Va n c o u v e r H o u s t o n Na s s a u L o n d o n G l a s g o w O s l o R i g a Mu m b a i S i n g a p o r e M a n i l a To k y o S y d n e y www.teekay.com C o r p o r a t i o n 2 0 0 0 a n n u a l r e p o r t T e e k a y i S h p p n g i Teekay is here Teekay Shipping Corporation Teekay Shipping Corporation 2000 annual report (cid:1) (cid:2) (cid:2) (cid:3) (cid:4) (cid:5) (cid:6) (cid:7) (cid:8) (cid:9) (cid:10) (cid:11) (cid:11) (cid:4) (cid:12) (cid:15) (cid:17) (cid:12) (cid:14) (cid:15) (cid:11) (cid:11) (cid:15) (cid:2) (cid:16) (cid:14) (cid:15) (cid:11) (cid:18) (cid:19) (cid:11) (cid:11) (cid:18) (cid:20) (cid:21) (cid:9) (cid:11) (cid:15) 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) Year Ended December 31, 2000 9 Months Ended December 31, 1999* Year Ended March 31, 1999 Income Statement Data Net voyage revenues Net income (loss) Balance Sheet Data Total assets Total stockholders’ equity Per Share Data $ 644,269 $ 248,350 $ 318,411 270,020 (19,595) 45,406 1,974,099 1,098,512 1,982,684 1,452,220 832,067 777,390 Fully diluted earnings (loss) per share 6.86 (0.54) 1.46 Weighted average shares outstanding (thousands) 38,468 36,384 31,063 Other Financial Data EBITDA Net debt to capitalization (%) Capital expenditures: Vessel purchases, gross Drydocking Operating cash flow per ship per day 449,191 34.3 43,562 11,997 16,687 89,839 50.8 186,069 39.6 452,584 4,971 5,177 85,445 7,213 11,171 *Teekay changed its fiscal year-end from March 31 to December 31, effective December 31, 1999 C O N T E N T S Financial Highlights Chairman’s Message to Shareholders President’s Report to Shareholders 1 4 6 Market Review 10 Teekay Snapshot Voyage Profile Fleet Profile 16 20 Financial Review Board of Directors Corporate Information 22 24 49 50 s n o i t a c i n u m m o C c i g e t a r t S C D D C : n g i s e D (cid:1) (cid:2) (cid:2) (cid:3) (cid:4) (cid:5) (cid:6) (cid:7) (cid:8) (cid:9) (cid:10) (cid:11) (cid:11) (cid:4) (cid:12) (cid:13) (cid:12) (cid:14) (cid:15) (cid:11) (cid:11) (cid:15) (cid:14) (cid:16) (cid:17) (cid:2) (cid:11) (cid:18) (cid:19) (cid:11) (cid:11) (cid:18) (cid:20) (cid:21) (cid:9) (cid:11) (cid:2) 62253_p01_20 3/28/01 11:16 PM Page 1 Revenue $ Millions Net Income $ Millions Earnings Per Share(3) $ US 900 750 600 450 300 150 0 97(1) 98(1) 99(1) 99(2) 00 Fiscal Year Ended December 31 (1) Fiscal year ended March 31 (2) 12 months ended December 31, 1999 300 250 200 150 100 50 0 -20 10 8 6 4 2 0.0 -0.5 97(1) 98(1) 99(1) 99(2) 00 Fiscal Year Ended December 31 (1) Fiscal year ended March 31 (2) 12 months ended December 31, 1999 97(1) 98(1) 99(1) 99(2) 00 Fiscal Year Ended December 31 (1) Fiscal year ended March 31 (2) 12 months ended December 31, 1999 (3) Fully Diluted Leverage(1) % Capital Expenditures $ Millions Cash Flow (1) $ Millions 60 50 40 30 20 10 0 450 250 200 150 100 50 0 500 400 300 200 100 0 97(2 ) 98(2) 99(2) 99 00 97(1) 98(1) 99(1) 99(2) 00 97(2) 98(2) 99(2) 99(3) 00 As at December 31 (1) Net debt/capitalization (2) As at March 31 Fiscal Year Ended December 31 Fiscal Year Ended December 31 Vessels and equipment, gross Drydocking (1) Fiscal year ended March 31 (2) 12 months ended December 31, 1999 (1) Earnings before interest, taxes, depreciation and amortization (EBITDA) (2) Fiscal year ended March 31 (3) 12 months ended December 31, 1999 62253_p01_20 3/28/01 11:16 PM Page 2 T E E K A Y S H I P P I N G C O R P O R A T I O N > Teekay profile: Teekay Shipping Corporation operates the world’s largest fleet of medium-sized (Aframax) oil tankers. The company has earned an international reputation for safety and excellence in providing crude oil and petroleum product transportation services to major oil companies, traders and government agencies worldwide. Teekay is headquartered in Nassau, Bahamas, has offices in eleven other countries and employs 300 onshore and more than 2,700 seagoing staff around the globe. The Company’s common stock is listed on the New York Stock Exchange and trades under the symbol "TK." 62253_p01_20 3/28/01 11:16 PM Page 3 Teekay is here Wherever there’s oil. Teekay’s modern uniform fleet provides timely, responsive transportation around the globe. Traveling the oceans of the world, carefully anticipating and negotiating the shifting conditions of the global market. 3 62253_p01_20 3/28/01 11:16 PM Page 4 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 C. Sean Day Chairman of the Board of Directors “In good markets and bad, we have always gone to great lengths to uphold the Teekay Standard – to deliver service that is nothing less than first class. This year we are being rewarded for our consistent focus on excellence.” It is always gratifying to report on an outstanding like Teekay offer a differentiated, high quality service. year! In 2000, Teekay had its best year by any All of these factors drove earnings for modern, high measure since our debut as a public company in quality vessels in the open market up to levels not 1995. Teekay’s gain in net worth during the year was seen in many years. We also benefited from our own $266 million, an increase of 32%. preparations for this upturn. In particular, our timely acquisition of Bona Shipholding in 1999 gave our We were the beneficiaries of many favourable external company global coverage for the first time. The theme factors. These included, a robust global economy, of our Annual Report this year "Teekay is here", the need to replenish crude oil stocks around the reflects our worldwide presence and our commit- world after a significant drawdown in 1999, the ment to service. 2000 was the first full year in which sourcing of increases in oil supplies largely from we were able to offer our customers the benefit of 24- long haul Middle East ports and, above all, the hours a day, 7-days a week service through 12 offices recognition by most oil companies that companies circling the globe, 75 vessels plying every major 4 62253_p01_20 3/28/01 11:16 PM Page 5 teekay annual report 2000 trade route and 3,000 employees of many nationalities all committed to offering a level of service superior to that of any other tanker company. Board. We also made very important additions to our senior management team in Tokyo, London and Houston as we continue to build for the future. We continued to differentiate ourselves from our competitors in 2000, and this will continue in 2001. As industry leaders, we are dedicated to providing the very highest level of service to our customers. In some cases we have moved beyond simple contractual obligations to key customers and are now forming more durable alliances. As the oil industry consoli- dates further, global solutions will be sought which can be met only by shipping companies with the size and reach of Teekay. As we continue our heavy investment in people and systems, it is our belief that Teekay will be able to deliver a higher quality of customer service, at a lower cost, and with global marketing capability and systems unmatched by any other company in our industry. During 2000 we welcomed Bruce Bell, Ian Blackburne and Eileen Mercier to our Board of Directors. Each of them has had a distinguished business career and each brings valuable skills and experience to our In closing, I would like to repeat to you, our share- holders, our commitment to increasing shareholder value in this coming year, and thank you for your past support. I am grateful, too, for the loyal support of our many customers. Finally, I would like to commend Bjorn Moller and our dedicated Teekay employees, ashore and afloat, for a job well done and for their continued commitment to our vision. C. Sean Day Chairman of the Board of Directors > We continued to differentiate ourselves from our competitors in 2000, and this will continue in 2001. As industry leaders, we are dedicated to providing the very highest level of service to our customers. 5 62253_p01_20 3/28/01 11:16 PM Page 6 P R E S I D E N T ’ S R E P O R T T O S H A R E H O L D E R S Bjorn Moller President and CEO “In my report last year I stated our belief that the tanker market was poised for an upturn from its then depressed levels. As it turned out, we were correct about the direction of the market but we certainly could not have predicted freight rates soaring to levels not seen in more than 25 years!” Strong Financial Performance While the strong rise in tanker rates was certainly the highlight of the year, it was satisfying to see the payoff for our considerable efforts in recent years positioning Teekay for just such a market upswing. These efforts included: increasing our exposure to the market with well-timed fleet growth; increasing our fleet utilization by building a portfolio of attractive contracts of affreightment; and continuous improve- ment initiatives aimed at optimizing operational per- formance and cost efficiency. The combined effect of these resulted in an outstanding year 2000 for Teekay. Maintaining significant exposure to the spot market meant that the effect of the rising market on Teekay's earnings was both immediate and dramatic. Time charter equivalent (TCE) rates per calendar day for our international Aframax tanker fleet rose through- out the year, averaging $17,500 in the first quarter and increasing to an average of $33,400 in the fourth quarter. For the year, we averaged over $25,000 compared with $12,300 in the previous fiscal period. Our Australian fleet, including our Floating Storage and Offtake (FSO) vessel performed well and main- tained attractive earnings under long term contracts. Our OBO segment enjoyed strengthening rates and generated good cash flow during the year. This increase in TCE rates resulted in strong financial 6 62253_New_p07_08 3/28/01 11:44 PM Page 7 teekay annual report 2000 performance. Net income for the fiscal year ended December 31, 2000 was $270.0 million, or $6.86 per share fully diluted, compared to a net loss of $19.6 million, or $0.54 per share for the shortened nine- month fiscal period ended one year earlier. Return on shareholders’ equity for the year was 25%. EBITDA for the year was $449.2 million. The strength of our cash flow had a positive effect on our balance sheet, bringing net debt down to 34.3% of total capitalization by the end of the year. Strong Market Fundamentals When analyzing the rise in rates it is interesting to note that the market was not only driven by transitory cyclical events but also by positive structural developments in the tanker industry. Global oil production rose by 2.6 million barrels per day or 3.5% in 2000. Most of this incremental production originated from the Middle East, marking a significant shift from the 1990s. Because of their requirement for long haul tanker transportation, Middle East oil exports are particularly good for tanker demand. On the supply side, the world's tanker fleet grew by a modest 2.2%, insufficient to keep pace with demand growth. The net effect was to stretch tanker capacity utilization close to its practical limit for the first time since the early 1970s, causing freight rates to rise dramatically. In early 2001, we have seen production cuts by OPEC in anticipation of seasonal post-winter weaknesses in oil demand. OPEC will almost certainly reverse these cuts, and possibly raise production further later this year as world oil consumption continues to grow. Another structural development driving the freight market higher was the increasing 'flight to quality' by charterers this past year. A spate of high profile casualties involving old tankers increased the preference for modern, high quality tankers and, consequently, the freight differential willing to be paid to charter these ships. Teekay was a major beneficiary of this trend due to the high quality reputation of our modern fleet. Positioned to Deliver Since the last cycle, we have improved and reposi- tioned Teekay's fleet. In 2000, we were rewarded for our timely acquisition