UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

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

For the quarterly period ended June 30, 2008

Commission file number 1- 12874

TEEKAY CORPORATION

(Exact name of Registrant as specified in its charter)

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

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

Form 20-F þ Form 40- F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).

Yes o No þ

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).

Yes o No þ

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-  _____ 

 

 

TEEKAY CORPORATION AND SUBSIDIARIES

REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008

INDEX

		PAGE
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)			3
Unaudited Consolidated Statements of Income for the three and six months ended June 30, 2008 and 2007			3
Unaudited Consolidated Balance Sheets as at June 30, 2008 and December 31, 2007			4
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007			5
Notes to the Unaudited Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures about Market Risk			41
PART II: OTHER INFORMATION			44
SIGNATURES			46

ITEM 1 — FINANCIAL STATEMENTS

TEEKAY CORPORATION AND SUBSIDIARIES

		Three Months Ended June 30								Six Months Ended June 30
		2008				2007				2008				2007
		$				$				$				$
						(Restated -								(Restated -
						Note 19)								Note 19)
REVENUES (note 16)			769,399				565,736				1,512,771				1,143,984
OPERATING EXPENSES
Voyage expenses			189,515				122,508				358,976				239,987
Vessel operating expenses (note 16)			159,470				103,903				302,519				199,093
Time-charter hire expense (note 16)			142,682				100,958				287,166				199,315
Depreciation and amortization (note 21)			106,700				68,095				204,407				147,358
General and administrative expenses (note 16)			70,882				56,265				135,521				115,245
Gain on sale of vessels and equipment (note 13)			(2,925	)			(11,613	)			(3,421	)			(11,613	)
Restructuring charge (note 14)			4,617				—				6,117				—
Total operating expenses			670,941				440,116				1,291,285				889,385
Income from vessel operations			98,458				125,620				221,486				254,599
OTHER ITEMS
Interest gain (expense) (note 16)			113,962				68,956				(168,286	)			13,051
Interest (loss) income (note 16)			(2,149	)			422				58,460				15,376
Foreign exchange loss (note 8)			(1,807	)			(8,635	)			(33,799	)			(10,311	)
Minority interest expense			(38,822	)			(24,076	)			(12,262	)			(31,831	)
Other — net (note 14)			13,777				5,330				12,691				11,716
Total other items			84,961				41,997				(143,196	)			(1,999	)
Net income			183,419				167,617				78,290				252,600
Per common share amounts
• Basic earnings (note 17)			2.53				2.27				1.08				3.44
• Diluted earnings (note 17)			2.50				2.23				1.07				3.37
• Cash dividends declared			0.2750				0.2375				0.5500				0.4750
Weighted average number of common shares (note 17)
• Basic			72,377,684				73,843,784				72,511,041				73,488,668
• Diluted			73,279,213				75,310,567				73,357,190				74,929,991

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

TEEKAY CORPORATION AND SUBSIDIARIES

		As at				As at
		June 30, 2008				December 31, 2007
		$				$
ASSETS
Current
Cash and cash equivalents (note 8)			498,933				442,673
Restricted cash — current (note 9)			53,067				33,479
Accounts receivable			336,607				262,420
Vessels held for sale (note 13)			18,203				79,689
Net investment in direct financing leases — current			21,727				22,268
Prepaid expenses			135,691				126,761
Other assets			67,481				57,609
Total current assets			1,131,709				1,024,899
Restricted cash — long-term (note 9)			661,758				652,717
Vessels and equipment (note 8)
At cost, less accumulated depreciation of $1,185,062 (2007 — $1,061,619)			5,738,013				5,295,751
Vessels under capital lease, at cost, less accumulated amortization of $90,095 (2007 — $74,442) (note 9)			926,140				934,058
Advances on newbuilding contracts (note 11)			693,292				617,066
Total vessels and equipment			7,357,445				6,846,875
Net investment in direct financing leases — non-current			68,181				78,908
Investment in joint ventures (note 11)			135,941				135,515
Derivative instruments (note 16)			41,493				39,381
Loans to joint ventures			912,597				729,429
Other non-current assets			200,157				219,923
Intangible assets — net (note 6)			256,070				259,952
Goodwill (note 6)			491,911				434,590
Total assets			11,257,262				10,422,189
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current
Accounts payable			94,082				89,691
Accrued liabilities			347,135				278,587
Current portion of long-term debt (note 8)			289,717				331,594
Current obligation under capital leases (note 9)			41,925				150,791
Current portion of in-process revenue contracts (note 6)			76,784				82,704
Total current liabilities			849,643				933,367
Long-term debt (note 8)			5,457,031				4,931,990
Long-term obligation under capital leases (note 9)			830,639				706,489
Derivative instruments (note 16)			158,048				164,769
Deferred income tax			74,715				78,623
Asset retirement obligation			25,506				24,549
In-process revenue contracts (note 6)			285,989				205,429
Other long-term liabilities			174,813				176,680
Total liabilities			7,856,384				7,221,896
Commitments and contingencies (notes 9, 11 and 16)
Minority interest			670,193				544,339
Stockholders’ equity
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 72,458,908 shares outstanding (2007 — 72,772,529); 72,958,108 shares issued (2007 — 95,327,329)) (note 10)			634,755				628,786
Retained earnings			2,096,949				2,022,601
Accumulated other comprehensive (loss) income (note 15)			(1,019	)			4,567
Total stockholders’ equity			2,730,685				2,655,954
Total liabilities and stockholders’ equity			11,257,262				10,422,189

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

TEEKAY CORPORATION AND SUBSIDIARIES

		Six Months Ended June 30
		2008				2007
		$				$
						(Restated -
						Note 19)
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income			78,290				252,600
Non-cash items:
Depreciation and amortization			204,407				147,358
Amortization of in-process revenue contracts			(34,870	)			(30,547	)
Gain on sale of marketable securities			(4,576	)			(6,653	)
Gain on sale of vessels and equipment			(3,421	)			(11,613	)
Loss on repurchase of bonds			1,310				—
Equity income (net of dividends received: June 30, 2008 and 2007 — $nil)			5,672				3,687
Income taxes			(8,718	)			(3,041	)
Employee stock-based compensation			6,183				4,708
Foreign exchange loss and other — net			34,412				49,805
Unrealized gains on derivative instruments			24,058				(136,597	)
Change in non-cash working capital items related to operating activities			(75,554	)			(60,028	)
Expenditures for drydocking			(28,227	)			(40,623	)
Distribution from subsidiaries to minority owners			(34,546	)			(16,354	)
Net operating cash flow			164,420				152,702
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt			1,284,496				1,998,316
Debt issuance costs			(5,108	)			(4,382	)
Repayments of long-term debt			(837,641	)			(737,938	)
Repayments of capital lease obligations			(4,495	)			(4,384	)
Proceeds from loan from joint venture partner			1,041				22,093
Increase in restricted cash			(11,503	)			(79,230	)
Net proceeds from sale of Teekay LNG Partners L.P. units			148,345				84,186
Net proceeds from sale of Teekay Offshore Partners L.P. units			134,265				—
Issuance of Common Stock upon exercise of stock options			4,009				27,326
Repurchase of Common Stock			(20,512	)			(3,035	)
Cash dividends paid			(40,028	)			(34,897	)
Other financing activities			(2,715	)			(3,643	)
Net financing cash flow			650,154				1,264,412
INVESTING ACTIVITIES
Expenditures for vessels and equipment			(410,495	)			(356,104	)
Proceeds from sale of vessels and equipment			79,224				118,975
Purchases of marketable securities			(542	)			(28,636	)
Proceeds from sale of marketable securities			11,058				49,059
Acquisition of 50% of OMI Corporation			—				(896,841	)
Acquisition of additional 30.1% of Teekay Petrojarl ASA			(257,142	)			—
Loans to joint ventures			(211,491	)			(354,341	)
Investment in direct financing lease assets			(30	)			(7,530	)
Direct financing lease payments received			11,298				10,399
Other investing activities			19,806				(3,677	)
Net investing cash flow			(758,314	)			(1,468,696	)
Increase (decrease) in cash and cash equivalents			56,260				(51,582	)
Cash and cash equivalents, beginning of the period			442,673				343,914
Cash and cash equivalents, end of the period			498,933				292,332

