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
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31,1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . to . . . . . . . . . .
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 Liberia
(Jurisdiction of incorporation or organization)
Tradewinds Building, Fifth Floor, Bay Street,
P.O. Box SS-6293, Nassau, 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, no par value per share 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.
9 5/8% First Preferred Ship Mortgage Notes due 2003
8.32% First Preferred Ship Mortgage Notes due 2008
(Title of Class)
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.
28,326,996 shares of Common Stock, no par value
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.....................................................................................1
Item 2. Description of Property.....................................................................................7
Item 3. Legal Proceedings...........................................................................................9
Item 4. Control of Registrant......................................................................................10
Item 5. Nature of Trading Market...................................................................................10
Item 6. Exchange Controls and Other Limitations Affecting Security Holders.........................................11
Item 7. Taxation...................................................................................................11
Item 8. Selected Financial Data....................................................................................12
Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations......................14
Item 10. Directors and Officers of the Registrant...................................................................17
Item 11. Compensation of Directors and Officers.....................................................................19
Item 12. Options to Purchase Securities From Registrant or Subsidiaries.............................................19
Item 13. Interest of Management in Certain Transactions.............................................................19
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 and Changes in Security for Registered Securities........................Not applicable
PART IV.
Item 17. Financial Statements...........................................................................Not applicable
Item 18. Financial Statements.......................................................................................20
Item 19. Financial Statements and Exhibits..........................................................................21
Signatures.....................................................................................................................24
PART I
Item 1. DESCRIPTION OF BUSINESS
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 provides such transportation services to
major oil companies, major oil traders and government agencies, principally in
the region spanning from the Red Sea to the U.S. West Coast (the "Indo-Pacific
Basin").
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 four key
competitive advantages: (i) geographic market concentration in the Indo-Pacific
Basin, which facilitates comprehensive coverage of charterer requirements, (ii)
a uniform-size fleet of Aframax (75,000 - 115,000 dwt) tankers containing many
sister ships, which affords scheduling flexibility and permits greater capacity
utilization, (iii) a modern, well-maintained fleet that operates with high fuel
efficiency and low maintenance costs and affords greater acceptance among
charterers with high quality standards, and (iv) a full-service ship management
and chartering capability which affords a focused marketing effort, tight cost
controls, and effective operational and safety monitoring. As a result of its
business strategy, the Company has achieved consistently higher operating cash
flow per ship per day than other public bulk shipping companies. Although the
Company's business strategy has been, and in the foreseeable future will be,
primarily focused on providing services via Aframax tankers in the Indo-Pacific
Basin, management intends to closely monitor the evolution of the shipping
industry and to adapt its strategy according to changing market dynamics. The
Company intends to consider strategic opportunities that may arise from time to
time, including joint ventures and business acquisitions.
The Company's fleet consists of 42 tankers: 39 Aframax oil tankers and
oil/bulk/ore carriers ("OBOs"), two smaller oil tankers, and one Very Large
Crude Carrier ("VLCC"). An additional newbuilding double-hull Aframax tanker is
scheduled for delivery on June 17, 1997. The Company's vessels are all of
Liberian or Bahamian registry. The Company's fleet has a total cargo capacity of
approximately 4.2 million tonnes and its Aframax vessels represent approximately
7.3% of the total tonnage of the world Aframax fleet. While its fleet
modernization program is effectively complete, the Company intends to continue
selective purchases of modern, predominantly second-hand, high-quality tankers
should such vessels become available.
The Company's fleet is one of the most modern fleets in the world, having an
average age of approximately 8.2 years, compared to an average age for the world
oil tanker fleet of approximately 13.7 years and for the world Aframax tanker
fleet of approximately 12.5 years. A substantial portion of the world tanker
fleet will reach 20 years of age in the next three years, including
approximately 31% of Aframax tankers. In addition, the Company has been
recognized by customers and rating services for safety, quality and service. In
each of the last seven years, Tanker Advisory Center, Inc. (New York) has rated
the Company's fleet a "meritorious tanker fleet," a designation which, in the
latest publication (March 1997), placed it in the top quarter of fleets
containing 10 or more tankers. Given the age profile of the world tanker fleet,
the increasing emphasis among 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. While certain ship management and commercial
operations services are contracted out, the Company believes that it could
obtain a replacement provider of these services, or could provide these services
internally, without any negative impact on its operations.
1
The Company has a worldwide chartering staff located in Vancouver, Tokyo, London
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.
Approximately 78% of the Company's net voyage revenues were derived from spot
voyages during fiscal 1997.
The Teekay organization was founded in 1973 by J. Torben Karlshoej to manage and
operate oil tankers. Mr. Karlshoej died in October 1992 and was succeeded as
Chief Executive Officer by Captain James Hood, who has been with the Company
since 1977. 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 38 new vessels and acquiring 28 vessels in
the second-hand market, as well as disposing of 13 older (mid-1970's built)
tankers over the past four years.
Teekay is incorporated under the laws of the Republic of Liberia and maintains
its principal executive headquarters at the Tradewinds Building, Fifth Floor,
Bay Street, 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
offices are located at 200 Burrard Street, Vancouver, British Columbia, Canada,
V6C 3L6. Its telephone number at such address is (604) 683-3529.
Competition
International seaborne oil and petroleum products tanker transportation services
are provided by two main types of operators: major oil company captive fleets
(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 use such
vessels not only to transport their own oil, but also to transport oil for third
party charterers in direct competition with independent owners and operators in
the tanker charter market. Competition for charters is intense and is based upon
price, location, size, age, condition and acceptability of the vessel and its
manager to charterers. Competition in the Aframax segment is also affected by
the availability of other size vessels to compete in the trades in which the
Company engages. Suezmax (115,000 to 200,000 dwt) size vessels as well as
Panamax (50,000 to 75,000 dwt) size vessels can compete for many of the same
charters for which the Company competes. 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 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 Shell International Marine, a
subsidiary of Royal Dutch/Shell Petroleum Corporation, with approximately 26
vessels trading globally (eight of which are on time-charter from Sanko
Steamship Co. Ltd., an independent Japanese shipping company, and nine of which
are on time-charter from various other companies), Neptune Orient Lines Ltd.
(owned partially by the Singapore government), with approximately 13 vessels,
and Bona Shipholding Limited, which controls approximately 23 vessels. The
Company believes that it has competitive advantages in the Aframax tanker market
as a result of the age, quality, type and dimensions of its vessels and its
large market share in the Indo-Pacific Basin. Some competitors of the Company,
however, may have greater financial strength and capital resources than the
Company.
2
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. 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 most jurisdictions in which the Company's tanker
fleet operates, provide that (i) 25 year-old tankers 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 bottom
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) 30 year-old tankers 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 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. Although six of the Company's
vessels are 15 years or older, the oldest of such vessels are only 17 years old
and, therefore, the 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.
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 the two hundred nautical mile exclusive
economic zone of the United States.
Under OPA 90, vessel owners, operators and bareboat (or "demise") charterers are
"potential 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 oil spill containment and clean-up costs
and other damages arising from oil spills pertaining to 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 potential 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 were 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
3
removal activities. The Company currently insures and plans to insure each of
its vessels with pollution liability insurance in the amount of $700 million. 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 place of
discharge, unless retrofitted with double-hulls. Notwithstanding the phase-in
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 expands the pre-existing financial responsibility requirements for
vessels operating in United States waters and requires owners and operators of
vessels to establish and maintain with the United States Coast Guard (the "Coast
Guard") evidence of insurance or of qualification as a self-insurer or other
evidence of financial responsibility sufficient to meet their potential
liabilities under OPA 90. In December 1994, the Coast Guard enacted 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 more than one
tanker will be required only to demonstrate evidence of financial responsibility
for the tanker 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 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 insurance
organizations, which typically provide certificates of financial responsibility,
including the major protection and indemnity organizations which the Company
would normally expect to provide a certificate of financial responsibility on
its behalf, 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 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 evidence of 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.
Also, under OPA 90 the liability of responsible parties, United States or
foreign, with regard to oil pollution damage in the United States is not subject
to any international convention.
Owners or operators of tankers operating in United States waters were required
to file vessel response plans with the Coast Guard, and their tankers were
required to be operating in compliance with their Coast Guard approved plans by
August 18, 1993. 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 filed vessel response plans with the Coast Guard for the
tankers owned by the Company and has received approval for all vessels in its
fleet to operate in United States waters.
Outside the United States, many countries have ratified and follow the liability
scheme set out in the International Convention on Civil Liability for Oil
Pollution Damage 1969 ("CLC"). Under the CLC, a vessel's registered owner is
4
strictly liable for pollution damage caused on the territorial waters of a
contracting state by a discharge of persistent oil, subject to certain complete
defenses. Liability currently is limited to approximately $188 per gross
registered ton, 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
only where the spill is caused by the owner's actual fault or the fault of a
third party with whom the owner has a direct contractual relationship. Vessels
trading to contracting states must establish 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.
Environmental Regulation--Other Environmental Initiatives. The European
Community ("EC") is considering legislation that will affect the operation of
oil tankers and the liability of owners for oil pollution. It is impossible to
predict what legislation, if any, may be promulgated by the EC or any other
country or authority.
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. In
particular, more stringent environmental regulations 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
fiscal 1997, the Company derived 97% 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 270 captains, chief engineers, chief officers
and first engineers, approximately 1,200 additional personnel at sea and
approximately 126 personnel ashore.
The Company places great emphasis on attracting, through its recruiting offices
in Manila, Glasgow, and Mumbai 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 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), which covers substantially
all of the Company's junior officers and seamen. The Collective Bargaining
Agreement resulted in a small increase in wages and benefits for the vessel
crews.
5
The Company has a cadet training program, the purpose of which is to develop a
cadre of future senior officers for the Company, with two specially equipped
vessels that are staffed with instructors 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 Aframax trade. The Company had one charterer
(an international oil company) during fiscal 1997 from which voyage revenues
exceeded 10% of the Company's consolidated voyage revenues. The voyage revenues
from such charterer amounted to $48,686,000. No other single customer has
accounted for more than 10% of the Company's consolidated voyage revenues and
net income in any of the last three fiscal years.
Taxation of the Company
The legal jurisdictions of the countries in which the Company and its
subsidiaries are incorporated do not impose income taxes upon shipping-related
activities.
