<PAGE>
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 October 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
File No. 1-11763
TRANSMONTAIGNE OIL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 06-1052062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 SEVENTEENTH STREET, SUITE 2750
DENVER, COLORADO 80202
(Address, including zip code, of principal executive offices)
(303) 626-8200
(Telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of December 1, 1997, there were 25,914,370 shares of the Registrant's Common
Stock outstanding.
1
<PAGE>
TRANSMONTAIGNE OIL COMPANY
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<C> <S> <C>
Consolidated Balance Sheets
October 31, 1997 and April 30, 1997................. 3
Consolidated Statements of Operations
Three months ended October 31, 1997 and 1996........ 4
Consolidated Statements of Operations
Six months ended October 31, 1997 and 1996.......... 5
Consolidated Statements of Stockholders' Equity
Six months ended October 31, 1997 and
Year ended April 30, 1997........................... 6
Consolidated Statements of Cash Flows
Six months ended October 31, 1997 and 1996.......... 7
Notes to Consolidated Financial Statements.......... 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....... 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................... 32
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS... 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 32
SIGNATURES.......................................... 33
</TABLE>
2
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ASSETS October 31, April 30,
- ------ 1997 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 45,764,652 36,384,325
Trade accounts receivable 39,926,328 46,871,207
Inventories 64,452,354 42,346,451
Deferred tax assets, net 770,000 3,676,000
Prepaid expenses and other 1,770,255 1,647,990
----------------------- ---------------------
152,683,589 130,925,973
----------------------- ---------------------
Property, plant and equipment:
Land 1,369,565 1,222,195
Plant and equipment 132,208,156 120,010,811
Accumulated depreciation (14,171,962) (10,704,252)
----------------------- ---------------------
119,405,759 110,528,754
----------------------- ---------------------
Investments and other assets:
Investments 15,656,097 15,656,097
Deferred debt issuance costs, net 1,505,427 1,638,909
Other assets 3,158,386 2,974,587
----------------------- ---------------------
20,319,910 20,269,593
----------------------- ---------------------
$ 292,409,258 261,724,320
======================= =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 29,567,250 36,893,399
Inventory due under exchange agreements 11,286,413 4,982,179
Excise taxes payable 8,287,753 6,437,829
Other accrued liabilities 4,108,490 4,189,528
----------------------- ---------------------
53,249,906 52,502,935
----------------------- ---------------------
Long-term debt 88,964,467 64,774,267
Minority interests 5,475,377 5,475,377
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 2,000,000 shares, none issued - -
Common stock, par value $.01 per share, authorized
40,000,000 shares, issued and outstanding
25,914,370 shares at October 31, 1997; and
25,794,720 shares at April 30, 1997 259,144 257,947
Capital in excess of par value 135,883,800 134,843,884
Retained earnings 9,276,947 3,869,910
Unearned compensation (700,383) -
----------------------- ---------------------
144,719,508 138,971,741
----------------------- ---------------------
$ 292,409,258 261,724,320
======================= =====================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
- ---------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Revenue:
Product sales, pipeline tariffs
terminaling fees and natural gas
gathering and processing fees $ 545,100,056 276,770,743
Costs and expenses:
Product costs and direct
operating expenses 535,151,024 272,135,966
General and administrative 3,140,658 1,659,247
Depreciation and amortization 1,813,148 502,254
----------------------- ----------------------
540,104,830 274,297,467
----------------------- ----------------------
Operating income 4,995,226 2,473,276
Other income (expenses):
Interest income 580,674 430,593
Equity in earnings of affiliates - 738,613
Minority interests - (256,206)
Interest expense (1,568,777) (696,685)
Other financing costs (139,651) (34,144)
Other, net - 227,641
----------------------- ----------------------
(1,127,754) 409,812
----------------------- ----------------------
Earnings before
income taxes 3,867,472 2,883,088
Income tax expense 1,470,000 210,000
----------------------- ----------------------
Net earnings $ 2,397,472 2,673,088
======================= ======================
Weighted average common
shares outstanding 26,679,629 21,624,474
======================= ======================
Earnings per common share $ 0.09 0.12
======================= ======================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
1997 1996
---- ----
Revenue:
Product sales, pipeline tariffs
terminaling fees and natural gas
gathering and processing fees $ 1,007,249,077 470,822,944
Costs and expenses:
Product costs and direct
operating expenses 987,105,135 462,096,897
General and administrative 5,924,065 3,158,305
Depreciation and amortization 3,537,188 955,028
----------------------- ----------------------
996,566,388 466,210,230
----------------------- ----------------------
Operating income 10,682,689 4,612,714
Other income (expenses):
Interest income 1,145,584 893,051
Equity in earnings of affiliates - 423,151
Minority interests - (149,049)
Interest expense (3,067,523) (1,298,120)
Other financing costs (283,713) (72,160)
Other, net - 340,076
----------------------- ----------------------
(2,205,652) 136,949
----------------------- ----------------------
Earnings before
income taxes 8,477,037 4,749,663
Income tax expense 3,070,000 270,000
----------------------- ----------------------
Net earnings $ 5,407,037 4,479,663
======================= ======================
Weighted average common
shares outstanding 26,660,155 21,290,302
======================= ======================
Earnings per common share $ 0.20 0.21
======================= ======================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED OCTOBER 31, 1997 AND YEAR ENDED APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Retained
Capital in earnings
Preferred Common excess of (accumulated Unearned
stock stock par value deficit) compensation Total
--------- ---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 30, 1996 $ - 1,933,117 61,187,476 (5,301,402) - 57,819,191
Change in the par value of
common stock from
$.10 to $.01 in connection
with merger - (1,739,805) 1,739,805 - - -
Common stock issued in
merger - 14,744 8,093,785 - - 8,108,529
Common stock issued for
minority interest in
subsidiary - 1,000 974,000 - - 975,000
Common stock repurchased
and retired - (148) (199,852) - - (200,000)
Common stock issued for
options exercised - 2,130 780,822 - - 782,952
Common stock issued for cash
in public offering - 46,909 62,952,321 - - 62,999,230
Costs related to issuance of
common stock - - (684,473) - - (684,473)
Net earnings - - - 9,171,312 - 9,171,312
--------- ---------- ----------- ------------ ------------ ------------
BALANCE AT APRIL 30, 1997 - 257,947 134,843,884 3,869,910 - 138,971,741
Common stock issued for
options exercised - 757 335,219 - - 335,976
Costs related to issuance of
common stock - - (53,863) - - (53,863)
Unearned compensation
relating to restricted
stock awards - 440 758,560 - (759,000) -
Amortization of unearned
compensation - - - - 58,617 58,617
Net earnings - - - 5,407,037 - 5,407,037
--------- ---------- ----------- ------------ ------------ ------------
Balance at October 31, 1997 $ - 259,144 135,883,800 9,276,947 (700,383) 144,719,508
