<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
COMMISSION FILE NUMBER 0-16977
------------------------
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
Class B 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:.................................... 29,315,408*
Class B Shares, no par value:................................... 25,186,507**
Founder's Shares, no par value:................................. 7,809,328
</TABLE>
- ------------------------
* The number of outstanding Common Shares excludes 1,921,905 Common Shares
owned by a subsidiary.
** The number of outstanding Class B Shares excludes 5,766,905 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/
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C> <C>
PART I.......................................................................................................... 1
Item 1. Description of Business.................................................................. 1
General................................................................................. 1
Overview and History.................................................................... 1
Strategy................................................................................ 2
Businesses.............................................................................. 4
Regulation.............................................................................. 10
Competition............................................................................. 13
Other Matters........................................................................... 14
Item 2. Description of Property.................................................................. 15
Parcel Tanker Fleet..................................................................... 15
Fleet of Stolt Comex Seaway............................................................. 19
Other Properties........................................................................ 21
Item 3. Legal Proceedings........................................................................ 21
Item 4. Control of Registrant.................................................................... 22
Item 5. Nature of Trading Market................................................................. 22
Item 6. Exchange Controls and Other Limitations Affecting Security Holders....................... 23
Exchange Controls....................................................................... 23
Limitations Affecting Shareholders...................................................... 24
Item 7. Taxation................................................................................. 25
U.S. Taxation........................................................................... 25
Luxembourg Taxation..................................................................... 25
Item 8. Selected Financial Data.................................................................. 25
Dividends............................................................................... 25
Item 9. Management's Discussion and Analysis of Results of Operations and Financial Condition.... 25
Recent Developments..................................................................... 26
Year 2000 Issue......................................................................... 26
Forward-Looking Statements.............................................................. 26
Factors Affecting Revenues and Costs.................................................... 27
Item 9A. Quantitative and Qualitative Disclosures about Market Risk............................... 34
Item 10. Directors and Officers of Registrant..................................................... 35
Item 11. Compensation of Directors and Officers................................................... 36
Item 12. Options to Purchase Securities from Registrant or Subsidiaries........................... 37
Item 13. Interest of Management in Certain Transactions........................................... 38
PART III........................................................................................................ 38
Item 15. Defaults Upon Senior Securities.......................................................... 38
Item 16. Changes in Securities, Changes in Security for Registered Securities and Use of
Proceeds............................................................................... 38
PART IV......................................................................................................... 38
Item 17. Financial Statements..................................................................... 38
Item 18. Financial Statements..................................................................... 39
Item 19. Financial Statements and Exhibits........................................................ 39
</TABLE>
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Note: Omitted items are inapplicable.
i
<PAGE>
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 Transportation Services business is carried out through the
Stolt-Nielsen Transportation Group ("SNTG") which represented approximately 52%
of the Company's 1998 net operating revenue, approximately 52% of 1998 recurring
income from operations, and approximately 64% of total assets as of November 30,
1998. SNTG is one the world's leading providers 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
logistics 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, an 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-Nielsen
Transportation Group Ltd.
SNTG is also one of the largest operators in the tank container market,
currently operating approximately 12,184 tank containers. SNTG's tank container
operations specialize in smaller lot shipments of bulk liquid products. These
are primarily operated for door-to-door shipments. SNTG 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, SNTG steadily
expanded its tank container fleet through the purchase or lease of
newly-manufactured tank containers and through acquisitions.
In addition, SNTG has investments in or alliances with ten bulk storage
terminals. 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. SNTG's terminal network includes four
wholly-owned terminals with a total capacity of 4.9 million barrels SNTG also
has a terminal joint venture with the Bolton Group in Malaysia. In July 1998,
SNTG acquired a 25% minority interest in Dovechem Terminals Holdings Ltd.
("Dovechem") which has terminals and drum manufacturing interests in China and
South East Asia. In March 1999, SNTG acquired an additional 6% in Dovechem to
bring the total shareholding up to 31%, and a 40% interest in Jeong Il Energy
Co. Ltd., which operates the Jeong Il Tank Terminal ("JTT") in South Korea. In
March 1999, SNTG acquired a 5.08% interest, for investment purposes, in
Koninklijke Van Ommeren NV ("KVO"), which has a leading position in the global
chemical, petroleum, and vegetable oil storage market.
Subsea Services is carried out through Stolt Comex Seaway S.A. ("SCS"), a
subsidiary in which the Company currently holds a 44.9% economic interest and a
61.6% voting interest. 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 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.
1
<PAGE>
Seaway was founded by Jacob Stolt-Nielsen, 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.
In August 1998, SCS acquired Ceanic Corporation ("Ceanic") for approximately
$219 million in a strategic move to secure a major position in the growing and
important Gulf of Mexico market. The acquisition gave SCS an established base in
Houston from where major U.S. customers direct their worldwide business. With
Ceanic, SCS took ownership of a substantial fleet of ships, remotely operated
vehicles ("ROVs"), and other related technologies. Stolt believes that Ceanic is
a major contractor in the shallow water oil field maintenance market and is
expanding its service offering into deeper waters with the new dynamically
positioned ships and deep water ROVs acquired over the past year. By adding the
SCS technology and deepwater ships that will be relocated to this region in
1999, Stolt expects SCS to become a major subsea contractor in the Gulf of
Mexico. In December 1998 SCS acquired the ROV business of Dolphin Offshore A/S
for approximately $17 million. This acquisition included 21 ROVs, the majority
of which are on long-term contracts to major oil companies in Norway.
Stolt Sea Farm ("SSF"), 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 SSF was founded by
Jacob Stolt-Nielsen in 1972 and acquired by the Company in late 1991.
In February 1999, a reorganization was conducted in order to implement the
Company's strategy in the international logistics market by combining the
tanker, tank container, and terminal operations under the name of Stolt-Nielsen
Transportation Group Ltd. Stolt Sea Farm Holdings Ltd. was also established to
consolidate activities in the seafood business. These actions are expected to
put the Company's businesses in a better position to participate in alliances
and market consolidation.
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 23, Avenue
Monterey, L-2086 Luxembourg and it is registered at the Companies' Registrar of
the Luxembourg District Court under the designation "R.C. Luxembourg B.12.179".
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; internet address www.stoltnielsen.com.
Stolt is a publicly-traded company listed on the Nasdaq National Market
("Nasdaq") and the Oslo and London Stock Exchanges.
The Company has 58 offices and facilities in 23 countries. The Company
employs approximately 9,400 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 to generate value over the long term.
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.
2
<PAGE>
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 a proprietary internet-based customer information system.
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 to construct 25 new parcel
tankers designed to meet increasing demand for its transportation services and
to 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
operational efficiency, reduce operating costs, and be environmentally safer
than previous generations of parcel tankers. In April 1999, it was agreed with
the shipyard to cancel the third of the three ships in the French series.
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 market 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 by drums. It is SNTG's intention to
continue to expand its presence in this market in response to the needs of its
customers, and to continue to provide an important link in SNTG'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'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. SCS 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, 1999, SCS invested $400 million
in new technology and equipment to respond to growing demand in the market, with
an additional $47 million committed or planned for the remainder of 1999.
The acquisition of Ceanic has enabled SCS to enter the shallow water
maintenance market in the Gulf of Mexico, a new market for SCS. Through the
Ceanic acquisition, SCS also took over Ceanic's "Big Inch" Marine Systems subsea
pipeline connector business and the "Tarpon Tower" technology. SCS believes that
both of these businesses have considerable growth potential. The "Big Inch"
technology lends itself to
3
<PAGE>
SCS's established robotic skills for deepwater work and the "Tarpon Towers" have
become an integral part of SCS's shallow water field development solutions
worldwide.
SSF's strategy 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, 1998:
<TABLE>
<CAPTION>
NET
OPERATING INCOME FROM IDENTIFIABLE
REVENUE OPERATIONS ASSETS
-------------------- -------------------- --------------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STOLT-NIELSEN TRANSPORTATION GROUP:
Tankers.................................................. $ 658 37% $ 61 32% $ 1,485 49%
Tank Containers.......................................... 219 12% 29 15% 220 8%
Terminals................................................ 54 3% 8 4% 217 7%
STOLT COMEX SEAWAY......................................... 650 36% 78 41% 877 29%
STOLT SEA FARM............................................. 216 12% 14 8% 209 7%
--------- --------- --------- --------- --------- ---------
Total.................................................. $ 1,797 100% $ 190 100% $ 3,008 100%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
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 SNTG, net operating revenue is allocated on the basis of the
geographical area where cargo is loaded or handled.
4
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
STOLT-NIELSEN TRANSPORTATION GROUP:
Tankers:
North America...................................................................... $ 313 $ 329 $ 310
Europe............................................................................. 146 160 154
Asia............................................................................... 152 165 155
Other areas and miscellaneous revenue.............................................. 105 75 86
Less: Commissions, sublet costs, transshipment, and barging expenses............... (58) (64) (49)
--------- --------- ---------
658 665 656
--------- --------- ---------
Tank Containers:
North America...................................................................... 78 81 66
Europe............................................................................. 76 68 55
Asia............................................................................... 54 57 53
South America and other............................................................ 11 13 12
--------- --------- ---------
219 219 186
--------- --------- ---------
Terminals:
North America...................................................................... 48 42 46
South America...................................................................... 6 5 3
--------- --------- ---------
54 47 49
--------- --------- ---------
STOLT COMEX SEAWAY:
North America...................................................................... 63 9 8
Europe............................................................................. 433 339 217
Asia............................................................................... 38 40 39
South America and other............................................................ 116 43 49
--------- --------- ---------
650 431 313
--------- --------- ---------
STOLT SEA FARM:
North America...................................................................... 88 62 59
Europe............................................................................. 52 54 72
Asia and other..................................................................... 76 48 16
--------- --------- ---------
216 164 147
--------- --------- ---------
Total.............................................................................. $ 1,797 $ 1,526 $ 1,351
--------- --------- ---------
--------- --------- ---------
</TABLE>
STOLT-NIELSEN TRANSPORTATION GROUP
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 typically 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 integrated logistics solutions 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
5
<PAGE>
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.
STOLT-NIELSEN TRANSPORTATION GROUP--TANKER OPERATIONS
SNTG is the largest operator of parcel tankers in the world. As of March 31,
1999, SNTG marketed a fleet of 128 parcel tankers, product tankers, and river
tankers ranging in size from approximately 1,200 to 45,000 deadweight tons
("dwt") (of which 70 were over 10,000 dwt), and totaling approximately 2.25
million dwt.
The parcel tanker industry occupies a market niche in the worldwide tanker
trade and represents only about 3% 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 parcel tankers 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" or "Joint Service"), an arrangement for the coordinated
marketing, operation, and administration of the fleet of parcel tankers owned or
chartered by the Joint Service participants in the deep sea intercontinental
market. The Joint Service participants include affiliates and non-affiliates of
the Company. This fleet currently is comprised of 71 parcel tankers totaling
approximately 2.02 million dwt. Of these, SNTG owns 38 ships and time-charters
two ships for participation in the STJS.
The Joint Service operates six ships owned by NYK Stolt Tankers, S.A. ("NYK
Stolt", 50%-owned by the Company), six ships owned by Rederi AB Sunship, four
ships owned by Barton Partner Limited, three ships owned by Bibby Pool Partner
Limited, two ships owned by Unicorn Lines (Pty) Limited, and two ships owned by
Hikawa Stolt Tankers Inc. (50%-owned by the Company). The STJS currently has an
additional five 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 marketing and cargo tracking information systems as part of
SNTG's worldwide network of chemical transportation and distribution services.
Management believes that SNTG's ships operating in the STJS derive higher
utilization, revenues, and profitability than competitors operating outside a
similar pooling arrangement.
6
<PAGE>
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 33 inland tankers on the River Rhine and the adjacent Rotterdam Antwerp
waterways.
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. In some markets third-party brokers support
this effort. SNTG's top ten tanker customers and top ten products accounted for
32% and 29%, respectively, of the total SNTG tanker revenue in 1998.
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 the
customer informed through system-generated estimated time of arrival notices.
SNTG's Cargo STOW system has won a Windows World Open award for best Microsoft
Windows system for distribution companies.
STOLT-NIELSEN TRANSPORTATION GROUP--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.
Prior to 1998, growth in the tank container market had been broad based. In
1998, the growth in the tank container market slowed considerably, primarily the
result of weakened demand for tank container shipments into and within Asia
Pacific, partially offset by increased shipments from Asia Pacific and other
developing markets. As of March 31, 1999, SNTG controls a fleet of 12,184 tank
containers of which approximately 7,929 are owned, and approximately 4,255 tank
containers are leased in or managed for customers. This compares to a total
controlled fleet of 13,751 tank containers at November 30, 1998.
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 10,242 tank containers in all major worldwide
markets. Management estimates that it has about 18% of the total door-to-door
business in the markets served. In addition, approximately 1,942 tank containers
are managed on behalf of customers. Until February 1999, SNTG also operated a
leasing division, which leased tank containers to shippers who wish to operate
their own containers. On February 12, 1999, the 2,830 tank containers in the
leasing division were sold to TransAmerica Leasing Inc.
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
7
<PAGE>
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 also operates a fleet of 329 leased railroad tank cars consisting of
general-purpose low-pressure and specialized high-pressure tank cars.
SNTG's tank container operations 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 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.
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.
STOLT-NIELSEN TRANSPORTATION GROUP--TERMINAL OPERATIONS
SNTG has interests in investments in or alliances with ten bulk liquid
storage terminals. SNTG's 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 4.9 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 SNTG's terminals:
<TABLE>
<CAPTION>
% YEAR CAPACITY
STORAGE LOCATION HOLDING ACQUIRED (BARRELS)
- ---------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
Perth Amboy, New Jersey................................... 100% 1983 2,258,000
Houston, Texas............................................ 100% 1982 1,547,500
Chicago, Illinois......................................... 100% 1975 741,000
Santos, Brazil............................................ 100% 1982 349,000
----------
SUBTOTAL.................................................. 4,895,500
----------
Joint Ventures
Westport, Malaysia...................................... 40% 1998 226,000
Shenzen, China.......................................... 31% 1998/1999 640,175
Shanghai, China......................................... 31% 1998/1999 168,000
Ulsan, South Korea...................................... 40% 1999 1,946,700
----------
TOTAL..................................................... 7,876,375
----------
----------
</TABLE>
SNTG also has an arrangement with subsidiaries of KVO 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. SNTG has acquired
a 5% interest in KVO for investment purposes. SNTG has a 40% ownership in a
terminal joint venture with the Bolton Group in Westport, Malaysia. SNTG holds a
31% interest, up from 25% at November 30, 1998, in Dovechem, a Singapore-based
company which operates terminals in Shenzen and Shanghai, China and is also a
leading manufacturer and distributor of drums for the chemical industry in Asia.
In March 1999, SNTG purchased a 40% interest in Jeong Il Energy Co. Ltd. which
operates JTT in South Korea. JTT is the largest chemical storage terminal in
Ulsan, the entry port for the Korean chemical industry. It is planned to develop
this terminal as SNTG's north Asian Pacific hub and transshipment point for
onward distribution.
8
<PAGE>
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.
STOLT COMEX SEAWAY
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 develops and applies
innovative and cost-efficient subsea techniques that address 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 has
operated in more than 60 countries worldwide and currently operates in over 20
countries. SCS's business backlog at March 31, 1999 stands at $596 million, of
which $355 million is for 1999. This compares to a backlog at March 31, 1998 of
$517 million, of which $274 million was for 1998.
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 partners when appropriate, engineering design,
component procurement, and installation of subsea equipment, well control
umbilicals, flowlines, and 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 three principal product lines. Field development provides
complete subsea production systems from engineering and design through
procurement and installation of components and the commissioning of completed
systems and installation of rigid and flexible flowlines, small-diameter
pipelines, and well control umbilicals. Subsea construction provides pipeline
tie-ins, installation of structures and moorings, hyperbaric welding, piling,
decommissioning, dredging, hot tapping, cold cutting, and pipeline
stabilization. Subsea services provides pipeline and flowline survey,
construction support, drilling support and inspection, maintenance, and repair.
In addition to its main product lines, SCS offers heavy lift services
through a joint venture company, Seaway Heavy Lifting Limited ("SHL"), which
operates the heavy lift ship, STANISLAV YUDIN, chartered from SCS's joint
venture partner Lukoil-Kaliningradmorneft Plc. ("LKMN"), a subsidiary of a major
Russian oil company, Lukoil.
The remainder of the joint ventures in which SCS has interest have been
entered into on a project-specific basis to enhance the range of services
provided to the customer. In these joint ventures, SCS will typically have
interests ranging from 22% to 50%.
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, three
construction ships, two survey ships, seven inspection, repair, and maintenance
ships, 16 shallow water ships, one heavy lift ship operated through SHL, 11 lay
barges and tugs, 108 ROVs, and 13 hardsuits.
Investments in the fleet since 1993 include the acquisition and completion
of the SEAWAY EAGLE, a multi-purpose flowline lay and subsea construction ship,
the conversion of the SEAWAY OSPREY to lay flexible flowlines and flowline
bundles, the acquisition of the SEAWAY FALCON and its conversion to a rigid and
flexible flowline lay ship, the conversion of the SEAWAY CONDOR to a flexible
flowline and umbilical lay ship, the acquisition of the SEAWAY HAWK, a subsea
construction ship, and continuous investment in new ROV technology and
construction equipment. SCS also took over the long-term lease on the DISCOVERY,
a multipurpose subsea construction ship, as part of an asset swap with SubSea
Offshore Limited in 1997.
