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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997
COMMISSION FILE NUMBER 0-16977
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STOLT-NIELSEN S.A.
(Exact name of Registrant as specified in its charter)
LUXEMBOURG
(Jurisdiction of incorporation or organization)
C/O STOLT-NIELSEN LIMITED
ALDWYCH HOUSE
71-91 ALDWYCH
LONDON WC2B 4HN, ENGLAND
(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:
Common Shares, no par value
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(D)
OF THE ACT:
None
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 THE ANNUAL
REPORT:
<TABLE>
<S> <C>
Common Shares, no par value:.................................... 29,595,545*
Class B Shares, no par value:................................... 25,325,641*
Founder's Shares, no par value:................................. 7,799,362
</TABLE>
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* The number of outstanding Common Shares excludes 1,601,905 Common Shares
owned by a subsidiary. The number of outstanding Class B Shares excludes
5,607,605 Class B Shares owned by a subsidiary.
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/
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TABLE OF CONTENTS
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PAGE
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<S> <C> <C> <C>
PART I........................................................................................................... 1
Item 1. Description of Business................................................................... 1
General.................................................................................. 1
Overview and History..................................................................... 1
Strategy................................................................................. 2
Businesses............................................................................... 3
Regulation............................................................................... 9
Competition.............................................................................. 13
Other Matters............................................................................ 13
Item 2. Description of Property................................................................... 15
Parcel Tanker Fleet...................................................................... 15
Fleet of Subsea Services Business........................................................ 19
Other Properties......................................................................... 20
Item 3. Legal Proceedings......................................................................... 20
Item 4. Control of Registrant..................................................................... 21
Item 5. Nature of Trading Market.................................................................. 21
Item 6. Exchange Controls and Other Limitations Affecting Security Holders........................ 22
Exchange Controls........................................................................ 22
Limitations Affecting Shareholders....................................................... 22
Item 7. Taxation.................................................................................. 23
U.S. Taxation............................................................................ 23
Luxembourg Taxation...................................................................... 24
Item 8. Selected Financial Data................................................................... 24
Dividends................................................................................ 24
Item 9. Management's Discussion and Analysis of Results of Operations and Financial Condition..... 24
Recent Developments...................................................................... 24
Impact of the Asia Pacific Economic Situation............................................ 25
Year 2000 Issue.......................................................................... 25
Forward-Looking Statements............................................................... 25
Factors Affecting Revenues and Costs..................................................... 26
Item 10. Directors and Officers of Registrant...................................................... 34
Item 11. Compensation of Directors and Officers.................................................... 35
Item 12. Options to Purchase Securities from Registrant or Subsidiaries............................ 36
Item 13. Interest of Management in Certain Transactions............................................ 37
PART III......................................................................................................... 37
Item 15. Defaults Upon Senior Securities........................................................... 37
Item 16. Changes in Securities and Changes in Security for Registered Securities................... 37
PART IV.......................................................................................................... 38
Item 17. Financial Statements...................................................................... 38
Item 18. Financial Statements...................................................................... 38
Item 19. Financial Statements and Exhibits......................................................... 38
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Note: Omitted items are inapplicable.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Stolt-Nielsen S.A. ("Stolt") is a holding company which, through its
subsidiaries, is engaged in the worldwide transportation, storage and
distribution of bulk liquid chemicals, edible oils, acids and other specialty
liquids; subsea services covering all phases of offshore oil and gas operations
from exploration to decommissioning; and aquaculture, the production, marketing
and distribution of farmed fish. In this Report, "Company" or "Group" refers to
Stolt and, unless the context otherwise requires, its consolidated subsidiaries.
References to Company activities by years involve the fiscal year ended November
30.
OVERVIEW AND HISTORY
The Company is engaged in three businesses: transportation services, subsea
services, and seafood.
The Company's transportation services business is carried out through the
Stolt-Nielsen Transportation Group ("SNTG") which represented 61% of the
Company's 1997 net operating revenue, 69% of 1997 recurring income from
operations, and 73% of total assets as of November 30, 1997. SNTG is the world's
leading provider of transportation services for bulk liquid chemicals, edible
oils, acids and other specialty liquids. SNTG, through its intercontinental
parcel tanker, coastal parcel tanker, river parcel tanker, tank container,
terminal and rail services, provides integrated transportation solutions for its
customers on a worldwide basis.
SNTG is the largest operator of parcel tankers in the world. SNTG has been a
pioneer in the parcel tanker industry which derives its name from the Group's
first operating company, Parcel Tankers Inc. ("PTI"), which was incorporated in
1959. PTI has subsequently changed its name to Stolt Parcel Tankers Inc.
("SPTI").
SNTG is also one of the largest operators in the tank container market,
currently operating or leasing approximately 13,214 tank containers. These are
primarily operated for door-to-door shipments. The Company entered the tank
container business in 1982 when it acquired United Tank Containers, which at the
time operated about 400 tank containers. As the market grew, the Company
steadily expanded its tank container fleet through the purchase or lease of
newly manufactured tank containers and through acquisitions.
In addition, SNTG operates four bulk liquid storage terminals with a total
capacity of 4.80 million barrels. These terminals are integrated with SNTG's
tanker operations and serve as hubs for its regional tanker and rail- and
road-based services to provide door-to-door transportation. The Company also has
a joint venture for a terminal in Malaysia and has recently announced plans to
acquire a joint venture interest in a company with three terminals in China.
Subsea services is carried out through Stolt Comex Seaway S.A. ("SCS"), a
subsidiary in which the Company currently holds a 43% economic interest and a
60% voting interest. SCS is among the largest subsea services contractors in the
world, providing technologically sophisticated subsea engineering, flexible and
rigid flowline lay, subsea construction, inspection, maintenance and repair
services to its customers in the offshore oil and gas industry. SCS was formed
by the Company through the acquisitions of Stolt-Nielsen Seaway A/S ("Seaway")
in March 1992 and Comex Services S.A. ("Comex") in June 1992. Seaway was founded
by Jacob Stolt-Nielsen, Jr., the Company's Chairman, in 1973 to provide services
for offshore oil and gas exploration and production in the North Sea. Comex,
which was founded in 1961, was a leading worldwide underwater services
contractor with a strong presence in major offshore markets outside the U.S. SCS
completed an initial public offering in May 1993 and secondary offerings in
March and November 1997. With effect from January 9, 1998, SCS completed a
two-for-one stock split which was effected by means of a stock dividend
distribution.
Stolt Sea Farm, wholly-owned by Stolt, produces, processes and markets high
quality seafood products, including Atlantic salmon, salmon trout, turbot,
halibut, sturgeon and caviar. The predecessor of Stolt Sea Farm was founded by
Jacob Stolt-Nielsen, Jr. in 1972 and acquired by the Company in late 1991.
1
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Stolt was incorporated in Luxembourg in 1974 as the holding company for all
of the Group's activities. Stolt's registered office is located at 37, rue
Notre-Dame, L-2260 Luxembourg and it is registered at the Companies' Registrar
of the Luxembourg District Court under the designation "R.C. Luxembourg B
12179". Stolt's principal executive offices are c/o Stolt-Nielsen Limited,
Aldwych House, 71-91 Aldwych, London WC2B 4HN, England; telephone number
44-171-611-8960.
Stolt is a publicly-traded company listed on the National Association of
Securities Dealers' Automated Quotation System ("Nasdaq") and the Oslo and
London Stock Exchanges.
The Company has 54 offices and facilities in 22 countries. The Company
employs approximately 6,500 persons worldwide.
STRATEGY
The Company pursues a strategy of seeking to provide sophisticated
industrial services to customers in niche markets which demand complex
technology. The Company aims to operate in global markets where it is, or
believes it can become, the market leader. The Company's investment philosophy
is long-term focused.
SNTG's strategy is to become the total transportation logistics supplier for
the majority of its client base providing an integrated package of services
including global transportation and storage, tracking of transportation and
inventory, electronic communications of transactions, and supply chain
management. SNTG is developing or expanding its capabilities in all of these
areas.
The demand for chemical transportation services varies with patterns of
industrial growth and world trade. Historically, such demand has grown at a
greater rate than world trade, which itself has grown faster than industrial
production.
In response to economic pressures and to improve profitability, many
chemical companies have downsized and outsourced their logistics functions. This
gives SNTG the opportunity to provide these companies with solutions for this
important aspect of their global strategies and international marketing. To
better integrate its services and logistics with its customers, SNTG has
developed advanced information systems.
SNTG is also pursuing a strategy of developing supplier partnerships and
long-term contracts with its customers to cover their chemical transportation
requirements. Management believes these arrangements can benefit and add value
for both the customer and SNTG. With long-term relationships, SNTG can develop a
better understanding of its customers' needs. Customers are better assured of
supply and SNTG is better assured of demand for its services.
In 1994, SNTG embarked upon a newbuilding program of 25 new ships designed
to meet increasing demand for its transportation services and to replace the
first generation of purpose-built parcel tankers, which were built in the early
to mid 1970s. The ships in the newbuilding program have greater capacity than
the units they are replacing and introduce a series of features to increase
operational efficiency, reduce operating costs and be environmentally safer than
previous generations of parcel tankers.
SNTG's tank container operations provide transportation services for many of
the same type of bulk liquids that are carried in parcel tankers, although tank
containers transport smaller lots. Generally, parcel tankers are more economical
for lots greater than 150 metric tons, whereas tank containers are more
economical for smaller lots. A major trend in the tank container business is the
conversion from transportation of liquids in drums to tank containers. The
transportation of liquids in tank containers provides a cleaner, safer and more
economical means of transportation than transportation by drums. It is SNTG's
intention to continue to expand its presence in this growing business in
response to the needs of its customers, and to continue to provide an important
link in the Company's transportation service chain. By using tank containers,
SNTG is able to offer door-to-door, just-in-time deliveries. In developing
countries in the Asia Pacific region where there is little supporting
infrastructure for tank containers, SNTG has been a pioneer in developing
cleaning and maintenance facilities. SNTG established Stolt Intermodal Services
Inc., which integrates tank containers into the domestic transportation of bulk
liquids in the North American trade, including Alaska, Canada and Mexico.
2
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SNTG's terminal operations support its parcel tanker operations by enabling
quicker turnaround of the tankers when in port. They also provide hubs for
servicing SNTG's customers by integrating storage with sea and land
transportation by parcel tanker, rail and road. It is SNTG's strategy to take
advantage of existing infrastructure and to make selective investments to
increase the capacity of its existing terminal facilities, as well as to look
for new opportunities on a worldwide basis which will support the strategic
objectives of expanding its network of services and improving operational
efficiency through faster parcel tanker turnaround and the integration of
transportation services.
SCS's strategy is to enhance its position as a leading full-service subsea
contractor providing technologically advanced and cost effective life-of-field
subsea services to its customers. The Company has consistently expanded and
upgraded its fleet in order to provide cost effective solutions to its customers
and to enable the development of offshore fields that otherwise might not be
commercially viable. Between 1993 and March 31, 1998, the Company invested
$251.1 million in new technology and equipment, with an additional $90.0 million
committed or planned for the remainder of 1998. These investments include (i)
the acquisition and completion of the newly constructed SEAWAY EAGLE, a
multi-purpose flowline lay and subsea construction ship; (ii) the conversion of
the SEAWAY OSPREY to lay flexible flowlines and flowline bundles; (iii) the
acquisition of the SEAWAY FALCON and its conversion to a rigid and flexible
flowline lay ship; (iv) the conversion of the SEAWAY CONDOR to a flexible
flowline and umbilical lay ship; (v) the acquisition of the SEAWAY HAWK, a
temperate climate construction ship for the Middle East and the Gulf of Mexico;
and (vi) continuous investment in new remotely operated vehicle ("ROV")
technology.
SCS is one of three major subsea services contractors that operate on a
worldwide basis. SCS intends to maintain its market position in the North Sea,
which is the world's largest market for subsea services, and build upon its
expertise developed in this difficult operating environment to expand in other
major international markets where the use of subsea technology is increasing as
oil exploration and development moves into deeper waters. As part of its
strategy to further expand its business in international markets, SCS has
acquired and adapted the SEAWAY EAGLE for deepwater field developments in the
Asia Pacific region and West Africa, which lack the logistical support
infrastructure available in the North Sea. This geographical expansion is
expected to improve the utilization of SCS's ships and reduce seasonal
fluctuations in its earnings. Other ship acquisitions in 1997 were the SEAWAY
HAWK and the DISCOVERY which was acquired as part of an asset swap with SubSea
Offshore.
The Company's strategy in the Seafood business is to focus on its core
products of Atlantic salmon, salmon trout, turbot, halibut, sturgeon and caviar,
to continue to seek to reduce its costs, to develop sales for other producers,
to develop a global marketing and distribution organization and to shift
production further down the value-chain towards more high value added retail
products.
BUSINESSES
The following table sets out the net operating revenue, income from
operations and identifiable assets for each of the businesses for the year ended
November 30, 1997:
<TABLE>
<CAPTION>
NET OPERATING REVENUE INCOME FROM OPERATIONS IDENTIFIABLE ASSETS
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
TRANSPORTATION SERVICES:
Tankers.................................. $ 665 44% $ 95 57% $ 1,350 56%
Tank Containers.......................... 219 14% 36 22% 214 9%
Terminals................................ 47 3% (9)* (5)% 185 8%
SUBSEA SERVICES............................ 431 28% 55* 33% 457 19%
SEAFOOD.................................... 164 11% (11)* (7)% 197 8%
--------- --- --------- --- --------- ---
Total.................................. $ 1,526 100% $ 166 100% $ 2,403 100%
--------- --- --------- --- --------- ---
--------- --- --------- --- --------- ---
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* Includes non-recurring write down of certain assets as follows: Terminals
$11.6 million, Subsea Services $4.2 million, and Seafood $12.3 million.
3
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GEOGRAPHIC DISTRIBUTION
The following table sets out net operating revenue in the major geographical
areas of the world for the Company's three businesses for each of the periods
indicated. For Transportation Services, net operating revenue is allocated on
the basis of the geographical area where cargo is loaded or handled.
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<CAPTION>
1997 1996 1995
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<S> <C> <C> <C>
(IN MILLIONS)
TRANSPORTATION SERVICES:
Tankers:
North America.................................................. $ 329 $ 310 $ 301
Europe......................................................... 160 154 140
Asia........................................................... 165 155 181
Other areas and miscellaneous revenue.......................... 75 86 75
Less: Commissions, sublet costs, transshipment and barging
expenses..................................................... (64) (49) (43)
--------- --------- ---------
665 656 654
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Tank Containers:
North America.................................................. 81 66 51
Europe......................................................... 68 55 49
Asia........................................................... 57 53 52
South America and other........................................ 13 12 9
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219 186 161
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Terminals:
North America.................................................. 42 46 44
South America.................................................. 5 3 5
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47 49 49
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SUBSEA SERVICES:
Europe......................................................... 339 217 264
Asia........................................................... 40 39 35
South America and other........................................ 52 57 28
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431 313 327
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SEAFOOD:
North America.................................................. 62 59 48
Europe......................................................... 54 72 61
Asia and other................................................. 48 16 9
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164 147 118
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Total........................................................ $ 1,526 $ 1,351 $ 1,309
--------- --------- ---------
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</TABLE>
4
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TRANSPORTATION SERVICES
The Company's Transportation Services business, carried out by SNTG, is
engaged in the worldwide transportation, storage and distribution of bulk liquid
chemicals, edible oils, acids and other specialty liquids. These products are
carried on worldwide seaborne trade routes for the producers, refiners and
distributors of such products, as well as for trading, end-manufacturing and
industrial companies. Several of SNTG's largest customers are among the world's
major chemical companies. Parcel tankers and tank containers carry similar
products with parcel tankers used to transport lots greater than 150 metric
tons, while tank containers are typically more economical for the transportation
of smaller lots. SNTG's terminal operations facilitate the turnaround of its
parcel tankers. The different operations of SNTG share many of the same
customers and employ many of the same chemical handling and cleaning
technologies. While the parcel tanker operations remain SNTG's single largest
activity, the expansion of its tank container operations and storage and
distribution services has increasingly enabled SNTG to provide an integrated
solution for its customers' transportation requirements. SNTG offers fully
integrated transport and logistic services including intercontinental parcel
tanker, coastal parcel tanker, river parcel tanker, tank container, rail and
storage. Over the last several years, SNTG has entered into strategic alliances
and supplier partnership agreements with major customers. Under these
arrangements, SNTG is the preferred or exclusive supplier of applicable
transportation and storage services to the customer worldwide. These agreements
cover approximately 26% of the total revenue of SNTG, a percentage that has more
than quintupled since 1992.
TRANSPORTATION SERVICES--TANKER OPERATIONS
SNTG is the largest operator of parcel tankers in the world. As of March 31,
1998, SNTG marketed a fleet of 126 parcel tankers, product tankers and river
tankers ranging in size from approximately 1,200 to 45,000 dwt (of which 68 were
over 10,000 dwt) and totaling approximately 2.3 million dwt.
The parcel tanker industry occupies a market niche in the worldwide tanker
trade and represents only about 2.5% of the dwt of the international tanker
fleet. Unlike crude oil tankers which generally load a full cargo at one port
for one customer and discharge at one destination, parcel tankers, as the name
implies, carry many cargoes (as many as 58 parcels) for many customers on the
same voyage and load and discharge cargo at many ports. A parcel tanker may
carry a wide range of bulk liquids shipped in parcels of several hundred to
several thousand tons each.
To facilitate handling of the diverse range of products carried by parcel
tankers, the fleet is comprised of highly specialized ships. SNTG's
sophisticated intercontinental parcel tankers will typically have 45 to 58
separate cargo tanks of varying sizes to permit the carriage of up to that
number of fully segregated cargoes. The tanks are made of stainless steel or
specially coated or lined steel to maintain the integrity of the variety of
chemicals and other products carried and to facilitate cleaning. In addition,
many tanks have independent heating and cooling systems to provide temperature
control for each cargo. The level of sophistication of the parcel tanker trade
is reflected in newbuilding costs that are substantially higher than for
equivalently-sized product tankers.
SNTG's parcel tanker fleet covers nearly all of the major international
trade routes served by the industry. SNTG operates its ships on round-trip
voyages with cargo carried on both outbound and inbound legs. These patterns
result in high load factors, with ships seldom sailing without cargo.
SNTG operates its major intercontinental services through the Stolt Tankers
Joint Service ("STJS"), a pooling arrangement among several shipowners for
coordinated marketing, operating and administration of the fleet of parcel
tankers trading under the Stolt Tankers name. It is managed by SPTI. This fleet
currently is comprised of 70 parcel tankers totaling approximately 2.0 million
dwt. Of these, SNTG owns 39 ships and time charters two ships for participation
in the STJS.
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NYK Stolt Tankers, S.A. ("NYK", 50%-owned by the Company) owns five ships
and time charters two ships, Rederi AB Sunship owns six ships and Hikawa Stolt
Tankers Inc. (50%-owned by the Company) owns two ships. In November 1997, the
Joint Service entered into a long-term pooling arrangement with the partners of
Botany Bay Parcel Tankers International ("Botany Bay")--Barton Shipping, Bibby
Line and Unicorn Tankers for nine ships, with seven ships currently trading in
the STJS fleet and two due to start trading in the third quarter of 1998. The
STJS currently has an additional seven tankers on time-charter through its agent
Stolt Tankers Inc. ("STI").
Each ship in the STJS is assigned an earnings factor based upon its cargo
carrying capacity and technical capabilities. The profitability of each ship is
determined by its share of the STJS results, and not by the specific voyages
performed. This enables the management of the STJS to schedule the fleet to seek
to optimize its total results.
STI, a Liberian corporation wholly owned by the Company, acting as agent for
the STJS, enters into contracts with third parties on behalf of the STJS. The
STJS ships are marketed by SNTG's professional chartering personnel worldwide
using proprietary chartering and cargo tracking information systems as part of
SNTG's worldwide network of chemical transportation and distribution services.
The size and structure of the STJS provides economies of scale in marketing and
operations. The STJS promotes efficient fleet utilization and enhances SNTG's
ability to provide a broader range of transportation services to its customers.
Management believes that SNTG's ships operating in the STJS derive higher
utilization, revenues and profitability than competitors operating outside a
similar pooling arrangement.
In 1996, SNTG formed Stolt General Product Tankers Inc. ("SGPTI"). Similar
to the STJS, SGPTI is managed by SPTI and is an arrangement among ship owners
and ship operators for the coordinated worldwide marketing, operating and
administration of a fleet of general product tankers. These ships concentrate on
full cargoes of clean petroleum products, crude vegetable oils, molasses and
caustic soda.
SGPTI is currently comprised of two participants, STI and NYK. Both
participants time-charter ships for trading by SGPTI. Currently the fleet is
comprised of four ships, totaling 0.2 million dwt, operating within the STJS. Of
this total two ships are time-chartered by STI and two ships time-chartered by
NYK. SNTG uses its presence in this market to improve the utilization of its
parcel tanker fleet.
SNTG also operates tankers in six regional markets, three of which are in
conjunction with joint venture partners. The Stolt NYK Asia Pacific Services
Inc. ("SNAPS") joint venture operates between East Asia, Southeast Asia and
Australia. The Stolt NYK Australia Pty. Ltd. ("SNAPL") joint venture operates
within the Australian coastal and trans-Tasman markets. Both the SNAPS and SNAPL
tankers, as well as small tankers operated by the Stolt-Nielsen Inter Asia
Services, are marketed by SNTG's offices in these areas. The Stolt-Nielsen
Inter-Caribbean Service operates in the Caribbean Sea and Gulf of Mexico
markets. The Stolt-Nielsen Inter Europe Service operates small tankers in
European coastal waters. The Stolt-Nielsen Inland Tanker Service currently
operates 32 inland tankers on the River Rhine and the adjacent Rotterdam Antwerp
waterways. In 1997, the Company acquired the European barging activities of
Hamburger Lloyd A.G. putting the Company in a leading position within the
European inland chemical tanker market.
SNTG manages all of its own ships and employs its own seafarers. It has
secured International Standards Organization ("ISO") 9002 Certification for its
chartering, operations and ship management activities worldwide.
SNTG personnel coordinate most of the marketing and sales efforts directly
with SNTG's parcel tanker customers, although occasionally third-party brokers
are also used. SNTG's top ten tanker customers and top ten products both
accounted for 32% of the total tanker revenue of SNTG in 1997.
SNTG's tanker operations make extensive use of information systems for
estimating voyages, scheduling cargo, stowing cargo, billing customers, tracking
product handling and cleaning requirements and managing ships. These systems not
only control and track the status of each cargo movement but also keep
6
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the customer informed through system-generated estimated time of arrival
notices. SNTG's cargo stow system won the 1995 Windows World Open award for best
Microsoft Windows system for distribution companies.
TRANSPORTATION SERVICES--TANK CONTAINER OPERATIONS
The emergence of liquid tank containers as a means of transporting bulk
liquids dates back to the early 1970s. Tank containers are stainless steel
cylindrical tanks enclosed in rectangular steel frames, with the same outside
dimensions as 20 foot dry box containers. They carry 17,000 to 24,000 liters of
bulk liquids (16 to 20 tons, depending upon the specific gravity of the
product). This compares to the smallest compartment in a parcel tanker which
carries approximately 100,000 liters of bulk liquid. Tank containers are fully
intermodal and are transported on container ships, rail cars and trucks owned by
others.
Growth in this business has been broad based. As of March 31, 1998, SNTG
controls a fleet of 13,214 tank containers of which approximately 9,758 are
owned, and approximately 3,456 tank containers are leased in or managed for
customers. This compares to a total controlled fleet of 12,800 tank containers
at 30 November 1997.
SNTG specializes in offering door-to-door tank container transportation
services, making all transportation arrangements from origin to destination on
behalf of the shipper. SNTG is the largest operator in the door-to-door
business, deploying approximately 9,677 tank containers in all major worldwide
markets. Management estimates that it has about 20% of the total door-to-door
business. SNTG also operates a leasing division, which leases tank containers to
shippers who wish to operate their own containers. This division employs
approximately 2,997 units. In addition, approximately 540 tank containers are
managed on behalf of customers.
All of SNTG's tank containers are built and maintained to the standards of
the International Maritime Organization ("IMO"), the ISO, the U.S. Department of
Transportation and other governmental and private organizations. SNTG requires
that all of its tank containers be constructed according to, and have valid
certificates in accordance with, the International Convention for Safe
Containers ("CSC"). SNTG conducts periodic inspections in conformity with CSC
and IMO testing requirements.
SNTG has established Stolt Intermodal Services Inc. ("SIS"), which moves
tank containers via truck and rail in the North American domestic market,
including Alaska, Canada and Mexico. SIS also operates a fleet of 318 leased
railroad tank cars consisting of general-purpose low pressure and specialized
high-pressure tank cars.
The tank container business requires its own infrastructure for tank
cleaning and repair. In Europe and the U.S., third-party contractors primarily
perform this work. In Rotterdam, Houston and in the Asia Pacific region, SNTG
has established its own facilities to ensure high standards of quality, reduce
costs and speed market penetration. The facilities in Japan, China, Taiwan and
Korea are operated through joint ventures.
7
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The business systems of SNTG's tank container operations have received ISO
9002 Certification. SNTG's Move/Quote System is used by the tank container
personnel on a worldwide basis to schedule, track and bill for all tank
container movements.
TRANSPORTATION SERVICES--TERMINAL OPERATIONS
SNTG's tank terminals offer storage services and consolidate inland waterway
and land transportation for more efficient operation and better customer
service. SNTG owns and operates three tank storage terminals in the U.S. and one
in Brazil, with a combined capacity of approximately 4.80 million barrels of
liquid storage. Each of these terminals serves as a hub for the regional storage
and distribution of liquid chemicals, vegetable oils and other products,
providing storage and handling services to SNTG's parcel tankers and for third
parties.
The following table contains information on terminal facilities that SNTG
currently operates:
<TABLE>
<CAPTION>
YEAR CAPACITY
STORAGE LOCATION ACQUIRED (BARRELS)
- ----------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
Perth Amboy, New Jersey................................................ 1983 2,258,000
Houston, Texas......................................................... 1982 1,547,500
Chicago, Illinois...................................................... 1975 741,000
Santos, Brazil......................................................... 1982 255,000
----------
Total............................................................ 4,801,500
----------
----------
</TABLE>
SNTG also has an arrangement with subsidiaries of Van Ommeren pursuant to
which it has preferential berthing rights to two terminals located in Rotterdam,
which is SNTG's parcel tanker operations' most frequently called port. These
terminals have a combined 9.37 million barrels of storage capacity. SNTG also
has a 40% ownership in a terminal joint venture with the Bolton Group in Port
Klang, Malaysia which currently has 161,648 barrels of capacity. In March 1998,
SNTG announced its intent to acquire up to a 30% interest in Dovechem Terminal
Holdings Ltd., a Singapore-based company with interests in terminalling, drum
manufacture and chemical distribution in Southeast Asia and China. The initial
arrangement covers terminals in Shenzen, Shanghai, and Qingdao in China and may
be extended to terminals in Kuantan in Malaysia and Merak in Indonesia. These
terminals will be marketed as part of SNTG's international logistic services.
SNTG obtained ISO 9002 certification for its terminal business systems in
Houston, Chicago, Perth Amboy and Santos. SNTG implemented a Terminal Automation
System for tracking customer contracts and tank inventory, as well as for
producing customer bills and reports.
SUBSEA SERVICES
SCS is one of the largest subsea services contractors in the world,
providing technologically sophisticated subsea engineering, flexible and rigid
flowline lay, subsea construction, inspection, maintenance and repair services
to its customers in the offshore oil and gas industry. SCS is a leader in
developing and applying innovative and cost efficient subsea techniques
addressing the evolving technical needs of oil and gas companies which are
increasingly developing oil and gas fields in deeper and more demanding offshore
environments. SCS operates in more than 20 countries in Europe, the Middle East,
West Africa, Asia Pacific, South America and in the U.S. At March 31, 1998 and
March 31, 1997, SCS's business backlog was approximately $734 million and $512
million, respectively.
The services offered by SCS cover all phases of offshore oil and gas
operations from exploration to decommissioning. During the exploration phase,
SCS provides seabed survey and drilling support services. During the development
phase, SCS provides, with alliance partners when appropriate, engineering
design, component procurement and installation of subsea equipment, well control
umbilicals, flowlines and
8
<PAGE>
production risers. During the production phase, which may continue for many
years, SCS inspects, maintains and repairs platforms, pipelines, flowlines and
subsea equipment. Following the production phase, SCS provides field
decommissioning services including the removal of offshore structures and subsea
equipment.
SCS offers four principal product lines: (i) field development provides
complete subsea production systems from engineering and design through
procurement and installation of components and the commissioning of completed
systems; (ii) flowline lay provides installation of rigid and flexible
flowlines, small-diameter pipelines and well control umbilicals; (iii) subsea
construction provides pipeline tie-ins, installation of structures and moorings,
hyperbaric welding, piling, decommissioning, dredging, hot tapping, cold cutting
and pipeline stabilization; and (iv) subsea services provides pipeline and
flowline survey, construction support, drilling support and inspection,
maintenance and repair.
In addition to these main product lines, SCS offers heavy lift services
through a joint venture company, Seaway Heavy Lifting Limited ("SHL"), which
operates a heavy lift ship chartered from SCS's joint venture partner
Lukoil-Kaliningradmorneft Plc. ("LKMN"), a subsidiary of a major Russian oil
company, Lukoil.
SCS operates one of the world's most advanced fleets of subsea construction
and flowline lay ships, from which the majority of SCS's subsea activities are
performed. SCS owns or charters a fleet consisting of four flexible flowline and
umbilical lay ships, one rigid and flexible flowline lay ship, five construction
ships, 59 ROVs, two survey ships and one marine construction support barge. In
addition, a heavy lift ship is operated through SHL.
SEAFOOD
Stolt Sea Farm concentrates on the production of Atlantic salmon, salmon
trout, turbot, halibut, sturgeon and caviar by employing modern techniques in
breeding, farming and processing to produce high quality seafood in controlled
environments. It develops its production in clusters of farms designed to reduce
production costs while maintaining high standards of husbandry. It is seeking to
become a low cost producer and believes that this objective is now being
achieved. Purchasers of the Company's seafood products include importers,
smokehouses, restaurants, retail chains and other distributors in Europe, the
U.S. and Asia Pacific. From Norway and Scotland the Company supplies the
European market and exports to Japan and East Asia. The American market is
supplied by production from Canada, Maine and Chile. These areas also export to
the Japanese and East Asian markets.
Atlantic salmon and salmon trout is sold fresh, frozen or in products
further processed for the convenience of its customers. Stolt Sea Farm believes
processed or value-added products will become increasingly important in the
future as consumers increasingly turn to ready-packed seafood as they have in
the case of chicken and meat products. The international turbot market is small
with a wild catch of only 10,000 tons and farmed production of 3,000 tons. The
Company also farms sturgeon in California designed to produce caviar in
commercial quantities by the turn of the century.
REGULATION
The Company's businesses are subject to international conventions and U.S.
and other governmental regulations which strictly regulate various aspects of
the Company's operations. In addition, the Company is required by various
governmental and other regulatory agencies to obtain certain permits, licenses
and certificates with respect to its equipment and operations. The kinds of
permits, licenses and certificates required in the operations of the Company
depend upon a number of factors. The Company believes that it has or can readily
obtain all permits, licenses and certificates necessary to conduct its
operations. Some countries require that the Company enter into a joint venture
or similar business arrangement with local individuals or businesses in order to
conduct business. The Company has entered into such arrangements where
necessary.
9
<PAGE>
TRANSPORTATION SERVICES
SNTG is subject to the international and national conventions and
regulations which cover ocean shipping generally and the transport of chemicals
and oil in bulk specifically. The major international conventions applicable to
SNTG's operations include the International Convention on the Safety of Life at
Sea; the International Convention for the Prevention of Pollution from Ships,
1973, as modified by the Protocol of 1978, as amended ("MARPOL 73/78"); the
International Convention on the Standards of Training, Certification and
Watchkeeping of Seafarers; and the Convention on Civil Liability for Oil
Pollution Damage. Applicable national regulations for SNTG's operations in U.S.
waters include the Port and Tanker Safety Act, the Hazardous Materials
Transportation Act, the Clean Air Act, the Clean Water Act, the U.S. Oil
Pollution Act of 1990 ("OPA '90") and the U.S. Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") (see specific discussion on
OPA '90 and CERCLA below).
In addition, specifically to protect the purity of fats and vegetable oils,
SNTG complies with the latest cargo rules established by the National Institute
of Oilseed Products in the U.S. and the Federation of Oils, Seeds and Fats
Associations in Europe. SNTG's Dedicated Vegetable Oil Service has been
developed as a direct result of these rules.
SNTG's river parcel tanker activities are governed by the European Agreement
on Regulations for the Carriage of Dangerous Substances on the Rhine and other
applicable standards for service on the Rhine River in Europe and by the U.S.
Coast Guard safety and pollution prevention regulations.
As a foreign-owned corporation, SNTG is prohibited by U.S. Federal law from
owning more than a 25% interest in ships operating in the U.S. coastwise trade
and in the U.S. inland waterway system.
In addition to many of the regulations governing the parcel tanker
operations, SNTG's tank container operations are subject to the International
Convention for Safe Containers which establishes guidelines for the construction
of tank containers; the International Maritime Dangerous Goods Code which
regulates the construction and periodic testing of equipment used to transport
hazardous packaged liquids and regulations of other comparable national
authorities regarding the use of containers on rail cars and the transport of
hazardous materials by rail or road.
Additional regulations specific to SNTG's terminal operations in the U.S.
are the Resource Conservation and Recovery Act regarding the reporting,
recordkeeping and handling of hazardous waste and the Occupational Safety and
Health Act regulating the working conditions at U.S. terminals as well as other
business facilities. Terminals located outside of the U.S. are governed by the
comparable national and local governmental agencies.
