UNITED STATES
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, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 001-11763
TRANSMONTAIGNE INC.
Delaware 06-1052062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2750 Republic Plaza, 370 Seventeenth Street
Denver, Colorado 80202
(Address, including zip code, of principal executive offices)
(303) 626-8200
(Telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of April 30, 2000 there were 30,667,024 shares of the registrant's Common
Stock outstanding.
TRANSMONTAIGNE INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 2000 (Unaudited) and June 30, 1999...........................................4
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended March 31, 2000 and 1999 (Unaudited).................5
Condensed Consolidated Statements of Stockholders' Equity
Year Ended June 30, 1999 and
Nine Months Ended March 31, 2000 (Unaudited)...........................................6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2000 and 1999 (Unaudited)..................................7
Notes to Condensed Consolidated Financial Statements...................................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................................19
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................30
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................31
Signatures............................................................................32
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of TransMontaigne Inc. are
included herein beginning on the following page.
3
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets March 31, 2000 (Unaudited) and June 30,
1999 (In thousands, except share amounts)
Assets
- ------ March 31, June 30,
2000 1999
----------------- -----------------
Current assets:
Cash and cash equivalents $ 33,315 13,927
Trade accounts receivable 128,354 174,122
Inventories 185,213 378,207
Prepaid expenses 5,361 4,355
----------------- -----------------
352,243 570,611
----------------- -----------------
Property, plant and equipment:
Land 15,003 15,165
Plant and equipment 338,872 458,749
Accumulated depreciation (34,251) (37,572)
----------------- -----------------
319,624 436,342
----------------- -----------------
Investments and other assets:
Investments in petroleum related assets 46,141 46,141
Deferred tax assets, net 24,938 -
Deferred debt issuance costs, net 9,700 11,529
Unrealized gains on energy related contracts - 8,996
Other assets, net 1,764 21,889
----------------- -----------------
82,543 88,555
----------------- -----------------
$ 754,410 1,095,508
================= =================
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 109,948 164,162
Inventory due under exchange agreements 73,478 25,791
Excise taxes payable 28,644 25,681
Other accrued liabilities 3,921 5,371
Current portion of long-term debt 1,992 2,000
----------------- -----------------
217,983 223,005
----------------- -----------------
Long-term debt 205,000 495,672
Deferred tax liabilities, net - 780
Stockholders' equity:
Preferred stock, par value $.01 per share, authorized 2,000,000 shares,
issued and outstanding 170,115 shares Series A Convertible at March
31, 2000 and June 30, 1999, liquidation preference of $170,115,000 170,115 170,115
Common stock, par value $.01 per share,
authorized 80,000,000 shares at March 31, 2000 and June 30,
1999, issued and outstanding 30,667,024 shares at March 31, 2000
and 30,479,024 shares at June 30, 1999 307 305
Capital in excess of par value 198,696 197,122
Unearned compensation (1,245) -
Retained earnings (accumulated deficit) (36,446) 8,509
----------------- -----------------
331,427 376,051
----------------- -----------------
$ 754,410 1,095,508
================= =================
See accompanying notes to condensed consolidated financial statements.
4
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months and Nine Months Ended March 31, 2000 and 1999 (Unaudited) (In
thousands, except per share amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------- -----------------------------
2000 1999 2000 1999
---------------- ------------ ------------- --------------
Revenues $ 1,209,470 769,369 3,681,502 1,973,790
Costs and expenses:
Product costs 1,175,296 732,320 3,603,635 1,889,610
Operating expenses 11,375 12,403 44,487 31,560
Impairment of long lived assets - - 50,136 -
General and administrative 5,502 5,011 17,202 13,228
Depreciation and amortization 4,730 5,098 17,371 12,019
---------------- ------------ ------------- --------------
1,196,903 754,832 3,732,831 1,946,417
---------------- ------------ ------------- --------------
Operating income (loss) 12,567 14,537 (51,329) 27,373
Other income (expenses):
Dividend income from petroleum related assets 345 560 1,119 899
Interest income 514 144 1,696 903
Gain (loss) on disposition of assets (1,566) - 15,021 -
Interest expense (4,667) (9,463) (23,424) (19,113)
Amortization of deferred debt issuance costs (872) (1,347) (6,663) (2,405)
Other financing costs (224) (443) (714) (875)
---------------- ------------ ------------- --------------
(6,470) (10,549) (12,965) (20,591)
---------------- ------------ ------------- --------------
Earnings (loss) before income taxes 6,097 3,988 (64,294) 6,782
Income tax (expense) benefit (2,442) (1,515) 25,718 (2,577)
---------------- ------------ ------------- --------------
Net earnings (loss) 3,655 2,473 (38,576) 4,205
Preferred stock dividends (2,126) (148) (6,379) (148)
---------------- ------------ ------------- --------------
Net earnings (loss) attributable to
common stockholders $ 1,529 2,325 (44,955) 4,057
================ ============ ============= ==============
Weighted average common shares outstanding:
Basic 30,630 30,471 30,569 28,470
================ ============ ============= ==============
Diluted 30,947 31,189 30,569 29,197
================ ============ ============= ==============
Earnings (loss) per common share:
Basic $ 0.05 0.08 (1.47) 0.14
================ ============ ============= ==============
Diluted $ 0.05 0.07 (1.47) 0.14
================ ============ ============= ==============
See accompanying notes to condensed consolidated financial statements.
5
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
Year Ended June 30, 1999 and Nine Months Ended March 31, 2000 (Unaudited)
(In thousands)
Retained
Capital in earnings
Preferred Common excess of Unearned (accumulated
stock stock par value compensation deficit) Total
------------ ----------- ------------ --------------- -------------- ----------
Balance at June 30, 1998 $ - 260 136,780 (618) 8,844 145,266
Preferred stock issued in connection
with stock purchase agreements 170,115 - - - - 170,115
Costs related to issuance of preferred
stock - - (327) - - (327)
Common stock issued for options
exercised - - 84 - - 84
Common stock issued for services - - 93 - - 93
Tax benefit arising from options
exercised - - 63 - - 63
Unearned compensation related to
restricted stock awards - - 162 (162) - -
Amortization of unearned compensation - - - 780 - 780
Common stock issued in acquisition of
Louis Dreyfus Energy Corp. - 45 60,390 - - 60,435
Common stock repurchased and retired - - (123) - - (123)
Preferred stock dividends - - - - (2,274) (2,274)
Net earnings - - - - 1,939 1,939
------------ ----------- ------------ --------------- -------------- ----------
Balance at June 30, 1999 170,115 305 197,122 - 8,509 376,051
Common stock issued for options
exercised - - 92 - - 92
Unearned compensation related to
restricted stock awards - 2 1,482 (1,484) - -
Amortization of unearned compensation - - - 239 - 239
Preferred stock dividends - - - - (6,379) (6,379)
Net loss - - - - (38,576) (38,576)
------------ ----------- ------------ --------------- -------------- ----------
Balance at March 31, 2000 $ 170,115 307 198,696 (1,245) (36,446) 331,427
============ =========== ============ =============== ============== ==========
See accompanying notes to condensed consolidated financial statements.
6
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2000 and 1999 (Unaudited)
(In thousands)
2000 1999
------------------ ------------------
Cash flows from operating activities:
Net earnings (loss) $ (38,576) 4,205
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 17,371 12,019
Deferred tax expense (benefit) (25,718) 2,212
Loss (gain) on disposition of assets (15,024) 14
Impairment of long lived assets 50,136 -
Amortization of unearned compensation 239 780
Amortization of deferred debt issuance costs 6,663 2,405
Changes in operating assets and liabilities,
net of noncash activities:
Trade accounts receivable 46,099 (26,706)
Inventories 201,990 (61,578)
Prepaid expenses (1,007) (1,218)
Trade accounts payable (55,190) 29,774
Inventory due under exchange
agreements 47,687 3,155
Excise taxes payable and other
accrued liabilities 1,513 7,594
------------------ ------------------
Net cash provided (used)
by operating activities 236,183 (27,344)
------------------ ------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (52,894) (52,695)
Proceeds from disposition of assets 137,325 -
Acquisition of Louis Dreyfus Energy Corp. - (293,057)
Investment in West Shore Pipe Line Company - (35,961)
Increase (decrease) in other assets, net 574 (597)
------------------ ------------------
Net cash provided (used)
by investing activities 85,005 (382,310)
------------------ ------------------
Cash flows from financing activities:
Borrowings (repayments) of long-term debt, net (290,680) 345,508
Deferred debt issuance costs (4,833) (9,531)
Preferred stock issued, net of receivable under preferred
stock purchase agreements - 59,500
Common stock issued 92 35
Common stock repurchased and retired - (123)
Preferred stock dividends paid (6,379) -
------------------ ------------------
Net cash provided (used)
by financing activities (301,800) 395,389
------------------ ------------------
Increase (decrease) in cash
and cash equivalents 19,388 (14,265)
Cash and cash equivalents at beginning of period 13,927 27,215
------------------ ------------------
Cash and cash equivalents at end of period $ 33,315 12,950
================== ==================
See accompanying notes to condensed consolidated financial statements.
