-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T/LhrtawPz9CudZG0KaNQMtuQkeDQc0pB8GNtCJneasKTTUPTtJcJYGNpureFYp/ v2F9hUZp8IGXdFcXA7fwtw== 0000891020-99-001226.txt : 19990723 0000891020-99-001226.hdr.sgml : 19990723 ACCESSION NUMBER: 0000891020-99-001226 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990722 FILED AS OF DATE: 19990722 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEEKAY SHIPPING CORP CENTRAL INDEX KEY: 0000911971 STANDARD INDUSTRIAL CLASSIFICATION: DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412] IRS NUMBER: 000000000 FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 6-K SEC ACT: SEC FILE NUMBER: 001-12874 FILM NUMBER: 99668880 BUSINESS ADDRESS: STREET 1: TRADEWINDS BLDG SIXTH FLR STREET 2: BAY ST PO BOX SS-6293 CITY: NASSAU BAHAMAS STATE: C5 BUSINESS PHONE: 8093228020 MAIL ADDRESS: STREET 1: TRADEWINDS BLDG SIXTH FLOOR STREET 2: BAY STREET PO BOX 22-6293 CITY: NASSAU BAHAMAS STATE: C5 FORMER COMPANY: FORMER CONFORMED NAME: VIKING STAR SHIPPING INC DATE OF NAME CHANGE: 19930914 6-K 1 EDGAR FORM 6-K 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 6-K Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934 Date of report: July 22, 1999 TEEKAY SHIPPING CORPORATION (Exact name of Registrant as specified in its charter) Fourth Floor, Euro Canadian Centre, Marlborough Street & Navy Lyon Road, P.O. Box SS-6293, Nassau, The Bahamas (Address of principal executive office) [Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.] Form 20-F [X] Form 40- F [ ] [Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.] Yes [ ] No [X] [If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82-_______ ] ================================================================================ Page 1 of 27 2 On June 11, 1999, we acquired Bona Shipholding Ltd. for an aggregate consideration (including transaction expenses) of approximately $450.0 million, consisting of approximately $40.0 million in cash, $294.0 million of assumed debt (net of cash acquired), and 6.4 million shares of our common stock. Bona was the 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. Through the acquisition we have combined Bona's market strength in the Atlantic region with our franchise in the Indo-Pacific Basin. For the year ended December 31, 1998, Bona earned net voyage revenues of $148.9 million, resulting in income from vessel operations of $37.2 million and net income of $16.6 million. The acquisition of Bona Shipholding Ltd. has been accounted for using the purchase method of accounting and did not result in the recording of any goodwill. We incurred expenses of approximately $19.0 million in connection with the acquisition. We will capitalize these expenses by adding them to the capitalized value of acquired vessels whose values are being written down and amortize the expenses over the remaining life of the vessels. Under the purchase method of accounting, Bona's operating results will be reflected in our financial statements commencing June 11, 1999, the effective date of the acquisition. Historically we have depreciated our vessels for accounting purposes over an economic life of 20 years down to estimated residual values. Bona depreciated its vessels over an economic life of 25 years down to estimated scrap values, which method is used by the majority of companies in the shipping industry. Effective April 1, 1999, we changed our useful life estimate to 25 years. The description of the Bona acquisition herein does not purport to be complete and is qualified in its entirety by the provisions of the Amalgamation Agreement, pursuant to which the acquisition was effected, which was filed as an exhibit to our Annual Report on Form 20-F for the fiscal year ended March 31, 1999. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired Bona Shipholding Ltd. Audited Consolidated Financial Statements: (i) Report of Arthur Andersen & Co., dated March 3, 1999; (ii) Bona Shipholding Ltd. Consolidated Balance Sheets as of December 31, 1998, 1997 and 1996; (iii) Bona Shipholding Ltd. Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996; (iv) Bona Shipholding Ltd. Consolidated Statements of Cash Flow for the years ended December 31, 1998, 1997 and 1996; (v) Bona Shipholding Ltd. Consolidated Statements of Stockholders' Equity as of December 31, 1998, 1997 and 1996; and (vi) Notes to the Financial Statements. (b) Unaudited Pro Forma Consolidated Condensed Financial Statements: (i) Unaudited Pro Forma Consolidated Condensed Balance Sheet as of March 31, 1999; (ii) Unaudited Pro Forma Consolidated Condensed Statement of Income for the year ended March 31, 1999; and (iii) Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements. (c) Exhibits 1.0 Amalgamation Agreement among Teekay Shipping Corporation, Northwest Maritime Inc., and Bona Shipholding Ltd., dated as of March 26, 1999 (incorporated by reference to an Annual Report on Form 20-F for the fiscal year ended March 31, 1999). 2.0 Consent of Arthur Andersen & Co. Page 2 of 27 3 THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE REGISTRATION STATEMENT OF THE COMPANY ON FORM F-3 FILED WITH THE COMMISSION ON OCTOBER 4, 1995. Page 3 of 27 4 [ARTHUR ANDERSEN LETTERHEAD] AUDITORS' REPORT FOR 1998 To the Stockholders of Bona Shipholding Ltd. We have audited the accompanying consolidated balance sheets of Bona Shipholding Ltd. and subsidiaries as of December 31, 1998, 1997 and 1996 and the related consolidated statements of income, stockholders' equity and cash flows for the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. 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 by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bona Shipholding Ltd. and subsidiaries as of December 31, 1998, 1997 and 1996, and the results of their operations and cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. /s/ MORTEN DRAKE Morten Drake State Authorised Public Accountant (Norway) Oslo, March 3, 1999 Page 4 of 27 5 BONA SHIPHOLDING LTD. CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, ---------------------------------------- (USD'000) Note 1998 1997 1996 - ------------------------------------------------------------------------------------------------- OPERATING INCOME AND EXPENSES Freight revenues 2 216,867 256,070 242,576 Voyage expenses 2 (68,004) (71,071) (70,699) INCOME ON TIMECHARTER BASIS 148,863 184,999 171,877 - ------------------------------------------------------------------------------------------------- Charterhire expenses (32,988) (44,601) (40,491) Crew expenses (25,603) (23,322) (25,572) Other running expenses 3 (29,532) (28,970) (34,679) Administration expenses 5,17,18 (4,412) (4,234) (2,667) Results from joint ventures and associated companies 9 2,046 971 907 OPERATING PROFIT BEFORE DEPRECIATION, AMORTISATION AND SALES GAIN 58,374 84,842 69,375 - ------------------------------------------------------------------------------------------------- Depreciation vessels 8 (23,720) (39,345) (45,941) Amortisation drydocking expenses 4 (5,182) (6,041) (4,591) Gain from sale of vessels 2,831 9,173 3,924 OPERATING PROFIT 32,303 48,629 22,767 - ------------------------------------------------------------------------------------------------- FINANCIAL INCOME AND EXPENSES Interest income 5,525 7,375 6,308 Interest expenses (20,135) (20,893) (28,144) Other financial items (897) 4,485 3,317 NET FINANCIAL INCOME AND EXPENSES (15,507) (9,033) (18,519) - ------------------------------------------------------------------------------------------------- INCOME BEFORE MINORITY INTERESTS AND TAXES 16,796 39,596 4,248 - ------------------------------------------------------------------------------------------------- Minority interests (206) 15 625 Taxes 16 - - - NET PROFIT 16,590 39,611 4,873 - ------------------------------------------------------------------------------------------------- EARNINGS PER SHARE (BASIC AND DILUTED) 0.75 1.40 0.17 - -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements Page 5 of 27 6 BONA SHIPHOLDING LTD. CONSOLIDATED BALANCE SHEETS