SUBSEA SERVICES
SCS's businesses are subject to international conventions and governmental
regulations, which strictly regulate various aspects of its operations. In
addition, SCS is required by various governmental and other regulatory agencies
to obtain certain permits, licenses and certificates with respect to its
equipment and operations. The kinds of permits, licenses and certificates
required in the operations of SCS depend upon a number of factors. SCS believes
that it has or can readily obtain all permits, licenses and certificates
necessary to conduct its operations. Some countries require that SCS enter into
a joint venture or similar business arrangement with local individuals or
businesses in order to conduct business in such countries.
SCS's operations are affected from time to time and to varying degrees by
political developments and federal and local laws and regulations. In
particular, oil and gas production, operations and economics are affected by
price control, tax and other laws relating to the petroleum industry, by changes
in such laws and by constantly changing administrative regulations. Such
developments directly or indirectly may affect SCS's operations and those of its
customers.
10
<PAGE>
SEAFOOD
The seafood business is subject to the laws and regulations of the
individual countries in which it is situated and international conventions,
which strictly regulate various aspects of its operations. The hatcheries, the
ongrowing sites and the slaughteries are regulated by state environmental laws
and laws regarding treatment of, and protection from, fish diseases and
pollution. International conventions and treaties regulate the importation of
Stolt Sea Farm's products in various markets around the world.
The European Union ("EU") has been a major market for Norwegian salmon. In
1996, the Norwegian government imposed a feed quota regime on farmers in Norway
in order to accommodate demands from EU farmers to reduce the production of
salmon in Norway. These feed quotas have been retained since then, with a 15%
increase in the quota in 1997 and a 2% increase for 1998. The government has
also enforced strictly density regulations that limit the tonnage of output of
each farming concession. The combination of feed quotas and density regulations
has reduced the efficiency and increased costs of production at the Company's
salmon farms in Norway.
In July 1997, the Norwegian government reached an agreement with the EU for
a five year period to regulate supplies of Norwegian salmon into the EU market.
This agreement, among other things, restricts the increase in supply of
Norwegian salmon into the EU market to 10% per annum, requires the average price
of sales into the EU to be at or above an agreed Minimum Import Price, and
increases the Export Levy payable by Norwegian producers to 3% of turnover.
In January 1998 the U.S. Department of Commerce imposed preliminary duties
on imports of fresh Atlantic salmon from Chile into the U.S. at an average rate
of 5.79%. Eicosal, a joint-venture partner of the Company, was assessed at
8.27%. A final ruling is expected in July 1998.
All species of sturgeon have now been added to Appendix II of the Convention
of International Trade in Endangered Species of Wild Fauna and Flora ("CITES").
As a result, all international trade of sturgeon and caviar is now regulated and
all imports require proper documentation. This will not affect the Company's
California sturgeon operations as the intention is to sell most of the product
within the U.S.
U.S. OIL POLLUTION ACT OF 1990 AND COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION AND LIABILITY ACT
OPA '90 sets out various requirements applicable to shipowners and ship
operators in U.S. waters including, among other things, standards and
requirements covering the construction of ships carrying oil and oil products
(as defined in the Act), stringent financial responsibility requirements and
expanded contingency planning requirements. OPA '90 also increases the
shipowner's and ship operator's potential liability for damages and cleanup and
removal costs for pollution accidents in U.S. waters. Ship and facility owners
and operators are "responsible parties" and are jointly, severally and strictly
liable (unless the spill results solely from the act or omission of a third
party, an act of God or an act of war) for all oil spill containment and cleanup
costs and other damages arising from oil spills from their ships or facilities.
These other damages are defined broadly to include: (i) natural resources
damages and the costs of assessment thereof; (ii) real and personal property
damages; (iii) net loss to a government entity of taxes, royalties, rents, fees
and other lost revenues; (iv) lost profits or impairment of earning capacity due
to property or natural resources damage; (v) net cost of public services
necessitated by a spill response, such as protection from fire, safety or health
hazards; and (vi) loss of subsistence use of natural resources.
With limited exceptions, OPA '90 requires that all new ships ordered after
June 30, 1990, or delivered after January 1, 1994, must be built with double
hulls to be allowed to call at U.S. ports. There is a timetable for retrofitting
existing ships with double hulls or taking them out of service, depending upon
the year the ship was built, its gross tonnage and whether the ship already has
a double bottom or double sides. Since January 1, 1995, double bottom ships of
greater than 5,000 gross tons and more than 45 years of age have been required
to be retrofitted with double hulls. The age requirement is reduced annually so
that by
11
<PAGE>
2005, and until 2015, no such ships may exceed 30 years of age without
retrofitting. To operate in U.S. waters after 2015, ships must have both a
double bottom and double sides.
Double bottom installation has become standard on most parcel tankers and
chemical tankers since the IMO regulations for the carriage of hazardous
products in bulk became effective. All of the Company's parcel tankers already
have double bottoms. It is the Company's intention that all tankers ordered in
the future will comply with the double hull requirements identified above.
The liability provisions of OPA '90 are applicable to "oil" as defined in
the Act. For this purpose, "oil" means oil of any kind or in any form,
including, but not limited to, petroleum, fuel oil, sludge, oil refuse and oil
mixed with wastes other than dredged spoil, but does not include any substance
which is specifically listed or designated as a "hazardous substance" under
CERCLA. Some of the chemicals carried on the Company's ships are covered by the
provisions of CERCLA. The Company's ships frequently carry some parcel cargoes
of lubricating oils and additives and the ships' engines are powered by fuel
oil. In addition, cargoes of "clean petroleum products," which are generally
covered by the provisions of OPA '90, are occasionally carried on the Company's
ships. Animal fat and vegetable oils as well as other non-petroleum oils are
included within the OPA '90 definition of "oil".
In compliance with OPA '90 requirements, the Company has obtained
Certificates of Financial Responsibility for all of its ships which call on U.S.
ports.
The effect of the liability provisions of OPA '90 and CERCLA on the shipping
industry has not yet been fully determined. OPA '90 increased the limit on
shipowners' and ship operators' liability for tankers over 3,000 gross tons to
the greater of $1,200 per gross ton or $10 million for damages, cleanup and
removal costs. Owners and operators of onshore facilities, including oil
terminals, are liable for removal costs and damages up to a limit of $62
million. However, OPA '90 provides for unlimited liability if the spill was
proximately caused by: (i) gross negligence or willful misconduct; (ii)
violation of an applicable federal safety, construction or operating regulation
by the responsible party, its agents or employees or any person acting pursuant
to a contractual relationship with it; or (iii) if the owner or operator fails
to report the spill, provide reasonable cooperation in connection with a removal
order or, without sufficient cause, to obey an order issued by an authority
under a removal regulation. For owners and operators of ships carrying hazardous
substances as cargo, the liability provisions under CERCLA are $300 per gross
ton or $5 million, whichever is greater. Facility owners and operators are
liable for the total of all response costs plus $50 million for damages as
defined under CERCLA. The CERCLA damages provisions are broadly similar to those
of OPA '90. CERCLA also contains provisions similar to OPA '90 for breaking
liability limits. CERCLA contains various reporting provisions, some of which
are more detailed than OPA '90. Furthermore, both OPA '90 and CERCLA provide
that individual U.S. states may issue their own pollution prevention laws and
regulations, which laws and regulations may impose greater liabilities than set
out in, and which may differ significantly from, OPA '90 or CERCLA. Many states
have, in fact, enacted such provisions which provide for virtually unlimited
liability for pollution accidents occurring in their waters.
OPA '90 also sets out contingency plan requirements with respect to cleanup
and removal of the substances covered by its provisions. OPA '90 also requires
expenditure to meet specific response standards for equipment to be kept on
board ships. The contingency plan requirements also apply to marine
transportation-related facilities, including Coast Guard-regulated onshore oil
terminals, tank trucks and railroad tank cars.
OPA '90 has made liability insurance more expensive for shipowners and ship
operators and has also caused insurers to consider reducing available liability
coverage, although this has not yet occurred. See "Other Matters--Insurance" in
this Item 1.
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<PAGE>
COMPETITION
The market for such integrated transportation and logistics services as SNTG
is providing is in its infancy. In providing such services, SNTG competes
primarily with a few other large terminal and transport companies who are
developing such services. SNTG is the only organization able to offer parcel
tanker and tank container services on a worldwide basis. SNTG's tanker
operations compete with operators based primarily in Europe and the Asia Pacific
region. The parcel tanker market is divided into two segments depending on
routes and ships employed--deepsea and intra-regional coastal market. SNTG's
tank container operations compete primarily with European-based tank container
operators. The competition in the tank container market is fragmented, with only
a few operators competing with SNTG on a worldwide basis. SNTG also competes, to
a lesser extent, with tank container leasing companies and with container
shipping lines which operate tank containers. The terminal operations compete
primarily with other independent terminal companies. In the ports where SNTG has
storage facilities, SNTG either maintains a significant presence or occupies a
niche in terms of products handled. Corporations such as GATX Terminals, Van
Ommeren and Pakhoed that own and operate terminals on a worldwide basis own many
of the competing terminals.
The subsea contracting business is highly competitive. The consolidation in
the offshore oil and gas services industry in the last several years has
resulted in fewer but more substantial competitors. Although management believes
customers consider, among other things, the availability and technical
capabilities of equipment and personnel, efficiency, condition of equipment,
safety record and reputation, price competition is the primary factor in
determining which qualified contractor with available equipment will be awarded
a contract. SCS's ships are specialized because of their nature and the
environment in which they work, have relatively high maintenance costs whether
or not operating. Because these costs are essentially fixed, and in order to
avoid additional expenses associated with temporarily idling its ships, SCS may
from time to time be required to bid its ships in projects at lower margins
depending on the prevailing contractual rates in a given region.
The management believes that SCS is one of only three companies worldwide
capable of providing the full range of subsea services in the major offshore oil
and gas producing regions. SCS is subject to intense competition from these
offshore contractors, particularly in the North Sea. SCS also faces substantial
competition from smaller regional competitors and less integrated providers of
subsea services.
The seafood operations compete with other producers of farmed seafood and
with suppliers of wild catch and other species of fish. The North American
Atlantic salmon activities compete primarily with North American and Chilean
producers in the North American market. Norwegian and Scottish Atlantic salmon
activities compete primarily with other Norwegian, U.K. and Irish producers of
Atlantic salmon in the European market. For both regions, competition is based
on quality, price and delivery capability. In Asia, the Company competes with
importers and producers of farmed and wild fish. The turbot production in Spain
competes primarily in the Mediterranean area with other Spanish and French
producers of turbot and with suppliers of wild turbot.
OTHER MATTERS
UNIONS
The Company employs primarily European senior officers, European and
Filipino junior officers and Filipino crew members on its parcel tankers. Ten
Company-owned ships are manned by Filipino officers and crew, ten by Latvian
officers and crew and one by Russian officers and crew. The Company maintains
its own crewing office and training center in Manila to provide Filipino
officers and crew members for its fleet, all of whom belong to the Associated
Marine Officers' and Seamen's Union of the Philippines, and those from Latvia
belong to the Latvian Seafarers' Union of Merchant Fleet Riga, and those from
Russia belong to the Seafarers' Union of Russia. All such unions are affiliated
with the International Transport Workers Federation in London. The collective
bargaining agreements currently in effect expire on
13
<PAGE>
December 31, 1998. Hourly employees at certain of the Company's terminals are
also covered by union contracts. A significant number of the Company's offshore
employees are represented by labor unions. As part of normal business, a number
of union agreements come up for annual renegotiation in 1998. The Company has
not experienced any significant work stoppages and considers its relations with
its unionized employees and their unions to be good.
INSURANCE
The Company maintains insurance against physical loss and damage to its
assets as well as coverage against liabilities to third parties it may incur in
the course of its operations. Assets are insured at replacement cost, market
value or assessed earning power. The owned fleet is currently covered by hull
and machinery insurance in the amount of $2.2 billion. Marine liabilities, which
may be incurred through the operation of the Company's ships, are insured under
marine protection and indemnity insurance policies. The policies have a limit of
approximately $4.25 billion per incident except for marine oil pollution which
is limited to $700 million per occurrence within U.S. territorial waters and
$500 million for all other geographical areas. All other corporate liabilities
are insured to $125 million. The Company believes its insurance coverage to be
in such form, against such risks, for such amounts and subject to such
deductibles as are prudent and normal to those industries in which the Company
operates.
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<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
PARCEL TANKER FLEET
The following table describes the parcel tankers which are operated by the
Company, both within and outside STJS. It includes ships that are leased or
time-chartered for periods of one year or longer. (See notes to table below
pertaining to ownership and registry.)
PARCEL TANKERS OPERATED BY STOLT TANKERS JOINT SERVICE
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(A) REGISTRY
--------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C>
STOLT INNOVATION CLASS
Stolt Efficiency............................. 1998 37,000 Company Liberian
Stolt Inspiration............................ 1997 37,000 Company Liberian
Stolt Creativity............................. 1997 37,000 Company Liberian
Stolt Invention.............................. 1997 37,000 NYK Liberian
Stolt Confidence............................. 1996 37,000 Company Liberian
Stolt Innovation............................. 1996 37,000 Company Liberian
STOLT HELLULAND CLASS
Stolt Vinland................................ 1992 29,999 Company Liberian
Stolt Vestland............................... 1992 29,999 Company Liberian
Stolt Helluland.............................. 1991 29,999 Company Liberian
Stolt Markland............................... 1991 29,999 Company Liberian
STOLT SAPPHIRE CLASS
Stolt Jade................................... 1986 38,746 Company Liberian
Stolt Aquamarine............................. 1986 38,746 Company Liberian
Stolt Topaz.................................. 1986 38,720 Company Liberian
Stolt Emerald................................ 1986 38,720 Company Liberian
Stolt Sapphire............................... 1986 38,746 NYK Liberian
STOLT FALCON CLASS
Stolt Guardian............................... 1983 39,726 Company Liberian
Stolt Eagle.................................. 1980 37,082 Company Liberian
Stolt Condor................................. 1979 37,200 Company Liberian
Stolt Heron.................................. 1979 37,075 Company Liberian
Stolt Hawk................................... 1978 37,080 Company Liberian
Stolt Osprey................................. 1978 37,080 Company Liberian
Stolt Falcon................................. 1978 37,200 Company Liberian
STOLT PRIDE CLASS
Stolt Excellence............................. 1979 32,093 Company Liberian
Stolt Loyalty................................ 1978 32,091 Company Liberian
Stolt Tenacity............................... 1978 32,093 Company Liberian
Stolt Integrity.............................. 1977 32,057 Company Liberian
Stolt Sincerity.............................. 1976 31,942 Company Liberian
Stolt Pride.................................. 1976 31,942 Company Liberian
STOLT AVANCE CLASS
Stolt Avenir................................. 1978 23,275 Company Liberian
Stolt Avance................................. 1977 23,648 Company Liberian
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(A) REGISTRY
--------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C>
STOLT SEA CLASS
Stolt Spray.................................. 1974 25,199 Company Liberian
Stolt Surf................................... 1970 23,672 Company Liberian
Stolt Spur................................... 1970 23,672 Company Liberian
SUPERFLEX CLASS
Sun Sapphire................................. 1994 40,160 Sunship AB Liberian
Star Sapphire................................ 1992 40,160 Sunship AB Liberian
Blue Sapphire................................ 1991 40,153 Sunship AB Liberian
Hyde Park.................................... 1983 39,015 T/C by Company Liberian
Stolt Protector.............................. 1983 39,782 Company Liberian
Moon Sapphire................................ 1983 39,742 Sunship AB Norwegian
Kenwood Park................................. 1982 39,015 T/C by Company Liberian
Red Sapphire................................. 1981 39,702 Sunship AB Liberian
White Sapphire............................... 1980 39,702 Sunship AB Liberian
'V" CLASS
Stolt Victor................................. 1978 30,899 Company Liberian
Stolt Viking................................. 1977 30,892 Company Liberian
STOLT ASPIRATION CLASS
Stolt Aspiration............................. 1987 12,219 NYK Liberian
Stolt Alliance............................... 1985 12,674 NYK Liberian
Stolt Taurus................................. 1985 12,749 Company Liberian
Stolt Titan.................................. 1985 12,691 Company Liberian
Botany Trader................................ 1995 12,458 Barton Bahamanian
Infra........................................ 1985 12,734 Barton Panamanian
Herefordshire................................ 1985 12,721 Bibby Panamanian
Shropshire................................... 1985 12,749 Bibby Panamanian
Stolt Sakra.................................. 1984 12,775 Company Liberian
Stolt Accord................................. 1982 12,467 NYK Liberian
TROJAN CLASS
Botany Trojan................................ 1996 15,313 Barton Panamanian
NTOMBI CLASS
Stolt Natabe................................. 1991 13,946 Unicorn Panamanian
Ntombi....................................... 1990 13,947 Unicorn Panamanian
STOLT GENERAL PRODUCT TANKERS
Leopard...................................... 1985 44,978 T/C by STI Luxembourg
Tiger........................................ 1985 44,980 T/C by STI Luxembourg
Lion......................................... 1985 44,980 T/C by NYK Luxembourg
Panther...................................... 1985 44,980 T/C by NYK Luxembourg
OTHER PARCEL TANKERS
Stolt Puffin................................. 1993 5,758 Company Liberian
Bruce Park................................... 1992 13,940 T/C by STI Panamanian
Stolt Hinyk.................................. 1992 8,080 Hikawa Stolt Liberian
Stolt Hikawa................................. 1992 8,080 Hikawa Stolt Liberian
Stolt Egret.................................. 1992 5,758 Company Liberian
Richmond Park................................ 1984 23,793 T/C by STI Maltese
Regents Park................................. 1984 23,793 T/C by STI Maltese
Poti......................................... 1981 22,622 T/C by STI Maltese
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(A) REGISTRY
--------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C>
OTHER PRODUCT TANKERS
Luctor 2..................................... 1991 40,349 T/C by STI Singapore
TOTAL IN STJS.................................. 2,030,557
(70 ships)
</TABLE>
PARCEL TANKERS OUTSIDE THE STOLT TANKERS JOINT SERVICE
OPERATED AND/OR CONTROLLED BY STOLT AFFILIATES
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(A) REGISTRY
--------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C>
STOLT-NIELSEN INTER EUROPE SERVICE
Stolt Kittiwake.............................. 1993 4,729 Company Cayman Islands
Stolt Guilimott.............................. 1993 4,709 Company Cayman Islands
Stolt Kestrel................................ 1992 5,758 Company Cayman Islands
Stolt Avocet................................. 1992 5,758 Company Cayman Islands
Stolt Petrel................................. 1992 4,794 Company Cayman Islands
Stolt Tern................................... 1992 4,794 Company Cayman Islands
Stolt Dipper................................. 1992 4,794 Company Cayman Islands
Stolt Kite................................... 1992 4,794 Company Cayman Islands
STOLT NYK ASIA PACIFIC SERVICE
Stolt Botan.................................. 1998 11,553 NSSH Liberian
Stolt Azami.................................. 1997 11,564 NSSH Liberian
South Wind................................... 1991 8,150 T/C by SNAPS Singapore
Stolt Ayame.................................. 1991 9,070 NSSH Liberian
Stolt Otome.................................. 1990 7,715 T/C by SNAPS Panamanian
Stolt Azalea................................. 1988 7,582 NSSH Liberian
Stolt Lily................................... 1988 7,593 NSSH Liberian
Innayah...................................... 1988 7,705 T/C by SNAPS Singapore
Andhika Adhidaya............................. 1987 6,798 T/C by SNAPS Singapore
Andhika Adhiraksha........................... 1986 6,958 T/C by SNAPS Panamanian
Stolt Australia.............................. 1986 9,940 SNAPL Australian
Andhika Adhisatya............................ 1985 7,089 T/C by SNAPS Singapore
Helen........................................ 1985 6,757 T/C by SNAPS Liberian
Stolt Magnolia............................... 1985 7,132 NSSH Panamanian
Stolt Sunrise................................ 1984 6,678 NSSH Liberian
Stolt Camelia................................ 1981 6,276 NSSH Panamanian
STOLT-NIELSEN INLAND TANKER SERVICE
Stolt Madrid................................. 1994 1,560 Company Swiss
Stolt Oslo................................... 1994 1,556 Company Swiss
Stolt Prag................................... 1994 1,202 Company Dutch
Stolt Waal................................... 1993 2,095 Company Dutch
Columbia..................................... 1993 1,605 T/C by Company Dutch
Tolerantie................................... 1993 2,408 T/C by Company Dutch
Stolt Rom.................................... 1993 2,156 Company Swiss
Stolt Wien................................... 1993 2,157 Company Swiss
Stolt Mosel.................................. 1992 2,133 Company Dutch
Stolt Main................................... 1992 2,124 Company Dutch
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(A) REGISTRY
--------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Stolt Neckar................................. 1992 2,095 Company Dutch
Stolt Maas................................... 1992 2,096 Company Dutch
Challenger................................... 1992 1,605 T/C by Company Dutch
Oranje Nassau................................ 1992 2,408 T/C by Company Dutch
Stolt Hamburg................................ 1992 1,283 Company Dutch
Stolt Basel.................................. 1992 2,404 Company Dutch
Stolt Lausanne............................... 1992 2,359 Company Swiss
Diersbuettel................................. 1992 2,103 Company Swiss
Stolt Paris.................................. 1991 2,103 Company Swiss
Enterprise................................... 1991 1,608 T/C by Company Dutch
Stolt Rotterdam.............................. 1990 1,993 Company Dutch
Turbulentie.................................. 1986/90 1,777 T/C by Company Dutch
Stolt Koeln.................................. 1989 1,701 Company German
Stolt Berlin................................. 1987 3,199 Company Swiss
Reesenbuettel................................ 1987 3,153 Company Swiss
Stolt London................................. 1985 1,335 Company Dutch
Brunsbuettel................................. 1985 3,000 Company Dutch
Stolt Antwerpen.............................. 1984 1,600 Company Dutch
Stolt Dormagen............................... 1982 1,277 Company German
Stolt Hoechst................................ 1980 1,366 Company Swiss
Stolt Zurich................................. 1980 1,305 Company Swiss
Otter........................................ 1972 2,071 T/C by Company German
TOTAL OUTSIDE STJS
(56 ships)................................... 231,527
GRAND TOTAL
(126 ships).................................. 2,262,084
</TABLE>
- ------------------------
Notes: "NYK" means NYK Stolt Tankers, S.A., which is 50%-owned by the Company.
"Sunship AB" means Rederi AB Sunship.
"T/C" means Time-Chartered.
"Barton" means Barton Shipping.
"Bibby" means Bibby Line.
"Unicorn" means Unicorn Tankers.
"Hikawa Stolt" means Hikawa Stolt Tankers Inc., which is 50%-owned by the
Company.
"NIS" means Norwegian International Ship Register.
"NSSH" means NYK Stolt Shipholding Inc., which is 50%-owned by the Company.
"SNAPS" means Stolt NYK Asia Pacific Services Inc., which is 50%-owned by the
Company.
"SNAPL" means Stolt NYK Australia Pty. Ltd., which is 50%-owned by the Company.
(a) Certain of the Company's parcel tankers are subject to ship mortgages. See
Note 12 to the Company's 1997 Consolidated Financial Statements.
18
<PAGE>
FLEET OF SUBSEA SERVICES BUSINESS
The Company operates one of the world's most advanced fleets of subsea
construction support and flowline lay ships from which the majority of SCS's
subsea activities are performed. The following table describes SCS's major
assets, as of March 31, 1998.
<TABLE>
<CAPTION>
YEAR BUILT/ LENGTH OWNED/
NAME CAPABILITIES MAJOR UPGRADE ROVS (METERS) CHARTERED
- -------------------------- ------------------------------- ----------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Seaway Eagle.............. Flexible flowline lay, multi- 1997 3 140 Owned(1)
purpose subsea construction
Seaway Falcon............. Rigid and flexible flowline and 1976/1995/1997 2 162 Owned
umbilical lay
Seaway Condor............. Flexible flowline and umbilical 1982/1994 2 101 Owned(1)
lay, module handling system,
trenching
Seaway Osprey............. Flexible flowline and umbilical 1984/1992 2 102 Owned(1)
lay, accepts coiled tubing,
straightener for tubing, stern
roller
Discovery................. Flexible flowline lay, subsea 1990 2 120 Chartered (2)
construction
Seaway Harrier............ Subsea construction 1985 3 84 Owned(1)
Seaway Pelican............ Subsea construction 1986/1990 2 94 Chartered(3)
Seaway Hawk............... Subsea construction 1978 2 94 Owned(1)
Toisa Puma................ Subsea construction 1985 2 77 Chartered(4)
Stanislav Yudin........... Heavy lift, 2,500-ton crane 1985 1 183 See(5)
Seaway Surveyor........... Survey 1987/1991 2 66 Chartered(6)
Seaway Commander.......... Survey 1982/1988 2 75 Chartered(7)
Seaway Kingfisher......... Diverless inspection, repair 1990/1998 2 90 Chartered(8)
and maintenance
Annette................... Marine construction 1977 0 61 Owned
</TABLE>
- ------------------------
(1) Subject to mortgage under the Company's current credit facilities.
(2) Chartered from Friary Ocean Surveyor NV through 2002, with options to extend
through 2011 and with options to purchase.
(3) Chartered from DSND Shipping AS through 1999.
(4) Chartered from Toisa Ltd. through 1998.
(5) Chartered to SHL by a subsidiary of the ship's owner, LKMN, until October 15
2001 with a possibility for extensions.
(6) Chartered from DSND Chartering I KS through December 1998, with options to
extend through 1999.
(7) Chartered from DSND Chartering I KS through 1999, with options to extend
through 2002.
(8) Chartered from Kingfisher DA in which the Company has a 50% ownership, for
five years starting in 1998, with options to extend through 2013 and with
options to purchase.
19
<PAGE>
OTHER PROPERTIES
In addition to owned or leased office space, the Company owns or holds under
long-term leases the following real property in connection with its
Transportation Services Businesses:
<TABLE>
<CAPTION>
DEBT
OUTSTANDING
(AS OF
FACILITY OWNED LEASED 3/31/98)
- --------------------------------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
(ACRES) ($000)
Perth Amboy...................................................................... 155 -- $ 25,000
Chicago.......................................................................... -- 178 --
Houston.......................................................................... 243 -- 80,440
Santos........................................................................... 14 -- 6,182
Singapore tank container depot................................................... -- 4 --
Rotterdam pier................................................................... -- 3 --
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Swiss Court of Insurance, "Tribunal Federal des Assurances", entered a
judgment on April 29, 1992 against Sogexpat S.A. ("Sogexpat"), a subsidiary of
the Company, in litigation brought by a Swiss governmental entity claiming
payment of social security contributions in arrears. During the year ended
November 30, 1993, the Company wound up Sogexpat and transferred the employees
to other Group companies. The French government has investigated SCS of France
alleging violations of French labor and social security legislation. Civil
complaints have been filed against certain subsidiaries of the Company which
have resulted in court decisions against them. Such decisions have been
appealed. In addition, a number of former and present employees have started
civil proceedings against certain subsidiaries of the Company alleging loss of
employment and social security benefits. Some of the proceedings have commenced
recently while some have already resulted in court decisions. One such decision
has been appealed to the French Supreme Court. While the Company believes that
its subsidiaries have meritorious defenses in these cases, there can be no
certainty as to the number of claims which may be brought or the amount for
which the Company may eventually be liable with respect thereto. Comex S.A., a
former shareholder of Comex, in an agreement with the Company executed on June
5, 1992 for the sale of Comex, agreed to indemnify the Company with respect to
certain aspects of the foregoing. There can be no assurance, however, as to the
amount which the Company may ultimately recover from Comex S.A. pursuant to such
indemnity.
The Company is a party to various other legal proceedings arising in the
ordinary course of business.
The Company believes that none of the matters covered by such legal
proceedings will have a material adverse effect on the Company's business or
financial condition.
20
<PAGE>
ITEM 4. CONTROL OF REGISTRANT
Stolt is not, directly or indirectly, owned by another corporation or by any
government. There are no arrangements known to the Company, the operation of
which may at a subsequent date result in a change in control of Stolt.
Set out below is information concerning the share ownership of all persons
who owned beneficially 10% or more of Stolt's Common Shares and Class B Shares,
and the beneficial ownerships of all directors and executive officers of the
Company, as a group, as of April 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF COMMON PERCENTAGE OF NUMBER OF CLASS B PERCENTAGE OF
NAME OF BENEFICIAL OWNER OR IDENTITY OF GROUP SHARES OWNED CLASS SHARES OWNED CLASS
- ----------------------------------------------- ------------------ --------------- ----------------- -------------
<S> <C> <C> <C> <C>
Fiducia Ltd., which is owned by Trusts of which
the Stolt-Nielsen Family are beneficiaries... 18,058,460(a) 61.4% 9,064,369(a) 35.8%
Nippon Yusen Kaisha Ltd........................ 3,000,000 10.2% 2,500,000 9.9%
Directors and executive officers as a group
excluding Jacob Stolt-Nielsen, Jr., Jacob B.
Stolt-Nielsen and Niels Gregers Stolt-Nielsen
(10 persons)................................. 222,258 0.8% 84,389 0.3%
</TABLE>
- ------------------------
(a) Includes aggregate of 55,023 Common Shares and 62,651 Class B Shares owned
by Jacob Stolt-Nielsen, Jr. and members of his immediate family, including
Jacob B. Stolt-Nielsen and Niels Gregers Stolt-Nielsen.
All of the 7,803,968 Founder's Shares outstanding as of April 30, 1998 are
owned by Mr. Stolt-Nielsen, Jr. As a result of the ownership of the Founder's
Shares, and his beneficial ownership of Common Shares noted above, Mr.
Stolt-Nielsen and his family control 69.5 % of Stolt's outstanding voting
securities.
As of April 30, 1998, SPTI owned 1,809,405 Common Shares and 5,607,605 Class
B Shares. Under applicable provisions of Luxembourg Company Law, these shares
remain outstanding and the Common Shares and, to the extent Class B Shares have
voting rights, the Class B Shares may be voted. In computing earnings per Common
Share and Class B Share, these shares are treated as a reduction of outstanding
shares. The cost of these shares is being accounted for similar to treasury
stock, as a deduction from shareholders' equity.
ITEM 5. NATURE OF TRADING MARKET
Stolt's Common Shares are principally traded in the U.S. in the
over-the-counter market. The Common Shares are quoted through the National
Market System of Nasdaq under the symbol STLTF. Stolt's Class B Shares are
listed on the Oslo Stock Exchange under the symbol SNIB and American Depositary
Shares ("ADSs"), each of which represents one Class B Share, are quoted through
Nasdaq under the symbol STLBY. Trading in the Class B Shares and ADSs commenced
in February 1996 and January 1996, respectively. The following table sets out,
for the fiscal periods indicated, the range of high and low closing sales prices
for the Common Shares (adjusted to reflect the distribution on December 29,
21
<PAGE>
1995 of one Class B Share for every two Common Shares held by shareholders of
record as of December 26, 1995), the ADSs, each equivalent to one Class B Share,
and the Class B Shares.
<TABLE>
<CAPTION>
ADSS
CLASS B SHARES OSLO STOCK EXCHANGE
COMMON SHARES EQUIVALENT CLASS B SHARES
-------------------- -------------------- ------------------------------
1997 HIGH LOW HIGH LOW HIGH LOW
- ------------------------------------- --------- --------- --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter.......................... $ 20.500 $ 17.000 $ 21.125 $ 17.500 NOK 138.0 NOK 113.5
2nd Quarter.......................... 18.875 16.375 19.125 16.750 130.5 118.5
3rd Quarter.......................... 23.500 18.500 24.125 18.000 178.0 130.0
4th Quarter.......................... 28.500 21.750 31.375 23.500 220.0 165.0
<CAPTION>
1996 HIGH LOW HIGH LOW HIGH LOW
- ------------------------------------- --------- --------- --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter.......................... $ 20.875 $ 17.500 $ 19.375 $ 18.000 NOK 122.5 NOK 117.0
2nd Quarter.......................... 21.500 16.875 21.250 16.500 138.0 112.0
3rd Quarter.......................... 20.000 15.875 20.000 16.375 135.0 108.0
4th Quarter.......................... 17.000 14.750 17.813 15.500 114.0 102.0
</TABLE>
As of March 2, 1998 (the record date for voting at the Annual General
Meeting), 8,568,973 Common Shares, representing 29.2% of the outstanding Common
Shares, were registered in the names of 133 shareholders having U.S. addresses
(although some of such shares may be held on behalf of non-U.S. persons). The
Common Shares were held by a total of 379 shareholders of record. Based on
communications with banks and securities dealers who hold Stolt's Common Shares
by street name for individuals, the Company estimates that the number of
beneficial owners of the Common Shares exceeds 4,500. The Company knows of no
significant trading market outside the U.S. for the Common Shares.
As of March 2, 1998, there was a total of 7,494,252 ADSs of which 7,492,477
were registered in the names of 100 shareholders having U.S. addresses (although
some of such ADSs may be held on behalf of non-U.S. persons). Based on
communications with banks and securities dealers who hold Stolt's ADSs by street
name for individuals, the Company estimates that the number of beneficial owners
of ADSs exceeds 2,500. As of such date the ADSs represented 29.6% of the
outstanding Class B Shares of Stolt.
All of the Class B Shares (including ADSs) are registered in the
Verdipapirsentralen system in Norway. As of March 2, 1998, excluding the Class B
Shares held represented by ADSs and Class B Shares held by Fiducia Ltd., SPTI,
and Nippon Yusen Ltd., it is estimated that the free float of Class B Shares
traded on the Oslo Stock Exchange is 6,270,870 registered in the names of 685
shareholders.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
EXCHANGE CONTROLS
The Company has been advised by Messrs. Elvinger, Hoss & Prussen, Luxembourg
counsel to the Company, that at the present time there are no exchange controls
in existence in Luxembourg which would restrict the export or import of capital,
including but not limited to, foreign exchange controls, or affect Stolt's
ability to make payments of dividends, interest or other amounts to non-resident
holders of Common Shares or Class B Shares.
