Teekay Corporation
Annual Report 1998

Plain-text annual report

FIRST CHOICE Teekay Shipping Corporation Annual Report 1998 C o r p o r a t e P r o f i l e Teekay Shipping Corporation is dedicated to being the first choice for quality-conscious customers in the shipping industry. The Company owns and manages the world’s largest and most modern fleet of medium-sized tankers, operating primarily in the Indo-Pacific Basin. Teekay maintains a continuous presence in the world tanker market and employs approximately 2,000 people in its shore offices and sea-going operations. The Company’s Common Stock is listed on the New York Stock Exchange and trades under the symbol TK. Contents 1 2 Financial Highlights Chairman’s Message to Shareholders 4 President’s Report to Shareholders 10 Market Update 12 Fleet Profile 12 Map of Operations 14 Core Ideology 16 Operations Review 23 Management’s Discussion & Analysis 28 Auditors’ Report 29 Financial Statements 32 Notes to the Consolidated Financial Statements 40 Five Year Financial Summary 41 Board of Directors 42 Corporate Information Teekay Shipping Corporation’s Annual General Meeting will take place on September 2, 1998 at 10:00 am at the Royal Automobile Club, 89 Pall Mall, London, England. F i n a n c i a l H i g h l i g h t s (in thousands of U.S. dollars, except per share and per day data and ratios) Year ended March 31, 1998 Year ended March 31, 1997 Income Statement Data Net voyage revenues $ 305,260 $ 280,212 Net income Balance Sheet Data Total assets Total stockholders’ equity Per Share Data Net income per share Weighted average shares 70,504 42,630 1,460,183 689,455 1,372,838 629,815 2.46 1.52 outstanding (thousands) 28,655 28,138 Other Financial Data EBITDA Net debt to capitalization (%) Capital expenditures: Vessel purchases, gross Drydocking Operating cash flow per ship per day 209,582 46.9 197,199 12,409 12,664 191,632 48.0 65,104 23,124 11,819 EARNINGS EARNINGS PER SHARE PER SHARE $ US 2.5 6 6 4 4 . . 2 2 2 2 5 5 1 1 . . 7 7 1 1 1 1 . . 2.0 1.5 1.0 0.5 5 5 3 3 0 0 . . 9595 9696 9797 Fiscal Year 9898 0.0 NET INCOME NET INCOME CASH FLOW(1)(1) CASH FLOW 5 . 0 7 . . 6 6 2 2 4 4 $ millions 80 70 60 50 40 30 20 10 . . 2 2 0 0 3 3 . . 0 0 9 9 2 2 4 4 6 6 . . 6 . 9 0 2 6 6 . . 1 1 9 9 1 1 . . 2 2 6 6 6 6 1 1 . . 4 4 1 1 5 5 1 1 . . 8 8 6 6 4 4 1 1 $ millions 240 200 160 120 80 40 94* 94* 9595 9696 9797 Fiscal Year 9898 0 *11 month period ending March 31, 1994 94*94* 9595 9696 9797 Fiscal Year 9898 0 *11 month period ending March 31, 1994 (1)Earnings before interest, taxes, depre- ciation and amortization (EBITDA) 1 C h a i r m a n ’s M e s s a g e t o S h a r e h o l d e r s A message from Axel Karlshoej, Chairman of the Board of Directors This year marks the 25th that of the Board of Directors the role of President and anniversary of the founding of to Captain Jim Hood for his Chief Executive Officer, Teekay Shipping Corporation. leadership during that effective March 31, 1998. As Chairman of the Board, it challenging period. Over the As Teekay celebrates is a great pleasure for me to past six years, the senior 25 years as a quality leader celebrate the Company’s management team, led by in oil transportation services, achievements and pay tribute Jim Hood, has instituted the Company has all the to those who have contributed some important changes. The elements in place for cont- to its 25 years of success. Company’s financial position inued success: a modern, Teekay has a well-founded has been strengthened and well-equipped fleet, strong reputation for excellence that Teekay has successfully made financial resources and the marks every aspect of its the transition from a private people to support growth. operations and distinguishes to a public company. The Under the direction of our the Company among its efforts of those years have experienced, knowledgeable industry peers. Both our cust- secured Teekay’s unique management team, I am omers and our competitors position of strength in the confident that the achieve- recognize the unique spirit of shipping industry. ments of the years ahead Teekay that appears in the The past year has been will yield rewards for the dedication and professionalism particularly important for Company and its shareholders. of people across the Company, Teekay in terms of preparing and in the meticulous atten- for the next stage of its tion to the highest standards growth. We have significantly of quality and safety. That expanded the scope of our spirit is the legacy of our value-added services to founder, and my brother, customers in Australia, and Torben Karlshoej, a legacy have devoted much effort to Axel Karlshoej which we are proud to carry on. strategic planning. Changes in The years immediately the senior management team Chairman of the Board June 8, 1998 following the loss of Torben in have also been part of the 1992 were difficult ones for Company’s preparation for Teekay. I would like to express future growth. I am pleased my personal appreciation and to announce that, following Jim Hood’s retirement, Bjorn Moller, our former Chief Operating Officer, took on 2 Teekay’s reputation for excellence distinguishes the Company among its industry peers. 3 P r e s i d e n t ’s R e p o r t t o S h a r e h o l d e r s We are building our vision of Teekay’s future. A message from Fiscal 1998 was an excellent Solid Financial Bjorn Moller, year for Teekay – financially, Performance President and Chief operationally and strategically. Net voyage revenues rose Executive Officer The Company continued to by 8.9 percent in fiscal 1998 improve its financial perform- to $305.3 million, and net ance, recording the best income by over 65 percent results since fiscal 1992. It to $70.5 million, or $2.46 was also a year of building per share compared to $1.52 for the future, with profitable per share for fiscal 1997. growth and strategic planning Operating cash flow on a among our most important per ship per day basis achievements. increased by 7.1 percent from $11,819 in fiscal 1997 controls and substantial to $12,664 in fiscal 1998. economies of scale. We also Several factors contri- took advantage of our strong buted to our solid financial financial position to reduce performance. Rising oil con- interest expense. We are sumption worldwide created pleased with the fiscal 1998 an increased demand for results, in terms of both the tankers, while tanker supply figures and the Company’s remained unchanged. At performance relative to approximately 70 percent, the industry. Teekay’s fleet utilization rate remained high. On the cost side, Teekay continues to achieve some of the lowest operating costs in the industry by maintaining tight cost 4 INCOME FROM INCOME FROM VESSEL OPERATIONS VESSEL OPERATIONS $ millions 120 6 . 7 0 1 100 3 3 . . 4 4 9 9 3 3 . . 6 6 7 7 8 8 . . 0 0 6 6 8 8 . . 2 2 5 5 80 60 40 20 94* 94* 9595 9696 9797 Fiscal Year 9898 0 *11 month period ending March 31, 1994 Strong Core Operations working relationships with the In fiscal 1998, we continued world’s major oil companies to focus our operations in our which we continued to core business segments: the strengthen in fiscal 1998. Indo-Pacific Basin, primarily During the past year, Japan, Australia and the U.S. Teekay continued to take a West Coast. The Company is proactive approach to critical well recognized as the leading industry issues. In March oil transportation supplier 1998, the Company was the in these quality-sensitive first independent tanker markets due to its consistently operator to conduct an oil spill high level of service, reliability response drill in Australia, an and safety. We have close area of extremely high envir- Profitable growth and strategic planning were among this year’s most important achievements. 5 P r e s i d e n t ’s R e p o r t t o S h a r e h o l d e r s c o n t i n u e d The past year was significant for Teekay from a strategic viewpoint. onmental sensitivity. We have of approximately 13.7 years. also put oil spill response As part of Teekay’s commit- contingency plans into place ment to maintaining a modern in our other key trading areas. fleet, the Company has ordered two large, double-hull The Fleet Aframax newbuildings from At March 31, 1998, our Samsung Heavy Industries for fleet stood at 46 ships of delivery in 1999. The Company 4.6 million deadweight also holds options for further tons. The fleet is certified newbuildings. to be in compliance with the International Safety A Year of Strategic Management code which Growth comes into effect July 1, 1998. Our success as a leading In fiscal 1998, we provider of transportation continued to modernize our services to major oil companies fleet, selling three older has been based on a highly tankers and replacing them focused business strategy. with eight newer vessels, two By concentrating the world’s of which are time-chartered-in. largest modern fleet of The result is that our fleet is Aframax tankers in the even more homogenous quality-sensitive areas of the than before, and the average Indo-Pacific Basin, and age of our ships is 7.8 years, maintaining integrated compared to the average age marine operations, we have of the world oil tanker fleet established a position that is unique in our industry. Over the past year, we took advantage of several growth opportunities that were directly related to this position. 