Attached files
file | filename |
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8-K/A - FORM 8-K/A - BUCKEYE PARTNERS, L.P. | h81139e8vkza.htm |
EX-99.2 - EX-99.2 - BUCKEYE PARTNERS, L.P. | h81139exv99w2.htm |
EX-23.1 - EX-23.1 - BUCKEYE PARTNERS, L.P. | h81139exv23w1.htm |
Exhibit 99.1
FR Borco Topco, L.P. and Subsidiaries
Consolidated Financial Statements
Consolidated Financial Statements
December 31, 2010 and 2009
(With Independent Auditors Report Thereon)
(With Independent Auditors Report Thereon)
FR Borco Topco, L.P. and Subsidiaries
Consolidated Financial Statements
For the Years Ended December 31, 2010 and 2009
Contents
Independent Auditors Report
|
1 | |||
Consolidated Balance Sheets
|
2 | |||
Consolidated Statements of Operations
|
3 | |||
Consolidated Statements of Cash Flows
|
4 | |||
Consolidated Statement of Partners Equity
|
5 | |||
Notes to Consolidated Financial Statements
|
6 |
Independent Auditors Report
The Board of Directors
FR Borco Topco L.P. and subsidiaries:
FR Borco Topco L.P. and subsidiaries:
We have audited the accompanying consolidated balance sheets of FR Borco Topco, L.P. and
subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of
operations, cash flows, and partners equity for the years then ended. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United
States of America. 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 consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, 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 consolidated financial statements referred to above present fairly, in all
material respects, the financial position of FR Borco Topco, L.P. and subsidiaries as of December
31, 2010 and 2009, and the results of their operations and their cash flows for the years then
ended in conformity with U.S. generally accepted accounting principles.
/s/ KPMG ACCOUNTANTS N.V.
Rotterdam, the Netherlands
April 1, 2011
1
FR Borco Topco, L.P. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
(In Thousands)
As of December 31, | ||||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 26,014 | $ | 45,110 | ||||
Accounts receivable, net |
2,814 | 4,281 | ||||||
Related party receivables |
151 | 1,059 | ||||||
Inventories |
1,568 | 1,700 | ||||||
Other current assets |
4,408 | 3,157 | ||||||
Total current assets |
34,955 | 55,307 | ||||||
Non-current assets: |
||||||||
Property, plant, and equipment, net |
577,032 | 518,385 | ||||||
Goodwill |
141,346 | 141,346 | ||||||
Other intangible assets, net |
248,535 | 264,714 | ||||||
Related party receivables |
325 | 896 | ||||||
Other assets |
10,608 | 10,971 | ||||||
Total assets |
$ | 1,012,801 | $ | 991,619 | ||||
Liabilities and partners equity |
||||||||
Current liabilities: |
||||||||
Bank overdrafts |
$ | | $ | 4,109 | ||||
Trade and other payables |
29,524 | 17,200 | ||||||
Derivatives |
15,019 | 12,936 | ||||||
Accrued expenses and other liabilities |
8,335 | 5,036 | ||||||
Current portion of long-term debt |
4,927 | 15,000 | ||||||
Total current liabilities |
57,805 | 54,281 | ||||||
Non-current liabilities: |
||||||||
Other liabilities |
4,000 | 4,000 | ||||||
Long-term debt, less current portion |
295,000 | 330,000 | ||||||
Total liabilities |
356,805 | 388,281 | ||||||
Partners equity: |
||||||||
Partners capital |
456,762 | 456,747 | ||||||
Retained earnings |
68,046 | 25,932 | ||||||
Total equity attributable to FR Borco Topco, L.P. |
524,808 | 482,679 | ||||||
Non-controlling interest |
131,188 | 120,659 | ||||||
Total partners equity |
655,996 | 603,338 | ||||||
Commitments and contingencies (Note 17) |
||||||||
Total liabilities and partners equity |
$ | 1,012,801 | $ | 991,619 | ||||
The accompanying notes are an integral part of these consolidated financial statements
2
FR Borco Topco, L.P. and Subsidiaries
Consolidated Statements of Operations
(In Thousands)
(In Thousands)
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Operating revenue: |
||||||||
Rental fees |
$ | 149,144 | $ | 115,444 | ||||
Berthing fees |
20,474 | 18,005 | ||||||
Other ancillary services |
15,940 | 15,720 | ||||||
Total operating revenues |
185,558 | 149,169 | ||||||
Operating costs and expenses: |
||||||||
Repairs and maintenance |
9,793 | 8,992 | ||||||
Payroll costs and employee benefits |
20,740 | 18,971 | ||||||
Amortization |
16,179 | 13,312 | ||||||
Depreciation |
24,652 | 22,340 | ||||||
Fuel expenses |
4,517 | 3,427 | ||||||
General and administrative |
17,835 | 13,653 | ||||||
Insurance |
6,975 | 5,674 | ||||||
Loss on disposal of operating assets |
7,394 | 11,210 | ||||||
Gain on settlement of insurance claim |
(3,837 | ) | (1,744 | ) | ||||
Lease expenses |
10,292 | 8,819 | ||||||
Total operating costs and expenses |
114,540 | 104,654 | ||||||
Operating income |
71,018 | 44,515 | ||||||
Other income (expenses): |
||||||||
Interest income |
398 | 181 | ||||||
Interest expense |
(17,701 | ) | (17,646 | ) | ||||
Change in fair value of derivatives |
(2,083 | ) | 5,412 | |||||
Other |
1,041 | 313 | ||||||
Total other expenses |
(18,345 | ) | (11,740 | ) | ||||
Income before provision for income taxes |
52,673 | 32,775 | ||||||
Income tax expense |
(30 | ) | | |||||
Net income |
52,643 | 32,775 | ||||||
Net income attributable to noncontrolling interests |
10,529 | 6,555 | ||||||
Net income attributable to controlling interests |
$ | 42,114 | $ | 26,220 | ||||
The accompanying notes are an integral part of these consolidated financial statements
3
FR Borco Topco, L.P. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
(In Thousands)
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Operating activities |
||||||||
Net income |
$ | 52,643 | $ | 32,775 | ||||
Adjustments to reconcile net income to net cash
provided by operating activities: |
||||||||
Depreciation |
24,652 | 22,340 | ||||||
Amortization of intangible assets |
16,179 | 13,312 | ||||||
Amortization of deferred financing cost |
1,409 | 2,194 | ||||||
Loss on disposal of operating assets |
7,394 | 11,210 | ||||||
Provision for allowance for doubtful accounts |
(566 | ) | (97 | ) | ||||
Change in fair value of derivatives |
2,083 | (5,412 | ) | |||||
Gain on settlement of insurance claim |
(3,837 | ) | (1,744 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Receivables |
3,512 | 1,523 | ||||||
Inventories |
132 | 499 | ||||||
Other current assets |
(1,251 | ) | 1,924 | |||||
Trade and other payables |
15,135 | 4,124 | ||||||
Accrued expenses and other liabilities |
3,299 | (9,532 | ) | |||||
Non-current assets |
41 | 34 | ||||||
Net cash provided by operating activities |
120,825 | 73,150 | ||||||
Investing activities |
||||||||
Purchases of property, plant, and equipment |
(93,504 | ) | (106,036 | ) | ||||
Proceeds from escrow account |
| 25,600 | ||||||
Insurance recoveries |
3,837 | 1,744 | ||||||
Net cash used in investing activities |
(89,667 | ) | (78,692 | ) | ||||
Financing activities |
||||||||
