SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ______________________
COMMISSION FILE NUMBER
0-25821
STATIA TERMINALS GROUP N.V.
(Exact name of registrant as specified in its charter)
Netherlands Antilles 52-2003016
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
C/o Covenant Managers
L.B. Smithplein 3
Curacao, Netherlands Antilles
(011) (599-9) 4623700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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 [ ]
As of November 14, 2001, 6,013,253 class A common shares of the
registrant were outstanding.
STATIA TERMINALS GROUP N.V.
Quarterly Report On Form 10-Q/A
September 30, 2001
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets 1
Consolidated Condensed Income Statements 2
Consolidated Condensed Statements of Cash Flows 3
Notes to Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
Signatures S-1
THIS QUARTERLY REPORT ON FORM 10-Q/A (THIS "REPORT") CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND
IN ITEMS 1, 2, AND 3 OF PART I HEREOF, AS WELL AS WITHIN THIS REPORT GENERALLY.
IN ADDITION, WHEN USED IN THIS REPORT, THE WORDS "MAY," "WILL," "BELIEVE,"
"ANTICIPATE," "EXPECT," "ESTIMATE," "PROJECT," AND SIMILAR EXPRESSIONS ARE
INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED BELOW, AND SPEAK ONLY
AS OF THE DATE HEREOF. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY FROM
THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF FLUCTUATIONS IN
THE SUPPLY OF AND DEMAND FOR CRUDE OIL AND PETROLEUM PRODUCTS, CHANGES IN THE
PETROLEUM TERMINALING INDUSTRY, ADDED COSTS DUE TO CHANGES IN GOVERNMENT
REGULATIONS AFFECTING THE PETROLEUM INDUSTRY, INABILITY TO MAINTAIN OUR TAX
STATUS, THE LOSS OF A MAJOR CUSTOMER OR CUSTOMERS, THE LOSS OF A MAJOR VENDOR OR
SUPPLIER OF PETROLEUM PRODUCTS, THE FINANCIAL CONDITION OF OUR CUSTOMERS,
INTERRUPTION OF OUR OPERATIONS CAUSED BY ADVERSE WEATHER CONDITIONS, CHANGES TO
OUR CONTRACT LABOR ARRANGEMENTS, THE CONDITION OF THE U.S. AND CERTAIN FOREIGN
ECONOMIES, CAPITAL MARKET UNCERTAINTIES, AND OTHER MATTERS INCLUDED IN THIS
REPORT AND THE COMPANY'S ANNUAL REPORT ON FORM 10-K. WE DO NOT UNDERTAKE ANY
OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE
FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR
CIRCUMSTANCES.
FREQUENTLY IN THIS REPORT, ESPECIALLY WHEN DISCUSSING OUR OPERATIONS,
WE REFER TO OURSELVES, STATIA TERMINALS GROUP N.V. AND OUR SUBSIDIARIES, AS "WE"
OR "US".
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
STATIA TERMINALS GROUP N.V. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(Dollars in Thousands)
December 31, September 30,
2000 2001
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,472 $ 21,220
Accounts receivable-
Trade, net 13,482 15,522
Other 1,156 510
Inventory, net 1,552 4,230
Prepaid expenses 1,591 2,257
--------- ---------
Total current assets 35,253 43,739
PROPERTY AND EQUIPMENT, net 202,061 199,062
OTHER NONCURRENT ASSETS, net 3,424 2,342
--------- ---------
Total assets $ 240,738 $ 245,143
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,145 $ 13,736
Accrued interest payable 1,535 4,518
Other accrued expenses 9,739 9,701
Current maturities of long-term debt 1,069 1,167
--------- ---------
Total current liabilities 24,488 29,122
DISTRIBUTIONS PAYABLE 2,913 2,913
LONG-TERM DEBT, net of current maturities 106,931 106,056
--------- ---------
Total liabilities 134,332 138,091
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Class A common shares 76 76
Class B subordinated shares 38 38
Class C shares -- --
Additional paid-in capital 129,834 135,257
Notes receivable from shareholders (1,448) (1,448)
Accumulated deficit (13,509) (10,412)
Class A common shares in treasury (8,585) (11,092)
Deferred compensation related to stock options -- (5,367)
--------- ---------
Total shareholders' equity 106,406 107,052
--------- ---------
Total liabilities and shareholders' equity $ 240,738 $ 245,143
========= =========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
Page 1
STATIA TERMINALS GROUP N.V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 2001 2000 2001
-------- -------- -------- --------
REVENUES:
Terminaling services $ 17,929 $ 17,771 $ 44,670 $ 54,984
Product sales 39,613 33,297 109,404 100,157
-------- -------- -------- --------
Total revenues 57,542 51,068 154,074 155,141
-------- -------- -------- --------
COSTS OF REVENUES:
Terminaling services 10,178 11,428 30,373 33,642
Product sales 38,136 31,094 104,310 93,648
-------- -------- -------- --------
Total costs of revenues 48,314 42,522 134,683 127,290
-------- -------- -------- --------
Gross profit 9,228 8,546 19,391 27,851
ADMINISTRATIVE EXPENSES 2,369 2,733 7,059 8,117
-------- -------- -------- --------
Operating income 6,859 5,813 12,332 19,734
INTEREST EXPENSE 3,191 3,314 9,551 9,942
INTEREST INCOME 99 207 252 680
-------- -------- -------- --------
Income before provision for income taxes 3,767 2,706 3,033 10,472
PROVISION FOR INCOME TAXES 195 272 716 725
-------- -------- -------- --------
Net income $ 3,572 $ 2,434 $ 2,317 $ 9,747
======== ======== ======== ========
BASIC EARNINGS PER COMMON SHARE: $ 0.53 $ 0.40 $ 0.34 $ 1.61
======== ======== ======== ========
DILUTED EARNINGS PER COMMON SHARE: $ 0.34 $ 0.24 $ 0.22 $ 0.97
======== ======== ======== ========
BASIC AND DILUTED EARNINGS PER
SUBORDINATED SHARE: $ -- $ -- $ -- $ --
======== ======== ======== ========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
Page 2
STATIA TERMINALS GROUP N.V. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
Nine Months Ended
September 30,
---------------------------
2000 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,317 $ 9,747
Adjustments to reconcile net income to net cash provided by
operating activities: -
Depreciation, amortization and non-cash charges 10,081 9,618
Provision for possible bad debts 555 29
Changes in operating assets and liabilities: -
Accounts receivable - trade (3,097) (2,069)
Accounts receivable - other 2,725 703
Inventory 1,314 (2,678)
Prepaid expenses (1,238) (666)
Other noncurrent assets 75 657
Accounts payable (15) 1,591
Accrued interest payable and other accrued expenses 3,478 2,945
-------- --------
Net cash provided by operating activities 16,195 19,877
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,801) (6,038)
Investment in and loan to technology company (500) (157)
-------- --------
Net cash used in investing activities (7,301) (6,195)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of class A common share distributions (2,092) (6,650)
Purchase of class A common shares as treasury stock (4,212) (2,507)
Repayment of loan principal -- (777)
-------- --------
Net cash used in financing activities (6,304) (9,934)
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 2,590 3,748
CASH AND CASH EQUIVALENTS, at beginning of period 5,658 17,472
-------- --------
CASH AND CASH EQUIVALENTS, at end of period $ 8,248 $ 21,220
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 300 $ 319
======== ========
Cash paid for interest $ 6,073 $ 6,434
======== ========
The accompanying notes are an integral part of these consolidated
condensed financial statements.