6
Item 2. DESCRIPTION OF PROPERTY
The Company's Fleet
The following fleet list provides information with respect to the Company's
vessels as at May 31, 1997:
Year %
Series/Yard Built Type Dwt-MT Flag Ownership
Aframax Tankers (40)
HAMANE SPIRIT*...................... Onomichi 1997 DH 98,600 Bahamain 100%
POUL SPIRIT......................... Onomichi 1995 DH 98,600 Liberian 100%
TORBEN SPIRIT....................... Onomichi 1994 DH 98,500 Bahamian 100%
SAMAR SPIRIT........................ Onomichi 1992 DH 98,640 Bahamian 100%
LEYTE SPIRIT........................ Onomichi 1992 DH 98,744 Bahamian 100%
LUZON SPIRIT........................ Onomichi 1992 DH 98,629 Bahamian 100%
MAYON SPIRIT........................ Onomichi 1992 DH 98,507 Bahamian 100%
TEEKAY SPIRIT.............. ........ Onomichi 1991 SH 100,336 Bahamian 100%
PALMSTAR LOTUS...................... Onomichi 1991 SH 100,314 Bahamian 100%
PALMSTAR THISTLE.................... Onomichi 1991 SH 100,289 Bahamian 100%
PALMSTAR ROSE....................... Onomichi 1990 SH 100,202 Bahamian 100%
PALMSTAR POPPY...................... Onomichi 1990 SH 100,031 Bahamian 100%
ONOZO SPIRIT........................ Onomichi 1990 SH 100,020 Bahamian 100%
PALMSTAR CHERRY..................... Onomichi 1990 SH 100,024 Bahamian 100%
PALMSTAR ORCHID..................... Onomichi 1989 SH 100,047 Bahamian 100%
VICTORIA SPIRIT (OBO)............... Hyundai 1993 DH 103,153 Bahamian 100%
VANCOUVER SPIRIT (OBO).............. Hyundai 1992 DH 103,203 Bahamian 100%
SHILLA SPIRIT....................... Hyundai 1990 SH 106,677 Liberian 100%
ULSAN SPIRIT........................ Hyundai 1990 SH 106,679 Liberian 100%
NAMSAN SPIRIT....................... Hyundai 1988 SH 106,670 Liberian 100%
PACIFIC SPIRIT...................... Hyundai 1988 SH 106,665 Liberian 100%
PIONEER SPIRIT...................... Hyundai 1988 SH 106,671 Liberian 100%
FRONTIER SPIRIT..................... Hyundai 1988 SH 106,668 Liberian 100%
SENANG SPIRIT....................... Imabari 1994 DH 95,649 Bahamian 100%
SEBAROK SPIRIT...................... Imabari 1993 DH 95,700 Liberian 100%
SERAYA SPIRIT....................... Imabari 1992 DS 97,119 Bahamian 100%
SENTOSA SPIRIT...................... Imabari 1989 DS 97,163 Liberian 100%
ALLIANCE SPIRIT..................... Imabari 1989 DS 97,088 Bahamian 100%
SEMAKAU SPIRIT...................... Imabari 1988 DS 97,172 Liberian 100%
SUDONG SPIRIT....................... Imabari 1987 DS 98,215 Liberian 100%
SINGAPORE SPIRIT.................... Imabari 1987 DS 96,960 Liberian 100%
KYUSHU SPIRIT....................... Mitsubishi 1991 DS 95,562 Bahamian 100%
KOYAGI SPIRIT....................... Mitsubishi 1989 SH 95,987 Liberian 100%
OPPAMA SPIRIT....................... Sumitomo 1980 SH 90,333 Bahamian 100%
MAGELLAN SPIRIT..................... Hitachi 1985 DS 95,000 Liberian 100%
PALM MONARCH........................ Mitsui 1981 SH 89,922 Liberian 100%
SEABRIDGE**......................... Namura 1996 DH 105,154 Liberian 0%
MENDANA SPIRIT...................... Namura 1980 SH 81,657 Bahamian 100%
HONSHU SPIRIT....................... Tsuneishi 1979 SH 88,250 Bahamian 100%
TASMAN SPIRIT***.................... Onomichi 1979 SH 87,588 Liberian 100%
Other Tankers (3)
MUSASHI SPIRIT...................... Sasebo 1993 SH 280,654 Bahamian 100%
SCOTLAND............................ Mitsubishi 1982 DS 40,794 Bahamian 100%
CHIBA SPIRIT........................ Mitsui 1980 DB 60,874 Bahamian 100%
---------
4,324,710
=========
- ------------------------------------
DH Double-hull tanker
DB Double-bottom tanker
DS Double-sided tanker
SH Single-hull tanker OBO Oil/Bulk/Ore carrier
* Newbuilding presently under construction. Scheduled for delivery on June 17,
1997.
** Vessel time-chartered-in for one year commencing April 1997.
*** Pre-MARPOL vessel,i.e., non-segregated ballast tanks.
7
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.
During fiscal 1997, the Company acquired a 1988-built double-sided Aframax
tanker, the SEMAKAU SPIRIT, and a 1987-built double-sided Aframax tanker
previously on time-charter, renaming it SINGAPORE SPIRIT. In addition, the
Company entered into an agreement in April 1997 for a one-year time-charter of
the SEABRIDGE, a modern, secondhand Aframax tanker, and expects to take delivery
of a newbuilding double-hull Aframax on order from a Japanese shipyard, on June
17, 1997.
The AMERSHAM, a 1981-built Aframax tanker owned by the Company's 50%-owned joint
venture, Viking Consolidated Shipping Corp. ("VCSC"), was sold in March 1997.
VCSC is 50%-directly-owned by Teekay and 50%- owned by a company associated with
Mr. Thomas Kuo-Yuen Hsu, a director of Teekay.
See note 5 to 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 may also be required, as part of
the Intermediate Survey process, to be dry-docked 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 only 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. In each of the last seven
years, Tanker Advisory Center, Inc. (New York) has rated the Company's fleet a
"meritorious tanker fleet," a designation which, in the latest publication
(March 1997), placed it in the top quarter of fleets containing 10 or more
tankers. 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.
The Company has obtained through Det Norske Veritas, the Norwegian
classification society, a certificate of compliance 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 retained Det Norske Veritas for the
audit and implementation of the International Safety Management (ISM) code,
which are required by the IMO to be completed before July 1, 1998. To date, the
Company has completed the audit and implementation of the ISM code for 17 of its
vessels and it expects to complete the audit and implementation for its
remaining vessels by December 31, 1997.
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. Vessels are inspected 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.
8
Item 3. LEGAL PROCEEDINGS
General
The Company is party, as plaintiff or defendant, to a variety of lawsuits for
damages arising principally from personal injury and property casualty claims.
Such claims are covered by insurance, subject to customary deductibles.
Management believes that such claims will not have a material adverse effect on
the financial position, results of operations or liquidity of the Company.
Nagasaki Spirit
On September 20, 1992, the Nagasaki Spirit, a vessel capital leased by one of
the wholly owned shipowning subsidiaries of Teekay, was struck by another ship,
the Ocean Blessing, in the Strait of Malacca, between Malaysia and Indonesia.
The Nagasaki Spirit was towed to Singapore where after inspection it was
declared a constructive total loss. The Company received approximately $53
million in insurance proceeds from the hull underwriters of the Nagasaki Spirit,
a portion of which was used to repay indebtedness on the vessel. A number of
claims have arisen as a result of the collision, including proceedings before
the High Court of Singapore in order to determine liability for the collision
and the amount of damages recoverable. Most of such claims, to the extent they
involve potential liability to the Company, have been settled or otherwise
satisfied for amounts not material to the Company. Management believes that any
such remaining claims will be fully covered by insurance.
Litigation against the Estate of the Company's Founder
In January 1997, the plaintiff in a lawsuit against, among others, the estate of
the Company's founder, the Company and certain of the Company's subsidiaries,
shareholders and officers and directors, as more fully described under the
heading "Litigation Against the Estate of the Company's Founder" in Item 3 of
the Company's Report on Form 20-F for the fiscal year ended March 31, 1996,
agreed to dismiss the action and to release all of her alleged claims in
exchange for a cash payment by, or on behalf of, the defendants. The amount paid
by the Company in connection with such release was not material to the Company's
operations.
9
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 (i) ownership
of Teekay's common stock as of March 31, 1997 by all persons known to
Teekay to own more than 10 percent of the common stock and (ii) the total
amount of capital stock owned by all officers and directors of Teekay as a
group as of such date:
Identity of Person
Title of Class or Group Amount Owned Percent of Class
-------------- -------- ------------ ----------------
Common Stock, Cirrus Trust 18,433,181 shares 65.1%
no par value JTK Trust 2,858,082 shares 10.1%
All officers and * *
directors as a group
(17 persons)
(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.
- --------------------
* Less than one percent of outstanding shares.
Item 5. NATURE OF TRADING MARKET
On July 19, 1995, the Company's common stock listed for trading on the New York
Stock Exchange (NYSE- TK). The following table shows sales prices for the four
quarters of fiscal 1997 and the two full quarters in fiscal 1996 that the shares
have been listed on the NYSE. The figures have been compiled from Bloomberg and
are in US dollars.
1st Q 2nd Q 3rd Q 4th Q
Fiscal 1997 4/1-6/30/96 7/1-9/30/96 10/1-12/31/96 1/1-3/31/97
----------- ----------- ------------- -----------
High 28 30 5/8 33 1/8 34 1/4
Low 25 26 1/2 28 7/8 26 1/2
3rd Q 4th Q
Fiscal 1996 10/1-12/31/95 1/1-3/31/96
------------- -----------
High 24 7/8 27
Low 23 23 1/4
Approximately 25% of all outstanding shares at March 31, 1997 were held in the
United States.
There is not an active public market within or outside the United States for
Teekay's 9 5/8% First Preferred Ship Mortgage Notes due 2003. These Notes have
been registered under the Securities Exchange Act of 1934 and Teekay does not
intend to list them on any securities exchange or to seek approval for quotation
through any automated quotation system.
10
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. No active trading market exists for these Notes.
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 nonresident holders of the Company's securities.
(b) The Company is not aware of any limitations on the right of nonresident
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
Since (i) Teekay Shipping Corporation is and intends to maintain its status as a
"non-resident Liberian entity" 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 9 5/8%
First Preferred Ship Mortgage Notes and 8.32% First Preferred Ship Mortgage
Notes and all documentation related to these Notes and to the public offering of
Teekay's common stock were executed outside of the Republic of Liberia, and
assuming the holders of these 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 of 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.
