UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F (Mark One) [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended ...................................................... OR [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from .......April 1, 1999 to December 31, 1999........ Commission file number 1-12874 TEEKAY SHIPPING CORPORATION (Exact name of Registrant as specified in its charter) Not Applicable (Translation of Registrant's name into English) Republic of The Marshall Islands (Jurisdiction of incorporation or organization) 4th Floor, Euro Canadian Centre, Marlborough Street & Navy Lyon Road, P.O. Box SS-6293, Nassau, Commonwealth of the Bahamas (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of each class Name of each exchange on which registered Common Stock, par value of $0.001 per share New York Stock Exchange 8.32% First Preferred Ship Mortgage Notes due 2008 New York Stock Exchange Securities registered or to be registered pursuant to Section 12(g) of the Act. None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report. 38,064,264 shares of Common Stock, par value of $0.001 per share. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark which financial statement item the registrant has elected to follow: Item 17 [ ] Item 18 [X]
TEEKAY SHIPPING CORPORATION INDEX TO REPORT ON FORM 20-F PART I. Page Item 1. Description of Business.................................... 3 Item 2. Description of Property.................................... 10 Item 3. Legal Proceedings.......................................... 13 Item 4. Control of Registrant...................................... 13 Item 5. Nature of Trading Market................................... 13 Item 6. Exchange Controls and Other Limitations Affecting Security Holders........................................ 14 Item 7. Taxation................................................... 14 Item 8. Selected Financial Data.................................... 15 Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 17 Item 10. Directors and Officers of the Registrant................... 24 Item 11. Compensation of Directors and Officers..................... 26 Item 12. Options to Purchase Securities From Registrant or Subsidiaries......................................... 26 Item 13. Interest of Management in Certain Transactions............. 26 PART II. Item 14. Description of Securities to be Registered.......Not applicable PART III. Item 15. Defaults Upon Senior Securities..................Not applicable Item 16. Changes in Securities, Changes in Security for Registered Securities and Use of Proceeds.....Not applicable PART IV. Item 17. Financial Statements.............................Not applicable Item 18. Financial Statements....................................... 27 Item 19. Financial Statements and Exhibits.......................... 27 Signature ........................................................... 30
PART I Item 1. Description of Business 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. The Company Teekay Shipping Corporation ("Teekay"), together with its subsidiaries (the "Company"), is a leading provider of international crude oil and petroleum product transportation services through the world's largest fleet of medium size oil tankers. The Company's modern fleet of tankers provides transportation services to major oil companies, oil traders and government agencies world wide. The Company's fleet consists of 74 vessels: 69 Aframax oil tankers and oil/bulk/ore carriers ("O/B/Os") (including five vessels time-chartered-in and three vessels owned by a joint venture), two smaller oil tankers, two Suezmax tankers, and one Very Large Crude Carrier ("VLCC"). The Company's vessels are of Bahamian, Norwegian, Australian, Liberian, Panamanian or Marshall Islands registry. The Company's fleet has a total cargo capacity of approximately 7.4 million tonnes and its Aframax vessels represent approximately 10.4% of the total tonnage of the world Aframax fleet. The Company's Aframax tanker fleet is one of the most modern fleets in the world, with an average age of approximately 7.4 years, compared to an average age for the world oil tanker fleet, including Aframax tankers, of approximately 13.9 years and for the world Aframax tanker fleet of approximately 12.1 years. The Company has been recognized by customers and rating services for safety, quality and service. Given the age profile of the world tanker fleet, increasing emphasis by customers on quality as a result of stringent environmental regulations, and heightened concerns about liability for oil pollution, the Company believes that its modern fleet and its emphasis on quality and safety provide it with a favorable competitive profile. Through wholly owned subsidiaries located worldwide, the Company provides substantially all of the operations, ship maintenance, crewing, technical support, shipyard supervision, insurance and financial management services necessary to support its fleet. The Company has a worldwide chartering staff located in Vancouver, Tokyo, London, Oslo, Houston and Singapore. Each office serves the Company's clients headquartered in such office's region. Fleet operations, vessel positions and charter market rates are monitored around the clock. Management believes that monitoring such information is critical to making informed bids on competitive brokered business. During the nine month period ended December 31, 1999, approximately 74% of the Company's net voyage revenues were derived from spot voyages or time charters and contracts of affreightment priced on a spot market basis. The Teekay organization was founded in 1973 to manage and operate oil tankers. Prior to 1985, the Company chartered-in most of the tonnage that it subsequently provided to its transportation customers. As the availability of acceptable chartered-in tonnage declined, management began an expansion of its owned fleet. Since 1985, the Company has significantly expanded and modernized its owned fleet by taking delivery of 42 new vessels and acquiring 32 vessels in the second-hand market, as well as disposing of 29 older tankers over the past eight years. In addition, the Company acquired control of an additional 26 vessels in its acquisition of Bona Shipholding Ltd. described below. The Company pursues an intensively customer and operations-oriented business strategy, emphasizing market concentration and service quality to achieve superior operating results. The Company believes that it has five key competitive strengths: (i) market concentration in the Indo-Pacific and Atlantic Basin, which facilitates comprehensive coverage of charterer requirements and provides a base for efficient operation and a high degree of capacity utilization, (ii) full-service marine operations capabilities and experienced management in all functions critical to its operations, which affords a focused marketing effort, tight quality and cost controls, improved capacity utilization and effective operations and safety monitoring, (iii) a modern, high-quality fleet that operates with high fuel efficiency and low maintenance and operating costs and affords greater acceptance among charterers in an environment of increasingly stringent operating and safety standards, (iv) a large, uniform-size fleet of Aframax (75,000-115,000 dwt) tankers, many of which are in sister vessel series (substantially identical vessels), which facilitates scheduling flexibility due to vessel substitution opportunities, permitting greater responsiveness to customer demands and enhanced capacity utilization, and which results in lower operating costs than those experienced by smaller operators and (v) a strong network of customer relationships and a reputation for transportation excellence among quality-sensitive customers. As a result of its business strategy, the Company has achieved consistently higher operating cash flow per vessel as compared to an average of certain other publicly traded shipping companies. The Company's growth strategy is to leverage its existing competitive strengths to continue to expand its business. The Company anticipates that the continued upgrade and expansion of its Aframax tanker business will continue to be a key component of its strategy. In addition, the Company believes that its full-service marine operations capabilities, reputation for safety and quality and strong customer orientation provide it with the opportunity to expand its business by providing additional value-added and innovative services, in many cases to existing customers. Finally, the Company intends to identify expansion opportunities in new tanker market segments, geographic areas and services to which the Company's competitive strengths are well suited. The Company may choose to pursue such opportunities through internal growth, joint ventures or business acquisitions. Teekay is incorporated under the laws of the Republic of The Marshall Islands and maintains its principal executive headquarters at the 4th Floor, Euro Canadian Centre, Marlborough Street & Navy Lyon Road, P.O. Box SS 6293, Nassau, Commonwealth of the Bahamas. Its telephone number at such address is (242) 322-8020. The Company's principal operating office is located at Suite 1400, One Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X 1M5. Its telephone number at such address is (604) 683-3529. 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. Bona's operating results are reflected in the Company's financial statements commencing the effective date of the acquisition. As a result of this acquisition, the Company anticipates annual cost savings of approximately $10 million, commencing after an estimated 12-month integration period, through a reduction in combined overhead costs, increased purchasing power, and other operational efficiencies. The Company also believes that the acquisition will create revenue enhancement opportunities as a result of owning a larger fleet with a greater selection of vessels to match customer demands and enable the Company to further extend the breadth of services provided to its customers. Competition International seaborne oil and other petroleum products transportation services are provided by two main types of operators: captive fleets of major oil companies (both private and state-owned) and independent ship owner fleets. Many major oil companies and other oil trading companies, the primary charterers of the vessels owned or controlled by the Company, also operate their own vessels and transport their own oil as well as oil for third party charterers in direct competition with independent owners and operators. Competition for charters is intense and is based upon price, location, the size, age, condition and acceptability of the vessel, and the vessel's manager. Competition in the Aframax segment is also affected by the availability of other size vessels that compete in the Company's markets. Suezmax (115,000 to 200,000 dwt) size vessels and Panamax (50,000 to 75,000 dwt) size vessels can compete for many of the same charters for which the Company competes. Because of their large size, Ultra Large Crude Carriers (320,000+ dwt) ("ULCCs") and VLCCs (200,000 to 320,000 dwt) rarely compete directly with Aframax tankers for specific charters; however, because ULCCs and VLCCs comprise a substantial portion of the total capacity of the market, movements by such vessels into Suezmax trades and of Suezmax vessels into Aframax trades would heighten the already intense competition. The Company competes principally with other Aframax