<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 March 31, 1999
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 001-11763
TRANSMONTAIGNE INC.
DELAWARE 06-1052062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2750 REPUBLIC PLAZA, 370 SEVENTEENTH STREET
DENVER, COLORADO 80202
(Address, including zip code, of principal executive offices)
(303) 626-8200
(Telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
As of April 30, 1999 there were 30,475,024 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
March 31, 1999 and June 30, 1998 (Unaudited) ....... 4
Consolidated Statements of Operations
Three Months Ended March 31, 1999 and
Three Months Ended April 30, 1998 (Unaudited) ...... 5
Consolidated Statements of Operations
Nine Months Ended March 31, 1999 and
Nine Months Ended April 30, 1998 (Unaudited) ....... 6
Consolidated Statements of Stockholders' Equity
Year Ended April 30, 1998,
Two Months Ended June 30, 1998 and
Nine Months Ended March 31, 1999 (Unaudited) ....... 7
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1999 and
Nine Months Ended April 30, 1998 (Unaudited) ....... 8
Notes to Consolidated Financial Statements.......... 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....... 23
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES............................... 55
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 57
SIGNATURES.......................................... 59
</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 page.
3
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS March 31, 1999 June 30, 1998
- ------ ------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,949,856 27,215,374
Trade accounts receivable 188,116,279 36,391,584
Receivable under preferred stock purchase agreements 110,615,000 -
Inventories 296,095,729 63,559,637
Deferred tax assets, net - 573,000
Prepaid expenses and other 3,937,413 2,705,905
------------------ -----------------
611,714,277 130,445,500
------------------ -----------------
Property, plant and equipment:
Land 12,526,364 2,801,964
Plant and equipment 395,334,005 191,600,521
Accumulated depreciation (33,542,653) (21,912,875)
------------------ -----------------
374,317,716 172,489,610
------------------ -----------------
Investments and other assets:
Investments 46,141,488 10,180,720
Deferred debt issuance costs, net 8,733,763 1,607,855
Other assets 4,017,036 3,491,813
------------------ -----------------
58,892,287 15,280,388
------------------ -----------------
$ 1,044,924,280 318,215,498
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 2,000,000 -
Trade accounts payable 137,842,061 28,640,766
Inventory due under exchange agreements 5,885,777 2,730,787
Excise taxes payable 37,659,521 7,846,657
Other accrued liabilities 6,911,977 4,760,063
------------------ -----------------
190,299,336 43,978,273
------------------ -----------------
Long-term debt 472,479,200 128,971,400
Deferred tax liabilities, net 1,638,943 -
Stockholders' equity:
Preferred stock, par value $.01 per share, authorized 2,000,000
shares, issued and outstanding 170,115 shares Series A Convertible
at March 31, 1999 1,701 -
Common stock, par value $.01 per share, authorized 80,000,000 shares,
issued and outstanding 30,471,024 shares at
March 31, 1999 and 25,953,324 shares at June 30, 1998 304,711 259,534
Capital in excess of par value 367,150,649 136,780,000
Unearned compensation - (618,348)
Retained earnings 13,049,740 8,844,639
------------------ -----------------
380,506,801 145,265,825
------------------ -----------------
$ 1,044,924,280 318,215,498
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999 AND THREE MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
March 31, 1999 April 30, 1998
-------------------- --------------------
<S> <C> <C>
Revenues:
Product sales, pipeline tariffs, terminal
and storage fees, marketing fees and
natural gas gathering and processing fees $ 769,369,253 489,525,621
Costs and expenses:
Product costs and direct
operating expenses 741,779,351 479,008,869
General and administrative 7,954,177 4,139,158
Depreciation and amortization 5,098,733 2,450,221
-------------------- --------------------
754,832,261 485,598,248
-------------------- --------------------
Operating income 14,536,992 3,927,373
Other income (expenses):
Dividend income 559,618 -
Interest income 144,081 429,756
Interest expense (9,462,401) (2,357,496)
Amortization of deferred debt issuance costs (1,346,997) (107,708)
Other financing costs (443,326) (56,853)
-------------------- --------------------
(10,549,025) (2,092,301)
-------------------- --------------------
Earnings before income taxes 3,987,967 1,835,072
Income tax expense 1,515,000 1,322,500
-------------------- --------------------
Net earnings 2,472,967 512,572
Dividend requirement for preferred stock 147,681 -
-------------------- --------------------
Net earnings attributable to common stockholders $ 2,325,286 512,572
==================== ====================
Weighted average common shares outstanding:
Basic 30,470,924 25,941,537
==================== ====================
Diluted 31,189,298 26,666,707
==================== ====================
Earnings per common share
Basic $ 0.08 0.02
==================== ====================
Diluted $ 0.07 0.02
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1999 AND NINE MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
March 31, 1999 April 30, 1998
-------------------- --------------------
<S> <C> <C>
Revenues:
Product sales, pipeline tariffs, terminal
and storage fees, marketing fees and
natural gas gathering and processing fees $ 1,973,790,336 1,505,357,475
Costs and expenses:
Product costs and direct
operating expenses 1,913,540,258 1,474,301,462
General and administrative 20,857,283 11,016,075
Depreciation and amortization 12,019,270 6,492,952
-------------------- --------------------
1,946,416,811 1,491,810,489
-------------------- --------------------
Operating income 27,373,525 13,546,986
Other income (expenses):
Dividend income 898,979 -
Interest income 903,119
1,494,584
Interest expense (19,112,665) (6,092,477)
Amortization of deferred debt issuance costs (2,404,919) (303,491)
Other financing costs (875,938)
(125,037)
-------------------- --------------------
(20,591,424) (5,026,421)
-------------------- --------------------
Earnings before income taxes 6,782,101 8,520,565
Income tax expense 2,577,000 3,892,500
-------------------- --------------------
Net earnings 4,205,101 4,628,065
Dividend requirement for preferred stock 147,681 -
-------------------- --------------------
Net earnings attributable to common stockholders $ 4,057,420 4,628,065
==================== ====================
Weighted average common shares outstanding:
Basic 28,469,902 25,913,798
==================== ====================
Diluted 29,197,274 26,686,294
==================== ====================
Earnings per common share
Basic $ 0.14 0.18
==================== ====================
Diluted $ 0.14 0.17
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1998, TWO MONTHS ENDED JUNE 30, 1998 AND
NINE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
Capital in
Preferred Common excess of Unearned Retained
stock stock par value Compensation earnings Total
------------ ------------ ---------------- ------------ -------------- --------------
<S> <C> <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 - 560 938,440 (939,000) - -
stock awards
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
Preferred stock issued in
connection with stock
purchase agreements 1,701 - 170,113,299 - - 170,115,000
Costs related to issuance
of preferred stock - - (300,000) - - (300,000)
Common stock issued for
options exercised - 74 35,425 - - 35,499
Common stock issued for
services rendered - 65 93,373 - - 93,438
Unearned compensation
related to
restricted stock
awards - 120 161,880 (162,000) - -
Amortization of unearned
compensation - - - 780,348 - 780,348
Common stock issued in
acquisition of Louis
Dreyfus Energy Corp. - 45,000 60,390,000 - - 60,435,000
Common stock repurchased
and retired - (82) (123,328) - - (123,410)
Net earnings - - - - 4,205,101 4,205,101
------------ ------------ ---------------- ------------ -------------- --------------
BALANCE AT MARCH 31, 1999 $ 1,701 304,711 367,150,649 - 13,049,740 380,506,801
============ ============ ================ ============ ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1999 AND NINE MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
March 31, 1999 April 30, 1998
-------------------- ---------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,205,101 4,628,065
Adjustments to reconcile net earnings to net
cash (used) by operating activities:
Depreciation and amortization 12,019,270 6,492,952
Deferred tax expense 2,211,943 3,673,000
Loss (gain) on disposition of assets 14,320 (31,688)
Amortization of unearned compensation 780,348 258,469
Amortization of deferred debt issuance costs 2,404,919 303,491
Changes in operating assets and liabilities, net of
noncash items and acquisitions:
Trade accounts receivable (26,706,134) (19,766,639)
Inventories (61,577,972) 20,076,546
Prepaid expenses and other (1,218,666) (1,215,530)
Trade accounts payable 29,773,597 (9,648,675)
Inventory due under exchange agreements 3,154,990 (4,864,980)
Excise taxes payable and other
accrued liabilities 7,594,492 (65,402)
-------------------- ---------------------
Net cash (used) by
operating activities (27,343,792) (160,391)
-------------------- ---------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (52,696,429) (61,760,694)
Acquisition of Louis Dreyfus Energy Corp. (293,056,539) -
Investment in West Shore Pipe Line Company (35,960,768) -
Proceeds from sale of assets - 78,070
Cash received in connection with acquisition - 1,222,360
Costs related to acquisition - (130,755)
Increase in other assets, net (597,052) (643,318)
-------------------- ---------------------
Net cash (used) by
investing activities (382,310,788) (61,234,337)
-------------------- ---------------------
Cash flows from financing activities:
Borrowings of long-term debt, net 345,507,800 50,007,800
Deferred debt issuance costs (9,530,827) (364,523)
Preferred stock issued, net of receivable under
preferred stock purchase agreements 59,500,000 -
Common stock issued for cash - 319,426
Common stock repurchased and retired (123,410) -
Common stock issued for options exercised 35,499 -
Costs related to issuance of common stock - (26,500)
-------------------- ---------------------
Net cash provided by
financing activities 395,389,062 49,936,203
-------------------- ---------------------
Decrease in cash
and cash equivalents (14,265,518) (11,458,525)
Cash and cash equivalents at beginning of period 27,215,374 41,265,879
-------------------- ---------------------
Cash and cash equivalents at end of period $ 12,949,856 29,807,354
==================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1999 AND NINE MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------
March 31, 1999 April 30, 1998
-------------------- ---------------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Acquisition of Louis Dreyfus Energy Corp.
Fair value of assets acquired $ 456,989,523 -
Fair value of liabilities assumed (103,497,984) -
-------------------- ---------------------
353,491,539 -
Fair value of common stock issued (60,435,000) -
-------------------- ---------------------
Cash paid in acquisition $ 293,056,539 -
==================== =====================
Cash received in connection with acquisition
included in assets acquired $ - -
==================== =====================
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
- --------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION
The consolidated financial statements included in this Form 10-Q have been
prepared by TransMontaigne Inc. ("TransMontaigne") without audit pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, these statements reflect adjustments (consisting only of
normal recurring entries) which are, in the opinion of TransMontaigne
management, necessary for a fair statement of the financial results for the
interim periods. Certain information and notes normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although TransMontaigne believes that the disclosures are
adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
financial statements and related notes, together with management's
discussion and analysis of financial condition and results of operations,
included in TransMontaigne's Annual Report on Form 10-K for the year ended
April 30, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires TransMontaigne management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Changes in
these estimates and assumptions will occur as a result of the passage of
time and the occurrence of future events, and actual results will differ
from the estimates.
"TransMontaigne" is used as a collective reference to TransMontaigne Inc.
and its subsidiaries and affiliates. The businesses of TransMontaigne are
conducted by the subsidiaries and affiliates whose operations are managed
by their respective officers.
10
<PAGE>
In August 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. This new fiscal year end will allow
TransMontaigne to conform to the predominant calendar quarterly
reporting periods used in its industry. TransMontaigne did not recast
the historical financial information, accordingly, TransMontaigne
financial statements include comparative information as of April 30,
1998.
(2) Acquisitions
On December 3, 1998, TransMontaigne, through a wholly-owned subsidiary,
TransMontaigne Terminaling Inc. ("TTI"), purchased the SUNOCO, Inc.
petroleum products terminal located on the Hudson River at Renssalaer,
outside of Albany, New York for approximately $5,200,000 cash. The
Renssalaer terminal facilities include 510,000 barrels of storage
capacity, 3 truck loading racks and a recently rebuilt dock capable of
handling both barges and ocean going tankers.
On October 30, 1998, TransMontaigne, through a wholly-owned subsidiary,
TransMontaigne Product Services Inc. ("TPSI"), acquired all of the
common stock of Louis Dreyfus Energy Corp. ("LDEC") for approximately
$161,000,000, including $100,565,000 cash and 4.5 million shares of
TransMontaigne common stock valued at $60,435,000, plus working capital
of $192,492,000. The LDEC acquisition included 24 refined petroleum
products terminal and storage facilities, of which 7 are wholly owned
and 17 are owned jointly with BP Oil Company, together with its supply,
distribution and marketing business. These facilities are located in 9
states in the Southern and Eastern regions of the United States; have
approximately 4.2 million barrels of TransMontaigne owned storage
capacity; and are supplied primarily by the Colonial and Plantation
pipeline systems. LDEC's supply, distribution and marketing business
includes over 350 services supply/exchange points nationwide and handles
annually in excess of 85 million barrels of refined petroleum products.
The purchase price was established in arms-length negotiation between
the managements of TransMontaigne and LDEC. The cash component of the
purchase price and the net working capital acquired were funded by an
advance from TransMontaigne's $500,000,000 credit facility. The
transaction was accounted for
11
<PAGE>
as a purchase. As of March 31, 1999, the consolidated financial
statements include preliminary allocations of the aggregate purchase
price to the assets acquired and liabilities assumed based on their
estimated fair values as determined by TransMontaigne. Adjustments to
the preliminary purchase price allocations may be necessary based upon
completion of an independent appraisal of the assets acquired, which is
in process. Subsequent to closing the acquisition, the LDEC name was
changed to TransMontaigne Product Services East Inc.
On September 18, 1998, TransMontaigne, through a wholly-owned
subsidiary, TransMontaigne Pipeline Inc. ("TPI"), acquired for
$29,219,000 cash the 15.38% common stock interest in West Shore Pipe
Line Company ("West Shore") owned by Atlantic Richfield Company.
