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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 2001.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM F-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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TEEKAY SHIPPING CORPORATION
(Exact name of registrant as specified in its charter)
REPUBLIC OF THE 4412 NOT APPLICABLE
MARSHALL ISLANDS (Primary Standard Industrial (I.R.S. Employer Identification
(State or other jurisdiction Classification Code Number) Number)
of incorporation or
organization)
TK HOUSE, BAYSIDE EXECUTIVE PARK, WEST BAY STREET AND BLAKE ROAD
P.O. BOX AP-59213, NASSAU, COMMONWEALTH OF THE BAHAMAS
(242) 502-8820
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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LAWCO OF OREGON, INC.
1211 SW FIFTH AVENUE, SUITE 1500
PORTLAND, OR 97204
ATTN: KAREN M. DODGE
(503) 727-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
ROY W. TUCKER
PERKINS COIE LLP
1211 S.W. FIFTH AVENUE, SUITE 1500
PORTLAND, OR 97204
(503) 727-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED SECURITY PRICE(1) FEE
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8.875% Notes Due 2011.............. $250,000,000 100% $250,000,000 $62,500
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(1) Estimated pursuant to Rule 457(f) solely for the purpose of calculating the
registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 11, 2001
PRELIMINARY PROSPECTUS
$250,000,000
LOGO
TEEKAY SHIPPING CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING 8.875% SENIOR NOTES DUE 2011
FOR 8.875% SENIOR NOTES DUE 2011, WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER
- We will exchange all outstanding notes that are validly tendered and not
validly withdrawn for an equal principal amount of exchange notes that
are freely tradable.
- You may withdraw tenders of outstanding notes at any time prior to the
expiration of the exchange offer.
- The exchange offer expires at 5:00 p.m., New York City time, on
, 2001, unless extended. We do not currently intend to extend
the expiration date.
- The exchange of outstanding notes for exchange notes in the exchange
offer will not be a taxable event for U.S. federal income tax purposes.
- We will not receive any proceeds from the exchange offer.
THE EXCHANGE NOTES
- The exchange notes are being offered in order to satisfy certain of our
obligations under the exchange and registration rights agreement entered
into in connection with the private placement of the outstanding notes.
- The terms of the exchange notes to be issued in the exchange offer are
substantially identical to the outstanding notes, except that the
exchange notes are registered under the Securities Act of 1933 and will
be freely tradable.
RESALES OF EXCHANGE NOTES
- The exchange notes may be sold in the over-the-counter market, in
negotiated transactions or through a combination of such methods. We
expect to list the exchange notes on the New York Stock Exchange.
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If you are a broker-dealer and you receive exchange notes for you own
account, you must acknowledge that you will deliver a prospectus in connection
with any resale of such exchange notes. By making such acknowledgement, you will
not be deemed to admit that you are an "underwriter" under the Securities Act of
1933.
Broker-dealers may use this prospectus in connection with any resale of
exchange notes received in exchange for outstanding notes where such outstanding
notes were acquired by the broker-dealer as a result of market-making activities
or trading activities.
We will make this prospectus available to any broker-dealer for use in any
such resale for a period of up to 180 days after the date of this prospectus.
A broker-dealer may not participate in the exchange offer with respect to
outstanding notes acquired other than as a result of market-making activities or
trading activities.
If you are an affiliate of Teekay Shipping Corporation or are engaged in,
or intend to engage in, or have an agreement or understanding to participate in,
a distribution of the exchange notes, you must comply with the registration
requirements of the Securities Act of 1933 in connection with any resale
transaction.
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YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 12 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual and special reports and other information with the
Securities and Exchange Commission. You can read and copy any materials we file
with the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the SEC's regional offices located at Seven World Trade
Center, New York, New York 10048, and at 500 West Madison Street, Chicago,
Illinois 60661. You can obtain information about the operation of the SEC's
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a Web site that contains information we file electronically with the
SEC, which you can access over the internet at http://www.sec.gov. In addition,
you can obtain information about us at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005. We have agreed that, if we
are not subject to the informational requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934 at any time while the notes constitute
"restricted securities" within the meaning of the Securities Act of 1933, we
will furnish to holders and beneficial owners of the notes and to prospective
purchasers designated by such holders the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act to permit compliance with
Rule 144A in connection with resales of the notes.
We have we filed with the SEC a registration statement on Form F-4 under
the Securities Act of 1933. This prospectus, which forms a part of the
registration statement, does not contain all of the information in the
registration statement. We have omitted parts of the registration statement, as
permitted by the rules and regulations of the SEC. You may inspect and copy the
registration statement, including exhibits, at the SEC's public reference
facilities or its Web site. Our statements in this prospectus about the contents
of any contract or other document are not necessarily complete. You should refer
to the copy of each contract or other document we have filed as an exhibit to
the registration statement for complete information.
The SEC allows us to "incorporate by reference" into this prospectus the
information that we file with the SEC. This means that we can disclose important
information to you by referring you to those documents. The information we
incorporate by reference is considered a part of this prospectus, and later
information that we file with the SEC may automatically update and supersede
this information. We incorporate by reference the documents listed below:
- our Annual Report on Form 20-F for the year ended December 31, 2000,
filed on April 2, 2001;
- our reports on Form 6-K filed on April 16 and May 9 and May 24, 2001,
respectively; and
- all other documents filed by Teekay pursuant to Section 13(a), 13(c), or
15(d) of the Securities Exchange Act of 1934, after the date of this
prospectus and prior to the termination of the exchange offer.
You may request a copy of our filings at no cost, by writing or telephoning
us at the following address:
Teekay Shipping Corporation
505 Burrard Street, Suite 1400
Vancouver, B.C. CANADA V7X 1M5
Attention: Investor Relations
Telephone: (604) 844-6654
You should rely only on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with different information. You should not assume that the information in this
prospectus is accurate after the date on the front of the document. Information
contained on our Web site will not be deemed to be a part of this prospectus.
The indenture pursuant to which the notes offered by this prospectus will
be issued contains a covenant that requires us to provide to each holder of
record of the notes, upon request, and to the trustee under the indenture,
annual reports containing audited financial statements and a related report
expressed by independent chartered accountants, and quarterly reports for the
first three quarters of each fiscal year containing unaudited financial
information.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements include statements regarding, among other items:
- our future earnings and other operating results;
- tanker supply and demand;
- our market share in the Indo-Pacific Basin and Atlantic region Aframax
tanker markets and in the world shuttle tanker market;
- expectations as to funding our future capital requirements;
- future capital expenditures;
- our growth strategy and measures to implement our growth strategy;
- our potential ability to effectively integrate the operations of Ugland
Nordic Shipping ASA with our own and to successfully enter the shuttle
tanker market;
- competition;
- prospects and trends of the tanker industry, including TCE rates; and
- other discussions of future plans and strategies, anticipated
developments and other matters that involve predictions of future
events.
Other statements contained in this prospectus are forward-looking
statements and are not based on historical fact, such as statements containing
the words "believes," "may," "will," "estimates," "continue," "anticipates,"
"intends," "expects" and words of similar import.
These forward-looking statements are subject to risks, uncertainties and
assumptions, including those discussed in "Risk Factors," "Management's
Discussion and Analysis of Results of Operations and Financial Condition,"
"Business" and elsewhere in this prospectus and in reports we file with the SEC.
The risks, uncertainties and assumptions involve known and unknown risks and are
inherently subject to significant uncertainties and contingencies, many of which
are beyond our control.
Actual results may differ materially from those projected in
forward-looking statements. Although we believe that our estimates are
reasonable, you should not unduly rely on these estimates, which are based on
our current expectations. Factors that could cause actual results to differ
materially include:
- the cyclical nature of the tanker industry and its dependence on oil
markets;
- the supply of tankers available to meet the demand for transportation of
petroleum products;
- our inability to successfully integrate the operations of Ugland Nordic
Shipping ASA with our own;
- our dependence on spot oil voyages;
- environmental and other regulation;
- our potential inability to achieve and manage growth; and
- the other factors described in "Risk Factors."
We undertake no obligation to update any forward-looking statement or
statements to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for us to predict all
of these factors. Further, we cannot assess the impact of each such factor on
our business or the extent to which any factor, or combination of factors, may
cause actual results to be materially different from those contained in any
forward-looking statement. Neither we, nor any initial purchaser of the
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outstanding notes, make any representation, warranty or assurance as to the
completeness or accuracy of these projections, and neither express an opinion or
any other form of assurance regarding them.
SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
We and most of our subsidiaries are incorporated in the Republic of the
Marshall Islands, and other of our subsidiaries are incorporated in Bermuda, the
Bahamas, Canada, Japan, Singapore, Australia, United Kingdom, Norway, India, the
Philippines, Liberia and the United States. Most of our directors and executive
officers and those of our subsidiaries are residents of countries other than the
United States. Substantially all of our and our subsidiaries' assets and a
substantial portion of the assets of the directors and officers are located
outside the United States. As a result, it may be difficult or impossible for
United States investors to effect service of process within the United States
upon us, our subsidiaries or the directors and officers or to realize against
them judgments obtained in United States courts. In addition, you should not
assume that courts in countries in which we or our subsidiaries are incorporated
or where our or the assets of our subsidiaries are located (a) would enforce
judgments of U.S. courts obtained in actions against us or our subsidiaries
based upon civil liabilities provisions of applicable U.S. federal and state
securities laws or (b) would enforce, in original actions, liabilities against
us or our subsidiaries based upon these laws.
Certain shipping industry terms used in this prospectus are defined in
Exhibit A to this prospectus, "Definitions of Shipping Terms." Unless otherwise
specifically noted or the context otherwise requires, the term "tankers" refers
to tankers, shuttle tankers and oil/bulk/ore carriers.
Except as otherwise indicated herein, when we describe our fleet, tankers
or vessels, we include newbuildings, time-chartered-in vessels and tankers that
we have an interest in through joint ventures. Our description also includes one
Aframax tanker and two other tankers, each owned through a joint venture in
which we hold a 50% interest, that we have contracted to sell between July and
August of 2001. Unless our description specifically notes that it is at March
31, 2001 or before, we also include four tankers purchased by our UNS subsidiary
in April 2001 and one newbuilding delivered in May 2001. Unless otherwise
specifically noted or the context otherwise requires, when we describe our
Aframax fleet we refer to all of our Aframax-size tankers, including two
Aframax-size oil/bulk/ore carriers trading exclusively as crude oil carriers,
but exclude our other oil/bulk/ore carriers. Industry data in this prospectus
relating to Aframax tankers or vessels includes all Aframax-size tankers,
including Aframax-size oil/bulk/ore carriers. See "Business -- Our Fleet."
All dollar references in this prospectus are to U.S. Dollars, unless
otherwise specifically indicated.
Certain statistical and graphical information contained in this prospectus
is derived from data published by the International Energy Agency, Clarkson
Research Studies Inc. and other sources available prior to the date of this
prospectus. While we have no reason to believe that such information is
inaccurate in any material respect, we cannot warrant its accuracy. In addition,
you are advised that some information in such databases is based on estimates or
subjective judgments.
The Teekay logo and the name Teekay Shipping Corporation are among our
trademarks. All other trademarks and trade names referred to in this prospectus
are the property of their respective owners.
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PROSPECTUS SUMMARY
The following summary supplements, and should be read in conjunction with,
the more detailed information contained elsewhere in this prospectus. You should
read carefully the entire document to understand our business, the nature of the
notes and the tax and other considerations that are important to your decision
to invest in the notes. You should pay special attention to the "Risk Factors"
section.
THE COMPANY
OVERVIEW
Teekay is a leading provider of international crude oil and petroleum
product transportation services through the world's largest fleet of medium-size
oil tankers. Our modern fleet of 95 tankers (including three newbuildings, seven
vessels time-chartered-in and six vessels owned by joint ventures) provides
transportation services to major oil companies, major oil traders and government
agencies worldwide. We believe our Aframax fleet is approximately three times
larger than that of our nearest direct Aframax competitor. Through our recent
acquisition of Ugland Nordic Shipping ASA ("UNS"), we are also the largest owner
of shuttle tankers, which engage in the transportation of oil from offshore
production platforms to onshore storage and refinery facilities.
COMPETITIVE STRENGTHS
We pursue an intensively customer- and operations-focused business strategy
designed to achieve superior operating results. We base our business strategy on
the following five key competitive strengths:
- MARKET CONCENTRATION. In each market that we address within the
shipping industry, we seek to achieve significant scale and scope. This
market concentration has enabled us to provide comprehensive coverage of
charterers' requirements while also providing a base for efficient
operation and a high degree of capacity utilization. We estimate that
our market share is approximately 25% in the Indo-Pacific Basin Aframax
market and approximately 10% in the Atlantic region Aframax market,
based on tankers trading in those regions that are 20 years old or
younger. Through our recent acquisition of UNS' shuttle tanker
operations, we estimate that our market share is approximately 25% in
the world shuttle tanker market. Our significant presence in these
markets strategically positions us to deliver superior service to the
oil industry on a global basis.
- OPERATIONAL CONTROL AND EXPERIENCED MANAGEMENT. Teekay services
substantially all of its operational and management needs in-house. We
have experienced management in all functions critical to our operations,
which provides us with a focused marketing effort, tight quality and
cost controls and effective safety monitoring.
- MODERN, HIGH-QUALITY TONNAGE. Our modern, high-quality tanker fleet
operates with higher fuel efficiency and lower maintenance and operating
costs compared to the world tanker fleet. We now control a fleet of 84
tankers (excluding three newbuildings and eight oil/bulk/ore carriers)
with an average age of approximately 9 years. The average age for the
world tanker fleet is approximately 13 years. In an environment of
increasingly stringent operating and safety standards, we believe that
the age profile and quality of our fleet result in a high level of
demand for our tankers by charterers.
- LARGE FLEET OF UNIFORM, MEDIUM-SIZE VESSELS. Our large fleet of
medium-size tankers, many of which are substantially identical vessels,
allows us to substitute vessels to meet customer demands. This increases
our scheduling flexibility and allows us to enhance the capacity
utilization of our fleet. We believe that the scale of our operations
and the resulting
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purchasing power, combined with the uniformity of our medium-size
vessels, results in lower operating expenses than those experienced by
smaller operators.
- STRONG NETWORK OF CUSTOMER RELATIONSHIPS. We pursue an intensively
customer-oriented focus that, when combined with other competitive
strengths, has enabled us to establish a strong network of customer
relationships and a reputation for transportation excellence among
quality-sensitive customers such as Exxon Mobil, BP, Chevron and Shell.
BUSINESS STRATEGY
Our business strategy is to leverage our existing competitive strengths to
continue to expand our business and increase shareholder value.
- MAINTAIN AND EXPAND AFRAMAX FRANCHISE. The expansion and upgrading of
our Aframax fleet will continue to be a key component of our strategy.
As the world's largest Aframax tanker operator, we believe we will be
able to provide the most comprehensive service to our customers and
generate superior operating results. For example, our size and scope of
services has enabled us to enter into contracts of affreightment to
provide large oil-company customers with ongoing services that will
grant us preferential rights on certain routes. We expect that this will
result in significant fleet utilization benefits and high market share
on strategically important routes.
- LEVERAGE THE FRANCHISE TO PROVIDE VALUE-ADDED SERVICES. Our
full-service marine operations capabilities, reputation for safety and
quality and strong customer orientation provide us with the opportunity
to expand our business by providing additional value-added and
innovative services to new and existing customers. Such services include
providing customers with floating storage and off-take vessels,
outsourcing arrangements where we service a customer's complete oil
transportation requirements and, with our recent acquisition of UNS,
providing shuttle tanker services for customers engaged in offshore oil
production. By providing our customers with these value-added services,
we believe that we will strengthen our franchise and further improve our
financial performance.
- SELECTIVELY EXPAND INTO RELATED MARKETS AND SERVICES. We intend to
continue to identify expansion opportunities in new tanker market
sectors, geographic areas and services to which our competitive
strengths are well suited and that will enhance shareholder value. We
may pursue such opportunities through internal growth, joint ventures or
business acquisitions, such as our recent acquisition of UNS, through
which we expanded into the shuttle tanker market.
ACQUISITION OF UGLAND NORDIC SHIPPING ASA
We recently purchased Ugland Nordic Shipping ASA, the world's largest
shuttle tanker owner. UNS' modern fleet of 18 vessels engages in the
transportation of oil from offshore production platforms to onshore storage and
refinery facilities. The UNS fleet has an average age of 8.5 years (excluding
three newbuildings) and operates primarily in the North Sea under long-term
fixed-rate contracts. The total purchase price for the outstanding shares of UNS
was approximately $223.3 million (including estimated transaction expenses of
$7.0 million). The operating results of UNS have been reflected in our financial
statements commencing March 6, 2001, the effective date that we acquired a
majority interest in UNS.
UNS' large scale and high quality shuttle tanker operations provided us
with a strategic opportunity to enter this attractive market as a market leader.
The acquisition also allows us to expand the portfolio of value-added services
we offer to our customers. We believe that as offshore oil fields become more
important to the global oil supply, the need for shuttle tanker services will
increase. By combining our global franchise and UNS' expertise in the shuttle
tanker market, we believe that the shuttle tanker business represents an area of
significant growth for Teekay. The acquisition of UNS will also provide added
stability to our cash flow throughout the business cycle, due to the long-term
fixed-price nature of shuttle tanker contracts.
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SUMMARY OF THE EXCHANGE OFFER
On June 22, 2001, we completed a private offering of our 8.875% Senior
Notes due 2011. We received proceeds of approximately $244.5 million from the
sale of the outstanding notes.
In connection with the offering of outstanding notes, we entered into an
exchange and registration rights agreement with the initial purchasers of the
outstanding notes in which we agreed to deliver this prospectus and to use our
best efforts to complete the exchange offer for the outstanding notes by
February 17, 2002. In the exchange offer, you are entitled to exchange your
outstanding notes for exchange notes, with substantially identical terms, that
are registered under the Securities Act of 1933. You should read the discussion
under the heading "The Exchange Offer" beginning on page 67 and "Description of
the Notes" beginning on page 77 for further information about the exchange
notes. After the exchange offer is completed, you will no longer be entitled to
any exchange or, with limited exceptions, registration rights for your
outstanding notes.
The Exchange Offer............ We are offering to exchange up to $250 million
principal amount of the exchange notes for up
to $250 million principal amount of the
outstanding notes. Outstanding notes may only
be exchanged in $1,000 increments.
The terms of the exchange notes are identical
in all material respects to those of the
outstanding notes except the exchange notes
will not be subject to transfer restrictions
and holders of exchange notes, with limited
exceptions, will have no registration rights.
Also, the exchange notes will not contain
provisions for an increase in their stated
interest rate related to any registration or
exchange delay.
Outstanding notes that are not tendered for
exchange will continue to be subject to
transfer restrictions and, with limited
exceptions, will not have registration rights.
Therefore, the market for secondary resales of
outstanding notes that are not tendered for
exchange is likely to be minimal.
We will issue registered exchange notes on or
promptly after the expiration of the exchange
offer.
Expiration Date............... The exchange offer will expire at 5:00 p.m. New
York City time, on , 2001, unless we
decide to extend the expiration date. Please
read "The Exchange Offer -- Extensions, Delay
in Acceptance, Termination or Amendment"
beginning on page 68 for more information about
an extension of the expiration date.
Withdrawal of Tenders......... You may withdraw your tender of outstanding
notes at any time prior to the expiration date.
We will return to you, without charge, promptly
after the expiration or termination of the
exchange offer any outstanding notes that you
tendered but that were not accepted for
exchange.
Conditions to the Exchange
Offer......................... We will not be required to accept outstanding
notes for exchange:
- if the exchange offer would be unlawful or
would violate any interpretation of the
staff of the SEC, or
- if any legal action has been instituted or
threatened that would impair our ability to
proceed with the exchange offer.
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The exchange offer is not conditioned upon any
minimum aggregate principal amount of
outstanding notes being tendered. Please read
"The Exchange Offer -- Conditions to the
Exchange Offer" on page 69 for more information
about the conditions to the exchange offer.
Procedures for Tendering
Outstanding Notes........... If your outstanding notes are held through The
Depositary Trust Company, or "DTC," and you
wish to participate in the exchange offer, you
may do so through DTC's automated tender offer
program. If you tender under this program, you
will agree to be bound by the letter of
transmittal that we are providing with this
prospectus as though you had signed the letter
of transmittal. By signing or agreeing to be
bound by the letter of transmittal, you will
represent to us that, among other things:
- any exchange notes that you receive will be
acquired in the ordinary course of your
business,
- you have no arrangement or understanding
with any person to participate in the
distribution of the outstanding notes or the
exchange notes,
- you are not our "affiliate," as defined in
Rule 405 of the Securities Act of 1933, or,
if you are our affiliate, you will comply
with any applicable registration and
prospectus delivery requirements of the
Securities Act,
- if you are not a broker-dealer, you are not
engaged in and do not intend to engage in
the distribution of the exchange notes, and
- if you are a broker-dealer that will receive
exchange notes for your own account in
exchange for outstanding notes that you
acquired as a result of market-making
activities or other trading activities, you
will deliver a prospectus in connection with
any resale of such exchange notes.
Special Procedures for
Beneficial Owners............. If you own a beneficial interest in outstanding
notes that are registered in the name of a
broker, dealer, commercial bank, trust company
or other nominee and you wish to tender the
outstanding notes in the exchange offer, please
contact the registered holder as soon as
possible and instruct the registered holder to
tender on your behalf and to comply with our
instructions described in this prospectus.
Guaranteed Delivery
Procedures.................... You must tender your outstanding notes
according to the guaranteed delivery procedures
described in "The Exchange Offer -- Guaranteed
Delivery Procedures" beginning on page 73 if
any of the following apply:
- you wish to tender your outstanding notes
but they are not immediately available,
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- you cannot deliver your outstanding notes,
the letter of transmittal or any other
required documents to the exchange agent
prior to the expiration date, or
- you cannot comply with the applicable
procedures under DTC's automated tender
offer program prior to the expiration date.
Resales....................... Except as indicated herein, we believe that the
exchange notes may be offered for resale,
resold and otherwise transferred without
compliance with the registration and prospectus
delivery provisions of the Securities Act of
1933, provided that:
- you are acquiring the exchange notes in the
ordinary course of your business;
- you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to
participate, in the distribution of the
exchange notes; and
- you are not an affiliate of Teekay.
Our belief is based on existing interpretations
of the Securities Act by the SEC staff set
forth in several no-action letters to third
parties. We do not intend to seek our own
no-action letter, and there is no assurance
that the SEC staff would make a similar
determination with respect to the exchange
notes. If this interpretation in inapplicable,
and you transfer any exchange note without
delivering a prospectus meeting the
requirements of the Securities Act or without
an exemption from such requirements, you may
incur liability under the Securities Act. We do
not assume or indemnify holders of notes
against such liability.
Each broker-dealer that is issued exchange
notes for its own account in exchange for
outstanding notes that were acquired by such
broker-dealer as a result of market-making or
other trading activities must acknowledge that
it will deliver a prospectus meeting the
requirements of the Securities Act in
connection with any resale of the exchange
notes. A broker-dealer may use this prospectus
for an offer to resell, resale or other
transfer of the exchange notes. Please read
"Plan of Distribution" on page 101.
U.S. Federal Income Tax
Considerations.............. The exchange of outstanding notes for exchange
notes will not be a taxable exchange for United
States federal income tax purposes. You will
not recognize any taxable gain or loss or any
interest income as a result of such exchange.
Please read "Tax Considerations -- United
States Federal Income Tax Consequences"
beginning on page 97.
Use of Proceeds............... We will not receive any proceeds from the
issuance of the exchange notes pursuant to the
exchange offer. We will pay all our expenses
incident to the exchange offer.
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Registration Rights........... If we fail to complete the exchange offer as
required by the exchange and registration
rights agreement, we may be obligated to pay
additional interest to holders of outstanding
notes. Please read "Registration Rights"
beginning on page 94 for more information
regarding your rights as a holder of
outstanding notes.
THE EXCHANGE AGENT
We have appointed United States Trust Company of New York as exchange agent
for the exchange offer. Please direct questions and requests for assistance,
requests for additional copies of this prospectus or of the letter of
transmittal and requests for the notice of guaranteed delivery to the exchange
agent. If you are not tendering under DTC's automated tender offer program, you
should send the letter of transmittal and any other required documents to the
exchange agent as follows:
------------------------------------
BY HAND DELIVERY TO 4:30 P.M.
United States Trust Company of New York
30 Broad Street, B-Level
New York, NY 10004-2304
BY OVERNIGHT COURIER AND BY HAND
DELIVERY AFTER 4:30 P.M. ON EXPIRATION DATE
United States Trust Company of New York
30 Broad Street, 14th Floor
New York, NY 10004-2304
BY REGISTERED OR CERTIFIED MAIL
United States Trust Company of New York
P.O. Box 84
Bowling Green Station
New York, NY 10274-0084
BY FACSIMILE TRANSMISSION (ELIGIBLE INSTITUTIONS ONLY):
United States Trust Company of New York
30 Broad Street, B-Level
New York, NY 10004-2304
FAX: (646) 458-8111
CONFIRM BY TELEPHONE:
(800) 548-6565
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THE EXCHANGE NOTES
The summary below describes the principal terms of the notes. Certain of
the terms and conditions described below are subject to important limitations
and exceptions. The "Description of the Notes" section of this prospectus
contains a more detailed description of the terms and conditions of the notes.
Issuer........................ Teekay Shipping Corporation
Notes Offered................. $250 million principal amount of 8.875% senior
notes due July 15, 2011.
Maturity...................... July 15, 2011.
Interest Payment Dates........ January 15 and July 15 of each year, commencing
January 15, 2002.
Ranking....................... The notes will rank equally in right of payment
with all of our existing and future senior
unsecured debt and senior to our existing and
future subordinated debt. The notes will
effectively rank behind all of our existing and
future secured debt, to the extent of the value
of the assets securing such debt.
We are a holding company and the notes will not
be guaranteed by any of our subsidiaries. The
notes will effectively rank behind all existing
and future debt and other liabilities of our
subsidiaries.
As of June 30, 2001 and giving effect to the
proposed application of the net proceeds of the
offering of the outstanding notes to prepay
certain of our outstanding secured debt, we
would have had approximately $1,053 million of
debt on a consolidated basis, of which $803
million was secured debt that represented the
obligations of, or was guaranteed by, certain
of our subsidiaries. In addition, as of June
30, 2001, our subsidiaries had guaranteed $115
million of debt of joint ventures.
Additional Amounts............ All payments with respect to the notes will be
made without withholding or deduction for taxes
imposed by the Republic of the Marshall Islands
or any jurisdiction from or through which
payment on the notes is made unless required by
law or the interpretation or administration
thereof, in which case, subject to certain
exceptions, we will pay such additional amounts
as may be necessary so that the net amount
received by the holders after such withholding
or deduction will not be less than the amount
that would have been received in the absence of
such withholding or deduction. See "Description
of the Notes -- Additional Amounts."
Optional Redemption........... We may redeem all or a portion of the notes at
any time before their maturity date at a
redemption price equal to the greater of (a)
100% of the principal amount of the notes to be
redeemed and (b) the sum of the present value
of the remaining scheduled payments of
principal and interest discounted to the
redemption date at the treasury yield plus 50
basis points. See "Description of the Notes --
Optional Redemption."
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Tax Redemption................ If we become obligated to pay additional
amounts under the notes as a result of changes
affecting certain withholding taxes, we may
redeem all, but not less than all, of the notes
at 100% of their principal amount plus accrued
interest to the date of redemption. See
"Description of the Notes -- Redemption for
Changes in Withholding Taxes."
Change of Control Offer....... Upon a Change of Control Triggering Event,
which requires both a Change of Control and a
Rating Decline (all as defined herein), we will
be obligated to make an offer to purchase all
outstanding notes at a redemption price of 101%
of the principal amount thereof plus accrued
and unpaid interest to the date of purchase.
See "Description of the Notes -- Repurchase of
Notes Upon a Change of Control Triggering
Event."
Certain Indenture
Provisions.................... The indenture governing the notes will contain
covenants limiting our ability to:
- create liens; and
- merge, consolidate or sell substantially all
of our assets.
These covenants are subject to a number of
important limitations and exceptions which are
described under the heading "Description of the
Notes."
Registration Rights........... If we fail to complete the exchange offer as
required by the exchange and registration
rights agreement, we may be obligated to pay
additional interest to holders of old notes.
Please read "Registration Rights" beginning on
page 94 for more information regarding your
rights as a holder of outstanding notes.
Use of Proceeds............... We will not receive any proceeds from the
issuance of the exchange notes pursuant to the
exchange offer. We will pay all our expenses
incident to the exchange offer. See "Use of
Proceeds."
Absence of Public Market for
the Notes..................... The exchange notes will be new securities for
which there is no market. Although we intend to
cause the exchange notes to be authorized for
listing on the New York Stock Exchange, there
can be no assurance that an active trading
market for the notes will develop, or, if it
develops, will continue to exist. Although the
initial purchasers of the outstanding notes
have informed us that they currently intend to
make a market in the exchange notes, they are
not obligated to do so, and any such market
making may be discontinued at any time without
notice. Accordingly, there can be no assurance
as to the development or liquidity of any
market for the exchange notes.
RISK FACTORS
You should carefully consider all of the information in this prospectus. In
particular, you should read the specific risk factors under "Risk Factors" for a
discussion of certain risks involved with an investment in the notes.
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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
We derived the following summary consolidated financial and other data from
more detailed information and financial statements appearing elsewhere in this
prospectus. You should read the following information in conjunction with
"Selected Consolidated Financial and Other Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements, unaudited pro forma consolidated condensed financial
statements and the related notes which are included elsewhere in this
prospectus. We changed our fiscal year end from March 31 to December 31,
commencing December 31, 1999, in order to facilitate comparison of our operating
results to those of other companies in the transportation industry.
FISCAL YEARS ENDED
THREE MONTHS ENDED MARCH 31, ------------------------
--------------------------------------- PRO FORMA
PRO FORMA DEC. 31, DEC. 31,
2001(1) 2001 2000 2000(1) 2000
--------- ---- ---- --------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT RATIOS AND PER DAY DATA)
INCOME STATEMENT DATA:
Voyage revenues..................... $ 325,074 $ 307,886 $ 182,262 $ 962,307 $ 893,226
Voyage expenses..................... 63,658 62,730 62,195 248,957 248,957
Net voyage revenues................. 261,416 245,156 120,067 713,350 644,269
Income from vessel operations....... 161,263 155,735 37,768 346,986 327,675
Interest expense.................... (21,343) (14,786) (19,989) (106,500) (74,540)
Interest income..................... 3,000 2,803 3,253 15,090 13,021
Other income (loss)................. 2,177 936 (1,092) 9,978 3,864
Net income (loss)................... 145,097 144,688 19,940 265,554 270,020
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and marketable securities...... $ 268,655 $ 348,054 $ 253,749 -- $ 223,123
Total assets........................ 2,470,621 2,518,332 1,988,367 -- 1,974,099
Total debt.......................... 1,108,694 1,108,694 1,074,561 -- 797,484
Total stockholders' equity.......... 1,234,780 1,234,780 844,727 -- 1,098,512
OTHER FINANCIAL DATA:
EBITDA(2)........................... $ 203,000 $ 188,978 $ 66,862 $ 504,127 $ 451,066
EBITDA to interest expense(2)(3).... 9.4x 13.0x 3.4x 4.8x 6.1x
Total debt to LTM EBITDA(2)(4)...... 1.8x 1.9x 6.8x -- 1.8x
Total debt to total
capitalization(5).................. 46.9% 46.0% 55.9% -- 42.1%
Net debt to total
capitalization(6).................. 40.1% 36.9% 49.2% -- 34.2%
Ratio of earnings to fixed
charges(7)......................... 7.6x 10.8x 2.0x 3.5x 4.6x
Cash earnings(8).................... $ 181,276 $ 174,832 $ 45,165 $ 389,626 $ 372,168
Capital expenditures:
Vessel purchases, gross(9)......... 13,102 1,394 550 143,601 43,512
Drydocking......................... 2,240 2,240 2,500 16,467 11,941
TOTAL FLEET DATA(10):
Average number of ships............. 79 73 73 80 72
Average age of our fleet (in years
at end of period).................. 9.2 9.2 8.4 9.2 9.0
Operating cash flow per ship per
day(11)............................ $ 27,535 $ 28,300 $ 9,851 $ 16,183 $ 16,687
SPOT AFRAMAX FLEET DATA(12):
Average number of ships............. 58 58 61 59 59
Average age of our fleet (in years
at end of period).................. 8.7 8.7 7.6 8.3 8.3
TCE per ship per day(13)............ $ 43,720 $ 43,720 $ 19,016 $ 27,138 $ 27,138
Vessel operating expenses per ship
per day(14)........................ 5,307 5,307 5,217 4,980 4,980
Operating cash flow per ship
per day(11)........................ 32,351 32,351 10,441 18,145 18,145
FISCAL YEARS ENDED
----------------------------------------------------
DEC. 31, MAR. 31, MAR. 31, MAR. 31,
1999 1999 1998 1997
-------- -------- -------- --------
(NINE MONTHS)
(IN THOUSANDS, EXCEPT RATIOS AND PER DAY DATA)
INCOME STATEMENT DATA:
Voyage revenues..................... $ 377,882 $ 411,922 $ 406,036 $ 382,249
Voyage expenses..................... 129,532 93,511 100,776 102,037
Net voyage revenues................. 248,350 318,411 305,260 280,212
Income from vessel operations....... 23,572 85,634 107,640 94,258
Interest expense.................... (44,996) (44,797) (56,269) (60,810)
Interest income..................... 5,842 6,369 7,897 6,358
Other income (loss)................. (4,013) 5,506 11,236 2,824
Net income (loss)................... (19,595) 45,406 70,504 42,630
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and marketable securities...... $ 226,381 $ 132,256 $ 115,254 $ 117,523
Total assets........................ 1,982,684 1,452,220 1,460,183 1,372,838
Total debt.......................... 1,085,167 641,719 725,369 699,726
Total stockholders' equity.......... 832,067 777,390 689,455 629,815
OTHER FINANCIAL DATA:
EBITDA(2)........................... $ 95,875 $ 186,069 $ 209,582 $ 191,632
EBITDA to interest expense(2)(3).... 2.1x 4.0x 3.8x 3.2x
Total debt to LTM EBITDA(2)(4)...... 8.3x 3.5x 3.5x 3.7x
Total debt to total
capitalization(5).................. 56.6% 45.2% 51.3% 52.6%
Net debt to total
capitalization(6).................. 50.7% 39.6% 46.9% 48.0%
Ratio of earnings to fixed
charges(7)......................... 0.6x 2.1x 2.3x 1.7x
Cash earnings(8).................... $ 43,343 $ 146,489 $ 165,575 $ 133,554
Capital expenditures:
Vessel purchases, gross(9)......... 23,313 85,445 197,199 65,104
Drydocking......................... 6,598 11,749 18,376 16,559
TOTAL FLEET DATA(10):
Average number of ships............. 65 47 43 41
Average age of our fleet (in years
at end of period).................. 8.4 8.7 7.8 8.2
Operating cash flow per ship per
day(11)............................ $ 5,177 $ 11,171 $ 12,682 $ 11,819
SPOT AFRAMAX FLEET DATA(12):
Average number of ships............. 55 43 42 41
Average age of our fleet (in years
at end of period).................. 7.4 8.0 7.6 7.9
TCE per ship per day(13)............ $ 13,462 $ 19,576 $ 21,373 $ 20,356
Vessel operating expenses per ship
per day(14)........................ 5,621 4,969 4,554 4,922
Operating cash flow per ship
per day(11)........................ 4,731 10,903 12,664 11,819
(Footnotes on following page)
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(1) Represents actual amounts as adjusted to give effect to the acquisition of
100% of UNS, as if it had occurred on January 1, 2000. See unaudited pro
forma consolidated condensed financial statements included elsewhere in
this prospectus. The primary adjustments were (a) an increase in
depreciation and amortization expense relating to the amortization of
goodwill arising upon the acquisition of UNS, (b) an increase in interest
expense as if we had borrowed funds under our revolving credit facilities
to finance the acquisition, and (c) an increase in other income to reverse
the expense related to the minority interest portion of UNS' results for
the period March 6, 2001 to March 31, 2001.
(2) EBITDA represents net income (loss) before extraordinary items, interest
expense, income tax expense, depreciation and amortization expense,
minority interest, and gains or losses arising from prepayment of debt,
foreign exchange translation and disposal of assets. EBITDA is included
because such data is used by certain investors to measure a company's
financial performance. EBITDA is not required by accounting principles
generally accepted in the United States and should not be considered as an
alternative to net income or any other indicator of our performance
required by accounting principles generally accepted in the United States.
(3) For purposes of computing EBITDA to interest expense, interest expense
includes capitalized interest but excludes amortization of loan costs.
(4) Total debt to LTM EBITDA represents total debt as of the end of the period
compared to EBITDA for the 12-month period then ended.
(5) Total capitalization represents total debt, minority interest and total
stockholders' equity.
(6) Net debt represents total debt less cash, cash equivalents and marketable
securities. Total capitalization represents net debt, minority interest and
total stockholders' equity.
(7) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of net income (loss) before extraordinary items, income taxes,
minority interest expense, equity income, interest expense, amortization of
deferred financing costs and amortization of capitalized interest. Fixed
charges consist of interest expense, capitalized interest and amortization
of deferred financing costs.
(8) Cash earnings represents net income (loss) before extraordinary items,
foreign exchange gains (losses), and 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 accounting
principles generally accepted in the United States and should not be
considered as an alternative to net income or any other indicator of our
performance required by accounting principles generally accepted in the
United States.
(9) Excludes vessels purchased in connection with our corporate acquisitions of
Bona Shipholding Ltd. in 1999 and UNS in 2001. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
(10) Excludes vessels of our joint ventures, newbuildings and one Aframax tanker
that has been subject to a bareboat charter.
(11) Operating cash flow represents income from vessel operations plus
depreciation and amortization expense (other than drydock amortization
expense). Ship days are calculated on the basis of a 365-day fiscal year
multiplied by the average number of vessels in our fleet for the respective
year (excluding vessels of our joint ventures). Operating cash flow is not
required by accounting principles generally accepted in the United States
and should not be considered as an alternative to net income or any other
indicator of our performance required by accounting principles generally
accepted in the United States.
(12) Includes our core Aframax fleet that operates primarily in the spot charter
market and excludes vessels that operate primarily under long-term
fixed-rate contracts, including our ten Aframax-size shuttle tankers and
our Aframax-size Australian-crewed vessels. TCE and vessel operating
expense data is separately presented only for this portion of our fleet
because the remainder of
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our fleet generally has varying revenue and expense characteristics that
make period-to-period comparisons not meaningful. Also excludes one Aframax
tanker that has been subject to a bareboat charter and Aframax tankers of
our joint ventures.
(13) TCE is a measure of the revenue performance of a vessel, which, on a per
voyage basis, is generally determined by Clarkson Research Studies Inc.
("Clarkson") and other industry data sources by subtracting voyage expenses
(except commissions) which are incurred in transporting cargo from gross
revenue per voyage and dividing the remaining revenue by the total number
of days required for the round-trip voyage. For purposes of calculating our
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 our total
voyage days in the year. Voyage expenses comprise all expenses relating to
particular voyages, including bunker fuel expenses, port fees, canal tolls,
and brokerage commissions. See "Exhibit A -- Definitions of Shipping
Terms."
(14) Vessel operating expenses comprise all expenses relating to the operation
of vessels (other than voyage expenses), including crewing, repairs and
maintenance, insurance, stores and lubes, and communications expenses. Ship
days are calculated on the basis of a 365-day year multiplied by the
average number of owned vessels in our fleet for the respective year.
Vessel operating expenses exclude vessels time-chartered-in.
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RISK FACTORS
Before investing in our notes, you should consider carefully the following
factors, as well as the information contained in the rest of this prospectus.
THERE MAY BE ADVERSE CONSEQUENCES TO YOU IF YOU DO NOT EXCHANGE YOUR OUTSTANDING
NOTES
If you do not exchange your outstanding notes for exchange notes in the
exchange offer, then you will continue to be subject to the transfer
restrictions on the outstanding notes described in the offering circular
distributed in connection with the private placement of the outstanding notes.
In general, the outstanding notes may not be offered or sold unless they are
registered or exempt from registration under the Securities Act of 1933 and
applicable state securities laws. Except as required by the exchange and
registration rights agreement that we entered into with the initial purchasers
of the outstanding notes, we do not intend to register resales of the
outstanding notes under the Securities Act. See "The Exchange Offer --
Consequences of Failure to Exchange." You should refer to "The Exchange Offer"
for information about how to tender your outstanding notes. The tender of
outstanding notes pursuant to the exchange offer will reduce the outstanding
principal amount of the outstanding notes, which may have an adverse effect
upon, and increase the volatility of, the market price of the outstanding notes
due to a reduction in liquidity.
RISKS RELATING TO OUR DEBT
OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND PREVENT
US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES OFFERED BY THIS PROSPECTUS
We have substantial debt and debt service requirements. At June 30, 2001
and giving effect to the proposed application of the net proceeds of the
offering of the outstanding notes to prepay certain of our outstanding secured
debt, our consolidated debt would have been approximately $1,053 million, and we
would have been able to borrow an additional $352 million under our credit
facilities.
The amount of our debt could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations under the
exchange notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future capital expenditures, working capital
and other general corporate requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to make interest and principal payments on our debt;
- limit our flexibility in planning for, or reacting to, changes in our
business and the shipping industry;
- place us at a competitive disadvantage compared to competitors that have
less debt; and
- limit our ability to borrow additional funds, even when necessary to
maintain adequate liquidity.
TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, WHICH MAY NOT
BE AVAILABLE TO US
Our ability to repay our debt, including the notes offered by this
prospectus, will depend largely upon our future operating performance and a
number of other factors, many of which are beyond our control. In addition, we
will rely on dividends and other intercompany cash flows from our subsidiaries
to repay our obligations. Financing arrangements between some of our
subsidiaries and their respective lenders contain restrictions on dividends by
and distribution from such subsidiaries to us.
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If we are unable to generate sufficient cash flow to meet our debt service
requirements, we may have to renegotiate the terms of our debt. We cannot assure
you that we would be able to renegotiate successfully those terms or refinance
our debt when required. If we were unable to refinance our debt or obtain new
financing under these circumstances, we would have to consider other options,
such as:
- sales of certain assets to meet our debt service obligations;
- sales of equity; and
- negotiations with our lenders to restructure applicable debt.
Our credit agreements and the indenture governing the notes offered by this
prospectus may restrict our ability to do some of these things.
OUR SUBSIDIARIES CONDUCT ALL OF OUR OPERATIONS AND OWN ALL OF OUR OPERATING
ASSETS, AND THE NOTES OFFERED BY THIS PROSPECTUS WILL BE STRUCTURALLY
SUBORDINATED TO THE LIABILITIES OF OUR SUBSIDIARIES
We are a holding company and our subsidiaries conduct all of our operations
and own all of our operating assets. Our only material asset is our ownership of
the capital stock of our subsidiaries. As a result, our ability to make required
payments on the notes offered by this prospectus depends on the operations of
our subsidiaries and our subsidiaries' ability to distribute funds to us. To the
extent our subsidiaries are unable to distribute, or are restricted from
distributing, funds to us, we may be unable to fulfill our obligations under the
notes. Our subsidiaries will have no obligation to pay amounts due on the notes
offered by this prospectus, and none of our subsidiaries will guarantee the
notes.
The rights of holders of the notes offered by this prospectus will be
structurally subordinated to the rights of our subsidiaries' lenders. A default
by a subsidiary under its debt obligations would result in a block on
distributions from the affected subsidiary to us. The exchange notes will be
effectively junior to all liabilities of our subsidiaries. In the event of a
bankruptcy, liquidation or reorganization of any of our subsidiaries, creditors
of our subsidiaries will generally be entitled to payment of their claims from
the assets of those subsidiaries before any assets are made available for
distribution to us. Giving effect to the proposed application of the net
proceeds of the offering of the outstanding notes to prepay certain secured debt
and assuming we had completed the exchange offer, on June 30, 2001, the exchange
notes offered by this prospectus would have been effectively junior to an
aggregate of approximately $803 million of debt owed or guaranteed by certain of
our subsidiaries and an additional $115 million of debt of our joint ventures
guaranteed by subsidiaries.
THE EXCHANGE NOTES WILL BE UNSECURED AND WILL BE EFFECTIVELY SUBORDINATED TO OUR
SECURED DEBT AND SECURED DEBT OF OUR SUBSIDIARIES
The notes offered by this prospectus are unsecured and therefore will be
effectively subordinated to any secured debt we, or our subsidiaries, currently
maintain or may incur to the extent of the value of the assets securing the
debt. Each of our subsidiary's debt is currently secured by the tanker or
tankers owned by that subsidiary. In the event of a bankruptcy or similar
proceeding involving us or a subsidiary, the assets that serve as collateral
will be available to satisfy the obligations under any secured debt before any
payments are made on the notes. Giving effect to the proposed application of net
proceeds of the offering of the outstanding notes to prepay certain of our
secured debt and assuming we had completed the exchange offer, on June 30, 2001,
the exchange notes would have been effectively junior to an aggregate of
approximately $803 million in outstanding secured debt.
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FAILURE TO COMPLY WITH COVENANTS COULD LEAD TO ACCELERATION OF DEBT
Our existing financing agreements and those of our subsidiaries impose
operating and financial restrictions that restrict our actions. These
restrictions limit or prohibit our ability to, among other things:
- incur additional debt;
- create liens;
- sell capital stock of subsidiaries or other assets;
- make certain investments;
- engage in mergers and acquisitions;
- make certain capital expenditures; or
- pay dividends.
Failure to comply with any of the covenants in our existing or future
financing agreements could result in a default under those agreements or under
other agreements containing cross-default provisions. A default would permit
lenders to accelerate the maturity of the debt under these agreements and to
foreclose upon any collateral securing that debt. Under these circumstances, we
might not have sufficient funds or other resources to satisfy all of our
obligations, including our obligations under the notes offered by this
prospectus. In addition, the secured nature of a portion of our other debt,
together with the limitations imposed by financing agreements on our ability to
incur additional debt and to take other actions, might significantly impair our
ability to obtain other financing.
Some of our existing financing agreements also impose restrictions on
changes of control of us or our ship-owning subsidiaries, including requirements
for prior consent and that we make an offer to redeem certain debt. See
"Description of Certain Debt."
DECLINING MARKET VALUES OF OUR VESSELS COULD ADVERSELY AFFECT OUR LIQUIDITY AND
RESULT IN BREACHES OF OUR FINANCING AGREEMENTS
Market values of tankers fluctuate depending upon general economic and
market conditions affecting the tanker industry and competition from other
shipping companies, other types and sizes of vessels, and other modes of
transportation. In addition, as vessels become older, they generally decline
significantly in value. Declining vessel values of our tankers could adversely
affect our liquidity by limiting our ability to raise cash by refinancing
vessels. Declining vessel values could also result in a breach of loan covenants
and events of default under relevant financing agreements that require us to
maintain certain loan-to-value ratios. If we are unable to pledge additional
collateral in the event of a decline in vessel values, the lenders could
accelerate our debt and foreclose on our vessels pledged as collateral for the
loans.
WE MAY BE UNABLE TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL
OFFER REQUIRED BY THE INDENTURE GOVERNING THE NOTES
The terms of the notes will require us to make an offer to repurchase the
notes upon the occurrence of a change of control triggering event at a purchase
price equal to 101% of the principal amount of the notes, plus accrued interest
to the date of the purchase. In the event of a change of control triggering
event, the total debt represented by the notes could become due and payable. We
may not have sufficient funds available at the time of any change of control to
repurchase the notes. See "Description of the Notes -- Repurchase of Notes Upon
a Change of Control Triggering Event."
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RISKS RELATING TO OUR BUSINESS
THE CYCLICAL NATURE OF THE TANKER INDUSTRY CAUSES VOLATILITY IN OUR
PROFITABILITY
Historically, the tanker industry has been cyclical, experiencing
volatility in profitability due to changes in the supply of, and demand for,
tanker capacity. Increases in tanker capacity supply or decreases in tanker
capacity demand could harm our business, financial condition and results of
operations. The supply of tanker capacity is a function of the number of new
vessels built, older vessels scrapped, converted and lost and the number of
vessels that are out of service. The demand for tanker capacity is influenced
by, among other factors:
- global and regional economic conditions;
- increases and decreases in industrial production and demand for crude
oil and petroleum products;
- the distance crude oil and petroleum products need to be transported by
sea; and
- developments in international trade and changes in seaborne and other
transportation patterns.
Because many of the factors influencing the supply of and demand for tanker
capacity are unpredictable, the nature, timing and degree of changes in tanker
industry conditions are also unpredictable. See "Business -- The International
Tanker Market -- Industry Fundamentals."
WE DEPEND UPON OIL MARKETS, CHANGES IN WHICH COULD RESULT IN DECREASED DEMAND
FOR OUR VESSELS AND SERVICES
Demand for our vessels and services in transporting crude oil and petroleum
products depends upon world and regional oil markets. Any decrease in shipments
of crude oil in those markets could harm our business, financial condition and
results of operations. Historically, those markets have been volatile as a
result of the many conditions and events that affect the price, production and
transport of oil, as well as competition from alternative energy sources.
OUR DEPENDENCE ON SPOT VOYAGES MAY RESULT IN SIGNIFICANT FLUCTUATIONS IN THE
UTILIZATION OF OUR VESSELS AND IN OUR PROFITABILITY
In fiscal 2000, we derived approximately 82% of our net voyage revenues
(75% after giving effect to our acquisition of UNS as if it had occurred on
January 1, 2000) from spot voyages or time charters and contracts of
affreightment priced on a spot market basis. Because we depend on the spot
charter market, declining charter rates in a given period generally will result
in corresponding declines in our operating results for that period. The spot
charter market is highly competitive and spot charter rates are subject to
significant fluctuations based on tanker and oil supply and demand. Charter
rates have varied dramatically in the last few years. Future spot charters may
not be available at rates that will be sufficient to enable our vessels to be
operated profitably or provide sufficient cash flow to service the notes and pay
our other debt obligations.
REDUCTION IN OIL PRODUCED FROM OFFSHORE OIL FIELDS COULD HARM OUR SHUTTLE TANKER
BUSINESS
Demand for our shuttle tankers in transporting crude oil and petroleum
products depends upon the amount of oil produced from offshore oil fields,
especially in the North Sea, where our shuttle tankers primarily operate. As oil
prices increase, the prospect of offshore oil exploration and development of
offshore oil fields, which cost more to build than land oil fields, becomes more
attractive to oil companies. However, if oil prices were to decline, it would
become less attractive for oil companies to explore for oil offshore and develop
offshore oil fields. If the amount of oil produced from offshore oil fields
declines, especially in the North Sea, our shuttle tanker business could be
harmed.
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OUR INABILITY TO RENEW OR REPLACE LONG-TERM CHARTER CONTRACTS COULD HARM OUR
BUSINESS
Twenty-five of our tankers, including 16 of our 18 shuttle tankers,
currently are subject to long-term charter contracts. Twelve of these contracts
terminate by their terms between April 2002 and September 2003. The 13 remaining
contracts terminate by their terms between 2004 and 2013. Our inability to renew
or replace these contracts on favorable terms, if at all, or the early
termination of a significant number of these contracts, could harm our business,
financial condition and results of operations.
THE INTENSE COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED PROFITABILITY
Our vessels operate in highly competitive markets. Competition arises
primarily from other Aframax and shuttle tanker owners, including major oil
companies as well as independent companies. We also compete with owners of other
size tankers. Our market share is insufficient to enforce any degree of pricing
discipline in the markets in which we operate and our competitive position may
erode in the future. Any new markets that we enter could include participants
that have greater financial strength and capital resources than us and we may
not be successful in entering into new markets, including the shuttle tankers
market through our acquisition of UNS.
THE TANKER INDUSTRY IS SUBJECT TO SUBSTANTIAL ENVIRONMENTAL AND OTHER
REGULATIONS, WHICH MAY SIGNIFICANTLY INCREASE OUR EXPENSES
Our operations are affected by extensive and changing environmental
protection laws and other regulations. We have incurred, and expect to continue
to incur, substantial expenses in complying with these laws and regulations,
including expenses for ship modifications and changes in operating procedures.
Additional laws and regulations may be adopted that could limit our ability to
do business or further increase the cost of our doing business. This could harm
our business, financial condition and results of operations. See "Business --
Regulation."
The United States Oil Pollution Act of 1990 ("OPA 90") in particular has
increased our expenses. The OPA 90 provides for the phase-in of the exclusive
use of double-hull tankers at United States ports, as well as potentially
unlimited liability for owners, operators and demise or bareboat charterers for
oil pollution in U.S. waters. To comply with the OPA 90, tanker owners generally
incur additional costs in meeting additional maintenance and inspection
requirements, in developing contingency arrangements for potential spills and in
obtaining required insurance coverage. The OPA 90 contains financial
responsibility requirements for vessels operating in U.S. waters and requires
owners and operators of vessels to establish and maintain with the United States
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 the OPA 90.
Following the example of the OPA 90, the International Maritime
Organization, the United Nations' agency for maritime safety, adopted
regulations for tanker design and inspection that are designed to reduce oil
pollution in international waters and that will be phased in on a schedule
depending upon vessel age. In addition, certain U.S. states, the European
Community and certain countries are considering stricter technical and
operational requirements for tankers and legislation that will affect the
liability of tanker owners and operators for oil pollution.
Our shuttle tankers primarily operate in the North Sea. In addition to the
regulations imposed by the International Maritime Organization, the countries
having jurisdiction over areas of the North Sea impose regulatory requirements
in connection with operations in those areas. These regulatory requirements,
together with additional requirements imposed by the operators in the North Sea
oil fields, require us to make further expenditures for sophisticated equipment,
reporting and redundancy systems on our shuttle tankers and for the training of
seagoing staff. Additional regulations and requirements may be adopted or
imposed that could limit our ability to do business or further increase the cost
of doing business in the North Sea.
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OUR INSURANCE MAY NOT BE SUFFICIENT TO COVER THE LOSSES THAT MAY OCCUR TO OUR
PROPERTY OR AS A RESULT OF OUR OPERATIONS
The operation of oil tankers carries the risk of environmental damage from
an oil spill as well as the risk of catastrophic marine disasters and property
losses inherent to any ocean-going vessel. We carry protection and indemnity
coverage to protect against most of the accident-related risks involved in the
conduct of our business and maintain environmental damage and pollution
coverage. Except with respect to our shuttle tankers, we do not carry insurance
covering the loss of revenue resulting from vessel off-hire time. All risks may
not be adequately insured against, and any particular claim may not be paid. In
addition, we may not be able to procure adequate coverage at commercially
reasonable rates in the future. Any uninsured loss could harm our business,
financial condition and results of operations.
More stringent environmental regulations at times in the past have resulted
in increased costs for, and in the future may result in the lack of availability
of, insurance against the risks of environmental damage or pollution. We
currently maintain $1 billion in coverage for liability for pollution, spillage
or leakage of oil for each of our vessels. A catastrophic spill could exceed the
coverage available, which could harm our business, financial condition and
results of operations.
BECAUSE OUR FUTURE GROWTH DEPENDS IN LARGE PART ON FACTORS BEYOND OUR CONTROL,
WE MAY NOT BE SUCCESSFUL IN IMPLEMENTING OUR GROWTH STRATEGY
A principal component of our strategy is to continue to grow by expanding
our business both in the geographic areas and markets where we have historically
focused as well as into new geographic areas, market segments and services. We
may not be successful in expanding our operations and any expansion may not be
profitable. Our future growth will depend upon a number of factors, both within
and outside of our control. These include:
- our identification of new markets;
- our acceptance by new customers;
- our identification and entering into of suitable joint venture
opportunities;
- our identification and acquisition on favorable terms of suitable
acquisition candidates;
- our successful integration of any acquired businesses, including UNS,
with our existing operations;
- our ability to hire and train qualified personnel; and
- our ability to obtain required financing.
We have grown primarily by means of internal growth and have limited
experience with completing acquisitions and integrating acquired businesses. The
failure to effectively identify, purchase, develop and integrate any acquired
businesses could harm our business, financial condition and results of
operations. In addition, the results we have achieved to date may not be
indicative of our ability to penetrate new markets, including the shuttle tanker
market, many of which may have different competitive conditions and
characteristics than our traditional markets.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE UGLAND NORDIC SHIPPING INTO OUR
OPERATIONS
We may not be successful in integrating into our operations our recent
acquisition of UNS. The UNS acquisition involves risks commonly encountered in
acquisitions of companies, including:
- potential disruption of our ongoing business;
- diversion of the time and resources of our management; and
- potential loss of key employees of the acquired company.
17
23
In addition, IUM Shipmanagement AS, a company in which UNS holds a
one-third interest ("IUM"), manages the technical operation, such as crewing and
maintenance, of most of the UNS fleet. While we believe that IUM has
successfully managed the UNS fleet in the past and we currently continue to
utilize the services of IUM, we have a limited operating history with IUM and we
do not have direct control over the IUM personnel.
Our failure to effectively integrate UNS, or any other acquired businesses,
could harm our business, financial condition and results of operations.
THE STRAIN THAT OUR GROWTH PLACES UPON OUR SYSTEMS AND MANAGEMENT RESOURCES MAY
ADVERSELY AFFECT OUR BUSINESS
To the extent our operations continue to expand, we will continue to
experience growth in the number of our employees, the scope of our operating and
financial systems and the geographic area of our operations. Recent growth has
increased, and future growth will continue to increase, our operating complexity
and the level of responsibility of existing and new management personnel. We
cannot assure you that we will be able to attract and retain qualified
management and employees, especially qualified officers and other seagoing
personnel, of which there is a limited supply, that our current operating and
financial systems and controls will be adequate as we grow, or that any steps
taken to attract and retain management and employees and to improve such systems
and controls will be sufficient.