owners through the global tanker charter market, comprised of tanker broker companies which represent both charterers and ship owners in chartering transactions. Within this market, some transactions, referred to as "market cargoes," are offered by charterers through two or more brokers simultaneously and shown to the widest possible range of owners; other transactions, referred to as "private cargoes," are given by the charterer to only one broker and shown selectively to a limited number of owners whose tankers are most likely to be acceptable to the charterer and are in position to undertake the voyage. Management estimates that the Company transacts approximately one-third of its spot voyages from market cargoes, the remainder being either private cargoes or direct cargoes transacted directly with charterers outside this market. Other large operators of Aframax tonnage include Neptune Orient Lines Ltd. (owned partially by the Singapore government), with approximately 22 Aframax vessels, Shell International Marine, a subsidiary of Royal Dutch/Shell Petroleum Corporation, with approximately 16 Aframax vessels, trading globally (9 of which are on charter), Ermis Maritime Corp., with approximately 15 Aframax vessels, and Tanker Pacific Management, which controls approximately 11 Aframax vessels. Management believes that it has significant competitive advantages in the Aframax tanker market as a result of the age, quality, type and dimensions of its vessels and its market share in the Indo-Pacific and Atlantic Basins. Some competitors of the Company, however, may have greater financial strength and capital resources than the Company. As part of its growth strategy, the Company will continue to consider strategic opportunities, including business acquisitions, such as the acquisition of Bona. To the extent the Company enters new geographic areas or tanker market segments, there can be no assurance that the Company will be able to compete successfully therein. New markets may involve competitive factors which differ from those of the Aframax market segment in the Indo-Pacific and Atlantic Basins and may include participants which have greater financial strength and capital resources than the Company. Regulation The business of the Company and the operation of its vessels are materially affected by government regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration. Because such conventions, laws, and regulations are often revised, the Company cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact thereof on the resale price or useful life of its vessels. Additional conventions, laws and regulations may be adopted which could limit the ability of the Company to do business or increase the cost of its doing business and which may have a material adverse effect on the Company's operations. The Company is required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to its operations. Subject to the discussion below and to the fact that the kinds of permits, licenses and certificates required for the operations of the vessels owned by the Company will depend upon a number of factors, the Company believes that it has been and will be able to obtain all permits, licenses and certificates material to the conduct of its operations. The Company believes that the heightened environmental and quality concerns of insurance underwriters, regulators and charterers will impose greater inspection and safety requirements on all vessels in the tanker market and will accelerate the scrapping of older vessels throughout the industry. Environmental Regulation--International Maritime Organization ("IMO"). On March 6, 1992, the IMO adopted regulations which set forth new and upgraded requirements for pollution prevention for tankers. These regulations, which went into effect on July 6, 1995, in many jurisdictions in which the Company's tanker fleet operates, provide that (i) tankers between 25 and 30 years old must be of double-hull construction or of a mid-deck design with double side construction, unless they have wing tanks or double-bottom spaces, not used for the carriage of oil, which cover at least 30% of the length of the cargo tank section of the hull, or are capable of hydrostatically balanced loading which ensures at least the same level of protection against oil spills in the event of collision or stranding, (ii) tankers 30 years old or older must be of double-hull construction or mid-deck design with double-side construction, and (iii) all tankers will be subject to enhanced inspections. Also, under IMO regulations, a tanker must be of double-hull construction or a mid-deck design with double side construction or be of another approved design ensuring the same level of protection against oil pollution in the event that such tanker (i) is the subject of a contract for a major conversion or original construction on or after July 6, 1993, (ii) commences a major conversion or has its keel laid on or after January 6, 1994, or (iii) completes a major conversion or is a newbuilding delivered on or after July 6, 1996. Under the current regulations, the single-hulled vessels of the Company's existing fleet will be able to operate for substantially all of their respective economic lives before being required to have double-hulls. None of the Company's vessels are older than 20 years, therefore, the IMO requirements currently in effect regarding 25 and 30 year-old tankers will not affect the Company's fleet in the near future. However, compliance with the new regulations regarding inspections of all vessels may adversely affect the Company's operations. The Company cannot at the present time evaluate the likelihood or magnitude of any such adverse effect on the Company's operations due to uncertainty of interpretation of the IMO regulations. The operation of the Company's vessels is also affected by the requirements set forth in the IMO's International Management Code for the Safe Operation of Ships and Pollution Prevention (the "ISM Code"). The ISM Code requires shipowners and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels, and may result in a denial of access to, or detention in, certain ports. Currently, each of the Company's applicable vessels is ISM code-certified. However, there can be no assurance that such certification will be maintained indefinitely. Environmental Regulations--The United States Oil Pollution Act of 1990 ("OPA 90"). OPA 90 established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA 90 affects all owners and operators whose vessels trade to the United States or its territories or possessions or whose vessels operate in United States waters, which include the United States' territorial sea and its two hundred nautical mile exclusive economic zone. Under OPA 90, vessel owners, operators and bareboat (or "demise") charterers are "responsible parties" and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. These other damages are defined broadly to include (i) natural resources damages and the costs of assessment thereof, (ii) real and personal property damages, (iii) net loss of taxes, royalties, rents, fees and other lost revenues, (iv) lost profits or impairment of earning capacity due to property or natural resources damage, (v) net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards, and (vi) loss of subsistence use of natural resources. OPA 90 limits the liability of responsible parties to the greater of $1,200 per gross ton or $10 million per tanker that is over 3,000 gross tons (subject to possible adjustment for inflation). These limits of liability would not apply if the incident was proximately caused by violation of applicable United States federal safety, construction or operating regulations or by the responsible party's gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the oil removal activities. The Company currently plans to continue to maintain for each of its vessels pollution liability coverage in the amount of $1 billion per incident. A catastrophic spill could exceed the insurance coverage available, in which event there could be a material adverse effect on the Company. Under OPA 90, with certain limited exceptions, all newly built or converted tankers operating in United States waters must be built with double-hulls, and existing vessels which do not comply with the double-hull requirement must be phased out over a 25-year period (1990-2015) based on size, age and hull construction. Nine of the Company's non-double-hulled vessels are over 15 years old, and the oldest of these vessels, the Teekay Foam and Teekay Favour, would not be phased-out under the double-hull regulations until April 2009 and November 2009, respectively. Notwithstanding the phase-out period, OPA 90 currently permits existing single-hull tankers to operate until the year 2015 if their operations within United States waters are limited to discharging at the Louisiana Off-Shore Oil Platform, or off-loading by means of lightering activities within authorized lightering zones more than 60 miles off-shore. OPA 90 requires owners and operators of vessels to establish and maintain with the United States Coast Guard (the "Coast Guard") evidence of financial responsibility sufficient to meet their potential liabilities under OPA 90. In December 1994, the Coast Guard implemented regulations requiring evidence of financial responsibility in the amount of $1,500 per gross ton for tankers, coupling the OPA limitation on liability of $1,200 per gross ton with the Comprehensive Environmental Response, Compensation, and Liability Act liability limit of $300 per gross ton. Under the regulations, such evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance, or guaranty. Under OPA 90, an owner or operator of a fleet of tankers is required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the tanker in the fleet having the greatest maximum liability under OPA 90. The Coast Guard's regulations concerning certificates of financial responsibility provide, in accordance with OPA 90, that claimants may bring suit directly against an insurer or guarantor that furnishes certificates of financial responsibility; and, in the event that such insurer or guarantor is sued directly, it is prohibited from asserting any contractual defense that it may have had against the responsible party and is limited to asserting those defenses available to the responsible party and the defense that the incident was caused by the willful misconduct of the responsible party. Certain organizations, which had typically provided certificates of financial responsibility under pre-OPA 90 laws, including the major protection and indemnity organizations, declined to furnish evidence of insurance for vessel owners and operators if they are subject to direct actions or required to waive insurance policy defenses. The Coast Guard's financial responsibility regulations may also be satisfied by evidence of surety bond, guaranty or by self-insurance. Under the self-insurance provisions, the ship owner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. The Company has complied with the Coast Guard regulations by providing a financial guaranty from a related company evidencing sufficient self-insurance. OPA 90 specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills. In some cases, states which have enacted such legislation have not yet issued implementing regulations defining tanker owners' responsibilities under these laws. The Company intends to comply with all applicable state regulations in the ports where the Company's vessels