    
    317,835Other long-term liabilities
    
    
    201,100
    
    
    
    162,560Total liabilities
    
    
    6,844,789
    
    
    
    4,750,851Commitments and contingencies (notes 9, 10, 15 and 16)Minority interest
    
    
    527,494
    
    
    
    454,403Stockholders equityCommon stock and additional paid in capital ($0.001 par value;
725,000,000 shares authorized; 72,772,529 shares outstanding (2006 -
72,831,923); 95,327,329 shares issued (2006 - 93,875,423)) (note 12)
    
    
    628,786
    
    
    
    596,712Retained earnings
    
    
    2,163,189
    
    
    
    1,943,397Accumulated other comprehensive loss (note 11)
    
    
    (104,105
    )
    
    
    (11,887
    )Total stockholders equity
    
    
    2,687,870
    
    
    
    2,528,222Total liabilities and stockholders equity
    
    
    10,060,153
    
    
    
    7,733,476
 The accompanying notes are an integral part of the consolidated financial statements.
  F-4




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005$
    
    
    $
    
    
    $Cash and cash equivalents provided by (used for)OPERATING ACTIVITIESNet income
    
    
    181,251
    
    
    
    262,244
    
    
    
    570,900Non-cash items:Depreciation and amortization
    
    
    329,113
    
    
    
    223,965
    
    
    
    205,529Amortization of in-process revenue contracts
    
    
    (70,979
    )
    
    
    (22,404
    )
    
    
    Gain on sale of marketable securities
    
    
    (9,577
    )
    
    
    (1,422
    )
    
    
    Gain on sale of vessels
    
    
    (18,630
    )
    
    
    (9,041
    )
    
    
    (151,427
    )Loss on write-down of vessels and equipment
    
    
    
    
    
    
    7,700
    
    
    
    12,243Loss on repurchase of bonds
    
    
    947
    
    
    
    375
    
    
    
    13,255Equity income (net of dividends received: December 31, 2007 - $661; December 31, 2006  $6,585; December 31, 2005 - $9,227)
    
    
    11,419
    
    
    
    645
    
    
    
    (1,914
    )Income taxes
    
    
    (5,509
    )
    
    
    7,869
    
    
    
    (2,340
    )Employee stock option compensation
    
    
    9,676
    
    
    
    9,297
    
    
    
    Foreign exchange (gain) loss and other  net
    
    
    9,635
    
    
    
    47,248
    
    
    
    (7,892
    )Change in non-cash working capital items related to operating activities (note 17a)
    
    
    (47,514
    )
    
    
    50,360
    
    
    
    (8,644
    )Expenditures for drydocking
    
    
    (85,403
    )
    
    
    (31,120
    )
    
    
    (20,668
    )Distribution from subsidiaries to minority owners
    
    
    (49,411
    )
    
    
    (24,931
    )
    
    
    (14,093
    )Net operating cash flow
    
    
    255,018
    
    
    
    520,785
    
    
    
    594,949FINANCING ACTIVITIESProceeds from issuance of long-term debt
    
    
    3,894,401
    
    
    
    2,129,649
    
    
    
    2,472,316Debt issuance costs
    
    
    (14,135
    )
    
    
    (19,424
    )
    
    
    (8,495
    )Repayments of long-term debt
    
    
    (2,178,464
    )
    
    
    (1,300,172
    )
    
    
    (2,690,866
    )Repayments of capital lease obligations
    
    
    (30,999
    )
    
    
    (153,395
    )
    
    
    (78,919
    )Proceeds from loans from joint venture partner
    
    
    44,185
    
    
    
    4,280
    
    
    
    33,500Repayment of loans from joint venture partner
    
    
    (68,968
    )
    
    
    
    
    
    
    Decrease / (increase) in restricted cash
    
    
    24,322
    
    
    
    (328,035
    )
    
    
    81,304Net proceeds from sale of Teekay Offshore Partners L.P. units (note 5)
    
    
    
    
    
    
    156,711
    
    
    
    Net proceeds from sale of Teekay LNG Partners L.P. units (note 5)
    
    
    84,185
    
    
    
    
    
    
    
    257,986Net proceeds from sale of Teekay Tankers Ltd. shares (note 5)
    
    
    208,186
    
    
    
    
    
    
    
    Issuance of Common Stock upon exercise of stock options
    
    
    34,508
    
    
    
    15,325
    
    
    
    20,359Repurchase of Common Stock (note 12)
    
    
    (80,430
    )
    
    
    (233,305
    )
    
    
    (538,377
    )Investment in subsidiaries from minority owners
    
    
    
    
    
    
    
    
    
    
    25,329Settlement of interest rate swaps
    
    
    
    
    
    
    
    
    
    
    (143,295
    )Cash dividends paid
    
    
    (72,499
    )
    
    
    (63,065
    )
    
    
    (49,151
    )Net financing cash flow
    
    
    1,844,292
    
    
    
    208,569
    
    
    
    (618,309
    )INVESTING ACTIVITIESExpenditures for vessels and equipment
    
    
    (910,304
    )
    
    
    (442,470
    )
    
    
    (555,142
    )Proceeds from sale of vessels and equipment
    
    
    214,797
    
    
    
    326,901
    
    
    
    534,007Purchases of marketable securities
    
    
    (59,165
    )
    
    
    
    
    
    
    Proceeds from sale of marketable securities
    
    
    57,093
    
    
    
    8,898
    
    
    
    Purchase of OMI Corporation, net of cash acquired of $427 (note 4)
    
    
    (1,108,216
    )
    
    
    
    
    
    
    Purchase of Petrojarl ASA, net of cash acquired of $71,728 (note 3)
    
    
    (1,210
    )
    
    
    (464,823
    )
    
    
    Investment in joint ventures
    
    
    (16,975
    )
    
    
    (9,868
    )
    
    
    (82,399
    )Loans to joint ventures
    
    
    (209,335
    )
    
    
    (61,333
    )
    
    
    (13,000
    )Investment in direct financing lease assets
    
    
    (13,947
    )
    
    
    (13,420
    )
    
    
    (23,708
    )Direct financing lease payments received
    
    
    21,151
    
    
    
    19,323
    
    
    
    12,440Other investing activities
    
    
    25,560
    
    
    
    14,368
    
    
    
    (38,891
    )Net investing cash flow
    
    
    (2,000,551
    )
    
    
    (622,424
    )
    
    
    (166,693
    )Increase (decrease) in cash and cash equivalents
    
    
    98,759
    
    
    
    106,930
    
    
    
    (190,053
    )Cash and cash equivalents, beginning of the year
    
    
    343,914
    
    
    
    236,984
    
    
    
    427,037Cash and cash equivalents, end of the year
    
    
    442,673
    
    
    
    343,914
    
    
    
    236,984
 note 17b  The accompanying notes are an integral part of the consolidated financial statements.
  F-5




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(in thousands of U.S. dollars)
 Common
    
    
    
    
    
    
    AccumulatedThousands
    
    
    Stock and
    
    
    
    
    
    
    Other
    
    
    Totalof
    
    
    Additional
    
    
    
    
    
    
    Comprehensive
    
    
    Stock-Common
    
    
    Paid-in
    
    
    Retained
    
    
    Income
    
    
    holdersShares
    
    
    Capital
    
    
    Earnings
    
    
    (Loss)
    
    
    Equity#
    
    
    $
    
    
    $
    
    
    $
    
    
    $Balance as at December 31, 2004
    
    
    82,951
    
    
    
    534,938
    
    
    
    1,758,552
    
    
    
    (56,132
    )
    
    
    2,237,358Net income
    
    
    
    
    
    
    
    
    
    
    570,900
    
    
    
    
    
    
    
    570,900Other comprehensive income:Unrealized loss on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,348
    )
    
    
    (1,348
    )Unrealized net loss on qualifying cash flow hedging
instruments (note 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,370
    )
    
    
    (25,370
    )Realized net loss on qualifying cash flow hedging
instruments (note 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,020
    
    
    
    14,020Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    558,202Dividends declared
    
    
    
    
    
    
    
    
    
    
    (49,155
    )
    
    
    
    
    
    
    (49,155
    )Reinvested dividends
    
    
    1
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Exercise of stock options
    
    
    1,098
    
    
    
    20,359
    
    
    
    
    
    
    
    
    
    
    
    20,359Issuance of Common Stock (note 12)
    