LIMITATIONS AFFECTING SHAREHOLDERS
Stolt's Articles of Incorporation (the "Articles") provide restrictions on
the shareholdings of certain persons. In particular, the Articles provide that
the following restrictions shall apply to Persons (defined to include any
individual, firm, corporation or other entity, and certain associates and
affiliates thereof) who became shareholders on or after September 1, 1987: (i)
no one U.S. Person (including any person who is a citizen or resident of the
U.S., a corporation organized under the laws of the U.S., or any State thereof,
a corporation organized under the laws of any other jurisdiction whose shares
are owned by U.S. Persons, a
22
<PAGE>
partnership organized under the laws of any State of the U.S. and certain trusts
and estates) may own, directly or indirectly, more than 9.9% of Stolt's
outstanding shares; (ii) all shareholders who are U.S. Persons may not own,
directly or indirectly, more than 49% (including for these purposes shares held
by Persons who were shareholders prior to September 1, 1987) of Stolt's
outstanding shares in the aggregate; (iii) no more than 49.9% (including for
these purposes shares held by Persons who were shareholders prior to September
1, 1987) of Stolt's shares shall, in the aggregate, be owned by either Norwegian
Persons (including any person who is a citizen or resident of Norway, a
corporation, partnership, association or other entity organized or created under
the laws of Norway, an estate or trust subject to Norwegian income tax without
regard to the source of its income and any corporation or partnership organized
or created under the laws of any jurisdiction outside of Norway if any of its
shareholders or partners are, directly or indirectly, Norwegian Persons as so
defined) or Swedish Persons (including any person who is a citizen or resident
of Sweden, a corporation, partnership, association or other entity organized or
created under the laws of Sweden, an estate or trust subject to Swedish income
tax without regard to the source of its income and any corporation or
partnership organized or created under the laws of any jurisdiction outside of
Sweden if any of its shareholders or partners are, directly or indirectly,
Swedish Persons as so defined); and (iv) no Person may own, directly or
indirectly, more than 20% of Stolt's outstanding shares unless a majority of the
Board shall have approved such shareholding in advance.
In addition, the Board is authorized to restrict, reduce or prevent the
ownership of Stolt's shares if it appears to the Board that such ownership may
threaten the Company with "imminent and grave damage". Luxembourg Company Law
does not provide a specific definition of imminent and grave damage, but instead
leaves the interpretation of the phrase within the Board's discretion. The
Company has been advised by its Luxembourg counsel, Elvinger, Hoss & Prussen,
that there are no Luxembourg judicial interpretations of the phrase, but that
situations involving hostile takeovers, adverse tax consequences to the Company
or governmental sanctions are likely to be among the situations covered by such
phrase.
In order to enforce the foregoing restrictions, the Articles empower the
Board to take certain remedial action including causing Stolt (i) to decline to
register any prohibited transfer; (ii) to decline to recognize any vote of a
shareholder precluded from holding shares; (iii) to require any shareholder on
Stolt's Register of Shareholders or any prospective shareholder to provide
information to determine whether such person is precluded from holding shares;
and (iv) upon the issuance of a notice, to require the sale of shares to Stolt
at the lesser of (A) the amount paid for the shares if acquired within the
twelve months immediately preceding the date of the notice, and (B) the last
quoted price for the shares on the day immediately preceding the day on which
the notice is served (provided that the Board may in its discretion pay the
amount calculated under (B) in situations where (A) would otherwise apply and
result in a lower purchase price, if the Board determines it equitable after
taking into account specified factors) and to remove the name of any shareholder
from the Register of Shareholders immediately after the close of business on the
day the notice is issued and payment is made available.
Stolt's form of share certificate requires a certification to be made upon
the transfer of ownership regarding the citizenship of the transferee. The
certification is intended to assist Stolt in enforcing the restrictions
described above.
There are no limitations imposed by Luxembourg law on the rights of
non-resident Stolt shareholders to hold or vote their shares.
ITEM 7. TAXATION
U.S. TAXATION
U.S. corporations, citizens and residents will be subject to U.S. income
taxation on dividends and other distributions paid by Stolt and on any gains
derived from the sale of Stolt's Common Shares and Class B Shares (and ADSs).
Because Stolt is classified as a "foreign personal holding company" under U.S.
tax law, U.S. shareholders will also be taxed on their share of any
undistributed "foreign personal holding
23
<PAGE>
company income". Subject to compliance with certain restrictions contained in
the Company's credit agreements limiting its ability to pay dividends, Stolt
intends to distribute any such income it may receive. In addition, upon the
death of any shareholder, such shareholder's estate will not be entitled to a
step-up in basis which might otherwise be available but for Stolt's status as a
foreign personal holding company.
LUXEMBOURG TAXATION
Other than certain former Luxembourg residents, current Luxembourg residents
and those nonresidents who maintain a permanent establishment in Luxembourg with
which the holding of Stolt shares is connected, Stolt shareholders are not
subject to taxation in Luxembourg.
ITEM 8. SELECTED FINANCIAL DATA
The information under the caption "Selected Consolidated Financial Data" on
page 25 of the Company's 1997 Annual Report filed with the Securities and
Exchange Commission on Form 6-K is incorporated herein by reference.
DIVIDENDS
The following table shows the total dividend payments per Common Share,
Class B Share and Founder's Share made during the fiscal years indicated.
<TABLE>
<CAPTION>
CLASS OF STOCK 1993 1994 1995 1996 1997
- --------------------------------------------------- ----- ----- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Common............................................. Nil Nil $ 0.370 $ 0.250 $ 0.500
Class B............................................ -- -- -- $ 0.250 $ 0.500
Founder's.......................................... Nil Nil $ 0.01 $ 0.005 $ 0.005
</TABLE>
The above figures have been consistently restated to reflect the Class B
Share distribution on December 29, 1995.
The 1997 figures represent the interim and final dividend for 1996. An
interim dividend for 1997 of $0.25 per Common Share and per Class B Share and
$0.005 per Founder's Share was declared on November 19, 1997 and paid on
December 17, 1997. In addition the shareholders at Stolt's Annual General
Meeting held on April 16, 1998 approved a final dividend for 1997 of $0.25 per
Common Share and per Class B Share which was paid on May 20, 1998 to
shareholders of record as of May 4, 1998. This final dividend payment for 1997
brings the total dividend to be paid in fiscal 1998 to $0.50 per Common share
and per Class B Share and $0.005 per Founder's Share.
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information included under the caption "Management's Discussion and
Analysis" on pages 17 through 24 of the Company's 1997 Annual Report filed with
the Securities and Exchange Commission on Form 6-K is incorporated herein by
reference.
RECENT DEVELOPMENTS
On March 9, 1998 the Company signed a Letter of Intent to acquire up to 30%
interest in Dovechem Terminals Holdings Limited ("Dovechem"). Dovechem is one of
Asia's major groups in the chemical industry and related industries with
businesses in bulk liquid storage, manufacturing of drums, packaging and
distribution of chemicals, petroleum and petrochemicals.
The Company's transportation services business reported income from
operations of $27.8 million for the three months ending February 28, 1998, down
from $30.5 million for the three months ending February 28, 1997. This primarily
reflects the slowdown in the Asia Pacific region. Subsea services reported a
loss from operations of $0.8 million for the three months ending February 28,
1998, down from income
24
<PAGE>
from operations of $0.2 million for the three months ending February 28, 1997,
due to delays in carrying out projects. Seafood reported a loss from operations
of $0.3 million for the three months ending February 28, 1998, down from income
from operations of $1.1 million for the three months ending February 28, 1997
reflecting continued pressure on salmon prices. Overall, the Company reported
net income for the first quarter of 1998 of $26.5 million on net operating
revenue of $360.2 million. Included within this was a gain of $10.2 million from
an insurance settlement for the total constructive loss of the M/T STOLT SPIRIT,
a 32,000 dwt ship. This compared to net income of $18.4 million on net operating
revenue of $331.0 million in the first quarter of 1997.
IMPACT OF THE ASIA PACIFIC ECONOMIC SITUATION
The Asia Pacific economic situation has had and is likely to continue to
have an effect on SNTG's business. During 1997, 20% of SNTG's parcel tanker
volumes and 18% of tank container moves were into Asia Pacific, 17% and 12%
respectively were exports from Asia Pacific, and 11% and 17% respectively were
from inter-Asia Pacific imports and exports. Since the onset of the downturn in
the Asia Pacific economies in 1997, SNTG has experienced a decrease in volumes
and rates for parcel tankers and tank containers going into and within Asia
Pacific which has been partially offset by increases in volumes and rates for
shipments going out of Asia Pacific. While SNTG's revenue base is in U.S.
dollars, much of SNTG's parcel tanker and tank container operating expenditures
are denominated in local currencies. Accordingly, SNTG should benefit from a
stronger U.S. dollar. In addition, since SNTG serves most of the global trade
lanes and has a worldwide network of offices, it is able to re-deploy parcel
tanker and tank container assets in areas of the world with greater activity.
YEAR 2000 ISSUE
The Company continues its comprehensive review of the potential impact of
the Year 2000 issue on its operations. For business system applications, this
review is complete and required modifications are scheduled to be complete by
1998 with testing to occur later during the year. A review of the impact of the
Year 2000 issue on operating equipment and assets is currently underway and is
anticipated to be complete by early 1999. At that time, the full impact of this
technology issue on the Company's operating equipment and assets will be
assessed and appropriate action will be taken.
The review of the Company's systems, and all systems modifications to be
undertaken as a consequence of this review, will be performed using the
Company's internal resources, as part of the Company's ongoing software
maintenance and development process. Accordingly, it is not expected that the
Company will incur any material costs in achieving Year 2000 compliance.
FORWARD-LOOKING STATEMENTS
Certain statements in this Report constitute "forward-looking statements"
within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve known and unknown risks, uncertainties
and other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions;
industry capacity; industry trends; competition; raw material costs and
availability; currency fluctuations; the loss of any significant customers;
changes in business strategy or development plans; availability, terms and
deployment of capital; availability of qualified personnel; changes in, or the
failure or inability to comply with, government regulations; adverse weather
conditions; and other factors referenced in this Report.
25
<PAGE>
FACTORS AFFECTING REVENUES AND COSTS
TRANSPORTATION SERVICES
DEMAND
Demand for SNTG's services is dependent upon the condition and growth of the
worldwide economy and trade patterns for the products shipped and stored.
Factors impacting this include overall demand for products SNTG carries and
stores, location of the production of the products carried and stored in
relation to location of demand for these products, currency fluctuations,
import/export tariffs and other trade restrictions, current spot and future
prices of the products SNTG carries and stores. Any general economic slowdown
could also have an adverse effect on the level of the provision of those
services and therefore upon SNTG. There can be no assurances that such downturns
will not occur in the future.
SUPPLY AND COMPETITION
Available supply of the same and similar services will impact SNTG's
results.
The supply of parcel tankers is influenced by the number of new
constructions and scrappings and by government and industry regulation of
maritime transportation practices. Scrapping rates are also impacted by the
rates achieved in the market, condition of ships, and quality standards set by
customers. For certain products (usually of larger commodity type rather than
specialty) carried, parcel tankers may face competition from more sophisticated
product tankers, therefore the supply and utilization of product tankers may
also impact the parcel tanker market.
SNTG's tank container operations compete with other tank container
operators, the container fleets of the major chemical companies, traditional
barrel storage, liquid flexi-bags, and on land, with truck and rail tanks. For
large bulk shipments, tank containers may also compete with parcel tankers. The
supply of tank containers is influenced by the number of tank containers
constructed as well as government tax policy for building new tank containers
and industry regulation.
The terminal operations compete with other independent terminal operators as
well as the terminal operations directly owned by its chemical and other bulk
liquid customers.
WEATHER
Inclement weather conditions may impact the SNTG's operational performance.
In addition, the river parcel tanker operations may be impacted by high and low
water levels.
TRADE LANE CLOSURES
Global ocean transportation is dependent upon unrestricted passage through
major canals or straits including, not limited to, the Panama Canal, the Suez
Canal, and the Malacca Straits. Interruption or restrictions on the passage of
ships through any of these trade lanes can have an impact on SNTG results.
INTER-RELATIONSHIP OF CONTRACT AND SPOT MARKET
Typically, 60% of SNTG's parcel tanker business is done under a long-term
contract basis with customers and 40% is spot. SNTG's ability to renew contracts
at favorable rates is dependent on the current, and customers' outlook on
future, spot prices.
LOSS OF MAJOR CUSTOMERS
While SNTG has a broadly diversified customer base, the loss of a major
customer can impact results. Parcel tanker and tank container assets are
typically utilized in servicing a wide variety of customers.
26
<PAGE>
SNTG's terminal facilities are usually purpose built for a single customer, and
SNTG typically does not engage in speculative terminal building without a
long-term contract.
NEWBUILDING PROGRAM
Under the newbuilding contracts, SNTG is required to make progress payments
during the construction of the ship. SNTG has refund guarantees from financial
institutions with respect to such progress payments in the event that the
newbuildings are not delivered by the shipyard and accepted by SNTG. Out-
of-pocket expenses incurred, such as the cost of site team travel and lodging
and legal fees, are guaranteed by the shipyard in the event that the
newbuildings are not delivered by the shipyard and accepted by SNTG. Should the
shipyard go bankrupt, SNTG may not be able to recover these out-of-pocket
expenses. Should any of the shipyards fail to deliver any of the newbuildings,
SNTG may have to pay higher prices to order similar newbuildings from other
shipyards. Failure to obtain delivery of the ships in a timely manner may also
impact the optimal operational scheduling of ships within SNTG's fleet.
FUEL
Ship bunker fuel constitutes one of the major operating costs of SNTG's
parcel tanker fleet. Since 1987, the average annual cost of bunker fuel
purchased by SNTG has varied between approximately $78 and $113 per ton. In
1997, with an average cost of approximately $113 per ton, bunker fuel
constituted approximately 15% of fleet operating costs.
SNTG is able to pass a substantial portion of these fuel price fluctuations
through to its customers. 60% of SNTG's total parcel tanker volume is carried
under long-term contracts; about half of these include provisions intended to
pass through fuel price fluctuations. The remaining cargo volume is carried
under spot contracts at freight rates that are affected by prevailing fuel
prices. In addition, the effect of higher fuel prices is reduced to some extent
through hedging programs.
PERCENTAGE-OF-COMPLETION VOYAGE ACCOUNTING
In the parcel tanker business, most of SNTG's revenue is recognized on a
percentage-of-completion basis, based on the ratio of costs incurred to the
total estimated costs at completion. Voyage revenues and gross profit may be
adjusted in subsequent reporting periods from those originally reported in prior
periods. To the extent that these adjustments result in a reduction or
elimination of previously reported profits, SNTG would recognize a charge
against current earnings that may be significant depending on the size of the
voyage or the adjustment.
SUBSEA
INDUSTRY CONDITIONS
Demand for the Company's subsea services depends upon the condition of the
oil and gas industry and particularly upon capital expenditure budgets of the
companies engaged in the exploration, development and production of offshore oil
and gas. The prices of oil and gas and their uncertainty in the future, along
with forecasted growth in world oil and gas demand, will strongly influence the
extent of offshore exploration and development activities. Offshore oil and gas
field capital expenditures also are influenced by the sale and expiration dates
of offshore leases, the discovery rate of new oil and gas reserves in offshore
areas, local and international political and economic conditions and the ability
of oil and gas companies to access or generate capital. These factors are beyond
the control of SCS.
27
<PAGE>
OPERATING RISKS
Subsea services involves operational risk and is increasingly dependent on
large, expensive, special-purpose ships and equipment. Hazards, such as ships
capsizing, sinking, grounding, colliding and sustaining damage from severe
weather conditions are inherent in the marine operations of subsea services.
These hazards can cause personal injury and loss of life, severe damage to, and
destruction of, property and equipment, pollution or environmental damage and
suspension of operations. All employees engaged in SCS's offshore operations are
covered by provisions of local and maritime laws, which generally provide that
employees or their representatives can bring actions against SCS for damages for
job-related injuries. In addition, although SCS generally seeks to obtain
indemnity agreements whenever possible from SCS's customers requiring such
customers to hold SCS harmless in the event of structural damage, loss of
production or liability for pollution that originates below the water surface,
when obtained such contractual indemnification does not generally cover
liability resulting from the gross negligence or willful misconduct of or
violation of law by employees or subcontractors of SCS and may not in all cases
be supported by adequate insurance maintained by the customer.
CONTRACT BIDDING RISKS
Reflecting market practice, a significant proportion of SCS's business is
performed on a fixed-price or turnkey basis. Management estimates that the
proportion of SCS's revenue from fixed-price or turnkey contracts increased from
approximately 46% in 1994 to 56% in 1997. Gross profits realized on such
contracts vary, sometimes substantially, from the estimated amounts because of
changes in offshore job conditions, the risks inherent in marine construction
and variations in labor and equipment productivity from those originally
projected, and significant losses can result from performing fixed-price or
turnkey contracts. Under such contracts, SCS also typically bears a proportion
of the risk of delays and extra costs caused by adverse weather conditions or
other circumstances.
PERCENTAGE-OF-COMPLETION PROJECT ACCOUNTING
As most of SCS's contract revenue is recognized on a
percentage-of-completion basis, based on the ratio of costs incurred to the
total estimated costs at completion, contract revenues and gross profits for a
project may be adjusted in subsequent reporting periods from those originally
reported in prior periods. To the extent that these adjustments result in a
reduction or elimination of previously reported profits, SCS would recognize a
charge against current earnings that may be significant depending on the size of
the project or the adjustment.
POLITICAL AND ECONOMIC RISK
SCS's operations are geographically spread throughout the world and are
therefore subject to various political, economic and other uncertainties,
including, among others, political instability, civil unrest, the risks of war,
asset seizure, nationalization of assets, renegotiation or nullification of
existing contracts, taxation policies, foreign exchange restrictions or
fluctuations and changing political conditions. Additionally, the ability of SCS
to compete in international markets may be adversely affected by governmental
regulations that favor or require the awarding of contracts to local
contractors, or by regulations requiring foreign contractors to employ citizens
of, or purchase supplies from, a particular jurisdiction. Furthermore, SCS's
subsidiaries may face governmentally imposed restrictions from time to time on
their ability to transfer funds to the Company. No predictions can be made as to
what governmental regulations applicable to SCS's operations may be enacted in
the future.
SEASONALITY OF ACTIVITY IN THE NORTH SEA
SCS's subsea contracting business in the North Sea has consistently
accounted for the largest part of SCS's revenue (approximately 60% in 1997).
SCS's business in this region is highly seasonal and dependent
28
<PAGE>
on weather conditions. A substantial portion of SCS's contracts for subsea
services are performed between April and October due to adverse weather
conditions during the winter months.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
SCS's major customers are oil companies and large offshore contractors.
During 1997, SCS's top seven customers accounted for over 50% of SCS's net
operating revenue. The loss of any one or more of these significant customers
could have a material adverse effect on SCS.
COMPETITION
The subsea business is highly competitive, and offshore subsea contractors
compete intensely for available projects. Contracts for SCS's services are
generally awarded on a competitive bid basis, and although customers may
consider, among other things, the availability and capability of equipment, and
the reputation and experience of the contractor, price is a primary factor in
determining which contractor is awarded a contract. Several of SCS's competitors
and potential competitors are larger and have greater financial and other
resources than SCS. In addition, increased activity levels may attract
additional competitors or equipment to the market.
SEAFOOD
DISEASE AND OTHER NATURAL CAUSES
In aquaculture, inventories of fish in the water are susceptible to diseases
and other natural phenomena, such as algae blooms, which can result in the death
of the fish or the necessity to harvest fish before they reach optimal market
size. Fish are also susceptible to predator attacks by other natural wild life,
such as seals and birds. Predator attacks can result in partial or full loss of
fish both as a result of the direct attack on the fish and from damage to the
fish enclosures (cages and nets).
ACCIDENTS AND MALICIOUS DAMAGE
Farmed fish require water conditions which have to be carefully maintained
in order to ensure their continuing good health. Unintentional accidents causing
pollution or loss of water can result in the death of the fish or the necessity
to harvest them before they reach a market size. Inventories of fish in the
water are also susceptible to deliberate acts of vandalism or sabotage for
whatever reason, which can again result in the death of the fish or the
necessity to harvest fish before they reach optimal market size.
WEATHER
The growth rates of fish are dependent upon weather conditions. Unexpectedly
hot or cold temperatures may adversely impact growth rates or kill the fish. Bad
weather may also delay harvests or result in the loss of equipment or fish.
Adverse weather conditions such as storms or floods can also cause damage to
facilities such as interruption of water supply or seaweed blockages, also
resulting in the death of fish.
SUPPLY/PRICE OF OTHER FISH AND NON FISH COMPETING PRODUCTS
In addition to direct competition from farmed fish of the same species as
those grown by Stolt Sea Farm, the Company's fish products compete against wild
catch and other substitute species of fish. Meat and poultry products are also
dietary substitutes for the Company's fish products. The relative pricing of the
Company's farmed fish product versus these other products can impact the demand
for the Company's fish products.
29
<PAGE>
FEED COST
Feed for fish accounts for an important part of the cost of Stolt Sea Farm's
products. While the cost of feed has been relatively stable for the past five
years, fluctuations in the price of fish feed could have an impact on Stolt Sea
Farm's profitability.
AQUACULTURE TECHNOLOGY
While most areas of technology involved in aquaculture are well known and
proven, there are certain aspects of the life cycle of certain species of fish
that are less well understood, particularly those concerning the juvenile phase
of production, and which are therefore not in the full control of Stolt Sea Farm
or its suppliers. Adverse or unexpected events in such a connection can result
in either fish of a high production cost (for example due to slow growth or high
mortality) or in fish of a lower grade than expected (due to sub-optimal genetic
qualities), thus impairing profitability.
REGULATIONS AND GOVERNMENT ACTIONS
The aquaculture industry is subject to government laws and regulations
around the world. These are used as instruments of environmental, ecological and
trade policy. Governments have used such laws and regulations to control such
factors as the areas where aquaculture is permitted and the number of
concessions to be operated in an area, the density of fish permitted in a
concession, and the amount of feed that can be fed to the fish, as well as to
erect tariff barriers against the importation of farmed fish and fish products.
Changes in such factors can have a significant adverse effect on Stolt Sea
Farm's production costs of fish as well as the ability of Stolt Sea Farm to
compete effectively in affected markets.
GENERAL
HAZARDOUS ACTIVITIES
The operation of any ocean-going ship carries an inherent risk of
catastrophic marine disasters and property losses caused by adverse weather
conditions, mechanical failures, human error, war, terrorism, piracy, labor
stoppages and other circumstances or events. In addition, the transportation of
toxic chemicals is subject to the risk of spills and business interruptions due
to political action. Any such event may result in loss of revenues or increased
costs.
The Company carries insurance to protect against most of the
accident-related risks involved in the conduct of its business and it maintains
environmental damage and pollution insurance coverage. There can be no
assurance, however, that all risks are adequately insured against, that any
particular claim will be paid or that the Company will be able to procure
adequate insurance coverage at commercially reasonable rates in the future. In
particular, more stringent environmental regulations may result in increased
costs for, or the lack of availability of, insurance against the risks of
environmental damage or pollution.
While the Company currently insures its ships against property loss due to a
catastrophic marine disaster, mechanical failure or collision, the loss of any
ship as a result of such an event could result in a substantial loss of
revenues, increased costs and other liabilities and could have a material
adverse effect on operating performance. Litigation arising from such an
occurrence may result in the Company being named as a defendant in lawsuits
asserting large claims.
REGULATORY AND ENVIRONMENTAL MATTERS
The Company operates in a number of different jurisdictions and is subject
to and affected by various types of governmental regulation, including national
laws and regulations and international conventions relating to ship safety and
design requirements, disposal of hazardous materials, discharge of oil or
30
<PAGE>
hazardous substances, protection of the environment, food safety, and various
import and export requirements. These laws and regulations are becoming
increasingly complex, stringent and expensive to comply with, and there can be
no assurance that continued compliance with existing or future laws or
regulations will not adversely affect the operations of the Company. Significant
fines and penalties may be imposed for non-compliance.
In addition, the Company could be held liable for remediation of pollution
caused by its ships and for releases of oil and hazardous substances and debris
from offshore production platforms, pipelines, subsea facilities and other
assets owned or operated by its customers, and for releases resulting from
activities of, or equipment owned by, its subcontractors. Although the Company
generally negotiates contractual provisions requiring customers to indemnify the
Company in the event any such liability is imposed, the Company has not obtained
such indemnification in all cases. Moreover, such indemnification does not
generally cover liability resulting from the gross negligence or willful
misconduct of, or violation of law by, employees or subcontractors of the
Company.
CERTAIN FINANCIAL REQUIREMENTS
The Company is party to material bank credit and other financing agreements
which impose certain financial requirements such as limitations on debt and the
types of businesses the Company may engage in. At the end of 1997, the Company
was in compliance with all of these credit/financing agreements. Except for
these financial requirements, none of these agreements imposes material
restrictions on the ability of the Company to incur additional indebtedness or
operate its businesses. Although management believes that current operating
plans will not be restricted by these requirements in the future, changes in
economic or business conditions, results of operations or other factors may in
the future result in circumstances in which the requirements restrict the
Company's plans or business operations.
LEVERAGE
The degree to which the Company is leveraged may affect its ability to
obtain additional financing in the future for working capital, capital
expenditures, product and service development, and general corporate purposes,
to utilize cash flow from operations for purposes other than debt service, and
to overcome seasonal or other cyclical variations in its business. The ability
of the Company to satisfy its obligations and to reduce its debt is dependent on
the future performance of the Company, which will be subject to the prevailing
economic conditions and to financial, business and other factors including those
beyond the Company's control.
INTEREST RATES
Approximately 16% of the Company's long-term indebtedness at March 31, 1998
is accrued at rates that fluctuate with the prevailing interest rates and,
accordingly, increases in such rates may increase the Company's interest cost.
From time to time, the Company enters into hedging transactions with financial
institutions in order to manage floating interest rate exposure.
CAPITAL REQUIREMENTS
The acquisition of new assets and properties, both for growth as well as
replacement, is capital intensive. The availability of new capital to finance
these expenditures depends on the prevailing market conditions and the
acceptability of financing terms offered to the Company. Management believes
that capital expected to be available under the various lines of credit,
financing agreements, and other sources and from disposition of existing assets
and properties as well as cash generated from operations, should be sufficient
to meet its capital requirements for the foreseeable future. No assurance,
however, can be given that financing will continue to be available on attractive
terms.
31
<PAGE>
FOREIGN CURRENCY FLUCTUATIONS
Substantial portions of the Company's revenue and expenses are denominated
in currencies other than dollars. Fluctuations in these currencies can have a
significant impact on the Company's financial results. The Company engages in
hedging programs intended to reduce part of the Company's short-term exposure to
currency fluctuations. However, there can be no assurances that such efforts
will be successful. Hedging is limited to known and foreseeable exposures that
develop through normal business operations and to long-term business
investments. The Company does not attempt to hedge foreign earnings that are
translated into dollars for reporting purposes. Foreign currency fluctuations
have had and will continue to have an impact on reported financial results.
TAXES
Pursuant to the Internal Revenue Code of the U.S. (the "Code"), effective
for the Company's fiscal year beginning on or after December 1, 1987, U.S.
source income from the international operation of ships is generally exempt from
U.S. tax if the company operating the ship meets certain requirements. Among
other things, in order to qualify for this exemption, the company operating the
ship must be incorporated in a country which grants an equivalent exemption to
U.S. citizens and corporations that meet certain residency requirements. The
Internal Revenue Service has agreed that the Company qualifies for this
exemption for years up to and including fiscal 1992, but may review the
Company's qualification for fiscal 1993 onwards. The Company believes that
substantially all of the Company's shipowning and operating subsidiaries meet
the requirements to qualify for this exemption from U.S. taxation. For these
reasons, no provision for U.S. income taxes has been made with respect to the
Company's U.S. source shipping income for the years ended November 30, 1993
through 1997.
If an equivalent exemption were not available, the Company would be taxable
on its U.S. source income from shipping activities in one of two ways.
Generally, income subject to U.S. taxation would include 50% of the revenues
derived from shipments between the U.S. and foreign ports. This would include
the Company's share of all such income from STJS. Under the first method, if the
company operating the ship has any such income which is effectively connected
with a U.S. trade or business, such income would be subject to U.S. taxation on
a net basis at graduated rates of up to 35%. This income, with adjustments,
would be further subject to the 30% branch profits tax to the extent not
reinvested in the U.S. Under the second method, any such income which is not
effectively connected with a U.S. trade or business would be subject to taxation
on a gross basis (without allowance for deductions) at a fixed 4% rate. The
branch profits tax would not apply to income subject to the 4% tax.
Substantially all of the Company's shipowning and ship operating
subsidiaries are incorporated in countries which do not impose an income tax on
shipping operations.
The Company's subsea services operations are conducted in Norway and the
United Kingdom as well as certain other countries in Europe, Africa, the Middle
East, Asia Pacific, North America and South America. Net income earned from
operations in most of such countries are subject to corporate income taxes and
withholding taxes on dividends paid to other members of the Group.
Certain of the Company's agency, terminal, tank container, barge operating
and seafood subsidiaries are subject to income tax in the U.S. and other
jurisdictions. The subsidiaries which are incorporated in the U.S. file a
consolidated federal income tax return, and other subsidiaries file separate tax
returns as required.
RESTRUCTURING
To operate in a price competitive manner, the Company regularly reviews its
operations. This review process may result in the closure of offices or
departments, the sale of assets or business lines, the
32
<PAGE>
termination of personnel, or the reassessment of the useful lives of assets or
technology. Such actions may affect the Company's results.
LABOR RELATIONS
The Company considers its relations with its employees and their unions to
be good and has not experienced any significant work stoppages. There can be no
assurances however that disruption of the Company's services or production, or
that larger labor disputes involving the industries the Company operates in will
not adversely affect the Company's results.
ACQUISITION AND EXPANSION STRATEGY
One element of the Company's strategy is to continue to grow through
selected acquisitions that further consolidate the markets in which the Company
operates. Likewise the Company plans on expanding its operations at existing or
new locations. There can be no assurance that any currently planned acquisitions
or expansions will be completed or that any currently planned or any additional
acquisitions or expansions will be successful in enhancing the operations or
profitability of the Company; that the Company will be able to identify suitable
additional acquisition candidates or areas for expansion; that it will have the
financial ability to consummate additional acquisitions or expansions; or that
it will be able to consummate such additional acquisitions or expansions on
terms favorable to the Company.
RISK OF LOSS AND INSURANCE
The business of the Company is affected by a number of risks, including the
mechanical failure of its ships, collisions, ship loss or damage, cargo loss or
damage, hostilities, and labor strikes. In addition, the operation of any ship
is subject to the inherent possibility of a catastrophic marine disaster,
including oil, fuel, or chemical spills and other environmental mishaps, as well
as other liabilities arising from owning and operating ships. Any such event may
result in loss of revenues and increased costs and other liabilities. Although
the Company's losses from such hazards have not historically exceeded its
insurance coverage, there can be no assurance that this will continue to be the
case.
OPA '90, by imposing virtually unlimited liability upon ship owners,
operators, and certain charterers for certain oil pollution accidents in the
U.S., has made liability insurance more expensive and has also prompted insurers
to consider reducing available liability coverage. While the Company maintains
insurance, there can be no assurance that all risks are adequately insured
against particularly in light of the virtually unlimited liability imposed by
OPA '90, that any particular claim will be paid, or that the Company will be
able to procure adequate insurance coverage at commercially reasonable rates in
the future. Because it maintains mutual insurance, the Company is subject to
funding requirements and coverage shortfalls in the event claims exceed
available funds and reinsurance and to premium increases based on prior loss
experience. Any such shortfalls could have a material adverse impact on the
Company.
33
<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
Stolt is a Luxembourg holding company and does not have officers as such.
The following is a list of the Directors of Stolt and persons employed by its
subsidiaries who perform the indicated executive and administrative functions
for the combined business of the Company's subsidiaries:
<TABLE>
<CAPTION>
NAME AGE* POSITION
- ----------------------------------------------- ----- ---------------------------------------------------------
<S> <C> <C>
Jacob Stolt-Nielsen, Jr........................ 66 Chairman of the Board and Chief Executive Officer
Carroll N. Bjornson............................ 68 Director
Philip W. Darwin............................... 68 Director
Erling C. Hjort................................ 61 Director
Tadatoshi Mamiya............................... 55 Director
Christer Olsson................................ 52 Director
Jacob B. Stolt-Nielsen......................... 35 Director and President--Terminal Operations
Niels Gregers Stolt-Nielsen.................... 33 Director and President--Seafood Business
Christopher J. Wright.......................... 63 President and Chief Operating Officer
Jan Chr. Engelhardtsen......................... 46 Chief Financial Officer
Samuel Cooperman............................... 52 President--Tanker Operations
Reginald J.R. Lee.............................. 54 Managing Director--Tank Container Operations
Bernard Vossier................................ 53 Chief Executive Officer--Subsea Services Business
</TABLE>
- ------------------------
* As of February 28, 1998.
Under the terms of Stolt's Articles, its Directors may be elected for terms
of up to six years, and serve until their successors are elected. It has been
Stolt's practice to elect Directors for one-year terms. Under the Articles, the
Board consists of not fewer than three nor more than nine Directors at any one
time. Stolt's Board of Directors currently consists of eight members.
Jacob Stolt-Nielsen, Jr. has served as Chairman of the Board and Chief
Executive Officer of the Company since he founded it in 1959. Mr. Stolt-Nielsen
also serves as Chairman of SCS.
Mr. Wright has served as President and Chief Operating Officer of the
Company since July 1986.
Mr. Engelhardtsen has served as Chief Financial Officer since 1991. He
served as President and General Manager of Stolt-Nielsen Singapore Pte. Ltd.
from 1988 through 1991. He has been associated with the Company since 1974.
Mr. Cooperman has served as President of the Tanker Operations since 1989.
Previously, he served as Chartering Manager, responsible for marketing and
operations activities. He joined the Company in 1974.
