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, 1999
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 November 1, 1999 there were 30,592,024 shares of the registrant's Common
Stock outstanding.
TRANSMONTAIGNE INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1999 and June 30, 1999 (Unaudited).....................4
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 1999 and 1998 (Unaudited)...........5
Condensed Consolidated Statements of Stockholders' Equity
Year Ended June 30, 1999 and
Three Months Ended September 30, 1999 (Unaudited)....................6
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 30, 1999 and 1998 (Unaudited)...........7
Notes to Condensed Consolidated Financial Statements.................8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................17
Item 3. Quantitative and Qualitative Disclosures about Market Risk..........27
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................28
Signatures..........................................................29
2
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of TransMontaigne Inc. are
included herein beginning on the following page.
3
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 1999 and June 30, 1999 (Unaudited)
(In thousands)
September 30, June 30,
Assets 1999 1999
- ------ --------------------- --------------------
Current assets:
Cash and cash equivalents $ 3,523 13,927
Trade accounts receivable 156,690 174,122
Inventories 286,602 378,207
Deferred tax assets, net 2,604 -
Prepaid expenses 3,829 4,355
--------------------- --------------------
453,248 570,611
--------------------- --------------------
Property, plant and equipment:
Land 42,773 42,773
Plant and equipment 447,565 431,141
Accumulated depreciation (43,549) (37,572)
--------------------- --------------------
446,789 436,342
--------------------- ---------------------
Investments and other assets:
Investments in petroleum related assets 46,141 46,141
Deferred debt issuance costs, net 10,791 11,529
Unrealized gains on energy related contracts 7,975 8,996
Other assets, net 20,850 21,889
--------------------- --------------------
85,757 88,555
--------------------- --------------------
$ 985,794 1,095,508
===================== ====================
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Trade accounts payable $ 113,936 164,162
Inventory due under exchange agreements 33,385 25,791
Excise taxes payable 31,987 25,681
Other accrued liabilities 8,088 5,371
Current portion of long-term debt 2,000 2,000
--------------------- --------------------
189,396 223,005
--------------------- --------------------
Long-term debt 427,489 495,672
Deferred tax liabilities, net - 780
Stockholders' equity:
Preferred stock, par value $.01 per share, authorized
2,000,000 shares, issued and outstanding 170,115
shares Series A Convertible at September 30, 1999 and June 30, 1999,
liquidation preference of $170,115,000 2 2
Common stock, par value $.01 per share,
authorized 80,000,000 shares at September 30, 1999 and June 30, 1999,
issued and outstanding 30,591,024 shares at September 30, 1999
and 30,479,024 shares at June 30, 1999 306 305
Capital in excess of par value 368,394 367,235
Unearned compensation (1,100) -
Retained earnings 1,307 8,509
--------------------- --------------------
368,909 376,051
--------------------- --------------------
$ 985,794 1,095,508
===================== ====================
See accompanying notes to condensed consolidated financial statements.
4
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months Ended September 30, 1999 and 1998 (Unaudited)
(In thousands, except per share amounts)
1999 1998
--------------------- ---------------------
Revenues $ 1,148,867 463,121
Costs and expenses:
Product costs 1,119,814 443,206
Operating expenses 16,225 8,517
General and administrative 5,875 3,035
Depreciation and amortization 6,246 2,793
--------------------- ---------------------
1,148,160 457,551
--------------------- ---------------------
Operating income 707 5,570
Other income (expenses):
Dividend income from petroleum related assets 491 -
Interest income 887 378
Interest expense (9,488) (2,475)
Amortization of deferred debt issuance costs (851) (123)
Other financing costs (206) (86)
--------------------- ---------------------
(9,167) (2,306)
--------------------- ---------------------
Earnings (loss) before income tax (8,460) 3,264
Income tax (expense) benefit 3,384 (1,240)
--------------------- ---------------------
Net earnings (loss) (5,076) 2,024
Preferred stock dividends (2,126) -
--------------------- ---------------------
Net earnings (loss) attributable to
common stockholders $ (7,202) 2,024
===================== =====================
Weighted average common
shares outstanding:
Basic 30,485 25,963
===================== =====================
Diluted 30,485 26,679
===================== =====================
Earnings (loss) per common share:
Basic $ (0.24) 0.08
===================== =====================
Diluted $ (0.24) 0.08
===================== =====================
See accompanying notes to condensed consolidated financial statements.
5
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
Year Ended June 30, 1999 and Three Months Ended September 30, 1999 (Unaudited)
(In thousands)
Capital in
Preferred Common excess of Unearned Retained
stock stock par value Compensation earnings Total
----------- --------- ------------ -------------- ------------ --------
Balance at June 30, 1998 $ - 260 136,780 (618) 8,844 145,266
Preferred stock issued in connection
with stock purchase agreements 2 - 170,113 - - 170,115
Costs related to issuance of preferred
stock - - (327) - - (327)
Common stock issued for options
exercised - - 84 - - 84
Common stock issued for services - - 93 - - 93
Tax benefit arising from options
exercised - - 63 - - 63
Unearned compensation related to
restricted stock awards - - 162 (162) - -
Amortization of unearned compensation - - - 780 - 780
Common stock issued in acquisition of
Louis Dreyfus Energy Corp. - 45 60,390 - - 60,435
Common stock repurchased and retired - - (123) - - (123)
Preferred stock dividends - - - - (2,274) (2,274)
Net earnings - - - - 1,939 1,939
----------- --------- ------------ -------------- ------------ --------
Balance at June 30, 1999 2 305 367,235 - 8,509 376,051
Common stock issued for options
exercised - - 60 - - 60
Unearned compensation related to
restricted stock awards - 1 1,099 (1,100) - -
Preferred stock dividends - - - - (2,126) (2,126)
Net loss - - - - (5,076) (5,076)
----------- --------- ------------ -------------- ------------ --------
Balance at September 30, 1999 $ 2 306 368,394 (1,100) 1,307 368,909
=========== ========= ============ ============== ============ ========
See accompanying notes to condensed consolidated financial statements.
6
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended September 1999 and 1998 (Unaudited)
(In thousands)
1999 1998
--------------------- ---------------------
Cash flows from operating activities:
Net earnings (loss) $ (5,076) 2,024
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 6,246 2,793
Deferred tax expense (benefit) (3,384) 1,115
Loss (gain) on disposition of assets (1) 8
Amortization of unearned compensation - 92
Amortization of deferred debt issuance costs 851 123
Changes in operating assets and liabilities,
net of noncash activities:
Trade accounts receivable 17,432 (5,295)
Inventories 92,626 (6,848)
Prepaid expenses 526 (79)
Trade accounts payable (50,226) 4,470
Inventory due under exchange
agreements 7,594 2,034
Excise taxes payable and other
accrued liabilities 9,023 38,515
--------------------- ---------------------
Net cash provided
by operating activities 75,611 38,952
--------------------- ---------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (16,431) (18,653)
Proceeds from sale of assets 2 -
Investment in West Shore Pipe Line Company - (29,275)
Decrease (increase) in other assets, net 776 (617)
--------------------- ---------------------
Net cash (used) by
investing activities (15,653) (48,545)
--------------------- ---------------------
Cash flows from financing activities:
Borrowings (repayments) of long-term debt, net (68,183) 50,888
Deferred debt issuance costs (113) (8)
Common stock issued for cash 60 9
Preferred stock dividends paid (2,126) -
--------------------- ---------------------
Net cash provided (used)
by financing activities (70,362) 50,889
--------------------- ---------------------
(Decrease) increase in cash
and cash equivalents (10,404) 41,296
Cash and cash equivalents at beginning of year 13,927 27,215
--------------------- ---------------------
Cash and cash equivalents at end of year $ 3,523 68,511
===================== =====================
See accompanying notes to condensed consolidated financial statements.
