<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
File No. 1-11763
TRANSMONTAIGNE OIL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 06-1052062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 SEVENTEENTH STREET, SUITE 2750
DENVER, COLORADO 80202
(Address, including zip code, of principal executive offices)
(303) 626-8200
(Telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of March 2, 1998, there were 25,940,370 shares of the Registrant's Common
Stock outstanding.
1
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TRANSMONTAIGNE OIL COMPANY
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS PAGE NO.
Consolidated Balance Sheets
January 31, 1998 and April 30, 1997................. 3
Consolidated Statements of Operations
Three months ended January 31, 1998 and 1997........ 4
Consolidated Statements of Operations
Nine months ended January 31, 1998 and 1997......... 5
Consolidated Statements of Stockholders' Equity
Nine months ended January 31, 1998 and
Year ended April 30, 1997........................... 6
Consolidated Statements of Cash Flows
Nine months ended January 31, 1998 and 1997......... 7
Notes to Consolidated Financial Statements.......... 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....... 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................... 37
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 37
SIGNATURES.......................................... 38
2
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TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
January 31, April 30,
ASSETS 1998 1997
- ------ ------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $40,822,014 36,384,325
Trade accounts receivable 39,186,603 46,871,207
Inventories 63,625,882 42,346,451
Deferred tax assets, net - 3,676,000
Prepaid expenses and other 2,457,556 1,647,990
------------ -----------
146,092,055 130,925,973
------------ -----------
Property, plant and equipment:
Land 1,372,577 1,222,195
Plant and equipment 171,535,343 120,010,811
Accumulated depreciation (16,374,455) (10,704,252)
------------ -----------
156,533,465 110,528,754
------------ -----------
Investments and other assets:
Investments 15,656,097 15,656,097
Deferred debt issuance costs, net 1,418,087 1,638,909
Other assets 3,887,279 2,974,587
------------ -----------
20,961,463 20,269,593
------------ -----------
$323,586,983 261,724,320
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 27,643,983 36,893,399
Inventory due under exchange
agreements 6,810,895 4,982,179
Excise taxes payable 6,607,955 6,437,829
Other accrued liabilities 5,975,394 4,189,528
------------ ----------
47,038,227 52,502,935
------------ ----------
Long-term debt 124,489,624 64,774,267
Minority interests 5,475,377 5,475,377
Stockholders' equity:
Preferred stock, par value $.01
per share, authorized 2,000,000
shares, none issued - -
Common stock, par value $.01 per
share, authorized 40,000,000
shares, issued and outstanding
25,939,370 shares at January 31,
1998; and 25,794,720 shares at
April 30, 1997 259,394 257,947
Capital in excess of par value 136,115,850 134,843,884
Retained earnings 10,994,968 3,869,910
Unearned compensation (786,457) -
------------ -----------
146,583,755 138,971,741
------------ -----------
$323,586,983 261,724,320
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenue:
Product sales, pipeline tariffs,
terminaling fees and natural gas
gathering and processing fees $ 470,731,798 340,653,668
Costs and expenses:
Product costs and direct
operating expenses 460,141,569 335,357,040
General and administrative 3,736,259 1,856,742
Depreciation and amortization 2,229,583 995,983
--------------- ---------------
466,107,411 338,209,765
--------------- ---------------
Operating income 4,624,387 2,443,903
Other income (expenses):
Interest income 484,154 398,856
Equity in losses of affiliates - (105,674)
Minority interests - 42,186
Interest expense (2,166,204) (1,349,870)
Other financing costs (124,316) (88,137)
Other, net - 264,613
--------------- ---------------
(1,806,366) (838,026)
--------------- ---------------
Earnings before
income taxes 2,818,021 1,605,877
Income tax expense 1,100,000 180,000
--------------- ---------------
Net earnings $ 1,718,021 1,425,877
=============== ===============
Earnings per common share:
Basic $ 0.07 0.07
=============== ===============
Diluted $ 0.06 0.07
=============== ===============
Weighted average common
shares outstanding:
Basic 25,918,870 21,013,855
=============== ===============
Diluted 26,685,256 21,856,622
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED JANUARY 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenue:
Product sales, pipeline tariffs,
terminaling fees and natural gas
gathering and processing fees $ 1,477,980,875 811,476,612
Costs and expenses:
Product costs and direct
operating expenses 1,447,246,704 797,453,937
General and administrative 9,660,324 5,015,047
Depreciation and amortization 5,766,771 1,951,011
------------------ ------------------
1,462,673,799 804,419,995
------------------ ------------------
Operating income 15,307,076 7,056,617
Other income (expenses):
Interest income 1,629,738 1,291,907
Equity in earnings of affiliates - 317,477
Minority interests - (106,863)
Interest expense (5,233,727) (2,647,990)
Other financing costs (408,029) (160,297)
Other, net - 604,689
------------------ ------------------
(4,012,018) (701,077)
------------------ ------------------
Earnings before
income taxes 11,295,058 6,355,540
Income tax expense 4,170,000 450,000
------------------ ------------------
Net earnings $ 7,125,058 5,905,540
================== ==================
Earnings per common share:
Basic $ 0.28 0.28
================== ==================
Diluted $ 0.27 0.27
================== ==================
Weighted average common
shares outstanding:
Basic 25,868,471 20,728,760
================== ==================
Diluted 26,683,770 21,524,428
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JANUARY 31, 1998 AND YEAR ENDED APRIL 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Retained
Capital in earnings
Preferred Common excess of (accumulated Unearned
stock stock par value deficit) compensation Total
--------- ---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 30, 1996 $ - 1,933,117 61,187,476 (5,301,402) - 57,819,191
Change in the par value of
common stock from
$.10 to $.01 in connection
with merger - (1,739,805) 1,739,805 - - -
Common stock issued in
merger - 14,744 8,093,785 - - 8,108,529
Common stock issued for
minority interest in
subsidiary - 1,000 974,000 - - 975,000
Common stock repurchased
and retired - (148) (199,852) - - 782,952
Common stock issued for
options exercised - 2,130 780,822 - - (200,000)
Common stock issued for cash
in public offering - 46,909 62,952,321 - - 62,999,230
Costs related to issuance of
common stock - - (684,473) - - (684,473)
Net earnings - - - 9,171,312 - 9,171,312
--------- ---------- ----------- ------------ ------------ ------------
BALANCE AT APRIL 30, 1997 - 257,947 134,843,884 3,869,910 - 138,971,741
Common stock issued for
options exercised - 887 387,389 - - 388,276
Costs related to issuance of
common stock - - (53,863) - - (53,863)
Unearned compensation
relating to restricted
stock awards - 560 938,440 - (939,000) -
Amortization of unearned
compensation - - - - 152,543 152,543
Net earnings - - - 7,125,058 - 7,125,058
--------- ---------- ----------- ------------ ------------ ------------
BALANCE AT JANUARY 31, 1998 $ - 259,394 136,115,850 10,994,968 (786,457) 146,583,755
========= ========== =========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JANUARY 31, 1998 AND 1997 (UNAUDITED)
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 7,125,058 5,905,540
Adjustments to reconcile net earnings
to net cash used by operating
activities:
Depreciation and amortization 5,766,771 1,951,011
Equity in earnings of affiliates - (317,477)
Minority interests - 106,863
Deferred tax expense 3,676,000 -
Gain on disposition of assets (349) (76,872)
Amortization of unearned
compensation 152,543 -
Changes in operating assets and
liabilities, net of noncash
activities:
Trade accounts receivable 7,684,604 (20,447,555)
Inventories (21,279,431) (25,687,666)
Prepaid expenses and other (809,566) 346,133
Trade accounts payable (9,249,416) 16,188,334
Inventory due under exchange
agreements 1,828,716 (2,588,484)
Excise taxes payable and other
accrued liabilities 1,955,992 2,246,303
------------ -----------
Net cash (used) by
operating activities (3,149,078) (22,373,870)
------------ -----------
Cash flows from investing activities:
Purchases of property, plant and
equipment (52,638,701) (85,421,308)
Proceeds from sale of assets 28,650 15,123
Cash received in connection with
acquisition 906,267 2,315,527
Costs related to acquisition (130,755) (399,284)
Cash balance in subsidiary sold - (111,341)
Decrease (increase) in other assets,
net (849,286) 246,489
------------ -----------