Effective December 31, 1998, TransMontaigne acquired for $5,488,000 cash
an additional 4.11% common stock interest in West Shore owned by Equilon
Pipeline Company, LLC and for $1,186,000 cash an additional .89% common
stock interest in West Shore owned by Texaco Transportation and Trading
Inc., both of which transactions closed on January 7, 1999. West Shore
owns a 600-mile common carrier petroleum products pipeline system which
operates between the Chicago refining corridor locations of East
Chicago, Indiana; Blue Island, Joliet and Lemont, Illinois; north
through metropolitan Chicago; along the western edge of Lake Michigan to
Milwaukee and Green Bay, Wisconsin; and west to Rockford and Peru,
Illinois, and Madison, Wisconsin. 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. West
Shore ownership as of March 31, 1999 includes TransMontaigne, Citgo,
Marathon, Equilon, Texaco, BP Amoco, Midwest (Union Oil), Mobil and
Exxon.
On July 29, 1998, TransMontaigne, through a wholly-owned subsidiary,
TTI, acquired all of the common stock of Statia Terminals Southwest,
Inc. ("Southwest Terminal") for $6,500,000 cash. The acquisition
included 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. Southwest Terminal was merged into TTI effective
September 30, 1998. The cost of this
12
<PAGE>
acquisition has been allocated to the terminal facilities and 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 November 25, 1997, TransMontaigne, through a wholly-owned subsidiary,
TTI, acquired for $32,000,000 ($31,458,000 cash plus assumption of
outstanding bank debt of approximately $542,000) 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 were merged into TTI 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 18, 1996, TransMontaigne, through a wholly-owned subsidiary,
Bear Paw Energy Inc. ("BPEI"), acquired the Grasslands natural gas
gathering, processing, treating and fractionation system (the
"Grasslands Facilities") for approximately $71,000,000 cash. 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 enables TransMontaigne
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.
13
<PAGE>
The following summarized unaudited pro forma results of operations
assumes that the acquisition of the ITAPCO Terminal Corporations and of
LDEC occurred as of August 1, 1997 and combines the historical results
of operations of TransMontaigne for the three months and nine months
ended March 31, 1999 and April 30, 1998 with the historical results of
operations of the ITAPCO Terminal Corporations and of LDEC for the three
months and nine months ended March 31, 1999 and April 30, 1998. 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 LDEC had been acquired as of August 1,
1997, or which will be attained in the future.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------- -----------------------------------------
March 31, April 30, March 31, April 30,
1999 1998 1999 1998
------------------- ------------------ ----------------- --------------------
(Actual) (Pro forma) (Pro forma) (Pro forma)
------------------- ------------------ ----------------- --------------------
<S> <C> <C> <C> <C>
Revenues $ 769,369,000 1,168,085,000 2,823,922,000 3,229,005,000
=================== ================== ================= ====================
Net earnings 2,473,000 2,653,000 6,078,000 8,292,000
Dividend requirement for
preferred stock 148,000 - 148,000 -
------------------- ------------------ ----------------- --------------------
Net earnings attributable
to common stockholders 2,325,000 2,653,000 5,930,000 8,292,000
=================== ================== ================= ====================
Earnings per common share:
Basic $ 0.08 0.09 0.19 0.27
=================== ================== ================= ====================
Diluted $ 0.07 0.09 0.19 0.27
=================== ================== ================= ====================
</TABLE>
14
<PAGE>
(3) Inventory Risk Management
TransMontaigne manages inventory to maximize its value and minimize risk
by utilizing risk and portfolio management disciplines including certain
hedging strategies, forward purchases and sales, swaps and other
financial instruments to manage market exposure.
TransMontaigne's refined petroleum products inventory consists primarily
of gasoline and distillates, the majority of which is held for sale or
trade in the ordinary course of business. A portion of this inventory
represents line fill and tank bottoms; is required to be held for
operating balances in the conduct of TransMontaigne's daily supply,
distribution and marketing activities; and is maintained both in tanks
and pipelines owned by TransMontaigne and pipelines owned by third
parties. NGL and natural gas inventories are not significant.
TransMontaigne regularly engages in the trading of futures contracts in
the cash markets and on the New York Mercantile Exchange ("NYMEX"). The
change in market value of NYMEX-traded futures contracts requires daily
cash settlements in margin accounts with brokers. NYMEX-traded future
contracts are guaranteed by the NYMEX and have nominal credit risk.
TransMontaigne is exposed to credit risk in the event the counterparties
to other third party agreements are not able to perform their
contractual obligations.
Following the acquisition of LDEC on October 30, 1998, TransMontaigne
has generally continued the separate inventory accounting methods,
procedures and policies, and the related management of the risks
associated with fluctuations in the price of refined petroleum products
and purchase and sales commitments, which had been previously utilized
by TPSI (renamed TPSI - Midwest) and by LDEC (renamed TPSI - East).
TPSI - Midwest inventory is recorded at the lower of last-in, first-out
("LIFO") cost or market. TPSI - Midwest selectively enters into futures
contracts which may be designated by management as hedges of the
products purchased or sold. Hedging gains and losses are recognized and
recorded in operations when the related inventory is sold.
15
<PAGE>
TPSI - Midwest, at December 31, 1998, recorded an $8.6 million non-cash
lower of cost or market inventory write down adjustment to reduce the
LIFO carrying cost of its inventory. Subsequent to December 31, 1998
product prices increased and accordingly under the LIFO method of
accounting for inventory, the $8.6 million was recorded as a reduction
of product costs in the quarter ended March 31, 1999. The market value
of TPSI - Midwest's inventory at March 31, 1999 approximated its LIFO
carrying cost.
TPSI - East inventory price risk is managed on an aggregate portfolio
basis. The net of physical inventory, forward sales commitments and
forward purchase commitments are generally hedged with NYMEX traded
futures contracts. TPSI - East values the aggregate portfolio using the
mark to market inventory accounting method with all changes in market
values recognized and recorded in operations. The discounted present
value of net unrealized gains on forward contracts of $30,584,000 at
March 31, 1999 is recorded as a component of inventory.
Contractual commitments are subject to risks including market value
fluctuations as well as counterparty credit and liquidity risk.
TransMontaigne has established procedures to continually monitor these
contracts in order to minimize credit risk, including the establishment
and review of credit limits, margin requirements, master netting
arrangements, letters of credit and other guarantees.
(4) 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, 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.
16
<PAGE>
(5) Bank Credit Facility
In October 1998, TransMontaigne closed a $500,000,000 credit facility
with BankBoston, N.A. The credit facility includes a $350,000,000
revolving component due December 31, 2003 and a $150,000,000 term
component due June 30, 2000. Borrowings under this credit facility bear
interest at an annual rate equal to the lender's Alternate Base Rate
plus a margin subject to a Eurodollar Rate pricing option. The credit
facility includes a $20,000,000 same day revolving swing line under
which advances may be drawn at an interest rate comparable to the
Eurodollar Rate. The credit facility also contains a negative pledge
covenant and financial tests similar to the previous credit facility.
The proceeds from the credit facility were used to fund the LDEC
acquisition as well as to refinance existing bank debt and provide funds
for future acquisitions and other general corporate purposes. The
average interest rate at March 31, 1999 was 6.80%.
At March 31, 1999, TransMontaigne had advances of $305,000,000
outstanding under the revolving component and $90,500,000 under the term
component of the credit facility. Subsequent to March 31, 1999, the
remaining outstanding balance of the term component was repaid with
proceeds from the private placement of preferred stock.
(6) 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 an interest rate at which the lender would be willing to purchase,
on an uncommitted basis, up to $100,000,000 of TransMontaigne 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 were outstanding at March 31, 1999.
17
<PAGE>
(7) Senior Subordinated Debentures
In March 1991, TransMontaigne issued $4,000,000 of 12.75% 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, exercisable through
December 15, 2000.
(8) Preferred Stock
On March 25, 1999 and March 30, 1999 TransMontaigne closed a private
placement of $170,115,000 of $1,000 Series A Convertible Preferred Stock
Units. Each unit consists of one share of 5% convertible preferred
stock, convertible into common stock at $15 per share, and 66.67
warrants, each warrant exercisable to purchase six-tenths of a share of
common stock at $14 per share. Dividends are cumulative and payable
quarterly. The dividend rate increases to an annual rate of 16% for any
convertible preferred stock outstanding after December 31,
2003. The convertible preferred stock is convertible any time and may be
called for redemption by TransMontaigne after the second year if the
market price of the common stock is greater than 175% of the conversion
price at the date of the call. The convertible preferred stock has a
liquidation preference of $1,000 per share plus accrued but unpaid
dividends. Proceeds will be used to reduce bank debt and for general
corporate purposes. As of March 31, 1999, $59,500,000 from the private
placement had been received and the remaining $110,615,000 was received
by April 20, 1999.
(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
<PAGE>
Directors awarded 56,000 shares to certain key employees and during the
nine months ended March 31, 1999, an additional 12,000 shares were
awarded. At March 31, 1999 the vesting of the 62,400 shares not then
vested was accelerated due to an ownership change resulting from the
private placement of the Series A Convertible Preferred Stock and the
unamortized balance of the unearned compensation was fully amortized.
Amortization of unearned compensation of $589,442 and $780,348 is
included in general and administrative expense for the three months and
nine months ended March 31, 1999, respectively.
(10) New Project
On February 17, 1999, TransMontaigne and Colonial Pipeline Company
("Colonial") signed a definitive agreement whereby TransMontaigne, in an
alliance with Colonial, will construct, own and operate a marine loading
and unloading facility on the Mississippi River near Baton Rouge,
Louisiana which is designed to handle multiple barge deliveries of all
grades of petroleum products transported within Colonial's pipeline
system at rates in excess of 14,000 barrels per hour and inbound and
outbound volumes exceeding 50,000 barrels per day. Colonial will
construct three pipelines to feed the TransMontaigne marine facility and
waterway deliveries along the Mississippi and Ohio Rivers, as well to
receive barge deliveries for long haul Colonial system shipments, and
will also construct a related pump station between its Baton Rouge tank
farm and the TransMontaigne marine facility. TransMontaigne's estimated
cost for the marine facility, which is anticipated to be operational in
the first calendar quarter of 2000, is $8,500,000.
(11) Subsequent Event
On May 3, 1999, TransMontainge and Amerada Hess Corporation signed a
definitive agreement whereby a TransMontainge unit will acquire the Hess
Southeastern Pipeline Network of refined petroleum product facilities
for $66.2 million, plus refined products inventory. This network, which
is strategically interconnected to the Colonial and Plantation pipeline
systems, includes approximately 5.3 million barrels of tankage at 11
storage and terminal facilities located in Collins (2) and Purvis,
Mississippi; Doraville, Georgia; Belton and Spartanburg,
19
<PAGE>
South Carolina; Charlotte, Selma (2) and Greensboro, North Carolina; and
Montvale, Virginia; as well as 36 miles of proprietary pipelines.
TransMontainge anticipates closing this transaction on or about June 30,
1999.
(12) OPERATING BUSINESS SEGMENTS
TransMontaigne's logistical petroleum services operating business
segment relates to pipelining, terminaling and storing, supply and
distribution and marketing of refined petroleum products, including the
investment in West Shore. TransMontaigne's natural gas services
operating business segment relates to gathering, processing, treating
and marketing of NGL and natural gas. Corporate services relates to all
of TransMontaigne's activities and assets which are not specifically
identified with logistical petroleum and natural gas services, including
cash and cash equivalents, the investment in Lion Oil Company and other
assets.
The refined petroleum products, chemicals and other bulk liquids
operations related to the acquisitions of LDEC in October 1998,
Southwest Terminal in July 1998 and the ITAPCO Terminal Corporations in
November 1997 are included in the logistical petroleum services
operating business segment.
20
<PAGE>
Information regarding TransMontaigne's operating business segments for the nine
months ended March 31, 1999 and for the nine months ended April 30, 1998 is
summarized below:
<TABLE>
<CAPTION>
March 31, 1999 April 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues
Logistical petroleum services $ 1,934,628,161 1,459,110,163
Natural gas services 39,162,175 46,247,312
------------------ ------------------
$ 1,973,790,336 1,505,357,475
================== ==================
Operating income (loss)
Logistical petroleum services $ 29,149,287 10,715,034
Natural gas services 1,074,238 3,731,952
Corporate services (2,850,000) (900,000)
------------------ ------------------
$ 27,373,525 13,546,986
================== ==================
Identifiable assets at the end of the period (net
of accumulated depreciation)
Logistical petroleum services $ 792,136,851 177,707,215
Natural gas services 95,026,716 94,089,703
Corporate services 157,760,713 (1) 51,507,912
------------------ ------------------
$ 1,044,924,280 323,304,830
================== ==================
Depreciation and amortization
Logistical petroleum services $ 6,755,023 2,115,565
Natural gas services 4,420,217 3,898,877
Corporate services 844,030 478,510
------------------ ------------------
$ 12,019,270 6,492,952
================== ==================
Capital expenditures
Logistical petroleum services $ 242,056,743 (2) 45,855,930
Natural gas services 4,505,720 12,672,056
Corporate services 3,026,966 3,232,708
------------------ ------------------
$ 249,589,429 61,760,694
================== ==================
</TABLE>
(1) Includes $110,615,000 receivable under preferred stock purchase
agreements.
(2) Includes $161,000,000 for the LDEC acquisition and $35,893,000 for the
West Shore common stock acquisition.