7
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Nine Months Ended March 31, 2000 and 1999 (Unaudited)
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------
2000 1999
------------------ ------------------
Supplemental disclosures of cash flow information:
Acquisition of Louis Dreyfus Energy Corp. ("LDEC")
Fair value of assets acquired $ - 456,990
Fair value of liabilities assumed - (103,498)
------------------ ------------------
- 353,492
Fair value of common stock issued - (60,435)
------------------ ------------------
Cash paid in acquisition $ - 293,057
================== ==================
Disposition of Bear Paw Energy Inc. ("BPEI")
Carrying basis of assets sold $ 114,563 -
Net gain on disposition 16,587 -
------------------ ------------------
Total consideration received $ 131,150 -
================== ==================
See accompanying notes to consolidated financial statements.
8
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(1) Summary of Significant Accounting Policies
Nature of Business
TransMontaigne Inc. ("TransMontaigne") provides a broad range of
integrated transportation, terminaling, storage, supply, distribution,
gathering, processing and marketing services to producers, refiners,
distributors, marketers and industrial end-users of petroleum products,
chemicals, other bulk liquids, natural gas and crude oil in the
downstream sector of the petroleum and chemical industries.
TransMontaigne is a holding company which conducts its operations through
wholly-owned subsidiaries primarily in the Mid-Continent, Gulf Coast,
Southeast, Mid-Atlantic, Northeast and Rocky Mountain regions of the
United States. TransMontaigne operations are divided into three
logistical petroleum services business segments: pipelines, which
includes transportation and delivery of refined petroleum products and
crude oil; terminals, which includes terminaling and storage of refined
petroleum products, crude oil, chemicals and other bulk liquids; and
products, which includes supply, distribution and marketing of refined
petroleum products and natural gas liquids ("NGL"); and a natural gas
services business segment which includes gathering, treating, processing,
fractionating and marketing NGL and natural gas, which was divested
effective December 31, 1999. Segment information is presented in the
notes to the condensed consolidated financial statements. TransMontaigne
does not explore for, or produce, crude oil or natural gas; and does not
own crude oil or natural gas reserves.
Basis of Presentation
The condensed consolidated financial statements included in this Form
10-Q have been prepared by TransMontaigne without audit pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, these statements reflect adjustments (consisting only of
normal recurring entries) which are, in the opinion of TransMontaigne
management, necessary for a fair statement of the financial results for
the interim periods. Certain information and notes normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although TransMontaigne believes that the
disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be
read in conjunction with the financial statements and related notes,
together with management's discussion and analysis of financial condition
and results of operations included in TransMontaigne's Annual Report on
Form 10-K for the year ended June 30, 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires TransMontaigne management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Changes in
these estimates and assumptions will occur as a result of the passage of
time and the occurrence of future events, and actual results will differ
from the estimates.
The accounting and financial reporting policies of TransMontaigne and its
subsidiaries conform to generally accepted accounting principles and
prevailing industry practices. All significant intercompany accounts and
transactions have been eliminated in consolidation.
9
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(1) Summary of Significant Accounting Policies (continued)
Inventory Risk Management
TransMontaigne utilizes derivative financial instruments to manage market
risks associated with certain energy commodities.
In connection with its products supply, distribution and marketing
business, TransMontaigne engages in trading activities. Trading
activities are accounted for using the mark-to-market method of
accounting. During the fiscal year ended June 30, 1999, TransMontaigne
adopted the provisions of Emerging Issues Task Force Issue No. 98-10,
Accounting for Contracts Involved in Energy Trading and Risk Management
Activities ("EITF 98-10"), which requires energy trading contracts to be
recorded at fair value on the balance sheet, with the changes in fair
value included in earnings.
Trading activities are conducted through a variety of financial
instruments, including forward contracts involving cash settlement or
physical delivery of energy commodities; swap contracts which require
payments to (or receipts from) counterparties based on the differential
between a fixed and variable price for the commodities; exchange-trade
options; over-the-counter options; and other contractual arrangements.
Under mark-to-market accounting, commodity and energy related contracts
are reflected at fair value with resulting gains and losses recorded in
operating income. The net gains and losses recognized in the current
period result primarily from transactions originating within the period
and the impact of current period price movements on transactions
originating in prior periods. Unrealized gains and losses from energy
trading activities are recorded as assets and liabilities.
The market value of these energy contracts is based upon management's
estimate, considering various factors including closing exchange and
over-the-counter quotations, time value and volatility factors underlying
the commitments. The market values are adjusted to reflect the potential
impact of liquidating TransMontaigne's position in an orderly manner over
a reasonable period of time under present market conditions.
TransMontaigne's Product and Risk Management Committee reviews the total
inventory and risk position on a regular basis in order to ensure
compliance with TransMontaigne's inventory management policies, including
hedging and trading activities. Policy change requires the prior approval
of the Product and Risk Management Committee and the Audit Committee of
the Board of Directors.
Recently Issued Accounting Pronouncement
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 133 establishes
accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. SFAS 133 as amended by SFAS
137 is effective for fiscal quarters of fiscal years beginning after June
15, 2000. TransMontaigne is in the process of assessing the impact, if
any, that SFAS 133 will have on its consolidated financial statements.
10
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(1) Summary of Significant Accounting Policies (continued)
Reclassifications
Certain amounts in the accompanying condensed consolidated financial
statements for prior periods have been reclassified to conform to the
classifications used at March 31, 2000.
(2) Disposition of Assets
Effective December 31, 1999, TransMontaigne sold its natural gas
gathering subsidiary, Bear Paw Energy Inc., ("BPEI"), to BPE Acquisition
LLC ("BPE"), a special purpose entity formed by Bear Paw's management in
association with Thomas J. Edelman and Chase Capital Partners. The sale
of BPEI was for cash consideration of $107.5 million, plus $23.7 million
of retroactive reimbursement for all of the capital expenditures made by
TransMontaigne on BPEI's newly constructed Powder River coal seam
gathering system from July 1, 1999 to December 31, 1999. This disposition
generated an approximate $16.6 million net gain to TransMontaigne. The
$131.2 million total sale proceeds were used to reduce long term debt and
for general corporate purposes.
(3) Acquisitions of Assets
On June 30, 1999, TransMontaigne, through wholly-owned subsidiaries
TransMontaigne Terminaling Inc. ("TTI") and TransMontaigne Product
Services Inc. ("TPSI"), acquired from Amerada Hess Corporation the Hess
Southeastern Pipeline Network ("Hess Terminals") of refined petroleum
product facilities for approximately $66,200,000 cash, and related
refined products inventory for $32,500,000 cash. The Hess Terminals,
which are interconnected to the Colonial and Plantation pipeline systems,
include approximately 5.3 million barrels of tankage at 11 storage and
terminal facilities and 36 miles of proprietary pipelines.
On October 30, 1998, TransMontaigne, through a wholly-owned subsidiary,
TPSI, acquired all of the common stock of LDEC for approximately
$161,000,000, including $100,565,000 cash and 4.5 million shares of
TransMontaigne common stock valued at $60,435,000. In addition,
TransMontaigne acquired LDEC's working capital for $192,492,000 cash. The
LDEC acquisition included 24 refined petroleum products terminal and
storage facilities, of which 7 are wholly owned and 17 are owned jointly
with BP Amoco, together with its supply, distribution and marketing
business. These facilities are located in 9 states in the Southern and
Eastern regions of the United States; have approximately 4.2 million
barrels of TransMontaigne owned storage capacity; and are supplied
primarily by the Colonial and Plantation pipeline systems.
TransMontaigne accounted for these acquisitions using purchase method
accounting as of the effective date of each transaction. Accordingly, the
purchase price of each transaction was allocated to the assets and
liabilities acquired based upon the estimated fair value of those assets
and liabilities as of the acquisition date. TransMontaigne received a
third party appraisal in connection with the LDEC allocation. The cash
used to purchase the above acquisitions was funded by advances from
TransMontaigne's credit facility.
