10-Q 1 g69367qe10-q.txt STATIA TERMINALS INT'L/ STATIA CANADA 10-Q 3/31/01 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ____________________ COMMISSION FILE NUMBER 333-18455 AND 333-18455-01 STATIA TERMINALS INTERNATIONAL N.V. (Exact name of registrant as specified in its charter) NETHERLANDS ANTILLES 52-2003102 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) C/O COVENANT MANAGERS L.B. SMITHPLEIN 3 CURACAO, NETHERLANDS ANTILLES (011) 599-31-82300 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) STATIA TERMINALS CANADA, INCORPORATED (Exact name of registrant as specified in its charter) NOVA SCOTIA, CANADA 98-0164788 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3816 PORT MALCOLM ROAD PORT HAWKESBURY, NOVA SCOTIA B9A 1Z5 (902) 625-1711 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Indicate by check mark whether each of the registrants: (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 [ ] The equity securities of the registrants have not been, and are not required to be, registered under either the Securities Act of 1933 or the Securities Exchange Act of 1934. 2 STATIA TERMINALS INTERNATIONAL N.V. AND STATIA TERMINALS CANADA, INCORPORATED QUARTERLY REPORT ON FORM 10-Q MARCH 31, 2001 TABLE OF CONTENTS Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheets 1 Consolidated Condensed Statements of Operations 2 Consolidated Condensed Statements of Cash Flows 3 Notes to Consolidated Condensed Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 2. Changes in Securities and Use of Proceeds 21 Item 3. Defaults Upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 21 THIS QUARTERLY REPORT ON FORM 10-Q (THIS "REPORT") CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF 27A OF THE SECURITIES ACT OF 1933, AS AMENDED. DISCUSSIONS CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN ITEMS 1, 2, AND 3 OF PART I HEREOF, AS WELL AS WITHIN THIS REPORT GENERALLY. IN ADDITION, WHEN USED IN THIS REPORT, THE WORDS "MAY," "WILL," "BELIEVE," "ANTICIPATE," "EXPECT," "ESTIMATE," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES. ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF FLUCTUATIONS IN THE SUPPLY OF AND DEMAND FOR CRUDE OIL AND OTHER PETROLEUM PRODUCTS, CHANGES IN THE PETROLEUM TERMINALING INDUSTRY, ADDED COSTS DUE TO CHANGES IN GOVERNMENT REGULATIONS AFFECTING THE PETROLEUM INDUSTRY, INABILITY TO MAINTAIN OUR TAX STATUS, THE LOSS OF A MAJOR CUSTOMER OR CUSTOMERS, THE LOSS OF A MAJOR VENDOR OR SUPPLIER OF PETROLEUM PRODUCTS, THE FINANCIAL CONDITION OF OUR CUSTOMERS, INTERRUPTION OF OUR OPERATIONS CAUSED BY ADVERSE WEATHER CONDITIONS, CHANGES TO OUR CONTRACT LABOR ARRANGEMENTS, THE CONDITION OF THE U.S. AND CERTAIN FOREIGN ECONOMIES, AND OTHER MATTERS INCLUDED IN THIS REPORT AND THE COMPANY'S ANNUAL REPORT ON FORM 10-K. WE DO NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES. FREQUENTLY IN THIS REPORT, ESPECIALLY WHEN DISCUSSING OUR OPERATIONS, WE REFER TO OURSELVES, STATIA TERMINALS INTERNATIONAL N.V. AND OUR SUBSIDIARIES, AS "WE" OR "US". 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these consolidated condensed financial statements. Page 1 4 STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these consolidated condensed financial statements. Page 2 5 STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of these consolidated condensed financial statements. Page 3 6 STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited consolidated condensed financial statements of Statia Terminals International N.V. ("Statia") and Subsidiaries (together with Statia, the "Company") have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Significant accounting policies followed by the Company were disclosed in the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (the "Form 10-K"). In the opinion of the Company's management, the accompanying consolidated condensed financial statements contain all adjustments and accruals necessary to present fairly the financial position of the Company at March 31, 2001, and the results of its operations and cash flows for the three months ended March 31, 2000 and 2001. Operating results for the three months ended March 31, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. These financial statements should be read in conjunction with the Form 10-K. For all periods presented herein, there were no differences between net income (loss) and comprehensive income (loss). 2. SEGMENT INFORMATION The Company is organized around several different factors, the two most significant of which are services and products, and geographic location. The Company's primary services are terminaling services (resulting in revenues from storage, throughput, dock usage, emergency response, and other terminal services) and product sales (including bunker fuels and bulk oil sales). The primary measures of profit and loss utilized by the Company's management to make decisions about resources to be allocated to each segment are earnings before interest expense, income taxes, depreciation, amortization, and certain non-recurring income and expenses ("Adjusted Indenture EBITDA") and earnings before interest expense, income taxes, and certain non-recurring income and expenses ("Adjusted Indenture EBIT"). Page 4 7 STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (UNAUDITED) (DOLLARS IN THOUSANDS) 2. SEGMENT INFORMATION- (CONTINUED) The following information is provided for the Company's terminaling services and product sales segments:

A reconciliation of Adjusted Indenture EBIT to the Company's income (loss) before provision for income taxes is as follows:

3. REPLACEMENT OF SINGLE POINT MOORING SYSTEM HOSES During the three months ended March 31, 2000, the Company replaced certain large hoses attached to its single point mooring system (the "SPM"). In connection with this hose change-out, the Company adopted the component depreciation method for the SPM and its hoses as of January 1, 2000, which resulted in a change in the estimated useful lives for depreciation purposes for these hoses. As a result, in addition to recurring depreciation charges, the Company incurred a non-cash charge to depreciation expense of $832 during the first quarter of 2000, which is included in costs of terminaling services revenues. Page 5 8 STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (UNAUDITED) (DOLLARS IN THOUSANDS) 4. DIVIDEND OF M/V STATIA RESPONDER In March 2000, the Company's ownership of the M/V STATIA RESPONDER, an emergency response and maintenance vessel, was transferred to a subsidiary of its parent as the result of a dividend to its parent in the amount of $4,707, representing the net book value of the vessel. On April 1, 2000, the Company entered into a three-month bareboat agreement, which was renewed monthly through December 31, 2000, to charter the vessel from the subsidiary of its parent for $150 per month. On December 20, 2000, the Company entered into a seventy-three month bareboat agreement, effective January 1, 2001, to charter the vessel from the same subsidiary of its parent for $154 per month through December 31, 2001, and $145 per month thereafter. 5. CONDENSED COMBINING FINANCIAL INFORMATION The 11 3/4% First Mortgage Notes (the "Notes) are guaranteed on a full, unconditional, joint and several basis by each of the indirect and direct subsidiaries of Statia, other than Statia Terminals Canada, Incorporated, which is a co-obligor on the Notes. Statia directly or indirectly wholly owns each of the subsidiary guarantors. The following condensed combining financial information illustrates the composition of the subsidiary guarantors. The enforceability of the guarantees may be affected differently under the laws of the applicable jurisdictions in which the guarantors are incorporated. Page 6 9 STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (DOLLARS IN THOUSANDS) CONDENSED COMBINING BALANCE SHEET DECEMBER 31, 2000

Page 7 10 STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (UNAUDITED) (DOLLARS IN THOUSANDS) CONDENSED COMBINING BALANCE SHEET MARCH 31, 2001

Page 8 11 STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (UNAUDITED) (DOLLARS IN THOUSANDS) CONDENSED COMBINING STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000

Page 9 12 STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (UNAUDITED) (DOLLARS IN THOUSANDS) CONDENSED COMBINING STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001

Page 10 13 STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (UNAUDITED) (DOLLARS IN THOUSANDS) CONDENSED COMBINING STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2000

Page 11 14 STATIA TERMINALS INTERNATIONAL N.V. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - (Continued) (UNAUDITED) (DOLLARS IN THOUSANDS) CONDENSED COMBINING STATEMENT OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2001