call. Owners or operators of tankers operating in United States waters are required to file vessel response plans with the Coast Guard, and their tankers are required to operate in compliance with their Coast Guard approved plans. Such response plans must, among other things, (i) address a "worst case" scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources to respond to a "worst case discharge," (ii) describe crew training and drills, and (iii) identify a qualified individual with full authority to implement removal actions. The Company has filed vessel response plans with the Coast Guard for the tankers owned by the Company and has received approval of such plans for all vessels in its fleet to operate in United States waters. Environmental Regulation--Other Environmental Initiatives. The European Union is considering legislation that will affect the operation of tankers and the liability of owners for oil pollution. It is difficult to predict what legislation, if any, may be promulgated by the European Union or any other country or authority. Although the United States is not a party thereto, many countries have ratified and follow the liability scheme adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended (the "CLC"), and the Convention for the Establishment of an International Fund for Oil Pollution of 1971, as amended. Under these conventions, a vessel's registered owner is strictly liable for pollution damage caused on the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses. Many of the countries that have ratified the CLC have increased the liability limits through a 1992 Protocol to the CLC. The liability limits in the countries that have ratified this Protocol are currently approximately $4.0 million plus approximately $566.0 per gross registered tonne above 5,000 gross tonnes with an approximate maximum of $80.5 million, with the exact amount tied to a unit of account which varies according to a basket of currencies. The right to limit liability is forfeited under the CLC where the spill is caused by the owner's actual fault or privity and, under the 1992 Protocol, where the spill is caused by the owner's intentional or reckless conduct. Vessels trading to contracting states must provide evidence of insurance covering the limited liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to the CLC. Risk of Loss and Insurance The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters and property losses caused by adverse weather conditions, mechanical failures, human error, war, terrorism, piracy and other circumstances or events. In addition, the transportation of crude oil is subject to the risk of crude oil spills, and business interruptions due to political circumstances in foreign countries, hostilities, labor strikes, and boycotts. Any such event may result in loss of revenues or increased costs. The Company carries insurance to protect against most of the accident-related risks involved in the conduct of its business and it maintains environmental damage and pollution insurance coverage. The Company does not carry insurance covering the loss of revenue resulting from vessel off-hire time. There can be no assurance that all covered risks are adequately insured against, that any particular claim will be paid or that the Company will be able to procure adequate insurance coverage at commercially reasonable rates in the future. More stringent environmental regulations at times in the past have resulted in increased costs for, and may result in the lack of availability of, insurance against the risks of environmental damage or pollution. Operations Outside the United States The operations of the Company are primarily conducted outside of the United States and, therefore, may be affected by currency fluctuations and by changing economic, political and governmental conditions in the countries where the Company is engaged in business or where its vessels are registered. During the nine month period ended December 31, 1999, the Company derived approximately 57% of its total revenues from its operations in the Indo-Pacific Basin. In the past, political conflicts in such regions, particularly in the Arabian Gulf, have included attacks on tankers, mining of waterways and other efforts to disrupt shipping in the area. Vessels trading in such regions have also been subject to, in limited instances, acts of terrorism and piracy. Future hostilities or other political instability in the region could affect the Company's trade patterns and adversely affect the Company's operations and performance. Crewing and Staff The Company employs approximately 2,700 seagoing staff around the world and approximately 300 personnel ashore. The Company places great emphasis on attracting, through its recruiting offices in Manila, Glasgow, Sydney, Mumbai and Latvia, qualified crew members for employment on the Company's tankers. Recruiting has become an increasingly difficult task for operators in the tanker industry. The Company pays competitive salaries and provides competitive benefits to its personnel and tries to promote, when possible, from within their ranks. Management believes that the well maintained quarters and equipment on the Company's vessels help to attract and retain motivated and qualified seamen and officers. During fiscal 1996, the Company entered into a Collective Bargaining Agreement with the Philippine Seafarers' Union (PSU), an affiliate of the International Transport Workers' Federation (ITF), and a Special Agreement with ITF London, which covers substantially all of the Company's junior officers and seamen. The Collective Bargaining Agreement and the Special Agreement did not result in any significant increase in the levels of wages paid or benefits provided to members of the vessel crews. The Company is also a party to Enterprise Bargaining Agreements with three Australian maritime unions, covering officers and seamen. The time charters covering the Australian vessels provide that increases in wages or benefits for the Company's Australian-crewed vessels will be passed on to the customer. Bona's officers and seamen are also covered under Special Agreements with ITF London. The Company has a cadet training program, the purpose of which is to develop a cadre of future senior officers for the Company, with one specially equipped vessel staffed with an instructor and trainees. In addition to the basic training that all seamen are required to undergo to achieve certification, the Company provides additional training of as much as one month for all newly hired seamen and junior officers at training facilities in the Philippines. Safety procedures are a critical element of this training and continue to be emphasized through the Company's onboard training program. Management believes that high quality manning and training policies will play an increasingly important role in distinguishing larger independent tanker companies which have in-house (or affiliate) capabilities, from smaller companies that must rely on outside ship managers and crewing agents. Customers Customers of the Company include major oil companies, major oil traders, large oil consumers and petroleum product producers, government agencies, and various other entities dependent upon the tanker transportation trade. 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. 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, 1999. A single customer, also an international oil company, accounted for 14% ($56,357,000) of the Company's consolidated voyages revenues during the year ended March 31, 1998. Taxation of the Company 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. In addition, some subsidiaries pay taxes in the jurisdictions in which they operate in connection with the revenue generated from the services provided by them in that jurisdiction. Such tases are not considered material to the Company.
Item 2. Description of Property The Company's Fleet The following list provides information with respect to the Company's vessels as at February 29, 2000. <TABLE> <CAPTION> Year Series/Yard Built Type Dwt-MT Flag <S> <C> <C> <C> <C> <C> Aframax Tankers (60) HAMANE SPIRIT.............. Onomichi 1997 DH 105,300 Bahamian POUL SPIRIT................ Onomichi 1995 DH 105,300 Bahamian TORBEN SPIRIT.............. Onomichi 1994 DH 98,600 Bahamian SAMAR SPIRIT............... Onomichi 1992 DH 98,600 Bahamian LEYTE SPIRIT............... Onomichi 1992 DH 98,600 Bahamian LUZON SPIRIT............... Onomichi 1992 DH 98,600 Bahamian MAYON SPIRIT............... Onomichi 1992 DH 98,600 Bahamian TEEKAY SPIRIT.............. Onomichi 1991 SH 100,200 Bahamian PALMSTAR LOTUS............. Onomichi 1991 SH 100,200 Bahamian PALMSTAR THISTLE........... Onomichi 1991 SH 100,200 Bahamian PALMSTAR ROSE.............. Onomichi 1990 SH 100,200 Bahamian PALMSTAR POPPY............. Onomichi 1990 SH 100,200 Bahamian ONOZO SPIRIT............... Onomichi 1990 SH 100,200 Bahamian PALMSTAR CHERRY............ Onomichi 1990 SH 100,200 Bahamian PALMSTAR ORCHID............ Onomichi 1989 SH 100,200 Bahamian GOTLAND SPIRIT............. Hyundai 1995 DH 95,400 Bahamian FALSTER SPIRIT............. Hyundai 1995 DH 95,400 Bahamian SOTRA SPIRIT............... Hyundai 1995 DH 95,400 Bahamian SHILLA SPIRIT.............. Hyundai 1990 SH 106,700 Bahamian ULSAN SPIRIT............... Hyundai 1990 SH 106,700 Bahamian NAMSAN SPIRIT.............. Hyundai 1988 SH 106,700 Bahamian PACIFIC SPIRIT............. Hyundai 1988 SH 106,700 Bahamian PIONEER SPIRIT............. Hyundai 1988 SH 106,700 Bahamian DAMPIER SPIRIT (FSO)....... Hyundai 1988 SH 106,700 Bahamian MERSEY SPIRIT.............. Hyundai 1986 DS 94,700 Bahamian CLYDE SPIRIT............... Hyundai 1985 DS 94,700 Bahamian NASSAU SPIRIT.............. Imabari 1998 DH 107,000 Bahamian SENANG SPIRIT.............. Imabari 1994 DH 95,700 Bahamian SEBAROK SPIRIT............. Imabari 1993 DH 95,700 Bahamian SEAFALCON*................. Imabari 1990 DS 97,300 Marshall Islands SELETAR SPIRIT............. Imabari 1988 DS 95,000 Bahamian SERAYA SPIRIT.............. Imabari 1992 DS 97,300 Bahamian SENTOSA SPIRIT............. Imabari 1989 DS 97,300 Bahamian ALLIANCE SPIRIT............ Imabari 1989 DS 97,300 Bahamian SEMAKAU SPIRIT............. Imabari 1988 DS 97,300 Bahamian SINGAPORE SPIRIT........... Imabari 1987 DS 97,300 Bahamian SUDONG SPIRIT.............. Imabari 1987 DS 97,300 Bahamian KANATA SPIRIT.............. Samsung 1999 DH 113,000 Bahamian KAREELA SPIRIT............. Samsung 1999 DH 113,000 Bahamian KIOWA SPIRIT............... Samsung 1999 DH 113,000 Bahamian KOA SPIRIT................. Samsung 1999 DH 113,000 Bahamian KYEEMA SPIRIT.............. Samsung 1999 DH 113,000 Bahamian AEGEAN PRIDE*.............. Samsung 1999 DH 105,300 Liberian SILVER PARADISE*........... Samsung 1998 DH 105,200 Panamanian KYUSHU SPIRIT.............. Mitsubishi 1991 DS 95,600 Bahamian KOYAGI SPIRIT.............. Mitsubishi 1989 SH 96,000 Bahamian SABINE SPIRIT.............. Mitsubishi 1989 DS 84,800 Bahamian HUDSON SPIRIT.............. Mitsubishi 1988 DS 84,800 Bahamian COLUMBIA SPIRIT............ Mitsubishi 1988 DS 84,800 Bahamian SHETLAND SPIRIT............ Mitsui 1994 DH 106,200 Bahamian ORKNEY SPIRIT.............. Mitsui 1993 DH 106,200 Bahamian SEABRIDGE*................. Namura 1996 DH 105,200 Liberian SEAMASTER*................. Namura 1990 SH 101,000 Liberian TORRES SPIRIT.............. Namura 1990 SH 96,000 Bahamian MENDANA SPIRIT (1)......... Namura 1980 SH 81,700 Bahamian SHANNON SPIRIT............. Gdynia 1987 SH 99,300 Bahamian CLARE SPIRIT............... Gdynia 1986 SH 95,200 Bahamian BORNES **.................. Solisnor 1990 DS 88,900 Liberian MAGELLAN SPIRIT............ Hitachi 1985 DS 95,000 Bahamian COOK SPIRIT................ Hashima 1987 DS 91,500 Bahamian </TABLE>
