===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2001
Commission File Number:
Petrobras International Finance Company
(Exact name of registrant as specified in its charter)
Cayman Islands
(Jurisdiction of incorporation or organization)
Anderson Square Building
P.O. Box 714
George Town, Grand Cayman
Cayman Islands
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the
Act: None
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:
Title of each class: Name of each exchange on which
registered:
U.S.$450,000,000 9.875% Senior Notes due 2008 Luxembourg Stock Exchange
U.S.$600,000,000 9.75% Senior Notes due 2011 Luxembourg Stock Exchange
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered
by this Annual Report:
At December 31, 2001, there were outstanding:
50,000 common shares of Petrobras International Finance Company
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]
================================================================================
TABLE OF CONTENTS
Page
----
Incorporation of Certain Documents By Reference.........................................................1
Forward Looking Statements..............................................................................1
Presentation of Financial Information...................................................................1
Difficulties of Enforcing Civil Liabilities Against Non-U.S. Persons....................................1
Item 1. Identity of Directors, Senior Management, and Advisers...............................2
Item 2. Offer Statistics and Expected Timetable..............................................2
Item 3. Key Information......................................................................2
Item 4. Information on the Company...........................................................11
Item 5. Operating and Financial Review and Prospects.........................................19
Item 6. Directors, Senior Management and Employees...........................................24
Item 7. Major Shareholders and Related Party Transactions....................................26
Item 8. Financial Information................................................................28
Item 9. The Offer and Listing................................................................28
Item 10. Additional Information...............................................................29
Item 11. Quantitative and Qualitative Disclosures About Market Risk...........................41
Item 12. Description of Securities Other than Equity Securities...............................42
Item 13. Defaults, Dividend Arrearages and Delinquencies......................................42
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.........42
Item 15. [Reserved]...........................................................................42
Item 16. [Reserved]...........................................................................42
Item 17. Financial Statements.................................................................42
Item 18. Financial Statement..................................................................42
Item 19. Exhibits.............................................................................43
i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The annual report on Form 20-F of Petroleo Brasileiro S.A.--PETROBRAS
for the year ended December 31, 2001, as first filed with the United States
Securities and Exchange Commission (the "SEC") (Commission file No. 1-15106) on
June 28, 2002, is incorporated herein by reference.
FORWARD LOOKING STATEMENTS
Many statements made in this annual report under the captions "Item 3.
Risk Factors," "Item 4. History and Development of the Company--Business
Overview" relating to the operation and performance of Petrobras International
Finance Company, or PIFCo, and Petrobras and under the caption "Item 5.
Operating and Financial Review and Prospects" and elsewhere are forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act that are not based on historical facts and are not
assurances of future results. These forward-looking statements are subject to
certain risks and uncertainties, including, but not limited to, our ability to
obtain financing, changes in Petrobras' use of our services for market purchases
of crude oil and oil products and changes in government regulations.
All forward-looking statements attributed to us or a person acting on
our behalf are expressly qualified in their entirety by this cautionary
statement, and you should not place reliance on any forward-looking statement
contained herein.
The annual report on Form 20-F of Petrobras for the fiscal year ended
December 31, 2001, incorporated herein by reference, also contains
forward-looking statements. For a discussion of the factors affecting the
forward-looking statements contained therein, see "Forward-Looking Statements"
on page 1 thereof.
PRESENTATION OF FINANCIAL INFORMATION
Our functional currency is the U.S. dollar. Substantially all of our
sales are made in U.S. dollars and all of our debt is denominated in U.S.
dollars. Accordingly, our audited consolidated financial statements as of
December 31, 2001, 2000 and 1999, and for each of the three years in the period
ended December 31, 2001, and the accompanying notes contained in this annual
report have been presented in U.S. dollars and prepared in accordance with U.S.
generally accepted accounting principles ("U.S. GAAP") and include our three
wholly-owned subsidiaries, since their incorporation: Petrobras Netherlands
B.V., Petrobras Europe Ltd. and Petrobras Finance Limited.
Certain figures included in this annual report have been subject to
rounding adjustments; accordingly, figures shown as totals in certain tables may
not be an arithmetic aggregation of the figures that precede them.
DIFFICULTIES OF ENFORCING CIVIL LIABILITIES AGAINST NON-U.S. PERSONS
We are an exempted company incorporated with limited liability under
the laws of the Cayman Islands. All of our directors and officers and certain of
the experts named herein reside in Brazil, or elsewhere outside the United
States, and all or a significant portion of the assets of such persons may be,
and substantially all of our assets are, located outside the United States. As a
result, it may not be possible for you to effect service of process upon such
persons outside Brazil or the Cayman Islands, as the case may be, or to enforce
against them or against us judgments predicated upon the civil liability
provisions of the federal securities laws of the United States.
Walkers, our Cayman Islands counsel, advises us that although there is
no statutory enforcement in the Cayman Islands of judgments obtained in courts
in New York or any other state of the United States of America, the courts of
the Cayman Islands will recognize and enforce a judgment obtained in such a
court, without any re-examination of its merits, by an action commenced on the
foreign judgment debt in the Grand Court of the Cayman Islands, where the
judgment is final and in respect of which the foreign court had jurisdiction
over the defendant according to Cayman Islands conflict of law rules and which
is conclusive, for a liquidated sum not in respect of penalties or taxes or a
fine or similar fiscal or revenue obligations, and which was neither obtained in
a manner, nor is of a kind of enforcement of which is contrary to natural
justice or the public policy of the Cayman Islands or by statute.
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, AND ADVISERS.
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION.
SELECTED FINANCIAL DATA
The following table of selected financial data is presented in U.S.
dollars and prepared in accordance with U.S. GAAP. The data for each of the four
years in the period ended December 31, 2001 have been derived from our audited
consolidated financial statements. The information below should be read in
conjunction with, and is qualified in its entirety by reference to, our
financial information set forth below under "Item 5. Operating and Financial
Review and Prospects" and in our audited consolidated financial statements, and
the accompanying notes appearing elsewhere in this annual report.
For the Year Ended December 31,
-----------------------------------------------------------
2001 2000 1999 1998
------------- -------------- ------------- ----------------
(in thousands of U.S. dollars)
Income Statement Data:
Sales of crude oil, oil products and services............. $ 6,271,196 $ 7,937,003 $ 4,727,989 $ 2,873,777
Cost of sales............................................. (6,263,551) (7,912,615) (4,723,771) (2,873,777)
------------ ------------ ------------ ------------
Gross profit/(1)/......................................... 7,645 24,388 4,218 --
Financial income/(2)/..................................... 158,804 221,578 158,407 63,367
Financial expense/(2)/.................................... (187,215) (219,637) (142,232) (62,359)
Gain on materials and equipment........................... 435 -- -- --
------------ ------------ ------------ ------------
Net income (loss)......................................... $ (20,331) $ 26,329 $ 20,393 $ 1,008
============ ============ ============ ============
Balance Sheet Data (end of period):
Cash and cash equivalents................................. $ 48,593 $ 51,198 $ 49,354 $ 16,503
Total assets.............................................. 4,957,769 3,244,465 2,899,987 1,729,804
Loans payable to related parties.......................... 334,564 1,716,565 1,628,868 570,037
Short-term debt and current portion of long-term debt..... 990,427 530,352 741,500 905,000
Long-term debt............................................ 2,335,000 245,000 -- --
Total stockholder's equity................................ 49,388 9,719 21,450 1,057
- ------------
/(1)/Gross profit reflects profits earned by us from our third-party sales of
crude oil and oil products and services, since we record profits from sales
of crude oil and oil products to Petrobras as financial income.
/(2)/Financial income is derived from time deposits, financing of sales to
Petrobras and inter-company loans to Petrobras. Financial expense is
derived mainly from interest on our lines of credit and capital markets
indebtedness and inter-company loans from Petrobras.
2
RISK FACTORS
RISKS RELATING TO OUR COMPANY
We may not earn enough money from our own operations to meet our debt
obligations.
We are a direct wholly-owned subsidiary of Petrobras incorporated in
the Cayman Islands as an exempted company with limited liability. We have
extremely limited operations consisting principally of the purchase of crude oil
and oil products from third parties and the resale of those products to
Petrobras with financing for such operations provided by Petrobras as well as
third-party credit providers. We also resell crude oil and oil products to third
parties on a limited basis. Our ability to pay interest, principal and other
amounts due on our outstanding and future debt obligations will depend upon:
. Petrobras' continued utilization of our services for market
purchases of crude oil and oil products;
. Petrobras' willingness to continue to make inter-company loans to
us and provide other financial support; and
. our ability to access financing sources, including third-party
credit facilities.
In the event of a material adverse change in Petrobras' financial
condition or results of operations or in Petrobras' financial support of us, we
may not have sufficient funds to repay all amounts due on our indebtedness. See
"Risks Relating to Petrobras," "Risks Relating to Petrobras' Relationship with
the Brazilian Government," "Risks Relating to the Oil and Gas Industry" and
"Risks Relating to Brazil" below for a more detailed description of certain risk
factors that may have a material adverse impact on Petrobras' financial
condition or results of operations and therefore affect our ability to meet our
debt obligations.
If Brazilian law restricts Petrobras from paying us in U.S. dollars, we may have
insufficient U.S. dollar funds to make payments on our debt obligations.
We obtain substantially all of our funds from Petrobras' payments in
U.S. dollars for crude oil that it purchases from us. In order to remit U.S.
dollars to us, Petrobras must comply with Brazilian foreign exchange control
regulations, including preparing specified documentation to be able to obtain
U.S. dollar funds for payment to us. If Brazilian law were to impose additional
restrictions, limitations or prohibitions on Petrobras' ability to convert Reais
into U.S. dollars, it could restrict the source of U.S. dollar funds available
for us to make payment on our debt obligations.
We may be limited in our ability to pass on our financing costs.
Our business is principally to engage in the purchase of crude oil and
oil products for resale to Petrobras. At any time, we may incur indebtedness
related to such purchases and/or financing from Petrobras or third-party credit
providers. As of December 31, 2001, approximately 12.8% of our indebtedness on a
stand-alone basis was floating-rate debt denominated in U.S. dollars. While
Petrobras is in the process of changing its risk management processes, including
those which may affect us, neither Petrobras nor we have yet entered into
derivative contracts or made other arrangements to hedge against interest rate
risk. We have historically passed on our financing costs to Petrobras by selling
crude oil and oil products to Petrobras at a premium to compensate for our
financing costs. Although we and Petrobras are considering methods of continuing
this practice in the future, we cannot assure you that this practice
3
will continue. Our inability to transfer our financing costs to Petrobras could
have a material adverse effect on our business.
RISKS RELATING TO PETROBRAS
Due to changes in government regulations, Petrobras faces increasing competition
and may lose market share.
Substantial changes have been occurring in the oil and gas industry in
Brazil as a result of the continuing process of deregulation by the Brazilian
government. The changes in government regulation, including the elimination of
import tariffs on refined oil products in January 2001, have enabled and
attracted multinational and regional oil and gas companies to enter the
Brazilian oil and gas market.
As a result of changes in government regulations, Petrobras expects
existing and new participants to further expand their activities in the supply
(downstream) market in Brazil and, accordingly, competition to increase.
Petrobras expects increased competition to lead to a reduction in its market
share in Brazil. This increased competition could have a material adverse effect
on Petrobras' business, results of operations and financial condition.
Potential costs of environmental compliance and improvement of environmental
standards may have a material adverse effect on Petrobras.
Petrobras' facilities are subject to a wide variety of federal, state
and local laws, regulations and permit requirements relating to the protection
of human health and the environment. Petrobras spent approximately U.S.$472
million in 2001, U.S.$356 million in 2000 and U.S.$106 million in 1999 to comply
with environmental laws. However, since environmental laws are becoming stricter
in the other jurisdictions where Petrobras operates, its capital expenditures
and expenses for environmental compliance may increase substantially in the
future.
Due to the possibility of unanticipated regulatory or other
developments, the amount and timing of future environmental expenditures may
vary widely from those currently anticipated. Petrobras could be exposed to
civil penalties, criminal sanctions and closure orders for non-compliance with
these environmental regulations. The amount of investments Petrobras makes in
any given year, including its capital expenditures, could be subject to
limitations. Accordingly, expenditures required for compliance with
environmental regulation might lead to:
. reductions in other strategic investments Petrobras has planned,
resulting in a decrease to its profits; and
. material unforeseen future environmental costs and liabilities,
which may harm Petrobras' results of operations or financial
condition.
Petrobras may incur material losses and spend time and money defending pending
litigation and arbitration.
Petrobras is currently a party to numerous legal proceedings relating
to civil, administrative, environmental (including criminal claims), labor and
tax claims filed against it. These claims involve a wide range of issues and
seek substantial amounts of money. Several individual disputes account for a
significant part of the total amount of claims against Petrobras. Petrobras'
audited consolidated financial statements include provisions totaling U.S.$100
million as of December 31, 2001 for probable and reasonably estimable losses and
expenses it may incur in connection with all of its pending litigation. In
4
the event that a number of the claims that Petrobras considers to represent
remote or reasonably possible risks of loss were to be decided against it, or in
the event that the losses estimated turn out to be higher than the reserves
made, the aggregate cost of unfavorable decisions could have a material adverse
effect on Petrobras' financial condition and results of operations.
Additionally, Petrobras' management may be required to direct its time and
attention to defending the above-mentioned claims.
Petrobras' expansion into the domestic power market is relatively recent and the
regulatory environment remains uncertain.
Consistent with the global trend of other major oil and gas companies
and to secure demand for its natural gas, Petrobras is currently expanding its
business into the domestic power market. Despite a number of incentives
introduced by the Brazilian government to promote the development of
thermoelectric power plants, development of such plants by private investors has
been slow to progress. Petrobras currently invests in 17 of the 38 gas-fired
power generation plants being built or proposed to be built in Brazil under the
program to promote the development of thermoelectric plants, known as the
Programa Prioritario de Termoelectricidade (Thermoelectric Priority Program, or
PPT). Petrobras has a limited history of investing in thermoelectric plants, and
thermoelectric plants have not previously operated in a competitive environment
in Brazil. Thermoelectric plants have faced difficulties passing on to
electricity offtakers foreign currency financing costs of developing new
generating capacity, and have had to contend with the reluctance of many
distribution companies to sign long-term power purchase agreements due mainly to
their existing initial contracts, which provide for a guaranteed price from 1998
to 2002, which is phased out over the following four years, and foreign exchange
risk. In addition, demand for thermoelectric power in Brazil has been lower than
expected. Congress has recently passed a law increasing government intervention
in the market, and the current administration is studying the implementation of
changes that could be material to the natural gas and power sector. It is not
clear that thermoelectric power generation will remain a priority for the
country. In addition, the energy policy of the next administration is uncertain.
As a result of these difficulties, Petrobras cannot assure you that its
participation in the domestic power market will ever become profitable, and this
participation may adversely affect its operating results and financial
condition.
Labor disputes, strikes, work stoppages and protests by our workers could
increase our operating costs.
On October 19, 2001, Petrobras' oil workers began a lawful, five-day
strike due to a dispute over wage increases in connection with the negotiations
of a collective bargaining agreement for 2002. The five-day strike caused a
decrease in oil production of approximately four million barrels for the
five-day period. On May 3, 2002, a one-day oil workers strike took place, due to
a dispute over Petrobras' profit sharing proposal, causing a non-material
decrease in crude oil production. Neither of the strikes affected Petrobras'
average production target for 2001 or 2002 or its level of oil imports. A longer
strike, however, could significantly reduce Petrobras' production. Petrobras
does not carry insurance for losses incurred as a result of business
interruptions of any nature, including business interruptions caused by labor
actions, which Petrobras believes is a standard industry practice. As a result,
its financial condition and results of operations could be adversely affected by
future strikes, work stoppages, protests or similar activities.
Petrobras may be required to sell some of its refining capacity in Brazil
because of its position in this market.
As of May 2002, Petrobras owned 98.6% of the existing refining capacity
in Brazil. Although it is not presently subject to any requirement to divest any
assets, and the government has not made any formal proposal in that respect,
Petrobras may be required to divest a portion of its refining capacity or other
assets in the future in light of its dominant position in the Brazilian refining
market. Any such divestment could have a material adverse effect on Petrobras'
financial condition and results of operations.
5
The terrorist attacks in the United States and subsequent United States military
action in Afghanistan could adversely affect Petrobras' ability to obtain
affordable insurance coverage or render such coverage unavailable.
Following the terrorist attacks in the United States and subsequent
United States military action in Afghanistan, the insurance premiums charged for
some or all of the coverage historically maintained by Petrobras and its
subsidiaries, particularly for war risk and terrorism insurance, have increased
significantly. Such premiums could increase further, or the coverage could be
unavailable in the future.
In addition, insurance underwriters have issued general notices of
cancellations to their customers for war risk and terrorism insurance in
respect of a wide variety of insurance coverage, including, but not limited to,
liability coverage. Petrobras received a notice of cancellation of its war risk
and terrorism insurance in December 2001. It was subsequently able to purchase
war risk and terrorism insurance covering important assets in Brazil that it
considers more susceptible to war and terrorism risk. Petrobras does not know
whether underwriters will offer to reinstate some or all of these types of
coverage and, if reinstatement is offered, the extent to which premiums may be
increased.
RISKS RELATING TO THE RELATIONSHIP BETWEEN PETROBRAS AND THE BRAZILIAN
GOVERNMENT
A majority of Petrobras' board of directors and its senior management are
subject to periodic change unrelated to its business needs, particularly
following elections or changes in government.
Brazilian law requires the Brazilian government to own a majority of
Petrobras' voting stock. As long as that legal requirement exists, the
government will have the power to elect a majority of the members of Petrobras'
board of directors and, through them, a majority of the executive officers who
are responsible for Petrobras' day-to-day management. A new government could
choose to make significant changes in Petrobras' board of directors and senior
management. A reconstituted board of directors and new senior management for
Petrobras may pursue a strategy or conduct operations in a manner that diverges
significantly from its current strategy and operations. Changes in government or
government policy could have a material adverse effect on Petrobras' and our
business, results of operations, financial condition or prospects. The first
round of the Brazilian presidential election is scheduled for October 2002. We
cannot predict the outcome of the election, the policies the new administration
may adopt or the effect that those policies may have on Brazilian economic
conditions or Petrobras' and our results of operations.