Mr. Lee has served as Managing Director of the Tank Container Operations
since 1987. He joined the Company in 1982 when the Company acquired United Tank
Containers Limited.
Jacob B. Stolt-Nielsen has served as President, Stolthaven Terminals and
Stolt Transportation Services since October 1992, with responsibility for the
Company's storage business. He joined the Company in 1987 and has served in
various positions in Oslo, Singapore and Greenwich. He has served as a Director
of Stolt since May 1995.
Mr. Vossier was appointed President of the Subsea Services Business in May
1995. Previously he served as Chief Operating Officer of that business from
December 1994 to May 1995. He joined Comex in 1974.
Niels Gregers Stolt-Nielsen has served as a Director of the Company since
1996 and has served as President of Stolt Sea Farm since June 1996. Mr.
Stolt-Nielsen joined the Company in 1990 in Greenwich, working first as a
Shipbroker and then as Round Voyage Manager. In 1994 he opened and organized the
Company's representative office in Shanghai.
34
<PAGE>
Mr. Bjornson has served as a Director of the Company since 1974. He was
employed by the Company in a variety of executive capacities from 1963 to 1985.
He resigned in 1985 and became Chairman and Chief Executive Officer of Maryland
Marine Inc. until its sale in November 1997.
Mr. Darwin has served as a Director of the Company since 1989. He is
Chairman of a British investment trust company and a Director of a number of
other companies.
Mr. Hjort has served as a Director of the Company since May 1995. He joined
the Norwegian law firm of Wikborg, Rein & Co. in Oslo in 1964, where he was
admitted to the bar in the same year. In 1970 he was admitted to the bar of the
Supreme Court, and in 1993 he became the Senior Partner in Wikborg, Rein & Co.
Mr. Olsson has served as a Director of the Company since 1993. He is
President of Walleniusrederierna AB with which he has been associated since
1984. He serves as a Director of Walleniusrederierna AB, Atlantic Container Line
AB and as the Chairman of the Swedish Shipowners' Association.
Mr. Mamiya has served as a Director of the Company since August 1997 as the
NYK nominee to the Board of Directors. He joined NYK in 1966 and is currently
Managing Director of NYK Bulkship (Europe) Ltd.
Jacob B. Stolt-Nielsen and Niels Gregers Stolt-Nielsen are the sons of Jacob
Stolt-Nielsen, Jr.
Under a Shareholders' Agreement between NYK and an entity controlled by the
Stolt-Nielsen family, during the term of such agreement and for so long as NYK
shall own at least 5,500,000 Common Shares, Class B shares or any combination
thereof (or the equivalent thereof after any stock split or recapitalisation),
such entity shall support NYK's nomination of one person to the Board of
Directors of Stolt.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
As described in Item 10 above, Stolt does not have officers, but certain
persons employed by its subsidiaries perform executive and administrative
functions for the combined business of the Company's subsidiaries. The aggregate
annual compensation paid to the eight officers, excluding non-executive
directors, performing such executive functions for the Company for the fiscal
year ended November 30, 1997 (including profit sharing awards and certain
benefits) was $5,525,994. In addition, $69,429 was contributed on behalf of such
officers to defined contribution pension plans maintained by the Company and its
subsidiaries. During 1997, Stolt executive directors received no compensation
for their services as such, but received reimbursement of their out-of-pocket
expenses. The non-executive directors, with the exception of NYK's nominated
director, received an aggregate fee of $280,000 plus expenses.
PROFIT SHARING PLAN
Stolt has a Profit Sharing Plan which pays 10% of the net profit of the
Transportation Services Business (after specified adjustments) to the majority
of the employees worldwide of the Transportation Services Business other than
those covered by collective bargaining agreements. Separate Profit Sharing Plans
are maintained by the Subsea Services Business and the Seafood Business. Under
each such plan, the determination of an employee's individual award is based on
performance, salary, and overall contribution to the Company. The Transportation
Services Profit Sharing Plan is administered by a Compensation Committee
appointed by the Stolt Board of Directors. The Subsea Services Profit Sharing
Plan is administered by a Compensation Committee appointed by SCS's Board of
Directors. The Seafood Profit Sharing Plan is administered by the Compensation
Committee appointed by the Stolt Board of Directors. For the fiscal year ended
November 30, 1997, $6,157,000 was paid by the Transportation Services Business
Profit Sharing Plan to its officers and employees, with $683,029 of this amount
paid to those officers performing executive and administrative functions. For
the fiscal year ended November 30, 1997, a total provision of $3,800,000 has
been made for payment by the Subsea Services Business. The payment of Profit
Sharing for 1997 will not be made until 1998 and the portion to be allocated to
officers has not yet been
35
<PAGE>
determined. No amounts were paid under the Profit Sharing Plans maintained by
the Seafood Business to those officers performing executive and administrative
functions.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Stolt has a 1987 Stock Option Plan (the "1987 Plan") covering 2,660,000
Common Shares and related Class B Shares and a 1997 Stock Option Plan (the "1997
Plan") covering 5,180,000 Common Shares, 5,180,000 Class B Shares, or any
combination thereof not exceeding 5,180,000 shares. Options may be granted under
the 1987 Plan and the 1997 Plan exercisable for periods of up to ten years. The
options granted under the 1987 Plan and the 1997 Plan will be at an exercise
price not less than the fair market value per share at the time the option is
granted. The 1987 Plan and the 1997 Plan are administered by a Compensation
Committee appointed by the Stolt Board of Directors. The Compensation Committee
awards options based on the grantee's position in the Company, degree of
responsibility, seniority, contribution to the Company and such other factors as
it deems relevant under the circumstances.
Following the Class B Share distribution in December 1995, in accordance
with the revised terms of the 1987 Plan, holders of Common share options
outstanding on the date of such distribution receive one Class B Share at no
additional consideration for every two Common Share options exercised.
As of April 30, 1998, options for 1,577,138 Common Shares and 661,101 Class
B Shares were outstanding under the Plans. Of this total, options for 409,100
Common Shares and 181,300 Class B Shares were outstanding in accordance with
their stated terms to employees who are Directors and executive officers of
Stolt. The options are exercisable at the respective prices set out below and
expire on the dates indicated:
<TABLE>
<CAPTION>
NUMBER OF SHARES
EXERCISE FOR WHICH
PRICE OUTSTANDING EXPIRATION DATE
------------- -------------------- -----------------------------
<S> <C> <C> <C>
Common Shares
$ 10.250 7,063 June 1998
23.750 48,150 June 1999
21.750 52,500 June 2000
17.125 51,125 January 2001
12.750 111,775 December 2002
17.500 4,000 August 2003
15.750 184,625 December 2003
19.750 206,700 December 2004
25.375 3,000 May 2005
28.625 263,650 December 2005
18.500 4,500 April 2006
17.750 10,000 July 2006
16.875 4,250 September 2006
17.125 190,550 December 2006
18.625 650 December 2006
16.375 1,100 May 2007
22.500 2,500 August 2007
20.250 5,000 December 2007
20.125 426,000 December 2007
----------
1,577,138
----------
----------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
EXERCISE FOR WHICH
PRICE OUTSTANDING EXPIRATION DATE
------------- -------------------- -----------------------------
<S> <C> <C> <C>
Class B Shares
$ Nil 466,301 June 1998-December 2005
17.500 190,550 December 2006
18.250 650 December 2006
16.750 1,100 May 2007
22.125 2,500 August 2007
----------
661,101
----------
----------
</TABLE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
The discussion of related party transactions appearing as Note 18 to the
Company's 1997 Consolidated Financial Statements, which is part of Item 18 of
this Report, is incorporated herein by reference.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
None.
PART IV
ITEM 17. FINANCIAL STATEMENTS
The Company has elected to provide financial statements for the fiscal year
ended November 30, 1997 and the related information pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
1. Consolidated Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of November 30, 1997 and 1996
Consolidated Statements of Income for the years ended November 30, 1997,
1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended
November 30,
1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended November 30,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
The Company's consolidated financial statements and related notes referred
to above and the report of Arthur Andersen, the Company's Independent Public
Accountants, appearing on pages 25 through 44 of the Company's 1997 Annual
Report filed with the Securities and Exchange Commission on Form 6-K, are
incorporated herein by reference.
2. Supplementary Schedules
Report of Independent Public Accountants on Schedules
Schedule II--Valuation and Qualifying Accounts
37
<PAGE>
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS.
See list in Item 18.
(b) EXHIBITS.
2.1 Consent of Arthur Andersen, Independent Public Accountants.
2.2 Consent of Elvinger, Hoss & Prussen.
2.3 Statement re: computation of per share earnings.
2.4 Company's 1997 Annual Report, pages 17 through 44.
2.5 Articles of Incorporation.
27 Financial Data Schedule.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of 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.
<TABLE>
<S> <C> <C>
STOLT-NIELSEN S.A.
By: /s/ CARROLL N. BJORNSON
-----------------------------------------
Name: Carroll N. Bjornson
Title: Director
By: /s/ JAN CHR. ENGELHARDTSEN
-----------------------------------------
Name: Jan Chr. Engelhardtsen
Title: Chief Financial Officer
</TABLE>
Date: May 28, 1998
39
<PAGE>
INDEX TO REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
AND SUPPLEMENTARY SCHEDULE
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Supplementary Schedule
Schedule II--Valuation and Qualifying Accounts...................................... F-3
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To STOLT-NIELSEN S.A.
We have audited in accordance with generally accepted auditing standards in
the United States, the consolidated financial statements included in
Stolt-Nielsen S.A.'s Annual Report to Shareholders incorporated by reference to
this Form 20-F, and have issued our report thereon dated February 18, 1998. Our
audits were made for the purpose of forming an opinion on those statements taken
as a whole. The schedule listed in the Index on page F-1 is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN
London, England
May 28, 1998
F-2
<PAGE>
SCHEDULE II
STOLT-NIELSEN S.A. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
WRITE OFFS BALANCE
BALANCE AT CHARGED TO AGAINST AT
BEGINNING COSTS AND THE OTHER ADD END OF
OF PERIOD EXPENSES RESERVE (DEDUCT)(A) PERIOD
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED
November 30, 1995:
Allowance for doubtful accounts.................. $ 3,723 $ 1,631 $ (2,202) $ 270 $ 3,422
Other............................................ 20,858 1,907 (1,417) (81) 21,267
FOR THE YEAR ENDED
November 30, 1996:
Allowance for doubtful accounts.................. $ 3,422 $ 2,349 $ (1,239) $ 473 $ 5,005
Other............................................ 21,267 3,687 (248) (1,914) 22,792
FOR THE YEAR ENDED
November 30, 1997
Allowance for doubtful accounts.................. $ 5,005 $ 1,054 $ (162) $ (690) $ 5,207
Other............................................ 22,792 15,447 (645) 1,877 39,471
</TABLE>
- ------------------------
(a) Includes the effect of exchange rate changes on beginning balances of
valuation and qualifying accounts, except as otherwise noted.
F-3
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 20-F of our Report dated February 18,
1998 and to the incorporation of our reports included and incorporated by
reference to this Form 20-F, into the Company's previously filed Registration
Statements on Form S-8, File No. 33-28473, Form S-8, File No. 333-6958, Form
F-3, File No. 33-51798, Form F-3, File No. 33-96994, and Form F-3, File No.
333-6960. It should be noted that we have not audited any financial
statements of the Company subsequent to November 30, 1997 or performed any
audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN
London, England
May 27, 1998
<PAGE>
Exhibit 2.2
[LETTERHEAD OF ELVINGER, HOSS & PRUSSEN]
We hereby consent to being named and to the summarization of advice
attributed to us in the response to Item 6 of the Annual Report on Form 20-F
of Stolt-Nielsen S.A. for the fiscal year ended November 30, 1997.
ELVINGER, HOSS & PRUSSEN
/s/ Elvinger, Hoss & Prussen
Luxembourg,
May 28, 1998
<PAGE>
EXHIBIT 2.3
STOLT-NIELSEN S.A. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
FOR THE YEARS ENDED NOVEMBER 30, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
EARNINGS:
Income Before Extraordinary Item............................................... $ 229,693 $ 91,940 $ 105,042
Extraordinary Item............................................................. 7,416 -- --
---------- --------- ----------
Net Income..................................................................... $ 237,109 $ 91,940 $ 105,042
---------- --------- ----------
---------- --------- ----------
PRIMARY EARNINGS PER SHARE:
Weighted Average Common and Class B Share Outstanding.......................... 54,642 52,798 44,213
Net Effect of Dilutive Stock Options-based on the treasury stock method using
average market prices........................................................ 669 606 627
---------- --------- ----------
Weighted Average Common and Class B Shares and Equivalents Outstanding......... 55,311 53,404 44,840
---------- --------- ----------
---------- --------- ----------
Founder's Shares............................................................... 7,799 7,708 7,585
---------- --------- ----------
---------- --------- ----------
Income Before Extraordinary Item............................................... $ 229,693 $ 91,940 $ 105,042
Less: Dividends on Founder's Shares............................................ (39) (39) (75)
---------- --------- ----------
Earnings Available to Common Shareholders...................................... $ 229,654 $ 91,901 $ 104,967
---------- --------- ----------
---------- --------- ----------
Income Before Extraordinary Item............................................... $ 4.16 $ 1.72 $ 2.34
Extraordinary Item............................................................. 0.13 -- --
---------- --------- ----------
Primary Earnings Per Share................................................. $ 4.29 $ 1.72 $ 2.34
---------- --------- ----------
---------- --------- ----------
FULLY DILUTED EARNINGS PER SHARE:
Weighted Average Common and Class B Shares Outstanding......................... 54,642 52,798 44,213
Net Effect of Dilutive Stock Options-based on the treasury stock method, using
the year-end market price if higher than the average market price............ 819 606 810
---------- --------- ----------
Fully Diluted Weighted Average Common and Class B Shares and Equivalents
Outstanding.................................................................. 55,461 53,404 45,023
---------- --------- ----------
---------- --------- ----------
Income Before Extraordinary Item............................................... $ 4.14 $ 1.72 $ 2.33
Extraordinary Item............................................................. 0.13 -- --
---------- --------- ----------
Fully Diluted Earnings Per Share........................................... $ 4.27 $ 1.72 $ 2.33
---------- --------- ----------
---------- --------- ----------
</TABLE>
All share and per share data have been restated to reflect the distribution
on December 29, 1995 of one Class B Share for every two Common Shares issued and
outstanding, since the Class B Shares are equivalent to Common Shares for such
purposes.
<PAGE>
Exhibit 2.4
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMPANY DESCRIPTION
Stolt-Nielsen S.A. ("SNSA"), a Luxembourg company, and subsidiaries (together,
the "Company") is engaged in three businesses: Transportation Services, Subsea
Services and Seafood. Subsea Services is carried out through Stolt Comex Seaway
S.A. ("SCS"), a subsidiary in which the Company currently holds a 43% economic
interest and a 60% voting interest.
In 1997, the Company had consolidated net operating revenue of $1.5 billion, up
from $1.4 billion and $1.3 billion in 1996 and 1995, respectively. Net income in
1997 was $237.1 million compared to $91.9 million and $105.0 million in 1996 and
1995, respectively. Net recurring income in 1997 was $113.1 million compared to
$95.8 million in 1996 and $114.0 million in 1995. The following table summarizes
the Company's results, adjusted for non-recurring items which are described in
more detail in the "Results of Operations" section which follows.
====================================================================
(U.S. dollars in millions) 1997 1996 1995
- --------------------------------------------------------------------
Net income $ 237.1 $91.9 $105.0
Non-recurring items:
Reorganization/restructuring
Subsea Services - - 9.0*
Seafood - 3.9 -
Write down of certain assets
Terminals 11.6 - -
Subsea Services 4.2 - -
Seafood 12.3 - -
Less tax benefits (5.2) - -
Gain on sale of common
stock of a subsidiary, net (139.5) - -
Extraordinary gain on
early repayment of debt (7.4) - -
- --------------------------------------------------------------------
Net recurring income $ 113.1 $95.8 $114.0
====================================================================
* These reorganization charges have been included in operating expenses ($4.7
million), administrative and general expenses ($2.0 million) and other expenses
($2.3 million).
GENERAL BUSINESS ENVIRONMENT
TRANSPORTATION SERVICES The Transportation Services business is engaged in the
worldwide transportation, storage and distribution of bulk liquid chemicals,
edible oils, acids and other specialty liquids, providing its customers with
integrated solutions by utilizing its parcel tanker, tank container, terminal,
barge and rail services.
The Company is the largest operator of parcel tankers in the world, operating an
estimated 25% of the world competitive fleet of parcel tankers over a capacity
of 10,000 deadweight ton ("dwt") (a generally accepted definition of parcel
tankers which compete in the long-distance intercontinental market). The Company
estimates that its market share will increase to 26% in the year 2000 when its
newbuilding program is completed. The market for parcel tankers is characterized
by a few companies controlling a majority of the market. The tank container
operation specializes in smaller-lot shipments of bulk liquid products. The
Company has a 20% market share of the world wide door-to-door tank container
market. Although the Company faces significant regional competition, no other
company offers the same worldwide service and is of comparable size. The
terminals act as regional hubs to improve the operational efficiency of the
Company's parcel tankers and offer storage and distribution services to the same
customers and for the same products as the tanker and tank container operations.
The Company currently owns and operates three tank storage terminals in the U.S.
and one in Santos, Brazil, with a combined capacity of 4.71 million barrels of
liquid storage. In addition, the Company has entered into an arrangement with
Van Ommeren pursuant to which it has certain preferential user rights to two
major terminals located in Rotterdam. The Company also has a terminal joint
venture with the Bolton Group in Malaysia. The Company does not have a
significant share of the world market in the terminal business.
Demand for the Company's Transportation Services is dependent on the condition
and growth of the worldwide economy and trade patterns for the products shipped
and stored by the Company. The most recent forecasts made by market research
firms project the demand for chemical transportation to grow at about 4-5%
through the year 2001. The Asian economic situation can be expected to impact
this figure.
The supply of parcel tankers is influenced by the number of new constructions
and scrappings and by government and industry regulation of maritime
transportation practices. For certain products carried (usually larger commodity
type products rather than specialty chemicals), parcel tankers may face
competition from the more sophisticated of the product tankers: therefore the
supply and utilization of product tankers may also impact the parcel tanker
market. The world orderbook for newbuildings, to be delivered over the next
three to four years, stands today at about 16% of the total competitive fleet of
deepsea parcel tankers. Adjusting for expected scrappings and downgradings the
Company expects the world net supply of tonnage to grow by 4-5% per year over
this period.
The Company's tank container operations compete with other tank container
operators, customer-owned tank containers, barrel drums, liquid bags, and, on
land, with truck and rail tank cars. The supply of tank containers is influenced
by the number of tank containers constructed and industry regulations.
SUBSEA SERVICES SCS is among the largest subsea service contractors in the
world, providing technologically sophisticated subsea engineering, flexible and
rigid flowline lay, subsea construction, inspection, maintenance and repair
services to its customers in the offshore oil and gas industry. SCS is a leader
in developing and applying innovative and cost efficient subsea techniques to
address the evolving technical needs of oil and gas companies which are
developing fields in ever deeper and more demanding offshore environments. SCS
operates in more than 20 countries in Europe, the Middle East, West Africa, Asia
Pacific, and the Americas.
1
<PAGE>
According to the International Energy Agency, world oil demand is growing at
2.7% per annum while production from existing fields is declining at 4% per
annum. Production from new fields is therefore vital to meet future demand and
an increasing proportion of the new supply is coming from offshore fields. Deep
water exploration and production is now the fastest growing sector of the
offshore oil and gas industry.
Subsea completion is now the first choice for new deep water field developments.
Even in the notoriously harsh North Sea environment, the oil price required to
give a 10% post-tax return on investment to the oil company, has fallen from
over $20 per barrel in the early 1980s to significantly less than $10 per barrel
today due to subsea completion technology and advances in construction and
flowline lay techniques. SCS believes the market for its services is growing at
some 20% per annum. This market was valued at $2.2 billion in 1996 and is
projected to be $3.0 billion in 1998 and reach $4.7 billion by 2000. Over 290
new subsea field developments are due to come on stream before the end of the
century.
SEAFOOD The Seafood business produces, processes and markets high quality
seafood with salmon production sites in Norway; North America and Chile; turbot
production sites in Spain, Portugal, Norway and France; halibut production sites
in Norway; and sturgeon and caviar production in the U.S., with marketing on a
worldwide basis. In December 1997, the Company acquired Gaelic Seafoods
(Scotland) Ltd. (since renamed Stolt Sea Farm Limited), a salmon farming company
with production sites in Scotland.
As the world population grows and individuals increasingly seek healthier
sources of protein like fish, and the supply of wild catch declines through
over-fishing, the demand for farmed fish is expected to increase. Approximately
85% of Seafood revenue is derived from the Atlantic salmon market in which no
one company has a significant market share. The Company is the world's largest
producer of farmed turbot and halibut.
MULTICURRENCY ACTIVITIES
The functional and the reporting currency of the Company, as well as that of a
majority of its Transportation Services business activities is the U.S. dollar.
In the Subsea Services business, the functional currencies of the subsidiaries
that operate in the North Sea, which represents the majority of SCS activity,
are the Norwegian kroner and British pound. The functional currency of other
significant SCS subsidiaries is primarily the U.S. dollar. In the Seafood
business, the functional currencies of significant subsidiaries include the U.S.
dollar, the Norwegian kroner, the British pound, and the Japanese yen. In most
cases, the majority of revenue and expenses are denominated in the functional
currency of the individual subsidiaries.
The Company enters into forward exchange and options contracts to hedge capital
expenditure and operational non-functional currency exposures on a continuing
basis for periods consistent with the committed exposures. The Company does not
engage in foreign currency speculation.
Certain loans made to subsidiary companies are considered to be of a long-term
investment nature and exchange gains and losses thereon are reported within the
cumulative translation adjustments component of shareholders' equity.
RESULTS OF OPERATIONS
Results of operations are discussed below by business down to a gross profit
level and then on a consolidated basis for the remaining captions in the
statements of income.
TRANSPORTATION SERVICES -- TANKERS The total number of ships owned and/or
operated by the Company on November 30, 1997 was 126, representing 2.27 million
dwt. Of this total, 65 ships participate in the Stolt Tankers Joint Service (the
"Joint Service"), an arrangement for the coordinated marketing, operation and
administration of tankers owned or chartered by the Joint Service participants
in the deep sea intercontinental market. The remainder of the ships provide
regional services. The composition of the fleet at November 30, 1997 was as
follows:
============================================================================
% of the Joint
Service net
revenue for
the year to
Number Millions November 30,
of ships of dwt 1997
- ----------------------------------------------------------------------------
Stolt Parcel Tankers Inc. ("SPTI") 40 1.25 86.3%
NYK Stolt Tankers S.A.
("NYK Stolt") 5 0.11 7.2%
Rederi AB Sunship 4 0.16 6.5%
- ----------------------------------------------------------------------------
49 1.52 100.0%
- ----------------------------------------------------------------------------
Time-chartered ships
Chemical Tankers 9 0.19
Product Tankers 7 0.32
- ----------------------------------------------------------------------------
Total Joint Service 65* 2.03
Ships in regional trades 61 0.24
- ----------------------------------------------------------------------------
Grand Total 126 2.27
============================================================================
* The figures do not include any ships under the long-term pooling agreement
with Botany Bay Parcel Tankers as these ships will not join the fleet until
1998.
Net revenue available for distribution to the participants is defined in the
Joint Service agreement as the combined operating revenue of the ships which
participate in the Joint Service, less combined voyage expenses, overhead costs
and commission to outside brokers. The net revenue is distributed
proportionately to each participant according to a formula which takes into
account each ship's cargo capacity, its number of operating days during the
period and an earnings factor.
In its results of operations, the Company includes 100% of the net operating
revenue of the Joint Service and then shows as tanker operating costs all the
voyage costs associated with the ships and the earnings distributed to the
participants in the Joint Service other than SPTI. The Company's share of the
net income in NYK Stolt is included in "equity in net income of non-consolidated
joint ventures" in the Company's results of operations.
2
<PAGE>
Net operating revenue in 1997 increased to $665.2 million from $655.6 million in
1996 and $653.9 million in 1995. The increase in revenue is the result of a
combination of factors which are explained as follows.
The Company's fleet in 1997 averaged 2.00 million dwt, compared to 1.90 million
dwt and 1.87 million dwt in 1996 and 1995, respectively. Cargo carried increased
in 1997 to 20.5 million tons compared to 19.1 million tons and 18.6 million tons
in 1996 and 1995, respectively.
In 1997, 60% of tanker revenues were under Contracts of Affreightment ("COA"),
typically one year in duration although long-term contracts are becoming
increasingly important. The remaining 40% were fixed on spot rates. The
percentage of COAs to contracts fixed on spot rates remained broadly similar to
1996.
Supplier partnerships with key customers continued to develop in 1997 and now
represent 26% of Transportation Services' net operating revenue. These
partnerships are formal agreements with defined common objectives and seek to
reduce the overall costs of transportation for customers through more efficient
operations. The Company believes that the existence of supplier partnerships
stabilizes revenue and results.
The sailed-in time-charter index for the Joint Service, which is a measure of
the relative average daily fleet revenue, less voyage costs (commissions, port
expenses and bunkers), per ship operating day declined approximately 9% in 1997,
after declining 3% in 1996, and rising 18% in 1995. During the same three year
period, the operating cost per day of the Company's fleet in the Joint Service
decreased by 11% in 1997 compared to a 1% and 9% increase in 1996 and 1995,
respectively.
The tanker operation had gross profit of $146.4 million, $164.3 million, and
$173.7 million in 1997, 1996, and 1995, respectively, and gross margins of 22%,
25%, and 27%, respectively. 1995 results were strong because of increased demand
from both Asia Pacific and the U.S. While demand remained strong throughout 1996
and most of 1997, pricing and margins tightened due to an increase in parcel
tanker capacity.
In 1994, the Company embarked on a newbuilding program of 25 new parcel tankers
designed to meet increasing demand for its transportation services and replace
the first generation of purpose-built parcel tankers built in the early to mid
1970s. The ships in the newbuilding program have greater capacity than the units
they are replacing and introduce a series of features to increase the
operational efficiency, reduce operating costs, and be environmentally safer
than previous generations of parcel tankers. The newbuilding program is
summarized in the table below:
===================================================================
Delivered Estimated delivery
Shipyard as of dates by year of
DWT per ship location Nov.30.97 remaining orders
- -------------------------------------------------------------------
(Number of ships) (Number of ships)
1998 1999 2000
37,000(a) Denmark 5 2 2 -
37,000(a) France - 1 2 -
22,450(a) Spain - 2 3 1
11,500(b) Japan 1 3 - -
5,200 Italy - 3 - -
- -------------------------------------------------------------------
6 11 7 1
===================================================================
(a) Ship number 5 of the Danish series has been delivered to NYK Stolt. Ship
number 7 of the Danish series, ship number 3 of the French series, and ship
number 2 of the Spanish series will be delivered to NYK Stolt.
(b) All ships to be owned and operated by Stolt NYK Asia Pacific Inc., a 50%/50%
joint venture between Nippon Yusen Kaisha, Ltd. and SPTI.
Over the last three years the Company has sold nine ships and scrapped three. Of
the nine ships sold, two were subsequently time chartered back to the Company
and remain trading within the Joint Service. The remaining seven ships were sold
out of the trade.
In September 1997, the Company acquired the European barging activities of
Hamburger Lloyd A.G. The acquisition contributed an additional 25 inland tankers
to its fleet, increasing the Company's inland tanker fleet to 35. The
acquisition puts the Company in a leading position within the European inland
chemical tanker market.
On November 17, 1997, the Joint Service entered into a long-term pooling
arrangement with the partners of Botany Bay Parcel Tankers International
("Botany Bay"), Barton Shipping, Bibby Line and Unicorn Tankers. Botany Bay
operates nine high-quality ships ranging in size from 12,500 to 19,300 dwt. The
ships will join the fleet during 1998.
TRANSPORTATION SERVICES -- TANK CONTAINERS Net operating revenue in 1997 was
$219.0 million, an 18% increase from $185.6 million in 1996, itself a 15%
increase from $161.0 million in 1995. Over the last several years, the market
for chemical transportation by tank containers has enjoyed rapid growth. Tank
container shipments in 1997 totaled 47,591, a 24% increase from 1996 shipments
of 38,278, itself a 15% increase from 1995 shipments of 33,336. Growth in
activity has been broad based. In addition, management believes growth has been
enhanced by success in developing supplier partnerships with major chemical
companies.
The Company controlled a fleet of about 12,800 tank containers as of November
30, 1997, a 28% increase over the 10,000 tank containers controlled at the end
of 1996, itself a 14% increase over the 8,800 tank containers controlled at the
end of 1995. This increase is partially due to the acquisition of the tank
container divisions of Challenge International in March 1997
3
<PAGE>
and Intertank Ltda. in September 1997, with the remainder of the increase from
new purchases and leasing in of tanks to meet the demand generated by the
rapidly-growing market. A further 650 tank containers are currently on order for
delivery in 1998.
The tank container operation had gross profit of $59.5 million, $50.2 million
and $39.6 million in 1997, 1996, and 1995, respectively, and gross margins of
27%, 27%, and 25%, respectively. Although the business has been under continued
pricing pressure, margins improved in 1996 and were maintained in 1997 as a
result of growth in demand, improved utilization, and cost reductions.
TRANSPORTATION SERVICES -- TERMINALS Net operating revenue in 1997 decreased to
$46.7 million from $49.0 million and $48.7 million in 1996 and 1995,
respectively. Total marketable capacity increased to 4.71 million barrels by the
end of 1997, compared to 4.49 million barrels and 4.46 million barrels at the
end of 1996 and 1995, respectively. The increase in 1997 is the result of a
220,000 barrel tank expansion project in Houston. Average capacity utilization
was 80% in 1997, 91% in 1996, and 93% in 1995. The decrease in average capacity
utilization in 1997 was attributable to a downturn in the clean petroleum market
in the North East U.S. At November 30, 1997, construction work was in progress
to increase the marketable capacity by 95,920 barrels, representing 2% of
current capacity. This work is scheduled for completion in 1998.
Gross profit of the terminal operation was $12.6 million, $16.8 million, and
$17.0 million in 1997, 1996, and 1995, respectively, and gross margins were 27%,
34%, and 35%, respectively, reflecting the decline in utilization in the past
two years.
In the third quarter 1997, the Company entered into an agreement to sell its
tank storage terminal located in Chicago as this terminal no longer fits the
Company's strategy of integrating its international transportation and terminal
services. This sale is expected to be completed in the first half of 1998.
SUBSEA SERVICES Net operating revenue increased in 1997 to $431.1 million from
$313.4 million in 1996 and $327.0 million in 1995. The increase in market demand
and activity levels combined with SCS winning a greater number of contracts
improved the Company's utilization rate of subsea construction ships from 70% in
1996 to 92% in 1997. The stronger market also resulted in improved pricing. The
operating capacity of the Company's construction ships, defined as available
operating days, increased by 25% over 1996. Net operating revenue decreased in
1996 due to the unavailability of the Seaway Osprey, which was out of service
following a grounding in the Gulf of Suez, and increased activity being
conducted through non-consolidated joint ventures in Norway.
The Subsea Services business had a gross profit of $77.8 million, $21.2 million,
and $45.6 million in 1997, 1996, and 1995, respectively, with gross margins of
18%, 7%, and 14%, respectively. The increase in gross profit in 1997 was largely
the result of increased market demand resulting in improved pricing and
utilization. The decrease in gross profit in 1996 was principally due to greater
than anticipated project costs on the Company's first rigid flowline project,
together with the effects of the Seaway Osprey grounding.
At the end of January 1998 the Subsea Services business backlog was
approximately $600.0 million of which approximately $394.0 million related to
work to be performed in 1998.
SEAFOOD The Seafood business had net operating revenue of $164.1 million in
1997 compared to $146.9 million in 1996 and $118.3 million in 1995. The increase
in net operating revenue was primarily due to increased sales volumes of
Atlantic salmon, salmon trout, and value added products partially offset by
declining prices in 1997. Total salmon volumes sold were 29,900 tons in 1997,
27,900 tons in 1996, and 20,300 tons in 1995 of which 19,900 tons, 21,700 tons,
and 18,600 tons, respectively, was the Company's own production, the remainder
being sourced from other producers. The reduction in the volume of own
production in 1997 reflects reduced volumes in Norway following the imposition
by the Norwegian government in 1996 of feed quotas and other farming regulations
designed as a pre-emptive measure against threats of "dumping" sanctions by
European Union ("EU") authorities.
In order to avoid further threats of duties against Norwegian salmon made in the
early part of 1997, the Norwegian government in July 1997 reached an agreement
with the EU for a five year period to regulate supplies of Norwegian salmon into
the EU market. This agreement, among other things, restricts the increase in
supply of Norwegian salmon into the EU market to 10% per year; requires the
average sales price to be at or above an agreed minimum price; and increases the
export levy payable by Norwegian producers. In addition, the Norwegian
government has maintained the feed quota and production regulations which have a
significant adverse effect on the cost-competitiveness of the Norwegian
operation.
The Seafood business had gross profit of $17.5 million in 1997 compared with
$11.8 million in 1996 and $22.4 million in 1995. Gross margins were 11% in 1997,
8% in 1996, and 19% in 1995. The increase in gross profit in 1997 over 1996 was
due to improved margins in the Norwegian operation and a full year of operations
in the new Asia Pacific sales organization offset, in part, by reduced
profitability in the Americas operation. The improvement in the Norwegian
operation, despite regulatory restrictions introduced by the Norwegian
government, was due to the closure of the loss-making processing operation
following the 1996 restructuring which is described below in "Restructuring
charges and write down of certain assets". 1996 was also negatively impacted by
the initial effect of Norwegian government restrictions, which had resulted in
the necessity to harvest fish before reaching marketable size. The reduced
profitability of the Americas operation in 1997 is attributable to fish losses
due to algae blooms on the West coast of Canada
4
<PAGE>
in the summer of 1997, as well as abnormally high losses of fish due to an
epidemic disease on the East coast of Canada in the second half of the year.