<TABLE> <CAPTION> Year Series/Yard Built Type Dwt-MT Flag <S> <C> <C> <C> <C> <C> Oil/Bulk/Ore Carriers (10) VICTORIA SPIRIT ........... Hyundai 1993 DH 103,200 Bahamian VANCOUVER SPIRIT .......... Hyundai 1992 DH 103,200 Bahamian TEEKAY FORUM .............. Hyundai 1983 DB 78,500 Bahamian TEEKAY FULMAR.............. Hyundai 1983 DB 78,500 Bahamian TEEKAY FOUNTAIN............ Hyundai 1982 DB 78,500 Norwegian Int'l Registry TEEKAY FORTUNA ***......... Hyundai 1982 DB 78,500 Norwegian Int'l Registry TEEKAY FREIGHTER ****...... Bremer 1982 DB 75,400 Norwegian Int'l Registry TEEKAY FOAM................ Hyundai 1981 DB 78,500 Bahamian TEEKAY FAVOUR.............. Howaldtswerke 1981 DB 82,500 Bahamian TEEKAY FAIR................ Bremer 1981 DH 75,500 Norwegian Int'l Registry Other Tankers (6) MUSASHI SPIRIT (VLCC)...... Sasebo 1993 SH 280,700 Bahamian INAGO **................... Solisnor 1993 DS 159,800 Liberian ERATI **................... Solisnor 1992 DS 159,700 Liberian BARRINGTON................. Samsung 1989 DH 33,300 Australian PALMERSTON................. Halla 1990 DB 36,700 Australian SCOTLAND (2)............... Mitsubishi 1982 DS 40,800 Bahamian ------------ 7,526,500 ============ - ------------------------------------------------------------------------------------------------------------------------------------ DH Double-hull tanker FSO Floating storage and off-loading vessel *Time-chartered-in DS Double-sided tanker SH Single-hull tanker ** 50% owned DB Double-bottom tanker VLCC Very Large Crude Carrier *** 67% owned **** 52% owned (1) Sold March 23, 2000 (2) Sold March 21, 2000 </TABLE>
Many of the Company's vessels have been designed and constructed as substantially identical sister ships. Such vessels can, in many situations, be interchanged, providing scheduling flexibility and greater capacity utilization. In addition, spare parts and technical knowledge can be applied to all the vessels in the particular series, thereby generating operating efficiencies and economies of scale. See Note 6 of the Consolidated Financial Statements for information with respect to major encumbrances against vessels of the Company. Classification and Inspection All of the Company's vessels have been certified as being "in class" by their respective classification societies: Nippon Kaiji Kyokai, Lloyds Register, Det Norske Veritas or American Bureau of Shipping. Every commercial vessel's hull and machinery is "classed" by a classification society authorized by its country of registry. The classification society certifies that the vessel has been built and maintained in accordance with the rules of such classification society and complies with applicable rules and regulations of the country of registry of the vessel and the international conventions of which that country is a member. Each vessel is inspected by a surveyor of the classification society every year ("Annual Survey"), every two to three years ("Intermediate Survey") and every four to five years ("Special Survey"). Vessels also may be required, as part of the Intermediate Survey process, to be drydocked every 24 to 30 months for inspection of the underwater parts of the vessel and for necessary repair related to such inspection. Many of the Company's vessels have qualified with their respective classification societies for drydocking every five years in connection with the Special Survey and are no longer subject to the Intermediate Survey drydocking process. To so qualify, the Company was required to enhance the resiliency of the underwater coatings of each such vessel as well as to install apparatus on each vessel to accommodate thorough underwater inspection by divers. In addition to the classification inspections, many of the Company's customers, including the major oil companies, regularly inspect the Company's vessels as a precondition to chartering voyages on such vessels. Management believes that the Company's well-maintained, high quality tonnage should provide it with a competitive advantage in the current environment of increasing regulation and customer emphasis on quality of service. Company employees perform much of the necessary ordinary course maintenance and regularly inspect all of the Company's vessels, both at sea and while the vessels are in port. The Company inspects its vessels two to four times per year using predetermined and rigorous criteria. Each vessel is examined and specific notations are made, and recommendations are given for improvements to the overall condition of the vessel, maintenance, safety, and crew welfare. The Company has obtained through Det Norske Veritas, the Norwegian classification society, accreditation with the ISO 9000 standards of total quality management. ISO 9000 is a series of international standards for quality systems which includes ISO 9002, the standard most commonly used in the shipping industry. The Company has also completed the implementation of the International Safety Management (ISM) code. The Company has obtained Documents of Compliance (DOC) for its offices and Safety Management Certificates (SMC) for its applicable vessels.
Item 3. Legal Proceedings From time to time the Company has been, and expects to continue to be, subject to legal proceedings and claims in the ordinary course of its business, principally personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. The Company is not aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on the Company or on its financial condition or results of operations. Item 4. Control of Registrant Principal Shareholders (a) The Company is not directly or indirectly owned or controlled by another corporation or by any foreign government. (b) The following table sets forth certain information regarding ownership, as of March 14, 2000, of Teekay's common stock, par value of $0.001 per share (the "Common Stock") by (i) each person known by the Company to own more than 10% of the Common Stock and (ii) the Directors and officers as a group: <TABLE> <CAPTION> Identity of Person or Group Shares Owned Percent of Class - --------------------------- ------------ ---------------- <S> <C> <C> Cirrus Trust (1)........................................................... 14,427,397 37.90% Alliance Capital Management................................................ 4,958,301 13.03% All Directors and officers as a group (13 persons) (2)..................... * * - ---------- </TABLE> (1) JTK Trust, which is under common supervision with Cirrus Trust, owns an additional 2,888,293 shares (or 7.59%) of Common Stock. (2) Excludes (a) outstanding options to purchase up to 1,445,000 shares of Common Stock and (b) 3,082,908 shares of Common Stock held by Leif O. Hoegh & Co. ASA, an entity controlled by Leif O. Hoegh, a Director of the Company, and an additional 524,512 shares beneficially owned by Mr. Hoegh. * Less than one percent of outstanding shares. (c) The Company is not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of the Company. Item 5. Nature of Trading Market The Company's Common Stock is traded on The New York Stock Exchange under the symbol "TK". The following table sets forth the high and low closing sales prices for the Common Stock on The New York Stock Exchange for each of the fiscal quarters indicated. <TABLE> <CAPTION> High Low <S> <C> <C> Year ended March 31, 1999 First quarter................................................. $ 30 7/8 $ 22 9/16 Second quarter................................................ 25 1/8 18 7/16 Third quarter................................................. 18 7/16 15 15/16 Fourth quarter................................................ 18 7/8 14 1/4 Nine Months ended December 31, 1999 First quarter................................................. $ 18 5/8 $ 15 1/8 Second quarter................................................ 18 15/16 15 3/16 Third quarter................................................. 16 1/8 13 3/4 </TABLE> Teekay's 8.32% First Preferred Ship Mortgage Notes due 2008 are listed for trading on The New York Stock Exchange. These Notes were first offered on the market January 19, 1996. As no active trading market exists for these Notes, no historical pricing information is included here.
Item 6. Exchange Controls and Other Limitations Affecting Security Holders (a) The Company is not aware of any governmental laws, decrees or regulations in the Company's country of organization that restrict the export or import of capital, including, but not limited to, foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-resident holders of the Company's securities. (b) The Company is not aware of any limitations on the right of non-resident or foreign owners to hold or vote securities of the Company imposed by foreign law or by the charter or other constituent document of the Company. Item 7. Taxation Teekay Shipping Corporation was incorporated in the Republic of Liberia on February 9, 1979 and was domesticated in the Republic of The Marshall Islands on December 20, 1999. (a) Republic of Liberia. Since, (i) prior to its domestication in the Republic of The Marshall Islands, Teekay Shipping Corporation was a "non-resident Liberian entity" under the Liberian Internal Revenue Code, and is now a "non-resident foreign person" under the Liberian Internal Revenue Code, (ii) the Company is not now carrying on, and in the future does not expect to carry on, any operations within the Republic of Liberia, and (iii) Teekay's 8.32% First Preferred Ship Mortgage Notes and all documentation relating to the Notes and to the public offering of Teekay's common stock were executed outside of the Republic of Liberia, and assuming the holders of the Notes and the Common Stock neither reside in, maintain an office in, nor engage in business in, the Republic of Liberia, under current Liberian law, no taxes or withholdings are imposed by the Republic of Liberia on payments to be made in respect to the Notes or on distributions made in respect of the Common Stock. Furthermore, no stamp, capital gains or other taxes will be imposed by the Republic of Liberia on the ownership or disposition of the Common Stock by holders thereof. (b) Republic of The Marshall Islands. Since, (i) Teekay Shipping Corporation is not now carrying on or conducting, and in the future does not expect to carry on or conduct, any business or transactions within the Republic of The Marshall Islands and therefore is now, and in the future intends to remain, a "non-resident domestic corporation" under The Marshall Islands Business Corporations Act, and (ii) Teekay's 8.32% First Preferred Ship Mortgage Notes and all documentation relating to the Notes and to the public offering of Teekay's common stock were executed outside of the Republic of The Marshall Islands, and assuming the holders of the Notes and the Common Stock neither reside in, maintain an office in, engage in business in, nor conduct transactions in, the Republic of The Marshall Islands, under current Marshall Islands law, no taxes or withholdings are imposed by the Republic of The Marshall Islands on payments to be made in respect to the Notes or on distributions made in respect of the Common Stock. Furthermore, no stamp, capital gains or other taxes will be imposed by the Republic of The Marshall Islands on the ownership or disposition of the Common Stock by holders thereof.