Supplemental cash flow information (note 7)
The accompanying notes are an integral part of the unaudited consolidated financial statements.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, except share data)

1. Basis of Presentation

The unaudited interim 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). Certain information and footnote disclosures required by United States generally accepted accounting principles for complete annual financial statements have been omitted and, therefore, it is suggested that these interim financial statements be read in conjunction with the Company’s restated audited financial statements for the year ended December 31, 2007, included on Form 20-F/A filed on April 6, 2009. In the opinion of management, these financial statements reflect all adjustments, of a normal recurring nature, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, and cash flows for the interim periods presented. The results of operations for the six months ended June 30, 2008 are not necessarily indicative of those for a full fiscal year.

Certain of the accompanying consolidated financial statements have been restated. The nature of the restatements and the effect on the consolidated financial statement line items is discussed in Note 19 of the Notes to the Unaudited Consolidated Financial Statements. In addition, certain disclosures in the following notes have been restated to be consistent with the consolidated financial statements.

2. Segment Reporting

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, floating production storage and offloading (or 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 liquefied natural gas (or LNG) 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 tanker 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.

The following tables present results for these segments for the three and six months ended June 30, 2008 and 2007:

						Fixed-Rate				Liquefied				Spot
		Offshore				Tanker				Gas				Tanker
Three months ended June 30, 2008		Segment				Segment				Segment				Segment				Total
Revenues			273,961				66,218				53,496				375,724				769,399
Voyage expenses			46,024				948				452				142,091				189,515
Vessel operating expenses			101,596				16,387				13,125				28,362				159,470
Time-charter hire expense			32,242				11,445				—				98,995				142,682
Depreciation and amortization			53,772				11,289				14,209				27,430				106,700
General and administrative expenses(1)			26,957				7,263				6,070				30,592				70,882
Gain on sale of vessels and equipment			(3,150	)			—				—				225				(2,925	)
Restructuring charge			3,327				58				221				1,011				4,617
Income from vessel operations			13,193				18,828				19,419				47,018				98,458

						Fixed-Rate				Liquefied				Spot
		Offshore				Tanker				Gas				Tanker
		Segment				Segment				Segment				Segment				Total
Three months ended June 30, 2007		(restated)				(restated)				(restated)				(restated)				(restated)
Revenues			236,233				45,787				38,496				245,220				565,736
Voyage expenses			26,064				592				8				95,844				122,508
Vessel operating expenses			69,325				11,822				7,881				14,875				103,903
Time-charter hire expense			39,260				3,981				—				57,717				100,958
Depreciation and amortization			35,627				8,260				11,571				12,637				68,095
General and administrative expenses(1)			23,164				4,473				5,163				23,465				56,265
Gain on sale of vessels and equipment			(11,613	)			—				—				—				(11,613	)
Income from vessel operations			54,406				16,659				13,873				40,682				125,620

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

						Fixed-Rate				Liquefied				Spot
		Offshore				Tanker				Gas				Tanker
Six months ended June 30, 2008		Segment				Segment				Segment				Segment				Total
Revenues			532,749				127,033				109,628				743,361				1,512,771
Voyage expenses			84,925				1,628				602				271,821				358,976
Vessel operating expenses			185,416				32,757				24,748				59,598				302,519
Time-charter hire expense			67,280				23,165				—				196,721				287,166
Depreciation and amortization			99,846				20,962				28,404				55,195				204,407
General and administrative expenses(1)			54,019				12,553				11,555				57,394				135,521
Gain on sale of vessels and equipment			(3,150	)			—				—				(271	)			(3,421	)
Restructuring charge			3,327				1,558				221				1,011				6,117
Income from vessel operations			41,086				34,410				44,098				101,892				221,486

						Fixed-Rate				Liquefied				Spot
		Offshore				Tanker				Gas				Tanker
		Segment				Segment				Segment				Segment				Total
Six months ended June 30, 2007		(restated)				(restated)				(restated)				(restated)				(restated)
Revenues			485,108				90,376				75,973				492,527				1,143,984
Voyage expenses			54,790				1,152				13				184,032				239,987
Vessel operating expenses			129,615				23,512				14,339				31,627				199,093
Time-charter hire expense			80,433				7,818				—				111,064				199,315
Depreciation and amortization			81,349				16,728				22,365				26,916				147,358
General and administrative expenses(1)			48,068				9,106				10,163				47,908				115,245
Gain on sale of vessels and equipment			(11,613	)			—				—				—				(11,613	)
Income from vessel operations			102,466				32,060				29,093				90,980				254,599

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

		June 30, 2008				December 31, 2007
		$				$
Offshore segment			3,497,589				3,187,635
Fixed-rate tanker segment			876,009				795,775
Liquefied gas segment			3,664,550				3,366,049
Spot tanker segment			2,032,268				1,966,166
Cash and restricted cash			501,678				446,102
Accounts receivable and other assets			685,168				660,462
Consolidated total assets			11,257,262				10,422,189

3. Acquisition of Additional 30.1% of Teekay Petrojarl ASA

On June 20, 2008, the Company acquired an additional 30.1 percent interest (22.6 million common shares) in Teekay Petrojarl ASA (or Teekay Petrojarl) from Prosafe Production at a price of NOK 59 per share. Teekay Petrojarl is a leading operator of FPSO units in the North Sea. The total purchase price of approximately NOK 1.3 billion ($257 million) was paid in cash. As a result of this transaction, the Company’s ownership of Teekay Petrojarl increased to 94.8 percent from 64.7 percent.

In July 2008 the Company exercised its right to effect a compulsory acquisition pursuant to Section 4-25 of the Norwegian Public Limited Liability Companies Act of all of Teekay Petrojarl’s shares not previously owned by the Company. Pursuant to this process, the Company automatically became the owner of all shares of Teekay Petrojarl. The total purchase price for the remaining shares of approximately NOK 229.8 million ($45.1 million) was paid in cash.

Teekay Petrojarl’s operating results are reflected in the Company’s consolidated financial statements from October 1, 2006, the designated effective date of the Company’s acquisition of an original 64.7 percent interest in Teekay Petrojarl, which was accounted for using the purchase method of accounting. The acquisition of the additional 30.1 percent interest has also been accounted for using the purchase method of accounting, based upon estimates of fair value. The estimated fair values of certain assets and liabilities are being determined with the assistance of third-party valuation specialists. The Company expects this work to be completed during the first half of 2009.

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

4. Acquisition of 50% of OMI Corporation

On June 8, 2007, the Company and A/S Dampskibsselskabet TORM (or TORM) acquired, through a jointly-owned subsidiary all of the outstanding shares of OMI Corporation (or OMI). The Company and TORM divided most of OMI’s assets equally between the two companies in August 2007. The price of the OMI assets acquired or to be acquired by the Company was approximately $1.1 billion, including approximately $0.2 billion of assumed indebtedness. The Company funded its portion of the acquisition with a combination of cash and borrowings under revolving credit facilities.

