1
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
[FEE REQUIRED]
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[FEE REQUIRED]
For the fiscal year ended . . . . . . March 31, 1996. . . . . . . . . . . . . .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
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, Sixth 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.
9.625% 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.
27,903,611 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
----- ------
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TEEKAY SHIPPING CORPORATION
INDEX TO REPORT ON FORM 20-F
PAGE
----
PART I.
Item 1. Description of Business . . . . . . . . . . . . . . . . . 1
Item 2. Description of Property . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 9
Item 4. Control of Registrant . . . . . . . . . . . . . . . . . . 11
Item 5. Nature of Trading Market . . . . . . . . . . . . . . . . 11
Item 6. Exchange Controls and Other Limitations
Affecting Security Holders . . . . . . . . . . . . . . 11
Item 7. Taxation . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 8. Selected Financial Data . . . . . . . . . . . . . . . . . 13
Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 15
Item 10. Directors and Officers of the Registrant . . . . . . . . 19
Item 11. Compensation of Directors and Officers . . . . . . . . . 21
Item 12. Options to Purchase Securities From Registrant
or Subsidiaries . . . . . . . . . . . . . . . . . . . . 21
Item 13. Interest of Management in Certain Transactions . . . . . 21
PART II.
Item 14. Description of Securities to be Registered . . Not applicable
PART III.
Item 15. Defaults Upon Senior Securities . . . . . . . . . . . . . 22
Item 16. Changes in Securities and Changes in Security
for Registered Securities . . . . . . . . . . . . . . . 22
PART IV.
Item 17. Financial Statements . . . . . . . . . . . . Not applicable
Item 18. Financial Statements . . . . . . . . . . . . . . . . . . 22
Item 19. Financial Statements and Exhibits . . . . . . . . . . . . 23
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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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: 38 Aframax oil tankers and
oil/bulk/ore carriers ("O/B/Os"), two smaller oil tankers, one Very Large Crude
Carrier ("VLCC") and, through a joint venture, a 50% interest in one additional
Aframax oil tanker. 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 8.0% 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 7.5 years, compared to an average age for the
world oil tanker fleet of approximately 14.4 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; none of the Company's Aframax tankers are
more than 17 years of age. In addition, the Company has been recognized by
customers and rating services for safety, quality and service. In each of the
last five 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 1996), 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.
Teekay has in the past occasionally entered into joint ventures with other
shipping companies, an activity that is common among large shipping companies.
Currently, Teekay is actively engaged in one such joint venture: it owns 50% of
Viking Consolidated Shipping Corp. ("VCSC"), which in turn owns one Aframax
tanker which is on long-term charter to a major oil company.
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.
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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 80% of the Company's net revenues were derived from
spot voyages during fiscal 1996.
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 26 vessels
in the second-hand market, as well as disposing of 13 older (mid-1970's built)
tankers over the past three years.
Teekay is incorporated under the laws of the Republic of Liberia and maintains
its principal executive headquarters at the Tradewinds Building, Sixth Floor,
Bay Street, P.O. Box SS-6293, Nassau, Commonwealth of The Bahamas. Its
telephone number at such address is (809) 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 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
though 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 25
vessels trading globally (six of which are on time-charter from Sanko Steamship
Co. Ltd., an independent Japanese shipping company, and eight of which are on
time-charter from various other companies), Neptune Orient Lines Ltd. (owned
partially by the Singapore government), with approximately 14 vessels, and Bona
Shipholding Limited, which controls approximately 26 vessels. The Company
believes that it has significant competitive advantages in the Aframax tanker
market as a result of the age, quality, type and dimensions of its vessels and
its 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.
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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 many 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. Some classification societies
may implement these requirements prior to the effective date of such
regulations. 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 16 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 "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 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
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United States federal safety, construction or operating regulations or by the
responsible party's gross negligence or willful misconduct, or if the
responsible party fails or refuses to report the incident or to cooperate and
assist in connection with the oil removal activities. The Company currently
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.
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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 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 1996, the Company derived 93% 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 260 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 and Glasgow, 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
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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.
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.
The Company has obtained through Det Norske Veritas, the Norwegian
classification society, ISO 9000 certification to standards of total quality
management. ISO 9000 is a series of international standards for quality
systems; ISO 9002 is 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.
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. No single customer has
accounted for more than 10% of the Company's consolidated revenues or 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.
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ITEM 2. DESCRIPTION OF PROPERTY
THE COMPANY'S FLEET
The following fleet list provides information with respect to the Company's
vessels as at April 30, 1996.
Year %
Series/Yard Built Type Dwt-MT Flag Ownership
AFRAMAX TANKERS (39)
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%
GALAXY RIVER* . . . . . . . . . Imabari 1987 DS 96,960 Liberian 0%
KYUSHU SPIRIT . . . . . . . . . Mitsubishi 1991 DS 95,562 Bahamian 100%
KOYAGI SPIRIT . . . . . . . . . Mitsubishi 1989 SH 95,987 Liberian 100%
AMERSHAM . . . . . . . . . . . Sumitomo 1981 SH 88,360 Liberian 50%
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%
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%
----------
4,209,316
===========
- ------------------------
DH Double-hull tanker
DB Double-bottom tanker
DS Double-sided tanker
SH Single-hull tanker
OBO Oil/Bulk/Ore carrier
*Vessel time-chartered for one year with purchase obligation.
**Pre-MARPOL vessel, i.e., non-segregated ballast tanks.
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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 1996, the Company sold its two remaining mid-1970's-built tankers
(BRILLIANCY, OSHIMA SPIRIT), acquired two second-hand double-sided Aframax
tankers (SUDONG SPIRIT, ALLIANCE SPIRIT) and one second-hand single-hull
Aframax tanker (MAGELLAN SPIRIT) and took delivery of one double-hull
newbuilding (POUL SPIRIT). In April 1996, the Company acquired another
second-hand double-sided Aframax tanker (SEMAKAU SPIRIT). In addition, the
Company has entered into an agreement to time-charter a second-hand doublesided
Aframax tanker (GALAXY RIVER) for a period of one year and, at the end of such
time, to purchase the vessel for $26.5 million. The Company has also entered
into an agreement for the construction of a double-hull Aframax tanker for a
cost of $44.5 million, scheduled for delivery in July 1997.
The Company purchased the ALLIANCE SPIRIT from its 50%-owned joint venture,
VCSC, which now owns one Aframax tanker (AMERSHAM) on a long-term time charter
to a major oil company. 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 7 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"). Most vessels are also
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. A number 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 five
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 1996), 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.
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.
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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, and proceedings
are presently pending in the High Court of Singapore in order to determine
liability for the collision and the amount of damages recoverable. Claims by
the dependents of the crew of the Nagasaki Spirit have been settled. Claims of
approximately $1.4 million and $2.5 million for the cost of clean up of the oil
pollution caused by the Nagasaki Spirit and associated costs were made by the
Department of Environment for the Government of Malaysia and by the Government
of Indonesia, respectively. These claims have been settled for approximately
$700,000 and $600,000, which were covered by insurance. While it is possible
that pollution damage claims may be asserted by others, the Company believes
that any liability it may have for such claims will be well within the
applicable limit of $700 million of insurance coverage per vessel per incident.
There is no deductible applicable to the pollution liability coverage. There
are also claims pending by some of the owners of cargo aboard the Ocean
Blessing against the Company in excess of $27 million. The liability, if any,
of the Company in respect of these claims is covered by insurance. The owners
of the cargo aboard the Nagasaki Spirit have agreed not to pursue any claims
they may have against the Company.