    
    9
    
    
    
    297
    
    
    
    
    
    
    
    
    
    
    
    297Repurchase of Common Stock (note 12)
    
    
    (12,683
    )
    
    
    (83,814
    )
    
    
    (454,563
    )
    
    
    
    
    
    
    (538,377
    )Gain on public offering of Teekay LNG (note 5)
    
    
    
    
    
    
    
    
    
    
    7,854
    
    
    
    
    
    
    
    7,854Balance as at December 31, 2005
    
    
    71,376
    
    
    
    471,784
    
    
    
    1,833,588
    
    
    
    (68,830
    )
    
    
    2,236,542Net income
    
    
    
    
    
    
    
    
    
    
    262,244
    
    
    
    
    
    
    
    262,244Other comprehensive income:Unrealized gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,370
    
    
    
    8,370Unrealized net gain on qualifying cash flow hedging
instruments (note 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,332
    
    
    
    45,332Reclassification adjustment for gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,422
    )
    
    
    (1,422
    )Realized net loss on qualifying cash flow hedging
instruments (note 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,663
    
    
    
    4,663Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319,187Dividends declared
    
    
    
    
    
    
    
    
    
    
    (63,071
    )
    
    
    
    
    
    
    (63,071
    )Reinvested dividends
    
    
    1
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6Exercise of stock options
    
    
    745
    
    
    
    15,325
    
    
    
    
    
    
    
    
    
    
    
    15,325Issuance of Common Stock (note 12)
    
    
    13
    
    
    
    429
    
    
    
    
    
    
    
    
    
    
    
    429Repurchase of Common Stock (note 12)
    
    
    (5,837
    )
    
    
    (42,132
    )
    
    
    (191,173
    )
    
    
    
    
    
    
    (233,305
    )Settlement of the Premium Equity Participating Security Units
    
    
    6,534
    
    
    
    142,003
    
    
    
    
    
    
    
    
    
    
    
    142,003Employee stock option compensation (note 12)
    
    
    
    
    
    
    9,297
    
    
    
    
    
    
    
    
    
    
    
    9,297Gain on public offering of Teekay Offshore (note 5)
    
    
    
    
    
    
    
    
    
    
    101,809
    
    
    
    
    
    
    
    101,809Balance as at December 31, 2006
    
    
    72,832
    
    
    
    596,712
    
    
    
    1,943,397
    
    
    
    (11,887
    )
    
    
    2,528,222Net income
    
    
    
    
    
    
    
    
    
    
    181,251
    
    
    
    
    
    
    
    181,251Other comprehensive income:Unrealized gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,612
    
    
    
    19,612Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,278
    )
    
    
    (6,278
    )Unrealized net loss on qualifying cash flow hedging
instruments (note 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58,286
    )
    
    
    (58,286
    )Reclassification adjustment for gain on marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,887
    )
    
    
    (17,887
    )Realized net gain on qualifying cash flow hedging
instruments (note 15)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29,379
    )
    
    
    (29,379
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,033Dividends declared
    
    
    
    
    
    
    
    
    
    
    (72,508
    )
    
    
    
    
    
    
    (72,508
    )Reinvested dividends
    
    
    1
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    9Change in accounting policy (note 1)
    
    
    
    
    
    
    
    
    
    
    (1,011
    )
    
    
    
    
    
    
    (1,011
    )Exercise of stock options
    
    
    1,435
    
    
    
    34,508
    
    
    
    
    
    
    
    
    
    
    
    34,508Issuance of Common Stock (note 12)
    
    
    15
    
    
    
    589
    
    
    
    
    
    
    
    
    
    
    
    589Proportionate share of gain on sale of assets to non-wholly owned subsidiary
    
    
    
    
    
    
    
    
    
    
    17,806
    
    
    
    
    
    
    
    17,806Repurchase of Common Stock (note 12)
    
    
    (1,511
    )
    
    
    (12,708
    )
    
    
    (67,722
    )
    
    
    
    
    
    
    (80,430
    )Employee stock option compensation (note 12)
    
    
    
    
    
    
    9,676
    
    
    
    
    
    
    
    
    
    
    
    9,676Gain on public offerings of Teekay LNG and
Teekay Tankers (note 5)
    
    
    
    
    
    
    
    
    
    
    161,976
    
    
    
    
    
    
    
    161,976Balance as at December 31, 2007
    
    
    72,772
    
    
    
    628,786
    
    
    
    2,163,189
    
    
    
    (104,105
    )
    
    
    2,687,870
 The accompanying notes are an integral part of the consolidated financial statements.
  F-6




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
 1.
    
    Summary of Significant Accounting PoliciesBasis of presentationThe consolidated financial statements have been prepared in conformity with United States
generally accepted accounting principles. 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). Significant intercompany
balances and transactions have been eliminated upon consolidation. Additionally, the Company consolidates variable interest entities (or VIEs) for which it is
deemed to be the primary beneficiary.The preparation of financial statements in conformity with United States generally accepted
accounting principles 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. In particular, the Foinaven contract provides for an adjustment to the
amount paid to the Company in connection with the Foinaven floating production, storage and
offloading (or FPSO) unit, and the Company has requested an adjustment of the amounts payable to
it under the terms of that provision. The Companys cash flow projections relating to this FPSO
unit are based on its assessment of the likely outcome of these discussions. While the Company
anticipates certain increases to the rates it will receive under this contract, should there be
a negative outcome to these discussions, the Company will likely need to complete an impairment
test on both the FPSO unit and the FPSO reporting unit goodwill, which could result in a
write-down in the carrying value of the vessel and goodwill.Certain of the comparative figures have been reclassified to conform with the presentation
adopted in the current period.Reporting currencyThe consolidated financial statements are stated in U.S. Dollars. The functional currency of
the Company is U.S. Dollars because the Company operates in international shipping markets,
which typically utilize the U.S. Dollar as the functional currency. Transactions involving other
currencies during the year are converted into U.S. Dollars using the exchange rates in effect at
the time of the transactions. At the balance sheet date, monetary assets and liabilities that
are denominated in currencies other than the U.S. Dollar are translated to reflect the year-end
exchange rates. Resulting gains or losses are reflected separately in the accompanying
consolidated statements of income.Operating revenues and expensesThe Company recognizes revenues from time-charters and bareboat charters daily over the term of
the charter as the applicable vessel operates under the charter. The Company does not recognize
revenue during days that the vessel is off-hire. When the time-charter contains a profit-sharing
agreement, the Company recognizes the profit-sharing or contingent revenue only after meeting
the profit sharing threshold. All revenues from voyage charters are recognized on a percentage
of completion method. The Company uses a discharge-to-discharge basis in determining percentage
of completion for all spot voyages and voyages servicing contracts of affreightment, whereby it
recognizes revenue ratably from when product is discharged (unloaded) at the end of one voyage
to when it is discharged after the next voyage. The Company does not begin recognizing revenue
until a charter has been agreed to by the customer and the Company, even if the vessel has
discharged its cargo and is sailing to the anticipated load port on its next voyage. Shuttle
tanker voyages servicing contracts of affreightment with offshore oil fields commence with
tendering of notice of readiness at a field, within the agreed lifting range, and ends with
tendering of notice of readiness at a field for the next lifting. Revenues from floating
production, storage and offloading service contracts are recognized as service is performed. The
consolidated balance sheets reflect the deferred portion of revenues and expenses, which will be
earned in subsequent periods.Revenues and voyage expenses of the Companys vessels operating in pool arrangements are pooled
with the revenues and voyage expenses of other pool participants. The resulting net pool
revenues, calculated on the time-charter-equivalent basis, are allocated to the pool
participants according to an agreed formula. The Company accounts for the net allocation from
the pool as revenues and amounts due from the pool are included in accounts receivable.Voyage expenses are all expenses unique to a particular voyage, including bunker fuel expenses,
port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions.
Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils
and communication expenses. Voyage expenses and vessel operating expenses are recognized when
incurred. For periods prior to October 1, 2006, the Company recognized voyage expenses ratably
over the length of each voyage. The impact of recognizing voyage expenses ratably over the
length of each voyage was not materially different on a quarterly and annual basis from
recognizing such costs as incurred.Cash and cash equivalentsThe Company classifies all highly liquid investments with a maturity date of three months or
less when purchased as cash equivalents.Accounts receivable and allowance for doubtful accountsAccounts receivable are recorded at the invoiced amount and do not bear interest. The allowance
for doubtful accounts is the Companys best estimate of the amount of probable credit losses in
existing accounts receivable. The Company determines the allowance based on historical write-off
experience and customer economic data. The Company reviews the allowance for doubtful accounts
regularly and past due balances are reviewed for collectibility. Account balances are charged
off against the allowance when the Company believes that the receivable will not be recovered.
  F-7