Petrobras is controlled by the Brazilian government, whose interests may be
contrary to the interests of other shareholders and creditors.
The Brazilian government, as Petrobras' controlling shareholder, has
pursued certain of its macroeconomic and social goals through Petrobras. These
initiatives have not always been in Petrobras' best interests, nor the best
interests of its shareholders or creditors. Historically, Petrobras has pursued
initiatives to ensure that the supply of crude oil and oil products in Brazil
meets Brazilian consumption requirements. As a result, Petrobras cannot assure
its shareholders and creditors that it will not continue to make investments,
incur costs and engage in activities that give preference to the Brazilian
government's agenda rather than enhance Petrobras' and our economic and business
objectives.
Petrobras does not own any of the crude oil and natural gas reserves in Brazil.
A guaranteed source of crude oil and natural gas reserves is essential
to an oil and gas company's production and generation of income. As a result,
many oil and gas companies own crude oil and natural
6
gas reserves. Under Brazilian law, the Brazilian government owns all crude oil
and natural gas reserves in Brazil. Petrobras possesses the exclusive right to
develop its reserves pursuant to concession agreements awarded to it by the
Brazilian government. If the Brazilian government were to restrict or prevent
Petrobras from exploiting these crude oil and natural gas reserves, its ability
to generate income would be adversely affected.
Government control and regulation may have a material adverse effect on
Petrobras' and our operating results, competitive position and financial
condition.
As a state-controlled entity, Petrobras currently informs the Ministry of
Planning, Budget and Management, the Ministry of Mines and Energy and the
Brazilian Congress of its proposed annual budget, which is consolidated in the
national budget. In addition, the Brazilian government establishes limits on
Petrobras' long-term debt. Petrobras has been able to obtain financing that does
not require Brazilian government approval, such as project financings, but it
cannot assure you that it will be able to secure such financings in the future.
As a result, it may not be able to make all the investments it envisions.
Failure to make its planned investments may harm Petrobras' and our future
operating results, financial condition and competitive position in the Brazilian
oil and gas sector, particularly considering increasing competition.
In the past, the Brazilian government established prices for crude oil
and oil products in Brazil, often below prevailing international prices. These
prices involved elements of cross-subsidy between different oil products sold in
various regions in Brazil. Effective January 2, 2002, all prices for crude oil
and oil products were deregulated. Petrobras cannot assure you that the
Brazilian government will not attempt to cause the Brazilian Congress to amend
the Constitution to reinstate price controls for crude oil and oil products, in
which case its financial condition and results of operations could be adversely
affected.
RISKS RELATING TO THE OIL AND GAS INDUSTRY
Petrobras' operations are affected by the volatility of prices for crude oil and
oil products.
Historically, international prices for crude oil and oil products have
fluctuated widely in response to many factors, including:
. changes in global and regional economic and political developments
in crude oil producing regions, particularly in the Middle East;
. the ability of the Organization of Petroleum Exporting Countries
(OPEC) and other crude oil producing nations to set and maintain
crude oil production levels and prices;
. other actions taken by major crude oil producing or consuming
countries;
. global and regional supply and demand for crude oil and oil
products;
. availability and price of competing commodities;
. domestic and foreign government regulations;
. weather conditions;
. the World Trade Center terrorist attack, resulting in the tension
and military action in Afghanistan and related activities; and
7
. global economic conditions.
Petrobras has no control over these factors. On January 2, 2002, the
prices for crude oil and oil products in Brazil were deregulated, and since then
Petrobras has been free to adjust its prices to reflect prevailing international
oil prices. The average prices of Brent crude, an international benchmark oil,
have varied widely in the past, and were approximately U.S.$26.16 per barrel for
the year ended December 31, 2001, U.S.$28.50 per barrel for the year ended
December 31, 2000 and U.S.$17.87 per barrel for the year ended December 31,
1999.
Achieving growth is dependent upon Petrobras' finding or acquiring additional
reserves, as well as successfully developing current reserves, and risks
associated with drilling may cause drilling operations to be delayed or
cancelled.
Petrobras' ability to achieve its growth objectives is highly dependent
upon its level of success in finding, acquiring or gaining access to additional
reserves, as well as successfully developing current reserves. In general, the
volume of production from crude oil and natural gas properties declines as
reserves are depleted, with the rate of decline depending on reservoir
characteristics. Unless Petrobras conducts successful exploration and
development activities or acquires properties containing proved reserves, or
both, its proved reserves will decline as reserves are extracted. Petrobras'
exploration and development activities expose it to the inherent risks of
drilling, including the risk that no economically productive crude oil or
natural gas reserves will be discovered. Because many of Brazil's richest oil
fields are located offshore in deepwater, Petrobras has concentrated its
investments on deepwater exploration in Brazil over the last four years, and it
will continue to invest in deepwater drilling, exploration, development and
production. Deepwater drilling entails additional risks and costs, which may
increase in the future.
Petrobras has incurred, and may continue to incur, liabilities in connection
with environmental incidents, including clean up costs, government fines and
potential lawsuits.
Petrobras is subject to significant environmental risks that are
inherent in the oil and gas industry, including the risks of oil spills. Since
January 1, 2000, Petrobras has experienced seven significant oil spills causing
the release of approximately 1,833 million gallons of crude oil and 103,000
gallons of naphtha into various waterways.
In each of those cases, Petrobras undertook cleanup efforts.
Nevertheless, it was fined by various state and federal environmental agencies,
became the defendant in several civil, administrative and criminal suits, and is
subject to several investigations and potential civil and criminal liabilities
as a result of those spills.
Petrobras has purchased insurance policies covering some environmental
risks, including the risk of oil spills. However, these policies do not cover
environmental fines and other potential liabilities that may result from these
risks and have a monetary cap on the amount of coverage provided. Although
Petrobras has never exceeded this insurance cap, it cannot assure you that it
will not do so in the future.
Petrobras is unable to predict whether future oil spills or other
environmental incidents will have a material adverse effect on its business
prospects or results of operations. Accordingly, if one or more of the potential
liabilities resulting from environmental incidents were to result in an actual
fine or civil or criminal liability, Petrobras' operations and financial
condition may be harmed.
8
The terrorist attacks in the United States and the subsequent United States
military action in Afghanistan could adversely affect economic activity and
prices for Petrobras' products and services.
Following the terrorist attacks in the United States and the subsequent
United States military action in Afghanistan, there has been substantial
volatility and unpredictability in the world's financial markets. In addition,
those events may increase political and economic instability in the geographic
areas in which Petrobras currently operates and may lead to increased volatility
in prices for crude oil and natural gas. The continued military action or other
response by the United States or its allies, future terrorist attacks or the
anticipation of any such actions or events may have a further adverse impact on
the United States and other world economies and thus affect prices for
Petrobras' products and services.
RISKS RELATING TO BRAZIL
Brazilian political and economic conditions may have a material adverse effect
on Petrobras.
The Brazilian government often changes monetary, credit and other
policies to influence Brazil's economy. The Brazilian government's actions to
control inflation and affect other policies have often involved wage and price
controls, alteration of the Central Bank of Brazil's base interest rates, as
well as other measures, such as the freezing of bank accounts, which occurred in
1990.
The Brazilian government's economic policies may have important effects
on Brazilian corporations and other entities, including Petrobras. Petrobras'
financial condition and results of operations may be adversely affected by the
following factors, as well as the Brazilian government's response to the
following factors:
. devaluations and other exchange rate movements;
. inflation;
. exchange control policies;
. social instability;
. price instability;
. energy shortages and rationing;
. interest rates;
. liquidity of domestic capital and lending markets;
. tax policy; and
. other political, diplomatic, social and economic developments in or
affecting Brazil.
Petrobras cannot predict the outcome of the upcoming presidential
election, the policies the new administration may adopt or the effect that those
policies may have on Brazilian economic conditions or Petrobras' results of
operations.
9
Currency devaluation could adversely affect Petrobras' results of operations and
financial condition.
The Brazilian currency has been devalued frequently during the last
four decades. Throughout this period, the Brazilian government has implemented
various economic plans and utilized various exchange rate policies, including
sudden devaluations, periodic mini-devaluations (during which the frequency of
adjustments has ranged from daily to monthly), exchange controls, multiple
exchange rate markets and floating exchange rate systems. From time to time,
there have been significant fluctuations in the exchange rates between the
Brazilian currency and the U.S. dollar and other currencies. For example, the
Real devalued 32% in 1999, 9% in 2000 and 16% in 2001 against the U.S. dollar.
Through June 26, the Real had devalued approximately 19% in 2002.
The principal market for Petrobras' products is Brazil and over the
last three fiscal years approximately 87% of Petrobras' revenues have been
denominated in Reais, although prices for crude oil and oil products have been
based on international prices. A substantial portion of Petrobras' indebtedness
and some of its operating expenses and capital expenditures are, and are
expected to continue to be, denominated in or indexed to U.S. dollars and other
foreign currencies. In addition, during the year ended December 31, 2001,
Petrobras imported U.S.$5.4 billion of crude oil and oil products, the prices of
which were all denominated in U.S. dollars.
Future devaluation of the Real could adversely affect Petrobras'
results of operations and financial condition.
Developments in other emerging market countries, including Argentina, may
adversely affect the Brazilian economy and negatively impact Petrobras' business
and results of operations.
In the past, the Brazilian economy and the securities of Brazilian
companies have been, to varying degrees, influenced by economic and market
conditions in other emerging market countries, particularly in Latin America, as
well as investors' responses to those conditions.
In December 2001, amid public demonstrations and after a lengthy
recession and the resignation of the President of the Republic, Argentina
declared a suspension on payment of its foreign debt. In addition, the current
Argentine administration has allowed, with some limitation, the exchange rate of
the Argentine Peso to float, resulting in a 75% devaluation of the market rate
of the Argentine Peso from January 6, 2002 to June 26, 2002. Additionally, the
Argentine government has enacted regulations which forbid Petrobras from
adjusting its revenues from its sales of approximately 5.30 billion cubic feet
per day of natural gas to reflect the devaluation of the Peso relative to the
U.S. dollar. These recent events have added to the perception and reality of
higher risk for investments in Argentina. If Argentina's economic environment
does not improve, the economy in Brazil, as both a neighboring country and a
significant trading partner, could be affected and could experience slower
growth than in recent years, negatively impacting Petrobras' business and
results of operations.
Because the consumption of oil has been historically linked to the level of
economic activity, an energy crisis may adversely affect Petrobras' results of
operations and financial condition.
Brazil experienced a shortage of capacity to generate and transmit
electrical power during 2001, primarily due to the prolonged and severe drought,
which negatively affected the hydroelectric generation of power, as well as to a
lack of investment in power generation and transmission. In May 2001, the
Brazilian government announced measures aimed at an average reduction of 20% in
electricity consumption in a number of regions of Brazil, including areas in
which Petrobras operates. As a result of higher water levels in reservoirs as
well as steps taken by the Brazilian government to increase the amount of
available electrical power, as of March 2002 the Brazilian government lifted all
electricity
10
consumption restrictions. Petrobras cannot assure you that another energy crisis
will not occur in the future.
A prolonged electrical energy crisis may have adverse effects on the
Brazilian economy and could lead to a downturn in the level of economic
activity. Because the consumption of oil has been historically linked to the
level of economic activity, an energy crisis may adversely affect our results of
operations and financial condition.
ITEM 4. INFORMATION ON THE COMPANY.
HISTORY AND DEVELOPMENT OF THE COMPANY
We were established on September 24, 1997 as a wholly-owned subsidiary
of Braspetro Oil Services Company, or Brasoil, a wholly-owned subsidiary of
Petrobras Internacional S.A. (Braspetro). We were initially incorporated under
the name Brasoil Finance Company, which was changed by special resolution of our
shareholders to Petrobras International Finance Company on September 25, 1997.
On January 14, 2000, the board of directors of Braspetro and Petrobras approved
the transfer of 100% of our voting shares from Brasoil to Petrobras. Since April
1, 2000, we have operated as a wholly-owned subsidiary of Petrobras.
We are an exempted company incorporated with limited liability under
the laws of the Cayman Islands. Our registered office is located at Anderson
Square Building, P.O. Box 714, George Town, Cayman Islands, and our telephone
number is 011-55-21-2534-1410.
BUSINESS OVERVIEW
We were incorporated in order to facilitate and finance the import of
crude oil and oil products into Brazil. Accordingly, our primary purpose is to
act as an intermediary between third-party oil suppliers and Petrobras by
engaging in crude oil and oil product purchases from international suppliers and
resales in U.S. dollars to Petrobras on a deferred payment basis, at a price
which represents a premium to compensate us for our financing costs. We are
generally able to obtain credit to finance purchases on the same terms granted
to Petrobras, and we buy crude oil and oil products at the same price that
suppliers would charge Petrobras directly. In strategic terms, Petrobras uses us
to expand its international operations and provide additional access to
international capital markets in order to establish a comprehensive approach to
its offshore trade and financing activities.
In addition to our import business, we also engage in a number of
non-core activities that are conducted by three wholly-owned subsidiaries
incorporated in 2001:
. Petrobras Netherlands B.V., or PNBV, a Dutch company, incorporated
to engage in leasing activities of primarily offshore exploration
and production of crude oil and natural gas equipment to be used by
Petrobras, while taking advantage of the import and export tax
benefits provided by the Netherlands and Brazil;
. Petrobras Europe Ltd., or PEL, a U.K. company, intended to act as
an agent and advisor in connection with Petrobras' activities in
Europe, the Middle East, the Far East and North Africa; and
. Petrobras Finance Limited, or PFL, a Cayman Islands company,
incorporated with the purpose of facilitating Petrobras' export
receivables securitization program.
11
OUR IMPORT ACTIVITIES
Our principal activity is the purchase of crude oil and oil products
for resale to Petrobras and, to a limited extent, third parties. We acquire the
crude oil and oil products either through purchases on the spot market or
long-term supply contracts. Our crude oil and oil product purchase obligations
are in most instances guaranteed by Petrobras. We sell the products to Petrobras
at our purchase price, plus a premium determined by a formula based on LIBOR to
compensate us for our financing costs. In addition, we finance our oil trading
activities through a combination of inter-company loans from Petrobras,
commercial paper programs, lines of credit and the issuance of notes in the
international capital markets.
12
The following chart shows how we act as the intermediary between
international crude oil suppliers and Petrobras.
US$
- --------------- 30 days from bill of lading
International Trade lines
Banks US$
- ---------------
------------------
------------- International
Suppliers
PIFCo Oil and Oil Products
------------------
-------------
Abroad
- --------------------------------------------------------------------------------
Crude oil and oil US$ Up to 180 days Brazil
Products from bill of lading
-------------
Petrobras
-------------
We purchase from the foreign oil supplier on a free-on-board (F.O.B.)
basis under standard terms that traditionally require payment within 30 days
from the bill of lading. Petrobras buys this oil from us under terms that allow
for payment up to 180 days from the date of the bill of lading. Petrobras would
typically be unable to meet the 30-day payment term imposed by foreign suppliers
because of the complexity of producing a full set of documents for a single bill
of lading when, for example, the shipment to which that bill of lading relates
must be delivered to different parts of Brazil and different sets of documents
must be delivered with respect to each delivery point. Depending on the
unloading ports' locations, this process may require up to 120 days from the
vessel's departure. We can pay the supplier on time without having to produce
these different sets of documents. To cover our financing costs, we include a
small premium when we sell crude oil and oil products to Petrobras.
In 2001, Petrobras conducted 97% of its crude oil and oil products
import activities through us in order to give it the flexibility it needs to
meet various delivery and funding requirements. During the year ended December
31, 2001, we sold crude oil and oil products with a total value of U.S.$6.25
billion and in the year ended December 31, 2000, we sold crude oil and oil
products with a total value of U.S.$7.94 billion. Petrobras accounted for
U.S.$4.35 billion (92%) of our sales in 1999, U.S.$7.29 billion (92%) of our
sales in 2000 and U.S.$5.84 billion (93%) of our sales in 2001. Our eight main
suppliers represented 69.1% of our total imports as of December 31, 2001 and
70.3% of our total imports as of December 31, 2000.
13
OUR MAIN SUPPLIERS
Year Ended Year Ended
December 31, 2001 December 31, 2000
------------------------------------------------
% of Total % of Total
Supplier Country Imports Imports Imports Imports
- --------------------------------------------------------------------------------------------------------------
(in millions of (in millions of
U.S. dollars) U.S. dollars)
Petrobras America, Inc. ................ United States $1,320.8 21.2% $1,254.6 15.9%
Sonatrach Group......................... Algeria 970.8 15.6 1,473.6 18.6
Saudi Aramco............................ Saudi Arabia 587.3 9.4 890.7 11.3
PDVSA Petroleo.......................... Venezuela 515.9 8.2 1,072.9 13.6
AGIP.................................... Italy 318.3 5.1 -- --
Ryttsa (Repsol-YPF)..................... Argentina 248.8 4.0 350.8 4.4
Reliance................................ India 224.2 3.6 -- --
Chevron San Jorge....................... Argentina 126.5 2.0 303.7 3.8
Somo.................................... Iraq -- -- 211.3 2.7
-------- ---- -------- ----
Total................................... $4,312.6 69.1% $5,557.6 70.3%
======== ==== ======== ====
As shown in the table above, during 2000, we conducted import
activities with Somo, an Iraqi corporation. These activities were permitted
pursuant to United Nations Security Council Resolution 986 (1995), which allows
Iraq to sell crude oil for the purpose of providing food, medicine and repairing
essential infrastructure, including within the oil industry. All contracts
signed by the Iraqi government must be submitted for approval to the office of
the United Nations Iraq Program in New York. We bought crude oil and oil
products directly from the Iraqi State Oil Marketing Organization after
receiving authorization from the Security Council's sanctions committee and made
payments for those products into the escrow account established by the United
Nations. During 2001, we did not conduct any import activities with Iraq or any
Iraqi entities.
OUR SALES TO THIRD PARTIES
We sold U.S.$407.6 million of crude oil and oil products to third
parties (including sales through Petrobras America, Inc. (PAI), a subsidiary of
Petrobras) during the year ended December 31, 2001, U.S.$646.7 million during
the year ended December 31, 2000 and U.S.$194.0 million during the year ended
December 31, 1999. The nine principal clients represented 68.0% of our third
party sales as of December 31, 2001 and 71.6% of our third-party sales as of
December 31, 2000.
