ON COURSE
Teekay Shipping Corporation Annual Report December 31, 1999
C O N T E N T S
01
03
06
10
15
18
24
25
28
36
37
38
Financial Highlights
Chairman’s Message to Shareholders
President’s Report to Shareholders
Market Review
Fleet Profile
Management’s Discussion & Analysis
Auditors’ Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Five Year Financial Summary
Board of Directors
Corporate Information
C O R P O R AT E P R O F I L E
Teekay Shipping Corporation is a leading provider of international crude oil and petroleum
product transportation services through the world’s largest fleet of medium-sized (Aframax) oil
tankers. Headquartered in Nassau, Bahamas, with offices in 11 other countries, Teekay employs
nearly 300 on-shore and more than 2,700 seagoing staff around the world. The Company has
earned a reputation for safety and excellence in providing transportation services to major
international oil companies, traders and government agencies worldwide. The Company’s
common stock is listed on the New York Stock Exchange and trades under the symbol "TK".
Leverage(2)
%
90
75
60
45
30
15
0
Revenue
$ Millions
Capital Expenditures
$ Millions
450
375
300
225
150
75
0
400
240
200
160
120
80
40
0
96 97 98 99 99
As at March 31
(1)
(1) As at December 31, 1999
(2) Net debt/capitalization
96 97 98 99 99
Fiscal Year Ended March 31
(1)
(1) 9 months ended
December 31, 1999
96 97 98 99 99
Fiscal Year Ended March 31
(1)
(1) 9 months ended
December 31, 1999
Vessels and equipment, gross
Drydocking
Teekay Shipping Annual Repor t December 31, 1999
1
FINANCIAL HIGHLIGHTS
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 as otherwise indicated)
Income Statement Data
Net voyage revenues
Net income (loss)
Balance Sheet Data
Total assets
Total stockholders’ equity
Per Share Data
9 Months Ended
December 31,
*
1999
Year Ended
March 31,
1999
$
248,350
$
318,411
(19,595)
45,406
1,982,684
1,452,220
832,067
777,390
Net income (loss) per share
(0.54)
Weighted average shares outstanding (thousands)
36,384
1.46
31,063
Other Financial Data
EBITDA
Net debt to capitalization (%)
Capital expenditures:
Vessel purchases, gross
Drydocking
Operating cash flow per ship per day
89,839
50.8
186,069
39.6
452,584
4,971
5,177
85,445
7,213
11,171
*(Teekay has changed its fiscal year end from March 31 to December 31, effective December 31, 1999)
Cash Flow (2)
$ Millions
Earnings Per Share
$ US
Net Income
$ Millions
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
240
200
160
120
80
40
0
96 97 98 99 99
Fiscal Year Ended March 31
(1)
(1) 9 months ended
December 31, 1999
(2) Earnings before interest, taxes,
depreciation and amortization
(EBITDA)
70
60
50
40
30
20
10
0
-10
-20
96 97 98 99 99
Fiscal Year Ended March 31
(1)
96 97 98 99 99
Fiscal Year Ended March 31
(1)
(1) 9 months ended
December 31, 1999
(1) 9 months ended
December 31, 1999
ON COURSE
2
Teekay Shipping Annual Report December 31, 1999
GROWTH
WITH THE SUCCESSFUL ACQUISITION of Bona Shipholding,
Teekay now possesses a truly global reach with offices and service
routes throughout the world. Commercial activity is conducted
from offices in London, Houston, Singapore, Tokyo and Oslo
providing 24 hour coverage to customers.
c r e a t i n g a w o r l d w i d e
t r a n s p o r t a t i o n n e t w o r k
Teekay Shipping Annual Report December 31, 1999
3
CHAIRMAN’S MESSAGE
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
By continuing to position ourselves as a leading consolidator in a fragmented
industry, by maintaining our financial strength and preserving our commitment
to the highest standards of professionalism, we believe that we are the shipping
company of the future.
Sean Day
Chairman of the Board
of Directors
1999 was a year in which we laid a solid foundation for
our future success. Nevertheless, I am disappointed that
we report poor earnings in my first year as your Chairman.
This was a year in which rates plummeted in the face of
weak demand, and our fleet encountered the most difficult
trading conditions since the early 1990s. However, it
appears we have passed the bottom of this cycle and I am
confident that the resources that we have committed to
acquiring and merging with Bona Shipholding, as well
as the time and effort we have spent on our internal
reorganization and streamlining this past year, will reap
rewards in the future.
We cannot escape the cyclical nature of our industry, much
as we would wish otherwise. As demand for oil around the
world fluctuates, and as ship owners collectively decide to
build or scrap vessels, the demand for our services will
vary. Our challenge is to ensure that we achieve superior
returns on our capital employed and increase our share-
holders’ value in our stock over the course of each cycle,
measured from beginning to end.
How will we achieve this goal? We continue to position
ourselves to do so. Today we are a leading consolidator in a
fragmented industry. We are a transparent public company
in an industry dominated by small private operators.
We adhere to the very highest standards of safety in an
industry that, lamentably, still tolerates sub-standard
CHAIRMAN’S MESSAGE
4
Teekay Shipping Annual Report December 31, 1999
Oil companies and other
charterers will be looking
to professionally managed,
well-capitalized companies
like Teekay as their carriers
of the future.
vessels. We are financially strong and are committed to
serve our customers with professionalism. We believe
that we are the shipping company of the future.
Recently a 25 year old tanker in poor condition split in
half in bad weather and spilled its cargo, causing extensive
damage to much of the French Atlantic coastline; the
owner of the vessel could not even be identified for many
weeks after the accident. This environmental disaster is
having an impact on Europe and the public is demanding
that our industry be accountable for this catastrophe. In the
face of this tragedy, oil companies and other charterers will
be looking to professionally managed, well-capitalized
companies like Teekay as their carriers of choice in the
future. We are ready to meet that challenge!
I am proud to be a member of the Teekay team. I would
like to pay tribute to my predecessor, Axel Karlshoej. Axel
did an extraordinary job of maintaining the vision of his
late brother, Torben Karlshoej, the founder of our company.
Axel led our company with style and enthusiasm and we
are very glad that he continues on our Board as Chairman
Emeritus. Thanks, too, to our customers for their steady
support, to the 3,000 Teekay employees worldwide whose
teamwork is critical to our success, and to our shareholders
who share our vision!
Sean Day
Chairman of the
Board of Directors
Teekay Shipping Annual Report December 31, 1999
5
ON COURSE
CONTROL
FROM SHIP TO SHORE, every area of Teekay is committed to
minimizing operating expenses without compromising the
Company’s reputation for excellence. The Company’s large, uniform
fleet of modern ships means greater efficiency and lower costs,
while participation in MARCAS, a marine purchasing co-operative,
creates further cost savings for commonly purchased services
and materials.
m a n a g i n g c o s t – e f f e c t i v e o p e r a t i o n s
PRESIDENT’S REPORT
6
Teekay Shipping Annual Report December 31, 1999
P R E S I D E N T ’ S R E P O RT T O S H A R E H O L D E R S
Careful planning and a long-term vision have allowed us to successfully manage
a severe market downturn and lay the groundwork for improved profitability.
This past shortened nine month fiscal year was
I am pleased to report that the Bona acquisition
a dynamic period in the tanker market, in the
was concluded on schedule and without any
oil industry and in Teekay alike. We believe
disruption to operations. Our customers report
the tanker market cycle bottomed out with
that they continue to enjoy the high quality
very weak rates, then turned a corner in the latter
of service they expect from Teekay, confirming
part of the year, moving towards improved
that the substantial effort that went into
tanker supply and demand fundamentals. The
transitional planning was time well spent.
consolidation among the world’s oil companies
changed our customer landscape, providing
One of the effects of integrating Bona was a
tremendous opportunities for Teekay in the
change in fiscal year-end. Accordingly, this
process. Within Teekay itself, we focused on
Annual Report covers the nine month period
three critical areas affecting shareholder
from April 1, 1999 to December 31, 1999.
returns: revenue enhancement; cost manage-
ment; and reduction of the average invested
The impact of the cyclical downturn in the tanker
capital per ship.
market is reflected in the weak results for the
nine months ending December 31, 1999. During
Teekay’s most visible highlights of 1999
this period, the Company recorded a net loss
included our $450 million acquisition of
of $19.6 million compared to net income of
Bona Shipholding, a series of advances in
$45.4 million for the 12 month period to
major customer relationships and our key role
March 31, 1999.
in helping establish MARCAS, an innovative
purchasing co-operative. Behind the scenes
Tight cost controls and effective voyage
there were significant changes too. We com-
management have traditionally enabled us
pletely restructured our marine operations
to outperform the market and consistently
into ship teams for improved efficiency. We
realize a higher average cash flow per ship day
launched a visionary new long term strategy in
relative to our industry. We have maintained
the critical area of seastaff manning and training;
our cash flow premium in this year, where the
we initiated a major upgrade of information
significant decline in the market saw the
systems; and we instigated a drive to cut
Company’s operating cash flow per ship day
costs beyond those already identified from
fall from $11,171 in the 12 month period
the Bona transaction.
ending March 31, 1999 to $5,177 for the nine
month period ending December 31, 1999.
