<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QT
(Mark One)
[ ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
OR
[X] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period May 1, 1998 to June 30, 1998
Commission File Number 001-11763
TRANSMONTAIGNE INC.
(FORMERLY TRANSMONTAIGNE OIL COMPANY)
DELAWARE 06-1052062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2750 REPUBLIC PLAZA, 370 SEVENTEENTH STREET
DENVER, COLORADO 80202
(Address, including zip code, of principal executive offices)
(303) 626-8200
(Telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of September 15, 1998, there were 25,973,624 shares of the registrant's
Common Stock outstanding.
<PAGE>
TRANSMONTAIGNE INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
June 30, 1998 and April 30, 1998..................................... 4
Consolidated Statements of Operations
Two Months Ended June 30, 1998 and
Three Months Ended July 31, 1997..................................... 5
Consolidated Statements of Stockholders' Equity
Two Months Ended June 30, 1998 and
Year Ended April 30, 1998............................................ 6
Consolidated Statements of Cash Flows
Two Months Ended June 30, 1998 and
Three Months Ended July 31, 1997..................................... 7
Notes to Consolidated Financial Statements........................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................17
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES................................................35
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................35
SIGNATURES...........................................................36
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements of TransMontaigne Inc. are included herein
beginning on the following pages.
3
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND APRIL 30, 1998 (UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
ASSETS June 30, 1998 April 30, 1998
- ------ ------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 27,215,374 29,807,354
Trade accounts receivable 36,391,584 74,118,482
Inventories 63,559,637 33,410,481
Deferred tax assets, net 573,000 -
Prepaid expenses and other 2,705,905 2,673,807
------------- --------------
130,445,500 140,010,124
------------- --------------
Property, plant and equipment:
Land 2,801,964 2,801,964
Plant and equipment 191,600,521 183,669,911
Accumulated depreciation (21,912,875) (18,705,670)
------------- --------------
172,489,610 167,766,205
------------- --------------
Investments and other assets:
Investments 10,180,720 10,180,720
Deferred debt issuance costs, net 1,607,855 1,661,878
Other assets 3,491,813 3,685,903
------------- --------------
15,280,388 15,528,501
------------- --------------
$ 318,215,498 323,304,830
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 28,640,766 28,834,154
Inventory due under exchange agreements 2,730,787 4,568,886
Excise taxes payable 7,846,657 7,329,667
Other accrued liabilities 4,760,063 4,884,153
------------- --------------
43,978,273 45,616,860
------------- --------------
Long-term debt 128,971,400 128,969,667
Deferred tax liabilities - 914,000
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 2,000,000 shares, none issued - -
Common stock, par value $.01 per share, authorized
40,000,000 shares, issued and outstanding 25,953,324
shares at June 30, 1998; and 25,942,870 shares at
April 30, 1998 259,534 259,429
Capital in excess of par value 136,780,000 136,717,865
Unearned compensation (618,348) (680,531)
Retained earnings 8,844,639 11,507,540
------------- --------------
145,265,825 147,804,303
------------- --------------
$ 318,215,498 323,304,830
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
TWO MONTHS ENDED JUNE 30, 1998 AND THREE MONTHS ENDED JULY 31, 1997 (UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
June 30, 1998 July 31, 1997
------------- -------------
<S> <C> <C>
Revenues:
Product sales, pipeline tariffs, terminal
and storage fees and natural gas
gathering and processing fees $ 315,533,026 462,149,021
Costs and expenses:
Product costs and direct
operating expenses 313,120,368 451,954,111
General and administrative 3,225,411 2,783,407
Depreciation and amortization 1,773,315 1,724,040
------------- -------------
318,119,094 456,461,558
------------- -------------
Operating income (loss) (2,586,068) 5,687,463
Other income (expenses):
Interest income 289,525 564,910
Interest expense (1,616,251) (1,498,746)
Other financing costs (153,014) (144,062)
------------- -------------
(1,479,740) (1,077,898)
------------- -------------
Earnings (loss) before
income taxes (4,065,808) 4,609,565
Income tax benefit (expense) 1,402,907 (1,600,000)
------------- -------------
Net earnings (loss) $ (2,662,901) 3,009,565
============= =============
Weighted average common
shares outstanding:
Basic 25,948,709 25,805,554
============= =============
Diluted 25,948,709 26,659,129
============= =============
Earnings (loss) per common share
Basic $ (0.10) 0.12
============= =============
Diluted $ (0.10) 0.11
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TWO MONTHS ENDED JUNE 30, 1998 AND YEAR ENDED APRIL 30, 1998 (UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
Capital in
Common excess of Unearned Retained
stock par value Compensation earnings Total
--------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT APRIL 30, 1997 $ 257,947 134,843,884 - 3,869,910 138,971,741
Common stock issued for
options exercised 922 406,404 - - 407,326
Tax benefit arising from
options exercised - 583,000 - - 583,000
Costs related to issuance
of common stock - (53,863) - - (53,863)
Unearned compensation
related to restricted
stock awards 560 938,440 (939,000) - -
Amortization of unearned
compensation - - 258,469 - 258,469
Net earnings - - - 7,637,630 7,637,630
--------- ----------- ------------ ---------- -----------
BALANCE AT APRIL 30, 1998 259,429 136,717,865 (680,531) 11,507,540 147,804,303
Common stock issued for
options exercised 88 36,652 - - 36,740
Common stock issued for
services rendered 17 25,483 - - 25,500
Amortization of unearned
compensation - - 62,183 - 62,183
Net (loss) - - - (2,662,901) (2,662,901)
--------- ----------- ------------ ---------- -----------
BALANCE AT JUNE 30, 1998 $ 259,534 136,780,000 (618,348) 8,844,639 145,265,825
========= =========== ============ ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWO MONTHS ENDED JUNE 30, 1998 AND THREE MONTHS ENDED JULY 31, 1997 (UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
June 30, 1998 July 31, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (2,662,901) 3,009,565
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 1,773,315 1,724,040
Deferred tax expense (benefit) (1,487,000) 1,500,000
Gain on disposition of assets (551) (3,409)
Amortization of unearned compensation 62,183 -
Amortization of deferred debt issuance costs 80,274 98,611
Changes in operating assets and liabilities,
net of noncash activities:
Trade accounts receivable 37,726,898 (7,480,636)
Inventories (30,149,156) (11,140,576)
Prepaid expenses and other (32,098) 189,713
Trade accounts payable (193,388) 1,589,430
Inventory due under exchange agreements (1,838,099) 4,451,687
Excise taxes payable and other
accrued liabilities 392,900 1,651,865
------------- -------------
Net cash provided (used) by
operating activities 3,672,377 (4,409,710)
------------- -------------
Cash flows from investing activities:
Purchases of property, plant and equipment (6,455,349) (4,873,597)
Proceeds from sale of assets 657 5,805
Decrease (increase) in other assets, net 178,113 (28,533)
------------- -------------
Net cash (used) by
investing activities (6,276,579) (4,896,325)
------------- -------------
Cash flows from financing activities:
Borrowings of long-term debt, net 1,733 14,187,600
Deferred debt issuance costs (26,251) (60,548)
Common stock issued for cash 36,740 87,900
Costs related to issuance of common stock - (27,363)
------------- -------------
Net cash provided by
financing activities 12,222 14,187,589
------------- -------------
Increase (decrease) in cash
and cash equivalents (2,591,980) 4,881,554
Cash and cash equivalents at beginning of period 29,807,354 36,384,325
------------- -------------
Cash and cash equivalents at end of period $ 27,215,374 41,265,879
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
________________________________________________________________________________
(1) BASIS OF PRESENTATION
The TransMontaigne Inc. ("TransMontaigne"), formerly TransMontaigne Oil
Company, consolidated balance sheets at June 30, 1998 and April 30, 1998,
the consolidated statements of operations for the two months ended June 30,
1998 and three months ended July 31, 1997, the consolidated statements of
stockholders' equity for the two months ended June 30, 1998 and year ended
April 30, 1998 and the consolidated statements of cash flows for the two
months ended June 30, 1998 and three months ended July 31, 1997 are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the
interim periods presented. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and
related notes, together with management's discussion and analysis of
financial condition and results of operations, contained in
TransMontaigne's Annual Report on Form 10-K for the fiscal year ended April
30, 1998.
