In 1993, BII and IMTT-Bayonne received the proceeds of and became obligated for $30,000,000 of tax-exempt New Jersey Economic Development Authority (“N.J.E.D.A.”) Dock Facility Revenue Refunding Bonds (the “Bonds”) to refinance and retire previously issued tax-exempt industrial development revenue bonds.
In accordance with the terms of the Bond indenture, BII and IMTT-Bayonne select from four interest rate-setting frequency modes; daily, weekly, commercial paper (“CP”) (from 30 to 269 days) and adjustable rate mode (at least six months). The interest rates for these various alternatives are determined by the remarketing agent as the lowest rate that will allow the Bonds to be sold at par based on the current market conditions. For all of 2010 and 2009, the Bond interest rate was set under the daily rate mode.
The Bonds are secured by $30,473,000 of irrevocable letters of credit, which expire June, 2014 (if not extended), issued by the banks under the credit facility discussed below.
The Bonds mature on December 1, 2027, but are subject to optional and mandatory tender, as well as various redemption provisions, at 100% of principal and accrued interest (plus applicable premium if the Bonds are in the adjustable rate mode). When in the daily or weekly rate mode, bond owners may, at their option, tender the Bonds to the remarketing agent for payment of principal and accrued interest.
The Bonds are also subject to mandatory tender provisions in the following cases: 1) each time the interest rate mode is converted, 2) if the related letters of credit are released or allowed to terminate or expire without replacement or extension, 3) substitution of an alternate credit facility for an existing letter of credit, if certain conditions are not met and 4) on each CP rate reset date. After tender, if sufficient funds are not available from remarketing the Bonds, the bond owners could be paid from the proceeds of a draw on the related letters of credit, or, should sufficient funds not be available from letters of credit, the Bonds could be purchased by BII and IMTT-Bayonne. The Bonds may be redeemed at various times at the direction of BII and IMTT-Bayonne while in any rate mode and are also subject to mandatory redemption if the Bonds are determined to be taxable.
IMTT-BC is responsible for the payment of principal (due December 1, 2021) and related interest of a $6,300,000 N.J.E.D.A. tax-exempt bond issue of a terminated joint venture. Interest terms on these bonds are similar to those issued by BII and IMTT-Bayonne discussed previously. These bonds are secured by a $6,404,000 irrevocable letter of credit issued by the banks under the credit facility discussed below.
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
In July, 2007, IMTT-Geismar received the proceeds of and became obligated for $165,000,000 of tax-exempt Industrial Development Board of the Parish of Ascension, Louisiana, Inc. revenue bonds to finance construction of a chemical liquid logistics facility in Geismar, Louisiana. At the same time, IMTT received the proceeds of and became obligated for $50,000,000 of tax-exempt Louisiana Public Facilities Authority (“L.P.F.A.”) revenue bonds to finance the expansion of liquid terminal facilities at its St. Rose, Louisiana terminal. Both of these tax-exempt financings mature on June 1, 2043 and are secured by irrevocable letters of credit expiring May, 2014 ($167,170,000 and $50,658,000, respectively) issued by the banks under the credit facility discussed below as well as confirming irrevocable letters of credit ($167,333,000 and $50,707,000, respectively) issued by the Federal Home Loan Bank (“FHLB”) of Atlanta which expire August, 2013. These two tax-exempt financings have interest rate setting modes, optional and mandatory tender and redemption provisions similar to the NJEDA tax-exempt bonds. For all of 2010 and 2009 the rate on these bonds was set under the weekly rate mode.
In August, 2010, IMTT-FINCO received the proceeds of and became obligated for $85,000,000 of tax-exempt L.P.F.A. revenue bonds to finance expansion and improvements at the St. Rose facility in Louisiana. This tax-exempt financing matures on August 1, 2046 and is secured by an irrevocable letter of credit ($86,118,000) expiring May, 2014 issued by the banks under the credit facility discussed below as well as a confirming irrevocable letter of credit ($86,202,000) issued by the FHLB of Atlanta, which expires August, 2013. This tax-exempt financing has interest rate setting modes, optional and mandatory tender and redemption provisions similar to the NJEDA tax-exempt bonds. For 2010, the rate on these bonds was set under the weekly rate mode. Costs of $871,000 associated with the issuance of these bonds are being deferred and amortized to interest expense ratably over the term of the bonds.
In November and December 2010, IMTT-FINCO received the proceeds of and became obligated for an additional $100,000,000 and $90,000,000, respectively, of tax-exempt L.P.F.A. revenue bonds to finance expansion and improvements at the St. Rose, Geismar and Gretna facilities in Louisiana. Concurrent with the issuance of these bonds, IMTT-FINCO entered into agreements with a syndicate of banks to purchase the bonds, some of which also participate in the revolving credit facility discussed below. These bonds do not require a letter of credit as security and provide for monthly principal payments beginning in July, 2011, as follows, with final maturity in December, 2040, subject to mandatory tender for purchase in December, 2015 at 100% of the outstanding principal balance plus accrued interest. The bonds can be resold at that time and are subject to annual tender thereafter.
20
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
| | | | |
Year | | Total
Principal Payments | | |
2011 | | $2,057,000 | | |
2012 | | 4,322,000 | | |
2013 | | 4,455,000 | | |
2014 | | 4,577,000 | | |
2015 | | 4,701,000 | | |
IMTT-FINCO’s obligations under these agreements are guaranteed by the remainder of the entities comprising IMTT Combined, excluding the Canadian entities. These agreements also contain covenants and restrictions similar to the revolving credit facility as described below. The interest rate on these bonds is determined monthly based on 68% of one-month LIBOR plus 65% of the LIBOR margin under the revolving credit facility as described below.