9
<PAGE>
During 1998 SCS entered into a long-term charter for the NTL 900 a
derrick/lay barge. In addition, the SEAWAY KINGFISHER, a diverless inspection,
repair and maintenance ship, was introduced into the North Sea market at the end
of August 1998.
STOLT SEA FARM
SSF 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 SSF's products include importers, smokehouses,
restaurants, retail chains, and other distributors in Europe, the U.S., and Asia
Pacific. From Norway and Scotland, SSF supplies the European market and exports
to Japan and East Asia. The American market is supplied by production from
Canada, Maine, Norway, and Chile. These areas also export to the Japanese and
East Asian markets.
Atlantic salmon and salmon trout are sold fresh, frozen, or in products
further processed for the convenience of its customers. SSF 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 5,000 to 10,000 tonnes and farmed production of 3,000 tonnes. SSF also
farms sturgeon in California and supplies both sturgeon meat and caviar for
sale.
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.
STOLT-NIELSEN TRANSPORTATION GROUP
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; 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.
10
<PAGE>
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 market
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.
STOLT COMEX SEAWAY
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.
STOLT SEA FARM
SSF is subject to the laws and regulations of the individual countries in
which its operations are 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 SSF'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, a 2% increase for 1998, and a 5% increase for
1999. The government has also strictly enforced 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 SSF'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
11
<PAGE>
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 July 1998, the U.S. Department of Commerce imposed duties on imports of
fresh Atlantic salmon from Chile into the U.S. Eicosal, a joint-venture partner
of SSF, was assessed at 10.69%.
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 SSF's California
sturgeon operations as the intention is to sell most of the product within the
U.S., and, if required, the proper documentation for export can be obtained.
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 shipowners'
and ship operators' 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 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 SNTG's parcel tankers already have
double bottoms. It is SNTG'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 SNTG's ships are covered by the
provisions of CERCLA. SNTG'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 SNTG's ships. Animal
fat and vegetable oils as well as other non-petroleum oils are included within
the OPA '90 definition of "oil".
12
<PAGE>
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.
COMPETITION
The market for the integrated transportation and logistics services provided
by SNTG 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, deep-sea and intra-regional coastal,
which depend on the routes and ships employed. SNTG's tank container operations
compete primarily with European-based tank container operators. The competition
in the tank container market is fragmented, although the relative size of the
competition is increasing 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. SNTG's 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, KVO, and Pakhoed
that own and operate terminals on a worldwide basis own many of the competing
terminals.
The subsea contracting market is highly competitive. The consolidation in
the offshore oil and gas services industry in the last few years has resulted in
fewer but more substantial competitors. Although SCS believes customers
consider, among other things, the availability and technical capabilities of
equipment
13
<PAGE>
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 and have few alternative uses and, 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.
SCS believes that it is one of only three companies capable of providing the
full range of subsea services on a worldwide basis in the major offshore oil and
gas producing regions. SCS is subject to intense competition from these offshore
contractors. SCS also faces substantial competition from smaller regional
competitors and less integrated providers of subsea services.
SSF competes 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, twelve by Latvian
officers and crew and four 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, 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 February 28, 2000. Hourly
employees at certain of SNTG'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 2000. 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 of SNTG and SCS is currently
covered by hull and machinery insurance in the amount of $2.4 billion. Marine
liabilities, which may be incurred through the operation of SNTG's ships, are
insured under marine protection and indemnity insurance policies. The policies
have a limit of approximately $4.3 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.
14
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
PARCEL TANKER FLEET
The following table describes the parcel tankers which are operated by SNTG,
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, 1999
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(A) REGISTRY
----------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C>
STOLT INNOVATION CLASS
Stolt Capability.......................... 1998 37,000 NYK Stolt Liberian
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 Stolt 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 Stolt 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 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................................. 1982 39,015 T/C by Company Liberian
Stolt Protector........................... 1983 39,782 Company Liberian
Moon Sapphire............................. 1983 39,742 Sunship AB Liberian
Kenwood Park.............................. 1982 39,015 T/C by Company Liberian
Red Sapphire.............................. 1982 39,702 Sunship AB Liberian
White Sapphire............................ 1980 39,702 Sunship AB Liberian
"V" CLASS
Stolt Victor.............................. 1977 30,899 Company Liberian
Stolt Viking.............................. 1978 30,892 Company Liberian
STOLT ASPIRATION CLASS
Stolt Aspiration.......................... 1987 12,219 NYK Stolt Liberian
Stolt Alliance............................ 1985 12,674 NYK Stolt Liberian
Stolt Taurus.............................. 1985 12,749 Company Liberian
Stolt Titan............................... 1985 12,691 Company Liberian
Stolt Trader.............................. 1995 12,458 Barton Panamanian
Stolt Infra............................... 1985 12,734 Barton Panamanian
Herefordshire............................. 1985 12,721 Bibby Panamanian
Stolt Cornwall............................ 1985 12,749 Bibby Panamanian
Stolt Sakra............................... 1984 12,775 Company Liberian
Stolt Accord.............................. 1982 12,467 NYK Stolt Liberian
TROJAN CLASS
Stolt Trojan.............................. 1996 15,313 Barton Panamanian
TRIUMPH CLASS...............................
Stolt Kent................................ 1998 19,300 Bibby Isle of Man
Botany Triumph............................ 1997 19,299 Barton Panamanian
NTOMBI CLASS
Stolt Ntaba............................... 1991 13,946 Unicorn Panamanian
Ntombi.................................... 1990 13,947 Unicorn Panamanian
STOLT NYK ASIA PACIFIC SERVICE IN STJS
Stolt Kikyo............................... 1998 11,564 NSSH Liberian
STOLT GENERAL PRODUCT TANKERS
Leopard................................... 1985 44,979 T/C by STJS Singapore
Tiger..................................... 1985 44,979 T/C by STJS Singapore
Lion...................................... 1985 44,979 T/C by NYK Liberian
Panther................................... 1985 44,979 T/C by NYK Singapore
OTHER PARCEL TANKERS
Stolt Puffin.............................. 1993 5,758 Company Liberian
Bruce Park................................ 1992 13,940 T/C by STJS Panamanian
Stolt Hinyk............................... 1992 8,080 Hikawa Stolt Liberian
Stolt Hikawa.............................. 1992 8,080 Hikawa Stolt Liberian
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(A) REGISTRY
----------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Stolt Egret............................... 1992 5,758 Company Liberian
Central Park.............................. 1985 12,700 T/C by STJS Panamanian
Poti...................................... 1981 22,622 T/C by STJS Maltese
TOTAL IN STJS
(71 ships)................................ 2,017,284
</TABLE>
PARCEL TANKERS OUTSIDE THE STOLT TANKERS JOINT SERVICE
OPERATED AND/OR CONTROLLED BY STOLT AFFILIATES
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(A) REGISTRY
----------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C>
STOLT-NIELSEN INTER EUROPE SERVICE
Stolt Shearwater.......................... 1998 5,498 Company Cayman Islands
Stolt Kittiwake........................... 1993 4,729 Company Cayman Islands
Stolt Guillemott.......................... 1993 4,709 Company Cayman Islands
Stolt Kestrel............................. 1992 5,758 Company Cayman Islands
Stolt Petrel.............................. 1992 4,794 Company Cayman Islands
Stolt Tern................................ 1991 4,794 Company Cayman Islands
Stolt Dipper.............................. 1992 4,794 Company Cayman Islands
Stolt Kite................................ 1992 4,794 Company Cayman Islands
STOLT-NIELSEN INTER ASIA
SERVICE
Stolt Avocet.............................. 1992 5,758 Company Cayman Islands
Innayah................................... 1988 7,705 T/C by Company Singapore
STOLT NYK ASIA PACIFIC
SERVICE
Stolt Suisen.............................. 1998 11,537 NSSH Liberian
Stolt Botan............................... 1998 11,553 NSSH Liberian
Stolt Azami............................... 1997 11,564 NSSH Liberian
Springwind................................ 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
Andhika Adhiraksha........................ 1986 6,958 T/C by SNAPS Panamanian
Helena.................................... 1985 6,757 T/C by SNAPS Liberian
Stolt Magnolia............................ 1985 7,132 NSSH Panamanian
Stolt Sunrise............................. 1984 6,678 NSSH Liberian
Stolt Camellia............................ 1981 6,276 NSSH Panamanian
STOLT NYK AUSTRALIA
Stolt Australia........................... 1986 9,940 SNAPL Australian
STOLT-NIELSEN INLAND TANKER SERVICE
Alliantie................................. 1999 1,600 T/C by Company Dutch
Pax Montana............................... 1998 2,408 T/C by Company Dutch
Stolt Emden............................... 1980 998 1,388 Company German
Stolt Madrid.............................. 1994 1,560 Company Swiss
Stolt Oslo................................ 1994 1,556 Company Swiss
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(A) REGISTRY
----------- ------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Stolt Prag................................ 1994 1,202 Company Dutch
Stolt Waal................................ 1993 2,095 Company Dutch
Stolt Somtrans............................ 1993 2,408 T/C by Company Dutch
Columbia.................................. 1993 1,605 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
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 990 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
TOTAL OUTSIDE STJS
(57 ships)................................ 236,695
GRAND TOTAL
(128 ships)............................... 2,253,979
</TABLE>
- ------------------------
Notes: "NYK Stolt" 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 13 to the Company's 1998 Consolidated Financial Statements.
18
<PAGE>
FLEET OF STOLT COMEX SEAWAY
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, 1999:
<TABLE>
<CAPTION>
YEAR BUILT/ LENGTH OWNED/
NAME CAPABILITIES MAJOR UPGRADE ROVS (METERS) CHARTERED
- -------------------------- ------------------------------ ----------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
FLOWLINE LAY SHIPS
Seaway Eagle............ Flexible flowline lay,
multi-purpose subsea
construction 1997 2 140 Owned(1)
Seaway Falcon........... Rigid and flexible flowline
and umbilical lay 1976/1995/1997 2 162 Owned(1)
Seaway Condor........... Flexible flowline and
umbilical lay, module handling
system, trenching 1982/1994 2 101 Owned(1)
Seaway Osprey........... Flexible flowline and
umbilical lay, accepts coiled
tubing, straightener for
tubing, stern roller 1984/1992 2 102 Owned(1)
Discovery............... Flexible flowline lay, subsea
construction 1990 1 120 Chartered (2)
CONSTRUCTION SHIPS
Seaway Harrier.......... Subsea construction 1985 1 84 Owned(1)
Seaway Pelican.......... Subsea construction 1986/1990 1 94 Chartered(3)
Seaway Hawk............. Subsea construction 1978 -- 94 Owned(1)
SURVEY/INSPECTION, REPAIR
AND MAINTENANCE SHIPS
Toisa Puma.............. Diving support, light
construction 1985 -- 77 Chartered(4)
Seaway Surveyor......... Survey 1987/1991 2 66 Chartered(5)
Seaway Commander........ Survey 1982/1988 2 75 Chartered(6)
Seaway Kingfisher....... Diverless inspection, repair
and maintenance 1990/1998 2 90 Chartered(7)
American Defender....... ROV and hardsuit diving
support, subsea construction 1976 1 67 Owned(1)
American Pioneer........ ROV and hardsuit diving
support, subsea construction 1966/1996 1 63 Owned(1)
Seaway Invincible....... ROV support, subsea
construction 1971 -- 70 Chartered(8)
Seaway Legend........... ROV and hardsuit diving
support, subsea construction 1985/1998 2 64 Owned(1)
Ceanic Rover............ ROV support, subsea
construction 1966/1991 -- 64 Chartered(9)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
YEAR BUILT/ LENGTH OWNED/
NAME CAPABILITIES MAJOR UPGRADE ROVS (METERS) CHARTERED
- -------------------------- ------------------------------ ----------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
SHALLOW WATER FLEET
American Endeavor....... Utility tug, ROV support 1962 -- 19 Owned
American Patriot........ Four-point anchor system,
40-ton crane 1962/1997 -- 50 Owned(1)
American Constitution... Four-point anchor system/
saturation diving / moonpool 1997 -- 56 Owned(1)
American Diver.......... Diving support 1996 -- 34 Owned
American Independence... Four-point anchor system 1996 -- 47 Owned(1)
American Liberty........ Four-point anchor system 1996 -- 35 Owned
American Recovery....... Tug, diving support 1965/1995 -- 43 Owned(1)
American Scout.......... Diving support 1978 -- 34 Owned
American Spirit......... Four-point anchor system 1961/1996 -- 36 Owned
American Star........... Four-point anchor system,
saturation diving 1967/1998 -- 47 Owned(1)
American Triumph........ Four-point anchor system 1965/1997 -- 48 Owned(1)
American Victory........ Four-point anchor system 1976/1997 -- 48 Owned(1)
Pipeline Observer....... Diving support 1982 -- 28 Owned
Pipeline Surveyor....... Diving support 1965/1996 -- 34 Owned
American Eagle.......... Four-point anchor system 1996 -- 44 Owned(1)
American Pride.......... Four-point anchor system 1977/1992 -- 51 Owned(1)
HEAVY LIFT SHIP/LAY BARGES/TUGS/ OTHER
Stanislav Yudin......... Heavy lift, 2,500-ton crane 1985 -- 183 Chartered(10)
NTL900 (Nan TianLong)... Derrick lay barge 1992 -- 100 Chartered(11)
Annette................. Pipelay barge, marine
construction 1989/1997 -- 61 Owned
Arwana.................. Pipelay barge 1998 -- 70 Owned
APM 205................. Barge 1966/1997 -- 61 Owned
Jasamarine V (ex Sin Flat top barge fitted out for
Thai Hin IV).......... inshore diving/ construction 1978 -- 55 Owned
Buldra.................. Work barge, shallow water
diving operations 1977 -- 25 Owned
Golek................... Transport barge 1983/1992 -- 46 Owned
De Zhong................ Offshore tug, supply ship 1997 -- 64 Chartered(11)
Polka................... River tug and anchor handler 1971 -- 12 Owned
Karegina................ Push boat 1979 -- 8 Owned
Mindy Ann............... Push boat 1986 -- 8 Owned
</TABLE>
- ------------------------
(1) Subject to mortgage under SCS's current credit facilities.
(2) Chartered from Friary Ocean Surveyor NV through September 2002, with options
to extend through 2011 and with options to purchase.
(3) Chartered from DSND Shipping AS through December 1999.
20
<PAGE>
(4) Chartered from Toisa Ltd. through December 2000, with options to extend
through 2001.
(5) Chartered from DSND Chartering I KS through December 1999.
(6) Chartered from DSND Chartering I KS through December 1999, with options to
extend through 2002.
(7) Chartered from Kingfisher DA in which SCS has a 50% ownership, for five
years starting in 1998, with options to extend through December 2013 and
with options to purchase.
(8) Chartered from Tidewater Inc. through September 2001 with option to
purchase.
(9) Chartered from Tidewater Inc. through July 2001 with option to purchase.
(10) Chartered to SHL by a subsidiary of the ship's owner, LKMN, through October
2001 with a possibility for extensions.
(11) Chartered from Guangzhou Salvage Co., Ltd. through October 2000 with
options to extend through 2003.
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 SNTG:
<TABLE>
<CAPTION>
DEBT
OUTSTANDING
(AS OF
FACILITY OWNED LEASED 3/31/99)
- --------------------------------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
(ACRES) ($000)
Perth Amboy...................................................................... 155 -- $ 25,000
Chicago.......................................................................... -- 178 --
Houston.......................................................................... 243 -- 80,440
Santos........................................................................... 14 -- 4,231
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
SCS, in litigation brought by a Swiss governmental entity claiming payment of
social security contributions in arrears. During the year ended November 30,
1993, SCS 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, which has resulted
during 1998 in a condemnation by the French Supreme Court of SCS of France and
two of its former directors. In addition, a number of former and present
employees have started civil proceedings against certain subsidiaries of SCS
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 SCS 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 SCS 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 SCS with respect to
certain aspects of the foregoing. There can be no assurance, however, as to the
amount which SCS may ultimately recover from Comex S.A. pursuant to such
indemnity.
21
<PAGE>
Coflexip S.A. commenced legal proceedings in the Patents Court, Chancery
Division of the High Court of Justice in the U.K. against three subsidiaries of
SCS claiming infringement of a certain patent relating to flexible flowline
laying technology. In holdings on January 22, 1999 and January 29, 1999, the
Court found the disputed patent valid. SCS has appealed. SCS has provided in the
November 30, 1998 financial statements an amount to cover the estimated
liability for Coflexip S.A.'s legal costs resulting from the litigation. No
provision has been made for damages. The extent of the liability for damages, if
any, to Coflexip S.A. for patent infringement in the U.K. is unknown at this
time.
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.
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 the 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 March 31, 1999:
<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... 18,092,260(a) 61.7% 9,084,369(a) 36.1%
Nippon Yusen Kaisha Ltd. ("NYK")............... 3,000,000 10.2% 2,500,000 9.9%
Directors and executive officers as a group
excluding Jacob Stolt-Nielsen, Jacob B.
Stolt-Nielsen and Niels G. Stolt-Nielsen (10
persons)..................................... 189,858 0.6% 91,789 0.4%
</TABLE>
- ------------------------
(a) Includes aggregate of 88,823 Common Shares and 82,651 Class B Shares owned
by Jacob Stolt-Nielsen and members of his immediate family, including Jacob
B. Stolt-Nielsen and Niels G. Stolt-Nielsen.
All of the 7,810,078 Founder's Shares outstanding as of March 31, 1999 are
owned by Mr. Stolt-Nielsen. 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 69.8% of Stolt's outstanding voting
securities.