THIRD-PARTY SALES
Year Ended Year Ended
December 31, 2001 December 31, 2000
------------------------------------------------------------------
% of Total % of Total
Third Party Third-Party Third Party Third-Party
Sales Sales Sales Sales
- -------------------------------------------------------------------------------------------------------------------------
(in millions of U.S. (in millions of U.S.
dollars) dollars)
Ipiranga.................................................. $ 60.5 14.8% $ -- --
Glencore.................................................. 56.4 13.8 -- --
Cargill................................................... 39.0 9.6 16.4 2.5
BP........................................................ 30.5 7.5 15.5 2.4
Contigroup................................................ 25.7 6.3 23.9 3.7
Trafigura................................................. 22.5 5.5 -- --
Ferrel.................................................... 20.5 5.3 -- --
PAI....................................................... 6.3 1.6 283.0 43.8
Hin Leong................................................. 14.8 3.6 67.4 10.4
Gontichen................................................. -- -- 56.6 8.8
------- ---- ------- ----
Total..................................................... $ 276.2 68.0% $ 462.8 71.6%
======= ==== ======= ====
14
PETROBRAS NETHERLANDS B.V. (PNBV)
In May 2001, we established a new wholly-owned subsidiary, PNBV,
incorporated in the Netherlands, to engage in leasing activities of primarily
offshore exploration and production of crude oil and natural gas equipment and
vessels, which we lease or freight for Petrobras to use in Brazil. PNBV was
created in order to capture tax benefits and segregate our leasing activities
from our imports of crude oil and oil products.
By purchasing exploration and production equipment through PNBV, we
enable Petrobras to benefit from Brazil's Special Customs System (Regime
Aduaneiro Especial), or Repetro. Repetro is a tax benefit program that grants
exemptions from some Brazilian taxes on the imports and exports of certain goods
engaged in exploration and development activities (upstream activities) in the
crude oil and natural gas industries.
With respect to goods manufactured within Brazil, we, as a foreign
entity acting alone or through PNBV, may purchase goods from a Brazilian
supplier and benefit from the tax exemptions provided by the Repetro laws that
seek to provide incentives for Brazilian industrial exports related to
exploration and development activities. In the case of goods manufactured
abroad, we may import these goods and lease them to Petrobras, thereby capturing
the tax exemption benefits the Repetro law provides for imported goods, so long
as such goods are used in Brazilian exploration and production activities and
remain in Brazil on a temporary basis. In order to take advantage of Repetro,
the use of the goods, produced either domestically or abroad, must ultimately be
related to the offshore exploration and production of crude oil and natural gas,
and the items must remain within Brazilian territory. As a practical matter, the
period during which the goods may remain in Brazil under the Repetro laws
typically exceeds the period during which their value depreciates to zero for
tax purposes. We expect to receive lease payments for these goods, which will be
calculated to include the cost of capital and a fee for acting as Petrobras'
agent.
We entered into capital lease transactions for equipment and production
platforms and acquired other materials and equipment totaling U.S.$801.8 million
in the year ended December 31, 2001 to be leased to Petrobras under the Repetro
regime.
PETROBRAS EUROPE LTD. (PEL)
In May 2001, we established a new wholly-owned subsidiary, PEL,
incorporated and based in the United Kingdom, to consolidate Petrobras' trade
and finance activities in Europe, the Middle East, the Far East and North
Africa. These activities consist of advising on and negotiating the terms and
conditions for crude oil and oil products supplied to us and Petrobras, as well
as marketing Brazilian crude oil and crude oil derivative products exported to
the geographic areas in which PEL operates. PEL plays an advisory role in
connection with these activities and undertakes no additional commercial or
financial risk. PEL provides these advisory and marketing services as an
independent contractor, pursuant to a services agreement between PEL and
Petrobras. In exchange, Petrobras compensates PEL for all costs incurred, plus a
margin of approximately 13.5%.
PETROBRAS FINANCE LIMITED (PFL)
In December 2001, we established PFL, a wholly-owned subsidiary
incorporated and registered in the Cayman Islands, to facilitate Petrobras'
export receivables asset securitization program. PFL primarily purchases bunker
fuel and fuel oil and limited amounts of crude oil and gasoline from Petrobras
and sells the products in the international market.
15
Export Receivables Asset Securitization Program
Petrobras sells and delivers bunker fuel and fuel oil and, subject to
certain conditions, other oil products, collectively the Eligible Products, to
PFL under two principal agreements--the Master Export Contract and the
Prepayment Agreement. The PF Export Receivables Master Trust, or the Trust, was
formed under the laws of the Cayman Islands to provide PFL with the funding
necessary to purchase oil products from Petrobras. The trust issued to PFL
U.S.$750 million of Senior Trust Certificates in four series (Series A-1, A-2, B
and C) and U.S.$150 million of Junior Trust Certificates representing junior
subordinated undivided beneficial interests in the property of the Trust (other
than charitable property), collectively the Trust Certificates.
In return, the trustee of the Trust receives the right to a specified
amount of receivables to be generated from PFL's sale of Eligible Products with
a value equal to the aggregate amount scheduled to be paid with respect to the
Trust Certificates. The value of receivables scheduled to be designated for sale
in any quarterly period represents a portion, but not all, of the receivables
expected to be generated from the sale of Eligible Products by PFL in such
period. The remainder of the receivables remain the property of PFL.
Additional series of senior trust certificates, with substantially the
same terms as the existing Senior Trust Certificates, may be issued to PFL from
time to time under certain conditions if Petrobras agrees to sell additional
Eligible Products to PFL.
Petrobras has guaranteed the payment of the Trust Certificates under
certain events of default, other than events of default relating to the
obligations of the offtaker or the insurance provider. Under such a scenario,
holders of the Senior Trust Certificates have a right to vote to accelerate
amortization of the Senior Trust Certificates and to cause Petrobras to pay PFL,
which will then be obligated to pay the trustee sufficient amounts intended to
enable the Trustee to redeem all then issued and outstanding Senior Trust
Certificates.
Petrobras' Bunker Fuel Business
Approximately 90% of the bunker fuel produced by Petrobras is exported.
Bunker fuel sold in Brazil by Petrobras to ships owned by non-Brazilian
companies is considered an export under Brazilian regulations. Approximately 32%
of Petrobras' bunker fuel sales are to shipping companies or ship owners, 31%
are to brokers who purchase fuel on behalf of shipping companies and the
remaining 37% are sold to traders.
Recent Developments and Trends
Since 1996, Petrobras has expanded its bunker fuel sales business. This
has been achieved through a more aggressive pricing strategy that closely
follows international prices in order to remain competitive with major supply
centers such as Rotterdam, Singapore, Durban, Houston, Gibraltar, Las Palmas and
Buenos Aires. In recent years, Petrobras has focused on extending its bunkering
capabilities into new ports as well as improving the quality of its service in
established ports and increasing the number of "bunker-only" ports. The number
of ships calling at Brazilian ports has increased consistently in recent years
as a result of this strategy. Petrobras delivers bunker fuel to approximately
35% of the ships calling at Brazilian ports.
16
Petrobras' Bunker Fuel Buyers
Petrobras has developed a highly diversified portfolio of customers and
has cultivated long-term relationships with many significant shipping companies
and traders. Total customers currently total approximately 300, with the top ten
customers representing only about 36% of the total sales in 2001. Petrobras has
been increasing its sales to shipowners, either directly or through brokers.
Sales to shipowners have increased from 45% of bunker fuel sales in 1997 to 68%
in 2001.
Competition
As a result of the changes in Brazilian government regulation in 1995,
the bunker fuel business is fully deregulated. However, Petrobras remains the
only producer of bunker fuel in Brazil. Petrobras' competition consists of other
providers of bunker fuel in ports outside of Brazil. Petrobras believes it has
the following competitive advantages in the bunker fuel business:
. Low Transportation Cost. Currently, Petrobras distributes bunker
fuel in 42 terminals along the Brazilian coast. The high cost of
transportation relative to the price of bunker fuel makes shipping
bunker fuel to Brazil from foreign countries uneconomical.
. High Quality Bunker Fuel. Petrobras is able to produce higher
quality bunker fuel with lower sulfur content (compared with other
bunker fuel available around the world) primarily because of the
quality and the blend of crude oil that Petrobras uses to produce
its oil products. Higher quality bunker fuel offers better engine
protection for ship owners.
. Vertically Integrated Oil Company. As Petrobras is a vertically
integrated company, its bunker fuel business enjoys various
benefits such as proximity to refineries, which gives Petrobras
more flexibility and ability to meet its customers' demands on
short notice.
. Sizeable Market. Brazil's high volume of international trade,
combined with its long coastline, gives Petrobras' bunker fuel
business a large potential market.
Petrobras' Fuel Oil Business
Major buyers of Petrobras' fuel oil include utilities, refineries and
traders. Fuel oil is used by industries and utilities to run machinery and
generate electricity. Commercial buildings and homes employ fuel oil for heating
purposes, and refineries use fuel oil for blending purposes.
Fuel oil prices are a function of the supply, demand and price of crude
oil. Price is also affected by the relationship of heavy fuel oil and lighter
product prices to crude oil prices. Heavy fuel oil prices for Brazilian
production are determined by New York Harbor prices net of freight and
insurance. Other factors affecting fuel oil prices include sulfur content,
season and other specifications, including viscosity, metal content, etc.
Recent Developments and Trends
Historically, 15% to 20% of the residual fuel oil produced by Petrobras
has been exported. The quantity exported represents the amount that is not
consumed domestically or used for bunker fuel purposes. Currently, bunker fuel
export sales produce higher margins than the fuel oil export alternative.
17
Petrobras' Fuel Oil Buyers
The market for Petrobras' fuel oil is highly concentrated, with 20 to
30 participants representing approximately 80% of the market. The primary market
for fuel oil produced by Petrobras is the U.S. East Coast, where sales are made
by PAI, and Argentina, where sales are carried out by Petrobras.
Brazilian fuel oil is used primarily by electric utilities along the
U.S. East Coast. Conversion to gas-fired plants has reduced demand for fuel oil,
although the ability for further conversion in the medium term is constrained by
supply and delivery limitations. As demand for fuel oil is further reduced, the
differential in cost between heavy fuel oil and light products will encourage
further investment in cracking and coking capacity to break down fuel oil into
lighter products. This is likely to further reduce global supply of fuel oil.
Most of Petrobras' sales are transacted on a spot basis. Petrobras has
contracts for periods that range from six months to one year to supply 1.0%
sulfur fuel oil to a number of utilities in the U.S. East Coast (in the case of
PAI) and Argentina (in the case of Petrobras). These sales are based on market
prices.
Competition
Price, sulfur content and service are the bases of competition in the
fuel oil market. The principal competitors of Petrobras in the fuel oil market
are refineries in the Caribbean and the U.S. East Coast.
Petrobras believes it has the following competitive advantages in the
fuel oil business:
. High Quality Fuel Oil. Petrobras' fuel oil has lower sulfur
content, viscosity and other metal content, which makes it an ideal
fuel for blenders.
. Proximity to the U.S. Market. Brazil is in a good geographic
location to export fuel oil to South America, the Caribbean and the
U.S. East Coast refining and blending centers. Petrobras' fuel oil
business is able to split shipping costs with other business units
as vessels returning to Brazil can import oil products for
Petrobras in their return voyages.
. Vertically Integrated Oil Company. Being in the refinery business
and a global trading company allows Petrobras to manage product
availability in the market and exploit synergies with other trading
divisions.
ORGANIZATIONAL STRUCTURE
Petrobras conducts its operations through its Brazilian and
international subsidiaries. We are a wholly-owned subsidiary of Petrobras and we
conduct certain of our operations through our three wholly-owned subsidiaries.
For a description of our subsidiaries and their respective businesses, see
"--Business Overview."
PROPERTY PLANT AND EQUIPMENT
We do not own or lease any materially important physical properties or
fixed assets. The majority of our assets are composed of investments in
direct-finance leases with Petrobras. These investments include contracts to
lease various types of materials and equipment utilized for the exploration and
production of crude oil and natural gas, including production and drilling
platforms, oil tankers, supply boats and other types of ships. We then lease
these assets to Petrobras. We receive lease
18
payments for these assets, which are calculated to include the cost of capital
and a fee for acting as Petrobras' agent.
Through PNBV, we entered into capital lease transactions for equipment
and production platforms and acquired other materials and equipment totaling
U.S.$801.8 million in the year ended December 31, 2001 to be leased to Petrobras
under the Repetro regime.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations together with our audited consolidated financial
statements and the accompanying notes beginning on page F-2 of this annual
report as well as Petrobras' audited consolidated financial statements in the
annual report of Petrobras for the year ended December 31, 2001, which is
incorporated herein by reference. Our audited consolidated financial statements
as of December 31, 2001 and 2000, and for each of the three years in the period
ended December 31, 2001, and the accompanying notes contained in this annual
report have been presented in U.S. dollars and prepared in accordance with U.S.
generally accepted accounting principles ("U.S. GAAP"). Although Cayman Islands
law does not require that we prepare and file financial statements, we do so in
accordance with U.S. GAAP. In addition, as a subsidiary of Petrobras, we also
prepare our financial statements in accordance with Brazilian Corporate Law.
OVERVIEW
General
We are a wholly-owned subsidiary of Petrobras. Accordingly, our
financial position and results of operations are largely affected by decisions
of our parent company. Our ability to meet our obligations in respect of our
outstanding indebtedness depends on a number of factors, including:
. the extent to which Petrobras continues to use our services
for market purchases of crude oil and oil products;
. Petrobras' willingness to continue to make inter-company loans
and provide us with other financial support;
. our ability to access financing sources, including third-party
credit facilities; and
. our ability to transfer our financing costs to Petrobras.
We earn income from:
. sales of crude oil and oil products to Petrobras;
. limited sales of crude oil and oil products to third
parties; and
. financial income derived from time deposits, financing of
sales to Petrobras and inter-company loans to Petrobras.
Our operating expenses include:
19
. cost of sales, which is comprised mainly of purchases of crude
oil and oil products; and
. financial expense, mainly from interest on our lines of credit
and capital markets indebtedness and intercompany loans from
Petrobras.
Purchases and Sales of Crude Oil and Oil Products
We typically purchase crude oil in transactions with payment terms of
approximately 30 days. Petrobras typically pays for shipments of crude oil that
we sell to it over a period ranging between 120 and 180 days, which allows
Petrobras sufficient time to assemble the necessary documentation under
Brazilian law to commence the payment process for its shipments. During this
period, we typically finance the purchase of crude oil and oil products through
either funds previously provided by Petrobras or third-party trade finance
arrangements. See "--Liquidity and Capital Resources." Sales to Petrobras are
calculated according to a formula based on LIBOR designed to reimburse us for
estimated financing expenses we may incur in connection with these sales. The
difference between the amount we pay for crude oil and oil products and the
amount Petrobras pays for that same crude oil and oil products is deferred and
recognized as part of our financial income on a straight-line basis over the
period in which Petrobras' payments to us come due. We are continuing to work
with Petrobras to establish an alternative reimbursement formula to fully
reimburse us for our financing expenses.
Taxes
The Cayman Islands currently impose no income, corporation or capital
gains tax and no estate duty, inheritance tax or gift tax. The only government
charge payable by us in the Cayman Islands is an annual registration fee of
U.S.$500 calculated on the basis of the nominal amount of our authorized share
capital. A stamp duty would also be payable on any documents that are executed
or brought into the Cayman Islands.
RESULTS OF OPERATIONS
Results of operations for the year ended December 31, 2001 compared to the year
ended December 31, 2000.
Sales
Our sales of crude oil and oil products (including sales of imports of
crude oil and oil products and sales of services) decreased 21.0% from
U.S.$7,937 million in 2000 to U.S.$6,271 million in 2001, primarily due to a
decrease in the average price of Brent crude oil from U.S.$28.50 per barrel
during 2000 to U.S.$26.16 per barrel during 2001 and a reduction in the volume
of crude oil and oil products imported by Petrobras resulting from an increase
in Petrobras' crude oil and oil products production in Brazil.
Cost of Sales
Costs of sales decreased 20.8% from U.S.$7,913 million in 2000 to
U.S.$6,264 million in 2001, due primarily to a reduction in the volume of crude
oil and oil products imported by Petrobras resulting from an increase in
Petrobras' crude oil and oil products production in Brazil, as well as a
decrease in the average price of Brent crude oil.
20
Gross Profit
Our gross profit reflects profits earned by us from our third-party
sales of crude oil and oil products and services, since we record profits from
sales of crude oil and oil products to Petrobras as financial income. Gross
profit decreased 71.0% from U.S.$24.4 million in 2000 to U.S.$7.6 million in
2001, due primarily to a decrease in sales to third parties, as a result of a
decrease of imports of crude oil and oil products. Sales to third parties are
typically conducted when we have imported crude oil and oil products that we no
longer need because of Brazilian demand or operational changes.
Financial Income
Our financial income decreased 28.3% from U.S.$221.6 million in 2000 to
U.S.$158.8 million in 2001, primarily due to the reduction of LIBOR rates used
in the formula designed to reimburse us for financing expenses incurred. This
resulted in our financing costs not being fully reimbursed. See "Item 4.
Information on Our Company--Business Overview--PIFCo's Import Activities."
Financial Expense
Financial expense decreased 14.8% from U.S.$219.6 million in 2000 to
U.S.$187.2 million in 2001, primarily due to a reduction in the credit terms we
extend to Petrobras from 180 days to 120 days and a decrease in crude oil
prices, which together decreased our need for financing. The reduced financing
costs resulting from this trend were offset by higher interest rates as a result
of our replacement of a significant amount of short-term debt with long-term
debt and the issuance of senior notes in the capital markets.
Gains on Material and Equipment
In 2001, we realized a gain on material and equipment of U.S.$0.44
million, mainly as a result of the sale of equipment by us to Catleia. See Note
6.2 to our audited consolidated financial statements.
Net Income (Loss)
Net income decreased 177.2% from U.S.$26.3 million in 2000 to a loss of
U.S.$20.3 million in 2001.
Results of operations for the year ended December 31, 2000 compared to the year
ended December 31, 1999.