Page 3
STATIA TERMINALS GROUP N.V. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(In thousands except share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The unaudited consolidated condensed financial statements of Statia
Terminals Group N.V. ("Group") and subsidiaries (together with Group, the
"Company") have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements.
Significant accounting policies followed by the Company were disclosed in the
Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000 (the "Form 10-K"). In
the opinion of the Company's management, the accompanying consolidated condensed
financial statements contain all adjustments and accruals necessary to present
fairly the financial position of the Company at September 30, 2001, and the
results of its operations and cash flows for the nine months ended September 30,
2000, and 2001. Operating results for the three and nine months ended September
30, 2001, are not necessarily indicative of the results that may be expected for
the year ending December 31, 2001. These financial statements should be read in
conjunction with the Form 10-K.
For all periods presented herein, there were no differences between net
income and comprehensive income.
2. SEGMENT INFORMATION
The Company is organized around several different factors, the two most
significant of which are services and products and geographic location. The
Company's primary services are terminaling services (resulting in revenues from
storage, throughput, dock usage, emergency response, and other terminal
services) and product sales (including bunker fuels and bulk oil sales).
The primary measures of profit and loss utilized by the Company's
management to make decisions about resources to be allocated to each segment are
earnings before interest expense, income taxes, depreciation, amortization, and
certain non-recurring income and expenses ("Adjusted EBITDA") and earnings
before interest expense, income taxes, and certain non-recurring income and
expenses ("Adjusted EBIT").
Page 4
STATIA TERMINALS GROUP N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(In thousands except share amounts)
2. SEGMENT INFORMATION- (CONTINUED)
The following information is provided for the Company's terminaling
services and product sales segments:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2000 2001 2000 2001
------- ------- ------- -------
ADJUSTED EBITDA:
Terminaling services $ 9,084 $ 7,166 $17,710 $23,877
Product sales 856 1,926 4,342 5,572
------- ------- ------- -------
Total $ 9,940 $ 9,092 $22,052 $29,449
======= ======= ======= =======
DEPRECIATION AND AMORTIZATION
EXPENSE:
Terminaling services $ 2,996 $ 3,024 $ 9,470 $ 8,979
Product sales 156 223 509 581
------- ------- ------- -------
Total $ 3,152 $ 3,247 $ 9,979 $ 9,560
======= ======= ======= =======
ADJUSTED EBIT:
Terminaling services $ 6,088 $ 4,142 $ 8,240 $14,898
Product sales 700 1,703 3,833 4,991
------- ------- ------- -------
Total $ 6,788 $ 5,845 $12,073 $19,889
======= ======= ======= =======
A reconciliation of Adjusted EBIT to the Company's income before
provision for income taxes is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
2000 2001 2000 2001
------- ------- ------- -------
Adjusted EBIT $ 6,788 $ 5,845 $ 12,073 $ 19,889
Interest expense excluding debt
amortization expense (3,021) (3,139) (9,040) (9,417)
-------- -------- -------- --------
Income before provision for
income taxes $ 3,767 $ 2,706 $ 3,033 $ 10,472
======== ======== ======== ========
3. EARNINGS PER SHARE AND STOCK OPTION GRANTS
Earnings per share are computed based upon the "Participating
Securities and Two-Class Common Stock" methodology as required by Statement of
Financial Accounting Standards ("SFAS") No. 128. Under this methodology, all of
the earnings and losses will be allocated to the class A common shares until
such time as the book value equity of the Company divided by the outstanding
class A common shares exceeds $20 per share. All earnings and losses for the
periods presented herein have been allocated to the class A common shareholders.
Page 5
STATIA TERMINALS GROUP N.V. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements - (Continued)
(Unaudited)
(In thousands except share amounts)
Basic earnings per share are computed by dividing the earnings and
losses allocated to each class of equity by the weighted average number of
shares outstanding for each class during the period. Diluted earnings per share
are computed the same as basic earnings per share except the denominator is
adjusted for the effect of class A common share and class B subordinated share
equivalents outstanding. Class A common share equivalents include, where
appropriate, the assumed exercise of outstanding stock options and the
conversion of the class B subordinated shares. For all periods presented herein
there were no class B subordinated share equivalents outstanding.
The following additional information is presented with respect to the
Company's earnings per share amounts:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 2001 2000 2001
----------- ----------- ----------- -----------
EARNINGS PER COMMON SHARE:
Earnings and losses allocated to class A common shares:
Net income $ 3,572 $ 2,434 $ 2,317 $ 9,747
=========== =========== =========== ===========
Weighted average class A common shares outstanding 6,700,326 6,013,253 6,892,260 6,054,493
Dilutive effect of weighted average class B
subordinated shares outstanding 3,800,000 3,800,000 3,800,000
3,800,000
Dilutive effect of weighted average stock options
outstanding 47,015 364,696 20,065 223,673
----------- ----------- ----------- -----------
Diluted common shares outstanding 10,547,341 10,177,949 10,712,325 10,078,166
=========== =========== =========== ===========
EARNINGS PER SUBORDINATED SHARE:
Earnings and losses allocated to class B subordinated shares:
Net income $ -- $ -- $ -- $ --
=========== =========== =========== ===========
Weighted average class B subordinated shares
outstanding 3,800,000 3,800,000 3,800,000 3,800,000
=========== =========== =========== ===========
On January 24, 2001, options to purchase 235,500 class A common shares
were granted to certain of the Company's employees and non-employee directors at
an exercise price of $8.094 per share, representing the fair market value of the
class A common shares on the date of grant.
On August 27, 2001, options to purchase 680,000 class A common shares
were granted to certain of the Company's employees at an exercise price of $5.00
per share which was below the fair market value of the class A common shares on
the date of grant ($12.975 per share). Therefore, the Company recognized $5,423
of additional paid-in capital and an offsetting amount of deferred compensation
on August 27, 2001. During the three months ended September 30, 2001, the
Company recognized $56 of compensation expense related to the options granted on
August 27, 2001 in accordance with Accounting Principles Board Opinion No. 25.
All 2001 options were granted pursuant to the Company's 1999 share
option plan and generally vest in proportion to the conversion of the Company's
class B subordinated shares to class A common shares after the subordination
period, and as otherwise described in the Company's articles of incorporation or
upon a change in control as defined in the stock option plan. As of September
30, 2001, options on 4,000 shares of class A common shares remained available
for grant under the Company's existing stock option plan.
4. REPLACEMENT OF SINGLE POINT MOORING SYSTEM HOSES
During the three months ended March 31, 2000, the Company replaced
certain large hoses attached to its single point mooring system (the "SPM"). In
connection with this hose change-out, the Company adopted the component
depreciation method for the SPM and its hoses as of January 1, 2000, which
resulted in a change in the estimated useful lives for depreciation purposes for
these hoses. As a result, in addition to recurring depreciation charges, the
Company incurred a non-cash charge to depreciation expense of $832 during the
first quarter of 2000, which is included in costs of terminaling services
revenues.