11
Item 8. SELECTED FINANCIAL DATA
Set forth below are selected consolidated financial and other data of the
Company for the five fiscal periods ended March 31, 1997, 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 statements for the fiscal years ended March 31,
1997, 1996 and 1995, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company changed its fiscal year end
from April 30 to March 31, effective March 31, 1994, in order to facilitate
comparison of the Company's operating results to those of other companies within
the transportation industry on a calendar quarter basis.
11 Month Fiscal
Period Ended Year Ended
Fiscal Year Ended March 31, March 31, April 30,
1997 1996 1995 1994(1) 1993
---- ---- ---- ------- ----
(U.S. Dollars in thousands, except per share and per day data and ratios)
Statement of Income Data:
Voyage revenues............................. $ 382,249 $ 336,320 $ 319,966 $ 317,742 $ 336,994
Voyage expenses............................. 102,037 90,575 84,957 81,052 108,805
Net voyage revenues......................... 280,212 245,745 235,009 236,690 228,189
Income from vessel operations............... 94,258 76,279 52,816 60,777 37,310
Interest expense ........................... (60,810) (62,910) (66,304) (49,713) (47,769)
Interest income. ........................... 6,358 6,471 5,904 2,904 1,156
Other income ............................... 3,050 9,895 11,848 11,777 37,862
Income from continuing operations before
foreign exchange gain (loss).............. 42,856 29,735 4,264 25,745 28,559
Foreign exchange gain (loss)(2)............. (226) (665) 991 (1,532) (77,917)
Net income (loss) from continuing operations 42,630 29,070 5,255 24,213 (49,358)
Net income from discontinued operations..... - - - 5,945 1,890
Cumulative effect of change in accounting for
marketable securities..................... - - 1,113 - -
Net income (loss)........................... 42,630 29,070 6,368 30,158 (47,468)
Per Share Data:
Net income (loss) from continuing operations $1.52 $ 1.17 $ 0.29 $ 1.35 $ (2.74)
Cumulative effect of change in accounting for
marketable securities..................... - - 0.06 - -
Net income (loss)........................... 1.52 1.17 0.35 1.68 (2.64)
Cash dividends declared per share........... 0.86 0.48 - - -
Weighted average shares outstanding
(thousands)............................... 28,138 24,837 18,000 18,000 18,000
Balance Sheet Data (at end of period):
Cash and marketable securities.............. $ 117,523 $ 101,780 $ 85,739 $ 107,246 $ 48,770
Total assets................................ 1,372,838 1,355,301 1,306,474 1,405,147 1,368,966
Total debt.................................. 699,726 725,842 842,874 945,611 884,813
Total stockholders' equity.................. 629,815 599,395 439,066 433,180 403,022
Other Financial Data:
EBITDA (3).................................. $ 191,632 $ 166,233 $ 146,775 $ 151,364 $136,123
EBITDA to interest expense (3) (4).......... 3.22x 2.69x 2.28x 3.04x 2.59x
Total debt to EBITDA (1) (3)................ 3.65 4.37 5.74 5.83 6.50
Total debt to total capitalization.......... 52.6% 54.8% 65.7% 68.6% 68.7%
Net debt to capitalization (5).............. 48.0 51.0 63.3 65.9 67.5
Capital expenditures:
Vessel purchases, gross................... $ 65,104 $ 123,843 $ 7,465 $ 163,509 $ 334,733
Drydocking................................ 23,124 11,641 11,917 13,296 16,440
Fleet Data:
Average number of ships (6)................. 41 39 42 45 50
Average age of Company's fleet
(in years) (7)........................... 8.2 7.4 7.1 7.6 7.9
TCE per ship per day (6)(8)................. $ 20,356 $ 18,438 $ 16,552 $ 17,431 $ 13,722
Vessel operating expenses per ship per
day (6)(9)................................ 4,922 4,787 4,748 4,879 4,276
Operating cash flow per ship per day (10)... 11,819 10,613 8,944 9,133 6,511
(Footnotes on following page)
12
(Footnotes for previous page)
(1) For the 12 months ended March 31, 1994, voyage revenues were $345.0
million; income from vessel operations was $64.4 million; net income was
$320.0 million; and EBITDA was $162.3 million. For the eleven-month
period ended March 31, 1994, EBITDA for the 12 months ended March 31,
1994 was used for purposes of computing total debt to EBITDA, in order to
facilitate comparisons to other periods.
(2) Prior to fiscal 1993, a significant portion of the Company's debt was
denominated in Japanese Yen. In fiscal 1993, the Company experienced a
foreign exchange translation loss of $77.9 million. Because all of the
Company's Yen-denominated debt has been converted to U.S.
Dollar-denominated debt, and because a large portion of the Company's
revenues and costs are denominated in U.S. Dollars, the Company's foreign
exchange rate risk has been substantially eliminated.
(3) EBITDA represents net income from continuing operations before interest
expense, income tax expense, depreciation expense, amortization expense,
minority interest, and gains or losses arising from 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.
(4) For purposes of computing EBITDA to interest expense, interest expense
includes capitalized interest but excludes amortization of loan costs.
(5) Net debt represents total debt less cash, cash equivalents and
marketable securities.
(6) Excludes vessels of discontinued operations and the joint venture.
(7) Average age of Company's fleet is the average age, at the end of the
relevant period, of all the vessels owned or leased by the Company
(excluding vessels of discontinued operations but including joint
venture vessels).
(8) 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 Ltd. ("Clarkson") and other
industry data sources by subtracting voyage expenses (except commissions)
which are incurred in transporting cargo (primarily bunker fuel, canal
tolls and port fees) from gross revenue per voyage and dividing the
remaining revenue by the total number of days required for the round-trip
voyage. 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.
(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. Voyage expenses comprise all expenses
relating to particular voyages, including bunker fuel expense, port fees
and canal tolls. 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.
(10) Operating cash flow represents income from vessel operations, plus
depreciation and amortization expense, less drydock expense. 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.
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.
13
Item 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is a leading provider of international crude oil and petroleum
product transportation services to major oil companies, major oil traders, and
government agencies, principally in the region spanning from the Red Sea to the
U.S. West Coast. The Company's fleet consists of 42 tankers, including 39
Aframax oil tankers and oil/bulk/ore carriers, two smaller tankers, and one
VLCC, for a total cargo-carrying capacity of approximately 4.2 million tonnes.
An additional double-hull newbuilding Aframax tanker is scheduled for delivery
on June 17, 1997.
Approximately 78% of the Company's net voyage revenue is currently 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 by contracts of affreightment, whereby the Company
carries an agreed quantity of cargo for a customer over a specified trade route
over a specified period of time. In aggregate, approximately 86% of the
Company's net voyage revenue is currently derived from spot voyages or spot
market-related contracts. This dependence on the spot market, which is within
industry norms, contributes to the volatility of the Company's revenue, cash
flow from operations, and net income. Management believes that the Company has a
competitive advantage over other tanker owners in the Aframax spot market.
Historically, the tanker industry has been cyclical, experiencing volatility in
profitability resulting from changes in the supply of and demand for tankers.
Additionally, tanker markets have exhibited seasonal variations in charter
rates. Tanker markets are typically stronger in the winter months as a result of
increased oil consumption in the northern hemisphere and unpredictable winter
weather patterns which tend to disrupt vessel scheduling.
Results of Operations
Bulk shipping industry freight rates are commonly measured at the net voyage
revenue level in terms of "time charter equivalent" (or "TCE") rates, defined as
voyage revenues less voyage expenses (excluding commissions), divided by
revenue-generating ship-days for the round-trip voyage. Voyage revenues and
voyage expenses are a function of the type of charter, either spot charter or
time charter, and port, canal and fuel costs depending on the trade route upon
which a vessel is sailing, in addition to being a function of the level of
shipping freight rates. For this reason, shipowners base economic decisions
regarding the deployment of their vessels upon anticipated TCE rates, and
industry analysts typically measure bulk shipping freight rates in terms of TCE
rates. Therefore, the discussion of revenue below focuses on net voyage revenue
and TCE rates.
Fiscal 1997, Fiscal 1996, and Fiscal 1995
The Company's net income was $42.6 million ($1.52 per share) in fiscal 1997, up
from $29.1 million ($1.17 per share) in fiscal 1996, and $6.4 million ($0.35 per
share) in fiscal 1995, reflecting improvement in the tanker charter market
accompanied by a relatively stable cost environment.
The Company sold its remaining eight mid-1970s-built tankers in fiscal years
1995 and 1996, and acquired a total of six newer Aframax tankers in fiscal years
1996 and 1997. As a result, the Company's average fleet size increased by 4.6%
in fiscal 1997 following a decrease of 7.1% from fiscal 1995 to 1996.
Net voyage revenue grew 14.0% to $280.2 million in fiscal 1997 from $245.7
million in fiscal 1996, and 4.6% in fiscal 1996 from $235.0 million in fiscal
1995, reflecting improving tanker charter market conditions and the effect of
changes in the size of the fleet. The Company's average TCE rate in fiscal 1997
was up 10.4% to $20,356 from $18,438 in fiscal 1996, after an increase of 11.4%
in fiscal 1996 from $16,552 in fiscal 1995.
Vessel operating expenses increased 7.0% to $72.6 million in fiscal 1997 from
$67.8 million in fiscal 1996, and decreased 6.7% in fiscal 1996 from $72.7
million in fiscal 1995, mainly reflecting changes in fleet size.
Depreciation and amortization expense increased 10.1% to $90.7 million in fiscal
1997 from $82.4 million in fiscal 1996, as a result of an increase in average
fleet size, and a higher than usual number of scheduled drydockings.
Depreciation and amortization expense decreased 12.8% in fiscal 1996 from $94.5
million in fiscal 1995, as a result of a decrease in average fleet size and a
revision to estimates of residual values of the Company's vessels as at April 1,
1995. The revision effectively reduced depreciation expense by approximately
$9.4 million in fiscal 1996 as compared to fiscal 1995. Depreciation and
amortization expense included amortization of drydocking costs of $10.9 million
in fiscal 1997, $8.6 million in fiscal 1996 and $10.3 million in fiscal 1995.
14
General and administrative expenses rose 14.7% to $19.2 million in fiscal 1997
from $16.8 million in fiscal 1996, and 11.5% in fiscal 1996 from $15.0 million
in fiscal 1995, as the result of increases in senior management compensation,
the cost of compliance with increasingly stringent tanker industry regulations,
and greater administrative costs subsequent to the acquisition of Teekay
Shipping Limited in March 1995.