7
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(1) Summary of Significant Accounting Policies
Nature of Business
TransMontaigne Inc. ("TransMontaigne") provides a broad range of integrated
transportation, terminaling, storage, supply, distribution, gathering,
processing and marketing services to producers, refiners, distributors,
marketers and industrial end-users of petroleum products, chemicals, other
bulk liquids, natural gas and crude oil in the downstream sector of the
petroleum and chemical industries. TransMontaigne is a holding company
which conducts its operations through wholly-owned subsidiaries primarily
in the Mid-Continent, Gulf Coast, Southeast, Mid-Atlantic, Northeast and
Rocky Mountain regions of the United States. TransMontaigne operations are
divided into three logistical petroleum services business segments:
pipelines, which includes transportation and delivery of refined petroleum
products and crude oil; terminals, which includes terminaling and storage
of refined petroleum products, crude oil, chemicals and other bulk liquids;
and products, which includes supply, distribution and marketing of refined
petroleum products and natural gas liquids ("NGL"); and a natural gas
services business segment which includes gathering, treating, processing,
fractionating and marketing NGL and natural gas. Segment information is
presented in the notes to the condensed consolidated financial statements.
TransMontaigne does not explore for, or produce, crude oil or natural gas;
and does not own crude oil or natural gas reserves.
Basis of Presentation
The condensed consolidated financial statements included in this Form 10-Q
have been prepared by TransMontaigne without audit pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly,
these statements reflect adjustments (consisting only of normal recurring
entries) which are, in the opinion of TransMontaigne management, necessary
for a fair statement of the financial results for the interim periods.
Certain information and notes normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations, although
TransMontaigne believes that the disclosures are adequate to make the
information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the financial
statements and related notes, together with management's discussion and
analysis of financial condition and results of operations included in
TransMontaigne's Annual Report on Form 10-K for the year ended June 30,
1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires TransMontaigne management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Changes in
these estimates and assumptions will occur as a result of the passage of
time and the occurrence of future events, and actual results will differ
from the estimates.
The accounting and financial reporting policies of TransMontaigne and its
subsidiaries conform to generally accepted accounting principles and
prevailing industry practices. All significant intercompany accounts and
transactions have been eliminated in consolidation.
8
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(1) Summary of Significant Accounting Policies (continued)
Inventory Risk Management
TransMontaigne utilizes derivative financial instruments to manage market
risks associated with certain energy commodities.
In connection with its products supply, distribution and marketing
business, TransMontaigne engages in trading activities. Trading activities
are accounted for using the mark-to-market method of accounting. In 1998,
the Emerging Issues Task Force ("EITF") reached a consensus on Issue
No. 98-10, Accounting for Contracts Involved in Energy Trading and Risk
Management Activities ("EITF 98-10"). EITF 98-10 is effective for fiscal
years beginning after December 15, 1998 and requires energy trading
contracts to be recorded at fair value on the balance sheet, with the
changes in fair value included in earnings. TransMontaigne elected early
adoption of EITF 98-10 during the fiscal year ended June 30, 1999.
TransMontaigne, prior to the acquisition of Louis Dreyfus Energy Corp.
("LDEC"), valued inventory at the lower of cost or market, which was
recorded at market at June 30, 1998. LDEC historically valued its inventory
at market.
Trading activities are conducted through a variety of financial
instruments, including forward contracts involving cash settlement or
physical delivery of energy commodities; swap contracts which require
payments to (or receipts from) counterparties based on the differential
between a fixed and variable price for the commodities; exchange-trade
options; over-the-counter options; and other contractual arrangements.
Under mark-to-market accounting, commodity and energy related contracts are
reflected at fair value with resulting gains and losses recorded in
operating income. The net gains and losses recognized in the current period
result primarily from transactions originating within the period and the
impact of current period price movements on transactions originating in
prior periods. Unrealized gains and losses from energy trading activities
are recorded as assets and liabilities.
The market value of these energy contracts is based upon management's
estimate, considering various factors including closing exchange and over-
the-counter quotations, time value and volatility factors underlying the
commitments. The market values are adjusted to reflect the potential impact
of liquidating TransMontaigne's position in an orderly manner over a
reasonable period of time under present market conditions.
TransMontaigne's Product and Risk Management Committee reviews the total
inventory and risk position on a regular basis in order to ensure
compliance with TransMontaigne's inventory management policies, including
hedging and trading activities. Policy change requires the prior approval
of the Product and Risk Management Committee and the Audit Committee of the
Board of Directors.
Recently Issued Accounting Pronouncement
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on
the balance sheet as either an asset or liability measured at its fair
value. The statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting
criteria are met. SFAS 133 is effective for fiscal quarters of fiscal years
beginning after June 15, 2000 as amended by SFAS 137. TransMontaigne
believes that SFAS 133 will not have a material impact on its accounting
for price risk management activities.
9
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(1) Summary of Significant Accounting Policies (continued)
Reclassifications
Certain amounts in the accompanying condensed consolidated financial
statements for prior periods have been reclassified to conform to the
classifications used at September 30, 1999.
(2) Acquisitions
On June 30, 1999, TransMontaigne, through wholly-owned subsidiaries
TransMontaigne Terminaling Inc. ("TTI") and TransMontaigne Product Services
Inc. ("TPSI"), acquired from Amerada Hess Corporation the Hess Southeastern
Pipeline Network ("Hess Terminals") of refined petroleum product facilities
for approximately $66,200,000 cash, and related refined products inventory
for $32,500,000 cash. The Hess Terminals, which are interconnected to the
Colonial and Plantation pipeline systems, include approximately 5.3 million
barrels of tankage at 11 storage and terminal facilities and 36 miles of
proprietary pipelines.
On December 3, 1998, TransMontaigne, through a wholly-owned subsidiary,
TTI, acquired from SUNOCO, Inc. a petroleum products terminal located on
the Hudson River at Rensselaer, near Albany, New York for approximately
$5,200,000 cash. The Rensselaer terminal facility includes 510,000 barrels
of storage capacity, 3 truck loading racks and a dock capable of handling
barges and ocean going tankers.
On October 30, 1998, TransMontaigne, through a wholly-owned subsidiary,
TPSI, acquired all of the common stock of LDEC for approximately
$161,000,000, including $100,565,000 cash and 4.5 million shares of
TransMontaigne common stock valued at $60,435,000. In addition,
TransMontaigne acquired LDEC's working capital for $192,492,000 cash. The
LDEC acquisition included 24 refined petroleum products terminal and
storage facilities, of which 7 are wholly owned and 17 are owned jointly
with BP Amoco, together with its supply, distribution and marketing
business. These facilities are located in 9 states in the Southern and
Eastern regions of the United States; have approximately 4.2 million
barrels of TransMontaigne owned storage capacity; and are supplied
primarily by the Colonial and Plantation pipeline systems. Effective April
1, 1999, TransMontaigne Product Services East Inc. ("TPSI-East") was merged
into its parent, TransMontaigne Product Services Inc.
On July 29, 1998, TransMontaigne, through a wholly-owned subsidiary, TTI,
acquired all of the common stock of Statia Terminals Southwest, Inc.