Management makes various estimates and assumptions in determining the
reported amounts of assets, liabilities, revenues and expenses for each
period presented. Changes in these estimates and assumptions will occur as
a result of the passage of time and the occurrence of future events, and
actual results will differ from the estimates.
On August 14, 1998, the Board of Directors of TransMontaigne voted to
change TransMontaigne's fiscal year end from April 30 to June 30, to be
effective June 30, 1998. Accordingly, TransMontaigne is filing this
transition report on Form 10-Q for the two months ended June 30, 1998. This
new fiscal year end will allow TransMontaigne to conform to the predominant
calendar quarterly reporting periods used in its industry.
8
<PAGE>
(2) ACQUISITIONS
On November 25, 1997, TransMontaigne, through a wholly-owned subsidiary,
TransMontaigne Terminaling Inc., acquired the common stock of 17
corporations, known as the "ITAPCO Terminal Corporations", and certain
related property and property interests. The acquisition included 17
storage and distribution terminals located in 8 states having total tankage
capacity in excess of 3.3 million barrels, handling primarily refined
petroleum products, chemicals and other bulk liquids together with the
related operations of the terminals and certain other assets.
The ITAPCO Terminal Corporations purchase price was $32,000,000
($31,458,000 cash plus assumption of outstanding bank debt of approximately
$542,000) and was funded by an advance of $22,000,000 from the
TransMontaigne bank credit facility with the balance from TransMontaigne
cash reserves. The 17 ITAPCO Terminal Corporations were merged into a
wholly-owned subsidiary of TransMontaigne effective December 1, 1997. The
cost of the ITAPCO Terminal Corporations has been allocated to the terminal
facilities acquired and to the other related assets acquired and
liabilities assumed based on their estimated fair market value as
determined by TransMontaigne. The transaction was accounted for as a
purchase.
On December 20, 1996, TransMontaigne, through a wholly-owned subsidiary,
Bear Paw Energy Inc., acquired for approximately $71,000,000 cash the
Grasslands natural gas gathering, treating, processing and fractionating
system located in western North Dakota and northeastern Montana (the
"Grasslands Facilities"). The cost of the Grasslands Facilities has been
allocated to the assets acquired based on their estimated fair market value
as determined by TransMontaigne. The transaction was accounted for as a
purchase.
The following summarized unaudited pro forma results of operations assumes
that the acquisition of the ITAPCO Terminal Corporations occurred as of May
1, 1997 and combines the historical results of operations of TransMontaigne
for the three months ended July 31, 1997 with the historical results of
operations of the ITAPCO Terminal Corporations for the three months ended
July 31, 1997.
9
<PAGE>
The unaudited pro forma results of operations are not necessarily
indicative of the results of operations which would actually have occurred
if the ITAPCO Terminal Corporations had been acquired as of May 1, 1997 or
which will be attained in the future.
<TABLE>
<CAPTION>
Two Months Ended Three Months Ended
June 30, 1998 July 31, 1997
---------------- ------------------
(Actual) (Pro forma)
---------------- ------------------
<S> <C> <C>
Revenues $ 315,533,026 465,011,936
================ ==================
Net earnings (loss) $ (2,662,901) 2,971,633
================ ==================
Earnings (loss) per common share:
Basic $ (0.10) 0.12
================ ==================
Diluted $ (0.10) 0.11
================ ==================
</TABLE>
(3) Public Offering
In February 1997, TransMontaigne closed a public offering of 4,357,000
shares of its common stock of which 4,035,000 shares were issued and sold
by TransMontaigne and 322,000 shares were sold by certain selling
stockholders. The net proceeds to TransMontaigne, based on the public
offering price of $14.25 per share, were approximately $53,506,000, after
deducting underwriting discounts and commissions and offering costs, of
which $45,000,000 was used to repay a portion of the debt incurred under
its bank credit facility. In March 1997 the underwriters' overallotment to
purchase an additional 557,543 shares and the Merrill Lynch Growth Fund
antidilution right to purchase an additional 98,390 shares were both
exercised and TransMontaigne received additional net proceeds of
$8,809,000.
(4) INVENTORY MANAGEMENT
TransMontaigne manages the risk associated with fluctuations in the price
of refined petroleum products inventory and purchase and sales commitments,
and may selectively enter into futures contracts which are designated as
hedges of the products purchased or sold. Hedging gains and
10
<PAGE>
losses are recognized and recorded in inventory when the related inventory
is sold. At June 30, 1998, TransMontaigne had no open futures contracts
designated as hedges.
In connection with its trading activities, TransMontaigne recognizes gains
and losses when incurred. Net trading losses on futures contracts of
approximately $1,235,000 were recognized during the two months ended June
30, 1998 and gains of approximately $591,000 were recognized during the
quarter ended July 31, 1997. TransMontaigne had outstanding contracts to
sell 14,856,000 barrels of product and outstanding contracts to purchase
14,856,000 barrels of product at June 30, 1998 and outstanding contracts to
sell 2,200,000 barrels of product and outstanding contracts to purchase
2,200,000 barrels of product at July 31, 1997. Unrealized gains relating to
such outstanding contracts of approximately $4,926,000 at June 30, 1998 and
approximately $515,000 at July 31, 1997 have been included in product sales
and product costs and direct operating expenses in the accompanying
consolidated statements of operations.
TransMontaigne's refined petroleum products inventory consists primarily of
gasoline and distillates. A portion of TransMontaigne's refined petroleum
products inventory represents line fill and tank bottoms; is required for
operating balances in the conduct of TransMontaigne's daily supply and
distribution activities; and is maintained both in tanks and pipelines
owned by TransMontaigne and pipelines owned by third parties. Natural gas
liquids and residue natural gas inventory are not significant. Inventories
of refined petroleum products are stated at the lower of last-in, first-out
(LIFO) cost or market.
