In our view Teekay Shipping Corporation 2001 Annual Report
Financial Highlights
(In thousands of U.S. dollars, except per share and per
day data, or as otherwise indicated.)
Year Ended
December 31,
2001
Year Ended
December 31,
2000
Income Statement Data
Net voyage revenues
Net income
Balance Sheet Data
Total assets
Total stockholders’ equity
Per Share Data
$ 789,494
$ 644,269
336,518
270,020
$2,467,781
$1,974,099
1,398,200
1,098,512
Fully diluted earnings per share
$ 8.31
$
6.86
Weighted average shares outstanding
-diluted (thousands)
Other Financial Data
40,488
39,368
EBITDA
$ 539,324
$ 451,066
Net debt to capitalization (%)
34.3
34.3
Capital expenditures:
Vessel purchases, gross*
Drydocking
Total fleet operating cash
flow per ship per day
*Includes assets from acquisitions.
544,737
20,064
43,512
11,941
17,682
16,687
Teekay’s common stock is listed on the New York Stock Exchange where it trades under the symbol “TK”.
Contents:
Chairman’s Message
CEO’s Report
Market Review
10
12
15
Fleet Profile
Financial Review
Corporate Information
Board of Directors
18
20
41
41
Some see a commodity.
We see a
brand.
In an industry of often nameless shipowners and
undifferentiated service providers, Teekay Shipping
Corporation is a recognized symbol of quality. As
the leading provider of international crude oil and
petroleum product transportation services through
the world’s largest fleet of medium-sized oil tankers,
Teekay is dedicated to providing our customers with
exceptional service around the world. Our name is
their guarantee.
Some see people, ships and offices.
We see a
ne t wo r k .
Accessibility for customers is key. A cohesive service approach is our style. With 4,100
employees, 95 ships and 15 offices connected around the world, we are truly a customer-
centric organization. Teekay’s capabilities reach far and wide, with 30 chartering and
business development specialists available 24 hours a day, in Houston, London, Oslo,
Singapore, Sydney, Tokyo and Vancouver. The Teekay franchise is supported by a single
well-established network. A constant sharing of information allows us to maintain Teekay’s
standards in every region while still being responsive and flexible. In 2001, we used both
technology and traditional means to bring us closer to our customers. We continued to focus
on building an information technology infrastructure on our ships and ashore and opened
the doors to two new Teekay offices – in Perth and Melbourne, Australia.
2
"Teekay teams work all around the world. Our successful
organizational model has increased our ability to provide
fast, seamless customer service."
Some see a downturn.
We see a managed
cycle.
In an industry influenced by the tides of supply and demand, a strong balance sheet and
astute cycle management are critical to a tanker company’s success. We have used market
downturns to build our fleet and position ourselves for the eventual upswing. We are in the
strongest financial position in the history of the company and through recent transactions
have further stabilized our foundation to withstand periods of low tanker rates.Take, for
instance, the acquisition of Ugland Nordic Shipping in 2001 and the long-term time charter
contract with Tosco Corporation (now Phillips Petroleum Company) for five new vessels.
These two transactions alone are estimated to generate annual revenues of approximately
US $180 million, at fixed rates which are not subject to the swings of the spot tanker
market. Teekay has a strong global operation with excellent cash flow and liquidity,
enabling us to immediately respond to opportunities as they arise.
4
"Teekay is well prepared. With a uniform fleet and
the strongest balance sheet in the industry, we are in
a position to consider all new opportunities and apply
a disciplined approach to growth.”
Some see regulatory compliance.
We see a
commitment.
Viewing regulations as restrictions would limit our potential. We have always demonstrated
a ‘best practices’ approach to environmental and personal safety. Our own strict standards
make it possible for Teekay to operate in some of the world’s most ecologically sensitive
waters. In 2001, three of our vessels supported offshore projects in the pristine waters of
Australia and the Philippines and our shuttle tankers operated in the strictly-regulated
waters of the North Sea. We centralized all policies and procedures through a web-based
safety management system.We also rolled out to our fleet a new, comprehensive safety
instructor program. As our customers continue to raise their expectations, Teekay’s
commitment to high environmental and safety standards positions us well for the future.
6
"We honour the responsibility to set our environmental and
safety standards at the highest level. This is our commitment
to the industry, the environment and our customers."
Some see a tanker company.
We see an
innovator.
As customers’ needs change and new opportunities arise, they welcome suppliers who
provide creative solutions and develop innovative partnerships. Teekay did just that
in 2001. We expanded our service offerings with the establishment of Australia-based
Teekay Marine, a joint venture company formed with an existing customer. We are also
enhancing our fleet with four new Aframax tankers through an innovative commercial and
technical management arrangement with an independent shipowner. In another interesting
development, Teekay filed a patent, in all shipbuilding countries, for a ballast water exchange
method that promotes a natural exchange of ballast water at sea that is safe, energy
efficient and environmentally friendly.
8
"Our customers want more than the basics. They demand
operational excellence. They expect us to demonstrate an
inherent responsibility for continual improvement as well
as a pioneer’s passion for innovation."
Chairman’s Message to Shareholders
I am very pleased to report that Teekay had another
outstanding year in 2001. Our gain in net worth
during the year was US $300 million, an increase
of 27 per cent. But of equal importance were the
steps we took to continue Teekay’s growth and to
prepare ourselves for the weaker tanker market
which we are now experiencing.
Our primary business is the transportation of
oil and petroleum products in tankers. This has
been a deeply cyclical business for the past 100
years and there is little evidence that it is about to
change. Our challenge continues to be the care-
ful management of our balance sheet and our
resources to ensure financial strength through all
phases of this cycle, and to continue to build
shareholder value by achieving a superior return
on our capital employed over the course of
the cycle. During 2001 we took a number of impor-
tant steps to support this strategy.
Our acquisition of Ugland Nordic Shipping
(UNS) has added modern, very sophisticated shuttle
tankers to our fleet. UNS’ specialized vessels have
long-term charter coverage, providing consistent
cash flow throughout the cycle, and complementing
our more volatile spot market earnings. Although
UNS operates as a separate wholly owned
subsidiary, it maintains the same intense customer
focus as we do in our core conventional tanker
business. It has also allowed us to expand our port-
folio of value-added services to our customers.
that are completed. Consistent with our belief that
asset prices were close to cyclical high levels, we
did not order or purchase any vessels during 2001
other than eight newbuildings that are tied to long-
term contracts. The recent weakening in shipyard
and second-hand prices validates this strategy.
A weak global economy and OPEC production
cuts have served to depress tanker rates in early
2002. We are well prepared for this cyclical down-
turn. Our conservative capital structure and undrawn
credit facilities will allow us to pursue attractive
acquisitions this year.
We have an unwavering commitment to
operational excellence and customer service. We
continue to invest in systems and staff to differen-
tiate ourselves from our competitors. Safety and
protection of the environment are core values that
we will not compromise under any circumstances.
Our 4,100 employees, under the leadership of our
President and CEO Bjorn Moller, work long hours
to achieve these goals. Our seafarers spend long
periods away from their homes and families. I
would like to thank them all for a job very well done
in 2001.
We continue to be very grateful for the loyal
support of our customers and shareholders.
In a cyclical industry, acquisitions that are
not made are sometimes as important as those
C. Sean Day
Chairman of the Board of Directors
10
CEO’s Report to Shareholders
The tanker market over the past two years has
vividly demonstrated the cyclical nature of our
industry. In 2000, a weak market developed into
the strongest market in nearly three decades, driven
by soaring tanker demand. This strength carried
over into 2001, making it another excellent year for
the industry overall, yet by the end of the year,
tanker rates had fallen off considerably, again driven
by changes in demand.
Companies operating in such deeply cyclical
industries typically either sacrifice upside potential
in order to hedge their downside risk, or passively
ride the cycles.
In 2001, Teekay leveraged its unique position
and strength to obtain a portfolio of fixed-rate con-
tracts as a hedge against the downside, yet at the
same time, retained the upside in our spot tanker
fleet. Our large spot trading fleet benefited from
the strong freight market, resulting in record earn-
ings for our Company. With our eyes firmly on the
horizon, we committed to invest more than US
$1 billion in new, profitable, long-term, fixed rate
business, increasing our future financial stability
while preserving our operating leverage.
Our long-term focus contrasts sharply with the
approach taken by many in our industry. In a typical
industry response to a strong market,the speculative
tanker order book grew in 2001, even as newbuilding
prices ran 25 per cent above their cyclical low point
in 1999. We maintained our investment discipline by
not acquiring any speculative assets during this
period. Instead, we applied the US $520 million
in cash flow generated by our operations towards
12
repayment of debt, bringing our net debt to a
new low of 34.3 per cent of total capitalization, and
towards investment in assets with profitable
employment stretching beyond the tanker cycle.
We made two such major investments in 2001.
Our acquisition of Ugland Nordic Shipping
(UNS), the world’s largest owner of sophisticated
shuttle tankers, gave us a 25 per cent share in a
niche market characterized by high barriers to entry
and long-term contracts. UNS’ business is to serve
We have a clear
focus.
offshore oil installations in harsh weather and
environmentally sensitive waters, and provides a
good fit with Teekay’s expertise in high quality, opera-
tionally intensive trades. The combination of UNS’
market position and technological know-how, with
Teekay’s global reach and financial strength, has
exciting potential.
We achieved another franchise milestone in
2001 when Tosco Corporation, now part of Phillips
Petroleum, selected our Company for a five-ship, US
$250 million transaction involving 12-year charters to
Tosco – the largest transportation contract awarded
in our industry in some time. Our proven record of
quality and customer service, our scale and cost
advantages, and our commercial flexibility in meeting
Tosco’s specific requirements, were key factors in
securing this contract.
(cont. pg. 14)
"Successful companies continually examine,
analyze and rethink themselves. They
assess how others see them and ensure
that perception accurately reflects reality."
CEO’s Report cont.
We have maintained our focus on our core business
of operating a homogenous and flexible fleet of
medium-sized oil tankers in the spot market. We
are the world leader in this business by a wide
margin. We have built significant market share on
environmentally sensitive routes where we serve
large, quality-conscious oil company customers.
Our strategy in this business results in above-
average capacity utilization and revenues.
Through cost management and disciplined
timing of fleet growth, we have reduced the Aframax
day-rate at which Teekay achieves net income
break-even from US $16,100 in 1995 to approxi-
mately US $13,000 today, raising our profitability
under any freight market scenario. Our large spot
fleet provides considerable operating leverage:
every US $1,000 increase in day-rates raises our
annual earnings per share by roughly US $0.57.