("Southwest Terminal") for $6,500,000 cash. The acquisition included
terminal, 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.
TransMontaigne has accounted for these acquisitions using the purchase
method accounting as of the effective date of each transaction.
Accordingly, the purchase price of each transaction has been allocated to
the assets and liabilities acquired based upon the estimated fair value of
those assets and liabilities as of the acquisition date. TransMontaigne
received a third party appraisal in connection with the LDEC allocation.
The cash used to purchase the above acquisitions was funded by advances
from TransMontaigne's credit facility.
10
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(2) Acquisitions (continued)
The following summary presents unaudited actual and pro forma results of
operations. The pro forma information for the three months ended September
30, 1998 assumes that the acquisition of LDEC occurred as of July 1, 1998,
and combines the historical results of operations of TransMontaigne for the
three months ended September 30, 1998 with the historical results of
operations of LDEC for the three months ended September 30, 1998. The
unaudited pro forma results of operations are not necessarily indicative of
the results of operations which would actually have occurred if LDEC had
been acquired as of the beginning of the pro forma period, or which will be
attained in the future.
Three Months Ended September 30,
-------------------------------------------
1999 1998
------------------ -------------------
(Actual) (Pro forma)
------------------ -------------------
(In thousands, except per share amounts)
Revenues $ 1,148,867 1,066,894
================== ===================
Net earnings (loss) $ (5,076) 4,011
Preferred stock dividends (2,126) -
------------------ -------------------
Net earnings (loss) attributable to common stockholders $ (7,202) 4,011
================== ===================
Earnings (loss) per common share:
Basic $ (0.24) 0.13
=================== ===================
Diluted $ (0.24) 0.13
================== ===================
(3) Inventories
TransMontaigne manages inventory by utilizing risk and portfolio management
disciplines including certain hedging strategies, forward purchases and
sales, swaps and other financial instruments to manage market exposure. In
managing inventory balances and related financial instruments, management
evaluates the market exposure from an overall portfolio basis which
considers both continuous movement of inventory balances and related open
positions in commodity trading instruments.
TransMontaigne's refined petroleum products inventory consists primarily of
gasoline and distillates. Inventory is divided into inventory held for sale
or exchange in the ordinary course of business and minimum inventory which
represents working stocks (pipeline in-transit and minimum terminal
inventory), pipeline line fill and terminal tank bottoms. Minimum inventory
is required to be held for operating balances in the conduct of
TransMontaigne's daily supply, distribution and marketing activities and is
maintained both in tanks and pipelines owned by TransMontaigne and
pipelines owned by third parties.
Contractual commitments are subject to risks including market value
fluctuations, as well as counterparty credit and liquidity risk.
TransMontaigne has established procedures to continually monitor these
contracts in order to minimize credit risk, including the establishment and
review of credit limits, margin requirements, master netting arrangements,
letters of credit and other guarantees.
11
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(4) Property, Plant and Equipment
Property, plant and equipment at September 30, 1999 and June 30, 1999 is as
follows (in thousands):
September 30, June 30,
1999 1999
------------------- -------------------
Land $ 42,773 42,773
Pipelines, rights of way
and equipment 34,504 33,661
Terminals and equipment 275,005 268,936
Natural gas gathering
and processing 114,775 108,533
Other plant and equipment 23,281 20,011
------------------- -------------------
490,338 473,914
Less accumulated depreciation 43,549 37,572
------------------- -------------------
$ 446,789 436,342
=================== ===================
(5) Investments
TransMontaigne, through its 65% ownership of TransMontaigne Holding Inc.,
effectively owns 18.04% of the common stock of Lion Oil Company ("Lion").
Lion owns a 65,000 barrel per day refinery in El Dorado, Arkansas; a 188-
mile crude oil transportation pipeline in east Texas; a 1,100-mile crude
oil gathering system in south Arkansas and north Louisiana; and two refined
petroleum products terminals in Tennessee. At September 30, 1999 and June
30, 1999, TransMontaigne's investment in Lion, carried at cost, was
approximately $10,111,000.
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. Effective December 31, 1998,
TransMontaigne acquired for $5,488,000 cash an additional 4.11% common
stock interest in West Shore owned by Equilon Pipeline Company, LLC and for
$1,186,000 cash an additional .89% common stock interest in West Shore
owned by Texaco Transportation and Trading Inc., both of which transactions
closed on January 7, 1999. TransMontaigne owns 20.38% of the common stock
of West Shore at September 30, 1999. West Shore ownership as of September
30, 1999 also includes Citgo, Marathon, Equilon, Texaco, BP Amoco, Midwest
(Union Oil), Mobil and Exxon. Although TransMontaigne owns 20.38%, it does
not exercise significant influence over the operations of West Shore and
therefore carries its $35,960,000 investment at cost. TransMontaigne
recorded dividend income from West Shore of $491,000 during the three
months ended September 30, 1999.
12
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(6) Long-term Debt
Long-term debt at September 30, 1999 and June 30, 1999 is as follows (in
thousands):
September 30, June 30,
1999 1999
------------------- -------------------
Line of credit $ 350,505 418,690
Senior promissory notes 75,000 75,000
12 3/4% senior subordinated debentures, net
of discount (face amount $4,000,000) 3,984 3,982
------------------- -------------------
429,489 497,672
Less current maturity 2,000 2,000
------------------- -------------------
$ 427,489 495,672
=================== ===================
At September 30, 1999, TransMontaigne's bank credit facility consisted of a
$600,000,000 credit facility led by BankBoston, N.A. The credit facility
includes a $400,000,000 revolving component due December 31, 2003 and a
$200,000,000 term component due June 30, 2006. The term component has
quarterly principal payments required beginning in September 2000.
Borrowings under this credit facility bear interest at an annual rate equal
to the lender's Alternate Base Rate plus margins, subject to a Eurodollar
Rate pricing option at TransMontaigne's election. The average interest rate
at September 30, 1999 was 8.5%.
In April 1997, TransMontaigne entered into a Master Shelf Agreement with an
institutional lender which provides that the lender will agree to quote,
from time to time, an interest rate at which the lender would be willing to
purchase, on an uncommitted basis, up to $100 million of TransMontaigne's
senior promissory notes which will mature in no more than 12 years, with an
average life not in excess of 10 years. On April 17, 1997 and December 16,
1997, TransMontaigne sold $50,000,000 of 7.85% and $25,000,000 of 7.22%
Senior Notes due April 17, 2003 and October 17, 2004, respectively, all of
which was outstanding at September 30, 1999.
The bank credit facility and the Master Shelf Agreement were amended
effective September 30, 1999. Each contains similar negative pledge
covenants by TransMontaigne and its subsidiaries, are secured by the stock
of the subsidiaries, and also include financial tests relating to interest
coverage, leverage ratio, cash flow leverage ratio, consolidated tangible
net worth, distributions and open inventory positions. As of September 30,
1999, TransMontaigne was in compliance with all such tests.
In March 1991, TransMontaigne issued $4,000,000 of 12.75% senior
subordinated debentures which are guaranteed by certain subsidiaries and
are due December 15, 2000. 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 its common
stock.
Cash payments for interest were approximately $7,994,000 and $1,135,000 for
the three months ended September 30, 1999 and 1998, respectively.