As of June 30, 1998 TransMontaigne recorded an additional adjustment of
approximately $1,880,000 to reduce inventories to the lower of cost (LIFO)
or market which increased the net loss (after providing for the income tax
benefit) for the two months ended June 30, 1998 by approximately
$1,220,000.
(5) INCOME TAXES
TransMontaigne utilizes the asset and liability method of accounting for
income taxes, as prescribed by Statement of Financial Accounting Standards
No. 109. Under this method,
11
<PAGE>
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.
(6) BANK CREDIT FACILITY
TransMontaigne's bank credit facility at June 30, 1998 is a $175,000,000
working capital revolving credit facility with a money center bank due
December 31, 2002. Borrowings under the bank credit facility generally bear
interest at an annual rate equal to the lender's announced Base Rate,
subject to a Eurodollar pricing option at TransMontaigne's election. The
interest rate at June 30, 1998 was 6.375%.
As of June 30, 1998, TransMontaigne had advances of $50,000,000 outstanding
under the bank credit facility. In addition, $2,600,000 of the facility was
used to support a standby letter of credit to a bank to assist Lion Oil
Company, a corporation in which TransMontaigne owns a net 18.04% interest,
in obtaining financing.
(7) Master Shelf Agreement
In April 1997, TransMontaigne entered into a Master Shelf Agreement with an
institutional lender which provides that the lender will agree to quote,
from time to time, an interest rate at which the lender would be willing to
purchase, on an uncommitted basis, up to $100,000,000 of TransMontaigne's
senior promissory notes which will mature in no more than 12 years, with an
average life not in excess of 10 years.
TransMontaigne sold to the lender, under the Master Shelf Agreement,
$50,000,000 of 7.85% Senior Notes due April 17, 2003 in April 1997 and
$25,000,000 of 7.22% Senior Notes due October 17, 2004 in December 1997,
all of which was outstanding at June 30, 1998.
12
<PAGE>
(8) SENIOR SUBORDINATED DEBENTURES
In March 1991, TransMontaigne issued $4,000,000 of 12 3/4% senior
subordinated debentures which are guaranteed by certain subsidiaries; are
due December 15, 2000; are subject to a required redemption of $2,000,000
on December 15, 1999 and December 15, 2000, respectively; and may be
prepaid prior to maturity at a premium. In connection with the issuance of
these debentures, TransMontaigne issued warrants to purchase 248,686 shares
of common stock at $3.60 per share, through December 15, 2000.
(9) Restricted Stock
TransMontaigne has a restricted stock plan that provides for awards of
common stock to certain key employees, subject to forfeiture if employment
terminates prior to the vesting dates. The market value of shares awarded
under the plan is recorded in stockholders' equity as unearned
compensation. During the fiscal year ended April 30, 1998, the
TransMontaigne Board of Directors approved the issuance of 56,000 shares to
certain key employees. As of June 30, 1998, 4,400 shares had vested.
Unearned compensation is amortized over the four year vesting period of the
awards. Amortization of unearned compensation of $62,183 is included in
general and administrative expense for the two months ended June 30, 1998.
Accumulated amortization was $320,652 at June 30, 1998.
(10) Business Segments
TransMontaigne's operating business segments include the logistical
petroleum services related to pipelining, terminaling and storing,
marketing and supply and distribution of refined petroleum products;
natural gas services related to gathering, processing, treating and
marketing of natural gas liquids and residue gas; and corporate services
related to all of TransMontaigne's activities and assets which are not
specifically identified with logistical petroleum and natural gas services,
which include cash and cash equivalents, investments and other assets. In
November 1997, TransMontaigne acquired the ITAPCO Terminal Corporations,
the refined
13
<PAGE>
petroleum products, chemicals and other bulk liquids operations of which
are included in the logistical petroleum services business segment.
Information about TransMontaigne's business segments for the two months
ended June 30, 1998 and for the three months ended July 31, 1997 is
summarized below:
<TABLE>
<CAPTION>
June 30, 1998 July 31, 1997
------------- -------------
<S> <C> <C>
Revenues
Logistical petroleum services $ 306,132,650 447,931,352
Natural gas services 9,400,376 14,217,669
------------- -------------
$ 315,533,026 462,149,021
============= =============
Operating income (loss)
Logistical petroleum services $ (2,513,250) 4,488,044
Natural gas services 427,591 1,499,419
Corporate (500,409) (300,000)
------------- -------------
$ (2,586,068) 5,687,463
============= =============
Identifiable assets at the end of the period
(net of depreciation)
Logistical petroleum services $ 173,916,604 135,876,536
Natural gas services 93,137,373 83,948,141
Corporate 51,161,521 66,850,327
------------- -------------
$ 318,215,498 286,675,004
============= =============
Depreciation and amortization
Logistical petroleum services $ 672,737 399,465
Natural gas services 983,392 1,215,868
Corporate 117,186 108,707
------------- -------------
$ 1,773,315 1,724,040
============= =============
Capital expenditures
Logistical petroleum services $ 3,918,946 1,732,160
Natural gas services 866,830 2,889,577
Corporate 1,669,573 251,860
------------- -------------
$ 6,455,349 4,873,597
============= =============
</TABLE>
14
<PAGE>
(11) EARNINGS PER SHARE
Earnings per share ("EPS") has been calculated based on the weighted
average number of common shares outstanding for the period in accordance
with the Statement of Financial Accounting Standards No. 128 issued in
February 1997. The following tables reconcile the computation of basic EPS
and diluted EPS for the two months ended June 30, 1998 and three months
ended July 31, 1997.
<TABLE>
<CAPTION>
FOR THE TWO MONTHS ENDED JUNE 30, 1998 FOR THE THREE MONTHS ENDED JULY 31, 1997
--------------------------------------- ----------------------------------------
EARNINGS SHARES PER EARNINGS SHARES PER
(NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) SHARE
----------- ------------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS - Net earnings
(loss) available to
common stockholders $(2,662,901) 25,948,709 $ (0.10) $ 3,009,565 25,805,554 $ 0.12
========= ==========
Effect of Dilutive
Securities
Stock options - - - 655,327
Stock warrants - - - 198,248
----------- ------------- ----------- -------------
Diluted EPS - Net
earnings (loss) available
to common stockholders
and assumed conversions $(2,662,901) 25,948,709 $ (0.10) $ 3,009,565 26,659,129 $ 0.11
=========== ============= ========= =========== ============= ==========
</TABLE>
Note: Options to purchase 499,000 and 165,000 shares of common stock at
$17.25 and $15.00 per share, respectively, were outstanding during
the two months ended June 30, 1998, but were not included in the
computation of diluted EPS because the options' exercise price was
greater than the average market price of the common shares during
the two months ended June 30, 1998 and the effect was anti-dilutive.
(12) NEW ACCOUNTING STANDARD
Effective May 1, 1998, TransMontaigne adopted the Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), which was issued in June 1997, by the Financial Accounting Standards
Board. SFAS 130 established new standards which require that changes in
comprehensive income be shown in a financial statement that is displayed
with the same prominence as other financial statements. Comprehensive
income is net
15
<PAGE>
earnings (loss), plus certain other items that are recorded directly to
stockholders' equity. The adoption of this statement had no impact on the
financial statements of TransMontaigne.
