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 September 30, 1998
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 October 31, 1998, there were 30,475,624 shares of the registrant's Common
Stock outstanding.
TRANSMONTAIGNE INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NO.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
September 30, 1998 and June 30, 1998..................4
Consolidated Statements of Operations
Three Months Ended September 30, 1998 and
Three Months Ended October 31, 1997...................5
Consolidated Statements of Stockholders' Equity
Year Ended April 30, 1998
Two Months Ended June 30, 1998 and
Three Months Ended September 30, 1998.................6
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1998 and
Three Months Ended October 31, 1997...................7
Notes to Consolidated Financial Statements............8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........18
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES...............................38
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.38
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................39
SIGNATURES..........................................41
2
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of TransMontaigne Inc. are included herein
beginning on the following page.
3
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998 AND JUNE 30, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS September 30,1998 June 30, 1998
- ------ --------------------- --------------------
Current assets:
Cash and cash equivalents $ 68,510,992 27,215,374
Trade accounts receivable 41,687,360 36,391,584
Inventories 70,407,195 63,559,637
Deferred tax assets, net - 573,000
Prepaid expenses and other 2,784,513 2,705,905
--------------------- --------------------
183,390,060 130,445,500
--------------------- --------------------
Property, plant and equipment:
Land 2,801,964 2,801,964
Plant and equipment 210,025,728 191,600,521
Accumulated depreciation (24,367,572) (21,912,875)
--------------------- --------------------
188,460,120 172,489,610
--------------------- --------------------
Investments and other assets:
Investments 39,455,295 10,180,720
Deferred debt issuance costs, net 1,492,317 1,607,855
Other assets 4,084,698 3,491,813
--------------------- --------------------
45,032,310 15,280,388
--------------------- --------------------
$ 416,882,490 318,215,498
===================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 33,111,058 28,640,766
Inventory due under exchange agreements 4,765,005 2,730,787
Excise taxes payable 44,438,662 7,846,657
Other accrued liabilities 6,683,311 4,760,063
--------------------- ---------------------
88,998,036 43,978,273
--------------------- ---------------------
Long-term debt 179,859,000 128,971,400
Deferred tax liabilities, net 541,600 -
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 25,973,624 shares at
September 30, 1998 and 25,953,324 shares at June 30, 1998 259,737 259,534
Capital in excess of par value 137,043,735 136,780,000
Unearned compensation (687,860) (618,348)
Retained earnings 10,868,242 8,844,639
-------------------- ---------------------
147,483,854 145,265,825
--------------------- ---------------------
$ 416,882,490 318,215,498
===================== =====================
See accompanying notes to consolidated financial statements.
4
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND THREE MONTHS ENDED OCTOBER 31, 1997
(UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
September 30, 1998 October 31, 1997
--------------------- ---------------------
Revenues:
Product sales, pipeline tariffs, terminal
and storage fees and natural gas
gathering and processing fees $ 463,120,983 545,100,056
Costs and expenses:
Product costs and direct
operating expenses 449,990,048 535,151,024
General and administrative 4,768,104 3,140,658
Depreciation and amortization 2,792,519 1,813,148
--------------------- ---------------------
457,550,671 540,104,830
--------------------- ---------------------
Operating income 5,570,312 4,995,226
Other income (expenses):
Interest income 377,309 580,674
Interest expense (2,475,264) (1,568,777)
Other financing costs (208,553) (139,651)
--------------------- ---------------------
(2,306,508) (1,127,754)
--------------------- ---------------------
Earnings before income taxes 3,263,804 3,867,472
Income tax expense 1,240,201 1,470,000
--------------------- ---------------------
Net earnings $ 2,023,603 2,397,472
===================== =====================
Weighted average common
shares outstanding:
Basic 25,962,991 25,880,988
===================== =====================
Diluted 26,679,236 26,706,922
===================== =====================
Earnings per common share
Basic $ 0.08 0.09
===================== =====================
Diluted $ 0.08 0.09
===================== =====================
See accompanying notes to consolidated financial statements.
5
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Year Ended April 30, 1998, Two Months Ended June 30, 1998 and
Three Months Ended September 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Capital in
Common excess of Unearned Retained
stock par value Compensation earnings Total
--------------- --------------- --------------- --------------- ---------------
BALANCE AT APRIL 30, 1997 $ 257,947 134,843,884 - 3,869,910 138,971,741
Common stock issued for
options exercised 922 406,404 - - 407,326
Tax benefit arising from
options exercised - 583,000 - - 583,000
Costs related to issuance of
common stock - (53,863) - - (53,863)
Unearned compensation
related to restricted
stock awards 560 938,440 (939,000) - -
Amortization of unearned
compensation - - 258,469 - 258,469
Net earnings - - - 7,637,630 7,637,630
--------------- --------------- --------------- --------------- ---------------
BALANCE AT APRIL 30, 1998 259,429 136,717,865 (680,531) 11,507,540 147,804,303
Common stock issued for
options exercised 88 36,652 - - 36,740
Common stock issued for
services rendered 17 25,483 - - 25,500
Amortization of unearned
compensation - - 62,183 - 62,183
Net (loss) - - - (2,662,901) (2,662,901)
--------------- --------------- --------------- --------------- ---------------
BALANCE AT JUNE 30, 1998 259,534 136,780,000 (618,348) 8,844,639 145,265,825
Common stock issued for
options exercised 18 8,482 - - 8,500
Common stock issued for
services rendered 65 93,373 - - 93,438
Unearned compensation related
to restricted stock awards 120 161,880 (162,000) - -
Amortization of unearned
compensation - - 92,488 - 92,488
Net earnings - - - 2,023,603 2,023,603
--------------- --------------- --------------- ---------------- ---------------
BALANCE AT SEPTEMBER 30, 1998 $ 259,737 137,043,735 (687,860) 10,868,242 147,483,854
=============== =============== =============== ================ ===============
See accompanying notes to consolidated financial statements.
6
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND THREE MONTHS ENDED OCTOBER 31, 1997 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------
September 30, 1998 October 31, 1997
-----------------------------------------
Cash flows from operating activities:
Net earnings $ 2,023,603 2,397,472
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,792,519 1,813,148
Deferred tax expense 1,114,600 1,406,000
(Gain) loss on disposition of assets 7,828 (6,789)
Amortization of unearned compensation 92,488 58,617
Amortization of deferred debt issuance costs 123,434 97,529
Changes in operating assets and liabilities,
net of noncash activities:
Trade accounts receivable (5,295,776) 14,425,515
Inventories (6,847,558) (10,965,327)
Prepaid expenses and other (78,608) (311,978)
Trade accounts payable 4,470,292 (8,915,579)
Inventory due under exchange agreements 2,034,218 1,852,547
Excise taxes payable and other
accrued liabilities 38,515,253 117,021
-------------------- -------------------
Net cash provided by
operating activities 38,952,293 1,968,176
-------------------- -------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (18,653,476) (7,504,989)
Investment in West Shore Pipe Line Company (29,274,575) -
Proceeds from sale of assets - 13,759
Decrease (increase) in other assets, net (616,828) (200,239)
-------------------- -------------------
Net cash (used) by
investing activities (48,544,879) (7,691,469)
-------------------- -------------------
Cash flows from financing activities:
Borrowings of long-term debt, net 50,887,600 10,002,600
Deferred debt issuance costs (7,896) (2,110)
Common stock issued for cash 8,500 248,076
Costs related to issuance of common stock - (26,500)
-------------------- -------------------
Net cash provided by
financing activities 50,888,204 10,222,066
-------------------- -------------------
Increase in cash and
cash equivalents 41,295,618 4,498,773
Cash and cash equivalents at beginning of period 27,215,374 41,265,879
-------------------- -------------------
Cash and cash equivalents at end of period $ 68,510,992 45,764,652
==================== ===================
See accompanying notes to consolidated financial statements.
