1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------- FORM 6-K Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934 ---------------------- For the quarterly period ended September 30, 1995 ------------------ TEEKAY SHIPPING CORPORATION (Formerly Viking Star Shipping Inc.) (Exact name of Registrant as specified in its charter) Tradewinds Building, Sixth Floor Bay Street, P.O. Box SS-6293, Nassau, The Bahamas (Address of principal executive office) ---------------------- [Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.] Form 20-F X Form 40-F ----- ----- [Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.] Yes No X ----- ----- [If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-__________ ] Page 1 of 19 2 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (FORMERLY VIKING STAR SHIPPING INC.) REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995 INDEX PART I: FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Statements of Income and Retained Earnings for the three and six months ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Balance Sheets - September 30, 1995 and March 31, 1995 . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows for the six months ended September 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . 14 PART II: OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2 3 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (Formerly Viking Star Shipping Inc.) CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (in thousands of U.S. dollars) THREE MONTHS ENDED SIX MONTHS ENDED ------------------- ---------------- SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 1995 1994 1995 1994 ---- ---- ---- ---- $ (UNAUDITED) $ $ (UNAUDITED) $ --- ----------- --- --- ----------- --- REVENUES Voyage revenues 81,660 83,619 160,944 162,771 Voyage expenses 21,656 23,172 43,452 42,515 - ------------------------------------------------------------------------------------------------------ Net voyage revenue 60,004 60,447 117,492 120,256 - ------------------------------------------------------------------------------------------------------ OPERATING EXPENSES Vessel operating expenses 16,829 19,534 33,496 38,446 Depreciation and amortization (note 2) 20,077 24,483 40,956 48,238 General and administrative 4,548 4,130 8,812 8,146 - ------------------------------------------------------------------------------------------------------ Income from vessel operations 18,550 12,300 34,228 25,426 - ------------------------------------------------------------------------------------------------------ OTHER ITEMS Interest expense (15,729) (16,172) (31,230) (31,364) Interest income 1,635 1,406 3,182 2,903 Other income (note 9) 4,318 3,264 3,851 1,018 - ------------------------------------------------------------------------------------------------------ (9,776) (11,502) (24,197) (27,443) - ------------------------------------------------------------------------------------------------------ Net income (loss) 8,774 798 10,031 (2,017) Retained earnings, beginning of the period 407,804 397,364 406,547 400,179 Exchange of redeemable preferred stock (note 7) (60,000) (60,000) - ------------------------------------------------------------------------------------------------------ RETAINED EARNINGS, END OF THE PERIOD 356,578 398,162 356,578 398,162 ====================================================================================================== Net income (loss) per common share (note 7) $ 0.34 $ 0.04 $ 0.46 $ (0.11) Weighted average number of common shares outstanding (note 7) 25,689,358 18,000,000 21,865,688 18,000,000 The accompanying notes are an integral part of the consolidated financial statements. 3 4 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (Formerly Viking Star Shipping Inc.) CONSOLIDATED BALANCE SHEETS (in thousands of U.S. dollars) AT SEPTEMBER 30, 1995 AT MARCH 31, 1995 --------------------- ----------------- $ $ --- --- (UNAUDITED) ----------- ASSETS CURRENT Cash 60,465 16,500 Marketable securities (note 9) 48,802 69,239 Restricted cash 3,623 7,634 Accounts receivable -trade 20,948 16,875 -vessel sale 17,283 -other 2,812 3,271 Prepaid expenses and other assets 13,574 13,273 - ------------------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 150,224 144,075 - ------------------------------------------------------------------------------------------------------ VESSELS AND EQUIPMENT (notes 2, 5, 6 and 10) At cost, less accumulated depreciation of $343,838 (March 31, 1995 - $312,281) 1,152,171 1,142,972 Acquired under capital lease, less accumulated amortization of $398 49,813 Advances on vessels 5,066 - ------------------------------------------------------------------------------------------------------ TOTAL VESSELS AND EQUIPMENT 1,201,984 1,148,038 - ------------------------------------------------------------------------------------------------------ Investment in 50% owned company 4,468 3,758 Other assets 9,240 10,603 - ------------------------------------------------------------------------------------------------------ 1,365,916 1,306,474 ====================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT Accounts payable 10,542 11,480 Accrued liabilities 12,542 13,054 Current portion of long-term debt (notes 5 and 8) 58,906 74,479 Current portion of capital lease obligation (notes 6 and 8) 2,709 - ------------------------------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 84,699 99,013 - ------------------------------------------------------------------------------------------------------ Long-term debt (notes 5 and 8) 652,969 768,395 Capital lease obligation (notes 6 and 8) 41,200 - ------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES 778,868 867,408 - ------------------------------------------------------------------------------------------------------ STOCKHOLDERS' EQUITY Capital stock (note 7) 230,613 33,001 Retained earnings 356,578 406,547 Less net unrealized loss on marketable securities 143 482 - ------------------------------------------------------------------------------------------------------ TOTAL STOCKHOLDERS' EQUITY 587,048 439,066 - ------------------------------------------------------------------------------------------------------ 1,365,916 1,306,474 ====================================================================================================== Commitments and contingencies (note 8). The accompanying notes are an integral part of the consolidated financial statements. 