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 December 31, 2002
------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 033-79220-04
---------------------------------------------------------
CALPETRO TANKERS (IOM) LIMITED
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Isle of Man
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
15-19 Athol Street, Douglas, Isle of Man, IM1 1TP
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Securities registered or to be registered pursuant to section 12(b) of the Act.
Title of each class Name of each exchange on which registered
None Not applicable
- ------------------------------- ---------------------------------------------
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.
None
- --------------------------------------------------------------------------------
Indicate the number of shares outstanding of each of the registrant's classes of
capital or common stock, as of the close of the period covered by the annual
report.
Common stock: 2 shares, par value of $500 per share
- --------------------------------------------------------------------------------
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]
CALPETRO TANKERS (IOM) LIMITED
INDEX TO REPORT ON FORM 20-F
Page
PART I
Item 1. Identity of Directors, Senior Management
and Advisors ..................................................1
Item 2. Offer Statistics and Expected Timetable .......................1
Item 3. Key Information ...............................................1
Item 4. Information on the Company ....................................5
Item 5. Operating and Financial Review and Prospects .................13
Item 6. Directors, Senior Management and Employees ...................15
Item 7. Major Shareholders and Related Party transactions ............16
Item 8. Financial Information ........................................16
Item 9. The Offer and Listing ........................................17
Item 10. Additional Information .......................................17
Item 11. Quantitative and Qualitative
Disclosures about Market Risk ...............................18
Item 12. Description of Securities Other than
Equity Securities ............................................19
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies ..............19
Item 14. Material Modifications to the Rights of
Security Holders and Use of Proceeds .........................19
Item 15. Controls and Procedures ......................................19
Item 16. Reserved .....................................................20
PART III
Item 17. Financial Statements ..........................................1
Item 18. Financial Statements .........................................20
Item 19. Exhibits .....................................................20
Signatures .............................................................23
PART I
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Matters discussed in this document may constitute forward-looking statements.
The Private Securities Litigation Reform Act of 1995 provides safe harbor
protections for forward-looking statements in order to encourage companies to
provide prospective information about their business. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and other statements, which
are other than statements of historical facts.
CalPetro Tankers (IOM) Limited (the "Company") desires to take advantage of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995
and is including this cautionary statement in connection with this safe harbor
legislation. This document and any other written or oral statements made by us
or on our behalf may include forward-looking statements, which reflect our
current views with respect to future events and financial performance. The words
"believe," "except," "anticipate," "intends," "estimate," "forecast," "project,"
"plan," "potential," "will," "may," "should," "expect" and similar expressions
identify forward-looking statements.
The forward-looking statements in this document are based upon various
assumptions, many of which are based, in turn, upon further assumptions,
including without limitation, management's examination of historical operating
trends, data contained in our records and other data available from third
parties. Although we believe that these assumptions were reasonable when made,
because these assumptions are inherently subject to significant uncertainties
and contingencies which are difficult or impossible to predict and are beyond
our control, we cannot assure you that we will achieve or accomplish these
expectations, beliefs or projections.
In addition to these important factors and matters discussed elsewhere herein
and in the documents incorporated by reference herein, important factors that,
in our view, could cause actual results to differ materially from those
discussed in the forward-looking statements include the strength of world
economies and currencies, general market conditions, including fluctuations in
charterhire rates and vessel values, changes in demand in the tanker market, as
a result of changes in OPEC's petroleum production levels and world wide oil
consumption and storage, changes in the company's operating expenses, changes in
governmental rules and regulations or actions taken by regulatory authorities,
potential liability from pending or future litigation, general domestic and
international political conditions, potential disruption of shipping routes due
to accidents or political events, and other important factors described from
time to time in the reports filed by CalPetro Tankers (IOM) Limited with the
Securities and Exchange Commission.
Item 1. Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
Selected Financial Data
The selected statement of operations and retained earnings data of the Company
with respect to the fiscal years ended December 31, 2002, 2001 and 2000, and the
selected balance sheet data at December 31, 2002 and 2001, have been derived
from the Company's audited financial statements included herein and should be
read in conjunction with such statements and the notes thereto. The selected
statement of operations and retained earnings data with respect to the years
ended December 31, 1999 and 1998 and the selected balance sheet data at December
31, 2000, 1999 and 1998 have been derived from audited financial statements of
the Company not included herein. The following table should also be read in
conjunction with Item 5 "Operating and Financial Review and Prospects" and the
Company's audited financial statements and notes thereto included herein. The
Company's accounts are maintained in US dollars.
Year ended December 31,
-----------------------
2002 2001 2000 1999 1998
-------------------------------------------------
(U.S. Dollars in thousands except per share data)
Statement of operations
and retained earnings
data:
Net operating revenues 4,026 4,457 4,886 5,299 5,714
Net income 70 103 158 182 208
Per share data:
Dividends per share - - - - -
Balance sheet data:
Total assets 48,049 53,288 58,436 63,604 68,750
Long term liabilities (1) 45,472 50,682 55,892 61,102 66,312
Stockholders' equity 1,638 1,568 1,465 1,307 1,125
(1) Includes current portion.
Risk Factors
Please note: In this section, "we", "us" and "our" all refer to the Company.
The cyclical nature of the tanker industry may lead to volatile changes in
charter rates, which may adversely affect our earnings
Our vessel (the "Vessel") is currently operated under a bareboat charter (the
"Charter") to Chevron Transport Corporation (the "Initial Charterer"). The
Charter has a term expiring on April 1, 2015 subject to the fact that the
Initial Charterer has an option to terminate the charter earlier on three
specified dates. The first option to terminate is on April 1, 2005 and then on
each of the three subsequent two-year anniversaries thereof. Notice of the
intention to exercise the option to terminate the Charter must be given at least
twelve months in advance for the first Optional Termination Date and seven
months in advance for subsequent Optional Termination Dates.
If the tanker industry, which has been cyclical, is depressed in the future when
our vessel's charter expires or is terminated, our earnings and available cash
flow may decrease. Our ability to recharter our vessel on the expiration or
termination of its current charter and the charter rates payable under any
renewal or replacement charters will depend upon, among other things, economic
conditions in the tanker market. Fluctuations in charter rates and vessel values
result from changes in the supply and demand for tanker capacity and changes in
the supply and demand for oil and oil products.
Because our Charter may be terminated in April 2005, we may incur additional
expenses and not be able to recharter our Vessel profitably
CalPetro Tankers (IOM) Limited was incorporated in the Isle of Man on May 13,
1994 together with three other companies: CalPetro Tankers (Bahamas I) Limited,
CalPetro Tankers (Bahamas II) Limited and CalPetro Tankers (Bahamas III)
Limited, each of which is incorporated in the Bahamas, (together the "Owners").
Each of the Owners was organized as a special purpose company for the purpose of
acquiring one of four Suezmax oil tankers from Chevron Transport Corporation.
California Petroleum Transport Corporation, a Delaware corporation, acting as
agent on behalf of the Companies, issued as full recourse obligations
$167,500,000 Serial First Preferred Mortgage Notes and $117,900,000 8.52% First
Preferred Mortgage Notes due 2015 (together the "Notes"). The proceeds from the
sale of the Notes were applied by way of long-term loans, being Serial Loans in
respect of the Serial First Preferred Mortgage Notes and Term Loans in respect
of the First Preferred Mortgage Notes due 2015, to the Owners to fund the
acquisition of the Vessels from the Chevron Transport Corporation. The Company
was allocated $51,830,000 of the Serial Loans and $29,842,000 of the Term Loans
and acquired its Vessel, the SIRIUS VOYAGER (ex CHEVRON MARINER).
Chevron Transport Corporation has its first option to terminate its Charter on
April 1, 2005 and on each of the three subsequent two-year anniversaries
thereof. Chevron Transport Corporation has the sole discretion to exercise these
options and will not owe any fiduciary or other duty to the holders of the Notes
in deciding whether to exercise the termination options, and the charterer's
decision may be contrary to our interests or those of the holders of the Notes.
We cannot predict at this time any of the factors that the Initial Charterer
will consider in deciding whether to exercise any of its termination options
under the Charter. It is likely, however, that the Initial Charterer would
consider a variety of factors, which may include whether a vessel is surplus or
suitable to the Initial Charterer's requirements and whether competitive
charterhire rates are available in the open market at that time.
In the event Chevron Transport Corporation does terminate the Charter, we will
attempt to arrange a replacement charter, or may sell the Vessel. Replacement
charters may include shorter-term time charters and employing the Vessel on the
spot charter market (which is subject to greater fluctuation than the time
charter market). Any replacement charter may bring us lower charter rates and
would likely require us to incur greater expenses which may reduce the amounts
available, if any, to pay principal and interest on the Notes.
We operate in the highly competitive international tanker market which could
affect our position at the end of our current Charter and if Chevron Transport
Corporation terminates its Charter earlier
The operation of tanker vessels and transportation of crude and petroleum
products is an extremely competitive business. Competition arises primarily from
other tanker owners, including major oil companies as well as independent tanker
companies, some of whom have substantially greater resources than we do.