6 Strategic Projects jointly owned by Chevron our customers with a volume The Teekay Vision: in Australia and Texaco. and flexibility of transporta- Putting Our Strengths Teekay’s acquisition of the The Australian tanker tion that cannot be offered by to Work entire marine operation of acquisition was followed by other service providers. The Teekay’s success has always Caltex Australia Petroleum another example of lever- close customer relationships been guided by clear strategic Pty. Ltd. (CAPPL, formerly aging Teekay’s position to that result from this type of objectives. Our latest planning APPL) is an example of this secure a long-term value- contract offer potential for initiative is dedicated to type of achievement. In added contract.The Company’s future growth. building our vision for the December 1997, Teekay reputation for operational Previously, spot market future – a vision that is acquired CAPPL’s two product excellence and safety was key trading accounted for almost grounded in our core purpose tankers and staff of 156 to securing a long-term all of our revenues. The long- of making Teekay “the first sea-going and on-shore agreement with Apache term contracts initiated in choice” of our customers in employees. Under profitable Energy to convert a Teekay fiscal 1998 represent an the shipping industry. contracts varying in length up Aframax for use as an off- important new aspect of The vision building to 13 years, the Company shore floating storage and Teekay’s business. Through process, which involved provides CAPPL with world- off-take (FSO) unit for the these agreements and extensive consultation with class, cost-effective operations Stag Field in Australia. Teekay expansion activities, we are our customers, provided valu- and comprehensive service has entered into a profitable levering off our strengths to able input on the Company’s for four tankers. contract to operate the FSO broaden the Company’s position in the market and This agreement demon- for eight to fourteen years. revenue base. confirmed our strengths, as strates Teekay’s ability to act as an outsourcing partner Strategic Contracts for oil companies in tanker of Affreightment operations. It has also brought During the past year, the Teekay closer to Caltex, one of Company expanded its Asia’s largest refiners, which is activity in strategic contracts of affreightment involving the Australian and other markets. These contracts are structured around Teekay’s unique scheduling ability and provide We are pursuing opportunities that are directly related to our unique industry position. 7 P r e s i d e n t ’s R e p o r t t o S h a r e h o l d e r s c o n t i n u e d We are dedicated to making Teekay the first choice of our customers. well as identifying areas for added solutions to oppor- approximately $69 million. improvement. People through- tunities that arise from our This offering, along with the out the Company are now market position and our sale of shares by our major involved in implementing network of customer relation- shareholder, has doubled the our vision. ships. Third, many of the public float of Teekay stock, Teekay’s future growth strengths that have made us thus improving liquidity for our will be driven by a three- successful can be brought shareholders. part strategy tailored to our to bear in other geographical competitive strengths. First, markets and industry Moving Forward the Company’s existing segments. Our customers The vision building process Aframax Indo-Pacific opera- regard us as among the best has energized us and has tions will remain an important in the industry, in terms of shown us that Teekay can be part of our business. We will professional staff, flexible, a larger, better and more continue to optimize and responsive service, and profitable company than it is grow this niche position by quality operations, and have today. Teekay is a highly increasing our fleet and frequently indicated a desire successful operator in markets pursuing strategic cargo for Teekay to widen its service that are subject to cyclical contracts. Second, we intend offering. On this basis, we pressures. While overall supply to develop further value- intend to investigate potential and demand fundamentals new markets and industry point to a favourable industry segments, and will consider outlook in the medium term, entering those that appear the timing of delivery of new the most promising. tankers and scrapping may To assist in financing the cause volatility in freight implementation of Teekay’s growth strategy, in early June 1998, the Company concluded the public sale of 2.8 million primary shares, raising 8 rates, particularly in the next responsible for the Company’s few years. However, we excellent performance of the believe this will offer growth past year and will continue opportunities for stronger our drive toward achieving companies in our industry like the Teekay vision. Teekay. Our challenge will be to identify the right strategic mix in response. On behalf of the Board, I would like to express our thanks to the management team and all Teekay Bjorn Moller President and Chief Executive Officer employees. Your efforts are June 8, 1998 9 M a r k e t U p d a t e A review of tanker supply and demand Finely balanced supply and demand During 1997, an increase in Tanker Demand consumption and forecasts associated longer average Arabian Gulf OPEC production, Tanker demand is expressed in growth of 2.0 percent for 1998. voyage length for oil tankers. combined with a stable world “ton-miles” and is measured The location of oil supply For example, approximately tanker fleet size, caused crude as the product of the amount relative to major discharge 13 million dwt. of tanker ton- oil tanker freight rates to rise. of oil transported in tankers, points affects average tanker nage is required to ship one This is evidenced by the multiplied by the distance over voyage length. From 1993 million barrels per day from average world Aframax TCE which this oil is transported. through 1996, much of the the Arabian Gulf to the United (Time Charter Equivalent) In recent years, two world’s increased oil supply States, compared to approx- rates which rose to $21,258 trends in the world oil market came from the North Sea and imately 5 million dwt. to ship per day in 1997 from $17,231 have had a strong impact on Caribbean regions. In 1997, the same volume from the per day in 1996, an increase the tanker market: the overall however, Arabian Gulf OPEC North Sea to the United States. of 23.4 percent. As well, growth in oil demand and an oil provided most of the 3.6 The recent trend toward average VLCC (Very Large increase in average voyage percent increase in world an increased share of world Crude Carrier) rates increased length. According to the supply. Arabian Gulf OPEC oil supply originating from to $35,577 per day in 1997 International Energy Agency supply grew by 6.6 percent Arabian Gulf OPEC producers from $27,093 per day in 1996, (IEA), between 1993 and in 1997, while there was has had a positive effect on an increase of 31.3 percent. 1997, world oil consumption virtually no change in North tanker demand. grew at a compounded Sea supply. annual rate of 2.2 percent. In Incremental supply from Tanker Supply 1997, the IEA reported a 2.9 the Arabian Gulf creates a more The supply of tankers is percent increase in world oil significant increase in demand conditioned by new vessel for tanker services than deliveries and the scrapping, CONTINUED RISE IN AFRAMAX TCE RATES CONTINUED RISE IN AFRAMAX TCE RATES US $/day incremental supply from the conversion and loss of 25,000 20,000 15,000 North Sea and the Caribbean, tonnage. Since 1993, the because of the greater dis- world tanker fleet has been tance from the Arabian Gulf relatively stable at approx- to discharge points and the imately 300 million dwt. 9090 9191 9292 9393 Calendar Year 9494 9595 9696 9797 10,000 Information based on industry data GROWTH IN OIL DEMAND GROWTH IN OIL DEMAND million b/d 80 70 60 10 8787 8888 8989 9090 9191 9292 9393 9494 9595 9696 9797 50 Calendar Year Source: IEA, PIRA Energy Group Scrapping generally also adversely affect the involves older tankers; in 1997, economics of operating the average age of Aframax older vessels. In addition, tankers scrapped was approx- the International Maritime imately 23 years. Currently, Organization (IMO) regulations approximately 39 percent of impose certain restrictions the vessels in the world’s on vessels trading beyond tanker fleet are 20 years of 25 years of age. age or older. Recently, there has been INCREMENTAL CHANGE IN OIL SUPPLY INCREMENTAL CHANGE IN OIL SUPPLY barrels/day (thousands) 1,600 1,200 800 400 0 9191 9292 9393 9494 Calendar Year 9595 9696 9797 -400 Arabian Gulf OPEC North Sea A number of factors an increase in newbuilding TTANKER SUPPLY EMAND BALANCE ANKER SUPPLY//DDEMAND BALANCE millions of dwt. affect the decision to scrap. orders due to the favourable Aging vessels typically require charter rate environment and substantial repairs and in anticipation of increased maintenance to conform to scrapping. At March 31, 1997, industry standards, including the newbuilding orderbook repairs often associated with held orders for 26.0 million Special Surveys. Vessels must dwt., equivalent to 8.7 percent be certified to be “in-class” in of the then existing fleet. One order to continue to trade. As year later, at March 31, 1998, the age of a vessel increases, the newbuilding orderbook the costs of maintaining it in- held orders for 45.7 million class rise considerably, so that dwt., equivalent to 15.3 it may become more econo- percent of the existing fleet. 