4 5 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (Formerly Viking Star Shipping Inc.) CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of U.S. dollars) SIX MONTHS ENDED SEPTEMBER 30, ------------------------------ 1995 1994 ---- ---- $ (UNAUDITED) $ --- ----------- --- Cash provided by (used for) OPERATING ACTIVITIES Net income (loss) 10,031 (2,017) Add (deduct) charges to operations not requiring a payment of cash: Depreciation and amortization 40,956 48,238 Foreign currency exchange gain (84) (305) Gain on disposition of assets (3,728) (3,698) Loss on marketable securities 110 2,719 Equity income (704) Other 709 Change in non-cash working capital items related to operating activities (5,402) 6,301 - ------------------------------------------------------------------------------------------------------- NET CASH FLOW FROM OPERATING ACTIVITIES 41,888 51,238 - ------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from long-term debt 223,000 Scheduled repayments of long-term debt (34,880) (44,147) Prepayments of long-term debt (317,901) (6,533) Scheduled repayments of capital lease obligation (640) Decrease (increase) in restricted cash 4,011 (490) Net proceeds from stock issuance 137,613 Capitalized loan costs (866) (942) - ------------------------------------------------------------------------------------------------------- NET CASH FLOW FROM FINANCING ACTIVITIES 10,337 (52,112) - ------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Expenditures for vessels and equipment (net of capital lease financing of $44,550; September 30, 1994 - $0) (47,527) (4,273) Expenditures for drydocking (4,193) (7,121) Proceeds from disposition of assets 22,794 4,220 Increase in investment (400) Proceeds on sale of available-for-sale securities 53,332 Purchases of available-for-sale securities (32,666) Increase in marketable securities (2,073) - ------------------------------------------------------------------------------------------------------- NET CASH FLOW FROM INVESTING ACTIVITIES (8,260) (9,647) - ------------------------------------------------------------------------------------------------------- Increase (decrease) in cash 43,965 (10,521) Cash, beginning of the period 16,500 38,614 - ------------------------------------------------------------------------------------------------------- CASH, END OF THE PERIOD 60,465 28,093 ======================================================================================================= The accompanying notes are an integral part of the consolidated financial statements. 5 6 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (FORMERLY VIKING STAR SHIPPING INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) (INFORMATION AS AT SEPTEMBER 30, 1995, AND FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures required by generally accepted accounting principles for complete annual financial statements have been omitted and, therefore, it is suggested that these interim financial statements be read in conjunction with the Company's audited financial statements for the fiscal year ended March 31, 1995. In the opinion of management, these statements reflect all adjustments (consisting only of normal recurring accruals), necessary to present fairly, in all material respects, the Company's consolidated financial position, results of operations and cash flows for the interim periods presented. The results of operations for the three-month and six-month periods ended September 30, 1995 are not necessarily indicative of those for a full fiscal year. Certain of the prior period comparative figures have been reclassified where necessary to conform with the presentation used in the current period. 2. CHANGE IN ESTIMATE 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 six-month and three-month periods ended September 30, 1995 by $4.8 million (or $0.22 per common share) and $2.8 million (or $0.11 per common share), respectively. 3. CASH FLOWS Cash interest paid during the six-month periods ended September 30, 1995 and 1994 totalled approximately $31,895,000 and $32,421,000, respectively. 4. INCOME TAXES The legal jurisdictions of the countries in which the Company and its subsidiaries are incorporated do not impose income taxes upon shipping-related activities. 5. LONG-TERM DEBT SEPTEMBER 30, MARCH 31, 1995 1995 $ $ ----------------------------------------------------------------------------------------------------- Revolving Credit Facility 88,000 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 472,675 667,874 ----------------------------------------------------------------------------------------------------- 711,875 842,874 Less current portion of long-term debt 58,906 74,479 ----------------------------------------------------------------------------------------------------- 652,969 768,395 ===================================================================================================== 6 7 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (FORMERLY VIKING STAR SHIPPING INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) (INFORMATION AS AT SEPTEMBER 30, 1995, AND FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 5. LONG-TERM DEBT - CONT'D In May 1995, the Company negotiated a revolving credit facility, (the "Facility"), with three commercial banks providing for borrowings of up to $243 million in order to refinance certain of the existing debt obligations of the Company and to