Bank overdrafts (decrease) increase |
(4,109 | ) | 4,048 | |||||
(Repayments of)/ borrowings under working capital facility |
(5,000 | ) | 20,000 | |||||
Repayments of term loan |
(40,073 | ) | | |||||
Equity contributions |
15 | 5 | ||||||
Finance fees and expenses |
(1,087 | ) | | |||||
Net cash provided by (used in) financing activities |
(50,254 | ) | 24,053 | |||||
Net increase (decrease) in cash and cash equivalents |
(19,096 | ) | 18,511 | |||||
Cash and cash equivalents at beginning of year |
45,110 | 26,599 | ||||||
Cash and cash equivalents at end of year |
$ | 26,014 | $ | 45,110 | ||||
Supplemental disclosure |
||||||||
Cash paid for interest (net of amounts capitalized) |
$ | 18,692 | $ | 21,465 | ||||
Cash paid for income taxes |
| |
The accompanying notes are an integral part of these consolidated financial statements
4
FR Borco Topco, L.P. and Subsidiaries
Consolidated Statement of Partners Equity
(In Thousands)
(In Thousands)
Retained | Non- | Total | ||||||||||||||
Partners | Earnings | Controlling | Partners | |||||||||||||
Capital* | (Deficit) | Interest | Equity | |||||||||||||
Balance at January 1, 2009 |
456,742 | (288 | ) | 114,104 | 570,558 | |||||||||||
Net income |
| 26,220 | 6,555 | 32,775 | ||||||||||||
Partners contribution |
5 | | | 5 | ||||||||||||
Balance at December 31, 2009 |
456,747 | 25,932 | 120,659 | 603,338 | ||||||||||||
Net income |
| 42,114 | 10,529 | 52,643 | ||||||||||||
Partners contribution |
15 | | | 15 | ||||||||||||
Balance at December 31, 2010 |
$ | 456,762 | $ | 68,046 | $ | 131,188 | $ | 655,996 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements
* | As of January 1, 2009, $1 was contributed by FR Borco GP Limited and the remainder was contributed by FR XI Offshore AIV LP |
5
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2010 and 2009
1. Description of the Business and Basis of Presentation
FR Borco Topco, L.P. (the Company) was registered on February 7, 2008 and is domiciled in the
Cayman Islands. The Company and its subsidiaries (collectively the Group) are the owner and
operator of an oil storage and transshipment terminal, with fuel blending and marine facilities, in
Freeport, Bahamas.
The Company is an exempted limited partnership, with FR Borco GP Limited as the general partner and
FR XI Offshore AIV LP as the limited partner.
The Company holds the general partner interest and 80% of the limited partner interest in FR Borco
Coop Holdings, L.P. which is consolidated into the Group. Vopak Bahamas B.V. (Vopak) holds the
remaining limited partner interest in FR Borco Coop Holdings, L.P. and is presented as a
non-controlling interest in the Group.
Propernyn N.V (Propernyn), which at the time of acquisition was the parent of the operating
company (Baproven), was acquired on April 29, 2008 and its results are therefore consolidated
within the Group as of this date.
The accompanying consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP). The Groups functional
currency is the US Dollar.
Principles of Consolidation
The consolidated financial statements include the accounts of FR Borco Topco, L.P. and the accounts
of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with US GAAP requires
management to make judgments, estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities, income and expenses. Actual results
may differ from these estimates.
6
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Description of the Business and Basis of Presentation (continued)
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised and in any future periods
affected. Significant estimates and assumptions are used for, but not limited to, allowance for
doubtful accounts, useful lives of assets, goodwill and other asset impairment analyses, valuation
of derivative financial instruments, and environmental and litigation related accruals.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Group considers all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents. The Groups cash equivalents consist of term deposits.
Concentration of Credit Risk
Financial instruments that potentially subject the Group to significant concentrations of credit
risk consist principally of cash and cash equivalents, accounts receivable, and derivative
financial instruments. The Groups cash management and investment policies are in place to restrict
placement of these instruments with only financial institutions evaluated as highly creditworthy.
With respect to accounts receivable, the Group establishes credit limits and performs ongoing
evaluations of its customers, generally granting uncollateralized credit terms to its customers. In
addition, customers must settle all outstanding balances prior to removing the products stored at
the Groups premises.
For the years ended December 31, 2010 and 2009, three customers accounted for approximately 65% and
56%, of revenue, respectively. These customers are comprised of a major oil company, a national oil
company and a major commodity trader with credit ratings of AA/Stable, B+/Stable and A+/Neg,
respectively.
As of December 31, 2010, two customers accounted for 79% of the accounts receivable balance. As of
December 31, 2009, one customer accounted for 87% of the accounts receivable balance.
7
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Accounts Receivable
Trade receivables are recorded at their historical carrying amount, net of allowances for doubtful
accounts. The Group maintains an allowance for doubtful accounts for estimated losses inherent in
its accounts receivable portfolio. In establishing the required allowance, management reviews the
accounts on an individual basis considering changes in the current market conditions, customers
financial condition, the amount of receivables in dispute, the current receivables aging and
changes in customer payment patterns. Account balances are charged off against the allowance after
all means of collection have been exhausted and the potential for recovery is considered remote.
Related party receivables include amounts due from directors and employees and do not bear
interest.
Inventories
Inventories of crude oil, fuel oil and related products are stated at the lower of cost or market,
cost being determined on the first in first out method.
Materials and supplies are also stated at the lower of cost or market, cost being determined on the
average cost basis, representing the purchase price for the materials & supplies.
Property, Plant, and Equipment (PPE) and Repair and Maintenance Costs
PPE is carried at historical cost less accumulated depreciation. Cost includes expenditures that
are directly attributable to the acquisition or construction of the asset. The cost of constructed
assets includes the cost of materials and direct labor, any other costs directly attributable to
bringing the assets to a working condition for their intended use and capitalized borrowing costs.