As at December 31, ------------------------------------------ (USD'000) Note 1998 1997 1996 - ----------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents 6 71,575 138,248 134,659 Accrued freight revenues 8,045 9,077 4,130 Other current assets 7 2,994 6,972 3,306 Bunker inventory 1,382 1,985 3,407 TOTAL CURRENT ASSETS 83,996 156,282 145,502 - ----------------------------------------------------------------------------------------------------- Vessels 8,13 409,312 418,650 482,917 Newbuilding contracts 11 35,329 13,083 - Other fixed assets 10 62,743 58,682 5,255 Capitalised drydocking expenses 4 6,253 7,260 11,510 Joint ventures and associated companies 9 25,830 28,168 29,691 TOTAL FIXED ASSETS 539,467 525,843 529,373 - ----------------------------------------------------------------------------------------------------- TOTAL ASSETS 623,463 682,125 674,875 - ----------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long term debt 13 3,600 15,833 18,000 Other current liabilities 12 7,257 15,540 18,722 TOTAL CURRENT LIABILITIES 10,857 31,373 36,722 - ----------------------------------------------------------------------------------------------------- Long term portion of mortgage debt 13,19 292,900 270,167 352,000 Other long term debt 14,19 59,541 54,828 86 TOTAL LONG TERM DEBT 352,441 324,995 352,086 - ----------------------------------------------------------------------------------------------------- MINORITY INTERESTS 5,252 - 29 - ----------------------------------------------------------------------------------------------------- Common stock 28,386 28,386 28,374 Additional paid-in capital 147,258 234,692 234,596 Retained earnings 79,269 62,679 23,068 STOCKHOLDERS' EQUITY 254,913 325,757 286,038 - ----------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 623,463 682,125 674,875 - -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements HAMILTON, MARCH 3, 1999 LEIF O. H0EGH RAGNAR BELCK-OLSEN Chairman President Page 6 of 27 7 BONA SHIPHOLDING LTD. CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended December 31, --------------------------------------------- (USD'000) 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income 16,590 39,611 4,873 Depreciation vessels 23,720 39,345 45,941 Depreciation other fixed assets 347 390 243 Results from joint ventures and associated companies (2,046) (971) (907) Gain from sale of vessels (2,831) (9,173) (3,924) Amortisation drydocking 5,182 6,041 4,591 Decrease/(increase) in bunker inventory 603 1,423 (717) Decrease/(increase) in accrued freight 1,032 (4,947) 4,659 Decrease/(increase) in other current assets 3,977 (3,666) 2,522 (Decrease)/increase in other current liabilities (8,283) (3,182) (3,577) NET CASH PROVIDED BY OPERATING ACTIVITIES 38,293 64,871 53,704 - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Investments in vessels/newbuildings (45,938) (13,871) (2,781) Investments in other fixed assets 3,712 (53,817) 754 Investments in drydocking (4,175) (1,791) (13,811) Proceeds from sale of vessels 14,091 38,952 69,732 Investment in joint ventures and associated companies (27) (1,590) 258 NET CASH FROM INVESTING ACTIVITIES (32,337) (32,117) 54,152 - ----------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of mortgage debt (339,800) (84,000) (208,050) New mortgage debt raised 350,100 - 190,000 Repayment of other long term debt - - (90,143) Other long term debt raised 4,712 54,742 - Stockholders' capital provided/adjusted - 108 - Stockholders' capital reduced (87,435) Minority interests (206) (15) (625) NET CASH FROM FINANCING ACTIVITIES (72,629) (29,165) (108,818) - ----------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (66,673) 3,589 (962) - ----------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 138,248 134,659 135,621 - ----------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR 71,575 138,248 134,659 - -----------------------------------------------------------------------------------------------------------
Page 7 of 27 8 BONA SHIPHOLDING LTD. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(USD'000) Common stock Share capital Additional Total issued and Par value paid in Retained stockholder's outstanding per share capital earnings equity - -------------------------------------------------------------------------------------------------- BALANCE JAN. 1, 1996 28,374 1 234,596 18,238 281,208 - -------------------------------------------------------------------------------------------------- Net income 4,873 4,873 Adjustments marketable (43) (43) securities BALANCE DEC. 31, 1996 28,374 1 234,596 23,068 286,038 - -------------------------------------------------------------------------------------------------- Net Income 39,611 39,611 New shares issued 12 1 96 108 BALANCE DEC. 31, 1997 28,386 1 234,692 62,679 325,757 - -------------------------------------------------------------------------------------------------- Net income 16,590 16,590 Consolidation of shares (9,462) 1 Capital distribution (87,434) (87,434) BALANCE DEC. 31, 1998 18,925 1.5 147,258 79,269 254,913 - --------------------------------------------------------------------------------------------------
As per December 31 1998 1997 1996 - ----------------------------------------------------------------------------------------------- Number of shares authorised 250,000,000 250,000,000 250,000,000 Number of shares issued and outstanding 18,923,774 28,386,434 28,374,434
