<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Form 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Annual Report filed in April, 2000
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TEEKAY SHIPPING CORPORATION
Fourth Floor, Euro Canadian Centre
Marlborough Street & Navy Lyon Road,
P.O. Box SS-6293 Nassau,
The Bahamas
(242) 322-8020
(Address of principal executive offices)
------------------------------------
[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 ___ Form 40-F __
[indicate by check mark whether the registrant by furnishing 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 __
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Please find attached as Exhibit A the Company's Annual Report for the year ended
December 31, 1999 which was mailed to shareholders on or about March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf by the
undersigned, thereunto duly authorized.
TEEKAY SHIPPING CORPORATION
Date: April 28, 2000 By /s/ Peter S. Antturi
-------------------------------
Name: Peter S. Antturi
Title: Vice-President, Treasurer
and Chief Financial Officer
<PAGE> 3
Exhibit A
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[ARTWORK]
ON COURSE
Teekay Shipping Corporation Annual Report December 31, 1999
[TEEKAY LOGO]
<PAGE> 5
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
01 Financial Highlights
03 Chairman's Message to Shareholders
06 President's Report to Shareholders
10 Market Review
15 Fleet Profile
18 Management's Discussion & Analysis
24 Auditor's Report
25 Consolidated Financial Statements
28 Notes to Consolidated Financial Statements
36 Five Year Financial Summary
37 Board of Directors
38 Corporate Information
</TABLE>
CORPORATE PROFILE
Teekay Shipping Corporation is a leading provider of international crude oil and
petroleum product transportation services through the world's largest fleet of
medium-sized (Aframax) oil tankers. Headquartered in Nassau, Bahamas, with
offices in 11 other countries, Teekay employs nearly 300 on-shore and more than
2,700 seagoing staff around the world. The Company has earned a reputation for
safety and excellence in providing transportation services to major
international oil companies, traders and government agencies worldwide. The
Company's common stock is listed on the New York Stock Exchange and trades under
the symbol "TK".
<TABLE>
<CAPTION>
Leverage(2) Revenue Capital Expenditures
% $ Millions $ Millions
- ----------- ------- --------------------
<S> <C> <C>
[BAR CHART] [BAR CHART] [BAR CHART]
As at March 31 Fiscal Year Ended March 31 Fiscal Year Ended March
(1) As at December 31, 1999 (1) 9 months ended (1) 9 months ended
(2) Net debt/capitalization December 31, 1999 December 31, 1999
- Vessels and equipment,
gross
- Drydocking
</TABLE>
<PAGE> 6
1
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
9 Months Ended Year Ended
December 31, March 31,
(In thousands of U.S. dollars, except as otherwise indicated) 1999 * 1999
----------- -----------
<S> <C> <C>
Income Statement Data
Net voyage revenues $ 248,350 $ 318,411
Net income (loss) (19,595) 45,406
Balance Sheet Data
Total assets 1,982,684 1,452,220
Total stockholders' equity 832,067 777,390
Per Share Data
Net income (loss) per share (0.54) 1.46
Weighted average shares outstanding (thousands) 36,384 31,063
Other Financial Data
EBITDA 89,839 186,069
Net debt to capitalization (%) 50.8 39.6
Capital expenditures:
Vessel purchases, gross 452,584 85,445
Drydocking 4,971 7,213
Operating cash flow per ship per day 5,177 11,171
----------- -----------
</TABLE>
* (Teekay has changed its fiscal year end from March 31 to December 31,
effective December 31, 1999)
<TABLE>
<CAPTION>
Cash Flow(2) Earnings Per Share Net Income
$ Millions $ US $ Millions
<S> <C> <C>
[BAR CHART] [BAR CHART] [BAR CHART]
Fiscal Year Ended March 31 Fiscal Year Ended March 31 Fiscal Year Ended March 31
(1) 9 months ended (1) 9 months ended (1) 9 months ended December 31, 1999
December 31, 1999 December 31, 1999
(2) Earnings before
interest, taxes,
depreciation and
amortization (EBITDA)
</TABLE>
<PAGE> 7
2
GROWTH
WITH THE SUCCESSFUL ACQUISITION of Bona Shipholding,
Teekay now possesses a truly global reach with offices
and service routes throughout the world. Commercial
activity is conducted from offices in London, Houston,
Singapore, Tokyo and Oslo providing 24 hour coverage
to customers.
creating a worldwide
transportation network
[ARTWORK]
<PAGE> 8
3
CHAIRMAN'S MESSAGE TO SHAREHOLDERS
By continuing to position ourselves as a leading consolidator in a fragmented
industry, by maintaining our financial strength and preserving our commitment
to the highest standards of professionalism, we believe that we are the
shipping company of the future.
[PHOTOGRAPH]
Sean Day
Chairman of the Board of Directors
1999 was a year in which we laid a solid foundation for our future success.
Nevertheless, I am disappointed that we report poor earnings in my first year as
your Chairman. This was a year in which rates plummeted in the face of weak
demand, and our fleet encountered the most difficult trading conditions since
the early 1990s. However, it appears we have passed the bottom of this cycle and
I am confident that the resources that we have committed to acquiring and
merging with Bona Shipholding, as well as the time and effort we have spent on
our internal reorganization and streamlining this past year, will reap rewards
in the future.
We cannot escape the cyclical nature of our industry, much as we would wish
otherwise. As demand for oil around the world fluctuates, and as ship owners
collectively decide to build or scrap vessels, the demand for our services will
vary. Our challenge is to ensure that we achieve superior returns on our capital
employed and increase our shareholders' value in our stock over the course of
each cycle, measured from beginning to end.
How will we achieve this goal? We continue to position ourselves to do so. Today
we are a leading consolidator in a fragmented industry. We are a transparent
public company in an industry dominated by small private operators. We adhere to
the very highest standards of safety in an industry that, lamentably, still
tolerates sub-standard
<PAGE> 9
4
vessels. We are financially strong and are committed to serve our customers with
professionalism. We believe that we are the shipping company of the future.
Recently a 25 year old tanker in poor condition split in half in bad weather and
spilled its cargo, causing extensive damage to much of the French Atlantic
coastline; the owner of the vessel could not even be identified for many weeks
after the accident. This environmental disaster is having an impact on Europe
and the public is demanding that our industry be accountable for this
catastrophe. In the face of this tragedy, oil companies and other charterers
will be looking to professionally managed, well-capitalized companies like
Teekay as their carriers of choice in the future. We are ready to meet that
challenge!
I am proud to be a member of the Teekay team. I would like to pay tribute to my
predecessor, Axel Karlshoej. Axel did an extraordinary job of maintaining the
vision of his late brother, Torben Karlshoej, the founder of our company. Axel
led our company with style and enthusiasm and we are very glad that he continues
on our Board as Chairman Emeritus. Thanks, too, to our customers for their
steady support, to the 3,000 Teekay employees worldwide whose teamwork is
critical to our success, and to our shareholders who share our vision!
[ARTWORK]
Oil companies and other charterers will be looking to professionally managed,
well-capitalized companies like Teekay as their carriers of the future.
/sig/ Sean Day
Chairman of the
Board of Directors
<PAGE> 10
5
CONTROL
FROM SHIP TO SHORE, every area of Teekay is committed to minimizing operating
expenses without compromising the Company's reputation for excellence. The
Company's large, uniform fleet of modern ships means greater efficiency and
lower costs, while participation in MARCAS, a marine purchasing cooperative,
creates further cost savings for commonly purchased services and materials.
managing cost-effective operations
[ARTWORK]
<PAGE> 11
6
PRESIDENT'S REPORT TO SHAREHOLDERS
Careful planning and a long-term vision have allowed us to successfully manage a
severe market downturn and lay the groundwork for improved profitability.
This past shortened nine month fiscal year was a dynamic period in the tanker
market, in the oil industry and in Teekay alike. We believe the tanker market
cycle bottomed out with very weak rates, then turned a corner in the latter part
of the year, moving towards improved tanker supply and demand fundamentals. The
consolidation among the world's oil companies changed our customer landscape,
providing tremendous opportunities for Teekay in the process. Within Teekay
itself, we focused on three critical areas affecting shareholder returns:
revenue enhancement; cost management; and reduction of the average invested
capital per ship.
Teekay's most visible highlights of 1999 included our $450 million acquisition
of Bona Shipholding, a series of advances in major customer relationships and
our key role in helping establish MARCAS, an innovative purchasing co-operative.
Behind the scenes there were significant changes too. We completely restructured
our marine operations into ship teams for improved efficiency. We launched a
visionary new long term strategy in the critical area of seastaff manning and
training; we initiated a major upgrade of information systems; and we instigated
a drive to cut costs beyond those already identified from the Bona transaction.
I am pleased to report that the Bona acquisition was concluded on schedule and
without any disruption to operations. Our customers report that they continue to
enjoy the high quality of service they expect from Teekay, confirming that the
substantial effort that went into transitional planning was time well spent.
One of the effects of integrating Bona was a change in fiscal year-end.
Accordingly, this Annual Report covers the nine month period from April 1, 1999
to December 31, 1999.
The impact of the cyclical downturn in the tanker market is reflected in the
weak results for the nine months ending December 31, 1999. During this period,
the Company recorded a net loss of $19.6 million compared to net income of
$45.4 million for the 12 month period to March 31, 1999.
Tight cost controls and effective voyage management have traditionally enabled
us to outperform the market and consistently realize a higher average cash flow
per ship day relative to our industry. We have maintained our cash flow premium
in this year, where the significant decline in the market saw the Company's
operating cash flow per ship day fall from $11,171 in the 12 month period ending
March 31, 1999 to $5,177 for the nine month period ending December 31, 1999.