(13) SUBSEQUENT EVENTS
On July 29, 1998, TransMontaigne acquired Statia Terminals Southwest, Inc.
for $6,500,000 cash. The acquisition included terminaling, storage and
loading facilities for petroleum products, chemicals and other bulk liquids
at the Port of Brownsville, Texas with over 1.6 million barrels of tank
storage, 12 truck rack loading bays, connections to barge and tanker
loading facilities and the exclusive use of 5 railroad spur lines with a
total of 32 railroad car loading spots.
On September 14, 1998, TransMontaigne announced a definitive agreement to
acquire Louis Dreyfus Energy Corp. for approximately $161,000,000, plus
working capital. The consideration will consist of approximately
$100,000,000 cash and 4.5 million shares of TransMontaigne common stock.
The transaction is expected to close prior to December 31, 1998, subject to
the completion of due diligence by TransMontaigne and the receipt of
regulatory approvals.
On September 18, 1998, TransMontaigne acquired for $29,219,000 cash the
15.38% common stock interest in West Shore Pipe Line Company owned by
Atlantic Richfield Company.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
TransMontaigne provides a broad range of integrated transportation,
terminaling, supply, distribution, gathering, processing and marketing services
to producers, refiners, distributors, marketers and end-users of petroleum
products, chemicals, other bulk liquids, natural gas and crude oil in the
downstream sector of the petroleum and chemical industry. TransMontaigne is a
holding company which conducts its operations through subsidiaries primarily in
the Mid-Continent and Rocky Mountain regions of the United States.
TransMontaigne does not explore for, or produce, crude oil or natural gas; does
not own crude oil or natural gas reserves; and does not own chemicals or other
bulk liquids inventory.
TransMontaigne owns and operates refined petroleum products, chemicals,
other bulk liquids, crude oil and natural gas assets. TransMontaigne's refined
petroleum products, chemicals, other bulk liquids and crude oil assets consist
primarily of approximately 790 miles of pipeline and 31 terminal, storage and
delivery facilities located in 10 states with a combined tank storage capacity
of approximately 8,500,000 barrels. TransMontaigne's natural gas gathering and
processing assets consist of 5 gathering and processing systems in 3 states with
combined throughput capacity of approximately 94 million cubic feet per day and
over 2,800 miles of pipelines. TransMontaigne also extensively utilizes refined
petroleum products common carrier pipelines and terminals owned by third parties
in order to increase product volumes shipped, marketed and sold to and exchanged
with customers in other locations. Management believes that the use of all
these facilities should allow TransMontaigne to significantly expand its
geographic service area and the integrated logistical services it provides.
The principal predecessor of TransMontaigne was formed in 1977. In April
1995, present management and certain institutional stockholders of
TransMontaigne acquired control of the predecessor through a merger in which the
name was changed to TransMontaigne Oil Company. In June 1996, TransMontaigne and
a publicly held corporation merged, with the stockholders of
17
<PAGE>
TransMontaigne receiving approximately 93% of the stock of the merged
corporation. In August 1998, upon receiving shareholders' approval, the name
TransMontaigne Oil Company was changed to TransMontaigne Inc.
Since TransMontaigne's present management assumed control in April 1995,
TransMontaigne has raised approximately $117,000,000 in equity capital
($30,000,000 private placement in May 1995; $25,000,000 private placement in
March 1996; and $62,000,000 public offering in February 1997); established an
initial $130,000,000 working capital and acquisition revolving bank credit
facility in December 1996 which converted to an $85,000,000 bank credit facility
in February 1997, and which in April 1998 was increased to a $175,000,000 bank
credit facility due December 31, 2002; and issued $50,000,000 of 7.85% Senior
Notes due April 17, 2003 in April 1997 and $25,000,000 of 7.22% Senior Notes due
October 17, 2004 in December 1997 to an institutional lender under a
$100,000,000 Master Shelf Agreement.
In December 1996, TransMontaigne acquired the Grasslands natural gas
gathering, processing, treating and fractionation system (the "Grasslands
Facilities") for approximately $71,000,000 in cash and through June 30, 1998 has
additionally invested approximately $22,500,000 in improvements and expansion of
the Grasslands Facilities and other assets in its natural gas services business
segment. The Grasslands Facilities are strategically located between
TransMontaigne's Marmarth facility in southwestern North Dakota, its Baker
facility in eastern Montana and its Lignite facility in northern North Dakota.
TransMontaigne has natural gas gathering facilities covering the eastern
corridor of Montana and the western quarter of North Dakota, from the Canadian
border to the South Dakota border, which should significantly enhance
TransMontaigne's ability to provide a complete service package to North Dakota
and Montana producers as well as to end-users of natural gas liquids ("NGL") and
natural gas. The Grasslands Facilities contributed approximately 86% and 92% of
the total net operating margins of TransMontaigne's natural gas gathering and
processing operations during the two months ended June 30, 1998 and the three
months ended July 31, 1997, respectively.
In November 1997, TransMontaigne acquired the common stock of 17
corporations, known as the "ITAPCO Terminal Corporations", and certain related
property and property interests. The acquisition included 17 bulk liquid
storage and distribution terminals located in 8 states having total
18
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tankage capacity in excess of 3.3 million barrels, handling primarily refined
petroleum products, chemicals and other bulk liquids together with the related
operations of the terminals; and certain other assets. The ITAPCO Terminal
Corporations purchase price was $32,000,000 ($31,458,000 cash, plus assumption
of outstanding bank debt of approximately $542,000) and was funded by an advance
of $22,000,000 from the TransMontaigne bank credit facility with the balance
from TransMontaigne cash reserves. The ITAPCO Terminal Corporations contributed
approximately 53% of the total net operating margins of the TransMontaigne
terminal operations during the two months ended June 30, 1998.
Subsequent to the acquisition of the ITAPCO Terminal Corporations,
TransMontaigne acquired for an aggregate cash sum of $4,686,000 the remaining
50% interest in a 153,000 barrel terminal located in Owensboro, Kentucky, which
it did not previously own; a 259,000 barrel terminal located in Greenville,
Mississippi; and the remaining 50% interest in a partnership which owned and
operated a natural gas gathering and processing facility located in Lignite,
North Dakota, which it did not previously own.
On July 29, 1998, TransMontaigne acquired Statia Terminals Southwest, Inc.
for $6,500,000 cash. The acquisition included terminaling, storage and loading
facilities for petroleum products, chemicals and other bulk liquids at the Port
of Brownsville, Texas with over 1.6 million barrels of tank storage, 12 truck
rack loading bays, connections to barge and tanker loading facilities and the
exclusive use of 5 railroad spur lines with a total of 32 railroad car loading
spots.
