<PAGE> 1
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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
Date of report: July 22, 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, The 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-_______ ]
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Page 1 of 27
<PAGE> 2
On June 11, 1999, we acquired Bona Shipholding Ltd. for an aggregate
consideration (including transaction expenses) of approximately $450.0 million,
consisting of approximately $40.0 million in cash, $294.0 million of assumed
debt (net of cash acquired), and 6.4 million shares of our common stock. Bona
was the third largest operator of medium-sized 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 the acquisition
we have combined Bona's market strength in the Atlantic region with our
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 $37.2 million and net income of $16.6 million.
The acquisition of Bona Shipholding Ltd. has been accounted for using
the purchase method of accounting and did not result in the recording of any
goodwill. We incurred expenses of approximately $19.0 million in connection with
the acquisition. We will capitalize these expenses by adding them to the
capitalized value of acquired vessels whose values are being written down and
amortize the expenses over the remaining life of the vessels. Under the purchase
method of accounting, Bona's operating results will be reflected in our
financial statements commencing June 11, 1999, the effective date of the
acquisition.
Historically we have depreciated our 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, which method is used by the majority of companies in the shipping
industry. Effective April 1, 1999, we changed our useful life estimate to 25
years.
The description of the Bona acquisition herein does not purport to be
complete and is qualified in its entirety by the provisions of the Amalgamation
Agreement, pursuant to which the acquisition was effected, which was filed as an
exhibit to our Annual Report on Form 20-F for the fiscal year ended March 31,
1999.
FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
Bona Shipholding Ltd. Audited Consolidated Financial Statements:
(i) Report of Arthur Andersen & Co., dated March 3, 1999;
(ii) Bona Shipholding Ltd. Consolidated Balance Sheets as of
December 31, 1998, 1997 and 1996;
(iii) Bona Shipholding Ltd. Consolidated Statements of Income
for the years ended December 31, 1998, 1997 and 1996;
(iv) Bona Shipholding Ltd. Consolidated Statements of Cash
Flow for the years ended December 31, 1998, 1997
and 1996;
(v) Bona Shipholding Ltd. Consolidated Statements of
Stockholders' Equity as of December 31, 1998, 1997 and
1996; and
(vi) Notes to the Financial Statements.
(b) Unaudited Pro Forma Consolidated Condensed Financial Statements:
(i) Unaudited Pro Forma Consolidated Condensed Balance Sheet
as of March 31, 1999;
(ii) Unaudited Pro Forma Consolidated Condensed Statement of
Income for the year ended March 31, 1999; and
(iii) Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements.
(c) Exhibits
1.0 Amalgamation Agreement among Teekay Shipping
Corporation, Northwest Maritime Inc., and Bona
Shipholding Ltd., dated as of March 26, 1999
(incorporated by reference to an Annual Report on Form
20-F for the fiscal year ended March 31, 1999).
2.0 Consent of Arthur Andersen & Co.
Page 2 of 27
<PAGE> 3
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 3 of 27
<PAGE> 4
[ARTHUR ANDERSEN LETTERHEAD]
AUDITORS' REPORT FOR 1998
To the Stockholders of
Bona Shipholding Ltd.
We have audited the accompanying consolidated balance sheets of Bona Shipholding
Ltd. and subsidiaries as of December 31, 1998, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bona Shipholding Ltd. and
subsidiaries as of December 31, 1998, 1997 and 1996, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN & CO.
/s/ MORTEN DRAKE
Morten Drake
State Authorised Public Accountant (Norway)
Oslo,
March 3, 1999
Page 4 of 27
<PAGE> 5
BONA SHIPHOLDING LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
(USD'000) Note 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING INCOME AND EXPENSES
Freight revenues 2 216,867 256,070 242,576
Voyage expenses 2 (68,004) (71,071) (70,699)
INCOME ON TIMECHARTER BASIS 148,863 184,999 171,877
- -------------------------------------------------------------------------------------------------
Charterhire expenses (32,988) (44,601) (40,491)
Crew expenses (25,603) (23,322) (25,572)
Other running expenses 3 (29,532) (28,970) (34,679)
Administration expenses 5,17,18 (4,412) (4,234) (2,667)
Results from joint ventures and
associated companies 9 2,046 971 907
OPERATING PROFIT BEFORE DEPRECIATION,
AMORTISATION AND SALES GAIN 58,374 84,842 69,375
- -------------------------------------------------------------------------------------------------
Depreciation vessels 8 (23,720) (39,345) (45,941)
Amortisation drydocking expenses 4 (5,182) (6,041) (4,591)
Gain from sale of vessels 2,831 9,173 3,924
OPERATING PROFIT 32,303 48,629 22,767
- -------------------------------------------------------------------------------------------------
FINANCIAL INCOME AND EXPENSES
Interest income 5,525 7,375 6,308
Interest expenses (20,135) (20,893) (28,144)
Other financial items (897) 4,485 3,317
NET FINANCIAL INCOME AND EXPENSES (15,507) (9,033) (18,519)
- -------------------------------------------------------------------------------------------------
INCOME BEFORE MINORITY INTERESTS AND TAXES 16,796 39,596 4,248
- -------------------------------------------------------------------------------------------------
Minority interests (206) 15 625
Taxes 16 - - -
NET PROFIT 16,590 39,611 4,873
- -------------------------------------------------------------------------------------------------
EARNINGS PER SHARE (BASIC AND DILUTED) 0.75 1.40 0.17
- -------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
Page 5 of 27
<PAGE> 6
BONA SHIPHOLDING LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31,
------------------------------------------
(USD'000) Note 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents 6 71,575 138,248 134,659
Accrued freight revenues 8,045 9,077 4,130
Other current assets 7 2,994 6,972 3,306
Bunker inventory 1,382 1,985 3,407
TOTAL CURRENT ASSETS 83,996 156,282 145,502
- -----------------------------------------------------------------------------------------------------
Vessels 8,13 409,312 418,650 482,917
Newbuilding contracts 11 35,329 13,083 -
Other fixed assets 10 62,743 58,682 5,255
Capitalised drydocking expenses 4 6,253 7,260 11,510
Joint ventures and associated companies 9 25,830 28,168 29,691
TOTAL FIXED ASSETS 539,467 525,843 529,373
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS 623,463 682,125 674,875