As of March 31, 1999, SNTG Ltd. owned 1,921,905 Common Shares and 5,766,905
Class B Shares. Under applicable provisions of the 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
22
<PAGE>
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 periods indicated, the range of high and low closing
sales prices for the Common Shares (adjusted to reflect the distribution on
December 29, 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
-------------------- -------------------- ------------------------------
1999 HIGH LOW HIGH LOW HIGH LOW
- ------------------------------------- --------- --------- --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter.......................... $ 12.750 $ 9.000 $ 12.250 $ 9.875 NOK 95.00 NOK 73.00
2nd Quarter.......................... 14.500 10.500 15.937 11.750 127.50 96.00
(to May 12, 1999)
<CAPTION>
1998 HIGH LOW HIGH LOW HIGH LOW
- ------------------------------------- --------- --------- --------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter.......................... $ 22.375 $ 17.125 $ 23.500 $ 17.625 NOK 170.00 NOK 138.00
2nd Quarter.......................... 20.625 17.250 20.375 17.750 152.00 137.00
3rd Quarter.......................... 18.750 10.500 19.000 10.000 147.00 90.00
4th Quarter.......................... 14.625 10.375 13.500 9.500 97.50 75.00
<CAPTION>
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 138.00 NOK 113.50
2nd Quarter.......................... 18.875 16.375 19.125 16.750 130.50 118.50
3rd Quarter.......................... 23.500 18.500 24.125 18.000 178.00 130.00
4th Quarter.......................... 28.500 21.750 31.375 23.500 220.00 165.00
</TABLE>
As of March 1, 1999 (the record date for voting at the Annual General
Meeting), 8,265,441 Common Shares, representing 28.2% of the outstanding Common
Shares, were registered in the names of 130 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 376 shareholders of record. Based on
communications with banks and securities dealers who hold Stolt's Common Shares
in street name for individuals, the Company estimates that the number of
beneficial owners of the Common Shares exceeds 5,000. The Company knows of no
significant trading market outside the U.S. for the Common Shares.
As of March 1, 1999, there was a total of 6,320,332 ADSs of which 6,318,442
were registered in the names of 96 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 in 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 20.4% of the
outstanding Class B Shares of Stolt. The depositary for the ADSs is Citibank,
N.A.
All of the Class B Shares (including ADSs) are registered in the
Verdipapirsentralen system in Norway. As of March 1, 1999, excluding the Class B
Shares held represented by ADSs and Class B Shares held by Fiducia Ltd., SNTG
Ltd., and Nippon Yusen Ltd., it is estimated that the free float of Class B
Shares traded on the Oslo Stock Exchange is 7,524,757 registered in the names of
655 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
23
<PAGE>
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 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.
24
<PAGE>
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 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 24 of the Company's 1998 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 1994 1995 1996 1997 1998
- ------------------------------------------------ ----- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Common.......................................... Nil $ 0.370 $ 0.250 $ 0.500 $ 0.500
Class B......................................... -- -- $ 0.250 $ 0.500 $ 0.500
Founder's....................................... Nil $ 0.010 $ 0.005 $ 0.005 $ 0.005
</TABLE>
The above figures have been consistently restated to reflect the Class B
Share distribution on December 29, 1995.
The 1998 figures represent the interim and final dividend for 1997. An
interim dividend for 1998 of $0.25 per Common Share and per Class B Share and
$0.005 per Founder's Share was declared on November 19, 1998 and paid on
December 16, 1998. In addition the shareholders at Stolt's Annual General
Meeting held on April 15, 1999 approved a final dividend for 1998 of $0.125 per
Common Share and per Class B Share which was paid on May 19, 1999 to
shareholders of record as of May 3, 1999. This final dividend payment for 1998
brings the total dividend to be paid in fiscal 1999 to $0.375 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 15 through 23 of the Company's 1998 Annual Report filed with
the Securities and Exchange Commission on Form 6-K is incorporated herein by
reference.
25
<PAGE>
RECENT DEVELOPMENTS
SNTG reported income from operations of $12.2 million for the three months
ending February 28, 1999, down from $27.8 million for the three months ending
February 28, 1998. This decrease was primarily due to the slowdown in the Asia
Pacific region which has adversely affected the tanker and tank container
operations. SCS reported income from operations of $2.8 million before minority
interest for the three months ending February 28, 1999, compared to a loss from
operations of $0.3 million for the three months ending February 28, 1998, due to
a high level of fleet utilization and new contract awards. SSF reported income
from operations of $0.5 million for the three months ending February 28, 1999,
compared to a loss from operations of $0.3 million for the three months ending
February 28, 1998, reflecting improved results in all regions except the UK,
where results were affected by the strong British pound and the loss of fish
from bad weather. Overall, the Company reported net income for the first quarter
of 1999 of $7.7 million on net operating revenue of $407.4 million. Included
within this is a gain of $3.8 million from the sale of SNTG's 2,830 tank
container leasing assets to TransAmerica for proceeds of $52.2 million. This
compares to net income of $27.9 million on net operating revenue of $360.2
million in the first quarter of 1998. Included within this is 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.
In March 1999, SNTG purchased a 40% interest in the terminal operation of
Jeong Il Energy Ltd. JTT is the largest chemical storage terminal in Ulsan, the
entry port for the Korean chemical industry. It is planned to develop this
terminal as SNTGs north Asian Pacific hub and transshipment point for onward
distribution.
Also in 1999, SNTG increased its shareholding in Dovechem from 24.9% to 31%,
and established a 5.08% interest in KVO, a major provider of chemical,
petroleum, and vegetable oil storage facilities. The Company has had a ten-year
alliance with KVO in the port of Rotterdam.
In February 1999, the Company announced a reorganization whereby its tanker,
tank container, and terminal operations were combined into a single business,
Stolt-Nielsen Transportation Group Ltd., in order to implement its strategy of
providing bulk liquid supply chain management solutions to its customers in the
chemical industry. As a part of this strategy, the Company is in the process of
consolidating its activities around regional centers and expects to incur
reorganization costs of approximately $3-4 million in total. In addition, a new
holding company was established to consolidate the activities of the seafood
business. The Company believes that these actions will enable these businesses
to grow more effectively and put them in a better position to participate in
alliances and market consolidation.
YEAR 2000 ISSUE
In the four months to March 31, 1999, the Company has incurred an additional
$0.3 million of expenses in connection with the efforts on Year 2000 issues,
bringing the total out-of-pocket expenditure to date to $1.1 million. The total
estimated expenditure of $1.5 million has not changed. The Company now expects
to have a contingency plan, which outlines the procedures to be taken for
specific disruptions which may occur, in place for critical operational areas
that may be affected by the Year 2000 issue by September 1999. All other
remedial or preventative efforts in connection with the Year 2000 issue have
proceeded according to plan, and the Company has not yet identified any issues
which will lead to significant disruption to its activities.
FORWARD-LOOKING STATEMENTS
This Report contains certain "forward-looking statements" within the meaning
of the U.S. Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, but are not limited to, statements in the
subsections of the "Management's Discussion and Analysis of Results of
Operations and Financial Condition" entitled "General Business Environment",
"Results of Operations", "Liquidity and
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<PAGE>
Capital Resources", "Euro", "Year 2000 Issue", "Market Risk", "Factors Affecting
Revenues and Costs", "Environmental and Regulatory Compliance" and "Future
Adoption of New Accounting Standards". In addition, this Report contains
forward-looking statements relating to the Company's performance in the
"Description of Business" section. Actual and future results and trends could
differ materially from those set forth in such statements due to various
factors. Such factors include, among others: general economic and business
conditions; industry capacity; industry trends; competition; asset operational
performance; raw material costs and availability; currency fluctuations; disease
and other natural causes; immaturity of aquaculture technology; the loss of any
significant customers; changes in business strategy or development plans;
availability, terms, and deployment of capital; the ability of the Company and
its significant customers and suppliers to successfully implement timely Year
2000 solutions; 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.
FACTORS AFFECTING REVENUES AND COSTS
STOLT-NIELSEN TRANSPORTATION GROUP
DEMAND
Demand for SNTG's services is dependent on 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, and 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 ships
delivered into the market, scrappings, 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 carried (usually larger commodity type products
rather than specialty chemicals), parcel tankers may face competition from some
of the most 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, shipper-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.
SNTG's 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, but 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.
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INTER-RELATIONSHIP OF CONTRACT AND SPOT MARKET
Typically, approximately 60% of SNTG's parcel tanker business is done under
a long-term contract basis with customers and approximately 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. SNTG's terminal
facilities also service a wide variety of customers on both long-term and
short-term bases. Storage tank buildings have been undertaken for speculative
business and built to suit customer needs and contract terms.
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 not guaranteed and should the shipyard go bankrupt,
SNTG will be unlikely to recover these 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
1998, with an average cost of approximately $82 per ton, bunker fuel constituted
approximately 13% of fleet operating costs.
SNTG is able to pass a substantial portion of these fuel price fluctuations
through to its customers. Approximately 62% 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 SNTG's parcel tanker operations, most 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.
STOLT COMEX SEAWAY
INDUSTRY CONDITIONS
Demand for SCS'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
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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.
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. 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 government imposed restrictions from time to time on
their ability to transfer funds to SCS. No predictions can be made as to what
governmental regulations applicable to SCS's operations may be enacted in the
future.
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SEASONALITY
Over the past three years, approximately two-thirds of SCS's revenue has
been generated from work performed in the North Sea. In the future there is
likely to be increased activity in the Gulf of Mexico. Although it is less
apparent than in the past due to advances in technology, adverse weather
conditions in the North Sea and the Gulf of Mexico generally result in less
activity in these regions during the winter months. Therefore, full year results
are not likely to be a direct multiple of any particular quarter or combination
of quarters.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
SCS's major customers are oil companies and large offshore contractors.
During 1998, one of SCS's customers accounted for more than 22%, and SCS's top
seven customers accounted for approximately 60%, 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 and inhibit pricing
improvement.
STOLT SEA FARM
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 such as 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 optimal 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 SSF, the fish products compete against wild catch and other
substitute species of fish. Meat and poultry products are
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also dietary substitutes for SSF's fish products. The relative pricing of SSF's
farmed fish product versus these other products can impact the demand for SSF's
fish products.
FEED COST
Feed for fish accounts for an important part of the cost of SSF'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 SSF'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 SSF 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 SSF's
production costs of fish as well as the ability of SSF 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 in excess of available
insurance 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
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relating to ship safety and design requirements, disposal of hazardous
materials, discharge of oil or 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, and
damages arising from, 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 1998, 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.
FLOATING INTEREST RATES
Approximately 15% of the Company's long-term indebtedness at March 31, 1999
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.
FOREIGN CURRENCY FLUCTUATIONS
Substantial portions of the Company's revenue and expenses are denominated
in currencies other than U.S. 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
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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 qualifications for subsequent years. The Company believes that
substantially all of SNTG's ship owning 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.
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 SNTG's shipowning and ship operating subsidiaries are
incorporated in countries which do not impose an income tax on shipping
operations.
SCS's operations are conducted in Norway and the U.K. 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 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.
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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.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, including changes in interest rates
and currency exchange rates. To manage the volatility relating to these
exposures on a consolidated basis, the Company nets the exposure and takes
advantage of natural offsets and enters into derivative transactions for the
remaining currency exposures in accordance with the Company's policies. The
financial impact of these instruments is offset by corresponding changes in the
underlying exposures being hedged. The Company does not hold or issue derivative
instruments for trading purposes.
The primary purpose of the Company's foreign currency hedging activities is
to protect against the volatility associated with foreign currency liabilities
arising in the normal course of business. The Company's policy prescribes the
range of allowable hedging activity. The Company primarily utilizes forward
exchange contracts and purchased options with a duration of generally less than
twelve months.
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The Company uses a value-at-risk ("VAR") model to assess the market risk of
its derivative financial instruments. The model utilizes a variance/covariance
modeling technique. VAR models are intended to measure the maximum potential
loss for an instrument or portfolio assuming adverse changes in market
conditions, for a specific time period and confidence level. The Company's
estimated maximum potential one day loss in fair value of foreign exchange rate
instruments, calculated using the VAR model given a 95% confidence level, would
not materially affect the consolidated financial position, results of
operations, or cash flow. Actual results in the future may differ materially
from these projected results due to actual developments in the global financial
markets.
Based on the Company's overall interest rate exposures as of November 30,
1998, a near-term change in interest rates would not materially affect the
consolidated financial position, results of operations or cash flows. As of
November 30, 1998, the large majority of the consolidated debt was fixed-rate
debt.
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............................ 67 Chairman of the Board and Chief Executive Officer
Carroll N. Bjornson............................ 69 Director
Philip W. Darwin............................... 69 Director
Erling C. Hjort................................ 62 Director
Tadatoshi Mamiya............................... 56 Director
Christer Olsson................................ 53 Director
Jacob B. Stolt-Nielsen......................... 36 Director and Managing Director, Stolthaven Terminals
Niels G. Stolt-Nielsen......................... 34 Director and Chief Executive Officer, Stolt Sea Farm
Christopher J. Wright.......................... 64 President and Chief Operating Officer
Jan Chr. Engelhardtsen......................... 47 Chief Financial Officer
Samuel Cooperman............................... 53 Chief Executive Officer, Stolt-Nielsen Transportation
Group
Reginald J.R. Lee.............................. 55 Deputy Chief Executive Officer, Stolt-Nielsen
Transportation Group
Bernard Vossier................................ 54 Chief Executive Officer, Stolt Comex Seaway
</TABLE>
- ------------------------
* As of March 31, 1999.
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 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 the Board of SCS.
Mr. Wright has served as President and Chief Operating Officer of the
Company since July 1986. Mr. Wright also serves as Deputy Chairman of the Board
of SCS.
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.
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Mr. Cooperman has served as CEO, Stolt-Nielsen Transportation Group since
February 1999. Previously, he served as CEO of Stolt Parcel Tankers Inc. He
joined the Company in 1974.
Mr. Lee has served as Deputy CEO, Stolt-Nielsen Transportation Group since
February 1999 and Managing Director of SNTG's 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 Managing Director, Stolthaven Terminals
since October 1992, with responsibility for SNTG'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 the Company since May 1995.
Mr. Vossier was appointed CEO, Stolt Comex Seaway 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 G. Stolt-Nielsen has served as a Director of the Company and CEO,
Stolt Sea Farm, since 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.
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 IFG Group plc,
a company registered in Ireland.
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 Line nominee to the Board of Directors. He joined NYK Line in 1966 and is
currently Chairman of NYK Bulkship (Europe) Ltd.
Jacob B. Stolt-Nielsen and Niels G. Stolt-Nielsen are the sons of Jacob
Stolt-Nielsen.
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 recapitalization),
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, 1998 (including profit sharing awards and certain
benefits) was $3,384,730. In addition, $112,068 was contributed on behalf of
such officers to defined contribution pension plans maintained by the Company
and its subsidiaries. During 1998, 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 $100,000 plus expenses.
36
<PAGE>
PROFIT SHARING PLAN
Stolt has a Profit Sharing Plan which pays 10% of the net profit of SNTG
(after specified adjustments) to the majority of the employees worldwide of SNTG
other than those covered by collective bargaining agreements. Separate Profit
Sharing Plans are maintained by SCS and SSF. Under each such plan, the
determination of an employee's individual award is based on performance, salary,
and overall contribution to the business. SNTG's and SSF's Profit Sharing Plan
is administered by a Compensation Committee appointed by the Stolt Board of
Directors. The SCS Profit Sharing Plan is administered by a Compensation
Committee appointed by SCS's Board of Directors. For the fiscal year ended
November 30, 1998, $1.7 million and $0.7 million was paid by the SNTG and SSF
Profit Sharing Plans, respectively, to its officers and employees, with $124,302
of this amount paid to those officers performing executive and administrative
functions. For the fiscal year ended November 30, 1998, a total provision of
$5.7 million has been made for payment by SCS. The payment of Profit Sharing for
1998 will not be made until 1999 and the portion to be allocated to officers has
not yet been determined.
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. No further grants will be
issued under the 1987 Plan. Options granted under the 1987 Plan, and those which
may be granted under the 1997 Plan are exercisable for periods of up to ten
years. The options granted under the 1987 Plan and the 1997 Plan are or will be
at an exercise price not less than the fair market value per share at the time
the option was or 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, 1999, options for 1,497,175 Common Shares and 947,883 Class
B Shares were outstanding under the Plans. Of this total, options for 399,350
Common Shares and 184,925 Class B Shares were outstanding in accordance with
their stated terms to employees who are Directors and executive
37
<PAGE>
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
$ 23.750 41,400 June 1999
21.750 50,875 June 2000
17.125 49,125 January 2001
12.750 104,100 December 2002
17.500 4,000 August 2003
15.750 180,250 December 2003
19.750 202,200 December 2004
25.375 3,000 May 2005
28.625 256,950 December 2005
17.750 10,000 July 2006
16.875 4,250 September 2006
17.125 176,725 December 2006
16.375 1,100 May 2007
22.500 2,500 August 2007
20.250 5,000 December 2007
20.125 405,700 December 2007
----------
1,497,175
----------
----------
Class B Shares
$ Nil 346,058 June 1998-December 2005
17.500 176,725 December 2006
16.750 1,100 May 2007
22.125 2,500 August 2007
9.875 421,500 December 2008
----------
947,883
----------
----------
</TABLE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
The discussion of related party transactions appearing as Note 19 to the
Company's 1998 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, CHANGES IN SECURITY FOR REGISTERED SECURITIES
AND USE OF PROCEEDS
None.
PART IV
ITEM 17. FINANCIAL STATEMENTS
The Company has elected to provide financial statements for the fiscal year
ended November 30, 1998 and the related information pursuant to Item 18.