========= ========== =========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,407,037 4,479,663
Adjustments to reconcile net earnings to net
cash used by operating activities:
Depreciation and amortization 3,537,188 955,028
Equity in losses of affiliates - (423,151)
Minority interests - 149,049
Deferred tax expense 2,906,000 -
Gain on disposition of assets (10,198) -
Amortization of unearned compensation 58,617 -
Changes in operating assets and liabilities,
net of noncash activities:
Trade accounts receivable 6,944,879 (20,130,189)
Inventories (22,105,903) (13,342,756)
Prepaid expenses and other (122,265) 444,441
Trade accounts payable (7,326,149) 17,495,194
Inventory due under exchange
agreements 6,304,234 (810,815)
Excise taxes payable and other
accrued liabilities 1,768,886 800,889
------------ -----------
Net cash (used) by
operating activities (2,637,674) (10,382,647)
------------ -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (12,378,586) (5,837,277)
Proceeds from sale of assets 19,564 13,523
Cash received in connection with acquisition - 2,315,527
Costs related to acquisition - (399,234)
Cash balance in subsidiary sold - (111,341)
Decrease (increase) in other assets, net (228,772) (24,982)
------------ -----------
Net cash (used) by
investing activities (12,587,794) (4,043,784)
------------ -----------
Cash flows from financing activities:
Borrowings of long-term debt, net 24,190,200 8,735,200
Deferred debt issuance costs 133,482 289,501
Common stock issued for cash 335,976 -
Costs related to issuance of common stock (53,863) -
------------ -----------
Net cash provided by
financing activities 24,605,795 9,024,701
------------ -----------
Increase (decrease) in cash
and cash equivalents 9,380,327 (5,401,730)
Cash and cash equivalents at beginning of period 36,384,325 38,403,234
------------ -----------
Cash and cash equivalents at end of period $ 45,764,652 33,001,504
============ ===========
(Continued)
</TABLE>
7
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED OCTOBER 31, 1997 AND 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Acquisition of Sheffield Exploration Company
Fair value of assets acquired $ - 8,739,247
Fair value of liabilities assumed - 231,484
--------------------- --------------------
- 8,507,763
Costs related to acquisition - 399,234
--------------------- --------------------
Fair value of stock issued $ - 8,108,529
===================== ====================
Cash received in connection with acquisition
included in assets acquired $ - 2,315,527
===================== ====================
Sale of Sheffield Operating Company
Fair value of assets sold $ - 1,991,403
Fair value of liabilities assumed by purchaser - 245,451
--------------------- --------------------
Fair value of consideration received - 2,236,854
===================== ====================
Cash distributed in connection with sale
included in assets sold $ - 111,341
===================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 1997
- --------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION
The TransMontaigne Oil Company ("TransMontaigne") consolidated balance
sheets at October 31, 1997 and April 30, 1997, the consolidated statements
of operations for the three months and six months ended October 31, 1997 and
1996, the consolidated statements of stockholders' equity for the six months
ended October 31, 1997 and the year ended April 30, 1997 and the
consolidated statements of cash flows for the six months ended October 31,
1997 and 1996 are unaudited and reflect all adjustments (consisting only of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating
results for the interim periods presented. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes, together with management's discussion and
analysis of financial condition and results of operations, contained in
TransMontaigne's Annual Report on Form 10-K for the fiscal year ended April
30, 1997. The results of operations for the three months and six months
ended October 31, 1997 are not necessarily indicative of the results for the
entire fiscal year ending 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 those estimates.
(2) MERGER
TransMontaigne is the surviving corporation of a merger (the "Merger")
between TransMontaigne Oil Company and Sheffield Exploration Company, Inc.
("Sheffield") effective June 4, 1996. The Merger constituted a reverse
acquisition of Sheffield, in which Sheffield survived the Merger, and was
owned approximately 93% by the former stockholders of TransMontaigne Oil
Company. Following the Merger, (i) the name of Sheffield was changed to
TransMontaigne Oil Company;
9
<PAGE>
(ii) the par value of the common stock was reduced to $.01 per share; (iii)
the number of shares of authorized common stock was increased to 40,000,000;
and (iv) the stock options which Sheffield had outstanding prior to the
Merger became options to purchase 79,338 shares of TransMontaigne's common
stock at $3.65 per share and were exercised prior to their September 2, 1996
expiration date.
(3) ACQUISITION OF GRASSLANDS FACILITIES
On December 20, 1996, TransMontaigne's wholly owned subsidiary, Bear Paw
Energy Inc., acquired for approximately $71,000,000 cash the Grasslands
natural gas gathering, processing, treating and fractionating system located
in western North Dakota and northeastern Montana. The Grasslands gas
processing plant, located in McKenzie County, North Dakota, was built in
1980.
The cost of the Grasslands facilities has been allocated to the assets
acquired based on their estimated fair market value as determined by
TransMontaigne.
The following summarized unaudited pro forma results of operations assumes
that the acquisition of the Grasslands facilities occurred as of May 1, 1996
and combines the actual results of operations of TransMontaigne for the
three months and six months ended October 31, 1996 with the pro forma
historical results of operations of the Grasslands facilities for the three
months and six months ended October 31, 1996.
The unaudited pro forma results of operations are not necessarily indicative
of the results of operations which would actually have occurred if the
Grasslands facilities had been acquired as of May 1, 1996 or which will be
attained in the future.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31 October 31
========================================= ========================================
1997 1996 1997 1996
---------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
(Actual) (Pro forma) (Actual) (Pro forma)
---------------- ------------------ ---------------- -----------------
Revenues $ 545,100,056 289,429,504 $ 1,007,249,077 494,471,136
================ ================== ================ =================
Net Earnings $ 2,397,472 3,679,612 $ 5,407,037 5,699,072
================ ================== ================ =================
Earnings Per Common Share $ 0.09 0.17 $ 0.20 0.27
================ ================== ================ =================
</TABLE>
10
<PAGE>
(4) PUBLIC OFFERING
On February 13, 1997, TransMontaigne closed a public offering of 4,357,000
shares of its common stock of which 4,035,000 shares were issued and sold by
TransMontaigne and 322,000 shares were sold by certain selling stockholders.
The net proceeds to TransMontaigne, based on the public offering price of
$14.25 per share, were approximately $53,506,000, after deducting
underwriting discounts and commissions and offering costs, of which
$45,000,000 was used to repay a portion of the debt incurred under its bank
credit facility. On March 11, 1997 the underwriters' overallotment to
purchase an additional 557,543 shares and the Merrill Lynch Growth Fund
antidilution right to purchase an additional 98,390 shares were both
exercised and TransMontaigne received additional net proceeds of $8,809,000.