Bjorn Moller
President and CEO
Teekay Shipping Annual Report December 31, 1999
7
PRESIDENT’S REPORT
Throughout the current downturn, our Australian
fleet reaching 25 years of age in the next two
operations have continued to generate a steady
years, particularly at a time when international
cash flow of $14,643 per day. Similar perfor-
regulations continue to place increased pressure
mance levels are expected to continue for the
on companies to retire older tonnage. Shipyard
duration of these long-term contracts.
orderbooks are full for the next two years or
more, capping the number of new tankers that
Despite the results of the past nine months, we
will enter the market in the next two years.
are pleased to note some encouraging indications
that the tanker market is poised for an upturn.
Teekay is in an excellent position to take
Commencing in 1998 and continuing through-
advantage of a tanker market recovery. We
out the first half of 1999, a slowdown in world
have a large uniform Aframax fleet with an
oil consumption brought about by the Asian
average age of only 8.6 years, a streamlined
economic crisis, coupled with OPEC produc-
operation able to react quickly to customer
tion cuts, sharply reduced tanker demand.
requirements and a culture that encourages
Simultaneously, tanker supply increased as a
cost efficiency and continuous improvement.
large number of newbuildings, ordered at the
last market peak in 1997, entered the market.
We have capitalized on the current lull in the
The resultant effect was downward pressure
tanker market to increase operating leverage,
on tanker freight rates.
cut costs and strengthen our management and
technology infrastructure. These strategies are
Industry statistics now clearly show that world
consistent with our philosophy of stimulating
GDP and oil consumption have returned to
growth while preserving our core strengths,
strong growth rates. OPEC, however, has main-
and will serve to enhance our financial returns
tained its oil production cuts in order to draw
and earnings power as the market recovers.
down oil inventories and drive up oil prices.
As an example of the impact of this policy,
The Bona transaction immediately increased
U.S. oil inventories in early February 2000
our presence in the Atlantic basin from six to
reached a 20 year low. In order to avert a
32 ships and increased Teekay’s overall size
global shortfall of oil products, production
by approximately 50%. With the successful
will need to increase in the coming months,
integration of the two companies to date, we
something which would have an immediate
enjoy a significant and far-reaching competitive
As the pace of change in our
industry accelerates, our focus on
continuous improvement sees us
positive impact on tanker demand.
advantage in being able to offer our customers
well positioned to capitalize on the
next upturn in the tanker cycle.
Our industry is also experiencing its highest
oil transportation. The timing of the Bona
scrap rate of old tankers in 14 years. This is
acquisition at the bottom half of the cycle has
likely to continue with 15% of the world tanker
resulted in a significant reduction in the net
a single and flexible source of global Aframax
PRESIDENT’S REPORT
8
Teekay Shipping Annual Report December 31, 1999
income break-even level of our fleet, raising
And, of course, Teekay continues to maintain a
our earnings power.
worldwide network of chartering offices which
provide 24 hour coverage to our customers.
Last year we estimated that we would see annual
merger cost synergies of approximately $10
The move to ship teams has streamlined our
million by July 2000; $6.5 million through the
internal information flow, strengthening ship
elimination of duplicated overhead and $3.5
to shore communications, increasing our vessel
million in operating costs. These projections
planning flexibility and stimulating our creative
remain on track.
problem solving abilities. Significant new
investment in global information systems is
Our role as co-founder of the MARCAS marine
improving communications and information
purchasing co-operative has provided the
systems on board ships and in our offices.
cumulative buying power of 225 vessels,
allowing us to effectively reduce costs on
Going forward, we intend to focus on maximiz-
The successful integration of
the Bona and Teekay fleets was
completed on schedule. The
company is already benefiting
commonly purchased services and materials.
ing the benefits of our position as we enter
from the predicted synergies.
These include items such as lubricating oil,
what appears to be a cyclical upturn phase, be
paints, chemicals and welding supplies. Our
it in our current size or as a bigger company,
intention is to grow MARCAS further.
should the opportunity arise for us to use our
balance sheet again. We will remain focused on
A major Teekay goal to become our customers’
creating increased value for our shareholders.
service partner of choice has seen the Company
In other words, we intend to remain “on
become increasingly more proactive in meeting
course” towards pre-eminence in the global
our customers’ evolving needs. As a result,
tanker industry.
we have secured a number of contracts in the
Atlantic basin. These flexible, often high
I would like to thank all Teekay employees for
volume contracts benefit our customers and at
their dedication and commitment to making
the same time enhance our fleet utilization and
this transitional year so productive. They have
provide us with preferred access to premium
earned the right to take a great deal of pride in
trade routes.
what they have achieved in 1999, namely to
firmly place Teekay on an exciting strategic
A key to this customer focused approach
path for the future.
lies in improving communications, both
within the Company and with our customers.
Consolidating and centralizing our operations
has helped to simplify our structure and deliver
superior customer service and communication.
Bjorn Moller
President and CEO
Teekay Shipping Annual Report December 31, 1999
9
ON COURSE
DIRECTION
STRICT DISCIPLINE and a clear understanding of the forces which
drive the tanker cycle have enabled Teekay to take advantage of
opportunities for growth, many of which occur when the market
is down. Having ready access to capital during a downturn facilitates
the Company’s ability to react swiftly and independently.
d e v e l o p i n g s t r a t e g i e s t h a t c a p i t a l i z e
o n t h e m a r k e t c y c l e
MARKET REVIEW
10
Teekay Shipping Annual Report December 31, 1999
M A R K E T R E V I E W
The tanker industry is cyclical in nature, affected by several interrelated supply
and demand factors.
% Growth
4
3
2
1
0
-1
-2
-3
GDP Growth vs Oil Demand
91
92
93
94
95
96
97
98
99 00
CALENDAR YEAR
World GDP Oil Consumption Incremental Oil Production
World GDP Projection Oil Consumption Projection
Information based on industry data
Supply and Demand Cycles
The oil tanker industry is characterized by the
Overall tanker supply changes are determined
periodic volatility of its charter rates (TCEs).
by the number of new tankers delivered and the
Much of this rate volatility arises from the fact
number of older vessels removed from the
that the demand for oil tankers is highly elastic
market through scrapping. The decision by an
while oil tanker supply is, in the short-term,
owner whether to scrap a vessel is, in large
relatively inelastic.
part, influenced by the age of the vessel, current
and projected income from the vessel and the
Changes in tanker demand are primarily driven
cost of any modifications that the vessel may
by changes in oil production. This is, in turn,
require to pass the required periodic surveys.
largely driven by oil consumption, which is,
All of these factors are weighed against the
itself, closely correlated with world GDP
scrap price the owner can obtain.
growth, as can be seen in the accompanying
graph. Oil production is also affected in the
short term by variations in OPEC policies.
Teekay Shipping Annual Report December 31, 1999
11
MARKET REVIEW
Aframax TCE Rates vs Oil Production
Aframax TCE Rates
($/day)
Incremental
Oil Production
(million bpd)
20,000
15,000
10,000
5,000
3
2
1
0
(1)
(2)
Growth In Oil Demand
MILLIONS B/D
80
70
60
50
92 93 94 95 96 97 98 99
91
CALENDAR YEAR
Aframax TCE Rates World Oil Production
88 89 90 91 92 93 94 95 96 97 98 99
CALENDAR YEAR
Source: IEA, PIRA Energy Group
The Current Position
The 1999 tanker environment was one of
the balance of the year. This reduced the
declining TCE rates. Aframax rates fell from
demand for oil transportation services and,
the early year high of $18,000 per day to a low
therefore, placed downward pressure on
of approximately $10,000 per day, which
TCE rates.
persisted for the second half of the year.
Contributing to these depressed rates were low
dead weight tonnes) or 0.7% in 1999. The pace
oil consumption growth in 1998 and early 1999,
of newbuilding tanker deliveries in 1999 rose
OPEC oil production cutbacks and a growth in
to 20.3 mdwt from 13.3 mdwt in 1998, as the
Total tanker supply grew by 2.2 mdwt (million
the world tanker fleet.
large number of vessels ordered in 1997 and
early 1998 entered the market. During 1999,
Oil consumption growth during 1999 was 1.6%,
the rate of scrapping rose sharply each quarter,
which, while higher than 1998 growth, was still
with fourth quarter 1999 scrapping reaching
lower than growth levels seen from 1995 to
a level close to the total of the previous six
1997. By the fourth quarter of 1999, however,
months. For the whole of 1999, a total of
oil consumption growth had rebounded to peak
17.8 mdwt was scrapped, the highest level
levels seen earlier in the decade.
in 14 years.