Page 12 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For purposes of the discussion below, reference is made to the unaudited Consolidated Condensed Financial Statements and Notes thereto of Statia Terminals International N.V. and Subsidiaries (the "Company") as of March 31, 2001, and for the three month periods ended March 31, 2000 and 2001, included herein. Reference should also be made to the Company's Annual Report on Form 10-K that includes the Company's Consolidated Financial Statements as of and for the year ended December 31, 2000. OVERVIEW OF OPERATIONS A majority of our revenues are generated by product sales, which fluctuate with global oil prices. As a result, we experience volatility in our revenue stream, which is not necessarily indicative of our profitability. Vessels call at our facilities to load and/or discharge cargo and/or to take on bunker fuel. We earn higher port charges, which consist of dock charges, emergency response fees, and other terminal charges, when a vessel calls to load and/or discharge cargo than we earn when a vessel calls only to take on bunker fuel. Gross profit from terminaling services is generally higher than gross profit from product sales. Our operating costs for terminaling services are relatively fixed and generally do not change significantly with changes in storage capacity leased. In addition, our operating costs are impacted by inflationary cost increases, changes in storage capacity, and changes in ancillary services offered by us. Additions or reductions in storage, throughput, port charges, and ancillary service revenues directly impact our gross profit. Costs for the procurement of petroleum products for sale are variable and linked to global oil prices. Our product costs are also impacted by market supply conditions, types of products sold, and volumes delivered. The following table sets forth, for the periods indicated, total capacity, capacity leased, throughput, and vessel calls for each of our operating locations. "Total capacity" represents the average storage capacity available for lease for a period. "Capacity leased" represents the storage capacity leased to third parties weighted for the number of days leased in the month divided by the capacity available for lease. "Throughput" volume is the total number of inbound barrels discharged from a vessel, rail car, or tanker truck, and generally does not include across-the-dock or tank-to-tank transfers. A "vessel call" occurs when a vessel docks or anchors at one of our terminal locations in order to load and/or discharge cargo and/or to take on bunker fuel. Such dockage or anchorage is counted as one vessel call regardless of the number of activities carried on by the vessel. A vessel call also occurs when we sell and deliver bunker fuel to a vessel not calling at our terminals for the above purposes. Each of these statistics is a measure of the utilization of our facilities and equipment. CAPACITY, CAPACITY LEASED, THROUGHPUT AND VESSEL CALLS BY LOCATION (TOTAL CAPACITY AND THROUGHPUT IN THOUSANDS OF BARRELS)

Page 13 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of revenues represented by some items in our consolidated condensed statements of operations. RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)

The following tables set forth, for the periods indicated, (a) the total revenues and total operating income, after allocation of administrative expenses and elimination of certain intercompany transactions, at each of our operating locations and (b) the percentage of such revenues and operating income relative to our total revenues and operating income. REVENUES BY LOCATION (DOLLARS IN THOUSANDS)

Page 14 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) OPERATING INCOME BY LOCATION (DOLLARS IN THOUSANDS)

