<PAGE>
4,357,000 SHARES
TRANSMONTAIGNE OIL COMPANY
[LOGO OF
TRANSMONTAIGNE
OIL COMPANY
GOES HERE]
COMMON STOCK
Of the 4,357,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby, 4,035,000 are being issued and sold by
TransMontaigne Oil Company, a Delaware corporation ("TransMontaigne") and
322,000 are being offered by the Selling Stockholders. See "Selling
Stockholders." TransMontaigne will not receive any of the proceeds from the
sale of shares by the Selling Stockholders.
Of the 4,035,000 shares of Common Stock offered by TransMontaigne, 640,044
shares are being offered directly by TransMontaigne to Merrill Lynch Growth
Fund ("Merrill Lynch") pursuant to certain antidilution rights. See
"Description of Capital Stock." Shares offered to Merrill Lynch are being
offered at a price equal to the public offering price, net of underwriting
discounts and commissions. Merrill Lynch has indicated its intention to
purchase such shares. Upon consummation of the offering to Merrill Lynch,
TransMontaigne will receive proceeds of $13.43 per share and $8,595,791 in the
aggregate from such offering ($9,917,169 if Merrill Lynch exercises in full its
antidilution rights in connection with the full exercise by the Underwriters of
the option described in the table below), which proceeds are reflected in the
table below.
The Common Stock is listed on the American Stock Exchange under the symbol
"TMG." On February 10, 1997, the last reported sales price of the Common Stock
on the American Stock Exchange was $14 3/4 per share. See "Price Range of
Common Stock and Dividend Policy."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 9-11.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC* COMMISSIONS + COMPANY ++ STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share........... $14.25 $0.82 $13.43 $13.43
Total++............. $61,562,414 $3,047,904 $54,190,050 $4,324,460
</TABLE>
- -----
* Total includes 640,044 shares of Common Stock offered to Merrill Lynch at a
purchase price of $13.43 per share.
+ TransMontaigne and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including certain liabilities under
the Securities Act of 1933. See "Underwriting."
++ Before deducting estimated expenses of the Offerings (as defined) of
$750,000, all of which will be paid by TransMontaigne.
++TransMontaigne has granted to the Underwriters a 30-day option to purchase up
to 557,543 additional shares of Common Stock on the same terms per share
solely to cover over-allotments, if any. If this option is exercised, Merrill
Lynch will have the right to exercise its antidilution rights to purchase up
to an additional 98,390 shares of Common Stock at a purchase price of $13.43
per share. If such options are exercised in full, the total price to public
will be $70,828,780, the total underwriting discounts and commissions will be
$3,505,089 and the total proceeds to TransMontaigne will be $62,999,230. See
"Underwriting."
-----------
The Common Stock being offered by the Underwriters is being offered as set
forth under "Underwriting" herein. It is expected that delivery of certificates
therefor and for the offering to Merrill Lynch will be made at the offices of
Dillon, Read & Co. Inc., New York, New York, on or about February 14, 1997
against payment therefor. The Underwriters include:
DILLON, READ & CO. INC.
A.G. EDWARDS & SONS, INC.
PETRIE PARKMAN & CO.
The date of this Prospectus is February 11, 1997
<PAGE>
[MAP OF THE UNITED STATES DEPICTING THE LOCATION OF
TRANSMONTAIGNE'S FACILITIES AND THE BASINS IN WHICH IT OPERATES.]
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and the Consolidated Financial
Statements (including the notes thereto) appearing elsewhere in this Prospectus
and other information incorporated herein by reference. Unless the context
otherwise requires, "TransMontaigne" refers to TransMontaigne Oil Company and
its subsidiaries. Unless otherwise indicated, the information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
THE COMPANY
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 its 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 it owns no crude oil or natural gas reserves.
TransMontaigne owns and operates refined petroleum product, crude oil and
natural gas assets. TransMontaigne's refined petroleum product and crude oil
assets consist primarily of 747 miles of pipeline and ten storage and terminal
facilities in seven states with a combined tank storage capacity of
approximately 4,820,000 barrels. Its natural gas gathering and processing
assets consist of four gathering and processing systems in two states with
combined throughput capacity of approximately 85 million cubic feet per day and
over 2,700 miles of pipelines. The use of these facilities and an extensive
network of additional common carrier pipelines and terminal facilities owned by
others allows TransMontaigne to significantly expand its geographic service
area and the types of services it provides.
TransMontaigne believes that fundamental structural changes and the trend
toward outsourcing in the petroleum industry are creating opportunities for its
continued growth. Major oil companies and independents are undertaking
reorganization, rationalization and cost-saving measures in an effort to
improve operating and financial performance. In many instances this results in
the disposition of domestic non-strategic, non-core businesses and downstream
assets and facilities, and in the outsourcing of procurement, maintenance,
transportation, supply, distribution, gathering, processing, marketing and
administrative functions.
TransMontaigne believes that this disposition of downstream assets and
facilities provides opportunities for it to purchase pipeline, storage,
terminaling, gathering and processing assets, and to apply focused management
and more cost effective utilization of these facilities while providing value-
added service at competitive prices to its customers, often including the
former owners of the assets. TransMontaigne has acquired, designed and
developed its physical assets and its operating, risk management and
information systems in order to take advantage of these opportunities.
The principal predecessor of TransMontaigne was formed in 1977 under the name
of Continental Ozark Corporation. In April 1995, the present management and
certain of the 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 acquiring approximately 93% of the stock of the publicly held
corporation. Since the present management of TransMontaigne assumed control in
April 1995, TransMontaigne has raised approximately $55,000,000 in equity and
has established a $130,000,000 credit facility.
3
<PAGE>
During the first fiscal year after assuming control of Continental Ozark
Corporation in April 1995, TransMontaigne increased net operating margins to
$12,717,000 for the fiscal year ended April 30, 1996 from $5,779,000 for the
prior fiscal year by improving the performance of its facilities through
selective capital improvements, restructured operating and administrative
functions and expanded marketing of services. TransMontaigne's management has
implemented an operating plan and financial management systems which provide
the foundation for its current operations and future growth.
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. The Grasslands system is
one of the largest natural gas facilities in the Williston Basin which is
currently among the most active areas of onshore domestic drilling activity.
The acquisition of the Grasslands Facilities is an example of the opportunities
available to TransMontaigne to enhance its earnings performance by capitalizing
on the industry's divestiture trend and applying its management expertise in
the downstream sector of the petroleum industry. The facilities will complement
TransMontaigne's existing natural gas gathering and processing facilities in
the Williston Basin of the Rocky Mountain region, and will enable
TransMontaigne to improve service to oil and gas producers as well as to end-
users of natural gas liquids ("NGLs") and natural gas.
OPERATING STRATEGY
TransMontaigne intends to achieve its primary objective of growth in cash
flow and earnings by:
. Increasing throughput volumes and utilization of existing assets through
system improvements, competitive pricing, quality service and
identification of and response to market needs.
. Using advanced management information and financial systems to timely
supply petroleum products to market areas with the most favorable profit
margins and to effectively manage inventory levels and product costs.
. Expanding existing assets and constructing new facilities in order to
satisfy market demand.
. Capitalizing on the industry's divestiture and outsourcing trends through
the acquisition of businesses and assets which offer potential for
continued improvement in operating results.
. Employing management's experience, business relationships and reputation
for directing the growth of companies providing services to the downstream
sector of the petroleum industry.
. Maintaining a balance sheet that allows financial flexibility, providing
ready access to sources of capital required for expansion and growth.
The executive offices of TransMontaigne, a Delaware corporation, are located
at 370 17th Street, Republic Plaza, Suite 2750, Denver, CO 80202, and its
telephone number is (303) 626-8200.
4
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by TransMontaigne............ 4,035,000 shares(1)
Common Stock offered by the Selling Stockholders.. 322,000 shares
--------------------------------------
Total.......................................... 4,357,000 shares
======================================
Common Stock to be Outstanding After the Offer-
ings............................................. 25,046,962 shares(2)
Use of Proceeds................................... To repay $45,000,000 of bank debt
incurred to finance the acquisition of
the Grasslands Facilities with the
balance to be used for general
corporate purposes. TransMontaigne
will not receive any of the proceeds
from the sale of shares by the Selling
Stockholders. See "Use of Proceeds."
American Stock Exchange Symbol.................... TMG
</TABLE>
- --------
(1) Includes 640,044 shares of Common Stock offered by TransMontaigne
directly to Merrill Lynch (the "Concurrent Offering" and together with the
underwritten offering made hereby (the "Underwritten Offering"), the
"Offerings").
(2) Does not include 1,214,686 shares (as of December 31, 1996) of Common
Stock issuable upon exercise of currently outstanding options and warrants, at
an average exercise price of $3.91.
5
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The summary historical financial data of TransMontaigne set forth below for
the years ended April 30, 1996 and 1995 have been derived from the audited
consolidated financial statements of TransMontaigne. The summary historical
financial data of TransMontaigne set forth below for the six months ended
October 31, 1996 and 1995 have been derived from unaudited consolidated
financial statements of TransMontaigne. The interim consolidated financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of TransMontaigne's management,
necessary to a fair presentation of the financial position and results of
operations for the interim periods presented. This historical data should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated financial statements
and notes thereto of TransMontaigne incorporated by reference or included
herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED OCTOBER 31 YEARS ENDED APRIL 30
---------------------------- --------------------------
1996 1995 1996 1995
---------------------------- ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................. $ 470,822,944 $ 242,015,171 $533,106,747 $324,591,409
Costs and expenses:
Product costs and di-
rect operating ex-
penses................ 462,096,897 235,772,166 520,389,482 318,811,953
General and administra-
tive.................. 3,158,305 2,256,778 4,998,771 4,226,123
Depreciation and amor-
tization.............. 955,028 560,348 1,169,541 1,147,291
------------- ------------- ------------ ------------
466,210,230 238,589,292 526,557,794 324,185,367
------------- ------------- ------------ ------------
Operating income........ 4,612,714 3,425,879 6,548,953 406,042
Other income (expenses):
Interest income........ 893,051 258,693 520,900 --
Equity in earnings of
affiliates, net of mi-
nority interests...... 274,102 261,084 604,963 294,653
Interest expense and
other financing
costs................. (1,370,280) (1,403,938) (2,864,100) (3,512,050)
Other, net............. 340,076 -- -- (286,735)
------------- ------------- ------------ ------------
136,949 (884,161) (1,738,237) (3,504,132)
------------- ------------- ------------ ------------
Earnings (loss) before
income taxes........... 4,749,663 2,541,718 4,810,716 (3,098,090)
Income taxes--current... (270,000) (73,002) (192,747) (119,545)
------------- ------------- ------------ ------------
Net earnings (loss)..... $ 4,479,663 $ 2,468,716 $ 4,617,969 $ (3,217,635)
============= ============= ============ ============
Weighted average common
shares outstanding..... 21,290,302 14,902,347 15,129,637 2,860,390
============= ============= ============ ============
Earnings (loss) per com-
mon share.............. $ 0.21 $ 0.17 $ 0.31 $ (1.32)
============= ============= ============ ============
STATEMENT OF CASH FLOWS
DATA:
Net cash provided by
(used in):
Operating activities... $ (10,382,647) $ (8,654,468) $ (3,919,753) $ (236,580)
Investing activities... (4,043,784) (1,716,770) (4,181,377) (233,562)
Financing activities... 9,024,701 18,959,234 44,702,536 61,543
OTHER FINANCIAL DATA:
Capital expenditures.... $ 5,837,277 $ 1,522,392 $ 4,124,264 $ 747,774
EBITDA(1)............... 7,074,971 4,506,004 8,844,357 1,561,251
OPERATING DATA:
Volumes(2) (in thou-
sands):
Pipeline operations.... 9,765 10,044 18,902 13,721
Terminal operations.... 352,000 285,000 587,000 547,000
Products supply and
distributions opera-
tions................. 746,000 445,000 958,000 620,000
Net operating mar-
gins(3):
Pipeline operations.... $ 3,380,000 $ 2,041,000 $ 4,454,000 $ 2,678,000
Terminal operations.... 1,748,000 1,209,000 2,434,000 2,340,000
Products supply and
distributions opera-
tions................. 3,598,000 2,993,000 5,829,000 761,000
OCTOBER 31,
1996
-------------
BALANCE SHEET DATA:
Working capital......... $ 67,221,310
Total assets............ 161,052,487
Long-term debt, exclud-
ing current maturi-
ties................... 37,684,067
Stockholders' equity.... 71,671,884
</TABLE>
6
<PAGE>
- --------
(1) EBITDA is earnings (loss) before income taxes plus interest expense and
other financing costs and depreciation and amortization. TransMontaigne
believes that, in addition to cash flow from operations and net earnings
(loss), EBITDA is a useful financial performance measurement for assessing
operating performance as it provides investors with 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
investors should consider, among other things, 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. Investors should be cautioned, however, that
EBITDA should not be construed 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. See TransMontaigne's consolidated financial statements incorporated
by reference and included herein. 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.
(2) Pipeline volumes are expressed in barrels (42 gallons per barrel), and
terminal and products supply and distribution volumes are expressed in gallons.
(3) Net operating margin represents revenues less direct operating expenses
for pipeline and terminal operations, and revenues less cost of refined
petroleum products purchased for products supply and distribution operations.
7
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
In December 1996, TransMontaigne acquired the Grasslands Facilities for
approximately $71,000,000 in cash. The acquisition will be accounted for as a
purchase.
The summary pro forma consolidated financial data has been derived from the
pro forma consolidated financial statements appearing elsewhere herein and
should be read in conjunction with those statements and the notes thereto. This
pro forma data is not necessarily indicative of the results to be expected
after the acquisition of the Grasslands Facilities. The unaudited pro forma
consolidated balance sheet at October 31, 1996 gives effect to the acquisition
as if it had occurred at that date. The unaudited pro forma consolidated
statements of operations data for the six months ended October 31, 1996 and the
year ended April 30, 1996 give effect to the acquisition as if it had occurred
on May 1, 1995.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31, APRIL 30,
1996 1996
----------------- --------------
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenue....................................... $494,471,136 $578,573,825
Costs and expenses:
Product costs and direct operating expenses.. 479,455,680 555,589,509
General and administrative................... 3,428,305 5,538,771
Depreciation and amortization................ 2,705,028 4,669,541
------------ ------------
485,589,013 565,797,821
------------ ------------
Operating income.............................. 8,882,123 12,776,004
Other income (expenses):
Interest income.............................. 893,051 520,900
Equity in earnings of affiliates, net of mi-
nority interests............................ 274,102 604,963
Interest expense and other financing costs... (4,210,280) (8,544,100)
Other, net................................... 340,076 --
------------ ------------
(2,703,051) (7,418,237)
------------ ------------
Earnings before income taxes.................. 6,179,072 5,357,767
Income taxes--current......................... (270,000) (192,747)
------------ ------------
Net earnings.................................. $ 5,909,072 $ 5,165,020
============ ============
Earnings per common share..................... $ 0.28 $ 0.34
============ ============
OCTOBER 31, 1996
-----------------------------
PRO FORMA
PRO FORMA AS ADJUSTED(1)
------------ --------------
PRO FORMA BALANCE SHEET DATA:
Working capital............................... $ 67,221,310 $ 75,661,360
Total assets.................................. 232,052,487 240,492,537
Long-term debt, excluding current maturities.. 108,684,067 63,684,067
Stockholders' equity.......................... 71,671,884 125,111,934
</TABLE>
- --------
(1) As adjusted to give effect to the sale of the 4,035,000 shares of Common
Stock offered hereby by TransMontaigne at a public offering price of $14.25 per
share and the application of the net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
8
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. TransMontaigne's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as
those discussed elsewhere in this Prospectus. Statements contained in this
Prospectus that are not historical facts are forward-looking statements that
are subject to the safe harbor created by the Private Securities Litigation
Reform Act of 1995.
RISK FACTORS
In evaluating an investment in the Common Stock being offered hereby,
prospective investors should consider carefully, among other things, the
following risk factors.
LOSSES IN PRIOR YEARS
Prior to present management's assumption of control of TransMontaigne in
April 1995, TransMontaigne incurred net losses for several years, primarily
due to the underutilization of its facilities; realization of small or
negative margins from bulk product sales and wholesale marketing activities;
and a lack of adequate equity capital. This underutilization was primarily the
result of TransMontaigne's inability to finance capital improvements and the
inventory required to more fully utilize these facilities. The small or
negative margins from bulk product sales and wholesale marketing activities
were primarily the result of volatile market prices of refined petroleum
products and ineffective inventory management. Volatile market prices of
refined petroleum products during these periods frequently resulted in sales
of products at prices lower than cost and caused losses from inventory write-
downs. Although TransMontaigne has recorded net earnings since April 1995,
there can be no assurance that such earnings will continue. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SALES VOLUME VOLATILITY
Because TransMontaigne generates small net margins from product sales, it is
dependent on high sales volumes. The volumes of TransMontaigne's sales can be
impacted by the prices of refined products, NGLs and natural gas, which are
subject to significant fluctuation depending upon numerous factors beyond
TransMontaigne's control, including the supply of and demand for gasoline and
other refined products, NGLs and natural gas, which are affected by, among
other things, changes in domestic and foreign economies, political affairs,
production levels, industry-wide inventory levels, the availability of
imports, the marketing of gasoline and other refined products by competitors,
the marketing of competitive fuels, the impact of energy conservation efforts
and the extent of government regulation. Sales volumes are also affected by
regional factors, such as local market conditions, the availability of
transportation systems with adequate capacity, transportation costs,
fluctuating and seasonal demands for products, variations in weather patterns
from year to year and the operations of companies providing competing
services. See "Business--Product Services."
COMPETITION
TransMontaigne competes with other petroleum companies, national, regional
and local pipeline and terminaling companies and other product suppliers and
exchangers, as well as national, regional and local natural gas gathering,
processing and marketing companies, of which many have more extensive
facilities, control substantially greater supplies of product and have
significantly greater financial resources than TransMontaigne.
9
<PAGE>
PRICE AND CREDIT RISKS
While TransMontaigne attempts to reduce its exposure to the risk of price
volatility of oil and gas products by selectively hedging a limited portion of
its inventory through the purchase and sale of futures and options contracts,
some risks cannot be effectively hedged, including price risks on products for
which futures contracts are not regularly traded, such as mid-continent
conventional gasoline (as opposed to New York Harbor reformulated unleaded
gasoline, which is regularly traded) and basis risks (the risk that price
differentials between delivery points, delivery periods or types of products
will change). TransMontaigne experiences basis risk in its mid-continent
operations because of the differences between mid-continent spot refined
product prices and futures contract prices on the New York Mercantile Exchange
(the "NYMEX"). TransMontaigne is also exposed to credit risks in the event the
other party to a futures contract or bulk sale is unable to perform its
contractual obligations or a wholesale customer is unable to pay for products
purchased. TransMontaigne generally does not hedge the price risk on certain
portions of its inventory, consisting of pipeline fill, tank bottoms and a
minimum product supply required to satisfy exchange obligations.
TransMontaigne could be required to recognize a financial statement loss on a
portion of its inventory arising from market price fluctuations in order to
reflect lower of cost or market adjustments, although such losses would have
no impact on cash flow as long as TransMontaigne continues to operate its
facilities. See "Business--Product Services."
DEPENDENCE ON PETROLEUM SUPPLIES
A material decline in crude oil and refined products supplies could
adversely affect TransMontaigne's tariff revenues from pipeline shipments of
refined petroleum products, terminaling and storage fees and margins from bulk
and truck loading rack product sales. TransMontaigne must continually connect
new wells to its natural gas gathering systems in order to maintain or
increase throughput levels to offset natural declines in dedicated volumes.
The future level of drilling will depend upon, among other factors, the prices
for crude oil and natural gas, the energy policy of the federal government and
the availability of foreign supplies, none of which are within
TransMontaigne's control. There is no assurance that TransMontaigne will
continue to be successful in replacing the supply of dedicated natural gas
reserves gathered and processed by its facilities.
ACQUISITION AND EXPANSION OPPORTUNITIES; AVAILABILITY OF FINANCING
In order for TransMontaigne to expand its business through the selective
purchase or construction of new or expanded facilities, TransMontaigne is
required to identify those opportunities and to finance such activities using
a combination of cash flow and equity and debt financing. Any additional
equity financing could be dilutive to TransMontaigne's earnings and book value
per share, and any debt financing could significantly increase
TransMontaigne's interest expense and involve restrictive covenants. No
assurance can be given that TransMontaigne will identify appropriate
opportunities for expansion which will satisfy its target rates of return;
that financing on terms acceptable to TransMontaigne can be obtained; that
TransMontaigne will be successful in negotiating satisfactory terms of
acquisition; that TransMontaigne will be successful in integrating acquired
businesses into its organization; or that such acquisitions will improve
operating results. Oil and gas price volatility may make it difficult to
estimate the value and agree on the purchase price and terms of acquisitions
as well as to forecast the return on investment in prospective projects.
OPERATIONAL HAZARDS AND UNINSURED RISKS
TransMontaigne's operations are subject to customary hazards and unforeseen
interruptions, including leaks, spills, fires and injury to personnel.
Operations also could be interrupted by natural disasters, adverse weather or
other events beyond TransMontaigne's control. Furthermore, TransMontaigne
transports, gathers and processes volatile and toxic petroleum products such
as gasoline, diesel oil, jet fuel and NGLs and natural gas in certain areas of
dense population. Consistent with insurance coverage typically available to
the petroleum industry, TransMontaigne's insurance policies do not provide
coverage for losses or liabilities relating to pollution, except for sudden
and accidental occurrences. TransMontaigne carries insurance for some, but not
all, accidents and disruptions, and there can be no assurance that such
coverage, if any, will be adequate to cover all losses.
10
<PAGE>
ENVIRONMENTAL, SAFETY AND OTHER REGULATORY MATTERS
The operations of TransMontaigne are subject to the jurisdiction of local,
state and federal governmental agencies with respect to environmental, safety
and other regulatory matters. TransMontaigne could be adversely affected by
environmental costs and liabilities which may be incurred. Risks of
substantial environmental costs and liabilities are inherent in pipeline,
terminaling, storage, gathering, treating and processing operations, and there
can be no assurance that substantial environmental costs and liabilities will
not be incurred. TransMontaigne currently owns and operates, and has in the
past owned and operated, properties which have been used for transporting,
terminaling, storing and processing of petroleum products and gathering,
transportation and processing of natural gas. Hydrocarbons or other pollutants
or wastes may have been previously disposed of or released on or under some of
these properties. Moreover, it is possible that other developments, such as
increasingly strict environmental laws, regulations and enforcement policies
thereunder, could result in substantial costs and liabilities. See "Business-
Environmental Regulation."