Competition for the transportation of oil and oil products can be intense and
depends on price, location, size, age, condition and the acceptability of the
tanker and its operators to the charterers. During the term of our existing
Charter with Chevron Transport Corporation we are not exposed to the risk
associated with this competition. At the end of our current Charter and in the
event that Chevron Transport Corporation terminates the charter in April 2005 or
at any subsequent optional termination date, we will have to compete with other
tanker owners, including major oil companies as well as independent tanker
companies for charters. Due in part to the fragmented tanker market, competitors
with greater resources could enter and operate larger fleets through
acquisitions or consolidations and may be able to offer better prices and
fleets, which could result in our achieving lower revenues from our Suezmax oil
tanker.
Compliance with environmental laws or regulations may adversely affect our
earnings and financial conditions at the end of the existing Charter or if
Chevron Transport Corporation terminates its Charter prior to that time
Regulations in the various states and other jurisdictions in which our Vessel
trades affect our business. Extensive and changing environmental laws and other
regulations, compliance with which may entail significant expenses, including
expenses for ship modifications and changes in operating procedures, affect the
operation of our Vessel. Although Chevron Transport Corporation is responsible
for all operational matters and bears all these expenses during the term of our
current Charter, these expenses could have an adverse effect on our business
operations at any time after the expiration or termination of the Charter or in
the event Chevron Transport Corporation fails to make a necessary payment.
We may not have adequate insurance in the event existing charters are not
renewed
There are a number of risks associated with the operation of ocean-going
vessels, including mechanical failure, collision, property loss, cargo loss or
damage and business interruption due to political circumstances in foreign
countries, hostilities and labour strikes. In addition, the operation of any
vessel is subject to the inherent possibility of marine disaster, including oil
spills and other environmental mishaps, and the liabilities arising from owning
and operating vessels in international trade. Under the Charter, Chevron
Transport Corporation bears all risks associated with the operation of our
Vessel including the total loss of the Vessel. However, we cannot assure holders
of the Notes that we will adequately insure against all risks at the end of the
Charter or in the event the Charter is terminated. We may not be able to obtain
adequate insurance coverage at reasonable rates for our Vessel in the future and
the insurers may not pay particular claims.
We are highly dependent on Chevron Transport Corporation and Chevron Corporation
We are highly dependent on the due performance by Chevron Transport Corporation
of its obligations under the Charter and by its guarantor, Chevron Corporation,
of its obligations under its guarantee. A failure by Chevron Transport
Corporation or Chevron Corporation to perform their obligations could result in
our inability to service the Serial and Term Loans. If the Notes holders had to
enforce the mortgages securing the Notes, they may not be able to recover the
principal and interest owed to them.
We may not be able to pay down our debt in the future, which could result in the
loss of our vessel
We currently must dedicate a large portion of our cash flow from operations to
satisfy our debt service obligations. Our ability to pay interest on, and other
amounts due in respect of, our Serial and Term Loans will depend on our future
operating performance, prevailing economic conditions and financial, business
and other factors, many of which are beyond our control. There can be no
assurance that our cash flow and capital resources will be sufficient for
payment of our indebtedness in the future. If we are unable to service our
indebtedness or obtain additional financing, as needed, this could have a
material adverse effect on the holders of the Notes.
Governments could requisition our vessels during a period of war or emergency,
resulting in a loss of earnings
A government could requisition for title or seize the Vessel. Requisition for
title occurs when a government takes control of a vessel and becomes her owner.
Also, a government could requisition the Vessel for hire. Requisition for hire
occurs when a government takes control of a vessel and effectively becomes her
charter at dictated charter rates. Generally, requisitions occur during a period
of war or emergency. Government requisition of the Vessel would negatively
impact our revenues.
The Notes may not be as liquid as other securities with established trading
markets, which may affect the value of the Notes and your ability to trade them
The Notes are not listed on any national securities exchange or traded on the
NASDAQ National Market and have no established trading market. Consequently, the
Notes could trade at prices that may be higher or lower than their principal
amount or purchase price, depending on many factors, including prevailing
interest rates, the market for similar notes and warrants, and our financial
performance. The placement agents for the Notes currently make a market for the
Notes, but are not obligated to do so and may discontinue their market making
activity at any time. In addition, their market making activity is subject to
the limits imposed by the Securities Act and the Exchange Act. We cannot assure
you that an active trading market will exist for the Notes or that any market
for the Notes will be liquid.
Substantial leverage and debt service could affect our ability to grow and
service our debt obligations
We are highly leveraged. As of December 31, 2002, we had $45.5 million in total
indebtedness outstanding and stockholders' equity of $1.6 million. The degree to
which we are leveraged could have important consequences for the holders of the
Notes, including:
- --our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be limited;
- --we must dedicate a substantial portion of our cash flow from operations to the
payment of interest on our Serial and Term Loans and any future indebtedness,
which reduces the funds available to us for other purposes;
- --we may have trouble withstanding competitive pressures and responding to
changing business conditions;
- --we may be more vulnerable than others in the event of a downturn in general
economic conditions or in our business; and
- --we may be more highly leveraged than other tanker owners with which we
compete, which may put us at a competitive disadvantage.
We have a limited business purpose which limits our flexibility
The activity of the Company is limited to engaging in the acquisition,
disposition, ownership, and chartering of a Suezmax oil tanker. During the terms
of our charter with Chevron Transport Corporation we expect that the only source
of operating revenue from which we may pay principal and interest on the Serial
Loans and Term Loans will be from this charter.
Item 4. Information on the Company
The Company
CalPetro Tankers (IOM) Limited (the "Company") was incorporated in the Isle of
Man on May 13, 1994 together with three other companies: CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited and CalPetro Tankers
(Bahamas III) Limited, each of which is incorporated in the Bahamas (together
the "Owners"). Each of the Owners was organized as a special purpose company for
the purpose of acquiring one of four oil tankers (each a "Vessel", together the
"Vessels") from Chevron Transport Corporation. California Petroleum Transport
Corporation, a Delaware corporation, acting as agent on behalf of the Owners,
issued as full recourse obligations $167,500,000 Serial First Preferred Mortgage
Notes and $117,900,000 8.52% First Preferred Mortgage Notes due 2015 (together
the "Notes"). The proceeds from the sale of the Notes were applied by way of
long-term loans, being Serial Loans in respect of the Serial First Preferred
Mortgage Notes and Term Loans in respect of the First Preferred Mortgage Notes
due 2015, to the Owners to fund the acquisition of the Vessels from the Chevron
Transport Corporation. The Company was allocated $51,830,000 of the Serial Loans
and $29,842,000 of the Term Loans and acquired its Vessel, the SIRIUS VOYAGER
(ex CHEVRON MARINER), as described below. The Company will engage in no business
other than the ownership and chartering of its Vessel and activities resulting
from or incidental to such ownership and chartering.
The Company is wholly owned by California Tankers Investments Limited, a company
organized under the laws of the Bahamas, which is in turn a wholly owned
subsidiary of CalPetro Holdings Limited, an Isle of Man company.
On May 12, 1998, ownership of CalPetro Holdings Limited was transferred to
Independent Tankers Corporation, a Cayman Islands company ("ITC"). On the same
date, all of the issued and outstanding shares of ITC were sold to Frontline
Ltd. ("Frontline"), a publicly listed Bermuda company.
Pursuant to a share purchase agreement dated December 23, 1998, as amended on
March 4, 1999, Frontline sold, effective July 1, 1999, all of the issued and
outstanding shares of ITC to Hemen Holding Limited, a Cyprus company ("Hemen").
Hemen is the principal shareholder of Frontline and is indirectly controlled by
Mr. John Fredriksen, the Chairman and Chief Executive Officer of Frontline.
Overview of the Business
The Company's Vessel is a 150,000 deadweight tonne ("dwt") Suezmax oil tanker,
called the SIRIUS VOYAGER (ex CHEVRON MARINER), which was acquired from Chevron
Transport Corporation. Suezmax tankers are medium-sized vessels ranging from
approximately 120,000 to 200,000 dwt, and of maximum length, breadth and draft
capable of passing fully loaded through the Suez Canal. The Vessel has been
chartered back to Chevron Transport Corporation. The Charter has a term expiring
on April 1, 2015, subject to the Initial Charterer's right to terminate the
Initial Charter on certain specified dates. The Initial Charterer is principally
engaged in the marine transportation of oil and refined petroleum products. The
Initial Charterer's primary transportation routes are from the Middle East,
Indonesia, Mexico, West Africa and the North Sea to ports in the United States,
Europe, the United Kingdom and Asia. Chevron Transport has advised the Company
that it expects to use the Vessel worldwide as permitted under the Charter. The
obligations of the Initial Charterer under the Charter are guaranteed by Chevron
Corporation, a major international oil company, pursuant to a guarantee (the
"Chevron Guarantee"). The Initial Charterer is an indirect, wholly-owned
subsidiary of Chevron.