RESTRUCTURING CHARGES AND WRITE DOWN OF CERTAIN ASSETS Effective December 1,
1996, the Company adopted Statement of Financial Accounting Standard ("SFAS")
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". As a consequence, in the current year the Company has
recognized a write down within its Transportation Services business amounting to
$11.6 million, before income tax, in respect of certain assets at its Perth
Amboy terminal. Projections indicate that due to the recent down turn in the
North East U.S. specialty chemical industry and a reduced market demand for the
type of storage facilities offered by these assets, the cashflows which will be
generated by the assets do not support their carrying value. The assets have
been written down to values considered by management to be their fair market
value.
The Company also recognized a write down of $4.2 million, before income tax, in
respect of certain assets in its Subsea Services business which are unable to
generate sufficient utilization, and therefore cashflows, to support their net
book value.
In the light of the Norwegian government's agreement with the EU, and despite
the improved profitability of the Norwegian operation in the current year, the
Company considers that the cost of its investment in its Norwegian operation has
been permanently impaired, and has written down the entire goodwill balance of
$3.6 million relating to this investment.
Projections also indicate that future cashflows to be generated from certain
other assets of the Seafood business may not be sufficient to recover their
carrying value, and accordingly, the Company has recognized a write down of $8.7
million in respect of these assets.
In 1996, the Company recorded a restructuring provision of $3.9 million to cover
anticipated severance costs, write downs of fixed assets, lease termination
expenses, and other costs associated with the manpower reduction and the closure
of its processing factories in Norway. The restructuring program largely has
been completed and there was no material difference between the provision and
the amount subsequently paid.
EQUITY IN NET INCOME OF NON-CONSOLIDATED JOINT VENTURES The Company's equity in
the net income of non-consolidated joint ventures was $19.6 million in 1997
compared to $13.1 million and $14.7 million in 1996 and 1995, respectively. The
increase in 1997 arises primarily in the Subsea Services business and relates to
improved market conditions for the services provided by the Seaway Heavy Lifting
Limited joint venture and the addition of a new North Sea joint venture project.
Partially offsetting this increase, was a decrease in tanker joint venture
activity in 1997 compared to 1996.
The reduction in 1996 reflects lower activity in Subsea Services joint ventures.
Tanker joint venture activity in 1996 was in line with 1995.
ADMINISTRATIVE AND GENERAL EXPENSES Administrative and general expenses
increased to $139.6 million in 1997 from $137.5 million in 1996. The main
factors behind this increase were administrative and general expenses relating
to Challenge International and Hamburger Lloyd and an increased charge towards
the SCS profit sharing program. These increases have been partially offset by
the impact of the strengthening of the U.S. dollar. Included in administrative
and general expenses in 1997 is $6.2 million, $3.8 million, and $0.05 million in
respect of the charge under the profit sharing plans of the Transportation
Services business, the Subsea Services business, and the Seafood business,
respectively. Administrative and general expenses increased to $137.5 million in
1996 from $136.1 million in 1995. The main factors of this increase were related
to costs of establishing a sales and marketing organization for the Seafood
business in Asia Pacific. This increase was offset, in part, by reduced expenses
in the Subsea Services business due to a number of non-recurring charges
incurred in 1995 for relocation of certain administrative functions of the
Company.
NON-OPERATING INCOME AND EXPENSE
NET INTEREST EXPENSE Net interest expense increased to $57.0 million in 1997
from $48.8 million in 1996. The increase reflects the higher debt level in 1997
as a result of the Company's capital expenditure program. The decrease in
interest expense in 1996 from $56.1 million in 1995 reflects the impact of a
public offering by the Company of Class B shares completed in January 1996. The
proceeds from this offering were used to reduce debt, resulting in the average
net debt in 1996 being some $50.9 million lower than 1995 despite additional
borrowing towards the end of the year to finance the acquisition of new assets.
GAIN ON SALE OF ASSETS In 1997, the Company sold four ships, including two
ships sold for scrap, and recognized a gain of $5.3 million on these sales.
The Company also recognized a gain of $4.9 million on certain assets in a
different line of business of the Subsea Service business which were swapped
with a third party at fair market value. The Company sold other assets with a
net gain of $0.4 million.
In 1996, the Company sold five ships, including one ship sold for scrap, and
recognized a gain of $4.9 million; it also sold its interest in a Norwegian
insurance company recognizing a gain of $1.2 million and sold other assets with
a net gain of $0.7 million.
In 1995, the Company sold three ships including one ship sold for scrap,
recognizing a gain of $1.0 million.
GAIN ON SALE OF COMMON STOCK OF A SUBSIDIARY In two separate transactions
during 1997, the Company recognized total gains amounting to $139.5 million,
net of expenses, on the sale of Common shares of SCS.
5
<PAGE>
In January 1998, subsequent to these transactions, SCS completed a two-for-one
share split. The figures quoted below have been restated to reflect the share
split.
In March 1997, SCS completed a secondary offering of 8.05 million new Common
shares raising net proceeds of $64.6 million. Concurrent with the completion of
the secondary offering, SCS exchanged 14.0 million Class B shares (which are
economically equivalent to 7.0 million Common shares) for $57.6 million of debt
owed to SNSA. As a consequence of the offering and debt-for-equity exchange, the
Company realized a profit of $9.5 million on the reduction of its economic
interest in SCS from 70% to 60%.
In November 1997, SCS completed a secondary offering of 4.0 million Common
shares. In conjunction with the offering, SNSA sold 4.0 million Common shares of
SCS. These transactions raised net proceeds of $232.2 million and resulted in
the Company realizing a gain, after expenses, of $130.0 million as its economic
interest in SCS was reduced from 60% to 43%.
OTHER In 1997, a provision was made for $1.1 million for the anticipated loss
on disposal of the Chicago terminal operations. In 1996 a provision was made of
$2.2 million for the loss on disposal of Sogetram, a subsidiary in the Subsea
Services business, the sale of which was completed in January 1997.
INCOME TAX PROVISION The 1997 results include a tax provision of $13.2 million
compared to $2.9 million in 1996 and $9.3 million in 1995. The principal cause
of the variations between years has been the level of income or loss before
income taxes recognized in Norwegian and U.K. tax jurisdictions of the Subsea
Services business, which has been partially offset in 1997 by a tax benefit
relating to the write down of certain assets within the Perth Amboy terminal
operation and Subsea Services business.
EXTRAORDINARY ITEM In October 1997, the Company prepaid debt relating to the
first four ships in the Danish new building series. The early repayment of the
debt under the terms of the loan agreement with the Danish Ship Credit Fund
("DSCF") resulted in an extraordinary gain, on a before and after income tax
basis, of $7.4 million.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity for the Company is derived from a combination of net cash generated by
operations and funds from borrowing facilities. The Company's borrowing
facilities include a revolving credit agreement and other short-term facilities
which cover short-term needs for funds, and longer-term borrowings principally
to finance capital expenditures and acquisitions.
The Company's borrowing activities, together with cash management and the
purchasing of hedging instruments, are channeled through a centralized treasury
department. This enables the Company's businesses to benefit from the size and
financial strength of the Company in arranging transactions, as well as
benefiting from cost effective cash management, foreign exchange management and
interest rate exposure management.
The Company's Transportation Services business generally operates with negative
working capital which reflects the collection/payment cycle. Invoicing usually
takes place at or shortly after loading, while expenses that are invoiced and
paid within normal business terms are typically paid near or subsequent to the
end of a voyage or move. The Subsea Services business requires working capital
as expenditures are incurred on an ongoing basis throughout a project while
customers are typically billed when certain project milestones are achieved. In
the Seafood business, the production cycle for the Atlantic salmon takes between
two and four years and therefore requires working capital to finance inventory.
In 1997, the Company generated cash from operating activities of $179.0 million.
This compares with $140.6 million and $202.8 million in 1996 and 1995,
respectively. The movements between years are mainly due to the relative
operational performances and working capital requirements in those years.
Investing activities utilized $429.9 million in 1997, mainly on capital
expenditures of $450.9 million. Capital expenditures include (i) progress
payments on newbuildings under construction and final payment on the delivery of
two newbuildings (the Stolt Inspiration and the Stolt Creativity), (ii) the
purchase of new tank containers, (iii) progress payments on terminal capacity
expansion at the Houston and Santos terminals, and (iv) acquisition and
completion of the Seaway Eagle, acquisition of the Seaway Hawk and investments
in new remotely operated vehicles ("ROVs"). The Company also made payments of
$22.3 million to acquire Hamburger Lloyd and the tank container business of
Challenge International. Offsetting the capital expenditure was $47.9 million of
proceeds from sale of ships and other assets and $5.1 million received from the
reduction of restricted deposits.
Investing activities consumed $331.2 million in 1996, mainly on capital
expenditures of $396.4 million. Capital expenditures include (i) progress
payments on newbuildings being constructed and the delivery of two newbuildings
(the Stolt Innovation and the Stolt Confidence), (ii) the purchase of six
second-hand ships, (iii) the purchase of new tank containers, (iv) progress
payments on terminal capacity expansion at the Houston and Santos terminals, and
(v) completion of the initial rigid pipe lay system on the Seaway Falcon, a
deposit for the purchase of the Seaway Eagle, and investments in ROVs.
Offsetting the capital expenditures was $46.7 million of proceeds from sale of
ships and other assets and $18.0 million in relation to amounts received from
affiliates.
Investing activities consumed $160.7 million in 1995 mainly on capital
expenditures of $178.7 million. This comprised mainly (i) progress payments on
newbuildings, (ii) new tank containers including the buying back of certain tank
containers under operating leases, (iii) expansion of capacity at the Perth
Amboy and Houston terminals, and (iv) expenditure on the upgrading of the Seaway
Falcon and the installation of a flexible
6
<PAGE>
lay system. Offsetting the capital expenditures were receipts of $16.0 million
from selling down shares in Stolt Partner S.A. and $9.4 million proceeds from
the sale of assets.
Net cash provided by financing activities totaled $314.0 million in 1997. The
principal uses of cash were (i) the repayment of long-term debt of $211.3
million and (ii) payment of dividends of $27.3 million. The significant sources
of 1997 funding include (i) $179.8 million from the two equity offerings by SCS
of 8.05 million and 4.0 million Common shares in March and November 1997,
respectively, and $117.1 million from the sale of 4.0 million Common shares of
SCS held by the Company (ii) the issuance of $246.9 million of new long-term
debt, consisting of unsecured debt in the form of private placement notes and
secured debt related to certain ship purchases, (iii) $7.4 million proceeds from
the gain on the early retirement of debt, and (iv) $6.3 million proceeds from
the exercise of stock options.
Net cash provided by financing activities totaled $183.8 million in 1996. The
principal uses of cash were (i) the repayment of long-term debt and payment of
capital lease obligations of $322.1 million, (ii) payment of dividends of $13.6
million, and (iii) $8.3 million in the purchase of treasury stock. The
significant sources of 1996 funding include (i) $143.2 million from the sale of
8.2 million shares of SNSA Class B stock, (ii) the issuance of $367.0 million of
new long-term debt, consisting of unsecured debt in the form of private
placement notes and secured debt related to certain ship purchases, and (iii)
$14.7 million in short-term loans payable to banks.
Net cash used in financing activities was $44.0 million in 1995. This mainly
comprised of $47.2 million in repayment of short-term loans payable to banks,
$104.8 million in repayment of long-term debt, and $2.9 million in principal
payments under capital leases. The Company also utilized $16.3 million in paying
dividends and $4.9 million in purchasing treasury stock. Offsetting these uses
were $128.1 million of new long-term debt, mainly secured on tank containers and
assets in the Subsea Services business, and $4.0 million proceeds from the
exercise of stock options.
As of November 30, 1997 the Company had total capital expenditure commitments
outstanding of $620 million, of which approximately $340 million will be spent
in 1998 and the remaining $280 million spent in subsequent years. These
commitments are for a variety of capital projects primarily new building
purchases in Denmark, France, Spain, Italy and Japan; the purchase and
refurbishment of tank containers; expenditures for expansion of terminal
capacity and the purchase of additional subsea construction ships and ROVs.
The Company's current plans are expected to result in capital expenditures of
$500 million in 1998 of which $470 million is for designated projects. The
Company also has scheduled debt service of approximately $152 million and
anticipated dividends of $28 million. The Company expects to meet this total
funding requirement of $680 million through cash generated from operating
activities of about $300 million leaving a funding requirement of $380 million,
which will be funded by existing cash, long-term financing, and a drawdown on
the existing long-term revolving credit agreement.
The Company has obtained a financing commitment from the DSCF for a 14 year
financing of 80% of the U.S. dollar cost of the four remaining 37,000 dwt
tankers purchased in Denmark. In respect of the contract for the three
newbuildings to be purchased in France, the Company has obtained a financing
commitment supported by a guarantee from Compagnie Francaise D'Assurance Pour Le
Commerce Exterieur for a 12 year financing of approximately 80% of the cost.
Subsequent to November 30, 1997, the Company concluded a seven year finance
lease arrangement of its terminal in Houston in the amount of $70.0 million.
With the completion of two equity offerings and a debt-for-equity swap in 1997
combined with strong operational results, SCS is in a strong financial position
and is no longer dependent on SNSA for financing. Subsequent to November 30,
1997, SCS reached agreement for a new credit facility with Midland Bank plc and
Den norske Bank ASA. The new credit facility provides a revolving credit line in
the principal amount of $125.0 million with principal reducing to $100.0 million
and $75.0 million in years four and five, respectively. This facility does not
require a guarantee by SNSA.
At November 30, 1997, the Company's cash and cash equivalents totaled $68.6
million. The Company had corporate facilities and other short-term lines of
credit of $473.1 million of which $453.2 million is available for future use.
Total short-term and long-term debt amounted to $796.5 million, of which $341.0
million is secured by ships and other assets and $455.5 million is unsecured.
The debt to equity ratio at November 30, 1997 was 0.75 to 1.
On November 19, 1997, the Board of Directors of the Company approved an interim
dividend of $0.25 per Common share and Class B share which was paid on December
17, 1997 to all shareholders of record as of December 3, 1997. The Company
anticipates, subject to the Board of Directors and Annual General Meeting
approval, that a final dividend for 1997 of $0.25 per Common share and Class B
share will be paid in May 1998.
ENVIRONMENTAL AND REGULATORY COMPLIANCE
The results of the Company may be impacted by changing environmental protection
laws and regulations enacted by international, national, and local regulators.
The operation of the Company's ships carries the risk of catastrophic accident
and property loss caused by adverse weather conditions, mechanical failures,
human error, war, terrorism, piracy, labor stoppages, and other circumstances or
events. The transportation of oil and chemicals is subject to the risk of
business
7
<PAGE>
interruptions and additional costs in the event of spills or casualties
befalling Company ships. Such an event may result in loss of revenue or
increased costs or both.
The Company's businesses are subject to various international, national and
local governmental laws, which apply to various aspects of the Company's
operations, and provide severe penalties for non-compliance. One such law is the
U.S. Oil Pollution Act of 1990 ("OPA '90"), which imposes various requirements
on shipowners and ship operators in U.S. waters including, among other things,
restricting access to U.S. ports to only those tankers with double hulls,
stringent financial responsibility requirements and extensive contingency
planning requirements, as well as a liability scheme that provides for, under
certain circumstances, unlimited liability for pollution accidents occurring in
U.S. waters. The Company believes it is currently in compliance with such laws
and regulations.
The Company maintains insurance against physical loss and damage to its assets
as well as coverage against liabilities to third parties it may incur in the
course of its operations. Assets are insured at replacement cost, market value
or assessed earning power. The owned fleet is currently covered by hull and
machinery insurance in the amount of $2.2 billion. Other marine liabilities are
insured under marine protection and indemnity insurance policies. These policies
have a ceiling of $2.0 billion per incident for all claims other than marine oil
pollution. Cover for such incidents is limited to $700.0 million per occurrence
for ships when calling for ports in the U.S. and $500.0 million for other parts
of the world. Non-marine liabilities are insured up to $125.0 million. The
Company believes its insurance coverage to be in such form, against such risks,
for such amounts and subject to such deductibles as are prudent and normal to
those industries in which the Company operates.
The terminal operation in the U.S. is subject to the Clean Water Act, the Clean
Air Act, OPA '90 and CERCLA, which regulate liability for the discharge of
pollutants into waterways and noxious emissions into the air; MARPOL Annex II
regarding the disposal of by-products from ship cleaning done pursuant to such
regulations; the Resource Conservation and Recovery Act regarding the reporting,
record keeping and handling of hazardous waste; the Occupational Safety and
Health Act regulating the working conditions at U.S. terminals as well as other
business facilities; and regulations of the U.S. Department of Transportation
pursuant to the Hazardous Materials Transportation Act regarding the packaging,
labeling and handling of hazardous materials in the U.S. Terminals located
outside of the U.S. are governed by the comparable national and local
governmental agencies.
FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128 "Earnings per Share" which is effective for financial statements issued
in periods ending after December 15, 1997. This standard requires changes in the
computation, presentation and disclosure requirements for earnings per share
calculations. Under the new standard, basic and diluted earnings per share
figures will be provided. Basic earnings per share figures will be computed
based on the weighted average number of outstanding shares during the year.
Diluted earnings per share figures additionally will include the dilutive effect
of stock options deemed to be exercised. Had the Company adopted SFAS No. 128,
the pro forma effect on the Company's earnings per share calculation for net
income for the three years ended November 30, 1997 is as follows:
For the years ended November 30
============================================================
1997 1996 1995
- ------------------------------------------------------------
Earnings per share Basic $4.34 $1.74 $2.38
Diluted 4.29 1.72 2.33
============================================================
YEAR 2000 ISSUE
During 1997, the Company began a comprehensive review of the potential impact of
the Year 2000 issue on its operations. This review will not be fully completed
until mid-1998. At that time, the full impact of this technology issue on the
Company will be assessed and appropriate action will be taken.
The review of the Company's systems, and all systems modifications to be
undertaken as a consequence of this review, will be performed using the
Company's internal resources, as part of the Company's ongoing software
maintenance and development process. Accordingly, it is not expected that the
Company will incur any material costs in achieving Year 2000 compliance.
The above discussion contains forward-looking statements as defined in the U.S.
Private Securities Litigation Reform Act of 1995. Actual and future results and
trends could differ materially from those set forth in such statements due to
various factors. Additional information concerning these factors is contained
from time to time in the Company's U.S. Securities and Exchange Commission
("SEC") filings, including but not limited to the Company's report on Form 20-F
for the year ended November 30, 1996. Copies of these filings may be obtained by
contacting the Company or the U.S. SEC.
8
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
===============================================================================================================
For the years ended November 30 1997 1996 1995 1994 1993
(In millions, except per share data)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net operating revenue $1,526.1 $1,350.5 $1,308.9 $1,078.0 $1,107.4
Income from operations $ 165.6 $ 136.1 $ 176.9 $ 75.4 $ 58.1
Non-recurring items, net(a) $ 124.0 $ (3.9) $ (9.0) $ (1.8) $ 22.9
Net recurring income (loss) $ 113.1 $ 95.8 $ 114.0 $ 40.8 $ (15.8)
Net income(b) $ 237.1 $ 91.9 $ 105.0 $ 39.0 $ 7.1
Net recurring income (loss) per share(c) $ 2.04 $ 1.79 $ 2.54 $ 0.91 $ (0.36)
Net income per share(c) $ 4.29 $ 1.72 $ 2.34 $ 0.87 $ 0.16
Weighted average number of Common and Class
B shares and equivalents outstanding(c) 55.3 53.4 44.8 44.8 44.5
Cash dividends paid per share(c) $ 0.50 $ 0.25 $ 0.37 $ - $ -
===============================================================================================================
===============================================================================================================
As of November 30 1997 1996 1995 1994 1993
(In millions, except per share data)
- ---------------------------------------------------------------------------------------------------------------
Current assets less current liabilities
(including current portion of long-term debt) $ 112.0 $ 41.8 $ (43.5) $ (83.3) $ (56.1)
Total assets $2,402.8 $1,978.5 $1,687.4 $1,528.8 $1,443.5
Long-term debt (including current portion) $ 776.6 $ 719.7 $ 669.4 $ 646.6 $ 615.9
Shareholders' equity $1,062.6 $ 884.8 $ 640.3 $ 535.1 $ 482.4
Book value per share(c) $ 19.35 $ 16.26 $ 14.42 $ 12.05 $ 10.89
Total number of Common and Class B shares
outstanding(c) 54.9 54.4 44.4 44.4 44.3
===============================================================================================================
</TABLE>
(a) Comparative figures for the years ended November 30, 1993 through to
November 30, 1996 have been amended to exclude gains on sales of assets and in
1995 a reclassification of $9.0 million has been made for non-recurring costs in
SCS.
(b) Includes the cumulative charge (to December 1, 1996) of implementing SFAS
121 in 1997 of $28.1 million, or $0.51 per share; the extraordinary benefit on
early repayment of debt of $7.4 million, or $0.13 per share in 1997; the gain on
sale of common stock of a subsidiary of $139.5 million, or $2.52 per share in
1997; the benefit from the cumulative effect (to December 1, 1993) of
implementing SFAS 109 in 1994 of $4.5 million, or $0.10 per share; and the
extraordinary tax benefit of net operating loss carryforwards of $3.1 million,
or $0.07 per share in 1993.
(c) All share data and per share data for 1995, 1994 and 1993 has been restated
to reflect the distribution on December 29, 1995 of one Class B share for every
two Common shares issued and outstanding since the Class B shares are equivalent
to Common shares for such purposes.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF STOLT-NIELSEN S.A.
We have audited the accompanying consolidated balance sheets of Stolt-Nielsen
S.A. (a Luxembourg company) and subsidiaries as of November 30, 1997 and 1996,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended November 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stolt-Nielsen S.A. and
subsidiaries as of November 30, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
November 30, 1997, in conformity with accounting principles generally accepted
in the United States.
As explained in Note 5 to the consolidated financial statements, effective
December 1, 1996, the Company adopted SFAS No. 121.
ARTHUR ANDERSEN
London, England
February 18, 1998
9
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
========================================================================================
For the years ended November 30 1997 1996 1995
(In thousands, except per share data)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET OPERATING REVENUE:
Transportation Services:
Tankers $ 665,187 $ 655,613 $ 653,873
Tank Containers 218,980 185,617 160,989
Terminals 46,652 49,017 48,695
Subsea Services 431,126 313,358 327,042
Seafood 164,107 146,932 118,256
- ----------------------------------------------------------------------------------------
1,526,052 1,350,537 1,308,855
- ----------------------------------------------------------------------------------------
OPERATING EXPENSES:
Transportation Services:
Tankers 518,816 491,338 480,165
Tank Containers 159,482 135,401 121,413
Terminals 34,064 32,205 31,704
Subsea Services 353,361 292,177 281,402
Seafood 146,643 135,093 95,889
- ----------------------------------------------------------------------------------------
1,212,366 1,086,214 1,010,573
- ----------------------------------------------------------------------------------------
GROSS PROFIT 313,686 264,323 298,282
Equity in net income of non-consolidated
joint ventures (Note 4) 19,592 13,108 14,689
Administrative and general expenses (139,609) (137,476) (136,059)
- ----------------------------------------------------------------------------------------
INCOME FROM OPERATIONS BEFORE RESTRUCTURING
CHARGES AND WRITE DOWN OF CERTAIN ASSETS 193,669 139,955 176,912
Restructuring charges (Note 5) - (3,873) -
Write down of certain assets (Note 5) (28,098) - -
- ----------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 165,571 136,082 176,912
- ----------------------------------------------------------------------------------------
NON-OPERATING (EXPENSE) INCOME:
Interest expense (59,897) (51,343) (59,748)
Interest income 2,864 2,575 3,622
Foreign currency exchange gain (loss), net 582 (452) (2,515)
Gain on sale of assets, net (Note 6) 10,633 6,815 912
Minority interest (Note 7) (15,992) 3,829 (3,129)
Gain on sale of common stock of a subsidiary,
net (Note 5) 139,508 - -
Other, net (415) (2,620) (1,748)
- ----------------------------------------------------------------------------------------
77,283 (41,196) (62,606)
- ----------------------------------------------------------------------------------------
Income before income tax provision
and extraordinary item 242,854 94,886 114,306
Income tax provision (Note 8) (13,161) (2,946) (9,264)
- ----------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 229,693 91,940 105,042
Extraordinary item-gain on early repayment
of debt, net of taxes (Note 5) 7,416 - -
- ----------------------------------------------------------------------------------------
NET INCOME $ 237,109 $ 91,940 $ 105,042
========================================================================================
ANALYSIS OF INCOME:
Net recurring income $ 113,104 $ 95,813 $ 114,088
Restructuring/reorganization charges
and write down of certain assets (28,098) (3,873) (9,046)*
Tax effect of write down of certain assets 5,179 - -
Gain on sale of common stock of a subsidiary, net 139,508 - -
Extraordinary item-gain on early repayment of
debt, net of taxes 7,416 - -
- ----------------------------------------------------------------------------------------
NET INCOME $ 237,109 $ 91,940 $ 105,042
========================================================================================
EARNINGS PER SHARE (NOTE 2):
Income before extraordinary item $ 4.16 $ 1.72 $ 2.34
Extraordinary item .13
- ----------------------------------------------------------------------------------------
NET INCOME PER SHARE $ 4.29 $ 1.72 $ 2.34
========================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON AND
CLASS B SHARES AND EQUIVALENTS OUTSTANDING 55,311 53,404 44,840
========================================================================================
</TABLE>
* Relates to reorganization charges which have been included in operating
expenses ($4.7 million), administrative and general expenses ($2.0 million)
and other expenses ($2.3 million).The accompanying notes to consolidated
financial statements are an integral part of these statements.
10
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==========================================================================
As of November 30 (In thousands) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 68,571 $ 6,778
Trade receivables, net of allowance for
doubtful accounts of $5,207 and $5,005
in 1997 and 1996, respectively 243,798 210,413
Inventories (Note 9) 109,271 100,690
Receivables from related parties (Note 4) 9,566 8,123
Restricted cash deposits (Note 10) 980 6,010
Prepaid expenses and other current assets 70,300 65,267
- --------------------------------------------------------------------------
TOTAL CURRENT ASSETS 502,486 397,281
- --------------------------------------------------------------------------
FIXED ASSETS, AT COST:
Tankers 1,475,630 1,299,736
Tankers under construction 156,796 74,441
Tank containers 198,424 168,541
Terminal facilities 263,497 247,277
Subsea Services 356,249 278,578
Seafood facilities 86,097 83,773
Other 27,979 24,979
- --------------------------------------------------------------------------
2,564,672 2,177,325
Less accumulated depreciation and amortization 791,639 724,172
- --------------------------------------------------------------------------
1,773,033 1,453,153
- --------------------------------------------------------------------------
Restricted cash deposits (Note 10) 21 228
Investments in non-consolidated joint ventures
and other assets (Note 4) 90,652 77,327
Deferred income tax asset (Note 8) 4,973 14,004
Goodwill and other intangible assets, net of
accumulated amortization of $16,119 and
$13,347 in 1997 and 1996, respectively 31,587 36,477
- --------------------------------------------------------------------------
TOTAL ASSETS $2,402,752 $1,978,470
==========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank loans (Note 11) $ 19,852 $ 23,262
Current maturities of long-term debt (Note 12) 90,330 67,470
Accounts payable 90,988 96,148
Accrued liabilities and other current liabilities 189,316 168,562
- --------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 390,486 355,442
- --------------------------------------------------------------------------
Long-term debt (Note 12) 686,298 652,253
Minority interest (Note 7) 197,289 23,686
Deferred income tax liability (Note 8) 9,234 12,905
Other non-current liabilities 56,888 49,364
Commitments and contingencies (Note 14)
SHAREHOLDERS' EQUITY:
Founder's shares: no par value-15,000,000 shares
authorized, 7,799,362 and 7,708,451 shares
issued and outstanding in 1997 and 1996,
respectively, at stated value - -
Capital stock:
Common shares no par value-60,000,000
authorized, 31,197,450 and 30,833,805
shares issued and outstanding in 1997 and
1996, respectively, at stated value 31,198 30,834
Class B shares no par value-60,000,000
authorized, 30,933,246 and 30,751,912
shares issued and outstanding in 1997
and 1996, respectively, at stated value 30,933 30,752
Paid-in surplus 346,437 340,663
Retained earnings 815,795 605,972
Cumulative translation adjustments (36,266) 1,663
- --------------------------------------------------------------------------
1,188,097 1,009,884
Less-Treasury stock, 1,601,905 Common shares
and 5,607,605 Class B shares in 1997, and
1,581,205 Common shares and 5,607,605
Class B shares in 1996 (125,540) (125,064)
- --------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,062,557 884,820
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,402,752 $1,978,470
==========================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
==========================================================================================================================
Cumulative
Capital Paid-in Retained translation Treasury
(In thousands, except share data) stock surplus earnings adjustments stock
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 30, 1994 $45,165 $ 67,247 $438,884 $ (6,060) $ (10,117)
Net income - - 105,042 - -
Exercise of stock options for 231,450 Common shares
and 115,725 Class B shares 348 3,614 - - -
Issuance of 57,862 Founder's shares - - - - -
Purchase of 375,000 shares of treasury stock - - - - (4,894)
Cash dividends paid-$0.37 per Common and Class B share - - (16,178) - -
Cash dividends paid-$0.01 per Founder's share - - (75) - -
Translation adjustments, net - - - 17,277 -
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1995 45,513 70,861 527,673 11,217 (15,011)
Net income - - 91,940 - -
Public offering of 8,200,000 Class B shares 8,200 134,963 - - -
Issuance of 7,600,016 Class B shares in connection with
the merger of Stolt Partner S.A. 7,600 132,202 - - (106,949)
Distribution of 282,332 treasury stock in connection with the
acquisition of a subsidiary - - - - 5,174
Exercise of stock options for 182,030 Common shares and 91,008
Class B shares 273 2,637 - - -
Issuance of 123,008 Founder's shares - - - - -
Purchase of 500,000 shares of treasury stock - - - - (8,278)
Cash dividends paid-$0.25 per Common and Class B share - - (13,602) - -
Cash dividends paid-$0.005 per Founder's share - - (39) - -
Translation adjustments, net - - - (9,554) -
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1996 61,586 340,663 605,972 1,663 (125,064)
Net income - - 237,109 - -
Exercise of stock options for 363,645 Common shares and 181,334
Class B shares 545 5,774 - - -
Issuance of 90,911 Founder's shares - - - - -
Purchase of 20,700 shares of treasury stock - - - (476)
Cash dividends paid-$0.50 per Common and Class B share - - (27,247) - -
Cash dividends paid-$0.005 per Founder's share - - (39) - -
Translation adjustments, net - - - (37,929) -
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1997 $62,131 $346,437 $815,795 $(36,266) $(125,540)
==========================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
12
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
==========================================================================================
For the years ended November 30 (In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary item $ 229,693 $ 91,940 $ 105,042
ADJUSTMENTS TO RECONCILE INCOME BEFORE
EXTRAORDINARY ITEM TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Depreciation of fixed assets 112,410 107,029 108,653
Amortization of intangible assets 2,297 1,837 1,604
Amortization of drydock costs 19,365 23,931 19,172
Provisions for reserves, taxes and lease payments 7,582 6,455 3,022
Equity in net income of non-consolidated
joint ventures (19,592) (13,108) (14,689)
Minority interest 15,992 (3,829) 3,129
Gain on sale of assets, net (10,633) (6,815) (912)
Write down of certain assets 28,098 - -
Gain on sale of common stock of a subsidiary, net (139,508) - -
CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECT OF
ACQUISITIONS, DIVESTITURES AND DECLARED DIVIDENDS:
Increase in trade receivables (45,681) (40,030) (29,303)
Increase in inventories (19,475) (6,433) (17,904)
Increase in prepaid expenses and other
current assets (3,528) (5,093) (17,857)
Increase (decrease) in accounts payable and
accrued liabilities 30,496 (3,717) 50,003
Payments of drydock costs (23,542) (21,009) (24,476)
(Increase) decrease in claims pending (94) (378) 5,317
Other, net (4,867) 9,828 11,994
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 179,013 140,608 202,795
==========================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (450,916) (396,370) (178,715)
Proceeds from sales of ships and other assets 47,934 46,727 9,441
Acquisition of subsidiaries, net of cash acquired (22,268) - -
(Investment in and advances to) repayments from
affiliates and others, net (14,708) 3,129 (5,145)
Dividends from non-consolidated joint ventures 13,249 14,879 3,650
Decrease (increase) in restricted cash deposits 5,053 1,201 (279)
Proceeds from sale of shares in Stolt Partner S.A. - - 15,988
Other, net (8,198) (747) (5,641)
- ------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (429,854) (331,181) (160,701)
==========================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in loans payable to banks, net (3,758) 14,741 (47,199)
Repayment of long-term debt (211,275) (320,831) (104,761)
Principal payments under capital lease obligations (747) (1,266) (2,911)
Proceeds from issuance of long-term debt-
private placement 125,000 187,000 -
Proceeds from issuance of long-term debt-ship
financing/other 121,920 180,047 128,119
Proceeds from Class B equity offering - 143,163 -
Proceeds from secondary offerings by
subsidiary, net 179,797 - -
Proceeds from sale of common stock in
subsidiary, net 117,060 - -
Proceeds from exercise of stock options 6,319 2,910 3,962
Purchases of treasury stock (476) (8,278) (4,894)
Dividends paid (27,286) (13,641) (16,253)
Proceeds from early repayment of debt 7,416 - -
Other, net - (19) (15)
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 313,970 183,826 (43,952)
==========================================================================================
Effect of exchange rate changes on cash (1,336) (765) 85
- ------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 61,793 (7,512) (1,773)
Cash and cash equivalents at beginning of year 6,778 14,290 16,063
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 68,571 $ 6,778 $ 14,290
==========================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 1997, 1996 and 1995
1 THE COMPANY
Stolt-Nielsen S.A. ("SNSA"), a Luxembourg company, and subsidiaries (together,
the "Company") is engaged in three businesses: Transportation Services, Subsea
Services and Seafood.