7
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
- --------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION
The TransMontaigne Inc. ("TransMontaigne"), formerly TransMontaigne Oil
Company, consolidated balance sheets at September 30, 1998 and June 30,
1998, the related consolidated statements of operations for the three months
ended September 30, 1998 and three months ended October 31, 1997, the
consolidated statements of stockholders' equity for the year ended April 30,
1998, two months ended June 30, 1998 and three months ended September 30,
1998 and the consolidated statements of cash flows for the three months
ended September 30, 1998 and three months ended October 31, 1997 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, 1998.
Management makes various estimates and assumptions in determining the
reported amounts of assets, liabilities, revenues and expenses for each
period presented. 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.
On August 14, 1998, the Board of Directors of TransMontaigne voted to change
TransMontaigne's fiscal year end from April 30 to June 30, to be effective
June 30, 1998. This
8
new fiscal year end will allow TransMontaigne to conform to the predominant
calendar quarterly reporting periods used in its industry.
(2) ACQUISITIONS
On July 29, 1998, TransMontaigne, through a wholly owned subsidiary,
TransMontaigne Terminaling Inc. ("TTI"), acquired all of the common stock of
Statia Terminals Southwest, Inc. ("Southwest Terminal") for $6,500,000 cash.
The acquisition included terminaling, storage and loading facilities for
petroleum products, chemicals and other bulk liquids at the Port of
Brownsville, Texas with over 1.6 million barrels of tank storage, 12 truck
rack loading bays, connections to barge and tanker loading facilities and
the exclusive use of 5 railroad spur lines with a total of 32 railroad car
loading spots. Southwest Terminal was merged into TTI effective September
30, 1998. The cost of this acquisition has been allocated to the terminal
facilities and other related assets acquired and liabilities assumed based
on their estimated fair market value as determined by TransMontaigne. The
transaction was accounted for as a purchase.
On September 18, 1998, TransMontaigne, through a wholly owned subsidiary,
TransMontaigne Pipeline Inc. ("TPI"), acquired for $29,219,000 cash the
15.38% common stock interest in West Shore Pipe Line Company ("West Shore")
owned by Atlantic Richfield Company. West Shore owns a 600-mile common
carrier petroleum products pipeline system which operates between the
Chicago refining corridor locations of East Chicago, Indiana; Blue Island,
Joliet and Lemont, Illinois; north through metropolitan Chicago; along the
western edge of Lake Michigan to Milwaukee and Green Bay, Wisconsin; and
west to Rockford and Peru, Illinois, and Madison, Wisconsin. The pipeline
serves approximately 55 locations, including 4 refineries, the Chicago-
O'Hare and Milwaukee airports, and 49 refined petroleum products terminals
in the Chicago, Illinois area and the upper Mid-West region of the United
States. TransMontaigne is the second largest owner of West Shore, whose
ownership also includes Citgo, Marathon, Equilon, Texaco, Amoco, Midwest
(Union Oil), Mobil and Exxon as of September 30, 1998.
On November 25, 1997, TransMontaigne, through a wholly owned subsidiary,
TTI, acquired for $32,000,000 ($31,458,000 cash plus assumption of
outstanding bank debt of approximately $542,000) the common stock of 17
corporations, known as the "ITAPCO Terminal Corporations", and certain
related property and property interests. The acquisition included 17
storage and distribution terminals located in 8 states having total tankage
capacity in excess of
9
3.3 million barrels, handling primarily refined petroleum products,
chemicals and other bulk liquids together with the related operations of the
terminals and certain other assets. The 17 Corporations were merged into TTI
effective December 1, 1997. The cost of the ITAPCO Terminal Corporations has
been allocated to the terminal facilities acquired and to the other related
assets acquired and liabilities assumed based on their estimated fair market
value as determined by TransMontaigne. The transaction was accounted for as
a purchase.
The following summarized unaudited pro forma results of operations assumes
---------
that the acquisition of the ITAPCO Terminal Corporations occurred as of
August 1, 1997 and combines the historical results of operations of
TransMontaigne for the three months ended October 31, 1997 with the
historical results of operations of the ITAPCO Terminal Corporations for the
three months ended October 31, 1997. The unaudited pro forma results of
---------
operations are not necessarily indicative of the results of operations which
would actually have occurred if the ITAPCO Terminal Corporations had been
acquired as of August 1, 1997 or which will be attained in the future.
Three Months
Ended
October 31, 1997
-----------------------
(Pro forma)
-----------------------
Revenues $ 547,962,971
=======================
Net earnings $ 2,359,540
Earnings per
common share:
Basic $ 0.09
=======================
Diluted $ 0.09
=======================
10
(3) 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 operations when the related inventory is sold. At September
30, 1998, TransMontaigne had no open futures contracts designated as hedges.
TransMontaigne engages in the trading of futures contracts in the cash
markets and on the New York Mercantile Exchange ("NYMEX"). The change in
market value of NYMEX-traded futures contracts requires daily cash
settlements in margin accounts with brokers. NYMEX future contracts are
guaranteed by the NYMEX and have nominal credit risk. TransMontaigne is
exposed to credit risk in the event the counterparties to other third party
agreements are not able to perform their contractual obligations. Gains and
losses from these trading activities are recognized as incurred. Net
realized and unrealized gains on futures contracts of approximately $444,000
were recognized in operations during the three months ended September 30,
1998 and approximately $533,000 were recognized in operations during the
quarter ended October 31, 1997 and have been included in product sales and
product costs and direct operating expenses.
TransMontaigne had outstanding futures contracts to sell 6,576,000 barrels
of product and outstanding futures contracts to purchase 6,576,000 barrels
of product at September 30, 1998 and outstanding futures contracts to sell
7,590,000 barrels of product and outstanding futures contracts to purchase
7,590,000 barrels of product at October 31, 1997. Net unrealized gains
relating to such outstanding futures contracts recognized in operations
prior to September 30, 1998 were approximately $2,954,000 at September 30,
1998 and recognized in operations prior to October 31, 1997 were
approximately $195,000 at October 31, 1997.