finance vessel acquisitions. The Facility is collateralized initially 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 Facility. The commitment amount will be reduced in 16 semi-annual instalments commencing six months after the initial drawdown date, together with a final balloon payment coincident with the final semi-annual reduction. Interest payments are based on LIBOR plus a margin ranging from 0.80% to 1.25% which is dependent on the financial leverage of the Company. In June 1995, the Company made an initial drawdown on the Facility in the amount of $223 million and simultaneously prepaid approximately $204 million in other floating rate debt. In July 1995, using part of the proceeds from the initial public offering, the Company prepaid $135 million of the Facility. During the first quarter of fiscal 1996, the Company retired $23.8 million of its First Preferred Ship Mortgage Notes, utilizing approximately $18.5 million of funds available under the Facility. Six of the Company's subsidiaries, Diamond Spirit Inc., Sebarok Spirit Inc., VSSI Bulkers Inc., VSSI Deepsea Inc., VSSI Star Inc., and VSSI Ulsan Inc. ("the Guarantor Subsidiaries") have guaranteed the First Preferred Ship Mortgage Notes due July 2003 issued by Teekay Shipping Corporation to a maximum of 95% of the fair value of their net assets. As of September 30, 1995, the fair value of the net assets of the Guarantor Subsidiaries approximated $201 million. Condensed financial information regarding the Company, the Guarantor Subsidiaries and non-guarantor subsidiaries of the Company is set out on Schedule A of these consolidated financial statements. 6. CAPITAL LEASE OBLIGATION On August 7, 1995, the Company took delivery of a bareboat hire purchased vessel which is accounted for as a capital lease. SEPTEMBER 30, MARCH 31, 1995 1995 $ $ ------------------------------------------------------------------------------------------------------ Floating rate (LIBOR + 1.25%) U.S. dollar capital lease due through 2008 43,909 Less current portion of capital lease obligation 2,709 ------------------------------------------------------------------------------------------------------ 41,200 ====================================================================================================== The Company holds a purchase option on this vessel which is exercisable, at the Company's discretion, on any monthly lease payment date at a price equal to the unpaid principal balance of the capital lease obligation outstanding as at the date the purchase option is exercised. 7 8 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (FORMERLY VIKING STAR SHIPPING INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) (INFORMATION AS AT SEPTEMBER 30, 1995, AND FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 7. CAPITAL STOCK AUTHORIZED 25,000,000 Preferred Stock with a par value of $1 each. 125,000,000 Common Stock with no par value ------------------------------------------------------------------------------------------------------ Common Thousands Preferred Thousands Issued and outstanding Stock of shares Stock of shares ------------------------------------------------------------------------------------------------------ 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 million shares @ $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) ------------------------------------------------------------------------------------------------------ Balance September 30, 1995 $230,613 27,691 0 0 ====================================================================================================== Effective May 15, 1995, the Company completed a reverse stock split of its Common Stock on a 1 for 2 basis, effectively changing its outstanding Common Stock from 36 million to 18 million shares. 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. 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, 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. Net income (loss) per common share is based upon the weighted average number of common shares outstanding during each period, after giving effect to the 1 for 2 reverse stock split. Stock options have not been included in the computation of net income (loss) per common share since their effect thereon would not be material. 8 9 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (FORMERLY VIKING STAR SHIPPING INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) (INFORMATION AS AT SEPTEMBER 30, 1995, AND FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 8. COMMITMENTS AND CONTINGENCIES As at September 30, 1995, the Company was committed to a series of interest rate swap agreements whereby $175 million of the Company's floating rate debt was swapped with fixed rate obligations having an average remaining term of 4.5 months. The swap agreements expire between October 1995 and April 1996. These arrangements effectively change the Company's interest rate exposure on $175 million of debt from a floating LIBOR rate to an average fixed rate of 5.68%. The Company is exposed to credit loss in the event of non-performance by the counter parties to the interest rate swap agreements; however, the Company does not anticipate non-performance by any of the counter parties. As at September 30, 1995, 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; the remaining $100 million of contracts became effective on October 2, 1995. All of the contracts expire on April 1, 1997. The premiums paid by the Company have been recorded at cost and are being amortized over the lives of the individual contracts. Receipts, if any, under the interest rate cap contracts are reflected as adjustments to interest expense since the contracts are designated as hedges in connection with long-term debt obligations. As at September 30, 1995, the Company was committed to foreign exchange contracts for the forward purchase of approximately Japanese Yen 1 billion and Singapore dollars 472,000 for U.S. dollars, at an average rate of Japanese Yen per 95.18 U.S. dollar and Singapore dollar 1.40 per U.S. dollar, respectively. Of these, contracts for Japanese Yen 850 million are attributable to a hedge in connection with the Company's 50% portion of a Japanese Yen-denominated-long-term debt obligation held in Viking Consolidated Shipping Corp., a joint venture in which the Company has a 50% interest. Foreign exchange gains and losses, if any, arising from these contracts are reflected as adjustments to the Company's equity in the results of Viking Consolidated Shipping Corp. The remaining foreign exchange contracts are for the purpose of hedging accounts payable and accrued liabilities. The Company has guaranteed vessel loans of Viking Consolidated Shipping Corp. At September 30, 1995, the guaranteed portions of these loans amounted to $17.8 million. 