The Vessel is a double-hull oil carrier of approximately 150,000 dwts and is
presently registered under the Marshall Islands flag. The Vessel was constructed
under the supervision of the Initial Charterer and designed to the Initial
Charterer's specifications to enhance safety and reduce operating and
maintenance costs, including such features as high performance rudders, extra
steel (minimal use of high tensile steels), additional fire safety equipment,
redundant power generation equipment, extra coating and electrolytic corrosion
monitoring and protection systems, additional crew quarters to facilitate added
manning and double-hull design patented by one of Chevron Corporation's
subsidiaries. The builder of the SIRIUS VOYAGER (ex CHEVRON MARINER) was
Ishikawajima do Brasil Estaleiros S.A.
The Management
On March 31, 1999, P.D.Gram & Co. A.S. resigned as Manager and Barber Ship
Management resigned as Technical Advisor. On the same date each was replaced by
Frontline Ltd, pursuant to an assignment of the Management Agreement.
The Initial Charterer may elect to terminate the Initial Charter on specified
termination dates commencing in 2005. If the Charter is terminated by the
Initial Charterer, the Manager (Frontline), acting on behalf of the Company,
will attempt to find an acceptable replacement charter for the Vessel. If an
acceptable replacement charter is commercially unavailable, the Manager will
solicit bids for the sale or recharter of the Vessel. The Manager's ability to
obtain an acceptable replacement charter, to sell the Vessel or recharter the
Vessel will depend on market rates for new and used vessels, both of which will
depend on the supply of and demand for tanker capacity for oil transportation,
and the advantages or disadvantages of the Vessel compared with other vessels
available at the time.
The International Tanker Market
International sea borne oil and petroleum products transportation services are
mainly provided by two types of operator: major oil company captive fleets (both
private and state-owned) and independent shipowner fleets. Both types of
operators transport oil under short-term contracts (including single-voyage
"spot charters") and long-term time charters with oil companies, oil traders,
large oil consumers, petroleum product producers and government agencies. The
oil companies own, or control through long-term time charters, approximately one
third of the current world tanker capacity, while independent companies own or
control the balance of the fleet. The oil companies use their fleets not only to
transport their own oil, but also to transport oil for third-party charterers in
direct competition with independent owners and operators in the tanker charter
market.
The oil transportation industry has historically been subject to regulation by
national authorities and through international conventions. Over recent years,
however, an environmental protection regime has evolved which could have a
significant impact on the operations of participants in the industry in the form
of increasingly more stringent inspection requirements, closer monitoring of
pollution-related events, and generally higher costs and potential liabilities
for the owners and operators of tankers.
In order to benefit from economies of scale, tanker charterers will typically
charter the largest possible vessel to transport oil or products, consistent
with port and canal dimensional restrictions and optimal cargo lot sizes. The
oil tanker fleet is generally divided into the following five major types of
vessels, based on vessel carrying capacity: (i) ULCC-size range of approximately
320,000 to 450,000 dwt; (ii) VLCC-size range of approximately 200,000 to
320,000; (iii) Suezmax-size range of approximately 120,000 to 200,000 dwt; (iv)
Aframax-size range of approximately 60,000 to 120,000 dwt; and (v) small tankers
of less than approximately 60,000 dwt. ULCCs and VLCCs typically transport crude
oil in long-haul trades, such as from the Arabian Gulf to Rotterdam via the Cape
of Good Hope. Suezmax tankers also engage in long-haul crude oil trades as well
as in medium-haul crude oil trades, such as from West Africa to the East Coast
of the United States. Aframax-size vessels generally engage in both medium-and
short-haul trades of less than 1,500 miles and carry crude oil or petroleum
products. Smaller tankers mostly transport petroleum products in short-haul to
medium-haul trades.
The shipping industry is highly cyclical, experiencing volatility in
profitability, vessel values and charter rates. In particular, freight and
charterhire rates are strongly influenced by the supply and demand for shipping
capacity.
The factors affecting the supply and demand for tanker vessels are outside of
our control, and the nature, timing and degree of changes in industry conditions
are unpredictable. The factors that influence demand for tanker capacity
include:
- demand for oil and oil products;
- global and regional economic conditions;
- the distance oil and oil products are to be moved by sea; and
- changes in sea borne and other transportation patterns
The factors that influence the supply of tanker capacity include:
- the number of newbuilding deliveries;
- the scrapping rate of older vessels; and
- the number of vessels that are out of service.
Tanker values have generally experienced high volatility. The fair market value
of oil tankers, including the vessel, can be expected to fluctuate, depending
upon general economic and market conditions affecting the tanker industry and
competition from other shipping companies, types and sizes of vessels, and other
modes of transportation. In addition, as vessels grow older, they may be
expected to decline in value. These factors will affect the value of the vessel
at the termination or expiration of the current charter.
The shipping industry is highly cyclical, experiencing volatility in
profitability, vessel values and charter rates. In particular, freight and
charterhire rates are strongly influenced by the supply and demand for shipping
capacity. The charter rates for Suezmax tankers started to decline in the second
half of 2001 as a result of a general slowdown in the global economy and
reduction of OPEC oil production. The negative trend continued into 2002 and
rates remained below USD 20,000 per day through a large part of the year. Rates
finally started to improve at the beginning of the 4th quarter and ended the
year at above USD 50,000 per day. In spite of the rate improvement in the last
quarter average time charter equivalent spot earnings for the year came out just
below USD 20,000 per day compared to just over USD 30,000 per day in 2001.
Several factors contributed to improving rates in the late part of the year
including increased seasonal demand and increased oil consumption in the Asian
region, but the main reason for the rate spike in the last months of the year
was the strike in Venezuela. The loss of exports from Venezuela, especially into
the United States, required replacement oil from more distant sources resulting
in increased tonnage demand. The strong market continued in January 2003. The
weak market in 2001 and 2002 resulted in scrapping of 48 elderly Suezmaxes in
the two years.
There is no guarantee that Suezmax rates would be sufficient to meet the debt
service required if the bareboat charters entered into with Chevron are not
extended. Spot market rates are volatile and generally linked to global economic
development and especially demand for oil but also to political events affecting
oil producing countries.
Inspection by Classification Society
Every commercial vessel's hull and machinery must be "classed" by a
classification society authorized by its country of registry. The classification
society ensures that a vessel is constructed and equipped in accordance with the
International Maritime Organization (the "IMO") regulations and the Safety of
Life at Sea Convention.
A vessel must be inspected by a surveyor of the classification society every
year ("Annual Survey"), every two years ("Intermediate Survey") and every four
years ("Special Survey"). Each vessel is also required to be dry docked every 30
to 60 months for inspection of the underwater parts of the vessel. If any
defects are found, the classification surveyor will issue a "recommendation"
which has to be acted upon, and the defect must be rectified by the shipowner
within a prescribed time limit. At the Special Survey, the vessel is examined
thoroughly, including an inspection to determine the thickness of the steel
plates in various parts of the vessel, and repairs may be recommended. For
example, if the thickness of the steel plates is found to be less than class
requirements, steel renewals will be prescribed. A one-year grace period may be
granted by the classification society to the shipowner for completion of the
Special Survey. If the vessel experiences excessive wear and tear, substantial
amounts of money may have to be spent for steel renewals to pass a Special
Survey. In lieu of the Special Survey every four years (five years, if grace is
given), a shipowner has the option of arranging with the classification society
for the vessel's hull or machinery to be on a continuous survey cycle, whereby
every part of the vessel is surveyed within a five-year cycle. Insurance
underwriters make it a condition of insurance coverage for the vessel to be
"classed" and "class maintained" and the failure of a vessel to be "classed" and
"class maintained" may render such a vessel unusable.
The Vessel will be maintained during the term of the Charter by the Initial
Charterer in accordance with good commercial maintenance practice commensurate
with other vessels in the Initial Charterer's fleet of similar size and trade,
as required by the Charter. The Charter requires the Initial Charterer to return
the Vessel on termination of the Charter "in class" under the rules of the
American Bureau of Shipping (or another classification society previously
approved by the Company). In addition, the Company has the right to inspect the
Vessel and to require surveys upon redelivery, and the Initial Charterer will be
responsible for making or compensating the Company for certain necessary repairs
in connection with such redelivery.
Insurance
The operation of any ocean-going vessel carries an inherent risk of catastrophic
marine disasters, environmental mishaps, cargo and property losses or damage and
business interruptions caused by adverse weather and ocean conditions,
mechanical failures, human error, political action in various countries, war,
terrorism, piracy, labour strikes and other circumstances or events. Pursuant to
the Initial Charter, the Vessel may be operated through the world in any lawful
trade for which the Vessel is suitable, including carrying oil and its products.
In the past, political conflicts in many 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 acts of terrorism and piracy. In addition, the carriage of petroleum
products is subject to the risk of spillage and leakage. Any such event may
result in increased costs or the loss of revenues or assets, including a Vessel.
Under the Charter, the Initial Charterer is entitled to self-insure against
marine and war risks relating to the Vessel and against protections and
indemnity risks relating to the Vessel during the term of the Charter and,
accordingly, purchasers of the Notes cannot rely on the existence of third-party
insurance. There can be no assurance that all risks will be adequately insured
against, that any particular loss will be covered or that the Company will be
able to procure adequate insurance coverage at commercially reasonable rates in
the future. In particular, stricter environmental regulations may result in
increased costs for, or the lack of availability or, insurance against the risks
of environmental damage or pollution.