TransMontaigne's refined petroleum products inventory consists primarily of
gasoline and distillates. A portion of TransMontaigne's refined petroleum
products inventory represents line fill and tank bottoms; is required for
operating balances in the conduct of TransMontaigne's
11
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 residue natural gas inventories are not significant.
Inventories of refined petroleum products are stated at the lower of last-
in, first-out ("LIFO") cost or market. At September 30, 1998, the market
value of TransMontaigne's inventories was less then their LIFO carrying
value by approximately $6 million. TransMontaigne believes that the decline
in market value is temporary and will be restored by fiscal year end.
(4) INCOME TAXES
TransMontaigne utilizes the asset and liability method of accounting for
income taxes, as prescribed by Statement of Financial Accounting Standards
No. 109. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply in the
years in which these temporary differences are expected to be recovered or
settled. Changes in tax rates are recognized in income in the period that
includes the enactment date.
(5) BANK CREDIT FACILITY
TransMontaigne's bank credit facility at September 30, 1998 was a
$175,000,000 working capital revolving credit facility with BankBoston, N.A.
and other lenders due December 31, 2002. Borrowings under the bank credit
facility generally bear interest at an annual rate equal to the lender's
announced rate on Alternate Base Rate, subject to a Eurodollar Rate loan
pricing option. The average interest rate at September 30, 1998 was 6.25%.
At September 30, 1998, TransMontaigne had advances of $100,885,000
outstanding under the bank credit facility. In addition, $1,300,000 of the
facility was used to support a standby letter of credit to a bank to assist
Lion Oil Company, a corporation in which TransMontaigne owns a net 18.04%
interest, in obtaining financing.
12
(6) 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.
TransMontaigne sold to the lender, under the Master Shelf Agreement,
$50,000,000 of 7.85% Senior Notes due April 17, 2003 in April 1997 and
$25,000,000 of 7.22% Senior Notes due October 17, 2004 in December 1997, all
of which were outstanding at September 30, 1998.
(7) Senior Subordinated Debentures
In March 1991, TransMontaigne issued $4,000,000 of 12.75% senior
subordinated debentures which are guaranteed by certain subsidiaries; are
due December 15, 2000; are subject to a required redemption of $2,000,000 on
December 15, 1999 and December 15, 2000, respectively; and may be prepaid
prior to maturity at a premium. In connection with the issuance of these
debentures, TransMontaigne issued warrants to purchase 248,686 shares of
common stock at $3.60 per share, through December 15, 2000.
(8) 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 fiscal year ended April 30, 1998, the TransMontaigne Board of
Directors approved the issuance of 56,000 shares to certain key employees.
As of September 30, 1998, 4,400 shares had vested. During the three months
ended September 30, 1998, the TransMontaigne Board of Directors approved the
issuance of an additional 12,000 shares to
13
certain key employees. Unearned compensation is amortized over the four year
vesting period of the awards. Amortization of unearned compensation of
$92,488 is included in general and administrative expense for the three
months ended September 30, 1998.
(9) Business Segments
TransMontaigne's operating business segments include the logistical
petroleum services related to pipelining, terminaling and storing, marketing
and supply and distribution of refined petroleum products and the equity
investment in West Shore; natural gas services related to gathering,
processing, treating and marketing of natural gas liquids and residue gas;
and corporate services related to all of TransMontaigne's activities and
assets which are not specifically identified with logistical petroleum and
natural gas services, including cash and cash equivalents, the equity
investment in Lion Oil Company and other assets.
TransMontaigne acquired Southwest Terminal in July 1998 and the ITAPCO
Terminal Corporations in November 1997. The refined petroleum products,
chemicals and other bulk liquids operations related to these acquisitions
are included in the logistical petroleum services business segment.
14
Information about TransMontaigne's business segments for the three months
ended September 30, 1998 and for the three months ended October 31, 1997 is
summarized below:
September 30, 1998 October 31, 1997
----------------------- --------------------
Revenues
Logistical petroleum services $ 449,822,767 528,604,049
Natural gas services 13,298,216 16,496,007
---------------------- -------------------
$ 463,120,983 545,100,056
====================== ===================
Operating income (loss)
Logistical petroleum services $ 5,474,465 3,115,289
Natural gas services 545,847 2,179,937
Corporate (450,000) (300,000)
---------------------- -------------------
$ 5,570,312 4,995,226
====================== ===================
Identifiable assets at the end of the period (net
of accumulated depreciation)
Logistical petroleum services $ 233,134,366 133,542,670
Natural gas services 93,580,773 88,216,891
Corporate 90,167,351 70,649,697
---------------------- -------------------
$ 416,882,490 292,409,258
====================== ===================
Depreciation and amortization
Logistical petroleum services $ 1,077,057 380,327
Natural gas services 1,490,853 1,251,940
Corporate 224,609 180,881
---------------------- -------------------
$ 2,792,519 1,813,148
====================== ===================
Capital expenditures
Logistical petroleum services $ 16,294,068 3,867,250
Natural gas services 1,337,255 3,184,008
Corporate 1,022,153 453,731
---------------------- -------------------
$ 18,653,476 7,504,989
====================== ===================
15
(10) Earnings Per Share
Earnings per share ("EPS") has been calculated based on the weighted
average number of common shares outstanding for the period in accordance
with the Statement of Financial Accounting Standards No. 128 issued in
February 1997. The following tables reconcile the computation of basic EPS
and diluted EPS for the three months ended September 30, 1998 and three
months ended October 31, 1997.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 FOR THE THREE MONTHS ENDED OCTOBER 31, 1997
------------------------------------------------ --------------------------------------------------
EARNINGS SHARES PER EARNINGS SHARES PER
(NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) SHARE
--------------- --------------- ------------ --------------- ---------------- --------------
Basic EPS - Net
earnings
available to
common
stockholders $ 2,023,603 25,962,991 $ 0.08 $ 2,397,472 25,880,988 $ 0.09
============ ==============
Effect of Dilutive
Securities:
Stock options - 534,370 - 627,866
Stock warrants - 181,875 - 198,068
--------------- --------------- ---------------- ----------------
Diluted EPS - Net
earnings
available to
common
stockholders
and assumed
conversions $ 2,023,603 26,679,236 $ 0.08 $ 2,397,472 26,706,922 $ 0.09
=============== =============== ============ ================ =============== ==============
Note: Options to purchase 498,500, 165,000 and 384,500 shares of common
stock at $17.25, $15.00 and $13.50 per share, respectively, were
outstanding during the three months ended September 30, 1998, but
were not included in the computation of diluted EPS because the
options' exercise price was greater than the average market price of
the common shares during the three months ended September 30, 1998
and the effect was anti-dilutive.