Interest expense decreased by 3.3% to $60.8 million in fiscal 1997 from $62.9
million in fiscal 1996, and by 5.1% in fiscal 1996 from $66.3 million in fiscal
1995. The decreases resulted primarily from a continued decline in the Company's
total debt, partially offset by higher interest rates resulting from the issue
of $225 million 8.32% First Preferred Ship Mortgage Notes in January 1996.
Interest income of $6.4 million in fiscal 1997, $6.5 million in fiscal 1996, and
$5.9 million in fiscal 1995, largely reflected increasing cash balances offset
in fiscal 1997 by lower interest rates.
Other income of $2.8 million in fiscal 1997 and $9.2 million in fiscal 1996
consisted primarily of gains on the sale of a 50%-owned tanker in fiscal 1997
and two vessels in fiscal 1996. Other income of $12.8 million in fiscal 1995
included an $18.2 million gain on the sale of six vessels, partially offset by
$4.3 million in losses on available-for-sale securities and a $2.1 million
equity loss from the Company's 50% investment in VCSC.
The following table illustrates the relationship between fleet size (measured in
ship-days), time charter equivalent ("TCE") per revenue-generating ship-day
performance, and operating results per calendar ship-day:
Year Ended Year Ended Year Ended
March 31/97 March 31/96 March 31/95
- ------------------------------------------------------ ----------- ------------
Total calendar ship-days 14,937 14,310 15,315
Non-revenue days 866 698 822
- ------------------------------------------------------ ----------- ------------
Revenue-generating ship-days (A) 14,071 13,612 14,493
- ------------------------------------------------------ ----------- ------------
Net voyage revenue before
commissions (B) (000s) $286,429 $250,981 $239,888
- ------------------------------------------------------ ----------- ------------
Time charter equivalent (TCE) (B/A) $20,356 $18,438 $16,552
- ------------------------------------------------------ ----------- ------------
Operating results per
calendar ship-day:
Net voyage revenue $18,760 $17,173 $15,345
Vessel operating expense 4,922 4,787 4,748
General and administrative expense 1,286 1,171 981
Drydocking expense 733 602 672
- ------------------------------------------------------ ----------- ------------
Operating cash flow per calendar ship-day $11,819 $10,613 $8,944
- ------------------------------------------------------ ----------- ------------
Liquidity and Capital Resources
The Company's total liquidity, including cash, cash equivalents and undrawn
long-term lines of credit, was $258.6 million as at March 31, 1997, up from
$197.3 million as at March 31, 1996, and $85.7 million as at March 31, 1995, as
a result of internally generated cash flow and debt refinancings. Net cash flow
from operating activities rose to $139.2 million in fiscal 1997, compared to
$98.4 million and $90.0 million in fiscal years 1996 and 1995, respectively,
reflecting an improvement in tanker charter market conditions.
The Company's scheduled debt repayments were $16.0 million during fiscal 1997,
down significantly from $57.9 million in fiscal 1996 and $87.6 million in fiscal
1995, as a result of debt refinancings which have lengthened repayment terms. In
October 1996, the Company completed two new term loan facilities (the "Term Loan
Facilities"), with seven commercial banks providing borrowings of up to $210
million in order to refinance existing debt at improved rates and credit terms.
15
The Term Loan Facilities also provided an additional $49 million of liquidity to
the Company.
Dividend payments during fiscal 1997 were $24.1 million, or 86 cents per share,
of which $13.5 million was paid in cash and $10.6 million was paid in the form
of common shares issued under the Company's dividend reinvestment plan.
During fiscal 1997, the Company incurred capital expenditures for vessels and
equipment of $65.1 million, mainly as a result of the acquisition of two modern,
second-hand Aframax tankers, the SEMAKAU SPIRIT and the SINGAPORE SPIRIT
(formerly the GALAXY RIVER). These acquisitions were financed through the Term
Loan Facilities completed in October 1996. As a result of a larger number of
scheduled drydockings in fiscal 1997, capital expenditures for drydocking were
$16.6 million in fiscal 1997, compared to $7.4 million in fiscal 1996 and $14.4
million in fiscal 1995.
A double-hull newbuilding Aframax tanker is scheduled for delivery on June 17,
1997 for a total cost of $44.5 million. At March 31, 1997, payments of $8.9
million had been made towards this commitment and a $35.6 million long-term
financing arrangement exists for the remaining unpaid cost of this vessel.
FORWARD-LOOKING STATEMENTS
The Company's Annual Report to Shareholders for 1997 and this Annual Report on
Form 20-F for the fiscal year ended March 31, 1997 contain forward-looking
statements (as defined in Section 21E of the Securities Exchange Act of 1934, as
amended) which reflect management's current views with respect to future events
and financial performance, in particular the statements regarding an improvement
in the tanker market conditions and the Company's return on invested capital in
fiscal years 1998 and 1999; the Company's competitive advantage over other
tanker owners in the Aframax spot market; the number of mid-1970s-built tankers
in the market that will be phased out over the next three years; the increase in
tanker demand in 1997 and 1998; and the balance of supply and demand in the
tanker market. The following factors are among those that could cause actual
results to differ materially from the forward-looking statements and that should
be considered in evaluating any such statement: changes in production of or
demand for oil and petroleum products, either generally or in particular
regions; 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 the
typical seasonal variations in tanker charter rates; unanticipated changes in
laws and regulations and the Company's ability to comply with all existing and
future laws and regulations; changes in demand for modern, high quality vessels;
risks incident to vessel operation, including pollution; and other risks
detailed from time to time in the Company's periodic reports filed with the U.S.
Securities and Exchange Commission. The Company may issue additional written or
oral forward-looking statements from time to time which are qualified in their
entirety by the cautionary statement contained in this paragraph and in other
reports hereafter filed by the Company with the U.S. Securities and Exchange
Commission.
16
Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Management
The directors, executive officers and senior management of the Company are
listed below:
Name Age Position
- ---- --- --------
Karlshoej, Axel 56 Director and Chairman of the Board
Hood, James N. 62 Director, President and Chief Executive
Officer
Coady, Arthur F. 63 Director, EVP and General Counsel
Dingman, Michael D. 65 Director
Feder, Morris L. 80 Director
Hsu, Steve G. K. 63 Director
Hsu, Thomas Kuo-Yuen 50 Director
Alsleben, Veronica A. E. 46 Managing Director (London)
Antturi, Peter S. 38 Controller (Vancouver)
Chad, Greg 45 VP, Corporate Services (Vancouver)
Gibson, Esther E. 42 Secretary (Nassau)
Glendinning, David 43 VP, Marine and Commercial Operations
(Vancouver)
Gurnee, Anthony 37 Chief Financial Officer, Treasurer and VP,
Business Development (Vancouver)
Meldgaard, Mads T. 32 Managing Director (Singapore)
Moller, Bjorn 39 Chief Operating Officer (Vancouver)
Nagao, Yoshio 50 Managing Director (Tokyo)
Patwardhan, Vinay S. 55 SVP, Marine Operations (Vancouver)
Certain biographical information about each of these individuals is set forth
below:
VERONICA A. E. ALSLEBEN has been employed in ship chartering since 1973. She
joined the Company in 1989 as Chartering Manager and was subsequently promoted
to her current position as Managing Director (London). Prior to joining the
Company, Ms. Alsleben served as Vice President of a chartering office of an
international tanker company in New York City for five years.
PETER S. ANTTURI joined the Company in September 1991 as Manager, Accounting and
was promoted to his current position of Controller in March 1992. Prior to
joining the Company, Mr. Antturi held various accounting and finance roles in
the shipping industry since 1985.
ARTHUR F. COADY is an Executive Vice President and the General Counsel of the
Company. He has served as a Director of Teekay 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 as a
Director of the Bahamas Maritime Authority.
GREG CHAD joined the Company in August 1991 as Manager, Personnel. He was
promoted in June 1993 to Director, Personnel and in March 1995 to his current
position of Vice President, Corporate Services. Mr. Chad has held a number of
senior human resources and administration roles in the transportation and
communication industries since 1976.
MICHAEL D. DINGMAN is a private investor, industrial company executive and
corporate director. He was elected as a Director of Teekay in May 1995. He is
Chairman and Chief Executive Officer of The Shipston Group Limited, a
diversified international holding company, Chairman of Fisher Scientific
International Inc., and a Director of Ford Motor Company. He also serves as
Director/Executive to a number of other industrial concerns.
17
MORRIS L. FEDER is currently President of Worldwide Cargo Inc., a New York based
chartering firm. Mr. Feder has been employed in the shipping industry in excess
of 48 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 the
Board of Directors of such company. He has served as a Director of Teekay since
June 1993. 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..
ESTHER E. GIBSON joined the Company in June 1988. In 1991, she was appointed to
the position of Secretary.
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, a position he held for two years prior to his January 1995 promotion
to the position of Vice President, Marine and Commercial Operations. 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.
ANTHONY GURNEE joined the Company in May 1992, as General Manager, Finance and
served in that capacity until October 1992, at which time he was promoted to the
position of Vice President, Finance & Accounting. In January 1995, his title was
changed to Vice President, Treasurer and Chief Financial Officer. In March 1997,
Mr. Gurnee was given corporate planning and development responsibilities, which
are reflected in his current title - Chief Financial Officer, Treasurer and Vice
President, Business Development. Mr. Gurnee is a graduate of the United States
Naval Academy and served six years with the United States Navy. Prior to joining
the Company, he was a shipping banker with Citibank, N.A. for four years. He is
a Member of the Institute of Chartered Shipbrokers (MICS).
CAPTAIN JAMES N. HOOD has held a number of senior positions with the Company
since joining the organization in 1977. He was appointed President and Chief
Executive Officer of the Company in October 1992. He has served as a Director of
Teekay since June 1993. Captain Hood's qualifications include an Extra Master's
Certificate of Competency. He is a Fellow of the Institute of Chartered
Shipbrokers (FICS), a Fellow of the Nautical Institute (FNI) and a director of
Britannia Steam Ship Insurance Association Limited. In addition to his 25 years
of shore service in various senior management positions, Captain Hood has served
at sea for 19 years, including four years of command experience.
STEVE G. K. HSU is Chairman of Oak Maritime (H.K.) Inc., Limited, a ship
management company based in Hong Kong. Mr. Hsu is a member of the Executive
Committee of Hong Kong Shipowners Association, a member of the American Bureau
of Shipping, and a council member of the International General Committee of
Bureau Veritas. He has served as a Director of Teekay since June 1993.
