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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, 1999
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:
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<S> <C>
Common Shares, no par value:................................ 29,358,533*
Class B Shares, no par value:............................... 25,208,069**
Founder's Shares, no par value:............................. 7,820,109
</TABLE>
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* 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/
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<PAGE>
TABLE OF CONTENTS
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PAGE
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<S> <C> <C>
PART I.................................................................. 1
Item 1. Description of Business..................................... 1
General..................................................... 1
Overview and History........................................ 1
Strategy.................................................... 3
Businesses.................................................. 4
Regulation.................................................. 12
Competition................................................. 15
Other Matters............................................... 16
Item 2. Description of Property..................................... 17
Parcel Tanker Fleet......................................... 17
Fleet of Stolt Offshore..................................... 20
Other Properties............................................ 22
Item 3. Legal Proceedings........................................... 23
Item 4. Control of Registrant....................................... 24
Item 5. Nature of Trading Market.................................... 24
Item 6. Exchange Controls and Other Limitations Affecting Security
Holders................................................... 25
Exchange Controls........................................... 25
Limitations Affecting Shareholders.......................... 25
Item 7. Taxation.................................................... 26
U.S. Taxation............................................... 26
Luxembourg Taxation......................................... 27
Item 8. Selected Financial Data..................................... 27
Dividends................................................... 27
Item 9. Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 27
Recent Developments......................................... 27
Year 2000 Issue............................................. 28
Forward-Looking Statements.................................. 29
Factors Affecting Revenues and Costs........................ 29
Item 9A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 37
Item 10. Directors and Officers of Registrant........................ 38
Item 11. Compensation of Directors and Officers...................... 39
Item 12. Options to Purchase Securities from Registrant or
Subsidiaries.............................................. 40
Item 13. Interest of Management in Certain Transactions.............. 41
PART III................................................................ 41
Item 15. Defaults Upon Senior Securities............................. 41
Item 16. Changes in Securities, Changes in Security for Registered
Securities and Use of Proceeds............................ 41
PART IV................................................................. 41
Item 17. Financial Statements........................................ 41
Item 18. Financial Statements........................................ 41
Item 19. Financial Statements and Exhibits........................... 80
</TABLE>
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Note: Omitted items are inapplicable.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Stolt-Nielsen S.A. ("Stolt") is a holding company which, through its
subsidiaries, is engaged in: the worldwide transportation, storage, and
distribution of bulk liquid chemicals, edible oils, acids, and other specialty
liquids; subsea services covering all phases of offshore oil and gas operations
from exploration to decommissioning; and aquaculture; the production, marketing,
and distribution of farmed fish. Stolt also has two Internet-based e-commerce
start-ups, one focused on bulk logistics; the other on procurement for ship
owners and operators. 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
STOLT-NIELSEN TRANSPORTATION GROUP
The Company is engaged in three primary businesses: Transportation, Subsea,
and Seafood. In early 2000, the Company announced its involvement in two
additional businesses: Bulk Logistics and Ship Procurement.
The Transportation business is carried out through Stolt-Nielsen
Transportation Group Ltd. ("SNTG") which represented approximately 49% of the
Company's 1999 net operating revenue, approximately 54% of 1999 recurring income
from operations, and approximately 64% of total assets as of November 30, 1999.
SNTG is one of 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 one of the largest operators 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 the largest operator in the tank container market, currently
operating approximately 15,000 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 eleven 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 5.0 million barrels. SNTG's
terminal operations also have interests in three ventures: (i) a 40% interest in
Stolthaven Westport, a joint venture with the Bolton Group in Malaysia; (ii) a
31% interest in Dovechem Terminal Holdings Ltd. ("Dovechem"), a publicly-traded
company listed on the Singapore stock exchange, with terminals and drum
manufacturing interests in China, Singapore, Indonesia and Malaysia; and
(iii) a 50% interest in Jeong II Tank Terminal which has a terminal facility in
Ulsan, South Korea. In March 2000, SNTG acquired an additional 3% interest in
Dovechem.
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STOLT OFFSHORE
Subsea business is carried out through Stolt Offshore S.A. ("SO") (formerly
named Stolt Comex Seaway S.A.) a subsidiary in which the Company currently holds
a 47.5% economic interest and a 61% voting interest. SO is one of the largest
subsea services contractors in the world with services covering all phases of
subsea offshore oil and gas operations from exploration to decommissioning. SO
was formed by the Company through the acquisitions of Stolt-Nielsen Seaway A/S
("Seaway") in March 1992 and Comex Services S.A. ("Comex") in June 1992.
Seaway was founded by Jacob Stolt-Nielsen, 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. SO completed an initial public offering in May 1993 and secondary offerings
in March and November 1997.
STOLT SEA FARM
Stolt Sea Farm Holdings Ltd. ("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 May 2000, the Company announced it is considering listing SSF on the Oslo
Stock Exchange. The listing is likely to take place in the near future and will
be accompanied by an initial public offering in Norway, and a private placement
in the U.S., for a total of about 25% of SSF's equity. A final decision to
proceed will be subject to approval by the Stolt and SSF Boards of Directors and
market conditions.
OPTIMUM LOGISTICS
Optimum Logistics Ltd ("OLL"), established in early 2000, offers an
Internet-based, open logistics system for bulk materials. OLL's principal
offering is TransLink-TM-, a family of logistics software products that arrange
and monitor all stages of the supply chain by incorporating information from
every party that touches a shipment--from producers, to transportation and
storage providers, to freight forwarders and surveyors. TransLink-TM- supports
transportation and storage procurement activities for bulk materials.
TransLink-TM- is based on Chemlink, a closed internet system currently used by
many SNTG customers.
PRIMESUPPLIER
In early 2000, the Company also established PrimeSupplier Ltd. ("PSL"),
which will offer an Internet-based total marine procurement system which will
make available all products and services needed for marine operations. The
system enables ship operators to electronically select, purchase and arrange
delivery for all the ship's needs for fuel, consumables, spare parts and other
services. PSL employs a proprietary supplier and price database to intelligently
manage the procurement process, including transportation.
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
44-207-611-8960; internet address www.stolt-nielsen.com.
Stolt is a publicly-traded company listed on the Nasdaq National Market
("NASDAQ") and the Oslo and London Stock Exchanges.
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The Company has 73 offices and facilities. The Company employs approximately
10,000 people 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.
STOLT-NIELSEN TRANSPORTATION GROUP
SNTG's strategy is to become the total transportation logistics supplier for
the majority of its client base providing an integrated package of services
including global transportation and storage, tracking of transportation and
inventory, electronic communications of transactions, and supply chain
management. SNTG is developing or expanding its capabilities in all of these
areas.
The demand for chemical transportation services varies with patterns of
industrial growth and world trade. Historically, such demand has grown at a
greater rate than world trade, which itself has grown faster than industrial
production.
In response to economic pressures and to improve profitability, many
chemical companies have downsized and outsourced their logistics functions. This
gives SNTG the opportunity to provide these companies with solutions for this
important aspect of their global strategies and international marketing. To
better integrate its services and logistics with its customers, SNTG has
developed 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 (of which one was subsequently cancelled) 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.
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
3
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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.
STOLT OFFSHORE
SO's strategy is to enhance its position as a full-service subsea contractor
providing technologically advanced and cost effective life-of-field subsea
services to its customers. With the recent merger activities among the major oil
companies it is clear that they are now looking for contractors with a greater
range of assets and technologies and who are able to offer them a worldwide
service for both new construction and field maintenance services.
SO's December 1999 acquisition of ETPM S.A. ("ETPM") enables SO to offer a
much wider range of engineering and pipelay services and also to provide fixed
or floating production platforms. SO is therefore able to supply a complete
field development solution for the first time.
Different operators require differing scopes of service in the various
regions of the world. SO now has the ability to offer a complete EPIC
contracting service, from wellhead to production platform or to undertake any
part of the engineering and installation package that may be required by
individual operators.
STOLT SEA FARM
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, 1999:
<TABLE>
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NET
OPERATING INCOME FROM IDENTIFIABLE
REVENUE OPERATIONS ASSETS
------------ -------------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Stolt-Nielsen Transportation Group
Tankers.......................................... $ 618 35% $ 27 24% $1,551 51%
Tank Containers.................................. 206 11% 18 16% 173 6%
Terminals........................................ 55 3% 15 14% 233 7%
------ --- ---- --- ------ ---
Subtotal........................................... 879 49% 60 54% 1,957 64%
Stolt Offshore..................................... 641 36% 24 21% 843 28%
Stolt Sea Farm..................................... 261 15% 28 25% 258 8%
------ --- ---- --- ------ ---
Total.......................................... $1,781 100% $112 100% $3,058 100%
====== === ==== === ====== ===
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GEOGRAPHIC DISTRIBUTION
The following table sets out net operating revenue by country for the
Company's segments. SNTG net operating revenue is allocated on the basis of the
country in which it is loaded. Tankers and Tank Containers operate in a
significant number of countries. Revenues from specific foreign countries which
contribute over 10% of total net operating revenue are disclosed separately. SSF
net operating revenue is primarily allocated on the basis of the country in
which the sale is generated. SO net operating revenue is
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primarily allocated to two worldwide product lines in respect of large projects
and for all other projects is allocated to the region in which they take place.
Accordingly, it is not possible to allocate the net operating revenue from SO to
specific countries. SEAME represents Southern Europe, Africa, and the Middle
East.
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FOR THE YEARS ENDED
NOVEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
NET OPERATING REVENUE:
STOLT-NIELSEN TRANSPORTATION GROUP:
Tankers:
United States............................................. $ 272 $ 294 $ 315
South America............................................. 48 46 60
Netherlands............................................... 43 40 44
Other Europe.............................................. 100 110 121
Malaysia.................................................. 44 47 39
Other Asia................................................ 110 138 118
Other..................................................... 54 41 32
Less commissions, sublet costs, transshipment and barging
expenses.................................................. (53) (58) (64)
------ ------ ------
618 658 665
====== ====== ======
Tank Containers:
United States............................................. 73 76 80
South America............................................. 7 8 7
France.................................................... 24 22 22
Other Europe.............................................. 46 54 46
Japan..................................................... 25 26 21
Other Asia................................................ 30 28 36
Other..................................................... 1 5 7
------ ------ ------
206 219 219
====== ====== ======
Terminals:
United States............................................. 49 48 42
Brazil.................................................... 6 6 5
------ ------ ------
55 54 47
------ ------ ------
Total SNTG.............................................. 879 931 931
====== ====== ======
STOLT OFFSHORE:
North America............................................. 156 63 9
South America............................................. 57 59 44
United Kingdom............................................ 162 326 153
Norway.................................................... 161 99 90
SEAME..................................................... 58 58 76
Other North Sea........................................... 5 7 20
Asia Pacific.............................................. 42 38 39
------ ------ ------
641 650 431
====== ====== ======
STOLT SEA FARM:
United States............................................. 104 79 56
Canada.................................................... 14 9 6
United Kingdom............................................ 21 12 --
Norway.................................................... 11 10 13
Spain..................................................... 12 12 12
Japan..................................................... 48 41 35
Others, net............................................... 51 53 42
------ ------ ------
261 216 164
------ ------ ------
Total................................................... $1,781 $1,797 $1,526
====== ====== ======
</TABLE>
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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 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.
PARCEL TANKER OPERATIONS
SNTG is one of the largest operator of parcel tankers in the world. As of
March 31, 2000, SNTG marketed a fleet of 131 parcel tankers, product tankers,
and river tankers ranging in size from approximately 1,200 to 46,000 deadweight
tons ("dwt") (of which 76 were over 10,000 dwt), and totaling approximately
2.41 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 77 parcel tankers totaling
approximately 2.02 million dwt. Of these, SNTG owns 40 ships and time-charters
two ships for participation in the STJS.
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The Joint Service operates seven ships owned by NYK Stolt Tankers, S.A.
("NYK Stolt", 50%-owned by the Company), six ships owned by Rederi AB Sunship,
two ships owned by Barton Partner Limited, five ships owned by Bibby Pool
Partner Limited, two ships owned by Unicorn Lines (Pty) Limited, and one ship
owned by Hikawa Stolt Tankers Inc. (50%-owned by the Company). The STJS
currently has an additional six tankers on time-charter through its agent Stolt
Tankers Inc. ("STI") and also time-charters two ships from SNTG.
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.
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 are marketed by SNTG's offices in these areas. 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. For its
shipowning activities SNTG has secured International Ship Management Association
("ISMA") Quality Assurance System certification, which includes International
Standards Organization ("ISO") 9002 and International Safety Management ("ISM")
certifications. SNTG has also secured ISO 9002 certification for its chartering
and operations 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
27% and 25%, respectively, of the total SNTG tanker revenue in 1999.
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.
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.
7
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Prior to 1999, growth in the tank container market had been broad based. In
1999, 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, 2000, SNTG controls a fleet of about 15,000
tank containers of which approximately 8,000 are owned, and approximately 7,000
tank containers are leased in or managed for customers.
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 one of the largest operators in the door-to-door
business, deploying approximately 13,000 tank containers in all major worldwide
markets. In addition, approximately 2,000 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 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'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.
SNTG also operates a fleet of 336 leased railroad tank cars consisting of
general-purpose low-pressure and specialized high-pressure tank cars.
TERMINAL OPERATIONS
SNTG has interests in investments in or alliances with eleven 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 5.0 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.
SNTG's terminal operations also have interests in three ventures: (i) a 40%
interest in Stolthaven Westport, a joint venture, with the Bolton Group in
Malaysia; (ii) a 34% interest in Dovechem a publicly-traded company listed on
the Singapore stock exchange, with terminals and drum manufacturing interests in
China, Singapore, Indonesia and Malaysia; and (iii) a 50% interest in Jeong II
Tank Terminal which has a terminal facility in Ulsan, South Korea. SNTG also has
an arrangement with subsidiaries of Vopak 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. In March 2000, SNTG acquired an
additional 3% interest in Dovechem.
8
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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 2,258,400
Houston, Texas................................ 100% 1982 1,607,500
Chicago, Illinois............................. 100% 1975 741,100
Santos, Brazil................................ 100% 1982 349,400
---------
SUB TOTAL................................. 4,956,400
---------
Joint Ventures
Westport, Malaysia.......................... 40% 1998 226,400
Kuantan, Malaysia........................... 10% 1999 176,100
Shenzen, China.............................. 34% 1998-2000 640,200
Shanghai, China............................. 34% 1998-2000 246,600
Ulsan, South Korea.......................... 50% 1999 1,946,700
---------
TOTAL..................................... 8,192,400
=========
</TABLE>
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 OFFSHORE
SO 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. SO 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. SO has
operated in more than 60 countries worldwide and currently operates in over 20
countries. SO's business backlog at April 30, 2000 stands at $1,100 million, of
which $574 million is for 2000. This compares to a backlog at April 30, 1999 of
$1,211 million, of which $757 million was for 1999.
The services offered by SO cover all phases of offshore oil and gas
operations from exploration to decommissioning. During the exploration phase, SO
provides seabed survey and drilling support services. During the development
phase, SO 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, SO inspects, maintains, and repairs platforms,
pipelines, flowlines, and subsea equipment. Following the production phase, SO
provides field decommissioning services including the removal of offshore
structures and subsea equipment.
SO offers three main 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, SO offers heavy lift services through
a joint venture company, Seaway Heavy Lifting Limited ("SHL"), which operates
the heavy lift ship, STANISLAV YUDIN, chartered from SO's joint venture partner
Lukoil-Kaliningradmorneft Plc. ("LKMN"), a subsidiary of a major Russian oil
9
<PAGE>
company, Lukoil. SO also manufactures flexible flowlines and dynamic flexible
risers through the joint venture company NKT Flexibles I/S.