[PHOTOGRAPH]
Bjorn Moller
President and CEO
<PAGE> 12
7
Throughout the current downturn, our Australian operations have continued to
generate a steady cash flow of $14,643 per day. Similar performance levels are
expected to continue for the duration of these long-term contracts.
Despite the results of the past nine months, we are pleased to note some
encouraging indications that the tanker market is poised for an upturn.
Commencing in 1998 and continuing throughout the first half of 1999, a slowdown
in world oil consumption brought about by the Asian economic crisis, coupled
with OPEC production cuts, sharply reduced tanker demand. Simultaneously, tanker
supply increased as a large number of newbuildings, ordered at the last market
peak in 1997, entered the market. The resultant effect was downward pressure on
tanker freight rates.
Industry statistics now clearly show that world GDP and oil consumption have
returned to strong growth rates. OPEC, however, has maintained its oil
production cuts in order to draw down oil inventories and drive up oil prices.
As an example of the impact of this policy, U.S. oil inventories in early
February 2000 reached a 20 year low. In order to avert a global shortfall of oil
products, production will need to increase in the coming months, something which
would have an immediate positive impact on tanker demand.
Our industry is also experiencing its highest scrap rate of old tankers in 14
years. This is likely to continue with 15% of the world tanker fleet reaching 25
years of age in the next two years, particularly at a time when international
regulations continue to place increased pressure on companies to retire older
tonnage. Shipyard orderbooks are full for the next two years or more, capping
the number of new tankers that will enter the market in the next two years.
Teekay is in an excellent position to take advantage of a tanker market
recovery. We have a large uniform Aframax fleet with an average age of only 8.6
years, a streamlined operation able to react quickly to customer requirements
and a culture that encourages cost efficiency and continuous improvement.
We have capitalized on the current lull in the tanker market to increase
operating leverage, cut costs and strengthen our management and technology
infrastructure. These strategies are consistent with our philosophy of
stimulating growth while preserving our core strengths, and will serve to
enhance our financial returns and earnings power as the market recovers.
The Bona transaction immediately increased our presence in the Atlantic basin
from six to 32 ships and increased Teekay's overall size by approximately 50%.
With the successful integration of the two companies to date, we enjoy a
significant and far-reaching competitive advantage in being able to offer our
customers a single and flexible source of global Aframax oil transportation. The
timing of the Bona acquisition at the bottom half of the cycle has resulted in a
significant reduction in the net
[ARTWORK]
As the pace of change in our industry accelerates, our focus on continuous
improvement sees us well positioned to capitalize on the next upturn in the
tanker cycle.
<PAGE> 13
8
income break-even level of our fleet, raising our earnings power.
Last year we estimated that we would see annual merger cost synergies of
approximately $10 million by July 2000; $6.5 million through the elimination of
duplicated overhead and $3.5 million in operating costs. These projections
remain on track.
Our role as co-founder of the MARCAS marine purchasing co-operative has provided
the cumulative buying power of 225 vessels, allowing us to effectively reduce
costs on commonly purchased services and materials. These include items such as
lubricating oil, paints, chemicals and welding supplies. Our intention is to
grow MARCAS further.
A major Teekay goal to become our customers' service partner of choice has seen
the Company become increasingly more proactive in meeting our customers'
evolving needs. As a result, we have secured a number of contracts in the
Atlantic basin. These flexible, often high volume contracts benefit our
customers and at the same time enhance our fleet utilization and provide us with
preferred access to premium trade routes.
A key to this customer focused approach lies in improving communications, both
within the Company and with our customers. Consolidating and centralizing our
operations has helped to simplify our structure and deliver superior customer
service and communication.
And, of course, Teekay continues to maintain a worldwide network of chartering
offices which provide 24 hour coverage to our customers.
The move to ship teams has streamlined our internal information flow,
strengthening ship to shore communications, increasing our vessel planning
flexibility and stimulating our creative problem solving abilities. Significant
new investment in global information systems is improving communications and
information systems on board ships and in our offices.
Going forward, we intend to focus on maximizing the benefits of our position as
we enter what appears to be a cyclical upturn phase, be it in our current size
or as a bigger company, should the opportunity arise for us to use our balance
sheet again. We will remain focused on creating increased value for our
shareholders. In other words, we intend to remain "on course" towards
pre-eminence in the global tanker industry.
I would like to thank all Teekay employees for their dedication and commitment
to making this transitional year so productive. They have earned the right to
take a great deal of pride in what they have achieved in 1999, namely to firmly
place Teekay on an exciting strategic path for the future.
[ARTWORK]
The successful integration of the Bona and Teekay fleets was completed on
schedule. The company is already benefiting from the predicted synergies.
/sig/ Bjorn Moller
President and CEO
<PAGE> 14
9
DIRECTION
STRICT DISCIPLINE and a clear understanding of the
forces which drive the tanker cycle have enabled
Teekay to take advantage of opportunities for growth,
many of which occur when the market is down. Having
ready access to capital during a downturn facilitates
the Company's ability to react swiftly and
independently.
developing strategies that capitalize
on the market cycle
[ARTWORK]
<PAGE> 15
10
MARKET REVIEW
The tanker industry is cyclical in nature, affected by several interrelated
supply and demand factors.
[ARTWORK - Chart of Cyclical Growth]
SUPPLY AND DEMAND CYCLES
The oil tanker industry is characterized by the periodic volatility of its
charter rates (TCEs). Much of this rate volatility arises from the fact that the
demand for oil tankers is highly elastic while oil tanker supply is, in the
short-term, relatively inelastic.
Changes in tanker demand are primarily driven by changes in oil production. This
is, in turn, largely driven by oil consumption, which is, itself, closely
correlated with world GDP growth, as can be seen in the accompanying graph. Oil
production is also affected in the short term by variations in OPEC policies.
Overall tanker supply changes are determined by the number of new tankers
delivered and the number of older vessels removed from the market through
scrapping. The decision by an owner whether to scrap a vessel is, in large part,
influenced by the age of the vessel, current and projected income from the
vessel and the cost of any modifications that the vessel may require to pass the
required periodic surveys. All of these factors are weighed against the scrap
price the owner can obtain.
<PAGE> 16
11
[CHART] [CHART]
Aframax TCE Rates vs Growth in Oil
Oil Production Demand
THE CURRENT POSITION
The 1999 tanker environment was one of declining TCE rates. Aframax rates fell
from the early year high of $18,000 per day to a low of approximately $10,000
per day, which persisted for the second half of the year.
Contributing to these depressed rates were low oil consumption growth in 1998
and early 1999, OPEC oil production cutbacks and a growth in the world tanker
fleet.
Oil consumption growth during 1999 was 1.6%, which, while higher than 1998
growth, was still lower than growth levels seen from 1995 to 1997. By the fourth
quarter of 1999, however, oil consumption growth had rebounded to peak levels
seen earlier in the decade.
In the spring of 1999, OPEC responded to the slower pace of growth in global oil
consumption with production cuts so deep that they triggered a draw down of
world crude inventories during the balance of the year. This reduced the demand
for oil transportation services and, therefore, placed downward pressure on TCE
rates.
Total tanker supply grew by 2.2 mdwt (million dead weight tonnes) or 0.7% in
1999. The pace of newbuilding tanker deliveries in 1999 rose to 20.3 mdwt from
13.3 mdwt in 1998, as the large number of vessels ordered in 1997 and early 1998
entered the market. During 1999, the rate of scrapping rose sharply each
quarter, with fourth quarter 1999 scrapping reaching a level close to the total
of the previous six months. For the whole of 1999, a total of 17.8 mdwt was
scrapped, the highest level in 14 years.
This net increase in global tanker supply combined with lower demand created an
environment of low freight rates similar to the last weak market in 1992.
<PAGE> 17
12
[CHART] [CHART]
Tanker Supply/Demand Orderbook vs Ageing Fleet
Balance
THE OUTLOOK
For calendar year 2000, the International Energy Agency is forecasting growth in
oil consumption of 2.4%, consistent with strong world GDP growth. If this
forecast oil consumption level is to be realized, oil production levels will
need to step up significantly.
It is anticipated that much of the production increase will come in the form of
long haul oil from Middle East OPEC, the source of most of the world's idle
capacity. An increase in their level of production would have an immediate
positive impact on tanker demand.
On the supply side, we believe the level of scrapping seen in the latter stages
of 1999 will continue as the number of tankers reaching 25 years of age
increases in 2000 and 2001. Most crude oil tankers, and virtually all Aframax
tankers trading internationally, are being scrapped prior to reaching 25 years
of age. It should be noted that in each of the past three years, the number of
tankers scrapped has exceeded those reaching 25 years of age.
The pace of new tanker deliveries is set to decline, particularly in the latter
half of 2000. The world shipyard orderbook indicates that during the next two
years the pace of deliveries will drop significantly from the levels of the
previous 12 months.
<PAGE> 18
13
EFFICIENCY
AN EFFECTIVE BACKHAUL AND CARGO PARCELLING strategy
helps improve vessel profitability, yielding higher
average per day revenue than the industry standard.
Teekay's uniform fleet and its increased size create
greater flexibility for vessel substitution and
schedule changes. Cross-functional operations teams
dedicated to specific ships, ensure effective
operational processes and efficient customer service.
optimizing fleet scheduling and utilization
[ARTWORK]
<PAGE> 19
14
QUALITY
OPERATIONAL POLICIES AND PROCEDURES are designed to
safeguard personnel and protect the environment. Teekay
has an excellent safety record, having set standards
acknowledged to be among the highest in the industry.