Construction work in progress is included in the consolidated financial statements as a component
of PPE.
The Group evaluates any significant decrease in the market price of a long-lived asset and any
significant adverse change in the extent or manner in which a long-lived asset is being used or in
its physical condition as indicators of impairment. The Group evaluates the recoverability of PPE
based on managements estimate of undiscounted future cash flows attributable to the remaining
economic useful life of the long-lived asset when factors indicate that impairment may exist. If
impairment exists, the asset is written down to fair value. The Group noted no indicators of
8
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
impairment in 2010 or 2009. As such, no impairment assessment related to property, plant and
equipment was performed.
Depreciation is recognized on a straight-line basis over the estimated useful lives of the assets.
In instances when an asset is comprised of multiple components with substantially different useful
lives, each component is depreciated over its own respective useful life. The estimated useful
lives of the Groups PPE is as follows:
Land improvements
|
10 40 years | |
Buildings
|
10 40 years | |
Plant, vessels and equipment
|
3 40 years | |
Tanks
|
3 40 years | |
Vehicles
|
3 10 years | |
Office furniture and equipment
|
3 7 years |
Gains and losses on disposal of an item of PPE are determined by comparing the proceeds from
disposal with the carrying amount of PPE. The net gain or loss is recognized in the consolidated
statements of operations. For further details, see Note 8. The Group incurs maintenance costs on
its major equipment. Repairs and maintenance costs are expensed as incurred.
Goodwill and Other Intangible Assets
Goodwill represents the future economic benefits arising from other assets acquired in a business
combination that are not individually identified and separately recognized.
Generally accepted accounting principles require goodwill to be tested at least annually for
impairment. For goodwill, an impairment loss is recognized when the carrying value exceeds its fair
value. The impairment test is comprised of two stages. The first step compares the fair value of
the reporting unit with its carrying value, including goodwill. If the fair value of the reporting
unit exceeds its carrying value, the goodwill of the reporting unit is considered not impaired.
Otherwise, the second step of the goodwill test shall be performed to measure the amount of the
impairment loss resulting from the excess of the reporting units carrying amount over its fair
value. The loss recognized cannot exceed the carrying amount of the goodwill.
The Group performs its impairment test for goodwill annually at November 30 and when a triggering
event occurs between annual impairment tests. The impairment test is generally based on the income
approach and cross-checked using a market approach. The income approach is a
9
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. | Summary of Significant Accounting Policies (continued) |
valuation technique in which the value of an asset or company is based on the future cash flows
that it can be expected to generate.
This approach projects the annual cash flows of the business, and discounts to a present value
equivalent using a rate of return which accounts for the relative risk of realizing the projected
cash flows and for the time value of money (assuming a rate of 11.3% for 2009). The impairment test
identified total business enterprise values in excess of carrying amounts during 2009.
As of November 30, 2010, the date of the Groups annual impairment test of goodwill, the Group was
in an advanced stage of sale negotiations and considered the anticipated purchase price to be the
best evidence of fair value for the Group. The 2010 goodwill impairment test was based on the
negotiated purchase price as of November 30, 2010. The final terms were consummated on January 18,
2011 and were consistent with the value used in the Groups annual impairment test of goodwill and
substantially in excess of the carrying value of the reporting unit (including goodwill). Please
refer to Note 19 for further details.
Thus, there were no goodwill impairments recognized during 2010 or 2009.
Other intangible assets comprise definite-lived contractual and non-contractual customer
relationships, concessions and favorable elements in lease agreements resulting from acquisitions.
These are carried at fair value at the time of acquisition less accumulated amortization and
impairment losses. There were no indicators of impairment of other intangible assets during 2010
and 2009. As such, no impairment assessment related to other intangible assets was performed.
Amortization of other intangible assets is recognized in the consolidated statements of operations
on a straight line basis over the estimated useful life of the asset, from the date they are
available for use. The estimated useful lives for the intangible assets as of their date of
acquisition were as follows:
Customer relationships
|
14 years | |
Concessions
|
45 years | |
Favorable elements in leased Barge Dock agreement
|
60 years |
Due to a renegotiation of the terms of the leased Barge Dock agreement, the Group has reassessed
the useful life of the favorable intangible asset. As a result, the Group has accelerated the
amortization of the intangible asset in 2010. See Note 9 for further detail.
10
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Debt
Loans and borrowings are carried at amortized cost with any difference between cost and redemption
value being recognized in the consolidated statements of operations over the period to maturity
using the effective interest method. Deferred financing charges are included in other assets in the
consolidated balance sheet and amortized into interest expense over the term of the loan using the
effective interest method.
Derivative Instruments
The sole purpose of the Groups derivative instruments is to cover interest rate risk arising from
financing activities. Derivative instruments are included on the consolidated balance sheet at fair
value.
The Groups derivative instruments as of December 31, 2010 and 2009 have not been designated and do
not qualify as hedging instruments, and accordingly all changes in fair value of the derivatives
that have not been settled are recognized in the consolidated statements of operations.
Changes in the fair value of the derivative instruments are classified in operating activities in
the consolidated statements of cash flows, as a non-cash reconciling item. The Group does not enter
into derivative financial instruments for trading purposes and is not a party to leveraged
derivatives.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date.
US GAAP defines a three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value as follows:
| Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group has the ability to access at the measurement date. |
11
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
| Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. | ||
| Level 3 inputs are unobservable inputs for the asset or liability, for example the reporting entitys own internal data based on the best information available in the circumstances. |
The carrying amounts reported for cash, receivables, bank overdrafts, trade payables and accrued
expenses approximate fair value.
The Groups derivative instruments consist of interest rate swaps. The Group uses an income
approach to valuing these contracts. The significant inputs for the valuation models include the
following:
December 31, | ||||||||
2010 | 2009 | |||||||
Interest rate yield curves |
0.59-2.07 | % | 0.56-3.17 | % | ||||
The Groups credit spread |
1.69 | % | 1.90 | % | ||||
The counterpartys credit spread |
0.62-0.89 | % | 0.59-0.88 | % |
These inputs are observable in active markets over the terms of the instruments held by the Group,
and accordingly, the Group classifies its derivative assets and liabilities within Level 2 of the
fair value hierarchy.
The Groups accounting policy is to recognize transfers between levels of the fair value hierarchy
on the date of the event or change in circumstances that causes the transfer. There were no
significant transfers into or out of Level 1, Level 2, or Level 3 for the year ended December 31,
2010.