A claim by a salvor for salvage and special compensation was arbitrated in
London. The award for salvage will be a priority claim against the proceeds of
the sale of the Nagasaki Spirit, which are currently lodged with the
Singaporean Court. The proceeds of the sale were approximately $9.0 million;
the salvage award was approximately $4.9 million against the owners. The award
for special compensation in the amount of approximately $2.25 million was
appealed and overturned by the appeal arbitrator. On successive appeals, both
the High Court of Justice and the Court of Appeals in London upheld the appeal
arbitrator's findings that no special compensation was payable. The claim for
special compensation is now subject to an appeal to the House of Lords in
London, for which hearing dates of October 7-9, 1996 have been fixed. The
liability for salvage and any special compensation is covered by insurance.
Management does not believe that the result of the pending litigation involving
the Nagasaki Spirit will have a material adverse effect upon the Company.
However, no assurance can be given that additional litigation will not be
commenced as a result of such collision. The Company believes that any claims
established by additional litigation arising out of such collision would be
fully covered by insurance.
LITIGATION AGAINST THE ESTATE OF THE COMPANY'S FOUNDER
In May 1993, a lawsuit against the original representative of the estate (the
"Estate") of the Company's founder, J. Torben Karlshoej, was filed in the
Supreme Court of British Columbia (the "B.C. Court") by Mr. Karlshoej's first
wife. The plaintiff, who was divorced from Mr. Karlshoej in 1971, two years
prior to the founding of the Teekay organization, alleges that she is entitled
to, among other things, an accounting of the Estate, a share of the Estate or
support from the Estate, specific performance of an express or an implied
agreement to compensate her or, alternatively, damages for breach of that
agreement, quantum meruit and/or restitution for unjust enrichment. In April
1995, the plaintiff filed with the B.C. Court a notice of motion to amend her
statement of claim to add a number of additional parties as defendants,
including Teekay, certain of Teekay's subsidiaries, the Cirrus Trust, a trust
organized under the laws of the Turks and Caicos Islands, and the JTK Trust, a
trust organized under the laws of the Bahamas (the "Trusts"), and certain of
Teekay's officers and directors, including Mr. James Hood and Mr. Arthur Coady,
and
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to amend her claim to include an interim order preventing transfers or other
dispositions of Estate property, declaring that all or a portion of certain
assets are held by the Estate or other proposed additional defendants in trust
for her and conveying such interest in the property to her. The plaintiff's
motion to amend her statement of claim has been adjourned and has not yet been
heard by the B.C. Court.
In materials filed in support of her motion, plaintiff alleges the need to add
the proposed additional defendants as parties based upon their control of
property in which she is claiming an interest and their ability to provide
plaintiff with information required to inform her of the size and nature of the
assets to which she claims entitlement. The proposed amended statement of
claim, which has not yet been filed or served upon Teekay or the other proposed
additional defendants, sets forth certain factual allegations and legal
theories not contained in the original statement of claim, including
allegations as to the existence of an express or constructive trust that would
give plaintiff an undivided interest in up to one-half of the assets directly
or indirectly held by Mr. Karlshoej at any time following the divorce,
including the capital stock of Teekay. In the statement of claim, as proposed
to be amended, plaintiff alleges various facts to support her claims,
including, among other things, that: (i) a separation agreement executed by
plaintiff and Torben Karlshoej in connection with their divorce in 1971 should
be declared null and void because plaintiff lacked the capacity to enter into
such an agreement (or, in the alternative, that plaintiff executed such
agreement under duress, undue influence, unconscionability, fraud, mistake and
unfairness); and (ii) notwithstanding their divorce and the plaintiff's and
Torben Karlshoej's subsequent marriages, they "re-commenced" their "spousal
relationship" and, based on Mr. Karlshoej's promise to provide financial
support to the plaintiff, plaintiff provided certain services to Mr. Karlshoej.
The amended statement of claim also seeks certain additional relief, including
a declaration that the Estate and the proposed additional defendants hold a
portion of any interest in Teekay and its assets in trust for the plaintiff,
and an order to prevent Teekay and the other proposed additional defendants
from disposing of any assets in which plaintiff claims an interest.
The Company believes that plaintiff's proposed claims are without merit and
that there are several meritorious defenses to such claims. First, the Company
believes that the plaintiff faces many obstacles to any successful claim
against the Estate or the proposed additional defendants, including
establishing the invalidity of the separation agreement and of the property
transfers made by Mr. Karlshoej during his lifetime, including the transfers of
the capital stock of the Company into the Trusts. The Company also believes
that there may be insufficient jurisdictional grounds for the plaintiff to add
Teekay or its subsidiaries as defendants in the lawsuit and that, even if
Teekay and its subsidiaries do become named defendants, the plaintiff has not
stated a sustainable basis for a claim against Teekay or its assets. The
Company believes that, in the unlikely event that the plaintiff were successful
at all phases of the lawsuit, the result would be an award of money damages
against the Estate or of specific property held by the Estate or brought into
the Estate through invalidation of the transfers of property made by Mr.
Karlshoej to the Trusts. If plaintiff were awarded shares of Teekay's capital
stock currently held by the Trusts, or if such shares were otherwise required
to be sold in order to satisfy a judgment in the plaintiff's favor, a change in
control of Teekay could result. The Company believes that the possibility of
invalidations of the property transfers, including transfers of the capital
stock of the Company to the Trusts, and the possible change of control that
could occur, are remote. Teekay intends, if added as a defendant, to vigorously
defend against the plaintiff's claims. Based upon the advice of its counsel,
including an assessment of the defenses available to the Company and the
defects in plaintiff's claims, the Company does not anticipate that the outcome
of the lawsuit will have a material adverse effect upon it or its assets.
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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, 1996 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, no par value Cirrus Trust 18,161,881 shares 65.1%
JTK Trust 2,815,880 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
There has not previously been an active public market within or outside the
United States for Teekay's 9 5/8% First Preferred Ship Mortgage Notes due 2003.
Teekay does not intend to list these Notes on any securities exchange or to
seek approval for quotation through any automated quotation system.
Teekay's 8.32% First Preferred Ship Mortgage Notes due 2008 are listed for
trading on the New York Stock Exchange. These Notes were first offered on the
market January 19, 1996. As this security has not been trading for a full
quarter, no price information is given here.
On July 19, 1995, the Company's common stock listed for trading on the New York
Stock Exchange (NYSE- TK). The following table shows high and low prices for
the two full quarters that the shares have been listed on the NYSE. The
figures have been compiled from Bloomberg.
Fiscal 1996 High Low
-------------------
(in U.S. Dollars)
Third quarter
Oct. 1 - Dec. 31, 1995 24 7/8 23
Fourth quarter
Jan. 1 - Mar. 31, 1996 27 23 1/4
Approximately 25% of all outstanding shares at March 31, 1996 were held in the
U.S.
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
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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.