11
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
The following summary presents unaudited actual and pro forma results of
operations. The pro forma information assumes that the acquisition of
LDEC and the sale of BPEI occurred as of July 1, 1998, and combines the
historical results of operations of TransMontaigne, excluding BPEI, for
the three months and nine months ended March 31, 2000 and 1999, with the
historical results of operations of LDEC for the three months and nine
months ended March 31, 2000 and 1999. The unaudited pro forma results of
operations are not necessarily indicative of the results of operations
which would actually have occurred if LDEC had been acquired and BPEI had
been sold as of the beginning of the pro forma period, or which will be
attained in the future.
Three Months Ended March 31, Nine Months Ended March 31,
------------------------------------- -------------------------------------
2000 1999 2000 1999
---------------- --------------- ---------------- ---------------
(Actual) (Pro forma) (Pro forma) (Pro forma)
---------------- --------------- ---------------- ---------------
(In thousands, except per share (In thousands, except per share
amounts) amounts)
Revenues $ 1,209,470 757,431 3,641,883 2,784,760
================ =============== ================ ===============
Net earnings (loss) $ 3,655 3,333 (39,719) 7,825
Preferred stock dividends (2,126) (148) (6,379) (148)
---------------- --------------- ---------------- ---------------
Net earnings (loss) attributable to
common stockholders $ 1,529 3,185 (46,098) 7,677
================ =============== ================ ===============
Earnings (loss) per common share:
Basic $ 0.05 0.10 (1.51) 0.25
================ =============== ================ ===============
Diluted $ 0.05 0.10 (1.51) 0.25
================ =============== ================ ===============
(4) Inventories
TransMontaigne manages inventory by utilizing risk and portfolio
management disciplines including certain hedging strategies, forward
purchases and sales, swaps and other financial instruments to manage
market exposure. In managing inventory balances and related financial
instruments, management evaluates the market exposure from an overall
portfolio basis which considers both continuous movement of inventory
balances and related open positions in commodity trading instruments.
TransMontaigne's refined petroleum products inventory consists primarily
of gasoline and distillates. Inventory is divided into inventory held for
sale or exchange in the ordinary course of business and minimum inventory
which represents working stocks (pipeline in-transit and minimum terminal
inventory), pipeline line fill and terminal tank bottoms. Minimum
inventory is required to be held for operating balances in the conduct of
TransMontaigne's daily supply, distribution and marketing activities and
is maintained both in tanks and pipelines owned by TransMontaigne and
pipelines owned by third parties.
Contractual commitments are subject to risks including market value
fluctuations, as well as counterparty credit and liquidity risk.
TransMontaigne has established procedures to continually monitor these
contracts in order to minimize credit risk, including the establishment
and review of credit limits, margin requirements, master netting
arrangements, letters of credit and other guarantees.
12
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(5) Property, Plant and Equipment
Property, plant and equipment at March 31, 2000 and June 30, 1999 is as
follows (in thousands):
March 31, June 30,
2000 1999
----------------- ------------------
Land $ 15,003 15,165
Pipelines, rights of way
and equipment 36,402 33,661
Terminals and equipment 285,292 296,544
Natural gas gathering
and processing - 108,533
Other plant and equipment 17,178 20,011
----------------- ------------------
353,875 473,914
Less accumulated depreciation 34,251 37,572
----------------- ------------------
$ 319,624 436,342
================= ==================
(6) Investments
TransMontaigne, through its 65% ownership of TransMontaigne Holding Inc.,
effectively owns 18.04% of the common stock of Lion Oil Company ("Lion").
Lion owns a 65,000 barrel per day refinery in El Dorado, Arkansas; a
188-mile crude oil transportation pipeline in east Texas; a 1,100-mile
crude oil gathering system in south Arkansas and north Louisiana; and two
refined petroleum products terminals in Tennessee. At March 31, 2000 and
June 30, 1999, TransMontaigne's investment in Lion, carried at cost, was
approximately $10,111,000.
TransMontaigne, through a wholly-owned subsidiary, TransMontaigne
Pipeline Inc., owns 20.38% common stock interest in West Shore Pipe Line
Company ("West Shore"). Although TransMontaigne owns 20.38%, it does not
exercise significant influence over the operations of West Shore and
therefore carries its $35,960,000 investment at cost. TransMontaigne
recorded dividend income from West Shore of $1,119,000 and $899,000
during the nine months ended March 31, 2000 and 1999, respectively.
(7) Impairment on long lived assets
During the three months ended December 31, 1999, TransMontaigne recorded
non-cash impairment charges totaling $50.1 million, before income taxes.
These charges include $31.9 million relating to certain of
TransMontaigne's refined petroleum product terminals added in the 1998
acquisition of LDEC and $18.2 million relating to certain intangible
assets recorded as a result of the same acquisition. In accordance with
generally accepted accounting principles, TransMontaigne is required to
review the book values of long lived assets for impairment. In
calculating this impairment charge, TransMontaigne applied SFAS 121 in
estimating future cash flows by terminal, discounting those estimated
future cash flows at a 10% rate, which approximates TransMontaigne's cost
of capital, and then comparing the discounted future cash flows to the
net book value of each terminal. The impairment charge resulted from the
change in the planned use of certain terminals and the abandonment of a
pipeline that supplied one terminal, thereby significantly impacting the
economic viability of such terminals. Each of these factors reduced or
eliminated future cash flows. The $31.9 million impairment charge for the
terminals reduces the book value of these assets to their estimated fair
value as determined in TransMontaigne's impairment analysis.
The additional $18.2 million impairment charge for the intangible assets
represents the unamortized balance of these assets. Management's review
of the market location differentials associated with these assets showed
that TransMontaigne received little or no value from these assets in the
last twelve months. In addition, management does not anticipate any
material future value utilizing these assets.
13
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(8) Long-term Debt
Long-term debt at March 31, 2000 and June 30, 1999 is as follows (in
thousands):
March 31, June 30,
2000 1999
------------------ ------------------
Line of credit $ 155,000 418,690
Senior promissory notes 50,000 75,000
123/4% senior subordinated debentures, net
of discount 1,992 3,982
------------------ ------------------
206,992 497,672
Less current maturity 1,992 2,000
------------------ ------------------
$ 205,000 495,672
================== ==================
TransMontaigne amended its bank credit facility and Master Shelf
Agreement effective December 31, 1999. The amended bank credit facility
was reduced to a $395,000,000 credit facility consisting of a
$300,000,000 revolving component due December 31, 2003 and a $95,000,000
term component due June 30, 2006. The term component has quarterly
principal payments required beginning in September 2000. Borrowings under
this credit facility bear interest at an annual rate equal to the
lender's Alternate Base Rate plus margins, subject to a Eurodollar Rate
pricing option at TransMontaigne's election. The effective interest rate
at March 31, 2000 was 8.7%.
In April 1997, TransMontaigne entered into a Master Shelf Agreement with
an institutional lender which provides that the lender will agree to
quote, from time to time, an interest rate at which the lender would be
willing to purchase, on an uncommitted basis, up to $100 million of
TransMontaigne's senior promissory notes which will mature in no more
than 12 years, with an average life not in excess of 10 years. On April
17, 1997 and December 16, 1997, TransMontaigne sold $50,000,000 of 7.85%
and $25,000,000 of 7.22% Senior Notes due April 17, 2003 and October 17,
2004, respectively. Under the amended Master Shelf Agreement, the
commitment was reduced to $75,000,000. On January 20, 2000,
TransMontaigne paid down $25,000,000 of the $50,000,000 of 7.85% senior
notes with a portion of the proceeds from the sale of BPEI.
Each of the amended bank credit facility and amended Master Shelf
Agreement is secured by certain current assets and fixed assets, and each
also includes financial tests relating to fixed charge coverage, current
ratio, maximum leverage ratio, consolidated tangible net worth, cash
distributions and open inventory positions. As of March 31, 2000,
TransMontaigne was in compliance with all such tests contained in the
amended agreements.
At March 31, 2000 TransMontaigne had an outstanding balance of $2,000,000
of the originally issued $4,000,000 of 12.75% senior subordinated
debentures which are guaranteed by certain subsidiaries. The outstanding
debentures are subject to a required redemption on December 15, 2000. The
debentures may be prepaid prior to maturity at a premium, under certain
circumstances. In conjunction with the issuance of these debentures,
TransMontaigne issued warrants to purchase 248,686 shares of its common
stock at $3.60 per share.
Cash payments for interest were approximately $22,855,000 and $17,188,000
for the nine months ended March 31, 2000 and 1999, respectively.