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
 Marketable securitiesThe Companys investments in marketable securities are classified as available-for-sale
securities and are carried at fair value. Net unrealized gains and losses on available-for-sale
securities are reported as a component of accumulated other comprehensive income (loss).
Realized gains and losses on available-for-sale securities are computed based upon the
historical cost of these securities applied using the weighted-average historical cost method.The Company analyzes its available-for-sale securities for impairment during each reporting
period to evaluate whether an event or change in circumstances has occurred in that period that
may have a significant adverse effect on the fair value of the investment. The Company records
an impairment charge through current-period earnings and adjusts the cost basis for such
other-than-temporary declines in fair value when the fair value is not anticipated to recover
above cost within a three-month period after the measurement date, unless there are mitigating
factors that indicate an impairment charge through earnings may not be required. If an
impairment charge is recorded, subsequent recoveries in fair value are not reflected in earnings
until sale of the security.Vessels and equipmentAll pre-delivery costs incurred during the construction of newbuildings, including interest,
supervision and technical costs, are capitalized. The acquisition cost and all costs incurred to
restore used vessels purchased by the Company to the standard required to properly service the
Companys customers are capitalized.Depreciation is calculated on a straight-line basis over a vessels estimated useful life, less
an estimated residual value. Depreciation is calculated using an estimated useful life of 25
years for crude oil tankers, 25 to 30 years for floating production, storage and offloading (or
FPSO) units and 35 years for liquefied natural gas (or LNG) and liquefied petroleum gas (or LPG)
carriers, commencing the date the vessel is delivered from the shipyard, or a shorter period if
regulations prevent the Company from operating the vessels for 25 years or 35 years,
respectively. Depreciation of vessels and equipment for the years ended December 31, 2007, 2006
and 2005 aggregated $279.7 million, $186.6 million and $166.5 million, respectively.
Depreciation includes depreciation on all owned vessels and amortization of vessels accounted
for as capital leases.Interest costs capitalized to vessels and equipment for the years ended December 31, 2007, 2006
and 2005 aggregated $35.0 million, $15.9 million and $16.6 million, respectively.Gains on vessels sold and leased back under capital leases are deferred and amortized over the
remaining estimated useful life of the vessel. Losses on vessels sold and leased back under
capital leases are recognized immediately when the fair value of the vessel at the time of sale
and lease-back is less than its book value. In such case, the Company would recognize a loss in
the amount by which book value exceeds fair value.Generally, the Company drydocks each vessel every two and a half to five years. In addition, a
shipping society classification intermediate survey is performed on the Companys LNG carriers
between the second and third year of the five-year drydocking period. The Company capitalizes a
substantial portion of the costs incurred during drydocking and for the survey and amortizes
those costs on a straight-line basis from the completion of a drydocking or intermediate survey
to the estimated completion of the next drydocking. The Company expenses costs related to
routine repairs and maintenance performed during drydocking that do not improve or extend the
useful lives of the assets and for annual class survey costs on the Companys FPSO units. When
significant drydocking expenditures occur prior to the expiration of the original amortization
period, the remaining unamortized balance of the original drydocking cost and any unamortized
intermediate survey costs are expensed in the month of the subsequent drydocking. Amortization
of drydocking expenditures for the years ended December 31, 2007, 2006 and 2005 aggregated $23.4
million, $15.4 million and $14.9 million, respectively.Vessels and equipment that are held and used are assessed for impairment when events or
circumstances indicate the carrying amount of the asset may not be recoverable. If the assets
net carrying value exceeds the net undiscounted cash flows expected to be generated over its
remaining useful life, the carrying amount of the asset is reduced to its estimated fair value.
Estimated fair value is determined based on discounted cash flows or appraised values depending
on the nature of the asset.Direct financing leasesThe Company assembles, installs, operates and leases equipment that reduces volatile organic
compound emissions (or VOC Equipment) during loading, transportation and storage of oil and oil
products. Leasing of the VOC Equipment is accounted for as a direct financing lease, with lease
payments received by the Company being allocated between the net investment in the lease and
other income using the effective interest method so as to produce a constant periodic rate of
return over the lease term.Investment in joint venturesInvestments in companies over which the Company exercises significant influence but does not
consolidate are accounted for using the equity method, whereby the investment is carried at the
Companys original cost plus its proportionate share of undistributed earnings. The excess
carrying value of the Companys investment over its underlying equity in the net assets is
included in the consolidated balance sheet as investment in joint ventures. On December 1, 2006,
the operating agreements for five 50%-owned joint ventures, each of which owns one shuttle
tanker, were amended. These amendments resulted in the Company obtaining control of these joint
ventures and, consequently, the Company has consolidated these entities effective December 1,
2006.
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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
 Debt issuance costsDebt issuance costs, including fees, commissions and legal expenses, are capitalized and
presented as other non-current assets. Debt issuance costs of revolving credit facilities are
amortized on a straight-line basis over the term of the relevant facility. Debt issuance costs
of term loans are amortized using the effective interest rate method over the term of the
relevant loan. Amortization of debt issuance costs is included in interest expense.Derivative instrumentsAll derivative instruments are initially recorded at cost as either assets or liabilities in the
accompanying Consolidated Balance Sheet and subsequently remeasured to fair value, regardless of
the purpose or intent for holding the derivative. The method of recognising the resulting gain
or loss is dependent on whether the derivative contract is designed to hedge a specific risk and
also qualifies for hedge accounting. The Company generally designates its interest rate swap
agreements and foreign exchange forward contracts as cash flow hedges for accounting purposes.When a derivative is designated as a cash flow hedge, the Company formally documents the
relationship between the derivative and the hedged item. This documentation includes the
strategy and risk management objective for undertaking the hedge and the method that will be
used to assess the effectiveness of the hedge. Any hedge ineffectiveness is recognised
immediately in earnings, as are any gains and losses on the derivative that are excluded from
the assessment of hedge effectiveness. The Company does not apply hedge accounting if it is
determined that the hedge was not effective or will no longer be effective, the derivative was
sold or exercised, or the hedged item was sold or repaid.For derivative financial instruments designated and qualifying as cash flow hedges, changes in
the fair value of the effective portion of the derivative financial instruments are initially
recorded as a component of accumulated other comprehensive income in stockholders equity. In
the periods when the hedged items affect earnings, the associated fair value changes on the
hedging derivatives are transferred from stockholders equity to the corresponding earnings line
item. The ineffective portion of the change in fair value of the derivative financial
instruments is immediately recognised in earnings. If a cash flow hedge is terminated and the
originally hedged items is still considered possible of occurring, the gains and losses
initially recognised in stockholders equity remain there until the hedged item impacts earnings
at which point they are transferred to the corresponding earnings line item (i.e. interest
expense). If the hedged items are no longer possible of occurring, amounts recognised in
stockholders equity are immediately transferred to earnings.For derivative financial instruments that are not designated or that do not qualify as hedges
under SFAS No. 133, the changes in the fair value of the derivative financial instruments are
recognised in earnings.Gains and losses from our interest rate swaps that hedge long-term debt or capital leases are
recorded in interest expense. Gains and losses from our interest rate swaps that hedge
restricted cash deposits are recorded in interest income. Gains and losses from our foreign
exchange forward contracts are recorded in vessel operating expenses and general and
administrative expense.Cash flows from derivative instruments that are accounted for as cash flow hedges are classified
in the same category as the cash flows from the items being hedged, provided that the derivative
does not include an other-than insignificant financing element at inception.Goodwill and intangible assetsGoodwill and indefinite-lived intangible assets are not amortized, but reviewed for impairment
annually, or more frequently if impairment indicators arise. A fair value approach is used to
identify potential goodwill impairment and, when necessary, measure the amount of impairment.
The Company uses a discounted cash flow model to determine the fair value of reporting units,
unless there is a readily determinable fair market value. Intangible assets with finite lives
are amortized over their useful lives.The Companys intangible assets consist primarily of acquired time-charter contracts, contracts
of affreightment, and time-charter contracts and a tanker pool agreement. The value ascribed to
the time-charter contracts and contracts of affreightment are being amortized over the life of
the associated contract, with the amount amortized each year being weighted based on the
projected revenue to be earned under the contracts. The value ascribed to the Suezmax tanker
pool agreement is being amortized on a straight-line basis over the expected term of the
agreement.Asset retirement obligationThe Company has an asset retirement obligation relating to the sub-sea production facility
associated with the Petrojarl BanffFPSO unit operating in the North Sea. This obligation
generally involves restoration of the environment surrounding the facility and removal and
disposal of all production equipment. This obligation is expected to be settled at the end of
the contract, which is anticipated no later than 2014. The asset retirement obligation will be
covered in part by contractual payments from FPSO contract counterparties.The Company records the fair value of an asset retirement obligation as a liability in the
period when the obligation arises. The fair value of the ARO is measured using expected future
cash outflows discounted at the Companys credit-adjusted risk-free interest rate. When the
liability is recorded, the Company capitalizes the cost by increasing the carrying amount of the
related equipment. Each period, the liability is increased for the change in its present value,
and the capitalized cost is depreciated over the useful life of the related asset. Changes in
the amount or timing of the estimated asset retirement obligation are recorded as an adjustment
to the related asset. As at December 31, 2007, the asset retirement obligation and associated
receivable from third parties were $24.5 million and $7.4 million, respectively (2006  $21.2
million and $6.8 million, respectively).
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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
 Repurchase of common stockThe Company accounts for repurchases of common stock by crediting common stock by the par value
of the stock repurchased. In addition, the excess of the repurchase price over the par value is
allocated between additional paid in capital and retained earnings. This amount allocated to
additional paid in capital is the pro-rata share of the capital paid in and the balance is
allocated to retained earnings.Issuance of shares or units by subsidiariesThe Company accounts for gains or losses from the issuance of shares or units by its
subsidiaries as an adjustment to stockholders equity.Accounting for share-based paymentsEffective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No.
123(R), Share-Based Payment, using the modified prospective method. Under this transition
method, compensation cost is recognized in the 2006 financial statements for all share-based
payments granted after January 1, 2006 and for all awards granted to employees prior to, but not
yet vested as of January 1, 2006. Accordingly, prior-period amounts have not been restated. The
compensation cost of these stock units is primarily included in general and administrative
expense. For options subject to graded vesting, the Company calculates the value for the award
as if it was one single award with one expected life and amortizes the calculated expense for
the entire award on a straight-line basis over the vesting period of the award.Prior to January 1, 2006, the Company accounted for stock options under the recognition and
measurement provision using the intrinsic value method, as permitted by SFAS No. 123, Accounting
for Stock-Based Compensation. As the exercise price of the Companys employee stock options
equals the market price of underlying stock on the date of grant, no compensation expense was
recognized under APB 25.The following table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of SFAS 123, as amended by SFAS No. 123(R), to
stock-based employee compensation (see Note 12).
 Year EndedDecember 31, 2005$Net income  as reported
    