The remainder of the joint ventures in which SO has an interest have been
entered into on a project-specific basis to enhance the range of services
provided to the customer. In these joint ventures, SO will typically have
interests ranging from 33% to 50%.
SO operates one of the world's most advanced fleets of subsea construction
and flowline lay ships, from which the majority of SO's subsea activities are
performed. SO owns or charters a fleet consisting of 4 flexible flowline and
umbilical lay ships, 9 construction ships, 5 survey, inspection, repair and
maintenance ships, 14 shallow water ships, 9 heavy lift ships and barges,
102 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. SO 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.
During 1999, SO 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.
In August 1998, SO 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 SO an established base in
Houston from where major U.S. customers direct their worldwide business. With
Ceanic, SO 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 dynamically positioned ships and deep water ROVs acquired
over the past year.
In December 1999, Stolt Offshore S.A. acquired ETPM, a wholly-owned
subsidiary of Groupe GTM S.A. ("GTM"), which secures SO a major position in the
rapidly expanding deep-water construction market in West Africa. This
acquisition enables SO to offer its customers a larger range of products and
services. SO now has the ability to lay all diameters of pipe in all water
depths, to engineer and project manage the installation of Floating Production
Storage and Offloading units and other designs for large deepwater field
development projects. SO has paid GTM $130 million in cash and has issued
6.1 million SO Class A shares. These shares are subject to a minimum guaranteed
price which is expected to give GTM a total price for its ETPM shares in the
range of $237.5 to $243.6 million. In December 1999, SO and NKT Holding A/S
("NKT") formed a new joint venture to manufacture flexible flowlines and dynamic
flexible risers for the offshore oil and gas industry. SO issued approximately
1.8 million Class A Shares with an average guaranteed value of $14.475 per share
and paid $10.5 million in cash for its 49% interest in the venture. The Company
realized, in the first quarter of 2000, a non-recurring, non-operating gain of
$32.5 million from the dilution of its interest in SO as a result of the SO
Class A Shares issued as consideration to GTM and NKT. In February 2000, SNSA
converted $100 million of debt owed by SO to SNSA into 10.3 million SO Class A
Shares. After the conversion, SNSA holds a 47.5% interest in SO. On April 13,
2000, Stolt Comex Seaway S.A. changed its name to Stolt Offshore S.A. This
change was made in recognition of the continuing evolution into a larger and
more diverse company following the acquisition of ETPM in December 1999.
The acquisition of ETPM also gives SO access to key assets including one
combined heavy lift barge, three lay barges, one flowline lay ship, one
construction support ship and two fabrication yards in West Africa. These assets
are complimentary to the existing assets of SO with the LB200 holding world
records
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<PAGE>
for pipelay in the challenging conditions of the North Sea and the SEAWAY
KESTREL (previously named NORLIFT) providing an alternative to the SEAWAY FALCON
for pipelay.
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 North American market is supplied by production from
Canada, Maine, Norway, and Chile. These areas also export to the Japanese and
East Asian markets.
The salmon farming industry is the fastest growing food industry with an
annual growth rate of 12.3%. As the world population grows and individuals
increasingly seek healthier products like fish, the demand for farmed fish is
expected to increase. Approximately 90% of SSF's revenue is derived from the
sale of Atlantic salmon. The remaining 10% of SSF's revenue is from new species
of which only turbot has yet reached the commercial stage.
Of the main competitors in the farmed salmon industry, SSF is the only one
with a presence in all the big four farming regions--Norway, Chile, Canada and
the UK. SSF is also the only one with an inmarket sales organization in all main
markets. SSF's unique position within the industry is further emphasized due to
the fact that SSF is currently also the only one of the main salmon producing
companies that has divested into other new species.
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 tons and farmed production of tons. SSF also farms sturgeon in
California and supplies both sturgeon meat and caviar for sale.
In September 1999, SSF purchased D.E. Salmon, an entity with a hatchery,
five marine site licenses (two undeveloped) and a processing plant in Maine for
$3.8 million. In August 1999, SSF acquired International Aqua Foods Ltd. ("IAF")
for approximately $11.0 million and the assumption of $9.2 million in debt. IAF
is involved in salmon and tilapia hatchery operations in Canada and the U.S.,
and salmon and trout farming in Chile.
OPTIMUM LOGISTICS
In March 2000, OLL announced plans for the first Internet-based, open
logistics system for bulk materials. OLL will connect all participants in the
global supply chain.
OLL's principal offering is TransLink-TM-, an online logistics system that
electronically arranges and monitors all stages of the supply chain by
incorporating information from every party that touches a shipment--producers,
transportation and storage providers, freight forwarders and surveyors. This
creates an unobstructed view of critical logistics data and the ability to
sequence and optimize the bulk material supply chain.
11
<PAGE>
TransLink-TM- is the next-generation of Chemlink--a secure online system
used over 18 months by more than 20 producers of chemicals, vegetable oils,
petroleum products and other bulk liquids to book, track and trace SNTG carried
shipments around the world. OLL has opened TransLink-TM- to all producers,
carriers, freight forwarders and other logistics providers. OLL has enhanced the
system's functionality by adding tools for arranging and proactively monitoring
the global supply chain. The upgraded system also monitors and automatically
alerts users to faults before they occur.
OLL will initially offer TransLink-TM- to participants in bulk chemical
supply chains because of the significant scope of the chemical's industry's
seaborne trade and the significant opportunities to improve upon logistics
efficiencies in this highly fragmented business. OLL has already attracted a
roster of chemical producers for its pilot program which began in late
April 2000. OLL has also enlisted the support of chemical exchanges, freight
forwarders, cargo surveyors, and other leading logistics service providers.
Future target industries will include forest products, steel, gas products and
agribulk. The Company expects to gradually dilute its interest in OLL.
PRIMESUPPLIER
In March 2000, PSL launched the world's first Internet-based total marine
procurement system to make all products and services needed for marine
operations available virtually anytime, anyplace, at the lowest cost. The system
enables ship operators to electronically select, purchase, and arrange delivery
for all the ship operators' needs for fuel, consumables, spare parts and other
services. PSL employs a proprietary supplier and price database to intelligently
manage the procurement process, including transportation.
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.
12
<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. coastal 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.
U.S. OIL POLLUTION ACT OF 1990 AND COMPREHENSIVE ENVIRONMENTAL RESPONSE,
COMPENSATION AND LIABILITY ACT
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.
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
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<PAGE>
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".
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.
STOLT OFFSHORE
SO's businesses are subject to international conventions and governmental
regulations, which strictly regulate various aspects of its operations. In
addition, SO 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 SO depend upon a number of factors. SO believes
that it has or can readily obtain all permits, licenses, and certificates
necessary to conduct its operations. Some countries require that SO enter into a
joint venture or similar business arrangement with local individuals or
businesses in order to conduct business in such countries.
SO'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 SO's operations and those of its
customers.
14
<PAGE>
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.
In 1995, the Norwegian government imposed feed quotas and production
regulations on Norwegian fish farmers, in an attempt to reduce the supply of
Norwegian farmed salmon, and hence the amount of Norwegian farmed salmon
available for sale in the EU market. In order to avoid further threats of duties
against Norwegian salmon, 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. The Norwegian
government still maintains the feed quota and production regulations that it
introduced in 1996. The quotas and regulations have had an adverse effect on the
cost structure of the Norwegian operation, as they have limited the capacity
utilization of farmed concessions. However, the Norwegian government has
permitted annual increases of varying amounts (ranging from 2% to 10%) in the
feed quotas, which progressively reduce the negative impact of the feed quota
regime.
In July 1998, the U.S. Department of Commerce imposed duties on imports of
fresh Atlantic salmon from Chile into the U.S. on Eicosal, a joint-venture
partner of SSF, 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.
COMPETITION
STOLT-NIELSEN TRANSPORTATION GROUP
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 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 and Vopak that own and
operate terminals on a worldwide basis own many of the competing terminals.
STOLT OFFSHORE
The subsea contracting business 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 SO believes customers consider,
among other things, the availability and technical capabilities of equipment
15
<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. SO'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,
SO 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.
SO 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. Competition across all main product lines is limited to
SO and two competitors, Coflexip Stena Offshore and Rockwater, a subsidiary of
Brown and Root, itself a division of Halliburton. SO is subject to intense
competition from these offshore contractors. In certain geographical regions,
and in certain product lines, SO also competes with J. Ray McDermott Inc.,
Global Industries Limited and DSND. SO also faces substantial competition from
smaller regional competitors and less integrated providers of subsea services.
STOLT SEA FARM
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. Twelve
Company-owned ships are manned by Filipino officers and crew, eleven 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. The Company owns 49% of
its crewing agent in Latvia to provide Latvian officers and crew members who
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 December 31, 2000 and
December 31, 2001. 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 2001. 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 SO is currently
covered by hull and machinery insurance in the aggregate amount of
$3.6 billion. Marine liabilities, which may be incurred through the operation of
SNTG's and SO's ships, are insured under marine protection and indemnity
insurance policies. The policies have a limit of approximately $4.25 billion per
incident
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<PAGE>
except for marine oil pollution which is limited to $700 million per occurrence.
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.
ITEM 2. DESCRIPTION OF PROPERTY
STOLT-NIELSEN TRANSPORTATION GROUP
The following table describes the parcel tankers which are operated by SNTG,
both within and outside STJS. It also includes ships that are leased or
time-chartered. (See notes to table below pertaining to ownership and registry.)
PARCEL TANKERS OPERATED BY STOLT TANKERS JOINT SERVICE
as of March 31, 2000
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(1) 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 Concept........................................... 1999 37,000 Company Liberian
Stolt Effort............................................ 1999 37,000 Company Cayman
STOLT ACHIEVEMENT CLASS
Stolt Achievement....................................... 1999 37,000 Company Cayman
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 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
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(1) REGISTRY
-------- ------------- ------------ --------
<S> <C> <C> <C> <C>
STOLT AVANCE CLASS
Stolt Avenir............................................ 1978 23,275 Company Liberian
Stolt Avance............................................ 1977 23,648 Company Liberian
STOLT SEA CLASS
Stolt Spur.............................................. 1970 23,672 Company Liberian
Stolt Sea............................................... 1999 22,500 Company Liberian
Stolt Sun............................................... 2000 22,210 Company Cayman
Stolt Span.............................................. 1999 22,460 NYK Stolt Liberian
SUPERFLEX CLASS
Stolt Guardian.......................................... 1983 39,726 Company Liberian
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
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
Stolt Egret............................................. 1992 5,758 Company Liberian
Central Park............................................ 1985 12,700 T/C by STJS Panamanian
Leopard................................................. 1985 44,979 T/C by STJS Singapore
Tiger................................................... 1985 44,979 T/C by STJS Singapore
Panther................................................. 1985 44,979 T/C by NYK Singapore
Chemical Trader......................................... 1981 45,881 T/C by NYK USA
Chemical Explorer....................................... 1981 45,881 T/C by STJS USA
Luctor.................................................. 1991 40,349 T/C by STJS Singapore
TOTAL IN STJS 2,017,284
(77 ships)
</TABLE>
18
<PAGE>
PARCEL TANKERS OUTSIDE THE STOLT TANKERS JOINT SERVICE
OPERATED AND/OR CONTROLLED BY STOLT AFFILIATES
as of March 31, 2000
<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 Cormorant.............................. 1999 5,498 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
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
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.................................. 1980/1998 1,388 Company German
Stolt Madrid................................. 1994 1,560 Company Swiss
Stolt Oslo................................... 1994 1,556 Company Swiss
Stolt Prag................................... 1994 1,202 Company Dutch
Stolt Waal................................... 1993 2,095 Company Dutch
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 Tolerantie............................. 1999 1,500 T/C by the Company Dutch
Stolt Paris.................................. 1991 2,103 Company Swiss
Enterprise................................... 1991 1,608 T/C by the Company Dutch
Stolt Rotterdam.............................. 1990 1,993 Company Dutch
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
YEAR DWT
BUILT (METRIC TONS) OWNERSHIP(A) REGISTRY
----- ------------- ------------ --------
<S> <C> <C> <C> <C>
Turbulentie.................................. 1986/1990 1,777 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 Hoechst................................ 1980 1,366 Company Swiss
TOTAL OUTSIDE STJS
(56 ships)................................... 227,509
GRAND TOTAL
(133 ships).................................. 2,463,801
</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.
"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.
(1) Certain of the Company's parcel tankers are subject to ship mortgages. See
Note 13 to the Company's 1999 Consolidated Financial Statements.
FLEET OF STOLT OFFSHORE
SO operates one of the world's most advanced fleets of subsea construction
support and flowline lay ships from which the majority of SO's subsea activities
are performed. The following table describes SO's major assets, as of April 30,
2000:
<TABLE>
<CAPTION>
LENGTH
YEAR BUILT/ OVERALL OWNED/
NAME CAPABILITIES MAJOR UPGRADE ROVS (METERS) CHARTERED
---- -------------------------------------- --------------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
CONSTRUCTION SUPPORT SHIPS
SEAWAY HARRIER................ Subsea construction 1985 1 84 Owned(1)
SEAWAY HAWK................... Subsea construction 1978 -- 93 Owned(1)
SEAWAY OSPREY................. Flexible flowline and umbilical lay, 1984/1992/1996 2 102 Owned(1)
accepts coiled tubing, straightener
for tubing, stern roller
SEAWAY EAGLE.................. Flexible flowline lay, multi-purpose 1997 2 140 Owned(1)
subsea construction
SEAWAY LEGEND................. ROV and hardsuit diving support, 1985/1998 2 73 Owned(1)
subsea construction
DISCOVERY..................... Flexible flowline lay, subsea 1990 1 120 Chartered(2)
construction
SEAWAY KINGFISHER............. Diverless inspection, repair and 1990/1998 2 90 Chartered(3)
maintenance
STEPHANITURM.................. Diving support, light construction 1978/1994/1995 1 73 Chartered(4)
SEAWAY EXPLORER............... Trenching ship 1984 -- 80 Owned
FLOWLINE LAY SHIPS
SEAWAY CONDOR................. Flexible flowline and umbilical lay, 1982/1994/1999 2 141 Owned(1)
module handling system, trenching
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
LENGTH
YEAR BUILT/ OVERALL OWNED/
NAME CAPABILITIES MAJOR UPGRADE ROVS (METERS) CHARTERED
---- -------------------------------------- --------------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
SEAWAY FALCON................. Rigid and flexible flowline and 1976/1995/1997 2 162 Owned(1)
umbilical lay
SEAWAY POLARIS................ Deepwater derrick/pipelay barge 1979/1991/1996/ -- 137 Chartered(5)
1999
SEAWAY KESTREL................ Rigid reel lay ship 1976/1991/1995 -- 99 Owned
SURVEY / IRM SHIPS
SEAWAY COMMANDER.............. Survey 1967/1982/1988 2 75 Chartered(6)
SEAWAY DEFENDER............... ROV and hardsuit diving support, 1976 1 67 Owned(1)
subsea construction
SEAWAY PIONEER................ ROV and hardsuit diving support, 1966/1996 1 64 Owned(1)
subsea construction
SEAWAY INVINCIBLE............. ROV support, subsea construction 1971 -- 71 Owned
SEAWAY ROVER.................. ROV support, subsea construction 1966/1972/1983/ -- 71 Owned
1991
CONSTRUCTION SHIPS
AMERICAN PRIDE................ Four-point anchor system 1977/1992 -- 59 Owned(1)
AMERICAN PATRIOT.............. Four-point anchor system, 40-ton crane 1962/1997 -- 50 Owned(1)
AMERICAN CONSTITUTION......... Four-point anchor system, saturation 1974 -- 64 Owned(1)
diving, moonpool
AMERICAN EAGLE................ Four-point anchor system 1976 -- 50 Owned(1)
AMERICAN INDEPENDENCE......... Four-point anchor system 1970 -- 52 Owned(1)
AMERICAN RECOVERY............. Tug, diving support 1965/1995 -- 43 Owned(1)
AMERICAN STAR................. Four-point anchor system, saturation 1967/1998 -- 53 Owned(1)
diving
AMERICAN TRIUMPH.............. Four-point anchor system 1965/1997 -- 53 Owned(1)
AMERICAN VICTORY.............. Four-point anchor system 1976/1997 -- 50 Owned(1)
AMERICAN LIBERTY.............. Four-point anchor system 1974 -- 33 Owned
AMERICAN SCOUT................ Diving support 1978 -- 34 Owned
PIPELINE SURVEYOR............. Diving support 1965/1996 -- 33 Owned
AMERICAN DIVER................ Diving support 1964 -- 33 Owned
AMERICAN ENDEAVOR............. Utility tug, ROV support 1962 -- 20 Owned
HEAVY LIFT SHIPS AND BARGES
STANISLAV YUDIN............... Heavy lift, 2,500-ton crane 1985 -- 183 Chartered(7)
NTL 900 (NAN TIAN LONG)....... Derrick barge 1992 -- 100 Chartered(8)
ANNETTE....................... Pipelay barge, marine construction 1972/1989/1997 -- 61 Owned
ARWANA........................ Pipelay barge 1998 -- 70 Owned
JASAMARINE V (EX SIN THAI HIN Flat top barge fitted out for inshore 1978 -- 55 Owned
IV)........................... diving/construction
CBL 101....................... Pipelay barge 1977/1984/1997 -- 85 Owned
DLB 801....................... Derrick lay barge 1978/1980/1989 -- 107 Chartered(9)
LB 200........................ Lay barge 1975/1996 -- 168 Owned
TUGS AND OTHER
APM 205....................... Barge 1966/1997 -- 61 Owned
DB 1.......................... Barge 1956 -- 91 Owned
PL 6.......................... Barge 1969 -- 61 Owned
GOLEK......................... Transport barge 1983/1992 -- 46 Owned
POLKA......................... River tug and anchor handler 1971 -- 12 Owned
</TABLE>
------------------------------
(1) Subject to mortgage under SO'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 Kingfsher DA in which the Company has a 50% ownership, for
five years starting in 1998, with options to extend through December 2013
and with options to purchase.