13
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(7) Stockholders' Equity
On March 25, 1999 and March 30, 1999, TransMontaigne closed a private
placement of $170,115,000 of $1,000 Series A Convertible Preferred Stock
Units (the "Units"). Each Unit consists of one share of 5% convertible
preferred stock (the "Preferred Stock"), convertible into common stock at
$15 per share, and 66.67 warrants, each warrant exercisable to purchase
six-tenths of a share of common stock at $14 per share. Dividends are
cumulative and payable quarterly. TransMontaigne may redeem the Preferred
Stock on December 31, 2003 at the liquidation value of $1,000 per share
plus any accrued but unpaid dividends. If the Preferred Stock remains
outstanding after December 31, 2003, the dividend rate will increase to an
annual rate of 16%. The Preferred Stock is convertible any time and may be
called for redemption by TransMontaigne after the second year if the market
price of the common stock is greater than 175% of the conversion price at
the date of the call. Proceeds were used to reduce bank debt incurred in
connection with the LDEC acquisition and for general corporate purposes.
(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 three months ended September 30, 1999 and 1998,
the TransMontaigne Board of Directors awarded 100,000 and 12,000 shares to
certain key employees, respectively. At March 25, 1999, the vesting of all
the shares not then vested was accelerated due to an ownership change
resulting from the private placement of the Series A Convertible Preferred
Stock and the unamortized balance of the unearned compensation was fully
amortized. Amortization of unearned compensation of $92,488 is included in
general and administrative expense for the three months ended September 30,
1998.
(9) Litigation
TransMontaigne is a party to various claims and litigation in its normal
course of business. Although no assurances can be given, TransMontaigne
management believes that the ultimate resolution of such claims and
litigation, individually or in the aggregate, will not have a materially
adverse impact on TransMontaigne's financial position or its results of
operations.
14
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(10) Earnings Per Share
The following table reconciles the computation of basic EPS and diluted
EPS for the three months ended September 30, 1999 and 1998:
1999 1998
----------------- ----------------
(In thousands, except per share amounts)
Net earnings (loss) $ (5,076) 2,024
Preferred stock dividends (2,126) -
----------------- ----------------
Net earnings (loss) attributable to common
stockholders for basic EPS (7,202) 2,024
Effect of dilutive securities - -
----------------- ----------------
Net earnings (loss) attributable to common
stockholders for diluted EPS $ (7,202) 2,024
================= ================
Basic weighted-average shares 30,485 25,963
Effect of dilutive securities:
Stock options - 534
Stock warrants - 182
Diluted weighted-average shares 30,485 26,679
================= ================
Earnings (loss) per shares:
Basic $ (.24) .08
================= ================
Diluted $ (.24) .08
================= ================
(11) Business Segments
TransMontaigne provides a broad range of integrated transportation,
terminaling, supply, distribution, gathering, processing and marketing
services to producers, refiners, distributors, marketers and industrial
end-users of petroleum products, chemicals, other bulk liquids, natural gas
and crude oil in the downstream sector of the petroleum and chemical
industries. TransMontaigne conducts its business through five segments:
. Products - consists of services for the supply and distribution of
refined petroleum products through product exchanges, and bulk purchases
and sales in the physical, futures cash and New York Mercantile Exchange
("NYMEX") markets, and the marketing of refined petroleum products and
NGL to retail, wholesale and industrial customers at truck terminal
rack locations, and providing related value-added fuel procurement and
management services.
. Terminals - consists of services provided through the ownership and/or
operation of terminaling and storage facilities handling petroleum
products, chemicals and other bulk liquids with receipt and delivery
connections via pipelines, barges, tankers, rail cars and trucks.
. Pipelines - consists of services provided through the ownership and
operation of refined petroleum product pipelines, and a crude oil
gathering pipeline system, and related delivery and storage facilities
with interconnections to other pipelines and to terminaling, storage
delivery facilities.
. Natural gas - consists of services provided through the ownership and
operation of natural gas pipeline gathering systems, processing plants
and related facilities for the gathering, treating, processing,
fractionating and reselling of natural gas and NGL.
. Corporate - consists of assets and corporate income and expense not
specifically included in other business segments.
Eliminations represent intercompany transactions between TransMontaigne's
business segments, primarily relating to services performed by the
terminals and pipelines segments for and sales of NGL by the natural gas
segment to the product segment.
15
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(11) Business Segments (continued)
Information about TransMontaigne's business segments for the three months
ended September 30, 1999 and 1998 is summarized below (in thousands):
1999 1998
-------------------- --------------------
Revenues:
Products $ 1,131,031 446,758
Terminals 15,707 6,392
Pipelines 3,966 4,484
Natural gas 18,041 13,298
Corporate 448 380
Eliminations (20,326) (8,191)
-------------------- --------------------
Total consolidated $ 1,148,867 463,121
==================== ====================
Depreciation and amortization:
Products $ 277 5
Terminals 3,441 820
Pipelines 338 252
Natural gas 1,570 1,491
Corporate 620 225
-------------------- --------------------
Total consolidated $ 6,246 2,793
==================== ====================
Operating income (loss):
Products $ (4,875) 1,367
Terminals 3,082 2,405
Pipelines 1,153 1,702
Natural gas 1,797 546
Corporate (450) (450)
-------------------- --------------------
Total consolidated $ 707 5,570
==================== ====================
Identifiable assets:
Products $ 459,041 107,055
Terminals 307,655 70,822
Pipelines 65,516 57,727
Natural gas 101,597 93,878
Corporate 57,460 96,546
Eliminations (5,475) (9,146)
-------------------- --------------------
Total consolidated $ 985,794 416,882
==================== ====================
Capital expenditures:
Products $ - -
Terminals 7,317 11,900
Pipelines 844 4,394
Natural gas 6,249 1,337
Corporate 2,021 1,022
-------------------- --------------------
Total consolidated $ 16,431 18,653
==================== ====================
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
TransMontaigne provides a broad range of integrated transportation, terminaling,
storage, supply, distribution, gathering, processing and marketing services to
producers, refiners, distributors, marketers and industrial end-users of
petroleum products, chemicals, other bulk liquids, natural gas and crude oil in
the downstream sector of the petroleum and chemical industries. TransMontaigne
is a holding company which conducts its operations through wholly-owned
subsidiaries primarily in the Mid-Continent, Gulf Coast, Southeast, Mid-
Atlantic, Northeast and Rocky Mountain regions of the United States.
TransMontaigne operations are divided into three logistical petroleum services
business segments: pipelines, which includes transportation and delivery of
refined petroleum products and crude oil; terminals, which includes terminaling
and storage of refined petroleum products, crude oil, chemicals and other bulk
liquids; and products, which includes supply, distribution and marketing of
refined petroleum products and natural gas liquids; and a natural gas services
business segment which includes gathering, treating, processing, fractionating
and marketing natural gas liquids ("NGL") and natural gas. Segment information
is presented in the notes to the condensed consolidated financial statements.
TransMontaigne does not explore for, or produce, crude oil or natural gas; and
does not own crude oil or natural gas reserves.
TransMontaigne owns and operates refined petroleum products, chemicals, other
bulk liquids, crude oil and natural gas assets. TransMontaigne's refined
petroleum products, chemicals, other bulk liquids and crude oil assets consist
primarily of 3 pipeline systems with approximately 850 miles of petroleum
products and crude oil pipeline and 73 terminal, storage and delivery facilities
located in 19 states with a combined tank storage capacity of 20,000,000
barrels. TransMontaigne's natural gas gathering and processing assets consist
of 6 gathering and processing systems in 4 states and 1 Canadian province with
combined throughput capacity of 115 million cubic feet per day and over 2,900
miles of pipelines. 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.