Item 8. Selected Financial Data Set forth below are selected consolidated financial and other data of the Company for the nine month period ended December 31, 1999 and the four years ended March 31, 1999, which have been derived from the Company's Consolidated Financial Statements. The data below should be read in conjunction with the Consolidated Financial Statements and the notes thereto and the report of Ernst & Young, independent Chartered Accountants, with respect to the financial statements for the nine month period ended December 31, 1999 and the years ended March 31, 1999, and 1998, and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company changed its fiscal year end from March 31 to December 31, commencing December 31, 1999, in order to facilitate comparison of its operating results to those of other companies in the transportation industry. <TABLE> <CAPTION> ----------------------------------------------------------------------------- Nine Months Ended Year Ended Year Ended Year Ended Year Ended December 31, March 31, March 31, March 31, March 31, 1999 1999 1998 1997 1996 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> (U.S. dollars in thousands, except per share and per day data and ratios) Income Statement Data: Voyage revenues........................ $ 377,882 $ 411,922 $ 406,036 $ 382,249 $ 336,320 Voyage expenses........................ 129,532 93,511 100,776 102,037 90,575 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 Interest expense....................... (44,996) (44,797) (56,269) (60,810) (62,910) Interest income........................ 5,842 6,369 7,897 6,358 6,471 Other income (loss).................... (4,013) 5,506 11,236 2,824 9,230 Net income 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: Net income (loss) before extraordinary items.................................. $ (0.54) $ 1.70 $ 2.46 $ 1.52 $ 1.17 Extraordinary loss on bond redemption.. -- (0.24) -- -- -- Net income (loss) --basic.............................. (0.54) 1.46 2.46 1.52 1.17 --diluted............................ (0.54) 1.46 2.44 1.50 1.17 Cash earnings-- basic(1)............... 1.19 4.72 5.78 4.75 4.51 Cash dividends declared................ 0.65 0.86 0.86 0.86 0.48 Balance Sheet Data (at end of period): Cash and marketable securities......... $ 226,381 $ 132,256 $ 115,254 $ 117,523 $ 101,780 Total assets........................... 1,982,684 1,452,220 1,460,183 1,372,838 1,355,301 Total debt............................. 1,085,167 641,719 725,369 699,726 725,842 Total stockholders' equity............. 832,067 777,390 689,455 629,815 599,395 Other Financial Data: EBITDA(2).............................. $ 89,839 $ 186,069 $ 209,582 $ 191,632 $ 166,233 EBITDA to interest expense(2)(3)....... 1.96x 3.98x 3.80x 3.22x 2.69x Total debt to EBITDA(2)................ 12.08 3.45 3.46 3.65 4.37 Total debt to total capitalization..... 56.6% 45.2% 51.3% 52.6% 54.8% Net debt to capitalization(4).......... 50.8 39.6 46.9 48.0 51.0 Cash earnings(1)....................... 43,343 146,489 165,575 133,554 112,107 Capital expenditures: Vessel purchases, gross.............. 452,584 85,445 197,199 65,104 123,843 Drydocking (accrual basis)........... 4,971 7,213 12,409 23,124 11,641 Fleet Data: Average number of ships(5) ............ 65 47 43 41 39 Average age of Company's Aframax fleet (in years)(6) ....................... 7.4 8.0 7.6 7.9 6.8 TCE per ship per day(5)(7)(8).......... $ 13,410 $ 19,576 $ 21,373 $ 20,356 $ 18,438 Vessel operating expenses per ship per day(8)(9)............................ 5,719 4,969 4,554 4,922 4,787 Operating cash flow per ship per day(8)(10)........................... 4,569 10,903 12,664 11,819 10,613 </TABLE> (Footnotes on following page)
(Footnotes for previous page) (1) Cash earnings represents net income (loss) before extraordinary items, foreign exchange gains (losses), and before depreciation and amortization expense. Cash earnings is included because it is used by certain investors to measure a company's financial performance as compared to other companies in the shipping industry. Cash earnings is not required by generally accepted accounting principles and should not be considered as an alternative to net income or any other indicator of the Company's performance required by generally accepted accounting principles. (2) EBITDA represents net income (loss) before extraordinary items, interest expense, income tax expense, depreciation and amortization expense, minority interest, and gains or losses arising from prepayment of debt, foreign exchange translation and disposal of assets. EBITDA is included because such data is used by certain investors to measure a company's financial performance. EBITDA is not required by generally accepted accounting principles and should not be considered as an alternative to net income or any other indicator of the Company's performance required by generally accepted accounting principles. (3) For purposes of computing EBITDA to interest expense, interest expense includes capitalized interest but excludes amortization of loan costs. (4) Net debt represents total debt less cash, cash equivalents and marketable securities. (5) Includes vessels time-chartered-in, but excludes vessels of joint ventures. (6) Average age of Company's Aframax fleet is the average age, at the end of the relevant period, of all the vessels owned, leased or time-chartered-in by the Company, excluding vessels of joint ventures. (7) TCE (or "time charter equivalent") is a measure of the revenue performance of a vessel, which, on a per voyage basis, is generally determined by Clarkson Research Studies Inc. ("Clarkson") and other industry data sources by subtracting voyage expenses (except commissions) which are incurred in transporting cargo from gross revenue per voyage and dividing the remaining revenue by the total number of days required for the round-trip voyage. Voyage expenses comprise all expenses relating to particular voyages, including bunker fuel expense, port fees and canal tolls. For purposes of calculating the Company's average TCE for the year, TCE has been calculated consistent with Clarkson's method, by deducting total voyage expenses (except commissions) from total voyage revenues and dividing the remaining sum by the Company's total voyage days in the year. (8) To facilitate comparison to prior years' results, excludes the results from the Company's Australian-crewed vessels, which comprised four of the Company's vessels during the nine month period ended December 31, 1999, the year ended March 31, 1999 and the fourth quarter of the year ended March 31, 1998. Vessel operating expenses for the Australian-crewed vessels are substantially higher than those for the rest of the Company's fleet on a per ship basis, primarily as a result of higher crew costs, with correspondingly higher charter rates associated with the charter arrangements for those vessels. See "Item 9. Management's Discussion and Analysis of Results of Operations and Financial Condition--General." (9) Vessel operating expenses consist of all expenses relating to the operation of vessels (other than voyage expenses), including crewing, repairs and maintenance, insurance, stores and lubes, and miscellaneous expenses including communications. Ship days are calculated on the basis of a 365-day year multiplied by the average number of vessels in the Company's fleet for the respective year. Vessel operating expenses exclude vessels time-chartered-in. (10) Operating cash flow represents income from vessel operations plus depreciation and amortization expense (other than drydock amortization expense). Ship days are calculated on the basis of a 365-day fiscal year multiplied by the average number of vessels in the Company's fleet for the respective year. Operating cash flow is not required by generally accepted accounting principles and should not be considered as an alternative to net income or any other indicator of the Company's performance required by generally accepted accounting principles.
Item 9. Management's Discussion and Analysis of Financial Condition 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 74 vessels (including five vessels time-chartered-in and three vessels owned by a joint venture), for a total cargo-carrying capacity of approximately 7.4 million tonnes. During the 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 fifteen 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. 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 include 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 depend 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. 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. 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. 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> <CAPTION> Contract Carrying Amount 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.
FORWARD-LOOKING STATEMENTS The Company's Annual Report to Shareholders for 1999 and this Annual Report on Form 20-F for the nine months ended December 31, 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.