of Bona Shipholding during the weak market in 1999, increasing our fleet by almost 50%. This proved to be significantly accretive to our earnings per share last year. In the early part of 2000, we added to our fleet through a combination of second-hand purchases and in-chartering of third party tonnage. Disciplined timing of fleet growth over the past few years has steadily lowered our average cost of assets and reduced TCE net income breakeven from $16,100 in 1995 to $13,100 per day > Each $1,000 per day TCE we generate above our net income breakeven translates into an additional 57 cents per share in annual earnings, fully diluted. in 2000. Our 75-ship fleet ensures considerable oper- ating leverage: each $1,000 per day TCE we generate above our net income breakeven translates into an additional 57 cents per share in annual earnings, fully diluted. To maximize charter revenues we concentrate our tonnage in the world's most quality sensitive regions and pursue a backhaul and parceling strategy that generates superior capacity utilization for our fleet. Recent consolidation among oil companies has resulted in a market with fewer, larger customers. As these customers streamline their procurement processes they are increasingly looking to suppliers 7 62253_New_p07_08 3/28/01 11:44 PM Page 8 P R E S I D E N T ’ S R E P O R T T O S H A R E H O L D E R S capable of delivering reliable service on a global basis at competitive prices. Our large, uniform fleet is ideally suited to service this need. During 2000, we further increased the number of high volume contracts that maximize our fleet utilization. This past year we continued our aggressive pursuit of optimized fleet operations and cost efficiency. Our integration of the Bona fleet was successfully completed with realized cost synergies exceeding the target of $10 million per year. Our cross-func- tional Ship Teams, now in their second year, raised the efficiency of our fleet, while our Standards and > "High calibre staff are key to supporting our global brand and we have devoted a great deal of time recruiting resources to our organization. In particular, we made some important additions to our global management team in a variety of regions over the past year." Policy Teams reduced costs through innovation and through leveraging Teekay's buying power, resulting in a 10% cost reduction in per-day vessel operating expenses in 2000 versus the previous year. Positive Outlook The market outlook for the next three to five years is bright for our industry in general, and for global, high quality service providers like Teekay in particular. A major milestone is expected in April 2001 when the IMO, the international maritime regulatory body, is scheduled to vote on a bill to accelerate the mandatory phase-out of old tankers, which could force the scrapping of approximately 28% of the existing world fleet during the next five years. Such a massive phase-out would finally remove the mid-1970s tanker delivery boom that has created a supply overhang for our industry for the past 25 years. Replacing this tonnage and meeting growing demand for oil transportation will stretch the capa- bilities of the world's shipbuilding yards, which are already substantially full through mid-2003. Building Teekay’s Brand We believe that we are in the early stage of a trans- formation in which oil companies will offer a growing proportion of their business to large, well capitalized, full service tanker companies. As an acknowledged industry leader, Teekay is in an excellent position to more fully develop what is already a recognized brand of quality and service. In keeping with this focus, we announced on March 6, 2001 our acquisi- tion of a controlling interest in Norway's Ugland Nordic Shipping ASA, one of the world's largest operators of shuttle tankers with a fleet of 14 vessels plus four newbuildings on order. We have identified the shuttle tanker market as an area of significant opportunity consistent with Teekay's operationally intensive and customer-focused strategy. Further expansion of our services in the off- shore marine market is a natural extension of our core competencies and will allow us to further broaden the services that we can offer to our customers on a global basis. This is consistent with our mission to be the first choice of our customers and will provide us with a solid growth platform. I wish to thank all my colleagues in Teekay, ashore and on board ship, for their hard work and commit- ment to building Teekay into a leader in our industry. I am pleased that all our groundwork is paying off. You have every right to be proud of the role you have played in making sure that "Teekay is here", at the right place, at the right time. Bjorn Moller President and CEO 8 62253_p01_20 3/28/01 11:16 PM Page 9 Teekay is here In economic centres throughout the world. Teekay maintains a presence in many countries to stay close to our customers, industry decision-makers and sources of capital. In our industry, we understand that time is money. 9 62253_p01_20 3/28/01 11:16 PM Page 10 M A R K E T R E V I E W Tanker Supply/Demand Dynamics The oil tanker market is governed by the demand for sea-based oil transportation and the supply of oil tankers, the balance of which is reflected in tanker TCE rates. Volatility in these rates is created by rapid fluctuations in demand in response to changes in the world oil markets, while oil tanker supply responds much slower due to shipyard lead times. For the past 25 years the effect of these fluctuations has been cushioned by a surplus of tanker supply. This surplus, although difficult to measure, appears to have diminished significantly, causing a sharp increase in the volatility of tanker rates in 2000. Tanker demand is, in the short term, driven by the growth in oil consumption and the level of oil pro- duction. In the medium term, oil production reverts to tracking oil demand. As a result, oil demand growth is a good indicator of future tanker demand growth. As can be seen in the graph below, oil demand is closely linked to world GDP. Another factor affecting tanker demand is the average dis- tance over which crude oil is carried by sea from the production wellhead to the refinery. The further the oil travels the more tonnage required to move the oil. Tanker supply is affected by the number of new- buildings delivered into the market and by the rate at which older vessels are being scrapped. The decision by a tanker owner to scrap a vessel is in large part driven by its age, current/projected income and the cost of any modifications required as it goes through periodic special surveys. Older vessels, which are more expensive to maintain, eventually reach a point where it is no longer economic for them to be maintained. GDP Growth vs. Oil Demand % Growth Aframax TCE Rates vs. Oil Production Growth in Oil Demand Millions B/D 4 3 2 1 0 -1 -2 Aframax TCE Rates ($/day) 35,000 25,000 15,000 5,000 Incremental Oil Production (million bpd) 3 2 1 0 (1) (2) (3) 80 70 60 50 91 92 93 94 95 96 97 98 99 00 01 02 90 91 92 93 94 95 96 97 98 99 00 Calendar year World Real GDP Oil Demand GDP and oil consumption 2002 forecasts based on industry data Calendar year World Oil Production Aframax TCE Rates 92 93 94 95 96 97 98 99 00 Calendar year 10 62253_p01_20 3/28/01 11:16 PM Page 11 Teekay is here Respecting nature. From the ecologically sensitive coastline of Australia’s Great Barrier Reef to the fury of mid-Atlantic storms, Teekay ships face elemental challenges each and every day. Our high standards of safety and environmental practices, along with our modern and uniform fleet, enables us to operate in some of the most environmentally sensitive waters in the world. 11 62253_p01_20 3/28/01 11:16 PM Page 12 M A R K E T R E V I E W The 22000000 Tanker Market The 2000 tanker market was characterized by high capacity utilization, with little or no spare tonnage, particularly modern tonnage, in the existing world fleet to transport increases in oil production. The "Erika" oil spill incident was a catalyst that height- ened the awareness of environmental risk associated with chartering the large number of ageing 1970’s built tankers still in the world fleet, increasing the demand for modern tonnage. As a result, charterers were willing to pay a premium for young, high quality tonnage. Aframax TCE rates which started the year at a low of $15,000 per day, climbed dramatically to over $50,000 per day by year end. in March, 700 mbpd in June, 800 mbpd in September and 500 mbpd in November. Overall, OPEC had increased production by 3.7 mbpd during 2000. Global oil production increased from an aver- age 74.1 mbpd in 1999 to 76.7 mbpd in 2000. Oil production in the fourth quarter of 2000 peaked at 78.2 mbpd. In addition to increases in OPEC produc- tion, a disproportionately large share of incremental oil production originated in the Middle East, the source of the world's only meaningful spare oil production capacity. This boosted tanker demand, as the transportation of the Middle East oil exports is tanker intensive. In 1999, oil production cutbacks by OPEC producers resulted in a significant drawdown of world oil inventory levels, lowering tanker demand and TCE rates, and causing scrapping of old tonnage to reach its highest level in 14 years. In 2000, increased oil demand and replenishment of low inventory levels supported production increases throughout the year. OPEC responded to this escalating oil demand by increasing production four times during the year: 1.7 mbpd (million barrels per day) Total tanker supply grew by 6.7 mdwt (million dead weight tonnes) or 2.2% in 2000 over 1999. Newbuilding tanker deliveries rose to 21.2 mdwt from 20.3 mdwt in 1999. Strong TCE rates caused scrapping to decrease to 14.7 mdwt in 2000 compared to 17.8 mdwt in 1999. There were 23 Aframaxes delivered in 2000 compared to 51 in 1999, while scrapping decreased from 34 Aframaxes in 1999 to 20 Aframaxes in 2000. Tanker Supply/Demand Balance Millions Of DWT 320 240 160 80 0 92 93 94 95 96 97 98 99 00 Calendar year Supply Demand 12 On the tanker demand side, we face low oil inventories, grow- ing oil demand, spare oil reserves located in long haul locations and a flight to quality increasing competition for tankers. On the supply side, there is little spare capacity, an ageing world fleet and full orderbooks through mid-2003. 62253_p01_20 3/28/01 11:16 PM Page 13 Teekay is here Anywhere there’s a need. Demand for oil continues to rise throughout the world. From emerging nations to established super- powers. Wherever it’s required, our ships deliver their cargoes safely and on time. 13 62253_p01_20 3/28/01 11:16 PM Page 14 M A R K E T R E V I E W Proposed Accelerated Phase-Out Old Tankers to be Phased Out (mdwt) 0 5 10 15 20 25 30 35 40 2002 2003 2004 2005 Calendar year Proposed IMO Phase-Out= 85mdwt or 28% of World tanker fleet from 2002 to 2005 Existing IMO Regulations= 25 mdwt or 8% of World tanker fleet from 2002 to 2005 In summary, the world tanker fleet is currently operating at close to full capacity. New IMO regulations could significantly decrease tanker supply through 2005 with insufficient newbuilds on order to cover the ensuing shortfall. Meanwhile, oil demand is growing and spare oil capacity is confined to remote long haul locations in the Middle East. The Year Ahead OPEC decreased production in early 2001 in antici- pation of seasonally weaker demand in the second quarter. However, the world economy, which is the main driver of oil demand, is still growing, albeit not as rapidly as in 2000. The IEA (International Energy Agency) estimates that global oil demand will increase by 2% in 2001 compared with 1% in 2000, while world oil inventory levels at year-end were still well below normal levels. Much of the incremental production required to meet this increase in oil demand is expected to come from Middle East OPEC, which requires long haul tanker transportation to markets. Newbuilding deliveries into the world fleet in 2001 are expected to be 16.9 mdwt - well below the 21.2 mdwt delivered in 2000. With the newbuilding orderbook full for 2001 and 2002, the typical lead time for delivery of a new vessel is now into mid- 2003. Both of these elements will continue to constrain tanker supply. In October 2000 the IMO (International Maritime Organization – The UN’s specialized agency responsible for improving mar- itime safety and preventing pollution from ships) passed a draft proposal accelerating the phase-out of single hull tankers. Under the old regulations, ships were forced out of the fleet at age 30. This accelerated phase-out will place pressure on tanker supply as 1970’s built tankers are removed from the fleet. Under the old IMO regulations, 8% of the world tanker fleet effectively faces scrapping by 2005. Under the proposed regulations, this increases to 28%. Although the draft proposals have faced little opposition, there have been discussions surrounding a change in the effective scrapping dates from January 1 in any given year to the anniversary date of a vessel’s delivery. Such a change would extend the phase-out by approximately six months for the average vessel. The final legislation is to be passed at the IMO’s 46th MEPC (Marine Environmental Protection Committee) meeting in April 2001. 