<PAGE>   1
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 20-F
(Mark One)
[ ]         REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                                       OR
 
[X]              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended ........................... March 31, 1998
 ...........................
 
                                       OR
 
[ ]            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ............................... to
 ...............................
 
Commission file number 1-12874
 
                          TEEKAY SHIPPING CORPORATION
             (Exact name of Registrant as specified in its charter)
 
                                 Not Applicable
                (Translation of Registrant's name into English)
 
                              Republic of Liberia
                (Jurisdiction of incorporation or organization)
 
 4th Floor, Euro Canadian Centre, Marlborough Street & Navy Lion Road, P.O. Box
                  SS-6293, Nassau, Commonwealth of the Bahamas
                    (Address of principal executive offices)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act.
 
<TABLE>
<S>                                              <C>
              Title of each class                 Name of each exchange on which registered
      Common Stock, no par value per share                 New York Stock Exchange
 8.32% First Preferred Ship Mortgage Notes due             New York Stock Exchange
                       2008
</TABLE>
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
                                      None
 
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
              9 5/8% First Preferred Ship Mortgage Notes due 2003
                                (Title of Class)
 
     Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.
 
     28,832,765 shares of Common Stock, no par value
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
 
     Yes [X]  No [ ]
 
     Indicate by check mark which financial statement item the registrant has
elected to follow:
 
     Item 17 [ ]  Item 18 [X]
<PAGE>   2
 
                          TEEKAY SHIPPING CORPORATION
                          INDEX TO REPORT ON FORM 20-F
 
<TABLE>
<CAPTION>
                                                                         PAGE
  PART I                                                                 ----
<S>         <C>                                                          <C>
  Item 1.   Description of Business.....................................   3
  Item 2.   Description of Property.....................................  10
  Item 3.   Legal Proceedings...........................................  12
  Item 4.   Control of Registrant.......................................  12
  Item 5.   Nature of Trading Market....................................  13
  Item 6.   Exchange Controls and Other Limitations Affecting Security
              Holders...................................................  13
  Item 7.   Taxation....................................................  14
  Item 8.   Selected Financial Data.....................................  15
  Item 9.   Management's Discussion and Analysis of Financial Condition
              and Results of Operations.................................  17
  Item 10.  Directors and Officers of the Registrant....................  22
  Item 11.  Executive Compensation......................................  24
  Item 12.  Options to Purchase Securities From Registrant or
              Subsidiaries..............................................  24
  Item 13.  Interest of Management in Certain Transactions..............  25
PART II.
  Item 14.  Description of Securities to be Registered.................. Not applicable
PART III.
  Item 15.  Defaults Upon Senior Securities............................. Not applicable
  Item 16.  Changes in Securities, Changes in Security for Registered
              Securities and Use of Proceeds............................ Not applicable
PART IV.
  Item 17.  Financial Statements........................................ Not applicable
  Item 18.  Financial Statements........................................  26
  Item 19.  Financial Statements and Exhibits...........................  26
  Signature.............................................................  30
</TABLE>
 
                                        2
<PAGE>   3
 
                                     PART I
ITEM 1. DESCRIPTION OF BUSINESS
 
THE COMPANY
 
     Teekay Shipping Corporation ("Teekay"), together with its subsidiaries (the
"Company"), is a leading provider of international crude oil and petroleum
product transportation services through the world's largest fleet of medium size
oil tankers. The Company's modern fleet of tankers provides transportation
services to major oil companies, major oil traders and government agencies,
principally in the region spanning from the Red Sea to the U.S. West Coast (the
"Indo-Pacific Basin").
 
     The Company pursues an intensively customer and operations-oriented
business strategy, emphasizing market concentration and service quality to
achieve superior operating results. The Company believes that it has five key
competitive strengths: (i) market concentration in the Indo-Pacific Basin, which
facilitates comprehensive coverage of charterer requirements and provides a base
for efficient operation and a high degree of capacity utilization, (ii)
full-service marine operations capabilities and experienced management in all
functions critical to its operations, which affords a focused marketing effort,
tight quality and cost controls, improved capacity utilization and effective
operations and safety monitoring, (iii) a modern, high-quality fleet that
operates with high fuel efficiency and low maintenance and operating costs and
affords greater acceptance among charterers in an environment of increasingly
stringent operating and safety standards, (iv) a large, uniform-size fleet of
Aframax (75,000-115,000 dwt) tankers, many of which are in sister vessel series
(substantially identical vessels), which facilitates scheduling flexibility due
to vessel substitution opportunities, permitting greater responsiveness to
customer demands and enhanced capacity utilization, and which results in lower
operating costs than those experienced by smaller operators and (v) a strong
network of customer relationships and a reputation for transportation excellence
among quality-sensitive customers. As a result of its business strategy, the
Company has achieved consistently higher operating cash flow per vessel as
compared to an average of certain other publicly traded shipping companies. The
Company's growth strategy is to leverage its existing competitive strengths to
continue to expand its business. The Company anticipates that the continued
upgrade and expansion of its Aframax tanker business in the Indo-Pacific Basin
will continue to be a key component of its strategy. In addition, the Company
believes that its full-service marine operations capabilities, reputation for
safety and quality and strong customer orientation provide it with the
opportunity to expand its business by providing additional value-added and
innovative services, in many cases to existing customers. Finally, the Company
intends to identify expansion opportunities in new tanker market segments,
geographic areas and services to which the Company's competitive strengths are
well suited. The Company may choose to pursue such opportunities through
internal growth, joint ventures or business acquisitions.
 
     The Company's fleet consists of 46 vessels: 42 Aframax oil tankers
(including three vessels time-chartered-in) and oil/bulk/ore carriers
("O/B/Os"), three smaller oil tankers, and one Very Large Crude Carrier
("VLCC"). The Company's vessels are all of Liberian, Singaporean, Australian or
Bahamian registry. The Company's fleet has a total cargo capacity of
approximately 4.6 million tonnes and its Aframax vessels represent approximately
7.8% of the total tonnage of the world Aframax fleet. The Company intends to
continue to supplement its fleet by selective orders of newbuilding vessels and
selective purchases of modern, second-hand, high-quality tankers.
 
     The Company's fleet is one of the most modern fleets in the world, with an
average age of approximately 7.8 years, compared to an average age for the world
oil tanker fleet of approximately 13.7 years and for the world Aframax tanker
fleet of approximately 12.2 years. The Company has been recognized by customers
and rating services for safety, quality and service. For example, in each of the
last eight years, Tanker Advisory Center, Inc. (New York) has rated the
Company's fleet a "meritorious tanker fleet," a designation which, in the latest
publication (January 1998), placed it in the top 5% of all fleets containing
five or more tankers. Given the age profile of the world tanker fleet,
increasing emphasis by customers on quality as a result of stringent
environmental regulations, and heightened concerns
 
                                        3
<PAGE>   4
 
about liability for oil pollution, the Company believes that its modern fleet
and its emphasis on quality and safety provide it with a favorable competitive
profile.
 
     Through wholly owned subsidiaries located worldwide, the Company provides
substantially all of the operations, ship maintenance, crewing, technical
support, shipyard supervision, insurance and financial management services
necessary to support its fleet.
 
     The Company has a worldwide chartering staff located in Vancouver, Tokyo,
London and Singapore. Each office serves the Company's clients headquartered in
such office's region. Fleet operations, vessel positions and charter market
rates are monitored around the clock. Management believes that monitoring such
information is critical to making informed bids on competitive brokered
business. During fiscal 1998, approximately 84% of the Company's net voyage
revenues were derived from spot voyages or time charters and contracts of
affreightment priced on a spot market basis.
 
     The Teekay organization was founded in 1973 to manage and operate oil
tankers. Prior to 1985, the Company chartered-in most of the tonnage that it
subsequently provided to its transportation customers. As the availability of
acceptable chartered-in tonnage declined, management began an expansion of its
owned fleet. Since 1985, the Company has significantly expanded and modernized
its owned fleet by taking delivery of 40 new vessels and acquiring 31 vessels in
the second-hand market, as well as disposing of 12 older tankers over the past
four years.
 
     Teekay is incorporated under the laws of the Republic of Liberia and
maintains its principal executive headquarters at the 4th Floor, Euro Canadian
Centre, Marlborough Street & Navy Lion Road, P.O. Box SS 6293, Nassau,
Commonwealth of the Bahamas. Its telephone number at such address is (242)
322-8020. The Company's principal operating offices are located at Suite 1400,
One Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X
1M5. Its telephone number at such address is (604) 683-3529.
 
COMPETITION
 
     International seaborne oil and other petroleum products transportation
services are provided by two main types of operators: captive fleets of major
oil companies (both private and state-owned) and independent ship owner fleets.
Many major oil companies and other oil trading companies, the primary charterers
of the vessels owned or controlled by the Company, also operate their own
vessels and transport their own oil as well as oil for third party charterers in
direct competition with independent owners and operators. Competition for
charters is intense and is based upon price, location, the size, age, condition
and acceptability of the vessel, and the vessel's manager. Competition in the
Aframax segment is also affected by the availability of other size vessels that
compete in the Company's markets. Suezmax (115,000 to 200,000 dwt) size vessels
and Panamax (50,000 to 75,000) size vessels can compete for many of the same
charters for which the Company competes. Because of their large size, Ultra
Large Crude Carriers (320,000+ dwt) ("ULCCs") and VLCCs (200,000 to 320,000 dwt)
rarely compete directly with Aframax tankers for specific charters; however,
because ULCCs and VLCCs comprise a substantial portion of the total capacity of
the market, movements by such vessels into Suezmax trades and of Suezmax vessels
into Aframax trades would heighten the already intense competition.
 
     The Company competes principally with other Aframax owners through the
global tanker charter market, comprised of tanker broker companies which
represent both charterers and ship owners in chartering transactions. Within
this market, some transactions, referred to as "market cargoes," are offered by
charterers through two or more brokers simultaneously and shown to the widest
possible range of owners; other transactions, referred to as "private cargoes,"
are given by the charterer to only one broker and shown selectively to a limited
number of owners whose tankers are most likely to be acceptable to the charterer
and are in position to undertake the voyage. Management estimates that the
Company transacts approximately one-third of its spot voyages from market
cargoes, the remainder being either private cargoes or direct cargoes transacted
directly with charterers outside this market.
 
                                        4
<PAGE>   5
 
     Other large operators of Aframax tonnage include Shell International
Marine, a subsidiary of Royal Dutch/Shell Petroleum Corporation, with
approximately 21 vessels trading globally (11 of which are on charter), Neptune
Orient Lines Ltd. (owned partially by the Singapore government), with
approximately 16 vessels, and Bona Shipholding Limited, which controls 15
vessels; each of the latter two fleets trade exclusively in the Atlantic Basin.
Management believes that it has significant competitive advantages in the
Aframax tanker market as a result of the age, quality, type and dimensions of
its vessels and its large market share in the Indo-Pacific Basin. Some
competitors of the Company, however, may have greater financial strength and
capital resources than the Company.
 
     As part of its growth strategy, the Company will continue to consider
strategic opportunities, including business acquisitions. To the extent the
Company enters new geographic areas or tanker market segments, there can be no
assurance that the Company will be able to compete successfully therein. New
markets may involve competitive factors which differ from those of the Aframax
market segment in the Indo-Pacific Basin and may include participants which have
greater financial strength and capital resources than the Company.
 
REGULATION
 
     The business of the Company and the operation of its vessels are materially
affected by government regulation in the form of international conventions,
national, state and local laws and regulations in force in the jurisdictions in
which the vessels operate, as well as in the country or countries of their
registration. Because such conventions, laws, and regulations are often revised,
the Company cannot predict the ultimate cost of complying with such conventions,
laws and regulations or the impact thereof on the resale price or useful life of
its vessels. Additional conventions, laws and regulations may be adopted which
could limit the ability of the Company to do business or increase the cost of
its doing business and which may have a material adverse effect on the Company's
operations. The Company is required by various governmental and
quasi-governmental agencies to obtain certain permits, licenses and certificates
with respect to its operations. Subject to the discussion below and to the fact
that the kinds of permits, licenses and certificates required for the operations
of the vessels owned by the Company will depend upon a number of factors, the
Company believes that it has been and will be able to obtain all permits,
licenses and certificates material to the conduct of its operations.
 
     The Company believes that the heightened environmental and quality concerns
of insurance underwriters, regulators and charterers will impose greater
inspection and safety requirements on all vessels in the tanker market and will
accelerate the scrapping of older vessels throughout the industry.
 
     ENVIRONMENTAL REGULATION--INTERNATIONAL MARITIME ORGANIZATION ("IMO").  On
March 6, 1992, the IMO adopted regulations which set forth new and upgraded
requirements for pollution prevention for tankers. These regulations, which went
into effect on July 6, 1995 in many jurisdictions in which the Company's tanker
fleet operates, provide that (i) tankers between 25 and 30 years old must be of
double-hull construction or of a mid-deck design with double side construction,
unless they have wing tanks or double-bottom spaces, not used for the carriage
of oil, which cover at least 30% of the length of the cargo tank section of the
hull or are capable of hydrostatically balanced loading which ensures at least
the same level of protection against oil spills in the event of collision or
stranding, (ii) tankers 30 years old or older must be of double-hull
construction or mid-deck design with double-side construction, and (iii) all
tankers will be subject to enhanced inspections. Also, under IMO regulations, a
tanker must be of double-hull construction or a mid-deck design with double side
construction or be of another approved design ensuring the same level of
protection against oil pollution in the event that such tanker (i) is the
subject of a contract for a major conversion or original construction on or
after July 6, 1993, (ii) commences a major conversion or has its keel laid on or
after January 6, 1994, or (iii) completes a major conversion or is a newbuilding
delivered on or after July 6, 1996.
 
     Under the current regulations, the vessels of the Company's existing fleet
will be able to operate for substantially all of their respective economic lives
before being required to have double-hulls. Although three of the Company's
vessels are 15 years or older, the oldest of such vessels is only 18 years old
and,
 
                                        5
<PAGE>   6
 
therefore, the IMO requirements currently in effect regarding 25 and 30 year-old
tankers will not affect the Company's fleet in the near future. However,
compliance with the new regulations regarding inspections of all vessels may
adversely affect the Company's operations. The Company cannot at the present
time evaluate the likelihood or magnitude of any such adverse effect on the
Company's operations due to uncertainty of interpretation of the IMO
regulations.
 
     The operation of the Company's vessels is also affected by the recently
adopted requirements set forth in the IMO's International Management Code for
the Safe Operation of Ships and Pollution Prevention (the "ISM Code"). The ISM
Code requires shipowners and bareboat charterers to develop and maintain an
extensive "Safety Management System" that includes the adoption of a safety and
environmental protection policy setting forth instructions and procedures for
safe operation and describing procedures for dealing with emergencies. The
failure of a shipowner or bareboat charterer to comply with the ISM Code may
subject such party to increased liability, may decrease available insurance
coverage for the affected vessels, and may result in a denial of access to, or
detention in, certain ports. Currently, each of the Company's applicable vessels
is ISM code-certified. However, there can be no assurance that such
certification will be maintained indefinitely.
 
     ENVIRONMENTAL REGULATIONS--THE UNITED STATES OIL POLLUTION ACT OF 1990
("OPA 90").  OPA 90 established an extensive regulatory and liability regime for
the protection and cleanup of the environment from oil spills. OPA 90 affects
all owners and operators whose vessels trade to the United States or its
territories or possessions or whose vessels operate in United States waters,
which include the United States' territorial sea and its two hundred nautical
mile exclusive economic zone.
 
     Under OPA 90, vessel owners, operators and bareboat (or "demise")
charterers are "responsible parties" and are jointly, severally and strictly
liable (unless the spill results solely from the act or omission of a third
party, an act of God or an act of war) for all containment and clean-up costs
and other damages arising from discharges or threatened discharges of oil from
their vessels. These other damages are defined broadly to include (i) natural
resources damages and the costs of assessment thereof, (ii) real and personal
property damages, (iii) net loss of taxes, royalties, rents, fees and other lost
revenues, (iv) lost profits or impairment of earning capacity due to property or
natural resources damage, (v) net cost of public services necessitated by a
spill response, such as protection from fire, safety or health hazards, and (vi)
loss of subsistence use of natural resources. OPA 90 limits the liability of
responsible parties to the greater of $1,200 per gross ton or $10 million per
tanker that is over 3,000 gross tons (subject to possible adjustment for
inflation). These limits of liability would not apply if the incident was
proximately caused by violation of applicable United States federal safety,
construction or operating regulations or by the responsible party's gross
negligence or willful misconduct, or if the responsible party fails or refuses
to report the incident or to cooperate and assist in connection with the oil
removal activities. The Company currently plans to continue to maintain for each
of its vessels pollution liability coverage in the amount of $700 million per
incident. A catastrophic spill could exceed the insurance coverage available, in
which event there could be a material adverse effect on the Company.
 
     Under OPA 90, with certain limited exceptions, all newly built or converted
tankers operating in United States waters must be built with double-hulls, and
existing vessels which do not comply with the double-hull requirement must be
phased out over a 25-year period (1990-2015) based on size, age and hull
construction. Only three of the Company's vessels are over 15 years old, and the
oldest of such vessels, the single-hulled Mendana Spirit, would not be
phased-out under the double-hull regulations until 2003. Notwithstanding the
phase-out period, OPA 90 currently permits existing single-hull tankers to
operate until the year 2015 if their operations within United States waters are
limited to discharging at the Louisiana Off-Shore Oil Platform, or off-loading
by means of lightering activities within authorized lightering zones more than
60 miles off-shore.
 
