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 September 30, 1999
TEEKAY SHIPPING CORPORATION
(Exact name of Registrant as specified in its charter)
Fourth Floor, Euro Canadian Centre
Marlborough Street & Navy Lyon Road
P.O. Box SS-6293, Nassau, Bahamas
(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 X Form 40- F
--------- ----------
[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 No X
--------- ----------
[If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b):82-_______ ]
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
INDEX
PART I: FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Income
and Retained Earnings for the three months and six months
ended September 30, 1999 and 1998.......................3
Consolidated Balance Sheets -
September 30, 1999 and March 31, 1999...................4
Consolidated Statements of Cash Flows
for the six months ended September 30, 1999
and 1998................................................5
Notes to the Consolidated Financial
Statements..............................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..........14
Item 3. Market Rate Risks....................................................21
PART II: OTHER INFORMATION.............................................22
SIGNATURES....................................................................24
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(in thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
$ $ $ $
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET VOYAGE REVENUES
Voyage revenues 136,932 112,209 235,558 221,642
Voyage expenses 49,138 23,600 76,845 46,446
- --------------------------------------------------------------------------------------------------------------------------
Net voyage revenues 87,794 88,609 158,713 175,196
- --------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Vessel operating expenses 36,256 21,003 59,582 41,777
Time-charter hire expense 10,783 8,372 19,663 13,625
Depreciation and amortization (note 4) 24,287 23,626 43,932 47,917
General and administrative 9,616 5,811 16,753 11,087
- --------------------------------------------------------------------------------------------------------------------------
80,942 58,812 139,930 114,406
- --------------------------------------------------------------------------------------------------------------------------
Income from vessel operations 6,852 29,797 18,783 60,790
- --------------------------------------------------------------------------------------------------------------------------
OTHER ITEMS
Interest expense (15,972) (10,858) (26,710) (24,892)
Interest income 2,058 1,653 3,687 3,668
Other (loss) income (note 9) (1,663) (301) (3,753) 6,173
- --------------------------------------------------------------------------------------------------------------------------
(15,577) (9,506) (26,776) (15,051)
- --------------------------------------------------------------------------------------------------------------------------
Net (loss) income before extraordinary loss (8,725) 20,291 (7,993) 45,739
Extraordinary loss on bond redemption (note 7) - (7,306) - (7,306)
- --------------------------------------------------------------------------------------------------------------------------
Net (loss) income (8,725) 12,985 (7,993) 38,433
Retained earnings, beginning of the period 440,825 447,351 446,897 428,102
- --------------------------------------------------------------------------------------------------------------------------
432,100 460,336 438,904 466,535
Dividends declared (8,184) (6,804) (14,988) (13,003)
- --------------------------------------------------------------------------------------------------------------------------
Retained earnings, end of the period 423,916 453,532 423,916 453,532
- --------------------------------------------------------------------------------------------------------------------------
Basic Earnings per Common Share (note 8):
Net (loss) income before extraordinary loss ($0.23) $0.64 ($0.22) $1.50
Net (loss) income ($0.23) $0.41 ($0.22) $1.26
Diluted Earnings per Common Share (note 8):
Net (loss) income before extraordinary loss ($0.23) $0.64 ($0.22) $1.50
Net (loss) income ($0.23) $0.41 ($0.22) $1.26
- --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
As at As at
September 30, March 31,
1999 1999
---- ----
$ $
- -
(Unaudited)
ASSETS
<S> <C> <C>
Current
Cash and cash equivalents 148,826 118,435
Marketable securities (note 3) - 8,771
Accounts receivable 21,992 22,995
Prepaid expenses and other assets 29,468 16,195
--------------------------------------------------------- -- ---------------- ---- ------------- ------
Total current assets 200,286 166,396
--------------------------------------------------------- -- ---------------- ---- ------------- ------
Marketable securities (note 3) 5,056 5,050
Vessels and equipment (notes 4, 7 and 10)
At cost, less accumulated depreciation of $600,027
(March 31, 1999 - $557,946) 1,684,838 1,218,916
Advances on newbuilding contracts - 55,623
--------------------------------------------------------- -- ---------------- ---- ------------- ------
Total vessels and equipment 1,684,838 1,274,539
--------------------------------------------------------- -- ---------------- ---- ------------- ------
Investment in joint venture 18,682 -
Other assets 10,231 6,235
--------------------------------------------------------- -- ---------------- ---- ------------- ------
1,919,093 1,452,220
--------------------------------------------------------- -- ---------------- ---- ------------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable 17,472 11,926
Accrued liabilities 46,154 21,185
Current portion of long-term debt (note 7) 42,724 39,058
--------------------------------------------------------- -- ---------------- ---- ------------- ------
Total current liabilities 106,350 72,169
--------------------------------------------------------- -- ---------------- ---- ------------- ------
Long-term debt (note 7) 958,683 602,661
Other long-term liabilities 237 -
--------------------------------------------------------- -- ---------------- ---- ------------- ------
--------------------------------------------------------- -- ---------------- ---- ------------- ------
Total liabilities 1,065,270 674,830
--------------------------------------------------------- -- ---------------- ---- ------------- ------
Minority interest 1,977 -
Stockholders' equity
Capital stock (note 8) 427,930 330,493
Retained earnings 423,916 446,897
--------------------------------------------------------- -- ---------------- ---- ------------- ------
Total stockholders' equity 851,846 777,390
--------------------------------------------------------- -- ---------------- ---- ------------- ------
1,919,093 1,452,220
--------------------------------------------------------- -- ---------------- ---- ------------- ------
Commitments and contingencies (notes 7 and 10)
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Six Months Ended September 30,
1999 1998
---- ----
$ $
- -
(Unaudited)
Cash and cash equivalents provided by (used for)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income (7,993) 38,433
Add charges to operations not requiring
a payment of cash and cash equivalents:
Depreciation and amortization 43,932 47,917
Gains on disposition of assets - (7,117)
Extraordinary loss on bond redemption - 7,306
Other - net 588 633
Change in non-cash working capital items related to
operating activities 2,049 (1,362)
- ------------------------------------------------------- ------------ ------------ -------- -------------- ---
Net cash flow from operating activities 38,576 85,810
- ------------------------------------------------------- ------------ ------------ -------- -------------- ---
FINANCING ACTIVITIES
Proceeds from long-term debt - 155,000
Scheduled repayments of long-term debt (16,012) (39,951)
Prepayment of long-term debt (10,000) (218,679)
Net proceeds from issuance of Common Stock - 68,824
Cash dividends paid (14,973) (12,626)
Other (327) (307)
- ------------------------------------------------------- ------------ ------------ -------- -------------- ---
Net cash flow from financing activities (41,312) (47,739)
- ------------------------------------------------------- ------------ ------------ -------- -------------- ---
INVESTING ACTIVITIES
Expenditures for vessels and equipment (19,646) (41,860)
Expenditures for drydocking (1,494) (5,970)
Net cash flow from purchase of Bona Shipholding Ltd.