Federal and state agencies also could require TransMontaigne to alter its
pipeline tariffs or impose additional safety requirements, either of which
could affect operating results. TransMontaigne cannot predict how future
regulation of interstate and intrastate petroleum product pipelines may change
and there can be no assurance that any such future regulation will not have a
material adverse effect on TransMontaigne. See "Business-Tariff Regulation."
CONCENTRATED OWNERSHIP
Upon consummation of the Offerings, the officers and directors of
TransMontaigne and the institutional affiliates of certain directors will
control approximately 53.2% of the outstanding Common Stock. As a result, they
will be able to control TransMontaigne. See "Security Ownership of Certain
Beneficial Owners and Management."
LIMITED TRADING MARKET
Because there is a small public float in the Common Stock and it is thinly
traded, sales of small amounts of Common Stock in the public market could
materially adversely affect the market price for the Common Stock. See
"Security Ownership of Certain Beneficial Owners and Management." Sales of
Common Stock, or the perception that such sales could occur, could materially
adversely affect prevailing market prices for the Common Stock and may make it
more difficult for TransMontaigne to sell shares of Common Stock in the future
at times and for prices that it deems appropriate. Upon completion of the
Offerings, TransMontaigne will have 25,046,962 shares of Common Stock
outstanding (assuming no exercise of the Underwriters' over-allotment option
and no exercise of stock options outstanding as of December 31, 1996). The
shares of Common Stock offered hereby will be freely tradeable without
restriction under the Securities Act of 1933, as amended (the "Securities
Act"). 14,024,610 shares of outstanding Common Stock may not be resold unless
they are registered under the Securities Act or sold pursuant to an applicable
exemption from registration, including Rule 144 under the Securities Act. All
of such 14,024,610 outstanding shares are subject to "lock-up" agreements with
the Underwriters expiring 180 days after the date of this Prospectus and may
be sold during that period only with the prior written consent of Dillon, Read
& Co. Inc. Dillon, Read & Co. Inc., in its sole discretion, and at any time
without prior notice, may release all or any portion of the Common Stock
subject to the lock-up agreements described herein. When such lock-up
restrictions lapse, the Common Stock may be sold in the public market or
otherwise disposed of in compliance with the Securities Act.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to TransMontaigne from the sale of the shares of Common
Stock being offered hereby (based on a public offering price of $14.25 per
share) are estimated to be $53,440,050 ($62,249,230 if the Underwriters' over-
allotment option is exercised in full and if Merrill Lynch exercises in full
its antidilution rights) after deducting underwriting discounts and
commissions and estimated offering expenses, of which $45,000,000 will be used
to repay a portion of the debt incurred under the Credit Facility and any
balance will be used for general corporate purposes.
TransMontaigne's credit facility (the "Credit Facility") consists of a five
year $45,000,000 working capital revolving credit facility and an $85,000,000
acquisition revolving credit facility. Approximately $71,000,000 of the
acquisition revolving credit facility was used to finance the acquisition of
the Grasslands Facilities. The first $45,000,000 of proceeds of any public or
private equity issuance (including the Underwritten Offering) and certain
public or private debt issuances are required to be applied to the repayment
of the amounts outstanding under the acquisition revolving credit facility.
After repayment of $45,000,000 of the acquisition revolving credit facility,
and if TransMontaigne then has consolidated tangible net worth (as defined in
the Credit Agreement governing the Credit Facility (the "Credit Agreement"))
of $100,000,000, TransMontaigne may convert the balance of the Credit Facility
into a single $85,000,000 successor facility (the "Successor Facility") due
December 31, 2001. The amount available under the Successor Facility will be
reduced by $3,125,000 each calendar quarter beginning March 31, 2000. If the
Credit Facility is not converted into the Successor Facility, on December 31,
1999, the acquisition revolving credit facility will terminate and amounts
outstanding under it will convert to a term loan and 5% of the amount
outstanding on December 31, 1999 will be due each calendar quarter beginning
March 31, 2000, with the balance due December 31, 2001. Borrowings under the
Credit Facility generally bear interest at a rate per year equal to the
lender's announced Base Rate, subject to a Eurodollar pricing option at
TransMontaigne's election. The interest rate on amounts outstanding under the
acquisition revolving credit facility under the Credit Facility as of December
31, 1996 was 7.1%. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
TransMontaigne will not receive any of the proceeds from the sale of shares
of Common Stock being sold by the Selling Stockholders.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
AND DIVIDEND POLICY
The Common Stock is traded on the American Stock Exchange under the symbol
"TMG." The following table sets forth, for the periods indicated, the range of
high and low per share sale prices for Common Stock as reported on the
American Stock Exchange, adjusted for a 2.432599 to 1 reverse stock split that
occurred in June 1996. The common stock of a much smaller predecessor of
TransMontaigne was traded on the American Stock Exchange (Emerging Company
Marketplace) from December 14, 1993 until June 3, 1996. On June 5, 1996,
following the merger of TransMontaigne and the predecessor, the Common Stock
began to trade on the American Stock Exchange (Primary List).
<TABLE>
<CAPTION>
LOW HIGH
------ ------
<S> <C> <C>
1995
First Calendar Quarter...................................... $ 2.74 $ 3.95
Second Calendar Quarter..................................... $ 2.74 $ 4.26
Third Calendar Quarter...................................... $ 3.35 $ 4.26
Fourth Calendar Quarter..................................... $ 3.35 $ 4.56
1996
First Calendar Quarter...................................... $ 3.35 $10.80
Second Calendar Quarter (through June 3, 1996).............. $10.03 $17.94
June 5, 1996 through July 31, 1996(1)....................... $ 9.75 $15.13
August 1, 1996 through October 31, 1996..................... $ 9.69 $10.88
November 1, 1996 through January 31, 1997................... $ 9.81 $14.75
1997
February 1, 1997 through February 10, 1997.................. $14.25 $15.13
</TABLE>
- --------
(1) In June 1996, TransMontaigne adopted a fiscal year end of April 30.
On February 10, 1997, the last reported sale price for the Common Stock on
the American Stock Exchange was $14.75. As of December 20, 1996, there were
approximately 233 stockholders of record of the Common Stock.
No dividends were declared or paid on the Common Stock during the periods
reported in the table above. TransMontaigne intends to retain future cash flow
for use in its business and has no current intention of paying dividends in
the foreseeable future. Any payment of future dividends and the amounts
thereof will depend upon TransMontaigne's earnings, financial condition,
capital requirements and other factors deemed relevant by TransMontaigne's
Board of Directors. TransMontaigne's Credit Facility, as well as instruments
governing certain of its other indebtedness, contain certain restrictions on
the payment of dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of TransMontaigne at
October 31,1996, (ii) the pro forma capitalization of TransMontaigne giving
effect to borrowings of approximately $71,000,000 under the Credit Facility to
fund the purchase price for the Grasslands Facilities and (iii) the pro forma
capitalization of TransMontaigne adjusted to give effect to the shares offered
hereby by TransMontaigne (at a public offering price of $14.25 per share),
including shares offered in the Concurrent Offering, and the application of
estimated net proceeds therefrom. See "Use of Proceeds." This table should be
read in conjunction with the consolidated financial statements and notes
thereto incorporated by reference and included herein.
<TABLE>
<CAPTION>
AT OCTOBER 31, 1996
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
WORKING CAPITAL...................... $ 67,221,310 $ 67,221,310 $ 75,661,360
============ ============ ============
LONG-TERM DEBT:
Credit Facility...................... $ 33,730,000 $104,730,000 $ 59,730,000
Senior subordinated debentures....... 3,954,067 3,954,067 3,954,067
------------ ------------ ------------
Total long-term debt................. 37,684,067 108,684,067 63,684,067
------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock, par value $.01 per
share; 40,000,000 shares authorized;
20,982,960 shares issued actual and
pro forma; 25,017,960 shares issued
pro forma as adjusted(1)............ 209,830 209,830 250,180
Additional paid-in capital........... 72,283,793 72,283,793 125,683,493
Accumulated deficit.................. (821,739) (821,739) (821,739)
------------ ------------ ------------
Total stockholders' equity........... 71,671,884 71,671,884 125,111,934
------------ ------------ ------------
Total capitalization................. $109,355,951 $180,355,951 $188,796,001
============ ============ ============
</TABLE>
- --------
(1) Does not include 1,214,686 shares (as of December 31, 1996) of Common
Stock issuable upon exercise of outstanding stock options and stock purchase
warrants.
14
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected historical financial data of TransMontaigne set forth below for
the years ended April 30, 1996 and 1995, the seven months ended April 30, 1994
and the years ended September 30, 1993, 1992 and 1991 have been derived from
the audited consolidated financial statements of TransMontaigne. The selected
historical financial data for TransMontaigne set forth below for the six
months ended October 31, 1996 and 1995 have been derived from unaudited
consolidated financial statements of TransMontaigne. The interim consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of TransMontaigne's
management, necessary to a fair presentation of the financial position and
results of operations for the interim periods presented. This historical data
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the consolidated financial
statements and notes thereto of TransMontaigne incorporated by reference or
included herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31 YEARS ENDED APRIL 30 SEVEN MONTHS
-------------------------- -------------------------- ENDED APRIL 30,
1996 1995 1996 1995 1994
------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DA-
TA:
Revenue......... $470,822,944 $242,015,171 $533,106,747 $324,591,409 $296,086,981
Costs and ex-
penses:
Product costs
and direct op-
erating ex-
penses......... 462,096,897 235,772,166 520,389,482 318,811,953 294,773,790
General and
administrative.. 3,158,305 2,256,778 4,998,771 4,226,123 2,156,817
Depreciation and
amortization... 955,028 560,348 1,169,541 1,147,291 665,955
------------ ------------ ------------ ------------ ------------
466,210,230 238,589,292 526,557,794 324,185,367 297,596,562
------------ ------------ ------------ ------------ ------------
Operating income
(loss)......... 4,612,714 3,425,879 6,548,953 406,042 (1,509,581)
Other income
(expenses):
Interest in-
come........... 893,051 258,693 520,900 -- --
Equity in earn-
ings
(losses) of af-
filiates, net
of minority
interests...... 274,102 261,084 604,963 294,653 479,470
Interest expense
and other fi-
nancing costs.. (1,370,280) (1,403,938) (2,864,100) (3,512,050) (1,752,941)
Other, net...... 340,076 -- -- (286,735) --
------------ ------------ ------------ ------------ ------------
136,949 (884,161) (1,738,237) (3,504,132) (1,273,471)
Earnings (loss)
before income
taxes.......... 4,749,663 2,541,718 4,810,716 (3,098,090) (2,783,052)
Income taxes--
current........ (270,000) (73,002) (192,747) (119,545) (70,557)
------------ ------------ ------------ ------------ ------------
Net earnings
(loss)......... $ 4,479,663 $ 2,468,716 $ 4,617,969 $ (3,217,635) $ (2,853,609)
============ ============ ============ ============ ============
Weighted average
common shares
outstanding.... 21,290,302 14,902,347 15,129,637 2,860,390 2,694,830
============ ============ ============ ============ ============
Earnings (loss)
per
common share... $ 0.21 $ 0.17 $ 0.31 $ (1.32) $ (1.15)
============ ============ ============ ============ ============
<CAPTION>
YEARS ENDED SEPTEMBER 30
-----------------------------------------
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
STATEMENT OF
OPERATIONS DA-
TA:
Revenue......... $507,936,810 $515,547,695 $417,834,881
Costs and ex-
penses:
Product costs
and direct op-
erating ex-
penses......... 505,348,576 513,875,940 417,423,279
General and
administrative.. 3,199,223 2,787,591 3,031,269
Depreciation and
amortization... 1,099,253 814,778 748,438
------------- ------------- -------------
509,647,052 517,478,309 421,202,986
------------- ------------- -------------
Operating income
(loss)......... (1,710,242) (1,930,614) (3,368,105)
Other income
(expenses):
Interest in-
come........... -- -- --
Equity in earn-
ings
(losses) of af-
filiates, net
of minority
interests...... (58,709) 156,559 521,075
Interest expense
and other fi-
nancing costs.. (2,673,375) (2,350,740) (2,076,131)
Other, net...... -- -- --
------------- ------------- -------------
(2,732,084) (2,194,181) (1,555,056)
Earnings (loss)
before income
taxes.......... (4,442,326) (4,124,795) (4,923,161)
Income taxes--
current........ (48,142) (76,127) 773,000
------------- ------------- -------------
Net earnings
(loss)......... $ (4,490,468) $ (4,200,922) $ (4,150,161)
============= ============= =============
Weighted average
common shares
outstanding.... 2,694,830 2,694,830 2,694,830
============= ============= =============
Earnings (loss)
per
common share... $ (1.85) $ (1.73) $ (1.62)
============= ============= =============
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31 YEARS ENDED APRIL 30 SEVEN MONTHS YEARS ENDED SEPTEMBER 30
------------------------- ----------------------- ENDED APRIL 30, -------------------------------------
1996 1995 1996 1995 1994 1993 1992 1991
------------ ----------- ----------- ---------- --------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
CASH FLOWS DA-
TA:
Net cash pro-
vided by
(used in):
Operating activ-
ities.......... $(10,382,647) $(8,654,468) $(3,919,753) $ (236,580) $(2,187,251) $5,004,187 $(8,153,054) $(12,051,430)
Investing activ-
ities.......... (4,043,784) (1,716,770) (4,181,377) (233,562) (1,041,069) (4,614,892) (2,327,191) (1,062,093)
Financing activ-
ities.......... 9,024,701 18,959,234 44,702,536 61,543 3,691,885 (1,315,700) (9,581,869) 4,701,613
OTHER FINANCIAL
DATA:
Capital expendi-
tures.......... $ 5,837,277 $ 1,522,392 $ 4,124,264 $ 747,774 $ 461,888 $4,730,726 $ 2,247,052 $ 350,421
EBITDA(1)....... 7,074,971 4,506,004 8,844,357 1,561,251 (364,156) (669,698) (959,277) (2,098,592)
OPERATING DATA:
Volumes(2) (in
thousands):
Pipeline opera-
tions.......... 9,765 10,044 18,902 13,721 8,654 12,245 2,878 1,444
Terminal opera-
tions.......... 352,000 285,000 587,000 547,000 321,100 433,200 326,900 352,400
Products supply
and distribu-
tions opera-
tions.......... 746,000 445,000 958,000 620,000 645,000 941,000 920,000 622,000
Net operating
margins (3):
Pipeline opera-
tions.......... $ 3,380,000 $ 2,041,000 $ 4,454,000 $2,678,000 $ 2,096,000 $2,848,000 $ 1,034,000 $ 391,000
Terminal opera-
tions.......... 1,748,000 1,209,000 2,434,000 2,340,000 1,119,000 1,817,000 1,121,000 722,000
Products supply
and distribu-
tions opera-
tions.......... 3,598,000 2,993,000 5,829,000 761,000 (1,902,000) (2,077,000) (483,000) (701,000)
</TABLE>
<TABLE>
<CAPTION>
APRIL 30 SEPTEMBER 30
OCTOBER 31, ------------------------------------- -----------------------------------
1996 1996 1995 1994 1993 1992 1991
------------ ------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 67,221,310 $ 55,651,839 $ 37,989,205 $11,554,715 $11,470,225 $20,685,446 $16,601,819
Total assets............ 161,052,487 120,962,976 104,220,346 75,470,266 86,334,703 76,336,971 69,240,513
Long-term debt, exclud-
ing current maturi-
ties................... 37,684,067 28,948,867 36,945,610 37,671,329 33,953,590 35,256,698 25,476,695
Stockholders' equity.... 71,671,884 57,819,191 28,470,702 2,480,835 5,334,500 9,825,060 14,026,063
</TABLE>
- --------
(1) EBITDA is earnings (loss) before income taxes plus interest expense and
other financing costs and depreciation and amortization. TransMontaigne
believes that, in addition to cash flow from operations and net earnings
(loss), EBITDA is a useful financial performance measurement for assessing
operating performance as it provides investors with 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
investors should consider, among other things, 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. Investors should be cautioned, however, that
EBITDA should not be construed as an alternative to operating income (loss)
(as determined in accordance with 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. See
TransMontaigne's consolidated financial statements incorporated by reference
or included herein. 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.
(2) Pipeline volumes are expressed in barrels (42 gallons per barrel), and
terminal and products supply and distribution volumes are expressed in
gallons.
(3) Net operating margin represents revenues less direct operating expenses
for pipeline and terminal operations, and revenues less cost of refined
petroleum products purchased for products supply and distribution operations.
16
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
In December 1996, TransMontaigne acquired the Grasslands Facilities for
approximately $71,000,000 in cash. The acquisition will be accounted for as a
purchase.
The selected pro forma consolidated financial data has been derived from the
pro forma consolidated financial statements appearing elsewhere herein and
should be read in conjunction with those statements and the notes thereto.
This pro forma data is not necessarily indicative of the results to be
expected after the acquisition of the Grasslands Facilities. The unaudited pro
forma consolidated balance sheet at October 31, 1996 gives effect to the
acquisition as if it had occurred at that date. The unaudited pro forma
consolidated statements of operations data for the six months ended October
31, 1996 and the year ended April 30, 1996 give effect to the acquisition as
if it had occurred on May 1, 1995.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED OCTOBER 31, APRIL 30,
1996 1996
----------------- --------------
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenue....................................... $494,471,136 $578,573,825
Costs and expenses:
Product costs and direct operating expenses.. 479,455,680 555,589,509
General and administrative................... 3,428,305 5,538,771
Depreciation and amortization................ 2,705,028 4,669,541
------------ ------------
485,589,013 565,797,821
------------ ------------
Operating income.............................. 8,882,123 12,776,004
Other income (expenses):
Interest income.............................. 893,051 520,900
Equity in earnings of affiliates, net of
minority interests.......................... 274,102 604,963
Interest expense and other financing costs... (4,210,280) (8,544,100)
Other, net................................... 340,076 --
------------ ------------
(2,703,051) (7,418,237)
------------ ------------
Earnings before income taxes.................. 6,179,072 5,357,767
Income taxes--current......................... (270,000) (192,747)
------------ ------------
Net earnings.................................. $ 5,909,072 $ 5,165,020
============ ============
Earnings per common share..................... $ 0.28 $ 0.34
============ ============
<CAPTION>
OCTOBER 31, 1996
--------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED(1)
----------------- --------------
<S> <C> <C>
PRO FORMA BALANCE SHEET DATA:
Working capital............................... $ 67,221,310 $ 75,661,360
Total assets.................................. 232,052,487 240,492,537
Long-term debt, excluding current maturities.. 108,684,067 63,684,067
Stockholders' equity.......................... 71,671,884 125,111,934
</TABLE>
- --------
(1) As adjusted to give effect to the sale of the 4,035,000 shares of Common
Stock offered hereby by TransMontaigne at a public offering price of $14.25
per share and the application of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
17
<PAGE>
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 its 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 it owns no crude oil or natural gas
reserves.
TransMontaigne owns and operates refined product, crude oil and natural gas
assets, including pipeline systems and storage, terminaling, gathering and
processing facilities. In December 1996, TransMontaigne acquired the
Grasslands natural gas gathering system and processing facilities for
approximately $71,000,000 in cash, complementing TransMontaigne's existing
assets and operations. TransMontaigne also manages 15 small natural gas
gathering systems for a major interstate pipeline company. In addition, a 65%
owned subsidiary of TransMontaigne owns 27.75% of the stock of Lion Oil
Company ("Lion") which owns and operates a modern oil refinery in El Dorado,
Arkansas and associated pipeline systems and terminal facilities.
The principal predecessor of TransMontaigne was formed in 1977 under the
name of Continental Ozark Corporation. In April 1995, the present management
and certain of the institutional stockholders of TransMontaigne assumed
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 acquiring approximately 93% of the stock of the publicly
held corporation.
From October 1, 1992 through April 30, 1995, TransMontaigne incurred net
losses, primarily due to the underutilization of its facilities, realization
of small or negative margins from bulk product sales and wholesale marketing
activities and a lack of adequate equity capital. The underutilization of
facilities prior to April 1995 was primarily the result of the inability to
finance capital improvements and the inventory required to more fully utilize
these facilities. Net operating margins were insufficient to cover general and
administrative expenses, depreciation and amortization, and interest and other
financing costs which were incurred to support and finance its activities.
Volatile market prices of refined petroleum products during these periods
frequently resulted in sales of products at prices lower than cost and caused
losses from inventory write-downs.
Present management of TransMontaigne has established new inventory
management information systems, policies, procedures and operating controls,
and added managerial personnel to supervise the products supply and
distribution operations in an effort to control inventory levels and related
carrying costs, and more effectively manage inventory price risks.
TransMontaigne's Risk and Product Management Committee reviews the total
inventory on a weekly basis in order to ensure compliance with
TransMontaigne's inventory management policies. TransMontaigne has adopted
policies whereby its net inventory position subject to price risk requires the
prior approval of the Risk and Product Management Committee.
TransMontaigne realized a $7,836,000 improvement in net earnings over the
prior year to $4,618,000 for the year ended April 30, 1996, primarily due to
significantly improved pipeline, terminal and products supply and distribution
net operating margins and related increases in volumes of product transported,
handled and sold at its principal operating locations, while reducing interest
charges and effectively controlling general and administrative expenses during
a period of expansion and management restructuring.