The Company is firmly committed to a proactive approach
to loss prevention, continuously reviewing and improving
safety management processes and training practices.
Upholding safety and environmental standards
[ARTWORK]
<PAGE> 20
15
FLEET PROFILE
as of December 31, 1999
<TABLE>
<CAPTION>
Year Year
Tankers Hull Type DWT Built Tankers Hull Type DWT Built
- ------- --------- --- ----- ------- --------- --- -----
<S> <C> <C> <C> <C> <C> <C> <C>
ONOMICHI CLASS NAMURA CLASS
Hamane Spirit Double Hull 105,300 1997 Seabridge * Double Hull 105,200 1996
Poul Spirit Double Hull 105,300 1995 Seamaster * Single Hull 101,000 1990
Torben Spirit Double Hull 98,600 1994 Torres Spirit Single Hull 96,000 1990
Samar Spirit Double Hull 98,600 1992 Mendana Spirit Single Hull 81,700 1980
Leyte Spirit Double Hull 98,600 1992
Luzon Spirit Double Hull 98,600 1992
Mayon Spirit Double Hull 98,600 1992 SAMSUNG CLASS
Palmstar Lotus Single Hull 100,200 1991
Palmstar Thistle Single Hull 100,200 1991 Aegean Pride * Double Hull 105,300 1999
Teekay Spirit Single Hull 100,200 1991 Kanata Spirit Double Hull 113,000 1999
Palmstar Poppy Single Hull 100,200 1990 Kareela Spirit Double Hull 113,000 1999
Onozo Spirit Single Hull 100,200 1990 Kiowa Spirit Double Hull 113,000 1999
Palmstar Cherry Single Hull 100,200 1990 Koa Spirit Double Hull 113,000 1999
Palmstar Rose Single Hull 100,200 1990 Kyeema Spirit Double Hull 113,000 1999
Palmstar Orchid Single Hull 100,200 1989 Silver Paradise * Double Hull 105,200 1998
HYUNDAI CLASS OTHER AFRAMAX
Falster Spirit Double Hull 95,400 1995 Bornes ** Double Sides 88,900 1990
Gotland Spirit Double Hull 95,400 1995 Shannon Spirit Single Hull 99,300 1987
Sotra Spirit Double Hull 95,400 1995 Cook Spirit Double Sides 91,500 1987
Shilla Spirit Single Hull 106,700 1990 Clare Spirit Single Hull 95,200 1986
Ulsan Spirit Single Hull 106,700 1990 Magellan Spirit Double Sides 95,000 1985
Dampier Spirit (FSO) Single Hull 106,700 1988
Namsan Spirit Single Hull 106,700 1988 Subtotal Aframax 5,983,000
Pacific Spirit Single Hull 106,700 1988
Pioneer Spirit Single Hull 106,700 1988
Mersey Spirit Double Sides 94,700 1986 OIL/BULK/ORE (OBO) CARRIERS
Clyde Spirit Double Sides 94,700 1985
Victoria Spirit Double Hull 103,200 1993
Vancouver Spirit Double Hull 103,200 1992
IMABARI CLASS Teekay Fulmar Double Bottom 78,500 1983
Teekay Forum Double Bottom 78,500 1983
Nassau Spirit Double Hull 107,000 1998 Teekay Fortuna ** Double Bottom 78,500 1982
Senang Spirit Double Hull 95,700 1994 Teekay Fountain Double Bottom 78,500 1982
Sebarok Spirit Double Hull 95,700 1993 Teekay Freighter ** Double Bottom 75,400 1982
Seraya Spirit Double Sides 97,300 1992 Teekay Fair Double Hull 75,500 1981
Seafalcon * Double Sides 97,300 1990 Teekay Favour Double Bottom 82,500 1981
Alliance Spirit Double Sides 97,300 1989 Teekay Foam Double Bottom 78,500 1981
Sentosa Spirit Double Sides 97,300 1989
Seletar Spirit Double Sides 95,000 1988 Subtotal Oil/Bulk/Ore Carriers 832,300
Semakau Spirit Double Sides 97,300 1988
Singapore Spirit Double Sides 97,300 1987
Sudong Spirit Double Sides 97,300 1987 OTHER SIZE TANKERS
Inago ** Double Sides 159,800 1993
MITSUBISHI CLASS Musashi Spirit Single Hull 280,700 1993
Erati ** Double Sides 159,700 1992
Kyushu Spirit Double Sides 95,600 1991 Palmerston Double Bottom 36,700 1990
Sabine Spirit Double Sides 84,800 1989 Barrington Double Hull 33,300 1989
Koyagi Spirit Single Hull 96,000 1989 Scotland Double Sides 40,800 1982
Columbia Spirit Double Sides 84,800 1988
Hudson Spirit Double Sides 84,800 1988 Subtotal Other Tankers 711,000
TOTAL DWT 7,526,500
MITSUI CLASS
Shetland Spirit Double Hull 106,200 1994
Orkney Spirit Double Hull 106,200 1993
*Time Chartered-in ** Partially owned
vessels
(FSO) Floating storage and off-take vessel (Bornes, Inago, Erati 50%; Teekay Fortuna 67%;
Teekay Freighter 52%)
</TABLE>
<PAGE> 21
16
STABILITY
COST EFFECTIVE OPERATIONS and a strong balance
sheet have contributed to the Company's ability to
endure volatile market conditions. Ready access to
capital allows Teekay to take advantage of growth
opportunities during downturns while maintaining
balance sheet integrity.
maintaining a strong balance sheet
[ARTWORK]
<PAGE> 22
17
FINANCIAL REVIEW
[ARTWORK]
<PAGE> 23
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
Teekay has changed its fiscal year end from March 31 to December 31, effective
December 31, 1999, in order to facilitate comparison of its operating results to
those of other companies in the transportation industry.
GENERAL
Teekay is a leading provider of international crude oil and petroleum product
transportation services to major oil companies, major oil traders and government
agencies worldwide. The Company's fleet consists of 76 vessels (including five
vessels time-chartered-in and three vessels owned by a joint venture), for a
total cargo-carrying capacity of approximately 7.5 million tonnes.
During the nine months ended December 31, 1999, approximately 61% of the
Company's net voyage revenues were 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 within a given period of time. In
the nine months ended December 31, 1999, approximately 13% of net voyage
revenues were generated by time charters and COAs priced on a spot market basis.
In the aggregate, approximately 74% of the Company's net voyage revenues during
the nine months ended December 31, 1999 were derived from spot voyages or time
charters and COAs priced on a spot market basis, with the remaining 26% 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 revenues, 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 weather patterns that 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
this 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 time-charter rates for the Australian Vessels are
correspondingly higher to compensate for these increased costs. During the nine
months ended December 31, 1999, the Australian Vessels earned net voyage
revenues and an average TCE rate (as defined below) of $27.2 million and
$25,218, respectively, and incurred vessel operating expenses of $9.3 million,
or $8,485 on a per ship per day basis. In comparison, during the year ended
March 31, 1999, the Australian Vessels earned net voyage revenues and an average
TCE rate of $38.2 million and $26,329, respectively, and incurred vessel
operating expenses of $14.9 million, or $10,173 on a per ship per day basis. The
results of the Australian Vessels are included in the Company's Consolidated
Financial Statements included herein.
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 June 11, 1999.
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.
<PAGE> 24
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS (CONT'D)
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 revised the estimated useful life
of its vessels to 25 years and also replaced the estimated residual values with
estimated scrap values. Since such changes, the Company's average depreciation
expense per vessel has decreased 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's interest expense has increased
as a result of 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 are currently 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 will earn lower average
TCE rates than the rest of the Teekay fleet as these vessels command lower rates
than modern Aframax tankers under typical market conditions, which reflects the
lower capital cost of these vessels.
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
voyage 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.
NINE MONTHS ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED MARCH 31, 1999
As a result of the Company's change in fiscal year end from March 31 to
December 31, the current fiscal period's results are for the nine month period
ended December 31, 1999, while the comparative results are for the twelve month
period ended March 31, 1999. Where indicated in the following discussions,
percentage change figures reflect the annualized results for the nine month
period ended December 31, 1999. The annualized results for the nine month period
ended December 31, 1999 are not necessarily indicative of those for a full
fiscal year.
The results for the nine month period ended December 31, 1999 includes the
results of Bona commencing June 11, 1999. On an annualized basis, the Company's
average fleet size increased 39.5% in the nine month period ended December 31,
1999 compared to the year ended March 31, 1999.
Aframax TCE rates declined during the second half of 1998 and 1999 due to a
reduction in tanker demand, oil production cutbacks and a large number of
newbuilding deliveries. TCE rates will be dependent upon oil production levels,
oil consumption growth, the number of vessels scrapped and charterers'
preference for modern tankers. As a result of the Company's dependence on the
tanker spot market, any fluctuations in Aframax TCE rates will impact the
Company's revenues and earnings.
Net voyage revenues were $248.4 million in the nine month period ended
December 31, 1999, as compared to $318.4 million in the year ended March 31,
1999, representing a 4.0% increase on an annualized basis from the year ended
March 31, 1999. This is mainly the result of an increase in fleet size, offset
by a 31.5% decrease in the Company's average TCE rate, excluding the Australian
Vessels, of $13,410 for the nine month period ended December 31, 1999, from
$19,576 for the year ended March 31, 1999. As of December 31, 1999, the Company
changed its process of estimating net voyage revenues from a load port-to-load
port basis to a discharge port-to-discharge port basis, which is consistent with
most other shipping companies. This change in voyage estimate resulted in a
one-time increase in net voyage revenues of $5.7 million for the nine month
period ended December 31, 1999.