14
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(9) Stockholders' Equity
On March 25, 1999 and March 30, 1999, TransMontaigne closed a private
placement of $170,115,000 of $1,000 Series A Convertible Preferred Stock
Units (the "Units"). Each Unit consists of one share of 5% convertible
preferred stock (the "Preferred Stock"), convertible into common stock at
$15 per share, and 66.67 warrants, each warrant exercisable to purchase
six-tenths of a share of common stock at $14 per share. Dividends are
cumulative and payable quarterly. TransMontaigne may redeem the Preferred
Stock on December 31, 2003 at the liquidation value of $1,000 per share
plus any accrued but unpaid dividends. If the Preferred Stock remains
outstanding after December 31, 2003, the dividend rate will increase to
an annual rate of 16%. The Preferred Stock is convertible any time and
may be called for redemption by TransMontaigne after the second year if
the market price of the common stock is greater than 175% of the
conversion price at the date of the call. Proceeds were used to reduce
bank debt incurred in connection with the LDEC acquisition and for
general corporate purposes.
(10) Restricted Stock
TransMontaigne has a restricted stock plan that provides for awards of
common stock to certain key employees, subject to forfeiture if
employment terminates prior to the vesting dates. The market value of
shares awarded under the plan is recorded in stockholders' equity as
unearned compensation. During the nine months ended March 31, 2000 and
1999, the TransMontaigne Compensation Committee of the Board of Directors
awarded 175,000 and 12,000 shares to certain key employees, respectively.
At March 25, 1999, the vesting of all the shares not then vested was
accelerated due to an ownership change resulting from the private
placement of the Series A Convertible Preferred Stock and the unamortized
balance of the unearned compensation was fully amortized. Amortization of
unearned compensation of $239,000 and $780,000 is included in general and
administrative expense for the nine months ended March 31, 2000 and 1999,
respectively.
(11) Litigation
TransMontaigne is a party to various claims and litigation in its normal
course of business. Although no assurances can be given, TransMontaigne
management believes that the ultimate resolution of such claims and
litigation, individually or in the aggregate, will not have a materially
adverse impact on TransMontaigne's financial position or its results of
operations.
15
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(12) Earnings Per Share ("EPS")
The following table reconciles the computation of basic EPS and diluted
EPS for the three months and nine months ended March 31, 2000 and 1999:
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------- -----------------------------
2000 1999 2000 1999
-------------- --------------- ----------- --------------
(In thousands, (In thousands,
except per share amounts) except per share amounts)
Net earnings (loss) $ 3,655 2,473 (38,576) 4,205
Preferred stock dividends (2,126) (148) (6,379) (148)
-------------- --------------- ----------- --------------
Net earnings (loss) attributable to common
stockholders for basic EPS 1,529 2,325 (44,955) 4,057
Effect of dilutive securities - - - -
-------------- --------------- ----------- --------------
Net earnings (loss) attributable to common
stockholders for diluted EPS $ 1,529 2,325 (44,955) 4,057
============== =============== =========== ==============
Basic weighted-average shares 30,630 30,471 30,569 28,470
Effect of dilutive securities:
Stock options 228 542 - 546
Stock warrants 89 176 - 181
-------------- --------------- ----------- --------------
Diluted weighted-average shares 30,947 31,189 30,569 29,197
============== =============== =========== ==============
Earnings (loss) per shares:
Basic $ 0.05 0.08 (1.47) 0.14
============== =============== =========== ==============
Diluted $ 0.05 0.07 (1.47) 0.14
============== =============== =========== ==============
16
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(13) Business Segments
TransMontaigne provides a broad range of integrated transportation,
terminaling, supply, distribution, gathering, processing and marketing
services to producers, refiners, distributors, marketers and industrial
end-users of petroleum products, chemicals, other bulk liquids, natural
gas and crude oil in the downstream sector of the petroleum and chemical
industries. TransMontaigne conducts its business through five segments:
o Products - consists of services for the supply and distribution of
refined petroleum products through product exchanges, and bulk
purchases and sales in the physical, futures cash and New York
Mercantile Exchange ("NYMEX") markets, and the marketing of
refined petroleum products and NGL to retail, wholesale and
industrial customers at truck terminal rack locations, and
providing related value-added fuel procurement and management
services.
o Terminals - consists of services provided through the ownership
and/or operation of terminaling and storage facilities handling
petroleum products, chemicals and other bulk liquids with receipt
and delivery connections via pipelines, barges, tankers, rail cars
and trucks.
o Pipelines - consists of services provided through the ownership
and operation of refined petroleum product pipelines, and a crude
oil gathering pipeline system, and related delivery and storage
facilities with interconnections to other pipelines and to
terminaling, storage delivery facilities.
o Natural gas - consists of services provided through the ownership
and operation of natural gas pipeline gathering systems,
processing plants and related facilities for the gathering,
treating, processing, fractionating and reselling of natural gas
and NGL. This segment was eliminated effective December 31, 1999
(see Note 2).
o Corporate - consists of assets and corporate income and expense
not specifically included in other business segments.
Eliminations represent intercompany transactions between TransMontaigne's
business segments, primarily relating to services performed by the
terminals and pipelines segments for and sales of NGL by the natural gas
segment to the product segment.
For the nine months ended March 31, 2000, revenues; depreciation and
amortization; operating income; and capital expenditure amounts for the
natural gas segment reflect the activities prior to the sale of this
subsidiary effective December 31, 1999 (see Note 2). Accordingly, no
identifiable assets are shown for this segment at March 31, 2000. Also,
operating income for the products segment does not include the
$18,236,000 expense and the terminals segment does not include the
$31,900,000 expense related to the impairment of long lived assets for
the nine months ended March 31, 2000.
17
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(13) Business Segments (continued)
Information about TransMontaigne's business segments for the three months
and nine months ended March 31, 2000 and 1999 is summarized below (in
thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------- -----------------------------
2000 1999 2000 1999
--------------- -------------- ------------- ------------
Revenues:
Products $ 1,199,919 751,344 3,634,246 1,931,159
Terminals 15,440 11,877 47,268 27,256
Pipelines 3,483 3,288 11,509 11,154
Natural gas - 11,938 39,620 39,162
Corporate 89 418 953 1,227
Eliminations (9,461) (9,496) (52,094) (36,168)
--------------- -------------- ------------- ------------
Total consolidated $ 1,209,470 769,369 3,681,502 1,973,790
=============== ============== ============= ============
Depreciation and amortization:
Products $ 12 4 503 14
Terminals 3,726 2,968 10,701 5,934
Pipelines 375 295 1,068 807
Natural gas - 1,490 3,141 4,420
Corporate 617 341 1,958 844
--------------- -------------- ------------- ------------
Total consolidated $ 4,730 5,098 17,371 12,019
=============== ============== ============= ============
Operating income (loss):
Products $ 10,139 12,107 (15,596) 18,520
Terminals 3,538 3,282 9,640 8,512
Pipelines 262 (128) 2,006 2,117
Natural gas - (274) 5,262 1,074
Corporate (1,372) (450) (2,505) (2,850)
--------------- -------------- ------------- ------------
Total consolidated $ 12,567 14,537 (1,193) 27,373
=============== ============== ============= ============
Identifiable assets:
Products $ 309,085 478,902 309,085 478,902
Terminals 283,735 250,695 283,735 250,695
Pipelines 66,435 64,996 66,435 64,996
Natural gas - 95,672 - 95,672
Corporate 100,630 51,745 100,630 51,745
Eliminations (5,475) (7,701) (5,475) (7,701)
--------------- -------------- ------------- ------------
Total consolidated $ 754,410 934,309 754,410 934,309
=============== ============== ============= ============
Capital expenditures:
Products $ - - - -
Terminals 6,314 7,397 22,568 36,991
Pipelines 379 2,360 2,384 8,171
Natural gas - 1,980 24,265 4,506
Corporate 281 734 3,677 3,027
--------------- -------------- ------------- ------------
Total consolidated $ 6,974 12,471 52,894 52,695
=============== ============== ============= ============
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
TransMontaigne provides a broad range of integrated transportation, terminaling,
storage, supply, distribution, gathering, processing and marketing services to
producers, refiners, distributors, marketers and industrial end-users of
petroleum products, chemicals, other bulk liquids, natural gas and crude oil in
the downstream sector of the petroleum and chemical industries. TransMontaigne
is a holding company which conducts its operations through wholly-owned
subsidiaries primarily in the Mid-Continent, Gulf Coast, Southeast,
Mid-Atlantic, Northeast and Rocky Mountain regions of the United States.