320 240 160 80 8787 8888 8989 9090 9191 9292 9393 9494 9595 9696 9797 0 Calendar Year Supply Demand Information based on industry data DEVELOPMENT OF TANKER SUPPLY DEVELOPMENT OF TANKER SUPPLY Fleet Size millions of dwt. Deliveries & Scrappings millions of dwt. 320 305 290 275 20 10 0 -10 260 8888 8989 9090 9191 9292 9393 9494 9595 9696 9797 -20 Calendar Year mical to scrap an older vessel Even with these new orders, Delivered Scrapped Fleet Size Information based on industry data than to continue to operate it. the orderbook represents a The increased demand for significantly smaller safety and reliability asso- percentage of the fleet than ciated with modern vessels, as vessels 20 years and older, at well as the higher rates and 39 percent, which are likely operating cost efficiencies to be scrapped within the next available to newer vessels several years. GING FLEET ORDERBOOK vs. AGING FLEET ORDERBOOK vs. A millions of dwt. 120 90 60 30 PHASE OUT OF PHASE OUT OF 70s TANKERS MID-MID-70s TANKERS millions of dwt. 60 50 40 30 20 10 7777 0 8787 8888 8989 9090 9191 9292 9393 9494 Calendar Year 9595 9696 9797 0 MarMar 9898 7711 7272 7474 7373 7676 Calendar Year 7575 Vessels 20 years and older Orderbook Information based on industry data Currently Trading Scrapped to Date Information based on industry data 11 F l e e t P r o f i l e a n d M a p o f Te e k a y O p e r a t i o n s As at May 31, 1998 Onomichi Class – 15 Ships Imabari Class – 10 Ships dwt. Year Built dwt. Year Built Hamane Spirit DH* Poul Spirit DH Torben Spirit DH Leyte Spirit DH Luzon Spirit DH Mayon Spirit DH Samar Spirit DH Palmstar Lotus Palmstar Thistle Teekay Spirit Onozo Spirit Palmstar Cherry Palmstar Poppy Palmstar Rose Palmstar Orchid 105,300 105,300 98,600 98,600 98,600 98,600 98,600 100,200 100,200 100,200 100,200 100,200 100,200 100,200 100,200 1997 Nassau Spirit DH 107,000 1995 Senang Spirit DH 1994 Sebarok Spirit DH 1992 Seraya Spirit DS** 1992 Sentosa Spirit DS 1992 Alliance Spirit DS 1992 Seletar Spirit DS 1991 Semakau Spirit DS 1991 Singapore Spirit DS 1991 Sudong Spirit DS 1990 1990 95,700 95,700 97,300 97,300 97,300 97,300 97,300 97,300 97,300 1998 1994 1993 1992 1989 1989 1988 1988 1987 1987 1990 Oil/Bulk/Ore (OBO) Carriers – 2 Ships 1990 Victoria Spirit DH 1989 Vancouver Spirit DH 103,200 103,200 1993 1992 Hyundai Class – 6 Ships Magellan Spirit DS dwt. Year Built dwt. Year Built Shilla Spirit Ulsan Spirit Dampier Spirit (FSO†) Namsan Spirit Pacific Spirit Pioneer Spirit Other Aframax – 9 Ships Seabridge (1) Kyushu Spirit DS Seamaster (1) Torres Spirit Koyagi Spirit Hakuyou Maru (1) 106,700 106,700 106,700 106,700 106,700 106,700 105,200 95,600 101,000 96,000 96,000 93,000 1990 Palm Monarch 1990 Mendana Spirit 1988 1988 Other Size Tankers – 4 Ships 1988 Musashi Spirit 1988 Palmerston DB*** Barrington DH Scotland DS 1996 95,000 89,900 81,700 280,700 36,700 33,300 40,800 1985 1981 1980 1993 1990 1989 1982 1991 Total Tonnage: 4,576,200 113,000 113,000 1999 1999 1990 1990 Newbuilding DH 1989 Newbuilding DH 1987 (1) Time-chartered-in * DH – Double-hull tanker ** DS – Double-sided tanker ***DB – Double bottomed tanker † Floating storage and off-take unit Teekay Offices Nassau: Headquarters Administration London: Chartering Glasgow: Crewing Singapore: Chartering Operations Technical Quality Control Manila: Crewing Tokyo: Chartering Technical Purchasing Quality Control Sydney: Operations Crewing Quality Control Technical Vancouver: Chartering Operations Crewing Purchasing Risk Management Quality Control Financial Information Systems Deployment of the Teekay fleet, March 26, 1998 13 C o r e I d e o l o g y Making Teekay the First Choice Core Purpose To be the first choice of our customers in the shipping industry; and to uphold the Teekay Standard as a respected symbol of quality. In fulfilling this purpose, we will create enduring value for our shareholders. Core Values • Professionalism, reliability and integrity • Safety, quality and pollution prevention • Responsiveness and creativity towards customers’ needs • Loyalty to employees • Competitive and entrepreneurial spirit • Continuous self-improvement Over the past year, we devoted As part of our vision considerable effort to building building process, we have also our vision of Teekay’s future. renewed our commitment During the process, we revisited to continuous improvement. the Company’s core purpose Throughout the Company, and core values and have cross-functional task forces integrated these key elements are evaluating the way into our growth strategy. we work. This will ensure Our strategy focuses that a culture of continuous on the core capabilities that improvement supports make Teekay a preferred Teekay’s future growth. supplier for many of the world’s largest oil companies and a respected symbol of quality throughout the industry. We plan to leverage off our strengths to pursue opportunities for growth. 14 Strategic planning teams are moving the Company forward. Strategic planning team meeting, Vancouver, May 22, 1998 15 O p e r a t i o n s R e v i e w The First Choice for responsive, flexible service Innovative Solutions each voyage to meet our These contracts are to Customer Needs customers’ specific require- tailored to suit the individual Timely, responsive and ments. Our modern, homo- needs of the customer. For flexible service has long been genous fleet gives us the example, the freight rate can a hallmark of Teekay. The ability to substitute certain be fixed in advance for the Company operates chartering ships to increase scheduling duration of the agreement or, offices in London, Vancouver, flexibility. Our operational under some circumstances, it Tokyo and Singapore so expertise enables us to can be variable; the cargo that customers are assured optimize cargo stowage plans, volume can range from a full of a quick response, around to deliver the most efficient ship to a single tank; the the clock. and cost-effective solutions load and discharge ports can Teekay is committed to for our customers. specify individual berths providing superior customer or may cover a diverse geo- support. We take an inno- Contracts of graphical range. In some vative approach, guided by Affreightment instances, depending on a “can do” spirit, to arrange Teekay’s proven performance scheduling and the customer’s and professionalism support needs, the same vessel may long-term relationships perform a series of consecutive with quality-conscious voyages. customers. A growing number of these customers entrust a significant volume of their transportation requirements to the Company on the basis of contracts of affreightment. 16 Teekay’s stringent quality requirements and superior vessel specifications are key factors in establishing and maintaining on-going charter arrangements with the major oil companies and oil traders that represent our customer base. Long-term agreements provide customers with a secure supply of reliable transportation, and provide Teekay with a stable revenue base and increased utilization rates. The mutual benefits of such arrangements ensure that this is an area of the Company’s business that is likely to continue to grow. The First Choice for quality operations 17 O p e r a t i o n s R e v i e w c o n t i n u e d The First Choice for safety and reliability 18 The First Choice for value-added solutions As we pursue new growth going and shore employees. regulations of the Govern- industry issues such as oil spill opportunities, Teekay’s Teekay’s Australian office ment of Western Australia’s response preparedness. industry expertise and will manage CAPPL’s tanker Department of Minerals and The Company was the first reputation for safety and operation and provide full Energy (DME). independent tanker operator quality represent strong in-house ship management of to conduct a simulated oil spill competitive advantages. In four vessels for up to 13 years. Outstanding Safety response drill in Australia. fiscal 1998, these advantages Systems The exercise took place in led to some important Offshore Services Teekay has traditionally taken March 1998, in Botany Bay, strategic developments. A number of Teekay’s core a proactive approach to near Sydney Harbour. strengths came into play in safety that extends beyond The management of Strong Ship another oil company’s regulatory compliance. The the Australian tankers and Management decision to work with the Company has developed a the FSO operation represent Teekay is well known Company to assist in the complete Safety Management significant achievements for throughout the industry for development of an Australian System that integrates Teekay. These activities point its efficient, cost-effective offshore oil field. Apache rigorous safety procedures to the Company’s growing ship management and main- Energy chose Teekay to supply and practices into every role as a partner to major tenance practices. Those and convert an Aframax tanker aspect of vessel operations. oil companies in providing strengths, combined with for use as a floating storage In addition to main- value-added shipping and knowledge and experience and off-take (FSO) unit at the taining the highest standards offshore services. gained in trading along the Stag Field location and to of safety in its vessel opera- Australian coast were critical manage its operation on an tions, Teekay regularly tackles factors in reaching agreement on-going basis. The Company’s with Caltex Australian ability to provide a cost- Petroleum Pty. Ltd. (CAPPL, effective solution and compre- formerly APPL), to acquire hensive safety systems, and manage their marine combined with the expansion operations. of Teekay’s Australian The Company substan- operations, were key deciding tially increased its presence in factors for this project. Australia with this acquisition, Following a successful, on- which included two product time, on-budget conversion, tankers and a staff of 156 sea- the FSO Dampier Spirit is now on station, operating under the strict offshore safety O p e r a t i o n s R e v i e w c o n t i n u e d The First Choice for shareholder value In fiscal 1998,Teekay continued Resources to Financial Strategy to combine high vessel utiliza- Grow and Prosper From 1987 to 1993, Teekay tion with cost advantages The Company has successfully substantially expanded to produce premium operating built the resources to support and upgraded its fleet. Our performance, with cash flow further growth which is investment in a modern, per ship per day at $12,664 expected to increase share- uniform fleet represents and net income at $70.5 million, holder value. Over the past one of the Company’s core the highest since fiscal 1992. six years, we have worked strengths and has enabled us aggressively to restructure to take advantage of econo- and strengthen our financial mies of scale and keep close position. As a result, Teekay control of ship operating and has the financial strength and maintenance costs. Most flexibility required to take importantly, this investment advantage of growth has allowed us to acquire new opportunities such as the tonnage opportunistically, acquisition and expansion rather than being compelled activities of the past year. to modernize an aging fleet. For the past five years the Company’s financial 20 strategy has been directed have resulted in a number of toward reducing the debt long-term contracts of up to incurred from 1989 to 1993. 