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 December 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 February 1, 2000 there were 30,592,024 shares of the registrant's Common
Stock outstanding.
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TRANSMONTAIGNE INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets
December 31, 1999 (Unaudited) and June 30, 1999........................................4
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended December 31, 1999 and 1998 (Unaudited)...............5
Condensed Consolidated Statements of Stockholders' Equity
Year Ended June 30, 1999 and
Six Months Ended December 31, 1999 (Unaudited).........................................6
Condensed Consolidated Statements of Cash Flows
Six Months Ended December 31, 1999 and 1998 (Unaudited)................................7
Notes to Condensed Consolidated Financial Statements...................................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................................19
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................30
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...................................31
Item 6. Exhibits and Reports on Form 8-K......................................................32
Signatures............................................................................33
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements of TransMontaigne Inc. are
included herein beginning on the following page.
3
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<CAPTION>
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
December 31, 1999 (Unaudited) and June 30, 1999
(In thousands, except share amounts)
Assets December 31, June 30,
- ------ 1999 1999
----------------- -----------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 36,015 13,927
Trade accounts receivable 132,648 174,122
Receivable from sale of Bear Paw Energy Inc. 131,150 -
Inventories 159,767 378,207
Prepaid expenses 5,092 4,355
----------------- -----------------
464,672 570,611
----------------- -----------------
Property, plant and equipment:
Land 14,960 15,165
Plant and equipment 339,339 458,749
Accumulated depreciation (30,203) (37,572)
----------------- -----------------
324,096 436,342
----------------- -----------------
Investments and other assets:
Investments in petroleum related assets 46,141 46,141
Deferred tax assets, net 27,380 -
Deferred debt issuance costs, net 8,039 11,529
Unrealized gains on energy related contracts 4,987 8,996
Other assets, net 2,904 21,889
----------------- -----------------
89,451 88,555
----------------- -----------------
$ 878,219 1,095,508
================= =================
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 104,196 164,162
Inventory due under exchange agreements 49,685 25,791
Excise taxes payable 51,243 25,681
Other accrued liabilities 6,418 5,371
Current portion of long-term debt 1,990 2,000
----------------- -----------------
213,532 223,005
----------------- -----------------
Long-term debt 335,000 495,672
Deferred tax liabilities, net - 780
Stockholders' equity:
Preferred stock, par value $.01 per share, authorized 2,000,000 shares,
issued and outstanding 170,115 shares Series A Convertible at December
31, 1999 and June 30, 1999, liquidation preference of $170,115,000 170,115 170,115
Common stock, par value $.01 per share, authorized 80,000,000 shares at
December 31, 1999 and June 30, 1999, issued and outstanding 30,592,024
shares at December 31, 1999 and 30,479,024 shares at June 30, 1999 306 305
Capital in excess of par value 198,313 197,122
Unearned compensation (1,072) -
Retained earnings (accumulated deficit) (37,975) 8,509
----------------- -----------------
329,687 376,051
----------------- -----------------
$ 878,219 1,095,508
================= =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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<CAPTION>
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three Months and Six Months Ended December 31, 1999 and 1998 (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------- -----------------------------
1999 1998 1999 1998
---------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 1,323,165 741,300 2,472,032 1,204,421
Costs and expenses:
Product costs 1,308,525 714,084 2,428,339 1,157,290
Operating expenses 16,887 10,640 33,112 19,157
Impairment of long lived assets 50,136 - 50,136 -
General and administrative 5,825 5,182 11,700 8,217
Depreciation and amortization 6,395 4,128 12,641 6,921
---------------- ------------ ------------- --------------
1,387,768 734,034 2,535,928 1,191,585
---------------- ------------ ------------- --------------
Operating income (loss) (64,603) 7,266 (63,896) 12,836
Other income (expenses):
Dividend income from petroleum related assets 283 339 774 339
Interest income 295 381 1,182 759
Gain on sale of Bear Paw Energy Inc. 16,587 - 16,587 -
Interest expense (9,269) (7,175) (18,757) (9,650)
Amortization of deferred debt issuance costs (4,940) (935) (5,791) (1,058)
Other financing costs (284) (346) (490) (432)
---------------- ------------ ------------- --------------
2,672 (7,736) (6,495) (10,042)
---------------- ------------ ------------- --------------
Earnings (loss) before income taxes (61,931) (470) (70,391) 2,794
Income tax (expense) benefit 24,776 178 28,160 (1,062)
---------------- ------------ ------------- --------------
Net earnings (loss) (37,155) (292) (42,231) 1,732
Preferred stock dividends (2,127) - (4,253) -
---------------- ------------ ------------- --------------
Net earnings (loss) attributable to
common stockholders $ (39,282) (292) (46,484) 1,732
================ ============ ============= ==============
Weighted average common shares outstanding:
Basic 30,592 28,976 30,538 27,469
================ ============ ============= ==============
Diluted 30,592 28,976 30,538 28,201
================ ============ ============= ==============
Earnings (loss) per common share:
Basic $ (1.28) (0.01) (1.52) 0.06
================ ============ ============= ==============
Diluted $ (1.28) (0.01) (1.52) 0.06
================ ============ ============= ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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<CAPTION>
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders' Equity
Year Ended June 30, 1999 and Six Months Ended December 31, 1999 (Unaudited)
(In thousands)
Retained
Capital in earnings
Preferred Common excess of Unearned (accumulated
stock stock par value Compensation deficit) Total
------------ ----------- ------------ --------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 $ - 260 136,780 (618) 8,844 145,266
Preferred stock issued in connection
with stock purchase agreements 170,115 - - - - 170,115
Costs related to issuance of preferred
Stock - - (327) - - (327)
Common stock issued for options
Exercised - - 84 - - 84
Common stock issued for services - - 93 - - 93
Tax benefit arising from options
Exercised - - 63 - - 63
Unearned compensation related to
restricted stock awards - - 162 (162) - -
Amortization of unearned compensation - - - 780 - 780
Common stock issued in acquisition of
Louis Dreyfus Energy Corp. - 45 60,390 - - 60,435
Common stock repurchased and retired - - (123) - - (123)
Preferred stock dividends - - - - (2,274) (2,274)
Net earnings - - - - 1,939 1,939
------------ ----------- ------------ --------------- -------------- ----------
Balance at June 30, 1999 170,115 305 197,122 - 8,509 376,051
Common stock issued for options
Exercised - - 92 - - 92
Unearned compensation related to
restricted stock awards - 1 1,099 (1,100) - -
Amortization of unearned compensation - - - 28 - 28
Preferred stock dividends - - - - (4,253) (4,253)
Net loss - - - - (42,231) (42,231)
------------ ----------- ------------ --------------- -------------- ----------
Balance at December 31, 1999 $ 170,115 306 198,313 (1,072) (37,975) 329,687
============ =========== ============ =============== ============== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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<CAPTION>
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Six Months Ended December 31, 1999 and 1998 (Unaudited)
(In thousands)
1999 1998
------------------ ------------------
Cash flows from operating activities:
<S> <C> <C>
Net earnings (loss) $ (42,231) 1,732
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 12,641 6,921
Deferred tax expense (benefit) (28,160) 810
Loss (gain) on disposition of assets (16,546) 14
Impairment of long lived assets 50,136 -
Amortization of unearned compensation 28 191
Amortization of deferred debt issuance costs 5,791 1,058
Changes in operating assets and liabilities,
net of noncash activities:
Trade accounts receivable 41,474 10,351
Inventories 222,449 (84,135)
Prepaid expenses (737) (2,434)
Trade accounts payable (60,216) 33,152
Inventory due under exchange
Agreements 23,894 1,303
Excise taxes payable and other
accrued liabilities 26,609 5,773
------------------ ------------------
Net cash provided (used)
by operating activities 235,132 (25,264)
------------------ ------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (45,920) (40,224)
Proceeds from sale of assets 582 -
Acquisition of Louis Dreyfus Energy Corp. - (293,057)
Investment in West Shore Pipe Line Company - (29,285)
Increase in other assets, net (563) (251)
------------------ ------------------
Net cash (used) by
investing activities (45,901) (362,817)
------------------ ------------------
Cash flows from financing activities:
Borrowings (repayments) of long-term debt, net (160,682) 399,880
Deferred debt issuance costs (2,300) (9,423)
Common stock issued 92 32
Common stock repurchased and retired - (123)
Preferred stock dividends paid (4,253) -
------------------ ------------------
Net cash provided (used)
by financing activities (167,143) 390,366
------------------ ------------------
Increase in cash
and cash equivalents 22,088 2,285
Cash and cash equivalents at beginning of period 13,927 27,215
------------------ ------------------
Cash and cash equivalents at end of period $ 36,015 29,500
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
7
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TRANSMONTAIGNE INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Six Months Ended December 31, 1999 and 1998 (Unaudited)
(In thousands)
1999 1998
------------------ ------------------
Supplemental disclosures of cash flow information:
Acquisition of Louis Dreyfus Energy Corp. ("LDEC")
<S> <C> <C>
Fair value of assets acquired $ - 456,990
Fair value of liabilities assumed - (103,498)
------------------ ------------------
- 353,492
Fair value of common stock issued - (60,435)
------------------ ------------------
Cash paid in acquisition $ - 293,057
================== ==================
Disposition of Bear Paw Energy Inc. ("BPEI")
Carrying basis of assets sold $ 114,563 -
Net gain on disposition 16,587 -
------------------ ------------------
Total consideration received $ 131,150 -
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
8
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TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999
(1) Summary of Significant Accounting Policies
Nature of Business
TransMontaigne Inc. ("TransMontaigne") provides a broad range of
integrated transportation, terminaling, storage, 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
wholly-owned subsidiaries primarily in the Mid-Continent, Gulf Coast,
Southeast, Mid-Atlantic, Northeast and Rocky Mountain regions of the
United States. TransMontaigne operations are divided into three
logistical petroleum services business segments: pipelines, which
includes transportation and delivery of refined petroleum products and
crude oil; terminals, which includes terminaling and storage of refined
petroleum products, crude oil, chemicals and other bulk liquids; and
products, which includes supply, distribution and marketing of refined
petroleum products and natural gas liquids ("NGL"); and a natural gas
services business segment which includes gathering, treating, processing,
fractionating and marketing NGL and natural gas, which was divested
effective December 31, 1999. Segment information is presented in the
notes to the condensed consolidated financial statements. TransMontaigne
does not explore for, or produce, crude oil or natural gas; and does not
own crude oil or natural gas reserves.
Basis of Presentation
The condensed consolidated financial statements included in this Form
10-Q have been prepared by 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 condensed 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 June 30, 1999.
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.
The accounting and financial reporting policies of TransMontaigne and its
subsidiaries conform to generally accepted accounting principles and
prevailing industry practices. All significant intercompany accounts and
transactions have been eliminated in consolidation.
9
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TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999
(1) Summary of Significant Accounting Policies (continued)
Inventory Risk Management
TransMontaigne utilizes derivative financial instruments to manage market
risks associated with certain energy commodities.
In connection with its products supply, distribution and marketing
business, TransMontaigne engages in trading activities. Trading
activities are accounted for using the mark-to-market method of
accounting. During the fiscal year ended June 30, 1999, TransMontaigne
adopted the provisions of Emerging Issues Task Force Issue No. 98-10,
Accounting for Contracts Involved in Energy Trading and Risk Management
Activities ("EITF 98-10"), which requires energy trading contracts to be
recorded at fair value on the balance sheet, with the changes in fair
value included in earnings.