TransMontaigne operations are divided into three business segments: pipelines,
which includes transportation and delivery of refined petroleum products and
crude oil; terminals, which includes terminaling and storage of refined
petroleum products, crude oil, chemicals and other bulk liquids; and products,
which includes supply, distribution and marketing of refined petroleum products
and natural gas liquids; and a natural gas services business segment which
includes gathering, treating, processing, fractionating and marketing natural
gas liquids ("NGL") and natural gas, which was divested effective December 31,
1999. Segment information is presented in the notes to the condensed
consolidated financial statements. TransMontaigne does not explore for, or
produce, crude oil or natural gas; and does not own crude oil or natural gas
reserves.
TransMontaigne owns and operates refined petroleum products, chemicals, other
bulk liquids, crude oil and natural gas assets. TransMontaigne's refined
petroleum products, chemicals, other bulk liquids and crude oil assets consist
primarily of 3 pipeline systems with approximately 850 miles of petroleum
products and crude oil pipeline and 73 terminal, storage and delivery facilities
located in 19 states with a combined tank storage capacity of approximately
21,000,000 barrels. TransMontaigne also extensively utilizes refined petroleum
products common carrier pipelines and terminals owned by third parties in order
to increase product volumes shipped, marketed and sold to and exchanged with
customers in other locations. Effective December 31, 1999, TransMontaigne sold
its natural gas gathering and processing assets which consisted of 6 gathering
and processing systems in 4 states and 1 Canadian province with combined
throughput capacity of 115 million cubic feet per day and over 2,900 miles of
pipelines.
DISPOSITIONS
Effective December 31, 1999, TransMontaigne sold its natural gas gathering
subsidiary, Bear Paw Energy Inc., ("BPEI"), to BPE Acquisition LLC ("BPE"), a
special purpose entity formed by BPEI's management in association with
Thomas J. Edelman and Chase Capital Partners. The sale of BPEI was for cash
consideration of $107.5 million, plus $23.7 million of retroactive reimbursement
for all of the capital expenditures made by TransMontaigne on BPEI's newly
constructed Powder River coal seam gathering system from July 1, 1999 to
December 31, 1999. This disposition generated an approximate $16.6 million net
gain to TransMontaigne. The $131.2 million total sale proceeds were used to
reduce long term debt and for general corporate purposes.
ACQUISITIONS
On June 30, 1999, TransMontaigne acquired from Amerada Hess Corporation the Hess
Terminals for approximately $66,200,000 cash and related refined products
inventory for approximately $32,500,000 cash. The Hess Terminals, which are
interconnected to the Colonial and Plantation pipeline systems, include
approximately 5.3 million barrels of tankage at 11 storage and terminal
facilities and 36 miles of proprietary pipelines.
On October 30, 1998, TransMontaigne acquired all of the common stock of LDEC for
approximately $161,000,000, including $100,565,000 cash and 4.5 million shares
of TransMontaigne common stock valued at $60,435,000. In addition,
TransMontaigne acquired LDEC's working capital for $192,492,000 cash. The LDEC
acquisition included 24 refined petroleum products terminal and storage
facilities, of which 7 are wholly owned and 17 are owned jointly with BP Amoco,
together with its supply, distribution and marketing business. These facilities
are located in 9 states in the Southern and Eastern regions of the United
States; have approximately 4.2 million barrels of TransMontaigne owned storage
capacity; and are supplied primarily by the Colonial and Plantation pipeline
systems.
19
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Important factors which could cause actual
results to differ materially from those in the forward looking statements herein
include but are not limited to the following: TransMontaigne's success in
expanding its business by capitalizing on the trend by other companies in the
oil and gas industry to divest assets and outsource certain services,
TransMontaigne will generate net operating margins affected by price volatility
of products purchased and sold, TransMontaigne will enter into transactions with
counterparties having the ability to meet their financial commitments to
TransMontaigne, TransMontaigne will not incur unanticipated costs in complying
with current and future environmental regulations, TransMontaigne will generate
working capital internally, or have the ability to access debt and equity
resources, to meet its capital requirements, operating and financial risk
related to managing rapid growth. Although TransMontaigne believes that its
expectations are based on reasonable assumptions, it can give no assurance that
its goals will be achieved.
RESULTS OF OPERATIONS
TransMontaigne reported net earnings of $3,655,000 for the three months ended
March 31, 2000, compared to net earnings of $2,473,000 for the three months
ended March 31, 1999, an increase of $1,182,000. After preferred stock
dividends, net earnings attributable to common stockholders were $1,529,000 and
$2,325,000 for the three months ended March 31, 2000 and 1999, respectively.
Earnings per common share for the three months ended March 31, 2000 was $0.05
basic and diluted based on 30,630,000 weighted average basic and 30,947,000
weighted average diluted shares outstanding compared to $.08 basic and $.07
diluted for the three months ended March 31, 1999.
TransMontaigne reported a net loss of $38,576,000 for the nine months ended
March 31, 2000, compared to net earnings of $4,205,000 for the nine months ended
March 31, 1999, a decrease of $42,781,000. After preferred stock dividends, net
earnings (loss) attributable to common stockholders were $(44,955,000) and
$4,057,000 for the nine months ended March 31, 2000 and 1999, respectively. Loss
per common share for the nine months ended March 31, 2000 was $1.47 basic and
diluted based on 30,569,000 weighted average basic and diluted shares
outstanding compared to earnings per share of $.14 basic and diluted for the
nine months ended March 31, 1999.
Included in TransMontaigne's net loss for the nine months ended March 31, 2000
is an impairment charge on long lived assets of approximately $50.1 million ($30
million after tax) which was offset by a gain on the sale of BPEI of
approximately $16.6 million ($10 million after tax).
20
RESULTS OF OPERATIONS (continued)
Selected financial data from TransMontaigne's business segments are summarized
below (in thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- ----------
Net operating margins (1):
Product operations:
Sales, exchanges and product arbitrage $ 15,133 14,312 5,676 23,089
Costs related to minimum inventory (2) (2,429) - (12,855) -
----------- ----------- ----------- ----------
12,704 14,312 (7,179) 23,089
Terminal operations 8,788 6,686 24,965 15,519
Pipeline operations 1,307 1,280 5,104 5,660
Natural gas services operations - 2,368 10,490 8,352
----------- ----------- ----------- ----------
Total net operating margins 22,799 24,646 33,380 52,620
Impairment to long lived assets - - 50,136 -
General and administrative expenses 5,502 5,011 17,202 13,228
Depreciation and amortization expenses 4,730 5,098 17,371 12,019
----------- ----------- ----------- ----------
Operating income (loss) 12,567 14,537 (51,329) 27,373
Interest expense and related financing costs (5,763) (11,253) (30,801) (22,393)
Dividend and interest income 859 704 2,815 1,802
Gain (loss) on disposition of assets (1,566) - 15,021 -
Income tax (expense) benefit (2,442) (1,515) 25,718 (2,577)
----------- ----------- ----------- ----------
Net earnings (loss) 3,655 2,473 (38,576) 4,205
Preferred stock dividends (2,126) (148) (6,379) (148)
----------- ----------- ----------- ----------
Net earnings (loss) attributable to common stockholders $ 1,529 2,325 (44,955) 4,057
=========== =========== =========== ==========
(1) Net operating margins represent revenues less product costs and operating
expenses for the product and natural gas services segments and revenues
less operating expenses for terminal and pipeline operations.
(2) TransMontaigne did not measure the costs related to its minimum inventory
separately in the prior periods since it was not on mark to market
accounting for its inventories. Therefore, there is not a comparable amount
for the prior period.
Selected volumetric data for TransMontaigne's business segments are summarized
below:
Three Months Ended Nine Months Ended March
March 31, 31,
------------------------- -------------------------
2000 1999 2000 1999
----------- ---------- ---------- ----------
Products volumes - barrels per day 421,112 407,719 619,590 372,504
Terminal volumes - barrels per day 420,358 386,615 478,069 276,721
Pipeline volumes - barrels per day 58,480 54,288 73,036 62,955
Note: 1 barrel equals 42 gallons
21
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1999
Product Operations
Product revenues and fees are generated from bulk sales and exchanges of refined
petroleum products to major energy companies and large independent energy
companies; wholesale distribution and sales of refined petroleum products to
jobbers and retailers; regional and national industrial end-user and commercial
wholesale storage and forward sales marketing contracts of refined petroleum
products; and tailored short and long-term fuel margin and risk management
arrangements to wholesale, retail and industrial end-users. Refined petroleum
products storage and forward sales transactions enable TransMontaigne to
purchase refined petroleum products inventory; utilize proprietary and leased
tankage, as well as line space controlled by TransMontaigne in major common
carrier pipelines; arbitrage location product prices differentials and
transportation costs; store the inventory; and, depending upon market
conditions, realize margins through sales in the futures cash market or NYMEX
contracts. All energy related contracts are marked to market with changes being
recognized in operations. Margin and risk management provide both
TransMontaigne's large and small volume customers an assured, ratable and cost
effective short or long-term delivered source of refined petroleum product
supply through proprietary pipelines and terminals, as well as through
non-proprietary pipeline, terminal, truck, rail and barge distribution channels.