18
<PAGE>
As of April 30, 1996, TransMontaigne had approximately $14,900,000 of net
operating loss carryforwards for federal income tax purposes which are
available to offset taxable income through 2009. Due to changes in ownership
that occurred through April 30, 1996, the use of these net operating loss
carryforwards to offset taxable income is limited to approximately $4,300,000
annually. As a result of a merger in June 1996, TransMontaigne has additional
net operating loss carryforwards which were estimated to be approximately
$6,600,000 as of October 31, 1996. These net operating loss carryforwards are
available to offset taxable income through 2010, limited to approximately
$1,300,000 annually. The tax benefit of the utilization of such carryforwards
was recorded as a reduction of goodwill and other intangible assets acquired
in the merger.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX
MONTHS ENDED YEARS ENDED SEVEN
OCTOBER 31 APRIL 30 MONTHS ENDED YEAR ENDED
----------------- ----------------- APRIL 30, SEPTEMBER 30,
1996 1995 1996 1995 1994 1993
-------- -------- -------- -------- ------------ ------------
(IN THOUSANDS, EXCEPT MARGIN PER GALLON DATA)
<S> <C> <C> <C> <C> <C> <C>
PIPELINE OPERATIONS
Volume(1).............. 9,765 10,044 18,902 13,721 8,654 12,245
Revenues............... $ 6,061 $ 4,165 $ 9,577 $ 5,827 $ 3,989 $ 6,167
Net Operating
Margins(2)............ $ 3,380 $ 2,041 $ 4,454 $ 2,678 $ 2,096 $ 2,848
Margin per Gallon...... $ 0.0082 $ 0.0048 $ 0.0056 $ 0.0046 $ 0.0058 $ 0.0055
TERMINAL OPERATIONS
Volume(1).............. 352,000 285,000 587,000 547,000 321,100 433,200
Revenues............... $ 2,375 $ 1,617 $ 3,346 $ 3,145 $ 1,773 $ 2,476
Net Operating
Margins(2)............ $ 1,748 $ 1,209 $ 2,434 $ 2,340 $ 1,119 $ 1,817
Margin per Gallon...... $ 0.0050 $ 0.0042 $ 0.0041 $ 0.0043 $ 0.0035 $ 0.0042
PRODUCTS SUPPLY & DIS-
TRIBUTION
OPERATIONS
Volume(1).............. 746,000 445,000 958,000 620,000 645,000 941,000
Revenues............... $462,387 $236,233 $520,184 $315,619 $290,325 $499,294
Net Operating
Margins(2)............ $ 3,598 $ 2,993 $ 5,829 $ 761 $ (1,902) $ (2,077)
Margin per Gallon...... $ 0.0048 $ 0.0067 $ 0.0061 $ 0.0012 $(0.0029) $(0.0022)
TOTAL OPERATIONS
Revenues............... $470,823 $242,015 $533,107 $324,591 $296,087 $507,937
Net Operating
Margins(2)............ $ 8,726 $ 6,243 $ 12,717 $ 5,779 $ 1,313 $ 2,588
</TABLE>
- --------
(1) Pipeline volumes are expressed in barrels (42 gallons per barrel), and
terminal and products supply and distribution sales volumes are expressed in
gallons.
(2) Net operating margin represents revenues less direct operating expenses
for pipeline and terminal operations, and revenues less cost of refined
petroleum products purchased for products supply and distribution operations.
Prior to the acquisition of the Grasslands Facilities, TransMontaigne's
revenues were derived primarily from three activities: transporting refined
petroleum products and crude oil in pipelines; storing and terminaling refined
petroleum products; and refined petroleum products supply and distribution.
The acquisition of the Grasslands Facilities will have a significant impact on
future results of operations. See "Selected Pro Forma Consolidated Financial
Data."
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.
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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. The operating costs of the pipeline
and terminal businesses include wages and employee benefits, utilities,
communications, maintenance and repairs, property taxes, rent, insurance,
vehicle expenses, environmental protection costs, materials and supplies.
The products supply and distribution business includes 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 from proprietary
and nonproprietary terminal truck loading rack locations is primarily
represented by truck load sales of 8,000 gallons.
Six Months Ended October 31, 1996 Compared to Six Months Ended October 31,
1995
The net operating margin from pipeline operations of $3,380,000 increased
66%, or $1,339,000, in the current year six month period. This increase
resulted primarily from a net increase in the volumes of higher tariff
pipeline shipments, notwithstanding a 2.8% decrease in total volumes shipped,
together with increases in joint tariff participation and tankage rental
income. These increases resulted in a 46% increase in revenues of $1,896,000
in the current year six month period. The increase in revenues was partially
offset by a 26% increase in operating costs of $557,000, primarily due to
incremental power costs from additional long haul shipment volumes and
increased field personnel costs, repairs and maintenance and property tax
assessments.
The net operating margin from terminal operations of $1,748,000 increased
45%, or $539,000, in the current year six month period. This increase resulted
from a 24% increase in volumes handled, primarily at the Little Rock, Arkansas
terminal, offset in part by an increase in terminal operating costs of 54%
attributable to a new terminal lease, additional freight charges, field
personnel expenses and property tax assessments.
The net operating margin from product sales of $3,598,000 increased 20%, or
$605,000, in the current year six month period, while net revenues increased
$226,154,000 on additional volume of 301,000,000 gallons sold. The $.0048 net
operating margin per gallon realized in the current year six month period
decreased $.0019 from the $.0067 per gallon realized during the prior year six
month period, primarily due to higher than normal product margins realized
during the first half of the prior year six month period caused by strong
market conditions during that period.
During the current year six month period, general and administrative
expenses increased approximately $902,000, a 40% increase over the prior year
six month period, primarily due to additional personnel costs and increased
employee relocation, information systems and communication expenses.
Other income includes equity in earnings of affiliates and interest income.
Equity in earnings of affiliates is essentially represented by
TransMontaigne's share of Lion's earnings. During the current year six month
period TransMontaigne's share of Lion's earnings (net of related minority
interests) was approximately $274,000 compared to $261,000 for the prior year
six month period, primarily due to Lion realizing slightly improved refinery
"crack spreads" (the price difference between product output and crude oil
costs).
Interest income during the current year six month period increased to
$893,000 from $259,000 primarily due to an approximate $15,000,000 increase in
average interest bearing cash balances held for future investments.
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Interest expense represents interest on the revolving bank line of credit
which was used primarily to finance inventory and accounts receivable and
interest on TransMontaigne's senior subordinated debentures. Interest expense
during the current year six month period decreased $34,000, a 2% reduction
from the prior year six month period. Lower interest rates in the current year
six month period offset the effect of a $6,000,000 increase in the average
loan balance outstanding. Interest expense includes other financing costs,
including fees paid for letters of credit issued to product suppliers and loan
commitment fees paid in connection with TransMontaigne's prior revolving
credit facility.
Net earnings before income taxes for the current year six month period were
$4,750,000, an 87% increase of $2,208,000 over the $2,542,000 for the prior
year six month period, primarily as a result of the increases in pipeline and
terminal and products supply and distribution net operating margins, together
with additional interest income and increased earnings from Lion, which
increases were partially offset by increased general and administrative
expenses. The provision for income taxes of $270,000 for the current year six
month period primarily represents estimated state income taxes. Net after tax
earnings for the current year six month period were $4,480,000, an 81%
increase of $2,011,000 from the $2,469,000 reported for the prior year six
month period.
Year Ended April 30, 1996 Compared to Year Ended April 30, 1995
The net operating margin from pipeline operations increased 66%, or
$1,776,000, to $4,454,000 during the year ended April 30, 1996 as compared to
$2,678,000 during the prior year ended April 30, 1995. This increase primarily
was due to a 38% increase in volumes shipped and increased utilization. These
increases resulted in a 64% increase in revenues of $3,750,000 during the
period. The increase in revenues was partially offset by a 63% increase in
operating costs of $1,974,000, primarily due to incremental power costs due to
increased volumes, additional personnel costs and reductions in the
reimbursement of certain costs previously paid by third parties.
The net operating margin from terminal operations increased 4%, or $94,000,
to $2,434,000 during the year ended April 30, 1996. This increase resulted
from a 7% increase in volumes, primarily from the Little Rock, Arkansas
terminal, offset in part by an increase in terminal operating costs of 13%.
The net operating margin from product sales increased 666%, or $5,068,000,
during the year ended April 30, 1996 compared to the prior year, while net
revenues increased $204,565,000 on additional volume of 338,000,000 gallons
sold. The improved net margins were primarily due to increased bulk and rack
product sales volumes, and higher market prices for products sold in the peak
seasonal period of gasoline demand occurring in TransMontaigne's fiscal
quarter ended April 30, 1996, during which period gasoline prices reached a
five year high of over $.70 per gallon. The $.0061 net operating margin per
gallon realized in the year ended April 30, 1996 increased $.0049 from the
$.0012 per gallon realized during the prior year, primarily due to slightly
higher than normal product margins realized during the 1996 year and
significantly lower margins realized during the prior year.
During the year ended April 30, 1996, general and administrative expenses
increased approximately 18% over the prior year, primarily due to increases in
salaries and related employee benefits costs associated with the hiring of
additional personnel.
Other income includes equity in earnings of affiliates and interest income.
During the year ended April 30, 1996, equity in earnings of affiliates (net of
the related minority interests) increased to approximately $605,000 from
approximately $295,000 for the prior year, primarily due to improved crack
spreads at Lion.
Interest income during the year ended April 30, 1996, was attributable to
the investment in interest bearing securities of approximately $10,000,000 of
cash held for future investments during the period.
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Interest expense represents interest on the revolving bank line of credit
used to finance inventory and accounts receivable and interest on
TransMontaigne's senior subordinated debentures. Interest expense decreased
$588,000, or 19%, primarily as a result of lower average balances outstanding
under the line of credit. Other financing costs include fees paid for letters
of credit issued to product suppliers and loan commitment fees paid in
connection with the revolving loan facility.
As a result of the increases in pipeline, terminal and products supply and
distribution net operating margins, reduction in interest expense and increase
in interest income, discussed above, net earnings for the year ended April 30,
1996 increased $7,836,000 to $4,618,000 from a loss of $3,218,000 for the
prior year.
Year Ended April 30, 1995 Compared to the Seven Months Ended April 30, 1994
and the Year Ended September 30, 1993.
Net operating margins from pipeline operations were $2,678,000 for the year
ended April 30, 1995, $2,096,000 for the seven months ended April 30, 1994 and
$2,848,000 for the year ended September 30, 1993. The increase in margins
during these periods was primarily a result of TransMontaigne's acquisition of
the NORCO pipeline in November, 1992 which contributed additional volumes of
approximately 9,850,000 barrels per year. Operating costs for the periods
subsequent to the acquisition of the NORCO pipeline through the year ended
April 30, 1995 were relatively constant.
Terminal operations generated net operating margins of $2,340,000 for the
year ended April 30, 1995, $1,119,000 for the seven months ended April 30,
1994 and $1,817,000 for the year ended September 30, 1993. This increase in
net operating margins during these periods was due primarily to the increased
volumes and revenues attributable to the acquisition of the Little Rock south
terminal in May 1993 and the increased utilization of TransMontaigne's Rogers,
Arkansas terminal. As a result, terminal volumes handled increased to
547,000,000 gallons for the year April 30, 1995 from 433,200,000 gallons for
the twelve months ended September 30, 1993 and revenues increased to
$3,145,000 from $2,476,000 for the comparable periods. Although terminal
volumes increased significantly during these periods, terminal operating
expenses remained relatively constant, resulting in increased net operating
margins during these periods.
Net operating margins (losses) on product sales were $761,000 for the year
ended April 30, 1995, $(1,902,000) for the seven months ended April 30, 1994
and $(2,077,000) for the year ended September 30, 1993. During these periods,
there were significant fluctuations in product purchase and sale prices
reflecting the volatility in the world-wide energy markets. In many cases this
resulted in reduced or negative margins on sales of products and an inventory
write-down. During the seven months ended April 30, 1994, TransMontaigne
recorded a write-down of approximately $3,640,000 to reduce inventories to the
lower of cost or market calculated as of December 31, 1993. The write-down was
a result of a steep decline in refined petroleum product prices in the latter
part of 1993 to $.40 per gallon in December of 1993 from a high in 1993 of
$.64 per gallon in May 1993.
Revenues from product sales declined subsequent to April 30, 1994 as a
result of discontinuing the business of a limited partnership in which
TransMontaigne owned a one-third interest and was the managing general
partner. The partnership conducted trading operations primarily in the cash
market by purchasing and selling refined petroleum products and crude oil.
While significant revenues were generated during the seven months ended April
30, 1994 and the year ended September 30, 1993, the effect on net earnings
(losses) during these periods was not significant.
General and administrative expenses also increased approximately 15%
annually from the year ended September 30, 1993 through the year ended April
30, 1995 as a result of TransMontaigne's acquisitions of the NORCO and CETEX
pipelines, the growth of the Razorback pipeline/Rogers terminal operations,
the acquisition of the Little Rock south terminal, and the expansion of
product supply and distribution activities, all of which increased personnel
costs and related supporting administrative expenses.
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Depreciation and amortization increased in subsequent periods from the
amount recorded in 1993, primarily due to the acquisitions of the NORCO and
CETEX pipelines in 1992 and the Little Rock south terminal in 1993.
Other income includes equity in earnings of affiliates and interest income.
Equity in earnings (losses) of affiliates, net of the related minority
interest, was $295,000 in the year ended April 30, 1995, $479,000 in the seven
months ended April 30, 1994, and $(59,000) in the year ended September 30,
1993. During these periods, the operating results of Lion fluctuated widely as
a result of volatile crude oil and refined products prices and crack spreads.
During periods of fluctuating prices, Lion experiences reductions in crack
spreads when market prices of refined products do not change in correlation to
changes in crude oil prices.
Interest expense during the periods from 1993 through 1995 fluctuated with
changes in the average outstanding loan balances and with changes in the
interest rates on the loans, which ranged from 7% to 9% during these periods.
The average outstanding loan balance increased from approximately $34,500,000
for the year ended September 30, 1993 to approximately $37,100,000 for the
seven months ended April 30, 1994 and to approximately $35,700,000 for the
year ended April 30, 1995. Interest expense also includes interest on
outstanding senior subordinated debentures during these periods.
The loss on cancellation of an aircraft lease of $287,000 recorded in the
fourth quarter of the year ended April 30, 1995 was a nonrecurring expense.
TransMontaigne incurred net losses for the year ended April 30, 1995, the
seven months ended April 30, 1994, and the year ended September 30, 1993, of
$3,218,000, $2,854,000 and $4,490,000, respectively, primarily as a result of
the underutilization of its pipelines and terminals, a lack of adequate
capital and the fluctuations in the net operating margins, discussed above.
LIQUIDITY AND CAPITAL RESOURCES
TransMontaigne endeavors to secure sources of long-term capital prior to
committing to new projects. Since April 1995, TransMontaigne's present
management has raised $55,000,000 in common equity through private placements
to institutional investors and established the Credit Facility.
The net cash used by operating activities during the six months ended
October 31, 1996 was $10,383,000, a $1,728,000 increase over the cash used by
operating activities during the prior year six month period. This increase was
primarily a result of increased inventory levels and increased trade
receivables resulting from increased business, partially offset by increased
trade payables to suppliers of inventory.
Capital expenditures were $4,124,000, $748,000, $462,000 and $4,731,000 for
the years ended April 30, 1996 and 1995, the seven months ended April 30, 1994
and the year ended September 30, 1993, respectively. Capital expenditures for
the six months ended October 31, 1996 were $5,837,000.
TransMontaigne estimates capital expenditures of approximately $114,000,000
for the two fiscal years ended April 30, 1998. These capital expenditures
include approximately $71,000,000 for the Grasslands Facilities in December
1996 and approximately an additional $14,000,000 expended during the eight
months ended December 31, 1996. The remainder of approximately $29,000,000 is
anticipated to be expended during the balance of the two fiscal years ended
April 30, 1998, for planned pipeline, terminal and natural gas gathering and
processing facilities and assets to support these facilities. TransMontaigne
expects to identify additional acquisitions and expansion projects in the
future. Actual future capital expenditures will depend on numerous factors,
including the availability of appropriate acquisitions; the demand for
transportation, supply, distribution and marketing services; local, state and
federal governmental regulations; environmental compliance requirements; and
the availability of financing on acceptable terms.
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TransMontaigne's $130,000,000 Credit Facility consists of a five year
$45,000,000 working capital revolving credit facility and an $85,000,000
acquisition revolving credit facility. Approximately $71,000,000 of the
acquisition revolving credit facility was used to finance the acquisition of
the Grasslands Facilities. The first $45,000,000 of proceeds of any public or
private equity issuance (including the Underwritten Offering) and certain
public or private debt issuances are required to be applied to the repayment
of the amounts outstanding under the acquisition revolving credit facility.
After repayment of $45,000,000 of the acquisition revolving credit facility,
and if TransMontaigne then has consolidated tangible net worth (as defined in
the Credit Agreement) of $100,000,000, TransMontaigne may convert the balance
of the Credit Facility into the $85,000,000 Successor Facility due December
31, 2001. The amount available under the Successor Facility will be reduced by
$3,125,000 each calender quarter beginning March 31, 2000. If the Credit
Facility is not converted into the Successor Facility on December 31, 1999,
the acquisition revolving credit facility will terminate and amounts
outstanding under it will convert to a term loan and 5% of the amount
outstanding on December 31, 2000 will be due each calender quarter beginning
March 31, 2000, with the balance due December 31, 2001. Borrowings under the
Credit Facility generally bear interest at a rate per year equal to the
lender's announced Base Rate, subject to a Eurodollar pricing option at
TransMontaigne's election. The weighted average interest rate on amounts
outstanding under the Credit Facility as of December 31, 1996 was 7.3%. The
Credit Facility and the Successor Facility are secured by a pledge of the
capital stock of all of TransMontaigne's subsidiaries, contain restrictive
covenants and include provisions which could inhibit a change in control of
TransMontaigne.
TransMontaigne had working capital of $67,221,000 at October 31, 1996. If
the Offerings had closed on December 31, 1996, TransMontaigne would have had
available financing capacity under the Successor Facility of approximately
$19,000,000. Management believes TransMontaigne's current working capital
position; future cash provided by operating activities; available borrowing
capacity under its Credit Facility; other borrowing permitted under the Credit
Facility; and its relations with institutional lenders and equity investors
should enable it to meet its future capital requirements, although there can
be no assurance that TransMontaigne will be able to obtain additional capital
when needed on acceptable terms.
ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets to be Disposed Of" ("SFAS 121") was issued in
March 1995, by the Financial Accounting Standards Board. It requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is required to be adopted for fiscal years beginning
after December 15, 1995. The adoption of this statement by TransMontaigne in
the first quarter of the fiscal year ending April 30, 1997 had no effect on
TransMontaigne's financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123") was issued by the Financial Accounting
Standards Board in October 1995. This standard addresses the timing and
measurement of stock-based compensation expense. Entities electing to continue
to follow Accounting Principles Board Opinion No. 25 ("APB 25") must make pro
forma disclosures of net income and earnings per share, as if the fair value
based method of accounting defined by SFAS 123 had been applied. SFAS 123 is
applicable to fiscal years beginning after December 15, 1995. TransMontaigne
has elected to retain the approach of APB 25 (the intrinsic value method) for
recognizing stock-based compensation in the consolidated financial statements.
TransMontaigne will include the disclosures required by SFAS 123 in future
annual consolidated financial statements.
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BUSINESS
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 its 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 it owns no crude oil or natural gas
reserves.
TransMontaigne owns and operates refined petroleum product, crude oil and
natural gas assets. TransMontaigne's refined petroleum product and crude oil
assets consist primarily of 747 miles of pipeline and ten storage and terminal
facilities in seven states with a combined tank storage capacity of
approximately 4,820,000 barrels. Its natural gas gathering and processing
assets consist of four gathering and processing systems in two states with
combined throughput capacity of approximately 85 million cubic feet per day
and over 2,700 miles of pipelines. The use of these facilities and an
extensive network of additional common carrier pipelines and terminal
facilities owned by others allows TransMontaigne to significantly expand its
geographic service area and the types of services it provides.
TransMontaigne believes that fundamental structural changes and outsourcing
in the petroleum industry are creating opportunities for its continued growth.
Major oil companies and independents are undertaking reorganization,
rationalization and cost-saving measures in an effort to improve operating and
financial performance. In many instances this results in the disposition of
domestic non-strategic, non-core businesses and downstream assets and
facilities, and in the outsourcing of procurement, maintenance,
transportation, supply, distribution, gathering, processing, marketing and
administrative functions.
TransMontaigne believes that this disposition of downstream assets and
facilities provides opportunities for it to purchase pipeline, storage,
terminaling, processing and gathering assets, and to apply focused management
and more cost effective utilization of these facilities while providing value-
added service at competitive prices to its customers, often including the
former owners of the assets. TransMontaigne has acquired, designed and
developed its physical assets and its operating, risk management and
information systems in order to take advantage of these opportunities.
The principal predecessor of TransMontaigne was formed in 1977 under the
name of Continental Ozark Corporation. In April 1995, the present management
and certain of the 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 acquiring approximately 93% of the stock of the publicly
held corporation.
During the first fiscal year after assuming control of Continental Ozark
Corporation in April 1995, TransMontaigne increased net operating margins to
$12,700,000 from $5,800,000 for the prior fiscal year by improving the
performance of its facilities through selective capital improvements;
restructured operating and administrative functions; and expanded marketing of
services. TransMontaigne's management has implemented an operating plan and
financial management systems which provide the foundation for its current
operations and future growth.
The acquisition of the Grasslands Facilities in December 1996 is an example
of the opportunities available to TransMontaigne to enhance its earnings
performance by capitalizing on the industry's divestiture trend and applying
its management expertise in the downstream sector of the petroleum industry.
The facilities will complement TransMontaigne's existing natural gas gathering
and processing facilities in the Williston Basin of the Rocky Mountain region,
and will enable TransMontaigne to improve service to oil and gas producers as
well as to end-users of NGLs and natural gas.
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OPERATING STRATEGY
TransMontaigne intends to achieve its primary objective of growth in cash
flow and earnings by:
. Increasing throughput volumes and utilization of existing assets through
system improvements, competitive pricing, quality service and
identification of and response to market needs.
. Using advanced management information and financial systems to timely
supply petroleum products to market areas with the most favorable profit
margins and to effectively manage inventory levels and product costs.
. Expanding existing assets and constructing new facilities in order to
satisfy market demand.
. Capitalizing on the industry's divestiture and outsourcing trends
through the acquisition of businesses and assets which offer potential
for continued improvement in operating results.