Costs of $2,761,000 associated with the issuance of these bonds is being deferred and amortized to interest expense ratably over the period to mandatory tender.
On June 18, 2010 IMTT Combined amended and restated its revolving credit facility. The unsecured revolving credit facility is with a twenty-two bank syndicate with commitments totaling $1,100,000,000. This amended and restated credit facility consists of seventeen banks with commitments totaling $995,000,000 through June 7, 2014, one Canadian bank with a commitment of $30,000,000 through June 7, 2014 and four banks with commitments totaling $75,000,000 through June 7, 2012. The proceeds from the amended and restated revolving credit facility were used to pay off the existing revolving credit facilities, an existing $30,000,000 term loan and, through distributions, the remaining $65,000,000 on an ITT and Affiliates term loan.
IMTT and IMTT-Bayonne are the borrowers under this agreement, which is guaranteed by all the remaining entities comprising IMTT Combined, except IMTT-NTL and IMTT-Quebec; however, a majority of the equity interest in IMTT-NTL and IMTT-Quebec is pledged in repayment of the debt. IMTT-NTL and IMTT-Quebec are the borrowers under the Canadian portion of the facility.
Except for a $65,000,000 portion of the facility through December 31, 2012, as described below, IMTT and IMTT-Bayonne can borrow, at their option, for various periods under the agreement at LIBOR plus 1.50% to 2.75% or at the banks’ base rate, as defined, plus .50% to 1.75%, dependent upon the leverage ratio, as defined. The Canadian borrowers can borrow from the Canadian lender at the bankers’ acceptance rates plus 1.50% to 2.75%, or the Canadian prime rate plus .50% to 1.75%, dependent upon the leverage ratio, as defined. Borrowings provided by the four banks not extending their commitments through June 2014 are at LIBOR plus .55% to 1.50% or the banks’ base rate, as defined, dependent upon the leverage ratio, as defined.
21
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
The bank that previously held the ITT and Affiliates $65,000,000 term loan is part of the bank syndication and now holds the $65,000,000 under the amended and restated revolving credit facility. The rate on this portion of the outstanding debt is LIBOR plus 1.00% and matures on December 31, 2012, at which time this portion of the facility is paid from and converts to extended commitments through June, 2014 with pricing the same as other commitments.
Costs of $9,275,000 associated with the amendment, extension and increase of the revolving credit facility are being deferred and amortized to interest expense ratably over the remaining extended loan term.
The U.S. portion of the revolving credit facility includes the availability for the issuance of letters of credit. Letters of credit outstanding under this facility at December 31, 2010 of $350,835,000 primarily secure obligations under certain tax-exempt bonds referred to previously. Loans of $75,000,000 were outstanding under the U.S. portion of this facility and $23,167,000 of loans were outstanding with the Canadian bank at December 31, 2010, thus leaving $650,998,000 total available under of this credit facility at December 31, 2010.
IMTT Combined is subject to various covenants under this credit facility. The primary covenants require the maintenance of certain ratios, as defined, of combined 1) debt to earnings before interest, income taxes and depreciation and amortization, and 2) earnings before interest, income taxes and depreciation and amortization to interest expense. The loan agreement also restricts liens on assets, additional investments and loans, sales or dispositions of assets and change of control, as defined, among other requirements.
The interest rate on the borrowings under the tax-exempt bonds and the revolving bank credit facility discussed previously adjusts periodically depending on their individual terms as previously described. In an effort to achieve a more stable interest cost and reduce the risk of rising interest rates and expense, four interest rate swap agreements with three large banks were entered into whereby floating rates were swapped for fixed rates. The primary terms and the accounting treatment of these financial instruments are described below.
22
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
| | | | | | | | | | | | | | | | | | | |
| Swap 1 | | Swap 2 | | Swap 3 | | Swap 4 | Total |
Related debt | | N.J.E.D.A. Bonds | | Tax-Exempt Bonds | | Bank Line | | Bank Line/Note Payable | |
Notional amount | | $36,300,000 | | $215,000,000 | | $135,000,000 * | | $52,000,000 *** | |
Term | | 10/07-10/12 | | 7/07-6/17 | | 10/07-3/17 | | 5/06-12/12 | |
Fixed rate paid | | 3.410% | | 3.662% | | 5.507% | | 6.290% | |
Floating rate received | | 67% of monthly Libor | | 67% of monthly Libor | | Quarterly Libor | | Monthly Libor | |
| | 2010 | | 2009 | | 2010 | | 2009 | | 2010 | | 2009 | | 2010 | 2009 | 2010 | | 2009 |
Floating rate at year end | | 0.175% | | 0.156% | | 0.175% | | 0.156% | | 0.303% | | 0.251% | | 0.261% | 0.231% | | | |
| | | | | | | | | | | | | | | | | | |
Net interest expense for year | | $1,171,000 | | $1,156,000 | | $7,485,000 | | $7,390,000 | | $6,026,000 | | $4,224,000 | | $3,964,000 | $4,697,000 | $18,646,000 | | $17,467,000 |
Fair market value at year end
(liability)** | | $(1,970,000) | | $(2,153,000) | | $(24,712,000) | | $(18,563,000) | | $(28,858,000) | | $(19,474,000) | | $(5,872,000) | $(7,461,000) | $(61,412,000) | | $(47,651,000) |
Change in fair market value for
year gain (loss) | | $183,000 | | $797,000 | | $(6,149,000) | | $15,433,000 | | $(9,384,000) | | $16,005,000 | | $1,589,000 | $3,650,000 | $(13,761,000) | | $35,885,000 |
Change in fmv value recorded in – | | | | | | | | | | | | | | | | | | $– |
Other comprehensive income
(loss) | | $– | | $(130,000) | | $– | | $– | | $– | | $3,157,000 | | $– | $567,000 | $– | | $3,594,000 |