In the spring of 1999, OPEC responded to the
This net increase in global tanker supply
slower pace of growth in global oil consumption
combined with lower demand created an
with production cuts so deep that they triggered
environment of low freight rates similar
a draw down of world crude inventories during
to the last weak market in 1992.
MARKET REVIEW
12
Teekay Shipping Annual Report December 31, 1999
Tanker Supply/ Demand Balance
MILLIONS OF DWT
Orderbook vs. Ageing Fleet
MILLIONS OF DWT
320
240
160
80
0
88
89
90
91
92
93
94
95
96
97 98 99
CALENDAR YEAR
Supply Demand
Source: Maritime Strategies Int.,
Information based on industry data
120
90
60
30
0
88 89 90 91 92 93 94
95
96
97 98 99
CALENDAR YEAR
Vessels 20 years and older World Tanker
Orderbook
Information based on industry data
The Outlook
For calendar year 2000, the International
continue as the number of tankers reaching 25
Energy Agency is forecasting growth in oil
years of age increases in 2000 and 2001. Most
consumption of 2.4%, consistent with strong
crude oil tankers, and virtually all Aframax
world GDP growth. If this forecast oil con-
tankers trading internationally, are being
sumption level is to be realized, oil production
scrapped prior to reaching 25 years of age. It
levels will need to step up significantly.
should be noted that in each of the past three
years, the number of tankers scrapped has
It is anticipated that much of the production
exceeded those reaching 25 years of age.
increase will come in the form of long haul oil
from Middle East OPEC, the source of most of
The pace of new tanker deliveries is set to
the world’s idle capacity. An increase in their
decline, particularly in the latter half of 2000.
level of production would have an immediate
The world shipyard orderbook indicates that
positive impact on tanker demand.
during the next two years the pace of deliveries
will drop significantly from the levels of the
On the supply side, we believe the level of
previous 12 months.
scrapping seen in the latter stages of 1999 will
Teekay Shipping Annual Report December 31, 1999
13
ON COURSE
EFFICIENCY
AN EFFECTIVE BACKHAUL AND CARGO PARCELLING strategy
helps improve vessel profitability, yielding higher average per day
revenue than the industry standard. Teekay’s uniform fleet and its
increased size create greater flexibility for vessel substitution and
schedule changes. Cross-functional operations teams dedicated
to specific ships, ensure effective operational processes and
efficient customer service.
o p t i m i z i n g f l e e t s c h e d u l i n g a n d u t i l i z a t i o n
ON COURSE
14
Teekay Shipping Annual Report December 31, 1999
QUALITY
OPERATIONAL POLICIES AND PROCEDURES are designed to
safeguard personnel and protect the environment. Teekay has an
excellent safety record, having set standards acknowledged to be
among the highest in the industry. The Company is firmly committed
to a proactive approach to loss prevention, continuously reviewing
and improving safety management processes and training practices.
U p h o l d i n g s a f e t y a n d
e n v i r o n m e n t a l s t a n d a r d s
Teekay Shipping Annual Report December 31, 1999
15
FLEET PROFILE
F L E E T P R O F I L E
as of December 31, 1999
Year
Built
1997
1995
1994
1992
1992
1992
1992
1991
1991
1991
1990
1990
1990
1990
1989
1995
1995
1995
1990
1990
1988
1988
1988
1988
1986
1985
1998
1994
1993
1992
1990
1989
1989
1988
1988
1987
1987
1991
1989
1989
1988
1988
Tankers
Hull Type
DWT
NAMURA CLASS
Seabridge *
Seamaster *
Torres Spirit
Mendana Spirit
SAMSUNG CLASS
Aegean Pride *
Kanata Spirit
Kareela Spirit
Kiowa Spirit
Koa Spirit
Kyeema Spirit
Silver Paradise *
OTHER AFRAMAX
Bornes **
Shannon Spirit
Cook Spirit
Clare Spirit
Magellan Spirit
Double Hull
Single Hull
Single Hull
Single Hull
105,200
101,000
96,000
81,700
Double Hull
Double Hull
Double Hull
Double Hull
Double Hull
Double Hull
Double Hull
105,300
113,000
113,000
113,000
113,000
113,000
105,200
Double Sides
Single Hull
Double Sides
Single Hull
Double Sides
88,900
99,300
91,500
95,200
95,000
Subtotal Aframax 5,983,200
OIL/BULK/ORE (OBO) CARRIERS
Victoria Spirit
Vancouver Spirit
Teekay Fulmar
Teekay Forum
Teekay Fortuna **
Teekay Fountain
Teekay Freighter **
Teekay Fair
Teekay Favour
Teekay Foam
Double Hull
Double Hull
Double Bottom
Double Bottom
Double Bottom
Double Bottom
Double Bottom
Double Hull
Double Bottom
Double Bottom
103,200
103,200
78,500
78,500
78,500
78,500
75,400
75,500
82,500
78,500
Subtotal Oil/Bulk/Ore Carriers 832,300
OTHER SIZE TANKERS
Inago **
Musashi Spirit
Erati **
Palmerston
Barrington
Scotland
Double Sides
159,800
Single Hull
280,700
159,700
Double Sides
Double Bottom 36,700
33,300
Double Hull
40,800
Double Sides
Subtotal Other Tankers 711,000
TOTAL DWT 7,526,500
Year
Built
1996
1990
1990
1980
1999
1999
1999
1999
1999
1999
1998
1990
1987
1987
1986
1985
1993
1992
1983
1983
1982
1982
1982
1981
1981
1981
1993
1993
1992
1990
1989
1982
Tankers
Hull Type
DWT
ONOMICHI CLASS
Hamane Spirit
Poul Spirit
Torben Spirit
Samar Spirit
Leyte Spirit
Luzon Spirit
Mayon Spirit
Palmstar Lotus
Palmstar Thistle
Teekay Spirit
Palmstar Poppy
Onozo Spirit
Palmstar Cherry
Palmstar Rose
Palmstar Orchid
HYUNDAI CLASS
Falster Spirit
Gotland Spirit
Sotra Spirit
Shilla Spirit
Ulsan Spirit
Dampier Spirit (FSO)
Namsan Spirit
Pacific Spirit
Pioneer Spirit
Mersey Spirit
Clyde Spirit
IMABARI CLASS
Nassau Spirit
Senang Spirit
Sebarok Spirit
Seraya Spirit
Seafalcon *
Alliance Spirit
Sentosa Spirit
Seletar Spirit
Semakau Spirit
Singapore Spirit
Sudong Spirit
MITSUBISHI CLASS
Kyushu Spirit
Sabine Spirit
Koyagi Spirit
Columbia Spirit
Hudson Spirit
MITSUI CLASS
Shetland Spirit
Orkney Spirit
Double Hull
Double Hull
Double Hull
Double Hull
Double Hull
Double Hull
Double Hull
Single Hull
Single Hull
Single Hull
Single Hull
Single Hull
Single Hull
Single Hull
Single Hull
Double Hull
Double Hull
Double Hull
Single Hull
Single Hull
Single Hull
Single Hull
Single Hull
Single Hull
Double Sides
Double Sides
Double Hull
Double Hull
Double Hull
Double Sides
Double Sides
Double Sides
Double Sides
Double Sides
Double Sides
Double Sides
Double Sides
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
95,400
95,400
95,400
106,700
106,700
106,700
106,700
106,700
106,700
94,700
94,700
107,000
95,700
95,700
97,300
97,300
97,300
97,300
95,000
97,300
97,300
97,300
Double Sides
Double Sides
Single Hull
Double Sides
Double Sides
95,600
84,800
96,000
84,800
84,800
Double Hull
Double Hull
106,200
106,200
1994
1993
*Time Chartered-in
(FSO) Floating storage and off-take vessel
** Partially owned vessels
(Bornes, Inago, Erati 50%; Teekay Fortuna 67%;
Teekay Freighter 52%)
ON COURSE
16
Teekay Shipping Annual Report December 31, 1999
STABILITY
COST EFFECTIVE OPERATIONS and a strong balance sheet
have contributed to the Company’s ability to endure volatile
market conditions. Ready access to capital allows Teekay
to take advantage of growth opportunities during downturns
while maintaining balance sheet integrity.
m a i n t a i n i n g a s t r o n g b a l a n c e s h e e t
Teekay Shipping Annual Report December 31, 1999
17
ON COURSE
F I N A N C I A L R E V I E W
MANAGEMENT DISCUSSION
18
Teekay Shipping Annual Repor t December 31, 1999
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
Teekay has changed its fiscal year end from March 31 to December 31, effective December 31, 1999, in order
to facilitate comparison of its operating results to those of other companies in the transportation industry.