    
    570,900Less: Total stock-based compensation expense
    
    
    8,077Net income  pro forma
    
    
    562,823Basic earnings per common share:As reported
    
    
    7.30Pro forma
    
    
    7.20Diluted earnings per common share:As reported
    
    
    6.83Pro forma
    
    
    6.74
 During March 2005, the Company granted restricted stock units as incentive-based compensation to
certain employees. Each restricted stock unit was equal in value to one share of the Companys
Common Stock plus reinvested dividends from the grant date to the vesting date. Upon vesting,
the value of these restricted stock units was paid to each grantee in the form of cash. These
restricted stock units vested in three tranches; one-third in March 2006, one-third in March
2007 and one-third in November 2007. The Company recognized the cost of each of the three
payments over the period from the grant date to the vesting date of each tranche. The cost of
these restricted stock units is primarily included in general and administrative expense.Income taxesThe legal jurisdictions in which Teekay and the majority of its subsidiaries are incorporated do
not impose income taxes upon shipping-related activities. However, among others, the Companys
Australian ship-owning subsidiaries and its Norwegian subsidiaries are subject to income taxes
(see Note 14). Deferred income taxes are $77.0 million, $72.4 million and $67.3 million at
December 31, 2007, 2006 and 2005, respectively, which are primarily the result of basis
differences for vessels and equipment and long-term debt. The Company accounts for such taxes
using the liability method pursuant to SFAS No. 109, Accounting for Income Taxes.In July 2006, the Financial Accounting Standards Board (or FASB) issued FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109(or
FIN 48). This interpretation clarifies the accounting for uncertainty in income taxes recognized
in financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes.
FIN 48 requires companies to determine whether it is more-likely-than-not that a tax position
taken or expected to be taken in a tax return will be sustained upon examination, including
resolution of any related appeals or litigation processes, based on the technical merits of the
position. If a tax position meets the more-likely-than-not recognition threshold, it is measured
to determine the amount of benefit to recognize in the financial statements based on guidance in
the interpretation.The Company adopted FIN 48 as of January 1, 2007. As a result of this implementation, the
Company recognized a $1.0 million increase to its current tax liabilities and a $1.0 million
decrease to retained earnings. As of January 1, 2007 and December 31, 2007, the Company did not
have any material accrued interest and penalties relating to income taxes. As of January 1, 2007
and December 31, 2007, the Company had unrecognized tax benefits of 3.4 million Euro ($5.0
million) relating to a re-investment tax credit in one of its 2005 annual tax filings. This
filing is currently under review by the relevant tax authorities and the Company expects the
uncertainty surrounding this tax credit to be resolved within the next twelve months. If the tax
credit is approved, the Company will receive a refund for the amount of the credit, which will
be reflected as a tax recovery in the period of approval.
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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
 The Company recognizes interest and penalties related to uncertain tax positions in income tax
expense. The tax years 2003 through 2007 remain open to examination by the major taxing
jurisdictions to which the Company is subject.Comprehensive incomeThe Company follows SFAS No. 130, Reporting Comprehensive Income, which establishes standards
for reporting and displaying comprehensive income and its components in the consolidated
financial statements.As at December 31, 2007 and 2006, the Companys accumulated other comprehensive loss consisted
of the following components:
 December 31, 2007
    
    
    December 31, 2006$
    
    
    $Unrealized loss on derivative instruments
    
    
    (105,152
    )
    
    
    (17,487
    )Minimum pension liability
    
    
    (6,278
    )
    
    
    Unrealized gain on marketable securities
    
    
    7,325
    
    
    
    5,600(104,105
    )
    
    
    (11,887
    )
 Recent accounting pronouncementsIn December 2007, the FASB issued SFAS No. 141(R): Business Combinations(or SFAS 141(R)), which
replaces SFAS No. 141, Business Combinations. This statement establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the
acquiree and the goodwill acquired. SFAS 141(R) also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the business combination.
SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company is
currently evaluating the potential impact, if any, of the adoption of SFAS 141(R) on its
consolidated results of operations and financial condition.In December 2007, the FASB issued SFAS No. 160: Noncontrolling Interests in Consolidated
Financial Statements, an Amendment of Accounting Research Bulletin No. 51(or SFAS 160). This
statement establishes accounting and reporting standards for ownership interests in subsidiaries
held by parties other than the parent, the amount of consolidated net income attributable to the
parent and to the noncontrolling interest, changes in a parents ownership interest, and the
valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between
the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is
effective for fiscal years beginning after December 15, 2008. The Company is currently
evaluating the potential impact, if any, of the adoption of SFAS 160 on its consolidated results
of operations and financial condition.In February 2007, the FASBissued SFAS No. 159: The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of SFAS No.115(or SFAS 159). This statement
permits entities to choose to measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is
effective for fiscal years beginning after November 15, 2007. The Company is currently
evaluating the potential impact, if any, of the adoption of SFAS 159 on its consolidated results
of operations and financial condition.In September 2006, the FASB issued SFAS No. 157: Fair Value Measurements(or SFAS 157). This
statement defines fair value, establishes a framework for measuring fair value in GAAP, and
expands disclosures about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, and accordingly, does not require
any new fair value measurements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. In February 2008, the FASB delayed for one year the effective date of
adoption with respect to certain non-financial assets and liabilities. The Company is currently
evaluating the potential impact, if any, of the adoption of SFAS 157 on its consolidated results
of operations and financial condition.2.
    