21
<PAGE>
(13) 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. The
following tables reconcile the computation of basic EPS and diluted EPS
for the three months and nine months ended March 31, 1999 and three
months and nine months ended April 30, 1998.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999 FOR THE THREE MONTHS ENDED APRIL 30, 1998
----------------------------------------------- ------------------------------------------------
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 $ 2,325,286 30,470,924 $ 0.08 $ 512,572 25,941,537 $ 0.02
========== =============
Effect of Dilutive
Securities:
Convertible preferred
stock - - - -
Stock options - 541,694 - 542,055
Stock warrants - 176,680 - 183,115
-------------- ----------------- -------------- -------------
Diluted EPS - Net earnings
available to
common stockholders
and assumed conversions $ 2,325,286 31,189,298 $ 0.07 $ 512,572 26,666,707 $ 0.02
============== ================= ========== ============== ============= =============
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED MARCH 31, 1999 FOR THE NINE MONTHS ENDED APRIL 30, 1998
----------------------------------------------- -----------------------------------------------
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 $ 4,057,420 28,469,902 $ 0.14 $ 4,628,065 25,913,798 $ 0.18
============ =========
Effect of Dilutive
Securities:
Convertible preferred
stock - - - -
Stock options - 545,915 - 582,195
Stock warrants - 181,457 - 190,301
-------------- --------------- --------------- ----------------
Diluted EPS - Net
earnings available to
common stockholders
and assumed conversions $ 4,057,420 29,197,274 $ 0.14 $ 4,628,065 26,686,294 $ 0.17
============== =============== ============ =============== ================ =========
</TABLE>
Note: Options to purchase 497,600, 156,000 and 382,000 shares of common
stock at $17.25, $15.00 and $13.50 per share, respectively, were
outstanding at March 31, 1999, 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 and nine months ended March 31, 1999 and
the effect was anti-dilutive. The assumed conversion of the
Series A Convertible Preferred Stock at $15 per share into
11,341,000 shares of common stock and the assumed exercise of
warrants to purchase 6,804,940 shares of common stock at $14 per
share, issued in connection with the Series A Convertible
Preferred Stock during the quarter ended March 31, 1999, both of
which were outstanding at March 31, 1999, were not included in
the computation of diluted EPS because the effects were anti-
dilutive.
22
<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 industrial end-users of
petroleum products, chemicals, other bulk liquids, natural gas and crude oil in
the downstream sector of the petroleum and chemical industries. TransMontaigne
is a holding company which conducts its operations through subsidiaries
primarily in the Mid-Continent, Gulf Coast, Southeast, Mid-Atlantic 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 3 pipeline systems with approximately 790 miles of pipeline and 59
terminal, storage and delivery facilities located in 19 states with a combined
tank storage capacity of approximately 15,000,000 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.
23
<PAGE>
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. In August 1998, upon receiving shareholder 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 $287,000,000 in equity capital
($30,000,000 private placement in May 1995; $25,000,000 private placement in
March 1996; $62,000,000 public offering in February 1997 and $170,000,000
private placement in March 1999); established an initial $130,000,000 working
capital and acquisition revolving bank credit facility in December 1996, which
in October 1998 was increased to a $500,000,000 bank credit facility due
December 31, 2003; 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.
On March 25, 1999 and March 30, 1999 TransMontaigne closed a private
placement of $170,115,000 of $1,000 Series A Convertible Preferred Stock Units.
Each unit consists of one share of 5% convertible preferred stock, convertible
into common stock at $15 per share, and 66.67 warrants, each warrant exercisable
to purchase six-tenths of a share of common stock at $14 per share. Dividends
are cumulative and payable quarterly. The dividend rate increases to an annual
rate of 16% for any convertible preferred stock outstanding after December 31,
2003. The convertible preferred stock is convertible any time and may be called
for redemption by TransMontaigne after the second year if the market price of
the common stock is greater than 175% of the conversion price at the date of the
call. Proceeds will be used to reduce bank debt and for general corporate
purposes. As of March 31, 1999, $59,500,000 from the private placement had been
received and the remaining $110,615,000 was received by April 20, 1999.
In October 1998, TransMontaigne closed a $500,000,000 credit facility
with BankBoston, N.A. The credit facility includes a $350,000,000 revolving
component due December 31, 2003 and a $150,000,000 term component due June 30,
2000. Borrowings under this credit facility bear interest at an annual rate
equal to the lender's Alternate Base Rate, plus a margin subject to a Eurodollar
Rate pricing option. The credit facility includes a $20,000,000 same day
revolving swing line under which
24
<PAGE>
advances may be drawn at an interest rate comparable to the Eurodollar Rate. The
credit facility also contains a negative pledge covenant and financial
compliance tests similar to the previous credit facility. Credit facility
proceeds were used to fund the LDEC acquisition as well as to refinance existing
bank debt and provide funds for future acquisitions and other general corporate
purposes. Subsequent to March 31, 1999, the $150,000,000 term component was
repaid with proceeds from the private placement of Series A Convertible
Preferred Stock.
ACQUISITIONS
In December 1996, TransMontaigne acquired the Grasslands Facilities
natural gas gathering, processing, treating and fractionation system for
approximately $71,000,000 in cash and through March 31, 1999 has additionally
invested approximately $27,000,000 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 enables TransMontaigne to provide a
complete service package to North Dakota and Montana producers as well as to
end-users of NGL and natural gas. The Grasslands Facilities contributed
approximately 87% and 92% of the total net operating margins of TransMontaigne's
natural gas gathering and processing operations during the nine months ended
March 31, 1999 and April 30, 1998, respectively.
In November 1997, TransMontaigne acquired the common stock of the 17
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 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 and was funded by an advance of $22,000,000 from the TransMontaigne
bank credit facility with the balance from TransMontaigne cash reserves. Through
March 31, 1999, TransMontaigne has additionally invested approximately
$8,000,000 in
25
<PAGE>
improvements and expansion of the ITAPCO Terminal Corporations facilities. The
ITAPCO Terminal Corporations contributed approximately 25% and 36% of the total
net operating margins of the TransMontaigne terminal operations during the three
months and nine months ended March 31, 1999, respectively.
In July 1998, TransMontaigne acquired the Southwest Terminal for $6,500,000
cash. The acquisition included terminaling, storage and loading facilities for
petroleum products, chemicals and other bulk liquids at the Port of Brownsville,
Texas with over 1.65 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. Through
March 31, 1999, TransMontaigne has additionally invested approximately
$1,100,000 in improvements and expansion to the Southwest Terminal facilities.
In September 1998, TransMontaigne acquired for $29,219,000 cash the 15.38%
common stock interest in West Shore owned by Atlantic Richfield Company.
Effective December 31, 1998, TransMontaigne acquired for $5,488,000 cash an
additional 4.11% common stock interest in West Shore owned by Equilon Pipeline
Company, LLC and for $1,186,000 cash an additional .89% common stock interest in
West Shore owned by Texaco Transportation and Trading Inc., both of which
transactions closed in January 1999. West Shore owns a 600-mile common carrier
petroleum products pipeline system which operates between the Chicago refining
corridor locations of East Chicago, Indiana; Blue Island, Joliet and Lemont,
Illinois; north through metropolitan Chicago, Illinois; along the western edge
of Lake Michigan to Milwaukee and Green Bay, Wisconsin; and west to Rockford and
Peru, Illinois, and Madison, Wisconsin. 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. West Shore ownership as of March
31, 1999 includes TransMontaigne, Citgo, Marathon, Equilon, Texaco, BP Amoco,
Midwest (Union Oil), Mobil and Exxon.
In October 1998, TransMontaigne acquired all of the common stock of LDEC
for approximately $161,000,000, including $100,565,000 cash and 4.5 million
shares of TransMontaigne common stock valued at $60,435,000, plus working
capital of $192,492,000. The LDEC acquisition included 24
26
<PAGE>
refined petroleum products terminal and storage facilities, of which 7 are
wholly owned and 17 are owned jointly with BP Oil Company, together with its
supply, distribution and marketing business. These facilities are located in 9
states in the Southern and Eastern regions of the United States; have
approximately 4.2 million barrels of TransMontaigne owned storage capacity; and
are supplied primarily by the Colonial and Plantation pipeline systems. LDEC's
supply, distribution and marketing business includes over 350 service
supply/exchange points nationwide and handles annually in excess of 85 million
barrels of refined petroleum products. Subsequent to closing, the name LDEC was
changed to TransMontaigne Product Services East Inc. LDEC is a major shipper on
the Colonial pipeline which connects the Houston ship channel and associated
major refining complexes to the New York Harbor which is the New York Mercantile
Exchange ("NYMEX") petroleum products delivery point. The cash component of the
purchase price and the net working capital acquired were funded by an advance
from TransMontaigne's $500,000,000 credit facility with BankBoston, N.A.
In December 1998, TransMontaigne, through a wholly-owned subsidiary,
TransMontaigne Terminaling Inc. ("TTI"), purchased the SUNOCO, Inc. petroleum
products terminal located on the Hudson River at Renssalaer, outside of Albany,
New York for approximately $5,200,000 cash. The Renssalaer terminal facilities
include 510,000 barrels of storage capacity, 3 truck loading racks and a
recently rebuilt dock capable of handling both barges and ocean going tankers.
On February 17, 1999, TransMontaigne and Colonial Pipeline Company
("Colonial") signed a definitive agreement whereby TransMontaigne, in an
alliance with Colonial, will construct, own and operate a marine loading and
unloading facility on the Mississippi River near Baton Rouge, Louisiana which is
designed to handle multiple barge deliveries of all grades of petroleum products
transported within Colonial's pipeline system at rates in excess of 14,000
barrels per hour and inbound and outbound volumes exceeding 50,000 barrels per
day. Colonial will construct three pipelines to feed the TransMontaigne marine
facility and waterway deliveries along the Mississippi and Ohio Rivers, as well
to receive barge deliveries for long haul Colonial system shipments, and will
also construct a related pump station between its Baton Rouge tank farm and the
TransMontaigne marine facility. TransMontaigne's estimated cost for the marine
facility, which is anticipated to be operational in the first calendar quarter
of 2000, is $8,500,000.
27
<PAGE>
On May 3, 1999, TransMontainge and Amerada Hess Corporation signed a
definitive agreement whereby a TransMontainge unit will acquire the Hess
Southeastern Pipeline Network of refined petroleum product facilities for $66.2
million, plus refined products inventory. This network, which is strategically
interconnected to the Colonial and Plantation pipeline systems, includes
approximately 5.3 million barrels of tankage at 11 storage and terminal
facilities located in Collins (2) and Purvis, Mississippi; Doraville, Georgia;
Belton and Spartanburg, South Carolina; Charlotte, Selma (2) and Greensboro,
North Carolina; and Montvale, Virginia; as well as 36 miles of proprietary
pipelines. TransMontainge anticipates closing this transaction on or about
June 30, 1999.
TransMontaigne intends to continue to make strategic additions to and
expansions of its existing facilities in order to achieve greater regional
geographical presence, extend customer service opportunities, improve operating
efficiencies, increase cash flow, generate incremental net earnings and enhance
its competitive market position.
INVENTORY RISK MANAGEMENT
TransMontaigne manages inventory to maximize its value and minimize
risk by utilizing risk and portfolio management disciplines including certain
hedging strategies, forward purchases and sales, swaps and other financial
instruments to manage market exposure.
TransMontaigne's refined petroleum products inventory consists
primarily of gasoline and distillates, the majority of which is held for sale or
trade in the ordinary course of business. A portion of this inventory represents
line fill and tank bottoms; is required to be held for operating balances in the
conduct of TransMontaigne's daily supply, distribution and marketing activities;
and is maintained both in tanks and pipelines owned by TransMontaigne and
pipelines owned by third parties. NGL and natural gas inventories are not
significant.
TransMontaigne regularly engages in the trading of futures contracts in
the cash markets and on the NYMEX. The change in market value of NYMEX-traded
futures contracts requires daily cash settlements in margin accounts with
brokers. NYMEX-traded future contracts are guaranteed by the
28
<PAGE>
NYMEX and have nominal credit risk. TransMontaigne is exposed to credit risk in
the event the counterparties to other third party agreements are not able to
perform their contractual obligations.
Following the acquisition of LDEC on October 30, 1998, TransMontaigne
has generally continued the separate inventory accounting methods, procedures
and policies, and the related management of the risks associated with
fluctuations in the price of refined petroleum products and purchase and sales
commitments, which had been previously utilized by TPSI (renamed TPSI - Midwest)
and by LDEC (renamed TPSI - East).
TPSI - Midwest inventory is recorded at the lower of last-in, first-out
("LIFO") cost or market. TPSI - Midwest selectively enters into futures
contracts which may be designated by management as hedges of the products
purchased or sold. Hedging gains and losses are recognized and recorded in
operations when the related inventory is sold.
TPSI - Midwest, at December 31, 1998, recorded an $8.6 million non-cash
lower of cost or market inventory write down adjustment to reduce the LIFO
carrying cost of its inventory. Subsequent to December 31, 1998 the product
prices increased and accordingly under the LIFO method of accounting for
inventory, the $8.6 million was recorded as a reduction of product costs in the
quarter ended March 31, 1999. The market value of TPSI - Midwest's inventory at
March 31, 1999 approximated its LIFO carrying cost.
At December 31, 1998, TransMontaigne deferred the recognition of a
$12.2 million lower of cost or market adjustment to inventory, since it
believed that price declines at that date were temporary. Based on management's
evaluation of current and future market conditions, TPSI - Midwest subsequently
entered into certain forward sales transactions at prices which were in excess
of December 31, 1998 market prices in order that an additional lower of cost or
market adjustment would not be required in the event that product prices
remained relatively unchanged or continued to decline through June 30, 1999.
Product prices, however, sharply increased during the latter part of the quarter
ending March 31, 1999, resulting in an increase in the market value of TPSI -
Midwest inventory of approximately $21 million. As a result, the previously
recognized inventory valuation allowance of $8.6 million increased earnings.
Further, TransMontaigne recognized a loss of approximately $11 million in
connection with the forward sales transactions.
<PAGE>
TPSI - East inventory price risk is managed on an aggregate portfolio
basis. The net of physical inventory, forward sales commitments and forward
purchase commitments are generally hedged with NYMEX traded futures contracts.
TPSI - East values the aggregate portfolio using the mark to market inventory
accounting method with all changes in market values recognized and recorded in
operations.
Contractual commitments are subject to risks including market value
fluctuations as well as counterparty credit and liquidity risk. TransMontaigne
has established procedures to continually monitor these contracts in order to
minimize credit risk, including the establishment and review of credit limits,
margin requirements, master netting arrangements, letters of credit and other
guarantees.
