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 July 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
File No. 1-11763
TRANSMONTAIGNE OIL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 06-1052062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 SEVENTEENTH STREET, SUITE 2750
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 September 1, 1997, there were 25,829,220 shares of the Registrant=s Common
Stock outstanding.
1
TRANSMONTAIGNE OIL COMPANY
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
July 31, 1997 and April 30, 1997.............................. 3
Consolidated Statements of Operations
Three months ended July 31, 1997 and 1996..................... 4
Consolidated Statements of Stockholders' Equity
Three months ended July 31, 1997 and
Year ended April 30, 1997..................................... 5
Consolidated Statements of Cash Flows
Three months ended July 31, 1997 and 1996..................... 6
Notes to Consolidated Financial Statements.................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.............................................26
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.............26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..............................26
SIGNATURES....................................................27
2
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1997 AND APRIL 30, 1997 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
ASSETS July 31, April 30,
- ------ 1997 1997
---- ----
Current assets:
Cash and cash equivalents $ 41,265,879 36,384,325
Trade accounts receivable 54,351,843 46,871,207
Inventories 53,487,027 42,346,451
Deferred tax assets, net 2,176,000 3,676,000
Prepaid expenses and other 1,458,276 1,647,990
--------------------- -------------------
152,739,025 130,925,973
--------------------- -------------------
Property, plant and equipment:
Land 1,369,565 1,222,195
Plant and equipment 124,711,217 120,010,811
Accumulated depreciation (12,382,410) (10,704,252)
--------------------- -------------------
113,698,372 110,528,754
--------------------- -------------------
Investments and other assets:
Investments 15,656,097 15,656,097
Deferred debt issuance costs, net 1,600,846 1,638,909
Other assets 2,980,664 2,974,587
--------------------- -------------------
20,237,607 20,269,593
--------------------- -------------------
$ 286,675,004 261,724,320
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 38,482,829 36,893,399
Inventory due under exchange agreements 9,433,866 4,982,179
Excise taxes payable 7,292,117 6,437,829
Other accrued liabilities 4,987,105 4,189,528
--------------------- -------------------
60,195,917 52,502,935
--------------------- -------------------
Long-term debt 78,961,867 64,774,267
Minority interests 5,475,377 5,475,377
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 2,000,000 shares, none issued - -
Common stock, par value $.01 per share, authorized
40,000,000 shares, issued and outstanding
25,809,720 shares at July 31, 1997; and
25,794,720 shares at April 30, 1997 258,097 257,947
Capital in excess of par value 134,904,271 134,843,884
Retained earnings 6,879,475 3,869,910
--------------------- -------------------
142,041,843 138,971,741
--------------------- -------------------
$ 286,675,004 261,724,320
===================== ===================
See accompanying notes to consolidated financial statements.
3
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1997 AND 1996 (UNAUDITED)
- ----------------------------------------------------------------------------------------
1997 1996
---- ----
Revenue:
Product sales, pipeline tariffs
terminaling fees and natural gas
gathering and processing fees $ 462,149,021 194,052,201
Costs and expenses:
Product costs and direct
operating expenses 451,954,111 189,969,949
General and administrative 2,783,407 1,490,039
Depreciation and amortization 1,724,040 355,828
------------------ -----------------
456,461,558 191,815,816
------------------ -----------------
Operating income 5,687,463 2,236,385
Other income (expenses):
Interest income 564,910 454,177
Equity in earnings of affiliates - (315,432)
Minority interests - 107,157
Interest expense (1,498,746) (619,821)
Other financing costs (144,062) (36,016)
Other, net - 40,125
------------------ -----------------
(1,077,898) (369,810)
------------------ -----------------
Earnings before
income taxes 4,609,565 1,866,575
Income tax expense 1,600,000 60,000
------------------ -----------------
Net earnings $ 3,009,565 1,806,575
================== =================
Weighted average common
shares outstanding 26,640,680 20,956,139
================== =================
Earnings per common share $ 0.11 0.09
================== =================
See accompanying notes to consolidated financial statements.
4
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED JULY 31, 1997 AND YEAR ENDED APRIL 30, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------------
Retained
Capital in earnings
Preferred Common excess of (accumulated
stock stock par value deficit) Total
----------- ----------- ----------- ------------ -----------
BALANCE AT APRIL 30, 1996 $ - 1,933,117 61,187,476 (5,301,402) 57,819,191
Change in the par value of common stock
from $.10 to $.01 in connection
with merger - (1,739,805) 1,739,805 - -
Common stock issued in merger - 14,744 8,093,785 - 8,108,529
Common stock issued for minority interest
in subsidiary - 1,000 974,000 - 975,000
Common stock repurchased and retired - (148) (199,852) - (200,000)
Common stock issued for options exercised - 2,130 780,822 - 782,952
Common stock issued for cash in public
offering - 46,909 62,952,321 - 62,999,230
Costs related to issuance of common stock - - (684,473) - (684,473)
Net earnings - - - 9,171,312 9,171,312
----------- ----------- ----------- ------------ -----------
BALANCE AT APRIL 30, 1997 - 257,947 134,843,884 3,869,910 138,971,741
Common stock issued for options exercised - 150 87,750 - 87,900
Costs related to issuance of common stock - - (27,363) - (27,363)
Net earnings - - - 3,009,565 3,009,565
----------- ----------- ----------- ------------ -----------
BALANCE AT JULY 31, 1997 $ - 258,097 134,904,271 6,879,475 142,041,843
=========== =========== =========== ============ ===========
See accompanying notes to consolidated financial statements.