14 62253_p01_20 3/28/01 11:16 PM Page 15 Teekay is here At the forefront. True to Teekay’s heritage of stamina and perseverance, we will continue pushing ourselves to deliver higher levels of performance. While preserving all the ideals embodied in the Teekay Standard, we will also seek to elevate our position in the market by exploring new territory and pursuing new opportunities for excellence. 15 62253_p01_20 3/28/01 11:16 PM Page 16 V O Y A G E P R O F I L E Monday, May 14. Singapore 10:45 a.m. > The cargo: 80,000 tonnes of heavy crude loading in Dumai, Indonesia for discharge at a port in Western Australia. The oil company (charterer) calls a number of brokers to obtain offers from suitable suppliers (shipowners). Brokers then contact shipowners who may have vessels meeting the charterer’s require- ments. Teekay Singapore receives brokers’ requests for offers and establishes that Teekay’s MV Palmstar Rose meets the optimum criteria, including port constraints and cargo space. Currently, MV Palmstar Rose is en route to South Korea with a cargo of fuel oil loaded in Los Angeles and San Francisco, estimated discharge date June 5 and departure date of June 6. Teekay Singapore selects the most appropriate broker and submits an offer. > > > 62253_p01_20 3/28/01 11:16 PM Page 17 Teekay is here Singapore > Monday May 14, 3:30 pm The charterer selects Teekay after assess- ing all offers and puts forward a counter offer. Negotiations on terms, conditions and rate continue between Teekay Singapore and the charterer through the selected ship broker. 17 62253_p01_20 3/28/01 11:16 PM Page 18 V O Y A G E P R O F I L E > Monday May 14 Singapore 4:45pm Wednesday May 16 Singapore 5:00pm Vancouver 2:00am Thursday May 17 Vancouver 8:15am Glasgow 4:15pm Singapore 11:15pm, May 17 Monday June 4 Singapore 8:30am MV Palmstar Rose 9:30am Vancouver 5:30pm, June 3 MV Palmstar Orchid 9:30am Negotiations are concluded and the voyage is awarded to MV Palmstar Rose subject to management approval, cargo deal and terminal acceptance within 24 hours. Twenty-four hours later the charter- er lifts these subjects and confirms the fixture on MV Palmstar Rose. The vessel is now fully fixed for her next voyage. Teekay Singapore sends fixture information to Team Lynx, the ship team in Vancouver responsible for MV Palmstar Rose. Upon arrival in the office, team members work together with the vessel Master and senior officers to coordinate a voy- age plan that incorporates loading bunkers, taking on stores, crew changes, vessel spare parts delivery, maintenance plans and also takes into account tank preparation required for the next cargo. The voyage plan requires MV Palmstar Rose to make a six-hour port stop in Singapore prior to loading in Dumai in order to take on bunkers, make a crew change and receive supplies. Team Lynx in Vancouver contacts: staff in Glasgow to arrange the crew changeover (who then coordinate this with Teekay India and Teekay Philippines); the purchasing depart- ment in Vancouver regarding spare parts to be delivered; and the local port agent in Singapore to assist with and optimize the in-port logistics when the vessel is in port. Meanwhile, MV Palmstar Rose continues en route to South Korea. Team Lynx receives a report from MV Palmstar Rose that the ship will be delayed berthing in South Korea due to bad weather. This will in turn mean a delay leaving, there- fore, MV Palmstar Rose will not be able to meet the Dumai load date. Teekay Singapore chartering examines the location of Teekay’s fleet for another vessel that can be substituted to fulfill the fixture. (Teekay’s homogenous fleet of simi- lar-sized tankers makes this possi- ble.) It appears MV Palmstar Orchid, a sister ship, would be able to make the load date in Dumai. This option is offered to the charterer who screens the MV Palmstar Orchid to ensure the vessel meets their stringent criteria and confirms this is an acceptable replacement. 18 62253_p01_20 3/28/01 11:16 PM Page 19 GLOSSARY Subjects: Issues which must be agreed to by all parties before charter can be concluded. Offloading the cargo from the ship Discharge: Market cargo: Cargo openly quoted on the tanker freight market Fixed: teekay annual report 2000 Bunkers: Fuel for the vessel Charterer: The company or person provided with use of the vessel for the transportation of cargo or passengers for a specified time Charter negotiations fully concluded Teekay is here > Tuesday June 5 Vancouver 9:00am MV Palmstar Orchid 2:00am, June 6 Friday June 8 Singapore 9:30am Vancouver 6:30pm, June 7 MV Palmstar Orchid 10:30am Friday June 15 Dumai 11:45am Wednesday June 20 Singapore 10:15am MV Palmstar Orchid 11:15am Vancouver 7:15pm, June 19 Sunday June 24 Kwinana 2:00pm MV Palmstar Orchid is managed by the same ship team, Team Lynx. The team produces another voyage plan for the new vessel through discussions with each other and the Master of MV Palmstar Orchid. Unlike the pre- vious plan, MV Palmstar Orchid doesn’t need a port stop in Singapore to take on bunkers, crew or supplies; she is able to sail directly to Dumai. Details of new voyage plan are confirmed to charterer. Further new developments. The charterer contacts the Marine Manager who provides local support in Teekay Singapore, advising that two different grades of heavy crude are to be loaded at Dumai. The Marine Manager discusses the requirement with Team Lynx and the vessel then confirms to the charterer that this can be done. Subsequently, voyage orders are issued confirming cargo requirements and ordering the vessel to proceed to Kwinana, W. Australia for discharge. MV Palmstar Orchid arrives in Dumai on schedule. Pre-load meetings are conducted between the crew and terminal staff to validate the prepared load plan. Safety checks and documentation are completed. The required quantities of the two different cargos are loaded and the ship sails for Kwinana. Throughout the voyage, the ship is in constant contact with Team Lynx to update the charterer about location and estimated arrival time. In the meantime, Teekay Singapore is again active in arranging a backhaul cargo of crude oil to be loaded from offshore terminal at Griffin Venture, W. Australia bound for Ulsan, S. Korea. The team also notifies the Captain that an annual vetting inspection by one of the oil majors will take place during discharge of cargo at Kwinana. Pre-arrival checks are conducted aboard MV Palmstar Orchid prior to berthing at Kwinana. After berthing, the crew discusses the discharge plan with the terminal and discharging of cargo com- mences. Crude oil washing of cargo tanks takes place during discharge to reduce residues. An independent tank inspector con- ducts a thorough vessel inspec- tion for one of the oil majors. After discharging, documentation is completed and the vessel leaves Kwinana bound for Griffin Venture to load another cargo bound for Ulsan, South Korea. 19 62253_p01_20 3/28/01 11:16 PM Page 20 F L E E T P R O F I L E > Tankers Hull Type DWT Year Built Tankers Hull Type DWT Year Built Onomichi Class Hamane Spirit Poul Spirit Torben Spirit Leyte Spirit Luzon Spirit Mayon Spirit Samar Spirit Palmstar Lotus Palmstar Thistle Teekay Spirit Onozo Spirit Palmstar Cherry Palmstar Poppy Palmstar Rose Palmstar Orchid Hyundai Class Falster Spirit Gotland Spirit Sotra Spirit Victoria Spirit Vancouver Spirit Shilla Spirit Ulsan Spirit Dampier Spirit (FSO) Namsan Spirit Pacific Spirit Pioneer Spirit Mersey Spirit Clyde Spirit Imabari Class 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 Double Hull Double Hull Single Hull Single Hull Single Hull Single Hull Single Hull Single Hull Double Sides Double Sides Bahamas Spirit (Sanko Trader) Nassau Spirit Seaservice * Senang Spirit Sebarok Spirit Seraya Spirit Seafalcon * Alliance Spirit Sentosa Spirit Seletar Spirit Semakau Spirit Singapore Spirit Sudong Spirit Double Hull Double Hull 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 95,400 103,200 103,200 106,700 106,700 106,700 106,700 106,700 106,700 94,700 94,700 107,000 107,000 107,000 95,700 95,700 97,300 97,300 97,300 97,300 95,000 97,300 97,300 97,300 Mitsubishi Class Kyushu Spirit Koyagi Spirit Sabine Spirit Columbia Spirit Hudson Spirit Double Sides Single Hull Double Sides Double Sides Double Sides 95,600 96,000 84,800 84,800 84,800 1997 1995 1994 1992 1992 1992 1992 1991 1991 1991 1990 1990 1990 1990 1989 1995 1995 1995 1993 1992 1990 1990 1988 1988 1988 1988 1986 1985 1998 1998 1998 1994 1993 1992 1990 1989 1989 1988 1988 1987 1987 1991 1989 1989 1988 1988 Samsung Class Aegean Pride* Kanata Spirit Kareela Spirit Kiowa Spirit Koa Spirit Kyeema Spirit Silver Paradise* Namura Class Seamaster* Torres Spirit Mitsui Class Shetland Spirit Orkney Spirit Other Aframax Bornes** Cook Spirit Shannon Spirit Clare Spirit Magellan Spirit 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 1999 1999 1999 1999 1999 1999 1998 Single Hull Single Hull 101,000 96,000 1990 1990 Double Hull Double Hull 106,200 106,200 1994 1993 Double Sides Double Sides Single Hull Single Hull Double Sides 88,900 91,500 99,300 95,200 95,000 1990 1987 1987 1986 1985 Subtotal Aframax 6,216,700 Oil/Bulk/Ore (OBO) Carriers Teekay Forum Teekay Fulmar Teekay Fortuna** Teekay Fountain Teekay Freighter** Teekay Fair Teekay Favour Teekay Foam Double Bottom Double Bottom Double Bottom Double Bottom Double Bottom Double Hull Double Bottom Double Bottom 78,500 78,500 78,500 78,500 75,400 75,500 82,500 78,500 Subtotal Oil/Bulk/Oil (OBO) Carriers 625,900 Other Size Tankers Inago** Musashi Spirit Erati** Palmerston Barrington Subtotal Other Tankers TOTAL DWT as of December 31, 2000 Double Sides Single Hull Double Sides Double Bottom Double Hull 159,800 280,700 159,700 36,700 33,300 670,200 7,512,800 1983 1983 1982 1982 1982 1981 1981 1981 1993 1993 1992 1990 1989 * Time Chatered-in ** Partially owned vessels (Bornes, Inago, Erati 50%; Teekay Fortuna 67%; Teekay Freighter 52%) (FSO) Floating storage and off-take vessel 20 62253_Foldout 3/28/01 11:48 PM Page 1 T E E K A Y S N A P S H O T Glasgow Tuesday 4:15 pm London Tuesday 4:15 pm Palmstar Lotus Melbourne, Australia Vancouver Tuesday 8:15 am Palmstar Cherry Esmeraldos, Ecuador Houston Tuesday 10:15 am Mayon Spirit 930 nm from Venezuela Shilla Spirit Ulsan, South Korea Leyte Spirit Pacific Ocean Singapore Wednesday 12:15 am Teekay is here > Right now. In this precise position. At any time during the day, we can pinpoint the location of all of our vessels anywhere in the world. Leading edge telecommunications on land and at sea enable real time conferencing, planning, documentation, data sharing and problem solving. 