Page 8 of 27 9 BONA SHIPHOLDING LTD. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP). The financial statements have been prepared in US dollars (USD), which is the functional currency of Bona. The financial statements of Bona may be used in other countries than the United States. Generally accepted accounting principles in such countries may differ from the principles applied in the preparation of these financial statements. PRINCIPLES OF CONSOLIDATION The consolidated accounts comprise Bona Shipholding Ltd. and all subsidiaries directly or indirectly controlled by the company. See Note 1 for a full list of companies. The cost of shares in subsidiaries has been eliminated against equity in the subsidiaries at the time of establishment or acquisition. Any values in excess of the underlying equity for subsidiaries at the time of acquisition have been allocated to the assets to which the excess relates. Subsidiaries acquired are included in the consolidated accounts as from the day control was achieved. In the consolidated financial statement all intercompany balances, transactions and profits arising between the consolidated companies have been eliminated. INVESTMENTS IN JOINT VENTURES, ASSOCIATED COMPANIES AND POOLS Bona's participating interests in limited partnerships and joint ventures are accounted for using the equity method. Reference is made to Note 9 for a list of companies. All OBO vessels owned by the company are operated through the Panmax OBO Pool. The participants in the Pool are the companies contributing vessel capacity to the Pool. The Panmax OBO Pool is managed by Bona Shipping AS. As from 1998 freight revenues, voyage expenses and charterhire expenses in the Panmax OBO Pool have been included on a 100% basis in the consolidated financial statements. The minority pool participants' share of the result has been deducted as charterhire expenses. The figures for 1997 and 1996 have been revised accordingly. DEPRECIABLE FIXED ASSETS Depreciable fixed assets are stated in the balance sheet at cost, plus upgrading, less depreciation. Interest and other direct expenses in the construction period are capitalised as vessel cost. The straight-line method is used for depreciation of vessels. In 1998 Bona changed its depreciation policy by extending the assumed economic life of its vessels from 20 to 25 years. Vessels will be written down to their estimated scrap values. Depreciation on office equipment is included in administrative expenses. NEWBUILDING CONTRACTS Newbuilding contracts are included under fixed assets by instalments made to the shipyard including any interest and other direct expenses during the construction period. CURRENCY EXCHANGE Transactions denominated in currencies other than USD are translated at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in non-USD currencies at year end are recorded at year-end rates of exchange. Exchange gains and losses are included as "Other financial items" in the statement of income. REVENUE RECOGNITION Revenues represent freight revenues net of broker commissions and inclusive of demurrage and despatch. Revenues and expenses related to incomplete voyages are accounted for on the percentage of completion basis. LOAN EXPENSES Fees incurred in connection with the arrangement of loan facilities are capitalised and amortised over the repayment periods. MAINTENANCE AND DRYDOCKING EXPENSES Expenses related to maintenance of the vessels are expensed when incurred. Expenses related to classification and drydocking of vessels are capitalised when a vessel is drydocked and amortised over the period between dockings. Page 9 of 27 10 BONA SHIPHOLDING LTD. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUNKER AND OTHER INVENTORIES Inventories are valued at the lower of cost using the FIFO principle or market value. STOCK ISSUANCE EXPENSES Stock issuance expenses are charged directly against the stockholders' equity. LEASING Asset values and obligations in respect of vessels financed through lease agreements, where the company has the option to buy the vessel for the remaining principal amount outstanding of the lease debt, are capitalised and classified as vessels and long term debt. The interest element of a lease payment is included in interest expenses and the capital element of a lease payment is treated as repayment of debt. The lease liability is the remaining principal amount outstanding. INTEREST RATE SWAP AGREEMENTS The differential to be paid or received is accrued as interest rates change and is recognised as an adjustment to interest expenses. Page 10 of 27 11 \BONA SHIPHOLDING LTD. NOTES TO THE FINANCIAL STATEMENTS NOTE 1 INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATED COMPANIES
Ownership SUBSIDIARIES 1998 1997 1996 - ------------------------------------------------------------------------------------------------- Bona Shipping AS 100% 100% 100% Bona Shipping (U.S.) Inc. 100% 100% 100% Bona Freighter AS 100% 100% 100% Bona Freighter KS 52% 30% 30% Bona Fortuna AS 100% 100% 100% Bona Fortuna KS 67% 40% 40% Bona Rambler AS 100% 100% 100% K/S Smedvig Tankships VI 89.13% 89.13% 89.13% Bona Freighter & Fortuna Ltd. 100% - - JOINT VENTURES AND ASSOCIATED COMPANIES Soponata-Bona Limited 50% 50% 50% P/R Bona Falcon ANS - 50% 50% Ariel KS - - 29%
NOTE 2 FREIGHT REVENUES AND VOYAGE EXPENSES Revenues from tanker and OBO operations are included in freight revenues net of commissions and inclusive of demurrage and despatch. Voyage expenses include all expenses related to the completion of voyages such as bunker cost, port expenses, towage, disposal of slops and voyage related insurances.
Amounts in USD'000 FREIGHT REVENUES 1998 1997 1996 - --------------------------------------------------------------------------------------------- Freight revenues gross 211,727 252,330 239,973 Demurrage / despatch 9,620 9,118 8,150 Broker commissions (4,480) (5,378) (5,547) FREIGHT REVENUES 216,867 256,070 242,576 - --------------------------------------------------------------------------------------------- VOYAGE EXPENSES Bunker and diesel (23,304) (29,409) (30,606) Port expenses (39,972) (36,908) (35,923) Other voyage related expenses (4,728) (4,754) (4,170) VOYAGE EXPENSES (68,004) (71,071) (70,699) - --------------------------------------------------------------------------------------------- INCOME ON TIMECHARTER BASIS 148,863 184,999 171,877 - --------------------------------------------------------------------------------------------- COMMISSIONS IN PERCENT OF GROSS FREIGHT 2.12% 2.13% 2.31% - --------------------------------------------------------------------------------------------- BUNKER COST IN PERCENT OF TOTAL VOYAGE EXPENSES 34.27% 41.38% 43.29% - ---------------------------------------------------------------------------------------------
Page 11 of 27 12 BONA SHIPHOLDING LTD. NOTES TO THE FINANCIAL STATEMENTS NOTE 3 OTHER RUNNING EXPENSES All expenses related to the technical operation of the vessels except crew cost, upgrading and drydocking expenses are included in other running expenses. The main items are:
Amounts in USD'000 1998 1997 1996 - ---------------------------------------------------------------------------------------- Service, repair, maintenance and spares 13,471 12,690 17,394 Consumables and lubricants 5,143 5,177 6,524 Damage 1,033 1,580 1,074 Insurance 3,122 3,723 5,433 Other 6,763 5,800 3,929 TOTAL RUNNING EXPENSES VESSELS 29,532 28,970 34,354 - ---------------------------------------------------------------------------------------- Newbuilding cancellation expenses - - 325 TOTAL RUNNING EXPENSES 29,532 28,970 34,679 - ----------------------------------------------------------------------------------------
NOTE 4 DRYDOCKING EXPENSES Bona uses the deferral method for accounting of drydocking costs. Under this method the actual drydocking and classification expenses are capitalised and amortised on a straight line basis over the period up until the next drydocking. The unamortised portion of drydocking expenses is shown on a separate line in the balance sheet.