     OPA 90 requires owners and operators of vessels to establish and maintain
with the United States Coast Guard (the "Coast Guard") evidence of financial
responsibility sufficient to meet their potential liabilities under OPA 90. In
December 1994, the Coast Guard implemented regulations requiring evidence of
financial responsibility in the amount of $1,500 per gross ton for tankers,
coupling the OPA limitation on
 
                                        6
<PAGE>   7
 
liability of $1,200 per gross ton with the Comprehensive Environmental Response,
Compensation, and Liability Act liability limit of $300 per gross ton. Under the
regulations, such evidence of financial responsibility may be demonstrated by
insurance, surety bond, self-insurance, or guaranty. Under OPA 90, an owner or
operator of a fleet of tankers is required only to demonstrate evidence of
financial responsibility in an amount sufficient to cover the tanker in the
fleet having the greatest maximum liability under OPA 90.
 
     The Coast Guard's regulations concerning certificates of financial
responsibility provide, in accordance with OPA 90, that claimants may bring suit
directly against an insurer or guarantor that furnishes certificates of
financial responsibility; and, in the event that such insurer or guarantor is
sued directly, it is prohibited from asserting any contractual defense that it
may have had against the responsible party and is limited to asserting those
defenses available to the responsible party and the defense that the incident
was caused by the willful misconduct of the responsible party. Certain
organizations, which had typically provided certificates of financial
responsibility under pre-OPA 90 laws, including the major protection and
indemnity organizations, declined to furnish evidence of insurance for vessel
owners and operators if they are subject to direct actions or required to waive
insurance policy defenses.
 
     The Coast Guard's financial responsibility regulations may also be
satisfied by evidence of surety bond, guaranty or by self-insurance. Under the
self-insurance provisions, the ship owner or operator must have a net worth and
working capital, measured in assets located in the United States against
liabilities located anywhere in the world, that exceeds the applicable amount of
financial responsibility. The Company has complied with the Coast Guard
regulations by providing a financial guaranty from a related company evidencing
sufficient self-insurance.
 
     OPA 90 specifically permits individual states to impose their own liability
regimes with regard to oil pollution incidents occurring within their
boundaries, and some states have enacted legislation providing for unlimited
liability for oil spills. In some cases, states which have enacted such
legislation have not yet issued implementing regulations defining tanker owners'
responsibilities under these laws. The Company intends to comply with all
applicable state regulations in the ports where the Company's vessels call.
 
     Owners or operators of tankers operating in United States waters are
required to file vessel response plans with the Coast Guard, and their tankers
are required to operate in compliance with their Coast Guard approved plans.
Such response plans must, among other things, (i) address a "worst case"
scenario and identify and ensure, through contract or other approved means, the
availability of necessary private response resources to respond to a "worst case
discharge," (ii) describe crew training and drills, and (iii) identify a
qualified individual with full authority to implement removal actions. The
Company has filed vessel response plans with the Coast Guard for the tankers
owned by the Company and has received approval of such plans for all vessels in
its fleet to operate in United States waters.
 
     ENVIRONMENTAL REGULATION--OTHER ENVIRONMENTAL INITIATIVES.  The European
Union is considering legislation that will affect the operation of tankers and
the liability of owners for oil pollution. It is impossible to predict what
legislation, if any, may be promulgated by the European Union or any other
country or authority.
 
     Although the United States is not a party thereto, many countries have
ratified and follow the liability scheme adopted by the IMO and set out in the
International Convention on Civil Liability for Oil Pollution Damage, 1969, as
amended (the "CLC"), and the Convention for the Establishment of an
International Fund for Oil Pollution of 1971, as amended. Under these
conventions, a vessel's registered owner is strictly liable for pollution damage
caused on the territorial waters of a contracting state by discharge of
persistent oil, subject to certain complete defenses. Approximately one-quarter
of the countries that have ratified the CLC have increased the liability limits
through a 1992 Protocol to the CLC which has recently become effective. The
liability limits in the countries that have ratified this Protocol are currently
approximately $4.0 million plus approximately $566.0 per gross registered tonne
above 5,000 gross tonnes with an approximate maximum of $80.5 million, with the
exact amount tied to a unit of account
 
                                        7
<PAGE>   8
 
which varies according to a basket of currencies. The right to limit liability
is forfeited under the CLC where the spill is caused by the owner's actual fault
or privity and, under the 1992 Protocol, where the spill is caused by the
owner's intentional or reckless conduct. Vessels trading to contracting states
must provide evidence of insurance covering the limited liability of the owner.
In jurisdictions where the CLC has not been adopted, various legislative schemes
or common law govern, and liability is imposed either on the basis of fault or
in a manner similar to the CLC.
 
RISK OF LOSS AND INSURANCE
 
     The operation of any ocean-going vessel carries an inherent risk of
catastrophic marine disasters and property losses caused by adverse weather
conditions, mechanical failures, human error, war, terrorism, piracy and other
circumstances or events. In addition, the transportation of crude oil is subject
to the risk of crude oil spills, and business interruptions due to political
circumstances in foreign countries, hostilities, labor strikes, and boycotts.
Any such event may result in loss of revenues or increased costs.
 
     The Company carries insurance to protect against most of the
accident-related risks involved in the conduct of its business and it maintains
environmental damage and pollution insurance coverage. The Company does not
carry insurance covering the loss of revenue resulting from vessel off-hire
time. There can be no assurance that all covered risks are adequately insured
against, that any particular claim will be paid or that the Company will be able
to procure adequate insurance coverage at commercially reasonable rates in the
future. More stringent environmental regulations at times in the past have
resulted in increased costs for, and may result in the lack of availability of,
insurance against the risks of environmental damage or pollution.
 
OPERATIONS OUTSIDE THE UNITED STATES
 
     The operations of the Company are primarily conducted outside of the United
States and, therefore, may be affected by currency fluctuations and by changing
economic, political and governmental conditions in the countries where the
Company is engaged in business or where its vessels are registered. During the
fiscal year ended March 31, 1998, the Company derived approximately 92% of its
total revenues from its operations in the Indo-Pacific Basin. In the past,
political conflicts in such regions, particularly in the Arabian Gulf, have
included attacks on tankers, mining of waterways and other efforts to disrupt
shipping in the area. Vessels trading in such regions have also been subject to,
in limited instances, acts of terrorism and piracy. Future hostilities or other
political instability in the region could affect the Company's trade patterns
and adversely affect the Company's operations and performance.
 
CREWING AND STAFF
 
     The Company employs approximately 300 captains, chief engineers, chief
officers and first engineers, approximately 1,450 additional personnel at sea
and approximately 200 personnel ashore. Management anticipates hiring additional
senior management and staff personnel in connection with any further expansion
of its operations.
 
     The Company places great emphasis on attracting, through its recruiting
offices in Manila, Glasgow, Sydney and Mumbai, qualified crew members for
employment on the Company's tankers. Recruiting has become an increasingly
difficult task for operators in the tanker industry. The Company pays
competitive salaries and provides competitive benefits to its personnel and
tries to promote, when possible, from within their ranks. Management believes
that the well maintained quarters and equipment on the Company's vessels help to
attract and retain motivated and qualified seamen and officers. During fiscal
1996, the Company entered into a Collective Bargaining Agreement with the
Philippine Seafarers' Union (PSU), an affiliate of the International Transport
Workers' Federation (ITF), and a Special Agreement
 
                                        8
<PAGE>   9
 
with ITF London, which covers substantially all of the Company's junior officers
and seamen. The Collective Bargaining Agreement and the Special Agreement did
not result in any significant increase in the levels of wages paid or benefits
provided to members of the vessel crews. The Company is also a party to
Enterprise Bargaining Agreements with three Australian maritime unions, covering
officers and seamen. The time charters covering the Australian vessels provide
that increases in wages or benefits for the Company's Australian-crewed vessels
will be passed on to the customer.
 
     The Company has a cadet training program, the purpose of which is to
develop a cadre of future senior officers for the Company, with one specially
equipped vessel staffed with an instructor and trainees. In addition to the
basic training that all seamen are required to undergo to achieve certification,
the Company provides additional training of as much as one month for all newly
hired seamen and junior officers at training facilities in the Philippines.
Safety procedures are a critical element of this training and continue to be
emphasized through the Company's onboard training program. Management believes
that high quality manning and training policies will play an increasingly
important role in distinguishing larger independent tanker companies which have
in-house (or affiliate) capabilities, from smaller companies that must rely on
outside ship managers and crewing agents.
 
CUSTOMERS
 
     Customers of the Company include major oil companies, major oil traders,
large oil consumers and petroleum product producers, government agencies, and
various other entities dependent upon the tanker transportation trade. During
fiscal 1998, one customer (an international oil company) accounted for $56.5
million, or approximately 14%, of the Company's consolidated voyage revenues for
such period. Another customer, also an international oil company, accounted for
$48.7 million, or approximately 13%, of the Company's fiscal 1997 voyage
revenues. No more than one customer has accounted for more than 10% of the
Company's consolidated voyage revenues in any of the three fiscal years ended
March 31, 1998.
 
TAXATION OF THE COMPANY
 
     The legal jurisdictions of the countries in which the Company and the
majority of its subsidiaries are incorporated do not impose income taxes upon
shipping-related activities.
 
                                        9
<PAGE>   10
 
ITEM 2. DESCRIPTION OF PROPERTY
 
THE COMPANY'S FLEET
 
     The following list provides information with respect to the Company's
vessels as at April 30, 1998.
 
<TABLE>
<CAPTION>
                                                           YEAR
                                             SERIES/YARD   BUILT   TYPE    DWT-MT        FLAG
                                             -----------   -----   ----    ------        ----
<S>                                          <C>           <C>     <C>    <C>         <C>
AFRAMAX TANKERS (42)
HAMANE SPIRIT..............................  Onomichi      1997    DH       105,300   Bahamian
POUL SPIRIT................................  Onomichi      1995    DH       105,300   Liberian
TORBEN SPIRIT..............................  Onomichi      1994    DH        98,600   Bahamian
SAMAR SPIRIT...............................  Onomichi      1992    DH        98,600   Bahamian
LEYTE SPIRIT...............................  Onomichi      1992    DH        98,600   Bahamian
LUZON SPIRIT...............................  Onomichi      1992    DH        98,600   Bahamian
MAYON SPIRIT...............................  Onomichi      1992    DH        98,600   Bahamian
TEEKAY SPIRIT..............................  Onomichi      1991    SH       100,200   Bahamian
PALMSTAR LOTUS.............................  Onomichi      1991    SH       100,200   Bahamian
PALMSTAR THISTLE...........................  Onomichi      1991    SH       100,200   Bahamian
PALMSTAR ROSE..............................  Onomichi      1990    SH       100,200   Bahamian
PALMSTAR POPPY.............................  Onomichi      1990    SH       100,200   Bahamian
ONOZO SPIRIT...............................  Onomichi      1990    SH       100,200   Bahamian
PALMSTAR CHERRY............................  Onomichi      1990    SH       100,200   Bahamian
PALMSTAR ORCHID............................  Onomichi      1989    SH       100,200   Bahamian
VICTORIA SPIRIT (OBO)......................  Hyundai       1993    DH       103,200   Bahamian
VANCOUVER SPIRIT (OBO).....................  Hyundai       1992    DH       103,200   Bahamian
SHILLA SPIRIT..............................  Hyundai       1990    SH       106,700   Liberian
ULSAN SPIRIT...............................  Hyundai       1990    SH       106,700   Liberian
NAMSAN SPIRIT..............................  Hyundai       1988    SH       106,700   Liberian
PACIFIC SPIRIT.............................  Hyundai       1988    SH       106,700   Liberian
PIONEER SPIRIT.............................  Hyundai       1988    SH       106,700   Liberian
DAMPIER SPIRIT (FSO).......................  Hyundai       1988    SH       106,700   Liberian
NASSAU SPIRIT..............................  Imabari       1998    DH       107,000   Bahamian
SENANG SPIRIT..............................  Imabari       1994    DH        95,700   Bahamian
SEBAROK SPIRIT.............................  Imabari       1993    DH        95,700   Liberian
SELETAR SPIRIT.............................  Imabari       1988    DS        97,300   Bahamian
SERAYA SPIRIT..............................  Imabari       1992    DS        97,300   Bahamian
SENTOSA SPIRIT.............................  Imabari       1989    DS        97,300   Liberian
ALLIANCE SPIRIT............................  Imabari       1989    DS        97,300   Bahamian
SEMAKAU SPIRIT.............................  Imabari       1988    DS        97,300   Liberian
SINGAPORE SPIRIT...........................  Imabari       1988    DS        97,300   Liberian
SUDONG SPIRIT..............................  Imabari       1987    DS        97,300   Liberian
KYUSHU SPIRIT..............................  Mitsubishi    1991    DS        95,600   Bahamian
KOYAGI SPIRIT..............................  Mitsubishi    1989    SH        96,000   Liberian
SEABRIDGE*.................................  Namura        1996    DH       105,200   Liberian
SEAMASTER*.................................  Namura        1990    SH       101,000   Liberian
TORRES SPIRIT..............................  Namura        1990    SH        96,000   Bahamian
HAKUYOU MARU*..............................  Namura        1987    SH        93,000   Singaporean
MENDANA SPIRIT.............................  Namura        1980    SH        81,700   Bahamian
MAGELLAN SPIRIT............................  Hitachi       1985    DS        95,000   Liberian
PALM MONARCH...............................  Mitsui        1981    SH        89,900   Liberian
OTHER TANKERS (4)
MUSASHI SPIRIT (VLCC)......................  Sasebo        1993    SH       280,700   Bahamian
SCOTLAND...................................  Mitsubishi    1982    DS        40,800   Bahamian
BARRINGTON.................................  Samsung       1989    DH        33,300   Australian
PALMERSTON.................................  Halla         1990    DB        36,700   Australian
                                                                          ---------
                                                                          4,576,200
                                                                          =========
</TABLE>
 
------------
 
DH   Double-hull tanker
DS   Double-sided tanker
DB   Double-bottom tanker
FSO  Floating storage and off-loading vessel
OBO Oil/Bulk/Ore carrier
SH   Single-hull tanker
VLCC Very Large Crude Carrier
* Time-chartered-in
 
                                       10
<PAGE>   11
 
     Many of the Company's vessels have been designed and constructed as
substantially identical sister ships. Such vessels can, in many situations, be
interchanged, providing scheduling flexibility and greater capacity utilization.
In addition, spare parts and technical knowledge can be applied to all the
vessels in the particular series, thereby generating operating efficiencies.
 
     The Company has disposed of several vessels as part of its ongoing fleet
modernization program. The Company sold a total of three of its older Aframax
tankers during the fiscal year ended March 31, 1998, and acquired a total of six
newer Aframax tankers (including two time-chartered-in vessels) and two modern
product tankers during the same period. As a result, the Company's average fleet
size increased by two vessels, or 4.9%, in fiscal 1998 compared to fiscal 1997,
following an earlier increase of two vessels, or 4.6%, in fiscal 1997 compared
to fiscal 1996. The Company currently has two double-hull newbuildings on order
(subject to certain conditions to be satisfied by the builder), with deliveries
scheduled for July and September 1999. The estimated delivered price for each
vessel, including all related charges, is approximately $38.0 million. The
Company has the option to purchase further newbuildings under similar terms.
 
     See Note 5 of the Consolidated Financial Statements for information with
respect to major encumbrances against vessels of the Company.
 
CLASSIFICATION AND INSPECTION
 
     All of the Company's vessels have been certified as being "in class" by
their respective classification societies: Nippon Kaiji Kyokai, Lloyds Register,
Det Norske Veritas or American Bureau of Shipping. Every commercial vessel's
hull and machinery is "classed" by a classification society authorized by its
country of registry. The classification society certifies that the vessel has
been built and maintained in accordance with the rules of such classification
society and complies with applicable rules and regulations of the country of
registry of the vessel and the international conventions of which that country
is a member. Each vessel is inspected by a surveyor of the classification
society every year ("Annual Survey"), every two to three years ("Intermediate
Survey") and every four to five years ("Special Survey"). Vessels also may be
required, as part of the Intermediate Survey process, to be dry-docked every 24
to 30 months for inspection of the underwater parts of the vessel and for
necessary repair related to such inspection. Many of the Company's vessels have
qualified with their respective classification societies for drydocking every
five years in connection with the Special Survey and are no longer subject to
the Intermediate Survey drydocking process. To so qualify, the Company was
required to enhance the resiliency of the underwater coatings of each such
vessel as well as to install apparatus on each vessel to accommodate thorough
underwater inspection by divers.
 
     In addition to the classification inspections, many of the Company's
customers, including the major oil companies, regularly inspect the Company's
vessels as a precondition to chartering voyages on such vessels. In each of the
last eight years, Tanker Advisory Center, Inc. (New York) has rated the
Company's fleet a "meritorious tanker fleet," a designation which, in the latest
publication (January 1998), placed it in the top 5% of all fleets containing
five or more tankers. Management believes that the Company's well-maintained,
high quality tonnage should provide it with a competitive advantage in the
current environment of increasing regulation and customer emphasis on quality of
service.
 