22 23 62253_Foldout 3/28/01 11:46 PM Page 2 F L E E T P R O F I L E F I N A N C I A L R E V I E W Teekay is here > Financial Contents Management’s Discussion & Analysis Auditor’s Report Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Changes in Stockholders’ Equity Notes to the Consolidated Financial Statements 25 34 35 36 37 38 39 Torben Spirit Double Hull DWT 98,600 Built 1994 21 62253_Foldout 3/28/01 11:46 PM Page 2 F L E E T P R O F I L E F I N A N C I A L R E V I E W Teekay is here > Financial Contents Management’s Discussion & Analysis Auditor’s Report Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Changes in Stockholders’ Equity Notes to the Consolidated Financial Statements 25 34 35 36 37 38 39 Torben Spirit Double Hull DWT 98,600 Built 1994 21 62253_Finacials 3/28/01 4:43 PM Page 25 F I N A N C I A L R E V I E W Management’s Discussion and Analysis of Financial Condition and Results of Operations Teekay 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 govern- ment agencies worldwide. The Company’s fleet consists of 75 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 year ended December 31, 2000, approxi- mately 68% 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 year ended December 31, 2000, approximately 14% of net voyage revenues were gen- erated by time charters and COAs priced on a spot market basis. In the aggregate, approximately 82% of the Company’s net voyage revenues during the year ended December 31, 2000 were derived from spot voyages or time charters and COAs priced on a spot market basis, with the remaining 18% being derived from fixed-rate time-charters and COAs. This depend- ence 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 mar- kets have historically exhibited seasonal variations in charter rates. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling. Acquisition of Bona Shipholding Ltd. On June 11, 1999, the Company acquired Bona Shipholding Ltd. (“Bona”) for aggregate considera- tion (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 fifteen 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 acqui- sition, the Company has combined Bona’s market strength in the Atlantic region with the Company’s franchise in the Indo-Pacific Basin. 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. 25 62253_Finacials 3/28/01 4:43 PM Page 26 F I N A N C I A L R E V I E W Management’s Discussion and Analysis of Financial Condition and Results of Operations Historically, the Company has depreciated its vessels for accounting purposes over an economic life of 20 years down to estimated residual values. Bona depre- ciated 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 estimat- ed scrap values. Since such changes, the Company’s average depreciation expense per vessel has decreased from historical levels. 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 state- ments. Where the Company owns less than 50% of a vessel, the minority participants’ share of the O/B/O pool’s net voyage revenues is reflected as a time char- ter hire expense. These O/B/Os have earned lower average “time charter equivalent” (or TCE) rates than the rest of the Teekay fleet as these vessels command lower rates than modern Aframax tankers under typ- ical market conditions, which reflects the lower cap- ital cost of these vessels. Results of Operations Bulk shipping industry freight rates are commonly measured at the net voyage revenue level in terms of 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 char- ter, either spot market 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. Year Ended December 31, 2000 versus Nine Months Ended December 31, 1999 As a result of the Company’s change in fiscal year end from March 31 to December 31, commencing December 31, 1999, the current fiscal year’s results are for the twelve month period ended December 31, 2000, while the comparative fiscal period’s results are for the nine month period ended December 31, 1999. Where indicated in the following discussions, percentage change figures reflect the annualized results for the nine month period ended December 31, 1999. 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 include the results of Bona commencing June 11, 1999. On an annualized basis, the Company’s average fleet size increased 9.0% in the year ended December 31, 2000 compared to the nine month period ended December 31, 1999. Average Aframax TCE rates increased significantly in 2000, compared to the nine month period ended December 31, 1999, due to increased demand for modern tankers, arising from increased oil produc- tion and discrimination against older tankers by 26 62253_Finacials 3/28/01 4:43 PM Page 27 teekay annual report 2000 Management’s Discussion and Analysis of Financial Condition and Results of Operations charterers. TCE rates are dependent on oil production levels, oil consumption growth, the number of vessels scrapped, the number of newbuildings delivered and charterers’ preference for modern tankers. As a result of 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 $644.3 million in the year ended December 31, 2000, as compared to $248.4 million in the nine month period ended December 31, 1999, representing a 94.6% increase on an annu- alized basis from the nine month period ended December 31, 1999. This is mainly the result of a 81.2% increase in the average TCE rate earned by the Company’s fleet, to $25,661 for the year ended December 31, 2000, from $14,165 for the nine month period ended December 31, 1999. As of December 31, 1999, 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 compa- nies. 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 $125.4 million in the year ended December 31, 2000 from $98.8 mil- lion in the nine month period ended December 31, 1999, representing a 4.8% decrease on an annualized basis. This decrease was mainly the result of lower per-day operating expenses arising from the appli- cation of the Company’s lower cost structure to the Bona fleet. This decrease was partially offset by the increase in the Company’s average fleet size. Time charter hire expense was $53.5 million in the year ended December 31, 2000, up from $30.7 million in the nine month period ended December 31, 1999, representing a 30.7% increase on an annualized basis. This increase is primarily due to an increase in the minority participants’ share of the O/B/O pool’s net voyage revenues, which was $26.3 million for the year ended December 31, 2000, compared to $10.5 million in the nine month period ended December 31, 1999. This was caused by an improvement in the average TCE rate earned in the O/B/O pool and the inclusion of Bona’s operating results, which includes the O/B/O vessels, for only part of the previous fiscal period from June 11, 1999. The average number of vessels time-chartered-in by the Company, excluding the O/B/Os, was five in the year ended December 31, 2000, compared to four in the nine month period ended December 31, 1999. Depreciation and amortization expense increased to $100.2 million in the year ended December 31, 2000, from $68.3 million in the nine month period ended December 31, 1999, representing a 10.0% increase on an annualized basis. This increase primarily reflects the increase in the Company’s average fleet size arising from the acquisition of Bona. Depreciation and amortization expense included amortization of drydocking costs of $9.2 million in the year ended December 31, 2000, com- pared to $6.3 million in the nine month period ended December 31, 1999. General and administrative expenses were $37.5 mil- lion in the year ended December 31, 2000, as compared to $27.0 million in the nine month period ended December 31, 1999, representing a 4.0% increase on an annualized basis. This increase is primarily a result of the acquisition of Bona, partially offset by overhead cost savings related to the acquisition. 27 62253_Finacials 3/28/01 4:43 PM Page 28 F I N A N C I A L R E V I E W Management’s Discussion and Analysis of Financial Condition and Results of Operations Interest expense increased to $74.5 million in the year ended December 31, 2000 from $45.0 million in the nine month period ended December 31, 1999, repre- senting a 24.2% increase on an annualized basis. This increase reflects an increase in interest rates and the additional debt assumed as part of the Bona acquisition. Interest income increased to $13.0 million in the year ended December 31, 2000 from $5.8 million in the nine month period ended December 31, 1999. On an annualized basis, interest income increased by 67.2% as a result of increased interest rates and higher cash and marketable securities balances. Other income of $3.9 million in the year ended December 31, 2000 consisted primarily of equity income from a 50%-owned joint venture, partially offset by future income taxes related to the Company’s Australian ship-owning subsidiaries, and losses on the sale of two vessels. Other loss of $4.0 million in the nine month period ended December 31, 1999 consisted primarily of future income taxes related to the Company’s Australian ship-owning subsidiaries and one-time employee and severance-related costs, partially offset by equity income from the 50%-owned joint venture. As a result of the foregoing factors, net income was $270.0 million in the year ended December 31, 2000, compared to a net loss of $19.6 million in the nine month period ended December 31, 1999. The results for the year ended December 31, 2000 include losses on the disposition of assets of $1.0 million. There were no extraordinary items and no asset dispositions in the nine month period ended December 31, 1999. Nine Months Ended December 31, 1999 versus Year Ended March 31, 1999 As a result of the Company’s change in fiscal year end from March 31 to December 31, the results for the nine month period ended December 31, 1999, are compared to the results for the twelve month period ended March 31, 1999. Where indicated in the following discussions, percentage change figures reflect the annualized results for the nine month period ended December 31, 1999. 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 include 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. Net voyage revenues were $248.4 million in the nine month period ended December 31, 1999, as com- pared to $318.4 million in the year ended March 31, 1999, representing a 4.0% increase on an annualized basis from the year ended March 31, 1999. This is mainly the result of an increase in fleet size, partially offset by a 29.8% decrease in the Company’s average TCE rate, to $14,165 for the nine month period ended December 31, 1999, from $20,185 for the year ended March 31, 1999. Aframax TCE rates declined during the second half of 1998 and 1999 due to a reduction in tanker demand, oil production cutbacks and a large number of newbuilding deliveries. As of December 31, 1999, the Company changed its process of estimating net voyage revenues from a 28 62253_Finacials 3/28/01 4:43 PM Page 29 teekay annual report 2000 Management’s Discussion and Analysis of Financial Condition and Results of Operations 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. the year ended March 31, 1999, respectively. Had the Company retained its previous depreciation policy and applied this policy to the Bona fleet, depreciation expense would have been $22.5 million higher in the nine month period ended December 31, 1999. Vessel operating expenses increased to $98.8 million in the nine month period ended December 31, 1999 from $84.4 million in the year ended March 31, 1999, representing a 56.1% increase on an annualized basis. This increase was mainly the result of the addi- tion of the Bona vessels, which had higher operating expenses than the remainder of Teekay’s fleet. Time charter hire expense was $30.7 million in the nine month period ended December 31, 1999, up from $29.7 million in the year ended March 31, 1999, primarily due to the Bona acquisition. The minority pool participants’ net voyage revenues in the O/B/O pool managed by a Bona subsidiary is reflected as time charter hire expense. The average number of Aframax vessels 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 aris- ing from the acquisition of Bona. Depreciation and amortization expense included amortization of dry- docking costs of $6.3 million and $8.6 million in the nine month period ended December 31, 1999 and in General and administrative expenses were $27.0 mil- lion 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, rep- resenting a 33.9% increase on an annualized basis. This increase reflects the $386.0 million in additional debt assumed as part of the Bona acquisition and an increase in interest rates. Interest income 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 Company’s Australian ship-owning subsidiaries and one-time employee and severance-related costs, partially offset by equity income from the 50%-owned joint ven- ture. Other income of $5.5 million in the year ended March 31, 1999 consisted primarily of gains on the sale of vessels. 