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long term debt 13 3,600 15,833 18,000
Other current liabilities 12 7,257 15,540 18,722
TOTAL CURRENT LIABILITIES 10,857 31,373 36,722
- -----------------------------------------------------------------------------------------------------
Long term portion of mortgage debt 13,19 292,900 270,167 352,000
Other long term debt 14,19 59,541 54,828 86
TOTAL LONG TERM DEBT 352,441 324,995 352,086
- -----------------------------------------------------------------------------------------------------
MINORITY INTERESTS 5,252 - 29
- -----------------------------------------------------------------------------------------------------
Common stock 28,386 28,386 28,374
Additional paid-in capital 147,258 234,692 234,596
Retained earnings 79,269 62,679 23,068
STOCKHOLDERS' EQUITY 254,913 325,757 286,038
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 623,463 682,125 674,875
- -----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
HAMILTON, MARCH 3, 1999
LEIF O. H0EGH RAGNAR BELCK-OLSEN
Chairman President
Page 6 of 27
<PAGE> 7
BONA SHIPHOLDING LTD.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------
(USD'000) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 16,590 39,611 4,873
Depreciation vessels 23,720 39,345 45,941
Depreciation other fixed assets 347 390 243
Results from joint ventures and associated companies (2,046) (971) (907)
Gain from sale of vessels (2,831) (9,173) (3,924)
Amortisation drydocking 5,182 6,041 4,591
Decrease/(increase) in bunker inventory 603 1,423 (717)
Decrease/(increase) in accrued freight 1,032 (4,947) 4,659
Decrease/(increase) in other current assets 3,977 (3,666) 2,522
(Decrease)/increase in other current liabilities (8,283) (3,182) (3,577)
NET CASH PROVIDED BY OPERATING ACTIVITIES 38,293 64,871 53,704
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in vessels/newbuildings (45,938) (13,871) (2,781)
Investments in other fixed assets 3,712 (53,817) 754
Investments in drydocking (4,175) (1,791) (13,811)
Proceeds from sale of vessels 14,091 38,952 69,732
Investment in joint ventures and associated companies (27) (1,590) 258
NET CASH FROM INVESTING ACTIVITIES (32,337) (32,117) 54,152
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of mortgage debt (339,800) (84,000) (208,050)
New mortgage debt raised 350,100 - 190,000
Repayment of other long term debt - - (90,143)
Other long term debt raised 4,712 54,742 -
Stockholders' capital provided/adjusted - 108 -
Stockholders' capital reduced (87,435)
Minority interests (206) (15) (625)
NET CASH FROM FINANCING ACTIVITIES (72,629) (29,165) (108,818)
- -----------------------------------------------------------------------------------------------------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (66,673) 3,589 (962)
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 138,248 134,659 135,621
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 71,575 138,248 134,659
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Page 7 of 27
<PAGE> 8
BONA SHIPHOLDING LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(USD'000) Common stock
Share
capital Additional Total
issued and Par value paid in Retained stockholder's
outstanding per share capital earnings equity
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE JAN. 1, 1996 28,374 1 234,596 18,238 281,208
- --------------------------------------------------------------------------------------------------
Net income 4,873 4,873
Adjustments marketable (43) (43)
securities
BALANCE DEC. 31, 1996 28,374 1 234,596 23,068 286,038
- --------------------------------------------------------------------------------------------------
Net Income 39,611 39,611
New shares issued 12 1 96 108
BALANCE DEC. 31, 1997 28,386 1 234,692 62,679 325,757
- --------------------------------------------------------------------------------------------------
Net income 16,590 16,590
Consolidation of shares (9,462) 1
Capital distribution (87,434) (87,434)
BALANCE DEC. 31, 1998 18,925 1.5 147,258 79,269 254,913
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
As per December 31
1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of shares authorised 250,000,000 250,000,000 250,000,000
Number of shares issued and outstanding 18,923,774 28,386,434 28,374,434
</TABLE>
Page 8 of 27
<PAGE> 9
BONA SHIPHOLDING LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States (US GAAP). The financial
statements have been prepared in US dollars (USD), which is the functional
currency of Bona. The financial statements of Bona may be used in other
countries than the United States. Generally accepted accounting principles in
such countries may differ from the principles applied in the preparation of
these financial statements.
PRINCIPLES OF CONSOLIDATION
The consolidated accounts comprise Bona Shipholding Ltd. and all subsidiaries
directly or indirectly controlled by the company. See Note 1 for a full list of
companies. The cost of shares in subsidiaries has been eliminated against equity
in the subsidiaries at the time of establishment or acquisition. Any values in
excess of the underlying equity for subsidiaries at the time of acquisition have
been allocated to the assets to which the excess relates. Subsidiaries acquired
are included in the consolidated accounts as from the day control was achieved.
In the consolidated financial statement all intercompany balances, transactions
and profits arising between the consolidated companies have been eliminated.
INVESTMENTS IN JOINT VENTURES, ASSOCIATED COMPANIES AND POOLS
Bona's participating interests in limited partnerships and joint ventures are
accounted for using the equity method. Reference is made to Note 9 for a list of
companies.
All OBO vessels owned by the company are operated through the Panmax OBO Pool.
The participants in the Pool are the companies contributing vessel capacity to
the Pool. The Panmax OBO Pool is managed by Bona Shipping AS. As from 1998
freight revenues, voyage expenses and charterhire expenses in the Panmax OBO
Pool have been included on a 100% basis in the consolidated financial
statements. The minority pool participants' share of the result has been
deducted as charterhire expenses. The figures for 1997 and 1996 have been
revised accordingly.
DEPRECIABLE FIXED ASSETS
Depreciable fixed assets are stated in the balance sheet at cost, plus
upgrading, less depreciation. Interest and other direct expenses in the
construction period are capitalised as vessel cost.
The straight-line method is used for depreciation of vessels. In 1998 Bona
changed its depreciation policy by extending the assumed economic life of its
vessels from 20 to 25 years. Vessels will be written down to their estimated
scrap values. Depreciation on office equipment is included in administrative
expenses.