5
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended July 31, 1997 and 1996 (Unaudited)
- -----------------------------------------------------------------------------------------
1997 1996
---- ----
Cash flows from operating activities:
Net earnings $ 3,009,565 1,806,575
Adjustments to reconcile net earnings to net
cash used by operating activities:
Depreciation and amortization 1,724,040 355,828
Equity in losses of affiliates - 315,432
Minority interests - (107,157)
Deferred tax expense 1,500,000 -
Gain on disposition of assets (3,409) -
Changes in operating assets and liabilities,
net of noncash activities:
Trade accounts receivable (7,480,636) (3,370,369)
Inventories (11,140,576) (8,649,024)
Prepaid expenses and other 189,713 316,569
Trade accounts payable 1,589,430 5,557,407
Inventory due under exchange
agreements 4,451,687 (4,060,559)
Excise taxes payable and other
accrued liabilities 1,651,865 (2,565,130)
----------- -----------
Net cash (used) by
operating activities (4,508,321) (10,400,428)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (4,873,597) (926,846)
Proceeds from sale of assets 5,805 8,103
Cash received in connection with acquisition - 2,315,527
Costs related to acquisition - (173,909)
Decrease (increase) in other assets, net (28,533) (36,115)
----------- -----------
Net cash (used) provided by
investing activities (4,896,325) 1,186,760
----------- -----------
Cash flows from financing activities:
Borrowings of long-term debt, net 14,187,600 4,995,942
Deferred debt issuance costs 38,063 24,667
Common stock issued for cash 87,900 -
Costs related to issuance of common stock (27,363) -
----------- -----------
Net cash provided by
financing activities 14,286,200 5,020,609
----------- -----------
Increase (decrease) in cash
and cash equivalents 4,881,554 (4,193,059)
Cash and cash equivalents at beginning of period 36,384,325 38,403,234
----------- -----------
Cash and cash equivalents at end of period $41,265,879 34,210,175
=========== ===========
(Continued)
6
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED JULY 31, 1997 AND 1996 (UNAUDITED)
- --------------------------------------------------------------------------------
1997 1996
---- ----
Supplemental disclosures of cash flow information:
Acquisition of Sheffield Exploration Company
Fair value of assets acquired $ - 8,739,247
Fair value of liabilities assumed - 231,484
----------- -----------
- 8,507,763
Costs related to acquisition - 399,284
----------- -----------
Fair value of stock issued $ - 8,108,479
=========== ===========
Cash received in connection with acquisition
included in assets acquired $ - 2,315,527
=========== ===========
See accompanying notes to consolidated financial statements.
7
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
- --------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION
The TransMontaigne Oil Company ("TransMontaigne") consolidated balance
sheets at July 31, 1997 and April 30, 1997, the consolidated statements of
operations for the three months ended July 31, 1997 and 1996, the
consolidated statement of stockholders' equity for the three months ended
July 31, 1997 and the year ended April 30, 1997 and the consolidated
statements of cash flows for the three months ended July 31, 1997 and 1996
are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the financial position and operating results for
the interim periods presented. These consolidated financial statements
should be read in conjunction with the consolidated financial statements and
related notes, together with management's discussion and analysis of
financial condition and results of operations, contained in TransMontaigne's
Annual Report on Form 10-K for the fiscal year ended April 30, 1997. The
results of operations for the three months ended July 31, 1997 are not
necessarily indicative of the results for the entire fiscal year ending
April 30, 1998.
(2) MERGER
TransMontaigne is the surviving corporation of a merger (the "Merger")
between TransMontaigne Oil Company and Sheffield Exploration Company, Inc.
("Sheffield") effective June 4, 1996. The Merger constituted a reverse
acquisition of Sheffield, in which Sheffield survived the Merger, and was
owned approximately 93% by the former stockholders of TransMontaigne Oil
Company. Following the Merger, (i) the name of Sheffield was changed to
TransMontaigne Oil Company; (ii) the par value of the common stock was
reduced to $.01 per share; (iii) the number of shares of authorized common
stock was increased to 40,000,000; and (iv) the stock options which
Sheffield had outstanding prior to the Merger became options to purchase
79,338 shares of TransMontaigne's common stock at $3.65 per share and were
exercised prior to their September 2, 1996 expiration date.
8
(3) ACQUISITION OF GRASSLANDS FACILITIES
On December 20, 1996, TransMontaigne's wholly owned subsidiary, Bear Paw
Energy Inc., acquired for approximately $71,000,000 cash the Grasslands
natural gas gathering, processing, treating and fractionating system located
in western North Dakota and northeastern Montana. The Grasslands gas
processing plant, located in McKenzie County, North Dakota, was built in
1980.