The Initial Charterer will, pursuant to the Charter, indemnify the Company from
damages arising from a failure to maintain any financial responsibility
requirements whether relating to oil or other pollution damage. The Initial
Charterer will also indemnify the Company to the extent losses, damages or
expenses are incurred by the Company relating to oil or other pollution damage
as a result of the operation of the Vessel by the Initial Charterer.
Environmental and Other Regulations
International conventions and national, state and local laws and regulations of
the jurisdictions where our tanker operates or is registered significantly
affect the ownership and operation of our tanker. We believe we are currently in
substantial compliance with applicable environmental and regulatory laws
regarding the ownership and operation of our tanker. However, because existing
laws may change or new laws may be implemented, we cannot predict the ultimate
cost of complying with all applicable requirements or the impact they will have
on the resale value or useful lives of our tanker. Future non-compliance could
require us to incur substantial costs or to temporarily suspend operation of our
tanker.
We believe the heightened environmental and quality concerns of insurance
underwriters, regulators and charterers are leading to greater inspection and
safety requirements on all vessels and creating an increasing demand for modern
vessels that are able to conform to the stricter environmental standards. We
maintain high operating standards for our tanker that emphasizes operational
safety, quality maintenance, continuous training of our crews and officers and
compliance with United States and international regulations. Our tanker is
subject to scheduled and unscheduled inspections by a variety of governmental
and private entities, including local port authorities, classification
societies, flag state administration or country of registry, and charterers,
particularly terminal operators and major oil companies, which conduct frequent
vessel inspections. Each of these entities may have unique requirements that we
must comply with.
Environmental Regulation--IMO.
The United Nation's International Maritime Organization, or IMO, has adopted
regulations that set forth pollution prevention requirements for tankers. These
regulations, which have been implemented in many jurisdictions in which our
tanker operates, provide, in part, that:
o 25-year old tankers must be of double-hull construction or of a
mid-deck design with double-sided construction, unless:
(1) 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 bottom; or
(2) they are capable of hydrostatically balanced loading, which means
that they are loaded in such a way that if the hull is breached,
water flows into the tanker, displacing oil upwards instead of
into the sea
o 30-year old tankers must be of double-hull construction or mid-deck
design with double-sided construction.
Also under IMO regulations, a tanker must be of double-hull construction or a
mid-deck design with double-sided construction, or be of another approved design
ensuring the same level of protection against oil pollution, if the tanker:
o is the subject of a contract for a major conversion or original
construction on or after July 6, 1993;
o commences a major conversion or has its keel laid on or after January
6, 1994; or
o completes a major conversion or is a newbuilding delivered on or after
July 6, 1996.
The IMO recently adopted regulations that require the phase-out of most single
hull tankers by 2015 or earlier, depending on the age of the vessel and whether
or not it complies with requirements for protectively located segregated ballast
tanks. Under these new regulations, which became effective in September 2002,
the maximum permissible age for tankers after 2007 will be 26 years. The new
regulations also provide for increased inspection and verification requirements.
Our tanker is double hulled and therefore complies with the new IMO regulations.
The IMO's International Safety Management Code, or ISM Code, also affects our
operations. The ISM Code requires the party with operational control of a vessel
to develop a safety management system that includes, among other things, the
adoption of a safety and environmental protection policy setting forth
instructions and procedures for operating its vessels safely and describing
procedures for responding to emergencies. Our vessel manager is certified as an
approved ship manager under the ISM Code.
The ISM Code requires that vessel operators obtain a safety management
certificate for each vessel they operate. This certificate evidences compliance
by a vessel's management with ISM Code requirements for a safety management
system. No vessel can obtain a certificate unless its manager has been awarded a
Document of Compliance, issued by each flag state, under the ISM Code. Our
tanker has received its safety management certificate.
Non-compliance with the ISM Code and other IMO regulations may subject the
vessel owner or a bareboat charterer to increased liability, may lead to
decreases in available insurance coverage for affected vessels and may result in
a tankers denial of access to, or detention in, some ports. Both the U.S. Coast
Guard and European Union authorities have indicated that vessels not in
compliance with the ISM Code by the applicable deadlines will be prohibited from
trading in U.S. and European Union ports, as the case may be.
The IMO continues to review and introduce new regulations. It is impossible to
predict what additional regulations, if any, may be passed by the IMO and what
effect, if any, such regulations might have on the operation of oil tankers. As
a result of the oil spill in November 2002 from the loss of the m.t. Prestige,
it is likely that more stringent maritime safety rules will be imposed by the
IMO and other regulatory agencies in the future. The m.t. Prestige was a
26-year-old single hulled tanker owned and operated by a company that is not
affiliated with us.
Environmental Regulation--OPA/CERCLA
The U.S. Oil Pollution Act of 1990, or OPA, established an extensive regulatory
and liability regime for environmental protection and cleanup of oil spills. OPA
affects all owners and operators whose vessels trade with the U.S. or its
territories or possessions, or whose vessels operate in the waters of the U.S.,
which include the U.S. territorial waters and the two hundred nautical mile
exclusive economic zone of the U.S. The Comprehensive Environmental Response,
Compensation and Liability Act, or CERCLA, which also impacts our operations,
applies to the discharge of hazardous substances whether on land or at sea.
Under OPA, vessel owners, operators and bareboat or "demise" charterers are
"responsible parties" who are liable regardless of fault, individually and as a
group, for all containment costs, clean-up costs and for other damages arising
from oil spills from their vessels. These other damages may include injury to
natural resources and real and personal property, loss of subsistence use of
natural resources, the loss of taxes, rents, royalties, profits and earnings
capacity resulting from an oil spill and the cost of public services
necessitated by an oil spill. These "responsible parties" are not liable under
OPA if the spill results solely from the act or omission of a third party, an
act of God or an act of war. OPA limits a responsible party's liability to the
greater of $1,200 per gross ton or $10 million per vessel over 3,000 gross tons,
subject to adjustment for inflation.
CERCLA, which applies to owners and operators of vessels, contains a liability
regime similar to OPA and provides for cleanup, removal and natural resource
damages. Liability under CERCLA is limited to the greater of $300 per gross ton
or $5 million. These limits of liability do not apply, however, where the
incident is caused by violation of applicable U.S. federal safety, construction
or operating regulations, or by the responsible party's gross negligence or
wilful misconduct. These limits do not apply if the responsible party fails or
refuses to report the incident or to co-operate and assist in connection with
the substance removal activities. OPA and CERCLA each preserve the right to
recover damages under existing law, including maritime tort law. We believe that
we are in substantial compliance with OPA, CERCLA and all applicable state
regulations in the ports where our tanker will call.
OPA requires owners and operators of vessels to establish and maintain with the
Coast Guard evidence of financial responsibility sufficient to meet the limit of
their aggregate potential strict liability under OPA and CERCLA. Under the
regulations, evidence of financial responsibility may be demonstrated by
insurance, surety bond, self-insurance or guaranty. Under OPA regulations, an
owner or operator of more than one tanker must demonstrate evidence of financial
responsibility for the entire fleet in an amount equal only to the financial
responsibility requirement of the tanker having the greatest maximum liability
under OPA/CERCLA. Owners or operators of tankers operating in the waters of the
U.S. must also file vessel response plans with the Coast Guard, and their
tankers are required to operate in compliance with their Coast Guard approved
plans.
Under OPA, with limited exceptions, all newly built or converted tankers
operating in U.S. waters must be built with double-hulls. Existing vessels that
do not comply with the double-hull requirement must be phased out over a 20-year
period beginning in 1995 based on size, age and place of discharge, unless
retrofitted with double-hulls. Notwithstanding the phase-out period, OPA
currently permits existing single-hull tankers to operate until the year 2015 if
their operations within U.S. waters are limited to discharging at the Louisiana
Offshore Oil Port or unloading with the aid of another vessel, a process
referred to as "lightering," within authorized lightering zones more than 60
miles offshore.
Environmental Regulation--Other
Although the United States is not a party to these conventions, many countries
have ratified and follow the liability plan adopted by the IMO and set out in
the International Convention on Civil Liability for Oil Pollution Damage of 1969
and the Convention for the Establishment of an International Fund for Oil
Pollution of 1971. Under these conventions, and depending on whether the country
in which the damage results is a party to the 1992 Protocol to the International
Convention on Civil Liability for Oil Pollution Damage, a vessel's registered
owner is strictly liable for pollution damage caused in the territorial waters
of a contracting state by discharge of persistent oil, subject to certain
complete defences. Under an amendment that will come into effect November 1,
2003 for vessels of 5,000 to 140,000 gross tons (a unit of measurement for the
total enclosed spaces within a vessel), liability will be limited to
approximately $6.1 million plus $858 for each additional gross ton over 5,000.
For vessels of over 140,000 gross tons, liability will be limited to
approximately $122.1 million. The current maximum amount is approximately $81.2
million. The right to limit liability is forfeited under the International
Convention on Civil Liability for Oil Pollution Damage where the spill is caused
by the owner's actual fault and under the 1992 Protocol where the spill is
caused by the owner's intentional or reckless conduct. In jurisdictions where
the International Convention on Civil Liability for Oil Pollution Damage has not
been adopted, various legislative schemes or common law governs, and liability
is imposed either on the basis of fault or in a manner similar to that
convention. We believe that our P&I insurance covers the liability under the
plan adopted by the IMO.