The Transportation Services business is engaged in the worldwide transportation,
storage and distribution of bulk liquid chemicals, edible oils, acids and other
specialty liquids, providing its customers with integrated solutions by
utilizing its parcel tanker, tank container, terminal, barge and rail services.
The Subsea Services business is carried out through Stolt Comex Seaway S.A.
("SCS"), a subsidiary in which the Company currently holds a 43% economic
interest and a 60% voting interest. SCS is among the largest subsea services
contractors in the world, providing technologically sophisticated subsea
engineering, flexible and rigid flowline lay, subsea construction, inspection,
maintenance and repair services to its customers in the offshore oil and gas
industry.
The Seafood business, wholly owned by the Company, produces, processes and
markets high quality seafood products, including Atlantic salmon, salmon trout,
turbot, halibut, sturgeon and caviar.
2 SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of all
majority-owned companies after the elimination of all significant intercompany
transactions and balances. The results of SCS are included in the consolidated
results of the Company because the Company holds a 60% voting interest in SCS.
The Company has equity investments of 50% or less in various affiliated
companies which are accounted for using the equity method.
The Company operates the Stolt Tankers Joint Service (the "Joint Service"), an
arrangement for the coordinated marketing, operation and administration of
tankers owned or chartered by the Joint Service participants in the deep sea
intercontinental market. Net revenue available for distribution to the
participants is defined in the Joint Service agreement as the combined operating
revenue of the ships which participate in the Joint Service, less combined
voyage expenses, overhead costs and commission to outside brokers. The net
revenue is distributed proportionately to each participant according to a
formula which takes into account each ship's cargo capacity, its number of
operating days during the period and an earnings factor assigned. For the years
ended November 30, 1997, 1996 and 1995, the Company received approximately 86%,
87%, and 86%, respectively, of the net revenues of the Joint Service. The
financial statements of the Joint Service have been included in the accompanying
consolidated financial statements, with a provision included in tanker operating
expenses for the amount of net revenues distributed to the minority
participants. These provisions were approximately $43.3 million, $43.2 million
and $45.5 million for the years ended November 30, 1997, 1996 and 1995,
respectively, and include amounts distributed to non-consolidated joint ventures
of the Company of $22.0 million, $24.2 million and $25.6 million. The amounts
distributed are net of commissions to the Company of $0.7 million, $0.7 million
and $0.8 million for the years ended November 30, 1997, 1996 and 1995,
respectively. As of November 30, 1997 and 1996, the net amounts payable to
(receivable from) participants in which the Company holds an equity interest for
amounts to be distributed by the Joint Service were $0.4 million and ($0.2)
million, respectively. These amounts are included in accrued liabilities and
other current liabilities and receivables from related parties in the
accompanying consolidated balance sheets at November 30, 1997 and 1996.
REVENUE RECOGNITION
TRANSPORTATION SERVICES Consistent with shipping industry practice, revenues
from tanker operations are shown in the consolidated statements of income net of
commissions, sublet costs, transshipment and barging expenses.
The operating results of voyages in progress at the end of each reporting period
are estimated and pro-rated on a per day basis for inclusion in the consolidated
statements of income. The consolidated balance sheets reflect the deferred
portion of revenues and expenses on voyages in progress at the end of each
reporting period as applicable to the subsequent period. As of November 30, 1997
and 1996, deferred revenues of $26.3 million and $21.4 million, respectively,
are included in accrued liabilities and other current liabilities in the
accompanying consolidated balance sheets.
SUBSEA SERVICES Long-term contracts of the Subsea Services business are
accounted for using the percentage of completion method. Revenue and gross
profit are recognized each period based upon the advancement of the
work-in-progress unless the stage of completion is insufficient to enable a
reasonably certain forecast of gross profit to be established. In such cases, no
gross profit is recognized during the period. Provisions for anticipated losses
are made in the period in which they become known. A major portion of the
Company's revenue is billed under fixed-price contracts. However, due to the
nature of the services performed, variation orders are commonly billed to the
customers in the normal course of business. The majority of such items are
agreed and settled in full by the customers, but occasionally there is a time
lag between the end of the project and the agreement of such variation orders.
In these instances management make estimates of the recoverability of the sums
involved and establish a reserve against related contract receivables. The net
amounts recoverable amounted to $3.8 million and $12.0 million at November 30,
1997 and 1996, respectively.
SEAFOOD The Seafood business recognizes revenues on dispatch of product to
customers.
14
<PAGE>
FOREIGN CURRENCY TRANSLATION
The Company translates the financial statements of its non-U.S. subsidiaries
into U.S. dollars from their functional currencies (usually local currencies) in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 52. Under SFAS No. 52, assets and liabilities denominated in
foreign currencies are generally translated at the exchange rates in effect at
the balance sheet date. Revenues and expenses are translated at exchange rates
which approximate the average rate prevailing during the period. The resulting
translation adjustments are recorded in a separate component of shareholders'
equity as "Cumulative translation adjustments." Exchange gains and losses
resulting from transactions denominated in a currency other than the functional
currency are included in "Foreign currency exchange gain (loss), net" in the
accompanying consolidated statements of income.
CAPITALIZED INTEREST
Interest costs during the construction period of significant assets are
capitalized and charged to expense over the lives of the related assets. The
Company capitalized $9.9 million, $5.4 million and $4.0 million of interest
expense in fiscal years 1997, 1996 and 1995, respectively.
EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of Common and
Class B shares and equivalents outstanding during each period. As further
discussed in Note 16, Founder's shares, which provide the holder thereof with
certain control features, only participate in earnings to the extent of $0.005
per share for years out of which dividends are declared, and are limited to
$0.05 per share upon liquidation. During the years ended November 30, 1997, 1996
and 1995 dividends paid on Founder's shares amounted to $38,544, $38,544 and
$75,000, respectively. For purposes of computing earnings per share, dividends
paid on Founder's shares are deducted from earnings to arrive at earnings
available to Common and Class B shareholders.
CLASS B SHARE DISTRIBUTION
All share and per share data has been restated for 1995 to reflect the
distribution of one Class B share for every two Common shares made on December
29, 1995. These shares have been treated as equivalent to Common shares for the
purpose of the earnings per share data, and hence the distribution has been
presented as a stock split.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include time deposits and certificates of deposit with
an original maturity of three months or less.
INVENTORY
Subsea Services inventories are stated at the lower of cost or market value.
Cost is generally determined using the weighted average cost method.
Mobilization costs (costs, principally labor and materials, of fitting out and
preparing equipment for specific contracts) are amortized over the shorter of
the expected duration of the related contracts or the estimated useful life of
the equipment. Mobilization costs and contract progress payments of $2.0 million
and $2.1 million in 1997 and 1996, respectively, are included in
work-in-progress.
Seafood raw materials, biomass and finished goods are valued at average
production cost or market value, whichever is lower. Finished goods consist of
frozen and processed fish products.
DEPRECIATION OF FIXED ASSETS
Tankers are depreciated on a straight-line basis to a residual value of 10% of
cost over Mangement's estimate of the ships' useful lives from acquisition,
which range up to 25 years.
Tank containers are depreciated on a straight-line basis over their estimated
useful lives of 20 years.
Terminal facility assets are depreciated substantially on a straight-line basis
over their estimated useful lives, which primarily range from five to 40 years.
The most significant assets, storage tanks, are depreciated over 30 years.
Subsea Services assets are depreciated on a straight-line basis over their
estimated useful lives which range from seven to 10 years for operating
equipment, six to 25 years for construction support ships, and five to 33 years
for buildings and other assets.
Seafood facilities are depreciated substantially on a straight-line basis over
their estimated useful lives, which range from four to 20 years.
Other fixed assets consist primarily of furniture and fixtures which are
depreciated on a straight-line basis over their estimated useful lives of three
to 10 years.
Depreciation expense, which excludes amortization of capitalized drydock costs,
for the years ended November 30, 1997, 1996 and 1995 was $112.4 million, $107.0
million and $108.7 million, respectively.
Drydock costs primarily are capitalized under the deferral method, whereby the
Company capitalizes its drydock costs and amortizes them over the period until
the next drydock. Amortization of capitalized drydock costs was $19.4 million,
$23.9 million and $19.2 million for the years ended November 30, 1997, 1996 and
1995, respectively. The unamortized portion of capitalized drydock costs of
$33.8 million and $33.4 million is included in "Investments in non-consolidated
joint ventures and other assets" in the accompanying consolidated balance sheets
at November 30, 1997 and 1996, respectively.
Maintenance and repair costs, which exclude amortization of the costs of ship
surveys, drydock and renewals of tank coatings, for the years ended November 30,
1997, 1996 and 1995 were $52.7 million, $51.2 million and $38.4 million,
respectively.
Effective December 1, 1996, the Company adopted SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
The impact of adopting this standard is set out in Note 5 to the financial
statements.
15
<PAGE>
FINANCIAL INSTRUMENTS
The Company enters into forward exchange and options contracts to hedge foreign
currency transactions on a continuing basis for periods consistent with its
committed exposures. This hedging minimizes the impact of foreign exchange rate
movement on the Company's U.S. dollar results. The Company's foreign exchange
contracts do not subject the Company's results of operations to risk due to
exchange rate movements because gains and losses on these contracts generally
offset gains and losses on the assets and liabilities being hedged. Contracts
are generally held to their maturity date, which matches that of the assets or
liabilities hedged.
Gains and losses on these foreign exchange contracts are deferred and included
in the basis of the transaction when it is completed. Losses are not deferred if
it is estimated that deferral would lead to recognizing losses in later periods.
The Company does not engage in foreign currency speculation.
Cash flows resulting from futures, swap and forward contracts which are
accounted for as hedges of identifiable transactions or events are classified in
the consolidated statements of cash flows in the same category as the cash flows
from the items being hedged. Net cash flows from such contracts in 1997, 1996
and 1995 were not significant.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Net cash paid for interest and income taxes was as follows:
For the years ended November 30
===========================================================================
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------
Interest, net of amounts capitalized $58,107 $54,398 $54,216
Income taxes 4,528 1,480 4,192
===========================================================================
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the purchase price over the fair value of
certain assets acquired. Goodwill and other intangible assets, which includes
patents and trademarks, are being amortized on a straight-line basis, over
periods of five to 40 years. Total amortization of goodwill and other
intangibles was $2.3 million, $1.8 million and $1.6 million in 1997, 1996 and
1995, respectively. The Company continuously monitors the realizable value of
goodwill and other intangible assets using expected related future undiscounted
cash flows.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". This statement establishes a fair value method of accounting for
an employee stock option or similar equity instrument but allows companies to
continue to measure compensation cost for those plans using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees". The Company has elected to continue accounting for
its stock-based compensation awards to employees and directors under the
accounting prescribed by APB Opinion No. 25 and to provide the disclosures
required by SFAS No. 123 (Note 17).
3 BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION
Segment information as of and for the years ended November 30, 1997, 1996 and
1995 is as follows:
For the years ended November 30
===========================================================================
(in millions) 1997 1996 1995
- ---------------------------------------------------------------------------
NET OPERATING REVENUE:
Transportation Services:
Tankers $ 665 $ 656 $ 654
Tank Containers 219 186 161
Terminals 47 49 49
Subsea Services 431 313 327
Seafood 164 147 118
- ---------------------------------------------------------------------------
$1,526 $1,351 $1,309
===========================================================================
INCOME FROM OPERATIONS:
Transportation Services:
Tankers $ 95 $ 115 $ 120
Tank Containers 36 27 20
Terminals (9) 7 8
Subsea Services 55 (3) 20
Seafood (11) (10) 9
- ---------------------------------------------------------------------------
$ 166 $ 136 $ 177
===========================================================================
DEPRECIATION AND AMORTIZATION:
Transportation Services:
Tankers-depreciation $ 59 $ 56 $ 62
Tankers-amortization of drydock costs 19 24 19
Tank Containers 13 11 7
Terminals 11 9 8
Subsea Services 25 26 27
Seafood 7 7 6
- ---------------------------------------------------------------------------
$ 134 $ 133 $ 129
===========================================================================
CAPITAL EXPENDITURES:
Transportation Services:
Tankers $ 277 $ 284 $ 34
Tank Containers 30 39 73
Terminals 23 16 21
Subsea Services 109 40 40
Seafood 12 17 11
- ---------------------------------------------------------------------------
$ 451 $ 396 $ 179
===========================================================================
As of November 30
===========================================================================
(in millions) 1997 1996 1995
- ---------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
Transportation Services:
Tankers $1,350 $1,111 $ 941
Tank Containers 214 181 135
Terminals 185 134 137
Subsea Services 457 357 311
Seafood 197 195 163
- ---------------------------------------------------------------------------
$2,403 $1,978 $1,687
===========================================================================
16
<PAGE>
The following table sets out operating revenue in the major geographical areas
of the world for the Company's businesses for each of the periods indicated.
Transportation Services operating revenue is allocated on the basis of the
geographical area where cargo is loaded.
For the years ended November 30
===========================================================================
(in millions) 1997 1996 1995
- ---------------------------------------------------------------------------
NET OPERATING REVENUE:
Tankers:
North America $ 329 $ 310 $ 301
Europe 160 154 140
Asia 165 155 181
Other areas and miscellaneous revenue 75 86 75
Less commissions, sublet costs,
transshipment and barging expenses (64) (49) (43)
- ---------------------------------------------------------------------------
$ 665 $ 656 $ 654
===========================================================================
Tank Containers:
North America $ 81 $ 66 $ 51
Europe 68 55 49
Asia 57 53 52
South America and other 13 12 9
- ---------------------------------------------------------------------------
$ 219 $ 186 $ 161
===========================================================================
Terminals:
North America $ 42 $ 46 $ 44
South America 5 3 5
- ---------------------------------------------------------------------------
$ 47 $ 49 $ 49
===========================================================================
Subsea Services:
Europe $ 339 $ 217 $ 264
Asia 40 39 35
South America and other 52 57 28
- ---------------------------------------------------------------------------
$ 431 $ 313 $ 327
===========================================================================
Seafood:
North America $ 62 $ 59 $ 48
Europe 54 72 61
Asia and other 48 16 9
- ---------------------------------------------------------------------------
$ 164 $ 147 $ 118
===========================================================================
Total $1,526 $1,351 $1,309
===========================================================================
The following table sets out income from operations and identifiable assets by
geographic area for the Company's businesses. The Company's Tankers, Tank
Container and Subsea Services businesses operate on a worldwide basis and are
not restricted to specific locations. Accordingly, the allocation of assets of
these three businesses and income from operations of the Tanker and Tank
Container businesses to specific geographical areas is not possible.
For the years ended November 30
===========================================================================
(in millions) 1997 1996 1995
- ---------------------------------------------------------------------------
INCOME FROM OPERATIONS:
Terminals:
North America $ (8) $ 7 $ 7
South America (1) - 1
- ---------------------------------------------------------------------------
$ (9) $ 7 $ 8
===========================================================================
Subsea Services:
Europe $ 44 $ 4 $ 12
Asia 6 (2) (2)
South America and other 5 (5) 10
- ---------------------------------------------------------------------------
$ 55 $ (3) $ 20
===========================================================================
Seafood:
North America $ (3) $ 5 $ 5
Europe (8) (11) 4
Asia and other - (4) -
- ---------------------------------------------------------------------------
$ (11) $ (10) $ 9
===========================================================================
As of November 30
===========================================================================
(in millions) 1997 1996 1995
- ---------------------------------------------------------------------------
IDENTIFIABLE ASSETS:
Terminals:
North America $155 $115 $120
South America 30 19 17
- ---------------------------------------------------------------------------
$185 $134 $137
===========================================================================
Seafood:
North America $ 85 $ 72 $ 61
Europe 98 115 102
Asia and other 14 8 -
- ---------------------------------------------------------------------------
$197 $195 $163
===========================================================================
Indirect costs and assets have been apportioned to the businesses on the basis
of corresponding direct costs and assets.
17
<PAGE>
4 EQUITY INVESTMENTS
Summarized financial information for the Company's non-consolidated joint
ventures, representing 100% of the respective amounts included in the joint
ventures' financial statements, is as follows:
Income statement data:
For the years ended November 30
===========================================================================
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------
Net operating revenue $293,066 $235,349 $245,977
Gross profit 72,301 67,072 56,237
Net income 48,290 22,269 26,856
===========================================================================
Balance sheet data:
As of November 30
===========================================================================
(in thousands) 1997 1996
- ---------------------------------------------------------------------------
Current assets $100,793 $ 67,227
Non-current assets 118,790 155,755
Current liabilities 82,290 76,888
Non-current liabilities 103,098 113,841
===========================================================================
The income statement data for the joint ventures presented above includes the
following expenses related to transactions with the Company:
For the years ended November 30
===========================================================================
(in millions) 1997 1996 1995
- ---------------------------------------------------------------------------
Charter hire $45.0 $40.2 $38.8
Management and other fees 7.0 19.1 2.6
Freight and Joint Service Commission 0.7 0.6 0.6
Interest expense 2.4 2.7 2.3
===========================================================================
The joint ventures also recorded the following revenues related to transactions
with the Company:
For the years ended November 30
===========================================================================
(in millions) 1997 1996 1995
- ---------------------------------------------------------------------------
Charter hire revenue $22.0 $20.6 $22.1
Tank container cleaning station revenue 4.2 4.3 3.9
Rental income (from office building
leased to the company) 2.2 2.2 2.3
===========================================================================
The balance sheet data includes:
As of November 30
===========================================================================
(in millions) 1997 1996
- ---------------------------------------------------------------------------
Amounts due from the Company $ 0.4 $10.3
Amounts due to the Company 16.0 12.8
===========================================================================
Included within "Amounts due to the Company" is $9.6 million and $8.1 million at
November 30, 1997 and 1996, respectively, for trading balances. These amounts
are reflected in the consolidated balance sheet as "Receivables from related
parties."
5 NON-RECURRING ITEMS
WRITE DOWN OF CERTAIN ASSETS
Effective December 1, 1996, the Company adopted SFAS No. 121. As a consequence,
the Company has recognized a write down within its Transportation Services
business amounting to $11.6 million, before income tax, in respect of certain
assets at its Perth Amboy terminal. Projections indicate that due to the recent
downturn in the North East U.S. specialty chemical industry and a reduced market
demand for the type of storage facilities offered by these assets, the cashflows
which will be generated by the assets do not support their carrying value. The
assets have been written down to values considered by management to be their
fair market value.
The Company also recognized a write down of $4.2 million, before income tax, in
respect of certain assets in its Subsea Services business which are unable to
generate sufficient utilization, and therefore cashflows, to support their net
book value.
In July 1997, the Norwegian government reached an agreement with the European
Union ("EU") for a five year period to regulate the supply of Norwegian salmon
into the EU market. In addition, the Norwegian government has maintained feed
quota and production regulations which have a significant impact on the
cost-competitiveness of the Norwegian operation of the Seafood business. In the
light of these events, the Company considers that the cost of its investment in
its Norwegian operation has been permanently impaired, and has written down in
the current year the entire goodwill balance of $3.6 million relating to this
investment. Projections also indicate that future cashflows to be generated from
certain other assets of the Seafood business may not be sufficient to recover
their carrying value, and accordingly, the Company has recognized a write down
of $8.7 million in respect of these assets.
18
<PAGE>
GAIN ON SALE OF COMMON STOCK OF A SUBSIDIARY
In March 1997, SCS completed a secondary offering of 8.05 million new Common
shares at a per share price of $8.23, raising proceeds, net of expenses, of
$64.6 million. Concurrently, SCS exchanged 14.0 million Class B shares (which
are economically equivalent to 7.0 million Common shares) for $57.6 million of
debt owed to SNSA. As a consequence of the offering and the debt-for-equity
exchange, the Company realized a gain, on a before and after income tax basis,
of $9.5 million on the reduction of its economic interest in SCS from 70% to
60%.
In November 1997, SCS completed a secondary offering of 4.0 million Common
shares. In conjunction with the offering, SNSA sold 4.0 million Common shares of
SCS. Both transactions were carried out at a per share price of $29.27, raising
proceeds, net of expenses, of $232.2 million. These transactions resulted in the
Company realizing a gain, on a before and after income tax basis, of $130.0
million as the Company's economic interest in SCS was reduced from 60% to 43%.
In January 1998, subsequent to the above transactions, SCS completed a
two-for-one share split. The share figures and the per share prices quoted above
have been restated to reflect the share split.
EXTRAORDINARY ITEM
In October 1997, the Company prepaid debt relating to the first four ships in
the Company's Danish newbuilding series. The early repayment of the debt under
the terms of the loan agreement with the Danish Ship Credit Fund resulted in an
extraordinary gain, on a before and after income tax basis, of $7.4 million.
RESTRUCTURING CHARGES
During 1996 the Company restructured its Seafood operations in order to reduce
overhead and improve flexibility by making increased use of external suppliers
for value added processing. A provision of $3.9 million was made in the year to
cover redundancy costs, asset write downs and site closure costs primarily at
the Company's production sites in Norway. As at November 30, 1997, there was no
material remaining liability relating to the 1996 restructuring program and
there was no material difference between the provision and the amount
subsequently paid.
6 GAIN ON SALE OF ASSETS, NET
Gain on sale of assets is comprised of the following:
For the years ended November 30
===========================================================================
(in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------
Sale of ships $ 5,294 $4,906 $1,022
Sale of investments - 1,264 (110)
Sale of Subsea Services assets 4,874 - -
Sale of other assets 465 645 -
- ---------------------------------------------------------------------------
$10,633 $6,815 $ 912
===========================================================================
7 MINORITY INTEREST
The minority interest in the consolidated balance sheets of the Company
primarily reflects the minority interest in SCS. During the year, the Company's
economic ownership in SCS decreased from 70% to 43% (Note 5). The consolidated
statements of income also reflect the minority interest in SCS and, in the case
of 1996 and 1995, in Stolt Partner S.A. During 1996, the Company acquired the
remaining 23.5% of shares in Stolt Partner S.A. that it did not already hold and
merged the company into its principal tanker operating subsidiary.
19
<PAGE>
8 INCOME TAXES
The 1997, 1996 and 1995 income tax provision consists of the following by
business segment:
=============================================================================
Year ended November 30, 1997 Transportation Subsea
(in thousands) Services Services Seafood Total
- -----------------------------------------------------------------------------
CURRENT:
U.S. $ 785 $ - $ 453 $ 1,238
Non-U.S. 5,266 1,991 285 7,542
DEFERRED:
U.S. (4,260) - 400 (3,860)
Non-U.S. (75) 9,147 (831) 8,241
- -----------------------------------------------------------------------------
Income tax provision $ 1,716 $11,138 $ 307 $13,161
=============================================================================
=============================================================================
Year ended November 30, 1996 Transportation Subsea
(in thousands) Services Services Seafood Total
- -----------------------------------------------------------------------------
CURRENT:
U.S. $ 2,740 $ - $ 372 $ 3,112
Non-U.S. 1,556 1,063 1,090 3,709
DEFERRED:
U.S. 90 - 221 311
Non-U.S. 54 (2,821) (1,419) (4,186)
- -----------------------------------------------------------------------------
Income tax provision (benefit) $ 4,440 $ (1,758) $ 264 $ 2,946
=============================================================================
=============================================================================
Year ended November 30, 1995 Transportation Subsea
(in thousands) Services Services Seafood Total
- -----------------------------------------------------------------------------
CURRENT:
U.S. $(545) $ - $ 152 $ (393)
Non-U.S. 2,765 866 (668) 2,963
DEFERRED:
U.S. 4,991 - (1,936) 3,055
Non-U.S. 890 3,342 (593) 3,639
- -----------------------------------------------------------------------------
Income tax provision (benefit) $ 8,101 $ 4,208 $(3,045) $ 9,264
=============================================================================
Substantially all of the Company's shipowning and ship operating subsidiaries
are incorporated in countries which do not impose an income tax on shipping
operations. Pursuant to the Internal Revenue Code of the U.S. effective for the
Company's fiscal years beginning on or after December 1, 1987, U.S. source
income from the international operation of ships is generally exempt from U.S.
tax if the company operating the ship meets certain requirements. Among other
things, in order to qualify for this exemption, the company operating the ship
must be incorporated in a country which grants an equivalent exemption to U.S.
citizens and corporations that meet certain residency requirements. The Internal
Revenue Service has agreed that the Company qualifies for this exemption for
years up to and including fiscal 1992, but may review the Company's
qualification for fiscal 1993 onwards. The Company believes that substantially
all of the Company's shipowning and ship operating subsidiaries meet the
requirements to qualify for this exemption from U.S. taxation. For these
reasons, no provision for U.S. income taxes has been made with respect to the
Company's U.S. source shipping income.
20
<PAGE>
An analysis of the Company's deferred tax assets and liabilities as at November
30, 1997 and 1996 is set out in the table below. A valuation allowance has been
recorded to reduce the deferred tax asset to an amount that management believe
is more likely than not to be realized.
===============================================================================
1997 Deferred tax (liabilities)/ Transportation Subsea
assets (in thousands) Services Services Seafood
- -------------------------------------------------------------------------------
Net operating loss carryforwards $ 7,379 $ 30,240 $ 29,980
Valuation allowances (1,845) (9,970) (20,323)
- -------------------------------------------------------------------------------
Net operating loss carryforwards
after valuation allowances 5,534 20,270 9,657
Differences between book and
tax depreciation (16,563) (15,865) (1,887)
U.S. State deferred taxes (1,475) - -
Other timing differences-net 7,459 568 (11,959)
- -------------------------------------------------------------------------------
Net deferred tax (liability) asset $ (5,045) $ 4,973 $ (4,189)
===============================================================================
===============================================================================
1996 Deferred tax (liabilities)/ Transportation Subsea
assets (in thousands) Services Services Seafood
- -------------------------------------------------------------------------------
Net operating loss carryforwards $ 6,359 $ 47,389 $ 30,279
Valuation allowances - (12,931) (23,730)
- -------------------------------------------------------------------------------
Net operating loss carryforwards after
valuation allowances 6,359 34,458 6,549
Differences between book and
tax depreciation (15,278) (12,364) (972)
U.S. State deferred taxes (1,651) - -
Other timing differences-net 1,408 (8,090) (9,320)
- -------------------------------------------------------------------------------
Net deferred tax (liability) asset $ (9,162) $ 14,004 $ (3,743)
===============================================================================
Management consider that net operating losses ("NOLs") carried forward, to the
extent that valuation allowances have not been provided, will result in a
realizable tax asset as a result of expected future profitability.
Included within the Seafood deferred tax liability in 1997 is an amount of $11.9
million arising in Canada. This results primarily from provisions under Canadian
tax law which permit operators of sea farming facilities to report income for
tax purposes using cash-basis accounting, effectively deducting investments in
working capital for tax purposes.
For Transportation Services, approximately $21.1 million of NOLs were available
at November 30, 1997 to offset future taxable income. These NOLs expire in the
years 1998 through 2008 except for approximately $4.2 million which can be
carried forward indefinitely. For Subsea Services, approximately $106.6 million
of NOLs were available at November 30, 1997 to offset future taxable income.
These NOLs expire at various dates through 2006, except those in the United
Kingdom, Brazil, Australia and some NOLs in France amounting to $72.4 million
which can be carried forward indefinitely. The Seafood business had
approximately $90.5 million of NOLs at November 30, 1997. These NOLs expire at
various dates through 2007. The group NOLs expire as follows:
==================================================
(in thousands)
- --------------------------------------------------
1998 $ 757
1999 26,097
2000 15,574
2001 11,976
2002 24,780
Thereafter 62,430
- --------------------------------------------------
$141,614
==================================================
21
<PAGE>
A reconciliation of income taxes at the U.S. federal tax rate applied to pre-tax
income and the actual income tax provision is shown below:
For the years ended November 30
===============================================================================
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Pre-tax income $ 242,854 $ 94,886 $114,306
Non-U.S. source shipping and other
income not subject to income tax (139,701) (63,032) (58,524)
U.S. source shipping income not
subject to income tax (78,919) (43,485) (30,646)
Utilization of loss carryforwards (10,759) (7,984) (11,043)
Losses for which no tax benefit
is recognized 13,267 42,176 15,645
- -------------------------------------------------------------------------------
$ 26,742 $ 22,561 $ 29,738
===============================================================================
Tax at U.S. federal rate (35%) $ 9,360 $ 7,897 $ 10,408
Differences between U.S. and
non-U.S. tax rates (2,155) 289 (918)
Non taxable dividend income from non-
consolidated joint ventures (1,131) (1,554) -
Exchange gain (179) (230) -
Change in Mangement's estimates of
valuation and other allowances 3,662 (3,305) (936)
Differences between book and tax bases 1,762 (272) (198)
Tax credits from foreign jurisdictions - (280) (167)
State and local taxes,net of
federal benefit (195) (116) 350
Non-deductible amortization of
goodwill and other intangibles 798 546 252
Other non-deductible costs, principally
travel and entertainment expenditures 709 208 120
Other, net 530 (237) 353
- -------------------------------------------------------------------------------
Income tax provision $ 13,161 $ 2,946 $ 9,264
===============================================================================
Withholding and remittance taxes have not been recorded on the undistributed
earnings of SNSA's subsidiaries, which represent substantially all of the
Company's consolidated retained earnings, primarily because, under the current
tax laws of Luxembourg and the countries in which substantially all of SNSA's
subsidiaries are incorporated, no taxes would be assessed upon the payment or
receipt of dividends. Earnings retained by subsidiaries incorporated in those
countries which impose withholding or remittance taxes are considered by
management to be permanently re-invested in such subsidiaries. The undistributed
earnings of these subsidiaries at November 30, 1997 were not significant.
9 INVENTORIES
Inventories at November 30, 1997 and 1996 consisted of the following:
===============================================================================
1997 Subsea
(in thousands) Total Services Seafood
- -------------------------------------------------------------------------------
Raw materials $ 4,908 $ - $ 4,908
Consumables 5,493 5,202 291
Work-in-progress 5,680 5,680 -
Seafood biomass 85,310 - 85,310
Finished goods 7,880 - 7,880
- -------------------------------------------------------------------------------
$109,271 $10,882 $98,389
===============================================================================
===============================================================================
1996 Subsea
(in thousands) Total Services Seafood
- -------------------------------------------------------------------------------
Raw materials $ 1,827 $ - $ 1,827
Consumables 8,247 7,233 1,014
Work-in-progress 2,244 2,244 -
Seafood biomass 79,961 - 79,961
Finished goods 8,411 - 8,411
- -------------------------------------------------------------------------------
$100,690 $9,477 $91,213
===============================================================================
10 RESTRICTED CASH DEPOSITS
Restricted cash deposits comprise both funds held in a separate Company bank
account, which will be used to settle accrued taxation liabilities, and deposits
made by the Company as security for certain third party obligations.
11 SHORT-TERM BANK LOANS
Loans payable to banks, which amounted to $19.9 million and $23.3 million at
November 30, 1997 and 1996, respectively, consist principally of drawdowns under
bid facilities, lines of credit and bank overdraft facilities. Amounts borrowed
pursuant to these facilities bear interest at rates ranging from 4.75% to 8.25%,
excluding Brazil where interest rates were 3.26% per month at November 30, 1997.
The weighted average interest rate was 6.3% and 6.0% for the years ended
November 30, 1997 and 1996, respectively.
As of November 30, 1997, the Company had various credit lines, including
committed lines ranging through 2003 totalling $473.1 million, of which $453.2
million was available for future use.
22
<PAGE>
12 LONG-TERM DEBT
Long-term debt as of November 30, 1997 and 1996 consisted of the following:
As of November 30
=================================================================
(in thousands) 1997 1996
- -----------------------------------------------------------------
Senior unsecured notes
On 11/30/97 interest rates ranged
from 7.72% to 10.56%, maturities
vary through 2007 $398,565 $315,162
Preferred ship fixed rate mortgages
On 11/30/97 fixed interest rates
ranged from 5.67% to 8.74%, maturities
vary through 2011 265,709 199,276
Preferred ship variable rate mortgages
On 11/30/97 interest rates were 5.21%,
maturities vary through 2007 22,340 122,799
Economic development and other bonds
On 11/30/97 interest rates ranged
from 4.75% to 10.5%, maturing in
2014 and 2018 34,600 34,600
Bank and other notes payable 55,414 47,886
- -----------------------------------------------------------------
776,628 719,723
Less-current maturities 90,330 67,470
- -----------------------------------------------------------------
$686,298 $652,253
=================================================================
On November 30, 1996, the Company's senior unsecured notes carried fixed
interest rates ranging from 8.1% to 10.6%, preferred ship fixed rate mortgages
had interest rates ranging from 5.7% to 8.7%, preferred ship variable rate
mortgages ranged from 4.87% to 6.04% and the economic development bond had
interest rates ranging from 4.88% to 10.5%.
Long-term debt is denominated primarily in U.S. dollars, with $2.2 million and
$71.0 million denominated in other currencies as of November 30, 1997 and 1996,
respectively.
Annual principal repayments of debt for the five years subsequent to November
30, 1997 and thereafter are as follows:
==================================================
(in thousands)
- --------------------------------------------------
1998 $ 90,330
1999 61,684
2000 51,092
2001 52,278
2002 86,233
Thereafter 435,011
- --------------------------------------------------
$776,628
==================================================
Agreements executed in connection with certain debt obligations require that the
Company maintain defined financial ratios and also impose certain restrictions
relating, among other things, to payment of cash dividends (see Note 19), and
purchases, redemptions, etc., of capital. Certain of the debt is secured by
mortgages on vessels, tank containers, terminals and seafood facilities with a
net book value of $453.3 million at November 30, 1997.