Our high fleet utilization, low break-even rate
and high operating leverage combined to produce
record net income of US $336.5 million in 2001, or
US $8.31 per share, compared to US $270.0 million,
or US $6.86 per share in 2000. Over the past two
years alone we have delivered cash earnings of US
$21.62 per share. Return on invested capital in
2001 was 18.9 per cent.
Going forward, we will continue to focus
on our two complementary growth strategies.
Leveraging our competitive strengths, we will seek
to grow our portfolio of long-term business, which
is already expected to deliver up to 45 per cent of
our projected income from vessel operations by
2004, assuming an average market.
We also intend to opportunistically grow our
spot market fleet. Having entered a downturn in
late 2001, we may see attractively priced opportu-
nities over the next year or two.
Teekay’s record in this challenging industry
speaks for itself. Since becoming publicly listed in
1995, the average return on shareholders’ equity
has been 12.9 per cent. Book value per share has
risen from US $21.19 to US $35.35, while main-
taining a substantial dividend payout. Our earning
power, our balance sheet and our access to capital
give us a strong position from which to lead the
consolidation of our highly fragmented industry.
Last year we invested in people and systems
as we continued building the Teekay brand. This will
continue in the future. I am grateful for the efforts
of our 4,100 employees this past year. Working in
15 offices and onboard 95 ships, they make up a
unique network, which strives to deliver flawless
service to our customers and, in turn, create value
for our shareholders.
We will continue to spend a lot of time exam-
ining, analyzing and rethinking our business, looking
for innovation, continuous improvement and growth.
We believe this is the hallmark of truly successful
companies. In our view, we are building Teekay’s
position as the finest tanker company in the world!
Bjorn Moller
President and CEO
14
Market Review
Introduction
Worldwide Aframax TCE Rates
The highest tanker freight market experienced
since the 1970s continued into 2001. Worldwide
average TCE rates for Aframax tankers averaged
US $30,400 per day, against a 10-year average of
US $18,535 per day. However, the year was a story
of two halves, the first characterized by firm oil
demand, high tanker capacity utilization and high
earnings, while the second was dominated by con-
tracting oil demand, political uncertainty and weak
tanker demand, resulting in a steep decline in
freight rates. Average Aframax freight rates went
from US $45,000 per day in the first quarter to US
$22,300 per day in the fourth quarter.
Despite high average freight rates for the
year, the decline in the second half of 2001 and the
high volume of older tonnage in the existing fleet
caused a sharp increase in scrapping, and tanker
supply experienced the largest net reduction seen in
over a decade.
Tanker Demand
Global oil consumption rose 1.2 per cent in the first
half of 2001 against year-earlier levels. However, the
weakening world economy and the lag effect of high
oil prices experienced in 2000 took their toll in the
second half and a 0.9 per cent decline was observed.
Overall for 2001, global oil demand remained virtu-
ally unchanged; its worst performance since 1985.
While global oil demand is the long-term
driver of tanker demand, oil production is the more
immediate-term driver. With global oil inventories at
50 000
40 000
30 000
20 000
y
a
D
r
e
P
$
S
U
10 000
0
0
9
q
1
1
9
q
1
2
9
q
1
3
9
q
1
4
9
q
1
5
9
q
1
6
9
q
1
7
9
q
1
8
9
q
1
9
9
q
1
0
0
q
1
1
0
q
1
Source: CRS
The highest tanker freight market experienced since the
1970s continued into 2001.
the mid-point of historical averages, the imbalance
between oil demand and production led to declining
crude oil prices during the year. OPEC responded
quickly to declining prices with a series of produc-
tion cutbacks that totaled 3.5-million barrel per day
(mb/d): 1.5 mb/d announced in January, 1.0 mb/d in
March and 1.0 mb/d in July. The majority of these
reductions were from long-haul Middle East Gulf
producers. OPEC crude output declined by 0.6
mb/d from the 2000 average level. Meanwhile, two
sustained years of historically high oil prices spurred
non-OPEC production, which rose by 0.7 mb/d,
with most of this gain from Former Soviet Union
producers. World oil production remained virtually
unchanged at 77.0 mb/d in 2001.
The shift from long-haul supplies to short-haul
(cont. pg.16)
15
Left: Global oil demand is
driven by economic growth.
Demand remained virtually
unchanged in 2001.
Market Review cont.
sources had a negative impact on tanker tonne-mile
demand, which declined significantly during 2001.
According to IEA forecasts, growth in world oil
consumption is expected to remain negative in the
first half of 2002, falling 0.4 per cent before an
assumed increase of 1.7 per cent in the second half
based on a revival in the global economy. Overall for
the year oil demand is projected to grow 0.7 per cent.
In response to the weakness expected for the
first half of 2002, OPEC, supported by a 0.5 mb/d
reduction from certain non-OPEC producers,
announced additional cuts of 1.5 mb/d, further
eroding near-term tanker demand. In January 2002,
OPEC crude oil production fell to levels last seen in
1995. Meanwhile, IEA forecasts suggest a 0.9 mb/d
rise in non-OPEC production during 2002.
While some of the demand increase forecast
for the second half of 2002 will be met by non-
OPEC production, the IEA’s "call on OPEC" is pro-
jected to rise by over 2.0 mb/d in the fourth quarter,
compared to second quarter levels or 1.2 mb/d
year-on-year. Such developments would result in a
significant recovery in tanker demand.
Tanker Supply
New tanker deliveries remained relatively low during
2001, totalling 14.3 million dead weight tonnes
(mdwt), compared to over 20.0 mdwt in each of the
two preceding years. The delivery schedule was
outpaced by 16.5 mdwt of scrapping, while losses,
conversions and miscellaneous removals accounted
for a further 4.0 mdwt. Overall, the tanker fleet
Annual Change in World GDP, Oil Demand and
Oil Production
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
1
9
9
1
2
9
9
1
3
9
9
1
4
9
9
1
5
9
9
1
6
9
9
1
7
9
9
1
8
9
9
1
9
9
9
1
0
0
0
2
1
0
0
2
2
0
0
2
GDP Oil Demand Oil Production
Source: IMF, IEA
& other industry
sources
declined by 6.2 mdwt, the largest net reduction in
tanker supply in over a decade. The high level of
scrapping was the result of a high proportion of
old tankers in the world fleet that face technical
obsolescence, customer discrimination and near-
term regulatory phase out, as evidenced by the
high rate of scrapping which occurred even in the
strong freight markets of 2000 and 2001.
In the Aframax sector, there were 14 tankers
delivered in 2001, the lowest total since 1995,
while 24 were sold for scrap and a further two were
converted for use in the offshore sector. The fleet
declined by 1.9 per cent, the first such decline in
over a decade.
Last year was very active for tanker ordering,
as 27.7 mdwt was contracted during the year. The
tanker order book rose to 63.7 mdwt, compared
to 52.1 mdwt at the end of 2000. Seventy new
16
World Oil Production v. Aframax Average TCE
World Tanker Fleet Net Changes
Right: While global oil
demand is the long-
term driver of tanker
demand, oil production
is the more immediate-
term driver. World oil
production declined
through 2001.
Far Right: The world
tanker fleet declined by
6.2 mdwt, the largest
net reduction in tanker
supply in over a decade.
)
D
/
B
n
o
i
l
l
i
M
(
n
o
i
t
c
u
d
o
r
P
80
79
78
77
76
75
74
73
72
T
C
E
(
U
S
$
p
e
r
D
a
y
)
50 000
45 000
40 000
35 000
30 000
25 000
20 000
15 000
10 000
5 000
0
9
9
-
n
a
J
9
9
-
r
a
M
9
9
-
y
a
M
9
9
-
l
u
J
9
9
-
p
e
S
9
9
-
v
o
N
0
0
-
n
a
J
0
0
-
r
a
M
0
0
-
y
a
M
0
0
-
l
u
J
0
0
-
p
e
S
0
0
-
v
o
N
1
0
-
n
a
J
1
0
-
r
a
M
1
0
-
y
a
M
1
0
-
l
u
J
1
0
-
p
e
S
1
0
-
v
o
N
Production TCE
Source: IEA & CRS
i
t
h
g
e
w
d
a
e
D
n
o
i
l
l
i
M
30
20
10
0
-10
-20
-30
0
9
9
1
1
9
9
1
2
9
9
1
3
9
9
1
4
9
9
1
5
9
9
1
6
9
9
1
7
9
9
1
8
9
9
1
9
9
9
1
0
0
0
2
1
0
0
2
2
0
0
2
3
0
0
2
Deliveries Deletions Net Change
2002-03 Deliveries are per CRS
Aframaxes were ordered in 2001, with the order
book rising to 120 vessels by the end of the year,
compared to 68 tankers at the end of 2000.
As a result of active ordering in recent years,
tanker deliveries are expected to run at a relatively
high level during the next two years, with 25.8
mdwt and 26.1 mdwt scheduled for delivery in
2002 and 2003, respectively. A large proportion of
old tankers in the existing fleet is creating the
potential for a significant increase in scrapping
during the same period, particularly during periods
of low tanker freight rates. By the end of 2002,
45.2 mdwt of the existing fleet will be 25-years-
old or older, the age at which tankers are typical-
ly scrapped. By the end of 2003 an additional 5.7
mdwt will reach their 25th year.
Scheduled deliveries for Aframax tankers total
43 ships in 2002 and 60 in 2003. By the end of
2003, 61 Aframaxes will be 25-years-old or older,
compared to expected deliveries of 103 ships.
However, a total of 182 Aframax tankers will
become 20-years-old or older during the same
period, which is a significantly higher proportion
than other crude oil tanker segments.
The newbuilding order book is more or less
fixed for the next two years, as shipyards are full.
Therefore, the development of the tanker market
will depend on the balance between the amount of
supply leaving the fleet through scrapping and the
amount of tanker demand growth driven by the
recovery in the world economy.
17
Some see 95 ships.
fleet.