The cost of the Grasslands facilities has been allocated to the assets
acquired based on their estimated fair market value as determined by
TransMontaigne.
The following summarized unaudited pro forma results of operations assumes
that the acquisition of the Grasslands facilities occurred as of May 1, 1996
and combines the actual results of operations of TransMontaigne for the
three months ended July 31, 1996 with the pro forma historical results of
operations of the Grasslands facilities for the three months ended July 31,
1996.
The unaudited pro forma results of operations are not necessarily indicative
of the results of operations which would actually have occurred if the
Grasslands facilities had been acquired as of May 1, 1996 or which will be
attained in the future.
THREE MONTHS ENDED JULY 31
--------------------------
1997 1996
------------ ----------
(ACTUAL) (PRO FORMA)
------------ -----------
Revenues $462,149,021 205,041,632
============ ===========
Net Earnings $ 3,009,565 2,019,460
============ ===========
Earnings Per Common Share $ 0.11 0.10
============ ===========
9
(4) PUBLIC OFFERING
On February 13, 1997, TransMontaigne closed a public offering of 4,357,000
shares of its common stock of which 4,035,000 shares were issued and sold by
TransMontaigne and 322,000 shares were sold by certain selling stockholders.
The net proceeds to TransMontaigne, based on the public offering price of
$14.25 per share, were approximately $53,506,000, after deducting
underwriting discounts and commissions and offering costs, of which
$45,000,000 was used to repay a portion of the debt incurred under its bank
credit facility. On March 11, 1997 the underwriters' overallotment to
purchase an additional 557,543 shares and the Merrill Lynch Growth Fund
antidilution right to purchase an additional 98,390 shares were both
exercised and TransMontaigne received additional net proceeds of $8,809,000.
(5) INVENTORY MANAGEMENT
TransMontaigne manages the risk associated with fluctuations in the price of
refined petroleum products inventory and purchase and sales commitments, and
may selectively enter into futures contracts which are designated as hedges
of the products purchased or sold. Hedging gains and losses are recognized
and recorded in inventory when the related inventory is sold. At July 31,
1997, TransMontaigne had open futures contracts to sell 750,000 barrels of
product designated as hedges. The cost in excess of market value of such
open futures contracts of $1,755,054 was deferred as of that date and was
offset by increased equity in the market value of the related physical
inventory to which the designated hedges were applicable.
In connection with its trading activities, TransMontaigne recognizes gains
and losses when incurred. Net trading gains on futures contracts of
approximately $591,000 were recognized during the quarter ended July 31,
1997 and of approximately $24,000 were recognized during the quarter ended
July 31, 1996. TransMontaigne had outstanding contracts to sell 2,200,000
barrels of product and outstanding contracts to purchase 2,200,000 barrels
of product at July 31, 1997 and outstanding contracts to sell 1,870,000
barrels of product and outstanding contracts to purchase 1,870,000 barrels
of product at July 31, 1996. Unrealized gains relating to such outstanding
contracts were approximately $515,000 at July 31, 1997 and unrealized losses
were approximately $60,000 at July 31, 1996.
10
TransMontaigne's refined petroleum products inventory consists primarily of
gasoline and distillates. A portion of this inventory represents line fill
and tank bottoms; is required for operating balances in the conduct of
TransMontaigne's daily supply and distribution activities; and is maintained
both in tanks and pipelines owned by TransMontaigne and pipelines owned by
third parties. Natural gas liquids and residual natural gas inventory are
not significant.
(6) BANK CREDIT FACILITY
TransMontaigne's bank credit facility at July 31, 1997 is an $85,000,000
working capital revolving credit facility with a money center bank due
December 31, 2001. The amount available under the bank credit facility is to
be reduced by $3,125,000 each calendar quarter beginning March 31, 2000.
Borrowings under the bank credit facility generally bear interest at an
annual rate equal to the lender's announced Base Rate, subject to a
Eurodollar pricing option at TransMontaigne's election. The interest rate at
July 31, 1997 was 6.8125%.
At July 31, 1997, TransMontaigne had advances of $25,000,000 outstanding
under the bank credit facility. In addition, $2,600,000 of the facility was
used to support a standby letter of credit to a bank to assist Lion Oil
Company (Lion) in obtaining financing and $1,168,000 of the facility was
used to support a standby letter of credit issued to a supplier to
facilitate inventory purchases.
(7) MASTER SHELF AGREEMENT
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 $100,000,000 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, TransMontaigne sold to the lender, under the Master Shelf
Agreement, $50,000,000 of 7.85% Senior Notes due 2003 which amount was
outstanding at July 31, 1997.
11
(8) SENIOR SUBORDINATED DEBENTURES
In March 1991, TransMontaigne issued $4,000,000 of 12 3/4% senior
subordinated debentures which are guaranteed by certain subsidiaries and are
due December 15, 2000, with interest payable semi-annually on June 15 and
December 15. The debentures are subject to a required redemption of
$2,000,000 on December 15, 1999 and 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 common stock. The warrant exercise
price was reduced effective April 26, 1995 from $6.10 per share to $3.60 per
share, through December 15, 2000.