THREE MONTHS ENDED MARCH 31, 2001, VERSUS THE SAME PERIOD OF 2000 REVENUES Total revenues for the three months ended March 31, 2001, were $50.2 million, compared to $42.3 million for the same period of 2000, representing an increase of $7.9 million or 18.7%. As discussed further below, the increase in total revenues is primarily due to increased revenues from terminaling services. Revenues from terminaling services (consisting of revenues from storage, throughput, dock usage, emergency response, and other terminal services) for the three months ended March 31, 2001, were $18.1 million, compared to $12.4 million for the same period of 2000, representing an increase of $5.7 million, or 45.9%. The increase in terminaling services revenues for the three months ended March 31, 2001, compared to the same period in 2000, was primarily the result of improved leasing of our available capacity and at higher average lease rates, additional barrels of throughput, and higher vessel calls. For the three months ended March 31, 2001, approximately 60.0% of our total storage capacity was leased pursuant to long-term contracts at our St. Eustatius and Point Tupper locations together. Approximately 56.0% of our storage and throughput revenues, excluding related ancillary services, were derived from long-term contracts during the same period. Revenues from terminaling services at St. Eustatius increased approximately $3.2 million or 35.2% during the three months ended March 31, 2001 as compared to the same period of 2000. The increase in revenues from terminaling services was due primarily to increased cargo vessel calls and a higher percentage of storage capacity leased. Twenty-six additional cargo vessels called at the St. Eustatius facility during the three months ended March 31, 2001, than during the same period of 2000, resulting in higher revenues from port charges. For the three months ended March 31, 2001, the overall percentage of capacity leased at St. Eustatius was 96% as compared to 76% for the same period of 2000, reflecting an increase in the percentage of capacity leased for fuel oil storage. The increase in the percentage of capacity leased for fuel oil storage was primarily the result of new short-term product storage contracts. During the second quarter of 2001, certain short-term product storage contracts at St. Eustatius have not been renewed. Revenues from terminaling services at Point Tupper increased approximately $2.5 million or 73.7% during the three months ended March 31, 2001, as compared to the same period of 2000. The increase in revenues from terminaling services was due primarily to a higher percentage of tank capacity leased resulting from new short-term storage contracts and from increased throughput of crude oil. The percentage of tank capacity leased at Point Tupper was 81% for the three months ended March 31, 2001 as compared to 59% for the same period of 2000. Twenty-one additional cargo vessels called during the three months ended March 31, 2001, as compared to the same period of 2000, which led to higher revenues from port charges at this facility. During the second quarter of 2001, certain short-term storage contracts at Point Tupper have not been renewed. Page 15 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Revenues from product sales were $32.1 million for the three months ended March 31, 2001, compared to $29.9 million for the same period of 2000, an increase of $2.2 million or 7.4%. The increase was due to increases in volumes delivered partially offset by lower average selling prices. Average selling prices decreased 1.9% when comparing the three months ended March 31, 2001, with the same period of 2000. Metric tons of bunkers and bulk product delivered increased 12.7% during the three months ended March 31, 2001, as compared to the same period of 2000. We have recently experienced an increase in competition for bulk product sales in the Caribbean, which has caused a decrease in revenues and gross profits from these sales. GROSS PROFIT Gross profit for the three months ended March 31, 2001, was $9.3 million compared to $4.1 million for the same period of 2000, representing an increase of $5.2 million or 128.0%. The increase in gross profit for the three months ended March 31, 2001, was primarily the result of the increased revenues from terminaling services discussed above. The costs of our terminaling services revenue at our St. Eustatius facility includes $0.3 million (net of depreciation savings) for the three months ended March 31, 2001, representing incremental operating costs resulting from the lease of the M/V STATIA RESPONDER discussed further in note 4 of the notes to consolidated condensed financial statements. Additionally, during the three months ended March 31, 2000, we replaced certain hoses attached to our single point mooring system. As a result, we incurred a non-cash charge to depreciation expense of $0.8 million during the first quarter of 2000 which is included in costs of terminaling services revenues. ADMINISTRATIVE EXPENSES Administrative expenses were $2.4 million for the three months ended March 31, 2001, as compared to $2.2 million for the same period of 2000, representing an increase of $0.2 million or 11.7%. The increase during the three months ended March 31, 2001, as compared to the same period of 2000, was primarily the result of higher personnel costs and depreciation. INTEREST EXPENSE During the three months ended March 31, 2001 and 2000, we incurred $3.2 million of debt service costs. Debt service costs include interest accrued on our long-term debt, interest expense and commitment fees on our revolving credit facility, amortization