(4) Chartered from Horizon Offshore from March 2000 through March 2001 with
options to extend.
(5) Chartered from Groupe GTM through December 2010 with option to purchase.
21
<PAGE>
(6) Chartered from DSND Shipping A/S through December 2000 with option to extend
through December 2001.
(7) Chartered to SHL by a subsidiary of the ship's owner, LKMN, through
October 2001 with a possibility for extensions.
(8) Chartered from Guangzhou Salvage Co., Ltd through October 2000 with options
to extend through 2003.
(9) Chartered from Groupe GTM through December 2010 with option to purchase.
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
FACILITY OWNED LEASED (AS OF 3/31/00)
-------- -------- -------- ---------------
(ACRES) ($000)
<S> <C> <C> <C>
Perth Amboy................................................. 155 -- $25,000
Chicago..................................................... -- 178 --
Houston..................................................... 249 -- 80,163
Santos...................................................... 14 -- 2,835
Singapore tank container depot.............................. -- 4 --
Rotterdam pier.............................................. -- 3 --
</TABLE>
Stolt Offshore owns or holds under long-term leases real estate property as
described below:
<TABLE>
<CAPTION>
WORK OR STORAGE
OFFICE SPACE SPACE OR LAND
(SQUARE METERS) (SQUARE METERS) STATUS
--------------- --------------- ------
<S> <C> <C> <C>
Aberdeen, Scotland............................... 12,276 102,095 Owned/Leased
Baku, Azerbaijan................................. 66 -- Leased
Buenos Aires, Argentina.......................... 100 -- Leased
Columbus, Ohio................................... 279 8,614 Leased
Dhahran, Saudi Arabia............................ 330 750 Leased
Dundee, Scotland................................. -- 8,234 Leased
Houston, Texas................................... 4,208 15,489 Owned/Leased
Jakarta, Indonesia............................... 915 601 Leased
Killingoy, Norway................................ 60 11,150 Leased
Kristiansund, Norway............................. 120 800 Leased
Lagos, Nigeria................................... 200 -- Leased
Lobito, Angola................................... 5,945 554,431 Leased
Luanda, Angola................................... 53 690 Leased
Macae City, Brazil............................... 1,286 3,683 Owned/Leased
Marseille, France................................ 1,005 416 Leased
Nanterre, France................................. 13,200 -- Leased
New Orleans, Louisiana........................... 305 56,658 Leased
Oxnard, California............................... 929 6,643 Leased
Perth, Australia................................. 1,456 3,818 Leased
Porth Gentil, Gabon.............................. 305 5,070 Leased
Port Harcourt, Nigeria........................... 400 300 Leased
Port of Fourchon, Louisiana...................... 650 74,240 Leased
Port of Iberia, Louisiana........................ 1,796 95,688 Leased
Rio de Janeiro, Brazil........................... 295 -- Leased
Rotterdam, The Netherlands....................... 1,400 30,000 Leased
Sharjah, United Arab Emirites.................... 1,579 129,502 Leased
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
WORK OR STORAGE
OFFICE SPACE SPACE OR LAND
(SQUARE METERS) (SQUARE METERS) STATUS
--------------- --------------- ------
<S> <C> <C> <C>
Singapore........................................ 928 4,606 Leased
Stavanger, Norway................................ 5,900 200 Leased
Tchengue, Gabon.................................. 1,486 129,502 Leased
Teeside, England................................. 1,100 30,000 Leased
Vancouver, Canada................................ 1,161 785 Leased
Warri, Nigeria................................... 1,765 222,582 Leased
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The French government has investigated Stolt Comex Seaway S.A. of France
alleging violations of French labor and social security legislation, which
resulted during 1998 in a condemnation by the French Supreme Court of Stolt
Offshore 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 resulted in judgments. Some of the judgments
have been appealed. While SO believes that its subsidiaries have meritorious
defenses in the unresolved cases, there can be no certainty as to the number of
claims which may be brought or the amount for which SO 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 SO with respect to certain aspects of the foregoing.
There can be no assurance, however, as to the amount which SO may ultimately
recover from Comex S.A. pursuant to such indemnity. No specific provision has
been made for damages.
Coflexip S.A. has commenced legal proceedings against three subsidiaries of
Stolt Offshore 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. SO has appealed. SO
has provided in the financial statements an amount to cover the estimated
liability for Coflexip S.A.'s 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.
In September 1999, SO terminated its charter of the ship, TOISA PUMA, for
default. SO is currently in arbitration with the owners who are contesting that
the termination was wrongful. No provision has been made in the financial
statements as SO believes that it had the right to terminate the charter under
the charterparty agreement.
SO is party to various other legal proceedings arising in the ordinary
course of business. SO believes that such legal proceedings will not have a
material effect on SO's business or financial condition.
23
<PAGE>
ITEM 4. CONTROL OF REGISTRANT
Stolt is not, directly or indirectly, owned by another corporation or by any
government. There are no arrangements known to the Company, the operation of
which may at a subsequent date result in a change in control of Stolt.
Set out below is information concerning the share ownership of all persons
who owned beneficially 10% or more of 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 April 30, 2000:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER OR IDENTITY OF NUMBER OF COMMON PERCENTAGE OF NUMBER OF CLASS B PERCENTAGE 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........... 20,677,799 85.5% 6,498,830(a) 21.4%
Nippon Yusen Kaisha Ltd.
("NYK")............................ 3,000,000 12.4% 2,500,000 8.2%
Directors and executive officers as
a group excluding Jacob
Stolt-Nielsen, Jacob B.
Stolt-Nielsen and Niels G.
Stolt-Nielsen (8 persons).......... -- -- 262,597 0.9%
</TABLE>
------------------------
(a) Includes aggregate of 171,474 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 7,970,864 Founder's Shares outstanding as of April 30, 2000 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 89.1% of Stolt's outstanding voting
securities.
As of April 30, 2000, SNTG Ltd. owned 7,688,810 Common Shares. Under
applicable provisions of the Luxembourg Company Law, these shares remain
outstanding but are not entitled to vote. In computing earnings per Common Share
and Class B Share, these shares are treated as a reduction of outstanding
shares. The cost of these shares is being accounted for similar to treasury
stock, as a deduction from shareholders' equity.
ITEM 5. NATURE OF TRADING MARKET
Stolt's Common Shares are principally traded in the U.S. in the
over-the-counter market. The Common Shares are quoted through the National
Market System of NASDAQ under the symbol STLTF. Stolt's Class B Shares are
listed on the Oslo Stock Exchange under the symbol SNIB and American Depositary
Shares ("ADSs"), each of which represents one Class B Share, are quoted through
NASDAQ under the symbol STLBY. Trading in the Class B Shares and ADSs commenced
in February 1996 and January 1996, respectively. The following table sets out,
for the periods indicated, the range of high and low closing sales prices for
the Common Shares, the ADSs, each equivalent to one Class B Share, and the
Class B Shares.
24
<PAGE>
<TABLE>
<CAPTION>
ADSS
CLASS B SHARES OSLO STOCK EXCHANGE
COMMON SHARES EQUIVALENT CLASS B SHARES
------------------- ------------------- -------------------------
2000 HIGH LOW HIGH LOW HIGH LOW
---- -------- -------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter 18.750 11.750 19.250 14.625 NOK 160.00 NOK 120.00
2nd Quarter 19.875 15.250 20.500 16.250 180.00 145.00
</TABLE>
(to May 12, 2000)
<TABLE>
<CAPTION>
1999 HIGH LOW HIGH LOW HIGH LOW
---- -------- -------- -------- -------- ----------- -----------
<S> <C> <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 15.938 11.750 127.50 96.00
3rd Quarter 16.750 12.750 19.250 14.750 148.00 118.00
4th Quarter 15.875 11.875 18.063 14.375 145.00 122.00
</TABLE>
<TABLE>
<CAPTION>
1998 HIGH LOW HIGH LOW HIGH LOW
---- -------- -------- -------- -------- ----------- -----------
<S> <C> <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
</TABLE>
As of March 1, 2000 (the record date for voting at the Annual General
Meeting), 500,879 Common Shares, representing 2.1% of the outstanding Common
Shares, were registered in the names of 63 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 295 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 is approximately 2,300. The Company knows
of no significant trading market outside the U.S. for the Common Shares. The
Company might seek to de-list the Common Shares.
As of March 1, 2000, there was a total of 9,549,406 ADSs of which 9,523,073
were registered in the names of 111 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 is approximately 2,100. As of such date the ADSs represented 31.3% of
the outstanding Class B Shares of Stolt. The depository 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, 2000, excluding the
Class B Shares held represented by ADSs and Class B Shares held by
Fiducia Ltd., and Nippon Yusen Ltd., it is estimated that the free float of
Class B Shares traded on the Oslo Stock Exchange is 12,006,694 registered in the
names of 760 shareholders.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
EXCHANGE CONTROLS
The Company has been advised by Messrs. Elvinger, Hoss & Prussen, Luxembourg
counsel to the Company, that at the present time there are no exchange controls
in existence in Luxembourg which would restrict the export or import of capital,
including but not limited to, foreign exchange controls, or affect Stolt's
ability to make payments of dividends, interest or other amounts to non-resident
holders of Common Shares or Class B Shares.
LIMITATIONS AFFECTING SHAREHOLDERS
Stolt's Articles of Incorporation (the "Articles") provide restrictions on
the shareholdings of certain persons. In particular, the Articles provide that
the following restrictions shall apply to Persons (defined to include any
individual, firm, corporation, or other entity, and certain associates and
affiliates thereof) who
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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.
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
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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 18 of the Company's 1999 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 1995 1996 1997 1998 1999
-------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Common........ $0.370 $0.250 $0.500 $0.500 $0.375
Class B -- $0.250 $0.500 $0.500 $0.375
Founder's..... $0.010 $0.005 $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 1999 figures represent the interim and final dividend for 1998. An
interim dividend for 1999 of $0.125 per Common Share and per Class B Share and
$0.005 per Founder's Share was declared on November 15, 1999 and paid on
December 15, 1999. In addition the shareholders at Stolt's Annual General
Meeting held on April 13, 2000 approved a final dividend for 1999 of $0.125 per
Common Share and per Class B Share which was paid on May 18, 2000 to
shareholders of record as of May 2, 2000. This final dividend payment for 1999
brings the total dividend to be paid in fiscal 2000 to $0.25 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 9 through 17 of the Company's 1999 Annual Report filed with
the Securities and Exchange Commission on Form 6-K is incorporated herein by
reference.
RECENT DEVELOPMENTS
In February 2000, the Company completed its Exchange Offer of one Class B
Share for each outstanding Common Share. As a result of the Exchange Offer,
7.8 million Common Shares were exchanged for Class B Shares, leaving
approximately 0.5 million publicly held Common Shares. The Company might seek to
de-list the Common Shares.
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STOLT-NIELSEN TRANSPORTATION GROUP
SNTG reported income from operations rose to $19.5 million for the three
months ending February 29, 2000, from $12.2 million for the three months ending
February 28, 1999 as a result of stronger markets. Income from operations for
SNTG's parcel tanker division increased to $9.0 million from $4.8 million in the
first quarter of 1999 as increased volumes were largely offset by higher bunker
costs. The tank container division's income from operations increased to
$4.9 million from $3.8 million in the first quarter of 1999 as the economies of
Asia Pacific and Latin America continue to improve. SNTG's terminal division's
income from operations increased to $5.6 million from $3.6 million in the first
quarter of 1999 as results improved in all terminals including the joint
ventures in Asia Pacific.
STOLT OFFSHORE
Before minority interests, SO reported a net loss of $15.7 million for the
three months ending February 29, 2000 compared with, a profit of $0.6 million
for the three months ending February 28, 1999. The first quarter 2000 loss
includes a loss of $10.1 million resulting from severe weather conditions
experienced in the North Sea and unforseen soil conditions in Asia Pacific. An
additional loss of $6.1 million has been recorded during the second quarter.
In May 2000, SO announced its plans to refinance its existing major banking
arrangements with a new $400 million revolving credit facility. One of the goals
of the refinancing is to provide SO with increased flexibility in the financial
covenants. In addition to the bank refinancing, the Company will make an
additional investment in SO of $100 million through the purchase of
9.43 million SO Class A Shares.
STOLT SEA FARM
SSF income from operations for the three months ending February 29, 2000,
improved to $10.1 million from $0.5 million for the three months ending
February 28, 1999. Salmon operations in North America and Norway both benefited
from higher prices, lower costs, and increased volumes. Salmon operations in the
UK also showed a marked improvement and SSF's operations in Iberia and Asia
continued to deliver strong results.