(5) INVENTORY MANAGEMENT
TransMontaigne manages the risk associated with fluctuations in the price of
refined petroleum products inventory and purchase and sales commitments, and
may selectively enter into futures contracts which are designated as hedges
of the products purchased or sold. Hedging gains and losses are recognized
and recorded in inventory when the related inventory is sold. At October
31, 1997, TransMontaigne had open futures contracts to sell and to purchase
500,000 barrels of product designated as hedges. The cost in excess of
market value of such open futures contracts of $22,680 was deferred as of
that date and was offset by increased equity in the market value of the
related physical inventory to which the designated hedges were applicable.
In connection with its trading activities, TransMontaigne recognizes gains
and losses when incurred. Net trading gains on futures contracts of
approximately $532,688 were recognized during the quarter ended October 31,
1997 and of approximately $43,000 were recognized during the quarter ended
October 31, 1996. TransMontaigne had outstanding contracts to sell
7,590,000 barrels of product and outstanding contracts to purchase 7,590,000
barrels of product at October 31, 1997 and outstanding contracts to sell
3,772,000 barrels of product and outstanding contracts to purchase 3,772,000
barrels of product at October 31, 1996. Unrealized gains relating to such
outstanding contracts were approximately $195,495 at October 31, 1997 and
approximately $216,000 at October 31, 1996. TransMontaigne's refined
petroleum products inventory consists primarily of gasoline and distillates.
A portion of this inventory represents line fill and tank
11
<PAGE>
bottoms; is required for operating balances in the conduct of
TransMontaigne's daily supply and distribution activities; and is maintained
both in tanks and pipelines owned by TransMontaigne and pipelines owned by
third parties. Natural gas liquids and residual natural gas inventory are
not significant. Inventories of refined petroleum products are stated at
the lower of last-in, first-out (LIFO) cost or market.
(6) INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes, as prescribed by Statement of Financial Accounting Standards No. 109
(SFAS 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.
(7) BANK CREDIT FACILITY
TransMontaigne's bank credit facility at October 31, 1997 is an $85,000,000
working capital revolving credit facility with a money center bank due
December 31, 2001. The amount available under the bank credit facility is
to be reduced by $3,125,000 each calendar quarter beginning March 31, 2000.
Borrowings under the bank credit facility generally bear interest at an
annual rate equal to the lender's announced Base Rate, subject to a
Eurodollar pricing option at TransMontaigne's election. The average
interest rate at October 31, 1997 was 6.79%.
At October 31, 1997, TransMontaigne had advances of $35,000,000 outstanding
under the bank credit facility. In addition, $2,600,000 of the facility was
used to support a standby letter of credit to a bank to assist Lion Oil
Company (Lion) in obtaining financing.
12
<PAGE>
(8) MASTER SHELF AGREEMENT
In April 1997 TransMontaigne entered into a Master Shelf Agreement with an
institutional lender which provides that the lender will agree to quote,
from time to time, an interest rate at which the lender would be willing to
purchase, on an uncommitted basis, up to $100,000,000 of TransMontaigne's
senior promissory notes which will mature in no more than 12 years, with an
average life not in excess of 10 years.
On April 17, 1997, TransMontaigne sold to the lender, under the Master
Shelf Agreement, $50,000,000 of 7.85% Senior Notes due 2003 which amount
was outstanding at October 31, 1997.
(9) SENIOR SUBORDINATED DEBENTURES
In March 1991, TransMontaigne issued $4,000,000 of 12 3/4% senior
subordinated debentures which are guaranteed by certain subsidiaries and
are due December 15, 2000, with interest payable semi-annually on June 15
and December 15. The debentures are subject to a required redemption of
$2,000,000 on December 15, 1999 and December 15, 2000. The debentures may
be prepaid prior to maturity at a premium, under certain circumstances. In
conjunction with the issuance of these debentures, TransMontaigne issued
warrants to purchase 248,686 shares of common stock. The warrant exercise
price was reduced effective April 26, 1995 from $6.10 per share to $3.60
per share, through December 15, 2000.
(10) RESTRICTED STOCK
TransMontaigne has a restricted stock plan that provides for awards of
common stock to certain key employees, subject to forfeiture if employment
terminates prior to the vesting dates. The market value of shares awarded
under the plan is recorded in stockholders' equity as unearned
compensation. During the quarter ended October 31, 1997, the TransMontaigne
Board of Directors approved the issuance of 44,000 shares to certain key
employees. Compensation expense is recognized over a four year vesting
period.
13
<PAGE>
(11) BUSINESS SEGMENTS
TransMontaigne's primary operating business segment prior to November 1,
1996 was logistical petroleum services related to pipelining, terminaling,
storing and marketing refined petroleum products. During the quarter ended
January 31, 1997, TransMontaigne acquired the Grasslands facilities,
expanded other natural gas gathering and processing assets and conducted
service operations in that business segment. During the six months ended
October 31, 1997 both business segments were operational. Only the
logistical petroleum service segment conducted operations during the six
months ended October 31, 1996. These activities for the six month periods
ended October 31, 1997 and 1996 are reflected in the following summary.
<TABLE>
<CAPTION>
Revenues 1997 1996
----------------------- --------------------
<S> <C> <C>
Logistical petroleum services $ 976,535,401 470,822,944
Gas gathering and processing services 30,713,676 -
----------------------- --------------------
$ 1,007,249,077 470,822,944
======================= ====================
Operating income
Logistical petroleum services $ 7,603,333 4,612,714
Gas gathering and processing services 3,679,356 -
Corporate (600,000) -
----------------------- --------------------
$ 10,682,689 4,612,714
======================= ====================
Identifiable assets at the end of the six
month period (net of depreciation)
Logistical petroleum services $ 133,542,670 100,540,432
Gas gathering and processing services 88,216,891 2,339,109
Corporate 70,649,697 58,172,946
----------------------- --------------------
$ 292,409,258 161,052,487
======================= ====================
Depreciation and amortization
Logistical petroleum services $ 849,251 818,701
Gas gathering and processing services 2,467,808 -
Corporate 220,129 136,327
----------------------- --------------------
$ 3,537,188 955,028
======================= ====================
Capital expenditures
Logistical petroleum services $ 5,599,410 3,096,248
Gas gathering and processing services 6,073,585 2,339,109
Corporate 705,591 401,920
----------------------- --------------------
$ 12,378,586 5,837,277
======================= ====================
</TABLE>
The Corporate business segment represents all of TransMontaigne's
activities and assets not specifically identified with the primary business
segments, including cash and cash equivalents, investments and other assets.