WE MAY NOT BE ABLE TO SUCCESSFULLY OPERATE IN THE SHUTTLE TANKER MARKET
We have historically operated in the Aframax spot and time-charter crude
and petroleum transportation markets in the Indo-Pacific Basin and the Atlantic
region. UNS operates primarily in the shuttle tanker market in the North Sea.
While we do not believe operating in the North Sea shuttle tanker market is
substantially different from operating in the Indo-Pacific Basin and Atlantic
region Aframax markets, we may not be successful in our expansion into a market
where we have little or no direct prior experience.
OUR OPERATING RESULTS ARE SUBJECT TO SEASONAL FLUCTUATIONS
Our tankers operate in markets that have historically exhibited seasonal
variations in demand and, therefore, in charter rates. This seasonality may
result in quarter-to-quarter volatility in our results of operations. 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 these months tend to disrupt vessel scheduling. The oil price
volatility resulting from these factors has historically led to increased oil
trading activities in the winter months. As a result, our revenues have
historically been weaker during our fiscal quarters ended June 30 and September
30, and, conversely, revenues have been stronger in our fiscal quarters ended
March 31 and December 31.
WE EXPEND SUBSTANTIAL SUMS DURING CONSTRUCTION OF NEWBUILDINGS WITHOUT EARNING
REVENUE AND WITHOUT ASSURANCE THAT THEY WILL BE COMPLETED
We are typically required to expend substantial sums as progress payments
during the construction of a newbuilding, but we do not derive any revenue from
the vessel until after its delivery. If the shipyard were unable to complete the
contract or if we were unable to obtain financing required to complete payments
on any of our newbuilding orders, we could effectively forfeit all or a portion
of the progress payments previously made. Our UNS subsidiary currently has three
newbuildings on order, with deliveries scheduled for December 2002, March 2003
and September 2003. We may in the future order additional newbuildings.
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THE LOSS OF ANY KEY CUSTOMER COULD RESULT IN A SIGNIFICANT LOSS OF REVENUE IN A
GIVEN PERIOD
We have derived, and believe that we will continue to derive, a significant
portion of our voyage revenues from a limited number of customers. Two
customers, both international oil companies, individually accounted for
approximately $118 million, or 13%, and approximately $110 million, or 12%, of
our consolidated voyage revenues during fiscal 2000. Giving pro forma effect to
our acquisition of UNS as if it had occurred on January 1, 2000, such
percentages would have been 12% and 11%, respectively. A single customer, an
international oil company, accounted for $48 million, or approximately 13%, of
our consolidated voyage revenues for the nine months ended December 31, 1999.
During the year ended March 31, 1999, three customers, all international oil
companies, individually accounted for $51 million, $51 million and $43 million,
or 12%, 12% and 10%, respectively, of our consolidated voyage revenues. No other
customer accounted for more than 10% of our consolidated voyage revenues in any
of the fiscal periods presented above. The loss of any significant customer, or
a substantial decline in the amount of services requested by a significant
customer, could harm our business, financial condition and results of
operations.
EXPOSURE TO CURRENCY EXCHANGE RATE AND INTEREST RATE FLUCTUATIONS COULD RESULT
IN FLUCTUATIONS IN OUR NET INCOME
While virtually all of our revenues are earned in U.S. Dollars, a portion
of our operating costs is incurred in currencies other than U.S. Dollars. This
partial mismatch in operating revenues and expenses could lead to fluctuations
in net income due to changes in the value of the U.S. Dollar relative to other
currencies, in particular the Japanese Yen, the Singapore Dollar, the Canadian
Dollar, the Norwegian Kroner, the British Pound and the Australian Dollar.
At March 31, 2001, after giving effect to the issuance of the outstanding
notes and the proposed application of the net proceeds therefrom to prepay
certain of our outstanding secured debt, approximately $700 million, or 63%, of
our debt would have borne interest at floating interest rates. Increases in
interest rates would increase interest payments on this debt, and could
materially adversely affect our business, financial condition and results of
operations. In order to partially mitigate our interest rate exposure, we have
entered into six interest rate swaps, totaling $145 million in notional
principal amount with maturities between December 2001 and May 2004. The average
interest rate of the swaps is 6.46%. As of March 31, 2001, the fair value of
these interest rate swaps was negative $3.4 million. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Market Rate Risks."
OUR SUBSTANTIAL OPERATIONS OUTSIDE THE UNITED STATES EXPOSE US TO POLITICAL,
GOVERNMENTAL AND ECONOMIC INSTABILITY, WHICH COULD ADVERSELY AFFECT OUR
OPERATIONS
Because our operations are primarily conducted outside of the United
States, they may be affected by changing economic, political and governmental
conditions in the countries where we are engaged in business or where our
vessels are registered. Any disruption caused by these factors could materially
adversely affect our business, financial condition and results of operations.
During fiscal 2000, we derived approximately 59% of our total revenues from
our operations in the Indo-Pacific Basin (55% after giving effect to our
acquisition of UNS as if it had occurred on January 1, 2000). Past political
conflicts in this region, 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 this region have also been subject to, in limited
instances, acts of terrorism and piracy. Future hostilities or other political
instability in this region or other regions where we operate could affect our
trade patterns and materially adversely affect our business, financial condition
and results of operations.
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WE MAY NOT BE EXEMPT FROM U.S. TAXATION FOR OUR UNITED STATES SOURCE INCOME,
WHICH WOULD REDUCE OUR NET INCOME AND CASH FLOW BY THE AMOUNT OF THE APPLICABLE
TAX
If not exempt from tax under Section 883 of the United States Internal
Revenue Code, the shipping income derived from United States sources
attributable to our transportation of cargoes to or from the United States will
be subject to U.S. federal income tax. If we are subject to such tax, our net
income and cash flow would be reduced by the amount of such tax. Although we
currently believe we are exempt from taxation under Section 883, proposed
regulations, if they become final as proposed, may not permit us to continue to
claim the Section 883 exemption. See "Business -- Taxation of Teekay -- United
States Taxation."
In fiscal 2000, approximately 42% of voyage revenues was derived from U.S.
sources attributable to the transportation of cargoes to or from the United
States. The average U.S. federal income tax on such U.S. source income, in the
absence of exemption under Section 883, would have been 2% thereof, or
approximately $7.5 million. Giving effect to our acquisition of UNS as if it had
occurred on January 1, 2000, approximately 40% of our pro forma voyage revenues
for fiscal 2000 would have been derived from such U.S. sources. In the absence
of an exemption under Section 883, the U.S. federal income tax on such pro forma
U.S. source income would have been approximately $7.7 million.
AN ACTIVE PUBLIC MARKET MAY NOT DEVELOP FOR YOUR NOTES, WHICH MAY HINDER YOUR
ABILITY TO LIQUIDATE YOUR INVESTMENT
There is no established trading market for the exchange notes. Although we
intend to apply for listing the exchange notes on the New York Stock Exchange, a
liquid market for the exchange notes may not develop. Although the initial
purchasers of the outstanding notes have informed us that they intend to make a
market in the exchange notes after the exchange offer, they may stop making a
market at any time. Accordingly, we cannot assure you that a market for the
exchange notes will develop. Furthermore, if a market were to develop, the
market price for the notes may be adversely affected by changes in our financial
performance, changes in the overall market for similar securities and the
performance or prospects for companies in our industry.
The outstanding notes have not been registered under the Securities Act of
1933 or any state securities laws and may not be offered or sold except pursuant
to an exemption from the registration requirements of the Securities Act and
applicable state securities laws, or pursuant to an effective registration
statement.
The liquidity of, and trading market for, the exchange notes may also be
adversely effected by general declines in the market for similar securities or
by changes in our financial performance. Such a market decline may adversely
affect such liquidity and trading markets independent of our financial
performance and resources.
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USE OF PROCEEDS
We issued $250 million principal amount of the outstanding notes on June
22, 2001 to the initial purchasers of those notes. We are making the exchange
offer to satisfy our obligations under the outstanding notes, the indenture and
the exchange and registration rights agreement. We will not receive any cash
proceeds from the exchange offer. In consideration of issuing the exchange notes
in the exchange offer, we will receive an equal principal amount of outstanding
notes. Any outstanding notes that are properly tendered in the exchange offer
will be accepted, canceled and retired and cannot be reissued.
Our net proceeds from the offering of the outstanding notes were
approximately $244.5 million, after deducting the discount payable to the
initial purchasers of the outstanding notes and offering expenses. We have used
a portion these net proceeds, and intend to use the balance of these net
proceeds, to prepay certain of our secured debt. The secured debt that we have
prepaid, and that we intend to prepay, bears interest at rates ranging from
4.9875% to 8.32% and has maturity dates ranging from October 2003 to December
2008. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Liquidity and Capital Resources" and "Description of
Certain Debt." Included in this prepaid debt is a portion of our outstanding
8.32% First Preferred Ship Mortgage Notes.
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CAPITALIZATION
The following table sets forth our consolidated capitalization at March 31,
2001, to reflect:
(1) our actual capitalization; and
(2) our pro forma capitalization to give effect to (a) the acquisition of
the remaining 36% interest of UNS for $79.4 million in cash, which
was completed as of June 1, 2001, (b) the offering of the outstanding
and notes and proposed application of the net proceeds therefrom, and
(c) the exchange offer.
You should read the following table in conjunction with our historical and
pro forma consolidated financial statements and the related notes included
elsewhere in this prospectus. See "Use of Proceeds," "Management's Discussion
and Analysis of Results of Operations and Financial Condition," "Business --
Acquisition of Ugland Nordic Shipping ASA" and "Description of Certain Debt."
MARCH 31, 2001
---------------------------
ACTUAL PRO FORMA(1)
----------- ------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
Cash and marketable securities.............................. $ 348,054 $ 268,655
========== ==========
Current obligations(2):
Current portion of long-term debt......................... $ 123,058 $ 91,455
---------- ----------
Total current obligations.............................. 123,058 91,455
---------- ----------
Long-term debt(2):
Long-term debt............................................ 985,636 772,739
Outstanding notes......................................... -- 250,000
---------- ----------
Total long-term debt................................... 985,636 1,022,739
---------- ----------
Minority interest........................................... 66,968 19,257
---------- ----------
Stockholders' equity:
Capital stock............................................. 458,605 458,605
Retained earnings......................................... 777,618 777,618
Accumulated other comprehensive loss...................... (1,443) (1,443)
---------- ----------
Total stockholders' equity............................. 1,234,780 1,234,780
---------- ----------
Total capitalization................................... $2,410,442 $2,368,231
========== ==========
- ---------------
(1) Excludes approximately $95 million of long-term debt incurred by UNS in
April 2001 for its acquisition of four shuttle tankers from Awilco ASA.
(2) For information concerning our borrowing arrangements, see "Description of
Certain Debt" and Note 6 to our consolidated financial statements included
elsewhere in this prospectus.
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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables present selected financial and other data for us as at
and for the three-month periods ended March 31, 2001 and 2000 and the fiscal
year ended December 31, 2000, the nine-month period ended December 31, 1999 and
the three fiscal years ended March 31, 1999. We derived the selected financial
data set forth below with respect to our statements of income for the fiscal
year ended December 31, 2000, the nine-month period ended December 31, 1999 and
the fiscal year ended March 31, 1999 and our balance sheets as at December 31,
2000 and 1999, from our consolidated financial statements that are included
elsewhere in this prospectus and have been audited by Ernst & Young, independent
chartered accountants. We derived the income statement data for each of the two
fiscal years ended March 31, 1998 and 1997 and the balance sheet data as at
March 31, 1999, 1998 and 1997, from consolidated financial statements audited by
Ernst & Young which are not included in this prospectus. We derived the selected
financial and other data set forth below with respect to our statements of
income for each of the three-month periods ended March 31, 2001 and 2000 and our
balance sheet as at March 31, 2001 from our unaudited consolidated financial
statements included elsewhere in this prospectus. We derived the balance sheet
data as at March 31, 2000 from our unaudited consolidated financial statements
not included in this prospectus. In management's opinion, these unaudited
consolidated financial statements reflect all adjustments necessary (consisting
only of normal recurring adjustments) for a fair presentation of such financial
data. Our results for the three-month period ended March 31, 2001 are not
necessarily indicative of the eventual results for the year.
We have provided pro forma information for us as at and for the three-month
period ended March 31, 2001 and for the fiscal year ended December 31, 2000 to
show the effect of the acquisition of 100% of UNS as if it had occurred on
January 1, 2000. We derived the selected pro forma data set forth below from our
pro forma consolidated condensed financial statements that are included
elsewhere in this prospectus. The pro forma financial information is based upon
available information and assumptions we believe are reasonable. The pro forma
financial information is provided for informational purposes only and is not
indicative of our operating results or financial position had the acquisition of
UNS occurred at January 1, 2000, nor is it necessarily indicative of future
combined operating results or financial position.
You should read the data below in conjunction with the consolidated
financial statements, unaudited pro forma consolidated condensed financial
statements and related notes, the financial information and "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
included elsewhere in this prospectus.
We changed our fiscal year end from March 31 to December 31, commencing
December 31, 1999, in order to facilitate comparison of our operating results to
those of other companies in the transportation industry.
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THREE MONTHS ENDED MARCH 31, FISCAL YEARS ENDED
--------------------------------------- ----------------------------------------
PRO FORMA
PRO FORMA DEC. 31, DEC. 31, DEC. 31,
2001(1) 2001 2000 2000(1) 2000 1999
--------- ---- ---- --------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (NINE MONTHS)
(IN THOUSANDS, EXCEPT RATIOS AND PER DAY DATA)
INCOME STATEMENT DATA:
Voyage revenues....................... $ 325,074 $ 307,886 $ 182,262 $ 962,307 $ 893,226 $ 377,882
Voyage expenses....................... 63,658 62,730 62,195 248,957 248,957 129,532
---------- ---------- ---------- --------- ---------- ----------
Net voyage revenues................... 261,416 245,156 120,067 713,350 644,269 248,350
---------- ---------- ---------- --------- ---------- ----------
Operating expenses:
Vessel operating expenses(2)......... 38,250 33,879 34,769 146,075 125,415 98,780
Time charter hire expense............ 17,183 17,183 12,966 53,547 53,547 30,681
Depreciation and amortization
expense............................ 32,675 27,521 25,042 123,297 100,153 68,299
General and administrative expense... 12,045 10,838 9,522 43,445 37,479 27,018
---------- ---------- ---------- --------- ---------- ----------
Total operating expenses.............. 100,153 89,421 82,299 366,364 316,594 224,778
---------- ---------- ---------- --------- ---------- ----------
Income from vessel operations......... 161,263 155,735 37,768 346,986 327,675 23,572
Interest expense...................... (21,343) (14,786) (19,989) (106,500) (74,540) (44,996)
Interest income....................... 3,000 2,803 3,253 15,090 13,021 5,842
Other income (loss)................... 2,177 936 (1,092) 9,978 3,864 (4,013)
---------- ---------- ---------- --------- ---------- ----------
Net income (loss) before extraordinary
loss................................. 145,097 144,688 19,940 265,554 270,020 (19,595)
Extraordinary loss on bond
Redemption........................... -- -- -- -- -- --
---------- ---------- ---------- --------- ---------- ----------
Net income (loss)..................... $ 145,097 $ 144,688 $ 19,940 $ 265,554 $ 270,020 $ (19,595)
========== ========== ========== ========= ========== ==========
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and marketable securities........ $ 268,655 $ 348,054 $ 253,749 -- $ 223,123 $ 226,381
Total assets.......................... 2,470,621 2,518,332 1,988,367 -- 1,974,099 1,982,684
Total debt............................ 1,108,694 1,108,694 1,074,561 -- 797,484 1,085,167
Total stockholders' equity............ 1,234,780 1,234,780 844,727 -- 1,098,512 832,067
OTHER FINANCIAL DATA:
EBITDA(3)............................. $ 203,000 $ 188,978 $ 66,862 $ 504,127 $ 451,066 $ 95,875
EBITDA to interest expense(3)(4)...... 9.4x 13.0x 3.4x 4.8x 6.1x 2.1x
Total debt to LTM EBITDA(3)(5)........ 1.8x 1.9x 6.8x -- 1.8x 8.3x
Total debt to total
Capitalization(6).................... 46.9% 46.0% 55.9% -- 42.1% 56.6%
Net debt to total capitalization(7)... 40.1% 36.9% 49.2% -- 34.2% 50.7%
Ratio of earnings to fixed
charges(8)........................... 7.6x 10.8x 2.0x 3.5x 4.6x 0.6x
Cash earnings(9)...................... $ 181,276 $ 174,832 $ 45,165 $ 389,626 $ 372,168 $ 43,343
Capital expenditures:
Vessel purchases, gross(10).......... 13,102 1,394 550 143,601 43,512 23,313
Drydocking........................... 2,240 2,240 2,500 16,467 11,941 6,598
TOTAL FLEET DATA(11):
Average number of ships............... 79 73 73 80 72 65
Average age of our fleet (in years at
end of period)....................... 9.2 9.2 8.4 9.2 9.0 8.4
Operating cash flow per ship
per day(12).......................... $ 27,535 $ 28,300 $ 9,851 $ 16,183 $ 16,687 $ 5,177
SPOT AFRAMAX FLEET DATA(13):
Average number of ships............... 58 58 61 59 59 55
Average age of our fleet (in years at
end of period)....................... 8.7 8.7 7.6 8.3 8.3 7.4
TCE per ship per day(14).............. $ 43,720 $ 43,720 $ 19,016 $ 27,138 $ 27,138 $ 13,462
Vessel operating expenses per ship
per day(2)........................... 5,307 5,307 5,217 4,980 4,980 5,621
Operating cash flow per ship
per day(12).......................... 32,351 32,351 10,441 18,145 18,145 4,731
FISCAL YEARS ENDED
------------------------------------
MAR. 31, MAR. 31, MAR. 31,
1999 1998 1997
-------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER
DAY DATA)
INCOME STATEMENT DATA:
Voyage revenues....................... $ 411,922 $ 406,036 $ 382,249
Voyage expenses....................... 93,511 100,776 102,037
---------- ---------- ----------
Net voyage revenues................... 318,411 305,260 280,212
---------- ---------- ----------
Operating expenses:
Vessel operating expenses(2)......... 84,397 70,510 72,586
Time charter hire expense............ 29,666 10,627 3,461
Depreciation and amortization
expense............................ 93,712 94,941 90,698
General and administrative expense... 25,002 21,542 19,209
---------- ---------- ----------
Total operating expenses.............. 232,777 197,620 185,954
---------- ---------- ----------
Income from vessel operations......... 85,634 107,640 94,258
Interest expense...................... (44,797) (56,269) (60,810)
Interest income....................... 6,369 7,897 6,358
Other income (loss)................... 5,506 11,236 2,824
---------- ---------- ----------
Net income (loss) before extraordinary
loss................................. 52,712 70,504 42,630
Extraordinary loss on bond
Redemption........................... (7,306) -- --
---------- ---------- ----------
Net income (loss)..................... $ 45,406 $ 70,504 $ 42,630
========== ========== ==========
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and marketable securities........ $ 132,256 $ 115,254 $ 117,523
Total assets.......................... 1,452,220 1,460,183 1,372,838
Total debt............................ 641,719 725,369 699,726
Total stockholders' equity............ 777,390 689,455 629,815
OTHER FINANCIAL DATA:
EBITDA(3)............................. $ 186,069 $ 209,582 $ 191,632
EBITDA to interest expense(3)(4)...... 4.0x 3.8x 3.2x
Total debt to LTM EBITDA(3)(5)........ 3.5x 3.5x 3.7x
Total debt to total
Capitalization(6).................... 45.2% 51.3% 52.6%
Net debt to total capitalization(7)... 39.6% 46.9% 48.0%
Ratio of earnings to fixed
charges(8)........................... 2.1x 2.3x 1.7x
Cash earnings(9)...................... $ 146,489 $ 165,575 $ 133,554
Capital expenditures:
Vessel purchases, gross(10).......... 85,445 197,199 65,104
Drydocking........................... 11,749 18,376 16,559
TOTAL FLEET DATA(11):
Average number of ships............... 47 43 41
Average age of our fleet (in years at
end of period)....................... 8.7 7.8 8.2
Operating cash flow per ship
per day(12).......................... $ 11,171 $ 12,682 $ 11,819
SPOT AFRAMAX FLEET DATA(13):
Average number of ships............... 43 42 41
Average age of our fleet (in years at
end of period)....................... 8.0 7.6 7.9
TCE per ship per day(14).............. $ 19,576 $ 21,373 $ 20,356
Vessel operating expenses per ship
per day(2)........................... 4,969 4,554 4,922
Operating cash flow per ship
per day(12).......................... 10,903 12,664 11,819
(Footnotes on following page)
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(1) Represents actual amounts as adjusted to give effect to the acquisition of
100% of UNS, as if it had occurred on January 1, 2000. See unaudited pro
forma consolidated condensed financial statements included elsewhere in
this prospectus. The primary adjustments were (a) an increase in
depreciation and amortization expense relating to the amortization of
goodwill arising upon the acquisition of UNS, (b) an increase in interest
expense as if we had borrowed funds under our revolving credit facilities
to finance the acquisition, and (c) an increase in other income to reverse
the expense related to the minority interest portion of UNS' results for
the period March 6, 2001 to March 31, 2001.
(2) Vessel operating expenses comprise all expenses relating to the operation
of vessels (other than voyage expenses), including crewing, repairs and
maintenance, insurance, stores and lubes, and communications expenses.
Voyage expenses also comprise all expenses relating to particular voyages,
including bunker fuel expenses, port fees, canal tolls, and brokerage
commissions. Ship days are calculated on the basis of a 365-day year
multiplied by the average number of owned vessels in our fleet for the
respective year. Vessel operating expenses exclude vessels time-
chartered-in.
(3) EBITDA represents net income (loss) before extraordinary items, interest
expense, income tax expense, depreciation and amortization expense,
minority interest, and gains or losses arising from prepayment of debt,
foreign exchange translation and disposal of assets. EBITDA is included
because such data is used by certain investors to measure a company's
financial performance. EBITDA is not required by accounting principles
generally accepted in the United States and should not be considered as an
alternative to net income or any other indicator of our performance
required by accounting principles generally accepted in the United States.
(4) For purposes of computing EBITDA to interest expense, interest expense
includes capitalized interest but excludes amortization of loan costs.
(5) Total debt to LTM EBITDA represents total debt as of the end of the period
compared to EBITDA for the 12-month period then ended.
(6) Total capitalization represents total debt, minority interest and total
stockholders' equity.
(7) Net debt represents total debt less cash, cash equivalents and marketable
securities. Total capitalization represents net debt, minority interest and
total stockholders' equity.
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of net income (loss) before extraordinary items, income taxes,
minority interest expense, equity income, interest expense, amortization of
deferred financing costs and amortization of capitalized interest. Fixed
charges consist of interest expense, capitalized interest and amortization
of deferred financing costs.
(9) Cash earnings represents net income (loss) before extraordinary items,
foreign exchange gains (losses), and 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 accounting
principles generally accepted in the United States and should not be
considered as an alternative to net income or any other indicator of our
performance required by accounting principles generally accepted in the
United States.
(10) Excludes vessels purchased in connection with our corporate acquisitions of
Bona Shipbuilding Ltd. in 1999 and UNS in 2001. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(11) Excludes vessels of our joint ventures, newbuildings and one Aframax tanker
that has been subject to a bareboat charter.
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(12) Operating cash flow represents income from vessel operations plus
depreciation and amortization expense (other than drydock amortization
expense). Ship days are calculated on the basis of a 365-day fiscal year
multiplied by the average number of vessels in our fleet for the respective
year (excluding vessels of our joint ventures). Operating cash flow is not
required by accounting principles generally accepted in the United States
and should not be considered as an alternative to net income or any other
indicator of our performance required by accounting principles generally
accepted in the United States.
(13) Includes our core Aframax fleet that operates primarily in the spot charter
market and excludes vessels that operate primarily under long-term
fixed-rate contracts, including our ten Aframax-size shuttle tankers and
our Aframax-size Australian-crewed vessels. TCE and vessel operating
expense data is separately presented only for this portion of our fleet
because the remainder of our fleet generally has varying revenues and
expense characteristics that make period-to-period comparisons not
meaningful. Also excludes one Aframax tanker that has been subject to a
bareboat charter and Aframax tankers of our joint ventures.
(14) TCE is a measure of the revenue performance of a vessel, which, on a per
voyage basis, is generally determined by Clarkson Research Studies Inc.
("Clarkson") and other industry data sources by subtracting voyage expenses
(except commissions) which are incurred in transporting cargo from gross
revenue per voyage and dividing the remaining revenue by the total number
of days required for the round-trip voyage. For purposes of calculating our
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 our total
voyage days in the year. See "Exhibit A -- Definitions of Shipping Terms."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion together with the financial
statements, including the related notes, and the other financial information
appearing elsewhere in this prospectus, as well as the risks described in the
"Risk Factors" section.
We changed our fiscal year end from March 31 to December 31, commencing
December 31, 1999, in order to facilitate comparison of our operating results to
those of other companies in the transportation industry.
OVERVIEW
Teekay is a leading provider of international crude oil and petroleum
product transportation services through the world's largest fleet of medium-size
oil tankers. Our modern fleet of 95 tankers (including three newbuildings, seven
vessels time-chartered-in and six vessels owned by joint ventures) provides
transportation services to major oil companies, major oil traders and government
agencies worldwide. We believe our Aframax fleet is approximately three times
larger than that of our nearest direct Aframax competitor. Through our recent
acquisition of Ugland Nordic Shipping ASA, we are also the largest owner of
shuttle tankers, which engage in the transportation of oil from offshore
production platforms to onshore storage and refinery facilities. We estimate
that our market share is approximately 25% in the Indo-Pacific Basin Aframax
market and approximately 10% in the Atlantic region Aframax market, based on
tankers trading in those regions that are 20 years old or younger, and we
estimate that our market share is approximately 25% of the world shuttle tanker
market.
During fiscal 2000, approximately 82% of our net voyage revenues were
derived from spot voyages or time charters and contracts of affreightment priced
on a spot market basis. Time charters refer to vessels chartered to customers
for a fixed period and contracts of affreightment refer to contracts where we
carry an agreed quantity of cargo for a customer over a specified trade route
within a specified period of time. During fiscal 2000, approximately 68% of our
net voyage revenues were generated from spot voyages and approximately 14% of
our net voyage revenues were generated from spot market-based time charters and
contracts of affreightment. The remaining 18% of our net voyage revenues during
fiscal 2000 were derived from fixed-rate time-charters and contracts of
affreightment. Our dependence on the spot market contributes to the volatility
of our revenues, cash flow from operations, and net income.
Historically, the tanker industry has been cyclical, experiencing
volatility in profitability and asset values resulting from changes in the
supply of, and demand for, vessel capacity. In addition, tanker markets have
historically exhibited seasonal variations in charter rates. Tanker markets are
typically stronger in the winter months as a result of increased oil consumption
in the northern hemisphere and unpredictable weather patterns that tend to
disrupt vessel scheduling.
ACQUISITION OF UGLAND NORDIC SHIPPING ASA
As of March 31, 2001, we had purchased approximately a 64% interest in UNS
(9% of which we had purchased in 2000), the world's largest shuttle tanker
owner, for $143.9 million. As of April 26, 2001, we acquired an additional 34%
interest for $75.2 million, giving us a total interest in UNS of 98%. As of June
1, 2001, we had purchased the remaining 2% of UNS. The total purchase price for
the outstanding shares of UNS was approximately $223.3 million (including
estimated transaction expenses of $7.0 million).
UNS controls a modern fleet of 18 vessels that engage in the transportation
of oil from offshore production platforms to onshore storage and refinery
facilities. The UNS fleet has an average age of 8.5 years (excluding three
newbuildings), and operates primarily in the North Sea under long-term fixed-
rate contracts. In addition, as of June 1, 2001, UNS owned approximately 14.4%
of the publicly traded
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company Nordic American Tankers Shipping Ltd., the owner of three Suezmax
tankers on a long-term contract to BP.
For the year ended December 31, 2000, UNS earned net voyage revenues of
approximately $69.1 million, resulting in income from vessel operations of
approximately $23.8 million and net income of approximately $15.4 million. These
amounts reflect the conversion from accounting principles generally accepted in
Norway to accounting principles generally accepted in the United States. The
acquisition of UNS has been accounted for using the purchase method of
accounting, based upon preliminary estimates of fair value. The operating
results of UNS have been reflected in our financial statements on a 100% basis
commencing March 6, 2001, the effective date that we acquired a majority
interest in UNS. Minority interest expense, which is included as part of other
income (loss), has been recorded to reflect the minority shareholders' share of
UNS' net income for the period from March 6, 2001 to March 31, 2001.
Since UNS derives a majority of its revenues from long-term fixed-rate
contracts, the percentage of our fleet that will be dependent on the spot tanker
market is expected to decline. Giving effect to the acquisition of UNS as if it
had occurred on January 1, 2000, our pro forma net voyage revenues from
fixed-rate time-charters and contracts of affreightment during the fiscal year
ended December 31, 2000 and the three months ended March 31, 2001 would have
been 25% and 18%, respectively, compared to 18% and 12% when excluding UNS.
ACQUISITION OF BONA SHIPHOLDING LTD.
In June 1999, we acquired Bona Shipholding Ltd. ("Bona"), then a leading
operator of medium-size tankers, for aggregate consideration (including
transaction expenses) of approximately $450 million, consisting of approximately
$40 million in cash, $294 million of assumed debt (net of cash acquired), and
the balance in shares of our common stock. Through its fleet of primarily
Aframax tankers and oil/bulk/ore carriers ("O/B/Os"), Bona engaged in the
transportation of oil, oil products, and dry bulk commodities, primarily in the
Atlantic region.
The acquisition of Bona was accounted for using the purchase method of
accounting and did not result in the recording of any goodwill. We capitalized
acquisition expenses by adding them to the capitalized value of acquired vessels
whose values were written down and amortized the expenses over the remaining
life of the vessels. Under the purchase method of accounting, Bona's operating
results are reflected in our financial statements commencing after June 11,
1999, the effective date of the acquisition.
Prior to the Bona acquisition, we depreciated our vessels for accounting
purposes over an economic life of 20 years down to estimated residual values.
Bona depreciated its vessels over an economic life of 25 years down to estimated
scrap values, which method is used by the majority of companies in the shipping
industry. Effective April 1, 1999, we changed, on a prospective basis, our
useful life estimate to 25 years.
All O/B/Os owned by Bona are operated through an O/B/O pool managed by a
subsidiary of Bona. Net voyage revenues from the O/B/O pool are currently
included on a 100% basis in Teekay's consolidated financial statements, with the
minority participants' share of the O/B/O pool's net voyage revenues reflected
as a time charter hire expense.
RECENT TANKER MARKET TRENDS
In 1999, oil production cutbacks by OPEC producers resulted in a
significant drawdown of world oil inventory levels, lowering tanker demand and
TCE rates, and increasing scrapping. As a result, our Aframax fleet earned an
average of $14,203 in TCE during calendar 1999.
In 2000, tanker demand and TCE rates improved significantly as increased
oil demand and replenishment of low inventory levels supported production
increases throughout the year. OPEC responded to this escalating oil demand with
four production increases during 2000: 1.7 mbpd (million
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barrels per day) in March, 0.7 mbpd in June, 0.8 mbpd in September and 0.5 mbpd
in November. Overall, OPEC increased production by 3.7 mbpd during 2000. Global
oil production increased from an average 74.1 mbpd in 1999 to 76.7 mbpd in 2000.
Oil production in the fourth quarter of 2000 peaked at 78.2 mbpd.
The tanker market in 2000 was driven not only by transitory cyclical events
but also by positive structural developments in the tanker industry. A number of
high profile oil spills involving old tankers increased charterers' preference
for modern high-quality tankers and, consequently, the freight differential
customers were willing to pay to charter these ships. As a result of those
factors, our Aframax fleet earned an average of $27,138 in TCE in 2000, or a 91%
increase over the prior year.
OPEC has decreased scheduled production by 1.5 mbpd in February 2001 and
1.0 mbpd in April 2001 due to seasonally weaker demand in the spring quarter.
However, industry sources anticipate that OPEC will raise production later this
year to meet winter demand. The International Energy Agency estimates that
global oil demand will increase by 1.2% in 2001, compared with 0.9% in 2000.
Much of the incremental production required to meet this increase in oil demand
is expected to come from the Middle East, which would particularly increase
tanker demand by requiring long-haul tanker transportation to markets.
Newbuilding deliveries into the world fleet in 2001 are expected to be 16.9
mdwt (million deadweight tons), well below the 21.2 mdwt delivered in 2000. As
of May 31, 2001, 7.7 mdwt of newbuildings had been delivered in 2001. With the
newbuilding orderbook full for 2001 and 2002, the typical lead time for delivery
of a new vessel is now into late-2003. Both of these elements should continue to
constrain tanker supply.
In April 2001, the International Maritime Organization (IMO) -- the United
Nation's specialized agency responsible for improving maritime safety and
preventing pollution from ships -- adopted legislation accelerating the
phase-out of single-hull tankers. Under prior IMO regulations, single-hull
tankers would be phased out of the world tanker fleet at age 30. The new
regulations accelerate the phase-out from 30 years in 2003 to 26 years in 2007
for single-hull tankers, which would affect approximately 30% of the current
world tanker fleet by the end of 2007. See "Business -- Regulation."
Together, we believe the factors discussed above create a positive outlook
for the TCE rate environment for the near term.
RESULTS OF OPERATIONS
Historically, our business has been dominated by the spot charter market,
including time charters priced on a spot market basis. In the spot market, bulk
shipping industry freight rates are commonly measured at the net voyage revenue
level in terms of TCE, or "time charter equivalent" rates, defined as (1)(a)
voyage revenues less (b) voyage expenses (excluding commissions), (2) divided by
voyage ship-days for the round-trip voyage. Voyage revenues and voyage expenses
are a function of the type of charter, either spot charter or time charter, and
port, canal and fuel costs depending on the trade route upon which a vessel is
sailing, in addition to being a function of the level of shipping freight rates.
For this reason, shipowners operating in the spot market 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. Accordingly, the discussion of revenue below focuses on net voyage
revenue and TCE rates.
TCE rates are dependent on oil production levels, oil consumption growth,
the number of vessels scrapped, the number of newbuildings delivered and
charterers' preference for modern tankers. As a result of our dependence on the
tanker spot market, any fluctuations in Aframax TCE rates will impact our
revenues and earnings.
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QUARTER ENDED MARCH 31, 2001 VERSUS QUARTER ENDED MARCH 31, 2000
Our average Aframax TCE rates increased significantly in the first quarter
of 2001, compared to the first quarter of 2000, due to increased demand for
modern tankers, arising from increased oil production and discrimination against
older tankers by charterers.
The OPEC decrease in oil production in February 2001 in anticipation of the
seasonal reduction in crude oil demand, which typically occurs during the second
quarter, caused Aframax TCE rates to decline at the end of the quarter from the
high levels experienced during the most recent winter.
Our average fleet size was 1.8% lower in the quarter ended March 31, 2001,
compared to the same quarter in 2000, due to the sale of two older tankers in
March 2000, partially offset by the acquisition of UNS in March 2001.
NET VOYAGE REVENUE. Net voyage revenues increased 104.2% to $245.2 million
in the quarter ended March 31, 2001, compared to a $120.1 million for the same
quarter last year. This is primarily the result of a 112.2% increase in our
average TCE rate to $39,754 in the quarter ended March 31, 2001, from $18,734 in
the same quarter last year.
VESSEL OPERATING EXPENSE. Vessel operating expenses, which include
crewing, repairs and maintenance, insurance, stores and lubes, and communication
expenses, decreased 2.6% to $33.9 million in the quarter ended March 31, 2001,
from $34.8 million in the same quarter last year, mainly as a result of the
reduction in our average fleet size.
TIME-CHARTER HIRE EXPENSE. Time-charter hire expense increased to $17.2
million in the quarter ended March 31, 2001, from $13.0 million in the same
quarter last year, primarily due to an increase in the average TCE rates earned
in the O/B/O pool, which we manage. The minority participants' share of the
O/B/O pool's net voyage revenues, which is reflected as a time-charter hire
expense, was $9.4 million for the quarter ended March 31, 2001, compared to $5.5
million for the quarter ended March 31, 2000. The average number of vessels
time-chartered-in by us was five, excluding the O/B/Os, in the quarter ended
March 31, 2001, unchanged from the same quarter last year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 9.9% to $27.5 million in the quarter ended March 31, 2001, from $25.0
million in the same quarter last year, mainly due to the acquisition of UNS and
an increase in drydock amortization expense. Depreciation and amortization
expense included amortization of drydocking costs of $3.0 million in the quarter
ended March 31, 2001, compared to $2.2 million in the same quarter last year.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
increased 13.8% to $10.8 million in the quarter ended March 31, 2001, from $9.5
million in the same quarter last year, primarily as a result of the payment of
senior management bonuses in the quarter ended March 31, 2001 and the
acquisition of UNS during the quarter.
INTEREST EXPENSE. Interest expense decreased 26.0% to $14.8 million in the
quarter ended March 31, 2001, from $20.0 million in the same quarter last year,
reflecting lower interest rates and a lower average debt balance due to
principal prepayments.
INTEREST INCOME. Interest income decreased 13.8% to $2.8 million in the
quarter ended March 31, 2001, as compared to $3.3 million in the same quarter
last year, mainly as a result of lower interest rates.
OTHER INCOME/LOSS. Other income of $0.9 million in the quarter ended March
31, 2001 was comprised of a gain on the disposition of marketable securities and
equity income from joint ventures, partially offset by minority interest,
foreign exchange loss and income taxes. Other loss of $1.1 million in the
quarter ended March 31, 2000, primarily reflected the loss on the disposition of
vessels and equipment.
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NET INCOME. As a result of the foregoing factors, our net income was
$144.7 million in the quarter ended March 31, 2001, compared to net income of
$19.9 million in the quarter ended March 31, 2000, due mainly to the improvement
in Aframax TCE rates.
YEAR ENDED DECEMBER 31, 2000 VERSUS NINE MONTHS ENDED DECEMBER 31, 1999
As a result of our change in fiscal year end from March 31 to December 31,
commencing December 31, 1999, the fiscal 2000 results are for the twelve month
period ended December 31, 2000, while the comparative fiscal period's results
are for the nine month period ended December 31, 1999. Where indicated in the
following discussions, percentage change figures reflect the annualized results
for the nine month period ended December 31, 1999. We annualized the results by
multiplying our results for the nine month period by 4/3. The annualized results
for the nine month period ended December 31, 1999 are not necessarily indicative
of those for a full 12-month period.
The results for the nine month period ended December 31, 1999 include the
results of Bona commencing on its acquisition in June 1999. On an annualized
basis, our average fleet size increased 9.0% in the year ended December 31, 2000
compared to the nine month period ended December 31, 1999. Average Aframax TCE
rates increased significantly in 2000 compared to the nine month period ended
December 31, 1999, due to increased demand for modern tankers that arose from
increased oil production and discrimination against older tankers by charterers.
NET VOYAGE REVENUE. Net voyage revenues were $644.3 million in the year
ended December 31, 2000, as compared to $248.4 million in the nine month period
ended December 31, 1999, representing a 94.6% increase on an annualized basis
from the nine month period ended December 31, 1999. This is mainly the result of
a 81.2% increase in the average TCE rate earned by our fleet, to $25,661 for the
year ended December 31, 2000, from $14,165 for the nine month period ended
December 31, 1999. As of December 31, 1999, we changed the process of estimating
net voyage revenues from a load port-to-load port basis to a discharge
port-to-discharge port basis, which is consistent with most other shipping
companies. This change in voyage estimate resulted in a one-time increase in net
voyage revenues of $5.7 million for the nine month period ended December 31,
1999.
VESSEL OPERATING EXPENSE. Vessel operating expenses increased to $125.4
million in the year ended December 31, 2000 from $98.8 million in the nine month
period ended December 31, 1999, representing a 4.8% decrease on an annualized
basis. This decrease was mainly the result of lower per-day operating expenses
arising from the application of our lower cost structure to the Bona fleet. This
decrease was partially offset by the increase in our average fleet size.
TIME-CHARTER HIRE EXPENSE. Time-charter hire expense was $53.5 million in
the year ended December 31, 2000, up from $30.7 million in the nine month period
ended December 31, 1999, representing a 30.7% increase on an annualized basis.
This increase is primarily due to an increase in the minority participants'
share of the O/B/O pool's net voyage revenues, which was $26.3 million for the
year ended December 31, 2000, compared to $10.5 million in the nine month period
ended December 31, 1999. This was caused by an improvement in the average TCE
rate earned in the O/B/O pool and the inclusion of Bona's operating results,
which includes the O/B/O vessels, for only part of the previous fiscal period
from June 11, 1999. The average number of vessels that we time-chartered-in,
excluding the O/B/Os, was five in the year ended December 31, 2000, compared to
four in the nine month period ended December 31, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased to $100.2 million in the year ended December 31, 2000, from $68.3
million in the nine month period ended December 31, 1999, representing a 10.0%
increase on an annualized basis. This increase primarily reflects the increase
in our average fleet size arising from the acquisition of Bona. Depreciation and
amortization expense included amortization of drydocking costs of $9.2 million
in the year ended December 31, 2000, compared to $6.3 million in the nine month
period ended December 31, 1999.
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GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
were $37.5 million in the year ended December 31, 2000, as compared to $27.0
million in the nine month period ended December 31, 1999, representing a 4.0%
increase on an annualized basis. This increase is primarily a result of the
acquisition of Bona, partially offset by overhead cost savings related to the
acquisition.
INTEREST EXPENSE. Interest expense increased to $74.5 million in the year
ended December 31, 2000 from $45.0 million in the nine month period ended
December 31, 1999, representing a 24.2% increase on an annualized basis. This
increase reflects an increase in interest rates and the additional debt assumed
as part of the Bona acquisition.
INTEREST INCOME. Interest income increased to $13.0 million in the year
ended December 31, 2000 from $5.8 million in the nine month period ended
December 31, 1999. On an annualized basis, interest income increased by 67.2% as
a result of increased interest rates and higher cash and marketable securities
balances.
OTHER INCOME. Other income of $3.9 million in the year ended December 31,
2000 consisted primarily of equity income from a 50%-owned joint venture,
partially offset by future income taxes related to our Australian ship-owning
subsidiaries, and losses on the sale of two vessels. Other loss of $4.0 million
in the nine month period ended December 31, 1999 consisted primarily of future
income taxes related to our Australian ship-owning subsidiaries and one-time
employee and severance-related costs, partially offset by equity income from the
50%-owned joint venture.
NET INCOME. As a result of the foregoing factors, net income was $270.0
million in the year ended December 31, 2000, compared to a net loss of $19.6
million in the nine month period ended December 31, 1999. The results for the
year ended December 31, 2000 include losses on the disposition of assets of $1.0
million. There were no extraordinary items and no asset dispositions in the nine
month period ended December 31, 1999.
NINE MONTHS ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED MARCH 31, 1999
As a result of our change in fiscal year end from March 31 to December 31,
the results for the nine month period ended December 31, 1999, are compared to
the results for the twelve month period ended March 31, 1999. Where indicated in
the following discussions, percentage change figures reflect the annualized
results for the nine month period ended December 31, 1999. We annualized the
results by multiplying our results for the nine month period by 4/3. The
annualized results for the nine month period ended December 31, 1999 are not
necessarily indicative of those for a full 12-month period.
The results for the nine month period ended December 31, 1999 include the
results of Bona commencing June 11, 1999. On an annualized basis, our average
fleet size increased 39.5% in the nine month period ended December 31, 1999,
compared to the year ended March 31, 1999.
NET VOYAGE REVENUE. Net voyage revenues were $248.4 million in the nine
month period ended December 31, 1999, as compared to $318.4 million in the year
ended March 31, 1999, representing a 4.0% increase on an annualized basis from
the year ended March 31, 1999. This is mainly the result of an increase in fleet
size, partially offset by a 29.8% decrease in our average TCE rate, to $14,165
for the nine month period ended December 31, 1999, from $20,185 for the year
ended March 31, 1999. Aframax TCE rates declined during the second half of 1998
and 1999 due to a reduction in tanker demand, oil production cutbacks and a
large number of newbuilding deliveries. As of December 31, 1999, we changed the
process of estimating net voyage revenues from a load port-to-load port basis to
a discharge port-to-discharge port basis, which is consistent with most other
shipping companies. This change in voyage estimate resulted in a one-time
increase in net voyage revenues of $5.7 million for the nine month period ended
December 31, 1999.
VESSEL OPERATING EXPENSE. Vessel operating expenses increased to $98.8
million in the nine month period ended December 31, 1999 from $84.4 million in
the year ended March 31, 1999, representing a 56.1% increase on an annualized
basis. This increase was mainly the result of the addition of the Bona vessels,
which had higher operating expenses than the remainder of our fleet.
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TIME-CHARTER HIRE EXPENSE. Time-charter hire expense was $30.7 million in
the nine month period ended December 31, 1999, up from $29.7 million in the year
ended March 31, 1999, primarily due to the Bona acquisition. The minority pool
participants' net voyage revenues in the O/B/O pool managed by a Bona subsidiary
is reflected as time charter hire expense. The average number of Aframax vessels
that we time-chartered-in was four in the nine month period ended December 31,
1999, the same as in the year ended March 31, 1999.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
decreased to $68.3 million in the nine month period ended December 31, 1999,
from $93.7 million in the year ended March 31, 1999, representing a 2.8%
decrease on an annualized basis. This reflects the change in estimated useful
life of the vessels from 20 to 25 years, partially offset by the increase in
fleet size arising from the acquisition of Bona. Depreciation and amortization
expense included amortization of drydocking costs of $6.3 million and $8.6
million in the nine month period ended December 31, 1999 and in the year ended
March 31, 1999, respectively. Had we retained our previous depreciation policy
and applied this policy to the Bona fleet, depreciation expense would have been
$22.5 million higher in the nine month period ended December 31, 1999.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses
were $27.0 million in the nine month period ended December 31, 1999, as compared
to $25.0 million in the year ended March 31, 1999, representing a 44.1% increase
on an annualized basis primarily as a result of the acquisition of Bona.
INTEREST EXPENSE. Interest expense increased to $45.0 million in the nine
month period ended December 31, 1999 from $44.8 million in the year ended March
31, 1999, representing a 33.9% increase on an annualized basis. This increase
reflects the $386.0 million in additional debt assumed as part of the Bona
acquisition and an increase in interest rates.
INTEREST INCOME. Interest income decreased to $5.8 million in the nine
month period ended December 31, 1999 from $6.4 million in the year ended March
31, 1999. On an annualized basis, interest income increased by 20.8% as a result
of increased interest rates and higher cash and marketable securities balances.
OTHER LOSS. Other loss of $4.0 million in the nine month period ended
December 31, 1999 consisted primarily of future income taxes related to our
Australian ship-owning subsidiaries and one-time employee and severance-related
costs, partially offset by equity income from the 50%-owned joint venture. Other
income of $5.5 million in the year ended March 31, 1999 consisted primarily of
gains on the sale of vessels.
NET INCOME/LOSS. As a result of the foregoing factors, net loss was $19.6
million in the nine month period ended December 31, 1999, compared to a net
income of $45.4 million in the year ended March 31, 1999. The results for the
year ended March 31, 1999 included an extraordinary loss of $7.3 million on the
redemption of our 9 5/8% First Preferred Ship Mortgage Notes, and gains on asset
sales of $7.1 million. There were no extraordinary items and no asset sales in
the nine month period ended December 31, 1999.
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The following table illustrates the relationship between fleet size
(measured in ship-days), TCE performance, and operating results per calendar
ship-day.
THREE MONTHS NINE MONTHS
ENDED MARCH 31, YEAR ENDED ENDED YEAR ENDED
------------------ DECEMBER 31, DECEMBER 31, MARCH 31,
2001 2000 2000 1999 1999
-------- ------- ------------ ------------ ----------
SPOT AFRAMAX FLEET(1)(2):
Average number of ships........ 58 61 59 55 43
Total calendar ship-days....... 5,251 5,531 21,621 15,173 15,612
Revenue generating ship-days
(A).......................... 4,923 5,253 20,513 14,301 14,647
Net voyage revenue before
commissions (B) (000s)....... $215,234 $99,891 $556,672 $192,522 $286,735
-------- ------- -------- -------- --------
TCE (B/A)...................... $ 43,720 $19,016 $ 27,138 $ 13,462 $ 19,576
-------- ------- -------- -------- --------
Operating results per calendar
ship-day:
Net voyage revenue............. $ 39,848 $17,516 $ 24,997 $ 12,310 $ 17,950
Vessel operating expense....... 5,307 1,217 4,980 5,621 4,969
General and administrative
expense...................... 1,648 1,438 1,441 1,510 1,465
Drydocking expense............. 542 420 431 448 613
-------- ------- -------- -------- --------
Operating cash flow per
calendar ship-day............ $ 32,351 $10,441 $ 18,145 $ 4,731 $ 10,903
======== ======= ======== ======== ========
TOTAL FLEET(2):
Operating cash flow per
calendar ship-day............ $ 28,300 $ 9,851 $ 16,687 $ 5,177 $ 11,171
======== ======= ======== ======== ========
- ---------------
(1) Excludes Aframax-size shuttle tankers and Australian-crewed vessels.
(2) Excludes vessels of our joint ventures, newbuildings and one Aframax tanker
that has been subject to a bareboat charter.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements relate to servicing our debt, funding capital
expenditures and working capital and maintaining cash reserves against
fluctuations in operating cash flow. Net cash flow generated by operations is
our main source of liquidity. Additional sources of liquidity include proceeds
from asset sales and refinancings.
We operate in a capital-intensive industry requiring extensive investment
in revenue-producing assets. Funds invested are raised mainly from borrowings
and our internally generated liquidity. We are required to expend substantial
sums in connection with the construction of newbuildings, with 10% to 20% of the
purchase price typically paid upon order of the vessel and the remainder paid as
progress payments prior to or on delivery one to three years later. The purchase
price of second-hand vessels is typically paid in two installments, with 10%
paid upon signing of the acquisition agreement and the remainder paid upon
delivery of the vessel.
As at March 31, 2001, our total liquidity, including cash, short-term
marketable securities and undrawn long-term lines of credit, was $435.2 million,
up from $339.4 million as at December 31, 2000, mainly as a result of the cash
flow from operating activities earned during the quarter ended March 31, 2001,
partially offset by the $97.1 million in cash used to purchase the UNS shares
(net of $26.6 million in cash assumed from UNS).
Net cash flow from operating activities increased to $164.5 million in the
quarter ended March 31, 2001, from $40.2 million in the same quarter last year,
mainly reflecting the increase in TCE rates. Net
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cash flow from operating activities was $333.3 million in the year ended
December 31, 2000, compared to $51.5 million in the nine month period ended
December 31, 1999, and $137.7 million in the year ended March 31, 1999.
Scheduled debt repayments were $5.8 million during the quarter ended March
31, 2001, compared to $0.6 million during the same quarter last year. Debt
prepayments during the quarter ended March 31, 2001 totaled $92.1 million, which
were used to reduce our two long-term revolving credit facilities (the
"Revolvers"). Debt prepayments during the quarter ended March 31, 2000 totaled
$10.0 million. Scheduled debt repayments were $63.8 million during the year
ended December 31, 2000, compared to $32.3 million during the nine month period
ended December 31, 1999, and $50.6 million in the year ended March 31, 1999. Our
debt prepayments during the year ended December 31, 2000 totaled $429.9 million,
of which $35.7 million represented the repurchase of some of our 8.32% First
Preferred Ship Mortgage Notes and the balance of $394.2 million was used to
reduce the Revolvers. Debt prepayments during the nine-month period ended
December 31, 1999 was $10.0 million.
As at March 31, 2001, our total debt was $1,108.7 million, compared to
$797.5 million as at December 31, 2000, primarily due to debt existing at UNS at
the time of our acquisition of UNS. Our total debt as at December 31, 1999 was
$1,085.2 million. Our Revolvers provided for borrowings of up to $555.8 million
as at March 31, 2001, of which $424.8 was drawn at that date. The amount
available under the Revolvers reduces semi-annually with final balloon
reductions in 2006 and 2008. The 8.32% Notes are due February 1, 2008 and are
subject to a sinking fund, which will retire $45.0 million principal amount of
the 8.32% Notes on each February 1, commencing 2004. Our outstanding term loans
reduce in quarterly or semi-annual payments with varying maturities through
2009. As of March 31, 2001, our term loans outstanding totaled $494.6 million.
The aggregate annual long-term debt principal repayments required to be made
subsequent to March 31, 2001 were $122.4 million in 2001, $90.7 million in 2002,
$158.4 million in 2003, $146.1 million in 2004, $146.0 million in 2005 and
$445.1 million thereafter to 2009. Giving effect to the proposed application of
the net proceeds of the offering of the outstanding notes to prepay certain
outstanding debt would result in the following aggregate annual long-term debt
principal repayments: $81.3 million in 2001, $60.0 million in 2002, $85.8
million in 2003, $111.8 million in 2004, $136.7 million in 2005 and $638.6
million thereafter to 2011. See "Use of Proceeds."
Among other matters, our long-term debt agreements generally provide for
such items as maintenance of certain vessel market value to loan ratios and
minimum consolidated financial covenants, prepayment privileges (in some cases
with penalties), and restrictions against the incurrence of new investments by
the individual subsidiaries without prior lender consent. The amount of
restricted payments that we can make, including dividends and purchases of our
own capital stock, was limited as of March 31, 2001, to $380.4 million. Certain
of the loan agreements require a minimum level of free cash be maintained. As at
March 31, 2001, this amount was $26.0 million.
Funding and treasury activities are conducted within corporate policies to
minimize borrowing costs and maximize investment returns while maintaining the
safety of the funds and appropriate liquidity for our purposes.
Cash and cash equivalents are held primarily in U.S. dollars with some
balances held in Japanese Yen, Singapore Dollars, Canadian Dollars, Australian
Dollars, British Pounds and Norwegian Kroner. We use foreign currency contracts
to manage risks associated with holding these currencies.
We manage the impact of interest rate changes on earnings and cash flows
through our interest rate structure. For the Revolvers, the interest rate
structure is based on LIBOR plus a margin depending on our financial leverage.
Interest payments on our term loans are based on LIBOR plus a margin. We use
interest rate swaps to manage our interest rate risk.
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Dividends declared during the quarter ended March 31, 2001 were $8.4
million, or 21.5 cents per share. Dividends declared during the year ended
December 31, 2000 were $33.0 million, or 86 cents per share.
During the quarter ended March 31, 2001, we incurred capital expenditures
for vessels and equipment of $1.4 million. Cash expenditures for drydocking were
$2.2 million in the quarter ended March 31, 2001 compared to $2.5 million over
the same period last year. During the year ended December 31, 2000, we incurred
capital expenditures for vessels and equipment of $43.5 million, consisting
mainly of the purchase of a modern second-hand Aframax tanker and the conversion
of an Aframax tanker to a floating storage and off-take vessel. Cash
expenditures for drydocking were $11.9 million in the year ended December 31,
2000 compared to $6.6 million in the nine month period ended December 31, 1999
and $11.7 million in the year ended March 31, 1999.
At March 31, 2001, UNS was committed to the construction of three
newbuilding shuttle tankers, having an aggregate cost of approximately $160.8
million. A joint venture company, 50% owned by UNS, was committed to the
construction of one additional newbuilding shuttle tanker, having an aggregate
cost of approximately $63.4 million. The joint venture newbuilding was delivered
in May 2001 and the remaining three newbuilding vessels are scheduled for
delivery in 2002 and 2003. As of March 31, 2001, payments had been made towards
these commitments of approximately $60.8 million (including $18.9 million for
the joint venture) and long-term financing arrangements exist for approximately
$122.3 million (including $44.5 million for the joint venture) of the unpaid
cost of these vessels. We intend to finance the remaining unpaid amount of
approximately $41.1 million, which includes our portion of the amounts owned by
the 50%-owned joint venture, through either additional debt borrowings or
surplus cash balances or a combination thereof. As of March 31, 2001, the
remaining payments required to be made under these newbuilding contracts were:
$67.0 million in 2001, $43.3 million in 2002 and $53.1 million in 2003. Of the
$67.0 million due in 2001, $44.5 million was paid in May 2001 by our joint
venture company for the final payment on the recently delivered newbuilding.
We have guaranteed our share of the outstanding mortgage debt in three
joint venture companies that are 50% owned by us. As of March 31, 2001, we
guaranteed $92.8 million of such debt, or our 50% portion of the $185.6 million
total debt of the joint venture companies.
In April 2001, UNS purchased four shuttle tankers for $95.0 million. The
purchase was financed with long term debt borrowings. Also in April 2001, a
joint venture in which we own a 50% interest entered into an agreement to sell
its three vessels, with deliveries scheduled between July and August 2001.
As part of our growth strategy, we will continue to consider strategic
opportunities, including the acquisition of additional vessels and expansion
into new markets. We may choose to pursue such opportunities through internal
growth, joint ventures, or business acquisitions. We intend to finance any
future acquisitions through various sources of capital, including internally
generated cash flow, existing credit lines, additional debt borrowings, and the
issuance of additional shares of capital stock.
MARKET RATE RISKS
We are exposed to market risk from foreign currency and changes in interest
rate fluctuations. We use forward currency contracts and interest rate swaps to
manage these risks, but do not use financial instruments for trading or
speculative purposes.
FOREIGN EXCHANGE RATE RISK
The international tanker industry's functional currency is the U.S. dollar.