Overall, the Company reported net income for the first quarter of 2000 of
$30.0 million on net operating revenue of $499.4 million. Included within this
is a gain of $32.5 million from the dilution in Stolt's interest in SO. This
compares to net income of $7.7 million on net operating revenue of
$407.4 million in the first quarter of 1999 which included a gain of
$3.8 million from the sale of SNTG's tank container leasing assets.
In March, the Company announced the formations of OLL, which will provide an
open logistics system for bulk materials, and PSL, which will offer an
Internet-based total marine procurement system.
In May 2000, the Company announced it is considering listing SSF on the Oslo
Stock Exchange. The listing is likely to take place in the near future and will
be accompanied by an initial public offering in Norway, and a private placement
in the U.S. for a total of about 25 percent of SSF's equity. A final decision to
proceed will be subject to approval by the Stolt and SSF Boards of Directors and
market conditions.
YEAR 2000 ISSUE
In 1997, the Company established a company-wide initiative to identify,
evaluate, and address Year 2000 issues covering the information technology
systems and applications used in its five businesses. In addition, the project
included a review of the Year 2000 compliance efforts of key suppliers,
customers, and other principal business partners. To date, the Company has not
experienced significant systems problems relative to the turn of the millenium.
However, there can be no assurances that the Company, or its suppliers,
customers or other principal business partners will not experience significant
systems problems during fiscal 2000 or thereafter, nor whether such problems, if
they occur, could have a material adverse effect on the Company's operations.
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The Company incurred approximately $1.2 million in expenses through the end
of fiscal 1999 in connection with the efforts on Year 2000 issues. The Company,
at this time, does not anticipate any significant costs in fiscal 2000 or
thereafter relative to Year 2000 compliance.
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 included
or incorporated by reference herein 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
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; 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 particularly under "Factors Affecting Revenues and Costs."
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.
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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.
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. While on occasion, storage tank buildings have been undertaken
for speculative business, most are 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
1999, with an average cost of approximately $94 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 60% of SNTG's total parcel tanker volume
is carried under long-term contracts; about half of these include provisions
intended to pass through fuel price fluctuations. The remaining cargo volume is
carried under spot contracts at freight rates that are affected by prevailing
fuel prices.
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
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<PAGE>
would recognize a charge against current earnings that may be significant
depending on the size of the voyage or the adjustment.
STOLT OFFSHORE
INDUSTRY CONDITIONS
Demand for SO's subsea services depends upon the condition of the oil and
gas industry and particularly upon capital expenditure budgets of the companies
engaged in the exploration, development and production of offshore oil and gas.
The prices of oil and gas and their uncertainty in the future, along with
forecasted growth in world oil and gas demand, will strongly influence the
extent of offshore exploration and development activities. Offshore oil and gas
field capital expenditures also are influenced by the sale and expiration dates
of offshore leases, the discovery rate of new oil and gas reserves in offshore
areas, local and international political and economic conditions, and the
ability of oil and gas companies to access or generate capital. These factors
are beyond the control of SO.
OPERATING RISKS
Subsea services involve 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 SO's offshore operations are
covered by provisions of local and maritime laws, which generally provide that
employees or their representatives can bring actions against SO for damages for
job-related injuries. In addition, although SO generally seeks to obtain
indemnity agreements whenever possible from its customers requiring such
customers to hold SO 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 SO 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 SO'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, SO also typically bears a proportion of
the risk of delays and extra costs caused by adverse weather conditions or other
circumstances.
On some projects SO may be performing work under joint venture agreements
where SO and its partner are jointly and severally liable towards the customer
for the performance of the contract while under the terms of the joint venture
they only carry the full responsibility for their own share of the work. If SO's
joint venture partner in such arrangement fails to fulfill its obligations, SO
could have to carry the resultant liability towards the customer.
PERCENTAGE-OF-COMPLETION PROJECT ACCOUNTING
As most of SO'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, SO
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<PAGE>
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
SO'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 SO
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, SO's
subsidiaries may face governmental imposed restrictions from time-to-time on
their ability to transfer funds to SO. No predictions can be made as to what
governmental regulations applicable to SO's operations may be enacted in the
future.
SEASONALITY
Over the past three years, approximately two-thirds of SO'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
SO's major customers are oil companies and large offshore contractors.
During 1999, one of SO's customers accounted for more than 12%, and SO's top ten
customers accounted for approximately 47%, of SO's net operating revenue. The
loss of any one or more of these significant customers could have a material
adverse effect on SO.
COMPETITION
The subsea business is highly competitive, and offshore subsea contractors
compete intensely for available projects. Contracts for SO'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 SO's competitors
and potential competitors are larger and have greater financial and other
resources than SO. In addition, increased activity levels may attract additional
competitors or equipment to the market and inhibit pricing improvement.
STOLT SEA FARM
DISEASES 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.
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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 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.
Fluctuations in the price of fish feed can 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.
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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 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 1999, the Company
was in compliance with all of these credit/financing agreements. None of these
agreements imposes material restrictions on the ability of the Company to incur
additional indebtedness or operate its businesses. Current operations are not
restricted by these requirements. In May 2000, SO announced its plans to replace
its three largest existing banking arrangements with a new $400 million
revolving credit facility. One of the goals of the refinancing is to provide
Stolt Offshore with increased flexibility in the financial covenants. In
addition to the bank refinancing, the Company will make an additional investment
in SO of $100 million through the purchase of 9.43 million SO Class A Shares.
FLOATING INTEREST RATES
Approximately 20% of the Company's long-term indebtedness at March 31, 2000
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.
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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
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.
In February 2000, the Internal Revenue Service published proposed
regulations which, if published in final form, might adversely effect the
Company's ability to qualify for this exemption. The Company is in the process
of restructuring its shipping operations so as to qualify for a tax treaty
exemption. Treaty exemptions would not be effected by these regulations. If an
equivalent exemption were not available, or if the Company did not qualify for a
treaty exemption, 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.
35
<PAGE>
SO'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.
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.
36
<PAGE>
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 negotiated with major banks.
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. As of November 30,
1999 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 approximate $0.6 million and $2.1 million from adverse
changes in foreign exchange rates and interest rates, respectively. Actual
experience has shown that gains and losses tend to offset each other over time,
and it is highly unlikely that the Company could experience losses such as these
over an extended period of time. These amounts should not be considered
projections of future losses, since actual results may differ significantly
depending upon activity in the global financial markets.
Based on the Company's overall interest rate exposures as of November 30,
1999, 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, 1999, the large majority of the consolidated debt was
fixed-rate debt (approximately 80%).
37
<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
Stolt is a Luxembourg holding company and does not have officers as such.
The following is a list of the Directors of Stolt and persons employed by its
subsidiaries who perform the indicated executive and administrative functions
for the combined business of the Company's subsidiaries:
<TABLE>
<CAPTION>
NAME AGE* POSITION
---- -------- ------------------------------------------
<S> <C> <C>
Jacob Stolt-Nielsen....................... 68 Chairman of the Board and Chief Executive
Officer
Carroll N. Bjornson....................... 70 Director
Erling C. Hjort........................... 63 Director
Tadatoshi Mamiya.......................... 57 Director
Christer Olsson........................... 54 Director
Jacob B. Stolt-Nielsen.................... 37 Director and Chief Executive Officer,
PrimeSupplier
Niels G. Stolt-Nielsen.................... 35 Director and Chief Executive Officer,
Stolt Sea Farm
Christopher J. Wright..................... 65 President and Chief Operating Officer
Jan Chr. Engelhardtsen.................... 48 Chief Financial Officer
Samuel Cooperman.......................... 54 Chief Executive Officer, Stolt-Nielsen
Transportation Group
Bernard Vossier........................... 55 Chief Executive Officer, Stolt Offshore
</TABLE>
------------------------
* As of April 30, 2000.
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 seven 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 SO.
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. 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. 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.
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.
38
<PAGE>
Jacob B. Stolt-Nielsen has served as Chief Executive Officer,
PrimeSupplier Ltd. since March 2000. From October 1992 to March 2000, he was
Managing Director, Stolthaven Terminals, 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.
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. He
is also a director of SO.
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 SO.
Mr. Engelhardtsen has served as Chief Financial Officer since 1991. He
served as President and General Manager of Stolt-Nielsen Singapore Pte. Ltd.
from 1988 through 1991. He has been associated with the Company since 1974.
Mr. Cooperman has served as 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. Vossier was appointed CEO, Stolt Offshore in May 1995. Previously he
served as Chief Operating Officer of that business from December 1994 to
May 1995. He joined Comex in 1974.
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 seven officers, excluding non-executive
directors, performing such executive functions for the Company for the fiscal
year ended November 30, 1999 (including profit sharing awards and certain
benefits) was $3,464,195. In addition, $68,333 was contributed on behalf of such
officers to defined contribution pension plans maintained by the Company and its
subsidiaries. During 1999, 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.
PROFIT SHARING PLAN
Stolt has Profit Sharing Plans which pays 10% of the net profits of each of
the company's individual businesses (after specified adjustments) to the
majority of the employees other than those covered by collective bargaining
agreements. 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 Stolt Board of Directors. The SO Profit Sharing Plan is
administered by a Compensation Committee appointed by SO's Board of Directors.
For the fiscal year ended November 30, 1999, no monies were paid by the SNTG and
SO Profit Sharing Plans to its officers and employees, while the SSF Profit
Sharing program paid $1.0 million of which $125,000 was paid to those officers
performing executive and administrative functions.
39
<PAGE>
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 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, 2000, options for 1,342,700 Common Shares and 1,410,507
Class B Shares were outstanding under the Plans. Of this total, options for
333,000 Common Shares and 280,125 Class B Shares were outstanding in accordance
with their stated terms to employees who are Directors and executive officers of
Stolt. In conjunction with the Company's January 2000 offer to exchange Common
Shares for an equal number of Class B Shares, the Company will also issue a
Class B Share in exchange for each Common Share issuable upon the exercise of
such common option. The options are exercisable at the respective prices set out
below and expire on the dates indicated:
<TABLE>
<CAPTION>
NUMBER OF SHARES
EXERCISE PRICE FOR WHICH OUTSTANDING EXPIRATION DATE
-------------- --------------------- ------------------------
<S> <C> <C> <C>
Common Shares
$ 21.750 37,125 June 2000
17.125 46,625 January 2001
12.750 89,850 December 2002
17.500 4,000 August 2003
15.750 150,250 December 2003
19.750 189,900 December 2004
25.375 3,000 May 2005
28.625 245,750 December 2005
17.750 10,000 July 2006
16.875 4,250 September 2006
17.125 168,750 December 2006
16.375 1,100 May 2007
22.500 2,500 August 2007
20.125 389,600 December 2007
---------
1,342,700
=========
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
EXERCISE PRICE FOR WHICH OUTSTANDING EXPIRATION DATE
-------------- --------------------- ------------------------
<S> <C> <C> <C>
Class B Shares
$ Nil 383,257 June 2000-December 2005
17.500 168,750 December 2006
16.750 1,100 May 2007
22.125 2,500 August 2007
9.875 403,300 December 2008
11.938 2,100 April 2009
14.750 2,600 December 2009
14.625 446,900 December 2009
---------
1,410,507
=========
</TABLE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
The discussion of related party transactions appearing as Note 19 to the
Company's 1999 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, 1999 and the related information pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
1. Index of Consolidated Financial Statements
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... 42
Consolidated Statements of Income for the years ended
November 30, 1999, 1998 and 1997.......................... 43
Consolidated Balance Sheets as of November 30, 1999 and
1998...................................................... 44
Consolidated Statements of Shareholders' Equity for the
years ended November 30, 1999, 1998 and 1997.............. 45
Consolidated Statements of Cash Flows for the years ended
November 30, 1999, 1998 and 1997.......................... 46
Notes to Consolidated Financial Statements.................. 47
</TABLE>
41
<PAGE>
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,
1999 and 1998, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended
November 30, 1999. 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, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
November 30, 1999, in conformity with United States generally accepted
accounting principles.
As explained in Note 6 to the consolidated financial statements, effective
December 1, 1996, the Company adopted SFAS No. 121.