1998 1997 1996 - ---------------------------------------------------------------------------------------- Capitalised drydocking expenses January 1 7,260 11,510 2,290 Investments in drydocking 4,175 1,791 13,811 Amortised drydocking expenses (5,182) (6,041) (4,591) CAPITALISED DRYDOCKING EXPENSES DECEMBER 31 6,253 7,260 11,510 - ----------------------------------------------------------------------------------------
NOTE 5 ADMINISTRATION EXPENSES The administration expenses of Bona related to the marketing and operation of the vessels are included in "Voyage expenses" and "Other running expenses", respectively. The item "Administration expenses" consists of expenses related to the company's Board of Directors, top management, president's office and to part of the expenses for the personnel and finance departments. NOTE 6 CASH AND CASH EQUIVALENTS The company's liquidity reserve for the most part has been invested in short term USD denominated securities. Total fair value of these securities amounted to USD 61.4 mill as per December 31, 1998. According to the Statement of Financial Accounting Standards Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (FAS 115) the securities have been classified as "available for sale securities" and unrealised gains or losses included as a separate component of stockholders' equity. As per December 31, 1998 the unrealised gain or loss related to these securities was insignificant and no gain or loss was recorded. Page 12 of 27 13 BONA SHIPHOLDING LTD. NOTES TO THE FINANCIAL STATEMENTS NOTE 7 OTHER CURRENT ASSETS Receivables with maturity within one year or prepaid expenses are included in other current assets. The main items are:
Amounts in USD'000 1998 1997 1996 - ------------------------------------------------------------------------------------- Insurance claims 1,715 4,508 459 Prepaid expenses 936 1,450 1,557 Other 343 1,014 1,290 TOTAL 2,994 6,972 3,306 - -------------------------------------------------------------------------------------
NOTE 8 VESSELS
Amounts in USD'000 1998 1997 1996 - ------------------------------------------------------------------------------------- Cost January 1 654,834 687,252 761,873 Additions 23,692 788 2,779 Sale of vessels (14,699) (33,206) (77,400) COST DECEMBER 31 663,827 654,834 687,252 - ------------------------------------------------------------------------------------- Accumulated depreciation January 1 (236,184) (204,335) (170,608) Accumulated depreciations assets sold 5,389 7,496 12,214 Depreciation (23,720) (39,345) (45,941) BOOK VALUE AT DECEMBER 31 409,312 418,650 482,917 - -------------------------------------------------------------------------------------
VESSEL BOOK VALUE ADDITIONS/SALE DEPRECIATION BOOK VALUE 1.1.98 1998 1998 31.12.98 - -------------------------------------------------------------------------------------- Bona Fair 9,732 - (851) 8,881 Bona Favour 6,271 98 (460) 5,909 Bona Foam 6,292 88 (461) 5,919 Bona Forum 8,734 250 (579) 8,405 Bona Fountain 7,608 79 (539) 7,148 Bona Fulmar 9,007 94 (591) 8,511 Bona Sailor 9,898 53 (1,727) 38,223 Bona Shimmer 25,806 53 (1,436) 24,423 Bona Skipper 3,072 53 (1,353) 21,772 Bona Sparrow 19,209 53 (1,350) 17,912 Bona Spinner 23,057 53 (1,352) 21,758 Bona Spray 36,799 113 (1,664) 35,248 Bona Spring 20,642 53 (1,356) 19,339 Bona Rainbow 9,647 (9,310) (336) - Bona Ranger 21,080 53 (1,360) 19,773 Bona Ray 22,849 53 (1,388) 21,514 Bona Rider 40,884 258 (1,715) 39,428 Bona Robin 40,873 168 (1,710) 39,331 Bona Rover 40,865 169 (1,710) 39,325 Guardian 6,325 - - 6,325 Bona Fortuna - 11,084 (904) 10,180 Bona Freighter - 10,869 (881) 9,988 - -------------------------------------------------------------------------------------- TOTAL 418,650 14,384 (23,720) 409,312
Page 13 of 27 14 BONA SHIPHOLDING LTD. NOTES TO THE FINANCIAL STATEMENTS NOTE 9 JOINT VENTURES AND ASSOCIATED COMPANIES Bona has a 50% participating interest in the joint venture Soponata - Bona Limited, the owner of Bornes, Erati and Inago. Bona's ownership interest in Bona Freighter KS and Bona Fortuna KS was in 1996 and 1997 30% and 40%, respectively. As from January 1, 1998 the ownership interest increased to 52% and 67% and the companies have been 100% consolidated in 1998. The shares in Ariel KS were sold in 1997. Partrederiet Bona Falcon ANS sold the vessel Bona Falcon in 1997.