NEWBUILDING CONTRACTS
Newbuilding contracts are included under fixed assets by instalments made to the
shipyard including any interest and other direct expenses during the
construction period.
CURRENCY EXCHANGE
Transactions denominated in currencies other than USD are translated at the
exchange rates prevailing at the dates of the transactions. Monetary assets and
liabilities denominated in non-USD currencies at year end are recorded at
year-end rates of exchange. Exchange gains and losses are included as "Other
financial items" in the statement of income.
REVENUE RECOGNITION
Revenues represent freight revenues net of broker commissions and inclusive of
demurrage and despatch. Revenues and expenses related to incomplete voyages are
accounted for on the percentage of completion basis.
LOAN EXPENSES
Fees incurred in connection with the arrangement of loan facilities are
capitalised and amortised over the repayment periods.
MAINTENANCE AND DRYDOCKING EXPENSES
Expenses related to maintenance of the vessels are expensed when incurred.
Expenses related to classification and drydocking of vessels are capitalised
when a vessel is drydocked and amortised over the period between dockings.
Page 9 of 27
<PAGE> 10
BONA SHIPHOLDING LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUNKER AND OTHER INVENTORIES
Inventories are valued at the lower of cost using the FIFO principle or market
value.
STOCK ISSUANCE EXPENSES
Stock issuance expenses are charged directly against the stockholders' equity.
LEASING
Asset values and obligations in respect of vessels financed through lease
agreements, where the company has the option to buy the vessel for the remaining
principal amount outstanding of the lease debt, are capitalised and classified
as vessels and long term debt.
The interest element of a lease payment is included in interest expenses and the
capital element of a lease payment is treated as repayment of debt. The lease
liability is the remaining principal amount outstanding.
INTEREST RATE SWAP AGREEMENTS
The differential to be paid or received is accrued as interest rates change and
is recognised as an adjustment to interest expenses.
Page 10 of 27
<PAGE> 11
\BONA SHIPHOLDING LTD.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATED COMPANIES
<TABLE>
<CAPTION>
Ownership
SUBSIDIARIES 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bona Shipping AS 100% 100% 100%
Bona Shipping (U.S.) Inc. 100% 100% 100%
Bona Freighter AS 100% 100% 100%
Bona Freighter KS 52% 30% 30%
Bona Fortuna AS 100% 100% 100%
Bona Fortuna KS 67% 40% 40%
Bona Rambler AS 100% 100% 100%
K/S Smedvig Tankships VI 89.13% 89.13% 89.13%
Bona Freighter & Fortuna Ltd. 100% - -
JOINT VENTURES AND ASSOCIATED COMPANIES
Soponata-Bona Limited 50% 50% 50%
P/R Bona Falcon ANS - 50% 50%
Ariel KS - - 29%
</TABLE>
NOTE 2 FREIGHT REVENUES AND VOYAGE EXPENSES
Revenues from tanker and OBO operations are included in freight revenues net of
commissions and inclusive of demurrage and despatch. Voyage expenses include all
expenses related to the completion of voyages such as bunker cost, port
expenses, towage, disposal of slops and voyage related insurances.
<TABLE>
<CAPTION>
Amounts in USD'000
FREIGHT REVENUES 1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Freight revenues gross 211,727 252,330 239,973
Demurrage / despatch 9,620 9,118 8,150
Broker commissions (4,480) (5,378) (5,547)
FREIGHT REVENUES 216,867 256,070 242,576
- ---------------------------------------------------------------------------------------------
VOYAGE EXPENSES
Bunker and diesel (23,304) (29,409) (30,606)
Port expenses (39,972) (36,908) (35,923)
Other voyage related expenses (4,728) (4,754) (4,170)
VOYAGE EXPENSES (68,004) (71,071) (70,699)
- ---------------------------------------------------------------------------------------------
INCOME ON TIMECHARTER BASIS 148,863 184,999 171,877
- ---------------------------------------------------------------------------------------------
COMMISSIONS IN PERCENT OF GROSS FREIGHT 2.12% 2.13% 2.31%
- ---------------------------------------------------------------------------------------------
BUNKER COST IN PERCENT OF TOTAL VOYAGE EXPENSES 34.27% 41.38% 43.29%
- ---------------------------------------------------------------------------------------------
</TABLE>
Page 11 of 27
<PAGE> 12
BONA SHIPHOLDING LTD.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3 OTHER RUNNING EXPENSES
All expenses related to the technical operation of the vessels except crew cost,
upgrading and drydocking expenses are included in other running expenses. The
main items are:
<TABLE>
<CAPTION>
Amounts in USD'000 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service, repair, maintenance and spares 13,471 12,690 17,394
Consumables and lubricants 5,143 5,177 6,524
Damage 1,033 1,580 1,074
Insurance 3,122 3,723 5,433
Other 6,763 5,800 3,929
TOTAL RUNNING EXPENSES VESSELS 29,532 28,970 34,354
- ----------------------------------------------------------------------------------------
Newbuilding cancellation expenses - - 325
TOTAL RUNNING EXPENSES 29,532 28,970 34,679
- ----------------------------------------------------------------------------------------
</TABLE>
NOTE 4 DRYDOCKING EXPENSES
Bona uses the deferral method for accounting of drydocking costs. Under this
method the actual drydocking and classification expenses are capitalised and
amortised on a straight line basis over the period up until the next drydocking.
The unamortised portion of drydocking expenses is shown on a separate line in
the balance sheet.
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capitalised drydocking expenses January 1 7,260 11,510 2,290
Investments in drydocking 4,175 1,791 13,811
Amortised drydocking expenses (5,182) (6,041) (4,591)
CAPITALISED DRYDOCKING EXPENSES DECEMBER 31 6,253 7,260 11,510
- ----------------------------------------------------------------------------------------
</TABLE>
NOTE 5 ADMINISTRATION EXPENSES
The administration expenses of Bona related to the marketing and operation of
the vessels are included in "Voyage expenses" and "Other running expenses",
respectively. The item "Administration expenses" consists of expenses related to
the company's Board of Directors, top management, president's office and to part
of the expenses for the personnel and finance departments.
