-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GWOR7YxqRtTif+MHrJIg6YOBisOK1G+CJynayomdwMWyv8RBgO7hORMej6LSqTIU IruaniTbuf0cGmFJ2FY5KQ== 0000927356-97-001470.txt : 19971216 0000927356-97-001470.hdr.sgml : 19971216 ACCESSION NUMBER: 0000927356-97-001470 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19971215 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSMONTAIGNE OIL CO CENTRAL INDEX KEY: 0000755199 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 061052062 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11763 FILM NUMBER: 97737813 BUSINESS ADDRESS: STREET 1: 370 17TH ST STREET 2: SUITE 2750 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3036268200 MAIL ADDRESS: STREET 1: P O BOX 5660 CITY: DENVER STATE: CO ZIP: 80217 FORMER COMPANY: FORMER CONFORMED NAME: SHEFFIELD EXPLORATION CO INC DATE OF NAME CHANGE: 19920703 10-Q 1 FORM 10-Q 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 October 31, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-11763 TRANSMONTAIGNE OIL COMPANY (Exact name of registrant as specified in its charter) DELAWARE 06-1052062 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 370 SEVENTEENTH STREET, SUITE 2750 DENVER, COLORADO 80202 (Address, including zip code, of principal executive offices) (303) 626-8200 (Telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of December 1, 1997, there were 25,914,370 shares of the Registrant's Common Stock outstanding. 1 TRANSMONTAIGNE OIL COMPANY INDEX PART I. FINANCIAL INFORMATION
PAGE NO. ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets October 31, 1997 and April 30, 1997................. 3 Consolidated Statements of Operations Three months ended October 31, 1997 and 1996........ 4 Consolidated Statements of Operations Six months ended October 31, 1997 and 1996.......... 5 Consolidated Statements of Stockholders' Equity Six months ended October 31, 1997 and Year ended April 30, 1997........................... 6 Consolidated Statements of Cash Flows Six months ended October 31, 1997 and 1996.......... 7 Notes to Consolidated Financial Statements.......... 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....... 16 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS................................... 32 ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS... 32 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 32 SIGNATURES.......................................... 33
2 TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS OCTOBER 31, 1997 AND APRIL 30, 1997 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------- ASSETS October 31, April 30, - ------ 1997 1997 ---- ---- Current assets: Cash and cash equivalents $ 45,764,652 36,384,325 Trade accounts receivable 39,926,328 46,871,207 Inventories 64,452,354 42,346,451 Deferred tax assets, net 770,000 3,676,000 Prepaid expenses and other 1,770,255 1,647,990 ----------------------- --------------------- 152,683,589 130,925,973 ----------------------- --------------------- Property, plant and equipment: Land 1,369,565 1,222,195 Plant and equipment 132,208,156 120,010,811 Accumulated depreciation (14,171,962) (10,704,252) ----------------------- --------------------- 119,405,759 110,528,754 ----------------------- --------------------- Investments and other assets: Investments 15,656,097 15,656,097 Deferred debt issuance costs, net 1,505,427 1,638,909 Other assets 3,158,386 2,974,587 ----------------------- --------------------- 20,319,910 20,269,593 ----------------------- --------------------- $ 292,409,258 261,724,320 ======================= ===================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Trade accounts payable $ 29,567,250 36,893,399 Inventory due under exchange agreements 11,286,413 4,982,179 Excise taxes payable 8,287,753 6,437,829 Other accrued liabilities 4,108,490 4,189,528 ----------------------- --------------------- 53,249,906 52,502,935 ----------------------- --------------------- Long-term debt 88,964,467 64,774,267 Minority interests 5,475,377 5,475,377 Stockholders' equity: Preferred stock, par value $.01 per share, authorized 2,000,000 shares, none issued - - Common stock, par value $.01 per share, authorized 40,000,000 shares, issued and outstanding 25,914,370 shares at October 31, 1997; and 25,794,720 shares at April 30, 1997 259,144 257,947 Capital in excess of par value 135,883,800 134,843,884 Retained earnings 9,276,947 3,869,910 Unearned compensation (700,383) - ----------------------- --------------------- 144,719,508 138,971,741 ----------------------- --------------------- $ 292,409,258 261,724,320 ======================= =====================
See accompanying notes to consolidated financial statements. 3 TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED OCTOBER 31, 1997 AND 1996 (UNAUDITED) - --------------------------------------------------------------------------------------------- 1997 1996 ---- ---- Revenue: Product sales, pipeline tariffs terminaling fees and natural gas gathering and processing fees $ 545,100,056 276,770,743 Costs and expenses: Product costs and direct operating expenses 535,151,024 272,135,966 General and administrative 3,140,658 1,659,247 Depreciation and amortization 1,813,148 502,254 ----------------------- ---------------------- 540,104,830 274,297,467 ----------------------- ---------------------- Operating income 4,995,226 2,473,276 Other income (expenses): Interest income 580,674 430,593 Equity in earnings of affiliates - 738,613 Minority interests - (256,206) Interest expense (1,568,777) (696,685) Other financing costs (139,651) (34,144) Other, net - 227,641 ----------------------- ---------------------- (1,127,754) 409,812 ----------------------- ---------------------- Earnings before income taxes 3,867,472 2,883,088 Income tax expense 1,470,000 210,000 ----------------------- ---------------------- Net earnings $ 2,397,472 2,673,088 ======================= ====================== Weighted average common shares outstanding 26,679,629 21,624,474 ======================= ====================== Earnings per common share $ 0.09 0.12 ======================= ======================