     Company employees perform much of the necessary ordinary course maintenance
and regularly inspect all of the Company's vessels, both at sea and while the
vessels are in port. The Company inspects its vessels two to four times per year
using predetermined and rigorous criteria. Each vessel is examined and specific
notations are made, and recommendations are given for improvements to the
overall condition of the vessel, maintenance, safety and crew welfare.
 
     The Company has obtained through Det Norske Veritas, the Norwegian
classification society, a document of compliance with the ISO 9000 standards of
total quality management. ISO 9000 is a series of international standards for
quality systems which includes ISO 9002, the standard most commonly used in the
shipping industry. The Company has also completed the implementation of the
International
                                       11
<PAGE>   12
 
Safety Management (ISM) code. The Company has obtained Documents of Compliance
(DOC) for its offices and Safety Management Certificates (SMC) for its
applicable vessels, as required by the IMO prior to July 1, 1998.
 
ITEM 3. LEGAL PROCEEDINGS
 
     From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business,
principally personal injury and property casualty claims. Such claims, even if
lacking merit, could result in the expenditure of significant financial and
managerial resources. The Company is not aware of any legal proceedings or
claims that it believes will have, individually or in the aggregate, a material
adverse effect on the Company or on its financial condition or results of
operations.
 
ITEM 4. CONTROL OF REGISTRANT
 
PRINCIPAL SHAREHOLDERS
 
     (a) The Company is not directly or indirectly owned or controlled by
another corporation or by any foreign government.
 
     (b) The following table sets forth certain information regarding ownership
of Teekay's common stock, no par value (the "Common Stock"), as of March 31,
1998 by (i) each owner of 10% or more of the Common Stock and (ii) all officers
and directors of Teekay as a group:
 
<TABLE>
<CAPTION>
                                                                 NUMBER OF      PERCENTAGE OF
                IDENTITY OF PERSON OR GROUP                     SHARES OWNED     CLASS OWNED
                ---------------------------                     ------------    -------------
<S>                                                             <C>             <C>
Cirrus Trust................................................     18,627,397         64.6%
JTK Trust...................................................      2,888,293         10.0%
All officers and directors as a group (19 persons)..........         *              *
</TABLE>
 
------------
 
* Less than one percent of outstanding shares.
 
     (c) The Company is not aware of any arrangements, the operation of which
may at a subsequent date result in a change in control of the Company.
 
                                       12
<PAGE>   13
 
ITEM 5. NATURE OF TRADING MARKET
 
     Since July 1995, the Company's Common Stock has been traded on The New York
Stock Exchange under the symbol "TK". The following table sets forth the high
and low closing sales prices for the Common Stock on The New York Stock Exchange
for each of the fiscal quarters indicated.
 
<TABLE>
<CAPTION>
                                                    HIGH      LOW
                                                    -----    -----
<S>                                                 <C>      <C>
FISCAL 1996
  Second quarter................................    $24 7/8  $23 3/8
  Third quarter.................................     24 7/8   23
  Fourth quarter................................     27       23 1/4
FISCAL 1997
  First quarter.................................    $28      $25
  Second quarter................................     30 5/8   26 1/2
  Third quarter.................................     33 1/8   28 7/8
  Fourth quarter................................     34 1/4   26 1/2
FISCAL 1998
  First quarter.................................    $34 5/8  $28
  Second quarter................................     36       30 15/16
  Third quarter.................................     37 7/8   30 3/8
  Fourth quarter................................     33 9/16  27 7/8
</TABLE>
 
     Approximately 25% of all outstanding shares at March 31, 1998 were held in
the United States.
 
     There is not an active public market within or outside the United States
for Teekay's 9 5/8% First Preferred Ship Mortgage Notes due 2003. These Notes
have not been registered under the Securities Exchange Act of 1934, as amended,
and Teekay does not intend to list them on any securities exchange or to seek
approval for quotation through any automated quotation system.
 
     Teekay's 8.32% First Preferred Ship Mortgage Notes due 2008 are listed for
trading on the New York Stock Exchange. These Notes were first offered on the
market January 19, 1996. As no active trading market exists for these Notes, no
historical pricing information is included here.
 
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
 
(a) The Company is not aware of any governmental laws, decrees or regulations in
     the Company's country of organization that restrict the export or import of
     capital, including, but not limited to, foreign exchange controls, or that
     affect the remittance of dividends, interest or other payments to
     nonresident holders of the Company's securities.
 
(b) The Company is not aware of any limitations on the right of nonresident or
     foreign owners to hold or vote securities of the Company imposed by foreign
     law or by the charter or other constituent document of the Company.
 
                                       13
<PAGE>   14
 
ITEM 7. TAXATION
 
     Since (i) Teekay Shipping Corporation is and intends to maintain its status
as a "non-resident Liberian entity" under the Liberian Internal Revenue Code,
(ii) the Company is not now carrying on, and in the future does not expect to
carry on, any operations within the Republic of Liberia, and (iii) Teekay's
9 5/8% First Preferred Ship Mortgage Notes and 8.32% First Preferred Ship
Mortgage Notes and all documentation related to these Notes and to the public
offering of Teekay's common stock were executed outside of the Republic of
Liberia, and assuming the holders of these Notes and the common stock neither
reside in, maintain an office in, nor engage in business in, the Republic of
Liberia, under current Liberian law, no taxes or withholdings are imposed by the
Republic of Liberia on payments to be made in respect of the Notes or on
distributions made in respect of the common stock. Furthermore, no stamp,
capital gains or other taxes will be imposed by the Republic of Liberia on the
ownership or disposition of the common stock by holders thereof.
 
                                       14
<PAGE>   15
 
ITEM 8. SELECTED FINANCIAL DATA
 
     Set forth below are selected consolidated financial and other data of the
Company for the five fiscal periods ended March 31, 1998, which have been
derived from the Company's Consolidated Financial Statements. The data below
should be read in conjunction with the Consolidated Financial Statements and the
notes thereto and the report of Ernst & Young, independent Chartered
Accountants, with respect to the financial statements for the fiscal years ended
March 31, 1998, 1997 and 1996, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Company changed its fiscal
year end from April 30 to March 31, effective March 31, 1994, in order to
facilitate comparison of the Company's operating results to those of other
companies within the transportation industry on a calendar quarter basis.
 
<TABLE>
<CAPTION>
                                                                                                                 11 MONTH
                                                                                                                  PERIOD
                                                                  YEAR ENDED MARCH 31,                            ENDED
                                              -------------------------------------------------------------     MARCH 31,
                                                  1998             1997            1996            1995          1994(1)
                                              -------------    ------------    ------------    ------------    ------------
                                                (U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER DAY DATA AND RATIOS)
<S>                                           <C>              <C>             <C>             <C>             <C>
INCOME STATEMENT DATA:
Voyage revenues.............................    $  406,036      $  382,249      $  336,320      $  319,966      $  317,742
Voyage expenses.............................       100,776         102,037          90,575          84,957          81,052
Net voyage revenues.........................       305,260         280,212         245,745         235,009         236,690
Income from vessel operations...............       107,640          94,258          76,279          52,816          60,777
Interest expense............................       (56,269)        (60,810)        (62,910)        (66,304)        (49,713)
Interest income.............................         7,897           6,358           6,471           5,904           2,904
Other income................................        11,236           2,824           9,230          12,839          10,245
Net income from continuing operations.......        70,504          42,630          29,070           5,255          24,213
Net income from discontinued operations.....            --              --              --              --           5,945
Cumulative effect of change in accounting
  for marketable securities.................            --              --              --           1,113              --
Net income..................................        70,504          42,630          29,070           6,368          30,158
PER SHARE DATA:
Net income from continuing operations.......    $     2.46      $     1.52      $     1.17      $     0.29      $     1.35
Cumulative effect of change in accounting
  for marketable securities.................            --              --              --            0.06              --
Net income
  -- basic..................................          2.46            1.52            1.17            0.35            1.68
  -- diluted................................          2.44            1.50            1.17            0.35            1.68
Cash earnings -- basic(2)...................          5.78            4.75            4.51            5.48            6.33
Cash dividends declared.....................          0.86            0.86            0.48              --              --
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and marketable securities..............    $  115,254      $  117,523      $  101,780      $   85,739      $  107,246
Total assets................................     1,460,183       1,372,838       1,355,301       1,306,474       1,405,147
Total debt..................................       725,369         699,726         725,842         842,874         945,611
Total stockholders' equity..................       689,455         629,815         599,395         439,066         433,180
OTHER FINANCIAL DATA:
EBITDA(3)...................................    $  209,582      $  191,632      $  166,233      $  146,756      $  151,364
EBITDA to interest expense(3)(4)............          3.80x           3.22x           2.69x           2.28x           3.04x
Total debt to EBITDA(1)(3)..................          3.46            3.65            4.37            5.74            5.83
Total debt to total capitalization..........          51.3%           52.6%           54.8%           65.7%           68.6%
Net debt to capitalization(5)...............          46.9            48.0            51.0            63.3            65.9
Cash earnings(2)............................       165,575         133,554         112,107          98,716         113,998
Capital expenditures:
  Vessel purchases, gross...................       197,199          65,104         123,843           7,465         163,509
  Drydocking (accrual basis)................        12,409          23,124          11,641          11,917          13,296
FLEET DATA:
Average number of ships(6)..................            43              41              39              42              45
Average age of Company's Aframax fleet (in
  years)(7).................................           7.6             7.9             6.8             7.3             7.5
TCE per ship per day(6)(8)(9)...............    $   21,373      $   20,356      $   18,438      $   16,552      $   17,431
Vessel operating expenses per ship per
  day(9)(10)................................         4,554           4,922           4,787           4,748           4,879
Operating cash flow per ship per
  day(9)(11)................................        12,664          11,819          10,613           8,944           9,133
</TABLE>
 
(Footnotes on following page)
                                       15
<PAGE>   16
 
(Footnotes for previous page)
 
(1)  For the 12 months ended March 31, 1994, voyage revenues were $345.0
     million; income from vessel operations was $64.4 million; net income was
     $32.0 million; cash earnings were $121.6 million; and EBITDA was $162.3
     million. For the eleven-month period ended March 31, 1994, EBITDA for the
     12 months ended March 31, 1994 was used for purposes of computing total
     debt to EBITDA, in order to facilitate comparisons to other periods.
 
(2)  Cash earnings represents income from continuing operations before foreign
     exchange gains (losses) and before depreciation and amortization expense.
     Cash earnings is included because it is used by certain investors to
     measure a company's financial performance as compared to other companies in
     the shipping industry. Cash earnings is not required by generally accepted
     accounting principles and should not be considered as an alternative to net
     income or any other indicator of the Company's performance required by
     generally accepted accounting principles.
 
(3)  EBITDA represents net income from continuing operations before interest
     expense, income tax expense, depreciation and amortization expense,
     minority interest, and gains or losses arising from prepayment of debt,
     foreign exchange translation and disposal of assets. EBITDA is included
     because such data is used by certain investors to measure a company's
     financial performance. EBITDA is not required by generally accepted
     accounting principles and should not be considered as an alternative to net
     income or any other indicator of the Company's performance required by
     generally accepted accounting principles.
 
(4)  For purposes of computing EBITDA to interest expense, interest expense
     includes capitalized interest but excludes amortization of loan costs.
 
(5)  Net debt represents total debt less cash, cash equivalents and marketable
     securities.
 
(6)  Includes vessels time-chartered-in, but excludes vessels of discontinued
     operations and a former joint venture.
 
(7)  Average age of Company's Aframax fleet is the average age, at the end of
     the relevant period, of all the vessels owned, leased or time-chartered-in
     by the Company, excluding vessels of discontinued operations and a former
     joint venture.
 
(8)  TCE (or "time charter equivalent") is a measure of the revenue performance
     of a vessel, which, on a per voyage basis, is generally determined by
     Clarkson Research Studies Inc.'s ("Clarkson") and other industry data
     sources by subtracting voyage expenses (except commissions) which are
     incurred in transporting cargo from gross revenue per voyage and dividing
     the remaining revenue by the total number of days required for the
     round-trip voyage. Voyage expenses comprise all expenses relating to
     particular voyages, including bunker fuel expense, port fees and canal
     tolls. For purposes of calculating the Company's average TCE for the year,
     TCE has been calculated consistent with Clarkson's method, by deducting
     total voyage expenses (except commissions) from total voyage revenues and
     dividing the remaining sum by the Company's total voyage days in the year.
 
(9)  To facilitate comparison to prior years' results, excludes the results from
     the Company's Australian-crewed vessels, which comprised four of the
     Company's vessels during the fourth quarter of fiscal 1998. Vessel
     operating expenses for the Australian-crewed vessels are substantially
     higher than those for the rest of the Company's fleet on a per ship basis,
     primarily as a result of higher crew costs, with correspondingly higher
     charter rates associated with the charter arrangements for those vessels.
     See "Item 9. Management's Discussion and Analysis of Results of Operations
     and Financial Condition--General."
 
(10) Vessel operating expenses consist of all expenses relating to the operation
     of vessels (other than voyage expenses), including crewing, repairs and
     maintenance, insurance, stores and lubes, and miscellaneous expenses
     including communications. Ship days are calculated on the basis of a
     365-day year multiplied by the average number of vessels in the Company's
     fleet for the respective year. Vessel operating expenses exclude vessels
     time-chartered-in.
 
(11) Operating cash flow represents income from vessel operations plus
     depreciation and amortization expense (other than drydock amortization
     expense). Ship days are calculated on the basis of a 365-day fiscal year
     multiplied by the average number of vessels in the Company's fleet for the
     respective year. Operating cash flow is not required by generally accepted
     accounting principles and should not be considered as an alternative to net
     income or any other indicator of the Company's performance required by
     generally accepted accounting principles.
 
                                       16
<PAGE>   17
 
ITEM 9.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS
 
GENERAL
 
     The Company is a leading provider of international crude oil and petroleum
product transportation services to major oil companies, major oil traders and
government agencies, principally in the region from the Red Sea to the U.S. West
Coast. The Company's current operating fleet consists of 46 vessels, including
42 Aframax oil tankers (including three vessels time-chartered-in) and O/B/O
carriers, three smaller oil tankers, and one VLCC, for a total cargo-carrying
capacity of approximately 4.6 million tonnes.
 
     During fiscal 1998, approximately 66% of the Company's net voyage revenue
was derived from spot voyages. The balance of the Company's revenue is generated
primarily by two other modes of employment: time charters, whereby vessels are
chartered to customers for a fixed period; and contracts of affreightment
("COAs"), whereby the Company carries an agreed quantity of cargo for a customer
over a specified trade route over a given period of time. In fiscal 1998, 18% of
net voyage revenues was generated by time charters and COAs priced on a spot
market basis. In the aggregate, approximately 84% of the Company's net voyage
revenue during fiscal 1998 was derived from spot voyages or time charters and
COAs priced on a spot market basis, with the remaining 16% being derived from
fixed-rate time-charters and COAs. This dependence on the spot market, which is
within industry norms, contributes to the volatility of the Company's revenues,
cash flow from operations, and net income.
 
     Historically, the tanker industry has been cyclical, experiencing
volatility in profitability and asset values resulting from changes in the
supply of, and demand for, vessel capacity. In addition, tanker markets have
historically exhibited seasonal variations in charter rates. Tanker markets are
typically stronger in the winter months as a result of increased oil consumption
in the northern hemisphere and unpredictable weather patterns which tend to
disrupt vessel scheduling.
 
     In December 1997, the Company acquired two vessels and related shore
support services from an Australian affiliate of Caltex Petroleum. These two
tankers, together with one of the Company's existing Aframax tankers, have been
time chartered to the Caltex affiliate in connection with the Company's
provision of Caltex's oil transportation requirements formerly provided by that
affiliate. The Company has converted one of its existing vessels to a floating
storage and off-loading vessel, which is sharing crews with the vessels employed
in the Caltex arrangement (together with the other three vessels involved in
this arrangement, the "Australian Vessels"). Vessel operating expenses for the
Australian Vessels are substantially higher than those for the rest of the
Company's fleet, primarily as a result of higher costs associated with employing
an Australian crew. The time-charter rates for the Australian Vessels are
correspondingly higher to compensate for these increased costs. During fiscal
1998, the Australian Vessels earned net voyage revenues and an average TCE rate
of $8.4 million and $25,347, respectively, and incurred vessel operating
expenses of $3.2 million, or $10,276 on a per ship per day basis. The results of
the Australian Vessels are included in the Company's Consolidated Financial
Statements included herein.
 
RESULTS OF OPERATIONS
 
     Bulk shipping industry freight rates are commonly measured at the net
voyage revenue level in terms of "time charter equivalent" (or "TCE") rates,
defined as voyage revenues less voyage expenses (excluding commissions), divided
by voyage ship-days for the round-trip voyage. Voyage revenues and voyage
expenses are a function of the type of charter, either spot charter or time
charter, and port, canal and fuel costs depending on the trade route upon which
a vessel is sailing, in addition to being a function of the level of shipping
freight rates. For this reason, shipowners base economic decisions regarding the
deployment of their vessels upon anticipated TCE rates, and industry analysts
typically measure bulk shipping freight rates in terms of TCE rates. Therefore,
the discussion of revenue below focuses on net voyage revenue and TCE rates.
 