13 LEASES
OPERATING LEASES
At November 30, 1997 the Company was obligated to make payments under long-term
operating lease agreements for tankers, land, terminal facilities, tank
containers, barges, equipment and offices. Certain of the leases contain clauses
requiring payments in excess of the base amounts to cover operating expenses
related to the leased assets. Minimum annual lease commitments and sub-lease
revenues under agreements which expire at various dates through 2026, and which
are payable in various currencies are as follows:
==================================================
(in thousands)
- --------------------------------------------------
1998 $ 84,738
1999 56,405
2000 37,908
2001 26,693
2002 10,120
Thereafter 32,201
- --------------------------------------------------
248,065
Less - sub-lease revenues 7,738
- --------------------------------------------------
$240,327
==================================================
Rental and charter hire expenses under operating lease agreements for the years
ended November 30, 1997, 1996 and 1995 were $91.0 million, $103.8 million and
$101.5 million, respectively, net of sub-lease income of $0.6 million, $1.1
million and $0.9 million, respectively.
14 COMMITMENTS AND CONTINGENCIES
In December 1993, the Company entered into an agreement to purchase seven new
37,000 deadweight ton ("dwt") parcel tankers to be built by Danyard Shipyards in
Denmark for a net purchase price including options and rebates of approximately
$70 million each. As of November 30, 1997, five ships had been delivered
including one ship delivered to NYK Stolt Tankers S.A., a joint venture of the
Company. In 1997 the Company entered into an agreement with Danyard Shipyards to
purchase a further two new 37,000 dwt parcel tankers at an approximate cost of
$76 million each. Under the terms of the contracts, the price for the remaining
Danyard ships has been converted to U.S. dollars. The Company has obtained a
financing commitment from the Danish Ship Credit Fund for a 14 year financing of
up to 80% of the U.S. dollar cost of the remaining four tankers.
23
<PAGE>
In addition to the nine Danish newbuildings, the Company contracted in March
1995 with the French yard, Societe Nouvelle des Ateliers et Chantiers du Havre
to purchase three new 37,000 dwt parcel tankers at a similar net price to the
Danish newbuildings. Under the terms of the contract, the price has been
converted to U.S. dollars. The Company has obtained a financing commitment
supported by a guarantee from Compagnie Francaise D'Assurance Pour Le Commerce
Exterieur for a 12 year financing of 80% of the cost of the tankers.
The Company has also entered into an agreement with a Spanish shipyard to
purchase six new 22,450 dwt parcel tankers at an approximate cost of $46 million
each and with an Italian shipyard to purchase three 5,200 dwt parcel tankers at
an approximate cost per vessel of $20 million. Through Stolt NYK Asia Pacific
Inc., the Company has placed an order with a Japanese shipyard for four 11,500
dwt parcel tankers at an approximate cost per vessel of $23 million. As of
November 30, 1997, the joint venture has taken delivery of one of the 11,500 dwt
parcel tankers from the Japanese shipyard.
As of November 30, 1997, the Company had other capital expenditure purchase
commitments outstanding of approximately $53 million for 1998 and future years.
SNSA has given bonding guarantees on behalf of its subsidiary, SCS, totalling
$62.5 million at November 30, 1997.
The Swiss Court of Insurance "Tribunal Federal des Assurances" entered a
judgment of April 29, 1992 against Sogexpat S.A. ("Sogexpat"), a subsidiary of
the Company, in litigation brought by a Swiss governmental entity claiming
payment of social security contributions in arrears. During the year ended
November 30, 1993, the Company wound up Sogexpat and transferred the employees
to other Group companies.
The French government has investigated SCS of France alleging violations of
French labor and social security legislation. Civil complaints have been filed
against certain subsidiaries of the Company which have resulted in court
decisions against them. Such decisions have been appealed. In addition, a number
of former and present employees have started civil proceedings against certain
subsidiaries of the Company alleging loss of employment and social security
benefits. Some of the proceedings have commenced recently while some already
have resulted in court decisions. One such decision has been appealed to the
French Supreme Court. While the Company believes that its subsidiaries have
meritorious defenses in these cases, there can be no certainty as to the number
of claims which may be brought or the amount for which the Company may
eventually be liable with respect thereto. Comex S.A., a former shareholder of
Comex Services S.A. ("Comex"), in an agreement with SNSA executed on June 5,
1992 for the sale of Comex, agreed to indemnify the Company with respect to
certain aspects of the foregoing. There can be no assurance, however,as to the
amount which the Company may ultimately recover from Comex S.A. pursuant to such
indemnity.
The Company is a party to various other legal proceedings arising in the
ordinary course of business. The Company believes that none of the matters
covered by such legal proceedings will have a material adverse effect on the
Company's business or financial condition.
The Company's operations are affected by U.S. and foreign environmental
protection laws and regulations. Compliance with such laws and regulations
entails considerable expense, including ship modifications and changes in
operating procedures. The Company believes that compliance with applicable laws
and regulations has not had, nor is such compliance expected to have, a material
adverse effect upon its competitive position, financial condition or results of
operations.
15 PENSION AND BENEFIT PLANS
Certain of the U.S. and non-U.S. subsidiaries of the Company have
non-contributory pension plans covering substantially all of their shore-based
employees. The most significant plans are defined benefit plans. Benefits are
based on each participant's length of service and compensation. The Company's
policy is to fully fund its pension liability.
The Company provides pension benefits to ship officers employed by the Company.
Group single premium retirement contracts were purchased whereby all accrued
pension liability through June 30, 1986 was fully funded. It is the Company's
intention to fund its liability under this plan and it is considering various
investment alternatives to do this.
Pension expenses for the Company's defined benefit plans including a retirement
arrangement for one of the Company's Directors for the years ended November 30,
1997, 1996 and 1995, consist of the following:
For the years ended November 30
===============================================================================
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Service cost - benefits earned
during the year $ 6,020 $ 5,401 $ 4,795
Interest cost on benefit
obligation 5,852 5,259 4,246
Actual return on assets (5,900) (5,772) (5,359)
Net amortization and deferral 1,600 2,234 2,581
- -------------------------------------------------------------------------------
Net pension expense $ 7,572 $ 7,122 $ 6,263
===============================================================================
24
<PAGE>
The following table sets out the funded status and amounts recognized in the
Company's consolidated balance sheets at November 30, 1997 and 1996 for the
defined benefit plans and the Director's retirement arrangements:
As of November 30
===============================================================================
(in thousands) 1997 1996
- -------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF
BENEFIT OBLIGATIONS:
Vested benefit obligation $ 70,660 $61,247
- -------------------------------------------------------------------------------
Accumulated benefit obligation 73,747 65,277
- -------------------------------------------------------------------------------
Projected benefit obligation 90,142 79,580
Plan assets at fair value (consisting primarily
of equity, real estate and other investments) 60,506 54,944
- -------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets (29,636) (24,636)
Unrecognized net loss 4,539 4,412
Unrecognized prior service cost 2,672 2,155
Unrecognized transition asset 1,109 1,200
- -------------------------------------------------------------------------------
Pension liability $(21,316) $(16,869)
===============================================================================
The projected benefit obligation of the Company's most significant pension plan
continued to grow in 1997, increasing 10.4%, primarily due to new benefits
accruing and interest costs.
The weighted average assumptions used in determining the funded status of the
pension plans in 1997, 1996 and 1995 were as follows:
===============================================================================
1997 1996 1995
- -------------------------------------------------------------------------------
Discount rate 7.26% 7.21% 7.25%
Rate of increase in compensation levels 4.3% 4.7% 4.7%
Expected long-term rate of return on assets 8.9% 8.7% 8.7%
===============================================================================
U.S. based employees retiring from the Company on or after attaining age 55 and
who are entitled to pension benefits are eligible to receive post-retirement
health care and dental benefit coverage for themselves and their dependents.
These benefits are subject to deductibles, co-payment provisions and other
limitations. The Company reserves the right to change or terminate the benefits
at any time.
Post-retirement benefit other than pension expense for the years ended November
30, 1997, 1996 and 1995 consisted of the following:
For the years ended November 30
===============================================================================
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Service cost - benefits earned
during the year $292 $285 $247
Interest cost on benefit
obligation 430 404 398
Amortization of the unrecognized
benefit obligation 192 192 192
- -------------------------------------------------------------------------------
Net other post-retirement benefit expense $914 $881 $837
===============================================================================
The following table sets out the funded status and amounts recognized in the
Company's consolidated balance sheets as of November 30, 1997 and 1996,
respectively:
As of November 30
==================================================================
(in thousands) 1997 1996
- ------------------------------------------------------------------
ACCUMULATED OTHER POST-RETIREMENT
BENEFIT OBLIGATION:
Retirees $ 2,074 $ 1,901
Fully eligible participants 1,010 1,031
Other active participants 3,549 3,326
- ------------------------------------------------------------------
6,633 6,258
Fair value of plan assets - -
- ------------------------------------------------------------------
Accumulated benefit obligation
in excess of fair value of plan assets (6,633) (6,258)
Unrecognized net loss 163 392
Unrecognized prior service cost 98 112
Unrecognized transition obligation 2,666 2,844
- ------------------------------------------------------------------
Accrued post-retirement benefit cost $(3,706) $(2,910)
==================================================================
The calculation of the funded status for 1997 assumes a 7.25% discount rate and
a medical trend rate of increase over the prior year of 10% in the first year
declining at 1% per year to an ultimate rate of 6%. Raising health care gross
eligible charges trends by 1% will increase the aggregate of service cost and
interest cost by approximately $0.05 million and increase the accumulated other
post-retirement benefit obligation by approximately $0.5 million.
16 CAPITAL STOCK, FOUNDER'S SHARES AND DIVIDENDS DECLARED
Founder's shares vote on an equal basis with Common shares and as a separate
class of stock when voting on certain matters requiring a majority of both
classes of stock. The Class B shares are not entitled to vote in the majority of
matters requiring shareholder action.
25
<PAGE>
Under the Articles, holders of Common shares, Class B shares and Founder's
shares participate in annual dividends, if any are declared by the Company, in
the following order of priority: (i) ten percent of the stated value thereof
(i.e., $0.10 per share) to Class B shares as the preferred dividend; (ii) $0.005
per share to Founder's shares and Common shares equally; (iii) $0.095 per share
to Common shares; and (iv) thereafter, Common shares and Class B shares
participate equally in all further amounts.
Under the Articles, in the event of a liquidation, all debts and obligations of
the Company must first be paid and thereafter all remaining assets of the
Company are paid to the holders of Common shares, Class B shares and Founder's
shares in the following order of priority: (i) Class B shares to the extent, if
any, of declared but unpaid dividends on such shares, and thereafter rateably to
the full aggregate issuance price thereof; (ii) Common shares rateably to the
extent of the stated value thereof (i.e. $1.00 per share); (iii) Common shares
and Founder's shares participate equally up to $0.05 per share; (iv) Common
shares rateably to the full aggregate issue price thereof; and (v) thereafter,
Common shares and Class B shares participate equally in all remaining assets.
Class B shares being non-voting shares shall also be entitled to such other
priorities and preferences concerning unpaid dividends for past years as shall
be provided by applicable law.
As of November 30, 1997, 7,799,362 Founder's shares had been issued to Mr.
Stolt-Nielsen. Additional Founder's shares are issuable to holders of
outstanding Founder's shares without consideration, in quantities sufficient to
maintain a ratio of Common shares to Founder's shares of 4 to 1. Pursuant to
Luxembourg law, Founder's shares are not considered to represent capital of
SNSA. Accordingly, no stated values for these shares are included in the
accompanying consolidated balance sheets.
The Company increased its treasury stock holding in 1997 by 20,700 Common
shares.
In November 1997 the Board of Directors approved an interim dividend of $0.25
per Common and Class B share, and $0.005 per Founder share. The dividend was
paid in December 1997. The Company anticipates, subject to the Board of
Directors and Annual General Meeting approval, that the final dividend for 1997
of $0.25 per Common Share and Class B Share will be paid in May 1998.
17 STOCK OPTION PLANS
During 1987, the Company adopted the 1987 Stock Option Plan (the "1987 Plan")
under which 2,660,000 Common shares and 1,330,000 Class B shares were reserved
for future issuance. No further grants will be issued under the 1987 Plan.
During 1997, the Company adopted the 1997 Stock Option Plan (the "1997 Plan")
under which 5,180,000 Common shares, 5,180,000 Class B shares, or any
combination thereof not exceeding 5,180,000 shares, were reserved for future
issuance.
Options granted under both Plans may be exercisable for periods of up to ten
years at an exercise price not less than the fair market value per share at the
date of the grant. Options vest 25% on the first anniversary of the grant date,
with an additional 25% vesting on each subsequent anniversary. The Company
accounts for the Plans under APB Opinion No. 25, under which no compensation
cost has been recognized.
Had compensation cost for all stock option grants in 1996 and 1997 been
determined consistent with SFAS No. 123, the Company's net income and earnings
per share would be reduced to the following pro forma amounts:
For the years ended November 30
===============================================================================
1997 1996
- -------------------------------------------------------------------------------
NET INCOME: As Reported $237,109 $91,940
Pro Forma 235,304 91,005
- -------------------------------------------------------------------------------
PRIMARY EPS: As Reported $4.29 $1.72
Pro Forma 4.25 1.70
===============================================================================
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
fiscal year 1996, and additional awards in future years are anticipated.
The following table reflects activity under the Plans for the years ended
November 30, 1996 and 1997:
For the years ended November 30
===============================================================================
1997 1996
Weighted Weighted
average average
exercise exercise
COMMON SHARES Shares price Shares price
- -------------------------------------------------------------------------------
Outstanding at beginning of year 1,324,683 $13.33 1,226,013 $11.54
Granted 211,350 16.73 314,600 18.97
Exercised (363,645) 11.71 (182,030) 10.64
Canceled (7,825) 16.18 (33,900) 15.14
- -------------------------------------------------------------------------------
Outstanding at end of year 1,164,563 $14.43 1,324,683 $13.34
===============================================================================
Exercisable at end of year 550,738 $12.46 608,483 $11.72
===============================================================================
Weighted average fair value of
options granted $9.12 $9.51
===============================================================================
26
<PAGE>
For the years ended November 30
===============================================================================
1997 1996
Weighted Weighted
average average
exercise exercise
CLASS B SHARES Shares price Shares price
- -------------------------------------------------------------------------------
Outstanding at beginning of year 651,848 $13.26 - $ -
Class B share distribution - - 741,644 13.05
Granted 205,350 17.29 - -
Exercised (181,334) 11.69 (72,846) 10.66
Canceled (5,434) 16.41 (16,950) 15.14
- -------------------------------------------------------------------------------
Outstanding at end of year 670,430 $14.89 651,848 $13.26
===============================================================================
Exercisable at end of year 273,869 $12.43 304,241 $11.72
===============================================================================
Weighted average fair value of
options granted $7.51 -
===============================================================================
The fair value of each stock option grant is estimated as of the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions:
===============================================================================
1997 1996
Common Class B Common Class B
- -------------------------------------------------------------------------------
Risk-free interest rates 6.0% 6.0% 5.7% 6.0%
Expected lives (years) 6.5 6.8 5.7 5.7
Expected volatility 51% 31% 51% 31%
Expected dividend yields 1% 1% 1% 1%
===============================================================================
The following table summarizes information about stock options outstanding at
November 30, 1997:
================================================================================
Options Outstanding Options Exercisable
---------------------------------- --------------------
Number Weighted Number
outstanding average Weighted exercisable Weighted
at remaining average at average
Range of November contractual exercise November exercise
exercise prices 30, 1997 life (years) price 30, 1997 price
- --------------------------------------------------------------------------------
COMMON SHARES
$16.375 to 22.500 480,650 8.43 $18.25 67,200 $18.97
$10.500 to 15.833 562,150 5.38 12.46 361,775 12.61
$6.833 to 8.500 121,763 3.80 8.40 121,763 8.40
- --------------------------------------------------------------------------------
1,164,563 6.47 $14.43 550,738 $12.46
================================================================================
CLASS B SHARES
$16.750 to 22.125 328,475 8.60 $18.17 32,100 $19.03
$10.500 to 15.833 281,074 5.38 12.46 180,888 12.61
$6.833 to 8.500 60,881 3.80 8.40 60,881 8.40
- --------------------------------------------------------------------------------
670,430 6.81 $14.89 273,869 $12.43
================================================================================
18 RELATED PARTY TRANSACTIONS
During the year, the Company held a 25% ownership interest in Maryland Marine,
Inc. ("Maryland Marine"), a chemical barging company which operated
chemical/liquid barges in the U.S. inland and intracoastal waterways. A director
of SNSA owned a majority interest in and served as Chairman and Chief Executive
Officer of Maryland Marine. The Company had accounted for this investment in the
financial statements in accordance with the equity method up to November 21,
1997 when the company sold its interest in Maryland Marine, at its fair market
value, to the director of SNSA. He, in turn, sold Maryland Marine to a
non-related corporation.
During the year, Maryland Marine leased barges to the Company pursuant to
several lease agreements which required the Company to make lease payments
through 2002. As a consequence of the sale of the Company's interest in Maryland
Marine, these lease agreements now have been canceled.
Aggregate amounts paid to Maryland Marine, during the period in which the
Company held an ownership interest, including minimum non-cancelable payments
due under the above lease agreements, were $12.0 million, $12.8 million and
$10.8 million during the years ended November 30, 1997, 1996 and 1995,
respectively.
19 RESTRICTIONS ON PAYMENT OF DIVIDENDS
On an annual basis, Luxembourg law requires an appropriation of an amount equal
to at least 5% of SNSA's unconsolidated net profits, if any, to a "legal
reserve" within shareholders' equity, until such reserve equals 10% of the
issued share capital of SNSA. This reserve is not available for dividend
distribution. SNSA's Capital stock and Founder's shares have no par value.
Accordingly SNSA has assigned a stated value per Common and Class B share of
$1.00. At November 30, 1997 this legal reserve amounted to approximately $6.2
million based on Common and Class B shares issued on that date. Advance
dividends can be declared, up to three times in any fiscal year (at the end of
the second, third and fourth quarters) by the Board of Directors; however, they
can only be paid after the prior year's financial statements have been approved
by SNSA's shareholders, and after a determination as to the adequacy of amounts
available to pay such dividends has been made by its independent statutory
auditors in Luxembourg. Final dividends are declared by the shareholders once
per year at the Annual General Meeting; both advance and final dividends can be
paid out of any SNSA earnings, retained or current, as well as paid-in surplus,
subject to shareholder approval. Luxembourg law also limits the payment of stock
dividends to the extent sufficient surplus exists to provide for the related
increase in stated capital.
27
<PAGE>
As of November 30, 1997, the most restrictive covenant within the Company's loan
agreements limits SNSA dividend payments to 40% of consolidated net income, as
defined, for the previous four fiscal quarters.
20 FOREIGN EXCHANGE CONTRACTS AND SWAP AGREEMENTS
All of the Company's derivative activities are over-the-counter instruments
entered into with major financial institutions for hedging the Company's
committed exposures or firm commitments. All of the Company's derivative
instruments are straightforward foreign exchange forward and option contracts,
and commodity and interest rate swaps, which subject the Company to a minimum
level of exposure risk. The Company does not consider that it has a material
exposure to credit risk from third parties failing to perform according to the
terms of hedge instruments.
The following foreign exchange contracts, maturing through November 1998, were
outstanding at November 30, 1997:
=======================================================
(in thousands) Purchase Sell
- -------------------------------------------------------
Norwegian kroner 149,584
Singapore dollars 31,184
Canadian dollars 42,700
British pounds sterling 3,077
Danish kroner 16,219
German marks 931
French francs 43,874
Japanese yen 378,000
Belgian francs 71,839
Italian lire 54,516,000
=======================================================
The U.S. dollar equivalent of the currencies which the Company had contracted to
purchase was $125.0 million and to sell was $6.3 million at November 30, 1997.
The following estimated fair value amounts of the Company's financial
instruments have been determined by the Company, using appropriate market
information and valuation methodologies. Considerable judgement is required to
develop these estimates of fair value, thus the estimates provided herein are
not necessarily indicative of the amounts that could be realized in a current
market exchange:
As of November 30, 1997
===============================================================================
(in millions) Carrying amount Fair value
- -------------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and cash equivalents $68.6 $68.6
FINANCIAL LIABILITIES:
Loans payable to banks 19.9 19.9
Long-term debt and related
currency and interest rate swaps 776.6 850.6
OFF BALANCE SHEET FINANCIAL INSTRUMENTS:
Foreign exchange forward contracts - (1.5)
Bunker hedge contracts - (0.1)
===============================================================================
The carrying amount of cash and cash equivalents and loans payable to banks is a
reasonable estimate of their fair value. The estimated value of the Company's
long-term debt is based on interest rates at November 30, 1997 using debt
instruments of similar risk. The fair values of the Company's currency and
interest rate swaps and foreign exchange forward hedge and bunker hedge
contracts are based on their estimated termination values at November 30, 1997.
28
<PAGE>
EXHIBIT 2.5
E T U D E
D E
Me PAUL FRIEDERS
N O T A I R E
A
L U X E M B 0 U R G
STATUTS COORDONNES
OF
STOLT-NIELSEN S.A.
ARTICLES OF INCORPORATION
RESTATED EFFECTIVE DECEMBER 16, 1997
(CERTIFIED BY NOTARY JANUARY 12,1998)
<PAGE>
STOLT-NIELSEN S.A.
Societe anonyme
Luxembourg, 37, rue Notre-Dame
RC Luxembourg B 12 179
Constituee sous la denomination de "STOLT TANKERS AND TERMINALS (HOLDINGS)
S.A." suivant proces-verbal documente par le ministere de Maitre Carlo
FUNCK, notaire de residence a Luxembourg en date du 5 juillet 1974, publie
au R.S. du 23 septembre 1974 sous le No. 189; statuts modifies suivant actes
requs par le meme notaire FUNCK en dates des 30 juillet 1975, publie
au R.S. du 8 octobre 1975 sous le No. 188 at 4 aout 1977, publie au R.S. du
9 novembre 1977 sous le No. 258 et suivant actes regus par Maitre Paul
FRIEDERS, notaire de residence a Luxembourg, le 31 juillet 1984, publie au
R.S. du 13 septembre 1984, sous le No. 245, le 31 mars 1987, publie au R.S. du 8
aout 1987, sous le No. 22o, le 19 mai 1987, publie au R.S. du 2 octobre
1987, sous le No. 27o, le 4 aout 1987, publie au R.S., du 21 novembre 1987,
sous le No. 337, le 8 octobre 1987, publie au R.S. du 9 janvier 1988, sous le
No. 7, le 8 avril 1988, publie au R.S. du 20 mai 1988, sous le No. 134, le 3 mai
1988, publie au R.S. du 31 mai 1988, sous le No. 146, le 2 septembre 1988,
publie au R.S. du 7 decembre 1988, sous le No. 322, le 21 novembre 1989, publie
au R.S. du 3 mai 1990, sous le No. 144, le 21 mars 1990, publie au R.S. du 9
octobre 1990, sous le numero 366, le 12 septembre 1991, publie au R.S., du 26
mars 1992, sous le No. 106, le 27 janvier 1992, publie au R.S., du 27 juillet
1992, sous le No. 320, le 19 mai 1992, publie au R.S., du 20 octobre 1992, sous
le No. 474, le 31 juillet 1992, publie au R.S., du 9 decembre 1992, sous le No.
580, le 29 decembre 1992, publie au R.S., du 18 fevrier 1993, sous le No. 80, le
16 juin 1993, publie au R.S. du 7 aout 1993, sous le No. 359, le ler mars
1994, publie au R.S. du 29 juin 1994 sous le No. 256, le 8 avril 1994, publie au
R.S. du 6 septembre 1994, sous le No. 325, le 19 avril 1994
<PAGE>
publie au R.S., du 19 septembre 1994, sous le No. 346, les 7 et 9 aout 1995,
publies au R.S., du 31 octobre 1995, sous le No. 557, le 15 decembre 1995,
publie au R.S., du 8 mars 1996, sous le No. 118, le ler mars 1996, publie au
R.S., du 6 juin 1996, sous le No. 277, le 19 mars 1996 publie au R.S., du 29
juin 1996, sous le No. 317, le 20 mars 1996, publie au R.S. du 29 juin 1996,
sous le No. 317, le 20 mars 1996, publie au R.S. du ler juillet 1996, sous le
No. 319, le 7 mai 1996, publie au R.S. du 26 aout 1996, sous le No. 413, le 25
novembre 1996, publie au R.S. du 18 fevrier 1997, sous le No. 78, le 21 avril
1997, le 2 mai 1997, publies au R.S. du ler aout 1997, sous le No. 418, le 29
juillet 1997, publie au R.S. du 21 novembre 1997, sous le No. 650, le 5 novembre
1997, publie au R.S. du , sous le No et le 16 decembre 1997, publie au R.S. du
sous le No
STATUTS COORDONNES
<PAGE>
Chapter 1
Name, Registered Office, Object Duration:
Article One: A stock holding Company under Luxembourg law is
hereby established, to be called "STOLT-NIELSEN S.A."
Article Two: The Company shall have its registered office at
Luxembourg in the Grand Duchy of Luxembourg.
It may be transferred to any other place within the country by
decision of the Board of Directors.
The Board of Directors shall also have the right to set up
offices, administrative centers, agencies and subsidiaries wherever it shall see
fit, either within or outside the Grand Duchy of Luxembourg.
Should any political, economic or social events of exceptional
nature occur or threaten to occur that are likely to affect normal working
operations at the registered office or easy communications with places abroad,
the registered office may be declared provisionally transferred abroad, until
such time as circumstances have completely returned to normal.
Such a declaration as to the transfer abroad of the registered
office will be made and brought to the attention of third parties by the organ
of the Company which, in the circumstances, is best able to do so.
The general meeting of shareholders is the final judge, even a
posteriori, as to whether the above-mentioned events may have constituted a case
of force majeure.
The taking of such a step will have no effect on the
nationality of the Company which, notwithstanding the transfer abroad of the
registered office, will remain Luxembourg.
Article Three: The objects of the Company are: participation
in any manner in all commercial, industrial, financial and other enterprises of
Luxembourg or foreign nationality through the acquisition by participation,
subscription, purchase, option or by any other means of all shares, stocks,
debentures, bonds or securities; the acquisition of patents and licenses which
it will administer and exploit; it may lend or borrow with or without security,
provided that any monies so borrowed may
<PAGE>
only be used for the purposes of due Company, or companies which are
subsidiaries of or associated with or affiliated to the Company; in general it
may undertake any operations directly or indirectly connected with these objects
whilst nevertheless remaining within the limits set out by the law on holding
companies of thirty-first of July nineteen hundred and twenty-nine.
Article Four: The duration of the Company is unlimited.
Chapter 2
Capital, Shares, Bond-Issues
Article Five:
The authorised capital of the Company is fixed at one
hundred and twenty million United States Dollars (U.S.$ 120,000,000) to be
represented by (a) sixty million (60,000,000) Common Shares, no par value,
and (b) sixty million (60,000,000) Class B Shares, without par value. Any
authorised but unissued Common Shares or Class B Shares shall lapse five (5)
years after publication of the Articles of Incorporation, or any amendment
thereto, in the Memorial.
The presently recorded issued capital of the Company is fixed
at sixty-two million one hundred and thirty thousand six hundred and ninety-six
United States Dollars (62,130,696 U.S. $) represented by thirty-one million one
hundred and ninety-seven thousand four hundred and fifty (31,197,450) Common
Shares of no par value and thirty million nine hundred and thirty-three thousand
two hundred and forty-six (30,933,246) Class B Shares of no par value, all of
the said shares being fully paid. Notwithstanding the fact
<PAGE>
that the Common Shares and Class B Shares are without par value, One United
States Dollar (U.S.$ 1.00) shall be allocated to the "stated capital" account of
the Company at the time of issuance of any such shares.
The Board of Directors or delegate(s) duly appointed by the
Board may from time to time issue shares out of the total authorised shares at
such times and on such terms and conditions, including issue price, as the Board
or its delegate(s) may in its or their discretion resolve. The holders of Common
Shares shall be entitled to preemptive rights in respect of any future issuance
of Common Shares for cash. The holders of Class B Shares shall be entitled to
preemptive rights in respect of any future issue of Class B Shares for cash. The
holders of any class of shares shall not be entitled to preemptive rights with
respect to any other class of shares. In each case, the Board of Directors may
suppress the preemptive rights of shareholders to the extent it deems advisable.
In addition to the Common Shares and the Class B Shares,
fifteen million (15,000,000) Founder's Shares, without par value and not forming
a part of the share capital of the Company, have been authorised. SEVEN MILLION
SEVEN HUNDRED AND NINETY-NINE THOUSAND THREE HUNDRED AND SIXTY-TWO (7,799,362)
Founder's Shares have been issued.
<PAGE>
Article Six: Any share premium which shall be paid in addition
to the stated value of the Common Shares or Class B Shares shall be transferred
to paid-in surplus.
Article Seven: Common Shares and Class B Shares being fully
paid up shall not be subject to any restriction in respect of their transfer,
but such shares shall be subject to the restrictions on shareholding set forth
in Article 36 hereof.
Article Eight: The Common Shares, Class B Shares and Founder's
Shares (all three classes herein sometimes collectively referred to as the
"Shares" and the Common Shares and Founder's Shares herein sometimes jointly
referred to as the "Voting Shares") may be issued in registered form only.
Share certificates will be issued for Shares in such
denominations as the Board of Directors shall prescribe. The share certificates
shall be in such form and shall bear such legends and such numbers of
identification as shall be determined by the Board of Directors. The forms of
share certificates may be different in respect of the Shares entered in the
various Registers. The share certificates shall be signed manually or by
facsimile by two directors of the Company. The Board of Directors may provide
for compulsory authentication of the share certificates by the Registrar(s).
All Shares in the Company shall be registered in the
Register(s) of Shareholders which shall be kept by the persons designated
therefor by the Company and such Register(s) of Shareholders shall contain the
name of each holder of Shares, his residence and/or elected domicile, the number
of Shares held by him and the amount paid on each Share. Every transfer or
devolution of Shares shall be entered into the Register(s) of Shareholders and
every such entry shall be signed by one or more officers of the Company or by
one or more persons designated by the Board of Directors.
The Company may appoint Registrars in different jurisdictions
who will each maintain a separate Register for the Shares entered therein and
the holders of Shares may elect to be entered in one of the Registers and to be
transferred from time to time from one Register to another Register. The Board
of Directors may however restrict the ability to transfer Shares that are
registered, listed, quoted, dealt in, or have been placed in certain
jurisdictions. The transfer to the Register kept at the registered office in
Luxembourg may always be requested.
On transfers of Shares, new certificates in respect of Shares
transferred and retained respectively shall be issued in each case without
charge.
Transfers of Shares shall be effected upon delivery of the
certificate or certificates representing such Shares to the Registrar together
with (i) a stock power or other instrument: of transfer satisfactory
<PAGE>
to the Company, (ii) a written declaration of transfer inscribed in the Register
of Shareholders, dated and signed by the transferor and transferee, or by
persons holding suitable powers of attorney to act therefor or (iii) with the
form of endorsement which may be provided on the certificate duly completed and
executed, in each case in such form and with such evidence of authority as shall
be satisfactory to the Company.
Except as provided in Chapter 7 hereof, the Company may
consider the Person in whose name the Shares are registered in the Register of
Shareholders as the full owner of such Shares. The Company shall be completely
free from every responsibility in dealing with such Shares towards third parties
and shall be justified in considering any right, interest or claims of such
third parties in or upon such Shares to be non-existent, subject, however, to
any right which he might have, to demand the registration or change in
registration of Shares.
In the event that a holder of Shares does not provide an
address to which all notices or announcements from the Company may be sent, the
Company may permit a notice to this effect to be entered into the Register(s) of
Shareholders and such holder's address will be deemed to be at the registered
office of the Company or such other address as may be so entered by the Company
from time to time, until a different address shall be provided to the Company by
such holder. The holder may, at any time, change his address as entered in the
Register(s) of Shareholders by means of written notification to the Registrar.
Lost, stolen or mutilated share certificates will be replaced
by the Registrar who issued the share certificates in the first place upon such
evidence, undertakings and indemnities as may be deemed satisfactory to the
Company, provided that mutilated share certificates shall be delivered before
new share certificates are remitted.
Article Nine: Each Common Share and each Founder's Share shall
be entitled to one vote at all meetings of shareholders, except as may be
otherwise provided in these Articles of Incorporation or by applicable law.
Class B Shares are non-voting shares and shall not be entitled
to vote at meetings of shareholders unless such right is granted by applicable
law. In such cases where the Class B Shares are granted the right to vote, each
Class B Share shall also be entitled to one vote. The Class B Shares will in
such a case vote with the Shares as one class unless applicable law would call
for a class vote. For the avoidance of doubt, it is specified that the Class B
Shares will not, under the provisions of the Articles of Incorporation, meet and
vote as a class.
The affirmative vote of the holders of a 2/3 majority of all
outstanding Shares, considered for the purposes of this Article 9 as one class,
and the affirmative vote of the holders of a 2/3 majority of the
<PAGE>
outstanding Shares of each class, except as hereinafter provided, shall be
required:
(a) to authorise and adopt any agreement for the merger or
consolidation of the Company or any Subsidiary (as defined herein) with or into
any other Person (as defined herein);
(b) to authorise (x) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition by the Company or any Subsidiary of all or
a Substantial Part (as defined herein) of the assets of the Company to any
Person, or (y) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of any assets of any Person to the Company or any Subsidiary in
exchange for securities of the Company;
(c) to adopt any plan or proposal for the liquidation,
dissolution or winding up of the Company or any Subsidiary representing a
Substantial Part of the Company;
(d) to authorise any reclassification of securities (including
any reverse stock split), or recapitalization of the Company, or any merger,
consolidation, or share exchange of the Company with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise involving
another Person) which has the effect, directly or indirectly of increasing the
proportionate share of the outstanding Voting Stock or securities convertible
into Voting Stock or the equity securities of any Subsidiary beneficially owned
by any other Person;
(e) to authorise any Leveraged Transaction (as defined
herein); or
(f) to enter into, terminate or modify in any material respect
any management agreement covering executive officers and/or directors of the
Company and/or any Subsidiary accounting for a Substantial Part of the Company,
or which relates to more than a Substantial Part of the business of the Company.