The European Union is considering legislation that would: (1) ban manifestly
sub-standard vessels (defined as those over 15 years old that have been detained
by port authorities at least twice in a six month period) from European waters
and create an obligation of port states to inspect vessels posing a high risk to
maritime safety or the marine environment; (2) provide the European Commission
with greater authority and control over classification societies, including the
ability to seek to suspend or revoke the authority of negligent societies; and
(3) accelerate the phasing in of double-hull tankers on the same schedule as
that required under OPA. The European Union adopted a legislative resolution
confirming an accelerated phase-out schedule for single-hull tankers in line
with the schedule adopted by the IMO. Italy announced a ban of single-hull crude
oil tankers over 5,000 dwt from most Italian ports, effective April 2001.
In addition, most U.S. states that border a navigable waterway have enacted laws
that impose strict liability for clean-up costs and damages resulting from a
discharge of oil or a release of a hazardous substance. As permitted by OPA,
these state laws may provide for unlimited liability for oil spills occurring
within their boundaries.
Organisational Structure
As described above, and also in Item 7. Major Shareholders, and Related Party
Transactions, the Company is a wholly owned subsidiary of California Tankers
International Limited, a company organized under the laws of the Bahamas, which
is a wholly-owned subsidiary of ITC. Hemen ultimately controls the Company as
described in more detail in Item 4.
Property, Plants and Equipment
Other than the Vessel described above, the Company does not have any property.
Item 5. Operating and Financial Review and Prospects
Operating results
Year ended December 31, 2002 compared with the year ended December 31, 2001
Total Revenues
Finance lease interest income for the year ended December 31, 2002 amounted to
$3,856,000, compared with $4,282,000 for the year ended December 31, 2001.
Interest income has fallen in line with expectations. As the value of the
finance lease falls on an annual basis, so does the interest received on the
finance leases.
Expenses
Interest payable on the Term Loans and the Serial Loans amounted to $3,824,000
for the year ended December 31, 2002. The amortization of discount on loans for
the period amounted to $74,000. The Company amortises the discount over the life
of the Term and Serial Loans. The corresponding figures for the period to
December 31, 2001 were $4,213,000 and $73,000, respectively. Interest payable
has fallen in line with expectations, with interest payable falling in line with
the loan outstanding in the year.
Year ended December 31, 2001 compared with the year ended December 31, 2000
Total Revenues
Finance lease interest income for the year ended December 31, 2001 amounted to
$4,282,000, compared with $4,705,000 for the year ended December 31, 2000.
Interest income has fallen in line with expectations. As the value of the
finance lease falls on an annual basis, so does the interest received on the
finance leases.
Expenses
Interest payable on the Term Loans and the Serial Loans amounted to $4,213,000
for the year ended December 31, 2001. The amortization of discount on loans for
the period amounted to $73,000. The Company amortises the discount over the life
of the Term and Serial Loans. The corresponding figures for the period to
December 31, 2000 were $4,600,000 and $73,000, respectively. Interest payable
has fallen in line with expectations, with interest payable falling in line with
the loan outstanding in the year.
Liquidity and Capital Resources
As set forth above, revenues from the Initial Charter are sufficient to pay the
Company's obligations under the Term and Serial Loans. The Initial Charterer may
elect to terminate the Charter on specified termination dates commencing in
2005. If the Charter is terminated by the Initial Charterer, the Manager, acting
on behalf of the Company, will attempt to find an acceptable replacement charter
for the Vessel. If an acceptable replacement charter is commercially
unavailable, the Manager will solicit bids for the sale or recharter of the
Vessel. The Manager's ability to obtain an acceptable replacement charter, to
sell the Vessel or recharter the Vessel will depend on market rates for new and
used vessels, both of which will depend on the supply of and demand for tanker
capacity for oil transportation, and the advantages or disadvantages of the
Vessel compared with other vessels available at the time.
Critical Accounting Policies
The Company's principal accounting policies are described in Note 2 to the
financial statements, which is included in Item 18 of this Form 20-F. The most
critical accounting policies include:
o Accounting for financing leases as lessor
o Revenue and expense recognition
Trend Information
It is expected that as the Vessel ages, the charger income will be reduced. In
line with this effect, the interest payable on the Serial and Term Loans
financing the ship will also be reduced as the principal is repaid. Thus, there
is a consistent reduction in income, expenses and net assets employed by the
Company. However the ompany will continue to remain profitable and cash flows
will be adequate to service the debt load. Clearly there will always be some
uncertainty within the business because of the nature of the tanker business but
over the past life of the company the charter rates have been at a level such
that the company has made profits. The structure of debt and charterhire
agreements, including provision for early termination, provides the company with
a clear future.
Recently Issued Accounting Standards
In June 2001, the U.S. Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations," (SFAS 141) which requires the application of
the purchase method in accounting for business combinations including the
identification of the acquiring enterprise for each transaction. SFAS 141
applies to all business combinations initiated after June 30, 2001 and all
business combinations accounted for by the purchase methods that are completed
after June 30, 2001. The adoption of SFAS No. 141 by the Company did not have
any impact on the Company's financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142). SFAS 142 applies to all acquired intangible assets whether
acquired singly, as part of a group, or in a business combination. The adoption
of SFAS 142 by the Company on January 1, 2002 did not have any impact on the
Company's financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for the Asset Retirement
Obligations" (SFAS 143). Under SFAS 143, an entity shall recognize the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred if a reasonable estimate of fair value can be made. If a
reasonable estimate of fair value cannot be made in the period the asset
retirement obligation is incurred, the liability shall be recognized when a
reasonable estimate of fair value can be made. Upon initial recognition of a
liability for an asset retirement obligation, an entity shall capitalize an
asset retirement cost by increasing the carrying amount of the related
long-lived asset by the same amount as the liability. An entity shall
subsequently allocate that asset retirement cost to expense using a systematic
and rational method over its useful life. SFAS No. 143 is effective for fiscal
years beginning after December 15, 2002. Management does not expect that the
adoption of SFAS 143 on January 1, 2003 will have a material effect on the
Company's financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 requires that long-lived
assets that are to be disposed of by sale be measured at the lower of book value
or fair value less costs to sell. Additionally, the standard expands the scope
of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and will be
eliminated from the ongoing operations of the entity in a disposal transaction.
The adoption of SFAS 144 on January 1, 2002 did not have any impact on the
Company's financial statements.
In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). Fin 45 elaborates on the existing disclosure
requirements for most guarantees, including loan guarantees such as standby
letters of credit. It also clarifies that at the time a company issues a
guarantee, the company must recognize an initial liability for the fair value,
or market value, of the obligations it assumes under the guarantee and must
disclose that information in its interim and annual financial statements.. The
initial recognition and initial measurement provisions apply on a prospective
basis to guarantees issued or modified after December 31, 2002. Management
believes that adoption of the recognition and measurement provisions of FIN 45
will not have a material impact on its financial statements.
In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable
Interest Entities" (FIN 46). FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after January 31, 2003. The consolidation requirements apply to older entities
in the first fiscal year or interim period beginning after June 15, 2003.
Certain of the disclosure requirements apply in all financial statements issued
after January 31, 2003, regardless of when the variable interest entity was
established. Management believes that adoption of FIN 46 will not have a
material impact on its financial statements.
Item 6. Directors, Senior Management and Employees
Directors and Executive Officers of CalPetro Tankers (IOM) Limited
Age Position
Tor Olav Troim 40 Director and President
Kate Blankenship 38 Director and Secretary
John Michael Killip 59 Director
Tor Olav Troim has been a Director of CalPetro Tankers (IOM) Limited since
October 31, 2001. Mr. Troim serves as a Director and Vice President of Frontline
Ltd. Mr. Troim also serves as a director of Knightsbridge Tankers Limited,
Northern Offshore Ltd, Golar LNG Limited (all Bermudian public listed
companies), Northern Oil ASA and Aktiv Inkasso ASA (both Norwegian public listed
companies).
Kate Blankenship has been a Director of CalPetro Tankers (IOM) Limited since
October 31, 2001. Mrs. Blankenship is Chief Accounting Officer and Secretary of
Frontline Ltd. Prior to joining Frontline she was a Manager with KPMG Peat
Marwick in Bermuda. Mrs. Blankenship is a member of the Institute of Chartered
Accountants in England and Wales.
John Michael Killip has been a non-executive Isle of Man resident Director since
October 31, 2001. Mr. Killip is a manager with Equity Limited, the corporate
service provider owned by Cains Advocates Limited, Isle of Man, who are legal
advisers to the Company and as such are entitled to charge for professional
advice and services. He has been in a managerial capacity with Cains Advocates
Limited/Equity Limited for over 10 years.
Compensation
During the year ended December 31, 2002, the Company paid to its directors and
officers total compensation of $nil.
Board Practices
The directors have no fixed date of expiry of their term of office. The details
of their service are shown above. The directors have no entitlement to any
benefits on termination of their office.