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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, 1996, 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 periods ended March
31, 1996, 1995 and 1994, 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 YEAR PERIOD ENDED FISCAL YEAR
ENDED MARCH 31, MARCH 31, ENDED APRIL 30,
--------------- ----------------
1996 1995 1994(1) 1993 1992
--------- --------- ---------- --------- ---------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER DAY DATA AND RATIOS)
STATEMENT OF INCOME DATA:
Voyage revenues . . . . . . . . . . . . . $ 336,320 $ 319,966 $ 317,742 $ 336,994 $ 414,104
Voyage expenses . . . . . . . . . . . . . 90,575 84,957 81,052 108,805 118,678
Net voyage revenues . . . . . . . . . . . 245,745 235,009 236,690 228,189 295,426
Income from vessel operations . . . . . . 75,048 50,833 59,128 36,915 123,354
Interest expense . . . . . . . . . . . . (61,679) (64,321) (48,064) (47,374) (39,015)
Interest income. . . . . . . . . . . . . 6,471 5,904 2,904 1,156 2,369
Other income . . . . . . . . . . . . . . 9,895 11,848 11,777 37,862 9,981
Income from continuing operations before
foreign exchange gain (loss) . . . . . 29,735 4,264 25,745 28,559 96,689
Foreign exchange gain (loss)(2) . . . . . (665) 991 (1,532) (77,917) (7,026)
Net income (loss) from continuing operations 29,070 5,255 24,213 (49,358) 89,663
Net income from discontinued operations . - - 5,945 1,890 1,323
Cumulative effect of change in accounting for
marketable securities . . . . . . . . . - 1,113 - - -
Net income (loss) . . . . . . . . . . . . 29,070 6,368 30,158 (47,468) 90,986
PER SHARE DATA:
Net income (loss) from continuing operations $ 1.17 $ 0.29 $ 1.35 $ (2.74) $ 6.18
Cumulative effect of change in accounting for
marketable securities . . . . . . . . . - 0.06 - - -
Net income (loss) . . . . . . . . . . . . 1.17 0.35 1.68 (2.64) 6.27
Cash dividends declared per share . . . . 0.48 - - - -
Weighted average shares outstanding
(thousands) . . . . . . . . . . . . . . 24,837 18,000 18,000 18,000 14,500
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and marketable securities . . . . . $ 99,790 $ 85,739 $ 107,246 $ 48,770 $ 26,239
Total assets . . . . . . . . . . . . . . 1,355,301 1,306,474 1,405,147 1,368,966 1,237,942
Total debt . . . . . . . . . . . . . . . 725,842 842,874 945,611 884,813 756,454
Total stockholders' equity . . . . . . . 599,395 439,066 433,180 403,022 442,990
OTHER FINANCIAL DATA:
EBITDA (3) . . . . . . . . . . . . . . . $ 166,233 $ 146,756 $ 151,364 $ 136,123 $ 214,196
Cash earnings (4) . . . . . . . . . . . . 113,338 100,699 115,647 126,170 183,164
EBITDA to interest expense (3) (5) . . . 2.69x 2.28x 3.04x 2.59x 4.70x
Total debt to EBITDA (1) (3) . . . . . . 4.37 5.74 5.83 6.50 3.53
Total debt to total capitalization . . . 54.8% 65.7% 68.6% 68.7% 63.1%
Net debt to capitalization (6) . . . . . 51.1 63.3 65.9 67.5 62.2
Capital expenditures:
Vessel purchases, gross . . . . . . . . $ 123,843 $ 7,465 $ 163,509 $ 334,733 $ 373,501
Drydocking . . . . . . . . . . . . . . 11,641 11,917 13,296 16,440 6,240
FLEET DATA:
Average number of ships (7) . . . . . . . 39 42 45 50 46
Average age of Company's Aframax fleet (in
years) (8) . . . . . . . . . . . . . . 7.4 6.7 7.4 8.0 7.7
TCE per ship per day (7)(9) . . . . . . . $ 18,438 $ 16,552 $ 17,431 $ 13,722 $ 19,270
Vessel operating expenses per ship per
day (7)(10) . . . . . . . . . . . . . . 4,787 4,748 4,879 4,276 4,245
Operating cash flow per ship per day (11) 10,613 8,944 9,133 6,511 10,999
(Footnotes on following page)
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(Footnotes for previous page)
(1) For the 12 months ended March 31, 1994, voyage revenues were $345.0
million; income from vessel operations was $62.7 million; net income was
$32.0 million; EBITDA was $162.3 million; and cash earnings were $123.2
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. See
"Change in fiscal year end" in Note 1 to the Consolidated Financial
Statements.
(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) Cash earnings represents income from continuing operations before foreign
exchange gain (loss) and before depreciation and amortization expense.
Cash earnings is included because it is used by certain investors to
measure a company's financial performance as compared to other companies
in the shipping industry. Cash earnings is not required by generally
accepted accounting principles and should not be considered as an
alternative to net income or any other indicator of the Company's
performance required by generally accepted accounting principles.
(5) For purposes of computing EBITDA to interest expense, interest expense
includes capitalized interest.
(6) Net debt represents total debt less cash, cash equivalents and marketable
securities.
(7) Excludes vessels of discontinued operations and the joint venture.
(8) Average age of Company's Aframax fleet is the average age, at the end of
the relevant period, of the Aframax tankers and O/B/Os owned or leased by
the Company (including joint venture vessels).
(9) 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.
(10) 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.
(11) 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.
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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 38
Aframax oil tankers and oil/bulk/ore carriers, two smaller tankers, one VLCC
and, through a joint venture, a 50% interest in an additional Aframax tanker,
for a total cargo-carrying capacity of approximately 4.2 million tonnes.
Approximately 80% of the Company's net revenue is currently derived from spot
voyages. This dependence on spot voyages, which is within industry norms,
contributes to the volatility of the Company's revenue, cash flow from
operations, and net income. 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 at a fixed rate; 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.
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 1996 VERSUS FISCAL 1995
Teekay's net income was $29.1 million, or $1.17 per share, in fiscal 1996, up
from $6.4 million, or 35 cents per share, in fiscal 1995, reflecting an
improvement in the tanker charter market accompanied by a relatively stable
cost environment.
During fiscal 1995, the Company disposed of six older, mid-1970s-built tankers,
and during fiscal 1996, the Company disposed of its remaining two such vessels
and added four newer Aframax tankers to its fleet. As a result, the Company's
fleet was 7.1% smaller on average in fiscal 1996 than in fiscal 1995.
Net voyage revenues were $245.7 million in fiscal 1996, an increase of 4.6% as
compared to fiscal 1995, despite the decrease in average fleet size. This
reflects an improvement in tanker charter market conditions, with an average
TCE rate of $18,438 in fiscal 1996, up 11.4% from $16,552 in fiscal 1995.
Total operating expenses, including vessel operating expenses, depreciation and
amortization, and general and administrative expenses, decreased 7.3% to $170.7
million in fiscal 1996, from $184.2 million in fiscal 1995. Depreciation and
amortization and vessel operating expenses decreased as a result of the
reduction in average fleet size. Depreciation and amortization was further
reduced by a revision to estimates of residual values of the Company's vessels,
which reduced depreciation expense by approximately $9.4 million in fiscal
1996. Depreciation and amortization expense included amortization of
drydocking costs of $8.6 million in fiscal 1996 and $10.3 million in fiscal
1995. General and administrative expenses rose 11.5% to $16.7 million in
fiscal 1996 as a result of increases in expenditures on crew training and
senior management compensation, and increased administrative costs
15
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subsequent to the acquisition of Teekay Shipping Limited in March 1995.
The combination of increased voyage revenues and lower total operating expenses
resulted in a 47.6% increase in income from vessel operations, to $75.0 million
in fiscal 1996 from $50.8 million in fiscal 1995.
Interest expense decreased 4.1% to $61.7 million in fiscal 1996, from $64.3
million in fiscal 1995, reflecting a continued decline in the Company's total
debt, partially offset by higher interest rates. Interest income increased to
$6.5 million in fiscal 1996, from $5.9 million in fiscal 1995, as a result of
higher interest rates and an increase in average cash and marketable securities
balances.
Other income during fiscal 1996 was $9.2 million, consisting primarily of an
$8.8 million gain on the sale of two vessels. Other income during fiscal 1995
was $12.8 million, consisting primarily of 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
Viking Consolidated Shipping Corp. ("VCSC").
FISCAL 1995 VERSUS FISCAL 1994
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 with those of other companies within the transportation industry on a
calendar quarter basis. As a result, while the fiscal 1995 results are for the
twelve-month period ending March 31, 1995, the comparable fiscal 1994 results
are for the eleven-month period ending March 31, 1994. Where indicated in the
following discussions, percentage change figures have been annualized by
adjusting fiscal 1994 results to include the unaudited results for the month of
April 1993.
Teekay's net income was $6.4 million in fiscal 1995, down from $30.2 million in
fiscal 1994, reflecting a weaker tanker charter market in fiscal 1995. Fiscal
1995 results were also affected by a decline in average fleet size from 45 to
42 vessels.