9. OTHER INCOME THREE MONTHS SIX MONTHS ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, ------------------- ------------------- 1995 1994 1995 1994 $ $ $ $ ------------------------------------------------------------------------------------------------------- Gain on disposition of assets 3,728 3,698 3,728 3,698 Loss on marketable securities (180) (653) (110) (2,719) Foreign currency exchange gain (loss) (455) (96) (513) 39 Equity in results of 50% owned company 1,278 315 704 Miscellaneous - net (53) 42 ------------------------------------------------------------------------------------------------------- 4,318 3,264 3,851 1,018 ======================================================================================================= 9 10 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (FORMERLY VIKING STAR SHIPPING INC.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) (INFORMATION AS AT SEPTEMBER 30, 1995, AND FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 10. SUBSEQUENT EVENTS Subsequent to September 30, 1995, the Company entered into an agreement for the sale of a vessel for $6.0 million. This sale, if consummated will result in a net gain of approximately $5.4 million. Subsequent to September 30, 1995, the Company entered into an additional $250 million in interest rate swap agreements with three commercial banks. These swap agreements have an average life of 3 years, expiring between October 1998 and December 1998, and effectively change the Company's interest rate exposure on $250 million of debt from a floating LIBOR rate to an average fixed rate of 5.85%. Subsequent to September 30, 1995, the Company entered into an agreement to acquire a 1987-built Aframax tanker, whereby the Company will time-charter the vessel for a period of one year and then purchase the vessel for $26.5 million. 10 11 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (FORMERLY VIKING STAR SHIPPING INC.) CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS OF U.S. DOLLARS) THREE MONTHS ENDED SEPTEMBER 30, 1995 --------------------------------------------------------------------------- TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIERIES $ $ $ $ $ -------------- ------------ ------------ ------------ ----------------- Revenues 7,400 133,922 (59,662) 81,660 Operating Expenses 226 4,876 117,697 (59,689) 63,110 --------------------------------------------------------------------------- Income from vessel operations (226) 2,524 16,225 27 18,550 Net interest expense (4,116) (55) (9,923) (14,094) Equity in net income of subsidiaries 13,068 (11,790) 1,278 Other income 48 147 2,845 3,040 --------------------------------------------------------------------------- Net income (loss) 8,774 2,616 9,147 (11,763) 8,774 Retained earnings, beginning of the period 407,804 16,737 50,774 (67,511) 407,804 --------------------------------------------------------------------------- Exchange of redeemable preferred stock (60,000) (60,000) Dividends paid --------------------------------------------------------------------------- Retained earnings, end of the period 356,578 19,353 59,921 (79,274) 356,578 =========================================================================== THREE MONTHS ENDED SEPTEMBER 30, 1994 --------------------------------------------------------------------------- TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES $ $ $ $ $ -------------- ------------ ------------ ------------ ----------------- Revenues 8,340 137,780 (62,501) 83,619 Operating Expenses 397 6,202 127,212 (62,492) 71,319 --------------------------------------------------------------------------- Income from vessel operations (397) 2,138 10,568 (9) 12,300 Net interest expense (4,401) 130 (10,495) (14,766) Equity in net income of subsidiaries 5,596 (5,281) 315 Other income 2,949 2,949 --------------------------------------------------------------------------- Net income (loss) 798 2,268 3,022 (5,290) 798 Retained earnings, beginning of the period 397,364 48,533 81,180 (129,713) 397,364 --------------------------------------------------------------------------- Exchange of redeemable preferred stock Dividends paid --------------------------------------------------------------------------- Retained earnings, end of the period 398,162 50,801 84,202 (135,003) 398,162 =========================================================================== SIX MONTHS ENDED SEPTEMBER 30, 1995 --------------------------------------------------------------------------- TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES $ $ $ $ $ -------------- ------------ ------------ ------------ ----------------- Revenues 14,592 267,993 (121,641) 160,944 Operating Expenses 697 10,435 238,309 (122,725) 126,716 --------------------------------------------------------------------------- Income from vessel operations (697) 4,157 29,684 1,084 34,228 Net interest expense (7,314) (60) (20,674) (28,048) Equity in net income of subsidiaries 16,879 (16,175) 704 Other income 1,163 147 1,837 3,147 --------------------------------------------------------------------------- Net income (loss) 