Virtually all of our revenues and most of our operating costs are in U.S.
dollars. We incur certain operating expenses, drydocking, and overhead costs in
foreign currencies, the most significant of which are Japanese Yen, Singapore
Dollars, Canadian Dollars, Australian Dollars, British Pounds and Norwegian
Kroner. During the three
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months ended March 31, 2001, approximately 28% of vessel and voyage costs,
overhead and drydock expenditures were denominated in these currencies. However,
we have the ability to shift the purchase of goods and services from one country
to another and, thus, from one currency to another, on relatively short notice.
We enter into forward contracts as a hedge against changes in certain
foreign exchange rates. As at March 31, 2001, we had $57.1 million in foreign
exchange forward contracts that mature as follows: $28.3 million in 2001, $27.0
million in 2002, and $1.8 million in 2003. To the extent the hedge is effective,
changes in the fair value of the forward contracts are either offset against the
fair value of assets or liabilities through income, or recognized in other
comprehensive income until the hedged item is recognized in income. The
ineffective portion of a forward contract's change in fair value will be
immediately recognized in income.
INTEREST RATE RISK
We invest our cash and marketable securities in financial instruments with
maturities of less than six months within the parameters of our investment
policy and guidelines.
We use interest rate swaps to manage the impact of interest rate changes on
earnings and cash flows. Changes in the fair value of the interest rate swaps
are either offset against the fair value of assets or liabilities through
income, or recognized in other comprehensive income until the hedged item is
recognized in income. The ineffective portion of an interest rate swap's change
in fair value will be immediately recognized in income. Premiums and receipts,
if any, are recognized as adjustments to interest expense over the lives of the
individual contracts.
As at March 31, 2001, we were committed to a series of interest rate swap
agreements whereby $145.0 million of floating rate debt was swapped with fixed
rate obligations having a weighted average remaining term of 1.3 years, expiring
between December 2001 and May 2004. These arrangements effectively change our
interest rate exposure on $145.0 million of debt from a floating LIBOR rate to
an average fixed rate of 6.46%.
The following table sets forth the magnitude of these interest rate swap
agreements and foreign exchange forward contracts:
CARRYING AMOUNT
CONTRACT ------------------------
AMOUNT ASSET LIABILITY FAIR VALUE
---------- ---------- ---------- -----------
(IN THOUSANDS OF DOLLARS)
MARCH 31, 2001:
Foreign Exchange Forward
Contracts....................... $ 57,148 -- $ 1,070 $ (1,070)
Interest Rate Swap Agreements...... $ 145,000 -- $ 3,444 $ (3,444)
Debt............................... $1,108,694 -- $1,108,694 $(1,114,372)
DECEMBER 31, 2000:
Foreign Exchange Forward
Contracts....................... $ 62,125 -- -- $ 2,252
Interest Rate Swap Agreements...... $ 100,000 -- -- $ (1,297)
Debt............................... $ 797,484 -- $ 797,484 $ (789,913)
DECEMBER 31, 1999:
Foreign Exchange Forward
Contracts....................... $ 4,448 -- -- $ (20)
Interest Rate Swap Agreements...... $ 200,000 -- -- $ 4,488
Debt............................... $1,085,167 -- $1,085,167 $(1,060,417)
INFLATION
Although inflation has had a moderate impact on operating, drydocking and
corporate overhead expenses, management does not consider inflation to be a
significant risk to direct costs in the current and foreseeable economic
environment. However, in the event that inflation becomes a significant factor
in the world economy, inflationary pressures could result in increased operating
and financing costs.
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BUSINESS
Teekay is a leading provider of international crude oil and petroleum
product transportation services through the world's largest fleet of medium-size
oil tankers. Our modern fleet of 95 tankers (including three newbuildings, seven
vessels time-chartered-in and six vessels owned by joint ventures) provides
transportation services to major oil companies, major oil traders and government
agencies worldwide. We believe our Aframax fleet is approximately three times
larger than that of our nearest direct Aframax competitor. Through our recent
acquisition of Ugland Nordic Shipping ASA, we are also the largest owner of
shuttle tankers, which engage in the transportation of oil from offshore
production platforms to onshore storage and refinery facilities. We estimate
that our market share is approximately 25% in the Indo-Pacific Basin Aframax
market and approximately 10% in the Atlantic region Aframax market, based on
tankers trading in those regions that are 20 years old or younger, and we
estimate that our market share is approximately 25% of the world shuttle tanker
market.
We were founded in 1973 and are incorporated under the laws of the Republic
of the Marshall Islands. We maintain our principal executive headquarters at TK
House, Bayside Executive Park, West Bay Street & Blake Road, P.O. Box AP-59213,
Nassau, Commonwealth of the Bahamas. Our telephone number at this address is
(242) 502-8820. Our principal operating office is located at Suite 1400, One
Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X
1M5. Our telephone number at that address is (604) 683-3529.
ACQUISITION OF UGLAND NORDIC SHIPPING ASA
We recently purchased UNS, the world's largest shuttle tanker owner. UNS'
modern fleet of 18 vessels has an average age of 8.5 years (excluding three
newbuildings) and operates primarily in the North Sea under long-term fixed-rate
contracts. The total purchase price for the outstanding shares of UNS was
approximately $223.3 million (including estimated transaction expenses of $7.0
million). The operating results of UNS have been reflected in our financial
statements commencing March 6, 2001, the effective date that we acquired a
majority interest in UNS.
UNS's large scale and high quality shuttle tanker operations provide us
with a strategic opportunity to enter this attractive market as a market leader.
The acquisition also allows us to expand the portfolio of value-added services
we offer to our customers. We believe that as offshore oil fields become more
important to the global oil supply, the need for shuttle tanker services will
increase. By combining our global franchise and UNS' expertise in the shuttle
tanker market, we believe that the shuttle tanker business represents an area of
significant growth for Teekay. The acquisition of UNS will also provide added
stability to our cash flow throughout the business cycle, due to the long-term
fixed-price nature of shuttle tanker contracts.
THE INTERNATIONAL TANKER MARKET
OVERVIEW
International seaborne crude oil and other petroleum products
transportation services are provided by two main types of operators: captive
fleets of major oil companies (both private and state-owned) and independent
ship owner fleets. Both types of operators transport oil under short-term
contracts (including single-voyage "spot charters") and long-term time charters
with oil companies, oil traders, large oil consumers, petroleum product
producers and government agencies. The five largest oil companies own, or
control through long-term time charters, approximately 10% of the current world
tanker fleet. The oil companies' fleets transport their own oil, as well as oil
for third-party charterers in direct competition with independent owners and
operators. We believe that the seaborne oil transportation business is
fragmented. According to industry data, as of March 31, 2001 the top 10
participants controlled approximately 27% of the world tanker fleet, in each
case as measured by deadweight tonnage. At that date, the three largest owners
by tonnage were Fredriksen Group, Mitsui O.S.K. Line, and Teekay, which
controlled 5.3%, 3.6% and 3.1%, respectively, of the world tanker fleet.
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A significant and ongoing shift toward quality in vessels and tanker
operations has been taking place in the tanker industry over the past several
years as charterers and regulators increasingly focus on safety and protection
of the environment. The oil transportation industry has historically been
subject to regulation by national authorities and through international
conventions. Since 1990, there has been an increasing emphasis on environmental
protection through legislation and regulations such as The United States Oil
Pollution Act of 1990, International Maritime Organization regulations,
international conventions and protocols and Classification Society procedures,
all demanding higher-quality tanker construction, maintenance, repair,
management and operations. Incidents such as the December 1999 sinking of the
24-year-old oil tanker Erika, which polluted more than 250 miles of the French
coastline with heavy oil, have contributed to this focus on quality and further
spurred regulatory action. As a result, oil companies acting as charterers,
terminal operators, shippers and receivers are becoming increasingly selective
in their acceptance of tankers, inspecting and vetting both vessels and
companies on a periodic basis, and often exclude tankers on the basis of age
alone. In calendar 2000, our vessels (excluding those acquired in our
acquisition of UNS) were inspected over 350 times by oil companies and port
states. We believe that the increasingly stringent regulatory environment and
emphasis on quality relating to environmental protection will accelerate the
obsolescence of older, poor-quality tankers and provide a competitive advantage
and higher operating cash flow to modern tankers with high quality management.
See "-- Our Fleet" "-- Crewing and Staff" and "-- Regulation."
Pricing of oil transportation services occurs in the highly competitive and
efficient global tanker charter market. While some business is conducted
directly between ship owners and charterers, one or two brokers act as
intermediaries in most transactions. Tanker chartering is executed around the
clock in several shipping centers, including London, New York, Tokyo, Singapore
and Oslo. Business is transacted regionally according to the location of the
charterer or ship owner, rather than the location of the cargo's origin or
destination. Time charters, as well as vessel sale and purchase transactions,
are negotiated through brokers in the same centers in a similar pattern.
In order to benefit from economies of scale, tanker charterers typically
charter the largest possible vessel to transport oil or other petroleum
products, consistent with port and canal dimensional restrictions and optimal
cargo lot sizes. The oil tanker fleet is generally divided into the six major
types of vessels, based on vessel carrying capacity, set forth below:
APPROXIMATE SIZE RANGE
VESSEL TYPE (DEADWEIGHT TONNAGE)
- ----------- ----------------------
Ultra Large Crude Carriers............................ 320,000 or more
Very Large Crude Carriers............................. 200,000 to 320,000
Suezmax............................................... 120,000 to 200,000
Aframax............................................... 80,000 to 120,000
Panamax............................................... 60,000 to 80,000
Small Tankers......................................... Less than 60,000
Ultra and Very Large Crude Carriers typically transport crude oil in
long-haul trades, such as from the Arabian Gulf to Rotterdam via the Cape of
Good Hope. Because of the size of Ultra and Very Large Crude Carriers and their
predominance in the long-haul trades, more than 42% of the world's seaborne oil
transportation is conducted by these vessels. While the Ultra and Very Large
Crude Carrier markets differ in several respects from smaller size tanker
markets, Ultra and Very Large Crude Carriers have a significant influence on the
tanker charter market in general. Suezmax-size tankers also engage in long-haul
crude oil trades as well as in medium-haul crude oil trades, such as from West
Africa to the U.S. East Coast. Aframax-size vessels generally engage in both
medium- and short-haul trades of less than 1,500 miles and carry crude oil or
petroleum products. Panamax-size and smaller tankers primarily transport
petroleum products in short- to medium-haul trades.
In addition to the six types of tankers listed above, oil/bulk/ore carriers
and shuttle tankers are typically considered part of the world tanker fleet in
industry statistics. As of May 31, 2001, oil/bulk/ore
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carriers represented approximately 4.6% of the world tanker fleet based on total
cargo capacity. Oil/bulk/ore carriers are of various sizes and are capable of
carrying oil or dry bulk cargoes.
According to industry data, at May 31, 2001, the world fleet of Aframax
tankers consisted of 571 vessels, comprising 54.9 million deadweight tons and
constituting approximately 17.6% of the vessels in the world tanker fleet. By
virtue of their size, Aframax vessels are large enough to benefit from economies
of scale yet have access to a wide range of size-restricted ports, and are
particularly well-suited for trading in regional markets, including the
Mediterranean, the Atlantic and the Indo-Pacific Basin.
We estimate that we have approximately a 25% share of the Indo-Pacific
Basin Aframax market and approximately a 10% share of the Atlantic region
Aframax market, based on tankers trading in those regions that are 20 years old
or younger. Each of these areas contains a large number of loading and
discharging points capable of receiving Aframax size vessels. Aframax tankers in
the Indo-Pacific Basin transport crude oil from three primary production
locations -- the Arabian Gulf, Australia and Southeast Asia to refineries and
storage points located short to long distances away. They also transport
petroleum products in medium- and long-haul trades and engage in some
inter-regional trades. Aframax tankers in the Atlantic region transport crude
oil between the Caribbean and the U.S. Gulf of Mexico; between the U.K. and
continental Europe; from North Africa to Europe; and across the Atlantic.
SHUTTLE TANKER MARKET
The shuttle tanker market has become an integral part of the offshore oil
production business. Shuttle tankers are designed to transport oil from offshore
production platforms, particularly floating production platforms, to onshore
storage and refinery facilities. These vessels present an attractive alternative
to sub-sea pipelines for oilfields that have shorter life spans or lower
production volumes or that are positioned in deep water, conditions that
generally make pipelines impractical. Shuttle tankers offer shorter
establishment times, lower initial capital costs and lower maintenance costs
than pipelines.
The largest current market for shuttle tankers is the North Sea, which
contains most of the world's offshore oil production platforms. The North Sea
presents a demanding operating environment that requires technically
sophisticated shuttle tankers. Although large offshore production platforms in
the North Sea are likely to decline in the future as large fields are depleted,
industry sources anticipate that North Sea offshore production in small fields
and deep waters will drive continued demand for shuttle tankers in the region.
In 1997, there were approximately 40 shuttle tankers transporting 35% of
all North Sea oil production; in 2000, there were approximately 50 shuttle
tankers transporting an estimated 55% of all North Sea oil production. We
estimate that we have approximately a 25% share of the world shuttle tanker
market.
In addition to the North Sea, the main geographical locations we believe
are best suited for shuttle tanker use include West Africa, Brazil, Canada, and
the U.S. Gulf of Mexico. All of those locations include some or all of the
following conditions that are conducive to the use of shuttle tankers: harsh
environmental conditions due to weather, deep water, swell and currents, or
little or no pipeline infrastructure.
Barriers to entry into the shuttle tanker market include economies of
scale, operational know-how, and capital. The majority of the 61 vessels in the
world shuttle tanker fleet operate under long-term, fixed-rate contracts or
contracts of affreightment.
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INDUSTRY FUNDAMENTALS
Tanker charter rates are strongly influenced by the demand for, and supply
of, tanker capacity because of the highly competitive nature of the tanker
charter market. Small changes in tanker utilization have historically led to
relatively large changes in tanker charter rates.
TANKER DEMAND. Tanker demand is expressed in "ton-miles" and is measured
as the product of (a) the amount of oil transported in tankers, multiplied by
(b) the distance over which this oil is transported. Tonnage of oil shipped is
primarily a function of global oil consumption, which is driven by economic
activity as well as the long-term impact of oil prices on the location and
related volume of oil production. Tonnage of oil shipped is also influenced by
transportation alternatives such as pipelines.
The distance over which oil is transported is the more variable element of
the ton-mile demand equation. It is determined by seaborne trading and
distribution patterns, which are principally influenced by the locations of
production and the optimal economic distribution of the production to
destinations for refining and consumption. Seaborne trading patterns are also
periodically influenced by geo-political events that divert tankers from normal
trading patterns, as well as by inter-regional oil trading activity created by
oil supply and demand imbalances.
The overall increase in world oil demand in recent years has positively
affected the development of the tanker market. World oil consumption increased
at a compounded annual growth rate of 1.6% from 1995 through 2000 according to
the International Energy Agency. Most of this incremental oil demand has been
met by production from the Arabian Gulf. Oil from Arabian Gulf OPEC, which
represented approximately 28% of the world oil supply in 2000, grew at a
compounded annual growth rate of 2.7% from 1995 through 2000 and at a rate of
5.5% between 1999 and 2000. Incremental oil supply from the Arabian Gulf results
in a more significant increase in demand for tanker services than incremental
supply from other locations such as the North Sea and the Caribbean because of
the greater distance from the Arabian Gulf to discharge points and the
associated longer average length of voyage for oil tankers. For example, the
average tanker tonnage required to ship the incremental supply of one million
barrels per day from the Arabian Gulf to the United States is approximately 13
million deadweight tons, as compared to an average of approximately 5 million
deadweight tons of tanker tonnage required to ship the incremental supply of one
million barrels per day from the North Sea to the United States.
For 2001, the International Energy Agency forecasts oil consumption growth
at a rate of 1.2%, compared to 0.9% in 2000. Much of the spare capacity for oil
supply is located in the Arabian Gulf region, which should have a positive
effect on tanker demand.
TANKER SUPPLY. The supply of tankers is a function of scrapping, new
vessel deliveries and conversion and loss of tonnage.
At any point in time, the level of scrapping activity is a function
primarily of scrapping prices in relation to current and prospective charter
market conditions and operating, repair and survey costs. Industry regulations
also affect scrapping levels. For example, International Maritime Organization
(IMO) regulations adopted in April 2001 change the phase-out age of single-hull
vessels from 30 years in 2003 to 26 years in 2007. Aging vessels typically
require substantial repairs and maintenance to conform to industry standards,
including repairs made in connection with special surveys, which involve
periodic thorough inspections. Insurance companies and customers rely to some
degree on the survey and classification regime to provide reasonable assurance
of a vessel's seaworthiness and vessels must be certified as "in-class" in order
to continue to trade. Because the costs of maintaining a vessel in-class rise
substantially as the age of the vessel increases, vessel owners often conclude
that it is more economical to scrap a vessel that has exhausted its anticipated
useful life than to upgrade it to maintain it in-class. In addition, the
economics of operating older vessels are adversely affected by customer demand
for the safety and reliability associated with more modern vessels, coupled with
the higher rates and operating cost efficiencies available to newer vessels.
According to industry data, scrapping of Aframax tankers occurred at an
average of approximately 15 vessels per year for the period 1995 to 2000. As a
result of the decline in Aframax TCE rates in
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1999, scrapping increased dramatically, with 32 Aframax vessels being scrapped
in 1999. As Aframax TCE rates increased in 2000, scrapping decreased, with a
majority of the 17 scrappings in 2000 occurring during the first six months of
that year. As of May 31, 2001, five Aframax tankers had been scrapped in 2001.
The recent IMO regulations requiring the accelerated phase-out of single-hull
tankers should result in the scrapping of approximately 28% of the world's
existing Aframax fleet by the end of 2007. See "-- Regulation."
The level of newbuilding orders is a function primarily of newbuilding
prices in relation to current and prospective charter market conditions.
Typically, delivery of a vessel occurs within 18 to 36 months after ordering.
The correlation between the Aframax newbuilding orderbook and deliveries, and
additional supply of tonnage competing in the world Aframax tanker market, is
not precise since some of the newbuild vessels are expected to be employed in
the offshore oil production industry or as coated product tankers that do not
compete directly for crude oil shipping business.
Newbuilding deliveries of Aframax tankers occurred at an annual average
rate of 28 vessels for the period 1995 through 2000, with deliveries peaking in
1999 at 52 vessels. There have been no oil/bulk/ore carriers ordered since 1997,
with the last vessel being delivered in 1999. There were 22 Aframax tankers
delivered in 2000. At May 31, 2001, six Aframax tankers had been delivered
during 2001, with an additional seven scheduled for delivery during the
remainder of the year. The Aframax newbuilding orderbook at May 31, 2001
(including the remainder of 2001) contained orders for 101 vessels, equivalent
to 19% of the existing fleet.
COMPETITIVE STRENGTHS
We pursue an intensively customer- and operations-focused business strategy
designed to achieve superior operating results. We base our business strategy on
the following five key competitive strengths:
- MARKET CONCENTRATION. In each market that we address within the
shipping industry, we seek to achieve significant scale and scope. This
market concentration has enabled us to provide comprehensive coverage of
charterers' requirements while also providing a base for efficient
operation and a high degree of capacity utilization. We estimate that
our market share is approximately 25% in the Indo-Pacific Basin Aframax
market and approximately 10% in the Atlantic region Aframax market,
based on tankers trading in those regions that are 20 years old or
younger. Through our recent acquisition of UNS' shuttle tanker
operations, we estimate that our market share is approximately 25% in
the world shuttle tanker market. Our significant presence in these
markets strategically positions us to deliver superior service to the
oil industry on a global basis.
- OPERATIONAL CONTROL AND EXPERIENCED MANAGEMENT. Teekay services
substantially all of its operational and management needs in-house. We
have experienced management in all functions critical to our operations,
which provides us with a focused marketing effort, tight quality and
cost controls and effective safety monitoring.
- MODERN, HIGH-QUALITY TONNAGE. Our modern, high-quality tanker fleet
operates with higher fuel efficiency and lower maintenance and operating
costs compared to the world tanker fleet. We now control a fleet of 84
tankers (excluding three newbuildings and eight oil/bulk/ore carriers)
with an average age of approximately 9 years. The average age for the
world tanker fleet is approximately 13 years. In an environment of
increasingly stringent operating and safety standards, we believe that
the age profile and quality of our fleet result in a high level of
demand for our tankers by charterers.
- LARGE FLEET OF UNIFORM, MEDIUM-SIZE VESSELS. Our large fleet of
medium-size tankers, many of which are substantially identical vessels,
allows us to substitute vessels to meet customer demands. This increases
our scheduling flexibility and allows us to enhance the capacity
utilization of our fleet. We believe that the scale of our operations
and the resulting
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purchasing power, combined with the uniformity of our medium-size
vessels, results in lower operating expenses than those experienced by
smaller operators.
- STRONG NETWORK OF CUSTOMER RELATIONSHIPS. We pursue an intensively
customer-oriented focus that, when combined with other competitive
strengths, has enabled us to establish a strong network of customer
relationships and a reputation for transportation excellence among
quality-sensitive customers such as Exxon Mobil, BP, Chevron and Shell.
BUSINESS STRATEGY
Our business strategy is to leverage our existing competitive strengths to
continue to expand our business and increase shareholder value.
- MAINTAIN AND EXPAND AFRAMAX FRANCHISE. The expansion and upgrading of
our Aframax fleet will continue to be a key component of our strategy.
As the world's largest Aframax tanker operator, we believe we will be
able to provide the most comprehensive service to our customers and
generate superior operating results. For example, our size and scope of
services has enabled us to enter into contracts of affreightment to
provide large oil-company customers with ongoing services that will
grant us preferential rights on certain routes. We expect that this will
result in significant fleet utilization benefits and high market share
on strategically important routes.
- LEVERAGE THE FRANCHISE TO PROVIDE VALUE-ADDED SERVICES. Our full-service
marine operations capabilities, reputation for safety and quality and
strong customer orientation provide us with the opportunity to expand
our business by providing additional value-added and innovative services
to new and existing customers. Such services include providing customers
with floating storage and off-take vessels, outsourcing arrangements
where we service a customer's complete oil transportation requirements
and, with our recent acquisition of UNS, providing shuttle tanker
services for customers engaged in offshore oil production. By providing
our customers with these value-added services, we believe that we will
strengthen our franchise and further improve our financial performance.
- SELECTIVELY EXPAND INTO RELATED MARKETS AND SERVICES. We intend to
continue to identify expansion opportunities in new tanker market
sectors, geographic areas and services to which our competitive
strengths are well suited and that will enhance shareholder value. We
may pursue such opportunities through internal growth, joint ventures or
business acquisitions, such as our recent acquisition of UNS, through
which we expanded into the shuttle tanker market.
OUR FLEET
We have the world's largest fleet of medium-size oil tankers. As of June
30, 2001, our fleet consisted of 95 vessels: 64 Aframax oil tankers, including
seven vessels time-chartered-in, two Aframax-size oil/bulk/ore carriers trading
exclusively as crude oil carriers, two Aframax tankers converted to floating
storage and off-take vessels ("FSOs") and, through a joint venture, a 50%
interest in one additional Aframax tanker; 18 shuttle tankers (including three
newbuildings and one vessel converted to an FSO); eight oil/bulk/ore carriers
that are operated through an O/B/O pool managed by a subsidiary of Bona; two
smaller oil tankers; one Very Large Crude Carrier; and, through a joint venture,
a 50% interest in two Suezmax tankers. Our vessels are of Australian, Bahamian,
Cayman Islands, Liberian, Marshall Islands, Norwegian, Norwegian International
Ship ("NIS") and Panamanian registry. Our fleet has a total cargo capacity of
approximately 9.6 million deadweight tons. Our Aframax tankers represent
approximately 12.5% of the total tonnage of the world Aframax fleet, and our
shuttle tankers represent approximately 25% of the total tonnage of the world
shuttle tanker fleet.
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The following list provides additional information with respect to our
vessels as at June 30, 2001.
PERCENT
SERIES/YARD HULL TYPE OWNERSHIP DWT YEAR BUILT FLAG
------------- ------------- --------- --------- ---------- ----------------
AFRAMAX TANKERS (64)
Hamane Spirit......... Onomichi Double Hull 100% 105,300 1997 Bahamian
Poul Spirit........... Onomichi Double Hull 100% 105,300 1995 Bahamian
Torben Spirit......... Onomichi Double Hull 100% 98,600 1994 Bahamian
Leyte Spirit.......... Onomichi Double Hull 100% 98,600 1992 Bahamian
Luzon Spirit.......... Onomichi Double Hull 100% 98,600 1992 Bahamian
Mayon Spirit.......... Onomichi Double Hull 100% 98,600 1992 Bahamian
Samar Spirit.......... Onomichi Double Hull 100% 98,600 1992 Bahamian
Palmstar Lotus........ Onomichi Single Hull 100% 100,200 1991 Bahamian
Palmstar Thistle...... Onomichi Single Hull 100% 100,200 1991 Bahamian
Teekay Spirit......... Onomichi Single Hull 100% 100,200 1991 Bahamian
Onozo Spirit.......... Onomichi Single Hull 100% 100,200 1990 Bahamian
Palmstar Cherry....... Onomichi Single Hull 100% 100,200 1990 Bahamian
Palmstar Poppy........ Onomichi Single Hull 100% 100,200 1990 Bahamian
Palmstar Rose......... Onomichi Single Hull 100% 100,200 1990 Bahamian
Palmstar Orchid....... Onomichi Single Hull 100% 100,200 1989 Bahamian
Falster Spirit........ Hyundai Double Hull 100% 95,400 1995 Bahamian
Gotland Spirit........ Hyundai Double Hull 100% 95,400 1995 Bahamian
Sotra Spirit.......... Hyundai Double Hull 100% 95,400 1995 Bahamian
Victoria Spirit(1).... Hyundai Double Hull 100% 103,200 1993 Bahamian
Vancouver Spirit(1)... Hyundai Double Hull 100% 103,200 1992 Bahamian
Shilla Spirit......... Hyundai Single Hull 100% 106,700 1990 Bahamian
Ulsan Spirit.......... Hyundai Single Hull 100% 106,700 1990 Bahamian
Dampier Spirit(2)..... Hyundai Single Hull 100% 106,700 1988 Bahamian
Karratha Spirit(2).... Hyundai Single Hull 100% 106,700 1988 Bahamian
Namsan Spirit......... Hyundai Single Hull 100% 106,700 1988 Bahamian
Pacific Spirit........ Hyundai Single Hull 100% 106,700 1988 Bahamian
Mersey Spirit......... Hyundai Double Sides 100% 94,700 1986 Bahamian
Clyde Spirit.......... Hyundai Double Sides 100% 94,700 1985 Bahamian
Opal Queen(3)......... Imabari Double Hull 0% 107,000 2001 Bahamian
Bahamas Spirit........ Imabari Double Hull 100% 107,000 1998 Bahamian
Nassau Spirit......... Imabari Double Hull 100% 107,000 1998 Bahamian
Seaservice(3)......... Imabari Double Hull 0% 107,000 1998 Liberian
Senang Spirit......... Imabari Double Hull 100% 95,700 1994 Bahamian
Sebarok Spirit........ Imabari Double Hull 100% 95,700 1993 Bahamian
Seraya Spirit......... Imabari Double Sides 100% 97,300 1992 Bahamian
Seafalcon(3).......... Imabari Double Sides 0% 97,300 1990 Marshall Islands
Alliance Spirit....... Imabari Double Sides 100% 97,300 1989 Bahamian
Sentosa Spirit........ Imabari Double Sides 100% 97,300 1989 Bahamian
Seletar Spirit........ Imabari Double Sides 100% 97,300 1988 Bahamian
Semakau Spirit........ Imabari Double Sides 100% 97,300 1988 Bahamian
Singapore Spirit...... Imabari Double Sides 100% 97,300 1987 Bahamian
Sudong Spirit......... Imabari Double Sides 100% 97,300 1987 Bahamian
Aegean Pride(3)....... Samsung Double Hull 0% 105,300 1999 Liberian
Kanata Spirit......... Samsung Double Hull 100% 113,000 1999 Bahamian
Kareela Spirit........ Samsung Double Hull 100% 113,000 1999 Bahamian
Kiowa Spirit.......... Samsung Double Hull 100% 113,000 1999 Bahamian
Koa Spirit............ Samsung Double Hull 100% 113,000 1999 Bahamian
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PERCENT
SERIES/YARD HULL TYPE OWNERSHIP DWT YEAR BUILT FLAG
------------- ------------- --------- --------- ---------- ----------------
Kyeema Spirit......... Samsung Double Hull 100% 113,000 1999 Bahamian
Silver Paradise(3).... Samsung Double Hull 0% 105,200 1998 Panamanian
Kyushu Spirit......... Mitsubishi Double Sides 100% 95,600 1991 Bahamian
Sabine Spirit......... Mitsubishi Double Sides 100% 84,800 1989 Bahamian
Koyagi Spirit......... Mitsubishi Single Hull 100% 96,000 1989 Bahamian
Columbia Spirit....... Mitsubishi Double Sides 100% 84,800 1988 Bahamian
Hudson Spirit......... Mitsubishi Double Sides 100% 84,800 1988 Bahamian
Seabridge(3).......... Namura Double Hull 0% 105,200 1996 Liberian
Torres Spirit......... Namura Single Hull 100% 96,000 1990 Bahamian
Seamaster(3).......... Namura Single Hull 0% 101,000 1990 Liberian
Shetland Spirit....... Mitsui Double Hull 100% 106,200 1994 Bahamian
Orkney Spirit......... Mitsui Double Hull 100% 106,200 1993 Bahamian
Shannon Spirit........ Gdynia Single Hull 100% 99,300 1987 Bahamian
Clare Spirit.......... Gdynia Single Hull 100% 95,200 1986 Bahamian
Bornes................ Solisnor Double Sides 50% 88,900 1990 Liberian
Magellan Spirit....... Hitachi Double Sides 100% 95,000 1985 Bahamian
Cook Spirit........... Hashima Double Sides 100% 91,500 1987 Bahamian
SUBTOTAL AFRAMAX TANKERS.............................. 6,431,200
SHUTTLE TANKERS(15)
Stena Natalita........ Tsuneishi Double Hull 50% 110,000 2001 Cayman Islands
Stena Sirita.......... Tsuneishi Double Hull 50% 127,500 1999 Norwegian
Stena Alexita......... Tsuneishi Double Hull 50% 127,500 1998 Norwegian
Nordic Savonita....... Tsuneishi Double Hull 100% 108,200 1992 NIS
Nordic Torinita....... Tsuneishi Double Hull 100% 108,700 1992 Cayman Islands
Stena Akarita......... Tsuneishi Double Hull 65.5% 107,200 1991 Liberian
Petrotroll............ Tsuneishi Double Sides 100% 67,400 1981 NIS
Nordic Laurita........ Tsuneishi Single Hull 50.5% 68,100 1981 NIS
Nordic Marita......... Samsung Double Hull 100% 105,000 1999 Cayman Islands
Nordic Yukon.......... Dalian Double Hull 100% 98,000 1992 NIS
Petrotrym............. Dalian Double Hull 100% 80,700 1987 NIS
Nordic Svenita........ Imabari Double Hull 100% 106,500 1997 Liberian
Nordic Sarita......... Daewoo Double Hull 100% 124,500 1986 Norwegian
Petroskald............ Uddevalla Double Bottom 100% 40,000 1982 Liberian
Nordic Apollo(2)...... Avondale Double Hull 89% 129,000 1992 Liberian
SUBTOTAL SHUTTLE TANKERS.............................. 1,508,300
OIL/BULK/ORE CARRIERS(8)
Teekay Forum.......... Hyundai Double Bottom 100% 78,500 1983 Bahamian
Teekay Fulmar......... Hyundai Double Bottom 100% 78,500 1983 Bahamian
Teekay Fountain....... Hyundai Double Bottom 100% 78,500 1982 NIS
Teekay Fortuna........ Hyundai Double Bottom 67% 78,500 1982 NIS
Teekay Foam........... Hyundai Double Bottom 100% 78,500 1981 Bahamian
Teekay Freighter...... Bremer Vulcan Double Bottom 52% 75,400 1982 NIS
Teekay Fair........... Bremer Vulcan Double Hull 100% 75,500 1981 NIS
Teekay Favour......... Howaldtswerke Double Bottom 100% 82,500 1981 Bahamian
SUBTOTAL OIL/BULK/ORE CARRIERS........................ 625,900
OTHER TANKERS(5)
Musashi Spirit........ Sasebo Single Hull 100% 280,700 1993 Bahamian
Inago................. Solisnor Double Sides 50% 159,800 1993 Liberian
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PERCENT
SERIES/YARD HULL TYPE OWNERSHIP DWT YEAR BUILT FLAG
------------- ------------- --------- --------- ---------- ----------------
Erati................. Solisnor Double Sides 50% 159,700 1992 Liberian
Palmerston............ Halla Double Bottom 100% 36,700 1990 Australian
Barrington............ Samsung Double Hull 100% 33,300 1989 Australian
SUBTOTAL OTHER TANKERS................................ 670,200
SUBTOTAL DWT -- VESSELS DELIVERED..................... 9,235,600
NEW BUILDINGS(3)
Shuttle Tanker (Hull
1376)............... Samsung Double Hull 100% 92,000 2002 N/A
Shuttle Tanker (Hull
1377)............... Samsung Double Hull 100% 92,000 2003 N/A
Shuttle Tanker (Hull
1408)............... Samsung Double Hull 100% 147,500 2003 N/A
SUBTOTAL NEWBUILDINGS................................. 331,500
TOTAL DWT -- ALL TANKERS.............................. 9,567,100
- ---------------
(1) Oil/bulk/ore carrier trading exclusively as a crude oil tanker.
(2) Floating storage and off-take vessel.
(3) Time chartered-in vessel.
See "Description of Certain Debt" for information regarding major
encumbrances against some of our vessels.
Many of the Aframax tankers in our fleet have been designed and constructed
as substantially identical sister ships. These 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, which generates operating
efficiencies.
As part of our ongoing fleet modernization program, we sold a total of 8 of
our older tankers during the five fiscal periods ended December 31, 2000, and
added a total of 56 tankers (excluding time-chartered-in vessels) during the
same period, including vessels acquired through our purchases of Bona
Shipholding Ltd. in June 1999 and UNS in March 2001.
By virtue of their size, Aframax vessels are large enough to benefit from
economies of scale yet have access to a wide range of size-restricted ports, and
are particularly well-suited for trading in regional markets, including the
Mediterranean, the Atlantic and the Indo-Pacific Basin. Our Aframax tanker fleet
of 64 vessels (excluding Aframax-size shuttle tankers) is one of the most modern
fleets in the world, having an average age of approximately 9 years, compared to
an average age for the world Aframax tanker fleet of approximately 12 years. In
an environment of increasingly stringent operating and safety standards, we
believe that the age profile and quality of our fleet create a high level of
demand for our tankers by charterers.
Oil/bulk/ore carriers are designed to take advantage of natural trading
patterns for certain types of cargo in order to maximize the utilization and
revenue generating capacity of the vessel. They are capable of transporting
either liquid or dry bulk cargoes and are equipped with extensive cleaning
systems to facilitate a rapid changeover from wet to dry cargoes and vice versa.
The main commodities carried by our oil/bulk/ore carriers are condensate from
Algeria to Europe and the United States, and gasoline from the United Kingdom to
the United States. When trading to the United States, these vessels have
normally returned with coal to Europe. A majority of oil/bulk/ore carriers
transport oil and, as of May 31, 2001, these vessels represented approximately
4.6% of the world tanker fleet based on total cargo capacity. The two
Aframax-size oil/bulk/ore carriers included in our fleet have been used
exclusively to transport crude oil and petroleum products and our other eight
oil/bulk/ore carriers have been used in combination trades.
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SHUTTLE TANKERS
Through our acquisition of UNS in the spring of 2001, we acquired 18
shuttle tankers (including one floating storage and off-take vessel and four
newbuildings, one of which was delivered in May 2001). The UNS acquisition
represents our entry into the shuttle tanker market as a market leader.
Shuttle tankers are designed to transport oil from offshore production
platforms to onshore storage and refinery facilities. These tankers generally
range in size from 80,000 to 150,000 dwt and are equipped with sophisticated
equipment to handle harsh weather and rolling seas while off-loading oil from
offshore production platforms. All but three of our shuttle tankers feature
dynamic positioning systems, which enable the tankers to automatically maintain
a constant position in spite of harsh conditions through the use of global
positioning satellite technology and propellers and thrusters built into the
vessels. The average age of the world shuttle tanker fleet is 10 years, compared
to 8.5 years (excluding the newbuildings) for our shuttle tanker fleet.
In contrast to the largely spot price nature of the Aframax market, all but
two of our shuttle tankers currently operate under long-term fixed-rate
contracts. The fixed-rate contracts of our shuttle tankers have an average
remaining term of 4.5 years, excluding optional renewals at the charterers'
election. Our three shuttle tanker newbuildings are already subject to
contracts, with expiration dates between 2009 and 2013.
CLASSIFICATION AND INSPECTION
All of our vessels have been certified as being "in-class" by their
respective classification societies: Nippon Kaiji Kyokai, 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 that classification society and complies with
applicable rules and regulations of the country of registry of the vessel and
the international conventions of which that country is a member. Each vessel is
inspected by a surveyor of the classification society every year ("Annual
Survey"), every two to three years ("Intermediate Survey") and every four to
five years ("Special Survey"). Vessels also may be required, as part of the
Intermediate Survey process, to be drydocked every 24 to 30 months for
inspection of the underwater parts of the vessel and for necessary repair
related to such inspection. Many of our vessels have qualified with their
respective classification societies for drydocking every five years in
connection with the Special Survey and are no longer subject to the Intermediate
Survey drydocking process. To so qualify, we were required to enhance the
resiliency of the underwater coatings of each qualifying 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 our customers,
including the major oil companies, regularly inspect our vessels as a
precondition to chartering voyages on the vessels. We believe that our
well-maintained, high quality tonnage should provide us with a competitive
advantage in the current environment of increasing regulation and customer
emphasis on quality of service.
Our employees perform much of the necessary routine maintenance and
regularly inspect all of our vessels, both at sea and while the vessels are in
port. We inspect our vessels two to four times per year using predetermined and
rigorous criteria. Each vessel is examined and specific notations are made, and
recommendations are given for improvements to the overall condition of the
vessel and in its maintenance, safety, and crew welfare.
We have obtained through Det Norske Veritas (DNV), the Norwegian
classification society, approval of our safety management system as in
compliance with International Safety Management (ISM) Code. In November 2000, we
obtained certification of our Document of Compliance through November 2004. As
part of our ISM Code compliance, all our vessels' safety management certificates
are being maintained through ongoing internal audits performed by us and
intermediate audits performed by DNV. DNV has also certified the UNS shuttle
tankers as ISM Code compliant.
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OPERATIONS AND SHIP MANAGEMENT
We have experienced management in all functions critical to our operations.
This affords a focused marketing effort and enhanced capacity utilization
supported by a safe, efficient and cost-effective operation.
The critical ship management functions of vessel maintenance, crewing,
purchasing, shipyard supervision, insurance and financial management services
are carried out "in-house" in our various offices around the world. Since 1995,
IUM Shipmanagement AS ("IUM"), a company in which UNS owns a one-third interest,
has provided UNS ship management services, including crewing and maintenance.
IUM is under contract to provide these services to UNS until December 31, 2003.
IUM does not manage any shuttle tankers other than our vessels.
In addition to our day-to-day focus on cost control, we established in 1999
with two other shipping companies a joint venture purchasing company, MARCAS,
which leverages the purchasing power of the combined fleets, mainly in the
commodity areas such as lube oils, paint and other chemicals.
We have a worldwide chartering staff located in Vancouver, Tokyo, London,
Singapore, Houston, and Oslo. Each office serves our clients headquartered in
that office's region. Fleet operations, vessel positions and charter market
rates are monitored around the clock. We believe that monitoring this
information is critical to making informed bids on competitive brokered
business. During fiscal 2000, we derived approximately 82% of our consolidated
net voyage revenues from spot voyages or time charters and contracts of
affreightment priced on a spot market basis. After giving effect to our
acquisition of UNS as if it had occurred on January 1, 2000, we would have
derived approximately 75% of our pro forma consolidated net voyage revenues from
those sources.
CREWING AND STAFF
We employ approximately 2,700 seagoing staff worldwide and 315 shore-based
personnel in offices located around the world. IUM provides approximately 440
additional seagoing staff for our shuttle tanker fleet.
We regard attracting and retaining motivated seagoing personnel as a top
priority. Through our global manning organization comprising of offices in
Glasgow, Latvia, Manila, Mumbai, Oslo, and Sydney, we offer seafarers highly
competitive employment packages and comprehensive benefits. We also provide
excellent opportunities for personal and career development, which relates to
our philosophy of promoting internally.
We have entered into a Collective Bargaining Agreement with the Philippine
Seafarers' Union, an affiliate of the International Transport Workers'
Federation (ITF), and a Special Agreement with ITF London, which covers
substantially all of our junior officers and seamen. We are also a party to
Enterprise Bargaining Agreements with three Australian maritime unions, covering
officers and seamen employed through our Australian operations.
Our commitment to training is seen as fundamental to the development of the
highest caliber of seafarers for our marine operations. Our cadet training
approach is designed to balance academic learning with hands-on training at sea.
We have relationships with training institutions in Canada, Croatia, India,
Latvia, Norway, Philippines, Turkey, and the United Kingdom. After receiving
formal instruction at one of these institutions, the cadet's training continues
on board a Teekay vessel. We also have a career development plan which was
devised to ensure a continuous flow of qualified officers who are trained on our
vessels and familiarized with our operational standards, systems and policies.
We believe that high quality manning and training policies will play an
increasingly important role in distinguishing larger independent tanker
companies that have in-house (or affiliate) capabilities, from smaller companies
that must rely on outside ship managers and crewing agents.
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CUSTOMERS
Our customers include major oil companies, major oil traders, large oil
consumers and petroleum product producers, government agencies and various other
entities dependent upon the tanker transportation trade. Two customers, both
international oil companies, individually accounted for $118 million, or 13%,
and $110 million, or 12%, of our consolidated voyage revenues during fiscal
2000. Giving pro forma effect to our acquisition of UNS as if it had occurred
January 1, 2000, such percentages would have been 12% and 11%, respectively.
During the nine months ended December 31, 1999, a single customer, also an
international oil company, accounted for $48 million, or 13%, of our
consolidated voyage revenues. During the year ended March 31, 1999, three
customers, all international oil companies, individually accounted for $51
million, $51 million and $43 million, or 12%, 12% and 10%, respectively, of our
consolidated voyage revenues. No other customer accounted for more than 10% of
our consolidated voyage revenues in those periods. The loss of any significant
customer or a substantial decline in the amount of services requested by a
significant customer could have a material adverse effect on our business,
financial condition and results of operations.
COMPETITION
We compete primarily in the Aframax and shuttle tanker markets. In the
Aframax market, international seaborne oil and other petroleum products
transportation services are provided by two main types of operators: captive
fleets of major oil companies (both private and state-owned) and independent
ship owner fleets. Many major oil companies and other oil trading companies, the
primary charterers of the vessels owned or controlled by us, also operate their
own vessels and transport their own oil as well as oil for third party
charterers in direct competition with independent owners and operators.
Competition in the Aframax spot charter market for charters is intense and
is based upon price, location, the size, age, condition and acceptability of the
vessel, and the reputation of the vessel's manager.
We compete principally with other Aframax owners in the spot charter market
through the global tanker charter market. This market is comprised of tanker
broker companies that represent both charterers and ship owners in chartering
transactions. Within this market, some transactions, referred to as "market
cargoes," are offered by charterers through two or more brokers simultaneously
and shown to the widest possible range of owners. Other transactions, referred
to as "private cargoes," are given by the charterer to only one broker and shown
selectively to a limited number of owners whose tankers are most likely to be
acceptable to the charterer and are in position to undertake the voyage.
We believe the other large operators of modern Aframax tonnage in the spot
charter market are as listed in the table below, which excludes newbuildings:
APPROXIMATE NUMBER OF AFRAMAX
COMPANY VESSELS OWNED OR CONTROLLED
- ------- -----------------------------
American Eagle Tankers Ltd. (partially owned by
the Singapore government)..................... 24
General Maritime Ship Holdings Ltd. (excluding
10 additional vessels subject to purchase
agreements)................................... 14
Tanker Pacific Management (Singapore) Pte.
Ltd. ......................................... 13
Overseas Shipholding Group, Inc................. 12
Competition in the Aframax market is also affected by the availability of
other size vessels that compete in our markets. Suezmax-size vessels and
Panamax-size vessels can compete for many of the same charters for which we
compete. Because of their large size, Ultra Large Crude Carriers and Very Large
Crude Carriers rarely compete directly with Aframax tankers for specific
charters. However, because Ultra and Very Large Crude Carriers comprise a
substantial portion of the total capacity of the
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market, movements by such vessels into Suezmax trades and of Suezmax vessels
into Aframax trades would heighten the already intense competition.
We believe we have significant competitive advantages in the Aframax tanker
market as a result of the age, quality, type and dimensions of our vessels and
our market share in the Indo-Pacific Basin and Atlantic region. Some of our
competitors, however, may have greater financial strength and capital resources
than we do.
There currently are 61 vessels in the world shuttle tanker fleet, the
majority of which operate in the North Sea. Shuttle tankers typically operate
under long-term fixed-rate contracts for a specific offshore oil field or
contracts of affreightment for various fields. Competition for charters is based
primarily upon price, availability, the size, technical sophistication, age and
condition of the vessel, and the reputation of the vessel's manager. Technical
sophistication of the vessel is especially important in harsh operating
environments such as the North Sea. Although the size of the world shuttle
tanker fleet has been relatively unchanged in recent years, conventional tankers
could be converted to less sophisticated shuttle tankers by adding specialized
equipment to meet the requirements of the oil companies. Shuttle tanker demand
is also affected by the possible substitution of sub-sea pipelines that transfer
oil from offshore production platforms.
We currently own 15 shuttle tankers, excluding three newbuildings. Other
shuttle tanker owners in the North Sea include Navion ASA, Knudsen O.A.S.
Shipping AS, and JJ Ugland Group, which own approximately nine, nine and six
shuttle tankers, respectively. The remaining owners in the North Sea each own
three or fewer vessels.
We believe we have significant competitive advantages in the shuttle tanker
market as a result of the age and quality of our vessels, and our market share
in the North Sea.
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. The
occurrence of any of these events may result in loss of revenues or increased
costs.
We carry protection and indemnity coverage to protect against most of the
accident-related risks involved in the conduct of our business, and we also
maintain environmental damage and pollution coverage. Except with respect to our
shuttle tanker fleet, we do not carry insurance covering the loss of revenue
resulting from vessel off-hire time. We believe that our current coverage is
adequate to protect against most of the accident-related risks involved in the
conduct of our business and that we maintain appropriate levels of environmental
damage and pollution coverage. Protection and indemnity insurance also
indemnifies us against certain liabilities incurred while operating vessels.
Currently, the available amount of coverage for pollution is $1 billion per
vessel per incident. However, we cannot assure that all covered risks are
adequately insured against, that any particular claim will be paid or that we
will be able to procure adequate insurance coverage at commercially reasonable
rates in the future. More stringent environmental regulations at times in the
past have resulted in increased costs for, and may result in the lack of
availability of, insurance against the risks of environmental damage or
pollution.
LEGAL PROCEEDINGS
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business, principally
personal injury and property casualty claims. These claims, even if lacking
merit, could result in the expenditure of significant financial and
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managerial resources. We are not aware of any legal proceedings or claims that
we believe will have, individually or in the aggregate, a material adverse
effect on us.
REGULATION
Our business and the operation of our 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, we cannot
predict the ultimate cost of complying with such conventions, laws and
regulations or the impact they may have on the resale price or useful life of
our vessels. Additional conventions, laws and regulations may be adopted which
could limit our ability to do business or increase the cost of our doing
business and which may have a material adverse effect on our operations. We are
required by various governmental and quasi-governmental agencies to obtain
certain permits, licenses and certificates with respect to our operations.
Subject to the discussion below and to the fact that the kinds of permits,
licenses and certificates required for the operations of our vessels will depend
upon a number of factors, we believe that we have been and will be able to
obtain all permits, licenses and certificates material to the conduct of our
operations.
We believe 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. On March
6, 1992, the International Maritime Organization adopted regulations that 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 our tanker fleet operates, provide that:
- tankers between 25 and 30 years old must be of double-hull construction
or of a mid-deck design with double side construction, unless they have
wing tanks or double-bottom spaces, not used for the carriage of oil,
which cover at least 30% of the length of the cargo tank section of the
hull, or are capable of hydrostatically balanced loading which ensures
at least the same level of protection against oil spills in the event of
collision or stranding;
- tankers 30 years old or older must be of double-hull construction or
mid-deck design with double-side construction; and
- all tankers will be subject to enhanced inspections.
Also, under International Maritime Organization 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 (a) is the
subject of a contract for a major conversion or original construction on or
after July 6, 1993, (b) commences a major conversion or has its keel laid on or
after January 6, 1994, or (c) completes a major conversion or is a newbuilding
delivered on or after July 6, 1996.
On April 27, 2001, the International Maritime Organization revised its
regulations relating to prevention of pollution from tankers. These regulations,
which are scheduled to take effect on September 1, 2002, generally provide that
single-hull tankers must be phased out between 2003 and 2015. These regulations
identify three categories of single-hull tankers, which include double-bottom
and double-side tankers:
- "Category 1 oil tanker" means any oil tanker of 20,000 dwt and above
carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as
cargo, and of 30,000 dwt and above carrying other oils, which does not
have segregated ballast tanks;
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- "Category 2 oil tanker" means any oil tanker of 20,000 dwt and above
carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as
cargo, and of 30,000 dwt and above carrying other oils, which has
segregated ballast tanks; and
- "Category 3 oil tanker" means an oil tanker of 5,000 dwt and above but
less than the tonnage specified for Category 1 and 2 oil tankers.
All of the single-hull tankers we operate are Category 2 oil tankers. As
illustrated in the following table, the new regulations provide for the
phase-out on a rolling basis of Category 1 single-hull oil tankers by 2007 and
of Category 2 oil tankers by 2015.
PHASE-OUT DATES FOR SINGLE-HULL TANKERS
- -------------------------------------------------------------------------------------------------------
CATEGORY OF OIL TANKER YEAR TO BE REMOVED FROM SERVICE
- -------------------------------------------------------------------------------------------------------
Category 1............................ 2003 for ships delivered in 1973 or earlier
2004 for ships delivered in 1974 and 1975
2005* for ships delivered in 1976 and 1977
2006* for ships delivered in 1978, 1979 and 1980
2007* for ships delivered in 1981 or later
- -------------------------------------------------------------------------------------------------------
Category 2............................ 2003 for ships delivered in 1973 or earlier
2004 for ships delivered in 1974 and 1975
2005 for ships delivered in 1976 and 1977
2006 for ships delivered in 1978 and 1979
2007 for ships delivered in 1980 and 1981
2008 for ships delivered in 1982
2009 for ships delivered in 1983
2010* for ships delivered in 1984
2011* for ships delivered in 1985
2012* for ships delivered in 1986
2013* for ships delivered in 1987
2014* for ships delivered in 1988
2015* for ships delivered in 1989 or later
- -------------------------------------------------------------------------------------------------------
- ---------------
* Subject to compliance with Condition Assessment Scheme Survey.
However, under certain conditions, Category 1 and Category 2 oil tankers
may continue in operation beyond the date set forth in the table above. Category
2 oil tankers fitted with double bottoms or double sides may continue in service
until 25 years after their delivery date. Category 1 oil tankers over 25 years
old must have double bottoms or operate with hydrostatically balanced loading.
However, a port state may declare that it does not accept entry of such vessels
after their phase-out date. The European Union, Cyprus and Malta have already
declared that they will not permit the entry of such vessels.
Vessels must pass a Condition Assessment Scheme survey after 2005 for
Category 1 oil tankers, and after 2010 for Category 2 oil tankers. The
Conditional Assessment Scheme Survey includes surveys of the hull structure,
including cargo tanks, pump rooms, cofferdams, pipe tunnels, void spaces within
the cargo area and all ballast tanks.
Under the current International Maritime Organization regulations, our
vessels will be able to operate for substantially all of their respective
economic lives before being required to have double-hulls. Although 13 of our
vessels are over 15 years old (including the eight oil/bulk/ore carriers we
acquired in the Bona acquisition), IMO regulations do not require any of our
vessels to be phased-out until 2007. However, compliance with the regulations
regarding inspections of all vessels may adversely affect our
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operations. We cannot at the present time evaluate the likelihood or magnitude
of any such adverse effect on our operations due to uncertainty of
interpretation of the International Maritime Organization regulations.
The operation of our vessels is also affected by the requirements set forth
in the International Maritime Organization's International Management Code for
the Safe Operation of Ships and Pollution Prevention (the "ISM Code"). The ISM
Code requires shipowners and bareboat charterers to develop and maintain an
extensive "Safety Management System" that includes the adoption of a safety and
environmental protection policy setting forth instructions and procedures for
safe operation and describing procedures for dealing with emergencies. The
failure of a shipowner or bareboat charterer to comply with the ISM Code may
subject that party to increased liability, may decrease available insurance
coverage for the affected vessels and may result in a denial of access to, or
detention in, certain ports. Currently, each of our applicable vessels is ISM
code-certified. However, we cannot assure that such certification will be
maintained indefinitely.
ENVIRONMENTAL REGULATIONS -- THE UNITED STATES OIL POLLUTION ACT OF 1990
("OPA 90"). OPA 90 established an extensive regulatory and liability regime for
the protection and cleanup of the environment from oil spills. OPA 90 affects
all owners and operators whose vessels trade to the United States or its
territories or possessions or whose vessels operate in U.S. waters, which
include the U.S. territorial sea and its two hundred nautical mile exclusive
economic zone.
Under OPA 90, vessel owners, operators and bareboat (or "demise")
charterers are "responsible parties" and are jointly, severally and strictly
liable (unless the spill results solely from the act or omission of a third
party, an act of God or an act of war) for all containment and clean-up costs
and other damages arising from discharges or threatened discharges of oil from
their vessels. These other damages are defined broadly to include:
- natural resources damages and the costs of assessment thereof;
- real and personal property damages;
- net loss of taxes, royalties, rents, fees and other lost revenues;
- lost profits or impairment of earning capacity due to property or
natural resources damage;
- net cost of public services necessitated by a spill response, such as
protection from fire, safety or health hazards; and
- loss of subsistence use of natural resources.
OPA 90 limits the liability of responsible parties to the greater of $1,200
per gross ton or $10 million per tanker that is over 3,000 gross tons (subject
to possible adjustment for inflation). These limits of liability would not apply
if the incident was proximately caused by violation of applicable United States
federal safety, construction or operating regulations or by the responsible
party's gross negligence or willful misconduct, or if the responsible party
fails or refuses to report the incident or to cooperate and assist in connection
with the oil removal activities. We currently plan to continue to maintain for
each of our vessels pollution liability coverage in the amount of $1 billion per
incident through protection and indemnity clubs. A catastrophic spill could
exceed the coverage available, which could materially adversely affect our
business, financial condition and result of operations.
Under OPA 90, with limited exceptions, all newly built or converted tankers
operating in United States waters must be built with double-hulls, and existing
vessels that do not comply with the double-hull requirement must be phased out
over a 20-year period (1995-2015) based on size, age and hull construction.
Vessels with double-sides and double-bottoms are granted an additional five
years of service life before being phased out. Of our vessels, 13 are over 15
years old (including the eight oil/bulk/ore carriers we acquired in the Bona
acquisition). Twelve of those vessels have double-sides or double-bottoms, the
oldest of which would not be phased out until 2009. Our oldest single-hull
tanker is part of our shuttle tanker fleet and does not trade in the United
States. Notwithstanding the phase out
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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
offshore.
OPA 90 requires owners and operators of vessels to establish and maintain
with the United States Coast Guard evidence of financial responsibility
sufficient to meet their potential liabilities under OPA 90. In December 1994,
the U.S. Coast Guard implemented regulations requiring evidence of financial
responsibility in the amount of $1,500 per gross ton for tankers, coupling the
OPA limitation on liability of $1,200 per gross ton with the Comprehensive
Environmental Response, Compensation, and Liability Act liability limit of $300
per gross ton. Under the regulations, evidence of financial responsibility may
be demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA
90, an owner or operator of a fleet of tankers is required only to demonstrate
evidence of financial responsibility in an amount sufficient to cover the tanker
in the fleet having the greatest maximum limited liability under OPA 90.
The U.S. Coast Guard's regulations concerning certificates of financial
responsibility provide, in accordance with OPA 90, that claimants may bring suit
directly against an insurer or guarantor that furnishes certificates of
financial responsibility; and, in the event that such insurer or guarantor is
sued directly, it is prohibited from asserting any contractual defense that it
may have had against the responsible party and is limited to asserting those
defenses available to the responsible party and the defense that the incident
was caused by the willful misconduct of the responsible party. Certain
organizations that had typically provided certificates of financial
responsibility under pre-OPA 90 laws, including the major protection and
indemnity organizations, declined to furnish evidence of insurance for vessel
owners and operators if they are subject to direct actions or required to waive
insurance policy defenses.
The U.S. Coast Guard's financial responsibility regulations may also be
satisfied by evidence of surety bond, guaranty or by self-insurance. Under the
self-insurance provisions, the ship owner or operator must have a net worth and
working capital, measured in assets located in the United States against
liabilities located anywhere in the world, that exceeds the applicable amount of
financial responsibility. We have complied with the U.S. Coast Guard regulations
by providing a financial guaranty from a related company evidencing sufficient
self-insurance for all our vessels trading into the United States. If other
vessels in our fleet trade to the United States in the future, we expect to
provide guaranties through self-insurance, or to obtain such guaranties from
third party insurers.
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 in the United States have enacted legislation
providing for unlimited liability for oil spills. In some cases, states that
have enacted such legislation have not yet issued implementing regulations
defining tanker owners' responsibilities under these laws. We intend to comply
with all applicable state regulations in the ports where our vessels call.
