California Petroleum Transport Corporation Quarterly Report on Form 10-Q Six months ended June 30, 2002 SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Six Months Ended June 30, 2002 Commission File Number 33-79220 33-56377 CALIFORNIA PETROLEUM TRANSPORT CORPORATION (exact name of Registrant as specified in its charter) Delaware 04-3232976 (State of incorporation) (I.R.S. Employer Identification No.) Suite 569, One International Place, Boston, Massachusetts 02110-2624 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (617) 951-7727 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, and (2) has been subject to such filing requirements for the past 90 days. YES X NO Number of shares outstanding of each class of Registrant's Common Stock as of August 31, 2002 Common, $1.00 par value ..........................................1,000 shares California Petroleum Transport Corporation Quarterly Report on Form 10-Q Six months ended June 30, 2002 Index Part I Financial Information Item 1 Financial Statements Review Report of Independent Accountants Unaudited Condensed Income Statements - Three and six months ended June 30, 2002 and 2001 Unaudited Condensed Balance Sheets - June 30, 2002 and December 31, 2001 Unaudited Condensed Statement of Cash Flows - Six months ended June 30, 2002 and 2001 Unaudited Condensed Statements of Changes in Stockholders' Equity - Six months ended June 30, 2002 and 2001 Notes to Unaudited Condensed Financial statements Item 2 Management's Discussion and analysis of Financial Condition and Results of Operations Item 3 Quantitative and Qualitative Disclosures about Market Risk Item 4 Controls and Procedures Part II Other Information Item 1 Legal Proceedings Signatures Omitted items are not applicable California Petroleum Transport Corporation Quarterly Report on Form 10-Q Six months ended June 30, 2002 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS Review Report of Independent Accountants TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CALIFORNIA PETROLEUM TRANSPORT CORPORATION We have reviewed the accompanying condensed balance sheet of California Petroleum Transport Corporation as of June 30, 2002 and the related condensed statements of income for the three and six month periods ended June 30, 2002 and 2001 and the condensed statement of cash flows for the six-month periods ended June 30, 2002 and 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with United States generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with United States generally accepted accounting principles. We have previously audited, in accordance with United States generally accepted auditing standards, the balance sheet of California Petroleum Transport Corporation as at December 31, 2001, and the related statements of income and cash flows for the year then ended, not presented herein, and in our report dated March 27, 2002, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of December 31, 2001, is fairly stated, in all material respects, in relation to balance sheet from which it has been derived. Ernst & Young Chartered Accountants Douglas, Isle of Man XXXXX, 2002 California Petroleum Transport Corporation Condensed Income Statements for the three and six months ended June 30, 2002 and 2001 (Unaudited) (in thousands of US$) 3 months ended 6 months ended June 30 June 30 2002 2001 2002 2001 Operating revenues Interest income 3,305 3,691 6,890 7,727 Recovery of administrative expenses 3 - 19 15 - -------------------------------------------------------------------------------- Net operating revenues 3,308 3,691 6,909 7,742 - -------------------------------------------------------------------------------- Operating expenses Administrative expenses 3 - 19 15 - -------------------------------------------------------------------------------- Total operating expenses 3 - 19 15 - -------------------------------------------------------------------------------- Net operating income before amortisation 3,305 3,691 6,890 7,727 - -------------------------------------------------------------------------------- Amortisation of deferred charges 64 64 128 128 - -------------------------------------------------------------------------------- Other expenses Interest expense 3,241 3,627 6,762 7,599 - -------------------------------------------------------------------------------- Net other expenses 3,241 3,627 6,762 7,599 - -------------------------------------------------------------------------------- Net income - - - - ================================================================================ See notes to the condensed financial statements. California Petroleum Transport Corporation Condensed Balance Sheets as of June 30, 2002 and December 31, 2001 (Unaudited) (in thousands of US$) 2002 2001 (Audited) ASSETS Current assets Cash and cash equivalents 1 1 Current maturities of serial loans receivable 18,160 18,160 (maturity date April 1, 2003) Interest income receivable 3,285 3,664 Other accounts receivable 12 10 - -------------------------------------------------------------------------------- Total current assets 21,458 21,835 Serial loans receivable 22,798 40,874 Term loans receivable 116,774 116,730 Deferred charges 1,548 1,676 - -------------------------------------------------------------------------------- Total assets 162,578 181,115 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current maturities of serial mortgage notes 18,160 18,160 (maturity date April 1, 2003) Accrued interest expense 3,285 3,664 Other accounts payable 12 10 - -------------------------------------------------------------------------------- Total current liabilities 21,457 21,834 Long-term liabilities Serial mortgage notes 23,220 41,380 Term mortgage notes 117,900 117,900 - -------------------------------------------------------------------------------- Total liabilities 162,577 181,114 Commitments and contingencies - - Stockholders' equity Share capital (1,000 shares of $1 authorised, issued and outstanding) 1 1 Retained earnings - - - -------------------------------------------------------------------------------- Total stockholders' equity 1 1 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity 162,578 181,115 ================================================================================ See notes to the condensed financial statements. California Petroleum Transport Corporation Condensed Statements of Cash Flows for the six months ended June 30, 2002 and 2001 (Unaudited) (in thousands of US$) 2002 2001 Operating activities` Net income - - Adjustments to reconcile net income to net cash provided by operating activities Amortisation of deferred charges 128 128 Amortisation of issue discount on loans receivable (128) (128) Changes in operating assets and liabilities: Interest income receivable 379 348 Other accounts receivable (2) (16) Accrued interest expense (379) (348) Other accounts payable 2 16 - -------------------------------------------------------------------------------- Net cash provided by operating activities - - - -------------------------------------------------------------------------------- Investing activities Maturity of serial loans receivable 18,160 18,160 - -------------------------------------------------------------------------------- Net cash provided by investing activities 18,160 18,160 - -------------------------------------------------------------------------------- Financing activities Redemption of serial mortgage notes (18,160) (18,160) - -------------------------------------------------------------------------------- Net cash used in financing activities (18,160) (18,160) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Net increase in cash and cash equivalents - - Cash and cash equivalents at beginning of period 1 1 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of period 1 1 ================================================================================ Supplemental disclosure of cash flow information: Interest paid 7,269 7,945 ================================================================================ See notes to the condensed financial statements. California Petroleum Transport Corporation Condensed Statements of Changes in Stockholders' Equity for the six months ended June 30, 2002 and 2001 (Unaudited) (in thousands of US$, except number of shares) 2002 2001 Number of Shares Outstanding Balance at beginning of period 1,000 1,000 Shares issued - - - -------------------------------------------------------------------------------- Balance at end of period 1,000 1,000 - -------------------------------------------------------------------------------- Share Capital Balance at beginning of period 1 1 Shares issued - - - -------------------------------------------------------------------------------- Balance at end of period 1 1 - -------------------------------------------------------------------------------- Retained Earnings Balance at beginning of period - - Net income - - - -------------------------------------------------------------------------------- Balance at end of period - - - -------------------------------------------------------------------------------- Total Stockholders' Equity 1 1 ================================================================================ See notes to the condensed financial statements. California Petroleum Transport Corporation Notes to the Condensed Financial Statements (Unaudited) 1. GENERAL Organization and history California Petroleum Transport Corporation was incorporated under the laws of the state of Delaware on May 18, 1994. The company is a special purpose corporation that has been organized solely for the purpose of issuing as agent Serial Mortgage Notes and Term Mortgage Notes as full recourse obligations of the company and loaning the proceeds of the sale of the Notes to four vessel-owning companies. The Serial Mortgage Notes and the Term Mortgage Notes were issued on April 5, 1995. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The principal accounting policies used in the preparation of these financial statements are set out below. The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accountancy principles for complete financial statements. 2. ACCOUNTING POLICIES Basis of accounting The financial statements have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The following are the significant accounting policies adopted by the Company: Cash and cash equivalents For the purposes of the consolidated statements of cash flows, all demand and time deposits and highly liquid, low risk investments with original maturities of three months or less are considered equivalent to cash. Revenue and expense recognition Interest receivable on the Serial Loans and on the Term Loans is accrued on a daily basis. Interest payable on the Serial Mortgage Notes and on the Term Mortgage Notes is accrued on a daily basis. General and administrative expenses incurred by the company are reimbursed by the vessel-owning companies. Deferred charges Deferred charges represent the capitalisation of debt issue costs. These costs are amortised over the term of the Notes to which they relate. 3. SERIAL LOANS The principal balances of the Serial Loans earn interest at rates ranging from 7.55% to 7.62% and mature over a four-year period beginning April 1, 2003. The loans are reported net of the related discounts, which are amortised over the term of the loans. 4. TERM LOANS The principal balances of the Term Loans earn interest at a rate of 8.52% per annum and are to be repaid over a twelve-year period beginning April 1, 2004. The loans are reported net of the related discounts, which are amortised over the term of the loans. 5. SERIAL MORTGAGE NOTES The Serial Mortgage Notes bear interest at rates ranging from 7.55% to 7.62% through maturity. The Notes mature over a four-year period beginning April 1, 2003. Interest is payable semi-annually. 6. TERM MORTGAGE NOTES The Term Mortgages Notes bear interest at a rate of 8.52% per annum. Principal is repayable on the Term Mortgage Notes in accordance with a twelve-year sinking fund schedule commencing April 1, 2004. Interest is payable semi-annually. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS N/A ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (a) Quantitative information about market risk Quantitative information about market risk instruments at June 30, 2002 is as follows: - i) Serial Loans The principal balances of the Serial Loans earn interest at rates ranging from 7.55% to 7.62% and mature over a four-year period beginning April 1, 2003. The loans are reported net of the related discounts, which are amortised over the term of the loans. The outstanding serial loans have the following characteristics: Maturity date Interest rate Principal amount ($ 000's) April 1, 2003 7.55% 18,160 April 1, 2004 7.57% 12,950 April 1, 2005 7.60% 7,740 April 1, 2006 7.62% 2,530 - -------------------------------------------------------------------------------- Total loans 41,380 - -------------------------------------------------------------------------------- ii) Term Loans The principal balances of the Term Loans earn interest at a rate of 8.52% per annum and are to be repaid over a twelve-year period beginning April 1, 2004. The loans are reported net of the related discounts, which are amortized over the term of the loans. The table below provides the final principal payments on the Term Loans if none of the Initial Charters is terminated and if all of the Initial Charters are terminated on the earliest termination dates. Scheduled payment date No initial charters terminated terminated ($000's) ($000's) April 1, 2004 3,355 1,700 April 1, 2005 6,542 3,480 April 1, 2006 9,526 5,320 April 1, 2007 10,942 6,340 April 1, 2008 10,942 6,880 April 1, 2009 10,942 7,470 April 1, 2010 10,942 8,110 April 1, 2011 10,942 8,800 April 1, 2012 10,942 9,540 April 1, 2013 10,942 10,360 April 1, 2014 10,942 11,240 April 1, 2015 10,941 38,660 - -------------------------------------------------------------------------------- 117,900 117,900 - -------------------------------------------------------------------------------- iii) Serial Mortgage Notes The Serial Mortgage Notes bear interest at rates ranging from 7.55% to 7.62% through maturity. The Notes mature over a four-year period beginning April 1, 2003. Interest is payable semi-annually. The outstanding serial loans have the following characteristics: Maturity date Interest rate Principal amount ($ 000's) April 1, 2003 7.55% 18,160 April 1, 2004 7.57% 12,950 April 1, 2005 7.60% 7,740 April 1, 2006 7.62% 2,530 - -------------------------------------------------------------------------------- Total loans 41,380 - -------------------------------------------------------------------------------- iv) Term Mortgage Notes The Term Mortgage Notes bear interest at a rate of 8.52% per annum. Principal is repayable on the Term Mortgage Notes in accordance with a twelve-year sinking fund schedule commencing April 1, 2004. Interest is payable semi-annually. The table below provides the scheduled sinking fund redemption amounts and final principal payments on the Term Mortgage Notes if none of the Initial Charters is terminated and if all of the Initial Charters are terminated on the earliest termination dates. Scheduled payment date No initial charters terminated terminated ($000's) ($000's) April 1, 2004 3,355 1,700 April 1, 2005 6,542 3,480 April 1, 2006 9,526 5,320 April 1, 2007 10,942 6,340 April 1, 2008 10,942 6,880 April 1, 2009 10,942 7,470 April 1, 2010 10,942 8,110 April 1, 2011 10,942 8,800 April 1, 2012 10,942 9,540 April 1, 2013 10,942 10,360 April 1, 2014 10,942 11,240 April 1, 2015 10,941 38,660 - -------------------------------------------------------------------------------- 117,900 117,900 - -------------------------------------------------------------------------------- (b) Qualitative information about market risk The Corporation was organized solely for the purpose of issuing, as agent on behalf of certain ship Owners, the Term Mortgage in Notes and Serial Mortgage Notes as obligations of California Petroleum and loaning the proceeds of the sale of the Notes to the Owners to facilitate the funding of the acquisition of four Vessels from Chevron Transport Corporation. ITEM 4 - CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's manager Frontline Ltd, including the Company's President and Treasurer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the President and Treasurer concluded that the Company's disclosure controls and procedures are effective in alerting them timely to material information relating to the Company required to be included in the Company's periodic SEC filings. (b) Changes in internal controls There have been no significant changes in our internal controls or in other factors that could have significantly affected those controls subsequent to the date of our most recent evaluation of internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS The company is not party to any legal proceedings the results of which could, in the opinion of management, have a material adverse effect upon the company. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CALIFORNIA PETROLEUM TRANSPORT CORPORATION Registrant \R. Douglas Donaldson\ October 31, 2002 R. Douglas Donaldson CERTIFICATIONS UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned certifies that this periodic report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in this periodic report fairly represents, in all material respects, the financial condition and results of operations of California Petroleum Transport Corporation. /s/ Nancy D. Smith ----------------------- Nancy D. Smith President (Chief Executive Officer) /s/ R. Douglas Donaldson ----------------------- R. Douglas Donaldson Treasurer (Chief Financial Officer) CERTIFICATION OF THE PRESIDENT - ------------------------------ I, Nancy D Smith, certify that: 1. I have reviewed this quarterly report on Form 10-Q of California Petroleum Transport Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date:10/31/02 /s/ Nancy D. Smith - ----------------- Nancy D. Smith President (Chief Executive Officer) CERTIFICATION OF TREASURER - -------------------------- I, R Douglas Donaldson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of California Petroleum Transport Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: 10/31/02 /s/ R. Douglas Donaldson - ----------------------- R. Douglas Donaldson Treasurer (Chief Financial Officer) 02089.0009 #364037