10,031 4,244 10,847 (15,091) 10,031 Retained earnings, beginning of the period 406,547 22,309 84,274 (106,583) 406,547 --------------------------------------------------------------------------- Exchange of redeemable preferred stock (60,000) (60,000) Dividends paid (7,200) (35,200) 42,400 --------------------------------------------------------------------------- Retained earnings, end of the period 356,578 19,353 59,921 (79,274) 356,578 =========================================================================== SIX MONTHS ENDED SEPTEMBER 30, 1994 --------------------------------------------------------------------------- TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES $ $ $ $ $ -------------- ------------ ------------ ------------ ----------------- Revenues 16,223 268,446 (121,898) 162,771 Operating Expenses 801 12,442 246,121 (122,019) 137,345 --------------------------------------------------------------------------- Income from vessel operations (801) 3,781 22,325 121 25,426 Net interest expense (8,659) 285 (20,087) (28,461) Equity in net income of subsidiaries 7,443 (7,443) Other income 1,018 1,018 --------------------------------------------------------------------------- Net income (loss) (2,017) 4,066 3,256 (7,322) (2,017) Retained earnings, beginning of the period 400,179 46,735 80,946 (127,681) 400,179 --------------------------------------------------------------------------- Exchange of redeemable preferred stock Dividends paid --------------------------------------------------------------------------- Retained earnings, end of the period 398,162 50,801 84,202 (135,003) 398,162 =========================================================================== _________________ (See Note 5) 11 12 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (FORMERLY VIKING STAR SHIPPING INC.) CONDENSED BALANCE SHEETS (IN THOUSANDS OF U.S. DOLLARS) AS AT SEPTEMBER 30, 1995 ----------------------------------------------------------------------- TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES $ $ $ $ $ ------------- ------------ ------------- ------------ --------------- ASSETS Cash 131 6,607 53,727 60,465 Restricted cash 3,623 3,623 Other current assets 82 1,165 84,979 (90) 86,136 ------------------------------------------------------------------------ Total current assets 213 7,772 142,329 (90) 150,224 Vessels and equipment (net) 144,439 1,057,545 1,201,984 Advances due from subsidiaries 509,850 (509,850) Other assets (principally investments in subsidiaries) 231,281 4,665 (222,238) 13,708 ------------------------------------------------------------------------ 741,344 152,211 1,204,539 (732,178) 1,365,916 ======================================================================== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities 3,096 1,099 80,597 (93) 84,699 Long-term debt 151,200 501,769 652,969 Capital lease obligation 41,200 41,200 Due to parent 515,335 (515,335) ------------------------------------------------------------------------ Total liabilities 154,296 1,099 1,138,901 (515,428) 778,868 ------------------------------------------------------------------------ Stockholders' Equity Capital stock 230,613 6 5,723 (5,729) 230,613 Contributed capital 131,753 (131,753) Retained earnings 356,578 19,353 59,921 (79,274) 356,578 Less net unrealized loss on marketable securities 143 143 ------------------------------------------------------------------------ Total stockholders' equity 587,048 151,112 65,644 (216,756) 587,048 ------------------------------------------------------------------------ 741,344 152,211 1,204,545 (732,184) 1,365,916 ======================================================================== AS AT MARCH 31, 1995 ------------------------------------------------------------------------ TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES $ $ $ $ $ -------------- ------------ ------------- ------------ --------------- ASSETS Cash 97 6,856 9,547 16,500 Restricted cash 7,634 7,634 Other current assets 180 1,287 118,685 (211) 119,941 ------------------------------------------------------------------------ Total current assets 277 8,143 135,866 (211) 144,075 Vessels and equipment (net) 162,812 985,226 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 1,126,027 (609,417) 1,306,474 ======================================================================== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities 4,843 2,214 92,142 (186) 99,013 Long-term debt 175,000 593,395 768,395 Capital lease obligation Due to parent 358,223 (358,223) ------------------------------------------------------------------------ Total liabilities 179,843 2,214 1,043,760 (358,409) 867,408 ------------------------------------------------------------------------ Stockholders' Equity Capital stock 33,001 11 5,922 (5,933) 33,001 Contributed capital 138,492 (138,492) Retained earnings 406,547 30,238 76,345 (106,583) 406,547 Less net unrealized loss on marketable securities 482 482 ------------------------------------------------------------------------ Total stockholders' equity 439,066 168,741 82,267 (251,008) 439,066 ------------------------------------------------------------------------ 618,909 170,955 1,126,027 (609,417) 1,306,474 ======================================================================== _________________ (See Note 5) 12 13 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (FORMERLY VIKING STAR SHIPPING INC.) SCHEDULE A CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS) SIX MONTHS ENDED SEPTEMBER 30, 1995 --------------------------------------------------------------------------------- TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES $ $ $ $ $ --------------- ------------ -------------- ------------ -------------- Cash provided by (used for) OPERATING ACTIVITIES --------------------------------------------------------------------------------- Net cash flow from operating activities (8,625) 7,658 42,855 41,888 --------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from long-term debt 223,000 223,000 Repayments of long-term debt (22,580) (330,201) (352,781) Repayments of capital lease obligations (640) (640) Net proceeds from stock issuance 137,613 137,613 Other (155,520) (7,200) 165,865 3,145 Financing activities of discontinued operations --------------------------------------------------------------------------------- Net cash flow from financing activities (40,487) (7,200) 58,024 10,337 --------------------------------------------------------------------------------- INVESTING ACTIVITIES Expenditures for vessels and equipment (168) (51,552) (51,720) Proceeds from disposition of assets 22,794 22,794 Other 49,146 431 (28,911) 20,666 Investing activities of discontinued operations --------------------------------------------------------------------------------- Net cash flow from investing activities 49,146 263 (57,669) (8,260) --------------------------------------------------------------------------------- Increase (decrease) in cash 34 721 43,210 43,965 Cash (deficiency), beginning of the period 97 5,886 16,500 16,500 --------------------------------------------------------------------------------- Cash (deficiency), end of the period 131 6,607 59,710 60,465 ================================================================================= SIX MONTHS ENDED SEPTEMBER 30, 1994 --------------------------------------------------------------------------------- TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES $ $ $ $ $ --------------- ------------ -------------- ------------ --------------- Cash provided by (used for) OPERATING ACTIVITIES --------------------------------------------------------------------------------- Net cash flow from operating activities (8,961) 9,095 51,104 51,238 --------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from long-term debt Repayments of long-term debt (50,680) (50,680) Repayments of capital lease obligations Net proceeds from stock issuance Other 8,878 (10,310) (1,432) Financing activities of discontinued operations --------------------------------------------------------------------------------- Net cash flow from financing activities 8,878 0 (60,990) (52,112) --------------------------------------------------------------------------------- INVESTING ACTIVITIES Expenditures for vessels and equipment (472) (10,922) (11,394) Proceeds from disposition of assets 4,220 4,220 Other (462) 62 (2,073) (2,473) Investing activities of discontinued operations --------------------------------------------------------------------------------- Net cash flow from investing activities (462) (410) (8,775) (9,647) --------------------------------------------------------------------------------- Increase (decrease) in cash (545) 8,685 (18,661) (10,521) Cash (deficiency), beginning of the period (242) 13,736 25,120 38,614 --------------------------------------------------------------------------------- Cash (deficiency), end of the period (787) 22,421 6,459 28,093 ================================================================================= _________________ (See Note 5) 13 14 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (FORMERLY VIKING STAR SHIPPING INC.) SEPTEMBER 30, 1995 PART I - FINANCIAL INFORMATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS GENERAL Teekay Shipping Corporation (the "Company") is a leading provider of international crude oil and petroleum product transportation services through its fleet of 41 predominantly Aframax tankers (including two vessels 50% owned through a joint venture). The charter rates that the Company is able to obtain for these services are determined in a competitive global tanker charter market. Historically, the tanker industry has been cyclical, experiencing volatility in profitability and asset values resulting from changes in the supply of and demand for vessel capacity. The Company's future operating results will be subject to the cyclical nature of the tanker industry. The Company operates its tankers in markets that have historically exhibited seasonal variations in demand and, therefore, charter rates. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere. In addition, unpredictable weather patterns in the winter months tend to disrupt vessel scheduling. The oil price volatility resulting from these factors has also historically led to increased oil trading activities. As a result, revenues have usually been stronger for the Company in its third and fourth fiscal quarters. THREE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS THREE MONTHS ENDED SEPTEMBER 30, 1994 Operating results for the second quarter of fiscal 1996 reflected the improvement in average time charter equivalent ("TCE") rates experienced by the Company's fleet during the past 12 months. Despite a 9.3% decrease in the average size of the Company's fleet of 100%-owned vessels from 43 in the second quarter of fiscal 1995 to 39 in the second quarter of fiscal 1996, voyage revenues decreased by only 2.3% to $81.7 million from $83.6 million. Net voyage revenue was down only 0.7%, to $60.0 million in the second quarter of fiscal 1996 from $60.4 million in the second quarter of fiscal 1995. This reflects an improvement in TCE rates, as well as the increased capacity and fuel efficiency associated with the Company's newer fleet. The Company expects to complete the sale of its last mid-1970s built tanker during the third quarter of fiscal 1996. The disposal of these older and less efficient vessels over the past two years has reduced the Company's fleet size and therefore reduced operating expenses, but has not reduced net voyage revenues to the same degree. 