NOTE 6 CASH AND CASH EQUIVALENTS
The company's liquidity reserve for the most part has been invested in short
term USD denominated securities. Total fair value of these securities amounted
to USD 61.4 mill as per December 31, 1998. According to the Statement of
Financial Accounting Standards Board Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (FAS 115) the securities have been
classified as "available for sale securities" and unrealised gains or losses
included as a separate component of stockholders' equity. As per December 31,
1998 the unrealised gain or loss related to these securities was insignificant
and no gain or loss was recorded.
Page 12 of 27
<PAGE> 13
BONA SHIPHOLDING LTD.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7 OTHER CURRENT ASSETS
Receivables with maturity within one year or prepaid expenses are included in
other current assets. The main items are:
<TABLE>
<CAPTION>
Amounts in USD'000 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance claims 1,715 4,508 459
Prepaid expenses 936 1,450 1,557
Other 343 1,014 1,290
TOTAL 2,994 6,972 3,306
- -------------------------------------------------------------------------------------
</TABLE>
NOTE 8 VESSELS
<TABLE>
<CAPTION>
Amounts in USD'000 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost January 1 654,834 687,252 761,873
Additions 23,692 788 2,779
Sale of vessels (14,699) (33,206) (77,400)
COST DECEMBER 31 663,827 654,834 687,252
- -------------------------------------------------------------------------------------
Accumulated depreciation January 1 (236,184) (204,335) (170,608)
Accumulated depreciations assets sold 5,389 7,496 12,214
Depreciation (23,720) (39,345) (45,941)
BOOK VALUE AT DECEMBER 31 409,312 418,650 482,917
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
VESSEL BOOK VALUE ADDITIONS/SALE DEPRECIATION BOOK VALUE
1.1.98 1998 1998 31.12.98
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bona Fair 9,732 - (851) 8,881
Bona Favour 6,271 98 (460) 5,909
Bona Foam 6,292 88 (461) 5,919
Bona Forum 8,734 250 (579) 8,405
Bona Fountain 7,608 79 (539) 7,148
Bona Fulmar 9,007 94 (591) 8,511
Bona Sailor 9,898 53 (1,727) 38,223
Bona Shimmer 25,806 53 (1,436) 24,423
Bona Skipper 3,072 53 (1,353) 21,772
Bona Sparrow 19,209 53 (1,350) 17,912
Bona Spinner 23,057 53 (1,352) 21,758
Bona Spray 36,799 113 (1,664) 35,248
Bona Spring 20,642 53 (1,356) 19,339
Bona Rainbow 9,647 (9,310) (336) -
Bona Ranger 21,080 53 (1,360) 19,773
Bona Ray 22,849 53 (1,388) 21,514
Bona Rider 40,884 258 (1,715) 39,428
Bona Robin 40,873 168 (1,710) 39,331
Bona Rover 40,865 169 (1,710) 39,325
Guardian 6,325 - - 6,325
Bona Fortuna - 11,084 (904) 10,180
Bona Freighter - 10,869 (881) 9,988
- --------------------------------------------------------------------------------------
TOTAL 418,650 14,384 (23,720) 409,312
</TABLE>
Page 13 of 27
<PAGE> 14
BONA SHIPHOLDING LTD.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9 JOINT VENTURES AND ASSOCIATED COMPANIES
Bona has a 50% participating interest in the joint venture Soponata - Bona
Limited, the owner of Bornes, Erati and Inago. Bona's ownership interest in Bona
Freighter KS and Bona Fortuna KS was in 1996 and 1997 30% and 40%, respectively.
As from January 1, 1998 the ownership interest increased to 52% and 67% and the
companies have been 100% consolidated in 1998. The shares in Ariel KS were sold
in 1997. Partrederiet Bona Falcon ANS sold the vessel Bona Falcon in 1997.
<TABLE>
<CAPTION>
Amounts in USD'000
BOOK VALUE OF JOINT VENTURES AND ASSOCIATED COMPANIES 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bona Freighter KS - 1,184 68
Bona Fortuna KS - 1,201 1,113
Ariel KS - - 4
Bona Falcon ANS - - 4,024
Soponata - Bona Limited 25,830 25,783 24,482
TOTAL BOOK VALUE 25,830 28,168 29,691
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Amounts in USD'000
RESULTS FROM JOINT VENTURES AND ASSOCIATED COMPANIES 1998 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bona Freighter KS - (474) (183)
Bona Fortuna KS - 87 (208)
Ariel KS - - -
Falcon ANS - 58 468
Soponata - Bona Limited 2,046 1,301 830
TOTAL RESULTS 2,046 971 907
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Amounts in USD'000
SUMMARISED FINANCIAL STATEMENTS OF SOPONATA-BONA 1998 1997 1996
LIMITED (100% BASIS)*
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Time charter income 20,971 21,042 19,796
Operating profit 6,488 5,785 5,206
Income before taxes and extraordinary items 2,518 1,549 (447)
Net profit 2,480 2,003 (400)
Total current assets 7,081 8,765 6,783
Total fixed assets 97,732 104,253 109,501
TOTAL ASSETS 104,813 113,018 116,284
- ----------------------------------------------------------------------------------------------
Total current liabilities 7,857 9,542 9,913
Total long term debt 57,500 62,500 67,500
Stockholders' equity 39,456 40,976 38,871
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 104,813 113,018 116,284
- ----------------------------------------------------------------------------------------------
</TABLE>
* The figures in the financial statements of Soponata-Bona Limited are not
directly comparable with the figures in the financial statements of Bona as the
basis for depreciation and amortisation is different.
Page 14 of 27
<PAGE> 15
BONA SHIPHOLDING LTD.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10 OTHER FIXED ASSETS
<TABLE>
<CAPTION>
Amounts in USD'000 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cars, EDP equipment and furniture 1,517 1,389 1,226
Arrangement fee on mortgage debt 1,487 2,105 2,079
Investment in and loan to Acina KS 748 748 850
Promissory notes - newbuildings 58,980 54,423 -
Other long term receivables 11 17 1,100
TOTAL 62,743 58,682 5,255
- ------------------------------------------------------------------------------------
</TABLE>
NOTE 11 NEWBUILDING CONTRACTS
In April 1997 Bona entered into a contract with Samsung Corporation and Samsung
Heavy Industries Co. Ltd for the construction of three 113,000 dwt. oil tankers.