Shuttle Tankers
14 Ships
Oil/Bulk/Ore (OBO) Vessels
8 Ships
Other Size Tankers
3 Ships
Floating Storage and
Off-take (FSO) Vessels
3 Ships
Total DWT
1,368,400
625,900
350,600
340,400
Newbuildings To Be Delivered
8 Ships
1,011,500
We see a uniform
Aframax Tankers
Onomichi Class
15 Ships
Hyundai Class
11 Ships
Imabari Class
11 Ships
Samsung Class
5 Ships
Mitsubishi Class
5 Ships
Other Aframax
7 Ships
In-Chartered Vessels
5 Ships
Total DWT
1,497,900
1,108,900
1,084,700
566,100
446,000
693,700
515,800
Total Aframax Tonnage
59 Ships
5,913,100
Grand Total Tonnage
95 Ships
9,609,900
as of March 1, 2002
* Visit the Investor Centre at www.teekay.com for updates to and more details about Teekay’s fleet.
18
Teekay Offices
Va n c o u v e r H o u s t o n N a s s a u G l a s g o w L o n d o n S a n d e f j o r d O s l o R i g a M u m b a i S i n g a p o r e P e r t h M a n i l a To k y o M e l b o u r n e S y d n e y
Shipping Routes
Atlantic Routes Pacific Routes
Financial Review
Management’s Discussion
& Analysis
Auditor’s Report
Consolidated Statements
of Income
Consolidated Balance Sheets
21
27
28
29
Consolidated Statements of
Cash Flows
Consolidated Statements of
Changes in Stockholders’ Equity
Notes to the Consolidated
Financial Statements
30
31
32
Revenue
$ Millions
1,050
900
750
600
450
300
150
0
(1)
98
(1)
99
(2)
99
00 01
Net Income
$ Millions
Earnings Per Share(3)
$ US
350
300
250
200
150
100
50
0
-20
10
8
6
4
2
0.0
-0.5
(1)
98
(1)
99
(2)
99
00
01
Fiscal Year Ended December 31
Fiscal Year Ended December 31
(1) Fiscal year ended March 31
(2) 9 months ended
December 31, 1999
(1) Fiscal year ended March 31
(2) 9 months ended
December 31, 1999
(1)
98
(1)
99
(2)
99
00
01
Fiscal Year Ended December 31
(1) Fiscal year ended March 31
(2) 9 months ended
December 31, 1999
(3) Fully Diluted
Leverage (1)
%
Capital Expenditures
$ Millions
Cash Flow (1)
$ Millions
60
50
40
30
20
10
0
650
450
250
200
150
100
50
0
600
500
400
300
200
100
0
(2)
98
(2)
99
99
00
01
As at December 31
(1) Net debt/capitalization
(2) As at March 31
(1)
98
(1)
99
(2)
99
00
01
Fiscal Year Ended December 31
Vessels and equipment, gross
Drydocking
(1) Fiscal year ended March 31
(2) 9 months ended
December 31, 1999
(2)
98
(2)
99
(3)
99
00
01
Fiscal Year Ended December 31
(1) Earnings before interest, taxes,
depreciation and amortization
(EBITDA)
(2) Fiscal year ended March 31
(3) 9 months ended
December 31, 1999
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in
conjunction with the consolidated financial statements
and accompanying notes included elsewhere in this
report. Except for the historical information, the follow-
ing discussion contains forward-looking statements
that involve risks and uncertainties, such as the
Company's objectives, expectations and intentions.
When used in this report, the words "expects,"
"intends," "plans," "believes," "anticipates," "estimates"
and variations of such words and similar expressions
are intended to identify forward-looking statements.
Actual results could differ materially from results that
may be anticipated by such forward-looking state-
ments and discussed elsewhere in this report. Readers
are cautioned not to place undue reliance on these for-
ward-looking statements, which speak only as of the
date of this report. The Company undertakes no
obligation to revise any forward-looking statements in
order to reflect events or circumstances that may
subsequently arise. Readers are urged to carefully
review and consider the various disclosures made in
this report and in other of the Company's filings made
with the SEC that attempt to advise interested parties
of the risks and factors that may affect our business,
prospects and results of operations.
General
Teekay is a leading provider of international crude oil and
petroleum product transportation services to major oil
companies, major oil traders and government agencies
worldwide. As at December 31, 2001, the Company’s fleet
consisted of 96 vessels (including eight newbuildings on
order, six vessels time-chartered-in and three vessels
owned by joint ventures), for a total cargo-carrying capacity
of approximately 9.7 million tonnes.
During the year ended December 31, 2001, approxi-
mately 57% 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, 2001,
approximately 21% of net voyage revenues were generated
by time charters and COAs priced on a spot market basis.
In the aggregate, approximately 78% of the Company's net
voyage revenues during the year ended December 31, 2001
were derived from spot voyages or time charters and COAs
priced on a spot market basis, with the remaining 22%
being derived from fixed-rate time-charters and COAs. This
dependence on the spot market, which is within industry
norms, contributes to the volatility of the Company's
revenues, cash flow from operations, and net income.
Historically, the tanker industry has been cyclical,
experiencing volatility in profitability and asset values
resulting from changes in the supply of, and demand for,
vessel capacity. In addition, tanker markets have historically
exhibited seasonal variations in charter rates. Tanker markets
are typically stronger in the winter months as a result of
increased oil consumption in the northern hemisphere and
unpredictable weather patterns that tend to disrupt vessel
scheduling.
Acquisition of Ugland Nordic Shipping ASA
As of May 28, 2001, the Company had purchased 100% of
the issued and outstanding shares of Ugland Nordic
Shipping ASA ("UNS") (9% of which was purchased in fiscal
2000 and the remaining 91% was purchased in fiscal
2001), for approximately $222.8 million in cash.
UNS is the world’s largest owner of shuttle tankers,
controlling a modern fleet of 18 vessels (including three new
buildings on order) (the "UNS Fleet") that engage in the
transportation of oil from offshore production platforms to
onshore storage and refinery facilities. The UNS Fleet has an
average age of approximately 9.0 years, excluding the three
newbuildings on order, and operates primarily in the North
Sea under fixed-rate long-term contracts. In addition, as of
December 31, 2001, UNS owned approximately 11.9% of
the publicly-traded company Nordic American Tankers
Shipping Ltd. (AMEX: NAT) ("NAT"), the owner of three
Suezmax tankers on a long-term contract to BP Shipping.
For the year ended December 31, 2000, UNS earned
net voyage revenues of $69.1 million, resulting in income
from vessel operations of $23.8 million and net income of
$15.4 million, applying accounting principles generally
accepted in the United States. The operating results of
UNS have been consolidated in the Company’s financial
statements commencing March 6, 2001, the date that the
Company acquired a majority interest in UNS. Minority
interest expense, which is included in other income (loss),
has been recorded to reflect the minority shareholders’
share of UNS’ net income for the period from March 6,
2001 to May 28, 2001, when the Company acquired the
remaining shares in UNS.
Since the majority of UNS’ revenues are derived from
fixed-rate long-term contracts, the percentage of the
Company’s fleet that is dependent on the spot tanker
21
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
market has declined. Giving effect to the acquisition of
freight rates. For this reason, shipowners base economic
UNS as if it had occurred on January 1, 2001, the
decisions regarding the deployment of their vessels upon
Company would have derived 23% of its pro forma net
anticipated TCE rates, and industry analysts typically
voyage revenues from fixed-rate time-charters and COAs
measure bulk shipping freight rates in terms of TCE rates.
during the year ended December 31, 2001, compared to
Therefore, the discussion of revenue below focuses on net
13% when excluding UNS.
voyage revenue and TCE rates.
Acquisition of Bona Shipholding Ltd.
On June 11, 1999, the Company acquired Bona
Shipholding Ltd. ("Bona") for aggregate consideration
(including 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 world’s third largest operator
of medium-sized tankers, controlling a fleet of vessels
consisting of 15 Aframax tankers, eight oil/bulk/ore carriers
and, through a joint venture, 50% interests in one additional
Aframax tanker and two Suezmax tankers. Bona engaged
in the transportation of oil, oil products, and dry bulk
commodities, primarily in the Atlantic region.
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.
All oil/bulk/ore carriers ("O/B/O") owned by Bona have
been operated through an O/B/O pool managed by a sub-
sidiary of Bona. Net voyage revenues from the O/B/O pool
are currently included on a 100% basis in the Company’s
consolidated financial statements. Where the Company
owns less than 50% of a vessel, the minority participants’
share of the O/B/O pool’s net voyage revenues is reflected
as a time charter 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 typical
market conditions.
Results of Operations
TCE rates are dependent on oil production levels, oil
consumption growth, the number of vessels scrapped, the
number of newbuildings delivered and charterers’ prefer-
ence 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.
Year Ended December 31, 2001 versus Year
Ended December 31, 2000
The Company’s average fleet size increased 15.3% in the
year ended December 31, 2001 compared to the year
ended December 31, 2000, primarily due to the acquisition
of UNS in March 2001.
Average TCE rates were higher in 2001, compared to
2000, due to increased demand for tankers, primarily arising
from increased oil production in the first half of 2001. The
Company’s average TCE rate increased 12.1% to $28,768
for the year ended December 31, 2001 (excluding the
Company’s vessels on bareboat charter), from $25,661 for
the year ended December 31, 2000. In response to a slow-
ing global economy, a series of OPEC oil production cuts
during 2001 have resulted in a reduction in tanker demand
and thus a decline in TCE rates in the second half of 2001
and into the first quarter of 2002.
Net voyage revenues were $789.5 million in the year
ended December 31, 2001, as compared to $644.3 million
in the year ended December 31, 2000, representing a
22.5% increase. This was the result of the increase in fleet
size and an increase in the Company’s average TCE rate.
Vessel operating expenses, which include crewing,
repairs and maintenance, insurance, stores, lubes, and
communication expenses, increased 23.5% to $154.8
million in the year ended December 31, 2001, from $125.4
Bulk shipping industry freight rates are commonly meas-
million in the year ended December 31, 2000, primarily as
ured at the net voyage revenue level in terms of TCE rates,
a result of the increase in fleet size, and higher repairs and
defined as voyage revenues less voyage expenses (exclud-
maintenance costs.
ing commissions), divided by voyage ship-days for the
Time charter hire expense increased 23.3% to $66.0
round-trip voyage. Voyage revenues and voyage expenses
million in the year ended December 31, 2001, from $53.5
are a function of the type of charter, either spot market
million in the prior year, due primarily to an increase in the
charter or time charter, and port, canal and fuel costs
average number of vessels time-chartered-in by the
depending on the trade route upon which a vessel is sail-
Company and an increase in the average TCE rates
ing, in addition to being a function of the level of shipping
earned in the O/B/O pool managed by the Company. The
22
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
minority participants’ share of the O/B/O pool’s net
voyage revenues, which is reflected as a time-charter
expense, was $27.6 million for the year ended December
31, 2001, compared to $26.3 million in the year ended
December 31, 2000. The average number of vessels
time-chartered-in by the Company, excluding the
O/B/Os, was six in the year ended December 31, 2001,
compared to five in the prior year.