ARTHUR ANDERSEN LLP
New York, New York
February 14, 2000
42
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
NET OPERATING REVENUE:
Stolt-Nielsen Transportation Group:
Tankers................................................... $ 618,038 $ 657,821 $ 665,187
Tank Containers........................................... 206,116 218,789 218,980
Terminals................................................. 55,350 53,768 46,652
Stolt Comex Seaway.......................................... 640,726 649,764 431,126
Stolt Sea Farm.............................................. 260,707 216,483 164,107
---------- ---------- ----------
1,780,937 1,796,625 1,526,052
---------- ---------- ----------
OPERATING EXPENSES:
Stolt-Nielsen Transportation Group:
Tankers................................................... 529,475 539,696 518,816
Tank Containers........................................... 163,562 163,787 159,482
Terminals................................................. 34,926 37,204 34,064
Stolt Comex Seaway.......................................... 568,304 540,891 353,361
Stolt Sea Farm.............................................. 214,020 184,964 146,643
---------- ---------- ----------
1,510,287 1,466,542 1,212,366
---------- ---------- ----------
GROSS PROFIT.............................................. 270,650 330,083 313,686
Equity in net income of non-consolidated joint ventures
(Note 4).................................................. 4,690 17,250 19,592
Administrative and general expenses......................... (158,746) (157,061) (139,609)
Restructuring charges (Note 6).............................. (4,414) -- --
Write down of certain assets (Note 6)....................... -- -- (28,098)
---------- ---------- ----------
INCOME FROM OPERATIONS.................................... 112,180 190,272 165,571
---------- ---------- ----------
NON-OPERATING (EXPENSE) INCOME:
Interest expense............................................ (71,467) (60,657) (59,897)
Interest income............................................. 6,104 7,342 2,864
Foreign currency exchange gain (loss), net.................. 2,449 (288) 582
Gain on disposal of assets, net (Note 7).................... 5,013 16,384 10,633
Gain on sale of common stock of a subsidiary, net (Note
6)........................................................ -- -- 139,508
Other, net.................................................. 1,932 2,365 (415)
---------- ---------- ----------
(55,969) (34,854) 93,275
---------- ---------- ----------
INCOME BEFORE INCOME TAX PROVISION, MINORITY INTEREST AND
EXTRAORDINARY ITEM...................................... 56,211 155,418 258,846
Income tax provision (Note 9)............................... (481) (26,530) (13,161)
---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM.... 55,730 128,888 245,685
---------- ---------- ----------
Minority interest (Note 8).................................. (8,822) (32,613) (15,992)
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM.......................... 46,908 96,275 229,693
Extraordinary item--gain on early repayment of debt, net of
taxes (Note 6) -- -- 7,416
---------- ---------- ----------
NET INCOME................................................ $ 46,908 $ 96,275 $ 237,109
========== ========== ==========
EARNINGS PER COMMON AND CLASS B SHARE AND EQUIVALENTS
(NOTE 2):
Basic..................................................... $ 0.86 $ 1.76 $ 4.34
Diluted................................................... 0.86 1.75 4.28
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND CLASS B SHARES AND
EQUIVALENTS OUTSTANDING:
Basic..................................................... 54,526 54,732 54,658
Diluted................................................... 54,806 54,998 55,439
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
43
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS EXCEPT
SHARE NUMBERS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 20,372 $ 37,776
Trade receivables, net of allowance for doubtful accounts of
$10,713 and $9,185 in 1999 and 1998, respectively......... 317,032 336,019
Inventories (Note 10)....................................... 141,061 127,782
Receivables from related parties (Note 4)................... 16,007 17,236
Restricted cash deposits (Note 11).......................... 2,271 1,460
Prepaid expenses and other current assets (Note 9).......... 88,886 105,020
---------- ----------
TOTAL CURRENT ASSETS...................................... 585,629 625,293
---------- ----------
FIXED ASSETS, AT COST:
Tankers..................................................... 1,669,710 1,539,229
Tankers under construction.................................. 234,808 257,699
Tank containers............................................. 163,570 216,744
Terminal facilities......................................... 270,463 275,260
Subsea ships and facilities................................. 614,295 549,327
Seafood facilities.......................................... 119,448 94,026
Other....................................................... 32,627 31,611
---------- ----------
3,104,921 2,963,896
Less--accumulated depreciation and amortization............. (988,501) (880,384)
---------- ----------
2,116,420 2,083,512
---------- ----------
Investments in non-consolidated joint ventures and other
assets (Note 4)........................................... 177,065 135,563
Deferred income tax asset (Note 9).......................... 22,515 2,954
Goodwill and other intangible assets, net of accumulated
amortization of $26,273 and $20,477 in 1999 and 1998,
respectively (Note 5)..................................... 156,759 160,803
---------- ----------
Total assets................................................ $3,058,388 $3,008,125
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank loans (Note 12)............................. $ 34,103 $ 17,645
Current maturities of long-term debt (Note 13).............. 61,718 71,634
Accounts payable............................................ 140,096 184,443
Accrued liabilities and other current liabilities (Note
9)........................................................ 238,364 219,132
---------- ----------
TOTAL CURRENT LIABILITIES................................. 474,281 492,854
---------- ----------
Long-term debt (Note 13).................................... 1,116,749 1,057,313
Minority interest (Note 8).................................. 232,630 227,215
Deferred income tax liability (Note 9)...................... 21,539 35,008
Other non-current liabilities............................... 71,563 63,368
Commitments and contingencies (Note 15)
SHAREHOLDERS' EQUITY:
Founder's shares: no par value--15,000,000 shares
authorized, 7,820,109 and 7,809,328 shares issued and
outstanding in 1999 and 1998, respectively, at stated
value..................................................... -- --
Capital stock:
Common shares: no par value--60,000,000 authorized,
31,280,438 and 31,237,313 shares issued in 1999 and
1998, respectively, at stated value..................... 31,280 31,237
Class B shares: no par value--60,000,000 authorized,
30,974,974 and 30,953,412 shares issued in 1999 and 1998,
respectively, at stated value............................. 30,975 30,954
Paid-in surplus............................................. 347,654 347,019
Retained earnings........................................... 911,040 884,615
Accumulated other comprehensive loss........................ (45,299) (27,434)
---------- ----------
1,275,650 1,266,391
---------- ----------
Less--Treasury stock--at cost, 1,921,905 Common shares and
5,766,905 Class B shares in 1999 and 1998................. (134,024) (134,024)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY................................ 1,141,626 1,132,367
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $3,058,388 $3,008,125
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
44
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
CAPITAL PAID-IN TREASURY RETAINED COMPREHENSIVE COMPREHENSIVE
STOCK SURPLUS STOCK EARNINGS INCOME (LOSS) INCOME
-------- -------- --------- -------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 30, 1996........ $61,586 $340,663 $(125,064) $605,972 $ 1,663
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) --
Net income........................ -- -- -- 237,109 237,109
Translation adjustments, net...... -- -- -- -- (37,929) (37,929)
------- -------- --------- -------- -------- --------
Comprehensive income.............. 199,180
------- -------- --------- -------- -------- --------
BALANCE, NOVEMBER 30, 1997........ 62,131 346,437 (125,540) 815,795 (36,266)
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) --
Net income........................ -- -- -- 96,275 -- 96,275
Translation adjustments, net...... -- -- -- -- 8,832 8,832
------- -------- --------- -------- -------- --------
Comprehensive income.............. 105,107
------- -------- --------- -------- -------- --------
BALANCE, NOVEMBER 30, 1998........ 62,191 347,019 (134,024) 884,615 (27,434)
Exercise of stock options for
43,125
Common shares and 21,562
Class B shares.................. 64 635 -- -- --
Issuance of 10,781 Founder's
shares.......................... -- -- -- -- --
Cash dividends paid--$0.375 per
Common and Class B share........ -- -- -- (20,444) --
Cash dividends paid--$0.005 per
Founder's share................. -- -- -- (39) --
Net income........................ -- -- -- 46,908 46,908
------- -------- --------- -------- -------- --------
Other comprehensive income (loss):
Translation adjustments, net.... -- -- -- -- (21,767) (21,767)
Unrealized gains on
securities.................... -- -- -- -- 3,902 3,902
------- -------- --------- -------- -------- --------
Other comprehensive loss.......... (17,865)
------- -------- --------- -------- -------- --------
Comprehensive income.............. 29,043
------- -------- --------- -------- -------- --------
Balance, November 30, 1999........ $62,255 $347,654 $(134,024) $911,040 $(45,299)
======= ======== ========= ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
45
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before extraordinary item............................ $ 46,908 $ 96,275 $ 229,693
ADJUSTMENTS TO RECONCILE INCOME BEFORE EXTRAORDINARY ITEM TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation of fixed assets............................ 148,238 128,589 112,410
Amortization of intangible assets....................... 7,963 4,225 2,297
Amortization of drydock costs........................... 17,296 18,303 19,365
Provisions for reserves and taxes....................... (15,372) 26,283 7,582
Equity in net income of non-consolidated joint
ventures.............................................. (4,690) (17,250) (19,592)
Minority interest....................................... 8,822 32,613 15,992
Gain on disposal of assets, net......................... (5,013) (16,384) (10,633)
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 AND DIVESTITURES:
Decrease (increase) in trade receivables................ 18,341 (21,413) (45,681)
Decrease (increase) in inventories...................... 12,936 14,685 (19,475)
Decrease (increase) in prepaid expenses and other
current assets........................................ 3,430 (19,979) (3,528)
(Decrease) increase in accounts payable and accrued
liabilities........................................... (30,134) (14,746) 30,496
Payments of drydock costs................................... (11,400) (15,632) (23,542)
Other, net.................................................. (3,039) (3,607) (4,961)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 194,286 211,962 179,013
========= ========= =========
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (303,296) (378,809) (450,916)
Proceeds from sales of ships and other assets............. 117,800 57,627 47,934
Acquisition of subsidiaries, net of cash acquired......... (21,790) (217,584) (22,268)
Investment in and advances to affiliates and others,
net..................................................... (38,249) (31,758) (14,708)
Dividends from non-consolidated joint ventures............ 13,154 18,384 13,249
(Increase) decrease in restricted cash deposits (982) 5,756 5,053
Other, net................................................ (14,858) (9,379) (8,198)
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES................... (248,221) (555,763) (429,854)
========= ========= =========
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in loans payable to banks, net........ 16,042 (2,455) (3,758)
Repayment of long-term debt............................... (74,414) (82,731) (211,275)
Principal payments under capital lease obligations........ (3,248) (2,731) (747)
Proceeds from issuance of long-term debt--Private
Placement............................................... -- 216,000 125,000
Proceeds from issuance of long-term debt--ship
financing/other......................................... 117,370 219,074 121,920
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...................................... 1,282 1,033 6,319
Purchases of treasury stock............................... -- (8,484) (476)
Dividends paid............................................ (20,483) (27,455) (27,286)
Proceeds from early repayment of debt..................... -- -- 7,416
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 36,549 312,251 313,970
Effect of exchange rate changes on cash..................... (18) 755 (1,336)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.... (17,404) (30,795) 61,793
Cash and cash equivalents at beginning of year.............. 37,776 68,571 6,778
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................ $ 20,372 $ 37,776 $ 68,571
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
1. THE COMPANY
Stolt-Nielsen S.A. ("SNSA"), a Luxembourg company, and subsidiaries
(together, the "Company") is engaged in three businesses: Transportation,
Subsea, and Seafood.
The Transportation business, which is carried out through Stolt-Nielsen
Transportation Group Ltd. ("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.
The Subsea business is carried out through Stolt Comex Seaway S.A. ("SCS"),
a subsidiary in which the Company held a 45% economic interest and a 61% voting
interest as of November 30, 1999. SCS is a leading subsea contractor to the oil
and gas industry, specializing in technologically sophisticated offshore and
subsea engineering.
The Seafood business, wholly-owned by the Company and carried out through
Stolt Sea Farm Holdings Ltd. ("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 61% 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, 1999, 1998, and 1997, SNTG received approximately 66%, 72%,
and 86%, respectively, of the net revenues of the Joint Service. The financial
statements of the Joint Service have been included in the accompanying
consolidated financial statements, with a provision included in tanker operating
expenses for the amount of net revenues distributed to the minority
participants. These provisions were approximately $105.1 million, $92.8 million,
and $43.3 million for the years ended November 30, 1999, 1998, and 1997,
respectively, and include amounts distributed to non-consolidated joint ventures
of SNTG of $35.9 million, $34.2 million, and $22.0 million. The amounts
distributed are net of commissions to SNTG of $2.3 million, $2.3 million, and
$0.7 million for the years ended November 30, 1999, 1998, and 1997,
respectively. As of November 30, 1999 and 1998, the net amounts payable to
participants in which the Company holds an equity interest for amounts to be
distributed by the Joint Service were $1.5 million and $3.8 million,
respectively. These amounts are included in "Accrued liabilities and other
current liabilities" in the accompanying consolidated balance sheets as of
November 30, 1999 and 1998.
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1999 and 1998, deferred revenues of $36.9 million and $29.3
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 makes
estimates of the recoverability of the sums involved and establishes a reserve
against related contract receivables. The net amounts recoverable amounted to
$7.3 million and $1.9 million in 1999 and 1998, respectively.
SSF SSF recognizes revenues on dispatch of product to customers.
USE OF ESTIMATES
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent gains and losses at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The Company translates the financial statements of its non-U.S. subsidiaries
into U.S. dollars from their functional currencies (usually local currencies) in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 52. Under SFAS No. 52, assets and liabilities denominated in
foreign currencies are generally translated at the exchange rates in effect at
the balance sheet date. Revenues and expenses are translated at exchange rates
which approximate the average rate prevailing during the period. The resulting
translation adjustments are recorded in a separate component of accumulated
other comprehensive income (loss) as "Translation adjustments, net" in the
accompanying consolidated statements of shareholders' equity. Exchange gains and
losses resulting from transactions denominated in a currency other than the
functional currency are included in "Foreign currency exchange gain (loss), net"
in the accompanying consolidated statements of income.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $16.4 million, $16.2 million, and $9.9 million of interest
expense in fiscal years 1999, 1998 and 1997, respectively.
EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of shares outstanding during the period. Diluted EPS is
computed by adjusting the weighted average number of shares outstanding during
the period for all potentially dilutive shares and equivalents outstanding
during the period using the treasury stock method. 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. Outstanding options to purchase 2,115,022,
1,859,851, and 1,275,151 shares were not included in the computation of diluted
earnings per share at November 30, 1999, 1998, and 1997, respectively, because
to do so would have been antidilutive. The following is a reconciliation of the
numerator and denominator of the basic and diluted EPS computations.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Income before extraordinary item............................ $46,908 $96,275 $229,693
------- ------- --------
Less: Dividends on Founder's shares......................... (39) (39) (39)
------- ------- --------
Income before extraordinary item attributable to Common and
Class B shareholders...................................... 46,869 96,236 229,654
------- ------- --------
Extraordinary item--gain on early repayment of debt, net of
taxes..................................................... -- -- 7,416
------- ------- --------
Net income attributable to Common and Class B
shareholders.............................................. $46,869 $96,236 $237,070
======= ======= ========
Basic weighted average shares outstanding................... 54,526 54,732 54,658
Options issued to executives
(Note 18)................................................... 280 266 781
------- ------- --------
Diluted weighted average shares outstanding................. 54,806 54,998 55,439
======= ======= ========
Basic EPS
Income before extraordinary item.......................... $ 0.86 $ 1.76 $ 4.20
Net income................................................ 0.86 1.76 4.34
Diluted EPS
Income before extraordinary item.......................... $ 0.86 $ 1.75 $ 4.14
Net income................................................ 0.86 1.75 4.28
======= ======= ========
</TABLE>
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Contract
progress payments of $0.4 million and $nil in 1999 and 1998, 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.
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 drydock
costs, for the years ended November 30, 1999, 1998, and 1997 was $148.2 million,
$128.6 million, and $112.4 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 $17.3 million, $18.3
million, and $19.4 million for the years ended November 30, 1999, 1998, and
1997, respectively. The unamortized portion of capitalized drydock costs of
$36.4 million and $41.8 million is included in "Investments in non-consolidated
joint ventures and other assets" in the accompanying consolidated balance sheets
at November 30, 1999 and 1998, 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, 1999, 1998, and 1997 were $65.6 million, $56.6 million, and $52.7
million, respectively.
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
consolidated 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 1999, 1998, and 1997 were
not significant.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Net cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest, net of amounts capitalized........................ $71,145 $58,353 $58,107
Income taxes................................................ 13,074 8,534 4,528
======= ======= =======
</TABLE>
Debt assumed in the SSF acquisition of International Aqua Foods Ltd amounted
to $9.2 million.
INVESTMENT SECURITIES
The Company determines the appropriate classification of equity securities
at the time of purchase. Equity securities classified as available for sale are
measured at fair value. Material unrealized gains and losses, net of tax, are
recorded as a separate component of other comprehensive income (loss) until
realized. As of November 30, 1999 available-for-sale investments of $29.3
million have been included in "Investments in non-consolidated joint ventures
and other assets" in the accompanying consolidated
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
balance sheets. As of November 30, 1998, available-for-sale investments of $14.8
million have been included in "Prepaid expenses and other current assets" in the
accompanying consolidated balance sheets.
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 $8.0 million, $4.2 million, and $2.3 million in 1999, 1998, and 1997,
respectively.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board ("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 Accounting Principles Board ("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).
COMPREHENSIVE INCOME
In 1999, the Company adopted SFAS No. 130, "REPORTING COMPREHENSIVE INCOME".
The Statement establishes rules for the reporting of comprehensive income and
its components. Comprehensive income consists of net income, foreign currency
translation adjustments, and unrealized gains on securities and is presented in
the consolidated statements of shareholders' equity. The adoption of SFAS No.
130 had no impact on the Company's financial position, results of operations or
cash flows. Prior year financial statements have been reclassified to conform to
the requirements of SFAS No. 130.
FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB 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 statement of
income, 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 all fiscal quarters of all fiscal years
beginning after June 15, 2000. 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
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
contracts that were issued, acquired, or substantively modified after
December 31, 1997. The Company intends to adopt SFAS No. 133 beginning with the
first quarter of fiscal year 2001.
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.
In April 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-5 ("SOP 98-5"), "REPORTING ON THE
COSTS OF START-UP ACTIVITIES", which provides guidance on the financial
reporting of start-up costs and organization costs. SOP 98-5 requires costs of
start-up activities and organization costs to be expensed as incurred and is
effective for fiscal years beginning after December 15, 1998. The Company has
not determined the impact, if any, SOP 98-5 will have on the Company's
consolidated financial statements.