30
<PAGE>
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Although TransMontaigne believes that
its expectations are based on reasonable assumptions, it can give no assurance
that its goals will be achieved. Important factors which could cause actual
results to differ materially from those in the forward looking statements
include:
. that TransMontaigne will continue to expand 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 enter into transactions with counterparties
having the ability to meet their financial commitments to
TransMontaigne
. 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 continue to acquire strategically located
operating facilities from third parties
. 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 ability to access 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.
31
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, 1999 April 30, 1998 March 31, 1999 April 30, 1998
--------------------- -------------------- --------------------- ------------------
<S> <C> <C> <C> <C>
PIPELINE OPERATIONS
Volume (1) 4,886 5,458 17,250 14,551
Revenues (2) $ 3,289 3,664 11,155 10,038
Net Operating Margin (2) $ 1,470 2,314 6,077 5,739
Margin per Gallon $ 0.0072 0.0101 0.0084 0.0094
TERMINAL AND STORAGE OPERATIONS
Volume (1)
Refined petroleum products 1,460,000 477,000 3,177,000 1,206,000
Chemicals and other bulk liquids 1,000 7,000 7,000 17,000
Revenues (2)
Refined petroleum products $ 10,221 3,820 21,168 9,163
Chemicals and other bulk liquids $ 1,656 1,559 6,088 2,585
Net Operating Margin (2) $ 7,042 3,435 16,758 7,535
Margin per Gallon $ 0.0048 0.0071 0.0053 0.0062
PRODUCTS SUPPLY, DISTRIBUTION
AND MARKETING OPERATIONS
Volume (1) 1,700,211 1,077,000 4,287,000 2,794,000
Revenues (2) $ 742,265 467,312 1,896,217 1,437,324
Net Operating Margin (2) $ 16,334 2,025 27,778 6,874
Margin per Gallon $ 0.0096 0.0019 0.0065 0.0025
NATURAL GAS SERVICES OPERATIONS
Inlet Volume (3) 4,959 5,076 15,659 15,936
NGL Production (3) 25,941 24,512 79,819 74,653
Residue Production (3) 3,904,407 3,958,634 12,557,973 13,262,928
Revenues (2) $ 11,938 13,171 39,162 46,247
Net Operating Margin (2) $ 2,744 2,743 9,637 10,908
TOTAL OPERATIONS
Revenues (2) $ 769,369 489,526 1,973,790 1,505,357
Net Operating Margin (2) $ 27,590 10,517 60,250 31,056
Net Earnings (2) $ 2,473 513 4,205 4,628
</TABLE>
(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, and net earnings are expressed in
thousands of dollars. Net operating margin 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.
32
<PAGE>
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 operating 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 operating business
segment following the ITAPCO Terminal Corporations acquisition. Natural gas
services became a separate operating 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 at TransMontaigne terminal loading racks, 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 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, distribution and marketing logistical services revenues
and fees are generated from (a) significant volumes of bulk sales and exchanges
of refined petroleum products to major and large independent energy companies;
(b) wholesale distribution of refined petroleum products to jobbers and
retailers; (c) regional and national industrial end-user and commercial
wholesale storage
33
<PAGE>
and forward sales marketing contracts of refined petroleum products; and (d)
tailored short and long-term fuel margin and risk management logistical services
arrangements to wholesale, retail and industrial end-users. Bulk purchase and
sale transactions in quantities of 25,000 barrels to 50,000 barrels or more are
common and are generally made at small margins. Wholesale distribution of
refined petroleum products is conducted from 59 proprietary and 150 non-
proprietary truck loading terminal, storage and delivery locations. Refined
petroleum products storage and forward sales transactions enable TransMontaigne
to purchase refined petroleum products inventory, utilize proprietary and leased
tankage as well as line space controlled by TransMontaigne in major common
carrier pipelines to store the inventory and, depending upon market conditions,
to lock-in margins through sales in the futures cash market or NYMEX contracts.
Margin and risk management logistical services provide both TransMontaigne's
large and small volume customers an assured, ratable and cost effective short or
long-term delivered source of refined petroleum product supply through
proprietary pipelines and terminals as well as non-proprietary pipeline,
terminal, truck, rail and barge distribution channels.
Direct operating expenses of products supply, distribution and marketing
operations are primarily the cost of products sold and also include
transportation, storage, terminaling, wages and employee benefits 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, materials and supplies.
34
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO
THREE MONTHS ENDED APRIL 30, 1998
In August 1998, TransMontaigne elected to change its fiscal year end to
June 30. The management discussion which follows compares the three months ended
March 31, 1999 to the three months ended April 30, 1998. TransMontaigne did not
recast historical financial information to present the three months ended March
31, 1998 since the financial reporting systems in place at that time included
certain procedures which were completed only on a quarterly basis. Accordingly,
it is impractical to recast this financial information.
The net operating margin from pipeline operations for the three months
ended March 31, 1999 was $1,470,000 compared to $2,314,000 for the three months
ended April 30, 1998, a decrease of 36%, or $844,000. The margin per gallon for
the three months ended March 31, 1999 of $.0072 decreased 29%, or $.0029.
Pipeline volumes decreased 10% and revenues decreased 10% primarily due to
reduced shipments by a major refiner. In addition operating costs increased 35%
primarily due to increased maintenance and right of way clearing costs.
The net operating margin from terminal and storage operations for the three
months ended March 31, 1999 was $7,042,000 compared to $3,435,000 for the three
months ended April 30, 1998, an increase of 105%, or $3,607,000. The margin per
gallon for the three months ended March 31, 1999 of $.0048 decreased 32%, or
$.0023. The increase in net operating margin resulted from a significant
increase in refined petroleum products volumes and revenues due to the addition
of the LDEC and Renssalaer terminals acquired in October and December 1998,
respectively, notwithstanding a decrease in the small volumes of chemicals and
other bulk liquids handled at a terminal which had been temporarily taken out of
service. These revenue increases were partially offset by a 149% increase in
terminal operating costs primarily attributable to the LDEC terminals, Southwest
Terminal, Renssalaer Terminal and expanded East Chicago and Mt. Vernon terminal
operations.
The net operating margin from products supply, distribution and marketing
operations for the three months ended March 31, 1999 was $16,334,000 compared to
$2,025,000 for the three months
35
<PAGE>
ended April 30, 1998, an increase of 707%, or $14,309,000. Revenues were
$742,265,000 for the three months ended March 31, 1999 compared to $467,312,000
for the three months ended April 30, 1998, an increase of 59%, or $274,953,000.
These increases were due to the inclusion of LDEC operations for the entire
quarter.
TPSI - Midwest, at December 31, 1998, recorded an $8.6 million non-cash
lower of cost or market inventory write down adjustment to reduce the LIFO
carrying cost of its inventory. Subsequent to December 31, 1998 the product
prices increased and accordingly under the LIFO method of accounting for
inventory, the $8.6 million was recorded as a reduction of product costs in the
quarter ended March 31, 1999. The market value of TPSI - Midwest's inventory at
March 31, 1999 approximated its LIFO carrying cost.
At December 31, 1998, TransMontaigne deferred the recognition of a $12.2
million lower of cost or market adjustment to inventory, since it believed that
price declines at that date were temporary. Based on management's evaluation of
current and future market conditions, TPSI - Midwest subsequently entered into
certain forward sales transactions at prices which were in excess of December
31, 1998 market prices in order that an additional lower of cost or market
adjustment would not be required in the event that product prices remained
relatively unchanged or continued to decline through June 30, 1999. Product
prices, however, sharply increased during the latter part of the quarter ending
March 31, 1999, resulting in an increase in the market value of TPSI - Midwest
inventory of approximately $21 million. As a result, the previously recognized
inventory valuation allowance of $8.6 million increased earnings. Furthermore,
TransMontaigne recognized a loss of approximately $11 million in connection with
the forward sales transactions.
Overall, the increased products supply, distribution and marketing volume
contributed directly to the increases in terminal and storage volumes. By
providing seamless integrated logistical services to customers through the
effective utilization of its proprietary pipeline, terminal and storage
facilities, and the facilities owned and operated by third parties, as well as
its significantly expanded product supply, distribution and marketing
capabilities, TransMontaigne's aggregate net operating margin from the
logistical petroleum services operating business segment was $24,846,000 for the
three
<PAGE>
months ended March 31, 1999 compared to $ 7,774,000 for the three months ended
April 30, 1998, an increase of 220%, or $17,072,000.
The net operating margin from natural gas services operations for the three
months ended March 31, 1999 was $2,744,000 compared to $2,743,000 for the three
months ended April 30, 1998. Revenues for the three months ended March 31, 1999
were $11,938,000 compared to $13,171,000 for the three months ended April 30,
1998 a decrease of 9%, or $1,233,000. Net operating margin and revenues during
the three months ended March 31, 1999 continued to be negatively impacted by low
NGL prices, primarily propane, notwithstanding an approximate 6% increase in NGL
production.
General and administrative expenses for the three months ended March 31,
1999 were $7,954,000 compared to $4,139,000 for the three months ended April 30,
1998, an increase of 92%, or $3,815,000. The increase was due primarily to
additional personnel costs, related employee benefits, increased office lease
rentals and increased communication expenses. These increases were directly
attributable to the continued expansion of TransMontaigne's integrated
logistical petroleum services and to the acquisition and operations of LDEC,
including the relocation of certain personnel and operational functions to the
Atlanta, Georgia office. In addition, the increase includes amortization of
unearned compensation of $483,000.
Other income for the three months ended March 31, 1999 included dividends
from West Shore of $560,000. Interest income for the three months ended March
31, 1999 was $144,000 compared to $430,000 for the three months ended April 30,
1998, a decrease of 67%, or $286,000. 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 credit facility
borrowings and senior promissory notes which were used primarily to finance the
acquisitions of LDEC, West Shore, the Southwest Terminal, the Renssalaer
Terminal, the ITAPCO Terminal Corporations and the Grasslands Facilities, other
continuing capital expenditures and working capital to carry inventory and
accounts receivable. Also included is interest on the TransMontaigne senior
subordinated debentures. Amortization of deferred debt issuance costs includes
the amortization of costs paid in connection with
37
<PAGE>
the bank credit facility and Master Shelf Agreement. Other financing costs
includes commitment fees paid in connection with the credit facility. Interest
expense, amortization of deferred debt issuance costs, and other financing costs
during the three months ended March 31, 1999 was $11,253,000 compared to
$2,522,000 during the three months ended April 30, 1998, an increase of 346%, or
$8,731,000. The increase in interest expense of $7,105,000 was due to an
increase in average outstanding debt, primarily to fund acquisitions and
increased working capital requirements. Amortization of deferred debt issuance
costs increased $1,239,000 largely due to increased amortization of costs
incurred in securing the new BankBoston, N.A. $500,000,000 credit facility and
additional costs associated with amending the Master Shelf Agreement.
Earnings before income taxes for the three months ended March 31, 1999 was
$3,988,000, compared to $1,835,000 for the three months ended April 30, 1998, an
increase of 117%, or $2,153,000. The increase in earnings before income taxes
resulted from increased net operating margin contributions from products supply,
distribution and marketing operations, primarily from the LDEC acquisition, and
from terminal and storage operations primarily from the LDEC and the ITAPCO
Terminal Corporations acquisitions, offset by reduced net operating margins from
pipeline operations and natural gas services operations. In addition, increased
general and administrative expenses; additional depreciation attributable to the
LDEC acquisition and expansion of natural gas services assets; and interest
expense primarily attributable to the financing of the LDEC, West Shore,
Southwest Terminal and Renssalaer Terminal acquisitions reduced earnings before
income taxes.
Income tax expense was $1,515,000 for the three months ended March 31, 1999
based upon an effective combined federal and state income tax rate of 38%.
Income tax expense was $1,323,000 for the three months ended April 30, 1998
based upon an effective combined federal and state income tax rate of 72% which
includes an adjustment to increase the effective tax rate for the year ended
April 30, 1998.
Dividend requirement for the Series A Convertible Preferred Stock was
$148,000 for the short period from the issuance dates to March 31, 1999.
38
<PAGE>
Net earnings were $2,473,000 for the three months ended March 31, 1999
compared to $513,000 for the three months ended April 30, 1998, an increase of
382%, or $1,960,000. After providing for the dividend requirement for preferred
stockholders, net earnings attributable to common stockholders were $2,325,000
and $512,000 for the three months ended March 31, 1999 and April 30, 1998,
respectively. Earnings per common share for the three months ended March 31,
1999 were $.08 basic and $.07 diluted based on 30,470,924 weighted average basic
shares outstanding and 31,184,298 weighted average diluted shares outstanding,
respectively. This compares to earnings per share of $.02 basic and $.02 diluted
for the three months ended April 30, 1998.
NINE MONTHS ENDED MARCH 31, 1999 COMPARED TO
NINE MONTHS ENDED APRIL 30, 1998
In August 1998, TransMontaigne elected to change its fiscal year end to
June 30. The management discussion that follows compares the nine months ended
March 31, 1999 to the nine months ended April 30, 1998. TransMontaigne did not
recast historical financial information to present the nine months ended March
31, 1998 because the financial reporting systems in place at that time included
certain procedures which were completed only on a quarterly basis. Accordingly,
it is impractical to recast this financial information.
The net operating margin from pipeline operations for the nine months ended
March 31, 1999 was $6,077,000 compared to $5,739,000 for the nine months ended
April 30, 1998, an increase of 6%, or $338,000. The margin per gallon for the
nine months ended March 31, 1999 of $.0084 decreased 11%, or $.0010. Pipeline
volumes increased 19% and revenues increased 11% primarily due to increased
shipments from Chicago to Toledo during the first quarter of the fiscal year
attributable to reductions in local refinery outputs, which were partially
offset by a 19% increase in operating costs primarily due to incremental power
costs attributable to additional thruput volumes and increased maintenance and
right of way clearing costs.