The tankers are all scheduled for delivery in 1999. Bona paid 10% of the
purchase price upon signing of the contracts. Additionally 20% of the purchase
price has been paid during the construction periods and the remaining 70% will
be paid upon delivery of the vessels. All pre-delivery payments have been
secured through bank guarantees from a western bank. The estimated delivery
price including all necessary extras, interest during construction and
supervision is calculated at USD 130 mill. for the three vessels. Capitalised
interests were USD 1.3 mill., USD 0.6 mill., and USD 0 mill. in 1998, 1997 and
1996, respectively.
NOTE 12 OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
Amounts in USD'000 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Suppliers 1,132 4,090 5,154
Accrued crew wages 2,663 1,764 2,119
Accrued interest on mortgage debt 1,125 5,219 5,941
Accrued running expenses 1,006 698 3,056
Accrued operational expenses 1,079 684 1,154
Other 252 3,085 1,298
TOTAL 7,257 15,540 18,722
- ------------------------------------------------------------------------------------
</TABLE>
NOTE 13 MORTGAGE DEBT
<TABLE>
<CAPTION>
Amounts in USD'000 1998 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revolving credit facility I - 96,000 180,000
Revolving credit facility II - 190,000 190,000
Revolving credit facility III 285,000 - -
Bona Freighter KS 6,100 - -
Bona Fortuna KS 5,400 - -
TOTAL 296,500 286,000 370,000
- ------------------------------------------------------------------------------------
</TABLE>
Page 15 of 27
<PAGE> 16
BONA SHIPHOLDING LTD.
NOTES TO THE FINANCIAL STATEMENTS
Aggregate maturities of mortgage debt are as follows:
<TABLE>
<CAPTION>
Year Amounts in USD'000
- ----------------------------------------------------------------------------------
<S> <C>
1999 3,600
2000 18,600
2001 34,300
2002 30,000
2003 30,000
After 2003 180,000
TOTAL 296,500
- ----------------------------------------------------------------------------------
</TABLE>
The mortgage debt is denominated in USD and bears interest at a margin over
LIBOR. In 1998 the average interest rate paid was 6.3% inclusive margin, the
same as in 1997 and 6.4% in 1996. The average interest rate by year end 1998 was
5.9% inclusive margin.
The loan agreements include various covenants of a financial or other nature of
which the more important financial covenants include a specified minimum level
of free cash, a specified ratio of liabilities to market value of assets and a
specified ratio of current assets to current liabilities.
Most of the vessels owned by Bona have been mortgaged to secure Bona's
obligations under the credit facilities.
NOTE 14 OTHER LONG TERM DEBT
PROMISSORY NOTES
In connection with the ordering of three Aframax newbuildings at Samsung Heavy
Industries (ref. Note 11), Bona has issued three non interest bearing promissory
notes for 50% of the contract price for each vessel. The notes fall due for
payment upon delivery of the vessels. The net present value of these notes,
discounted at 5.9% p.a., has been included in the balance sheet under "Other
fixed assets" and "Other long term debt" with an amount of USD 59.0 mill. The
notes have been secured through a bank guarantee from a western bank.
PENSION LIABILITIES
The net of pension assets and pension liabilities amount to USD 0.56 mill. as a
liability and is included in "Other long term debt" (ref. Note 18).
NOTE 15 GUARANTEES
The company has guaranteed 50% of the outstanding mortgage debt in the joint
venture company Soponata-Bona Limited, corresponding to USD 31.25 mill. as per
year end 1998.
Bona`s interests in the limited partnerships Bona Freighter KS and Bona Fortuna
KS are owned through Bona Freighter & Fortuna Ltd., Bona Freighter AS and Bona
Fortuna AS. Bona Shipholding Ltd. has guaranteed the companies' share of
committed, uncalled capital in the limited partnerships totalling USD 3.1 mill.
Page 16 of 27
<PAGE> 17
BONA SHIPHOLDING LTD.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 16 TAXES ON INCOME
Taxes on income have not been provided for in the financial statements. Bona
Shipholding Ltd. is incorporated in Bermuda, a jurisdiction that does not impose
income taxes on shipping related activities. Certain of Bona's subsidiaries are
located in taxable jurisdictions, and such subsidiaries have incurred tax losses
in previous years of USD 2.8 mill., which may be carried forward for 10 years
from the year incurred. The deferred tax asset arising from these losses amounts
to USD 0.8 mill. and has been offset by a provision of the same amount as it can
not be reasonably expected that these losses can be utilised for deduction
against taxable income for these subsidiaries in the near future.
NOTE 17 RELATED PARTY
Total remuneration to the Directors of the company has been:
<TABLE>
<CAPTION>
Amounts in USD'000 1998 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
630 546 506
</TABLE>
NOTE 18 PENSION ARRANGEMENTS
Bona has pension plans that cover all Norwegian employees. These plans are
defined as benefit plans and are based on years of service and final salary
levels. However, the level of benefits vary among plans. Amounts charged to
pension expenses, as well as amounts funded are generally based on actuarial
studies. Pension plan assets and related obligations are administered by
Gjensidige Forsikring AS.
In addition to the funded plans Bona has a supplemental benefit plan for certain
of its officers granting early retirement benefits subject to certain
restrictions defined. Payments under this plan will be financed through direct
payments from Bona. The recorded obligations are based on actuarial
computations. The financial information for the aggregate of both plans is
summarised below.
<TABLE>
<CAPTION>
COMPONENTS OF PENSION EXPENSES: 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefits earned during the year 319 311 315
Investment return on plan assets (252) (188) (184)
Interest cost on projected benefit obligations 243 198 144
Social security tax 98 91 58
Amortisation of net deferred amount 263 432 20
NET EXPENSES 671 844 353
- --------------------------------------------------------------------------------------------
</TABLE>
Page 17 of 27
<PAGE> 18
BONA SHIPHOLDING LTD.