Owners or operators of tankers operating in United States waters are
required to file vessel response plans with the U.S. Coast Guard, and their
tankers are required to operate in compliance with their Coast Guard approved
plans. The response plans must, among other things:
- 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;"
- describe crew training and drills; and
- identify a qualified individual with full authority to implement removal
actions.
We have filed vessel response plans with the U.S. Coast Guard for the
tankers we own and have received approval of such plans for all vessels in our
fleet that operate in United States waters.
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ENVIRONMENTAL REGULATION -- OTHER ENVIRONMENTAL INITIATIVES. The European
Union is considering legislation that will affect the operation of tankers and
the liability of owners for oil pollution. It is impossible to predict what
legislation, if any, may be promulgated by the European Union or any other
country or authority.
Although the United States is not a party, many countries have ratified and
follow the liability scheme adopted by the International Maritime Organization
and set out in the International Convention on Civil Liability for Oil Pollution
Damage, 1969, as amended (the "CLC"), and the Convention for the Establishment
of an International Fund for Oil Pollution of 1971, as amended. Under these
conventions, a vessel's registered owner is strictly liable for pollution damage
caused on the territorial waters of a contracting state by discharge of
persistent oil, subject to certain complete defenses. Approximately one-quarter
of the countries that have ratified the CLC have increased the liability limits
through a 1992 Protocol to the CLC. The liability limits in the countries that
have ratified this Protocol are currently approximately $3.8 million plus
approximately $528 per gross registered ton above 5,000 gross tons with an
approximate maximum of approximately $75 million, with the exact amount tied to
a unit of account which varies according to a basket of currencies. The right to
limited liability is forfeited under the CLC where the spill is caused by the
owner's actual fault or privity and, under the 1992 Protocol, where the spill is
caused by the owner's intentional or reckless conduct. Vessels trading to
contracting states must provide evidence of insurance covering the limited
liability of the owner. In jurisdictions where the CLC has not been adopted,
various legislative schemes or common law govern, and liability is imposed
either on the basis of fault or in a manner similar to the CLC.
In addition, the International Maritime Organization, various countries and
states, such as Australia, the United States and the State of California, and
various regulators, such as port authorities, the U.S. Coast Guard and the U.S.
Environmental Protection Agency, have either adopted legislation or regulations,
or are separately considering the adoption of legislation or regulations, aimed
at regulating the discharge of ballast water as a potential pollutant.
TAXATION OF TEEKAY
The following discussion is a summary of the principal United States,
Bahamian, Bermudan, Marshall Islands and Norwegian tax laws applicable to us.
The following discussion of tax matters, as well as the conclusions regarding
certain issues of tax law that are reflected in such discussion, are based on
current law and upon the advice received by us from our counsel. This advice is
based, in part, on representations made by our officers, some of which relate to
anticipated future factual matters and circumstances. No assurance can be given
that changes in or interpretation of existing laws will not occur or will not be
retroactive or that anticipated future factual matters and circumstances will in
fact occur. Our views and those of our counsel have no binding effect or
official status of any kind, and no assurance can be given that the conclusions
discussed below would be sustained if challenged by taxing authorities.
UNITED STATES TAXATION
The following discussion is based on the advice of Seward & Kissel, LLP,
special United States tax counsel to us. The following discussion is based upon
the provisions of the U.S. Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed U.S. Treasury Department regulations,
administrative rulings and court decisions, all as of the date of this
prospectus.
Teekay has made, or will shortly make, a special U.S. tax election, the
effect of which is to disregard our vessel owning or operating subsidiaries as
separate taxable entities from Teekay. Therefore, for purposes of the ensuing
U.S. tax discussion, Teekay and not our subsidiaries will be treated as the
owner or operator of our vessels.
We anticipate that Teekay will derive substantially all of its gross income
from the use and operation of vessels in international commerce and that this
income will principally consist of freights from the transportation of cargoes,
hire or lease from time or voyage charters and the performance of services
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directly related thereto ("Shipping Income"). Unless exempt from U.S. taxation
under Section 883 of the Code, Teekay will be subject to U.S. federal income
taxation, in the manner discussed below, to the extent such Shipping Income is
considered derived from sources within the United States.
Shipping Income that is attributable to transportation that begins or ends,
but that does not both begin and end, in the United States will be considered to
be 50% derived from sources within the United States. Shipping Income
attributable to transportation that both begins and ends in the United States
will be considered to be 100% derived from sources within the United States. All
Shipping Income attributable to transportation exclusively between non-U.S.
ports will be considered to be 100% derived from sources outside the United
States. Shipping Income derived from sources outside the United States will not
be subject to U.S. federal income tax.
Based upon Teekay's anticipated shipping operations, Teekay's vessels will
operate in various parts of the world, including to or from U.S. ports. In the
calendar year 2000, approximately 42% of its Shipping Income was attributable to
the transportation of cargoes either to or from a U.S. port. Accordingly, only
21% of Teekay's Shipping Income would have been treated as derived from U.S.
sources for such period. Giving effect to our acquisition of UNS as if it had
occurred on January 1, 2000, approximately 40% of Teekay's pro forma Shipping
Income for the fiscal year ended December 31, 2000 would have been attributable
to transportation of cargoes either to or from a U.S. port.
THE INTERNAL REVENUE CODE SECTION 883 EXEMPTION
Teekay will qualify for the exemption from U.S. federal income taxation
under Section 883 of the Code if, in relevant part:
- Teekay is organized in a foreign country that grants an equivalent
exemption from tax to corporations organized in the United States ("the
country of organization requirement"); and
- more than 50% of the value of Teekay's shares is treated as owned,
directly or indirectly, by individuals who are "residents" of such
country or of another foreign country that grants an equivalent
exemption to corporations organized in the United States (the "ownership
requirement").
Since the U.S. Treasury Department has recognized Teekay's country of
incorporation, the Marshall Islands, as a foreign country that grants an
equivalent exemption to U.S. corporations, Teekay satisfies the country of
organization requirement.
There is an exemption from the ownership requirement provided by Section
883 if Teekay can satisfy a special publicly traded stock rule. Teekay will
qualify for the exemption if its common stock is considered to be "primarily and
regularly traded on an established securities market" in the United States (the
"publicly traded test").
We have taken the position that, under the current tax regime, we qualify
under the Section 883 exemption. However, proposed regulations interpreting
Section 883 were promulgated by the U.S. Treasury Department on February 8,
2000. The proposed regulations will apply to taxable years ending 30 days or
more after the date the proposed regulations are published as final regulations
in the Federal Register. At this time, it is unclear when the proposed
regulations will be finalized and whether they will be finalized in their
present form.
The proposed regulations provide, in pertinent part, that stock of a
foreign corporation will be considered to be "primarily traded" on an
established securities market if the number of shares that are traded during any
taxable year on that market exceeds the number of shares traded during that year
on any other established securities market. At present, the sole class of
Teekay's stock that is issued and outstanding is its common stock and its common
stock is listed on the New York Stock Exchange, which is an established
securities market in the United States. Since Teekay's common stock is not
listed or
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quoted on any other securities market, its common stock must be considered to be
"primarily" traded on such market.
The proposed regulations further provide that stock will be considered to
be "regularly traded" on a market if:
- stock representing 80% or more of the issuer's outstanding shares, by
voting power and value, is listed on such market (the "80% test");
- stock is traded on such market, other than in de minimis quantities, on
at least 60 days during the taxable year (the "trading frequency
threshold"); and
- the aggregate number of shares of stock traded is at least 10% of the
average number of shares outstanding during such year (the "trading
volume threshold").
Under the proposed regulations, the trading frequency threshold and the
trading volume threshold will be deemed satisfied if, as is the case here, stock
is traded on an established securities market in the United States and the stock
is regularly quoted by brokers and dealers making a market in the stock (the
"U.S. securities market exception").
Teekay's common stock should satisfy the "regularly traded" requirement of
the proposed regulations since the 80% test is satisfied by virtue of 100% of
its common stock being listed on the New York Stock Exchange and the trading
frequency threshold and trading volume threshold tests will be deemed satisfied
as a result of the applicability of the U.S. securities market exception.
Notwithstanding the foregoing, the proposed regulations provide, in
pertinent part, that stock will not be considered to be regularly traded on an
established securities market for any taxable year in which 50% or more of the
outstanding shares of such stock are owned, within the meaning of the
regulations, on any day during such taxable year by persons who each own 5% or
more of the value of the outstanding shares of such stock (the "5% override
rule").
Based on its existing shareholdings, Teekay may be subject to this 5%
override rule and hence, under the proposed regulations, may not qualify for
exemption from the ownership requirement pursuant to the publicly traded test.
Without such exemption, Teekay's ability to satisfy the ownership requirement
may prove to be problematic.
In response to an invitation for public comment on the proposed regulations
from the U.S. Treasury Department, we submitted written comments requesting
certain modifications be made to the 5% override rule which, if accepted and
reflected in the final regulations, would render Teekay not subject to the 5%
override rule based on its existing shareholdings. However, no assurance can be
given that our proposed modifications will ultimately be accepted and reflected
in the final regulations or that, even if the modifications are accepted, future
changes or shifts in the ownership of our shares will not preclude us from
obtaining the benefits of Section 883.
Until final regulations are promulgated and come into force, however, we
intend to take the position on our U.S. tax return filings that Teekay satisfies
the publicly traded test and qualifies for exemption under Section 883.
To the extent Teekay is unable to qualify for exemption from tax under
Section 883, its U.S. source Shipping Income will become subject to the 4% gross
basis tax regime or, alternatively, to the net basis and branch tax regime
described below.
TAXATION IN ABSENCE OF INTERNAL REVENUE CODE SECTION 883 EXEMPTION
4% GROSS BASIS TAX REGIME. To the extent the benefits of Section 883 are
unavailable, Teekay's U.S. source Shipping Income that is not considered to be
"effectively connected" with the conduct of a U.S. trade or business, as
discussed below, would be subject to a 4% tax imposed by Section 887 of the Code
on a gross basis, without the benefit of deductions. As discussed above, we
expect that substantially less than half of Teekay's Shipping Income will be
considered U.S. source Shipping
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Income. Accordingly, we believe that the maximum effective rate of U.S. federal
income tax on Teekay's gross Shipping Income would not exceed 2%.
Based on its U.S. source Shipping Income for the calendar year 2000, Teekay
would be subject to U.S. federal income tax of approximately $7.5 million under
Section 887 in the absence of an exemption under Section 883.
NET BASIS AND BRANCH PROFITS TAX REGIME. To the extent the benefits of the
Section 883 exemption are unavailable and Teekay's U.S. source Shipping Income
is considered to be "effectively connected" with the conduct of a U.S. trade or
business, as described below, any such "effectively connected" U.S. source
Shipping Income, net of applicable deductions, would be subject to the U.S.
federal corporate income tax currently imposed at rates of up to 35%. In
addition, Teekay may be subject to the 30% "branch profits" taxes on earnings
effectively connected with the conduct of such trade or business, as determined
after allowance for certain adjustments, and on certain interest paid or deemed
paid attributable to the conduct of its U.S. trade or business. Teekay's U.S.
source Shipping Income would be considered "effectively connected" with the
conduct of a U.S. trade or business only if:
- Teekay has, or is considered to have, a fixed place of business in the
United States involved in the earning of Shipping Income; and
- substantially all of Teekay's U.S. source Shipping Income is
attributable to regularly scheduled transportation, such as the
operation of a vessel that follows a published schedule with repeated
sailings at regular intervals between the same points for voyages that
begin or end in the United States.
We do not intend to have, or permit circumstances that would result in
having any Teekay vessel operating to the United States on a regularly scheduled
basis. Based on the foregoing and on the expected mode of Teekay's shipping
operations and other activities as described in this prospectus, we believe that
none of Teekay's U.S. source Shipping Income will be "effectively connected"
with the conduct of a U.S. trade or business.
GAIN ON SALE OF VESSELS. To the extent any Teekay vessel makes more than
an occasional voyage to U.S. ports, Teekay may be considered to be engaged in
the conduct of a U.S. trade or business. As a result, except to the extent such
gain falls within the scope of the Section 883 exemption as income that is
incidental to Teekay's Shipping Income, any U.S. source gain on the sale of a
vessel may be partly or wholly subject to U.S. federal income tax as
"effectively connected" income (determined under rules different from those
discussed above) under the net basis and branch tax regime described above.
BAHAMIAN TAXATION
Based on the advice of Graham, Thompson & Co., our Bahamian counsel, we and
our subsidiaries will not be subject to taxation under the laws of the Bahamas,
and distributions by our subsidiaries to us also will not be subject to any
Bahamian tax.
BERMUDAN TAXATION
Based on the advice of Appleby Spurling & Kempe, our Bermudan counsel, we
and our subsidiaries will not be subject to taxation under the laws of Bermuda,
and distributions by our subsidiaries to us also will not be subject to any
Bermudan tax.
MARSHALL ISLANDS TAXATION
Based on the advice of Watson, Farley & Williams, our Republic of Marshall
Islands counsel, because we and our subsidiaries do not, and we do not expect
that we and our subsidiaries will, conduct business or operations in the
Republic of the Marshall Islands, we and our subsidiaries will not
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be subject to taxation under the laws of the Republic of the Marshall Islands,
and distributions by our subsidiaries to us will not be subject to Marshall
Islands tax.
NORWEGIAN TAXATION
The following discussion is based on the advice of Bugge, Arentz-Hansen &
Rasmussen, our Norwegian counsel, and the tax laws of Norway and regulations,
rulings and judicial decisions thereunder, all as in effect as of the date of
this prospectus and subject to possible change on a retroactive basis. The
following discussion is for general information purposes only and does not
purport to be a comprehensive description of all of the Norwegian income tax
considerations applicable to UNS.
In December 1996, Norway introduced a new regime for the taxation of the
shipping industry. If a company meets certain requirements, it may choose to be
taxed according to this regime, which results in deferral of taxation for income
related to shipping activities until the accumulated untaxed profits are
distributed to shareholders outside the regime or upon the company's exit from
the regime. A company that is subject to the regime will, however, be liable to
pay without the benefit of deferral a 28% tax on investment income and a
relatively insignificant tonnage tax based on the registered tonnage of its
fleet. The rates for tonnage tax are set annually by the Norwegian parliament.
To qualify for the shipping taxation regime, the shipping activities of UNS
have been separated from other activities, such as management functions,
although, prior to Teekay's purchase of UNS, the companies engaged in shipping
activities and those providing management functions have been owned by the same
ultimate parent. While UNS as the parent company does not qualify under the
shipping tax regime, Ugland Nordic Investment AS, a wholly owned subsidiary of
UNS owns the assets and companies engaged in shipping activities (the
"Qualifying Company"). These companies engaged in shipping activities constitute
"shipping companies" under the tax regime. Under the regime, the shipping
companies may not have employees; consequently, all service and management
functions must be obtained from a related or unrelated entity that is separate
from the shipping companies. Intra-group services are required to be priced in
accordance with market terms and UNS is subject to a 28% non-deferred tax with
respect to the net income of any management services it provides.
If the Qualifying Company were to cease to qualify for the shipping company
tax regime, it would be taxed on its accumulated untaxed profits and gains,
taking into account both value appreciations during the period it was under the
regime and any untaxed equity that may have been in the Qualifying Company upon
entry into the regime. The Qualifying Company would cease to qualify under the
regime if it sold all of its vessels and ownership interests in other shipowning
companies qualifying under the tax regime and the proceeds from such sale were
not reinvested in a shipowning company qualifying under the tax regime or a
replacement vessel, or an agreement to build a replacement vessel were not
entered into within a year from the sale. Furthermore, under certain conditions,
the Qualifying Company would also cease to qualify under the regime if one of
the shipowning companies in which the Qualifying Company holds an ownership
interest sold all of its vessels and the proceeds from such sale were not
reinvested in a replacement vessel or an agreement to build a replacement vessel
were not entered into within a year of the sale.
To the extent untaxed profits are distributed from the Qualifying Company
to shareholders outside the regime, which would include dividends or other
distributions paid by the Qualifying Company to UNS, the Qualifying Company will
be taxed at a rate of 28% of the distributed amount as grossed-up for such
taxes. Further, dividends paid from UNS to a non-Norwegian shareholder will be
subject to a Norwegian withholding tax of 25%, unless a lower tax has been
agreed upon in an applicable tax treaty.
We record deferred taxes under the Norwegian shipping tax regime on our
consolidated financial statements in accordance with accounting principles
generally accepted in the United States. See Note 6 to our March 31, 2001
unaudited consolidated financial statements included elsewhere in this
prospectus.
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MANAGEMENT
Our directors, executive officers and senior management personnel are
listed below:
NAME AGE POSITION
- ---- --- --------
C. Sean Day.......................... 52 Director and Chairman of the Board
Bjorn Moller......................... 43 Director, President and Chief Executive Officer
Axel Karlshoej....................... 61 Director and Chairman Emeritus
Bruce C. Bell........................ 54 Director and Corporate Secretary
Dr. Ian D. Blackburne................ 55 Director
Morris L. Feder...................... 84 Director
Thomas Kuo-Yuen Hsu.................. 54 Director
Leif O. Hoegh........................ 37 Director
Eileen A. Mercier.................... 54 Director
Peter S. Antturi..................... 42 VP, Treasurer and Chief Financial Officer
David Glendinning.................... 47 SVP, Customer Service & Marine Project Development
Mads T. Meldgaard.................... 36 VP, Chartering
Graham Westgarth..................... 47 SVP, Marine Operations
Certain biographical information about each of these individuals is set
forth below:
C. SEAN DAY has been a director since September 1998, and has served as our
Chairman of the Board since September 1999. He has also been Chairman of the
Board of Seagin International LLC since April 1999 and was President and Chief
Executive Officer of Navios Corporation, a large bulk shipping company, from
1989 to 1999. Prior to this, Mr. Day held a number of senior management
positions in the shipping and financing industry. He is currently serving as a
Director of Genesee & Wyoming, Inc., Kirby Corporation, and Sparkling Springs
Water Group. Mr. Day is also engaged as a consultant to the trust that
constitutes the largest shareholder of Teekay. See "-- Certain Transactions with
Related Parties."
BJORN MOLLER has served as one of our directors and as our President and
Chief Executive Officer since April 1998. Mr. Moller has over 20 years
experience in the shipping industry and has served in senior management
positions with us for more than 12 years. He has headed our overall operations
since January 1997, following his promotion to the position of Chief Operating
Officer. Prior to this, Mr. Moller headed our global chartering operations and
business development activities.
AXEL KARLSHOEJ is President of Nordic Industries, a California general
construction firm with which he has served for the past 26 years. He is the
older brother of the late J. Torben Karlshoej, our founder. He has served as a
director since 1989 and Chairman of the Board from June 1994 to September 1999,
and Chairman Emeritus since stepping down as Chairman.
BRUCE C. BELL has served as one of our directors and as our Corporate
Secretary since May 2000. He is the Managing Director of Oceanic Bank and Trust
Limited, a private Bahamian bank, a position he has held since March 1994. Prior
to joining Oceanic Bank and Trust Limited, Mr. Bell was engaged in the private
practice of law in Canada, specializing in corporate/commercial, banking and
international business transactions.
DR. IAN D. BLACKBURNE has served as one of our directors since September
2000. Dr. Blackburne has over 25 years experience in petroleum refining and
marketing, and in March 2000 he retired as Managing Director and CEO of Caltex
Australia Limited, a large petroleum refining and marketing conglomerate based
in Australia. He is currently serving as a Director of CSR Limited,
Suncorp-Metway Ltd., and of Airservices Australia. In February 2001, Dr.
Blackburne was appointed as Director and Chairman of Australian Plantation
Timber Limited, positions he resigned on June 30, 2001.
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MORRIS L. FEDER has served as one of our directors since June 1993. He is
President of Worldwide Cargo Inc., a New York-based chartering firm. Mr. Feder
has been employed in the shipping industry for more than 49 years, 43 of which
were spent with Maritime Overseas Corporation, where he retired as Executive
Vice President and Director in December 1991. He has also served as Senior Vice
President and Director of Overseas Shipholding Group Inc. and was a member of
the Finance and Development Committee of its Board of Directors. Mr. Feder is a
member of the American Bureau of Shipping, the Connecticut Maritime Association
and the Association of Shipbrokers and Agents USA Inc., as well as a Director of
American Marine Advisors, Inc.
THOMAS KUO-YUEN HSU has served as one of our directors since June 1993. He
has served 27 years with, and is presently Executive Director of, Expedo &
Company (London) Ltd., which is part of the Expedo Group of Companies that
manages a fleet of eight vessels, ranging in size from 20,000 dwt to 280,000
dwt. He has been a Committee Director of the Britannia Steam Ship Insurance
Association Limited since 1988.
LEIF O. HOEGH was appointed as a director in June 1999, concurrently with
our acquisition of Bona Shipholding Ltd. He served as a director of Bona from
November 1993 to June 1999 and as its Chairman from June 1998 to June 1999. Mr.
Hoegh is Managing Director of Leif Hoegh (U.K.) Limited and Vice-Chairman of
Leif Hoegh and Co. ASA. He also serves as a Director of Dannebrog Rederi AS and
as the Chairman of Hoegh Capital Partners, Inc.
EILEEN A. MERCIER has served as one of our directors since December 2000.
Ms. Mercier has over 30 years of experience in a wide variety of financial and
strategic planning positions, including Senior Vice President and Chief
Financial Officer for Abitibi-Price Inc. from 1990 to 1995. Since then she has
been President of Finvoy Management Inc., a management consulting firm
specializing in financial strategy, mergers and acquisitions, restructuring and
corporate governance issues. She also currently serves as a director of CGI
Group Inc., Quebecor World Inc., Reko International Group Inc., and Winpak Ltd.
PETER S. ANTTURI joined us in September 1991 as Manager, Accounting and was
promoted to the position of Controller in March 1992, and to his current
position of Vice President, Treasurer and Chief Financial Officer in October
1997. Prior to joining us, Mr. Antturi held various accounting and finance roles
in the shipping industry since 1985.
CAPTAIN DAVID GLENDINNING joined the Chartering Department of our London
office in January 1987. Since then, he has worked in a number of senior
positions within the organization, including Vice President, Commercial
Operations, and Vice President, Marine and Commercial Operations. Since February
1999 he has served as Senior Vice President, Customer Service and Marine Project
Development. 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.
MADS T. MELDGAARD joined our Chartering Department in January 1986 and
served in our European and Singapore offices until December 1991, when he was
appointed Chartering Manager in the Vancouver office. In January 1994, he was
promoted to the position of General Manager, Chartering, and then to Managing
Director (Singapore) in September 1995. In July 1998, Mr. Meldgaard became Vice
President, Chartering, based in Vancouver.
CAPTAIN GRAHAM WESTGARTH joined us in February 1999 as Vice President,
Marine Operations and was promoted to the position of Senior Vice President,
Marine Operations in December 1999. Captain Westgarth has 28 years of shipping
industry experience. Eighteen of those years were spent at sea, including five
years in a command position. He joined us from Maersk Company (U.K.), where he
joined as Master in 1987 before being promoted to General Manager in 1994.
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
The aggregate compensation paid to our five executive officers listed above
(the "Executive Officers") was $2,324,667 for the year ended December 31, 2000,
a portion of which was attributable to
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payments made pursuant to bonus plans, which consider both Teekay's and
individual performance for a given period. For the year ended December 31, 2000,
we also contributed an aggregate of $209,198 to provide pension and similar
benefits for the Executive Officers. During the year ended December 31, 2000, we
granted an aggregate of 119,500 options, with an exercise price of $23.563 per
share, to the Executive Officers under our 1995 Stock Option Plan. The options
expire March 6, 2010, ten years after the date of the grant.
During the year ended December 31, 2000, our eight non-employee directors
received, in the aggregate, approximately $120,000 for their services as
directors plus reimbursement of their out-of-pocket expenses. During that same
period, we granted an aggregate of 70,000 options, with an exercise price of
$23.563 per share, to the non-employee directors under our 1995 Stock Option
Plan. The options expire March 6, 2010, ten years after the date of the grant.
There are no employment agreements between us and any of our officers.
OPTIONS TO PURCHASE SECURITIES
Our 1995 Stock Option Plan (the "Plan") entitles certain of our eligible
officers, employees (including senior sea staff) and directors to receive
options to acquire our common stock. As of June 30, 2001, a total of 4,007,219
shares of common stock were reserved for issuance under the Plan. As of such
date, options to purchase a total of 2,769,635 shares of common stock were
outstanding, with options to purchase a total of 1,101,904 shares then
exercisable and with the directors and the Executive Officers holding options to
purchase a total of 946,350 shares, of which 446,250 were exercisable. The
outstanding options under the Plan are exercisable at prices ranging from
$16.875 to $41.19 per share, with a weighted average exercise price of $27.86
per share, and expire between July 19, 2005 and March 15, 2011, ten years after
the date of each grant.
BOARD PRACTICES
Our board of directors consists of nine members. The board of directors is
divided into three classes, with members of each class elected to hold office
for a term of three years in accordance with the classification indicated below
or until his or her successor is elected and qualified. Directors Thomas
Kuo-Yuen Hsu, Axel Karlshoej, and Bjorn Moller have terms expiring in 2002.
Directors Bruce C. Bell, C. Sean Day, and Dr. Ian D. Blackburne have terms
expiring in 2003. Directors Morris L. Feder, Leif O. Hoegh, and Eileen A.
Mercier have terms expiring in 2004.
The board of directors has standing Audit, Executive, Governance and
Resource Committees, but no standing nominating committee. The Audit Committee
oversees actions taken by our independent auditors. The Audit Committee consists
of non-employee directors Eileen A. Mercier, Morris L. Feder, and Leif O. Hoegh.
The Executive Committee is responsible for items which have been broadly
approved by the board, and which are beyond the approval levels of our Chairman
and CEO. The Executive Committee consists of our CEO and director, Bjorn Moller,
together with non-employee directors C. Sean Day, Morris L. Feder, and Axel
Karlshoej. The Governance Committee is responsible for making recommendations to
the board on corporate governance issues. The Governance Committee consists of
non-employee directors Bruce C. Bell, C. Sean Day, and Eileen A. Mercier,
together with our CEO and director, Bjorn Moller. The Resource Committee reviews
the compensation of our executive officers and makes recommendations to the
board of directors regarding compensation. The Resource Committee consists of
non-employee directors Axel Karlshoej, Thomas Kuo-Yuen Hsu, and Dr. Ian D.
Blackburne.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of June 30, 2001 by each owner of 5% or more of
our common stock and by all of our directors and officers listed above as a
group:
COMMON STOCK(1)
------------------------
IDENTITY OF PERSON OR GROUP NUMBER PERCENTAGE
- --------------------------- ---------- ----------
Cirrus Trust and JTK Trust(2)............................... 16,315,690 40.7%
Neuberger Berman LLC(3)..................................... 4,269,745 10.7%
All officers and directors as a group (13 persons)(4)....... 472,900 1.2%
- ---------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
For purposes of this table, a person is deemed to be the beneficial owner of
securities that (a) can be acquired by such person within 60 days upon the
exercise of options or warrants and (b) are held by such person's spouse or
other immediate family member sharing such person's household. Each
beneficial owner's percentage ownership is determined by assuming that
options held by such person or listed group of persons (but not those held
by any other listed person or group of persons), that are exercisable within
60 days after June 30, 2001, have been exercised.
(2) Cirrus Trust and JTK Trust own, indirectly through wholly-owned
subsidiaries, 13,427,397 shares (or 33.5%) of common stock and 2,888,293
shares (or 7.2%) of common stock, respectively. These trusts are under
common supervision of Axel Karlshoej and Thomas Hsu, both of whom are on our
board of directors, Shigeru Matsui, President of Matsui & Company, a
Tokyo-based ship brokerage firm, and Arthur F. Coady, Chairman of Oceanic
Bank and Trust, an affiliate of the trusts. C. Sean Day, our Chairman of the
Board, is also the Chairman of the Board of each wholly-owned subsidiary of
Cirrus Trust and JTK Trust that directly owns these shares of common stock.
(3) Neuberger Berman, LLC ("Neuberger") is a registered investment advisor. In
its capacity as investment advisor, Neuberger may have discretionary
authority to dispose of or to vote shares that are under its management. As
a result, Neuberger may be deemed to have beneficial ownership of such
shares. Neuberger does not, however, have any economic interest in the
shares. The clients are the actual owners of the shares and have the sole
right to receive and the power to direct the receipt of dividends from or
proceeds from the sale of such shares. Neuberger Berman Inc. is the parent
holding company and owns 100% of Neuberger Berman, LLC and Neuberger Berman
Management, Inc. As of June 30, 2001, of the shares set forth above,
Neuberger had shared dispositive power with respect to 4,269,745 shares,
sole voting power with respect to 3,023,020 shares and shared voting power
on 1,700 shares. With regard to the shared voting power, Neuberger Berman
Management, Inc. and Neuberger Berman Funds are deemed to be beneficial
owners for purpose of Rule 13(d) since they have shared power to make
decisions whether to retain or dispose of the securities. Neuberger is the
sub-advisor to the above referenced funds. It should be further noted that
the above mentioned shares are also included with the shared power to
dispose calculation.
(4) Includes 446,250 shares of common stock subject to stock options exercisable
within 60 days after June 30, 2001. Excludes (a) 500,100 shares of common
stock subject to stock options first exercisable more than 60 days after
June 30, 2001, (b) as of June 30th, 2001 approximately 773,000 shares of
common stock held by Leif Hoegh & Co. ASA, an entity controlled by Leif O.
Hoegh, one of our directors and (c) shares owned indirectly by Cirrus Trust
and JTK Trust, which, as described in note 2 above, are under the common
supervision of, among others, Axel Karlshoej and Thomas Kuo-Yuen Hsu, two of
our directors.
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CERTAIN TRANSACTIONS WITH RELATED PARTIES
As of June 30, 2001, Cirrus Trust and JTK Trust owned, indirectly through
wholly-owned subsidiaries, an aggregate of 40.7% of our outstanding common
stock. The activities of Cirrus Trust and JTK Trust are under common supervision
of Axel Karlshoej and Thomas Hsu, both of whom are on our board of directors,
Shigeru Matsui, President of Matsui & Company, a Tokyo-based ship brokerage
firm, and Arthur F. Coady, Chairman of Oceanic Bank and Trust, an affiliate of
the trusts. Bruce C. Bell, a Teekay director and our Corporate Secretary, is the
Managing Director of Oceanic Bank and Trust. The beneficiaries of the trusts
include charitable institutions and affiliated trusts. C. Sean Day, our Chairman
of the Board, is also the Chairman of the Board of each wholly-owned subsidiary
of Cirrus Trust and JTK Trust that directly owns shares of our common stock.
Mr. Day is also a consultant to the trusts. We have agreed to reimburse the
trusts for consulting fees paid to Mr. Day. We paid $200,000 and $67,000 to the
trusts as reimbursement for Mr. Day's consulting services rendered during 2000
and 1999, respectively. We did not make any payments to the trusts as
reimbursements for Mr. Day's consulting services in 1998.
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DESCRIPTION OF CERTAIN DEBT
The following is a summary of our primary debt. This summary is qualified
in its entirety by reference to the full text of the documents that govern the
transactions so summarized.
As at June 30, 2001, our subsidiaries had obligations for outstanding debt
for borrowed money under existing credit agreements in the aggregate principal
amount of approximately $1,178 million, of which we have guaranteed $842
million, excluding $115 million of joint venture debt guaranteed by certain of
our subsidiaries. The following chart indicates, on a consolidated basis after
giving effect to the offering of the outstanding notes and the proposed
application of the net proceeds therefrom to prepay certain of our existing
debt, the aggregate principal amount of debt that would be due and payable in
our upcoming fiscal years.
FISCAL YEAR AMOUNT
- ----------- ------
2001 (July 1 to Dec. 31, $ 45 million
2001)......................
2002......................... $ 73 million
2003......................... $ 85 million
2004......................... $ 79 million
2005......................... $ 126 million
FISCAL YEAR AMOUNT
- ----------- ------
2006......................... $ 144 million
2007......................... $ 111 million
2008......................... $ 101 million
2009......................... $ 36 million
2010......................... $ 0 million
2011......................... $ 250 million
In January 1996, we issued $225 million of our 8.32% First Preferred Ship
Mortgage Notes in a public offering registered under the Securities Act of 1933.
These notes currently are collateralized by first preferred mortgages granted on
seven of our Aframax tankers, together with other related collateral, and are
guaranteed by our subsidiaries that own the mortgaged vessels. Upon these notes
achieving investment grade status and subject to other conditions, the
guarantees of the notes will terminate, all of the collateral securing our
obligations and the guarantors under the related indenture and security
documents will be released and specified covenants under the indenture will no
longer be applicable to us. These notes are subject to a sinking fund, which
will retire $45 million principal amount of these notes on each February 1,
commencing February 1, 2004. These notes are listed for trading on the New York
Stock Exchange.
In January 1998, we negotiated a reducing revolving credit facility with
nine commercial banks which, as of June 30, 2001, provided for borrowings of up
to $140 million in order to refinance certain debt and to provide working
capital. This facility is secured by first priority mortgages granted on eight
of our Aframax tankers, together with other related collateral, and a guarantee
from us for all amounts outstanding under the facility. Interest payments are
based on LIBOR plus a specified margin that is dependent on our capital
structure as calculated on a quarterly basis. At June 30, 2001, the margin was
+0.50%. The amount available under the facility reduces by $10 million
semi-annually with a final balloon reduction in January 2006.
Bona has a revolving credit facility with 15 commercial banks which, as of
June 30, 2001, provided for borrowings of up to $397 million. This facility is
secured by first priority mortgages granted on 25 Bona and Teekay vessels. In
connection with the Bona acquisition, Teekay agreed to guarantee all of Bona's
obligations under this facility. The facility is subject to certain financial
covenants, including maintenance of (1) a specified minimum level of free cash,
(2) a specified ratio of liabilities to market value of assets and (3) a
specified ratio of current assets to current liabilities. As of June 30, 2001,
Bona was in compliance with all such covenants. Interest payments are based on
LIBOR plus a specified margin that depends on Bona's capital structure as
calculated on a quarterly basis. At June 30, 2001, the margin was +0.725%. The
amount available under the facility reduces by $19 million semi-annually with a
final balloon reduction in December 2008.
At June 30, 2001, UNS had a number of single-ship mortgage and other
working capital and line of credit loans totaling $336 million. Teekay does not
guarantee any of the obligations under these
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facilities. In April 2001, UNS completed a new $141 million credit facility to
finance the $95 million purchase price of four shuttle tankers from Awilco ASA.
The remainder of the proceeds were to refinance three existing credit
facilities. UNS term loans are collateralized by first priority mortgages
granted on the 15 vessels to which the loans relate (including three
newbuildings), together with certain other related collateral, and guarantees
from UNS. UNS credit facilities are subject to certain financial covenants which
include (1) a specified minimum level of free cash, (2) minimum equity (based on
book value), (3) minimum working capital, (4) minimum value adjusted equity or
total value adjusted assets, (5) minimum committed capital and (6) minimum
earnings to interest ratio. As of June 30, 2001, UNS was in compliance with all
such covenants.
The indenture relating to our 8.32% First Preferred Ship Mortgage Notes due
2008 and certain of the credit agreements governing our (and our subsidiaries')
credit facilities provide that our ability to pay dividends is subject to
limitations based upon our cumulative net income plus certain additional
amounts, including the proceeds received by us from any issuance of our capital
stock. In addition, credit agreements to which some of our subsidiaries are
parties, and guarantees executed by us in connection with them, contain various
covenants which restrict our operations and those of our subsidiaries. These
credit agreements and guarantees contain covenants that require those
subsidiaries or us, as the case may be, to conduct their or our operations,
including, for those subsidiaries, the operations of their respective vessels,
in accordance with certain standards set forth in the credit agreements or
guarantees. Certain credit agreements related to our secured debt contain "hull
covenants" that require the applicable subsidiaries to deliver additional
collateral to the lenders under the applicable credit agreement, or prepay a
certain amount of the debt, in the event that the value of the subject vessels
falls below a fixed percentage of the amount of the debt then outstanding under
the credit agreement. The percentage at which the combined value of the subject
vessels must remain is 125% of the outstanding debt under the revolving credit
agreement, with the percentage increasing to 130% over the term of the facility.
We believe that as of June 30, 2001 we were in compliance with all of the
covenants in effect at that time.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the outstanding notes, we entered into an
exchange and registration rights agreement with the initial purchasers of the
outstanding notes. In that agreement, we agreed to use our best efforts to file
and have declared effective within 180 days of the sale of the outstanding notes
this registration statement relating to an offer to exchange the exchange notes
for the outstanding notes. We also agreed to use our best efforts to complete
the exchange offer for the outstanding notes within 60 days after the effective
date of this registration statement. We are offering the exchange notes under
this prospectus in the exchange offer for the outstanding notes to satisfy our
obligations under the exchange and registration rights agreement. We refer to
our offer to exchange the exchange notes for the outstanding notes as the
"exchange offer."
RESALE OF EXCHANGE NOTES
Based on interpretations of the SEC staff in no-action letters issued to
third parties, we believe that each exchange note issued in the exchange offer
may be offered for resale, resold and otherwise transferred by you without
compliance with the registration and prospectus delivery provisions of the
Securities Act of 1933 if, among other things:
- you are acquiring the exchange notes in the ordinary course of your
business;
- you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in the
distribution of the exchange notes; and
- you are not an affiliate of Teekay.
If you tender your outstanding notes in the exchange offer with the
intention of participating in any manner in a distribution of the exchange notes
or you are an affiliate of Teekay, you:
- cannot rely on such interpretations by the SEC staff, and
- must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction
of the exchange notes and such secondary resale transaction must be
covered by an effective registration statement under the Securities Act
of 1933 containing the selling security holder's information required by
Item 507 or Item 508, as applicable, of Regulation S-K under the
Securities Act.
This prospectus may be used for an offer to resell, resale or otherwise
transfer exchange notes only as specifically described in this prospectus. Only
those broker-dealers that acquired outstanding notes as a result of
market-making activities or other trading activities may participate in the
exchange offer. Each broker-dealer that receives exchange notes for its own
account in exchange for outstanding notes, where that broker-dealer acquired
such outstanding notes as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such exchange notes. Please read "Plan of Distribution" for
more details regarding the transfer of exchange notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this prospectus
and in the letter of transmittal, we will accept for exchange any outstanding
notes properly tendered and not withdrawn prior to the expiration date of the
exchange offer. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding notes surrendered under
the exchange offer. Outstanding notes may be tendered only in integral multiples
of $1,000.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered for exchange.
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As of the date of this prospectus, $250 million principal amount of
outstanding notes is outstanding. This prospectus and the letter of transmittal
are being sent to all registered holders of outstanding notes. There will be no
fixed record date for determining registered holders of outstanding notes
entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the exchange and registration rights agreement, the applicable requirements
of the Securities Act of 1933 and the Securities Exchange Act of 1934 and the
rules and regulations of the SEC. Outstanding notes that are not tendered for
exchange in the exchange offer:
- will remain outstanding,
- will continue to accrue interest, and
- will be entitled to the rights and benefits that holders have under the
indenture relating to the outstanding notes and, under limited
circumstances, the exchange and registration rights agreement.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
the exchange agent and complied with the applicable provisions of the exchange
and registration rights agreement. The exchange agent will act as agent for the
tendering holders for the purposes of receiving the exchange notes from us.
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of
outstanding notes. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important that you read "-- Fees and Expenses" for more details about fees and
expenses incurred in the exchange offer.
We will return any outstanding notes that we do not accept for exchange for
any reason without expense to the tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
EXPIRATION DATE
The exchange offer will expire at 5:00 p.m., New York City time, on
2001, unless in our sole discretion we extend it.
EXTENSIONS, DELAY IN ACCEPTANCE, TERMINATION OR AMENDMENT
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. We may delay
acceptance for exchange of any outstanding notes by giving oral or written
notice of the extension to their holders. During any such extensions, all
outstanding notes you have previously tendered will remain subject to the
exchange offer for that series, and we may accept them for exchange.
To extend the exchange offer, we will notify the exchange agent orally or
in writing of any extension. We also will make a public announcement of the
extension no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
If any of the conditions described below under "-- Conditions to the
Exchange Offer" have not been satisfied with respect to the exchange offer, we
reserve the right, in our sole discretion:
- to delay accepting for exchange any outstanding notes,
- to extend the exchange offer, or
- to terminate the exchange offer.
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We will give oral or written notice of such delay, extension or termination
to the exchange agent. Subject to the terms of the exchange and registration
rights agreement, we also reserve the right to amend the terms of the exchange
offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose that amendment by means of a prospectus supplement. We will distribute
the supplement to the registered holders of the outstanding notes. Depending
upon the significance of the amendment and the manner of disclosure to the
registered holders, we will extend the exchange offer if the exchange offer
would otherwise expire during such period.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any exchange notes for any outstanding notes,
and we may terminate the exchange offer as provided in this prospectus before
accepting any outstanding notes for exchange, if in our reasonable judgment:
- the exchange offer, or the making of any exchange by a holder of
outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the SEC, or
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us:
- the representations described under "-- Your Representations to Us."
- such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available
to us an appropriate form for registering the exchange notes under the
Securities Act of 1933.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange in the exchange offer, upon the occurrence of any of the conditions to
the exchange offer specified above. We will give oral or written notice of any
extension, amendment, nonacceptance or termination to the holders of the
outstanding notes as promptly as practicable.
These conditions are for our sole benefit, and we may assert them or waive
them in whole or in part at any time or at various times in our sole discretion.
Our failure at any time to exercise any of these rights will not mean that we
have waived our rights. Each right will be deemed an ongoing right that we may
assert at any time or at various times.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue exchange notes in exchange for any such outstanding
notes, if at such time any stop order has been threatened or is in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the indenture relating to the notes under the Trust
Indenture Act of 1939.
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EXCHANGE AGENT
We have appointed the United States Trust Company of New York as exchange
agent for the exchange offer. Please direct questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for the notice of guaranteed delivery to the
exchange agent. If you are not tendering under DTC's automated tender offer
program, you should send the letter of transmittal and any other required
documents to the exchange agent as follows:
------------------------------------
BY HAND DELIVERY TO 4:30 P.M.
United States Trust Company of New York
30 Broad Street, B-Level
New York, NY 10004-2304
BY OVERNIGHT COURIER AND BY HAND
DELIVERY AFTER 4:30 P.M. ON EXPIRATION DATE
United States Trust Company of New York
30 Broad Street, 14th Floor
New York, NY 10004-2304
BY REGISTERED OR CERTIFIED MAIL
United States Trust Company of New York
P.O. Box 84
Bowling Green Station
New York, NY 10274-0084
BY FACSIMILE TRANSMISSION (ELIGIBLE INSTITUTIONS ONLY):
United States Trust Company of New York
30 Broad Street, B-Level
New York, NY 10004-2304
FAX: (646) 458-8111
CONFIRM BY TELEPHONE:
(800) 548-6565
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender such outstanding notes in the
exchange offer. To tender in the exchange offer, a holder must either (1) comply
with the procedures for physical tender, described below, or (2) comply with the
automated tender offer program procedures of The Depository Trust Company, or
"DTC," described below.
The tender by a holder that is not withdrawn prior to the expiration date
and our acceptance of that tender will constitute an agreement between the
holder and us in accordance with the terms and subject to the conditions
described in this prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK.
RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND
DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE
DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND
THE LETTER OF TRANSMITTAL OR OUTSTANDING NOTES TO US. YOU MAY REQUEST YOUR
BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE
ABOVE TRANSACTIONS FOR YOU.
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HOW TO TENDER IF YOU ARE A BENEFICIAL OWNER
If you beneficially own outstanding notes that are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and you
wish to tender those notes, you should contact the registered holder as soon as
possible and instruct the registered holder to tender on your behalf. If you are
a beneficial owner and wish to tender on your own behalf, you must, prior to
completing and executing the letter of transmittal and delivering your
outstanding notes, either:
- make appropriate arrangements to register ownership of the outstanding
notes in your name, or
- obtain a properly completed bond power from the registered holder of
your outstanding notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
PROCEDURES FOR PHYSICAL TENDER
To complete a physical tender, a holder must:
- complete, sign and date the letter of transmittal or a facsimile of the
letter of transmittal,
- have the signature on the letter of transmittal guaranteed if the letter
of transmittal so requires,
- mail or deliver or facsimile the letter of transmittal to the exchange
agent prior to the expiration date, and
- deliver the outstanding notes to the exchange agent prior to the
expiration date or comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at its
address provided above under "-- Exchange Agent" prior to the expiration date.
SIGNATURES AND SIGNATURE GUARANTEES
You must have signatures on a letter of transmittal or a notice of
withdrawal described below under "-- Withdrawal of Tenders" guaranteed by an
eligible institution unless the outstanding notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal, or
- for the account of an eligible institution.
An eligible institution is a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States, or an eligible guarantor institution within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, that is a member of one of
the recognized signature guarantee programs identified in the letter of
transmittal.
WHEN ENDORSEMENTS OR BOND POWERS ARE NEEDED
If a person other than the registered holder of any outstanding notes signs
the letter of transmittal, the outstanding notes must be endorsed or accompanied
by a properly completed bond power. The registered holder must sign the bond
power as the registered holder's name appears on the outstanding notes. An
eligible institution must guarantee that signature.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact, or
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless we waive
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this requirement, they also must submit evidence satisfactory to us of their
authority to deliver the letter of transmittal.
TENDERING THROUGH DTC'S AUTOMATED TENDER OFFER PROGRAM
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's automated tender offer
program to tender. Accordingly, participants in the program may, instead of
physically completing and signing the letter of transmittal and delivering it to
the exchange agent, transmit their acceptance of the exchange offer
electronically. They may do so by causing DTC to transfer the outstanding notes
to the exchange agent in accordance with its procedures for transfer. DTC will
then send an agent's message to the exchange agent.
An agent's message is a message transmitted by DTC to and received by the
exchange agent and forming part of the book-entry confirmation, stating that:
- DTC has received an express acknowledgment from a participant in DTC's
automated tender offer program that is tendering outstanding notes that
are the subject of such book-entry confirmation,
- the participant has received and agrees to be bound by the terms of the
letter of transmittal or, in the case of an agent's message relating to
guaranteed delivery, the participant has received and agrees to be bound
by the applicable notice of guaranteed delivery, and
- we may enforce the agreement against such participant.
To complete a tender through DTC's automated tender offer program, the
exchange agent must receive, prior to the expiration date, a timely confirmation
of book-entry transfer of such outstanding notes into the exchange agent's
account at DTC according to the procedure for book-entry transfer described
below or a properly transmitted agent's message.
DETERMINATIONS UNDER THE EXCHANGE OFFER
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes and
withdrawal of tendered outstanding notes. Our determination will be final and
binding. We reserve the absolute right to reject any outstanding notes not
properly tendered or any outstanding notes our acceptance of which, in the
opinion of our counsel, might be unlawful. We also reserve the right to waive
any defects, irregularities or conditions of the exchange offer as to particular
outstanding notes. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in the letter of transmittal, will be
final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
outstanding notes must be cured within such time as we determine. Neither we,
the exchange agent nor any other person will be under any duty to give
notification of defects or irregularities with respect to tenders of outstanding
notes, nor will we or those persons incur any liability for failure to give such
notification. Tenders of outstanding notes will not be deemed made until such
defects or irregularities have been cured or waived. Any outstanding notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned to
the tendering holder, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date.
WHEN WE WILL ISSUE EXCHANGE NOTES
In all cases, we will issue exchange notes for outstanding notes that we
have accepted for exchange in the exchange offer only after the exchange agent
timely receives:
- outstanding notes or a timely book-entry confirmation of transfer of
such outstanding notes into the exchange agent's account at DTC, and
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- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
RETURN OF OUTSTANDING NOTES NOT ACCEPTED OR EXCHANGED
If we do not accept any tendered outstanding notes for exchange for any
reason described in the terms and conditions of the exchange offer or if
outstanding notes are submitted for a greater principal amount than the holder
desires to exchange, we will return the unaccepted or nonexchanged outstanding
notes without expense to their tendering holder. In the case of outstanding
notes tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described below, such nonexchanged outstanding notes
will be credited to an account maintained with DTC. These actions will occur as
promptly as practicable after the expiration or termination of the exchange
offer.
YOUR REPRESENTATIONS TO US
By signing or agreeing to be bound by the letter of transmittal, you will
represent to us that, among other things:
- any exchange notes you receive will be acquired in the ordinary course
of your business,
- you have no arrangement or understanding with any person to participate
in the distribution of the outstanding notes or the exchange notes
within the meaning of the Securities Act of 1933,
- you are not our affiliate, as defined in Rule 405 under the Securities
Act, or, if you are our affiliate, you will comply with the applicable
registration and prospectus delivery requirements of the Securities Act,
- if you are not a broker-dealer, you are not engaged in and do not intend
to engage in the distribution of the exchange notes, and
- if you are a broker-dealer that will receive exchange notes for your own
account in exchange for outstanding notes that you acquired as a result
of market-making activities or other trading activities, you will
deliver a prospectus in connection with any resale of such exchange
notes.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus. Any financial institution participating in
DTC's system may make book-entry delivery of outstanding notes by causing DTC to
transfer such outstanding notes into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. If you are unable to deliver
confirmation of the book-entry tender of your outstanding notes into the
exchange agent's account at DTC or all other documents required by the letter of
transmittal to the exchange agent on or prior to the expiration date, you must
tender your outstanding notes according to the guaranteed delivery procedures
described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes but they are not immediately
available or if you cannot deliver your outstanding notes, the letter of
transmittal or any other required documents to the exchange agent or comply with
the applicable procedures under DTC's automated tender offer program prior to
the expiration date, you may tender if:
- the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States, or an eligible guarantor
institution,
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- prior to the expiration date, the exchange agent receives from such
member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., commercial bank or
trust company having an office or correspondent in the United States, or
eligible guarantor institution either a properly completed and duly
executed notice of guaranteed delivery by facsimile transmission, mail
or hand delivery or a properly transmitted agent's message and notice of
guaranteed delivery:
- stating your name and address, the registered number(s) of your
outstanding notes and the principal amount of outstanding notes
tendered,
- stating that the tender is being made thereby,
- guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the letter of transmittal or facsimile
thereof or agent's message in lieu thereof, together with the
outstanding notes or a book-entry confirmation, and any other
documents required by the letter of transmittal will be deposited by
the eligible guarantor institution with the exchange agent, and
- the exchange agent receives such properly completed and executed letter
of transmittal or facsimile or agent's message, as well as all tendered
outstanding notes in proper form for transfer or a book-entry
confirmation, and all other documents required by the letter of
transmittal, within three New York Stock Exchange trading days after the
expiration date.
Upon request to the exchange agent, the exchange agent will send a notice
of guaranteed delivery to you if you wish to tender your outstanding notes
according to the guaranteed delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to 5:00 p.m., New York City time, on the expiration
date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice of withdrawal at one of
the addresses listed above under "-- Exchange Agent," or
- the withdrawing holder must comply with the appropriate procedures of
DTC's automated tender offer program.
Any notice of withdrawal must:
- specify the name of the person who tendered the outstanding notes to be
withdrawn,
- identify the outstanding notes to be withdrawn, including the
registration number numbers and the principal amount of such outstanding
notes,
- be signed by the person who tendered the outstanding notes in the same
manner as the original signature on the letter of transmittal used to
deposit those outstanding notes or be accompanied by documents of
transfer sufficient to permit the trustee to register the transfer in
the name of the person withdrawing the tender, and
- specify the name in which such outstanding notes are to be registered,
if different from that of the person who tendered the outstanding notes.
If outstanding notes have been tendered under the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn outstanding notes
and otherwise comply with the procedures of DTC.
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We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal, and our determination shall be final
and binding on all parties. We will deem any outstanding notes so withdrawn not
to have been validly tendered for exchange for purposes of the exchange offer.
Any outstanding notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder or, in the case of outstanding notes tendered by book-entry transfer into
the exchange agent's account at DTC according to the procedures described above,
such outstanding notes will be credited to an account maintained with DTC for
the outstanding notes. This return or crediting will take place as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. You may retender properly withdrawn outstanding notes by following one of
the procedures described under "-- Procedures for Tendering" above at any time
on or prior to 5:00 p.m., New York City time, on the expiration date.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
facsimile, email, telephone or in person by our officers and regular employees
and those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses. We may also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this prospectus, letters of transmittal
and related documents to the beneficial owners of the outstanding notes and in
handling or forwarding tenders for exchange.
We will pay the cash expenses to be incurred in connection with the
exchange offer. These expenses include:
- SEC registration fees for the exchange notes,
- fees and expenses of the exchange agent and trustee,
- accounting and legal fees,
- printing costs, and
- related fees and expenses.
TRANSFER TAXES
If you tender your outstanding notes for exchange, you will not be required
to pay any transfer taxes. We will pay all transfer taxes, if any, applicable to
the exchange of outstanding notes in the exchange offer. The tendering holder
will, however, be required to pay any transfer taxes, whether imposed on the
registered holder or any other person, if:
- certificates representing exchange notes or outstanding notes for
principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be issued in the name of, any person other than
the registered holder of outstanding notes tendered,
- tendered outstanding notes are registered in the name of any person
other than the person signing the letter of transmittal, or
- a transfer tax is imposed for any reason other than the exchange of
exchange notes for outstanding notes in the exchange offer.
If satisfactory evidence of payment of any transfer taxes payable by a
tendering holder is not submitted with the letter of transmittal, the amount of
such transfer taxes will be billed directly to that
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tendering holder. The exchange agent will retain possession of exchange notes
with a face amount equal to the amount of the transfer taxes due until it
receives payment of the taxes.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your outstanding notes for exchange notes in the
exchange offer, you will remain subject to the existing restrictions on transfer
of the outstanding notes. In general, you may not offer or sell the outstanding
notes unless either they are registered under the Securities Act of 1933 or the
offer or sale is exempt from or not subject to registration under the Securities
Act and applicable state securities laws. Except as required by the exchange and
registration rights agreement, we do not intend to register resales of the
outstanding notes under the Securities Act.
The tender of outstanding notes in the exchange offer will reduce the
outstanding principal amount of the outstanding notes. Due to the corresponding
reduction in liquidity, this may have an adverse effect upon, and increase the
volatility of, the market price of any outstanding notes that you continue to
hold.
ACCOUNTING TREATMENT
We will amortize our expenses of the exchange offer over the term of the
exchange notes under accounting principles generally accepted in the United
States.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your decision on what action, if any, to take. In the future,
we may seek to acquire untendered outstanding notes in open market or privately
negotiated transactions, through subsequent exchange offers or otherwise. We
have no present plan to acquire any outstanding notes that are not tendered in
the exchange offer or to file a registration statement to permit resales of any
untendered outstanding notes, except as required by the exchange and
registration rights agreement.
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DESCRIPTION OF THE NOTES
In this section, "Teekay" or the "Company" means Teekay Shipping
Corporation and not any of its subsidiaries. The exchange notes will be issued,
and the outstanding notes were issued, by Teekay pursuant to an indenture
between Teekay and U.S. Trust Company of Texas, N.A., as trustee. You may obtain
a copy of the indenture from Teekay upon request. The indenture has been filed
as an exhibit to the registration statement of which this prospectus is a part.
The indenture is subject to and governed by the U.S. Trust Indenture Act of
1939. The statements under this section of this prospectus are summaries of the
material terms and provisions of the indenture and the notes. They do not
purport to be complete and are qualified in their entirety by reference to all
the provisions in the indenture. Therefore, we urge you to read the indenture
because it, and not this description, defines your rights as holders of the
notes. Definitions relating to certain capitalized terms are set forth under "--
Certain Definitions" and throughout this description. Capitalized terms that are
used but not otherwise defined in this description have the meanings ascribed to
them in the indenture.
The outstanding notes and the exchange notes will constitute a single
series of debt securities under the indenture. If the exchange offer is
consummated, any holders of outstanding notes who do not exchange their
outstanding notes for exchange notes will vote together with holders of the
exchange notes for all relevant purposes under the indenture. Accordingly, in
determining whether the required holders have given any notice, consent or
waiver or taken any other action permitted under the indenture, any outstanding
notes that remain outstanding after the exchange offer will be aggregated with
the exchange notes, and the holders of the outstanding notes and the exchange
notes will vote together as a single series. All references in this prospectus
to specified percentages in aggregate principal amount of the outstanding notes
means, at any time after the exchange offer is consummated, the percentages in
aggregate principal amount of the outstanding notes and exchange notes
collectively then outstanding.
GENERAL
The notes:
- are general unsecured obligations of Teekay,
- rank equally and ratably in right of payment with all existing and
future unsecured senior debt of Teekay,
- are senior in right of payment to all existing and future subordinated
debt of Teekay,
- are effectively subordinated to all of Teekay's secured debt to the
extent of the collateral securing such debt, and
- are effectively subordinated to all existing and future debt and other
liabilities and commitments of Teekay's subsidiaries because Teekay is a
holding company and the notes will not be guaranteed by any of its
subsidiaries.
The indenture does not put any limitation on Teekay and its subsidiaries to
incur debt. At June 30, 2001, and giving effect to the proposed application of
the net proceeds of the issuance of the outstanding notes, the consolidated debt
of Teekay and its subsidiaries would have been approximately $1,053 million, of
which $803 million would have been secured debt that represented the obligations
of, or was guaranteed by, certain of Teekay's subsidiaries. In addition, the
outstanding notes are and the exchange notes will be effectively junior to
approximately $115 million of debt of joint ventures that are 50% owned by
certain of Teekay's subsidiaries, which is guaranteed by such subsidiaries.
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PRINCIPAL, MATURITY AND INTEREST
In the exchange offer, Teekay will issue up to $250 million aggregate
principal amount of exchange notes. The indenture provides for the issuance of
additional notes having identical terms and conditions to the notes. The notes
and any additional notes subsequently issued under the indenture would be
treated as a single class for all purposes under the indenture, including,
without limitation, waivers, amendments, redemptions and offers to purchase.