Net cash (used) by
investing activities (52,683,825) (83,354,794)
------------ -----------
Cash flows from financing activities:
Borrowings of long-term debt, net 59,715,357 95,957,800
Deferred debt issuance costs 220,822 (1,139,398)
Common stock issued for cash 388,276 675,401
Costs related to issuance of
common stock (53,863) -
------------ -----------
Net cash provided by
financing activities 60,270,592 95,493,803
------------ -----------
Increase (decrease)
in cash and cash
equivalents 4,437,689 (10,234,861)
Cash and cash equivalents at beginning
of period 36,384,325 38,403,234
------------ -----------
Cash and cash equivalents at end of
period $ 40,822,014 28,168,373
============ ===========
(Continued)
</TABLE>
7
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TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED JANUARY 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow
information:
Acquisition of Sheffield Exploration
Company
Fair value of assets acquired $ - 8,739,247
Fair value of liabilities assumed - (231,484)
------------- -------------
- 8,507,763
Costs related to acquisition - (399,284)
------------- -------------
Fair value of stock issued $ - 8,108,479
============= =============
Cash received in connection with
acquisition included in assets
acquired $ - 2,315,527
============= =============
Sale of Sheffield Operating Company
Fair value of assets sold $ - 1,991,403
Fair value of liabilities assumed by
purchaser - 245,451
------------- -------------
Fair value of consideration
received $ - 2,236,854
============= =============
Cash distributed in connection with sale
included in assets sold $ - 111,341
============= =============
Acquisition of ITAPCO Terminal
Corporations:
Fair value of assets acquired $ 32,863,452 -
Fair value of liabilities assumed (1,275,014) -
------------- -------------
31,588,438 -
Costs related to acquisition (130,755) -
------------- -------------
Fair value of cash given $ 31,457,683 -
============= =============
Cash received in connection with
acquisition included in assets
acquired $ 906,267 -
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
TRANSMONTAIGNE OIL COMPANY
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
(1) BASIS OF PRESENTATION
The TransMontaigne Oil Company ("TransMontaigne") consolidated balance
sheets at January 31, 1998 and April 30, 1997, the consolidated statements
of operations for the three months and nine months ended January 31, 1998
and 1997, the consolidated statements of stockholders' equity for the nine
months ended January 31, 1998 and the year ended April 30, 1997 and the
consolidated statements of cash flows for the nine months ended January 31,
1998 and 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, 1997. The results of operations for the three months and nine months
ended January 31, 1998 are not necessarily indicative of the results for the
entire fiscal year ending April 30, 1998.
Management makes various estimates and assumptions in determining the
reported amounts of assets, liabilities, revenues and expenses for each
period presented. Changes in these estimates and assumptions will occur as a
result of the passage of time and the occurrence of future events, and
actual results will differ from the estimates.
(2) MERGER
TransMontaigne is the surviving corporation of a merger (the "Merger")
between TransMontaigne Oil Company and Sheffield Exploration Company, Inc.
("Sheffield") effective June 4, 1996. The Merger constituted a reverse
acquisition of Sheffield, in which Sheffield survived the Merger, and was
owned approximately 93% by the former stockholders of TransMontaigne Oil
Company. Following the Merger, (i) the name of Sheffield was changed to
TransMontaigne Oil Company;
9
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(ii) the par value of the common stock was reduced to $.01 per share; (iii)
the number of shares of authorized common stock was increased to 40,000,000;
and (iv) the stock options which Sheffield had outstanding prior to the
Merger became options to purchase 79,338 shares of TransMontaigne's common
stock at $3.65 per share and were exercised prior to their September 2, 1996
expiration date.
(3) ACQUISITIONS
On November 25, 1997 TransMontaigne, through a wholly-owned subsidiary,
TransMontaigne Terminaling Inc., acquired the common stock of seventeen
corporations, known as the "ITAPCO Terminal Corporations", from a common
shareholder group, and certain related property and property interests. The
acquisition included seventeen storage and distribution terminals located in
eight 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; seven
contracts for providing management consulting services to non-owned storage
and distribution terminals, pipelines and related facilities for third
parties; and certain other assets.
The ITAPCO Terminal Corporations purchase price was $32,000,000 cash, less
assumption by TransMontaigne 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
seventeen 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 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, 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.
10
<PAGE>
The cost of the Grasslands Facilities has been allocated to the assets
acquired based on their estimated fair market value as determined by
TransMontaigne.
The following summarized unaudited pro forma results of operations assumes
that the acquisition of the ITAPCO Terminal Corporations and Grasslands
Facilities occurred as of May 1, 1996 and combines the actual results of
operations of TransMontaigne for the three months and nine months ended
January 31, 1998 and 1997 with the pro forma historical results of
operations of the ITAPCO Terminal Corporations for the three months and nine
months ended January 31, 1998 and the pro forma historical results of the
ITAPCO Terminal Corporations and Grasslands Facilities for the three months
and nine months ended January 31, 1997.
The unaudited pro forma results of operations are not necessarily indicative
of the results of operations which would actually have occurred if the
ITAPCO Terminal Corporations and Grasslands Facilities had been acquired as
of May 1, 1996 or which will be attained in the future.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31 January 31
========================== ============================
1998 1997 1998 1997
------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Revenues $ 471,686,103 351,061,087 $ 1,485,244,409 851,095,966
============= =========== =============== ===========
Net Earnings $ 1,705,590 2,293,831 $ 7,031,150 7,814,327
============= =========== =============== ===========
Earnings Per Common Share:
Basic $ 0.07 0.11 0.27 0.38
============= =========== =============== ===========
Diluted $ 0.06 0.10 $ 0.26 0.36
============= =========== =============== ===========
</TABLE>
(4) PUBLIC OFFERING
On February 13, 1997, TransMontaigne closed a public offering of 4,357,000
shares of its common stock of which 4,035,000 shares were issued and sold by
TransMontaigne and 322,000 shares were sold by certain selling stockholders.
The net proceeds to TransMontaigne, based on the public offering price of
$14.25 per share, were approximately $53,506,000, after deducting
underwriting discounts and commissions and offering costs, of which
$45,000,000 was used to repay a portion of the debt incurred under its bank
credit facility. On March 11, 1997 the underwriters' overallotment to
purchase an additional 557,543 shares and the Merrill Lynch
11
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Growth Fund antidilution right to purchase an additional 98,390 shares were
both exercised and TransMontaigne received additional net proceeds of
$8,809,000.
(5) INVENTORY MANAGEMENT
TransMontaigne manages the risk associated with fluctuations in the price of
refined petroleum products inventory and purchase and sales commitments, and
may selectively enter into futures contracts which are designated as hedges
of the products purchased or sold. Hedging gains and losses are recognized
and recorded in inventory when the related inventory is sold. At January
31, 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 $249,000 were recognized during the quarter ended January 31,
1998 and gains of approximately $123,000 were recognized during the quarter
ended January 31, 1997. TransMontaigne had outstanding contracts to sell
3,950,000 barrels of product and outstanding contracts to purchase 3,950,000
barrels of product at January 31, 1998 and outstanding contracts to sell
1,775,000 barrels of product and outstanding contracts to purchase 1,775,000
barrels of product at January 31, 1997. Unrealized gains relating to such
outstanding contracts were approximately $1,523,000 at January 31, 1998 and
approximately $129,000 at January 31, 1997. TransMontaigne refined petroleum
products inventory consists primarily of gasoline and distillates.