Page 6
STATIA TERMINALS GROUP N.V. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements - (Continued)
(Unaudited)
(In thousands except share amounts)
5. CANADIAN REORGANIZATION
On September 30, 2001, and October 1, 2001, Statia Terminals Canada,
Incorporated ("STCI"), together with Point Tupper Marine Services Limited
("PTMS") and Statia Terminals Canada Holdings, Inc. ("STCHI"), a newly formed
wholly-owned subsidiary of STCI, reorganized such that the businesses previously
carried on by these corporations, other than the spill response business of
PTMS, were transferred to Statia Terminals Canada Partnership ("STCP"), a
general partnership formed under the laws of the Province of Nova Scotia,
Canada, consisting of STCI, PTMS, and STCHI as the only partners. We effected
the reorganization of our Canadian operations in order to consolidate certain
activities and gain operational efficiencies. Additionally, as a result of the
reorganization, Canadian net operating loss carry-forwards, substantially all of
which were to expire unutilized at the end of 2001, were applied against the tax
gain arising from the transfer of certain assets to the partnership. The
resultant step-up in the tax basis of the assets transferred will be available
for future years' tax depreciation deductions. The Company has provided a full
valuation allowance against the net deferred tax asset resulting from this
reorganization, aggregating approximately $19,600, because it cannot determine
that it is likely that the deferred tax asset will be utilized in the future.
6. EMPLOYMENT AGREEMENTS AND SEVERANCE PLAN
In August and November 2001, the Company entered into amended and
restated employment agreements with six members of senior management. These
agreements provide for an annual base salary which is subject to review at least
annually by the Company's Board of Directors or a committee thereof, increasing
at least at the growth rate of the consumer price index. The respective annual
base salaries in effect for the remainder of 2001 are unchanged except for Mr.
Pine whose annual base salary increased to $195 from $175. These agreements also
provide for an annual cash incentive bonus to be awarded based on the difference
between target earnings before interest expense, taxes, depreciation, and
amortization ("EBITDA") and actual EBITDA. However, no change to the annual cash
incentive bonus occurred as a result of these amendments and restatements. The
employment agreements were amended to generally continue to December 31, 2004,
and automatically extend for an additional year beginning January 1, 2003, of
each year unless either party gives notice of non-renewal ninety days prior to
January 1. Additional benefits include participation in a modified executive
life insurance plan for Mr. Cameron.
Also unchanged, if the Company terminates any of these employment
agreements without substantial cause or the employee terminates for good reason,
as these terms are defined in each of the employment agreements, the employee
shall be entitled to his current compensation, welfare benefits and an incentive
bonus for the remaining portion of the term of the relevant employment
agreement. In exchange for the addition of three year non-compete arrangements,
upon a change in control, as this term is defined in each of the employment
agreements, these employees shall now be entitled to a change in control bonus
aggregating $4,100. Should any of these employment agreements be terminated
after a change in control, the employee shall be entitled to his current
compensation, welfare benefits and an incentive bonus for the remaining portion
of the term of the relevant employment agreement payable in a lump-sum cash
payment.
In August 2001, the Company adopted a severance plan for certain
salaried employees, excluding members of senior management with whom the Company
has entered into employment agreements. The severance plan provides for a
lump-sum payment to covered employees and the continuation of certain welfare
benefits for the severance term. The severance term is determined based on the
employee's length of service, as defined in the severance plan, and the
employee's grade level. Benefits are provided for a minimum 13 weeks and a
maximum 52 weeks. Benefits are only paid if the employee is terminated within
two years of a change in control, as defined in the severance plan.
Page 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
For purposes of the discussion below, reference is made to the
unaudited Consolidated Condensed Financial Statements and Notes thereto of
Statia Terminals Group N.V. ("Group") and subsidiaries (together with Group, the
"Company") as of September 30, 2001, and for the three and nine-month periods
ended September 30, 2000 and 2001, included herein. Reference should also be
made to the Company's Annual Report on Form 10-K that includes the Company's
Consolidated Financial Statements as of and for the year ended December 31,
2000.
OVERVIEW OF OPERATIONS
Our operations are organized around several different factors, the two
most significant of which are services and products and geographic location. Our
primary services and products are terminaling services (resulting in revenue
from storage, throughput, dock usage, emergency response, and other terminal
services) and product sales (including bunker fuels and bulk oil sales). A
majority of our revenues are generated by product sales, which fluctuate with
global oil prices. As a result, we experience volatility in our revenue stream,
which is not necessarily indicative of our profitability. Gross profit from
terminaling services is generally higher than gross profit from product sales.
Vessels call at our facilities to load and/or discharge cargo and/or to take on
bunker fuel. We earn higher port charges (which consist of dock charges,
emergency response fees, and other terminal charges) when a vessel calls to load
and/or discharge cargo than we earn when a vessel calls only to take on bunker
fuel.
Our operating costs for terminaling services are relatively fixed and
generally do not change significantly with changes in storage capacity leased.
However, our operating costs are impacted by inflationary cost increases, and we
have certain variable operating costs which increase or decrease based on
changes in storage capacity available, storage capacity leased, throughput,
vessel calls, and changes in ancillary services offered by us. Additions or
reductions in storage, throughput, port charges, and ancillary service revenues
directly impact our gross profit. Costs for the procurement of petroleum
products for sale are variable and linked to global oil prices. Our product
costs are also impacted by market supply conditions, types of products sold, and
volumes delivered.
The following table sets forth, for the periods indicated, total
capacity, capacity leased, throughput, and vessel calls for each of our
operating locations. "Total capacity" represents the average storage capacity
available for lease for a period. "Capacity leased" represents the storage
capacity leased to third parties weighted for the number of days leased in the
month divided by the capacity available for lease. "Throughput" volume is the
total number of inbound barrels discharged from a vessel, rail car, or tanker
truck, and generally does not include across-the-dock or tank-to-tank transfers.
A "vessel call" occurs when a vessel docks or anchors at one of our terminal
locations in order to load and/or discharge cargo and/or to take on bunker fuel.
Such dockage or anchorage is counted as one vessel call regardless of the number
of activities carried on by the vessel. A vessel call also occurs when we sell
and deliver bunker fuel to a vessel not calling at our terminals for the above
purposes. Each of these statistics is a measure of the utilization of our
facilities and equipment.
Page 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
Capacity, Capacity Leased, Throughput and Vessel Calls by Location
(Total Capacity and Throughput in thousands of barrels)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2000 2001 2000 2001
------ ------ ------ ------
Netherlands Antilles and the Caribbean
Total capacity 11,334 11,334 11,334 11,334
Capacity leased 94% 94% 86% 94%
Throughput 27,276 19,800 58,236 73,631
Vessel calls 213 166 654 621
Canada
Total capacity 7,501 7,501 7,501 7,501
Capacity leased 76% 87% 67% 84%
Throughput 16,535 17,419 40,747 58,164
Vessel calls 44 61 101 163
All locations
Total capacity 18,835 18,835 18,835 18,835
Capacity leased 87% 91% 78% 90%
Throughput 43,811 37,219 98,983 131,795
Vessel calls 257 227 755 784
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage of revenues represented by some items in our consolidated condensed
income statements.