See accompanying notes to consolidated financial statements. 4 TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED OCTOBER 31, 1997 AND 1996 (UNAUDITED) - --------------------------------------------------------------------------------------------- 1997 1996 ---- ---- Revenue: Product sales, pipeline tariffs terminaling fees and natural gas gathering and processing fees $ 1,007,249,077 470,822,944 Costs and expenses: Product costs and direct operating expenses 987,105,135 462,096,897 General and administrative 5,924,065 3,158,305 Depreciation and amortization 3,537,188 955,028 ----------------------- ---------------------- 996,566,388 466,210,230 ----------------------- ---------------------- Operating income 10,682,689 4,612,714 Other income (expenses): Interest income 1,145,584 893,051 Equity in earnings of affiliates - 423,151 Minority interests - (149,049) Interest expense (3,067,523) (1,298,120) Other financing costs (283,713) (72,160) Other, net - 340,076 ----------------------- ---------------------- (2,205,652) 136,949 ----------------------- ---------------------- Earnings before income taxes 8,477,037 4,749,663 Income tax expense 3,070,000 270,000 ----------------------- ---------------------- Net earnings $ 5,407,037 4,479,663 ======================= ====================== Weighted average common shares outstanding 26,660,155 21,290,302 ======================= ====================== Earnings per common share $ 0.20 0.21 ======================= ======================
See accompanying notes to consolidated financial statements. 5 TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED OCTOBER 31, 1997 AND YEAR ENDED APRIL 30, 1997 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------------- Retained Capital in earnings Preferred Common excess of (accumulated Unearned stock stock par value deficit) compensation Total --------- ---------- ----------- ------------ ------------ ------------ BALANCE AT APRIL 30, 1996 $ - 1,933,117 61,187,476 (5,301,402) - 57,819,191 Change in the par value of common stock from $.10 to $.01 in connection with merger - (1,739,805) 1,739,805 - - - Common stock issued in merger - 14,744 8,093,785 - - 8,108,529 Common stock issued for minority interest in subsidiary - 1,000 974,000 - - 975,000 Common stock repurchased and retired - (148) (199,852) - - (200,000) Common stock issued for options exercised - 2,130 780,822 - - 782,952 Common stock issued for cash in public offering - 46,909 62,952,321 - - 62,999,230 Costs related to issuance of common stock - - (684,473) - - (684,473) Net earnings - - - 9,171,312 - 9,171,312 --------- ---------- ----------- ------------ ------------ ------------ BALANCE AT APRIL 30, 1997 - 257,947 134,843,884 3,869,910 - 138,971,741 Common stock issued for options exercised - 757 335,219 - - 335,976 Costs related to issuance of common stock - - (53,863) - - (53,863) Unearned compensation relating to restricted stock awards - 440 758,560 - (759,000) - Amortization of unearned compensation - - - - 58,617 58,617 Net earnings - - - 5,407,037 - 5,407,037 --------- ---------- ----------- ------------ ------------ ------------ Balance at October 31, 1997 $ - 259,144 135,883,800 9,276,947 (700,383) 144,719,508 ========= ========== =========== ============ ============ ============
See accompanying notes to consolidated financial statements. 6 TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED OCTOBER 31, 1997 AND 1996 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------- 1997 1996 ---- ---- Cash flows from operating activities: Net earnings $ 5,407,037 4,479,663 Adjustments to reconcile net earnings to net cash used by operating activities: Depreciation and amortization 3,537,188 955,028 Equity in losses of affiliates - (423,151) Minority interests - 149,049 Deferred tax expense 2,906,000 - Gain on disposition of assets (10,198) - Amortization of unearned compensation 58,617 - Changes in operating assets and liabilities, net of noncash activities: Trade accounts receivable 6,944,879 (20,130,189) Inventories (22,105,903) (13,342,756) Prepaid expenses and other (122,265) 444,441 Trade accounts payable (7,326,149) 17,495,194 Inventory due under exchange agreements 6,304,234 (810,815) Excise taxes payable and other accrued liabilities 1,768,886 800,889 ------------ ----------- Net cash (used) by operating activities (2,637,674) (10,382,647) ------------ ----------- Cash flows from investing activities: Purchases of property, plant and equipment (12,378,586) (5,837,277) Proceeds from sale of assets 19,564 13,523 Cash received in connection with acquisition - 2,315,527 Costs related to acquisition - (399,234) Cash balance in subsidiary sold - (111,341) Decrease (increase) in other assets, net (228,772) (24,982) ------------ ----------- Net cash (used) by investing activities (12,587,794) (4,043,784) ------------ ----------- Cash flows from financing activities: Borrowings of long-term debt, net 24,190,200 8,735,200 Deferred debt issuance costs 133,482 289,501 Common stock issued for cash 335,976 - Costs related to issuance of common stock (53,863) - ------------ ----------- Net cash provided by financing activities 24,605,795 9,024,701 ------------ ----------- Increase (decrease) in cash and cash equivalents 9,380,327 (5,401,730) Cash and cash equivalents at beginning of period 36,384,325 38,403,234 ------------ ----------- Cash and cash equivalents at end of period $ 45,764,652 33,001,504 ============ =========== (Continued)