ACQUISITIONS
On June 30, 1999, TransMontaigne acquired from Amerada Hess Corporation the Hess
Terminals for approximately $66,200,000 cash and related refined products
inventory for approximately $32,500,000 cash. The Hess Terminals, which are
interconnected to the Colonial and Plantation pipeline systems, include
approximately 5.3 million barrels of tankage at 11 storage and terminal
facilities and 36 miles of proprietary pipelines.
On December 3, 1998, TransMontaigne acquired from SUNOCO, Inc. a petroleum
products terminal located on the Hudson River at Rensselaer, near Albany, New
York for approximately $5,200,000 cash. The Rensselaer terminal facility
includes 510,000 barrels of storage capacity, 3 truck loading racks and a dock
capable of handling both barges and ocean going tankers.
On October 30, 1998, TransMontaigne acquired all of the common stock of LDEC for
approximately $161,000,000, including $100,565,000 cash and 4.5 million shares
of TransMontaigne common stock valued at $60,435,000. In addition,
TransMontaigne acquired LDEC's working capital for $192,492,000 cash. The LDEC
acquisition included 24 refined petroleum products terminal and storage
facilities, of which 7 are wholly owned and 17 are owned jointly with BP Amoco,
together with its supply, distribution and marketing business. These facilities
are located in 9 states in the Southern and Eastern regions of the United
States; have approximately 4.2 million barrels of TransMontaigne owned storage
capacity; and are supplied primarily by the Colonial and Plantation pipeline
systems.
On September 18, 1998, TransMontaigne acquired for $29,219,000 cash the 15.38%
common stock interest in West Shore owned by Atlantic Richfield Company.
Effective December 31, 1998, TransMontaigne acquired for $5,488,000 cash an
additional 4.11% common stock interest in West Shore owned by Equilon Pipeline
Company, LLC and for $1,186,000 cash an additional .89% common stock interest in
West Shore owned by Texaco Transportation and Trading Inc., both of which
transactions closed in January 1999.
17
On July 29, 1998, TransMontaigne acquired the 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.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Important factors which could cause actual
results to differ materially from those in the forward looking statements herein
include but not limited to the following: TransMontaigne's success in expanding
its business by capitalizing on the trend by other companies in the oil and gas
industry to divest assets and outsource certain services, TransMontaigne will
generate net operating margins affected by price volatility of products
purchased and sold, TransMontaigne will enter into transactions with
counterparties having the ability to meet their financial commitments to
TransMontaigne, TransMontaigne will not incur unanticipated costs in complying
with current and future environmental regulations, TransMontaigne will replace
the supply of dedicated natural gas reserves gathered and processed by its
facilities, TransMontaigne will generate working capital internally, or have the
ability to access debt and equity resources, to meet its capital requirements,
operating and financial risk related to managing rapid growth, and
TransMontaigne will achieve Year 2000 compliance without incurring material
costs adversely impacting its operating results. Although TransMontaigne
believes that its expectations are based on reasonable assumptions, it can give
no assurance that its goals will be achieved.
18
RESULTS OF OPERATIONS
TransMontaigne reported a net loss of $5,076,000 for the three months ended
September 30, 1999, compared to net earnings of $2,024,000 for the three months
ended September 30, 1998, a decrease of $7,100,000. After preferred stock
dividends, net earnings (loss) attributable to common stockholders were
$(7,202,000) and $2,024,000 for the three months ended September 30, 1999 and
1998, respectively. Loss per common share for the three months ended September
30, 1999 was $(.24) basic and $(.24) diluted based on 30,485,000 weighted
average basic and diluted shares outstanding compared to earnings per share of
$.08 basic and $.08 diluted for the three months ended September 30, 1998.
Selected financial data from TransMontaigne's business segments are summarized
below (in thousands):
Three Months Ended
September 30,
---------------------------------
1999 1998
-------------- --------------
Net operating margins (1):
Product operations:
Products $ 3,322 2,328
Market valuation change on minimum inventory (2) (5,113) -
-------------- --------------
(1,791) 2,328
Terminal operations 8,042 3,523
Pipeline operations 2,158 2,718
Natural gas services operations 4,419 2,829
-------------- --------------
Total net operating margins 12,828 11,398
General and administrative expenses 5,875 3,035
Depreciation and amortization expenses 6,246 2,793
-------------- --------------
Operating income 707 5,570
Interest expense and other costs (10,545) (2,684)
Dividend and interest income 1,378 378
Income tax (expense) benefit 3,384 (1,240)
-------------- --------------
Net earnings (loss) (5,076) 2,024
Preferred stock dividends (2,126) -
-------------- --------------
Net earnings (loss) attributable to common
stockholders $ (7,202) 2,024
============== ==============
(1) Net operating margins represent revenues less product costs and operating
expenses for the product and natural gas services segments and revenues less
operating expenses for terminal and pipeline operations.
(2) TransMontaigne did not measure the market change on its minimum inventory
separately in the prior periods since it was not on mark to market
accounting for its inventories. Therefore, there is not a comparable amount
for the prior period.
Selected volumetric data for TransMontaigne's business segments are summarized
below:
Three Months Ended
September 30,
---------------------------
1999 1998
---------- --------
Products volumes - barrels per day 758,306 270,545
Terminal volumes - barrels per day 504,197 158,579
Pipeline volumes - barrels per day 80,456 72,999
Natural gas volumes:
Inlet - million cubic feet per day 69 59
NGL production - barrels per day 6,808 6,857
Residue production - million British Thermal Units per 44,810 47,622
day
Note: 1 barrel equals 42 gallons
19
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1998
Product Operations
Product revenues and fees are generated from bulk sales and exchanges of refined
petroleum products to major energy companies and large independent energy
companies; wholesale distribution and sales of refined petroleum products to
jobbers and retailers; regional and national industrial end-user and commercial
wholesale storage and forward sales marketing contracts of refined petroleum
products; and tailored short and long-term fuel margin and risk management
arrangements to wholesale, retail and industrial end-users. Refined petroleum
products storage and forward sales transactions enable TransMontaigne to
purchase refined petroleum products inventory; utilize proprietary and leased
tankage, as well as line space controlled by TransMontaigne in major common
carrier pipelines; arbitrage location product prices differentials and
transportation costs; store the inventory; and, depending upon market
conditions, realize margins through sales in the futures cash market or NYMEX
contracts. All energy related contracts are marked to market with changes being
recognized in operations. Margin and risk management provide both
TransMontaigne's large and small volume customers an assured, ratable and cost
effective short or long-term delivered source of refined petroleum product
supply through proprietary pipelines and terminals, as well as through non-
proprietary pipeline, terminal, truck, rail and barge distribution channels.
TransMontaigne's refined petroleum products inventory consists primarily of
gasoline and distillates. Inventory is divided into inventory held for sale or
exchange in the ordinary course of business and minimum inventory which
represents working stocks (pipeline in-transit and minimum terminal inventory),
pipeline line fill and terminal tank bottoms. Minimum inventory is required to
be held for operating balances in the conduct of TransMontaigne's daily supply,
distribution and marketing activities and is maintained both in tanks and
pipelines owned by TransMontaigne and pipelines owned by third parties.
Product costs of product operations consist primarily of the cost of products
purchased, but also include transportation, storage, terminaling and sales
commission costs. In addition, product costs include the market valuation
change of the refined petroleum products minimum inventory.
Operating expenses of product operations primarily include wages and employee
benefits, property taxes, travel and entertainment expenses.