Trading activities are conducted through a variety of financial
instruments, including forward contracts involving cash settlement or
physical delivery of energy commodities; swap contracts which require
payments to (or receipts from) counterparties based on the differential
between a fixed and variable price for the commodities; exchange-trade
options; over-the-counter options; and other contractual arrangements.
Under mark-to-market accounting, commodity and energy related contracts
are reflected at fair value with resulting gains and losses recorded in
operating income. The net gains and losses recognized in the current
period result primarily from transactions originating within the period
and the impact of current period price movements on transactions
originating in prior periods. Unrealized gains and losses from energy
trading activities are recorded as assets and liabilities.
The market value of these energy contracts is based upon management's
estimate, considering various factors including closing exchange and
over-the-counter quotations, time value and volatility factors underlying
the commitments. The market values are adjusted to reflect the potential
impact of liquidating TransMontaigne's position in an orderly manner over
a reasonable period of time under present market conditions.
TransMontaigne's Product and Risk Management Committee reviews the total
inventory and risk position on a regular basis in order to ensure
compliance with TransMontaigne's inventory management policies, including
hedging and trading activities. Policy change requires the prior approval
of the Product and Risk Management Committee and the Audit Committee of
the Board of Directors.
Recently Issued Accounting Pronouncement
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 133 establishes
accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes
in the derivative's fair value be recognized currently in earnings unless
specific hedge accounting criteria are met. SFAS 133 as amended by SFAS
137 is effective for fiscal quarters of fiscal years beginning after June
15, 2000. TransMontaigne believes that SFAS 133 will not have a material
impact on its accounting for price risk management activities.
10
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TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999
(1) Summary of Significant Accounting Policies (continued)
Reclassifications
Certain amounts in the accompanying condensed consolidated financial
statements for prior periods have been reclassified to conform to the
classifications used at December 31, 1999.
(2) Disposition of Assets
Effective December 31, 1999, TransMontaigne sold its natural gas
gathering subsidiary, Bear Paw Energy Inc., ("BPEI"), to BPE Acquisition
LLC ("BPE"), a special purpose entity formed by Bear Paw's management in
association with Thomas J. Edelman and Chase Capital Partners. The sale
of BPEI was for cash consideration of $107.5 million, plus $23.7 million
of retroactive reimbursement for all of the capital expenditures made by
TransMontaigne on BPEI's newly constructed Powder River coal seam
gathering system from July 1, 1999 to December 31, 1999. This disposition
generated an approximate $16.6 million net gain to TransMontaigne. In
addition, TransMontaigne is carrying a liability of approximately $4
million which represents the working capital shortfall as of December 31,
1999. This amount is due BPE. The $131.2 million total sale proceeds
received on January 20, 2000 were used to reduce long term debt and for
general corporate purposes.
(3) Acquisitions of Assets
On June 30, 1999, TransMontaigne, through wholly-owned subsidiaries
TransMontaigne Terminaling Inc. ("TTI") and TransMontaigne Product
Services Inc. ("TPSI"), acquired from Amerada Hess Corporation the Hess
Southeastern Pipeline Network ("Hess Terminals") of refined petroleum
product facilities for approximately $66,200,000 cash, and related
refined products inventory for $32,500,000 cash. The Hess Terminals,
which are interconnected to the Colonial and Plantation pipeline systems,
include approximately 5.3 million barrels of tankage at 11 storage and
terminal facilities and 36 miles of proprietary pipelines.
On October 30, 1998, TransMontaigne, through a wholly-owned subsidiary,
TPSI, 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. In addition,
TransMontaigne acquired LDEC's working capital for $192,492,000 cash. 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 Amoco, 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. Effective
April 1, 1999, TransMontaigne Product Services East Inc. ("TPSI-East")
was merged into its parent, TransMontaigne Product Services Inc.
TransMontaigne has accounted for these acquisitions using the purchase
method accounting as of the effective date of each transaction.
Accordingly, the purchase price of each transaction has been allocated to
the assets and liabilities acquired based upon the estimated fair value
of those assets and liabilities as of the acquisition date.
TransMontaigne received a third party appraisal in connection with the
LDEC allocation. The cash used to purchase the above acquisitions was
funded by advances from TransMontaigne's credit facility.
11
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TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999
The following summary presents unaudited actual and pro forma results of
operations. The pro forma information for the three months and six months
ended December 31, 1998 assumes that the acquisition of LDEC occurred as
of July 1, 1998, and combines the historical results of operations of
TransMontaigne for the three months and six months ended December 31,
1998 with the historical results of operations of LDEC for the three
months and six months ended December 31, 1998. The unaudited pro forma
results of operations are not necessarily indicative of the results of
operations which would actually have occurred if LDEC had been acquired
as of the beginning of the pro forma period, or which will be attained in
the future.
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<CAPTION>
Three Months Ended December 31, Six Months Ended December 31,
------------------------------------- -------------------------------------
1999 1998 1999 1998
---------------- --------------- ---------------- ---------------
(Actual) (Pro forma) (Actual) (Pro forma)
---------------- --------------- ---------------- ---------------
(In thousands, except per share (In thousands, except per share
amounts) amounts)
<S> <C> <C> <C> <C>
Revenues $ 1,323,165 987,659 2,472,032 2,054,553
================ =============== ================ ===============
Net earnings (loss) $ (37,155) (402) (42,231) 3,544
Preferred stock dividends (2,127) - (4,253) -
---------------- --------------- ---------------- ---------------
Net earnings (loss) attributable to
common stockholders $ (39,282) (402) (46,484) 3,544
================ =============== ================ ===============
Earnings (loss) per common share:
Basic $ (1.28) (0.01) (1.52) 0.12
================ =============== ================ ===============
Diluted $ (1.28) (0.01) (1.52) 0.11
================ =============== ================ ===============
</TABLE>
(4) Inventories
TransMontaigne manages inventory by utilizing risk and portfolio
management disciplines including certain hedging strategies, forward
purchases and sales, swaps and other financial instruments to manage
market exposure. In managing inventory balances and related financial
instruments, management evaluates the market exposure from an overall
portfolio basis which considers both continuous movement of inventory
balances and related open positions in commodity trading instruments.
TransMontaigne's refined petroleum products inventory consists primarily
of gasoline and distillates. Inventory is divided into inventory held for
sale or exchange in the ordinary course of business and minimum inventory
which represents working stocks (pipeline in-transit and minimum terminal
inventory), pipeline line fill and terminal tank bottoms. Minimum
inventory 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.
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.
12
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TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999
(5) Property, Plant and Equipment
Property, plant and equipment at December 31, 1999 and June 30, 1999 is
as follows (in thousands):
December 31, June 30,
1999 1999
----------------- ------------------
Land $ 14,960 15,165
Pipelines, rights of way
and equipment 35,665 33,661
Terminals and equipment 279,688 296,544
Natural gas gathering
and processing - 108,533
Other plant and equipment 23,986 20,011
----------------- ------------------
354,299 473,914
Less accumulated depreciation 30,203 37,572
----------------- ------------------
$ 324,096 436,342
================= ==================
(6) Investments
TransMontaigne, through its 65% ownership of TransMontaigne Holding Inc.,
effectively owns 18.04% of the common stock of Lion Oil Company ("Lion").
Lion owns a 65,000 barrel per day refinery in El Dorado, Arkansas; a
188-mile crude oil transportation pipeline in east Texas; a 1,100-mile
crude oil gathering system in south Arkansas and north Louisiana; and two
refined petroleum products terminals in Tennessee. At December 31, 1999
and June 30, 1999, TransMontaigne's investment in Lion, carried at cost,
was approximately $10,111,000.
TransMontaigne, through a wholly-owned subsidiary, TransMontaigne
Pipeline Inc., owns 20.38% common stock interest in West Shore Pipe Line
Company ("West Shore"). Although TransMontaigne owns 20.38%, it does not
exercise significant influence over the operations of West Shore and
therefore carries its $35,960,000 investment at cost. TransMontaigne
recorded dividend income from West Shore of $774,000 and $339,000 during
the six months ended December 31, 1999 and 1998, respectively.
(7) Impairment on long lived assets
During the three months ended December 31, 1999, TransMontaigne recorded
non-cash impairment charges totaling $50.1 million, before income taxes.
These charges include $31.9 million relating to certain of
TransMontaigne's refined petroleum product terminals added in the 1998
acquisition of LDEC and $18.2 million relating to certain intangible
assets recorded as a result of the same acquisition. In accordance with
generally accepted accounting principles, TransMontaigne is required to
review the book values of long lived assets for impairment. In
calculating this impairment charge, TransMontaigne applied FAS 121 in
estimating future cash flows by terminal, discounting those estimated
future cash flows at a 10% rate, which approximates TransMontaigne's cost
of capital, and then comparing the discounted future cash flows to the
net book value of each terminal. The impairment charge resulted from the
change in the planned use of certain terminals and the abandonment of a
pipeline that supplied one terminal, thereby significantly impacting the
economic viability of such terminals. Each of these factors reduced or
eliminated future cash flows. The $31.9 million impairment charge for the
terminals reduces the book value of these assets to their estimated fair
value as determined in TransMontaigne's impairment analysis.
The additional $18.2 million impairment charge for the intangible assets
represents the unamortized balance of these assets. Management's review
of the market location differentials associated with these assets showed
that TransMontaigne received little or no value from these assets in the
last twelve months. In addition, management does not anticipate any
material future value utilizing these assets.
13
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TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999
(8) Long-term Debt
Long-term debt at December 31, 1999 and June 30, 1999 is as follows (in
thousands):
December 31, June 30,
1999 1999
--------- ----------
Line of credit $ 260,000 418,690
Senior promissory notes 75,000 75,000
12 3/4% senior subordinated debentures, net
of discount 1,990 3,982
--------- ----------
336,990 497,672
Less current maturity 1,990 2,000
--------- ----------
$ 335,000 495,672
========= ==========
TransMontaigne's bank credit facility consisted of a $600,000,000 credit
facility led by BankBoston, N.A. The credit facility includes a
$400,000,000 revolving component due December 31, 2003 and a $200,000,000
term component due June 30, 2006. The term component has quarterly
principal payments required beginning in September 2000. Borrowings under
this credit facility bear interest at an annual rate equal to the
lender's Alternate Base Rate plus margins, subject to a Eurodollar Rate
pricing option at TransMontaigne's election. The average interest rate at
December 31, 1999 was 8.7%. In December 1999, TransMontaigne entered into
an agreement to sell its subsidiary, BPEI, and utilized the proceeds to
pay down its long term debt (see Note 2). In anticipation of these
paydowns, TransMontaigne amended its bank credit facility and Master
Shelf Agreement effective December 31, 1999. The amended bank credit
facility was reduced to a $395,000,000 credit facility consisting of a
$300,000,000 revolving component and $95,000,000 term component. On
January 20, 2000, TransMontaigne paid down $105,000,000 of its
$200,000,000 term loan with a portion of the proceeds from the sale of
BPEI.
In April 1997, TransMontaigne entered into a Master Shelf Agreement with
an institutional lender which provides that the lender will agree to
quote, from time to time, an interest rate at which the lender would be
willing to purchase, on an uncommitted basis, up to $100 million of
TransMontaigne's senior promissory notes which will mature in no more
than 12 years, with an average life not in excess of 10 years. On April
17, 1997 and December 16, 1997, TransMontaigne sold $50,000,000 of 7.85%
and $25,000,000 of 7.22% Senior Notes due April 17, 2003 and October 17,
2004, respectively. Under the amended Master Shelf Agreement the
commitment was reduced to $75,000,000. On January 20, 2000,
TransMontaigne paid down $25,000,000 of the $50,000,000 of 7.85% senior
notes with a portion of the proceeds from the sale of BPEI.