38
<PAGE>
ITEM 18. FINANCIAL STATEMENTS
1. Consolidated Financial Statements
Report of Independent Chartered Accountants
Consolidated Balance Sheets as of November 30, 1998 and 1997
Consolidated Statements of Income for the years ended November 30, 1998,
1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
November 30, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended November 30,
1998, 1997 and 1996
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 Chartered
Accountants, appearing on pages 24 through 43 of the Company's 1998 Annual
Report filed with the Securities and Exchange Commission on Form 6-K, are
incorporated herein by reference.
2. Supplementary Schedules
Report of Independent Chartered Accountants on Schedules
Schedule II--Valuation and Qualifying Accounts
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS.
See list in Item 18.
(b) EXHIBITS.
<TABLE>
<C> <S>
2.1 Consent of Arthur Andersen, Independent Chartered Accountants.
2.2 Consent of Elvinger, Hoss & Prussen.
2.3 Company's 1998 Annual Report, pages 15 through 43.
27 Financial Data Schedule
</TABLE>
39
<PAGE>
INDEX TO REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
AND SUPPLEMENTARY SCHEDULE
<TABLE>
<S> <C>
Report of Independent Chartered Accountants........................................... F-2
Supplementary Schedule
Schedule II--Valuation and Qualifying Accounts...................................... F-3
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CHARTERED 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 24, 1999. 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 21, 1999
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, 1996:
Allowance for doubtful accounts................... $ 3,422 $ 2,349 $ (1,239) $ 473 $ 5,005
Restructuring Costs............................... -- 3,873 -- -- 3,873
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
Restructuring Costs............................... 3,873 -- (3,873) -- --
Other............................................. 22,792 15,447 (645) 1,877 39,471
FOR THE YEAR ENDED
November 30, 1998:
Allowance for doubtful accounts................... $ 5,207 $ 6,023 $ 17 $ (2,062) $ 9,185
Restructuring Costs............................... -- -- -- -- --
Other............................................. 39,471 5,768 (64) (11,221) 33,954
</TABLE>
- ------------------------
(a) Includes the effect of exchange rate changes on beginning balances of
valuation and qualifying accounts, except as otherwise noted.
F-3
<PAGE>
Exhibit 2.1
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 24,
1999 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, 1998 or performed any audit procedures
subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
London, England
May 21, 1999
<PAGE>
Exhibit 2.2
[LETTERHEAD OF ELVINGER, HOSS & PRUSSEN]
We hereby consent to being named and to the summarisation 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, 1998.
/s/ ELVINGER, HOSS & PRUSSEN
Luxembourg,
May 24, 1999
<PAGE>
Exhibit 2.3
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. The Transportation Services business is carried out
through Stolt-Nielsen Transportation Group ("SNTG"); the Subsea Services
business is carried out through Stolt Comex Seaway S.A. ("SCS"), a subsidiary in
which the Company held a 43% economic interest and a 60% voting interest at
November 30, 1998; and the Seafood business is carried out through Stolt Sea
Farm ("SSF").
In 1998, the Company had consolidated net operating revenue of $1.8 billion, up
from $1.5 billion and $1.4 billion in 1997 and 1996, respectively. 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 1998 1997 1996
- --------------------------------------------------------------------------------
Net income $ 96.3 $ 237.1 $ 91.9
Non-recurring items:
Change in drydock accounting
policy in Stolt Comex Seaway (3.1) -- --
Write down of certain assets
Stolt-Nielsen
Transportation Group -- 11.6 --
Stolt Comex Seaway -- 4.2 --
Stolt Sea Farm -- 12.3 --
Less tax benefits -- (5.2) --
Gain on sale of common stock
of subsidiary, net -- (139.5) --
Extraordinary gain on early
repayment of debt -- (7.4) --
Restructuring of Stolt Sea Farm -- -- 3.9
- --------------------------------------------------------------------------------
Net recurring income $ 93.2 $ 113.1 $ 95.8
================================================================================
GENERAL BUSINESS ENVIRONMENT
Stolt-Nielsen Transportation Group
SNTG 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 logistics solutions.
SNTG is the largest operator of parcel tankers in the world, operating an
estimated 23% of the world competitive fleet of parcel tankers with a capacity
of over 10,000 deadweight tons ("dwt") (a generally accepted definition of
parcel tankers which compete in the long-distance intercontinental market).
SNTG's tank container operations specialize in smaller lot shipments of bulk
liquid products. SNTG has a 20% market share of the worldwide door-to-door tank
container market. Although SNTG faces significant regional competition in the
tank container market, no other company offers the same worldwide service and is
of comparable size. SNTG's terminals act as regional hubs to improve the
operational efficiency of SNTG'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. SNTG currently owns and operates three
tank storage terminals in the U.S. and one in Santos, Brazil, with a combined
capacity of approximately 4.9 million barrels of liquid storage. SNTG also has a
terminal joint venture with the Bolton Group in Malaysia. In July 1998, SNTG
acquired a 25% minority interest in Dovechem Terminals Holdings Ltd.
("Dovechem") which has terminals and drum manufacturing interests in China and
South East Asia. The results of Dovechem and the joint venture with Bolton are
accounted for under the equity method of accounting.
Demand for SNTG's services is dependent on the condition and growth of the
worldwide economy and trade patterns for the products shipped and stored.
Factors impacting this include overall demand for the 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, and current spot and future
prices of the products SNTG carries and stores. Any general economic slowdown
could also have an adverse effect on the demand for those services and therefore
upon SNTG.
The supply of parcel tankers is influenced by the number of new ships delivered
into the market, scrappings, and industry regulation. For certain products
carried (usually larger commodity type products rather than specialty
chemicals), parcel tankers may face competition from some of the most
sophisticated of the product tankers. The world orderbook for newbuildings, to
be delivered over the next three years, stands today at 13% of the total
competitive fleet of deep-sea 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.
SNTG's tank container operations compete with other tank container operators,
shipper-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.
The weaker economic conditions of the Asia Pacific region and other developing
areas has resulted in a decrease in parcel tanker and tank container volumes
into and within Asia Pacific which has been partially offset by increased
volumes out of Asia Pacific. This situation combined with an oversupply of
parcel tankers and tank containers has resulted in both spot and contract rates
declining in 1998. The decline in contract rates for parcel tankers and tank
containers is expected to negatively impact the 1999 results for SNTG.
Stolt Comex Seaway
SCS is one of the largest subsea 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 operates in more than 60
countries world-wide and maintains regional offices in the U.K., Norway, Asia
Pacific, Southern Europe, Africa, the Middle East, South America, and North
America.
<PAGE>
Management's Discussion and Analysis continued
In August 1998, SCS acquired the Ceanic Corporation ("Ceanic") in a strategic
move to secure a major position in the growing and important Gulf of Mexico
market. The acquisition gives SCS an established base in Houston from where
major U.S. customers direct their worldwide business. With Ceanic, SCS took
ownership of a substantial fleet of ships, remotely operated vehicles ("ROVs"),
and other related technologies. Ceanic was the dominant contractor in the
shallow water oil field maintenance market and was moving into deeper waters
with new dynamically positioned ships and deep water ROVs acquired over the past
year. By adding the SCS technology and the deepwater ships that will be
relocated to this region in 1999, SCS will become the largest subsea contractor
in the Gulf of Mexico.
The market for SCS's services is dependent upon the success of exploration and
the level of development and production expenditures in the oil and gas
industry. Such expenditures are cyclical in nature and influenced by prevailing
and anticipated oil and gas prices.
The price of oil fell dramatically in the latter part of 1998. This affects
different segments of the industry in different ways. New field developments in
shallow water can be turned on or off at relatively short notice. However, new
developments in deeper water, SCS's core business, are more complex, have longer
lead times, and require a greater length of time for the planning and
installation phases. The Company believes the major oil companies will remain
committed to these deepwater developments while exploration and production
budgets elsewhere may be reduced. Producing oil and gas fields requires regular
inspection and maintenance services. The worldwide market for technologically
advanced maintenance and repair services now represents 40% of SCS's business.
Because most maintenance work is either unavoidable or related to meeting
certification requirements, it is less sensitive to the price of oil.
Stolt Sea Farm
SSF produces, processes, and markets high quality seafood with salmon production
sites in Norway, North America, Chile, and Scotland; turbot production sites in
Spain, Portugal, Norway, and France; halibut production sites in Norway; and
sturgeon and caviar production in the U.S. SSF has worldwide marketing
operations.
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
88% of SSF's revenue is derived from the Atlantic salmon market in which no
competitor has a significant market share. SSF is the world's largest producer
of farmed turbot.
MULTICURRENCY ACTIVITIES
The functional and the reporting currency of the Company, as well as that of a
majority of SNTG's activities is the U.S. dollar. In SCS, the functional
currencies of the subsidiaries that operate in the North Sea, which represents
the majority of SCS activity, are the Norwegian kroner and the British pound.
The functional currency of other significant SCS subsidiaries is primarily the
U.S. dollar. In SSF, the functional currencies of significant subsidiaries
include the U.S. dollar, the Norwegian kroner, the British pound, and the
Japanese yen.
Because revenues and expenses are not always denominated in the same currency,
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.
RESULTS OF OPERATIONS
Results of operations are discussed below by business down to gross profit level
and then on a consolidated basis for the remaining captions in the statements of
income.
SNTG--Tankers
The total number of ships owned and/or operated by SNTG as of November 30, 1998
was 130, representing 2.34 million dwt. Of this total, 74 ships participated 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 as of November 30, 1998 was as follows:
================================================================================
% of the Joint
Service net revenue
Number Millions for the year ended
of ships of dwt November 30, 1998
- --------------------------------------------------------------------------------
Joint Service
Stolt Parcel Tankers Inc ("SPTI") 39 1.25 71.6
NYK Stolt Tanker S.A
("NYK Stolt") 6 0.15 9.5
Rederi AB Sunship 6 0.24 7.9
Barton Partner Limited 4 0.06 4.4
Bibby Pool Partner Limited 3 0.04 3.1
Unicorn Lines (Pty) Limited 2 0.03 2.5
NYK Asia Pacific in STJS 1 0.01 1.0
- --------------------------------------------------------------------------------
61 1.78 100.0
Time-chartered ships:
Chemical Tankers 9 0.13
Product Tankers 4 0.18
- --------------------------------------------------------------------------------
Total Joint Service 74 2.09
Ships in regional services 56 0.25
- --------------------------------------------------------------------------------
Grand total 130 2.34
================================================================================
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, SNTG 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,
<PAGE>
and the earnings distributed to the participants in the Joint Service other than
SPTI. SNTG'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.
Net operating revenue in 1998 decreased 1% to $657.8 million, from $665.2
million in 1997 which was a 1% increase from $655.6 million in 1996. The changes
in revenue can be explained as follows:
(i) SNTG's fleet in 1998 averaged 2.24 million dwt, an increase of 12% from 2.0
million dwt in 1997 which was an increase of 5% from 1.9 million dwt in 1996.
(ii) Cargo carried in 1998 was 20.9 million tons, an increase of 2% from 20.5
million tons in 1997 which was an increase of 7% from 19.1 million tons in 1996.
(iii) In 1998, factors (i) and (ii) stated above were offset by a decline in
freight rates. This was the result of weaker demand, particularly from the Asia
Pacific economies, partially offset by increased exports out of Asia Pacific,
and increased competition due to an increase in parcel tanker supply.
In 1998, 62% of tanker revenues were under Contracts of Affreightment ("COA"),
typically one year in duration although long-term contracts are becoming
increasingly important. The remaining 38% were based on spot rates. The
percentage of COAs to contracts fixed on spot rates remained broadly similar to
1997.
Supplier partnerships with key customers now represent 24% of SNTG's 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.
SNTG's tanker operations had gross profit of $118.1 million, $146.4 million, and
$164.3 million in 1998, 1997, and 1996, respectively, and gross margins of 18%,
22%, and 25%, respectively. The decrease in gross profit in 1998 is due to
weaker demand, particularly from the Asia Pacific economies, combined with a
more competitive market due to the over-tonnage situation. While demand remained
strong throughout 1996 and most of 1997, the decrease in gross profit in 1997
was a result of the tightening of pricing and margins due to an increase in
parcel tanker capacity.
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 13% in
1998, after declining 9% and 3% in 1997 and 1996, respectively. During the same
three year period, the operating cost per day of SNTG's fleet in the Joint
Service decreased by 10% in 1998, remained stable in 1997, and increased by 1%
in 1996.
In 1994, SNTG embarked on a newbuilding program to construct 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. In January 1999, the construction
of one ship in the French series was canceled by the shipyard. The newbuilding
program is summarized in the table below:
Delivered
as of Estimated deliveries
DWT Shipyard Nov.30.98 by year
per ship location (Number of ships) (Number of ships)
================================================================================
1999 2000
- --------------------------------------------------------------------------------
37,000(a) Denmark 7 2 0
37,000 France 0 1 1
22,450(a) Spain 0 4 2
11,500(b) Japan 4 0 0
5,200 Italy 1 2 0
- --------------------------------------------------------------------------------
12 9 3
================================================================================
(a) Ship numbers 5 and 7 of the Danish series have been delivered to NYK Stolt.
Ship number 2 of the Spanish series will be delivered to NYK Stolt.
(b) All ships owned and operated by Stolt NYK Asia Pacific Inc., a 50/50% joint
venture between NYK and SPTI.
Over the last three years, SNTG has sold seven ships and scrapped two. Of the
seven ships sold, two were subsequently time chartered back to SNTG and remain
marketed by the Joint Service. The remaining five were sold out of the trade.
Subsequent to November 30, 1998, SNTG scrapped an additional ship.
SNTG--Tank Containers
Net operating revenue in 1998 of $218.8 million was at the same level with
$219.0 million in 1997 which was an increase of 18% from $185.6 million in 1996.
Tank container shipments in 1998 of 47,607 were at the same level with shipments
of 47,591 in 1997 which was a 24% increase from shipments of 38,278 in 1996.
Prior to 1998, the market for chemical transportation by tank containers had
enjoyed rapid growth for several years. Growth in activity had been broad-based.
In addition, management believes that growth had been enhanced by success in the
development of supplier partnerships with major chemical companies. In 1998, the
growth in the tank container market slowed considerably, primarily the result of
weakened demand for tank container shipments into and within Asia Pacific,
partially offset by increased shipments from Asia Pacific and other developing
markets.
SNTG controlled a fleet of about 13,751 tank containers as of November 30, 1998,
a 7% increase over the 12,800 tank containers controlled at the end of 1997
which was a 28% increase over the 10,000 tank containers controlled at the end
of 1996. This increase is due to the purchase of new tank containers and an
increase in the number of tank containers under management on behalf of other
owners. SNTG currently has commitments for the future delivery of 1,393 tank
containers of which 94 will be delivered in 1999.
SNTG's tank container operation had gross profit of $55.0 million, $59.5
million, and $50.2 million in 1998, 1997, and 1996, respectively, and gross
margins of 25% in 1998 and 27% in both 1997 and 1996. Margins declined in 1998
due to continued pricing pressure in all of SNTG's major markets which was in
part brought about by an over-supply of tank containers
<PAGE>
Management's Discussion and Analysis continued
combined with weaker demand for shipments into and within Asia Pacific. This
impact was partly offset by cost reductions. Margins were maintained in 1997
even though SNTG had been under pricing pressure as a result of growth in
demand, improved utilization, and cost reductions.
SNTG--Terminals
Net operating revenue in 1998 increased 15% to $53.8 million from $46.7 million
in 1997 which was a 5% decrease from $49.0 million in 1996. Total marketable
capacity increased to 4.9 million barrels by the end of 1998, compared to 4.7
million barrels and 4.5 million barrels at the end of 1997 and 1996,
respectively. The increase in the current year is the result of completing
expansion projects in Houston and Santos for a combined capacity of 0.2 million
barrels. Average capacity utilization was 91% in 1998, 80% in 1997, and 91% in
1996. The increase in average capacity utilization in 1998 largely was
attributable to an improvement in the clean petroleum market in Perth Amboy.
Gross profit of SNTG's terminal operation was $16.6 million, $12.6 million and
$16.8 million in 1998, 1997, and 1996, respectively, and gross margins were 31%,
27%, and 34%, respectively. Margins improved in 1998 from 1997 as a result of
improved utilization partially offset by a bad debt write off at the terminal in
Santos. Margins declined in 1997 from 1996 principally as a result of a decline
in utilization.
Stolt Comex Seaway
Net operating revenue in 1998 increased 51% to $649.8 million from $431.1
million in 1997 which was a 38% increase from $313.4 million in 1996. The
increase from 1997 largely was a result of additional business won in the North
Sea, the full year impact of the ships added to the fleet during 1997, and the
impact of the acquisition of Ceanic. The increase in net operating revenue in
1997 largely was a result of improved market demand for SCS's services which
lead to higher ship utilization and improved pricing. During 1997, four
additional ships Seaway Eagle, Seaway Hawk, Discovery, and Toisa Puma were
brought into service.
The utilization rate of construction support ships was 85% in 1998 compared to
91% in 1997 and 70% in 1996. Utilization in both 1998 and 1997 was high due to
favorable market conditions and SCS's success in securing contracts worldwide.
In 1998, utilization was lower than in 1997 as a result of repositioning the
Seaway Hawk and the Seaway Eagle to the Gulf of Mexico and North Sea,
respectively. Utilization in 1996 was lower as a result of weak market
conditions and extensive repair and upgrading to the Seaway Osprey.
In addition to the fleet of deepwater construction ships at November 30, 1998,
SCS also operated 4 construction barges which operate predominantly in the Asia
Pacific region, and 18 shallow water ships and barges, which operate
predominantly in the Gulf of Mexico. In addition, 3 ships and barges will become
operational during the first quarter of 1999. The utilization of these ships and
barges will also have an impact on SCS's results.