The net operating margin from product operations for the three months ended
September 30, 1999 was $(1,791,000), which includes a $(5,113,000) market
valuation change on minimum inventory. This net operating margin compares to a
net operating margin of $2,328,000 for the three months ended September 30,
1998. Revenues were $1,131,031,000 for the three months ended September 30, 1999
compared to $446,758,000 for the three months ended September 30, 1998, an
increase of $684,273,000. Revenues increases were due to an increase of
44,875,000 barrels sold as a result of the inclusion of the LDEC operations and
an increase in the price per barrel of refined petroleum products over the three
months ended September 30, 1998.
TransMontaigne's strategy of hedging its inventory resulted in no benefit from
the price increase of crude oil and refined petroleum products during the three
months ended September 30, 1999. For the three months ended September 30, 1999
the petroleum market pricing structure, as indicated by the NYMEX futures
market, was in an inverse for gasoline of approximately $.035 per gallon, i.e.,
nearby futures prices were higher than the succeeding periods. This compares to
a $.005 carry, i.e., nearby futures prices were lower than succeeding periods,
for the same period in 1998. For the quarter ended September 30, 1999 the
distillate market was in a carry of approximately $.0120 as compared to $.0275
for the same period in 1998. TransMontaigne obtains maximum margin by utilizing
its storage space and inventory positions when the market structure is in a
carry. The gasoline inverse and diminished distillate carry resulted in a
reduced operating margin for the three months ended September 30, 1999.
20
Terminal Operations
Terminal revenues are based on the volume of refined petroleum products handled
at TransMontaigne terminal loading racks, generally at a standard per gallon
rate. Storage fees are generally based on a per barrel rate or tankage capacity
committed and will vary with the duration of the arrangement, the product stored
and special handling requirements, particularly when certain types of chemicals
and other bulk liquids are involved.
Operating expenses of terminal operations include wages and employee benefits,
utilities, communications, maintenance and repairs, property taxes, rent,
insurance, vehicle expenses, environmental compliance costs, materials and
supplies.
The net operating margin from terminal operations for the three months ended
September 30, 1999 was $8,042,000 compared to $3,523,000 for the three months
ended September 30, 1998, an increase of $4,519,000. The margin per barrel for
the three months ended September 30, 1999 of $.17 decreased $.07 compared to the
three months ended September 30, 1998. The increase in net operating margin
resulted from a $9,315,000 increase in revenues which was partially offset by a
$4,796,000 increase in operating costs. These increases were the result of
terminal acquisitions during the past year and the related additional 36,316,000
barrels handled. The decrease in the margin per barrel resulted from increased
handling of lower margin activity and increased operating costs.
Pipeline Operations
Pipeline revenues are based on the volume of refined petroleum products or crude
oil transported and the distance from the origin point to the delivery point.
TransMontaigne's interstate pipeline systems transport refined petroleum
products and their tariffs are regulated by the Federal Energy Regulatory
Commission ("FERC"). TransMontaigne's intrastate pipeline transports crude oil
and its tariffs are not regulated by the FERC, but are regulated by the Texas
Railroad Commission.
Operating expenses of pipeline operations include wages and employee benefits,
utilities, communications, maintenance and repairs, property taxes, rent,
insurance, vehicle expenses, environmental compliance costs, materials and
supplies.
The net operating margin from pipeline operations for the three months ended
September 30, 1999 was $2,158,000 compared to $2,718,000 for the three months
ended September 30, 1998, a decrease of $560,000. The margin per barrel for the
three months ended September 30, 1999 of $.29 decreased $.11 compared to the
three months ended September 30, 1998. Pipeline volumes per day increased 7,475
barrels primarily due to increased short haul movements in the East Chicago
area. The decreases in the net operating margin and the margin per barrel
resulted from a decrease in higher tariff movements, minimal increase in
operating costs and the transfer of non-carrier assets and their associated
margins to terminal operations.
Natural Gas Services Operations
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 residue natural
gas and NGL products, principally propane, butane and natural gasoline. The NGL
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. The residue natural gas is delivered to and marketed through
connections with third-party interstate natural gas pipelines.
Product costs of natural gas services operations consist primarily of the cost
of product purchased and transportation costs.
Operating expenses of natural gas services operations include wages and employee
benefits, utilities, maintenance and repairs, property taxes, rent, insurance,
vehicle expenses, environmental compliance costs, materials and supplies.
The net operating margin from natural gas services operations for the three
months ended September 30, 1999 was $4,419,000 compared to $2,829,000 for the
three months ended September 30, 1998, an increase of $1,590,000. Revenues for
the three months ended September 30, 1999 were $18,041,000 compared to
$13,298,000 for the three months ended September 30, 1998, an increase of
$4,743,000. Increases in net operating margin and revenues were attributable
primarily to the higher NGL product prices, notwithstanding a decrease in NGL
and residue natural gas production. NGL prices increased approximately $.13 per
gallon over the prices for the three months ended September 30, 1998.
21
Corporate and Other
General and administrative expenses for the three months ended September 30,
1999 were $5,875,000 compared to $3,035,000 for the three months ended September
30, 1998, an increase of $2,840,000. The increase was due primarily to
additional personnel costs, related employee benefits, increased office lease
rentals and increased communication expenses directly attributable to the
continued expansion of TransMontaigne's integrated logistical petroleum services
and to the acquisition and operation of LDEC and the Hess Terminals and
additional personnel costs related to a separation and release agreement.
Depreciation and amortization expenses for the three months ended September 30,
1999 were $6,246,000 compared to $2,793,000 for the three months ended September
30, 1998, an increase of $3,453,000. The increase was due primarily to
approximately $240,000,000 of terminal related assets being acquired during the
past year.
Other income for the three months ended September 30, 1999 included dividend
income from West Shore of $491,000. Interest income for the three months ended
September 30, 1999 was $887,000 compared to $378,000 for the three months ended
September 30, 1998, an increase of $509,000. The increase in interest income
was due primarily to the increase in interest bearing cash balances.
Interest expense, amortization of deferred debt issuance costs, and other
financing costs during the three months ended September 30, 1999 were
$10,545,000 compared to $2,684,000 during the three months ended September 30,
1998, an increase of $7,861,000. The increase in interest expense of $7,013,000
was due to a $323,500,000 increase in average outstanding debt, primarily to
fund acquisitions and increased working capital requirements and increased
average interest rates from 7.2% to 8.3%. Amortization of deferred debt
issuance costs increased $728,000 largely due to amortization of costs incurred
in securing a restructured BankBoston, N.A. credit facility and additional costs
associated with amending the Master Shelf Agreement.
Income tax benefit was $3,384,000 for the three months ended September 30, 1999,
which represents an effective combined federal and state income tax rate of 40%.
Income tax expense was $1,240,000 for the three months ended September 30, 1998,
which represents an effective combined federal and state income tax rate of 38%.
The net loss for the three months ended September 30, 1999 was $5,076,000
compared to net earnings of $2,024,000 for the three months ended September 30,
1998, a decrease of $7,100,000. The net loss resulted from increased general
and administrative expenses; additional depreciation and amortization expenses
attributable to the acquisitions and facilities expansion projects; increased
interest expense, primarily attributable to the financing of acquisitions during
the past year and increased working capital requirements; and negative net
operating margin contribution from products operations as the result of the
$5,113,000 negative market valuation change on minimum inventory. The net loss
was partially offset by increased net operating margin contributions from
terminal operations and natural gas services operations.