Sales
Our sales of crude oil and oil products increased 67.9% from U.S.$4,728
million in 1999 to U.S.$7,937 million in 2000, primarily as a result of an
increase in the average price of Brent crude oil from U.S.$17.87 per barrel in
1999 to U.S.$28.50 per barrel in 2000. The increase in our sales was partially
offset by a reduction in volumes imported by Petrobras as a result of an
increase in Petrobras' production in Brazil.
Cost of Sales
Our costs of sales increased 67.5% from U.S.$4,724 million in 1999 to
U.S.$7,913 million in 2000, as a result of the increase in the average price of
Brent crude oil during the year and a reduction in
21
the volume of crude oil and oil products imported by Petrobras as a result of an
increase in Petrobras' production in Brazil.
Gross Profit
Our gross profit increased 481.0% from U.S.$4.2 million in 1999 to
U.S.$24.4 million in 2000, due primarily to a significant increase in our sales
to third parties and our ability to achieve favorable trade terms on those
third-party sales. We increased our sales to third parties in order to sell
crude oil and oil products that we purchased which Petrobras did not require for
its own use.
Financial Income
Our financial income increased 39.9% from U.S.$158.4 million in 1999 to
U.S.$221.6 million in 2000, due to an increase in the premiums we charged
Petrobras to compensate for an increase in our financial expense and a decrease
in Petrobras' payment period, which accelerated the recognition of unearned
income.
Financial Expense
Our financial expense increased 54.4% from U.S.$142.2 million in 1999
to U.S.$219.6 million in 2000, primarily due to an increase in the cost of
imports financed attributable to an increase in prevailing international crude
oil and oil product prices.
Net Income
Our net income increased 28.9% from U.S.$20.4 million in 1999 to
U.S.$26.3 million in 2000.
LIQUIDITY AND CAPITAL RESOURCES
We finance our oil trading activities through a combination of
inter-company loans from Petrobras, commercial paper programs, lines of credit
and the issuance of notes in the international capital markets. In our opinion,
our working capital is sufficient for our present requirements.
Our short-term borrowings are denominated in U.S. dollars and consist
of commercial papers and lines of credit. At December 31, 2001, we had access to
U.S.$449.8 million in commercial paper notes and U.S.$540.7 million in lines of
credit, compared to U.S.$377.8 million in commercial paper notes and U.S.$152.5
million in lines of credit at December 31, 2000 and U.S.$180.0 million in
commercial paper notes and U.S.$561.5 million in lines of credit at December 31,
1999. The weighted average annual interest rate on these short-term borrowings
was 2.8% at December 31, 2001, 7.8% at December 31, 2000 and 7.7% at December
31, 1999.
In October 2001, we liquidated our U.S.$300 million commercial paper
program, leaving a separate U.S.$500 million commercial paper program in place.
This program was renewed in April 2002 in a lesser amount of U.S.$335 million in
order to provide us financing flexibility for our daily operations. Our
commercial paper program is rated A1+ by Standard & Poor's and P-1 by Moody's
and is supported by a letter of credit issued by Barclays Bank and a standby
purchase agreement with Petrobras. As of December 31, 2001, we also had access
to short-term capital through U.S.$303 million in irrevocable letters of credit
supporting oil imports.
We have U.S.$385 million in long-term lines of credit due between 2003
and 2006 and U.S$1,050 million in long-term notes due in 2008 and 2011, in each
case outstanding at December 31,
22
2001. As of December 31, 2001, we had fully utilized all available lines of
credit for the purchase of imports. Since December 31, 2001, we have issued an
additional U.S.$500 million in long-term notes, consisting of U.S.$400 million
of 9 1/8% senior notes issued on February 4, 2002 and U.S.$100 million of
additional 9 1/8% senior notes issued on February 21, 2002. Interest rates on
these long-term lines of credit and outstanding notes range from 4.9% to 9.9%
per year.
Pursuant to Petrobras' strategy to obtain a wider range of medium- and
long-term financial instruments and to channel more of its financings through
us, we have been increasing our borrowings to finance our crude oil trading
activities since the third quarter of the year 2000, and have used the net
proceeds of the two senior notes issuances totaling U.S.$1,050 million to repay
a substantial portion of notes payable to Petrobras. As a result, inter-company
loans decreased to U.S.$335 million at December 31, 2001 compared to U.S.$1,717
million at December 31, 2000 and U.S.$1,629 million at December 31, 1999. As of
December 31, 2001, we had total capital of U.S.$49.4 million including initial
and additional paid-in-capital of U.S.$60.0 million, as well as an accumulated
deficit of U.S.$10.7 million.
As an offshore non-Brazilian company, we do not need to receive prior
approval from the National Treasury to incur debt or register debt with the
Central Bank. However, as a matter of policy, the issuance of any debt is
recommended by Petrobras' board of directors and subsequently approved by our
board.
We have the following capital markets debt outstanding as of December
31, 2001, except as otherwise noted:
CAPITAL MARKETS DEBT OUTSTANDING
Notes Principal Amount
- -----------------------------------------------------------------------------------------------------------
9.125% Notes due 2007(1)(2)......................................................... U.S.$400 million
9.125% Notes due 2007(1)(2)......................................................... U.S.$100 million
9.875% Notes due 2008(1)............................................................ U.S.$450 million
6.750% Senior Trust Certificates due 2010(3)........................................ U.S.$95 million
Floating Rate Senior Trust Certificates due 2010(3)................................. U.S.$55 million
9.750% Notes due 2011(1)............................................................ U.S.$600 million
6.600% Senior Trust Certificates due 2011(3)........................................ U.S.$300 million
Floating Rate Senior Trust Certificates due 2013(3)................................. U.S.$300 million
- --------------
(1) Issued by us, with support from Petrobras through a standby purchase
agreement.
(2) Issued after December 31, 2001.
(3) Export receivables asset securitization program.
As long as any 9 1/8%, 9 3/4% or 9 7/8% notes are outstanding, we will
not create or permit any lien, other than a "PIFCo Permitted Lien" as defined in
the prospectus of each issuance, on any of our assets in order to secure
additional indebtedness, except under certain conditions.
The following table sets forth the sources and amounts of current and
long-term debt as of December 31, 2001 and December 31, 2000:
23
CURRENT AND LONG-TERM DEBT
December 31, 2001 December 31, 2000
-------------------------------- -----------------------------
Current Long-term Current Long-term
------- --------- ------- ---------
Financing institutions .......................... U.S.$540,659 U.S.$385,000 U.S.$152,500 U.S.$245,000
Commercial papers ............................... 449,768 377,852
Senior notes .................................... 1,050,000
Securitization of Receivables ................... 900,000
---------------- --------------- --------------- -------------
U.S.$990,427 U.S.$2,335,000 U.S.$530,352 U.S.$245,000
================ =============== =============== =============
CRITICAL ACCOUNTING POLICIES
Capital Leases
We lease certain offshore platforms, which are accounted for as capital
leases. These leases qualify as capital leases based on the criteria established
by SFAS No. 13, Accounting for Leases, and are presented as assets with
corresponding financing liabilities on our balance sheet.
Derivative Instruments
We make limited use of derivatives. We do not hold derivative
instruments for trading purposes or for leverage. Because of our limited use of
derivatives, accounting policies for derivatives do not impact information that
is significant or critical to an understanding of our financial condition and
results of operations.
Operations with the Parent Company
In light of the fact that substantially all of our sales of crude oil
and oil products are to Petrobras, we do not retain provisions for doubtful
accounts.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
We are managed by a board of directors, which currently consists of two
members, and our executive officers. The executive officers work as a board and
are responsible for our day-to-day management. The board of directors is
responsible for preparing our year-end accounts, convening shareholders'
meetings and reviewing and monitoring our financial performance and strategy.
Although not required by our bylaws, it is our policy that the Chairman and all
of our executive officers be Petrobras employees. All of the current executive
officers are experienced managers from Petrobras, some of whom have served on
the boards of directors of Petrobras subsidiaries and in representative offices
abroad.
Our board of directors serve indefinite terms and can be removed with
or without cause. The following table sets forth certain information about our
board of directors.
BOARD OF DIRECTORS
Name Date of Birth Position Year of Appointment
- --------------------------------------------------------------------------------------------------------------------
Amir Guilherme Barbassa................... May 19, 1947 Chairman 1999
Carlos Ney Martin de Andrade.............. April 29, 1950 Director 2001
24
Almir Guilherme Barbassa. Mr. Barbassa has been our Chairman and Executive
Manager of Corporate Finance of Petrobras since July 12, 1999. He joined
Petrobras in 1974 and served in Braspetro as Financial Manager in the Middle
East, North Africa, the United States and Brazil. He served as Financial
Director of Braspetro from 1993 to 1999. In addition, he was a professor in the
economics department of the Petropolis Catholic University and of the Faculdades
Integradas Bennett from 1973 to 1979.
Carlos Ney Martin de Andrade. Mr. Andrade joined Petrobras in 1974. He has
served as Commercial Department Manager for Bunkering Crude Oil Supply and
Petroleum Products Trading. He has also served as Director of BR and Trading
Manager for Petrobras America International. Prior to serving in his current
role as Executive Manager for Marketing and Trading, Mr. Andrade was General
Manager for Trading.
The following table sets forth certain information about our executive
officers.
EXECUTIVE OFFICERS
Name Date of Birth Position
- --------------------------------------------------------------------------------------------------------------------
Claudia Valeria Carreiro de Souza........... March 8, 1963 Commercial Manager
Daniel Lima de Oliveira..................... December 29, 1951 Financial Manager
Mariangela Monteiro Tizatto................. August 9, 1960 Accounting Manager
Geraldo Vieira Baltar....................... August 25, 1944 Procurement Manager
Nilton Antonio de Almeida Maia.............. June 21, 1957 Legal Manager
Ana Celia Fleischman........................ February 21, 1957 Secretary
Gerson Luiz Goncalves....................... September 29, 1953 Auditor Manager
Claudia Valeria Carreiro de Souza. Ms. Carreiro became an executive officer of
our company on March 19, 2000. She joined Petrobras in 1990 and has served as
Commercial Department Manager for Petroleum Products Supply and Trading since
1994.
Daniel Lima de Oliveira. Mr. Lima became an executive officer of our company on
April 19, 2000. He joined Petrobras in 1976 as a supply engineer in the
Commercial Department. In 1982 he moved to the Financial Department where he
worked in the short-term credit division and served as Assistant to the General
Manager. From 1984 until 1988, he served as Financial Manager of the London
office. Since 1998, he has served as a manager at Braspetro and a financial
manager of the New York office. Since January 2002, he has been a director of
Petrobras Internacional--BRASPETRO and Braspetro Oil Services--BRASOIL.
Mariangela Monteiro Tizatto. Ms. Tizatto became an executive officer of our
company on April 4, 1998. She joined Petrobras in 1989 as an accountant in the
Accounting Department. Since 1999, she has served as Petrobras' General Manager
for Accounting Operations. From 1990 to 1995, she was Manager of Petrobras'
Consolidated Accounting System, and from 1995 to 1999, she served as Manager of
Petrobras' Division of Corporate Accounting. Before joining Petrobras, Ms.
Tizatto was Manager of Auditing for Deloitte Touche Tohmatsu for seven years.
She was also a professor of advanced accounting at the Faculdade Moraes Junior
in Rio de Janeiro (1990).
Geraldo Vieira Baltar. Mr. Baltar became an executive officer of our company on
August 11, 2001. He joined Petrobras in 1970 and currently serves as the
Executive Manager of Energy under the Gas and Energy Directorship. He has held
several positions with Petrobras, including Senior Equipment Engineer and
Executive Manager of Materials.
Nilton Antonio de Almeida Maia. Mr. Maia became an executive officer of our
company on April 19, 2000. He joined Petrobras in 1984 as an internal auditor.
He has served as a tax consultant to Petrobras'
25
Legal Department, and since early 2000, has served as General Manager for the
Finance and Tax Division. Mr. Maia is also a professor at the Universidade
Federal do Rio de Janeiro.
Ana Celia Fleischman. Ms. Fleischman became an executive officer of our company
on August 15, 2001. She joined Petrobras in 1980 as Analyst for Trading and
Supply in the Commercial Department, where she worked in the natural gas,
financial and pricing areas.
Gerson Luiz Goncalves. Mr. Goncalves became an executive officer of our company
on April 19, 2000. He joined the Internal Audit Department of Petrobras in 1976
and has been Petrobras' Executive Manager for Internal Auditing for the last six
years. He is responsible for all of Petrobras' internal accounting control
activities. Mr. Goncalves is a member of the Brazilian Institute of Internal
Auditors (AUDIBRA) and of the United States' Institute of Internal Auditors
(IIA).
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers do not receive compensation,
pension or other benefits from us or Petrobras in respect of their functions as
directors and officers of PIFCo.
BOARD PRACTICES
The dates of appointment of our current directors and executive
officers are set forth above under "Item 6. Directors and Senior Management and
Employees." Our directors and executive officers do not have set terms of
appointment. We have not entered into any service or employment contracts with
any of our directors and executive officers. We do not have any audit or
remuneration committees.
EMPLOYEES
With the exception of five employees of PEL, our personnel consists
solely of Petrobras employees, and we rely on Petrobras to provide all
administrative functions.
SHARE OWNERSHIP
We have 50,000 shares of common stock outstanding. All of our issued
and outstanding shares of common stock are owned by Petrobras.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
We are a wholly-owned subsidiary of Petrobras. We have numerous
transactions with Petrobras and other affiliated companies in the ordinary
course of business, as our primary function is to purchase crude oil and oil
products for sale to Petrobras.
Transactions with all related parties resulted in the following
balances:
26
Petroleo Petrobras Alberto Fronape December
Brasileiro S.A International S.A. Pasqualini- International December 31, 31,
Petrobras Braspetro Refap S.A. Company 2001 2000
--------- --------- ---------- ------- ---- ----
(in thousands of U.S. dollars)
Current assets
Accounts receivable,
mainly by sales..... $ 2,368,594 $ 36,878 $ 173,413 $ 5,966 $ 2,584,851 $ 3,011,167
Notes receivable--
current 12,772 135,459 134,744 282,975
Other non current assets
Export prepayment.. 750,000 750,000
Notes receivable--non
current........... 90,238
Net investment in
direct financing
leases............ 852,753 852,753 52,015
Current liabilities
Trade accounts
payable........... 28,653 259,415 288,068 70,842
Loans payable...... 91,123 243,441 334,564 1,716,565
Dividends payable.. 38,060
Unearned income.... 7,185 1,133 8,318 29,925
Transactions with all related parties consisted of the following:
December 31, 2001 December 31, 2000
------------------ -------------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
(in thousands of U.S. dollars)
Assets
Current
Accounts receivable.............................................. $2,584,851 $3,011,167
Notes receivable(1).............................................. 282,975
Other non current.................................................
Notes receivable................................................. 90,238
Export prepayment................................................ 750,000
Net investment in direct financing leases........................ 852,753
Liabilities
Current
Trade accounts payable........................................... 288,068 70,842
Loans payable(2)................................................. 334,564 1,716,565
Dividends........................................................ 38,060
Unearned income.................................................. 8,318 29,925
---------- ----------
Total............................................................... 4,470,579 630,950 3,101,405 1,855,392
========== ========== ========== ==========
Current.............................................................. 2,867,826 630,950 3,011,167 1,855,392
========== ========== ========== ==========
Long-term............................................................ 1,602,753 90,238
========== ==========
- --------------
(1) These notes bear interest at rates ranging from 4.9% to 7.1% and have
maturity periods ranging from 90 to 360 days.
(2) Our notes payable to Brasoil and Petrobras bear interest based upon
LIBOR with spreads consistent with those charged to Petrobras by us.
27
The principal amounts of business and financial operations carried out
with related parties are as follows:
Years ended December 31,
-------------------------------------------------------------------------
2001 2000 1999
---------------------- ----------------------- -----------------------
Income Expense Income Expense Income Expense
--------- ----------- ---------- ----------- --------- -----------
(in thousands of U.S. dollars)
Sales of crude oil and oil products
and services
PETROBRAS........................ $ 5,115,232 $ 7,290,321 $ 4,354,986
REFAP S.A........................ 738,943
Petrobras America,
Inc. - PAI..................... 6,390 282,961 179,039
Cost of sales
PETROBRAS........................ (95,242) (81,130) (1,345,827)
Petrobras America,
Inc. - PAI..................... (1,320,822) (1,260,335) (571,969)
Braspetro Oil Services Company
- BRASOIL..................... (83,320)
Companhia MEGA S.A............... (148,723)
Fronape International Company.... (10,542)
Financial income
PETROBRAS........................ 126,992 217,102 156,531
REFAP S.A. ...................... 14,388
Braspetro Oil
Company - BOC.................. 4,992 238
Braspetro Oil Services Company
- BRASOIL..................... 3,711 28
Fronape International Company.... 4,744
Braspetro........................ 614
Financial expense
PETROBRAS........................ (51,979) (152,940) (73,583)
Braspetro Oil Services
Company - BRASOIL.............. (15,422) (198)
-------- -----
Total............................ 6,016,006 (1,726,050) 7,790,650) (1,494,603) 4,690,556 (1,991,379)
========= =========== ========== =========== ========= ===========
ITEM 8. FINANCIAL INFORMATION.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See "Financial Statements" on pages F-1 through F-18.
There is no litigation or governmental proceeding pending or, to our
knowledge, threatened against us or any of our subsidiaries that, if adversely
determined, would have a significant effect on our financial position or
profitability.
For a description of our dividend distribution policy, see "Item 10.
Additional Information--Memorandum and Articles of Association--Rights and
Obligations of Shareholders--Dividends."
ITEM 9. THE OFFER AND LISTING.
Our stock is not registered and there is no trading market for it.
Trading in our senior notes takes place primarily in the Luxembourg
Stock Exchange.
28
ITEM 10. ADDITIONAL INFORMATION
MEMORANDUM AND ARTICLES OF ASSOCIATION
The following represents a summary of certain key provisions of our Memorandum
and Articles of Association. The summary does not purport to be a summary of all
of the provisions of our Memorandum and Articles of Association nor of all
relevant provisions of Cayman Islands law governing the management and
regulation of Cayman Islands exempted companies.