    Segment ReportingThe Company is primarily engaged in the international marine transportation of crude oil,
clean petroleum products, LNG and LPG through the operation of its tankers and LNG and LPG
carriers, and in the offshore processing and storage of crude oil. The Companys revenues are
earned in international markets.StatoilHydro ASA, an international oil company, accounted for 20% ($472.3 million) of the
Companys consolidated revenues during the year ended December 31, 2007. The same customer
accounted for 15% ($307.9 million) of the Companys consolidated revenues during 2006 and 20%
($392.2 million) during 2005. No other customer accounted for over 10% of the Companys
consolidated revenues during any of those years. Revenues from StatoilHydro were primarily
earned by the offshore segment and spot tanker segment.The Company has four reportable segments: its offshore segment, its fixed-rate tanker segment,
its liquefied gas segment, and its spot tanker segment. The Companys offshore segment consists
of shuttle tankers, FPSO units and floating storage and offtake (or FSO) units. The Companys
fixed-rate tanker segment consists of conventional crude oil and product tankers subject to
long-term, fixed-rate time-charter contracts. The Companys liquefied gas segment consists of
LNG and LPG carriers and liquefied petroleum gas (or LPG) carriers. The Companys spot tanker
segment consists of conventional crude oil tankers and product carriers operating in the spot
market or subject to time-charters or contracts of affreightment that are priced on a
spot-market basis or are short-term, fixed-rate contracts. The Company considers contracts that
have an original term of less than three years in duration to be short-term. Segment results are
evaluated based on income from vessel operations. The accounting policies applied to the
reportable segments are the same as those used in the preparation of the Companys consolidated
financial statements.
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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
  Fixed-Rate
    
    
    Liquefied
    
    
    SpotOffshore
    
    
    Tanker
    
    
    Gas
    
    
    TankerSegment
    
    
    Segment
    
    
    Segment
    
    
    Segment
    
    
    TotalYear ended December 31, 2007
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Revenues
    
    
    992,326
    
    
    
    195,942
    
    
    
    166,981
    
    
    
    1,051,373
    
    
    
    2,406,622Voyage expenses
    
    
    117,571
    
    
    
    2,707
    
    
    
    109
    
    
    
    407,793
    
    
    
    528,180Vessel operating expenses
    
    
    301,478
    
    
    
    51,458
    
    
    
    30,239
    
    
    
    81,368
    
    
    
    464,543Time-charter hire expense
    
    
    161,876
    
    
    
    25,812
    
    
    
    
    
    
    
    279,676
    
    
    
    467,364Depreciation and amortization
    
    
    172,983
    
    
    
    36,018
    
    
    
    46,018
    
    
    
    74,094
    
    
    
    329,113General and administrative (1)
    
    
    101,119
    
    
    
    18,471
    
    
    
    21,471
    
    
    
    97,087
    
    
    
    238,148Gain on sale of vessels and equipment
    
    
    (18,630
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,630
    )Income from vessel operations
    
    
    155,929
    
    
    
    61,476
    
    
    
    69,144
    
    
    
    111,355
    
    
    
    397,904Equity loss
    
    
    
    
    
    
    (2,879
    )
    
    
    (130
    )
    
    
    (9,395
    )
    
    
    (12,404
    )Investments in joint ventures at December 31, 2007
    
    
    16
    
    
    
    4,490
    
    
    
    97,920
    
    
    
    33,089
    
    
    
    135,515Total assets at December 31, 2007
    
    
    3,187,635
    
    
    
    795,775
    
    
    
    3,011,758
    
    
    
    1,966,166
    
    
    
    8,961,334Expenditures for vessels and equipment (2)
    
    
    328,999
    
    
    
    63,698
    
    
    
    392,779
    
    
    
    124,828
    
    
    
    910,304
 Fixed-Rate
    
    
    Liquefied
    
    
    SpotOffshore
    
    
    Tanker
    
    
    Gas
    
    
    TankerSegment
    
    
    Segment
    
    
    Segment
    
    
    Segment
    
    
    TotalYear ended December 31, 2006
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Revenues
    
    
    667,847
    
    
    
    181,605
    
    
    
    104,489
    
    
    
    1,059,365
    
    
    
    2,013,306Voyage expenses
    
    
    89,642
    
    
    
    1,999
    
    
    
    975
    
    
    
    429,501
    
    
    
    522,117Vessel operating expenses
    
    
    134,866
    
    
    
    44,083
    
    
    
    18,912
    
    
    
    59,489
    
    
    
    257,350Time-charter hire expense
    
    
    170,662
    
    
    
    16,869
    
    
    
    
    
    
    
    214,991
    
    
    
    402,522Depreciation and amortization
    
    
    105,861
    
    
    
    32,741
    
    
    
    33,160
    
    
    
    52,203
    
    
    
    223,965General and administrative (1)
    
    
    58,048
    
    
    
    16,000
    
    
    
    15,685
    
    
    
    88,182
    
    
    
    177,915Gain on sale of vessels and equipment  net of write-downs
    
    
    698
    
    
    
    
    
    
    
    
    
    
    
    (2,039
    )
    
    
    (1,341
    )Restructuring charge
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,929
    
    
    
    8,929Income from vessel operations
    
    
    108,070
    
    
    
    69,913
    
    
    
    35,757
    
    
    
    208,109
    
    
    
    421,849Equity income (loss)
    
    
    5,958
    
    
    
    831
    
    
    
    (226
    )
    
    
    (623
    )
    
    
    5,940Investments in joint ventures at December 31, 2006
    
    
    20
    
    
    
    5,132
    
    
    
    86,119
    
    
    
    33,024
    
    
    
    124,295Total assets at December 31, 2006
    
    
    3,081,177
    
    
    
    678,033
    
    
    
    2,104,525
    
    
    
    1,116,145
    
    
    
    6,979,880Expenditures for vessels and equipment (2)
    
    
    118,455
    
    
    
    33,938
    
    
    
    5,092
    
    
    
    284,985
    
    
    
    442,470
 Fixed-Rate
    
    
    Liquefied
    
    
    SpotOffshore
    
    
    Tanker
    
    
    Gas
    
    
    TankerSegment
    
    
    Segment
    
    
    Segment
    
    
    Segment
    
    
    TotalYear ended December 31, 2005
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Revenues
    
    
    559,094
    
    
    
    170,256
    
    
    
    102,423
    
    
    
    1,122,845
    
    
    
    1,954,618Voyage expenses
    
    
    69,137
    
    
    
    2,919
    
    
    
    70
    
    
    
    347,043
    
    
    
    419,169Vessel operating expenses
    
    
    87,059
    
    
    
    39,731
    
    
    
    17,434
    
    
    
    62,525
    
    
    
    206,749Time-charter hire expense
    
    
    168,178
    
    
    
    26,082
    
    
    
    
    
    
    
    273,730
    
    
    
    467,990Depreciation and amortization
    
    
    89,177
    
    
    
    29,702
    
    
    
    31,545
    
    
    
    55,105
    
    
    
    205,529General and administrative (1)
    
    
    43,779
    
    
    
    12,720
    
    
    
    13,743
    
    
    
    89,465
    
    
    
    159,707Gain on sale of vessels and equipment  net of write-downs
    
    
    2,820
    
    
    
    
    
    
    
    
    
    
    
    (142,004
    )
    
    
    (139,184
    )Restructuring charge
    
    
    955
    
    
    
    
    
    
    
    
    
    
    
    1,927
    
    
    
    2,882Income from vessel operations
    
    
    97,989
    
    
    
    59,102
    
    
    
    39,631
    
    
    
    435,054
    
    
    
    631,776Equity income
    
    
    4,633
    
    
    
    1,275
    
    
    
    
    
    
    
    5,233
    
    
    
    11,141Investments in joint ventures at December 31, 2005
    
    
    29,138
    
    
    
    4,769
    
    
    
    82,399
    
    
    
    29,142
    
    
    
    145,448Total assets at December 31, 2005
    
    
    1,355,554
    
    
    
    674,067
    
    
    
    1,773,790
    
    
    
    906,028
    
    
    
    4,709,439Expenditures for vessels and equipment (2)
    
    
    13,106
    
    
    
    47,547
    
    
    
    320,361
    
    
    
    174,128
    
    
    
    555,142
 (1)
    
    Includes direct general and administrative expenses and indirect general and
administrative expenses (allocated to each segment based on estimated use of corporate
resources).(2)
    
    Excludes vessels purchased as part of the Companys acquisition of 50% of OMI
Corporation in August 2007, Petrojarl in October 2006 and Teekay Spain in April 2004.  F-12




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
  December 31, 2007
    
    
    December 31, 2006$
    
    
    $Total assets of all segments
    
    
    8,961,334
    
    
    
    6,979,880Cash and restricted cash
    
    
    446,102
    
    
    
    352,607Accounts receivable and other assets
    
    
    652,717
    
    
    
    400,989Consolidated total assets
    
    
    10,060,153
    
    
    
    7,733,476
 3.
    