Preferred stock dividends on the Series A Convertible Preferred Stock were
$2,126,000 for the three months ended September 30, 1999. The preferred stock
dividends were paid September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
TransMontaigne believes that its current working capital position; future cash
provided by operating activities; proceeds from the private placement or public
offering of debt and common stock; available borrowing capacity under the bank
credit facility and the Master Shelf Agreement; additional borrowing allowed
under those agreements; and its relationship with institutional lenders and
equity investors should enable TransMontaigne to meet its current capital
requirements. In addition, TransMontaigne is in the process of evaluating the
disposition of certain assets, including the natural gas services segment.
22
Net cash provided by operating activities was $75,611,000 for the three months
ended September 30, 1999, which was attributable primarily to decreased
inventories and trade accounts receivable, reduced by decreased trade accounts
payable and net loss before income taxes. Net cash provided by operating
activities was $38,952,000 for the three months ended September 30, 1998, which
was attributable primarily to increase in current liabilities and net earnings
before income taxes, reduced by an increase in inventory and trade accounts
receivable.
Net cash used by investing activities was $15,653,000 during the three months
ended September 30, 1999 as TransMontaigne continued its growth through
construction and improvements to existing operating facilities. Net cash used
by investing activities was $48,545,000 during the three months ended September
30, 1998, which included the acquisition of the Southwest Terminal, a 15.38%
common stock interest in West Shore, and enhancements to the pipeline and
terminal facilities.
Net cash used by financing activities for the three months ended September 30,
1999 was $70,362,000, which primarily represented net repayments of $68,183,000
under TransMontaigne's credit facility. Net cash provided by financing
activities for the three months ended September 30, 1998 of $50,889,000
represented borrowings under TransMontaigne's credit facility primarily used to
finance operations and capital expenditures.
In March 1999, TransMontaigne closed a private placement of $170,115,000 of
$1,000 Series A Convertible Preferred Stock Units (the "Units"). Each Unit
consists of one share of 5% convertible preferred stock (the "Preferred Stock"),
convertible into common stock at $15 per share, and 66.67 warrants, each warrant
exercisable to purchase six-tenths of a share of common stock at $14 per share.
Dividends are cumulative and payable quarterly. TransMontaigne may redeem the
Preferred Stock on December 31, 2003 at the liquidation value of $1,000 per
share plus any accrued but unpaid dividends. If the Preferred Stock remains
outstanding after December 31, 2003, the dividend rate will increase to an
annual rate of 16%. The Preferred Stock is convertible any time and may be
called for redemption by TransMontaigne after the second year if the market
price of the common stock is greater than 175% of the conversion price at the
date of the call. Proceeds were used to reduce bank debt incurred in connection
with the LDEC acquisition and for general corporate purposes.
In June 1999, TransMontaigne closed a $600,000,000 credit facility led by
BankBoston, N.A. The credit facility includes a $400,000,000 revolving
component due December 31, 2003 and a $200,000,000 term component due June 30,
2006. The term component has quarterly principal payments required beginning in
September 2000. Borrowings under this credit facility bear interest at an
annual rate equal to the lender's Alternate Base Rate plus margins subject to a
Eurodollar Rate pricing option. The credit facility includes a $20,000,000 same
day revolving swing line under which advances may be drawn at an interest rate
comparable to the Eurodollar Rate. The proceeds from the credit facility were
used to refinance existing bank debt and provide funds for future acquisitions
and other general corporate purposes.
At September 30, 1999, TransMontaigne had advances of $350,505,000 outstanding
under the bank credit facility utilizing the Eurodollar Rate loan pricing
option. The average interest rate at September 30, 1999 was 8.5%.
At September 30, 1999, 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 and the Master Shelf Agreement were amended effective
September 30, 1999. Each contains similar negative pledge covenants by
TransMontaigne and its subsidiaries, are secured by the stock of the
subsidiaries, and also include financial tests relating to interest coverage,
leverage ratio, cash flow leverage ratio, consolidated tangible net worth,
distributions and inventory positions. As of September 30, 1999, TransMontaigne
was in compliance with all such tests.
Capital expenditures anticipated for the year ending June 30, 2000 are estimated
to be $75,000,000 for pipeline, terminal and natural gas gathering and
processing facilities, and assets to support these facilities and could exceed
that amount if additional facilities enhancement projects and possible
acquisitions being considered by TransMontaigne materialize. Future capital
expenditures will depend on numerous factors, including the availability,
economics and cost of appropriate acquisitions which TransMontaigne identifies
and evaluates; the economics, cost and required regulatory approvals with
respect to the expansion and enhancement of existing systems and facilities; the
customer demand for the services TransMontaigne provides; local, state and
federal governmental regulations; environmental compliance requirements; and the
availability of debt financing and equity capital on acceptable terms.
23
ALTERNATIVE PERFORMANCE MEASURES
EBITDA represents earnings (loss) before income taxes plus interest expense,
amortization of deferred debt issuance costs, other financing costs and
depreciation and amortization. Adjusted EBITDA represents EBITDA less positive
or plus negative market valuation change on minimum inventory. EBITDA and
adjusted EBITDA are used by management as part of its overall assessment of
TransMontaigne's performance by analyzing and comparing EBITDA and adjusted
EBITDA between reporting periods. Management believes that, in addition to cash
flow from operations, as well as operating income and net earnings (determined
in accordance with generally accepted accounting principles) as indicators of
operating performance, EBITDA is used by the financial community to measure
operating effectiveness and as a method to evaluate the market value of
companies like TransMontaigne. Adjusted EBITDA is 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. Management believes that
adjusted EBITDA is an alternative measurement because it excludes temporary
gains and losses on minimum inventory that will not be realized until the
liquidation of the underlying physical inventory. 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.
EBITDA for the three months ended September 30, 1999 was $8,331,000, a 5%
decrease over EBITDA of $8,741,000 for the three months ended September 30,
1998. Adjusted EBITDA for the three months ended September 30, 1999 was
$13,444,000 which excludes $5,113,000 negative market valuation change on
minimum inventory.
Working capital required to support TransMontaigne's business operations,
principally to carry accounts receivable and inventory, is provided by advances
from its bank credit facility. Interest expense related to working capital
advances is not included in the determination of EBITDA. For the three months
ended September 30, 1999 and 1998, interest expense attributable to working
capital advances was approximately $5,195,000 and $799,000, respectively.
24
YEAR 2000 MATTERS
Historically, certain computer software and computer based management
information systems ("Information Technology"), as well as certain hardware
containing embedded microcontrollers and microprocessors ("Embedded
Technology"), were designed to utilize a two-digit rather than a four-digit date
field and consequently may cause computers, computer controlled systems and
equipment with embedded technology to malfunction or incorrectly process data in
the Year 2000, resulting in significant system failures. TransMontaigne relies
on Information Technology, as well as Embedded Technology, to operate
instruments and equipment in conducting its normal business activities. Certain
of the Information Technology and Embedded Technology may not have been designed
to function properly with respect to the application of dating systems relating
to the Year 2000.