                                       17
<PAGE>   18
 
     FISCAL 1998, FISCAL 1997, AND FISCAL 1996
 
     Operating results for the past three years reflect the improvement in
average TCE rates experienced by the Company's fleet during this period, as well
as the increase in the size of the Company fleet. The Company sold a total of
seven of its older Aframax tankers during the three fiscal years ended March 31,
1998, and acquired a total of twelve newer Aframax tankers (including two
time-chartered-in vessels) and two modern product tankers during the same
period. As a result, the Company's average fleet size increased by two vessels,
or 4.9%, in fiscal 1998 compared to fiscal 1997, following an earlier increase
of two vessels, or 4.6%, in fiscal 1997 compared to fiscal 1996.
 
     Net voyage revenues increased 8.9% to $305.3 million in fiscal 1998 from
$280.2 million in fiscal 1997, and increased 14.0% in fiscal 1997 from $245.7
million in fiscal 1996, reflecting a combination of improvement in TCE rates and
an increase in the Company's fleet size. The Company's average TCE rate in
fiscal 1998, excluding the Australian Vessels, was up 5.0% to $21,373 from
$20,356 in fiscal 1997, and up 10.4% in fiscal 1997 from $18,438 in fiscal 1996,
in part due to lower bunker fuel prices.
 
     In spite of the increase in fleet size, vessel operating expenses decreased
2.9% to $70.5 million in fiscal 1998 from $72.6 million in fiscal 1997,
primarily as a result of a reduction in insurance premiums as well as more
favorable foreign exchange rates between the U.S. Dollar and certain Asian
currencies, particularly the Japanese Yen and the Korean Won, for spare parts
and supplies purchased during the latter half of fiscal 1998. In fiscal 1997,
vessel operating expenses increased 7.0%, from $67.8 million in fiscal 1996,
primarily as a result of the increase in the size of the Company's owned fleet.
As a result of a more competitive market for qualified sea-going personnel,
adjustments were made to crew wage rates and salaries effective April 1, 1998,
which will increase vessel operating expenses by approximately $300 per ship per
day, or $4.3 million per year in aggregate, commencing in fiscal 1999.
 
     Time-charter hire expense was $10.6 million in fiscal 1998, up from $3.5
million in fiscal 1997 and $2.5 million in fiscal 1996, as a result of two
vessels time-chartered-in by the Company during fiscal 1998 as compared to only
one vessel time-chartered-in during the latter part of fiscal 1996 and part of
fiscal 1997.
 
     Depreciation and amortization expense increased by 4.6% to $94.9 million in
fiscal 1998 from $90.7 million in fiscal 1997, and increased by 10.1% in fiscal
1997 from $82.4 million in fiscal 1996, as a result of the increase in the
average size of the Company's owned fleet, an increase in the average cost base
of the fleet resulting from the replacement of some of the Company's older
vessels with newer vessels, and a larger than usual number of scheduled
drydockings during the past two fiscal years. Depreciation and amortization
expense included amortization of drydocking costs of $11.7 million, $10.9
million, and $8.6 million in fiscal years 1998, 1997, and 1996, respectively.
 
     General and administrative expenses rose 12.1% to $21.5 million in fiscal
1998 from $19.2 million in fiscal 1997, and increased 14.7% in fiscal 1997 from
$16.8 million in fiscal 1996, primarily as a result of the cost of compliance
with increasingly stringent tanker industry regulations, increases in senior
management compensation, and the start-up cost and additional ongoing personnel
and facility costs associated with expanding the Company's Australian office in
December 1997. Management anticipates hiring additional senior management and
staff personnel in connection with the further expansion of the Company's
operations.
 
     Income from vessel operations increased 14.2% to $107.6 million in fiscal
1998 from $94.3 million in fiscal 1997, and increased 23.6% in fiscal 1997 from
$76.3 million in fiscal 1996, due to improved TCE rates and relatively stable
costs.
 
     Interest expense decreased by 7.4% to $56.3 million in fiscal 1998 from
$60.8 million in fiscal 1997, following a 3.3% decrease in fiscal 1997 from
$62.9 million in fiscal 1996, reflecting the reduction in the Company's average
debt balance and a lower average interest rate on debt borrowings, in each case
compared to the prior fiscal year. The Company anticipates using the net
proceeds it receives from a proposed public offering of its Common Stock to
redeem a portion of its 9 5/8% First Preferred Ship
                                       18
<PAGE>   19
 
Mortgage Notes due 2003. Interest income of $7.9 million in fiscal 1998, $6.4
million in fiscal 1997, and $6.5 million in fiscal 1996, largely reflected
increasing cash balances, offset in fiscal 1997 by lower interest rates.
 
     Other income of $11.2 million in fiscal 1998 consisted primarily of $14.4
million in gains on the sale of three vessels, offset partially by $3.5 million
in losses related to the prepayment of debt. Other income of $2.8 million in
fiscal 1997 and $9.2 million in fiscal 1996 consisted primarily of gains on the
sale of vessels.
 
     As a result of the foregoing factors, the Company's net income was $70.5
million in fiscal 1998, which included $14.4 million in gains on asset sales. In
comparison, the Company's net income was $42.6 million in fiscal 1997, which
included $2.7 million in gains on assets sales, and $29.1 million in fiscal
1996, which included $8.8 million in gains on asset sales.
 
     The following table illustrates the relationship between fleet size
(measured in ship-days), TCE performance, and operating results per calendar
ship-day. To facilitate comparison to the prior years' results, the figures in
the table below exclude the results from the Company's Australian Vessels.
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED MARCH 31,
                                                       --------------------------------------
                                                          1998          1997          1996
                                                       ----------    ----------    ----------
<S>                                                    <C>           <C>           <C>
Average number of ships............................           42            41            39
Total calendar ship-days...........................       15,341        14,937        14,310
                                                        --------      --------      --------
Voyage days (A)....................................       14,229        14,071        13,612
                                                        --------      --------      --------
Net voyage revenue before commissions (B) (000s)...     $304,115      $286,429      $250,981
                                                        --------      --------      --------
TCE (B/A)..........................................     $ 21,373      $ 20,356      $ 18,438
                                                        --------      --------      --------
Operating results per calendar ship-day:
  Net voyage revenue...............................     $ 19,358      $ 18,760      $ 17,173
  Vessel operating expense.........................        4,554         4,922         4,787
  General and administrative expense...............        1,375         1,286         1,171
  Drydocking expense...............................          765           733           602
                                                        --------      --------      --------
Operating cash flow per calendar ship-day..........     $ 12,664      $ 11,819      $ 10,613
                                                        ========      ========      ========
</TABLE>
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's total liquidity, including cash, marketable securities and
undrawn long-term lines of credit, was $186.3 million as at March 31, 1998, down
from $258.6 million as at March 31, 1997, and $197.3 million as at March 31,
1996. The Company's total liquidity had been increasing as a result of
internally generated cash and debt refinancings, but declined during the fourth
quarter of fiscal 1998 due to the purchase of two vessels which were paid for
using existing cash balances and borrowings under the Revolver (as defined
below). Net cash flow from operating activities was $161.1 million in fiscal
1998, compared to $139.2 million and $98.4 million in fiscal years 1997 and
1996, respectively, reflecting an improvement in tanker charter market
conditions accompanied by a relatively stable cost environment, the increase in
the size of the Company's fleet, and a reduction in interest expense.
 
     In January 1998, the Company replaced its existing revolving credit
facility with a new revolving credit facility (the "Revolver") providing for
borrowing of up to $200.0 million. The amount available under the Revolver
reduces by $10.0 million semi-annually commencing in July 1999, with a final
balloon reduction in January 2006. Interest payments are based on LIBOR plus a
margin depending on the financial leverage of the Company; at March 31, 1998 the
margin was +0.50%.
 
     Scheduled debt repayments were $33.9 million during fiscal 1998, compared
to $16.0 million in fiscal 1997 and $57.9 million in fiscal 1996. In addition to
scheduled debt repayments, the Company prepaid long-term debt of $150.7 million
in fiscal 1998, primarily representing prepayments out of the
 
                                       19
<PAGE>   20
 
proceeds of the Revolver and repurchases of $26.3 million of its 9 5/8% First
Preferred Ship Mortgage Notes due 2003.
 
     Dividends declared during fiscal 1998 were $24.6 million, or $0.86 per
share, of which $16.0 million was paid in cash and $8.6 million was paid in the
form of shares of Common Stock issued under the Company's dividend reinvestment
plan.
 
     Three vessels were sold in fiscal 1998, resulting in net proceeds of $33.9
million. Subsequent to March 31, 1998, the Company sold an additional vessel for
net proceeds of approximately $10.5 million. In fiscal 1997, the Company sold
its remaining 50%-owned vessel, resulting in net proceeds of $6.4 million which
the Company received in the early part of fiscal 1998.
 
     During fiscal 1998, the Company incurred capital expenditures for vessels
and equipment of $197.2 million, primarily as a result of taking delivery of two
newbuilding double-hull Aframax tankers, two modern second-hand Aframax tankers,
and two modern second-hand product tankers. Capital expenditures for drydocking
were $18.4 million in fiscal 1998, $16.6 million in fiscal 1997, and $7.4
million in fiscal 1996, reflecting a larger than usual number of scheduled
drydockings during the last two fiscal years. Subsequent to March 31, 1998, the
Company entered into an agreement for the construction of two newbuilding
double-hull Aframax tankers, with deliveries scheduled for July and September
1999, with the option to purchase further newbuildings under similar terms. The
agreement is subject to certain conditions that must be satisfied by the
tankers' builder. The estimated delivered price for each vessel, including all
related charges, is approximately $38.0 million. The Company intends to pay for
these purchases by using existing cash balances, borrowings under the Revolver
or other debt financing.
 
     As part of its growth strategy, the Company will continue to consider
strategic opportunities, including the acquisition of additional vessels and the
expansion into new markets. The Company may choose to pursue such opportunities
through internal growth, joint ventures, or business acquisitions. The Company
intends to finance any future acquisitions through various sources of capital,
including internally generated cash flow, existing credit lines, additional debt
borrowings, and the issuance of additional shares of capital stock.
 
YEAR 2000 COMPLIANCE
 
     The Company relies on computer systems and software to operate its
business, including applications used in chartering, shipping, communications,
finance and various administrative functions. To the extent that the Company's
software applications contain source code that is unable to appropriately
interpret the calendar year 2000 and subsequent years, some level of
modification or replacement of such applications will be necessary. The Company
is reviewing all of its systems in order to verify that they are "Year 2000
compliant" and believes, with limited exceptions, that they will require only
minor modification. Accordingly, management does not expect Year 2000 compliance
costs to have a material adverse effect on the Company. No assurance can be
given, however, that all of the Company's systems will be Year 2000 compliant or
that compliance costs or the impact of the Company's failure to achieve full
Year 2000 compliance will not have a material adverse effect on the Company. In
addition, the Company could be adversely affected by the failure of one or more
of its customers, lenders, suppliers or other organizations with which it
conducts business to become fully Year 2000 compliant.
 
                                       20
<PAGE>   21
 
                           FORWARD-LOOKING STATEMENTS
 
     The Company's Annual Report to Shareholders for 1998 and this Annual Report
on Form 20-F for the fiscal year ended March 31, 1998 contain certain
forward-looking statements (as such term is defined in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended) concerning future events and the Company's operations,
performance and financial condition, including, in particular, statements
regarding: tanker supply and demand; the Company's market share in the
Indo-Pacific Basin; future capital expenditures, including expenditures for
newbuilding vessels; the Company's growth strategy and measures to implement
such strategy; the Company's competitive strengths; and future success of the
Company. These statements involve known and unknown risks and are based upon a
number of assumptions and estimates which are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company. Actual results may differ materially from those expressed or implied by
such forward-looking statements. Factors that could cause actual results to
differ materially include, but are not limited to: the cyclical nature of the
tanker industry and its dependence on oil markets; the supply of tankers
available to meet the demand for transportation of petroleum products; the
Company's dependence on spot oil voyages; competitive factors in the markets in
which the Company operates; environmental and other regulation; the Company's
potential inability to achieve and manage growth; risks associated with
operations outside the United States; and other factors detailed from time to
time in the Company's periodic reports filed with the U.S. Securities and
Exchange Commission. The Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Company's expectations
with respect thereto or any change in events, conditions or circumstances on
which any such statement is based.
 
                                       21
<PAGE>   22
 
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
 
MANAGEMENT
 
     The directors, executive officers and senior management of the Company are
listed below:
 
<TABLE>
<CAPTION>
                 NAME               AGE                           POSITION
                 ----               ---                           --------
    <S>                             <C>   <C>
    Karlshoej, Axel                 57    Director and Chairman of the Board
    Moller, Bjorn                   40    Director, President and Chief Executive Officer
    Coady, Arthur F.                64    Director, EVP and General Counsel
    Dingman, Michael D.             66    Director
    Feder, Morris L.                81    Director
    Hsu, Steve G. K.                64    Director
    Hsu, Thomas Kuo-Yuen            51    Director
    Adams, John                     42    Managing Director (Glasgow)
    Alsleben, Veronica A. E.        47    Managing Director (London)
    Antturi, Peter S.               39    VP, Treasurer and Chief Financial Officer (Vancouver)
    Bendy, Paul                     44    Managing Director (Australia)
    Blair, Esther E.                43    Secretary (Nassau)
    Chad, Greg                      46    VP, Corporate Services (Vancouver)
    Glendinning, David              44    VP, Marine and Commercial Operations (Vancouver)
    Lok, Vincent C.                 30    Controller (Vancouver)
    Meldgaard, Mads T.              33    VP, Chartering (Vancouver)*
    Murphy, Justin                  37    Managing Director (Singapore)**
    Nagao, Yoshio                   51    Managing Director (Tokyo)
    Patwardhan, Vinay S.            56    President, Marine Operations (Vancouver)
</TABLE>
 
------------
 
*   Promotion to indicated position to become effective July 1998.
 
**  Promotion to indicated position to become effective August 1998.
 
     Certain biographical information about each of these individuals is set
forth below:
 
     JOHN ADAMS joined the Company in April 1998 as Managing Director of the
newly established Glasgow Office, where Mr. Adams heads the Company's crewing
and crew training activities. Prior to joining Teekay, Mr. Adams served for nine
years as Managing Director of Teekay Norbulk, a joint venture between the
Company and Norbulk Agencies. Mr. Adams has over 22 years' experience in the
crewing and ship management business.
 
     VERONICA A. E. ALSLEBEN has been employed in ship chartering since 1973.
She joined the Company in 1989 as chartering manager and was subsequently
promoted to her current position as Managing Director (London). Prior to joining
the Company, Ms. Alsleben served as Vice President of a chartering office of an
international tanker company in New York City for five years.
 
     PETER S. ANTTURI joined the Company in September 1991 as Manager,
Accounting and was promoted to the position of Controller in March 1992, and to
his current position of Vice President, Treasurer and Chief Financial Officer in
October 1997. Prior to joining the Company, Mr. Antturi held various accounting
and finance roles in the shipping industry since 1985.
 
     PAUL BENDY joined the Company in December 1997 as Managing Director of the
Australia office in connection with the acquisition by the Company of an
Australian affiliate of Caltex Petroleum. From 1993 to December 1997, Mr. Bendy
held a variety of senior management positions within the Caltex Petroleum
organization, including in shipping operations management. Prior to 1993, Mr.
Bendy served for 13 years as a Marine Engineer for Caltex.
 
                                       22
<PAGE>   23
 
     ESTHER E. BLAIR joined the Company in June 1988. In 1991, she was appointed
to the position of Secretary.
 
     GREG CHAD joined the Company in August 1991 as Manager, Personnel. He was
promoted in June 1993 to Director, Personnel and in March 1995 to his current
position of Vice President, Corporate Services. Mr. Chad has held a number of
senior human resources and administration roles in the transportation and
communication industries since 1976.
 
     ARTHUR F. COADY is an Executive Vice President and the General Counsel of
the Company. He has served as a Director of Teekay since 1989. He joined the
Company after 30 years in private law practice in Canada, having specialized in
corporate and commercial law. In July 1995, Mr. Coady was appointed as a
Director of the Bahamas Maritime Authority.
 
     MICHAEL D. DINGMAN is a private investor, industrial company executive and
corporate director. He has served as a Director of Teekay since May 1995. He is
Chairman and Chief Executive Officer of The Shipston Group Limited, a
diversified international holding company, and a Director of Fisher Scientific
International Inc. and of Ford Motor Company. Mr. Dingman also serves as
Director/Executive to a number of other industrial concerns.
 
     MORRIS L. FEDER is President of Worldwide Cargo Inc., a New York based
chartering firm. Mr. Feder has been employed in the shipping industry in excess
of 48 years, of which 43 were spent with Maritime Overseas Corporation, from
which he retired as Executive Vice President and Director in December 1991. He
has also served as Senior Vice President and Director of Overseas Shipholding
Group Inc. and was a member of the Finance and Development Committee of the
Board of Directors of such company. He has served as a Director of Teekay since
June 1993. Mr. Feder is a member of the American Bureau of Shipping, the
Connecticut Maritime Association and the Association of Shipbrokers and Agents
USA Inc., as well as being a member of the Board of Directors of American Marine
Advisors, Inc.
 
     CAPTAIN DAVID GLENDINNING joined the Chartering Department of the Company's
London office in January 1987. Since then, he has worked in a number of senior
positions within the organization, including Vice President, Commercial
Operations, a position he held for two years prior to his January 1995 promotion
to the position of Vice President, Marine and Commercial Operations. Captain
Glendinning has 18 years' sea service on oil tankers of various types and sizes
and is a Master Mariner with British Class 1 Foreign Going Certificate of
Competency.
 