    Acquisition of Petrojarl ASA
     Original at
    
    
    
    
    
    
    Revised atOctober 1, 2006
    
    
    Revisions
    
    
    October 1, 2006$
    
    
    $
    
    
    $ASSETSCash, cash equivalents and short-term restricted cash
    
    
    73,238
    
    
    
    
    
    
    
    73,238Other current assets
    
    
    48,760
    
    
    
    
    
    
    
    48,760Vessels and equipment
    
    
    1,249,253
    
    
    
    (173,580
    )
    
    
    1,075,673Other assets  long-term
    
    
    21,486
    
    
    
    (601
    )
    
    
    20,885Intangible assets subject to amortization
    
    
    49,870
    
    
    
    (49,870
    )
    
    
    Goodwill (offshore segment)
    
    
    95,465
    
    
    
    132,862
    
    
    
    228,327Total assets acquired
    
    
    1,538,072
    
    
    
    (91,189
    )
    
    
    1,446,883LIABILITIESCurrent liabilities
    
    
    60,125
    
    
    
    
    
    
    
    60,125Long-term debt
    
    
    325,000
    
    
    
    
    
    
    
    325,000Asset retirement obligation
    
    
    20,831
    
    
    
    
    
    
    
    20,831In-process revenue contracts
    
    
    434,177
    
    
    
    (74,252
    )
    
    
    359,925Other long-term liabilities
    
    
    56,822
    
    
    
    (25,073
    )
    
    
    31,749Total liabilities assumed
    
    
    896,955
    
    
    
    (99,325
    )
    
    
    797,630Minority interest
    
    
    104,337
    
    
    
    8,136
    
    
    
    112,473Net assets acquired (cash consideration)
    
    
    536,780
    
    
    
    
    
    
    
    536,780
  F-13




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
  Pro Forma
    
    
    Pro FormaYear Ended
    
    
    Year EndedDecember 31, 2006
    
    
    December 31, 2005(unaudited)
    
    
    (unaudited)$
    
    
    $Revenues
    
    
    2,284,067
    
    
    
    2,324,911Net income
    
    
    270,356
    
    
    
    573,300Earnings per common share- Basic
    
    
    3.69
    
    
    
    7.33- Diluted
    
    
    3.60
    
    
    
    6.86
 4.
    
    Acquisition of 50% of OMI Corporation
 TORM OMI
     Original at
    
    
    
    
    
    
    Revised atAugust 1, 2007
    
    
    Revisions
    
    
    August 1, 2007$
    
    
    $
    
    
    $ASSETSCash, cash equivalents and short-term restricted cash
    
    
    577
    
    
    
    
    
    
    
    577Other current assets
    
    
    67,159
    
    
    
    (31,381
    )
    
    
    35,778Vessels and equipment
    
    
    923,670
    
    
    
    
    
    
    
    923,670Other assets  long-term
    
    
    6,820
    
    
    
    31,680
    
    
    
    38,500Investment in joint venture
    
    
    64,244
    
    
    
    3,095
    
    
    
    67,339Intangible assets subject to amortization (weighted-average
amortization period of 4.2 years)
    
    
    60,540
    
    
    
    (893
    )
    
    
    59,647Goodwill (spot tanker segment)
    
    
    31,961
    
    
    
    4,119
    
    
    
    36,080Total assets acquired
    
    
    1,154,971
    
    
    
    6,620
    
    
    
    1,161,591LIABILITIESCurrent liabilities
    
    
    21,006
    
    
    
    (1,429
    )
    
    
    19,577Other long-term liabilities
    
    
    
    
    
    
    11,780
    
    
    
    11,780In-process revenue contracts
    
    
    25,402
    
    
    
    (3,811
    )
    
    
    21,591Total liabilities assumed
    
    
    46,408
    
    
    
    6,540
    
    
    
    52,948Net assets acquired (cash consideration)
    
    
    1,108,563
    
    
    
    80
    
    
    
    1,108,643
  F-14




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
  Pro Forma
    
    
    Pro FormaYear Ended
    
    
    Year EndedDecember 31, 2007
    
    
    December 31, 2006(unaudited)
    
    
    (unaudited)$
    
    
    $Revenues
    
    
    2,545,066
    
    
    
    2,288,132Gain on sale of vessels and equipment  net of write-downs
    
    
    18,630
    
    
    
    79,558Net income
    
    
    177,060
    
    
    
    367,223Earnings per common share:- Basic
    
    
    2.41
    
    
    
    5.02- Diluted
    
    
    2.32
    
    
    
    4.89
 5.
    
    Public Offerings
 Teekay Tankers Teekay LNG
  Teekay
Offshore
   Teekay
    
    
    Teekay
    
    
    Teekay
    
    
    Teekay
    
    
    TeekayTankers
    
    
    Offshore
    
    
    LNG
    
    
    LNG
    
    
    LNGInitial
    
    
    Initial
    
    
    Follow-on
    
    
    Follow-on
    
    
    InitialOffering
    
    
    Offering
    
    
    Offering
    
    
    Offering
    
    
    Offering2007
    
    
    2006
    
    
    2007
    
    
    2005
    
    
    2005$
    
    
    $
    
    
    $
    
    
    $
    
    
    $Proceeds received:
    
    
    224,250
    
    
    
    169,050
    
    
    
    87,699
    
    
    
    126,040
    
    
    
    151,800Use of proceeds:Offering expenses.
    
    
    16,064
    
    
    
    13,788
    
    
    
    3,494
    
    
    
    6,001
    
    
    
    16,089Repayment of debt and general corporate purposes
    
    
    208,186
    
    
    
    155,262
    
    
    
    84,205
    
    
    
    120,039
    
    
    
    135,711224,250
    
    
    
    169,050
    
    
    
    87,699
    
    
    
    126,040
    
    
    
    151,800
  OPCO
  F-15




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
   6.
    
    Goodwill, Intangible Assets and In-Process Revenue Contracts
 Goodwill
  Fixed-Rate
    
    
    LiquefiedOffshore
    
    
    Tanker
    
    
    Gas
    
    
    Spot TankerSegment
    
    
    Segment
    
    
    Segment
    
    
    Segment
    
    
    Other
    
    
    Total$
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Balance as of December 31, 2005
    
    
    130,548
    
    
    
    3,648
    
    
    
    35,631
    
    
    
    
    
    
    
    1,070
    
    
    
    170,897Goodwill acquired (note 3)
    
    
    95,821
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    95,821Balance as of December 31, 2006
    
    
    226,369
    
    
    
    3,648
    
    
    
    35,631
    
    
    
    
    
    
    
    1,070
    
    
    
    266,718Adjustment to goodwill acquired (note 3)
    
    
    132,862
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,862Goodwill acquired (note 4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,080
    
    
    
    
    
    
    
    36,080Disposal of reporting unit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,070
    )
    
    
    (1,070
    )Balance as of December 31, 2007
    
    
    359,231
    
    
    
    3,648
    
    
    
    35,631
    
    
    
    36,080
    
    
    
    
    
    
    
    434,590
 Intangible Assets
  Weighted-Average
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmortization Period
    
    
    Amount
    
    
    Amortization
    
    
    Amount(years)
    
    
    $
    
    
    $
    
    
    $Contracts of affreightment
    
    
    10.2
    
    
    
    124,250
    
    
    
    (68,895
    )
    
    
    55,355Time-charter contracts
    
    
    16.0
    
    
    
    232,049
    
    
    
    (37,374
    )
    
    
    194,675Other intangible assets
    
    
    5.0
    
    
    
    10,797
    
    
    
    (875
    )
    
    
    9,92213.7
    
    
    
    367,096
    
    
    
    (107,144
    )
    
    
    259,952
  Weighted-Average
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmortization Period
    
    
    Amount
    
    
    Amortization
    
    
    Amount(years)
    
    
    $
    
    
    $
    
    
    $Contracts of affreightment
    
    
    10.2
    
    
    
    124,250
    
    
    
    (57,825
    )
    
    
    66,425Time-charter contracts
    
    
    19.2
    
    
    
    182,552
    
    
    
    (22,488
    )
    
    
    160,064Customer relationships
    
    
    15.3
    
    
    
    49,870
    
    
    
    (835
    )
    
    
    49,035Intellectual property
    
    
    7.0
    
    
    
    9,588
    
    
    
    (4,553
    )
    
    
    5,03515.3
    
    
    
    366,260
    
    
    
    (85,071
    )
    
    
    280,559
  In-Process Revenue Contracts
   F-16




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
  7.
    