Vessel operating expenses, which include crewing, repairs and maintenance,
insurance, stores, lubes, and communication expenses, increased to $98.8 million
in the nine month period ended December 31, 1999 from $84.4 million in the year
ended March 31, 1999, representing a 56.1% increase on an annualized basis. This
increase was mainly the result of the addition of the Bona vessels, which
currently have higher operating expenses than the remainder of Teekay's fleet.
<PAGE> 25
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS (CONT'D)
Time charter hire expense was $30.7 million in the nine month period ended
December 31, 1999, up from $29.7 million in the year ended March 31, 1999,
primarily due to the Bona acquisition. The minority pool participants' net
voyage revenues in the O/B/O pool managed by a Bona subsidiary is reflected as
time charter hire expense. The average number of vessels time-chartered-in by
the Company was four in the nine month period ended December 31, 1999, the same
as in the year ended March 31, 1999.
Depreciation and amortization expense decreased to $68.3 million in the nine
month period ended December 31, 1999, from $93.7 million in the year ended March
31, 1999, representing a 2.8% decrease on an annualized basis. This reflects 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 $6.3 million and $8.6 million in the nine month period ended December 31,
1999 and in the year ended March 31, 1999, respectively. Had Teekay retained its
previous depreciation policy and applied this policy to the Bona fleet,
depreciation expense would have been $22.5 million higher in the current period.
General and administrative expenses were $27.0 million in the nine month
period ended December 31, 1999, as compared to $25.0 million in the year ended
March 31, 1999, representing a 44.1% increase on an annualized basis primarily
as a result of the acquisition of Bona.
Interest expense increased to $45.0 million in the nine month period ended
December 31, 1999 from $44.8 million in the year ended March 31, 1999,
representing a 33.9% increase on an annualized basis. This increase reflects the
$386 million in additional debt assumed as part of the Bona acquisition and an
increase in interest rates.
Interest income decreased to $5.8 million in the nine month period ended
December 31, 1999 from $6.4 million in the year ended March 31, 1999. On an
annualized basis, interest income increased by 20.8% as a result of increased
interest rates and higher cash and marketable securities balances.
Other loss of $4.0 million in the nine month period ended December 31, 1999
consisted primarily of future income taxes related to the Australian Vessels and
one-time employee and severance-related costs, partially offset by equity income
from a 50%-owned joint venture. Other income of $5.5 million in the year ended
March 31, 1999 consisted primarily of gains on the sale of vessels.
As a result of the foregoing factors, net loss was $19.6 million in the nine
month period ended December 31, 1999, compared to net income of $45.4 million in
the year ended March 31, 1999. The results for the year ended March 31, 1999
included an extraordinary loss of $7.3 million on the redemption of the
Company's 9 5/8% First Preferred Ship Mortgage Notes (the "9 5/8% Notes"), and
gains on asset sales of $7.1 million. There were no extraordinary items and no
asset sales in the nine month period ended December 31, 1999.
YEAR ENDED MARCH 31, 1999 ("FISCAL 1999") VERSUS YEAR ENDED MARCH 31, 1998
("FISCAL 1998")
Operating results for these two fiscal years generally reflect a
cyclical peak in average TCE rates in fiscal 1998 followed by a decline in TCE
rates experienced by the Company's fleet during the second half of fiscal 1999
and growth in the size of the Company's fleet. In addition, the fiscal 1999
results include a full year of results from the four Australian Vessels whereas
the fiscal 1998 results only include approximately three months of results from
three of the Australian Vessels, which have higher operating expenses and earn
correspondingly higher TCE rates. The Company sold two of its older Aframax
tankers during the fiscal year ended March 31, 1999 and added four newer Aframax
tankers (including three time-chartered-in vessels) to its fleet during the same
period. As a result, the Company's average fleet size increased by two vessels,
or 8.9%, in fiscal 1999 compared to fiscal 1998, following an earlier increase
of two vessels, or 4.9% in fiscal 1998.
Net voyage revenues increased 4.3% to $318.4 million in fiscal 1999 from
$305.3 million in fiscal 1998, reflecting the increase in the Company's fleet
size and higher TCE rates earned on the Australian Vessels, partially offset by
lower spot TCE rates. The Company's average overall TCE rate in fiscal 1999,
excluding the Australian Vessels, was down 8.4% to $19,576 from $21,373 in
fiscal 1998.
Vessel operating expenses increased 19.7% to $84.4 million in fiscal 1999
from $70.5 million in fiscal 1998, mainly as a result of higher crewing costs
associated with the Australian Vessels and an adjustment to crew wage rates and
salaries effective April 1, 1998.
Time-charter hire expense was $29.7 million in fiscal 1999, up from
$10.6 million in fiscal 1998, as the average number of vessels time-chartered-in
by the Company increased to four in fiscal 1999 from two in fiscal 1998.
Depreciation and amortization expense decreased by 1.3% to $93.7 million in
fiscal 1999 from $94.9 million in fiscal 1998, primarily as a result of lower
amortization of drydocking costs during the current year due to fewer scheduled
drydockings compared to the previous fiscal year. Depreciation and amortization
expense included amortization of drydocking costs of $8.6 million and
$11.7 million in fiscal years 1999 and 1998, respectively.
<PAGE> 26
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS (CONT'D)
General and administrative expenses rose 16.1% to $25.0 million in fiscal
1999 from $21.5 million in fiscal 1998, primarily as a result of the hiring of
additional personnel in connection with the expansion of the Company's
operations, particularly in Australia. The fiscal 1999 results include the
Australian Vessels for the full year in comparison to three months in fiscal
1998 for three of the Australian Vessels.
Interest expense decreased by 20.4% to $44.8 million in fiscal 1999 from
$56.3 million in fiscal 1998, reflecting the reduction in the Company's total
debt and lower average interest rates on debt borrowings. In June 1998, the
Company completed a public offering of its Common Stock resulting in net
proceeds to the Company of approximately $69.0 million. These net proceeds,
together with other funds, were applied in August 1998 to redeem the Company's
outstanding 9 5/8% Notes.
Other income of $5.5 million in fiscal 1999 consisted primarily of $7.1
million in gains on the sale of two vessels, offset partially by $1.9 million in
income taxes related to the Australian Vessels. Other income of $11.2 million in
fiscal 1998 consisted primarily of gains on the sale of vessels.
As a result of the foregoing factors, net income was $45.4 million in fiscal
1999, compared to net income of $70.5 million in fiscal 1998. Net income for
fiscal 1999 included an extraordinary loss of $7.3 million arising from the
redemption of the 9 5/8% Notes and gains on asset sales of $7.1 million. Net
income for fiscal 1998 included $14.4 million in gains on asset sales.
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 years' results, unless otherwise indicated,
the figures in the table below exclude the results from the Company's Australian
Vessels.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1999 1999 1998
----------------- ---------- ----------
<S> <C> <C> <C>
International Fleet:
Average number of ships .............................. 61 43 42
-------- -------- --------
Total calendar ship-days ............................. 16,797 15,612 15,341
-------- -------- --------
Revenue generating ship-days (A) ..................... 15,807 14,647 14,229
-------- -------- --------
Net voyage revenue before commissions (1) (B) (000s).. $211,971 $286,735 $304,115
-------- -------- --------
TCE (B/A) ............................................ $ 13,410 $ 19,576 $ 21,373
-------- -------- --------
Operating results per calendar ship-day:
Net voyage revenue ................................. $ 12,190 $ 17,950 $ 19,358
Vessel operating expense ........................... 5,719 4,969 4,554
General and administrative expense ................. 1,510 1,465 1,375
Drydocking expense ................................. 392 613 765
-------- -------- --------
Operating cash flow per calendar ship-day ............ $ 4,569 $ 10,903 $ 12,664
-------- -------- --------
Australian Vessels:
Operating cash flow per calendar ship-day .......... $ 14,643 $ 14,509 $ 13,482
-------- -------- --------
Total Fleet:
Operating cash flow per calendar ship-day .......... $ 5,177 $ 11,171 $ 12,682
-------- -------- --------
</TABLE>
(1) Nine months ended December 31, 1999 figure excludes the $5.7 million
adjustment arising from the change in voyage estimate from a load port-to-load
port basis to a discharge port-to-discharge port basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total liquidity, including cash, restricted cash, marketable
securities and undrawn long-term lines of credit, was $237.4 million as at
December 31, 1999, up from $143.3 million as at March 31, 1999, and $186.3
million as at March 31, 1998. The increase in liquidity during the nine month
period ended December 31, 1999 was primarily the result of drawing an additional
$100 million under one of the Company's revolving credit facilities.
Net cash flow from operating activities decreased to $51.5 million in the
nine month period ended December 31, 1999, compared to $137.7 million in the
year ended March 31, 1999, and $161.1 million in the year ended March 31, 1998.
This primarily reflects the change in TCE rates during these periods.
Scheduled debt repayments were $32.3 million during the nine month period
ended December 31, 1999, compared to $50.6 million in the year ended March 31,
1999 and $33.9 million in the year ended March 31, 1998.
<PAGE> 27
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS (CONT'D)
Dividends declared during the nine month period ended December 31, 1999 were
$23.17 million, or $0.645 per share, of which $23.15 million was paid in cash
and the remainder was paid in the form of shares of Common Stock issued under
the Company's dividend reinvestment plan.