Net voyage revenues were $235.0 million in fiscal 1995 as compared to $236.7
million in fiscal 1994, representing an 8.2% decrease on an annualized basis
from fiscal 1994, primarily as a result of the decline in average fleet size
and continuing weak charter markets. The Company's average TCE rate was $16,552
in fiscal 1995, down from $17,431 in fiscal 1994.
Total operating expenses increased from $177.6 million in fiscal 1994 to $184.2
million in fiscal 1995, but on an annualized basis total operating expenses
decreased by 4.7%. Vessel operating expenses decreased 9.9% on an annualized
basis, to $72.7 million in fiscal 1995, primarily as a result of the decline in
fleet size. Depreciation and amortization decreased 1.0% on an annualized basis
to $96.4 million in fiscal 1995 primarily as a result of the decline in fleet
size, partially offset by a higher average cost base during fiscal 1995,
resulting from the sale of some of the Company's older vessels, whose annual
depreciation was lower than the fleet average. Depreciation and amortization
included amortization of drydocking costs of $10.3 million in fiscal 1995 and
$11.8 million in fiscal 1994. General and administrative expenses were $15.0
million in fiscal 1995, virtually unchanged from fiscal 1994 on an annualized
basis.
As a result of the decrease in fleet size and weak charter markets, income from
vessel operations decreased to $50.8 million in fiscal 1995 from $59.1 million
in fiscal 1994. On an annualized basis, this represents a 19.0% decline from
fiscal 1994.
Interest expense increased to $64.3 million in fiscal 1995 from $48.1 million
in fiscal 1994, representing a 22.0% increase on an annualized basis from
fiscal 1994, as a result of an increase in interest rates mitigated in part by
the repayment and prepayment of long-term debt totalling $102.6 million.
Interest income was $5.9 million in fiscal 1995 as compared to $2.9 million in
fiscal 1994, representing an increase of 93.8% on an annualized basis from
fiscal 1994, as a result of increased interest rates and higher cash and
marketable securities balances; however, there were related losses of $4.3
million and $1.6 million on marketable securities included in other income
during fiscal years 1995 and 1994, respectively.
Other income during fiscal 1995 was $12.8 million, and included an $18.2
million gain on the sale of six vessels
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and a $2.1 million equity loss from the Company's 50% investment in VCSC during
the period. Other income during fiscal 1994 was $10.2 million, and included a
$12.3 million gain on the sale of six vessels and $1 million in equity income
from VCSC.
During fiscal 1994 the Company had net income from discontinued operations of
$5.9 million, primarily as a result of a $5.7 million gain arising on the sale
of nine multipurpose dry cargo vessels obtained in connection with the
divestiture of the Company's investment in Baltimar Overseas Limited.
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:
Eleven
Year Ended Year Ended Months Ended
March 31/96 March 31/95 March 31/94
- ---------------------------------------------------------------------------------------------------
Total calendar ship-days 14,310 15,315 15,023
Non-revenue days 698 822 1,140
- ---------------------------------------------------------------------------------------------------
Revenue-generating ship-days (A) 13,612 14,493 13,883
- ---------------------------------------------------------------------------------------------------
Net voyage revenue before commissions (B) $250,981 $239,888 $241,994
(000's)
- ---------------------------------------------------------------------------------------------------
Time charter equivalent (or TCE) (B/A) $18,438 $16,552 $17,431
- ---------------------------------------------------------------------------------------------------
Operating results per calendar ship-day:
Net voyage revenue $17,173 $15,345 $15,755
Vessel operating expense 4,787 4,748 4,879
General and administrative expense 1,171 981 956
Drydocking expense 602 672 787
- ---------------------------------------------------------------------------------------------------
Operating cash flow per calendar ship-day $10,613 $8,944 $9,133
===================================================================================================
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, the Company undertook further steps to improve its
financial position and liquidity. In July 1995, the Company completed an
initial public offering of common stock, and used the $137.6 million net
proceeds to boost liquidity and reduce debt. In addition, $448 million of
existing debt was refinanced during the year in order to take advantage of
lower interest rates and an improved credit profile. This included a $225
million offering of 8.32% First Preferred Ship Mortgage Notes, due 2008, the
proceeds of which were used to refinance existing floating rate debt, and the
establishment of a $223 million corporate revolving credit facility at improved
rates and credit terms. As a result, the Company's total liquidity, including
cash, marketable securities and undrawn lines of credit, increased to $195.3
million from $85.7 million, the current portion of long-term debt decreased to
$19.1 million from $74.5 million, and debt as a percentage of total
capitalization decreased to 54.8% from 65.7%, during fiscal 1996.
Net cash flow from operating activities was $102.7 million in fiscal 1996,
compared to $87.5 million in fiscal 1995, and $117.7 million in the eleven
months ended March 31, 1994, reflecting an improvement in tanker charter market
conditions over the weaker fiscal 1995 year, and in spite of the smaller
average fleet size.
During fiscal 1996, the Company acquired three modern, second-hand Aframax
tankers, including one vessel previously owned by VCSC, and one newbuilding
double-hull Aframax tanker. As a result, capital expenditures for vessels and
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equipment increased to $79.3 million, net of capital lease financing of $44.5
million, in fiscal 1996 from $7.5 million in fiscal 1995 and $65.7 million in
fiscal 1994. The Company sold its two remaining mid-1970s-built tankers in
fiscal 1996, completing the disposal of thirteen such vessels during the past
three fiscal years. Proceeds from the disposition of vessels totalled $28.4
million in fiscal 1996 and $16.8 million in fiscal 1995. In fiscal 1994,
proceeds totalled $86.4 million, and included some vessel sales which were
intended to enhance the Company's liquidity. Capital expenditures for
drydocking decreased slightly to $11.6 million in fiscal 1996 from $11.9
million in fiscal 1995, and $13.3 million in fiscal 1994, reflecting the
reduction in fleet size.
The Company has entered into agreements for a one-year time-charter and
subsequent purchase of a modern Aframax tanker, and for the construction of a
newbuilding double-hull Aframax tanker scheduled for delivery in July 1997, for
a total cost of $71.0 million. The remaining unpaid cost of $68.8 million for
these two vessels will be financed through a $35.6 million financing
arrangement, existing lines of credit, and cash balances.
The Company made scheduled debt repayments of $57.9 million during fiscal 1996,
and $87.6 million in fiscal 1995. During fiscal 1995, the Company also prepaid
$15.0 million of long-term debt secured by vessels sold during the year. In
October 1995, the Company began making quarterly dividend payments of 21.5
cents per share. Dividend payments during fiscal 1996 were $11.9 million, of
which $7.1 million was paid in cash and $4.8 million was paid in the form of
common shares issued under the Company's dividend reinvestment plan.
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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 55 Director and Chairman of the Board
Hood, James N. 61 Director, President and Chief Executive
Officer
Coady, Arthur F. 62 Director, EVP and General Counsel
Dingman, Michael D. 64 Director
Feder, Morris L. 79 Director
Hsu, Steve G. K. 62 Director
Hsu, Thomas Kuo-Yuen 49 Director
Alsleben, Veronica A. E. 45 Managing Director (London)
Antturi, Peter S. 37 Controller (Vancouver)
Chad, Greg 44 VP, Corporate Services (Vancouver)
Gibson, Esther E. 41 Secretary (Nassau)
Glendinning, David 42 VP, Marine and Commercial Operations
(Vancouver)
Gurnee, Anthony 36 VP, Treasurer and Chief Financial Officer
(Vancouver)
Meldgaard, Mads T. 31 Managing Director (Singapore)
Moller, Bjorn 38 VP, Group Chartering and Business
Development (Vancouver)
Nagao, Yoshio 49 Managing Director (Tokyo)
Patwardhan, Vinay S. 54 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 senior 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.
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22
MORRIS L. FEDER is currently President of Worldwide Cargo Inc., a recently
formed New York based chartering firm. Mr. Feder has been employed in the
shipping industry in excess of 45 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 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.