THOMAS KUO-YUEN HSU has served 25 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 six vessels, ranging in size from 80,000 dwt
to 280,000 dwt. He has been a Committee Director of the Britannia Steam Ship
Insurance Association Limited since 1988, and a Lloyd's Underwriting Member
since 1983. He has served as a Director of Teekay since June 1993.
AXEL KARLSHOEJ is President of Nordic Industries, a California general
construction firm with whom he has served for the past 25 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.
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. Mr. Meldgaard was promoted
in January 1994 to General Manager, Chartering, and again in September 1995 to
his current position as Managing Director (Singapore).
18
BJORN MOLLER spent three years in the Company's European office before being
promoted to the position of Vice President, Chartering, in 1988. Mr. Moller
served in this capacity for six years until his January 1994 appointment to the
position of Vice President, Planning and Development, later being promoted in
January 1995 to the position of Vice President, Group Chartering and Business
Development. In January 1997, Mr. Moller was appointed Chief Operating Officer.
Prior to joining the Company, Mr. Moller spent 10 years with East Asiatic
Company, including four years in tanker chartering and operations.
YOSHIO NAGAO has been employed in the shipping industry for the past 30 years
and is qualified as a Chief Engineer. He joined the Company from Sanko Steamship
Co. Ltd., a Japanese ship owning company, where he served as Manager of their
Technical Department. Mr. Nagao has served as Managing Director (Tokyo) since
joining the Company in 1985.
CAPTAIN VINAY S. PATWARDHAN has held senior positions with the Company since
joining the organization in 1981, including Vice President, Ship Management, a
position he held from January 1986 through January 1995, when he was promoted to
his current position: Senior Vice President, Marine Operations. Captain
Patwardhan has been employed in the shipping industry for the past 37 years,
having experience in crude tanker, product carrier, OBO, ore oiler, container,
general cargo and bulk carrier operations, with 11 years of command experience.
Captain Patwardhan is a Master Mariner with Foreign Going Certificate of
Competency.
Directors are elected annually for one-year terms.
Item 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate annual compensation paid to the 12 executive officers and senior
managers listed in Item 10 above was $2,957,036 for fiscal 1997, 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.
Currently, the non-employee directors of Teekay receive, in the aggregate,
approximately $100,000 for their services and reimbursement of their
out-of-pocket expenses in each fiscal year during which they are directors of
Teekay. In fiscal 1997, the Company contributed an aggregate amount of
approximately $77,000 to provide pension and similar benefits for the 12
executive officers and senior managers listed above.
Item 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Teekay's 1995 Stock Option Plan (the "Plan") entitles certain eligible officers,
key employees (including senior sea staff), and directors of the Company to
receive options to acquire common stock of Teekay. A total of 2,076,862 shares
of common stock has been reserved for issuance under the Plan. As of May 12,
1997, options to purchase a total of 1,053,508 shares of Teekay's common stock
were outstanding, with options to purchase a total of 515,977 shares then
exercisable and with the directors and the 12 executive officers and senior
managers listed in Item 10 above holding options to purchase a total of 688,750
shares. The options are exercisable at prices ranging from $21.50 to $27.375 per
share and expire between July 19, 2005 and May 28, 2006, ten years after the
date of grant.
Item 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Approximately 75% of the issued and outstanding shares of Teekay voting common
stock are owned by affiliated trusts, the activities of which are supervised by
Messrs. Coady, Karlshoej, and Thomas Hsu, directors of Teekay, and Mr.
Shigeru Matsui, President of Matsui & Company, a Tokyo-based ship brokerage
firm.
Mr. Thomas Hsu, a director of Teekay, is associated with the company that owns
the other 50% of VCSC. Certain directors of Teekay are also officers and
directors of VCSC.
In April 1993, Teekay acquired all of the issued and outstanding shares of
common stock of Palm Shipping Inc. 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. The
payment of such purchase price by Teekay is not required to be made until after
the 9 5/8% First Preferred Ship Mortgage Notes have been paid in full.
19
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 AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
Not applicable.
PART IV
Item 17. FINANCIAL STATEMENTS
Not applicable.
Item 18. FINANCIAL STATEMENTS
See item 19(a) below.
20
Item 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following financial statements and schedules, 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-19
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 Articles of Incorporation of Teekay, with all amendments thereto.
**2.2 Bylaws of Teekay, with all amendments thereto.
+2.3 Indenture dated as of July 15, 1993 among Teekay, VSSI Sun Inc.,
Diamond Spirit Inc., VSSI Deepsea Inc., VSSI Bulkers Inc., VSSI
Star Inc., VSSI Ulsan Inc. and United States Trust Company of New
York, as Trustee.
+2.4 Registration Rights Agreement dated July 15, 1993 among Teekay,
VSSI Sun Inc., Diamond Spirit Inc., VSSI Deepsea Inc., VSSI
Bulkers Inc., VSSI Star Inc., VSSI Ulsan Inc., and Morgan Stanley
& Co. Incorporated, as Placement Agent.
+2.5 Specimen of Teekay's 9 5/8% First Preferred Ship Mortgage Note due
2003.
+++2.6 First Preferred Ship Mortgage dated July 15, 1993 by VSSI Sun Inc.
to United States Trust Company of New York, as Trustee.
+++2.7 Assignment of Time Charter dated as of July 15, 1993 from VSSI Sun
Inc. to United States Trust Company of New York, as Trustee.
+++2.8 Assignment of Insurance dated July 15, 1993 from VSSI Sun Inc. to
United States Trust Company of New York, as Trustee.
+2.9 Pledge Agreement and Irrevocable Proxy dated July 15, 1993 made by
Teekay in favor of United States Trust Company of New York, as
Trustee.
+++2.10 Guarantee dated as of July 15, 1993 by VSSI Sun Inc. in favor of
United States Trust Company of New York, as Trustee.
+++2.11 Assignment of Freights and Hires dated July 15, 1993 from VSSI Sun
Inc. to United States Trust Company of New York, as Trustee.
+++2.12 Cash Collateral Account Agreement dated July 15, 1993 between VSSI
Sun Inc. and United States Trust Company of New York, as Trustee.
+2.13 Investment Account Agreement dated July 15, 1993 between Teekay
and United States Trust Company of New York, as Trustee.
+2.14 Assumption Agreement dated August 13, 1993 between United States
Trust Company of New York, as Trustee, and Sebarok Spirit Inc.
21
+2.15 Pledge Agreement and Irrevocable Proxy dated August 13, 1993 made
by Teekay in favor of United States Trust Company of New York, as
Trustee.
**2.16 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.
**2.17 Specimen of Teekay Common Stock Certificate.
##2.18 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.
##2.19 Specimen of Teekay's First Preferred Ship Mortgage Notes Due 2008.
##++2.20 Bahamian Statutory Ship Mortgage dated January 29, 1996 by Nassau
Spirit Inc. to United States Trust Company of New York.
##++2.21 Deed of Covenants dated January 29, 1996 by Nassau Spirit Inc. to
United States Trust Company of New York.
##2.22 First Preferred Ship Mortgage dated January 29, 1996 by VSSI
Oceans Inc. to United States Trust Company of New York, as
Trustee.
##++2.23 Assignment of Time Charter dated January 29, 1996 by Nassau Spirit
Inc. to United States Trust Company of New York, as Trustee.
##++2.24 Assignment of Insurance dated January 29, 1996 by Nassau Spirit
Inc. to United States Trust Company of New York, as Trustee.
##2.25 Pledge Agreement and Irrevocable Proxy dated January 29, 1996 by
Teekay in favor of United States Trust Company of New York, as
Trustee.
##++2.26 Guarantee dated January 29, 1996 by Nassau Spirit Inc. in favor of
United States Trust Company of New York, as Trustee.
##++2.27 Assignment of Freights and Hires dated January 29, 1996 by Nassau
Spirit Inc. to United States Trust Company of New York, as
Trustee.
##++2.28 Cash Collateral Account Agreement dated January 29, 1996 between
Nassau Spirit Inc. and United States Trust Company of New York,
as Trustee.
##2.29 Investment Account Agreement dated January 29, 1996 between Teekay
and United States Trust Company of New York, as Trustee.
**2.30 1995 Stock Option Plan.
**2.31 Form of Indemnification Agreement between Teekay and each of its
officers and directors.
**2.32 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.
+2.33 Charter Party, as amended, dated September 21, 1989 between Palm
Shipping Inc. and BP Shipping Limited.
+2.34 Time Charter, as amended, dated August 14, 1986 between VSSI Sun
Inc. and Palm Shipping Inc.
+2.35 Time Charter, as amended, dated April 1, 1989 between Diamond
Spirit Inc. and Palm Shipping Inc.
+2.36 Time Charter, as amended, dated August 14, 1986 between VSSI
Deepsea Inc. and Palm Shipping Inc.
+2.37 Time Charter, as amended, dated August 14, 1986 between VSSI
Bulkers Inc. and Palm Shipping Inc.
+2.38 Time Charter, as amended, dated August 14, 1986 between VSSI Star
Inc. and Palm Shipping Inc.
+2.39 Time Charter, as amended, dated January 15, 1990 between VSSI
Ulsan Inc. and Palm Shipping Inc.
+2.40 Time Charter, as amended, dated June 1, 1993 between Sebarok
Spirit Inc. and Palm Shipping Inc.
22
#2.41 Time Charter, as amended, dated July 3, 1995 between VSSI Oceans
Inc. and Palm Shipping Inc.
#2.42 Time Charter, as amended, dated January 4, 1994 between VSSI
Atlantic Inc. and Palm Shipping Inc.
#2.43 Time Charter, as amended, dated February 1, 1992 between VSSI
Appian Inc. and Palm Shipping Inc.
#2.44 Time Charter, as amended, dated December 1, 1993 between Senang
Spirit Inc. and Palm Shipping Inc.
#2.45 Time Charter, as amended, dated August 1, 1992 between Exuma
Spirit Inc. and Palm Shipping Inc.
#2.46 Time Charter, as amended, dated May 1, 1992 between Nassau Spirit
Inc. and Palm Shipping Inc.
#2.47 Time Charter, as amended, dated November 1, 1992 between Andros
Spirit Inc. and Palm Shipping Inc.
#++2.48 Management Agreement, as amended, dated June 1, 1992 between
Teekay Shipping Limited and Nassau Spirit Inc.