(net of cash acquired of $91,658) 45,543 -
Proceeds from disposition of assets - 23,435
Proceeds on sale of available-for-sale securities 8,724 1,000
- ------------------------------------------------------- ------------ ------------ -------- -------------- ---
Net cash flow from investing activities 33,127 (23,395)
- ------------------------------------------------------- ------------ ------------ -------- -------------- ---
Increase in cash and cash equivalents 30,391 14,676
Cash and cash equivalents, beginning of the period 118,435 87,953
- ------------------------------------------------------- ------------ ------------ -------- -------------- ---
- ------------------------------------------------------- ------------ ------------ -------- -------------- ---
Cash and cash equivalents, end of the period 148,826 102,629
- ------------------------------------------------------- ------------ ------------ -------- -------------- ---
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, except share data)
(Information as at September 30, 1999, and for the Three-Month and Six-Month
Periods Ended September 30, 1999 and 1998 is unaudited)
1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
in the United States and the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures required
by 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
audited financial statements for the fiscal year ended March 31, 1999. In
the opinion of management, these statements reflect all adjustments
(consisting only of normal recurring accruals) necessary to present fairly,
in all material respects, the Company's consolidated financial position,
results of operations and cash flows for the interim periods presented. The
results of operations for the three-month and six-month periods ended
September 30, 1999 are not necessarily indicative of those for a full
fiscal year.
2. Acquisition of Bona Shipholding Ltd.
On June 11, 1999, Teekay acquired Bona Shipholding Ltd. ("Bona") for
aggregate consideration (including estimated transaction expenses of $19.0
million) of $450.3 million, consisting of $39.9 million in cash, $294.0
million of assumed debt (net of cash acquired of $91.7 million) and the
balance of $97.4 million in shares of Teekay's common stock. The
acquisition of Bona has been accounted for using the purchase method of
accounting. Bona's operating results are reflected in these financial
statements commencing the effective date of the acquisition.
The following table shows comparative summarized condensed pro forma
financial information for the six months ended September 30, 1999 and 1998 and
gives effect to the acquisition as if it had taken place April 1, 1998:
<TABLE>
<CAPTION>
Pro Forma
Six Months
Ended September 30
1999 1998
$ $
------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Net voyage revenue 182,832 250,400
Net (loss) income before extraordinary loss (10,880) 69,009
Net (loss) income (10,880) 61,703
Net (loss) income before extraordinary loss per common share
- basic & diluted (0.26) 1.87
Net (loss) income per common share
- basic & diluted (0.26) 1.67
------------------------------------------------------------------------- --------------- ---------------
</TABLE>
3. Marketable Securities
The Company's investments in marketable securities are classified as
available-for-sale securities and are carried at fair value. Net unrealized
gains or losses on available-for-sale securities, if material, are reported
as a separate component of stockholders' equity.
4. Change in Accounting
Estimate Effective April 1, 1999, the Company extended the estimated useful
life of its vessels from 20 years to 25 years, consistent with most other
public tanker companies. This change in accounting estimate resulted in a
reduction of depreciation expense of $8.3 million, or 22 cents per share,
and $13.9 million, or 39 cents per share, for the three and six month
periods ended September 30, 1999, respectively.
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S.dollars, except share data)
(Information as at September 30, 1999, and for the Three-Month and Six-Month
Periods Ended September 30, 1999 and 1998 is unaudited)
5. Cash Flows
Cash interest paid during the six-month periods ended September 30, 1999
and 1998 totaled approximately $43,119,000 and $28,316,000, respectively.
6. Income Taxes
The legal jurisdictions of the countries in which Teekay and the majority
of its subsidiaries are incorporated do not impose income taxes upon
shipping-related activities.
7. Long-Term Debt
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
$ $
----- ------------------------------------------------------------- -- ------------------ -- -------------- --
<S> <C> <C>
Revolving Credit Facilities 534,000 169,000
First Preferred Ship Mortgage Notes (8.32%)
U.S. dollar debt due through 2008 225,000 225,000
Floating rate (LIBOR + 0.50% to 1%)
U.S. dollar debt due through 2009 242,407 247,719
----- ------------------------------------------------------------- -- ------------------ -- -------------- --
1,001,407 641,719
Less current portion 42,724 39,058
----- ------------------------------------------------------------- -- ------------------ -- -------------- --
958,683 602,661
----- ------------------------------------------------------------- -- ------------------ -- -------------- --
</TABLE>
The Company has two long-term Revolving Credit Facilities (the "Revolvers")
available which, as at September 30, 1999, provided for borrowings of up to
$545.0 million. Interest payments are based on LIBOR plus a margin depending on
the financial leverage of the Company; at September 30, 1999 the margins were +
0.5% and + 0.775%. The Revolvers are collateralized by first priority mortgages
granted on twenty-eight of the Company's Aframax tankers and oil/bulk/ore
carriers, together with certain other related collateral, and a guarantee from
Teekay for all amounts outstanding under the Revolvers.
The 8.32% First Preferred Ship Mortgage Notes due February 1, 2008 (the
"8.32% Notes") are collateralized by first preferred mortgages on seven of the
Company's Aframax tankers, together with certain other related collateral, and
are guaranteed by the seven subsidiaries of Teekay that own the mortgaged
vessels (the "8.32% Notes Guarantor Subsidiaries") to a maximum of 95% of the
fair value of their net assets. As at September 30, 1999, the fair value of
these net assets approximated $178 million.
Condensed financial information regarding Teekay, the 8.32% Notes Guarantor
Subsidiaries, and non-guarantor subsidiaries of Teekay is set out in Schedule A
of these consolidated financial statements.
In August 1998, the Company redeemed the remaining $98.7 million of the 9
5/8% First Preferred Ship Mortgage Notes ("the 9 5/8% Notes") which resulted in
an extraordinary loss of $7.3 million, or 23 cents and 24 cents per share for
the three and six month periods ended September 30, 1998, respectively. The
redemption of the 9 5/8% Notes was financed by a public offering of Common Stock
in June 1998 and existing cash balances.
As at September 30, 1999, the Company was committed to a series of interest
rate swap agreements whereby $100.0 million of the Company's floating rate debt
was swapped with fixed rate obligations having an average remaining term of 5.4
years, expiring in February 2005. These arrangements effectively change the
Company's interest rate exposure on $100.0 million of debt from a floating LIBOR
rate to an average fixed rate of 5.85%. The Company is exposed to credit loss in
the event of non-performance by the counter parties to the interest rate swap
agreements; however, the Company does not anticipate non-performance by any of
the counter parties.