NOTES TO THE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PLAN ASSETS AND LIABILITIES: 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total projected obligations (accumulated obligations
including effect of projected future salary
increases) (2,932) (2,473) (2,508)
Assets of the plans at fair value 3,529 2,990 2,704
ASSETS IN EXCESS OF PROJECTED OBLIGATION 597 517 196
- --------------------------------------------------------------------------------------------
Effect of changes in actuarial assumptions and
differences between actual and estimated amounts 43 133 412
NET ASSETS OF FUNDED PENSION PLANS 640 650 608
- --------------------------------------------------------------------------------------------
Unfunded pension obligations (1,201) (1,056) (694)
NET PENSION ASSETS (LIABILITIES) (561) (406) (86)
- --------------------------------------------------------------------------------------------
ASSUMPTIONS USED IN ESTIMATING PLAN ASSETS AND
OBLIGATIONS:
Discount rate for pension obligation 7.0% 7.0% 7.0%
Increase in compensation levels 3.3% 3.3% 3.3%
Long-term return on plan assets 8.0% 8.0% 8.0%
</TABLE>
NOTE 19 FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate such
a value:
CASH AND MARKETABLE SECURITIES:
The carrying amount approximates fair value because of the short maturity of
those instruments.
LONG TERM DEBT:
The carrying amount of the long term debt approximates its fair value. The
interest rates and maturities of the loans reflect the market conditions for
similar loans raised at the balance sheet date.
BUNKER HEDGING AGREEMENTS:
Bona has entered into bunker hedging agreements covering a part of the bunker
consumption for the first three quarters of 1999. As per December 31, 1998 total
unrealised losses on these contracts amounted to USD 0.47 mill. The difference
to be paid or received is reported as voyage expenses in the period of
settlement.
INTEREST HEDGING AGREEMENTS:
As per December 31, 1998 Bona had entered into two interest rate swaps, each of
USD 50 mill. with maturity in February 2005. The average interest rate of the
swaps is 5.86%. As per year end the fair value of these interest rate swaps was
negative with USD 3.1 mill.
The fair value of the swaps is the amount that would have been paid at year end
if the swaps were cancelled. The difference to be paid or received is reported
as interest expenses in the period prior to each settlement date. The interest
rate swaps are settled semi-annually.
Page 18 of 27
<PAGE> 19
BONA SHIPHOLDING LTD.
NOTES TO THE FINANCIAL STATEMENTS
CURRENCY HEDGING AGREEMENTS:
As per December 31, 1998 Bona had entered into a currency forward agreement
under which the company sells USD 12 mill. and buys the equivalent value of NOK
at predefined exchange rates and dates during 1999. As per year end the company
had recognised a loss of USD 0.02 mill. under this contract.
NOTE 20 SHARE OPTION SCHEMES FOR EMPLOYEES
In 1993 the company established a share option program for its top management.
The options granted under the pro-gram become exercisable at annual intervals.
All options granted are exerciseble at USD 9 per share which approximated the
share price at the grant date. Exercisable options must be declared prior to
January 1, 2002. Options not exercisable at the time an employee leaves are
cancelled.
The transactions of exercisable options from January 1, 1996 were:
<TABLE>
<CAPTION>
Opening
balance New options Cancelled Declared Ending balance
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996 174,500 105,000 279,500
1997 279,500 107,500 (120,000) (12,000) 255,000
1998 255,000 87,000 342,000
</TABLE>
A further 38,000 options become exercisable in 1999 and 2000 (19,000 each year).
NOTE 21 DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
NATURE OF OPERATION
Bona is owner and operator of medium size tankers, combination carriers (OBOs)
and one ULCC. The company is engaged in world wide transportation of bulk
commodities, primarily oil and oil products. For a complementary description of
the company and its operation, reference is made to the other parts of this
Annual Report.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles in the US requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Page 19 of 27
<PAGE> 20
TEEKAY SHIPPING CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 31, 1999
(IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TEEKAY
CHANGE IN PRO FORMA PRO FORMA
TEEKAY BONA ESTIMATE ADJUSTMENTS NOTES CONSOLIDATED
--------- --------- --------- --------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
NET VOYAGE REVENUES
Voyage revenues 411,922 205,090 617,012
Voyage expenses 93,511 61,912 (2,107) (6b) 153,316
--------- --------- --------- --------- ---------
Net voyage revenues 318,411 143,178 0 2,107 463,696
--------- --------- --------- --------- ---------
OPERATING EXPENSES
Vessel operating expense 84,397 53,758 (6,945) (6b) 131,210
Time charter hire expense 29,666 32,875 62,541
Depreciation - vessels 85,129 23,631 (18,812) (4,095) (4,6a) 85,853
Drydock amortization expense 8,583 4,595 13,178
General and administrative 25,002 4,738 9,052 (6b) 38,792
--------- --------- --------- --------- ---------
232,777 119,597 (18,812) (1,988) 331,574
--------- --------- --------- --------- ---------
Income from vessel operations 85,634 23,581 18,812 4,095 132,122
--------- --------- --------- --------- ---------
OTHER ITEMS
Interest expense (44,797) (19,943) (64,740)
Interest income 6,369 4,647 (1,994) (6c) 9,022
Gain on sale of vessels 7,117 2,831 9,948
Results from joint ventures and associated companies 2,302 293 (6a) 2,595
Other income (loss) (1,611) (831) (2,442)
--------- --------- --------- --------- ---------
(32,922) (10,994) 0 (1,701) (45,617)
--------- --------- --------- --------- ---------
Net income before extraordinary loss 52,712 12,587 18,812 2,394 86,505
Extraordinary loss on bond redemption (7,306) (7,306)
--------- --------- --------- --------- ---------
Net income 45,406 12,587 18,812 2,394 79,199
========= ========= ========= ========= =========
Pro Forma Basic Earnings per Common Share
Net income before extraordinary loss $2.31
Net income $2.11
Pro Forma Diluted Earnings per Common Share
Net income before extraordinary loss $2.31
Net income $2.11
Weighted average number of shares outstanding (thousands) 37,478
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated condensed financial statements.