(9) LION OIL COMPANY INVESTMENT
Effective May 1, 1997 TransMontaigne Holding Inc., a 65% owned subsidiary of
TransMontaigne, issued to its 35% minority shareholders irrevocable proxies
to vote their 35% share of the 27.75% interest in Lion owned by
TransMontaigne Holding Inc. to assure that the 35% minority interest
shareholders would continue to post their prorata share of $1,400,000 in
standby letters of credit to assist Lion in obtaining financing. Since the
issuance of the irrevocable proxies reduced TransMontaigne's voting interest
in Lion from 27.75% to 18.0375%, TransMontaigne changed its method of
accounting for the investment in Lion from the equity method, under which
the investment originally recorded at cost is adjusted to recognize
TransMontaigne's share of Lion's net earnings or losses as incurred, to the
historical cost method, under which the investment is recorded at cost and
dividends or other distributions are recognized as received. As of May 1,
1997 the investment in Lion by TransMontaigne Holding Inc. representing its
original cost plus accumulated net earnings was $15,586,097 and the related
minority interest was $5,475,377.
12
(10) BUSINESS SEGMENTS
TransMontaigne's primary operating business segment prior to November 1,
1996 was logistical petroleum services related to pipelining, terminaling,
storing and marketing refined petroleum products. During the quarter ended
January 31, 1997, TransMontaigne acquired the Grasslands facilities,
expanded other natural gas gathering and processing assets and conducted
service operations in that business segment. During the quarter ended July
31, 1997 both business segments were operational. Only the logistical
petroleum service segment conducted operations during the quarter ended July
31, 1996. These activities are reflected in the following summary.
1997 1996
------------ -----------
Revenues
Logistical petroleum services $447,931,352 194,052,201
Gas gathering and processing services 14,217,669 -
------------ -----------
$462,149,021 194,052,201
============ ===========
Operating income
Logistical petroleum services $ 4,488,044 2,236,385
Gas gathering and processing services 1,499,419 -
Corporate (300,000) -
------------ -----------
$ 5,687,463 2,236,385
============ ===========
Identifiable assets at quarter end (net of
depreciation)
Logistical petroleum services $135,876,536 77,352,023
Gas gathering and processing services 83,948,141 -
Corporate 66,850,327 57,585,326
------------ -----------
$286,675,004 134,937,349
============ ===========
Depreciation and amortization
Logistical petroleum services $ 399,465 337,230
Gas gathering and processing services 1,215,868 -
Corporate 108,707 18,598
------------ -----------
$ 1,724,040 355,828
============ ===========
Capital expenditures
Logistical petroleum services $ 1,732,160 738,456
Gas gathering and processing services 2,889,577 -
Corporate 251,860 188,390
------------ -----------
$ 4,873,597 926,846
============ ===========
The Corporate business segment represents all of TransMontaigne's
activities and assets not specifically identified with the primary business
segments, including cash and cash equivalents, investments and other assets.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
TransMontaigne provides a broad range of integrated transportation,
terminaling, supply, distribution, gathering, processing and marketing services
to producers, refiners, distributors, marketers and end-users of petroleum
products, natural gas and crude oil in the downstream sector of the petroleum
industry. TransMontaigne is a holding company which conducts its operations
through subsidiaries primarily in the mid-continent and Rocky Mountain regions
of the United States. TransMontaigne does not explore for, or produce, crude oil
or natural gas, and owns no crude oil or natural gas reserves.
TransMontaigne owns and operates refined petroleum product, crude oil and
natural gas assets. TransMontaigne refined petroleum product and crude oil
assets consist primarily of 747 miles of pipeline and ten storage and terminal
facilities located in seven states with a combined tank storage capacity of
approximately 4,850,000 barrels. Its natural gas gathering and processing assets
consist of six gathering and processing systems in three states with combined
throughput capacity of approximately 85 million cubic feet per day and over
2,700 miles of pipelines. Management believes that the use of these facilities
and an extensive network of additional common carrier pipelines and terminal
facilities owned by others will allow TransMontaigne to significantly expand its
geographic service area and the types of services it provides.
The principal predecessor of TransMontaigne was formed in 1977 under the
name of Continental Ozark Corporation. In April 1995, present management and
certain institutional stockholders of TransMontaigne acquired control of
Continental Ozark Corporation through a merger in which the name of the
corporation was changed to TransMontaigne Oil Company. In June 1996,
TransMontaigne and a publicly held corporation merged, with the stockholders of
TransMontaigne receiving approximately 93% of the stock of the merged
corporation.
Since TransMontaigne present management assumed control in April 1995,
TransMontaigne has raised approximately $117,000,000 in equity capital
($30,000,000 private placement in May
14
1995; $25,000,000 private placement in March 1996; and $62,000,000 public
offering in February 1997); established a $130,000,000 working capital and
acquisition revolving bank credit facility (in December 1996) which converted to
the present $85,000,000 bank credit facility due December 31, 2001 (in February
1997); and issued $50,000,000 of 7.85% Senior Notes due 2003 to an institutional
lender under a $100,000,000 Master Shelf Agreement (in April 1997).