Each of the amended bank credit facility and amended Master Shelf
Agreement is secured by certain current assets and fixed assets, and each
also includes financial tests relating to fixed charge coverage, current
ratio, maximum leverage ratio, consolidated tangible net worth,
distributions and open inventory positions. As of December 31, 1999,
TransMontaigne was in compliance with all such tests contained in the
amended agreements.
At December 31, 1999 TransMontaigne had an outstanding balance of
$2,000,000 of the originally issued $4,000,000 of 12.75% senior
subordinated debentures which are guaranteed by certain subsidiaries.
TransMontaigne paid the $2,000,000 scheduled payment in December 1999.
The outstanding debentures are subject to a required redemption on
December 15, 2000. The debentures may be prepaid prior to maturity at a
premium, under certain circumstances. In conjunction with the issuance of
these debentures, TransMontaigne issued warrants to purchase 248,686
shares of its common stock.
Cash payments for interest were approximately $15,394,000 and $8,791,000
for the six months ended December 31, 1999 and 1998, respectively.
14
<PAGE>
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999
(9) Stockholders' Equity
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 (the "Units"). Each Unit consists of one share of 5% convertible
preferred stock (the "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. TransMontaigne may redeem the Preferred
Stock on December 31, 2003 at the liquidation value of $1,000 per share
plus any accrued but unpaid dividends. If the Preferred Stock remains
outstanding after December 31, 2003, the dividend rate will increase to
an annual rate of 16%. The 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 were used to reduce
bank debt incurred in connection with the LDEC acquisition and for
general corporate purposes.
(10) Restricted Stock
TransMontaigne has a restricted stock plan that provides for awards of
common stock to certain key employees, subject to forfeiture if
employment terminates prior to the vesting dates. The market value of
shares awarded under the plan is recorded in stockholders' equity as
unearned compensation. During the six months ended December 31, 1999 and
1998, the TransMontaigne Compensation Committee of the Board of Directors
awarded 100,000 and 12,000 shares to certain key employees, respectively.
At March 25, 1999, the vesting of all the 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 $27,500 and $190,906 is included in general and
administrative expense for the six months ended December 31, 1999 and
1998, respectively.
(11) Litigation
TransMontaigne is a party to various claims and litigation in its normal
course of business. Although no assurances can be given, TransMontaigne
management believes that the ultimate resolution of such claims and
litigation, individually or in the aggregate, will not have a materially
adverse impact on TransMontaigne's financial position or its results of
operations.
15
<PAGE>
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999
(12) Earnings Per Share
<TABLE>
<CAPTION>
The following table reconciles the computation of basic EPS and diluted
EPS for the six months and three months ended December 31, 1999 and 1998:
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------- -----------------------------
1999 1998 1999 1998
-------------- --------------- ----------- --------------
(In thousands, (In thousands,
except per share amounts) except per share amounts)
<S> <C> <C> <C> <C>
Net earnings (loss) $ (37,155) (292) (42,231) 1,732
Preferred stock dividends (2,127) - (4,253) -
-------------- --------------- ----------- --------------
Net earnings (loss) attributable to common
stockholders for basic EPS (39,282) (292) (46,484) 1,732
Effect of dilutive securities - - - -
-------------- --------------- ----------- --------------
Net earnings (loss) attributable to common
stockholders for diluted EPS $ (39,282) (292) (46,484) 1,732
============== =============== =========== ==============
Basic weighted-average shares 30,592 28,976 30,538 27,469
Effect of dilutive securities:
Stock options - - - 548
Stock warrants - - - 184
-------------- --------------- ----------- --------------
Diluted weighted-average shares 30,592 28,976 30,538 28,201
============== =============== =========== ==============
Earnings (loss) per shares:
Basic $ (1.28) (0.01) (1.52) 0.06
============== =============== =========== ==============
Diluted $ (1.28) (0.01) (1.52) 0.06
============== =============== =========== ==============
</TABLE>
16
<PAGE>
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999
(13) Business Segments
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 conducts its business through five segments:
o Products - consists of services for the supply and distribution of
refined petroleum products through product exchanges, and bulk
purchases and sales in the physical, futures cash and New York
Mercantile Exchange ("NYMEX") markets, and the marketing of
refined petroleum products and NGL to retail, wholesale and
industrial customers at truck terminal rack locations, and
providing related value-added fuel procurement and management
services.
o Terminals - consists of services provided through the ownership
and/or operation of terminaling and storage facilities handling
petroleum products, chemicals and other bulk liquids with receipt
and delivery connections via pipelines, barges, tankers, rail cars
and trucks.
o Pipelines - consists of services provided through the ownership
and operation of refined petroleum product pipelines, and a crude
oil gathering pipeline system, and related delivery and storage
facilities with interconnections to other pipelines and to
terminaling, storage delivery facilities.
o Natural gas - consists of services provided through the ownership
and operation of natural gas pipeline gathering systems,
processing plants and related facilities for the gathering,
treating, processing, fractionating and reselling of natural gas
and NGL.
o Corporate - consists of assets and corporate income and expense
not specifically included in other business segments.
Eliminations represent intercompany transactions between TransMontaigne's
business segments, primarily relating to services performed by the
terminals and pipelines segments for and sales of NGL by the natural gas
segment to the product segment.
For the three and six months ended December 31, 1999, revenues;
depreciation and amortization; operating income; and capital expenditure
amounts for the natural gas segment reflect the activities prior to the
sale of this subsidiary effective December 31, 1999 (see Note 2).
Accordingly, no identifiable assets are shown for this segment at
December 31, 1999. Also, operating income for the products segment does
not include the $18,236,000 expense and the terminals segment does not
include the $31,900,000 expense related to the impairment of long lived
assets for the three months and six months ended December 31, 1999.
17
<PAGE>
TRANSMONTAIGNE INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999
(13) Business Segments (continued)
Information about TransMontaigne's business segments for the three months
and six months ended December 31, 1999 and 1998 is summarized below (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------- -----------------------------
1999 1998 1999 1998
--------------- -------------- ------------- ------------
Revenues:
<S> <C> <C> <C> <C>
Products $ 1,303,295 733,057 2,434,327 1,179,815
Terminals 16,121 8,987 31,828 15,379
Pipelines 4,061 3,382 8,026 7,866
Natural gas 21,579 13,926 39,620 27,224
Corporate 416 429 864 809
Eliminations (22,307) (18,481) (42,633) (26,672)
--------------- -------------- ------------- ------------
Total consolidated $ 1,323,165 741,300 2,472,032 1,204,421
=============== ============== ============= ============
Depreciation and amortization:
Products $ 214 5 491 10
Terminals 3,535 2,146 6,975 2,966
Pipelines 355 260 693 512
Natural gas 1,571 1,439 3,141 2,930
Corporate 720 278 1,341 503
--------------- -------------- ------------- ------------
Total consolidated $ 6,395 4,128 12,641 6,921
=============== ============== ============= ============
Operating income (loss):
Products $ (20,860) 5,046 (25,735) 6,413
Terminals 3,020 2,824 6,102 5,230
Pipelines 591 543 1,744 2,245
Natural gas 3,465 803 5,262 1,348
Corporate (683) (1,950) (1,133) (2,400)
--------------- -------------- ------------- ------------
Total consolidated $ (14,467) 7,266 (13,760) 12,836
=============== ============== ============= ============
Identifiable assets:
Products $ 293,465 475,930 293,465 475,930
Terminals 282,300 246,332 282,300 246,332
Pipelines 66,054 63,459 66,054 63,459
Natural gas - 93,817 - 93,817
Corporate 241,875 69,118 241,875 69,118
Eliminations (5,475) (17,562) (5,475) (17,562)
--------------- -------------- ------------- ------------
Total consolidated $ 878,219 931,094 878,219 931,094
=============== ============== ============= ============
Capital expenditures:
Products $ - - - -
Terminals 8,938 17,694 16,254 29,594
Pipelines 1,161 1,417 2,005 5,811
Natural gas 18,015 1,189 24,265 2,526
Corporate 1,375 1,271 3,396 2,293
--------------- -------------- ------------- ------------
Total consolidated $ 29,489 21,571 45,920 40,224
=============== ============== ============= ============
</TABLE>
18
<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,
storage, 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 wholly-owned
subsidiaries primarily in the Mid-Continent, Gulf Coast, Southeast,
Mid-Atlantic, Northeast and Rocky Mountain regions of the United States.
TransMontaigne operations are divided into three logistical petroleum services
business segments: pipelines, which includes transportation and delivery of
refined petroleum products and crude oil; terminals, which includes terminaling
and storage of refined petroleum products, crude oil, chemicals and other bulk
liquids; and products, which includes supply, distribution and marketing of
refined petroleum products and natural gas liquids; and a natural gas services
business segment which includes gathering, treating, processing, fractionating
and marketing natural gas liquids ("NGL") and natural gas, which was divested
effective December 31, 1999. Segment information is presented in the notes to
the condensed consolidated financial statements. TransMontaigne does not explore
for, or produce, crude oil or natural gas; and does not own crude oil or natural
gas reserves.
TransMontaigne owns and operates refined petroleum products, chemicals, other
bulk liquids, crude oil and natural gas assets. TransMontaigne's refined
petroleum products, chemicals, other bulk liquids and crude oil assets consist
primarily of 3 pipeline systems with approximately 850 miles of petroleum
products and crude oil pipeline and 73 terminal, storage and delivery facilities
located in 19 states with a combined tank storage capacity of 20,000,000
barrels. Effective December 31, 1999, TransMontaigne sold its natural gas
gathering and processing assets which consisted of 6 gathering and processing
systems in 4 states and 1 Canadian province with combined throughput capacity of
115 million cubic feet per day and over 2,900 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.
ACQUISITIONS
On June 30, 1999, TransMontaigne acquired from Amerada Hess Corporation the Hess
Terminals for approximately $66,200,000 cash and related refined products
inventory for approximately $32,500,000 cash. The Hess Terminals, which are
interconnected to the Colonial and Plantation pipeline systems, include
approximately 5.3 million barrels of tankage at 11 storage and terminal
facilities and 36 miles of proprietary pipelines.
On October 30, 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. In addition,
TransMontaigne acquired LDEC's working capital for $192,492,000 cash. 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 Amoco,
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.
19
<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. Important factors which could cause actual
results to differ materially from those in the forward looking statements herein
include but are not limited to the following: TransMontaigne's success in
expanding its business by capitalizing on the trend by other companies in the
oil and gas industry to divest assets and outsource certain services,
TransMontaigne will generate net operating margins affected by price volatility
of products purchased and sold, TransMontaigne will enter into transactions with
counterparties having the ability to meet their financial commitments to
TransMontaigne, TransMontaigne will not incur unanticipated costs in complying
with current and future environmental regulations, TransMontaigne will generate
working capital internally, or have the ability to access debt and equity
resources, to meet its capital requirements, operating and financial risk
related to managing rapid growth. Although TransMontaigne believes that its
expectations are based on reasonable assumptions, it can give no assurance that
its goals will be achieved.
RESULTS OF OPERATIONS
TransMontaigne reported a net loss of $37,155,000 for the three months ended
December 31, 1999, compared to net loss of $292,000 for the three months ended
December 31, 1998, a decrease of $36,863,000. After preferred stock dividends,
net loss attributable to common stockholders were $39,282,000 and $292,000 for
the three months ended December 31, 1999 and 1998, respectively. Loss per common
share for the three months ended December 31, 1999 was $(1.28) basic and diluted
based on 30,592,000 weighted average basic and diluted shares outstanding
compared to $(.01) basic and diluted for the three months ended December 31,
1998.