13 years at profitable rates, At March 31, 1998, total providing a stable revenue debt minus cash stood at base. $610 million from a high of For the future, we will $933 million at January 1993, continue to expand our and the ratio of net debt to business by pursuing the three capitalization was 47 percent. strategies for growth that we In the future, Teekay’s identified through our vision cashflow will be available to building process: i.e., growing take advantage of growth our niche position in the Indo- opportunities. In addition, Pacific Basin, providing value- in early June 1998, the added service solutions to our Company concluded the sale customers, and applying our of 2.8 million primary shares, strengths in new geographical raising approximately and industry segments. $69 million, resulting in an The Company is in a even stronger equity base strong financial position and for financing the Company’s we are striving to maintain future growth. our financial flexibility by ensuring access to equity Capitalizing on capital markets and public A Unique Industry debt markets. With this Position flexibility in combination with Teekay’s dedication to quality, our strong core capabilities, efficiency and safety is Teekay is well prepared to yielding positive returns. grow and prosper. Projects initiated in fiscal 1998, such as the tanker fleet acquisition and floating storage facility in Australia, Teekay’s dedication to quality, efficiency and safety is yielding positive returns. 21 O p e r a t i o n s R e v i e w c o n t i n u e d OPERATING CASH OPERATING CASH FLOW PER SHIP DAY FLOW PER SHIP DAY $ thousands 14 12 10 8 6 4 2 9393 9494 9595 9696 9797 0 Calendar Year Teekay Shipping Other bulk shipping companies* *Weighted average of BEA, BSH, LOFS, OMI, OSG REVENUE REVENUE 0 . . . 6 0 2 4 2 2 2 8 8 3 3 . . 3 3 6 6 3 3 3 3 7 7 . . 7 7 1 1 3 3 . . 0 0 0 0 2 2 3 3 $ millions 450 375 300 225 150 75 94* 94* 9595 9696 9797 Fiscal Year 9898 0 *11 month period ending March 31, 1994 LEVERAGE(1)(1) LEVERAGE 9 9 . . 5 5 6 6 3 3 . . 3 3 6 6 1 1 . . 1 1 5 5 0 0 . . 8 8 4 4 9 . 6 4 % 90 75 60 45 30 15 9494 9595 9696 9797 Fiscal Year 9898 0 (1)Net debt/capitalization CAPITAL CAPITAL EXPENDITURES EXPENDITURES $ millions 240 200 160 120 80 40 94*94* 9595 9696 9797 Fiscal Year 9898 0 *11 month period ending March 31, 1994 Vessel and equipment, gross Drydocking 22 M a n a g e m e n t ’s D i s c u s s i o n & A n a l y s i s o f R e s u l t s o f O p e r a t i o n s a n d F i n a n c i a l C o n d i t i o n General The Company is a leading provider of international crude oil and petroleum product transportation services to major oil companies, major oil traders and government agencies, principally in the region from the Red Sea to the U.S. West Coast. The Company’s current operating fleet consists of 46 vessels, including 42 Aframax oil tankers (including three vessels time-chartered-in) and Oil/Bulk/Ore (“O/B/O”) carriers, three smaller oil tankers, and one Very Large Crude Carrier (“VLCC”), for a total cargo-carrying capacity of approximately 4.6 million tonnes. During fiscal 1998, approximately 66% of the Company’s net voyage revenue was derived from spot voyages. The balance of the Company’s revenue is generated primarily by two other modes of employment: time charters, whereby vessels are chartered to customers for a fixed period; and contracts of affreightment (“COAs”), whereby the Company carries an agreed quantity of cargo for a customer over a specified trade route over a given period of time. In fiscal 1998, 18% of net voyage revenues was generated by time charters and COAs priced on a spot market basis. In the aggregate, approximately 84% of the Company’s net voyage revenue during fiscal 1998 was derived from spot voyages or time charters and COAs priced on a spot market basis, with the remaining 16% being derived from fixed-rate time-charters and COAs. This dependence on the spot market, which is within industry norms, contributes to the volatility of the Company’s revenues, cash flow from operations, and net income. Historically, the tanker industry has been cyclical, experiencing volatility in profitability and asset values resulting from changes in the supply of, and demand for, vessel capacity. In addition, tanker markets have historically exhibited seasonal variations in charter rates. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere and unpredictable weather patterns which tend to disrupt vessel scheduling. In December 1997, the Company acquired two vessels and related shore support services from an Australian affiliate of Caltex Petroleum. These two tankers, together with one of the Company’s existing Aframax tankers, have been time chartered to the Caltex affiliate in connection with the Company’s provision of Caltex’s oil transportation requirements formerly provided by that affiliate. The Company has converted one of its existing vessels to a floating storage and off-take unit, which is sharing crews with the vessels employed in the Caltex arrangement (together with the other three vessels involved in this arrangement, the “Australian Vessels”). Vessel operating expenses for the Australian Vessels are substantially higher than those for the rest of the Company’s fleet, primarily as a result of higher costs associated with employing an Australian crew.The time-charter rates for the Australian Vessels are correspondingly higher to compensate for these increased costs. During fiscal 1998, the Australian Vessels earned net voyage revenues and an average TCE rate (as defined below) of $8.4 million and $25,347, respectively, and incurred vessel operating expenses of $3.2 million, or $10,276 on a per ship per day basis. The results of the Australian Vessels are included in the Company’s consolidated financial statements included herein. Results of Operations Bulk shipping industry freight rates are commonly measured at the net voyage revenue level in terms of “time charter equivalent” (or “TCE”) rates, defined as voyage revenues less voyage expenses (excluding commissions), divided by voyage ship-days for the round-trip voyage. Voyage revenues and voyage expenses are a function of the type of charter, either spot charter or time charter, and port, canal and fuel costs depending on the trade route upon which a vessel is sailing, in addition to being a function of the level of shipping freight rates. For this reason, shipowners base economic decisions regarding the deployment of their vessels upon anticipated TCE rates, and industry analysts typically measure bulk shipping freight rates in terms of TCE rates. Therefore, the discussion of revenue below focuses on net voyage revenue and TCE rates. 23 M a n a g e m e n t ’s D i s c u s s i o n & A n a l y s i s o f R e s u l t s o f O p e r a t i o n s a n d F i n a n c i a l C o n d i t i o n c o n t i n u e d Fiscal 1998, Fiscal 1997, and Fiscal 1996 Operating results for the past three years reflect the improvement in average TCE rates experienced by the Company’s fleet during this period, as well as the increase in the size of the Company fleet. The Company sold a total of seven of its older Aframax tankers during the three fiscal years ended March 31, 1998, and acquired a total of twelve newer Aframax tankers (including two time-chartered-in vessels) and two modern product tankers during the same period. The Company’s average fleet size increased by two vessels, or 4.9%, in fiscal 1998 compared to fiscal 1997, following an earlier increase of two vessels, or 4.6%, in fiscal 1997 compared to fiscal 1996. Net voyage revenues increased 8.9% to $305.3 million in fiscal 1998 from $280.2 million in fiscal 1997, and increased 14.0% in fiscal 1997 from $245.7 million in fiscal 1996, reflecting a combination of improvement in TCE rates and an increase in the Company’s fleet size. The Company’s average TCE rate in fiscal 1998, excluding the Australian Vessels, was up 5.0% to $21,373 from $20,356 in fiscal 1997, and up 10.4% in fiscal 1997 from $18,438 in fiscal 1996, in part due to lower bunker fuel prices. In spite of the increase in fleet size, vessel operating expenses decreased 2.9% to $70.5 million in fiscal 1998 from $72.6 million in fiscal 1997, primarily as a result of a reduction in insurance premiums as well as more favorable foreign exchange rates between the U.S. Dollar and certain Asian currencies, particularly the Japanese Yen and the Korean Won, for spare parts and supplies purchased during the latter half of fiscal 1998. In fiscal 1997, vessel operating expenses increased 7.0%, from $67.8 million in fiscal 1996, primarily as a result of the increase in the size of the Company’s owned fleet. As a result of a more competitive market for qualified sea-going personnel, adjustments were made to crew wage rates and salaries effective April 1, 1998, which will increase vessel operating expenses by approximately $300 per ship per day, or $4.3 million per year in aggregate, commencing in fiscal 1999. Time-charter hire expense was $10.6 million in fiscal 1998, up from $3.5 million in fiscal 1997 and $2.5 million in fiscal 1996, as a result of two vessels time-chartered-in by the Company during fiscal 1998 as compared to only one vessel time-chartered- in during the latter part of fiscal 1996 and part of fiscal 1997. Depreciation and amortization expense increased by 4.6% to $94.9 million in fiscal 1998 from $90.7 million in fiscal 1997, and increased by 10.1% in fiscal 1997 from $82.4 million in fiscal 1996, as a result of the increase in the average size of the Company’s owned fleet, an increase in the average cost base of the fleet resulting from the replacement of some of the Company’s older vessels with newer vessels, and a larger than usual number of scheduled drydockings during the past two fiscal years. Depreciation and amortization expense included amortization of drydocking costs of $11.7 million, $10.9 million, and $8.6 million in fiscal years 1998, 1997, and 1996, respectively. General and administrative