A portion of TransMontaigne 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.
(6) INCOME TAXES
TransMontaigne 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
12
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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. As of January 31, 1998 the balance
of net deferred tax assets has been recorded as a reduction of accrued
income taxes payable.
(7) BANK CREDIT FACILITY
TransMontaigne's bank credit facility at January 31, 1998 is an $85,000,000
working capital revolving credit facility with a money center bank due
December 31, 2001. The amount available under the bank credit facility is
to be reduced by $3,125,000 each calendar quarter beginning March 31, 2000.
Borrowings under the bank credit facility generally bear interest at an
annual rate equal to the lender's announced Base Rate, subject to a
Eurodollar pricing option at TransMontaigne's election. The interest rate
at January 31, 1998 was 6.72%.
At January 31, 1998, TransMontaigne had advances of $45,000,000 outstanding
under the bank credit facility. In addition, $2,600,000 of the facility was
used to support a standby letter of credit to a bank to assist Lion Oil
Company (Lion) in obtaining financing.
(8) MASTER SHELF AGREEMENT
In April 1997 TransMontaigne entered into a Master Shelf Agreement with an
institutional lender which provides that the lender will agree to quote,
from time to time, an interest rate at which the lender would be willing to
purchase, on an uncommitted basis, up to $100,000,000 of TransMontaigne's
senior promissory notes which will mature in no more than 12 years, with an
average life not in excess of 10 years.
On April 17, 1997 and December 16, 1997, TransMontaigne sold to the lender,
under the Master Shelf Agreement, $50,000,000 of 7.85% and $25,000,000 of
7.22% Senior Notes due 2003 and 2004, respectively, of which the aggregate
amount of $75,000,000 was outstanding at January 31, 1998.
13
<PAGE>
(9) SENIOR SUBORDINATED DEBENTURES
In March 1991, TransMontaigne issued $4,000,000 of 12 3/4% senior
subordinated debentures which are guaranteed by certain subsidiaries and
are due December 15, 2000, with interest payable semi-annually on June 15
and December 15. The debentures are subject to a required redemption of
$2,000,000 on December 15, 1999 and December 15, 2000. The debentures may
be prepaid prior to maturity at a premium, under certain circumstances. In
conjunction with the issuance of these debentures, TransMontaigne issued
warrants to purchase 248,686 shares of common stock. The warrant exercise
price was reduced effective April 26, 1995 from $6.10 per share to $3.60
per share, through December 15, 2000.
(10) RESTRICTED STOCK
TransMontaigne has a restricted stock plan that provides for awards of
common stock to certain key employees, subject to forfeiture if employment
terminates prior to the vesting dates. The market value of shares awarded
under the plan is recorded in stockholders' equity as unearned
compensation. During the quarters ended October 31, 1997 and January 31,
1998, the TransMontaigne Board of Directors approved the issuance of 44,000
and 12,000 shares, respectively, to certain key employees. Compensation
expense is recognized over a four year vesting period.
(11) BUSINESS SEGMENTS
TransMontaigne's primary operating business segment prior to November 1,
1996 was logistical petroleum services related to pipelining, terminaling,
storing and marketing refined petroleum products. During the quarter ended
January 31, 1998 TransMontaigne acquired the ITAPCO Terminal Corporations
the refined petroleum products, chemicals and other bulk liquids operations
of which are included in the logistical petroleum services business
segment. During the quarter ended January 31, 1997, TransMontaigne acquired
the Grasslands Facilities and expanded other natural gas gathering and
processing assets. The gas gathering and processing services business
segment conducted operations during the one month ended January 31, 1997.
14
<PAGE>
These activities for the nine month periods ended January 31, 1998 and 1997
are reflected in the following summary.
<TABLE>
Revenues 1998 1997
------------- -----------
<S> <C> <C>
Logistical petroleum services $ 1,430,687,188 803,181,621
Gas gathering and processing services 47,293,687 8,294,991
------------- -----------
$ 1,477,980,875 811,476,612
============= ===========
Operating income
Logistical petroleum services $ 11,136,093 6,072,095
Gas gathering and processing services 5,070,983 1,631,405
Corporate (900,000) (646,883)
------------- -----------
$ 15,307,076 7,056,617
============= ===========
Identifiable assets at the end of the
nine month period (net of depreciation)
Logistical petroleum services $ 166,208,117 112,033,593
Gas gathering and processing services 90,653,127 85,106,622
Corporate 66,725,739 51,061,564
------------- -----------
$ 323,586,983 248,201,779
============= ===========
Depreciation and amortization
Logistical petroleum services $ 1,616,163 1,155,059
Gas gathering and processing services 3,777,717 541,737
Corporate 372,891 254,215
------------- -----------
$ 5,766,771 1,951,011
============= ===========
Capital expenditures
Logistical petroleum services $ 41,108,583 11,211,485
Gas gathering and processing services 10,219,607 73,781,927
Corporate 1,310,511 427,896
------------- -----------
$ 52,638,701 85,421,308
============= ===========
</TABLE>
The Corporate business segment represents all TransMontaigne activities and
assets not specifically identified with the primary business segments,
including cash and cash equivalents, investments and other assets.
(12) LION OIL COMPANY INVESTMENT
Effective May 1, 1997 TransMontaigne Holding Inc., a 65% owned subsidiary
of TransMontaigne, issued to its 35% minority shareholders irrevocable
proxies to vote their 35% share of the 27.75% interest in Lion owned by
TransMontaigne Holding Inc. to assure that the 35% minority interest
shareholders would continue to post their pro rata share of $1,400,000 in
standby letters of credit to assist Lion in obtaining financing. Since the
issuance of the irrevocable proxies reduced TransMontaigne's voting
interest in Lion from 27.75% to 18.0375%, TransMontaigne changed its
15
<PAGE>
method of accounting for the investment in Lion from the equity method,
under which the investment originally recorded at cost is adjusted to
recognize TransMontaigne's share of Lion net earnings or losses as
incurred, to the historical cost method, under which the investment is
recorded at cost and dividends or other distributions are recognized as
received. As of May 1, 1997 the investment in Lion by TransMontaigne
Holding Inc. representing its original cost plus accumulated net earnings
was $15,586,097 and the related minority interest was $5,475,377.
(13) EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128") was issued in February 1997, by the Financial Accounting
Standards Board. SFAS 128 established new standards for computing and
presenting earnings per share ("EPS") including simplifying the standards
for computing EPS and making them comparable to international EPS
standards. This statement replaces the presentation of primary EPS
previously prescribed by Accounting Principles Board Opinion No. 15 ("APB
No. 15") with a presentation of basic EPS which is computed by dividing
income available to common stockholders by the weighted average number of
common shares outstanding for the period. SFAS 128 also requires dual
presentation of basic and diluted EPS. Diluted EPS is computed similarly to
fully diluted EPS pursuant to APB No. 15. This statement is effective for
financial statements issued for periods ending after December 15, 1997, and
requires restatement of all prior period EPS data presented. The following
tables reconcile the computation of basic EPS and diluted EPS for the three
months and nine months ended January 31, 1998 and 1997.