The Company has neither an audit nor a remuneration committee.
Employees
There are no employees apart from the directors detailed above.
Share Ownership
The directors have no interest in the share capital of the Company, nor do they
have any arrangements for involvement in the company's capital.
Item 7. Major Shareholders and Related Party Transactions
Major Shareholders
The Company is a wholly-owned subsidiary of California Tankers International
Limited, a company organized under the laws of the Bahamas, which is a
wholly-owned subsidiary of ITC. Hemen ultimately controls the Company as
described in more detail in Item 4. All the issued and outstanding shares of
capital stock of the Company are beneficially owned by ITC and have been pledged
to the Chase Manhattan Trust Company of California (the "Collateral Trustee") as
part of the collateral for the Notes. ITC has full voting control over the
Company subject to the rights of the Collateral Trustee.
Significant changes in ownership have been disclosed in item 4, there are no
known arrangements, which may lead to a change in control of the company.
Related Party Transactions
CalPetro Holdings Limited, as disclosed in Item 4, beneficially owns the Serial
and Term Loan. In addition Frontline Ltd, a company related by common control,
manages the Company. In 2002, $67,778 was paid to Frontline Ltd for management
of the Owners.
Item 8. Financial Information
Consolidated Financial Statements and Notes
See Item 18 below.
Item 9. The Offer and Listing
Not applicable.
Item 10. Additional Information
Memorandum and Articles of Association
The Company is No. 68060 in the Isle of Man register.
Directors may be interested in company transactions but such interest should be
disclosed to the other directors or company members prior to agreement by the
board or company meeting as appropriate. The director concerned may not vote on
the transaction. The directors may borrow on behalf of the Company as they think
fit. There are no stated age limits for directors and directors need not be
stockholders. They do not retire by rotation.
All shares issued are unclassified, there is no authorisation in force to issue
other classes of share. Consequently all shares have equal entitlement to voting
rights, dividends, profit shares and other rights and duties. Should any
dividend be declared and not claimed the directors may, after a period of three
years, resolve that such dividends are forfeit for the benefit of the company.
There are no provisions for changes to the rights of stockholders contained in
the articles, except that by resolution of the directors the authorised capital
may be increased and that the company may divide or combine shares within the
same class.
Company meetings may be convened by the directors or held on request of members
holding 50% of the voting shares. Annual meetings are held according to Isle of
Man law. Members, their properly appointed proxies and corporate members
representatives are entitled to attend.
There are no limits to ownership of Company securities or to the exercise of
voting rights. Disclosure of ownership is governed by Isle of Man law and any
laws operative in the jurisdictions pertaining to the owners of the securities.
The directors of the company may, without giving a reason, decline to register a
transfer of shares.
Material Contracts
The company has no material contracts apart from those pertaining to its normal
business.
Exchange Controls
The Company was registered under the Isle of Man Income Tax (Exempt Companies)
Act 1994 (the "Exempt Companies Act") in May 1984. Interests in the Registered
Securities may be freely transferred among non-residents of the Isle of Man
under Isle of Man Law. There are no Exchange Control regulations in the Isle of
Man.
There are no restrictions upon the payment of foreign currency dividends
interest or other payments in respect of the Registered Securities.
None of the Company's Articles of Association, Memorandum of Association or any
other document, nor any Isle of Man law or, to the knowledge of the Company, any
foreign law, imposes limitations on the right of non-residents or foreign owners
to hold the Company's share of common stock.
Taxation
Under the Exempt Companies Act, the Company is exempt from any Isle of Man
income tax, or any other tax on income of distributions accruing to or derived
for the Company, or in connection with any transactions with the Company, or any
shareholders.
No estate, inheritance, succession, or gift tax, rate, duty, levy or other
charge is payable in the Isle of Man with respect to any shares, debt
obligations or other securities of the Company.
There is no reciprocal tax treaty between the Isle of Man and the United States.
Documents on Display
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements we file
reports and other information with the Securities and Exchange Commission. These
materials, including this annual report and the accompanying exhibits may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
500 West Madison Street, Suite 1400, Northwestern Atrium Center, Chicago,
Illinois 60661. You may obtain information on the operation of the public
reference room by calling 1 (800) SEC-0330, and you may obtain copies at
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. 20549. The SEC maintains a website
(http://www.sec.gov.) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC. In addition, documents referred to in this annual report may be inspected
at the office of the Manager at Par-la-Ville Place 4th Floor, 14 Par-la-Ville
Road, Hamilton, Bermuda and at 15-19 Athol Street, Douglas, Isle of Man.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Quantitative information about market risk
Quantitative information about market risk instruments at December 31, 2002 is
as follows:
i) Serial Loans:
The principal balances of the Serial Loans bear interest at rates ranging from
7.55% to 7.60% and mature over a three-year period beginning April 1, 2003. The
loans are reported net of the related discounts, which are amortized over the
term of the loans. The outstanding serial loans have the following
characteristics:
Principal due
Maturity date Interest rate ($ 000's)
- ------------- ------------- ---------
April 1, 2003 7.55% 5,210
April 1, 2004 7.57% 5,210
April 1, 2005 7.60% 5,210
15,630
ii) Term Loans:
The Term Loans bear interest at a rate of 8.52% per annum. Interest is payable
semi-annually on April 1 and October 1. Principal is repayable on the Term Loans
in accordance with a twelve-year sinking fund schedule.
The table below provides the revised scheduled sinking fund redemption amounts
and final principal payment of the Allocated Principal Amount of the Term Loans
following termination of the related Initial Charter on each of the optional
termination dates.
Scheduled Charter not Charter Charter Charter Charter
payment date terminated terminated terminated terminated terminated
2005 2007 2009 2011
$'000 $'000 $'000 $'000 $'000
- --------------------------------------------------------------------------------
April 1, 2006 2,984 1,540 2,984 2,984 2,984
April 1, 2007 2,984 1,670 2,984 2,984 2,984
April 1, 2008 2,984 1,810 1,560 2,984 2,984
April 1, 2009 2,984 1,970 1,690 2,984 2,984
April 1, 2010 2,984 2,130 1,830 1,470 2,984
April 1, 2011 2,984 2,320 1,990 1,590 2,984
April 1, 2012 2,984 2,510 2,160 1,730 1,090
April 1, 2013 2,984 2,730 2,340 1,880 1,180
April 1, 2014 2,984 2,960 2,540 2,030 1,280
April 1, 2015 2,986 10,202 9,764 9,206 8,388
- --------------------------------------------------------------------------------
29,842 29,842 29,842 29,842 29,842
- --------------------------------------------------------------------------------
Qualitative information about market risk
The Company was organised solely for the purpose of the acquisition of one
Vessel and subsequently entered into a long-term agreement between the Company
and Chevron Transport Corporation.
Item 12. Description of Securities Other than Equity Securities
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
Not applicable.
Item 15. 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
principal financial officer, 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
principal financial officer 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.
Item 16. Reserved
PART III
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
The following financial statements and notes, together with the report of Ernst
& Young, Independent Auditors thereon, are filed as part of this annual report
Page
Report of Independent Auditors F-1
Statements of Operations and Retained Earnings
for the Years Ended December 31, 2002, 2001 and 2000 F-2
Balance Sheets as of December 31, 2002 and 2001 F-3
Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000 F-4
Notes to Financial Statements F-5
Item 19. Exhibits
1.1* Certificate of Incorporation and Memorandum of Association of CalPetro
Tankers (IOM) Limited, incorporated by reference to Exhibit 3.3 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
1.2* Articles of Association of CalPetro Tankers (IOM) Limited, incorporated by
reference to Exhibit 3.4 in the Registration Statement of CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers
(Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994
on Forms S-3, S-1 and F-1, Registration No. 33-79220.
2.1* Form of Term Indenture between California Petroleum Transport Corporation
and Chemical Trust Company of California, as Indenture Trustee, incorporated by
reference to Exhibit 4.1 in the Registration Statement of CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers
(Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994
on Forms S-3, S-1 and F-1, Registration No. 33-79220.
2.2* Form of Term Mortgage Notes, incorporated by reference to Exhibit 4.2 in
the Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro
Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and
CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
2.3* Form of Bahamian Statutory Ship Mortgage and Deed of Covenants by [CalPetro
Tankers (Bahamas I) Limited], [CalPetro Tankers (Bahamas II) Limited] to
California Petroleum Transport Corporation (including the form of assignment of
such Mortgage to Chemical Trust Company of California, as Collateral Trustee, by
California Petroleum Transport Corporation), incorporated by reference to
Exhibit 4.4 in the Registration Statement of CalPetro Tankers (Bahamas I)
Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III)
Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3,
S-1 and F-1, Registration No. 33-79220.
2.4* Form of Assignment of Initial Charter Guarantee by [CalPetro Tankers
(Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers
(IOM) Limited] [CalPetro Tankers (Bahamas III) Limited] to California Petroleum
Transport Corporation (including the form of Collateral Assignment of such
Initial Charter Guarantee to Chemical Trust Company of California, as Collateral
Trustee, by California Petroleum Transport Corporation), incorporated by
reference to Exhibit 4.7 in the Registration Statement of CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers
(Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994
on Forms S-3, S-1 and F-1, Registration No. 33-79220.