Results of Operations
(Dollars in Thousands)
Three Months Ended September 30,
---------------------------------------------------------
2000 2001
------------------------- ------------------------
% of % of
Dollars Revenues Dollars Revenues
------- -------- ------- --------
Revenues:
Terminaling services $17,929 31.2% $17,771 34.8%
Product sales 39,613 68.8 33,297 65.2
------- ------- ------- -------
Total revenues 57,542 100.0 51,068 100.0
------- ------- ------- -------
Costs of revenues:
Terminaling services 10,178 17.7 11,428 22.4
Product sales 38,136 66.3 31,094 60.9
------- ------- ------- -------
Total costs of revenues 48,314 84.0 42,522 83.3
------- ------- ------- -------
Gross profit:
Terminaling services 7,751 13.4 6,343 12.4
Product sales 1,477 2.6 2,203 4.3
------- ------- ------- -------
Total gross profit 9,228 16.0 8,546 16.7
Administrative expenses 2,369 4.1 2,733 5.3
------- ------- ------- -------
Operating income 6,859 11.9 5,813 11.4
Interest expense 3,191 5.6 3,314 6.5
Interest income 99 0.2 207 0.4
------- ------- ------- -------
Income before provision for income taxes 3,767 6.5 2,706 5.3
Provision for income taxes 195 0.3 272 0.5
------- ------- ------- -------
Net income $ 3,572 6.2% $ 2,434 4.8%
======= ======= ======= =======
Page 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
Three Months Ended September 30,
---------------------------------------------------------
2000 2001
------------------------- ------------------------
% of % of
Dollars Revenues Dollars Revenues
------- -------- ------- --------
Revenues:
Terminaling services $ 44,670 29.0% $ 54,984 35.4%
Product sales 109,404 71.0 100,157 64.6
-------- ------- -------- -------
Total revenues 154,074 100.0 155,141 100.0
-------- ------- -------- -------
Costs of revenues:
Terminaling services 30,373 19.7 33,642 21.7
Product sales 104,310 67.7 93,648 60.3
-------- ------- -------- -------
Total costs of revenues 134,683 87.4 127,290 82.0
-------- ------- -------- -------
Gross profit:
Terminaling services 14,297 9.3 21,342 13.8
Product sales 5,094 3.3 6,509 4.2
-------- ------- -------- -------
Total gross profit 19,391 12.6 27,851 18.0
Administrative expenses 7,059 4.6 8,117 5.2
-------- ------- -------- -------
Operating income 12,332 8.0 19,734 12.8
Interest expense 9,551 6.2 9,942 6.4
Interest income 252 0.2 680 0.4
-------- ------- -------- -------
Income before provision for income taxes 3,033 2.0 10,472 6.8
Provision for income taxes 716 0.5 725 0.5
-------- ------- -------- -------
Net income $ 2,317 1.5% $ 9,747 6.3%
======== ======= ======== =======
The following tables set forth, for the periods indicated, (a) the
total revenues and total operating income, after allocation of administrative
expenses and elimination of certain intercompany transactions, at each of our
operating locations and (b) the percentage of such revenues and operating income
relative to our total revenues and operating income.
Revenues by Location
(Dollars in Thousands)
Three Months Ended September 30,
-----------------------------------------------------------
2000 2001
------------------------- --------------------------
% of % of
Dollars Total Dollars Total
------- -------- ------- --------
Netherlands Antilles and the Caribbean $51,945 90.3% $42,438 83.1%
Canada 5,597 9.7 8,630 16.9
------- ------- ------- -------
Total $57,542 100.0% $51,068 100.0%
======= ======= ======= =======
Nine Months Ended September 30,
---------------------------------------------------------
2000 2001
------------------------- ------------------------
% of % of
Dollars Total Dollars Total
------- -------- ------- --------
Netherlands Antilles and the Caribbean $140,676 91.3% $133,766 86.2%
Canada 13,398 8.7 21,375 13.8
-------- ------- -------- -------
Total $154,074 100.0% $155,141 100.0%
======== ======= ======== =======
Page 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
Operating Income by Location
(Dollars in Thousands)
Three Months Ended September 30,
---------------------------------------------------------
2000 2001
------------------------- ------------------------
% of % of
Dollars Total Dollars Total
------- -------- ------- --------
Netherlands Antilles and the Caribbean $5,521 80.5% $3,659 62.9%
Canada 1,338 19.5 2,154 37.1
------ ------- ------ -------
Total $6,859 100.0% $5,813 100.0%
====== ======= ====== =======
Nine Months Ended September 30,
---------------------------------------------------------
2000 2001
------------------------- ------------------------
% of % of
Dollars Total Dollars Total
------- -------- ------- --------
Netherlands Antilles and the Caribbean $10,157 82.4% $13,548 68.7%
Canada 2,175 17.6 6,186 31.3
------- ------- ------- -------
Total $12,332 100.0% $19,734 100.0%
======= ======= ======= =======
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001, COMPARED WITH THE SAME PERIODS
OF 2000
REVENUES
Total revenues for the three months ended September 30, 2001, and 2000,
were $51.1 million and $57.5 million, respectively, representing a decrease of
$6.4 million or 11.3%. The decrease in total revenues is primarily due to lower
average selling prices in the product sales segment. Total revenues for the nine
months ended September 30, 2001, and 2000, were $155.1 million and $154.1
million, respectively, representing an increase of $1.0 million or 0.7%. The
increase in total revenues during this period is primarily due to increased
revenues from terminaling services, partially offset by lower average selling
prices on product sales.
Revenues from terminaling services for the three and nine months ended
September 30, 2001, were $17.8 million and $55.0 million, compared to $17.9
million and $44.7 million for the same periods of 2000, representing a decrease
of $0.1 million or 0.9%, and an increase of $10.3 million or 23.1%,
respectively. The decrease in terminaling services revenues for the three months
ended September 30, 2001, compared to the same period in 2000, was primarily the
result of decreased throughput of crude oil at St. Eustatius, partially as a
result of maintenance at certain refineries receiving crude oil from our
customers, and fewer vessels working cargo. The increase in terminaling services
revenues for the nine months ended September 30, 2001, compared to the same
period in 2000, was primarily the result of improved leasing of our available
capacity, additional barrels of throughput, and increased vessel calls working
cargo.
As of September 30, 2001, approximately 70.8% of our total storage
capacity was leased pursuant to long-term contracts. For the nine months ended
September 30, 2001, approximately 59.9% of our storage and throughput revenues,
excluding related ancillary services, were derived from long-term contracts.
Page 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
Revenues from terminaling services at St. Eustatius decreased
approximately $1.8 million or 14.3% during the three months ended September 30,
2001, as compared to the same period of 2000. The decrease in revenues from
terminaling services was primarily due to reduced throughput and fewer vessels
working cargo. Twenty-three fewer cargo vessels (excluding vessels calling only
to take on bunker fuel) called at the St. Eustatius facility during the three
months ended September 30, 2001, than during the same period of 2000, resulting
in lower revenues from port charges. Additionally, during the three months ended
September 30, 2001, throughput decreased 27.4%, as compared to the same period
of 2000.
Revenues from terminaling services at St. Eustatius increased
approximately $3.8 million or 12.0% during the nine months ended September 30,
2001, as compared to the same period of 2000. The increase in revenues from
terminaling services was due primarily to improved leasing of our available
capacity, additional barrels of throughput, and increased vessel calls working
cargo. Thirty additional cargo vessels (excluding vessels calling only to take
on bunker fuel) called at the St. Eustatius facility during the nine months
ended September 30, 2001, than during the same period of 2000, resulting in
higher revenues from port charges. Additionally, during the nine months ended
September 30, 2001, throughput increased 26.4%, as compared to the same period
of 2000.
For the nine months ended September 30, 2001, the overall percentage of
capacity leased at St. Eustatius was 94% as compared to 86% for the same period
of 2000, primarily reflecting increases in the percentage of capacity leased for
fuel oil storage. The increase in the percentage of capacity leased for fuel oil
storage resulted principally from new short-term and long-term product storage
contracts. For the three months ended September 30, 2001 and 2000, the overall
percentage of capacity leased at St. Eustatius remained unchanged at 94%. During
the three and nine months ended September 30, 2001, our average revenue per
barrel leased has increased for this facility by 0.4% and 3.9%, respectively.