Page 20 of 27
<PAGE> 21
TEEKAY SHIPPING CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS AT MARCH 31, 1999
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
TEEKAY BONA ADJUSTMENTS NOTES CONSOLIDATED
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT
Cash & cash equivalents 118,435 81,510 (39,884) (5) 160,061
Marketable securities 8,771 8,771
Accounts receivable 22,995 5,638 28,633
Prepaid expenses and other assets 16,195 7,512 23,707
---------- ---------- ---------- ----------
166,396 94,660 (39,884) 221,172
Marketable securities 5,050 5,050
Vessels & equipment (including advances on newbuildings) 1,274,539 479,031 (92,467) (5) 1,661,103
Joint ventures and associated companies 26,290 (7,152) (5) 19,138
Other assets 6,235 43,784 50,019
---------- ---------- ---------- ----------
TOTAL ASSETS 1,452,220 643,765 (139,503) 1,956,482
========== ========== ========== ==========
LIABILITIES
CURRENT
Accounts payable 11,926 11,926
Accrued liabilities 21,185 15,602 19,000 (5) 55,787
Current portion of long-term debt 39,058 3,600 42,658
---------- ---------- ---------- ----------
72,169 19,202 19,000 110,371
Long-term debt 602,661 322,900 925,561
Other long-term liabilities 40,351 40,351
Minority interests 5,387 5,387
---------- ---------- ---------- ----------
TOTAL LIABILITIES 674,830 387,840 19,000 1,081,670
---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY
Capital stock 330,493 175,644 (78,222) (5) 427,915
Retained earnings 446,897 80,281 (80,281) (5) 446,897
---------- ---------- ---------- ----------
777,390 255,925 (158,503) 874,812
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,452,220 643,765 (139,503) 1,956,482
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated condensed financial statements.
Page 21 of 27
<PAGE> 22
TEEKAY SHIPPING CORPORATION
NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated condensed financial statements (the
"Financial Statements") give effect to the acquisition of Bona Shipholding Ltd.
("Bona") by Teekay Shipping Corporation ("Teekay"). The Financial Statements
have been prepared by management in accordance with generally accepted
accounting principles in the United States from the information derived from the
historical financial statements of Teekay and Bona for the twelve months ended
March 31, 1999. In the opinion of management, the Financial Statements include
all adjustments necessary for fair presentation.
The pro forma consolidated condensed statement of income for the twelve
months ended March 31, 1999 is based on the consolidated financial statements of
Teekay and Bona for that period and give effect to the acquisition as though it
had taken place on April 1, 1998. The pro forma consolidated condensed balance
sheet as at March 31, 1999 is based on the consolidated financial statements of
Teekay and Bona as of that date and give effect to the acquisition as though it
had taken place on that date.
The Financial Statements are not necessarily indicative of what the
results of operations and financial position would have been, nor do they
purport to project Teekay's results of operations for any future periods. The
Financial Statements also do not include any expected benefits or cost savings
arising from the acquisition. The Financial Statements should be read in
conjunction with the consolidated financial statements of Teekay and Bona
referred to above.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING CURRENCY
The Financial Statements are stated in U.S. dollars because it is the
functional currency of the relevant international shipping markets.
INVESTMENTS
Participating interests in limited partnerships and joint ventures are
accounted for using the equity method.
All Bona oil/bulk/ore ("OBO") vessels are operated through an OBO Pool.
The participants in the Pool are the companies contributing vessel capacity to
the Pool. The freight revenues, voyage expenses and charter hire expenses in the
Pool are included on a 100% basis in the Financial Statements. The minority pool
participants' share of the result has been deducted as charter hire expenses.
OPERATING REVENUES AND EXPENSES
Voyage revenues and expenses are recognized on the percentage of
completion method of accounting. Estimated losses on voyages are provided for in
full at the time such losses become evident. The pro forma consolidated
condensed balance sheet reflects the deferred portion of revenues and expenses
applicable to subsequent periods.
Voyage expenses comprise all expenses relating to particular voyages,
including bunker fuel expenses, port fees, canal tolls, and brokerage
commissions. Vessel operating expenses comprise all expenses relating to the
operation of vessels, including crewing, repairs and maintenance, insurance,
stores and lubes, and miscellaneous expenses including communications.
Page 22 of 27
<PAGE> 23
MARKETABLE SECURITIES
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.
VESSELS AND EQUIPMENT
All pre-delivery costs incurred during the construction of newbuildings,
including interest costs, and supervision and technical costs are capitalized.
The acquisition cost and all costs incurred to restore used vessel purchases to
the standard required to properly service customers are capitalized.
Depreciation is calculated on a straight-line basis over a vessel's useful life,
estimated to be twenty-five years (see note 4) from the date a vessel is
initially placed in service.
Expenditures incurred during drydocking are capitalized and amortized on
a straight-line basis over the period until the next anticipated drydocking.
When significant drydocking expenditures recur prior to the expiry of this
period, the remaining balance of the original drydocking is expensed in the
month of the subsequent drydocking.
Vessels acquired pursuant to bareboat hire purchase agreements are
capitalized as capital leases and are amortized over the estimated useful life
of the acquired vessel.
OTHER ASSETS
Loan costs, including fees, commissions and legal expenses, are
capitalized and amortized over the term of the relevant loan. Amortization of
loan costs is included in interest expense.
INTEREST RATE SWAP AGREEMENTS
The differential to be paid or received on interest rate 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.
FORWARD CONTRACTS
Forward contracts are entered into as a hedge against changes in 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.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity date of three months or
less when purchased are classified as cash and cash equivalents.
INCOME TAXES
The legal jurisdictions of the countries in which Teekay and Bona and
the majority of their subsidiaries are incorporated do not impose income taxes
upon shipping-related activities.
3. ACCOUNTING TREATMENT FOR THE BUSINESS COMBINATION
The acquisition has been accounted for using the purchase method of
accounting. The results of operations of Bona are included from the assumed date
of acquisition. Bona's accounting policies have been adjusted to be consistent
with those of Teekay.