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 and Chief Financial Officer. 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 23 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 and Managing Director of Oak Steamship Company
Limited, a ship management company based in Hong Kong. Mr. Hsu is a member of
the Executive Committee of Hong Kong Shipowners Association and of the
Executive Committee of the International Association of Dry Cargo Shipowners
(Intercargo), 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 24 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 seven 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 23 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).
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23
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 his current position as Vice President, Group Chartering and
Business Development. 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 29 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 35 years,
having experience in crude tanker, product carrier, O/B/O, 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.
MANAGEMENT SUCCESSION
The Resource Committee of Teekay's Board of Directors is conducting a search to
identify a potential candidate for the position of Chief Operating Officer of
the Company. The creation of the Chief Operating Officer position is intended
to facilitate an orderly leadership succession upon the eventual retirement of
Captain James N. Hood as Chief Executive Officer.
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 $2,291,884 for fiscal 1996, 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 1996, the Company contributed an aggregate amount of
approximately $84,000 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
2,148,571 shares of common stock has been reserved for issuance under the Plan.
As of May 30, 1996, options to purchase a total of 1,111,750 shares of Teekay's
common stock were outstanding, with options to purchase a total of 373,250
shares then effective and with the directors and the 12 executive officers and
senior managers listed in Item 10 above holding options to purchase a total of
703,750 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. Teekay and its partner in VCSC have guaranteed certain
loans 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 shall not occur until after the 9 5/8%
First Preferred Ship Mortgage Notes have been paid in full.
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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.
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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-16
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.
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26
(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.
+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 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.
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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.
#2.41 Time Charter, as amended, dated July 3, 1995 between VSSI Oceans Inc. and Palm
Shipping Inc.
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#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.
- ---------------
* 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
Statements.
++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.
26
29
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 4, 1996
27
30
[LOGO - ERNST & YOUNG]
CHARTERED ACCOUNTANTS Phone: 809 322 3805/7/8
Sassoon House Fax: 809 326 8180
Shirley & Victoria Telex: 20 240 (AUDAC)
P.O. Box N-3231
Nassau, Bahamas
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, 1996 and 1995,
and the related consolidated statements of income and retained
earnings and cash flows for the years ended March 31, 1996 and 1995
and the eleven month period ended March 31, 1994. 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, 1996 and
1995, and the consolidated results of their operations and their cash
flows for the years ended March 31, 1996 and 1995 and for the eleven
month period ended March 31, 1994, 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, /s/ Ernst & Young
May 17, 1996. Chartered Accountants
F-1
31
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 ELEVEN MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31,
--------- --------- ---------
1996 1995 1994
$ $ $
---- ---- ----
NET VOYAGE REVENUES
Voyage revenues 336,320 319,966 317,742
Voyage expenses 90,575 84,957 81,052
- -------------------------------------------------------------------------------------------------------
Net voyage revenues 245,745 235,009 236,690
- -------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Vessel operating expenses 67,841 72,723 73,597
Time charter hire expense 2,503
Depreciation and amortization 83,603 96,435 89,902
General and administrative (note 3) 16,750 15,018 14,063
- -------------------------------------------------------------------------------------------------------
170,697 184,176 177,562
- -------------------------------------------------------------------------------------------------------
Income from vessel operations 75,048 50,833 59,128
- -------------------------------------------------------------------------------------------------------
OTHER ITEMS
Interest expense (61,679) (64,321) (48,064)
Interest income 6,471 5,904 2,904
Other income (note 12) 9,230 12,839 10,245
- -------------------------------------------------------------------------------------------------------
(45,978) (45,578) (34,915)
- -------------------------------------------------------------------------------------------------------
Net income from continuing operations 29,070 5,255 24,213
Net income from discontinued operations (note 4) 5,945
- -------------------------------------------------------------------------------------------------------
Net income before cumulative
effect of accounting change 29,070 5,255 30,158
Cumulative effect of change in accounting for
marketable securities (notes 1 and 5) 1,113
- -------------------------------------------------------------------------------------------------------
Net income 29,070 6,368 30,158
Retained earnings, beginning of the period 406,547 400,179 370,021
- -------------------------------------------------------------------------------------------------------
435,617 406,547 400,179
Exchange of redeemable preferred stock (note 10) (60,000)
Dividends declared and paid (11,927)
- -------------------------------------------------------------------------------------------------------
RETAINED EARNINGS, END OF THE PERIOD 363,690 406,547 400,179
- -------------------------------------------------------------------------------------------------------
Earnings per share amounts (note 1)
Continuing operations $1.17 $0.29 $1.35
Cumulative effect of change in accounting for
marketable securities 0.06
Net income per common share 1.17 0.35 1.68
Weighted average number of common shares
outstanding 24,837,109 18,000,000 18,000,000
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
32
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
AS AT AS AT
MARCH 31, MARCH 31,
--------- ---------
1996 1995
$ $
---- ----
ASSETS
CURRENT
Cash and cash equivalents 99,790 16,500
Marketable securities (notes 5 and 12) 69,239
Restricted cash (note 7) 1,990 7,634
Accounts receivable
-trade 22,213 16,875
-vessel sales (note 12) 17,283
-other 2,725 3,271
Prepaid expenses and other assets 15,331 13,273
- -------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 142,049 144,075
- -------------------------------------------------------------------------------------
VESSELS AND EQUIPMENT (notes 1,7 and 11)
At cost, less accumulated depreciation of $377,105
(1995 - $312,281) 1,193,557 1,142,972
Advances on vessels 5,250 5,066
- -------------------------------------------------------------------------------------
TOTAL VESSELS AND EQUIPMENT 1,198,807 1,148,038
- -------------------------------------------------------------------------------------
Investment 1,624 3,758
Other assets 12,821 10,603
- -------------------------------------------------------------------------------------
1,355,301 1,306,474
- -------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable 11,761 11,480
Accrued liabilities (note 6) 18,303 13,054
Current portion of long-term debt (note 7) 19,102 74,479
- -------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 49,166 99,013
- -------------------------------------------------------------------------------------
Long-term debt (note 7) 706,740 768,395
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES 755,906 867,408
- -------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock (note 10) 235,705 33,001
Retained earnings 363,690 406,547
Less net unrealized loss on marketable
securities (notes 1 and 5) 482
- -------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 599,395 439,066
- -------------------------------------------------------------------------------------
1,355,301 1,306,474
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Commitments and contingencies (notes 7 and 11)
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
33
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
YEAR ENDED YEAR ENDED ELEVEN MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31,
--------- --------- ---------
1996 1995 1994
$ $ $
---- ---- ----
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income from operating activities 29,070 5,255 24,213
Add (deduct) charges to operations not requiring
a payment of cash and cash equivalents:
Depreciation and amortization 83,603 96,435 89,902
Foreign currency exchange loss (gain) (1,050) 2,583
Gain on disposition of assets (8,784) (18,245) (12,347)
Loss on marketable securities 1,553
Loss (gain) on available-for-sale securities (55) 4,303
Equity loss (income) (net of dividend received:
March 31, 1994 - $500) (1,139) 2,089 (483)
Other - net 1,276 (19)
Change in non-cash working capital items
related to operating activities (note 13) (1,320) (1,263) 12,313
- ------------------------------------------------------------------------------------------------
NET CASH FLOW FROM OPERATING ACTIVITIES 102,651 87,505 117,734
- ------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 448,000 220,000
Scheduled repayments of long-term debt (57,850) (87,570) (37,067)
Prepayments of long-term debt (505,962) (15,033) (132,416)
Scheduled payments on capital lease obligations (1,527) (18,472)
Prepayments of capital lease obligations (43,023) (110,839)
Decrease (increase) in restricted cash 5,644 (1,296) 8,143
Net proceeds from issuance of Common Stock 137,872
Cash dividends paid (7,094)
Capitalized loan costs (5,965) (1,565) (9,955)
Financing activities associated with
discontinued operations (20,077)
- ------------------------------------------------------------------------------------------------
NET CASH FLOW FROM FINANCING ACTIVITIES (29,905) (105,464) (100,683)
- ------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (net of
capital lease financing of: March 31, 1996 - $44,550;
March 31, 1995 - $NIL; March 31,
1994 - $97,776) (79,293) (7,465) (65,733)
Expenditures for drydocking (11,641) (11,917) (13,296)
Proceeds from disposition of assets 28,428 16,817 86,351
Net cashflow from investment 3,273 2,650
Increase in marketable securities (70,185)
Proceeds on sale of available-for-sale securities 111,770 110,806
Purchases of available-for-sale securities (41,993) (115,085)
Other 39 (50)
Investing activities associated
with discontinued operations 35,706
- ------------------------------------------------------------------------------------------------
NET CASH FLOW FROM INVESTING ACTIVITIES 10,544 (4,155) (27,207)
- ------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 83,290 (22,114) (10,156)
Cash and cash equivalents, beginning of the period 16,500 38,614 48,770
- ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD 99,790 16,500 38,614
- ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
34
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 (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
$1.27 million 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.