Net income (loss) | | $183,000 | | $927,000 | | $(6,149,000) | | $15,433,000 | | $(9,384,000) | | $12,848,000 | | $1,589,000 | $3,083,000 | $(13,761,000) | | $32,291,000 |
Total gain (loss) | | $183,000 | | $797,000 | | $(6,149,000) | | $15,433,000 | | $(9,384,000) | | $16,005,000 | | $1,589,000 | $3,650,000 | $(13,761,000) | | $35,885,000 |
| | | | | | | | | | | | | | | | | | |
* | – Increases annually to $200 million at 12/31/12. At 1/1/10 was $115 million. |
** | – Included in current and other long-term liabilities in the accompanying balance sheets. |
*** | – Was $65,000,000, changed to $52,000,000 on 12/31/10 |
| |
(5)
Employee benefits
Except for a plan covering certain employees covered by a collective bargaining agreement at the Lemont and Joliet, Illinois terminals, substantially all employees of IMTT Combined are eligible to participate in a defined benefit pension plan (the “Plan”). Benefits under the Plan are based on years of service and the employees' highest average compensation for a consecutive five year period. Coincident with the acquisition of terminal facilities in 1997 and 2007 by IMTT-Illinois, it became the sponsor of a defined benefit plan covering union employees at these terminals (“Union Plan”). Monthly benefits under this plan are computed based on a benefit rate in effect at the date of the participant's termination ($50.50 at November 1, 2010) multiplied by the number of years of service. IMTT Combined’s contributions to both plans are based on the recommendations of its consulting actuary.
The following table sets forth the obligations and assets (as well as changes therein) of both plans, the resulting funded status and amounts recognized in the accompanying financial statements.
23
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
| | | | | | | | |
| | 2010 | | 2009 |
| | The Plan | | Union Plan | | The Plan | | Union Plan |
Changes in benefit obligation: | | | | | | | | |
Benefit obligation at beginning of year | | $63,043,000 | | $4,052,000 | | $53,261,000 | | $3,333,000 |
Service cost | | 4,066,000 | | 200,000 | | 3,314,000 | | 174,000 |
Interest cost | | 3,728,000 | | 235,000 | | 3,414,000 | | 221,000 |
Actuarial loss | | 7,326,000 | | 273,000 | | 5,337,000 | | 396,000 |
Benefits paid | | (1,276,000) | | (99,000) | | (2,283,000) | | (72,000) |
Benefit obligation at end of year | | $76,887,000 | | $4,661,000 | | $63,043,000 | | $4,052,000 |
Changes in plan assets: | | | | | | | | |
Fair value of plan assets at beginning of year | | $39,274,000 | | $3,492,000 | | $32,049,000 | | $2,848,000 |
Actual return on plan assets | | 3,936,000 | | 338,000 | | 5,676,000 | | 498,000 |
Employer contribution | | 4,447,000 | | 131,000 | | 3,832,000 | | 218,000 |
Benefits paid | | (1,276,000) | | (99,000) | | (2,283,000) | | (72,000) |
Fair value of plan assets at end of year | | $46,381,000 | | $3,862,000 | | $39,274,000 | | $3,492,000 |
Funded status – Pension (liability) recognized in balance sheet in other long-term liabilities | | $(30,506,000) | | $(799,000) | | $(23,769,000) | | $(560,000) |
Amounts recognized in accumulated other comprehensive income consist of: | | | | | | | | |
Net actuarial loss | | $18,382,000 | | $1,264,000 | | $12,214,000 | | $1,081,000 |
Prior service cost | | 745,000 | | 284,000 | | 915,000 | | 316,000 |
Total | | $19,127,000 | | $1,548,000 | | $13,129,000 | | $1,397,000 |
Accumulated benefit obligation at December 31: | | $54,499,000 | | $4,661,000 | | $46,346,000 | | $4,052,000 |
24
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
| | | | | | | | |
| | 2010 | | 2009 |
| | The Plan | | Union Plan | | The Plan | | Union Plan |
Components of net periodic benefit cost: | | | | | | | | |
Service cost | | $4,066,000 | | $200,000 | | $3,314,000 | | $174,000 |
Interest cost | | 3,728,000 | | 235,000 | | 3,414,000 | | 221,000 |
Expected return on plan assets | | (3,431,000) | | (298,000) | | (2,696,000) | | (244,000) |
Amortization of prior service cost | | 170,000 | | 33,000 | | 170,000 | | 33,000 |
Recognized net actuarial loss | | 653,000 | | 50,000 | | 583,000 | | 58,000 |
Net periodic benefit cost recognized in statement of income | | $5,186,000 | | $220,000 | | $4,785,000 | | $242,000 |
| | | | | | | | |
Other changes in plan assets and benefit obligation recognized in other comprehensive income: | | | | | | | | |
Net actuarial loss | | $6,821,000 | | $233,000 | | $2,357,000 | | $142,000 |
Amortization of prior service (cost) | | (170,000) | | (33,000) | | (170,000) | | (33,000) |
Amortization of actuarial (loss) | | (653,000) | | (50,000) | | (583,000) | | (58,000) |
Total recognized in other comprehensive income | | $5,998,000 | | $150,000 | | $1,604,000 | | $51,000 |
Total recognized in net periodic benefit cost and other comprehensive income | | $11,184,000 | | $370,000 | | $6,389,000 | | $293,000 |
| | | | | | | | |
Weighted average assumptions used to determine benefit obligations as of December 31: | | | | | | | | |
Discount rate | | 5.60% | | 5.55% | | 6.00% | | 6.00% |
Expected return on plan assets | | 8.50% | | 8.50% | | 8.50% | | 8.50% |
Rate of compensation increase | | 5.47% | | – | | 5.47% | | – |
| | | | | | | | |
Weighted average assumptions used to determine net benefit cost: | | | | | | | | |
Discount rate | | 6.00% | | 6.00% | | 6.50% | | 6.50% |
Expected return on plan assets | | 8.50% | | 8.50% | | 8.50% | | 8.50% |
Rate of compensation increase | | 5.47% | | – | | 5.47% | | – |
25
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
As of December 31, 2010, the discount rate assumption used in the computation of benefit obligations for the Plan and the Union Plan was changed to 5.60% and 5.55%, respectively, to better approximate returns available on high quality fixed income investments. The long-term rate of return of pension assets is based on historical results adjusted as necessary for future expectations.