Depreciation and amortization expense increased
36.1% to $136.3 million in the year ended December 31,
2001, from $100.2 million in the prior year, mainly due to
the acquisition of UNS, which resulted in an increase in the
average size and average cost base of the Company’s
owned fleet, and an increase in drydock amortization
expense. Depreciation and amortization expense included
amortization of drydocking costs of $14.2 million in the
year ended December 31, 2001, compared to $9.2 million
in the prior year.
General and administrative expenses increased
30.5% to $48.9 million in the year ended December 31,
2001, from $37.5 million in the prior year, primarily as a
result of the acquisition of UNS and higher senior
management bonuses, which are determined largely by
Company financial performance.
Interest expense decreased 11.1% to $66.2 million in
the year ended December 31, 2001, from $74.5 million in
the prior year. This decrease reflects lower interest rates,
partially offset by the additional debt assumed as part of
the UNS acquisition.
Interest income decreased 29.4% to $9.2 million in the
year ended December 31, 2001, compared to $13.0 million
in the prior year, mainly as a result of lower interest rates.
Other income of $10.1 million for the year ended
December 31, 2001 comprised of equity income from
50%-owned joint ventures, dividend income from NAT,
gain on the disposition of available-for-sale securities, and
foreign exchange gains, partially offset by income tax
expense and minority interest expense. Equity income from
joint ventures included a $10.2 million gain on sale of three
50%-owned vessels. Other income for the year ended
December 31, 2000 was $3.9 million, which was com-
prised mainly of equity income from a 50%-owned joint
venture, partially offset by a loss on the disposition of two
vessels and income tax expense.
As a result of the foregoing factors, net income rose to
$336.5 million in the year ended December 31, 2001, from
$270.0 million in the prior year.
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 2000 fiscal year’s results are for the 12 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 comparison
to the annualized results for the nine-month period ended
December 31, 1999. The Company annualized the results
by multiplying its results for the nine-month period by 4/3.
The annualized results for the nine-month period ended
December 31, 1999 are not necessarily indicative of those
for a full fiscal year.
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 production and discrim-
ination by charterers against older tankers. The Company’s
average TCE rate increased 81.2% to $25,661 for the year
ended December 31, 2000, from $14,165 for the nine-
month period ended December 31, 1999.
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.
Net voyage revenues were $644.3 million in the year
ended December 31, 2000, as compared to $248.4 million
in the nine-month period ended December 31, 1999,
representing a 94.6% increase on an annualized basis from
the nine-month period ended December 31, 1999. This is
the result of an increase in the average TCE rate earned by
the Company’s fleet. In addition, as of December 31, 1999,
the Company changed its process of estimating net voyage
revenues from a load port-to-load port basis to a discharge
port-to-discharge port basis, which is consistent with most
other shipping companies. This change in voyage
estimate resulted in a one-time increase in net voyage rev-
enues of $5.7 million for the nine-month period ended
December 31, 1999.
Vessel operating expenses decreased 4.8% on an
annualized basis to $125.4 million in the year ended
December 31, 2000, from $98.8 million in the nine-month
period ended December 31, 1999. This decrease was
mainly the result of lower per-day operating expenses
23
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
arising from the application of the Company’s lower cost
from a 50%-owned joint venture, partially offset by future
structure to the Bona fleet. This decrease was partially offset
income taxes related to the Company’s Australian
by the increase in the Company’s average fleet size.
shipowning subsidiaries, and losses on the sale of two
Time charter hire expense increased 30.7% on an
vessels. Other loss of $4.0 million in the nine-month period
annualized basis to $53.5 million in the year ended
ended December 31, 1999 consisted primarily of future
December 31, 2000, from $30.7 million in the nine-month
income taxes related to the Company’s Australian
period ended December 31, 1999, due primarily to the
shipowning subsidiaries and one-time employee and
inclusion of Bona’s operating results, which includes the
severance-related costs, partially offset by equity income
O/B/O vessels, for only part of the previous fiscal period
from the 50%-owned joint venture.
from June 11, 1999, an increase in the average TCE rates
As a result of the foregoing factors, net income was
earned in the O/B/O pool, and an increase in the average
$270.0 million in the year ended December 31, 2000,
number of vessels time-chartered-in by the Company. The
compared to a net loss of $19.6 million in the nine-month
minority participants’ share of the O/B/O pool’s net voyage
period ended December 31, 1999.
revenues, which is reflected as a time-charter expense,
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. 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
10.0% on an annualized basis to $100.2 million in the year
ended December 31, 2000, from $68.3 million in the nine-
month period ended December 31, 1999. 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 dry-
docking costs of $9.2 million in the year ended December
31, 2000, compared to $6.3 million in the nine-month period
ended December 31, 1999.
Liquidity and Capital Resources
As at December 31, 2001, the Company’s total cash and
cash equivalents was $174.9 million, compared to $181.3
million as at December 31, 2000, and $220.3 million as at
December 31, 1999. The Company's total liquidity, including
cash, short-term marketable securities and undrawn long-
term borrowings, was $688.2 million as at December 31,
2001, up from $373.1 million as at December 31, 2000, and
$237.4 million as at December 31, 1999. The increase in
liquidity during the year ended December 31, 2001 was
mainly the result of net cash flow from operating activities
earned during the year, net proceeds from the issuance of
$350.0 million of the Company’s unsecured 8.875% Senior
Notes due 2011 (the "8.875% Notes"), partially offset by
prepayments and scheduled repayments of certain
outstanding secured debt (excluding the Revolvers, as
General and administrative expenses increased 4.0%
defined below), cash used to purchase the UNS shares, and
on an annualized basis to $37.5 million in the year ended
cash used for newbuilding installment payments. In the
December 31, 2000, from $27.0 million in the nine-month
Company’s opinion, working capital is sufficient for the
period ended December 31, 1999. This increase was
Company’s present requirements.
primarily a result of the acquisition of Bona, partially offset
Net cash flow from operating activities increased to
by overhead cost savings related to the acquisition.
$520.2 million in the year ended December 31, 2001,
Interest expense increased 24.2% on an annualized
compared to $333.3 million in the year ended December
basis to $74.5 million in the year ended December 31,
31, 2000, and $51.5 million in the nine-month period ended
2000, from $45.0 million in the nine-month period ended
December 31, 1999. This primarily reflects the change in
December 31, 1999. This increase reflects an increase in
average TCE rates during these periods and the increased
interest rates and the additional debt assumed as part of
fleet size as a result of the UNS and Bona acquisitions.
the Bona acquisition.
In 2001, the Company applied a portion of its operating
Interest income increased 67.2% on an annualized
cash flow and the net proceeds from the 8.875% Notes
basis to $13.0 million in the year ended December 31, 2000
toward the repayment of debt. Scheduled debt repayments
from $5.8 million in the nine-month period ended December
were $72.0 million during the year ended December 31,
31, 1999, mainly as a result of increased interest rates and
2001, compared to $63.8 million during the year ended
higher cash and marketable securities balances.
December 31, 2000, and $32.3 million during the nine-
Other income of $3.9 million in the year ended
month period ended December 31, 1999. Debt prepay-
December 31, 2000 consisted primarily of equity income
ments during the year ended December 31, 2001 totalled
24
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
$751.7 million. Of this, $551.1 million was used to reduce
$85.0 million of debt from a floating LIBOR rate to an aver-
the Company’s two long-term revolving credit facilities (the
age fixed rate of 6.40%. The interest rate swap agreements
"Revolvers"), $178.5 million was used to reduce several of
expire between May 2002 and May 2004.
the Company’s term loans, and the remaining $22.1 million
Funding and treasury activities are conducted within
was used to repurchase a portion of the Company’s 8.32%
corporate policies to minimize borrowing costs and maxi-
First Preferred Ship Mortgage Notes (the "8.32% Notes").
mize investment returns while maintaining the safety of the
Debt prepayments during the year ended December 31,
2000 and nine-month period ended December 31, 1999
totalled $429.9 million and $10.0 million, respectively.
As at December 31, 2001, the Company’s total debt
was $935.7 million, up from $797.5 million as at December
31, 2000, mainly as the result of the acquisition of UNS,
partially offset by dept repayments made during 2001. The
Company’s Revolvers provided for additional borrowings
of up to $508.2 million as at December 31, 2001. The
amount available under the Revolvers reduces semi-annu-
ally with final balloon reductions in 2006 and 2008. The
8.32% Notes are due February 1, 2008 and are subject to
a sinking fund, which will retire $45.0 million principal
amount of the 8.32% Notes on each February 1, com-
mencing 2004. The 8.875% Notes are due July 15, 2011.
The Company’s outstanding term loans reduce in quarter-
ly or semi-annual payments with varying maturities through
2010. The aggregate annual long-term debt principal
repayments required to be made subsequent to December
31, 2001 are $51.8 million (2002), $63.6 million (2003),
$84.9 million (2004), $109.8 million (2005), and $128.5 mil-
lion (2006).
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 consoli-
dated financial covenants, prepayment privileges (in some
cases with penalties), and restrictions against the incur-
rence of new investments by the individual subsidiaries
without prior lender consent. The amount of Restricted
Payments, as defined, that the Company can make, includ-
ing dividends and purchases of its own capital stock, was
funds and appropriate liquidity for Company purposes.
Cash and cash equivalents are held primarily in U.S. dol-
lars, with some balances held in Japanese Yen, Singapore
Dollars, Canadian Dollars, Australian Dollars, British
Pounds and Norwegian Kroner.
The Company is exposed to market risk from foreign
currency fluctuations, changes in interest rates, bunker fuel
prices, and tanker freight rates. The Company uses for-
ward foreign currency contracts, interest rate swaps, and
bunker fuel swap contracts to manage currency, interest
rate, and bunker fuel price risk but does not use these
financial instruments for trading or speculative purposes.
As at December 31, 2001, the Company had $65.5 million
in forward foreign currency contracts, which expire
between January 2002 and December 2003. The Company
is also committed to bunker fuel swap contracts totalling
42,000 metric tonnes with a weighted-average price of
$113.54 per tonne, which expire between January 2002
and May 2004. Dividends declared during the year ended
December 31, 2001 were $34.1 million, or $0.86 per share.