SCS had a gross profit of $108.9 million, $77.8 million, and $21.2 million in
1998, 1997, and 1996 respectively, with gross margins of 17%, 18%, and 7%,
respectively. The increase in gross profit in 1998 was largely the result of
those factors mentioned above. The increase in gross profit in 1997 was largely
the result of increased market demand resulting in improved pricing and
utilization.
At the end of January 1999, SCS's backlog was approximately $598 million of
which approximately $382 million related to work to be performed in 1999. This
compares to a backlog at January 31, 1998 of $582 million of which $339 million
was for work to be performed in 1998.
Stolt Sea Farm
Net operating revenue in 1998 increased 32% to $216.5 million from $164.1
million in 1997 which was a 12% increase from $146.9 million in 1996. The
increase in net operating revenue was primarily due to higher volumes and the
purchase of Gaelic Seafoods (Scotland) Limited (since renamed Stolt Sea Farm
Limited) in December 1997. Prices in the main salmon markets in North America
and Europe were also on average higher than in the previous year. Total salmon
and salmon trout volumes sold were 46,000 tons in 1998, 34,800 tons in 1997, and
36,300 tons in 1996 of which 29,500 tons, 22,000 tons, and 23,600 tons,
respectively, was SSF's own production, the remainder being sourced from other
producers. The increase in the volume of own production in 1998 reflects
increased farming volumes in North America and Norway as well as the purchase of
Gaelic Seafoods (Scotland) Limited.
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.
SSF had gross profit of $31.5 million, $17.5 million, and $11.8 million in 1998,
1997, and 1996, respectively. Gross margins were 15% in 1998, 11% in 1997, and
8% in 1996. The increase in gross profit in 1998 was due mainly to a sharp
improvement in profitability in the Americas region. This reflected a
combination of higher market prices and improved husbandry, which resulted in
much lower losses of fish due to algae blooms on the West coast of Canada and a
reduction of epidemic diseases on the East coast of Canada. Profitability in all
other regions improved somewhat due to generally better European salmon and
turbot markets, the cost reduction program in Norway, and improved market
penetration in the important Asia Pacific region.
Write down of certain assets and restructuring charges
Effective December 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". As a
consequence, in 1997
<PAGE>
the Company recognized a write down within SNTG amounting to $11.6 million,
before income tax, in respect of certain assets at its Perth Amboy terminal.
Projections indicate that due to the 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 did
not support their carrying value. The assets were written down to values
considered by management to be their fair market value.
In 1997, SCS also recognized a write down of $4.2 million, before income tax, in
respect of certain assets which are unable to generate sufficient utilization,
and therefore cashflows, to support their net book value.
In light of the Norwegian government's agreement with the EU, and despite the
increased profitability of SSF's Norwegian operation, the Company considered
that the cost of its investment in its SSF Norwegian operation had been
permanently impaired, and wrote down in 1997 the entire goodwill balance of $3.6
million relating to this investment.
Projections also indicated that future cashflows to be generated from certain
other assets of SSF may not be sufficient to recover their carrying value, and
accordingly, in 1997, SSF recognized a write down of $8.7 million in respect of
these assets.
In 1996, SSF 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 seafood processing factories in Norway. The restructuring program 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
$17.3 million in 1998 compared to $19.6 million and $13.1 million in 1997 and
1996, respectively. The reduction in 1998 is due to a decrease in SNTG joint
venture results partially offset by the improved results of the Seaway Heavy
Lifting Limited joint venture ("SHL") in SCS.
The increase in 1997 compared to 1996 primarily relates to improved market
conditions for the services provided by SHL and the addition of a new North Sea
joint venture project in SCS, partially offset by a decrease in SNTG joint
venture results.
Administrative and general expenses
Administrative and general expenses increased to $157.1 million in 1998 from
$139.6 million in 1997. This increase has occurred mainly in SCS and largely is
due to the acquisition of Ceanic and increased profit share provisions. Profit
share provisions in 1998 were $1.7 million, $5.7 million and $0.7 million for
SNTG, SCS, and SSF, respectively. The increase was partially offset by the
impact of the strengthening of the U.S. dollar.
Administrative and general expenses increased to $139.6 million in 1997 from
$137.5 million in 1996. This was due to increased administrative and general
expenses following SNTG's acquisition of the Hamburger Lloyd and Challenge
International companies and an increased charge towards the SCS profit sharing
program. These increases were again partially offset by the impact of the
strengthening of the U.S. dollar.
Non-operating income and expense
Net interest expense. Net interest expense decreased to $53.3 million in
1998 from $57.0 million and $48.8 million in 1997 and 1996, respectively. The
decrease in 1998 reflects a general decline in interest rates during the year
and lower borrowings by SCS subsequent to its two secondary offerings in
March and November 1997. The increase in interest expense in 1997 from 1996
reflects the higher debt level in 1997 as a result of the Company's capital
expenditure program.
Gain on disposal of assets, net. In 1998, the Company recognized a gain of
$10.2 million from an insurance settlement for the total constructive loss of
the Stolt Spirit. The Company also recognized a gain of $5.2 million on the
sale of fish farming concessions in Norway. The Company also sold other
assets with a net gain of $1.0 million.
In 1997, the Company sold four of SNTG's ships, including two ships 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 SCS which were swapped
with third parties at fair market value. The Company sold other assets with a
net gain of $0.4 million.
In 1996, the Company sold five of SNTG's ships 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.
Gain on sale of common stock of a subsidiary, net. In two separate
transactions during 1997, the Company recognized total gains of $139.5
million, net of expenses, on the sale of Common shares of SCS.
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, net. In 1998, as a consequence of the Ceanic acquisition, SCS
changed its accounting policy for drydocking from an accrual basis to a
deferral basis. The effect of this change is a gain of $3.1 million, net of
taxes.
<PAGE>
Management's Discussion and Analysis continued
In 1996, a provision of $2.2 million was made for the loss on disposal of
Sogetram, a subsidiary of SCS, the sale of which was completed in January 1997.
Income tax provision. The 1998 results include a tax provision of $26.5
million compared to $13.2 million in 1997 and $2.9 million in 1996. The
principal cause of the increase between years has been an increase in the
level of income before income taxes recognized in Norwegian and U.K. tax
jurisdictions of SCS. In 1997, the increase was partially offset by a tax
benefit relating to the write down of certain assets within SNTG's Perth
Amboy terminal operation and SCS.
Extraordinary item
In October 1997, the Company prepaid debt relating to the first four ships in
SNTG's Danish newbuilding 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 cash generated from
operations and funds from commercial bank borrowing facilities and private
placements. The Company's borrowing facilities include revolving credit
agreements and other credit lines which cover short-term needs for funds, and
longer-term borrowings principally to finance capital expenditures and
acquisitions.
SNTG 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. SCS
requires working capital as expenditures are often incurred on an ongoing basis
throughout a project while customers are typically billed when a specified level
of progress is achieved on a project. In SSF, the production cycle for the
Atlantic salmon takes between two and four years and therefore requires working
capital to finance inventory.
In 1998, the Company generated cash from operating activities of $212.0 million.
This compares with the $179.0 million and $140.6 million in 1997 and 1996,
respectively. The movements between years are mainly due to the relative
operational performances and working capital requirements in those years.
Net investing activities utilized $555.8 million in 1998. Significant investing
activities during the year were (i) capital expenditures of $378.8 million as
described in further detail below, (ii) payments of $217.6 million to acquire
Ceanic and Gaelic Seafoods (Scotland) Limited, net of cash acquired, and (iii)
payments of $31.8 million for investments in affiliates, including the
acquisition of a 25% interest in Dovechem. Offsetting these expenditures were
(i) $57.6 million of proceeds from sale of ships and other assets, (ii) $18.4
million of dividends received from non-consolidated joint ventures, and (iii)
$5.8 million for the reduction of restricted cash deposits. Capital expenditures
for the year include (i) progress-payments on newbuildings under construction
and final payment on the delivery of two newbuildings for SNTG (the Stolt
Efficiency and the Stolt Shearwater), (ii) the purchase of new tank containers,
(iii) progress payments on terminal capacity expansion at the Houston and Santos
terminals, and (iv) SCS's purchase of the Seaway Legend and investments in ROVs.
Net investing activities utilized $429.9 million in 1997, mainly on capital
expenditures of $450.9 million. Capital expenditures include (i)
progress-payments for SNTG on newbuildings under construction and final payment
on the delivery of two newbuildings for SNTG (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) SCS's acquisition and completion of the Seaway Eagle, acquisition of the
Seaway Hawk and investments in new ROVs. The Company also made payments of $22.3
million to acquire the Rhine River parcel tanker business of 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.
Net investing activities utilized $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 for SNTG (the Stolt Innovation and the Stolt Confidence), (ii) the
purchase of six second-hand ships, (iii) the purchase of new tank containers,
(iv) deposit and 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 ROV's. Offsetting the capital expenditures were $46.7 million of
proceeds from sale of ships and other assets and $18.0 million in relation to
amounts received from affiliates.
Net cash provided by financing activities totaled $312.3 million in 1998. The
principal uses of cash were: (i) the repayment of long-term debt of $82.7
million, (ii) payment of dividends of $27.5 million, and (iii) the purchase of
treasury stock of $8.5 million. The significant sources of 1998 funding include:
(i) the issuance of $435.1 million of new long-term debt, consisting of
unsecured debt in the form of private placement notes, and secured debt or debt
with negative pledge covenants related to certain ship assets, and (ii) $1.0
million proceeds from the exercise of stock options over the shares of the
Company and of SCS.
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,
<PAGE>
(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 of $320.8
million, (ii) payment of dividends of $13.6 million, and (iii) $8.3 million in
the purchase of treasury shares. The significant sources of 1996 funding
include: (i) $143.2 million from the sale of 8.2 million Class B shares, (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.
As of November 30, 1998 the Company had total capital expenditure commitments
outstanding of $485 million, of which approximately $305 million will be spent
in 1999 and the remaining $180 million spent in subsequent years. These
commitments are for a variety of capital projects primarily newbuildings
purchases in Denmark, France, Spain and Italy; the purchase and refurbishment of
tank containers; expenditures for expansion of terminal capacity and the
modification of a construction ship and the purchase of ROVs.
The Company's current plans are expected to result in capital expenditures of
approximately $450.0 million in 1999 of which $420.0 million is for designated
projects. The Company also has scheduled debt service of approximately $180.0
million and anticipated dividends of $21.0 million. The Company expects to meet
this total funding requirement of $651.0 million through cash generated from
operating activities of about $265.0 million leaving a funding requirements of
$386.0 million, which will be funded by existing cash, new long-term financing
and drawdowns on existing long-term revolving credit lines.
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 two remaining 37,000 dwt tankers
purchased in Denmark. In respect of the contract for the two remaining
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. The
Company has a commitment from a bank syndicate, led by Citibank, for a five year
financing of the full cost of ships being built in Italy.
Subsequent to November 30, 1998, SCS has obtained a commitment for a new credit
facility with Den norske Bank ASA, Bank of America NT & SA, Midland Bank plc,
and ASKL-CGER Bank nv/sa. This new facility is in the form of a five year
revolving credit line. The initial available amount is $150.0 million which will
be reduced by $12.5 million semi-annually leaving $37.5 million due at maturity.
This facility does not require a guarantee by the Company.
At November 30, 1998, the Company's cash and cash equivalents totaled $37.8
million. The Company had corporate facilities and other short-term lines of
credit of $572.0 million of which $488.4 million is available for future use. At
November 30, 1998, the Company was temporarily restricted from drawing $84.6
million under one of its revolving credit agreements. Subsequent to November
30, 1998, the Company has provided ship mortgages as security in respect of that
credit facility in order to restore the full availability under that credit
facility. Total short-term and long-term debt amounted to $1,146.6 million, of
which $545.9 million is secured by ships and other assets and $600.7 million is
unsecured. The net debt to net tangible equity ratio as of November 30, 1998 was
1.11 to 1.
On November 19, 1998, 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
16, 1998 to all shareholders of record as of December 2, 1998. The Company
anticipates, subject to approval at the Annual General Meeting, that a final
dividend for 1998 of $0.125 per Common Share and Class B Share will be paid in
May 1999.
MARKET RISK
The Company is exposed to market risk, including changes in interest rates and
currency exchange rates. To manage the volatility relating to these exposures on
a consolidated basis, the Company nets the exposure and takes advantage of
natural offsets and enters into derivative transactions for the remaining
currency exposures in accordance with the Company's policies. The financial
impact of these instruments is offset by corresponding changes in the underlying
exposures being hedged. The Company does not hold or issue derivative
instruments for trading purposes.
Currency rate exposure
The primary purpose of the Company's foreign currency hedging activities is to
protect against the volatility associated with foreign currency liabilities
arising in the normal course of business. The Company's policy prescribes the
range of allowable hedging activity. The Company primarily utilizes forward
exchange contracts and purchased options with a duration of generally less than
twelve months.
The Company uses a value-at-risk ("VAR") model to assess the market risk of its
derivative financial instruments. The model utilizes a variance/covariance
modeling technique. VAR models are intended to measure the maximum potential
loss for an instrument or portfolio assuming adverse changes in market
conditions, for a specific time period and confidence level. The Company's
estimated maximum potential one day loss in fair value of foreign exchange rate
instruments, calculated using the VAR model given a 95% confidence level, would
not materially affect the consolidated financial position, results of
operations, or cash flow. Actual results in the future may differ materially
from these projected results due to actual developments in the global financial
markets.
Interest rate exposure
Based on the Company's overall interest rate exposure as of November 30, 1998, a
near-term change in interest rates would not materially affect the Company's
consolidated financial position, results of operations, or cash flows. As of
November 30, 1998, the large majority of the consolidated debt was fixed-rate
debt.
A discussion of the Company's accounting policies for financial instruments is
included in Note 2 to the consolidated financial
<PAGE>
Management's Discussion and Analysis continued
statements, and disclosure relating to the financial instruments is included in
Note 21 to the consolidated financial statements.
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 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 $2.4 billion. Other marine liabilities are
insured under marine protection and indemnity insurance policies. These policies
have a ceiling of $4.3 billion per incident for all claims other than marine oil
pollution. Cover for such incidents is limited to $700 million per occurrence
for ships when calling for ports in the U.S. and $500 million for other parts of
the world. Non-marine liabilities are insured up 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.
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 March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued the Statement of Position 98-1
("SOP 98-1"), "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use", which provides guidance on accounting for the costs
of computer software developed or obtained for internal use. This SOP requires
computer software costs that are incurred in the preliminary project stage to be
expensed as incurred. Once the capitalization criteria of the SOP have been met,
directly attributable development costs should be capitalized. It also provides
guidance on the treatment of upgrade and maintenance expenditure. SOP 98-1 is
effective for fiscal years beginning after December 15, 1998. Costs incurred
prior to initial application of this SOP, whether capitalized or not, should not
be adjusted to the amounts that would have been capitalized had this SOP been in
effect when those costs were incurred. The Company has not determined the impact
that this SOP will have on its consolidated financial statements.
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information", have been issued and
are effective for fiscal years beginning after December 15, 1997. SFAS No. 130
defines comprehensive income and outlines certain reporting and disclosure
requirements related to comprehensive income. SFAS No. 131 requires certain
disclosures about business segments of an enterprise, if applicable. The
adoption of SFAS No. 130 and SFAS No. 131 is not expected to have a significant
effect on the Company's financial statements or disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". The Statement
establishes accounting and reporting standards in the U.S. requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be
applied to derivatives and certain derivative instruments
<PAGE>
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on the
amounts presented under U.S. generally accepted accounting standards. However,
the Statement could increase volatility in earnings and other comprehensive
income.
EURO
The Company has carried out an initial review of the impact of carrying out
business in an additional currency, and it is anticipated that there is unlikely
to be a material impact on the Company in the short term. Those financial
systems which must be upgraded to provide Euro compliance will be systematically
upgraded to meet commercial requirements. Any foreign exchange risks will be
assessed and managed as part of the Company's foreign exchange program. The
longer term implications of the Euro on the Company will be assessed during
1999.
YEAR 2000 ISSUE
The Company has established a company-wide initiative to identify, evaluate, and
address Year 2000 issues. Beginning in 1997, the Company's Year 2000 project
covers the information technology systems and applications used in its three
businesses. In addition, the project includes a review of the Year 2000
compliance efforts of key suppliers, customers, and other principal business
partners. While the scope of the project is broad, it has been structured in
such a way as to identify and prioritize efforts on critical systems, network
elements and products, and key business partners.
Work is progressing on the project, and although the pace of the work varies
within each business, the large majority of critical or high impact systems and
applications have been tested to date with satisfactory results. The remaining
critical or high impact and medium impact systems are expected to be tested by
June 1999.
Additionally, each business has undertaken a survey to classify those suppliers
and customers which are critical or important to the Company's operations.
Inquiries are being made of such suppliers and customers as to their readiness
for the Year 2000 and spot tests will be carried out during the first quarter of
1999.
The Company's ability to meet the above target dates is dependent on a variety
of factors including the timely provision of necessary upgrades and
notifications by suppliers. In addition, the Company has no method of ensuring
that third parties who supply essential services such as utilities will convert
their critical systems and processes in a timely manner. Failure or delay by any
of these parties could significantly disrupt the business.
It is currently estimated that the Company will incur approximately $1.5 million
of expenses through 2000 in connection with the efforts on Year 2000 issues. As
of November 30, 1998 the Company has incurred $0.8 million. The timing of the
expenses may vary and are not necessarily an indication of the progress to date
on the project.