The Company acquired seven Suezmax tankers, three Medium-Range product tankers and three Handysize product tankers from OMI. Teekay also assumed OMI’s in-charters of an additional six Suezmax tankers and OMI’s third-party asset management business (principally the Gemini pool). The Company and TORM continue to hold two Medium-Range product tankers jointly in OMI, as well as two Handysize product tanker newbuildings scheduled to deliver in 2009. The parties divided these remaining assets equally in September 2008.

The assets acquired from OMI on August 1, 2007 are reflected in the Company’s consolidated financial statements from that date. The acquisition of OMI has been accounted for using the purchase method of accounting, based upon estimates of fair value. The estimated fair values of certain assets and liabilities are being determined with the assistance of third-party valuation specialists. This work was completed during the third quarter of 2008. As such, certain estimates of fair value are preliminary and are subject to further adjustment.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed by the Company at August 1, 2007:

		Original at								Revised at
		August 1, 2007				Revisions				August 1, 2007
		$				$				$
ASSETS
Cash, cash equivalents and short-term restricted cash			577				—				577
Other current assets			67,159				(40,331	)			26,828
Vessels and equipment			923,670				—				923,670
Other assets — long-term			6,820				31,680				38,500
Investment in joint venture			64,244				5,785				70,029
Intangible assets subject to amortization			60,540				8,407				68,947
Goodwill ($41.7 million spot tanker segment, and $7.1 million fixed rate tanker segment)			31,961				16,852				48,813
Total assets acquired			1,154,971				22,393				1,177,364
LIABILITIES
Current liabilities			21,006				(1,429	)			19,577
Other long-term liabilities			—				15,873				15,873
In-process revenue contracts			25,402				(3,811	)			21,591
Total liabilities assumed			46,408				10,633				57,041
Net assets acquired (cash consideration)			1,108,563				11,760				1,120,323

5. Public Offerings

During June 2008, the Company’s subsidiary Teekay Offshore Partners L.P. (or Teekay Offshore), completed a follow-on public offering by issuing an additional 10.25 million of its common units at a price of $20.00 per unit. In connection with the follow-on public offering, the Company contributed $4.2 million to Teekay Offshore to maintain its 2% general partner interest. As a result of the above transactions, the Company’s ownership of Teekay Offshore has been reduced from 59.8 percent to 50.6 percent (including the Company’s 2 percent general partner interest), and the Company recorded an increase to stockholders’ equity of $28.5 million, which represents the Company’s gain from the issuance of units. During July 2008, the underwriters exercised their over-allotment option and purchased 375,000 common units at $20.00 per unit for proceeds of $7.2 million, net of $0.3 million of commissions. As a result, the Company contributed a further $0.2 million to Teekay Offshore to maintain its 2% general partner interest and the Company’s ownership of Teekay Offshore reduced further to 49.9%.

Teekay Offshore is a Marshall Islands limited partnership formed by the Company as part of its strategy to expand its operations in the offshore oil marine transportation, production, processing and storage sectors. Prior to its June 2008 public offering, Teekay Offshore owned 26% of Teekay Offshore Operating L.P. (or OPCO), including its 0.01% general partner interest. Concurrently with the closing of Teekay Offshore’s follow-on offering, it acquired from the Company an additional 25% interest in OPCO for $205.0 million, thereby increasing its ownership interest in OPCO to 51%. OPCO owns and operates a fleet of 36 shuttle tankers (including nine chartered-in vessels and five vessels owned by 50% owned joint ventures), four FSO units, and eleven conventional Aframax tankers. Teekay Offshore also owns through wholly owned subsidiaries two additional shuttle tankers (including one through a 50%-owned joint venture) and one additional FSO unit. All of Teekay Offshore’s and OPCO’s vessels operate under long-term, fixed-rate contracts. The Company indirectly owns the remaining 49% of OPCO and 50.6% of Teekay Offshore, including its 2% general partner interest. As a result, the Company effectively owns 74.8% of OPCO. Teekay Offshore also has rights to participate in certain FPSO opportunities involving Teekay Petrojarl.

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

During April 2008, the Company’s subsidiary Teekay LNG Partners L.P. (or Teekay LNG) completed a follow-on public offering by issuing an additional 5.0 million of its common units at a price of $28.75 per unit. Subsequently the underwriters exercised their over-allotment option and purchased an additional 375,000 common units resulting in an additional $10.8 million in gross proceeds to Teekay LNG. Concurrently with the public offering, the Company acquired 1.74 million common units of Teekay LNG at the same public offering price for a total cost of $50.0 million. As a result of the above transactions, the Company’s ownership of Teekay LNG has been reduced from 63.7 percent to 57.7 percent (including the Company’s 2% general partner interest), and the Company recorded an increase to stockholders’ equity of $23.8 million, which represents the Company’s gain from the issuance of units.

Teekay LNG is a Marshall Islands limited partnership formed by the Company as part of its strategy to expand its operations in the LNG shipping sector. Teekay LNG provides LNG, LPG and crude oil marine transportation services under long-term, fixed-rate contracts with major energy and utility companies through its fleet of LNG and LPG carriers and Suezmax class crude oil tankers. As of June 30, 2008 the Company owned a 57.7% interest in Teekay LNG, including common units, subordinated units and its 2% general partner interest.

In connection with Teekay LNG’s initial public offering in May 2005, Teekay entered into an omnibus agreement with Teekay LNG, Teekay LNG’s general partner and others governing, among other things, when the Company and Teekay LNG may compete with each other and to provide the applicable parties certain rights of first offer on LNG carriers and Suezmax tankers. In December 2006, the omnibus agreement was amended in connection with Teekay Offshore’s initial public offering to govern, among other things, when the Company, Teekay LNG and Teekay Offshore may compete with each other and to provide the applicable parties certain rights of first offer on LNG carriers, oil tankers, shuttle tankers, FSO units and FPSO units.

6. Goodwill, Intangible Assets and In-Process Revenue Contracts

Goodwill

The changes in the carrying amount of goodwill for the six months ended June 30, 2008 for the Company’s reporting segments are as follows:

						Fixed-Rate
		Offshore				Tanker				Liquefied Gas				Spot Tanker
		Segment				Segment				Segment				Segment				Total
		$				$				$				$				$
Balance as of December 31, 2007			359,231				3,648				35,631				36,080				434,590
Goodwill acquired (note 3)			44,589				—				—				—				44,589
Adjustment to goodwill acquired (note 4)			—				—				—				12,732				12,732
Reallocation of goodwill acquired between segments			—				7,163				—				(7,163	)			—
Balance as of June 30, 2008			403,820				10,811				35,631				41,649				491,911

Intangible Assets

As at June 30, 2008, the Company’s intangible assets consisted of:

		Weighted-Average				Gross Carrying				Accumulated				Net Carrying
		Amortization Period				Amount				Amortization				Amount
		(years)				$				$				$
Contracts of affreightment			10.2				124,250				(73,927	)			50,323
Time-charter contracts			15.5				243,427				(49,126	)			194,301
Other intangible assets			2.8				20,398				(8,952	)			11,446
			13.1				388,075				(132,005	)			256,070

As at December 31, 2007, the Company’s intangible assets consisted of:

		Weighted-Average				Gross Carrying				Accumulated				Net Carrying
		Amortization Period				Amount				Amortization				Amount
		(years)				$				$				$
Contracts of affreightment			10.2				124,250				(68,895	)			55,355
Time-charter contracts			16.0				232,049				(37,374	)			194,675
Other intangible assets			5.0				10,797				(875	)			9,922
			13.7				367,096				(107,144	)			259,952

Aggregate amortization expense of intangible assets for the three and six months ended June 30, 2008 was $12.0 million ($3.5 million — 2007) and $24.9 million ($10.0 million — 2007), respectively. Amortization of intangible assets for the next five years is expected to be $20.1 million (remainder of 2008), $34.7 million (2009), $27.7 million (2010), $26.6 million (2011), $22.5 million (2012), and $124.5 million (thereafter).

