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 March 31, 2007
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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 04-323976
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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 a large accelerated filer, an
accelerated filer, or a non- accelerated filer. See definition of "accelerated
filer and large accelerated filer") in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [_] Accelerated filer [_] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
[_] Yes [ X] No
Number of shares outstanding of each class of Registrant's Common Stock as of
April 30, 2007
1,000 shares Common Stock, $1.00 par value per share
California Petroleum Transport Corporation
Quarterly Report on Form 10-Q
Three month period ended March 31, 2007
PAGE
Part I Financial Information
Item 1 Financial Statements
Unaudited Balance Sheets as of March 31, 2007 and
December 31, 2006 1
Unaudited Statements of Operations and Retained Earnings for
the three month periods ended March 31, 2007 and 2006 2
Unaudited Statements of Cash Flows for the three month
periods ended March 31, 2007 and 2006 3
Notes to the Financial Statements 4
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures about Market Risk 9
Item 4 Controls and Procedures 10
Part II Other Information
Item 1 Legal Proceedings 10
Item 1A Risk Factors 10
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits 10
Signatures 11
PART I - FINANCIAL INFORMATION
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.
California Petroleum Transport Corporation (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," "expect," "anticipate," "intends," "estimate,"
"forecast," "project," "plan," "potential," "will," "may," "should" 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,
including changes in demand resulting from 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
the Company with the Securities and Exchange Commission.
ITEM 1 - FINANCIAL STATEMENTS
California Petroleum Transport Corporation
Balance Sheets as of March 31, 2007 and December 31, 2006
(Unaudited)
(in thousands of US$)
March 31, December 31,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents 1 1
Current portion of term loans receivable 10,096 10,096
Interest receivable 4,195 2,098
Other current assets 57 49
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Total current assets 14,349 12,244
Term loans receivable, less current portion 87,673 87,651
Deferred charges and other long-term assets 708 730
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Total assets 102,730 100,625
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LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accrued interest 4,195 2,098
Current portion of term mortgage notes 10,096 10,096
Other current liabilities 57 49
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Total current liabilities 14,348 12,243
Term mortgage notes, less current portion 88,381 88,381
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Total liabilities 102,729 100,624
Stockholder's equity
Common stock, $1 par value; 1,000 shares
authorized, issued and outstanding 1 1
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Total liabilities and stockholder's equity 102,730 100,625
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See notes to the financial statements
California Petroleum Transport Corporation
Statements of Operations and Retained Earnings for the three month periods ended
March 31, 2007 and 2006 (Unaudited)
(in thousands of US$)
Three month period
ended March 31,
2007 2006
Revenue
Interest income 2,120 2,371
Expenses reimbursed 8 19
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Net operating revenues 2,128 2,390
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Expenses
General and administrative expenses (8) (19)
Amortization of debt issue costs (22) (22)
Interest expense (2,098) (2,349)
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(2,128) (2,390)
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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 financial statements
California Petroleum Transport Corporation
Statements of Cash Flows for the three month periods ended March 31, 2007 and
2006 (Unaudited)
(in thousands of US$)
Three month period
ended March 31,
2007 2006
Net income -- --
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred debt issue costs 22 22
Amortization of issue discount on loan receivable (22) (22)
Changes in operating assets and liabilities:
Interest receivable (2,097) (2,348)
Other current assets (8) (19)
Accrued interest 2,097 2,348
Other current liabilities 8 19
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Net cash provided by operating activities -- --
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Net change in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period 1 1
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Cash and cash equivalents at end of period 1 1
===============================================================================
See notes to the financial statements
California Petroleum Transport Corporation
Notes to the Financial Statements
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
California Petroleum Transport Corporation (the "Company"), which is
incorporated in Delaware, is a special purpose corporation that was
organised 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"), 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
by means of serial loans ("Serial Loans") and term loans ("Term Loans"), to
facilitate the funding of the acquisition of four vessels (the "Vessels")
from Chevron Transport Corporation ("Chevron").
The Owners have chartered three of the Vessels to Chevron until 2015 under
bareboat charters that are expected to provide sufficient payments to cover
the Owners' obligations to the Company. Chevron can terminate a charter at
specified dates prior to the expiration of the charter, provided that it
gives the Owner the requisite notice.
On April 21, 2005, pursuant to Clause 2 (a) (ii) of the bareboat charter
dated April 5, 1995 between CalPetro Tankers (Bahamas III) Limited and
Chevron, the Owner received irrevocable notice from Chevron regarding the
termination of the bareboat charter of the vessel Virgo Voyager, a single
hulled vessel on April 1, 2006. Under the terms of the bareboat charter
between Chevron and Bahamas III, Chevron paid a termination fee of
$5,050,000. As manager to CalPetro (Bahamas III), Frontline Ltd
("Frontline") was obligated to find an acceptable replacement charter as
defined by the indenture governing the issue of the Notes that were issued
on behalf of the Bahamas III and three affiliated companies. Pursuant to a
bareboat charter agreement between CalPetro (Bahamas III) and Front Voyager
Inc, a wholly owned subsidiary of Frontline, Front Voyager Inc agreed to
charter the Virgo Voyager as of April 1, 2006 for an initial two year
period (the "Initial Period") with a further seven annual optional periods.