During the nine month period ended December 31, 1999, the Company incurred
capital expenditures for vessels and equipment of $23.3 million, consisting
mainly of payments made towards the two newbuilding double-hull Aframax tankers
delivered in July and September of 1999. Cash expenditures for drydocking were
$6.6 million in the nine month period ended December 31, 1999 compared to
$11.7 million in the year ended March 31, 1999 and $18.4 million in the year
ended March 31, 1998. There were fewer scheduled drydockings than usual during
the nine month period ended December 31, 1999.
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.
MARKET RATE RISKS
The Company is exposed to market risk from foreign currency and changes in
interest 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 maturities of less than three months within the parameters of its
investment policy and guidelines.
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 and most of its operating costs are in
U.S. dollars. The Company incurs certain operating expenses, drydocking, and
overhead costs in foreign currencies, the most significant of which are Japanese
yen, Singapore dollars, Canadian dollars, Australian dollars and Norwegian
kroner. During the nine months ended December 31, 1999, approximately 20.4% of
vessel and voyage costs, overhead and drydock expenditures were denominated in
these currencies. However, the Company has the ability to 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
certain 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.
<TABLE>
CARRYING AMOUNT
CONTRACT --------------- FAIR
(IN USD 000'S) AMOUNT ASSET LIABILITY VALUE
- -------------- -------- ----- --------- -----
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
FX Forward Contracts ........ $ 4,448 $ -- $ -- $ (20)
Interest Rate Swap Agreements 200,000 -- -- 4,488
Debt ........................ 1,085,167 -- 1,085,167 1,060,417
MARCH 31, 1999
FX Forward Contracts ........ $ 2,905 $ -- $ -- $ (22)
Debt ........................ 641,719 -- 641,719 637,219
----------- ---- ---------- ----------
</TABLE>
YEAR 2000 COMPLIANCE
The Company relies on computer systems, software, databases, third party
electronic data interchange interfaces and embedded processors to operate its
business. The Company successfully implemented a program to systematically
address the Year 2000 problem. The Company was Year 2000 compliant prior to the
rollover to the Year 2000. The Company will continue to monitor electronic date
recognition issues.
<PAGE> 28
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS (CONT'D)
FORWARD-LOOKING STATEMENTS
The Company's Annual Report on Form 20-F for the nine months ended December 31,
1999 and this Annual Report to Shareholders for 1999 contain 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: Aframax TCE rates in the near-term; tanker supply and demand; supply
and demand for oil; the Company's market share; future capital expenditures; the
Company's growth strategy and measures to implement such strategy; the Company's
competitive strengths; future success of the Company; cost savings and other
benefits that may be realized in connection with the Bona acquisition; 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;
charterers' preference for modern tankers; 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; changes in typical seasonal variations in tanker charter rates;
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 ability 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> 29
24
AUDITORS' REPORT
To the Shareholders of
TEEKAY SHIPPING CORPORATION
We have audited the accompanying consolidated balance sheets of Teekay Shipping
Corporation and subsidiaries as of December 31, 1999 and March 31, 1999, and the
related consolidated statements of income and retained earnings and cash flows
for the nine month period ended December 31, 1999 and for the years ended March
31, 1999 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits 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
misstatement. 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 made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Teekay Shipping
Corporation and subsidiaries as at December 31, 1999 and March 31, 1999, and the
consolidated results of their operations and their cash flows for the nine month
period ended December 31, 1999 and for the years ended March 31, 1999 and 1998,
in conformity with accounting principles generally accepted in the United
States.
Nassau, Bahamas, [ARTWORK]
February 11, 2000 Chartered Accountants
<PAGE> 30
25
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1999 1999 1998
----------------- ---------- ----------
<S> <C> <C> <C>
NET VOYAGE REVENUES
Voyage revenues .............................. $ 377,882 $ 411,922 $ 406,036
Voyage expenses .............................. 129,532 93,511 100,776
--------- --------- ---------
Net voyage revenues .......................... 248,350 318,411 305,260
--------- --------- ---------
OPERATING EXPENSES
Vessel operating expenses .................... 98,780 84,397 70,510
Time charter hire expense .................... 30,681 29,666 10,627
Depreciation and amortization ................ 68,299 93,712 94,941
General and administrative ................... 27,018 25,002 21,542
--------- --------- ---------
224,778 232,777 197,620
--------- --------- ---------
INCOME FROM VESSEL OPERATIONS ................ 23,572 85,634 107,640
OTHER ITEMS
Interest expense ............................. (44,996) (44,797) (56,269)
Interest income .............................. 5,842 6,369 7,897
Other income (loss) (note 11) ................ (4,013) 5,506 11,236
--------- --------- ---------
(43,167) (32,922) (37,136)
--------- --------- ---------
Net income (loss) before extraordinary loss .. (19,595) 52,712 70,504
Extraordinary loss on bond redemption (note 6) -- (7,306) --
--------- --------- ---------
Net income (loss) ............................ (19,595) 45,406 70,504
Retained earnings, beginning of the period ... 446,897 428,102 382,178
--------- --------- ---------
427,302 473,508 452,682
Dividends declared ........................... (23,172) (26,611) (24,580)
--------- --------- ---------
RETAINED EARNINGS, END OF THE PERIOD ......... $ 404,130 $ 446,897 $ 428,102
--------- --------- ---------
BASIC EARNINGS PER COMMON SHARE (note 9)
o Net income (loss) before extraordinary loss $ (0.54) $ 1.70 $ 2.46
o Net income (loss) .......................... $ (0.54) $ 1.46 $ 2.46
DILUTED EARNINGS PER COMMON SHARE (note 9)
o Net income (loss) before extraordinary loss $ (0.54) $ 1.70 $ 2.44
o Net income (loss) .......................... $ (0.54) $ 1.46 $ 2.44
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 31
26
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
AS AT AS AT
DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents ........................ $ 220,327 $ 118,435
Marketable securities (note 4) ................... -- 8,771
Accounts receivable .............................. 30,753 22,995
Prepaid expenses and other assets ................ 29,579 16,195
---------- ----------
Total current assets ............................. 280,659 166,396
---------- ----------
Marketable securities (note 4) ................... 6,054 5,050
Vessels and equipment (notes 1 and 6)
At cost, less accumulated depreciation of $624,727
(March 31, 1999 - $557,946) ...................... 1,666,755 1,218,916
Advances on newbuilding contracts ................ -- 55,623
---------- ----------
Total vessels and equipment ...................... 1,666,755 1,274,539
Investment in joint venture ...................... 19,402 --
Other assets ..................................... 9,814 6,235
---------- ----------
$1,982,684 $1,452,220
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable ................................. $ 20,431 $ 11,926
Accrued liabilities (note 5) ..................... 39,515 19,285
Current portion of long-term debt (note 6) ....... 66,557 39,058
---------- ----------
Total current liabilities ........................ 126,503 70,269
---------- ----------
Long-term debt (note 6) .......................... 1,018,610 602,661
Other long-term liabilities ...................... 3,400 1,900
---------- ----------
Total liabilities ................................ 1,148,513 674,830
---------- ----------
Minority interest ................................ 2,104 --
Stockholders' equity
Capital stock (note 9) ........................... 427,937 330,493
Retained earnings ................................ 404,130 446,897
---------- ----------
Total stockholders' equity ....................... 832,067 777,390
---------- ----------
$1,982,684 $1,452,220
========== ==========
</TABLE>
Commitments and contingencies (notes 7 and 10)
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 32
27
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1999 1999 1998
----------------- ---------- ----------
<S> <C> <C> <C>
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income (loss) ................................. $ (19,595) $ 45,406 $ 70,504
Add (deduct) charges to operations not requiring
a payment of cash and cash equivalents:
Depreciation and amortization ..................... 68,299 93,712 94,941
Gain on disposition of assets ..................... -- (7,117) (14,392)
Loss on bond redemption ........................... -- 7,306 2,175
Equity income ..................................... (721) -- (45)
Future income taxes ............................... 1,500 1,900 --
Other ............................................. 1,134 1,218 2,735
Change in non-cash working capital items related to
operating activities (note 12) ................... 896 (4,717) 5,201
--------- --------- ---------
Net cash flow from operating activities ........... 51,513 137,708 161,119
--------- --------- ---------
FINANCING ACTIVITIES
Proceeds from long-term debt ...................... 100,000 230,000 208,600
Scheduled repayments of long-term debt ............ (32,252) (50,577) (33,876)
Prepayments of long-term debt ..................... (10,000) (268,034) (150,655)
Net proceeds from issuance of Common Stock ........ -- 68,751 5,126
Cash dividends paid ............................... (23,150) (26,222) (15,990)
Capitalized loan costs ............................ -- (690) (994)
--------- --------- ---------
Net cash flow from financing activities ........... 34,598 (46,772) 12,211
--------- --------- ---------
INVESTING ACTIVITIES
Expenditures for vessels and equipment ............ (23,313) (85,445) (197,199)
Expenditures for drydocking ....................... (6,598) (11,749) (18,376)
Proceeds from disposition of assets ............... -- 23,435 33,863
Net cash acquired through purchase of
Bona Shipholding Ltd. (note 3) .................... 51,774 -- --
Acquisition costs related to purchase of
Bona Shipholding Ltd. (note 3) .................... (13,806) -- --
Net cash flow from investment ..................... -- -- 6,380
Proceeds on sale of available-for-sale securities . 13,724 13,305 14,854
Purchases of available-for-sale securities ........ (6,000) -- (42,154)
Other ............................................. -- -- (268)
--------- --------- ---------
Net cash flow from investing activities ........... 15,781 (60,454) (202,900)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents .. 101,892 30,482 (29,570)
Cash and cash equivalents, beginning of the period 118,435 87,953 117,523
--------- --------- ---------
Cash and cash equivalents, end of the period ...... $ 220,327 $ 118,435 $ 87,953
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 33
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the
United States. They include the accounts of Teekay Shipping Corporation
("Teekay"), which is incorporated under the laws of the Republic of the Marshall
Islands, and its wholly owned or controlled subsidiaries (the "Company").