The following table sets forth the Groups assets and liabilities that were measured at fair value
on a recurring basis as of December 31, 2010 and 2009, by level within the fair value hierarchy (in
thousands):
12
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. | Summary of Significant Accounting Policies (continued) |
Quoted | Significant | |||||||||||||||
Prices in Active | Other | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
December 31, | Identical Assets | Inputs | Inputs | |||||||||||||
2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Liabilities: |
||||||||||||||||
Interest rate contracts |
15,019 | | 15,019 | | ||||||||||||
Quoted | Significant | |||||||||||||||
Prices in Active | Other | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
December 31, | Identical Assets | Inputs | Inputs | |||||||||||||
2009 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Liabilities: |
||||||||||||||||
Interest rate contracts |
12,936 | | 12,936 | | ||||||||||||
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax
bases, and net operating loss and tax credit carryforwards. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on
deferred income tax assets and liabilities of a change in tax rates is recognized in the
consolidated statements of operations in the period that includes the enactment date. Deferred
income tax assets are reduced by a valuation allowance when it is more likely than not that some
portion of the deferred income tax assets will not be realized. Although the Company is a Cayman
Islands partnership and not directly subject to income taxes, the Group is comprised of both
taxable and nontaxable entities.
The Group did not record a provision for income taxes for the year ended December 31, 2009 as a
result of its operations in the nontaxable jurisdiction of the Bahamas, reliance upon favorable
advance tax rulings received from the Dutch tax authorities and net operating losses (NOL)
13
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
incurred during the period by the Groups Dutch taxable entities. The Group recorded a provision
for income taxes for the year ended December 31, 2010 as a result of taxable income incurred in the
United States by FR Borco Management Services, an entity of the Group. Deferred tax assets relating
to the Groups NOL carryforwards have been fully offset by a valuation allowance since it is more
likely than not that such deferred tax assets will not be realized.
Beginning with the adoption of the Financial Accounting Standards Board (FASB) Interpretation No.
48, Accounting for Uncertainty in Income Taxes, included in FASB Accounting Standards Codification
(ASC) Subtopic 740-10 Income Taxes Overall, as of January 1, 2009, the Group recognizes the
effect of income tax positions only if those positions are more likely than not of being sustained.
Recognized income tax positions are measured at the largest amount that is greater than 50% likely
of being realized. Changes in recognition or measurement are reflected in the period in which the
change in judgment occurs.
The tax exempt status of the Group is considered a tax position which must be evaluated in
accordance with ASC 740. Upon adoption and through December 31, 2010, the Group recorded no
liability for uncertain tax positions, as the Group believes its tax positions were considered
highly certain of being recognized for income tax purposes.
The Group would report tax-related interest and penalties as a component of income tax expense, if
any were to be incurred.
Revenue Recognition
Rental fees, which represents fees charged for storage of crude oil and other products, is
recognized ratably over the term of the respective contract. Customers are generally charged a
rental fee based on committed gross tank capacity.
Customers are permitted to turn capacity through the facility (throughput), including pump-overs
between tanks, once each month without any additional charge. Unused throughput cannot be
accumulated and carried over to following months. Customers are charged for additional product
turned through the facility. Fees for additional throughput are included in other ancillary
services and were considered to be insignificant for the years ended December 31, 2010 and 2009.
Revenue from berthing fees and other ancillary services is recognized in the accounting period in
which the services are rendered. Berthing fees represent amounts charged to ships that utilize the
Groups jetties.
14
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Berthing revenue received or billed in advance is classified as deferred revenue and recognized as
income over the period when the service is provided.
Leases
For the Groups operating leases where it acts as lessee, lease expense is recognized on a
straight-line basis across the lease term. The Group also acts as lessor in a lease of office
space. This lease is classified as an operating lease.
The Group did not have any capital leases as of December 31, 2010 or 2009.
Employee Benefits
The Groups pension and savings plans are defined contribution plans under which the Group pays
fixed contributions into a separate entity and has no legal or constructive obligation to pay
further amounts. Obligations for contributions to defined contribution pension and savings plans
are recognized as an employee benefit expense in the consolidated statements of operations when
they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or
a reduction in future payments is available.
Defined Contribution Plan: The pension contribution paid by the Group for all of its permanent
employees is between 3% and 6% of regular earnings, depending on years of service and
classification of employee. The amount contributed under the defined contribution plan was $422,000
and $363,000 for the years ended December 31, 2010 and 2009, respectively.
Savings Plan: The Group contributes to the savings plan up to 12% of the employees regular
earnings. The contribution is determined according to the period of employment, employees
contribution to the plan and the gross salary. There are no restrictions placed on the amount that
can be contributed by the employee. The amount contributed under the savings plan by the Group was
$661,000 and $595,000 for the years ended December 31, 2010 and 2009, respectively.
Environmental Remediation Costs
The Group accrues for losses associated with environmental remediation obligations when such losses
are probable and reasonably estimable. Accruals for estimated losses from environmental remediation
obligations generally are recognized no later than completion of the remedial
15
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
feasibility study. Such accruals are adjusted as further information develops or circumstances
change. Liabilities for environmental remediation are subject to change because of changes by
international regulatory authorities and the determination of additional information on the extent
and nature of site contamination. Costs of future expenditures for environmental remediation
obligations are not discounted to their present value since the amount and timing of cash flows
related to that liability are not fixed or reliably determinable. Recoveries of environmental
remediation costs from other parties are recognized as assets when their receipt is deemed
probable.
Foreign Exchange
The Groups functional currency is the US dollar and it is equivalent in value with the Bahamian
dollar. Foreign exchange gains and losses arising from transactions denominated in a currency other
than the functional currency are included in net income in the consolidated statements of
operations. The effects of foreign currency transactions were not considered to be material for the
years ended December 31, 2010 and 2009.
Segment Reporting
The Group is managed as a single operating segment that provides tank storage and related services
to its customers. All of the Groups revenue is earned in the Bahamas.
New and Updated Accounting Standards
In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic
820): Improving Disclosures about Fair Value Measurements. This ASU requires disclosure of: (i)
separate fair value measurements for each class of assets and liabilities, (ii) significant
transfers between level 1 and level 2 in the fair value hierarchy and the reasons for such
transfers, (iii) gains and losses for the period and purchases, sales, issuances and settlements
for Level 3 fair value measurements, (iv) transfers into and out of Level 3 of the hierarchy and
the reasons for such transfers and (v) the valuation techniques applied and inputs used in
determining Level 2 and Level 3 measurements for each class of assets and liabilities. This ASU was
generally effective for interim and annual reporting periods beginning after December 15, 2009. The
Groups adoption of the applicable sections of this ASU did not have a material impact on its
financial position, results of operations or cash flows. The requirements to disclose separately
purchases, sales, issuances and settlements in the Level 3 reconciliation are effective for fiscal
years beginning after December 15, 2010 (and for interim periods within such years)
16
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
and are not expected to have any impact on the Groups financial position, results of operations or
cash flows.