In December 1996 TransMontaigne acquired the Grasslands natural gas
gathering, processing, treating and fractionation system (the "Grasslands
Facilities") for approximately $71,000,000 in cash and through July 31, 1997 has
additionally invested approximately $12,000,000 in improvements and expansion of
the Grasslands Facilities and other assets in its natural gas gathering and
processing business segment. The Grasslands Facilities complement
TransMontaigne's other natural gas gathering and processing facilities in the
provide improved services to oil and gas producers as well as to end-users of
natural gas liquids and natural gas. The Grasslands Facilities contributed
approximately 92% of the total net operating margin of TransMontaigne's natural
gas gathering and processing business segment during the quarter ended July 31,
1997.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report contains "forward-looking statements" within the meaning of the
federal securities laws and may include the words or phrases "believes," "will
depend," "will become" and "plans to" or similar expressions as well as other
statements of expectations, beliefs, future strategies and comments concerning
matters which are not historical facts. These forward-looking statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those expressed in or implied by the statements including, but
not limited to, the following:
. that TransMontaigne will generate net margins from high sales volumes
. that TransMontaigne will generate net margins affected by price volatility
of products purchased and sold
. that TransMontaigne will selectively and effectively hedge certain
inventory positions
. that TransMontaigne will be required to recognize a noncash financial
statement loss through a lower of cost or market write-down of inventories
15
. that TransMontaigne will incur unanticipated costs in complying with
current and possibly future environmental regulations
. that TransMontaigne will capitalize on the trend by other companies in
the oil and gas industry to divest assets and outsource certain services
. that TransMontaigne will replace the supply of dedicated natural gas
reserves gathered and processed by its facilities.
RESULTS OF OPERATIONS
THREE MONTHS ENDED
JULY 31,
---------------------------
1997 1996
----------- ----------
PIPELINE OPERATIONS
Volume (1) 5,027 5,004
Revenues (2) $ 3,214 2,865
Net Operating Margins (2) $ 1,730 1,512
Margin per barrel handled $ 0.3441 0.3022
TERMINAL OPERATIONS
Volume (1) 286,000 175,000
Revenues (2) $ 2,134 1,176
Net Operating Margins (2) $ 1,450 951
Margin per gallon handled $ 0.0051 0.0054
PRODUCTS SUPPLY AND
DISTRIBUTION OPERATIONS
Volume (1) 756,000 311,000
Revenues (2) $ 442,583 190,011
Net Operating Margins (2) $ 3,580 1,619
Margin per gallon sold $ 0.0047 0.0052
GAS GATHERING AND
PROCESSING OPERATIONS
Inlet Volume (3) 4,541 -
NGL Production (3) 23,706 -
Residue Production (3) 3,655,072 -
Revenues (2) $ 14,218 -
Net Operating Margins (2) $ 3,435 -
TOTAL OPERATIONS
Revenues (2) $ 462,149 194,052
Net Operating Margins (2) $ 10,195 4,082
Net Earnings (2) $ 3,010 1,807
16
(1) Pipeline volumes are expressed in thousands of barrels (42 gallons per
barrel); terminal and products supply and distribution volumes are expressed in
thousands of gallons.
(2) Revenues, net operating margins, and net earnings are expressed in
thousands of dollars. Net operating margin represents revenues less direct
operating expenses for pipeline and terminal operations; revenues less cost of
refined petroleum products purchased for products supply and distribution
operations, and revenues less cost of natural gas gathered, processed and sold
and direct operating expenses for natural gas gathering and processing
operations.
(3) Natural gas inlet volumes are expressed in million cubic feet; natural gas
liquids (NGLs) production is expressed in thousands of gallons; and residue
natural gas production is expressed in million British Thermal Units.
Prior to the acquisition of the Grasslands Facilities in December 1996,
TransMontaigne's revenues were derived from the logistical petroleum services
business segment consisting primarily of transporting refined petroleum products
(and to a lesser extent crude oil) in pipelines; storing and terminaling refined
petroleum products; and refined petroleum products supply, distribution and
marketing. Natural gas gathering and processing services became an important
business segment with the acquisition of the Grasslands Facilities and will have
a significant impact on TransMontaigne's future results of 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 (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.
Terminal revenues are based on the volume of refined petroleum products
handled, generally at a standard per gallon rate. Terminal fees are not
regulated. Storage fees are generally based on a per gallon rate, which varies
with the duration of the storage arrangement, the refined petroleum product
stored and special handling requirements.
17
Direct operating expenses of pipelines and terminals include wages and
employee benefits, utilities, communications, maintenance and repairs, property
taxes, rent, insurance, vehicle expenses, environmental protection costs,
materials and supplies.
Products supply and distribution revenues are based on the volume of bulk
sales of refined petroleum products and the wholesale distribution of refined
petroleum products from terminals. Bulk purchase and sale transactions in
quantities of 25,000 barrels to 50,000 barrels are common and are generally made
at small margins. Wholesale distribution of refined petroleum products is
conducted from seven proprietary and fifty-eight nonproprietary terminal truck
loading rack locations and is primarily represented by truck load sales of 8,000
gallons.