On September 19, 2001, Teekay announced that its
Board of Directors had authorized the repurchase of up to
2,000,000 shares of its Common Stock in the open market.
As at December 31, 2001, Teekay had repurchased
512,800 shares of Common Stock at an average price of
$27.617 per share.
During the year ended December 31, 2001, the
Company incurred capital expenditures for vessels and
equipment of $185.0 million. These primarily consisted of
$95.0 million for the purchase of four shuttle tankers, $48.0
limited as of December 31, 2001, to $448.0 million. Certain
million for the reimbursement for installments already made
of the loan agreements require a minimum level of free
on five newbuilding contracts that were assumed by the
cash be maintained. As at December 31, 2001, this amount
Company in August 2001, and $22.5 million for shuttle
was $75.0 million.
tanker newbuilding installment payments. Cash expendi-
The Company manages the impact of interest rate
tures for drydocking were $20.1 million in the year ended
changes on earnings and cash flows through its interest
December 31, 2001 compared to $11.9 million in the year
rate structure. For the Revolvers, the interest rate structure
ended December 31, 2000, and $6.6 million in the nine-
is based on LIBOR plus a margin depending on the finan-
month period ended December 31, 1999.
cial leverage of the Company. Interest payments on the
As at December 31, 2001, the Company was committed
term loans are also based on LIBOR plus a margin. As at
to the construction of three shuttle, three Suezmax and two
December 31, 2001, the interest rate swap agreements
Aframax
tankers scheduled
for delivery between
effectively change the Company’s interest rate exposure on
December 2002 and December 2003, at a total cost of
25
Management’s Discussion and Analysis of Financial Condition and Results of Operations (cont.)
approximately $410.8 million. As of December 31, 2001,
necessarily estimates reflecting the best judgment of
there have been payments made towards these commit-
senior management and involve a number of risks and
ments of $112.8 million and long-term financing arrange-
uncertainties that could cause actual results to differ
ments exist for $61.5 million of the unpaid cost of these
materially from those suggested by the forward-looking
vessels. It is the Company’s intention to finance the
statements. These forward-looking statements should,
remaining unpaid amount of $236.5 million through either
debt borrowing or surplus cash balances, or a combination
thereof. As of December 31, 2001, the remaining payments
required to be made under these newbuilding contracts are
as follows: $56.2 million in 2002 and $241.8 million in 2003.
Upon delivery, the vessels will be subject to long-term
charter contracts, which expire between 2009 and 2015.
The Company and certain subsidiaries of the
Company have guaranteed their share of the outstanding
mortgage debt in three 50%-owned joint venture companies.
As of December 31, 2001, the Company and these sub-
sidiaries have guaranteed $87.8 million of such debt, or
50% of the total $175.6 million in outstanding mortgage
debt of the joint venture companies. These joint venture
companies own three shuttle tankers.
therefore, be considered in light of various important factors,
including those set forth in this report. These statements
involve known and unknown risks and are based upon a
number of assumptions and estimates that are inherently
subject to significant uncertainties and contingencies,
many of which are beyond the control of the Company.
Actual results may differ materially from those expressed
or implied by such forward-looking statements. Important
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; changes in the offshore production of
oil; the cyclical nature of the tanker industry and its
dependence on oil markets; the supply of tankers available
As part of its growth strategy, the Company will
to meet the demand for transportation of petroleum prod-
continue to consider strategic opportunities, including the
ucts; charterers’ preference for modern tankers; greater or
acquisition of additional vessels and expansion into new
less than anticipated levels of tanker newbuilding orders or
markets. The Company may choose to pursue such oppor-
greater or less than anticipated rates of tanker scrapping;
tunities through internal growth, joint ventures, or business
changes in trading patterns significantly impacting overall
acquisitions. The Company intends to finance any future
acquisitions through various sources of capital, including
internally generated cash flow, existing credit lines,
additional debt borrowings, and the issuance of additional
shares of capital stock.
Forward-Looking Statements
The Company’s Annual Report on Form 20-F for the year
ended December 31, 2001 and this Annual Report to
Shareholders for 2001 contain certain forward-looking
statements (as such term is defined in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended)
concerning future events and the Company's operations,
performance and financial condition, including, in particular,
statements regarding: Aframax TCE rates; tanker supply
and demand; supply and demand for oil; future capital
expenditures; the Company's growth strategy and measures
to implement such strategy; the Company's competitive
strengths; the Company’s acquisition of UNS and its
impact on the Company’s operations; the Company’s
ability to continue to successfully operate UNS; and the
future success of the Company. These forward-looking
statements, wherever they may occur in this report, are
tanker tonnage requirements; changes in typical seasonal
variations in tanker charter rates; the Company's depend-
ence on spot oil voyages; competitive factors in the markets
in which the Company operates; environmental and other
regulation, including without limitation, the imposition of
freight taxes and income taxes; the Company's potential
inability to achieve and manage growth; risks associated
with operations outside the United States; the potential
inability of the Company to generate internal cash flow, to
drawdown on existing credit facilities and obtain additional
debt or equity financing to fund capital expenditures; the
potential inability of the Company to renew long-term
contracts; the exercise by charterers of early termination
rights in long-term contracts; and other factors detailed
from time to time in the Company's periodic reports filed
with the U.S. Securities and Exchange Commission. The
Company expressly disclaims any obligation or undertaking
to release publicly any updates or revisions to any forward-
looking statements contained herein to reflect any change
in the Company's expectations with respect thereto or any
change in events, conditions or circumstances on which
any such statement is based.
26
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, 2001 and 2000, and the related consolidated statements of income, changes in stockholders’ equity and
cash flows for the years ended December 31, 2001 and 2000, and the nine month period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial statements of Ugland Nordic Shipping ASA,
a wholly-owned subsidiary, which statements reflect total assets and net voyage revenues constituting 21 percent and 10
percent, respectively of the related consolidated totals. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts included for Ugland Nordic Shipping ASA, is
based solely on the report of other auditors.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, 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, 2001 and 2000, and the consolidated results of their operations and their cash flows for the years ended
December 31, 2001 and 2000, and the nine month period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
Vancouver, Canada
February 8, 2002
ERNST & YOUNG LLP
Chartered Accountants
27
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
YEAR ENDED
DECEMBER 31,
2001
YEAR ENDED
DECEMBER 31,
2000
NINE MONTHS
ENDED
DECEMBER 31,
1999
$ 1,039,056
$ 893,226
$ 377,882
249,562
789,494
248,957
644,269
129,532
248,350
154,831
66,019
136,283
48,898
406,031
125,415
53,547
100,153
37,479
316,594
98,780
30,681
68,299
27,018
224,778
INCOME FROM VESSEL OPERATIONS
383,463
327,675
23,572
OTHER ITEMS
Interest expense
Interest income
Other income (loss) (note 12)
Net income (loss)
Earnings (loss) per common share (note 10)
• Basic
• Diluted
(66,249)
9,196
10,108
(46,945)
(74,540)
13,021
3,864
(57,655)
(44,996)
5,842
(4,013)
(43,167)
$ 336,518
$ 270,020
$ (19,595)
$ 8.48
$ 8.31
$ 7.02
$ 6.86
$
$
(0.54)
(0.54)
The accompanying notes are an integral part of the consolidated financial statements.
28
Consolidated Balance Sheets
(in thousands of U.S. dollars)
As at
December 31,
2001
As at
December 31,
2000
$ 174,950
$ 181,300
5,028
7,833
57,519
22,139
267,469
16,026
1,925,844
117,254
2,043,098
27,352
26,757
87,079
8,081
—
80,158
25,956
295,495
33,742
1,607,716
—
1,607,716
20,474
16,672
—
$2,467,781
$1,974,099
$
24,484
51,011
51,830
127,325
883,872
39,407
1,050,604
18,977
467,341
935,660
(4,801)
$ 22,084
44,081
72,170
138,335
725,314
7,368
871,017
4,570
452,808
641,149
4,555
1,398,200
1,098,512
$2,467,781
$1,974,099
ASSETS
Current
Cash and cash equivalents (note 7)
Marketable securities (note 5)
Restricted cash (note 7)
Accounts receivable
Prepaid expenses and other assets
Total current assets
Marketable securities (note 5)
Vessels and equipment (note 7)
At cost, less accumulated depreciation of $801,985
(December 31, 2000 - $680,756)
Advances on newbuilding contracts (note 14 )
Total vessels and equipment
Investment in joint ventures
Other assets
Goodwill (note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable
Accrued liabilities (note 6)
Current portion of long-term debt (note 7)
Total current liabilities
Long-term debt (note 7)
Other long-term liabilities (note 1)
Total liabilities
Minority interest
Stockholders' equity
Capital stock (note 10)
Retained earnings
Accumulated other comprehensive (loss) income
Total stockholders' equity
Commitments and contingencies (notes 8, 13 and 14)
The accompanying notes are an integral part of the consolidated financial statements.
29
Consolidated Statements of Cash Flow
(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 on disposition of vessels and equipment
Gain on disposition of available-for-sale securities
Equity income (net of dividends received:
December 31, 2001 - $33,514; 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 15)
Net cash flow from operating activities
FINANCING ACTIVITIES
Net proceeds from long-term debt
Scheduled repayments of long-term debt
Prepayments of long-term debt
Increase in restricted cash
Proceeds from issuance of Common Stock
Repurchase 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
YEAR ENDED
DECEMBER 31,
2001
YEAR ENDED
DECEMBER 31,
2000
NINE MONTHS
ENDED
DECEMBER 31,
1999
$ 336,518
$ 270,020
$ (19,595)
136,283
100,153
68,299
—
(758)
16,190
6,963
(3,243)
28,197
520,150
688,381
(72,026)
(751,738)
(7,833)
20,584
(14,162)
(34,094)
—
(170,888)
(184,983)
(20,064)
—
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
—
—
(721)
1,500
1,134
896
51,513
100,000
(32,252)
(10,000)
—
—
—
(23,150)
—
34,598
(23,313)
(6,598)
—
—
—
51,774
(13,806)
13,724
(6,000)
15,781
101,892
118,435
Expenditure for the purchase of Ugland Nordic Shipping ASA
(net of cash acquired of $26,605) (note 3)
(176,453)
(13,114)
Acquisition costs related to purchase of Ugland Nordic Shipping
ASA (note 3)
Net cash acquired through purchase of Bona Shipholding Ltd. (note 4)
Acquisition costs related to purchase of Bona Shipholding Ltd. (note 4)
Proceeds from disposition of available-for-sale securities
Purchases of available-for-sale securities
Net cash flow from investing activities
(Decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of the period
Cash and cash equivalents, end of the period
(5,067)
—
(20)
35,975
(5,000)
(355,612)
(6,350)
181,300
$ 174,950
—
—
(2,685)
—
(17,900)
(79,439)
(39,027)
220,327
$ 181,300
$ 220,327
The accompanying notes are an integral part of the consolidated financial statements.