The net operating margin from terminal and storage operations for the nine
months ended March 31, 1999 was $16,758,000 compared to $7,535,000 for the nine
months ended April 30, 1998,
39
<PAGE>
an increase of 122%, or $9,223,000. The margin per gallon for the nine months
ended March 31, 1999 of $.0053 decreased 15%, or $.0009. The increase in net
operating margin resulted from a significant increase in refined petroleum
products volumes handled and revenues due to the addition of the LDEC and
Renssalaer terminals acquired in October 1998 and December 1998, respectively,
notwithstanding a decrease in the small volumes of chemicals and other bulk
liquids handled at a terminal which had been temporarily taken out of service.
These revenue increases were partially offset by a 149% increase in terminal
operating costs primarily attributable to the LDEC terminals, Southwest
Terminal, Renssalaer Terminal, the ITAPCO Terminal Corporations terminals and
expanded East Chicago and Mt. Vernon terminal operations.
The net operating margin from products supply, distribution and marketing
operations for the nine months ended March 31, 1999 was $27,778,000 compared to
$6,874,000 for the nine months ended April 30, 1998, an increase of 304%, or
$20,904,000. Revenues were $1,896,217,000 for the nine months ended March 31,
1999 compared to $1,437,324,000 for the nine months ended April 30, 1998, an
increase of 32%, or $458,893,000. These increases were due to the inclusion of
the LDEC operations for the five months ended March 31, 1999.
TPSI - Midwest, at December 31, 1998, recorded an $8.6 million non-cash
lower of cost or market inventory write down adjustment to reduce the LIFO
carrying cost of its inventory. Subsequent to December 31, 1998 product
prices increased and accordingly under the LIFO method of accounting for
inventory, the $8.6 million was recorded as a reduction of product costs in the
quarter ended March 31, 1999. The market value of TPSI - Midwest's inventory at
March 31, 1999 approximated its LIFO carrying cost.
At December 31, 1998, TransMontaigne deferred the recognition of a $2.2
million lower of cost or market adjustment to inventory, since it believed that
price declines at that date were temporary. Based on management's evaluation of
current and future market conditions, TPSI - Midwest subsequently entered into
certain forward sales transactions at prices which were in excess of December
31, 1998 market prices in order that an additional lower of cost or market
adjustment would not be required in the event that product prices remained
relatively unchanged or continued to decline through June 30, 1999. Product
prices, however, sharply increased during the latter part of the quarter ending
March 31, 1999, resulting in an increase in the market value of TPSI - Midwest
inventory of approximately $21 million. As a result, the previously recognized
inventory valuation allowance of $8.6 million increased earnings. Further,
TransMontaigne recognized a loss of approximately $11 million in connection with
the forward sales transactions.
40
<PAGE>
Overall, the increased products supply, distribution and marketing volume
contributed directly to the increases in pipeline, terminal and storage volumes.
By providing seamless integrated logistical services to customers through the
effective utilization of its proprietary pipeline, terminal and storage
facilities, and the facilities owned and operated by third parties, as well as
its significantly expanded product supply, distribution and marketing
capabilities, TransMontaigne's aggregate net operating margin from the
logistical petroleum services operating business segment was $50,613,000 for the
nine months ended March 31, 1999 compared to $20,148,000 for the nine months
ended April 30, 1998, an increase of 151%, or $30,465,000.
The net operating margin from natural gas services operations for the nine
months ended March 31, 1999 was $9,637,000 compared to $10,908,000 for the nine
months ended April 30, 1998, a decrease of 12%, or $1,271,000. Revenues for the
nine months ended March 31, 1999 were $39,162,000 compared to $46,247,000 for
the nine months ended April 30, 1998, a decrease of 15%, or $7,085,000. The net
operating margin and revenues were attributable primarily to the business
activities of the Grasslands Facilities. Net operating margin and revenues
during the nine months ended March 31, 1999 continued to be negatively impacted
by low NGL prices, primarily propane, and the adverse effect of weak crude oil
prices during the last six months of 1998, notwithstanding an approximate 7%
increase in NGL production.
General and administrative expenses for the nine months ended March 31,
1999 were $20,857,000 compared to $11,016,000 for the nine months ended April
30, 1998, an increase of 89%, or $9,841,000. The increase was due primarily to
additional personnel costs, related employee benefits, increased office lease
rentals, increased communication expenses and expenses related to the
relocation of TransMontaigne employees to the Atlanta, Georgia office. These
increases were directly attributable to the continued expansion of
TransMontaigne's integrated logistical petroleum services
41
<PAGE>
and to the acquisition and operations of LDEC and the ITAPCO Terminal
Corporations. In addition, the increase includes amortization of unearned
compensation of $522,000.
Other income for the nine months ended March 31, 1999 included dividends
from West Shore of $899,000. Interest income for the nine months ended March 31,
1999 was $903,000 compared to $1,495,000 for the nine months ended
April 30, 1998, a decrease of 40%, or $592,000. 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 credit facility
borrowings and senior promissory notes which were used primarily to finance the
acquisitions of LDEC, West Shore, the Southwest Terminal, the Renssalaer
Terminal, the ITAPCO Terminal Corporations and the Grasslands Facilities, other
continuing capital expenditures and working capital to carry inventory and
accounts receivable. Also included is interest on the TransMontaigne senior
subordinated debentures. Amortization of deferred debt issuance costs includes
the amortization of costs paid in connection with the bank credit facility and
Master Shelf Agreement. Other financing costs includes commitment fees paid in
connection with the credit facility. Interest expense, amortization of deferred
debt issuance costs, and other financing costs during the nine months ended
March 31, 1999 was $22,394,000 compared to $6,521,000 during the nine months
ended April 30, 1998, an increase of 243%, or $15,873,000. The increase in
interest expense of $13,020,000 was due to an increase in average outstanding
debt, primarily to fund acquisitions and increased working capital requirements.
Amortization of deferred debt issuance costs increased $2,101,000 largely due to
amortization of costs incurred in securing the new BankBoston, N.A. credit
facility and additional costs associated with amending the Master Shelf
Agreement.
Earnings before income taxes for the nine months ended March 31, 1999 was
$6,782,000, compared to $8,521,000 for the nine months ended April 30, 1998, a
decrease of 20%, or $1,739,000. The decrease in earnings before income taxes
resulted from increased net operating margin contributions from products supply,
distribution and marketing operations primarily from the LDEC acquisition; and
from terminal and storage operations primarily from the LDEC acquisition and
ITAPCO Terminal Corporations acquisitions; offset by increased general and
administrative expenses;
42
<PAGE>
additional depreciation attributable to the acquisitions of LDEC and the ITAPCO
Terminal Corporations and expansion of natural gas services assets; and interest
expense, primarily attributable to the financing of the LDEC, West Shore,
Southwest Terminal, Renssalaer Terminal and ITAPCO Terminal Corporations
acquisitions.
Income tax expense was $2,577,000 for the nine months ended March 31, 1999
based upon an effective combined federal and state income tax rate of 38%.
Income tax expense was $3,893,000 for the nine months ended April 30, 1998 based
upon an effective combined federal and state income tax rate of 46% which
includes an adjustment to increase the effective tax rate for the year ended
April 30, 1998.
Dividend requirement for the Series A Convertible Preferred Stock was
$148,000 for the short period from the issuance dates to March 31, 1999.
Net earnings were $4,205,000 for the nine months ended March 31, 1999,
compared to $4,628,000 for the nine months ended April 30, 1998, a decrease of
9%, or $423,000. After providing for the dividend requirement for preferred
stockholders, net earnings attributable to common stockholders were $4,057,000
and $4,628,000 for the nine months ended March 31, 1999 and April 30, 1998,
respectively. Earnings per common share for the nine months ended March 31, 1999
were $.14 basic and $.14 diluted based on 28,469,902 weighted average basic
shares outstanding and 29,197,274 weighted average diluted shares outstanding,
respectively. This compares to earnings per share of $.18 basic and $.17 diluted
for the nine months ended April 30, 1998.
43
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The following summary reflects TransMontaigne's comparative net cash flows
for the nine months ended March 31, 1999 and the nine months ended April 30,
1998.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
March 31, 1999 April 30, 1998
----------------- -----------------
<S> <C> <C>
Net cash (used) by operating activities $ (27,344,000) (160,000)
Net cash (used) by investing activities $ (382,311,000) (61,234,000)
Net cash provided by financing activities $ 395,389,000 49,936,000
</TABLE>
Net cash used by operating activities of $27,344,000 for the nine months
ended March 31, 1999 was attributable primarily to increased inventories and
trade accounts receivable reduced by increased trade accounts payable and other
current liabilities, net earnings before income taxes and depreciation and
amortization. TransMontaigne's current ratio (current assets divided by current
liabilities) was 3.2 to 1.0 at March 31, 1999 compared to 3.1 to 1.0 at April
30, 1998.
Net cash used by investing activities was $382,311,000 during the nine
months ended March 31, 1999 as TransMontaigne continued its growth through
construction and improvements to existing operating facilities and the
acquisitions of LDEC ($293,057,000 cash), a 20.38% common stock interest in West
Shore ($35,893,000 cash), Southwest Terminal ($6,500,000 cash) and Renssalaer
Terminal ($5,200,000). Capital expenditures included enhancements to the
East Chicago facility and to several of the acquired LDEC and ITAPCO Terminal
Corporations terminals; construction costs related to the new North Peoria,
Illinois terminal; improvements to the NORCO Pipeline facilities; expansion of
natural gas services assets; and additions to TransMontaigne's corporate
facilities, communications and data processing infrastructure. Net cash used by
investing activities was $61,234,000 during the nine months ended April 30, 1998
which included approximately $32,000,000 for the ITAPCO Terminal Corporations
acquisition, $3,174,000 of improvements to the Grasslands Facilities and other
natural gas assets; and enhancements to the pipeline and terminal facilities.
44
<PAGE>
Net cash provided by financing activities for the nine months ended March
31, 1999 of $395,389,000 primarily represented borrowings under TransMontaigne's
credit facility and proceeds from the issuance of Series A Convertible Preferred
Stock which were used to fund the LDEC and West Shore common stock acquisitions,
as well as to finance other acquisitions and capital expenditures. Net cash
provided by financing activities for the nine months ended April 30, 1998 of
$49,936,000 represented borrowings under TransMontaigne's credit facility
primarily used to finance operations and capital expenditures. At March 31,
1999, TransMontaigne had $544,500,000 of borrowing capacity with availability of
$70,000,000 under its credit agreements.
EBITDA represents earnings before income taxes plus interest expense and
other financing costs and depreciation and amortization. EBITDA is used by
management 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 as well as operating income and
net earnings (determined in accordance with generally accepted accounting
principles) as indicators of operating performance, EBITDA is used by the
financial community to measure operating effectiveness and as a method to
evaluate the market value of companies like TransMontaigne. 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 was $20,339,000 and $41,195,000 for the three months and nine months
ended March 31, 1999, respectively.
Working capital required to support TransMontaigne's business operations,
principally to carry accounts receivable and inventory, is provided by advances
from its credit facility. Interest expense related to working capital advances
is not included in the determination of EBITDA. For the three months and nine
months ended March 31, 1999, the interest expense attributable to working
capital advances was approximately $5,963,000 and $10,109,000, respectively.
45
<PAGE>
Achieving continued EBITDA growth through strategic acquisitions, further
internal expansion of existing facilities and by providing value-added, products
supply, distribution and marketing logistical services is a primary objective of
TransMontaigne management.
Capital expenditures anticipated in the year ending June 30, 1999 are
estimated to be $330,000,000 for pipeline, terminal, storage and natural gas
gathering and processing facilities, and assets to support these facilities,
including $161,000,000 in cash and common stock for LDEC; $35,893,000 cash for
the 20.38% common stock interest in West Shore; $6,500,000 cash for the
Southwest Terminal; and $5,200,000 for the Renssalaer, New York terminal. In
addition, other major anticipated capital expenditures through June 30, 1999
include $66,200,000 for the pending Amerada Hess terminals acquisition;
$8,000,000 for enhancements to the ITAPCO Terminal Corporations terminals;
$7,000,000 for the North Peoria, Illinois terminal; $6,500,000 for additional
tankage at the East Chicago storage complex; and $8,200,000 for natural gas
gathering system expansion. Future capital expenditures will depend on numerous
factors, including the availability, economics and cost of appropriate
acquisitions which TransMontaigne identifies and evaluates; the economics, cost
and required regulatory approvals with respect to the expansion and enhancement
of existing systems and facilities; the demand for the services TransMontaigne
provides; local, state and federal governmental regulations; environmental
compliance requirements; fuel conservation efforts; and the availability of debt
financing and equity capital on acceptable terms.
On March 25, 1999 and March 30, 1999 TransMontaigne closed a private
placement of $170,115,000 of $1,000 Series A Convertible Preferred Stock Units.
Each unit consists of one share of 5% convertible preferred stock, convertible
into common stock at $15 per share, and 66.67 warrants, each warrant exercisable
to purchase six-tenths of a share of common stock at $14 per share. Dividends
are cumulative and payable quarterly. The dividend rate increases to an annual
rate of 16% for any convertible preferred stock outstanding after
December 31, 2003. The convertible preferred stock is convertible any time
and may be called for redemption by TransMontaigne after the second year if the
market price of the common stock is greater than 175% of the conversion price at
the date of the call. Proceeds will be used to reduce bank debt and for general
corporate purposes. As of March 31, 1999, $59,500,000 from the private placement
had been received and the remaining $110,615,000 was received by April 20, 1999.
<PAGE>
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 were
$62,315,000.
In October 1998, TransMontaigne closed a $500,000,000 credit facility with
BankBoston, N.A. The credit facility includes a $350,000,000 revolving component
due December 31, 2003 and a $150,000,000 term component due June 30, 2000.
Borrowings under this credit facility bear interest at an annual rate equal to
the lender's Alternate Base Rate plus a margin subject to a Eurodollar Rate
pricing option. The credit facility includes a $20,000,000 same day revolving
swing line under which advances may be drawn at an interest rate comparable to
the Eurodollar Rate. The proceeds from the credit facility were used to fund the
LDEC acquisition as well as to refinance existing bank debt and provide funds
for future acquisitions and other general corporate purposes. Subsequent to
March 31, 1999, the $150,000,000 term component was repaid with proceeds from
the private placement of Series A Convertible Preferred Stock.