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S.dollars, except share data)
(Information as at September 30, 1999, and for the Three-Month and Six-Month
Periods Ended September 30, 1999 and 1998 is unaudited)
8. Capital Stock
<TABLE>
<CAPTION>
Authorized
25,000,000 Preferred Stock with a par value of $1 per share
125,000,000 Common Stock with no par value
--------------------------- -----------------------------------------------------------------------------
Common Thousands of Preferred Thousands of
Issued and outstanding Stock shares Stock shares
$ $
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance March 31, 1999 330,493 31,648 - -
June 11, 1999 Common Stock issued
on acquisition of Bona 97,422 6,415
Reinvested dividends 15 -
---------------------------------------------------------------------------------------------------------
Balance September 30, 1999 427,930 38,063 - -
---------------------------------------------------------------------------------------------------------
</TABLE>
As at September 30, 1999, the Company had reserved 3,641,750 shares of
Common Stock for issuance upon exercise of options granted pursuant to the
Company's 1995 Stock Option Plan. As at September 30, 1999, options to purchase
a total of 2,583,866 shares of the Company's Common Stock were outstanding, of
which 1,030,398 options were then exercisable at prices ranging from $21.50 to
$33.50 per share. The remaining outstanding options have exercise prices ranging
from $16.875 to $33.50 per share. All outstanding options expire between July
19, 2005 and June 1, 2009, ten years after the date of each respective grant. In
addition, as a result of the acquisition of Bona, the Company has an obligation
to grant an additional 185,000 options at an exercise price of $18.56 per share
to key members of Bona's senior management. The Company's basic earnings per
share is based upon the following weighted average number of common shares
outstanding: 38,063,639 shares and 35,539,642 shares for the three and six
months ended September 30, 1999, respectively; and 31,647,505 shares and
30,481,906 shares for the three and six months ended September 30, 1998,
respectively. Diluted earnings per share is based upon the following weighted
average number of common shares outstanding: 38,063,639 shares and 35,541,116
for the three and six months ended September 30, 1999, respectively; and
31,647,505 shares and 30,537,491 for the three and six months ended September
30, 1998, respectively.
9. Other (Loss) Income
<TABLE>
<CAPTION>
Three Months Six Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
$ $ $ $
----------------------------------------- --- ----------- -- ---------- -- -------- ----------- -- ---------- ---
<S> <C> <C> <C> <C>
Gain on disposition of assets (24) - (24) 7,117
Miscellaneous - net (1,639) (301) (3,729) (944)
----------------------------------------- --- ----------- -- ---------- -- -------- ----------- -- ---------- ---
(1,663) (301) (3,753) 6,173
----------------------------------------- --- ----------- -- ---------- -- -------- ----------- -- ---------- ---
</TABLE>
10. Commitments and Contingencies
In July 1999, the Company extended its time-charter contract for the
1996-built Aframax tanker, the Seabridge, for an additional year.
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES SCHEDULE A
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
------------------------------------------------------------------------
Teekay 8.32% Notes Teekay
Shipping Guarantor Non-Guarantor Shipping Corp.
Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net voyage revenues 9,397 120,140 (41,743) 87,794
Operating expenses 180 8,180 114,325 (41,743) 80,942
-----------------------------------------------------------------------
Income (loss) from vessel
operations (180) 1,217 5,815 6,852
Net interest income (expense) (4,823) 49 (9,081) (59) (13,914)
Equity in net income (loss) of
subsidiaries (3,722) 3,722
Other income (loss) 4,790 (6,453) (1,663)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Net (loss) income (8,725) 1,266 1,524 (2,790) (8,725)
Retained earnings (deficit), beginning
of the period 440,825 (32,217) 369,869 (337,652) 440,825
Dividends declared (8,184) (8,184)
-----------------------------------------------------------------------
Retained earnings (deficit), end of
the period 423,916 (30,951) 371,393 (340,442) 423,916
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
------------------------------------------------------------------------
Teekay 8.32% Notes Teekay
Shipping Guarantor Non-Guarantor Shipping Corp.
Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net voyage revenues 9,399 120,827 (41,617) 88,609
Operating expenses 220 9,241 90,968 (41,617) 58,812
-------------------------------------------------------------------------
Income (loss) from vessel
operations (220) 158 29,859 29,797
Net interest income (expense) (5,118) 39 (4,126) (9,205)
Equity in net income of subsidiaries 25,629 (25,629)
Other income (loss) 6,027 (6,328) (301)
-------------------------------------------------------------------------
Net income before extraordinary items 20,291 197 31,760 (31,957) 20,291
Extraordinary loss on bond redemption (7,306) (7,306)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income 12,985 197 31,760 (31,957) 12,985
Retained earnings (deficit), beginning
of the period 447,351 (33,990) 298,506 (264,516) 447,351
Dividends declared (6,804) (6,804)
-------------------------------------------------------------------------
Retained earnings (deficit), end of
the period 453,532 (33,793) 330,266 (296,473) 453,532
=========================================================================
- ----------
(See Note 7)
</TABLE>
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES SCHEDULE A
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended September 30, 1999
------------------------------------------------------------------------
Teekay 8.32% Notes Teekay
Shipping Guarantor Non-Guarantor Shipping Corp.
Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net voyage revenues 18,695 226,511 (86,493) 158,713
Operating expenses 271 16,125 210,027 (86,493) 139,930
-------------------------------------------------------------------------
Income (loss) from vessel
operations (271) 2,570 16,484 18,783
Net interest income (expense) (9,596) 49 (13,476) (23,023)
Equity in net income of subsidiaries 1,874 (1,874)
Other income (loss) 9,099 (12,852) (3,753)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net (loss) income (7,993) 2,619 12,107 (14,726) (7,993)
Retained earnings (deficit), beginning
of the period 446,897 (33,570) 359,286 (325,716) 446,897
Dividends declared (14,988) (14,988)
-------------------------------------------------------------------------
Retained earnings (deficit), end of
the period 423,916 (30,951) 371,393 (340,442) 423,916
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended September 30, 1998
------------------------------------------------------------------------
Teekay 8.32% Notes Teekay
Shipping Guarantor Non-Guarantor Shipping Corp.
Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net voyage revenues 18,822 250,624 (94,250) 175,196
Operating expenses 534 18,372 189,750 (94,250) 114,406
-------------------------------------------------------------------------
Income (loss) from vessel
operations (534) 450 60,874 60,790
Net interest income (expense) (12,859) 81 (8,446) (21,224)
Equity in net income of subsidiaries 59,132 (59,132)
Other income 18,927 (12,754) 6,173
-------------------------------------------------------------------------
Net income before extraordinary loss 45,739 531 71,355 (71,886) 45,739
Extraordinary loss on bond redemption (7,306) (7,306)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income 38,433 531 71,355 (71,886) 38,433
Retained earnings (deficit), beginning
of the period 428,102 (34,324) 258,911 (224,587) 428,102
Dividends declared (13,003) (13,003)
-------------------------------------------------------------------------
Retained earnings (deficit), end of
the period 453,532 (33,793) 330,266 (296,473) 453,532
=========================================================================
----------
(See Note 7)
</TABLE>
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES SCHEDULE A
CONDENSED BALANCE SHEETS
(in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
As at September 30, 1999
-----------------------------------------------------------------------------------
8.32% Notes Teekay
Teekay Shipping Guarantor Non-Guarantor Shipping Corp.
Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents 321 34,834 113,671 148,826
Other current assets 41 818 146,599 (95,998) 51,460
-----------------------------------------------------------------------------------
Total current assets 362 35,652 260,270 (95,998) 200,286
Vessels and equipment (net) 298,787 1,386,051 1,684,838
Advances due from subsidiaries 188,458 (188,458)
Other assets (principally marketable
securities, and investments in
subsidiaries) 891,316 15,292 (891,321) 15,287
Joint venture and associated companies 18,682 18,682
===================================================================================
1,080,136 334,439 1,680,295 (1,175,777) 1,919,093
===================================================================================
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities 3,290 2,279 197,966 (97,185) 106,350
Long-term debt 225,000 733,920 958,920
Due to (from) affiliates (6,219) 232,330 (226,111)
-----------------------------------------------------------------------------------
Total liabilities 228,290 (3,940) 1,164,216 (323,296) 1,065,270
-----------------------------------------------------------------------------------
Minority Interest 1,977 1,977
STOCKHOLDERS' EQUITY
Capital stock 427,930 23 5,943 (5,966) 427,930
Contributed capital 369,307 136,766 (506,073)
Retained earnings (deficit) 423,916 (30,951) 371,393 (340,442) 423,916
-----------------------------------------------------------------------------------
Total stockholders' equity 851,846 338,379 514,102 (852,481) 851,846
-----------------------------------------------------------------------------------
1,080,136 334,439 1,680,295 (1,175,777) 1,919,093
===================================================================================
</TABLE>
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES SCHEDULE A
CONDENSED BALANCE SHEETS (Contd.)
(in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
As at March 31, 1999
----------------------------------------------------------------------------------
------------------ ------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
------------------ ------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents 5 33,313 85,117 118,435
Other current assets 28 768 142,414 (95,249) 47,961
------------------ ------------- ---------------- --------------- ----------------
Total current assets 33 34,081 227,531 (95,249) 166,396
Vessels and equipment (net) 306,764 967,775 1,274,539
Advances due from subsidiaries 213,498 (213,498)
Other assets (principally marketable
securities, and investments in
subsidiaries) 792,084 11,290 (792,089) 11,285
================== ============= ================ =============== ================
1,005,615 340,845 1,206,596 (1,100,836) 1,452,220
================== ============= ================ =============== ================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities 3,225 1,095 163,844 (95,995) 72,169
Long-term debt 225,000 377,661 602,661
Due to (from) affiliates 3,990 163,096 (167,086)
------------------ ------------- ---------------- --------------- ----------------
------------------ ------------- ---------------- --------------- ----------------
Total liabilities 228,225 5,085 704,601 (263,081) 674,830
------------------ ------------- ---------------- --------------- ----------------
STOCKHOLDERS' EQUITY
Capital stock 330,493 23 5,943 (5,966) 330,493
Contributed capital 369,307 136,766 (506,073)
Retained earnings (deficit) 446,897 (33,570) 359,286 (325,716) 446,897
------------------ ------------- ---------------- --------------- ----------------
------------------ ------------- ---------------- --------------- ----------------
Total stockholders' equity 777,390 335,760 501,995 (837,755) 777,390
================== ============= ================ =============== ================
1,005,615 340,845 1,206,596 (1,100,836) 1,452,220
================== ============= ================ =============== ================
--------------------------------------
(See Note 7)
</TABLE>
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES SCHEDULE A
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended September 30, 1999
------------------------------------------------------------------------
Teekay 8.32% Notes Teekay
Shipping Guarantor Non-Guarantor Shipping Corp.
Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents provided by
(used for)
OPERATING ACTIVITIES
------------------------------------------------------------------------
Net cash flow from operating activities (9,751) 11,737 36,590 38,576
------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayments of long-term debt (16,012) (16,012)
Prepayments of long-term debt (10,000) (10,000)
Other (35,476) (10,208) 30,384 (15,300)
----------------------------------------------------------------------
Net cash flow from financing activities (35,476) (10,208) 4,372 (41,312)
----------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (8) (21,132) (21,140)
Net cash flow from
purchase of Bona Shipholding Ltd.
(net of cash acquired of $91,658) 45,543 45,543
Other 8,724 8,724
---------------------------------------------------------------------
Net cash flow from investing activities 45,543 (8) (12,408) 33,127
---------------------------------------------------------------------
Increase in cash and cash equivalents 316 1,521 28,554 30,391
Cash and cash equivalents, beginning of
the period 5 33,313 85,117 118,435
---------------------------------------------------------------------
Cash and cash equivalents, end of the
period 321 34,834 113,671 148,826
=====================================================================
</TABLE>
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES SCHEDULE A
CONDENSED STATEMENTS OF CASH FLOWS (Contd.)
(in thousands of U.S. dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended September 30, 1998
----------------------------------------------------------------------------
Teekay 8.32% Notes Teekay
Shipping Guarantor Non-Guarantor Shipping Corp.
Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents provided by
(used for)
OPERATING ACTIVITIES
--------------------------------------------------------------------------
Net cash flow from operating activities (15,522) 10,503 90,829 85,810
--------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 155,000 155,000
Repayments of long-term debt (25,000) (14,951) (39,951)
Prepayments of long-term debt (103,679) (115,000) (218,679)
Net proceeds from issuance of Common Stock 68,824 68,824
Other 75,515 1,652 (90,100) (12,933)
--------------------------------------------------------------------------
Net cash flow from financing activities 15,660 1,652 (65,051) (47,739)
--------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (1,258) (40,602) (41,860)
Other 18,465 18,465
--------------------------------------------------------------------------
Net cash flow from investing activities (1,258) (22,137) (23,395)
--------------------------------------------------------------------------
Increase in cash and cash equivalents 138 10,897 3,641 14,676
Cash and cash equivalents, beginning of
the period 22 10,687 77,244 87,953
--------------------------------------------------------------------------
Cash and cash equivalents, end of the
period 160 21,584 80,885 102,629
==========================================================================
(See Note 7)
</TABLE>
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1999
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Teekay Shipping Corporation (the "Company") has changed its fiscal year end
from March 31 to December 31, commencing December 31, 1999, in order to
facilitate comparison of our operating results to those of other companies in
the transportation industry.
RESULTS OF OPERATIONS
General
The Company is a leading provider of international crude oil and petroleum
product transportation services to major oil companies, major oil traders, and
government agencies. The Company's fleet consists of 75 vessels (including four
vessels time-chartered-in and three vessels owned by a joint venture), for a
total cargo-carrying capacity of approximately 7.4 million tonnes.