TransMontaigne reported a net loss of $42,231,000 for the six months ended
December 31, 1999, compared to net earnings of $1,732,000 for the six months
ended December 31, 1998, a decrease of $43,963,000. After preferred stock
dividends, net earnings (loss) attributable to common stockholders were
$(46,484,000) and $1,732,000 for the six months ended December 31, 1999 and
1998, respectively. Loss per common share for the six months ended December 31,
1999 was $(1.52) basic and diluted based on 30,538,000 weighted average basic
and diluted shares outstanding compared to earnings per share of $.06 basic and
diluted for the six months ended December 31, 1998.
Included in TransMontaigne's net loss for the three months and six months ended
December 31, 1999 is an impairment charge on long lived assets of approximately
$50.1 million ($30 million after tax) which was offset by a gain on the sale of
BPEI of approximately $16.6 million ($10 million after tax).
20
<PAGE>
RESULTS OF OPERATIONS (continued)
Selected financial data from TransMontaigne's business segments are summarized
below (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
Net operating margins (1):
Product operations:
<S> <C> <C> <C> <C>
Products $ (12,780) 6,449 (9,457) 8,777
Costs related to minimum inventory (2) (5,313) - (10,426) -
----------- ----------- ----------- ----------
(18,093) 6,449 (19,883) 8,777
Terminal operations 8,135 5,310 16,177 8,833
Pipeline operations 1,639 1,662 3,797 4,380
Natural gas services operations 6,072 3,155 10,490 5,984
----------- ----------- ----------- ----------
Total net operating margins (2,247) 16,576 10,581 27,974
Impairment to long lived assets 50,136 - 50,136 -
General and administrative expenses 5,825 5,182 11,700 8,217
Depreciation and amortization expenses 6,395 4,128 12,641 6,921
----------- ----------- ----------- ----------
Operating income (loss) (64,603) 7,266 (63,896) 12,836
Interest expense and related financing costs (14,493) (8,456) (25,038) (11,140)
Dividend and interest income 578 720 1,956 1,098
Gain on sale of Bear Paw Energy Inc. 16,587 - 16,587 -
Income tax (expense) benefit 24,776 178 28,160 (1,062)
----------- ----------- ----------- ----------
Net earnings (loss) (37,155) (292) (42,231) 1,732
Preferred stock dividends (2,127) - (4,253) -
----------- ----------- ----------- ----------
Net earnings (loss) attributable to common stockholders $ (39,282) (292) (46,484) 1,732
=========== =========== =========== ==========
</TABLE>
(1) Net operating margins represent revenues less product costs and operating
expenses for the product and natural gas services segments and revenues
less operating expenses for terminal and pipeline operations.
(2) TransMontaigne did not measure the costs related to its minimum inventory
separately in the prior periods since it was not on mark to market
accounting for its inventories. Therefore, there is not a comparable amount
for the prior period.
Selected volumetric data for TransMontaigne's business segments are summarized
below:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------- -------------------------
1999 1998 1999 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Products volumes - barrels per day 690,748 398,855 724,527 334,700
Terminal volumes - barrels per day 509,024 287,359 506,610 222,969
Pipeline volumes - barrels per day 80,014 61,391 80,235 67,195
Natural gas volumes:
Inlet - million cubic feet per day 80 58 74 58
NGL production - barrels per day 6,608 7,087 6,708 6,972
Residue production - million British Thermal Units per day 44,183 46,439 44,497 47,030
Note: 1 barrel equals 42 gallons
</TABLE>
21
<PAGE>
THREE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 1998
Product Operations
Product revenues and fees are generated from bulk sales and exchanges of refined
petroleum products to major energy companies and large independent energy
companies; wholesale distribution and sales of refined petroleum products to
jobbers and retailers; regional and national industrial end-user and commercial
wholesale storage and forward sales marketing contracts of refined petroleum
products; and tailored short and long-term fuel margin and risk management
arrangements to wholesale, retail and industrial end-users. 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; arbitrage location product prices differentials and
transportation costs; store the inventory; and, depending upon market
conditions, realize margins through sales in the futures cash market or NYMEX
contracts. All energy related contracts are marked to market with changes being
recognized in operations. Margin and risk management 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 through
non-proprietary pipeline, terminal, truck, rail and barge distribution channels.
TransMontaigne's refined petroleum products inventory consists primarily of
gasoline and distillates. Inventory is divided into inventory held for sale or
exchange in the ordinary course of business and minimum inventory which
represents working stocks (pipeline in-transit and minimum terminal inventory),
pipeline line fill and terminal tank bottoms. Minimum inventory 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.
Product costs of product operations consist primarily of the cost of products
purchased, but also include transportation, storage, terminaling and sales
commission costs. In addition, product costs include the market valuation change
of the refined petroleum products minimum inventory.
Operating expenses of product operations primarily include wages and employee
benefits, property taxes, travel and entertainment expenses.
The net operating loss from product operations for the three months ended
December 31, 1999 was $18,093,000, which includes $5,313,000 costs related to
minimum inventory and an increase of $1,750,000 in the reserve for doubtful
accounts. This net operating loss compares to a net operating margin of
$6,449,000 for the three months ended December 31, 1998. Revenues were
$1,303,295,000 for the three months ended December 31, 1999 compared to
$733,057,000 for the three months ended December 31, 1998, an increase of
$570,238,000. Revenue increases were due to an increase in barrels sold, which
included the liquidation of discretionary barrels held; an increase in the price
per barrel of refined petroleum products over the prior year quarter; and the
inclusion of three months of LDEC operations, whereas the prior year quarter had
only two months of operations.
TransMontaigne's continued strategy of hedging its inventory resulted in no
benefit from the significant price increase of crude oil and refined petroleum
products during the three months ended December 31, 1999. For the three months
ended December 31, 1999, the petroleum market pricing structure, as indicated by
the NYMEX futures market, was in an inverse for gasoline of approximately $.021
per gallon, i.e., nearby futures prices were higher than the succeeding periods.
This compares to a $.015 carry, i.e., nearby futures prices were lower than
succeeding periods, for the same period in 1998. For the quarter ended December
31, 1999, the distillate market began a carry of approximately $.011 and then
moved into an inverse of $.024 per gallon by the end of the quarter. This
compares to $.021 average carry for the same period in 1998. TransMontaigne
obtains maximum margin by utilizing its storage space and inventory positions
when the market structure is in a carry. The continued gasoline inverse, the
distillate carry moving to an inverse, and the abnormal price relationship
between crude oil and distillates, costs related to minimum inventory and the
increased reserve for doubtful accounts resulted in the $18,093,000 net
operating loss for the three months ended December 31, 1999.
22
<PAGE>
Terminal Operations
Terminal revenues are based on the volume of refined petroleum products handled
at TransMontaigne terminal loading racks, generally at a standard per gallon
rate. 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.
Operating expenses of terminal operations include wages and employee benefits,
utilities, communications, maintenance and repairs, property taxes, rent,
insurance, vehicle expenses, environmental compliance costs, materials and
supplies.
The net operating margin from terminal operations for the three months ended
December 31, 1999 was $8,135,000 compared to $5,310,000 for the three months
ended December 31, 1998, an increase of $2,825,000. The margin per barrel for
the three months ended December 31, 1999 of $.17 decreased $.03 compared to the
three months ended December 31, 1998. The increase in net operating margin
resulted from a $7,134,000 increase in revenues which was partially offset by a
$4,309,000 increase in operating costs. These increases were the result of
terminal acquisitions during the past year and the related additional 20,393,000
barrels handled. The decrease in the margin per barrel resulted from increased
handling of lower margin activity and increased operating costs, which included
approximately $800,000 resulting from terminal inventory theft.
Pipeline Operations
Pipeline revenues are based on the volume of refined petroleum products or crude
oil transported and the distance from the origin point to the delivery point.
TransMontaigne's interstate pipeline systems transport refined petroleum
products and their tariffs are regulated by the Federal Energy Regulatory
Commission ("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.
Operating expenses of pipeline operations include wages and employee benefits,
utilities, communications, maintenance and repairs, property taxes, rent,
insurance, vehicle expenses, environmental compliance costs, materials and
supplies.
The net operating margin from pipeline operations for the three months ended
December 31, 1999 was $1,639,000 compared to $1,662,000 for the three months
ended December 31, 1998, a decrease of $23,000. The margin per barrel for the
three months ended December 31, 1999 of $.22 decreased $.07 compared to the
three months ended December 31, 1998. Pipeline volumes per day increased 18,600
barrels primarily due to increased short haul movements in the East Chicago
area. The decreases in the net operating margin and the margin per barrel
resulted from a decrease in higher tariff movements, a minimal increase in
operating costs and the transfer of non-carrier assets and their associated
margins to terminal operations.
Natural Gas Services Operations
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 residue natural
gas and NGL products, principally propane, butane and natural gasoline. The NGL
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. The residue natural gas is delivered to and marketed through
connections with third-party interstate natural gas pipelines.
Product costs of natural gas services operations consist primarily of the cost
of product purchased and transportation costs.
Operating expenses of natural gas services operations include wages and employee
benefits, utilities, maintenance and repairs, property taxes, rent, insurance,
vehicle expenses, environmental compliance costs, materials and supplies.
The net operating margin from natural gas services operations for the three
months ended December 31, 1999 was $6,072,000 compared to $3,155,000 for the
three months ended December 31, 1998, an increase of $2,917,000. Revenues for
the three months ended December 31, 1999 were $21,579,000 compared to
$13,926,000 for the three months ended December 31, 1998, an increase of
$7,653,000. Increases in net operating margin and revenues were attributable
primarily to the higher NGL product prices, notwithstanding a decrease in NGL
and residue natural gas production and increased gathering fees.
23
<PAGE>
Corporate and Other
General and administrative expenses for the three months ended December 31, 1999
were $5,825,000 compared to $5,182,000 for the three months ended December 31,
1998, an increase of $643,000. The increase was due primarily to additional
personnel costs and related employee benefits; increased office lease rentals
and increased communication expenses directly attributable to the continued
expansion of TransMontaigne's integrated logistical petroleum services and to
the acquisition and operation of LDEC and the Hess Terminals; and additional
personnel costs related to a separation and release agreement.
Depreciation and amortization expenses for the three months ended December 31,
1999 were $6,395,000 compared to $4,128,000 for the three months ended December
31, 1998, an increase of $2,267,000. The increase was due primarily to terminal
related assets being acquired and constructed during the past year.
Dividend income for the three months ended December 31, 1999 was $283,000
compared to $339,000 for the three months ended December 31, 1998, a decrease of
$56,000. The dividend income is solely from West Shore. Increased operating
expenses at West Shore resulted in the decreased dividends. Interest income for
the three months ended December 31, 1999 was $295,000 compared to $381,000 for
the three months ended December 31, 1998, a decrease of $86,000. The decrease in
interest income was due primarily to the decrease in interest bearing cash
balances.
Interest expense, amortization of deferred debt issuance costs, and other
financing costs during the three months ended December 31, 1999 were $14,493,000
compared to $8,456,000 during the three months ended December 31, 1998, an
increase of $6,037,000. The increase in interest expense of $2,094,000 was due
to increased average interest rates from 7.2% to 8.8% notwithstanding a decrease
in average outstanding debt of $17,000,000, and $875,000 expenses related to
prepayment of outstanding long-term debt. Amortization of deferred debt issuance
costs increased $4,005,000 largely due to write off of approximately $3,845,000
due to the amended debt agreements.