At March 31, 1999, TransMontaigne had advances of $395,500,000 outstanding
under the bank credit facility utilizing the Eurodollar Rate loan pricing
option. The average interest rate at March 31, 1999 was 6.8%.
In April 1997, TransMontaigne entered into a Master Shelf Agreement with an
institutional lender which provides that the lender will agree to quote an
interest rate at which the lender would be willing to purchase, on an
uncommitted basis, up to $100,000,000 of TransMontaigne senior
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<PAGE>
promissory notes which will mature in no more than 12 years, with an average
life not in excess of 10 years.
At March 31, 1999, TransMontaigne had outstanding under the Master Shelf
Agreement, $50,000,000 of 7.85% Senior Notes due April 17, 2003 and $25,000,000
of 7.22% Senior Notes due October 17, 2004. The Master Shelf Agreement was
amended as of October 30, 1998 in connection with the closing of the
$500,000,000 credit facility. Costs relating to the amendment were $1,125,000 of
which $563,000 and $938,000 are included in other financing costs for the three
months and nine months ended March 31, 1999, 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. The agreements also include financial
compliance tests relating to fixed charges coverage, leverage ratio,
consolidated tangible net worth, distributions and inventory positions. As of
March 31, 1999, TransMontaigne was in compliance with all such tests.
At March 31, 1999, TransMontaigne had working capital of $421,415,000;
availability under its bank credit facility of $45,000,000; and additional
borrowing capacity of $25,000,000 under the Master Shelf Agreement.
TransMontaigne believes that its current working capital position; future
cash provided by operating activities; proceeds from the private placement or
public offering of debt and common stock; available borrowing capacity under the
bank credit facility 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 software, as well as certain hardware
containing embedded technology, such as microcontrollers and microprocessors,
were designed to utilize a two-digit rather
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<PAGE>
than a four-digit date field and consequently may cause computers, computer
controlled systems and equipment with embedded software, microcontrollers and
microprocessors to malfunction or incorrectly process data in the Year 2000.
This could result in significant system failures. TransMontaigne relies on its
computer-based management information systems, as well as embedded technology,
such as microcontrollers and microprocessors, to operate instruments and
equipment in conducting its normal business activities. Certain of these
computer-based programs and embedded technology, such as microcontrollers and
microprocessors, 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.
TransMontaigne's Board of Directors has been briefed about Year 2000 concerns
generally and the possible effect on TransMontaigne. The Year 2000 Plan has been
presented to the Board and periodic progress updates regarding its
implementation have been provided. The purpose of the Year 2000 Plan is to
define and provide a continuing process for assessment, remediation planning and
plan implementation to achieve a level of readiness that will effectively deal
with the Year 2000 concerns in a timely manner. While achieving Year 2000
readiness does not mean correcting every Year 2000 limitation, critical systems
and electronic assets, as well as relationships with key third-party customers,
suppliers and local, state and federal government agencies have been, and
continue to be, evaluated and are expected to be suitable for continued use into
and beyond the Year 2000.
Implementation of TransMontaigne's Year 2000 Plan is directly supervised by
a Senior Vice President, assisted by a Year 2000 Plan Director. The Plan
Director coordinates the implementation of the Year 2000 Plan among
TransMontaigne's individual business units. The Plan Director has established an
internal group to identify and assess potential areas of risk and to make any
required modifications to computer systems and equipment used in
TransMontaigne's business activities involving refined product and crude oil
pipeline, terminaling and storage, natural gas gathering and processing; and
products supply, distribution and marketing. The Year 2000 Plan is comprised of
several phases, including assessment, remediation planning and implementation.
These three phases are more fully described as follows:
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A. Assessment - This phase involves the identification and inventory of
TransMontaigne's business assets and processes and determination of Year 2000
compliancy status of these business assets and those third-party suppliers,
customers and state and federal governmental agencies believed to be material to
TransMontaigne's business, results of operations, or financial condition
("KeyParties"). The Assessment phase of the Year 2000 Plan includes assessment
of Year 2000 compliancy of the following:
1. Computer systems and software ("Information Technology")
2. Control software, microprocessors and micro-controllers
embedded in equipment ("Embedded Systems")
3. Key Parties
B. Remediation Planning - This phase involves the development of
remediation plans which, when implemented, will enable business assets and
business relationships critical to TransMontaigne's business operations to be
Year 2000 ready. This phase also contemplates implementation planning and
prioritization of implementation of remediation plans.
C. Implementation - This phase involves the implementation of
remediation plans, including post-remediation testing and contingency planning.
After the Assessment phase has been completed and evaluated, the Remediation
Planning and Implementation phases will be implemented to ensure that the
material facilities and business activities will continue to operate safely and
reliably, and without interruption after 1999.
TransMontaigne has also undertaken to monitor the compliance efforts of
Key Parties with whom it does business, including those with whom TransMontaigne
maintains banking and stock transfer relationships, and whose computer-based
systems and/or embedded technology equipment interface with those of
TransMontaigne, in order to ensure that operations will not be adversely
affected by the Year 2000 compliance problems of third-parties. TransMontaigne
has contacted 584 Key Parties by letter requesting detailed information to be
completed and returned to the Plan
50
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Director. Through March 31, 1999, responses had been received from 65% of those
contacted. Telephonic follow-up with non-respondents commenced in early December
1998 with each Key Party being contacted in order of importance. TransMontaigne
assesses the state of readiness of Key Parties responding to the request for
information, which procedure will continue as additional responses are received.
Each Key Party is given a risk rating based on the information and readiness
plan submitted. Failure of one or more Key Parties to address a Year 2000 issue
could result in business disruptions that could have a material adverse effect
on the operations or financial performance of TransMontaigne. While there can be
no assurance that Key Parties will successfully reprogram or replace, and test,
all of their own computer hardware, software and process control systems to
ensure such systems are Year 2000 compliant, TransMontaigne believes that the
ongoing communication with and assessment of the compliance efforts and status
of the Key Parties will minimize these risks.
TransMontaigne believes that it can provide the resources necessary to
ensure Year 2000 compliance and expects to complete the Year 2000 Plan within a
time frame which will enable its Information Technology and Embedded Systems to
function without significant disruption in the Year 2000. The Assessment phase
of its Year 2000 Plan was substantially finalized at December 31, 1998. The
Remediation Planning phase was substantially completed at March 31, 1999 and it
is anticipated that the Implementation phase will be substantially completed by
June 30, 1999. Business acquisitions routinely involve an analysis of Year 2000
readiness and are incorporated into the overall program as necessary. In this
regard, while the proposed acquisition of eleven refined product terminal
facilities from Amerada Hess Corporation, which was announced by TransMontaigne
on May 4, 1999, may initially impact the percentage completion status of the
various Year 2000 Plan phases, TransMontaigne does not believe that any such
delays will adversely impact its ability to timely fulfill planned readiness
activities within the referenced time frames.
At March 31, 1999, TransMontaigne had incurred third party costs of
approximately $544,000 related to Year 2000 compliance matters and estimates
that the total cumulative future third party, software and equipment costs
related to Year 2000 Assessment, Remediation Planning and Implementation phases,
based upon information developed to date, will be approximately $2,500,000,
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which will be expensed as incurred. These costs have been and will continue to
be funded through operating cash flows and are not considered material to the
operations of TransMontaigne. The cost of the remediation activities and the
completion dates are based on TransMontaigne's best estimates and may be revised
as additional information becomes available. This estimate does not include
assessment, remediation, testing and contingency planning costs which may be
associated with TransMontaigne's proposed acquisition of certain refined product
terminaling facilities from Amerada Hess Corporation, which is expected to close
by June 30, 1999. Such costs, if incurred, are not expected to be material. The
costs incurred to date and those estimated to be incurred in the future also do
not include internal costs. TransMontaigne does not presently separately record
internal costs incurred with respect to implementation of the Year 2000 Plan.
Such costs are principally the related payroll costs for the information systems
and field operations personnel, including senior management, involved in
carrying out the Year 2000 Plan, as well as related travel and other out-of-
pocket expenses.
Although TransMontaigne anticipates that minimal business disruption
will occur as a result of Year 2000 issues, in the event TransMontaigne's
Information Technology and Embedded Systems, or those owned and operated by Key
Parties, should fail to function properly, possible consequences include but are
not limited to, loss of communications links with pipeline control centers,
terminal automation systems and field offices; loss of electric power; and
inability to automatically process commercial transactions, or engage in similar
normal automated or computerized business activities.
TransMontaigne believes that the most reasonably likely worst case
scenario would be small, localized interruptions of service, such as those
referenced above, which likely would be rapidly restored. Contingency plans have
been and are continuing to be developed to address the results of these
potentially isolated events to facilitate the resumption of normal operations
following disruption. However, it is also possible that the scope of Year 2000
issues involving Key Parties may result in multiple concurrent events or
disruptions, which may have a longer duration. In such event, depending upon the
number and duration of such disruptions and the number or importance of the
facilities impacted, such disruptions could have a material adverse impact on
the business, results of operations or financial condition of TransMontaigne.
Accordingly, contingency plans, as developed, will be reviewed and supplemented
as necessary by September 30, 1999 to address possible worst case
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<PAGE>
scenarios in order to minimize the impact of such events. The contingency
planning process and the process of developing most reasonably likely worst case
scenarios will be ongoing processes, requiring continuing development,
modification and refinement as additional information is obtained regarding the
status of TransMontaigne's Information Technology and Embedded Systems during
theImplementation phase of the Year 2000 Plan, as well as the status, and the
impact on TransMontaigne, of the Year 2000 readiness of Key Parties.
Contingency plans under development include performing certain
processes manually, changing suppliers and reducing or suspending certain
noncritical aspects of TransMontaigne's operations. The contingency planning
effort will focus on potential internal risks, as well as potential risks
associated with Key Parties. TransMontaigne believes that its Assessment,
Remediation Planning and Implementation phases will be effective in achieving
Year 2000 readiness in a timely manner.
Based upon assessments completed to date and compliance plans in
process, including contingency planning, TransMontaigne does not anticipate that
Year 2000 issues, including the cost of compliance and testing, will have a
material adverse effect on the business, results of operations or financial
condition of TransMontaigne. However, while TransMontaigne believes the
possibility is remote, if TransMontaigne Information Technology or Embedded
Systems, or those of Key Parties, fail to achieve Year 2000 readiness in a
timely manner, it could have a material adverse impact on the business, results
of operations or financial condition of TransMontaigne.
The preceding "Year 2000 Matters" discussion contains various forward-
looking statements that represent TransMontaigne's beliefs or expectations
regarding future events. When used in the "Year 2000 Matters" discussion, the
words "believes," "intends," "expects," "estimates," "plans," "goals," and
similar expressions are intended to identify forward-looking statements.
Forward-looking statements include, without limitation, expectations as to when
the Assessment, Remediation Planning and Implementation phases of the Year 2000
Plan, as well as Year 2000 contingency planning will be completed; the estimated
cost of achieving Year 2000 readiness; and the belief that TransMontaigne's
Information Technology and Embedded Systems will be Year 2000 ready in a timely
and appropriate manner. All forward-looking statements involve a number of risks
and uncertainties which could cause the actual results to differ materially from
the projected results. Factors which may cause those
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in affected systems and equipment; the failure of others to timely achieve
appropriate Year 2000readiness; and the actions or inaction of governmental
agencies and others with respect to Year 2000 problems.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), 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 disclosures in 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 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 is in the process of assessing the
impact, if any, that SFAS 133 will have on its consolidated financial
statements.
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PART II. OTHER INFORMATION
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ITEM 2. CHANGES IN SECURITIES
TransMontaigne's Restated Certificate of Incorporation, filed December 4, 1995,
authorizes the Board of Directors of TransMontaigne without any action by the
stockholders, to provide by resolution or resolutions for the issuance of the
shares of preferred stock as a class or in series, and, by filing a certificate
of designations, pursuant to the Delaware General Corporation Law, setting forth
a copy of such resolution, to divide the 2,000,000 shares of authorized
preferred stock of TransMontaigne, par value $0.01 per share, into such class or
series. The Board of Directors is further authorized to fix the dividend rights,
dividend rates, voting rights, conversion rights, rights and terms of
redemption, the redemption price or prices, the liquidation preferences and all
other powers, preferences, rights, qualifications, limitations and restrictions
of any class or unissued series of preferred stock.
At a duly convened meeting of TransMontaigne's Board of Directors held on March
17, 1999, the Board of Directors adopted resolutions which established a
Series A Convertible Preferred Stock consisting of 250,000 shares of the
2,000,000 shares of authorized but unissued preferred stock, par value $0.01 per
share and approved the sale of the Series A Convertible Preferred Stock in a
private offering to close on or before March 31, 1999. Further, the Board of
Directors adopted a form of Certificate of Designations amending
TransMontaigne's Restated Certificate of Incorporation, above referenced,
setting forth the voting rights, designations, preferences, qualifications,
privileges, limitations, restrictions, options, conversion rights and other
special and relative rights of the Series A Convertible Preferred Stock. The
Certificate of Designations was filed of record with the Secretary of State of
Delaware on March 26, 1999 in connection with the closings referenced below, and
is included as Exhibit 3.1 to this Quarterly Report on Form 10-Q.
On March 25, 1999 and March 30, 1999, TransMontaigne closed a private placement
of $170,115,000 of Series A Convertible Preferred Stock Units. Each unit was
offered for $1,000, and consisted of one share of Series A Convertible Preferred
Stock, convertible at option of each holder into common stock at $15 per share,
and 66.67 warrants, each warrant being exercisable to purchase six-tenths of a
share of common stock at a price of $14 per share. A total of 170,115 shares
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of Series A Convertible Preferred Stock, convertible into 11,341,000 common
shares, and 11,341,568 warrants to acquire 6,804,940 shares of common stock at
$14 per share were issued to certain existing common stockholders, as well as to
other investment companies, institutional investors and accredited investors.