16
(11) Subsequent Events
On October 30, 1998, TransMontaigne closed the acquisition of Louis
Dreyfus Energy Corp. ("LDEC") for approximately $161,000,000, including
$100,565,000 cash and 4.5 million shares of TransMontaigne common stock,
plus working capital of $192,492,000. The acquisition of LDEC includes 24
refined petroleum products terminal and storage facilities of which 7 are
wholly owned and 17 are owned jointly with BP Oil Company 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. LDEC's supply, distribution and marketing
business includes over 350 services supply/exchange points nationwide and
handles annually in excess of 85 million barrels of refined petroleum
products. Subsequent to closing, the name of LDEC was changed to
TransMontaigne Product Services East Inc.
On October 30, 1998 TransMontaigne closed a $500,000,000 credit facility
with BankBoston, N.A. The credit facility includes a 5 year $350,000,000
revolving credit facility and a 22 month $150,000,000 term loan.
Borrowings under this credit facility bear interest paid in arrears at an
annual rate equal to the lender's Alternate Base Rate plus a margin
subject to a Eurodollar Rate pricing option. The credit facility includes
a $20,000,000 same day revolving swing line of credit under which advances
may be drawn at an interest rate comparable to the Eurodollar Rate. The
credit facility contains a negative pledge covenant and financial tests
similar to the previous credit facility. The proceeds from the credit
facility were used to fund the LDEC acquisition as well as to refinance
existing bank debt and provide funds for future acquisitions and other
general corporate purposes.
17
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, chemicals, other bulk liquids, natural gas and crude oil in the
downstream sector of the petroleum and chemical 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; does
not own crude oil or natural gas reserves; and does not own chemicals or other
bulk liquids inventory.
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 approximately 790 miles of pipeline and 32 terminal, storage and
delivery facilities located in 10 states with a combined tank storage capacity
of approximately 10,100,000 barrels. TransMontaigne's natural gas gathering and
processing assets consist of 5 gathering and processing systems in 3 states with
combined throughput capacity of approximately 94 million cubic feet per day and
over 2,800 miles of pipelines. 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. Management believes that the use of all
these facilities should allow TransMontaigne to significantly expand its
geographic service area and the integrated logistical services it provides.
The principal predecessor of TransMontaigne was formed in 1977. In April
1995, present management and certain institutional stockholders of
TransMontaigne acquired control of the predecessor through a merger in which the
name was changed to TransMontaigne Oil Company.
18
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. In August 1998, upon receiving shareholders approval,
the name TransMontaigne Oil Company was changed to TransMontaigne Inc.
Since TransMontaigne's present management assumed control in April 1995,
TransMontaigne has raised approximately $117,000,000 in equity capital
($30,000,000 private placement in May 1995; $25,000,000 private placement in
March 1996; and $62,000,000 public offering in February 1997); established an
initial $130,000,000 working capital and acquisition revolving bank credit
facility in December 1996 which in April 1998 was increased to a $175,000,000
bank credit facility due December 31, 2002; and issued $50,000,000 of 7.85%
Senior Notes due April 17, 2003 in April 1997 and $25,000,000 of 7.22% Senior
Notes due October 17, 2004 in December 1997 to an institutional lender under a
$100,000,000 Master Shelf Agreement.
On October 30, 1998 TransMontaigne closed a $500,000,000 credit facility
with BankBoston, N.A. The credit facility includes a 5 year $350,000,000
revolving credit facility and a 22 month $150,000,000 term loan. Borrowings
under this credit facility bear interest paid in arrears at an annual rate equal
to the lender's Alternate Base Rate plus a margin subject to a Eurodollar Rate
pricing option. The credit facility includes a $20,000,000 same day revolving
swing line of credit under which advances may be drawn at an interest rate
comparable to the Eurodollar Rate. The credit facility contains a negative
pledge covenant and financial tests similar to the previous credit facility. The
proceeds from the credit facility were used to fund the Louis Dreyfus Energy
Corp. acquisition as well as to refinance existing bank debt and provide funds
for future acquisitions and other general corporate purposes.
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 September 30,
1998 has additionally invested approximately $23,800,000 in improvements and
expansion of the Grasslands Facilities and other assets in its natural gas
services business segment. The Grasslands Facilities are strategically located
between TransMontaigne's Marmarth facility in southwestern North Dakota, its
Baker facility in eastern Montana and its Lignite facility in northern North
Dakota. TransMontaigne has natural gas gathering facilities covering the eastern
corridor of Montana and the western quarter of North Dakota, from the Canadian
border to the South Dakota border, which should significantly enhance
TransMontaigne's ability to provide a complete service package to North Dakota
and Montana producers as well as to end-users of natural gas liquids ("NGL") and
natural gas. The Grasslands Facilities contributed approximately 89% and 95% of
the total net operating margins of TransMontaigne's natural gas gathering and
processing operations during the three months ended September 30, 1998 and the
three months ended October 31, 1997, respectively.
19
In November 1997, TransMontaigne acquired the common stock of 17
corporations, known as the "ITAPCO Terminal Corporations", and certain related
property and property interests. The acquisition included 17 bulk liquid storage
and distribution terminals located in 8 states having total tankage capacity in
excess of 3.3 million barrels, handling primarily refined petroleum products,
chemicals and other bulk liquids together with the related operations of the
terminals; and certain other assets. The ITAPCO Terminal Corporations purchase
price was $32,000,000 ($31,458,000 cash, plus assumption of outstanding bank
debt of approximately $542,000) and was funded by an advance of $22,000,000 from
the TransMontaigne bank credit facility with the balance from TransMontaigne
cash reserves. The ITAPCO Terminal Corporations contributed approximately 56% of
the total net operating margins of the TransMontaigne terminal operations during
the three months ended September 30, 1998.
In July 1998, TransMontaigne acquired Statia Terminals Southwest, Inc.
("Southwest Terminal") for $6,500,000 cash. The acquisition included
terminaling, storage and loading facilities for petroleum products, chemicals
and other bulk liquids at the Port of Brownsville, Texas with over 1.6 million
barrels of tank storage, 12 truck rack loading bays, connections to barge and
tanker loading facilities and the exclusive use of 5 railroad spur lines with a
total of 32 railroad car loading spots.
In September 1998, TransMontaigne acquired for $29,219,000 cash the 15.38%
common stock interest in West Shore Pipe Line Company ("West Shore") owned by
Atlantic Richfield Company. West Shore owns a 600-mile common carrier petroleum
products pipeline system which operates between the Chicago refining corridor
locations of East Chicago, Indiana; Blue Island, Joliet and Lemont, Illinois;
north through metropolitan Chicago; along the western edge of Lake Michigan to
Milwaukee and Green Bay, Wisconsin; and west to Rockford and Peru, Illinois and
Madison, Wisconsin. The pipeline serves approximately 55 locations, including 4
refineries, the Chicago-O'Hare and Milwaukee airports, and 49 refined petroleum
products terminals in the Chicago, Illinois area and the upper mid-west region
of the United States. The pipeline is strategically connected to
TransMontaigne's NORCO pipeline system, which in turn, is connected to all major
petroleum products pipeline in the Mid-Continent. TransMontaigne is the second
largest owner of West Shore, whose ownership also includes Citgo, Marathon,
Equilon, Texaco, Amoco, Midwest (Union Oil), Mobil and Exxon as of September 30,
1998.