During the six months ended September 30, 1999, approximately 61% of the
Company's net voyage revenue was derived from spot voyages. The balance of the
Company's revenue is generated by two other modes of employment: time charters,
whereby vessels are chartered to customers for a fixed period; and contracts of
affreightment ("COAs"), whereby the Company carries an agreed quantity of cargo
for a customer over a specified trade route over a given period of time. In the
six months ended September 30, 1999, approximately 15% of net voyage revenues
was generated by time charters and COAs priced on a spot market basis. In the
aggregate, approximately 75% of the Company's net voyage revenue during the six
months ended September 30, 1999 was derived from spot voyages or time charters
and COAs priced on a spot market basis, with the remaining 25% being derived
from fixed-rate time charters and COAs. This dependence on the spot market,
which is within industry norms, contributes to the volatility of the Company's
revenue, cash flow from operations, and net income.
Historically, the tanker industry has been cyclical, experiencing
volatility in profitability and asset values resulting from changes in the
supply of, and demand for, vessel capacity. In addition, tanker markets have
historically exhibited seasonal variations in charter rates. Tanker markets are
typically stronger in the winter months as a result of increased oil consumption
in the northern hemisphere and unpredictable winter weather patterns which tend
to disrupt vessel scheduling.
In December 1997, the Company acquired two vessels and related shore
support services from an Australian affiliate of Caltex Petroleum. These two
tankers, together with one of the Company's existing Aframax tankers, have been
time-chartered to the Caltex affiliate in connection with the Company's
provision of Caltex's oil transportation requirements formerly provided by that
affiliate. In addition, the Company has converted one of its existing vessels to
a floating storage and off-loading vessel, which is sharing crews with the
vessels employed in the Caltex arrangement (together with the other three
vessels involved in the arrangement, the "Australian Vessels"). Vessel operating
expenses for the Australian Vessels are substantially higher than those for the
rest of the Company's fleet, primarily as a result of higher costs associated
with employing an Australian crew. The TCE rates (as defined below) for the
Australian Vessels are correspondingly higher to compensate for these increased
costs. During the six months ended September 30, 1999, the Australian Vessels
earned net voyage revenues and an average TCE rate of $18.1 million and $24,720,
respectively, and incurred vessel operating expenses of $6.4 million, or $8,790
on a per ship per day basis. In comparison, during the six months ended
September 30, 1998, the Australian Vessels earned net voyage revenues and an
average TCE rate of $18.7 million and $25,855 respectively, and incurred vessel
operating expenses of $7.5 million, or $10,250 on a per ship per day basis. The
results of operation for the Australian Vessels are included in the Company's
Consolidated Financial Statements included herein.
<PAGE>
Acquisition of Bona Shipholding Ltd.
On June 11, 1999, the Company acquired Bona Shipholding Ltd. ("Bona") for
aggregate consideration (including estimated transaction expenses of $19.0
million) of $450.3 million, consisting of $39.9 million in cash, $294.0 million
of assumed debt (net of cash acquired of $91.7 million) and the balance of $97.4
million in shares of the Company's common stock. Bona was the third largest
operator of medium-size tankers, controlling a fleet of vessels consisting of 15
Aframax tankers, eight oil/bulk/ore carriers and, through a joint venture, 50%
interests in one additional Aframax tanker and two Suezmax tankers. Bona engaged
in the transportation of oil, oil products, and dry bulk commodities, primarily
in the Atlantic region. Through this acquisition, the Company has combined
Bona's market strength in the Atlantic region with the Company's franchise in
the Indo-Pacific Basin. For the year ended December 31, 1998, Bona earned net
voyage revenues of $148.9 million resulting in income from vessel operations of
$29.5 million and net income of $16.6 million.
The acquisition of Bona has been accounted for using the purchase method of
accounting. Bona's operating results are reflected in the Company's financial
statements commencing the effective date of the acquisition.
As a result of this acquisition, the Company anticipates annual cost
savings of approximately $10 million, commencing after an estimated 12-month
integration period, through a reduction in combined overhead costs, increased
purchasing power, and other operational efficiencies. The Company also believes
that the acquisition will create revenue enhancement opportunities as a result
of owning a larger fleet with a greater selection of vessels to match customer
demands and enable the Company to further extend the breadth of services
provided to its customers.
Historically, the Company has depreciated its vessels for accounting
purposes over an economic life of 20 years down to estimated residual values.
Bona depreciated its vessels over an economic life of 25 years down to estimated
scrap values, the method used by the majority of companies in the shipping
industry. Effective April 1, 1999, the Company extended the estimated useful
life of its vessels to 25 years and also replaced the estimated residual values
with estimated scrap values. As a result, the Company expects that its average
depreciation expense per vessel will decrease from historical levels.
As a result of the Bona acquisition, the Company expects that its general
and administrative expenses, while remaining relatively stable on a per vessel
basis during the first few fiscal quarters of combined operations, will begin to
decline on a per vessel basis as efficiencies are obtained from the integration
of the two companies' operations. The Company also anticipates an increase in
interest expense arising from debt that was assumed as part of the acquisition.
All oil/bulk/ore carriers ("O/B/O") owned by Bona have been operated
through an O/B/O pool managed by a subsidiary of Bona. Net voyage revenues from
the O/B/O pool will be included on a 100% basis in the Company's consolidated
financial statements. Where the Company owns less than 50% of a vessel, the
minority participants' share of the O/B/O pool is reflected as a time charter
hire expense. The Company anticipates that these O/B/Os may have a slight
negative impact on the Company's TCE rates over the medium- to longer-term,
since these vessels tend to command lower rates than modern Aframax tankers
under typical market conditions.
Results of Operations
Bulk shipping industry freight rates are commonly measured at the net
voyage revenue level in terms of "time charter equivalent" (or "TCE") rates,
defined as voyage revenues less voyage expenses (excluding commissions), divided
by revenue-generating ship-days for the round-trip voyage. Voyage revenues and
voyage expenses are a function of the type of charter, either spot charter or
time charter, and port, canal and fuel costs depending on the trade route upon
which a vessel is sailing, in addition to being a function of the level of
shipping freight rates. For this reason, shipowners base economic decisions
regarding the deployment of their vessels upon anticipated TCE rates, and
industry analysts typically measure bulk shipping freight rates in terms of TCE
rates. Therefore, the discussion of revenue below focuses on net voyage revenue
and TCE rates.
In the near-term, the Company believes that TCE rates will remain weak as a
result of oil production cutbacks, and the large number of newbuilding tankers
that are expected to be delivered over the next six months.
<PAGE>
Quarter Ended September 30, 1999 Versus Quarter Ended September 30, 1998
The Company incurred a net loss of $8.7 million, or 23 cents per share, in
the quarter ended September 30, 1999, compared to net income of $13.0 million,
or 41 cents per share, in the quarter ended September 30, 1998. Results for the
quarter ended September 30, 1998 included an extraordinary loss of $7.3 million,
or 23 cents per share, on the redemption of the Company's 9 5/8% First Preferred
Ship Mortgage Notes (the "9 5/8% Notes"). Results for the current quarter were
affected by the decline in tanker freight rates, partly offset by the change in
accounting estimate of the useful life of its vessels from 20 to 25 years.
Income from Vessel Operations
The Company's average fleet size increased 49.8% in the quarter ended
September 30, 1999 compared to the quarter ended September 30, 1998, due mainly
to the acquisition of Bona.