On September 18, 1998, TransMontaigne acquired for $29,219,000 cash the
15.38% common stock interest in West Shore Pipe Line Company ("West Shore")
owned by Atlantic Richfield Company. West Shore owns a 600-mile common carrier
petroleum products pipeline system which operates in the Chicago, Illinois area
north along the western edge of Lake Michigan into the Green Bay and Madison,
Wisconsin area. The pipeline serves approximately 55 locations, including 4
refineries, the Chicago-O'Hare and Milwaukee airports, and 49 refined petroleum
products terminals in the Chicago, Illinois area and the upper Mid-West region
of the United States. TransMontaigne will be the second largest owner of West
Shore, whose ownership also includes Citgo, Marathon, Equilon, Texaco, Amoco,
Midwest (Union Oil), Mobil and Exxon.
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On September 14, 1998, TransMontaigne announced a definitive agreement to
acquire Louis Dreyfus Energy Corp. ("LDEC") for approximately $161,000,000, plus
working capital. The consideration will consist of approximately $100,000,000
cash and 4.5 million shares of TransMontaigne common stock. The transaction is
expected to close prior to December 31, 1998, subject to the completion of due
diligence by TransMontaigne and the receipt of regulatory approvals. LDEC
operates 24 refined petroleum products terminal and storage facilities of which
7 are wholly-owned and 17 of which are owned jointly with BP Oil Company. These
facilities are located in 9 states in the southern and eastern regions of the
United States; are supplied primarily by the Colonial and/or Plantation pipeline
systems; include over 350 service supply/exchange points nationwide; and
annually handle in excess of 85 million barrels of refined petroleum products.
TransMontaigne intends to continue to make strategic additions to and
expansions of its existing facilities as necessary in order to maintain quality
service levels, increase operating efficiencies, achieve incremental net
earnings and improve its competitive position.
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CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report contains "forward-looking statements" within the meaning of the
federal securities laws and may include the words or phrases "believes," "will
depend," "will become" and "plans to" or similar expressions, as well as other
statements of expectations, beliefs, future strategies and comments concerning
matters which are not historical facts. These forward-looking statements are
subject to risks and uncertainties which could cause actual results to differ
materially from those expressed in or implied by the statements including, but
not limited to, the following:
. that TransMontaigne will continue to grow its business
. that TransMontaigne will generate net operating margins from high sales
volumes
. that TransMontaigne will generate net operating margins affected by
price volatility of products purchased and sold
. that TransMontaigne will selectively and effectively hedge certain
inventory positions
. that TransMontaigne will be required to recognize lower of cost or
market write-downs of its inventories
. that TransMontaigne will incur unanticipated costs in complying with
current and future environmental regulations
. that TransMontaigne will capitalize on the trend by other companies in
the oil and gas industry to divest assets and outsource certain services
. that TransMontaigne will replace the supply of dedicated natural gas
reserves gathered and processed by its facilities
. that TransMontaigne will generate working capital internally, or have
the availability of debt and equity resources, to meet its future
capital requirements
. that TransMontaigne will achieve year 2000 compliance without incurring
material costs adversely impacting its operating results.
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RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Two Months Three Months
Ended Ended
June 30, 1998 July 31, 1997
------------- -------------
<S> <C> <C>
PIPELINE OPERATIONS
Volume (1) 4,338 5,027
Revenues (2) $ 2,903 3,214
Net Operating Margin (2) $ 1,742 1,730
Margin per Gallon $ 0.0096 0.0082
TERMINAL AND STORAGE OPERATIONS
Volume (1)
Refined petroleum products 403,641 286,000
Chemicals and other bulk liquids 1,688 -
Revenues (2)
Refined petroleum products $ 2,786 2,134
Chemicals and other bulk liquids $ 1,093 -
Net Operating Margin (2) $ 2,413 1,450
Margin per Gallon $ 0.0060 0.0051
PRODUCTS SUPPLY AND
DISTRIBUTION OPERATIONS
Volume (1) 643,000 756,000
Revenues (2) $ 299,351 442,583
Net Operating Margin (Loss) (2) $ (3,951) 3,580
Margin (Loss) per Gallon $ (0.0061) 0.0047
NATURAL GAS SERVICES OPERATIONS
Inlet Volume (3) 3,640 4,541
NGLs Production (3) 17,955 23,706
Residue Production (3) 2,900,007 3,655,072
Revenues (2) $ 9,400 14,218
Net Operating Margin (2) $ 2,209 3,435
TOTAL OPERATIONS
Revenues (2) $ 315,533 462,149
Net Operating Margin (2) $ 2,413 10,195
Net Earnings (Loss) (2) $ (2,663) 3,010
</TABLE>
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<PAGE>
(1) Pipeline volumes are expressed in thousands of barrels (42 gallons per
barrel). Terminal and storage and products supply and distribution volumes
are expressed in thousands of gallons.
(2) Revenues, net operating margins (losses), and net earnings (loss) are
expressed in thousands of dollars. Net operating margin (loss) represents
(a) revenues less direct operating expenses for pipeline and terminal and
storage operations; (b) revenues less cost of refined petroleum products
purchased for products supply and distribution operations, and (c) revenues
less cost of natural gas gathered, processed and sold and direct operating
expenses for natural gas services operations.
(3) Natural gas inlet volumes are expressed in million cubic feet; NGL
production is expressed in thousands of gallons; and residue natural gas
production is expressed in million British Thermal Units.
Prior to the acquisition of the ITAPCO Terminal Corporations facilities in
November 1997 and the Grasslands Facilities in December 1996, TransMontaigne's
revenues were derived from the logistical petroleum services business segment
consisting primarily of transporting refined petroleum products (and to a lesser
extent crude oil) in pipelines; the storage and terminaling of refined petroleum
products; and the supply, distribution and marketing of refined petroleum
products. The storage and terminaling of chemicals and other bulk liquids
became a component of the logistical petroleum business segment following the
ITAPCO Terminal Corporations acquisition. Natural gas services became a
separate business segment with the acquisition of the Grasslands Facilities.
Pipeline revenues are based on the volume of refined petroleum products or
crude oil transported and the distance from the origin point to the delivery
point. TransMontaigne's interstate pipeline systems transport refined petroleum
products and their tariffs are regulated by the Federal Energy Regulatory
Commission (the "FERC"). TransMontaigne's intrastate pipeline transports crude
oil and its tariffs are not regulated by the FERC, but are regulated by the
Texas Railroad Commission.
Terminal revenues are based on the volume of refined petroleum products
handled, generally at a standard per gallon rate. Terminal fees are not
regulated. Storage fees are generally based on a per barrel rate or tankage
capacity committed and will vary with the duration of the arrangement, the
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<PAGE>
product stored and special handling requirements, particularly when certain
types of chemicals and other bulk liquids are involved. Storage fees are not
regulated.
Direct operating expenses of pipeline and terminal and storage operations
include wages and employee benefits, utilities, communications, maintenance and
repairs, property taxes, rent, insurance, vehicle expenses, environmental
compliance costs, materials and supplies.
Products supply and distribution revenues are based on the volume of bulk
sales of refined petroleum products and the wholesale distribution of refined
petroleum products from terminals. Bulk purchase and sale transactions in
quantities of 25,000 barrels to 50,000 barrels are common and are generally made
at small margins. Wholesale distribution of refined petroleum products is
conducted from 8 proprietary and 71 nonproprietary terminal truck loading rack
locations primarily by truckload sales of 8,000 gallons.