29 62253_Finacials 3/28/01 4:43 PM Page 30 F I N A N C I A L R E V I E W Management’s Discussion and Analysis of Financial Condition and Results of Operations As a result of the foregoing factors, net loss was $19.6 million in the nine month period ended December 31, 1999, compared to a net income of $45.4 million in the year ended March 31, 1999. The results for the year ended March 31, 1999 included an extraordi- nary 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. 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 periods’ results, the figures in the table below include or exclude the results from the Company’s four Australian crewed vessels and eight O/B/Os acquired as part of the Bona acquisition as indicated: International Fleet (excluding ex-Bona O/B/Os and Australian crewed vessels): 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 Crewed Vessels: YEAR ENDED DECEMBER 31, 2000 NINE MONTHS ENDED DECEMBER 31, 1999 YEAR ENDED MARCH 31, 1999 59 21,621 20,513 $ 556,672 $ 27,138 $ 24,997 4,980 1,441 431 $ 18,145 55 15,173 14,301 $ 192,522 $ 13,462 $ 12,310 5,621 1,510 448 4,731 $ 43 15,612 14,647 $ 286,735 $ 19,576 $ 17,950 4,969 1,465 613 $ 10,903 Operating cash flow per calendar ship-day $ 14,347 $ 14,643 $ 14,509 Total Fleet (including ex-Bona O/B/Os and Australian crewed vessels): Operating cash flow per calendar ship-day $ 16,687 $ 5,177 $ 11,171 (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. 30 62253_Finacials 3/28/01 4:43 PM Page 31 teekay annual report 2000 Management’s Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources The Company’s total liquidity, including cash, restrict- ed cash, marketable securities and undrawn long-term lines of credit, was $373.1 million as at December 31, 2000, up from $237.4 million as at December 31, 1999, and $143.3 million as at March 31, 1999. The increase in liquidity during the year ended December 31, 2000 was primarily the result of an increase in net cash flow from operating activities due to higher TCE rates. In the Company’s opinion, working capital is sufficient for the Company’s present requirements. Net cash flow from operating activities increased to $333.3 million in the year ended December 31, 2000, compared to $51.5 million in the nine month period ended December 31, 1999, and $137.7 million in the year ended March 31, 1999. This primarily reflects the change in TCE rates during these periods. The Company applied most of this increased operat- ing cash flow, for the year ended December 31, 2000, toward the repayment of debt. Scheduled debt repayments were $63.8 million during the year ended December 31, 2000, compared to $32.3 million during the nine month period ended December 31, 1999, and $50.6 million in the year ended March 31, 1999. Debt prepayments during the year ended December 31, 2000 totalled $429.9 million, of which $35.7 million represented the repurchase of the Company’s 8.32% First Preferred Ship Mortgage Notes (the “8.32% Notes”) and the balance of $394.2 million was used to reduce the Company’s two long- term Revolving Credit Facilities. (the “Revolvers”). Debt prepayments during the nine months ended December 31, 1999 totalled $10.0 million. As at December 31, 2000, the Company’s total debt was $797.5 million, compared to $1,085.2 million as at December 31, 1999. The Company’s Revolvers pro- vide for borrowings of up to $565.8 million as at December 31, 2000. The amount available under the Revolvers reduces semi-annually with final balloon reductions in 2006 and 2008. The 8.32% Notes are due February 1, 2009 and are subject to a sinking fund, which will retire $45.0 million principal amount of the 8.32% Notes on each February 1, commencing 2004. The Company’s outstanding term loans reduce in quarterly or semi-annual payments with varying maturities through 2009. The aggregate long-term debt principal repayments annual required to be made subsequent to December 31, 2000 are $72.2 million (2001), $70.0 million (2002), $112.1 million (2003), $94.1 million (2004), $109.0 million (2005) and $340.1 million thereafter to 2009. Among other matters, the long-term debt agreements generally provide for such items as maintenance of certain vessel market value to loan ratios and mini- mum consolidated financial convenants, prepayment privileges (in some cases with penalties), and restric- tions against the incurrence of new investments by the individual subsidiaries without prior lender con- sent. The amount of Restricted Payments, as defined, that the Company can make, including dividends and purchases of its own capital stock, is limited as of December 31, 2000, to $316.6 million. Certain of the loan agreements require a minimum level of free cash be maintained. As at December 31, 2000, this amount was $26.0 million. The Company manages the impact of interest rate changes on earnings and cash flows through its 31 62253_Finacials 3/28/01 4:43 PM Page 32 F I N A N C I A L R E V I E W Management’s Discussion and Analysis of Financial Condition and Results of Operations interest rate structure. For the Revolvers, the interest rate structure is based on LIBOR plus a margin depending on the financial leverage of the Company. Interest payments on the term loans are based on LIBOR plus a margin. As at December 31, 2000, the interest rate swap agreements effectively change the Company’s interest rate exposure on $100.0 million of debt from a floating LIBOR rate to an average fixed rate of 6.71%. The interest rate swap agreements expire between December 2001 and December 2002. Funding and treasury activities are conducted with- in corporate policies to minimize borrowing costs and maximize investment returns while maintaining the safety of the funds and appropriate liquidity for Company purposes. Cash and cash equivalents are held primarily in U.S. dollars with some balances held in Japanese Yen, Singapore Dollars, Canadian Dollars, Australian Dollars, British Pound and Norwegian Kroner. The Company is exposed to market risk from foreign currency fluctuations and changes in interest rates. The Company uses forward foreign currency con- tracts and interest rate swaps to manage these risks, but does not use financial instruments for trading or speculative purposes. As at December 31, 2000, the Company had $62.1 million in forward foreign currency contracts, which expire between January 2001 and December 2003. Dividends declared during the year ended December 31, 2000 were $33.0 million, or $0.86 per share. During the year ended December 31, 2000, the Company incurred capital expenditures for vessels and equipment of $43.5 million, consisting mainly of the purchase of a modern second-hand Aframax tanker and the conversion of an Aframax tanker to a floating storage and off-take vessel (“FSO”). Cash expenditures for drydocking were $11.9 million in the year ended December 31, 2000 compared to $6.6 million in the nine month period ended December 31, 1999 and $11.7 million in the year ended March 31, 1999. As part of its growth strategy, the Company will con- tinue to consider strategic opportunities, including the acquisition of additional vessels and expansion into new markets. The Company may choose to pur- sue 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 gen- erated cash flow, existing credit lines, additional debt borrowings, and the issuance of additional shares of capital stock. 32 62253_Finacials 3/28/01 4:43 PM Page 33 teekay annual report 2000 Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements The Company’s Annual Report on Form 20-F for the year ended December 31, 2000 and this Annual Report to Shareholders for 2000 contain certain for- ward-looking statements (as such term is defined in Section 27A of the Securities Act of 1993, as amend- ed, and Sections 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 and the market out- look 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; and future success of the Company. Words such as “expects,” “intends,” “plans,” “believes,” “antici- pates,” “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 sub- ject 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 transporta- tion 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 pat- terns 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 mar- kets in which the Company operates; environmental and other regulation including the imposition of freight taxes and income taxes; the Company’s poten- tial 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; 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 for- ward-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. 33 62253_Finacials 3/28/01 4:43 PM Page 34 F I N A N C I A L R E V I E W Auditor’s 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, 2000 and 1999, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999. These financial statements are the responsibility of the Company’s management. Our respon- sibility 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 stan- dards require that we plan and perform the audit to obtain reasonable assurance about whether the financial state- ments are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teekay Shipping Corporation and subsidiaries as at December 31, 2000 and 1999, and the consoli- dated results of their operations and their cash flows for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999, in conformity with accounting principles generally accepted in the United States. Nassau, Bahamas, February 16, 2001 (except for Note 13 which is as of March 6, 2001) Chartered Accountants 34 62253_Finacials 3/28/01 4:43 PM Page 35 Consolidated Statements of Income (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 teekay annual report 2000 YEAR ENDED DECEMBER 31, 2000 NINE MONTHS ENDED DECEMBER 31, 1999 YEAR ENDED MARCH 31, 1999 $ 893,226 248,957 $ 377,882 129,532 $ 411,922 93,511 644,269 248,350 318,411 125,415 53,547 100,153 37,479 316,594 98,780 30,681 68,299 27,018 84,397 29,666 93,712 25,002 224,778 232,777 Income From Vessel Operations 327,675 23,572 85,634 Other Items Interest expense Interest income Other income (loss) (note 11) Net income (loss) before extraordinary loss Extraordinary loss on bond redemption (note 6) (74,540) 13,021 3,864 (57,655) 270,020 — (44,996) 5,842 (4,013) (43,167) (19,595) — (44,797) 6,369 5,506 (32,922) 52,712 (7,306) Net income (loss) $ 270,020 $ (19,595) $ 45,406 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) $ $ $ $ 7.02 7.02 6.86 6.86 $ $ $ $ (0.54) (0.54) (0.54) (0.54) $ $ $ $ 1.70 1.46 1.70 1.46 The accompanying notes are an integral part of the consolidated financial statements. 