2.5* Form of Assignment of Earnings and Insurances from [CalPetro Tankers
(Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers
(IOM) Limited] [CalPetro Tankers (Bahamas III) Limited] to California Petroleum
Transport Corporation, incorporated by reference to Exhibit 4.8 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
2.6* Form of Assignment of Initial Charter from [CalPetro Tankers (Bahamas I)
Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM)
Limited[ [CalPetro Tankers (Bahamas III) Limited] to California Petroleum
Transport Corporation (including the form of Collateral Assignment of such
Initial Charter to Chemical Trust Company of California, as Collateral Trustee,
by California Petroleum Transport Corporation), incorporated by reference to
Exhibit 4.9 in the Registration Statement of CalPetro Tankers (Bahamas I)
Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III)
Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3,
S-1 and F-1, Registration No. 33-79220.
2.7* Form of Management Agreement between P.D. Gram & Co., A.S., and [CalPetro
Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro
Tankers (IOM) Limited] [CalPetro Tankers (Bahamas III) Limited], incorporated by
reference to Exhibit 4.10 in the Registration Statement of CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers
(Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994
on Forms S-3, S-1 and F-1, Registration No. 33-79220.
2.8* Form of Assignment of Management Agreement from [CalPetro Tankers (Bahamas
I) Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM)
Limited] [CalPetro Tankers (Bahamas III) Limited], incorporated by reference to
Exhibit 4.11 in the Registration Statement of CalPetro Tankers (Bahamas I)
Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III)
Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3,
S-1 and F-1, Registration No. 33-79220.
2.9* Form of Serial Loan Agreement between California Petroleum Transport
Corporation and [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers
(Bahamas II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers
(Bahamas III) Limited], incorporated by reference to Exhibit 4.12 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
2.10* Form of Term Loan Agreement between California Petroleum Transport
Corporation and [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers
(Bahamas II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers
(Bahamas III) Limited], incorporated by reference to Exhibit 4.13 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
2.11* Form of Collateral Agreement between California Petroleum Transport
Corporation [CalPetro Tankers (Bahamas I) Limited] [CalPetro Tankers (Bahamas
II) Limited] [CalPetro Tankers (IOM) Limited] [CalPetro Tankers (Bahamas III)
Limited], the Indenture Trustee under the Serial Indenture, the Indenture
Trustee under the Term Indenture and Chemical Trust Company of California, as
Collateral Trustee, incorporated by reference to Exhibit 4.14 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
2.12* Form of Issue of One Debenture from [CalPetro Tankers (Bahamas I) Limited]
[CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM) Limited]
[CalPetro Tankers (Bahamas III) Limited] to California Petroleum Transport
Corporation, incorporated by reference to Exhibit 4.15 in the Registration
Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II)
Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro Tankers (IOM)
Limited filed November 9, 1994 on Forms S-3, S-1 and F-1, Registration No.
33-79220.
4.1* Form of Initial Charter Guarantee by Chevron Corporation, incorporated by
reference to Exhibit 10.1 in the Registration Statement of CalPetro Tankers
(Bahamas I) Limited, CalPetro Tankers (Bahamas II) Limited, CalPetro Tankers
(Bahamas III) Limited, and CalPetro Tankers (IOM) Limited filed November 9, 1994
on Forms S-3, S-1 and F-1, Registration No. 33-79220.
4.2* Form of Bareboat Initial Charter between [CalPetro Tankers (Bahamas I)
Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM)
Limited] [CalPetro Tankers (Bahamas III) Limited] and Chevron Transport
Corporation, incorporated by reference to Exhibit 10.2 in the Registration
Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas II)
Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro Tankers (IOM)
Limited filed November 9, 1994 on Forms S-3, S-1 and F-1, Registration No.
33-79220.
4.3* Form of Vessel Purchase Agreement between [CalPetro Tankers (Bahamas I)
Limited] [CalPetro Tankers (Bahamas II) Limited] [CalPetro Tankers (IOM)
Limited] [CalPetro Tankers (Bahamas III) Limited] and Chevron Transport
Corporation (including the form of Assignment of such Vessel Purchase Agreement
to California Petroleum Transport), incorporated by reference to Exhibit 10.3 in
the Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro
Tankers (Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and
CalPetro Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
10.1* Powers of Attorney for directors and certain officers of CalPetro Tankers
(Bahamas II) Limited, incorporated by reference to Exhibit 24.1 in the
Registration Statement of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited, and CalPetro
Tankers (IOM) Limited filed November 9, 1994 on Forms S-3, S-1 and F-1,
Registration No. 33-79220.
99.1 Certification of the Company's Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Company's Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
99.3 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Incorporated by reference to the filing indicated.
SIGNATURES
Subject to the requirements of Section 13 or 15(d) 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.
CalPetro Tankers (IOM) Limited
/s/ Kate Blankenship
--------------------
Kate Blankenship
Director
(Chief Financial Officer)
Date: June 30, 2003
Report of Independent Auditors
To the Board of Directors
CalPetro Tankers (IOM) Limited
We have audited the accompanying balance sheets of CalPetro Tankers (IOM)
Limited as of December 31, 2002 and 2001, and the related statements of
operations and retained earnings, and cash flows for each of the three years in
the period ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 financial statements referred to above present fairly, in
all material respects, the financial position of CalPetro Tankers (IOM) Limited
at December 31, 2002 and 2001, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
Ernst & Young
Chartered Accountants
Douglas, Isle of Man
June 30, 2003
CalPetro Tankers (IOM) Limited
Statements of Operations and Retained Earnings
(in thousands of US$)
Year Year Year
ended ended ended
December December December
31, 2002 31, 2001 31, 2000
-------- -------- --------
Revenues
Finance lease interest receivable 3,856 4,282 4,705
Bank interest receivable 97 102 108
Recognition of unearned income 73 73 73
- --------------------------------------------------------------------------------
Net operating revenues 4,026 4,457 4,886
- --------------------------------------------------------------------------------
Expenses
General and
administrative expenses (58) (68) (55)
Amortization of loan discount (74) (73) (73)
Interest expense (3,824) (4,213) (4,600)
- --------------------------------------------------------------------------------
Net other expenses (3,956) (4,354) (4,728)
- --------------------------------------------------------------------------------
Net income 70 103 158
================================================================================
Retained earnings at the
start of the year 1,567 1,464 1,306
- --------------------------------------------------------------------------------
Retained earnings at
the end of the year 1,637 1,567 1,464
================================================================================
See accompanying Notes to the Financial Statements
CalPetro Tankers (IOM) Limited
Balance Sheets
(in thousands of US$)
As at As at
December December
31, 2002 31, 2001
-------- --------
Assets
Current assets:
Cash and cash equivalents 2,906 2,883
Current portion of net investment
in finance lease 5,214 5,178
Interest receivable 910 1,017
Other current assets 69 45
- --------------------------------------------------------------------------------
Total current assets 9,099 9,123
Net investment in finance lease,
less current portion 38,515 43,656
Loan discount, net of amortization 435 509
- --------------------------------------------------------------------------------
Total assets 48,049 53,288
================================================================================
Liabilities and stockholder's equity
Current liabilities:
Accrued interest 932 1,029
Current portion of serial loans 5,210 5,210
Other current liabilities 7 9
- -------------------------------------------------------------------------------
Total current liabilities 6,149 6,248
Long-term loans 40,262 45,472
- -------------------------------------------------------------------------------
Total liabilities 46,411 51,720
- -------------------------------------------------------------------------------
Stockholder's equity:
Common stock: 2 shares of $500
par value 1 1
Retained earnings 1,637 1,567
- -------------------------------------------------------------------------------
Total stockholder's equity 1,638 1,568
- -------------------------------------------------------------------------------
Total liabilities and
stockholder's equity 48,049 53,288
================================================================================
See accompanying Notes to the Financial Statements
CalPetro Tankers (IOM) Limited
Statements of Cash Flows
(in thousands of US$)
Year Year Year
ended ended ended
December December December
31, 2002 31, 2001 31, 2000
-------- -------- --------
Cash flows from operating activities:
Net income 70 103 158
Adjustments to reconcile net
income to net cash provided by
operating activities:
Amortization of discount on loans 74 73 73
Recognition of unearned income (73) (73) (73)
Changes in assets and liabilities:
Decrease in interest receivable 107 106 105
Increase in other current assets (24) - -
Decrease in accrued interest (97) (41) (111)
Decrease in other current liabilities (2) - (5)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 55 168 147
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Finance lease payments received 5,178 5,142 5,105
- --------------------------------------------------------------------------------
Net cash provided by
investing activities 5,178 5,142 5,105
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Repayments of Serial Loans (5,210) (5,210) (5,210)
- --------------------------------------------------------------------------------
Net cash used in financing activities (5,210) (5,210) (5,210)
- --------------------------------------------------------------------------------
Net increase in cash and cash equivalents 23 100 42
Cash and cash equivalents at start of
the year 2,883 2,783 2,741
- --------------------------------------------------------------------------------
Cash and cash equivalents at end of
the year 2,906 2,883 2,783
================================================================================
Supplemental disclosure of cash flows information:
Interest paid 3,865 4,324 4,707
See accompanying Notes to the Financial Statements.