7 TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) SIX MONTHS ENDED OCTOBER 31, 1997 AND 1996 (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------- 1997 1996 ---- ---- Supplemental disclosures of cash flow information: Acquisition of Sheffield Exploration Company Fair value of assets acquired $ - 8,739,247 Fair value of liabilities assumed - 231,484 --------------------- -------------------- - 8,507,763 Costs related to acquisition - 399,234 --------------------- -------------------- Fair value of stock issued $ - 8,108,529 ===================== ==================== Cash received in connection with acquisition included in assets acquired $ - 2,315,527 ===================== ==================== Sale of Sheffield Operating Company Fair value of assets sold $ - 1,991,403 Fair value of liabilities assumed by purchaser - 245,451 --------------------- -------------------- Fair value of consideration received - 2,236,854 ===================== ==================== Cash distributed in connection with sale included in assets sold $ - 111,341 ===================== ====================
See accompanying notes to consolidated financial statements. 8 TRANSMONTAIGNE OIL COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS October 31, 1997 - -------------------------------------------------------------------------------- (1) BASIS OF PRESENTATION The TransMontaigne Oil Company ("TransMontaigne") consolidated balance sheets at October 31, 1997 and April 30, 1997, the consolidated statements of operations for the three months and six months ended October 31, 1997 and 1996, the consolidated statements of stockholders' equity for the six months ended October 31, 1997 and the year ended April 30, 1997 and the consolidated statements of cash flows for the six months ended October 31, 1997 and 1996 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods presented. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes, together with management's discussion and analysis of financial condition and results of operations, contained in TransMontaigne's Annual Report on Form 10-K for the fiscal year ended April 30, 1997. The results of operations for the three months and six months ended October 31, 1997 are not necessarily indicative of the results for the entire fiscal year ending April 30, 1998. Management makes various estimates and assumptions in determining the reported amounts of assets, liabilities, revenues and expenses for each period presented. Changes in these estimates and assumptions will occur as a result of the passage of time and the occurrence of future events, and actual results will differ from those estimates. (2) MERGER TransMontaigne is the surviving corporation of a merger (the "Merger") between TransMontaigne Oil Company and Sheffield Exploration Company, Inc. ("Sheffield") effective June 4, 1996. The Merger constituted a reverse acquisition of Sheffield, in which Sheffield survived the Merger, and was owned approximately 93% by the former stockholders of TransMontaigne Oil Company. Following the Merger, (i) the name of Sheffield was changed to TransMontaigne Oil Company; 9 (ii) the par value of the common stock was reduced to $.01 per share; (iii) the number of shares of authorized common stock was increased to 40,000,000; and (iv) the stock options which Sheffield had outstanding prior to the Merger became options to purchase 79,338 shares of TransMontaigne's common stock at $3.65 per share and were exercised prior to their September 2, 1996 expiration date. (3) ACQUISITION OF GRASSLANDS FACILITIES On December 20, 1996, TransMontaigne's wholly owned subsidiary, Bear Paw Energy Inc., acquired for approximately $71,000,000 cash the Grasslands natural gas gathering, processing, treating and fractionating system located in western North Dakota and northeastern Montana. The Grasslands gas processing plant, located in McKenzie County, North Dakota, was built in 1980. The cost of the Grasslands facilities has been allocated to the assets acquired based on their estimated fair market value as determined by TransMontaigne. The following summarized unaudited pro forma results of operations assumes that the acquisition of the Grasslands facilities occurred as of May 1, 1996 and combines the actual results of operations of TransMontaigne for the three months and six months ended October 31, 1996 with the pro forma historical results of operations of the Grasslands facilities for the three months and six months ended October 31, 1996. The unaudited pro forma results of operations are not necessarily indicative of the results of operations which would actually have occurred if the Grasslands facilities had been acquired as of May 1, 1996 or which will be attained in the future.