     STEVE G. K. HSU is Chairman of Oak Maritime (H.K.) Inc., Limited, a ship
management company based in Hong Kong. Mr. Hsu is a Standing Supervisor of the
National Association of Chinese Shipowners, Taiwan, a member of the American
Bureau of Shipping, and a council member of the International General Committee
of Bureau Veritas. He has served as a Director of Teekay since June 1993.
 
     THOMAS KUO-YUEN HSU has served 26 years with, and is presently Executive
Director of, Expedo & Company (London) Ltd., which is part of the Expedo Group
of Companies that manages a fleet of seven vessels, ranging in size from 30,000
dwt to 280,000 dwt. He has been a Committee Director of the Britannia Steam Ship
Insurance Association Limited since 1988, and a Lloyd's Underwriting Member
since 1983. He has served as a Director of Teekay since June 1993.
 
     AXEL KARLSHOEJ is President of Nordic Industries, a California general
construction firm with whom he has served for the past 25 years. He is the older
brother of the late J. Torben Karlshoej, the founder of the Company. He has
served as a Director and Chairman of the Board of Teekay since June 1993.
 
     VINCENT C. LOK joined the Company in June 1993 as a financial analyst and
was promoted to the position of Assistant Controller in July 1995, and to his
current position of Controller in October 1997. Prior to joining the Company,
Mr. Lok worked in the audit practice of Deloitte & Touche, Chartered
Accountants, for four years.
 
     MADS T. MELDGAARD joined the Company's Chartering Department in January
1986 and served in the European and Singapore offices until December 1991, when
he was appointed Chartering Manager in the
                                       23
<PAGE>   24
 
Vancouver office. In January 1994, he was promoted to the position of General
Manager, Chartering, and then to Managing Director (Singapore) in September
1995. Effective July 1998, Mr. Meldgaard will become Vice President, Chartering,
based in Vancouver.
 
     BJORN MOLLER succeeded Captain James Hood as President and Chief Executive
Officer in April 1998. Mr. Moller has over 20 years experience in shipping and
has served in senior management positions with the Company for more than 10
years. He has headed the Company's overall operations since January 1997,
following his promotion to the position of Chief Operating Officer. Prior to
this, Mr. Moller headed the Company's global chartering operations and business
development activities.
 
     JUSTIN MURPHY joined the Company in October 1990 and has held various
positions in the Company's operations and chartering departments. Mr. Murphy is
currently serving as General Manager of Business Development at the Company's
Vancouver office and, in August 1998, he will assume the position of Managing
Director of the Company's Singapore office. Mr. Murphy has been employed in the
chartering business for the past 20 years and is a Member of the Institute of
Chartered Shipbrokers (MICS).
 
     YOSHIO NAGAO has been employed in the shipping industry for the past 31
years and is qualified as a Chief Engineer. He joined the Company from Sanko
Steamship Co. Ltd., a Japanese ship owning company, where he served as Manager
of their Technical Department. Mr. Nagao has served as Managing Director (Tokyo)
since joining the Company in 1985.
 
     CAPTAIN VINAY S. PATWARDHAN has held senior positions with the Company
since joining the organization in 1981, including Vice President, Ship
Management, a position he held from January 1986 through January 1995, when he
was promoted to his current position of President, Marine Operations. Captain
Patwardhan has been employed in the shipping industry for the past 37 years,
having experience in crude tanker, product carrier, O/B/O, ore oiler, container,
general cargo and bulk carrier operations, with 11 years of command experience.
Captain Patwardhan is a Master Mariner with Foreign Going Certificate of
Competency.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The aggregate annual compensation paid to the 14 executive officers and
senior managers listed above was $2,428,797 for fiscal 1998, a portion of which
was attributable to payments made pursuant to bonus plans of the Company, which
consider both Company and individual performance for a given period. Currently,
the non-employee directors of Teekay receive, in the aggregate, approximately
$100,000 for their services and reimbursement of their out-of-pocket expenses in
each fiscal year during which they are directors of Teekay. In fiscal 1998, the
Company contributed an aggregate amount of $155,130 to provide pension and
similar benefits for the 14 executive officers and senior managers listed above.
 
ITEM 12.OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
 
     Teekay's 1995 Stock Option Plan (the "Plan") entitles certain eligible
officers, key employees (including senior sea staff), and directors of the
Company to receive options to acquire Common Stock of Teekay. As of April 30,
1998, a total of 1,843,135 shares of Common Stock had been reserved for issuance
under the Plan. As of such date, options to purchase a total of 1,160,251 shares
of Common Stock were outstanding, with options to purchase a total of 564,267
shares then exercisable and with the directors and the 14 executive officers and
senior managers listed above holding options to purchase a total of 554,375
shares, of which 325,375 are exercisable. The outstanding options are
exercisable at prices ranging from $21.50 to $33.50 per share, with a weighted
average exercise price of $26.67 per share, and expire between July 19, 2005 and
June 13, 2007, ten years after the date of grant.
 
                                       24
<PAGE>   25
 
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
 
     As of March 31, 1998, Cirrus Trust and JTK Trust owned, in the aggregate,
approximately 75% of the Company's outstanding Common Stock. The activities of
Cirrus Trust and JTK Trust are under the common supervision of Messrs. Coady,
Karlshoej and Thomas Hsu, directors of Teekay, and Mr. Shigeru Matsui, President
of Matsui & Company, a Tokyo based ship brokerage firm. The beneficiaries of
such trusts include charitable institutions and affiliated trusts.
 
     In April 1993, Teekay acquired all of the issued and outstanding shares of
common stock of Palm Shipping Inc. from an affiliate of Teekay for a nominal
purchase price, plus an amount to be paid at a later date (up to a maximum of
$5.0 million plus accrued interest), contingent upon certain future events. The
payment of such purchase price by Teekay shall not occur until after the 9 5/8%
First Preferred Ship Mortgage Notes due 2003 have been paid in full.
 
                                       25
<PAGE>   26
 
                                    PART II
 
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
 
     Not applicable.
 
                                    PART III
 
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
 
     Not applicable.
 
ITEM 16.CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED SECURITIES AND
        USE OF PROCEEDS
 
     Not applicable.
 
                                    PART IV
 
ITEM 17. FINANCIAL STATEMENTS
 
     Not applicable.
 
ITEM 18. FINANCIAL STATEMENTS
 
     See item 19(a) below.
 
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
 
(a) The following financial statements and schedule, together with the report of
    Ernst & Young thereon, are filed as part of this Annual Report:
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Public Accountants....................  F-1
Consolidated Financial Statements
  Consolidated Statements of Income and Retained Earnings...  F-2
  Consolidated Balance Sheets...............................  F-3
  Consolidated Statements of Cash Flows.....................  F-4
  Notes to the Consolidated Financial Statements............  F-5
  Schedule A to the Consolidated Financial Statements.......  F-15
</TABLE>
 
     All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required, are inapplicable or have been disclosed in the Notes to the
Consolidated Financial Statements and therefore have been omitted.
 
(b) The following exhibits are filed as part of this Annual Report:
 
<TABLE>
    <C>              <S>
           *2.1      Articles of Incorporation of Teekay, with all amendments
                     thereto.
          **2.2      Bylaws of Teekay, with all amendments thereto.
           +2.3      Indenture dated as of July 15, 1993 among Teekay, VSSI Sun
                     Inc., Diamond Spirit Inc., VSSI Deepsea Inc., VSSI Bulkers
                     Inc., VSSI Star Inc., VSSI Ulsan Inc. and United States
                     Trust Company of New York, as Trustee.
           +2.4      Registration Rights Agreement dated July 15, 1993 among
                     Teekay, VSSI Sun Inc., Diamond Spirit Inc., VSSI Deepsea
                     Inc., VSSI Bulkers Inc., VSSI Star Inc., VSSI Ulsan Inc.,
                     and Morgan Stanley & Co. Incorporated, as Placement Agent.
           +2.5      Specimen of Teekay's 9  5/8% First Preferred Ship Mortgage
                     Note due 2003.
</TABLE>
 
                                       26
<PAGE>   27
<TABLE>
    <C>              <S>
         +++2.6      First Preferred Ship Mortgage dated July 15, 1993 by VSSI
                     Sun Inc. to United States Trust Company of New York, as
                     Trustee.
         +++2.7      Assignment of Time Charter dated as of July 15, 1993 from
                     VSSI Sun Inc. to United States Trust Company of New York, as
                     Trustee.
         +++2.8      Assignment of Insurance dated July 15, 1993 from VSSI Sun
                     Inc. to United States Trust Company of New York, as Trustee.
           +2.9      Pledge Agreement and Irrevocable Proxy dated July 15, 1993
                     made by Teekay in favor of United States Trust Company of
                     New York, as Trustee.
         +++2.10     Guarantee dated as of July 15, 1993 by VSSI Sun Inc. in
                     favor of United States Trust Company of New York, as
                     Trustee.
         +++2.11     Assignment of Freights and Hires dated July 15, 1993 from
                     VSSI Sun Inc. to United States Trust Company of New York, as
                     Trustee.
         +++2.12     Cash Collateral Account Agreement dated July 15, 1993
                     between VSSI Sun Inc. and United States Trust Company of New
                     York, as Trustee.
           +2.13     Investment Account Agreement dated July 15, 1993 between
                     Teekay and United States Trust Company of New York, as
                     Trustee.
           +2.14     Assumption Agreement dated August 13, 1993 between United
                     States Trust Company of New York, as Trustee, and Sebarok
                     Spirit Inc.
           +2.15     Pledge Agreement and Irrevocable Proxy dated August 13, 1993
                     made by Teekay in favor of United States Trust Company of
                     New York, as Trustee.
          **2.16     Registration Rights Agreement among Teekay, Tradewinds Trust
                     Co. Ltd., as Trustee for the Cirrus Trust, and Worldwide
                     Trust Services Ltd., as Trustee for the JTK Trust.
          **2.17     Specimen of Teekay Common Stock Certificate.
          ##2.18     Indenture dated January 29, 1996 among Teekay, VSSI Oceans
                     Inc., VSSI Atlantic Inc., VSSI Appian Inc., Senang Spirit
                     Inc., Exuma Spirit Inc., Nassau Spirit Inc., Andros Spirit
                     Inc. and United States Trust Company of New York, as
                     Trustee.
          ##2.19     Specimen of Teekay's First Preferred Ship Mortgage Notes Due
                     2008.
        ##++2.20     Bahamian Statutory Ship Mortgage dated January 29, 1996 by
                     Nassau Spirit Inc. to United States Trust Company of New
                     York.
        ##++2.21     Deed of Covenants dated January 29, 1996 by Nassau Spirit
                     Inc. to United States Trust Company of New York.
          ##2.22     First Preferred Ship Mortgage dated January 29, 1996 by VSSI
                     Oceans Inc. to United States Trust Company of New York, as
                     Trustee.
        ##++2.23     Assignment of Time Charter dated January 29, 1996 by Nassau
                     Spirit Inc. to United States Trust Company of New York, as
                     Trustee.
        ##++2.24     Assignment of Insurance dated January 29, 1996 by Nassau
                     Spirit Inc. to United States Trust Company of New York, as
                     Trustee.
          ##2.25     Pledge Agreement and Irrevocable Proxy dated January 29,
                     1996 by Teekay in favor of United States Trust Company of
                     New York, as Trustee.
        ##++2.26     Guarantee dated January 29, 1996 by Nassau Spirit Inc. in
                     favor of United States Trust Company of New York, as
                     Trustee.
        ##++2.27     Assignment of Freights and Hires dated January 29, 1996 by
                     Nassau Spirit Inc. to United States Trust Company of New
                     York, as Trustee.
        ##++2.28     Cash Collateral Account Agreement dated January 29, 1996
                     between Nassau Spirit Inc. and United States Trust Company
                     of New York, as Trustee.
          ##2.29     Investment Account Agreement dated January 29, 1996 between
                     Teekay and United States Trust Company of New York, as
                     Trustee.
          **2.30     1995 Stock Option Plan.
          **2.31     Form of Indemnification Agreement between Teekay and each of
                     its officers and directors.
</TABLE>
 
                                       27
<PAGE>   28
<TABLE>
    <C>              <S>
          **2.32     Reducing Revolving Credit Facility Agreement dated June 6,
                     1995 between Chiba Spirit Inc., VSSI Sun Inc., VSSI Gemini
                     Inc., VSSI Carriers Inc., Mendana Spirit Inc., Musashi
                     Spirit Inc., VSSI Condor Inc., Palm Monarch Inc., VSSI Drake
                     Inc., VSSI Tokyo Inc., VSSI Marine Inc., Tasman Spirit Inc.,
                     Vancouver Spirit Inc. and Elcano Spirit Inc. and Den norske
                     Bank AS, Christiania Bank og Kreditkasse, acting through its
                     New York Branch, and Nederlandse Scheepshypotheskbank N.V.
           +2.33     Charter Party, as amended, dated September 21, 1989 between
                     Palm Shipping Inc. and BP Shipping Limited.
           +2.34     Time Charter, as amended, dated August 14, 1986 between VSSI
                     Sun Inc. and Palm Shipping Inc.
           +2.35     Time Charter, as amended, dated April 1, 1989 between
                     Diamond Spirit Inc. and Palm Shipping Inc.
           +2.36     Time Charter, as amended, dated August 14, 1986 between VSSI
                     Deepsea Inc. and Palm Shipping Inc.
           +2.37     Time Charter, as amended, dated August 14, 1986 between VSSI
                     Bulkers Inc. and Palm Shipping Inc.
           +2.38     Time Charter, as amended, dated August 14, 1986 between VSSI
                     Star Inc. and Palm Shipping Inc.
           +2.39     Time Charter, as amended, dated January 15, 1990 between
                     VSSI Ulsan Inc. and Palm Shipping Inc.
           +2.40     Time Charter, as amended, dated June 1, 1993 between Sebarok
                     Spirit Inc. and Palm Shipping Inc.
           #2.41     Time Charter, as amended, dated July 3, 1995 between VSSI
                     Oceans Inc. and Palm Shipping Inc.
           #2.42     Time Charter, as amended, dated January 4, 1994 between VSSI
                     Atlantic Inc. and Palm Shipping Inc.
           #2.43     Time Charter, as amended, dated February 1, 1992 between
                     VSSI Appian Inc. and Palm Shipping Inc.
           #2.44     Time Charter, as amended, dated December 1, 1993 between
                     Senang Spirit Inc. and Palm Shipping Inc.
           #2.45     Time Charter, as amended, dated August 1, 1992 between Exuma
                     Spirit Inc. and Palm Shipping Inc.
           #2.46     Time Charter, as amended, dated May 1, 1992 between Nassau
                     Spirit Inc. and Palm Shipping Inc.
           #2.47     Time Charter, as amended, dated November 1, 1992 between
                     Andros Spirit Inc. and Palm Shipping Inc.
         #++2.48     Management Agreement, as amended, dated June 1, 1992 between
                     Teekay Shipping Limited and Nassau Spirit Inc.
           @2.49     Amendment No. 1, dated October 7, 1996, to Reducing
                     Revolving Credit Facility Agreement dated June 5, 1995
                     between Chiba Spirit Inc., VSSI Sun Inc., VSSI Gemini Inc.,
                     VSSI Carriers Inc., Mendana Spirit Inc., Musashi Spirit
                     Inc., VSSI Condor Inc., Palm Monarch Inc., VSSI Drake Inc.,
                     VSSI Tokyo Inc., VSSI Marine Inc., Tasman Spirit Inc.,
                     Vancouver Spirit Inc. and Elcano Spirit Inc. and Den norske
                     Bank AS, Christiania Bank og Kreditkasse, acting through its
                     New York Branch, and Nederlandse Scheepshypotheskbank N.V.
           @2.50     Agreement, dated October 3, 1996, for a U.S. $90,000,000
                     Term Loan Facility to be made available to certain
                     subsidiaries of Teekay Shipping Corporation by Christiania
                     Bank og Kreditkasse, acting through its New York Branch, The
                     Bank of Nova Scotia, and Banque Indosuez.
</TABLE>
 
                                       28
<PAGE>   29
<TABLE>
    <C>              <S>
           @2.51     Agreement, dated October 18, 1996, for a U.S. $120,000,000
                     Term Loan Facility to be made available to certain
                     subsidiaries of Teekay Shipping Corporation by Den Norske
                     Bank ASA, Nederlandse Scheepshypothesbank N.V., The Bank of
                     New York, and Midland Bank PLC.
            2.52     Agreement, dated January 26, 1998, a U.S. $200,000,000
                     Reducing Revolving Credit Facility to be made available to
                     certain wholly-owned subsidiaries of Teekay Shipping
                     Corporation by Den Norske Bank ASA, Christiania Bank Og
                     Kreditkasse ASA, New York Branch, and the Bank of Nova
                     Scotia.

           27.1      Financial Data Schedule
</TABLE>
 
------------
 
*   Previously filed as an exhibit to the Company's Registration Statement on
    Form S-8, filed with the Securities and Exchange Commission (the "SEC") on
    October 27, 1995, and hereby incorporated by reference to such Registration
    Statement.
 
**  Previously filed as an exhibit to the Company's Registration Statement on
    Form F-1 (Registration No. 33-7573-4), filed with the SEC on July 14, 1995,
    and hereby incorporated by reference to such Registration Statement.
 