Item 10. Directors and Officers of the Registrant Management The directors, executive officers and senior management personnel of the Company are listed below: <TABLE> <CAPTION> Name Age Position <S> <C> <C> Day, C. Sean 50 Director and Chairman of the Board Moller, Bjorn 42 Director, President and Chief Executive Officer Karlshoej, Axel 59 Director and Chairman Emeritus Coady, Arthur F. 66 Director, EVP and Secretary Dingman, Michael D. 68 Director Feder, Morris L. 83 Director Hsu, Steve G. K. 66 Director Hsu, Thomas Kuo-Yuen 53 Director Hoegh, Leif O. 36 Director Antturi, Peter S. 41 VP, Treasurer and Chief Financial Officer Glendinning, David 46 SVP, Customer Service & Marine Project Development Meldgaard, Mads T. 35 VP, Chartering Westgarth, Graham 45 SVP, Marine Operations </TABLE> Certain biographical information about each of these individuals is set forth below: Peter S. Antturi joined the Company in September 1991 as Manager, Accounting and was promoted to the position of Controller in March 1992, and to his current position of Vice President, Treasurer and Chief Financial Officer in October 1997. Prior to joining the Company, Mr. Antturi held various accounting and finance roles in the shipping industry since 1985. Arthur F. Coady is the Executive Vice President and Secretary of the Company. He has served as a Director of the Company since 1989. He joined the Company after 30 years in private law practice in Canada, having specialized in corporate and commercial law. In July 1995, Mr. Coady was appointed a Director of the Bahamas Maritime Authority. C. Sean Day has been a Director of the Company since September 1998 and has served as the Company's Chairman of the Board since September 1999. He has also been Chairman of the Board of Seagin International LLC since April 1999 and was President and Chief Executive Officer of Navios Corporation from 1989 to 1999. Navios Corporation is a large bulk shipping company based in Stamford, Connecticut. Prior to this, Mr. Day held a number of senior management positions in the shipping and finance industry. He is also on the boards of various other companies. Mr. Day is now engaged on a full-time basis as a consultant to the trust group that currently exercises effective control over the Company. Michael D. Dingman is a private investor, industrial company executive and corporate director. He has served as a Director of the Company since May 1995. He is Chairman and Chief Executive Officer of The Shipston Group Limited, a diversified international holding company, and a Director of Fisher Scientific International Inc. and of Ford Motor Company. Mr. Dingman also serves as Director/Executive to a number of other industrial concerns. Morris L. Feder has served as a Director of the Company since June 1993. He is President of Worldwide Cargo Inc., a New York-based chartering firm. Mr. Feder has been employed in the shipping industry in excess of 50 years, of which 43 were spent with Maritime Overseas Corporation, from which he retired as Executive Vice President and Director in December 1991. He has also served as Senior Vice President and Director of Overseas Shipholding Group Inc. and was a member of the Finance and Development Committee of its Board of Directors. Mr. Feder is a member of the American Bureau of Shipping, the Connecticut Maritime Association and the Association of Shipbrokers and Agents USA Inc., as well as being a member of the Board of Directors of American Marine Advisors, Inc. Captain David Glendinning joined the Chartering Department of the Company's London office in January 1987. Since then, he has worked in a number of senior positions within the organization, including Vice President, Commercial Operations, Vice President, Marine and Commercial Operations and currently, Senior Vice President, Customer Service and Marine Project Development since February 1999. Captain Glendinning has 18 years sea service on oil tankers of various types and sizes and is a Master Mariner with British Class 1 Foreign Going Certificate of Competency. Leif O. Hoegh was appointed as a Director in June 1999 concurrently with the Company's acquisition of Bona Shipholding Ltd. He served as a Director of Bona from November 1993 to June 1999 and served as its Chairman from June 1998 to June 1999. Mr. Hoegh is Managing Director of Leif Hoegh (U.K.) Limited. He serves as a Director of Dannebrog Rederi AS and Hual AS and serves as the Chairman of Hoegh Capital Partners, Inc. and Unicool Ltd. Steve G. K. Hsu has served as a Director of the Company since June 1993. He is Chairman of Oak Maritime (H.K.) Inc., Limited, a ship management company based in Hong Kong and a Director of Sincere Navigation Corporation, based in Taiwan. Mr. Hsu is a Standing Supervisor of the National Association of Chinese Shipowners, Taiwan, a member of the American Bureau of Shipping, and a council member of the International General Committee of Bureau Veritas. Thomas Kuo-Yuen Hsu has served as a Director of the Company since June 1993. He has served 28 years with, and is presently Executive Director of, Expedo & Company (London) Ltd., which is part of the Expedo Group of Companies that manages a fleet of eight vessels, ranging in size from 20,000 dwt to 280,000 dwt. He has been a Committee Director of the Britannia Steam Ship Insurance Association Limited since 1988. Axel Karlshoej is President of Nordic Industries, a California general construction firm with which he has served for the past 27 years. He is the older brother of the late J. Torben Karlshoej, the founder of the Company. He has served as a Director and Chairman of the Board of Teekay since June 1993 and Chairman Emeritus since stepping down as Chairman in September 1999. Mads T. Meldgaard joined the Company's Chartering Department in January 1986 and served in the European and Singapore offices until December 1991, when he was appointed Chartering Manager in the Vancouver office. In January 1994, he was promoted to the position of General Manager, Chartering, and then to Managing Director (Singapore) in September 1995. In July 1998, Mr. Meldgaard became Vice President, Chartering based in Vancouver. Bjorn Moller has served as Director, President and Chief Executive Officer of the Company in April 1998. Mr. Moller has over 21 years experience in shipping and has served in senior management positions with the Company for more than 12 years. He has headed the Company's overall operations since January 1997, following his promotion to the position of Chief Operating Officer. Prior to this, Mr. Moller headed the Company's global chartering operations and business development activities. Captain Graham Westgarth joined the Company in February 1999 as Vice President, Marine Operations and was promoted to the position of Senior Vice President, Marine Operations in December 1999. Captain Westgarth has 28 years of shipping industry experience. Eighteen of those years were spent at sea, including 5 years in a command position. He joined the Company from Maersk Company (U.K.), where he joined as Master in 1987 before being promoted to General Manager in 1994.
Item 11. Compensation of Directors and Officers The aggregate compensation paid to the six executive officers and senior managers listed above was $964,766 for the nine months ended December 31, 1999, a portion of which was attributable to payments made pursuant to bonus plans of the Company, which consider both Company and individual performance for a given period. For the nine months ended December 31, 1999, the Company contributed an aggregate of $81,313 to provide pension and similar benefits for the six executive officers and senior managers listed above. During the nine months ended December 31, 1999, the Company granted an aggregate of 203,000 options with an exercise price of $16.875 per share and 200,000 options with an exercise price of $16.9375 per share, to the six executive officers and senior managers listed above under the Company's 1995 Stock Option Plan. The options expire June 1, 2009 and September 2, 2009, respectively, ten years after the date of each grant. Currently, the non-employee Directors of the Company receive, in the aggregate, approximately $120,000 for their services plus reimbursement of their out-of-pocket expenses in each fiscal year during which they are directors of the Company. During the nine months ended December 31, 1999, the Company granted an aggregate of 60,000 options with an exercise price of $16.875 per share and 200,000 options with an exercise price of $16.9375 per share, to the non-employee Directors under the Company's 1995 Stock Option Plan. The options expire June 1, 2009 and September 2, 2009 respectively, ten years after the date of each grant. Item 12. Options to Purchase Securities From Registrant or Subsidiaries Teekay's 1995 Stock Option Plan (the "Plan") entitles certain eligible officers, employees (including senior sea staff) and directors of the Company to receive options to acquire Common Stock of Teekay. As of March 14, 2000, a total of 5,991,750 shares of Common Stock are reserved for issuance under the Plan. As of such date, options to purchase a total of 4,000,967 shares of Common Stock were outstanding, with options to purchase a total of 1,202,889 shares then exercisable and with the directors and the six executive officers and senior managers listed above holding options to purchase a total of 1,445,000 shares, of which 389,750 were exercisable. The outstanding options are exercisable at prices ranging from $16.875 to $33.50 per share, with a weighted average exercise price of $22.46 per share, and expire between July 19, 2005 and March 6, 2010, ten years after the date of each grant. Item 13. Interest of Management in Certain Transactions As of December 31, 1999, Cirrus Trust and JTK Trust owned, in the aggregate, approximately 45.5% of the Company's outstanding Common Stock. The activities of Cirrus Trust and JTK Trust are under the common supervision of Messrs. Coady, Karlshoej and Thomas Hsu, directors of Teekay, and Mr. Shigeru Matsui, President of Matsui & Company, a Tokyo based ship brokerage firm. The beneficiaries of such trusts include charitable institutions and affiliated trusts. In April 1993, Teekay acquired all of the issued and outstanding shares of common stock of Palm Shipping Inc. (now known as Teekay Chartering Ltd.) from an affiliate of Teekay for a nominal purchase price, plus an amount to be paid at a later date (up to a maximum of $5.0 million plus accrued interest), contingent upon certain future events.