35 62253_Finacials 3/28/01 4:43 PM Page 36 F I N A N C I A L R E V I E W 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 current assets Total current assets Marketable securities (note 4) Vessels and equipment (notes 1 and 6) At cost, less accumulated depreciation of $680,756 (December 31, 1999 – $624,727) 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 Accumulated other comprehensive income Total stockholders’ equity AS AT DECEMBER 31, 2000 AS AT DECEMBER 31, 1999 $ 181,300 8,081 80,158 25,956 295,495 33,742 $ 220,327 — 30,753 29,579 280,659 6,054 1,607,716 20,474 16,672 1,663,517 19,402 13,052 $1,974,099 $1,982,684 $ 22,084 44,081 72,170 138,335 725,314 7,368 871,017 4,570 452,808 641,149 4,555 1,098,512 $ 20,431 39,515 66,557 126,503 1,018,610 3,400 1,148,513 2,104 427,937 404,130 — 832,067 $1,974,099 $1,982,684 Commitments and contingencies (notes 7 and 10) The accompanying notes are an integral part of the consolidated financial statements. 36 62253_Finacials 3/28/01 4:43 PM Page 37 teekay annual report 2000 Consolidated Statements of Cash Flows (in thousands of U.S. dollars) Cash and cash equivalents provided by (used for) OPERATING ACTIVITIES Net income (loss) Non-cash items: Depreciation and amortization Loss (gain) on disposition of assets Loss on bond redemption Equity income (net of dividends received: December 31, 2000 - $8,474; December 31, 1999 - $Nil) Future income taxes Other – net Change in non-cash working capital items related to operating activities (note 12) Net cash flow from operating activities 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 Other Net cash flow from financing activities 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) Proceeds on sale of available-for-sale securities Purchases of available-for-sale securities Net cash flow from investing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of the period YEAR ENDED DECEMBER 31, 2000 NINE MONTHS ENDED DECEMBER 31, 1999 YEAR ENDED MARCH 31, 1999 $ 270,020 $ (19,595) $ 45,406 100,153 1,004 — (1,072) 999 (1,173) (36,676) 333,255 206,000 (63,757) (429,926) 24,843 (32,973) 2,970 (292,843) (43,512) (11,941) 9,713 68,299 — — (721) 1,500 1,134 896 51,513 100,000 (32,252) (10,000) — (23,150) — 34,598 (23,313) (6,598) — 93,712 (7,117) 7,306 — 1,900 1,218 (4,717) 137,708 230,000 (50,577) (268,034) 68,751 (26,222) (690) (46,772) (85,445) (11,749) 23,435 — 51,774 — (2,685) — (31,014) (79,439) (39,027) 220,327 (13,806) 13,724 (6,000) 15,781 101,892 118,435 — 13,305 — (60,454) 30,482 87,953 Cash and cash equivalents, end of the period $ 181,300 $ 220,327 $ 118,435 The accompanying notes are an integral part of the consolidated financial statements. 37 62253_Finacials 3/28/01 4:43 PM Page 38 F I N A N C I A L R E V I E W Consolidated Statements of Changes in Stockholders’ Equity (in thousands of U.S. dollars) THOUSANDS OF COMMON SHARES COMMON STOCK RETAINED EARNINGS ACCUMULATED OTHER COMPRE- HENSIVE INCOME COMPRE- HENSIVE INCOME (LOSS) TOTAL STOCK- HOLDERS’ EQUITY Balance as at March 31, 1998 Net income Other comprehensive income Comprehensive income Dividends declared June 15, 1998 share offering (2,800,000 shares at $24.7275 per share of common stock net of share issue costs) (note 9) Reinvested dividends Exercise of stock options Balance as at March 31, 1999 Net income (loss) Other comprehensive income Comprehensive income (loss) Dividends declared June 11, 1999 common stock issued on acquisition of Bona Shipholding Ltd. (note 3) Reinvested dividends Balance as at December 31, 1999 Net income Other comprehensive income: Unrealized gain on available for-sale securities (note 4) Comprehensive income Dividends declared Reinvested dividends Exercise of stock options Balance as at December 31, 2000 28,833 $261,353 $428,102 45,406 $ — $ 689,455 45,406 45,406 — 45,406 (26,611) (26,611) 68,700 389 51 777,390 (19,595) 446,897 (19,595) — (19,595) — (19,595) (23,172) (23,172) 2,800 13 2 68,700 389 51 31,648 330,493 6,415 1 97,422 22 97,422 22 832,067 270,020 38,064 427,937 404,130 270,020 — 270,020 4,555 4,555 4,555 274,575 (33,001) 1 1,080 28 24,843 (33,001) 28 24,843 39,145 $452,808 $641,149 $ 4,555 $1,098,512 The accompanying notes are an integral part of the consolidated financial statements. 38 62253_Finacials 3/28/01 4:44 PM Page 39 teekay annual report 2000 Notes to the Consolidated Financial Statements (all tabular amounts stated in thousands of U.S. dollars, other than share or per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. They include the accounts of Teekay Shipping Corporation (“Teekay”), which is incorporated under the laws of the Republic of the Marshall Islands, and its wholly owned or controlled subsidiaries (the “Company”). Significant intercompany items and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain of the comparative figures have been reclassified to conform with the presentation adopted in the current period. Reporting currency The consolidated financial statements are stated in U.S. dollars because the Company operates in international shipping markets which utilize the U.S. dollar as the functional currency. Change in fiscal year end The Company changed its fiscal year end from March 31 to December 31, effective December 31, 1999. The following is a summary of selected financial information for the comparative twelve month periods ended December 31, 2000, 1999 and 1998. 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 – diluted Net income (loss) per common share – basic – diluted CASH FLOWS Net cash flow from operating activities Net cash flow from financing activities Net cash flow from investing activities TWELVE MONTHS ENDED DECEMBER 31, 2000 TWELVE MONTHS ENDED DECEMBER 31, 1999 TWELVE MONTHS ENDED DECEMBER 31, 1998 (AUDITED) (UNAUDITED) (UNAUDITED) $ 644,269 327,675 270,020 270,020 $ 318,348 34,189 (17,723) (17,723) $ 327,016 103,660 66,451 59,145 7.02 6.86 7.02 6.86 (0.50) (0.50) (0.50) (0.50) 2.19 2.19 1.95 1.95 333,255 (292,843) $ (79,439) 71,633 76,948 5,613 $ 151,779 (74,407) $ (127,372) Operating revenues and expenses Voyage revenues and expenses are recognized on the percentage of completion method of accounting. Effective December 31, 1999 the Company refined its estimation process from a load-to-load basis to a dis- charge-to-discharge basis under the percentage of completion method to more precisely reflect net voyage revenues. This refinement in accounting estimate resulted in a one-time increase in net voyage revenues of $5.7 million, or 16 cents per share, for the nine month period ended December 31, 1999. Estimated losses on voyages are provided for in full at the time such losses become evident. The consolidated balance sheets reflect the deferred portion of revenues and expenses applicable to subsequent periods. Voyage expenses comprise all expenses relating to particular voyages, including bunker fuel expenses, port fees, canal tolls, and brokerage commissions. Vessel operating expenses comprise all expenses relating to the operation of vessels, including crewing, repairs and maintenance, insurance, stores, lubes, communications, and miscellaneous expenses. 39 62253_Finacials 3/28/01 4:44 PM Page 40 F I N A N C I A L R E V I E W 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 component of other comprehensive income. Vessels and equipment All pre-delivery costs incurred during the construction of newbuildings, including interest costs and supervision and technical costs, are capitalized. The acquisition cost and all costs incurred to restore used vessel purchases to the standard required to properly service the Company’s customers are capitalized. Depreciation is calculated on a straight- line basis over a vessel’s useful life from the date a vessel is initially placed in service. Effective April 1, 1999, the Company revised the estimated useful life of its vessels from 20 years to 25 years, consistent with most other public tanker companies. This change in accounting estimate resulted in a reduction of depreciation expense of $22.5 million, or 62 cents per share, for the nine month period ended December 31, 1999. Interest costs capitalized to vessels and equipment for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999 aggregated $Nil, $1,710,000, and $3,018,000, respectively. Expenditures incurred during drydocking are capitalized and amortized on a straight-line basis over the period until the next anticipated drydocking. When significant drydocking expenditures recur prior to the expiry of this period, the remaining balance of the original drydocking is expensed in the month of the subsequent drydocking. Drydocking expenses amortized for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999 aggregated $9,208,000, $6,275,000, and $8,583,000, respectively. Investment in joint venture The Company has a 50% participating interest in the joint venture (Soponata-Teekay Limited), which owns two Suezmax vessels and one Aframax vessel. The joint venture is accounted for using the equity method where- by the investment is carried at the Company’s original cost plus its proportionate share of undistributed earnings. Investment in the Panamax O/B/O Pool All oil/bulk/ore carriers (“O/B/O”) owned by the Company are operated through a Panamax O/B/O Pool. The participants in the Pool are the companies contributing vessel capacity to the Pool. The voyage revenues and expenses of these vessels have been included on a 100% basis in the consolidated financial statements. The minority pool participants’ share of the result has been deducted as time charter hire expense. Loan costs Loan costs, including fees, commissions and legal expenses, which are presented as other assets are capital- ized and amortized on a straight line basis over the term of the relevant loan. Amortization of loan costs is included in interest expense. Interest rate swap agreements The differential to be paid or received, pursuant to interest rate swap agreements, is accrued as interest rates change and is recognized as an adjustment to interest expense. Premiums and receipts, if any, are recognized as adjustments to interest expense over the lives of the individual contracts. Forward contracts The Company enters into forward contracts as a hedge against changes in certain foreign exchange rates. Market value gains and losses are deferred and recognized during the period in which the hedged transaction is recorded in the accounts. Cash and cash equivalents The Company classifies all highly liquid investments with a maturity date of three months or less when purchased as cash and cash equivalents. Cash interest paid during the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999 totaled $77,073,000, $63,086,000, and $48,527,000, respectively. Income taxes The legal jurisdictions of the countries in which Teekay and the majority of its subsidiaries are incorporated do not impose income taxes upon shipping-related activities. The Company’s Australian ship-owning subsidiaries are subject to income taxes (see Note 11). The Company accounts for such taxes using the liability method pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”. 40 62253_Finacials 3/28/01 4:44 PM Page 41 teekay annual report 2000 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) 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). 