2.49 Amendment No. 1, dated October 7, 1996, to Reducing Revolving
Credit Facility Agreement dated June 5, 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.
2.50 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.
2.51 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.
27 Financial Data Schedule
- ----------
* Previously filed as an exhibit to the Company's Registration Statement on
Form S-8, filed with the Securities and Exchange Commission (the "SEC") on
October 27, 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. 33-7573-4), 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.
23
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/ Anthony Gurnee
---------------------------------------------
Anthony Gurnee
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: June 11, 1997
24
AUDITORS' REPORT
To the Shareholders of
Teekay Shipping Corporation
We have audited the accompanying consolidated balance sheets of Teekay Shipping
Corporation and subsidiaries as of March 31, 1997 and 1996, and the related
consolidated statements of income and retained earnings and cash flows for each
of the three years in the period ended March 31, 1997. Our audits also included
the financial statement 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 and
schedule 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 at March 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1997, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement 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,
May 7, 1997. Chartered Accountants
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(in thousands of U.S. dollars, except per share amounts)
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
---------- ---------- ----------
1997 1996 1995
$ $ $
NET VOYAGE REVENUES
Voyage revenues 382,249 336,320 319,966
Voyage expenses 102,037 90,575 84,957
- -----------------------------------------------------------------------------------------------------------
Net voyage revenues 280,212 245,745 235,009
- -----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Vessel operating expenses 72,586 67,841 72,723
Time charter hire expense 3,461 2,503
Depreciation and amortization 90,698 82,372 94,452
General and administrative (note 3) 19,209 16,750 15,018
- -----------------------------------------------------------------------------------------------------------
185,954 169,466 182,193
- -----------------------------------------------------------------------------------------------------------
Income from vessel operations 94,258 76,279 52,816
- -----------------------------------------------------------------------------------------------------------
OTHER ITEMS
Interest expense (60,810) (62,910) (66,304)
Interest income 6,358 6,471 5,904
Other income (note 10) 2,824 9,230 12,839
- -----------------------------------------------------------------------------------------------------------
(51,628) (47,209) (47,561)
- -----------------------------------------------------------------------------------------------------------
Net income before cumulative effect of accounting change 42,630 29,070 5,255
Cumulative effect of change in accounting for
marketable securities (note 1 ) 1,113
- -----------------------------------------------------------------------------------------------------------
NET INCOME 42,630 29,070 6,368
Retained earnings, beginning of the year 363,690 406,547 400,179
- -----------------------------------------------------------------------------------------------------------
406,320 435,617 406,547
Exchange of redeemable preferred stock (note 8) (60,000)
Dividends declared and paid (24,142) (11,927)
- -----------------------------------------------------------------------------------------------------------
Retained earnings, end of the year 382,178 363,690 406,547
===========================================================================================================
Earnings per share amounts (note 1)
Net income before cumulative effect of accounting change $1.52 $1.17 $0.29
Cumulative effect of change in accounting for
marketable securities 0.06
Net income 1.52 1.17 0.35
Weighted average number of common shares
outstanding 28,138,187 24,837,109 18,000,000
===========================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
As at As at
March 31, March 31,
--------- ---------
1997 1996
$ $
ASSETS
Current
Cash and cash equivalents 117,523 101,780
Accounts receivable
-trade 25,745 22,213
-other 1,066 2,725
Prepaid expenses and other assets 14,666 15,331
- --------------------------------------------------------------------------------
Total current assets 159,000 142,049
- --------------------------------------------------------------------------------
Vessels and equipment (notes 1,5 and 9)
At cost, less accumulated depreciation of $457,779
(1996 - $377,105) 1,187,399 1,193,557
Advances on vessels 8,938 5,250
- --------------------------------------------------------------------------------
Total vessels and equipment 1,196,337 1,198,807
- --------------------------------------------------------------------------------
Investment 6,335 1,624
Other assets 11,166 12,821
- --------------------------------------------------------------------------------
1,372,838 1,355,301
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable 16,315 11,761
Accrued liabilities (note 4) 26,982 18,303
Current portion of long-term debt (note 5) 36,283 19,102
- --------------------------------------------------------------------------------
Total current liabilities 79,580 49,166
- --------------------------------------------------------------------------------
Long-term debt (note 5) 663,443 706,740
- --------------------------------------------------------------------------------
Total liabilities 743,023 755,906
- --------------------------------------------------------------------------------
Stockholders' equity
Capital stock (note 8) 247,637 235,705
Retained earnings 382,178 363,690
- --------------------------------------------------------------------------------
Total stockholders' equity 629,815 599,395
- --------------------------------------------------------------------------------
1,372,838 1,355,301
================================================================================
Commitments and contingencies (notes 5, 6 and 9)
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
--------- --------- ---------
1997 1996 1995
$ $ $
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income from operating activities 42,630 29,070 5,255
Add (deduct) charges to operations not requiring
a payment of cash and cash equivalents:
Depreciation and amortization 90,698 82,372 94,452
Gain on disposition of assets (8,784) (18,245)
Loss (gain) on available-for-sale securities (55) 4,303
Equity loss (income) (net of dividend received:
March 31, 1997 - $282) (2,414) (1,139) 2,089
Other - net 2,785 2,507 914
Change in non-cash working capital items related to
operating activities (note 11) 5,459 (5,556) 1,251
- -----------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 139,158 98,415 90,019
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 240,000 448,000
Scheduled repayments of long-term debt (16,038) (57,850) (87,570)
Prepayments of long-term debt (250,078) (505,962) (15,033)
Scheduled payments on capital lease obligations (1,527)
Prepayments of capital lease obligations (43,023)
Net proceeds from issuance of Common Stock 1,283 137,872
Cash dividends paid (13,493) (7,094)
Capitalized loan costs (1,130) (5,965) (1,565)
- -----------------------------------------------------------------------------------------------------------
Net cash flow from financing activities (39,456) (35,549) (104,168)
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (net of
capital lease financing of: (March 31, 1997 - $NIL;
March 31, 1996 - $44,550; March 31, 1995 - $NIL) (65,104) (79,293) (7,465)
Expenditures for drydocking (16,559) (7,405) (14,431)
Proceeds from disposition of assets 28,428 16,817
Net cash flow from investment (2,296) 3,273 2,650
Proceeds on sale of available-for-sale securities 111,770 110,806
Purchases of available-for-sale securities (41,993) (115,085)
Other 39
- -----------------------------------------------------------------------------------------------------------
Net cash flow from investing activities (83,959) 14,780 (6,669)
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 15,743 77,646 (20,818)
Cash and cash equivalents, beginning of the year 101,780 24,134 44,952
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year 117,523 101,780 24,134
===========================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars)
1. Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements are 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
Liberia) and its wholly owned or controlled subsidiaries (the "Company").
Significant intercompany items and transactions have been eliminated upon
consolidation.
On March 31, 1995, Teekay acquired 100% of the outstanding stock of Teekay
Shipping Limited ("TSL"), an affiliated company, for cash consideration of
$776,000 representing the net book value of TSL at March 31, 1995. The impact of
this transaction on the financial position and results of operations of Teekay
is not considered significant. The assets and liabilities of TSL have been
combined with those of Teekay effective March 31, 1995. Teekay's results of
operations include those of TSL subsequent to that date. As a result, certain
voyage expenses which were paid to TSL have been reclassified to general and
administrative expenses, in order to conform with the presentation adopted
subsequent to March 31, 1995.
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.
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.
Investment
The Company's 50% interest in Viking Consolidated Shipping Corp. ("VCSC") is
carried at the Company's original cost plus its proportionate share of the
undistributed net income. On March 12, 1997, VCSC entered into an agreement to
sell its one remaining vessel and it is not anticipated that the operating
companies of VCSC will have active operations in the near future. The disposal
of this vessel and the related gain on sale has been reflected in these
consolidated financial statements (see Note 10 - Other Income).
Operating revenues and expenses
Voyage revenues and expenses are recognized on the percentage of completion
method of accounting. Estimated losses on voyages are provided for in full at
the time such losses become evident. The 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 and lubes, and
miscellaneous expenses including communications.
Marketable securities
The Company adopted the Statement of Financial Accounting Standards Board
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115") for the year ended March 31, 1995. In applying FAS 115,
investments in marketable securities (disposed of during fiscal 1996) have been
classified by management as available-for-sale securities and are carried at
fair value. Net unrealized gains or losses on available-for-sale securities are
reported as a separate component of stockholders' equity. The cumulative effect
on opening retained earnings from application of this Statement has been
reflected separately as an adjustment to net income for the year ended March 31,
1995. 1. Summary of Significant Accounting Policies - (cont'd)
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, estimated by the Company to be twenty years from the date a vessel
is initially placed in service.
Effective April 1, 1995, the Company revised its estimates of the residual
values of its vessels. The effect of this change in estimated residual values
was to reduce depreciation expense for the years ended March 31, 1997 and March
31, 1996 by $9.2 million (or $0.33 per common share) and $9.4 million (or $0.38
per common share), respectively.
Interest costs capitalized to vessels and equipment for the years ended March
31, 1997, 1996 and 1995 aggregated $232,000, $106,000, and $151,000,
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 years ended March
31, 1997, 1996 and 1995 aggregated $10,941,000, $8,617,000, and $10,281,000,
respectively.
Vessels acquired pursuant to bareboat hire purchase agreements are capitalized
as capital leases and are amortized over the estimated useful life of the
acquired vessel.
Other assets
Loan costs, including fees, commissions and legal expenses, are capitalized and
amortized over the term of the relevant loan. Amortization of loan costs is
included in interest expense.
Interest rate swap and cap agreements
The differential to be paid or received is accrued as interest rates change and
is recognized as an adjustment to interest expense. Premiums paid for interest
rate cap agreements are recorded at cost. 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 foreign
exchange rates. Market value gains and losses are deferred and recognized in the
period when the hedged transaction is recorded in the accounts.
Cash flows
Cash interest paid during the years ended March 31, 1997, 1996 and 1995 totalled
$57,400,000, $59,021,000, and $65,368,000, respectively.
The Company classifies all highly liquid investments with a maturity date of
three months or less when purchased as cash and cash equivalents.
1. Summary of Significant Accounting Policies - (cont'd)
Income taxes
The legal jurisdictions of the countries in which Teekay and its subsidiaries
are incorporated do not impose income taxes upon shipping-related activities.