Teekay will issue exchange notes in denominations of $1,000 and integral
multiples of $1,000. The exchange notes will mature on July 15, 2011.
Interest on the notes will accrue at the rate of 8.875% per annum and will
be payable semi-annually in arrears on January 15 and July 15, commencing on
January 15, 2002. Teekay will make each interest payment to the holders of
record on the immediately preceding January 1 and July 1.
Interest on the notes will accrue from June 22, 2002 or, if interest has
already been paid, from the date it was most recently paid. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
OPTIONAL REDEMPTION
At Teekay's option, Teekay may redeem the notes in whole or in part at any
time before their maturity date at a redemption price equal to the greater of
(i) 100% of the principal amount of the notes to be redeemed and (ii) the sum of
the present values of the remaining scheduled payments of principal and interest
on the notes to be redeemed (excluding the portion of any such interest accrued
to the redemption date) discounted to the redemption date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Treasury
Yield (as defined below), plus 50 basis points, plus, in each case, accrued and
unpaid interest to the redemption date. For this purpose, the following terms
have the following meanings:
"Treasury Yield" means, with respect to any redemption date, the rate per
year equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 Quotations for U.S. Government
Securities" or (ii) if such release (or any successor release) is not published
or does not contain such prices on such business day, (A) the average of the
Reference Treasury Dealer Quotations for such redemption date, after excluding
the highest and lowest such Reference Treasury Dealer Quotations for such
redemption date, or (B) if the trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Reference Treasury Dealer
Quotations.
"Independent Investment Banker" means Goldman, Sachs & Co. or its successor
or, if such firm is unwilling or unable to select the Comparable Treasury Issue,
one of the remaining Reference Treasury Dealers appointed by Teekay.
"Reference Treasury Dealer" means (i) each of Goldman, Sachs & Co. and any
other primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer") designated by, and not affiliated with, Goldman, Sachs & Co.,
provided however, that if Goldman, Sachs & Co. or any of its
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designees shall cease to be a Primary Treasury Dealer, Teekay will appoint
another Primary Treasury Dealer as a substitute for such entity and (ii) any
other Primary Treasury Dealer selected by Teekay.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the trustee of the bid and asked prices for the Comparable Treasury Issue
(expressed, in each case, as a percentage of its principal amount) quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
At least 30 days but not more than 60 days before the relevant redemption
date, Teekay will send notice of redemption to each holder of notes to be
redeemed. If less than all of the notes are to be redeemed, the trustee will
select, by such method as it will deem fair and appropriate, the notes to be
redeemed in whole or in part.
Unless Teekay defaults in payment of the redemption price, no interest will
accrue on the notes called for redemption for the period from and after the
redemption date.
REDEMPTION FOR CHANGES IN WITHHOLDING TAXES
The notes will be subject to redemption in whole, but not in part, at the
option of Teekay, at any time at 100% of the principal amount thereof, together
with accrued and unpaid interest thereon to the Redemption Date, and any other
amounts owed to the holders of the notes under the terms of the indenture or the
notes, if (i) Teekay becomes obligated to pay, on the next date on which any
amount would be payable with respect to the notes, any Additional Amounts as a
result of any generally applicable change in the laws or regulations of a Taxing
Jurisdiction which becomes effective after the date of issuance of any of the
outstanding notes and (ii) Teekay cannot avoid its obligations to pay such
Additional Amounts by taking reasonable measures available to Teekay. However,
any such notice of redemption must be given within 60 calendar days of the
earliest date on which Teekay would be obligated to pay such Additional Amounts
if a payment in respect of the notes were then due. Prior to the giving of any
notice of redemption described in this paragraph, Teekay will deliver to the
trustee an officer's certificate stating that Teekay is entitled to redeem the
notes in accordance with the terms in the indenture and stating the facts
relating to such redemption. See "-- Additional Amounts."
MANDATORY REDEMPTION
Except as set forth below under "Covenants -- Repurchase of Notes upon a
Change of Control Triggering Event" Teekay is not required to make sinking fund
payments or mandatory redemption payments prior to maturity with respect to the
notes.
COVENANTS
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL TRIGGERING EVENT
The indenture provides that upon the occurrence of a Change of Control
Triggering Event, each holder of notes will have the right to require Teekay to
repurchase such holder's notes, in whole or in part, in integral multiples of
$1,000, at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase, in
accordance with the procedures set forth in the indenture. A "Change of Control"
also constitutes an event of default under several of Teekay's other debt
agreements. There can be no assurance that Teekay will have sufficient funds to
pay the purchase price referred to above at the time of the Change of Control
Triggering Event. The existence of a holder's right to require Teekay to
repurchase notes upon the occurrence of a Change of Control Triggering Event may
deter a third party from acquiring Teekay in a transaction which would
constitute a Change of Control.
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CONSOLIDATION, MERGER AND SALE OF ASSETS
Teekay may not, in a single transaction or a series of related
transactions:
(1) consolidate with or merge with or into any other person or permit any
other person to consolidate with or merge with or into Teekay, or
(2) directly or indirectly, transfer, sell, lease or otherwise dispose of
all or substantially all of its assets, unless, in the case of clauses
(1) or (2) of this covenant:
(A) in a transaction in which Teekay does not survive or in which
Teekay sells, leases or otherwise disposes of all or substantially
all of its assets, the successor entity to Teekay is organized
under (i) the laws of the United States or any State thereof or the
District of Columbia, (ii) the laws of the Republic of Liberia,
(iii) the laws of the Commonwealth of the Bahamas, (iv) the laws of
the Republic of the Marshall Islands or (v) the laws of any other
country recognized by the United States of America and which, in
the case of any of events under subclause (i), (ii), (iii), (iv) or
(v) of this subclause A, shall expressly assume, by a supplemental
indenture executed and delivered to the trustee in form
satisfactory to the trustee, all of Teekay's obligations under the
indenture;
(B) immediately before and after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
and
(C) certain other conditions are met.
LIMITATION ON LIENS
Teekay may not create, incur, assume or suffer to exist any Lien on or with
respect to any property or assets now owned or hereafter acquired to secure any
present or future Relevant Debt of Teekay without making effective provision for
securing the notes:
(1) in the event such debt is pari passu with the notes, equally and
ratably with such debt as to such property or assets for so long as such
debt will be so secured, or
(2) in the event such debt is subordinate in right of payment to the
notes, prior to such debt as to such property or assets for so long as
such debt will be so secured.
The term "Relevant Debt" shall be defined in the indenture as meaning any
debt for borrowed money in the form of bonds, notes, debentures or other debt
securities issued by way of public offering or private placement, including any
guarantee or indemnity given in respect of debt of any third party for money
borrowed in the form of bonds, notes, debentures or other debt securities issued
by way of a public offering or private placement, but, for greater clarity,
shall not include loans (or collateral debt securities relating to such loans)
made by banks or other financial institutions, customers or strategic partners.
PAYMENTS FOR CONSENT
Teekay may not, and may not permit any of its Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of notes for or as an inducement to
any consent, waiver or amendment of any of the terms or provisions of the
indenture or the notes unless such consideration is offered to be paid or is
paid to all holders of the notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
PROVISION OF FINANCIAL INFORMATION
So long as any notes are outstanding, whether or not Teekay is subject to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 or any successor
provision thereto, Teekay shall file with the Securities and Exchange Commission
("SEC") within the filing time periods specified by the SEC (the
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"Required Filing Date") copies of the annual reports, quarterly reports and
other documents which Teekay would have been required to file pursuant to
Section 13(a) or 15(d) of the Exchange Act or any successor provision thereto.
In addition, Teekay will:
(1) within 15 days of each Required Filing Date (A) transmit by mail to
all holders, as their names and addresses appear in the security
register of Teekay without cost to such holders, and (B) file with the
trustee, copies of the annual reports, quarterly reports and other
documents which Teekay files with the SEC pursuant to Section 13(a) or
15(d) or any successor provision thereto or would have been required to
file with the SEC pursuant to such Section 13(a) or 15(d) or any
successor provisions thereto; and
(2) if filing such documents with the SEC is not permitted under the
Exchange Act, promptly upon written request, Teekay will supply copies
of such documents to any prospective holder.
ADDITIONAL AMOUNTS
All payments made by Teekay under or with respect to the notes will be made
free and clear of and without withholding or deduction for or an account of any
present or future tax, duty, levy, impost, assessment or other governmental
charge (hereinafter "Taxes") imposed or levied by or on behalf of any Taxing
Jurisdiction, unless Teekay is required to withhold or deduct Taxes by law or by
the interpretation or administration thereof. If Teekay is so required to
withhold or deduct any amount of interest for or on account of Taxes from any
payment made under or with respect to the notes, Teekay will pay such additional
amounts of interest ("Additional Amounts") as may be necessary so that the net
amount received by each holder (including Additional Amounts) after such
withholding or deduction will not be less than the amount the holder would have
received if such Taxes had not been withheld or deducted; provided that Teekay
will not pay Additional Amounts in connection with any Taxes that are imposed
due to any of the following ("Excluded Additional Amounts"):
(1) the holder or beneficial owner has some connection with the Taxing
Jurisdiction other than merely holding the notes or receiving principal
or interest payments on the notes (such as citizenship, nationality,
residence, domicile, or existence of a business, a permanent
establishment, a dependent agent, a place of business or a place of
management present or deemed present within the taxing jurisdiction);
(2) any tax imposed on, or measured by net income;
(3) the holder or beneficial owner fails to comply with any
certification, identification or other reporting requirements concerning
its nationality, residence, identity or connection with the Taxing
Jurisdiction, if (A) such compliance is required by applicable law,
regulation, administrative practice or treaty as a precondition to
exemption from all or a part of the tax duty assessment or other
governmental charge, (B) the holder or beneficial owner is able to
comply with such requirements without undue hardship and (C) at least 30
calendar days prior to the first payment date with respect to which such
requirements under the applicable law, regulation, administrative
practice or treaty shall apply, Teekay has notified such holder that
such holder will be required to comply with such requirements;
(4) the holder fails to present (where presentation is required) its note
within 30 calendar days after Teekay has made available to the holder a
payment of principal or interest, provided that Teekay will pay
Additional Amounts which a holder would have been entitled to had the
note owned by such holder been present on any day (including the last
day) within such 30-day period;
(5) any estate, inheritance, gift, value added, use or sales taxes or any
similar taxes, assessments or other governmental charges;
(6) where any Additional Amounts are imposed on a payment on the notes to
an individual and are required to be made pursuant to any European Union
Directive on the taxation of savings
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implementing the conclusions of the Economic and Financial Council of
Ministers of the member states of the European Union (ECOFIN) Council
meeting of November 26-27, 2000 or any law implementing or complying
with, or introduced in order to conform to, such Directive; or
(7) where the holder or beneficial owner could avoid any Additional
Amounts by requesting that a payment on the notes be made by, or
presenting the relevant notes for payment to, another paying agent
located in a Member State of the European Union.
Teekay will also (1) make such withholding or deduction and (2) remit the
full amount deducted or withheld to the relevant authority in accordance with
applicable law. Teekay will furnish to the holders of the notes, within 30 days
after the date the payment of any Taxes is due pursuant to applicable law,
certified copies of tax receipts evidencing such payment by Teekay.
Teekay will indemnify and hold harmless each holder for the amount (other
than Excluded Additional Amounts) of (1) any Taxes not withheld or deducted by
Teekay and levied or imposed by a Taxing Jurisdiction and paid by such holder as
a result of payments made under or with respect to the notes, (2) any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, and (3) any Taxes imposed by a Taxing Jurisdiction with respect to any
reimbursement under clause (1) or (2) of this paragraph.
At least 30 days prior to each date on which any payment under or with
respect to the notes is due and payable, if Teekay is aware that it will be
obligated to pay Additional Amounts with respect to such payment, Teekay will
deliver to the trustee an officers' certificate stating the fact that such
Additional Amounts will be payable, the amounts so payable and such other
information necessary to enable the trustee to pay such Additional Amounts to
holders on the payment date. Whenever in the indenture there is mentioned, in
any context, the payment of principal (and premium, if any), interest or any
other amount payable under or with respect to any note, such mention (except
where expressly mentioned) shall be deemed to include mention of the payment of
Additional Amounts provided for in this section to the extent that, in such
context, Additional Amounts are, were or would be payable in respect thereof.
Teekay will pay any stamp, administrative, court, documentary, excise or
property taxes arising in a Taxing Jurisdiction in connection with the
Additional Amounts and will indemnify the holders of the notes for any such
taxes paid by the holders of the notes.
EVENTS OF DEFAULT
The following events are defined as "Events of Default" in the indenture:
(1) Teekay defaults in the payment of principal of (or premium, if any,
on) any notes when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise;
(2) Teekay defaults in the payment of interest on any notes when the same
become due and payable, and such default continues for a period of 30
days;
(3) Teekay defaults in the payment of principal and interest on notes
required to be purchased upon the occurrence of a Change of Control
Triggering Event when due and payable;
(4) Teekay defaults in the performance of or breaches any other covenant
or agreement of Teekay in the indenture or under the notes and such
default or breach continues for a period of 30 consecutive days after
the date on which written notice of such default or breach requiring
Teekay to remedy the same, shall have been given to Teekay by the
trustee, or to Teekay and the trustee by the holders of at least 25%
in aggregate principal amount of the notes;
(5) there occurs with respect to any issue or issues of Debt of Teekay or
any of its Subsidiaries having an outstanding aggregate principal
amount of $10 million or more individually or $20 million or more in
the aggregate for all such issues of all such Persons, whether such
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Debt now exists or shall hereafter be created, an event of default that
has caused the holder thereof to declare such Debt to be due and payable
prior to its Stated Maturity and such Debt has not been discharged in
full or such acceleration has not been rescinded or annulled (by cure,
waiver or otherwise) within 30 days of such acceleration; provided,
however, that any secured Debt in excess of the limits set forth above
shall be deemed to have been declared due and payable if the lender in
respect thereof takes any action to enforce a security interest against,
or an assignment of, or to collect on, seize, dispose of or apply any
assets of Teekay or its Subsidiaries (including lock-box and other
similar arrangements) securing such Debt, or to set off against any bank
account of Teekay or its Subsidiaries in excess of $10 million;
(6) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million individually or $20 million
in the aggregate for all such final judgments or orders against all
such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against Teekay or any Subsidiary
and shall not be paid or discharged, and there shall be any period of
60 consecutive days following entry of the final judgment or order in
excess of $10 million individually or that causes the aggregate
amount for all such final judgments or orders outstanding and not
paid or discharged against all such Persons to exceed $20 million
during which a stay of enforcement of such final judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect;
(7) Teekay or any Subsidiary shall generally not pay its debts as such
debts become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by or against
Teekay or any Subsidiary seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or
its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or seeking the entry of an order
for relief or the appointment of a receiver, trustee, custodian or
other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against
it (but not instituted by it), either such proceeding shall remain
undismissed or unstayed for a period of 60 days, or any of the
actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a
receiver, trustee, custodian or other similar official for, it or for
any substantial part of its property) shall occur; or Teekay or any
Subsidiary shall take any corporate action to authorize any of the
actions set forth above in this subsection (7); or
(8) Teekay and/or one or more Subsidiaries fails to make (A) at the final
(but not any interim) fixed maturity of any issue of Debt a principal
payment of $10 million or more or (B) at the final (but not any
interim) fixed maturity of more than one issue of such Debt principal
payments aggregating $20 million or more and, in the case of clause
(A), such defaulted payment shall not have been made, waived or
extended within 30 days of the payment default and, in the case of
clause (B), all such defaulted payments shall not have been made,
waived or extended within 30 days of the payment default that causes
the amount described in clause (B) to exceed $20 million.
If an Event of Default (other than an Event of Default specified in clause
(7) above) occurs and is continuing under the indenture, the trustee or the
holders of at least 25% in aggregate principal amount of the notes then
outstanding, by written notice to Teekay (and to the trustee if such notice is
given by the holders (the "Acceleration Notice")), may, and the trustee at the
request of the holders shall, declare the entire unpaid principal of, premium,
if any, and accrued interest on the notes to be immediately due and payable.
Upon a declaration of acceleration, such principal of, premium, if any, and
accrued interest shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (4)
or (8) above has occurred and is continuing, such declaration of acceleration
shall be automatically rescinded and annulled if the event triggering such Event
of Default pursuant to clause (4) or (8) shall be remedied or cured by Teekay
and/or the relevant Subsidiaries or
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waived by the holders of the relevant Debt within 60 days after the declaration
of acceleration with respect thereto. If an Event of Default specified in clause
(7) above occurs, all unpaid principal of, premium, if any, and accrued interest
on the notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the trustee or any
holder. The holders of at least a majority in principal amount of the
outstanding notes by written notice to Teekay and to the trustee, may waive all
past defaults and rescind and annul a declaration of acceleration and its
consequences if:
(1) Teekay has paid or deposited with the trustee a sum sufficient to pay
(A) all sums paid or advanced by the trustee under the indenture and
the reasonable compensation, expenses, disbursements and advances of
the trustee, its agents and counsel, (B) all overdue interest on all
notes, (C) the principal of and premium, if any, on, any notes that
have become due otherwise than by such declaration or occurrence of
acceleration and interest thereon at the rate prescribed therefor by
such notes, and (D) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate prescribed
therefor by such notes,
(2) all existing Events of Default, other than the non-payment of the
principal of the notes that have become due solely by such
declaration of acceleration, have been cured or waived, and
(3) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction.
For information as to the waiver of defaults, see "-- Modification and
Waiver."
The holders of at least a majority in aggregate principal amount of the
outstanding notes may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any trust or
power conferred on the trustee. However, the trustee may refuse to follow any
direction that conflicts with law or the indenture or that may expose the
trustee to personal liability. A holder may not pursue any remedy with respect
to the indenture or the notes unless:
(1) the holder gives to the trustee written notice of a continuing Event
of Default;
(2) the holders of at least 25% in aggregate principal amount of
outstanding notes make a written request to the trustee to pursue the
remedy;
(3) such holder or holders offer to the trustee indemnity reasonably
satisfactory to the trustee against any costs, liabilities or
expenses to be incurred in compliance with such request;
(4) the trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the holders of a majority in aggregate
principal amount of the outstanding notes do not give the trustee a
direction that is inconsistent with the request.
However, such limitations do not apply to the right of any holder of a note
to receive payment of the principal of, premium, if any, or interest on, such
note or to bring suit for the enforcement of any such payment on or after the
due dates expressed in the notes, which right shall not be impaired or affected
without the consent of the holder.
The indenture requires certain officers of Teekay to certify, on or before
a date not more than 120 days after the end of each fiscal year, that a review
has been conducted of the activities of Teekay and its Subsidiaries and Teekay's
and its Subsidiaries' performance under the indenture and that Teekay has
fulfilled all obligations thereunder, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default and the nature
and status thereof. Teekay is also obligated to notify the trustee of any
default or defaults in the performance of any covenants or agreements under the
indenture.
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DEFEASANCE
DEFEASANCE AND DISCHARGE
The indenture provides that Teekay will be deemed to have paid and will be
discharged from any and all obligations in respect of the notes and the
provisions of the indenture will no longer be in effect with respect to the
notes (except for, among other matters, certain obligations to register the
transfer or exchange of the notes, to replace stolen, lost or mutilated notes,
to maintain paying agencies and to hold monies for payment in trust), on the
123rd day after the date referred to below if, among other things:
(1) Teekay has deposited with the trustee, in trust, money and/or U.S.
Government Securities that, through the payment of interest and
principal in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on the notes on the Stated
Maturity of such payments in accordance with the terms of the
indentures and the notes,
(2) Teekay has delivered to the trustee (A) either (i) an Opinion of
Counsel to the effect that holders will not recognize income, gain or
loss for federal income tax purposes as a result of Teekay's exercise
of its option under this "Defeasance" provision and will be subject
to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit,
defeasance and discharge had not occurred, which Opinion of Counsel
must be based upon (and accompanied by copy of) a ruling of the
Internal Revenue Service to the same effect or based upon a change in
applicable federal income tax law after the date of the indenture or
(ii) a ruling directed to the trustee received from the Internal
Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (B) an Opinion of Counsel to the effect that the creation
of the defeasance trust does not violate the Investment Company Act
of 1940 and, after the passage of 123 days following the deposit, the
trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor
and Creditor Law,
(3) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or
lapse of time or both would become an Event of Default, shall have
occurred and be continuing on the date of such deposit or during the
period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or
constitute a default under, any other agreement or instrument to
which Teekay is a party or by which Teekay is bound and
(4) if at such time the notes are listed on a national securities
exchange, Teekay has delivered to the trustee an Opinion of Counsel
to the effect that the notes will not be delisted as a result of such
deposit, defeasance and discharge.
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT
The indenture provides that certain provisions of the indenture will no
longer be in effect upon, among other things, the deposit with the trustee, in
trust, of money and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with their terms will
provide money in an amount sufficient to pay the principal of, premium, if any,
and accrued interest on the notes on the Stated Maturity of such payments in
accordance with the terms of the indenture and the notes, the satisfaction of
the provisions described in clauses (2)(B), (3) and (4) of the preceding
paragraph and the delivery by Teekay to the trustee of an Opinion of Counsel to
the effect that, among other things, the holders will not recognize income, gain
or loss for federal income tax purposes as a result of such deposit and
defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
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DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT
In the event Teekay exercises its option to omit compliance with certain
covenants and provisions of the indenture with respect to the notes as described
in the immediately preceding paragraph and the notes are declared due and
payable because of the occurrence of an Event of Default that remains
applicable, the amount of money and/or U.S. Government Obligations on deposit
with the trustee will be sufficient to pay amounts due on the notes at the time
of their Stated Maturity but may not be sufficient to pay amounts due on the
notes at the time of the acceleration resulting from such Event of Default.
However, Teekay will remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the indenture may be made by Teekay and the
trustee with the consent of the holders of not less than a majority in aggregate
principal amount of the outstanding notes; provided, however, that no such
modification or amendment may, without the consent of each holder affected
thereby:
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any note,
(2) reduce the principal amount of, or premium, if any, or interest on,
any note,
(3) change the place or currency of payment of principal of, or premium,
if any, or interest on, any note,
(4) impair the right to institute suit for the enforcement of any payment
on or with respect to any note,
(5) reduce the percentage of aggregate principal amount of outstanding
notes the consent of whose holders is necessary to modify or amend
the indenture,
(6) modify any provisions of the indenture relating to the modification
and amendment of the indenture, except as otherwise specified in the
indenture, or
(7) reduce the percentage of aggregate principal amount of outstanding
notes, the consent of whose holders is necessary for waiver of
compliance with certain provisions of such indenture or for waiver of
certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS,
SHAREHOLDERS, OFFICERS, DIRECTORS OR EMPLOYEES
The indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on, any of the notes, or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of Teekay in the indenture, or in any of the
notes, or because of the creation of any Debt represented thereby, shall be had
against any incorporator, shareholder, officer, director, employee, Affiliate or
controlling person of Teekay or of any successor person thereof. Each holder, by
accepting such notes, waives and releases all such liability.
THE TRUSTEE
The trustee under the indenture is the registrar and paying agent with
regard to the notes. The indenture provides that, except during the continuance
of an Event of Default, the trustee will perform only such duties as are
specifically set forth in the indenture. During the existence of an Event of
Default, the trustee will exercise such rights and powers vested in it under the
indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
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GOVERNING LAW
The indenture is governed by the laws of the State of New York.
CONSENT TO JURISDICTION AND SERVICE
Teekay has irrevocably appointed Watson, Farley & Williams, New York, New
York, as its respective agent for service of process in any suit, action or
proceeding with respect to the indenture or the notes brought in any federal or
state court located in New York City and have submitted to such jurisdiction.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the indenture. Reference is made to the
indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control,"
as used with respect to any person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Capital Stock" is defined to mean, with respect to any person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such person's capital stock or ownership
interests, whether outstanding prior to or issued after the date of the
indenture, including, without limitation, all common stock and preferred stock.
"Capitalized Lease" is defined to mean, as applied to any person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such person, as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such person;
and "Capitalized Lease Obligation" is defined to mean the rental obligations, as
aforesaid, under such lease.
"Change of Control" is defined to mean such time as:
(1) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934), other than any
Permitted Holder, becomes the ultimate "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act and including by reason of any
change in the ultimate "beneficial ownership" of the Capital Stock of
Teekay) of more than 50% of the total voting power of the Voting
Stock of Teekay (calculated on a fully diluted basis); or
(2) individuals who at the beginning of any period of two consecutive
calendar years constituted the board of directors of Teekay (together
with any new directors whose election by such board of directors or
whose nomination for election was approved by a vote of at least two-
thirds of the members of such board of directors then still in office
who either were members of such board of directors at the beginning
of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute at least
50% of the members of such board of directors then in office.
"Change of Control Triggering Event" is defined to mean the occurrence of a
Change of Control and a Rating Decline.
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"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect Teekay or any of its Subsidiaries against fluctuations in currency
values to or under which Teekay or any of its Subsidiaries is a party or a
beneficiary on the date of this indenture or becomes a party or a beneficiary
thereafter.
"Debt" is defined to mean, with respect to any person at any date of
determination (without duplication):
(1) all debt of such person for borrowed money,
(2) all obligations of such person evidenced by bonds, debentures, notes
or other similar instruments,
(3) all obligations of such person in respect of letters of credit or
other similar instruments (including reimbursement obligations with
respect thereto),
(4) all obligations of such person to pay the deferred purchase price of
property or services, which purchase price is due more than six
months after the date of placing such property in service or taking
delivery thereto or the completion of such services, except trade
payables,
(5) all obligations of such person as lessee under Capitalized Leases,
(6) all Debt of persons other than such person secured by a Lien on any
asset of such person, whether or not such Debt is assumed by such
person; provided that the amount of such Debt shall be the lesser of
(A) the fair market value of such asset at such date of determination
and (B) the amount of such Debt,
(7) all Debt of persons other than such person guaranteed by such person
to the extent such Debt is guaranteed by such person, and
(8) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements.
The amount of Debt of any person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided that the
amount outstanding at any time of any Debt issued with original issue discount
is the face amount of such Debt less the remaining unamortized portion of the
original issue discount of such Debt at such time as determined in conformity
with GAAP; and provided further that Debt shall not include any liability for
federal, state, local, foreign or other taxes.
"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Event of Default" has the meaning set forth under "-- Events of Default."
"GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect as of the date of the indenture,
including, without limitation, those set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All ratios and
computations based on GAAP contained in the indenture shall be computed in
conformity with GAAP, except that calculations made for purposes of determining
compliance with the terms of the covenants and with other provisions of the
indenture shall be made without giving effect to:
(1) except as otherwise provided, the amortization of any amounts
required or permitted by Accounting Principles Board Opinion Nos. 16
and 17; and
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(2) any non-recurring charges associated with the adoption, after the
date of the indenture, of Financial Accounting Standard Nos. 106 and
109.
"Governing Board Members" means the individuals serving as members of the
protectorate or governing boards of (x) the Trusts or their respective trustees
or (y) if the individuals serving as members of the protectorate or governing
boards of the Trusts or their respective trustees immediately prior to any
restructuring or dissolution of the Trusts or any transfer of Capital Stock of
Teekay held directly or indirectly thereby represent at least a majority of the
members of the protectorate or governing board of the trust (or trustee thereof)
or other entity replacing the Trusts as a direct or indirect owner of all, or
substantially all, of the Capital Stock of Teekay held directly or indirectly by
the Trusts immediately prior to such restructuring, dissolution or transfer,
such replacement trust (or its trustee) or entity, together with any new members
whose election or appointment was approved by at least two-thirds of the members
of such boards or board.
"Gradation" is defined to mean a gradation within a Rating Category or a
change to another Rating Category, which shall include:
(1) "+" and "-" in the case of S&P's current Rating Categories (e.g., a
decline from BB+ to BB would constitute a decrease of one gradation),
(2) 1 and 2 in the case of Moody's current Rating Categories (e.g., a
decline from B1 to B2 would constitute a decrease of one gradation),
or
(3) the equivalent in respect of successor Rating Categories of S&P or
Moody's or Rating Categories used by Rating Agencies other than S&P
and Moody's.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement or other similar agreement or arrangement designed
to protect Teekay or any of its Subsidiaries against fluctuations in interest
rates to or under which Teekay or any of its Subsidiaries is a party or a
beneficiary on the date hereof or becomes a party or a beneficiary hereafter.
"Investment Grade" is defined to mean:
(1) BBB- or above in the case of S&P (or its equivalent under any
successor Rating Categories of S&P);
(2) Baa3 or above, in the case of Moody's (or its equivalent under any
successor Rating Categories of Moody's); and
(3) the equivalent in respect of the Rating Categories of any Rating
Agencies substituted for S&P or Moody's.
"Lien" is defined to mean any mortgage, lien, pledge, security interest,
encumbrance or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
"Moody's" is defined to mean Moody's Investors Service, Inc. and its
successors.
"Permitted Holder" is defined to mean the Trusts, a majority of the
Governing Board Members (each in his or her capacity as a Governing Board
Member), or any holding company, more than 50% of the total voting power of the
Voting Stock of which is, at the time of any transfer of Capital Stock of Teekay
by the Trusts or any such other holding company, "beneficially owned" by the
Trusts or a majority of the Governing Board Members (each in his or her capacity
as a Governing Board Member).
"Rating Agencies" is defined to mean:
(1) S&P and Moody's; or
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(2) if S&P or Moody's or both of them are not making ratings of the notes
publicly available, a nationally recognized U.S. rating agency or
agencies, as the case may be, selected by Teekay, which will be
substituted for S&P or Moody's or both, as the case may be.
"Rating Category" is defined to mean:
(1) with respect to S&P, any of the following categories (any of which
may include a "+" or "- "): AAA, AA, A, BBB, BB, B, CCC, CC, C and D
(or equivalent successor categories);
(2) with respect to Moody's, any of the following categories: Aaa, Aa, A,
Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories);
and
(3) the equivalent of any such categories of S&P or Moody's used by
another Rating Agency, if applicable.
"Rating Decline" is defined to mean that at any time within 90 days (which
period shall be extended so long as the rating of the notes is under publicly
announced consideration for possible downgrade by any Rating Agency) after the
date of public notice of a Change of Control, or of the intention of Teekay or
of any person to effect a Change of Control, the rating of the notes is
decreased by both Rating Agencies by one or more Gradations and the rating by
such Rating Agencies on the notes following such downgrade is below Investment
Grade.
"Redemption Date", when used with respect to any note to be redeemed, is
defined to mean the date fixed for such redemption by or pursuant to the
indenture.
"S&P" is defined to mean Standard & Poor's Ratings Group, a division of
McGraw Hill Inc., a New York Corporation and its successors.
"Stated Maturity" is defined to mean (1) with respect to any debt security,
the date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (2) with
respect to any scheduled installment of principal or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Subsidiary" is defined to mean, with respect to Teekay, any business
entity of which more than 50% of the outstanding Voting Stock is owned directly
or indirectly by Teekay and one or more other Subsidiaries of Teekay.
"Taxing Jurisdiction" is defined to mean the Republic of the Marshall
Islands or any jurisdiction from or through which payment on the notes is made,
or any political subdivision thereof, or any authority or agency therein or
thereof having power to tax.
"Trusts" is defined to mean, collectively, 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, which as of June 30, 2001 owned
(indirectly through wholly owned subsidiaries) approximately 33.5% and 7.2% of
the outstanding Common Stock of Teekay, respectively.
"U.S. Government Securities" is defined to mean securities that are direct
obligations of the United States of America, direct obligations of the Federal
Home Loan Mortgage Corporation, direct obligations of the Federal National
Mortgage Association, securities which the timely payment of whose principal and
interest is unconditionally guaranteed by the full faith and credit of the
United States of America, trust receipts or other evidence of indebtedness of a
direct claim upon the instrument described above and money market mutual funds
that invest solely in such securities.
"Voting Stock" of any person as of any date means the Capital Stock of such
person that is at the time entitled to vote in the election of the board of
directors or similar governing body of such person.
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FORM DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
We will issue the exchange notes by one or more notes in registered, global
form (collectively, the "Restricted Global Notes"). The Restricted Global Notes
will be deposited on issuance with the trustee as custodian for DTC, in New
York, New York, and registered in the name of DTC or its nominee, in each case
for credit to an account of a direct or indirect participant in DTC as described
below.
The Global Notes will be deposited on behalf of the acquirers of the
exchange notes for credit to the respective accounts of the acquirers or to such
other accounts as they may direct at DTC. Except as set forth below, the Global
Notes may be transferred, in whole and not in part, only to another nominee of
DTC or to a successor of DTC or its nominee. Beneficial interests in the Global
Notes may not be exchanged for notes in certificated form except in the limited
circumstances described below. See "-- Exchange of Book-Entry Notes for
Certificated Notes."
DEPOSITARY PROCEDURES
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodian relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interest and any
transfer of ownership interest of each actual purchaser of each security held by
or on behalf of DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised us that, pursuant to procedures established by it,
ownership of interests in the Global Notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC (with
respect to the Participants) or records maintained by the Participants and the
Indirect Participants (with respect to other owners of beneficial interests in
the Global Notes).
Except as described below, owners of interests in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
holders thereof under the indenture for any purpose.
Payments in respect of the Global Notes registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered holder
under the indenture. Under the terms of the indenture, the trustee will treat
the persons in whose names the notes, including the Global Notes, are registered
as the owners thereof for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, neither the trustee nor any agent
thereof has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Notes, or
(2) maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Notes, or
(3) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment
in respect of securities such as the notes, is to credit the accounts of the
relevant Participants with the payment on the payment date, in amounts
proportionate to their respective holdings in principal amount of beneficial
interests in the relevant security as shown on the records of DTC. Payments by
the Participants and the Indirect Participants to the beneficial owners of the
notes will be governed by standing instructions and
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customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the trustee or
us. Neither we nor the trustee will be liable for any delay by DTC or any of its
Participants identifying the beneficial owners of the notes, and we and the
trustee may conclusively rely on, and will be protected in relying on,
instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Clearstream participants,
interests in the Global Notes will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and its Participants. Transfers between participants in
Euroclear and Clearstream will be effected in the ordinary way in accordance
with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes described in this section of this prospectus, cross-market transfers
between the Participants in DTC, on the one hand, and Euroclear or Clearstream
participants, on the other hand, will be effected through DTC in accordance with
DTC's rules on behalf of Euroclear or Clearstream, as the case may be, by its
respective depositary; however, such cross-market transactions will require
delivery of instructions to Euroclear or Clearstream, as the case may be, by the
counter party in such system in accordance with the rules and procedures and
within the established deadlines (Brussels time) of such system. Euroclear or
Clearstream, as the case may be, will, if the transaction meets its settlement
requirements, deliver instructions to its respective depositary or take action
to effect final settlement on its behalf by delivering or receiving interests in
the relevant Global Notes in DTC, and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to DTC.
Euroclear participants and Clearstream participants may deliver instructions
directly to the depositaries for Euroclear or Clearstream.
Because of the time zone differences, the securities account of a Euroclear
or Clearstream participant purchasing an interest in a Global Note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. Cash received in
Euroclear or Clearstream as a result of sales of an interest in a Global Note by
or through a Euroclear or Clearstream participant to a Participant in DTC will
be received with value on the settlement date of DTC but will be available in
the relevant Euroclear or Clearstream cash account only as of the business day
for Euroclear or Clearstream following DTC's settlement date.
DTC has advised us that it will take any action permitted to be taken by a
holder of notes only at the direction of one or more Participants to whose
account with DTC interests in the Global Notes are credited and only in respect
to such portion of the principal amount of the notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the indenture, DTC reserves the right to exchange
the Global Notes for legended notes in certificated form and to distribute such
notes to its Participants.
The information in this section of this prospectus concerning DTC,
Euroclear and Clearstream and their book-entry systems has been obtained from
sources that Teekay believes to be reliable, but Teekay takes no responsibility
for the accuracy thereof.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interest in the Global Notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the trustee will have any
responsibility for the performance by DTC, Euroclear or Clearstream or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
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EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A beneficial interest in a Global Note may not be exchanged for a security
in certificated form unless
(1) DTC:
(A) notifies Teekay that it is unwilling or unable to continue as
depositary for such Global Notes, or
(B) has ceased to be a clearing agency registered under the Securities
Exchange Act of 1934,
and in either case Teekay thereupon fails to appoint a successor
depositary,
(2) Teekay, at its option, notifies the trustee in writing that it elects
to cause the issuance of the notes in certificated form, or
(3) there shall have occurred and be continuing an Event of Default with
respect to the notes.
In all cases, certificated notes delivered in exchange for any Global Note
or beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures). Any such exchange will be effected
through the DWAC System and an appropriate adjustment will be made in the
records of the applicable security registrar to reflect a decrease in the
principal amount of the relevant Global Note.
REGISTRATION RIGHTS
We entered into an exchange and registration rights agreement with the
initial purchasers of the outstanding notes pursuant to which we agreed, for the
benefit of the holders of the outstanding notes, at our cost:
(1) to use our best efforts to file with the SEC within 60 days following
the date of issuance of the outstanding notes a registration
statement on the appropriate form relating to a registered exchange
offer for the outstanding notes under the Securities Act of 1933.
(2) to use our best efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act within
180 days following the issuance of the outstanding notes; and
(3) to use our best efforts to consummate the exchange offer within 60
days after the exchange offer registration statement has been
declared effective.
Upon the exchange offer registration statement being declared effective, we
will offer the exchange notes in exchange for the surrender of the outstanding
notes. We will keep the exchange offer open for not less than 30 calendar days
(or longer if required by applicable law) after the date notice of the exchange
offer is mailed to the holders of the outstanding notes. For each outstanding
note surrendered to us pursuant to the exchange offer, the holder of such
outstanding note will receive an exchange note having a principal amount equal
to that of the surrendered note. The exchange notes will have terms identical in
all material aspects to the outstanding notes (except that the exchange notes
will not contain terms with respect to transfer restrictions).
Under existing interpretations of the staff of the SEC contained in several
no-action letters to third parties, the exchange notes would in general be
freely tradable after the exchange offer without further registration under the
Securities Act of 1933. However, any purchaser of notes who is our affiliate (as
such term is defined in the indenture -- See "Description of the Notes --
Certain Definitions") or who intends to participate in the exchange offer for
the purpose of distributing the exchange notes:
(1) will not be able to rely on the interpretation of the staff of the
SEC;
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(2) will not be able to tender its notes in the exchange offer; and
(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or
transfer of the notes unless such sale or transfer is made pursuant
to an exemption from such requirements.
Each holder of the outstanding notes (other than certain specified holders)
who wishes to exchange outstanding notes for exchange notes in the exchange
offer will be required to represent that:
(1) any exchange notes that it will receive will be acquired in the
ordinary course of your business,
(2) it has no arrangement or understanding with any person to participate
in the distribution of the outstanding notes or the exchange notes,
(3) it is not our "affiliate," as defined in Rule 405 of the Securities
Act of 1933, or, if it is our affiliate, it will comply with any
applicable registration and prospectus delivery requirements of the
Securities Act,
(4) if it is a broker-dealer, it is not engaged in and does not intend to
engage in the distribution of the exchange notes, and
(5) if it is a broker-dealer (a "Participating Broker-Dealer") that will
receive exchange notes for its own account in exchange for
outstanding notes that it acquired as a result of market-making
activities or other trading activities, it will deliver a prospectus
meeting the requirements of the Securities Act of 1933 in connection
with any resale of such exchange notes.
The SEC has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the exchange
notes (other than a resale of an unsold allotment from the original sale of the
outstanding notes) with the prospectus contained in the exchange offer
registration statement. Under the exchange and registration rights agreement, we
are required to allow Participating Broker-Dealers and other persons, if any,
subject to similar prospectus delivery requirements to use the prospectus
contained in the exchange offer registration statement in connection with the
resale of such exchange notes.
In the event that any changes in law or the applicable interpretations of
the staff of the SEC do not permit us to effect the exchange offer, or if for
any reason the exchange offer is not consummated within 240 days following the
date of issuance of the outstanding notes, or the exchange offer is not
available to any holder of the outstanding notes, we will, at our cost:
- as promptly as practicable, but no later than 30 days after the time
such obligation arises, file a shelf registration statement covering
resales of the outstanding notes;
- use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act of 1933 within 120 days
after such shelf registration statement is filed; and
- use our best efforts to keep effective the shelf registration statement
until two years after its effective date or such shorter period that
will terminate when all outstanding notes covered by the shelf
registration statement have been sold pursuant to the shelf registration
statement.
We will, in the event of the filing of a shelf registration statement,
provide to each holder of the outstanding notes copies of the prospectus which
is a part of the shelf registration statement, notify each such holder when the
shelf registration statement for the outstanding notes has become effective and
take certain other actions as are required to generally permit unrestricted
resales of the outstanding notes. A holder of notes that sells such notes
pursuant to the shelf registration statement generally will be required to be
named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act of 1933 in connection with such sales and
will be bound by the provisions of the exchange and registration rights
agreement which are applicable to such holder (including certain
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indemnification obligations). In addition, each holder of the outstanding notes
will be required to deliver information to be used in connection with the shelf
registration statement and to provide comments on the shelf registration
statement within the time periods set forth in the exchange and registration
rights agreement in order to have its notes included in the shelf registration
statement and to benefit from the provisions regarding liquidated damages set
forth in the following paragraph.
In the event that:
(1) the exchange offer registration statement is not filed with the SEC
on or prior to the 60th day following the date of issuance of the
outstanding notes or the shelf registration statement is not filed
with the SEC on or prior to the 30th day following the date an
obligation to file arises;
(2) such exchange offer registration statement or shelf registration
statement is not declared effective on or prior to the 180th day
following the date of issuance of the outstanding notes or the 120th
day after such shelf registration statement is filed, respectively;
(3) the exchange offer is not completed within 60 days after the initial
effective date of the exchange registration statement; or
(4) the exchange offer registration statement or shelf registration
statement is declared effective but thereafter ceases to be effective
or usable (each such event referred to in clauses (1) through (4)
above, a "Registration Default"),
then special interest, in addition to the interest set forth on the cover
hereof, shall accrue at a per annum rate of 0.5% for the first 90-day period
immediately following the occurrence of the first Registration Default, and the
per annum interest rate will increase by an additional 0.5% for each subsequent
90-day period during which the Registration Default remains uncured, up to a
maximum additional interest rate of 1.5% per annum in excess of the interest
rate on the cover of this prospectus. Upon the cure of the Registration Default,
the special interest shall no longer accrue and the notes will bear interest at
the original rate, provided, however, that if, after any such cure, a different
Registration Default occurs, then special interest shall again accrue in
accordance with the foregoing provisions.
The summary herein of certain provisions of the exchange and registration
rights agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the exchange
and registration rights agreement, a copy of which is available upon request to
Teekay. The exchange and registration rights agreement has been filed as an
exhibit to the registration statement of which this prospectus is a part.
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TAX CONSIDERATIONS
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary describes the material United States federal income
tax consequences relevant to the purchase, ownership, and disposition of the
exchange notes. Except where indicated, this summary deals only with notes held
as capital assets by purchasers of outstanding notes in the original offering of
the outstanding notes who receive exchange notes pursuant to the exchange offer
and does not purport to be a complete analysis of all the potential tax
considerations that may be relevant to such holders. The discussion does not
include special rules that might apply to certain holders such as dealers in
securities or currencies, financial institutions, investors in pass-through
entities, tax-exempt organizations or pension plans, life insurance companies,
persons holding notes as a part of a hedging or conversion transaction or a
straddle or United States holders whose "functional currency" is not the U.S.
dollar. In addition, the following discussion, as well as the conclusions
regarding certain issues of United States federal income tax law that are
reflected in that discussion, are based upon the provisions of the United States
Internal Revenue Code of 1986, as amended (the "Code"), and related regulations,
rulings and judicial decisions existing as of the date of this prospectus, and
upon the advice received by us from special U.S. tax counsel. Changes in
existing laws or regulations or their interpretation may occur, which could be
retroactive. Applicable authorities may be repealed, revoked or modified so as
to result in United States federal income tax consequences different from those
discussed below. Our and our special U.S. tax counsel's views have no binding
effect or official status of any kind, and no assurance can be given that the
conclusions discussed below would be sustained by a court if challenged by the
Internal Revenue Service.
THE DISCUSSION BELOW IS A SUMMARY FOR GENERAL INFORMATION ONLY AND DOES NOT
ADDRESS ALL POTENTIAL TAX CONSIDERATIONS THAT DEPEND UPON CIRCUMSTANCES SPECIFIC
TO EACH INVESTOR. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF
NOTES SHOULD SATISFY THEMSELVES AS TO THE OVERALL TAX CONSEQUENCES OF THEIR
OWNERSHIP OF THE NOTES, INCLUDING STATE, LOCAL AND NON-UNITED STATES TAX
CONSEQUENCES THEREOF (WHICH ARE NOT REVIEWED IN THIS DISCUSSION) AND CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.
As used in this section of the prospectus, a "United States holder" of a
note means a holder that is an individual citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision, an estate the
income of which is subject to United States federal income taxation regardless
of its source, or a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust, or a trust that was in existence on August 20, 1996, was
treated as a United States person on August 19, 1996 and elected to be treated
as a United States person at all times thereafter. A "Non-United States holder"
of a note is a holder that is not a United States holder.
THE EXCHANGE OFFER
The exchange of an outstanding note for an exchange note in the exchange
offer will not constitute a significant modification of the outstanding note for
United States federal income tax purposes. Therefore, the exchange note received
will be treated as a continuation of the outstanding note in your hands. As a
result, there will be no United States federal income tax consequences to you
upon the exchange of an outstanding note for an exchange note in the exchange
offer and you will have the same adjusted tax basis and holding period in the
exchange note as you had in the outstanding note immediately before the
exchange.
96
102
UNITED STATES HOLDER
PAYMENTS OF INTEREST
We expect that the interest (including Additional Amounts, if any) on the
notes will be "qualified stated interest." Qualified stated interest is
generally defined as stated interest that is unconditionally payable in cash or
other property (other than debt instruments of the issuer) or that will be
constructively received, at least annually or at a single fixed rate. We expect
that the notes will not be issued with "original issue discount" within the
meaning of Section 1273 of the Code and the Treasury Department Regulations
issued under that section and other related sections of the Code relating to
original issue discount. Thus, any payment of interest on a note will generally
be taxable to a United States holder as ordinary income at the time it is paid
or accrued in accordance with the United States holder's regular method of
accounting for tax purposes. Thus, to the extent that amounts are withheld and
Additional Amounts are paid on the notes, a United States holder will be
required to report income in an amount greater than cash received on the
payments.
Interest income from the notes will constitute foreign source income for
United States federal income tax purposes and, with certain exemptions, will be
treated separately, together with other items of "passive income" or, in the
case of certain holders, "financial services income" for purposes of computing
the foreign tax credit allowable under the Code. A United States holder may be
eligible, subject to a number of limitations, for a foreign tax credit or
deduction against such United States holder's United States federal income tax
liability for taxes withheld on the notes.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A United States holder's tax basis in a note generally will be the United
States holder's cost for the note. Upon the sale, exchange or retirement of a
note, a United States holder will recognize gain or loss equal to the difference
between the amount realized upon the sale, exchange or retirement (less any
accrued interest, which will be taxable as such) and the adjusted tax basis of
the note. In general, such gain or loss will be capital gain or loss and will be
long-term capital gain or loss if at the time of sale, exchange or retirement
the note has been held for more than one year. Under current law, net capital
gains of individuals are, under certain circumstances, taxed at lower rates than
items of ordinary income. The deductibility of capital losses is subject to
significant limitations. Capital gain or loss realized by a United States holder
generally will be treated as United States source income for United States
foreign tax credit limitation purposes.
The exchange of the notes for registered notes pursuant to the exchange
offer will not constitute a material modification of the terms of the notes and
therefore will not constitute a taxable event for United States federal income
tax purposes. In that event, the exchange would have no United States federal
income tax consequences to a United States holder, so that the United States
holder's holding period and adjusted tax basis for a note would not be affected
and the United States holder would continue to take into account income in
respect of a note in the same manner as before the exchange.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting will apply to certain payments of
principal and interest on the notes and to the proceeds from the sale of a note
paid to United States holders other than certain exempt recipients.
Additionally, a 31% backup withholding tax will apply to such payments if the
United States holder fails to provide a correct taxpayer identification number
or certification of exempt status or fails to report in full dividend and
interest income or otherwise fails to comply with applicable requirements of the
backup withholding rules.
If the 31% backup withholding tax applies to a United States holder, the
United States holder may use the amounts withheld as a refund or credit against
the United States holder's United States federal income tax liability as long as
the United States holder provides certain information to the Internal Revenue
Service.
97
103
NON-UNITED STATES HOLDER
PAYMENTS OF INTEREST
Payments of principal and interest on the notes will not be subject to
United States federal income tax, including United States withholding tax, if
paid to a non-United States holder, unless, in the case of interest, the
non-United States holder is: (1) a corporation that is an insurance company
carrying on a United States trade or business to which the interest is
attributable within the meaning of the Code; or (2) an individual or corporation
with an office or other fixed place of business in the United States to which
the interest is attributable, the interest either is derived in the active
conduct of a banking, financing or similar business within the United States or
is received by a corporation, the principal business of which is trading in
stock or securities for its own account, and certain other conditions exist.
SALE, EXCHANGE AND RETIREMENT OF NOTES
Gain, realized on the sale, retirement or other disposition of notes by a
non-United States holder, generally will not be subject to United States federal
income tax, including withholding tax, unless the gain is effectively connected
with the conduct by such holder of a trade or business within the United States;
or in the case of an individual, the non-United States holder has been present
in the United States for 183 days or more during the taxable year of the sale or
retirement and certain other conditions are satisfied.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Information reporting and backup withholding generally will not apply to
payments of principal and interest on the notes made by a United States paying
agent to a non-United States holder of a note, provided that: (1) the beneficial
owner of such note certifies, under penalties of perjury, that it is not a
United States holder and provides its name and address; or (2) a securities
clearing organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business and holds the notes
certifies, under penalties of perjury, that such statement has been received
from the beneficial owner of such note by it or by a financial institution
between it and the beneficial owner and furnishes such paying agent with a copy
thereof. Additionally, such paying agent must not have actual knowledge that
such beneficial owner is a United States person.
Proceeds received from the sale of a note by a non-United States holder to
or through the United States office of a broker generally are subject to
information reporting and backup withholding unless the holder or beneficial
owner certifies as to its non-United States status or otherwise establishes an
exemption from information reporting and backup withholding.
Generally, the certification requirements will be satisfied if an
individual or corporation provides the Withholding Agent, as defined below, with
a properly completed Internal Revenue Service Form W-8BEN, or appropriate
successor form. A "Withholding Agent" is the last United States payor (or a
non-United States payor who is a qualified intermediary, United States branch of
a foreign person, or withholding foreign partnership) in the chain of payment
prior to payment to a non-United States person (which is itself not a
Withholding Agent).
If backup withholding tax applies to a non-United States holder, the holder
may use the amounts withheld as a refund or credit against the holder's United
States federal income tax liability as long as the non-United States holder
provides certain information to the Internal Revenue Service.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF ANY INVESTMENT IN THE NOTES, INCLUDING
THE APPLICATION OF UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES TAX
LAWS.
98
104
MARSHALL ISLANDS TAXATION
Based on the advice of Watson, Farley & Williams, Republic of Marshall
Islands counsel to us, since we are not now carrying on, and in the future do
not expect to carry on, any operations within the Republic of the Marshall
Islands, and assuming that the holders of the notes are neither residents or
citizens of the Republic of the Marshall Islands, under current Marshall Islands
law no taxes or withholding will be imposed by the Republic of the Marshall
Islands on payments to be made in respect of the notes.
BAHAMIAN TAXATION
Based on the advice of Graham, Thompson & Co., Bahamian counsel to us,
under current Bahamian law no taxes or withholding will be imposed by the
Bahamas on payments to be made in respect of the notes.
TRANSFER TAXES
Holders who tender their outstanding notes for exchange generally will not
be obligated to pay any transfer tax in connection with the exchange. However,
holders who instruct us to register exchange notes in the name of a person other
than the registered holders of the outstanding notes not properly tendered,
withdrawn or not accepted in the exchange offer be returned to a person other
than the registered tendering holder, will be responsible for the payment of any
applicable transfer tax.
99
105
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented, may be used by a broker-dealer
in connection with resales of exchange notes received in exchange for
outstanding notes only where such outstanding notes were acquired as a result of
market-making activities or other trading activities. We have agreed to make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any such resale for a period of 180 days from the date on
which the exchange offer is consummated, or such shorter period as will
terminate when all outstanding notes acquired by broker-dealers for their own
accounts as a result of market-making activities or other trading activities
have been exchanged for exchange notes and such exchange notes have been resold
by such broker-dealers.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any exchange notes. Any broker-dealer that
resells exchange notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such exchange notes may be deemed to be an "underwriter" within the meaning
of the Securities Act of 1933 and any profit on any such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver any by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act of 1933.
We have agreed to pay all our expenses incident to the exchange offer,
including reasonable fees of not more than one counsel retained by the holders
of outstanding notes in connection with the filing of a shelf registration
statement, if required, but excluding commissions or concessions of any brokers
or dealers and the fees of any other advisors or experts retained by the holders
of outstanding notes, except as expressly set forth in the exchange and
registration rights agreement, and will indemnify the holders of outstanding
notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act of 1933.
100
106
LEGAL MATTERS
The validity of the exchange notes offered by this prospectus and certain
legal matters will be passed upon for us by Perkins Coie LLP, Portland Oregon,
as to United States law, and certain other legal matters will be passed upon for
us by Watson, Farley & Williams, New York, New York, as to Marshall Islands law,
by Seward & Kissel, LLP, New York, New York, as to U.S. tax law, by Graham,
Thompson & Co., Nassau, the Bahamas, as to Bahamian law, by Appleby Spurling &
Kempe, Hamilton, Bermuda, as to Bermuda law, and by Bugge, Arentz-Hansen &
Rasmussen, Oslo, Norway, as to Norwegian law.
EXPERTS
The consolidated financial statements and schedule of Teekay and its
subsidiaries as at December 31, 2000 and 1999, and for the fiscal year ended
December 31, 2000, the nine months ended December 31, 1999 and the year ended
March 31, 1999, included in this prospectus and audited by Ernst & Young,
independent chartered accountants, have been included in reliance upon the
report given upon their authority as experts in accounting and auditing.
The consolidated financial statements of UNS and its subsidiaries as at
December 31, 2000 and 1999, and for the fiscal years ended December 31, 2000 and
1999, included in this prospectus and audited by Deloitte & Touche, independent
public accountants, have been included in reliance upon the report given upon
their authority as experts in accounting and auditing.
101
107
INDEX TO FINANCIAL STATEMENTS
PAGE
----
TEEKAY SHIPPING CORPORATION UNAUDITED HISTORICAL INTERIM
CONSOLIDATED FINANCIAL STATEMENTS:
Independent Accountant's Review Report on Interim Financial
Statements................................................ F-2
Unaudited Consolidated Statements of Income for the three
months ended March 31, 2001 and 2000...................... F-3
Unaudited Consolidated Balance Sheet as at March 31, 2001... F-4
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 31, 2001 and 2000................ F-5
Unaudited Consolidated Statement of Changes in Stockholders'
Equity for the three months ended March 31, 2001.......... F-6
Notes to the Interim Consolidated Financial Statements...... F-7
Schedule A to the Interim Consolidated Financial
Statements................................................ F-13
TEEKAY SHIPPING CORPORATION AUDITED HISTORICAL CONSOLIDATED
FINANCIAL STATEMENTS:
Auditor's Report............................................ F-19
Consolidated Statements of Income for the year ended
December 31, 2000, the nine months ended December 31, 1999
and the year ended March 31, 1999......................... F-20
Consolidated Balance Sheets as at December 31, 2000 and
1999...................................................... F-21
Consolidated Statements of Cash Flows for the year ended
December 31, 2000, the nine months ended December 31, 1999
and the year ended March 31, 1999......................... F-22
Consolidated Statements of Changes in Stockholders' Equity
for the year ended December 31, 2000, the nine months
ended December 31, 1999 and the year ended March 31,
1999...................................................... F-23
Notes to the Consolidated Financial Statements.............. F-24
Schedule A to the Consolidated Financial Statements......... F-35
UGLAND NORDIC SHIPPING ASA UNAUDITED HISTORICAL INTERIM
CONSOLIDATED FINANCIAL STATEMENTS:
Unaudited Consolidated Statements of Income for the three
months ended March 31, 2001 and 2000 and Unaudited
Consolidated Balance Sheet as at March 31, 2001........... F-43
UGLAND NORDIC SHIPPING ASA AUDITED HISTORICAL CONSOLIDATED
FINANCIAL STATEMENTS:
Auditor's Reports........................................... F-44
Consolidated Statements of Income for the years ended
December 31, 2000 and 1999................................ F-46
Consolidated Balance Sheets as at December 31, 2000 and
1999...................................................... F-47
Consolidated Statements of Cash Flows for the years ended
December 31, 2000 and 1999................................ F-49
Notes to the Consolidated Financial Statements.............. F-50
TEEKAY SHIPPING CORPORATION UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS:
Unaudited Pro Forma Consolidated Condensed Balance Sheet as
at March 31, 2001......................................... F-63
Unaudited Pro Forma Consolidated Condensed Statement of
Income for the three months ended March 31, 2001.......... F-64
Unaudited Pro Forma Consolidated Condensed Statement of
Income for the year ended December 31, 2000............... F-65
Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements...................................... F-66
F-1
108
INDEPENDENT ACCOUNTANT'S REVIEW REPORT ON INTERIM
FINANCIAL STATEMENTS
To the Board of Directors of
TEEKAY SHIPPING CORPORATION
We have reviewed the accompanying consolidated balance sheet of TEEKAY
SHIPPING CORPORATION AND SUBSIDIARIES as of March 31, 2001, and the related
consolidated statements of income and cash flows for the three-month periods
ended March 31, 2001 and 2000, and the consolidated statement of changes in
stockholders' equity for the three-month period ended March 31, 2001. Our review
also included Schedule A. These financial statements and schedule are the
responsibility of the Company's management.