Natural gas gathering and processing revenues are based on the inlet volume
of natural gas purchased from producers under both percentage of proceeds and
fee based arrangements. Natural gas is gathered and processed into NGL products,
principally propane, butane and natural gasoline. These products are transported
by truck or pipeline to storage facilities from which they are further
transported and marketed by TransMontaigne to wholesalers and end-users. Residue
natural gas is delivered to and marketed through connections with interstate
pipelines.
Direct operating expenses of natural gas gathering and processing include
wages and employee benefits, utilities, maintenance and repairs, property taxes,
insurance, vehicle expenses, environmental protection costs, material and
supplies.
THREE MONTHS ENDED JULY 31, 1997 COMPARED TO
THREE MONTHS ENDED JULY 31, 1996
The net operating margin from pipeline operations of $1,730,000 increased
14%, or $218,000, in the current year quarter. This increase resulted primarily
from a net increase in the volumes of higher tariff long haul pipeline
shipments, together with increases in joint tariff participation and terminal
facility rental income, all of which resulted in a 12% increase in revenues of
$349,000 in the current year quarter. This increase in revenues was partially
offset by a 10% increase in operating costs of $131,000, primarily due to
incremental power costs from additional long haul shipment volumes and increased
field personnel costs, repairs and maintenance and vehicle fleet costs.
18
The net operating margin from terminal operations of $1,450,000 increased
52%, or $499,000 in the current year quarter. This increase resulted from an
overall 63% increase in volumes handled, primarily due to additional volumes at
the East Chicago terminal facility acquired in December 1996 and new jet fuel
contract volumes at the Indianapolis, Indiana terminal; offset in part by a 204%
increase in terminal operating costs attributable to the East Chicago terminal,
a new terminal lease, additional freight charges on products, field personnel
expenses and property tax assessments.
The net operating margin from product sales of $3,580,000 increased 121%,
or $1,961,000, in the current year quarter. Net revenues increased $252,572,000,
or 133%, on additional volume of 445,000,000 gallons of products sold, an
increase of 143%. The $.0047 net operating margin per gallon realized in the
current year quarter decreased $.0005, or 10%, from the $.0052 per gallon
realized during the prior year quarter, notwithstanding the significant increase
in sales volume which was largely attributable to TransMontaigne's continuing
and expanding supply, distribution and marketing program. The lower net
operating margin was impacted generally by slightly weaker market conditions.
Overall, however, the increased product sales volume contributed to increased
pipeline and terminal throughput volumes, and maximized related tariff and
handling revenues. By providing an integrated logistical service to customers
through the effective utilization of both its transportation systems and product
supply, distribution and marketing capabilities, TransMontaigne's aggregate net
operating margin from the logistical petroleum services business segment was
$6,760,000 in the current year quarter, an increase of $2,678,000, or 66%, over
the prior year quarter.
The net operating margin from natural gas gathering and processing
operations of $3,435,000 in the current year quarter is primarily attributable
to the business activities of the Grasslands facilities, and also includes net
operating margin contributions from the Marmarth, Baker, Lignite and Wiggins
facilities as well as management fees for fifteen small natural gas gathering
systems.
The unaudited pro forma results of operations reflected in Note 3 to the
Consolidated Financial Statements include the pro forma historical operating
performance of the Grasslands facilities under prior ownership and are presented
for comparative purposes. Included in the pro forma information are actual
Grasslands Facilities revenues of $12,589,000 for the three months ended July
31, 1997
19
representing an increase of $1,600,000, or 15%, over pro forma historical
revenues of $10,989,000 for the three months ended July 31, 1996. This revenue
increase was primarily due to improved product prices for NGLs and residue
natural gas together with a small increase in product volumes sold. The actual
net operating margin from Grasslands Facilities operations for the current year
quarter was $3,160,000, a 15% increase of $413,000 over the pro forma historical
net operating margin of $2,747,000 for the prior year quarter. This increase
resulted primarily from improved product prices, decreased operating expenses
and the conversion of a natural gas gathering agreement from a fee based to a
percentage of proceeds arrangement.
General and administrative expenses increased $1,293,000, a 87% increase in
the current year quarter, primarily due to additional personnel costs and
increased office lease expense together with increases in employee relocation,
insurance, information systems and communication expenses. A significant portion
of these expenses was attributable to TransMontaigne's expanded natural gas
gathering and processing business activities.
Other income is primarily interest income. In the prior year quarter other
income included TransMontaigne's share of Lion's losses, net of related minority
interests, of approximately $191,000 and also interest income of $454,000. The
$111,000 increase in interest income in the current year quarter was due
primarily to an increase in interest bearing cash balances held for future
investments.
Interest expense represents interest on the bank credit facility and senior
promissory notes which were used primarily to finance the Grasslands Facilities
acquisition, other capital expenditures, inventory and accounts receivable, and
also includes interest on TransMontaigne's senior subordinated debentures. Other
financing costs principally includes commitment fees and amortization of debt
acquisition costs paid in connection with the credit facility. Interest expense
and financing costs during the current year quarter increased $987,000, or 150%,
over the prior year quarter due primarily to an increase of $44,800,000 in
average outstanding debt over the prior year quarter .