Such affirmative votes shall be in addition to the vote of the
holders of the shares of the Company otherwise required by law, any other
provision of these Articles, or any agreement between the Company and any
securities exchange or equivalent governmental or non-governmental body.
The provisions of this Article 9 shall not be applicable to
any transaction referred to above in (a) through (f) to which the holders of the
outstanding Founder's Shares shall have given unanimous consent at a class
meeting, in which case the quorum and voting requirements of the laws of
Luxembourg shall apply.
The Board of Directors shall have the power and duty to
determine, for the purposes of this Article 9 and on the basis of the
information known to it, whether the assets that are the subject of any
<PAGE>
transaction referred to above in (a) through (f) equal or exceed a Substantial
Part of the Company. The Board of Directors shall vote the shares of each
Subsidiary, and shall direct the Board of Directors and officers of each
Subsidiary, so as to carry out the provisions of this Article 9.
No amendment to the Articles of Incorporation shall amend,
alter, change or repeal any of the provisions of this Article 9, unless the
proposal effecting such amendment, alteration, change or repeal shall receive
the affirmative vote of both (i) the holders of a 2/3 majority of the
outstanding Shares voting as a single class, and (ii) the holders of a 2/3
majority of the outstanding Shares of each class, or Articles 32 or 34 to
increase the annual amount of dividend or the amount of distribution per
Founder's Share, unless the proposal effecting such increase shall receive the
affirmative vote of both (x) the holders of a 2/3 majority of the outstanding
Shares voting as a single class, and (y) the holders of a 9/10 majority of the
outstanding Shares of each class.
Article Ten: The share capital of the Company may be increased
or reduced by resolution of shareholders adopted in the manner required for the
amendment of these Articles of Incorporation.
In addition, the Board is instructed and authorised to proceed
to increase the share capital by issuance of such Common Shares or Class B
Shares within the limits of the authorised capital, such increase to be made in
one or more installments on such conditions as the Board shall determine from
time to time. The Board may delegate to any officer of the Company or to any
other person the duties of accepting subscriptions and receiving payments for
the Common Shares and/or Class B Shares representing part or all of such
increased amount of capital and to have any consequential amendment to these
Articles of Incorporation (including the proportionate increase in Founder's
Shares) witnessed by notarial deed.
If, after the original issuance of the Founder's Shares
authorised Voting Shares and any other class of shares that carry voting rights
and may be authorised and issued in the future shall be from time to time issued
for any corporate purpose, including pursuant to the exercise of options granted
under an employees' stock option plan or similar arrangement, then the Company
shall issue an additional number of free Founder's Shares to the holders of
outstanding Founder's Shares, on a proportionate basis, so that the Founder's
Shares shall equal at all times in the aggregate 20% of all such outstanding
Shares and other shares. If the outstanding Shares and other shares shall at any
time be changed or exchanged by a share dividend declaration, split-up,
combination of shares, recapitalization, merger, consolidation, or other
corporate reorganization in which the Company is the surviving corporation, the
number of outstanding Founder's Shares shall be adjusted so as to maintain the
proportionate relationship of the number of outstanding Founder's Shares and
outstanding Voting Shares and other shares, on the basis of the former
constituting 20% of the latter.
<PAGE>
Article Eleven: The Shares shall be indivisible as far as the
Company is concerned. Only one titleholder will be recognized in connection with
each Share.
If any Share shall be held by more than one person, the
Company has the right to suspend the exercise of all rights attached to the
Shares until one person has been appointed titleholder with regard to such
share(s).
The same rule shall apply in the case of a conflict between an
usufructuary and a bare owner or between a pledgor and a pledgee.
The Company shall not issue fractions of Shares. The Board of
Directors shall be authorised at its discretion to provide for the payment of
cash or the issuance of script in lieu of any fraction of a Share.
Article Twelve: The Board of Directors may decide the issuance
of bonds and debentures not containing an element of stock, which may be in
bearer or other form in any denomination or denominations and payable in any
currency or currencies.
The Board of Directors shall fix the rate of interest,
conditons of issue and repayment and all other terms and conditions thereof.
The bonds and debentures must be signed by two Directors
manually or by facsimile.
Chapter 3
Administration and Control
Article Thirteen: The Company shall be managed by a Board of
Directors composed of members who need not be shareholders of the Company.
The Board of Directors shall be composed of at least 3 and not
more than 9 persons and shall be elected by a simple majority of the outstanding
Shares for a period not exceeding 6 years and until their successors are
elected, provided, however, that any one or more of the directors may be removed
with or without cause by the votes of the holders of more than 50 per cent of
the shares present or represented at a meeting.
To be considered for election, the names of candidates for
nomination to the Board of Directors shall be deposited together with written
acceptance of the proposed candidates, at the registered office
<PAGE>
of the Company or with the Chairman of the Company at least one month before the
date set for the meeting at which the Directors shall be elected. No such
deposit shall be required for the reelection of directors in office.
In the event of a vacancy in the office of a director because
of death, retirement, resignation or dismissal, the remaining members of the
Board and the Statutory Auditor can fill such vacancy and appoint a member to
act until the next general meeting of shareholders, which shall confirm each
appointment. If the exercise of the powers conferred hereby upon a Statutory
Auditor would conflict with the independence of such Auditor under the
requirements of any regulatory authority having jurisdiction over the Company
because of the distribution of the Voting Shares of the Company, the vacancy may
not be so filled but the election of a replacement will be referred to the
meeting of shareholders.
Article Fourteen: The Board of Directors will elect, from its
members, a chairman who shall preside over all meetings of the Board of
Directors and of shareholders including class meetings. In his absence, the
Chairman shall appoint a designee for such purposes.
The Board may also, in conformity with the provisions of
article sixty of the law on trading companies, delegate the daily management of
the business of the Company, as well as the power to represent the Company in
its daily business, to executive committees, individual directors, the chairman,
managing directors or other agents, who need not be shareholders. The Board will
fix the conditions of appointment and dismissal as well as the remuneration and
powers of any person or persons so appointed.
The delegation of such powers to a member of the Board of
Directors of the appointment of directors to any executive committee requires
the prior authorization of the general meeting of shareholders. The Board of
Directors may elect a secretary of the Company, and, as it shall see fit, an
appropriate number of assistant-secretaries. Neither the secretary nor the
assistant-secretaries need be members of the Board of Directors.
Article Fifteen: The Board of Directors shall meet upon call
by the Chairman or any two directors. Notice of any meeting must be given by
letter, cable, telegram, telex or telefax advice to each director seven days
before the meeting, except in the case of an emergency, in which event a one-day
notice shall be sufficient.
Any director may act at any meeting of the Board of Directors
by appointing in writing or by cable, telegram, telex or telefax another
director as his proxy.
Decisions of the Board shall be taken by a majority of the
votes cast by the directors present or represented at the meeting.
<PAGE>
Resolutions signed by all members of the Board will be as
valid and effective as if passed at a meeting duly convened and held. Such
signatures may appear on a single document or multiple copies or an identical
resolution and may be evidenced by letters, cables, telexes or faxes.
Article Sixteen: The minutes of any meeting of the Board of
Directors shall be signed by the Chairman and the Secretary of the meetings.
Copies or extracts of such minutes which may be produced in
judicial proceedings or otherwise shall be signed by the Chairman or two
directors or the secretary or any assisant secretary.
Article Seventeen: The Board of Directors is vested with the
broadest powers to manage the business of the Company and to authorise and/or
perform all acts of disposal and administration falling within the purposes of
the Company.
All powers not expressly reserved by the law or by the
statutes of the Company to the general meeting or to the general council shall
be within the competence of the Board of Directors.
Except as otherwise provided herein or by law, the Board of
Directors of the Company is hereby authorised to take such action (by resolution
or otherwise) and to adopt such provisions as shall be necessary or convenient
to implement further the terms of these Articles or as shall be necessary or
convenient for the purpose of maintaining the status of the Company as a
publicly traded company.
Article Eighteen: The signature by the Chairman or the joint
signatures of any directors shall in all cases bind the Company against third
parties whether or not powers have been specifically delegated for that purpose.
This provision is without prejudice to the provisions for the delegation of
powers and the conferring of mandates by the Board of Directors provided in
these Articles of Incorporation.
Article Nineteen: No contract or other transaction between the
Company and any other corporation or entity shall be affected or invalidated by
the fact that any one or more of the directors or officers of the Company is
interested in or is a director or employee of such other corporation or entity.
Any director or officer of the Company who serves as director, officer or
employee of any corporation or entity with which the Company shall contract or
otherwise engage in business shall not by reason of such affiliation with such
other corporation or entity be prevented from considering and voting or acting
upon any matters with respect to such contracts or other business.
All transactions, deeds and acts between the Company and any
shareholder, or with any company which is directly or indirectly controlled by a
shareholder, or in which a shareholder has a direct or
<PAGE>
indirect interest in or a commercial relationship with, shall be carried out on
an arm's length basis.
In the event that any director or officer of the Company shall
have any personal interest in any transaction of the Company, such director or
officer shall make known to the Board of Directors such personal Interest and
shall not consider or vote on such transaction, and such transaction and such
director's or officer's interest therein shall be reported to the next
succeeding meeting of shareholders.
Article Twenty: Subject to the exception and limitations
listed below:
(i) Every person who is, or has been, a director or
officer of the Company shall be indemnified by the
Company to the fullest extent permitted by law
against liability and against all expenses reasonably
incurred or paid by him in connection with any claim,
action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his
being or having been such director or officer and
against amounts paid or incurred by him in the
settlement thereof.
(ii) The words "claim", "action", "suit" or "proceeding"
shall apply to all claims, actions, suits or
proceedings (civil, criminal or otherwise including
appeals) actual or threatened and the words
"liability" and "expenses" shall include without
limitation attorneys' fees, costs, judgments, amounts
paid in settlement and other liabilities.
No indemnification shall be provided to any director or
officer:
(i) Against any liability to the Company or its
shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(ii) With respect to any matter as to which he shall have
been finally adjudicated to have acted in bad faith
and not in the interest of the Company; or
(iii) In the event of a settlement, unless the settlement
has been approved by a court of competent
jurisdiction or by the Board of Directors.
The right of indemnification herein provided shall be
severable, shall not affect any other rights to which any director or officer
may now or hereafter be entitled, shall continue as to a person who has ceased
to be such director or officer and shall inure to the benefit of
<PAGE>
the heirs, executors and administrators of such a person. Nothing contained
herein shall affect any rights to indemnification to which corporate personnel,
including directors and officers, may be entitled by contract or otherwise under
law.
Expenses in connection with the preparation and representation
of a defense of any claim, action, suit or proceeding of the character described
in this Article 20 may be advanced by the Company prior to final disposition
thereof upon receipt of any undertaking by or on behalf of the officer or
director, to repay such amount if it is ultimately determined that he is not
entitled to indemnification under this Article 20.
Article Twenty-One: The audit of the Company's affairs will be
made by Statutory Auditor, who need not be a shareholder and who shall be
elected by the general meeting of shareholders for a period of one year or until
his successor is elected.
Any Statutory Auditor so elected may be removed at any general
meeting.
The Statutory Auditor shall be eligible for reelection.
Article Twenty-Two: The general meeting will advise on the
remunerations to be paid to the directors and Statutory Auditor of the Company
and such amounts shall be charged to general expenses.
Chapter 4
General Meeting
Article Twenty-Three: The general meeting properly constituted
represents the whole body of shareholders and its decisions are binding on
shareholders who are absent, opposed or abstaining from voting.
The general meeting has the broadest powers to do or ratify
all acts which concern the Company.
Article Twenty-Four: In addition to all extraordinary general
meetings which may be called as often as the interests of the Company may
demand, and which may be held in Luxembourg or elsewhere for the convenience of
shareholders, an ordinary general meeting must be held every year in the
municipality in which the registered office is located, either at the registered
office or where indicated in the notice of meeting at two o'clock post-meridien
on the last business day in July.
The general ordinary meeting will hear the statement of the
Board of Directors and the Statutory Auditor, vote on the adoption of the report
and accounts and on the distribution of the profits, proceed
<PAGE>
to make all nominations required by the Articles of Incorporation, act on the
discharge of the directors and the Statutory Auditor and take such further
action on other matters that may properly come before it.
Article Twenty-Five: The Board of Directors shall be
responsible for calling both ordinary and extraordinary general meetings.
The Board shall be obligated to call a general meeting, to
be held within thirty (30) days after receipt of such request, whenever a
group of shareholders representing at least one-fifth of the issued and
outstanding shares entitled to vote thereaft requests such a meeting in
writing indicating the agenda thereof. General meetings may also be called by
the Chairman or by any two Directors.
Notices for general meetings shall be given by mail first
class, postage prepaid to all holders of Common Shares, Class B Shares and
Founder's Shares sent to the address recorded in the Register, and posted not
later than twenty days before the date set for the meeting. Notices shall be
deemed to be given when deposited in the mail as aforesaid.
If the entire issued share capital is represented, the
proceedings of the general meeting will be deemed valid even if no notice has
been issued beforehand.
A shareholder may be represented at a general meeting by a
proxy who need not be a shareholder. Written proxies for any general meeting of
shareholders shall be deposited with the Company at its registered office or
with any Board member at least 5 days before the date set for the meeting.
During meetings, each member of the meeting shall have as many
votes as the number of Common Shares or Founder's Shares (or in the case where
they are entitled to vote, the number of Class B Shares) that he represents,
both in his name and as proxy.
Article Twenty-Six: The meeting of shareholders shall be
presided over by the Chairman of the Board of Directors or, in his absence, by a
Director or other person appointed by the Board, who shall appoint a secretary.
The participants in the meeting may, if they deem fit, choose
from their own number, two scrutineers. The other members of the Board of
Directors present will complete the bureau of the meeting. A record will be
taken of those holders of Shares present and represented, which will be
certified as correct by the bureau.
Article Twenty-Seven: The Board of Directors may close the
Registers of Shareholders of the Company for a period not exceeding sixty days
preceding the date of any meeting of shareholders or the date for payment of any
dividend or the date for the allotment of rights or the
<PAGE>
date when any change or conversion or exchange of shares shall go into effect,
or for a period not exceeding sixty days in connection with obtaining the
consent of shareholders for any purpose. In lieu of closing the Registers of
Shareholders as aforesaid, the Board of Directors may fix in advance a date, not
exceeding sixty days preceding the date of any meeting of shareholders or the
date for the payment of any dividend or the date for the allotment of rights or
the date when any change or conversion or exchange of shares shall go into
effect, or may fix a date in connection with obtaining any consent of
shareholders, as a record date for the determination of the shareholders
entitled to notice and to vote at any such meeting and any adjournment thereof,
or to receive payment of any such dividend, or to receive any such allotment of
rights, or to exercise the rights in respect of any such change, conversion or
exchange of shares or to give such consent. Only such shareholders as shall be
shareholders of record at the close of business on the date of such closing of
the Registers of Shareholders or on such record date shall be entitled to notice
of and to vote at such meeting and any adjournment thereof, or to receive
payment of such dividend, or to receive such allotment of rights, or to exercise
such rights, or to give such consent, as the case may be, notwithstanding any
transfer of any shares on the register of the Company after any such closing or
record date.
Article Twenty-Eight: The Articles may be amended from time to
time by a resolution of the shareholders subject to the quorum and voting
requirements provided by the law of Luxembourg and as may otherwise be provided
herein.
Article Twenty-Nine: The general meeting of shareholders shall
only discuss such business as indicated in the agenda and only vote on such
resolutions as shall be set forth or summarized in the agenda.
The proceedings of general meetings will be recorded in
minutes which need not be authenticated by a notary.
If the minutes of a general meeting are not authenticate they
must be inscribed in a special register and shall be signed by the bureau and
the shareholders or the shareholders representatives who express the desire so
to do.
Duplicates, copies or extracts from minutes inscribed on the
register for the use of third parties or in court must be certified as true and
accurate by the Chairman of the Board of Directors or by two directors.
<PAGE>
Chapter 5
Trading Year, Annual Report,
Distribution of Profits and the Reserves
Article Thirty: The trading year runs from the first-of
December to the thirtieth of November both inclusive, every year.
Article Thirty-One: Each year, as of the thirtieth of
November, the Board of Directors will draw up the Balance Sheet which will
contain a record of the property of the Company together with its debts and
liabilities and be accompanied by an annex containing a summary of all the
commitments and debts of the directors or the Statutory Auditor to the Company.
At the same time the accounts will be closed and the Board of
Directors will prepare a Profit and Loss Statement for the last trading year.
The Board of Directors Report shall be annexed to such Balance
Sheet and Profit and Loss Statement and these reports and documents shall
contain the details required by the law applicable to the Company. A copy of all
such documents shall be forwarded, at least twenty (20) days before the date
fixed for the general meeting to which they are to be submitted, to all
shareholders.
Article Thirty-Two: The credit balance of the Profit and Loss
Statement, after deducting the general expenses, social charges, write-offs and
provisions for past and future contingencies shall constitute the net profit of
the Company.
At least five percent of the net profit will be deducted in
order to build up the legal reserve, this deduction shall cease to be obligatory
when the legal reserve is equal to one-tenth of the capital. Any paid-in surplus
may be allocated to the legal reserve or may be applied towards the payment of
dividends on Common Shares or Founder's Shares or to offset capital losses
(whether realised or unrealised) or to capitalise the par value of any free
Common Shares or Class B Shares.
The remaining balance of the net profit shall be at the
disposal of the general meeting.
Dividends which may be allocated shall be paid at the places
and on the dates decided by the Board of Directors. Common Shares, Class B
Shares and Founder's Shares shall participate in annual dividends, if any are
declared by the Company, in the following order of priority:
- ten per cent (10%) of the stated value thereof to Class B
Shares as the preferred dividend;
<PAGE>
- U.S. $ 0.005 per share to Founder's Shares and Common Shares
equally;
- U.S. $ 0.095 per share to Common Shares; and
- thereafter, Common Shares and Class B Shares shall
participate equally in all further amounts.
Class B Shares being non-voting shares shall also be entitled
to such other priorities and preferences concerning accrued but unpaid dividends
for past years as shall be provided by applicable law.
The general meeting may authorise the Board of Directors to
pay dividends in any other currency from that in which the Balance Sheet is
drawn up and to make a final decision on the exchange rate of the dividend into
the currency in which payment will actually be made.
Interim dividends may be declared and paid by the Board of
Directors subject to complying within the conditions laid down by law.
Chapter 6
Dissolution, Liquidation
Article Thirty-Three: In the event of the dissolution of the
Company for whatever reason or whatever time, the liquidation will be performed
by liquidators appointed by the general meeting, or, if no liquidators are so
appointed, by the Board of Directors then in office who will be endowed with the
powers provided by articles 144 et seq. of the Luxembourg Company Law of the
tenth of August, nineteen hundred and fifteen.
Article Thirty-Four: Once all debts, charges and liquidation
expenses have been met, any balance resulting shall be paid to the holders of
Common Shares, Class B Shares and Founder's Shares in the following order of
priority:
- Class B Shares to the extent, if any, of accrued and unpaid
dividends on such shares, and thereafter ratably to the full aggregate issuance
price thereof;
- Common Shares ratably to the extent of the stated value
thereof;
- Common Shares and Founder's Shares participate equally up to
U.S.$ 0.05 per share;
- Common Shares ratably to the full aggregate issue price
thereof; and
<PAGE>
- thereafter Common Shares and Class B Shares participate
equally in all remaining assets.
Class B Shares being non-voting shares shall also be entitled
to such other priorities and preferences concerning liquidation as shall be
provided by applicable law.
Chapter 7
Merger and Compulsory Conversion
Article Thirty-Five:
If the Company merges, consolidates or enters into any similar
transaction with another entity where such other entity will remain the
surviving entity, (i) the holders of Class B Shares shall be entitled to receive
consideration which is not less per share than the per share consideration, if
any, received by any holder of Common Shares in such transaction and (ii) the
Class B Shares and Common Shares held by holders other than holder(s) of
Founder's Shares shall be entitled to receive consideration which is no less per
share than the consideration per share received by the holder(s) of Founder's
Shares, the latter per share amount to be determined by dividing the aggregate
of all consideration received by such holder(s) for all shares owned by them,
including Founder's Shares, by the total number of Common Shares and Class B
Shares which they own.
Article Thirty-Six:
If the Board of Directors of the Company determines it is in
the best interest of the Company to issue further Class B Shares, and such
issuance would result in the number of Class B Shares to exceed the number of
Common Shares, then the Board of Directors of the Company can
<PAGE>
direct the Class B Shares held by either (i) Jacob Stolt-Nielsen, Jr. and family
or affiliate entity or (ii) Stolt Parcel Tankers Inc. be converted into Common
Shares of the Company on a share-for-share basis, it being specified for the
avoidance of doubt that in such a case additional Founder's Shares shall be
issued as provided in Article 10, 3rd par.
Chapter 8
Restriction on Shareholdings
Article Thirty-Seven:
(a) In recognition of the fact that certain
shareholdings may threaten the Company with Imminent
and Grave Damage (as defined hereinafter), including,
but not limited to, that arising from adverse tax
consequences, a hostile takeover attempt or adverse
governmental sanctions, the following restrictions
shall apply to all persons who become Shareholders on
or after September 1, 1987:
(i) No person shall own, directly or
indirectly, more than 20% of the
outstanding Shares unless such
ownership shall have been approved
in advance by the Board of
Directors;
(ii) No U.S. person (as defined
hereinafter) shall own, directly or
indirectly, more than 9.9% of the
Shares; and
(iii) No more than 49% of the Shares, in
the aggregate (including for these
purposes the Shares of U.S. Persons
who were Shareholders as of August
31, 1987), shall be owned by U.S.
persons at any one time; and
(iv) No more than 49.9% of the Shares, in
the aggregate, shall be owned by
either Norwegian Persons or Swedish
Persons (as such terms are defined
hereinafter) at any one time.
In addition, the Board of Directors may
further restrict, reduce or prevent the
ownership of Shares by any Person or by one
or more Persons of a given nationality
and/or domiciled in a given country, if it
appears to the Board that such ownership may
threaten the Company with Imminent and Grave
Damage.
<PAGE>
(b) For the purposes of implementing and enforcing
the terms hereof the Board of Directors may, and may
instruct any officer, director or employee of the
Company, to do any one or more of the following to
the extent deemed appropriate:
(i) decline to issue any shares and
decline to register any transfer of
shares where it appears to it that
such registration or transfer would
or might result in beneficial
ownership of such shares by a Person
who is precluded from holding shares
or acquiring additional shares in
the Company;
(ii) at any time require any Person whose
name is entered in, or any Person
seeking to register the transfer of
shares on, the Register of
Shareholders to furnish it with any
information, supported by affidavit,
which it may consider necessary for
the purpose of determining whether
or not beneficial ownership of such
shareholder's shares rests or will
rest in a Person who is precluded
from holding shares or a proportion
of the capital of the Company;
(iii) where it appears to the Board that
any Person who is precluded in
whole or in part from holding
shares in the Company, either alone
or in conjunction with any other
person, is a beneficial owner of
shares in excess of the amount such
Person is permitted to hold,
compulsorily purchase from any such
shareholder or shareholders any or
all shares held by such shareholder
or shareholders as the Board may
deem necessary or advisable in
order to satisfy the terms of these
Articles; and
(iv) decline to accept the vote of any
Person who is precluded from holding
shares in the Company at any meeting
of shareholders of the Company in
respect of the shares which he is
precluded from holding.
(c) Any purchases pursuant to Subsection (b) above
shall be effected in the following manner:
1) The Company shall serve a notice
(hereinafter called a "Purchase
Notice") upon the shareholder or
shareholders appearing in the
Register of Shareholders as the
owner of the shares to be purchased
specifying the shares to be
purchased as aforesaid, the price to
be paid for such shares, and the
place at which the purchase price in
respect of such shares is payable.
Any such notice may be served upon
such shareholder or shareholders by
posting the same in a prepaid
registered envelope addressed to
each such shareholder at his latest
address known to or appearing in the
books of the Company. The said
shareholders shall thereupon
forthwith be obliged to deliver to
the
<PAGE>
Company the share certificate or
certificates representing the shares
specified in the Purchase Notice.
Immediately after the close of
business on the date specified in
the Purchase Notice, each such
shareholders shall cease to be the
owner of the shares specified in
such notice and his name shall be
removed from the Company's Register
of Shareholders.
2) The price at which the shares
specified in any Purchase Notice
shall be purchased (herein called
the "purchase price") shall be an
amount equal to the lesser of (A)
the aggregate amount paid for the
shares (if acquired within the
preceding twelve months from the
date of any such Purchase Notice) or
(B) in case the shares of the
Company shall be listed on any
exchange or otherwise quoted in any
market (including, but not limited
to, the National Association of
Securities Dealers Automatic
Quotation System in the United
States), the last price quoted for
the shares on the business day
immediately preceding the day on
which the notice is served, or if
the shares shall not be so listed or
quoted, the book value per share
determined by the auditors of the
Company for the time being on the
date as of which a balance sheet was
most recently prepared prior to the
day of service of the Purchase
Notice; provided, however, that the
Board may cause the amount
calculated under clause (B) hereof
to be paid in situations where
clause (A) would otherwise apply and
would result in a lower purchase
price if the board determines that
inequities would otherwise result
after taking into account the
following as to any such Shareholder
so affected: (i) length of time the
affected shares were held; (ii) the
number of shares so affected; (iii)
whether such shareholdings would
have resulted in Imminent and Grave
Damage to the Company and the
circumstances relating thereto; and
(iv) any other situations or
circumstances which the Board may
legally consider in making such a
determination.
3) Payment of the purchase price will
be made to the owner of such shares
in U.S. Dollars except during
periods of U.S. Dollar exchange
restrictions (in which case the
currency of payment shall be at the
Board's discretion, and will be
deposited by the Company with a bank
in Luxembourg or elsewhere (as
specified in the Purchase Notice)
for payment to such owner upon
surrender of the share certificate
<PAGE>
or certificates representing the
shares specified in such notice.
Upon deposit of such price as
aforesaid, no person interested in
the shares specified in such
Purchase Notice shall have any
further interest in such shares or
any of them, or any claim against
the Company or its assets in respect
thereof, except the right of the
shareholder appearing as the owner
thereof to receive the price so
deposited (without interest) from
such bank upon effective surrender
of the share certificate or
certificates as aforesaid.
4) The exercise by the Board of the
powers conferred by this Article
shall not be questioned or
invalidated in any case on the
ground that there was insufficient
evidence of ownership of shares by
any Persons or that the true
ownership of any shares was
otherwise than appeared to the Board
at the date of any Purchase Notice
or on the ground that payment of the
purchase price or the accomplishment
of the other formalities or
requirements had to be deferred
until such time appropriate
corporate actions had been taken to
legally permit the perfection of the
repurchase, provided that in such
case the said powers were exercised
by the Board in good faith.
(d) For the purposes of this Article 37 any Person
holding shares in its name solely as depositary or
nominee in the ordinary course of its business and
without any beneficial interest therein shall not be
deemed to be a holder of such shares, provided such
depositary shall disclose the name and particulars of
the beneficial owner of such shares immediately upon
request by the Company.
(e) The restrictions and remedial actions referred to
in subsections (a), (b) and (c) of this Article 37
shall not apply to any Person who was a Shareholder
of the Company as of August 31, 1987, or any
Affiliate or Associate of such person, except in the
case of Shareholders of any publicly traded company
who are deemed to be such Persons (or any Affiliates
or Associates of such Persons) solely as a result of
their shareholdings in such publicly traded company.
For the purpose of applying the August 31,
1987 date, all transfers having occurred following.
bequest, gift, inheritance or contribution to, or
distribution from Affiliates and Associates shall be
disregarded.
<PAGE>
Chapter 9
Definitions
Article Thirty-Eight: Except as otherwise provided herein the
provisions of the Luxembourg Company Law of 10th August 1915, as amended, will
apply.
In the event that any one or more provisions contained in the
Articles shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of the Articles and the Articles shall be construed as if
such invalid, illegal or unenforceable provision were not contained herein.
Article Thirty-Nine: For the purpose of these Articles:
(a) An "Affiliate" of, or a Person "affiliated" with, a
specified Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified.
(b) The term "Associate" used to indicate a relationship with
any Person, means (1) any corporation or organization (other than the Company or
a Subsidiary of the Company) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10 percent or more of and
class of equity securities, (2) any trust or other estate in which such Person
has a substantial beneficial interest or as to which such Person serves as
trustee or in a similar fiduciary capacity, and (3) any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Company or any of its parents or
subsidiaries.
(c) "Fair Market Value" means, in the case of assets of the
Company, the net book value therefor as reflected in the consolidated balance
sheet of the Company as at the end of its last fiscal year for which audited
financial statements are available prior to the date of any such determination,
and in all other cases the fair market value of the property on the date in
question as determined by the Board of Directors.
(d) "Imminent and Grave Damage" shall have the meaning given
thereto under the Luxembourg Company Law of August 30, 1915, as amended.
(e) "Leveraged Transaction" means any transaction, or group of
transactions, pursuant to which the Company, directly or indirectly, (i) borrows
money in an amount that exceeds a Substantial Part of the Company, or (ii)
pledges or mortgages any assets of the Company for the direct or indirect
purpose of raising money, or sells, transfers or otherwise disposes of any
assets of the Company having a total value in excess of the amount specified in
clause (i) where such transaction is
<PAGE>
entered into for the purpose, directly or indirectly, of financing,
prospectively or retrospectively, a purchase of Shares by any Person which has
the effect of increasing the proportion of the outstanding shares of any class
of Shares or securities convertible into voting Shares beneficially owned by
such Person.
(f) "Person" means any individual, firm, corporation or other
entity, and shall include any Affiliate or Associate of such Person and any
group comprised of any Person and any other Person with whom such Person or any
Affiliate or Associate of such Person has any agreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring, holding,
voting or disposing of Shares.
(g) "Subsidiary" means any corporation with respect to which
the Company beneficially owns securities that represent a majority of the votes
that all holders of securities of such corporation can cast with respect to
elections of directors.
(h) "Substantial Part" of the Company means more than twenty
percent (20%) of the Fair Market Value of the Company's assets; for the purposes
of determining whether a sale of assets of the Company is involved in any
proposed action, the sale of a majority of the outstanding capital stock, or any
part thereof entitled to block any significant action, of any Subsidiary,
Affiliate or Associate of the Company, shall be deemed to be a sale of the
assets of such entity.
(i) "U.S. Person" means (a) an individual who is a citizen or
resident of the United States; (b) a corporation, partnership, association or
other entity organised or created under the laws of the United States or any
state or subdivision thereof; (c) an estate or trust subject to United States
federal income tax without regard to the source of its income; (d) any
corporation or partnership organised or created under the laws of any
jurisdiction outside of the United States if any of its shareholders or partners
are, directly or indirectly, U.S. Persons as defined under clauses (a) through
(c) above; (e) any trust or estate, the income of which from sources without
the United States which is not effectively connected with the conduct of a trade
or business within the United States is not inclusive in gross income for United
States Federal income tax purposes, with respect to which there is a beneficiary
which is a U.S. Person as defined under clauses (a) through (c) above; or (f)
any corporation organised or created under the laws of any jurisdiction outside
the United States, any of the outstanding capital stock of which is subject to
an option to acquire such stock held directly by a U.S. Person as defined in
clauses (a) through (c) above, and "United States" and "U.S." means the United
States for America, its territories, possessions and areas subject to its
jurisdiction.
(j) "Norwegian Person" means (i) an individual who is a
citizen or resident of Norway; (ii) a corporation, partnership, association or
other entity organised or created under the laws of Norway; (iii) an estate or
trust subject to Norwegian income tax without regard to the source of its
income; and (iv) any corporation or partnership organised or created under the
laws of
<PAGE>
any jurisdiction outside of Norway if any of its shareholders or partners are,
directly or indirectly, Norwegian Persons as defined under clauses (i) through
(iii) above.
(k) "Swedish Person" means (i) an individual who is a citizen
or resident of Sweden; (ii) a corporation, partnership, association or other
entity organised or created under the laws of Sweden; (iii) an estate or trust
subject to Swedish income tax without regard to the source of its income; and
(iv) any corporation or partnership organised or created under the laws of any
jurisdiction outside of Sweden if any of its shareholders or partners are,
directly or indirectly, Swedish Persons as defined under clauses (i) through
(iii) above.
(1) References to "dollars", "U.S. dollars" or to "cents"
shall mean the currency of the United States of America.
(m) References to "free" shares, whether Founder's or Common,
shall be to shares issued pursuant to the terms hereof without cash
consideration, e.g., in the case of share dividends and issuances of Founder's
Shares to maintain the 20% level referred to in Article 10.
These articles of incorporation are worded in English followed
by a French translation and in case of any divergence between the English and
the French text, the English text shall prevail.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Stolt-Nielsen S.A. consolidated financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<CASH> 68,571
<SECURITIES> 0
<RECEIVABLES> 243,798
<ALLOWANCES> 5,207
<INVENTORY> 109,271
<CURRENT-ASSETS> 502,486
<PP&E> 2,564,672
<DEPRECIATION> 791,639
<TOTAL-ASSETS> 2,402,752
<CURRENT-LIABILITIES> 390,486
<BONDS> 686,298
0
0
<COMMON> 31,198
<OTHER-SE> 1,031,359
<TOTAL-LIABILITY-AND-EQUITY> 2,402,752
<SALES> 0
<TOTAL-REVENUES> 1,526,052
<CGS> 0
<TOTAL-COSTS> 1,212,366
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 202
<INTEREST-EXPENSE> 59,897
<INCOME-PRETAX> 242,854
<INCOME-TAX> 13,161
<INCOME-CONTINUING> 229,693
<DISCONTINUED> 0
<EXTRAORDINARY> 7,416
<CHANGES> 0
<NET-INCOME> 237,109
<EPS-PRIMARY> 4.29
<EPS-DILUTED> 4.27
</TABLE>