We were furnished with the report of other accountants on their review of
the interim information of Ugland Nordic Shipping ASA, whose total assets as of
March 31, 2001 and whose revenues for the period from acquisition constituted 18
percent and 2 percent, respectively, of the consolidated totals.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our reviews and the report of other accountants, we are not aware
of any material modifications that should be made to the accompanying
consolidated financial statements and schedule referred to above for them to be
in conformity with accounting principles generally accepted in the United
States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Teekay Shipping
Corporation and subsidiaries as of December 31, 2000, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the year then ended, not presented herein, and in our report dated
February 16, 2001 (except for note 13 which is as of March 6, 2001), we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet and related schedule as of December 31, 2000, if fairly stated, in all
material respects, in relation to the consolidated balance sheet and schedule
from which they have been derived.
Nassau, Bahamas, /s/ ERNST & YOUNG
April 26, 2001 Chartered Accountants
F-2
109
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------
$ $
(UNAUDITED)
NET VOYAGE REVENUES
Voyage revenues............................................. 307,886 182,262
Voyage expenses............................................. 62,730 62,195
------- -------
Net voyage revenues......................................... 245,156 120,067
------- -------
OPERATING EXPENSES
Vessel operating expenses................................... 33,879 34,769
Time-charter hire expense................................... 17,183 12,966
Depreciation and amortization............................... 27,521 25,042
General and administrative.................................. 10,838 9,522
------- -------
89,421 82,299
------- -------
INCOME FROM VESSEL OPERATIONS............................... 155,735 37,768
------- -------
OTHER ITEMS
Interest expense............................................ (14,786) (19,989)
Interest income............................................. 2,803 3,253
Other income (loss) (note 10)............................... 936 (1,092)
------- -------
(11,047) (17,828)
------- -------
NET INCOME.................................................. 144,688 19,940
======= =======
EARNINGS PER COMMON SHARE (note 8)
Basic..................................................... 3.69 0.52
Diluted................................................... 3.59 0.52
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
110
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
AS AT AS AT
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
$ $
(UNAUDITED)
ASSETS
CURRENT
Cash and cash equivalents.................................. 296,940 181,300
Marketable securities (note 3)............................. 7,270 8,081
Accounts receivable........................................ 76,180 80,158
Prepaid expenses and other assets.......................... 27,188 25,956
--------- ---------
TOTAL CURRENT ASSETS....................................... 407,578 295,495
--------- ---------
Marketable securities (note 3)............................. 43,844 33,742
VESSELS AND EQUIPMENT
At cost, less accumulated depreciation of $708,568
(December 31, 2000 -- $680,756) (note 7)................. 1,901,357 1,607,716
Advances on newbuilding contracts (notes 7 and 9).......... 42,851 --
--------- ---------
TOTAL VESSELS AND EQUIPMENT................................ 1,944,208 1,607,716
--------- ---------
Investment in joint ventures............................... 46,402 20,474
Other assets............................................... 17,482 16,672
Goodwill (note 4).......................................... 58,818 --
--------- ---------
2,518,332 1,974,099
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable........................................... 20,924 22,084
Accrued liabilities........................................ 48,408 44,081
Current portion of long-term debt (note 7)................. 123,058 72,170
--------- ---------
TOTAL CURRENT LIABILITIES.................................. 192,390 138,335
--------- ---------
Long-term debt (note 7).................................... 985,636 725,314
Other long-term liabilities (note 6)....................... 38,558 7,368
--------- ---------
TOTAL LIABILITIES.......................................... 1,216,584 871,017
--------- ---------
MINORITY INTEREST.......................................... 66,968 4,570
STOCKHOLDERS' EQUITY
Capital stock (note 8)..................................... 458,605 452,808
Retained earnings.......................................... 777,618 641,149
Accumulated other comprehensive income (loss).............. (1,443) 4,555
--------- ---------
TOTAL STOCKHOLDERS' EQUITY................................. 1,234,780 1,098,512
--------- ---------
2,518,332 1,974,099
========= =========
Commitments and contingencies (note 9)
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
111
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
------- -------
$ $
(UNAUDITED)
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income.................................................. 144,688 19,940
Non-cash items:
Depreciation and amortization............................. 27,521 25,042
Loss on disposition of vessels and equipment.............. -- 1,009
Gain on disposition of available-for-sale securities...... (2,707) --
Equity income (net of dividends received: March 31, 2001
-- $2,500; March 31, 2000 -- $500)..................... (293) (319)
Future income taxes....................................... 671 500
Other -- net.............................................. 3,022 (592)
Change in non-cash working capital items related to
operating activities...................................... (8,390) (5,355)
------- -------
NET CASH FLOW FROM OPERATING ACTIVITIES..................... 164,512 40,225
------- -------
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 143,500 --
Scheduled repayments of long-term debt...................... (5,790) (606)
Prepayments of long-term debt............................... (92,118) (10,000)
Proceeds from issuance of Common Stock...................... 5,788 898
Cash dividends paid......................................... (8,408) (8,178)
------- -------
NET CASH FLOW FROM FINANCING ACTIVITIES..................... 42,972 (17,886)
------- -------
INVESTING ACTIVITIES
Expenditures for vessels and equipment...................... (1,394) (550)
Expenditures for drydocking................................. (2,240) (2,500)
Proceeds from disposition of assets......................... -- 9,705
Expenditure for purchase of Ugland Nordic Shipping ASA (net
of cash acquired of $26,605).............................. (97,144) --
Acquisition costs related to purchase of Bona Shipholding
Ltd....................................................... (20) (1,716)
Proceeds from disposition of available-for-sale
securities................................................ 8,954 --
Purchases of available-for-sale securities.................. -- (8,911)
------- -------
NET CASH FLOW FROM INVESTING ACTIVITIES..................... (91,844) (3,972)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 115,640 18,367
Cash and cash equivalents, beginning of the period.......... 181,300 220,327
------- -------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD................ 296,940 238,694
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
112
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS)
ACCUMULATED
OTHER
THOUSANDS OF COMPREHENSIVE TOTAL
COMMON COMMON RETAINED INCOME COMPREHENSIVE STOCKHOLDERS'
SHARES STOCK EARNINGS (LOSS) INCOME EQUITY
------------ ------- -------- ------------- ------------- -------------
# $ $ $ $ $
BALANCE AS AT DECEMBER 31,
2000....................... 39,145 452,808 641,149 4,555 1,098,512
------ ------- ------- ------ ---------
Net income................... 144,688 144,688 144,688
Other comprehensive income:
Unrealized loss on
available-for-sale
securities (note 3)...... (1,503) (1,503) (1,503)
Reclassification adjustment
for gain on
available-for-sale
securities included in
net income (note 3)...... (4,946) (4,946) (4,946)
Cumulative effect of
accounting change (note
11)...................... 4,155 4,155 4,155
Unrealized loss on
derivative instruments
(note 11)................ (3,314) (3,314) (3,314)
Reclassification adjustment
for gain on derivative
instruments (note 11).... (390) (390) (390)
-------
Comprehensive income......... 138,690
-------
Adjustment for equity income
on step acquisition (note
2)......................... 198 198
Dividends declared........... (8,417) (8,417)
Reinvested dividends......... 1 9 9
Exercise of stock options.... 256 5,788 5,788
------ ------- ------- ------ ---------
BALANCE AS AT MARCH 31, 2001
(UNAUDITED)................ 39,402 458,605 777,618 (1,443) 1,234,780
====== ======= ======= ====== =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
113
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
(INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2001 AND 2000 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 year ended December 31, 2000. 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, cash flows, and changes
in stockholders' equity for the interim periods presented. The results of
operations for the three-month period ended March 31, 2001 are not necessarily
indicative of those for a full fiscal year.
2. ACQUISITION OF UGLAND NORDIC SHIPPING ASA
As of March 31, 2001, the Company had purchased approximately a 64%
interest in Ugland Nordic Shipping ASA ("UNS") (nine percent of which was
purchased in fiscal 2000), for $143.9 million cash, including estimated
transaction expenses of $7.0 million, or at an average price of Norwegian Kroner
134 per share. UNS controls a modern fleet of 18 shuttle tankers (including four
newbuildings and four vessels purchased on April 2, 2001) that engage in the
transportation of oil from offshore production platforms to refineries.
The acquisition of UNS has been accounted for using the purchase method of
accounting, based upon preliminary estimates of fair value. UNS' operating
results are reflected in these financial statements commencing March 6, 2001,
the date the Company acquired control. Equity income related to the Company's
nine percent interest in UNS up to December 31, 2000 has been credited as an
adjustment to retained earnings. The Company's interest in UNS for the period
from January 1, 2001 to March 5, 2001 has been included in equity income for the
corresponding period. In April 2001, the Company purchased an additional 34%
interest in UNS (see Note 12).
The following table shows comparative summarized consolidated pro forma
financial information for the three-month periods ended March 31, 2001 and 2000
and gives effect to the acquisition of 100% of the outstanding shares in UNS as
if it had taken place January 1, 2000:
PRO FORMA
THREE MONTHS
ENDED MARCH 31,
------------------
2001 2000
------- -------
$ $
Net voyage revenues......................................... 261,416 135,012
Net income.................................................. 145,097 15,421
Net income per common share
basic..................................................... 3.70 0.41
diluted................................................... 3.60 0.40
F-7
114
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
(INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED)
3. MARKETABLE SECURITIES
The Company's investments in marketable securities are classified as
available-for-sale securities and are carried at fair value. Net unrealized
gains or losses on available-for-sale securities, if material, are reported as a
separate component of stockholders' equity.
4. GOODWILL
Goodwill acquired as a result of the acquisition of UNS (see Note 2) is
amortized over 20 years using the straight-line method. Management periodically
reviews goodwill for permanent diminution in value. As at March 31, 2001,
goodwill is net of accumulated amortization of $0.2 million.
5. CASH FLOWS
Cash interest paid during the three-month periods ended March 31, 2001 and
2000 totalled approximately $18.0 million and $14.9 million, respectively.
6. INCOME TAXES
The legal jurisdictions of the countries in which Teekay and the majority
of its subsidiaries are incorporated do not impose income taxes upon
shipping-related activities. The Company's Australian ship-owning subsidiaries
and Norwegian subsidiary UNS are subject to income taxes (see Note 10). Included
in other long-term liabilities are deferred income taxes of $34.0 million at
March 31, 2001 and $4.2 million at December 31, 2000. The Company accounts for
such taxes using the liability method pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
7. LONG-TERM DEBT
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
$ $
Revolving Credit Facilities................................. 424,843 415,800
First Preferred Ship Mortgage Notes (8.32%) due through
2008...................................................... 189,274 189,274
Term Loans due through 2009................................. 494,577 192,410
--------- -------
1,108,694 797,484
Less current portion........................................ 123,058 72,170
--------- -------
985,636 725,314
========= =======
The Company has two long-term Revolving Credit Facilities (the "Revolvers")
available which, as at March 31, 2001, provided for borrowings of up to $555.8
million. Interest payments are based on LIBOR (March 31, 2001: 4.88%; December
31, 2000: 6.40%) plus a margin depending on the financial leverage of the
Company; at March 31, 2001 the margins ranged between 0.50% and 0.85% (December
31, 2000: 0.50% and 0.85%). The amount available under the Revolvers reduces
semi-annually with final balloon reductions in 2006 and 2008. The Revolvers are
collateralized by first priority mortgages granted on 33 of the Company's
vessels, together with certain other related collateral, and a guarantee from
Teekay for all amounts outstanding under the Revolvers.
The 8.32% First Preferred Ship Mortgage Notes due February 1, 2008 (the
"8.32% Notes") are collateralized by first preferred mortgages on seven of the
Company's Aframax tankers, together with
F-8
115
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
(INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED)
certain other related collateral, and are guaranteed by seven subsidiaries of
the Company 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, 2001, the fair value of these net assets approximated $233.9 million.
The 8.32% Notes are also subject to a sinking fund, which will retire $45.0
million principal amount of the 8.32% Notes on each February 1, commencing 2004.
Condensed financial information regarding the Company, the 8.32% Notes
Guarantor Subsidiaries, and non-guarantor subsidiaries of the Company is set out
in Schedule A of these consolidated financial statements.
The Company has several term loans outstanding, which, as at March 31,
2001, totalled $494.6 million. Interest payments are based on LIBOR plus a
margin. As at March 31, 2001, the margins ranged between 0.50% and 1.50%. The
term loans reduce in quarterly or semi-annual payments with varying maturities
through 2009. All term loans of the Company are collateralized by first
preferred mortgages on the vessels to which the loans relate, together with
certain other collateral, and guarantees from Teekay. Term loans of UNS are not
guaranteed by Teekay.
8. CAPITAL STOCK
The authorized capital stock of the Company at March 31, 2001 is 25,000,000
shares of Preferred Stock, with a par value of $1 per share, and 725,000,000
shares of Common Stock with a par value of $0.001 per share. As at March 31,
2001, the Company had 39,401,597 shares of Common Stock and no shares of
Preferred Stock issued and outstanding.
As at March 31, 2001, the Company had reserved 4,655,497 shares of Common
Stock for issuance upon exercise of options granted pursuant to the Company's
1995 Stock Option Plan. As at March 31, 2001, options to purchase a total of
3,401,720 shares of the Company's Common Stock were outstanding, of which
1,196,227 options were then exercisable at prices ranging from $16.875 to $33.50
per share and a weighted average exercise price of $23.74 per share. The
remaining outstanding options have exercise prices ranging from $16.875 to
$41.19 per share and a weighted average exercise price of $26.67 per share. All
outstanding options expire between July 19, 2005 and March 15, 2011, ten years
after the date of each respective grant.
The Company's basic earnings per share is based upon the following weighted
average number of common shares outstanding: 39,229,776 shares for the
three-month period ended March 31, 2001; and 38,069,614 shares for the
three-month period ended March 31, 2000. Diluted earnings per share is based
upon the following weighted average number of common shares outstanding adjusted
for the effect of dilution: 40,339,978 shares for the three-month period ended
March 31, 2001; and 38,255,512 shares for the three-month period ended March 31,
2000.
9. COMMITMENTS AND CONTINGENCIES
As at March 31, 2001, UNS was committed to the construction of three
newbuilding shuttle tankers, having an aggregate cost of $160.8 million. A joint
venture company, 50%-owned by UNS, was committed to the construction of one
additional newbuilding shuttle tanker, having a cost of approximately $63.4
million. The newbuilding vessels are scheduled for delivery between May 2001 and
September 2003. As of March 31, 2001, there have been payments made towards
these commitments of $60.8 million (including $18.9 million made by the
50%-owned joint venture) and long-term financing arrangements exist for $122.3
million (including $44.5 million for the 50%-owned joint venture) of the
F-9
116
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
(INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED)
unpaid cost of these vessels. It is the Company's intention to finance the
remaining unpaid amount of $41.1 million through either additional debt
borrowings or surplus cash balances, or a combination thereof. The remaining
payments required to be made under these newbuilding contracts are as follows:
$67.0 million in 2001, $43.3 million in 2002 and $53.1 million in 2003. Of the
$67.0 million due in 2001, $44.5 million will be paid by the 50%-owned joint
venture.
The Company has guaranteed its share of the outstanding mortgage debt in
the joint venture companies Soponata-Teekay Limited, P/R Stena Ugland
Shuttletankers I DA, and P/R Stena Ugland Shuttletankers II DA, which are
50%-owned by the Company. As of March 31, 2001, the Company has guaranteed $92.8
million of such debt, or 50% of the total $185.6 million in outstanding mortgage
debt of the joint venture companies. These joint venture companies together own
five vessels (one Aframax, two Suezmax, and two shuttle tankers).
The Company has guaranteed its share of committed, uncalled capital in
certain limited partnerships, which own two of the Company's oil/bulk/ore
carriers. As at March 31, 2001, the Company has guaranteed $1.7 million of such
capital.
10. OTHER INCOME (LOSS)
THREE MONTHS ENDED
MARCH 31,
---------------------
2001 2000
------ ------
$ $
Loss on disposition of vessels and equipment................ -- (1,009)
Gain on disposition of available-for-sale securities........ 2,707 --
Equity income from joint ventures........................... 2,793 819
Future income taxes......................................... (671) (500)
Miscellaneous............................................... (3,893) (402)
------ ------
936 (1,092)
====== ======
11. DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities", which establishes new
standards for recording derivatives in interim and annual financial statements.
This statement requires the recording of all derivative instruments as assets or
liabilities, measured at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
upon the nature of the hedge, changes in the fair value of the derivatives are
either offset against the fair value of assets, liabilities or firm commitments
through income, or recognized in other comprehensive income until the hedged
item is recognized into income. The ineffective portion of a derivative's change
in fair value will be immediately recognized into income. SFAS 133, as amended
by Statements of Financial Accounting Standards No. 137 and No. 138, is
effective for fiscal years beginning after June 15, 2000.
The Company adopted SFAS 133 on January 1, 2001. The Company recognized the
fair value of its derivatives as assets of $2.2 million and liabilities of $1.3
million on its consolidated balance sheet as of January 1, 2001. These amounts
were recorded as a cumulative effect of an accounting change as an adjustment to
stockholders' equity through other comprehensive income. There was no impact on
net
F-10
117
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
(INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED)
income. In addition, a deferred gain of $3.2 million on unwound interest rate
swap agreements presented as other long-term liabilities at December 31, 2000,
was reclassified to accumulated other comprehensive income and will be
recognized into earnings over the hedged term of the debt.
The Company only used derivatives for hedging purposes. The following
summarizes the Company's risk strategies with respect to market risk from
foreign currency fluctuations and changes in interest rates and the effect of
these strategies on the Company's financial statements. The Company has a
foreign currency cash flow hedging program to protect against the increase in
cost of certain forecasted foreign currency cash flows resulting from voyage,
vessel operating, drydocking and general and administrative expenditures that
have been forecasted to occur over the next three years. The Company hedges
portions of its forecasted expenditures denominated in foreign currencies with
forward contracts. As at March 31, 2001, the Company was committed to foreign
exchange contracts for the forward purchase of approximately Japanese Yen 100.0
million, Singapore Dollars 11.6 million, Norwegian Kroner 137.7 million,
Canadian Dollars 46.2 million and Euros 5.4 million for U.S. Dollars, at an
average rate of Japanese Yen 119.5 per U.S. Dollar, Singapore Dollar 1.72 per
U.S. Dollar, Norwegian Kroner 9.44 per U.S. Dollar, Canadian Dollar 1.54 per
U.S. Dollar and Euros 1.09 per U.S. Dollar, respectively.
As at March 31, 2001, the Company was committed to a series of interest
rate swap agreements whereby $145.0 million of the Company's floating rate debt
was swapped with fixed rate obligations having a weighted average remaining term
of 1.3 years, expiring between December 2001 and May 2004. These agreements
effectively change the Company's interest rate exposure on $145.0 million of
debt from a floating LIBOR rate to an average fixed rate of 6.46%. 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.
During the three-month period ended March 31, 2001, the Company recognized
a net loss of $0.5 million relating to the ineffective portion of its foreign
currency forward contracts and $0.1 million relating to the ineffective portion
of its interest rate swap agreements. The ineffective portion of the foreign
currency forward contracts and interest rate swap agreements are presented as
other income (loss) and interest expense, respectively.
As at March 31, 2001, the Company estimates, based on current foreign
exchange and interest rates, that it will reclassify $0.1 million of net loss on
derivative instruments from accumulated other comprehensive income to earnings
during the next twelve months due to actual voyage, vessel operating, drydocking
and general and administrative expenditures and the payment of interest expense
associated with the floating-rate debt.
12. SUBSEQUENT EVENTS
On April 2, 2001, the Company, through its subsidiary UNS, purchased four
shuttle tankers for $95.0 million. The purchase was financed with long-term debt
borrowings bearing interest at LIBOR plus 1.25% due April 2006.
On April 25, 2001, a joint venture in which the Company owns a 50%
interest, entered into an agreement to sell its three vessels. The vessels are
scheduled for delivery between July 15, 2001 and August 30, 2001.
F-11
118
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA)
(INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS
ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED)
On April 26, 2001, the Company purchased an additional 34% interest in UNS
for $75.2 million cash, or at a price of Norwegian Kroner 140 per share, to
bring the Company's total ownership in UNS to approximately 98%. The Company
intends to commence a compulsory acquisition of the remaining shares held by
minority shareholders, with a view to applying for a delisting of the UNS shares
from the Oslo Stock Exchange soon thereafter.
F-12
119
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Net voyage revenues................... -- 8,781 276,534 (40,159) 245,156
Operating expenses.................... 2,793 8,740 118,047 (40,159) 89,421
------- ------- ------- -------- -------
(Loss) income from vessel
operations........................ (2,793) 41 158,487 0 155,735
Net interest expense.................. (2,746) -- (9,237) -- (11,983)
Equity in net income of
subsidiaries........................ 147,858 -- -- (147,858) --
Other income.......................... 2,369 -- (1,433) -- 936
------- ------- ------- -------- -------
NET INCOME............................ 144,688 41 147,817 (147,858) 144,688
Retained earnings (deficit), beginning
of the period....................... 641,149 (18,969) 671,069 (652,100) 641,149
Adjustment for equity income on step
acquisition......................... 198 -- -- -- 198
Dividends declared.................... (8,417) -- -- -- (8,417)
------- ------- ------- -------- -------
RETAINED EARNINGS (DEFICIT), END OF
THE PERIOD.......................... 777,618 (18,928) 818,886 (799,958) 777,618
======= ======= ======= ======== =======
THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Net voyage revenues................... -- 9,257 147,888 (37,078) 120,067
Operating expenses.................... 142 7,952 104,722 (30,517) 82,299
------- ------- ------- -------- -------
(Loss) income from vessel
operations........................ (142) 1,305 43,166 (6,561) 37,768
Net interest (expense) income......... (4,761) 46 (12,021) -- (16,736)
Equity in net income of
subsidiaries........................ 24,843 -- -- (24,843) --
Other loss............................ -- -- (1,092) -- (1,092)
------- ------- ------- -------- -------
NET INCOME............................ 19,940 1,351 30,053 (31,404) 19,940
Retained earnings (deficit), beginning
of the period....................... 404,130 (28,950) 369,370 (340,420) 404,130
Dividends declared.................... (8,184) -- -- -- (8,184)
------- ------- ------- -------- -------
RETAINED EARNINGS (DEFICIT), END OF
THE PERIOD.......................... 415,886 (27,599) 399,423 (371,824) 415,886
======= ======= ======= ======== =======
- ---------------
(See Note 7)
F-13
120
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Net income............................ 144,688 41 147,817 (147,858) 144,688
Other comprehensive income
Unrealized loss on
available-for-sale securities..... -- -- (1,503) -- (1,503)
Reclassification adjustment for gain
on available-for-sale securities
included in net income............ -- -- (4,946) -- (4,946)
Cumulative effect of accounting
change............................ -- -- 4,155 -- 4,155
Unrealized loss on derivative
instruments....................... -- -- (3,314) -- (3,314)
Reclassification adjustment for gain
on derivative instruments......... -- -- (390) -- (390)
------- ----- ------- -------- -------
COMPREHENSIVE INCOME.................. 144,688 41 141,819 (147,858) 138,690
======= ===== ======= ======== =======
THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Net income............................ 19,940 1,351 30,053 (31,404) 19,940
Other comprehensive income............ -- -- -- -- --
------- ----- ------- -------- -------
COMPREHENSIVE INCOME.................. 19,940 1,351 30,053 (31,404) 19,940
======= ===== ======= ======== =======
- ---------------
(See Note 7)
F-14
121
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
AS AT MARCH 31, 2001
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
ASSETS
Cash and cash equivalents............. 188 -- 296,752 -- 296,940
Other current assets.................. 1,146 736 204,756 (96,000) 110,638
--------- ------- --------- ---------- ---------
Total current assets................ 1,334 736 501,508 (96,000) 407,578
Vessels and equipment (net)........... -- 276,076 1,668,132 -- 1,944,208
Advances due from subsidiaries........ 77,002 -- -- (77,002) --
Other assets (principally marketable
securities and investments in
subsidiaries)....................... 1,352,411 10 61,326 (1,352,421) 61,326
Investment in joint venture........... -- -- 46,402 -- 46,402
Goodwill.............................. -- -- 58,818 -- 58,818
--------- ------- --------- ---------- ---------
1,430,747 276,822 2,336,186 (1,525,423) 2,518,332
========= ======= ========= ========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities................... 5,250 1,506 281,634 (96,000) 192,390
Long-term debt........................ 189,274 -- 834,920 -- 1,024,194
Due to (from) affiliates.............. -- (75,086) 192,512 (117,427) --
--------- ------- --------- ---------- ---------
Total liabilities................... 194,524 (73,580) 1,309,066 (213,427) 1,216,584
--------- ------- --------- ---------- ---------
Minority Interest..................... -- -- 66,968 -- 66,968
Stockholders' Equity
Capital stock......................... 458,605 23 5,943 (5,966) 458,605
Contributed capital................... -- 369,307 136,766 (506,073) --
Retained earnings (deficit)........... 777,618 (18,928) 818,886 (799,957) 777,618
Accumulated other comprehensive loss.. -- -- (1,443) -- (1,443)
--------- ------- --------- ---------- ---------
Total stockholders' equity.......... 1,236,223 350,402 960,152 (1,311,996) 1,234,780
--------- ------- --------- ---------- ---------
1,430,747 276,822 2,336,186 (1,525,423) 2,518,332
========= ======= ========= ========== =========
- ---------------
(See Note 7)
F-15
122
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
AS AT DECEMBER 31, 2000
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
ASSETS
Cash and cash equivalents............. 294 -- 181,006 -- 181,300
Other current assets.................. 45 725 209,425 (96,000) 114,195
--------- ------- --------- ---------- ---------
Total current assets................ 339 725 390,431 (96,000) 295,495
Vessels and equipment (net)........... -- 281,377 1,326,339 -- 1,607,716
Advances due from subsidiaries........ 58,068 -- -- (58,068) --
Other assets (principally marketable
securities and investments in
subsidiaries)....................... 1,229,756 -- 50,414 (1,229,756) 50,414
Investment in joint venture........... -- -- 20,474 -- 20,474
--------- ------- --------- ---------- ---------
1,288,163 282,102 1,787,658 (1,383,824) 1,974,099
========= ======= ========= ========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities................... 4,932 1,371 228,032 (96,000) 138,335
Long-term debt........................ 189,274 -- 543,408 -- 732,682
Due to (from) affiliates.............. -- (69,630) 193,315 (123,685) --
--------- ------- --------- ---------- ---------
Total liabilities................... 194,206 (68,259) 964,755 (219,685) 871,017
--------- ------- --------- ---------- ---------
Minority Interest..................... -- -- 4,570 -- 4,570
Stockholders' Equity
Capital stock......................... 452,808 23 5,943 (5,966) 452,808
Contributed capital................... -- 369,307 136,766 (506,073) --
Retained earnings (deficit)........... 641,149 (18,969) 671,069 (652,100) 641,149
Accumulated other comprehensive
income.............................. -- -- 4,555 -- 4,555
--------- ------- --------- ---------- ---------
Total stockholders' equity.......... 1,093,957 350,361 818,333 (1,164,139) 1,098,512
--------- ------- --------- ---------- ---------
1,288,163 282,102 1,787,658 (1,383,824) 1,974,099
========= ======= ========= ========== =========
- ---------------
(See Note 7)
F-16
123
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Cash and cash equivalents provided by
(used for)..........................
------- ------ ------- -------- -------
OPERATING ACTIVITIES
Net cash flow from operating
activities........................ 21,250 6,139 137,123 -- 164,512
------- ------ ------- -------- -------
FINANCING ACTIVITIES
Proceeds from long-term debt.......... -- -- 143,500 -- 143,500
Scheduled repayments of long-term
debt................................ -- -- (5,790) -- (5,790)
Prepayments of long-term debt......... -- -- (92,118) -- (92,118)
Other................................. (21,555) (6,016) 24,951 -- (2,620)
------- ------ ------- -------- -------
Net cash flow from financing
activities........................ (21,555) (6,016) 70,543 -- 42,972
------- ------ ------- -------- -------
INVESTING ACTIVITIES
Expenditures for vessels and
equipment........................... -- (114) (3,520) -- (3,634)
Expenditure for the purchase of Ugland
Nordic Shipping ASA................. 199 -- (97,343) -- (97,144)
Other................................. -- (9) 8,943 -- 8,934
------- ------ ------- -------- -------
Net cash flow from investing
activities........................ 199 (123) (91,920) -- (91,844)
------- ------ ------- -------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................... (106) -- 115,746 -- 115,640
Cash and cash equivalents, beginning
of the period....................... 294 -- 181,006 -- 181,300
------- ------ ------- -------- -------
CASH AND CASH EQUIVALENTS, END OF THE
PERIOD.............................. 188 -- 296,752 -- 296,940
======= ====== ======= ======== =======
- ---------------
(See Note 7)
F-17
124
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Cash and cash equivalents provided by
(used for)..........................
------- ------ ------- -------- -------
OPERATING ACTIVITIES
Net cash flow from operating
activities........................ (9,679) 5,101 44,803 -- 40,225
------- ------ ------- -------- -------
FINANCING ACTIVITIES
Scheduled repayments of long-term
debt................................ -- -- (606) -- (606)
Prepayments of long-term debt......... -- -- (10,000) -- (10,000)
Other................................. 9,626 2 (16,908) -- (7,280)
------- ------ ------- -------- -------
Net cash flow from financing
activities........................ 9,626 2 (27,514) -- (17,886)
------- ------ ------- -------- -------
INVESTING ACTIVITIES
Expenditures for vessels and
equipment........................... -- (113) (2,937) -- (3,050)
Proceeds from disposition of assets... -- -- 9,705 -- 9,705
Acquisition costs related to purchase
of Bona Shipholding Ltd............. -- -- (1,716) -- (1,716)
Other................................. -- -- (8,911) -- (8,911)
------- ------ ------- -------- -------
Net cash flow from investing
activities........................ -- (113) (3,859) -- (3,972)
------- ------ ------- -------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................... (53) 4,990 13,430 -- 18,367
Cash and cash equivalents, beginning
of the period....................... 210 39,652 180,465 -- 220,327
------- ------ ------- -------- -------
CASH AND CASH EQUIVALENTS, END OF THE
PERIOD.............................. 157 44,642 193,895 -- 238,694
======= ====== ======= ======== =======
- ---------------
(See Note 7)
F-18
125
AUDITOR'S REPORT
To the Board of Directors of
TEEKAY SHIPPING CORPORATION
We have audited the accompanying consolidated balance sheets of TEEKAY
SHIPPING CORPORATION AND SUBSIDIARIES as of December 31, 2000 and 1999, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the year ended December 31, 2000, the nine month period ended
December 31, 1999 and the year ended March 31, 1999. Our audits also included
Schedule 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 as at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for the year ended
December 31, 2000, the nine month period ended December 31, 1999 and the year
ended March 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material aspects the information set forth therein.
Nassau, Bahamas, /s/ ERNST & YOUNG
February 16, 2001 Chartered Accountants
(except for note 13 which is as of March 6, 2001)
F-19
126
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
2000 1999 1999
------------ ----------------- ----------
$ $ $
NET VOYAGE REVENUES
Voyage revenues................................ 893,226 377,882 411,922
Voyage expenses................................ 248,957 129,532 93,511
------- ------- -------
Net voyage revenues............................ 644,269 248,350 318,411
------- ------- -------
OPERATING EXPENSES
Vessel operating expenses...................... 125,415 98,780 84,397
Time charter hire expense...................... 53,547 30,681 29,666
Depreciation and amortization.................. 100,153 68,299 93,712
General and administrative..................... 37,479 27,018 25,002
------- ------- -------
316,594 224,778 232,777
------- ------- -------
INCOME FROM VESSEL OPERATIONS.................. 327,675 23,572 85,634
------- ------- -------
OTHER ITEMS
Interest expense............................... (74,540) (44,996) (44,797)
Interest income................................ 13,021 5,842 6,369
Other income (loss) (note 11).................. 3,864 (4,013) 5,506
------- ------- -------
(57,655) (43,167) (32,922)
------- ------- -------
Net income (loss) before extraordinary loss.... 270,020 (19,595) 52,712
Extraordinary loss on bond redemption (note
6)........................................... -- -- (7,306)
------- ------- -------
NET INCOME (LOSS).............................. 270,020 (19,595) 45,406
======= ======= =======
BASIC EARNINGS PER COMMON SHARE (note 9)
- - Net income (loss) before extraordinary
loss......................................... 7.02 (0.54) 1.70
- - Net income (loss)............................ 7.02 (0.54) 1.46
DILUTED EARNINGS PER COMMON SHARE (note 9)
- - Net income (loss) before extraordinary
loss......................................... 6.86 (0.54) 1.70
- - Net income (loss)............................ 6.86 (0.54) 1.46
The accompanying notes are an integral part of the consolidated financial
statements.
F-20
127
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
AS AT AS AT
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
$ $
ASSETS
CURRENT
Cash and cash equivalents............................... 181,300 220,327
Marketable securities (note 4).......................... 8,081 --
Accounts receivable..................................... 80,158 30,753
Prepaid expenses and other assets....................... 25,956 29,579
--------- ---------
TOTAL CURRENT ASSETS.................................... 295,495 280,659
--------- ---------
Marketable securities (note 4).......................... 33,742 6,054
VESSELS AND EQUIPMENT (notes 1 and 6)
At cost, less accumulated depreciation of $680,756
(December 31, 1999 -- $624,727)....................... 1,607,716 1,663,517
Investment in joint venture............................. 20,474 19,402
Other assets............................................ 16,672 13,052
--------- ---------
1,974,099 1,982,684
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable........................................ 22,084 20,431
Accrued liabilities (note 5)............................ 44,081 39,515
Current portion of long-term debt (note 6).............. 72,170 66,557
--------- ---------
TOTAL CURRENT LIABILITIES............................... 138,335 126,503
--------- ---------
Long-term debt (note 6)................................. 725,314 1,018,610
Other long-term liabilities............................. 7,368 3,400
--------- ---------
TOTAL LIABILITIES....................................... 871,017 1,148,513
--------- ---------
MINORITY INTEREST....................................... 4,570 2,104
STOCKHOLDERS' EQUITY
Capital stock (note 9).................................. 452,808 427,937
Retained earnings....................................... 641,149 404,130
Accumulated other comprehensive income.................. 4,555 --
--------- ---------
TOTAL STOCKHOLDERS' EQUITY.............................. 1,098,512 832,067
--------- ---------
1,974,099 1,982,684
========= =========
Commitments and contingencies (notes 7 and 10)
The accompanying notes are an integral part of the consolidated financial
statements.
F-21
128
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999 MARCH 31, 1999
----------------- ----------------- --------------
$ $ $
Cash and cash equivalents provided by
(used for)
OPERATING ACTIVITIES
Net income (loss)....................... 270,020 (19,595) 45,406
Non-cash items:
Depreciation and amortization........... 100,153 68,299 93,712
Loss (gain) on disposition of assets.... 1,004 -- (7,117)
Loss on bond redemption................. -- -- 7,306
Equity income (net of dividends
received: December 31, 2000 -- $8,474;
December 31, 1999 -- $Nil)............ (1,072) (721) --
Future income taxes..................... 999 1,500 1,900
Other -- net............................ (1,173) 1,134 1,218
Change in non-cash working capital items
related to operating activities (note
12)................................... (36,676) 896 (4,717)
-------- ------- --------
NET CASH FLOW FROM OPERATING
ACTIVITIES............................ 333,255 51,513 137,708
-------- ------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt............ 206,000 100,000 230,000
Scheduled repayments of long-term
debt.................................. (63,757) (32,252) (50,577)
Prepayments of long-term debt........... (429,926) (10,000) (268,034)
Net proceeds from issuance of Common
Stock................................. 24,843 -- 68,751
Cash dividends paid..................... (32,973) (23,150) (26,222)
Other................................... 2,970 -- (690)
-------- ------- --------
NET CASH FLOW FROM FINANCING
ACTIVITIES............................ (292,843) 34,598 (46,772)
-------- ------- --------
INVESTING ACTIVITIES
Expenditures for vessels and
equipment............................. (43,512) (23,313) (85,445)
Expenditures for drydocking............. (11,941) (6,598) (11,749)
Proceeds from disposition of assets..... 9,713 -- 23,435
Net cash acquired through purchase of
Bona Shipholding Ltd. (note 3)........ -- 51,774 --
Acquisition costs related to purchase of
Bona Shipholding Ltd. (note 3)........ (2,685) (13,806) --
Proceeds on sale of available-for-sale
securities............................ -- 13,724 13,305
Purchases of available-for-sale
securities............................ (31,014) (6,000) --
-------- ------- --------
NET CASH FLOW FROM INVESTING
ACTIVITIES............................ (79,439) 15,781 (60,454)
-------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................... (39,027) 101,892 30,482
Cash and cash equivalents, beginning of
the period............................ 220,327 118,435 87,953
-------- ------- --------
CASH AND CASH EQUIVALENTS, END OF THE
PERIOD................................ 181,300 220,327 118,435
======== ======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-22
129
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF U.S. DOLLARS)
ACCUMULATED
THOUSANDS OF OTHER COMPREHENSIVE TOTAL
COMMON COMMON RETAINED COMPREHENSIVE INCOME STOCKHOLDERS'
SHARES STOCK EARNINGS INCOME (LOSS) EQUITY
------------ ------- -------- ------------- ------------- -------------
# $ $ $ $ $
BALANCE AS AT MARCH 31, 1998........... 28,833 261,353 428,102 -- 689,455
------ ------- ------- ----- ---------
Net income............................. 45,406 45,406 45,406
Other comprehensive income............. --
-------
Comprehensive income................... 45,406
-------
Dividends declared..................... (26,611) (26,611)
June 15, 1998 share offering (2,800,000
shares at $24.7275 per share of
common stock net of share issue
costs) (note 9)...................... 2,800 68,700 68,700
Reinvested dividends................... 13 389 389
Exercise of stock options.............. 2 51 51
------ ------- ------- ----- ---------
BALANCE AS AT MARCH 31, 1999........... 31,648 330,493 446,897 -- 777,390
------ ------- ------- ----- ---------
Net income (loss)...................... (19,595) (19,595) (19,595)
Other comprehensive income............. --
-------
Comprehensive income (loss)............ (19,595)
-------
Dividends declared..................... (23,172) (23,172)
June 11, 1999 common stock issued on
acquisition of Bona Shipholding Ltd.
(note 3)............................. 6,415 97,422 97,422
Reinvested dividends................... 1 22 22
------ ------- ------- ----- ---------
BALANCE AS AT DECEMBER 31, 1999........ 38,064 427,937 404,130 -- 832,067
------ ------- ------- ----- ---------
Net income............................. 270,020 270,020 270,020
Other comprehensive income:
Unrealized gain on available-for-sale
securities (note 4) 4,555 4,555 4,555
-------
Comprehensive income................... 274,575
-------
Dividends declared..................... (33,001) (33,001)
Reinvested dividends................... 1 28 28
Exercise of stock options.............. 1,080 24,843 24,843
------ ------- ------- ----- ---------
BALANCE AS AT DECEMBER 31, 2000........ 39,145 452,808 641,149 4,555 1,098,512
====== ======= ======= ===== =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-23
130
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. They include the
accounts of Teekay Shipping Corporation ("Teekay"), which is incorporated under
the laws of the Republic of the Marshall Islands, and its wholly owned or
controlled subsidiaries (the "Company"). Significant intercompany items and
transactions have been eliminated upon consolidation.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Certain of the comparative figures have been reclassified to conform with
the presentation adopted in the current period.
REPORTING CURRENCY
The consolidated financial statements are stated in U.S. dollars because
the Company operates in international shipping markets which utilize the U.S.
dollar as the functional currency.
CHANGE IN FISCAL YEAR END
The Company changed its fiscal year end from March 31 to December 31,
effective December 31, 1999. The following is a summary of selected financial
information for the comparative twelve month periods ended December 31, 2000,
1999 and 1998.
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
$ $ $
RESULTS OF OPERATIONS
Net voyage revenues............................ 644,269 318,348 327,016
Income from vessel operations.................. 327,675 34,189 103,660
Net income (loss) before extraordinary loss.... 270,020 (17,723) 66,451
Net income (loss).............................. 270,020 (17,723) 59,145
Net income (loss) before extraordinary loss per
common share
-- basic..................................... 7.02 (0.50) 2.19
-- diluted................................... 6.86 (0.50) 2.19
Net income (loss) per common share
-- basic..................................... 7.02 (0.50) 1.95
-- diluted................................... 6.86 (0.50) 1.95
CASH FLOWS
Net cash flow from operating activities........ 333,255 71,633 151,779
Net cash flow from financing activities........ (292,843) 76,948 (74,407)
Net cash flow from investing activities........ (79,439) 5,613 (127,372)
F-24
131
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
PER SHARE DATA)
OPERATING REVENUES AND EXPENSES
Voyage revenues and expenses are recognized on the percentage of completion
method of accounting. Effective December 31, 1999 the Company refined its
estimation process from a load-to-load basis to a discharge-to-discharge basis
under the percentage of completion method to more precisely reflect net voyage
revenues. This refinement in accounting estimate resulted in a one-time increase
in net voyage revenues of $5.7 million, or 16 cents per share, for the nine
month period ended December 31, 1999.
Estimated losses on voyages are provided for in full at the time such
losses become evident. The consolidated balance sheets reflect the deferred
portion of revenues and expenses applicable to subsequent periods.
Voyage expenses comprise all expenses relating to particular voyages,
including bunker fuel expenses, port fees, canal tolls, and brokerage
commissions. Vessel operating expenses comprise all expenses relating to the
operation of vessels, including crewing, repairs and maintenance, insurance,
stores, lubes, communications, and miscellaneous expenses.
MARKETABLE SECURITIES
The Company's investments in marketable securities are classified as
available-for-sale securities and are carried at fair value. Net unrealized
gains or losses on available-for-sale securities, if material, are reported as a
component of other comprehensive income.
VESSELS AND EQUIPMENT
All pre-delivery costs incurred during the construction of newbuildings,
including interest costs and supervision and technical costs, are capitalized.
The acquisition cost and all costs incurred to restore used vessel purchases to
the standard required to properly service the Company's customers are
capitalized. Depreciation is calculated on a straight-line basis over a vessel's
useful life from the date a vessel is initially placed in service.
Effective April 1, 1999, the Company revised the estimated useful life of
its vessels from 20 years to 25 years, consistent with most other public tanker
companies. This change in accounting estimate resulted in a reduction of
depreciation expense of $22.5 million, or 62 cents per share, for the nine month
period ended December 31, 1999.
Interest costs capitalized to vessels and equipment for the year ended
December 31, 2000, the nine month period ended December 31, 1999 and the year
ended March 31, 1999 aggregated $Nil, $1,710,000, and $3,018,000, 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 year ended December
31, 2000, the nine month period ended December 31, 1999 and the year ended March
31, 1999 aggregated $9,208,000, $6,275,000, and $8,583,000, respectively.
INVESTMENT IN JOINT VENTURE
The Company has a 50% participating interest in the joint venture
(Soponata-Teekay Limited) which owns two Suezmax vessels and one Aframax vessel.
The joint venture is accounted for using the
F-25
132
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
PER SHARE DATA)
equity method whereby the investment is carried at the Company's original cost
plus its proportionate share of undistributed earnings.
INVESTMENT IN THE PANAMAX O/B/O POOL
All oil/bulk/ore carriers ("O/B/O") owned by the Company are operated
through a Panamax O/B/O Pool. The participants in the Pool are the companies
contributing vessel capacity to the Pool. The voyage revenues and expenses of
these vessels have been included on a 100% basis in the consolidated financial
statements. The minority pool participants' share of the result has been
deducted as time charter hire expense.
LOAN COSTS
Loan costs, including fees, commissions and legal expenses, which are
presented as other assets are capitalized and amortized on a straight line basis
over the term of the relevant loan. Amortization of loan costs is included in
interest expense.
INTEREST RATE SWAP AGREEMENTS
The differential to be paid or received, pursuant to interest rate swap
agreements, is accrued as interest rates change and is recognized as an
adjustment to interest expense. Premiums and receipts, if any, are recognized as
adjustments to interest expense over the lives of the individual contracts.
FORWARD CONTRACTS
The Company enters into forward contracts as a hedge against changes in
certain foreign exchange rates. Market value gains and losses are deferred and
recognized during the period in which the hedged transaction is recorded in the
accounts.
CASH AND CASH EQUIVALENTS
The Company classifies all highly liquid investments with a maturity date
of three months or less when purchased as cash and cash equivalents.
Cash interest paid during the year ended December 31, 2000, the nine month
period ended December 31, 1999 and the year ended March 31, 1999 totaled
$77,073,000, $63,086,000, and $48,527,000, respectively.
INCOME TAXES
The legal jurisdictions of the countries in which Teekay and the majority
of its subsidiaries are incorporated do not impose income taxes upon
shipping-related activities. The Company's Australian ship-owning subsidiaries
are subject to income taxes (see Note 11). The Company accounts for such taxes
using the liability method pursuant to Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes".
ACCOUNTING FOR STOCK-BASED COMPENSATION
Under Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation", disclosures of stock-based
compensation arrangements with employees are required and companies are
encouraged (but not required) to record compensation costs associated with
employee stock option awards, based on estimated fair values at the grant dates.
The
F-26
133
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
PER SHARE DATA)
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in APB Opinion No. 25 ("APB 25") "Accounting
for Stock Issued to Employees" and has disclosed the required pro forma effect
on net income and earning per share as if the fair value method of accounting as
prescribed in SFAS 123 had been applied (see Note 9).
COMPREHENSIVE INCOME
The Company follows Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting and
displaying comprehensive income and its components in the consolidated financial
statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
establishes new standards for recording derivatives in interim and annual
financial statements. This statement requires recording all derivative
instruments as assets or liabilities, measured at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending upon the nature of the hedge, changes in the fair value of
the derivatives are either offset against the fair value of assets, liabilities
or firm commitments through income, or recognized in other comprehensive income
until the hedged item is recognized in income. The ineffective portion of a
derivative's change in fair value will be immediately recognized in income.
Statement No. 133, as amended by FASB Statements No. 137 and No. 138, is
effective for fiscal years beginning after June 15, 2000.
Based upon the Company's derivative position at December 31, 2000, the
Company estimates that upon adoption of Statement No. 133 it will recognize the
fair value of all derivatives as assets of $2,252,000 and liabilities of
$1,297,000 on its consolidated balance sheet. These amounts will be recorded as
an adjustment to stockholders' equity through other comprehensive income. There
will be no impact on net income. In addition, a deferred gain of $3,200,000 on
the unwound interest rate swap agreements presented as other long-term
liabilities at December 31, 2000, will be reclassified to accumulated other
comprehensive income and will be recognized into earnings over the hedged term
of the debt.
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.
Two customers, both international oil companies, individually accounted for
13% ($118,306,000) and 12% ($110,241,000) of the company's consolidated voyage
revenues during the year ended December 31, 2000. During the nine months ended
December 31, 1999, a single customer, also an international oil company,
accounted for 13% ($48,140,000) of the Company's consolidated voyage revenues.
During the year ended March 31, 1999, three customers, all international oil
companies, individually accounted for 12% ($51,411,000), 12% ($50,727,000) and
10% ($42,797,000), respectively, of the Company's consolidated voyage revenues.
No other customer accounted for more than 10% of the Company's consolidated
voyage revenues during the fiscal periods presented herein.
F-27
134
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
PER SHARE DATA)
3. ACQUISITION OF BONA SHIPHOLDING LTD.
On June 11, 1999, Teekay purchased Bona Shipholding Ltd. ("Bona") for
aggregate consideration (including estimated transaction expenses of $19.0
million) of $450.3 million, consisting of $39.9 million in cash, $294.0 million
of assumed debt (net of cash acquired of $91.7 million) and the balance of $97.4
million in shares of Teekay's Common Stock. Bona's operating results are
reflected in these financial statements commencing the effective date of the
acquisition.
The following table shows comparative summarized condensed pro forma
financial information for the nine month period ended December 31, 1999, and for
the year ended March 31, 1999 and gives effect to the acquisition as if it had
taken place April 1, 1998:
PRO FORMA
---------------------------
NINE MONTHS
ENDED YEAR ENDED
DECEMBER 31, MARCH 31,
1999 1999
------------ -----------
(UNAUDITED) (UNAUDITED)
$ $
Net voyage revenues......................................... 272,469 463,696
Income from vessel operations............................... 26,127 132,122
Net income (loss) before extraordinary loss................. (22,482) 86,505
Net income (loss)........................................... (22,482) 79,199
Net income (loss) before extraordinary loss per common share
-- basic and diluted...................................... (0.59) 2.31
Net income (loss) per common share
-- basic and diluted...................................... (0.59) 2.11
4. INVESTMENTS IN MARKETABLE SECURITIES
APPROXIMATE
GROSS GROSS MARKET AND
UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES VALUES
------ ---------- ---------- -----------
$ $ $ $
DECEMBER 31, 2000
Available-for-sale equity securities............. 17,032 4,577 -- 21,609
Available-for-sale debt securities............... 20,236 8 (30) 20,214
------ ----- --- ------
37,268 4,585 (30) 41,823
====== ===== === ======
DECEMBER 31, 1999
Available-for-sale debt securities............... 6,051 6 (3) 6,054
====== ===== === ======
F-28
135
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
PER SHARE DATA)
The cost and approximate market value of available-for-sale debt securities
by contractual maturity, as at December 31, 2000 and December 31, 1999, are
shown as follows:
APPROXIMATE
MARKET AND
CARRYING
COST VALUES
------ -----------
$ $
DECEMBER 31, 2000
Less than one year.......................................... 8,081 8,081
Due after one year through five years....................... 12,155 12,133
------ ------
20,236 20,214
====== ======
DECEMBER 31, 1999
Less than one year.......................................... -- --
Due after one year through five years....................... 6,051 6,054
------ ------
6,051 6,054
====== ======
5. ACCRUED LIABILITIES
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
$ $
Voyage and vessel........................................... 26,461 12,469
Interest.................................................... 9,444 12,619
Payroll and benefits........................................ 8,176 14,427
------ ------
44,081 39,515
====== ======
6. LONG-TERM DEBT
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
$ $
Revolving Credit Facilities................................. 415,800 634,000
First Preferred Ship Mortgage Notes (8.32%)
U.S. dollar debt due through 2008......................... 189,274 225,000
Term Loans U.S. dollar debt due through 2009................ 192,410 226,167
------- ---------
797,484 1,085,167
Less current portion........................................ 72,170 66,557
------- ---------
725,314 1,018,610
======= =========
The Company has two long-term Revolving Credit Facilities (the "Revolvers")
available, which, as at December 31, 2000, provided for borrowings of up to
$565.8 million. Interest payments are based on LIBOR (December 31, 2000: 6.4%;
December 31, 1999: 6.0%) plus a margin depending on the financial leverage of
the Company; at December 31, 2000, the margins ranged between 0.50% and 0.85%
(December 31, 1999: between 0.60% and 0.90%). The amount available under the
Revolvers reduces semi-annually with final balloon reductions in 2006 and 2008.
The Revolvers are collateralized
F-29
136
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
PER SHARE DATA)
by first priority mortgages granted on thirty-four of the Company's vessels,
together with certain other related collateral, and a guarantee from the Company
for all amounts outstanding under the Revolvers.
The 8.32% First Preferred Ship Mortgage Notes due February 1, 2008 (the
"8.32% Notes") are collateralized by first preferred mortgages on seven of the
Company's Aframax tankers, together with certain other related collateral, and
are guaranteed by seven subsidiaries of Teekay that own the mortgaged vessels
(the "8.32% Notes Guarantor Subsidiaries") to a maximum of 95% of the fair value
of their net assets. As at December 31, 2000, the fair value of these net assets
approximated $231.5 million. The 8.32% Notes are also subject to a sinking fund,
which will retire $45.0 million principal amount of the 8.32% Notes on each
February 1, commencing 2004. During June 2000, the Company repurchased a
principal amount of $35.7 million of the 8.32% Notes outstanding.
Upon the 8.32% Notes achieving Investment Grade Status (as defined in the
Indenture) 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 (as defined in the Indenture) 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.
Condensed financial information regarding the Company, the 8.32% Notes
Guarantor Subsidiaries, and non-guarantor subsidiaries of the Company is set out
in Schedule A of these consolidated financial statements.
In August 1998, the Company redeemed the remaining $98.7 million of the
9 5/8% First Preferred Ship Mortgage Notes (the "9 5/8% Notes") which resulted
in an extraordinary loss of $7.3 million, or 24 cents per share, for the year
ended March 31, 1999.
The Company has several term loans outstanding, which, as at December 31,
2000, totalled $192.4 million. Interest payments are based on LIBOR plus a
margin. At December 31, 2000, the margins ranged between 0.55% and 1.25%. The
term loans reduce in quarterly or semi-annual payments with varying maturities
through 2009. All term loans of the Company are collateralized by first
preferred mortgages on the vessels to which the loans relate, together with
certain other collateral, and guarantees from Teekay.
As at December 31, 2000, the Company was committed to a series of interest
rate swap agreements whereby $100.0 million of the Company's floating rate debt
was swapped with fixed rate obligations having an average remaining term of 1.5
years, expiring between December 2001 and December 2002. These arrangements
effectively change the Company's interest rate exposure on $100.0 million of
debt from a floating LIBOR rate to an average fixed rate of 6.71%. The Company
is exposed to credit loss in the event of non-performance by the counter parties
to the interest rate swap agreements; however, the Company does not anticipate
non-performance by any of the counter parties.
Among other matters, the long-term debt agreements generally provide for
such items as maintenance of certain vessel market value to loan ratios and
minimum consolidated financial covenants, prepayment privileges (in some cases
with penalties), and restrictions against the incurrence of additional debt and
new investments by the individual subsidiaries without prior lender consent. The
amount of Restricted Payments, as defined, that the Company can make, including
dividends and purchases of its own capital stock, is limited as of December 31,
2000, to $316.6 million. Certain of the loan agreements require a minimum level
of free cash be maintained. As at December 31, 2000, this amount was $26.0
million.
F-30
137
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
PER SHARE DATA)
The aggregate annual long-term debt principal repayments required to be
made for the five fiscal years subsequent to December 31, 2000 are $72,170,000
(2001), $70,017,000 (2002), $112,131,000 (2003), $94,052,000 (2004), and
$109,025,000 (2005).
7. LEASES
CHARTERS-OUT
Time charters to third parties of the Company's vessels are accounted for
as operating leases. The minimum future revenues to be received on time charters
currently in place are $82,791,000 (2001), $71,993,000 (2002), $53,199,000
(2003), $42,634,000 (2004), $39,035,000 (2005), and $93,028,000 thereafter.
The minimum future revenues should not be construed to reflect total
charter hire revenues for any of the years.
CHARTERS-IN
Minimum commitments under vessel operating leases are $32,576,000 (2001),
$15,632,000 (2002), $11,755,000 (2003), $6,771,000 (2004) and $1,665,000 (2005).
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of all financial instruments approximate fair market value
except for the following:
LONG-TERM DEBT -- The fair values of the Company's fixed rate long-term
debt are based on either quoted market prices or estimated using discounted cash
flow analyses, based on rates currently available for debt with similar terms
and remaining maturities.
INTEREST RATE SWAP AGREEMENTS AND FOREIGN EXCHANGE CONTRACTS -- The fair
value of interest rate swaps and foreign exchange contracts, used for hedging
purposes, is the estimated amount that the Company would receive or pay to
terminate the agreements at the reporting date, taking into account current
interest rates, the current credit worthiness of the swap counter parties and
foreign exchange rates.
The estimated fair value of the Company's financial instruments is as
follows:
DECEMBER 31, 2000 DECEMBER 31, 1999
------------------ ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- --------- ---------
$ $ $ $
Cash, cash equivalents and marketable
securities.................................... 223,123 223,123 226,381 226,381
Long-term debt.................................. 797,484 789,913 1,085,167 1,060,417
Interest rate swap agreements (note 6).......... -- (1,297) -- 4,488
Foreign currency contracts (note 10)............ -- 2,252 -- (20)
The Company transacts interest rate swap and foreign currency contracts
with investment grade rated financial institutions and requires no collateral
from these institutions.
F-31
138
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
PER SHARE DATA)
9. CAPITAL STOCK
The authorized capital stock of the Company at December 31, 2000 is
25,000,000 shares of Preferred Stock with a par value of $1 per share and
725,000,000 shares of Common Stock with a par value of $0.001 per share. At
December 31, 2000 the Company had 39,145,219 shares of Common Stock and no
shares of Preferred Stock issued and outstanding.
The Company's shareholders approved amendments to the Company's 1995 Stock
Option Plan (the "Plan") to increase the number of shares of Common Stock
reserved and available for future grants of options under the Plan by an
additional 1,800,000 shares in September 1998, and 2,350,000 shares in March
2000. As of December 31, 2000, the Company had reserved 4,911,622 shares of
Common Stock for issuance upon exercise of options granted pursuant to the Plan.
During the year ended December 31, 2000, the nine month period ended December
31, 1999 and the year ended March 31, 1999, the Company granted options under
the Plan to acquire up to 889,500, 1,463,500, and 573,000 shares of Common Stock
(the "Grants"), respectively, to certain eligible officers, employees (including
senior sea staff), and directors of the Company. The options have a 10-year term
and had initially vested equally over four years from the date of grant.