Earnings before income taxes of TransMontaigne for the current year quarter
were $4,610,000, a 147% increase of $2,743,000 over the $1,867,000 for the prior
year quarter. This improvement was primarily a result of the aggregate increase
in the logistical petroleum services business segment net operating margin; the
positive impact of the net operating margin contribution
20
from the gas gathering and processing business segment attributable essentially
to the inclusion of the Grasslands Facilities operations; and additional
interest income. These increases were partially offset by increased general and
administrative expenses, and additional depreciation and interest expenses
primarily attributable to the Grasslands Facilities.
Income tax expense for the current year quarter of $1,600,000 includes
$100,000 of state income tax as compared to $60,000 of state income tax for the
prior year quarter with the increase attributable to states in which
TransMontaigne was not previously taxed. At April 30, 1997 TransMontaigne
determined that its net deferred tax assets would more likely than not be
realized, and recognized an income tax benefit in the year ended April 30, 1997
for the remaining balance of the previously recorded valuation allowance. As a
result of this recognition of the net deferred tax assets, deferred federal
income tax expense of $1,500,000 was provided in the current year quarter.
Net earnings of TransMontaigne for the current year quarter were
$3,010,000, a 67% increase of $1,203,000 over the prior year quarter.
LIQUIDITY AND CAPITAL RESOURCES
The following summary reflects TransMontaigne's comparative net cash flows
for the three months ended July 31, 1997 and 1996.
Three Months Ended
July 31,
---------------------------
1997 1996
------------ ------------
Net cash (used) by operating activities $ (4,508,000) (10,400,000)
Net cash (used) provided by investing activities $ (4,896,000) 1,187,000
Net cash provided by financing activities $ 14,286,000 5,021,000
Net cash used by operating activities in the current year quarter decreased
$5,892,000 from the prior year quarter. This decrease in net cash used, which
represents an increase in net cash generated over the prior year quarter,
resulted from increased net earnings, depreciation and amortization; deferred
income tax expense; increased inventory due under exchange agreements; and
21
increased excise taxes payable. Partially offsetting the foregoing were
decreased trade payables to suppliers of inventory; increased petroleum product
inventory levels required to meet expanded levels of pipeline, terminaling and
products supply and distribution operations; and increased trade receivables
from refined petroleum products and NGL sales during the quarter.
Net cash used by investing activities in the current year quarter increased
$6,083,000 from the prior year quarter. This increase in net cash used, which
represents a decrease in net cash generated over the prior year quarter,
resulted from capital expenditures of $4,874,000 for additions and improvements
to pipeline, terminals and natural gas gathering and processing facilities,
including approximately $2,900,000 for expansion of the Grasslands facilities
and other assets in the natural gas gathering and processing business segment.
During the three months ended July 31, 1996 capital expenditures were $927,000
and $2,316,000 in cash was received in connection with an acquisition.
Net cash provided by financing activities in the current year quarter
increased $9,266,000 from the prior year quarter. This increase, which
represents a net cash increase over the prior year quarter, resulted from net
long-term borrowings primarily related to the improvement and expansion of
natural gas gathering and processing facilities.
EBITDA represents earnings before income taxes plus interest expense and
other financing costs and depreciation and amortization. Management uses EBITDA
as part of its overall assessment of TransMontaigne's performance by analyzing
and comparing EBITDA between reporting periods. Management believes that, in
addition to cash flow from operations and net earnings as indicators of
operating performance, EBITDA is used increasingly by the financial community to
measure operating effectiveness and as a method to evaluate the market value of
companies like TransMontaigne. EBITDA is also used to evaluate TransMontaigne's
ability to incur and service debt and to fund capital expenditures, although it
is not considered in isolation or a substitute for the other measurements of
performance and liquidity. EBITDA for the current year quarter was $7,976,000, a
177% increase over EBITDA of $2,878,000 for the prior year quarter, and was
consistent with management's expectations based upon TransMontaigne's operations
and economic conditions.
Capital expenditures during the current year quarter were $4,874,000 and
for the year ending April 30, 1998 are estimated to be approximately $50,000,000
for pipeline, terminal and natural gas gathering and processing facilities,
including assets to support these facilities. On a regular basis
22
management identifies and is offered prospective asset acquisitions which are
analyzed and evaluated to determine their operational suitability and potential
financial contribution to TransMontaigne's cash flow, net earnings and EBITDA.
Future capital expenditures will depend on numerous factors in addition to
operating and financial considerations, including the availability, economics
and cost of appropriate asset acquisitions; the economics, cost and required
regulatory approvals of expanding and enhancing existing systems and facilities;
the demand for the services TransMontaigne provides; local, state and federal
governmental regulations; the evaluation of environmental considerations and
compliance requirements; fuel conservation efforts; and the availability, to the
extent required, of financing on acceptable terms.