20
In September 1998, TransMontaigne entered into a Stock Purchase Agreement
with Louis Dreyfus Corporation for the acquisition of all of the outstanding
common stock of Louis Dreyfus Energy Corp. ("LDEC"). In October 1998,
TransMontaigne closed the acquisition of LDEC for approximately $161,000,000,
including $100,565,000 cash and 4.5 million shares of TransMontaigne common
stock, plus working capital of $192,492,000. The acquisition of LDEC includes 24
refined petroleum products terminal and storage facilities of which 7 are wholly
owned and 17 are owned jointly with BP Oil Company 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. LDEC's supply,
distribution and marketing business includes over 350 service supply/exchange
points nationwide and handles annually in excess of 85 million barrels of
refined petroleum products. Subsequent to closing, the name LDEC was changed to
TransMontaigne Product Services East Inc. LDEC is a major shipper on the
Colonial pipeline which connects the Houston ship channel and associated major
refining complexes to the New York Harbor which is the New York Mercantile
Exchange petroleum products delivery point. This acquisition was financed with
proceeds from the $500,000,000 credit facility with BankBoston, N.A.
TransMontaigne intends to continue to make strategic additions to and
expansions of its existing facilities as necessary in order to maintain quality
service levels, increase operating efficiencies, achieve incremental net
earnings and improve its competitive position.
21
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 continue to grow its business
. that TransMontaigne will generate net operating margins from high sales
volumes
. that TransMontaigne will generate net operating 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 lower of cost or
market write-downs of its inventories
. that TransMontaigne will incur unanticipated costs in complying with
current and 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
. that TransMontaigne will generate working capital internally, or have
the availability of debt and equity resources, to meet its future
capital
requirements
. that TransMontaigne will achieve year 2000 compliance without incurring
material costs adversely impacting its operating results.
22
RESULTS OF OPERATIONS
Three Months Three Months
Ended Ended
September 30, October 31, 1997
1998
------------------- -------------------
PIPELINE OPERATIONS
Volume (1) 6,716 4,728
Revenues (2) $ 4,484 3,180
Net Operating Margin (2) $ 2,826 1,701
Margin per Gallon $ 0.0100 0.0086
TERMINAL AND STORAGE OPERATIONS
Volume (1)
Refined petroleum products 608,866 307,000
Chemicals and other bulk liquids 3,882 -
Revenues (2)
Refined petroleum products $ 4,129 2,234
Chemicals and other bulk liquids $ 2,263 -
Net Operating Margin (2) $ 3,988 1,445
Margin per Gallon $ 0.0065 0.0047
PRODUCTS SUPPLY AND
DISTRIBUTION OPERATIONS
Volume (1) 1,045,000 909,000
Revenues (2) $ 438,947 523,190
Net Operating Margin (2) $ 3,056 2,446
Margin per Gallon $ 0.0029 0.0027
NATURAL GAS SERVICES OPERATIONS
Inlet Volume (3) 5,391 5,523
NGL Production (3) 26,494 25,056
Residue Production (3) 4,381,187 4,250,322
Revenues (2) $ 13,298 16,496
Net Operating Margin (2) $ 3,261 4,357
TOTAL OPERATIONS
Revenues (2) $ 463,121 545,100
Net Operating Margin (2) $ 13,131 9,949
Net Earnings (2) $ 2,024 2,397
23
(1) Pipeline volumes are expressed in thousands of barrels (42 gallons per
barrel). Terminal and storage 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 (a) revenues less
direct operating expenses for pipeline and terminal and storage operations;
(b) revenues less cost of refined petroleum products purchased for products
supply and distribution operations, and (c) revenues less cost of natural
gas gathered, processed and sold and direct operating expenses for natural
gas services operations.
(3) Natural gas inlet volumes are expressed in million cubic feet; NGL
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 ITAPCO Terminal Corporations facilities in
November 1997 and 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; the storage and terminaling of refined petroleum
products; and the supply, distribution and marketing of refined petroleum
products. The storage and terminaling of chemicals and other bulk liquids
became a component of the logistical petroleum business segment following the
ITAPCO Terminal Corporations acquisition. Natural gas services became a
separate business segment with the acquisition of the Grasslands Facilities.
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 barrel rate or tankage
capacity committed and will vary with the duration of the arrangement, the
24
product stored and special handling requirements, particularly when certain
types of chemicals and other bulk liquids are involved. Storage fees are not
regulated.
Direct operating expenses of pipeline and terminal and storage operations
include wages and employee benefits, utilities, communications, maintenance and
repairs, property taxes, rent, insurance, vehicle expenses, environmental
compliance 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 10 proprietary and 101 non-proprietary terminal truck loading
rack locations primarily by truckload sales of 8,000 gallons.
Direct operating expenses of products supply and distribution operations
are primarily the cost of products sold and also include transportation,
terminaling and sales commission expenses.
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 third-
party interstate natural gas pipelines.
Direct operating expenses of natural gas gathering and processing
operations include wages and employee benefits, utilities, maintenance and
repairs, property taxes, rent, insurance, vehicle expenses, environmental
compliance costs, material and supplies.
25
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
THREE MONTHS ENDED OCTOBER 31, 1997
On August 14, 1998, TransMontaigne elected to change the date of its fiscal
year end to June 30. The management discussion that follows compares the three
months ended September 30, 1998 and the three months ended October 31, 1997.
TransMontaigne did not recast historical financial information to present the
three months ended September 30, 1997 because the financial reporting systems in
place at that time included certain procedures which were completed only on a
quarterly basis. Consequently, it is impractical to recast this financial
information.
The net operating margin from pipeline operations for the three months
ended September 30, 1998 was $2,826,000 compared to $1,701,000 for the three
months ended October 31, 1997, an increase of 66%, or $1,125,000. The margin
per gallon for the three months ended September 30, 1998 of $.0100 increased
16%, or $.0014. The increase resulted primarily from a 42% increase in barrels
per day thruput volume of 22,000 barrels per day, primarily due to an increase
in volumes of higher tariff long haul pipeline shipments and an increase in the
related tariff rate. The revenue increase was partially offset by an increase
in operating costs which was due to incremental power costs attributable to
additional long haul shipments volumes and increased maintenance and right of
way clearing costs.
The net operating margin from terminal and storage operations for the three
months ended September 30, 1998 was $3,988,000 compared to $1,445,000 for the
three months ended October 31, 1997, an increase of 176%, or $2,543,000. The
margin per gallon for the three months ended September 30, 1998 of $.0065
increased 38%, or $.0018. The increase resulted from an increase in refined
petroleum products volumes handled and the substantial volumes of chemicals and
other bulk liquids not previously handled, primarily due to the addition of the
Southwest Terminal facilities acquired in July 1998 and the ITAPCO Terminal
Corporations facilities acquired in November 1997; a 38% increase in revenues at
the South Bend terminal facility resulting from a 76% increase in thruput
volumes; and a 131% increase in revenues at the Mt. Vernon, Missouri terminal
resulting from the addition of new truck loading facilities. These revenue
increases were
26
partially offset by increases in terminal operating costs largely attributable
to the ITAPCO Terminal Corporations terminals and expanded East Chicago and Mt.