14
<PAGE>
(12) LION OIL COMPANY INVESTMENT
Effective May 1, 1997 TransMontaigne Holding Inc., a 65% owned subsidiary
of TransMontaigne, issued to its 35% minority shareholders irrevocable
proxies to vote their 35% share of the 27.75% interest in Lion owned by
TransMontaigne Holding Inc. to assure that the 35% minority interest
shareholders would continue to post their pro rata share of $1,400,000 in
standby letters of credit to assist Lion in obtaining financing. Since the
issuance of the irrevocable proxies reduced TransMontaigne's voting
interest in Lion from 27.75% to 18.0375%, TransMontaigne changed its method
of accounting for the investment in Lion from the equity method, under
which the investment originally recorded at cost is adjusted to recognize
TransMontaigne's share of Lion's net earnings or losses as incurred, to the
historical cost method, under which the investment is recorded at cost and
dividends or other distributions are recognized as received. As of May 1,
1997 the investment in Lion by TransMontaigne Holding Inc. representing its
original cost plus accumulated net earnings was $15,586,097 and the related
minority interest was $5,475,377.
(13) SUBSEQUENT EVENT
In November 1997 TransMontaigne acquired the common stock of seventeen
corporations, known as the "ITAPCO Terminal Corporations", and certain
related property and property interests. The acquisition included seventeen
bulk liquid storage and distribution terminals located in eight states
having total tankage capacity in excess of 3.3 million barrels, handling
primarily petroleum products and chemicals together with the related
operations of the terminals; seven contracts for providing management
consulting services to non-owned bulk liquid storage and distribution
terminals, pipelines and related facilities for third parties; and certain
other assets. The purchase price was $32,000,000 cash less assumption of an
outstanding bank loan of approximately $542,000 and was funded from the
bank credit facility and cash reserves.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
TransMontaigne provides a broad range of integrated transportation,
terminaling, supply, distribution, gathering, processing and marketing services
to producers, refiners, distributors, marketers and end-users of petroleum
products, natural gas and crude oil in the downstream sector of the petroleum
industry. TransMontaigne is a holding company which conducts its operations
through subsidiaries primarily in the mid-continent and Rocky Mountain regions
of the United States. TransMontaigne does not explore for, or produce, crude oil
or natural gas, and owns no crude oil or natural gas reserves.
TransMontaigne owns and operates refined petroleum product, crude oil and
natural gas assets. TransMontaigne refined petroleum product and crude oil
assets consist primarily of approximately 750 miles of pipeline and ten storage
and terminal facilities located in seven states with a combined tank storage
capacity of approximately 4,850,000 barrels. Its natural gas gathering and
processing assets consist of six gathering and processing systems in three
states with combined throughput capacity of approximately 86 million cubic feet
per day and over 2,700 miles of pipelines. TransMontaigne also utilizes refined
petroleum products common carrier pipelines and terminals owned by third parties
in order to increase product volumes marketed to its customers in other
locations. Management believes that the use of all these facilities will allow
TransMontaigne to significantly expand its geographic service area and the types
of services it provides.
The principal predecessor of TransMontaigne was formed in 1977 under the
name of Continental Ozark Corporation. In April 1995, present management and
certain institutional stockholders of TransMontaigne acquired control of
Continental Ozark Corporation through a merger in which the name of the
corporation was changed to TransMontaigne Oil Company. In June 1996,
TransMontaigne and a publicly held corporation merged, with the stockholders of
TransMontaigne receiving approximately 93% of the stock of the merged
corporation.
Since TransMontaigne present management assumed control in April 1995,
TransMontaigne has raised approximately $117,000,000 in equity capital
($30,000,000 private placement in May 1995; $25,000,000 private placement in
March 1996; and $62,000,000 public offering in February 1997);
16
<PAGE>
established an initial $130,000,000 working capital and acquisition revolving
bank credit facility (in December 1996) which converted to the present
$85,000,000 bank credit facility due December 31, 2001 (in February 1997); and
issued $50,000,000 of 7.85% Senior Notes due 2003 to an institutional lender
under a $100,000,000 Master Shelf Agreement (in April 1997).
In December 1996 TransMontaigne acquired the Grasslands natural gas
gathering, processing, treating and fractionation system (the "Grasslands
Facilities") for approximately $71,000,000 in cash and through October 31, 1997
has additionally invested approximately $16,000,000 in improvements and
expansion of the Grasslands Facilities and other assets in its natural gas
gathering and processing business segment. The Grasslands Facilities complement
TransMontaigne's other natural gas gathering and processing facilities in the
Williston Basin of the Rocky Mountain region, and enables TransMontaigne to
provide expanded services to oil and gas producers as well as to end-users of
natural gas liquids and natural gas. The Grasslands Facilities contributed
approximately 91% of the total net operating margin of TransMontaigne's natural
gas gathering and processing business segment during the six months ended
October 31, 1997.
In November 1997 TransMontaigne acquired the common stock of seventeen
corporations, known as the "ITAPCO Terminal Corporations", and certain related
property and property interests. The acquisition included seventeen bulk liquid
storage and distribution terminals located in eight states having total tankage
capacity in excess of 3.3 million barrels, handling primarily petroleum products
and chemicals together with the related operations of the terminals; seven
contracts for providing management consulting services to non-owned bulk liquid
storage and distribution terminals, pipelines and related facilities for third
parties; and certain other assets. The purchase price was $32,000,000 cash less
assumption of an outstanding bank loan of approximately $542,000 and was funded
from the bank credit facility and cash reserves.
17
<PAGE>
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report contains "forward-looking statements" within the meaning of the
federal securities laws and may include the words or phrases "believes," "will
depend," "will become" and "plans to" or similar expressions as well as other
statements of expectations, beliefs, future strategies and comments concerning
matters which are not historical facts. These forward-looking statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those expressed in or implied by the statements including, but
not limited to, the following:
. that TransMontaigne will generate net margins from high sales volumes
. that TransMontaigne will generate net margins affected by price
volatility of products purchased and sold
. that TransMontaigne will selectively and effectively hedge certain
inventory positions
. that TransMontaigne will be required to recognize a noncash financial
statement loss through a lower of cost or market write-down of
inventories
. that TransMontaigne will incur unanticipated costs in complying with
current and possibly future environmental regulations
. that TransMontaigne will capitalize on the trend by other companies in
the oil and gas industry to divest assets and outsource certain services
. that TransMontaigne will replace the supply of dedicated natural gas
reserves gathered and processed by its facilities.