expenses rose 12.1% to $21.5 million in fiscal 1998 from $19.2 million in fiscal 1997, and increased 14.7% in fiscal 1997 from $16.8 million in fiscal 1996, primarily as a result of the cost of compliance with increasingly stringent tanker industry regulations, increases in senior management compensation, and the start-up cost and additional ongoing personnel and facility costs associated with expanding the Company’s Australian office in December 1997. Management anticipates hiring additional senior management and staff personnel in connection with the further expansion of the Company’s operations. Income from vessel operations increased 14.2% to $107.6 million in fiscal 1998 from $94.3 million in fiscal 1997, and increased 23.6% in fiscal 1997 from $76.3 million in fiscal 1996, due to improved TCE rates and relatively stable costs. Interest expense decreased by 7.4% to $56.3 million in fiscal 1998 from $60.8 million in fiscal 1997, following a 3.3% decrease in fiscal 1997 from $62.9 million in fiscal 1996, reflecting the reduction in the Company’s average debt balance and a lower average interest rate on debt borrowings, in each case compared to the prior fiscal year. In June 1998, the Company concluded the public offering of 2.8 million shares of its Common Stock. The Company anticipates using the net proceeds of approximately $69 million from the offering, together with other funds, to redeem its 9 5⁄8% First Preferred Ship Mortgage Notes due 2003. Interest income of $7.9 million in fiscal 1998, $6.4 million in fiscal 1997, and $6.5 million in fiscal 1996, largely reflected increasing cash 24 balances, offset in fiscal 1997 by lower interest rates. Other income of $11.2 million in fiscal 1998 consisted primarily of $14.4 million in gains on the sale of three vessels, offset partially by $3.5 million in losses related to the prepayment of debt. Other income of $2.8 million in fiscal 1997 and $9.2 million in fiscal 1996 consisted primarily of gains on the sale of vessels. As a result of the foregoing factors, the Company’s net income was $70.5 million in fiscal 1998, which included $14.4 million in gains on asset sales. In comparison, the Company’s net income was $42.6 million in fiscal 1997, which included $2.7 million in gains on assets sales, and $29.1 million in fiscal 1996, which included $8.8 million in gains on asset sales. The following table illustrates the relationship between fleet size (measured in ship-days), TCE performance, and operating results per calendar ship-day. To facilitate comparison to the prior years’ results, the figures in the table below exclude the results from the Company’s Australian Vessels. Average number of ships Total calendar ship-days Voyage days (A) Net voyage revenue before commissions (B) (000s) TCE (B/A) Operating results per calendar ship-day: Net voyage revenue Vessel operating expense General and administrative expense Drydocking expense Year Ended March 31, 1998 Year Ended March 31, 1997 Year Ended March 31, 1996 42 15,341 14,229 $ 304,115 $ 21,373 $ 19,358 4,554 1,375 765 $ $ $ 41 14,937 14,071 286,429 20,356 18,760 4,922 1,286 733 $ $ $ 39 14,310 13,612 250,981 18,438 17,173 4,787 1,171 602 Operating cash flow per calendar ship-day $ 12,664 $ 11,819 $ 10,613 Liquidity and Capital Resources The Company’s total liquidity, including cash, marketable securities and undrawn long-term lines of credit, was $186.3 million as at March 31, 1998, down from $258.6 million as at March 31, 1997, and $197.3 million as at March 31, 1996. The Company’s total liquidity had been increasing as a result of internally generated cash and debt refinancings, but declined during the fourth quarter of fiscal 1998 due to the purchase of two vessels which were paid for using existing cash balances and the Revolver (as defined below). Net cash flow from operating activities was $161.1 million in fiscal 1998, compared to $139.2 million and $98.4 million in fiscal years 1997 and 1996, respectively, reflecting an improvement in tanker charter market conditions accompanied by a relatively stable cost environment, the increase in the size of the Company’s fleet, and a reduction in interest expense. In January 1998, the Company replaced its existing revolving credit facility with a new revolving credit facility (the “Revolver”) providing for borrowings of up to $200.0 million. The amount available under the Revolver reduces by $10.0 million semi-annually commencing in July 1999, with a final balloon reduction in January 2006. Interest payments are based on LIBOR plus a margin depending on the financial leverage of the Company; at March 31, 1998 the margin was +0.50%. Scheduled debt repayments were $33.9 million during fiscal 1998, compared to $16.0 million in fiscal 1997 and $57.9 million in fiscal 1996. In addition to scheduled debt repayments, the Company prepaid long-term debt of $150.7 million in 25 M a n a g e m e n t ’s D i s c u s s i o n & A n a l y s i s o f R e s u l t s o f O p e r a t i o n s a n d F i n a n c i a l C o n d i t i o n c o n t i n u e d fiscal 1998, primarily representing prepayments out of the proceeds of the Revolver and repurchases of $26.3 million of its 9 5⁄8% First Preferred Ship Mortgage Notes due 2003. Dividends declared during fiscal 1998 were $24.6 million, or $0.86 per share, of which $16.0 million was paid in cash and $8.6 million was paid in the form of shares of Common Stock issued under the Company’s dividend reinvestment plan. Three vessels were sold in fiscal 1998, resulting in net proceeds of $33.9 million. Subsequent to March 31, 1998, the Company sold an additional vessel for net proceeds of approximately $10.5 million. In fiscal 1997, the Company sold its interest in a 50%-owned vessel, resulting in net proceeds of $6.4 million which the Company received in the early part of fiscal 1998. During fiscal 1998, the Company incurred capital expenditures for vessels and equipment of $197.2 million, primarily as a result of taking delivery of two newbuilding double-hull Aframax tankers, two modern second-hand Aframax tankers, and two modern second-hand product tankers. Capital expenditures for drydocking were $18.4 million in fiscal 1998, $16.6 million in fiscal 1997, and $7.4 million in fiscal 1996, reflecting a larger than usual number of scheduled drydockings during the last two fiscal years. Subsequent to March 31, 1998, the Company entered into an agreement for the construction of two newbuilding double-hull Aframax tankers, with deliveries scheduled for July and September 1999, with the option to purchase further newbuildings under similar terms. The agreement is subject to certain conditions that must be satisfied by the tankers’ builder. The estimated delivered price for each vessel, including all related charges, is approximately $38.0 million. The Company intends to pay for these purchases by using existing cash balances, borrowings under the Revolver or other debt financing. As part of its growth strategy, the Company will continue to consider strategic opportunities, including the acquisition of additional vessels and the expansion into new markets. The Company may choose to pursue such opportunities through internal growth, joint ventures, or business acquisitions. The Company intends to finance any future acquisitions through various sources of capital, including internally generated cash flow, existing credit lines, additional debt borrowings, and the issuance of additional shares of capital stock. Year 2000 Compliance The Company relies on computer systems and software to operate its business, including applications used in chartering, shipping, communications, finance and various administrative functions. To the extent that the Company’s software applications contain source code that is unable to appropriately interpret the calendar year 2000 and subsequent years, some level of modification for replacement of such applications will be necessary. The Company is reviewing all of its systems in order to verify that they are “Year 2000 compliant” and believes, with limited exceptions, that they will require only minor modification. Accordingly, management does not expect Year 2000 compliance costs to have a material adverse effect on the Company. No assurance can be given, however, that all of the Company’s systems will be Year 2000 compliant or that compliance costs or the impact of any failure by the Company to achieve full Year 2000 compliance will not have a material adverse effect on the Company. In addition, the Company could be adversely affected by the failure of one or more of its customers, lenders, suppliers or other organizations with which it conducts business to become fully Year 2000 compliant. Forward-Looking Statements The Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 1998 and this Annual Report to Shareholders for 1998 contain certain forward-looking statements (as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) concerning future events and the Company’s operations, 26 performance and financial condition, including, in particular, statements regarding: tanker supply and demand; the Company’s market share in the Indo-Pacific Basin; future capital expenditures, including expenditures for newbuilding vessels; the Company’s growth strategy and measures to implement such strategy; the Company’s competitive strengths; and future success of the Company. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the Company. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to: 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; scrapping dynamics and rates; the Company’s dependence on spot oil voyages; competitive factors in the markets in which the Company operates; environmental and other regulation; the Company’s potential inability to achieve and manage growth; risks associated with operations outside the United States; and other factors detailed from time to time in the Company’s periodic reports filed with the U.S. Securities and Exchange Commission. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based. 