Page 23 of 27
<PAGE> 24
4. CHANGE IN ESTIMATED VESSEL LIVES
Effective April 1, 1999, Teekay will be changing the estimated useful
life of its vessels from 20 to 25 years. These Financial Statements give effect
to this change in estimate as if it had occurred April 1, 1998. The impact of
the change in estimated useful life is a decrease in depreciation expense of
$18.812 million.
5. PRO FORMA GENERAL ASSUMPTIONS AND PURCHASE PRICE ALLOCATION
GENERAL ASSUMPTIONS
Teekay and its wholly-owned subsidiary, Northwest Maritime Inc.,
purchased all of the outstanding shares of Bona Common Stock ("Bona Shares") at
a price per share of $7.00 cash or 0.485 shares of Teekay Common Stock ("Teekay
Shares"). The Financial Statements reflect the following:
- 69.9% of outstanding Bona Shares were exchanged for Teekay
Shares; the remaining 30.1% of outstanding Bona Shares were
exchanged for cash;
- all common shareholders of Bona at March 31, 1999 tendered their
shares, representing an estimated 18.9 million Bona Shares;
- the value of a Teekay Share is $15.1875, which represents the
market value at the date of the announcement of the acquisition;
- total purchase consideration (in thousands of U.S. dollars):
<TABLE>
<S> <C>
6.4 million Teekay Shares $ 97,422
Cash paid 39,884
Estimated transaction costs and reorganization costs included in
accounts payable and accrued liabilities 19,000
==========
$156,306
==========
</TABLE>
PURCHASE PRICE ALLOCATION
Certain fair value adjustments were recorded including adjustments to
reflect market values on the vessels and joint venture investments acquired from
Bona. In addition, an accrual for estimated transaction, restructuring and
integration costs, including severance, has been recorded for $19 million.
The assigned values will be adjusted as at the actual date of the
acquisition for changes in the fair values of assets and liabilities. The
following table shows the allocation of the purchase price as at March 31, 1999:
<TABLE>
<CAPTION>
Purchase Price
Historical Adjustments Allocation
(in millions of U.S. dollars)
<S> <C> <C> <C>
Net assets acquired
Current assets $ 95 -- $ 95
Current liabilities (19) (19)
Vessels and equipment 479 (93) 386
Investment in joint venture 26 (7) 19
Other assets 44 44
Other liabilities (46) (46)
Long term debt assumed (323) (323)
---- -----
$ 256 $ 156
===== =====
</TABLE>
Page 24 of 27
<PAGE> 25
The pro forma consolidated condensed balance sheet incorporates the
following adjustments:
~ the purchase price consideration and allocation adjustments as
described above, including the following adjustments to
shareholders' equity (in millions of U.S. dollars):
<TABLE>
<CAPTION>
Mar. 31/99
----------
<S> <C>
Elimination of Bona shareholders' equity $(256)
Issuance of Teekay Shares 97
-----
$(159)
=====
</TABLE>
6. PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
The pro forma consolidated condensed statement of income incorporates
the following adjustments:
(a) depreciation expense related to the acquired vessels, including
joint venture vessels, has been based upon their estimated fair
market values at the offer date and is calculated on a
straight-line basis over the vessels' estimated useful lives
which have been estimated to be 25 years. As a result of
adjusted values of the acquired vessels, depreciation expense
decreased by $4.095 million for the twelve months ended March
31, 1999. The impact on the results from joint ventures for the
twelve months ended March 31, 1999 was an increase of $293,000.
(b) certain voyage and vessel operating expenses of $2.107 million
and $6.945 million, respectively, for the twelve months ended
March 31, 1999, of Bona, have been reclassified to general and
administrative expenses ($9.052 million) for consistency with
the financial statement presentation of Teekay;
(c) interest income at 5% (the average historical yield on invested
funds for the period presented) has been reduced by $1.994
million for the twelve months ended March 31, 1999 to reflect
the assumed cash payment for the Bona Shares as at April 1,
1998.
7. PRO FORMA CONSOLIDATED EARNINGS PER SHARE
The pro forma consolidated earnings per share have been calculated based upon
the weighted average number of Teekay Shares outstanding during the period
presented and the additional Teekay Shares which were issued in connection with
the acquisition (see note 5).
Page 25 of 27
<PAGE> 26
SIGNATURE
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 hereunto duly authorized.
TEEKAY SHIPPING CORPORATION
By: /s/ Peter Antturi
---------------------------------------------
Peter Antturi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: July 22, 1999
Page 26 of 27
<PAGE> 27
Exhibit Number Description
- -------------- -----------
1.0 Amalgamation Agreement among Teekay Shipping Corporation,
Northwest Maritime Inc. and Bona Shipholding Ltd., dated
as of March 26, 1999 (incorporated by reference to our
Annual Report on Form 20-F for the fiscal year ended March
31, 1999).
2.0 Consent of Arthur Andersen & Co.
Page 27 of 27
<PAGE> 1
EXHIBIT 2.0
[ARTHUR ANDERSEN LETTERHEAD]
Oslo, July 22, 1999
Teekay Shipping Corporation
Fourth Floor
Euro Canadian Centre
Marlborough Street & Navy Lion Road
PO Box SS-6293
Nassau
The Bahamas
Ladies and Gentlemen,
As independent public accountants, we hereby consent to the incorporation in
Teekay Shipping Corporation's Report on Form 6-K dated on July 22, 1999, of our
Auditors' Report dated March 3, 1999 relating to the consolidated balance
sheets of Bona Shipholding Ltd. and subsidiaries as of December 31, 1998, 1997
and 1996 and the related consolidated statements of income, stockholders'
equity and cash flow for the three years in the period ended December 31, 1998.
We also consent to the incorporation by reference therein of such report in
Teekay Shipping Corporation's Registration Statements on Forms F-3
(Registration Statement File No. 33-97746) and S-8 (Registration Statement file
No. 33-98768) filed with the Securities and Exchange Commission on October 4,
1995 and October 27, 1995, respectively.
Very truly yours,
ARTHUR ANDERSEN & CO.
/s/ MORTEN DRAKE
- -------------------------------------------
Morten Drake
State Authorised Public Accountant (Norway)