The allocation of pension plan assets as of December 31, 2010 and 2009 is shown below based on quoted prices in active markets for identical assets (Level 1 fair value measurements).
| | | | | | | | |
| | 2010 | | 2009 |
| | The Plan | | Union Plan | | The Plan | | Union Plan |
Weighted average asset allocation: | | | | | | | | |
Domestic equity funds | | 25.6% | | 25.3% | | 12.3% | | 12.2% |
International equity fund | | 15.4% | | 15.1% | | 7.4% | | 7.4% |
Domestic fixed income fund | | 56.1% | | 55.0% | | 78.1% | | 76.3% |
Other | | 2.9% | | 4.6% | | 2.2% | | 4.1% |
Total | | 100.0% | | 100.0% | | 100.0% | | 100.0% |
Pension asset investment decisions are made with assistance of an outside paid advisor to achieve the multiple goals of high rate of return, diversification and safety.
Beginning in late 2008, the concentration of plan assets was shifted to a preponderance in one domestic fixed income fund, as opposed to a more traditional 60% equity and 40% fixed income allocation, in light of adverse economic conditions and declining equity valuations. This strategy was revised in 2010 back toward greater equity asset concentration and continued subsequent to December 31, 2010 to a 60% equity and 40% fixed income allocation based on economic recovery and a more favorable stock market outlook.
26
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Expected benefit payments as of December 31, 2010 are as follows:
| | | | | |
| | The Plan | | Union Plan | |
| | | | | |
Year 2011 | | $3,124,000 | | $135,000 | |
Year 2012 | | 2,992,000 | | 150,000 | |
Year 2013 | | 3,218,000 | | 164,000 | |
Year 2014 | | 3,602,000 | | 180,000 | |
Year 2015 | | 4,155,000 | | 199,000 | |
Years 2016-2020 | | 26,361,000 | | 1,553,000 | |
Anticipated contributions for 2011 | | $4,000,000 | | $347,000 | |
IMTT Combined provides post-retirement life insurance (coverage equal to 25% of final year compensation not to exceed $25,000) and health benefits (coverage for early retirees at least 62 years old on early retirement to age 65, reimbursement of Medicare premiums for the Bayonne terminal employees and some smaller health benefits no longer offered) to retired employees. IMTT Combined adopted the accounting treatment for post-retirement benefits other than pensions as prescribed by ASC 715-60-05 in 2006. As allowed by that accounting standard, IMTT Combined elected to defer and amortize the January 1, 2006 transition obligation over ten years.
The following table sets forth the obligation and assets (as well as changes therein) of these plans, the resulting funded status and amounts recognized in the accompanying financial statements.