18
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31, SIX MONTHS ENDED OCTOBER 31,
---------------------------------- --------------------------------
1997 1996 1997 1996
----------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C>
PIPELINE OPERATIONS
Volume (1) 4,728 4,761 9,755 9,765
Revenues (2) $ 3,180 3,227 6,394 6,061
Net Operating Margins (2) $ 1,701 1,868 3,431 3,380
Margin per barrel handled $ 0.3598 0.3924 0.3517 0.3461
TERMINAL OPERATIONS
Volume (1) 307,000 177,000 593,000 352,000
Revenues (2) $ 2,234 1,200 4,368 2,375
Net Operating Margins (2) $ 1,445 796 2,895 1,748
Margin per gallon handled $ 0.0047 0.0045 0.0049 0.0050
PRODUCTS SUPPLY AND
DISTRIBUTION OPERATIONS
Volume (1) 909,000 435,000 1,665,000 746,000
Revenues (2) $ 523,190 272,344 965,773 462,387
Net Operating Margins (2) $ 2,446 1,971 6,026 3,598
Margin per gallon sold $ 0.0027 0.0045 0.0036 0.0048
GAS GATHERING AND
PROCESSING OPERATIONS
Inlet Volume (3) 5,523 - 10,064 -
NGL Production (3) 25,056 - 48,762 -
Residue Production (3) 4,250,322 - 7,905,394 -
Revenues (2) $ 16,496 - 30,714 -
Net Operating Margins (2) $ 4,357 - 7,792 -
TOTAL OPERATIONS
Revenues (2) $ 545,100 276,771 1,007,249 470,823
Net Operating Margins (2) $ 9,949 4,635 20,144 8,726
Net Earnings (2) $ 2,397 2,673 5,407 4,480
</TABLE>
(1) Pipeline volumes are expressed in thousands of barrels (42 gallons per
barrel); terminal and products supply and distribution volumes are expressed in
thousands of gallons.
(2) Revenues, net operating margins, and net earnings are expressed in
thousands of dollars. Net operating margin represents revenues less direct
operating expenses for pipeline and terminal operations; revenues less cost of
refined petroleum products purchased for products supply and distribution
operations, and revenues less cost of natural gas gathered, processed and sold
and direct operating expenses for natural gas gathering and processing
operations.
19
<PAGE>
(3) Natural gas inlet volumes are expressed in million cubic feet; natural gas
liquids (NGLs) production is expressed in thousands of gallons; and residue
natural gas production is expressed in million British Thermal Units.
Prior to the acquisition of the Grasslands Facilities in December 1996,
TransMontaigne's revenues were derived from the logistical petroleum services
business segment consisting primarily of transporting refined petroleum products
(and to a lesser extent crude oil) in pipelines; storing and terminaling refined
petroleum products; and refined petroleum products supply, distribution and
marketing. Natural gas gathering and processing services became an important
business segment with the acquisition of the Grasslands Facilities and will have
a significant impact on TransMontaigne's future results of operations.
Pipeline revenues are based on the volume of refined petroleum products or
crude oil transported and the distance from the origin point to the delivery
point. TransMontaigne's interstate pipeline systems transport refined petroleum
products and their tariffs are regulated by the Federal Energy Regulatory
Commission (the "FERC"). TransMontaigne's intrastate pipeline transports crude
oil and its tariffs are not regulated by the FERC but are regulated by the Texas
Railroad Commission.
Terminal revenues are based on the volume of refined petroleum products
handled, generally at a standard per gallon rate. Terminal fees are not
regulated. Storage fees are generally based on a per gallon rate, which varies
with the duration of the storage arrangement, the refined petroleum product
stored and special handling requirements. Storage fees are not regulated.
Direct operating expenses of pipelines and terminals include wages and
employee benefits, utilities, communications, maintenance and repairs, property
taxes, rent, insurance, vehicle expenses, environmental protection costs,
materials and supplies.
Products supply and distribution revenues are based on the volume of bulk
sales of refined petroleum products and the wholesale distribution of refined
petroleum products from terminals. Bulk purchase and sale transactions in
quantities of 25,000 barrels to 50,000 barrels are common and are generally made
at small margins. Wholesale distribution of refined petroleum products is
conducted
20
<PAGE>
from seven proprietary and seventy-one nonproprietary terminal truck loading
rack locations and is primarily represented by truck load sales of 8,000
gallons.
Natural gas gathering and processing revenues are based on the inlet volume
of natural gas purchased from producers under both percentage of proceeds and
fee based arrangements. Natural gas is gathered and processed into NGL
products, principally propane, butane and natural gasoline. These products are
transported by truck or pipeline to storage facilities from which they are
further transported and marketed by TransMontaigne to wholesalers and end-users.
Residue natural gas is delivered to and marketed through connections with
interstate pipelines.
Direct operating expenses of natural gas gathering and processing include
wages and employee benefits, utilities, maintenance and repairs, property taxes,
insurance, vehicle expenses, environmental protection costs, material and
supplies.
THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO
THREE MONTHS ENDED OCTOBER 31, 1996
The net operating margin from pipeline operations of $1,701,000 decreased
9%, or $167,000, in the current year quarter. This decrease resulted primarily
from a 9% increase in operating costs of $120,000, primarily due to incremental
power costs from additional long haul shipment volumes and increased field
personnel costs, maintenance and vehicle expense. A decrease in the volumes of
lower tariff short haul pipeline shipments, together with decreases in joint
tariff participation, which were partially offset by a slight increase in the
volumes of higher tariff long haul pipeline shipments, resulted in a 1% decrease
in revenues of $47,000 in the current year quarter.
The net operating margin from terminal operations of $1,445,000 increased
82%, or $649,000 in the current year quarter. This increase resulted from an
overall 73% increase in volumes handled, primarily due to additional volumes at
the East Chicago terminal facility acquired in December 1996 and new jet fuel
contract volumes at the Indianapolis, Indiana terminal; offset in part by a 95%
increase in terminal operating costs attributable to expanded East Chicago
terminal operations, a new terminal lease, additional freight charges on
products and increased field personnel costs and maintenance expenses.
21
<PAGE>
The net operating margin from product sales of $2,446,000 increased 24%, or
$475,000, in the current year quarter. Net revenues increased $250,846,000, or
92%, on additional volume of 474,000,000 gallons of products sold, an increase
of 109%. The $.0027 net operating margin per gallon realized in the current year
quarter decreased $.0018, or 40%, from the $.0045 per gallon realized during
the prior year quarter, notwithstanding the significant increase in sales volume
which was largely attributable to TransMontaigne's continuing and expanding
supply, distribution and marketing program. The lower net operating margin was
impacted by generally weaker pricing conditions in the bulk sales market.
Overall, however, the increased product sales volume contributed to a small
increase in long haul pipeline volumes and a large increase in terminal
throughput volumes, which resulted in increasing the related revenues. By
providing an integrated logistical service to customers through the effective
utilization of its transportation, storage and terminaling facilities as well as
its product supply, distribution and marketing capabilities, TransMontaigne's
aggregate net operating margin from the logistical petroleum services business
segment was $5,592,000 in the current year quarter, an increase of $957,000, or
21%, over the prior year quarter.