The Company has started contingency planning for critical operational areas that
may be affected by the Year 2000 issue and expects to have a full plan in place
by June 1999. This will include contingency plans which may be required should
any third parties fail to achieve Year 2000 compliance.
While the Company believes its efforts to address the Year 2000 issue will be
successful in avoiding any material adverse effect on the Company's operations
or functional condition, it recognizes that failing to resolve Year 2000 issues
on a timely basis would, in a "most reasonably likely worst case scenario",
significantly limit its ability to provide its services for a period of time,
especially if such failure is combined with third-party or infrastructure
failures.
Similarly, the Company could be significantly affected by the failure of one or
more significant suppliers, customers or components of the infrastructure to
conduct their respective activities after 1999. Adverse effects on the Company
could include, among other things, business disruption, increased costs, and
loss of business.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report, including the message from the
Chairman, describe plans or expectations for the future and constitute
"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. Such
factors include, among others: general economic and business conditions;
industry capacity; industry trends; competition; asset operational performance;
raw material costs and availability; currency fluctuations; disease and other
natural causes; immaturity of aquaculture technology; 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; and adverse weather conditions. Additional information concerning
these as well as other 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,
1997. Copies of these filings may be obtained by contacting the Company or the
SEC.
<PAGE>
Selected Consolidated Financial Data
(in millions, except per share data)
<TABLE>
<CAPTION>
=============================================================================================
For the years ended November 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net operating revenue $1,796.6 $1,526.1 $1,350.5 $1,308.9 $1,078.0
Income from operations $ 190.3 $ 165.6 $ 136.1 $ 176.9 $ 75.4
Non-recurring items, net $ 3.1 $ 124.0 $ (3.9) $ (9.0) $ (1.8)
Net recurring income $ 93.2 $ 113.1 $ 95.8 $ 114.0 $ 40.8
Net income(a) $ 96.3 $ 237.1 $ 91.9 $ 105.0 $ 39.0
Net recurring income per share(b)
Basic $ 1.70 $ 2.07 $ 1.80 $ 2.57 $ 0.92
Diluted $ 1.69 $ 2.04 $ 1.79 $ 2.52 $ 0.91
Net income per share(b)
Basic $ 1.76 $ 4.34 $ 1.73 $ 2.36 $ 0.88
Diluted $ 1.75 $ 4.28 $ 1.72 $ 2.32 $ 0.87
Weighted average number of Common and
Class B shares and equivalents
outstanding(b)
Basic 54.7 54.7 53.2 44.4 44.4
Diluted 55.0 55.4 53.4 45.2 44.8
Cash dividends paid per share(b) $ 0.50 $ 0.50 $ 0.25 $ 0.37 $ --
=============================================================================================
<CAPTION>
=============================================================================================
As of November 30, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current assets less current liabilities
(including current portion of
long-term debt) $ 132.4 $ 112.0 $ 41.8 $ (43.5) $ (83.3)
Total assets $ 3,008.1 $ 2,402.8 $1,978.5 $1,687.4 $1,528.8
Long-term debt (including current
portion) $ 1,128.9 $ 776.6 $ 719.7 $ 669.4 $ 646.6
Shareholders' equity $ 1,132.4 $ 1,062.6 $ 884.8 $ 640.3 $ 535.1
Book value per share(b) $ 20.78 $ 19.35 $ 16.26 $ 14.42 $ 12.05
Total number of Common and Class B
shares outstanding(b) 54.5 54.9 54.4 44.4 44.4
=============================================================================================
</TABLE>
(a) 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; and 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.
(b) All share data and per share data for 1995 and 1994 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, 1998 and 1997,
and the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended November 30, 1998. 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, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
November 30, 1998, in conformity with accounting principles generally accepted
in the United States.
As explained in Note 6 to the consolidated financial statements, effective
December 1, 1996, the Company adopted SFAS No. 121.
Arthur Andersen
London, England
February 24, 1999
<PAGE>
Consolidated Statements of Income
(in thousands, except per share data)
<TABLE>
<CAPTION>
=======================================================================================
For the years ended November 30, 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net operating revenue:
Stolt-Nielsen Transportation Group:
Tankers $ 657,821 $ 665,187 $ 655,613
Tank Containers 218,789 218,980 185,617
Terminals 53,768 46,652 49,017
Stolt Comex Seaway 649,764 431,126 313,358
Stolt Sea Farm 216,483 164,107 146,932
- ---------------------------------------------------------------------------------------
1,796,625 1,526,052 1,350,537
- ---------------------------------------------------------------------------------------
Operating expenses:
Stolt-Nielsen Transportation Group:
Tankers 539,696 518,816 491,338
Tank Containers 163,787 159,482 135,401
Terminals 37,204 34,064 32,205
Stolt Comex Seaway 540,891 353,361 292,177
Stolt Sea Farm 184,964 146,643 135,093
- ---------------------------------------------------------------------------------------
1,466,542 1,212,366 1,086,214
- ---------------------------------------------------------------------------------------
Gross profit 330,083 313,686 264,323
Equity in net income of non-consolidated
joint ventures (Note 4) 17,250 19,592 13,108
Administrative and general expenses (157,061) (139,609) (137,476)
- ---------------------------------------------------------------------------------------
Income from operations before write down of
certain assets and restructuring charges 190,272 193,669 139,955
Write down of certain assets (Note 6) -- (28,098) --
Restructuring charges (Note 6) -- -- (3,873)
- ---------------------------------------------------------------------------------------
Income from operations 190,272 165,571 136,082
- ---------------------------------------------------------------------------------------
Non-operating (expense) income:
Interest expense (60,657) (59,897) (51,343)
Interest income 7,342 2,864 2,575
Foreign currency exchange (loss) gain, net (288) 582 (452)
Gain on disposal of assets, net (Note 7) 16,384 10,633 6,815
Minority interest (Note 8) (32,613) (15,992) 3,829
Gain on sale of common stock of a subsidiary,
net (Note 6) -- 139,508 --
Other, net 2,365 (415) (2,620)
- ---------------------------------------------------------------------------------------
(67,467) 77,283 (41,196)
- ---------------------------------------------------------------------------------------
Income before income tax provision and
extraordinary item 122,805 242,854 94,886
Income tax provision (Note 9) (26,530) (13,161) (2,946)
- ---------------------------------------------------------------------------------------
Income before extraordinary item 96,275 229,693 91,940
Extraordinary item--gain on early repayment of
debt, net of taxes (Note 6) -- 7,416 --
- ---------------------------------------------------------------------------------------
Net income $ 96,275 $ 237,109 $ 91,940
=======================================================================================
Earnings per Common and Class B share and
equivalents (Note 2):
Basic $ 1.76 $ 4.34 $ 1.73
Diluted 1.75 4.28 1.72
=======================================================================================
Weighted average number of Common and Class B shares
and equivalents outstanding
Basic 54,732 54,658 53,156
Diluted 54,998 55,439 53,381
=======================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
====================================================================================
As of November 30, 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,776 $ 68,571
Trade receivables, net of allowance for doubtful
accounts of $9,185 and $5,207 in 1998 and
1997, respectively 336,019 243,798
Inventories (Note 10) 127,782 109,271
Receivables from related parties (Note 4) 17,236 9,566
Restricted cash deposits (Note 11) 1,460 980
Prepaid expenses and other current assets 105,020 70,300
- ------------------------------------------------------------------------------------
Total current assets 625,293 502,486
- ------------------------------------------------------------------------------------
Fixed assets, at cost:
Tankers 1,539,229 1,475,630
Tankers under construction 257,699 156,796
Tank containers 216,744 198,424
Terminal facilities 275,260 263,497
Subsea Services ships and facilities 549,327 356,249
Seafood facilities 94,026 86,097
Other 31,611 27,979
- ------------------------------------------------------------------------------------
2,963,896 2,564,672
Less--accumulated depreciation and amortization (880,384) (791,639)
- ------------------------------------------------------------------------------------
2,083,512 1,773,033
- ------------------------------------------------------------------------------------
Investments in non-consolidated joint ventures
and other assets (Note 4) 135,563 90,673
Deferred income tax asset (Note 9) 2,954 4,973
Goodwill and other intangible assets, net of
accumulated amortization of $20,477 and
$16,119 in 1998 and 1997, respectively (Note 5) 160,803 31,587
- ------------------------------------------------------------------------------------
Total assets $3,008,125 $2,402,752
====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank loans (Note 12) $ 17,645 $ 19,852
Current maturities of long-term debt (Note 13) 71,634 90,330
Accounts payable 184,443 90,988
Accrued liabilities and other current liabilities 219,132 189,316
- ------------------------------------------------------------------------------------
Total current liabilities 492,854 390,486
- ------------------------------------------------------------------------------------
Long-term debt (Note 13) 1,057,313 686,298
Minority interest (Note 8) 227,215 197,289
Deferred income tax liability (Note 9) 35,008 9,234
Other non-current liabilities 63,368 56,888
Commitments and contingencies (Note 15) Shareholders' equity:
Founder's shares: no par value--15,000,000 shares authorized,
7,809,328 and 7,799,362 shares issued and outstanding in
1998 and 1997, respectively, at stated value -- --
Capital stock:
Common shares no par value--60,000,000 authorized,
31,237,313 and 31,197,450 shares issued and
outstanding in 1998 and 1997, respectively, at stated
value 31,237 31,198
Class B shares no par value--60,000,000 authorized
30,953,412 and 30,933,246 shares issued and
outstanding in 1998 and 1997, respectively, at
stated value 30,954 30,933
Paid-in surplus 347,019 346,437
Retained earnings 884,615 815,795
Cumulative translation adjustments (27,434) (36,266)
- ------------------------------------------------------------------------------------
1,266,391 1,188,097
Less--Treasury stock, 1,921,905 Common shares and
5,766,905 Class B shares in 1998, and 1,601,905
Common shares and 5,607,605 Class B shares in 1997 (134,024) (125,540)
- ------------------------------------------------------------------------------------
Total shareholders' equity 1,132,367 1,062,557
- ------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $3,008,125 $2,402,752
====================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
Consolidated Statements of Shareholders' Equity
(in thousands, except share data)
<TABLE>
<CAPTION>
=================================================================================================================
Cumulative
Capital Paid-in Retained translation Treasury
stock surplus earnings adjustments stock
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 treasury stock--500,000 Common shares -- -- -- -- (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 treasury stock--20,700 Common shares -- -- -- -- (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)
Net income -- -- 96,275 -- --
Exercise of stock options for 39,863 Common
shares and 20,166 Class B shares 60 582 -- -- --
Issuance of 9,966 Founder's shares -- -- -- -- --
Purchase of treasury stock--320,000 Common
shares and 159,300 Class B shares -- -- -- -- (8,484)
Cash dividends paid--$0.50 per Common
and Class B share -- -- (27,416) -- --
Cash dividends paid--$0.005 per Founder's share -- -- (39) -- --
Translation adjustments, net -- -- -- 8,832 --
- -----------------------------------------------------------------------------------------------------------------
Balance, November 30, 1998 $ 62,191 $ 347,019 $ 884,615 $ (27,434) $(134,024)
=================================================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
===============================================================================================
For the years ended November 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Income before extraordinary item $ 96,275 $ 229,693 $ 91,940
Adjustments to reconcile income before
extraordinary item to net cash provided
by operating activities:
Depreciation of fixed assets 128,589 112,410 107,029
Amortization of intangible assets 4,225 2,297 1,837
Amortization of drydock costs 18,303 19,365 23,931
Provisions for reserves, taxes and lease payments 26,283 7,582 6,455
Equity in net income of non-consolidated
joint ventures (17,250) (19,592) (13,108)
Minority interest 32,613 15,992 (3,829)
Gain on disposal of assets, net (16,384) (10,633) (6,815)
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 (21,413) (45,681) (40,030)
Decrease (increase) in inventories 14,685 (19,475) (6,433)
Increase in prepaid expenses and other
current assets (19,979) (3,528) (5,093)
(Decrease) increase in accounts payable and
accrued liabilities (14,746) 30,496 (3,717)
Payments of drydock costs (15,632) (23,542) (21,009)
Other, net (3,607) (4,961) 9,450
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 211,962 179,013 140,608
===============================================================================================
Cash flows from investing activities:
Capital expenditures (378,809) (450,916) (396,370)
Proceeds from sales of ships and other assets 57,627 47,934 46,727
Acquisition of subsidiaries, net of cash acquired (217,584) (22,268) --
(Investment in and advances to) repayments
from affiliates and others, net (31,758) (14,708) 3,129
Dividends from non-consolidated joint ventures 18,384 13,249 14,879
Decrease in restricted cash deposits 5,756 5,053 1,201
Other, net (9,379) (8,198) (747)
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (555,763) (429,854) (331,181)
===============================================================================================
Cash flows from financing activities:
(Decrease) increase in loans payable to banks, net (2,455) (3,758) 14,741
Repayment of long-term debt (82,731) (211,275) (320,831)
Principal payments under capital lease obligations (2,731) (747) (1,266)
Proceeds from issuance of long-term debt
--Private Placement 216,000 125,000 187,000
Proceeds from issuance of long-term debt
--ship financing/other 219,074 121,920 180,047
Proceeds from Class B share equity offering -- -- 143,163
Proceeds from secondary offerings by subsidiary, net -- 179,797 --
Proceeds from sale of common stock in a subsidiary, net -- 117,060 --
Proceeds from exercise of stock options in the
Company and Stolt Comex Seaway 1,033 6,319 2,910
Purchases of treasury stock (8,484) (476) (8,278)
Dividends paid (27,455) (27,286) (13,641)
Proceeds from early repayment of debt -- 7,416 --
Other, net -- -- (19)
- -----------------------------------------------------------------------------------------------
Net cash provided by financing activities 312,251 313,970 183,826
===============================================================================================
Effect of exchange rate changes on cash 755 (1,336) (765)
- -----------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (30,795) 61,793 (7,512)
Cash and cash equivalents at beginning of year 68,571 6,778 14,290
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 37,776 $ 68,571 $ 6,778
===============================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
Notes to Consolidated Financial Statements For the years ended November 30,
1998, 1997, and 1996 a29
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, which is carried out through Stolt-Nielsen
Transportation Group ("SNTG"), is engaged in the worldwide transportation,
storage, and distribution of bulk liquid chemicals, edible oils, acids, and
other speciality liquids providing its customers with integrated logistics
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 held a 43% economic interest and a
60% voting interest at November 30, 1998. 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 and carried out through Stolt
Sea Farm ("SSF"), 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.
SNTG operates the Stolt Tankers Joint Service (the "Joint Service"), an
arrangement for the co-ordinated 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, 1998, 1997, and 1996, SNTG received approximately 72%, 86%,
and 87%, 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 $92.8 million, $43.3 million,
and $43.2 million for the years ended November 30, 1998, 1997, and 1996,
respectively, and include amounts distributed to non-consolidated joint ventures
of SNTG of $34.2 million, $22.0 million, and $24.2 million. The amounts
distributed are net of commissions to SNTG of $2.3 million, $0.7 million, and
$0.7 million for the years ended November 30 1998, 1997, and 1996, respectively.
As of November 30, 1998 and 1997, the net amounts payable to participants in
which the Company holds an equity interest for amounts to be distributed by the
Joint Service were $3.8 million and $0.4 million, respectively. These amounts
are included in accrued liabilities and other current liabilities in the
accompanying consolidated balance sheets as at November 30, 1998 and 1997.
Revenue Recognition
SNTG. 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, 1998
and 1997, deferred revenues of $29.3 million and $26.3 million, respectively,
are included in accrued liabilities and other current liabilities in the
accompanying consolidated balance sheets.
SCS. Long-term contracts of SCS 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 SCS'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 $1.9 million and
$3.8 million in 1998 and 1997, respectively.
SSF. SSF recognizes revenues on dispatch of product to customers.
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
<PAGE>
Notes to Consolidated Financial Statements continued
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 (loss) gain, 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 $16.2 million, $9.9 million, and $5.4 million of interest
expense in fiscal years 1998, 1997, and 1996, respectively.
Earnings per Share
The Company has adopted the provisions of SFAS No. 128, "Earnings per Share."
This standard requires companies to present basic and diluted earnings per share
("EPS"), instead of primary and fully diluted EPS previously required. The
adoption of the new standard is required for the year ended November 30, 1998
and requires restatement of EPS of all previous periods presented. Basic EPS has
been computed by dividing net income by the weighted average number of shares
and equivalents outstanding during the period. Diluted EPS is computed by
adjusting the weighted average number of shares and equivalents outstanding
during the period for all dilutive potential shares and equivalents outstanding
during the period and adjusting net income for any changes that would result
from the conversion of such potential shares and equivalents. As further
discussed in Note 17, 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. For purposes of computing EPS, dividends paid
on Founder's shares are deducted from earnings to arrive at earnings available
to Common and Class B shareholders.
The outstanding stock options under the Company's 1987 Stock Option Plan and
1997 Stock Option Plan (Note 18) are included in the diluted EPS calculation to
the extent they are dilutive. In accordance with SFAS 128, the following is a
reconciliation of the numerator and denominator of the basic and diluted EPS
computations.