14 15 Vessel operating expenses decreased 13.8% to $16.8 million in the second quarter of fiscal 1996 from $19.5 million in the second quarter of fiscal 1995. This is a function of the reduced fleet size, as well as the result of a stable operating cost environment. Depreciation and amortization decreased 18.0% to $20.1 million in the second quarter of fiscal 1996 from $24.5 million in the second quarter of fiscal 1995, again a function of the reduction in fleet size, and as a result of a revision to estimates of residual values of the Company's vessels. This change in estimate had the effect of reducing depreciation expense by approximately $2.8 million in the second quarter of fiscal 1996. Depreciation and amortization expense included amortization of drydocking costs of $2.0 million in the second quarter of fiscal 1996 and $2.7 million in the second quarter of fiscal 1995. General and administrative expenses increased 10.1% to $4.5 million in the second quarter of fiscal 1996 from $4.1 million in the second quarter of fiscal 1995, primarily as a result of costs associated with the acquisition of Teekay Shipping Limited in March, 1995. The combination of improved TCE rates, a more modern and efficient fleet, and stable costs, resulted in a 51.2% increase in income from vessel operations to $18.6 million in the second quarter of fiscal 1996 from $12.3 million in the second quarter of fiscal 1995. A reduction in debt levels caused interest expense to decrease 2.7% to $15.7 million in the second quarter of fiscal 1996 from $16.2 million in the second quarter of fiscal 1995. As of September 30, 1995, the Company had a total of $755.8 million in debt and capital lease obligations, down from $894.8 million a year earlier. Interest income was $1.6 million in the second quarter of fiscal 1996, up from $1.4 million in the second quarter of fiscal 1995 as a result of higher cash and marketable securities balances. Other income totalled $4.3 million in the second quarter of fiscal 1996, including a $3.7 million gain on the sale of a vessel. Other income in the second quarter of fiscal 1995 totalled $3.3 million, and also included a $3.7 million gain on the sale of a vessel. Both of these vessels were mid-1970s built Aframax tankers which are nearing the end of their useful lives. SIX MONTHS ENDED SEPTEMBER 30, 1995 VERSUS SIX MONTHS ENDED SEPTEMBER 30, 1994 Despite a 9.3% decrease in average size of the Company's fleet of 100%-owned vessels from 43 to 39, voyage revenues decreased by only 1.1% to $160.9 million in the first half of fiscal 1996 from $162.8 million in the first half of fiscal 1995, and net voyage revenue was down 2.3%, to $117.5 million from $120.3 million. This reflects an improvement in tanker charter market conditions, as well as the increased capacity and fuel efficiency associated with a more modern fleet. Vessel operating expenses decreased 12.9% to $33.5 million in the first half of fiscal 1996 from $38.4 million in the first half of fiscal 1995, a result of the decline in fleet size as well as the result of a stable operating cost environment. Depreciation and amortization decreased 15.1% to $41.0 million in the first half of fiscal 1996 from $48.2 million in the first half of fiscal 1995, due to the decline in fleet size and a revision to estimates of residual values of the Company's vessels. This change in estimate had the effect of reducing depreciation expense by approximately $4.8 million in the first half of fiscal 1996. Depreciation and amortization expense included amortization of drydocking costs of $4.2 million in the first half of fiscal 1996 and $5.0 million in the first half of fiscal 1995. General and administrative expenses increased 8.2% to $8.8 million in the first half of fiscal 1996 from $8.1 million in the first half of fiscal 1995 primarly as a result of the acquisition of Teekay Shipping Limited in March, 1995. 15 16 As a result of the above, income from vessel operations increased 34.6% to $34.2 million in the first half of fiscal 1996 from $25.4 million in the first half of fiscal 1995. Interest expense remained virtually unchanged at $31.2 million in the first half of fiscal 1996, compared to $31.4 million in the first half of fiscal 1995. A continued decline in the Company's total debt and a reduction in the Company's average credit spread on commercial bank borrowings were offset by the increase in short-term interest rates during 1994. Changes in market interest rates have had a delayed effect on interest expense, as rates on the Company's floating rate debt are set in advance, for three to six month periods. Interest income increased 9.6% to $3.2 million in the first half of fiscal 1996 from $2.9 million in the first half of fiscal 1995 as a result of higher cash and marketable securities balances. Other income during the first half of fiscal 1996 was $3.9 million, consisting primarily of a $3.7 million gain on sale of a vessel. Other income during the first half of fiscal 1995 was $1.0 million, consisting primarily of a $3.7 million gain on the sale of a vessel, offset by a $2.7 million loss on marketable securities. 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: THREE MONTHS ENDED SIX MONTHS ENDED SEPT 30/95 SEPT 30/94 SEPT 30/95 SEPT 30/94 ---------------------------------------------------------------------------------------------- Total Calendar ship-days 3,603 3,955 7,080 7,868 Non-revenue days 188 217 345 459 ---------------------------------------------------------------------------------------------- Revenue-generating ship-days (A) 3,415 3,738 6,735 7,409 ---------------------------------------------------------------------------------------------- Net voyage revenue $ 60.0m $ 60.4m $ 117.5m $ 120.3m Add back: commissions 1.4m 1.3m 2.6m 2.5m ---------------------------------------------------------------------------------------------- Net voyage revenue before commissions (B) $ 61.4m $ 61.7m $ 120.1m $ 122.8m ---------------------------------------------------------------------------------------------- TCE per revenue-generating ship-day (B/A) $ 17,979 $ 16,518 $ 17,828 $ 16,575 ---------------------------------------------------------------------------------------------- Operating