Amounts in USD'000 BOOK VALUE OF JOINT VENTURES AND ASSOCIATED COMPANIES 1998 1997 1996 - ---------------------------------------------------------------------------------------------- Bona Freighter KS - 1,184 68 Bona Fortuna KS - 1,201 1,113 Ariel KS - - 4 Bona Falcon ANS - - 4,024 Soponata - Bona Limited 25,830 25,783 24,482 TOTAL BOOK VALUE 25,830 28,168 29,691 - ----------------------------------------------------------------------------------------------
Amounts in USD'000 RESULTS FROM JOINT VENTURES AND ASSOCIATED COMPANIES 1998 1997 1996 - ---------------------------------------------------------------------------------------------- Bona Freighter KS - (474) (183) Bona Fortuna KS - 87 (208) Ariel KS - - - Falcon ANS - 58 468 Soponata - Bona Limited 2,046 1,301 830 TOTAL RESULTS 2,046 971 907 - ----------------------------------------------------------------------------------------------
Amounts in USD'000 SUMMARISED FINANCIAL STATEMENTS OF SOPONATA-BONA 1998 1997 1996 LIMITED (100% BASIS)* - ---------------------------------------------------------------------------------------------- Time charter income 20,971 21,042 19,796 Operating profit 6,488 5,785 5,206 Income before taxes and extraordinary items 2,518 1,549 (447) Net profit 2,480 2,003 (400) Total current assets 7,081 8,765 6,783 Total fixed assets 97,732 104,253 109,501 TOTAL ASSETS 104,813 113,018 116,284 - ---------------------------------------------------------------------------------------------- Total current liabilities 7,857 9,542 9,913 Total long term debt 57,500 62,500 67,500 Stockholders' equity 39,456 40,976 38,871 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 104,813 113,018 116,284 - ----------------------------------------------------------------------------------------------
* The figures in the financial statements of Soponata-Bona Limited are not directly comparable with the figures in the financial statements of Bona as the basis for depreciation and amortisation is different. Page 14 of 27 15 BONA SHIPHOLDING LTD. NOTES TO THE FINANCIAL STATEMENTS NOTE 10 OTHER FIXED ASSETS
Amounts in USD'000 1998 1997 1996 - ------------------------------------------------------------------------------------ Cars, EDP equipment and furniture 1,517 1,389 1,226 Arrangement fee on mortgage debt 1,487 2,105 2,079 Investment in and loan to Acina KS 748 748 850 Promissory notes - newbuildings 58,980 54,423 - Other long term receivables 11 17 1,100 TOTAL 62,743 58,682 5,255 - ------------------------------------------------------------------------------------
NOTE 11 NEWBUILDING CONTRACTS In April 1997 Bona entered into a contract with Samsung Corporation and Samsung Heavy Industries Co. Ltd for the construction of three 113,000 dwt. oil tankers. The tankers are all scheduled for delivery in 1999. Bona paid 10% of the purchase price upon signing of the contracts. Additionally 20% of the purchase price has been paid during the construction periods and the remaining 70% will be paid upon delivery of the vessels. All pre-delivery payments have been secured through bank guarantees from a western bank. The estimated delivery price including all necessary extras, interest during construction and supervision is calculated at USD 130 mill. for the three vessels. Capitalised interests were USD 1.3 mill., USD 0.6 mill., and USD 0 mill. in 1998, 1997 and 1996, respectively. NOTE 12 OTHER CURRENT LIABILITIES
Amounts in USD'000 1998 1997 1996 - ------------------------------------------------------------------------------------ Suppliers 1,132 4,090 5,154 Accrued crew wages 2,663 1,764 2,119 Accrued interest on mortgage debt 1,125 5,219 5,941 Accrued running expenses 1,006 698 3,056 Accrued operational expenses 1,079 684 1,154 Other 252 3,085 1,298 TOTAL 7,257 15,540 18,722 - ------------------------------------------------------------------------------------
NOTE 13 MORTGAGE DEBT
Amounts in USD'000 1998 1997 1996 - ------------------------------------------------------------------------------------ Revolving credit facility I - 96,000 180,000 Revolving credit facility II - 190,000 190,000 Revolving credit facility III 285,000 - - Bona Freighter KS 6,100 - - Bona Fortuna KS 5,400 - - TOTAL 296,500 286,000 370,000 - ------------------------------------------------------------------------------------
Page 15 of 27 16 BONA SHIPHOLDING LTD. NOTES TO THE FINANCIAL STATEMENTS Aggregate maturities of mortgage debt are as follows:
Year Amounts in USD'000 - ---------------------------------------------------------------------------------- 1999 3,600 2000 18,600 2001 34,300 2002 30,000 2003 30,000 After 2003 180,000 TOTAL 296,500 - ----------------------------------------------------------------------------------
The mortgage debt is denominated in USD and bears interest at a margin over LIBOR. In 1998 the average interest rate paid was 6.3% inclusive margin, the same as in 1997 and 6.4% in 1996. The average interest rate by year end 1998 was 5.9% inclusive margin. The loan agreements include various covenants of a financial or other nature of which the more important financial covenants include a specified minimum level of free cash, a specified ratio of liabilities to market value of assets and a specified ratio of current assets to current liabilities. Most of the vessels owned by Bona have been mortgaged to secure Bona's obligations under the credit facilities. NOTE 14 OTHER LONG TERM DEBT PROMISSORY NOTES In connection with the ordering of three Aframax newbuildings at Samsung Heavy Industries (ref. Note 11), Bona has issued three non interest bearing promissory notes for 50% of the contract price for each vessel. The notes fall due for payment upon delivery of the vessels. The net present value of these notes, discounted at 5.9% p.a., has been included in the balance sheet under "Other fixed assets" and "Other long term debt" with an amount of USD 59.0 mill. The notes have been secured through a bank guarantee from a western bank. PENSION LIABILITIES The net of pension assets and pension liabilities amount to USD 0.56 mill. as a liability and is included in "Other long term debt" (ref. Note 18). NOTE 15 GUARANTEES The company has guaranteed 50% of the outstanding mortgage debt in the joint venture company Soponata-Bona Limited, corresponding to USD 31.25 mill. as per year end 1998. Bona`s interests in the limited partnerships Bona Freighter KS and Bona Fortuna KS are owned through Bona Freighter & Fortuna Ltd., Bona Freighter AS and Bona Fortuna AS. Bona Shipholding Ltd. has guaranteed the companies' share of committed, uncalled capital in the limited partnerships totalling USD 3.1 mill. Page 16 of 27 17 BONA SHIPHOLDING LTD. NOTES TO THE FINANCIAL STATEMENTS NOTE 16 TAXES ON INCOME Taxes on income have not been provided for in the financial statements. Bona Shipholding Ltd. is incorporated in Bermuda, a jurisdiction that does not impose income taxes on shipping related activities. Certain of Bona's subsidiaries are located in taxable jurisdictions, and such subsidiaries have incurred tax losses in previous years of USD 2.8 mill., which may be carried forward for 10 years from the year incurred. The deferred tax asset arising from these losses amounts to USD 0.8 mill. and has been offset by a provision of the same amount as it can not be reasonably expected that these losses can be utilised for deduction against taxable income for these subsidiaries in the near future. NOTE 17 RELATED PARTY Total remuneration to the Directors of the company has been:
Amounts in USD'000 1998 1997 1996 - ----------------------------------------------------------------------------------------------------- 630 546 506
NOTE 18 PENSION ARRANGEMENTS Bona has pension plans that cover all Norwegian employees. These plans are defined as benefit plans and are based on years of service and final salary levels. However, the level of benefits vary among plans. Amounts charged to pension expenses, as well as amounts funded are generally based on actuarial studies. Pension plan assets and related obligations are administered by Gjensidige Forsikring AS. In addition to the funded plans Bona has a supplemental benefit plan for certain of its officers granting early retirement benefits subject to certain restrictions defined. Payments under this plan will be financed through direct payments from Bona. The recorded obligations are based on actuarial computations. The financial information for the aggregate of both plans is summarised below.