TransMontaigne received net proceeds of $170,115,000 in the offering. No
commissions were paid. TransMontaigne used the proceeds to repay a portion of
the long-term debt incurred under its bank credit facility and for general
corporate purposes.
Because the issuance occurred in a privately negotiated transaction that did not
involve a public offering, the shares of the Series A Convertible Preferred
Stock issued and associated warrants are exempt from registration under Section
4(2) of the Securities Act of 1933.
The rights of the common stockholders have been materially limited by the
issuance of Series A Convertible Preferred Stock described above. The
preferential rights of the holders of the Series A Convertible Preferred Stock,
fully described in the Certificate of Designations of Series A Convertible
Preferred Stock referenced above, include a preference on dividends and a
preference upon dissolution or liquidation of TransMontaigne. Dividends are
payable on the Series A Convertible Preferred Stock before any dividends may be
declared or paid on the common stock. Upon liquidation, dissolution or winding
up of TransMontaigne, the holders of Series A Convertible Preferred Stock have a
preference for repayment prior to any payment made upon or distributed to the
holders of the common stock. In addition, the voting rights of the common
stockholders have been diluted since holders of the Series A Convertible
Preferred Stock will vote together with the common stockholders as a single
class on all actions to be voted on by the stockholders of TransMontaigne other
than the election of directors. Each holder of a share of Series A Convertible
Preferred Stock is entitled to a number of votes on each such action equal to
the number of shares of common stock (excluding fractional shares) into which
each share of Series A Convertible Preferred Stock is convertible on the record
date of such stockholder vote.
Additional information regarding the Series A Convertible Preferred Stock and
its effect on the rights of the holders of TransMontaigne's common stock is
included in the exhibits to the TransMontaigne Inc. Current Report on Form 8-K
filed on April 1, 1999 and incorporated by reference (Securities and Exchange
Commission File No. 001-11763).
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Designations of Series A Convertible Preferred
Stock. Incorporated by reference to TransMontaigne Inc. Current
Report on Form 8-K (Securities and Exchange Commission File No.
001-11763) filed on April 1, 1999.
4.1 Warrant Agreement between TransMontaigne and BankBoston, N.A., as
the Warrant Agent, dated March 25, 1999. Incorporated by
reference to TransMontaigne Inc. Current Report on Form 8-K
(Securities and Exchange Commission File No. 001-11763) filed on
April 1, 1999.
10.1 Amendment No. 2 dated as of March 25, 1999 to the Second Amended
and Restated Credit Agreement between TransMontaigne Inc. and
BankBoston, N.A., as Agent, dated as of October 30, 1998. FILED
HEREWITH.
10.2 Letter Amendment No. 4, dated as of March 25, 1999, to Master
Shelf Agreement dated as of April 17, 1997, among TransMontaigne
Oil Company, The Prudential Insurance Company of America and U.S.
Private Placement Fund. FILED HEREWITH.
27 Financial Data Schedule. FILED HEREWITH.
99.1 Press Release dated March 31, 1999. Incorporated by reference to
TransMontaigne Inc. Current Report on Form 8-K (Securities and
Exchange Commission File No. 001-11763) filed on April 1, 1999.
99.2 Form of Preferred Stock and Warrant Purchase Agreement (without
exhibits). Incorporated by reference to TransMontaigne Inc.
Current Report on Form 8-K (Securities and Exchange Commission
File No. 001-11763) filed on April 1, 1999.
99.3 Stockholders' Agreement among TransMontaigne and certain
institutional purchasers signatories thereto dated March 25,
1999. Incorporated by reference to TransMontaigne Inc. Current
Report on Form 8-K (Securities and Exchange Commission File No.
001-11763) filed on April 1, 1999.
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99.4 Registration Rights Agreement between TransMontaigne and the
purchasers signatories thereto dated March 25, 1999. Incorporated
by reference to TransMontaigne Inc. Current Report on Form 8-K
(Securities and Exchange Commission File No. 001-11763) filed on
April 1, 1999.
99.5 Amendment and Waiver between TransMontaigne and Louis Dreyfus
Corporation dated March 25, 1999. Incorporated by reference to
TransMontaigne Inc. Current Report on Form 8-K (Securities and
Exchange Commission File No. 001-11763) filed on April 1, 1999.
99.6 Second Amendment and Waiver by and among TransMontaigne and
certain institutional investors signatories thereto dated March
25, 1999. Incorporated by reference to TransMontaigne Inc.
Current Report on Form 8-K (Securities and Exchange Commission
File No. 001-11763) filed on April 1, 1999.
(b) The following amendment on Form 8-K/A was filed during the quarter ended
March 31, 1999:
TransMontaigne Inc. filed a Current Report on Form 8-K/A on January 5,
1999 amending the Current Report on Form 8-K filed on November 13, 1998,
solely to add the financial statements of the business acquired, Louis
Dreyfus Energy Corp. - Atlanta Division, as required by Item 7(a) of Form
8-K, and the pro forma financial information, as required by Item 7(b) of
Form 8-K.
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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: May 17, 1999 TRANSMONTAIGNE INC.
(Registrant)
/s/ CORTLANDT S. DIETLER
-------------------------
Cortlandt S. Dietler
Chairman and Chief Executive Officer
/s/ RODNEY S. PLESS
-------------------
Rodney S. Pless
Vice President, Controller and
Chief Accounting Officer
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EXHIBIT 10.1
TRANSMONTAIGNE INC.
TRANSMONTAIGNE PRODUCT SERVICES INC.
TRANSMONTAIGNE PRODUCT SERVICES EAST INC.
TRANSMONTAIGNE PRODUCT SERVICES MIDWEST INC.
TRANSMONTAIGNE TRANSPORTATION SERVICES INC.
TRANSMONTAIGNE PIPELINE INC.
TRANSMONTAIGNE TERMINALING INC.
BEAR PAW ENERGY INC.
2750 Republic Plaza
370 Seventeenth Street
Denver, Colorado 80202
AMENDMENT NO. 2 OF
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
As of March 25, 1999
BANKBOSTON, N.A.,
as Agent under the Credit Agreement
defined herein
100 Federal Street
Boston, Massachusetts 02110
Ladies and Gentlemen:
Each of TransMontaigne Inc. (the "Company"), TransMontaigne Product
Services Inc. and TransMontaigne Product Services East Inc., each a Delaware
corporation, TransMontaigne Product Services Midwest Inc., TransMontaigne
Transportation Services Inc., TransMontaigne Pipeline Inc. and TransMontaigne
Terminaling Inc., each an Arkansas corporation, and Bear Paw Energy Inc., a
Colorado corporation, hereby agrees with you as follows:
1. Reference to Credit Agreement and Definitions. Reference is made to the
---------------------------------------------
Second Amended and Restated Credit Agreement dated as of October 30, 1998, as
amended by Amendment No. 1 thereto dated as of December 14, 1998 and as from
time to time in effect, among the Company, the Guarantors named therein,
BankBoston, N.A., for itself and as Agent, and the other Lenders from time to
time party thereto (the "Credit Agreement"). Terms defined in the Credit
Agreement and not otherwise defined herein are used herein with the meanings so
defined.
2. Recital. The Company has advised the Lenders that it intends to issue up
-------
to 200,000 shares of its Series A Convertible Preferred Stock, par value $.01
per share (the "Series A
<PAGE>
Convertible Preferred Stock"), having an aggregate initial Liquidation Value of
up to $200,000,000. The parties to the Credit Agreement have agreed to modify
the definitions of "Distribution" and "Indebtedness" as used therein in order to
clarify the treatment of the Series A Convertible Preferred Stock and to make
other conforming changes.
3. Amendments. The Credit Agreement is hereby amended, effective as of the
----------
date hereof, as follows:
3.1. Section 1.49 of the Credit Agreement is amended to read in its
entirety as follows:
"1.49. "Distribution" means, with respect to the Company (or other
------------
specified Person):
(a) the declaration or payment of any dividend or distribution,
including dividends payable in shares of capital stock of or other equity
interests in the Company (or such specified Person), on or in respect of any
shares of any class of capital stock of or other equity interests in the Company
(or such specified Person);
(b) the purchase, redemption or other retirement of any shares of
any class of capital stock of or other equity interest in the Company (or such
specified Person) or of options, warrants or other rights for the purchase of
such shares, directly, indirectly through a Subsidiary or otherwise;
(c) any other distribution on or in respect of any shares of any
class of capital stock of or equity or other beneficial interest in the Company
(or such specified Person);
(d) any payment of principal or interest with respect to, or any
purchase, redemption or defeasance of, any Indebtedness of the Company (or such
specified Person) which by its terms or the terms of any agreement is
subordinated to the payment of the Credit Obligations;
(e) any loan or advance by the Company (or such specified Person)
to, or any other Investment by the Company (or such specified Person) in, the
holder of any shares of any class of capital stock of or equity interest in the
Company (or such specified Person), or any Affiliate of such holder; and
(f) without duplication, any cash payment in respect of Permitted
Preferred Trust Securities or Permitted Subordinated Trust Indebtedness;
-2-
<PAGE>
provided, however, that the term "Distribution" shall not include (i)
-------- -------
the accrual of unpaid dividends on the Series A Convertible Preferred
Stock or dividends on the Series A Convertible Preferred Stock paid
solely in the form of additional shares of the Series A Convertible
Preferred Stock, (ii) dividends payable in perpetual common stock of
or other similar equity interests in the Company (or such specified
Person), (iii) payments in the ordinary course of business in respect
of (A) reasonable compensation paid to employees, officers and
directors or (B) advances to employees for travel expenses, drawing
accounts and similar expenditures, (iv) any loan or advance by the
Company to any Guarantor or (v) any other loan or advance by the
Company which constitutes an Investment permitted under Section 6.9.5,
6.9.6 or 6.9.7.
3.2. Section 1.79 of the Credit Agreement is amended to read in its
entirety as follows:
1.79. "Indebtedness" means all obligations, contingent or
------------
otherwise, which in accordance with GAAP are required to be classified upon the
balance sheet of the Company (or other specified Person) as liabilities, but in
any event including (without duplication):
(a) borrowed money;
(b) indebtedness evidenced by notes, debentures or similar
instruments;
(c) Capitalized Lease Obligations;
(d) the deferred purchase price of assets or securities,
including related noncompetition, consulting and stock repurchase
obligations (other than ordinary trade accounts payable within six months
after the incurrence thereof in the ordinary course of business);
(e) mandatory redemption or dividend obligations on capital
stock (or other equity) (excluding, however, any such obligation in respect
of the Series A Convertible Preferred Stock);
(f) reimbursement obligations with respect to letters of
credit, bankers acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements;
(g) unfunded pension liabilities;
<PAGE>
(h) obligations that are immediately and directly due and payable
out of the proceeds of or production from property;
(i) liabilities secured by any Lien existing on property owned or
acquired by the Company (or such specified Person), whether or not the
liability secured thereby shall have been assumed; and
(j) all Guarantees in respect of Indebtedness of others; provided
however, that the "Indebtedness" of any Person shall not include any
liability in respect of Permitted Preferred Trust Securities or Permitted
Subordinated Trust Indebtedness.
3.3. Section 1 of the Credit Agreement is further amended by adding thereto
a new Section 1.140A reading in its entirety as follows:
"Series A Convertible Preferred Stock" means the Series A Convertible
------------------------------------
Preferred Stock, par value $.01, issued by the Company on or after March
25, 1999 in the aggregate initial amount of up to 200,000 shares having an
initial liquidation value of $1,000 per share and any additional shares of
such series of convertible preferred stock issued as or in lieu of
dividends thereon.
3.4. Section 8.1 of the Credit Agreement is amended by adding thereto a new
Section 8.1.12 reading in its entirety as follows:
8.1.12. Series A Convertible Preferred Stock. There shall occur any
------------------------------------
"Fundamental Change" as defined in the provisions of the Charter of the
Company which relate to the Series A Convertible Preferred Stock.
4. Representations and Warranties. In order to induce you to enter into this
------------------------------
Amendment, each of the Obligors hereby represents and warrants that each of the
representations and warranties contained in Section 7 of the Credit Agreement is
true and correct on the date hereof.
5. Conditions to Effectiveness of Amendment. Acceptance of the foregoing
----------------------------------------
amendments by the Required Lenders shall be subject, without limitation, to the
condition that no Default or Event of Default under the Credit Agreement shall
have occurred and be continuing.
6. Required Lenders. The Agent represents and warrants that it has received
----------------
consents to the foregoing amendments executed by the Required Lenders, in
satisfaction of the requirements of Section 12.6 of the Credit Agreement.
7. Miscellaneous. This Amendment may be executed in any number of counterparts,
-------------
which
<PAGE>
together shall constitute one instrument, shall be a Credit Document, shall be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts (without giving effect to the conflict of laws rules of any
jurisdiction) and shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns, including as such successors and
assigns all holders of any Credit Obligation.
If the foregoing corresponds with your understanding of our agreement,
please sign this letter and the accompanying copies thereof in the appropriate
space below and return the same to the undersigned. This letter shall become a
binding agreement among each of the Lenders and the Agent when both the Company
and the Agent shall have one or more copies hereof executed by each of the Agent
and the Required Lenders.
Very truly yours,
TRANSMONTAIGNE INC.
By /s/ Richard E. Gathright
------------------------
Richard E. Gathright, President
TRANSMONTAIGNE PRODUCT SERVICES INC.
TRANSMONTAIGNE PRODUCT SERVICES MIDWEST INC.
TRANSMONTAIGNE PRODUCT SERVICES EAST INC.
TRANSMONTAIGNE TRANSPORTATION SERVICES INC.
TRANSMONTAIGNE PIPELINE INC.
TRANSMONTAIGNE TERMINALING INC.
BEAR PAW ENERGY INC.