In March 1998, the AICPA issued Statement of Position 98-1 ("SOP 98-1"),
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE". SOP 98-1 requires computer software costs, including internal
costs, that are incurred in the preliminary project stage to be expensed as
incurred. Once the specified capitalization criteria have been met, directly
attributable development costs should be capitalized. The Statement also
provides guidance on the treatment of upgrade and maintenance expenditures. SOP
98-1 is effective for fiscal years beginning after December 15, 1998. Costs
incurred prior to the initial application of SOP 98-1, whether capitalized or
not, should not be adjusted to the amounts that would have been capitalized had
SOP 98-1 been in effect when those costs were incurred. The Company has not
determined the impact, if any, SOP 98-1 will have on the Company's consolidated
financial statements.
3. BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION
In 1999, the Company has adopted SFAS No. 131 "DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION" which changes the way the Company reports
information about its operating segments. The information for 1998 and 1997 has
been restated from the prior year's presentation to conform to the 1999
presentation.
The Company has three reportable segments from which it derives its
revenues: SNTG, SCS, and SSF. The reportable segments reflect the internal
organisation of the Company and are strategic businesses that offer different
products and services. The SNTG business provides worldwide logistic solutions
for the transportation, storage, and distribution of bulk liquid chemicals,
edible oils, acids, and other specialty liquids. Additional information is
provided below that may contribute to a greater understanding of the SNTG
business. SCS provides engineering, flowline lay, construction, inspection, and
maintenance services to the offshore oil and gas industry. SSF produces and
markets seafood products. The "other" category includes corporate-related items
and the results of insignificant operations not reportable under the other
segments.
The basis of measurement and accounting policies of the reportable segments
are the same as those described in Note 2. The Company measures segment
performance based on net income. Inter-segment sales and transfers are not
significant and have been eliminated and are not included in the following
table. Indirect costs and assets have been apportioned within SNTG on the basis
of corresponding direct costs and assets. Interest and income taxes are not
allocated.
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
3. BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
Summarized financial information concerning each of the Company's reportable
segments is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30, 1999
-----------------------------------------------------------------------------------------
STOLT-NIELSEN TRANSPORTATION GROUP
-------------------------------------------- STOLT
TANK COMEX STOLT SEA
TANKERS CONTAINERS TERMINALS TOTAL SEAWAY FARM OTHER TOTAL
-------- ---------- --------- -------- -------- --------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net operating revenue............... $ 618 $206 $ 55 $ 879 $641 $261 $ -- $1,781
Depreciation and amortization
including drydocking.............. (84) (11) (10) (105) (60) (9) -- (174)
Equity in net (loss) income of non-
consolidated joint ventures....... (2) -- 2 -- 5 -- -- 5
Restructuring charges............... (2) -- -- (2) (2) -- -- (4)
Income from operations.............. 27 18 15 60 24 28 -- 112
Interest expense, net............... -- -- -- (42) (17) (6) -- (65)
Income tax (expense) benefit........ -- -- -- (9) 9 -- -- --
Net income (loss)................... -- -- -- 18 16 22 (9) 47
Capital expenditures................ 175 9 7 191 91 21 -- 303
Investments in non-consolidated
joint ventures.................... 16 2 40 58 4 4 -- 66
Segment assets...................... 1,551 173 233 1,957 843 258 -- 3,058
===== ==== ==== ====== ==== ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30, 1998
------------------------------------------------------------------------------------------
STOLT-NIELSEN TRANSPORTATION GROUP
-------------------------------------------- STOLT
TANK COMEX STOLT SEA
TANKERS CONTAINERS TERMINALS TOTAL SEAWAY FARM OTHER TOTAL
-------- ---------- --------- -------- -------- --------- --------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net operating revenue................ $ 658 $219 $54 $ 931 $650 $216 $ -- $1,797
Depreciation and amortization
including drydocking............... (81) (13) (10) (104) (39) (8) -- (151)
Equity in net income of non-
consolidated joint ventures........ 2 -- -- 2 15 -- -- 17
Income from operations............... 61 29 8 98 78 14 -- 190
Interest expense, net................ -- -- -- (40) (5) (8) -- (53)
Income tax expense................... -- -- -- (4) (18) (5) -- (27)
Net income (loss).................... -- -- -- 64 57 7 (32) 96
Capital expenditures................. 206 20 16 242 123 14 -- 379
Investments in non-consolidated joint
ventures........................... 18 2 25 45 10 3 -- 58
Segment assets....................... 1,485 220 217 1,922 877 209 -- 3,008
===== ==== === ===== ==== ==== ========= ======
</TABLE>
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
3. BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30, 1997
-----------------------------------------------------------------------------------------
STOLT-NIELSEN TRANSPORTATION GROUP
-------------------------------------------- STOLT
TANK COMEX STOLT SEA
TANKERS CONTAINERS TERMINALS TOTAL SEAWAY FARM OTHER TOTAL
-------- ---------- --------- -------- -------- --------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net operating revenue............... $665 $219 $ 47 $ 931 $431 $164 $ -- $1,526
Depreciation and amortization
including drydocking.............. (78) (13) (11) (102) (25) (7) -- (134)
Equity in net income of non-
consolidated joint ventures....... 7 -- -- 7 12 -- -- 19
Write down of certain assets........ -- -- (12) (12) (4) (12) -- (28)
Income (loss) from operations....... 95 36 (9) 122 55 (11) -- 166
Interest expense, net............... -- -- -- (39) (9) (9) -- (57)
Extraordinary items................. -- -- -- 7 -- -- -- 7
Income tax expense.................. -- -- -- (2) (11) -- -- (13)
Net income (loss)................... -- -- -- 91 39 (17) 124 237
Capital expenditures................ 277 30 23 330 109 12 -- 451
==== ==== ==== ===== ==== ==== ==== ======
</TABLE>
The following table sets out net operating revenue by country for the
Company's reportable segments. SNTG net operating revenue is allocated on the
basis of the country in which it is loaded. Tankers and Tank Containers operate
in a significant number of countries. Revenues from specific foreign countries
which contribute over 10% of total net operating revenue are disclosed
separately. SSF net operating revenue is primarily allocated on the basis of the
country in which the sale is generated. SCS net operating revenue is primarily
allocated to two worldwide product lines in respect of large projects and for
all other projects is allocated to the region in which they take place.
Accordingly, it is not possible to allocate the net operating revenue from SCS
to specific countries. SEAME represents Southern Europe, Africa and the Middle
East.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
NET OPERATING REVENUE:
Stolt-Nielsen Transportation Group--
Tankers:
United States......................................... $272 $294 $315
South America......................................... 48 46 60
Netherlands........................................... 43 40 44
Other Europe.......................................... 100 110 121
Malaysia.............................................. 44 47 39
Other Asia............................................ 110 138 118
Other................................................. 54 41 32
Less commissions, sublet costs, transshipment and
barging expenses...................................... (53) (58) (64)
---- ---- ----
$618 $658 $665
==== ==== ====
</TABLE>
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
3. BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
NET OPERATING REVENUE (CONT.):
Stolt-Nielsen Transportation Group--
Tank Containers:
United States........................................... $ 73 $ 76 $ 80
South America........................................... 7 8 7
France.................................................. 24 22 22
Other Europe............................................ 46 54 46
Japan................................................... 25 26 21
Other Asia.............................................. 30 28 36
Other................................................... 1 5 7
---- ---- ----
$206 $219 $219
==== ==== ====
Stolt-Nielsen Transportation Group--
Terminals:
United States........................................... $ 49 $ 48 $ 42
Brazil.................................................. 6 6 5
---- ---- ----
$ 55 $ 54 $ 47
==== ==== ====
Stolt Comex Seaway:
North America............................................. $156 $ 63 $ 9
South America............................................. 57 59 44
United Kingdom............................................ 162 326 153
Norway.................................................... 161 99 90
SEAME..................................................... 58 58 76
Other North Sea........................................... 5 7 20
Asia Pacific.............................................. 42 38 39
---- ---- ----
$641 $650 $431
==== ==== ====
Stolt Sea Farm:
United States............................................. $104 $ 79 $ 56
Canada.................................................... 14 9 6
United Kingdom............................................ 21 12 --
Norway.................................................... 11 10 13
Spain..................................................... 12 12 12
Japan..................................................... 48 41 35
Others, net............................................... 51 53 42
---- ---- ----
$261 $216 $164
==== ==== ====
</TABLE>
During 1999, 1998, and 1997, no one customer accounted for more than 10% of
the Company's revenues.
56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
3. BUSINESS AND GEOGRAPHIC SEGMENT INFORMATION (CONTINUED)
The following table sets out long-lived assets by country for the Company's
reportable segments. SNTG's tanker and tank container operations operate on a
worldwide basis and are not restricted to specific locations. Accordingly, it is
not possible to allocate the assets of these operations to specific countries.
The total net book value of long-lived assets for tankers amounted to $1,423
million and $1,346 million and for tank containers amounted to $128 million and
$176 million at November 30, 1999 and 1998, respectively. A large proportion of
SCS long-term assets are mobile assets that are utilized globally and therefore
cannot be directly attributed to any one geographical region. The net book value
of SCS long-lived assets not included below amounted to $226 million and $210
million at November 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
AS OF
NOVEMBER 30,
-------------------
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
LONG-LIVED ASSETS:
Stolt-Nielsen Transportation Group--Terminals:
United States........................................... $142 $146
Brazil.................................................. 34 34
Singapore............................................... 27 24
Korea................................................... 12 --
Others.................................................. 4 3
---- ----
$219 $207
==== ====
Stolt Comex Seaway:
United Kingdom............................................ $ 14 $ 11
Norway.................................................... 24 17
Asia Pacific.............................................. 17 13
SEAME..................................................... 9 14
South America............................................. 34 41
North America............................................. 124 126
---- ----
$222 $222
==== ====
Stolt Sea Farm:
United States............................................. $ 5 $ 4
Canada.................................................... 24 18
United Kingdom............................................ 4 2
Norway.................................................... 12 13
Spain..................................................... 10 11
Others.................................................... 5 4
---- ----
$ 60 $ 52
==== ====
</TABLE>
Long-lived assets exclude long-term restricted cash deposits, long-term
deferred tax assets, long-term pension assets, goodwill, and intangibles.
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Net operating revenue................................... $486 $331 $293
Gross profit............................................ 67 63 72
Net income.............................................. 24 39 48
==== ==== ====
</TABLE>
Balance sheet data:
<TABLE>
<CAPTION>
AS OF
NOVEMBER 30,
-------------------
1999 1998
-------- --------
(IN MILLIONS)
<S> <C> <C>
Current assets.............................................. $198 $129
Non-current assets.......................................... 332 287
Current liabilities......................................... 184 97
Non-current liabilities..................................... 240 193
==== ====
</TABLE>
The income statement data for the joint ventures presented above includes
the following expenses related to transactions with the Company:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Charter hire expense................................... $59.6 $48.4 $45.0
Management and other fees.............................. 34.8 22.2 7.0
Freight and Joint Service
Commission............................................. 1.0 1.2 0.7
Interest expense....................................... 0.7 1.8 2.4
===== ===== =====
</TABLE>
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
4. EQUITY INVESTMENTS (CONTINUED)
The joint ventures also recorded the following revenues related to
transactions with the Company:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Charter hire revenue................................... $37.0 $29.6 $22.0
Tank container cleaning
station revenue........................................ 5.1 4.5 4.2
Rental income (from
office building leased
to the Company)........................................ 2.3 2.3 2.2
===== ===== =====
</TABLE>
The balance sheet data includes:
<TABLE>
<CAPTION>
AS OF
NOVEMBER 30,
-------------------
1999 1998
-------- --------
(IN MILLIONS
<S> <C> <C>
Amounts due from the Company................................ $ 3.3 $ 4.9
Amounts due to the Company.................................. 30.9 24.3
===== =====
</TABLE>
Included within "Amounts due to the Company" is $16.0 million and $17.2
million at November 30, 1999 and 1998, respectively, for trading balances. These
amounts are reflected in the consolidated balance sheets 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 approximately $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 at
November 30, 1998. This was adjusted during 1999 to $122.1 million. The
adjustment reflects a reassessment of the value of certain intangible assets
within Ceanic and their related deferred tax liabilities. The goodwill is being
amortized on a straight-line basis over 25 years.
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 1998 and 1997. 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
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
5. BUSINESS ACQUISITION (CONTINUED)
adjustments include depreciation and amortization, interest charges on debt and
lines of credit, tax benefit related to additional interest charges, and
minority interests:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
-------------------------
1998 1997
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Net operating revenue....................................... $1,916,445 $1,656,534
Income before extraordinary item............................ 90,577 222,511
Net income.................................................. 90,577 229,927
Basic EPS
Income before extraordinary item.......................... $ 1.65 $ 4.07
Net income................................................ 1.65 4.21
Diluted EPS
Income before extraordinary item.......................... $ 1.65 $ 4.01
Net income................................................ 1.65 4.15
</TABLE>
6. RESTRUCTURING CHARGES, NON-OPERATING (EXPENSE) INCOME, AND EXTRAORDINARY ITEM
RESTRUCTURING CHARGES
In 1999, SNTG and SCS recorded restructuring charges of $2.8million and $1.6
million, respectively. In order to streamline operations, SNTG relocated its
Haugesund, Norway office to Rotterdam, Holland and its Somerset, New Jersey
operations to Houston, Texas. SCS reorganized its North Sea operations and
closed offices in the U.K. and Norway. Substantially all of the charges were
paid in the year ended November 30, 1999, and any remaining liability is
expected to be fully settled in 2000.
EFFECT OF ACCOUNTING POLICY CHANGE IN STOLT COMEX SEAWAY
In August 1998, SCS changed its method of accounting for drydock costs from
an accrual basis to a deferral basis. The effect of this change is a gain of
$3.1 million before minority interest which has been included in "Other
non-operating income" for the year ended November 30, 1998.
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 $4.2million, 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.
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
6. RESTRUCTURING CHARGES, NON-OPERATING (EXPENSE) INCOME, AND
EXTRAORDINARY ITEM (CONTINUED)
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.
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
7. GAIN ON DISPOSAL OF ASSETS, NET
Gain on disposal of assets is comprised of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Insurance settlement for total constructive loss of SNTG
ship...................................................... $ -- $10,208 $ --
Sale of SNTG ships.......................................... 748 466 5,294
Sale of SNTG tank containers................................ 3,783 -- --
Sale of SCS assets.......................................... 290 (342) 4,856
Sale of SSF fish farm concessions........................... -- 5,243 --
Sale of other assets........................................ 192 809 483
------ ------- -------
$5,013 $16,384 $10,633
====== ======= =======
</TABLE>
8. MINORITY INTEREST
The minority interest in the consolidated balance sheets and statements of
income of the Company primarily reflects the minority interest in SCS. The
Company's economic ownership in SCS increased from 43% to 45% in the year ended
November 30, 1999 and decreased from 70% to 43% in the year ended November 30,
1997 (Note 6).