GENERAL
Teekay is a leading provider of international crude oil and petroleum product transportation services to major oil
companies, major oil traders and government agencies worldwide. The Company’s fleet consists of 76 vessels (including
five vessels time-chartered-in and three vessels owned by a joint venture), for a total cargo-carrying capacity of
approximately 7.5 million tonnes.
During the nine months ended December 31, 1999, approximately 61% of the Company’s net voyage revenues were
derived from spot voyages. The balance of the Company’s revenue is generated by two other modes of employment:
time charters, whereby vessels are chartered to customers for a fixed period; and contracts of affreightment (“COAs”),
whereby the Company carries an agreed quantity of cargo for a customer over a specified trade route within a given
period of time. In the nine months ended December 31, 1999, approximately 13% of net voyage revenues were
generated by time charters and COAs priced on a spot market basis. In the aggregate, approximately 74% of the
Company’s net voyage revenues during the nine months ended December 31, 1999 were derived from spot voyages or
time charters and COAs priced on a spot market basis, with the remaining 26% 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 that 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. In addition, the Company has converted one of its existing vessels to a floating
storage and off-loading vessel, 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 the nine months ended December 31, 1999, the Australian
Vessels earned net voyage revenues and an average TCE rate (as defined below) of $27.2 million and $25,218,
respectively, and incurred vessel operating expenses of $9.3 million, or $8,485 on a per ship per day basis. In comparison,
during the year ended March 31, 1999, the Australian Vessels earned net voyage revenues and an average TCE rate of
$38.2 million and $26,329, respectively, and incurred vessel operating expenses of $14.9 million, or $10,173 on a per
ship per day basis. The results of the Australian Vessels are included in the Company’s Consolidated Financial Statements
included herein.
ACQUISITION OF BONA SHIPHOLDING LTD.
On June 11, 1999, the Company acquired 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 the Company’s
common stock. Bona was the third largest operator of medium-size tankers, controlling a fleet of vessels consisting of 15
Aframax tankers, eight oil/bulk/ore carriers and, through a joint venture, 50% interests in one additional Aframax tanker
and two Suezmax tankers. Bona engaged in the transportation of oil, oil products, and dry bulk commodities, primarily in
the Atlantic region. Through this acquisition, the Company has combined Bona’s market strength in the Atlantic region
with the Company’s franchise in the Indo-Pacific Basin. For the year ended December 31, 1998, Bona earned net voyage
revenues of $148.9 million resulting in income from vessel operations of $29.5 million and net income of $16.6 million.
The acquisition of Bona has been accounted for using the purchase method of accounting. Bona’s operating results
are reflected in the Company’s financial statements commencing June 11, 1999.
As a result of this acquisition, the Company anticipates annual cost savings of approximately $10 million, commencing
after an estimated 12-month integration period, through a reduction in combined overhead costs, increased purchasing
power, and other operational efficiencies. The Company also believes that the acquisition will create revenue
enhancement opportunities as a result of owning a larger fleet with a greater selection of vessels to match customer
demands and enable the Company to further extend the breadth of services provided to its customers.
Teekay Shipping Annual Repor t December 31, 1999
19
MANAGEMENT DISCUSSION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS (CONT’D)
Historically, the Company has depreciated its 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, the method used by the majority of companies in the shipping industry. Effective April 1, 1999, the Company
revised the estimated useful life of its vessels to 25 years and also replaced the estimated residual values with estimated
scrap values. Since such changes, the Company’s average depreciation expense per vessel has decreased from historical
levels.
As a result of the Bona acquisition, the Company expects that its general and administrative expenses, while
remaining relatively stable on a per vessel basis during the first few fiscal quarters of combined operations, will begin to
decline on a per vessel basis as efficiencies are obtained from the integration of the two companies’ operations. The
Company’s interest expense has increased as a result of debt that was assumed as part of the acquisition.
All oil/bulk/ore carriers (“O/B/O”) owned by Bona have been 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 the Company’s
consolidated financial statements. Where the Company owns less than 50% of a vessel, the minority participants’ share
of the O/B/O pool is reflected as a time charter hire expense. The Company anticipates that these O/B/Os will earn
lower average TCE rates than the rest of the Teekay fleet as these vessels command lower rates than modern Aframax
tankers under typical market conditions, which reflects the lower capital cost of these vessels.
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.
Nine Months Ended December 31, 1999 versus Year Ended March 31, 1999
As a result of the Company’s change in fiscal year end from March 31 to December 31, the current fiscal period’s results
are for the nine month period ended December 31, 1999, while the comparative results are 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. The annualized results for the nine month period ended
December 31, 1999 are not necessarily indicative of those for a full fiscal year.
The results for the nine month period ended December 31, 1999 includes the results of Bona commencing June 11,
1999. On an annualized basis, the Company’s average fleet size increased 39.5% in the nine month period ended
December 31, 1999 compared to 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. TCE rates will be dependent upon oil production
levels, oil consumption growth, the number of vessels scrapped and charterers’ preference for modern tankers. As a result
of the Company’s dependence on the tanker spot market, any fluctuations in Aframax TCE rates will impact the
Company’s revenues and earnings.
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, offset by a 31.5% decrease in the Company’s
average TCE rate, excluding the Australian Vessels, of $13,410 for the nine month period ended December 31, 1999,
from $19,576 for the year ended March 31, 1999. As of December 31, 1999, the Company changed its 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 expenses, which include crewing, repairs and maintenance, insurance, stores, lubes, and
communication 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 currently have higher operating expenses than the remainder
of Teekay’s fleet.
MANAGEMENT DISCUSSION
20
Teekay Shipping Annual Repor t December 31, 1999
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS (CONT’D)
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 vessels time-chartered-in by the Company was four in the nine month period ended December 31, 1999, the
same as in the year ended March 31, 1999.
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 Teekay retained its previous depreciation policy and applied this policy to the Bona fleet,
depreciation expense would have been $22.5 million higher in the current period.
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 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
million in additional debt assumed as part of the Bona acquisition and an increase in interest rates.
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 of $4.0 million in the nine month period ended December 31, 1999 consisted primarily of future income
taxes related to the Australian Vessels and one-time employee and severance-related costs, partially offset by equity
income from a 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.
As a result of the foregoing factors, net loss was $19.6 million in the nine month period ended December 31, 1999,
compared to 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 the Company’s 9 5/8% First Preferred Ship
Mortgage Notes (the “9 5/8% 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.
Year Ended March 31, 1999 (“Fiscal 1999”) versus Year Ended March 31, 1998 (“Fiscal 1998”)
Operating results for these two fiscal years generally reflect a cyclical peak in average TCE rates in fiscal 1998 followed
by a decline in TCE rates experienced by the Company’s fleet during the second half of fiscal 1999 and growth in the size
of the Company’s fleet. In addition, the fiscal 1999 results include a full year of results from the four Australian Vessels
whereas the fiscal 1998 results only include approximately three months of results from three of the Australian Vessels,
which have higher operating expenses and earn correspondingly higher TCE rates. The Company sold two of its older
Aframax tankers during the fiscal year ended March 31, 1999 and added four newer Aframax tankers (including three
time-chartered-in vessels) to its fleet during the same period. As a result, the Company’s average fleet size increased by
two vessels, or 8.9%, in fiscal 1999 compared to fiscal 1998, following an earlier increase of two vessels, or 4.9% in
fiscal 1998.
Net voyage revenues increased 4.3% to $318.4 million in fiscal 1999 from $305.3 million in fiscal 1998, reflecting the
increase in the Company’s fleet size and higher TCE rates earned on the Australian Vessels, partially offset by lower spot
TCE rates. The Company’s average overall TCE rate in fiscal 1999, excluding the Australian Vessels, was down 8.4% to
$19,576 from $21,373 in fiscal 1998.
Vessel operating expenses increased 19.7% to $84.4 million in fiscal 1999 from $70.5 million in fiscal 1998, mainly as
a result of higher crewing costs associated with the Australian Vessels and an adjustment to crew wage rates and salaries
effective April 1, 1998.
Time-charter hire expense was $29.7 million in fiscal 1999, up from $10.6 million in fiscal 1998, as the average
number of vessels time-chartered-in by the Company increased to four in fiscal 1999 from two in fiscal 1998.
Depreciation and amortization expense decreased by 1.3% to $93.7 million in fiscal 1999 from $94.9 million in fiscal
1998, primarily as a result of lower amortization of drydocking costs during the current year due to fewer scheduled
drydockings compared to the previous fiscal year. Depreciation and amortization expense included amortization of
drydocking costs of $8.6 million and $11.7 million in fiscal years 1999 and 1998, respectively.