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

In-Process Revenue Contracts

As part of the Company’s acquisitions of Teekay Petrojarl in 2006 and 50% of OMI in 2007, the Company assumed certain FPSO service contracts and charter-out contracts with terms that are less favorable than prevailing market terms at the time of acquisition. The Company has recognized a liability based on the estimated fair value of these contracts. The Company is amortizing this liability over the remaining term of the contracts on a weighted basis based on the projected revenue to be earned under the contracts.

Amortization of these in-process revenue contracts for the three and six months ended June 30, 2008 was $13.7 million ($7.0 million — 2007) and $34.9 million ($30.5 million — 2007), respectively. Amortization for the next five years is expected to be $58.7 million (remainder of 2008), $86.8 million (2009), $75.0 million (2010), $50.7 million (2011), $33.8 million (2012) and $57.7 million (thereafter).

7. Supplemental Cash Flow Information

Upon delivery of the last two RasGas II LNG Carriers (as defined in Note 9) in the first quarter of 2007, the remaining vessel costs and related lease obligations amounting to $15.3 million were recorded. These transactions were treated as non-cash transactions in the Company’s consolidated statements of cash flows.

8. Long-Term Debt

		June 30, 2008				December 31, 2007
		$				$
Revolving Credit Facilities			2,585,730				2,393,967
Senior Notes (8.875%) due July 15, 2011			226,259				246,059
USD-denominated Term Loans due through 2021			2,444,481				2,162,420
Euro-denominated Term Loans due through 2023			473,320				443,992
USD-denominated Unsecured Demand Loan			16,958				17,146
			5,746,748				5,263,584
Less current portion			289,717				331,594
			5,457,031				4,931,990

As of June 30, 2008, the Company had thirteen long-term revolving credit facilities (or the Revolvers) available, which, as at such date, provided for borrowings of up to $3,838.5 million, of which $1,252.7 million was undrawn. Interest payments are based on LIBOR plus margins; at June 30, 2008 and December 31, 2007, the margins ranged between 0.45% and 0.80% and the three-month LIBOR was 2.78% and 4.70%, respectively. The total amount available under the Revolvers reduces by $102.9 million (remainder of 2008), $211.1 million (2009), $218.4 million (2010), $803.7 million (2011), $236.0 million (2012) and $2,266.4 million (thereafter). All of the Revolvers are collateralized by first-priority mortgages granted on 67 of the Company’s vessels, together with other related security, and include a guarantee from Teekay or its subsidiaries for all outstanding amounts.

The 8.875% Senior Notes due July 15, 2011 (or the 8.875% Notes) rank equally in right of payment with all of Teekay’s existing and future senior unsecured debt and senior to Teekay’s existing and future subordinated debt. The 8.875% Notes are not guaranteed by any of Teekay’s subsidiaries and effectively rank behind all existing and future secured debt of Teekay and other liabilities, secured and unsecured, of its subsidiaries. During the six months ended June 30, 2008, the Company repurchased $19.7 million principal amount of the 8.875% Notes (see also Note 14).

The Company has sixteen U.S. Dollar-denominated term loans outstanding, which, as at June 30, 2008, totaled $2,444.5 million. Certain of the term loans with a total outstanding principal balance of $838.6 million as at June 30, 2008, bear interest at a weighted-average fixed rate of 5.21%. Interest payments on the remaining term loans are based on LIBOR plus a margin. At June 30, 2008 the margins ranged between 0.3% and 1.0% and the three-month LIBOR was 2.78%. The term loans reduce in quarterly or semi-annual payments commencing three or six months after delivery of newbuilding vessels financed with the loans, and thirteen of the term loans also have balloon or bullet repayments due at maturity. The term loans are collateralized by first-preferred mortgages on 33 of the Company’s vessels, together with certain other security. In addition, at June 30,2008, all but $150.1 million (December 31, 2007 — $103.8 million) of the outstanding term loans were guaranteed by Teekay or its subsidiaries. Included in the total of $2,444.5 million (December 31, 2007 - $2,162.4 million) is a loan for $808.1 million (December 31, 2007 — $601.0 million) which is in place to fund the RasGas 3 joint venture project and for which the Company is liable on a joint and several basis together with its unrelated project partner (see Note 11(b)). The Company has reported 100% of the obligation under this borrowing agreement. The funds received have been advanced to the RasGas 3 joint venture, which is accounted for using the equity method and the entire amount advanced is included in Loans to Joint Ventures.

The Company has two Euro-denominated term loans outstanding, which, as at June 30, 2008 totaled 300.4 million Euros ($473.3 million). The Company repays the loans with funds generated by two Euro-denominated long-term time-charter contracts. Interest payments on the loans are based on EURIBOR plus a margin. At June 30, 2008, the margins ranged between 0.6% and 0.66% and the one-month EURIBOR was 4.44%. The Euro-denominated term loans reduce in monthly payments with varying maturities through 2023 and are collateralized by first-priority mortgages on two of the Company’s vessels, together with certain other security, and are guaranteed by a subsidiary of Teekay.

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

Both Euro-denominated term loans are revalued at the end of each period using the then prevailing Euro/U.S. Dollar exchange rate. Due substantially to this revaluation, the Company recognized an unrealized foreign exchange loss of $1.8 million (2007 — $8.6 million) and an unrealized foreign exchange loss of $33.8 million (2007 — $10.3 million) during the three and six months ended June 30, 2008, respectively.

The Company has two U.S. Dollar-denominated loans outstanding owing to joint venture partners, which, as at June 30, 2008, totaled $15.8 million and $1.1 million, respectively, including accrued interest. Interest payments on the first loan, which are based on a fixed interest rate of 4.84%, commenced in February 2008. This loan is repayable on demand no earlier than February 27, 2027.

Among other matters, the Company’s long-term debt agreements generally provide for maintenance of certain vessel market value-to-loan ratios and minimum consolidated financial covenants. Certain loan agreements require that a minimum level of free cash be maintained. As at June 30, 2008 and December 31, 2007, this amount was $100.0 million. Certain of the loan agreements also require that the Company maintain an aggregate level of free liquidity and undrawn revolving credit lines with at least six months to maturity, of at least 7.5% of total debt. As at June 30, 2008 and December 31, 2007, this amount was $354.3 million and $326.0 million, respectively.

9. Capital Leases and Restricted Cash

Capital Leases

Suezmax Tankers. As at June 30, 2008, the Company was a party, as lessee, to capital leases on five Suezmax tankers. Under the terms of the lease arrangements, the Company is required to purchase these vessels after the end of their respective lease terms for fixed prices. At their inception, the weighted-average interest rate implicit in these leases was 7.4%. These capital leases are variable-rate capital leases; however, any change in our lease payments resulting from changes in interest rates is offset by a corresponding change in the charter hire payments received by the Company. As at June 30, 2008, the remaining commitments under these capital leases, including the purchase obligations, approximated $239.1 million, including imputed interest of $30.2 million, repayable as follows:

Year		Commitment
2008		$	12.3 million
2009		$	134.4 million
2010		$	8.4 million
2011		$	84.0 million

RasGas II LNG Carriers. As at June 30, 2008, the Company was a party, as lessee, to 30-year capital lease arrangements for the three LNG carriers (or the RasGas II LNG Carriers) that operate under time-charter contracts with Ras Laffan Liquefied Natural Gas Co. Limited (II) (or RasGas II), a joint venture between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation. All amounts below relating to the RasGas II LNG Carriers capital leases include the Company’s joint venture partner’s 30% share.