In December 2009, the FASB issued ASU No. 2009-17 Consolidations, Improvements to Financial
Reporting by Enterprises involved with Variable Interest Entities (former FAS No. 167, Amendments
to FASB Interpretation No. 46(R)). This ASU requires an enterprise to perform an analysis to
determine when an entity that is insufficiently capitalized or is not controlled through voting (or
similar rights) should be consolidated. Under this standard, the determination of whether a
reporting entity is required to consolidate another entity is based on, among other things, the
other entitys purpose and design and the reporting entitys ability to direct the activities of
the other entity that most significantly impact the other entitys economic performance. The Group
adopted this guidance as of January 1, 2010. The Groups adoption did not have any impact on its
financial position, results of operations or cash flows.
In December 2010, the FASB issued ASU 2010-28, Intangibles-Goodwill and Other (Topic 350) When to
Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying
Amounts. The objective of this ASU is to address diversity in practice in the application of
goodwill impairment testing by entities with reporting units with zero or negative carrying
amounts, eliminating an entitys ability to assert that a reporting unit is not required to perform
Step 2 because the carrying amount of the reporting unit is zero or negative despite the existence
of qualitative factors that indicate the goodwill is more likely than not impaired. This ASU is
effective for interim periods after January 1, 2011. The adoption of this ASU is not expected to
have a material impact on the Groups financial position, results of operations or cash flows.
3. Related Party Transactions
Related party transactions not disclosed elsewhere in the consolidated financial statements are
described below.
Vopak, which has a 20% non-controlling interest in the Group, acts as manager and operator of the
terminal. Baproven has agreed to pay Vopak a management fee of $2.5 million per annum, adjusted
annually for increases in the Consumer Price Index, to be paid on a quarterly basis in advance.
17
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Related Party Transactions (continued)
The Group recognized management fee expense of $2.6 million and $2.5 million for the years ended
December 31, 2010 and 2009, respectively, which is included in general and administrative expenses
in the consolidated statements of operations.
Bahamas Oil Refining Company International Limited (BORCO), a subsidiary of Baproven, has agreed
to pay Vopak an incentive fee following the fifth anniversary of the date of the business
combination, April 29, 2008 (Effective Date), equivalent to 30% of the first $25.0 million of
excess cash flow as defined in the relevant agreement and 50% of any excess cash flow over $25.0
million, provided that in no event shall such a payment exceed $15.0 million in the aggregate. Such
payment shall be made no later than 120 days following the fifth anniversary from the Effective
Date. To the extent that maintenance and capital expenditures are deferred or not made as
contemplated, the relevant components used to determine this incentive fee shall be adjusted
accordingly by the Board of Directors of one of Baprovens shareholding entities.
In addition, Vopak is entitled to fees of up to $10.0 million to the extent that certain
greenfield expansion is successfully completed within the budget set forth in the joint venture
agreement and within five-years from the commencement of the greenfield effort. The ultimate amount
of such fees is dependent upon the level of incremental storage volumes achieved relative to agreed
upon thresholds. Such payment shall be made no later than 120 days following the completion of the
time period provided for the greenfield expansion as per the agreement.
The Group has not accrued any amounts related to the cash flow incentive and Greenfield expansion
fees as management and the directors have concluded that the Groups projected cash flows are below
the excess cash flow targets required to give rise to incentive and expansion fees.
See Note 5 for disclosures on employee receivables.
18
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Accounts Receivable, Net
Accounts receivable, net as of December 31 comprise the following (in thousands):
December 31, | ||||||||
2010 | 2009 | |||||||
Trade receivables |
$ | 6,366 | $ | 7,492 | ||||
Less: allowance for doubtful accounts |
(3,607 | ) | (4,173 | ) | ||||
Other |
55 | 962 | ||||||
Total |
$ | 2,814 | $ | 4,281 | ||||
5. Related Party Receivables
Receivables due from employees are non-interest bearing. Loans may be granted to employees for up
to six months of their salary and have a term of five years. Included in these employee receivables
are receivables from former directors and key management personnel amounting to $0.3 million and
$0.8 million at December 31, 2010 and 2009, respectively.
6. Inventories
Inventories as of December 31 comprise the following (in thousands):
December 31, | ||||||||
2010 | 2009 | |||||||
Crude oil, fuel oil and related products |
$ | 344 | $ | 690 | ||||
Materials and supplies |
1,224 | 1,010 | ||||||
Total |
$ | 1,568 | $ | 1,700 | ||||
Inventory is recorded at the lower of cost or market. Materials and supplies inventory was impaired
by $0.2 million during the year ended December 31, 2009 for slow moving and obsolete items. This
expense was recorded in repairs and maintenance in the consolidated statements of operations. There
was no impairment during the year ended December 31, 2010.
19
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Other Current Assets
Other current assets as of December 31 comprise the following (in thousands):
December 31, | ||||||||
2010 | 2009 | |||||||
Prepayments |
$ | 4,116 | $ | 2,952 | ||||
Term deposits |
223 | 174 | ||||||
Returnable deposits |
69 | 31 | ||||||
Total |
$ | 4,408 | $ | 3,157 | ||||
The term deposits included in other assets have original maturities of more than three months and
earn interest at fixed rates ranging from 0.75% to 3.5% per annum for the years ended December 31,
2010 and 2009, respectively.
8. Property, Plant, and Equipment, Net
Property, plant and equipment, net as of December 31 consists of the following (in thousands):
December 31, | ||||||||
2010 | 2009 | |||||||
Cost: |
||||||||
Land |
$ | 131,000 | $ | 131,000 | ||||
Land improvements |
1,824 | 1,770 | ||||||
Buildings |
5,042 | 4,382 | ||||||
Plant, vehicles, vessels and equipment |
140,167 | 133,725 | ||||||
Tanks |
259,268 | 248,059 | ||||||
Office furniture and equipment |
652 | 526 | ||||||
Construction-in-progress |
93,782 | 31,237 | ||||||
631,735 | 550,699 | |||||||
Less: accumulated depreciation |
(54,703 | ) | (32,314 | ) | ||||
Total property, plant and equipment, net |
$ | 577,032 | $ | 518,385 | ||||
20
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Property, Plant, and Equipment, Net (continued)
For the years ended December 31, 2010 and 2009, total interest costs were $19.0 million and $20.4
million, respectively, of which $1.3 million and $2.8 million were capitalized for the years ended
December 31, 2010 and 2009, respectively.