. Employing management's experience, business relationships and reputation
for directing the growth of companies providing services to the
downstream sector of the petroleum industry.
. Maintaining a balance sheet that allows financial flexibility, providing
ready access to sources of capital required for expansion and growth.
TRANSPORTATION SERVICES
Through its wholly owned subsidiary TransMontaigne Transportation Services
Inc., TransMontaigne provides refined petroleum product and crude oil
transportation, storage and terminaling services to over 500 customers,
including most major oil companies and independent refiners in the United
States. TransMontaigne employs its 747 miles of pipeline and ten storage and
terminal facilities in seven states with a combined tank storage capacity of
approximately 4,820,000 barrels in conjunction with the major mid-continent
pipeline and terminal systems owned by others to transport products to market
destinations and to conduct exchange transactions with major and independent
petroleum companies. The combined utilization of TransMontaigne-owned and non-
owned assets allows it to significantly expand its geographic service area and
the types of services it provides.
Pipelines
TransMontaigne owns and operates a 457-mile refined petroleum products
pipeline from Ft. Madison, Iowa through Chicago to Toledo, Ohio (the "NORCO
pipeline") and associated storage facilities located at Hartsdale, Indiana;
and Toledo, Ohio. The NORCO pipeline system is interconnected to all major
mid-continent common carriers. TransMontaigne also owns a 60% interest in a
67-mile refined petroleum products pipeline operating from Mt. Vernon,
Missouri to Rogers, Arkansas (the "Razorback pipeline") and an associated
storage facility at Mt. Vernon. The Razorback pipeline is the only refined
petroleum products pipeline providing transportation services to northwest
Arkansas. TransMontaigne also owns and operates a 220-mile crude oil gathering
pipeline system, with 807,500 barrels of tank storage capacity, located in
east Texas (the "CETEX pipeline").
In general, a shipper owns the refined petroleum products or crude oil and
transfers custody of the products to the NORCO or Razorback pipelines or the
crude oil to the CETEX pipeline for shipment to a delivery location at which
point custody again transfers. Tariffs for the transportation service are
regulated and are charged by TransMontaigne to shippers based upon the
origination point on the pipelines to the point of product delivery. These
tariffs do not include fees for the storage of products at the NORCO and
Razorback pipeline storage facilities or crude oil at the CETEX pipeline
storage facilities, or for the terminaling and storage of products at
TransMontaigne terminals, the fees for which are separately charged if those
facilities are utilized.
TransMontaigne's pipeline business depends in large part on the level of
demand for refined petroleum products in the markets served by the pipelines,
together with the ability and willingness of refiners and marketers having
access to the pipelines to supply that demand by shipments through these
pipelines. Competition is based primarily on pipeline operational
dependability, quality of customer
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service provided and proximity to end-users, although product pricing at
either the origin or terminal destination on a pipeline may outweigh
transportation cost considerations. TransMontaigne believes that high capital
costs, tariff regulation, environmental considerations, problems in acquiring
rights-of-way and TransMontaigne's available capacity make it unlikely that
additional competing pipeline systems comparable in size to the NORCO and
Razorback pipelines will be built in the near term.
Terminals
The TransMontaigne-owned and operated terminals connect with product
transportation systems, storage facilities and product distribution locations.
These terminals are located in Rogers, Arkansas; Little Rock, Arkansas; East
Chicago, Indiana; Indianapolis, Indiana; South Bend, Indiana; and Bryan, Ohio.
The original South Bend terminal, inactive since its purchase in 1992, was
demolished and rebuilt during 1996. This modern facility which opened in
January 1997 has storage capacity of 210,000 barrels and is capable of
delivering volumes in excess of 15,000 barrels per day. The East Chicago,
Indiana facility, purchased in January 1997, has approximately 1,186,000
barrels of storage capacity, including specialized storage for aviation and
jet fuel, and strategic connections to additional pipelines and facilities in
the Chicago, Illinois and Whiting, Indiana areas. These terminal and storage
facilities are expected to enhance terminaling revenue and improve utilization
and pipeline revenues on the NORCO pipeline system.
Terminal revenues are based on the volume of products handled, generally at
a standard industry fee. Terminal fees are not regulated. The terminals
receive petroleum products in bulk quantities from connecting pipeline
systems. Products are stored in bulk at the terminals and made available to
wholesale, shipment and exchange customers which transport the products by
truck to commercial and retail destinations and then to the end-user.
TransMontaigne markets refined petroleum products over truck loading racks at
owned terminals, as well as through exchanges with numerous companies at other
non-owned terminals located throughout the TransMontaigne distribution area.
TransMontaigne believes that based on location, pipeline connections and
quality of service, its terminals offer advantages over competing terminals.
Major and independent petroleum companies own terminal and storage
facilities which often have similar capabilities to those owned by independent
operators such as TransMontaigne, but generally do not provide terminaling and
storage services to third parties. In many instances, these companies are also
significant customers of TransMontaigne and frequently provide strong demand
for its terminals, particularly when TransMontaigne's terminals and storage
facilities have more cost effective locations near key transportation
connections. These companies also utilize TransMontaigne for terminaling and
storage services when their proprietary facilities are inadequate, either
because of size constraints, the nature of the products stored or specialized
handling requirements.
Storage of refined petroleum products at TransMontaigne-owned terminals
pending delivery is considered to be an integral but separate segment of its
refined petroleum product handling service. Storage fees are generally based
on a per gallon rate, which varies with the duration of the storage
arrangement, the product stored and special handling requirements. Ancillary
services, including injection of shipper-furnished or TransMontaigne-furnished
additives, are also available for a fee at the TransMontaigne terminals.
PRODUCT SERVICES
TransMontaigne conducts its products services business through its wholly
owned subsidiary TransMontaigne Product Services Inc. Product services consist
of the bulk purchase and sale of substantial volumes of refined petroleum
products and the wholesale marketing of products at terminal truck loading
rack locations, both of which are high volume, low margin activities. These
product supply and distribution efforts are enhanced by TransMontaigne's
ownership and operation of product pipelines and
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terminals, a constant supply of NGLs from its gathering and processing
operations, and by its inventory positions in third-party common carrier
pipeline systems. TransMontaigne employs these assets to arbitrage regional
product price differentials and transportation costs; to buy bulk volumes of
products at the wholesale level and remarket them over truck loading racks;
and to take advantage of opportunities presented by changing market conditions
and seasonal variations.
TransMontaigne enters into product exchange transactions in order to enhance
operating margins in connection with its marketing activities. Exchanges are
arranged through agreements under which TransMontaigne agrees to buy and sell
products that differ in terms of geographic location, type of product or
delivery schedule. Through such exchanges, which are continuously monitored by
TransMontaigne's management information and risk management systems,
TransMontaigne seeks to increase its operating margins by maximizing
transportation, terminaling and product sales revenues from each barrel of
product sold while also minimizing related storage and shipping costs.
Exchange agreements are generally for 30 days and month-to-month thereafter
until terminated by either party. TransMontaigne believes these short-term
contracts minimize the effect of volatile market prices and regional economic
aberrations and considers them essential in order to retain the flexibility to
respond to local demands and to changing market prices, conditions and
seasonal variations. However, termination of short-term contracts could result
in a reduction of pipeline and terminal volumes.
Generally, when TransMontaigne purchases refined petroleum products, it also
simultaneously enters into corresponding sale or exchange transactions
involving physical deliveries of the refined petroleum product to a third
party, or corresponding sales of futures contracts on the NYMEX. This
procedure gives TransMontaigne a stable and reliable refined petroleum product
supply which can be sold at prevailing market prices to customers having
recurring and spot purchase requirements.
TransMontaigne can hedge by entering into a future physical delivery
obligation to a third party or purchasing a futures contract on the NYMEX in
order to maintain a substantially balanced position between product purchases
and future product sales or delivery obligations and to minimize exposure to
the risk of price volatility of oil and gas products. TransMontaigne
selectively hedges a limited portion of its inventory through the purchase and
sale of futures and options contracts which are intended to offset the effects
of price fluctuations.
TransMontaigne generally does not hedge the price risk on certain portions
of its inventory, consisting of pipeline fill, tank bottoms and a minimum
product supply required to satisfy exchange obligations; this product is not
held for sale since it is required in order to maintain a "wet system." A
pipeline must be full of product, or "wet," at all times in order to accept
product volume at one end and deliver the same volume at the other end, and
minimum storage tank bottoms of approximately two feet of product are required
in order to assure that no vapor enters the piping system.
TransMontaigne's Risk and Product Management Committee reviews the total
inventory on a weekly basis in order to ensure compliance with
TransMontaigne's inventory management policies. TransMontaigne's operating
policy imposes dollar limits on the purchase of refined petroleum products and
futures contracts or other derivative products for the purpose of price change
trading.
NATURAL GAS GATHERING AND PROCESSING
TransMontaigne conducts its natural gas gathering and processing business
through its wholly owned subsidiary Bear Paw Energy Inc. In December 1996
TransMontaigne acquired the Grasslands Facilities. The Grasslands Facilities
will complement TransMontaigne's existing natural gas gathering and processing
facilities in the Williston Basin of the Rocky Mountain region, and will
enable TransMontaigne to improve service to oil and gas producers as well as
to end-users of NGLs and natural gas. The Grasslands system is one of the
largest natural gas gathering and processing facilities in the Williston Basin
which is currently among the most active areas of domestic oil and gas
drilling. With the acquisition of the Grasslands Facilities, natural gas
gathering and processing becomes a significant and integral component of
TransMontaigne's business.
28
<PAGE>
The Grasslands natural gas processing plant, located in McKenzie County,
North Dakota, was built in 1980. Although the plant is designed for
approximately 65 million cubic feet per day inlet capacity, it has operated at
approximately 75 million cubic feet per day for extended periods and, in
addition, has approximately 180 long tons per day capacity for sulfur
recovery. The designed product recoveries are 88% propane, 99% butane and 100%
gasoline.
Current throughput is approximately 45 million cubic feet per day from over
1,200 active leases, which is gathered through approximately 2,500 miles of
low and high pressure gathering lines. The majority of the wells connected to
the Grasslands Facilities primarily produce crude oil. They also produce small
volumes of natural gas that are generally high in NGL content. The natural gas
gathering lines cover the Williston Basin areas of western North Dakota and
eastern Montana. A 20 mile high pressure pipeline with a designed capacity in
excess of 25 million cubic feet per day has been recently completed into the
area of active Lodgepole geologic formation drilling near Dickinson, North
Dakota. Additional oil and gas wells can be connected to this entire system if
successful drilling continues.
After natural gas has been processed at the Grasslands plant, the resulting
products are marketed by TransMontaigne. Residue natural gas is delivered to
and marketed through connections with interstate pipelines. This delivery is
automated, allowing it to be monitored and adjusted via computer by operators
at the plant or by a dispatcher at another location. NGLs are transported from
the Grasslands plant by truck or pipeline to TransMontaigne's Riverview,
Montana storage facility, from which it is transported to market by truck or
rail.
The Grasslands Facilities are strategically located between TransMontaigne's
Marmarth facility in southwestern North Dakota, its Baker facility in eastern
Montana and its 50% owned Lignite facility in northern North Dakota. With the
Grasslands Facilities, TransMontaigne has natural gas gathering facilities
covering the eastern corridor of Montana and the western quarter of North
Dakota, from the Canadian border to the South Dakota border which will
significantly enhance TransMontaigne's ability to provide complete service to
North Dakota and Montana producers as well as to end-users of NGLs and natural
gas.
The Marmarth system is an approximately 4 million cubic feet per day
capacity natural gas gathering, processing, and treating facility which
gathers natural gas at low pressure in southwestern North Dakota through
approximately 15 miles of gathering pipelines. NGLs are currently sold locally
by truck after being fractionated at the Baker facility.
The Baker system located in eastern Montana is an approximately 4 million
cubic feet per day capacity natural gas processing plant connected to a 15
mile gathering pipeline presently under construction. Baker also fractionates
the Marmarth system NGLs and provides processing for a major oil company.
The Lignite system is an approximately 12 million cubic feet per day
capacity natural gas processing and treating facility located in northern
North Dakota connected to approximately 250 miles of gathering pipelines.
TransMontaigne contracts with producers to gather natural gas from
individual wells located in proximity to its facilities. After a contract has
been executed, TransMontaigne connects these wells to its gathering system
through which the natural gas is delivered to its processing facility. At its
processing plants, the natural gas is compressed, fractionated NGLs are
extracted and the remaining residue natural gas is treated to meet pipeline
quality specifications. Three of TransMontaigne's four processing plants can
further separate, or fractionate, the mixed NGL stream into ethane, propane,
butane and natural gasoline to obtain a higher value for the NGLs, and all
four of its plants are able to process and treat natural gas containing
hydrogen sulfide or other impurities which require removal prior to delivery
for resale.
29
<PAGE>
TransMontaigne continually seeks additional dedicated natural gas supplies
to maintain or increase throughput levels to offset natural production
declines in dedicated volumes. Such natural gas supplies are obtained by
purchasing existing systems from third parties or by connecting additional
wells. The opportunity to connect new wells to existing facilities is
primarily affected by levels of drilling activity near TransMontaigne's
natural gas gathering systems.
Substantially all natural gas flowing through TransMontaigne's facilities is
supplied under long- term contracts providing for the purchase, treating or
processing of such natural gas for periods ranging from five to twenty years.
On a pro forma basis assuming that the acquisition of the Grasslands
Facilities had occurred on May 1, 1996, approximately 40% of TransMontaigne's
natural gas throughput for the six months ended October 31, 1996 was purchased
under percentage-of-proceeds agreements in which TransMontaigne is typically
responsible for arranging for the transportation and marketing of the NGLs and
residual natural gas. The price paid to producers is a specified percentage of
the net proceeds received from their sale. Under this type of contract,
TransMontaigne and the producers share proportionally in price changes. On a
pro forma basis, approximately 60% of TransMontaigne's natural gas throughput
for the six months ended October 31, 1996 was gathered under contracts that
are primarily fee-based in which TransMontaigne receives a set fee for each
thousand cubic feet of natural gas gathered and processed. This type of
contract provides TransMontaigne with a steady revenue stream that is not
dependent on commodity prices, except to the extent that low prices may cause
a producer to curtail production or that high prices may curtail demand.
The gathering, processing and marketing sector of the natural gas industry
is currently in a consolidation phase. As this consolidation takes place, it
may become more difficult for many companies to earn acceptable returns on
smaller systems. Many oil and gas producers that have previously operated
their own natural gas gathering and processing facilities may realize they
lack the operational and management skills necessary to maximize the return on
these investments and choose to sell these assets. Consistent with its
operating strategy, TransMontaigne intends to take advantage of the
opportunities presented by this consolidation.
In addition to the ownership of its four natural gas systems, TransMontaigne
manages 15 small natural gas gathering systems for a major interstate pipeline
company. TransMontaigne earns a fee for the management of these systems and is
compensated for any additional volumes which it connects to them.
LION OIL COMPANY INVESTMENT
In 1985, a 65% owned subsidiary of TransMontaigne purchased 27.75% of the
stock of Lion, which owns a modern 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. Lion is operated
under a management contract with a company which owns 48.6% of Lion. The
remaining 23.65% of Lion is owned by various south Arkansas oil and gas
producers. TransMontaigne has two representatives on the board of directors of
Lion. TransMontaigne's interest in Lion is reported for financial statement
purposes using the equity method of accounting.
30
<PAGE>
ENVIRONMENTAL REGULATION
General
The operations of TransMontaigne are subject to federal, state and local
laws and regulations relating to protection of the environment. Future
regulation may impose additional requirements. Although TransMontaigne
believes that its operations are in material compliance with applicable
environmental laws and regulations, and TransMontaigne has not budgeted any
material amounts for environmental compliance for the current fiscal year,
risks of substantial costs and liabilities are inherent in pipeline, terminal
and processing operations, and there can be no assurance that significant
costs and liabilities will not be incurred.
Water
Terminal and pipeline facilities are extensively regulated by the Federal
Water Pollution Control Act of 1972, as amended ("FWPCA"), the Oil Pollution
Act of 1990, as amended ("OPA"), and other laws relating to prevention of and
response to oil spills, and the discharge of pollutants into navigable waters.
In addition, certain of the natural gas and liquid pipelines are subject to
regulations governing construction, operation and safety standards and
reporting requirements for certain spills and other accidents. The FWPCA and
OPA subject owners and operators of certain facilities to potentially severe
civil liability for removal costs and damages, including injury to and loss of
use of natural resources, and potential substantial penalties and criminal
liability resulting from oil spills into navigable waters, or adjoining
shorelines or into the exclusive economic zone. In addition, liability may
also be imposed for damages for injury to, or economic losses resulting from
destruction of, real or personal property. States in which TransMontaigne
operates have also enacted laws which may require monitoring and clean up of
contaminated surface and groundwater at certain facilities.
Some of TransMontaigne's pipelines cross navigable rivers and streams.
Certain of TransMontaigne's facilities are also located near bodies of water
and environmentally sensitive areas, such as wetlands. Contamination resulting
from spills or releases of refined petroleum products are not unusual within
the petroleum pipeline industry. Several of TransMontaigne's facilities have
soil and groundwater contamination. TransMontaigne is indemnified by previous
owners for most of the known contamination identified within specified time
periods; however, there can be no assurance that the previous owners will not
dispute coverage and refuse to accept responsibility for any discovered
contamination. Presently, there are no disputed claims involving any material
costs. Contamination for which TransMontaigne is not indemnified has been
handled in the normal course of business and is not expected to have a
material adverse effect on TransMontaigne, although there can be no assurance
that a material adverse effect will not occur.
Regulation of Aboveground Storage Tanks
The states in which TransMontaigne operates facilities regulate aboveground
storage tanks containing liquid substances. If federal legislation is enacted
in the future, it could impact the design, construction, maintenance and
operation of aboveground storage tanks. However, TransMontaigne does not
believe such future requirements would have a material adverse effect on
TransMontaigne.
Air Emissions
The operations of TransMontaigne are subject to the Federal Clean Air Act
and comparable state and local statutes. Certain of TransMontaigne's
facilities must have permits and meet emission limitations. In addition, many
of the bulk product facilities are required to have vapor recovery or
combustion units.
To the extent that any terminals are nearing volume limitations, permit
modifications could be required. Amendments to the Federal Clean Air Act
enacted in 1990 will require most industrial operations
31
<PAGE>
in the United States to incur future capital expenditures in order to meet the
air emission control standards that are to be developed and implemented by the
EPA and state environmental agencies during the next decade. Pursuant to these
Clean Air Act Amendments, permits need to be obtained for certain facilities
which could result in stricter limitations. Those facilities that emit
volatile organic compounds ("VOC") or nitrogen oxides and are located in non-
attainment areas (areas that do not meet national air quality standards) will
be subject to increasingly stringent regulations, including requirements that
certain sources install reasonably available control technology. Several
gasoline facilities may also be subject to new source performance standards.
The EPA is also required to promulgate new regulations governing the emissions
of hazardous air pollutants. Some of TransMontaigne's facilities are included
within the categories of hazardous air pollutant sources that may be affected
by these regulations. In order to comply with applicable air pollution laws,
TransMontaigne may have to install additional control equipment as necessary
to comply with the regulations.
Waste
TransMontaigne's terminal and pipeline operations are also subject to the
federal Resource Conservation and Recovery Act, as amended ("RCRA"), which
governs the generation, storage, treatment and disposal of solid and liquid
wastes, including hazardous wastes. In 1990, the EPA expanded RCRA's scope
over hazardous wastes. These changes increase the costs of handling certain
wastes generated. Additional changes in the regulations or interpretation of
these regulations may result in increased capital expenditures or operating
expenses. In addition, hydrocarbon contamination at natural gas operating,
transmission and processing facilities may require clean up pursuant to the
requirements of state oil and gas divisions and state health departments.
Environmental Assessment or Impact Statements
The National Environmental Policy Act of 1969 ("NEPA") applies to certain
extensions or additions to pipeline systems. Under NEPA, projects that might
significantly affect the quality of the environment, which require certain
federal permits or approvals, also require preparation of a detailed
environmental assessment or impact statement. The effect of NEPA might be to
delay or prevent construction of new facilities or to alter their location,
design or method of construction, and increase their costs.
Grasslands
Prior to purchasing the Grasslands Facilities, TransMontaigne identified
various environmental problems at those facilities, including failure to have
air permits for certain compressors, a penalty for violating permitted sulfur
dioxide emissions, and soil and groundwater contamination. The seller of the
Grasslands Facilities has agreed to be responsible for certain environmental
problems and pay the penalties and costs to come into compliance with air
requirements. TransMontaigne has assumed responsibility for the remaining
environmental problems, the costs of which TransMontaigne believes will not be
material.
TARIFF REGULATION
Interstate Regulation
The interstate petroleum product pipeline operations of TransMontaigne are
subject to regulation by the FERC under the Interstate Commerce Act (the
"ICA") which requires, among other things, that the rates set by the pipeline
transportation tariffs be just and reasonable and not unduly discriminatory.
New and changed tariffs must be filed with the FERC, which may investigate
their lawfulness on shipper protest or its own motion. The FERC may suspend
the effectiveness of such tariffs and require the pipeline to refund to
shippers, with interest, any difference between the level the FERC determines
to be lawful and the filed tariffs under investigation; the tariffs may also
be challenged by litigation.
32
<PAGE>
In general, petroleum product pipeline tariffs are required to be cost-based
to be deemed just and reasonable. Cost-based tariffs are permitted to generate
operating revenues, based on projected shipment volumes, not greater than the
total of the following components: (i) operating expenses, (ii) depreciation
and amortization, (iii) normalized federal and state income taxes and (iv) an
overall allowed rate of return on the pipeline's rate base. Generally, rate
base is a measurement of the investment in, or value of, the pipeline's
assets.
The Energy Policy Act of 1992 (the "EP Act") mandated simplified procedures
for FERC tariff regulation under the ICA. In response to the EP Act, the FERC
has adopted indexation as a simplified rate making methodology for pipeline
tariff changes. Current indexation is based on the annual change in the
Producer Price Index less one percent. Just and reasonable pipeline tariffs in
effect on December 31, 1994 are the base rates for indexation. A pipeline may
increase its tariffs to the ceiling rate calculated by indexing without filing
a formal cost-based justification and with limited shipper rights to protest.