For the years ended November 30,
================================================================================
(in thousands, except per share data) 1998 1997 1996
- --------------------------------------------------------------------------------
Income before extraordinary item $ 96,275 $ 229,693 $ 91,940
Less: Dividends on Founder's shares (39) (39) (39)
- --------------------------------------------------------------------------------
Income before extraordinary item
attributable to Common and Class
B shareholders 96,236 229,654 91,901
Extraordinary item--gain on early
repayment of debt, net of taxes -- 7,416 --
- --------------------------------------------------------------------------------
Net income attributable to Common and
Class B shareholders $ 96,236 $ 237,070 $ 91,901
================================================================================
Basic weighted average shares 54,732 54,658 53,156
Options issued to executives
(Note 18) 266 781 225
- --------------------------------------------------------------------------------
Diluted weighted average shares 54,998 55,439 53,381
================================================================================
Basic EPS
Income before extraordinary item $ 1.76 $ 4.20 $ 1.73
Net income 1.76 4.34 1.73
Diluted EPS
Income before extraordinary item $ 1.75 $ 4.14 $ 1.72
Net income 1.75 4.28 1.72
================================================================================
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
SCS 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 $2.6 million and $6.8
million in 1998 and 1997, respectively, are included in work-in-progress.
SSF's raw materials, biomass, and finished goods are valued at average
production cost or market price, whichever is lower. Finished goods consist of
frozen and processed fish products.
<PAGE>
Depreciation of Fixed Assets
Tankers are depreciated on a straight-line basis to a residual value of 10% of
cost over management'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.
SCS 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.
SSF 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 dry dock costs,
for the years ended November 30, 1998, 1997 and 1996 was $128.6 million, $112.4
million, and $107.0 million, respectively.
Drydock costs 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 $18.3 million, $19.4
million, and $23.9 million for the years ended November 30, 1998, 1997, and
1996, respectively. The unamortized portion of capitalized drydock costs of
$41.8 million and $33.8 million is included in "Investments in non-consolidated
joint ventures and other assets" in the accompanying consolidated balance sheets
at November 30, 1998 and 1997, 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, 1998, 1997, and 1996 were $56.6 million, $52.7 million, and $51.2 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 6 to the financial
statements.
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 also uses interest rate swaps to hedge underlying debt obligations.
For qualifying hedges, the interest rate differential is reflected as an
adjustment to interest expense over the life of the swap.
The Company does not engage in foreign currency speculation.
Cash flows resulting from hedge 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 1998, 1997, and 1996 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) 1998 1997 1996
- --------------------------------------------------------------------------------
Interest, net of amounts capitalized $58,353 $58,107 $54,398
Income taxes 8,534 4,528 1,480
================================================================================
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. The Company continuously monitors the realizable
value of goodwill and other intangible assets using expected related future
undiscounted cash flows. Total amortization of goodwill and other intangibles
was $4.2 million, $2.3 million, and $1.8 million in 1998, 1997, and 1996,
respectively.
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 18).
Future Adoption of New Accounting Standards
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public
<PAGE>
Notes to Consolidated Financial Statements continued
Accountants issued the Statement of Position 98-1 ("SOP 98-1"), "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use", which
provides guidance on accounting for the costs of computer software developed or
obtained for internal use. This SOP requires computer software costs that are
incurred in the preliminary project stage to be expensed as incurred. Once the
capitalization criteria of the SOP have been met, directly attributable
development costs should be capitalized. It also provides guidance on the
treatment of upgrade and maintenance expenditure. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. Costs incurred prior to initial
application of this SOP, whether capitalized or not, should not be adjusted to
the amounts that would have been capitalized had this SOP been in effect when
those costs were incurred. The Company has not determined the impact that this
SOP will have on its consolidated financial statements.
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," have been issued and
are effective for fiscal year beginning after December 15, 1997. SFAS No. 130
defines comprehensive income and outlines certain reporting and disclosure
requirements related to comprehensive income. SFAS No. 131 requires certain
disclosures about business segments of an enterprise, if applicable. The
adoption of SFAS No. 130 and SFAS No. 131 is not expected to have a significant
effect on Company's financial statements or disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards in the U.S. requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for a qualifying hedge
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be
applied to derivatives and certain derivative instruments embedded in hybrid
contracts that were issued acquired, or substantively modified after December
31, 1997.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on the
amounts presented under U.S. generally accepted accounting standards. However,
the Statement could increase volatility in earnings and other comprehensive
income.
3 BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION
Segment information as of and for the years ended November 30, 1998, 1997, and
1996 is as follows:
For the years ended November 30,
========================================================================
(in millions) 1998 1997 1996
- ------------------------------------------------------------------------
Net operating revenue:
Stolt-Nielsen
Transportation Group:
Tankers $ 658 $ 665 $ 656
Tank Containers 219 219 186
Terminals 54 47 49
Stolt Comex Seaway 650 431 313
Stolt Sea farm 216 164 147
- ------------------------------------------------------------------------
$ 1,797 $ 1,526 $ 1,351
========================================================================
Income from operations:
Stolt-Nielsen
Transportation Group:
Tankers $ 61 $ 95 $ 115
Tank Containers 29 36 27
Terminals 8 (9) 7
Stolt Comex Seaway 78 55 (3)
Stolt Sea farm 14 (11) (10)
- ------------------------------------------------------------------------
$ 190 $ 166 $ 136
========================================================================
Depreciation and amortization:
Stolt-Nielsen
Transportation Group:
Tankers--amortization
of drydock costs $ 15 $ 19 $ 24
Tankers--other 66 59 56
Tank Containers 13 13 11
Terminals 10 11 9
Stolt Comex Seaway--
amortization of
drydock costs 3 -- --
Stolt Comex Seaway--other 36 25 26
Stolt Sea Farm 8 7 7
- ------------------------------------------------------------------------
$ 151 $ 134 $ 133
========================================================================
Capital expenditures:
Stolt-Nielsen Transportation Group:
Tankers $ 206 $ 277 $ 284
Tank Containers 20 30 39
Terminals 16 23 16
Stolt Comex Seaway 123 109 40
Stolt Sea Farm 14 12 17
- ------------------------------------------------------------------------
$ 379 $ 451 $ 396
========================================================================
<PAGE>
As of November 30,
========================================================================
(in millions) 1998 1997 1996
- ------------------------------------------------------------------------
Identifiable assets:
Stolt-Nielsen Transportation Group:
Tankers $ 1,485 $ 1,350 $ 1,111
Tank Containers 220 214 181
Terminals 217 185 134
Stolt Comex Seaway 877 457 357
Stolt Sea farm 209 197 195
- ------------------------------------------------------------------------
$ 3,008 $ 2,403 $ 1,978
========================================================================
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.
SNTG operating revenue is allocated on the basis of the geographical area where
cargo is loaded.
For the years ended November 30,
===============================================================================
(in millions) 1998 1997 1996
- -------------------------------------------------------------------------------
Net operating revenue:
Stolt-Nielsen Transportation
Group--Tankers:
North America $ 313 $ 329 $ 310
Europe 146 160 154
Asia 152 165 155
Other areas and
miscellaneous revenue 105 75 86
Less commissions, sublet
costs, transshipment and
barging expenses (58) (64) (49)
- -------------------------------------------------------------------------------
$ 658 $ 665 $ 656
===============================================================================
Stolt-Nielsen Transportation
Group--Tank Containers:
North America $ 78 $ 81 $ 66
Europe 76 68 55
Asia 54 57 53
South America and other 11 13 12
- -------------------------------------------------------------------------------
$ 219 $ 219 $ 186
===============================================================================
Stolt-Nielsen Transportation
Group--Terminals:
North America $ 48 $ 42 $ 46
South America 6 5 3
- -------------------------------------------------------------------------------
$ 54 $ 47 $ 49
===============================================================================
Stolt Comex Seaway:
North America $ 63 $ 9 $ 8
Europe 433 339 217
Asia 38 40 39
South America and other 116 43 49
- -------------------------------------------------------------------------------
$ 650 $ 431 $ 313
===============================================================================
Stolt Sea Farm:
North America $ 88 $ 62 $ 59
Europe 52 54 72
Asia and other 76 48 16
- -------------------------------------------------------------------------------
$ 216 $ 164 $ 147
===============================================================================
Total $ 1,797 $ 1,526 $ 1,351
===============================================================================
The following table sets out income from operations and identifiable assets by
geographic area for the Company's businesses. SNTG's tanker and tank container
operations and SCS operate on a worldwide basis and are not restricted to
specific locations. Accordingly, it is not possible to allocate the assets of
these businesses and the income from operations of SNTG's tanker and tank
container operations to specific geographical areas.
For the years ended November 30,
===============================================================================
(in millions) 1998 1997 1996
- -------------------------------------------------------------------------------
Income from operations:
Stolt-Nielsen Transportation
Group--Terminals:
North America $ 10 $ (8) $ 7
South America (2) (1) --
- -------------------------------------------------------------------------------
$ 8 $ (9) $ 7
===============================================================================
Stolt Comex Seaway:
North America $ 6 $ -- $ (3)
Europe 64 44 4
Asia 6 6 (2)
South America and other 2 5 (2)
- -------------------------------------------------------------------------------
$ 78 $ 55 $ (3)
===============================================================================
Stolt Sea farm:
North America $ 11 $ (3) $ 5
Europe 3 (8) (11)
Asia and other -- -- (4)
- -------------------------------------------------------------------------------
$ 14 $ (11) $ (10)
===============================================================================
As at November 30,
===============================================================================
(in millions) 1998 1997 1996
- --------------------------------------------------------------------------------
Identifiable assets:
Stolt-Nielsen Transportation
Group--Terminals:
North America $ 181 $ 155 $ 115
South America 36 30 19
- -------------------------------------------------------------------------------
$ 217 $ 185 $ 134
===============================================================================
Stolt Sea Farm:
North America $ 73 $ 85 $ 72
Europe 121 98 115
Asia and other 15 14 8
- -------------------------------------------------------------------------------
$ 209 $ 197 $ 195
===============================================================================
Indirect costs and assets have been apportioned to the businesses on the basis
of corresponding direct costs and assets.
<PAGE>
Notes to Consolidated Financial Statements continued
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 millions) 1998 1997 1996
- --------------------------------------------------------------------------------
Net operating revenue $331 $293 $235
Gross profit 63 72 67
Net income 39 48 22
================================================================================
Balance sheet data:
As of November 30,
================================================================================
(in millions) 1998 1997
- --------------------------------------------------------------------------------
Current assets $129 $101
Non-current assets 287 119
Current liabilities 97 82
Non-current liabilities 193 103
================================================================================
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) 1998 1997 1996
- --------------------------------------------------------------------------------
Charter hire expense $48.4 $45.0 $40.2
Management and other fees 3.5 7.0 19.1
Freight and Joint Service Commission 1.2 0.7 0.6
Interest expense 1.8 2.4 2.7
================================================================================
The joint ventures also recorded the following revenues related to transactions
with the Company:
For the years ended November 30,
================================================================================
(in millions) 1998 1997 1996
- --------------------------------------------------------------------------------
Charter hire revenue $29.6 $22.0 $20.6
Tank container cleaning station revenue 4.5 4.2 4.3
Rental income (from office building
leased to the Company) 2.3 2.2 2.2
================================================================================
The balance sheet data includes:
As of November 30,
================================================================================
(in millions) 1998 1997
- --------------------------------------------------------------------------------
Amounts due from the Company $ 4.9 $ 0.4
Amounts due to the Company 24.3 16.0
================================================================================
Included within "Amounts due to the Company" is $17.2 million and $9.6 million
at November 30, 1998 and 1997 respectively, for trading balances. These amounts
are reflected in the consolidated balance sheet as "Receivables from related
parties."
5 BUSINESS ACQUISITION
On August 18, 1998, SCS acquired Ceanic Corporation (later renamed Stolt Comex
Seaway Inc.) for a cash purchase price of $218.9 million including transaction
costs. The transaction has been accounted for under the purchase method of
accounting.
The purchase price generated goodwill of approximately $114.8 million which is
being amortized on a straight-line basis over 25 years. The Company does not
believe that the final purchase price allocation will differ significantly from
the preliminary allocation.
The Company's share in the results of Ceanic has been included in the
consolidated statements of income from the date of acquisition. The following
unaudited pro forma information presents a summary of the consolidated results
of operations of the Company and the former Ceanic Corporation as if the
acquisition occurred at the beginning of each respective year. The pro forma
consolidated results do not purport to be indicative of results that would have
occurred had the acquisition been in effect for the period presented, nor do
they purport to be indicative of the results that will be obtained in the
future. Pro forma adjustments include depreciation and amortization, interest
charges on debt and lines of credit, tax benefit related to additional interest
charges, and minority interests:
For the years ended November 30,
================================================================================
(in thousands, except per share data) 1998 1997 1996
- --------------------------------------------------------------------------------
Net operating revenue $1,916,445 $1,656,534 $1,455,238
Income before
extraordinary item 90,577 222,511 84,895
Net income 90,577 229,927 84,895
Basic EPS
Income before
extraordinary item $1.65 $4.07 $1.60
Net income 1.65 4.21 1.60
Diluted EPS
Income before
extraordinary item $1.65 $4.01 $1.59
Net income 1.65 4.15 1.59
================================================================================
6 NON-RECURRING ITEMS
Effect of Accounting Policy Change in Stolt Comex Seaway
As a consequence of the acquisition of Ceanic in August 1998, SCS changed its
accounting policy from an accrual basis to a deferral basis. The effect of this
change is a gain of $3.1 million, net of taxes, which has been included in
"Other non-operating income."
<PAGE>
Write Down of Certain Assets
Effective December 1, 1996, the Company adopted SFAS No. 121. In 1997, as a
consequence the Company recognized a write down within SNTG amounting to $11.6
million, before income tax, in respect of certain assets at its Perth Amboy
terminal. Projections indicated that due to the 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 did not support their carrying value. The assets were written down to
values considered by management to be their fair market value.
In 1997, the Company also recognized a write down of $4.2 million, before income
tax, in respect of certain assets in SCS 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 SSF. In the light of these
events, the Company considered that the cost of its investment in its SSF
Norwegian operation was permanently impaired, and in 1997 wrote down the entire
goodwill balance of $3.6 million relating to this investment. Projections also
indicated that future cashflows to be generated from certain other assets of SSF
may not be sufficient to recover their carrying value, and accordingly, the
Company recognized a write down of $8.7 million in 1997 in respect of these
assets.
Gain on Sale of Common Stock of 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
SNTG'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 SSF 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
severance costs, write downs of fixed assets and site closure costs primarily at
SSF's production sites in Norway. As of November 30, 1998, 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.
7 GAIN ON DISPOSAL OF ASSETS, NET
Gain on disposals of assets is comprised of the following:
For the years ended November 30,
================================================================================
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Insurance settlement for total
constructive loss of
SNTG ship $ 10,208 $ -- $ --
Sale of SNTG ships 466 5,294 4,906
Sale of SSF fish farm concessions 5,243 -- --
Sale of investments -- -- 1,264
Sale of SCS assets (342) 4,874 --
Sale of other assets 809 465 645
- --------------------------------------------------------------------------------
$ 16,384 $ 10,633 $ 6,815
================================================================================
8 MINORITY INTEREST
The minority interest in the consolidated balance sheets of the Company
primarily reflects the minority interest in SCS. During 1997, the Company's
economic ownership in SCS decreased from 70% to 43% (Note 6). The consolidated
statements of income also reflect the minority interest in SCS and, in the case
of 1996, 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 SNTG.
<PAGE>
Notes to Consolidated Financial Statements continued
9 INCOME TAXES
The 1998, 1997, and 1996 income tax provision consists of the following by
business segment:
<TABLE>
<CAPTION>
For the year ended November 30, 1998
===================================================================================
(in thousands) SNTG SCS SSF Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
U.S. $ 716 $ 1,361 $ 64 $ 2,141
Non-U.S 2,244 7,074 1,403 10,721
Deferred:
U.S. 886 -- 730 1,616
Non-U.S 71 9,102 2,879 12,052
- -----------------------------------------------------------------------------------
Income tax provision $ 3,917 $ 17,537 $ 5,076 $ 26,530
===================================================================================
<CAPTION>
For the year ended November 30, 1997
===================================================================================
(in thousands) SNTG SCS SSF Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
===================================================================================
<CAPTION>
For the year ended November 30, 1996
===================================================================================
(in thousands) SNTG SCS SSF Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
===================================================================================
</TABLE>
Substantially all of SNTG'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 SNTG'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 SNTG's U.S. source shipping income.
An analysis of the Company's deferred tax assets and liabilities as of November
30, 1998 and 1997 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:
===============================================================================
1998 Deferred tax (liabilities)/
assets (in thousands) SNTG SCS SSF
- -------------------------------------------------------------------------------
Net operating loss carryforwards $ 6,831 $ 22,694 $ 22,167
Valuation allowances (2,144) (7,291) (14,204)
- -------------------------------------------------------------------------------
Net operating loss carryforwards
after valuation allowances 4,687 15,403 7,963
Differences between book and
tax depreciation (16,801) (39,481) 9,733
U.S. State deferred taxes (1,790) -- --
Other timing differences--net 7,275 7,127 (26,170)
- -------------------------------------------------------------------------------
Net deferred tax liability $ (6,629) $(16,951) $ (8,474)
- -------------------------------------------------------------------------------
Deferred tax asset $ -- $ 2,954 $ --
Deferred tax liability (6,629) (19,905) (8,474)
- -------------------------------------------------------------------------------
$ (6,629) $(16,951) $ (8,474)
===============================================================================
<PAGE>
===============================================================================
1997 Deferred tax (liabilities)/
assets (in thousands) SNTG SCS SSF
- -------------------------------------------------------------------------------
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)
===============================================================================
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 SSF deferred tax liability in 1998 is an amount of $13.3
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. Also included within the SSF deferred tax
liability is $10.2 million arising in Norway as Norwegian tax law permits
cash-basis accounting for certain expenses associated with inventory growth.