During 2010 and 2009, the Company recognized a loss on disposal of $7.4 million and $11.2 million,
respectively, which relates to certain items of property, plant, and equipment that were disposed
of and replaced.
9. Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price of the reporting unit over the carrying amount
at the acquisition date. There were no changes in the carrying amount of goodwill for the years
ended December 31, 2010 and 2009.
Other Intangible Assets, Net
Other intangible assets, net consist of the following at December 31 (in thousands):
Weighted | ||||||||||||
Average | ||||||||||||
Useful life | December 31, | |||||||||||
(years) | 2010 | 2009 | ||||||||||
Customer relationships |
14 | $ | 141,300 | $ | 141,300 | |||||||
Accumulated amortization |
(26,915 | ) | (16,822 | ) | ||||||||
Customer relationships, net |
114,385 | 124,478 | ||||||||||
Concessions |
45 | 142,600 | 142,600 | |||||||||
Accumulated amortization |
(8,450 | ) | (5,281 | ) | ||||||||
Concessions, net |
134,150 | 137,319 | ||||||||||
Favorable lease elements |
60 | 3,000 | 3,000 | |||||||||
Accumulated amortization |
(3000 | ) | (83 | ) | ||||||||
Favorable lease elements, net |
| 2,917 | ||||||||||
Total intangible assets, net |
$ | 248,535 | $ | 264,714 | ||||||||
21
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Goodwill and Intangible Assets (continued)
Estimated aggregate amortization expense for each of the next five years ending December 31, 2016
is $13.3 million.
The intangible assets arose as a result of a business combination which occurred in April 2008.
Concessions are a collection of licenses and agreements that have material effects on the business
of the Group. The fair value of concessions acquired was determined using the Greenfield approach,
a variation of the income approach. The value of the concessions is calculated as the net present
value (NPV) of operating a hypothetical new start-up oil terminal business in the Bahamas. The
concession value is calculated by estimating the cash flow that the typical market participants
would assume to achieve from the operations of a similar type of business.
The fair value of customer relationships acquired in the business combination was determined using
the excess earnings method, whereby the subject asset is valued after deducting a fair return on
all other assets that are part of creating the related cash flows. The contribution of other
assets, such as fixed assets, net working capital and workforce, is estimated through contributory
asset capital charges. These capital charges represent the return an investor would require to
fund or make an investment in the contributory assets, and can be considered a compensation for the
risk and opportunity costs of not being able to use the capital for other means.
The fair value of favorable elements in the leased Barge Dock agreement acquired in the business
combination was determined using the NPV of the savings expected from the agreement.
In 2010, the terms of the leased Barge Dock agreement were renegotiated with the Grand Bahama Port
Authority. As a result, the new terms have been priced at market value and the Group has reassessed
the useful life of the intangible asset arising from the favorable lease elements resulting in
accelerated amortization of the intangible asset in 2010 of $2.9 million.
22
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Other Assets
Other assets as of December 31 comprise the following (in thousands):
December 31, | ||||||||
2010 | 2009 | |||||||
Deferred financing costs |
$ | 15,580 | $ | 14,493 | ||||
Accumulated amortization |
(5,064 | ) | (3,655 | ) | ||||
Restricted cash |
92 | 133 | ||||||
Total |
$ | 10,608 | $ | 10,971 | ||||
Restricted cash amounts relate to the term deposits pledged to guarantee former employee bank
loans, customs bonds and credit card facilities, as described in Note 17.
11. Bank Overdraft
The Group does not have an available overdraft facility. An overdrawn bank position arises because
of checks issued prior to year end which exceeded the bank balance and is repayable on demand. Cash
flows resulting from the overdrawn bank position are classified as financing activities on the
consolidated statements of cash flows.
12. Trade and Other Payables
Trade and other payables as of December 31 comprise the following (in thousands):
December 31, | ||||||||
2010 | 2009 | |||||||
Accounts payable trade |
$ | 19,463 | $ | 8,397 | ||||
Interest payable |
117 | 1,166 | ||||||
Deferred revenue |
110 | | ||||||
Other payables |
9,834 | 7,637 | ||||||
Total |
$ | 29,524 | $ | 17,200 | ||||
23
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities as of December 31 comprise the following (in thousands):
December 31, | ||||||||
2010 | 2009 | |||||||
Accrued expenses |
$ | 5,725 | $ | 3,036 | ||||
Environmental remediation costs |
6,610 | 6,000 | ||||||
Less: Long-term portions |
(4,000 | ) | (4,000 | ) | ||||
Total |
$ | 8,335 | $ | 5,036 | ||||
The environmental remediation liability balance was $6.6 million and $6.0 million as of December
31, 2010 and 2009, respectively. Of these amounts, $2.6 million and $2.0 million were classified as
current in accrued expenses and other liabilities as of December 31, 2010 and 2009, respectively.
The remainder is classified as non-current other liabilities. The liability is principally related
to expenditures required to implement a subsurface oil remediation program and disposal of
radioactive material.
The Group has estimated the cleanup costs of the subsurface oil based on expected maintenance and
technical costs required to implement the remediation program over the next 15-20 years and
estimated undiscounted future cash payments based on those costs. This liability has been measured
using the low end of a range of estimated expenditures to settle the obligation.
Also included in the environmental remediation liability balance are expenditures that will be
required to dispose of radioactive material at a cost of $1.75 million and $1.5 million as of
December 31, 2010 and 2009, respectively. The material is expected to be disposed of within one
year and the cost has been determined with assistance from a third party and is undiscounted. The
costs related to environmental remediation are included within general and administrative expenses
in the consolidated statements of operations.
14. Long-Term Debt
On April 29, 2008, the Group entered into a Credit and Guaranty Agreement whereby the lenders have
agreed to extend credit to the borrower in the aggregate amount of up to $417.0 million. Within
this agreement the group company FR Borco Acquisition Holdings B.V. acts as guarantor.
24
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Long-Term Debt (continued)
The loan agreement consists of the following (in thousands):
December 31, | ||||||||
2010 | 2009 | |||||||
Secured bank loan with principal amount
not in excess of $325.0 million. This
loan matures in April 2016. Interest on
this loan is LIBOR + 2% margin (weighted
average rate of 2.65% during 2009-2010) |
$ | 284,927 | $ | 325,000 | ||||
Working capital facility loan with
aggregate principal amount not in excess
of $85.0 million. This loan matures in
April 2016. Interest on $5 million of the
total drawdown was based on the prime
rate then LIBOR + 2% (weighted average of
3.16% during 2009-2010). For the
remaining $10 million of the drawdown,
interest is LIBOR + 2% margin (weighted
average of 2.29% during 2009-2010) |
15,000 | 20,000 | ||||||
299,927 | 345,000 | |||||||
Less: current portion |
(4,927 | ) | (15,000 | ) | ||||
Total long-term debt, less current portion |
$ | 295,000 | $ | 330,000 | ||||
There is an additional debt service reserve with an available principal amount up to $7.0 million
that has not been drawn upon as of December 31, 2010 and 2009, respectively. This loan matures in
April 2011 and interest rate on this loan is LIBOR plus a 2% margin.