Under the terms of the RasGas II LNG Carriers capital lease arrangements, the lessor claims tax depreciation on the capital expenditures it incurred to acquire these vessels. As is typical in these leasing arrangements, tax and change of law risks are assumed by the lessee. Payments under the lease arrangements are based on tax and financial assumptions at the commencement of the leases. If an assumption proves to be incorrect, the lessor is entitled to increase the lease payments to maintain its agreed after-tax margin. However, the Company may terminate the lease arrangements at any time. If the lease arrangements terminate, the Company would be required to pay termination sums to the lessor sufficient to repay the lessor’s investment in the vessels and to compensate it for the tax-effect of the terminations, including recapture of any tax depreciation.

At their inception, the weighted-average interest rate implicit in these leases was 5.2%. These capital leases are variable-rate capital leases. As at June 30, 2008, the commitments under these capital leases approximated $1,085.1 million, including imputed interest of $615.9 million, repayable as follows:

Year		Commitment
2008		$	12.0 million
2009		$	24.0 million
2010		$	24.0 million
2011		$	24.0 million
2012		$	24.0 million
Thereafter		$	977.1 million

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

Spanish-Flagged LNG Carrier. As at June 30, 2008, the Company was a party, as lessee, to a capital lease on one Spanish-flagged LNG carrier, which is structured as a “Spanish tax lease.” Under the terms of the Spanish tax lease, the Company will purchase the vessel at the end of the lease term in 2011. The purchase obligation has been fully funded with restricted cash deposits described below. At its inception, the implicit interest rate was 5.8%. As at June 30, 2008, the commitments under this capital lease, including the purchase obligation, approximated 141.7 million Euros ($223.4 million), including imputed interest of 18.3 million Euros ($28.9 million), repayable as follows:

Year		Commitment
2008		24.4 million Euros ($38.5 million)
2009		25.6 million Euros ($40.4 million)
2010		26.9 million Euros ($42.4 million)
2011		64.8 million Euros ($102.1million)

FPSO Units. As at June 30, 2008, the Company was a party, as lessee, to capital leases on one FPSO unit, the Petrojarl Foinaven, and the topside production equipment for another FPSO unit, the Petrojarl Banff. However, Teekay Petrojarl has legally defeased its future charter obligations for these assets by making up-front, lump-sum payments to unrelated banks, which have assumed Teekay Petrojarl’s liability for making the remaining periodic payments due under the long-term charters (or Defeased Rental Payments) and termination payments under the leases.

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

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

Restricted Cash

Under the terms of the capital leases for the four LNG carriers described above in this Note 9, the Company is required to have on deposit with financial institutions an amount of cash that, together with interest earned on the deposits, will equal the remaining amounts owing under the leases, including the obligations to purchase the LNG carriers at the end of the lease periods, where applicable. These cash deposits are restricted to being used for capital lease payments and have been fully funded with term loans and, for one vessel, a loan from the Company’s joint venture partner (see Note 8). The interest rates earned on the deposits approximate the interest rates implicit in the applicable leases.

As at June 30, 2008 and December 31, 2007, the amount of restricted cash on deposit for the three RasGas II LNG Carriers was $487.3 million and $492.2 million, respectively. As at June 30, 2008 and December 31, 2007, the weighted-average interest rates earned on the deposits were 2.8% and 5.3%, respectively.

As at June 30, 2008 and December 31, 2007, the amount of restricted cash on deposit for the Spanish-flagged LNG carrier was 125.9 million Euros ($198.4 million) and 122.8 million Euros ($179.2 million), respectively. As at June 30, 2008 and December 31, 2007, the weighted-average interest rate earned on these deposits was 5.0%.

The Company also maintains restricted cash deposits relating to certain term loans and other obligations, which cash deposits totaled $29.1 million and $14.8 million as at June 30, 2008 and December 31, 2007, respectively.

10. Capital Stock

The authorized capital stock of Teekay at June 30, 2008 was 25,000,000 shares of Preferred Stock, with a par value of $1 per share, and 725,000,000 shares of Common Stock, with a par value of $0.001 per share. During the six months ended June 30, 2008, the Company issued 0.2 million shares upon the exercise of stock options and repurchased 0.5 million shares for a total cost of $20.5 million. At June 30, 2008 there was no remaining share repurchase authorization. As at June 30, 2008, Teekay had 72,958,108 shares of Common Stock (2007 — 95,327,329) and no shares of Preferred Stock issued. As at June 30, 2008, Teekay had 72,458,908 shares of Common Stock outstanding (2007 — 72,772,529).

As at June 30, 2008, the Company had reserved pursuant to its 1995 Stock Option Plan and 2003 Equity Incentive Plan (collectively referred to as the Plans) 6,267,518 shares of Common Stock for issuance upon exercise of options or equity awards granted or to be granted. During the six months ended June 30, 2008, the Company granted options under the Plans to acquire up to 1,443,900 shares of Common Stock to certain eligible officers, employees and directors of the Company. The options under the Plans have ten-year terms and vest equally over three years from the grant date. All options outstanding as of June 30, 2008, expire between June 1, 2009 and March 7, 2018, ten years after the date of each respective grant.

During March 2008, the Company granted 10,500 shares of restricted stock awards with a fair value of $0.4 million, based on the quoted market price, to certain of the Company’s directors. The shares of restricted stock are issued when granted and are subject to potential forfeiture. If at any time during the three-year period after the date of grant a recipient of these shares ceases to be a director of the Company, the shares of restricted stock that remain subject to forfeiture must be returned to the Company. These shares of restricted stock are released from this forfeiture provision equally over three years.

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

11. Commitments and Contingencies

a) Vessels Under Construction

As at June 30, 2008, the Company was committed to the construction of nine Suezmax tankers, five LPG carriers, one product tanker and four shuttle tankers scheduled for delivery between August 2008 and July 2011, at a total cost of approximately $1.3 billion, excluding capitalized interest. As at June 30, 2008, payments made towards these commitments totaled $323.0 million (excluding $34.5 million of capitalized interest and other miscellaneous construction costs), and long-term financing arrangements existed for $769.5 million of the unpaid cost of these vessels. The Company intends to finance the remaining amount of $244.1 million through incremental debt or surplus cash balances, or a combination thereof. As at June 30, 2008, the remaining payments required to be made under these newbuilding contracts were $300.8 million (2008), $309.8 million (2009), $239.8 million (2010) and $163.2 million (2011).