PART II Item 14. Description of Securities to be Registered Not applicable. PART III Item 15. Defaults Upon Senior Securities Not applicable. Item 16. Changes in Securities, Changes in Security for Registered Securities and Use of Proceeds Not applicable. PART IV Item 17. Financial Statements Not applicable. Item 18. Financial Statements See item 19(a) below. Item 19. Financial Statements and Exhibits (a) The following financial statements and schedule, together with the report of Ernst & Young thereon, are filed as part of this Annual Report: Page Report of Independent Public Accountants.....................................F-1 Consolidated Financial Statements Consolidated Statements of Income and Retained Earnings......................F-2 Consolidated Balance Sheets..................................................F-3 Consolidated Statements of Cash Flows........................................F-4 Notes to the Consolidated Financial Statements...............................F-5 Schedule A to the Consolidated Financial Statements.........................F-15 All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required, are inapplicable or have been disclosed in the Notes to the Consolidated Financial Statements and therefore have been omitted. (b) The following exhibits are filed as part of this Annual Report: 2.1 Amended and Restated Articles of Incorporation of Teekay Shipping Corporation. 2.2 Articles of Amendment of Articles of Incorporation of Teekay Shipping Corporation. 2.3 Amended and Restated Bylaws of Teekay Shipping Corporation. **2.4 Registration Rights Agreement among Teekay, Tradewinds Trust Co. Ltd., as Trustee for the Cirrus Trust, and Worldwide Trust Services Ltd., as Trustee for the JTK Trust. **2.5 Specimen of Teekay Common Stock Certificate. ##2.6 Indenture dated January 29, 1996 among Teekay, VSSI Oceans Inc., VSSI Atlantic Inc., VSSI Appian Inc., Senang Spirit Inc., Exuma Spirit Inc., Nassau Spirit Inc., Andros Spirit Inc. and United States Trust Company of New York, as Trustee. ##2.7 Specimen of Teekay's 8.32% First Preferred Ship Mortgage Notes Due 2008. ##++2.8 Bahamian Statutory Ship Mortgage dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York. ##++2.9 Deed of Covenants dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York. #2.10 First Preferred Ship Mortgage dated January 29, 1996 by VSSI Oceans Inc. to United States Trust Company of New York, as Trustee. ##++2.11 Assignment of Time Charter dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York, as Trustee. ##++2.12 Assignment of Insurance dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York, as Trustee. ##2.13 Pledge Agreement and Irrevocable Proxy dated January 29, 1996 by Teekay in favor of United States Trust Company of New York, as Trustee. ##++2.14 Guarantee dated January 29, 1996 by Nassau Spirit Inc. in favor of United States Trust Company of New York, as Trustee. ##++2.15 Assignment of Freights and Hires dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York, as Trustee. ##++2.16 Cash Collateral Account Agreement dated January 29, 1996 between Nassau Spirit Inc. and United States Trust Company of New York, as Trustee. ##2.17 Investment Account Agreement dated January 29, 1996 between Teekay and United States Trust Company of New York, as Trustee. **2.18 1995 Stock Option Plan. **2.19 Form of Indemnification Agreement between Teekay and each of its officers and directors. **2.20 Reducing Revolving Credit Facility Agreement dated June 6, 1995 between Chiba Spirit Inc., VSSI Sun Inc., VSSI Gemini Inc., VSSI Carriers Inc., Mendana Spirit Inc., Musashi Spirit Inc., VSSI Condor Inc., Palm Monarch Inc., VSSI Drake Inc., VSSI Tokyo Inc., VSSI Marine Inc., Tasman Spirit Inc., Vancouver Spirit Inc. and Elcano Spirit Inc. and Den norske Bank AS, Christiania Bank og Kreditkasse, acting through its New York Branch, and Nederlandse Scheepshypotheskbank N.V. +2.21 Charter Party, as amended, dated September 21, 1989 between Palm Shipping Inc. and BP Shipping Limited. #2.22 Time Charter, as amended, dated July 3, 1995 between VSSI Oceans Inc. and Palm Shipping Inc. #2.23 Time Charter, as amended, dated January 4, 1994 between VSSI Atlantic Inc. and Palm Shipping Inc. #2.24 Time Charter, as amended, dated February 1, 1992 between VSSI Appian Inc. and Palm Shipping Inc. #2.25 Time Charter, as amended, dated December 1, 1993 between Senang Spirit Inc. and Palm Shipping Inc. #2.26 Time Charter, as amended, dated August 1, 1992 between Exuma Spirit Inc. and Palm Shipping Inc. #2.27 Time Charter, as amended, dated May 1, 1992 between Nassau Spirit Inc. and Palm Shipping Inc. #2.28 Time Charter, as amended, dated November 1, 1992 between Andros Spirit Inc. and Palm Shipping Inc. #++2.29 Management Agreement, as amended, dated June 1, 1992 between Teekay Shipping Limited and Nassau Spirit Inc. @2.30 Agreement, dated October 3, 1996, for a U.S. $90,000,000 Term Loan Facility to be made available to certain subsidiaries of Teekay Shipping Corporation by Christiania Bank og Kreditkasse, acting through its New York Branch, The Bank of Nova Scotia, and Banque Indosuez. @2.31 Agreement, dated October 18, 1996, for a U.S. $120,000,000 Term Loan Facility to be made available to certain subsidiaries of Teekay Shipping Corporation by Den Norske Bank ASA, Nederlandse Scheepshypothesbank N.V., The Bank of New York, and Midland Bank PLC. @@2.32 Agreement, dated January 26, 1998, for a U.S. $200,000,000 Reducing Revolving Credit Facility to be made available to certain wholly-owned subsidiaries of Teekay Shipping Corporation by Den Norske Bank ASA, Christiania Bank Og Kreditkasse ASA, New York Branch, and the Bank of Nova Scotia. @@@2.33 Agreement, dated March 26, 1999, for the amalgamation of Northwest Maritime Inc., a 100% owned subsidiary of Teekay Shipping Corporation, and Bona Shipholding Ltd. 2.34 Agreement, dated April 1997, for a U.S. $30,000,000 Term Loan Facility to be made available to VSSI Australia Limited by Rabo Australia Limited. 2.35 Agreement, dated December 18, 1997, for a U.S. $44,000,000 Term Loan Facility to be made available to Barrington (Australia) Pty Limited and Palmerston (Australia) Pty Limited by Rabo Australia Limited. 2.36 Amended and Restated Reimbursement Agreement, dated April 16, 1998, among Barrington (Australia) Pty Limited, Palmerston (Australia) Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and Alliance Chartering Pty Limited and Nedship Bank (America) N.V., The Bank of New York and Landesbank Schleswig-Holstein. 2.37 Amendment No. 1, dated May 1999, to Amended and Restated Reimbursement Agreement dated April 16, 1998 among Barrington (Australia) Pty Limited, Palmerston (Australia) Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and Alliance Chartering Pty Limited and Nedship Bank (America) N.V., The Bank of New York and Landesbank Schleswig-Holstein. 2.38 Amended and Restated Agreement, date June 11, 1999, for a $500,000,000 Revolving Loan between Bona Shipholding Ltd., Chase Manhattan plc, Citibank International plc and various other banks.
2.39 Amendment and Restatement Agreement, dated June 11,1999, relating to a U.S. $500,000,000 Revolving Loan Agreement between Bona Shipholding Ltd., Chase Manhattan plc, Citibank International plc and various other banks. 27.1 Financial Data Schedule - ---------- ** Previously filed as an exhibit to the Company's Registration Statement on Form F-1 (Registration No. 33-7573-4), filed with the SEC on July 14, 1995, and hereby incorporated by reference to such Registration Statement. + Previously filed as an exhibit to the Company's Registration Statement on Form F-1 (Registration No. 33-68680), as declared effective by the SEC on November 29, 1993, and hereby incorporated by reference to such Registration Statement. ++ A schedule attached to this exhibit identifies all other documents not required to be filed as exhibits because such other documents are substantially identical to this exhibit. The schedule also sets forth material details by which the omitted documents differ from this exhibit. # Previously filed as an exhibit to the Company's Registration Statement on Form F-3 (Registration No. 33-65139), filed with the SEC on January 19, 1996, and hereby incorporated by reference to such Registration Statement. ## Previously filed as an exhibit to the Company's Annual Report on Form 20-F (File No. 1-12874), filed with the SEC on June 4, 1996, and hereby incorporated by reference to such Annual Report. @ Previously filed as an exhibit to the Company's Annual Report on Form 20-F (File No. 1-12874), filed with the SEC on June 11, 1997, and hereby incorporated by reference to such Annual Report. @@ Previously filed as an exhibit to the Company's Annual Report on Form 20-F (File No. 1-12874), filed with the SEC on May 20, 1998, and hereby incorporated by reference to such Annual Report. @@@ Previously filed as an exhibit to the Company's Annual Report on Form 20-F (File No.1-12874), filed with the SEC on June 11, 1999, and hereby incorporated by reference to such Annual Report.
SIGNATURE Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. TEEKAY SHIPPING CORPORATION By: /s/ Peter Antturi -------------------------------------------- Peter Antturi Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Dated: March 30, 2000
F-1 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. Our audits also included the financial schedule listed in the Index: Item 19(a). These financial statements and schedule 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 auditing standards generally accepted in the United States. 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. Also, in our opinion, the related schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material aspects the information set forth therein. Nassau, Bahamas, /s/ ERNST & YOUNG February 11, 2000 Chartered Accountants
F-2 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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.
F-3 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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 - --------------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (notes 7 and 10) </TABLE> The accompanying notes are an integral part of the consolidated financial statements.
F-4 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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.
F-5 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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 Ended Twelve Months Ended Nine Months Ended December 31, December 31, December 31, 1999 1998 1998 (unaudited) (unaudited) (unaudited) $ $ $ ---------------------------------------------------------------------- <S> <C> <C> <C> 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>
F-6 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (all tabular amounts stated in thousands of U.S. dollars, other than share or per share data) 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. 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.
F-7 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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) 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.
F-8 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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>
F-9 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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) 4. Investments in Marketable Securities <TABLE> <CAPTION> Gross Gross Approximate Unrealized Unrealized Market and Cost Gains Losses Carrying 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 Cost Carrying 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>
F-10 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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).
F-11 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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) 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). 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 agreements 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.
F-12 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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) 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> 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 date of grant.
F-13 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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) 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 ---------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Options Weighted-Average Options Weighted-Average Options Weighted-Average (000's) Exercise Price (000s) Exercise Price (000s) Exercise Price # $ # $ # $ ---------------------------------------------------------------------------------- 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 at 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 reported.......................................... (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> 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.