Income tax benefit was $24,776,000 for the three months ended December 31, 1999,
which represents an effective combined federal and state income tax rate of 40%.
Income tax benefit was $178,000 for the three months ended December 31, 1998,
which represents an effective combined federal and state income tax rate of 38%.
The net loss for the three months ended December 31, 1999 was $37,155,000
compared to net loss of $292,000 for the three months ended December 31, 1998, a
decrease of $36,863,000. The net loss resulted primarily from the negative $18.1
million net operating margin contribution from products operations which
includes $5.3 million costs related to minimum inventory; the $50.1 million
impairment charge; increased general and administrative expenses; additional
depreciation and amortization expenses attributable to the acquisitions and
facilities expansion projects; increased interest expense, primarily
attributable to the financing of acquisitions during the past year and related
increased working capital requirements; and an approximately $3.8 million charge
to amortization of deferred debt issuance costs due to the amended debt
agreements. The net loss was partially offset by increased net operating margin
contributions from terminal operations and natural gas services operations; the
$16.6 million gain on the sale of Bear Paw Energy Inc.; and the $24.8 million
net deferred tax benefit.
Preferred stock dividends on the Series A Convertible Preferred Stock were
$2,127,000 for the three months ended December 31, 1999. The preferred stock
dividends were paid December 31, 1999.
24
<PAGE>
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO
SIX MONTHS ENDED DECEMBER 31, 1998
Product Operations
Product revenues and fees are generated from bulk sales and exchanges of refined
petroleum products to major energy companies and large independent energy
companies; wholesale distribution and sales of refined petroleum products to
jobbers and retailers; regional and national industrial end-user and commercial
wholesale storage and forward sales marketing contracts of refined petroleum
products; and tailored short and long-term fuel margin and risk management
arrangements to wholesale, retail and industrial end-users. 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; arbitrage location product prices differentials and
transportation costs; store the inventory; and, depending upon market
conditions, realize margins through sales in the futures cash market or NYMEX
contracts. All energy related contracts are marked to market with changes being
recognized in operations. Margin and risk management 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 through
non-proprietary pipeline, terminal, truck, rail and barge distribution channels.
TransMontaigne's refined petroleum products inventory consists primarily of
gasoline and distillates. Inventory is divided into inventory held for sale or
exchange in the ordinary course of business and minimum inventory which
represents working stocks (pipeline in-transit and minimum terminal inventory),
pipeline line fill and terminal tank bottoms. Minimum inventory 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.
Product costs of product operations consist primarily of the cost of products
purchased, but also include transportation, storage, terminaling and sales
commission costs. In addition, product costs include the market valuation change
of the refined petroleum products minimum inventory.
Operating expenses of product operations primarily include wages and employee
benefits, property taxes, travel and entertainment expenses.
The net operating loss from product operations for the six months ended December
31, 1999 was $19,883,000, which includes a $10,426,000 costs related to minimum
inventory and an increase of $1,750,000 in the reserve for doubtful accounts.
This net operating loss compares to a net operating margin of $8,777,000 for the
six months ended December 31, 1998. Revenues were $2,434,327,000 for the six
months ended December 31, 1999 compared to $1,179,815,000 for the six months
ended December 31, 1998, an increase of $1,254,512,000. Revenue increases were
due to an increase in barrels sold, which included the liquidation of
discretionary barrels held; an increase in the price per barrel of refined
petroleum products over the prior year; and the inclusion of six months of LDEC
operations, whereas the prior year had only two months of operations.
TransMontaigne's strategy of hedging its inventory resulted in no benefit from
the significant price increase of crude oil and refined petroleum products
during the six months ended December 31, 1999. For the six months ended December
31, 1999, the petroleum market pricing structure, as indicated by the NYMEX
futures market, was in an inverse for gasoline of approximately $.028 per
gallon, i.e., nearby futures prices were higher than the succeeding periods.
This compares to a $.010 carry, i.e., nearby futures prices were lower than
succeeding periods, for the same period in 1998. For the six months ended
December 31, 1999, the distillate market was in an average carry of
approximately $.003 as compared to $.024 for the same period in 1998.
TransMontaigne obtains maximum margin by utilizing its storage space and
inventory positions when the market structure is in a carry. The gasoline
inverse, diminished distillate carry, and abnormal price relationships between
crude oil and distillate during the fourth calendar quarter, costs related to
minimum inventory and the increased reserve for doubtful accounts resulted in
the approximate $19,883,000 net operating loss for the six months ended December
31, 1999.
25
<PAGE>
Terminal Operations
Terminal revenues are based on the volume of refined petroleum products handled
at TransMontaigne terminal loading racks, generally at a standard per gallon
rate. 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.
Operating expenses of terminal operations include wages and employee benefits,
utilities, communications, maintenance and repairs, property taxes, rent,
insurance, vehicle expenses, environmental compliance costs, materials and
supplies.
The net operating margin from terminal operations for the six months ended
December 31, 1999 was $16,177,000 compared to $8,833,000 for the six months
ended December 31, 1998, an increase of $7,344,000. The margin per barrel for
the six months ended December 31, 1999 of $.17 decreased $.04 compared to the
six months ended December 31, 1998. The increase in net operating margin
resulted from a $16,449,000 increase in revenues which was partially offset by a
$9,105,000 increase in operating costs. These increases were the result of
terminal acquisitions during the past year and the related additional 52,190,000
barrels handled. The decrease in the margin per barrel resulted from increased
handling of lower margin activity, and increased operating costs which included
approximately $800,000 resulting from terminal inventory theft.
Pipeline Operations
Pipeline revenues are based on the volume of refined petroleum products or crude
oil transported and the distance from the origin point to the delivery point.
TransMontaigne's interstate pipeline systems transport refined petroleum
products and their tariffs are regulated by the Federal Energy Regulatory
Commission ("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.
Operating expenses of pipeline operations include wages and employee benefits,
utilities, communications, maintenance and repairs, property taxes, rent,
insurance, vehicle expenses, environmental compliance costs, materials and
supplies.
The net operating margin from pipeline operations for the six months ended
December 31, 1999 was $3,797,000 compared to $4,380,000 for the six months ended
December 31, 1998, a decrease of $583,000. The margin per barrel for the six
months ended December 31, 1999 of $.26 decreased $.10 compared to the six months
ended December 31, 1998. Pipeline volumes per day increased 13,040 barrels
primarily due to increased short haul movements in the East Chicago area. The
decreases in the net operating margin and the margin per barrel resulted from a
decrease in higher tariff movements, an increase in operating costs, and the
transfer of non-carrier assets and their associated margins to terminal
operations.
Natural Gas Services Operations
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 residue natural
gas and NGL products, principally propane, butane and natural gasoline. The NGL
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. The residue natural gas is delivered to and marketed through
connections with third-party interstate natural gas pipelines.
Product costs of natural gas services operations consist primarily of the cost
of product purchased and transportation costs.
Operating expenses of natural gas services operations include wages and employee
benefits, utilities, maintenance and repairs, property taxes, rent, insurance,
vehicle expenses, environmental compliance costs, materials and supplies.
The net operating margin from natural gas services operations for the six months
ended December 31, 1999 was $10,490,000 compared to $5,984,000 for the six
months ended December 31, 1998, an increase of $4,506,000. Revenues for the six
months ended December 31, 1999 were $39,620,000 compared to $27,224,000 for the
six months ended December 31, 1998, an increase of $12,396,000. Increases in net
operating margin and revenues were attributable primarily to the higher NGL
product prices, notwithstanding a decrease in NGL and residue natural gas
production and increased gathering fees.
26
<PAGE>
Corporate and Other
General and administrative expenses for the six months ended December 31, 1999
were $11,700,000 compared to $8,217,000 for the six months ended December 31,
1998, an increase of $3,483,000. The increase was due primarily to additional
personnel costs and related employee benefits, increased office lease rentals
and increased communication expenses directly attributable to the continued
expansion of TransMontaigne's integrated logistical petroleum services and to
the acquisition and operation of LDEC and the Hess Terminals and additional
personnel costs related to separation and release agreements.
Depreciation and amortization expenses for the six months ended December 31,
1999 were $12,641,000 compared to $6,921,000 for the six months ended December
31, 1998, an increase of $5,720,000. The increase was due primarily to terminal
related assets being acquired and constructed during the past year.
Dividend income for the six months ended December 31, 1999 was $774,000 compared
to $339,000 for the six months ended December 31, 1998, an increase of $435,000.
Dividend income is solely from West Shore, and includes only three months of
activity for prior six month period. Interest income for the six months ended
December 31, 1999 was $1,182,000 compared to $759,000 for the six months ended
December 31, 1998, an increase of $423,000. The increase in interest income was
due primarily to the increase in interest bearing cash balances.
Interest expense, amortization of deferred debt issuance costs, and other
financing costs during the six months ended December 31, 1999 were $25,038,000
compared to $11,140,000 during the six months ended December 31, 1998, an
increase of $13,898,000. The increase in interest expense of $9,107,000 was due
to a $153,000,000 increase in average outstanding debt, primarily to fund
acquisitions and increased working capital requirements, increased average
interest rates from 7.2% to 8.5% and $875,000 expense related to prepayment of
outstanding long-term debt. Amortization of deferred debt issuance costs
increased $4,733,000 largely due to write off of approximately $3,845,000 due to
the amended debt agreements.
Income tax benefit was $28,160,000 for the six months ended December 31, 1999,
which represents an effective combined federal and state income tax rate of 40%.
Income tax expense was $1,062,000 for the six months ended December 31, 1998,
which represents an effective combined federal and state income tax rate of 38%.
The net loss for the six months ended December 31, 1999 was $42,231,000 compared
to net earnings of $1,732,000 for the six months ended December 31, 1998, a
decrease of $43,963,000. The net loss resulted primarily from the negative $19.9
million net operating margin from products operations which includes $10.4
million costs related to minimum inventory; the $50.1 million impairment charge;
increased general and administrative expenses; additional depreciation and
amortization expenses attributable to the acquisitions and facilities expansion
projects; increased interest expense, primarily attributable to the financing of
acquisitions during the past year and related increased working capital
requirements; and an approximate $3.8 million charge to amortization of deferred
debt issuance costs due to the amended debt agreements. The net loss was
partially offset by increased net operating margin contributions from terminal
operations and natural gas services operations, the $16.6 million gain on the
sale of Bear Paw Energy Inc., and the $28.2 million net deferred tax benefit.
Preferred stock dividends on the Series A Convertible Preferred Stock were
$4,253,000 for the six months ended December 31, 1999.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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 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 current capital
requirements.
Net cash provided by operating activities was $235,132,000 for the six months
ended December 31, 1999, which was attributable primarily to decreased
inventories and trade accounts receivable, reduced by decreased trade accounts
payable and the net loss. Net cash used by operating activities was $25,264,000
for the six months ended December 31, 1998, which was attributable primarily to
increased inventories and reduced by decreased trade accounts receivable and
increased trade accounts payable.
Net cash used by investing activities was $45,901,000 during the six months
ended December 31, 1999 as TransMontaigne continued its growth through
construction and improvements to existing operating facilities. Net cash used by
investing activities was $362,817,000 during the six months ended December 31,
1998, which included the acquisitions of LDEC, the Southwest Terminal, a 15.38%
common stock interest in West Shore, and enhancements to the pipeline and
terminal facilities.