results per calendar ship-day: Net voyage revenue $ 16,653 $ 15,284 $ 16,596 $ 15,284 Vessel operating expense 4,671 4,939 4,731 4,886 General and Administrative expense 1,262 1,044 1,245 1,035 Drydocking expense 570 689 590 631 ---------------------------------------------------------------------------------------------- Operating cash flow per calendar ship-day $ 10,150 $ 8,612 $ 10,030 $ 8,732 ============================================================================================== The decrease in calendar ship-days in the second quarter and first half of fiscal 1996, is a result of the disposal of older Aframax tankers as part of the Company's ongoing fleet modernization program. TCE per revenue-generating ship-day increased 8.8% in the second quarter and 7.6% in the first half of fiscal 1996 over the comparable prior periods, reflecting the improvement in charter market conditions as well as the increased capacity and fuel efficiency of a more modern fleet. 16 17 Total expenses, including drydocking and general and administrative expenses, were relatively constant on a per-day basis throughout the periods shown above. Therefore, the increases in TCE per revenue-generating ship-day caused operating cash flow per calendar ship-day to increase by 17.9% in the second quarter and 14.9% in the first half of fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES The liquidity requirements of the Company relate to servicing its debt, funding the equity portion of investments in vessels, funding working capital and maintaining cash reserves against fluctuations in operating cash flow. Net cash flow generated by operations has historically been the main source of liquidity for the Company. Additional sources of liquidity have included proceeds from asset sales and refinancings. During the current fiscal year, the Company has undertaken further steps to improve its financial position and liquidity. During the first quarter, the Company refinanced certain of its existing term debt as well as $23.8 million of First Preferred Ship Mortgage Notes with a new $223 million corporate revolving credit facility at improved rates and credit terms. The revolving credit facility also provided an additional $20 million of liquidity to the Company. In July 1995, the Company received $137.6 million net proceeds from its initial public offering of common stock, thereby further boosting liquidity and reducing debt through a $135 million reduction in the amount outstanding under the revolving credit facility. Net cash flow from operations decreased to $41.9 million in the first half of fiscal 1996 from $51.2 million during the first half of fiscal 1995. The decrease was mainly caused by an increase in non-cash working capital balances, partially offset by higher income from operations. One vessel was sold during the second quarter of fiscal 1996, resulting in net proceeds of $5.6 million. In addition, the Company received $17.3 million in the first quarter of fiscal 1996 as a result of a vessel sale and the receipt of proceeds from vessel sales receivable at the end of fiscal 1995. Subsequent to September 30, 1995, the Company entered into an agreement for the sale of a vessel for $6.0 million. This sale, if consummated, will result in a net gain of approximately $5.4 million. The Company took delivery of two modern second-hand Aframax tankers and one newbuilding during the first half of fiscal 1996, as replacements for older tankers recently sold, resulting in expenditures of $46.9 million net of capital lease financing of $44.6 million. Subsequent to September 30, 1995, the Company entered into an agreement to acquire a 1987-built Aframax tanker, whereby the Company will time-charter the vessel for a period of one year and then purchase the vessel for $26.5 million. The Company intends to finance this purchase by using existing cash balances or credit lines. The Company has outstanding a number of interest rate swap agreements with commercial banks covering a total notional principal amount of $175 million as at September 30, 1995. The agreements expire between October 1995 and April 1996 and have an average remaining life of 4.5 months. These agreements effectively change the Company's interest rate exposure on $175 million of debt from a floating LIBOR rate to an average fixed rate of 5.68%. Subsequent to September 30, 1995, the Company entered into an additional $250 million in interest rate swap agreements with three commercial banks. These new swap agreements have an average life of 3 years, expiring between October 1998 and December 1998, and effectively change the Company's interest rate exposure on $250 million of debt from a floating LIBOR rate to an average fixed rate of 5.85%. The Company also has outstanding $200 million of interest rate caps with a strike price of 8.00% vs. 3 month LIBOR. These caps expire in April 1997. During the first half of fiscal 1996, the Company's total liquidity, including cash, marketable securities and undrawn lines of credit, increased from $85.7 million as of March 31, 1995 to $244.3 million as of September 30, 1995. 17 18 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES (FORMERLY VIKING STAR SHIPPING INC.) SEPTEMBER 30, 1995 PART II: OTHER INFORMATION Item 1 - Legal Proceedings Item 2 - Changes in Securities Item 3 - Defaults Upon Senior Securities Item 4 - Submission of Matters to a Vote of Security Holders Item 5 - Other Information Item 6 - Exhibits and Reports on Form 6-K a. Exhibits 27.1 Financial Data Schedule b. Reports on Form 6-K THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE REGISTRATION STATEMENT OF THE COMPANY ON FORM F-3 FILED WITH THE COMMISSION ON OCTOBER 4, 1995. 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TEEKAY SHIPPING CORPORATION Date: November 9, 1995 By: /s/ Anthony Gurnee ------------------- ------------------------------------------ Anthony Gurnee, Vice-President and Chief Financial Officer 19