Vernon terminal operations.
The net operating margin from product sales for the three months ended
September 30, 1998 was $3,056,000 compared to $2,446,000 for the three months
ended October 31, 1997, an increase of 25%, or $610,000. Revenues were
$438,947,000 for the three months ended September 30, 1998 compared to
$523,190,000 for the three months ended October 31, 1997, a decrease of 16%, or
$84,243,000, which was a direct result of a 27% reduction in refined product
prices received by TransMontaigne, partially offset by a 15% increase in volumes
sold. A $.0029 net operating margin per gallon was realized in the three months
ended September 30, 1998 compared to $.0027 net operating margin per gallon
realized for the three months ended October 31, 1997. Factors influencing
refined petroleum product market conditions included product supply and demand,
the international political climate and weather conditions which have caused
historical low product prices and which directly affected products supply and
distribution performance for the three months ended September 30, 1998.
At June 30, 1998 TransMontaigne had recorded an allowance of $3.6 million
to reduce the LIFO carrying value of its inventories to market. Under the LIFO
method of accounting for inventories, this allowance was recorded as a reduction
of product costs in the current reporting period. The market value of
TransMontaigne's inventories at September 30, 1998 was approximately $6 million
less than their LIFO carrying value. A lower of cost or market adjustment was
not recorded because the price decline is believed by TransMontaigne management
to be temporary. TransMontaigne's policy is to defer recognition of lower of
cost or market adjustment to inventories due to price declines at interim
reporting dates, unless the price declines are not expected to be restored by
its June 30 fiscal year end. TransMontaigne management estimates that a future
$0.04 per gallon increase in refined petroleum product prices will restore the
decline in the market value of its inventories. The expectation of price
recoveries by fiscal year end will be reevaluated by TransMontaigne management
at the end of each quarterly reporting period.
The net operating margin from natural gas services operations for the three
months ended September 30, 1998 was $3,261,000 compared to $4,357,000 for the
three months ended October 31, 1997, a decrease of 25%, or $1,096,000. Revenues
for the three months ended September 30, 1998 was $13,298,000 compared to
$16,496,000 for the three months ended October 31, 1997 a decrease of 19%, or
$3,198,000. The net operating margin and revenues were attributable primarily
to the business activities of the Grasslands Facilities. Net operating margin
and revenues during the three
27
months ended September 30, 1998 were negatively impacted by continued low NGL
prices, primarily in propane which was in near record oversupply, and the
adverse effect of weak crude oil prices, notwithstanding an approximate 3%
increase in NGL and residue production volumes per day.
General and administrative expenses for the three months ended September
30, 1998 were $4,768,000 compared to $3,141,000 for the three months ended
October 31, 1997, an increase of 52%, or $1,627,000. The increase was due
primarily to additional personnel costs, related employee benefits, increased
office lease rentals, employee relocation expenses and increased communication
expenses. These increases were directly attributable to the continued expansion
of TransMontaigne's integrated logistical petroleum services and to the
acquisition and operations of the ITAPCO Terminal Corporations.
Other income for the three months ended September 30, 1998 included
interest income of $377,000 compared to $581,000 for the three months ended
October 31, 1997, a decrease of 35%, or $204,000. The decrease in interest
income was due primarily to the decrease in interest bearing cash balances held
for future investments.
Interest expense represents interest on the TransMontaigne credit facility
borrowings and senior promissory notes which were used primarily to finance the
acquisitions of the ITAPCO Terminal Corporations in November, 1997 and
Grasslands Facilities in December, 1996, other continuing capital expenditures
and working capital to carry inventory and accounts receivable. Also included
is interest on the TransMontaigne senior subordinated debentures. Other
financing costs include commitment fees and amortization of debt acquisition
costs paid in connection with the credit facility. Interest expense and other
financing costs during the three months ended September 30, 1998 amounted to
$2,684,000 compared to $1,708,000 during the three months ended October 31,
1997, an increase of 57%, or $976,000. The increased interest expense of
$976,000 was due to an increase in average outstanding debt primarily to fund
the ITAPCO Terminal Corporations acquisition.
Earnings before income taxes for the three months ended September 30, 1998
was $3,264,000, compared to $3,867,000 for the three months ended October 31,
1997, a decrease of 16%, or $603,000. The decrease in earnings before income
taxes was primarily a result of increased general
28
and administrative expenses; additional depreciation attributable to the
expansion of natural gas services assets and the acquisition of the ITAPCO
Terminal Corporations; and interest expense, primarily attributable to the
financing of the ITAPCO Terminal Corporations acquisition. Partially offsetting
these factors were the increased net operating margin contribution from the
terminal and storage operations business segment, primarily from the ITAPCO
Terminal Corporations acquisition; the increased net operating margin
contribution from the pipeline operations business segment; and the increased
net operating margin contribution from the products supply and distribution
operations business segment.
Income tax expense for the three months ended September 30, 1998 of
$1,240,000 and $1,470,000 for the three months ended October 31, 1997 is based
upon an effective combined federal and state income tax rate of 38%.
Net earnings for the three months ended September 30, 1998, after providing
for the income tax expense, was $2,024,000 compared to $2,397,000 for the three
months ended October 31, 1997, a decrease of 16%, or $373,000. Earnings per
share for the three months ended September 30, 1998 was $.08 basic and $.08
diluted based on 25,962,991 weighted average basic shares outstanding and
26,679,236 weighted average diluted shares outstanding. This compares to
earnings per share of $.09 basic and $.09 diluted for the three months ended
October 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The following summary reflects TransMontaigne's comparative net cash flows
for the three months ended September 30, 1998 and the three months ended October
31, 1997.
Three Months Three Months
Ended Ended
September 30, 1998 October 31, 1997
---------------------- -----------------------
Net cash provided by operating activities $ 38,952,000 1,968,000
Net cash (used) by investing activities $ (48,545,000) (7,691,000)
Net cash provided by financing activities $ 50,888,000 10,222,000
29
TransMontaigne's net cash provided by operating activities of
$38,952,000 for the three months ended September 30, 1998 was attributable
primarily to the increase in federal excise taxes payable of approximately
$35,000,000, reduced by the decrease in earnings before income taxes of $603,000
and increased by additional depreciation of approximately $979,000. The
substantial accrual of federal excise taxes payable at September 30, 1998 was
due to a legislative change in payment dates which required companies collecting
federal excise taxes to defer the payments of August 1998 and September 1998
collections until October 5, 1998. This deferral enabled TransMontaigne to have
on hand at September 30, 1998 approximately $35,000,000 of additional cash which
was paid out on October 5, 1998. TransMontaigne's current ratio (current assets
divided by current liabilities) was 2.1 to 1.0 at September 30, 1998 compared to
3.0 to 1.0 at October 31, 1997. TransMontaigne's current ratio at September 30,
1998, adjusted to reflect the subsequent payment of the federal excise tax
liability would have been 2.8 to 1.0.