9. INCOME TAXES
The 1999, 1998, and 1997 income tax provision consists of the following by
business segment:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30, 1999
-----------------------------------------
SNTG SCS SSF TOTAL
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CURRENT:
U.S...................................................... $1,065 $ -- $1,239 $ 2,304
Non-U.S.................................................. 5,745 7,159 7,504 20,408
DEFERRED:
U.S...................................................... 2,517 (14,939) 90 (12,332)
Non-U.S.................................................. -- (729) (9,170) (9,899)
------ ------- ------ -------
Income tax provision (benefit)............................. $9,327 $(8,509) $ (337) $ 481
====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30, 1998
-----------------------------------------
SNTG SCS SSF TOTAL
-------- -------- -------- --------
(IN THOUSANDS)
<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
====== ======= ====== =======
</TABLE>
62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
9. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED NOVEMBER 30, 1997
-----------------------------------------
SNTG SCS SSF TOTAL
-------- -------- -------- --------
(IN THOUSANDS)
<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
====== ======= ==== =======
</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 ships meets certain requirements. Among other
things, in order to qualify for this exemption, the company operating the ships
must be incorporated in a country which grants an equivalent exemption to U.S.
citizens and corporations and whose shareholders 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 at
November 30, 1999 and 1998 is set out below. A valuation allowance has been
recorded to reduce the deferred tax asset to an amount that management believes
is more likely than not to be realized:
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1999
------------------------------
SNIG SGS SSF
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss carryforwards............................ $ 4,696 $33,319 $18,967
Valuation allowances........................................ (3,046) (4,316) (5,180)
-------- ------- -------
Net operating loss carryforwards after valuation
allowances................................................ 1,650 29,003 13,787
Differences between book and tax depreciation............... (18,277) (43,874) 9,867
U.S. State deferred taxes................................... (2,371) --
Other timing differences--net............................... 9,031 11,922 (22,774)
-------- ------- -------
Net deferred tax (liability)/asset.......................... $ (9,967) $(2,949) $ 880
-------- ------- -------
Current deferred tax asset.................................. $ 95 $ -- $ 1,657
Non-current deferred tax asset.............................. 6 8,522 13,987
Current deferred tax liability.............................. -- -- (14,764)
Non-current deferred tax liability.......................... (10,068) (11,471) --
-------- ------- -------
$ (9,967) $(2,949) $ 880
======== ======= =======
</TABLE>
63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
9. INCOME TAXES (CONTINUED)
The current deferred tax asset is included within "Prepaid expenses and
other current assets". The current deferred tax liability is included within
"Accrued liabilities and other current liabilities".
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1998
-------------------------------
SNTG SCS SSF
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
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)
-------- --------- --------
Non-current deferred tax asset.............................. $ -- $ 2,954 $ --
Non-current deferred tax liability.......................... (6,629) (19,905) (8,474)
-------- --------- --------
$ (6,629) $ (16,951) $ (8,474)
======== ========= ========
</TABLE>
Management believes that net operating losses ("NOLs") carried forward, to
the extent that valuation allowances have not been provided, result in a
realizable tax asset as a result of expected future profitability.
In 1999, SSF recognized $11.0 million in tax benefits arising from NOLs
against which a valuation allowance previously had been provided. These losses
now are expected to be realized in future years.
Included within the SSF deferred tax liability for 1999 and 1998 are amounts
of $14.8 million and $13.3 million, respectively, arising from the Canadian
operations. These amounts arise 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 in 1998 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 $15.2 million of NOLs were available at
November 30, 1999 to offset future taxable income. These NOLs expire in the
years 2001 through 2008 except for approximately $10.1 million which can be
carried forward indefinitely. For SCS, approximately $50.4 million of NOLs were
available at November 30, 1999 to offset future taxable income. These NOLs
expire at various dates through 2019, except those in the United Kingdom,
Australia and some NOLs in France amounting to $29.4 million which can be
carried forward indefinitely. SSF had approximately $63.4 million of NOLs at
November 30, 1999. These NOLs expire at various dates through 2007. The group
NOLs expire as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
2000........................................................ $ 260
2001........................................................ 10,525
2002........................................................ 15,251
2003........................................................ 10,503
2004........................................................ 10,748
Thereafter.................................................. 42,253
======
</TABLE>
64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
9. INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Income before income tax provision, minority interest, and
extraordinary item........................................ $56,211 $155,418 $258,846
Non-U.S. source shipping and other income not subject to
income tax................................................ (22,980) (48,526) (148,800)
U.S. source shipping income not subject to income tax....... -- (22,993) (85,812)
Utilization of loss carryforwards........................... (15,827) (20,594) (10,759)
Losses for which no tax benefit is recognized............... 11,434 10,428 13,267
------- -------- --------
$28,838 $ 73,733 $ 26,742
------- -------- --------
Tax at U.S. federal rate (35%).............................. $10,093 $ 25,806 $ 9,360
Differences between U.S. and non-U.S. tax rates............. 1,844 (3,568) (2,155)
Non-taxable dividend income from non-consolidated joint
ventures.................................................. (751) (1,758) (1,131)
Exchange gain............................................... (2,526) (49) (179)
Change in management's estimates of valuation and other
allowances................................................ (5,784) 2,266 3,662
Imputed interest deduction.................................. (4,030) -- --
Differences between book and tax bases...................... 588 2,322 1,762
Tax credits from foreign jurisdictions...................... (267) (61) --
State and local taxes, net of federal benefit............... (148) 311 (195)
Non-deductible amortization of goodwill and other
tangibles................................................. 926 1,556 798
Other non-deductible costs, principally travel and
entertainment expenditures................................ 1,020 647 709
Other, net.................................................. (484) (942) 530
------- -------- --------
Income tax provision........................................ $ 481 $ 26,530 $ 13,161
======= ======== ========
</TABLE>
Withholding and remittance taxes have not been recorded on the undistributed
earnings of SNSA's subsidiaries, which represent substantially all of the
Company's consolidated retained earnings, primarily because, under the current
tax laws of Luxembourg and the countries in which substantially all of SNSA's
subsidiaries are incorporated, no taxes would be assessed upon the payment or
receipt of dividends. Earnings retained by subsidiaries incorporated in those
countries which impose withholding or remittance taxes are considered by
management to be permanently reinvested in such subsidiaries. The undistributed
earnings of these subsidiaries as of November 30, 1999 were not significant.
65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
10. INVENTORIES
Inventories at November 30, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 SNTG SCS SSF TOTAL
---- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Raw materials........................................ $ 79 $ -- $ 13,309 $ 13,388
Consumables.......................................... 210 14,567 4,065 18,842
Work-in-progress..................................... 41 6,876 -- 6,917
Seafood biomass...................................... -- -- 93,312 93,312
Finished goods....................................... 64 -- 8,538 8,602
------- -------- -------- --------
$ 394 $ 21,443 $119,224 $141,061
======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1998 SNTG SCS SSF TOTAL
---- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Raw materials........................................ $ 107 $ -- $ 9,560 $ 9,667
Consumables.......................................... 479 13,871 3,557 17,907
Work-in-progress..................................... -- 13,205 -- 13,205
Seafood biomass...................................... -- -- 80,566 80,566
Finished goods....................................... -- -- 6,437 6,437
------- -------- -------- --------
$ 586 $ 27,076 $100,120 $127,782
======= ======== ======== ========
</TABLE>
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 $34.1 million and $17.6 million at
November 30, 1999 and 1998, 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 5.9% to 8.1%
for 1999 and from 5.4% to 9.2% for 1998. The weighted average interest rate was
7.0% and 8.0% for the years ended November 30, 1999 and 1998, respectively.
As of November 30, 1999, the Company had various credit lines, including
committed lines ranging through 2005 totalling $704.9 million, of which $570.7
million was available for future use. Of the amounts drawn down under these
facilities, $100.0 million has been classified as long-term debt as the Company
does not intend to repay this amount within one year.
66
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
13. LONG-TERM DEBT
Long-term debt as of November 30, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Senior unsecured notes
On 11/30/99 interest rates ranged from 6.96% to
10.07%, maturities vary through 2013............. $ 538,571 $ 566,969
Preferred ship fixed rate mortgages
On 11/30/99 fixed interest rates ranged from 5.42%
to 8.74%, maturities vary through 2013........... 330,572 296,710
Preferred ship variable rate mortgages
On 11/30/99 interest rates ranged from 4.49% to
6.59%, maturities vary through 2007.............. 63,321 44,007
Economic development and other bonds
On 11/30/99 interest rates ranged from 4.40% to
4.70%, maturing in 2014 and 2018................. 34,600 34,600
Bank and other notes payable
On 11/30/99 interest rates ranged from 6.01% to
12.50%, maturies vary through 2008............... 211,403 186,661
---------- ----------
1,178,467 1,128,947
Less--current maturities............................. (61,718) (71,634)
---------- ----------
$1,116,749 $1,057,313
========== ==========
</TABLE>
On November 30, 1998, the Company's senior unsecured notes carried fixed
interest rates ranging from 6.96% to 10.56%, preferred ship fixed rate mortgages
had interest rates ranging from 5.42% to 8.69%, preferred ship variable rate
mortgages had interest rates ranging from 4.97% to 5.66%, the economic
development and other bonds had interest rates ranging from 3.25% to 6.00%, and
the bank and other notes payable had interest rates ranging from 5.43% to
11.68%.
Long-term debt is denominated primarily in U.S. dollars, with $8.2 million
and $7.2 million denominated in other currencies as of November 30, 1999 and
1998, respectively.
Annual principal repayments of debt for the five years subsequent to
November 30, 1999 and thereafter are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
2000........................................................ $ 61,718
2001........................................................ 84,104
2002........................................................ 174,119
2003........................................................ 134,157
2004........................................................ 130,496
Thereafter.................................................. 593,873
----------
$1,178,467
==========
</TABLE>
67
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
13. LONG-TERM DEBT (CONTINUED)
Agreements executed in connection with certain debt obligations require that
the Company maintains 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 $786.6 million as of November 30, 1999.
14. LEASES
OPERATING LEASES
As of November 30, 1999 the Company was obligated to make payments under
long-term operating lease agreements for tankers, land, terminal facilities,
tank containers, barges, construction support, diving support, survey and
inspection ships, 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
income under agreements which expire at various dates through 2026, and which
are payable in various currencies are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
2000........................................................ $ 96,127
2001........................................................ 76,656
2002........................................................ 31,281
2003........................................................ 8,975
2004........................................................ 4,499
Thereafter.................................................. 8,514
--------
226,052
Less--sub-lease income (10,725)
--------
$215,327
========
</TABLE>
Rental and charter hire expenses under operating lease agreements for the
years ended November 30, 1999, 1998, and 1997 were $115.5 million, $121.1
million, and $91.0 million, respectively, net of sub-lease income of $1.5
million, $4.0 million, and $0.6 million, respectively.
15. COMMITMENTS AND CONTINGENCIES
In 1997, the Company entered into an agreement with Danyard Shipyards to
purchase a further two new 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 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, 1999, two of the
ships in the Spanish series and two of the ships in the Italian series had been
delivered.
68
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
As of November 30, 1999, the Company had total capital expenditure purchase
commitments outstanding of approximately $230 million for 2000 and future years.
The French government has investigated SCS of France alleging violations of
French labor and social security legislation, which 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 resulted
in judgements. Some of the judgements have been appealed. While the Company
believes that its subsidiaries have meritorious defenses in the unresolved
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 appealed.
The Company has provided in the financial statements an amount to cover the
estimated liability for Coflexip S.A.'s 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. cannot be reasonably
estimated at this stage.
In September 1999 the Company terminated its charter of the ship, Toisa
Puma, for default. The Company is currently in arbitration with the owners who
are contesting that the termination was wrongful. No provision has been made in
the financial statements as the Company believes that it had the right to
terminate the charter under the charterparty.
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.
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's 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
69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
16. PENSION AND BENEFIT PLANS (CONTINUED)
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.
In 1999, the Company has adopted SFAS No. 132 "Employers' Disclosures about
Pensions and Postretirement Benefits" which standardizes the disclosure
requirements for pensions and other postretirement benefits. The Statement
addresses disclosure only. It does not address liability measurement or expense
recognition. There was no effect on financial position or net income as a result
of adopting SFAS No. 132.
Net periodic benefit costs for the Company's defined benefit retirement
plans (including a retirement arrangement for one of the Company's directors)
and other post-retirement benefit plans for the years ended November 30, 1999,
1998, and 1997, consist of the following:
<TABLE>
<CAPTION>
OTHER POST-
PENSION BENEFITS RETIREMENT BENEFITS
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost.......................................... $ 6,411 $ 6,300 $ 6,020 $268 $293 $292
Interest cost......................................... 6,845 6,494 5,852 424 439 430
Expected return on plan assets........................ (5,870) (5,608) (4,976) -- -- --
------- ------- ------- ---- ---- ----
Amortization of unrecognized net transition
liability........................................... 211 158 111 178 178 178
Amortization of prior service cost.................... 391 347 327 14 14 14
Recognized net actuarial loss (gain).................. 130 14 238 (25) -- --
Gain recognized due to curtailment.................... (20) -- -- -- -- --
------- ------- ------- ---- ---- ----
Net periodic benefit cost............................. $ 8,098 $ 7,705 $ 7,572 $859 $924 $914
======= ======= ======= ==== ==== ====
</TABLE>
U.S. based employees retiring from the Company after attaining age 55 with
at least ten years of service with the Company are eligible to receive
post-retirement health care coverage for themselves and their eligible
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.
70
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
16. PENSION AND BENEFIT PLANS (CONTINUED)
The following tables set forth the change in benefit obligations for the
Company's defined benefit retirement plans and other post-retirement plans and
the change in plan assets for the defined benefit retirement plans. There are no
plan assets associated with the other post-retirement plans.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
-----------------------------------------
1999 1998 1999 1998
-------- -------- -------- --------
OTHER
POST-RETIREMENT
PENSION BENEFITS BENEFITS
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligations at beginning of year................ $101,635 $ 90,142 $7,036 $6,633
Service cost............................................ 6,411 6,300 268 293
Interest cost........................................... 6,845 6,494 424 439
Benefits paid........................................... (3,066) (3,508) (38) (95)
Plan participant contributions.......................... 266 255 -- --
Foreign exchange rate changes........................... (1,257) (384) -- --
Plan amendments......................................... 2,109 (313) -- --
Curtailments and settlements............................ (2,258) -- -- --
Actuarial (gains) and losses............................ (7,960) 2,649 (1,491) (234)
-------- -------- ------ ------
Benefits obligation at end of year...................... $102,725 $101,635 $6,199 $7,036
======== ======== ====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
NOVEMBER 30,
-------------------
1999 1998
-------- --------
PENSION BENEFITS
-------------------
(IN THOUSANDS)
<S> <C> <C>
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year.............. $66,697 $60,507
Actual return on plan assets................................ 3,199 6,747
Company contributions....................................... 4,679 4,040
Plan participant contributions.............................. 266 255
Foreign exchange rate changes............................... (1,234) (606)
Plan amendments............................................. -- (738)
Curtailments and settlements................................ (1,174) --
Benefits paid............................................... (3,066) (3,508)
------- -------
Fair value of plan assets at end of year.................... $69,367 $66,697
======= =======
</TABLE>
71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
16. PENSION AND BENEFIT PLANS (CONTINUED)
Amounts recognized in the Company's consolidated balance sheet consist of
the following:
<TABLE>
<CAPTION>
AS OF NOVEMBER 30,
--------------------------------------------
1999 1998 1999 1998
-------- -------- ----------- --------
OTHER POST-RETIREMENT
PENSION BENEFITS BENEFITS
------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Funded status of the plan......................... $(33,358) $(34,938) $(6,199) $(7,036)
Unrecognized net actuarial loss (gain)............ 872 6,694 (1,537) (71)
Unrecognized prior service cost................... 3,166 2,348 2,310 2,488
Unrecognized net transition liability............. 1,486 1,895 70 84
-------- -------- ------- -------
Net amount recognized............................. $(27,834) $(24,001) $(5,356) $(4,535)
Prepaid benefit cost.............................. $ 1,377 $ 388 $ -- $ --
Accrued benefit liability......................... (33,832) (28,886) (5,356) (4,535)
Intangible asset.................................. 4,621 4,497 -- --
-------- -------- ------- -------
Net amount recognized............................. $(27,834) $(24,001) $(5,356) $(4,535)
======== ======== ======= =======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets of pension plans with accumulated benefit obligations in
excess of plan assets were $42.7 million, $37.5 million, and $41.9 million,
respectively, as of November 30, 1999 and $40.8 million, $35.4 million, and
$40.6 million, respectively, as of November 30, 1998.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
--------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
OTHER POST-RETIREMENT
PENSION BENEFITS BENEFITS
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED-AVERAGE ASSUMPTIONS
Discount rate............................ 7.20% 6.97% 7.26% 7.75% 7.00% 7.25%
Expected long-term rate of return on
assets................................. 8.85% 8.90% 8.90% --% --% --%
Rate of increase in compensation
levels................................. 4.15% 4.30% 4.30% 5.00% 5.00% 5.00%
</TABLE>
Health care cost trends assume a 9.5% annual rate of increase in the per
capita cost of covered health care benefits for 2000. The rate is assumed to
decrease gradually to 7.5% for 2002 and remain at that level thereafter. The
effect of a 1% change in these assumed cost trends on the accumulated
post-retirement benefit obligation at the end of 1999 would be an approximate
$0.7 million increase or an approximate $0.6 million decrease and the effect on
the aggregate of the service cost and interest cost of the net periodic benefit
cost for 1999 would be an approximate $0.1 million increase or an approximate
$0.1 million decrease.