Revenues from terminaling services at Point Tupper increased
approximately $1.6 million or 28.6%, and $6.5 million or 48.9% during the three
and nine months ended September 30, 2001, as compared to the same periods of
2000. The increases in revenues from terminaling services were due primarily to
a higher percentage of tank capacity leased resulting from new short-term
storage contracts, a long-term storage contract with a gasoline blender, a
long-term crude oil storage contract, and from increased throughput of crude
oil. The percentage of tank capacity leased at Point Tupper was 87% and 84% for
the three and nine months ended September 30, 2001, as compared to 76% and 67%
for the same periods of 2000. Sixteen and sixty-one additional cargo vessels
called during the three and nine months ended September 30, 2001, as compared to
the same periods of 2000, which led to higher revenues from port charges at this
facility. During the three and nine months ended September 30, 2001, our average
revenue per barrel leased has increased for this facility.
Revenues from product sales were $33.3 million and $100.2 million for
the three and nine months ended September 30, 2001, compared to $39.6 million
and $109.4 million for the same periods of 2000, representing decreases of $6.3
million or 15.9% and $9.2 million or 8.5%, respectively. The decreases were
primarily due to lower average selling prices. Average selling prices decreased
17.4% and 11.1% when comparing the three and nine months ended September 30,
2001, with the same periods of 2000. Metric tons of bunkers and bulk oil
delivered increased 1.8% and 3.0% during the three and nine months ended
September 30, 2001, respectively, as compared to the same periods of 2000.
Page 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
GROSS PROFIT
Gross profit for the three months ended September 30, 2001, was $8.5
million compared to $9.2 million for the same period of 2000, representing a
decrease of $0.7 million or 7.4%. The decrease in gross profit for the three
months ended September 30, 2001, was primarily the result of the decreased
revenues from terminaling services discussed above. Gross profit for the nine
months ended September 30, 2001, was $27.9 million compared to $19.4 million for
the same period of 2000, representing an increase of $8.5 million. The increase
in gross profit for the nine months ended September 30, 2001, was primarily the
result of the increased revenues from terminaling services discussed above.
Additionally, during the nine months ended September 30, 2000, we replaced
certain hoses attached to our single point mooring system. As a result, we
incurred a non-cash charge to depreciation expense of $0.8 million during the
first quarter of 2000 which is included in costs of terminaling services
revenues.
Gross profit from our product sales segment for the three and nine
months ended September 30, 2001, was $2.2 million and $6.5 million compared to
$1.5 million and $5.1 million for the same periods of 2000, representing
increases of $0.7 million or 49.2% and $1.4 million or 27.8%, respectively.
These increases in gross profit from product sales are primarily due to greater
quantities of bunker fuels delivered and higher margins realized due to improved
purchasing of products.
Our operating expenses, which are included in costs of revenues, are
relatively fixed. However, operating expenses at both St. Eustatius and Point
Tupper have increased during the three and nine months ended September 30, 2001,
as compared to the same periods of 2000, primarily due to increased personnel
costs, contract labor and marine equipment expenses resulting from the
significantly higher throughput and number of vessels working cargo at both
facilities during the first nine months of 2001.
ADMINISTRATIVE EXPENSES
Administrative expenses were $2.7 million and $8.1 million for the
three and nine months ended September 30, 2001, as compared to $2.4 million and
$7.1 million for the same periods of 2000, representing increases of $0.3
million or 15.4% and $1.0 million or 15.0%, respectively. The increases during
the three and nine months ended September 30, 2001, as compared to the same
periods of 2000, were primarily the result of higher personnel costs (including
certain performance-based compensation), depreciation, and costs associated with
marketing, financing, and development projects.
INTEREST EXPENSE
During the three and nine months ended September 30, 2001, we incurred
$3.3 million and $9.9 million of interest expense compared to $3.2 million and
$9.6 million for the same periods of 2000, representing increases of $0.1
million or 3.9% and $0.3 million or 4.1%, respectively. The increases during the
three and nine months ended September 30, 2001, as compared to the same periods
of 2000, were primarily due to interest on equipment financing secured by the
M/V STATIA RESPONDER, which is discussed further below. Interest expense
includes interest accrued on our long-term debt, interest expense and commitment
fees on our revolving credit facility, amortization expense related to deferred
financing costs, and bank charges.
PROVISION FOR INCOME TAXES
The provisions for income taxes were $0.3 million and $0.7 million for
the three and nine months ended September 30, 2001, and $0.2 million and $0.7
million for the three and nine months ended September 30, 2000, respectively.
Page 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
NET INCOME
The Company produced net income of $2.4 million and $9.7 million for
the three and nine months ended September 30, 2001, as compared to net income of
$3.6 million and $2.3 million for the same periods of 2000, representing a
decrease of $1.2 million and an increase of $7.4 million, respectively. These
changes were primarily attributable to the net effect of the factors discussed
above.
SELECTED PROJECTED FINANCIAL INFORMATION
The 2001 year end results will be dictated by numerous market factors,
including the general direction of world economies, the crude oil production
decisions of the Organization of Petroleum Exporting Countries and other
producers, the relationship of natural gas prices to other liquid petroleum
products, overall gasoline and diesel oil supplies throughout the Americas,
longer term effects of competition for products we sell, weather conditions in
North America, and ultimately our ability to renew or replace existing storage
contracts. We are projecting that Adjusted EBITDA (a measure of cash flow from
recurring operations) for the year ending December 31, 2001, will range between
$37.0 million and $40.0 million. Adjusted EBITDA for the fourth quarter of 2001
is presently anticipated to fall between $7.5 million and $10.5 million.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $19.9 million and $16.2
million for the nine months ended September 30, 2001 and 2000, respectively.
Cash flow from operations has been our primary source of liquidity during these
periods. Differences between net income and positive operating cash flow have
resulted primarily from depreciation and amortization burdens, and changes in
various working capital accounts. The provision for possible bad debts for the
nine months ended September 30, 2000, was partially reversed during the fourth
quarter of 2000 when payment was received from a customer.
We periodically purchase refined petroleum products for resale as
product sales, and our inventory balances change based on these activities. At
September 30, 2001, we had an inventory balance of $4.2 million compared to $1.6
million at December 31, 2000.
CASH FLOW FROM INVESTING ACTIVITIES
Net cash used in investing activities, consisting primarily of
purchases of property and equipment, was $6.2 million and $7.3 million for the
nine months ended September 30, 2001 and 2000, respectively. See the table below
entitled "Summary of Capital Expenditures by Type."
During the three months ended September 30, 2000, we acquired an
interest for $0.5 million in a technology investment company which holds as its
sole investment an investment in a company providing on-line trading of certain
petroleum products. During the three months ended March 31, 2001, we invested an
additional $0.1 million in the technology investment company. In April 2001, we
provided the online petroleum products trading company $0.03 million in the form
of a convertible loan in conjunction with similar loans from other investors.
This loan and accrued interest thereon were replaced in September 2001 with a
new loan with a maturity date of December 31, 2001.
The online petroleum products trading company is currently experiencing
potential cash flow shortfalls. We are evaluating alternatives for recovering
our investments and loans (carried at cost as of September 30, 2001) in the
technology investment company and on-line petroleum products trading company.