A rate decrease may be required if the index lowers the ceiling. Shippers are
still permitted to protest tariffs, even if the rate change does not exceed
the index ceiling, if the shipper can demonstrate that the increase is so
substantially in excess of the actual cost increases incurred by the pipeline
that the proposed rate would be unjust and unreasonable.
The indexing mechanism does not set initial tariffs for a pipeline, which
still generally must be cost-based. However, a pipeline can file an initial
tariff based upon the agreement of at least one non-affiliated shipper,
without filing full cost-of-service justification for the tariffs. If this
negotiated tariff is protested by another shipper, the pipeline will be
required to justify the initial tariffs on a cost-of-service basis. The
initial tariff rate that is established by a pipeline then becomes the
pipeline's base rate for indexation. Because of the complexity of rate making
the lawfulness of any tariff is never assured.
TransMontaigne's natural gas gathering activities, including fees, are not
regulated by the FERC and no state in which TransMontaigne operates currently
regulates such fees. Consequently, the fees charged for gathering natural gas
by TransMontaigne are unregulated. Although TransMontaigne is not aware that
any state in which it operates a natural gas gathering system is likely to
begin regulation of TransMontaigne's natural gas gathering activities and
fees, new or increased state regulation has been adopted or proposed in other
natural gas-producing states and there can be no assurance that such
regulation will not be proposed or adopted in states where TransMontaigne
conducts natural gas-related activities or that TransMontaigne will not expand
into or acquire operations in a state where such regulations could be imposed.
Intrastate Regulation
The intrastate petroleum pipeline operations of TransMontaigne are subject
to regulation by the Texas Railroad Commission. Like interstate regulation,
the Texas regulation requires that intrastate tariffs be filed with the
Railroad Commission and allows shippers to challenge such tariffs.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and titles of the members of
the Board of Directors and the executive officers and key employees of
TransMontaigne:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Cortlandt S. Dietler(1)................. 75 Chairman, Chief Executive Officer and Director
Richard E. Gathright(1)................. 42 President, Chief Operating Officer and Director
Harold R. Logan, Jr.(1)................. 52 Executive Vice President/Finance, Treasurer
and Director
W. A. Sikora............................ 59 Executive Vice President
Frederick W. Boutin..................... 41 Senior Vice President
Rodney S. Pless......................... 35 Vice President and Chief Accounting Officer
Robert W. Bradberry..................... 43 President and Chief Operating Officer of
TransMontaigne Product Services Inc.
Robert J. Clark......................... 51 President of Bear Paw Energy Inc.
Larry F. Clynch......................... 51 President and Chief Operating Officer of
TransMontaigne Transportation Services Inc.
John A. Hill(2)......................... 54 Director
Bryan H. Lawrence(2).................... 54 Director
William E. Macaulay..................... 51 Director
Edwin H. Morgens(2)..................... 55 Director
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
CORTLANDT S. DIETLER has been the Chairman and Chief Executive Officer of
TransMontaigne since April 1995. He was the founder, Chairman, and Chief
Executive Officer of Associated Natural Gas Corporation prior to its 1994
merger with Panhandle Eastern Corporation (now PanEnergy Corporation), on
whose Board he serves as an Advisory Director. He also serves as a Director of
Hallador Petroleum Company, Key Production Company, Inc., Forest Oil
Corporation and Grease Monkey Holding Corporation. Industry affiliations
include: Member, National Petroleum Council; Director, American Petroleum
Institute; past Director, Independent Petroleum Association of America;
Director, past President and Life Member, Rocky Mountain Oil & Gas
Association.
RICHARD E. GATHRIGHT has been the President and Chief Operating Officer of
TransMontaigne since September 1996 and a Director since April 1995. From
April 1995 until September 1996 he was Executive Vice President of
TransMontaigne. He joined a predecessor of TransMontaigne in December 1993 and
is also currently the Chief Executive Officer of TransMontaigne Transportation
Services Inc. and TransMontaigne Product Services Inc. From 1988 to 1993 he
served as President and Director of North American Operations in Denver,
Colorado for Aberdeen Petroleum PLC, a London-based public company engaged in
international oil and gas operations, of which he was also a member of its
Board of Directors. Prior to joining Aberdeen Petroleum PLC, he held a number
of positions in the energy industry in the areas of procurement, operations
and management of oil and gas assets. Mr. Gathright is also a Director of
Lion.
HAROLD R. LOGAN, JR. has been Executive Vice President/Finance and a
Director of TransMontaigne since April 1995. Previously, from 1985 to 1994,
Mr. Logan was Senior Vice President/Finance and a Director of Associated
Natural Gas Corporation. Prior to joining Associated Natural Gas Corporation,
34
<PAGE>
Mr. Logan was with Dillon, Read & Co. Inc. and Rothschild, Inc. In addition,
Mr. Logan is a Director of Suburban Propane Partners, L.P.
W. A. SIKORA became Executive Vice President of TransMontaigne in September
1996 and is also currently the Executive Vice President of TransMontaigne
Transportation Services Inc. and TransMontaigne Product Services Inc. and was
Senior Vice President and Chief Financial Officer of a subsidiary of
TransMontaigne from May 1995 to September 1996. From November 1993 until April
1995, he was a consultant to the subsidiary. Prior to that time he provided
financial advisory services to the executive management of publicly-owned and
privately- held companies, with particular emphasis in the energy industry. He
was previously a partner with Peat Marwick Mitchell & Co. (a predecessor to
KPMG Peat Marwick LLP) and Touche Ross & Co. (a predecessor to Deloitte &
Touche). In April 1996 Mr. Sikora filed a petition under Chapter 7 of the
United States Bankruptcy Code which was discharged in October 1996.
FREDERICK W. BOUTIN has been the Senior Vice President of TransMontaigne
since April 1995. Prior to his employment with TransMontaigne, Mr. Boutin was
a Vice President of Associated Natural Gas Corporation. Prior to joining
Associated Natural Gas Corporation in 1985, Mr. Boutin was with KPMG Peat
Marwick LLP.
RODNEY S. PLESS became Vice President and Chief Accounting Officer of
TransMontaigne in December 1996 and has been Vice President-Controller and
Treasurer of a subsidiary of TransMontaigne since April 1994. He joined
TransMontaigne in 1987 and has been Credit and Tax Manager, Accounting Manager
and Controller. Prior to joining TransMontaigne, Mr. Pless was with Arthur
Young & Co. (a predecessor to Ernst & Young) for three years.
ROBERT W. BRADBERRY has been the President and Chief Operating Officer of
TransMontaigne Product Services Inc. since January 1, 1997. Mr. Bradberry
joined TransMontaigne in 1979 and has served in various senior management
positions since that time in the areas of supply, distribution, transportation
and marketing of petroleum products and crude oil. He is also a director of
Lion.
ROBERT J. CLARK has been the President of Bear Paw Energy Inc. since October
31, 1996. Mr. Clark formed a predecessor of Bear Paw Energy Inc. in March 1995
and joined TransMontaigne in June 1996 when TransMontaigne acquired a majority
interest in the predecessor company. Mr. Clark was Senior Vice President of
Snyder Oil Corporation from mid-1988 until June 30, 1995. Prior to joining
Snyder, Mr. Clark was Vice President Gas Gathering, Processing and Marketing
of Ladd Petroleum Corporation, an affiliate of General Electric. Mr. Clark is
a member of the Board of Directors of Patina Oil & Gas Corporation.
LARRY F. CLYNCH has been the President and Chief Operating Officer of
TransMontaigne Transportation Services Inc. since January 1, 1997. Mr. Clynch
joined a subsidiary of TransMontaigne in January 1996 as Senior Vice President
of Operations. Prior to that time he spent 28 years with Conoco Pipe Line
Company where he most recently served as its President. Mr. Clynch has served
in numerous advisory positions with industry and governmental organizations.
JOHN A. HILL has been a Director of TransMontaigne since April 1995. Mr.
Hill has been Chairman of the Board of First Reserve Corporation since 1983.
Mr. Hill is a trustee of the Putnam Funds and is a director of Weatherford
Enterra, Inc., Snyder Oil Corporation and Maverick Tube Corporation.
BRYAN H. LAWRENCE has been a Director of TransMontaigne since April 1991. He
has been employed by Dillon, Read & Co. Inc., a New York-based investment
banking firm, since January 1966 and is a Managing Director. Mr. Lawrence also
serves as a Director of Vintage Petroleum, Inc., D&K Wholesale Drug, Inc.,
Hallador Petroleum Company and Willbros Group, Inc. (each a United States
public company), Benson Petroleum Ltd. and Cavell Energy Corporation (each a
Canadian public company), and certain non-public companies in which affiliates
of Dillon, Read & Co. Inc. hold equity interests including Meenan
35
<PAGE>
Oil Co., L.P., Fintube Limited Partnership, Interenergy Corporation,
PetroSantander Inc., Strega Energy Inc. and Savoy Energy, L.P.
WILLIAM E. MACAULAY has been a Director of TransMontaigne since April 1995.
Mr. Macaulay has been President and Chief Executive Officer of First Reserve
Corporation since 1983. Mr. Macaulay is a director of Weatherford Enterra,
Inc., Maverick Tube Corporation, National Oilwell, Inc. and Hugoton Energy
Corporation.
EDWIN H. MORGENS was appointed a director of TransMontaigne in June 1996.
Mr. Morgens has been Chairman of Morgens, Waterfall, Vintiadis & Co., Inc., a
financial services firm, since 1970. Mr. Morgens is also a general partner of
Morgens Waterfall Income Partners, L.P., a New York investment limited
partnership, and serves as president of Prime, Inc., the corporate general
partner of a Delaware investment partnership, and as managing member of MW
Management, L.L.C., a Delaware investment limited liability corporation.
The By-laws of TransMontaigne provide that the number of directors shall be
fixed by the Board of Directors. The number of directors is presently fixed at
seven, and there are no vacancies. First Reserve Corporation has the right to
appoint two directors to the Board of Directors pursuant to an agreement
between affiliates of First Reserve Corporation and TransMontaigne dated April
17, 1996. Mr. Hill and Mr. Macaulay are the directors appointed by First
Reserve Corporation.
36
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates the beneficial ownership of the Common Stock
as of February 10, 1997, by each director and executive officer of
TransMontaigne and by each person who was known to TransMontaigne to own more
than 5% of the outstanding shares of the Common Stock. Except as otherwise
indicated below, the ownership reflects sole voting and investment power by
the beneficial owner. The information set forth below is based solely upon
information furnished by such individuals or contained in filings made by such
beneficial owners with the Securities and Exchange Commission (the
"Commission").
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NAME AND ADDRESS OF AMOUNT AND NATURE OF COMMON STOCK OWNED COMMON STOCK OWNED
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2) BEFORE OFFERINGS AFTER OFFERINGS
- ------------------- -------------------------- ------------------ ------------------
<S> <C> <C> <C>
Cortlandt S. Dietler.... 1,950,539 9.2% 7.7%
Richard E. Gathright.... 533,000 2.5% 2.1%
Harold R. Logan, Jr..... 375,556 1.8% 1.5%
W. A. Sikora............ 213,889 1.0% (3)
Frederick W. Boutin..... 260,000 1.2% 1.0%
Rodney S. Pless......... 13,000 (3) (3)
Robert W. Bradberry 155,748 (3) (3)
(4)....................
Robert J. Clark......... 57,043 (3) (3)
Larry F. Clynch......... 56,400 (3) (3)
TransMontaigne Oil
Company
370 Seventeenth Street,
Suite 2750
Denver, Colorado 80202
First Reserve Fund VI, 6,582,830 31.2% 26.2%
Limited ...............
Partnership and other
partnerships
managed by First Re-
serve
Corporation(5)
475 Steamboat Road
Greenwich, Connecticut
06830
Yorktown Energy Part- 3,154,961 15.0% 12.6%
ners, L.P. and.........
other venture capital
funds
managed by, and shares
owned by
officers of Dillon,
Read & Co. Inc.(6)
535 Madison Avenue
New York, New York
10022
Waterwagon & Co.(7)..... 3,117,000 14.8% 15.0%
c/o Merrill Lynch
Growth Fund
800 Scudders Mill Road
Plainsborough, New
Jersey 08536
Massachusetts Mutual 1,296,277 6.1% 5.1%
Life Insurance.........
Company and funds man-
aged by
Massachusetts Mutual
Life Insurance Co.
1295 State Street
Springfield, Massachu-
setts 01111
John A. Hill(5)......... 6,582,830 31.2% 26.2%
475 Steamboat Road
Greenwich, Connecticut
06830
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF PERCENT OF
NAME AND ADDRESS OF AMOUNT AND NATURE OF COMMON STOCK OWNED COMMON STOCK OWNED
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)(2) BEFORE OFFERINGS AFTER OFFERINGS
- ------------------- -------------------------- ------------------ ------------------
<S> <C> <C> <C>
Bryan H. Lawrence(6).... 3,154,961 15.0% 12.6%
535 Madison Avenue
New York, New York
10022
William E. Macaulay(5).. 6,582,830 31.2% 26.2%
475 Steamboat Road
Greenwich, Connecticut
06830
Edwin H. Morgens........ 46,144 (3) (3)
10 East 50th Street
New York, New York
10022
All Directors, Executive
Officers and
Key Employees as a 13,399,110 63.5% 53.2%
Group..................
(13 Persons)(8)
</TABLE>
- ----------------
(1) All shares are owned both of record and beneficially unless otherwise
specified by footnote to this table. Based solely upon information furnished
by such individuals or contained in filings made by such beneficial owners
with the Commission.
(2) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934 (the "Exchange Act"). Under Rule 13d-3(d), shares not outstanding that
are subject to options, warrants, rights, or conversion privileges exercisable
within sixty days are deemed outstanding for the purpose of calculating the
number and percentage owned by such person, but not deemed outstanding for the
purpose of calculating the percentage owned by any other person.
(3) Less than one percent.
(4) Does not include 50,000 shares being sold by the Robert Wheat Bradberry
Charitable Remainder Unitrust in the Underwritten Offering.
(5) First Reserve Corporation is an affiliate of John A. Hill and William E.
Macaulay, directors of TransMontaigne. Messrs. Hill and Macaulay disclaim
beneficial ownership of these shares.
(6) Yorktown Energy Partners, L.P. and Dillon, Read & Co. Inc. are
affiliates of Bryan H. Lawrence, a director of TransMontaigne. Mr. Lawrence
owns 44,923 shares individually and disclaims beneficial ownership of the
remaining shares.
(7) TransMontaigne has granted to Merrill Lynch the right to maintain its
15% ownership of Common Stock if TransMontaigne issues stock in the future.
Merrill Lynch is being offered the right to purchase 640,044 shares in
satisfaction of such right in the Concurrent Offering and has indicated that
it intends to purchase such shares. Merrill Lynch has also indicated that it
will exercise its antidilution rights with respect to shares of Common Stock
issuable upon exercise of the Underwriters' over-allotment option. See
"Description of Capital Stock" and "Underwriting."
(8) Includes 9,692,868 shares held by affiliates, beneficial ownership of
which is disclaimed by the officers and directors.
38
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the Selling
Stockholders and the shares of Common Stock offered by the Selling
Stockholders pursuant to this Prospectus. The trustee of each Selling
Stockholder is Edwin G. Bradberry, who retired in April 1995 as chairman of
the board of directors of a predecessor of TransMontaigne. The sole
beneficiary of the Robert Wheat Bradberry Charitable Remainder Unitrust is
Robert W. Bradberry, President and Chief Operating Officer of TransMontaigne
Product Services Inc.
<TABLE>
<CAPTION>
SHARES NUMBER
BENEFICIALLY OWNED OF SHARES
NAME OF SELLING STOCKHOLDER PRIOR TO THE OFFERINGS BEING OFFERED
- --------------------------- ------------------------- -------------
NUMBER PERCENT
------------- -----------
<S> <C> <C> <C>
Edwin G. Bradberry and Karlee R.
Bradberry Charitable Remainder
Annuity Trust(1)................. 72,000 0.3% 72,000
Robert Wheat Bradberry Charitable
Remainder Unitrust(1)............ 50,000 0.2% 50,000
Rebecca Ann Moody Charitable
Remainder Unitrust(1)............ 50,000 0.2% 50,000
Karolyn Campbell Woolverton
Charitable Remainder
Unitrust(1)...................... 50,000 0.2% 50,000
William Bown Bradberry
Charitable Remainder
Unitrust(1)...................... 50,000 0.2% 50,000
John Garland Bradberry Charitable
Remainder Unitrust(1)............ 50,000 0.2% 50,000
------------- -------
Total............................. 322,000 322,000
============= =======
</TABLE>
- --------
(1) The Trusts listed above together with Edwin G. Bradberry and other
trusts of which he is trustee (the "Bradberry Group"), beneficially own
742,100 shares of Common Stock (3.5%) and upon completion of the Offerings
will beneficially own 420,100 shares of Common Stock (1.7%). If the
Underwriters' over-allotment option and Merrill Lynch's antidilution rights in
respect to the Common Stock are exercised in full, the percentage of the
outstanding shares of Common Stock owned by the Bradberry Group would be 1.6%.
Upon completion of the Offerings, the Trusts listed above will no longer
beneficially own any shares of Common Stock.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of TransMontaigne consists of 40,000,000 shares
of common stock, $.01 par value per share, of which 21,011,962 shares were
outstanding as of December 31, 1996, and 2,000,000 shares of preferred stock,
$.01 par value per share, of which no shares were outstanding.
Merrill Lynch has the right to maintain its 15% ownership of Common Stock if
TransMontaigne issues stock in the future, pursuant to an agreement between
Merrill Lynch and TransMontaigne. Merrill Lynch is being offered the right to
purchase 640,044 shares in satisfaction of such right in the Concurrent
Offering and has indicated that it intends to purchase such shares. Merrill
Lynch has also indicated that it will exercise its antidilution rights with
respect to shares of Common Stock it has the right to purchase in the
Offerings in the event of any exercise of the Underwriters' over-allotment
option (which right will entitle Merrill Lynch to purchase up to an additional
98,390 shares of Common Stock).
The description set forth below of the Common Stock constitutes a brief
summary of certain provisions of TransMontaigne's Charter and By-Laws, all of
which are filed as exhibits to the Registration
39
<PAGE>
Statement of which this Prospectus is a part. Such summary does not purport to
be complete and is qualified by reference to such documents.
COMMON STOCK
Each share of Common Stock has one vote on all matters on which stockholders
are entitled or permitted to vote, including the election or removal of
directors. Holders of the Common Stock have no redemption or conversion
rights, participate ratably in any distribution of assets to stockholders in
liquidation, and have no preemptive or other subscription rights. Cumulative
voting is not permitted in the election of directors. Holders of the Common
Stock are entitled to receive such dividends as may be declared by the Board
of Directors of TransMontaigne out of funds legally available therefor. All
outstanding shares of Common Stock are, and the shares of Common Stock to be
issued by TransMontaigne in the Offerings will be, fully paid and
nonassessable. Key Corporation Shareholder Services is the Transfer Agent and
Registrar for the Common Stock.
PREFERRED STOCK
The Board of Directors of TransMontaigne, without further action by the
stockholders, is authorized to issue shares of preferred stock in one or more
series and, with certain limitations, to determine preferences as to dividends
and in liquidation, and voting, conversion, redemption and other rights of
each series. The Board could issue a series or series of preferred stock with
rights more favorable with respect to dividends and liquidation than those
held by the holders of Common Stock. In certain instances the issuance of
preferred stock could serve to delay or prevent a change of control of
TransMontaigne.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
TransMontaigne is subject to Section 203 of the Delaware General Corporation
Law, which generally prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to such date the Board of
Directors of the corporation approved either the business combination or the
transaction in which the person became an interested stockholder, (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding shares owned by officers or directors of the corporation
and by certain employee stock plans, or (iii) on or after such date the
business combination is approved by the Board of Directors of the corporation
and by the affirmative vote of at least 66 2/3% of the outstanding voting
stock of the corporation that is not owned by the interested stockholder. A
"business combination" generally includes mergers, asset sales and similar
transactions between the corporation and the interested stockholder, and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of the corporation's voting stock or who is an
affiliate or associate of the corporation and, together with his affiliates
and associates, has owned 15% or more of the corporation's voting stock within
three years.
REGISTRATION RIGHTS
TransMontaigne has a registration rights agreement with certain principal
stockholders who own in the aggregate approximately 59% of the Common Stock
that will be outstanding after the Offerings, granting them the right to
require TransMontaigne to register their shares at TransMontaigne's expense
under the Securities Act, provided that each may request or participate in a
request for up to four registrations, and no more than one registration may be
required in any 12 month period. In addition, they have the right to have any
or all of such Common Stock included, at their pro rata expense, in any
registration statement relating to the Common Stock filed by TransMontaigne,
subject to the right of the underwriter of that offering to limit the number
of shares of such Common Stock to be included in that registration. All of
such stockholders have waived their rights to have their Common Stock included
in the Offerings.