    Accrued Liabilities
 December 31, 2007
    
    
    December 31, 2006$
    
    
    $Voyage and vessel expenses
    
    
    142,627
    
    
    
    120,329Interest
    
    
    40,839
    
    
    
    37,135Payroll and benefits
    
    
    73,608
    
    
    
    84,031Current portion of derivative liabilities
    
    
    17,870
    
    
    
    1,668274,944
    
    
    
    243,163
 8. Long-Term Debt
 December 31, 2007
    
    
    December 31, 2006$
    
    
    $Revolving Credit Facilities
    
    
    2,393,967
    
    
    
    1,448,000Senior Notes (8.875%) due July 15, 2011
    
    
    246,059
    
    
    
    262,324USD-denominated Term Loans due through 2021
    
    
    1,801,826
    
    
    
    1,004,759Euro-denominated Term Loans due through 2023
    
    
    443,992
    
    
    
    411,319USD-denominated Unsecured Demand Loan
    
    
    17,146
    
    
    
    35,1444,902,990
    
    
    
    3,161,546Less current portion
    
    
    324,082
    
    
    
    218,2814,578,908
    
    
    
    2,943,265
 Revolvers
 8.875% Notes
      F-17




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
    9.
    
    Operating Leases
 Charters-out
   Charters-in
  10.
    
    Capital Leases and Restricted Cash
 Capital Leases
 Suezmax Tankers.
 Year
    
    Commitment2008
    
    $
    135.9 million2009
    
    $
    8.5 million2010
    
    $
    8.4 million2011
    
    $
    84.0 million
 RasGas II LNG Carriers. RasGas II LNG Carriers RasGas II
   F-18




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
  Year
    
    Commitment2008
    
    $
    24.0 million2009
    
    $
    24.0 million2010
    
    $
    24.0 million2011
    
    $
    24.0 million2012
    
    $
    24.0 millionThereafter
    
    $
    977.1 million
 Spanish-Flagged LNG Carriers.
 Year
    
    Commitment2008
    
    24.4 million Euros ($35.6 million)2009
    
    25.6 million Euros ($37.4 million)2010
    
    26.9 million Euros ($39.3 million)2011
    
    64.8 million Euros ($94.6 million)
 FPSO Units. Petrojarl Foinaven Petrojarl Banff Defeased Rental Payments
 Petrojarl Foinaven
  Restricted Cash
     11.
    
    Fair Value of Financial Instruments and Credit Risk Concentration
  Cash and cash equivalents
 Marketable securities
  F-19




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
 Long-term debt
 Derivative instruments
  December 31, 2007
    
    
    December 31, 2006Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAmount
    
    
    Value
    
    
    Amount
    
    
    Value$
    
    
    $
    
    
    $
    
    
    $Cash and cash equivalents, marketable securities,
and restricted cash
    
    
    1,175,360
    
    
    
    1,175,360
    
    
    
    1,057,023
    
    
    
    1,057,023Long-term debt
    
    
    (4,902,990
    )
    
    
    (4,886,076
    )
    
    
    (3,161,546
    )
    
    
    (3,166,344
    )Derivative instruments (note 15)Interest rate swap agreements
    
    
    (104,813
    )
    
    
    (104,813
    )
    
    
    16,144
    
    
    
    16,144Interest rate swaptions
    
    
    (2,480
    )
    
    
    (2,480
    )
    
    
    (1,252
    )
    
    
    (1,252
    )Foreign currency contracts
    
    
    35,038
    
    
    
    35,038
    
    
    
    8,065
    
    
    
    8,065Bunker fuel swap contracts
    
    
    32
    
    
    
    32
    
    
    
    (840
    )
    
    
    (840
    )Freight forward agreements
    
    
    (233
    )
    
    
    (233
    )
    
    
    268
    
    
    
    268
 12.
    
    Capital Stock
    Plans
  December 31, 2007Options
    
    
    Weighted-Average(000s)
    
    
    Exercise Price#
    
    
    $Outstanding-beginning of year
    
    
    4,405
    
    
    
    28.78Granted
    
    
    836
    
    
    
    51.44Exercised
    
    
    (1,437
    )
    
    
    24.01Forfeited
    
    
    (139
    )
    
    
    39.18Outstanding-end of year
    
    
    3,665
    
    
    
    35.42Exercisable  end of year
    
    
    2,014
    
    
    
    26.84Vested and expected to vest  end of year
    
    
    3,465
    
    
    
    34.87
  F-20




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
    Outstanding Options
    
    
    Exercisable OptionsWeighted-
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    Weighted-Options
    
    
    Average
    
    
    Average
    
    
    Options
    
    
    Average
    
    
    AverageRange of Exercise
    
    (000s)
    
    
    Remaining Life
    
    
    Exercise Price
    
    
    (000s)
    
    
    Remaining Life
    
    
    Exercise PricePrices
    
    #
    
    
    (years)
    
    
    $
    
    
    #
    
    
    (years)
    
    
    $$8.44  $9.99
    
    
    43
    
    
    
    1.4
    
    
    
    8.44
    
    
    
    43
    
    
    
    1.4
    
    
    
    8.44$10.00  $14.99
    
    
    202
    
    
    
    1.9
    
    
    
    11.99
    
    
    
    202
    
    
    
    1.9
    
    
    
    11.99$15.00  $19.99
    
    
    677
    
    
    
    4.8
    
    
    
    19.57
    
    
    
    677
    
    
    
    4.8
    
    
    
    19.57$20.00  $24.99
    
    
    234
    
    
    
    3.3
    
    
    
    20.56
    
    
    
    234
    
    
    
    3.3
    
    
    
    20.56$30.00  $34.99
    
    
    400
    
    
    
    6.2
    
    
    
    33.63
    
    
    
    400
    
    
    
    6.2
    
    
    
    33.63$35.00  $39.99
    
    
    875
    
    
    
    8.2
    
    
    
    38.94
    
    
    
    210
    
    
    
    8.2
    
    
    
    38.94$40.00  $44.99
    
    
    2
    
    
    
    7.4
    
    
    
    42.33
    
    
    
    1
    
    
    
    7.4
    
    
    
    42.33$45.00  $49.99
    
    
    430
    
    
    
    7.2
    
    
    
    46.80
    
    
    
    247
    
    
    
    7.2
    
    
    
    46.80$50.00  $54.99
    
    
    799
    
    
    
    9.2
    
    
    
    51.40
    
    
    
    
    
    
    
    
    
    
    
    $60.00  $64.99
    
    
    3
    
    
    
    9.4
    
    
    
    60.96
    
    
    
    
    
    
    
    
    
    
    
    3,665
    
    
    
    6.7
    
    
    
    35.42
    
    
    
    2,014
    
    
    
    5.2
    
    
    
    26.84
     13.
    
    Related Party Transactions
 Resolute
 14.
    
    Restructuring Charge and Other Loss
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005$
    
    
    $
    
    
    $Equity (loss) income from joint ventures
    
    
    (12,404
    )
    
    
    5,940
    
    
    
    11,141Gain on sale of marketable securities
    
    
    9,577
    
    
    
    1,422
    
    
    
    Loss on bond repurchase
    
    
    (947
    )
    
    
    (375
    )
    
    
    (13,255
    )Loss from settlement of interest rate swaps
    
    
    
    
    
    
    
    
    
    
    (7,820
    )Writeoff of capitalized debt issuance costs
    
    
    
    
    
    
    (2,790
    )
    
    
    (7,462
    )Income tax recovery (expense)
    
    
    5,509
    
    
    
    (7,869
    )
    
    
    2,340Loss on expiry of options to construct LNG carriers
    
    
    
    
    
    
    (6,102
    )
    
    
    Volatile organic compound emission plant lease income
    
    
    10,960
    
    
    
    11,445
    
    
    
    10,484Miscellaneous income (expense)
    
    
    7,821
    
    
    
    (34
    )
    
    
    (1,001
    )Other  net
    
    
    20,516
    
    
    
    1,637
    
    
    
    (5,573
    )
  F-21




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
  15.
    