expense related to deferred financing costs, and bank charges. PROVISION FOR INCOME TAXES The provision for income taxes was $0.5 million for the three months ended March 31, 2001, as compared to $0.3 million for the same period of 2000. The provision for income taxes was increased, as compared to the previous period, in contemplation of potential additional income tax assessments from jurisdictions in which we operate offset by the effect of certain tax benefits. NET INCOME (LOSS) The Company produced net income of $3.4 million for the three months ended March 31, 2001, as compared to net loss of $1.5 million for the same period of 2000, representing an improvement of $4.9 million. This improvement was primarily attributable to the increased gross profit discussed above. Page 16 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) LIQUIDITY AND CAPITAL RESOURCES CASH FLOW FROM OPERATING ACTIVITIES Net cash provided by operating activities was $7.9 million and $5.6 million for the three months ended March 31, 2001 and 2000, respectively. Cash flow from operations has been our primary source of liquidity during these periods. Differences between net losses and positive operating cash flow have resulted primarily from depreciation and amortization burdens, non-cash charges, and changes in various working capital accounts. We periodically purchase refined petroleum products for resale as product sales, and our inventory balances change based on these activities. At March 31, 2001, we had an inventory balance of $3.4 million compared to $1.6 million at December 31, 2000. CASH FLOW FROM INVESTING ACTIVITIES Net cash used in investing activities, consisting of purchases of property and equipment, was $2.0 million and $2.8 million for the three months ended March 31, 2001 and 2000, respectively. See the table below entitled "Summary of Capital Expenditures by Type." CASH FLOW FROM FINANCING ACTIVITIES During the three months ended March 31, 2001 and 2000, we paid dividends of $1.2 million and $3.8 million to the parent, respectively. In March 2000, the ownership of the M/V STATIA RESPONDER, an emergency response and maintenance vessel, was transferred to a subsidiary of the parent as the result of a dividend by us in the amount of $4.7 million, representing the net book value of the vessel. As of May 11, 2001, no event of default existed and was continuing. The consolidated fixed charge coverage ratio as defined in the indenture was at least 2.0 to 1 at March 31, 2001. Additionally, at March 31, 2001, the sum of our dividends, restricted payments, aggregate consolidated net income (deficit) and capital stock proceeds was approximately $16.9 million. Therefore, we are not currently negatively impacted by the indenture covenants. We have a $17.5 million revolving credit facility secured by our accounts receivable and oil inventory. The revolving credit facility is available for working capital needs and letter of credit financing, and it permits us to borrow in accordance with our available borrowing base, which was estimated at $13.4 million at March 31, 2001. The revolving credit facility bears interest at the prime rate plus 0.50% per annum (8.0% at May 11, 2001) and will expire on November 27, 2001. During the first and second quarters of 2000, we borrowed against the revolving credit facility, and all of such borrowings were repaid by May 2000. There was no outstanding balance at March 31, 2001. We believe that cash flow generated by operations and amounts available under the revolving credit facility will be sufficient, until the maturity of our $101.0 million outstanding 11 3/4% mortgage notes due November 15, 2003, to fund working capital needs, capital expenditures, and other operating requirements, including any expenditures required by applicable environmental laws and regulations, and to service debt. It is unlikely that we will be able to repay the mortgage notes at maturity through projected operating cash flow, and it will be necessary to refinance all or a portion of the mortgage notes, or redeem the mortgage notes from additional equity funds, on or before their maturity on November 15, 2003. We continuously monitor financial market conditions and our financial position to determine when and whether we will refinance or redeem all or a portion of the mortgage notes prior to their maturity. Page 17 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) Although we intend to refinance and believe that we will be able to refinance the mortgage notes prior to November 15, 2003, our operating performance and ability to service or refinance the mortgage notes and to extend or refinance the revolving credit facility will be subject to future economic conditions and to commercial, financial, and other factors, many of which are beyond our control. There can be no assurances that we will be able to repay at maturity or refinance our indebtedness in whole or in part, or at all, on terms acceptable to us. If we are unable to repay or refinance the mortgage notes at or prior to maturity, we will be forced to adopt alternative strategies that may include seeking additional equity capital. CAPITAL EXPENDITURES Our projected capital spending for 2001 will range between $10.0 million and $12.0 million for operations sustaining capital expenditures. Additional spending is contingent upon the addition of incremental terminaling business. The following table sets forth capital expenditures and separates such expenditures into those which produce, or have the potential to produce, incremental revenues and those which sustain our operations. SUMMARY OF CAPITAL EXPENDITURES BY TYPE (DOLLARS IN THOUSANDS)