+  Previously filed as an exhibit to the Company's Registration Statement on
   Form F-1 (Registration No. 33-68680), as declared effective by the SEC on
   November 29, 1993, and hereby incorporated by reference to such Registration
   Statement.
 
++ A schedule attached to this exhibit identifies all other documents not
   required to be filed as exhibits because such other documents are
   substantially identical to this exhibit. The schedule also sets forth
   material details by which the omitted documents differ from this exhibit.
 
#  Previously filed as an exhibit to the Company's Registration Statement on
   Form F-3 (Registration No. 33-65139), filed with the SEC on January 19, 1996,
   and hereby incorporated by reference to such Registration Statement.
 
## Previously filed as an exhibit to the Company's Annual Report on Form 20-F
   (File No. 1-12874), filed with the SEC on June 4, 1996, and hereby
   incorporated by reference to such Annual Report.
 
@  Previously filed as an exhibit to the Company's Annual Report on Form 20-F
   (File No. 1-12874), filed with the SEC on June 11, 1997, and hereby
   incorporated by reference to such Annual Report.
 
                                       29
<PAGE>   30
 
                                   SIGNATURE
 
     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
 
                                          TEEKAY SHIPPING CORPORATION
 
                                          By:  /s/ Peter Antturi
                                          --------------------------------------
 
                                                       Peter Antturi
                                             Vice President and Chief Financial
                                                           Officer
                                            (Principal Financial and Accounting
                                                           Officer)
 
Dated: May 20, 1998
 
                                       30
<PAGE>   31
 
                                AUDITORS' REPORT
 
To the Shareholders of
TEEKAY SHIPPING CORPORATION
 
     We have audited the accompanying consolidated balance sheets of TEEKAY
SHIPPING CORPORATION AND SUBSIDIARIES as of March 31, 1998 and 1997, and the
related consolidated statements of income and retained earnings and cash flows
for each of the three years in the period ended March 31, 1998. Our audits also
included the financial schedule listed in the Index: Item 19(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
 
     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Teekay Shipping Corporation and subsidiaries as at March 31, 1998 and 1997, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended March 31, 1998, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material aspects
the information set forth therein.
 
Nassau, Bahamas,
May 11, 1998                                                   /s/ ERNST & YOUNG
                                                           Chartered Accountants
 
                                       F-1
<PAGE>   32
 
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
            CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
 
            (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
 
<TABLE>
<CAPTION>
                                                               YEAR ENDED MARCH 31,
                                                         --------------------------------
                                                           1998        1997        1996
                                                         --------    --------    --------
<S>                                                      <C>         <C>         <C>
NET VOYAGE REVENUES
Voyage revenues......................................    $406,036    $382,249    $336,320
Voyage expenses......................................     100,776     102,037      90,575
                                                         --------    --------    --------
Net voyage revenues                                       305,260     280,212     245,745
                                                         --------    --------    --------
OPERATING EXPENSES
Vessel operating expenses............................      70,510      72,586      67,841
Time charter hire expense............................      10,627       3,461       2,503
Depreciation and amortization........................      94,941      90,698      82,372
General and administrative...........................      21,542      19,209      16,750
                                                         --------    --------    --------
                                                          197,620     185,954     169,466
                                                         --------    --------    --------
Income from vessel operations........................     107,640      94,258      76,279
                                                         --------    --------    --------
Other items
Interest expense.....................................     (56,269)    (60,810)    (62,910)
Interest income......................................       7,897       6,358       6,471
Other income (note 10)...............................      11,236       2,824       9,230
                                                         --------    --------    --------
                                                          (37,136)    (51,628)    (47,209)
                                                         --------    --------    --------
Net income...........................................      70,504      42,630      29,070
Retained earnings, beginning of the year.............     382,178     363,690     406,547
                                                         --------    --------    --------
                                                          452,682     406,320     435,617
Exchange of redeemable preferred stock (note 8)......                             (60,000)
Dividends declared and paid..........................     (24,580)    (24,142)    (11,927)
                                                         --------    --------    --------
Retained earnings, end of the year...................    $428,102    $382,178    $363,690
                                                         ========    ========    ========
Earnings per common share (notes 1 and 8)
- basic..............................................    $   2.46    $   1.52    $   1.17
- diluted............................................    $   2.44    $   1.50    $   1.17
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                       F-2
<PAGE>   33
 
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                         (IN THOUSANDS OF U.S. DOLLARS)
 
<TABLE>
<CAPTION>
                                                                  AS AT MARCH 31,
                                                              ------------------------
                                                                 1998          1997
                                                              ----------    ----------
<S>                                                           <C>           <C>
ASSETS
CURRENT
Cash and cash equivalents...................................  $   87,953    $  117,523
Marketable securities (notes 3).............................      13,448
Accounts receivable
-- trade....................................................      23,092        25,745
-- other....................................................       1,235         1,066
Prepaid expenses and other assets...........................      13,786        14,666
                                                              ----------    ----------
       Total current assets.................................     139,514       159,000
                                                              ----------    ----------
Marketable securities (note 3)..............................      13,853
                                                              ----------
Vessels and equipment (notes 1,5 and 9)
At cost, less accumulated depreciation of $500,779 (1997 --
  $457,779).................................................   1,297,883     1,187,399
Advances on vessels.........................................                     8,938
                                                              ----------    ----------
       Total vessels and equipment..........................   1,297,883     1,196,337
                                                              ----------    ----------
Investment..................................................                     6,335
Other assets................................................       8,933        11,166
                                                              ----------    ----------
                                                              $1,460,183    $1,372,838
                                                              ==========    ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable............................................  $   16,164    $   16,315
Accrued liabilities (note 4)................................      29,195        26,982
Current portion of long-term debt (note 5)..................      52,932        36,283
                                                              ----------    ----------
       Total current liabilities............................      98,291        79,580
                                                              ----------    ----------
Long-term debt (note 5).....................................     672,437       663,443
                                                              ----------    ----------
       Total liabilities....................................     770,728       743,023
                                                              ----------    ----------
STOCKHOLDERS' EQUITY
Capital stock (note 8)......................................     261,353       247,637
Retained earnings...........................................     428,102       382,178
                                                              ----------    ----------
       Total stockholders' equity...........................     689,455       629,815
                                                              ----------    ----------
                                                              $1,460,183    $1,372,838
                                                              ==========    ==========
</TABLE>
 
Commitments and contingencies (notes 5, 6, and 9)
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
 
                                       F-3
<PAGE>   34
 
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                         (IN THOUSANDS OF U.S. DOLLARS)
 
<TABLE>
<CAPTION>
                                                             YEAR ENDED          YEAR ENDED          YEAR ENDED
                                                              MARCH 31,           MARCH 31,           MARCH 31,
                                                                1998                1997                1996
                                                          -----------------   -----------------   -----------------
<S>                                                       <C>                 <C>                 <C>
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income..............................................  $          70,504   $         42,630    $          29,070
Add (deduct) charges to operations not requiring a
  payment of cash and cash equivalents:
Depreciation and amortization...........................             94,941             90,698               82,372
Gain on disposition of assets...........................            (14,392)                                 (8,784)
Loss on repurchase of 9 5/8% Notes......................              2,175
Equity income (net of dividend received: March 31,
  1997--$282)...........................................                (45)            (2,414)              (1,139)
Other--net..............................................              2,735              2,785                2,452
Change in non-cash working capital items related to
  operating activities (note 11)........................              5,201              5,459               (5,556)
                                                          -----------------   -----------------   -----------------
Net cash flow from operating activities.................            161,119            139,158               98,415
                                                          -----------------   -----------------   -----------------
FINANCING ACTIVITIES
Proceeds from long-term debt............................            208,600            240,000              448,000
Scheduled repayments of long-term debt..................            (33,876)           (16,038)             (57,850)
Prepayments of long-term debt...........................           (150,655)          (250,078)            (505,962)
Scheduled payments on capital lease obligations.........                                                     (1,527)
Prepayments of capital lease obligations................                                                    (43,023)
Net proceeds from issuance of Common Stock..............              5,126              1,283              137,872
Cash dividends paid.....................................            (15,990)           (13,493)              (7,094)
Capitalized loan costs..................................               (994)            (1,130)              (5,965)
                                                          -----------------   -----------------   -----------------
Net cash flow from financing activities.................             12,211            (39,456)             (35,549)
                                                          -----------------   -----------------   -----------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (net of
  capital lease financing of: (1998--$NIL;
  1997--$NIL; 1996--$44,550)............................           (197,199)           (65,104)             (79,293)
Expenditures for drydocking.............................            (18,376)           (16,559)              (7,405)
Proceeds from disposition of assets.....................             33,863                                  28,428
Net cash flow from investment...........................              6,380             (2,296)               3,273
Proceeds on sale of available-for-sale securities.......             14,854                                 111,770
Purchases of available-for-sale securities..............            (42,154)                                (41,993)
Other...................................................               (268)
                                                          -----------------   -----------------   -----------------
Net cash flow from investing activities.................           (202,900)           (83,959)              14,780
                                                          -----------------   -----------------   -----------------
(Decrease) increase in cash and cash equivalents........            (29,570)            15,743               77,646
Cash and cash equivalents, beginning of the year........            117,523            101,780               24,134
                                                          -----------------   -----------------   -----------------
Cash and cash equivalents, end of the year..............  $          87,953   $        117,523    $         101,780
                                                          =================   =================   =================
</TABLE>
 
   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                       F-4
<PAGE>   35
 
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
                 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 are prepared in accordance with
accounting principles generally accepted in the United States. They include the
accounts of Teekay Shipping Corporation ("Teekay"), which is incorporated under
the laws of Liberia, and its wholly owned or controlled subsidiaries (the
"Company"). Significant intercompany items and transactions have been eliminated
upon consolidation.
 
     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
 
     Certain of the comparative figures have been reclassified to conform with
the presentation adopted in the current period.
 
     Reporting currency
 
     The consolidated financial statements are stated in U.S. dollars because
the Company operates in international shipping markets which utilize the U.S.
dollar as the functional currency.
 
     Investment
 
     The Company's 50% interest in Viking Consolidated Shipping Corp. ("VCSC")
is carried at the Company's original cost plus its proportionate share of the
undistributed net income. On March 12, 1997, VCSC sold its one remaining vessel
and it is not anticipated that the operating companies of VCSC will have active
operations in the near future. The disposal of this vessel and the related gain
on sale has been reflected in these consolidated financial statements (see Note
10 -- Other Income).
 
     Operating revenues and expenses
 
     Voyage revenues and expenses are recognized on the percentage of completion
method of accounting. Estimated losses on voyages are provided for in full at
the time such losses become evident. The consolidated balance sheets reflect the
deferred portion of revenues and expenses applicable to subsequent periods.
 
     Voyage expenses comprise all expenses relating to particular voyages,
including bunker fuel expenses, port fees, canal tolls, and brokerage
commissions. Vessel operating expenses comprise all expenses relating to the
operation of vessels, including crewing, repairs and maintenance, insurance,
stores and lubes, and miscellaneous expenses including communications.
 
     Marketable securities
 
     The Company's investments in marketable securities are classified as
available-for-sale securities and are carried at fair value. Net unrealized
gains or losses on available-for-sale securities, if material, are reported as a
separate component of stockholders' equity.
 
     Vessels and equipment
 
     All pre-delivery costs incurred during the construction of newbuildings,
including interest costs, and supervision and technical costs are capitalized.
The acquisition cost and all costs incurred to restore used
 
                                       F-5
<PAGE>   36
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
 
 (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
                                PER SHARE DATA)
 
vessel purchases to the standard required to properly service the Company's
customers are capitalized. Depreciation is calculated on a straight-line basis
over a vessel's useful life, estimated by the Company to be twenty years from
the date a vessel is initially placed in service.
 
     Interest costs capitalized to vessels and equipment for the years ended
March 31, 1998, 1997 and 1996 aggregated $283,000, $232,000, and $106,000,
respectively.
 
     Expenditures incurred during drydocking are capitalized and amortized on a
straight-line basis over the period until the next anticipated drydocking. When
significant drydocking expenditures recur prior to the expiry of this period,
the remaining balance of the original drydocking is expensed in the month of the
subsequent drydocking. Drydocking expenses amortized for the years ended March
31, 1998, 1997 and 1996 aggregated $11,737,000, $10,941,000, and $8,617,000
respectively.
 
     Vessels acquired pursuant to bareboat hire purchase agreements are
capitalized as capital leases and are amortized over the estimated useful life
of the acquired vessel.
 
     Other assets
 
     Loan costs, including fees, commissions and legal expenses, are capitalized
and amortized over the term of the relevant loan. Amortization of loan costs is
included in interest expense.
 
     Interest rate swap agreements
 
     The differential to be paid or received is accrued as interest rates change
and is recognized as an adjustment to interest expenses. Premiums and receipts,
if any, are recognized as adjustments to interest expense over the lives of the
individual contracts.
 
     Forward contracts
 
     The Company enters into forward contracts as a hedge against changes in
foreign exchange rates. Market value gains and losses are deferred and
recognized during the period in which the hedged transaction is recorded in the
accounts.
 
     Cash flows
 
     Cash interest paid during the years ended March 31, 1998, 1997 and 1996
totaled $55,141,000, $57,400,000, and $59,021,000, respectively.
 
     The Company classifies all highly liquid investments with a maturity date
of three months or less when purchased as cash and cash equivalents.
 
     Income taxes
 
     The legal jurisdictions of the countries in which the Company and the
majority of its subsidiaries are incorporated do not impose income taxes upon
shipping-related activities.
 
     Earnings per share
 
     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per share".
SFAS 128 requires dual presentation of basic earnings per share ("EPS") and
diluted EPS on the face of all statements of
 
                                       F-6
<PAGE>   37
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
 
 (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
                                PER SHARE DATA)
 
earnings ending after December 15, 1997 for all entities with complex capital
structures. The Company's EPS for all periods presented herein are in conformity
with SFAS 128 (see Note 8--Capital Stock).
 
     Accounting for Stock-Based Compensation
 
     Effective April 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." SFAS 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
companies to record compensation costs associated with employee stock option
awards, based on estimated fair values at the grant dates. The Company has
chosen to continue to account for stock-based compensation using the intrinsic
value method prescribed in APB Opinion No. 25 (APB 25) "Accounting for Stock
Issued to Employees" and has disclosed the required pro forma effect on net
income and earning per share as if the fair value method of accounting as
prescribed in SFAS 123 had been applied (see Note 8--Capital Stock).
 
2.  BUSINESS OPERATIONS
 
     The Company is engaged in the ocean transportation of petroleum cargoes
worldwide through the ownership and operation of a fleet of tankers. All of the
Company's revenues are earned in international markets.
 
     A single customer, an international oil company, accounted for
approximately 14% ($56,537,000) of the Company's consolidated voyage revenues
for fiscal 1998. Another customer, also an international oil company, accounted
for approximately 13% ($48,696,000), of consolidated voyage revenues for fiscal
1997. No more than one customer accounted for over 10% of the Company's
consolidated voyage revenues in any of the last three fiscal years.
 
3.  INVESTMENTS IN MARKETABLE SECURITIES
 
<TABLE>
<CAPTION>
                                                           GROSS        GROSS       APPROXIMATE
                                                         UNREALIZED   UNREALIZED     MARKET AND
                                                COST       GAINS        LOSSES     CARRYING VALUE
                                               -------   ----------   ----------   --------------
<S>                                            <C>       <C>          <C>          <C>
March 31, 1998
Available-for-sale securities...............   $27,304      $13          $(16)        $27,301
</TABLE>
 
     The cost and approximate market value of available-for-sale securities by
contractual maturity, as at March 31, 1998, are shown as follows:
 
<TABLE>
<CAPTION>
                                                                            APPROXIMATE
                                                                             MARKET AND
                                                                 COST      CARRYING VALUE
                                                                -------    --------------
<S>                                                             <C>        <C>
Less than one year..........................................    $13,456       $13,448
Due after one year through five years.......................     13,848        13,853
                                                                -------       -------
                                                                $27,304       $27,301
                                                                =======       =======
</TABLE>
 
                                       F-7
<PAGE>   38
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
 
 (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
                                PER SHARE DATA)
 
4.  ACCRUED LIABILITIES
 
<TABLE>
<CAPTION>
                                                                    MARCH 31,
                                                                ------------------
                                                                 1998       1997
                                                                -------    -------
<S>                                                             <C>        <C>
Voyage and vessel...........................................    $15,845    $15,458
Interest....................................................      9,272      9,294
Payroll and benefits........................................      4,078      2,230
                                                                -------    -------
                                                                $29,195    $26,982
                                                                =======    =======
</TABLE>
 
5.  LONG-TERM DEBT
 
<TABLE>
<CAPTION>
                                                                     MARCH 31,
                                                                --------------------
                                                                  1998        1997
                                                                --------    --------
<S>                                                             <C>         <C>
Revolving Credit Facility...................................    $129,000
First Preferred Ship Mortgage Notes (8.32%)
  U.S. dollar debt due through 2008.........................     225,000    $225,000
First Preferred Ship Mortgage Notes (9 5/8%)
  U.S. dollar debt due through 2003.........................     123,718     151,200
Floating rate (1998: LIBOR + 0.55% to 1%; 1997:
  LIBOR + 0.65% to 1 1/2%) U.S. dollar debt due through
  2009......................................................     247,651     323,526
                                                                --------    --------
                                                                 725,369     699,726
Less current portion........................................      52,932      36,283
                                                                --------    --------
                                                                $672,437    $663,443
                                                                ========    ========
</TABLE>
 
     In January 1998, the Company refinanced approximately $105.0 million of its
floating rate debt and replaced the previous corporate revolving credit facility
with a new $200 million corporate revolving credit facility (the "Revolver") at
improved rates and credit terms. The amount available under the Revolver reduces
by $10.0 million semi-annually commencing in July 1999, with a final balloon
reduction in January 2006. Interest payments are based on LIBOR plus a margin
depending on the financial leverage of the Company; at March 31, 1998 the margin
was +0.50%. As at March 31, 1998, the undrawn amount available under the
Revolver was $71.0 million. The Revolver is collateralized by first priority
mortgages granted on eight of the Company's Aframax tankers, together with
certain other related collateral, and a guarantee from the Company for all
amounts outstanding under the Revolver.
 