Net voyage revenues decreased 1% to $87.8 million in the current quarter,
compared to $88.6 million for the same quarter last year. This is mainly the
result of a 36.9% decline in the Company's average TCE rate in the current
quarter to $14,008 from $22,187 in the same quarter last year, partially offset
by the increase in fleet size.
Vessel operating expenses, which include crewing, repairs and maintenance,
insurance, stores and lubes, and miscellaneous expenses, including
communications, increased 72.6% to $36.3 million in the quarter ended September
30, 1999 from $21.0 million in the quarter ended September 30, 1998 mainly as a
result of the addition of the Bona vessels, which currently have higher
operating expenses than the remainder of Teekay's fleet.
Time charter hire expense was $10.8 million in the quarter ended September
30, 1999, up from $8.4 million in the quarter ended September 30, 1998 due to
the Bona acquisition. The minority participants' net voyage revenue in the O/B/O
pool managed by a subsidiary of Bona is reflected as time charter hire expense.
The average number of vessels time-chartered-in by the Company was four in the
current quarter, compared to five in the same quarter last year.
Depreciation and amortization expense increased 2.8% to $24.3 million in
the current quarter from $23.6 million in the same quarter last year, reflecting
the increase in fleet size arising from the acquisition of Bona, offset by the
change in estimated useful life of the vessels from 20 to 25 years. Depreciation
and amortization expense included amortization of drydocking costs of $1.8
million in the quarter ended September 30, 1999, compared to $2.2 million in the
quarter ended September 30, 1998. Had we retained our previous depreciation
policy and applied this policy to the Bona fleet, depreciation expense for the
current quarter would have been $8.3 million higher.
General and administrative expenses rose 65.5% to $9.6 million in the
current quarter from $5.8 million in the same quarter last year, primarily as a
result of the acquisition of Bona.
Interest Expense
Interest expense increased 47.1% to $16.0 million in the current quarter
from $10.9 million in the same quarter last year, reflecting the additional debt
assumed as part of the Bona acquisition.
<PAGE>
Six Months Ended September 30, 1999 Versus Six Months Ended September 30, 1998
Net loss for the six months ended September 30, 1999 was $8.0 million, or
22 cents per share, compared to net income of $38.4 million, or $1.26 per share,
for the same period last year. The results for the previous period included an
extraordinary loss of $7.3 million, or 24 cents per share, arising from the 9
5/8% Notes redemption and gains on asset sales of $7.1 million, or 23 cents per
share. There were no asset sales in the current period. The decrease in earnings
is mainly the result of lower TCE rates, partly offset by the change in
accounting estimate of the useful life of its vessels from 20 to 25 years.
Income from Vessel Operations
The Company's average fleet size increased 32.3% in the six months ended
September 30, 1999 compared to the six months ended September 30, 1998, due to
the acquisition of Bona.
Net voyage revenues decreased 9.4% to $158.7 million in the current period,
compared to $175.2 million for the same period last year. This is mainly the
result of a 33.3% decline in the Company's average TCE rate in the current
period to $14,782 from $22,146 in the same period last year, partially offset by
the increase in fleet size.
Vessel operating expenses increased 42.6% to $59.6 million in the six
months ended September 30, 1999 from $41.8 million in the same period last year,
mainly as a result of the increase in fleet size.
Time charter hire expense was $19.7 million in the six months ended
September 30, 1999, up from $13.6 million in the six months ended September 30,
1998, due to the Bona acquisition. The minority participants' net voyage revenue
in the O/B/O pool managed by a subsidiary of Bona is reflected as time charter
hire expense. The average number of vessels time-chartered-in by the Company was
four in the current period, the same as in the same period last year.
Depreciation and amortization expense decreased 8.3% to $43.9 million in
the current period from $47.9 million in the same period last year, reflecting
the change in estimated useful life of the vessels from 20 to 25 years,
partially offset by the increase in fleet size arising from the acquisition of
Bona. Depreciation and amortization expense included amortization of drydocking
costs of $4.2 million in the six months ended September 30, 1999, compared to
$4.6 million in the six months ended September 30, 1998. Had we retained our
previous depreciation policy and applied this policy to the Bona fleet,
depreciation expense would have been $13.9 million higher in the current period.
General and administrative expenses rose 51.1% to $16.8 million in the
current period from $11.1 million in the same period last year, primarily as a
result of the acquisition of Bona.
Interest Expense
Interest expense increased 7.3% to $26.7 million in the current period from
$24.9 million in the same period last year, reflecting the additional debt
assumed as part of the Bona acquisition.
The following table illustrates the relationship between fleet size
(measured in ship-days), TCE performance, and operating results per calendar
ship-day. To facilitate comparison to the prior periods' results, unless
otherwise indicated, the figures in the table below exclude the results from the
Company's Australian Vessels:
<PAGE>
<TABLE>
<CAPTION>
---- ---------------------------------------- -- ----------------------- -- -------------------------- --
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---------------------------------------- -- ---------- - ---------- -- ----------- -- ----------- --
<S> <C> <C> <C> <C>
International Fleet:
Average number of ships 66 43 58 43
Total calendar ship-days 6,107 3,957 10,533 7,785
Revenue-generating ship-days (A) 5,774 3,713 9,926 7,362
Net voyage revenue before
commissions(B) (000's) $76,495 $80,779 $139,257 $160,362
---- ---------------------------------------- -- ---------- - ---------- -- ----------- -- ----------- --
---- ---------------------------------------- -- ---------- - ---------- -- ----------- -- ----------- --
TCE (B/A) $13,248 $21,756 $ 14,030 $ 21,782
---- ---------------------------------------- -- ---------- - ---------- -- ----------- -- ----------- --
---- ------------------------------------------------------ -- ---------- -- ----------- -- ----------- -
Operating results per calendar ship-day:
Net voyage revenue $12,059 $19,959 $12,788 $20,108
Vessel operating expense 5,673 4,924 5,461 4,854
General and administrative expense 1,485 1,344 1,487 1,301
Drydocking expense 311 627 432 654
---- ---------------------------------------- -- ---------- - ---------- -- ----------- -- ----------- --
Operating cash flow per calendar
ship-day $4,590 $13,064 $5,408 $13,299
---- ---------------------------------------- -- ---------- - ---------- -- ----------- -- ----------- --
---- ---------------------------------------- -- ---------- - ---------- -- ----------- -- ----------- --
Australian Vessels:
Operating cash flow per calendar
ship-day $14,297 $14,583 $14,443 $13,950
---- ---------------------------------------- -- ---------- - ---------- -- ----------- -- ----------- --
---- ---------------------------------------- -- ---------- - ---------- -- ----------- -- ----------- --
Total Fleet:
Operating cash flow per calendar
ship-day $5,130 $13,145 $5,982 $13,317
---- ---------------------------------------- -- ---------- - ---------- -- ----------- -- ----------- --
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company's total liquidity, including cash,
marketable securities, and undrawn long-term lines of credit, increased to
$164.9 million, up from $143.3 million as at March 31, 1999, mainly as a result
of cash acquired in the Bona acquisition. In addition, as of September 30, 1999,
the Company's fleet included 15 unencumbered vessels.