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 except where required by Luxembourg law.
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
72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
17. CAPITAL STOCK, FOUNDER'S SHARES AND DIVIDENDS DECLARED (CONTINUED)
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, 1999, 7,820,109 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.
On November 16, 1999 the Board of Directors approved an interim dividend of
$0.125 per Common and Class B share and $0.005 per Founder's share which was
paid on December 15, 1999 to all shareholders of record as of December 1, 1999.
The Company anticipates, subject to approval at the Annual General Meeting,
that a final dividend for 1999 of $0.125 per Common share and Class B share will
be paid in May 2000.
Dividends are recognized in the accompanying financial statements upon final
approval from the Company's shareholders or, in the case of interim dividends,
as paid. The interim dividend declared on November 16, 1999 will be recognized
in fiscal 2000.
In January 2000, SNSA announced its intention to offer Common shareholders
the opportunity to exchange Common shares for an equal number of the Company's
Class B shares. The Company is also offering to holders of options to purchase
Common shares, the opportunity to elect to receive, immediately following
exercise, a Class B share in exchange for each Common share issuable upon the
exercise of such common option.
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
73
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
18. STOCK OPTION PLAN (CONTINUED)
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 1999 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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30,
---------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS, EXCEPT FOR
PER SHARE DATA)
<S> <C> <C> <C>
NET INCOME:
As Reported............................................... $46,908 $96,275 $237,109
Pro Forma................................................. 43,984 93,785 235,304
BASIC EPS:
As Reported............................................... $ 0.86 $ 1.76 $ 4.34
Pro Forma................................................. 0.81 1.71 4.31
DILUTED EPS:
As Reported............................................... $ 0.86 $ 1.75 $ 4.28
Pro Forma................................................. 0.80 1.71 4.25
</TABLE>
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.
74
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
18. STOCK OPTION PLAN (CONTINUED)
The following table reflects activity under the Plans for the years ended
November 30, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
COMMON SHARES SHARES PRICE SHARES PRICE SHARES PRICE
------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year......... 1,514,775 $16.02 1,164,563 $14.43 1,324,683 $13.33
Granted.................................. -- -- 419,200 20.13 211,350 16.73
Exercised................................ (43,125) 10.83 (39,863) 11.48 (363,645) 11.71
Canceled................................. (77,825) 16.52 (29,125) 17.63 (7,825) 16.18
--------- ------ --------- ------ --------- ------
Outstanding at end of year............... 1,393,825 $16.15 1,514,775 $16.02 1,164,563 $14.43
--------- ------ --------- ------ --------- ------
Exercisable at end of year............... 936,575 $14.57 761,005 $13.26 550,738 $12.46
Weighted average fair value of options
granted................................ $ -- $ 6.82 $ 9.12
====== ------ ------
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
CLASS B SHARES SHARES PRICE SHARES PRICE SHARES PRICE
-------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............. 633,383 $14.93 670,430 $14.89 651,848 $13.26
Granted...................................... 421,500 9.88 -- -- 205,350 17.29
Exercised.................................... (21,562) 10.83 (20,166) 11.60 (181,334) 11.69
Canceled..................................... (40,814) 15.00 (16,881) 17.23 (5,434) 16.41
------- ------ ------- ------ -------- ------
Outstanding at end of year................... 992,507 $12.87 633,383 $14.93 670,430 $14.89
------- ------ ------- ------ -------- ------
Exercisable at end of year................... 456,832 $14.25 400,013 $13.49 273,869 $12.43
------- ------ ------- ------ -------- ------
Weighted average fair value of options
granted.................................... $ 3.93 $ -- $ 7.51
====== ====== ======
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
COMMON CLASS B COMMON CLASS B COMMON CLASS B
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Risk-free interest rates............................ -- 4.9% 5.7% -- 6.0% 6.0%
Expected lives (years).............................. -- 6.5 6.0 -- 6.5 6.8
Expected volatility................................. -- 38.1% 31.6% -- 51.0% 31.0%
Expected dividend yields............................ -- 1.6% 2.0% -- 1.0% 1.0%
==== ==== ==== === ==== ====
</TABLE>
75
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
18. STOCK OPTION PLAN (CONTINUED)
The following table summarizes information about stock options outstanding
as of November 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------------------ ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
COMMON SHARES:
$20.125-22.500................................ 404,300 8.07 $20.14 101,700 $20.16
$14.500-19.083................................ 486,000 5.91 17.91 331,350 17.89
$8.500-13.167................................. 503,525 3.96 11.26 503,525 11.26
---------- ---- ------ ------- ------
1,393,825 5.83 $16.15 936,575 $14.57
========== ==== ====== ======= ======
CLASS B SHARES:
$17.500-22.125................................ 300,800 6.62 $18.20 181,075 $18.35
$10.500-16.917................................ 228,256 3.85 12.21 227,706 12.20
$8.500-9.875.................................. 463,451 8.44 9.73 48,051 8.50
---------- ---- ------ ------- ------
992,507 6.83 $12.87 456,832 $14.25
========== ==== ====== ======= ======
</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 during the year ended
November 30, 1997.
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. At November 30, 1999 this legal reserve amounted to approximately $6.2
million based on Common and Class B shares issued on that date. Advance
76
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
20. RESTRICTIONS ON PAYMENT OF DIVIDENDS (CONTINUED)
dividends can be declared, up to three times in any fiscal year (at the end of
the second, third and fourth quarters) by the Board of Directors; however, they
can only be paid after the prior year's financial statements have been approved
by SNSA's shareholders, and after a determination as to the adequacy of amounts
available to pay such dividends has been made by its independent statutory
auditors in Luxembourg. Final dividends are declared by the shareholders once
per year at the Annual General Meeting; both advance and final dividends can be
paid out of any SNSA earnings, retained or current, as well as paid-in surplus,
subject to shareholder approval. Luxembourg law also limits the payment of stock
dividends to the extent sufficient surplus exists to provide for the related
increase in stated capital.
As of November 30, 1999, the most restrictive covenant within the Company's
loan agreements provides for cumulative limitations on certain payments
including dividend payments, share repurchases, and investments and advances to
non-consolidated joint ventures and other entities if any.
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 contracts, and commodity and interest rate swaps, which
subject the Company to a minimum level of exposure risk. The Company does not
consider that it has a material exposure to credit risk from third parties
failing to perform according to the terms of hedge instruments.
The following foreign exchange contracts, maturing through November 2001,
were outstanding as of November 30, 1999:
<TABLE>
<CAPTION>
PURCHASE SELL
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Norwegian kroner............................................ 475,683
Belgian francs.............................................. 201,306
French francs............................................... 35,900
Canadian dollars............................................ 35,500
Euro........................................................ 15,778
Singapore dollars........................................... 8,277
Netherland guilders......................................... 5,415
Brazilian real.............................................. 4,100
German marks................................................ 950
Japanese yen................................................ 449,679
British pounds sterling..................................... 1,569
======= =======
</TABLE>
The U.S. dollar equivalent of the currencies which the Company had
contracted to purchase was $122.2 million and to sell was $6.9 million as of
November 30, 1999.
77
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
21. FOREIGN EXCHANGE CONTRACTS AND SWAP AGREEMENTS (CONTINUED)
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:
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, 1999
-------------------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
(IN MILLIONS)
<S> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents................................. $ 20.4 $ 20.4
FINANCIAL LIABILITIES:
Loans payable to banks.................................... 34.1 34.1
Long-term debt and related currency and interest rate
swaps................................................... 1,178.5 1,155.5
OFF BALANCE SHEET FINANCIAL INSTRUMENTS:
Foreign exchange forward contracts........................ -- (2.3)
Bunker hedge contracts.................................... -- 0.8
======= =======
</TABLE>
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, 1999
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, 1999.
22. SUBSEQUENT EVENTS
On December 7, 1999, SCS announced the completion of a transaction to form a
joint venture entity, NKT Flexibles I/S, for the manufacture of flexible
flowlines and dynamic flexible risers for the offshore oil and gas industry. NKT
Flexibles I/S is owned 51% by NKT Holdings A/S, and 49% by SCS. SCS issued
1,758,242 Class A shares with an average guaranteed value of $14.475 per share
and paid $10.5 million in cash for its 49% interest in NKT Flexibles I/S, a
total consideration of $36.0 million. The Company realized a non-operating gain
on the reduction of its economic interest in SCS from 45% to 43%.
On December 16, 1999, SCS announced the acquisition of the French offshore
construction and engineering company ETPM S.A. ("ETPM"), a wholly owned
subsidiary of Groupe GTM S.A. ("GTM"), the construction affiliate of Suez
Lyonnaise des Eaux S.A. SCS will pay GTM $130.0 million in cash and contribute
6,142,857 Class A shares. These shares are subject to a minimum guaranteed price
which is expected to give GTM a total price for its ETPM shares of between $237
and $244 million. This acquisition was initially funded by funds provided by
SNSA, which have been replaced by a bridging finance facility with Den norske
Bank ASA. The Company realized a non-operating gain on the reduction of its
economic interest in SCS from 43% to 40%.
In addition, SCS has entered into a hire purchase arrangement for two ships
owned by GTM, the Seaway Polaris and the DLB 801, with an early purchase option
after two years. The net present value of this arrangement is approximately
$32.0 million. In February 2000, SNSA converted $100.0 million of debt owed by
SCS into 10,341,262 Class A shares. Upon completion of the debt conversion, SNSA
holds an economic interest of 47.6% in SCS.
78
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
23. SUBSEQUENT EVENTS (UNAUDITED)
As a consequence of events which occurred during the first and second
quarters of 2000, the management of Stolt Offshore has determined that there has
been a significant deterioration in respect of the Maersk Halfdan pipelay
program, largely due to severe weather conditions experienced in the North Sea,
and the Tunu VI project. Accordingly, a loss of approximately $16.2 million in
respect of these projects has been recorded during 2000.
STOCK TRADING HISTORY (UNAUDITED)
COMMON SHARES (NASDAQ)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30, QTR. 1 QTR. 2 QTR. 3 QTR. 4
-------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1999
HIGH............................................... $12 3/4 $14 1/2 $16 3/4 $15 7/8
LOW................................................ $ 9 $10 1/2 $12 3/4 $11 7/8
--- --- --- ---
1998
High............................................... $22 3/8 $20 5/8 $18 3/4 $14 5/8
Low................................................ $17 1/8 $17 1/4 $10 1/2 $10 3/8
--- --- --- ---
1997
High............................................... $20 1/2 $18 7/8 $23 1/2 $28 1/2
Low................................................ $17 $16 3/8 $18 1/2 $21 3/4
=== === === ===
</TABLE>
B SHARES (NASDAQ)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30, QTR. 1 QTR. 2 QTR. 3 QTR. 4
-------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1999
HIGH............................................... $12 1/4 $15 15/16 $19 1/4 $18 1/16
LOW................................................ $ 9 7/8 $11 3/4 $14 3/4 $14 3/8
--- --- --- ---
1998
High............................................... $23 1/2 $20 3/8 $19 $13 1/2
Low................................................ $17 5/8 $17 3/4 $10 $ 9 1/2
--- --- --- ---
1997
High............................................... $21 1/8 $19 1/8 $24 1/8 $31 3/8
Low................................................ $17 1/2 $16 3/4 $18 $23 1/2
=== === === ===
</TABLE>
B SHARES (OSLO STOCK EXCHANGE) (NORWEGIAN KRONER)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30, QTR. 1 QTR. 2 QTR. 3 QTR. 4
-------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
1999
HIGH...................................... 95.00 127.50 148.00 145.00
LOW....................................... 73.00 96.00 118.00 122.00
------ ------ ------ ------
1998
High...................................... 170.00 152.00 147.00 97.50
Low....................................... 138.00 137.00 90.00 75.00
------ ------ ------ ------
1997
High...................................... 138.00 130.50 178.00 220.00
Low....................................... 113.50 118.50 130.00 165.00
====== ====== ====== ======
</TABLE>
79
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED NOVEMBER 30, 1999, 1998, AND 1997
2. Supplementary Schedules
Report of Independent Public Accountants on Schedules
Schedule II--Valuation and Qualifying Accounts
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS.
See Item 18.
(b) EXHIBITS.
2.1 Consent of Arthur Andersen LLP, Independent Public Accountants.
2.2 Consent of Elvinger, Hoss & Prussen.
2.3 Company's 1999 Annual Report, pages 9 through 18.
2.4 Amended Articles of Incorporation.
2.5 Share Purchase Agreement between Groupe GTM S.A. and Stolt Comex Seaway S.A.
27 Financial Data Schedule
80
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
STOLT-NIELSEN S.A.
By: /s/ CARROLL N. BJORNSON
-----------------------------------------
Name: Carroll N. Bjornson
Title: Director
By: /s/ JAN CHR. ENGELHARDTSEN
-----------------------------------------
Name: Jan Chr. Engelhardtsen
Title: Chief Financial Officer
Date: May 31, 2000
</TABLE>
81
<PAGE>
INDEX TO REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
AND SUPPLEMENTARY SCHEDULE
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Supplementary Schedule
Schedule II--Valuation and Qualifying Accounts.............. S-1
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To STOLT-NIELSEN S.A.
We have audited in accordance with generally accepted auditing standards in
the United States, the consolidated financial statements included in
Stolt-Nielsen S.A.'s Annual Report to Shareholders incorporated by reference in
this Form 20-F, and have issued our report thereon dated February 14, 2000. 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 LLP
New York, New York
February 14, 2000
<PAGE>
SCHEDULE II
STOLT-NIELSEN S.A. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE OFFS BALANCE AT
BEGINNING COSTS AND AGAINST OTHER ADD END OF
OF PERIOD EXPENSES THE RESERVE (DEDUCT)(A) PERIOD
---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
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
FOR THE YEAR ENDED
November 30, 1999:
Allowance for doubtful accounts...... $ 9,185 $ 2,983 $(1,307) $ (148) $10,713
Restructuring Costs.................. -- -- -- -- --
Other................................ 33,954 12,250 -- (8,138) 38,066
</TABLE>
------------------------
(a) Includes the effect of exchange rate changes on beginning balances of
valuation and qualifying accounts, except as otherwise noted.
S-1