27 A u d i t o r s ’ R e p o r t To the Shareholders of Teekay Shipping Corporation We have audited the accompanying consolidated balance sheets of Teekay Shipping Corporation and subsidiaries as of March 31, 1998 and 1997, and the related consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended March 31, 1998. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teekay Shipping Corporation and subsidiaries as at March 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 1998, in conformity with accounting principles generally accepted in the United States. Nassau, Bahamas May 15, 1998 Chartered Accountants 28 C o n s o l i d a t e d S t a t e m e n t s o f I n c o m e a n d R e t a i n e d E a r n i n g s (in thousands of U.S. dollars, except per share amounts) Net Voyage Revenues Voyage revenues Voyage expenses Net voyage revenues Operating Expenses Vessel operating expenses Time charter hire expense Depreciation and amortization General and administrative Income from vessel operations Other Items Interest expense Interest income Other income (note 10) Net Income Retained earnings, beginning of the year Year Ended March 31, 1998 Year Ended March 31, 1997 Year Ended March 31, 1996 $ 406,036 $ 382,249 $ 336,320 100,776 102,037 90,575 $ 305,260 $ 280,212 $ 245,745 $ 70,510 $ 72,586 $ 67,841 10,627 94,941 21,542 3,461 90,698 19,209 2,503 82,372 16,750 $ 197,620 $ 107,640 $ $ 185,954 94,258 $ $ 169,466 76,279 $ (56,269) $ (60,810) $ (62,910) 7,897 11,236 (37,136) 70,504 382,178 $ $ 6,358 2,824 6,471 9,230 $ $ (51,628) 42,630 363,690 $ $ (47,209) 29,070 406,547 $ 452,682 $ 406,320 $ 435,617 Exchange of redeemable preferred stock (note 8) Dividends declared and paid (24,580) (24,142) (60,000) (11,927) Retained earnings, end of the year $ 428,102 $ 382,178 $ 363,690 Earnings per common share (notes 1 and 8) – basic – diluted $ $ 2.46 2.44 $ $ 1.52 1.50 $ $ 1.17 1.17 The accompanying notes are an integral part of the consolidated financial statements. 29 C o n s o l i d a t e d B a l a n c e S h e e t s (in thousands of U.S. dollars) Assets Current Cash and cash equivalents Marketable securities (note 3) Accounts receivable – trade – other Prepaid expenses and other assets Total current assets Marketable securities (note 3) Vessels and equipment (notes 1, 5 and 9) At cost, less accumulated depreciation of $500,779 (1997 – $457,779) Advances on vessels Total vessels and equipment Investment Other assets Liabilities and Stockholders’ Equity Current Accounts payable Accrued liabilities (note 4) Current portion of long-term debt (note 5) Total current liabilities Long-term debt (note 5) Total liabilities Stockholders’ equity Capital stock (note 8) Retained earnings Total stockholders’ equity Commitments and contingencies (notes 5, 6 and 9) The accompanying notes are an integral part of the consolidated financial statements. 30 As at March 31, 1998 As at March 31, 1997 $ 87,953 $ 117,523 13,448 23,092 1,235 13,786 25,745 1,066 14,666 $ 139,514 $ 159,000 13,853 $ 1,297,883 $ 1,187,399 8,938 $ 1,297,883 $ 1,196,337 8,933 6,335 11,166 $ 1,460,183 $ 1,372,838 $ 16,164 $ 16,315 29,195 52,932 98,291 672,437 770,728 $ $ $ 26,982 36,283 79,580 663,443 743,023 $ $ $ $ 261,353 $ 247,637 428,102 382,178 $ 689,455 $ 629,815 $ 1,460,183 $ 1,372,838 C o n s o l i d a t e d S t a t e m e n t s o f C a s h F l o w s (in thousands of U.S. dollars) Cash and cash equivalents provided by (used for) Operating Activities Net income Add (deduct) charges to operations not requiring a payment of cash and cash equivalents: Depreciation and amortization Gain on disposition of assets Loss on repurchase of 9 5⁄8% Notes Equity income (net of dividend received: March 31, 1997 – $282) Other – net Change in non-cash working capital items related to Year Ended March 31, 1998 Year Ended March 31, 1997 Year Ended March 31, 1996 $ 70,504 $ 42,630 $ 29,070 94,941 (14,392) 2,175 (45) 2,735 90,698 82,372 (8,784) (2,414) 2,785 (1,139) 2,452 operating activities (note 11) 5,201 5,459 (5,556) Net cash flow from operating activities $ 161,119 $ 139,158 $ 98,415 Financing Activities Proceeds from long-term debt $ 208,600 $ 240,000 $ 448,000 Scheduled repayments of long-term debt (33,876) (16,038) (57,850) Prepayments of long-term debt (150,655) (250,078) (505,962) Scheduled payments on capital lease obligations Prepayments of capital lease obligations Net proceeds from issuance of Common Stock Cash dividends paid Capitalized loan costs 5,126 (15,990) (994) 1,283 (13,493) (1,130) (1,527) (43,023) 137,872 (7,094) (5,965) Net cash flow from financing activities $ 12,211 $ (39,456) $ (35,549) Investing Activities Expenditures for vessels and equipment (net of capital lease financing of: 1998 – $NIL; 1997 – $NIL; 1996 – $44,550) $ (197,199) $ (65,104) $ (79,293) Expenditures for drydocking Proceeds from disposition of assets Net cash flow from investment Proceeds on sale of available-for-sale securities Purchases of available-for-sale securities Other Net cash flow from investing activities (Decrease) increase in cash and cash equivalents Cash and cash equivalents, beginning of the year (18,376) (16,559) (2,296) 33,863 6,380 14,854 (42,154) (268) (7,405) 28,428 3,273 111,770 (41,993) $ (202,900) $ (29,570) 117,523 $ $ (83,959) 15,743 101,780 $ $ 14,780 77,646 24,134 Cash and cash equivalents, end of the year $ 87,953 $ 117,523 $ 101,780 The accompanying notes are an integral part of the consolidated financial statements. 31 N o t e s t o t h e C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s (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 are prepared in accordance with accounting principles generally accepted in the United States. They include the accounts of Teekay Shipping Corporation (“Teekay”), which is incorporated under the laws of Liberia, and its wholly owned or controlled subsidiaries (the “Company”). Significant intercompany items and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain of the comparative figures have been reclassified to conform with the presentation adopted in the current period. Reporting currency The consolidated financial statements are stated in U.S. dollars because the Company operates in international shipping markets which utilize the U.S. dollar as the functional currency. Investment The Company’s 50% interest in Viking Consolidated Shipping Corp. (“VCSC”) is carried at the Company’s original cost plus its proportionate share of the undistributed net income. On March 12, 1997, VCSC sold its one remaining vessel and it is not anticipated that the operating companies of VCSC will have active operations in the near future. The disposal of this vessel and the related gain on sale has been reflected in these consolidated financial statements (see Note 10 – Other Income). Operating revenues and expenses Voyage revenues and expenses are recognized on the percentage of completion method of accounting. Estimated losses on voyages are provided for in full at the time such losses become evident. The consolidated balance sheets reflect the deferred portion of revenues and expenses applicable to subsequent periods. Voyage expenses comprise all expenses relating to particular voyages, including bunker fuel expenses, port fees, canal tolls, and brokerage commissions. Vessel operating expenses comprise all expenses relating to the operation of vessels, including crewing, repairs and maintenance, insurance, stores and lubes, and miscellaneous expenses including communications. Marketable securities The Company’s investments in marketable securities are classified as available-for-sale securities and are carried at fair value. Net unrealized gains or losses on available-for-sale securities, if material, are reported as a separate component of stockholders’ equity. Vessels and equipment All pre-delivery costs incurred during the construction of newbuildings, including interest costs, and supervision and technical costs are capitalized. The acquisition cost and all costs incurred to restore used vessel purchases to the standard required to properly service the Company’s customers are capitalized. Depreciation is calculated on a straight-line basis over a vessel’s useful life, estimated by the Company to be twenty years from the date a vessel is initially placed in service. Interest costs capitalized to vessels and equipment for the years ended March 31, 1998, 1997 and 1996 aggregated $283,000, $232,000, and $106,000, respectively. Expenditures incurred during drydocking are capitalized and amortized on a straight-line basis over the period until the next anticipated drydocking. When significant drydocking expenditures recur prior to the expiry of this period, the remaining balance of the original drydocking is expensed in the month of the subsequent drydocking. Drydocking expenses amortized for the years 32 ended March 31, 1998, 1997 and 1996 aggregated $11,737,000, $10,941,000, and $8,617,000 respectively. Vessels acquired pursuant to bareboat hire purchase agreements are capitalized as capital leases and are amortized over the estimated useful life of the acquired vessel. Other assets Loan costs, including fees, commissions and legal expenses, are capitalized and amortized over the term of the relevant loan. Amortization of loan costs is included in interest expense. Interest rate swap agreements The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expenses. Premiums and receipts, if any, are recognized as adjustments to interest expense over the lives of the individual contracts. Forward contracts The Company enters into forward contracts as a hedge against changes in foreign exchange rates. Market value gains and losses are deferred and recognized during the period in which the hedged transaction is recorded in the accounts. Cash flows Cash interest paid during the years ended March 31, 1998, 1997 and 1996 totaled $55,141,000, $57,400,000, and $59,021,000, respectively. The Company classifies all highly liquid investments with a maturity date of three months or less when purchased as cash and cash equivalents. Income taxes The legal jurisdictions of the countries in which the Company and the majority of its subsidiaries are incorporated do not impose income taxes upon shipping-related activities. Earnings per share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (“SFAS 128”), “Earnings per share”. SFAS 128 requires dual presentation of basic earnings per share (“EPS”) and diluted EPS on the face of all statements of earnings ending after December 15, 1997 for all entities with complex capital structures. The Company’s EPS for all periods presented herein are in conformity with SFAS 128 (see Note 8 – Capital Stock). Accounting for Stock-Based Compensation Effective April 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation.” SFAS 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) companies to record compensation costs associated with employee stock option awards, based on estimated fair values at the grant dates. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 (“APB 25”) “Accounting for Stock Issued to Employees” and has disclosed the required pro forma effect on net income and earnings per share as if the fair value method of accounting as prescribed in SFAS 123 had been applied (see Note 8 – Capital Stock). 33 N o t e s t o t h e C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s c o n t i n u e d (all tabular amounts stated in thousands of U.S. dollars, other than share or per share data) 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. A single customer, an international oil company, accounted for approximately 14% ($56,537,000) of the Company’s consolidated voyage revenues for fiscal 1998. Another customer, also an international oil company, accounted for approximately 13% ($48,696,000), of consolidated voyage revenues for fiscal 1997. No more than one customer accounted for over 10% of the Company’s consolidated voyage revenues in each of the last three fiscal years. 3. Investments in Marketable Securities Cost Gross Unrealized Gains Gross Unrealized Losses Approximate Market and Carrying Value March 31, 1998 Available-for-sale securities $ 27,304 $ 13 $ (16) $ 27,301 The cost and approximate market value of available-for-sale securities by contractual maturity, as at March 31, 1998, are shown Approximate Market Cost and Carrying Value $ $ 13,456 13,848 27,304 $ $ 13,448 13,853 27,301 March 31, 1998 March 31, 1997 $ 15,845 $ 15,458 9,272 4,078 9,294 2,230 $ 29,195 $ 26,982 as follows: Less than one year Due after one year through five years 4. Accrued Liabilities Voyage and vessel Interest Payroll and benefits 34 5. Long-Term Debt March 31, 1998 March 31, 1997 Revolving Credit Facility $ 129,000 $ First Preferred Ship Mortgage Notes (8.32%) U.S. dollar debt due through 2008 First Preferred Ship Mortgage Notes (9 5⁄8%) U.S. dollar debt due through 2003 Floating rate (1998: LIBOR + 0.55% to 1%; 1997: LIBOR + 0.65% to 1 1⁄2%) U.S. dollar debt due through 2009 Less current portion 225,000 225,000 123,718 151,200 247,651 323,526 $ 725,369 $ 699,726 52,932 36,283 $ 672,437 $ 663,443 In January 1998, the Company refinanced approximately $105.0 million of its floating rate debt and replaced the previous corporate revolving credit facility with a new $200 million corporate revolving credit facility (the “Revolver”) at improved rates and credit terms. The amount available under the Revolver reduces by $10.0 million semi-annually commencing in July 1999, with a final balloon reduction in January 2006. Interest payments are based on LIBOR plus a margin depending on the financial leverage of the Company; at March 31, 1998 the margin was + 0.50%. As at March 31, 1998, the undrawn amount available under the Revolver was $71.0 million. The Revolver is collateralized by first priority mortgages granted on eight of the Company’s Aframax tankers, together with certain other related collateral, and a guarantee from the Company for all amounts outstanding under the Revolver. The 8.32% First Preferred Ship Mortgage Notes due February 1, 2008 (the “8.32% Notes”) are collateralized by first preferred mortgages on seven of the Company’s Aframax tankers, together with certain other related collateral, and are guaranteed by seven subsidiaries of Teekay that own the mortgaged vessels (the “8.32% Notes Guarantor Subsidiaries”) to a maximum of 95% of the fair value of their net assets. As at March 31, 1998, the fair value of these net assets approximated $252.0 million. The 8.32% Notes are also subject to a sinking fund, which will retire $45.0 million principal amount of the 8.32% Notes on each February 1, commencing 2004. Upon the 8.32% Notes achieving Investment Grade Status and subject to certain other conditions, the guarantees of the 8.32% Notes Guarantor Subsidiaries will terminate, all of the collateral securing the obligations of the Company and the 8.32% Notes Guarantor Subsidiaries under the Indenture and the Security Documents will be released (whereupon the Notes will become general unsecured obligations of the Company) and certain covenants under the Indenture will no longer be applicable to the Company. The 9 5⁄8% First Preferred Ship Mortgage Notes due July 15, 2003 (the “9 5⁄8% Notes”) are collateralized by first preferred mortgages on six of the Company’s Aframax tankers, together with certain other related collateral, and are guaranteed by six subsidiaries of Teekay that own the mortgaged vessels (the “9 5⁄8% Notes Guarantor Subsidiaries”) to a maximum of 95% of the fair value of their net assets. As at March 31, 1998, the fair value of these net assets approximated $186.0 million. The 9 5⁄8% Notes are also subject to a sinking fund, which will retire $25.0 million principal amount of the 9 5⁄8% Notes, on each July 15, which commenced on July 15, 1997. During fiscal 1998, the Company repurchased a principal amount of $26.3 million of the 9 5⁄8% Notes. During fiscal 1996, the Company repurchased $23.8 million of these notes, which was applied to reduce the July 15, 1997 sinking fund requirement. The 9 5⁄8% Notes are redeemable at the option of the Company, in whole or in part, on or after July 15, 1998 at the following redemption prices expressed as a percentage of principal: 35 N o t e s t o t h e C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s c o n t i n u e d (all tabular amounts stated in thousands of U.S. dollars, other than share or per share data) 5. Long-Term Debt continued July 15 1998 1999 2000 Redemption Price 104.813% 102.406% 100.000% Upon a Change of Control each 9 5⁄8% Note holder and 8.32% Note holder has the right, unless the Company elects to redeem these Notes, to require the Company to purchase these Notes at 101% of their principal amount plus accrued interest. All floating rate loans are collateralized by first preferred mortgages on the vessels to which the loans relate, together with certain other collateral, and guarantees from Teekay. Among other matters, the long-term debt agreements generally provide for such items as maintenance of certain vessel market value to loan ratios and minimum consolidated financial covenants, prepayment privileges (in some cases with penalties), and restrictions against the incurrence of additional debt and new investments by the individual subsidiaries without prior lender consent. The amount of Restricted Payments, as defined, that the Company can make, including dividends and purchases of its own capital stock, is limited as of March 31, 1998, to $74.0 million. As at March 31, 1998, the Company was committed to a series of interest rate swap agreements whereby $150 million of the Company’s floating rate debt was swapped with fixed rate obligations having an average remaining term of 7.5 months. The swap agreements expire between October 1998 and December 1998. These arrangements effectively change the Company’s interest rate exposure on $150 million of debt from a floating LIBOR rate to an average fixed rate of 5.86%. The Company is exposed to credit loss in the event of non-performance by the counter parties to the interest rate swap agreements; however, the Company does not anticipate non-performance by any of the counter parties. The aggregate annual long-term debt principal repayments required to be made for the five fiscal years subsequent to March 31, 1998 are $52,932,000 (fiscal 1999), $53,058,000 (fiscal 2000), $53,191,000 (fiscal 2001), $62,332,000 (fiscal 2002), and $72,199,000 (fiscal 2003). 6. Leases Charters-out Time charters to third parties of the Company’s vessels are accounted for as operating leases. The minimum future revenues to be received on time charters currently in place are $46,222,000 (fiscal 1999) and $39,631,000 (fiscal 2000), $39,602,000 (fiscal 2001), $39,562,000 (fiscal 2002), $39,562,000, (fiscal 2003), and $215,533,000 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 $19,681,000 (fiscal 1999), $9,445,000 (fiscal 2000), $6,844,000 (fiscal 2001), and $412,000 (fiscal 2002). 7. Fair Value of Financial Instruments Carrying amounts of all financial instruments approximate fair market value except for the following: Long-term debt – The fair values of the Company’s fixed rate long-term debt are based on either quoted market prices or estimated using discounted cash flow analyses, based on rates currently available for debt with similar terms and remaining maturities. 36 Interest rate swap agreements – The fair value of interest rate swaps, used for hedging purposes, is the estimated amount that the Company would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and the current credit worthiness of the swap counter parties. The estimated fair value of the Company’s financial instruments is as follows: Carrying Amount Fair Value Carrying Amount Fair Value March 31, 1998 March 31, 1997 Cash, cash equivalents and marketable securities $ 115,254 $ 115,254 $ 117,523 $ 117,523 Long-term debt 725,369 737,785 699,726 695,265 Interest rate swap agreements – net receivable (payable) position Foreign currency contracts (176) 339 1,154 (181) The Company transacts with investment grade rated financial institutions and requires no collateral from these institutions. 