The charterhire payable for the Initial Period was $5,050,000 which was
prepaid in full on March 31, 2006.
The Virgo Voyager is a single hull vessel. The United States, the European
Union and the International Maritime Organisation, or the IMO, have all
imposed limits or prohibitions on the use of these types of tankers in
specified markets after certain target dates which range from 2010 to 2015.
In December 2003, the Marine Environmental Protection Committee of the IMO
adopted a proposed amendment to the International Convention for the
Prevention of Pollution from Ships to accelerate the phase out of single
hull tankers from 2015 to 2010 unless the relevant flag states extend the
date to 2015. Management do not know whether the non-double hull vessel
will be subject to this accelerated phase-out, but this change could result
in the Vessel being unable to trade in many markets after 2010. Moreover,
the IMO may still adopt regulations in the future that could adversely
affect the useful life of the non-double hull vessel as well as the Owner's
ability to generate income which will affect the Owner's ability to service
its debt to us.
The Company's only source of funds with respect to the Notes is the payment
of the principal and interest on the loans by the Owners. The Company does
not have any other source of capital for payment of the Notes. The Owners'
only sources of funds with respect to its obligation to the Company are the
payments by Chevron and Frontline, including termination payments and
investment income. The Owners do not have any other source of capital for
payment of the loans.
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 Chevron.
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 as of December 31, 2006 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, 2006.
2. PRINCIPAL ACCOUNTING POLICIES
(a) Revenue and expense recognition
Interest receivable on the Serial and Term Loans is accrued on a daily
basis. Interest payable on the 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. LOANS RECEIVABLE
The principal balances of the Term Loans earn interest at a rate of 8.52%
per annum and are being repaid over a twelve-year period which began on
April 1, 2004. The loans are reported net of the related discounts, which
are amortized over the term of the loans.
4. TERM LOANS COLLATERAL
The Term Loans are collateralised by first preferred mortgages on the
Vessels to the Company. The earnings and insurance relating to the Vessels
have been collaterally assigned pursuant to an assignment of earnings and
insurance to the Company, which in turn has assigned such assignment of
earnings and insurance to JPMorgan Chase Bank as the collateral trustee.
The Charters with Chevron and the Chevron Guarantees (where the obligations
of Chevron are guaranteed by Chevron Corporation) relating to the Vessels
have been collaterally assigned pursuant to the assignment of initial
charter and assignment of initial charter guarantee to the Company, which
in turn has assigned such assignments to the collateral trustee. The
capital stock of each of the Owners has been pledged to the Company
pursuant to stock pledge agreements.
The Virgo Voyager was bareboat chartered to Front Voyager Inc. as of April
1, 2006 upon its redelivery from Chevron by virtue of a bareboat charter
dated March 31, 2006 by and between CalPetro Bahamas III and Front Voyager
Inc. (the "Front Voyager Charter"). The earnings and insurance relating to
the Front Voyager Charter has been collaterally assigned pursuant to an
assignment of earnings and insurance to the Company, which in turn has
assigned such assignment of earnings and insurance to the Trustee. The
Front Voyager Charter has been collaterally assigned pursuant to an
assignment of charter to the Company, which in turn has assigned such
assignment to the Trustee.
5. 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 on a
straight line basis. The deferred charges are comprised of the following
amounts:
(in thousands of $)
March 31, 2007 December 31, 2006
Debt arrangement fees 3,400 3,400
Accumulated amortization (2,692) (2,670)
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708 730
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6. DEBT
(in thousands of $)
March 31, 2007 December 31, 2006
8.52% Term Mortgage Notes due 2015 98,477 98,477
Less: short-term portion (10,096) (10,096)
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88,381 88,381
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The outstanding debt as of March 31, 2007 is repayable as follows:
(in thousands of $)
Year ending December 31,
2007 10,096
2008 10,146
2009 10,196
2010 10,256
2011 10,316
2012 and later 47,467
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Total debt 98,477
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The Term Mortgage Notes bear interest at a rate of 8.52% per annum with
principal being repayable in accordance with a remaining sinking fund
schedule which began on April 1, 2004 and interest being payable
semi-annually. The Term Mortgage Notes include certain covenants such as
restriction on the payment of dividends and the making of additional loans
or advances to affiliates. As of March 31, 2007, the Company was in
compliance with these covenants.
