UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2004
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Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 033-79220
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California Petroleum Transport Corporation
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(Exact name of registrant as specified in its charter)
Delaware 04-3232976
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(State or other jurisdiction of (I.R.S.Employer Identification No.)
incorporation or organization)
Suite 3218, One International Place, Boston, Massachusetts 02110-2624
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(Address of principal executive offices) (Zip Code)
(617) 951-7690
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed
since last report)
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. [X] Yes [_] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2) of the Exchange Act) [_] Yes [X] No
Number of shares outstanding of each class of Registrant's Common Stock as of
October 26, 2004
Common, $1.00 par value............................................1,000 shares
California Petroleum Transport Corporation
Quarterly Report on Form 10-Q
Nine month period ended September 30, 2004
Index
Part I Financial Information
Item 1 Financial Statements
Review Report of Independent Registered Public Accounting Firm
Unaudited Condensed Statements of Operations and Retained Earnings -
Three and Nine Month Periods Ended September 30, 2004 and 2003
Unaudited Condensed Balance Sheets - September 30, 2004 and December
31, 2003
Unaudited Condensed Statements of Cash Flows - Nine Month Periods
Ended September 30, 2004 and 2003
Unaudited Notes to Condensed Financial Statements
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3 Quantitative and Qualitative Disclosures about Market Risk
Item 4 Controls and Procedures
Part II Other Information
Item 6 Exhibits and Reports on Form 8-K
Signatures
Omitted items are not applicable
California Petroleum Transport Corporation
Quarterly Report on Form 10-Q
Nine month period ended September 30, 2004
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Review Report of Independent Registered Public Accounting Firm
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF CALIFORNIA PETROLEUM TRANSPORT
CORPORATION
We have reviewed the condensed balance sheet of California Petroleum Transport
Corporation as of September 30, 2004, and the related condensed statements of
operations and retained earnings for the three and nine month periods ended
September 30, 2004 and 2003, and the condensed statements of cash flows for the
nine month periods ended September 30, 2004 and 2003. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with the standards of the Public Company Accounting Oversight Board, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed financial statements referred to above for them to be
in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the balance sheet of
California Petroleum Transport Corporation as of December 31, 2003, and the
related statements of operations, retained earnings, and cash flows for the year
then ended not presented herein; and in our report dated April 13, 2004, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying condensed balance sheet as of
December 31, 2003, is fairly stated, in all material respects, in relation to
the balance sheet from which it has been derived.
Ernst & Young
Chartered Accountants
Douglas, Isle of Man
November 12 , 2004
California Petroleum Transport Corporation
Condensed Statements of Operations and Retained Earnings
(Unaudited)
(in thousands of US$)
3 month period 9 month period
ended ended
September 30 September 30
2004 2003 2004 2003
Revenue
Interest income 2,635 2,976 8,230 9,154
Fees reimbursed by related parties 7 11 43 67
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Net operating revenues 2,642 2,987 8,273 9,221
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Expenses
General and administrative (7) (11) (43) (67)
expenses
Amortization of debt issue costs (64) (64) (192) (192)
Interest expense (2,571) (2,912) (8,038) (8,962)
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(2,642) (2,987) (8,273) (9,221)
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Net income - - - -
Retained earnings, beginning of period - - - -
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Retained earnings, end of period - - - -
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See notes to the condensed financial statements (unaudited)
California Petroleum Transport Corporation
Condensed Balance Sheets (Unaudited)
(in thousands of US$)
September 30 December 31,
2004 2003
(See note 1)
ASSETS
Current assets:
Cash and cash equivalents 1 1
Current portion of serial loans 7,740 12,950
receivable
Current portion of term loans 6,542 3,355
receivable
Interest receivable 5,270 2,944
Other current assets 17 25
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Total current assets 19,570 19,275
Serial loans receivable, less current 2,486 10,100
portion
Term loans receivable, less current 107,075 113,551
portion
Deferred charges and other long-term 972 1,164
assets
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Total assets 130,103 144,090
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accrued interest 5,270 2,944
Current portion of serial 7,740 12,950
mortgage notes
Current portion of term mortgage 6,542 3,355
notes
Other current liabilities 17 25
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Total current liabilities 19,569 19,274
Serial mortgage notes, less 2,530 10,270
current portion
Term mortgage notes, less current 108,003 114,545
portion
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Total liabilities 130,102 144,089