Teekay Shipping Annual Repor t December 31, 1999
21
MANAGEMENT DISCUSSION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS (CONT’D)
General and administrative expenses rose 16.1% to $25.0 million in fiscal 1999 from $21.5 million in fiscal 1998,
primarily as a result of the hiring of additional personnel in connection with the expansion of the Company’s operations,
particularly in Australia. The fiscal 1999 results include the Australian Vessels for the full year in comparison to three
months in fiscal 1998 for three of the Australian Vessels.
Interest expense decreased by 20.4% to $44.8 million in fiscal 1999 from $56.3 million in fiscal 1998, reflecting the
reduction in the Company’s total debt and lower average interest rates on debt borrowings. In June 1998, the Company
completed a public offering of its Common Stock resulting in net proceeds to the Company of approximately $69.0
million. These net proceeds, together with other funds, were applied in August 1998 to redeem the Company’s
outstanding 9 5/8% Notes.
Other income of $5.5 million in fiscal 1999 consisted primarily of $7.1 million in gains on the sale of two vessels,
offset partially by $1.9 million in income taxes related to the Australian Vessels. Other income of $11.2 million in fiscal
1998 consisted primarily of gains on the sale of vessels.
As a result of the foregoing factors, net income was $45.4 million in fiscal 1999, compared to net income of
$70.5 million in fiscal 1998. Net income for fiscal 1999 included an extraordinary loss of $7.3 million arising from the
redemption of the 9 5/8% Notes and gains on asset sales of $7.1 million. Net income for fiscal 1998 included
$14.4 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, unless otherwise indicated,
the figures in the table below exclude the results from the Company’s Australian Vessels.
NINE MONTHS ENDED
YEAR ENDED
YEAR ENDED
DECEMBER 31, 1999
MARCH 31, 1999
MARCH 31, 1998
International Fleet:
Average number of ships
Total calendar ship-days
Revenue generating ship-days (A)
Net voyage revenue before commissions (1) (B) (000s)
TCE (B/A)
Operating results per calendar ship-day:
Net voyage revenue
Vessel operating expense
General and administrative expense
Drydocking expense
Operating cash flow per calendar ship-day
Australian Vessels:
61
16,797
15,807
$ 211,971
$ 13,410
$ 12,190
5,719
1,510
392
$ 4,569
43
15,612
14,647
$ 286,735
$ 19,576
$ 17,950
4,969
1,465
613
$ 10,903
42
15,341
14,229
$ 304,115
$ 21,373
$ 19,358
4,554
1,375
765
$ 12,664
Operating cash flow per calendar ship-day
$ 14,643
$ 14,509
$ 13,482
Total Fleet:
Operating cash flow per calendar ship-day
$ 5,177
$ 11,171
$ 12,682
(1) Nine months ended December 31, 1999 figure excludes the $5.7 million adjustment arising from the change in
voyage estimate from a load port-to-load port basis to a discharge port-to-discharge port basis.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s total liquidity, including cash, restricted cash, marketable securities and undrawn long-term lines of credit,
was $237.4 million as at December 31, 1999, up from $143.3 million as at March 31, 1999, and $186.3 million as at
March 31, 1998. The increase in liquidity during the nine month period ended December 31, 1999 was primarily the
result of drawing an additional $100 million under one of the Company’s revolving credit facilities.
Net cash flow from operating activities decreased to $51.5 million in the nine month period ended December 31,
1999, compared to $137.7 million in the year ended March 31, 1999, and $161.1 million in the year ended March 31,
1998. This primarily reflects the change in TCE rates during these periods.
Scheduled debt repayments were $32.3 million during the nine month period ended December 31, 1999, compared
to $50.6 million in the year ended March 31, 1999 and $33.9 million in the year ended March 31, 1998.
MANAGEMENT DISCUSSION
22
Teekay Shipping Annual Repor t December 31, 1999
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS (CONT’D)
Dividends declared during the nine month period ended December 31, 1999 were $23.17 million, or $0.645 per
share, of which $23.15 million was paid in cash and the remainder was paid in the form of shares of Common Stock
issued under the Company’s dividend reinvestment plan.
During the nine month period ended December 31, 1999, the Company incurred capital expenditures for vessels and
equipment of $23.3 million, consisting mainly of payments made towards the two newbuilding double-hull Aframax
tankers delivered in July and September of 1999. Cash expenditures for drydocking were $6.6 million in the nine month
period ended December 31, 1999 compared to $11.7 million in the year ended March 31, 1999 and $18.4 million in the
year ended March 31, 1998. There were fewer scheduled drydockings than usual during the nine month period ended
December 31, 1999.
As part of its growth strategy, the Company will continue to consider strategic opportunities, including the acquisition
of additional vessels and 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.
MARKET RATE RISKS
The Company is exposed to market risk from foreign currency and changes in interest rate fluctuations. The Company
uses interest rate swaps and forward foreign currency contracts to manage these risks, but does not use financial
instruments for trading or speculative purposes.
INTEREST RATE RISK
The Company invests its cash and marketable securities in financial instruments with maturities of less than three months
within the parameters of its investment policy and guidelines.
The Company uses interest rate swaps to manage the impact of interest rate changes on earnings and cash flows. The
differential to be paid or received under these 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.
FOREIGN EXCHANGE RATE RISK
The international tanker industry’s functional currency is the U.S. dollar. Virtually all of the Company’s revenues and most
of its operating costs are in U.S. dollars. The Company incurs certain operating expenses, drydocking, and overhead costs
in foreign currencies, the most significant of which are Japanese yen, Singapore dollars, Canadian dollars, Australian
dollars and Norwegian kroner. During the nine months ended December 31, 1999, approximately 20.4% of vessel and
voyage costs, overhead and drydock expenditures were denominated in these currencies. However, the Company has the
ability to shift its purchase of goods and services from one country to another and, thus, from one currency to another,
on relatively short notice.
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.
(IN USD 000’S)
December 31, 1999
FX Forward Contracts
Interest Rate Swap Agreements
Debt
March 31, 1999
FX Forward Contracts
Debt
CONTRACT
AMOUNT
CARRYING AMOUNT
ASSET
LIABILITY
FAIR
VALUE
$ 4,448
200,000
1,085,167
$ 2,905
641,719
$
$
–
–
–
–
–
$
–
–
1,085,167
$ (20)
4,488
1,060,417
$
–
641,719
$ (22)
637,219
YEAR 2000 COMPLIANCE
The Company relies on computer systems, software, databases, third party electronic data interchange interfaces and
embedded processors to operate its business. The Company successfully implemented a program to systematically address
the Year 2000 problem. The Company was Year 2000 compliant prior to the rollover to the Year 2000. The Company will
continue to monitor electronic date recognition issues.
Teekay Shipping Annual Repor t December 31, 1999
23
MANAGEMENT DISCUSSION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS (CONT’D)
FORWARD-LOOKING STATEMENTS
The Company’s Annual Report on Form 20-F for the nine months ended December 31, 1999 and this Annual Report to
Shareholders for 1999 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, performance and financial condition, including, in particular, statements
regarding: Aframax TCE rates in the near-term; tanker supply and demand; supply and demand for oil; the Company’s
market share; future capital expenditures; the Company’s growth strategy and measures to implement such strategy; the
Company’s competitive strengths; future success of the Company; cost savings and other benefits that may be realized in
connection with the Bona acquisition; and Year 2000 compliance. Words such as “expects,” “intends,” “plans,”
“believes,” “anticipates,” “estimates” and variations of such words and similar expressions are intended to identify
forward-looking statements. 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:
changes in production of or demand for oil and petroleum products, either generally or in particular regions; 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; charterers’ preference for modern tankers; greater than anticipated levels of tanker
newbuilding orders or less than anticipated rates of tanker scrapping; changes in trading patterns significantly impacting
overall tanker tonnage requirements; changes in typical seasonal variations in tanker charter 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; the potential inability of the Company to generate internal cash flow and obtain additional
debt or equity financing to fund capital expenditures; the Company’s ability to successfully integrate Bona into the
Company’s operations; 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.
AUDITOR’S REPORT
24
Teekay Shipping Annual Repor t December 31, 1999
AUDITORS’ REPORT
To the Shareholders of
TEEKAY SHIPPING CORPORATION
We have audited the accompanying consolidated balance sheets of Teekay Shipping Corporation and
subsidiaries as of December 31, 1999 and March 31, 1999, and the related consolidated statements of
income and retained earnings and cash flows for the nine month period ended December 31, 1999 and for
the years ended March 31, 1999 and 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 December 31, 1999
and March 31, 1999, and the consolidated results of their operations and their cash flows for the nine
month period ended December 31, 1999 and for the years ended March 31, 1999 and 1998, in conformity
with accounting principles generally accepted in the United States.