As at June 30, 2008, the Company was committed to the construction of two LNG carriers which delivered in November 2008 and March 2009. The Company has entered into these transactions with a joint venture partner who has taken a 30% interest in the vessels and related long-term, fixed-rate time-charter contracts. All amounts below include the joint venture partner’s 30% share. The total cost of these LNG carriers is approximately $376.9 million, excluding capitalized interest. As at June 30, 2008, payments made towards these commitments totaled $303.3 million (excluding $32.9 million of capitalized interest and other miscellaneous construction costs), and long-term financing arrangements existed for the remaining $73.6 million unpaid cost of these LNG carriers. As at June 30, 2008, the remaining payments required to be made under these contracts were $37.6 million (2008) and $36.1 million (2009). Following delivery, these two LNG carriers became or will become subject to 20-year, fixed-rate time-charters to The Tangguh Production Sharing Contractors, a consortium led by BP Berau, a subsidiary of BP plc. Pursuant to existing agreements, the Company expects Teekay LNG to purchase the Company’s 70% interest in the joint venture in May 2009 for approximately $85 million plus the assumption of approximately $350 million in debt. However, Teekay LNG is seeking to structure the project in a tax efficient manner and has requested a ruling from the U.S. Internal Revenue Service related to the type of structure it would use for this project. If Teekay LNG does not receive a favorable ruling, it would, among other alternatives, seek to restructure the project or may elect not to acquire the Company’s interest in the joint venture.

b) Joint Ventures

In August 2005, the Company announced that it had been awarded long-term, fixed-rate contracts to charter four LNG carriers to Ras Laffan Liquefied Natural Gas Co. Limited (3) (or RasGas 3), a joint venture company between a subsidiary of ExxonMobil Corporation and Qatar Petroleum. Commencing in the second and third quarters of 2008, the vessels are chartered to RasGas 3 at fixed rates, with inflation adjustments, for a period of 25 years (with options to extend up to an additional 10 years). The Company has entered into these transactions with its joint venture partner, Qatar Petroleum, which has taken a 60% interest in the vessels and time-charters. In connection with this award, the joint venture entered into agreements with Samsung Heavy Industries Co. Ltd. to construct four 217,000-cubic meter LNG carriers at a total cost of approximately $1.0 billion (of which the Company’s 40% portion is $400.7 million), excluding capitalized interest. As at June 30, 2008, three vessels had been delivered and the fourth delivered on July 30, 2008. As at June 30, 2008 payments made towards the commitment by the joint venture company for the fourth vessel totaled $248.4 million (of which the Company’s 40% contribution was $99.3 million), excluding capitalized interest and other miscellaneous construction costs. Long-term financing arrangements existed for all of the remaining $49.7 million unpaid cost of this LNG carrier (including the joint venture partner’s 60% share). Pursuant to existing agreements, on November 1, 2006, Teekay LNG agreed to acquire the Company’s ownership interest in these four vessels and related charter contracts upon delivery of the first LNG carrier, which occurred on May 6, 2008.

The Company has a 33% interest in a consortium that will charter four newbuilding 160,400-cubic meter LNG carriers for a period of 20 years to the Angola LNG Project, which is being developed by subsidiaries of Chevron Corporation, Sociedade Nacional de Combustiveis de Angola EP, BP Plc, Total S.A. and ENI SpA. Final award of the charter was made in December 2007. The vessels will be chartered at fixed rates, with inflation adjustments, commencing in 2011. The remaining members of the consortium are Mitsui & Co., Ltd. and NYK Bulkship (Europe) Ltd., which hold 34% and 33% interests in the consortium, respectively. In connection with this award, the consortium has entered into agreements with Samsung Heavy Industries Co. Ltd. to construct the four LNG carriers at a total cost of approximately $921.4 million (of which the Company’s 33% portion is $304.1 million), excluding capitalized interest. As at June 30, 2008, payments made towards these commitments by the joint venture company totaled $106.0 million (of which the Company’s 33% contribution was $35.0 million), excluding capitalized interest and other miscellaneous construction costs. As at June 30, 2008, the remaining payments required to be made under these contracts were $90.6 million (2009), $113.2 million (2010), $475.6 million (2011) and $135.9 million (2012). In accordance with existing agreements, the Company is required to offer to Teekay LNG its 33% interest in these vessels and related charter contracts no later than 180 days before the scheduled delivery dates of the vessels. Deliveries of the vessels are scheduled between August 2011 and January 2012.

c) Long-Term Incentive Program

In 2005, the Company adopted the Vision Incentive Plan (or the VIP) to reward exceptional corporate performance and shareholder returns. This plan will result in an award pool for senior management based on the following two measures: (a) economic profit from 2005 to 2010 (or the Economic Profit); and (b) market value added from 2001 to 2010 (or the MVA). The Plan terminates on December 31, 2010. Under the VIP, the Economic Profit is the difference between the Company’s annual return on invested capital and its weighted-average cost of capital multiplied by its average invested capital employed during the year, and the increase in MVA from January 1, 2001 to December 31, 2010, where the MVA is the amount by which the average market value of the Company for the preceding 18 months exceeds the average book value of the Company for the same period.

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

Under the terms of the VIP, an interim award may only be made to VIP participants in 2008 and the final award may only be made in 2011. During March 2008, the 2008 interim award, with a value of $13.3 million, was paid to participants in the form of 328,600 restricted stock units. These restricted stock units vest in three equal amounts in November 2008, November 2009 and November 2010. Each restricted stock unit is equal in value to one share of the Company’s Common Stock and reinvested dividends from the date of the grant to the vesting of the restricted stock unit. At least 50 percent of any distribution from the balance of the VIP award pool in 2011 must be paid in a form that is equity-based, with vesting on half of this percentage deferred for one year and vesting on the remaining half of this percentage deferred for two years.

During the three and six months ended June 30, 2008, the Company recorded an expense related to the VIP of $2.5 million (2007 — $3.8 million) and $3.0 million (2007 — $7.3 million), respectively, which are included in general and administrative expense.

d) Legal proceedings and claims

The Company may, from time to time, be involved in legal proceedings and claims that arise in the ordinary course of business. The Company believes that any adverse outcome of existing claims, individually or in the aggregate, would not have a material effect on its financial position, results of operations or cash flows, when taking into account its insurance coverage and indemnifications from charterers.

e) Other

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

12. Fair Value Measurements

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards (or SFAS) No. 157, Fair Value Measurements. In accordance with Financial Accounting Standards Board Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), the Company deferred the adoption of SFAS No. 157 for its non-financial assets and non-financial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009. The adoption of SFAS No. 157 did not have a material impact on the Company’s fair value measurements.

SFAS No. 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosures about the use of fair value measurements. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value as follows:

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

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

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

own assumptions.

The following tables present the Company’s assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.

		Fair Value at
		June 30, 2008
		Asset / (Liability)				Level 1				Level 2				Level 3
		$				$				$				$
Interest rate swap agreements (1)			(168,978	)			—				(168,978	)			—
Interest rate swap agreements (1)			45,328				—				45,328				—
Foreign currency forward contracts (1)			29,071				—				29,071				—
Interest rate swaptions (1)			(3,309	)			—				(3,309	)			—
Bunker fuel swap contracts (1)			638				—				638				—
Freight forward agreements (1)			(25,133	)			—				(25,133	)			—
Foinaven embedded derivative (1)			(13,493	)			—				(13,493	)			—
Marketable securities(2)			32,209				32,209				—				—

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

13. Vessel Sales

a)		During March 2008, the Company sold two Handysize product tankers, one of which was delivered in April 2008. During March 2008, the Company also entered into an agreement to sell a third Handysize product tanker upon the expiration of its current time-charter, which occurred during September 2008. All three vessels are part of the Company’s spot tanker segment.
b)		During June 2008, the Company entered into an agreement to sell an Aframax product tanker which delivered in September 2008, and which is presented on the June 30, 2008 balance sheet as vessel held for sale. During June 2008, the Company also entered into an agreement to sell a medium-range product tanker upon the expiration of its current time-charter, which occurred during September 2008. Both vessels are part of the Company’s spot tanker segment.