For SNTG, approximately $19.5 million of NOLs were available at November 30,
1998 to offset future taxable income. These NOLs expire in the years 1999
through 2008 except for approximately $5.0 million which can be carried forward
indefinitely. For SCS, approximately $27.1 million of NOLs were available at
November 30, 1998 to offset future taxable income. These NOLs expire at various
dates through 2005, except those in the United Kingdom, Brazil, Australia and
some NOLs in France amounting to $20.7 million which can be carried forward
indefinitely. SSF had approximately $74.3 million of NOLs at November 30, 1998.
These NOLs expire at various dates through 2007. The group NOLs expire as
follows:
================================================================================
(in thousands)
- --------------------------------------------------------------------------------
1999 $ 3,253
2000 3,481
2001 12,321
2002 20,744
2003 19,381
Thereafter 36,020
================================================================================
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) 1998 1997 1996
- -------------------------------------------------------------------------------
Income before income tax
provision and extraordinary
item $ 122,805 $ 242,854 $ 94,886
Minority interest 32,613 15,992 (3,829)
- -------------------------------------------------------------------------------
Income before income tax
provision, minority interest
and extraordinary item 155,418 258,846 91,057
Non-U.S. source shipping and
other income not subject
to income tax (48,526) (148,800) (61,167)
U.S. source shipping income
not subject to income tax (22,993) (85,812) (41,521)
Utilization of loss carryforwards (20,594) (10,759) (7,984)
Losses for which no tax benefit
is recognized 10,428 13,267 42,176
- -------------------------------------------------------------------------------
$ 73,733 $ 26,742 $ 22,561
===============================================================================
Tax at U.S. federal rate (35%) $ 25,806 $ 9,360 $ 7,897
Differences between U.S. and
non-U.S. tax rates (3,568) (2,155) 289
Non-taxable dividend income
from non-consolidated
joint ventures (1,758) (1,131) (1,554)
Exchange gain (49) (179) (230)
Change in management's
estimates of valuation and
other allowances 2,266 3,662 (3,305)
Differences between book
and tax bases 2,322 1,762 (272)
Tax credits from foreign
jurisdictions (61) -- (280)
State and local taxes, net of
federal benefit 311 (195) (116)
Non-deductible amortization
of goodwill and other
tangibles 1,556 798 546
Other non-deductible costs,
principally travel and
entertainment expenditures 647 709 208
Other, net (942) 530 (237)
- -------------------------------------------------------------------------------
Income tax provision $ 26,530 $ 13,161 $ 2,946
===============================================================================
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
<PAGE>
Notes to Consolidated Financial Statements continued
impose withholding or remittance taxes are considered by management to be
permanently reinvested in such subsidiaries. The undistributed earnings of these
subsidiaries as of November 30, 1998 were not significant.
10 INVENTORIES
Inventories as of November 30, 1998 and 1997 consisted of the following:
================================================================================
1998
(in thousands) Total SCS SSF
- --------------------------------------------------------------------------------
Raw materials $ 9,667 $ -- $ 9,667
Consumables 17,907 13,871 4,036
Work-in-progress 13,205 13,205 --
Seafood biomass 80,566 -- 80,566
Finished goods 6,437 -- 6,437
- --------------------------------------------------------------------------------
$127,782 $ 27,076 $100,706
================================================================================
================================================================================
1997
(in thousands) Total SCS SSF
- --------------------------------------------------------------------------------
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
================================================================================
11 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. There are
no significant conditions on the restricted cash balances.
12 SHORT-TERM BANK LOANS
Loans payable to banks, which amounted to $17.6 million and $19.9 million as of
November 30, 1998 and 1997, 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 5.4% to 9.2%.
The weighted average interest rate was 8.0% and 6.3% for the years ended
November 30, 1998 and 1997, respectively.
As of November 30, 1998, the Company had various credit lines, including
committed lines ranging through 2003 totalling $572.0 million, of which $488.4
million was available for future use. Of the amounts drawn down under these
facilities, $66.0 million has been classified as long-term debt as the Company
does not intend to repay this amount within one year.
13 LONG-TERM DEBT
Long-term debt as of November 30, 1998 and 1997 consisted of the following:
As of November 30,
===============================================================================
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
Senior unsecured notes
On 11/30/98 interest rates ranged
from 6.96% to 10.56%, maturities
vary through 2013 $ 566,969 $ 398,565
Preferred ship fixed rate mortgages
On 11/30/98 fixed interest rates
ranged from 5.42% to 8.69%,
maturities vary through 2011 296,710 265,709
Preferred ship variable rate mortgages
On 11/30/98 interest rates ranged
from 4.97% to 5.66%, maturities
vary through 2007 44,007 22,340
Economic development and other bonds
On 11/30/98 interest rates ranged
from 3.25% to 6.00%, maturing
in 2014 and 2018 34,600 34,600
Bank and other notes payable 186,661 55,414
- -------------------------------------------------------------------------------
1,128,947 776,628
Less--current maturities (71,634) (90,330)
- -------------------------------------------------------------------------------
$ 1,057,313 $ 686,298
===============================================================================
On November 30, 1997, the Company's senior unsecured notes carried fixed
interest rates ranging from 7.72% to 10.56%, preferred ship fixed rate mortgages
had interest rates ranging from 5.67% to 8.74%, preferred ship variable rate
mortgages had interest rates of 5.21%, and the economic development bonds had
interest rates ranging from 4.75% to 10.5%.
Long-term debt is denominated primarily in U.S. dollars, with $7.2 million and
$2.2 million denominated in other currencies as of November 30, 1998 and 1997,
respectively.
Annual principal repayments of debt for the five years subsequent to November
30, 1998 and thereafter are as follows:
================================================================================
(in thousands)
- --------------------------------------------------------------------------------
1999 $ 71,634
2000 52,765
2001 53,758
2002 161,128
2003 107,112
Thereafter 682,550
- --------------------------------------------------------------------------------
$1,128,947
================================================================================
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 20), 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 $745.1 million as of November 30, 1998.
<PAGE>
14 LEASES
Operating leases
As of November 30, 1998 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)
- -------------------------------------------------------------------------------
1999 $116,041
2000 88,767
2001 78,480
2002 36,353
2003 11,143
Thereafter 13,606
- -------------------------------------------------------------------------------
344,390
Less--sub-lease revenues (12,468)
- -------------------------------------------------------------------------------
$331,922
===============================================================================
Rental and charter hire expenses under operating lease agreements for the years
ended November 30, 1998, 1997, and 1996 were $121.1 million, $91.0 million, and
$103.8 million, respectively, net of sub-lease income of $4.0 million, $0.6
million, and $1.1 million, respectively.
15 COMMITMENTS AND CONTINGENCIES
In 1997, the Company entered into an agreement with Danyard Shipyards to
purchase a further two 37,000 deadweight tons ("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 two tankers.
The Company had also contracted in March 1995 with a 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. Subsequent to
November 30, 1998, the shipyard has canceled the delivery of the third ship.
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 Di 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,
the first at an approximate cost of $20 million and the other two at an
approximate cost of $16 million per vessel.
As of November 30, 1998, the Company had total capital expenditure purchase
commitments outstanding of approximately $485.0 million for 1999 and future
years.
The Swiss Court of Insurance "Tribunal Federal des Assurances" entered a
judgement on April 29, 1992 against Sogexpat S.A. ("Sogexpat"), a subsidiary of
the Company, in the 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, which has resulted during 1998 in
a condemnation by the French Supreme Court of SCS France and two of its former
directors. 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.
Coflexip S.A. has commenced legal proceedings against three subsidiaries of SCS
claiming infringement of a certain patent relating to flexible flowline laying
technology in the U.K. Judgement was given on January 22, 1999 and January 29,
1999. The disputed patent was held valid. The Company has provided in the
financial statements an amount to cover the estimated liability for Coflexip
S.A. legal costs in the litigation. No provision has been made for damages. The
extent of liability for damages, if any, to Coflexip S.A. for patent
infringement in the U.K. is unknown at this stage.
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.
<PAGE>
Notes to Consolidated Financial Statements continued
16 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 is length of service and compensation. The Company's
policy is to fully fund its 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,
1998, 1997, and 1996, consist of the following:
For the years ended November 30,
===============================================================================
(in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
Service cost--benefits earned during the year $ 6,300 $ 6,020 $ 5,401
Interest cost on benefit obligation 6,494 5,852 5,259
Actual return on assets (6,903) (5,900) (5,772)
Net amortization and deferral 1,814 1,600 2,234
- -------------------------------------------------------------------------------
Net pension expense $ 7,705 $ 7,572 $ 7,122
===============================================================================
The following table sets out the funded status and amounts recognized in the
Company's consolidated balance sheets as of November 30, 1998 and 1997 for the
defined benefit plans and the Directors' retirement arrangements:
As of November 30,
===============================================================================
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 80,118 $ 70,660
- -------------------------------------------------------------------------------
Accumulated benefit obligation 83,902 73,747
- -------------------------------------------------------------------------------
Projected benefit obligation 101,635 90,142
Plan assets at fair value
(consisting primarily of
equity, real estate and
other investments) 66,697 60,506
- -------------------------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (34,938) (29,636)
Unrecognized net loss 6,694 4,539
Unrecognized prior service cost 2,348 2,672
Unrecognized transition asset 973 1,109
- -------------------------------------------------------------------------------
Pension liability $ (24,923) $ (21,316)
===============================================================================
The projected obligation of the Company's most significant pension plan
continued to grow in 1998, increasing 16.6%, primarily due to new benefits
accruing and interest costs.
The weighted average assumptions used in determining the funded status of the
pension plans in 1998, 1997, and 1996 were as follows:
For the years ended November 30,
===============================================================================
1998 1997 1996
- -------------------------------------------------------------------------------
Discount rate 6.97% 7.26% 7.21%
Rate of increase in compensation levels 4.30% 4.30% 4.70%
Expected long-term rate of return on assets 8.90% 8.90% 8.70%
===============================================================================
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, 1998, 1997, and 1996 consisted of the following:
For the years ended November 30,
================================================================================
(in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Service cost--benefits earned during the year $293 $292 $285
Interest cost on benefit obligation 439 430 404
Amortization of the unrecognized benefit obligation 192 192 192
- --------------------------------------------------------------------------------
Net other post-retirement benefit expense $924 $914 $881
================================================================================
The following table sets out the funded status and amounts recognized in the
Company's consolidated balance sheets as of November 30, 1998 and 1997,
respectively:
As of November 30,
===============================================================================
(in thousands) 1998 1997
- -------------------------------------------------------------------------------
Accumulated other post-retirement benefit obligation:
Retirees $ 2,154 $ 2,074
Fully eligible participants 967 1,010
Other active participants 3,915 3,549
- -------------------------------------------------------------------------------
7,036 6,633
Fair value of plan assets -- --
- -------------------------------------------------------------------------------
Accumulated benefit obligation
in excess of fair value of plan assets (7,036) (6,633)
Unrecognized net loss (71) 163
Unrecognized prior service cost 84 98
Unrecognized transition asset 2,488 2,666
- -------------------------------------------------------------------------------
Accrued post-retirement benefit obligation $(4,535) $(3,706)
===============================================================================
<PAGE>
The calculation of the funded status for 1998 assumes a 7% discount rate and a
medical trend rate of increase over the prior year of 9% 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.
17 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 matters
requiring shareholder action.
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, 1998, 7,809,328 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 1998 by 320,000 Common
shares and 159,300 Class B shares.
In November 1998 the Board of Directors approved an interim dividend of $0.25
per Common and Class B share, and $0.005 per Founder's share. The dividend was
paid in December 1998.
The Company anticipates, subject to approval at the Annual General Meeting, that
a final dividend for 1998 of $0.125 per Common Share and Class B Share will be
paid in May 1999.
18 STOCK OPTION PLAN
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
between 1996 and 1998 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,
================================================================================
1998 1997
- --------------------------------------------------------------------------------
Net Income:
As Reported $ 96,275 $237,109
Pro Forma 93,785 235,304
Basic EPS:
As Reported $ 1.76 $ 4.34
Pro Forma 1.71 4.31
Diluted EPS:
As Reported $ 1.75 $ 4.28
Pro Forma 1.71 4.25
================================================================================
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.
<PAGE>
Notes to Consolidated Financial Statements continued
The following table reflects activity under the Plans for the years ended
November 30, 1998 and 1997:
For the years ended November 30,
================================================================================
1998 1997
------------------- -------------------
Weighted Weighted
average average
exercise exercise
Common Shares Shares price Shares price
- --------------------------------------------------------------------------------
Outstanding at
beginning of
year 1,164,563 $14.43 1,324,683 $13.33
Granted 419,200 20.13 211,350 16.73
Exercised (39,863) 11.48 (363,645) 11.71
Canceled (29,125) 17.63 (7,825) 16.18
- --------------------------------------------------------------------------------
Outstanding at
end of year 1,514,775 $16.02 1,164,563 $14.43
================================================================================
Exercisable at
end of year 761,005 $13.26 550,738 $12.46
================================================================================
Weighted average
fair value of
options granted $ 6.82 $ 9.12
================================================================================
For the years ended November 30,
================================================================================
1998 1997
------------------- -------------------
Weighted Weighted
average average
exercise exercise
Class B Shares Shares price Shares price
- --------------------------------------------------------------------------------
Outstanding at
beginning of
year 670,430 $14.89 651,848 $13.26
Granted -- -- 205,350 17.29
Exercised (20,166) 11.60 (181,334) 11.69
Canceled (16,881) 17.23 (5,434) 16.41
Outstanding at
end of year 633,383 $14.93 670,430 $14.89
- --------------------------------------------------------------------------------
Exercisable at end
of year 400,013 $13.49 273,869 $12.43
================================================================================
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:
================================================================================
1998 1997
--------------- ----------------
Common Class B Common Class B
- --------------------------------------------------------------------------------
Risk-free interest rates 5.7% -- 6.0% 6.0%
Expected lives (years) 6.0 -- 6.5 6.8
Expected volatility 31.6% -- 51.0% 31.0%
Expected dividend yields 2.0% -- 1.0% 1.0%
================================================================================
The following table summarizes information about stock options outstanding as of
November 30, 1998:
<TABLE>
<CAPTION>
====================================================================================================================
Options outstanding Options exercisable
---------------------------------------------- --------------------------------
Weighted
Number average Weighted Number Weighted
outstanding remaining average exercisable average
Range of exercise at Nov. 30, contractual exercise at Nov. 30, exercise
prices 1998 life (years) price 1998 price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common shares
$20.125 - 22.500 418,400 9.07 $20.14 625 $22.50
$14.500 - 19.083 547,900 6.37 17.71 274,105 17.35
$ 8.500 - 13.167 548,475 4.94 11.19 486,275 10.94
- --------------------------------------------------------------------------------------------------------------------
1,514,775 6.60 $16.02 761,005 $13.26
====================================================================================================================
Class B shares
$19.083 - 22.125 131,375 7.09 $19.14 64,050 $19.11
$14.500 - 17.500 227,762 6.58 17.00 92,742 16.28
$ 8.500 - 13.167 274,246 4.94 11.19 243,221 10.94
- --------------------------------------------------------------------------------------------------------------------
633,383 5.98 $14.93 400,013 $13.49
====================================================================================================================
</TABLE>
19 RELATED PARTY TRANSACTIONS
During 1997, 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 1997, 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 were 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 and $12.8 million
during the years ended November 30, 1997 and 1996, respectively.
20 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. As of November 30, 1998 this legal reserve amounted to approximately $6.2
million based on Common and Class B shares issued on that date. Advance
divi-
<PAGE>
dends 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.
As of November 30, 1998, 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.
21 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 with major financial credit
institutions. 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 April 2000, were
outstanding as of November 30, 1998:
================================================================================
(in thousands) Purchase Sell
- --------------------------------------------------------------------------------
Norwegian kroner 323,006
Singapore dollars 4,923
Canadian dollars 12,600
British pounds sterling 3,000
Australian dollars 2,100
German marks 5,700
Netherland guilders 51
French francs 49,550
Japanese yen 726,465
Belgian francs 191,091
Italian lire 28,208,000
================================================================================
The U.S. dollar equivalent of the currencies which the Company had contracted to
purchase was $86.1 million and to sell was $14.3 million as of November 30,
1998.
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, 1998
================================================================================
Carrying Fair
(in millions) amount value
- --------------------------------------------------------------------------------
Financial assets:
Cash and cash equivalents $37.8 $37.8
Financial liabilities:
Loans payable to banks 17.6 17.6
Long-term debt and related currency
and interest rate swaps 1,128.9 1,180.9
Off balance sheet financial instruments:
Foreign exchange forward contracts -- 1.3
================================================================================
The carrying amount of cash and cash equivalents and loans payable to banks are
a reasonable estimate of their fair value. The estimated value of the Company's
long-term debt is based on interest rates as of November 30, 1998 using debt
instruments of similar risk. The fair values of the Company's foreign exchange
contracts are based on their estimated termination values as of November 30,
1998.
<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-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<CASH> 37,776
<SECURITIES> 0
<RECEIVABLES> 336,019
<ALLOWANCES> 9,185
<INVENTORY> 127,782
<CURRENT-ASSETS> 625,293
<PP&E> 2,963,896
<DEPRECIATION> 880,384
<TOTAL-ASSETS> 3,008,125
<CURRENT-LIABILITIES> 492,854
<BONDS> 1,057,313
0
0
<COMMON> 31,237
<OTHER-SE> 1,101,130
<TOTAL-LIABILITY-AND-EQUITY> 3,008,125
<SALES> 0
<TOTAL-REVENUES> 1,796,625
<CGS> 0
<TOTAL-COSTS> 1,466,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,657
<INCOME-PRETAX> 122,805
<INCOME-TAX> 26,530
<INCOME-CONTINUING> 96,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 96,275
<EPS-BASIC> 1.76
<EPS-DILUTED> 1.75
</TABLE>