Nassau, Bahamas,
February 11, 2000
Chartered Accountants
Teekay Shipping Annual Repor t December 31, 1999
25
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(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
NINE MONTHS ENDED
DECEMBER 31,
1999
YEAR ENDED
MARCH 31,
1999
YEAR ENDED
MARCH 31,
1998
$ 377,882
$ 411,922
$ 406,036
129,532
93,511
100,776
248,350
318,411
305,260
98,780
30,681
68,299
27,018
84,397
29,666
93,712
25,002
70,510
10,627
94,941
21,542
224,778
232,777
197,620
Income From Vessel Operations
23,572
85,634
107,640
Other Items
Interest expense
Interest income
Other income (loss) (note 11)
Net income (loss) before extraordinary loss
Extraordinary loss on bond redemption (note 6)
Net income (loss)
Retained earnings, beginning of the period
Dividends declared
(44,996)
(44,797)
(56,269)
5,842
(4,013)
6,369
5,506
7,897
11,236
(43,167)
(32,922)
(37,136)
(19,595)
–
(19,595)
446,897
427,302
(23,172)
52,712
(7,306)
45,406
428,102
473,508
(26,611)
70,504
–
70,504
382,178
452,682
(24,580)
Retained earnings, end of the period
$ 404,130
$ 446,897
$ 428,102
Basic Earnings per Common Share (note 9)
• Net income (loss) before extraordinary loss
• Net income (loss)
Diluted Earnings per Common Share (note 9)
• Net income (loss) before extraordinary loss
• Net income (loss)
$
$
$
$
(0.54)
(0.54)
(0.54)
(0.54)
$
$
$
$
1.70
1.46
1.70
1.46
$
$
$
$
2.46
2.46
2.44
2.44
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
26
Teekay Shipping Annual Repor t December 31, 1999
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
ASSETS
Current
Cash and cash equivalents
Marketable securities (note 4)
Accounts receivable
Prepaid expenses and other assets
Total current assets
Marketable securities (note 4)
Vessels and equipment (notes 1 and 6)
At cost, less accumulated depreciation of $624,727
(March 31, 1999 – $557,946)
Advances on newbuilding contracts
Total vessels and equipment
Investment in joint venture
Other assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current
Accounts payable
Accrued liabilities (note 5)
Current portion of long-term debt (note 6)
Total current liabilities
Long-term debt (note 6)
Other long-term liabilities
Total liabilities
Minority interest
Stockholders’ equity
Capital stock (note 9)
Retained earnings
Total stockholders’ equity
AS AT
DECEMBER 31, 1999
AS AT
MARCH 31, 1999
$ 220,327
$ 118,435
–
30,753
29,579
8,771
22,995
16,195
280,659
166,396
6,054
5,050
1,666,755
1,218,916
–
55,623
1,666,755
1,274,539
19,402
9,814
–
6,235
$1,982,684
$1,452,220
$
20,431
$
11,926
39,515
66,557
126,503
1,018,610
3,400
19,285
39,058
70,269
602,661
1,900
1,148,513
674,830
2,104
–
427,937
404,130
330,493
446,897
832,067
777,390
$1,982,684
$1,452,220
Commitments and contingencies (notes 7 and 10)
The accompanying notes are an integral part of the consolidated financial statements.
Teekay Shipping Annual Repor t December 31, 1999
27
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income (loss)
Add (deduct) charges to operations not requiring
a payment of cash and cash equivalents:
Depreciation and amortization
Gain on disposition of assets
Loss on bond redemption
Equity income
Future income taxes
Other
NINE MONTHS ENDED
DECEMBER 31,
1999
YEAR ENDED
MARCH 31,
1999
YEAR ENDED
MARCH 31,
1998
$ (19,595)
$ 45,406
$ 70,504
68,299
–
–
(721)
1,500
1,134
93,712
(7,117)
7,306
–
1,900
1,218
94,941
(14,392)
2,175
(45)
–
2,735
Change in non-cash working capital items related to
operating activities (note 12)
896
(4,717)
5,201
Net cash flow from operating activities
51,513
137,708
161,119
FINANCING ACTIVITIES
Proceeds from long-term debt
Scheduled repayments of long-term debt
Prepayments of long-term debt
Net proceeds from issuance of Common Stock
Cash dividends paid
Capitalized loan costs
100,000
(32,252)
(10,000)
–
(23,150)
–
230,000
(50,577)
208,600
(33,876)
(268,034)
(150,655)
68,751
(26,222)
(690)
5,126
(15,990)
(994)
Net cash flow from financing activities
34,598
(46,772)
12,211
INVESTING ACTIVITIES
Expenditures for vessels and equipment
Expenditures for drydocking
Proceeds from disposition of assets
Net cash acquired through purchase of
Bona Shipholding Ltd. (note 3)
Acquisition costs related to purchase of
Bona Shipholding Ltd. (note 3)
Net cash flow from investment
Proceeds on sale of available-for-sale securities
Purchases of available-for-sale securities
Other
(23,313)
(6,598)
–
51,774
(13,806)
–
13,724
(6,000)
–
(85,445)
(11,749)
23,435
(197,199)
(18,376)
33,863
–
–
–
13,305
–
–
–
–
6,380
14,854
(42,154)
(268)
Net cash flow from investing activities
15,781
(60,454)
(202,900)
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of the period
101,892
118,435
30,482
87,953
(29,570)
117,523
Cash and cash equivalents, end of the period
$220,327
$118,435
$ 87,953
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28
Teekay Shipping Annual Repor t December 31, 1999
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 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.
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 and nine
month periods ended December 31, 1999 and 1998:
RESULTS OF OPERATIONS
Net voyage revenues
Income from vessel operations
Net income (loss) before extraordinary loss
Net income (loss)
Net income (loss) before extraordinary loss
per common share
– basic and diluted
Net income (loss) per common share
– basic and diluted
CASH FLOWS
Net cash flow from operating activities
Net cash flow from financing activities
Net cash flow from investing activities
TWELVE MONTHS
TWELVE MONTHS
NINE MONTHS
ENDED
ENDED
ENDED
DECEMBER 31,
DECEMBER 31,
DECEMBER 31,
1999
1998
1998
(UNAUDITED)
(UNAUDITED)
(UNAUDITED)
$ 318,348
34,189
(17,723)
(17,723)
(0.50)
(0.50)
71,633
76,948
5,613
$ 327,016
103,660
66,451
59,145
2.19
1.95
151,779
(74,407)
(127,372)
$ 248,413
75,017
50,840
43,534
1.65
1.41
117,588
(89,122)
(50,286)
Operating revenues and expenses Voyage revenues and expenses are recognized on the percentage of completion
method of accounting. The Company has 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 an 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.
Teekay Shipping Annual Repor t December 31, 1999
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
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 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 nine month period ended December 31, 1999 and the years
ended March 31, 1999 and 1998 aggregated $1,710,000, $3,018,000, and $283,000, 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 nine month period ended December 31, 1999 and the years ended March 31, 1999 and 1998
aggregated $6,275,000, $8,583,000, and $11,737,000, respectively.
Investment in joint ventures The Company has a 50% participating interest in the joint venture (Soponata-Teekay
Limited). The joint venture is accounted for using the equity method whereby the investment is carried at the Company’s
original cost plus its proportionate share of undistributed earnings.
Investment in the Panamax OBO Pool All oil/bulk/ore carriers (“OBO”) owned by the Company are operated through a
Panamax OBO 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.
Other assets Loan costs, including fees, commissions and legal expenses, 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 nine month period ended December 31, 1999 and the years ended March 31, 1999 and
1998 totaled $63,086,000, $48,527,000, and $55,141,000, 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 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 – Capital Stock).
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. For the nine month period ended December 31, 1999, and the
years ended March 31, 1999 and 1998, the Company did not have any components of comprehensive income.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
30
Teekay Shipping Annual Repor t December 31, 1999
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
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. Statement No. 133, as amended by FASB Statement No. 137, is effective for
fiscal years beginning after June 15, 2000. Management has not determined the impact, if any, that the adoption of the
new statement will have on the consolidated results of operations or financial position of the Company.
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.
One customer, an international oil company, accounted for 13% ($48,140,000) of the Company’s consolidated
voyage revenues during the nine month period ended December 31, 1999. No other customer accounted for more than
10% 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. During the year ended March 31, 1998, a single customer,
also an international oil company, accounted for 14% ($56,357,000) of the Company’s consolidated voyage revenues.
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:
Net voyage revenues
Income from vessel operations
Net income (loss) before extraordinary loss
Net income (loss)
Net income (loss) before extraordinary loss
per common share – basic and diluted
Net income (loss) per common share – basic and diluted
PRO FORMA
NINE MONTHS ENDED
DECEMBER 31,
1999
YEAR ENDED
MARCH 31,
1999
(UNAUDITED)
(UNAUDITED)
$ 272,469
26,127
(22,482)
(22,482)
$ 463,696
132,122
86,505
79,199
(0.59)
(0.59)
2.31
2.11
Teekay Shipping Annual Repor t December 31, 1999
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
4.