COMPONENTS OF PENSION EXPENSES: 1998 1997 1996 - -------------------------------------------------------------------------------------------- Benefits earned during the year 319 311 315 Investment return on plan assets (252) (188) (184) Interest cost on projected benefit obligations 243 198 144 Social security tax 98 91 58 Amortisation of net deferred amount 263 432 20 NET EXPENSES 671 844 353 - --------------------------------------------------------------------------------------------
Page 17 of 27 18 BONA SHIPHOLDING LTD. NOTES TO THE FINANCIAL STATEMENTS
PLAN ASSETS AND LIABILITIES: 1998 1997 1996 - -------------------------------------------------------------------------------------------- Total projected obligations (accumulated obligations including effect of projected future salary increases) (2,932) (2,473) (2,508) Assets of the plans at fair value 3,529 2,990 2,704 ASSETS IN EXCESS OF PROJECTED OBLIGATION 597 517 196 - -------------------------------------------------------------------------------------------- Effect of changes in actuarial assumptions and differences between actual and estimated amounts 43 133 412 NET ASSETS OF FUNDED PENSION PLANS 640 650 608 - -------------------------------------------------------------------------------------------- Unfunded pension obligations (1,201) (1,056) (694) NET PENSION ASSETS (LIABILITIES) (561) (406) (86) - -------------------------------------------------------------------------------------------- ASSUMPTIONS USED IN ESTIMATING PLAN ASSETS AND OBLIGATIONS: Discount rate for pension obligation 7.0% 7.0% 7.0% Increase in compensation levels 3.3% 3.3% 3.3% Long-term return on plan assets 8.0% 8.0% 8.0%
NOTE 19 FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate such a value: CASH AND MARKETABLE SECURITIES: The carrying amount approximates fair value because of the short maturity of those instruments. LONG TERM DEBT: The carrying amount of the long term debt approximates its fair value. The interest rates and maturities of the loans reflect the market conditions for similar loans raised at the balance sheet date. BUNKER HEDGING AGREEMENTS: Bona has entered into bunker hedging agreements covering a part of the bunker consumption for the first three quarters of 1999. As per December 31, 1998 total unrealised losses on these contracts amounted to USD 0.47 mill. The difference to be paid or received is reported as voyage expenses in the period of settlement. INTEREST HEDGING AGREEMENTS: As per December 31, 1998 Bona had entered into two interest rate swaps, each of USD 50 mill. with maturity in February 2005. The average interest rate of the swaps is 5.86%. As per year end the fair value of these interest rate swaps was negative with USD 3.1 mill. The fair value of the swaps is the amount that would have been paid at year end if the swaps were cancelled. The difference to be paid or received is reported as interest expenses in the period prior to each settlement date. The interest rate swaps are settled semi-annually. Page 18 of 27 19 BONA SHIPHOLDING LTD. NOTES TO THE FINANCIAL STATEMENTS CURRENCY HEDGING AGREEMENTS: As per December 31, 1998 Bona had entered into a currency forward agreement under which the company sells USD 12 mill. and buys the equivalent value of NOK at predefined exchange rates and dates during 1999. As per year end the company had recognised a loss of USD 0.02 mill. under this contract. NOTE 20 SHARE OPTION SCHEMES FOR EMPLOYEES In 1993 the company established a share option program for its top management. The options granted under the pro-gram become exercisable at annual intervals. All options granted are exerciseble at USD 9 per share which approximated the share price at the grant date. Exercisable options must be declared prior to January 1, 2002. Options not exercisable at the time an employee leaves are cancelled. The transactions of exercisable options from January 1, 1996 were:
Opening balance New options Cancelled Declared Ending balance - ------------------------------------------------------------------------------------------------ 1996 174,500 105,000 279,500 1997 279,500 107,500 (120,000) (12,000) 255,000 1998 255,000 87,000 342,000
A further 38,000 options become exercisable in 1999 and 2000 (19,000 each year). NOTE 21 DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES NATURE OF OPERATION Bona is owner and operator of medium size tankers, combination carriers (OBOs) and one ULCC. The company is engaged in world wide transportation of bulk commodities, primarily oil and oil products. For a complementary description of the company and its operation, reference is made to the other parts of this Annual Report. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles in the US requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Page 19 of 27 20 TEEKAY SHIPPING CORPORATION UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED MARCH 31, 1999 (IN THOUSANDS OF U.S. DOLLARS EXCEPT PER SHARE AMOUNTS)
TEEKAY CHANGE IN PRO FORMA PRO FORMA TEEKAY BONA ESTIMATE ADJUSTMENTS NOTES CONSOLIDATED --------- --------- --------- --------- ----- --------- NET VOYAGE REVENUES Voyage revenues 411,922 205,090 617,012 Voyage expenses 93,511 61,912 (2,107) (6b) 153,316 --------- --------- --------- --------- --------- Net voyage revenues 318,411 143,178 0 2,107 463,696 --------- --------- --------- --------- --------- OPERATING EXPENSES Vessel operating expense 84,397 53,758 (6,945) (6b) 131,210 Time charter hire expense 29,666 32,875 62,541 Depreciation - vessels 85,129 23,631 (18,812) (4,095) (4,6a) 85,853 Drydock amortization expense 8,583 4,595 13,178 General and administrative 25,002 4,738 9,052 (6b) 38,792 --------- --------- --------- --------- --------- 232,777 119,597 (18,812) (1,988) 331,574 --------- --------- --------- --------- --------- Income from vessel operations 85,634 23,581 18,812 4,095 132,122 --------- --------- --------- --------- --------- OTHER ITEMS Interest expense (44,797) (19,943) (64,740) Interest income 6,369 4,647 (1,994) (6c) 9,022 Gain on sale of vessels 7,117 2,831 9,948 Results from joint ventures and associated companies 2,302 293 (6a) 2,595 Other income (loss) (1,611) (831) (2,442) --------- --------- --------- --------- --------- (32,922) (10,994) 0 (1,701) (45,617) --------- --------- --------- --------- --------- Net income before extraordinary loss 52,712 12,587 18,812 2,394 86,505 Extraordinary loss on bond redemption (7,306) (7,306) --------- --------- --------- --------- --------- Net income 45,406 12,587 18,812 2,394 79,199 ========= ========= ========= ========= ========= Pro Forma Basic Earnings per Common Share Net income before extraordinary loss $2.31 Net income $2.11 Pro Forma Diluted Earnings per Common Share Net income before extraordinary loss $2.31 Net income $2.11 Weighted average number of shares outstanding (thousands) 37,478