In response, TransMontaigne has developed a "Year 2000" Plan. While achieving
Year 2000 readiness does not mean correcting every Year 2000 limitation,
critical systems, as well as relationships with third-party customers, vendors
and local, state and federal government agencies have been, and continue to be,
evaluated and are expected to be suitable for continued use into and beyond the
Year 2000. The Year 2000 Plan has been presented to the Board of Directors and
periodic progress updates regarding its implementation have been provided. The
purpose of the Year 2000 Plan is to define and provide a continuing process for
inventory, inventory assessment, remediation, testing, and contingency planning
to achieve a level of readiness that will effectively deal with the Year 2000
concerns in a timely manner. These five steps are more fully addressed in the
three phases outlined below:
A. Assessment - This involves the inventory and evaluation of
TransMontaigne's Information Technology, Embedded Technology, and third-party
customers, vendors and state and federal governmental agencies believed to be
material to TransMontaigne's business, results of operations, or financial
condition ("Key Parties").
B. Remediation Planning - This involves the development of remediation
plans which will enable business assets and business relationships critical to
TransMontaigne's business operations to be Year 2000 ready.
C. Plan Implementation - This involves the implementation of remediation
plans, including post-remediation testing and contingency planning.
Implementation of TransMontaigne's Year 2000 Plan is directly supervised by a
Senior Vice President who coordinates the implementation of the Year 2000 Plan
among TransMontaigne's individual business units. TransMontaigne has
established an internal group to identify and assess potential areas of risk and
to make any required modifications to computer systems and equipment used in
TransMontaigne's business activities. TransMontaigne has also undertaken to
monitor the compliance efforts of Key Parties, whose Information Technology
and/or Embedded Technology interfaces with that of TransMontaigne, or whose
services are critical to the ongoing business of TransMontaigne in order to
ensure that operations will not be adversely affected by the Year 2000
compliance problems of third-parties. TransMontaigne has contacted 632 Key
Parties by letter requesting detailed information to be completed and returned
to it. Through September 30, 1999, responses had been received from 77% of
those contacted. Non-respondents have been contacted by phone or by letter in
order of importance to follow up and obtain responses to outstanding requests
for information and compliance status.
Failure of one or more Key Parties to address a Year 2000 issue could result in
business disruptions that could have a material adverse effect on the operations
or financial performance of TransMontaigne. While there can be no assurance
that Key Parties will successfully reprogram or replace, and test, all of their
Information Technology and Embedded Technology to ensure such systems are Year
2000 compliant, TransMontaigne believes that the ongoing communication with and
assessment of the compliance efforts and status of the Key Parties will minimize
these risks.
TransMontaigne believes that it can provide the resources necessary to ensure
Year 2000 compliance and expects to complete the Year 2000 Plan within a time
frame which will enable its Information Technology and Embedded Systems to
function without significant disruption in the Year 2000. Inventory and
inventory assessment were substantially finalized at December 31, 1998. The
remediation, testing and contingency planning was substantially completed at
September 30, 1999. Business acquisitions routinely involve an analysis of Year
2000 readiness and are incorporated into the overall program as necessary.
25
Through September 30, 1999, TransMontaigne had incurred third party costs of
approximately $1,325,000 related to Year 2000 compliance matters. These costs
have been funded through operating cash flows and do not include internal costs.
TransMontaigne does not presently separately record internal costs incurred with
respect to implementation of the Year 2000 Plan. Such costs are principally the
related payroll costs for the information systems and field operations
personnel, including senior management, involved in carrying out the Year 2000
Plan, as well as related travel and other out-of-pocket expenses.
Although TransMontaigne anticipates that minimal business disruption will occur
as a result of Year 2000 issues, in the event TransMontaigne's Information
Technology and Embedded Technology, or those owned and operated by Key Parties,
should fail to function properly, possible consequences include but are not
limited to small, localized, 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. Contingency plans
have been and are continuing to be developed to address the results of these
potentially isolated events to facilitate the resumption of normal operations
following disruption. However, it is also possible that the scope of Year 2000
issues involving Key Parties may result in multiple concurrent events or
disruptions, which may have a longer duration. In such event, depending upon
the number and duration of such disruptions and the number or importance of the
facilities impacted, such disruptions could have a material adverse impact on
the business, results of operations or financial condition of TransMontaigne.
Accordingly, contingency plans have been developed to address possible worst
case scenarios in order to minimize the impact of such events. Such plans
include performing certain processes manually, changing suppliers and reducing
or suspending certain non-critical aspects of TransMontaigne's operations. The
contingency planning effort focuses on potential internal risks, as well as
potential risks associated with Key Parties.
While TransMontaigne does not anticipate that Year 2000 issues, including the
cost of compliance and testing, will have a material adverse effect on the
business, results of operations or financial condition of TransMontaigne, if
TransMontaigne Information Technology or Embedded Technology, or those of Key
Parties, fail to achieve Year 2000 readiness in a timely manner, it could have a
material adverse impact on the business, results of operations or financial
condition of TransMontaigne.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), was issued in June 1998 by the
Financial Accounting Standards Board. SFAS 133 establishes new accounting and
reporting standards for derivative instruments and for hedging activities. This
statement requires an entity to establish at the inception of a hedge, the
method it will use for assessing the effectiveness of the hedging derivative and
the measurement approach for determining the ineffective aspect of the hedge.
Those methods must be consistent with the entity's approach to managing risk.
SFAS 133, as amended, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. TransMontaigne is in the process of assessing
the impact, if any, that SFAS 133 will have on its consolidated financial
statements.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in Item 3 updates, and should be read in conjunction
with information set forth in Part II, Item 7A in TransMontaigne's Annual Report
on Form 10-K for the year ended June 30, 1999, in addition to the interim
condensed consolidated financial statements and accompanying notes presented in
Items 1 and 2 of this Form 10-Q.
There are no material changes in market risks faced by TransMontaigne from those
reported in its Annual Report on Form 10-K for the year ended June 30, 1999.
27
PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2A Amended and Restated By-Laws. Incorporated by reference to
TransMontaigne Oil Company Form S-2/A filed January 16, 1997
(Securities and Exchange Commission File No. 333-18795).
3.2B Amendment to By-Laws dated August 14, 1998. FILED HEREWITH.
3.2C Amendment to By-Laws dated October 30, 1998. FILED HEREWITH.
3.2D Amendment to By-Laws dated December 2, 1998. FILED HEREWITH.
3.2E Amendment to By-Laws dated September 29, 1999. FILED HEREWITH.
10.1 Amendment No. 1 dated as of June 29, 1999 to the Third Amended
and Restated Credit Agreement between TransMontaigne Inc. and
BankBoston, N.A., as Agent, dated as of June 29, 1999. FILED
HEREWITH.
10.2 Amendment No. 2 dated as of September 30, 1999 to the Third
Amended and Restated Credit Agreement between TransMontaigne
Inc. and BankBoston, N.A., as Agent, dated as of June 29,
1999. FILED HEREWITH.
10.3 Letter Amendment No. 6, dated as of September 30, 1999, to
Master Shelf Agreement dated as of April 17, 1997, among
TransMontaigne Oil Company, The Prudential Insurance Company
of America and U.S. Private Placement Fund. FILED HEREWITH.
27 Financial Data Schedule. FILED HEREWITH.
(b) The following report on Form 8-K was filed during the quarter ended
September 30, 1999:
A Form 8-K dated June 30, 1999 was filed on July 15, 1999 reporting Item
2 (the acquisition of assets from Amerada Hess Corporation).
28
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 15, 1999 TRANSMONTAIGNE INC.
(Registrant)
/s/ CORTLANDT S. DIETLER
------------------------
Cortlandt S. Dietler
Chairman
/s/ RODNEY S. PLESS
--------------------
Rodney S. Pless
Vice President, Controller, Chief Accounting
Officer and Chief Reporting Officer
29