16
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JANUARY 31
----------------------------------------------------------------------------------
1998 1997
--------------------------------------- ---------------------------------------
EARNINGS SHARES PER EARNINGS SHARES PER
(NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) SHARE
----------- -------------- ------- ------------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS - Net earnings
available to common
stockholders $ 1,718,021 25,918,870 $ 0.07 $ 1,425,877 21,013,855 $ 0.07
======= ======
Effect of Dilutive
Securities
Stock options - 576,664 - 663,045
Stock warrants - 189,722 - 179,722
----------- ---------- ------------ ---------
Diluted EPS - Net
earnings available to
common stockholders
and assumed
conversions $ 1,718,021 26,685,256 $ 0.06 $ 1,425,877 21,856,622 $ 0.07
=========== ========== ======= ============ ========== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JANUARY 31
----------------------------------------------------------------------------------
1998 1997
--------------------------------------- ---------------------------------------
EARNINGS SHARES PER EARNINGS SHARES PER
(NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) SHARE
----------- -------------- ----- ------------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS - Net earnings
available to common
stockholders $ 7,125,058 25,868,471 $ 0.28 $ 5,905,540 20,728,760 $ 0.28
======= ======
Effect of Dilutive
Securities
Stock options - 619,953 - 630,668
Stock warrants - 195,346 - 165,000
---------- --------- ----------- ----------
Diluted EPS - Net
earnings available to
common stockholders
and assumed
conversions $7,125,058 26,683,770 $ 0.27 $ 5,905,540 21,524,428 $ 0.27
=========== ========== ======= ============ ========== ======
Note: Stock options to purchase 521,000 shares of common stock at $17.25 per share were outstanding during the three
months ended January 31, 1998, but were not included in the computation of diluted EPS because the options'
exercise price was greater than the average market price of the common shares during the three months ended
January 31, 1998.
</TABLE>
17
<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, and
does not own crude oil or natural gas reserves.
TransMontaigne owns and operates refined petroleum products,
chemicals, other bulk liquids, crude oil and natural gas assets. TransMontaigne
refined petroleum products, chemicals, other bulk liquids and crude oil assets
consist primarily of approximately 770 miles of pipeline and 31 storage,
terminal and delivery facilities located in ten states with a combined tank
storage capacity of approximately 8,300,000 barrels. TransMontaigne natural gas
gathering and processing assets consist of six gathering and processing systems
in three states with combined throughput capacity of approximately 93 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 marketed,
shipped and sold to and exchanged with customers in other locations. Management
believes that the use of all these facilities allows TransMontaigne to
significantly expand its geographic service area and the integrated logistical
services it provides.
The principal predecessor of TransMontaigne was formed in 1977 and 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 TransMontaigne
receiving approximately 93% of the stock of the merged corporation.
18
<PAGE>
Since TransMontaigne present management assumed control in April 1995,
TransMontaigne has raised approximately $117,000,000 in equity capital
($30,000,000 private placement in May 1995; $25,000,000 private placement in
March 1996; and $62,000,000 public offering in February 1997); established an
initial $130,000,000 working capital and acquisition revolving bank credit
facility (in December 1996) which converted to the present $85,000,000 bank
credit facility due December 31, 2001 (in February 1997); and issued $50,000,000
of 7.85% and $25,000,000 of 7.22% Senior Notes due 2003 and 2004, respectively,
to an institutional lender under a $100,000,000 Master Shelf Agreement (in April
1997 and December 1997, respectively).
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 January 31, 1998
has additionally invested approximately $19,000,000 in improvements and
expansion of the Grasslands Facilities and other assets in its natural gas
gathering and processing business segment. The Grasslands Facilities complement
TransMontaigne's other natural gas gathering and processing facilities in the
Williston Basin of the Rocky Mountain region, and enables TransMontaigne to
provide expanded services to oil and gas producers as well as to end-users of
natural gas liquids ("NGLs") and natural gas. The Grasslands Facilities
contributed approximately 89% and 91% of the total net operating margins of
TransMontaigne's natural gas gathering and processing operations during the
three months and nine months ended January 31, 1998, respectively.
In November 1997 TransMontaigne acquired the common stock of seventeen
corporations, known as the "ITAPCO Terminal Corporations", and certain related
property and property interests. The acquisition included seventeen bulk liquid
storage and distribution terminals located in eight states having total tankage
capacity in excess of 3.3 million barrels, handling primarily refined petroleum
products, chemicals and other bulk liquids together with the related operations
of the terminals; seven contracts for providing management consulting services
to non-owned storage and distribution terminals, pipelines and related
facilities for third parties; and certain other assets. The ITAPCO Terminal
Corporations purchase price was $32,000,000 cash less 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. Following the November 25, 1997 acquisition date,
the ITAPCO Terminal Corporations contributed approximately 46% and 22% of
19
<PAGE>
the total net operating margins of the TransMontaigne terminal operations during
the three months and nine months ended January 31, 1998.
Effective December 1, 1997, TransMontaigne became the managing partner
of operations of the Lignite gas gathering and processing facilities, in which
TransMontaigne owns a 50% partnership interest.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This report contains "forward-looking statements" within the meaning
of the federal securities laws and may include the words or phrases "believes,"
"will depend," "will become" and "plans to" or similar expressions as well as
other statements of expectations, beliefs, future strategies and comments
concerning matters which are not historical facts. These forward-looking
statements are subject to risks and uncertainties which could cause actual
results to differ materially from those expressed in or implied by the
statements including, but not limited to, the following:
. that TransMontaigne will generate net 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 a noncash
financial statement loss through a lower of cost or market write-
down of inventories
. that TransMontaigne will incur unanticipated costs in complying with
current and possibly future environmental regulations
. that TransMontaigne will capitalize on the trend by other companies
in the oil and gas industry to divest assets and outsource certain
services
. that TransMontaigne will replace the supply of dedicated natural gas
reserves gathered and processed by its facilities
. that TransMontaigne will internally generate working capital or have
the availability of debt and equity resources to meet its future
capital requirements.
20
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31 JANUARY 31
----------------------- ------------------------
1998 1997 1998 1997
----------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
PIPELINE OPERATIONS
Volume (1) 4,365 4,506 14,120 14,271
Revenues (2) $ 3,194 2,866 9,588 8,927
Net Operating Margins (2) $ 1,724 1,505 5,155 4,885
Margin per barrel handled $ 0.3950 0.3340 0.3651 0.3423
TERMINAL OPERATIONS
Volume (1)
Refined petroleum products 421,000 178,000 1,015,000 530,000
Chemicals and other bulk liquids 10,000 - 10,000 -
Revenues (2)
Refined petroleum products $ 3,110 1,305 7,478 3,680
Chemicals and other bulk liquids $ 1,026 - 1,026 -
Net Operating Margins (2) $ 2,655 740 5,550 2,488
Margin per gallon handled $ 0.0062 0.0042 0.0054 0.0047
PRODUCTS SUPPLY AND
DISTRIBUTION OPERATIONS
Volume (1) 808,000 491,000 2,473,000 1,237,000
Revenues (2) $ 446,822 328,188 1,412,595 790,575
Net Operating Margins (2) $ 2,403 580 8,429 4,178
Margin per gallon sold $ 0.0030 0.0012 0.0034 0.0034
GAS GATHERING AND
PROCESSING OPERATIONS
Inlet Volume (3) 5,337 1,609 15,401 1,609
NGLs Production (3) 25,085 9,253 73,847 9,253
Residue Production (3) 5,054,379 1,452,000 12,959,773 1,452,000
Revenues (2) $ 16,580 8,295 47,294 8,295
Net Operating Margins (2) $ 3,808 2,472 11,600 2,472
TOTAL OPERATIONS
Revenues (2) $ 470,732 340,654 1,477,981 811,477
Net Operating Margins (2) $ 10,590 5,297 30,734 14,023
Net Earnings (2) $ 1,718 1,426 7,125 5,906
</TABLE>
21
<PAGE>
(1) Pipeline volumes are expressed in thousands of barrels (42 gallons per
barrel). Terminal and products supply and distribution volumes are expressed in
thousands of gallons.