Should these efforts prove unsuccessful, we may incur an immediate charge to
write-off all or a portion of our investment aggregating $0.7 million at
November 13, 2001.
Page 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
CASH FLOW FROM FINANCING ACTIVITIES
As more fully discussed in our Annual Report on Form 10-K for the year
ended December 31, 2000, under our articles of incorporation we are required to
distribute to our shareholders all of our "available cash" (as defined therein)
generated from operations. "Available cash" as defined generally includes cash
from various sources after deducting such reserves as our board of directors may
deem necessary or appropriate to provide for the proper conduct of our business,
including future capital expenditures, anticipated operational needs, and to
comply with debt obligations.
On February 14, 2001, we paid $1.2 million to holders of our class A
common shares, representing a distribution of $0.20 per share. The $0.25 per
share difference between the declared distribution and the target quarterly
distribution of $0.45 per share represents an arrearage which must be paid from
future available cash. On May 15, 2001, and August 14, 2001, we paid $2.7
million to holders of our class A common shares, representing distributions of
$0.45 per share.
On October 17, 2001, our board of directors declared a distribution of
$0.45 per share on our class A common shares payable November 14, 2001, to
shareholders of record on October 31, 2001. Since the distribution equals the
target quarterly distribution rate stated in our articles of incorporation, the
aggregate class A common share arrearage remains unchanged at $1.60 per share.
For the period from inception of our Stock Purchase Program through
September 30, 2001, and November 13, 2001, we had acquired 1,586,747 class A
common shares, at an aggregate cost of $11.1 million. As conditions warrant, we
intend to continue periodic open market purchases of our class A common shares.
On January 24, 2001, options to purchase 235,500 class A common shares
were granted to certain of our employees and non-employee directors at an
exercise price of $8.094 per share, representing the fair market value of the
class A common shares on the date of grant. On August 27, 2001, options to
purchase 680,000 class A common shares were granted to certain of our employees
at an exercise price of $5.00 per share which was below the fair market value of
the class A common shares on the date of grant. Therefore, we recognized $5.4
million of additional paid-in capital and an offsetting amount of deferred
compensation on August 27, 2001. All 2001 options were granted pursuant to our
1999 share option plan and generally vest in proportion to the conversion of our
class B subordinated shares to class A common shares after the subordination
period, and as otherwise described in our articles of incorporation or upon a
change in control as defined in the stock option plan. Should the vesting of the
options granted on August 27, 2001 be accelerated, any unamortized deferred
compensation related to the vested options would be immediately recognized. As
of November 13, 2001, options on 4,000 shares of class A common shares remained
available for grant under our existing stock option plan.
As of November 13, 2001, no event of default existed and was continuing
under the indenture to our 11 3/4% mortgage notes of which $101.0 million are
outstanding. The consolidated fixed charge coverage ratio as defined in the
indenture was at least 2.0 to 1 at September 30, 2001. Additionally, at
September 30, 2001, the sum of Statia Terminals International's dividends,
restricted payments, aggregate consolidated net income (deficit) and capital
stock proceeds was approximately $14.9 million.
We have a $17.5 million revolving credit facility secured by our
accounts receivable and oil inventory, which renews annually under the original
terms of the agreement unless otherwise canceled by either party. The revolving
credit facility is available for working capital needs and letter of credit
financing, and it permits us to borrow in accordance with a defined available
borrowing base, which was approximately $14.2 million at September 30, 2001. The
revolving credit facility bears interest at the prime rate plus 0.50% per annum
(5.50% at November 13, 2001) and will expire on November 27, 2002. There was
no outstanding balance at September 30, 2001.
Page 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
In March 2000, the ownership of the M/V STATIA RESPONDER, an emergency
response and maintenance vessel, was transferred from one of our existing
subsidiaries to a newly created subsidiary. In December 2000, this newly created
subsidiary borrowed $7.0 million from an equipment financing company utilizing
the vessel as collateral. The loan requires monthly payments of principal and
interest over six years. Interest accrues at three month London InterBank
Offered Rates plus 3.2% (6.76% at November 13, 2001) and adjusts each month.
The loan is subject to certain financial covenants, the most restrictive of
which include, but are not limited to, the following: (i) a debt service
coverage ratio of at least 1.50 to 1, (ii) the maintenance of $70.0 million of
net worth, and (iii) the maintenance of specified insurance coverage limits on
the collateral. We are in compliance with the financial covenants of the loan.
During the nine months ended September 30, 2001, we repaid $0.8 million of the
loan principal.
We believe that cash flow generated by operations and amounts available
under the revolving credit facility will be sufficient, until the maturity of
our $101.0 million outstanding 11 3/4% mortgage notes due November 15, 2003, to
fund working capital needs, capital expenditures, other operating requirements,
including any expenditures required by applicable environmental laws and
regulations, and to service debt. It is unlikely that we will be able to repay
the mortgage notes at maturity through projected operating cash flow, and it
will be necessary to refinance all or a portion of the mortgage notes, or redeem
the mortgage notes from additional equity funds, on or before their maturity on
November 15, 2003. We continuously monitor financial market conditions and our
financial position to determine when and whether we will refinance or redeem all
or a portion of the mortgage notes prior to their maturity.
Although we intend to refinance and believe that we will be able to
refinance the mortgage notes prior to November 15, 2003, our operating
performance and ability to service or refinance the mortgage notes and to extend
or refinance the revolving credit facility will be subject to future economic
conditions and to commercial, financial, and other factors, many of which are
beyond our control. There can be no assurances that we will be able to repay at
maturity or refinance our indebtedness in whole or in part, or at all, on terms
acceptable to us. If we are unable to repay or refinance the mortgage notes at
or prior to maturity, we will be forced to adopt alternative strategies that may
include seeking additional equity capital.
It is anticipated that any common share arrearages will not adversely
impact our ability to repay or refinance the mortgage notes since the mortgage
notes are obligations of two of our subsidiaries, not of Statia Terminals Group.
Depending on the terms and conditions of any refinancing of the mortgage notes,
our ability to pay the target quarterly distributions and common share
arrearages may be impacted.
CAPITAL EXPENDITURES
Our projected capital spending for 2001 will range between $7.0 million
and $8.0 million primarily for operations sustaining capital expenditures.
Additional spending is contingent upon the addition of incremental terminaling
business.
Page 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
The following table sets forth capital expenditures and separates such
expenditures into those which produce, or have the potential to produce,
incremental revenues and those which sustain our operations.
Summary of Capital Expenditures by Type
(Dollars in Thousands)
Three Months Ended September 30,
---------------------------------------------------------
2000 2001
------------------------- ------------------------
% of % of
Dollars Total Dollars Total
------- -------- ------- --------
Produce incremental revenues $ 50 1.9% $ 258 10.9%
Operations sustaining capital expenditures 2,609 98.1 2,103 89.1
------ ------- ------ -------
Total $2,659 100.0% $2,361 100.0%
====== ======= ====== =======
Nine Months Ended September 30,
---------------------------------------------------------
2000 2001
------------------------- ------------------------
% of % of
Dollars Total Dollars Total
------- -------- ------- --------
Produce incremental revenues $ 196 2.9% $ 773 12.8%
Operations sustaining capital expenditures 6,605 97.1 5,265 87.2
------ ------- ------ -------
Total $6,801 100.0% $6,038 100.0%
====== ======= ====== =======
We continue to investigate a salt deposit located on a parcel of land
very near our Point Tupper facility. At this point in time, we have not
established sufficient information to determine whether or not this project will
ever produce income. However, it is anticipated that should the project prove
successful, it would not produce revenues until at least 2004. This project,
like any project in which we may become involved, will require adequate
prospective returns in order to be developed. Through September 30, 2001, we
have capitalized $1.0 million related to this project of which approximately
$0.4 million was capitalized during the nine months ended September 30, 2001.