     The 8.32% First Preferred Ship Mortgage Notes due February 1, 2008 (the
"8.32% Notes") are collateralized by first preferred mortgages on seven of the
Company's Aframax tankers, together with certain other related collateral, and
are guaranteed by seven subsidiaries of Teekay that own the mortgaged vessels
(the "8.32% Notes Guarantor Subsidiaries") to a maximum of 95% of the fair value
of their net assets. As at March 31, 1998, the fair value of these net assets
approximated $252.0 million. The 8.32% Notes are also subject to a sinking fund,
which will retire $45.0 million principal amount of the 8.32% Notes on each
February 1, commencing 2004.
 
     Upon the 8.32% Notes achieving Investment Grade Status and subject to
certain other conditions, the guarantees of the 8.32% Notes Guarantor
Subsidiaries will terminate, all of the collateral securing the obligations of
the Company and the 8.32% Notes Guarantor Subsidiaries under the Indenture and
the Security Documents will be released (whereupon the Notes will become general
unsecured obligations of the Company) and certain covenants under the Indenture
will no longer be applicable to the Company.
 
                                       F-8
<PAGE>   39
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
 
 (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
                                PER SHARE DATA)
 
     The 9 5/8% First Preferred Ship Mortgage Notes due July 15, 2003 (the
"9 5/8% Notes") are collateralized by first preferred mortgages on six of the
Company's Aframax tankers, together with certain other related collateral, and
are guaranteed by six subsidiaries of Teekay that own the mortgaged vessels (the
"9 5/8% Notes Guarantor Subsidiaries") to a maximum of 95% of the fair value of
their net assets. As at March 31, 1998, the fair value of these net assets
approximated $186.0 million. The 9 5/8% Notes are also subject to a sinking
fund, which will retire $25.0 million principal amount of the 9 5/8% Notes on
each July 15, which commenced on July 15, 1997. During fiscal 1998, the Company
repurchased a principal amount of $26.3 million of the 9 5/8% Notes. During
fiscal 1996, the Company repurchased $23.8 million of these notes, which was
applied to reduce the July 15, 1997 sinking fund requirement. The 9 5/8% Notes
are redeemable at the option of the Company, in whole or in part, on or after
July 15, 1998 at the following redemption prices expressed as a percentage of
principal:
 
<TABLE>
<CAPTION>
                      JULY 15                         REDEMPTION PRICE
                      -------                         ----------------
<S>                                                   <C>
1998................................................      104.813%
1999................................................      102.406%
2000................................................      100.000%
</TABLE>
 
     Upon a Change of Control, each 9 5/8% Note holder and 8.32% Note holder has
the right, unless the Company elects to redeem these Notes, to require the
Company to purchase these Notes at 101% of their principal amount plus accrued
interest.
 
     Condensed financial information regarding the Company, the 9 5/8% Notes
Guarantor Subsidiaries, the 8.32% Notes Guarantor Subsidiaries and non-guarantor
subsidiaries of the Company is set out in Schedule A of these consolidated
financial statements.
 
     All floating rate loans are collateralized by first preferred mortgages on
the vessels to which the loans relate, together with certain other collateral,
and guarantees from Teekay.
 
     Among other matters, the long-term debt agreements generally provide for
such items as maintenance of certain vessel market value to loan ratios and
minimum consolidated financial covenants, prepayment privileges (in some cases
with penalties), and restrictions against the incurrence of additional debt and
new investments by the individual subsidiaries without prior lender consent. The
amount of Restricted Payments, as defined, that the Company can make, including
dividends and purchases of its own capital stock, is limited as of March 31,
1998, to $74.0 million.
 
     As at March 31, 1998, the Company was committed to a series of interest
rate swap agreements whereby $150 million of the Company's floating rate debt
was swapped with fixed rate obligations having an average remaining term of 7.5
months. The swap agreements expire between October 1998 and December 1998. These
arrangements effectively change the Company's interest rate exposure on $150
million of debt from a floating LIBOR rate to an average fixed rate 5.86%. The
Company is exposed to credit loss in the event of non-performance by the counter
parties to the interest rate swap agreements; however, the Company does not
anticipate non-performance by any of the counter parties.
 
     The aggregate annual long-term debt principal repayments required to be
made for the five fiscal years subsequent to March 31, 1998 are $52,932,000
(fiscal 1999), $53,058,000 (fiscal 2000), $53,191,000 (fiscal 2001), $62,332,000
(fiscal 2002), and $72,199,000 (fiscal 2003).
 
                                       F-9
<PAGE>   40
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
 
 (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
                                PER SHARE DATA)
 
6.  LEASES
 
     Charters-out
 
     Time charters to third parties of the Company's vessels are accounted for
as operating leases. The minimum future revenues to be received on time charters
currently in place are $46,222,000 (fiscal 1999), $39,631,000 (fiscal 2000),
$39,602,000 (fiscal 2001), $39,562,000 (fiscal 2002), $39,562,000 (fiscal 2003),
and $215,533,000 thereafter.
 
     The minimum future revenues should not be construed to reflect total
charter hire revenues for any of the years.
 
     Charters-in
 
     Minimum commitments under vessel operating leases are $19,681,000 (fiscal
1999), $9,445,000 (fiscal 2000), $6,844,000 (fiscal 2001), and $412,000 (fiscal
2002).
 
7.  FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     Carrying amounts of all financial instruments approximate fair market value
except for the following:
 
     Long-term debt -- The fair values of the Company's fixed rate long-term
debt are based on either quoted market prices or estimated using discounted cash
flow analyses, based on rates currently available for debt with similar terms
and remaining maturities.
 
     Interest rate swap agreements -- The fair value of interest rate swaps,
used for hedging purposes, is the estimated amount that the Company would
receive or pay to terminate the agreements at the reporting date, taking into
account current interest rates and the current credit worthiness of the swap
counter parties.
 
     The estimated fair value of the Company's financial instruments is as
follows:
 
<TABLE>
<CAPTION>
                                               MARCH 31, 1998          MARCH 31, 1997
                                            --------------------    --------------------
                                            CARRYING      FAIR      CARRYING      FAIR
                                             AMOUNT      VALUE       AMOUNT      VALUE
                                            --------    --------    --------    --------
<S>                                         <C>         <C>         <C>         <C>
Cash, cash equivalents and marketable
  securities............................    $115,254    $115,254    $117,523    $117,523
Long-term debt..........................     725,369     737,785     699,726     695,265
Interest rate swap agreements -- net
  receivable (payable) position.........                    (176)                  1,154
Foreign currency contracts..............                     339                    (181)
</TABLE>
 
     The Company transacts with investment grade rated financial institutions
and requires no collateral from these institutions.
 
                                      F-10
<PAGE>   41
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
 
 (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
                                PER SHARE DATA)
 
8.  CAPITAL STOCK
 
<TABLE>
<CAPTION>
                         AUTHORIZED
                         ----------
<S>                                                             <C>
 25,000,000 Preferred Stock with a par value of $1 per share
125,000,000 Common Stock with no par value
</TABLE>
 
<TABLE>
<CAPTION>
                                               COMMON     THOUSANDS    PREFERRED    THOUSANDS
                                               STOCK      OF SHARES      STOCK      OF SHARES
                                              --------    ---------    ---------    ---------
<S>                                           <C>         <C>          <C>          <C>
Issued and outstanding
Balance March 31, 1995....................    $ 33,000      36,000        $1           600
May 15, 1995 1-for-2 Reverse Common Stock
  Split...................................                 (18,000)
July 19, 1995 Initial Public Offering
  6,900,000 shares at $21.50 per share of
  Common Stock (net of share issue
  costs)..................................     137,613       6,900
July 19, 1995 Exchange of Redeemable
  Preferred Stock for 2,790,698 shares of
  Common Stock............................      60,000       2,791        (1)         (600)
Reinvested Dividends......................       4,833         201
Exercise of Stock Options.................         259          12
                                              --------     -------        --          ----
Balance March 31, 1996....................     235,705      27,904         0             0
Reinvested Dividends......................      10,649         364
Exercise of Stock Options.................       1,283          60
                                              --------     -------        --          ----
Balance March 31, 1997....................     247,637      28,328         0             0
Reinvested Dividends......................       8,590         273
Exercise of Stock Options.................       5,126         232
                                              --------     -------        --          ----
Balance March 31, 1998....................    $261,353      28,833        $0             0
                                              ========     =======        ==          ====
</TABLE>
 
     The Company has reserved 1,844,135 shares of Common Stock for issuance upon
exercise of options granted pursuant to the Company's 1995 Stock Option Plan
(the "Plan").
 
     During fiscal 1998, 1997 and 1996, the Company granted options under the
Plan to acquire up to 359,750, 343,250 and 796,750 shares of Common Stock (the
"Grants"), respectively, to certain eligible officers, key employees (including
senior sea staff), and directors of the Company. The options have a 10-year term
and follow a graded-vesting schedule. The options granted during fiscal 1998 and
1997 vest equally over four years from the date of grant. At March 31, 1998, all
options granted during fiscal 1996 have vested.
 
                                      F-11
<PAGE>   42
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
 
 (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
                                PER SHARE DATA)
 
     A summary of the Company's stock option activity, and related information
for the years ended March 31, follows:
 
<TABLE>
<CAPTION>
                                           1998                         1997                         1996
                                --------------------------   --------------------------   --------------------------
                                          WEIGHTED-AVERAGE             WEIGHTED-AVERAGE             WEIGHTED-AVERAGE
                                OPTIONS    EXERCISE PRICE    OPTIONS    EXERCISE PRICE    OPTIONS    EXERCISE PRICE
                                -------   ----------------   -------   ----------------   -------   ----------------
                                (000S)                       (000S)                       (000S)
<S>                             <C>       <C>                <C>       <C>                <C>       <C>
Outstanding-beginning of
  year.......................    1,056         $23.40           779         $21.50            0          $21.50
Granted......................      360          33.50           343          27.38          797           21.50
Exercised....................     (232)         22.02           (60)         21.50          (12)          21.50
Forfeited....................      (23)         30.39            (6)         24.00           (6)          21.50
                                 -----         ------         -----         ------          ---          ------
Outstanding-end of year......    1,161         $26.66         1,056         $23.40          779          $21.50
                                 =====         ======         =====         ======          ===          ======
Exercisable at end of year...      565         $22.14           519         $21.50          383          $21.50
                                 =====         ======         =====         ======          ===          ======
Weighted-average fair value
  of options granted during
  the year (per option)......             $8.13                        $6.72                        $5.16
                                          ======                       ======                       ======
</TABLE>
 
     Exercise prices for the options outstanding as of March 31, 1998 ranged
from $21.50 to $33.50 and have a weighted-average remaining contractual life of
8.10 years.
 
     The Company applies APB 25, "Accounting for Stock Issued to Employees" and
related Interpretations in accounting for its employee stock options (see Note
1--Accounting for Stock-Based Compensation). Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of
underlying stock on the date of grant, no compensation expense is recognized.
 
     Had the Company recognized compensation costs for the Grants consistent
with the methods recommended by SFAS 123 (see Note 1--Accounting for Stock-Based
Compensation), the Company's net income and earnings per share for those fiscal
years would have been stated at the pro forma amounts as follows:
 
<TABLE>
<CAPTION>
                                                       YEAR ENDED    YEAR ENDED    YEAR ENDED
                                                       MARCH 31,     MARCH 31,     MARCH 31,
                                                          1998          1997          1996
                                                       ----------    ----------    ----------
<S>                                                    <C>           <C>           <C>
NET INCOME:
As reported........................................     $70,504       $42,630       $29,070
Pro forma..........................................      69,090        40,679        26,842
BASIC EARNINGS PER COMMON SHARE:
As reported........................................        2.46          1.52          1.17
Pro forma..........................................        2.41          1.45          1.08
DILUTED EARNINGS PER COMMON SHARE:
As reported........................................        2.44          1.50          1.17
Pro forma..........................................        2.39          1.44          1.08
</TABLE>
 
                                      F-12
<PAGE>   43
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
 
 (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
                                PER SHARE DATA)
 
     Basic earnings per share is based upon the following weighted average
number of common shares outstanding: 28,655,000 shares at March 31, 1998;
28,138,000 shares at March 31, 1997; and 24,837,000 shares at March 31, 1996.
Diluted earnings per share, which gives effect to the aforementioned stock
options, is based upon the following weighted average number of common shares
outstanding: 28,870,000 shares at March 31, 1998; 28,339,000 shares at March 31,
1997; and 24,902,000 shares at March 31, 1996.
 
     The fair values of the Grants were estimated on the dates of grant using
the Black-Scholes option-pricing model with the following assumptions: risk-free
average interest rates of 6.29%, 6.44%, and 6.14% for fiscal 1998, fiscal 1997
and fiscal 1996, respectively; dividend yield of 3.0%; expected volatility of
25%; and expected lives of 5 years.
 
9.  COMMITMENTS AND CONTINGENCIES
 
     As at March 31, 1998, the Company was committed to foreign exchange
contracts for the forward purchase of approximately Japanese Yen 100 million and
Singapore dollars 15.9 million for U.S. dollars, at an average rate of Japanese
Yen 128.3 per U.S. dollar and Singapore dollar 1.68 per U.S. dollar,
respectively, for the purpose of hedging accounts payable and accrued
liabilities.
 
10. OTHER INCOME
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED MARCH 31,
                                                       --------------------------------------
                                                          1998          1997          1996
                                                       ----------    ----------    ----------
<S>                                                    <C>           <C>           <C>
Gain on disposition of assets......................     $14,392                      $8,784
Equity in results of 50% owned company.............          45         2,696         1,139
Write off of loan costs due to refinancing.........      (1,308)
Loss on extinguishment of debt.....................      (2,175)
Miscellaneous -- net...............................         282           128          (693)
                                                        -------        ------        ------
                                                        $11,236        $2,824        $9,230
                                                        =======        ======        ======
</TABLE>
 
     For the year ended March 31, 1997, Equity in results of the 50% owned
company included a $2,732,000 gain on a vessel sale. Gross realized gains and
(losses) on sales of available-for-sale securities for the year ended March 31,
1996 aggregated $1,787,000 and ($1,732,000), respectively.
 
11. CHANGE IN NON-CASH WORKING CAPITAL ITEMS RELATED TO OPERATING ACTIVITIES
 
<TABLE>
<CAPTION>
                                                                YEAR ENDED MARCH 31,
                                                       --------------------------------------
                                                          1998          1997          1996
                                                       ----------    ----------    ----------
<S>                                                    <C>           <C>           <C>
Accounts receivable................................     $ 2,484       $(1,873)      $(4,792)
Prepaid expenses and other assets..................         880           665        (2,058)
Accounts payable...................................       5,814         4,554           281
Accrued liabilities................................      (3,977)        2,113         1,013
                                                        -------       -------       -------
                                                        $ 5,201       $ 5,459       $(5,556)
                                                        =======       =======       =======
</TABLE>
 
12. SUBSEQUENT EVENTS
 
     In May 1998, the Company commenced an offering of up to 8,050,000 shares of
Common Stock, of which 2,800,000 shares are being offered by the Company and up
to 5,250,000 shares are being offered
 
                                      F-13
<PAGE>   44
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
 
 (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR
                                PER SHARE DATA)
 
by a selling shareholder. The net proceeds to the Company of the offering will
be used to redeem a portion of the 9 5/8% Notes.
 
     Subsequent to March 31, 1998 the Company entered into an agreement (subject
to certain conditions) for the construction of two Aframax vessels for a cost of
$76.0 million, scheduled for delivery in July and September of 1999.
 