We continue to investigate a salt deposit located on a parcel of land very near our Point Tupper facility. At this point in time, we have not established sufficient information to determine whether or not this project will ever produce income. However, it is anticipated that should the project prove successful, it would not produce revenues until at least three years from now. This project, like any project in which we may become involved, will require adequate prospective returns in order to be developed. Through April 30, 2001, we have capitalized $0.9 million related to this project of which approximately $0.3 million was capitalized during the first quarter of 2001. Should this or any project be abandoned, we may incur an immediate charge to write-off any amounts capitalized. We have been reviewing certain commercially available software to determine if such software will perform and extend the functions of our terminal operations software, which has, to date, been developed internally. We have concluded that the commercially available software will not perform the functions of our internally developed terminal operations software without substantial modification. Therefore, we have determined that we will continue the internal development and enhancement of our current terminal operations software. As of March 31, 2001, capitalized costs related to this internally developed software were approximately $0.9 million. Page 18 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (Continued) TAX MATTERS Our Free Zone and Profit Tax Agreement with the island government of St. Eustatius expired on December 31, 2000. The agreement required, among other things, payment of a minimum annual tax of 0.5 million Netherlands Antilles Guilders or approximately $0.3 million. We have been adhering to the terms of this agreement since its expiration. Discussions regarding modification and extension of this agreement are in progress, and we believe that, although some terms and conditions could be modified and that the amounts payable may increase or decrease, extension of this agreement is likely. However, if the beneficial tax status of our facilities is terminated, or if significant adverse modifications are made to the tax agreement, our business, financial condition, results of operations, and cash flows may be adversely affected. ACCOUNTING STANDARDS Effective January 1, 2001, we adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 137 and 138, which establishes standards of accounting for derivative instruments including specific hedge accounting criteria. The adoption of SFAS No. 133 did not have a material impact on us. The Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants is currently formulating a new accounting standard, which is expected to modify the accounting rules for major repairs and maintenance expenditures, among other things. AcSEC has not yet released a draft of this proposed standard for public comment, but is expected to do so shortly. Therefore, we cannot determine at the present time whether or not the ultimate implementation of the final standard by us will have a material effect on our business, financial condition, results of operations, or cash flows. INSURANCE Our current insurance program commenced March 31, 2001, and generally extends 12 months. Our property insurance covers damage to the real and personal property located at our two terminals and administrative offices. The property loss limit is $150 million with a $0.25 million deductible, except for a $125 million property loss limit for certain losses (wind, flood, earthquake, etc.). At St. Eustatius, certain property losses have a deductible of $0.25 million, or 2.5% of the loss less $0.75 million, whichever is greater. We carry various layers of liability coverage of up to $200 million with a deductible of $0.25 million (including coverage for liabilities associated with certain accidental spills). We carry $30 million of property coverage on the offshore single point mooring system at St. Eustatius with a deductible of $0.25 million. We have coverage up to scheduled values for damage to our marine vessels with a $50,000 deductible. We also carry other insurance customary in the industry. Page 19 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We periodically purchase refined petroleum products from our customers and others for resale as bunker fuel, for small volume sales to commercial interests, and to maintain an inventory of blend stocks for our customers. Petroleum product inventories are held for short periods, generally not exceeding 90 days. We do not presently have any derivative positions to hedge our inventory of petroleum products. Therefore, during the period we hold inventory of petroleum products, we are subject to market risk from changes in the global oil markets which may cause the value of this inventory to increase or decrease from the amounts we paid. Such changes are reflected in the gross margins of the product sales segment. The following table indicates the aggregate carrying amount of our petroleum products on hand at March 31, 2001, computed at average costs, net of any lower of cost or market valuation provisions, and the estimated fair value of such products. On Balance Sheet Commodity Position (Dollars in Thousands) As of March 31, 2001 --------------------------------- Carrying Amount Fair Value --------------- ---------- Petroleum Inventory: Statia Terminals N.V. $ 3,316 $ 3,391 Statia Terminals Canada 62 161 --------- -------- Total $ 3,378 $ 3,552 ========= ======== Except for minor local operating expenses in Canadian dollars and Netherlands Antilles guilders, and certain Canadian dollar-denominated revenues, all of our transactions are in U.S. dollars. Therefore, we believe we are not significantly exposed to exchange rate fluctuations. Except for the revolving credit facility varies with changes in the lender's prime lending rate, most of our present debt obligations carry a fixed rate of interest. Therefore, we believe our exposure to interest rate fluctuations is minimal. Page 20 23 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Reference is made to Item 3. Legal Proceedings included in the Company's 2000 Annual Report on Form 10-K. There have been no material developments in the Company's legal proceedings since the Form 10-K was filed. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 5. OTHER INFORMATION. The Company's web site is located at http://www.statiaterm.com. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. None. Page 21 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. STATIA TERMINALS INTERNATIONAL N.V. (Registrant) Date: May 14, 2001 By: /s/ James G. Cameron ----------------------------------- James G. Cameron Director (As Authorized Officer) By: /s/ James F. Brenner ----------------------------------- James F. Brenner Vice President and Treasurer (As Authorized Officer and Principal Financial Officer) STATIA TERMINALS CANADA, INCORPORATED (Registrant) By: /s/ James F. Brenner ----------------------------------- James F. Brenner Vice President-Finance (As Authorized Officer and Principal Financial Officer) Page S-1

STATIA TERMINALS INTERNATIONAL NV 10-Q