CHANGE IN FISCAL YEAR END
The Company changed its fiscal year end from April 30 to March 31, effective
March 31, 1994. The following is a summary of selected financial information
for the comparative twelve-month periods ended March 31, 1995 and 1994:
F-5
35
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 - (CONT'D)
TWELVE MONTHS ENDED MARCH 31,
-----------------------------
1995 1994
$ $
----- -----
(UNAUDITED)
RESULTS OF OPERATIONS
Voyage revenues 319,966 344,960
Voyage expenses 84,957 88,974
Vessel operating expenses 72,723 80,738
Depreciation and amortization 96,435 97,300
General and administrative expenses 15,018 15,208
Income from vessel operations 50,833 62,740
Interest expense (64,321) (52,709)
Interest income 5,904 3,046
Other income 12,839 12,814
Net income from continuing operations 5,255 25,891
Net income from discontinued operations 6,103
Cumulative effect of change in accounting
for marketable securities 1,113
Net income 6,368 31,994
CASH FLOWS
Net cash flow from operating activities 87,505 125,694
Net cash flow used for financing activities (105,464) (144,592)
Net cash flow provided by (used for) investing activities (4,155) 7,990
INVESTMENT
The Company's 50% interest in Viking Consolidated Shipping Corp. is carried at
the Company's original cost plus its proportionate share of the undistributed
net 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.
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. Voyage expenses
comprise all expenses relating to particular voyages, including bunker fuel
expenses, port fees, canal tolls, and brokerage commissions.
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 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 (see note 5).
F-6
36
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 - (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.
Interest costs capitalized to vessels and equipment for the years ended March
31, 1996 and 1995, and for the eleven-month period ended March 31, 1994
aggregated $106,000, $151,000, and $1,653,000, 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, 1996 and 1995, and for the eleven-month period ended March 31,
1994 aggregated $8,617,000, $10,281,000, and $11,831,000, 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.
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 year ended March 31, 1996 by $9.4
million (or $0.38 per common share).
OTHER ASSETS
Loan costs, including fees, commissions and legal expenses, are capitalized and
amortized over the term of the relevant loan.
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, 1996 and 1995, and for the
eleven-month period ended March 31, 1994 totalled $59,021,000, $65,368,000, and
$49,456,000, respectively.
The Company classifies all highly liquid investments with a maturity date of
three months or less when purchased to be included in cash and cash
equivalents.
F-7
37
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 - (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 10 - 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
The Company accounts for its stock option plans in accordance with provisions
of the Accounting Principles Board's Opinion No. 25 (APB 25), "Accounting for
Stock Issued to Employees." In 1995, the Financial Accounting Standards Board
released the Statement of Financial Accounting Standard No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation." SFAS 123 provides an alternative to
APB 25 and is effective for fiscal years beginning after December 15, 1995.
The Company expects to continue to account for its employee stock plans in
accordance with the provisions of APB 25.
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.
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 and the eleven-month period ended March 31, 1994 aggregated $11,826,000
and $12,030,000, respectively. Commissions incurred, related to vessel
dispositions, for the year ended March 31, 1995 and the eleven-month period
ended March 31, 1994 aggregated $295,000 and $579,000, respectively.
4. DISCONTINUED OPERATIONS
In October 1992, the Company adopted a plan to divest its 50% investment in
Baltimar Overseas Limited ("Baltimar"), previously accounted for as a
controlled subsidiary, in order to focus its resources on the tanker shipping
industry. Baltimar operated a fleet of multipurpose dry cargo vessels through
eighteen single purpose shipping companies. On April 30, 1993, the Company
entered into an agreement to exchange its entire interest in Baltimar in return
for the shares of nine of Baltimar's single purpose shipping companies. No
gain or loss was recognized on this transaction. The vessels were sold in
December 1993 for a total sales price of $37.3 million resulting in a net gain
of $5.7 million.
Revenues from discontinued operations for the eleven-month period ended March
31, 1994 amounted to $8,653,000.
F-8
38
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
5. INVESTMENTS IN MARKETABLE SECURITIES
APPROXIMATE
GROSS GROSS MARKET AND
UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES AMOUNT
$ $ $ $
- ----------------------------------------------------------------------------------------------------------
1996
Available-For-Sale Securities NIL NIL
- ----------------------------------------------------------------------------------------------------------
1995
Available-For-Sale Securities 69,721 450 932 69,239
- ----------------------------------------------------------------------------------------------------------
The cost and approximate market value of available-for-sale debt securities by
contractual maturity, as at March 31, 1995, are shown as follows:
APPROXIMATE
MARKET AND
COST CARRYING AMOUNT
$ $
- ----------------------------------------------------------------------------------------------------------
Less than one year 44,767 44,424
Due after one year through five years 24,954 24,815
Due after 5 years NIL NIL
- ----------------------------------------------------------------------------------------------------------
69,721 69,239
- ----------------------------------------------------------------------------------------------------------
The unrealized loss on marketable securities included as a separate component
of shareholders' equity decreased by $482,000 for the year ended March 31,
1996.
6. ACCRUED LIABILITIES
MARCH 31, MARCH 31,
--------- ---------
1996 1995
$ $
----- -----
Voyage and vessel 9,053 5,776
Interest 7,789 5,415
Payroll and benefits 1,461 1,863
------- -------
18,303 13,054
====== ======
F-9
39
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
7. LONG-TERM DEBT
MARCH 31, MARCH 31,
--------- ---------
1996 1995
$ $
----- -----
Revolving Credit Facility 118,000
First Preferred Ship Mortgage Notes (8.32%)
U.S. dollar debt due through 2008 225,000
First Preferred Ship Mortgage Notes (9 5/8%)
U.S. dollar debt due through 2004 151,200 175,000
Floating rate (LIBOR + 1% to 1 1/2%)
U.S. dollar debt due through 2006 231,642 667,874
------- -------
725,842 842,874
Less current portion 19,102 74,479
------ -------
706,740 768,395
======= =======
In June 1995, the Company entered into a revolving credit facility, (the
"Revolver"), with three commercial banks providing for borrowings of up to $223
million in order to refinance certain of the existing debt obligations of the
Company and to finance vessel acquisitions. The Revolver is collateralized by
first priority mortgages granted on fourteen 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 commitment amount
reduces by $9.5 million semi-annually commencing six months after the initial
drawdown date, together with a final balloon reduction coincident with the
final semi-annual reduction on June 6, 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. Principal repayments under the Revolver are required
when the Revolver borrowings exceed the commitment amount.
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, 1996, the fair value of these net
assets approximated $305 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.
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, 1996, the fair value of these net assets
approximated $199 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. 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:
F-10
40
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
7. LONG-TERM DEBT (CONT'D)
JULY 15 REDEMPTION PRICE
------- ----------------
1998 104.813%
1999 102.406%
2000 100.000%
During the first quarter of fiscal 1996, the Company retired $23.8 million of
the 9 5/8% Notes, utilizing approximately $18.5 million of funds available
under the Revolver.