Effective September 8, 2000, the Company amended the Plan which reduced the
vesting period for all subsequent stock option grants from four years to three
years. In addition, the Company also accelerated the vesting period for the
existing grants by one year. The impact of the accelerated vesting for the
existing grants on compensation expense was not material for the year ended
December 31, 2000.
A summary of the Company's stock option activity, and related information
for the year ended December 31, 2000, the nine month period ended December 31,
1999 and the year ended March 31, 1999 is as follows:
DECEMBER 31, 2000 DECEMBER 31, 1999 MARCH 31, 1999
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
------- --------- ------- --------- ------- ---------
# $ # $ # $
Outstanding-beginning of period................. 3,099 22.14 1,729 26.46 1,161 26.66
Granted......................................... 889 23.56 1,464 17.11 573 26.05
Exercised....................................... (1,080) 23.00 -- -- (2) 21.50
Forfeited....................................... (48) 22.77 (94) 21.12 (3) 30.44
------ ----- -----
Outstanding-end of period....................... 2,860 22.25 3,099 22.14 1,729 26.46
====== ===== =====
Exercisable at end of period.................... 1,453 23.54 1,019 25.35 731 24.08
====== ===== =====
Weighted-average fair value of options granted
during the period (per option)................ 6.62 3.88 5.93
Exercise prices for the options outstanding as of December 31, 2000 ranged
from $16.88 to $33.50. These options have a weighted-average remaining
contractual life of 7.83 years.
As the exercise price of the Company's employee stock options equals the
market price of underlying stock on the date of grant, no compensation expense
is recognized under APB 25.
F-32
139
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
PER SHARE DATA)
Had the Company recognized compensation costs for the Grants consistent
with the methods recommended by SFAS 123 (see Note 1 -- Accounting for
Stock-Based Compensation), the Company's net income and earnings per share for
the year ended December 31, 2000, the nine month period ended December 31, 1999
and the year ended March 31, 1999 would have been stated at the pro forma
amounts as follows:
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
2000 1999 1999
------------ ------------ ----------
$ $ $
NET INCOME (LOSS):
As reported......................................... 270,020 (19,595) 45,406
Pro forma........................................... 264,449 (21,828) 43,715
BASIC EARNINGS (LOSS) PER COMMON SHARE:
As reported......................................... 7.02 (0.54) 1.46
Pro forma........................................... 6.87 (0.60) 1.41
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
As reported......................................... 6.86 (0.54) 1.46
Pro forma........................................... 6.72 (0.60) 1.41
Basic earnings per share is based upon the following weighted average
number of common shares outstanding: 38,468,158 shares for the year ended
December 31, 2000; 36,384,191 shares for the nine month period ended December
31, 1999; and 31,063,357 shares for the year ended March 31, 1999. Diluted
earnings per share, which gives effect to the aforementioned stock options, is
based upon the following weighted average number of common shares outstanding:
39,368,253 shares for the year ended December 31, 2000; 36,405,089 shares for
the nine month period ended December 31, 1999; and 31,063,357 shares for the
year ended March 31, 1999.
The fair values of the Grants were estimated on the dates of grant using
the Black-Scholes option-pricing model with the following assumptions: risk-free
average interest rates of 6.6% for the year ended December 31, 2000; 5.8% for
the nine month period ended December 31, 1999; and 5.4% for the year ended March
31, 1999, respectively; dividend yield of 3.0%; expected volatility of 30% for
the year ended December 31, 2000 and 25% for the nine months ended December 31,
1999 and the year ended March 31, 1999; and expected lives of 5 years.
10. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed 50% of the outstanding mortgage debt in the
joint venture company, Soponata-Teekay Limited, totalling $26.2 million as at
December 31, 2000.
The Company has guaranteed its share of committed, uncalled capital in
certain limited partnerships totalling $1.8 million as at December 31, 2000.
As at December 31, 2000, the Company was committed to foreign exchange
contracts with maturities ranging from one month to three years for the forward
purchase of approximately Japanese Yen 62.0 million, Singapore Dollars 13.9
million, Norwegian Kroner 132.0 million, Euros 5.9 million and Canadian Dollars
52.8 million for U.S. Dollars, at an average rate of Japanese Yen 111.72 per
U.S. Dollar, Singapore Dollar 1.72 per U.S. dollar, Norwegian Kroner 9.54 per
U.S. Dollar, Euros 1.09 per U.S. Dollar and Canadian Dollars 1.54 per U.S.
dollar, respectively, for the purpose of hedging accounts payable, accrued
liabilities and certain general and administrative and operating expenses.
F-33
140
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
PER SHARE DATA)
11. OTHER INCOME (LOSS)
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
2000 1999 1999
------------ ------------ ----------
$ $ $
Gain (loss) on disposition of assets................ (1,004) -- 7,117
Equity income from joint venture.................... 9,546 721 --
Future income taxes................................. (999) (1,500) (1,900)
Miscellaneous....................................... (3,679) (3,234) 289
------ ------ ------
3,864 (4,013) 5,506
====== ====== ======
12. CHANGE IN NON-CASH WORKING CAPITAL ITEMS RELATED TO OPERATING ACTIVITIES
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
2000 1999 1999
------------ ------------ ----------
$ $ $
Accounts receivable................................. (49,405) (5,462) 1,332
Prepaid expenses and other assets................... 3,443 307 (2,409)
Accounts payable.................................... 2,613 (6,571) (4,238)
Accrued liabilities................................. 6,673 12,622 598
------- ------ ------
(36,676) 896 (4,717)
======= ====== ======
13. SUBSEQUENT EVENT
As of March 6, 2001, the Company had purchased a 56% interest in Ugland
Nordic Shipping ASA ("UNS"), (9% of which was purchased in 2000), for
approximately $117 million cash, or an average price of approximately NOK 134
per share. UNS controls a modern fleet of eighteen shuttle tankers (including
four newbuildings) that engage in the transportation of oil from offshore
production platforms to refineries. Shares of UNS are listed on the Oslo Stock
Exchange.
The Company will promptly launch a mandatory bid for the remaining shares
in UNS at NOK 140 per share (for a total cost of approximately $100 million) as
required by Norwegian law.
The acquisition of UNS will be accounted for using the purchase method of
accounting as required by accounting principles generally accepted in the United
States.
F-34
141
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Net voyage revenues................... -- 35,137 776,291 (167,159) 644,269
Operating expenses.................... 420 25,202 433,578 (142,606) 316,594
------- ------- ------- -------- -------
(Loss) income from vessel
operations........................ (420) 9,935 342,713 (24,553) 327,675
Net interest (expense) income......... (17,373) 46 (44,192) -- (61,519)
Equity in net income of
subsidiaries........................ 287,127 -- -- (287,127) --
Other income.......................... 686 -- 3,178 -- 3,864
------- ------- ------- -------- -------
NET INCOME............................ 270,020 9,981 301,699 (311,680) 270,020
Retained earnings (deficit), beginning
of the year......................... 404,130 (28,950) 369,370 (340,420) 404,130
Dividends declared.................... (33,001) -- -- -- (33,001)
------- ------- ------- -------- -------
RETAINED EARNINGS (DEFICIT), END OF
THE YEAR............................ 641,149 (18,969) 671,069 (652,100) 641,149
======= ======= ======= ======== =======
NINE MONTHS ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Net voyage revenues................... -- 28,589 349,222 (129,461) 248,350
Operating expenses.................... 493 24,056 310,304 (110,075) 224,778
------- ------- ------- -------- -------
(Loss) income from vessel
operations........................ (493) 4,533 38,918 (19,386) 23,572
Net interest (expense) income......... (14,420) 87 (24,821) -- (39,154)
Equity in net (loss) income of
subsidiaries........................ (4,682) -- -- 4,682 --
Other (loss) income................... -- -- (4,013) -- (4,013)
------- ------- ------- -------- -------
NET (LOSS) INCOME..................... (19,595) 4,620 10,084 (14,704) (19,595)
Retained earnings (deficit), beginning
of the period....................... 446,897 (33,570) 359,286 (325,716) 446,897
Dividends declared.................... (23,172) -- -- -- (23,172)
------- ------- ------- -------- -------
RETAINED EARNINGS (DEFICIT), END OF
THE PERIOD.......................... 404,130 (28,950) 369,370 (340,420) 404,130
======= ======= ======= ======== =======
- ---------------
(See Note 6)
F-35
142
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED MARCH 31, 1999
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Net voyage revenues................... -- 37,820 461,394 (180,803) 318,411
Operating expenses.................... 356 37,214 376,010 (180,803) 232,777
------- ------- ------- -------- -------
(Loss) income from vessel
operations........................ (356) 606 85,384 -- 85,634
Net interest (expense) income......... (22,857) 148 (15,719) -- (38,428)
Equity in net income of
subsidiaries........................ 75,698 -- -- (75,698) --
Other income.......................... 227 -- 30,710 (25,431) 5,506
------- ------- ------- -------- -------
Net income before extraordinary
loss................................ 52,712 754 100,375 (101,129) 52,712
Extraordinary loss on bond
redemption.......................... (7,306) -- -- -- (7,306)
------- ------- ------- -------- -------
NET INCOME............................ 45,406 754 100,375 (101,129) 45,406
Retained earnings (deficit), beginning
of the year......................... 428,102 (34,324) 258,911 (224,587) 428,102
Dividends declared.................... (26,611) -- -- -- (26,611)
------- ------- ------- -------- -------
RETAINED EARNINGS (DEFICIT), END OF
THE YEAR............................ 446,897 (33,570) 359,286 (325,716) 446,897
======= ======= ======= ======== =======
- ---------------
(See Note 6)
F-36
143
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Net income............................ 270,020 9,981 301,699 (311,680) 270,020
Other comprehensive income
Unrealized gain on
available-for-sale securities..... -- -- 4,555 -- 4,555
------- ----- ------- -------- -------
COMPREHENSIVE INCOME.................. 270,020 9,981 306,254 (311,680) 274,575
======= ===== ======= ======== =======
NINE MONTHS ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Net (loss) income..................... (19,595) 4,620 10,084 (14,704) (19,595)
Other comprehensive income............ -- -- -- -- --
------- ----- ------- -------- -------
COMPREHENSIVE (LOSS) INCOME........... (19,595) 4,620 10,084 (14,704) (19,595)
======= ===== ======= ======== =======
YEAR ENDED MARCH 31, 1999
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Net income............................ 45,406 754 100,375 (101,129) 45,406
Other comprehensive income............ -- -- -- -- --
------- ----- ------- -------- -------
COMPREHENSIVE INCOME.................. 45,406 754 100,375 (101,129) 45,406
======= ===== ======= ======== =======
- ---------------
(See Note 6)
F-37
144
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
AS AT DECEMBER 31, 2000
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
ASSETS
Cash and cash equivalents............. 294 -- 181,006 -- 181,300
Other current assets.................. 45 725 209,425 (96,000) 114,195
--------- ------- --------- ---------- ---------
Total current assets................ 339 725 390,431 (96,000) 295,495
Vessels and equipment (net)........... -- 281,377 1,326,339 -- 1,607,716
Advances due from subsidiaries........ 58,068 -- -- (58,068) --
Other assets (principally marketable
securities and investments in
subsidiaries)....................... 1,229,756 -- 50,414 (1,229,756) 50,414
Investment in joint venture........... -- -- 20,474 -- 20,474
--------- ------- --------- ---------- ---------
1,288,163 282,102 1,787,658 (1,383,824) 1,974,099
========= ======= ========= ========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities................... 4,932 1,371 228,032 (96,000) 138,335
Long-term debt........................ 189,274 -- 543,408 -- 732,682
Due to (from) affiliates.............. -- (69,630) 193,315 (123,685) --
--------- ------- --------- ---------- ---------
Total liabilities................... 194,206 (68,259) 964,755 (219,685) 871,017
--------- ------- --------- ---------- ---------
Minority Interest..................... -- -- 4,570 -- 4,570
Stockholders' Equity
Capital stock......................... 452,808 23 5,943 (5,966) 452,808
Contributed capital................... -- 369,307 136,766 (506,073) --
Retained earnings (deficit)........... 641,149 (18,969) 671,069 (652,100) 641,149
Accumulated other comprehensive
income.............................. -- -- 4,555 -- 4,555
--------- ------- --------- ---------- ---------
Total stockholders' equity.......... 1,093,957 350,361 818,333 (1,164,139) 1,098,512
--------- ------- --------- ---------- ---------
1,288,163 282,102 1,787,658 (1,383,824) 1,974,099
========= ======= ========= ========== =========
- ---------------
(See Note 6)
F-38
145
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
AS AT DECEMBER 31, 1999
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
ASSETS
Cash and cash equivalents............. 210 39,652 180,465 -- 220,327
Other current assets.................. 42 582 162,084 (102,376) 60,332
--------- ------- --------- ---------- ---------
Total current assets................ 252 40,234 342,549 (102,376) 280,659
Vessels and equipment (net)........... -- 294,800 1,368,717 -- 1,663,517
Advances due from subsidiaries........ 121,415 -- -- (121,415) --
Other assets (principally marketable
securities and investments in
subsidiaries)....................... 943,389 -- 19,111 (943,394) 19,106
Investment in joint venture........... -- -- 19,402 -- 19,402
--------- ------- --------- ---------- ---------
1,065,056 335,034 1,749,779 (1,167,185) 1,982,684
========= ======= ========= ========== =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities................... 7,989 991 227,331 (109,808) 126,503
Long-term debt........................ 225,000 -- 797,010 -- 1,022,010
Due to (from) affiliates.............. -- (6,337) 211,255 (204,918) --
--------- ------- --------- ---------- ---------
Total liabilities................... 232,989 (5,346) 1,235,596 (314,726) 1,148,513
--------- ------- --------- ---------- ---------
Minority Interest..................... -- -- 2,104 -- 2,104
Stockholders' Equity
Capital stock......................... 427,937 23 5,943 (5,966) 427,937
Contributed capital................... -- 369,307 136,766 (506,073) --
Retained earnings (deficit)........... 404,130 (28,950) 369,370 (340,420) 404,130
Accumulated other comprehensive
income.............................. -- -- -- -- --
--------- ------- --------- ---------- ---------
Total stockholders' equity.......... 832,067 340,380 512,079 (852,459) 832,067
--------- ------- --------- ---------- ---------
1,065,056 335,034 1,749,779 (1,167,185) 1,982,684
========= ======= ========= ========== =========
- ---------------
(See Note 6)
F-39
146
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Cash and cash equivalents provided by
(used for)..........................
-------- ------- -------- ------- --------
OPERATING ACTIVITIES
Net cash flow from operating
activities........................ (19,407) 25,048 327,614 333,255
-------- ------- -------- ------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt.......... -- -- 206,000 206,000
Repayments of long-term debt.......... -- -- (63,757) (63,757)
Prepayments of long-term debt......... (35,726) -- (394,200) (429,926)
Other................................. 55,217 (63,293) 2,916 (5,160)
-------- ------- -------- ------- --------
Net cash flow from financing
activities........................ 19,491 (63,293) (249,041) (292,843)
-------- ------- -------- ------- --------
INVESTING ACTIVITIES
Expenditures for vessels and
equipment........................... -- (1,407) (54,046) (55,453)
Proceeds from disposition of assets... -- -- 9,713 9,713
Acquisition costs related to purchase
of Bona Shipholding Ltd............. -- -- (2,685) (2,685)
Other................................. -- -- (31,014) (31,014)
-------- ------- -------- ------- --------
Net cash flow from investing
activities........................ -- (1,407) (78,032) (79,439)
-------- ------- -------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................... 84 (39,652) 541 (39,027)
Cash and cash equivalents, beginning
of the year......................... 210 39,652 180,465 220,327
-------- ------- -------- ------- --------
CASH AND CASH EQUIVALENTS, END OF THE
YEAR................................ 294 -- 181,006 181,300
======== ======= ======== ======= ========
- ---------------
(See Note 6)
F-40
147
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
NINE MONTHS ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------------
8.32%
NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Cash and cash equivalents provided by
(used for)..........................
-------- ------- -------- ------- --------
OPERATING ACTIVITIES
Net cash flow from operating
activities........................ (9,844) 16,674 44,683 51,513
-------- ------- -------- ------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt.......... -- -- 100,000 100,000
Prepayments of long-term debt......... -- -- (10,000) (10,000)
Repayments of long-term debt.......... -- -- (32,252) (32,252)
Other................................. 49,933 (10,327) (62,756) (23,150)
-------- ------- -------- ------- --------
Net cash flow from financing
activities........................ 49,933 (10,327) (5,008) 34,598
-------- ------- -------- ------- --------
INVESTING ACTIVITIES
Expenditures for vessels and
equipment........................... -- (8) (29,903) (29,911)
Net cash flow from purchase of Bona
Shipholding Ltd.
(net of cash acquired of $91,658)... (39,884) -- -- (39,884)
Other................................. -- -- 85,576 85,576
-------- ------- -------- ------- --------
Net cash flow from investing
activities........................ (39,884) (8) 55,673 15,781
-------- ------- -------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................... 205 6,339 95,348 101,892
Cash and cash equivalents, beginning
of the period....................... 5 33,313 85,117 118,435
-------- ------- -------- ------- --------
CASH AND CASH EQUIVALENTS, END OF THE
PERIOD.............................. 210 39,652 180,465 220,327
======== ======= ======== ======= ========
- ---------------
(See Note 6)
F-41
148
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED MARCH 31, 1999
-----------------------------------------------------------------------------
8.32%
TEEKAY NOTES TEEKAY
SHIPPING GUARANTOR NON-GUARANTOR SHIPPING CORP.
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
$ $ $ $ $
Cash and cash equivalents provided by
(used for)..........................
-------- ------- -------- ------- --------
OPERATING ACTIVITIES
Net cash flow from operating
activities........................ (24,829) 21,261 141,276 137,708
-------- ------- -------- ------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt.......... -- -- 230,000 230,000
Prepayments of long-term debt......... (108,034) -- (160,000) (268,034)
Repayments of long-term debt.......... (20,645) -- (29,932) (50,577)
Net proceeds from issuance of Common
Stock............................... 68,751 -- -- 68,751
Other................................. 84,740 3,252 (114,904) (26,912)
-------- ------- -------- ------- --------
Net cash flow from financing
activities........................ 24,812 3,252 (74,836) (46,772)
-------- ------- -------- ------- --------
INVESTING ACTIVITIES
Expenditures for vessels and
equipment........................... -- (1,887) (95,307) (97,194)
Other................................. -- -- 36,740 36,740
-------- ------- -------- ------- --------
Net cash flow from investing
activities........................ -- (1,887) (58,567) (60,454)
-------- ------- -------- ------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................... (17) 22,626 7,873 30,482
Cash and cash equivalents, beginning
of the year......................... 22 10,687 77,244 87,953
-------- ------- -------- ------- --------
CASH AND CASH EQUIVALENTS, END OF THE
YEAR................................ 5 33,313 85,117 118,435
======== ======= ======== ======= ========
- ---------------
(See Note 6)
F-42
149
UGLAND NORDIC SHIPPING GROUP
PROFIT AND LOSS ACCOUNT
(ALL FIGURES ARE EXPRESSED IN NOK IN MILLIONS)
THREE MONTHS
ENDED MARCH 31,
---------------
2001 2000
----- ------
(UNAUDITED)
Operating income............................................ 226.0 148.9
Operating expenses.......................................... (69.5) (47.4)
Administrative expenses..................................... (7.3) (4.9)
----- ------
Result before depreciation.................................. 149.2 96.6
----- ------
Docking expenses............................................ (7.1) (5.8)
Ordinary depreciation....................................... (41.8) (33.3)
----- ------
OPERATING PROFIT............................................ 100.3 57.5
----- ------
Interest income............................................. 2.7 1.4
Currency gain/(loss) realised............................... 9.8 6.7
Other financial income...................................... 40.8 6.0
Interest expenses........................................... (49.5) (41.0)
Other financial expenses.................................... (11.8) (0.5)
Net financial items......................................... (8.0) (27.4)
----- ------
Profit before unrealised currency items..................... 92.3 30.1
----- ------
Unrealised currency items................................... (85.1) (123.1)
----- ------
RESULT BEFORE TAX AND MINORITY INTERESTS.................... 7.2 (93.0)
----- ------
Tax......................................................... 0.0 0.0
----- ------
RESULT BEFORE MINORITY INTERESTS............................ 7.2 (93.0)
----- ------
Minority interests.......................................... (11.0) 5.6
----- ------
RESULT...................................................... (3.8) (87.4)
===== ======
BALANCE SHEET
(ALL FIGURES ARE EXPRESSED IN NOK IN MILLIONS)
AS AT AS AT
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
(UNAUDITED)
ASSETS
Ships....................................................... 3,419.8 3,404.5
Other fixed assets.......................................... 212.8 207.7
Other current assets........................................ 85.1 12.7
Bank deposits............................................... 281.9 282.3
------- -------
TOTAL ASSETS................................................ 3,999.6 3,907.2
======= =======
EQUITY AND LIABILITIES
Equity (incl. 14,169,772 shares @ NOK 5).................... 829.7 815.4
Minority interests.......................................... 64.3 53.4
Long-term Debt.............................................. 3,052.2 2,977.1
Current liabilities......................................... 53.4 61.3
------- -------
TOTAL LIABILITIES AND EQUITY................................ 3,999.6 3,907.2
======= =======
F-43
150
Deloitte & Touche
Statsautoriserte revisorer
Radhusgt, 1
N-3201 Tonsberg
Tel: 33 00 39 00
Fax: 33 00 39 01
www.deloitte.no / ww.deloitte-
legal.no (Deloitte & Touche LOGO)
Translation from the original Norwegian version
To the Annual Shareholders' Meeting of Ugland Nordic Shipping ASA
AUDITOR'S REPORT FOR 2000
We have audited the annual financial statements of Ugland Nordic Shipping
ASA as of 31 December 2000, showing a profit of NOK 28.373.000 for the parent
company and a profit of NOK 41.320.000 for the group. We have also audited the
information in the Board of Directors' report concerning the financial
statements, the going concern assumption, and the proposal for the allocation of
the profit. The financial statements comprise the balance sheet, the statements
of income and cash flows, the accompanying notes and the group accounts. These
financial statements are the responsibility of the Company's Board of Directors
and Managing Director. Our responsibility is to express an opinion on these
financial statements and on the other information according to the requirements
of the Norwegian Act on Auditing and Auditors.
We conducted our audit in accordance with the Norwegian Act on Auditing and
Auditors and generally accepted auditing standards in Norway. Generally accepted
auditing 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.
To the extent required by law and generally accepted auditing standards, an
audit also comprises a review of the management of the Company's financial
affairs and its accounting and internal control systems. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion,
- the financial statements are prepared in accordance with the law and
regulations and present the financial position of the Company and of the
Group as of 31. December 2000, and the results of its operations and its
cash flows for the year then ended, in accordance with generally
accepted accounting principles in Norway.
- the Company's management has fulfilled its duty to maintain the
Company's accounting process in such a proper and well-arranged manner
that the accounting process is in accordance with the law and generally
accepted accounting practices.
- the information in the Board of Directors' report concerning the
financial statements, the going concern assumption, and the proposal for
the allocation of the profit is consistent with the financial statements
and complies with the law and regulations.
Tonsberg, 28, March 2001
DELOITTE & TOUCHE
Alf-Anton Eid (signed)
State Authorised Public Accountant (Norway)
(Deloitte & Touche LOGO) Bergen Floro Forde Haugesund Knarvik Kristiansand Levanger
Lyngdal Oslo
Skien Sogndal Stavanger Steinkjer Trondheim Tonsberg Orsta
Medlemmer av Den Norske Revisorforening
org.nr: 980 211 282
F-44
151
Deloitte & Touche
Statsautoriserte revisorer
Radhusgt, 1
N-3201 Tonsberg
Tel: 33 00 39 00
Fax: 33 00 39 01
www.deloitte.no / ww.deloitte-
legal.no (Deloitte & Touche LOGO)
Translation from the original Norwegian version
To the Annual Shareholders' Meeting of Ugland Nordic Shipping ASA
AUDITOR'S REPORT FOR 1999
We have audited the annual financial statements of Ugland Nordic Shipping
ASA as of 31 December 1999, showing a profit of NOK 32.297.000 for the parent
company and a profit of NOK 1.468.000 for the group. We have also audited the
information in the Board of Directors' report concerning the financial
statements, the going concern assumption, and the proposal for the allocation of
the profit. The financial statements comprise the balance sheet, the statements
of income and cash flows, the accompanying notes and the group accounts. These
financial statements are the responsibility of the Company's Board of Directors
and Managing Director. Our responsibility is to express an opinion on these
financial statements and on the other information according to the requirements
of the Norwegian Act on Auditing and Auditors.
We conducted our audit in accordance with the Norwegian Act on Auditing and
Auditors and generally accepted auditing standards in Norway. Generally accepted
auditing 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.
To the extent required by law and generally accepted auditing standards, an
audit also comprises a review of the management of the Company's financial
affairs and its accounting and internal control systems. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion,
- the financial statements are prepared in accordance with the law and
regulations and present the financial position of the Company and of the
Group as of 31. December 1999, and the results of its operations and its
cash flows for the year then ended, in accordance with generally
accepted accounting principles in Norway.
- the Company's management has fulfilled its duty to maintain the
Company's accounting process in such a proper and well-arranged manner
that the accounting process is in accordance with the law and generally
accepted accounting practices.
- the information in the Board of Directors' report concerning the
financial statements, the going concern assumption, and the proposal for
the allocation of the profit is consistent with the financial statements
and complies with the law and regulations.
Tonsberg, 7, April 2000
DELOITTE & TOUCHE
Alf-Anton Eid (signed)
State Authorised Public Accountant (Norway)
(Deloitte & Touche LOGO) Bergen Floro Forde Haugesund Knarvik Kristiansand Levanger
Lyngdal Oslo
Skien Sogndal Stavanger Steinkjer Trondheim Tonsberg Orsta
Medlemmer av Den Norske Revisorforening
org.nr: 980 211 282
F-45
152
UGLAND NORDIC SHIPPING GROUP
PROFIT & LOSS ACCOUNT
(ALL FIGURES IN NOK '000)
UGLAND NORDIC UGLAND NORDIC
SHIPPING ASA SHIPPING GROUP
----------------- -------------------
1999 2000 NOTE 2000 1999
------- ------- ----- -------- --------
4,522 6,271 OPERATING INCOME............................................ 11/18 817,055 601,955
------- ------- -------- --------
OPERATING COSTS/DEPRECIATION
0 0 Operating costs vessels..................................... (238,520) (201,554)
0 0 Docking costs............................................... 2 (24,439) (25,717)
(11,933) (14,311) Payroll expense............................................. 3 (14,311) (11,933)
(7,489) (10,545) Other administrative expense................................ 2/3 (12,252) (9,313)
(554) (624) Ordinary depreciation....................................... 2 (134,714) (117,103)
------- ------- -------- --------
(19,976) (25,480) Sum operating costs......................................... (424,236) (365,620)
------- ------- -------- --------
(15,454) (19,209) OPERATING PROFIT............................................ 392,819 236,335
------- ------- -------- --------
FINANCIAL INCOME/FINANCIAL COSTS
36,759 33,531 Interest income............................................. 7 21,537 16,262
(4,787) (6,624) Exchange gains/losses....................................... (34,113) 2,195
63,416 68,911 Other financial income 7 65,343 21,614
(30,324) (17,288) Interest expense............................................ 7/14 (193,733) (136,867)
(307) (704) Other financial costs....................................... (1,475) (849)
(10,055) (18,630) Unrealised currency loss.................................... (197,448) (120,722)
------- ------- -------- --------
54,702 59,196 NET FINANCIAL COSTS......................................... (339,889) (218,367)
------- ------- -------- --------
39,248 39,987 PROFIT (LOSS) BEFORE TAXES AND MINORITY INTEREST............ 52,930 17,968
------- ------- -------- --------
(6,951) (11,614) Taxes....................................................... 16 (11,610) (16,500)
------- ------- -------- --------
32,297 28,373 PROFIT (LOSS) FOR THE YEAR.................................. 41,320 1,468
======= ======= ======== ========
0 0 Minority interest........................................... (30,438) 368
------- ------- -------- --------
32,297 28,373 PROFIT (LOSS) FOR THE YEAR AFTER MINORITY INTEREST.......... 10,882 1,836
======= ======= ======== ========
Result and diluted result per share......................... 10 0.89 0.17
(25,130) 2,242 Proposed dividend...........................................
F-46
153
UGLAND NORDIC SHIPPING GROUP
BALANCE SHEET AS AT 31.12
ASSETS
(ALL FIGURES IN NOK '000)
UGLAND NORDIC UGLAND NORDIC
SHIPPING ASA SHIPPING GROUP
------------------- ---------------------
1999 2000 NOTE 2000 1999
------- --------- ---- --------- ---------
FIXED ASSETS
INTANGIBLE FIXED ASSETS
22,001 12,623 Deferred tax assets......................................... 16 12,905 22,213
------- --------- --------- ---------
22,001 12,623 TOTAL INTANGIBLE FIXED ASSETS............................... 12,905 22,213
------- --------- --------- ---------
TANGIBLE FIXED ASSETS
0 0 Vessels..................................................... 2/8/13 3,404,550 2,583,050
2,706 2,333 Fixtures and fittings, office machinery, etc................ 2 2,333 2,706
------- --------- --------- ---------
2,706 2,333 TOTAL TANGIBLE FIXED ASSETS................................. 3,406,883 2,585,756
------- --------- --------- ---------
FINANCIAL FIXED ASSETS
259,822 380,561 Investment in subsidiaries.................................. 4 0 0
392,319 507,875 Loans to group companies.................................... 6 0 0
0 14,320 Investments in associates................................... 4 13,912 64,865
205,604 177,083 Investments in shares and parts of companies................ 5/13 177,305 205,741
299 1,194 Other receivables........................................... 1 194 299
------- --------- --------- ---------
858,044 1,081,033 TOTAL FINANCIAL FIXED ASSETS................................ 192,411 270,905
------- --------- --------- ---------
882,751 1,095,989 TOTAL FIXED ASSETS.......................................... 3,612,199 2,878,874
------- --------- --------- ---------
CURRENT ASSETS
DEBTORS
8,232 52 Other debtors............................................... 11,162 17,049
------- --------- --------- ---------
8,232 52 TOTAL DEBTORS............................................... 11,162 17,049
------- --------- --------- ---------
INVESTMENTS
2,424 1,542 Marketable securities....................................... 5 1,542 2,424
------- --------- --------- ---------
2,424 1,542 TOTAL INVESTMENTS........................................... 1,542 2,424
------- --------- --------- ---------
36,412 137,202 Bank deposits, cash in hand, etc............................ 13 282,288 176,374
------- --------- --------- ---------
47,068 138,796 TOTAL CURRENT ASSETS........................................ 294,992 195,847
------- --------- --------- ---------
929,819 1,234,785 TOTAL ASSETS................................................ 3,907,191 3,074,721
======= ========= ========= =========
F-47
154
UGLAND NORDIC SHIPPING GROUP
BALANCE SHEET AS AT 31.12
EQUITY AND LIABILITIES
(ALL FIGURES IN NOK '000)
UGLAND NORDIC UGLAND NORDIC
SHIPPING ASA SHIPPING GROUP
------------------- ---------------------
1999 2000 NOTE 2000 1999
------- --------- ------- --------- ---------
EQUITY
PAID-IN CAPITAL
54,630 69,549 Share capital (13,909,772 shares @ NOK 5).................. 9/12/17 69,549 54,630
446,369 669,273 Share premium reserve...................................... 12 669,273 420,369
------- --------- --------- ---------
500,999 738,822 TOTAL PAID-IN CAPITAL...................................... 738,822 474,999
------- --------- --------- ---------
RETAINED EARNINGS
136,475 162,605 Other equity............................................... 12 76,616 92,893
------- --------- --------- ---------
136,475 162,605 TOTAL RETAINED EARNINGS.................................... 76,616 92,893
------- --------- --------- ---------
637,474 901,427 TOTAL EQUITY BEFORE MINORITIES............................. 815,438 567,892
------- --------- --------- ---------
0 0 Minority interest.......................................... 53,375 (1,719)
------- --------- --------- ---------
637,474 901,427 TOTAL EQUITY............................................... 868,813 566,173
------- --------- --------- ---------
LIABILITIES
OTHER LONG-TERM LIABILITIES
195,858 250,188 Liabilities to financial institutions...................... 13/14 2,977,118 2,435,756
64,526 76,054 Loans to subsidiaries...................................... 6 0 0
------- --------- --------- ---------
260,384 326,242 TOTAL OTHER LONG-TERM LIABILITIES.......................... 2,977,118 2,435,756
------- --------- --------- ---------
CURRENT LIABILITIES
3,747 3,033 Accounts payable........................................... 0 3,746
0 0 Taxes payable.............................................. 3,530 3,528
3,084 4,042 Public duties payable...................................... 4,041 3,084
25,130 0 Dividends.................................................. 0 25,130
0 41 Other short-term liabilities............................... 53,689 37,304
------- --------- --------- ---------
31,961 7,116 TOTAL CURRENT LIABILITIES.................................. 61,260 72,792
------- --------- --------- ---------
292,345 333,358 TOTAL LIABILITIES.......................................... 3,038,378 2,508,548
------- --------- --------- ---------
929,819 1,234,785 TOTAL EQUITY AND LIABILITIES............................... 3,907,191 3,074,721
======= ========= ========= =========
F-48
155
UGLAND NORDIC SHIPPING GROUP
CASH FLOW ANALYSIS
(ALL FIGURES IN NOK '000)
UGLAND NORDIC UGLAND NORDIC
SHIPPING ASA SHIPPING GROUP
------------------ ---------------------
1999 2000 2000 1999
------- -------- ---------- --------
CASH FLOW FROM OPERATING ACTIVITIES
39,248 39,987 Operating income before tax................................. 52,930 17,968
554 624 Ordinary depreciation....................................... 134,714 117,103
(25) 0 Profit from sale of non-current assets...................... (76,895) (29,714)
0 0 Result from associated companies............................ (222) (14,521)
9,340 8,465 Change in trade receivables/payables........................ 20,621 1,903
------- -------- ---------- --------
49,117 49,076 NET CASH PROVIDED BY OPERATING ACTIVITIES................... 131,148 92,739
------- -------- ---------- --------
CASH FLOW FROM INVESTING ACTIVITIES
318 0 Proceeds from sale of fixed assets.......................... 154,100 234,578
(1,652) (1,146) Purchase of fixed assets.................................... (1,034,060) (698,545)
0 (14,320) Investment in related companies............................. 75,831 0
0 0 Payments from related companies............................. 0 1,417
(1,888) (120,739) Investments in subsidiaries................................. 0 0
(25,960) 29,403 Purchase of shares and parts in other companies............. 29,318 (25,892)
------- -------- ---------- --------
(29,182) (106,802) NET CASH PROVIDED BY INVESTING ACTIVITIES................... (774,811) (488,442)
------- -------- ---------- --------
CASH FLOW FROM FINANCING ACTIVITIES
0 70,913 Proceeds from long-term borrowings.......................... 842,971 569,483
(83,380) (16,583) Repayment of long-term borrowings........................... (301,609) (279,769)
81,888 (104,029) Payment on long-term account receivable (payable)........... 0 (35,523)
0 235,587 Proceeds from issue of shares............................... 235,587 0
(21,851) (27,372) Dividends paid.............................................. (27,372) (21,851)
------- -------- ---------- --------
(23,343) 158,516 NET CASH PROVIDED FROM FINANCING ACTIVITIES................. 749,577 232,340
------- -------- ---------- --------
(3,408) 100,790 Net change in cash and cash equivalents..................... 105,914 (163,363)
15,552 36,412 Cash and cash equivalents at beginning of year.............. 176,374 339,737
------- -------- ---------- --------
12,144 137,202 CASH AND CASH EQUIVALENTS AT END OF YEAR.................... 282,288 176,374
======= ======== ========== ========
F-49
156
NOTE 1: ACCOUNTING PRINCIPLES
The annual accounts are showing the 2000 Profit and Loss Account and
Balance Sheet of the holding company Ugland Nordic Shipping ASA and the Ugland
Nordic Shipping Group. During 2000 merger have taken place within the Group.
Profit and Loss Account and Balance Sheet for 1999 have been restated for
comparative purposes. The financial statements are prepared in accordance with
The Norwegian Accounting Act of 1998. The accounting principles are described
below. All figures are stated in NOK 1,000. Exact figures or figures in a
different currency are specially commented.
CONSOLIDATION
The consolidated accounts cover Ugland Nordic Shipping ASA and subsidiaries
where Ugland Nordic Shipping ASA either directly or indirectly owns more than
50% of the shares. Identical accounting principles have been applied to all
accounts within the Group.
When consolidating the subsidiaries, the holding company's shares in
subsidiaries have been replaced by these companies' assets and liabilities. All
values in excess of the booked equity in subsidiaries have been allocated to
those assets (vessels) to which the added value relates. The added value of the
vessels is depreciated over the economical life of the vessel. All significant
transactions and inter-company balances within the Group have been eliminated.
Investments in companies where the group owns between 20% and 50% of the
voting capital, or where it has a controlling influence (related companies), has
been consolidated according to the equity method in the consolidated accounts.
The result from these companies is treated as operating income in the
consolidated Group accounts.
Ownership in jointly controlled companies has been entered according to the
gross method in the consolidated accounts. The gross method means that incomes,
expenses, assets and liabilities are included in the accounts pro rata according
to the percentage owned by the Group. The figures are specified per main section
in the notes to the accounts.
Figures for foreign subsidiaries have been converted at rates prevailing at
the date of the Balance Sheet, average rates, however, have been utilized for
the profit and loss account.
MAIN RULE FOR VALUATION AND CLASSIFICATION OF ASSETS AND LIABILITIES
Assets meant for permanent ownership or use in the business are classified
as fixed assets. Other assets are classified as current assets. Accounts
receivable, which fall due for payment within one year are classified as current
assets. The classification of current and long-term liabilities is based on the
corresponding criteria.
Some items are valued by other principles. These are mentioned below.
OWNED ITEMS THAT ARE DEPRECIATED
Fixed assets with a limited lifespan are being depreciated on a linear
basis. Newbuildings purchased after 1997 have an expected lifespan of 25 years.
Vessels acquired earlier than this has an expected lifespan of 23 years. In both
cases an expected residual value has been taken into account.
Vessels are written down to their fair market value if the vessel's future
discounted cash flow is lower than its book value, however, a write-down will be
reversed if the basis for it is no longer present.
DOCKING EXPENSES
Costs related to dry-docking are capitalised as docking costs and
depreciated on a linear basis up to the next expected dry-docking. For
newbuildings, a part of the purchase price is redefined and capitalised as
docking costs. If a vessel is sold, the capitalised docking expenses are booked
as part of the gain or loss.
F-50
157
REVENUE RECOGNITION
Income and expenses related to the voyages are accrued on the basis of the
number of days that the voyage lasted in the fiscal period. A voyage is defined
as the period from the last discharge until discharge at the next port of call.
FOREIGN CURRENCY
Monetary items denominated in a foreign currency are translated to the
exchange rate on the Balance Sheet day (USD 1 = NOK 8.85). Currency gains or
losses are booked as a financial item in the Profit and Loss account.
INTEREST SWAPS AND CURRENCY EXCHANGE FUTURES
Effects on the result that are related to interest swaps are recorded over
the period of the contract. Currency exchange futures are valued at the market
value on the date of the Balance Sheet.
CAPITALISED INTEREST EXPENSES
Interests associated with newbuildings under construction are capitalised
as a part of the cost price.
SHARES IN SUBSIDIARIES, JOINTLY CONTROLLED ACTIVITIES AND ASSOCIATES
Investments in subsidiaries, jointly controlled activities and associates
are valued at cost.
OTHER LONG-TERM INVESTMENTS IN SHARES
Other long-term investments in shares and minor investments in general and
limited partnerships, where the company does not hold substantial influence, are
carried at cost. These investments will be written down if a permanent
deterioration in the value should occur. Dividends received and other surplus
distributions from these companies are entered as financial income.
INVESTMENT IN SHARES
Listed shares, which form part of a trading portfolio, are valued at market
value on the Balance Sheet day. Other shares are valued at the lower of average
cost and market price on the Balance Sheet day.
BANK DEPOSITS, CASH IN HAND, ETC.
Bank deposits, cash in hand, etc., includes cash, bank deposits and other
monetary instruments with a maturity of less than three months at the date of
purchase.
DEBTORS
Trade debtors and other debtors are carried at face value less provisions
for expected loss. Provisions for bad debts are made after evaluation of the
individual claim.
PENSIONS
The basis for recording pension liabilities is estimated salary level upon
retirement and years of service. Deviations from estimates and effects of
changes in assumptions are amortised over expected remaining years of service if
exceeding 10% of the greater of pension liabilities and pension funds
(corridor). Changes in the plan are distributed over the remaining years of
service. The numbers include social security tax.
F-51
158
NEWBUILDING CONTRACTS
Payments made according to contract as well as interest and running
expenses during the construction are capitalised. Costs, subtracted possible
incomes, during the period where the vessel is positioned in order to commence a
long-term contract are capitalised as a part of the cost price.
TAXES
Tax expenses are matched with operating income before tax. Tax associated
with equity transactions, e.g. Group contribution, is posted directly to equity.
Tax related to recognised share of net income from Norwegian subsidiaries or
associated companies is not accounted for, due to the special Norwegian tax
legislation for adjusting tax values (RISK).
The tax expense comprises of taxes payable (tax on this year's direct
taxable income) and change in net deferred tax. For the part of the Group's
companies that have activities outside the Norwegian tax regime for shipping
companies, deferred tax liabilities/assets are calculated as 28% of the
temporary timing differences and tax losses carried forward. Temporary timing
differences that reverse or may reverse during the same period are offset and
reported net. Net deferred tax assets considered recoverable on the basis of
future earnings are reported in the Balance Sheet as intangible fixed assets.
The company's main activities are taxed within the special taxation scheme
for shipowning companies, which means that profits are not taxed at the time
earned. Taxation is based upon net financial income and dividends paid from
untaxed equity. The taxation scheme is providing for a tax credit. The basis for
this is that earnings should be used for reinvestment in shipping activities and
that all dividend payments in the foreseeable future are to be paid from already
taxed profits. If the company was to leave the taxation scheme the company would
be taxed after an income valuation based on the actual value of the assets. If
the market value of the assets is equal to the book value at that time, untaxed
capital at the time of exit will be taxed. Values in excess of the book values
will increase the taxable income. The present value of deferred tax relating to
the temporary timing differences at companies covered by the special tax scheme
for shipowning companies is considered immaterial as the company does not expect
the taxable income that these differences represent to materialise within the
foreseeable future. The assessment is based on the company's dividend policy,
liquidity reserve and the distributable taxed equity in those parts of the Group
not covered by the new tax scheme and the company's intention to continue its
shipping activities.
CASH FLOW
The cash flow statement has been prepared using the indirect method. The
cash and cash equivalent figures excludes shares and financial instruments with
a maturity of more than three months from the date of acquisition.
NOTE 2: FIXED ASSETS
VARIOUS
UNS ASA OPERATING ASSETS
- ------- ----------------
Acquisition cost as at 01.01.2000........................... 4,568
Additions................................................... 272
Disposals................................................... 0
---------
ACQUISITION COST AS AT 31.12.2000........................... 4,840
=========
Accumulated depreciation as at 31.12.2000................... 2,507
---------
BOOK VALUE AS AT 31.12.2000................................. 2,333
=========
Current year depreciation................................... 624
Useful life................................................. 3-5 years
Depreciation schedule....................................... Linear
F-52
159
During 2000 the company has renovated leased offices for approximately NOK
1,000,000. The investment will be depreciated over the duration of the lease,
which is 10 years and expires in 2010. The depreciation is presented under
administration costs.
The company has entered into agreements concerning the lease of offices and
company cars totalling NOK 1,200,000 per year.
The amortization cost of the leased assets is included in other
administration expense in the Profit and Loss account.
VARIOUS
CAPITALIZED OPERATING
UNS GROUP SHIPS DOCKING ASSETS
- --------- ----------- ----------- ---------
Acquisition cost as at 01.01.2000..................... 2,738,787 33,441 4,568
Additions............................................. 1,017,618 39,616 272
Disposals............................................. (89,879) 0 0
----------- --------- ---------
ACQUISITION COST AS AT 31.12.2000..................... 3,666,526 73,057 4,840
=========== ========= =========
Activated borrowing costs for ships................... 41,223
Accumulated depreciation as at 31.12.2000............. 310,594 24,439 2,507
----------- --------- ---------
Depreciations, write downs and reversed write downs... 310,594 24,439 2,507
----------- --------- ---------
BOOK VALUE AS AT 31.12.2000........................... 3,355,932 48,618 2,333
=========== ========= =========
Current year depreciation............................. 134,090 24,439 624
Useful life........................................... 23-25 years 2.5 years 3-5 years
Depreciation schedule................................. Linear Linear Linear
NOTE 3: SALARIES, NUMBER OF EMPLOYEES, BENEFITS, LOANS TO EMPLOYEES ETC.
UNS ASA UNS GROUP
--------------- ---------------
1999 2000 PAYROLL COSTS 2000 1999
------ ------ ------------- ------ ------
8,857 9,431 Salaries.................................................... 9,431 8,857
1,863 3,083 Social security tax......................................... 3,083 1,863
515 580 Pension costs............................................... 580 515
698 1,217 Other benefits.............................................. 1,217 698
------ ------ ------ ------
11,933 14,311 Total....................................................... 14,311 11,933
====== ====== ====== ======
13 14 Average number of employees................................. 14 13
The company's employees and the Managing Director are all included in the
pension plan.
MANAGING DIRECTOR/BOARD OF DIRECTORS
The Managing Director received a remuneration of NOK 3,121,009 for 2000,
whereof NOK 1,508,400 was salary, NOK 1,436,800 was a bonus and the remaining
was other taxable benefits. The Managing Director has an agreement to receive
two years remuneration if he leaves the company. At 10 May 2000 the Board of
Directors allotted 110,000 shares to the Managing Director and 150,000 shares to
the management. The subscription price for these shares was NOK 70 per share. By
the issuing of this report all shares have been released. Remuneration to the
Board of Directors has been paid with NOK 105,000 to the Chairman, Andreas Ove
Ugland, and NOK 85,000 to the other members of the Board. No loans or guarantees
have been issued for the management. The management of the company has a bonus
scheme related to the annual results of the company. This is calculated on an
annual basis.
F-53
160
THE AUDITOR
Expensed auditor fees for 2000 amounts to NOK 248,000 and NOK 477,240 for
consultancy services. For Group companies the auditor fees amounts to NOK
607,500 and NOK 663,825 for consultancy services.
NOTE 4: SUBSIDIARIES, RELATED COMPANIES ETC.
VOTE-AND
TIME OF OWNERSHIP
COMPANIES PURCHASE OFFICES SHARE
- --------- -------- ------- ---------
SHARES AND PARTS IN SUBSIDIARIES
Jahre Prince AS..................................... 1998 Sandefjord 100.00%
Thorsfreddy AS...................................... 1998 Sandefjord 100.00%
Ugland Nordic Investment AS......................... 1993 Sandefjord 100.00%
Nordic Akarita AS................................... 1996 Sandefjord 100.00%
Nordic Akarita Investment AS........................ 1993 Sandefjord 100.00%
Nordic Apollo AS.................................... 1991 Sandefjord 100.00%
Nordic Laurita AS................................... 1991 Sandefjord 100.00%
Nordic Sarita Investment AS......................... 1997 Sandefjord 100.00%
Nordic Akarita KS................................... 1996 Sandefjord 65.50%
Nordic Laurita KS................................... 1991 Sandefjord 50.50%
Nordic Apollo KS.................................... 1991 Sandefjord 89.00%
Nordic Canadian Shipping Ltd........................ 1992 Canada 100.00%
SHARES AND PARTS IN ASSOCIATED COMPANIES
IUM Shipmanagement AS............................... 2000 Grimstad 33.33%
SHARE OF JOINTLY CONTROLLED COMPANIES
P/R Stena Ugland Shuttle Tankers I DA............... 1998 Sandefjord 50.00%
P/R Stena Ugland Shuttle Tankers II DA.............. 1998 Sandefjord 50.00%
P/R Stena Ugland Shuttle Tankers III DA............. 1998 Sandefjord 50.00%
Ugland Stena Storage AS............................. 2000 Sandefjord 50.00%
Stena Ugland Aframax Shuttle Ltd.................... 1997 Cayman Islands 50.00%
The ownership of Nordic American Tanker Shipping Ltd. (NAT) shares has not
been included according to the equity method as UNS do not have the influence
required in order to define NAT as a related company.
ASSOCIATED COMPANIES THAT ARE PRESENTED BY THE GROSS METHOD
The jointly controlled companies, Partrederiene (PR) Stena Ugland Shuttle
Tankers I, II and III DA and Stena Ugland Aframax Shuttle Ltd. are included in
the accounts according to the gross method. The Profit and Loss account and
Balance Sheet items are incorporated line by line. The table below illustrates
the main items, which have been included in the accounts. There is no added
value at the time of acquisition.
F-54
161
PR SUST PR SUST PR SUST
I DA II DA III DA SUAS USS TOTAL
------- ------- ------- ------ ---- -------
Share of operating income........................ 67,601 62,541 0 626 0 130,768
Share of operating costs......................... (32,097) (32,641) 0 (241) (340) (65,319)
Share of net financial items..................... (48,033) (49,289) 0 190 (11) (97,143)
Share of taxes................................... 0 0 0 0 98 98
------- ------- ------ ------ ---- -------
SHARE OF PROFIT/(LOSS) FOR THE YEAR.............. (12,529) (19,389) 0 575 (253) (31,596)
------- ------- ------ ------ ---- -------
Share of fixed assets............................ 296,351 300,247 85,211 1,201 98 683,108
Share of current assets.......................... 22,771 9,964 0 0 267 33,002
------- ------- ------ ------ ---- -------
SHARE OF TOTAL ASSETS............................ 319,122 310,211 85,211 1,201 365 716,110
------- ------- ------ ------ ---- -------
Share of other long-term debt.................... 296,557 297,806 0 0 0 594,363
Share of short-term debt......................... 300 1,813 3,428 0 368 5,909
------- ------- ------ ------ ---- -------
SHARE OF TOTAL DEBT.............................. 296,857 299,619 3,428 0 368 600,272
------- ------- ------ ------ ---- -------
Share capital.................................... 22,264 10,591 81,783 1,201 (3) 115,836
BALANCE AS AT 01.01.2000......................... 34,793 29,980 23,591 2,580 0 90,944
------- ------- ------ ------ ---- -------
Additions/disposals.............................. 0 0 0 0 250 250
Share of profit.................................. (12,529) (19,389) 0 575 (253) (31,596)
Translation differences.......................... 0 0 0 296 0 296
Paid-up/repaid share capital during the period... 0 0 58,192 (2,250) 0 55,942
------- ------- ------ ------ ---- -------
BALANCE AS AT 31.12.2000......................... 22,264 10,591 81,783 1,201 (3) 115,836
======= ======= ====== ====== ==== =======
ASSOCIATED COMPANIES THAT ARE PRESENTED BY THE EQUITY METHOD
IUM
SHIPMANAGEMENT
AS
--------------
Additions during the period
Original acquisition cost................................... 13,690
Book equity at the time of acquisitions..................... 13,851
Goodwill.................................................... 9,073
Balance as at 01.01.2000.................................... 0
------
Additions/(disposals)....................................... 13,690
Share of profit/(loss) of the year.......................... 222
------
BALANCE AS AT 31.12.2000.................................... 13,912
======
NOTE 5: SHARES AND OWNERSHIP IN OTHER COMPANIES, ETC.
ACQUISITION BOOK MARKET
OWNERSHIP COSTS VALUE VALUE
--------- ----------- ------- -------
FIXED ASSETS
Nordic American Tanker Shipping Ltd. --
Bermuda..................................... 18.80% 177,083 177,083 322,392
------- ------- -------
TOTAL MARKETABLE FIXED ASSETS................. 177,083 177,083 322,392
======= ======= =======
CURRENT ASSETS
Shares........................................ 2,044 1,542 1,542
------- ------- -------
TOTAL MARKETABLE CURRENT ASSETS............... 2,044 1,542 1,542
======= ======= =======
F-55
162
NOTE 6: INTER-COMPANY BALANCES
ACCOUNTS ACCOUNTS
RECEIVABLE PAYABLE
----------------- ----------------
2000 1999 2000 1999
------- ------- ------ -------
Subsidiaries................................................ 507,875 392,319 76,054 64,526
------- ------- ------ -------
TOTAL....................................................... 507,875 392,319 76,054 64,526
======= ======= ====== =======
NOTE 7: SPECIFICATION OF FINANCIAL ITEMS
INTEREST
INTEREST INCOME EXPENSE
--------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
Subsidiaries................................................ 26,303 20,672 0 9,614
Others...................................................... 7,228 16,087 17,288 20,710
------ ------ ------ ------
TOTAL....................................................... 33,531 36,759 17,288 30,324
====== ====== ====== ======
OTHER FINANCIAL INCOME
UGLAND NORDIC UGLAND NORDIC
SHIPPING ASA SHIPPING GROUP
--------------- ---------------
1999 2000 2000 1999
------ ------ ------ ------
27,177 45,019 Dividend.................................................... 45,090 21,546
0 2,250 Income from jointly controlled activities................... 0 0
0 0 Income from associated companies............................ 222 0
36,171 1,160 Group contribution.......................................... 0 0
68 20,482 Gain on shares.............................................. 20,031 68
------ ------ ------ ------
63,416 68,911 TOTAL....................................................... 65,343 21,614
====== ====== ====== ======
NOTE 8: NEWBUILDING CONTRACTS
The jointly controlled company, P/R Stena Ugland Shuttle Tankers III DA,
which is owned 50% by Ugland Nordic Investment AS, decided on June 11th, 1998 to
purchase the newbuilding contract of Hull 1166 at Tsuneishi Shipbuilding Co.,
Japan. The ship is a DP2 shuttle tanker of 107,425 dwt, which will be delivered
in May 2001. The contract amounts to USD 63,410,000 whereof USD 12,582,000 has
been paid as at December 31st, 2000. The next installment in the amount of USD
6,291,000 is due in January 2001. Final installment is USD 44,537,000 and is due
at the time of delivery.
In July 2000 the company entered into an agreement with Golar-Nor Offshore
AS on affreightment of two new DP2 shuttle tankers of 92,500 dwt. The contracts
are on a bareboat basis and have a timespan of seven years. They will commence
in the 4th quarter 2002 and the 1st quarter 2003, respectively. The contracts
amount to USD 48,500,000 per vessel.
In November 2000 the company entered into an agreement with Navion on
affreightment of a shuttle tanker of 147,500 dwt during a time period of ten
years. The agreement includes options to increase the timespan to a maximum of
25 years and amounts to USD 70,000,000. The charterer has call options during
the contract time period.
NOTE 9: AUTHORISATION TO ISSUE SHARES
At the Ordinary General Meeting held on 10 May 2000, the Board was given
unanimous authority to issue up to 2,000,000 new shares, each of NOK 5 value, at
a subscription price to be set by the Board in each instance. The shares will be
used in connection with the acquisition of shares, participation in companies
including limited partnerships, ships and other assets. Mergers are also
included in this authorisation framework. The authorisation comprises share
issues against cash deposits. Existing
F-56
163
shareholders' preferential participation in the capital increase is withdrawn.
The authorisation was given until the next Ordinary General Meeting. At the time
of issuing this report, a total of 1,985,000 shares are issued in accordance
with the mentioned authority. At the Extraordinary General Meeting held on 28
September 1993, the Board authorised to issue 225,000 shares to a total nominal
value of NOK 1,125,000 against cash payment of NOK 50 per share. In accordance
with detailed conditions, the company's management is entitled to subscribe for
these shares. The authorisation runs until 28 September 2001. At present,
110,000 of the options are remaining, of which Herbjrn Hansson is entitled to
all, at a nominal value of NOK 81.75. The authorisation given at the
Extraordinary General Meeting held on 28 September 1993 was at the Ordinary
General Meeting replaced with a new authorisation. It authorises the Board to
issue 110,000 shares to CEO Herbjrn Hansson and 150,000 shares to the company
management at a price set by the Board. The authorisation is given until 10 May
2002 but the General Meeting agreed that the authorisation was to be valid until
28 September 2003. On 10 May 2000 the Board set the subscription price of the
CEO's 110,000 shares and the management's 150,000 shares to NOK 70 per share. At
the time of issuing this report, all the shares are issued in accordance with
the authorisation.
NOTE 10: EARNINGS PER SHARE
Earnings per share is calculated by dividing net profit by the average
number of outstanding shares.
1999 2000
---------- ----------
Net profit after minority interests......................... 1,836,000 10,882,000
Average number of outstanding shares........................ 10,926,063 12,204,349
Net profit and diluted profit per share..................... 0.17 0.89
NOTE 11: MAJOR TRANSACTIONS
1999 2000
------- ------
Gain on sale of Newbuilding Halla........................... 41,736 0
Gain on sale of M/T Jahre Prince............................ 0 76,895
Loss on sale of M/T Nordic Liberita......................... (12,022) 0
------- ------
TOTAL....................................................... 29,714 76,895
======= ======
NOTE 12: EQUITY
UGLAND NORDIC SHIPPING ASA
SHARE SHARE OTHER EQUITY
CAPITAL PREMIUM RESERVES
------- ------- ------------
Equity as at 31.12.1999.................................... 54,630 420,369 136,131
Equity issue............................................... 14,919 222,904
Merger..................................................... 26,000 344
Dividend................................................... (2,243)
Net profit................................................. 28,373
------ ------- -------
EQUITY AS AT 31.12.2000.................................... 69,549 669,273 162,605
====== ======= =======
F-57
164
UGLAND NORDIC SHIPPING GROUP
SHARE SHARE OTHER EQUITY
CAPITAL PREMIUM RESERVES
-------- ------- ------------
Equity as at 31.12.1999.................................... 54,630 420,369 92,892
Equity issue............................................... 14,919 222,904
Merger..................................................... 26,000 (26,000)
Dividend................................................... (2,243)
Translation differences.................................... 1,085
Net profit................................................. 10,882
------ ------- -------
EQUITY AS AT 31.12.2000.................................... 69,549 669,273 76,616
====== ======= =======
NOTE 13: GUARANTEES AND PLEDGED ASSETS
UGLAND NORDIC UGLAND NORDIC
SHIPPING ASA SHIPPING GROUP
----------------- ---------------------
1999 2000 2000 1999
------- ------- --------- ---------
Total debt secured by pledged assets, etc.