Earnings per share
Earnings per share amounts are based upon the weighted average number of common
shares outstanding during each period, after giving effect to the 1 for 2
reverse stock split (see Note 8 - Capital Stock). Stock options have not been
included in the computation of the earnings per share amounts since their effect
thereon would not be material.
Accounting for Stock-Based Compensation
Effective April 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS
123 requires expanded disclosures of stock-based compensation arrangements with
employees and encourages (but does not require) companies 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 net income per share
as if the fair value method of accounting as prescribed in SFAS 123 had been
applied (see Note 8 - Capital Stock).
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.
The Company had one charterer (an international oil company) during fiscal 1997
from which voyage revenues exceeded 10% of total voyage revenues. Voyage
revenues from such charterer amounted to $48,696,000.
3. Contractual Relationships
Prior to the acquisition of TSL, (see Note 1 - Basis of presentation), TSL and
its affiliated companies rendered administrative, operating and ship management
services to the Company in return for a monthly fee and commissions at rates
considered usual and customary to the industry. Fees and commissions incurred,
included in general and administrative expenses, for the year ended March 31,
1995 aggregated $11,826,000. Commissions incurred, related to vessel
dispositions, for the year ended March 31, 1995 aggregated $295,000.
4. Accrued Liabilities
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars)
March 31, March 31,
--------- ---------
1997 1996
$ $
Voyage and vessel 15,458 9,053
Interest 9,294 7,789
Payroll and benefits 2,230 1,461
------ ------
26,982 18,303
====== ======
5. Long-Term Debt
March 31, March 31,
--------- ---------
1997 1996
$ $
Revolving Credit Facility 118,000
First Preferred Ship Mortgage Notes (8.32%)
U.S. dollar debt due through 2008 225,000 225,000
First Preferred Ship Mortgage Notes (9 5/8%)
U.S. dollar debt due through 2004 151,200 151,200
Floating rate (LIBOR + 0.65% to 1 1/2%)
U.S. dollar debt due through 2006 323,526 231,642
------- -------
699,726 725,842
Less current portion 36,283 19,102
------- -------
663,443 706,740
======= =======
As at March 31, 1997, the Revolving Credit Facility (the "Revolver") provided
for borrowings of up to $141.1 million (the "commitment amount") on a revolving
credit basis. The commitment amount reduces by $6.9 million semi-annually each
June and December together with a final balloon reduction in June 2003. Interest
payments are based on LIBOR plus a margin ranging from 0.80% to 1.25%, depending
on the financial leverage of the Company. The Revolver is collateralized by
first priority mortgages granted on ten of the Company's Aframax tankers,
together with certain other related collateral, and a guarantee from the Company
for all amounts outstanding under the Revolver.
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 March 31, 1997, the fair value of these net assets
approximated $278 million. The 8.32% Notes are also subject to a sinking fund,
which will retire $45 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.
5. Long-Term Debt (cont'd)
The 9 5/8% First Preferred Ship Mortgage Notes due July 15, 2003 (the "9 5/8%
Notes") are collateralized by first preferred mortgages on six of the Company's
Aframax tankers, together with certain other related collateral, and are
guaranteed by six subsidiaries of Teekay that own the mortgaged vessels (the "9
5/8% Notes Guarantor Subsidiaries") to a maximum of 95% of the fair value of
their net assets. As at March 31, 1997, the fair value of these net assets
approximated $191 million. The 9 5/8% Notes are also subject to a sinking fund,
which will retire $25 million principal amount of the 9 5/8% Notes, on each July
15, commencing July 15, 1997. During first quarter of fiscal 1996, the Company
retired $23.8 million of the 9 5/8% Notes, which will be applied to reduce the
July 15, 1997 sinking fund requirement. The 9 5/8% Notes are redeemable at the
option of the Company, in whole or in part, on or after July 15, 1998 at the
following redemption prices expressed as a percentage of principal:
July 15 Redemption Price
------- ----------------
1998 104.813%
1999 102.406%
2000 100.000%
Upon a Change of Control each 9 5/8% Note holder and 8.32% Note holder has the
right, unless the Company elects to redeem these Notes, to require the Company
to purchase these Notes at 101% of their principal amount plus accrued interest.
Condensed financial information regarding the Company, the 9 5/8% Notes
Guarantor Subsidiaries, the 8.32% Notes Guarantor Subsidiaries and non-guarantor
subsidiaries of the Company is set out in Schedule A of these consolidated
financial statements.
All other floating rate loans are collateralized by first preferred mortgages on
the vessels to which the loans relate, together with certain other collateral,
and guarantees from the parent Company. In certain instances second preferred
mortgages have been recorded against specific vessels.
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 March 31,
1997, to $58.7 million.
As at March 31, 1997, the Company was committed to a series of interest rate
swap agreements whereby $150 million of the Company's floating rate debt was
swapped with fixed rate obligations having an average remaining term of 19.5
months. The swap agreements expire between October 1998 and December 1998. These
arrangements effectively change the Company's interest rate exposure on $150
million of debt from a floating LIBOR rate to an average fixed rate of 5.86%.
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.
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars)
5. Long-Term Debt (cont'd)
The aggregate annual long-term debt principal repayments required to be made for
the five fiscal years subsequent to March 31, 1997 are $36,283,000 (fiscal
1998), $69,093,000 (fiscal 1999 - 2001), and $80,324,000 (fiscal 2002).
6. 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 $34,893,000 (fiscal 1998) and $3,875,000 (fiscal 1999).
The minimum future revenues should not be construed to reflect total charter
hire revenues for any of the years.
7. 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 and cap agreements - The fair value of interest rate swaps,
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 and the current credit worthiness of the swap
counter parties. The fair value of interest rate cap agreements is the estimated
amount that the Company would receive from selling the contracts as at the
reporting date.
The estimated fair value of the Company's financial instruments is as follows:
March 31, 1997 March 31, 1996
-------------- --------------
Carrying Fair Carrying Fair
Amount Value Amount Value
$ $ $ $
------ ----- ------ -----
Cash and cash equivalents 117,523 117,523 101,780 101,780
Long-term debt 699,726 695,265 725,842 723,056
Interest rate swap agreements
- net receivable (payable) position 1,154 (60)
Interest rate cap agreements 618 10
The Company transacts with investment grade rated financial institutions and
requires no collateral from these institutions.
8. Capital Stock
Authorized
25,000,000 Preferred Stock with a par value of $1 per share
125,000,000 Common Stock with no par value
Common Preferred
Stock Thousands Stock Thousands
$ of shares $ of shares
--------- --------- --------- ---------
Issued and outstanding
Balance March 31, 1994 and 1995 33,000 36,000 1 600
May 15, 1995 1-for-2 Reverse Common Stock Split (18,000)
July 19, 1995 Initial Public Offering 6,900,000
shares at $21.50 per share of Common Stock
(net of share issue costs) 137,613 6,900
July 19, 1995 Exchange of Redeemable Preferred
Stock for 2,790,698 shares of Common Stock 60,000 2,791 (1) (600)
Reinvested Dividends 4,833 201
Exercise of Stock Options 259 12
--------- --------- --------- ---------
Balance March 31, 1996 235,705 27,904 0 0
Reinvested Dividends 10,649 364
Exercise of Stock Options 1,283 60
--------- --------- --------- ---------
Balance March 31, 1997 247,637 28,328 0 0
========= ========= ========= =========
The Company has reserved 2,076,862 shares of Common Stock for issuance upon
exercise of options granted pursuant to the Company's 1995 Stock Option Plan
(the "Plan").
During fiscal 1997 and 1996, the Company granted options under the Plan to
acquire up to 343,250 and 796,750 shares of Common Stock (the "Grants"),
respectively, to certain eligible officers, key employees (including senior sea
staff), and directors of the Company. The options have a 10-year term and follow
a graded-vesting schedule. The options granted during fiscal 1997 vest equally
over four years from the date of grant. Three quarters of the options granted
during fiscal 1996 have vested and the remaining quarter will vest during fiscal
1998.
8. Capital Stock (cont'd)
A summary of the Company's stock option activity, and related information for
the years ended March 31 follows:
Fiscal 1997 Fiscal 1996
----------- -----------
Options Weighted-Average Options Weighted-Average
(`000s) Exercise Price (`000s) Exercise Price
------- -------------- ------- --------------
Outstanding-beginning of year 779 $21.50 0 $21.50
Granted 343 27.38 797 21.50
Exercised (60) 21.50 (12) 21.50
Forfeited (6) 24.00 (6) 21.50
----- ----- ---- -----
Outstanding-end of year 1,056 $23.40 779 $21.50
===========================================================
Exercisable at end of year 519 $21.50 383 $21.50
===========================================================
Weighted-average fair value of options
granted during the year (per option) $6.72 $5.16
Exercise prices for the options outstanding as of March 31, 1997 ranged from
$21.50 to $27.38 and have a weighted-average remaining contractual life of 8.57
years.
The Company applies APB 25, "Accounting for Stock Issued to Employees" and
related Interpretations in accounting for its employee stock options (see Note 1
- - Accounting for Stock-Based Compensation). Under APB 25, because 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.
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 net income per share for those years
ended would have been stated at the pro forma amounts as follows:
Year Ended Year Ended
March 31, 1997 March 31, 1996
$ $
--------- ----------
NET INCOME:
As reported $42,630 $29,070
Pro forma 40,679 26,842
NET INCOME PER COMMON SHARE:
As reported 1.52 1.17
Pro forma 1.45 1.08
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 6.44% and 6.14% for fiscal 1997 and fiscal 1996,
respectively, dividend yield of 3.0%; expected volatility of 25%; and expected
lives of 5 years.
9. Commitments and Contingencies
As at March 31, 1997, the Company was committed to foreign exchange contracts
for the forward purchase of approximately Japanese Yen 100 million and Singapore
dollars 16,478,650 for U.S. dollars, at an average rate of Japanese Yen 122.12
per U.S. dollar and Singapore dollar 1.41 per U.S. dollar, respectively, for the
purpose of hedging accounts payable and accrued liabilities.
As at March 31, 1997, the Company was committed to the construction of an
Aframax vessel for a cost of $44.5 million, scheduled for delivery in June 1997.
At March 31, 1997, payments of $8.9 million had been made towards this
commitment and a $35.6 million long-term financing arrangement exists for the
remaining unpaid cost of this vessel.