(2) Revenues, net operating margins, and net earnings are expressed in thousands
of dollars. Net operating margin represents (a) revenues less direct operating
expenses for pipeline and terminal 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 gathering and processing operations.
(3) Natural gas inlet volumes are expressed in million cubic feet; NGLs
production is expressed in thousands of gallons; and residue natural gas
production is expressed in million British Thermal Units.
Prior to the acquisition of the 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; storing and terminaling refined petroleum
products; and refined petroleum products supply, distribution and marketing.
Chemicals and other bulk liquids storage and terminaling became a component of
the logistical petroleum business segment following the ITAPCO Terminal
Corporations acquisition and will represent an important source of future
revenue. Natural gas gathering and processing services became a separate
business segment with the acquisition of the Grasslands Facilities and
significantly impacts TransMontaigne's results of operations.
Pipeline revenues are based on the volume of refined petroleum products or
crude oil transported and the distance from the origin point to the delivery
point. TransMontaigne's interstate pipeline systems transport refined petroleum
products and their tariffs are regulated by the Federal Energy Regulatory
Commission (the "FERC"). TransMontaigne's intrastate pipeline transports crude
oil and its tariffs are not regulated by the FERC but are regulated by the Texas
Railroad Commission.
Terminal revenues are based on the volume of refined petroleum products,
chemicals and other bulk liquids handled, generally at a standard per gallon fee
or negotiated bulk contract rate. Terminal fees are not regulated. Storage fees
are generally based on a per barrel rate, which varies with the
22
<PAGE>
duration of the storage arrangement, the 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 pipelines and terminals include wages and
employee benefits, utilities, communications, maintenance and repairs, property
taxes, rent, insurance, vehicle expenses, environmental protection costs,
materials and supplies.
Products supply and distribution revenues are based on the volume of bulk
sales of refined petroleum products and the wholesale distribution of refined
petroleum products from terminals. Bulk purchase and sale transactions in
quantities of 25,000 barrels to 50,000 barrels are common and are generally made
at small margins. Wholesale distribution of refined petroleum products is
conducted from eight proprietary and seventy-one nonproprietary terminal truck
loading rack locations primarily by truck load sales of 8,000 gallons.
Natural gas gathering and processing revenues are based on the inlet volume
of natural gas purchased from producers under both percentage of proceeds and
fee based arrangements. Natural gas is gathered and processed into NGLs
products, principally propane, butane and natural gasoline. These products are
transported by truck or pipeline to storage facilities from which they are
further transported and marketed by TransMontaigne to wholesalers and end-users.
Residue natural gas is delivered to and marketed through connections with
interstate pipelines.
Direct operating expenses of natural gas gathering and processing include
wages and employee benefits, utilities, maintenance and repairs, property taxes,
insurance, vehicle expenses, environmental protection costs, material and
supplies.
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO
THREE MONTHS ENDED JANUARY 31, 1997
The net operating margin from pipeline operations of $1,724,000 increased
15%, or $219,000, in the current year quarter. This increase resulted primarily
from an 11% increase in revenues of $328,000, primarily due to increases in
joint tariff participation and a small increase in volumes of higher tariff long
haul pipeline shipments, notwithstanding an overall 3% volume decrease of
141,000 barrels, primarily in lower tariff short haul pipeline shipments. This
increase was partially offset by an 8%
23
<PAGE>
increase in operating costs of $109,000 which was due to incremental power costs
from additional long haul shipment volumes and increased field personnel costs,
maintenance and vehicle expense.
The net operating margin from terminal operations of $2,655,000 increased
259%, or $1,915,000, in the current year quarter. This increase resulted from an
overall 137% increase in refined petroleum products volumes handled and
10,000,000 gallons 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; additional volumes at the East Chicago
terminal facility acquired in December 1996; and new jet fuel contract volumes
at the Indianapolis, Indiana terminal. These increases were offset in part by a
162% increase in terminal operating costs largely attributable to the ITAPCO
Terminal Corporations terminals operations; expanded East Chicago terminal
operations; a new terminal lease; additional freight charges on products; and
increased field personnel costs and maintenance expenses.
The net operating margin from product sales of $2,403,000 increased 314%,
or $1,823,000, in the current year quarter. Revenues increased $118,634,000 or
36%, on additional volume of 317,000,000 gallons of products sold, an increase
of 65%. The $.0030 net operating margin per gallon realized in the current year
quarter increased $.0018, or 150%, from the $.0012 per gallon realized during
the prior year quarter. The significant increase in volumes and revenues was
attributable to TransMontaigne's continuing and expanding supply, distribution
and marketing program. The higher net operating margin in both dollars and per
gallon sold was positively impacted by strategic bulk sales transactions,
notwithstanding volatile refined petroleum product market conditions influenced
by the international political climate and atypical and erratic weather
patterns. Overall, the increased product sales volume contributed to the small
increase in long haul pipeline volumes and the large increase in terminal
throughput volumes, which resulted in increasing related revenues in the current
year quarter. By providing an integrated logistical service to customers through
the effective utilization of its transportation, storage and terminaling
facilities as well as its product supply, distribution and marketing
capabilities, TransMontaigne's aggregate net operating margin from the
logistical petroleum services business segment was $6,782,000 in the current
year quarter, an increase of $3,957,000, or 140%, over the prior year quarter.
The net operating margin from natural gas gathering and processing
operations of $3,808,000 increased 54%, or 1,336,000 in the current year
quarter. Revenues increased $8,285,000 or 100% on
24
<PAGE>
substantial increases in both NGLs and residue production. These increases were
primarily attributable to the business activities of the Grasslands Facilities,
and also include net operating margin contributions 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.
The unaudited pro forma results of operations reflected in Note 3 to
the Consolidated Financial Statements include the pro forma historical operating
performance of the ITAPCO Terminal Corporations and Grasslands Facilities under
prior ownership and are presented for comparative purposes. The pro forma
information includes historical ITAPCO Terminal Corporations revenues of
$2,850,000 for the three months ended January 31, 1998 representing an increase
of $255,000, or 10%, over pro forma historical revenues of $2,595,000 for the
prior year quarter and actual Grasslands Facilities revenues of $14,053,000 for
the three months ended January 31, 1998 representing a decrease of $1,759,000,
or 11%, over pro forma historical revenues of $15,812,000 for the prior year
quarter. The ITAPCO Terminal Corporations revenue increase for the current year
quarter was primarily due to increased storage volumes from facility
acquisitions and improved terminal storage utilization and the Grassland
Facilities revenue decrease for the current year quarter was primarily due to
depressed product prices for NGLs and residue natural gas. The ITAPCO Terminal
Corporations historical net operating margin from operations for the current
year quarter was $1,693,000, a 48% increase of $551,000 over the pro forma
historical net operating margin of $1,142,000 for the prior year quarter and the
Grassland Facilities actual net operating margin from operations for the current
year quarter was $3,387,000, a 35% decrease of $1,824,000 from the pro forma
historical net operating margin of $5,211,000 for the prior year quarter. The
ITAPCO Terminal Corporations net operating margin increase for the current year
quarter was primarily due to increased storage volumes from facility
acquisitions and improved terminal storage utilization and lower operating
expenses and the Grasslands Facilities net operating margin decrease for the
current year quarter was primarily due to the depressed product prices as well
as increased operating expenses.