30
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands of U.S. dollars)
Thousands
of
Common
Shares
Retained
Earnings
Common
Stock
Accumulated
Other
Compre-
hensive
Income
(Loss)
Balance as at March 31, 1999
31,648
$330,493
$446,897
$ —
(19,595)
(23,172)
Compre-
hensive
Income
(Loss)
(19,595)
—
(19,595)
Total
Stockholders’
Equity
$777,390
(19,595)
(23,172)
97,422
22
832,067
270,020
6,415
97,422
1
22
38,064
427,937
404,130
270,020
—
270,020
1
1,080
39,145
28
24,843
452,808
4,555
4,555
4,555
274,575
(33,001)
641,149
336,518
4,555
336,518
(33,001)
28
24,843
1,098,512
336,518
(6,636)
(6,636)
(6,636)
(3,627)
(3,627)
(3,627)
4,155
4,155
4,155
(2,274)
(2,274)
(2,274)
(974)
(974)
(974)
327,162
1
917
(513)
8
20,584
(6,059)
198
(34,102)
(8,103)
198
(34,102)
8
20,584
(14,162)
Net income (loss)
Other comprehensive income
Comprehensive income (loss)
Dividends declared
June 11, 1999 common stock issued on
acquisition of Bona Shipholding Ltd.
(note 4)
Reinvested dividends
Balance as at December 31, 1999
Net income
Other comprehensive income:
Unrealized gain on available-for-sale
securities
Comprehensive income
Dividends declared
Reinvested dividends
Exercise of stock options
Balance as at December 31, 2000
Net income
Other comprehensive income:
Unrealized loss on available-for-sale
securities
Reclassification adjustment for gain on
available-for-sale securities included in
net income
Cumulative effect of accounting change
(note 13)
Unrealized loss on derivative instruments
(note 13)
Reclassification adjustment for gain on
derivative instruments (note 13)
Comprehensive income
Adjustment for equity income on step
acquisition (note 3)
Dividends declared
Reinvested dividends
Exercise of stock options
Repurchase of Common Stock
Balance as at December 31, 2001
39,550
$467,341
$935,660
$(4,801)
$1,398,200
The accompanying notes are an integral part of the consolidated financial statements.
31
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 12 month periods ended December 31,
2001, 2000 and 1999.
Results of Operations
Net voyage revenues
Income from vessel operations
Net income (loss)
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,
2001
TWELVE MONTHS
ENDED
DECEMBER 31,
2000
TWELVE MONTHS
ENDED
DECEMBER 31,
1999
(unaudited)
$ 789,494
383,463
336,518
$ 644,269
327,675
270,020
$ 318,348
34,189
(17,723)
8.48
8.31
520,150
(170,888)
(355,612)
7.02
6.86
333,255
(292,843)
(79,439)
(0.50)
(0.50)
71,633
76,948
5,613
Operating revenues and expenses Voyage revenues and expenses are recognized on the percentage of completion method of
accounting. Effective December 31, 1999 the Company refined its estimation process from a load-to-load basis to a discharge-
to-discharge basis under the percentage of completion method to more precisely reflect net voyage revenues. This refinement
in accounting estimate resulted in a one-time increase in net voyage revenues of $5.7 million, or 16 cents per share, for the nine
month period ended December 31, 1999.
Estimated losses on voyages are provided for in full at the time such losses become evident. The consolidated balance
sheets reflect the deferred portion of revenues and expenses applicable to subsequent periods.
Voyage expenses comprise all expenses relating to particular voyages, including bunker fuel expenses, port fees, canal tolls,
and brokerage commissions. Vessel operating expenses comprise all expenses relating to the operation of vessels including
crewing, repairs and maintenance, insurance, stores, lubes, and communications.
Marketable securities The Company's investments in marketable securities are classified as available-for-sale securities
and are carried at fair value. Net unrealized gains or losses on available-for-sale securities, if material, are reported as a compo-
nent of other comprehensive income.
Vessels and equipment All pre-delivery costs incurred during the construction of new buildings, 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.
Interest costs capitalized to vessels and equipment for the years ended December 31, 2001 and 2000, and for the nine
month period ended December 31, 1999 aggregated $2,531,000, $Nil, and $1,710,000, 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. Amortization of drydocking expenditures for
the years ended December 31, 2001 and 2000, and the nine month period ended December 31, 1999 aggregated $14,214,000,
$9,208,000, and $6,275,000, respectively.
Investment in joint ventures The Company has a 50% participating interest in three joint venture companies each of which
32
Notes to the Consolidated Financial Statements (cont.)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
owns a shuttle tanker. The joint ventures are accounted for using the equity method whereby the investment is carried at the
Company’s original cost plus its proportionate share of undistributed earnings.
During 2001, another joint venture in which the Company owns a 50% interest sold its three vessels.
Investment in the Panamax O/B/O Pool All oil/bulk/ore carriers ("O/B/O") owned by the Company are operated through a
Panamax O/B/O Pool. The participants in the Pool are the companies contributing vessel capacity to the Pool. The voyage
revenues and expenses of these vessels have been included on a 100% basis in the consolidated financial statements. The
minority pool participants’ share of the result has been deducted as time charter hire expense.
Loan costs Loan costs, including fees, commissions and legal expenses, which are presented as other assets are capitalized
and amortized on a straight line basis over the term of the relevant loan. Amortization of loan costs is included in interest expense.
Derivative instruments Derivative instruments are recorded as assets or liabilities, measured at fair value. Derivatives that
are not hedges are 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 is immediately recognized into income (see Note 13).
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 years ended December 31, 2001 and 2000, and the nine month period ended December 31,
1999 totalled $54,764,000, $77,073,000, and $63,086,000, 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 shipowning subsidiaries and Norwegian
subsidiary Ugland Nordic Shipping ASA ("UNS") are subject to income taxes. UNS income taxes are deferred until payment of
dividends (see Note 12). Included in other long-term liabilities are deferred income taxes of $36.3 million at December 31, 2001
and $4.2 million at December 31, 2000. The Company accounts for such taxes using the liability method pursuant to Statement
of Financial Accounting Standards No. 109, " Accounting for Income Taxes."
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 10).
Comprehensive income The Company follows Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and displaying comprehensive income and its components
in the consolidated financial statements.
Goodwill Goodwill acquired as a result of the acquisition of UNS (see Note 3) is amortized over 20 years using the
straight-line method. Management periodically reviews goodwill for permanent diminution in value. As at December 31,
2001, goodwill is net of accumulated amortization of $3.5 million.
Recent accounting pronouncements In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which establishes new standards for accounting for goodwill and
other intangible assets. SFAS 142 requires that goodwill and indefinite lived intangible assets no longer be amortized but
reviewed annually for impairment, or more frequently if impairment indicators arise. This statement is effective for existing
goodwill beginning with fiscal years starting after December 15, 2001. Based upon the Company’s goodwill balance at
December 31, 2001, the Company estimates that adoption of SFAS 142 will result in an annual increase in net income of
approximately $4.5 million, by no longer amortizing goodwill.
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, ("SFAS 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of," and the accounting and reporting provisions of Accounting Principles Board (APB) Opinion
No. 30, "Reporting the Results of Operations" for a disposal of a segment of a business. SFAS 144 is effective for fiscal years
beginning after December 15, 2001, with earlier application encouraged. The Company does not anticipate that the adoption
of SFAS 144 will have a significant impact on the Company’s consolidated financial position or results of operations.
2. Business Operations
The Company is engaged in the ocean transportation of petroleum cargoes worldwide through the ownership and operation of
a fleet of tankers. All of the Company's revenues are earned in international markets.
One customer, an international oil company, accounted for 13% ($130,818,000) of the company’s consolidated voyage
revenues during the year ended December 31, 2001. 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,
33
Notes to the Consolidated Financial Statements (cont.)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
accounted for 13% ($48,140,000) 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 Ugland Nordic Shipping ASA
As of May 28, 2001, Teekay had purchased 100% of the issued and outstanding shares of UNS (9% of which was purchased in
fiscal 2000 and the remaining 91% was purchased in fiscal 2001), for $222.8 million cash, including estimated transaction
expenses of approximately $7 million, or at an average price of Norwegian Kroner 136 per share. UNS controls a modern fleet
of 18 shuttle tankers (including three new buildings on order) that engage in the transportation of oil from offshore production
platforms to onshore storage and refinery facilities.
The acquisition of UNS has been accounted for using the purchase method of accounting, based upon estimates of fair
value. UNS’ operating results are reflected in these financial statements commencing March 6, 2001, the date Teekay acquired
control. Equity income related to the Company’s 9% interest in UNS up to December 31, 2000 has been credited as an adjust-
ment to retained earnings. Teekay’s interest in UNS for the period from January 1, 2001 to March 5, 2001 has been included in
equity income for the corresponding period.
The following table shows comparative summarized consolidated pro forma financial information for the years ended
December 31, 2001 and 2000 and gives effect to the acquisition of 100% of the outstanding shares in UNS as if it had taken
place January 1, 2000:
Net voyage revenues
Net income
Net income per common share
• Basic
• Diluted
4. Acquisition of Bona Shipholding Ltd.
Pro Forma
Year Ended
December 31,
2001
(unaudited)
Year Ended
December 31,
2000
(unaudited)
$ 805,754
336,514
$ 713,350
265,554
8.47
8.31
6.90
6.75
On June 11, 1999, Teekay purchased Bona Shipholding Ltd. ("Bona") for aggregate consideration (including transaction
expenses of $19.0 million) of $450.3 million, consisting of $39.9 million in cash, $294.0 million of assumed debt (net of cash
acquired of $91.7 million) and the balance of $97.4 million in shares of Teekay’s Common Stock. Bona’s operating results are
reflected in these financial statements commencing the effective date of the acquisition.