Should this or any project be abandoned, we may incur an immediate charge to
write-off any amounts capitalized.
We continue to review and develop certain software applications used in
the operations of our marine terminals and certain internally developed
applications intended to upgrade the existing software. In addition, we are
evaluating the suitability of commercially available software including possible
integration of third-party software with our systems. The ultimate outcome of
this effort may result in a decision to enhance or replace the existing and
internally developed applications or abandon this software. As of September 30,
2001, net third-party capitalized costs related to the development and
enhancement of these applications were approximately $0.8 million.
Page 17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS
In connection with the acquisition of certain companies from Praxair,
Inc. by Castle Harlan Partners II L.P. (the "Castle Harlan Acquisition"),
studies were undertaken by and for Praxair, Inc. to identify potential
environmental, health, and safety matters. Certain matters involving potential
environmental costs were identified at the Point Tupper facility. Praxair, Inc.
has agreed to pay for certain of these environmental costs subject to certain
limitations. Praxair, Inc. has paid approximately $5.6 million during the period
from November 27, 1996, to September 30, 2001, related to such costs. As of
September 30, 2001, Praxair, Inc. owed us approximately $0.1 million related to
such costs. Based on investigations conducted and information available to date,
the potential cost of additional remediation and compliance is estimated at
approximately $13 million, substantially all of which we believe is the
responsibility of Praxair, Inc. per the Castle Harlan Acquisition agreement. We
believe that environmental, health, and safety costs will not have a material
adverse effect on our financial position, cash flows, or results of operations,
subject to reimbursements from Praxair, Inc.
We have also identified certain other environmental, health, and safety
costs not covered by the agreement with Praxair, Inc. for which $1.5 million
were accrued in 1996 in conjunction with the Castle Harlan Acquisition, of which
$1.1 million remained at December 31, 2000. During the nine months ended
September 30, 2001, $0.04 million were expended against this accrual. During the
nine months ended September 30, 2001, we identified certain other environmental,
health, and safety costs not covered by the agreement with Praxair, Inc. and
accrued $0.05 million related to these costs, against which $0.03 million were
expended through September 30, 2001.
TAX MATTERS
Our Free Zone and Profit Tax Agreement with the island government of
St. Eustatius expired on December 31, 2000. The agreement required, among other
things, payment of a minimum annual tax of 0.5 million Netherlands Antilles
Guilders or approximately $0.3 million. We have been adhering to the terms of
this agreement since its expiration. Discussions regarding a modified and
extended agreement are in progress, and we believe that, although some terms and
conditions will be modified from those of the prior agreement and that the
amounts payable may increase or decrease, the execution of a new extended
agreement is likely. However, if the beneficial tax status of our facilities is
terminated, or if significant adverse modifications are made to the tax
agreement, our business, financial condition, results of operations, and cash
flows may be adversely affected.
On September 30, 2001, and October 1, 2001, certain of our
subsidiaries, Statia Terminals Canada, Incorporated ("STCI"), together with
Point Tupper Marine Services Limited ("PTMS") and Statia Terminals Canada
Holdings, Inc. ("STCHI"), a newly formed wholly-owned subsidiary of STCI,
reorganized such that the businesses previously carried on by these
corporations, other than the spill response business of PTMS, were transferred
to Statia Terminals Canada Partnership ("STCP"), a general partnership formed
under the laws of the Province of Nova Scotia, Canada, consisting of STCI, PTMS,
and STCHI as the only partners. We effected the reorganization of our Canadian
operations in order to consolidate certain activities and gain operational
efficiencies. Additionally, as a result of the reorganization, Canadian net
operating loss carry-forwards, substantially all of which were to expire
unutilized at the end of 2001, were applied against the tax gain arising from
the transfer of certain assets to the partnership. The resultant step-up in the
tax basis of the assets transferred will be available for future years' tax
depreciation deductions. We have provided a full valuation allowance against the
net deferred tax asset resulting from this reorganization, aggregating
approximately $19.6 million, because we cannot determine that it is likely that
the deferred tax asset will be utilized in the future.
ACCOUNTING STANDARDS
Effective January 1, 2001, we adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS Nos. 137 and 138,
Page 18
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations - (Continued)
which establishes standards of accounting for derivative instruments including
specific hedge accounting criteria. The adoption of SFAS No. 133 did not have a
material impact on us.
The Accounting Standards Executive Committee (AcSEC) of the American
Institute of Certified Public Accountants is currently formulating a new
accounting standard, which is expected to modify the accounting rules for major
repairs and maintenance expenditures, among other things. AcSEC recently
released a proposed Statement of Position entitled "Accounting for Certain Costs
and Activities Related to Property, Plant, and Equipment." We cannot determine
at the present time whether or not the ultimate implementation of the final
standard by us will have a material effect on our business, financial condition,
results of operations, or cash flows.
The Financial Accounting Standards Board ("FASB") recently issued SFAS
No. 143, "Accounting for Asset Retirement Obligations." The new rule modifies
the accounting rules for obligations associated with the retirement of an asset
and must be adopted for fiscal years beginning after June 15, 2002. We are
currently evaluating the new standard but have not determined whether or not the
ultimate implementation of this standard by us will have a material effect on
our business, financial condition, results of operations, or cash flows.
The FASB recently issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-lived Assets." The new rule addresses financial accounting
and reporting for the impairment or disposal of long-lived assets, establishes a
single accounting model for long-lived assets to be disposed of by sale and
resolves significant implementation issues related to SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The new rule must be adopted for fiscal years beginning after December 15,
2001. We are currently evaluating the new standard but have not determined
whether or not the ultimate implementation of this standard by us will have a
material effect on our business, financial condition, results of operations, or
cash flows.
RECENT DEVELOPMENTS
On November 12, 2001, Group and Kaneb Pipe Line Operating Partnership,
L.P. ("Kaneb"), a limited partnership organized under the laws of the State of
Delaware, entered into a Stock Purchase Agreement, pursuant to which Group will
sell to Kaneb all of the outstanding capital stock of each of Statia Terminals
International N.V., Statia Technology, Inc. and Statia Marine, Inc. (the
"Operating Subsidiaries"), which constitute substantially all of Group's assets,
in consideration for a purchase price of approximately $307 million including
cash on hand and the assumption of approximately $107 million of indebtedness of
the Operating Subsidiaries. The purchase price is subject to adjustment
following the sale to reflect the amount of combined cash of the Operating
Subsidiaries and their respective subsidiaries on the date of the sale.
Following the sale, Group intends to distribute the proceeds of the sale to
holders of Group's class A common shares, class B subordinated shares and class
C shares, and subsequently to liquidate.
Consummation of the sale is not subject to any financing condition,
but is subject to other customary closing conditions, including approval of the
sale by 66-2/3% of all votes cast by holders of the class A common shares and
class B subordinated shares, voting together, at a special meeting at which at
least one-half of Group's voting securities are represented. In addition,
consummation of the sale and subsequent liquidation is subject to approval by
66-2/3% of all votes cast by holders of the class A common shares, voting
separately as a class, of an amendment to Group's articles of incorporation to
provide the method of distribution of the proceeds from the sale among the
holders of the class A common shares, the class B subordinated shares and the
class C shares.