Significant intercompany items and transactions have been eliminated upon
consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Certain of the comparative figures have been reclassified to conform with the
presentation adopted in the current period.
REPORTING CURRENCY The consolidated financial statements are stated in
U.S. dollars because the Company operates in international shipping markets
which utilize the U.S. dollar as the functional currency.
CHANGE IN FISCAL YEAR END The Company changed its fiscal year end from March 31
to December 31, effective December 31, 1999. The following is a summary of
selected financial information for the comparative twelve and nine month periods
ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
TWELVE MONTHS TWELVE MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1998
------------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
RESULTS OF OPERATIONS
Net voyage revenues ....................... $ 318,348 $ 327,016 $ 248,413
Income from vessel operations ............. 34,189 103,660 75,017
Net income (loss) before extraordinary loss (17,723) 66,451 50,840
Net income (loss) ......................... (17,723) 59,145 43,534
Net income (loss) before extraordinary loss
per common share
- basic and diluted ..................... (0.50) 2.19 1.65
Net income (loss) per common share
- basic and diluted ..................... (0.50) 1.95 1.41
CASH FLOWS
Net cash flow from operating activities ... 71,633 151,779 117,588
Net cash flow from financing activities ... 76,948 (74,407) (89,122)
Net cash flow from investing activities ... 5,613 (127,372) (50,286)
</TABLE>
OPERATING REVENUES AND EXPENSES Voyage revenues and expenses are recognized on
the percentage of completion method of accounting. The Company has refined its
estimation process from a load-to-load basis to a discharge-to-discharge basis
under the percentage of completion method to more precisely reflect net voyage
revenues. This refinement in accounting estimate resulted in an increase in net
voyage revenues of $5.7 million, or 16 cents per share, for the nine month
period ended December 31, 1999.
Estimated losses on voyages are provided for in full at the time such losses
become evident. The consolidated balance sheets reflect 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, lubes, communications, and miscellaneous expenses.
<PAGE> 34
29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
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.
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 the Company's customers
are capitalized. Depreciation is calculated on a straight-line basis over a
vessel's useful life from the date a vessel is initially placed in service.
Effective April 1, 1999, the Company revised 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 $22.5 million, or 62 cents per share, for the nine month
period ended December 31, 1999.
Interest costs capitalized to vessels and equipment for the nine month period
ended December 31, 1999 and the years ended March 31, 1999 and 1998 aggregated
$1,710,000, $3,018,000, and $283,000, respectively.
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. Drydocking expenses amortized for the nine month period
ended December 31, 1999 and the years ended March 31, 1999 and 1998 aggregated
$6,275,000, $8,583,000, and $11,737,000, respectively.
INVESTMENT IN JOINT VENTURES The Company has a 50% participating interest in the
joint venture (Soponata-Teekay Limited). The joint venture is accounted for
using the equity method whereby the investment is carried at the Company's
original cost plus its proportionate share of undistributed earnings.
INVESTMENT IN THE PANAMAX OBO POOL All oil/bulk/ore carriers ("OBO") owned by
the Company are operated through a Panamax OBO Pool. The participants in the
Pool are the companies contributing vessel capacity to the Pool. The voyage
revenues and expenses of these vessels have been included on a 100% basis in the
consolidated financial statements. The minority pool participants' share of the
result has been deducted as time charter hire expense.
OTHER ASSETS Loan costs, including fees, commissions and legal expenses, are
capitalized and amortized on a straight line basis 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, pursuant
to 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 The Company enters into forward contracts as a hedge against
changes in certain 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 The Company classifies all highly liquid investments
with a maturity date of three months or less when purchased as cash and cash
equivalents.
Cash interest paid during the nine month period ended December 31, 1999 and
the years ended March 31, 1999 and 1998 totaled $63,086,000, $48,527,000, and
$55,141,000, respectively.
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. The Company's Australian ship-owning subsidiaries
are subject to income taxes (see Note 11). The Company accounts for such taxes
using the liability method pursuant to Statement of Financial Accounting
Standards No. 109, " Accounting for Income Taxes".
ACCOUNTING FOR STOCK-BASED COMPENSATION Under Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation",
disclosures of stock-based compensation arrangements with employees are required
and companies are encouraged (but not required) to record compensation costs
associated with employee stock option awards, based on estimated fair values at
the grant dates. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in APB Opinion No. 25
("APB 25") "Accounting for Stock Issued to Employees" and has disclosed the
required pro forma effect on net income and earning per share as if the fair
value method of accounting as prescribed in SFAS 123 had been applied (see
Note 9 - Capital Stock).
COMPREHENSIVE INCOME The Company follows Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", which establishes standards
for reporting and displaying comprehensive income and its components in the
consolidated financial statements. For the nine month period ended December 31,
1999, and the years ended March 31, 1999 and 1998, the Company did not have any
components of comprehensive income.
<PAGE> 35
30
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which establishes new standards for recording
derivatives in interim and annual financial statements. This statement requires
recording all derivative instruments as assets or liabilities, measured at fair
value. Statement No. 133, as amended by FASB Statement No. 137, is effective for
fiscal years beginning after June 15, 2000. Management has not determined the
impact, if any, that the adoption of the new statement will have on the
consolidated results of operations or financial position of the Company.
2. BUSINESS OPERATIONS
The Company is engaged in the ocean transportation of petroleum cargoes
worldwide through the ownership and operation of a fleet of tankers. All of the
Company's revenues are earned in international markets.
One customer, an international oil company, accounted for 13% ($48,140,000)
of the Company's consolidated voyage revenues during the nine month period ended
December 31, 1999. No other customer accounted for more than 10% of the
Company's consolidated voyage revenues. During the year ended March 31, 1999,
three customers, all international oil companies, individually accounted for 12%
($51,411,000), 12% ($50,727,000) and 10% ($42,797,000), respectively, of the
Company's consolidated voyage revenues. During the year ended March 31, 1998, a
single customer, also an international oil company, accounted for 14%
($56,357,000) of the Company's consolidated voyage revenues.
3. ACQUISITION OF BONA SHIPHOLDING LTD.
On June 11, 1999, Teekay purchased 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. 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 nine month period ended December 31, 1999, and for
the year ended March 31, 1999 and gives effect to the acquisition as if it had
taken place April 1, 1998:
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------
NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1999 1999
(UNAUDITED) (UNAUDITED)
----------------- ----------
<S> <C> <C>
Net voyage revenues .................................. $ 272,469 $ 463,696
Income from vessel operations ........................ 26,127 132,122
Net income (loss) before extraordinary loss .......... (22,482) 86,505
Net income (loss) .................................... (22,482) 79,199
Net income (loss) before extraordinary loss
per common share - basic and diluted ................. (0.59) 2.31
Net income (loss) per common share - basic and diluted (0.59) 2.11
</TABLE>
<PAGE> 36
31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
4. INVESTMENTS IN MARKETABLE SECURITIES
<TABLE>
<CAPTION>
APPROXIMATE
GROSS GROSS MARKET AND
UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUE
---- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
Available-for-sale securities................ $ 6,051 $ 6 $ (3) $ 6,054
MARCH 31, 1999
Available-for-sale securities ................ 13,865 -- (44) 13,821
</TABLE>
The cost and approximate market value of available-for-sale securities
by contractual maturity, as at December 31, 1999 and March 31, 1999, are shown
as follows:
<TABLE>
<CAPTION>
APPROXIMATE
MARKET AND
CARRYING
COST VALUE
---- -----------
<S> <C> <C>
DECEMBER 31, 1999
Less than one year .................. $ -- $ --
Due after one year through five years 6,051 6,054
------- -------
$ 6,051 $ 6,054
======= =======
MARCH 31, 1999
Less than one year .................. $ 8,771 $ 8,771
Due after one year through five years 5,094 5,050
------- -------
$13,865 $13,821
======= =======
</TABLE>
5. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
<S> <C> <C>
Voyage and vessel .................. $12,469 $ 6,868
Interest ........................... 12,619 7,552
Payroll and benefits................ 14,427 4,865
------- -------
$39,515 $19,285
======= =======
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
------------ ---------
<S> <C> <C>
Revolving Credit Facilities.......... $ 634,000 $ 169,000
First Preferred Ship Mortgage .......
Notes (8.32%) U.S. dollar
debt due through 2008 ............. 225,000 225,000
Term Loans U.S. dollar debt
due through 2009 ................... 226,167 247,719
---------- ----------
1,085,167 641,719
Less current portion 66,557 39,058
---------- ----------
$1,018,610 $ 602,661
========== ==========
</TABLE>
<PAGE> 37
32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
The Company has two long-term Revolving Credit Facilities (the "Revolvers")
available, which, as at December 31, 1999, provided for borrowings of up to
$645.0 million. Interest payments are based on LIBOR (December 31, 1999: 6.0%;
March 31, 1999: 5.0%) plus a margin depending on the financial leverage of the
Company; at December 31, 1999, the margins ranged between 0.6% and 0.9% (March
31,1999: 0.5%). The amount available under the Revolvers reduces semi-annually
with final balloon reductions in 2006 and 2008. The Revolvers are collateralized
by first priority mortgages granted on forty of the Company's Aframax tankers
and oil/bulk/ore carriers, together with certain other related collateral, and a
guarantee from the Company 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 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 December 31, 1999, the fair value of these net assets
approximated $182.0 million. The 8.32% Notes are also subject to a sinking fund,
which will retire $45.0 million principal amount of the 8.32% Notes on each
February 1, commencing 2004.