The following table shows summarized condensed pro forma financial information for the nine month period ended
December 31, 1999 and gives effect to the acquisition as if it had taken place April 1, 1999:
Pro Forma
Nine Months Ended
December 31,
1999
(unaudited)
$ 272,469
26,127
(22,482)
(0.59)
Net voyage revenues
Income from vessel operations
Net loss
Net loss per common share
– basic and diluted
34
Notes to the Consolidated Financial Statements (cont.)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
5. Investments in Marketable Securities
December 31, 2001
Available-for-sale equity securities
Available-for-sale debt securities
December 31, 2000
Available-for-sale equity securities
Available-for-sale debt securities
Cost
$ 24,500
5,028
29,528
$ 17,032
20,236
37,268
Gross
Unrealized
Gains
$ —
—
—
$ 4,577
8
4,585
Gross
Unrealized
Losses
Approximate
Market and
Carrying Values
$ (8,474)
—
—
$ —
(30)
(30)
$ 16,026
5,028
21,054
$ 21,609
20,214
41,823
The cost and approximate market value of available-for-sale debt securities by contractual maturity, as at December 31, 2001
and December 31, 2000, are shown as follows:
December 31, 2001
Less than one year
Due after one year through five years
December 31, 2000
Less than one year
Due after one year through five years
6. Accrued Liabilities
Voyage and vessel
Interest
Payroll and benefits
7. Long-Term Debt
Revolving Credit Facilities
First Preferred Ship Mortgage Notes (8.32%)
due through 2008
Term Loans due through 2010
Senior Notes (8.875%) due July 15, 2011
Less current portion
Approximate
Market and
Carrying
Values
$ 5,028
—
5,028
8,081
12,133
$ 20,214
Cost
$ 5,028
—
5,028
8,081
12,155
$ 20,236
December 31,
2001
December 31,
2000
$ 16,450
24,180
10,381
$ 51,011
$ 26,461
9,444
8,176
$ 44,081
December 31,
2001
December 31,
2000
$ —
$ 415,800
167,229
416,239
352,234
935,702
51,830
$ 883,872
189,274
192,410
—
797,484
72,170
$ 725,314
35
Notes to the Consolidated Financial Statements (cont.)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
The Company has two long-term Revolving Credit Facilities (the "Revolvers") available, which, as at December 31, 2001,
provided for borrowings of up to $508.2 million. Interest payments are based on LIBOR (December 31, 2001: 1.9%; December
31, 2000: 6.4%) plus a margin depending on the financial leverage of the Company; at December 31, 2001, the margins
ranged between 0.50% and 0.75% (December 31, 2000: between 0.50% and 0.85%). The amount available under the
Revolvers reduces semi-annually with final balloon reductions in 2006 and 2008. The Revolvers are collateralized by first
priority mortgages granted on 31 of the Company’s vessels, together with certain other related collateral, and a guarantee
from Teekay for all amounts outstanding under the Revolvers.
The 8.32% First Preferred Ship Mortgage Notes due February 1, 2008 (the "8.32% Notes") are collateralized by first
preferred mortgages on seven of the Company's Aframax tankers, together with 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, 2001, the fair value of these net assets approximated
$175.4 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 2001, the Company repurchased a principal amount of $22.0 million
of the 8.32% Notes outstanding.
Upon the 8.32% Notes achieving Investment Grade Status (as defined in the Indenture) and subject to certain other
conditions, the guarantees of the 8.32% Notes Guarantor Subsidiaries will terminate, all of the collateral securing the obligations
of the Company and the 8.32% Notes Guarantor Subsidiaries under the Indenture and the Security Documents (as defined in
the Indenture) will be released (whereupon the Notes will become general unsecured obligations of the Company) and certain
covenants under the Indenture will no longer be applicable to the Company.
The Company has several term loans outstanding, which, as at December 31, 2001, totalled $416.2 million. Interest
payments are based on LIBOR plus a margin. At December 31, 2001, the margins ranged between 0.50% and 1.45% (December
31, 2000: between 0.55% and 1.25%). The term loans reduce in quarterly or semi-annual payments with varying maturities
through 2010. 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. UNS terms loans totalling $309.0 million are not
guaranteed by Teekay. One term loan required a retention deposit of $7.8 million as at December 31, 2001.
The 8.875% Senior Notes due July 15, 2011 (the "8.875% Notes") rank equally in right of payment with all of the Company’s
existing and future senior unsecured debt and senior to the Company’s existing and future subordinated debt. The 8.875% Notes
are not guaranteed by any of Teekay’s subsidiaries and effectively rank behind all existing and future secured debt of Teekay and
other liabilities, secured and unsecured, of its subsidiaries.
Among other matters, the long-term debt agreements generally provide for such items as maintenance of certain vessel
market value to loan ratios and minimum consolidated financial covenants, prepayment privileges (in some cases with penalties),
and restrictions against the incurrence of 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, 2001, to $448.0 million. Certain of the loan agreements require a minimum level of free cash
be maintained. As at December 31, 2001, this amount was $75.0 million.
The aggregate annual long-term debt principal repayments required to be made for the five fiscal years subsequent to December
31, 2001 are $51,830,000 (2002), $63,605,000 (2003), $84,868,000 (2004), $109,786,000 (2005), and $128,524,000 (2006).
8. Leases
Charters-out Time charters and bareboat 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 and bareboat charters currently in place are $161,345,000
(2002), $137,705,000 (2003), $136,258,000 (2004), $111,074,000 (2005), $100,712,000 (2006), and $595,046,000 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 $28,463,000 (2002), $24,303,000 (2003), $10,848,000
(2004), $1,961,000 (2005) and $Nil (2006).
9. Fair Value of Financial Instruments
Carrying amounts of all financial instruments approximate fair market value except for the following:
Long-term debt - The fair values of the Company's fixed rate long-term debt are based on either quoted market prices or
estimated using discounted cash flow analyses, based on rates currently available for debt with similar terms and remaining
maturities.
Interest rate swap agreements and foreign exchange contracts - The fair value of interest rate swaps and foreign
exchange contracts, used for hedging purposes, is the estimated amount that the Company would receive or pay to terminate
the agreements at the reporting date, taking into account current interest rates, the current credit worthiness of the swap counter
parties and foreign exchange rates.
36
Notes to the Consolidated Financial Statements (cont.)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
The estimated fair value of the Company's financial instruments is as follows:
Cash and cash equivalents, marketable
securities, and restricted cash
Long-term debt
Derivative instruments (note 13)
Interest rate swap agreements
Foreign currency contracts
Bunker fuel swap contracts
Written freight call option
December 31, 2001
December 31, 2000
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
$ 203,837
(935,702)
$ 203,837
(952,055)
$ 223,123
(797,484)
$ 223,123
(789,913)
(2,429)
(343)
(328)
(857)
(2,429)
(343)
(328)
(857)
—
—
—
(1,297)
2,252
—
—
The Company transacts all of its derivative instruments with investment grade rated financial institutions and requires no
collateral from these institutions.
10. Capital Stock
The authorized capital stock of Teekay at December 31, 2001 is 25,000,000 shares of Preferred Stock, with a par value of $1 per
share and 725,000,000 shares of Common Stock, with a par value of $0.001 per share. As at December 31, 2001, Teekay had
39,550,326 shares of Common Stock and no shares of Preferred Stock issued and outstanding.
On September 19, 2001, Teekay announced that its Board of Directors had authorized the repurchase of up to 2,000,000
shares of its Common Stock in the open market. As at December 31, 2001, Teekay had repurchased 512,800 shares of Common
Stock at an average price of $27.617 per share.
As of December 31, 2001, the Company had reserved 3,993,933 shares of Common Stock for issuance upon exercise of
options granted pursuant to the Company’s 1995 Stock Option Plan (the "Plan"). During the years ended December 31, 2001
and 2000, and the nine month period ended December 31, 1999, the Company granted options under the Plan to acquire up to
863,200, 889,500, and 1,463,500 shares of Common Stock (the "Grants"), respectively, to certain eligible officers, employees
(including senior sea staff), and directors of the Company. The options have a 10-year term and had initially vested equally over
four years from the date of grant. Effective September 8, 2000, the Company amended the Plan which reduced the vesting period
for all subsequent stock option grants from four years to three years. In addition, the Company also accelerated the vesting
period for the existing grants by one year. The impact of the accelerated vesting for the existing grants on compensation expense
was not material for the years ended December 31, 2001 and 2000.
A summary of the Company's stock option activity, and related information for the years ended December 31, 2001 and
2000, and the nine month period ended December 31, 1999 is as follows:
DECEMBER 31, 2001
DECEMBER 31, 2000
DECEMBER 31, 1999
Options
(000’s)
# 2,860
863
(917)
(66)
2,740
Weighted
Average
Exercise Price
Options
(000’s)
Weighted
Average
Exercise Price
Options
(000’s)
Weighted
Average
Exercise Price
$ 22.25
41.19
22.44
26.86
28.04
# 3,099
889
(1,080)
(48)
2,860
$ 22.14
23.56
23.00
22.77
22.25
# 1,729
1,464
—
(94)
3,099
$ 26.46
17.11
—
21.12
22.14
1,164
22.99
1,453
23.54
1,019
25.35
$ 10.19
$ 6.62
$ 3.88
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)
Exercise prices for the options outstanding as of December 31, 2001 ranged from $16.88 per share to $41.19 per share.
These options have a weighted-average remaining contractual life of 7.78 years.
As the exercise price of the Company's employee stock options equals the market price of underlying stock on the date
of grant, no compensation expense is recognized under APB 25.
Had the Company recognized compensation costs for the Grants consistent with the methods recommended by SFAS
123 (see Note 1—Accounting for Stock-Based Compensation), the Company's net income and earnings per share for the
37
Notes to the Consolidated Financial Statements (cont.)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
years ended December 31, 2001 and 2000, and the nine month period ended December 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,
2001
YEAR ENDED
DECEMBER 31,
2000
NINE MONTHS
ENDED
DECEMBER 31,
1999
$ 336,518
330,052
$ 270,020
264,449
$ (19,595)
(21,828)
8.48
8.31
8.31
8.15
7.02
6.87
6.86
6.72
(0.54)
(0.60)
(0.54)
(0.60)
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 4.5% for the year ended December 31, 2001; 6.6% for the year ended
December 31, 2000; and 5.8% for the nine month period ended December 31, 1999, respectively; dividend yield of 3.0%;
expected volatility of 30% for the years ended December 31, 2001 and 2000 and 25% for the nine months ended December 31,
1999; and expected lives of five years.
Basic earnings per share is based upon the following weighted-average number of common shares outstanding: 39,706,799
shares for the year ended December 31, 2001; 38,468,158 shares for the year ended December 31, 2000; and 36,384,191 shares
for the nine month period ended December 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: 40,488,222 shares for the year
ended December 31, 2001; 39,368,253 shares for the year ended December 31, 2000; and 36,405,089 shares for the nine month
period ended December 31, 1999.