195,858 250,188 Debt to financial institutions.............................. 2,977,118 2,435,756
------- ------- --------- ---------
195,858 250,188 TOTAL....................................................... 2,977,118 2,435,756
======= ======= ========= =========
Book value of pledged assets:
0 0 Vessels..................................................... 3,404,550 2,583,050
5,765 21,331 Dividends................................................... 21,331 5,765
206,648 0 Shares in subsidiaries...................................... 0 0
205,604 177,083 Other shares................................................ 177,305 205,741
------- ------- --------- ---------
418,017 198,414 TOTAL....................................................... 3,603,186 2,794,556
------- ------- --------- ---------
35,000 48,232 Guarantees.................................................. 48,232 35,000
======= ======= ========= =========
The total guarantees to lenders of subsidiaries, jointly owned companies,
and associated companies amount to NOK 1,936,000,000.
The total debt of the Group consists of a number of loans that are secured
by pledged assets, assignments of earnings, bank accounts for freight revenues
and assignment of assurance of the respective vessel.
NOTE 14: LONG TERM DEBT
UGLAND NORDIC UGLAND NORDIC
SHIPPING ASA SHIPPING GROUP
INSTALLMENT PROFILE 2000 2000
- ------------------- ------------- --------------
2001........................................................ 131,686 507,840
2002........................................................ 35,931 298,909
2003........................................................ 40,356 426,747
2004........................................................ 42,215 386,037
2005 and thereafter......................................... 0 1,357,585
------- ---------
TOTAL DEBT TO FINANCIAL INSTITUTIONS........................ 250,188 2,977,118
======= =========
There have been no loans taken at a discount. The average interest rate in
2000 has been 7.12%. The loan agreements include a number of financial and
non-financial covenants. Significant covenants are related to change in
ownership structure, contract signings or change of existing contracts, minimum
value adjusted equity and minimum liquidity. The company satisfies all covenants
as at 31 December 2000.
F-58
165
NOTE 15: RELATED PARTIES
Andreas Ove Ugland, the Chairman of UNS, owns a controlling stake in Ugland
International Holding, which is a company that owns 2/3 of the shares in IUM
Shipmanagement AS. The costs associated with these services are based on
competitive rates. UNS is utilising technical management resources from IUM for
ten vessels and four newbuildings. Total management-fee paid to IUM for 2000
amounts to USD 1,621,000. As at 31 December 2000 IUM has accounts receivable
against UNS Group of USD 581,000.
Ulf G. Ryder, a Boardmember of UNS, is the President of Stena Bulk AB. The
Stena Group owns 500,000 shares in UNS as well as having ownership in three of
our vessels, Stena Alexita (50%), Stena Sirita (50%) and the newbuilding with
delivery in 2001 (50%). Additionally, Stena owns 50% of Ugland Stena Storage AS
and 50% of a company that is chartering in and timechartering out the Stena
Akarita.
NOTE 16: TAX EXPENSE
UGLAND NORDIC UGLAND NORDIC
SHIPPING ASA SHIPPING GROUP
--------------- ----------------
1999 2000 THE TAX EXPENSE COMPRISES FROM 2000 1999
------ ------ ------------------------------ ------- ------
0 0 Tax payable................................................. 112 698
6,951 11,614 Change in deferred taxes.................................... 11,498 15,802
0 0 Effect of tax law changes................................... 0 0
------ ------ ------- ------
6,951 11,614 Tax expense -- ordinary result, Norway...................... 11,610 16,500
====== ====== ======= ======
UGLAND NORDIC UGLAND NORDIC
SHIPPING ASA SHIPPING GROUP
--------------- ----------------
1999 2000 RECONCILIATION OF NOMINAL TO ACTUAL TAX RATE 2000 1999
------ ------ -------------------------------------------- ------- ------
39,248 39,987 Ordinary result after taxes................................. 52,930 17,968
0 0 Extraordinary result before taxes........................... 0 0
------ ------ ------- ------
39,248.. 39,987 NET PROFIT BEFORE TAXES..................................... 52,930 17,968
====== ====== ======= ======
10,990 11,197 Expected income tax according to nominal tax rate (28%)..... 14,820 5,031
------ ------ ------- ------
Tax effect from the following items
336... 269 Non-tax-deductible expenses................................. 667 356
(4,506) 0 Non-taxable revenue......................................... (161) (4,506)
0 0 Results from tax scheme for ship owning companies........... 15,941 19,247
(5) (5) Effect of dividend.......................................... 0 (5)
0..... 0 Change in deferred tax asset................................ (13,267) 271
136 153 Other items................................................. (6,390) (3,894)
------ ------ ------- ------
6,951 11,614 Tax expense................................................. 11,610 16,500
------ ------ ------- ------
17.7% 29.0% Effective tax rate.......................................... 21.9% 91.8%
====== ====== ======= ======
F-59
166
UGLAND NORDIC SHIPPING ASA
Specification of tax effect from temporary differences and tax losses
carried forward
2000 1999
------------------ ------------------
ASSETS LIABILITY ASSETS LIABILITY
------ --------- ------ ---------
Operating assets........................................ 11
Intangible fixed assets................................. 2
Fixed financial assets.................................. 618 230
Receivables............................................. 84
Investments............................................. 44 2,699
Current liabilities..................................... 84
Profit & Loss Account................................... 7,579 9,468
Tax losses carry forward................................ 4,464 9,677
------ -- ------ ------
TOTAL................................................... 12,707 84 22,085 84
====== == ====== ======
Deferred tax assets/liabilities......................... 12,623 22,001
Off-balance sheet deferred tax asset
------ -- ------ ------
NET DEFERRED TAX ASSET/LIABILITY........................ 12,623 0 22,001 0
====== == ====== ======
The deferred tax asset is based on future income.
UGLAND NORDIC SHIPPING GROUP
Specification of tax effect from temporary differences and tax losses
carried forward
2000 1999
------------------ ------------------
ASSETS LIABILITY ASSETS LIABILITY
------ --------- ------ ---------
Operating assets........................................ 2 452
Intangible fixed assets................................. 618
Fixed financial assets.................................. 478 230
Receivables............................................. 83
Investments............................................. 37 2,215
Current liabilities..................................... 86
Profit & Loss Account................................... 2,316 9,086
Tax losses carry forward................................ 15,134 23,580
------ ----- ------ --
TOTAL................................................... 15,791 2,880 35,563 83
====== ===== ====== ==
Deferred tax asset...................................... 12,911 35,480
Off-balance sheet deferred tax asset.................... 6 13,267
------ ----- ------ --
NET DEFERRED TAX ASSET.................................. 12,905 0 22,213 0
====== ===== ====== ==
The Group has NOK 486,215 in untaxed equity covered by the special taxation
scheme for shipowners.
The deferred tax asset is based on future income.
As at 31 December 2000 UNS and the UNS Group have tax losses to be carried
forward amounting to NOK 15,942 and NOK 54,049, respectively.
The tax losses to be carried forward expire in 2004.
F-60
167
NOTE 17: SHARE CAPITAL AND SHAREHOLDERS
As at 31 December 2000 the share capital of UNS consists of 13,909,772
A-class shares at a nominal value of NOK 5. Refer to page 32 for a list of
shareholders as at 26 March 2001. All shares give equal voting rights.
THE 20 LARGEST SHAREHOLDERS AS AT 31 DECEMBER 2000
NAME NO. OF SHARES % OF TOTAL
- ---- ------------- ----------
1 Andreas Ugland family................................... 2,667,753 19.18%
2 Knut Axel Ugland Holding................................ 1,377,809 9.91%
3 ABBC Asset Management................................... 1,242,867 8.94%
4 L. Gill-Johannessen AS.................................. 640,000 4.60%
5 Odin Norge.............................................. 596,300 4.29%
6 Orkla ASA............................................... 515,964 3.71%
7 Stena Bulk AB........................................... 500,000 3.59%
8 Folketrygdfondet........................................ 460,000 3.31%
9 Tine Pensjonskasse...................................... 434,950 3.13%
10 First Olsen Tankers..................................... 361,500 2.60%
11 Storebrand Livsforsikring............................... 308,300 2.22%
12 Aksjefondet Gambak...................................... 300,000 2.16%
13 Verdipapirfondet Skagen................................. 300,000 2.16%
14 DnB Markets............................................. 288,300 2.07%
15 Hartog & Co. AS......................................... 210,000 1.51%
16 Vital Forsikring ASA.................................... 200,700 1.44%
17 Ugland Capital Partners................................. 185,000 1.33%
18 K-Holding AS............................................ 166,000 1.19%
19 Euroclear Bank AS....................................... 150,900 1.08%
20 Gezina AS............................................... 145,200 1.04%
Others................................................. 2,858,229 20.55%
---------- -------
TOTAL....................................................... 13,909,772 100.00%
========== =======
SHARES IN UNS AS OWNED/CONTROLLED BY THE COMPANY'S DIRECTORS AS AT 31 DECEMBER
2000
NO. OF SHARES
-------------
Tharald Brvig............................................... 145,200
Herbjrn Hansson (CEO.)...................................... 90,000
Njal Hansson................................................ 128,000
Ulf G. Ryder................................................ 0
Christian Rytter jr......................................... 641,000
Andreas Ove Ugland (Chairman)............................... 185,000
Johan Benad Ugland.......................................... 2,667,753
---------
TOTAL....................................................... 3,856,953
=========
NOTE 18: AREA OF BUSINESS
The UNS Group has only one area of business, which is oceangoing
transportation. The company operating income is split between 86% sales in
Norway and 14% in Finland.
F-61
168
NOTE 19: FORWARD RATE AGREEMENTS
The following forward rate agreements have been entered
AMOUNT INTEREST RATE START DATE DURATION
- ------ ------------- ---------- --------
USD 10 m.................................................. 6.030% 19.12.97 4 years
USD 15 m.................................................. 6.030% 12.05.98 4 years
USD 10 m.................................................. 5.940% 19.05.98 3 years
USD 10 m.................................................. 5.700% 17.03.99 3 years
In addition, USD 67,000,000 relating to debt on two vessels has been
secured through regulations in the time charter rate as a result of interest
changes.
NOTE 20: CONDITIONAL OUTCOME
There are no events with conditional outcome at the end of the financial
year and no events have taken place subsequent to the balance sheet date that
will affect the given financial statements.
F-62
169
TEEKAY SHIPPING CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS AT MARCH 31, 2001
(IN THOUSANDS OF U.S. DOLLARS)
PRO FORMA PRO FORMA
TEEKAY(I) ADJUSTMENTS NOTES CONSOLIDATED(II)
--------- ----------- ----- -----------------
ASSETS
Current
Cash and cash equivalents....................... 296,940 (79,399) (4) 217,541
Marketable securities........................... 7,270 -- 7,270
Accounts receivable............................. 76,180 -- 76,180
Prepaid expenses and other assets............... 27,188 -- 27,188
--------- ------- ---------
Total current assets............................ 407,578 (79,399) 328,179
--------- ------- ---------
Marketable securities........................... 43,844 -- 43,844
Vessels and equipment (including advances on new
building contracts)........................... 1,944,208 -- 1,944,208
Investment in joint ventures.................... 46,402 -- 46,402
Other assets.................................... 17,482 -- 17,482
Goodwill........................................ 58,818 31,688 (4) 90,506
--------- ------- ---------
2,518,332 (47,711) 2,470,621
========= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable................................ 20,924 -- 20,924
Accrued liabilities............................. 48,408 -- 48,408
Current portion of long-term debt............... 123,058 -- 123,058
--------- ------- ---------
Total current liabilities....................... 192,390 -- 192,390
--------- ------- ---------
Long-term debt.................................. 985,636 -- 985,636
Other long-term liabilities..................... 38,558 -- 38,558
--------- ------- ---------
Total liabilities............................... 1,216,584 -- 1,216,584
--------- ------- ---------
Minority interest............................... 66,968 (47,711) (4) 19,257
Stockholders' equity............................ 458,605 -- 458,605
Capital stock................................... 777,618 -- 777,618
Accumulated other comprehensive loss............ (1,443) -- (1,443)
--------- ------- ---------
Total stockholders' equity...................... 1,234,780 -- 1,234,780
--------- ------- ---------
2,518,332 (47,711) 2,470,621
========= ======= =========
- ---------------
(i) Reflects the acquisition of a 64% interest in UNS on March 6, 2001.
(ii) Pro Forma as though the remaining 36% interest in UNS was purchased on
March 31, 2001.
The accompanying notes are an integral part of the unaudited pro forma
consolidated condensed financial statements
F-63
170
TEEKAY SHIPPING CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(IN THOUSANDS OF U.S. DOLLARS)
UNS
(JANUARY 1 - PRO FORMA PRO FORMA
TEEKAY(I) MARCH 5/01) ADJUSTMENTS NOTES CONSOLIDATED
--------- ------------ ----------- ----- ------------
NET VOYAGE REVENUES
Voyage revenues.......................... 307,886 17,188 325,074
Voyage expenses.......................... 62,730 928 63,658
------- ------ ------ -------
Net voyage revenues...................... 245,156 16,260 261,416
------- ------ ------ -------
OPERATING EXPENSES
Vessel operating expenses................ 33,879 4,371 38,250
Time charter hire expense................ 17,183 -- 17,183
Depreciation and amortization............ 27,351 4,206 31,557
Goodwill amortization.................... 170 -- 948 (5a) 1,118
General and administrative............... 10,838 1,207 12,045
------- ------ ------ -------
89,421.. 9,784 948 100,153
------- ------ ------ -------
Income from vessel operations............ 155,735 6,476 (948) 161,263
------- ------ ------ -------
OTHER ITEMS
Interest expense......................... (14,786) (3,717) (2,840) (5b) (21,343)
Interest income.......................... 2,803 197 3,000
Equity income............................ 2,793 481 94 (5c) 3,368
Other income (loss)...................... (1,857) 455 211 (5d) (1,191)
------- ------ ------ -------
(11,047) (2,584) (2,535) (16,166)
------- ------ ------ -------
NET INCOME............................... 144,688 3,892 (3,483) 145,097
======= ====== ====== =======
Proforma Basic Earnings per Common
Share.................................. $ 3.70
Proforma Diluted Earnings per Common
Share.................................. $ 3.60
Weighted average number of shares
outstanding (thousands)................ 39,230
- ---------------
(i) Includes results of UNS (64% interest) for the period March 6, 2001 to
March 31, 2001.
The accompanying notes are an integral part of the unaudited pro forma
consolidated condensed financial statements
F-64
171
TEEKAY SHIPPING CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS OF U.S. DOLLARS)
PRO FORMA PRO FORMA
TEEKAY UNS ADJUSTMENTS NOTES CONSOLIDATED
------- ------- ----------- ----- ------------
NET VOYAGE REVENUES
Voyage revenues......................... 893,226 69,081 962,307
Voyage expenses......................... 248,957 -- 248,957
------- ------- ------- ---------
Net voyage revenues..................... 644,269 69,081 713,350
------- ------- ------- ---------
OPERATING EXPENSES
Vessel operating expenses............... 125,415 20,660 146,075
Time charter hire expense............... 53,547 -- 53,547
Depreciation and amortization........... 100,153 18,610 118,763
Goodwill amortization................... -- -- 4,534 (5a) 4,534
General and administrative.............. 37,479 5,966 43,445
------- ------- ------- ---------
316,594 45,236 4,534 366,364
------- ------- ------- ---------
Income from vessel operations........... 327,675 23,845 (4,534) 346,986
------- ------- ------- ---------
OTHER ITEMS
Interest expense........................ (74,540) (16,641) (15,319) (5b) (106,500)
Interest income......................... 13,021 2,069 15,090
Equity income 9,546 2,240 11,786
Other income (loss)..................... (5,682) 3,874 (1,808)
------- ------- ------- ---------
(57,055) (8,458) (15,319) (81,432)
------- ------- ------- ---------
Net income.............................. 270,020 15,387 (19,853) 265,554
======= ======= ======= =========
Pro forma Basic Earnings per Common
Share................................. $ 6.90
Pro forma Diluted Earnings per
Common Share.......................... $ 6.75
Weighted average number of shares
outstanding (thousands)............... 38,468
The accompanying notes are an integral part of the unaudited pro forma
consolidated condensed financial statements
F-65
172
TEEKAY SHIPPING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated condensed financial statements (the
"Financial Statements") give effect to the acquisition (the "Acquisition") of
100% of the issued and outstanding shares of Ugland Nordic Shipping ASA ("UNS")
by Teekay Shipping Corporation ("Teekay"). The Financial Statements have been
prepared by management in accordance with accounting principles generally
accepted in the United States from the information derived from the audited
historical financial statements of Teekay and UNS (adjusted as indicated in Note
3 below) for the year ended December 31, 2000 and the unaudited historical
financial statements for the three months ended March 31, 2001. In the opinion
of management, the Financial Statements include all adjustments necessary for
fair presentation.
As of March 31, 2001, Teekay had purchased approximately 64% of the issued
and outstanding shares of UNS. Subsequent to March 31, 2001, Teekay acquired the
remaining 36% of the issued and outstanding shares in UNS. Accordingly, the
Financial Statements contained herein give effect to the acquisition of 100% of
the issued and outstanding shares of UNS.
The unaudited pro forma consolidated condensed statements of income for the
three months ended March 31, 2001 and the year ended December 31, 2000 give
effect to the Acquisition as though it had taken place on January 1, 2000. The
unaudited pro forma consolidated condensed balance sheet as at March 31, 2001 is
based on the unaudited consolidated balance sheets of Teekay and UNS as of that
date and gives effect to the Acquisition as though the remaining 36% of the
issued and outstanding shares in UNS were purchased on March 31, 2001.
The Financial Statements are not necessarily indicative of what the results
of operations and financial position would have been, nor do they purport to
project Teekay's results of operations for any future periods. The Financial
Statements also do not include any expected benefits or cost savings arising
from the Acquisition. The Financial Statements should be read in conjunction
with the consolidated financial statements of Teekay and UNS referred to above.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed in preparing the Financial Statements are
those used by Teekay as set out in the consolidated financial statements
contained in Teekay's Annual Report on Form 20-F as at and for the year ended
December 31, 2000, and in Teekay's Quarterly Report on Form 6-K for the three
months ended March 31, 2001.
3. ACCOUNTING TREATMENT FOR THE ACQUISITION
The Acquisition has been accounted for using the purchase method of
accounting. The results of operations of UNS are included from the assumed date
of acquisition. UNS' accounting policies have been adjusted to be consistent
with those of Teekay.
F-66
173
TEEKAY SHIPPING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
4. PRO FORMA GENERAL ASSUMPTIONS AND PURCHASE PRICE ALLOCATION
GENERAL ASSUMPTIONS
Teekay purchased all of the issued and outstanding shares of Ugland Nordic
Shipping ASA ("UNS Shares") at an average price per share of Norwegian Kroner
136 in cash or U.S. $15.26 per share. The Financial Statements reflect the
following:
- 100% of outstanding UNS Shares were exchanged for cash;
- all common shareholders of UNS at March 31, 2001 have tendered their
shares, representing 14,169,772 UNS Shares;
- total purchase consideration (in millions of U.S.
dollars):
Cash paid -- prior to March 31, 2001................ $136.9
Cash paid -- subsequent to March 31, 2001........... 79.4
Estimated transaction and integration costs included
in accounts payable and accrued liabilities........ 7.0
------
$223.3
======
PURCHASE PRICE ALLOCATION
The excess of the purchase price over the fair market value of the net
assets of UNS has been allocated to goodwill. The purchase price includes an
accrual of $7.0 million for estimated transaction and integration costs.
The following table describes the allocation of the purchase price as at
March 31, 2001 (in millions of U.S. dollars):
64% 36%
INTEREST INTEREST TOTAL
-------- -------- -----
$ $ $
Net assets acquired......................................... 84.9 47.7 132.6
Goodwill.................................................... 59.0 31.7 90.7
----- ---- -----
143.9 79.4 223.3
===== ==== =====
The pro forma consolidated condensed balance sheet incorporates the
following adjustments:
- the purchase price consideration and allocation adjustments as described
above, including the following adjustment to minority interest (in
millions of U.S. dollars):
Net assets acquired......................................... $132.6
Ownership interest as of March 31, 2001..................... 64%
Minority interest portion of net assets acquired............ $ 47.7
======
F-67
174
TEEKAY SHIPPING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS -- (CONTINUED)
5. UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME
The unaudited pro forma consolidated condensed statements of income
incorporates the following adjustments:
(a) Goodwill amortization related to the Acquisition of UNS is calculated
on a straight-line basis over a 20 year period. As a result, goodwill
amortization increased by $0.9 million for the three months ended
March 31, 2001 and by $4.5 million for the year ended December 31,
2000.
(b) Interest expense at 6.5% and 7.1% (the average historical cost of
debt on outstanding debt for the three months ended March 31, 2001
and the year ended December 31, 2000, respectively) has been
increased by $2.8 million for the three months ended March 31, 2001
and by $15.3 million for the year ended December 31, 2000 to reflect
the additional interest expense that would have been incurred had the
Acquisition occurred on January 1, 2000.
(c) Teekay's equity income for the three months ended March 31, 2001 has
been adjusted to reverse the equity loss earned from the 9% ownership
in UNS for the period from January 1, 2001 to March 5, 2001 so that
the results for the three months ended March 31, 2001 give effect to
the Acquisition as if it had it taken place on January 1, 2000.
(d) Teekay's other income (loss) for the three months ended March 31,
2001 has been adjusted to reverse the minority interest portion of
UNS' results for the period from March 6, 2001 to March 31, 2001 so
that the results for the three months ended March 31, 2001 give
effect to the Acquisition as if it had it taken place on January 1,
2000.
6. UNAUDITED PRO FORMA CONSOLIDATED EARNINGS PER SHARE
The unaudited pro forma consolidated earnings per share have been
calculated based upon the weighted average number of Teekay Shares outstanding
during the periods presented.
F-68
175
EXHIBIT A
DEFINITIONS OF SHIPPING TERMS
The following is a set of definitions for shipping terms that are used
throughout this prospectus:
"AFRAMAX TANKER" An oil tanker of 80,000 to 120,000 dwt. Certain
external statistical compilations define an "Aframax Tanker" slightly
differently, some going as high as 125,000 dwt and others as low as 70,000
dwt. External data used in this prospectus has been adjusted so that the
definition of "Aframax Tanker" is consistent throughout.
"ANNUAL SURVEY" An annual inspection of a vessel by a classification
society surveyor to ensure that the vessel meets the standards of that
society.
"BALLAST" A vessel is in ballast when it is steaming without cargo, and
is instead loaded down with sea water for stability. Given that oil
production is concentrated in certain parts of the world, a vessel will
generally spend a significant amount of time "ballasting" as it returns
from discharge port to load port.
"BAREBOAT CHARTER" The leasing of an empty ship for a specified period
of time for a specific fee. In this arrangement, the shipowner virtually
relinquishes all rights and responsibilities in respect of the vessel and
the charterer becomes the de facto ("disponent") owner for this period. The
charterer is generally responsible for all operating expenses including
crewing and insurance.
"BUNKER" Fuel oil used to operate a vessel's engines and generators.
"CHARTER" The hiring of a vessel for either (1) a specified period of
time or (2) a specific voyage or set of voyages.
"CHARTERER" The entity hiring the vessel from the shipowner.
"CHARTER-PARTY" The contract between the owner and the charterer,
stipulating in detail each party's responsibilities in the transaction.
"CLASSIFICATION" In order for a vessel to obtain both insurance and
employment with most oil majors, the vessel must belong to a classification
society, an independent body run under the direction of various shipping
professionals. In order to maintain classification, a vessel must meet the
standards of that society and be inspected on a regular basis.
"CRUDE CARRIER" A tanker vessel designed to carry crude oil or other
dirty products.
"DEMURRAGE" Compensation paid by the charterer to the ship owner when
loading and discharging time exceed the stipulated time in the voyage
charter-party. This rate of compensation is generally explicitly stated in
the charter-party.
"DOUBLE BOTTOM OR DOUBLE HULL" Hull construction technique by which a
ship has an inner and outer bottom or hull separated by void space, usually
several feet in width.
"DWT" Deadweight ton. A unit of a vessel's capacity, for cargo, fuel
oil, stores and crew, measured in metric tons of 1,000 kg. A vessel's dwt
or total deadweight is the total weight the vessel can carry when loaded to
a particular load line.
"HEAVY PETROLEUM PRODUCTS" Certain products derived from crude oil that
crude carriers are capable of carrying.
"IDLE-TIME" or "WAITING DAYS" Period during which a vessel is able to be
employed but is not earning revenue.
"IMO" International Maritime Organization, a United Nations agency that
issues international trade standards for shipping.
A-1
176
"INTERMEDIATE SURVEY" The inspection of a vessel by a classification
society surveyor which takes place approximately two and a half years
before and after each Special Survey. This survey is more rigorous than the
"Annual Survey" and is meant to ensure that the vessel meets the standards
of the classification society.
"LADEN" A vessel is laden when it is carrying cargo.
"LAY-UP" Mooring a ship at a protected anchorage, shutting down
substantially all of its operating systems and taking measures to protect
against corrosion and other deterioration. Generally, a ship enters lay-up
for a period when its owner does not consider it profitable to continue
trading that vessel for that period.
"LIGHT PETROLEUM PRODUCTS" Products of crude oil that have passed
through an extensive refining process. It is generally not possible for
crude carriers to carry these products.
"M/T" Motor Tanker. A tanker propelled by diesel engines.
"NEWBUILDING" A new vessel under construction.
"OFF-HIRE" Period during which a vessel is temporarily incapable of
trading due to drydocking, maintenance, repair or breakdown or other causes
for which the owner is deemed to be responsible.
"OIL/BULK/ORE CARRIER" or "O/B/O" An ocean-going vessel designed to
carry either oil or dry bulk cargoes.
"OPA 90" The United States Oil Pollution Act of 1990.
"PANAMAX TANKER" A vessel of approximately 60,000 to 80,000 dwt, of
maximum length and breadth and draught capable of passing through the
Panama Canal.
"PROTECTION AND INDEMNITY INSURANCE" Insurance obtained through a mutual
association formed by ship owners to provide protection from liability to
third parties to one member by contribution towards that loss by all
members as well as the proceeds of reinsurance maintained by the mutual
associations.
"SCRAP" At the end of its life, a vessel is sold to a shipbreaker who
strips the ship and sells the steel. When charter rates are low, the scrap
value of the vessel may exceed the present trading value of that vessel,
especially if the vessel must incur significant costs to pass special
surveys.
"SHUTTLE TANKER" A vessel generally of 80,000 to 150,000 dwt that
contains sophisticated equipment designed to transport oil from offshore
production platforms to onshore storage and refinery facilities in harsh
environmental conditions.
"SMALL TANKER" A tanker generally of less than 60,000 dwt.
"SPECIAL SURVEY" The inspection of a vessel by a classification society
surveyor which takes place every four to five years. A shipowner often must
incur a great deal of repair expense in order to pass his fourth and fifth
special survey and as a result may choose to simply scrap the vessel
beforehand.
"SPOT MARKET" The market for chartering a vessel for single voyages.
"STORAGE" The use of a vessel for the storage rather than the
transportation of cargo. When spot market rates are low, a vessel can earn
comparable net cash flow from storage.
"SUEZMAX TANKER" A vessel of approximately 120,000 to 200,000 dwt of
maximum length and breadth and draft capable of passing through the Suez
Canal.
"TCE" or "TIME CHARTER EQUIVALENT" A measure of revenue performance
based on a spot market rate, measured in $/ton, adjusted to equate to a
time charter rate, measured in dollars per ship per day. TCE is calculated
as gross revenue less the voyage specific expenses that the
A-2
177
owner would not have incurred had the vessel been time-chartered, divided
by the number of voyage days. Consistent with industry data, such as that
produced by Clarkson, the TCE rates used in this prospectus do not account
for brokerage commissions or off-hire and idle time.
"TANKER" Ship designed for the carriage of liquid cargoes in bulk, her
cargo space consisting of many tanks. Tankers carry a variety of products
including crude oil, refined products, liquid chemicals, liquid gas and
wine. Tankers load their cargo by gravity from the shore or by shore pumps
and discharge using their own pumps.
"TIME CHARTER" The hire of a ship for a specified period of time. The
owner provides the ship with crew, stores and provisions, ready in all
aspects to load cargo and proceed on a voyage as directed by the charterer.
The charterer pays for bunkering and all voyage related expenses including
canal tolls and port charges.
"TON-MILES" A measure of tanker demand. Tons carried by a vessel
multiplied by the distance traveled.
"ULCC" Ultra Large Crude Carrier. An ocean-going tanker vessel of more
than 320,000 dwt, designed to carry crude oil cargoes.
"VLCC" Very Large Crude Carrier. An ocean-going tanker vessel of between
200,000 and 320,000 dwt, designed to carry crude oil cargoes.
"VOYAGE CHARTER" Contract of carriage in which the charterer pays for
the use of a ship's cargo capacity for one, or sometimes more than one,
voyage between specified ports. Under this type of charter, the ship owner
pays all the operating costs of the ship (including bunkers, canal and port
charges, pilotage, towage and ship's agency) while payment for cargo
handling charges are subject of agreement between the parties. Freight is
generally paid per unit of cargo, such as a ton, based on an agreed
quantity, or as a lump sum irrespective of the quantity loaded.
A-3
178
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS
AN OFFER ONLY TO SELL THE NOTES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND
IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
----
Where You Can Find More Information... i
Special Note Regarding Forward-Looking
Statements.......................... ii
Service of Process and Enforcement of
Liabilities......................... iii
Prospectus Summary.................... 1
Risk Factors.......................... 12
Use of Proceeds....................... 21
Capitalization........................ 22
Selected Consolidated Financial and
Other Data.......................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 27
Business.............................. 38
Management............................ 60
Principal Stockholders................ 63
Certain Transactions with Related
Parties............................. 64
Description of Certain Debt........... 65
The Exchange Offer.................... 67
Description of the Notes.............. 77
Form Denomination, Book-Entry
Procedures and Transfer............. 91
Registration Rights................... 93
Tax Considerations.................... 96
Plan of Distribution.................. 100
Legal Matters......................... 101
Experts............................... 101
Index to Financial Statements......... F-1
Definitions of Shipping Terms......... A-1
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$250,000,000
------------------------------
LOGO
------------------------------
TEEKAY SHIPPING CORPORATION
OFFER TO EXCHANGE ALL 8.875%
SENIOR NOTES DUE JULY 15, 2011
FOR 8.875% SENIOR NOTES DUE
JULY 15, 2011, WHICH HAVE
BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
---------------------------
PROSPECTUS
---------------------------
, 2001
- ------------------------------------------------------
- ------------------------------------------------------
179
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Teekay Shipping Corporation ("Teekay") is a Marshall Islands corporation.
The Marshall Islands Business Corporation Act ("MIBCA") provides that a Marshall
Islands corporation shall have the power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director or officer of the corporation,
or is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of no contest, or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe his conduct was unlawful.
A Marshall Islands corporation also has the power to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him or in connection with the defense
or settlement of such action or suit if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
To the extent that a director or officer of a Marshall Islands corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in the preceding paragraph, or in the defense of a claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid in advance of the final disposition of such action, suit
or proceeding as authorized by the board of directors in the specific case upon
receipt of an undertaking by or on behalf of the director or officer to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in the MIBCA.
In addition, a Marshall Islands corporation has the power to purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the corporation or is or was serving at the request of the corporation as a
director or officer against any liability asserted against him and incurred by
him in such capacity whether or not the corporation would have the power to
indemnify him against such liability under the provisions of the MIBCA.
Section J of Teekay's Articles of Incorporation, as amended, provides that
to the fullest extent permitted under the MIBCA, a director of Teekay shall not
be liable to Teekay or its shareholders for monetary damages for breach of
fiduciary duty as a director. Section 10.00 of Teekay's Bylaws provides
II-1
180
that any person who is made party to a proceeding by virtue of being an officer
or director of Teekay or, being or having been such a director or officer or an
employee of Teekay, serving at the request of Teekay as a director, officer,
employee or agent of another corporation or other enterprise, shall be
indemnified and held harmless to the fullest extent permitted by the MIBCA
against any and all expense, liability, loss (including attorneys' fees,
judgments, fines or penalties and amounts paid in settlement) actually incurred
or suffered by such person in connection with the proceeding.
In addition, Teekay has entered into separate Indemnification Agreements
with each of Teekay officers and directors listed in the Registration Statement
which provide for indemnification of the director or officer against all
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative except to the extent that such person is otherwise indemnified,
such action, suit or proceeding arose out of such person's intentional
misconduct, knowing violation of law or out of a transaction in which such
director or officer is finally judicially determined to have derived an improper
personal benefit or if it shall be determined by a final judgment or other final
adjudication that such indemnification was not lawful.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of this Registration Statement:
EXHIBIT NO: DESCRIPTION
- ----------- -----------
3.1 Amended and Restated Articles of Incorporation of Teekay
Shipping Corporation.(1)
3.2 Articles of Amendment of Articles of Incorporation of Teekay
Shipping Corporation.(1)
3.3 Amended and Restated Bylaws of Teekay Shipping
Corporation.(1)
4.1 Registration Rights Agreement among Teekay Shipping
Corporation, Tradewinds Trust Co. Ltd., as Trustee for the
Cirrus Trust, and Worldwide Trust Services Ltd., as Trustee
for the JTK Trust.(2)
4.2 Specimen of Teekay Shipping Corporation Common Stock
Certificate.(2)
4.3 Indenture dated January 29, 1996 among Teekay Shipping
Corporation, 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.(3)
4.4 Specimen of Teekay Shipping Corporation's 8.32% First
Preferred Ship Mortgage Notes Due 2008.(3)
4.5 Bahamian Statutory Ship Mortgage dated January 29, 1996 by
Nassau Spirit Inc. to United States Trust Company of New
York.(3)(4)
4.6 Deed of Covenants dated January 29, 1996 by Nassau Spirit
Inc. to United States Trust Company of New York.(3)(4)
4.7 First Preferred Ship Mortgage dated January 29, 1996 by VSSI
Oceans Inc. to United States Trust Company of New York, as
Trustee.(5)
4.8 Assignment of Time Charter dated January 29, 1996 by Nassau
Spirit Inc. to United States Trust Company of New York, as
Trustee.(3)(4)
4.9 Assignment of Insurance dated January 29, 1996 by Nassau
Spirit Inc. to United States Trust Company of New York, as
Trustee.(3)(4)
4.10 Pledge Agreement and Irrevocable Proxy dated January 29,
1996 by Teekay Shipping Corporation in favor of United
States Trust Company of New York, as Trustee.(3)
4.11 Guarantee dated January 29, 1996 by Nassau Spirit Inc. in
favor of United States Trust Company of New York, as
Trustee.(3)(4)
4.12 Assignment of Freights and Hires dated January 29, 1996 by
Nassau Spirit Inc. to United States Trust Company of New
York, as Trustee.(3)(4)
II-2
181
EXHIBIT NO: DESCRIPTION
- ----------- -----------
4.13 Cash Collateral Account Agreement dated January 29, 1996
between Nassau Spirit Inc. and United States Trust Company
of New York, as Trustee.(3)(4)
4.14 Investment Account Agreement dated January 29, 1996 between
Teekay Shipping Corporation and United States Trust Company
of New York, as Trustee.(3)
4.15 Indenture dated June 22, 2001 among Teekay Shipping
Corporation and U.S. Trust Company of Texas, N.A.
4.16 Exchange and Registration Rights Agreement dated June 22,
2001 among Teekay Shipping Corporation and Goldman, Sachs &
Co., Morgan Stanley & Co. Incorporated, Salomon Smith Barney
Inc., Deutsche Banc Alex. Brown Inc., J.P. Morgan Securities
Inc., Fleet Securities, Inc. and Scotia Capital (USA) Inc.
4.17 Specimen of Teekay Shipping Corporation's 8.875% Senior
Notes due 2011.
5.1 Opinion of Perkins Coie LLP, special counsel to the
registrant, as to the legality under U.S. law of the notes
being offered by Teekay Shipping Corporation.
8.1 Opinion of Perkins Coie LLP, regarding certain U.S. tax
matters (contained in opinion filed as Exhibit 5.1).
8.2 Opinion of Seward and Kissel, LLP, regarding certain U.S.
tax matters.
8.3 Opinion of Watson, Farley & Williams LLP, regarding Marshall
Islands tax matters.
8.4 Opinion of Graham, Thompson & Co., regarding Bahamian tax
matters.
8.5 Opinion of Appleby Spurling & Kempe, regarding Bermuda tax
matters.
8.6 Opinion of Bugge, Arentz-Hansen & Rasmussen, regarding
Norwegian tax matters.
10.1 1995 Stock Option Plan.(2)
10.2 Amendment to 1995 Stock Option Plan.(6)
10.3 Amended 1995 Stock Option Plan.(7)
10.4 Form of Indemnification Agreement between Teekay Shipping
Corporation and each of its officers and directors.(2)
10.5 Charter Party, as amended, dated September 21, 1989 between
Palm Shipping Inc. and BP Shipping Limited.(8)
10.6 Time Charter, as amended, dated July 3, 1995 between VSSI
Oceans Inc. and Palm Shipping Inc.(5)
10.7 Time Charter, as amended, dated January 4, 1994 between VSSI
Atlantic Inc. and Palm Shipping Inc.(5)
10.8 Time Charter, as amended, dated February 1, 1992 between
VSSI Appian Inc. and Palm Shipping Inc.(5)
10.9 Time Charter, as amended, dated December 1, 1993 between
Senang Spirit Inc. and Palm Shipping Inc.(5)
10.10 Time Charter, as amended, dated August 1, 1992 between Exuma
Spirit Inc. and Palm Shipping Inc.(5)
10.11 Time Charter, as amended, dated May 1, 1992 between Nassau
Spirit Inc. and Palm Shipping Inc.(5)
10.12 Time Charter, as amended, dated November 1, 1992 between
Andros Spirit Inc. and Palm Shipping Inc.(5)
10.13 Management Agreement, as amended, dated June 1, 1992 between
Teekay Shipping Limited and Nassau Spirit Inc.(5)(4)
10.14 Agreement, dated October 3, 1996, for a U.S. $90,000,000
Term Loan Facility to be made available to certain
subsidiaries of Teekay Shipping Corporation by Christiania
Bank og Kreditkasse, acting through its New York Branch, The
Bank of Nova Scotia, and Banque Indosuez.(9)
II-3
182
EXHIBIT NO: DESCRIPTION
- ----------- -----------
10.15 Agreement, dated October 18, 1996, for a U.S. $120,000,000
Term Loan Facility to be made available to certain
subsidiaries of Teekay Shipping Corporation by Den Norske
Bank ASA, Nederlandse Scheepshypothesbank N.V., The Bank of
New York, and Midland Bank plc.(9)
10.16 Agreement, dated January 26, 1998, for a U.S. $200,000,000
Reducing Revolving Credit Facility to be made available to
certain wholly-owned subsidiaries of Teekay Shipping
Corporation by Den Norske Bank ASA, Christiania Bank og
Kreditkasse ASA, New York Branch, and the Bank of Nova
Scotia.(10)
10.17 Agreement, dated March 26, 1999, for the amalgamation of
Northwest Maritime Inc., a 100% owned subsidiary of Teekay
Shipping Corporation, and Bona Shipholding Ltd.(11)
10.18 Agreement, dated April 16, 1998, for a U.S. $30,000,000 Term
Loan Facility to be made available to VSSI Australia Limited
by Rabo Australia Limited.(1)
10.19 Agreement, dated December 18, 1997, for a U.S. $44,000,000
Term Loan Facility to be made available to Barrington
(Australia) Pty Limited and Palmerston (Australia) Pty
Limited by Rabo Australia Limited.(1)
10.20 Amended and Restated Reimbursement Agreement, dated April
16, 1998, Among Barrington (Australia) Pty Limited,
Palmerston (Australia) Pty Limited, VSSI Australia Limited,
VSSI Transport Inc. and Alliance Chartering Pty Limited and
Nedship Bank (America) N.V., The Bank of New York and
Landesbank Schleswig-Holstein.(1)
10.21 Amendment No. 1, dated May 1999, to Amended and Restated
Reimbursement Agreement dated April 16, 1998 among
Barrington (Australia) Pty Limited, Palmerston (Australia)
Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and
Alliance Chartering Pty Limited and Nedship Bank (America)
N.V., The Bank of New York and Landesbank
Schleswig-Holstein.(1)
10.22 Amended and Restated Agreement, date June 11, 1999, for a
$500,000,000 Revolving Loan between Bona Shipholding Ltd.,
Chase Manhattan plc, Citibank International plc and various
other banks.(1)
10.23 Amendment and Restatement Agreement, dated June 11, 1999,
relating to a U.S. $500,000,000 Revolving Loan Agreement
between Bona Shipholding Ltd., Chase Manhattan plc, Citibank
International plc and various other banks.(1)
10.24 Rights Agreement, dated as of September 8, 2000, between
Teekay Shipping Corporation and The Bank of New York, as
Rights Agent.(12)
10.25 Reimbursement Agreement, dated January 1, 2000, between
Fleet Management Inc. and Teekay Shipping Corporation.(10)
10.26 Reimbursement Agreement, dated February 16, 2001, between
Karratha Spirit Pty Ltd and Nedship Bank (America) N.V.(13)
10.27 Agreement, dated February 16, 2001, for a U.S. $34,000,000
Term Loan Facility to be made available to Karratha Spirit
Pty Ltd by Rabo Australia Limited.(13)
10.28 Form of Exchange Agent Agreement between United States Trust
Company of New York, as exchange agent, and Teekay Shipping
Corporation.*
12.1 Statement regarding the computation of ratio of earnings to
fixed charges for Teekay Shipping Corporation.
15.1 Letter from Ernst & Young, as independent chartered
accountants, regarding unaudited interim financial
information.
21.1 List of Significant Subsidiaries of Teekay Shipping Company.
23.1 Consent of Perkins Coie, LLP (contained in Exhibit 5.1).
23.2 Consent of Seward and Kissel, LLP (contained in Exhibit
8.2).
23.3 Consent of Watson, Farley & Williams LLP (contained in
Exhibit 8.3).
II-4
183
EXHIBIT NO: DESCRIPTION
- ----------- -----------
23.4 Consent of Graham, Thompson & Co. (contained in Exhibit
8.4).
23.5 Consent of Appleby Spurling & Kempe (contained in Exhibit
8.5)
23.6 Consent of Bugge, Arentz-Hansen & Rasmussen (contained in
Exhibit 8.6)
23.7 Consent of Ernst & Young LLP.
23.8 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (contained on signature pages).
25.1 Statement of Eligibility of U.S. Trust Company of Texas,
N.A., as trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
- ---------------
* To be filed as an amendment.
(1) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on March 30, 2000, and hereby incorporated by reference
to such Annual Report.
(2) 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.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on June 4, 1996, and hereby incorporated by reference to
such Annual Report.
(4) 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.
(5) 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.
(6) Previously filed as an exhibit to the Company's Report on Form 6-K, filed
with the SEC on May 2, 2000, and hereby incorporated by reference to such
Report.
(7) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on April 2, 2001, and hereby incorporated by reference to
such Annual Report.
(8) Previously filed as an exhibit to the Company's Registration Statement on
Form F-1 (Registration No. 33-68680), as declared effective by the SEC on
November 29, 1993, and hereby incorporated by reference to such Registration
Statement.
(9) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on June 11, 1997, and hereby incorporated by reference to
such Annual Report.
(10) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on May 20, 1998, and hereby incorporated by reference to
such Annual Report.
(11) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on June 11, 1999, and hereby incorporated by reference
to such Annual Report.
(12) Previously filed as an exhibit to the Company's Form 8-A, filed with the
SEC on September 11, 2000, and hereby incorporated by reference to such
filing.
(13) Previously filed as an exhibit to the Company's Report on Form 6-K filed
with the SEC on May 24, 2001, and hereby incorporated by reference to such
report.
II-5
184
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers for sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation form the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3, Form S-8
or Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statement required by Item 8.A of Form 20-F at the start of any
delayed offering or throughout a continuous offering. Financial statements
and information otherwise required by Section 10(a)(3) of the Act need not
be furnished, provided that the registrant includes in the prospectus, by
means of a post-effective amendment, financial statements required pursuant
to this paragraph (a)(4) and other information necessary to ensure that all
other information in the prospectus is at least as current as the date of
those financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or sec.210.3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Form F-3.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934), that is incorporated by reference in this
registration statement shall be deemed to be a new
II-6
185
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form F-4, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
186
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Vancouver,
British Columbia, Canada, on the 10th day of July, 2001.
TEEKAY SHIPPING CORPORATION
/s/ BJORN MOLLER
By:
--------------------------------------
Bjorn Moller, President and
Chief Executive Officer
II-8
187
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Bjorn Moller and Peter Antturi, and each of them, with full power of
substitution and resubstitution and full power to act without the other, as his
or her true and lawful attorney-in-fact and agent to act in his or her name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all post-effective
amendments, and any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated below on the 10th day of July, 2001.
SIGNATURE TITLE
--------- -----
/s/ BJORN MOLLER President, Chief Executive Officer and Director
- ---------------------------------------------
Bjorn Moller
/s/ PETER ANTTURI Chief Financial Officer, Vice President, Treasurer
- --------------------------------------------- and Principal Financial and Accounting Officer
Peter Antturi
/s/ C. SEAN DAY Director and Chairman of the Board
- ---------------------------------------------
C. Sean Day
/s/ ALEX KARLSHOEJ Director and Authorized Representative in
- --------------------------------------------- the United States
Alex Karlshoej
/s/ BRUCE C. BELL Director and Corporate Secretary
- ---------------------------------------------
Bruce C. Bell
/s/ DR. IAN D. BLACKBURNE Director
- ---------------------------------------------
Dr. Ian D. Blackburne
Director
- ---------------------------------------------
Morris L. Feder
Director
- ---------------------------------------------
Thomas Kuo-Yuen Hsu
/s/ LEIF O. HOEGH Director
- ---------------------------------------------
Leif O. Hoegh
Director
- ---------------------------------------------
Eileen A. Mercier
II-9
188
EXHIBIT INDEX
EXHIBIT NO: DESCRIPTION
- ----------- -----------
3.1 Amended and Restated Articles of Incorporation of Teekay
Shipping Corporation. (1)
3.2 Articles of Amendment of Articles of Incorporation of Teekay
Shipping Corporation. (1)
3.3 Amended and Restated Bylaws of Teekay Shipping Corporation.
(1)
4.1 Registration Rights Agreement among Teekay Shipping
Corporation, Tradewinds Trust Co. Ltd., as Trustee for the
Cirrus Trust, and Worldwide Trust Services Ltd., as Trustee
for the JTK Trust. (2)
4.2 Specimen of Teekay Shipping Corporation Common Stock
Certificate. (2)
4.3 Indenture dated January 29, 1996 among Teekay Shipping
Corporation, 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. (3)
4.4 Specimen of Teekay Shipping Corporation's 8.32% First
Preferred Ship Mortgage Notes Due 2008. (3)
4.5 Bahamian Statutory Ship Mortgage dated January 29, 1996 by
Nassau Spirit Inc. to United States Trust Company of New
York. (3)(4)
4.6 Deed of Covenants dated January 29, 1996 by Nassau Spirit
Inc. to United States Trust Company of New York. (3)(4)
4.7 First Preferred Ship Mortgage dated January 29, 1996 by VSSI
Oceans Inc. to United States Trust Company of New York, as
Trustee. (5)
4.8 Assignment of Time Charter dated January 29, 1996 by Nassau
Spirit Inc. to United States Trust Company of New York, as
Trustee. (3)(4)
4.9 Assignment of Insurance dated January 29, 1996 by Nassau
Spirit Inc. to United States Trust Company of New York, as
Trustee. (3)(4)
4.10 Pledge Agreement and Irrevocable Proxy dated January 29,
1996 by Teekay Shipping Corporation in favor of United
States Trust Company of New York, as Trustee. (3)
4.11 Guarantee dated January 29, 1996 by Nassau Spirit Inc. in
favor of United States Trust Company of New York, as
Trustee. (3)(4)
4.12 Assignment of Freights and Hires dated January 29, 1996 by
Nassau Spirit Inc. to United States Trust Company of New
York, as Trustee. (3)(4)
4.13 Cash Collateral Account Agreement dated January 29, 1996
between Nassau Spirit Inc. and United States Trust Company
of New York, as Trustee. (3)(4)
4.14 Investment Account Agreement dated January 29, 1996 between
Teekay Shipping Corporation and United States Trust Company
of New York, as Trustee. (3)
4.15 Indenture dated June 22, 2001 among Teekay Shipping
Corporation and U.S. Trust Company of Texas, N.A.
4.16 Exchange and Registration Rights Agreement dated June 22,
2001 among Teekay Shipping Corporation and Goldman, Sachs &
Co., Morgan Stanley & Co. Incorporated, Salomon Smith Barney
Inc., Deutsche Banc Alex. Brown Inc., J.P. Morgan Securities
Inc., Fleet Securities, Inc. and Scotia Capital (USA) Inc.
4.17 Specimen of Teekay Shipping Corporation's 8.875% Senior
Notes due 2011.
5.1 Opinion of Perkins Coie LLP, special counsel to the
registrant, as to the legality under U.S. law of the notes
being offered by Teekay Shipping Corporation.
8.1 Opinion of Perkins Coie LLP, regarding certain U.S. tax
matters (contained in opinion filed as Exhibit 5.1).
189
EXHIBIT NO: DESCRIPTION
- ----------- -----------
8.2 Opinion of Seward and Kissel, LLP, regarding certain U.S.
tax matters.
8.3 Opinion of Watson, Farley & Williams LLP, regarding Marshall
Islands tax matters.
8.4 Opinion of Graham, Thompson & Co., regarding Bahamian tax
matters.
8.5 Opinion of Appleby Spurling & Kempe, regarding Bermuda tax
matters.
8.6 Opinion of Bugge, Arentz-Hansen & Rasmussen, regarding
Norwegian tax matters.
10.1 1995 Stock Option Plan. (2)
10.2 Amendment to 1995 Stock Option Plan. (6)
10.3 Amended 1995 Stock Option Plan. (7)
10.4 Form of Indemnification Agreement between Teekay Shipping
Corporation and each of its officers and directors. (2)
10.5 Charter Party, as amended, dated September 21, 1989 between
Palm Shipping Inc. and BP Shipping Limited. (8)
10.6 Time Charter, as amended, dated July 3, 1995 between VSSI
Oceans Inc. and Palm Shipping Inc. (5)
10.7 Time Charter, as amended, dated January 4, 1994 between VSSI
Atlantic Inc. and Palm Shipping Inc. (5)
10.8 Time Charter, as amended, dated February 1, 1992 between
VSSI Appian Inc. and Palm Shipping Inc. (5)
10.9 Time Charter, as amended, dated December 1, 1993 between
Senang Spirit Inc. and Palm Shipping Inc. (5)
10.10 Time Charter, as amended, dated August 1, 1992 between Exuma
Spirit Inc. and Palm Shipping Inc. (5)
10.11 Time Charter, as amended, dated May 1, 1992 between Nassau
Spirit Inc. and Palm Shipping Inc. (5)
10.12 Time Charter, as amended, dated November 1, 1992 between
Andros Spirit Inc. and Palm Shipping Inc. (5)
10.13 Management Agreement, as amended, dated June 1, 1992 between
Teekay Shipping Limited and Nassau Spirit Inc. (5)(4)
10.14 Agreement, dated October 3, 1996, for a U.S. $90,000,000
Term Loan Facility to be made available to certain
subsidiaries of Teekay Shipping Corporation by Christiania
Bank og Kreditkasse, acting through its New York Branch, The
Bank of Nova Scotia, and Banque Indosuez. (9)
10.15 Agreement, dated October 18, 1996, for a U.S. $120,000,000
Term Loan Facility to be made available to certain
subsidiaries of Teekay Shipping Corporation by Den Norske
Bank ASA, Nederlandse Scheepshypothesbank N.V., The Bank of
New York, and Midland Bank plc. (9)
10.16 Agreement, dated January 26, 1998, for a U.S. $200,000,000
Reducing Revolving Credit Facility to be made available to
certain wholly-owned subsidiaries of Teekay Shipping
Corporation by Den Norske Bank ASA, Christiania Bank og
Kreditkasse ASA, New York Branch, and the Bank of Nova
Scotia. (10)
10.17 Agreement, dated March 26, 1999, for the amalgamation of
Northwest Maritime Inc., a 100% owned subsidiary of Teekay
Shipping Corporation, and Bona Shipholding Ltd. (11)
10.18 Agreement, dated April 16, 1998, for a U.S. $30,000,000 Term
Loan Facility to be made available to VSSI Australia Limited
by Rabo Australia Limited. (1)
190
10.19 Agreement, dated December 18, 1997, for a U.S. $44,000,000
Term Loan Facility to be made available to Barrington
(Australia) Pty Limited and Palmerston (Australia) Pty
Limited by Rabo Australia Limited. (1)
10.20 Amended and Restated Reimbursement Agreement, dated April
16, 1998, Among Barrington (Australia) Pty Limited,
Palmerston (Australia) Pty Limited, VSSI Australia Limited,
VSSI Transport Inc. and Alliance Chartering Pty Limited and
Nedship Bank (America) N.V., The Bank of New York and
Landesbank Schleswig-Holstein. (1)
10.21 Amendment No. 1, dated May 1999, to Amended and Restated
Reimbursement Agreement dated April 16, 1998 among
Barrington (Australia) Pty Limited, Palmerston (Australia)
Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and
Alliance Chartering Pty Limited and Nedship Bank (America)
N.V., The Bank of New York and Landesbank
Schleswig-Holstein. (1)
10.22 Amended and Restated Agreement, date June 11, 1999, for a
$500,000,000 Revolving Loan between Bona Shipholding Ltd.,
Chase Manhattan plc, Citibank International plc and various
other banks. (1)
10.23 Amendment and Restatement Agreement, dated June 11, 1999,
relating to a U.S. $500,000,000 Revolving Loan Agreement
between Bona Shipholding Ltd., Chase Manhattan plc, Citibank
International plc and various other banks. (1)
10.24 Rights Agreement, dated as of September 8, 2000, between
Teekay Shipping Corporation and The Bank of New York, as
Rights Agent. (12)
10.25 Reimbursement Agreement, dated January 1, 2000, between
Fleet Management Inc. and Teekay Shipping Corporation. 10)
10.26 Reimbursement Agreement, dated February 16, 2001, between
Karratha Spirit Pty Ltd and Nedship Bank (America) N.V. (13)
10.27 Agreement, dated February 16, 2001, for a U.S. $34,000,000
Term Loan Facility to be made available to Karratha Spirit
Pty Ltd by Rabo Australia Limited. (13)
10.28 Form of Exchange Agent Agreement between United States Trust
Company of New York, as exchange agent, and Teekay Shipping
Corporation.*
12.1 Statement regarding the computation of ratio of earnings to
fixed charges for Teekay Shipping Corporation.
15.1 Letter from Ernst & Young, as independent chartered
accountants, regarding unaudited interim financial
information.
21.1 List of Significant Subsidiaries of Teekay Shipping Company.
23.1 Consent of Perkins Coie, LLP (contained in Exhibit 5.1).
23.2 Consent of Seward and Kissel, LLP (contained in Exhibit
8.2).
23.3 Consent of Watson, Farley & Williams LLP (contained in
Exhibit 8.3).
23.4 Consent of Graham, Thompson & Co. (contained in Exhibit
8.4).
23.5 Consent of Appleby Spurling & Kempe (contained in Exhibit
8.5)
23.6 Consent of Bugge, Arentz-Hansen & Rasmussen (contained in
Exhibit 8.6)
23.7 Consent of Ernst & Young LLP.
23.8 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (contained on signature pages).
25.1 Statement of Eligibility of U.S. Trust Company of Texas,
N.A., as trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
- ---------------
* To be filed as an amendment.
191
(1) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on March 30, 2000, and hereby incorporated by reference
to such Annual Report.
(2) 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.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on June 4, 1996, and hereby incorporated by reference to
such Annual Report.
(4) 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.
(5) 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.
(6) Previously filed as an exhibit to the Company's Report on Form 6-K, filed
with the SEC on May 2, 2000, and hereby incorporated by reference to such
Report.
(7) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on April 2, 2001, and hereby incorporated by reference to
such Annual Report.
(8) Previously filed as an exhibit to the Company's Registration Statement on
Form F-1 (Registration No. 33-68680), as declared effective by the SEC on
November 29, 1993, and hereby incorporated by reference to such Registration
Statement.
(9) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on June 11, 1997, and hereby incorporated by reference to
such Annual Report.
(10) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on May 20, 1998, and hereby incorporated by reference to
such Annual Report.
(11) Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
filed with the SEC on June 11, 1999, and hereby incorporated by reference
to such Annual Report.
(12) Previously filed as an exhibit to the Company's Form 8-A, filed with the
SEC on September 11, 2000, and hereby incorporated by reference to such
filing.
(13) Previously filed as an exhibit to the Company's Report on Form 6-K filed
with the SEC on May 24, 2001, and hereby incorporated by reference to such
report.