By /s/ Richard E. Gathright
-------------------------
Richard E. Gathright, Chief Executive Officer
of each of the foregoing corporations
<PAGE>
The foregoing Amendment is hereby agreed to:
BANKBOSTON, N.A., as Agent under the Credit
Agreement, on behalf of the Required Lenders
By:/s/ Terrance Ronan, Director
----------------------------
Authorized Officer
<PAGE>
EXHIBIT 10.2
LETTER AMENDMENT NO. 4
As of March 25, 1999
The Prudential Insurance Company
of America
U.S. Private Placement Fund
c/o Prudential Capital Group
2200 Ross Avenue, Suite 4200E
Dallas, Texas 75201
Ladies and Gentlemen:
We refer to the Master Shelf Agreement dated as of April 17, 1997, as
amended by Letter Amendment No. 1 dated March 31, 1998, Letter Amendment No. 2
dated as of June 30, 1998 and Letter Amendment No. 3 dated as of October 30,
1998 (as amended, the "AGREEMENT"), among the undersigned, TransMontaigne Inc.,
formerly known as TransMontaigne Oil Company, (the "COMPANY") and The Prudential
Insurance Company of America ("PRUDENTIAL") and U.S. Private Placement Fund
(collectively, the "PURCHASERS"). Unless otherwise defined herein, the terms
defined in the Agreement shall be used herein as therein defined.
The Company has advised the Purchasers that it intends to issue up to
200,000 shares of its Series A Convertible Preferred Stock, par value $.01 per
share (the "SERIES A CONVERTIBLE PREFERRED STOCK"), having an aggregate initial
Liquidation Value of up to $200,000,000. The Company has requested that you
agree to amend the definitions of "Distribution" and "Indebtedness" as used
therein in order to clarify the treatment of the Series A Convertible Preferred
Stock and to make other conforming changes. You have indicated your willingness
to so agree. Accordingly, it is hereby agreed by you and us as follows:
1. AMENDMENTS TO THE AGREEMENT. The Agreement is, effective the date first
above written, hereby amended as follows:
(a) PARAGRAPH 7A. ACCELERATION. Paragraph 7A of the Agreement is amended
(I) by adding the word "or" at the end of clause (xvii) and (II) by adding at
the end thereof a new clause (xviii) to read as follows:
"(xviii) there shall occur any "Fundamental Change" as defined in the
provisions of the Charter of the Company which relate to the Series A
Convertible Preferred Stock;"
(b) PARAGRAPH 10B. OTHER TERMS. Paragraph 10B of the Agreement is amended
(I) by amending the definitions of "Distribution" and "Indebtedness"
in full to read as follows:
"DISTRIBUTION" shall mean, with respect to the Company (or other
specified Person):
(a) the declaration or payment of any dividend or distribution,
including dividends payable in shares of capital stock of or other
equity interests in the Company (or such specified Person), on or in
respect of any shares of any class of capital stock of or other equity
interests in the Company (or such specified Person);
<PAGE>
(b) the purchase, redemption or other retirement of any shares
of any class of capital stock of or other equity interest in the
Company (or such specified Person) or of options, warrants or other
rights for the purchase of such shares, directly, indirectly through a
Subsidiary or otherwise;
(c) any other distribution on or in respect of any shares of any
class of capital stock of or equity or other beneficial interest in
the Company (or such specified Person);
(d) any payment of principal or interest with respect to, or any
purchase, redemption or defeasance of, any Indebtedness of the Company
(or such specified Person) which by its terms or the terms of any
agreement is subordinated to the payment of the Obligations;
(e) any loan or advance by the Company (or such specified
Person) to, or any other Investment by the Company (or such specified
Person) in, the holder of any shares of any class of capital stock of
or equity interest in the Company (or such specified Person), or any
Affiliate of such holder; and
(f) without duplication, any cash payment in respect of
Permitted Preferred Trust Securities or Permitted Subordinated Trust
Indebtedness;
provided, however, that the term "Distribution" shall not include (i)
-------- -------
the accrual of unpaid dividends on the Series A Convertible Preferred
Stock or dividends on the Series A Convertible Preferred Stock paid
solely in the form of additional shares of the Series A Convertible
Preferred Stock, (ii) dividends payable in perpetual common stock of
or other similar equity interests in the Company (or such specified
Person), (iii) payments in the ordinary course of business in respect
of (A) reasonable compensation paid to employees, officers and
directors or (B) advances to employees for travel expenses, drawing
accounts and similar expenditures, (iv) any loan or advance by the
Company to any Guarantor or (v) any other loan or advance by the
Company which constitutes an Investment permitted under paragraphs
6C(4)(v), 6C(4)(vi) or 6C(4)(vii).
"INDEBTEDNESS" shall mean all obligations, contingent or otherwise,
which in accordance with GAAP are required to be classified upon the
balance sheet of the Company (or other specified Person) as liabilities,
but in any event including (without duplication):
(a) borrowed money;
(b) indebtedness evidenced by notes, debentures or similar
instruments;
(c) Capitalized Lease Obligations;
(d) the deferred purchase price of assets or securities,
including related noncompetition, consulting and stock repurchase
obligations (other than ordinary trade accounts payable within six
months after the incurrence thereof in the ordinary course of
business);
(e) mandatory redemption or dividend obligations on capital
stock (or other equity) (excluding, however, any such obligation in
respect of the Series A Convertible Preferred Stock);
2
<PAGE>
(f) reimbursement obligations with respect to letters of credit,
bankers acceptances, surety bonds, other financial guarantees and
Interest Rate Protection Agreements;
(g) unfunded pension liabilities;
(h) obligations that are immediately and directly due and
payable out of the proceeds of or production from property;
(i) liabilities secured by any Lien existing on property owned
or acquired by the Company (or such specified Person), whether or not
the liability secured thereby shall have been assumed; and
(j) all Guarantees in respect of Indebtedness of others;
provided however, that the "Indebtedness" of any Person shall not
-------- -------
include any liability in respect of Permitted Preferred Trust
Securities or Permitted Subordinated Trust Indebtedness."
and (II) by adding the following new definition in alphabetical
order:
"SERIES A CONVERTIBLE PREFERRED STOCK" shall mean the Series A
Convertible Preferred Stock, par value $.01, issued by the Company on or
after March 25, 1999 in the aggregate initial amount of up to 200,000
shares having an initial liquidation value of $1,000 per share and any
additional shares of such series of convertible preferred stock issued as
or in lieu of dividends thereon."
2. CONSENT OF GUARANTORS. Each Guarantor under the Guaranty contained in
paragraph 11 of the Agreement, hereby consents to this letter amendment and
hereby confirms and agrees that the Guaranty is, and shall continue to be, in
full force and effect and is hereby confirmed and ratified in all respects
except that, upon the effectiveness of, and on and after the date of, said
letter amendment, all references in the Guaranty to the Agreement, "thereunder",
"thereof", or words of like import referring to the Agreement shall mean the
Agreement as amended by said letter amendment.
3. CONSENT OF PLEDGORS. Each of the Company, TransMontaigne Transportation
Services Inc., TransMontaigne Product Services Inc. and TransMontaigne Pipeline
Inc. is a Pledgor under the Pledge Agreement (the "PLEDGORS") and each hereby
agrees that (i) the Pledge Agreement shall continue to be, in full force and
effect and is hereby confirmed and ratified in all respects except that, upon
the effectiveness of, and on and after the date of, this letter amendment, all
references in the Pledge Agreement to the Loan Documents shall mean the Loan
Documents as amended by this Amendment and (ii) all of the Loan Security
described therein does, and shall continue to, secure the payment by the
Pledgors of their obligations under the Loan Documents, as amended by this
letter amendment.
4. REPRESENTATIONS AND WARRANTIES. In order to induce you to enter into this
Amendment, each of the Obligors hereby represents and warrants that each of the
representations and warranties contained in paragraph 8 of the Agreement is true
and correct on the date hereof.
3
<PAGE>
5. MISCELLANEOUS.
(a) EFFECT ON AGREEMENT. On and after the effective date of this letter
amendment, each reference in the Agreement to "this Agreement", "hereunder",
"hereof", or words of like import referring to the Agreement, each reference in
the Notes to "the Agreement", "thereunder", "thereof", or words of like import
referring to the Agreement, and each reference in the Pledge Agreement to "the
Shelf Agreement" "thereunder", "thereof", or words of like import referring to
the Agreement, shall mean the Agreement as amended by this letter amendment. On
and after the effective date of this letter amendment, each reference in the
Pledge Agreement to "this Agreement", "hereunder", "hereof", or words of like
import referring to the Pledge Agreement, and each reference in the Notes to
"the Pledge Agreement", "thereunder", "thereof", or words of like import
referring to the Pledge Agreement, shall mean the Pledge Agreement as amended by
this letter amendment. The Agreement and the Pledge Agreement, as amended by
this letter amendment, is and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed. The execution, delivery and
effectiveness of this letter amendment shall not, except as expressly provided
herein, operate as a waiver of any right, power or remedy under the Agreement or
the Pledge Agreement nor constitute a waiver of any provision of the Agreement
or the Pledge Agreement.
(b) COUNTERPARTS. This letter amendment may be executed in any number of
counterparts and by any combination of the parties hereto in separate
counterparts, each of which counterparts shall be an original and all of which
taken together shall constitute one and the same letter amendment.
(c) EFFECTIVENESS. This letter amendment shall become effective as of the
date first above written when and if:
(I) counterparts of this letter amendment shall have been executed
by the Company, each Guarantor and the Pledgors and you;
(II) the covenants of the Company set forth in the Bank Agreement
shall have been amended to reflect the covenant modifications of the
Agreement made herein; the Required Holders hereby consent to such
amendments and waivers under the Bank Agreement;
(III) no Default or Event of Default under the Agreement shall have
occurred and be continuing; and
(IV) the Bank Agent and other requisite holders, if any, of the
Indebtedness issued under the Bank Agreement shall have consented to the
amendments of the Agreement set forth herein.
(d) GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE 0F NEW YORK.
4
<PAGE>
If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning at least a counterpart of this letter
amendment to TransMontaigne Inc., 370 17th Street, Suite 2750, Denver, Colorado
80202, Attention of Harold R. Logan.
Very truly yours,
TRANSMONTAIGNE INC.
(f/k/a TransMontaigne Oil Company)
By: /s/ Richard E. Gathright
------------------------------------
Title: President
GUARANTORS/PLEDGORS
TRANSMONTAIGNE PRODUCT SERVICES
MIDWEST INC. (F/K/A TRANSMONTAIGNE PRODUCT
SERVICES INC.)
TRANSMONTAIGNE PIPELINE INC.
TRANSMONTAIGNE TERMINALING INC.
TRANSMONTAIGNE TRANSPORTATION SERVICES INC.
BEAR PAW ENERGY INC.
TRANSMONTAIGNE PRODUCT SERVICES INC.
TRANSMONTAIGNE PIPELINE INC.
TRANSMONTAIGNE PRODUCT SERVICES EAST INC.
By: /s/ Richard E. Gathright
------------------------------------
As C.E.O. of each of the foregoing
corporations
Agreed as of the date first above written:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Randall M. Kob
----------------------------
Vice President
U.S. PRIVATE PLACEMENT FUND
By: Prudential Private Placement
Investors, L.P., Investment Advisor
By: Prudential Private Placement
Investors, Inc., its General Partner
By: /s/ Randall M. Kob
----------------------------
Vice President
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTER
AND NINE MONTHS ENDED MARCH 31, 1999 AND THE QUARTER AND NINE MONTHS ENDED APRIL
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999 APR-30-1998 APR-30-1998
<PERIOD-START> JAN-01-1999 JUL-01-1998 FEB-01-1998 AUG-01-1997
<PERIOD-END> MAR-31-1999 MAR-31-1999 APR-30-1998 APR-30-1998
<CASH> 12,949,856 12,949,856 29,807,354 29,807,354
<SECURITIES> 0 0 0 0
<RECEIVABLES> 298,731,279<F1> 298,731,279<F1> 74,118,482 74,118,482
<ALLOWANCES> 0 0 0 0
<INVENTORY> 296,095,729 296,095,729 33,410,481 33,410,481
<CURRENT-ASSETS> 611,714,277 611,714,277 140,010,124 140,010,124
<PP&E> 407,860,369 407,860,369 186,471,875 186,471,875
<DEPRECIATION> (33,542,653) (33,542,653) (18,705,670) (18,705,670)
<TOTAL-ASSETS> 1,044,924,280 1,044,924,280 323,304,830 323,304,830
<CURRENT-LIABILITIES> 190,299,336 190,299,336 45,616,860 45,616,860
<BONDS> 472,479,200 472,479,200 128,969,667 128,969,667
0 0 0 0
1,701 1,701 0 0
<COMMON> 304,711 304,711 259,429 259,429
<OTHER-SE> 380,200,389 380,200,389 147,544,874 147,544,874
<TOTAL-LIABILITY-AND-EQUITY> 1,044,924,280 1,044,924,280 323,304,830 323,304,830
<SALES> 0 0 0 0
<TOTAL-REVENUES> 769,369,253 1,973,790,336 489,525,621 1,505,357,475
<CGS> 0 0 0 0
<TOTAL-COSTS> 754,832,261 1,946,416,811 485,598,248 1,491,810,489
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 9,462,401 19,112,665 2,357,496 6,092,477
<INCOME-PRETAX> 3,987,967 6,782,101 1,835,072 8,520,565
<INCOME-TAX> 1,515,000 2,577,000 1,322,500 3,892,500
<INCOME-CONTINUING> 2,472,967 4,205,101 512,572 4,628,065
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 2,472,967 4,205,101 512,572 4,628,065
<EPS-PRIMARY> 0.08<F2> 0.14<F2> 0.02<F2> 0.18<F2>
<EPS-DILUTED> 0.07 0.14 0.02 0.17
<FN>
<F1>INCLUDES $110,615,000 RECEIVABLE UNDER PREFERRED STOCK PURCHASE AGREEMENTS.
<F2>REPRESENTS BASIC EARNINGS PER SHARE
</FN>
</TABLE>