REGISTER
We are an exempted company incorporated with limited liability in the
Cayman Islands under the Companies Law (2001 Second Revision) with company
registration number 76600. We registered and filed our Memorandum and Articles
of Association with the Registrar of Companies on September 24, 1997. We were
initially incorporated with the name Brasoil Finance Company, which name was
changed by special resolution of our shareholders to Petrobras International
Finance Company on September 25, 1997. There has been no subsequent amendment to
our Memorandum and Articles of Association.
OBJECTS AND PURPOSES
Our Memorandum of Association grants us full power and authority to
carry out the business of petroleum marketing, sales, financing and
transportation and any business incidental thereto. As a matter of Cayman
Islands law, we cannot trade in the Cayman Islands except in furtherance of the
business carried on outside the Cayman Islands.
DIRECTORS
Directors may vote on a proposal, arrangement or contract in which they
are interested. However, interested directors must declare the nature of their
interest at a directors' meeting. If the interested directors declare their
interest, their votes are counted and they are counted in the quorum of such
meeting.
The directors may exercise their powers to borrow money, issue debt
securities and to mortgage or charge any of the undertaking or property of our
company and are generally responsible for its day-to-day management and
administration.
Directors are not required to own shares.
RIGHTS AND OBLIGATIONS OF SHAREHOLDERS
Dividends
Shareholders may declare dividends in a general meeting but the
dividends cannot exceed the amount recommended by the directors. The directors
may pay the shareholders interim dividends and may, before recommending any
dividend, set aside reserves out of profits. The directors can invest these
reserves in their discretion or employ them in our business.
Dividends may be paid in cash or in kind but may only be paid out of
profits or, subject to certain restrictions of Cayman Islands law, a share
premium account.
29
Voting Rights
Votes may be cast at a general meeting by a show of hands or by a poll.
On a vote by a show of hands, each shareholder or shareholder represented by
proxy has one vote. On a vote by a poll, each shareholder or shareholder
represented by proxy has one vote for each share owned.
Directors are elected by ordinary resolution by the shareholders at
general meetings or by a board resolution of the directors. Shareholders are not
entitled to vote at a general meeting unless calls or other amounts payable on
their shares have been paid. In lieu of voting on a matter at a general meeting,
the shareholders entitled to vote on that matter may adopt the matter by signing
a written resolution.
Redemption
We may issue shares which are redeemable by us or by our shareholders.
The amount payable on each share in a redemption is its fair value as determined
by the directors on the basis of a willing seller and a willing buyer.
Where we have agreed to purchase any share from a shareholder, we will
give notice to the other shareholders, if any, specifying the number and class
of shares to be purchased, the name and address of the seller, the price to be
paid for the shares and the portion (if any) of that price which is being paid
out of capital. The notice will also indicate a date on which the purchase is to
be effected and will invite shareholders other than the seller, if any, to
object to the purchase before that date. If any objection is received the
redemption request will be refused by the directors or put to a general meeting
of the shareholders.
Shareholder Rights Upon Liquidation
If we are liquidated, the liquidator may (in accordance with an
ordinary shareholder resolution):
. set a fair value on our assets, divide all or part of our assets
among the shareholders and determine how the assets will be
divided among shareholders or classes of shareholders; and
. vest all or part of our assets in trustees.
Shareholders will not be compelled to accept any securities on which
there is a liability.
Calls on Shares
Directors may make calls on the shareholders with respect to any
amounts unpaid on their shares. Each shareholder shall pay to the company the
amounts called on such shares.
Change to Rights of Shareholders
Shareholders may change the rights of their class of shares by:
. getting the written consent of three-fourths of the shareholders
of that class; or
. passing a special resolution at a meeting of the shareholders
of that class.
There are no general limitations on the rights to own shares specified
by the articles.
30
GENERAL MEETINGS
A general meeting may be convened:
. by the directors at any time; or
. by any two shareholders by written request.
Notice of a general meeting is given to all shareholders.
All business carried out at a general meeting is considered special
business except:
. sanctioning a dividend;
. consideration of the accounts, balance sheets, and ordinary
report of the directors and auditors;
. appointment and removal of directors; and
. fixing of remuneration of the auditors.
Shareholder consent is required to carry out special business at a
meeting unless notice of the special business is given in the notice of the
meeting. A quorum of shareholders is required to be present at any meeting in
order to carry out business. Any two shareholders or one shareholder holding a
majority of the shares who are present in person or represented by proxy is a
quorum.
There is no requirement under Cayman Islands law to convene an annual
meeting or to convene any general meeting of the shareholders. The directors are
permitted to designate any general meeting of shareholders as an annual general
meeting.
LIABILITY OF SHAREHOLDERS
In normal circumstances, the liability of any shareholder to us is
limited to the amount which such shareholder has agreed to pay in respect of the
subscription of his shares.
CHANGES IN CAPITAL
We may increase our share capital by ordinary resolution. The new
shares will be subject to all of the provisions to which the original shares are
subject.
We may also by ordinary resolution:
. consolidate and divide all or any of our share capital into
shares of a larger amount;
. sub-divide existing shares into shares of a smaller amount,
subject to the provisions of Section 13 of the Companies Law; and
. cancel any shares which, at the date of the resolution, are not
held or agreed to be held by any person.
31
We may reduce our share capital and any capital redemption reserve by
special resolution in accordance with relevant provision of Cayman Islands law.
INDEMNITY
Our directors and officers are indemnified out of our assets and funds
against all actions, losses, expenses and liabilities which they incur in the
discharge of their respective duties, powers, authorities or discretions. Under
our Memorandum of Association, directors and officers are excused from all
liability to us, except for any losses which arise as a result of such party's
own dishonesty.
ACCOUNTS
Accounts relating to our affairs are kept in such manner as may be
determined from time to time by the directors and may be audited in such manner
as may be determined from time to time by us in a general meeting or failing any
such determination by the directors. There is, however, no requirement as a
matter of Cayman Islands law to have our accounts audited.
TRANSFER OUT OF JURISDICTION
We may, by special resolution of the shareholders, transfer out of the
Cayman Islands into any jurisdiction permitting such transfer.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are:
. no governmental laws, decrees or regulations in Cayman Islands
that restrict the export or import of capital, including dividend
and other payments to non-resident holders to the Cayman Islands,
and
. no limitations on the right of nonresident or foreign owners
imposed by Cayman Island law or our Memorandum of Association to
hold or vote our shares.
TAXATION
The following is a summary of principal Cayman Islands and United
States federal income tax considerations that may be relevant to the purchase,
ownership, and disposition of our debt securities. This summary does not
describe any tax consequences arising under the laws of any state, locality or
taxing jurisdiction other than the United States and the Cayman Islands.
This summary is based on the tax laws of the Cayman Islands and the
United States as in effect on the date of this annual report, as well as
regulations, rulings and decisions of the Cayman Islands and the United States
available on or before the date of this annual report and now in effect. All of
these laws, regulations, rulings and decisions are subject to change, which
could apply retroactively and cause statements in this summary to no longer be
true. There is no reciprocal tax treaty between the Cayman Islands and the
United States.
CAYMAN ISLANDS TAXATION
Under current law, we are not subject to income, capital, transfer,
sales or other taxes in the Cayman Islands.
32
We were incorporated as an exempted company under the laws of the
Cayman Islands on September 24, 1997. We have received an Undertaking as to Tax
Concessions pursuant to Section 6 of the Tax Concessions Law (1999 Revision)
which provides that, for a period of twenty years from the date thereof no law
hereafter enacted in the Cayman Islands imposing any tax or duty to be levied on
income or on capital assets, gains or appreciation will apply to any of our
income or property and which is deemed to provide that no tax is to be levied on
profits, income, gains or appreciations or which is in the nature of estate duty
or inheritance tax shall be payable on or in respect of shares, debentures or
other of our obligations, or by way of withholding of any part of a payment of
principal due under a debenture or other of our obligations.
No Cayman Islands withholding tax applies to distributions by us in
respect of the notes. Noteholders are not subject to any income, capital,
transfer, sales or other taxes in the Cayman Islands in respect of their
purchase, holding or disposition of the notes.
Noteholders whose notes are brought into or issued in the Cayman
Islands will be liable to pay stamp duty of up to C.I.$250 on each note.
U.S. FEDERAL INCOME TAXATION
The following summary sets forth certain United States federal income
tax consequences of the purchase, ownership and disposition of our debt
securities. This summary is based upon the Internal Revenue Code of 1986, as
amended, or the Code, its legislative history, existing and proposed U.S.
Treasury regulations promulgated thereunder, published rulings by the U.S.
Internal Revenue Service, or the IRS, and court decisions, all in effect as of
the date of this offering memorandum, all of which authorities are subject to
change or differing interpretations, which changes or differing interpretations
could apply retroactively. This summary does not purport to discuss all aspects
of United States federal income taxation which may be relevant to particular
investors, such as financial institutions, insurance companies, dealers or
traders in securities or currencies, regulated investment companies, tax-exempt
organizations, persons holding notes as part of a position in a "straddle" or as
part of a hedging transaction or "conversion transaction" for U.S. federal tax
purposes, persons that enter into a "constructive sale" transaction with respect
to the notes or U.S. Holders (as defined below) whose functional currency as
defined in Section 985 of the Code is not the U.S. dollar. In addition, this
summary does not discuss any foreign, state or local tax considerations. This
summary only applies to original purchasers of notes who purchase notes at the
original issue price and hold the notes as "capital assets" (generally, property
held for investment) within the meaning of Section 1221 of the Code.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING
THE TAX CONSEQUENCES OF INVESTING IN THE NOTES, INCLUDING THE EFFECTS OF
FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
As used herein, the term "U.S. Person" includes (i) a citizen or
resident of the United States, (ii) a corporation created or organized in or
under the laws of the United States, (iii) any estate the income of which is
subject to United States federal income taxation regardless of its source, (iv)
a trust, if a court within the United States is able to exercise primary
supervision over its administration and one or more U.S. persons (as defined in
the Code) have the authority to control all substantial decisions, or a trust
that elects under U.S. Treasury regulations to be treated as a domestic trust
and (v) a partnership to the extent the interests therein are held by any of the
foregoing. The terms "U.S." and "United States" mean the United States of
America (including the states and the District of Columbia). A "U.S. Holder" is
a beneficial owner of a note that is a U.S. Person. A "Non-U.S. Holder" is a
beneficial owner of a note that is not a U.S. Person. A "U.S.-Controlled Person"
includes (i) a controlled foreign corporation for United States tax purposes,
(ii) a foreign person 50% or more of whose gross income is effectively connected
33
with the conduct of a trade or business within the United States for a specified
three-year period and (iii) a foreign partnership that is engaged in a U.S.
trade or business or more than 50% of whose income or capital interests are held
by U.S. Persons.
In the case of a holder of notes that is a partnership for U.S. federal
tax purposes, each partner will take into account its allocable share of income
or loss from the notes, and will take such income or loss into account under the
rules of taxation applicable to such partner, taking into account the activities
of the partnership and the partner.
U.S. HOLDERS
Payments of interest
Payments of interest on a note (including additional amounts, if any)
will generally be taxable to a U.S. Holder as ordinary interest income when such
interest is accrued or received, in accordance with the U.S. Holder's regular
method of tax accounting. Thus, to the extent that amounts are withheld and
additional amounts are paid on the notes, a U.S. Holder will be required to
report income in an amount greater than the cash received on the payments.
Interest income from the notes will constitute foreign source income for United
States federal income tax purposes and, with certain exceptions, will be treated
separately, together with other items of "passive income" or, in the case of
certain holders, "financial services income" for purposes of computing the
foreign tax credit allowable under the United States federal income tax laws. If
any withholding taxes are paid in respect of payments to a U.S. Holder on the
notes and the withholding tax rate is at least 5%, interest income from the
notes will be treated separately as "high withholding tax interest" for purposes
of computing that holder's foreign tax credit. A U.S. Holder may be eligible,
subject to a number of limitations, to a foreign tax credit or deduction against
such U.S. Holder's United States federal income tax liability for taxes withheld
on the notes.
Sale or disposition of Notes
A U.S. Holder will generally recognize capital gain or loss upon the
sale, exchange, retirement or other disposition of a note in an amount equal to
the difference between the amount realized upon such sale, exchange, retirement
or other disposition (other than amounts attributable to accrued interest, which
will be taxed as such) and such U.S. Holder's tax basis in the note. A U.S.
Holder's tax basis in the note will generally equal the U.S. Holder's cost for
the note. In the case of a U.S. Holder that is an individual, estate or trust,
the maximum marginal federal income tax rate applicable to such gain will be
lower than the maximum marginal federal income tax rate for ordinary income if
the U.S. Holder's holding period for the note exceeds one year. Gain or loss
realized by a U.S. Holder on the sale, exchange, retirement or other disposition
of a note will generally be United States source gain or loss for United States
federal income tax purposes unless it is attributable to an office or other
fixed place of business outside the United States and certain other conditions
are met.
NON-U.S. HOLDER
Subject to the discussion of "backup" withholding below, interest on
the notes is currently exempt from United States federal income taxes, including
withholding taxes, if paid to a Non-U.S. Holder unless the interest is
effectively connected with the conduct by such holder of a United States trade
or business. In addition, (i) subject to the discussion of backup withholding
below, a Non-U.S. Holder will not be subject to United States federal income tax
on any gain realized on the sale or exchange of a note, provided that such gain
is not effectively connected with the conduct by the holder of a United States
trade or business and, in the case of a Non-U.S. Holder who is an individual,
such holder is not present in the United States for a total of 183 days or more
during the taxable year in which such
34
gain is realized and certain other conditions are met and (ii) the notes will be
deemed to be situated outside the United States for purposes of the United
States federal estate tax and will not be includible in the gross estate for
purposes of such tax in the case of a non-resident of the United States who is
not a citizen of the United States at the time of death.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, payments made on a note within the United States to a
non-corporate U.S. Holder will be subject to information reporting requirements
and will also be subject to backup withholding tax if (i) the payee fails to
provide an accurate taxpayer identification number, (ii) the payor has been
notified by the IRS that the recipient has failed to report all interest or
dividends required to be shown on its United States federal income tax returns
or (iii) in certain circumstances, the payee fails to comply with applicable
certification requirements. Payments to Non-U.S. Holders generally will not be
subject to information reporting and backup withholding, but those holders may
be required to establish their exemption from information reporting and backup
withholding by certifying their status on IRS Form W-8BEN (or other relevant
form).
Backup withholding will not apply to payments made outside the United
States by PIFCo or a Paying Agent on a note, unless the payor is a U.S. Person
or U.S.-Controlled Person and has actual knowledge that the beneficial owner of
the note is a U.S. Person. In addition, if payments are collected outside the
United States by a foreign office of a custodian, nominee or other agent acting
on behalf of a beneficial owner of a note, that custodian, nominee or other
agent will not be required to deduct backup withholding from payments made to
that beneficial owner unless the custodian, nominee or other agent is a U.S.
Person or U.S.-Controlled Person and has actual knowledge that the beneficial
owner thereof is a U.S. Person. Payments by a custodian, nominee, or other agent
that is a U.S. Person or U.S.-Controlled Person will be subject to information
reporting unless that custodian, nominee or other agent has documentary evidence
in its files of the beneficial owner's foreign status and has no actual
knowledge to the contrary.
Payment of the proceeds from the sale of a note to or through the U.S.
office of a broker will be subject to information reporting and backup
withholding unless the beneficial owner thereof certifies it is not a U.S.
Person on an IRS Form W-8BEN (or other relevant form) under penalty of perjury
or otherwise establishes an exemption from information reporting and backup
withholding. Payment of the proceeds from the sale of a note effected outside
the United States to or through a foreign office of a broker generally will not
be subject to information reporting or backup withholding, except that, if the
broker is a U.S. Person or U.S.-Controlled Person, information reporting will
apply to those payments unless the broker has documentary evidence in its files
that the beneficial owner is not a U.S. Person and has no actual knowledge to
the contrary, or the beneficial owner otherwise establishes an exemption, and
backup withholding will apply if the broker has actual knowledge that the
beneficial owner is a U.S. Person.
Generally, a holder may obtain a refund of any amount withheld under
the backup withholding rules that exceed the holder's United States federal
income tax liability by filing a refund claim with the IRS.
MATERIAL CONTRACTS
EXPORT RECEIVABLES ASSET SECURITIZATION PROGRAM
In December 2001, PFL entered into the Export Receivables Asset
Securitization Program. See "Item 4. Information on the Company--Business
Overview--Petrobras Finance Limited (PFL)--Export Receivables Asset
Securitization Program."
35
The Prepayment Agreement
Pursuant to the Prepayment Agreement, PFL paid to Petrobras an initial
prepayment in the amount of U.S.$750 million for future export and sales by
Petrobras to PFL of Eligible Products.
The Master Export Contract
As long as any Senior Trust Certificates or any amounts payable to the
insurers remain outstanding, Petrobras will deliver, in each quarterly period, a
quantity of Eligible Products having a market value equal to any scheduled
payments of interest, principal or other amounts due under the Senior Trust
Certificates. Under the Master Export Contract, Petrobras exports and sells
Eligible Products to PFL during each quarterly period:
. in an amount equal to at least 80% of the total volume of all
bunker fuel and fuel oil (collectively, Heavy Fuel Oil) exported
by Petrobras during that quarterly period; and
. with a value (based upon the net invoice price at which such
Eligible Products are actually sold by PFL) equal to at least:
- the highest aggregate amount scheduled to be paid by the
Trustee in any quarterly period during the remaining term of
any series of Senior Trust Certificates at the time
outstanding, with respect to interest, principal and other
amounts due under the Senior Trust Certificates multiplied by
- a factor that fluctuates between 2.0 and 3.0, depending upon
the level of sales of Eligible Products by PFL that are
contracted to be made under arrangements that provide for a
minimum price per barrel or other hedging arrangements and the
relevant minimum price or price established by such hedging
arrangements.
Petrobras also agrees that its average daily gross exports of Heavy
Fuel Oil for any rolling twelve-month period will be equal to at least 70,000
barrels. Petrobras is not relieved of its obligations to deliver Eligible
Products under the Master Export Contract for any reason, including, without
limitation, as a result of force majeure or on non-payment by PFL.
Risk of Loss
Petrobras fulfills its delivery obligations to PFL by delivering the
Eligible Products directly to Buyers on behalf of PFL. Title and risk of loss
remain with Petrobras until the Eligible Products are delivered to the Buyers,
at which time both title and risk of loss pass to PFL and simultaneously to
Buyers.