27
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
| | | | | | |
| | 2010 | | 2009 |
Changes in benefit obligation: | | | | |
Benefit obligation at beginning of year | | $4,346,000 | | $3,501,000 |
Service cost | | 297,000 | | 104,000 |
Interest cost | | 346,000 | | 216,000 |
Actuarial loss | | 5,318,000 | | 863,000 |
Benefits paid | | (428,000) | | (338,000) |
Benefit obligation at end of year | | $9,879,000 | | $4,346,000 |
| | | | |
Changes in plan assets: | | | | |
Fair value of plan assets at beginning of year | | $ – | | $ – |
Employer contribution | | 428,000 | | 338,000 |
Benefits paid | | (428,000) | | (338,000) |
Fair value of plan assets at end of year | | $ – | | $ – |
| | | | |
Funded status – plan (liability) | | $(9,879,000) | | $(4,346,000) |
| | | | |
Amounts recognized in combined balance sheets consist of: | | | | |
Current (liabilities) | | $(669,000) | | $(320,000) |
Other long-term (liabilities) | | (9,210,000) | | (4,026,000) |
Total (liabilities) | | $(9,879,000) | | $(4,346,000) |
| | | | |
Amounts recognized in accumulated other comprehensive income consist of: | | | | |
Transition obligation | | $1,756,000 | | $2,108,000 |
Net actuarial loss | | 6,200,000 | | 1,044,000 |
Total | | $7,956,000 | | $3,152,000 |
| | | | |
Components of net periodic benefit cost: | | | | |
Service cost | | $297,000 | | $104,000 |
Interest cost | | 346,000 | | 216,000 |
Amortization of transition obligation | | 351,000 | | 351,000 |
Amortization of actuarial loss | | 162,000 | | – |
Net periodic benefit cost of the plan | | $1,156,000 | | $671,000 |
| | | | |
| | | | |
28
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
| | | | | | |
| | 2010 | | 2009 |
Other changes in plan assets and benefit obligation recognized in other comprehensive income: | | | | |
Net actuarial loss | | $5,318,000 | | $862,000 |
Amortization of transition obligation | | (351,000) | | (351,000) |
Amortization of actuarial (loss) | | (162,000) | | – |
Total recognized in other comprehensive income | | $4,805,000 | | $511,000 |
| | | | |
Total recognized in net periodic benefit cost and other comprehensive income | | $5,961,000 | | $1,182,000 |
| | | | |
Weighted average assumptions used to determine benefit obligations as of December 31: | | | | |
Discount rate | | 5.50% | | 6.00% |
Rate of compensation increase | | 5.47% | | 3.00% |
| | | | |
Weighted average assumptions used to determine net benefit cost: | | | | |
Discount rate | | 6.00% | | 6.50% |
Rate of compensation increase | | 3.00% | | 3.00% |
| | | | |
Health Care Trend Rates - Pre-65 (Post-65) | | | | |
Healthcare trend rate | | 7.69% (7.60%) | | 8.00% |
Ultimate trend | | 5.50% | | 5.00% |
Year ultimate trend reached | | 2017 | | 2014 |
| | | | |
Health Care Trend Rates – Medicare Part B | | | | |
Healthcare trend rate | | -1.39% | | 8.00% |
Ultimate trend | | 5.50% | | 5.00% |
Year ultimate trend reached | | 2019 | | 2014 |
29
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Expected benefit payments and contributions as of December 31, 2010 are as follows:
| | | | |
Year 2011 | | $669,000 | | |
Year 2012 | | 541,000 | | |
Year 2013 | | 507,000 | | |
Year 2014 | | 548,000 | | |
Year 2015 | | 582,000 | | |
Years 2016 – 2020 | | 4,418,000 | | |
Anticipated contributions for 2011 | | $669,000 | | |
Assumptions concerning health care cost trend rates can have a significant impact on plan costs and liabilities, as shown below as of year-end and for the year 2010:
| | | | | |
| Using Stated | | One percentage point |
| assumptions | | Decrease | | Increase |
End of year benefit obligation | $9,879,000 | | $8,836,000 | | $11,153,000 |
Service and interest cost | 643,000 | | 578,000 | | 723,000 |
Accumulated other comprehensive income at December 31, 2010 contains $1,330,000 of net actuarial losses, $203,000 of prior service cost and $351,000 of net transition obligation for the foregoing defined benefit pension and post-retirement health/life plans expected to be recognized as components of net periodic benefit cost in 2011.
IMTT Combined has established a supplementary, non-qualified benefit plan for certain management employees whose compensation exceeds the maximum eligible for inclusion in the qualified defined benefit plan. Under this plan, IMTT Combined funds additional compensation to the affected employees on a pre-tax basis that will allow them to make a contribution to a separate investment account which the employees own that will provide the actuarial equivalent of the benefits available as if all of the employees’ compensation had been included in the qualified defined benefit plan. Expense related to this plan is recorded as additional compensation and primarily included in general and administrative expense in the accompanying financial statements ($862,000 in 2010 and $687,000 in 2009).
IMTT Combined has established defined contribution Section 401(k) employee benefit plans. Under the primary plan, employees who are eighteen years old and have six months of service are eligible to participate. Employees may contribute up to the maximum allowable for Federal income tax purposes and IMTT Combined’s matching contribution is determined each year by management. In both 2010 and 2009, IMTT Combined elected to match 5% of employee contributions. Total expense for the 401 (k) plans recognized for 2010 and 2009 was $282,000 and $188,000, respectively.
30
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
IMTT Combined purchases life insurance for certain management employees and provides for the repayment of premiums paid through deferred compensation arrangements. Under this program, various amounts of life insurance are purchased and paid for by IMTT Combined and receivables are recorded from each management employee, along with accrued interest. At retirement or termination of service, funds are provided to the plan participants under deferred compensation agreements to provide for the repayment of premiums paid and ownership of the policies is transferred at that time. Expense related to the deferred compensation arrangements is recorded annually as employee service is rendered. Expense associated with providing this benefit of $68,000 and $62,000 for 2010 and 2009, respectively, is recorded in general and administrative expense in the accompanying financial statements.
(6)
Commitments and contingencies
IHI Consolidated is involved in various lawsuits, claims and inquiries (including environmental matters) which are routine to the nature of its business. Management believes that resolution of these matters will not result in any material adverse effect on the financial statements.
Many of the entities comprising IMTT Combined are subject to compliance with federal and state environmental regulations, some of which require environmental remediation and ongoing monitoring activities. Depending upon the nature and circumstances of such activities, certain of the expenditures related thereto have been recorded as operating expenses in the accompanying statements of income and others are capitalized as such expenditures are incurred.
A summary of these environmental remediation matters follows.
The Lemont terminal entered into a consent order with the state of Illinois to remediate a contamination problem which existed at the time of the purchase of this facility from its former owners. Remediation is also required as a result of the renewal of a lease with a government agency for a portion of the terminal. This remediation effort, consisting of among other things, the implementation of extraction and monitoring wells and soil treatment, is estimated to span a period of ten to twenty years or more at a cost of $9,900,000 to $15,000,000.