General and administrative expenses increased $1,879,000, a 101%
increase in the current year quarter, primarily due to additional personnel
costs. In addition, office lease expense increased as well as regulatory
reporting, travel, insurance, information systems and communication expenses.
Approximately $212,000, or 11%, of these expense increases was directly
attributable to the ITAPCO Terminal Corporations together with three months of
natural gas gathering and processing business
25
<PAGE>
activities included in the current year quarter and TransMontaigne's overall
expanded integrated logistical petroleum services.
Other income in the current year quarter includes interest income of
$484,000. In the prior year quarter other income included TransMontaigne's
share of Lion losses, net of related minority interests, of approximately
$63,000 and interest income of $399,000. The $85,000 increase in interest
income in the current year quarter was due primarily to an increase in interest
bearing cash balances held for future investments.
Interest expense represents interest on the 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 additional inventory. Also included is interest on 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 financing costs during the current year
quarter increased $853,000, or 59%, of which $816,000 represented increased
interest expense over the prior year quarter primarily due to an increase of
approximately $41,000,000 in average outstanding debt over the prior year
quarter.
Earnings before income taxes of TransMontaigne for the current year
quarter were $2,818,000, a 75% increase of $1,212,000 over the $1,606,000 for
the prior year quarter. This improvement was primarily a result of the
aggregate increase in the logistical petroleum services business segment net
operating margin, including the additional contribution from the ITAPCO Terminal
Corporations acquisition; the positive impact of the net operating margin
contribution from the gas gathering and processing business segment attributable
essentially to the Grasslands Facilities operations; and additional interest
income. These increases were partially offset by the increase in general and
administrative expenses, depreciation of $1,234,000, including $703,000
attributable to the Grassland Facilities and $253,000 attributable to the ITAPCO
Terminal Corporations and interest expense, primarily attributable to the
financing of the Grasslands Facilities and ITAPCO Terminal Corporations
acquisitions.
Income tax expense for the current year quarter of $1,100,000 is based
upon estimated combined federal and state income tax, whereas only state income
tax of $180,000 was provided for the prior year
26
<PAGE>
quarter, an increase of 511% in the current year quarter. At April 30, 1997
TransMontaigne determined that its net deferred tax assets would more likely
than not be realized, and recognized an income tax benefit in the year ended
April 30, 1997 for the remaining balance of the previously recorded valuation
allowance. As a result of this prior year recognition of the net deferred tax
assets, deferred income tax expense of $770,000 and current federal and state
income tax expense of $330,000 were provided in the current year quarter against
net earnings before income tax.
Net earnings of TransMontaigne for the current year quarter, after
providing for income taxes, were $1,718,000 compared to $1,426,000 for the prior
year quarter, an increase of 20%.
NINE MONTHS ENDED JANUARY 31, 1998 COMPARED TO
NINE MONTHS ENDED JANUARY 31, 1997
The net operating margin from pipeline operations of $5,155,000
increased 6%, or $270,000, in the current nine month period. This increase
resulted primarily from a 7% increase in revenues of $661,000, primarily due to
net increases in the volumes of higher tariff long haul pipeline shipments,
together with increases in joint tariff participation and terminal facility
rental income. This increase was partially offset by a 10% increase in
operating costs of $391,000 which was due to incremental power costs from
additional long haul shipment volumes and increased field personnel costs,
maintenance and vehicle expenses.
The net operating margin from terminal operations of $5,550,000
increased 123%, or $3,062,000, in the current nine month period. This increase
resulted from an overall 92% increase in refined petroleum products volumes
handled and 10,000,000 gallons of chemical and other bulk liquids not previously
handled, primarily due to the operations of the ITAPCO Terminal Corporations
terminal facilities acquired in November 1997; additional volumes at the East
Chicago terminal facility acquired in December 1996; and new jet fuel contract
volumes at the Indianapolis, Indiana terminal. These increases were offset in
part by an 148% increase in terminal operating costs largely attributable to the
ITAPCO Terminal Corporations terminals operations; expanded East Chicago
terminal operations; a new terminal lease; additional freight charges on
products; and increased field personnel costs and maintenance expenses.
27
<PAGE>
The net operating margin from product sales of $8,429,000 increased
102%, or $4,251,000, in the current nine month period. Net revenues increased
$622,020,000, or 79%, on additional volume of 1,236,000,000 gallons of products
sold, an increase of 100%. The $.0034 net operating margin per gallon realized
in the current nine month period was unchanged from the $.0034 per gallon
realized during the prior year nine month period. The significant increase in
volumes and revenues was attributable to TransMontaigne's continuing and
expanding supply, distribution and marketing program. The higher net operating
margin in dollars was positively impacted by strategic bulk sales transactions
in the quarter ended January 31, 1998, notwithstanding volatile refined
petroleum product market conditions influenced by the international political
climate and atypical and erratic weather patterns. Overall, however, the
increased product sales volume contributed to a small increase in long haul
pipeline volumes and a large increase terminal throughput volumes, which
resulted in increasing the related revenues in the current nine month period. By
providing an integrated logistical service to customers through the effective
utilization of its transportation, storage and terminaling facilities as well as
its product supply, distribution and marketing capabilities, TransMontaigne's
aggregate net operating margin from the logistical petroleum services business
segment was $19,134,000 in the current nine month period, an increase of
$7,583,000, or 66%, over the prior year nine month period.
The net operating margin from natural gas gathering and processing
operations of $11,600,000 in the current nine month period is primarily
attributable to the business activities of the Grasslands Facilities, and also
includes net operating margin contributions from the Marmarth, Baker, Lignite
and Wiggins natural gas gathering and processing facilities as well as
management fees from fifteen small natural gas gathering systems.
The unaudited pro forma results of operations reflected in Note 3 to
the Consolidated Financial Statements include the pro forma historical operating
performance of the ITAPCO Terminal Corporations and Grasslands Facilities under
prior ownership and are presented for comparative purposes. The pro forma
information includes historical ITAPCO Terminal Corporations revenues of
$9,159,000 for the nine months ended January 31, 1998 representing an increase
of $1,000,000, or 12%, over pro forma historical revenues of $8,159,000 for the
prior year nine month period and actual Grasslands Facilities revenues of
$41,283,000 for the nine months ended January 31, 1998 representing an increase
of $1,822,000, or 5%, over pro forma historical revenues of $39,461,000 for the
prior year nine month period. The ITAPCO Terminal Corporations revenue increase
for the current year nine month period was primarily due to increased storage
volumes from facility acquisitions during the
28
<PAGE>
period and improved terminal storage utilization and the Grassland Facilities
revenue increase for the current year nine month period was primarily due to an
increase in product volumes sold. The ITAPCO Terminal Corporations historical
net operating margin from operations for the current year nine month period was
$4,692,000, a 17% increase of $690,000 over the pro forma historical net
operating margin of $4,002,000 for the prior year nine month period and the
Grassland Facilities actual net operating margin from operations for the current
year nine month period was $10,569,000, an 8% decrease of $932,000 from the pro
forma historical net operating margin of $11,501,000 for the prior year nine
month period. The ITAPCO Terminal Corporations net operating margin increase for
the current year nine month period was primarily due to increased storage
volumes from facility acquisitions during the period and improved terminal
storage utilization, partially offset by higher operating expenses, and the
Grasslands Facilities net operating margin decrease for the current year nine
month period was primarily due to the depressed product prices as well as
increased operating expenses.