Net cash used by financing activities for the six months ended December 31, 1999
was $167,143,000, which primarily represented net repayments of $160,682,000
under TransMontaigne's bank credit facility. Net cash provided by financing
activities for the six months ended December 31, 1998 of $390,366,000
represented borrowings under TransMontaigne's bank credit facility primarily
used to finance the acquisition of LDEC, other capital expenditures and
operations.
TransMontaigne amended its bank credit facility, effective as of December 31,
1999. The amended bank credit facility includes a $300,000,000 revolving
component due December 31, 2003 and a $95,000,000 term component due June 30,
2006. The term component has quarterly principal payments required beginning in
September 2000. Borrowings under this credit facility bear interest at an annual
rate equal to the lender's Alternate Base Rate plus margins 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.
At December 31, 1999, TransMontaigne had advances of $260,000,000 outstanding
under the bank credit facility utilizing the Eurodollar Rate loan pricing
option. The average interest rate at December 31, 1999 was 8.7%. On January 20,
2000, TransMontaigne paid down $105,000,000 of the $200,000,000 term loan with a
portion of the proceeds from the sale of BPEI.
At December 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. On January 20, 2000, TransMontaigne
paid down $25,000,000 of its $50,000,000 7.85% Senior Notes with a portion of
the proceeds from the sale of BPEI.
Each of the amended bank credit facility and amended Master Shelf Agreement is
secured by certain current assets and fixed assets, and each also includes
financial tests relating to fixed charge coverage, current ratio, maximum
leverage ratio, consolidated tangible net worth, distributions and inventory
positions. As of December 31, 1999, TransMontaigne was in compliance with all
such tests contained in the amended agreements.
Additional capital expenditures anticipated through June 30, 2000 are estimated
to be $15,000,000 for pipeline and terminal facilities, and assets to support
these facilities and could exceed that amount if additional facilities
enhancement projects and possible acquisitions being considered by
TransMontaigne materialize. Future capital expenditures will depend on numerous
factors, including the availability, economics and cost of appropriate
acquisitions which TransMontaigne identifies and evaluates; the economics, cost
and required regulatory approvals with respect to the expansion and enhancement
of existing systems and facilities; the customer demand for the services
TransMontaigne provides; local, state and federal governmental regulations;
environmental compliance requirements; and the availability of debt financing
and equity capital on acceptable terms.
28
<PAGE>
YEAR 2000 MATTERS
Historically, certain computer software and computer based management
information systems ("Information Technology"), as well as certain hardware
containing embedded microcontrollers and microprocessors ("Embedded
Technology"), were designed to utilize a two-digit rather than a four-digit date
field and consequently may cause computers, computer controlled systems and
equipment with embedded technology to malfunction or incorrectly process data in
the Year 2000, resulting in significant system failures. TransMontaigne relies
on Information Technology, as well as Embedded Technology, to operate
instruments and equipment in conducting its normal business activities. Certain
of the Information Technology and Embedded Technology may not have been designed
to function properly with respect to the application of dating systems relating
to the Year 2000.
In response, TransMontaigne developed a "Year 2000" Plan. While achieving
Year 2000 readiness does not mean correcting every Year 2000 limitation,
critical systems, as well as relationships with third-party customers, vendors
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.
Through December 31, 1999, TransMontaigne had incurred third party costs of
approximately $1,375,000 related to Year 2000 compliance matters. These costs
have been funded through operating cash flows and 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. TransMontaigne
has had minimal business disruptions as the result of Year 2000 issues during
the month of January 2000.
While TransMontaigne does not anticipate that Year 2000 issues will have a
material adverse effect on the business, results of operations or financial
condition of TransMontaigne, if TransMontaigne Information Technology or
Embedded Technology, or those of business partners, fail to maintain Year 2000
readiness it could have a material adverse impact on the business, results of
operations or financial condition of TransMontaigne.
NEW ACCOUNTING STANDARDS
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, as amended, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. TransMontaigne is in the process of assessing the
impact, if any, that SFAS 133 will have on its consolidated financial
statements.
29
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in Item 3 updates, and should be read in conjunction
with information set forth in Part II, Item 7A in TransMontaigne's Annual Report
on Form 10-K for the year ended June 30, 1999, in addition to the interim
condensed consolidated financial statements and accompanying notes presented in
Items 1 and 2 of this Form 10-Q.
There are no material changes in market risks faced by TransMontaigne from those
reported in its Annual Report on Form 10-K for the year ended June 30, 1999.
30
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the TransMontaigne Annual Meeting of Stockholders held on November 18, 1999,
the stockholders of TransMontaigne (a) elected nine directors; (b) ratified the
amendment of Section 4.1 of the Equity Incentive Plan of TransMontaigne Inc.
(the "1997 Option Plan") (i) to increase from 1,800,000 to 3,500,000 shares the
aggregate number of authorized shares of TransMontaigne Common Stock that may be
issued under the 1997 Option Plan, and (ii) to add an "evergreen" provision, the
effect of which is to automatically increase the number of shares of the
TransMontaigne Common Stock available for issuance under the 1997 Option Plan
beginning on June 30, 2000 and on each June 30 thereafter during the term of the
1997 Option Plan, a number of shares of TransMontaigne Common Stock equal to one
percent (1%) of the total number of the issued and outstanding shares of
TransMontaigne Common Stock on the last day of the immediately preceding fiscal
year; and (c) ratified the appointment of KPMG LLP as independent auditors for
TransMontaigne for the fiscal year ending June 30, 2000.
The following persons were elected as directors:
Cortlandt S. Dietler
Donald H. Anderson
Richard E. Gathright
John A. Hill
Bryan H. Lawrence
Harold R. Logan, Jr.
William E. Macaulay
Edwin H. Morgens
Simon B. Rich, Jr.
A total of 23,978,101 votes were cast for and a total of 285,939 votes were cast
against each of the following nominees for election to the Board of Directors:
Messrs. Gathright, Hill, Lawrence, Logan, Macaulay, Morgens and Rich. A total of
23,859,212 votes were cast for and a total of 404,828 votes were cast against
Mr. Dietler. A total of 23,977,101 votes were cast for and a total of 286,939
votes were cast against Mr. Anderson. There were no abstentions.
A total of 28,112,633 votes were cast in favor of the proposal to amend Section
4.1 of the 1997 Option Plan, while 2,242,064 votes were cast against the
proposal, 25,912 abstained, and there were 1,724,431 broker non-votes.
With respect to the ratification of the appointment of KPMG LLP as independent
auditors for TransMontaigne for the fiscal year ending June 30, 2000, a total of
31,941,440 votes were cast in favor of the appointment, while 132,782 votes were
cast against and 30,818 abstained. There were no broker non-votes.
31
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Agreement and Plan of Merger dated December 27, 1999, by and between
Bear Paw Energy Inc., TransMontaigne Inc. and BPE Acquisition, LLC.
Incorporated by reference to TransMontaigne Inc. Current Report on
Form 8-K (Securities and Exchange Commission File No. 001-11763) filed
on January 18, 2000.
10.2 Amendment No. 3 dated as of December 31, 1999 to the Third Amended and
Restated Credit Agreement between TransMontaigne Inc. and BankBoston,
N.A., as Agent, dated as of June 29, 1999. FILED HEREWITH.
10.3 Letter Amendment No. 7, dated as of December 31, 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.
27.1 12-31-99 Financial Data Schedule. FILED HEREWITH.
27.2 6-30-99 Financial Data Schedule. FILED HEREWITH.
(b) Reports on Form 8-K
A Form 8-K dated December 27, 1999 reporting Item 5 of Form 8-K,
announcing the signing of a definitive agreement with BPE Acquisition
LLC; and Item 7 of Form 8-K, providing the December 27, 1999 press
release as the exhibit, was filed on January 6, 2000.
A Form 8-K dated December 31, 1999 reporting Item 2, the sale of all
the issued and outstanding capital stock of its wholly-owned natural
gas gathering subsidiary, Bear Paw Energy Inc., to BPE Acquisition
LLC; and Item 7, deferring filing of the pro forma financial
statements reflecting the sale, was filed on January 18, 2000.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 14, 2000 TRANSMONTAIGNE INC.
(Registrant)
/s/ DONALD H. ANDERSON
-------------------------------------
Donald H. Anderson
President and Chief Executive Officer
/s/ RODNEY S. PLESS
-------------------------------------
Rodney S. Pless
Vice President and Controller
(Principal Accounting Officer)
33
TRANSMONTAIGNE INC.
TRANSMONTAIGNE PRODUCT SERVICES 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. 3 OF
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
As of December 31, 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") and TransMontaigne Product
Services 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:
<PAGE>
1. Reference to Credit Agreement and Definitions. Reference is made to the Third
Amended and Restated Credit Agreement dated as of June 29, 1999, as amended by
Amendment No. 1 thereto dated as of June 29, 1999 and Amendment No. 2 thereto
dated as of September 30, 1999, as from time to time in effect, among the
Company, the Guarantors named therein, BankBoston, N.A., for itself and as
Agent, Bank of America, N.A. (formerly known as NationsBank, N.A.), for itself
and as Documentation Agent, First Union National Bank, as Syndication 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. Recitals. The Company and the Guarantors have requested that the Credit
Agreement be amended to permit the sale of all of the stock of Bear Paw Energy
Inc. The Company and the Guarantors also have advised the Lenders that Events of
Default under Sections 6.5.1 and 6.5.4 of the Credit Agreement occurred as of
December 31, 1999 and an Event of Default under Section 6.5.5 of the Credit
Agreement may have occurred as of December 31, 1999 and have requested a
temporary waiver of such Events of Default, effective only until February 22,
2000.
3. Amendments. The Credit Agreement is hereby amended, effective as of the date
hereof (except as otherwise stated in Section 3.9 below), as follows:
3.1. Section 1 of the Credit Agreement is amended by adding thereto a new
Section 1.37A reading in its entirety as follows:
1.37A. "Consolidated Net Total Liabilities" means on any date
the difference (which may be a negative number) of (a) the Consolidated
Total Liabilities on such date of the Company and its Subsidiaries,
including therein the outstanding principal amount, if any, of the
Revolving Loan and the Swingline Loan and the outstanding Letter of
Credit Exposure and excluding therefrom all Indebtedness of the Company
and its Subsidiaries to the extent that such Indebtedness is secured by
moneys available to be drawn under a Letter of Credit, minus (b) the
Consolidated Current Assets of the Company and its Subsidiaries as of
such date; provided that for purposes of clause (b) of this definition,
Consolidated Current Assets shall include cash and Cash Equivalents.
3.2. Section 1 of the Credit Agreement is further amended by adding thereto
a new Section 1.103A reading in its entirety as follows:
1.103A. "Net Sale Proceeds" means, with respect to the sale of
stock or substantially all of the assets of Bear Paw Energy Inc.
permitted by Section 6.11.5, the cash proceeds received by the Company
and its Subsidiaries on the closing date of such sale (including the
portion attributable to growth capital expenditures made since June 30,
1999), without reference to any working capital adjustment required to
be made on a post-closing basis, less reasonable transaction costs of
the Company and its Subsidiaries paid from the proceeds of such sale
(which costs shall not exceed $500,000).
2
<PAGE>
3.3. Section 2.1.1 of the Credit Agreement is amended to read in its
entirety as follows:
2.1.1. Revolving Loan. Subject to all the terms and conditions
of this Agreement and so long as no Default exists, from time to time
on and after the Restatement Date and prior to the Final Maturity Date
the Lenders will, severally in accordance with their respective
Revolving Loan Percentage Interests, make loans to the Company in such
amounts as may be requested by the Company in accordance with Section
2.1.3. The sum of the aggregate principal amount of loans made under
this Section 2.1.1 at any one time outstanding plus the Swingline Loan
plus the Letter of Credit Exposure shall in no event exceed the Maximum
Amount of Revolving Credit, and no advance shall be made under this
Section 2.1.1 if immediately after such advance a Default would exist
under Section 6.5.6. In no event will the principal amount of loans at
any one time outstanding made by any Lender pursuant to this Section
2.1 exceed such Lender's Commitment.