Direct operating expenses of products supply and distribution operations
are primarily the cost of products sold and also include transportation,
terminaling and sales commission expenses.
Natural gas gathering and processing revenues are based on the inlet volume
of natural gas purchased from producers under both percentage of proceeds and
fee based arrangements. Natural gas is gathered and processed into NGL
products, principally propane, butane and natural gasoline. These products are
transported by truck or pipeline to storage facilities from which they are
further transported and marketed by TransMontaigne to wholesalers and end-users.
Residue natural gas is delivered to and marketed through connections with third-
party interstate natural gas pipelines.
Direct operating expenses of natural gas gathering and processing
operations include wages and employee benefits, utilities, maintenance and
repairs, property taxes, rent, insurance, vehicle expenses, environmental
compliance costs, material and supplies.
24
<PAGE>
TWO MONTHS ENDED JUNE 30, 1998 COMPARED TO
THREE MONTHS ENDED JULY 31, 1997
On August 14, 1998, TransMontaigne elected to change the date of its fiscal
year end to June 30. The management discussion that follows compares the two
months ended June 30, 1998 and the three months ended July 31, 1997.
TransMontaigne did not recast historical financial information to present the
two months ended June 30, 1997 because the financial reporting systems in place
at that time included certain procedures which were completed only on a
quarterly basis. Consequently, it is impractical to recast this financial
information.
The net operating margin from pipeline operations for the two months ended
June 30, 1998 was $1,742,000 compared to $1,730,000 for the three months ended
July 31, 1997. The margin per gallon for the two months ended June 30, 1998 of
$.0096 increased 17% or $.0014. The increase resulted primarily from a 30%
increase in barrels per day thruput volume of approximately 16,500 barrels per
day, primarily due to an increase in volumes of both higher tariff long haul
pipeline shipments and crude oil pipeline shipments. The revenue increase was
partially offset by an increase in operating costs which was due to incremental
power costs attributable to additional long haul shipments and crude oil
pipeline shipments volumes and increased field personnel costs, maintenance and
vehicle expense.
The net operating margin from terminal and storage operations for the two
months ended June 30, 1998 was $2,413,000 compared to $1,450,000 for the three
months ended July 31, 1997. The margin per gallon for the two months ended June
30, 1998 of $.0060 increased 18% or $.0009. The increase resulted from an
increase in refined petroleum products volumes handled and volumes of chemicals
and other bulk liquids not previously handled, primarily due to the operations
of the ITAPCO Terminal Corporations terminal facilities acquired in November
1997; a 91% increase in barrels per day volumes handled at the East Chicago
terminal facility; and a 91% increase in barrels per day volumes handled at the
Indianapolis, Indiana terminal. The revenue increases were partially offset by
increases in terminal operating costs largely attributable to the ITAPCO
Terminal Corporations terminals operations; expanded East Chicago terminal
operations; additional freight charges on products; and increased field
personnel costs and maintenance expenses.
25
<PAGE>
The net operating loss from product sales for the two months ended June 30,
1998 was $3,951,000 compared to a net operating margin of $3,580,000 for the
three months ended July 31, 1997. Revenues were $299,351,000 for the two months
ended June 30, 1998 compared to $442,583,000 for the three months ended July 31,
1997. A $.0061 net operating loss per gallon was realized in the two months
ended June 30, 1998 compared to $.0047 net operating margin per gallon realized
for the three months ended July 31, 1997. Volatile refined petroleum product
market conditions influenced by the lack of product demand, instability in the
international political climate and atypical and erratic weather patterns drove
product prices to unanticipated historical lows which had a direct and adverse
affect on products supply and distribution performance for the two months ended
June 30, 1998. In addition, a lower of cost or market write down adjustment to
inventory of $1,880,000 as of June 30, 1998 was charged to product costs
resulting in a $.0029 net operating loss per gallon sold during the two months
ended June 30, 1998. An inventory adjustment of this nature was not recorded for
the three months ended July 31, 1997.
The net operating margin from natural gas services operations for the two
months ended June 30, 1998 was $2,209,000 compared to $3,435,000 for the three
months ended July 31, 1997. Revenues for the two months ended June 30, 1998 was
$9,400,000 compared to $14,218,000 for the three months ended July 31, 1997.
The net operating margin and revenues were attributable primarily to the
business activities of the Grasslands Facilities, and also included net
operating margin contributions and revenues from the Marmarth, Baker, Lignite
and Wiggins natural gas gathering and processing facilities, as well as
management fees from fifteen small natural gas gathering systems. Net operating
margin and revenues during the two months ended June 30, 1998 were impacted by a
steep decline in NGL prices, primarily propane, notwithstanding an approximate
20% increase in natural gas inlet volumes per day.
General and administrative expenses for the two months ended June 30, 1998
were $3,225,000 compared to $2,783,000 for the three months ended July 31, 1997.
The increase was due primarily to additional personnel related costs and to
increased office lease, regulatory reporting, travel, insurance, information
systems and communication expenses. These increases were directly attributable
to the acquisition and operations of the ITAPCO Terminal Corporations and to
TransMontaigne's overall expansions of its expanded integrated logistical
petroleum services.
26
<PAGE>
Other income for the two months ended June 30, 1998 included interest
income of $290,000 compared to $565,000 for the three months ended July 31,
1997. The decrease in interest income was due primarily to the decrease in
interest bearing cash balances held for future investments.
Interest expense represents interest on the TransMontaigne bank credit
facility and senior promissory notes which were used primarily to finance the
acquisitions of the ITAPCO Terminal Corporations in November, 1997 and
Grasslands Facilities in December, 1996, other continuing capital expenditures
and working capital to carry inventory and accounts receivable. Also included
is interest on the TransMontaigne senior subordinated debentures. Other
financing costs principally include commitment fees and amortization of debt
acquisition costs paid in connection with the credit facility. Interest expense
and other financing costs during the two months ended June 30, 1998 amounted to
$1,769,000 compared to $1,643,000 during the three months ended July 31, 1997.
The increased interest expense was due primarily to an increase in average
outstanding debt to fund the ITAPCO Terminal Corporations acquisition.
Loss before income taxes for the two months ended June 30, 1998 was
$4,066,000, compared to earnings before income taxes of $4,610,000 for the three
months ended July 31, 1997. The loss was primarily a result of severely
depressed product prices which caused negative product sales operating margins;
increased general and administrative expenses; additional depreciation
attributable to the expansion of natural gas services assets and the acquisition
of the ITAPCO Terminal Corporations; and interest expense, primarily
attributable to the financing of the Grassland Facilities and ITAPCO Terminal
Corporation acquisitions. Partially offsetting these factors were the operating
margin contribution from the ITAPCO Terminal Corporations acquisition; the net
operating margin contribution from the natural gas services business segment
attributable essentially to the Grasslands Facilities; and the increased net
operating margin contribution from the pipeline operations business segment.