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 consoli- dated financial statements. Recent accounting pronouncements In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”, which establishes new standards for recording derivatives in interim and annual financial statements. This statement requires recording all derivative instruments as assets or liabilities, measured at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending upon the nature of the hedge, changes in the fair value of the derivatives are either offset against the fair value of assets, liabilities or firm commitments through income, or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of a derivative’s change in fair value will be immediately recognized in income. Statement No. 133, as amended by FASB Statements No. 137 and No. 138, is effective for fiscal years beginning after June 15, 2000. Based upon the Company’s derivative position at December 31, 2000, the Company estimates that upon adoption of Statement 133 it will recognize the fair value of all derivatives as assets of $2,252,000 and liabilities of $1,297,000 on its consolidated balance sheet. These amounts will be recorded as an adjustment to stockholders’ equity through other compre- hensive income. There was no impact on net income. In addition, a deferred gain of $3,200,000 on the unwound interest rate swap agreements presented as other long-term liabilities at December 31, 2000, will be reclassified to accumulated other comprehensive income and will be recognized into earnings over the hedged term of the debt. 2. BUSINESS OPERATIONS The Company is engaged in the ocean transportation of petroleum cargoes worldwide through the ownership and operation of a fleet of tankers. All of the Company’s revenues are earned in international markets. Two customers, both international oil companies, individually accounted for 13% ($118,306,000) and 12% ($110,241,000) of the company’s consolidated voyage revenues during the year ended December 31, 2000. During the nine months ended December 31, 1999 a single customer, also an international oil company, accounted for 13% ($48,140,000), of the Company’s consolidated voyage revenues. During the year ended March 31, 1999, three customers, all international oil companies, indi- vidually accounted for 12% ($51,411,000), 12% ($50,727,000) and 10% ($42,797,000), respectively, of the Company’s consolidated voyage revenues. No other customer accounted for more than 10% of the Company’s consolidated voyage revenues during the fiscal periods presented herein. 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. 41 62253_Finacials 3/28/01 4:44 PM Page 42 F I N A N C I A L R E V I E W 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 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 4. INVESTMENTS IN MARKETABLE SECURITIES 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 December 31, 2000 Available-for-sale equity securities Available-for-sale debt securities December 31, 1999 Available-for-sale debt securities COST $ 17,032 20,236 37,268 GROSS UNREALIZED GAINS GROSS UNREALIZED LOSSES APPROXIMATE MARKET AND CARRYING VALUES $ 4,577 8 4,585 $ – (30) (30) $ 21,609 20,214 41,823 $ 6,051 $ 6 $ (3) $ 6,054 The cost and approximate market value of available-for-sale debt securities by contractual maturity, as at December 31, 2000 and December 31, 1999, are shown as follows: December 31, 2000 Less than one year Due after one year through five years December 31, 1999 Less than one year Due after one year through five years COST 8,081 12,155 20,236 – 6,051 6,051 $ $ APPROXIMATE MARKET AND CARRYING VALUES $ $ 8,081 12,133 20,214 – 6,054 6,054 42 62253_Finacials 3/28/01 4:44 PM Page 43 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) 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 teekay annual report 2000 DECEMBER 31, 2000 DECEMBER 31, 1999 $ $ 26,461 9,444 8,176 44,081 $ $ 12,469 12,619 14,427 39,515 DECEMBER 31, 2000 DECEMBER 31, 1999 $ 415,800 $ 634,000 189,274 192,410 797,484 72,170 225,000 226,167 1,085,167 66,557 $ 725,314 $ 1,018,610 The Company has two long-term Revolving Credit Facilities (the “Revolvers”) available, which, as at December 31, 2000, provided for borrowings of up to $565.8 million. Interest payments are based on LIBOR (December 31, 2000: 6.4%; December 31, 1999: 6.0%) plus a margin depending on the financial leverage of the Company; at December 31, 2000, the margins ranged between 0.50% and 0.85% (December 31, 1999: between 0.60% and 0.90%). The amount available under the Revolvers reduces semi-annually with final balloon reductions in 2006 and 2008. The Revolvers are collateralized by first priority mortgages granted on thirty-four of the Company’s vessels, together with certain other related collateral, and a guarantee from the Company for all amounts outstanding under the Revolvers. The 8.32% First Preferred Ship Mortgage Notes due February 1, 2008 (the “8.32% Notes”) are collateralized by first preferred mortgages on seven of the Company’s Aframax tankers, together with certain other related collateral, and are guaranteed by seven subsidiaries of Teekay that own the mortgaged vessels (the “8.32% Notes Guarantor Subsidiaries”) to a maximum of 95% of the fair value of their net assets. As at December 31, 2000, the fair value of these net assets approximated $231.5 million. The 8.32% Notes are also subject to a sinking fund, which will retire $45.0 million principal amount of the 8.32% Notes on each February 1, commencing 2004. During June 2000, the Company repurchased a principal amount of $35.7 million of the 8.32% Notes outstanding. Upon the 8.32% Notes achieving Investment Grade Status (as defined in the Indenture) and subject to certain other conditions, the guarantees of the 8.32% Notes Guarantor Subsidiaries will terminate, all of the collateral securing the obliga- tions of the Company and the 8.32% Notes Guarantor Subsidiaries under the Indenture and the Security Documents (as defined in the Indenture) will be released (whereupon the Notes will become general unsecured obligations of the Company) and certain covenants under the Indenture will no longer be applicable to the Company. In August 1998, the Company redeemed the remaining $98.7 million of the 9 5/8% First Preferred Ship Mortgage Notes (the “9 5/8% Notes”) which resulted in an extraordinary loss of $7.3 million, or 24 cents per share, for the year ended March 31, 1999. The Company has several term loans outstanding, which, as at December 31, 2000, totalled $192.4 million. Interest payments are based on LIBOR plus a margin. At December 31, 2000, the margins ranged between 0.55% and 1.25%. The term loans reduce in quarterly or semi-annual payments with varying maturities through 2009. All term loans of the Company are collateralized by first preferred mortgages on the vessels to which the loans relate, together with certain other collateral, and guarantees from Teekay. 43 62253_Finacials 3/28/01 4:44 PM Page 44 F I N A N C I A L R E V I E W 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) As at December 31, 2000, the Company was committed to a series of interest rate swap agreements whereby $100.0 million of the Company’s floating rate debt was swapped with fixed rate obligations having an average remaining term of 1.5 years, expiring between December 2001 and December 2002. These arrangements effectively change the Company’s interest rate expo- sure on $100.0 million of debt from a floating LIBOR rate to an average fixed rate of 6.71%. The Company is exposed to credit loss in the event of non-performance by the counter parties to the interest rate swap agreements; however, the Company does not anticipate non-performance by any of the counter parties. Among other matters, the long-term debt agreements generally provide for such items as maintenance of certain vessel market value to loan ratios and minimum consolidated financial covenants, prepayment privileges (in some cases with penal- ties), and restrictions against the incurrence of additional debt and new investments by the individual subsidiaries without prior lender consent. The amount of Restricted Payments, as defined, that the Company can make, including dividends and purchases of its own capital stock, is limited as of December 31, 2000, to $316.6 million. Certain of the loan agreements require a minimum level of free cash be maintained. As at December 31, 2000, this amount was $26.0 million. The aggregate annual long-term debt principal repayments required to be made for the five fiscal years subsequent to December 31, 2000 are $72,170,000 (2001), $70,017,000 (2002), $112,131,000 (2003), $94,052,000 (2004), and $109,025,000 (2005). 7. LEASES Charters-out Time charters to third parties of the Company’s vessels are accounted for as operating leases. The minimum future revenues to be received on time charters currently in place are $82,791,000 (2001), $71,993,000 (2002), $53,199,000 (2003), $42,634,000 (2004), $39,035,000 (2005), and $93,028,000 thereafter. The minimum future revenues should not be construed to reflect total charter hire revenues for any of the years. Charters-in Minimum commitments under vessel operating leases are $32,576,000 (2001), $15,632,000 (2002), $11,755,000 (2003), $6,771,000 (2004) and $1,665,000 (2005). 8. FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amounts of all financial instruments approximate fair market value except for the following: Long-term debt — The fair values of the Company’s fixed rate long-term debt are based on either quoted market prices or estimated using discounted cash flow analyses, based on rates currently available for debt with similar terms and remaining maturities. Interest rate swap agreements and foreign exchange contracts — The fair value of interest rate swaps and foreign exchange contracts, used for hedging purposes, is the estimated amount that the Company would receive or pay to terminate the agree- ments 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: Cash, cash equivalents and marketable securities Long-term debt Interest rate swap agreements (note 6) Foreign currency contracts (note 10) DECEMBER 31, 2000 DECEMBER 31, 1999 CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE $ 223,123 797,484 – – $ 223,123 789,913 (1,297) 2,252 $ 226,381 1,085,167 – – $ 226,381 1,060,417 4,488 (20) The Company transacts interest rate swap and foreign currency contracts with investment grade rated financial institutions and requires no collateral from these institutions. 44 62253_Finacials 3/28/01 4:44 PM Page 45 teekay annual report 2000 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) 9. CAPITAL STOCK The authorized capital stock of the Company at December 31, 2000 is 25,000,000 shares of Preferred Stock with a par value of $1 per share and 725,000,000 shares of Common Stock with a par value of $0.001 per share. At December 31, 2000 the Company had 39,145,219 shares of Common Stock and no shares of Preferred Stock issued and outstanding. The Company’s shareholders approved amendments to the Company’s 1995 Stock Option Plan (the “Plan”) to increase the number of shares of Common Stock reserved and available for future grants of options under the Plan by an additional 1,800,000 shares in September 1998, and 2,350,000 shares in March 2000. As of December 31, 2000, the Company had reserved 4,911,622 shares of Common Stock for issuance upon exercise of options granted pursuant to the Plan. During the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999, the Company granted options under the Plan to acquire up to 889,500, 1,463,500, and 573,000 shares of Common Stock (the “Grants”), respectively, to cer- tain eligible officers, employees (including senior sea staff ), and directors of the Company. The options have a 10-year term and had initially vested equally over four years from the date of grant. Effective September 8, 2000, the Company amended the Plan which reduced the vesting period for all subsequent stock option grants from four years to three years. In addition, the Company also accelerated the vesting period for the existing grants by one year. The impact of the accelerated vesting for the existing grants on compensation expense was not material for the year ended December 31, 2000. A summary of the Company’s stock option activity, and related information for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999 is as follows: Outstanding-beginning of period Granted Exercised Forfeited Outstanding-end of period Exercisable at end of period Weighted-average fair value of options granted during the period (per option) DECEMBER 31, 2000 DECEMBER 31, 1999 MARCH 31, 1999 OPTIONS (000’s) 3,099 889 (1,080) (48) 2,860 1,453 WEIGHTED- AVERAGE EXERCISE PRICE $22.14 23.56 23.00 22.77 22.25 23.54 $ 6.62 OPTIONS (000’s) 1,729 1,464 – (94) 3,099 1,019 WEIGHTED- AVERAGE EXERCISE PRICE $26.46 17.11 – 21.12 22.14 25.35 $ 3.88 OPTIONS (000’s) 1,161 573 (2) (3) 1,729 731 WEIGHTED- AVERAGE EXERCISE PRICE $26.66 26.05 21.50 30.44 26.46 24.08 $ 5.93 Exercise prices for the options outstanding as of December 31, 2000 ranged from $16.88 to $33.50. These options have a weighted-average remaining contractual life of 7.83 years. As the exercise price of the Company’s employee stock options equals the market price of underlying stock on the date of grant, no compensation expense is recognized under APB 25. 