Net cash flow from operating activities decreased to $38.6 million in the
six months ended September 30, 1999 from $85.8 million in the same period one
year ago, mainly reflecting the decrease in TCE rates.
The Company's scheduled debt repayments were $16.0 million during the six
months ended September 30, 1999, compared to $40.0 million in the same period
last year.
During the six months ended September 30, 1999, the Company incurred
capital expenditures for vessels and equipment of $19.6 million mainly for
advances on two newbuilding double-hull Aframax tankers, delivered in July and
September 1999, respectively. Cash expenditures for drydocking were $1.5 million
in the six months ended September 30, 1999 compared to $6.0 million over the
same period one year ago, reflecting fewer scheduled drydockings in the current
period.
Dividends declared during the six months ended September 30, 1999 were
$15.0 million, or 43 cents per share.
As part of its growth strategy, the Company will continue to consider
strategic opportunities, including the acquisition of additional vessels and
expansion into new markets. The Company may choose to pursue such opportunities
through internal growth, joint ventures, or business acquisitions. The Company
intends to finance any future acquisitions through various sources of capital,
including internally generated cash flow, existing credit lines, additional debt
borrowings, and the issuance of additional shares of capital stock.
<PAGE>
YEAR 2000 COMPLIANCE
The Company relies on computer systems, software, databases, third party
electronic data interchange interfaces and embedded processors to operate its
business. Some of these applications may be unable to appropriately interpret
the calendar year 2000 and certain other dates and some level of modification or
replacement of such applications or embedded systems will be necessary.
The Company has been actively engaged in systematically addressing the Year
2000 problem since December 1997. A Year 2000 Compliance Task Force comprised of
employees from a broad cross-section of the Company has been charged with the
task of ensuring that the Company achieves Year 2000 compliance. The Task Force
includes full-time dedicated Year 2000 staff. The Company was largely Year 2000
compliant on October 1, 1999 and expects to be fully Year 2000 compliant by
mid-December of this year.
The Company's Year 2000 compliance project has been divided into several phases.
1. First, the Company completed a business and safety risk analysis to
prioritize the efforts of the Year 2000 Task Force. Those areas of the
Company's operations that posed the greatest safety risk or were the
most important to the survival and continuity of the business were
assigned the highest priority.
2. Second, a full inventory of all computer hardware and software
applications, and all systems which utilize "embedded chips", both on
the ships and in the Company's offices, has been completed. Embedded
chips are used, for example, in navigation systems, communication
systems, safety and detection systems, and electrical and
electro-mechanical control systems on the Company's vessels.
3. Third, a comprehensive audit and test program of information
technology and non-information technology systems, such as embedded
chips, was developed and deployed to ensure seamless operation through
all of the dates which were identified as potentially problematic.
These dates include August 22, 1999, September 9, 1999, January 1,
2000, and February 29, 2000. Extensive safe testing on the vessels and
off-line testing was done. We requested, and in most cases have
received, Certificates of Compliance from the manufacturers of the
equipment identified in the inventory phase as possibly containing
date sensitive functions. In addition, the Company completed a "Year
2000 Readiness Survey" with its top customers, lenders, suppliers and
other organizations with which it conducts business. The survey
confirmed that our key business partners were aware of the Year 2000
issue and have actively worked towards Year 2000 compliance. This
"investigation phase" is now complete.
4. Fourth, the Company has essentially completed all remedial action with
respect to all identified non-compliant systems and items. Remedial
action includes modifying, repairing or replacing systems or items
which are of high safety or business criticality, or a "work around"
strategy for less critical systems. Testing was carried out concurrent
with the remedial action. The Company completed the majority of this
work in August of this year. The Company has now fully aligned the
Bona Y2K Project with its own. The Company's two Australian-flagged
product tankers were scheduled for remediation while in drydock during
October and November. Remediation of the first vessel is complete.
However, additional non-Y2K related repairs have delayed the length of
time that this vessel must stay in drydock. As a result of the delay,
the second vessel cannot be drydocked due to customer requirements.
The project plan for the second vessel has been changed to allow for a
riding squad to complete the remedial action. This method is more time
consuming than the original drydock plan, and the target completion
date for this vessel is now December 15, 1999.
5. The final phase consists of preparing contingency plans, vessel
placement strategies, and business continuity plans. These plans were
developed and refined in consultation with our key business partners
and have been communicated to those partners and customers. Drills are
scheduled for December 1999 to ensure that sea and shore staff are
competent with contingency instructions. Global Positioning Systems
rollover was fully addressed through remedial action and contingency
plans.
<PAGE>
Although the Company expects to be Year 2000 compliant in a timely manner,
no assurance can be given that all of the Company's systems, including those
acquired as part of its acquisition of Bona, will be Year 2000 compliant or that
its customers, lenders, suppliers or the other organizations with which it
conducts business will become fully Year 2000 compliant in a timely manner. If
the Company does not achieve full compliance in a timely manner or complete its
Year 2000 project within its current cost estimates, or if one or more of its
key customers, bankers, lenders, suppliers or other organizations with which it
does business fails to become fully Year 2000 compliant, the Company's business,
financial condition and results of operations could be adversely affected. There
are also risks inherent in the Company's operations arising from the potential
failure of systems and equipment aboard other vessels sharing navigable waters
with the Company's vessels as well as problems which could arise from the
malfunction or failure of port and shore-based infrastructure systems.
The Company estimates that it will cost $2.5 million to achieve Year 2000
compliance. The majority of these costs will either be recovered directly from
customers of the Company pursuant to contractual arrangements currently in place
or represent ongoing equipment upgrades which would have been undertaken
regardless of the Year 2000 issues. Based on the findings of the Year 2000 Task
Force to date, the Company does not expect Year 2000 compliance costs to have a
material adverse effect on the Company.