TransMontaigne's refined petroleum products inventory consists primarily of
gasoline and distillates. Inventory is divided into inventory held for sale or
exchange in the ordinary course of business and minimum inventory which
represents working stocks (pipeline in-transit and minimum terminal inventory),
pipeline line fill and terminal tank bottoms. Minimum inventory is required to
be held for operating balances in the conduct of TransMontaigne's daily supply,
distribution and marketing activities and is maintained both in tanks and
pipelines owned by TransMontaigne and pipelines owned by third parties.
Product costs of product operations consist primarily of the cost of products
purchased, but also include transportation, storage, terminaling and sales
commission costs. In addition, product costs include the market valuation change
of the refined petroleum products minimum inventory.
Operating expenses of product operations primarily include wages and employee
benefits, property taxes, travel and entertainment expenses.
The net operating margin from product operations for the three months ended
March 31, 2000 was $12,704,000, which includes $2,429,000 costs related to
minimum inventory. This net operating margin compares to a net operating margin
of $14,312,000 for the three months ended March 31, 1999. Revenues were
$1,199,919,000 for the three months ended March 31, 2000 compared to
$751,344,000 for the three months ended March 31, 1999, an increase of
$448,575,000. Revenue increases were due to an increase in barrels sold, which
included the reduction of minimum inventory barrels required to be held, and an
increase in the price per barrel of refined petroleum products over the prior
year quarter.
TransMontaigne continued its strategy of hedging both its discretionary and
minimum inventory during the three months ended March 31, 2000. TransMontaigne
strategically reduced its minimum inventory levels while maximizing margins and
reducing costs related to the remaining 2 million minimum inventory barrels. For
the three months ended March 31, 2000, the petroleum market pricing structure,
as indicated by the NYMEX futures market, was in an inverse for gasoline of
approximately $.023 per gallon, i.e., nearby futures prices were higher than the
succeeding periods. This compares to a $.032 per gallon carry, i.e., nearby
futures prices were lower than succeeding periods, for the same period in 1999.
For the quarter ended March 31, 2000, the distillate market was in an inverse of
approximately $.088 per gallon. This compares to $.007 average per gallon carry
for the same period in 1999. TransMontaigne obtains maximum margin by utilizing
its storage space and inventory positions when the market structure is in a
carry.
22
Terminal Operations
Terminal revenues are based on the volume of refined petroleum products handled
at TransMontaigne terminal loading racks, generally at a standard per gallon
rate. Storage fees are generally based on a per barrel rate or tankage capacity
committed and will vary with the duration of the arrangement, the product stored
and special handling requirements, particularly when certain types of chemicals
and other bulk liquids are involved.
Operating expenses of terminal operations include wages and employee benefits,
utilities, communications, maintenance and repairs, property taxes, rent,
insurance, vehicle expenses, environmental compliance costs, materials and
supplies.
The net operating margin from terminal operations for the three months ended
March 31, 2000 was $8,788,000 compared to $6,686,000 for the three months ended
March 31, 1999, an increase of $2,102,000. The margin per barrel for the three
months ended March 31, 2000 of $.23 increased $.04 compared to the three months
ended March 31, 1999. The increases in net operating margin and margin per
barrel resulted from a $3,563,000 increase in revenues which was partially
offset by a $1,461,000 increase in operating costs. These increases were the
result of terminal acquisitions during the past year and the related additional
3,457,000 barrels handled.
Pipeline Operations
Pipeline revenues are based on the volume of refined petroleum products or crude
oil transported and the distance from the origin point to the delivery point.
TransMontaigne's interstate pipeline systems transport refined petroleum
products and their tariffs are regulated by the Federal Energy Regulatory
Commission ("FERC"). TransMontaigne's intrastate pipeline transports crude oil
and its tariffs are not regulated by the FERC, but are regulated by the Texas
Railroad Commission.
Operating expenses of pipeline operations include wages and employee benefits,
utilities, communications, maintenance and repairs, property taxes, rent,
insurance, vehicle expenses, environmental compliance costs, materials and
supplies.
The net operating margin from pipeline operations for the three months ended
March 31, 2000 was $1,307,000 compared to $1,280,000 for the three months ended
March 31, 1999, an increase of $27,000. The margin per barrel for the three
months ended March 31, 2000 of $.24 decreased $.02 compared to the three months
ended March 31, 1999. Pipeline volumes per day increased 4,192 barrels,
primarily due to increased short haul movements in the East Chicago area. The
decreases in the net operating margin and the margin per barrel resulted from a
decrease in higher tariff movements, a minimal increase in operating costs and
the transfer of non-carrier assets and their associated margins to terminal
operations.
Natural Gas Services Operations
This segment was eliminated effective December 31, 1999 (see Note 2).
23
Corporate and Other
General and administrative expenses for the three months ended March 31, 2000
were $5,502,000 compared to $5,011,000 for the three months ended March 31,
1999, an increase of $491,000. The increase was due primarily to lease contract
cancellation costs accrued of approximately $1,000,000.
Depreciation and amortization expenses for the three months ended March 31, 2000
were $4,730,000 compared to $5,098,000 for the three months ended March 31,
1999, a decrease of $368,000. The decrease was due primarily to the disposition
of the natural gas services assets of Bear Paw Energy Inc. as of December 31,
1999, partially offset by the acquisition of the Hess Terminals.
Dividend income for the three months ended March 31, 2000 was $345,000 compared
to $560,000 for the three months ended March 31, 1999, a decrease of $215,000.
The dividend income is solely from West Shore. Increased operating expenses at
West Shore resulted in the decreased dividends. Interest income for the three
months ended March 31, 2000 was $514,000 compared to $144,000 for the three
months ended March 31, 1999, an increase of $370,000. The increase in interest
income was due primarily to the increase in interest bearing cash balances.
Interest expense, amortization of deferred debt issuance costs, and other
financing costs during the three months ended March 31, 2000 were $5,763,000
compared to $11,253,000 during the three months ended March 31, 1999, a decrease
of $5,490,000. The decrease in interest expense of $4,796,000 was due to a
decrease in average outstanding debt of $307,045,000 with proceeds from the
reduction of financed inventory and sale of BPEI assets, partially offset by an
increased average interest rates from 7.0% to 8.0%. Amortization of deferred
debt issuance costs decreased $475,000, primarily due to the reduction of
deferred debt costs associated with the pay down of debt facilities which were
expensed.
Income tax expense was $2,442,000 for the three months ended March 31, 2000,
which represents an effective combined federal and state income tax rate of 40%.
Income tax expense was $1,515,000 for the three months ended March 31, 1999,
which represents an effective combined federal and state income tax rate of 38%.
The net earnings for the three months ended March 31, 2000 was $3,655,000
compared to $2,473,000 for the three months ended March 31, 1999, an increase of
$1,182,000. The increase was due to increased net operating margin contribution
from terminal operations and a reduction in interest expense and related
financing costs, primarily attributable to a reduction in average outstanding
debt. These increases were partially offset by reduced net operating margin
contributions from product operations, elimination of net operating margin from
natural gas services, increased general and administrative expenses, the loss on
disposition of assets and increased deferred tax expense.
Preferred stock dividends on the Series A Convertible Preferred Stock were
$2,126,000 and $148,000 for the three months ended March 31, 2000 and 1999,
respectively. The preferred stock dividends for the three months ended March 31,
2000 were paid March 30, 2000.