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.
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.
Condensed financial information regarding the Company, the 9 5/8% Guarantor
Subsidiaries, the 8.32% Guarantor Subsidiaries and non-guarantor subsidiaries
of the Company is set out in Schedule A of these audited consolidated financial
statements.
Among other matters, the long-term debt agreements generally provide for such
items as maintenance of certain vessel market value to loan ratios, prepayment
privileges (in some cases with penalties), restrictions on the payment of
dividends and advances to shareholders by the individual subsidiaries (at March
31, 1996, approximately $477,000 of subsidiary retained earnings may not be
distributed to Teekay without prior lender consent), and restrictions against
the incurrence of additional debt and new investments by the individual
subsidiaries without prior lender consent. Certain bank loans require
retention deposits. Retention deposits as at March 31, 1996 were $1,648,000
(March 31, 1995 - $4,443,000).
As at March 31, 1996, the Company was committed to a series of interest rate
swap agreements whereby $250 million of the Company's floating rate debt was
swapped with fixed rate obligations having an average remaining term of 19.1
months. The swap agreements expire between April 1996 and December 1998. These
arrangements effectively change the Company's interest rate exposure on $250
million of debt from a floating LIBOR rate to an average fixed rate of 6.17%.
As at March 31, 1996, the Company was a party to interest rate cap contracts
which effectively limit the interest rate exposure on $200 million of the
Company's floating rate debt to a maximum of 8%. $100 million of the contracts
became effective on February 24, 1995 and the remaining $100 million of
contracts became effective in October 1995. All of the contracts expire on
April 1, 1997. The Company is exposed to credit loss in the event of
non-performance by the counter parties to the interest rate swap and cap
agreements; however, the Company does not anticipate non-performance by any of
the counter parties.
F-11
41
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
7. LONG-TERM DEBT (CONT'D)
Long-term debt principal repayments required to be made in the fiscal years
subsequent to March 31, 1996 are as follows:
$
- ---------------------------------------------------------------
1997 19,102
1998 22,598
1999 62,423
2000 62,423
2001 78,296
Thereafter 481,000
- ---------------------------------------------------------------
725,842
- ---------------------------------------------------------------
8. 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 as follows:
$
- ---------------------------------------------------------------
1997 33,854
1998 4,144
- ---------------------------------------------------------------
37,998
- ---------------------------------------------------------------
The minimum future revenues should not be construed to reflect total charter
hire revenues for any of the years.
9. 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.
F-12
42
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONT'D)
The estimated fair value of the Company's financial instruments is as follows:
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
$ $ $ $
-------- ------ ------- ------
Cash and cash equivalents, restricted cash,
and marketable securities 101,780 101,780 93,373 93,373
Long-term debt 725,842 723,056 842,874 834,562
Interest rate swap agreements - net receivable
(payable) position (60) 3,047
Interest rate cap agreements 618 10 975 820
The Company transacts with investment grade rated financial institutions and
requires no collateral from these institutions.
10. 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 April 30, 1993 33,000 18,000 1 600
February 22, 1994 2-for-1 Common Stock Split 18,000
-------- ------- ----- -----
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
======== ====== ==== ========
On July 19, 1995, the Company completed its initial public offering of
6,900,000 shares of its Common Stock. The Company's Common Stock was initially
offered at a price of $21.50 per share, resulting in aggregate net proceeds to
the Company of approximately $137.6 million. $135 million of the net proceeds
from the offering was used to reduce the amounts outstanding under the
Company's revolving credit facility. In conjunction with the completion of the
initial public offering, the Company exchanged all of its outstanding
Redeemable Preferred Stock for 2,790,698 shares of Common Stock.
F13
43
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
10. CAPITAL STOCK (CONT'D)
The Company has reserved 2,148,571 shares of Common Stock for issuance upon
exercise of options granted pursuant to the Company's 1995 Stock Option Plan
(the "Plan"), of which options to purchase up to 796,750 shares of Common
Stock, at an exercise price of $21.50 per share, were granted concurrent with
the consummation of the offering. As at March 31, 1996, options for 778,450
shares were outstanding, of which 383,200 options were exercisable. These
options remain exercisable until July 2005.
11. COMMITMENTS AND CONTINGENCIES
As at March 31, 1996, the Company was committed to foreign exchange contracts
for the forward purchase of approximately Japanese Yen 150 million and
Singapore dollars 851,300 for U.S. dollars, at an average rate of Japanese Yen
105.69 per U.S. dollar and Singapore dollar 1.39 per U.S. dollar, respectively,
for the purpose of hedging accounts payable and accrued liabilities.
In October 1995, the Company entered into an agreement for a one-year
time-charter and subsequent purchase of a modern second-hand Aframax tanker for
a cost of $26.5 million. The cost of this vessel will be financed through cash
balances. As at March 31, 1996, the Company was committed to the construction
of an Aframax vessel for a cost of $44.5 million, scheduled for delivery in
July 1997. A long-term financing arrangement exists for approximately $35.6
million of the unpaid cost of this vessel.
A lawsuit has been commenced against the representative of the estate of the
Company's founder, the late Mr. Torben Karlshoej, by Mr. Karlshoej's first
wife, claiming an interest in certain assets, including the Company, at one
time directly or indirectly held by Mr. Karlshoej. The Company, based upon
advice of its legal counsel, believes that the suit is without merit and does
not anticipate that the outcome of the lawsuit will have a material adverse
effect upon it or its assets.
12. OTHER INCOME
ELEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
-------- --------- ---------
1996 1995 1994
$ $ $
---- ---- ----
Gain on disposition of assets 8,784 18,245 12,347
Loss on marketable securities (1,553)
Gain (loss) on available-for-sale securities 55 (4,303)
Equity in results of 50% owned company 1,139 (2,089) 983
Foreign currency exchange gain (loss) (665) 991 (1,532)
Miscellaneous - net (83) (5)
----- ------ ------
9,230 12,839 10,245
===== ====== ======
During the year ended March 31, 1995, the Company disposed of six vessels
resulting in a gain of $18,245,000. Proceeds of $11,490,000 relating to the
sale of two vessels were received in May 1995.
Gross realized gains on sales of available-for-sale securities for the years
ended March 31, 1996 and 1995
F14
44
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
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.
13. CHANGE IN NON-CASH WORKING CAPITAL ITEMS RELATED TO OPERATING ACTIVITIES
ELEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
-------- --------- ---------
1996 1995 1994
$ $ $
----- ------ -----
Accounts receivable (4,792) 3,585 4,492
Prepaid expenses and other assets (2,058) (1,597) 6,054
Accounts payable 281 (310) 22
Accrued liabilities 5,249 (2,941) 1,745
------ ------- -------
(1,320) (1,263) 12,313
======= ======== =======
14. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform with the
presentation adopted in the current period.
15. SUBSEQUENT EVENTS
Subsequent to March 31, 1996, the Company acquired a second-hand Aframax tanker
for $30.2 million, which was financed through a combination of a Revolver
drawdown and cash on hand.