The net operating margin from natural gas gathering and processing
operations of $4,357,000 in the current year quarter is primarily attributable
to the business activities of the Grasslands facilities, and also includes net
operating margin contributions from the Marmarth, Baker, Lignite and Wiggins
facilities as well as management fees from fifteen small natural gas gathering
systems.
The unaudited pro forma results of operations reflected in Note 3 to the
Consolidated Financial Statements include the pro forma historical operating
performance of the Grasslands facilities under prior ownership and are presented
for comparative purposes. Included in the pro forma information are actual
Grasslands Facilities revenues of $14,604,000 for the three months ended October
31, 1997 representing an increase of $1,945,000, or 15%, over pro forma
historical revenues of $12,659,000 for the prior year quarter. This revenue
increase was primarily due to improved product prices for NGLs and residue
natural gas together with an increase in product volumes sold. The actual net
operating margin from Grasslands Facilities operations for the current year
quarter was $3,968,000, a 12% increase of $426,000 over the pro forma historical
net operating margin of $3,542,000 for the prior year quarter. This increase
resulted primarily from improved product prices and decreased operating expenses
together with the impact of a conversion of a natural gas gathering agreement
from a fee based to a percentage of proceeds arrangement.
22
<PAGE>
General and administrative expenses increased $1,481,000, an 89% increase
in the current year quarter, primarily due to additional personnel costs. In
addition, office lease expense increased as well as regulatory reporting,
travel, insurance, information systems and communication expenses. A
significant portion of these expense increases was attributable to
TransMontaigne's expanded natural gas gathering and processing business
activities.
Other income is primarily interest income. In the prior year quarter other
income included TransMontaigne's share of Lion's earnings, net of related
minority interests, of approximately $482,000 and also interest income of
$431,000. The $150,000 increase in interest income in the current year quarter
was due primarily to an increase in interest bearing cash balances held for
future investments.
Interest expense represents interest on the bank credit facility and senior
promissory notes which were used primarily to finance the Grasslands Facilities
acquisition, other continuing capital expenditures, additional inventory and
accounts receivable. Also included is interest on TransMontaigne's senior
subordinated debentures. Other financing costs principally includes commitment
fees and amortization of debt acquisition costs paid in connection with the
credit facility. Interest expense and financing costs during the current year
quarter increased $978,000, or 134%, of which $872,000 was an increase in
interest expense over the prior year quarter due primarily to an increase of
approximately $43,000,000 in average outstanding debt over the prior year
quarter.
Earnings before income taxes of TransMontaigne for the current year quarter
were $3,867,000, a 34% increase of $984,000 over the $2,883,000 for the prior
year quarter. This improvement was primarily a result of the aggregate increase
in the logistical petroleum services business segment net operating margin; the
positive impact of the net operating margin contribution from the gas gathering
and processing business segment attributable essentially to the Grasslands
Facilities operations; and additional interest income. These increases were
partially offset by increased general and administrative expenses, depreciation
of $1,311,000 and interest expense, primarily attributable to the Grasslands
Facilities.
Income tax expense for the current year quarter of $1,470,000 is based upon
estimated combined federal and state income tax whereas only state income tax
was provided for the prior year quarter. At April 30, 1997 TransMontaigne
determined that its net deferred tax assets would more likely than not be
realized, and recognized an income tax benefit in the year ended April 30, 1997
for the remaining
23
<PAGE>
balance of the previously recorded valuation allowance. As a result of this
prior year recognition of the net deferred tax assets, deferred income tax
expense of $1,406,000 was provided in the current year quarter against net
earnings before income tax whereas a tax provision was not required in the prior
year quarter.
Net earnings of TransMontaigne for the current year quarter, after
providing for income taxes, were $2,397,000 compared to $2,673,000 for the prior
year quarter, a decrease of 10%.
SIX MONTHS ENDED OCTOBER 31, 1997 COMPARED TO
SIX MONTHS ENDED OCTOBER 31, 1996
The net operating margin from pipeline operations of $3,431,000 increased
2%, or $51,000, in the current six month period. This increase resulted
primarily from a net increase in the volumes of higher tariff long haul pipeline
shipments, together with increases in joint tariff participation and terminal
facility rental income, resulting in a 5% increase in revenues of $333,000 which
was partially offset by an 11% increase in operating costs of $282,000,
primarily due to incremental power costs from additional long haul shipment
volumes and increased field personnel costs, maintenance and vehicle expenses.
The net operating margin from terminal operations of $2,895,000 increased
66%, or $1,147,000 in the current six month period. This increase resulted from
an overall 68% increase in volumes handled, primarily due to additional volumes
at the East Chicago terminal facility acquired in December 1996 and new jet fuel
contract volumes at the Indianapolis, Indiana terminal; offset in part by a 135%
increase in terminal operating costs attributable to expanded East Chicago
terminal operations, a new terminal lease, additional freight charges on
products and increased field personnel costs and maintenance expenses.
The net operating margin from product sales of $6,026,000 increased 67%, or
$2,428,000, in the current six month period. Net revenues increased
$503,386,000, or 109%, on additional volume of 919,000,000 gallons of products
sold, an increase of 123%. The $.0036 net operating margin per gallon realized
in the six months ended decreased $.0012, or 25%, from the $.0048 per gallon
realized during the prior year six month period, notwithstanding the significant
increase in sales volume which was largely attributable to TransMontaigne's
continuing and expanding supply, distribution and marketing program. The lower
net operating margin was impacted by generally weaker pricing conditions in the
24
<PAGE>
bulk sales market. Overall, however, the increased product sales volume
contributed to a small increase in long haul pipeline volumes and a large
increase terminal throughput volumes, which resulted in increasing the related
revenues. By providing an integrated logistical service to customers through the
effective utilization of its transportation, storage and terminaling facilities
as well as its product supply, distribution and marketing capabilities,
TransMontaigne's aggregate net operating margin from the logistical petroleum
services business segment was $12,352,000 in the current six month period an
increase of $3,626,000, or 42%, over the prior year six month period.
The net operating margin from natural gas gathering and processing
operations of $7,792,000 in the current six month period is primarily
attributable to the business activities of the Grasslands facilities, and also
includes net operating margin contributions from the Marmarth, Baker, Lignite
and Wiggins facilities as well as management fees from fifteen small natural gas
gathering systems.