Upon the 8.32% Notes achieving Investment Grade Status and subject to certain
other conditions, the guarantees of the 8.32% Notes Guarantor Subsidiaries will
terminate, all of the collateral securing the obligations of the Company and the
8.32% Notes Guarantor Subsidiaries under the Indenture and the Security
Documents will be released (whereupon the Notes will become general unsecured
obligations of the Company) and certain covenants under the Indenture will no
longer be applicable to the Company.
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 24 cents per share, for the year ended
March 31, 1999.
The Company has several term loans outstanding, which, as at December
31,1999, totalled $226.2 million. Interest payments are based on LIBOR plus a
margin. At December 31,1999, the margins ranged between 0.65% and 1.25%. The
term loans reduce in quarterly or semi-annual payments with varying maturities
through 2009. All term loans of the Company are collateralized by first
preferred mortgages on the vessels to which the loans relate, together with
certain other collateral, and guarantees from Teekay.
As at December 31, 1999, the Company was committed to a series of interest
rate swap agreements whereby $200.0 million of the Company's floating rate debt
was swapped with fixed rate obligations having an average remaining term of 3.8
years, expiring between December 2001 and February 2005. These arrangements
effectively change the Company's interest rate exposure on $200.0 million of
debt from a floating LIBOR rate to an average fixed rate of 6.28%. 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.
Among other matters, the long-term debt agreements generally provide for such
items as maintenance of certain vessel market value to loan ratios and minimum
consolidated financial covenants, prepayment privileges (in some cases with
penalties), and restrictions against the incurrence of additional debt and new
investments by the individual subsidiaries without prior lender consent. The
amount of Restricted Payments, as defined, that the Company can make, including
dividends and purchases of its own capital stock, is limited as of December 31,
1999, to $188.0 million. Certain of the loan agreements require a minimum level
of free cash be maintained. As at December 31, 1999, this amount was $26.0
million.
The aggregate annual long-term debt principal repayments required to be made
for the five fiscal years subsequent to December 31, 1999 are $66,557,000
(fiscal 2000), $92,196,000 (fiscal 2001), $90,043,000 (fiscal 2002),
$132,157,000 (fiscal 2003), and $114,078,000 (fiscal 2004).
7. LEASES
Charters-out
Time charters to third parties of the Company's vessels are accounted for as
operating leases. The minimum future revenues to be received on time charters
currently in place are $82,204,000 (fiscal 2000), $72,158,000 (fiscal 2001),
$57,830,000 (fiscal 2002), $39,035,000 (fiscal 2003), $39,140,000 (fiscal 2004),
and $132,063,000 thereafter.
The minimum future revenues should not be construed to reflect total
charter hire revenues for any of the years.
Charters-in
Minimum commitments under vessel operating leases are $22,795,000 (fiscal 2000)
and $2,981,000 (fiscal 2001).
<PAGE> 38
33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of all financial instruments approximate fair market value
except for the following:
LONG-TERM DEBT - The fair values of the Company's fixed rate long-term debt
are based on either quoted market prices or estimated using discounted cash flow
analyses, based on rates currently available for debt with similar terms and
remaining maturities.
INTEREST RATE SWAP AGREEMENT AND FOREIGN EXCHANGE CONTRACTS - The fair value
of interest rate swaps and foreign exchange contracts, used for hedging
purposes, is the estimated amount that the Company would receive or pay to
terminate the agreements at the reporting date, taking into account current
interest rates, the current credit worthiness of the swap counter parties and
foreign exchange rates.
The estimated fair value of the Company's financial instruments is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 1999
----------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Cash, cash equivalents and
marketable securities ....... $ 226,381 $ 226,381 $ 132,256 $ 132,256
Long-term debt ............... 1,085,167 1,060,417 641,719 637,219
Interest rate swap agreements
(note 6) .................... -- 4,488 -- --
Foreign currency contracts
(note 10) ................... -- (20) -- (22)
</TABLE>
The Company transacts interest rate swap and foreign currency contracts with
investment grade rated financial institutions and requires no collateral from
these institutions.
9. CAPITAL STOCK
<TABLE>
<CAPTION>
COMMON THOUSANDS
STOCK OF SHARES
--------- ---------
<S> <C> <C>
AUTHORIZED
25,000,000 Preferred Stock with a par value of
$1 per share
725,000,000 Common Stock with a par value of
$0.001 per share
ISSUED AND OUTSTANDING
Balance March 31, 1997 .............................. $ 247,637 28,328
Reinvested Dividends ................................ 8,590 273
Exercise of Stock Options ........................... 5,126 232
--------- ---------
Balance March 31, 1998 .............................. 261,353 28,833
June 15, 1998 Share Offering
2,800,000 shares at $24.7275 per share of
Common Stock (net of share issue costs) ............ 68,700 2,800
Reinvested Dividends ................................ 389 13
Exercise of Stock Options ........................... 51 2
--------- ---------
Balance March 31, 1999 .............................. 330,493 31,648
June 11, 1999 Common Stock issued on acquisition
of Bona ............................................ 97,422 6,415
Reinvested Dividends ................................ 22 1
--------- ---------
Balance December 31, 1999 ........................... $ 427,937 38,064
========= =========
</TABLE>
<PAGE> 39
34
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
(all tabular amounts stated in thousands of U.S. dollars,
other than share or per share data)
In June 1998, the Company sold 2,800,000 shares in a public offering. The
Company used the net proceeds from the offering of approximately $69.0 million,
together with other funds, to redeem the outstanding 9 5/8% Notes.
In September 1998, the Company's shareholders approved an amendment to the
Company's 1995 Stock Option Plan (the "Plan") to increase the number of shares
of Common Stock reserved and available for future grants of options under the
Plan by an additional 1,800,000 shares. As of December 31, 1999, the Company had
reserved 3,642,000 shares of Common Stock for issuance upon exercise of options
granted pursuant to the Plan. During the nine month period ended December 31,
1999 and the years ended March 31, 1999 and 1998, the Company granted options
under the Plan to acquire up to 1,463,500, 573,000 and 359,750 shares of Common
Stock (the "Grants"), respectively, to certain eligible officers, employees
(including senior sea staff), and directors of the Company. The options have a
10-year term and vest equally over four years from the data of grant.
A summary of the Company's stock option activity, and related information
for the nine month period ended December 31, 1999 and the years ended March 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 MARCH 31, 1999 MARCH 31, 1998
-------------------- ------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
------ --------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of period .......... 1,729 $26.46 1,161 $26.66 1,056 $23.40
Grant .................................... 1,464 17.11 573 26.05 360 33.50
Exercised ................................ -- -- (2) 21.50 (232) 22.02
Forfeited ................................ (94) 21.12 (3) 30.44 (23) 30.39
----- ------ ----- ------ ----- ------
Outstanding-end of period ................ 3,099 22.14 1,729 26.46 1,161 26.66
===== ====== ===== ====== ===== ======
Exercisable-end of period ................ 1,019 25.35 731 24.08 565 22.14
===== ====== ===== ====== ===== ======
Weighted-average fair value
of options granted during
the period (per option) ............... $ 3.88 $ 5.93 $ 8.13
================ ================= =================
</TABLE>
Exercise prices for the options outstanding as of December 31, 1999 ranged
from $16.88 to $33.50. These options have a weighted-average remaining
contractual life of 8.18 years.
As the exercise price of the Company's employee stock options equals the
market price of underlying stock on the date of grant, no compensation expense
is recognized under APB 25.
Had the Company recognized compensation costs for the Grants consistent
with the methods recommended by SFAS 123 (see Note 1 - Accounting for
Stock-Based Compensation), the Company's net income and earnings per share for
the nine month period ended December 31, 1999 and the years ended March 31, 1999
and 1998 would have been stated at the pro forma amounts as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1999 1999 1998
----------------- ---------- ----------
<S> <C> <C> <C>
NET INCOME (LOSS):
As reported ....................................... $(19,595) $45,406 $70,504
Pro forma ......................................... (21,828) 43,715 69,090
BASIC EARNINGS PER COMMON SHARE:
As requested ...................................... (0.54) 1.46 2.46
Pro forma ......................................... (0.60) 1.41 2.41
DILUTED EARNINGS PER COMMON SHARE:
As reported ....................................... (0.54) 1.46 2.44
Pro forma ......................................... (0.60) 1.41 2.39
</TABLE>
<PAGE> 40
35
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
Basic earnings per share is based upon the following weighted average number
of common shares outstanding: 36,384,000 shares for the nine month period ended
December 31, 1999; 31,063,000 shares for the year ended March 31, 1999; and
28,655,000 shares for the year ended March 31, 1998. Diluted earnings per share,
which gives effect to the aforementioned stock options, is based upon the
following weighted average number of common shares outstanding: 36,405,000
shares for the nine month period ended December 31, 1999; 31,063,000 shares for
the year ended March 31, 1999; and 28,870,000 shares for the year ended
March 31, 1998.
The fair values of the Grants were estimated on the dates of grant using the
Black-Scholes option-pricing model with the following assumptions: risk-free
average interest rates of 5.8% for the nine month period ended December 31,
1999; and 5.40%, and 6.29%, for the years ended March 31, 1999 and 1998,
respectively; dividend yield of 3.0%; expected volatility of 25%; and expected
lives of 5 years.
10. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed 50% of the outstanding mortgage debt in the joint
venture company, Soponata-Teekay Limited, totalling $28.8 million as at December
31, 1999.
The Company has guaranteed its share of committed, uncalled capital in
certain limited partnerships totalling $3.1 million as at December 31, 1999.
As at December 31, 1999, the Company was committed to foreign exchange
contracts for the forward purchase of approximately Japanese yen 100 million,
Singapore dollars 2.4 million and Norwegian kroner 16.0 million for U.S.
dollars, at an average rate of Japanese yen 102.06 per U.S. dollar, Singapore
dollar 1.65 per U.S. dollar and Norwegian kroner 7.99 per U.S. dollar,
respectively, for the purpose of hedging accounts payable and accrued
liabilities.
11. OTHER INCOME (LOSS)
<TABLE>
<CAPTION>
NINE YEAR YEAR
MONTHS ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1999 1999 1998
------------ --------- ---------
<S> <C> <C> <C>
Gain on disposition of assets ........ $ -- $ 7,117 $ 14,392
Equity in joint venture .............. 721 -- 45
Write off of loan costs due to
refinancing ......................... -- -- (1,308)
Loss on extinguishment of debt ....... -- -- (2,175)
Future income taxes .................. (1,500) (1,900) --
Miscellaneous ........................ (3,234) 289 282
------- ------- --------
$(4,013) $ 5,506 $ 11,236
======= ======= ========
</TABLE>
12. CHANGE IN NON-CASH WORKING CAPITAL ITEMS RELATED TO OPERATING ACTIVITIES
<TABLE>
<CAPTION>
NINE YEAR YEAR
MONTHS ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1999 1999 1998
------------ --------- ---------
<S> <C> <C> <C>
Accounts receivable .................. $(5,462) $ 1,332 $ 2,484
Prepaid expenses and other assets .... 307 (2,409) 880
Accounts payable ..................... (6,571) (4,238) 5,814
Accrued liabilities .................. 12,622 598 (3,977)
------- ------- --------
$ 896 $(4,717) $ 5,201
======= ======= ========
</TABLE>
<PAGE> 41
36
FIVE YEAR SUMMARY OF FINANCIAL INFORMATION
(U.S. dollars in thousands, except per share and per day
data and ratios)
<TABLE>
<CAPTION>
9 MONTHS
ENDED FISCAL YEAR ENDED MARCH 31,
DECEMBER 31, -----------------------------------------------------------
1999 1999 1998 1997 1996
------------ ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net voyage revenues .................. $ 248,350 $ 318,411 $ 305,260 $ 280,212 $ 245,745
Income from vessel
Operations ........................... $ 23,572 85,634 107,640 94,258 76,279
Net income (loss) before
extraordinary items ................. (19,595) 52,712 70,504 42,630 29,070
Extraordinary loss on bond
redemption .......................... -- (7,306) -- -- --
Net income (loss) .................... (19,595) 45,406 70,504 42,630 29,070
PER SHARE DATA:
Earnings per share ................... $ (0.54) $ 1.46 $ 2.46 $ 1.52 $ 1.17
Weighted average shares outstanding
(thousands) ......................... 36,384 31,063 28,655 28,138 24,837
BALANCE SHEET DATA (at end of period):
Total assets ......................... $1,982,684 $1,452,220 $1,460,183 $1,372,838 $1,355,301
Total stockholders' equity ........... 832,067 777,390 689,455 629,815 599,395
OTHER FINANCIAL DATA:
EBITDA ............................... $ 89,839 $ 186,069 $ 209,582 $ 191,632 $ 166,233
Net debt to capitalization (%) ....... 50.8 39.6 46.9 48.0 51.0
CAPITAL EXPENDITURES:
Vessel purchases, gross .............. $ 452,584 $ 85,445 $ 197,199 $ 65,104 $ 123,843
Drydocking ........................... 4,971 7,213 12,409 23,124 11,641
FLEET DATA:
Average number of ships .............. 65 47 43 41 39
Time-charter equivalent (TCE) ........ $ 13,410 $ 19,576 $ 21,373 $ 20,356 $ 18,438
Total operating cash flow per ship
per day ............................. 5,177 11,171 12,682 11,819 10,613
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 42
37
BOARD OF DIRECTORS
<TABLE>
<S> <C> <C> <C> <C>
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
Sean Day Bjorn Moller Axel Karlshoej Leif O. Hoegh Michael Dingman
Chairman of the Director, President Director and Chairman Director Director
Board of Directors and CEO Emeritus
- ------------------ ------------------- ---------------------- ----------------- ------------------------
President of Seagin President of Nordic Managing Director Chairman and Chief
International, LLC Industries Inc. of Leif Hoegh Executive Officer of The
(UK) Ltd. Shipston Group Limited
</TABLE>
<TABLE>
<S> <C> <C> <C>
[PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH] [PHOTOGRAPH]
Arthur F. Coady Steve G.K. Hsu Thomas Kuo-Yuen Hsu Morris L. Feder
- -------------------
Director, Executive Director Director Director
Vice President --------------- ------------------- ---------------
Chairman of Oak Executive Director President of
Maritime (H.K.) Limited of Expedo + Company Worldwide Cargo Inc.
(London) Ltd.
</TABLE>
<PAGE> 43
38
CORPORATE INFORMATION
Teekay Shipping Corporation
4th Floor, Euro Canadian Centre
Marlborough Street & Navy Lyon Road
P.O. Box SS-6293
Nassau
Bahamas
<TABLE>
<S> <C> <C>
Teekay Shipping (Canada) Ltd. Teekay Shipping (Norway) AS Teekay Shipping (Glasgow) Ltd.
Suite 1400, One Bentall Centre Radhusgaten 27 183 St. Vincent Street
505 Burrard Street P.O. Box 470 Sentrum Glasgow G2 5QD
Vancouver, BC V7X 1M5 N-0105 Oslo United Kingdom
Canada Norway Tel: +44 (141) 222-9000
Tel: +1 (604) 683-3529 Tel: +47 (22) 31 00 00 Fax: +44 (141) 243-2100
Fax: +1 (604) 844-6600 Fax: +47 (22) 31 00 01
Teekay Shipping Latvia
Teekay Shipping (USA), Inc. Teekay Shipping (Australia) Pty. Ltd. 4 Torna Street, IIC, #102
One Corporate Plaza Level 6, Bayview Tower Riga LV1050
2525 Bay Area Blvd., Suite 600 1753-1765 Botany Road Latvia
Houston, Texas 77058-1557 Banksmeadow NSW 2019 Tel: +371 (7) 508092
USA Australia Fax: +371 (7) 213069
Tel: +1 (281) 228-0595 Tel: +61 (2) 9316-1000
Fax: +1 (281) 228-0626 Fax: +61 (2) 9316-1001 Teekay Shipping Philippines, Inc.
Ground Floor, PVB Building
Teekay Shipping (UK) Ltd. Teekay Shipping (Japan) Ltd. General Luna Street
49 St. James's Street 6F Eiyu Irifune Building Corner Potenciana Street
London SW1A 1JT 1-13 Irifune 3-Chome Intamuros, Manila
United Kingdom Chuo-ku, Tokyo 104-0042 Philippines
Tel: +44 (207) 408-1555 Japan Tel: +63 (2) 527-5491
Fax: +44 (207) 408-1115 Tel: +81 (3) 5543-2731 Fax: +63 (2) 227-2166
Fax: +81 (3) 5543-2730
Teekay Shipping (Singapore) Pte. Ltd. Teekay Shipping (India) Pvt. Ltd.
8 Shenton Way, #44-03 Teekay Shipping Limited 817 Raheja Chambers
Temasek Tower 4th Floor, Euro Canadian Centre 213 Nariman Point
Singapore 068811 Marlborough Street & Navy Lyon Road Mumbai, India 400 021
Tel: +65 221-7988 P.O. Box SS-6293 Tel: +91 (22) 287-2252
Fax: +65 222-3338 Nassau Fax: +91 (22) 202-5884
Bahamas
Tel: +1 (242) 322-8020
Fax: +1 (242) 328-7330
</TABLE>
STOCK TRANSFER AGENT
AND REGISTRAR
The Bank of New York
101 Barclay Street, 11 West
P.O. Box 11258
Church Street Station
New York, New York 10286
Tel: 1-800-524-4458
SHARE PRICE INFORMATION
The following table sets forth the New York Stock Exchange high and low prices
of the Company's stock for each quarter during the nine months ending December
31, 1999:
<TABLE>
<CAPTION>
QUARTER HIGH LOW DIVIDENDS
ENDED DECLARED
(PER SHARE)
- ------- ---- --- -----------
<S> <C> <C> <C>
June 30, 1999 $18 5/8 $15 1/8 $0.215
Sept. 30, 1999 $18 15/16 $15 3/16 $0.215
Dec. 31, 1999 $16 1/8 $13 3/4 $0.215
</TABLE>
STOCK EXCHANGE LISTING
New York Stock Exchange
Symbol: TK
There were 38.1 million shares outstanding at December 31, 1999.
INVESTOR RELATIONS
A copy of the Company's Annual Report on Form 20-F is available by writing or
calling to:
Teekay Shipping (Canada) Ltd.,
Investor Relations
1400 - 505 Burrard Street
Vancouver, B.C.
Canada V7X 1M5
Tel: (604) 844-6654
Fax: (604) 844-6619
Email: [email protected]
Website: www.teekay.com
<PAGE> 44
[INTERNET IMAGE]
www.teekay.com
Teekay Shipping Corporation
[TEEKAY LOGO]