F15
45
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of U.S. dollars)
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 1,521 20,681 31,861 340,496 (223,862) 170,697
-----------------------------------------------------------------------------------------------
Income (loss) from (1,521) 9,074 17,541 49,954 75,048
vessel operations
Net interest income (expense) (17,711) 394 (13,759) (24,132) (55,208)
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 the period 406,547 22,309 (5,027) 89,301 (106,583) 406,547
-----------------------------------------------------------------------------------------------
435,617 31,777 (1,245) 131,063 (161,595) 435,617
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 period 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 1,999 24,410 29,434 374,541 (246,208) 184,176
-----------------------------------------------------------------------------------------------
Income (loss) from (1,999) 8,277 18,159 26,303 93 50,833
vessel operations
Net interest income (expense) (16,963) 491 (13,736) (28,209) (58,417)
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
Net income from discontinued
operations
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 the period 400,179 46,735 (9,450) 90,396 (127,681) 400,179
-----------------------------------------------------------------------------------------------
406,547 55,504 (5,027) 103,361 (153,838) 406,547
Dividends declared and paid (25,266) (21,989) 47,255
-----------------------------------------------------------------------------------------------
Retained earnings (deficit),
end of the period 406,547 30,238 (5,027) 81,372 (106,583) 406,547
===============================================================================================
Eleven Months Ended March 31, 1994
-----------------------------------------------------------------------------------------------
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 30,932 39,003 408,577 (241,822) 236,690
Operating expenses 921 22,666 21,323 374,586 (241,934) 177,562
-----------------------------------------------------------------------------------------------
Income (loss) from (921) 8,266 17,680 33,991 112 59,128
vessel operations
Net interest income (expense) (11,794) (545) (8,865) (23,956) (45,160)
Equity in net income (loss)
of subsidiaries 42,873 (41,890) 983
Other income 9,262 9,262
-----------------------------------------------------------------------------------------------
Net income from continuing
operations 30,158 7,721 8,815 19,297 (41,778) 24,213
Net income from discontinued
operations 5,945 5,945
Cumulative effect of change
in accounting for marketable
securities
-----------------------------------------------------------------------------------------------
Net income 30,158 7,721 8,815 25,242 (41,778) 30,158
Retained earnings (deficit),
beginning of the period 370,021 39,014 (18,265) 88,938 (109,687) 370,021
-----------------------------------------------------------------------------------------------
400,179 46,735 (9,450) 114,180 (151,465) 400,179
Dividends declared and paid (23,784) 23,784
Retained earnings (deficit), -----------------------------------------------------------------------------------------------
end of the period 400,179 46,735 (9,450) 90,396 (127,681) 400,179
===============================================================================================
- ---------------
(See Note 7)
F-16
46
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(in thousands of U.S. dollars)
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 85,939 99,790
Restricted cash 1,990 1,990
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 382,023 (382,023)
-----------------------------------------------------------------------------------------------
Total liabilities 379,428 539 613 757,439 (382,113) 755,906
-----------------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock 235,705 6 23 5,933 (5,962) 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
Less net unrealized loss on
marketable securities
-----------------------------------------------------------------------------------------------
Total stockholders' equity 599,395 149,201 368,085 77,574 (594,860) 599,395
-----------------------------------------------------------------------------------------------
978,823 149,740 368,698 835,013 (976,973) 1,355,301
===============================================================================================
As at 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
$ $ $ $ $ $
---------------- -------------- -------------- ------------- ------------- ---------------
ASSETS
Cash and cash equivalents 97 6,856 3,076 6,471 16,500
Restricted cash 7,634 7,634
Other current assets 180 1,287 1,317 117,368 (211) 119,941
-----------------------------------------------------------------------------------------------
Total current assets 277 8,143 4,393 131,473 (211) 144,075
-----------------------------------------------------------------------------------------------
Vessels and equipment (net) 162,812 333,896 651,330 1,148,038
Advances due from subsidiaries 354,330 (354,330)
Other assets (principally
investments in subsidiaries) 264,302 4,935 (254,876) 14,361
-----------------------------------------------------------------------------------------------
618,909 170,955 338,289 787,738 (609,417) 1,306,474
===============================================================================================
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities 4,843 2,214 22,559 69,583 (186) 99,013
Long-term debt 175,000 187,418 405,977 768,395
Due to parent 133,316 224,907 (358,223)
-----------------------------------------------------------------------------------------------
Total liabilities 179,843 2,214 343,293 700,467 (358,409) 867,408
-----------------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock 33,001 11 23 5,899 (5,933) 33,001
Contributed capital 138,492 (138,492)
Retained earnings (deficit) 406,547 30,238 (5,027) 81,372 (106,583) 406,547
Less net unrealized loss on
marketable securities 482 482
Total stockholders' equity 439,066 168,741 (5,004) 87,271 (251,008) 439,066
-----------------------------------------------------------------------------------------------
618,909 170,955 338,289 787,738 (609,417) 1,306,474
===============================================================================================
- -------------
(See Note 7)
F-17
47
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
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) 16,284 22,798 87,341 102,651
-----------------------------------------------------------------------------------------------
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) 170,098 (7,415)
-----------------------------------------------------------------------------------------------
Net cash flow from
financing activities 310,413 (14,400) (386,748) 60,830 (29,905)
-----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels
and equipment 344 (3,223) (88,055) (90,934)
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) 843 366,084 (69,673) 10,544
-----------------------------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (69) 2,727 2,134 78,498 83,290
Cash and cash equivalents,
beginning of the period 97 5,886 3,076 7,441 16,500
-----------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of the period 28 8,613 5,210 85,939 99,790
==============================================================================================
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 provided by (used for)
OPERATING ACTIVITIES
-----------------------------------------------------------------------------------------------
Net cash flow from (40,919) 20,403 23,110 84,911 87,505
operating activities
-----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt
Repayments of long-term debt (21,854) (80,749) (102,603)
Payments on capital
lease obligations
Other (31,518) (25,263) (188) 54,108 (2,861)
Financing activities of
discontinued operations
-----------------------------------------------------------------------------------------------
Net cash flow from
financing activities (31,518) (25,263) (22,042) (26,641) (105,464)
-----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels
and equipment (2,039) (3,197) (14,146) (19,382)
Proceeds from disposition
of assets 16,817 16,817
Other 72,776 19 1 (74,386) (1,590)
Investing activities
of discontinued operations
-----------------------------------------------------------------------------------------------
Net cash flow from
investing activities 72,776 (2,020) (3,196) (71,715) (4,155)
-----------------------------------------------------------------------------------------------
Increase (decrease) in cash 339 (6,880) (2,128) (13,445) (22,114)
Cash (deficiency), beginning
of the period (242) 13,736 5,204 19,916 38,614
-----------------------------------------------------------------------------------------------
Cash (deficiency), 97 6,856 3,076 6,471 16,500
end of the period
===============================================================================================
Eleven Months Ended March 31, 1994
--------------------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
---------------- -------------- ------------- ------------- ------------- ---------------
Cash provided by (used for)
OPERATING ACTIVITIES
-----------------------------------------------------------------------------------------------
Net cash flow from
operating activities (8,310) 16,849 21,308 87,887 117,734
-----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 175,000 45,000 220,000
Repayments of long-term debt (75,452) (10,633) (83,398) (169,483)
Payments on capital
lease obligations (47,129) (53,745) (28,437) (129,311)
Other (51,652) (52,367) 65,493 36,714 (1,812)
Financing activities of
discontinued operations (20,077) (20,077)
-----------------------------------------------------------------------------------------------
Net cash flow from
financing activities 123,348 (174,948) 46,115 (95,198) (100,683)
-----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels
and equipment (1,882) (62,236) (14,911) (79,029)
Proceeds from disposition
of assets 86,351 86,351
Other (114,739) 138,473 (230) (93,739) (70,235)
Investing activities of
discontinued operations 35,706 35,706
-----------------------------------------------------------------------------------------------
Net cash flow from
investing activities (114,739) 136,591 (62,466) 13,407 (27,207)
-----------------------------------------------------------------------------------------------
Increase (decrease) in cash 299 (21,508) 4,957 6,096 (10,156)
Cash (deficiency), beginning
of the period (541) 35,244 247 13,820 48,770
-----------------------------------------------------------------------------------------------
Cash (deficiency), end
of the period (242) 13,736 5,204 19,916 38,614
==============================================================================================
(See Note 7)
F-18
48
EXHIBIT INDEX
*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.
+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 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.
49
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.
#2.41 Time Charter, as amended, dated July 3, 1995 between VSSI Oceans Inc. and Palm
Shipping Inc.
50
#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.
- ---------------
* 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
Statements.
++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.