CalPetro Tankers (IOM) Limited
Notes to the Financial Statements
1. Basis of Preparation
The Company, was incorporated in the Isle of Man on May 13, 1994 with three
other entities: CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers (Bahamas
II) Limited and CalPetro Tankers (Bahamas III) Limited, each of which is
incorporated in the Bahamas. Each of the entities (the "Owners") has been
organized as a special purpose company for the purpose of acquiring one of four
oil tankers (each a "Vessel", together the "Vessels") from Chevron Transport
Corporation (the "Initial Charterer") and for which long-term charter agreements
have been signed with the Initial Charterer. California Petroleum Transport
Corporation acting as agent on behalf of the Owners issued as full recourse
obligations Term Mortgage Notes and Serial Mortgage Notes (the Serial and Term
Loans), and subsequently loaned the proceeds to the Owners to fund the
acquisition of the Vessels from the Initial Charterer.
The charter agreements with the Initial Charterer are expected to provide
sufficient payments to cover the Owners' obligations under the Serial and Term
Loans due to California Petroleum Transport Corporation. The Initial Charterer
can terminate a charter at specified dates prior to the expiration of the
charter, provided it provide notification at least 12 months prior so such
termination date and make a Termination Payment. The Owners only source of funds
with respect to the Serial and Term Loans is payments from the Initial
Charterer, including Termination Payments. The Owners do not have any other
source of funds for payment of the Serial and Term Loans.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP).
2. Principal Accounting Policies
A summary of the Company's accounting policies, is set out below.
(a) Finance lease and revenue recognition
The long-term charter agreement between the Company and the Initial
Charterer subsequently transfers all the risks and rewards associated
with ownership, other than legal title and contains bargain purchase
options. As such it is classified as a direct financing lease in
accordance with Statement of Financial Accounting Standards No. 13.
Accordingly, the minimum payments under the charter agreement are
recorded as the gross investment in the finance lease. The difference
between the gross investment in the finance lease and the cost of the
Vessel is recorded as unearned income. Throughout the term of the
charter agreement, the Company records as revenue interest income and
unearned income, which is amortized to income over the life of the
charter agreement as to produce a constant periodic rate of return on
the net investment in the finance lease.
(b) Interest payable recognition
Interest payable on the Serial and Term Loans is accrued on a daily
basis.
(c) Discount on loans
Discount on issue of the long-term debt which comprises the Serial and
Term Loans is being amortized over the respective periods to maturity
of the debt as described in Note 5.
(d) Income taxes
The Company is not liable to pay income taxes in the Isle of Man.
(e) Cash equivalents
The Company considers all highly liquid investments with a maturity
date of three months or less when purchased to be cash equivalents.
(f) Reporting currency
The reporting currency is United States dollars. The functional
currency is United States dollars.
(g) Use of estimates
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires the
Company to make estimates and assumptions in determining the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities on the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from these estimates.
3. New Accounting Standards
In June 2001, the U.S. Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations," (SFAS 141) which requires the application of
the purchase method in accounting for business combinations including the
identification of the acquiring enterprise for each transaction. SFAS 141
applies to all business combinations initiated after June 30, 2001 and all
business combinations accounted for by the purchase methods that are completed
after June 30, 2001. The adoption of SFAS No. 141 by the Company did not have
any impact on the Company's financial statements.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142). SFAS 142 applies to all acquired intangible assets whether
acquired singly, as part of a group, or in a business combination. The adoption
of SFAS 142 by the Company on January 1, 2002 did not have any impact on the
Company's financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for the Asset Retirement
Obligations" (SFAS 143). Under SFAS 143, an entity shall recognize the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred if a reasonable estimate of fair value can be made. If a
reasonable estimate of fair value cannot be made in the period the asset
retirement obligation is incurred, the liability shall be recognized when a
reasonable estimate of fair value can be made. Upon initial recognition of a
liability for an asset retirement obligation, an entity shall capitalize an
asset retirement cost by increasing the carrying amount of the related
long-lived asset by the same amount as the liability. An entity shall
subsequently allocate that asset retirement cost to expense using a systematic
and rational method over its useful life. SFAS No. 143 is effective for fiscal
years beginning after December 15, 2002. Management does not expect that the
adoption of SFAS 143 on January 1, 2003 will have a material effect on the
Company's financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 requires that long-lived
assets that are to be disposed of by sale be measured at the lower of book value
or fair value less costs to sell. Additionally, the standard expands the scope
of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and will be
eliminated from the ongoing operations of the entity in a disposal transaction.
The adoption of SFAS 144 on January 1, 2002 did not have any impact on the
Company's financial statements.
In November 2002, the FASB issued Interpretation 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). Fin 45 elaborates on the existing disclosure
requirements for most guarantees, including loan guarantees such as standby
letters of credit. It also clarifies that at the time a company issues a
guarantee, the company must recognize an initial liability for the fair value,
or market value, of the obligations it assumes under the guarantee and must
disclose that information in its interim and annual financial statements. The
initial recognition and initial measurement provisions apply on a prospective
basis to guarantees issued or modified after December 31, 2002. Management
believes that adoption of the recognition and measurement provisions of FIN 45
will not have a material impact on its financial statements.
In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable
Interest Entities" (FIN 46). FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after January 31, 2003. The consolidation requirements apply to older entities
in the first fiscal year or interim period beginning after June 15, 2003.
Certain of the disclosure requirements apply in all financial statements issued
after January 31, 2003, regardless of when the variable interest entity was
established. Management believes that adoption of FIN 46 will not have a
material impact on its financial statements.
4. Finance Lease
The following schedule lists the components of the net investment in finance
lease:
As at As at
December December
31, 2002 31, 2001
-------- --------
$'000 $'000
Total minimum lease payments to be received* 44,162 49,342
Less: Unearned income (433) (507)
Net investment in finance lease 43,729 48,835
* Lease payments under the charter agreement for each of the five succeeding
years are as follows: $5,214,000 in 2003, $5,251,000 in 2004, $24,204,000 in
2005, $3,094,000 in 2006 and $3,096,000 in 2007.
5. Long-Term Loans
As at As at
December December
31, 2002 31, 2001
-------- --------
Serial Loans 15,630 20,840
Term Loans 29,842 29,842
- --------------------------------------------------------------------------------
45,472 50,682
Less: current portion 5,210 5,210
- --------------------------------------------------------------------------------
40,262 45,472
================================================================================
Serial Loans
The serial loans have the following characteristics:
Principal due
Maturity date Interest rate ($ 000's)
- ------------- ------------- ---------
April 1, 2003 7.55% 5,210
April 1, 2004 7.57% 5,210
April 1, 2005 7.60% 5,210
- --------------------------------------------------------------------------------
15,630
================================================================================
Interest is payable semi-annually on April 1 and October 1.
Term Loans
The Term Loans bear interest at a rate of 8.52% per annum. Interest is payable
semi-annually on April 1 and October 1. Principal is repayable on the Term Loans
in accordance with a twelve-year sinking fund schedule.
The tables below provide the revised scheduled sinking fund redemption amounts
and final principal payment of the Allocated Principal Amount of the Term Loans
following termination of the related Initial Charter on each of the optional
termination dates.
Scheduled Charter not Charter Charter Charter Charter
payment date terminated terminated terminated terminated terminated
2005 2007 2009 2011
$'000 $'000 $'000 $'000 $'000
- -------------------------------------------------------------------------------
April 1, 2006 2,984 1,540 2,984 2,984 2,984
April 1, 2007 2,984 1,670 2,984 2,984 2,984
April 1, 2008 2,984 1,810 1,560 2,984 2,984
April 1, 2009 2,984 1,970 1,690 2,984 2,984
April 1, 2010 2,984 2,130 1,830 1,470 2,984
April 1, 2011 2,984 2,320 1,990 1,590 2,984
April 1, 2012 2,984 2,510 2,160 1,730 1,090
April 1, 2013 2,984 2,730 2,340 1,880 1,180
April 1, 2014 2,984 2,960 2,540 2,030 1,280
April 1, 2015 2,986 10,202 9,764 9,206 8,388
- --------------------------------------------------------------------------------
29,842 29,842 29,842 29,842 29,842
================================================================================
The Term and Serial Loans are collateralized by first preference mortgage on the
Vessel to California Petroleum Transport Corporation. The earnings and insurance
relating to the Vessel have been collaterally assigned pursuant to an Assignment
of Earnings and Insurance to California Petroleum Transport Corporation, which
in turn has assigned such Assignment of Earnings and Insurance to the Collateral
Trustee. The Initial Charter and Chevron Guarantee relating to the Vessel have
been collaterally assigned pursuant to the Assignment of Initial Charter and
Assignment of Initial Charter Guarantee to California Petroleum Transport
Corporation, which in turn has assigned such Assignment to the Collateral
Trustee. The Capital Stock of the Company has been pledged to California
Petroleum Transport Corporation pursuant to the Stock Pledge Agreement.
02089-0006.413436v1