    Derivative Instruments and Hedging Activities
 a) Hedges
    Contract amountin foreign
    
    
    Average
    
    
    Expected maturitycurrency
    
    
    forward rate
    
    
    2008
    
    
    2009
    
    
    2010(millions)
    
    
    
    
    
    
    (in millions of U.S. Dollars)Norwegian Kroner:
    
    
    2,116.4
    
    
    
    5.94
    
    
    $
    276.6
    
    
    $
    74.6
    
    
    $
    5.0Euro:
    
    
    20.3
    
    
    
    0.71
    
    
    $
    24.3
    
    
    $
    4.1
    
    
    
    Canadian Dollar:
    
    
    74.8
    
    
    
    1.03
    
    
    $
    57.8
    
    
    $
    14.7
    
    
    
    British Pounds:
    
    
    36.8
    
    
    
    0.51
    
    
    $
    52.3
    
    
    $
    17.6
    
    
    $
    1.9Australian Dollar:
    
    
    5.0
    
    
    
    1.25
    
    
    $
    4.0
    
    
    
    
    
    
    
    Singapore Dollar:
    
    
    14.0
    
    
    
    1.44
    
    
    $
    9.7
    
    
    
    
    
    
    
    
    Fair Value /
    
    
    Weighted-Carrying
    
    
    AveragePrincipal
    
    
    Amount of
    
    
    Remaining
    
    
    FixedInterest Rate
    
    
    Amount
    
    
    Liability
    
    
    Term
    
    
    Interest RateIndex
    
    
    $
    
    
    $
    
    
    (years)
    
    
    (%)(1)LIBOR-Based Debt:U.S. Dollar-denominated interest rate swaps (2)
    
    LIBOR
    
    
    508,557
    
    
    
    8,769
    
    
    
    29.1
    
    
    
    4.9U.S. Dollar-denominated interest rate swaps
    
    LIBOR
    
    
    2,920,126
    
    
    
    (101,767
    )
    
    
    8.0
    
    
    
    5.0U.S. Dollar-denominated interest rate swaps (3)
    
    LIBOR
    
    
    1,059,536
    
    
    
    (30,094
    )
    
    
    16.9
    
    
    
    5.3LIBOR-Based Restricted Cash Deposit:U.S. Dollar-denominated interest rate swaps (2)
    
    LIBOR
    
    
    481,469
    
    
    
    (15,315
    )
    
    
    29.1
    
    
    
    4.8EURIBOR-Based Debt:Euro-denominated interest rate swaps (4) (5)
    
    EURIBOR
    
    
    443,992
    
    
    
    33,594
    
    
    
    16.5
    
    
    
    3.8
 
 (1)
    
    Excludes the margins the Company pays on its variable-rate debt, which at of
December 31, 2007 ranged from 0.3% to 1.00%(2)
    
    Principal amount reduces quarterly.(3)
    
    Inception dates of swaps are 2008 ($151.0 million), 2009 ($408.5 million), 2010
($300.0 million) and 2011 ($200.0 million).(4)
    
    Principal amount reduces monthly to 70.1 million Euros ($102.3 million) by the
maturity dates of the swap agreements.(5)
    
    Principal amount is the U.S. Dollar equivalent of 304.3 million Euro.  F-22




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
  Interest
    
    PrincipalRate
    
    Amount(1)
    
    
    
    
    
    
    Remaining Term
    
    
    Fixed Interest RateIndex
    
    $
    
    
    Start date
    
    (years)
    
    
    (%)LIBOR
    
    
    150,000
    
    
    August 31, 2009
    
    
    12.0
    
    
    
    4.3LIBOR
    
    
    117,188
    
    
    February 15, 2008
    
    
    11.3
    
    
    
    4.0
 (1)
    
    Principal amount reduces $5.0 million semi-annually ($150.0 million) and $2.6
million quarterly ($117.2 million).      b) Other Derivatives
  16.
    
    Commitments and Contingencies
 a) Vessels Under Construction
   F-23




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
  b) Vessel Purchases
  c) Joint Ventures
 RasGas 3
  d) Long-Term Incentive Program
 VIP Economic Profit MVA
    F-24




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
 e) Other
  17.
    
    Supplemental Cash Flow Information
 a)
    
    The changes in non-cash working capital items related to operating activities for the
years ended December 31, 2007, 2006 and 2005 are as follows:
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005$
    
    
    $
    
    
    $Accounts receivable
    
    
    (44,837
    )
    
    
    (15,417
    )
    
    
    58,357Prepaid expenses and other assets
    
    
    (28,655
    )
    
    
    (21,909
    )
    
    
    (23,052
    )Accounts payable
    
    
    18,588
    
    
    
    19,262
    
    
    
    (17,690
    )Accrued and other liabilities
    
    
    7,390
    
    
    
    68,424
    
    
    
    (26,259
    )(47,514
    )
    
    
    50,360
    
    
    
    (8,644
    )
 b)
    
    During 2007, the Company took delivery of two LNG carriers (2006  one), which
commenced operations under capital leases. The present value of the minimum lease payments
for these vessels was $310.5 million. These transactions were treated as non-cash
transactions in the Companys consolidated statement of cash flows.c)
    
    Cash interest paid during the years ended December 31, 2007, 2006 and 2005 totaled
$303.5 million, $181.6 million and $148.9 million, respectively.
 18.
    
    Vessel Sales and Write-downs on Vessels and Equipment
 a) Vessel Sales
       b) Equipment Write-downs
 VOC
  F-25




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##### Table of Contents



TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Contd)
(all tabular amounts stated in thousands of U.S. dollars, other than share data)
 19. Earnings Per Share
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005$
    
    
    $
    
    
    $Net income available for common stockholders
    
    
    181,251
    
    
    
    262,244
    
    
    
    570,900Weighted-average number of common shares
    
    
    73,382,197
    
    
    
    73,180,193
    
    
    
    78,201,996Dilutive effect of employee stock options
and restricted stock awards
    
    
    1,317,879
    
    
    
    1,589,914
    
    
    
    2,110,373Dilutive effect of Equity Units
    
    
    35,280
    
    
    
    358,617
    
    
    
    3,235,317Common stock and common stock equivalents
    
    
    74,735,356
    
    
    
    75,128,724
    
    
    
    83,547,686Earnings per common share:- Basic
    
    
    2.47
    
    
    
    3.58
    
    
    
    7.30- Diluted
    
    
    2.43
    
    
    
    3.49
    
    
    
    6.83
  20.
    
    Valuation and Qualifying Accounts
 Balance at
    
    
    Balance atbeginning of year
    
    
    end of year$
    
    
    $Allowance for bad debts:Year ended December 31, 2006
    
    
    1,706
    
    
    
    1,765Year ended December 31, 2007
    
    
    1,765
    
    
    
    1,256Restructuring cost accrual:Year ended December 31, 2006:
    
    
    1,171
    
    
    
    2,147Year ended December 31, 2007:
    
    
    2,147
    
    
    
    
 21.
    
    Subsequent Events
   F-26




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##### Table of Contents



EXHIBIT INDEX
 1.1
    
    Amended and Restated Articles of Incorporation of Teekay Corporation.1.2
    
    Articles of Amendment of Articles of Incorporation of Teekay Corporation.4.15
    
    Agreement, dated November 28, 2007 for a U.S. $845,000,000 Secured Reducing
Revolving Loan Facility among Teekay Corporation, Teekay Tankers Ltd., Nordea
Bank Finland PLC and various other banks.8.1
    
    List of Significant Subsidiaries.12.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Teekays Chief Executive Officer.12.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Teekays Chief Financial Officer.13.1
    
    Teekay Corporation Certification of Bjorn Moller, Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.13.2
    
    Teekay Corporation Certification of Vincent Lok, Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.23.1
    
    Consent of Ernst & Young LLP, as independent registered public accounting firm.
  F-27