31
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
The Bayonne, New Jersey terminal which has been acquired and aggregated over a 27 year period contains pervasive remediation requirements that were assumed at the time of purchase from the various former owners. One former owner retained environmental remediation responsibilities for a purchased site as well as sharing other remediation costs. These remediation requirements are documented in two memoranda of agreement and an administrative consent order with the state of New Jersey. Remediation efforts entail removal of free product, soil treatment, repair/replacement of sewer systems, and the implementation of containment and monitoring systems. These remediation activities are estimated to span a period of ten to twenty or more years at a cost ranging from $38,450,000 to $61,100,000.
The remediation activities described previously at the two terminals are estimated based on currently available information, in undiscounted U.S. dollars and are inherently subject to relatively large fluctuation. Management believes that the cost of the foregoing remediation activities ($48,350,000 to $76,100,000 in total) is capitalizable in accordance with generally accepted accounting principles (ASC 410-30-25-18) as such costs are recoverable and improve the property as compared with its condition when acquired and either 1) extend the life, increase the capacity or improve the safety and/or efficiency of the property or 2) mitigate or prevent environmental contamination that has yet to occur that may result from future operations or activities. During 2010 and 2009 approximately $6,450,000 and $3,890,000, respectively, of such expenditures were incurred and capitalized within property, plant and equipment. For the years ended December 31, 2010 and 2009 approximately $2,171,000 and $2,040,000, respectively, of environmental related cost that did not meet the capitalization criteria were charged to operations.
The New Jersey Department of Environmental Protection (“DEP”) promulgated a pending new regulation that will require vapor control (collection and destruction) on some tanks during roof landings and tank cleanings when degassing is required. These new requirements will apply to refineries and independent terminals. Emissions during these times are currently permitted by IMTT-Bayonne with some restrictions on frequency and timing but no required collection and destruction of the emissions. The potential cost to IMTT-Bayonne of complying with this new regulation is estimated at $3,500,000 to $5,000,000 over the next several years. In accordance with the terms of their contracts, these costs could be recouped through additional charges to customers. IMTT-Bayonne will continue working to mitigate impacts on New Jersey operations with customers and the DEP, as well as designing the most cost effective means of control as the new regulation takes effect.
The IHI shareholders’ agreement contains various provisions concerning shareholder distributions. Currently, the shareholders of IHI disagree as to the interpretation of those provisions which could potentially result in significant increases in the level of distributions. If the shareholders are unable to resolve this issue, arbitration or litigation may be required.
32
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
IMTT Combined is in the process of expanding storage capacity and other customer service capabilities at various terminals to satisfy new customer contract requirements. Approximately $21,970,000 of additional capital expenditures will be necessary in 2011 to complete these projects.
IMTT-Quebec Inc. has operating lease commitments primarily for the land on which the terminal is located and related terminal assets. Minimum lease payments required in the future are as follows at December 31, 2010.
| | |
Year | | Amounts |
2011 | | $812,000 |
2012 | | 821,000 |
2013 | | 833,000 |
2014 | | 850,000 |
2015 | | 871,000 |
Thereafter | | 2,210,000 |
In connection with the leases described above, IMTT-Quebec has the responsibility to remove any contaminants from the leased premises at the end of their term. The total amount of undiscounted estimated future cash flows through December 31, 2028 lease termination required to satisfy this obligation is $3,845,000. These cash flows were discounted using a credit-adjusted risk free interest rate of 7.5% and capitalized in property, plant and equipment and are being depreciated over the term of the leases. The changes to the asset retirement obligation recorded are as follows for 2010 and 2009.
| | | | |
| | 2010 | | 2009 |
Balance, January 1, | | $994,000 | | $924,000 |
Accretion (interest) expense | | 76,000 | | 70,000 |
Exchange rate effect on obligation | | 55,000 | | – |
Balance, December 31, | | $1,125,000 | | $994,000 |
This obligation is recorded in other long-term liabilities in the accompanying balance sheets.