24
NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO
NINE MONTHS ENDED MARCH 31, 1999
Product Operations
Product revenues and fees are generated from bulk sales and exchanges of refined
petroleum products to major energy companies and large independent energy
companies; wholesale distribution and sales of refined petroleum products to
jobbers and retailers; regional and national industrial end-user and commercial
wholesale storage and forward sales marketing contracts of refined petroleum
products; and tailored short and long-term fuel margin and risk management
arrangements to wholesale, retail and industrial end-users. Refined petroleum
products storage and forward sales transactions enable TransMontaigne to
purchase refined petroleum products inventory; utilize proprietary and leased
tankage, as well as line space controlled by TransMontaigne in major common
carrier pipelines; arbitrage location product prices differentials and
transportation costs; store the inventory; and, depending upon market
conditions, realize margins through sales in the futures cash market or NYMEX
contracts. All energy related contracts are marked to market with changes being
recognized in operations. Margin and risk management provide both
TransMontaigne's large and small volume customers an assured, ratable and cost
effective short or long-term delivered source of refined petroleum product
supply through proprietary pipelines and terminals, as well as through
non-proprietary pipeline, terminal, truck, rail and barge distribution channels.
TransMontaigne's refined petroleum products inventory consists primarily of
gasoline and distillates. Inventory is divided into inventory held for sale or
exchange in the ordinary course of business and minimum inventory which
represents working stocks (pipeline in-transit and minimum terminal inventory),
pipeline line fill and terminal tank bottoms. Minimum inventory is required to
be held for operating balances in the conduct of TransMontaigne's daily supply,
distribution and marketing activities and is maintained both in tanks and
pipelines owned by TransMontaigne and pipelines owned by third parties.
Product costs of product operations consist primarily of the cost of products
purchased, but also include transportation, storage, terminaling and sales
commission costs. In addition, product costs include the market valuation change
of the refined petroleum products minimum inventory.
Operating expenses of product operations primarily include wages and employee
benefits, property taxes, travel and entertainment expenses.
The net operating loss from product operations for the nine months ended March
31, 2000 was $7,179,000, which includes $12,855,000 costs related to minimum
inventory and an increase of $1,750,000 in the reserve for doubtful accounts.
This net operating loss compares to a net operating margin of $23,089,000 for
the nine months ended March 31, 1999. Revenues were $3,634,246,000 for the nine
months ended March 31, 2000 compared to $1,931,159,000 for the nine months ended
March 31, 1999, an increase of $1,703,087,000. Revenue increases were due to an
increase in barrels sold, which included the liquidation of discretionary
barrels held and the reduction of minimum inventory barrels held; an increase in
the price per barrel of refined petroleum products over the prior year; and the
inclusion of nine months of LDEC operations, whereas the prior year had only
five months of operations.
TransMontaigne's strategy of hedging both its discretionary and minimum
inventory resulted in no benefit from the significant price increase of crude
oil and refined petroleum products during the nine months ended March 31, 2000.
For the nine months ended March 31, 2000, the petroleum market pricing
structure, as indicated by the NYMEX futures market, was in an inverse for
gasoline of approximately $.027 per gallon, i.e., nearby futures prices were
higher than the succeeding periods. This compares to a $.017 carry, i.e., nearby
futures prices were lower than succeeding periods, for the same period in 1999.
For the nine months ended March 31, 2000, the distillate market began in a carry
of approximately $.014 per gallon and then moved to a $.066 per gallon inverse
at March 31, 2000. This compares to average carry of approximately $.018 per
gallon for the same period in 1999. TransMontaigne obtains maximum margin by
utilizing its storage space and inventory positions when the market structure is
in a carry.
25
Terminal Operations
Terminal revenues are based on the volume of refined petroleum products handled
at TransMontaigne terminal loading racks, generally at a standard per gallon
rate. Storage fees are generally based on a per barrel rate or tankage capacity
committed and will vary with the duration of the arrangement, the product stored
and special handling requirements, particularly when certain types of chemicals
and other bulk liquids are involved.
Operating expenses of terminal operations include wages and employee benefits,
utilities, communications, maintenance and repairs, property taxes, rent,
insurance, vehicle expenses, environmental compliance costs, materials and
supplies.
The net operating margin from terminal operations for the nine months ended
March 31, 2000 was $24,965,000 compared to $15,519,000 for the nine months ended
March 31, 1999, an increase of $9,446,000. The margin per barrel for the nine
months ended March 31, 2000 of $.19 decreased $.01 compared to the nine months
ended March 31, 1999. The increase in net operating margin resulted from a
$20,012,000 increase in revenues which was partially offset by a $10,566,000
increase in operating costs. These increases were primarily the result of
terminal acquisitions during the past year and the related additional 55,647,000
barrels handled.
Pipeline Operations
Pipeline revenues are based on the volume of refined petroleum products or crude
oil transported and the distance from the origin point to the delivery point.
TransMontaigne's interstate pipeline systems transport refined petroleum
products and their tariffs are regulated by the FERC. TransMontaigne's
intrastate pipeline transports crude oil and its tariffs are not regulated by
the FERC, but are regulated by the Texas Railroad Commission.
Operating expenses of pipeline operations include wages and employee benefits,
utilities, communications, maintenance and repairs, property taxes, rent,
insurance, vehicle expenses, environmental compliance costs, materials and
supplies.
The net operating margin from pipeline operations for the nine months ended
March 31, 2000 was $5,104,000 compared to $5,660,000 for the nine months ended
March 31, 1999, a decrease of $556,000. The margin per barrel for the nine
months ended March 31, 2000 of $.25 decreased $.07 compared to the nine months
ended March 31, 1999. Pipeline volumes per day increased 10,081 barrels,
primarily due to increased short haul movements in the East Chicago area. The
decreases in the net operating margin and the margin per barrel resulted from a
decrease in higher tariff movements, an increase in operating costs, and the
transfer of non-carrier assets and their associated margins to terminal
operations.
Natural Gas Services Operations
This segment was eliminated effective December 31, 1999 (see Note 2).
26
Corporate and Other
General and administrative expenses for the nine months ended March 31, 2000
were $17,202,000 compared to $13,228,000 for the nine months ended March 31,
1999, an increase of $3,974,000. The increase was due primarily to additional
personnel costs, related employee benefits, increased office lease rentals,
increased communication expenses directly attributable to the continued
expansion of TransMontaigne's integrated logistical petroleum services and to
the acquisition and operation of LDEC and the Hess Terminals, lease contract
cancellation costs accrued and additional personnel costs related to separation
and release agreements.
Depreciation and amortization expenses for the nine months ended March 31, 2000
were $17,371,000 compared to $12,019,000 for the nine months ended March 31,
1999, an increase of $5,352,000. The increase was due primarily to terminal
related assets being acquired and constructed during the past year partially
offset by the disposition of natural gas services assets of BPEI and impairment
charge recorded at December 31, 1999.
Dividend income for the nine months ended March 31, 2000 was $1,119,000 compared
to $899,000 for the nine months ended March 31, 1999, an increase of $220,000.
Dividend income is solely from West Shore, and includes only six months of
activity for the prior nine month period. Interest income for the nine months
ended March 31, 2000 was $1,696,000 compared to $903,000 for the nine months
ended March 31, 1999, an increase of $793,000. The increase in interest income
was due primarily to the increase in interest bearing cash balances.
Interest expense, amortization of deferred debt issuance costs, and other
financing costs during the nine months ended March 31, 2000 were $30,801,000
compared to $22,393,000 during the nine months ended March 31, 1999, an increase
of $8,408,000. The increase in interest expense of $4,311,000 was primarily due
to increased average interest rates from 7.1% to 8.7% with a minimal decrease in
the average outstanding debt and $875,000 in expense related to prepayment of
outstanding long-term debt. Amortization of deferred debt issuance costs
increased $4,258,000 primarily due to the write off of approximately $3,845,000
in connection with amended debt agreements.
Income tax benefit was $25,718,000 for the nine months ended March 31, 2000,
which represents an effective combined federal and state income tax rate of 40%.
Income tax expense was $2,577,000 for the nine months ended March 31, 1999,
which represents an effective combined federal and state income tax rate of 38%.
The net loss for the nine months ended March 31, 2000 was $38,576,000 compared
to net earnings of $4,205,000 for the nine months ended March 31, 1999, a
decrease of $42,781,000. The net loss resulted primarily from the negative $7.18
million net operating margin from products operations which includes $12.9
million costs related to minimum inventory; the $50.1 million impairment charge;
increased general and administrative expenses; additional depreciation and
amortization expenses attributable to the acquisitions and facilities expansion
projects; increased interest expense, primarily attributable to the increase in
average interest rates; and an approximate $3.8 million charge to amortization
of deferred debt issuance costs due to the amended debt agreements. The net loss
was partially offset by increased net operating margin contributions from
terminal operations and natural gas services operations, the approximately $16.6
million gain on the sale of BPEI, and the $25.7 million net deferred tax
benefit.
Preferred stock dividends on the Series A Convertible Preferred Stock were
$6,379,000 and $148,000 for the nine months ended March 31, 2000 and 1999,
respectively.