Net cash used by investing activities was $48,545,000 during the three
months ended September 30, 1998 as TransMontaigne continued its growth through
construction and improvements to existing operating facilities and the
acquisitions of Southwest Terminal ($6,500,000) and the 15.38% common stock
interest in West Shore ($29,219,000). Capital expenditures included
enhancements to the East Chicago facility and several of the acquired ITAPCO
terminals; initial construction costs related to new terminal projects;
improvements to the NORCO Pipeline facilities; expansion of assets in the
natural gas services business segment; and additions to TransMontaigne's
corporate facilities, communications, and data processing infrastructure. Net
cash used by investing activities was $7,691,000 during the three months ended
October 31, 1997 which included approximately $3,174,000 of improvements to the
Grasslands Facilities and other assets in the natural gas services business
segment; and improvements to the pipeline and terminal facilities.
Net cash provided by financing activities for the three months ended
September 30, 1998 of $50,888,000 primarily represented borrowings under
TransMontaigne's credit facility and was primarily used to finance capital
expenditures and the investments in Southwest Terminal and West Shore. Net cash
provided by financing activities for the three months ended October 31, 1997 of
$10,222,000 also primarily represented borrowings under TransMontaigne's credit
facility and was primarily used to finance operations and capital expenditures.
At September 30, 1998, TransMontaigne had $279,000,000 of borrowing facility
with availability of $97,815,000 under its credit agreements.
30
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 was $8,740,000 for the three months ended
September 30, 1998 compared to EBITDA of $7,389,000 for the three months ended
October 31, 1997, an increase of 18%, or $1,351,000. The increase in EBITDA for
the three months ended September 30, 1998 was primarily attributable to the
increased EBITDA contributions by the terminal and storage operation business
segment, including the Southwest Terminal and ITAPCO Terminal Corporations; the
pipeline operations business segment; and the product supply and distribution
operations business segment. The increases in EBITDA were partially offset by
increased general and administrative expenses, and reduced interest income.
Achieving continued EBITDA growth through acquisitions and internal expansion of
existing facilities is a primary objective of TransMontaigne management.
Capital expenditures anticipated in the year ending June 30, 1999 are
estimated to be approximately $258,000,000 for pipeline, terminal, storage and
natural gas gathering and processing facilities, and assets to support these
facilities, including $6,500,000 cash for Southwest Terminal, $29,219,000 cash
for the 15.38% interest in West Shore and $161,000,000 in cash and common stock
for Louis Dreyfus Energy Corp. Future capital expenditures will depend on
numerous factors, including the availability, economics and cost of appropriate
acquisitions which TransMontaigne continuously identifies and evaluates; the
economics, cost and required regulatory approvals with respect to the expansion
and enhancement of existing systems and facilities; the demand for the services
TransMontaigne provides; local, state and federal governmental regulations;
environmental compliance requirements; fuel conservation efforts; and the
availability, to the extent required, of financing on acceptable terms.
31
In February 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
was added to working capital. In March 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 total net proceeds from the offering
was $62,315,000.
TransMontaigne's bank credit facility at September 30, 1998 was a
$175,000,000 revolving credit facility with BankBoston, N.A. and other lenders
due December 31, 2002. Borrowings under this bank credit facility generally
bear interest paid in arrears at an annual rate equal to the lenders' announced
rate on Alternate Base Rate loans, subject to a Eurodollar Rate loan pricing
option. Part of this revolving credit facility is a $10,000,000 same day swing
line of credit available to TransMontaigne under which advances may be drawn at
an interest rate comparable to the Eurodollar Rate.
At September 30, 1998, TransMontaigne had advances of $100,885,000
outstanding under the bank credit facility utilizing the Eurodollar Rate loan
pricing option and $1,300,000 of the facility was used to support a standby
letter of credit to a bank to assist Lion Oil Company in obtaining financing.
The average interest rate at September 30, 1998 was 6.25%.
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.
32
At September 30, 1998, TransMontaigne had outstanding under the Master
Shelf Agreement, $50,000,000 of 7.85% Senior Notes due April 17, 2003 and
$25,000,000 of 7.22% Senior Notes due October 17, 2004.
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. The agreements also include financial tests
relating to fixed charges coverage, leverage ratio, consolidated tangible net
worth, distributions and inventory positions. As of September 30, 1998,
TransMontaigne was in compliance with all such tests.
On October 30, 1998 TransMontaigne closed a $500,000,000 credit facility
with BankBoston, N.A. The credit facility includes a 5 year $350,000,000
revolving credit facility and a 22 month $150,000,000 term loan. Borrowings
under this credit facility bear interest paid in arrears at an annual rate equal
to the lender's Alternate Base Rate plus a margin subject to a Eurodollar Rate
pricing option. The credit facility includes a $20,000,000 same day revolving
swing line of credit under which advances may be drawn at an interest rate
comparable to the Eurodollar Rate. The credit facility contains a negative
pledge covenant and financial tests similar to the previous credit facility. The
proceeds from the credit facility were used to fund the LDEC acquisition as well
as to refinance existing bank debt and provide funds for future acquisitions and
other general corporate purposes.
33
At September 30, 1998, TransMontaigne had working capital of $94,392,000;
availability under its bank credit facility of $72,815,000; and additional
borrowing capacity of $25,000,000 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 debt and common stock; available borrowing
capacity under the 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
TransMontaigne to meet its future capital requirements.
YEAR 2000 MATTERS
Historically, certain computer programs, as well as certain hardware
containing embedded technology, such as microcontrollers and microprocessors,
were designed to utilize a two-digit date field and consequently, they may not
be able to properly recognize dates in the Year 2000. This could result in
significant system failures. TransMontaigne relies on its computer-based
management information systems, as well as embedded technology, such as
microcontrollers and microprocessors, to operate instruments and equipment in
conducting its normal business activities. Certain of these computer-based
programs and embedded technology, such as microcontrollers and microprocessors,
may not have been designed to function properly with respect to the application
of dating systems relating to the Year 2000.
In response, TransMontaigne has developed a "Year 2000" Plan and
established an internal group to identify and assess potential areas of risk and
to make any required modifications to its
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computer systems and equipment used in its pipeline, terminaling, storage and
natural gas gathering and processing operations and product supply and
distribution activities. The Year 2000 Plan is comprised of various phases,
including assessment, remediation, testing and contingency plan development.
After the assessment phase has been completed and evaluated, the remediation,
testing and certification phases will be implemented to ensure that the material
facilities and business activities will continue to operate safely and reliably,
and without interruption after 1999. Based upon the results of these assessments
contingency plans will be developed to the extent deemed necessary.