FORWARD-LOOKING STATEMENTS
This Report on Form 6-K for the quarterly period ended September 30, 1999
contains certain forward-looking statements (as such term is defined in Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended) concerning future events and the Company's
operations, performance and financial condition, including, in particular,
statements regarding: TCE rates in the near-term; tanker supply and demand;
supply and demand for oil; expectations as to funding the Company's future
capital requirements; future capital expenditures; the Company's growth strategy
and measures to implement such strategy; cost savings and other benefits or
changes that may be realized in connection with, or result from the Bona
acquisition; the Company's ability to effectively integrate the operations of
Bona with the Company's operations; the effect the O/B/O pool may have on the
Company's TCE rates; performance by counter parties to interest rate swap
agreements; and Year 2000 compliance. Words such as "expects," "intends,"
"plans," "believes," "anticipates," "estimates" and variations of such words and
similar expressions are intended to identify forward-looking statements. These
statements involve known and unknown risks and are based upon a number of
assumptions and estimates which are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company. Actual results may differ materially from those expressed or implied by
such forward-looking statements. Factors that could cause actual results to
differ materially include, but are not limited to: changes in production of or
demand for oil and petroleum products, either generally or in particular
regions; the cyclical nature of the tanker industry and its dependence on oil
markets; the supply of tankers available to meet the demand for transportation
of petroleum products; greater than anticipated levels of tanker newbuilding
orders or less than anticipated rates of tanker scrapping; changes in trading
patterns significantly impacting overall tanker tonnage requirements; the
Company's dependence on spot oil voyages; competitive factors in the markets in
which the Company operates; environmental and other regulation; the Company's
potential inability to achieve and manage growth; risks associated with
operations outside the United States; the potential inability of the Company to
generate internal cash flow and obtain additional debt or equity financing to
fund capital expenditures; the Company's potential inability to identify
embedded processors in a timely manner or to achieve Year 2000 compliance within
current cost estimates; the failure of the Company's key business partners to
achieve Year 2000 compliance and the subsequent impact on the Company's
operating results; the Company's potential inability to successfully integrate
Bona into the Company's operations; and other factors detailed from time to time
in the Company's periodic reports filed with the U.S. Securities and Exchange
Commission. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in the Company's expectations with
respect thereto or any change in events, conditions or circumstances on which
any such statement is based.
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1999
PART I - FINANCIAL INFORMATION
ITEM 3 - MARKET RATE RISKS
The Company is exposed to market risk from interest and foreign currency
rate fluctuations. The Company uses interest rate swaps and forward foreign
currency contracts to manage these risks, but does not use financial instruments
for trading or speculative purposes.
Interest Rate Risk
The Company invests its cash and marketable securities in financial
instruments with a duration of less than three months within the parameters of
its investment policy and guidelines. The majority of these investments pay a
rate of return that fluctuates due to changes in market interest rates.
The Company uses interest rate swaps to manage the impact of interest rate
changes on earnings and cash flows. The differential to be paid or received
under these swap agreements is accrued as interest rates change and is
recognized as an adjustment to interest expense. Premiums and receipts, if any,
are recognized as adjustments to interest expense over the lives of the
individual contracts.
Foreign Exchange Rate Risk
The international tanker industry's functional currency is the U.S. dollar.
Virtually all of the Company's revenues are earned and most of its operating
costs are paid in U.S. dollars. However, the Company incurs a limited amount of
operating, drydocking, and overhead expenses in foreign currencies, primarily
the Japanese Yen, Korean Won, Singapore Dollar, Canadian Dollar and Australian
Dollar. Approximately 25% of vessel and voyage, drydocking and overhead costs
and expenditures are denominated in these currencies. The Company can shift its
purchase of goods and services from one country to another and, thus, from one
currency to another, on relatively short notice.
The Company enters into forward contracts as a hedge against changes in
relevant foreign exchange rates. Market value gains and losses are deferred and
recognized during the period in which the hedged transaction is recorded in the
accounts.
Fair Value of Financial Instruments
The estimated fair value of the Company's financial instruments is as follows:
<TABLE>
<CAPTION>
Contract Carrying Amount Fair
Amount Asset Liability Value
- ---------------------------------------- ----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
September 30, 1999:
FX Forward Contracts $ 4,691 $ $ 26
Interest Rate Swap Agreements
- net receivable position 100,000 3,137
Debt 1,001,407 1,001,407 984,532
March 31, 1999
FX Forward Contracts $ 2,905 $ $ (22)
Debt 641,719 641,719 637,219
- ---------------------------------------- ----------------- ---------------- ---------------- ----------------
</TABLE>
Inflation
Although inflation has had a moderate impact on operating, drydocking and
corporate overhead expenses, management does not consider inflation to be a
significant risk to direct costs in the current and foreseeable economic
environment. However, in the event that inflation becomes a significant factor
in the world economy, inflationary pressures could result in increased operating
and financing costs.
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1999
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company's 1999 Annual Meeting of Shareholders was held on August 31,
1999. The following persons were elected directors for the terms set forth below
by the votes set forth opposite their names:
<TABLE>
<CAPTION>
Votes against Shares Which Broker
Terms Expiring in 2000 Votes For or Withheld Abstained Non-Votes
---------------------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Arthur F. Coady 29,955,931 27,120 N/A N/A
C. Sean Day 29,956,031 27,020 N/A N/A
Michael D. Dingman 29,955,181 27,870 N/A N/A
Votes against Shares Which Broker
Terms Expiring in 2001 Votes For or Withheld Abstained Non-Votes
---------------------- --------- ----------- --------- ---------
Morris L. Feder 29,957,181 25,870 N/A N/A
Leif O. Hoegh 29,955,531 27,520 N/A N/A
Steve G. K. Hsu 29,958,231 24,820 N/A N/A
Votes against Shares Which Broker
Terms Expiring in 2002 Votes For or Withheld Abstained Non-Votes
---------------------- --------- ----------- --------- ---------
Thomas Kuo-Yuen Hsu 29,958,231 24,820 N/A N/A
Axel Karlshoej 29,955,831 27,220 N/A N/A
Bjorn Moller 29,955,431 27,620 N/A N/A
Shareholders also (a) approved Amended and Restated Articles of
Incorporation of the Company, (b) approved an amendment to the Company's Bylaws
to create a classified Board of Directors and (c) ratified the selection of
Ernst & Young, Chartered Accountants, as independent auditors of the Company for
the fiscal year ending December 31, 1999, as set forth below:
Votes against Shares Which Broker
Votes For or Withheld Abstained Non-Votes
--------- ----------- --------- ---------
Amended and Restated
Articles of Incorporation 20,489,118 6,607,195 22,006 2,864,732
Amendment to Bylaws 21,225,241 5,872,543 20,535 2,864,732
Ernst & Young 29,959,761 11,706 11,584 N/A
</TABLE>
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 6-K
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 6-K
None
THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE
REGISTRATION STATEMENT OF THE COMPANY ON FORM F-3 FILED WITH THE COMMISSION ON
OCTOBER 4, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEEKAY SHIPPING CORPORATION
Date: November 15, 1999 By: /s/ Peter S. Antturi
Peter S. Antturi
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEEKAY
SHIPPING CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 148,826
<SECURITIES> 0
<RECEIVABLES> 21,992
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 200,286
<PP&E> 2,284,865
<DEPRECIATION> 600,027
<TOTAL-ASSETS> 1,919,093
<CURRENT-LIABILITIES> 106,350
<BONDS> 958,683
0
0
<COMMON> 427,930
<OTHER-SE> 423,916
<TOTAL-LIABILITY-AND-EQUITY> 1,919,093
<SALES> 0
<TOTAL-REVENUES> 235,558
<CGS> 0
<TOTAL-COSTS> 76,845
<OTHER-EXPENSES> 139,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,710
<INCOME-PRETAX> (7,993)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,993)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,993)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