Subject to receipt of the shareholder approvals referred to above,
following the consummation of the sale, a distribution in the aggregate of
$108.2 million will be made to the holders of the class A common shares
(representing a distribution of $18.00 per class A common share) and a
distribution in the aggregate of $62.3 million will be made to the holders of
the class B subordinated shares (representing a distribution of $16.40 per
class B subordinated share). Holders of class C will be entitled to receive
Group's remaining assets after any adjustment to the purchase price described
above and after payment of Group's liabilities (including payments to
option holders described below) immediately prior to liquidation. Based on
information currently available to Group, assuming the closing of the sale in
the first quarter of 2002 and assuming no unanticipated claims are presented
between the date hereof and the date of the liquidation, Group believes that
holders of the class C shares are likely to receive an aggregate distribution
of approximately $9.4 million. In addition, holders of options to purchase
class A common shares will be paid an aggregate of $13.9 million out of the
sale proceeds in consideration for the surrender of such options.
It is anticipated that total direct costs to third parties related to
this transaction (including professional fees) will aggregate $7.6 million.
Assuming closing of this transaction on February 28, 2002, it is anticipated we
will immediately recognize $5.1 million of compensation expense related to the
options we granted on August 27, 2001, which represents the anticipated
unamortized balance of the deferred compensation on February 28, 2002. These
options are discussed further above under CASH FLOW FROM FINANCING ACTIVITIES.
The distribution to the holders of class A common shares following
consummation of the sale includes payment for all unpaid dividends that will
have accrued in favor of the class A common shares prior to the date of the
distribution. For additional information on this transaction, please see Form
8-K filed by Statia Terminals Group N.V. with the U.S. Securities and Exchange
Commission on November 14, 2001.
Page 19
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We periodically purchase refined petroleum products from our customers
and others for resale as bunker fuel, for small volume sales to commercial
interests, and to maintain an inventory of blend stocks for our customers.
Petroleum product inventories are held for short periods, generally not
exceeding 90 days. We do not presently have any derivative positions to hedge
our inventory of petroleum products. Therefore, during the period we hold
inventory of petroleum products, we are subject to market risk from changes in
the global oil markets which may cause the value of this inventory to increase
or decrease from the amounts we paid. Such changes are reflected in the gross
margins of the product sales segment.
The following table indicates the aggregate carrying amount of our
petroleum products on hand at September 30, 2001, computed at average costs, net
of any lower of cost or market valuation provisions, and the estimated fair
value of such products. The fair value of such products is estimated based on
recent sales activity at our facilities.
ON BALANCE SHEET COMMODITY POSITION
(DOLLARS IN THOUSANDS)
As of September 30, 2001
---------------------------------
Carrying Amount Fair Value
--------------- ----------
Petroleum Inventory:
Statia Terminals N.V $2,866 $3,404
Statia Terminals Canada 1,364 1,777
------ ------
Total $4,230 $5,181
====== ======
Except for minor local operating expenses in Canadian dollars and
Netherlands Antilles guilders, and certain Canadian dollar-denominated revenues,
all of our transactions are in U.S. dollars. Therefore, we believe we are not
significantly exposed to exchange rate fluctuations.
Most of our present debt obligations carry a fixed rate of interest.
Therefore, we believe our exposure to interest rate fluctuations is minimal. The
revolving credit facility varies with changes in the lender's prime lending
rate, and the loan collateralized by the M/V STATIA RESPONDER is indexed to
three month London InterBank Offered Rates.
Page 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Item 3. Legal Proceedings included in the
Company's 2000 Annual Report on Form 10-K. There have been no material
developments in the Company's legal proceedings since the Form 10-K was filed.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
The Company's web site is located at http://www.statiaterm.com.
Page 21
PART II - OTHER INFORMATION - (Continued)
Item 6. Exhibits and Reports On Form 8-K.
(a) Exhibits (for electronic filing only)
3.1a* Articles of Incorporation Statia Terminals Group N.V., as amended July
30, 2001.
4.1e* Fifth Amendment, dated as of September 30, 2001, to the Indenture,
dated as of November 27, 1996, among Statia Terminals International
N.V., a Netherlands Antilles corporation, Statia Terminals Canada,
Incorporated, a corporation organized under the laws of Nova Scotia,
Canada, the Subsidiary Guarantors named therein and HSBC Bank USA
(formerly known as Marine Midland Bank), as Trustee.
4.16a* Amendment to Share Pledge Agreement, dated as of September 30, 2001, by
Statia Terminals Canada, Incorporated.
4.25* Statia Terminals Canada Partnership Agreement made as of September 21,
2001, between Statia Terminals Canada, Incorporated, Point Tupper
Marine Services Limited, and Statia Terminals Canada Holdings, Inc.
4.26* Securities Pledge Agreement, dated as of September 30, 2001, by and
among Point Tupper Marine Services Limited and Statia Terminals Canada
Holdings, Inc. and HSBC Bank USA (formerly known as Marine Midland
Bank), as Trustee.
4.27* Guarantee, dated as of September 30, 2001 made by Statia Terminals
Canada, Incorporated, Point Tupper Marine Services Limited and Statia
Terminals Canada Holdings, Inc.
4.28* Guarantee, dated as of September 30, 2001 made by Statia Terminals
Canada Holdings, Inc.
10.6a* Amended and restated Employment Agreement, effective August 29, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and James
G. Cameron.
10.6b* Amended and restated Employment Agreement, effective November 12, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and James
G. Cameron.
10.7a* Amended and restated Employment Agreement, effective August 29, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and Thomas
M. Thompson, Jr.
10.7b* Amended and restated Employment Agreement, effective November 12, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and Thomas
M. Thompson, Jr.
10.8a* Amended and restated Employment Agreement, effective August 29, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and Robert
R. Russo.
10.8b* Amended and restated Employment Agreement, effective November 12, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and Robert
R. Russo.
10.9a* Amended and restated Employment Agreement, effective August 29, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and John D.
Franklin.
10.9b* Amended and restated Employment Agreement, effective November 12, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and John D.
Franklin.
10.10a* Amended and restated Employment Agreement, effective August 29, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and James
F. Brenner.
10.10b* Amended and restated Employment Agreement, effective November 12, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and James
F. Brenner.
10.11a* Amended and restated Employment Agreement, effective August 29, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and Jack R.
Pine.
10.11b* Amended and restated Employment Agreement, effective November 12, 2001,
between Statia Terminals Group N.V., Statia Terminals, Inc. and Jack R.
Pine.
10.16* Statia Salaried Employee Severance Pay Plan, as adopted effective
August 29, 2001.
* Incorporated by reference to our September 30, 2001, Form 10-Q
dated November 14, 2001.
(b) Reports on Form 8-K
On November 14, 2001, Statia Terminals Group N.V. filed a Form 8-K with
the U.S. Securities Exchange Commission announcing the potential sale of
substantially all of its operating subsidiaries to Kaneb Pipe Line
Operating Partnership, L.P. and the subsequent liquidation of Statia
Terminals Group N.V.
Page 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
STATIA TERMINALS GROUP N.V.
(Registrant)
Date: January 23, 2002
By: /s/ James G. Cameron
-------------------------------------
James G. Cameron
Director
(As Authorized Officer)
By: /s/ James F. Brenner
-------------------------------------
James F. Brenner
Vice President and Treasurer
(As Authorized Officer and
Principal Financial Officer)
Page S-1