8. Capital Stock Authorized 25,000,000 Preferred Stock with a par value of $1 per share 125,000,000 Common Stock with no par value Common Stock Thousands of Shares Preferred Stock Thousands of Shares Issued and outstanding Balance March 31, 1995 $ 33,000 36,000 $ 1 600 May 15, 1995 1-for-2 Reverse Common Stock Split (18,000) July 19, 1995 Initial Public Offering 6,900,000 shares at $21.50 per share of Common Stock (net of share issue costs) 137,613 6,900 July 19, 1995 Exchange of Redeemable Preferred Stock for 2,790,698 shares of Common Stock 60,000 Reinvested Dividends Exercise of Stock Options 4,833 259 2,791 201 12 (1) (600) Balance March 31, 1996 $ 235,705 27,904 Reinvested Dividends Exercise of Stock Options 10,649 1,283 364 60 Balance March 31, 1997 $ 247,637 28,328 Reinvested Dividends Exercise of Stock Options 8,590 5,126 273 232 Balance March 31, 1998 $ 261,353 28,833 $ $ $ 0 0 0 The Company has reserved 1,844,135 shares of Common Stock for issuance upon exercise of options granted pursuant to the Company’s 1995 Stock Option Plan (the “Plan”). 0 0 0 37 N o t e s t o t h e C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s c o n t i n u e d (all tabular amounts stated in thousands of U.S. dollars, other than share or per share data) During fiscal 1998, 1997 and 1996, the Company granted options under the Plan to acquire up to 359,750, 343,250 and 796,750 shares of Common Stock (the “Grants”), respectively, to certain eligible officers, key employees (including senior sea staff), and directors of the Company. The options have a 10-year term and follow a graded-vesting schedule. The options granted during fiscal 1998 and 1997 vest equally over four years from the date of grant. At March 31, 1998, all options granted during fiscal 1996 have vested. A summary of the Company’s stock option activity, and related information for the years ended March 31 follows: Fiscal 1998 Fiscal 1997 Fiscal 1996 Options Weighted-Average Exercise Price (’000s) Options (’000s) Weighted-Average Exercise Price Options (’000s) Weighted-Average Exercise Price Outstanding-beginning of year 1,056 $23.40 Granted Exercised Forfeited Outstanding-end of year Exercisable at end of year Weighted-average fair value of options granted during 360 (232) (23) 1,161 565 33.50 22.02 30.39 $26.66 $22.14 779 343 (60) (6) 1,056 519 $21.50 27.38 21.50 24.00 $23.40 $21.50 0 797 (12) (6) 779 383 $21.50 21.50 21.50 21.50 $21.50 $21.50 the year (per option) $8.13 $6.72 $5.16 Exercise prices for the options outstanding as of March 31, 1998 ranged from $21.50 to $33.50 and have a weighted-average remaining contractual life of 8.10 years. The Company applies APB 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its employee stock options (see Note 1 – Accounting for Stock-Based Compensation). Under APB 25, because the exercise price of the Company’s employee stock options equals the market price of underlying stock on the date of grant, no compensation expense is recognized. Had the Company recognized compensation costs for the Grants consistent with the methods recommended by SFAS 123 (see Note 1 – Accounting for Stock-Based Compensation), the Company’s net income and earnings per share for those fiscal years would have been stated at the pro forma amounts as follows: Net income: As reported Pro forma Basic earnings per common share: As reported Pro forma Diluted earnings per common share: As reported Pro forma Year Ended March 31, 1998 Year Ended March 31, 1997 Year Ended March 31, 1996 $ 70,504 $ 42,630 $ 29,070 69,090 40,679 26,842 $ $ 2.46 2.41 2.44 2.39 $ $ 1.52 1.45 1.50 1.44 $ $ 1.17 1.08 1.17 1.08 Basic earnings per share is based upon the following weighted average number of common shares outstanding: 28,655,000 shares at March 31, 1998; 28,138,000 shares at March 31, 1997; and 24,837,000 shares at March 31, 1996. Diluted earnings per share, which gives effect to the aforementioned stock options, is based upon the following weighted average number of common shares 38 outstanding: 28,870,000 shares at March 31, 1998; 28,339,000 shares at March 31, 1997; and 24,902,000 shares at March 31, 1996. 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 6.29%, 6.44%, and 6.14% for fiscal 1998, fiscal 1997 and fiscal 1996, respectively, dividend yield of 3.0%; expected volatility of 25%; and expected lives of 5 years. 9. Commitments and Contingencies As at March 31, 1998, the Company was committed to foreign exchange contracts for the forward purchase of approximately Japanese Yen 100 million and Singapore dollars 15.9 million for U.S. dollars, at an average rate of Japanese Yen 128.3 per U.S. dollar and Singapore dollar 1.68 per U.S. dollar, respectively, for the purpose of hedging accounts payable and accrued liabilities. 10. Other Income Year Ended March 31, 1998 Year Ended March 31, 1997 Year Ended March 31, 1996 Gain on disposition of assets $ 14,392 $ $ 8,784 Equity in results of 50% owned company Write off of loan costs due to refinancing Loss on extinguishment of debt Miscellaneous – net 45 (1,308) (2,175) 282 2,696 1,139 128 (693) $ 11,236 $ 2,824 $ 9,230 For the year ended March 31, 1997, Equity in results of the 50% owned company included a $2,732,000 gain on a vessel sale. Gross realized gains and (losses) on sales of available-for-sale securities for the year ended March 31, 1996 aggregated $1,787,000 and ($1,732,000), respectively. 11. Change in Non-Cash Working Capital Items Related to Operating Activities Year Ended March 31, 1998 Year Ended March 31, 1997 Year Ended March 31, 1996 Accounts receivable $ 2,484 $ (1,873) $ (4,792) Prepaid expenses and other assets Accounts payable Accrued liabilities 12. Subsequent Events 880 5,814 (3,977) 665 4,554 2,113 (2,058) 281 1,013 $ 5,201 $ 5,459 $ (5,556) In May 1998, the Company commenced an offering of up to 8,050,000 shares of Common Stock, of which 2,800,000 shares are being offered by the Company and up to 5,250,000 shares are being offered by a selling shareholder. The net proceeds to the Company of the offering will be used to redeem a portion of the 9 5⁄8% Notes. Subsequent to March 31, 1998 the Company entered into an agreement (subject to certain conditions) for the construction of two Aframax vessels for a cost of $76.0 million, scheduled for delivery in July and September of 1999. 39 F i v e Ye a r S u m m a r y o f F i n a n c i a l I n f o r m a t i o n (U.S. dollars in thousands, except per share and per day data and ratios) Income Statement Data: Net voyage revenues Income from vessel operations Net income Per Share Data: Earnings per share Weighted average shares Fiscal Year ended March 31, 1998 Fiscal year ended March 31, 1997 Fiscal year ended March 31, 1996 Fiscal year ended March 31, 1995 11 month period ended March 31, 1994 $ 305,260 $ 280,212 $ 245,745 $ 235,009 $ 236,690 107,640 70,504 94,258 42,630 76,279 29,070 52,816 6,368 60,777 30,158 $ 2.46 $ 1.52 $ 1.17 $ 0.35 $ 1.68 outstanding (thousands) 28,655 28,138 24,837 18,000 18,000 Balance Sheet Data (at end of period): Total assets $1,460,183 $1,372,838 $1,355,301 $1,306,474 $1,405,147 Total stockholders' equity 689,455 629,815 599,395 439,066 433,180 Other Financial Data: EBITDA $ 209,582 $ 191,632 $ 166,233 $ 146,756 $ 151,364 Net debt to capitalization (%) 46.9 48.0 51.0 63.3 65.9 Capital expenditures: Vessel purchases, gross $ 197,199 $ 65,104 $ 123,843 $ 7,465 $ 163,509 Drydocking 12,409 23,124 11,641 11,917 13,296 Fleet Data: Average number of ships 43 41 39 42 45 Time-charter equivalent (TCE) $ 21,373 $ 20,356 $ 18,438 $ 16,552 $ 17,431 Operating cash flow per ship per day 12,664 11,819 10,613 8,944 9,133 40 B o a r d o f D i r e c t o r s Axel Karlshoej Director and Chairman of the Board President of Nordic Industries Bjorn Moller Director, President and Chief Executive Officer Arthur F. Coady Director, Executive Vice President and General Counsel Michael D. Dingman Director Chairman and Chief Executive Officer of The Shipston Group Limited Morris L. Feder Director President of Worldwide Cargo Inc. Steve G.K. Hsu Director Chairman of Oak Maritime (H.K.) Inc., Limited Thomas Kuo-Yuen Hsu Director Executive Director of Expedo & Company (London) Ltd. 41 C o r p o r a t e I n f o r m a t i o n Stock Transfer Agent and Registrar Investor Relations The Bank of New York 101 Barclay Street, 11 West P.O. Box 11258 Church Street Station New York, New York 10286 Tel: 1-800-524-4458 Stock Exchange Listing New York Stock Exchange Symbol: TK There were 28.8 million shares outstanding at March 31, 1998. Share Price Information A copy of the Company’s Annual Report on Form 20-F is available by writing or calling: Teekay Shipping (Canada) Ltd. Investor Relations 1400 – 505 Burrard Street Vancouver, B.C. Canada V7X 1M5 Tel: (604) 844-6654 Fax: (604) 844-6619 website: www.teekay.com Corporate Headquarters Teekay Shipping Corporation 4th Floor, Euro Canadian Centre The following table sets forth the New York Stock Marlborough Street & Navy Lion Road Exchange high and low prices of the Company’s stock P.O. Box SS-6293 for each quarter during fiscal 1998: Nassau The Bahamas Quarter ended High Low Dividends Declared June 30, 1997 $345⁄8 $28 (per share) $0.215 September 30, 1997 $36 $3015⁄16 $0.215 December 31, 1997 March 31, 1998 $377⁄8 $339⁄16 $303⁄8 $277⁄8 $0.215 $0.215 42 Teekay Shipping Limited 4th Floor, Euro Canadian Centre Marlborough Street & Navy Lion Road P.O. Box SS-6293 Nassau The Bahamas Teekay Shipping (Canada) Ltd. 505 Burrard Street, 14th Floor Vancouver, B.C. Canada V7X 1M5 Teekay Shipping (UK) Ltd. 49 St. James Street London SW1A 1JT United Kingdom Teekay Shipping (Glasgow) Ltd. 183 St. Vincent Street Glasgow G2 5QD United Kingdom Teekay Shipping (Singapore) Pte. Ltd. 8 Shenton Way #44-03 Temasek Tower Singapore 068811 Mayon Marine Management, Inc. PVB Building, Ground Floor Gen. Luna St. Cor., Sta. Potenciana St. Intramuros Manila Philippines Teekay Shipping (Japan) Ltd. 6F Eiyu Irifune Building 1-13 Irifune 3 - Chome, Chuo-ku Tokyo 104 Japan Teekay Shipping (Australia) Pty. Ltd. Bayview Tower Level 6 1753 – 1765 Botany Road Banksmeadow, NSW 2019 Australia . c n I ) r e v u o c n a V ( s e i g e t a r t S l e l l a r a P y b d e c u d o r p d n a d e n g i s e D PRINTED IN CANADA 

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