27
LIQUIDITY AND CAPITAL RESOURCES
TransMontaigne believes that its current working capital position; future cash
provided by operating activities; proceeds from the private placement or public
offering of debt and common stock; available borrowing capacity under the bank
credit facility and the Master Shelf Agreement; additional borrowing allowed
under those agreements; and its relationship with institutional lenders and
equity investors should enable TransMontaigne to meet its current capital
requirements.
Net cash provided by operating activities was $236,183,000 for the nine months
ended March 31, 2000, which was attributable primarily to decreased inventories
and trade accounts receivable, increased inventory due under exchange
agreements, and reduced by decreased trade accounts payable and the net loss.
Net cash used by operating activities was $27,344,000 for the nine months ended
March 31, 1999, which was attributable primarily to increased inventories and
trade accounts receivable, and reduced by increased trade accounts payable.
Net cash provided by investing activities was $85,005,000 during the nine months
ended March 31, 2000 as a result of the sale of BPEI and was reduced as
TransMontaigne continued its growth through construction and improvements to
existing operating facilities. Net cash used by investing activities was
$382,310,000 during the nine months ended March 31, 1999, which included the
acquisitions of LDEC, the Southwest Terminal, a 20.38% common stock interest in
West Shore, and enhancements to the pipeline and terminal facilities.
Net cash used by financing activities for the nine months ended March 31, 2000
was $301,800,000, which primarily represented net repayments of $290,680,000
under TransMontaigne's bank credit facility and Master Shelf Agreement. Net cash
provided by financing activities for the nine months ended March 31, 1999 of
$395,389,000 represented borrowings under TransMontaigne's bank credit facility
and the issuance of preferred stock and was primarily used to finance the
acquisition of LDEC, other capital expenditures and operations.
TransMontaigne amended its bank credit facility, effective as of December 31,
1999. The amended bank credit facility includes a $300,000,000 revolving
component due December 31, 2003 and a $95,000,000 term component due June 30,
2006. The term component has quarterly principal payments required beginning in
September 2000. Borrowings under this credit facility bear interest at an annual
rate equal to the lender's Alternate Base Rate plus margins subject to a
Eurodollar Rate pricing option. The bank credit facility includes a $20,000,000
same day revolving swing line under which advances may be drawn at an interest
rate comparable to the Eurodollar Rate.
At March 31, 2000, TransMontaigne had advances of $155,000,000 outstanding under
the bank credit facility utilizing the Eurodollar Rate loan pricing option. The
effective interest rate at March 31, 2000 was 8.7%. On January 20, 2000,
TransMontaigne paid down $105,000,000 of the $200,000,000 term loan with a
portion of the proceeds from the sale of BPEI.
At March 31, 2000, TransMontaigne had outstanding under the Master Shelf
Agreement, $25,000,000 of 7.85% Senior Notes due April 17, 2003 and $25,000,000
of 7.22% Senior Notes due October 17, 2004. On January 20, 2000, TransMontaigne
paid down $25,000,000 of its $50,000,000 7.85% Senior Notes with a portion of
the proceeds from the sale of BPEI.
Each of the amended bank credit facility and amended Master Shelf Agreement is
secured by certain current assets and fixed assets, and each also includes
financial tests relating to fixed charge coverage, current ratio, maximum
leverage ratio, consolidated tangible net worth, distributions and inventory
positions. As of March 31, 2000, TransMontaigne was in compliance with all such
tests contained in the amended agreements.
Additional capital expenditures anticipated through June 30, 2000 are estimated
to be $8,000,000 for pipeline and terminal facilities, and assets to support
these facilities and could exceed that amount if additional facilities
enhancement projects and possible acquisitions being considered by
TransMontaigne materialize. Future capital expenditures will depend on numerous
factors, including the availability, economics and cost of appropriate
acquisitions which TransMontaigne identifies and evaluates; the economics, cost
and required regulatory approvals with respect to the expansion and enhancement
of existing systems and facilities; the customer demand for the services
TransMontaigne provides; local, state and federal governmental regulations;
environmental compliance requirements; and the availability of debt financing
and equity capital on acceptable terms.
28
YEAR 2000 MATTERS
Historically, certain computer software and computer based management
information systems ("Information Technology"), as well as certain hardware
containing embedded microcontrollers and microprocessors ("Embedded
Technology"), were designed to utilize a two-digit rather than a four-digit date
field and consequently may cause computers, computer controlled systems and
equipment with embedded technology to malfunction or incorrectly process data in
the Year 2000, resulting in significant system failures. TransMontaigne relies
on Information Technology, as well as Embedded Technology, to operate
instruments and equipment in conducting its normal business activities. Certain
of the Information Technology and Embedded Technology may not have been designed
to function properly with respect to the application of dating systems relating
to the Year 2000.
In response, TransMontaigne developed a "Year 2000" Plan. While achieving Year
2000 readiness does not mean correcting every Year 2000 limitation, critical
systems, as well as relationships with third-party customers, vendors and local,
state and federal government agencies have been, and continue to be, evaluated
and are expected to be suitable for continued use into and beyond the Year 2000.
Through March 31, 2000, TransMontaigne had incurred third party costs of
approximately $1,375,000 related to Year 2000 compliance matters. These costs
have been funded through operating cash flows and do not include internal costs.
TransMontaigne does not presently separately record internal costs incurred with
respect to implementation of the Year 2000 Plan. Such costs are principally the
related payroll costs for the information systems and field operations
personnel, including senior management, involved in carrying out the Year 2000
Plan, as well as related travel and other out-of-pocket expenses. TransMontaigne
has had minimal business disruptions as the result of Year 2000 issues during
the three months ended March 2000.
While TransMontaigne does not anticipate that Year 2000 issues will have a
material adverse effect on the business, results of operations or financial
condition of TransMontaigne, if TransMontaigne Information Technology or
Embedded Technology, or those of business partners, fail to maintain Year 2000
readiness it could have a material adverse impact on the business, results of
operations or financial condition of TransMontaigne.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), was issued in June 1998 by the
Financial Accounting Standards Board. SFAS 133 establishes new accounting and
reporting standards for derivative instruments and for hedging activities. This
statement requires an entity to establish at the inception of a hedge, the
method it will use for assessing the effectiveness of the hedging derivative and
the measurement approach for determining the ineffective aspect of the hedge.
Those methods must be consistent with the entity's approach to managing risk.
SFAS 133, as amended, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. TransMontaigne is in the process of assessing the
impact, if any, that SFAS 133 will have on its consolidated financial
statements.
29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in Item 3 updates, and should be read in conjunction
with information set forth in Part II, Item 7A in TransMontaigne's Annual Report
on Form 10-K for the year ended June 30, 1999, in addition to the interim
condensed consolidated financial statements and accompanying notes presented in
Items 1 and 2 of this Form 10-Q.
There are no material changes in market risks faced by TransMontaigne from those
reported in its Annual Report on Form 10-K for the year ended June 30, 1999.
30
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Fourth Amended and Restated Credit Agreement between
TransMontaigne Inc. and BankBoston, N.A., as Agent, dated as of
February 11, 2000. FILED HEREWITH.
10.2 Amended and Restated Master Shelf Agreement among TransMontaigne
Inc., The Prudential Insurance Company of America and U.S.
Private Placement Fund dated as of February 14, 2000. FILED
HEREWITH.
27 Financial Data Schedule. FILED HEREWITH.
(b) Reports on Form 8-K
A Form 8-K dated December 27, 1999 reporting Item 5 of Form 8-K,
announcing the signing of a definitive agreement with BPE Acquisition
LLC; and Item 7 of Form 8-K, providing the December 27, 1999 press
release as the exhibit, was filed on January 6, 2000.
A Form 8-K dated December 31, 1999 reporting Item 2, the sale of all
the issued and outstanding capital stock of its wholly-owned natural
gas gathering subsidiary, Bear Paw Energy Inc., to BPE Acquisition LLC;
and Item 7, deferring filing of the pro forma financial statements
reflecting the sale, was filed on January 18, 2000.
A Form 8-K/A dated December 31, 1999 was filed on March 17, 2000,
amending the Current Report on Form 8-K filed on January 18, 2000,
solely to add the pro forma financial statements required by Item 7(b)
of Form 8-K.
31
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.
Dated: May 12, 2000 TRANSMONTAIGNE INC.
(Registrant)
/s/ RODNEY S. PLESS
-------------------
Rodney S. Pless
Vice President, Controller and
Chief Accounting Officer
32