The fair value of the Groups debt is determined by a valuation model which is based on a
conventional discounted cash flow methodology and utilizes assumptions of current market pricing
curves. These assumptions are observable in active markets over the terms of the facilities the
Group holds. The estimated fair value of the debt was $307 million and $357 million as of December
31, 2010 and 2009, respectively. The carrying amount of the debt was $300 million and $345 million
as of December 31, 2010 and 2009, respectively.
The Group pays a monthly commitment fee of 0.5% per annum on the unused balance of the working
capital facility loan and debt service reserve. The total fees paid were $388,000 and
25
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Long-Term Debt (continued)
$365,000 for the years ended December 31, 2010 and 2009, respectively, and are recognized within
interest expense in the consolidated statements of operations.
Outstanding indebtedness under the loan is secured by the assets of FR Borco Acquisition B.V. and
its subsidiaries.
Maximum amount outstanding of long-term debt for each of the years subsequent to December 31, 2010
are approximately as follows (in thousands):
2011 |
$ | 280,000 | ||
2012 |
250,000 | |||
2013 |
210,000 | |||
2014 |
165,000 | |||
2015 |
115,000 | |||
Term maturity date |
|
The Group is subject to several covenants in connection with the loan agreement. On an annual
basis, the Groups capital expenditure in an aggregate amount, is not permitted to exceed an amount
based on a calculation specified in the contract. From June 30, 2009 the Group must also comply
with the interest coverage ratio as detailed in the loan agreement. Additionally, in accordance
with the agreement, the Group calculates excess cashflow on a semi-annual basis, and is required to
make related payments within 45 days following the calculation dates (June 30 and December 31). The
Group was in compliance with its covenants during the years ended December 31, 2010 and 2009.
15. Derivative Instruments
In connection with the loan agreement dated April 29, 2008, a floating interest rate of LIBOR plus
a margin of 2% will apply for the first five years, and thereafter the margin will increase to
2.25%.
The Group entered into interest rate swaps in 2008 with two banks in order to economically hedge
the risk of changing LIBOR interest rates related to a portion of the $325 million floating rate
bank loan and the working capital facility. Under the interest swaps (with a notional amount of
$109.1 million and $121.9 million as of December 31, 2010 and 2009, respectively) the Group paid
4.032% and 4.035% fixed rates. As of December 31, 2010 the aggregate notional amount of the
interest rate swaps equaled 73% of the $300 million total outstanding floating rate loans. The
interest rate swaps were not designated and do not qualify as hedging instruments.
26
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Derivative Instruments (continued)
The effect of changes in market rates on interest rate swaps is recognized in the consolidated
statements of operations. For the years ended December 31, 2010
and 2009, the Group recognized a loss of $2.1 million and a gain of $5.4 million, respectively, in change of fair value
of derivatives on the consolidated statements of operations.
16. Income Taxes
The Group operates primarily in four jurisdictions The Netherlands, United States, Bahamas and
Cayman Islands. The Cayman Islands does not impose an income tax. In the Bahamas, the Group
operates under the Bahamian tax regime which provides for an income tax exemption in the Bahamas.
In the Netherlands, the Group has historically generated income tax losses and expects this to
continue in the foreseeable future. While the losses do carryover for Dutch income tax purposes,
under the Dutch income tax law, these losses are available to offset only certain types of taxable
income of which the Group does not expect to generate any material amounts. Accordingly, the Group
does not expect to receive any income tax benefit from these losses and has provided a full
valuation allowance against the resulting deferred tax asset. In the United States, for the year
ended December 31, 2010, the Group reported $120,259 of taxable income and $30,151 of income tax
expense. The Group has not recorded any income tax expense for the year ended December 31, 2009 and
has no deferred income tax assets or liabilities as of December 31, 2010 or December 31, 2009.
The components of income tax expense were as follows (in thousands):
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Current: |
||||||||
Cayman |
$ | | $ | | ||||
Non-Cayman |
30 | | ||||||
Total current |
30 | | ||||||
Deferred: |
||||||||
Cayman |
| | ||||||
Non-Cayman |
| | ||||||
Total deferred |
| | ||||||
Total income tax expense |
$ | 30 | $ | | ||||
27
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Income Taxes (continued)
Pre-tax income (loss) was attributable to the Cayman Islands and other jurisdictions as follows (in
thousands):
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Cayman |
$ | (16,186 | ) | $ | (445 | ) | ||
Non-Cayman |
68,859 | 33,220 | ||||||
$ | 52,673 | $ | 32,775 | |||||
The effective income tax rate of the Group is 0%. A reconciliation of the income tax expense based
on the Cayman Islands statutory income tax rate of 0% to the income tax expense based on the
effective tax rate is as follows (in thousands):
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
Income tax expense at Cayman
statutory rate |
$ | | $ | | ||||
U.S. federal income taxes |
30 | | ||||||
Expected tax benefit of
Dutch losses before
consideration of valuation
allowance |
(4,710 | ) | (5,311 | ) | ||||
Adjustment to deferred tax
asset for enacted changes in
Dutch tax laws and rates |
177 | | ||||||
Change in valuation allowance |
4,533 | 5,311 | ||||||
Total income tax expense |
$ | 30 | $ | | ||||
28
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Income Taxes (continued)
The Group had Dutch operating losses estimated to be $54.5 million for Dutch income tax purposes as
of December 31, 2010. Generally, these losses will expire if unused after 9 years. These NOL
carryforwards will expire as follows (in thousands):
2017 (or prior) |
$ | 14,845 | ||
2018 |
20,828 | |||
2019 |
18,841 | |||
$ | 54,514 | |||
The tax effects of temporary differences that give rise to deferred tax assets and liabilities are
presented as follows (in thousands):
December 31, | ||||||||
2010 | 2009 | |||||||
Deferred tax assets: |
||||||||
Net operating loss carryforwards |
$ | 13,629 | $ | 9,096 | ||||
Total gross deferred tax assets before valuation allowance |
13,629 | 9,096 | ||||||
Valuation allowance |
(13,629 | ) | (9,096 | ) | ||||
Deferred tax liabilities: |
| | ||||||
Net deferred tax asset/liability |
$ | | $ | | ||||
During 2010 and 2009, the Group increased its valuation allowance by $4.5 million and $5.3 million,
respectively, due to incurring further Dutch tax net operating losses.