INVESTMENTS IN MARKETABLE SECURITIES
DECEMBER 31, 1999
Available-for-sale securities
MARCH 31, 1999
Available-for-sale securities
GROSS
GROSS
MARKET AND
UNREALIZED
UNREALIZED
COST
GAINS
LOSSES
CARRYING
VALUE
APPROXIMATE
$ 6,051
$
13,865
6
–
$
(3)
$ 6,054
(44)
13,821
The cost and approximate market value of available-for-sale securities by contractual maturity, as at December 31,
1999 and March 31, 1999, are shown as follows:
DECEMBER 31, 1999
Less than one year
Due after one year through five years
MARCH 31, 1999
Less than one year
Due after one year through five years
5. ACCRUED LIABILITIES
Voyage and vessel
Interest
Payroll and benefits
6. LONG-TERM DEBT
Revolving Credit Facilities
First Preferred Ship Mortgage Notes (8.32%)
U.S. dollar debt due through 2008
Term Loans U.S. dollar debt due through 2009
Less current portion
APPROXIMATE
MARKET AND
CARRYING
VALUE
COST
$
–
6,051
$
–
6,054
$ 6,051
$ 6,054
$
8,771
5,094
$ 8,771
5,050
$ 13,865
$ 13,821
DECEMBER 31,
MARCH 31,
1999
1999
$
12,469
12,619
14,427
$ 6,868
7,552
4,865
$ 39,515
$ 19,285
DECEMBER 31,
MARCH 31,
1999
1999
$ 634,000
$ 169,000
225,000
226,167
1,085,167
66,557
225,000
247,719
641,719
39,058
$ 1,018,610
$ 602,661
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
32
Teekay Shipping Annual Repor t December 31, 1999
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
The Company has two long-term Revolving Credit Facilities (the “Revolvers”) available, which, as at December 31,
1999, provided for borrowings of up to $645.0 million. Interest payments are based on LIBOR (December 31, 1999:
6.0%; March 31, 1999: 5.0%) plus a margin depending on the financial leverage of the Company; at December 31,
1999, the margins ranged between 0.6% and 0.9% (March 31,1999: 0.5%). 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 forty of the Company’s Aframax tankers and oil/bulk/ore carriers, 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, 1999, the fair value of these net assets
approximated $182.0 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.
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 31,1999, totalled $226.2 million. Interest
payments are based on LIBOR plus a margin. At December 31,1999, the margins ranged between 0.65% 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, 1999, the Company was committed to a series of interest rate swap agreements whereby $200.0
million of the Company’s floating rate debt was swapped with fixed rate obligations having an average remaining term of
3.8 years, expiring between December 2001 and February 2005. These arrangements effectively change the Company’s
interest rate exposure on $200.0 million of debt from a floating LIBOR rate to an average fixed rate of 6.28%. 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, 1999, to $188.0 million. Certain
of the loan agreements require a minimum level of free cash be maintained. As at December 31, 1999, this amount was
$26.0 million.
The aggregate annual long-term debt principal repayments required to be made for the five fiscal years subsequent to
December 31, 1999 are $66,557,000 (fiscal 2000), $92,196,000 (fiscal 2001), $90,043,000 (fiscal 2002), $132,157,000
(fiscal 2003), and $114,078,000 (fiscal 2004).
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 $82,204,000 (fiscal 2000), $72,158,000 (fiscal 2001),
$57,830,000 (fiscal 2002), $39,035,000 (fiscal 2003), $39,140,000 (fiscal 2004), and $132,063,000 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 $22,795,000 (fiscal 2000) and $2,981,000 (fiscal 2001).
Teekay Shipping Annual Repor t December 31, 1999
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
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, 1999
MARCH 31, 1999
CARRYING
AMOUNT
FAIR
VALUE
CARRYING
AMOUNT
FAIR
VALUE
Cash, cash equivalents and
marketable securities
Long-term debt
Interest rate swap agreements (note 6)
Foreign currency contracts (note 10)
$ 226,381
1,085,167
–
–
$ 226,381
1,060,417
4,488
(20)
$ 132,256
641,719
–
–
$ 132,256
637,219
–
(22)
The Company transacts interest rate swap and foreign currency contracts with investment grade rated financial
institutions and requires no collateral from these institutions.
9. CAPITAL STOCK
AUTHORIZED
25,000,000 Preferred Stock with a par value of $1 per share
725,000,000 Common Stock with a par value of $0.001 per share
ISSUED AND OUTSTANDING
Balance March 31, 1997
Reinvested Dividends
Exercise of Stock Options
Balance March 31, 1998
June 15, 1998 Share Offering
2,800,000 shares at $24.7275 per share of Common Stock
(net of share issue costs)
Reinvested Dividends
Exercise of Stock Options
Balance March 31, 1999
June 11, 1999 Common Stock
issued on acquisition of Bona
Reinvested Dividends
Balance December 31, 1999
COMMON
STOCK
THOUSANDS
OF SHARES
$ 247,637
8,590
5,126
261,353
68,700
389
51
330,493
97,422
22
$ 427,937
28,328
273
232
28,833
2,800
13
2
31,648
6,415
1
38,064
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
34
Teekay Shipping Annual Repor t December 31, 1999
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT’D)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
In June 1998, the Company sold 2,800,000 shares in a public offering. The Company used the net proceeds from the
offering of approximately $69.0 million, together with other funds, to redeem the outstanding 9 5/8% Notes.
In September 1998, the Company’s shareholders approved an amendment 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. As of December 31, 1999, the Company had reserved 3,642,000 shares of
Common Stock for issuance upon exercise of options granted pursuant to the Plan. During the nine month period ended
December 31, 1999 and the years ended March 31, 1999 and 1998, the Company granted options under the Plan to
acquire up to 1,463,500, 573,000 and 359,750 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 vest
equally over four years from the date of grant.
A summary of the Company’s stock option activity, and related information for the nine month period ended
December 31, 1999 and the years ended March 31, 1999 and 1998 are as follows:
DECEMBER 31, 1999
MARCH 31, 1999
MARCH 31, 1998
WEIGHTED-
AVERAGE
EXERCISE
PRICE
$ 26.46
17.11
–
21.12
WEIGHTED-
AVERAGE
EXERCISE
PRICE
$ 26.66
26.05
21.50
30.44
OPTIONS
(000’S)
1,161
573
(2)
(3)
WEIGHTED-
AVERAGE
EXERCISE
PRICE
$ 23.40
33.50
22.02
30.39
OPTIONS
(000’S)
1,056
360
(232)
(23)
OPTIONS
(000’S)
1,729
1,464
–
(94)
Outstanding-beginning of period
Grant
Exercised
Forfeited
Outstanding–end of period
3,099
22.14
1,729
26.46
1,161
26.66
Exercisable–end of period
1,019
25.35
731
24.08
565
22.14
Weighted-average fair value
of options granted during
the period (per option)
$ 3.88
$ 5.93
$ 8.13
Exercise prices for the options outstanding as of December 31, 1999 ranged from $16.88 to $33.50. These options
have a weighted-average remaining contractual life of 8.18 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.
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
nine month period ended December 31, 1999 and the years ended March 31, 1999 and 1998 would have been stated at
the pro forma amounts as follows:
NET INCOME (LOSS) :
As reported
Pro forma
BASIC EARNINGS PER COMMON SHARE:
As reported
Pro forma
DILUTED EARNINGS PER COMMON SHARE:
As reported
Pro forma
NINE MONTHS ENDED
DECEMBER 31,
1999
YEAR ENDED
MARCH 31,
1999
YEAR ENDED
MARCH 31,
1998
$ (19,595)
(21,828)
$ 45,406
43,715
$ 70,504
69,090
(0.54)
(0.60)
(0.54)
(0.60)
1.46
1.41
1.46
1.41
2.46
2.41
2.44
2.39
Teekay Shipping Annual Repor t December 31, 1999
35
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
Basic earnings per share is based upon the following weighted average number of common shares outstanding:
36,384,000 shares for the nine month period ended December 31, 1999; 31,063,000 shares for the year ended March
31, 1999; and 28,655,000 shares for the year ended March 31, 1998. Diluted earnings per share, which gives effect to
the aforementioned stock options, is based upon the following weighted average number of common shares outstanding:
36,405,000 shares for the nine month period ended December 31, 1999; 31,063,000 shares for the year ended March
31, 1999; and 28,870,000 shares for the year ended March 31, 1998.
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 5.8% for the nine month period ended December 31, 1999;
and 5.40%, and 6.29%, for the years ended March 31, 1999 and 1998, respectively; dividend yield of 3.0%; expected
volatility of 25%; 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 $28.8 million as at December 31, 1999.