F-14 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES 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 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 Months Ended Year Ended Year 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 Months Ended Year Ended Year 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>
F-15 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (in thousands of U.S. dollars) <TABLE> <CAPTION> Nine Months Ended December 31, 1999 ---------------------------------------------------------------------------------- 8.32% Notes Teekay Teekay Guarantor Non-Guarantor Shipping Corp. Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries $ $ $ $ $ ---------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Net voyage revenues - 28,589 349,222 (129,461) 248,350 Operating expenses 493 24,056 310,304 (110,075) 224,778 ---------------------------------------------------------------------------------- Income (loss) from vessel operations (493) 4,533 38,918 (19,386) 23,572 Net interest income (expense) (14,420) 87 (24,821) - (39,154) Equity in net income (loss) of subsidiaries (4,682) - - 4,682 - Other income (loss) - - (4,013) - (4,013) ---------------------------------------------------------------------------------- Net (loss) income (19,595) 4,620 10,084 (14,704) (19,595) Retained earnings (deficit), beginning of the period 446,897 (33,570) 359,286 (325,716) 446,897 Dividends declared (23,172) - - - (23,172) ================================================================================== Retained earnings (deficit), end of the period 404,130 (28,950) 369,370 (340,420) 404,130 ================================================================================== Year Ended March 31, 1999 --------------------------------------------------------------------------------- 8.32% Notes Teekay Teekay Guarantor Non-Guarantor Shipping Corp. Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries $ $ $ $ $ --------------------------------------------------------------------------------- Net voyage revenues - 37,820 461,394 (180,803) 318,411 Operating expenses 356 37,214 376,010 (180,803) 232,777 --------------------------------------------------------------------------------- Income (loss) from vessel operations (356) 606 85,384 - 85,634 Net interest income (expense) (22,857) 148 (15,719) - (38,428) Equity in net income of subsidiaries 75,698 - - (75,698) - Other income 227 - 30,710 (25,431) 5,506 --------------------------------------------------------------------------------- Net income before extraordinary loss 52,712 754 100,375 (101,129) 52,712 Extraordinary loss on bond redemption (7,306) - - - (7,306) --------------------------------------------------------------------------------- Net income 45,406 754 100,375 (101,129) 45,406 Retained earnings (deficit), beginning of the year 428,102 (34,324) 258,911 (224,587) 428,102 Dividends declared (26,611) - - - (26,611) ================================================================================= Retained earnings (deficit), end of the year 446,897 (33,570) 359,286 (325,716) 446,897 ================================================================================= </TABLE>
F-15A SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (in thousands of U.S. dollars) <TABLE> <CAPTION> Year Ended March 31, 1998 ---------------------------------------------------------------------------------- 8.32% Notes Teekay Teekay Guarantor Non-Guarantor Shipping Corp. Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries $ $ $ $ $ ---------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Net voyage revenues - 36,443 495,650 (226,833) 305,260 Operating expenses 362 34,344 389,747 (226,833) 197,620 ---------------------------------------------------------------------------------- Income (loss) from vessel operations (362) 2,099 105,903 - 107,640 Net interest income (expense) (33,011) 391 (15,752) - (48,372) Equity in net income of subsidiaries 105,936 - - (105,891) 45 Other income (loss) (2,059) - 29,179 (15,929) 11,191 ---------------------------------------------------------------------------------- Net income 70,504 2,490 119,330 (121,820) 70,504 Retained earnings (deficit), beginning of the year 382,178 (18,124) 155,181 (137,057) 382,178 Dividends declared (24,580) (18,690) (15,600) 34,290 (24,580) ================================================================================== Retained earnings (deficit), end of the year 428,102 (34,324) 258,911 (224,587) 428,102 ================================================================================== </TABLE> -------------- (See Note 6)
F-16 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED BALANCE SHEETS (in thousands of U.S. dollars) <TABLE> <CAPTION> As at December 31, 1999 ---------------------------------------------------------------------------------- 8.32% Notes Teekay Teekay Guarantor Non-Guarantor Shipping Corp. Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries $ $ $ $ $ ---------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> ASSETS Cash and cash equivalents 210 39,652 180,465 - 220,327 Other current assets 42 582 162,084 (102,376) 60,332 ---------------------------------------------------------------------------------- Total current assets 252 40,234 342,549 (102,376) 280,659 Vessels and equipment (net) 294,800 1,371,955 - 1,666,755 Advances due from subsidiaries 121,415 - - (121,415) - Other assets (principally marketable securities and investments in subsidiaries) 943,389 - 15,873 (943,394) 15,868 Investment in joint venture - - 19,402 - 19,402 ================================================================================== 1,065,056 335,034 1,749,779 (1,167,185) 1,982,684 ================================================================================== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities 7,989 991 227,331 (109,808) 126,503 Long-term debt 225,000 - 797,010 - 1,022,010 Due to (from) affiliates - (6,337) 211,255 (204,918) - ---------------------------------------------------------------------------------- Total liabilities 232,989 (5,346) 1,235,596 (314,726) 1,148,513 ---------------------------------------------------------------------------------- Minority Interest - - 2,104 - 2,104 Stockholders' Equity Capital stock 427,937 23 5,943 (5,966) 427,937 Contributed capital - 369,307 136,766 (506,073) - Retained earnings (deficit) 404,130 (28,950) 369,370 (340,420) 404,130 ---------------------------------------------------------------------------------- Total stockholders' equity 832,067 340,380 512,079 (852,459) 832,067 ================================================================================== 1,065,056 335,034 1,749,779 (1,167,185) 1,982,684 ================================================================================== As at March 31, 1999 ---------------------------------------------------------------------------------- 8.32% Notes Teekay Teekay Guarantor Non-Guarantor Shipping Corp. Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries $ $ $ $ $ ---------------------------------------------------------------------------------- ASSETS Cash and cash equivalents 5 33,313 85,117 - 118,435 Other current assets 28 768 142,414 (95,249) 47,961 ---------------------------------------------------------------------------------- Total current assets 33 34,081 227,531 (95,249) 166,396 Vessels and equipment (net) - 306,764 967,775 - 1,274,539 Advances due from subsidiaries 213,498 - - (213,498) - Other assets (principally marketable securities and investments in subsidiaries) 792,084 - 11,290 (792,089) 11,285 ================================================================================== 1,005,615 340,845 1,206,596 (1,100,836) 1,452,220 ================================================================================== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities 3,225 1,095 161,944 (95,995) 70,269 Long-term debt 225,000 - 379,561 - 604,561 Due to (from) affiliates - 3,990 163,096 (167,086) - ---------------------------------------------------------------------------------- Total liabilities 228,225 5,085 704,601 (263,081) 674,830 ---------------------------------------------------------------------------------- Stockholders' Equity Capital stock 330,493 23 5,943 (5,966) 330,493 Contributed capital - 369,307 136,766 (506,073) - Retained earnings (deficit) 446,897 (33,570) 359,286 (325,716) 446,897 ---------------------------------------------------------------------------------- Total stockholders' equity 777,390 335,760 501,995 (837,755) 777,390 ================================================================================== 1,005,615 340,845 1,206,596 (1,100,836) 1,452,220 ================================================================================== </TABLE> -------------- (See Note 6)
F-17 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (in thousands of U.S. dollars) <TABLE> <CAPTION> Nine Months Ended December 31, 1999 -------------------------------------------------------------------------------- 8.32% Notes Teekay Teekay Guarantor Non-Guarantor Shipping Corp. Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries $ $ $ $ $ -------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Cash and cash equivalents provided by (used for) OPERATING ACTIVITIES -------------------------------------------------------------------------------- Net cash flow from operating activities (9,844) 16,674 44,683 51,513 -------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from long-term debt - - 100,000 100,000 Prepayments of long-term debt - - (10,000) (10,000) Repayments of long-term debt - - (32,252) (32,252) Other 49,933 (10,327) (62,756) (23,150) -------------------------------------------------------------------------------- Net cash flow from financing activities 49,933 (10,327) (5,008) 34,598 -------------------------------------------------------------------------------- INVESTING ACTIVITIES Expenditures for vessels and equipment - (8) (29,903) (29,911) Net cash flow from purchase of Bona Shipholding Ltd. (net of cash acquired of $91,658) (39,884) - - (39,884) Other 85,576 85,576 -------------------------------------------------------------------------------- Net cash flow from investing activities (39,884) (8) 55,673 15,781 -------------------------------------------------------------------------------- Increase in cash and cash equivalents 205 6,339 95,348 101,892 Cash and cash equivalents, beginning of the period 5 33,313 85,117 118,435 ================================================================================ Cash and cash equivalents, end of the period 210 39,652 180,465 220,327 ================================================================================ Year Ended March 31, 1999 -------------------------------------------------------------------------------- 8.32% Notes Teekay Teekay Guarantor Non-Guarantor Shipping Corp. Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries $ $ $ $ $ -------------------------------------------------------------------------------- Cash and cash equivalents provided by (used for) OPERATING ACTIVITIES -------------------------------------------------------------------------------- Net cash flow from operating activities (24,829) 21,261 141,276 137,708 -------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from long-term debt - - 230,000 230,000 Prepayments of long-term debt (108,034) - (160,000) (268,034) Repayments of long-term debt (20,645) - (29,932) (50,577) Net proceeds from issuance of Common Stock 68,751 - - 68,751 Other 84,740 3,252 (114,904) (26,912) -------------------------------------------------------------------------------- Net cash flow from financing activities 24,812 3,252 (74,836) (46,772) -------------------------------------------------------------------------------- INVESTING ACTIVITIES Expenditures for vessels and equipment - (1,887) (95,307) (97,194) Other - - 36,740 36,740 -------------------------------------------------------------------------------- Net cash flow from investing activities - (1,887) (58,567) (60,454) -------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (17) 22,626 7,873 30,482 Cash and cash equivalents, beginning of the year 22 10,687 77,244 87,953 ================================================================================ Cash and cash equivalents, end of the year 5 33,313 85,117 118,435 ================================================================================ </TABLE>
F-17A SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (in thousands of U.S. dollars) <TABLE> <CAPTION> Year Ended March 31, 1998 --------------------------------------------------------------------------------- 8.32% Notes Teekay Teekay Guarantor Non-Guarantor Shipping Corp. Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries $ $ $ $ $ --------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Cash and cash equivalents provided by (used for) OPERATING ACTIVITIES --------------------------------------------------------------------------------- Net cash flow from operating activities (32,624) 23,489 170,254 161,119 --------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from long-term debt - - 208,600 208,600 Prepayments of long-term debt (29,056) - (121,599) (150,655) Repayments of long-term debt - - (33,876) (33,876) Net proceeds from issuance of Common Stock 5,126 - - 5,126 Other 22,254 (17,968) (21,270) (16,984) --------------------------------------------------------------------------------- Net cash flow from financing activities (1,676) (17,968) 31,855 12,211 --------------------------------------------------------------------------------- INVESTING ACTIVITIES Expenditures for vessels and equipment - (3,566) (212,009) (215,575) Other 34,290 - (21,615) 12,675 --------------------------------------------------------------------------------- Net cash flow from investing activities 34,290 (3,566) (233,624) (202,900) --------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (10) 1,955 (31,515) (29,570) Cash and cash equivalents, beginning of the year 32 8,732 108,759 117,523 ================================================================================= Cash and cash equivalents, end of the year 22 10,687 77,244 87,953 ================================================================================= </TABLE> -------------- (See Note 6)