On February 13, 1997, TransMontaigne closed a public offering of 4,357,000
shares of its common stock of which 4,035,000 shares were issued and sold by
TransMontaigne and 322,000 shares were sold by certain selling stockholders. The
net proceeds to TransMontaigne, based on the public offering price of $14.25 per
share, were $53,506,000 after deducting underwriting discounts and commissions
and offering costs, of which $45,000,000 was used to repay a portion of the
long-term debt incurred under its bank credit facility and the balance added to
working capital. On March 11, 1997 the underwriters' overallotment option to
purchase an additional 557,543 shares and the Merrill Lynch Growth Fund
antidilution right to purchase an additional 98,390 shares were both exercised
and TransMontaigne received additional net proceeds of $8,809,000 which was
added to working capital.
The TransMontaigne bank credit facility at July 31, 1997 is an $85,000,000
revolving credit facility with a money center bank due December 31, 2001. The
amount available under the bank credit facility is to be reduced by $3,125,000
each calendar quarter beginning March 31, 2000. Borrowings under the bank credit
facility generally bear interest at an annual rate equal to the lender's
announced Base Rate, subject to a Eurodollar pricing option at TransMontaigne's
election. The interest rate at July 31, 1997 was 6.8125%.
At July 31, 1997, TransMontaigne had advances of $25,000,000 outstanding
under the bank credit facility; $2,600,000 of the facility was used to support a
standby letter of credit to a bank to assist Lion in obtaining financing and
$1,168,000 of the facility was used to support a letter of credit issued to a
supplier to facilitate inventory purchases.
23
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 $100,000,000 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, TransMontaigne issued to the lender, under the Master
Shelf Agreement, $50,000,000 of 7.85% Senior Notes due 2003 which amount was
outstanding at July 31, 1997.
The bank credit facility agreement and the Master Shelf Agreement contain a
negative pledge covenant by TransMontaigne and its subsidiaries and are secured
by the stock of the subsidiaries. These agreements also include financial tests
relating to fixed charges coverage, leverage ratio, consolidated tangible net
worth, distributions and inventory positions. At July 31, 1997, TransMontaigne
was in compliance with all of such tests.
As of April 30, 1997, TransMontaigne's fiscal year end, it had
approximately $18,339,000 of net operating loss carryforwards for federal income
tax purposes which are available to offset taxable income through 2010. Due to
changes in ownership which occurred prior to April 30, 1997, the use of these
net operating loss carryforwards to offset taxable income is limited to
approximately $4,300,000 annually. As a result of the merger in June 1996,
TransMontaigne acquired additional net operating loss carryforwards of
approximately $7,892,000, which are included in the aggregate net operating loss
carryforwards; are limited to approximately $1,300,000 annually; and a portion
of the tax benefit of which was recognized as a net reduction of goodwill
recorded in the acquisition.
At July 31, 1997 TransMontaigne had working capital of $92,543,000,
availability under its bank credit facility of $56,200,000 and additional
borrowing capacity of $50,000,000 under the Master Shelf Agreement. Management
believes that TransMontaigne's current working capital position; future cash
provided by operating activities; proceeds from the private placement or public
offering of common stock; available borrowing permitted under its bank credit
facility agreement and the Master Shelf Agreement; additional borrowing allowed
under those agreements; and its relationship with institutional lenders and
equity investors should enable it to meet its future capital requirements.
24
EBITDA AS AN ALTERNATIVE MEASURE OF FINANCIAL PERFORMANCE
EBITDA is earnings (loss) before income taxes plus interest expense and
other financing costs and depreciation and amortization. TransMontaigne believes
that, in addition to cash flow from operations and net earnings (loss), EBITDA
is a useful financial performance measurement for assessing operating
performance as it provides an additional basis to evaluate the ability of
TransMontaigne to incur and service debt and to fund capital expenditures. In
evaluating EBITDA, TransMontaigne believes that consideration should be given,
among other things, to the amount by which EBITDA exceeds interest costs for the
period, how EBITDA compares to principal repayments on debt for the period and
how EBITDA compares to capital expenditures for the period. To evaluate EBITDA,
the components of EBITDA such as revenue and operating expenses and the
variability of such components over time, should also be considered. EBITDA
should not be construed, however, as an alternative to operating income (loss)
(as determined in accordance with generally accepted accounting principles
(GAAP)) as an indicator of TransMontaigne's operating performance or to cash
flows from operating activities (as determined in accordance with GAAP) as a
measure of liquidity. TransMontaigne's method of calculating EBITDA may differ
from methods used by other companies, and as a result, EBITDA measures disclosed
herein may not be comparable to other similarly titled measures used by other
companies.
25
PART II. OTHER INFORMATION
- --------------------------
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule. FILED HEREWITH
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
July 31, 1997.
26
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: September 12, 1997 TRANSMONTAIGNE OIL COMPANY
(Registrant)
/s/ CORTLANDT S. DIETLER
------------------------------------
Cortlandt S. Dietler
Chairman and Chief Executive Officer
/s/ RODNEY S. PLESS
------------------------------------
Rodney S. Pless
Vice President and Controller
(Principal Accounting Officer)
27