Stockholder's equity
Common stock, $1 par value; 1,000 1 1
shares authorized, issued and
outstanding
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Total liabilities and stockholder's 130,103 144,090
equity
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See notes to the condensed financial statements (unaudited)
California Petroleum Transport Corporation
Condensed Statements of Cash Flows
(Unaudited)
(in thousands of US$)
9 month period ended
September 30,
2004 2003
Cash flows from operating activities
Net income - -
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of deferred debt issue 192 192
costs
Amortization of issue discount on
loan receivable (192) (192)
Changes in operating assets and
liabilities:
Decrease (increase) in interest (2,326) (2,565)
receivable
(Increase) decrease in other 8 (2)
current assets
(Decrease) increase in accrued 2,326 2,565
interest
Increase (decrease) in other (8) 2
current liabilities
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Net cash provided by operating - -
activities
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Investing Activities
Collections on serial and term 16,305 18,160
loans receivable
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Net cash provided by investing 16,305 18,160
activities
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Financing Activities
Repayments of serial and term (16,305) (18,160)
mortgage notes
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Net cash used in financing (16,305) (18,160)
activities
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Net increase in cash and cash equivalents - -
Cash and cash equivalents at beginning 1 1
of period
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Cash and cash equivalents at end of 1 1
period
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Supplemental disclosure of cash flow
information:
Interest paid 5,904 6,589
===============================================================================
See notes to the condensed financial statements (unaudited)
California Petroleum Transport Corporation
Quarterly Report on Form 10-Q
Nine month period ended September 30, 2004
Notes to the condensed financial statements (unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
California Petroleum Transport Corporation (the "Company" or "California
Petroleum"), which is incorporated in Delaware, is a special purpose
corporation that has been organized solely for the purpose of issuing, as
agent on behalf of CalPetro Tankers (Bahamas I) Limited, CalPetro Tankers
(Bahamas II) Limited, CalPetro Tankers (Bahamas III) Limited and CalPetro
Tankers (IOM) Limited (each an "Owner" and, together the "Owners"), the
Serial Mortgage Notes and the Term Mortgage Notes (together, "the Notes")
as full recourse obligations of the Company and loaning the proceeds of the
sale of the Notes to the Owners to facilitate the funding of the
acquisition of four vessels (the "Vessels") by the Owners from Chevron
Transport Corporation (the "Initial Charterer"). All the shares of
California Petroleum are held by The California Trust, a Massachusetts
charitable lead trust formed by JH Holdings, a Massachusetts corporation,
for the benefit of certain charitable institutions in Massachusetts.
The Owners have chartered the Vessels to the Initial Charterer under
bareboat charters that are expected to provide sufficient payments to cover
the Owners' obligations under the loans from the Company. The Initial
Charterer can terminate a charter at specified dates prior to the
expiration of the charter, provided it notify the Owner at least 12 months
prior to such termination and make a Termination Payment. The Owners' only
source of funds with respect to the loans from the Company is payments from
the Initial Charterer, including Termination Payments. The Owners do not
have any other source of capital for payment of the loans.
The Company's only source of funds with respect to the Notes are the
payments of principal and interest on the loans to the Owners. The Company
does not have any other source of capital for payment of the Notes.
The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP").
These statements reflect the net proceeds from the sale of the Term
Mortgage Notes together with the net proceeds from sale of the Serial
Mortgage Notes having been applied by way of long-term loans to the Owners
to fund the acquisition of the Vessels from the Initial Charterer.
Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The principal accounting policies used in
the preparation of these financial statements are set out below.
The balance sheet at December 31, 2003 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by GAAP for complete financial
statements.
These financial statements should be read in conjunction with the audited
financial statements and accompanying notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003.
2. PRINCIPAL ACCOUNTING POLICIES
(a) Revenue and expense recognition
Interest receivable on the Serial Loans and on the Term Loans is accrued on
a daily basis. Interest payable on the Serial Mortgage Notes and on the
Term Mortgage Notes is accrued on a daily basis. The Owners reimburse the
Company for general and administrative expenses incurred on their behalf.
(b) Deferred charges
Deferred charges represent the capitalization of debt issue costs. These
costs are amortized over the term of the Notes to which they relate.
(c) Reporting currency
The reporting and functional currency is the United States dollar.
(d) Cash and cash equivalents
For the purpose of the statement of cash flows, all demand and time
deposits and highly liquid, low risk investments with original maturities
of three months or less are considered equivalent to cash.