As of March 31, 2007, the effective interest rate for the Term Mortgage
Notes was 8.52%.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS Organisation 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 was organised 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.
Results of Operations
Three months ended March 31, 2007 compared with the three months ended March 31,
2006
Amounts included in the following discussion are derived from our unaudited
interim financial statements for the three months ended March 31, 2007 and 2006.
Interest income
(in thousands of $) Three months ended
March 31,
2007 2006
Interest income 2,120 2,371
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Interest income has decreased in the three months ended March 31, 2007 compared
to the same period in 2006 primarily due to a decrease in the principal balance
of loans receivable. On April 1, 2006, the Owners repaid a total principal of
$12.1 million on the Loans, including the last tranche of serial loans of $2.5
million.
Administrative expenses
(in thousands of $) Three months ended
March 31,
2007 2006
Administrative expenses 8 19
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Administrative expenses have decreased in the three months ended March 31, 2007
compared to the same period in 2006 as a result of 2006 fees being overstated,
these fees were released in the second quarter of 2006.
Interest expense
(in thousands of $) Three months ended
March 31,
2007 2006
Interest expense 2,098 2,349
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Interest expense has decreased in the three months ended March 31, 2007 compared
to the same period in 2006 primarily due to a decrease in the principal balance
of loans payable. On April 1, 2006, the Company repaid a total principal of
$12.1 million on the Loans, including the last tranche of serial loans of $2.5
million.
Expenses reimbursed
(in thousands of $) Three months ended
March 31,
2007 2006
Expenses reimbursed 8 19
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General and administrative expenses comprising trustee fees, audit fees and
other costs incurred by us are billed to the Owners. Refer to the discussion
above on administrative expenses.
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 its financial condition, revenues or expenses,
liquidity, capital expenditures or capital reserves.
Critical Accounting Policies
There have been no material changes to the Company's 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 its 2006 Form 10-K.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(a) Quantitative information about market risk
The Term Mortgage Notes are subject to redemption through the
operation of a mandatory sinking fund on April 1 of each year,
commencing on April 1, 2006 up to and including April 1, 2015,
according to the applicable schedule of sinking fund payments set
forth herein. The sinking fund redemption price is 100% of the
principal amount of Term Mortgage Notes being redeemed, together with
interest accrued to the date fixed for redemption. If a charter is
terminated, the scheduled mandatory sinking fund payments on the Term
Mortgage Notes will be revised so that the allocated principal amount
for the related Vessel will be redeemed on the remaining sinking fund
redemption dates on a schedule that approximates level debt service
with an additional principal payment on the maturity date of
$7,000,000, for any of the double-hulled Vessels, or $5,500,000 for
the single hulled Vessel.
The table below provides the revised scheduled sinking fund redemption
amounts and final principal payments following termination of the
related charters on each of the optional termination dates.
(in thousands of $)
Scheduled Charter Charter Charter Charter Charter Charter
payment not terminated terminated terminated terminated terminated
date terminated 2007 2008 2009 2010 2011
2007 10,096 6,339 3,187 6,339 3,187 2,984
2008 10,146 3,390 3,187 6,339 3,187 2,984
2009 10,196 3,680 1,690 6,339 3,187 2,984
2010 10,256 3,990 1,830 3,240 3,187 2,984
2011 10,316 4,330 1,990 3,510 1,510 2,984
2012 and later 47,467 35,326 16,794 31,288 14,420 11,938
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98,477 57,055 28,678 57,055 28,678 26,858
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(b) Qualitative information about market risk
The Company was organised solely for the purpose of issuing, as agent
on behalf of the Owners, the Term Mortgage Notes and Serial Mortgage
Notes as obligations of ours and loaning the proceeds of the sale to
the Owners to facilitate the funding of the acquisition of the Vessels
from Chevron Transport Corporation.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
The Company's management including the Company's President and
Treasurer, with the participation of the Company's manager, Frontline
Ltd, has evaluated the effectiveness of the Company's disclosure
controls and procedures as of March 31, 2007. Based on that
evaluation, the Company's President and Treasurer concluded that the
Company's disclosure controls and procedures were effective as of
March 31, 2007.
(b) Changes in Internal Control over Financial Reporting
There were no material changes in the Company's internal control over
financial reporting during the first quarter of 2007.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
Since December 31, 2006, there have been no material changes in the risk
factors as discussed in "Risk Factors" and elsewhere in our Form 10-K that
was filed with the SEC on April 16, 2007.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our security holders in the quarter
ended March 31, 2007.
Item 5. Other Information
None
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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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 authorised.
California Petroleum Transport Corporation
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(Registrant)
Date May 11, 2007 By /s/ Nancy I. DePasquale
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Nancy I. DePasquale
Director and President
Date May 11, 2007 By /s/ R. Douglas Donaldson
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R. Douglas Donaldson
Treasurer and Principal Financial Officer