40
<PAGE>
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
in the Underwritten Offering and the aggregate number of shares which each has
severally agreed to purchase from TransMontaigne and the Selling Stockholders
(subject to the terms and conditions specified in the Underwriting Agreement)
are as follows:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS FIRM SHARES
------------ -----------
<S> <C>
Dillon, Read & Co. Inc. ...................................... 719,956
A.G. Edwards & Sons, Inc. .................................... 718,500
Petrie Parkman & Co., Inc. ................................... 718,500
Alex. Brown & Sons Incorporated .............................. 65,000
George, Baum & Company ....................................... 20,000
Bear, Stearns & Co. Inc. ..................................... 65,000
Cazenove Inc. ................................................ 65,000
Credit Suisse First Boston Corporation ....................... 65,000
Dean Witter Reynolds Inc. .................................... 65,000
Dominick & Dominick, Incorporated ............................ 20,000
Donaldson, Lufkin & Jenrette Securities Corporation .......... 65,000
Goldman, Sachs & Co. ......................................... 65,000
Hanifen, Imhoff Inc. ......................................... 30,000
Hoak Breedlove Wesneski & Co. ................................ 20,000
Howard, Weil, Labouisse, Friedrichs Incorporated ............. 65,000
Johnson Rice & Company L.L.C. ................................ 20,000
Lazard Freres & Co. LLC ...................................... 65,000
Lehman Brothers Inc. ......................................... 65,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated ........... 65,000
Morgan Stanley & Co. Incorporated ............................ 65,000
Needham & Company, Inc. ...................................... 30,000
Neuberger & Berman LLC ....................................... 30,000
David A. Noyes & Company ..................................... 20,000
Oppenheimer & Co., Inc. ...................................... 65,000
PaineWebber Incorporated ..................................... 65,000
Pennsylvania Merchant Group Ltd .............................. 20,000
Prudential Securities Incorporated ........................... 65,000
Rauscher Pierce Refsnes, Inc. ................................ 30,000
Raymond James & Associates, Inc. ............................. 30,000
Rodman & Renshaw, Inc. ....................................... 30,000
Salomon Brothers Inc ......................................... 65,000
Schroder Wertheim & Co. Incorporated ......................... 65,000
Smith Barney Inc. ............................................ 65,000
WM Smith Securities Incorporated ............................. 20,000
Southcoast Capital Corp. ..................................... 30,000
Van Kasper & Company ......................................... 20,000
H.G. Wellington & Co. Inc. ................................... 20,000
---------
Total....................................................... 3,716,956
=========
</TABLE>
The Managing Underwriters are Dillon, Read & Co. Inc., A.G. Edwards & Sons,
Inc. and Petrie Parkman & Co., Inc. As of December 31, 1996, (i) certain
private investment partnerships managed by Dillon, Read & Co. Inc. and persons
related to Dillon, Read & Co. Inc. owned approximately 3,155,000 shares of
Common Stock and (ii) Petrie Parkman & Co., Inc. and persons related to Petrie
Parkman & Co.,
41
<PAGE>
Inc. owned approximately 145,000 shares of Common Stock. Bryan H. Lawrence, a
Managing Director of Dillon, Read & Co. Inc., has been a member of the Board
of Directors of TransMontaigne since April 1991. Petrie Parkman & Co., Inc.
has received customary compensation in connection with financial advisory
services provided by it to a predecessor of TransMontaigne during the past
twelve months in connection with the merger of two predecessors of
TransMontaigne, which included shares of common stock granted in June 1996.
If any shares of Common Stock offered hereby in the Underwritten Offering
are purchased by the Underwriters, all such shares will be so purchased. The
Underwriting Agreement contains certain provisions whereby if any Underwriter
defaults in its obligation to purchase such shares and if the aggregate
obligations of the Underwriters so defaulting do not exceed 10% of the shares
hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The shares of Common Stock offered hereby in the Underwritten Offering
initially are being offered severally by the Underwriters for sale at the
price set forth on the cover page of this Prospectus, or at such price less a
concession not to exceed $0.48 per share on sales to certain dealers. The
Underwriters may allow, and such dealers may reallow, a concession not to
exceed $0.10 per share on sales to certain dealers. The offering of the shares
of Common Stock in the Underwritten Offering is made for delivery when, as,
and if accepted by the Underwriters and subject to prior sale and to
withdrawal, cancellation or modification of the offer without notice. The
Underwriters reserve the right to reject any order for the purchase of the
shares. After the shares are released for sale to the public, the public
offering price and such concessions may be changed by the Managing
Underwriters.
TransMontaigne has granted to the Underwriters an over-allotment option to
purchase up to an additional 557,543 shares of Common Stock on the same terms
per share. If the Underwriters exercise such option, each of the Underwriters
will be obligated, subject to certain conditions, to purchase approximately
the same proportion of the aggregate shares so purchased as the number of
shares to be purchased by it shown in the above table bears to the total
number of shares in such table. The Underwriters may exercise such option on
or before the thirtieth day from the date of the public offering of the shares
offered hereby and only to cover overallotments made of the shares in
connection with the Offerings.
TransMontaigne has agreed that it will not, without the prior written
consent of Dillon, Read & Co. Inc., sell, contract to sell, grant any option
to sell, transfer or otherwise dispose of, directly or indirectly, any shares
of the Common Stock, or any securities convertible into, or exercisable or
exchangeable for, Common Stock or warrants or other rights to purchase Common
Stock, or permit the registration of any shares of Common Stock, for a period
of 180 days after the date of this Prospectus, except (i) shares of Common
Stock issued pursuant to the exercise of outstanding options, (ii) options
granted to its employees, officers and directors under its existing employee
stock option plans so long as none of such options become exercisable during
said 180 day period and (iii) shares of Common Stock which may be issued by
TransMontaigne in connection with any future acquisitions so long as the
recipients of such shares are subject to a lock-up expiring no earlier than
the end of said 180 day period. TransMontaigne's officers and directors and
certain stockholders who will hold in the aggregate 14,024,610 shares of
Common Stock after the Offerings and who hold certain options to purchase
Common Stock have agreed that they will not, without the prior written consent
of Dillon, Read & Co. Inc., sell, contract to sell, grant any option to sell,
transfer or otherwise dispose of, directly or indirectly, any shares of Common
Stock, or any securities convertible into, or exercisable or exchangeable for,
Common Stock or warrants or other rights to purchase Common Stock, or permit
the registration of any shares of Common Stock, for a period of 180 days after
the date of this Prospectus.
The Offering is being made pursuant to Rule 2720 of the Conduct Rules
("Conduct Rules") of the National Association of Securities Dealers, Inc. (the
"NASD") under which, special considerations apply to a public offering in
which a member of the NASD has a conflict of interest (as defined in the
Conduct Rules) with an issuer. Such considerations do not apply, however, if a
bona fide independent market (as
42
<PAGE>
defined in Conduct Rule 2720(b) (3)) exists in respect of the security being
offered. Because the shares of Common Stock offered by the Company are of a
class of equity securities for which a bona fide independent market exists,
the requirements of Conduct Rule 2720 are satisfied and a qualified
independent underwriter (as defined in the Conduct Rules) is not required in
connection with the Offering.
TransMontaigne and the Selling Stockholders have agreed in the Underwriting
Agreement to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments that the
Underwriters may be required to make in respect thereof.
The 640,044 shares of Common Stock offered in the Concurrent Offering will
be offered directly by TransMontaigne to Merrill Lynch at the price paid by
the Underwriters. Each of the Underwritten Offering and the Concurrent
Offering is contingent upon the simultaneous consummation of the other.
LEGAL MATTERS
The legality of the securities offered hereby will be passed on for
TransMontaigne by Holme Roberts & Owen LLP, Denver, Colorado. Certain legal
matters in connection with the sale of such securities will be passed on for
the Underwriters by Cahill Gordon & Reindel, a partnership including a
professional corporation, New York, New York.
EXPERTS
The consolidated financial statements of TransMontaigne Oil Company as of
April 30, 1996 and 1995 and for the years ended April 30, 1996 and 1995, the
seven months ended April 30, 1994 and the year ended September 30, 1993 have
been incorporated by reference and included herein in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference and included herein, and upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of Lion Oil Company and Subsidiary as
of April 30, 1996 and 1995, and the related consolidated statements of
earnings, stockholders' equity and cash flow for each of the years in the
three-year period ended April 30, 1996 included in TransMontaigne Oil
Company's annual report on Form 10-K for the year ended April 30, 1996, have
been incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP refers to a change in the
method of accounting for income taxes effective May 1, 1993.
The historical summaries of revenue and direct operating expenses of the
Grasslands Facilities for the nine months ended September 30, 1996 and the
years ended December 31, 1995 and 1994 have been included herein in reliance
upon the report of KPMG Peak Marwick LLP, independent certified public
accountants, included herein, and upon the authority of such firm as experts
in accounting and auditing.
AVAILABLE INFORMATION
TransMontaigne has filed with the Commission a registration statement on
Form S-2 (the "Registration Statement," which term encompasses all amendments,
exhibits, annexes and schedules thereto) under the Securities Act with respect
to the Common Stock offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all the information set forth
in the Registration Statement, to which reference is hereby made. Statements
made in this Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement and the exhibits thereto, reference is hereby made to the exhibit
for a more complete description of the matter involved, and each statement
made herein shall be deemed qualified in its entirety by such reference.
43
<PAGE>
TransMontaigne is subject to the informational requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy and information
statements and other information with the Commission. The Registration
Statement filed by TransMontaigne with the Commission, as well as such
reports, proxy and information statements and other information filed by
TransMontaigne with the Commission, are available at the web site that the
Commission maintains at http://www.sec.gov and can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at 7 World Trade Center, Suite
1300, New York, New York 10048, and at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material, when filed, may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Common Stock is
listed on the American Stock Exchange and such reports, proxy and information
statements and other information concerning TransMontaigne are available at
the offices of the American Stock Exchange, 86 Trinity Place, New York, NY
10006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated by reference in this Prospectus are (i) TransMontaigne's Annual
Report on Form 10-K for the fiscal year ended April 30, 1996, (ii)
TransMontaigne's Quarterly Reports on Form 10-Q for the quarters ended July
31, 1996 and October 31, 1996 and (iii) TransMontaigne's Current Reports on
Form 8-K filed with the Commission on June 6, July 23 and December 11, 1996
and on January 3, 1997 pursuant to Section 13 of the Exchange Act. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
TransMontaigne will provide without charge to each person, including any
beneficial owner of Common Stock, to whom a copy of this Prospectus has been
delivered, on the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference in this Prospectus, other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to
Harold R. Logan, Jr., TransMontaigne Oil Company, 370 17th Street, Republic
Plaza, Suite 2750, Denver, Colorado 80202 (telephone: (303) 626-8200).
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TRANSMONTAIGNE OIL COMPANY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONDENSED PRO FORMA FINANCIAL INFORMATION
Introduction............................................................ F-2
Condensed Pro Forma Balance Sheet, October 31, 1996 (Unaudited)......... F-3
Condensed Pro Forma Statement of Operations, six months ended October
31, 1996 (Unaudited)................................................... F-4
Condensed Pro Forma Statement of Operations, year ended April 30, 1996
(Unaudited)............................................................ F-5
Notes to Condensed Pro Forma Financial Statements (Unaudited)........... F-6
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets, October 31, 1996 and April 30, 1996
(Unaudited)............................................................ F-7
Consolidated Statements of Operations, six months ended October 31, 1996
and 1995 (Unaudited)................................................... F-8
Consolidated Statements of Stockholders' Equity, six months ended
October 31, 1996 and year ended April 30, 1996 (Unaudited)............. F-9
Consolidated Statements of Cash Flows, six months ended October 31, 1996
and 1995 (Unaudited)................................................... F-10
Notes to Consolidated Financial Statements (Unaudited).................. F-11
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................ F-12
Consolidated Balance Sheets, April 30, 1996 and 1995.................... F-13
Consolidated Statements of Operations, years ended April 30, 1996 and
1995, seven months ended April 30, 1994 and year ended September 30,
1993................................................................... F-14
Consolidated Statements of Stockholders' Equity, years ended April 30,
1996 and 1995, seven months ended April 30, 1994 and year ended
September 30, 1993..................................................... F-15
Consolidated Statements of Cash Flows, years ended April 30, 1996 and
1995, seven months ended April 30, 1994 and year ended September 30,
1993................................................................... F-16
Notes to Consolidated Financial Statements.............................. F-17
THE GRASSLANDS FACILITIES
Independent Auditors' Report............................................ F-27
Historical Summaries of Revenue and Direct Operating Expenses, nine
months ended September 30, 1996 nine months ended September 30, 1995
(unaudited) and years ended December 31, 1995 and 1994................. F-28
Notes to Historical Summaries of Revenue and Direct Operating Expenses.. F-29
</TABLE>
F-1
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONDENSED PRO FORMA FINANCIAL INFORMATION
On December 20, 1996, TransMontaigne Oil Company (TransMontaigne) acquired a
natural gas gathering, processing, treating and fractionation system located
in western North Dakota and northeastern Montana (the Grasslands Facilities)
for approximately $71,000,000 from Koch Hydrocarbon Company, a division of
Koch Industries, Inc. The acquisition will be accounted for as a purchase.
The following unaudited condensed pro forma balance sheet as of October 31,
1996 assumes that the acquisition of the Grasslands Facilities occurred on
October 31, 1996 and reflects the historical consolidated balance sheet of
TransMontaigne at that date giving pro forma effect to the acquisition of the
Grasslands Facilities.
The following unaudited condensed pro forma statements of operations for the
six months ended October 31, 1996 and the year ended April 30, 1996 assumes
that the acquisition of the Grasslands Facilities occurred as of May 1, 1995
and combines the historical results of TransMontaigne for the six months ended
October 31, 1996 and the year ended April 30, 1996 with the historical results
of operations of the Grasslands Facilities for the six months ended September
30, 1996 and the twelve months ended March 31, 1996, respectively.
The pro forma results of operations are not necessarily indicative of the
results of operations that would actually have been attained if the
transaction had occurred as of the beginning of the periods presented. These
unaudited condensed pro forma financial statements should be read in
conjunction with the historical financial statements and related notes of
TransMontaigne.
F-2
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONDENSED PRO FORMA BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
TRANSMONTAIGNE
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA
OCTOBER 31, ------------------------- COMBINED
1996 DEBIT CREDIT TRANSMONTAIGNE
-------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 33,001,504 71,000,000(1) 71,000,000(2) 33,001,504
Trade accounts
receivable........... 41,250,480 -- -- 41,250,480
Note receivable--
current.............. 900,000 -- -- 900,000
Inventories........... 36,951,892 -- -- 36,951,892
Prepaid expenses and
other................ 1,211,958 -- -- 1,211,958
------------ ----------- ---------- -----------
113,315,834 71,000,000 71,000,000 113,315,834
------------ ----------- ---------- -----------
Property, plant and
equipment:
Land.................. 1,072,798 1,000,000(2) -- 2,072,798
Plant and equipment... 32,982,365 70,000,000(2) -- 102,982,365
Accumulated
depreciation......... (7,218,868) -- -- (7,218,868)
------------ ----------- ---------- -----------
26,836,295 71,000,000 -- 97,836,295
------------ ----------- ---------- -----------
Investments and other
assets:
Investments........... 16,004,257 -- -- 16,004,257
Note receivable--
noncurrent........... 1,328,313 -- -- 1,328,313
Other assets, net..... 3,567,788 -- -- 3,567,788
------------ ----------- ---------- -----------
20,900,358 -- -- 20,900,358
------------ ----------- ---------- -----------
$161,052,487 142,000,000 71,000,000 232,052,487
============ =========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts
payable.............. $ 28,239,991 -- -- 28,239,991
Inventory due under
exchange agreements.. 8,063,830 -- -- 8,063,830
Taxes payable......... 7,216,662 -- -- 7,216,662
Other accrued
liabilities.......... 2,574,041 -- -- 2,574,041
------------ ----------- ---------- -----------
46,094,524 -- -- 46,094,524
------------ ----------- ---------- -----------
Long-term debt, less
current portion........ 37,684,067 -- 71,000,000(1) 108,684,067
Minority interests...... 5,602,012 -- -- 5,602,012
Stockholders' equity:
Common stock.......... 209,830 -- -- 209,830
Capital in excess of
par value............ 72,283,793 -- -- 72,283,793
Accumulated deficit... (821,739) -- -- (821,739)
------------ ----------- ---------- -----------
71,671,884 -- -- 71,671,884
------------ ----------- ---------- -----------
$161,052,487 -- 71,000,000 232,052,487
============ =========== ========== ===========
</TABLE>
See accompanying notes to condensed pro forma financial statements.
F-3
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
GRASSLANDS
TRANSMONTAIGNE FACILITIES
HISTORICAL SIX HISTORICAL SIX
MONTHS ENDED MONTHS ENDED PRO FORMA
OCTOBER 31, SEPTEMBER 30, PRO FORMA COMBINED
1996 1996 ADJUSTMENTS TRANSMONTAIGNE
-------------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Revenue:
Product sales,
pipeline tariffs and
terminaling fees..... $470,822,944 23,648,192 -- 494,471,136
Costs and expenses:
Product costs and
direct operating
expenses............. 462,096,897 17,358,783 -- 479,455,680
General and
administrative....... 3,158,305 -- 270,000 (3) 3,428,305
Depreciation and
amortization......... 955,028 -- 1,750,000 (4) 2,705,028
------------ ---------- ---------- -----------
466,210,230 17,358,783 2,020,000 485,589,013
------------ ---------- ---------- -----------
Operating income.... 4,612,714 6,289,409 (2,020,000) 8,882,123
Other income (expenses):
Interest income....... 893,051 -- -- 893,051
Equity in earnings of
affiliates........... 423,151 -- -- 423,151
Minority interests.... (149,049) -- -- (149,049)
Interest expense and
other financing
costs................ (1,370,280) -- (2,840,000)(5) (4,210,280)
Other, net............ 340,076 -- -- 340,076
------------ ---------- ---------- -----------
136,949 -- (2,840,000) (2,703,051)
------------ ---------- ---------- -----------
Earnings before
income taxes....... 4,749,663 6,289,409 (4,860,000) 6,179,072
Income taxes--current... (270,000) -- -- (6) (270,000)
------------ ---------- ---------- -----------
Net earnings........ $ 4,479,663 6,289,409 (4,860,000) 5,909,072
============ ========== ========== ===========
Weighted average common
shares outstanding..... 21,290,302 21,290,302
============ ===========
Earnings per common
share.................. $0.21 0.28
===== ====
</TABLE>
See accompanying notes to condensed pro forma financial statements.
F-4
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
GRASSLANDS
TRANSMONTAIGNE FACILITIES
HISTORICAL HISTORICAL
YEAR ENDED YEAR ENDED PRO FORMA
APRIL 30, MARCH 31, PRO FORMA COMBINED
1996 1996 ADJUSTMENTS TRANSMONTAIGNE
-------------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Revenue:
Product sales,
pipeline tariffs and
terminaling fees..... $533,106,747 45,467,078 -- 578,573,825
Costs and expenses:
Product costs and
direct operating
expenses............. 520,389,482 35,200,027 -- 555,589,509
General and
administrative....... 4,998,771 -- 540,000 (3) 5,538,771
Depreciation and
amortization......... 1,169,541 -- 3,500,000 (4) 4,669,541
------------ ---------- ---------- -----------
526,557,794 35,200,027 4,040,000 565,797,821
------------ ---------- ---------- -----------
Operating income.... 6,548,953 10,267,051 (4,040,000) 12,776,004
Other income (expenses):
Interest income....... 520,900 -- -- 520,900
Equity in earnings of
affiliates........... 942,216 -- -- 942,216
Minority interests.... (337,253) -- -- (337,253)
Interest expense and
other financing
costs................ (2,864,100) -- (5,680,000)(5) (8,544,100)
------------ ---------- ---------- -----------
(1,738,237) -- (5,680,000) (7,418,237)
------------ ---------- ---------- -----------
Earnings before
income taxes....... 4,810,716 10,267,051 (9,720,000) 5,357,767
Income taxes--current... (192,747) -- -- (6) (192,747)
------------ ---------- ---------- -----------
Net earnings........ $ 4,617,969 10,267,051 (9,720,000) 5,165,020
============ ========== ========== ===========
Weighted average common
shares outstanding..... 15,129,637 15,129,637
============ ===========
Earnings per common
share.................. $0.31 0.34
===== ====
</TABLE>
See accompanying notes to condensed pro forma financial statements.
F-5
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
(1) BASIS OF PRESENTATION
On December 20, 1996, TransMontaigne Oil Company (TransMontaigne) acquired a
natural gas gathering, processing, treating and fractionation system located
in western North Dakota and northeastern Montana (the Grasslands Facilities)
for approximately $71,000,000 from Koch Hydrocarbon Company, a division of
Koch Industries, Inc. The acquisition will be accounted for as a purchase. The
acquisition was financed with TransMontaigne's acquisition revolving credit
facility. This credit facility is available through a credit agreement entered
into by TransMontaigne in December 1996 and generally bears interest at a rate
per year equal to the lender's announced Base Rate, subject to a Eurodollar
pricing option at TransMontaigne's election. The first $45 million of proceeds
of any public or private debt or equity issuance are required to be applied to
the repayment of the amounts outstanding under the acquisition revolving
credit facility.
The accompanying condensed pro forma balance sheet includes pro forma
adjustments to give effect to the acquisition of the Grasslands Facilities as
of October 31, 1996. The condensed pro forma statements of operations include
the historical revenue and direct operating expenses of the Grasslands
Facilities for the respective periods presented and adjustments for the pro
forma effects of the acquisition.
(2) PRO FORMA ADJUSTMENTS
The following pro forma adjustments have been made to the balance sheet of
TransMontaigne at October 31, 1996 and to the statements of operations for the
six months ended October 31, 1996 and for the year ended April 30, 1996:
(1) To reflect the proceeds from borrowings under the acquisition
revolving credit facility.
(2) To reflect the acquisition of the Grasslands Facilities by
TransMontaigne.
(3) To adjust general and administrative expense for the estimated
additional general and administrative expenses expected to be incurred as a
result of the purchase of the Grasslands Facilities.
(4) To record depreciation expense relating to the cost of the property,
plant and equipment of the Grasslands Facilities.
(5) To adjust interest expense recorded by TransMontaigne to reflect the
additional long-term debt incurred to fund the acquisition of the
Grasslands Facilities at an assumed interest rate of 8%. If the actual rate
varied from the assumed rate by 1/8%, the interest expense amounts for the
six months ended October 31, 1996 and the year ended April 30, 1996 would
have differed by $44,375 and $88,750, respectively.
(6) On a pro forma basis, no income tax expense was reflected for the six
months ended October 31, 1996 and year ended April 30, 1996 since the pro
forma provision for income taxes would have been offset by a decrease in
the valuation allowance for net deferred tax assets.
On a pro forma basis, no adjustment to interest expense or earnings per
common share was reflected to give effect to issuance of 4,035,000 shares of
common stock offered hereby by TransMontaigne and the application of the net
proceeds therefrom to reduce long-term debt.