3.4. Section 2.1.2 of the Credit Agreement is amended to read in its
entirety as follows:
2.1.2. Maximum Amount of Revolving Credit. The term "Maximum
Amount of Revolving Credit" means the lesser of (a) $300,000,000 or (b)
the amount (in an integral multiple of $1,000,000 equal to or greater
than $10,000,000) to which the then applicable amount set forth in
clause (a) shall have been irrevocably reduced from time to time by
notice from the Company to the Agent.
3.5. Section 2.2.1 of the Credit Agreement is amended to read in its
entirety as follows:
2.2.1. Swingline Loan. Subject to all the terms and conditions
of this Agreement and so long as no Default exists, from time to time
on and after the Restatement Date and prior to the Final Maturity Date,
the Swingline Lender will make loans to the Company in such amounts as
may be requested by the Company in accordance with Section 2.2.2. The
sum of the aggregate principal amount of loans made under this Section
2.2 at any one time outstanding plus the Revolving Loan plus the Letter
of Credit Exposure shall in no event exceed the Maximum Amount of
Revolving Credit, and no advance shall be made under this Section 2.2.1
if immediately after such advance a Default would exist under Section
6.5.6. In no event will the principal amount of loans made pursuant to
this Section 2.2 at any one time outstanding exceed $20,000,000.
3.6. Section 2.4.1 of the Credit Agreement is amended by amending the first
proviso thereto to read in its entirety as follows:
3
<PAGE>
provided, that the sum of the Letter of Credit Exposure plus the
Revolving Loan plus the Swingline Loan shall in no event exceed the
Maximum Amount of Revolving Credit and that no Letter of Credit shall
be issued under this Section 2.4.1 if immediately after such issuance a
Default would exist under Section 6.5.6.
3.7. New Section 4.2.3 is added to the Credit Agreement immediately
following Section 4.2.2 and shall read as follows:
4.2.3. Sale of Bear Paw Energy Inc. If the Company sells all
of the stock or substantially all of the assets of Bear Paw Energy Inc.
pursuant to Section 6.11.5 herein, then on the closing day of such
sale, the Company shall apply a portion of the proceeds of such sale
equal to the Net Sale Proceeds thereof minus the amount to be paid in
respect of the Indebtedness of the Company permitted by Section 6.6.12,
as provided in Section 6.11.5 to prepay a portion of the Term Loan
(which shall include the payment of any additional interest required by
Section 3.2.4 with respect to any early termination of Eurodollar
Pricing Options and of a prepayment premium in an amount equal to
one-half of one percent (0.50%) of the principal amount prepaid);
provided, that the amount so paid in respect of the Term Loan shall not
be less than $95,000,000. The Company shall give the Agent at least
three Banking Days prior notice of its intention to prepay, specifying
the date of payment, the total amount of the Term Loan to be paid on
such date and the amount of interest to be paid with such prepayment.
3.8. Section 4.3 is hereby amended by adding thereto a new proviso reading
in its entirety as follows:
provided, however, if a prepayment of a portion of the Term Loan is
made pursuant to Section 4.2.3, then each of the scheduled required
prepayments herein will be reduced by a percentage equal to the product
of (a) 100 and (b) the quotient arrived at by dividing the principal
portion of the Term Loan so prepaid by the total principal amount of
the Term Loan outstanding immediately prior to such prepayment.
3.9. Effective as of January 13, 2000, new Section 6.5.6 is added to the
Credit Agreement, reading in its entirety as follows:
6.5.6. Consolidated Net Total Liabilities. At no time shall
the Consolidated Net Total Liabilities of the Company and its
Subsidiaries exceed $85,000,000.
3.10. Section 6.8.10 of the Credit Agreement is amended to read in its
entirety as follows:
4
<PAGE>
6.8.10. Liens on the Credit Security securing the Funded Debt
permitted by Section 6.6.12, but only so long as such Liens are on
parity with or subordinate to the Liens on the Credit Security that
secure the Credit Obligations.
3.11. Section 6.11 is amended by adding immediately following Section 6.11.4 a
new Section 6.11.5 reading in its entirety as follows:
6.11.5. The Company may, no later than January 31, 2000, sell
all of the stock or substantially all of the assets of Bear Paw Energy
Inc. for not less than $120,000,000 in Net Sale Proceeds; provided,
that a portion of the Net Sale Proceeds of such sale shall be applied
to prepay not more than $25,000,000 of the principal of the
Indebtedness of the Company permitted by Section 6.6.12 and any related
yield maintenance payment requirements, and the remainder of such Net
Sale Proceeds shall be applied to the Term Loan as required by Section
4.2.3.
3.12. Section 8.1.2 of the Credit Agreement is amended to read in its
entirety as follows:
8.1.2. Specified Covenants. The Company or any of its
Subsidiaries shall fail to perform or observe any of the provisions of
Section 6.2.5, 6.4.6, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.16
or 6.19.
4. Waiver. Effective as of the date hereof, any Event of Default under Section
6.5.1, 6.5.4 or 6.5.5 of the Credit Agreement existing on December 31, 1999 or
for the period ending on December 31, 1999 is hereby waived, except that such
waiver shall lapse and be of no further force and effect as of the close of
business, Denver time, on February 22, 2000.
5. 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 and that there has been provided to the
Agent an accurate and complete copy (including exhibits) of the Agreement and
Plan of Merger dated December 27, 1999 among Bear Paw Energy Inc., the Company
and BPE Acquisition, LLC and that such agreement is in full force and effect.
6. Conditions to Effectiveness. Acceptance of the foregoing amendments
and waivers shall be subject, without limitation, to the following conditions:
5
<PAGE>
(a) the Master Shelf Agreement dated as of April 17, 1997 between the
Company and The Prudential Insurance Company of America and affiliates
thereunder shall have been amended and waived to reflect the
amendments and waivers to the Credit Agreement made herein, such
amendment and waiver to be satisfactory in form and substance to the
Agent; and
(b) after giving effect to the amendments and waivers effected hereby,
no Default or Event of Default under the Credit Agreement shall have
occurred and be continuing.
7. Additional Credit Security. As soon as possible, each of the Company and its
Subsidiaries (excluding Bear Paw Energy Inc.) shall enter into a security
agreement granting to the Agent acting as collateral agent on behalf of the
Lenders and on behalf of the lenders under the Master Shelf Agreement referred
to in Section 6(a) above a security interest in all of the accounts, inventory,
general intangibles and other personal property of the Company and such
Subsidiaries, in which security agreement the Company and such Subsidiaries
shall agree, among other things, to perfect such security interests as soon as
possible and to convey to the Agent acting in such capacity deeds of trust
and/or mortgages on all of their real property; and such agreement shall be
satisfactory in form and substance to the Agent and accompanied by such
corporate certificates and legal opinions as the Agent shall require. The Credit
Security granted thereunder shall be shared on a parity basis between the Credit
Obligations and the Indebtedness permitted by Section 6.6.12 of the Credit
Agreement in the same manner as currently provided in the Intercreditor
Agreement. The Agent is authorized to enter into the agreements contemplated by
this Section 7 on behalf of the Lenders and on behalf of itself acting as
collateral agent, and in so acting shall be entitled to all of the protections
afforded by the Credit Agreement.
8. Release of Bear Paw. Upon the sale of all of the stock or substantially all
of the assets of Bear Paw Energy Inc. as permitted by Section 6.11.5 of the
Credit Agreement as amended hereby, the Agent shall return to the Company the
stock certificate representing the Company's ownership of 10,000 shares of the
common stock of Bear Paw Energy Inc. being held as security under the Credit
Agreement, and Bear Paw Energy Inc. shall be released as a Guarantor under the
Credit Agreement as amended hereby. The Agent shall provide such written
evidence or acknowledgment of such releases as the Company may reasonably
request.
9. Consents of Lenders. The Agent represents and warrants that it has
received consents to the foregoing amendments executed by the Required Lenders.
10. Miscellaneous. This Amendment may be executed in any number of counterparts,
which 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.
6
<PAGE>
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.
Very truly yours,
TRANSMONTAIGNE INC.
By /s/ Donald H. Anderson
----------------------
Donald H. Anderson, President
TRANSMONTAIGNE PRODUCT SERVICES INC.
TRANSMONTAIGNE PRODUCT SERVICES
MIDWEST INC.
TRANSMONTAIGNE TRANSPORTATION
SERVICES INC.
TRANSMONTAIGNE PIPELINE INC.
TRANSMONTAIGNE TERMINALING INC.
BEAR PAW ENERGY INC.
By /s/ Donald H. Anderson
----------------------
Donald H. Anderson, Chief Executive Officer
of each of the foregoing corporations
The foregoing Amendment No. 3 is hereby agreed to:
BANKBOSTON, N.A.,
as Agent under the Credit Agreement
By:/s/ Terrance Ronan
-----------------------------
Authorized Officer - Director
7
LETTER AMENDMENT NO. 7
As of December 31, 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, Letter Amendment No. 3 dated as of
October 30, 1998, Letter Amendment No. 4 dated as of March 25, 1999, Letter
Amendment No. 5 dated as of June 29, 1999 and Letter Amendment No. 6 dated as of
September 30, 1999 (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 requested that the Agreement be amended to
permit the sale of all of the stock of Bear Paw Energy Inc. The Company also has
advised you that Events of Default under paragraphs 6A(1) and 6A(4) of the
Agreement occurred as of December 31, 1999 and an Event of Default under
paragraph 6A(5) of the Agreement may have occurred as of December 31, 1999 and
has requested a temporary waiver of such Events of Default, effective only until
February 22, 2000. 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 as of the date
first above written, hereby amended as follows:
(a) Paragraph 4A. Required Prepayments. Paragraphs 4 and 4A are
amended in their entirety to read as follows:
"4. PREPAYMENTS. The Notes shall be subject to prepayment with respect
to any required prepayment as set forth in such Notes as provided in
paragraph 4A(1) and as set forth in paragraph 4A(2) and with respect
to the optional prepayments permitted by paragraph 4B.
<PAGE>
4A. Required Prepayments. The Notes of each Series shall be subject to
required prepayments as set forth in paragraphs 4A(1) and 4A(2).
4A(1). Scheduled Prepayments. The Notes of each Series shall be
subject to required prepayments, if any, set forth in the Notes of
such Series, provided, that upon any partial prepayment of the Notes
of any Series pursuant to paragraph 4A(2), the principal amount of
each required prepayment of the Notes of such Series becoming due
under this paragraph 4A(1) on and after the date of such prepayment
shall be reduced by a percentage equal to the product of (a) 100 and
(b) the quotient arrived at by dividing the principal portion of the
Notes of such Series so prepaid by the total principal amount of the
Notes of such Series outstanding immediately prior to such prepayment.
4A(2). Sale of Bear Paw Energy Inc. If the Company sells all of the
stock or substantially all of the assets of Bear Paw Energy Inc.
pursuant to paragraph 6C(5)(v), then on the closing date of such sale,
the Company shall prepay the Series A Notes in an amount equal to
$25,000,000, together with interest thereon to the prepayment date and
the Yield-Maintenance Amount, if any, with respect to the principal
amount of Notes being so prepaid. The Company shall give the holders
of the Notes at least three Business Days prior notice of its
intention to prepay the Notes pursuant to this paragraph 4A(2),
specifying the date of payment and the amount of interest and
Yield-Maintenance Amount, if any, to be paid with such prepayment."