TransMontaigne has also undertaken to monitor the compliance efforts of
suppliers, contractors and other third parties with whom it does business,
including those with whom TransMontaigne maintains banking and stock transfer
relationships, and whose computer-based systems and/or embedded technology
equipment interface with those of TransMontaigne to ensure that operations will
not be adversely affected by the Year 2000 compliance problems of others. There
can be no assurance that there will not be an adverse effect on TransMontaigne
if vendors, suppliers, customers, state and federal governmental authorities and
other third parties do not convert their respective systems in a timely manner
and in a way that is compatible with TransMontaigne's information systems and
embedded technology equipment. However, management believes that ongoing
communication with and assessment of the compliance efforts and status of these
third parties will minimize these risks.
TransMontaigne believes that it can provide the resources necessary to
ensure Year 2000 compliance and expects to complete its Year 2000 Plan within a
time frame that will enable its computer-based programs and embedded technology
equipment to function without significant disruption in the Year 2000.
TransMontaigne believes that the assessment phase of its Year 2000 Plan will be
completed by the end of December 31, 1998. It is anticipated that the
remediation phase will be completed by March 31, 1999 and the testing phase by
June 30, 1999. Thereafter, contingency plans, if necessary and appropriate, will
be developed as needed.
At September 30, 1998, TransMontaigne has incurred third party costs of
approximately $50,000 related to Year 2000 compliance matters and estimates that
the total future third party, software and equipment costs related to Year 2000
compliance activities, based upon information
35
developed to date, will be approximately $2,500,000, which will be expensed as
incurred. These costs have been and will continue to be funded through operating
cash flows and are not deemed to be material to the operations of
TransMontaigne. The cost of the remediation activities and the completion dates
are based on management's best estimates and may be updated as additional
information becomes available. The costs incurred to date and those estimated to
be incurred in the future with respect to Year 2000 issues do not include
internal costs. TransMontaigne does not presently separately track the 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 the compliance
program and related travel and other out of pocket expenses.
Although TransMontaigne anticipates minimal business disruption will occur
as a result of Year 2000 issues, in the event the computer based programs and
embedded technology equipment of TransMontaigne, or that owned and operated by
third parties, should fail to function properly, possible consequences include
but are not limited to, loss of communications links with pipeline control
centers, terminal automation systems, and field offices; loss of electric power;
and inability to automatically process commercial transactions, or engage in
similar normal automated or computerized business activities.
To date, TransMontaigne has not established a contingency plan for possible
Year 2000 issues. As noted above, in the event TransMontaigne, after completion
of the assessment, remediation and testing phases of the Year 2000 Plan and
review of the results of monitoring the compliance efforts and status of third
parties, determines that contingency plans are necessary, TransMontaigne will
establish contingency plans based on its assessment of outside risks.
TransMontaigne anticipates that contingency plans, if determined to be
necessary, will be in place by July 31, 1999.
The discussion of TransMontaigne's efforts, and management's expectations,
relating to Year 2000 compliance contains forward-looking statements.
Presently, TransMontaigne does not anticipate that the Year 2000 issues will
have a material adverse effect on the operations or financial performance of
TransMontaigne. However, there can be no assurance that the Year 2000 will not
adversely affect TransMontaigne and its business.
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NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), was issued June
1997 by the Financial Accounting Standards Board. SFAS 131 established new
standards which change the way public companies report information about
segments. This statement is based on the management approach to segment
reporting and requires companies to report selected quarterly segment
information and entity-wide disclosures about products and services, major
customers and geographic areas in which the entity holds assets and reports
revenues. SFAS 131 is effective for financial statements for fiscal years
beginning after December 31, 1997. TransMontaigne does not expect the adoption
of SFAS 131 to have a material effect on the presentation of its financial
statements.
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 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. TransMontaigne has not assessed the impact, if
any, that SFAS 133 will have on its consolidated financial statements.
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PART II. OTHER INFORMATION
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ITEM 2. CHANGES IN SECURITIES
Recent Sales of Unregistered Securities
On September 8, 1998, TransMontaigne issued 6,500 shares of
TransMontaigne's common stock to a consultant to TransMontaigne pursuant to the
terms of a consulting agreement for services rendered in connection with an
acquisition. Because the issuance occurred in a privately negotiated transaction
that did not involve a public offering, the shares of TransMontaigne's common
stock issued are exempt from registration under Section 4(2) of the Securities
Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the TransMontaigne Annual Meeting of Stockholders held on August 26, 1998,
the stockholders of TransMontaigne (a) elected seven directors; (b) approved the
proposal to amend Article II of TransMontaigne's Restated Certificate of
Incorporation to change the name of TransMontaigne Oil Company to TransMontaigne
Inc.; and (c) ratified the appointment of KPMG Peat Marwick LLP as independent
auditors for TransMontaigne for the fiscal year ending April 30, 1999.
The following persons were elected as directors:
Thomas R. Dension
Cortlandt S. Dietler
Richard E. Gathright
John A. Hill
Bryan H. Lawrence
Harold R. Logan, Jr.
Edwin H. Morgens
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A total of 18,338,375 votes were cast for and a total of 72,461 votes were cast
against each of the following nominees for election to the Board of Directors:
Messrs. Dietler, Gathright, Hill, Lawrence, Logan and Morgens. A total of
18,337,375 votes were cast for and a total of 73,461 votes were cast against Mr.
Denison.
A total of 18,408,667 votes were cast in favor of the proposal to amend Article
II of the Restated Certificate of Incorporation to change the name of
TransMontaigne Oil Company to TransMontaigne Inc., while 1,411 votes were cast
against the proposal and 758 abstained. There were no broker non-votes.
With respect to the ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for TransMontaigne for the fiscal year ending April 30,
1999, a total of 18,408,413 votes were cast in favor of the appointment, while
1,711 votes were cast against and 712 abstained. There were no broker non-
votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1A Restated Articles of Incorporation and Certificate of Merger.
Incorporated by reference to TransMontaigne Oil Company Form 10-K
(Securities and Exchange Commission File No. 001-11763) for the year
ended April 30, 1996.
3.1B Certificate of Amendment of Restated Certificate of Incorporation of
TransMontaigne Oil Company dated August 26, 1998. FILED HEREWITH.
10.1 Stock Purchase Agreement dated as of September 13, 1998, between
Louis Dreyfus Corporation and TransMontaigne. Incorporated by
reference to TransMontaigne Inc. Current Report on Form 8-K
(Securities and Exchange Commission File No. 001-11763) filed on
November 13, 1998.
39
27 Financial Data Schedule. FILED HEREWITH.
99.1 Press Release dated September 14, 1998. FILED HEREWITH.
(b) Reports on Form 8-K
A Form 8-K dated August 14, 1998 was filed on August 27, 1998 reporting a
change of the name of Registrant to TransMontaigne Inc. under Item 5 and a
change in Registrant's fiscal year end to June 30 under Item 8.
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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: November 16, 1998 TRANSMONTAIGNE INC.
(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)
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