F-6
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND APRIL 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1996 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 33,001,504 38,403,234
Trade accounts receivable......................... 41,250,480 20,905,812
Note receivable--current.......................... 900,000 --
Inventories....................................... 36,951,892 23,609,136
Prepaid expenses and other........................ 1,211,958 1,475,612
------------ -----------
113,315,834 84,393,794
------------ -----------
Property, plant and equipment:
Land.............................................. 1,072,798 1,072,798
Plant and equipment............................... 32,982,365 24,926,309
Accumulated depreciation.......................... (7,218,868) (6,461,244)
------------ -----------
26,836,295 19,537,863
------------ -----------
Investments and other assets:
Investments....................................... 16,004,257 15,830,006
Note receivable--noncurrent....................... 1,328,313 --
Other assets, net................................. 3,567,788 1,201,313
------------ -----------
20,900,358 17,031,319
------------ -----------
$161,052,487 120,962,976
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................ $ 28,239,991 10,698,199
Inventory due under exchange agreements........... 8,063,830 8,874,645
Taxes payable..................................... 7,216,662 6,483,756
Other accrued liabilities......................... 2,574,041 2,685,355
------------ -----------
46,094,524 28,741,955
------------ -----------
Long-term debt, less current portion................ 37,684,067 28,948,867
Minority interests.................................. 5,602,012 5,452,963
Stockholders' equity:
Preferred stock, par value $.01; authorized
2,000,000 shares, none issued.................... -- --
Common stock, par value $.01 per share; authorized
40,000,000 shares, issued and outstanding
20,982,960 shares at October 31, 1996; par value
$.10 per share; authorized 27,000,000 shares,
issued and outstanding 19,331,171 shares at April
30, 1996......................................... 209,830 1,933,117
Capital in excess of par value.................... 72,283,793 61,187,476
Accumulated deficit............................... (821,739) (5,301,402)
------------ -----------
71,671,884 57,819,191
------------ -----------
$161,052,487 120,962,976
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Revenue:
Product sales, pipeline tariffs and terminaling
fees............................................. $470,822,944 242,015,171
Costs and expenses:
Product costs and direct operating expenses....... 462,096,897 235,772,166
General and administrative........................ 3,158,305 2,256,778
Depreciation and amortization..................... 955,028 560,348
------------ -----------
466,210 ,230 238,589,292
------------ -----------
Operating income................................ 4,612,714 3,425,879
Other income (expenses):
Interest income................................... 893,051 258,693
Equity in earnings of affiliates.................. 423,151 392,184
Minority interests................................ (149,049) (131,100)
Interest expense and other financing costs........ (1,370,280) (1,403,938)
Other, net........................................ 340,076 --
------------ -----------
136,949 (884,161)
------------ -----------
Earnings before income taxes.................... 4,749,663 2,541,718
Income taxes--current............................... (270,000) (73,002)
------------ -----------
Net earnings.................................... $ 4,479,663 2,468,716
============ ===========
Weighted average common shares outstanding.......... 21,290,302 14,902,347
============ ===========
Earnings per common share........................... $0.21 0.17
===== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED OCTOBER 31, 1996 AND YEAR ENDED APRIL 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF ACCUMULATED
STOCK PAR VALUE DEFICIT TOTAL
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE AT APRIL 30, 1995..... $ 1,478,071 36,912,002 (9,919,371) 28,470,702
Common stock issued for cash.. 455,046 24,558,462 -- 25,013,508
Costs related to issuance of
common stock................. -- (282,988) -- (282,988)
Net earnings.................. -- -- 4,617,969 4,617,969
----------- ---------- ---------- ----------
BALANCE AT APRIL 30, 1996..... 1,933,117 61,187,476 (5,301,402) 57,819,191
Change in par value of common
stock from $.10 to $.01 in
connection with merger (note
2)........................... (1,739,805) 1,739,805 -- --
Common stock issued in merger
(note 2)..................... 14,744 8,093,785 -- 8,108,529
Common stock issued for
options exercised............ 774 288,727 -- 289,501
Common stock issued for
minority interest in
subsidiary................... 1,000 974,000 -- 975,000
Net earnings.................. -- -- 4,479,663 4,479,663
----------- ---------- ---------- ----------
BALANCE AT OCTOBER 31, 1996... $ 209,830 72,283,793 (821,739) 71,671,884
=========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 31, 1996 AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings...................................... $ 4,479,663 2,468,716
Adjustments to reconcile net earnings to net cash
used by operating activities:
Depreciation and amortization................... 955,028 560,348
Equity in earnings of affiliates................ (423,151) (392,184)
Minority interests.............................. 149,049 131,100
Changes in operating assets and liabilities, net
of effect of acquisitions:
Trade accounts receivable..................... (20,130,189) (7,364,424)
Inventories................................... (13,342,756) 3,368,733
Prepaid expenses and other.................... 444,441 75,563
Trade accounts payable........................ 17,495,194 (7,851,238)
Inventory due under exchange agreements....... (810,815) (1,435,295)
Accrued liabilities........................... 800,889 1,784,213
----------- ------------
Net cash used by operating activities........ (10,382,647) (8,654,468)
----------- ------------
Cash flows from investing activities:
Purchases of property, plant and equipment........ (5,837,277) (1,522,392)
Proceeds from sale of assets...................... 13,523 6,625
Cash received in connection with acquisition...... 2,315,527 --
Costs related to acquisition...................... (399,234) --
Merger related costs.............................. -- (262,179)
Cash balance of subsidiary sold................... (111,341) --
Change in other assets............................ (24,982) 61,176
----------- ------------
Net cash used by investing activities........ (4,043,784) (1,716,770)
----------- ------------
Cash flows from financing activities:
Borrowings (repayments) of long-term debt, net.... 8,735,200 (11,040,768)
Common stock issued for cash...................... 289,501 --
Stock subscription received in cash............... -- 30,000,002
----------- ------------
Net cash provided by financing activities.... 9,024,701 18,959,234
----------- ------------
Increase (decrease) in cash and cash
equivalents................................. (5,401,730) 8,587,996
Cash and cash equivalents at beginning of period... 38,403,234 1,801,828
----------- ------------
Cash and cash equivalents at end of period......... $33,001,504 10,389,824
=========== ============
Supplemental disclosures of cash flow information:
Acquisition of Sheffield Exploration Company (Note
2):
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 (Note 3):
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 --
=========== ============
Acquisition of minority interest in Bear Paw
Energy, Inc.
</TABLE>
The Company acquired the remaining 10% interest in Bear Paw Energy, Inc. in
exchange for 100,000 shares of the Company's common stock which was recorded
in Other Assets on the Consolidated Balance Sheet at October 31, 1996.
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(1) BASIS OF PRESENTATION
The consolidated balance sheets at October 31, 1996 and April 30, 1996, the
consolidated statements of operations for the three months and six months
ended October 31, 1996 and 1995, the consolidated statement of stockholders'
equity for the six months ended October 31, 1996 and the year ended April 30,
1996 and the consolidated statements of cash flows for the six months ended
October 31, 1996 and 1995 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 conjuction with the consolidated
financial statements and notes thereto, together with management's discussion
and analysis of financial condition and results of operations, contained in
the Company's Annual Report on Form 10-K for the fiscal year ended April 30,
1996. The results of operations for the three months and the six months ended
October 31, 1996 are not necessarily indicative of the results for the entire
fiscal year ending April 30, 1997.
(2) MERGER
The Company 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 that Sheffield survived the Merger, but is owned approximately
93% by the former stockholders of TransMontaigne Oil Company. The par value of
the common stock of the company surviving the Merger is $.01 per share. As a
result of the Merger, (i) the name of Sheffield was changed to TransMontaigne
Oil Company, (ii) the number of share of authorized common stock was increased
to 40,000,000, and (iii) the stock options which Sheffield had outstanding
prior to the Merger became options to purchase 79,338 shares of the Company's
common stock at $3.65 per share. These options were exercised prior to their
September 2, 1996 expiration date.
(3) SALE OF SUBSIDIARY
On October 31, 1996, the Company sold a wholly owned subsidiary for
approximately $2,237,000. The Company received as consideration a note
receivable for approximately $2,067,000 payable over five years, a receivable
for $100,000 and shares of common stock representing an approximate 18%
interest in the acquiring company's common stock. On November 4, 1996 the
Company received a $700,000 cash payment on the note and the $100,000
receivable was collected.
(4) SUBSEQUENT EVENT
The Company's wholly owned subsidiary, Bear Paw Energy, Inc. ("Bear Paw"),
entered into a definitive agreement on November 1, 1996 to acquire for
approximately $75,000,000 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. Natural gas is gathered from over
1,200 active leases through approximately 2,500 miles of gathering lines.
F-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders TransMontaigne Oil Company:
We have audited the accompanying consolidated balance sheets of
TransMontaigne Oil Company and subsidiaries as of April 30, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended April 30, 1996 and 1995, the seven months ended
April 30, 1994 and the year ended September 30, 1993. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
TransMontaigne Oil Company and subsidiaries as of April 30, 1996 and 1995, and
the results of their operations and their cash flows for the years ended April
30, 1996 and 1995, the seven months ended April 30, 1994 and the year ended
September 30, 1993, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
June 20, 1996
F-12
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 38,403,234 1,801,828
Trade accounts receivable......................... 20,905,812 17,608,564
Amounts receivable under stock purchase
agreements....................................... -- 30,000,002
Inventories....................................... 23,609,136 21,361,341
Prepaid expenses and other........................ 1,475,612 905,794
------------ -----------
84,393,794 71,677,529
------------ -----------
Property, plant and equipment:
Land.............................................. 1,072,798 1,047,324
Plant and equipment............................... 24,926,309 20,915,921
Accumulated depreciation.......................... (6,461,244) (5,360,082)
------------ -----------
19,537,863 16,603,163
------------ -----------
Investments and other assets:
Investments....................................... 15,830,006 14,798,228
Other assets...................................... 814,713 994,598
Deferred debt issuance costs, net................. 386,600 146,828
------------ -----------
17,031,319 15,939,654
------------ -----------
$120,962,976 104,220,346
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................. $ -- 1,103,826
Trade accounts payable............................ 10,698,199 22,365,444
Inventory due under exchange agreements........... 8,874,645 3,895,830
Excise taxes payable.............................. 6,483,756 4,649,599
Other accrued liabilities......................... 2,685,355 1,673,625
------------ -----------
28,741,955 33,688,324
------------ -----------
Long-term debt, less current portion................ 28,948,867 36,945,610
Minority interests.................................. 5,452,963 5,115,710
Stockholders' equity:
Preferred stock, par value $.10; authorized
3,000,000 shares, none issued.................... -- --
Common stock, par value $.10 per share; authorized
27,000,000 shares, issued and outstanding
19,331,171 shares at April 30, 1996 and
14,780,715 shares at April 30, 1995.............. 1,933,117 1,478,071
Capital in excess of par value.................... 61,187,476 36,912,002
Accumulated deficit............................... (5,301,402) (9,919,371)
------------ -----------
57,819,191 28,470,702
------------ -----------
$120,962,976 104,220,346
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1996 AND 1995, SEVEN MONTHS ENDED APRIL 30, 1994 AND YEAR
ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Product sales, pipeline
tariffs and terminaling
fees................... $533,106,747 324,591,409 296,086,981 507,936,810
Costs and expenses:
Product costs and direct
operating expenses..... 520,389,482 318,811,953 294,773,790 505,348,576
General and
administrative......... 4,998,771 4,226,123 2,156,817 3,199,223
Depreciation and
amortization........... 1,169,541 1,147,291 665,955 1,099,253
------------ ----------- ----------- -----------
526,557,794 324,185,367 297,596,562 509,647,052
------------ ----------- ----------- -----------
Operating income
(loss)............... 6,548,953 406,042 (1,509,581) (1,710,242)
Other income (expenses):
Interest income......... 520,900 -- -- --
Equity in earnings
(losses) of
affiliates............. 942,216 407,208 710,626 (136,511)
Minority interests...... (337,253) (112,555) (231,156) 77,802
Interest expense........ (2,530,945) (3,119,019) (1,524,473) (2,319,180)
Other financing costs... (333,155) (393,031) (228,468) (354,195)
Cancellation of aircraft
lease.................. -- (286,735) -- --
------------ ----------- ----------- -----------
(1,738,237) (3,504,132) (1,273,471) (2,732,084)
------------ ----------- ----------- -----------
Earnings (loss) before
income taxes......... 4,810,716 (3,098,090) (2,783,052) (4,442,326)
Income taxes--current..... (192,747) (119,545) (70,557) (48,142)
------------ ----------- ----------- -----------
Net earnings (loss)... $ 4,617,969 (3,217,635) (2,853,609) (4,490,468)
============ =========== =========== ===========
Weighted average common
shares outstanding....... 15,129,637 2,860,390 2,694,830 2,694,830
============ =========== =========== ===========
Earnings (loss) per common
share.................... $0.31 (1.32) (1.15) (1.85)
===== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1996 AND 1995, SEVEN MONTHS ENDED APRIL 30, 1994 AND YEAR
ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
REDEEMABLE CAPITAL IN
PREFERRED COMMON EXCESS OF ACCUMULATED
STOCK STOCK PAR VALUE DEFICIT TOTAL
----------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30,
1992................... $ 6,678,007 269,483 941,095 1,936,475 9,825,060
Preferred stock
dividends (70,034
shares)................ 490,238 -- -- (490,330) (92)
Net loss................ -- -- -- (4,490,468) (4,490,468)
----------- --------- ---------- ---------- ----------
BALANCE AT SEPTEMBER 30,
1993................... 7,168,245 269,483 941,095 (3,044,323) 5,334,500
Preferred stock
dividends (36,921
shares)................ 258,447 -- -- (258,503) (56)
Net loss................ -- -- -- (2,853,609) (2,853,609)
----------- --------- ---------- ---------- ----------
BALANCE AT APRIL 30,
1994................... 7,426,692 269,483 941,095 (6,156,435) 2,480,835
Preferred stock
dividends (78,515
shares)................ 545,195 -- -- (545,301) (106)
Common stock issued in
connection with
conversion of preferred
stock.................. (7,971,887) 295,255 7,676,632 -- --
Common stock issued in
connection with stock
purchase agreements.... -- 833,333 29,166,669 -- 30,000,002
Common stock issued in
connection with a
merger................. -- 80,000 120,000 -- 200,000
Costs related to
conversion of preferred
stock and issuance of
common stock........... -- -- (992,394) -- (992,394)
Net loss................ -- -- -- (3,217,635) (3,217,635)
----------- --------- ---------- ---------- ----------
BALANCE AT APRIL 30,
1995................... -- 1,478,071 36,912,002 (9,919,371) 28,470,702
Common stock issued for
cash................... -- 455, 046 24,558,462 -- 25,013,508
Costs related to
issuance of common
stock.................. -- -- (282,988) -- (282,988)
Net earnings............ -- -- -- 4,617,969 4,617,969
----------- --------- ---------- ---------- ----------
BALANCE AT APRIL 30,
1996................... $ -- 1,933,117 61,187,476 (5,301,402) 57,819,191
=========== ========= ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996 AND 1995, SEVEN MONTHS ENDED APRIL 30, 1994 AND YEAR
ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net earnings (loss)........ $ 4,617,969 (3,217,635) (2,853,609) (4,490,468)
Adjustments to reconcile
net earnings (loss) to net
cash provided (used) by
operating activities:
Depreciation and
amortization............ 1,169,541 1,147,291 665,955 1,099,253
Equity in (earnings)
losses of affiliates.... (942,216) (407,208) (710,626) 136,511
Minority interests....... 337,253 112,555 231,156 (77,802)
Dividends received from
affiliates.............. -- 125,000 75,000 40,000
Loss on cancellation of
aircraft lease.......... -- 286,735 -- --
Write-off of noncurrent
receivable.............. -- 190,000 -- --
Loss (gain) on
disposition of assets... 167,459 (127,645) -- (4,623)
Changes in operating
assets and liabilities,
net of noncash
activities:
Trade accounts
receivable............ (3,297,248) 1,283,422 (10,201,357) 1,239,836
Inventories............ (2,247,795) (1,591,906) 23,107,751 (8,756,709)
Prepaid expenses and
other................. (569,818) 169,196 (567,652) (63,513)
Trade accounts
payable............... (10,979,599) (641,400) (12,845,989) 11,540,616
Inventory due under
exchange agreements... 4,978,815 2,726,995 (1,801,431) 2,038,399
Excise taxes payable
and other accrued
liabilities........... 2,845,886 (291,980) 2,713,551 2,302,687
------------ ---------- ----------- ----------
Net cash provided
(used) by operating
activities........... (3,919,753) (236,580) (2,187,251) 5,004,187
------------ ---------- ----------- ----------
Cash flows from investing
activities:
Purchases of property,
plant and equipment....... (4,124,264) (747,774) (461,888) (4,730,726)
Proceeds from sale of
assets.................... 320,210 260,585 -- 8,245
Decrease (increase) in
other assets.............. (377,323) 253,627 (579,181) 107,589
------------ ---------- ----------- ----------
Net cash used by
investing
activities........... (4,181,377) (233,562) (1,041,069) (4,614,892)
------------ ---------- ----------- ----------
Cash flows from financing
activities:
Borrowings (repayments) of
long-term debt, net....... (9,100,568) 166,397 3,691,941 (1,315,608)
Deferred debt issuance
costs..................... (239,772) -- -- --
Cash dividends paid on
preferred stock........... -- (106) (56) (92)
Cash received in connection
with merger............... -- 200,000 -- --
Common stock issued for
cash...................... 25,013,508 -- -- --
Stock subscription received
in cash................... 30,000,002 -- -- --
Costs paid relating to
conversion of preferred
stock and issuance of
common stock.............. (970,634) (304,748) -- --
------------ ---------- ----------- ----------
Net cash provided
(used) by financing
activities........... 44,702,536 61,543 3,691,885 (1,315,700)
------------ ---------- ----------- ----------
Increase (decrease) in
cash and cash
equivalents.......... 36,601,406 (408,599) 463,565 (926,405)
Cash and cash equivalents at
beginning of period........ 1,801,828 2,210,427 1,746,862 2,673,267
------------ ---------- ----------- ----------
Cash and cash equivalents at
end of period.............. $ 38,403,234 1,801,828 2,210,427 1,746,862
============ ========== =========== ==========
Supplemental disclosure of
cash flow information--
Noncash investing and
financing activities--
Costs accrued relating to
conversion of preferred
stock and issuance of
common stock............ $ -- 687,646 -- --
============ ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business and Basis of Presentation
TransMontaigne Oil Company (the Company) is a holding company which pursues,
through its subsidiaries, business opportunities in the downstream sector of
the petroleum industry. The Company's principal operating subsidiary is
engaged in the business of pipelining, terminaling, storing and selling
refined petroleum products principally in the Mid-Continent region of the
United States.
Management makes various estimates and assumptions in determining the
reported amounts of assets, liabilities, revenues and expenses for each period
presented, and in the disclosures of commitments and contingencies. 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. The Company provides short-term credit to its customers which, with
the exception of related parties, are generally all wholesale distributors of
these products. The Company requires collateral, such as letters of credit,
liens on products, and guarantees on a customer by customer basis. The Company
maintains allowances for potential uncollectible accounts receivable, which
historically have been minimal.
(b) Principles of Consolidation
The accompanying consolidated financial statements include, collectively,
the Company and its wholly owned subsidiary, Continental Ozark, Inc. (COZ),
and COZ's wholly owned subsidiaries and COZ's 65% owned subsidiary,
Continental Ozark Holding, Inc. (COH). All significant intercompany accounts
and transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all short-term investments with a maturity of three
months or less when acquired to be cash equivalents.
(d) Inventories
Inventories of refined products are stated at the lower of last-in, first-
out (LIFO) cost or market. Refined products due from third parties under
exchange agreements are included in inventory and recorded at current
replacement cost. Refined products due to third parties under exchange
agreements are recorded at current replacement cost. Adjustments resulting
from changes in current replacement cost for refined products due to or from
third parties under exchange agreements are reflected in cost of products
sold. The exchange agreements are generally for a term of 30 days and are
generally settled by delivering product to or receiving product from the party
to the exchange.
(e) Property, Plant and Equipment
Depreciation of equipment is provided by the straight-line and double-
declining balance methods. Depreciation of all other assets is provided by the
straight-line method. Estimated useful lives are 25 years for plant, which
includes buildings, storage tanks and pipelines and 3 to 20 years for
equipment. All items of property, plant and equipment are carried at cost.
(f) Investment in Lion Oil Company
The Company's investment in Lion Oil Company (Lion) is accounted for using
the equity method. Under this method, the investment, originally recorded at
cost, is adjusted to recognize the Company's
F-17
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
share of the net earnings or losses of Lion as incurred rather than as
dividends or other distributions are received.
(g) Recognition of Revenue
Revenue from the sale of refined petroleum products is recorded at the time
title and risk of ownership pass. Transfers of products to or from third
parties under exchange agreements do not culminate the earnings process and
are recorded as inventory and liability transactions with no effect on income.
(h) Deferred Debt Issuance Costs
Deferred debt issuance costs related to senior subordinated debentures and
the long-term credit agreements are amortized on the interest method over the
term of the underlying debt instrument. Accumulated amortization was $164,970
and $101,332 at April 30, 1996 and 1995, respectively.
(i) 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.
(j) Minority Interests
Minority interests consist of ownership interests in COH attributable to
shareholders other than the Company.
(k) Inventory Management
The Company 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 recorded in
inventory and are recognized when the inventory is sold. Since February 1996,
the Company has also engaged in the trading of futures contracts. Gains and
losses from these trading activities are recognized as they occur.
The Company's Risk and Product Management Committee reviews the total
inventory position on a weekly basis in order to ensure compliance with the
Company's inventory management policies, including all hedging and trading
activities. The Company has adopted policies whereby its net inventory
position subject to price risk requires the prior approval of the Risk and
Product Management Committee.
At April 30, 1996, the Company had no net open futures contracts designated
as hedges, and there were no deferred hedging gains or losses.
In connection with its trading activities, the Company had outstanding
contracts to sell 50,000 barrels of products and contracts to purchase 50,000
barrels of product at April 30, 1996. The unrealized loss relating to such
contracts of approximately $267,000 has been charged to operations for the
year ended April 30, 1996. The net trading loss on futures contracts of
approximately $40,000 for the period from the
F-18
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
commencement of trading activities to April 30, 1996 has been included in
product costs and direct operating expenses in the accompanying statements of
operations.