The accompanying notes are an integral part of the unaudited pro forma consolidated condensed financial statements. Page 20 of 27 21 TEEKAY SHIPPING CORPORATION UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET AS AT MARCH 31, 1999 (IN THOUSANDS OF U.S. DOLLARS)
PRO FORMA PRO FORMA TEEKAY BONA ADJUSTMENTS NOTES CONSOLIDATED ASSETS CURRENT Cash & cash equivalents 118,435 81,510 (39,884) (5) 160,061 Marketable securities 8,771 8,771 Accounts receivable 22,995 5,638 28,633 Prepaid expenses and other assets 16,195 7,512 23,707 ---------- ---------- ---------- ---------- 166,396 94,660 (39,884) 221,172 Marketable securities 5,050 5,050 Vessels & equipment (including advances on newbuildings) 1,274,539 479,031 (92,467) (5) 1,661,103 Joint ventures and associated companies 26,290 (7,152) (5) 19,138 Other assets 6,235 43,784 50,019 ---------- ---------- ---------- ---------- TOTAL ASSETS 1,452,220 643,765 (139,503) 1,956,482 ========== ========== ========== ========== LIABILITIES CURRENT Accounts payable 11,926 11,926 Accrued liabilities 21,185 15,602 19,000 (5) 55,787 Current portion of long-term debt 39,058 3,600 42,658 ---------- ---------- ---------- ---------- 72,169 19,202 19,000 110,371 Long-term debt 602,661 322,900 925,561 Other long-term liabilities 40,351 40,351 Minority interests 5,387 5,387 ---------- ---------- ---------- ---------- TOTAL LIABILITIES 674,830 387,840 19,000 1,081,670 ---------- ---------- ---------- ---------- STOCKHOLDERS' EQUITY Capital stock 330,493 175,644 (78,222) (5) 427,915 Retained earnings 446,897 80,281 (80,281) (5) 446,897 ---------- ---------- ---------- ---------- 777,390 255,925 (158,503) 874,812 ---------- ---------- ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,452,220 643,765 (139,503) 1,956,482 ========== ========== ========== ==========
The accompanying notes are an integral part of the unaudited pro forma consolidated condensed financial statements. Page 21 of 27 22 TEEKAY SHIPPING CORPORATION NOTES TO PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The unaudited pro forma consolidated condensed financial statements (the "Financial Statements") give effect to the acquisition of Bona Shipholding Ltd. ("Bona") by Teekay Shipping Corporation ("Teekay"). The Financial Statements have been prepared by management in accordance with generally accepted accounting principles in the United States from the information derived from the historical financial statements of Teekay and Bona for the twelve months ended March 31, 1999. In the opinion of management, the Financial Statements include all adjustments necessary for fair presentation. The pro forma consolidated condensed statement of income for the twelve months ended March 31, 1999 is based on the consolidated financial statements of Teekay and Bona for that period and give effect to the acquisition as though it had taken place on April 1, 1998. The pro forma consolidated condensed balance sheet as at March 31, 1999 is based on the consolidated financial statements of Teekay and Bona as of that date and give effect to the acquisition as though it had taken place on that date. The Financial Statements are not necessarily indicative of what the results of operations and financial position would have been, nor do they purport to project Teekay's results of operations for any future periods. The Financial Statements also do not include any expected benefits or cost savings arising from the acquisition. The Financial Statements should be read in conjunction with the consolidated financial statements of Teekay and Bona referred to above. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REPORTING CURRENCY The Financial Statements are stated in U.S. dollars because it is the functional currency of the relevant international shipping markets. INVESTMENTS Participating interests in limited partnerships and joint ventures are accounted for using the equity method. All Bona oil/bulk/ore ("OBO") vessels are operated through an OBO Pool. The participants in the Pool are the companies contributing vessel capacity to the Pool. The freight revenues, voyage expenses and charter hire expenses in the Pool are included on a 100% basis in the Financial Statements. The minority pool participants' share of the result has been deducted as charter hire expenses. OPERATING REVENUES AND EXPENSES Voyage revenues and expenses are recognized on the percentage of completion method of accounting. Estimated losses on voyages are provided for in full at the time such losses become evident. The pro forma consolidated condensed balance sheet reflects the deferred portion of revenues and expenses applicable to subsequent periods. Voyage expenses comprise all expenses relating to particular voyages, including bunker fuel expenses, port fees, canal tolls, and brokerage commissions. Vessel operating expenses comprise all expenses relating to the operation of vessels, including crewing, repairs and maintenance, insurance, stores and lubes, and miscellaneous expenses including communications. Page 22 of 27 23 MARKETABLE SECURITIES Investments in marketable securities are classified as available-for-sale securities and are carried at fair value. Net unrealized gains or losses on available-for-sale securities, if material, are reported as a separate component of stockholders' equity. VESSELS AND EQUIPMENT All pre-delivery costs incurred during the construction of newbuildings, including interest costs, and supervision and technical costs are capitalized. The acquisition cost and all costs incurred to restore used vessel purchases to the standard required to properly service customers are capitalized. Depreciation is calculated on a straight-line basis over a vessel's useful life, estimated to be twenty-five years (see note 4) from the date a vessel is initially placed in service. 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. Vessels acquired pursuant to bareboat hire purchase agreements are capitalized as capital leases and are amortized over the estimated useful life of the acquired vessel. OTHER ASSETS Loan costs, including fees, commissions and legal expenses, are capitalized and amortized over the term of the relevant loan. Amortization of loan costs is included in interest expense. INTEREST RATE SWAP AGREEMENTS The differential to be paid or received on interest rate swap agreements is accrued as interest rates change and is recognized as an adjustment to interest expense. Premiums and receipts, if any, are recognized as adjustments to interest expense over the lives of the individual contracts. FORWARD CONTRACTS Forward contracts are entered into as a hedge against changes in foreign exchange rates. Market value gains and losses are deferred and recognized during the period in which the hedged transaction is recorded in the accounts. CASH AND CASH EQUIVALENTS All highly liquid investments with a maturity date of three months or less when purchased are classified as cash and cash equivalents. INCOME TAXES The legal jurisdictions of the countries in which Teekay and Bona and the majority of their subsidiaries are incorporated do not impose income taxes upon shipping-related activities. 