General and administrative expenses increased $4,645,000, a 93%
increase in the current nine month period, primarily due to additional personnel
costs. In addition, office lease expense increased as well as employee
relocation, regulatory reporting, travel, insurance, information systems and
communication expenses. Approximately $212,000, or 5%, of these expense
increases was directly attributable to the ITAPCO Terminal Corporations,
together with nine months of natural gas gathering and processing business
activities included in the current year nine month period and TransMontaigne's
overall expanded integrated logistical petroleum services.
Other income in the current year nine month period includes interest
income of $1,630,000. In the prior year nine month period other income included
TransMontaigne's share of Lion earnings, net of related minority interests, of
approximately $211,000 and interest income of $1,292,000. The $338,000 increase
in interest income in the current nine month period was due primarily to an
increase 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,
additional inventory and accounts receivable. Also included is interest on
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
29
<PAGE>
financing costs during the nine months ended increased $2,833,000, or 101%, of
which $2,586,000 represented increased interest expense over the prior year nine
month period primarily due to an increase of approximately $42,000,000 in
average outstanding debt over the prior year nine month period.
Earnings before income taxes of TransMontaigne for the current nine
month period were $11,295,000, a 78% increase of $4,939,000 over the $6,356,000
for the prior year nine month period. This improvement was primarily a result of
the aggregate increase in the logistical petroleum services business segment net
operating margin, including the additional contribution from the ITAPCO Terminal
Corporations acquisition; the positive impact of the net operating margin
contribution from the gas gathering and processing business segment attributable
essentially to the inclusion of the Grasslands Facilities operations; and
additional interest income. These increases were partially offset by the
increase in general and administrative expenses, depreciation of $3,816,000,
including $2,969,000 attributable to the Grassland Facilities and $253,000
attributable to the ITAPCO Terminal Corporations and interest expense, primarily
attributable to the financing of the Grasslands Facilities and ITAPCO Terminal
Corporations acquisitions.
Income tax expense for the current nine month period of $4,170,000 is
based upon estimated combined federal and state income tax, whereas only state
income tax of $450,000 was provided for the prior year nine month period, an
increase of 827% in the current year nine month period. At April 30, 1997
TransMontaigne determined that its net deferred tax assets would more likely
than not be realized, and recognized an income tax benefit in the year ended
April 30, 1997 for the remaining balance of the previously recorded valuation
allowance. As a result of this prior year recognition of the net deferred tax
assets, deferred income tax expense of $3,676,000 and current federal and state
income tax expense of $494,000 were provided in the current nine month period
against net earnings before income tax.
Net earnings of TransMontaigne for the current nine month period,
after providing for income taxes, were $7,125,000 compared to $5,906,000 for the
prior year nine month period, an increase of 21%.
30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following summary reflects TransMontaigne's comparative net cash
flows for the nine months ended January 31, 1998 and 1997.
<TABLE>
<CAPTION>
Nine Months Ended
January 31
-----------------------------------
1998 1997
---- ----
<S> <C> <C>
Net cash (used) by operating activities $ (3,149,000) (22,374,000)
Net cash (used) by investing activities $ (52,684,000) (83,355,000)
Net cash provided by financing $ 60,271,000 95,494,000
activities
</TABLE>
Net cash used by operating activities in the current year nine month
period decreased $19,225,000 from the prior year nine month period. This
decrease in net cash used, which represents an increase in net cash generated
over the prior year nine month period, resulted from increased net earnings,
depreciation and amortization and deferred income tax expense; decreased trade
receivables from refined petroleum products and NGLs sales; increased inventory
due under exchange agreements; and increased other accrued liabilities.
Partially offsetting the foregoing were increased inventories and decreased
trade accounts payable.
Net cash used by investing activities in the current year nine month
period decreased $30,671,000 from the prior year nine month period. This
decrease in net cash used, which represents an increase in net cash generated
over the prior year nine month period, resulted from a decrease in capital
expenditures to $52,639,000 for additions and improvements to pipeline,
terminals and natural gas gathering and processing facilities, including
approximately $31,458,000 net of debt assumed for the acquisition of the ITAPCO
Terminal Corporations and approximately $10,000,000 for additions to the
Grassland Facilities. During the prior year nine month period capital
expenditures were $85,421,000, of which approximately $73,782,000 was for
expansion of the Grasslands Facilities and other assets in the natural gas
gathering and processing business segment and $2,316,000 in cash was received in
connection with an acquisition.
31
<PAGE>
Net cash provided by financing activities in the current year nine
month period decreased $35,223,000 from the prior year nine month period. This
decrease resulted primarily from a reduction in net long-term borrowings, during
the current year nine month period as compared to the prior year nine month
period which included the debt incurred for financing the Grasslands Facilities.
EBITDA represents earnings before income taxes plus interest expense
and other financing costs and depreciation and amortization. Management uses
EBITDA as part of its overall assessment of TransMontaigne's performance by
analyzing and comparing EBITDA between reporting periods. Management believes
that, in addition to cash flow from operations and net earnings as indicators of
operating performance, EBITDA is used increasingly by the financial community to
measure operating effectiveness and as a method to evaluate the market value of
companies like TransMontaigne. EBITDA is also used to evaluate TransMontaigne's
ability to incur and service debt and to fund capital expenditures, although it
is not considered in isolation or a substitute for the other measurements of
performance and liquidity. EBITDA for the current year nine month period was
$22,704,000, a 104% increase over EBITDA of $11,115,000 for the prior year nine
month period, and was generally consistent with management's expectations, based
upon TransMontaigne operations, including the incremental EBITDA contributed by
the ITAPCO Terminal Corporations, and prevailing economic and market conditions.
Several anticipated sources of revenues which would have contributed additional
EBITDA in the current year nine month period were either delayed or did not
fully reach expected volume levels with the related impact on EBITDA offset in
part by the improved performance of the continuing operations. These delays and
reduced volumes are considered by management to be only temporary and should not
impact TransMontaigne's future operating performance. Achieving continued EBITDA
growth through acquisitions and internal expansion of existing facilities is a
primary objective of TransMontaigne.
Capital expenditures during the current year nine month period were
$52,639,000 and for the year ending April 30, 1998 are estimated to be
approximately $65,000,000 for pipeline, terminal and natural gas gathering and
processing facilities, including assets to support these facilities, and
including the $32,000,000 expended in connection with the acquisition of the
ITAPCO Terminal Corporations in November, 1997. On a regular basis management
identifies prospective asset acquisitions which are analyzed and evaluated to
determine their operational suitability and potential financial contribution to
TransMontaigne's cash flow, EBITDA and net earnings. Future capital
expenditures will depend on numerous factors in addition to operating and
financial considerations, including the availability,
32
<PAGE>
economics and cost of appropriate asset acquisitions; the economics, cost and
required regulatory approvals of expanding and enhancing existing systems and
facilities; the demand for the services TransMontaigne provides; local, state
and federal governmental regulations; the evaluation of environmental
considerations and compliance requirements; fuel conservation efforts; and the
availability, to the extent required, of financing on acceptable terms.
In February 1997, TransMontaigne closed a public offering of 4,357,000
shares of its common stock of which 4,035,000 shares were issued and sold by
TransMontaigne and 322,000 shares were sold by certain selling stockholders. The
net proceeds to TransMontaigne, based on the public offering price of $14.25 per
share, were $53,506,000 after deducting underwriting discounts and commissions
and offering costs, of which $45,000,000 was used to repay a portion of the
long-term debt incurred under its bank credit facility and the balance added to
working capital. In March 1997 the underwriters' overallotment option to
purchase an additional 557,543 shares and the Merrill Lynch Growth Fund
antidilution right to purchase an additional 98,390 shares were both exercised
and TransMontaigne received additional net proceeds of $8,809,000 which was
added to working capital.