33
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
(7)
Income taxes
IHI Consolidated provides for income taxes in accordance with the asset and liability method as prescribed by ASC 740-10-25-2. The components of the income tax expense shown in the accompanying statements are as follows:
| | | | | | | |
| 2010 | | 2009 |
| Current | Deferred | Total | | Current | Deferred | Total |
U.S. federal | $5,504,000 | $36,205,000 | $41,709,000 | | $210,000 | $30,541,000 | $30,751,000 |
State and local | 7,037,000 | 4,591,000 | 11,628,000 | | 1,383,000 | 6,725,000 | 8,108,000 |
Foreign | (27,000) | 211,000 | 184,000 | | – | (17,000) | (17,000) |
Total income tax expense | $12,514,000 | $41,007,000 | $53,521,000 | | $1,593,000 | $37,249,000 | $38,842,000 |
Income tax expense differs from income tax computed at the U.S. federal statutory rate of 35% of income before income taxes as shown in the accompanying financial statements, as follows:
| | | |
| 2010 | | 2009 |
Income tax expense based on U.S. federal statutory rate | $44,013,000 | | $32,583,000 |
State income tax provisions, net of federal income tax benefit | 7,558,000 | | 5,270,000 |
Non-deductible expenses | 592,000 | | 134,000 |
Foreign income tax differences | (54,000) | | (2,000) |
Others, net | 1,412,000 | | 857,000 |
Total income tax expense recorded in accompanying financial statements | $53,521,000 | | $38,842,000 |
34
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Deferred income taxes have been recorded in the accompanying balance sheets for the tax effects of temporary differences that impact the financial statements and income tax returns in different periods, offset partially by carryforwards for federal and state income tax purposes of unused net operating losses and tax credits. These temporary differences consist primarily of fixed asset basis differences as well as various expenses which affect the financial statements and tax returns in different periods. Differences in the basis of the fixed assets for accounting and income tax reporting purposes exist primarily as a result of different depreciation methods and lives used for financial and income tax reporting purposes, involuntary conversion treatment, for income tax purposes, of proceeds received from asset expropriations and settlement of insurance coverage for property damage. The primary components of deferred income tax liabilities (assets) are as follows:
| | | |
| 2010 | | 2009 |
Deferred tax liabilities: | | | |
Fixed asset basis differences | $216,340,000 | | $192,852,000 |
Currency translation gain | 1,431,000 | | 848,000 |
Foreign terminal earnings and investment basis differences | 4,544,000 | | – |
Others, net | – | | 2,395,000 |
Total deferred tax liabilities | $222,315,000 | | $196,095,000 |
| | | |
Deferred tax assets: | | | |
Interest rate swap agreement differences | $(24,875,000) | | $(19,335,000) |
Net operating loss and tax credit carryforwards | (8,107,000) | | (29,224,000) |
Expense accruals | (9,217,000) | | (7,043,000) |
Deferred revenue items | (5,003,000) | | (5,878,000) |
Pension expense in excess of contributions | (10,918,000) | | (7,944,000) |
Others, net | (217,000) | | – |
Total deferred tax assets prior to valuation allowance | (58,337,000) | | (69,424,000) |
Valuation allowance | 2,624,000 | | 2,104,000 |
Net deferred tax assets | (55,713,000) | | (67,320,000) |
Net deferred taxes as shown in accompanying balance sheets | $166,602,000 | | $128,775,000 |
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IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Management believes that it is more likely than not that the net deferred tax assets will be realized through future operations and the reversal of other temporary differences. The valuation allowance at December 31, 2010 and 2009 was primarily related to state net operating loss carryforwards that, in the judgment of management, are not more likely than not to be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible and prior to the expiration of the net operating loss carryforwards.
Deferred income taxes are classified as follows in the accompanying balance sheets.
| | | |
| 2010 | | 2009 |
Current deferred tax (asset) | $ (13,140,000) | | $(12,700,000) |
Noncurrent deferred tax liability | 179,742,000’ | | 141,475,000’ |
Net deferred tax liability | $166,602,000’ | | $128,775,000’ |
Net operating loss (“N.O.L.”) and tax credit carryforwards outstanding as of December 31, 2010 expire as follows:
| | | | | | | |
Year of Expiration | | Federal N.O.L. | | State N.O.L.’s | | | Foreign N.O.L.’s |
2011 | | $ – | | $4,118,000 | | | $ – |
2012 | | – | | 8,126,000 | | | – |
2013 | | – | | 5,496,000 | | | – |
2014 | | – | | 3,188,000 | | | 431,000 |
2015 | | – | | 1,895,000 | | | 742,000 |
2016 | | – | | 3,850,000 | | | – |
2017 | | – | | 908,000 | | | – |
2018 | | – | | 1,066,000 | | | – |
2019 | | – | | 843,000 | | | – |
2020 | | – | | 1,535,000 | | | – |
2021 | | – | | 2,646,000 | | | – |
2022 | | – | | 6,642,000 | | | – |
2023 | | – | | 19,705,000 | | | – |
2024 | | – | | 27,416,000 | | | – |
2025 | | – | | 14,251,000 | | | – |
2026 | | – | | 7,000 | | | 942,000 |
2027 | | 191,000 | | 108,000 | | | 570,000 |
2028 | | – | | 6,000 | | | 4,738,000 |
2029 | | – | | 4,000 | | | 2,800,000 |
2030 | | – | | – | | | 3,307,000 |
| | $ 191,000 | | $101,810,000 | | | $13,530,000 |
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IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
Federal alternative minimum tax credits of $428,000 have unlimited carryforward periods.
IHI Consolidated adopted the provisions of ASC 740 relating to uncertain tax positions on January 1, 2009. IHI Consolidated has not recorded any increase in income tax liabilities attributable to unrecognized income tax benefits in its consolidated statement of income for the year 2010. Accordingly, no related expense or liability for interest or penalties has been accrued at December 31, 2010. As of December 31, 2010, tax authorities have proposed no material adjustments to IHI Consolidated’s income tax positions. There are no income tax positions for which it is reasonably possible that the amounts of unrecognized tax benefits will materially increase or decrease in the next 12 months.
IHI Consolidated and its subsidiaries file U.S. federal and state income tax returns. Two subsidiaries file Canadian federal and provincial income tax returns. There are no on-going examinations of income tax returns filed by IHI Consolidated or any of its subsidiaries that are expected to result in material adjustment. U.S. federal income tax returns for tax years ending after 2006 (after 2002 to the extent of federal net operating loss carryforward deductions) are subject to examination by the Internal Revenue Service. State income tax returns for tax years ending after 2005 (after 1997 to the extent of state net operating loss carryforward deductions) are subject to examination by state tax authorities. Canadian tax returns for tax years after 2005 are subject to examination by Revenue Canada and provincial tax authorities.