Income tax benefit for the two months ended June 30, 1998 of $1,403,000 and
the income tax expense of $1,600,000 for the three months ended July 31, 1997 is
based upon an effective combined federal and state income tax rate of 35%.
27
<PAGE>
Net loss for the two months ended June 30, 1998, after providing for the
income tax benefit, was $2,663,000 compared to net earnings of $3,010,000 for
the three months ended July 31, 1997. Loss per share for the two months ended
June 30, 1998 was $ .10 basic and $.10 diluted based on 25,948,709 weighted
average basic shares outstanding and weighted average diluted shares
outstanding. This compares to earnings per share of $ .12 basic and $ .11
diluted for the three months ended July 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The following summary reflects TransMontaigne's comparative net cash flows
for the two months ended June 30, 1998 and the three months ended July 31, 1997.
<TABLE>
<CAPTION>
Two Months Three Months
Ended Ended
June 30, 1998 July 31, 1997
------------- -------------
<S> <C> <C>
Net cash provided (used) by operating activities $ 3,672,000 (4,410,000)
Net cash (used) by investing activities $ (6,276,000) (4,896,000)
Net cash provided by financing activities $ 12,000 14,188,000
</TABLE>
TransMontaigne's net cash provided by operating activities in the two
months ended June 30, 1998 was $3,672,000 an improvement of $8,082,000 compared
to the three months ended July 31, 1997. This improvement was attributable
primarily to the net change in operating assets and liabilities of $16,646,000
reduced by the decrease in earnings before income taxes of $8,675,000. The lower
of cost or market adjustment to inventory did not affect TransMontaigne's net
cash provided by operating activities. TransMontaigne's current ratio (current
assets divided by current liabilities) was 3.0 to 1.0 at June 30, 1998 compared
to 2.5 to 1.0 at July 31, 1997.
Net cash used by investing activities was $6,276,000 during the two months
ended June 30, 1998 as TransMontaigne continued its growth through construction
and improvements to existing operating facilities. Capital expenditures included
enhancements to the East Chicago, South Bend, and North Little Rock facilities
and several of the purchased ITAPCO terminals; improvements to the NORCO
Pipeline facilities; expansion to assets in the natural gas services business
segment; and
28
<PAGE>
additions to TransMontaigne's corporate communications and data processing
infrastructure. Net cash used by investing activities was $4,896,000 during the
three months ended July 31, 1997 which included approximately $2,900,000
improvements to the Grasslands Facilities and other assets in the natural gas
services business segment; and improvements to the pipeline and terminal
facilities.
Net cash provided by financing activities for the two months ended June 30,
1998 amounted to $12,000. Net cash provided by financing activities for the
three months ended July 31, 1997 amounted to $14,188,000 was used to finance
operations and capital expenditures primarily through an increase in cash
borrowings. At June 30, 1998, TransMontaigne had $279,000,000 of borrowing
capacity with availability of $147,400,000 under its credit agreements.
EBITDA represents earnings before income taxes plus interest expense and
other financing costs and depreciation and amortization. Management uses EBITDA
as part of its overall assessment of TransMontaigne's performance by analyzing
and comparing EBITDA between reporting periods. Management believes that, in
addition to cash flow from operations and net earnings as indicators of
operating performance, EBITDA is used increasingly by the financial community to
measure operating effectiveness and as a method to evaluate the market value of
companies like TransMontaigne. EBITDA is also used to evaluate TransMontaigne's
ability to incur and service debt and to fund capital expenditures, although it
is not considered in isolation or a substitute for the other measurements of
performance and liquidity. EBITDA for the two months ended June 30, 1998 was a
negative $523,000 compared to EBITDA of $7,976,000 for the three months ended
July 31, 1997. EBITDA for the two months ended June 30, 1998 was adversely
impacted by severely depressed products prices, increased general and
administrative expenses, and reduced interest income. In addition, EBITDA also
reflects a charge to product costs for the lower of cost or market write down
adjustment to inventory as of June 30, 1998. An inventory adjustment of this
nature was not recorded for the three months ended July 31, 1997. The decreases
in EBITDA were partially offset by EBITDA contributions by the ITAPCO Terminal
Corporations and increased EBITDA of the pipeline operations business segment.
Achieving continued EBITDA growth through acquisitions and internal expansion of
existing facilities is a primary objective of TransMontaigne.
29
<PAGE>
Capital expenditures anticipated in the year ending June 30, 1999 are
estimated to be approximately $250,000,000 for pipeline, terminal, storage and
natural gas gathering and processing facilities, including assets to support
these facilities, and including the West Shore Pipe Line Company and Statia
Terminals Southwest, Inc. acquisitions and the contemplated Louis Dreyfus Energy
Corp. acquisition. This amount could be exceeded if additional facilities
enhancement projects and possible acquisitions being considered by
TransMontaigne materialize. Future capital expenditures will depend on numerous
factors, including the availability, economics and cost of appropriate
acquisitions which TransMontaigne continuously identifies and evaluates; the
economics, cost and required regulatory approvals with respect to the expansion
and enhancement of existing systems and facilities; the demand for the services
TransMontaigne provides; local, state and federal governmental regulations;
environmental compliance requirements; fuel conservation efforts; and the
availability, to the extent required, of financing on acceptable terms.
In February 1997, TransMontaigne closed a public offering of 4,357,000
shares of its common stock of which 4,035,000 shares were issued and sold by
TransMontaigne and 322,000 shares were sold by certain selling stockholders.
The net proceeds to TransMontaigne, based on the public offering price of $14.25
per share, were $53,506,000 after deducting underwriting discounts and
commissions and offering costs, of which $45,000,000 was used to repay a portion
of the long-term debt incurred under its bank credit facility and the balance
was added to working capital. In March 1997 the underwriters' overallotment
option to purchase an additional 557,543 shares and the Merrill Lynch Growth
Fund antidilution right to purchase an additional 98,390 shares were both
exercised and TransMontaigne received additional net proceeds of $8,809,000
which was added to working capital. The total net proceeds from the offering
was $62,315,000.
The TransMontaigne bank credit facility at June 30, 1998 is a $175,000,000
revolving credit facility with a money center bank due December 31, 2002.
Borrowings under the bank credit facility generally bear interest paid in
arrears at an annual rate equal to the lenders' announced rate on Alternate Base
Rate loans, subject to a Eurodollar Rate loan pricing election. In addition, a
$10,000,000 same day swing line of credit is available to TransMontaigne under
which advances may be drawn at an interest rate comparable to the Eurodollar
Rate.
30
<PAGE>
As of June 30, 1998, TransMontaigne had advances of $50,000,000 outstanding
under the bank credit facility utilizing the Eurodollar Rate loan pricing
election and $2,600,000 of the facility was used to support a standby letter of
credit to a bank to assist Lion Oil Company in obtaining financing. The interest
rate at June 30, 1998 was 6.375%.
In April 1997 TransMontaigne entered into a Master Shelf Agreement with an
institutional lender which provides that the lender will agree to quote, from
time to time, an interest rate at which the lender would be willing to purchase,
on an uncommitted basis, up to $100,000,000 of TransMontaigne's senior
promissory notes which will mature in no more than 12 years, with an average
life not in excess of 10 years.