10. Other Income
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1997 1996 1995
$ $ $
---------- ---------- ----------
Gain on disposition of assets 8,784 18,245
Gain (loss) on available-for-sale securities 55 (4,303)
Equity in results of 50% owned company 2,696 1,139 (2,089)
Foreign currency exchange gain (loss) (226) (665) 991
Miscellaneous - net 354 (83) (5)
---------- ---------- ----------
2,824 9,230 12,839
========== ========== ==========
For the year ended March 31, 1997, Equity in results of the 50% owned company
includes a $2,732,000 gain on a vessel sale.
Gross realized gains on sales of available-for-sale securities for the years
ended March 31, 1996 and 1995 aggregated $1,787,000 and $691,000, respectively.
Gross realized losses on sales of available-for-sale securities for the years
ended March 31, 1996 and 1995 aggregated $1,732,000 and $4,994,000,
respectively.
11. Change in Non-Cash Working Capital Items Related to Operating Activities
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1997 1996 1995
$ $ $
---------- ---------- ----------
Accounts receivable (1,873) (4,792) 3,585
Prepaid expenses and other assets 665 (2,058) (1,597)
Accounts payable 4,554 281 (310)
Accrued liabilities 2,113 1,013 (427)
---------- ---------- ----------
5,459 (5,556) 1,251
========== ========== ==========
12. Comparative Figures
Certain of the comparative figures have been reclassified to conform with the
presentation adopted in the current period.
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
SCHEDULE A
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of U.S. dollars)
Year Ended March 31, 1997
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
Net voyage revenues 30,553 35,960 411,216 (197,517) 280,212
Operating expenses 494 22,588 34,254 326,135 (197,517) 185,954
-------------------------------------------------------------------------------------
Income (loss) from vessel operations (494) 7,965 1,706 85,081 94,258
Net interest income (expense) (34,420) 114 210 (20,356) (54,452)
Equity in net income of subsidiaries 77,352 (74,656) 2,696
Other income (loss) 192 12,707 (12,771) 128
-------------------------------------------------------------------------------------
Net income 42,630 8,079 1,916 77,432 (87,427) 42,630
Retained earnings (deficit),
beginning of the year 363,690 17,377 (1,245) 66,693 (82,825) 363,690
Dividends declared and paid (24,142) (14,400) (18,795) 33,195 (24,142)
-------------------------------------------------------------------------------------
Retained earnings (deficit),
end of the year 382,178 11,056 (18,124) 144,125 (137,057) 382,178
=====================================================================================
Year Ended March 31, 1996
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
Net voyage revenues 29,755 49,402 390,450 (223,862) 245,745
Operating expenses 835 20,681 31,861 339,951 (223,862) 169,466
-------------------------------------------------------------------------------------
Income (loss) from vessel operations (835) 9,074 17,541 50,499 76,279
Net interest income (expense) (18,397) 394 (13,759) (24,677) (56,439)
Equity in net income of subsidiaries 47,043 (45,904) 1,139
Other income 1,259 15,940 (9,108) 8,091
-------------------------------------------------------------------------------------
Net income 29,070 9,468 3,782 41,762 (55,012) 29,070
Retained earnings (deficit),
beginning of year 406,547 22,309 (5,027) 89,301 (106,583) 406,547
Exchange of redeemable preferred stock (60,000) (60,000)
Dividends declared and paid (11,927) (14,400) (64,370) 78,770 (11,927)
-------------------------------------------------------------------------------------
Retained earnings (deficit), end of the year 363,690 17,377 (1,245) 66,693 (82,825) 363,690
=====================================================================================
Year Ended March 31, 1995
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
Net voyage revenues 32,687 47,593 400,844 (246,115) 235,009
Operating expenses 660 24,410 29,434 373,897 (246,208) 182,193
-------------------------------------------------------------------------------------
Income (loss) from vessel operations (660) 8,277 18,159 26,947 93 52,816
Net interest income (expense) (18,302) 491 (13,736) (28,853) (60,400)
Equity in net income (loss) of subsidiaries 24,161 (26,250) (2,089)
Other income 56 1 14,871 14,928
-------------------------------------------------------------------------------------
Net income from continuing operations 5,255 8,769 4,423 12,965 (26,157) 5,255
Cumulative effect of change in accounting
for marketable securities 1,113 1,113
-------------------------------------------------------------------------------------
Net income 6,368 8,769 4,423 12,965 (26,157) 6,368
Retained earnings (deficit),
beginning of year 400,179 46,735 (9,450) 90,396 (127,681) 400,179
Dividends declared and paid (25,266) (21,989) 47,255
-------------------------------------------------------------------------------------
Retained earnings (deficit), end of the year 406,547 30,238 (5,027) 81,372 (106,583) 406,547
=====================================================================================
(See Note 5)
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
SCHEDULE A
CONDENSED BALANCE SHEETS
(in thousands of U.S. dollars)
As at March 31, 1997
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents 32 9,248 8,732 99,511 117,523
Other current assets 128 667 755 40,009 (82) 41,477
-------------------------------------------------------------------------------------
Total current assets 160 9,915 9,487 139,520 (82) 159,000
Vessels and equipment (net) 137,486 344,315 714,536 1,196,337
Advances due from subsidiaries 362,704 (362,704)
Other assets (principally
investments in subsidiaries) 649,337 11,171 (643,007) 17,501
-------------------------------------------------------------------------------------
1,012,201 147,401 353,802 865,227 (1,005,793) 1,372,838
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities 7,386 4,573 2,581 65,122 (82) 79,580
Long-term debt 375,000 288,443 663,443
Due to parent (56) 15 356,656 (356,615)
-------------------------------------------------------------------------------------
Total liabilities 382,386 4,517 2,596 710,221 (356,697) 743,023
-------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock 247,637 10 23 5,933 (5,966) 247,637
Contributed capital 131,818 369,307 4,948 (506,073)
Retained earnings (deficit) 382,178 11,056 (18,124) 144,125 (137,057) 382,178
-------------------------------------------------------------------------------------
Total stockholders' equity 629,815 142,884 351,206 155,006 (649,096) 629,815
-------------------------------------------------------------------------------------
1,012,201 147,401 353,802 865,227 (1,005,793) 1,372,838
=====================================================================================
As at March 31, 1996
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents 28 8,613 5,210 87,929 101,780
Other current assets 293 1,475 1,064 37,527 (90) 40,269
-------------------------------------------------------------------------------------
Total current assets 321 10,088 6,274 125,456 (90) 142,049
Vessels and equipment (net) 139,652 362,424 696,731 1,198,807
Advances due from subsidiaries 372,233 (372,233)
Other assets (principally
investments in subsidiaries) 606,269 12,826 (604,650) 14,445
-------------------------------------------------------------------------------------
978,823 149,740 368,698 835,013 (976,973) 1,355,301
-------------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities 3,228 539 613 44,876 (90) 49,166
Long-term debt 376,200 330,540 706,740
Due to parent (4) 382,023 (382,019)
-------------------------------------------------------------------------------------
Total liabilities 379,428 535 613 757,439 (382,109) 755,906
-------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock 235,705 10 23 5,933 (5,966) 235,705
Contributed capital 131,818 369,307 4,948 (506,073)
Retained earnings (deficit) 363,690 17,377 (1,245) 66,693 (82,825) 363,690
-------------------------------------------------------------------------------------
Total stockholders' equity 599,395 149,205 368,085 77,574 (594,864) 599,395
-------------------------------------------------------------------------------------
978,823 149,740 368,698 835,013 (976,973) 1,355,301
=====================================================================================
(See Note 5)
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
SCHEDULE A
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
Year Ended March 31, 1997
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
-------------------------------------------------------------------------------------
Net cash flow from operating activities (30,553) 20,018 23,161 126,532 139,158
-------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 240,000 240,000
Repayments of long-term debt (266,116) (266,116)
Net proceeds from issuance of Common Stock 1,283 1,283
Other 29,003 (14,456) (18,780) (10,390) (14,623)
-------------------------------------------------------------------------------------
Net cash flow from financing activities 30,286 (14,456) (18,780) (36,506) (39,456)
-------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (4,927) (859) (75,877) (81,663)
Other 272 (2,568) (2,296)
-------------------------------------------------------------------------------------
Net cash flow from investing activities 272 (4,927) (859) (78,445) (83,959)
-------------------------------------------------------------------------------------
Increase in cash and cash equivalents 4 635 3,522 11,581 15,743
Cash and cash equivalents,
beginning of the year 28 8,613 5,210 87,929 101,780
-------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year 32 9,248 8,732 99,510 117,523
=====================================================================================
Year Ended March 31, 1996
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
-------------------------------------------------------------------------------------
Net cash flow from operating activities (23,772) 17,284 22,798 82,105 98,415
-------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 225,000 223,000 448,000
Repayments of long-term debt (22,580) (208,964) (332,268) (563,812)
Repayments of capital lease obligations (44,550) (44,550)
Net proceeds from issuance of Common Stock 137,872 137,872
Other (29,879) (14,400) (133,234) 164,454 (13,059)
-------------------------------------------------------------------------------------
Net cash flow from financing activities 310,413 (14,400) (386,748) 55,186 (35,549)
-------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (656) (3,223) (82,819) (86,698)
Proceeds from disposition of assets 28,428 28,428
Other (286,710) 499 369,307 (10,046) 73,050
-------------------------------------------------------------------------------------
Net cash flow from investing activities (286,710) (157) 366,084 (64,437) 14,780
-------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (69) 2,727 2,134 72,854 77,646
Cash and cash equivalents,
beginning of the year 97 5,886 3,076 15,075 24,134
-------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year 28 8,613 5,210 87,929 101,780
=====================================================================================
Year Ended March 31, 1995
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
-------------------------------------------------------------------------------------
Net cash flow from operating activities (40,919) 19,403 23,110 88,425 90,019
-------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayments of long-term debt (21,854) (80,749) (102,603)
Other (31,518) (25,263) (188) 55,404 (1,565)
-------------------------------------------------------------------------------------
Net cash flow from financing activities (31,518) (25,263) (22,042) (25,345) (104,168)
-------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (1,039) (3,197) (17,660) (21,896)
Proceeds from disposition of assets 16,817 16,817
Other 72,776 19 1 (74,386) (1,590)
-------------------------------------------------------------------------------------
Net cash flow from investing activities 72,776 (1,020) (3,196) (75,229) (6,669)
-------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 339 (6,880) (2,128) (12,149) (20,818)
Cash and cash equivalents, beginning of the year (242) 13,736 5,204 26,254 44,952
-------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year 97 6,856 3,076 14,105 24,134
=====================================================================================
(See Note 5)