(8)
Fair value of financial instruments
The fair value of financial instruments (as defined by ASC 825-10-50) contained in the accompanying balance sheets, including cash, accounts receivable, accounts payable and long-term debt, approximates the carrying amount due to either the short-term maturity or variable or competitive interest rates assigned to these financial instruments.
(9)
Changes in ownership
In January 2000, International Tank Terminals, L.L.C. and its affiliates (“ITT”) acquired the 50% interest of their former partner in each of the entities comprising IMTT Combined. The consideration for the purchase was in the form of $130,000,000 of notes payable to the former partner. These notes were refinanced by ITT with a bank in December, 2005 and in June 2010 the remaining $65,000,000 was repaid by ITT with proceeds of a distribution from IMTT Combined from the amended and restated revolving credit facility as described more fully in note 4. At that time, the related interest rate swap agreement was transferred to IMTT Combined at its recorded balance ($7,302,000 liability) and treated as a partnership distribution ($5,061,000 charged to partners’ capital and $2,241,000 charged to accumulated other comprehensive income).
37
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
On May 1, 2006, Loving Enterprises, Inc. (“Loving”) which was the 100% owner of ITT (owners of 100% of IMTT Combined), transferred a 50% interest to Macquarie Infrastructure Company Trust for $250,000,000 and Loving changed its name to IMTT Holdings Inc.
(10)
Accumulated other comprehensive income
Shareholders’ equity includes accumulated other comprehensive income. Changes in the components of accumulated other comprehensive income for 2010 and 2009 are as follows:
| | | | | | | | | |
| | Derivatives | | Foreign Currency Translation | | Pension and Post-Retirement Plans | | Accumulated Other Comprehensive Income (Loss) | |
Balance, January 1, 2009 | | $(6,596,000) | | $(919,000) | | $(9,805,000) | | $(17,320,000) | |
Other comprehensive income (loss) for the year, net of tax | | 3,396,000 | | 2,369,000 | | (705,000) | | 5,060,000 | * |
Balance, December 31, 2009 | | (3,200,000) | | 1,450,000 | | (10,510,000) | | (12,260,000) | |
Other comprehensive income (loss) for the year, net of tax | | 1,094,000 | | 832,000 | | (6,334,000) | | (4,408,000) | * |
Balance, December 31, 2010 | | $(2,106,000) | | $2,282,000 | | $(16,844,000) | | ($16,668,000) | |
*Net of deferred income tax benefit (expense) of $3,215,000 in 2010 and $(1,644,000) in 2009.
(11)
Future minimum rental revenues
Future minimum rental revenues for terminal storage capacity for the remaining unexpired term of lease agreements in existence at December 31, 2010 are as follows.
| | |
Year | | Amounts |
2011 | | $287,813,000 |
2012 | | 242,918,000 |
2013 | | 159,997,000 |
2014 | | 114,669,000 |
2015 | | 80,160,000 |
2016 and thereafter | | 90,724,000 |
Total | | $976,281,000 |
38
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
(12)Additional balance sheet detail
Additional detail of the components of certain balance sheet captions follows.
| | | |
| 2010 | | 2009 |
Prepaid expenses and deposits: | | | |
Deferred income tax asset | $13,140,000 | |
$12,700,000 |
Prepaid insurance | 4,189,000 | | 3,868,000 |
Prepaid income taxes | 3,479,000 | | 1,787,000 |
Other | 4,187,000 | | 1,118,000 |
Total prepaid expenses and deposits | $24,995,000 | | $19,473,000 |
| | | |
| 2010 | | 2009 |
Other assets: | | | |
Deferred dredging costs | $3,073,000 | | $4,139,000 |
Deposits | 2,524,000 | | 1,346,000 |
Other | 1,133,000 | | 967,000 |
Total other assets | $6,730,000 | | $6,452,000 |
| | | |
| 2010 | | 2009 |
Accrued liabilities: | | | |
Accrued payables | $23,976,000 | | $11,660,000 |
Accrued bonuses | 6,196,000 | | – |
Damage claim settlement/ fine accruals | 5,314,000 | | 6,235,000 |
Deferred revenue – current portion | 2,873,000 | | 2,676,000 |
Vacation pay | 2,165,000 | | 2,244,000 |
Utilities | 1,667,000 | | 1,478,000 |
Health claims | 1,165,000 | | 1,052,000 |
Interest | 1,161,000 | | 2,059,000 |
Workmen’s compensation claims | 1,031,000 | | 1,648,000 |
Other | 6,145,000 | | 7,398,000 |
Total accrued liabilities | $51,693,000 | | $36,450,000 |
39
IMTT HOLDINGS INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
| | | |
| 2010 | | 2009 |
Other long-term liabilities: | | | |
Swap mark-to-market liabilities | $43,273,000 | | $30,405,000 |
Pension benefits | 31,305,000 | | 24,329,000 |
Deferred revenue | 18,684,000 | | 20,805,000 |
Retiree health/life benefits | 9,210,000 | | 4,026,000 |
Deferred compensation | 656,000 | | 588,000 |
Other | 1,311,000 | | 946,000 |
Total other long-term liabilities | $104,439,000 | | $81,099,000 |
(13)Accounting pronouncements
IHI Consolidated is not aware of any issued accounting standards whose implementation date is subsequent to December 31, 2010, that would have a material impact on the reporting of its future results of operations or financial position.
(14)Subsequent events
Subsequent to December 31, 2010, IMTT Combined contributed $4,347,000 to the IMTT and Lemont union pension plans. Subsequent events were evaluated through February 21, 2011 for their impact on the accompanying financial statements, which is the date the statements were available to be issued.
40