At June 30, 1998, TransMontaigne had outstanding under the Master Shelf
Agreement, $50,000,000 of 7.85% Senior Notes due April 17, 2003 and $25,000,000
of 7.22% Senior Notes due October 17, 2004.
The bank credit facility agreement and the Master Shelf Agreement contain a
negative pledge covenant by TransMontaigne and its subsidiaries and are secured
by the stock of the subsidiaries. These agreements also include financial tests
relating to fixed charges coverage, leverage ratio, consolidated tangible net
worth, distributions and inventory positions. As of June 30, 1998,
TransMontaigne was in compliance with all such tests.
As of June 30, 1998, TransMontaigne had approximately $22,000,000 of net
operating loss carryforwards for federal income tax purposes which are available
to offset taxable income through 2017. As a result of the merger in June 1996,
TransMontaigne acquired net operating loss carryforwards of approximately
$7,892,000 as of June 4, 1996, which are included in the aggregate net operating
loss carryforwards, and are limited to approximately $1,200,000 annually. A
portion of the tax benefit of such carryforwards has been recognized as a net
reduction of goodwill recorded in the merger. Due to changes in ownership which
occurred through April 30, 1996, the use of the remaining net operating loss
carryforwards to offset taxable income is limited to approximately $4,300,000
annually.
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<PAGE>
At June 30, 1998, TransMontaigne had working capital of $86,467,000;
availability under its bank credit facility of $122,400,000; and additional
borrowing capacity of $25,000,000 under the Master Shelf Agreement.
Management believes that TransMontaigne's current working capital position;
future cash provided by operating activities; proceeds from the private
placement or public offering of debt and common stock; available borrowing
capacity under the bank credit facility agreement and the Master Shelf
Agreement; additional borrowing allowed under those agreements; and its
relationship with institutional lenders and equity investors should enable
TransMontaigne to meet its future capital requirements.
YEAR 2000 MATTERS
Historically, certain computer programs, as well as certain hardware, were
designed to utilize a two-digit date field and consequently, they may not be
able to properly recognize dates in the Year 2000. This could result in
significant system failures. TransMontaigne relies on its computer-based
management information systems, as well as computer chip embedded instruments
and equipment in conducting its normal business activities. Certain of these
computer-based programs and embedded computer chips may not have been designed
to function properly with respect to the application of dating systems relating
to the Year 2000.
In response, TransMontaigne has developed a "Year 2000" Plan and
established an internal group to identify and assess potential areas of risk and
to make any required modifications relating to its computer systems; pipeline,
terminaling, storage and natural gas gathering and processing operations; and
product supply and distribution activities. After these assessments are
completed and evaluated, plans for modification or replacement, testing, and
certification will be developed and implemented to ensure that the material
facilities and business activities will continue to operate safely and reliably,
and without interruption after 1999. TransMontaigne is also monitoring the
compliance efforts of suppliers, contractors and other third parties with whom
it does business to ensure that operations will not be adversely affected by the
Year 2000 compliance problems of others.
32
<PAGE>
While TransMontaigne is not yet able to estimate the total costs of
conducting Year 2000 remedial activities, based upon information developed to
date, it believes that the total cost of Year 2000 remediation will not be
material to TransMontaigne's cash flow, results of operations, or financial
condition. TransMontaigne expects to complete its Year 2000 Plan within a time
frame that will enable its computer-based and embedded chip systems to function
without significant disruption in the Year 2000.
The discussion of TransMontaigne's efforts, and management's expectations,
relating to Year 2000 compliance contains forward-looking statements.
Presently, TransMontaigne does not anticipate that the Year 2000 will have a
material adverse effect on its operations or financial performance. However,
there can be no assurance that the Year 2000 will not adversely affect
TransMontaigne and its business.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), which was
issued June 1997, by the Financial Accounting Standards Board. SFAS 131
established new standards which change the way public companies report
information about segments. This statement is based on the management approach
to segment reporting and requires companies to report selected quarterly segment
information and entity-wide disclosures about products and services, major
customers and geographic areas in which the entity holds assets and reports
revenues. SFAS 131 is effective for financial statements for fiscal years
beginning after December 31, 1997. TransMontaigne does not expect the adoption
of SFAS 131 to have a material effect on the presentation of its financial
statements.
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), was issued in June
1998, by the Financial Accounting Standards Board. SFAS 133 establishes new
accounting and reporting standards for derivative instruments and for hedging
activities. This statement requires an entity to establish at the inception of a
hedge, the method it will use for assessing the effectiveness of the hedging
derivative and the
33
<PAGE>
measurement approach for determining the ineffective aspect of the hedge. Those
methods must be consistent with the entity's approach to managing risk. SFAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. TransMontaigne has not assessed the impact, if any, that SFAS 133 will
have on its consolidated financial statements.
34
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
ITEM 2. CHANGES IN SECURITIES
Recent Sales of Unregistered Securities
On May 19, 1998 TransMontaigne issued 1,700 shares of TransMontaigne's
common stock to a consultant to TransMontaigne pursuant to the terms of a
consulting agreement for services rendered in connection with an asset
acquisition. Because the issuance occurred in a privately negotiated
transaction that did not involve a public offering, the shares of
TransMontaigne's common stock issued are exempt from registration under Section
4(2) of the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule. FILED HEREWITH
No reports on Form 8-K were filed during the transition period from May 1, 1998
through June 30, 1998.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: September 25, 1998 TRANSMONTAIGNE INC.
(Registrant)
/s/ CORTLANDT S. DIETLER
----------------------------------------
Cortlandt S. Dietler
Chairman and Chief Executive Officer
/s/ RODNEY S. PLESS
----------------------------------------
Rodney S. Pless
Vice President and Controller
(Principal Accounting Officer)
36
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRANSMONTAIGNE INC. FOR THE TRANSITION PERIOD MAY 1,
1998 TO JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> MAY-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 27,215,374
<SECURITIES> 0
<RECEIVABLES> 36,391,584
<ALLOWANCES> 0
<INVENTORY> 63,559,637
<CURRENT-ASSETS> 130,445,500
<PP&E> 194,402,485
<DEPRECIATION> (21,912,875)
<TOTAL-ASSETS> 318,215,498
<CURRENT-LIABILITIES> 43,978,273
<BONDS> 128,971,400
0
0
<COMMON> 259,534
<OTHER-SE> 145,006,291
<TOTAL-LIABILITY-AND-EQUITY> 318,215,498
<SALES> 0
<TOTAL-REVENUES> 315,533,026
<CGS> 0
<TOTAL-COSTS> 318,119,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,616,251
<INCOME-PRETAX> (4,065,808)
<INCOME-TAX> (1,402,907)<F1>
<INCOME-CONTINUING> (2,662,901)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,662,901)
<EPS-PRIMARY> (0.10)<F2>
<EPS-DILUTED> (0.10)
<FN>
<F1>INCOME TAX BENEFIT
<F2>REPRESENTS BASIC EARNINGS PER SHARE
</FN>
</TABLE>