Taxes and Expenses
Petrobras is obligated to indemnify PFL against all costs, expenses,
liabilities, damages and other similar obligations which may be imposed upon,
incurred or suffered by PFL in respect of any present or future taxes of any
nature assessed against PFL by Brazil, the Cayman Islands, the United States or
any other taxing jurisdiction.
36
Indemnification
Petrobras is obligated to indemnify and hold harmless PFL, its
affiliates, and their respective officers, directors, employees and agents from
all suits, direct damages or other losses arising from or out of the
transactions contemplated by the Principal Agreements, including: any negligence
or willful misconduct of Petrobras, breach of representations or warranties,
claims for payment (whether in cash or kind) by any and all third parties in
respect of taxes or similar charges upon the distribution, sale and
transportation of any Eligible Products prior to its export, claims for payment
by any and all third parties who purport to be entitled to receive any portion
of the proceeds from, or any payment relating to, the sale of the Eligible
Products to PFL, amounts payable by PFL in respect of any indemnification
provided to other persons, and all expenses arising from or out of any tax which
may be levied and assessed upon PFL in respect of any delivery, sale or resale
of Eligible Products to PFL.
Negative Pledge
So long as any Senior Trust Certificate remains outstanding or any
amount payable to an Enhancer under any of the Insurance Documents remains
outstanding, Petrobras will not create or permit any Lien, other than a
Petrobras Permitted Lien, on any of Petrobras' assets or any of its
subsidiaries' assets to secure (i) any of Petrobras' indebtedness, (ii) any of
its subsidiaries' indebtedness or (iii) the indebtedness of any other Person,
unless Petrobras contemporaneously creates or permits such Lien to secure
equally and ratably Petrobras' obligations under the Master Export Contract and
the other transaction documents to which it is a party or Petrobras provides
other security for its obligations under the Master Export Contract and the
other transaction documents to which it is a party as is duly approved by a
resolution of the Senior Certificate Holders in accordance with the trust deed.
Sales Agreements
PFL will sell Eligible Products purchased from Petrobras or its
affiliates under the following arrangements:
. An Offtake Contract with Citibank, N.A., the Offtaker. Under the
Offtake Contract, the Offtaker agrees to purchase Eligible
Products from PFL, in quantities in each quarterly period having a
value equal to 1.1 times the amounts scheduled to be paid with
respect to the Senior Trust Certificates in that period. PFL may
also enter into other offtake contracts with the Offtaker or other
parties in the future.
. A Product Sale Agreement with Petrobras America, Inc., a 99.99%
indirectly owned subsidiary of Petrobras, or the U.S. Seller, that
may purchase Eligible Products from time to time from PFL and sell
them to buyers primarily in the United States.
. Sales to other purchasers of Eligible Products in the open market.
The Receivables Purchase Agreement
Pursuant to the Receivables Purchase Agreement, PFL sells to the
Trustee the rights to a specified amount of designated receivables to be
generated from the sale of Eligible Products by PFL. In exchange, the Trustee
issued to PFL the Trust Certificates. The rights to the purchased receivables
acquired by the Trust on the closing date will consist of:
. Certain receivables to be generated by the sale of Eligible
Products to the Offtaker, following an agreed schedule under the
Offtake Contract.
37
. Certain additional receivables to be generated by the sale of
Eligible Products to other buyers following an agreed
schedule; and
. If applicable, certain receivables in each quarterly period equal
to any taxes incurred on payments in respect of outstanding Senior
Trust Certificates, together with certain other amounts.
The Insurance and Reimbursement Agreements
Each series of the Senior Trust Certificates features credit
enhancement by means of a Financial Guaranty Insurance Policy. XLCA provides the
Financial Guaranty Insurance Policy for Series A-1 and Series A-2, MBIA provides
the Financial Guaranty Insurance Policy for Series B and Ambac provides the
Financial Guaranty Insurance Policy for Series C. XLCA, MBIA and Ambac all
provide monoline insurance services and are each rated Aaa/AAA/AAA by Moody's,
S&P and Fitch, respectively.
The parties also entered into Insurance and Reimbursement Agreements
pursuant to which, among other things, the Trustee has agreed to reimburse, with
interest, MBIA, Ambac and XLCA, as applicable, for amounts paid pursuant to
claims made under their respective Financial Guaranty Insurance Policies.
PIFCo SENIOR NOTES ISSUANCES
We have issued three series of senior notes in the aggregate amount of
U.S.$1,550 million. In 2001, we issued U.S$1,050 million in long-term notes due
in 2008 and 2011. Since December 31, 2001, we have issued an additional U.S.$500
million in long-term notes, consisting of U.S.$400 million of 9 1/8% senior
notes issued on February 4, 2002 and U.S.$100 million of additional 9 1/8%
senior notes issued on February 21, 2002. See "Item 5. Management's Discussion
and Analysis of Results of Operation--Liquidity and Capital Resources." The
terms of each of these series of senior notes, and the material agreements which
set forth their terms, are substantially similar and are summarized below.
Indentures
Each series of senior notes was issued pursuant to an indenture between
us, as the issuer, and The Bank of New York, as trustee. The terms of the
indentures require us and our subsidiaries, among other things, to:
. pay all amounts owed by us under the indenture and the notes when
such amounts are due, and perform each of our other obligations
under the various transaction documents entered into by it in
connection with the issuance of the notes;
. comply with all applicable laws and maintain all necessary
governmental approvals;
. pay all uncontested taxes;
. preserve our existence and maintain our properties;
. maintain adequate insurance;
. maintain our books and records in accordance with U.S. GAAP;
. maintain an office or agency in New York for the purpose of
service of process;
. ensure that the notes continue to be our senior obligations;
38
. use proceeds from the issuance of the notes for specified
purposes, namely the purchase of oil imports and the repayment of
short-term indebtedness;
. give notice to the trustee of any default or event of default
under the indenture or certain currency control events in Brazil;
. provide certain financial statements to the trustee;
. take actions to maintain the trustee's or the noteholders' rights
under the relevant transaction documents;
. maintain the required coverage amount;
. provide certain information to noteholders required by Rule 144A;
and
. replace the trustee upon any resignation or removal thereof.
In addition, the terms of the indenture restrict our ability and the
ability of our subsidiaries, among other things, to:
. undertake certain mergers, consolidations or similar transactions;
. create certain liens on its assets or pledge its assets; and
. enter into certain transactions with our affiliates.
These covenants are subject to a number of terms, conditions and
further qualifications.
The indenture also contains certain events of default, consisting of
the following:
. failure to pay principal when due;
. failure to pay interest within 30 days of any interest payment
date;
. inaccuracy of any representation or warranty made by us or
Petrobras in any transaction document or in certain specified
other certificates when made;
. breach of a covenant or agreement in the indenture, the standby
purchase agreement and other relevant transaction documents by us
or Petrobras;
. acceleration of or failure to make a payment on our indebtedness
or the indebtedness of Petrobras or a material subsidiary of
Petrobras that equals or exceeds a specified threshold;
. a final judgment against us, Petrobras or a material subsidiary of
Petrobras that equals or exceeds a specified threshold;
. certain events of bankruptcy, liquidation or insolvency of us,
Petrobras or any material subsidiary of Petrobras;
. certain events relating to the unenforceability of the relevant
transaction documents against us or Petrobras;
. the cancellation, termination (other than as permitted in the
indenture) or unenforceability of the letter of credit unless an
equivalent letter of credit is promptly provided or an equivalent
amount in U.S. dollars is promptly deposited in the reserve
account;
. Petrobras ceases to own at least 51% of our outstanding voting
shares; and
. we or Petrobras shall fail to comply with our obligations with
respect to the required coverage amount.
39
Standby Purchase Agreements
Our senior notes have the benefit of credit support from Petrobras in
the form of standby purchase agreements under which Petrobras is obligated to
make certain payments to the trustee in the event we fail to make required
payments of principal, interest and other amounts due under the senior notes and
the indenture. Subject to certain limitations, Petrobras is required to purchase
from the holders of the notes and pay to the trustee amounts in respect of the
noteholders' right to receive:
. the amount of any interest or other amounts not paid by us in
accordance with the terms of the notes and the indenture;
. the entire principal amount of the notes in the event we fail to
do so at their expected maturity or earlier upon any redemption or
acceleration of the senior notes prior to the expected maturity
date or, if extended, on the final maturity date; and
. except where certain events have occurred which limit Petrobras'
ability to convert and transfer Reais and U.S. dollars, interest
on all of the foregoing amounts at a default rate, for payments
beyond the date that we were required to make payment under the
indenture in respect of the full principal amount of the senior
notes.
We will have the right to defer making payments under the indentures
for up to 18 months, if an event of inconvertibility, untransferability or
expropriation occurs that prevents Petrobras from making required payments under
the standby purchase agreement.
Obligations under the standby purchase agreement constitute direct and
general senior unsecured and unsubordinated obligations of Petrobras and rank
pari passu with other senior, unsecured obligations of Petrobras that are not,
by their terms, expressly subordinated in right of payment to Petrobras'
obligations under the standby purchase agreement.
40
Letters of Credit/Political Risk Insurance
Pursuant to the indentures, we established and maintained reserve
accounts with the trustee on behalf of the holders of the senior notes. We were
also required to issue an irrevocable standby letter of credit in favor of the
trustee or provide political risk insurance for the trustee, in aggregate
amounts set forth in the terms of the senior notes. The required coverage amount
varies for each series of senior notes. The funds in the reserve account may be
returned to us, and the required coverage amount may be reduced, under certain
circumstances. We have paid all premiums on our insurance policies and/or have
funded and issued standby irrevocable letters of credit, which will be replaced
by other standby letters of credit or by funds in our reserve accounts.
Amounts may be withdrawn from the reserve account and drawings may be
made under the letter of credit or the political risk insurance policy to make
scheduled interest payments on the senior notes for up to 18 months, if an event
of inconvertibility, untransferability or expropriation occurs.
Registration Rights Agreement
Pursuant to the registration rights agreement, we are obligated to
consummate exchange offers to cause the senior notes to generally become freely
transferable. This requirement was already met with respect to the first two
series of senior notes on December 19, 2001. If this requirement is not met for
the U.S.$500 million issuance, then the annual interest rate on the notes will
increase to a rate which is 0.5% above the interest rate, until the earliest of
the date that:
. the exchange offer is consummated; or
. a registration statement relating to resale of the notes is
declared effective by the SEC.
DOCUMENTS ON DISPLAY
We are subject to the information requirements of the Securities
Exchange Act of 1934 applicable to a foreign private issuer, and accordingly, we
file or furnish reports, information statements and other information with the
U.S. Securities and Exchange Commission. Documents that are exhibits to or
incorporated by reference in this annual report and other information filed by
us can be inspected at, and subject to the payment of any required fees, copies
may be obtained from, the public Reference Section of the U.S. Securities and
Exchange Commission, 450 Fifth Street, N.W., room 1024, Washington, D.C. 20549,
and at the U.S. Securities and Exchange Commission's Regional Offices located at
233 Broadway, New York, New York 10279 and at Citicorp Center, 500 West Madison
Street, Suit 1400, Chicago, Illinois 60661.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We make limited use of derivatives. We do not hold derivative
instruments for trading purposes or for leverage.
In the normal course of business, we face risks that are non-financial
or non-quantifiable, including interest rate risk. While Petrobras is in the
process of changing its risk management processes, including those which may
affect us, neither Petrobras nor we have yet entered into derivative contracts
or made other arrangements to hedge against interest rate risk. We have
historically passed on our financing costs to Petrobras by selling crude oil and
oil products to Petrobras at a premium to compensate for our financing costs.
Although Petrobras and we are considering methods of continuing this practice in
the future, we cannot assure you that this practice will continue.
41
Our borrowings are derived mainly from commercial banks and include
trade lines of credit and commercial paper, which are primarily intended for the
purchase of crude oil and oil products, and with interest rates ranging from
1.82% to 7.56%. The weighted average borrowing for short-term debt at December
31, 2001 was 2.82%, compared to 7.84% at December 31, 2000.
The table below sets forth the amounts and related weighted average
interest rates by expected maturity dates for our long-term debt obligations at
December 31, 2001:
CALENDAR YEAR OF EXPECTED MATURITY DATE FOR DEBT
(in thousands of U.S. dollars, except for percentages)
December 31, 2001
Total
Outstanding Carrying Fair
Debt 2002 2003 2004 2005 2006 2007-2030 Value Value
- ------------------------ ------------ ----------- ----------- ---------- ---------- ----------- ----------- ------------
Fixed rate debt........... $985,000 $51,700 $162,750 $78,974 $211,876 $1,403,700 $2,894,000 $2,871,074
Average interest rate.. 4.21% 4.21% 4.21% 6.95% 5.30% 10.24% -- --
Variable rate debt ....... -- -- -- $39,864 $42,528 $343,608 $426,000 $426,000
Average interest rate.. 4.10% 4.10% 4.10% 4.10% 4.10% 4.11%
Total debt obligations.... $985,000 $51,700 $162,750 $118,838 $254,404 $1,747,308 $3,320,000 $3,297,074
- ---------------------------------------
Note: Numbers may not total due to rounding.
At December 31, 2001, 12.8% of our debt was dollar-denominated floating
rate debt and 87.2% of our debt was dollar-denominated fixed rate debt. Since
all of our debt is dollar denominated, we are not subject to material foreign
exchange rate risk.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
Not applicable.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS.
None.
ITEM 15. [RESERVED]
ITEM 16. [RESERVED]
ITEM 17. FINANCIAL STATEMENTS.
We have responded to Item 18 in lieu of this item.
ITEM 18. FINANCIAL STATEMENTS.
See pages F-1 through F-18 incorporated herein by reference.
42
ITEM 19. EXHIBITS.
Our financial statements as of December 31, 2001, 2000, 1999 and for
the years ended December 31, 2001, 2000 and 1999 are attached hereto on pages
F-2 through F-17 and are incorporated herein by reference.
(a) The following financial statements, together with the reports
of PricewaterhouseCoopers thereon, are filed as a part of this
annual report:
Page
----
Report of Independent Accountants......................................................................F-2
Consolidated Balance Sheets............................................................................F-3
Consolidated Statements of Income......................................................................F-4
Changes in Consolidated Stockholder's Equity...........................................................F-5
Consolidated Statements of Cash Flows..................................................................F-6
Notes to Consolidated Financial Information............................................................F-7
(b) Exhibit No: Description
---------- -----------
Exhibit 1 Memorandum and Articles of Association of Petrobras International Finance
Company
Exhibit 2 Indenture, dated as of May 9, 2001, between Petrobras International Finance
Company and The Bank of New York, as Trustee, relating to the 9 7/8% Senior
Notes due 2008 (incorporated by reference to Exhibit 4.1 to the
Registration Statement of Petrobras International Finance Company and
Petroleo Brasileiro S.A.--Petrobras on Form F-4 filed on December 6, 2001
(registration statement no. 333-14168))
Exhibit 2.1 Supplemental Indenture, dated as of November 26, 2001, between Petrobras
International Finance Company and The Bank of New York, as Trustee,
relating to the 9 7/8% Senior Notes due 2008 (incorporated by reference to
Exhibit 4.2 to the Registration Statement of Petrobras International
Finance Company and Petroleo Brasileiro S.A.--Petrobras on Form F-4 filed on
December 6, 2001 (registration statement no. 333-14168))
Exhibit 2.2 Indenture, dated as of July 6, 2001, between Petrobras International
Finance Company and The Bank of New York, as Trustee, relating to the 9
3/4% Senior Notes due 2011 (incorporated by reference to Exhibit 4.1 to the
Registration Statement of Petrobras International Finance Company and
Petroleo Brasileiro S.A.--Petrobras on Form F-4 filed on December 6, 2001
(registration statement no. 333-14170))
Exhibit 2.3 Supplemental Indenture, dated as of November 26, 2001, between Petrobras
International Finance Company and The Bank of New York, as Trustee,
relating to the 9 3/4% Senior Notes due 2011 (incorporated by reference to
Exhibit 4.2 to the Registration Statement of Petrobras International
Finance Company and Petroleo Brasileiro S.A.--Petrobras on Form F-4 filed on
December 6, 2001 (registration statement no. 333-14170))
Exhibit 2.4 Indenture, dated as of February 4, 2002, between Petrobras International
Finance Company and The Bank of New York, as Trustee, relating to the 9
1/8% Senior Notes due 2007
43
(b) Exhibit No: Description
---------- -----------
Exhibit 2.5 Registration Rights Agreement, dated as of May 9, 2001, among Petrobras
International Finance Company, Petroleo Brasileiro S.A.--Petrobras, and USB
Warburg LLC, Banc of America Securities LLC, J.P. Morgan Securities Inc.,
RBC Dominion Securities Corporation and Santander Central Hispano
Investment Securities Inc. (incorporated by reference to Exhibit 4.4 to the
Registration Statement of Petrobras International Finance Company and
Petroleo Brasileiro S.A.--Petrobras on Form F-4 filed on December 6, 2001
(registration statement no. 333-14168))
Exhibit 2.6 Registration Rights Agreement, dated as of July 6, 2001, among Petrobras
International Finance Company, Petroleo Brasileiro S.A.--Petrobras, and USB
Warburg LLC, Banc of America Securities LLC, J.P. Morgan Securities Inc.,
RBC Dominion Securities Corporation and Santander Central Hispano
Investment Securities Inc. (incorporated by reference to Exhibit 4.4 to the
Registration Statement of Petrobras International Finance Company and
Petroleo Brasileiro S.A.--Petrobras on Form F-4 filed on December 6, 2001
(registration statement no. 333-14170))
Exhibit 2.7 Registration Rights Agreement, dated as of February 4, 2002, among
Petrobras International Finance Company, Petroleo Brasileiro
S.A.--Petrobras, and USB Warburg LLC, Morgan Stanley & Co. Incorporated and
Banco Bilbao Vizcaya Argentaria S.A.