11. Related Party Transactions
As at December 31, 2001 Cirrus Trust and JTK Trust ("the Trusts") owned, indirectly through wholly owned subsidiaries, 41.2%
of the Company’s outstanding Common Stock. Several of the Company’s directors are responsible for the supervision of the
Trusts or subsidiaries wholly owned by the Trusts.
Payments made by the Company to the Trusts or companies related through common ownership in respect of port agent
services, legal and administration fees, shared office costs and consulting fees for the years ended December 31, 2001 and 2000
and the nine month period ended December 31, 1999 totalled $1,499,700, $1,638,300, and $510,200, respectively.
12. Other Income (Loss)
Loss on disposition of vessels and equipment
Gain on disposition of available-for-sale securities
Equity income from joint ventures
Future income taxes
Miscellaneous
YEAR ENDED
DECEMBER 31,
2001
$
—
758
17,324
(6,963)
(1,011)
YEAR ENDED
DECEMBER 31,
2000
$ (1,004)
—
9,546
(999)
(3,679)
NINE MONTHS
ENDED
DECEMBER 31,
1999
$ —
—
721
(1,500)
(3,234)
$ 10,108
$ 3,864
$ (4,013)
13. Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities," which establishes new standards
for recording derivatives in interim and annual financial statements (see Note 1). SFAS 133, as amended by Statements of
38
Notes to the Consolidated Financial Statements (cont.)
(all tabular amounts stated in thousands of U.S. dollars, other than share or per share data)
Financial Accounting Standards No. 137 and No. 138, is effective for fiscal years beginning after June 15, 2000.
The Company adopted SFAS 133 on January 1, 2001. The Company recognized the fair value of its derivatives as assets
of $2.2 million and liabilities of $1.3 million on its consolidated balance sheet as of January 1, 2001. These amounts were
recorded as a cumulative effect of an accounting change as an adjustment to stockholders’ equity through other comprehensive
income. There was no impact on net income. In addition, a deferred gain of $3.2 million on unwound interest rate swap
agreements presented as other long-term liabilities at December 31, 2000, was reclassified to accumulated other comprehensive
income and will be recognized into earnings over the hedged term of the debt.
The Company only uses derivatives for hedging purposes. The following summarizes the Company’s risk strategies with
respect to market risk from foreign currency fluctuations, changes in interest rates, bunker fuel prices and tanker freight rates
and the effect of these strategies on the Company’s financial statements.
The Company hedges portions of its forecasted expenditures denominated in foreign currencies with forward contracts and
a portion of its bunker fuel expenditures with bunker fuel swap contracts. As at December 31, 2001, the Company was
committed to foreign exchange contracts for the forward purchase of approximately Japanese Yen 100.0 million, Singapore
Dollars 3.9 million, Norwegian Kroner 75.0 million, Canadian Dollars 80.4 million and Euros 3.9 million for U.S. Dollars, at an
average rate of Japanese Yen 127.04 per U.S. Dollar, Singapore Dollar 1.81 per U.S. Dollar, Norwegian Kroner 9.49 per U.S.
Dollar, Canadian Dollar 1.57 per U.S. Dollar and Euros 0.92 per U.S. Dollar, respectively. As at December 31, 2001, the Company
was committed to bunker fuel swap contracts totalling 42,000 metric tonnes with a weighted-average price of $113.54 per tonne,
which expire between January 2002 and May 2004.
As at December 31, 2001, the Company was committed to a series of interest rate swap agreements whereby $85.0 million
of the Company’s floating rate debt was swapped with fixed rate obligations having a weighted average remaining term of 1.1
years, expiring between May 2002 and May 2004. These agreements effectively change the Company’s interest rate exposure
on $85.0 million of debt from a floating LIBOR rate to a weighted average fixed rate of 6.40%. The Company is exposed to credit
loss in the event of non-performance by the counter parties to the interest rate swap agreements; however, the Company does
not anticipate non-performance by any of the counter parties.
The Company hedges certain of its voyage revenues through the use of a written freight call option. As at December 31,
2001, the Company had sold a 12-month written call option for $0.9 million which could require payments to the counterparty if
monthly average freight rates exceed a specified amount.
During the year ended December 31, 2001, the Company recognized a net loss of $0.1 million relating to the ineffective
portion of its interest rate swap agreements and foreign currency forward contracts. The ineffective portion of these derivative
instruments is presented as interest expense and other income (loss), respectively.
As at December 31, 2001, the Company estimates, based on current foreign exchange rates, bunker fuel prices and interest
rates, that it will reclassify approximately $0.6 million of net loss on derivative instruments from accumulated other
comprehensive income to earnings during the next 12 months due to actual voyage, vessel operating, drydocking and general
and administrative expenditures and the payment of interest expense associated with the floating-rate debt.
14. Commitments and Contingencies
As at December 31, 2001, the Company was committed to the construction of three shuttle, three Suezmax and two Aframax
tankers scheduled for delivery between December 2002 and December 2003, at a total cost of approximately $410.8 million. As
of December 31, 2001, there have been payments made towards these commitments of $112.8 million and long-term financing
arrangements exist for $61.5 million of the unpaid cost of these vessels. It is the Company’s intention to finance the remaining
unpaid amount of $236.5 million through either debt borrowing or surplus cash balances, or a combination thereof. As of
December 31, 2001, the remaining payments required to be made under these newbuilding contracts are as follows: $56.2
million in 2002 and $241.8 million in 2003.
Teekay and certain subsidiaries of Teekay have guaranteed their share of the outstanding mortgage debt in three 50%-
owned joint venture companies. As of December 31, 2001, Teekay and these subsidiaries have guaranteed $87.8 million of such
debt, or 50% of the total $175.6 million in outstanding mortgage debt of the joint venture companies. These joint venture
companies own three shuttle tankers.
15. 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,
2001
YEAR ENDED
DECEMBER 31,
2000
$ 23,993
5,152
666
(1,614)
$ 28,197
$ (49,405)
3,443
2,613
6,673
$ (36,676)
NINE MONTHS
ENDED
DECEMBER 31,
1999
$ (5,462)
307
(6,571)
12,622
$ 896
39
Five Year Summary of Financial Information
(all tabular amounts stated in thousands of U.S. dollars, except per share and per day data, or as otherwise indicated)
YEAR ENDED
DECEMBER 31,
2001
YEAR ENDED
DECEMBER 31,
2000
NINE MONTHS
ENDED
DECEMBER 31,
1999
YEAR ENDED
MARCH 31,
1999
YEAR ENDED
MARCH 31,
1998
$ 789,494
$ 644,269
$ 248,350
$ 318,411
$ 305,260
383,463
327,675
23,572
85,634
107,640
336,518
270,020
(19,595)
52,712
70,504
–
–
336,518
270,020
–
(19,595)
(7,306)
45,406
–
70,504
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:
Fully diluted earnings per share
$
8.31
$ 6.86
$
(0.54)
$
1.46
$
2.44
Weighted average shares
outstanding-diluted (thousands)
40,488
39,368
36,405
31,063
28,870
Balance Sheet Data (at end of period):
Total assets
Total stockholders’ equity
Other Financial Data:
EBITDA
$2,467,181
1,398,200
$1,974,099
1,098,512
$1,982,684
$1,452,220
$1,460,183
832,067
777,390
689,455
$ 539,324
$ 451,066
$
95,875
$ 186,069
$ 209,582
Net debt to capitalization (%)
34.3
34.3
50.7
39.6
46.9
Capital expenditures:
Vessel purchases, gross*
Drydocking
Fleet Data:
$ 544,737
$ 43,512
$ 452,584
$
85,445
$ 197,199
20,064
11,941
6,598
11,749
18,376
Average number of ships
82
71
65
47
43
Aframax time-charter equivalent (TCE)
$
30,542
$ 27,138
$
13,462
$
19,576
$
21,373
Total fleet operating cash flow
per ship per day
* Includes vessels from acquisitions.
17,682
16,687
5,177
11,171
12,682
40
Board of Directors
Bruce C. Bell
Director and Corporate
Secretary,
Managing Director of
Oceanic Bank and Trust
Limited
Dr. Ian D. Blackburne
Director,
Former CEO, Caltex
Australia Petroleum
Pty. Ltd.
C. Sean Day
Chairman of the
Board of Directors,
President of Seagin
International, LLC
Morris L. Feder
Director,
President of Worldwide
Cargo Inc.
Leif O. Höegh,
Director,
Managing Director of
Leif Höegh (UK) Ltd.
Thomas Kuo-Yuen Hsu
Director,
Executive Director of
Expedo & Company
(London) Ltd.
Axel Karlshoej
Director and
Chairman Emeritus,
President of Nordic
Industries Inc.
Eileen A. Mercier
Director,
President of Finvoy
Management Inc.
Bjorn Moller
Director,
President and CEO
Teekay Board Committees
Audit Committee
Executive Committee
Governance Committee
Resource Committee
Eileen A. Mercier – Chair
Morris L. Feder
Leif O. Höegh
Bjorn Moller – Chair
C. Sean Day
Morris L. Feder
Axel Karlshoej
C. Sean Day – Chair
Bruce C. Bell
Eileen A. Mercier
Bjorn Moller
Axel Karlshoej – Chair
Dr. Ian D. Blackburne
Thomas Kuo-Yuen Hsu
Corporate Information
TK House
Bayside Executive Park
West Bay Street & Blake Road
P.O. Box AP-59213
Nassau, The Bahamas
STOCK TRANSFER AGENT
AND REGISTRAR
The Bank of New York
101 Barclay Street, 11 West
P.O. Box 11258
Church Street Station
New York, New York 10286
Tel: 1-800-524-4458
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
12 months ending December 31, 2001:
QUARTER
HIGH
LOW
DIVIDENDS
ENDED
DECLARED
(PER SHARE)
Mar. 31, 2001
Jun. 30, 2001
Sept. 30, 2001
Dec. 31, 2001
$45.60
$52.61
$41.00
$35.01
$33.25
$38.62
$29.16
$25.49
$0.215
$0.215
$0.215
$0.215
STOCK EXCHANGE LISTING
New York Stock Exchange
Symbol: TK
There were 39.6 million shares
outstanding at December 31, 2001.
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) 681 3011
Email: investor.relations@teekay.com
Web site: www.teekay.com