The Group recognizes the effect of income tax positions only if those positions are more likely
than not of being sustained. Recognized income tax positions are measured at the largest amount
that is greater than 50% likely of being realized. Changes in recognition or measurement are
reflected in the period in which the change in judgment occurs. The Group has not recorded any
liability for uncertain income tax positions, as the Group believes its income tax positions were
considered highly certain. The Group does not expect the total amount of unrecognized tax benefits
will change significantly within the next 12 months.
29
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Income Taxes (continued)
The Groups policy is to record interest and penalties accrued on liabilities for uncertain tax
positions as part of the income tax expense. For the years ended December 31, 2010 and 2009, as
there are no uncertain tax positions, there have been no interest or penalties accrued by the
Group.
The tax periods ended December 31, 2010 and 2009 for the Netherlands remain open to tax
examination.
17. Commitments and Contingencies
Capital Expenditure Commitments
At December 31, 2010 and 2009, the Group had commitments for capital expenditures approximating
$66.0 million and $10.0 million, respectively.
Lease Commitments
Rent expense, not including supplemental expenses such as mobilization charges and operational
expenses, attributable to operating leases was $4.7 million and $4.9 million for the years ended
December 31, 2010 and 2009, respectively. As of December 31, 2010, the Group was committed to the
following minimum annual payments under significant operating leases (in thousands):
Minimum | ||||
Lease | ||||
Payments | ||||
2011 |
$ | 5,028 | ||
2012 |
5,037 | |||
2013 |
5,158 | |||
2014 |
3,643 | |||
2015 |
1,550 | |||
Thereafter |
68,000 | |||
$ | 88,416 | |||
30
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. Commitments and Contingencies (continued)
The Group leases four tugboats from Smit Lloyd (Antillen) N.V. for a daily rate of approximately
$6,750. The tugboat lease agreements are due to expire on September 30, 2014 with a 5-year renewal
option.
The Group leases approximately 300 acres of seabed from the Bahamas Government. The seabed lease
payments are based on a fixed fee of $1.2 million per annum, plus a variable fee relating to
activity at the terminal. The variable fee for the years ended December 31, 2010 and 2009 amounted
to $0.7 million and $0.6 million, respectively. The seabed lease is due to expire on June 30, 2057.
The terms of this lease are subject to renegotiation every three years.
The Group leases a barge from Smit Lloyd (Antillen) N.V. for a daily rate of approximately $2,778.
The lease agreement is due to expire on November 30, 2013 with a 5-year renewal option.
The Group leases office space as a lessor. Rental income attributable to leases relating to the
office space was $180,000 and $141,000 for the years ended December 31, 2010 and 2009,
respectively.
The Group has entered into capacity and storage leases as a lessor with remaining terms from
approximately one to four years. The agreements make the gross storage capacity available on an
exclusive, single-user basis. The Group classified and accounts for these agreements as operating
leases. Future minimum payments to be received under these arrangements as of December 31, 2010,
were as follows (in thousands):
2011 |
$ | 127,798 | ||
2012 |
66,458 | |||
2013 |
29,861 | |||
2014 |
| |||
2015 |
| |||
Thereafter |
| |||
$ | 224,117 | |||
Litigation
The Group is involved in various claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters will not have a
material effect on the Groups consolidated financial position, results of operations, or
liquidity.
31
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. Commitments and Contingencies (continued)
Guarantees
In connection with the loan agreement, FR Borco Acquisition Holdings B.V. and FR Borco Acquisition
B.V. entered into pledge and security agreements. For detailed information on the loan refer to
Note 14.
Baproven is contingently liable under customs bond guarantees of $90,000. In 2009, Baproven also
had available a corporate credit card facility of up to $20,000. The customs bond and credit card
facilities totaling $90,000 and $110,000, as of December 31, 2010 and 2009, respectively, have been
secured by pledging term deposit balances for those amounts. These restricted cash amounts are
classified as other non-current assets.
Baproven guaranteed a loan granted to a former officer by a bank by pledging term deposit balances
equal to the outstanding loan amounts. The balance of the former officers loan as of December 31,
2010 and 2009 was $2,000 and $23,000, respectively. These restricted cash amounts are classified as
other non-current assets.
Other
The Bahamas is a member of The International Oil Pollution Compensation Fund 1992 (the Fund),
which is an organization that provides compensation and assistance in respect of oil pollution
resulting from oil spills. Baproven is one of the contributors to the Fund. The amount of the
contribution is determined based on the quantity of oil received by each contributor. The level of
contributions varies from year to year, depending largely on the pollution incidents that have
occurred and the amount of compensation and claim-related expenditure which the Fund expects to
pay.
The amount of contributions are usually determined and billed in the fourth quarter of every year.
$0.5 million was billed for the year ended December 31, 2010 and is included in general and
administrative expenses in the consolidated statements of operations. No amounts were billed for
the year ended December 31, 2009.
The Group accrues legal costs expected to be incurred related to recognized loss contingencies.
32
FR Borco Topco, L.P. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
18. Partners Equity
Allocation of profits and losses of the partnership are distributed pro rata in accordance with the
partners respective interests in the partnership provided that the limited partner is not liable
for the debts or obligations of the partnership.
19. Subsequent Events
The Group has evaluated subsequent events from the balance sheet date through April 1, 2011, the
date at which these consolidated financial statements were available to be issued.
On December 18, 2010, FR XI Offshore AIV LP and FR Borco GP Limited, the 100% owners of the
Company, entered into an agreement to sell its ownership interest in the Company, which ultimately
owns 80% of Baproven as of that date, to Buckeye Partners LP (Buckeye). The sale closed on
January 18, 2011.
On January 14, 2011, Royal Vopak, the ultimate parent of Vopak Bahamas B.V. and who ultimately
owns 20% of Baproven as of that date, exercised its rights and entered into an agreement to sell
its ownership interest to Buckeye, on the same terms and conditions as the sale described above.
The sale closed on February 16, 2011.
On January 18, 2011, a deed of release was executed between The Royal Bank of Scotland N.V.
(RBS) (formerly known as ABN AMRO Bank N.V.) and the Group. The Group has been discharged or
made payment in full of its obligation, which includes the debt facility and interest rate swaps,
as a result of which FR Borco Acquisition Holdings B.V. shall be released from the guaranty set
forth in the loan agreement.
33