The TransMontaigne bank credit facility at January 31, 1998 was an
$85,000,000 revolving credit facility with a money center bank due December 31,
2001. The amount available under the bank credit facility is to be reduced by
$3,125,000 each calendar quarter beginning March 31, 2000. Borrowings under the
bank credit facility generally bear interest at an annual rate equal to the
lender's announced Base Rate, subject to a Eurodollar pricing option at
TransMontaigne's election. The interest rate at January 31, 1998 was 6.72%.
At January 31, 1998, TransMontaigne had advances of $45,000,000
outstanding under the bank credit facility; $2,600,000 of the facility was used
to support a standby letter of credit to a bank to assist Lion in obtaining
financing.
In April 1997 TransMontaigne entered into a Master Shelf Agreement
with an institutional lender which provides that the lender will agree to quote,
from time to time, an interest rate at which the lender would be willing to
purchase, on an uncommitted basis, up to $100,000,000 of TransMontaigne's senior
promissory notes which will mature in no more than 12 years, with an average
life not in excess of 10 years.
33
<PAGE>
At January 31, 1998, TransMontaigne had outstanding under the Master
Shelf Agreement, $50,000,000 of 7.85% and $25,000,000 of 7.22% Senior Notes due
2003 and 2004, respectively.
The bank credit facility agreement and the Master Shelf Agreement
contain a negative pledge covenant by TransMontaigne and its subsidiaries and
are secured by the stock of the subsidiaries. These agreements also include
financial tests relating to fixed charges coverage, leverage ratio, consolidated
tangible net worth, distributions and inventory positions. At January 31, 1998,
TransMontaigne was in compliance with all of such tests.
On March 16, 1998 TransMontaigne received a firm commitment from a
group of lenders led by BankBoston, N.A. to provide a new $175,000,000 revolving
line of credit facility to TransMontaigne due December 31, 2002. Borrowings
under the new credit facility will 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 will be made available to TransMontaigne under
which advances may be drawn at an interest rate less than on the Alternate Base
Rate loan. The new credit facility will contain a negative pledge covenant and
financial tests similar to the existing credit facility. The new credit facility
is scheduled to close on or before March 31, 1998.
As of April 30, 1997, TransMontaigne's fiscal year end, approximately
$18,339,000 of net operating loss carryforwards for federal income tax purposes
were available to offset taxable income through 2010. Due to changes in
ownership which occurred prior to April 30, 1997, the use of these net operating
loss carryforwards to offset taxable income is limited to approximately
$4,300,000 annually. As a result of the merger in June 1996, TransMontaigne
acquired additional net operating loss carryforwards of approximately
$7,892,000, which are included in the aggregate net operating loss
carryforwards; are limited to approximately $1,300,000 annually; and a portion
of the tax benefit of which was recognized as a net reduction of goodwill
recorded in the acquisition.
At January 31, 1998, TransMontaigne had working capital of
$99,054,000; availability under its bank credit facility of $37,400,000; 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 a private placement
or public offering of common stock; available borrowing permitted under its bank
credit facility agreement and the Master Shelf
34
<PAGE>
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.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") was issued in June 1997, by the Financial
Accounting Standard 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. This
statement is effective for fiscal years beginning after December 15, 1997.
TransMontaigne does not expect adoption of the SFAS 130 to have a material
effect on the presentation of its financial statements.
Statement of Financial Accounting Standard No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"), was issued in
June 1997, by the Financial Accounting Standard 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 adoption of
the SFAS 131 to have a material effect on the presentation of its financial
statements.
EBITDA AS AN ALTERNATIVE MEASURE OF FINANCIAL PERFORMANCE
EBITDA is earnings (loss) before income taxes plus interest expense
and other financing costs and depreciation and amortization. TransMontaigne
believes that, in addition to cash flow from operations and net earnings (loss),
EBITDA is a useful financial performance measurement for assessing operating
performance since it provides an additional basis to evaluate the ability of
TransMontaigne to incur and service debt and to fund capital expenditures. In
evaluating EBITDA, TransMontaigne believes that consideration should be given,
among other things, to the amount by which EBITDA exceeds interest expense 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
35
<PAGE>
EBITDA, such as revenue and operating expenses and the variability of such
components over time, should also be considered. EBITDA should not be construed,
however, as an alternative to operating income (loss), as determined in
accordance with generally accepted accounting principles (GAAP), as an indicator
of TransMontaigne's operating performance or to cash flows from operating
activities, as determined in accordance with GAAP, as a measure of liquidity.
TransMontaigne's method of calculating EBITDA may differ from methods used by
other companies, and as a result, EBITDA measures reported by TransMontaigne may
not be comparable to other similarly titled measures used by other companies.
36
<PAGE>
PART II. OTHER INFORMATION
- --------------------------
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule. FILED HEREWITH
(b) The following report on Form 8-K was filed during the quarter
ended January 31, 1998 and is included in this Form 10-Q by
reference:
December 10, 1997, reporting Item 2 (acquisition by Registrant,
through a wholly-owned subsidiary, of all of the outstanding
shares of common stock of seventeen corporations, known as the
"ITAPCO Terminal Corporations", from a common shareholder group
and certain related property and property interests from
Independent Terminal and Pipeline Company, a Texas joint venture,
from certain individuals in the same group) and Item 7 (deferring
filing of the historical and pro forma financial statements for
the ITAPCO acquisition and attaching as Exhibit 2.1 a copy of the
Offer to Purchase Stock and Certain Assets of the ITAPCO
Corporations, together with Exhibits) of Form 8-K.
37
<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: March 16, 1998 TRANSMONTAIGNE OIL COMPANY
(Registrant)
/s/ CORTLANDT S. DIETLER
------------------------------------
Cortlandt S. Dietler
Chairman and Chief Executive Officer
/s/ RODNEY S. PLESS
-----------------------------------
Rodney S. Pless
Vice President and Controller
(Principal Accounting Officer)
38
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED JANUARY 31, 1998 AND
JANUARY 31, 1997 WITH THE EPS INFORMATION FOR THE NINE MONTHS ENDED JANUARY 31,
1997 RESTATED TO BE IN CONFORMITY WITH FASB 128 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1997
<PERIOD-START> MAY-01-1997 MAY-01-1996
<PERIOD-END> JAN-31-1998 JAN-31-1997
<CASH> 40,822,014 28,168,373
<SECURITIES> 0 0
<RECEIVABLES> 39,186,603 41,758,953
<ALLOWANCES> 0 0
<INVENTORY> 63,625,882 49,296,802
<CURRENT-ASSETS> 146,092,055 120,534,394
<PP&E> 172,907,920 113,694,325
<DEPRECIATION> (16,374,455) (8,151,832)
<TOTAL-ASSETS> 323,586,983 248,201,779
<CURRENT-LIABILITIES> 47,038,227 44,451,675
<BONDS> 124,489,624 124,906,667
0 0
0 0
<COMMON> 259,394 210,742
<OTHER-SE> 146,324,361 73,072,869
<TOTAL-LIABILITY-AND-EQUITY> 323,586,983 248,201,779
<SALES> 0 0
<TOTAL-REVENUES> 1,477,980,875 811,476,612
<CGS> 0 0
<TOTAL-COSTS> 1,462,673,799 804,419,995
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,223,727 2,647,990
<INCOME-PRETAX> 11,295,058 6,355,540
<INCOME-TAX> 4,170,000 450,000
<INCOME-CONTINUING> 7,125,058 5,905,540
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,125,058 5,905,540
<EPS-PRIMARY> .28 .28
<EPS-DILUTED> .27 .27
</TABLE>