The Company has guaranteed its share of committed, uncalled capital in certain limited partnerships totalling $3.1
million as at December 31, 1999.
As at December 31, 1999, the Company was committed to foreign exchange contracts for the forward purchase of
approximately Japanese yen 100 million, Singapore dollars 2.4 million and Norwegian kroner 16.0 million for U.S. dollars,
at an average rate of Japanese yen 102.06 per U.S. dollar, Singapore dollar 1.65 per U.S. dollar and Norwegian kroner
7.99 per U.S. dollar, respectively, for the purpose of hedging accounts payable and accrued liabilities.
11. OTHER INCOME (LOSS)
Gain on disposition of assets
Equity in joint venture
Write off of loan costs due to refinancing
Loss on extinguishment of debt
Future income taxes
Miscellaneous
NINE MONTHS ENDED
DECEMBER 31,
1999
YEAR ENDED
MARCH 31,
1999
YEAR ENDED
MARCH 31,
1998
$
–
721
–
–
(1,500)
(3,234)
$ 7,117
–
–
–
(1,900)
289
$14,392
45
(1,308)
(2,175)
–
282
$ (4,013)
$ 5,506
$11,236
12. CHANGE IN NON-CASH WORKING CAPITAL ITEMS RELATED TO OPERATING ACTIVITIES
Accounts receivable
Prepaid expenses and other assets
Accounts payable
Accrued liabilities
NINE MONTHS ENDED
DECEMBER 31,
1999
YEAR ENDED
MARCH 31,
1999
YEAR ENDED
MARCH 31,
1998
$ (5,462)
307
(6,571)
12,622
$ 1,332
(2,409)
(4,238)
598
$ 2,484
880
5,814
(3,977)
$
896
$ (4,717)
$ 5,201
FIVE YEAR FINANCIAL SUMMARY
36
Teekay Shipping Annual Repor t December 31, 1999
FIVE YEAR SUMMARY OF FINANCIAL INFORMATION
(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 (loss) before
extraordinary items
Extraordinary loss
on bond redemption
Net income (loss)
Per Share Data:
Earnings per share
Weighted average shares
outstanding (thousands)
9 MONTHS
ENDED
FISCAL YEAR ENDED MARCH 31,
DECEMBER 31, 1999
1999
1998
1997
1996
$ 248,350
$ 318,411
$ 305,260
$ 280,212
$ 245,745
23,572
85,634
107,640
94,258
76,279
(19,595)
52,712
70,504
42,630
29,070
–
(19,595)
(7,306)
45,406
–
70,504
–
42,630
–
29,070
$
(0.54)
$
1.46
$
2.46
$
1.52
$
1.17
36,384
31,063
28,655
28,138
24,837
Balance Sheet Data (at end of period):
Total assets
$1,982,684
$1,452,220
$1,460,183
$1,372,838
$1,355,301
Total stockholders’ equity
832,067
777,390
689,455
629,815
599,395
Other Financial Data:
EBITDA
$
89,839
$ 186,069
$ 209,582
$ 191,632
$ 166,233
Net debt to capitalization (%)
50.8
39.6
46.9
48.0
51.0
Capital expenditures:
Vessel purchases, gross
Drydocking
Fleet Data:
$ 452,584
$
85,445
$ 197,199
$
65,104
$ 123,843
4,971
7,213
12,409
23,124
11,641
Average number of ships
65
47
43
41
39
Time-charter equivalent (TCE)
$
13,410
$
19,576
$
21,373
$
20,356
$
18,438
Total operating cash flow
per ship per day
5,177
11,171
12,682
11,819
10,613
Teekay Shipping Annual Repor t December 31, 1999
37
BOARD OF DIRECTORS
BOARD OF DIRECTORS
Sean Day
Bjorn Moller
Axel Karlshoej
Leif O. Höegh
Michael Dingman
Chairman of the
Board of Directors
President of Seagin
International, LLC
Director, President
and CEO
Director and Chairman
Emeritus
President of Nordic
Industries Inc.
Director
Director
Managing Director
of Leif Höegh
(UK) Ltd.
Chairman and Chief
Executive Officer of The
Shipston Group Limited
Arthur F. Coady
Director, Executive
Vice President
Steve G.K. Hsu
Thomas Kuo-Yuen Hsu
Morris L. Feder
Director
Chairman of Oak
Maritime (H.K.)
Limited
Director
Executive Director
of Expedo + Company
(London) Ltd.
Director
President of
Worldwide
Cargo Inc.
CORPORATE INFORMATION
38
Teekay Shipping Annual Repor t December 31, 1999
CORPORATE INFORMATION
Teekay Shipping (Canada) Ltd.
Suite 1400, One Bentall Centre
505 Burrard Street
Vancouver, BC V7X 1M5
Canada
Tel: +1 (604) 683-3529
Fax: +1 (604) 844-6600
Teekay Shipping (USA), Inc.
One Corporate Plaza
2525 Bay Area Blvd., Suite 600
Houston, Texas 77058-1557
USA
Tel: +1 (281) 228-0595
Fax: +1 (281) 228-0626
Teekay Shipping (UK) Ltd.
49 St. James’s Street
London SW1A 1JT
United Kingdom
Tel: +44 (207) 408-1555
Fax: +44 (207) 408-1115
Teekay Shipping (Singapore) Pte. Ltd.
8 Shenton Way, #44-03
Temasek Tower
Singapore 068811
Tel: +65 221-7988
Fax: +65 222-3338
STOCK TRANSFER AGENT
AND REGISTRAR
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
Teekay Shipping Corporation
4th Floor, Euro Canadian Centre
Marlborough Street & Navy Lyon Road
P.O. Box SS-6293
Nassau
Bahamas
Teekay Shipping (Norway) AS
Rådhusgaten 27
P.O. Box 470 Sentrum
N-0105 Oslo
Norway
Tel: +47 (22) 31 00 00
Fax: +47 (22) 31 00 01
Teekay Shipping (Australia) Pty. Ltd.
Level 6, Bayview Tower
1753-1765 Botany Road
Banksmeadow NSW 2019
Australia
Tel: +61 (2) 9316-1000
Fax: +61 (2) 9316-1001
Teekay Shipping (Japan) Ltd.
6F Eiyu Irifune Building
1-13 Irifune 3-Chome
Chuo-ku, Tokyo 104-0042
Japan
Tel: +81 (3) 5543-2731
Fax: +81 (3) 5543-2730
Teekay Shipping Limited
4th Floor, Euro Canadian Centre
Marlborough Street & Navy Lyon Road
P.O. Box SS-6293
Nassau
Bahamas
Tel: +1 (242) 322-8020
Fax: +1 (242) 328-7330
Teekay Shipping (Glasgow) Ltd.
183 St. Vincent Street
Glasgow G2 5QD
United Kingdom
Tel: +44 (141) 222-9000
Fax: +44 (141) 243-2100
Teekay Shipping Latvia
4 Torna Street, IIC, #102
Riga LV1050
Latvia
Tel: +371 (7) 508092
Fax: +371 (7) 213069
Teekay Shipping Philippines, Inc.
Ground Floor, PVB Building
General Luna Street
Corner Potenciana Street
Intamuros, Manila
Philippines
Tel: +63 (2) 527-5491
Fax: +63 (2) 227-2166
Teekay Shipping (India) Pvt. Ltd.
817 Raheja Chambers
213 Nariman Point
Mumbai, India 400 021
Tel: +91 (22) 287-2252
Fax: +91 (22) 202-5884
STOCK EXCHANGE LISTING
New York Stock Exchange
Symbol: TK
There were 38.1 million shares outstanding at December 31,
1999.
INVESTOR RELATIONS
A copy of the Company’s Annual Report on Form 20-F is
available by writing or calling to:
SHARE PRICE INFORMATION
The following table sets forth the New York Stock Exchange
high and low prices of the Company’s stock for each quarter
during the nine months ending December 31, 1999:
QUARTER
ENDED
HIGH
LOW
June 30, 1999
Sept. 30, 1999
Dec. 31, 1999
$18 5/8
$18 15/16
$16 1/8
$15 1/8
$15 3/16
$13 3/4
DIVIDENDS
DECLARED
(PER SHARE)
$0.215
$0.215
$0.215
Teekay Shipping (Canada) Ltd.,
Investor Relations
1400 - 505 Burrard Street
Vancouver, B.C.
Canada V7X 1M5
Tel: +1 (604) 844-6654
Fax: +1 (604) 844-6619
Email: investor.relations@teekay.com
Website: www.teekay.com
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www.teekay.com
Teekay Shipping Corporation
N a s s a u Va n c o u v e r H o u s t o n L o n d o n S i n g a p o r e O s l o S y d n e y To k y o G l a s g o w R i g a M a n i l a M u m b a i