(e) Use of estimates
The preparation of financial statements in accordance with GAAP 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 those estimates.
3. SERIAL LOANS
The principal balances of the Serial Loans earn interest at rates ranging
from 7.60% to 7.62% and mature over a remaining two-year period beginning
April 1, 2005. The loans are reported net of the related discounts, which
are amortised over the term of the loans.
4. TERM LOANS
The principal balances of the Term Loans earn interest at a rate of 8.52%
per annum and are to be repaid over a remaining eleven-year period
beginning April 1, 2005. The loans are reported net of the related
discounts, which are amortised over the term of the loans.
5. SERIAL MORTGAGE NOTES
The Serial Mortgage Notes bear interest at rates ranging from 7.60% to
7.62% through maturity. The Notes mature over a remaining two-year period
beginning April 1, 2005. Interest is payable semi-annually.
6. TERM MORTGAGE NOTES
The Term Mortgages Notes bear interest at a rate of 8.52% per annum.
Principal is repayable on the Term Mortgage Notes over a remaining
eleven-year period beginning April 1, 2005. Interest is payable
semi-annually.
7. NEW ACCOUNTING STANDARDS
In December 2003, the Financial Accounting Standards Board issued
Interpretation No. 46R, Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51("the Interpretation"), which replaces
Interpretation No. 46, issued in January 2003. The Interpretation addresses
the consolidation of business enterprises (variable interest entities) to
which the usual condition (ownership of a majority voting interest) of
consolidation does not apply. This Interpretation focuses on financial
interests that indicate control. It concludes that in the absence of clear
control through voting interests, a company's exposure (variable interest)
to the economic risks and potential rewards from the variable interest
entity's assets and activities are the best evidence of control. Variable
interests are rights and obligations that convey economic gains or losses
from changes in the value of the variable interest entity's assets and
liabilities. Variable interests may arise from financial instruments,
service contracts, and other arrangements. If an enterprise holds a
majority of the variable interests of an entity, it would be considered the
primary beneficiary. The primary beneficiary would be required to include
assets, liabilities, and the results of operations of the variable interest
entity in its financial statements.
An enterprise with a variable interest in an entity to which the provisions
of the original Interpretation have not been applied shall apply the
provisions of the revised Interpretation as follows: a public enterprise
that is not a small business issuer shall apply the Interpretation to all
variable interests held (other than special-purpose entities) no later than
the end of the first reporting period ending after March 15, 2004; a public
enterprise that is a small business issuer shall apply the Interpretation
to all variable interests held (other than special-purpose entities) no
later than the end of the first reporting period ending after December 15,
2004; and a nonpublic enterprise with a variable interest in an entity that
is created after December 31, 2003 shall apply the Interpretation to that
entity immediately, and to all variable interests held by the beginning of
the first annual reporting period beginning after December 15, 2004.
The Company has completed its evaluation of whether the Owners represent
variable interest entities, and whether the Company's variable interest in
the Owners would cause it to be the primary beneficiary. It has been
concluded that the Owners represent variable interest entities as they have
insufficient total equity at risk to independently finance its activities.
However, the Company is not the primary beneficiary as it is not obligated
to absorb any losses arising from the Owners and therefore will not
consolidate the results of the Owners.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Organization and History
California Petroleum Transport Corporation (the "Company") was incorporated
under the laws of the state of Delaware on May 18, 1994. The Company is a
special purpose corporation that has been organized solely for the purpose of
issuing, as agent on behalf of the Owners, Serial Mortgage Notes and Term
Mortgage Notes (the "Notes") as full recourse obligations of the Company and
loaning the proceeds of the sale of the Notes to the Owners (the "Loans"). The
Notes were issued on April 5, 1995.
Liquidity and Capital Resources
The Company is a passive entity, and its activities are limited to collecting
cash from the Owners and making repayments on the Notes. The Company has no
source of liquidity and no capital resources other than the cash receipts
attributable to the Loans.
Off-balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have, or are reasonably
likely to have, a material current effect or that are reasonably likely to have
a material future effect on our financial condition, revenues or expenses,
liquidity, capital expenditures or capital reserves.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and
estimates from the information provided in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations included in our 2003
Form 10-K.