3. ACCOUNTING TREATMENT FOR THE BUSINESS COMBINATION The acquisition has been accounted for using the purchase method of accounting. The results of operations of Bona are included from the assumed date of acquisition. Bona's accounting policies have been adjusted to be consistent with those of Teekay. Page 23 of 27 24 4. CHANGE IN ESTIMATED VESSEL LIVES Effective April 1, 1999, Teekay will be changing the estimated useful life of its vessels from 20 to 25 years. These Financial Statements give effect to this change in estimate as if it had occurred April 1, 1998. The impact of the change in estimated useful life is a decrease in depreciation expense of $18.812 million. 5. PRO FORMA GENERAL ASSUMPTIONS AND PURCHASE PRICE ALLOCATION GENERAL ASSUMPTIONS Teekay and its wholly-owned subsidiary, Northwest Maritime Inc., purchased all of the outstanding shares of Bona Common Stock ("Bona Shares") at a price per share of $7.00 cash or 0.485 shares of Teekay Common Stock ("Teekay Shares"). The Financial Statements reflect the following: - 69.9% of outstanding Bona Shares were exchanged for Teekay Shares; the remaining 30.1% of outstanding Bona Shares were exchanged for cash; - all common shareholders of Bona at March 31, 1999 tendered their shares, representing an estimated 18.9 million Bona Shares; - the value of a Teekay Share is $15.1875, which represents the market value at the date of the announcement of the acquisition; - total purchase consideration (in thousands of U.S. dollars): 6.4 million Teekay Shares $ 97,422 Cash paid 39,884 Estimated transaction costs and reorganization costs included in accounts payable and accrued liabilities 19,000 ========== $156,306 ==========
PURCHASE PRICE ALLOCATION Certain fair value adjustments were recorded including adjustments to reflect market values on the vessels and joint venture investments acquired from Bona. In addition, an accrual for estimated transaction, restructuring and integration costs, including severance, has been recorded for $19 million. The assigned values will be adjusted as at the actual date of the acquisition for changes in the fair values of assets and liabilities. The following table shows the allocation of the purchase price as at March 31, 1999:
Purchase Price Historical Adjustments Allocation (in millions of U.S. dollars) Net assets acquired Current assets $ 95 -- $ 95 Current liabilities (19) (19) Vessels and equipment 479 (93) 386 Investment in joint venture 26 (7) 19 Other assets 44 44 Other liabilities (46) (46) Long term debt assumed (323) (323) ---- ----- $ 256 $ 156 ===== =====
Page 24 of 27 25 The pro forma consolidated condensed balance sheet incorporates the following adjustments: ~ the purchase price consideration and allocation adjustments as described above, including the following adjustments to shareholders' equity (in millions of U.S. dollars):
Mar. 31/99 ---------- Elimination of Bona shareholders' equity $(256) Issuance of Teekay Shares 97 ----- $(159) =====
6. PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME The pro forma consolidated condensed statement of income incorporates the following adjustments: (a) depreciation expense related to the acquired vessels, including joint venture vessels, has been based upon their estimated fair market values at the offer date and is calculated on a straight-line basis over the vessels' estimated useful lives which have been estimated to be 25 years. As a result of adjusted values of the acquired vessels, depreciation expense decreased by $4.095 million for the twelve months ended March 31, 1999. The impact on the results from joint ventures for the twelve months ended March 31, 1999 was an increase of $293,000. (b) certain voyage and vessel operating expenses of $2.107 million and $6.945 million, respectively, for the twelve months ended March 31, 1999, of Bona, have been reclassified to general and administrative expenses ($9.052 million) for consistency with the financial statement presentation of Teekay; (c) interest income at 5% (the average historical yield on invested funds for the period presented) has been reduced by $1.994 million for the twelve months ended March 31, 1999 to reflect the assumed cash payment for the Bona Shares as at April 1, 1998. 7. PRO FORMA CONSOLIDATED EARNINGS PER SHARE The pro forma consolidated earnings per share have been calculated based upon the weighted average number of Teekay Shares outstanding during the period presented and the additional Teekay Shares which were issued in connection with the acquisition (see note 5). Page 25 of 27 26 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. TEEKAY SHIPPING CORPORATION By: /s/ Peter Antturi --------------------------------------------- Peter Antturi Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Dated: July 22, 1999 Page 26 of 27 27 Exhibit Number Description - -------------- ----------- 1.0 Amalgamation Agreement among Teekay Shipping Corporation, Northwest Maritime Inc. and Bona Shipholding Ltd., dated as of March 26, 1999 (incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended March 31, 1999). 2.0 Consent of Arthur Andersen & Co. Page 27 of 27 EX-2.0 2 CONSENT OF ARTHUR ANDERSON & CO. 1 EXHIBIT 2.0 [ARTHUR ANDERSEN LETTERHEAD] Oslo, July 22, 1999 Teekay Shipping Corporation Fourth Floor Euro Canadian Centre Marlborough Street & Navy Lion Road PO Box SS-6293 Nassau The Bahamas Ladies and Gentlemen, As independent public accountants, we hereby consent to the incorporation in Teekay Shipping Corporation's Report on Form 6-K dated on July 22, 1999, of our Auditors' Report dated March 3, 1999 relating to the consolidated balance sheets of Bona Shipholding Ltd. and subsidiaries as of December 31, 1998, 1997 and 1996 and the related consolidated statements of income, stockholders' equity and cash flow for the three years in the period ended December 31, 1998. We also consent to the incorporation by reference therein of such report in Teekay Shipping Corporation's Registration Statements on Forms F-3 (Registration Statement File No. 33-97746) and S-8 (Registration Statement file No. 33-98768) filed with the Securities and Exchange Commission on October 4, 1995 and October 27, 1995, respectively. Very truly yours, ARTHUR ANDERSEN & CO. /s/ MORTEN DRAKE - ------------------------------------------- Morten Drake State Authorised Public Accountant (Norway) -----END PRIVACY-ENHANCED MESSAGE-----