The unaudited pro forma results of operations reflected in Note 3 to the
Consolidated Financial Statements include the pro forma historical operating
performance of the Grasslands facilities under prior ownership and are presented
for comparative purposes. Included in the pro forma information are actual
Grasslands Facilities revenues of $27,193,000 for the six months ended October
31, 1997 representing an increase of $3,545,000, or 15%, over pro forma
historical revenues of $23,648,000 for the prior year six month period. This
revenue increase was primarily due to improved product prices for NGLs and
residue natural gas together with an increase in product volumes sold. The
actual net operating margin from Grasslands Facilities operations for the
current six month period was $7,128,000, a 13% increase of $839,000 over the pro
forma historical net operating margin of $6,289,000 for the prior year six month
period. This increase resulted primarily from improved product prices and
decreased operating expenses together with the impact of a conversion of a
natural gas gathering agreement from a fee based to a percentage of proceeds
arrangement.
General and administrative expenses increased $2,766,000, an 88% increase
in the current six month period, primarily due to additional personnel costs.
In addition, office lease expense increased as well as employee relocation,
regulatory reporting, travel, insurance, information systems and communication
expenses. A significant portion of these expense increases was attributable to
TransMontaigne's expanded natural gas gathering and processing business
activities.
25
<PAGE>
Other income is primarily interest income. In the prior year six month
period other income included TransMontaigne's share of Lion's earnings, net of
related minority interests, of approximately $291,000 and also interest income
of $893,000. The $253,000 increase in interest income in the current
six month period was due primarily to an increase in interest bearing cash
balances held for future investments.
Interest expense represents interest on the bank credit facility and senior
promissory notes which were used primarily to finance the Grasslands Facilities
acquisition, other continuing capital expenditures, additional inventory and
accounts receivable. Also included is interest on TransMontaigne's senior
subordinated debentures. Other financing costs principally includes commitment
fees and amortization of debt acquisition costs paid in connection with the
credit facility. Interest expense and financing costs during the six months
ended increased $1,981,000, or 145%, of which $1,769,000 was an increase in
interest expense over the prior year six month period due primarily to an
increase of approximately $42,000,000 in average outstanding debt over the prior
year six month period.
Earnings before income taxes of TransMontaigne for the current six month
period were $8,477,000, a 78% increase of $3,727,000 over the $4,750,000 for the
prior year six month period. This improvement was primarily a result of the
aggregate increase in the logistical petroleum services business segment net
operating margin; the positive impact of the net operating margin contribution
from the gas gathering and processing business segment attributable essentially
to the inclusion of the Grasslands Facilities operations; and additional
interest income. These increases were partially offset by increased general and
administrative expenses, depreciation of $2,582,000 and interest expenses
primarily attributable to the Grasslands Facilities.
Income tax expense for the current six month period of $3,070,000 is based
upon estimated combined federal and state income tax whereas only state income
tax was provided for the prior year six month period. At April 30, 1997
TransMontaigne determined that its net deferred tax assets would more likely
than not be realized, and recognized an income tax benefit in the year ended
April 30, 1997 for the remaining balance of the previously recorded valuation
allowance. As a result of this prior year recognition of the net deferred tax
assets, deferred income tax expense of $2,906,000 was provided in the current
six month period against net earnings before income tax whereas a tax provision
was not required in the prior year six month period.
26
<PAGE>
Net earnings of TransMontaigne for the current six month period, after
providing for income taxes, were $5,407,000 compared to $4,480,000 for the prior
year six month period, an increase of 21%.
LIQUIDITY AND CAPITAL RESOURCES
The following summary reflects TransMontaigne's comparative net cash flows
for the six months ended October 31, 1997 and 1996.
<TABLE>
<CAPTION>
Six Months Ended
October 31,
----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Net cash (used) by operating activities $ (2,638,000) (10,383,000)
Net cash (used) by investing activities $ (12,588,000) (4,044,000)
Net cash provided by financing activities $ 24,606,000 9,025,000
</TABLE>
Net cash used by operating activities in the current year six month period
decreased $7,745,000 from the prior year six month period. This decrease in net
cash used, which represents an increase in net cash generated over the prior
year six month period, resulted from increased net earnings, depreciation and
amortization; deferred income tax expense; decreased trade receivables from
refined petroleum products and NGL sales; increased inventory due under exchange
agreements; and increased excise taxes payable. Partially offsetting the
foregoing were decreased trade payables to suppliers of inventory; and increased
petroleum product inventory levels required to meet expanded levels of pipeline,
terminaling and products supply and distribution operations during the current
year six month period.
Net cash used by investing activities in the current year six month period
increased $8,544,000 from the prior year six month period. This increase in net
cash used, which represents a decrease in net cash generated over the prior year
six month period, resulted from capital expenditures of $12,379,000 for
additions and improvements to pipeline, terminals and natural gas gathering and
processing facilities, including approximately $6,074,000 for expansion of the
Grasslands facilities and other assets in the
27
<PAGE>
natural gas gathering and processing business segment. During the prior year six
month period capital expenditures were $5,837,000 and $2,316,000 in cash was
received in connection with an acquisition.
Net cash provided by financing activities in the current year six month
period increased $15,581,000 from the prior year six month period. This
increase, which represents a net cash increase over the prior year six month
period, resulted from net long-term borrowings primarily related to the
improvement and expansion of natural gas gathering and processing facilities and
terminal facilities.
EBITDA represents earnings before income taxes plus interest expense and
other financing costs and depreciation and amortization. Management uses EBITDA
as part of its overall assessment of TransMontaigne's performance by analyzing
and comparing EBITDA between reporting periods. Management believes that, in
addition to cash flow from operations and net earnings as indicators of
operating performance, EBITDA is used increasingly by the financial community to
measure operating effectiveness and as a method to evaluate the market value of
companies like TransMontaigne. EBITDA is also used to evaluate TransMontaigne's
ability to incur and service debt and to fund capital expenditures, although it
is not considered in isolation or a substitute for the other measurements of
performance and liquidity. EBITDA for the current year six month period was
$15,365,000, a 117% increase over EBITDA of $7,075,000 for the prior year six
month period, and was generally consistent with management's expectations, based
upon TransMontaigne's operations and economic conditions. Several anticipated
sources of revenues which would have contributed additional EBITDA in the
current year six month period were either delayed or did not fully reach
expected volume levels. These delays and reduced volumes are considered by
management to be only temporary and should not impact TransMontaigne's future
operating performance.
Capital expenditures during the current year six month period were
$12,379,000 and for the year ending April 30, 1998 are estimated to be
approximately $60,000,000 for pipeline, terminal and natural gas gathering and
processing facilities, including assets to support these facilities, and
including the $32,000,000 expended in connection with the acquisition of the
ITAPCO terminals in November, 1997. On a regular basis management identifies
and is offered prospective asset acquisitions which are analyzed and evaluated
to determine their operational suitability and potential financial contribution
to TransMontaigne's cash flow, net earnings and EBITDA. Future capital
expenditures will depend on numerous factors in addition to operating and
financial considerations, including the availability, economics and cost of
appropriate asset acquisitions; the economics, cost and required regulatory
28
<PAGE>
approvals of expanding and enhancing existing systems and facilities; the demand
for the services TransMontaigne provides; local, state and federal governmental
regulations; the evaluation of environmental considerations and compliance
requirements; fuel conservation efforts; and the availability, to the extent
required, of financing on acceptable terms.