Exhibit 2.8 Standby Purchase Agreement, dated as of May 9, 2001, between Petroleo
Brasileiro S.A.--Petrobras and The Bank of New York (incorporated by
reference to Exhibit 4.5 to the Registration Statement of Petrobras
International Finance Company and Petroleo Brasileiro S.A.--Petrobras on
Form F-4 filed on December 6, 2001 (registration statement no. 333-14168))
Exhibit 2.9 Amendment No. 1 to the Standby Purchase Agreement, dated as of November 26,
2001, between Petroleo Brasileiro S.A.--Petrobras and The Bank of New York,
as Trustee (incorporated by reference to Exhibit 4.6 to the Registration
Statement of Petrobras International Finance Company and Petroleo
Brasileiro S.A.--Petrobras on Form F-4 filed on December 6, 2001
(registration statement no. 333-14168))
Exhibit 2.10 Standby Purchase Agreement, dated as of July 6, 2001, between Petroleo
Brasileiro S.A.--Petrobras and The Bank of New York (incorporated by
reference to Exhibit 4.5 to the Registration Statement of Petrobras
International Finance Company and Petroleo Brasileiro S.A.--Petrobras on
Form F-4 filed on December 6, 2001 (registration statement no. 333-14170))
Exhibit 2.11 Amendment No. 1 to the Standby Purchase Agreement, dated as of November 26,
2001, between Petroleo Brasileiro S.A.--Petrobras and The Bank of New York,
as Trustee (incorporated by reference to Exhibit 4.6 to the Registration
Statement of Petrobras International Finance Company and Petroleo
Brasileiro S.A.--Petrobras on Form F-4 filed on December 6, 2001
(registration statement no. 333-14170))
Exhibit 2.12 Standby Purchase Agreement, dated as of February 4, 2002, between Petroleo
Brasileiro S.A.--Petrobras and The Bank of New York, as Trustee
Exhibit 2.13 Notes Purchase Agreement, dated as of January 29, 2002, between Petrobras
International Finance Company and UBS Warburg LLC and Morgan Stanley & Co.
Incorporated
Exhibit 2.14 Master Export Contract, dated as of December 21, 2001, between Petroleo
Brasileiro S.A.--Petrobras and Petrobras Finance Ltd.
44
(b) Exhibit No: Description
---------- -----------
Exhibit 2.15 Depositary Agreement, dated as of December 21, 2001, among U.S. Bank,
National Association, Cayman Islands Branch, in capacity as Trustee of the
PF Export Receivables Master Trust, Citibank, N.A., in capacity as
Securities Intermediary, and Petrobras Finance Ltd.
Exhibit 2.16 Administrative Services Agreement, dated as of December 21, 2001, between
Petroleo Brasileiro S.A.--Petrobras, as Delivery and Sales Agent, and
Petrobras Finance Ltd.
Exhibit 2.17 Amended and Restated Trust Deed, dated as of December 21, 2001, among U.S.
Bank, National Association, Cayman Islands Branch, in capacity as Trustee
of the PF Export Receivables Master Trust, Citibank, N.A., in capacity as
Paying Agent, Transfer Agent, Registrar and Depositary Bank, and Petrobras
International Finance Company, as Servicer
Exhibit 2.18 Receivables Purchase Agreement, dated as of December 21, 2001, among
Petrobras Finance Ltd., Petroleo Brasileiro S.A.--Petrobras and U.S. Bank,
National Association, Cayman Islands Branch, solely in capacity as Trustee
of the PF Export Receivables Master Trust
Exhibit 8.1 For a list of subsidiaries, their jurisdiction of incorporation and the
names under which they do business, see "Business Overview" on page 10
45
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, Petrobras International Finance Company--PIFCo, hereby certifies
that it meets all the requirements for filing on Form 20-F and has duly caused
this annual report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Petrobras International Finance Company--PIFCo
By: /s/Almir Guilherme Barbassa
-------------------------------------------
Name: Almir Guilherme Barbassa
Title: Chairman of the Board of Directors
Date: June 28, 2002
46
Petroleo Brasileiro S.A.-- PETROBRAS and subsidiaries
- --------------------------------------------------------------------------------
Petrobras International
Finance Company
Consolidated Financial Information
as of December 31, 2001 and 2000 and
Report of Independent Accountants
F-1
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Report of Independent Accountants
To the Board of Directors and Stockholder of
Petrobras International Finance Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and of changes in stockholder's equity and of
cash flows, present fairly, in all material respects, the financial position of
Petrobras International Finance Company at December 31, 2001 and 2000, and the
results of its operations and its cash flows of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. 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 of these statements in accordance with auditing standards generally
accepted in the United States of America which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers
Auditores Independentes
Rio de Janeiro, Brazil
March 26, 2002
F-2
Petrobras International Finance Company
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(Expressed in Thousands of United States Dollars,
except number of shares and per share amounts)
December 31,
------------
2001 2000
---- ----
ASSETS
Current assets
Cash and cash equivalents ......................................... 48,593 51,198
Accounts receivable
Related parties ........................................... 2,584,851 3,011,167
Trade ..................................................... 44,740 39,608
Notes receivable
Related parties ........................................... 282,975
Other ..................................................... 180,000
Prepaid expense and other current assets .......................... 10,691 239
---------- ----------
3,151,850 3,102,212
---------- ----------
Property and equipment ..................................................... 213
----------
Other non current assets
Advances to suppliers ............................................. 11,309
Prepaid expense ................................................... 41,644
Export prepayment and assets ...................................... 900,000
Net investment in direct financing leases from related party ...... 852,753 52,015
Notes receivable--related parties ................................. 90,238
---------- ----------
1,805,706 142,253
---------- ----------
Total assets ............................................................... 4,957,769 3,244,465
========== ==========
Liabilities and stockholder's equity
Current liabilities
Trade accounts payable
Related parties ........................................... 288,068 70,842
Other ..................................................... 231,000 593,190
Loans payable--related parties .................................... 334,564 1,716,565
Short-term debt ................................................... 775,427 530,352
Current portion of long term debt ................................. 215,000
Dividends payable ................................................. 38,060
Unearned income--related parties .................................. 8,318 29,925
Other current liabilities ......................................... 41,004 10,812
---------- ----------
1,893,381 2,989,746
---------- ----------
Long-term liabilities
Capital lease ..................................................... 680,000
Long-term debt .................................................... 2,335,000 245,000
---------- ----------
3,015,000 245,000
---------- ----------
Commitments and contingencies (Note 6)
Stockholder's equity
Shares authorized and issued
Common stock--2001 and 2000--50,000 shares, par value US$ 1 50 50
Additional paid in capital ........................................ 60,000
Retained earnings (accumulated deficit) ........................... (10,662) 9,669
---------- ----------
49,388 9,719
---------- ----------
Total liabilities and stockholder's equity ................................. 4,957,769 3,244,465
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Consolidated Statements of Income
(Expressed in Thousands of United States Dollars
except number of shares)
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Sales of crude oil and oil products and services ....... 6,271,196 7,937,003 4,727,989
Cost of sales .......................................... (6,263,551) (7,912,615) (4,723,771)
Gross profit ........................................... 7,645 24,388 4,218
Financial income ....................................... 158,804 221,578 158,407
Financial expense ...................................... (187,215) (219,637) (142,232)
Gain on materials and equipment ........................ 435
---------- ---------- ----------
Net income (loss) for the year ......................... (20,331) 26,329 20,393
========== ========== ==========
Weighted average number of shares outstanding .......... 50,000 50,000 50,000
========== ========== ==========
The accompanying notes are an integral part of this financial information.
F-4
Petrobras International Finance Company
- --------------------------------------------------------------------------------
CHANGES IN CONSOLIDATED STOCKHOLDER'S EQUITY
(Expressed in Thousands of United States Dollars,
except number of shares and per share amounts)
Years ended December 31,
-----------------------------
2001 2000 1999
---- ---- ----
Common stock ....................................................... 50 50 50
------- ------- --------
Additional paid in capital
Conversion of loans--Balance at December 31 ................... 60,000
Retained earnings
Balance at January 1 .......................................... 9,669 21,400 1,007
Net income (loss) for the year ................................ (20,331) 26,329 20,393
Dividends declared (per share: 2000--US$ 0.76) ................ (38,060)
------- ------- --------
Balance at December 31 ........................................ (10,662) 9,669 21,400
------- ------- --------
Total stockholder's equity ......................................... 49,388 9,719 21,450
======= ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
Petrobras International Finance Company
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Thousands of United States Dollars)
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities
Net income (loss) for the year ............................................. (20,331) 26,329 20,393
Decrease (increase) in assets
Accounts receivable
Related parties ............................................ 426,316 (171,429) (1,127,563)
Trade ...................................................... (5,132) (37,279) (2,329)
Prepaid expenses and other assets .................................. (52,096) 8,327 (7,440)
Increase (decrease) in liabilities
Trade accounts payable
Related parties ............................................ 217,226 (77,233) (45,849)
Other ...................................................... (362,190) 286,353 268,779
Other liabilities .................................................. 8,585 (12,520) 31,529
---------- ---------- ----------
Net cash provided by, used in, operating activities ................................. 212,378 22,548 (862,480)
---------- ---------- ----------
Cash flows from investing activities
Issuance of notes receivable ............................................... (1,122,737) (90,238)
Property and equipment ..................................................... (213)
Advances to suppliers ...................................................... (11,309)
Net investment in direct financing leases .................................. (156,017) (52,015)
---------- ---------- ----------
Net cash used in investing activities ............................................... (1,290,276) (142,253)
---------- ---------- ----------
Cash flows from financing activities
Short-term debt, net issuances and repayments .............................. 245,075 (211,148) (163,500)
Proceeds from issuance of long-term debt ................................... 2,190,279 245,000
Loans payable--related parties ............................................. (1,322,001) 87,697 1,058,831
Dividends paid ............................................................. (38,060)
---------- ---------- ----------
Net cash provided by financing activities .................................. 1,075,293 121,549 895,331
---------- ---------- ----------
Decrease in cash and cash equivalents ............................................... (2,605) 1,844 32,851
Cash and cash equivalents at beginning of period .................................... 51,198 49,354 16,503
========== ========== ==========
Cash and cash equivalents at end of period .......................................... 48,593 51,198 49,354
========== ========== ==========
Cash paid during the period for interest ............................................ 209,062 185,421 103,768
========== ========== ==========
Non cash investing and financing activities
Assets acquired through capital lease obligations ................................... 644,721
Receipt of Junior Trust Certificates in exchange of future export receivables ....... 150,000
Increase of capital through conversion of loan payable .............................. 60,000
The accompanying notes are an integral part of this financial information.
F-6
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Information
(Expressed in Thousands of United States Dollars)
1 The Company and its Operations
Petrobras International Finance Company was established on September 24, 1997
and is incorporated in the Cayman Islands. Through March 31, 2000, Petrobras
International Finance Company was a wholly-owned subsidiary of Braspetro Oil
Services Company--BRASOIL, a wholly-owned indirect subsidiary of Petroleo
Brasileiro S.A.--PETROBRAS, Brazil's national oil company. On January 14, 2000,
the Board of Directors of BRASPETRO and PETROBRAS approved the transfer of 100%
of the voting shares of Petrobras International Finance Company from BRASOIL to
PETROBRAS. Since April 1, 2000, Petrobras International Finance Company has been
operating as a wholly-owned subsidiary of PETROBRAS.
The primary objective of the Petrobras International Finance Company and its
subsidiaries (collectively, PIFCO or the Company) is to purchase crude oil and
oil products from third parties and sell the products at a premium to PETROBRAS
on a deferred payment basis. Accordingly, intercompany activities and
transactions, and therefore the Company's financial position and results of
operations, are affected by decisions made by its parent company, PETROBRAS.
Additionally, to a more limited extent, the Company sells oil and oil products
to third parties.
PIFCO is also being used by PETROBRAS to take advantage of Brazilian tax
legislation related to the Special Customs System (Regime Aduaneiro Especial)
for the importation and exportation of goods intended for the research of oil
and natural gas fields (referred to as REPETRO). REPETRO permits petroleum
companies operating in Brazil to enter into leasing arrangements with foreign
companies for materials and equipment to be used in the exploration and
production of crude oil and gas, without paying federal taxes for Import Duty
(Imposto de Importacao - II), Excise Tax (Imposto sobre Produtos
Industrializados - IPI), Employees' Profit Participation Program (Programa de
Integracao Social - PIS), and Tax for Social Security Financing (Contribuicao
para o Financiamento da Seguridade Social - COFINS).
PETROBRAS NETHERLANDS B.V.
In May 2001, PIFCO established a new subsidiary, PETROBRAS NETHERLANDS
B.V.--PNBV, based in the Netherlands. PNBV will take the place of PIFCO as the
principle entity responsible for acquiring equipment to be utilized in the oil
exploration and production activities related to REPETRO, raising funds abroad
and in Brazil to acquire equipment, and chartering the acquired equipment to
PETROBRAS.
PETROBRAS EUROPE LTD.
In May 2001, PIFCO established a new subsidiary, PETROBRAS EUROPE LTD.--PEL,
based in the United Kingdom, to consolidate PETROBRAS' European trade and
finance activities. These activities consist of advising and negotiating the
terms and conditions for crude oil and oil products supplied to PIFCO and
PETROBRAS, as well as marketing Brazilian oil and other derivative products
exported to the geographic areas in which the Company operates. PEL plays an
advisory role in connection with these activities and undertakes no additional
commercial or financial risk.
PETROBRAS FINANCE LIMITED
In December 2001, PIFCO established a new subsidiary, PETROBRAS FINANCE
LIMITED--PFL, based in the Cayman Islands, in connection with the securitization
program described in Note 5. The Company will purchase bunker and fuel oil from
PETROBRAS and sell the products in the international market.
2 Summary of Significant Accounting Policies
In preparing these consolidated financial statements, the Company has followed
accounting policies that are in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP). The preparation of these
financial statements requires the use of estimates and assumptions that reflect
the assets, liabilities, revenues and expenses reported in the financial
statements, as well as amounts included in the notes thereto.
F-7
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Information (Continued)
(Expressed in Thousands of United States Dollars)
(a) Basis of presentation
These consolidated financial statements have been prepared in accordance with
U.S. GAAP, which differ in certain respects from the Brazilian accounting
principles applied by PIFCO in its statutory financial statements prepared in
accordance with the Brazilian Corporate Law. The consolidated financial
statements include the financial statements of PIFCO and of each of its
wholly-owned subsidiaries PETROBRAS NETHERLANDS B.V., PETROBRAS EUROPE LTD. and
PETROBRAS FINANCE LIMITED.
(b) Foreign currency translation
The functional currency of the Company is the U.S. dollar, as the majority of
its transactions are denominated in U.S. dollars. When there are transactions in
foreign currencies, exchange gains and losses resulting from foreign currency
transactions are recognized in the Statement of Operations.
(c) Cash equivalents
Cash equivalents consist of highly liquid investments that are readily
convertible into cash and have a maturity of three months or less at date of
acquisition.
(d) Lease Financing
The Company's leasing operations consist principally of the leasing of various
types of materials and equipment utilized for the exploration and production of
oil and gas, and for oil and gas related activities in general. These materials
and equipment include, among other things, production and drilling platforms,
oil tankers, supply boats and other types of ships. With the exception of the
leases of certain vessels, which are operating leases (see Note 6.4), the
remaining leases are classified as direct financing leases. Direct financing
leases expire over the next ten years and operating leases expire within five
months of the balance sheet date.
The Company acquired operation platforms and production equipment under the
terms of purchase agreements (see Note 6.2), purchase invoices and charter
agreements and subsequently subchartered this equipment, pursuant to existing
and future charter and subcharter agreements, to related parties. These charter
and subcharter agreements are classified as direct financing leases in
accordance with the provisions of Statement of Financial Accounting Standards
No. 13--Accounting for leases (SFAS 13), as amended. Although the charter and
subcharter agreements have not been finalized at the balance sheet date, the
lease is considered recognizable in accordance with the provisions of SFAS 13,
because the terms of the lease agreements were agreed upon by the relevant
parties, and there is substantial evidence that the lease agreements will be
ratified.
Income from direct financing leases, consisting of interest income, is
recognized over the lease term. The rights to receive certain payments will be
pledged under the terms of a security agreement (see Note 6.3). Income from
operating leases is recognized ratably over the term of the leases.
(e) Deferred financing costs
Deferred financing costs associated with various debt issuances are recorded as
prepaid expenses and are being amortized over the terms of the related debt,
based on the amount of outstanding debt, using the effective interest method.
Amortization expense for these financing costs for 2001 was US$ 8,983.
(f) Unearned Income
Unearned income represents the unearned premium charged by the Company to
PETROBRAS to compensate for its financing costs. The premium is billed to
PETROBRAS at the same time the related product is sold, and is deferred and
recognized into earnings as a component of financial income on a straight-line
basis over the collection period, which ranges from 90 to 120 days, in order to
match the premium billed with the Company's financial expense.
F-8
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Information (Continued)
(Expressed in Thousands of United States Dollars)
(g) Revenues, costs and expenses
Revenues from sales of crude oil and oil products are recognized on an accrual
basis when title has transferred to the customer. Costs and expenses are also
accounted for on an accrual basis.
(h) Income taxes
The Company accounts for income taxes using an asset and liability approach,
which requires the recognition of taxes payable or refundable for the current
year and deferred tax liabilities and assets representing the future tax
consequences of events that have been recognized in the Company's financial
statements. The measurement of current and deferred tax liabilities and assets
are based on the provisions of the tax laws in the countries in which the
Company and its subsidiaries operate (the United Kingdom, the Netherlands and
the Cayman Islands). Deferred tax assets are reduced, if necessary, by the
amount of any tax benefits that, based on available evidence, were not realized
in 2000 and 2001. The Cayman Islands has no corporate tax requirements,
therefore the Company has no tax provision for the periods. There were no
significant operations in the United Kingdom or the Netherlands that gave rise
to taxable income in these countries would have created timing differences.
(i) Derivative Instruments, Hedging and Risk Management Activities
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133 - Accounting for Derivative Financial
Instruments and Hedging Activities (SFAS 133). The standard, as amended by SFAS
137--Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB 133, and amendment of FASB Statement No. 133 and SFAS
138--Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of FASB Statement No. 133 (collectively SFAS 133), is
effective for the Company as from January 1, 2001. SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or in other comprehensive income, depending on whether the derivative
is designated as part of a hedge transaction and, if it is, depending on the
type of hedge relationship. The ineffective portion of all hedges is recognized
in current period earnings.
As of December 31, 2000 the Company had no derivative financial instruments;
accordingly, the adoption of SFAS 133 on January 1, 2001 did not impact the
Company.