Product futures contracts are traded on the New York Merchantile Exchange
(NYMEX). The change in market value of NYMEX-traded futures contracts requires
daily cash settlements in margin accounts with brokers. NYMEX future contracts
are guaranteed by the NYMEX and have nominal credit risk. The Company is
exposed to credit risk in the event the counterparties to other third party
agreements are not able to perform their contractual obligations.
(l) Earnings (Loss) Per Common Share
Earnings (loss) per common share has been computed by application of the
treasury stock method, calculated based on the weighted average number of
common shares outstanding during the period after giving effect to preferred
stock dividends. The assumed conversion of the outstanding shares of
convertible preferred stock was anti-dilutive for all periods presented prior
to the conversion of all outstanding shares of preferred stock into common
stock effective April 26, 1995.
(m) Reclassifications
Certain amounts in the accompanying consolidated financial statements for
prior periods have been reclassified to conform to the classifications used in
1996.
(2) INVENTORIES
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Refined petroleum products.......................... $12,387,371 12,929,837
Refined petroleum products due from third parties
under exchange agreements.......................... 11,208,859 8,421,611
Other............................................... 12,906 9,893
----------- ----------
$23,609,136 21,361,341
=========== ==========
</TABLE>
During the seven months ended April 30, 1994, the Company recorded an
adjustment of approximately $3,640,000 to reduce inventories to the lower of
cost or market, calculated as of December 31, 1993.
If the lower of average or replacement cost method of accounting had been
used instead of the LIFO method for valuing refined petroleum products,
inventories would have been $5,779,000 and $5,996,000 greater than reported at
April 30, 1996 and 1995, respectively.
During the year ended April 30, 1995 and the seven months ended April 30,
1994 inventory quantities were reduced, which resulted in a liquidation of
LIFO inventory layers carried at costs which prevailed in prior years. The
effect of the liquidations was to decrease product costs and decrease the net
loss for the year ended April 30, 1995 by approximately $863,000 and increase
product costs and the net loss for seven months ended April 30, 1994 by
approximately $904,000.
The Company's refined petroleum products inventory consists primarily of
gasoline and distillates. A significant portion of this inventory represents
line fill and tank bottoms. This portion of the inventory is required for
operating balances in the conduct of the Company's daily distribution
activities and is maintained both in tanks and pipelines owned by the Company
and pipelines owned by third parties.
F-19
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Land.................................................. $ 1,072,798 1,047,324
Terminals and equipment............................... 6,230,696 5,764,874
Pipelines, rights of way and equipment................ 17,182,135 13,960,421
Other plant and equipment............................. 1,513,478 1,190,626
----------- ----------
25,999,107 21,963,245
Less accumulated depreciation......................... 6,461,244 5,360,082
----------- ----------
$19,537,863 16,603,163
=========== ==========
</TABLE>
(4) INVESTMENT IN LION
The Company, through its 65% ownership of COH, effectively owns 18% of the
common stock of Lion. At April 30, 1996 and 1995, the Company's investment in
Lion was approximately $15,494,000 and $14,497,000, respectively, and the
minority interests were approximately $5,453,000 and $5,116,000, respectively.
Summarized balance sheet information for Lion as of April 30, 1996 and 1995
is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Assets:
Current assets.................................... $ 94,403,000 95,610,000
Property, plant and equipment, net................ 68,436,000 71,186,000
Other assets...................................... 4,948,000 1,926,000
------------ -----------
$167,787,000 168,722,000
============ ===========
Liabilities and stockholders' equity:
Current liabilities............................... $ 40,454,000 37,273,000
Long-term debt.................................... 62,140,000 71,239,000
Deferred income taxes............................. 9,353,000 7,962,000
Stockholders' equity.............................. 55,840,000 52,248,000
------------ -----------
$167,787,000 168,722,000
============ ===========
</TABLE>
Summarized statement of operations information for Lion for the years ended
April 30, 1996, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.................... $566,812,000 525,037,000 477,573,000 493,244,000
Cost of sales................ 549,210,000 511,655,000 462,491,000 484,020,000
------------ ----------- ----------- -----------
Gross profit............... 17,602,000 13,382,000 15,082,000 9,224,000
Selling, general and
administrative expenses..... 5,996,000 5,763,000 5,224,000 4,968,000
Management fees.............. 1,467,000 532,000 1,166,000 55,000
------------ ----------- ----------- -----------
Operating income........... 10,139,000 7,087,000 8,692,000 4,201,000
Interest expense and other
(income), net............... 4,260,000 4,939,000 4,002,000 3,944,000
------------ ----------- ----------- -----------
Earnings before income
tax....................... 5,879,000 2,148,000 4,690,000 257,000
Income tax expense........... 2,288,000 892,000 1,831,000 129,000
------------ ----------- ----------- -----------
Net earnings............... $ 3,591,000 1,256,000 2,859,000 128,000
============ =========== =========== ===========
</TABLE>
F-20
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has $2,600,000 of letters of credit outstanding to a bank to
assist Lion in obtaining financing. No outstanding obligations exist under
these letters of credit as of April 30, 1996.
(5) LONG-TERM DEBT
Long-term debt at April 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
12 3/4% senior subordinated debentures net of
discount
(face amount $4,000,000).......................... $ 3,948,867 3,938,468
Line of credit with a bank......................... 25,000,000 33,000,000
Note payable to a bank at its prime rate plus 1/2%
repaid in May 1995................................ -- 1,100,000
Other.............................................. -- 10,968
----------- ----------
28,948,867 38,049,436
Less current portion............................... -- (1,103,826)
----------- ----------
$28,948,867 36,945,610
=========== ==========
</TABLE>
In March 1991, the Company issued 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, the Company issued warrants to purchase 248,686 shares of
the Company's 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.
On December 7, 1995 the Company entered into a revolving line of credit with
a major bank (the Credit Agreement). The aggregate commitment for outstanding
letters of credit and revolving note advances is up to $45,000,000 through
November 30, 1999. The funds advanced under this line are used principally to
fund working capital requirements of the Company and to issue letters of
credit to persons with whom the Company and its subsidiaries do business.
Borrowings under the Credit Agreement bear interest at a rate per year equal
to the bank's announced base rate, or at the Company's election, a Eurodollar
interest rate option. The interest rate at April 30, 1996 was 6.875%.
As of April 30, 1996, the Company had $25,000,000 outstanding under the
Credit Agreement and its subsidiary, COZ, had outstanding standby letters of
credit to product suppliers and a bank (see note 4) totaling approximately
$3,200,000 at April 30, 1996. Actual obligations to such suppliers at April
30, 1996 are included in trade accounts payable.
The Credit Agreement contains a negative pledge covenant by the Company and
its subsidiaries and is secured by the stock of the subsidiaries. The Credit
Agreement contains financial ratio tests relating to consolidated income from
operations, consolidated funded debt, liquidity and consolidated tangible net
worth, working capital and tangible net worth. As of April, 1996, the Company
was in compliance with all of such tests.
F-21
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Maturities of long-term debt for fiscal years subsequent to 1996 are as
follows:
<TABLE>
<S> <C>
1997........................................................... $ --
1998........................................................... --
1999........................................................... --
2000........................................................... 27,000,000
2001........................................................... 1,948,867
-----------
$28,948,867
===========
</TABLE>
Cash payments for interest were approximately $2,994,000, $2,478,000,
$1,741,000 and $2,230,000 for the years ended April 30, 1996 and 1995, the
seven months ended April 30, 1994 and the year ended September 30, 1993,
respectively.
(6) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each of on and off-balance sheet financial instruments, along with the
methods and assumptions used to estimate such fair values at April 30, 1996:
Cash and Cash Equivalents, Trade Receivables and Trade Accounts Payable
The carrying amount approximates fair value because of the short term
maturity of these instruments.
Long-term Debt
The carrying value of the line of credit approximates its fair value, as the
line bears interest at a variable rate.
The carrying value of the 12 3/4% senior subordinated debentures
approximates the estimated fair value of the debentures, as the effective
interest rate of the debentures approximates the current market rate for
similar debt instruments.
Futures Contracts
The carrying value and fair value of the futures contracts entered into for
trading purposes was a liability of approximately $267,000, based on the
quoted market price of the related futures contracts at April 30, 1996.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK
In March 1991, the Company issued 857,143 shares of voting redeemable Series
A cumulative convertible preferred stock at $7.00 per share which had a
liquidation and mandatory redemption price of the same amount. This preferred
stock had one vote per share. Dividends on the preferred stock were payable
quarterly, at 7.15% per annum of the liquidation value outstanding, in
additional shares of preferred stock or, at the Company's option, in cash.
F-22
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective as of April 26, 1995 all outstanding shares of preferred stock
were converted into common stock.
(8) SHAREHOLDERS' EQUITY
(a) Common Stock
Effective as of April 26, 1995, the Company (then Continental Ozark
Corporation) and TransMontaigne Oil Company, (TransMontaigne) entered into a
Merger Agreement pursuant to which all of the outstanding shares of common
stock of TransMontaigne were converted into 800,000 shares of common stock of
Continental Ozark Corporation. Upon consummation of the merger, the Company
received $200,000 in cash and changed its name to TransMontaigne Oil Company.
The merger was accounted for as an acquisition of TransMontaigne by the
Company using the purchase method of accounting. TransMontaigne had no
operations prior to April 26, 1995. Concurrently, the Company entered into a
series of Stock Purchase Agreements and other related transactions, with
certain institutional and individual investors pursuant to which the Company
issued 8,333,334 shares of the Company's common stock for $30,000,002.
Effective as of April 26, 1995, the Company and the holders of its
redeemable convertible preferred stock entered into a Conversion Agreement
pursuant to which all of the outstanding shares of preferred stock of the
Company were converted into 2,952,551 shares of common stock of the Company.
Effective as of April 17, 1996 the Company completed a private placement of
4,545,456 shares of common stock at $5.50 per share for proceeds of
$25,000,008.
(b) Stock Options
The Company has adopted two stock option plans, (the "1991 Plan" and the
"1995 Plan") under which stock options may be granted to key employees of the
Company. Under the 1991 Plan, the Company may grant options for up to 300,000
shares of common stock at prices and for terms as determined by the
Administrative Committee of the 1991 Plan. The Company has reserved 1,000,000
shares of common stock for options that may be granted under the 1995 Plan.
Options granted under the 1995 Plan are exercisable at prices determined by
the Incentive Plan Committee; however, in no event shall the price be less
than the fair market value of the stock on the date of grant. Options under
the 1995 Plan expire at such time as the Incentive Plan Committee determines,
but no later than seven years from the date of grant.
F-23
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Changes in stock options outstanding for the year ended April 30, 1996 and
1995, the seven months ended April 30, 1994 and the year ended September 30,
1993 are as follows:
<TABLE>
<CAPTION>
1991 PLAN 1995 PLAN
--------------------- --------------------
OPTION OPTION
PRICE PER PRICE PER
SHARES SHARE SHARES SHARE
-------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Outstanding at September 30, 1992
and 1993.......................... 220,254 $3.50--6.10 -- $ --
Forfeited.......................... (124,500) 6.10 -- --
Granted............................ -- -- 124,500 2.70
-------- ----------- ------- -----------
Outstanding at April 30, 1994...... 95,754 3.50--6.10 124,500 2.70
Granted............................ -- -- 358,000 2.70
-------- ----------- ------- -----------
Outstanding at April 30, 1995...... 95,754 3.50--6.10 482,500 2.70
Granted............................ -- -- 421,746 3.60--5.50
Exercised.......................... -- -- (5,000) 2.70
-------- ----------- ------- -----------
Outstanding at April 30, 1996...... 95,754 $3.50--6.10 899,246 $2.70--5.50
======== =========== ======= ===========
Exercisable at April 30, 1996...... 95,754 $3.50--6.10 718,373 $2.70--5.50
======== =========== ======= ===========
</TABLE>
(9) INCOME TAXES
Income tax expense, consisting solely of state income taxes, was $192,747,
$119,545, $70,557 and $48,142 for the years ended April 30, 1996 and 1995, the
seven months ended April 30, 1994 and the year ended September 30, 1993,
respectively. Income tax expense differs from the amount computed by applying
the U.S. federal corporate income tax rate of 34% to pretax earnings (loss) as
a result of the following:
<TABLE>
<CAPTION>
1996 1995 1994 1993
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Computed "expected" tax
expense...................... $ 1,636,000 (1,053,000) (946,000) (1,510,000)
Increase (reduction) in income
taxes resulting from:
Increase (decrease) in the
valuation
allowance for deferred tax
assets
allocated to income tax
expense.................... (1,785,000) 1,174,000 1,032,000 1,617,000
State income taxes, net of
federal
income tax benefit......... 127,000 79,000 47,000 40,571
Other, net.................. 214,747 (80,455) (62,443) (99,429)
----------- ---------- --------- ----------
Income tax expense........ $ 192,747 119,545 70,557 48,142
=========== ========== ========= ==========
</TABLE>
F-24
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences which give rise to significant
portions of the deferred tax assets and deferred tax liabilities at April 30,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Deferred tax assets:
Inventories, principally due to difference in
costing method used for tax purposes............... $ 2,196,000 2,278,000
Unrealized commodity futures contract losses........ 102,000 426,000
Future deductible amounts for income tax purposes
resulting from a change in the method of accounting
for inventories.................................... -- 1,038,000
Net operating loss carryforwards.................... 5,670,000 5,560,000
Alternative minimum tax credit carryforwards........ 24,000 24,000
----------- ----------
Total gross deferred tax assets................... 7,992,000 9,326,000
Less valuation allowance............................ (4,474,000) (6,259,000)
----------- ----------
Net deferred tax assets........................... 3,518,000 3,067,000
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation methods............................ (2,994,000) (2,778,000)
Investments in affiliated company, principally due
to undistributed earnings.......................... (524,000) (289,000)
----------- ----------
Net deferred taxes................................ $ -- --
=========== ==========
</TABLE>
The Company changed its year-end for income tax purposes from December 31 to
April 30, effective in 1995. The Company also changed its method of accounting
for inventories for income tax purposes effective January 1, 1994. The effect
of this change was approximately $8,200,000 at January 1, 1994, and, under the
provisions of the Internal Revenue Code, this amount is deductible over a 3-
year period.
At April 30, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $14,923,000 which are available
to offset future federal taxable income, if any, through 2009. In addition,
the Company has alternative minimum tax credit carryforwards of approximately
$24,000 available to reduce future federal regular income taxes, if any, which
can be carried forward indefinitely.
Under SFAS 109, the Company provides for deferred income taxes on the
undistributed net earnings of Lion. Under the transition rules in SFAS 109,
the Company is not required to recognize a deferred tax liability of
approximately $6,100,000 for the undistributed net earnings of Lion which
arose prior to the adoption of SFAS 109 because the Company currently does not
expect those undistributed earnings to become taxable to the Company in the
foreseeable future. A deferred tax liability will be recognized on these
undistributed earnings when the Company expects that it will recover those
undistributed earnings in a taxable manner, such as through the receipt of
dividends or the sale of the investment.
The Company paid state income taxes of approximately $106,000, $138,000, and
$45,000 for the years ended April 30, 1996 and 1995 and the seven months ended
April 30, 1994, respectively.
(10) RELATED PARTY TRANSACTIONS
The Company had sales of $3,380,000, $884,000, $6,698,000 and $7,691,000 and
purchases of $33,879,000, $28,997,000, $15,710,000 and $52,050,000 for the
years ended April 30, 1996 and 1995, the
F-25
<PAGE>
TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
seven months ended April 30, 1994 and the year ended September 30, 1993,
respectively, to companies affiliated by common ownership.
Related party balances at April 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- ---------
<S> <C> <C>
Accounts receivable........................................ $90,498 45,549
Accounts payable........................................... 84,034 1,270,335
</TABLE>
(11) NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, Accounting for
Impairment of Long-Lived Assets to be Disposed of (SFAS 121) was issued in
March, 1995, by the Financial Accounting Standards Board. It requires that
long-lived assets and certain identifiable intangibles to be held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is required to be adopted for fiscal years beginning
after December 15, 1995. The adoption of this statement by the Company is not
expected to have a significant effect on the financial statements.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS 123) was issued by the Financial Accounting Standards
Board in October 1995. This standard addresses the timing and measurement of
stock-based compensation expense. Entities electing to continue to follow
Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to
Employees, (APB 25) must make pro forma disclosures of net income and earnings
per share, as if the fair value based method of accounting defined by SFAS 123
had been applied. SFAS 123 is applicable to fiscal years beginning after
December 15, 1995. The Company has elected to retain the measurement approach
of APB 25, (the intrinsic value method) for recognizing stock-based
compensation in the consolidated financial statements. The Company will
include the disclosures required by SFAS 123 in future financial statements.
(12) SUBSEQUENT EVENT
On June 4, 1996 the Company merged (the Merger) with Sheffield Exploration
Company, Inc., a Delaware corporation (Old Sheffield), pursuant to the
Restated Agreement and Plan of Merger dated as of February 6, 1996 between the
Company and Old Sheffield (the Merger Agreement).
As a result of the Merger, the Company merged into Old Sheffield, which
became the surviving corporation of the Merger, and (i) each share of common
stock of the Company issued and outstanding immediately prior to the closing
of the Merger was converted at the closing into the right to receive one share
of common stock of the surviving corporation (New Common Stock), (ii) each
2.432599 shares of Old Sheffield common stock issued and outstanding
immediately prior to the closing of the Merger became one share of New Common
Stock, (iii) the name of Old Sheffield was changed to TransMontaigne Oil
Company and (iv) the number of authorized shares of New Common Stock was
increased to 40,000,000.
The Merger constituted a reverse acquisition of Old Sheffield by the
Company, in that Old Sheffield survived the Merger, but is owned approximately
93% by the former stockholders of the Company.
Pro forma results of the Company, assuming the Merger had occurred at the
beginning of fiscal 1996 or 1995, would not be materially different from the
results reported.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders TransMontaigne Oil Company:
We have audited the accompanying historical summaries of revenue and direct
operating expenses of a natural gas gathering, processing, treating and
fractionation system (the Grasslands Facilities) of Koch Industries, Inc.
(Koch) to be acquired by TransMontaigne Oil Company for the nine months ended
September 30, 1996 and the years ended December 31, 1995 and 1994 (the
Historical Summaries). These Historical Summaries are the responsibility of
Koch's management. Our responsibility is to express an opinion on the
Historical Summaries based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the Historical Summaries are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summaries. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the Historical Summaries. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying Historical Summaries were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in the registration statement on Form S-2 of
TransMontaigne Oil Company) as described in Note 1 and are not intended to be
a complete presentation of the Grasslands Facilities's revenue and expenses.
In our opinion, the Historical Summaries referred to above present fairly,
in all material respects, the revenue and direct operating expenses of the
Grasslands Facilities as described in Note 1 for the nine months ended
September 30, 1996 and the years ended December 31, 1995 and 1994.
KPMG Peat Marwick LLP
Denver, Colorado
December 4, 1996
F-27
<PAGE>
GRASSLANDS FACILITIES
HISTORICAL SUMMARIES OF REVENUE AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS YEARS ENDED
ENDED ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, ---------------------
1996 1995 1995 1994
------------- ------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue..................... $35,656,103 32,816,461 44,721,318 52,079,226
Direct operating expenses:
Cost of products sold..... 18,744,140 16,178,180 22,309,739 25,619,962
Operating and mainte-
nance.................... 7,701,298 9,028,290 11,910,620 12,719,034
----------- ---------- ---------- ----------
26,445,438 25,206,470 34,220,359 38,338,996
----------- ---------- ---------- ----------
Revenue in excess of direct
operating expenses......... $ 9,210,665 7,609,991 10,500,959 13,740,230
=========== ========== ========== ==========
</TABLE>
See accompanying notes to the Historical Summaries.
F-28
<PAGE>
GRASSLANDS FACILITIES
NOTES TO HISTORICAL SUMMARIES OF REVENUE AND DIRECT OPERATING EXPENSES
(1) PURCHASE OF GAS GATHERING AND PROCESSING FACILITIES AND BASIS PRESENTATION
On October 31, 1996, TransMontaigne entered into an agreement with Koch
Industries, Inc. (Koch) for the acquisition by TransMontaigne of a natural gas
gathering, processing, treating and fractionation system located in western
North Dakota and northeastern Montana (the Grasslands Facilities) for
approximately $75,000,000, subject to adjustment pursuant to certain
provisions of the agreement.
The accompanying Historical Summaries are included to provide historical
information on the revenue and direct operating expenses of the facilities
acquired by TransMontaigne and may not be representative of future operations.
The Historical Summaries were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission and are not
intended to be a complete presentation of the Grasslands Facilities's revenue
and expenses. A provision for depreciation has not been included since the
Company's basis in the assets will be different from Koch's basis. General and
administrative expenses have not been included because it is impractical to
allocate the historical expenses incurred by Koch to these facilities, and
such expenses may not be comparable to amounts expected to be incurred by
TransMontaigne. The Historical Summaries also do not include federal and state
income taxes or interest expense, as it is impractical to allocate such
amounts to the individual facilities of Koch.
F-29
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERINGS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMA-
TION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
TRANSMONTAIGNE, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
SHARES OF COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT
LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF TRANSMONTAIGNE SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Cautionary Statement Regarding Forward-Looking Statements................ 9
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 12
Price Range of Common Stock and Dividend Policy.......................... 13
Capitalization........................................................... 14
Selected Historical Consolidated Financial and Operating Data............ 15
Selected Pro Forma Consolidated Financial Data........................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 25
Management............................................................... 34
Security Ownership of Certain Beneficial Owners and Management........... 37
Selling Stockholders..................................................... 39
Description of Capital Stock............................................. 39
Underwriting............................................................. 41
Legal Matters............................................................ 43
Experts.................................................................. 43
Available Information.................................................... 43
Incorporation of Certain Documents by Reference.......................... 44
Index to Consolidated Financial Statements............................... F-1
</TABLE>
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[LOGO OF TRANSMONTAIGNE OIL COMPANY APPEARS HERE]
TRANSMONTAIGNE OIL COMPANY
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4,357,000 SHARES
COMMON STOCK
PROSPECTUS
FEBRUARY 11, 1997
----------------
DILLON, READ & CO. INC.
A.G. EDWARDS & SONS, INC.
PETRIE PARKMAN & CO.
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