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
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 TransMontaigne bank credit facility at October 31, 1997 is an
$85,000,000 revolving credit facility with a money center bank due December 31,
2001. The amount available under the bank credit facility is to be reduced by
$3,125,000 each calendar quarter beginning March 31, 2000. Borrowings under the
bank credit facility generally bear interest at an annual rate equal to the
lender's announced Base Rate, subject to a Eurodollar pricing option at
TransMontaigne's election. The average interest rate at October 31, 1997 was
6.79%.
At October 31, 1997, TransMontaigne had advances of $35,000,000 outstanding
under the bank credit facility; $2,600,000 of the facility was used to support a
standby letter of credit to a bank to assist Lion in obtaining financing.
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.
29
<PAGE>
At October 31, 1997, TransMontaigne had outstanding under the Master Shelf
Agreement, $50,000,000 of 7.85% Senior Notes due 2003.
The bank credit facility agreement and the Master Shelf Agreement contain a
negative pledge covenant by TransMontaigne and its subsidiaries and are secured
by the stock of the subsidiaries. These agreements also include financial tests
relating to fixed charges coverage, leverage ratio, consolidated tangible net
worth, distributions and inventory positions. At October 31, 1997,
TransMontaigne was in compliance with all of such tests.
As of April 30, 1997, TransMontaigne's fiscal year end, it had
approximately $18,339,000 of net operating loss carryforwards for federal income
tax purposes which are available to offset taxable income through 2010. Due to
changes in ownership which occurred prior to April 30, 1997, the use of these
net operating loss carryforwards to offset taxable income is limited to
approximately $4,300,000 annually. As a result of the merger in June 1996,
TransMontaigne acquired additional net operating loss carryforwards of
approximately $7,892,000, which are included in the aggregate net operating loss
carryforwards; are limited to approximately $1,300,000 annually; and a portion
of the tax benefit of which was recognized as a net reduction of goodwill
recorded in the acquisition.
At October 31, 1997 TransMontaigne had working capital of $99,434,000,
availability under its bank credit facility of $47,400,000 and additional
borrowing capacity of $50,000,000 under the Master Shelf Agreement. Management
believes that TransMontaigne's current working capital position; future cash
provided by operating activities; proceeds from the private placement or public
offering of common stock; available borrowing permitted under its bank credit
facility agreement and the Master Shelf Agreement; additional borrowing allowed
under those agreements; and its relationship with institutional lenders and
equity investors should enable it to meet its future capital requirements.
30
<PAGE>
EBITDA AS AN ALTERNATIVE MEASURE OF FINANCIAL PERFORMANCE
EBITDA is earnings (loss) before income taxes plus interest expense and other
financing costs and depreciation and amortization. TransMontaigne believes
that, in addition to cash flow from operations and net earnings (loss), EBITDA
is a useful financial performance measurement for assessing operating
performance since it provides an additional basis to evaluate the ability of
TransMontaigne to incur and service debt and to fund capital expenditures. In
evaluating EBITDA, TransMontaigne believes that consideration should be given,
among other things, to the amount by which EBITDA exceeds interest costs for the
period, how EBITDA compares to principal repayments on debt for the period and
how EBITDA compares to capital expenditures for the period. To evaluate EBITDA,
the components of EBITDA such as revenue and operating expenses and the
variability of such components over time, should also be considered. EBITDA
should not be construed, however, as an alternative to operating income (loss)
(as determined in accordance with generally accepted accounting principles
(GAAP)) as an indicator of TransMontaigne's operating performance or to cash
flows from operating activities (as determined in accordance with GAAP) as a
measure of liquidity. TransMontaigne's method of calculating EBITDA may differ
from methods used by other companies, and as a result, EBITDA measures disclosed
herein may not be comparable to other similarly titled measures used by other
companies.
31
<PAGE>
PART II. OTHER INFORMATION
- --------------------------
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting held on August 28, 1997, the stockholders of the
Company (a) elected seven directors; (b) approved the Company's Equity Incentive
Plan; and (c) ratified the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company for the fiscal year ending April 30, 1998.
The following persons were elected as directors:
Cortlandt S. Dietler
Richard E. Gathright
John A. Hill
Bryan H. Lawrence
Harold R. Logan, Jr.
William E. Macaulay
Edwin H. Morgens
18,900,540 votes were cast for each of the nominees and 66,827 votes were
withheld for each.
16,725,496 votes were cast in favor of approval of the Equity Incentive Plan.
1,235,504 votes were cast against the Plan, 35,178 votes abstained and there
were 972,230 broker non-votes.
With respect to the ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors for the company for the fiscal year ending April 30, 1998,
18,964,263 votes were cast in favor of such ratification, 1,569 votes were cast
against such ratifications, 2,576 votes abstained from voting and there were no
broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Equity Incentive Plan. Incorporated by reference to the
Registrant's definitive proxy statement filed August 8, 1997, with
respect to its annual meeting held August 28, 1997, file no. 001-
11763.
27 Financial Data Schedule. FILED HEREWITH
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended October 31,
1997.
32
<PAGE>
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: December 12, 1997 TRANSMONTAIGNE OIL COMPANY
(Registrant)
/s/ CORTLANDT S. DIETLER
--------------------------------------------
Cortlandt S. Dietler
Chairman and Chief Executive Officer
/s/ RODNEY S. PLESS
--------------------------------------------
Rodney S. Pless
Vice President and Controller
(Principal Accounting Officer)
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 45,764,652
<SECURITIES> 0
<RECEIVABLES> 39,926,328
<ALLOWANCES> 0
<INVENTORY> 64,452,354
<CURRENT-ASSETS> 152,683,589
<PP&E> 133,577,721
<DEPRECIATION> (14,171,962)
<TOTAL-ASSETS> 292,409,258
<CURRENT-LIABILITIES> 53,249,906
<BONDS> 88,964,467
0
0
<COMMON> 259,144
<OTHER-SE> 144,460,364
<TOTAL-LIABILITY-AND-EQUITY> 292,409,258
<SALES> 0
<TOTAL-REVENUES> 1,007,249,077
<CGS> 0
<TOTAL-COSTS> 996,566,388
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,067,523
<INCOME-PRETAX> 8,477,037
<INCOME-TAX> 3,070,000
<INCOME-CONTINUING> 5,407,037
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,407,037
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