14. Restructuring Charge and Other — net

During the six months ended June 30, 2008, the Company incurred restructuring charges of $3.0 million relating to the closure of one of the Company’s three offices in Norway, $1.7 million relating to the reorganization of a business unit, and $1.3 million relating to costs incurred to change the crew of the Samar Spirit from Australian crew to International crew. The Company expects to incur approximately $18.0 million of additional restructuring costs relating to these changes in operations.

		Three Months Ended June 30								Six Months Ended June 30
		2008				2007				2008				2007
		$				$				$				$
						(restated)								(restated)
Equity loss from joint ventures			(2,063	)			(2,092	)			(5,672	)			(3,687	)
Gain on sale of marketable securities			1,868				4,836				4,576				6,653
Loss on bond repurchase			(712	)			—				(1,310	)			—
Income tax (expense) recovery			11,201				(845	)			8,718				3,041
Volatile organic compound emission plant lease income			2,395				2,715				4,965				5,488
Miscellaneous income			1,088				716				1,414				221
Other — net			13,777				5,330				12,691				11,716

15. Comprehensive Income

		Three Months Ended June 30								Six Months Ended June 30
		2008				2007				2008				2007
		$				$				$				$
						(restated)								(restated)
Net income			183,419				167,617				78,290				252,600
Other comprehensive income:
Unrealized gain (loss) on marketable securities			2,068				2,858				(3,766	)			10,711
Reclassification adjustment for gain on sale of marketable securities			(1,868	)			(4,836	)			(4,575	)			(6,653	)
Minimum pension liability			—				—				1,058				—
Net effect from qualifying cash flow hedging instruments			(1,153	)			—				1,697				—
Comprehensive income			182,466				165,639				72,704				256,658

As at June 30, 2008 and December 31, 2007, the Company’s accumulated other comprehensive (loss) income consisted of the following components:

		June 30, 2008				December 31, 2007
		$				$
Unrealized gain on derivative instruments			5,217				3,520
Minimum pension liability			(5,220	)			(6,278	)
Unrealized (loss) gain on marketable securities			(1,016	)			7,325
			(1,019	)			4,567

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

16. Derivative Instruments and Hedging Activities

The Company uses derivatives in accordance with its overall risk management policies. The following summarizes the Company’s risk strategies with respect to market risk from foreign currency fluctuations, changes in interest rates, spot tanker market rates for vessels and bunker fuel prices.

Foreign Currency Fluctuation Risk

The Company hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts. These foreign currency forward contracts are generally designated as cash flow hedges of forecasted foreign currency expenditures. Where such instruments are designated and qualify as cash flow hedges for accounting purposes, the effective portion of the changes in their fair value is recorded in accumulated other comprehensive loss, until the hedged item is recognized in earnings. At such time, the respective amount in accumulated other comprehensive loss is released to earnings and is recorded within operating expenses, based on the nature of the related expense. The ineffective portion of these foreign currency forward contracts has also been reported in operating expenses, based on the nature of the related expense. During the three and six months ended June 30, 2008, the Company did not recognize any significant amounts of unrealized gains or losses due to ineffectiveness (2007 — nil).

Changes in fair value of foreign currency forward contracts that are not designated, for accounting purposes, as cash flow hedges are recognized in earnings and are reported in operating expenses, based on the nature of the expense being economically hedged. During the three and six month periods ended June 30, 2008 and 2007, the Company recognized unrealized (gains) losses relating to foreign currency forward contracts that are not designated as cash flow hedges as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2007				2008				2007
		$				$				$				$
Vessel operating expenses			4,048				(4,393	)			3,623				(6,161	)
Time-charter hire expenses			431				(227	)			365				(371	)
General and administrative			3,075				(2,720	)			2,509				(4,527	)
Foreign currency exchange (gain) loss			(763	)			(3,531	)			1,708				(10,109	)
Total			6,791				(10,871	)			8,205				(21,168	)

As at June 30, 2008, the Company was committed to the following foreign exchange contracts for the forward purchase of foreign currency:

		Contract amount in				Average
		foreign currency				contractual				Expected maturity
		(millions)				exchange rate(1)				2008				2009				2010
										(in millions of U.S. Dollars)
Norwegian Kroner:			1,083.7				5.93			$	86.2			$	87.1			$	9.5
Euro:			43.3				0.65			$	35.6			$	29.1			$	1.6
Canadian Dollar:			50.1				1.01			$	21.8			$	24.9			$	2.7
British Pounds:			30.3				0.52			$	26.3			$	28.3			$	4.2
Australian Dollar:			1.3				0.85			$	1.1				—				—
Singapore Dollar:			3.6				1.37			$	2.6				—				—

In addition, certain of the Company’s forward contracts obligate the Company to enter into forward purchase contracts for approximately 45.0 million Norwegian Kroner at a rate of 6.34 Norwegian Kroner per U.S. Dollar at the discretion of the counterparty during 2008.

As at June 30, 2008, the Company’s accumulated other comprehensive income included $5.2 million of unrealized gains on foreign currency forward contracts designated as cash flow hedges (December 31, 2007 — $3.5 million).

Interest Rate Risk

The Company enters into interest rate swaps which exchange a receipt of floating interest for a payment of fixed interest to reduce the Company’s exposure to interest rate variability on its outstanding floating-rate debt. In addition, the Company holds interest rate swaps, which exchange a payment of floating rate interest for a receipt of fixed interest, in order to reduce the Company’s exposure to the variability of interest income on its restricted cash deposits. The Company has not designated, for accounting purposes, its interest rate swaps as cash flow hedges. Unrealized gains or losses relating to changes in fair value of the Company’s interest rate swaps have been reported in interest expense or interest income in the consolidated statements of income.

During the three months ended June 30, 2008, the Company recognized an unrealized gain in interest gain (expense) of $190.8 million (2007 — $138.2 million unrealized gain), and an unrealized loss in interest (loss) income of $23.2 million (2007 — $27.0 million unrealized loss) relating to the changes in fair value of its interest rate swaps. During the six months ended June 30, 2008, the Company recognized an unrealized loss in interest expense of $10.9 million (2007 — $144.3 million unrealized gain), and an unrealized gain in interest income of $14.4 million (2007 — $31.1 million unrealized loss) relating to the changes in fair value of its interest rate swaps. The Company expects to record a material unrealized loss during the second half of 2008 from the decrease in the fair value of its interest rate swap agreements.

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

As at June 30, 2008, the Company was committed to the following interest rate swap agreements related to its LIBOR-based debt, restricted cash deposits and EURIBOR-based debt, whereby certain of the Company’s floating-rate debt and restricted cash deposits were swapped with fixed-rate obligations or fixed-rate deposits:

								Fair Value /				Weighted-				Fixed
		Interest		Principal				Carrying Amount				Average				Interest
		Rate		Amount				of Asset (Liability)				Remaining Term				Rate
		Index		$				$				(years)				(%)(1)
LIBOR-Based Debt:
U.S. Dollar-denominated interest rate swaps (2)		LIBOR			491,954				(4,548	)			28.6				4.9
U.S. Dollar-denominated interest rate swaps		LIBOR			3,267,344				(131,810	)			7.4				5.0
U.S. Dollar-denominated interest rate swaps (3)		LIBOR			938,536				(32,620	)			18.3				5.3
LIBOR-Based Restricted Cash Deposit:
U.S. Dollar-denominated interest rate swaps (2)		LIBOR			479,074				1,686				28.6				4.8
EURIBOR-Based Debt:
Euro-denominated interest rate swaps (4) (5)		EURIBOR			473,320				43,642				16.0				3.8