New Accounting Standards
New accounting standards are disclosed in Note 7 to the financial statements
included in Item 1 of this Form 10-Q.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(a) Quantitative information about market risk
Quantitative information about market risk instruments at September 30,
2004 is as follows:
i) Serial Loans
The outstanding principal balances of the Serial Loans earn interest at
rates ranging from 7.60% to 7.62% and mature over a remaining two-year
period beginning April 1, 2005. The loans are reported net of the related
discounts, which are amortised over the term of the loans.
The outstanding Serial Loans have the following characteristics:
Maturity date Interest rate Principal amount
($ 000's)
April 1, 2005 7.60% 7,740
April 1, 2006 7.62% 2,530
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Total 10,270
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ii) Term Loans
The principal balances of the Term Loans earn interest at a rate of 8.52%
per annum and are to be repaid over a remaining eleven-year period
beginning April 1, 2005. The loans are reported net of the related
discounts, which are amortized over the term of the loans.
The table below provides the remaining final principal payments on the Term
Loans if none of the Initial Charters is terminated and if all of the
Initial Charters are terminated on the earliest termination dates.
Scheduled payment date No initial All initial
charters charters
terminated terminated
($000's) ($000's)
April 1, 2005 6,542 3,480
April 1, 2006 9,526 5,320
April 1, 2007 10,942 6,340
April 1, 2008 10,942 6,880
April 1, 2009 10,942 7,470
April 1, 2010 10,942 8,110
April 1, 2011 10,942 8,800
April 1, 2012 10,942 9,540
April 1, 2013 10,942 10,360
April 1, 2014 10,942 11,240
April 1, 2015 10,941 38,660
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Total 114,545 116,200
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iii) Serial Mortgage Notes
The Serial Mortgage Notes bear interest at rates ranging from 7.60% to
7.62% through maturity. The Notes mature over a remaining two-year period
beginning April 1, 2005. Interest is payable semi-annually. The outstanding
Serial Mortgage Notes have the following characteristics:
Maturity date Interest rate Principal amount
($ 000's)
April 1, 2005 7.60% 7,740
April 1, 2006 7.62% 2,530
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Total 10,270
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iv) Term Mortgage Notes
The Term Mortgage Notes bear interest at a rate of 8.52% per annum.
Principal is repayable on the Term Mortgage Notes over a remaining
eleven-year period beginning April 1, 2005. Interest is payable
semi-annually.
The table below provides the remaining scheduled sinking fund redemption
amounts and final principal payments on the Term Mortgage Notes if none of
the Initial Charters is terminated and if all of the Initial Charters are
terminated on the earliest termination dates.
Scheduled payment date No initial All initial
charters charters
terminated terminated
($000's) ($000's)
April 1, 2005 6,542 3,480
April 1, 2006 9,526 5,320
April 1, 2007 10,942 6,340
April 1, 2008 10,942 6,880
April 1, 2009 10,942 7,470
April 1, 2010 10,942 8,110
April 1, 2011 10,942 8,800
April 1, 2012 10,942 9,540
April 1, 2013 10,942 10,360
April 1, 2014 10,942 11,240
April 1, 2015 10,941 38,660
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Total 114,545 116,200
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(b) Qualitative information about market risk
The Company was organized solely for the purpose of issuing, as agent on
behalf of the Owners, the Term Mortgage Notes and Serial Mortgage Notes as
obligations of the Company and loaning the proceeds of the sale of the
Notes to the Owners to facilitate the funding of the acquisition of the
Vessels from Chevron Transport Corporation.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The Company's management, with the participation of the Company's manager
Frontline Ltd, including the Company's President and Treasurer, has
evaluated the effectiveness of the Company's disclosure controls and
procedures as of September 30, 2004. Based on that evaluation, the
Company's President and Treasurer concluded that the Company's disclosure
controls and procedures were effective as of September 30, 2004.
(b) Changes in internal controls
There were no material changes in the Company's internal control over
financial reporting during the third quarter of 2004.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS
Exhibit 31.1* Certification of Principal Executive Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended
Exhibit 31.2* Certification of Principal Financial Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended
Exhibit 32.1** Certification of Principal Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
Exhibit 32.2** Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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* Filed herewith.
**Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
California Petroleum Transport Corporation
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(Registrant)
Date November 10, 2004 By /s/ Nancy D Smith
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Nancy D. Smith
Director and President
Date November 10, 2004 By /s/ R Douglas Donaldson
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R. Douglas Donaldson
Treasurer and Principal
Financial Officer