(b) Paragraph 6A. Certain Financial Tests. Effective as of January 13,
2000, a Paragraph 6A(6) is added to the Agreement immediately following
paragraph 6A(5), reading in its entirety as follows:
"6A(6) Consolidated Net Total Liabilities. The Company will not permit
at any time the Consolidated Net Total Liabilities of the Company and
its Subsidiaries to exceed $85,000,000."
(c) Paragraph 6C(5). Merger, Consolidation and Disposition of Assets.
Paragraph 6C(5) is amended by adding immediately following clause (iv) thereof a
new clause (v) reading in its entirety as follows:
"(v) The Company may, no later than January 31, 2000, sell all of the
stock or substantially all of the assets of Bear Paw Energy Inc. for
not less than $120,000,000 in Net Sale Proceeds; provided, that a
portion of the Net Sale Proceeds of such sale shall be applied to
prepay $25,000,000 of the principal of the Notes pursuant to paragraph
4A(2) and the remainder of such Net Sale Proceeds shall be applied to
prepay the principal of the Indebtedness of the Company permitted by
clause (xii) of paragraph 6C(2), any related breakage costs and a
prepayment premium in an amount equal to one-half of one percent
(0.50%) of the principal amount of such Indebtedness prepaid."
2
<PAGE>
(d) Paragraph 7A. Acceleration. Paragraph 7A is amended by amending
clause (v) in its entirety to read as follows:
"(v) the Company fails to perform or observe any term, covenant or
agreements contained in paragraphs 5A(v), 5J, 5O, 6A, 6B, 6C(1),
6C(2), 6C(3), 6C(4), 6C(5), 6C(6) or 6F; or"
(e) Paragraph 10B. Other Terms. Paragraph 10B of the Agreement is
amended by adding the following new definitions in alphabetical order:
"Consolidated Net Total Liabilities" means on any date the difference
(which may be a negative number) of (a) the Consolidated Total
Liabilities on such date of the Company and its Subsidiaries,
including therein, without limitation, the outstanding principal
amount, if any, of the "Revolving Loan" and the "Swingline Loan" and
the outstanding "Letter of Credit Exposure" (each as defined in the
Bank Agreement) under the Bank Agreement and excluding therefrom all
Indebtedness of the Company and its Subsidiaries to the extent that
such Indebtedness is secured by moneys available to be drawn under a
Letter of Credit (as defined in the Bank Agreement), minus (b) the
Consolidated Current Assets of the Company and its Subsidiaries as of
such date; provided that for purposes of clause (b) of this
definition, Consolidated Current Assets shall include cash and Cash
Equivalents.
"Net Sale Proceeds" means, with respect to the sale of stock or
substantially all of the assets of Bear Paw Energy Inc. permitted by
paragraph 6C(5)(v), the cash proceeds received by the Company and its
Subsidiaries on the closing date of such sale (including the portion
attributable to growth capital expenditures made since June 30, 1999),
without reference to any working capital adjustment required to be
made on a post-closing basis, less reasonable transaction costs of the
Company and its Subsidiaries paid from the proceeds of such sale
(which costs shall not exceed $500,000).
1. 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.
2. 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
3
<PAGE>
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.
3. Waiver. Effective as of the date hereof, any Event of Default under
paragraphs 6A(1), 6A(4) or 6A(5) of the Agreement existing on December 31,
1999 or for the period ending on December 31, 1999 is hereby waived, except
that such waiver shall lapse and be of no further force and effect as of
the close of business, Denver time, on February 22, 2000.
4. Additional Credit Security. As soon as possible, each of the Company and
its Subsidiaries (excluding Bear Paw Energy Inc.) shall enter into a
security agreement granting to the Collateral Agent on behalf of the
holders of the Notes and on behalf of the lenders under the Bank Agreement
a security interest in all of the accounts, inventory, general intangibles
and other personal property of the Company and such Subsidiaries, in which
security agreement the Company and such Subsidiaries shall agree, among
other things, to perfect such security interests as soon as possible and to
convey to the Collateral Agent acting in such capacity deeds of trust
and/or mortgages on all of their real property; and such agreement shall be
satisfactory in form and substance to the Collateral Agent and the Required
Holder(s) and accompanied by such corporate certificates and legal opinions
as the Collateral Agent or the Required Holder(s)shall require. The Loan
Security granted thereunder shall be shared on a parity basis between the
Obligations and the Bank Obligations in the same manner as currently
provided in the Intercreditor Agreement.
5. Release of Bear Paw. Upon the sale of all of the stock or substantially all
of the assets of Bear Paw Energy Inc. as permitted by clause (v) of
paragraph 6C(5) of the Agreement as amended hereby, the Collateral Agent
shall return to the Company the stock certificate representing the
Company's ownership of 10,000 shares of the common stock of Bear Paw Energy
Inc. being held as security under the Pledge Agreement, and Bear Paw Energy
Inc. shall be released as a Guarantor under the Agreement as amended
hereby. The Purchasers shall provide such written evidence or
acknowledgment of such releases as the Company may reasonably request.
6. Representations and Warranties. In order to induce you to enter into this
letter 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 and that you have been
provided an accurate and complete copy (including exhibits) of the
Agreement and Plan of Merger dated December 27, 1999 among Bear Paw Energy
Inc., the Company and BPE Acquisition, LLC and that such agreement is in
full force and effect.
4
<PAGE>
7. 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. The Agreement, as amended by this letter
amendment, is and shall continue to be in full force and effect and is
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 nor constitute a waiver of any provision of the Agreement.
This letter amendment shall be a Loan Document.
(b) Counterparts. This letter amendment may be executed in any number of
counterparts (including those transmitted by facsimile) 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. Delivery of this letter
amendment may be made by facsimile transmission of a duly executed
counterpart copy hereof.
(c) Effectiveness. This letter amendment shall become effective as of the
date first above written when and if each of the conditions set forth in
this subparagraph (c) shall have been satisfied.
(I) Executed Counterparts. Counterparts of this letter amendment shall
have been executed by the Company, each Guarantor, each Pledgor and
you.
(II) No Default or Event of Default. After giving effect the
amendments and waivers effected hereby, no Default or Event of Default
under the Agreement shall have occurred and be continuing.
(III) Bank Agreement. The Bank Agreement shall have been amended and
waived to reflect the amendments and waivers to the Agreement made
herein, such amendment and waiver to be satisfactory in form and
substance to you, and in connection with such amendments and waivers
to the Bank Agreement, no payment of any amount and no increase in, or
additional types of, the rate of interest, breakage costs or any other
fees, costs, expenses or other amounts payable with respect to the
Bank Agreement, shall have been made in consideration of such
amendments and waivers other than the 0.50% prepayment premium to be
paid under the Bank Agreement in connection with the sale of Bear Paw
Energy Inc. as contemplated by paragraph 6C(5) as amended hereby and
costs and expenses related to such amendments and waivers.
5
<PAGE>
(d) Expenses. The Company confirms its agreement, pursuant to paragraph 12B
of the Agreement, to pay promptly all expenses of the Purchasers related to
this letter amendment and all matters contemplated by this letter
amendment, including without limitation all fees and expenses of the
Purchasers' special counsel and any local or other counsel retained by the
Collateral Agent.
(e) 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 OF NEW YORK.
[Remainder of page intentionally left blank; signature pages follows]
6
<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, Jr.
Very truly yours,
TRANSMONTAIGNE INC.
(f/k/a TransMontaigne Oil Company)
By: /s/ Donald H. Anderson
-----------------------------
Donald H. Anderson, 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.
By: /s/ Donald H. Anderson
-----------------------------
Donald H. Anderson,
Chief Executive Officer of each of the
foregoing corporations
7
<PAGE>
Agreed as of the date first above written:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Ric E. Abel
---------------------------
Ric E. Abel, 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: Ric E. Abel
-----------------------------
Ric E. Abel, Vice President
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRANSMONTAIGNE INC. FOR THE PERIOD JULY 1,1999 TO
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 36,015
<SECURITIES> 0
<RECEIVABLES> 263,798 <F1>
<ALLOWANCES> 0
<INVENTORY> 159,767
<CURRENT-ASSETS> 464,672
<PP&E> 354,299
<DEPRECIATION> (30,203)
<TOTAL-ASSETS> 878,219
<CURRENT-LIABILITIES> 213,532
<BONDS> 335,000
0
170,115
<COMMON> 306
<OTHER-SE> 159,266 <F2>
<TOTAL-LIABILITY-AND-EQUITY> 878,219
<SALES> 0
<TOTAL-REVENUES> 2,472,032
<CGS> 0
<TOTAL-COSTS> 2,535,928 <F3>
<OTHER-EXPENSES> 12,262 <F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,757
<INCOME-PRETAX> (70,391)
<INCOME-TAX> (28,160) <F5>
<INCOME-CONTINUING> (42,231)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,484) <F6>
<EPS-BASIC> (1.52)
<EPS-DILUTED> (1.52)
<FN>
<F1>
INCLUDES $131,150 RECEIVABLE FROM THE SALE OF BEAR PAW ENERGY INC.
<F2>
INCLUDES ($1,072) UNEARNED COMPENSATION EXPENSE
<F3>
INCLUDES $50,136 ASSET IMPAIRMENT
<F4>
OTHER INCOME, INCLUDING $16,587 GAIN FROM SALE OF BEAR PAW ENERGY INC., NET
OF OTHER EXPENSES
<F5>
BENEFIT
<F6>
NET LOSS AVAILABLE FOR COMMON STOCKHOLDERS AFTER $4,253 PREFERRED STOCK
DIVIDENDS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TRANSMONTAIGNE INC. FOR THE PERIOD JULY 1,1999 TO
DECEMBER 31, 1999 (THE JUNE 30, 1999 RESTATED BALANCE SHEET) AND THE PERIOD JULY
1,1998 TO JUNE 30, 1999 (THE 12 MONTH INCOME STATEMENT) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 13,927
<SECURITIES> 0
<RECEIVABLES> 174,122
<ALLOWANCES> 0
<INVENTORY> 378,207
<CURRENT-ASSETS> 570,611
<PP&E> 473,914
<DEPRECIATION> (37,572)
<TOTAL-ASSETS> 1,095,508
<CURRENT-LIABILITIES> 223,005
<BONDS> 495,672
0
170,115 <F1>
<COMMON> 305
<OTHER-SE> 205,631 <F2>
<TOTAL-LIABILITY-AND-EQUITY> 1,095,508
<SALES> 0
<TOTAL-REVENUES> 3,047,061
<CGS> 0
<TOTAL-COSTS> 3,016,882
<OTHER-EXPENSES> 1,290 <F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,495
<INCOME-PRETAX> 3,394
<INCOME-TAX> 1,455
<INCOME-CONTINUING> 1,939
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (335) <F3>
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
<FN>
<F1>
IN THIS RESTATED BALANCE SHEET, THE PREFERRED STOCK IS RECORDED AT ITS
$170,115 COST, NOT AT ITS PAR VALUE, AND IS NOT INCLUDED IN OTHER
STOCKHOLDERS EQUITY
<F2>
OTHER EXPENSES NET OF OTHER INCOME
<F3>
NET LOSS AVAILABLE FOR COMMON STOCKHOLDERS AFTER $2,274 PREFERRED STOCK
DIVIDENDS
</FN>
</TABLE>