During May 2006, the Company sold to a third party two swaptions for $2.4 million. The Company has not applied hedge accounting to these instruments and they have been recorded at fair value. These options, if exercised by the other party, will obligate the Company to enter into interest rate swap agreements whereby certain of the Company’s floating-rate debt will be swapped with fixed-rate obligations. At June 30, 2008, the terms of these swaptions are as follows:

Interest

Principal

Rate

Amount(1)

Remaining Term

Fixed Interest Rate

Index

$

Start Date

(years)

(%)

LIBOR

150,000

August 31, 2009

12.0

4.3

LIBOR

114,583

August 15, 2008

10.8

4.0

Spot Tanker Market Risk

In order to reduce variability in revenues from fluctuations in certain spot tanker market rates, the Company has entered into forward freight agreements (FFAs) and synthetic time-charters (STCs). FFAs involve contracts to move a theoretical volume of freight at fixed-rates, thus attempting to reduce the Company’s exposure to spot tanker market rates. STCs are a means of achieving the equivalent of a time-charter for a vessel that trades in the spot tanker market by taking the short position in a long-term FFA. As at June 30, 2008, the Company had six STCs which were equivalent to 3.5 Suezmax vessels. As at June 30, 2008, the FFAs, which include STCs, had an aggregate notional value of $53.0 million, which is an aggregate of both long and short positions, and a net fair value of ($27.1) million. The FFAs, which include STCs, expire between July 2008 and September 2009. The Company has not designated these contracts as cash flow hedges for accounting purposes. Net gains and losses from FFAs and STCs are recorded within revenues in the consolidated statements of income.

The Company also uses FFAs in non-hedge-related transactions to increase or decrease its exposure to spot tanker market rates, within strictly defined limits. Historically, the Company has used a number of different tools, including the sale/purchase of vessels and the in-charter/out-charter of vessels, to increase or decrease this exposure. The Company believes that it can capture some of the value from the volatility of the spot tanker market and from market imbalances by utilizing FFAs. As at June 30, 2008, the Company was committed to non-hedge-related FFAs totaling 5.9 million metric tonnes with a notional principal amount of $58.9 million and a fair value of $2.4 million. These FFAs expired between July 2008 and December 2008.

Commodity Price Risk

The Company hedges a portion of its bunker fuel expenditures with bunker fuel swap contracts. The Company has not designated these contracts as cash flow hedges for accounting purposes. As at June 30, 2008, the Company was committed to contracts totalling 17,820 metric tonnes with a weighted-average price of $420.73 per tonne and a fair value of $0.6 million. The bunker fuel swap contracts expired between July and December 2008.

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

The Company is exposed to credit loss in the event of non-performance by the counterparties to the foreign currency forward contracts, interest rate swap agreements, FFAs and bunker fuel swap contracts; however, the Company does not anticipate non-performance by any of the counterparties. In order to minimize counterparty risk, the Company only enters into derivative transactions with counterparties that are rated A or better by Standard & Poor’s or Aa3 by Moody’s at the time of the transaction. In addition, to the extent possible and practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.

17. Earnings Per Share

		Three Months Ended June 30								Six Months Ended June 30
		2008				2007				2008				2007
		$				$				$				$
						(restated)								(restated)
Net income available for common stockholders			183,419				167,617				78,290				252,600
Weighted average number of common shares			72,377,684				73,843,784				72,511,041				73,488,668
Dilutive effect of employee stock options and restricted stock awards			901,529				1,466,783				846,149				1,441,323
Common stock and common stock equivalents			73,279,213				75,310,567				73,357,190				74,929,991
Earnings per common share:
- Basic			2.53				2.27				1.08				3.44
- Diluted			2.50				2.23				1.07				3.37

For the three and six months ended June 30, 2008, the anti-dilutive effect of 2.2 million shares (0.8 million shares — 2007) and 2.5 million shares (1.1 million shares — 2007), respectively, attributable to outstanding stock options was excluded from the calculations of diluted earnings per share.

18. Subsequent events

a)		In October 2008 the Company announced that its Board of Directors approved a 15 percent increase in the Company’s quarterly cash dividend, commencing with the dividend for the quarter ended September 30, 2008. The dividend increased to $0.31625 per share, from $0.275 per share in the previous quarter. This dividend was paid on October 31, 2008 to shareholders of record as at October 17, 2008. The Company also announced that its Board of Directors authorized the repurchase of $200 million shares of its common stock, which represented approximately 14 percent of the Company’s total market capitalization as of October 6, 2008.
b)		In November 2008, the Company sold its 50 percent interest in the Swift Product Tanker Pool, which included the Company’s rights in 10 of its in-chartered intermediate product tankers, for gross proceeds of $49 million.
c)		During November 2008 the Company sold a 2008-built Suezmax tanker. The vessel operated in the Company’s spot tanker segment and was delivered in November 2008. The Company expects to realize a gain on the transaction.
d)		During September 2008, the Company drew $310 million on one of its Revolvers and during October 2008 the Company drew $10 million and $60 million, respectively, on two of its Revolvers.
e)		On December 31, 2008 Teekay Nakilat (III) and QGTC 3 novated the RasGas 3 term loan and their interest rate swap agreements to the RasGas 3 Joint Venture for no consideration. As a result, the RasGas 3 Joint Venture shall assume all the rights, liabilities and obligations of Teekay Nakilat (III) and QGTC 3 under the terms of the RasGas 3 term loan and the interest rate swap agreements. However, Teekay Nakilat (III) has guaranteed 40% of the RasGas 3 Joint Venture’s obligations under these interest rate swap agreements. The Company owns a 40% interest in the RasGas 3 Joint Venture and accounts for it under the equity method.
f)		During March 2009, Teekay LNG completed a public offering of 4.0 million common units at a price of $17.60 per unit, for gross proceeds of $71.8 million (including the general partner’s $1.4 million proportionate capital contribution). As result, the Company’s ownership, as of March 31, 2009, of Teekay LNG was reduced from 57.7 percent to 53.0 percent (including the Company’s 2 percent general partner interest). The total net proceeds from the offering and private placement of approximately $68.5 million were used to reduce amounts outstanding under one of Teekay LNG’s revolving credit facilities. Teekay LNG has granted the underwriters a 30-day option, from March 30, 2009, to purchase up to an additional 600,000 units to cover over-allotments, if any.
g)		One of the Kenai vessels, the Arctic Spirit, has come off charter from the Marathon Oil Corporation/ConocoPhillips joint venture on March 31, 2009, and the Company has entered into a joint development and option agreement with Merrill Lynch Commodities, Inc. (MLCI), giving MLCI the option to purchase the vessel for conversion to an LNG floating production, storage and offload unit (FPSO). The agreement provides for a purchase price of $105 million if the Company exercises its option to participate in the project, or $110 million if the Company chooses not to participate. Under the option agreement, the Arctic Spirit is reserved for MLCI until December 31, 2009 and MLCI may extend the option quarterly through 2010. If MLCI exercises the option and purchases the vessel from the Company, it is expected that MLCI will convert the vessel to an FPSO (although it is not required to do so) and charter it under a long-term charter contract to a third party. The Company has the right to participate up to 50% in the conversion and charter project on terms that will be determined as the project progresses. The agreement with MLCI also provides that if the conversion of the Arctic Spirit to an FPSO proceeds, the Company will negotiate, along with an equity investment, a similar option for a designee of MLCI to purchase the Polar Spirit for $125 million when it comes off charter.