                                      F-14
<PAGE>   45
 
                                                                      SCHEDULE A
 
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
              CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
                         (IN THOUSANDS OF U.S. DOLLARS)
 
<TABLE>
<CAPTION>
                                                                     YEAR ENDED MARCH 31, 1998
                                    --------------------------------------------------------------------------------------------
                                                     9 5/8% NOTES   8.32% NOTES                                       TEEKAY
                                        TEEKAY        GUARANTOR      GUARANTOR     NON-GUARANTOR                  SHIPPING CORP.
                                    SHIPPING CORP.   SUBSIDIARIES   SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   & SUBSIDIARIES
                                    --------------   ------------   ------------   -------------   ------------   --------------
<S>                                 <C>              <C>            <C>            <C>             <C>            <C>
Net voyage revenues...............     $               $ 52,762       $ 36,443       $442,888       $(226,833)       $305,260
Operating expenses................          362          23,318         34,344        366,429        (226,833)        197,620
                                       --------        --------       --------       --------       ---------        --------
  Income (loss) from vessel
    operations....................         (362)         29,444          2,099         76,459                         107,640
Net interest income (expense).....      (33,011)            532            391        (16,284)                        (48,372)
Equity in net income of
  subsidiaries....................      105,936                                                      (105,891)             45
Other income (loss)...............       (2,059)                                       29,179         (15,929)         11,191
                                       --------        --------       --------       --------       ---------        --------
NET INCOME........................       70,504          29,976          2,490         89,354        (121,820)         70,504
Retained earnings (deficit),
  beginning of the year...........      382,178          11,056        (18,124)       144,125        (137,057)        382,178
Dividends declared and paid.......      (24,580)        (15,600)       (18,690)                        34,290         (24,580)
                                       --------        --------       --------       --------       ---------        --------
RETAINED EARNINGS (DEFICIT), END
  OF THE YEAR.....................     $428,102        $ 25,432       $(34,324)      $233,479       $(224,587)       $428,102
                                       ========        ========       ========       ========       =========        ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                     YEAR ENDED MARCH 31, 1997
                                    --------------------------------------------------------------------------------------------
                                                     9 5/8% NOTES   8.32% NOTES                                       TEEKAY
                                        TEEKAY        GUARANTOR      GUARANTOR     NON-GUARANTOR                  SHIPPING CORP.
                                    SHIPPING CORP.   SUBSIDIARIES   SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   & SUBSIDIARIES
                                    --------------   ------------   ------------   -------------   ------------   --------------
<S>                                 <C>              <C>            <C>            <C>             <C>            <C>
Net voyage revenues...............     $               $ 30,553       $ 35,960       $411,216       $(197,517)       $280,212
Operating expenses................          494          22,588         34,254        326,135        (197,517)        185,954
                                       --------        --------       --------       --------       ---------        --------
  Income (loss) from vessel
    operations....................         (494)          7,965          1,706         85,081                          94,258
Net interest income (expense).....      (34,420)            114            210        (20,356)                        (54,452)
Equity in net income of
  subsidiaries....................       77,352                                                       (74,656)          2,696
Other income......................          192                                        12,707         (12,771)            128
                                       --------        --------       --------       --------       ---------        --------
NET INCOME........................       42,630           8,079          1,916         77,432         (87,427)         42,630
Retained earnings (deficit),
  beginning of the year...........      363,690          17,377         (1,245)        66,693         (82,825)        363,690
Dividends declared and paid.......      (24,142)        (14,400)       (18,795)                        33,195         (24,142)
                                       --------        --------       --------       --------       ---------        --------
RETAINED EARNINGS (DEFICIT), END
  OF THE YEAR.....................     $382,178        $ 11,056       $(18,124)      $144,125       $(137,057)       $382,178
                                       ========        ========       ========       ========       =========        ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                     YEAR ENDED MARCH 31, 1996
                                    --------------------------------------------------------------------------------------------
                                                     9 5/8% NOTES   8.32% NOTES                                       TEEKAY
                                        TEEKAY        GUARANTOR      GUARANTOR     NON-GUARANTOR                  SHIPPING CORP.
                                    SHIPPING CORP.   SUBSIDIARIES   SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   & SUBSIDIARIES
                                    --------------   ------------   ------------   -------------   ------------   --------------
<S>                                 <C>              <C>            <C>            <C>             <C>            <C>
Net voyage revenues...............     $               $ 29,755       $ 49,402       $390,450       $(223,862)       $245,745
Operating expenses................          835          20,681         31,861        339,951        (223,862)        169,466
                                       --------        --------       --------       --------       ---------        --------
  Income (loss) from vessel
    operations....................         (835)          9,074         17,541         50,499                          76,279
Net interest income (expense).....      (18,397)            394        (13,759)       (24,677)                        (56,439)
Equity in net income of
  subsidiaries....................       47,043                                                       (45,904)          1,139
Other income......................        1,259                                        15,940          (9,108)          8,091
                                       --------        --------       --------       --------       ---------        --------
NET INCOME........................       29,070           9,468          3,782         41,762         (55,012)         29,070
Retained earnings (deficit),
  beginning of the year...........      406,547          22,309         (5,027)        89,301        (106,583)        406,547
Exchange of redeemable preferred
  stock...........................      (60,000)                                                                      (60,000)
Dividends declared and paid.......      (11,927)        (14,400)                      (64,370)         78,770         (11,927)
                                       --------        --------       --------       --------       ---------        --------
RETAINED EARNINGS (DEFICIT), END
  OF THE YEAR.....................     $363,690        $ 17,377       $ (1,245)      $ 66,693       $ (82,825)       $363,690
                                       ========        ========       ========       ========       =========        ========
</TABLE>
 
---------------
 
(See Note 5)
 
                                      F-15
<PAGE>   46
 
                                                                      SCHEDULE A
 
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
 
                            CONDENSED BALANCE SHEETS
                         (IN THOUSANDS OF U.S. DOLLARS)
 
<TABLE>
<CAPTION>
                                                                     AS AT MARCH 31, 1998
                                 --------------------------------------------------------------------------------------------
                                                  9 5/8% NOTES   8.32% NOTES                                       TEEKAY
                                     TEEKAY        GUARANTOR      GUARANTOR     NON-GUARANTOR                  SHIPPING CORP.
                                 SHIPPING CORP.   SUBSIDIARIES   SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   & SUBSIDIARIES
                                 --------------   ------------   ------------   -------------   ------------   --------------
<S>                              <C>              <C>            <C>            <C>             <C>            <C>
ASSETS
Cash and cash equivalents......    $       22       $ 29,595       $ 10,687      $   47,649     $                $   87,953
Other current assets...........            13            710            722         165,006        (114,890)         51,561
                                   ----------       --------       --------      ----------     -----------      ----------
  Total current assets.........            35         30,305         11,409         212,655        (114,890)        139,514
Vessels and equipment (net)....                      129,050        327,460         841,373                       1,297,883
Advances due from
  subsidiaries.................       324,460                                                      (324,460)
Other assets (principally
  marketable securities, and
  investments in
  subsidiaries)................       719,369                                        22,791        (719,374)         22,786
                                   ----------       --------       --------      ----------     -----------      ----------
                                   $1,043,864       $159,355       $338,869      $1,076,819     $(1,158,724)     $1,460,183
                                   ==========       ========       ========      ==========     ===========      ==========
LIABILITIES & STOCKHOLDERS'
  EQUITY
Current liabilities............    $    5,691       $  2,113       $  3,126      $  184,840     $   (97,479)     $   98,291
Long-term debt.................       348,718                                       323,719                         672,437
Due to (from) affiliates.......                          (18)           737         323,900        (324,619)
                                   ----------       --------       --------      ----------     -----------      ----------
  Total liabilities............       354,409          2,095          3,863         832,459        (422,098)        770,728
                                   ----------       --------       --------      ----------     -----------      ----------
STOCKHOLDERS' EQUITY
Capital stock..................       261,353             10             23           5,933          (5,966)        261,353
Contributed capital............                      131,818        369,307           4,948        (506,073)
Retained earnings (deficit)....       428,102         25,432        (34,324)        233,479        (224,587)        428,102
                                   ----------       --------       --------      ----------     -----------      ----------
  Total stockholders' equity...       689,455        157,260        335,006         244,360        (736,626)        689,455
                                   ----------       --------       --------      ----------     -----------      ----------
                                   $1,043,864       $159,355       $338,869      $1,076,819     $(1,158,724)     $1,460,183
                                   ==========       ========       ========      ==========     ===========      ==========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                     AS AT MARCH 31, 1997
                                 --------------------------------------------------------------------------------------------
                                                  9 5/8% NOTES   8.32% NOTES                                       TEEKAY
                                     TEEKAY        GUARANTOR      GUARANTOR     NON-GUARANTOR                  SHIPPING CORP.
                                 SHIPPING CORP.   SUBSIDIARIES   SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   & SUBSIDIARIES
                                 --------------   ------------   ------------   -------------   ------------   --------------
<S>                              <C>              <C>            <C>            <C>             <C>            <C>
ASSETS
Cash and cash equivalents......    $       32       $  9,248       $  8,732      $   99,511     $                $  117,523
Other current assets...........           128            667            755          40,009             (82)         41,477
                                   ----------       --------       --------      ----------     -----------      ----------
  Total current assets.........           160          9,915          9,487         139,520             (82)        159,000
Vessels and equipment (net)....                      137,486        344,315         714,536                       1,196,337
Advances due from
  subsidiaries.................       362,704                                                      (362,704)
Other assets (principally
  investments in
  subsidiaries)................       649,337                                        11,171        (643,007)         17,501
                                   ----------       --------       --------      ----------     -----------      ----------
                                   $1,012,201       $147,401       $353,802      $  865,227     $(1,005,793)     $1,372,838
                                   ==========       ========       ========      ==========     ===========      ==========
LIABILITIES & STOCKHOLDERS'
  EQUITY
Current liabilities............    $    7,386       $  4,573       $  2,581      $   65,122     $       (82)     $   79,580
Long-term debt.................       375,000                                       288,443                         663,443
Due to (from) parent...........                          (56)            15         356,656        (356,615)
                                   ----------       --------       --------      ----------     -----------      ----------
  Total liabilities............       382,386          4,517          2,596         710,221        (356,697)        743,023
                                   ----------       --------       --------      ----------     -----------      ----------
STOCKHOLDERS' EQUITY
Capital stock..................       247,637             10             23           5,933          (5,966)        247,637
Contributed capital............                      131,818        369,307           4,948        (506,073)
Retained earnings (deficit)....       382,178         11,056        (18,124)        144,125        (137,057)        382,178
                                   ----------       --------       --------      ----------     -----------      ----------
  Total stockholders' equity...       629,815        142,884        351,206         155,006        (649,096)        629,815
                                   ----------       --------       --------      ----------     -----------      ----------
                                   $1,012,201       $147,401       $353,802      $  865,227     $(1,005,793)     $1,372,838
                                   ==========       ========       ========      ==========     ===========      ==========
</TABLE>
 
---------------
 
(See Note 5)
 
                                      F-16
<PAGE>   47
 
                                                                      SCHEDULE A
                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
                       CONDENSED STATEMENTS OF CASH FLOWS
                         (IN THOUSANDS OF U.S. DOLLARS)
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED MARCH 31, 1998
                                     --------------------------------------------------------------------------------------------
                                                      9 5/8% NOTES   8.32% NOTES                                       TEEKAY
                                         TEEKAY        GUARANTOR      GUARANTOR     NON-GUARANTOR                  SHIPPING CORP.
                                     SHIPPING CORP.   SUBSIDIARIES   SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   & SUBSIDIARIES
                                     --------------   ------------   ------------   -------------   ------------   --------------
<S>                                  <C>              <C>            <C>            <C>             <C>            <C>
Cash and cash equivalents provided
 by (used for)
OPERATING ACTIVITIES
 Net cash flow from operating
   activities......................     $(32,624)       $ 40,482       $ 23,489       $ 129,772      $               $ 161,119
                                        --------        --------       --------       ---------      ---------       ---------
FINANCING ACTIVITIES
Proceeds from long-term debt.......                                                     208,600                        208,600
Repayments of long-term debt.......      (29,056)                                      (155,475)                      (184,531)
Net proceeds from issuance of
 Common Stock......................        5,126                                                                         5,126
Other..............................       22,254         (15,562)       (17,968)         (5,708)                       (16,984)
                                        --------        --------       --------       ---------      ---------       ---------
 Net cash flow from financing
   activities......................       (1,676)        (15,562)       (17,968)         47,417                         12,211
                                        --------        --------       --------       ---------      ---------       ---------
INVESTING ACTIVITIES
Expenditures for vessels and
 equipment.........................                       (4,573)        (3,566)       (207,436)                      (215,575)
Other..............................       34,290                                        (21,615)                        12,675
                                        --------        --------       --------       ---------      ---------       ---------
 Net cash flow from investing
   activities......................       34,290          (4,573)        (3,566)       (229,051)                      (202,900)
                                        --------        --------       --------       ---------      ---------       ---------
(Decrease) increase in cash and
 cash equivalents..................          (10)         20,347          1,955         (51,862)                       (29,570)
Cash and cash equivalents,
 beginning of the year.............           32           9,248          8,732          99,511                        117,523
                                        --------        --------       --------       ---------      ---------       ---------
Cash and cash equivalents, end of
 the year..........................     $     22        $ 29,595       $ 10,687       $  47,649      $               $  87,953
                                        ========        ========       ========       =========      =========       =========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED MARCH 31, 1997
                                     --------------------------------------------------------------------------------------------
                                                      9 5/8% NOTES   8.32% NOTES                                       TEEKAY
                                         TEEKAY        GUARANTOR      GUARANTOR     NON-GUARANTOR                  SHIPPING CORP.
                                     SHIPPING CORP.   SUBSIDIARIES   SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   & SUBSIDIARIES
                                     --------------   ------------   ------------   -------------   ------------   --------------
<S>                                  <C>              <C>            <C>            <C>             <C>            <C>
Cash and cash equivalents provided
 by (used for)
OPERATING ACTIVITIES
 Net cash flow from operating
   activities......................     $(30,553)       $ 20,018       $ 23,161       $ 126,532      $               $ 139,158
                                        --------        --------       --------       ---------      ---------       ---------
FINANCING ACTIVITIES
Proceeds from long-term debt.......                                                     240,000                        240,000
Repayments of long-term debt.......                                                    (266,116)                      (266,116)
Net proceeds from issuance of
 Common Stock......................        1,283                                                                         1,283
Other..............................       29,003         (14,456)       (18,780)        (10,390)                       (14,623)
                                        --------        --------       --------       ---------      ---------       ---------
 Net cash flow from financing
   activities......................       30,286         (14,456)       (18,780)        (36,506)                       (39,456)
                                        --------        --------       --------       ---------      ---------       ---------
INVESTING ACTIVITIES
Expenditures for vessels and
 equipment.........................                       (4,927)          (859)        (75,877)                       (81,663)
Other..............................          272                                         (2,568)                        (2,296)
                                        --------        --------       --------       ---------      ---------       ---------
 Net cash flow from investing
   activities......................          272          (4,927)          (859)        (78,445)                       (83,959)
                                        --------        --------       --------       ---------      ---------       ---------
Increase in cash and cash
 equivalents.......................            4             635          3,522          11,582                         15,743
Cash and cash equivalents,
 beginning of the year.............           28           8,613          5,210          87,929                        101,780
                                        --------        --------       --------       ---------      ---------       ---------
Cash and cash equivalents, end of
 the year..........................     $     32        $  9,248       $  8,732       $  99,511      $               $ 117,523
                                        ========        ========       ========       =========      =========       =========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED MARCH 31, 1996
                                     --------------------------------------------------------------------------------------------
                                                      9 5/8% NOTES   8.32% NOTES                                       TEEKAY
                                         TEEKAY        GUARANTOR      GUARANTOR     NON-GUARANTOR                  SHIPPING CORP.
                                     SHIPPING CORP.   SUBSIDIARIES   SUBSIDIARIES   SUBSIDIARIES    ELIMINATIONS   & SUBSIDIARIES
                                     --------------   ------------   ------------   -------------   ------------   --------------
<S>                                  <C>              <C>            <C>            <C>             <C>            <C>
Cash and cash equivalents provided
 by (used for)
OPERATING ACTIVITIES
 Net cash flow from operating
   activities......................    $ (23,772)       $ 17,284       $ 22,798       $  82,105      $               $  98,415
                                       ---------        --------       --------       ---------      ---------       ---------
FINANCING ACTIVITIES
Proceeds from long-term debt.......      225,000                                        223,000                        448,000
Repayments of long-term debt.......      (22,580)                      (208,964)       (332,268)                      (563,812)
Repayments of capital lease
 obligations.......................                                     (44,550)                                       (44,550)
Net proceeds from issuance of
 Common Stock......................      137,872                                                                       137,872
Other..............................      (29,879)        (14,400)      (133,234)        164,454                        (13,059)
                                       ---------        --------       --------       ---------      ---------       ---------
 Net cash flow from financing
   activities......................      310,413         (14,400)      (386,748)         55,186                        (35,549)
                                       ---------        --------       --------       ---------      ---------       ---------
INVESTING ACTIVITIES
Expenditures for vessels and
 equipment.........................                         (656)        (3,223)        (82,819)                       (86,698)
Proceeds from disposition of
 assets............................                                                      28,428                         28,428
Other..............................     (286,710)            499        369,307         (10,046)                        73,050
                                       ---------        --------       --------       ---------      ---------       ---------
 Net cash flow from investing
   activities......................     (286,710)           (157)       366,084         (64,437)                        14,780
                                       ---------        --------       --------       ---------      ---------       ---------
(Decrease) increase in cash and
 cash equivalents..................          (69)          2,727          2,134          72,854                         77,646
Cash and cash equivalents,
 beginning of the year.............           97           5,886          3,076          15,075                         24,134
                                       ---------        --------       --------       ---------      ---------       ---------
Cash and cash equivalents, end of
 the year..........................    $      28        $  8,613       $  5,210       $  87,929      $               $ 101,780
                                       =========        ========       ========       =========      =========       =========
</TABLE>
 
---------------
 
(See Note 5)
 
                                      F-17