45 62253_Finacials 3/28/01 4:44 PM Page 46 F I N A N C I A L R E V I E W 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) Had the Company recognized compensation costs for the Grants consistent with the methods recommended by SFAS 123 (see Note 1 – Accounting for Stock-Based Compensation), the Company’s net income and earnings per share for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999 would have been stated at the pro forma amounts as follows: Net income (loss): As reported Pro forma Basic earnings (loss) per common share: As reported Pro forma Diluted earnings (loss) per common share: As reported Pro forma YEAR ENDED DECEMBER 31, 2000 NINE MONTHS ENDED DECEMBER 31, 1999 YEAR ENDED MARCH 31, 1999 $270,020 $264,449 $ $ $ $ 7.02 6.87 6.86 6.72 $ (19,595) $ (21,828) $ $ $ $ (0.54) (0.60) (0.54) (0.60) $ 45,406 $ 43,715 $ $ $ $ 1.46 1.41 1.46 1.41 Basic earnings per share is based upon the following weighted average number of common shares outstanding: 38,468,158 shares for the year ended December 31, 2000; 36,384,191 shares for the nine month period ended December 31, 1999; and 31,063,357 shares for the year ended March 31, 1999. Diluted earnings per share, which gives effect to the aforementioned stock options, is based upon the following weighted average number of common shares outstanding: 39,368,253 shares for the year ended December 31, 2000; 36,405,089 shares for the nine month period ended December 31, 1999; and 31,063,357 shares for the year ended March 31, 1999. The fair values of the Grants were estimated on the dates of grant using the Black-Scholes option-pricing model with the following assumptions: risk-free average interest rates of 6.6% for the year ended December 31, 2000; 5.8% for the nine month period ended December 31, 1999; and 5.4% for the year ended March 31, 1999, respectively; dividend yield of 3.0%; expected volatility of 30% for the year ended December 31, 2000 and 25% for the nine months ended December 31, 1999 and the year ended March 31, 1999; and expected lives of 5 years. 10. COMMITMENTS AND CONTINGENCIES The Company has guaranteed 50% of the outstanding mortgage debt in the joint venture company, Soponata-Teekay Limited, totalling $26.2 million as at December 31, 2000. The Company has guaranteed its share of committed, uncalled capital in certain limited partnerships totalling $1.8 million as at December 31, 2000. As at December 31, 2000, the Company was committed to foreign exchange contracts with maturities ranging from one month to three years for the forward purchase of approximately Japanese Yen 62.0 million, Singapore Dollars 13.9 million, Norwegian Kroner 132.0 million, Euros 5.9 million and Canadian Dollars 52.8 million for U.S. Dollars, at an average rate of Japanese Yen 111.72 per U.S. Dollar, Singapore Dollar 1.72 per U.S. dollar, Norwegian Kroner 9.54 per U.S. Dollar, Euros 1.09 per U.S. Dollar and Canadian Dollars 1.54 per U.S. dollar, respectively, for the purpose of hedging accounts payable, accrued liabilities and certain general and administrative and operating expenses. 46 62253_Finacials 3/28/01 4:44 PM Page 47 teekay annual report 2000 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) 11. OTHER INCOME (LOSS) Gain (loss) on disposition of assets Equity income from joint venture Future income taxes Miscellaneous YEAR ENDED DECEMBER 31, 2000 $ (1,004) 9,546 (999) (3,679) NINE MONTHS ENDED DECEMBER 31, 1999 $ – 721 (1,500) (3,234) YEAR ENDED MARCH 31, 1999 $ 7,117 – (1,900) 289 $ 3,864 $ (4,013) $ 5,506 12. CHANGE IN NON-CASH WORKING CAPITAL ITEMS RELATED TO OPERATING ACTIVITIES Accounts receivable Prepaid expenses and other assets Accounts payable Accrued liabilities YEAR ENDED DECEMBER 31, 2000 $ (49,405) 3,443 2,613 6,673 $ (36,676) NINE MONTHS ENDED DECEMBER 31, 1999 $ (5,462) 307 (6,571) 12,622 $ 896 YEAR ENDED MARCH 31, 1999 $ 1,332 (2,409) (4,238) 598 $ (4,717) 13. SUBSEQUENT EVENT As of March 6, 2001, the Company had purchased a 56% interest in Ugland Nordic Shipping ASA (UNS), (9% of which was purchased in 2000), for approximately $117 million cash, or an average price of approximately NOK 134 per share. UNS controls a modern fleet of eighteen shuttle tankers (including four newbuildings) that engage in the transportation of oil from offshore production platforms to refineries. Shares of UNS are listed on the Oslo Stock Exchange. The Company will promptly launch a mandatory bid for the remaining shares in UNS at NOK 140 per share (for a total cost of approximately $100 million) as required by Norwegian law. The acquisition of UNS will be accounted for using the purchase method of accounting as required by accounting principles generally accepted in the United States. 47 62253_Finacials 3/28/01 4:44 PM Page 48 F I N A N C I A L R E V I E W Five Year Summary of Financial Information (U.S. dollars in thousands, except per share and per day data and ratios) FISCAL YEAR ENDED DECEMBER 31, 2000 NINE MONTHS ENDED DECEMBER 31, 1999 FISCAL YEAR ENDED MARCH 31, 1999 1998 1997 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) $ 644,269 $ 248,350 $ 318,411 $ 305,260 $ 280,212 $ 327,675 23,572 85,634 107,640 94,258 $ 270,020 (19,595) 52,712 70,504 42,630 $ – $ 270,020 – (19,595) (7,306) 45,406 – 70,504 – 42,630 $ 7.02 $ (0.54) $ 1.46 $ 2.46 $ 1.52 38,468 36,384 31,063 28,655 28,138 Balance Sheet Data (at end of period): Total assets $1,974,099 $1,982,684 $1,452,220 $1,460,183 $1,372,838 Total stockholders’ equity 1,098,512 832,067 777,390 689,455 629,815 Other Financial Data: EBITDA $ 449,191 $ 89,839 $ 186,069 $ 209,582 $ 191,632 Net debt to capitalization (%) 34.3 50.8 39.6 46.9 48.0 Capital expenditures: Vessel purchases, gross Drydocking Fleet Data: $ 43,562 $ 452,584 $ 85,445 $ 197,199 $ 65,104 11,997 4,971 7,213 12,409 23,124 Average number of ships 71 65 47 43 41 Time-charter equivalent (TCE) $ 27,138 $ 13,462 $ 19,576 $ 21,373 $ 20,356 Total operating cash flow per ship per day 16,687 5,177 11,171 12,682 11,819 48 62253_Finacials 3/28/01 4:44 PM Page 49 B O A R D O F D I R E C T O R S Board of Directors Pictured Left to Right: Thomas Kuo-Yuen Hsu Director, Executive Director of Expedo & Company (London) Ltd. Dr. Ian D. Blackburne Director, Director of CSR Limited, Suncorp-Metway Ltd. and Airservices Australia Bjorn Moller Director, President and CEO Eileen A. Mercier Director, President of Finvoy Management Inc. Axel Karlshoej Director and Chairman Emeritus, President of Nordic Industries Inc. Leif O. Höegh Director, Managing Director of Leif Höegh (UK) Ltd. Morris L. Feder Director, President of Worldwide Cargo Inc. Bruce C. Bell Director and Corporate Secretary, Managing Director of Oceanic Bank and Trust Limited C. Sean Day Chairman of the Board of Directors, President of Seagin International, LLC TEEKAY BOARD COMMITTEES Audit Committee Executive Committee Governance Committee Resource Committee Eileen A. Mercier – Chair Morris L. Feder Leif O. Höegh Bjorn Moller – Chair Axel Karlshoej Morris L. Feder C. Sean Day C. Sean Day – Chair Bjorn Moller Bruce C. Bell Eileen A. Mercier Axel Karlshoej – Chair Thomas Kuo-Yuen Hsu Dr. Ian D. Blackburne 49 62253_Finacials 3/28/01 4:44 PM Page 50 C O R P O R A T E I N F O R M A T I O N Teekay Shipping Corporation TK House Bayside Executive Park West Bay Street & Blake Road P.O. Box AP-59213 Nassau, The Bahamas O F F I C E S 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 (20) 7408 1555 Fax: +44 (20) 7408 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 1-800-524-4458 Tel: 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 twelve months ending December 31, 2000: QUARTER ENDED HIGH LOW DIVIDENDS DECLARED (PER SHARE) Mar. 31, 2000 $27.56 $15.31 $0.215 Jun. 30, 2000, $34.25 $24.00 $0.215 Sept. 30, 2000 $50.88 $32.50 $0.215 Dec. 31, 2000, $47.50 $31.74 $0.215 STOCK EXCHANGE LISTING New York Stock Exchange Symbol: TK There were 39.1 million shares outstanding at December 31, 2000. INVESTOR RELATIONS A copy of the Company’s Annual Report on Form 20-F is available by writing or calling to: Teekay Shipping (Canada) Ltd., Investor Relations 1400, One Bentall Centre 505 Burrard Street Vancouver, B.C. Canada V7X 1M5 Tel: +1 (604) 844 6654 Fax: +1 (604) 844 6619 Email: investor.relations@teekay.com Web site: www.teekay.com 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. 6th Floor, Seaboard Center Esteban corner Dela Rosa Streets Legaspi village, Makati City 1226 Philippines Tel: +63 (2) 813 2225 Fax: +63 (2) 813 2131 Teekay Shipping (India) Pvt. Ltd. 135 Mittal Tower ‘C’ Wing Madame Cama Road Nariman Point Mumbai, India 400 021 Tel: +91 (22) 232 4730 Fax: +91 (22) 232 4734 Teekay Shipping (Norway) AS Langkaia 1 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 TK House Bayside Executive Park West Bay Street & Blake Road P.O. Box AP-59213 Nassau, The Bahamas Tel: +1 (242) 502 8820 Fax: +1 (242) 502 8840 50 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) Year Ended December 31, 2000 9 Months Ended December 31, 1999* Year Ended March 31, 1999 Income Statement Data Net voyage revenues Net income (loss) Balance Sheet Data Total assets Total stockholders’ equity Per Share Data $ 644,269 $ 248,350 $ 318,411 270,020 (19,595) 45,406 1,974,099 1,098,512 1,982,684 1,452,220 832,067 777,390 Fully diluted earnings (loss) per share 6.86 (0.54) 1.46 Weighted average shares outstanding (thousands) 38,468 36,384 31,063 Other Financial Data EBITDA Net debt to capitalization (%) Capital expenditures: Vessel purchases, gross Drydocking Operating cash flow per ship per day 449,191 34.3 43,562 11,997 16,687 89,839 50.8 186,069 39.6 452,584 4,971 5,177 85,445 7,213 11,171 *Teekay changed its fiscal year-end from March 31 to December 31, effective December 31, 1999 C O N T E N T S Financial Highlights Chairman’s Message to Shareholders President’s Report to Shareholders 1 4 6 Market Review 10 Teekay Snapshot Voyage Profile Fleet Profile 16 20 Financial Review Board of Directors Corporate Information 22 24 49 50 s n o i t a c i n u m m o C c i g e t a r t S C D D C : n g i s e D (cid:1) (cid:2) (cid:2) (cid:3) (cid:4) (cid:5) (cid:6) (cid:7) (cid:8) (cid:9) (cid:10) (cid:11) (cid:11) (cid:4) (cid:12) (cid:13) (cid:12) (cid:14) (cid:15) (cid:11) (cid:11) (cid:15) (cid:14) (cid:16) (cid:17) (cid:2) (cid:11) (cid:18) (cid:19) (cid:11) (cid:11) (cid:18) (cid:20) (cid:21) (cid:9) (cid:11) (cid:2) Va n c o u v e r H o u s t o n Na s s a u L o n d o n G l a s g o w O s l o R i g a Mu m b a i S i n g a p o r e M a n i l a To k y o S y d n e y www.teekay.com C o r p o r a t i o n 2 0 0 0 a n n u a l r e p o r t T e e k a y i S h p p n g i Teekay is here Teekay Shipping Corporation Teekay Shipping Corporation 2000 annual report (cid:1) (cid:2) (cid:2) (cid:3) (cid:4) (cid:5) (cid:6) (cid:7) (cid:8) (cid:9) (cid:10) (cid:11) (cid:11) (cid:4) (cid:12) (cid:15) (cid:17) (cid:12) (cid:14) (cid:15) (cid:11) (cid:11) (cid:15) (cid:2) (cid:16) (cid:14) (cid:15) (cid:11) (cid:18) (cid:19) (cid:11) (cid:11) (cid:18) (cid:20) (cid:21) (cid:9) (cid:11) (cid:15)