(j) Recently issued accounting pronouncements
The Financial Accounting Standards Board (FASB) has recently issued Statements
on Financial Accounting Standards No. 141--Business Combinations (SFAS 141) and
SFAS 142--Goodwill and Other Intangible Assets (SFAS 142). These standards
address, respectively, financial accounting and reporting for business
combinations and for acquired goodwill and other intangible assets.
In addition, the FASB has also issued SFAS 143--Accounting for Asset Retirement
Obligations (SFAS 143) and SFAS 144--Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS 144). SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
replaces SFAS 121, which addressed the same subject.
Management estimates that adoption of these standards will not have a material
impact on the financial position, results of operations and cash flows of the
Company.
F-9
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Information (Continued)
(Expressed in Thousands of United States Dollars)
3 Cash and Cash Equivalents
As of December 31,
------------------
2001 2000
---- ----
Cash and banks ...................................................................... 5,241 273
Short-term investments .............................................................. 43,352 50,925
------ ------
48,593 51,198
====== ======
4 Net Investment in direct financing leases from related party receivables
2001 2000
---- ----
Gross receivables:
Floating storage and operating platforms ............................................ 644,721
Production equipment ................................................................ 208,032 52,015
------- ------
Long-term lease receivables ......................................................... 852,753 52,015
The receivables represent the present
value of the minimum lease payments. The interest associated with the lease is
variable, based upon the 6 month Libor plus mark up and a fixed annual
component. Both the interest and the fixed annual component will be recognized
when lease payments become due. The Company has no residual value in the
underlying assets.
On March 20, 2001, PETROBRAS' P-36 semi-submersible oil and gas production
platform located in the Roncador field in the Campos Basin sank. Certain
equipment to be leased by PIFCO to PETROBRAS that had been allocated to the
platform was also lost in the accident. Accordingly, the Company recorded a
reduction in its equipment balance of US$ 7,045 with a corresponding increase to
its accounts receivable from PETROBRAS, for reimbursement of the lost equipment.
5 Financing and Lease Obligations
(a) Financing
December 31, 2001 December 31, 2000
----------------- -----------------
Current Long-term Current Long-term
------- --------- ------- ---------
Financing institutions (i) ..................... 540,659 385,000 152,500 45,000
Commercial papers (i) .......................... 449,768 377,852
Senior notes (ii) .............................. 1,050,000
Securitization of Receivables (iii) ............ 900,000
------- --------- ------- ------
990,427 2,335,000 530,352 45,000
======= ========= ======= ======
(i) The Company's borrowings in U.S. dollars are derived mainly from
commercial banks and include trade lines of credit and commercial paper,
which are primarily intended for the purchase of crude oil and oil
products, and with interest rates ranging from 1.82% to 7.56%. The
weighted average borrowing for short-term debt at December 31, 2001 and
2000 was 2.82% and 7.84%, respectively.
At December 31, 2001 and December 31, 2000. The Company had fully
utilized all available lines of credit for the purchase of imports.
(ii) On May 9, 2001, the Company completed an offering of US$ 450,000 9 7/8%
Senior Notes due May 2008. On July 6, 2001, the Company completed an
offering of US$ 600,000 9 3/4% Senior Notes due July 2011. The Company
repaid a portion of its notes payable to PETROBRAS with the proceeds
received from both offerings.
The interest rates on both offerings are fixed, and interest will be paid
semiannually on both issuances. So long as any note of the two issuances
remains outstanding, the Company will not create or permit any lien,
other than a "PIFCO permitted lien" as defined in the prospectus of both
issuances, by the Company on any of the Company's assets to secure
additional indebtedness, except under certain conditions. Both issuances
are general senior unsecured and unsubordinated obligations of the
Company and will rank equal in right of payment with all other unsecured
and unsubordinated obligations of the Company that are not expressly
subordinated in right of payment. The failure by the Company to make
required payments of principal, interest or other amounts will compel
PETROBRAS to fulfill payment obligations.
F-10
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Information (Continued)
(Expressed in Thousands of United States Dollars)
PETROBRAS entered into a standby purchase agreement in support of the
obligations of PIFCO under the two note issuances in 2001 and their
respective indentures. PETROBRAS has the obligation to purchase from the
noteholders any unpaid amounts of principal, interest or other amounts
due under the notes and the indenture. This purchase obligation exists,
subject to certain limitations, irrespective of whether any such amounts
are due at maturity of the notes or otherwise.
(iii) In December of 2001, the Company signed contracts (Master Export Contract
and Prepayment Agreement) with a special-purpose entity not related to
PETROBRAS, PF Export Receivables Master Trust ("PF Export"). The purpose
of these contracts is to structure an operation to securitize future
export receivables of sales of fuel oil and other products purchased on
the international market. The assignment of rights on future export
receivables represents a liability of the Company, which will be settled
by the transfer of the receivables to PF Export, as and when they are
generated.
As stipulated in the contracts, the Company assigned the rights to future
receivables totaling US$ 900,000 to PF Export, and in return PF Export
delivered to the Company US$ 750,000 in Senior Trust Certificates,
maturing in 2010 and 2011 and bearing annual interest at rates between
6.60% and 6.75%. The US$ 150,000 difference represents a form of
guarantee for the collection of the underlying receivables through Junior
Trust Certificates held by the Company.
In order to guarantee that the exported volumes during the period of the
transaction are sufficient to support the financial obligations, a
derivative operation was entered into on December 21, 2001 to set a
minimum price for the crude oil at fourteen US dollars per barrel.
Long-term maturities:
December 31,
------------
2001 2000
---- ----
2002 215,000
2003 ..................................... 51,700 30,000
2004 ..................................... 162,750
2005 ..................................... 20,750
2006 ..................................... 149,800
Thereafter ............................... 1,950,000
--------- -------
2,335,000 245,000
========= =======
(b) Lease Obligations
On December 28, 2001 the Company entered into two separate agreements with two
lessors, for US$500,000 and US$ 180,000, respectively. The parties agreed that
before April 30, 2002, the Company and the respective lessors will enter into
charter agreements providing for the charter of three and one operating
platforms, respectively, for a period of 10 years commencing on December 28,
2001. Under the terms of the first agreement, the Company agreed to pay an
upfront fee of US$ 11,800 and 20 semiannual instalments at a fixed interest rate
of 9.25% per annum and a fixed annual rating component of US$ 75. The first
instalment is due 180 days after the receipt of the proceeds for the sale of the
vessels. In the second agreement, the Company will pay semiannual installments
at a variable interest rate of 6 months LIBOR plus 1.995% per annum and a fixed
annual agency fee component of US$ 25. The first instalment is also due 180 days
after the receipt of the proceeds for the sale of the vessel.
Remaining maturities of third party charter debt as of December 31, 2001 are
summarized as follows:
2002 ................................................. 42,000
2003 ................................................. 42,000
2004 ................................................. 44,000
2005 ................................................. 47,000
2006 ................................................. 48,000
-------
Thereafter ........................................... 457,000
-------
Total as at December 31, 2001 ........................ 680,000
=======
F-11
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Information (Continued)
(Expressed in Thousands of United States Dollars)
6 Commitments and Contingencies
6.1 Contingencies--Refinance of Platforms P-8, P-15 and P-32
On December 28, 2001, the Company entered into certain transactions with a bank
and other parties in order to refinance three operating platforms (the
"Platforms"). Pursuant to a Participation Agreement, the Company agreed to enter
into charter agreements, sub-charter agreements and related asset option
agreements, pending satisfaction of certain conditions precedent, which must be
met on or prior to April 30, 2002.
Pursuant to the Participation Agreement, the bank has agreed to acquire the
Platforms and related rights under the existing charter agreements from Catleia
and Brasoil, subsidiaries of PETROBRAS' principal international subsidiary, for
an amount equal to US$500,000. Following such acquisition, the bank and the
Company would enter into charter agreements whereby the bank would charter the
Platforms to the Company, and the Company would subsequently enter into
sub-charter agreements with PETROBRAS to sub-charter such Platforms. Each of the
charter agreements and sub-charter agreements will be for a term of 10 years.
The charter payments due under the sub-charter agreements will be equal to the
charter payments to be made under the charter agreements, plus a fixed annual
component to be retained by the Company. In connection with these arrangements,
PETROBRAS agrees to hold the Company harmless from all fees, expenses, risks or
other costs associated with the arrangements and the bank irrevocably and
unconditionally discharges the Company from all obligations arising under the
charter agreements or sub-charter agreements.
The Participation Agreement also provides that the bank and the Company will
enter into a chartered assets option agreements, and the Company and PETROBRAS
(or another affiliate of PETROBRAS) will enter into the sub-chartered assets
option agreements. The option agreements provide each of the parties involved
with an option to dismantle the charter and sub-charter structures, at any date,
in return for either the aggregate amount of all accrued and unpaid charter or
sub-charter payments or, upon the expiration date for ten US dollars and twenty
US dollars, respectively.
In the event that the conditions precedent under the Participation Agreement are
not met prior to April 30, 2002, pursuant to a Deferred Vessel Purchase
Agreement also entered into by the Company and the other parties discussed above
on December 28, 2001, the bank has granted the Company an option to purchase the
Platforms for ten US dollars each and receives an assignment of the bank's
rights under the existing charter agreements relating to the Platforms.
6.2 Contingencies--Production equipment
Purchase Agreements:
On December 28, 2001 the Company entered into various purchase agreements with
Brasoil for the purchase of equipment allocated to certain platforms owned by
Brasoil and Catleia. The amounts of equipment transferred varies from platform
to platform and have a total value of US$ 196,521. It is expected that the
equipment will be leased to Brasoil and Catleia under the terms of a Master
Lease Agreement. The execution of this agreement is depending upon third party
lender approval to amend existing Charters agreements for the platforms (between
Brasoil/ Catleia and PETROBRAS) to include this production equipment.
Option Agreements:
In order to mitigate the potential risk for the Company as a result of the
lenders' denial to execute the amendments to the existing Charter agreements of
the financed platforms, the Company, Brasoil and Catleia executed `Option
Agreements' with respect to each platform, pursuant to which Brasoil and
Catleia, respectively, irrevocably grant to the Company an option to cause
Brasoil and Catleia to purchase, for the total amount of US$ 196,521 all of the
equipment. This purchase option shall only come into force if certain
transaction documents, amongst which the Master Lease Agreement and the related
Loan agreement, have not been executed within four months of the date of the
Purchase Agreement.
F-12
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Information (Continued)
(Expressed in Thousands of United States Dollars)
6.3 Contingencies--Refinance of Platform P-47:
On December, 28, 2001, the Company entered into certain transactions with a
trust and other parties in order to refinance a floating storage and operating
platform (the "Platform"). Pursuant to a Participation Agreement, a bank agreed
to make a loan to the trust in the amount of US$180,000 (the total cost of the
Platform). The trust then agreed to purchase the trust Platform from the Company
for such amount, and the Company agreed to enter into a charter agreement, a
sub-charter agreement and related asset options agreement, as well as certain
security agreements with the bank.
Pursuant to the Participation Agreement, the trust and the Company entered into
a charter agreement whereby the trust has agreed to charter the Platform to the
Company, and the Company has entered into a sub-charter agreement with PETROBRAS
to sub-charter the Platform. The effectiveness of the charter agreement and
sub-charter agreement are subject to arrangement of acceptable security
arrangements with the bank, including the pledge of all rights under the charter
and sub-charter agreements, as well as the issuance of a deed of mortgage. Each
of the charter agreement and the sub-charter agreement will be for a term of 10
years. The charter payments due under the sub-charter agreement will be equal to
the charter payments to be made under the charter agreement, plus a fixed annual
component to be retained by the Company. In connection with these arrangements,
PETROBRAS agrees to hold the Company harmless from all fees, expenses, risks or
other costs associated with the arrangements and the trust irrevocably and
unconditionally discharges the Company from all obligations arising under the
charter agreement or sub-charter agreement.
The trust and the Company also entered into a chartered assets option agreement,
and the Company and PETROBRAS (or another affiliate of PETROBRAS) will enter
into a sub-chartered asset option agreement. The option agreements provide each
of the parties involved with an option to dismantle the charter and the
sub-charter structures, at any date, in return for either the aggregate amount
of all accrued and unpaid charter or sub-charter payments or, upon the
expiration date for ten US dollars and twenty US dollars respectively.
In the event that the transactions contemplated by the Participation Agreement
cannot be finalized, pursuant to a Vessel Transfer Option Agreement also entered
into between the trust and the Company on December 28, 2001, the trust has
granted the Company an option to receive an assignment of the trust's rights
under the existing charter agreements relating to the Platform. Such option may
be exercised at any time within the 90 day period starting on the business day
following February 28, 2002.
6.4 Commitments--Operating leases
In June and July 2001 the Company entered into separate agreements as a lessee
with a related party to rent two vessels for a period of 11 months each. The
daily rental rates amount to US$ 32 to be paid on a monthly basis. Following
these two agreements, the Company entered into two separate agreements with
PETROBRAS to sublet the vessels to PETROBRAS also for US$ 32 per month over the
same time periods. Under the terms of these two agreements, an amount of US$
6,024 was received in advance (representing three months rent).
6.5 Commitments--Purchases
The Company entered into various commitments for the purchase of Production
Equipment totaling US$ 125,400. The equipment purchased will become part of a
Master Lease Agreement, which has not yet been executed (see Note 6.2). In an
effort to ensure procurement of oil products for the Company's customers, the
Company currently has several contracts which collectively obligate it to
purchase a minimum of approximately 270,461 barrels of oil and oil products per
day at market prices.
F-13
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Information (Continued)
(Expressed in Thousands of United States Dollars)
Related Party Transactions
The Company has numerous transactions with PETROBRAS and other affiliated
companies in the ordinary course of business.
Transactions with all related parties resulted in the following balances:
PETROBRAS
PETROLEO INTERNATIONAL ALBERTO FRONAPE
BRASILEIRO S.A. S.A. PASQUALINI- INTERNATIONAL
PETROBRAS BRASPETRO REFAP S.A. COMPANY 2001 2000
--------- --------- ---------- ------- ---- ----
Current assets
Accounts receivable, mainly by sales ....... 2,368,594 36,878 73,413 5,966 2,584,851 3,011,167
Notes receivable--current .................. 12,772 135,459 134,744 282,975
Other non current assets
Export prepayment .......................... 750,000 750,000
Notes receivable--non current .............. 90,238
Net investment in direct financing leases .. 852,753 852,753 52,015
Current liabilities
Trade accounts payable ..................... 28,653 259,415 288,068 70,842
Loans payable .............................. 91,123 243,441 334,564 1,716,565
Dividends payable .......................... 38,060
Unearned income ............................ 7,185 1,133 8,318 29,925
F-14
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Information (Continued)
(Expressed in Thousands of United States Dollars)
Transactions with all related parties consisted of the following:
December 31, 2001 December 31, 2000
----------------- -----------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
Assets
Current
Accounts receivable .............................. 2,584,851 3,011,167
Notes receivable(1) .............................. 282,975
Other non current
Notes receivable ................................. 90,238
Export prepayment ................................ 750,000
Net investment in direct financing leases ........ 852,753
Liabilities
Current
Trade accounts payable ........................... 288,068 70,842
Loans payable(2) ................................. 334,564 1,716,565
Dividends ........................................ 38,060
Unearned income .................................. 8,318 29,925
--------- ------- --------- ---------
4,470,579 630,950 3,101,405 1,855,392
========= ======= ========= =========
Current ................................................... 2,867,826 630,950 3,011,167 1,855,392
========= ======= ========= =========
Long-term ................................................. 1,602,753 90,238
========= ======= ========= =========
- ---------------
(1) These notes bear interest at rates ranging from 4.9% to 7.1% and have
maturity periods ranging from 90 to 360 days.
(2) The Company's notes payable with Brasoil and PETROBRAS bear interest based
upon LIBOR with spreads consistent with those charged to PETROBRAS by
PIFCO.
F-15
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Information (Continued)
(Expressed in Thousands of United States Dollars)
The principal amounts of business and financial operations carried out with
related parties are as follows:
Years ended December 31,
------------------------
2001 2000 1999
---- ---- ----
Income Expense Income Expense Income Expense
------ ------- ------ ------- ------ -------
Sales of crude oil and oil products and services
PETROBRAS ......................................... 5,115,232 7,290,321 4,354,986
REFAP S.A. ........................................ 738,943
Petrobras America,
Inc. - PAI ..................................... 6,390 282,961 179,039
Cost of sales
PETROBRAS ......................................... (95,242) (81,130) (1,345,827)
Petrobras America,
Inc. - PAI ..................................... (1,320,822) (1,260,335) (571,969)
Braspetro Oil Services Company - BRASOIL ......... (83,320)
Companhia MEGA S.A. ............................... (148,723)
Fronape International Company ..................... (10,542)
Financial income
PETROBRAS ......................................... 126,992 217,102 156,531
REFAP S.A. ........................................ 14,388
Braspetro Oil
Company - BOC .................................. 4,992 238
Braspetro Oil Services Company - BRASOIL ......... 3,711 28
Fronape International Company ..................... 4,744
Braspetro ......................................... 614
Financial expense
PETROBRAS ........................................ (51,979) (152,940) (73,583)
Braspetro Oil Services Company - BRASOIL ......... (15,422) (198)
--------- ---------- --------- ---------- --------- ----------
6,016,006 (1,726,050) 7,790,650 (1,494,603) 4,690,556 (1,991,379)
========= ========== ========= ========== ========= ==========
8 Advances for future capital increase
In June 2001, PETROBRAS, following the Board of Directors recommendation,
transformed US$ 60,000 in accounts receivable from PIFCO into a capital
increase.
F-16
Petrobras International Finance Company
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Information (Continued)
(Expressed in Thousands of United States Dollars)
9 Subsequent events
On February 4, 2002, the Company completed an offering of US$ 400,000 9 1/8%
Senior Notes due February 2007. On February 21, 2002, the Company also issued
additional Senior Notes of US$ 100,000 with the same terms and maturities as the
notes issued on February 4, 2002. The Company intends to use these proceeds
principally to finance the purchase of oil imports and to repay short-term
indebtedness.
These two additional series of Senior Notes also contain standby purchase
agreements from PETROBRAS similar to the ones in the Senior Notes described in
Note 5(ii).
F-17