Three Months Ended Six Months Ended October 31 October 31 ========================================= ======================================== 1997 1996 1997 1996 ---------------- ------------------ ---------------- ----------------- (Actual) (Pro forma) (Actual) (Pro forma) ---------------- ------------------ ---------------- ----------------- Revenues $ 545,100,056 289,429,504 $ 1,007,249,077 494,471,136 ================ ================== ================ ================= Net Earnings $ 2,397,472 3,679,612 $ 5,407,037 5,699,072 ================ ================== ================ ================= Earnings Per Common Share $ 0.09 0.17 $ 0.20 0.27 ================ ================== ================ =================
10 (4) PUBLIC OFFERING On February 13, 1997, TransMontaigne closed a public offering of 4,357,000 shares of its common stock of which 4,035,000 shares were issued and sold by TransMontaigne and 322,000 shares were sold by certain selling stockholders. The net proceeds to TransMontaigne, based on the public offering price of $14.25 per share, were approximately $53,506,000, after deducting underwriting discounts and commissions and offering costs, of which $45,000,000 was used to repay a portion of the debt incurred under its bank credit facility. On March 11, 1997 the underwriters' overallotment to purchase an additional 557,543 shares and the Merrill Lynch Growth Fund antidilution right to purchase an additional 98,390 shares were both exercised and TransMontaigne received additional net proceeds of $8,809,000. (5) INVENTORY MANAGEMENT TransMontaigne manages the risk associated with fluctuations in the price of refined petroleum products inventory and purchase and sales commitments, and may selectively enter into futures contracts which are designated as hedges of the products purchased or sold. Hedging gains and losses are recognized and recorded in inventory when the related inventory is sold. At October 31, 1997, TransMontaigne had open futures contracts to sell and to purchase 500,000 barrels of product designated as hedges. The cost in excess of market value of such open futures contracts of $22,680 was deferred as of that date and was offset by increased equity in the market value of the related physical inventory to which the designated hedges were applicable. In connection with its trading activities, TransMontaigne recognizes gains and losses when incurred. Net trading gains on futures contracts of approximately $532,688 were recognized during the quarter ended October 31, 1997 and of approximately $43,000 were recognized during the quarter ended October 31, 1996. TransMontaigne had outstanding contracts to sell 7,590,000 barrels of product and outstanding contracts to purchase 7,590,000 barrels of product at October 31, 1997 and outstanding contracts to sell 3,772,000 barrels of product and outstanding contracts to purchase 3,772,000 barrels of product at October 31, 1996. Unrealized gains relating to such outstanding contracts were approximately $195,495 at October 31, 1997 and approximately $216,000 at October 31, 1996. TransMontaigne's refined petroleum products inventory consists primarily of gasoline and distillates. A portion of this inventory represents line fill and tank 11 bottoms; is required for operating balances in the conduct of TransMontaigne's daily supply and distribution activities; and is maintained both in tanks and pipelines owned by TransMontaigne and pipelines owned by third parties. Natural gas liquids and residual natural gas inventory are not significant. Inventories of refined petroleum products are stated at the lower of last-in, first-out (LIFO) cost or market. (6) INCOME TAXES The Company utilizes the asset and liability method of accounting for income taxes, as prescribed by Statement of Financial Accounting Standards No. 109 (SFAS 109). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled. Changes in tax rates are recognized in income in the period that includes the enactment date. (7) BANK CREDIT FACILITY TransMontaigne's bank credit facility at October 31, 1997 is an $85,000,000 working capital revolving credit facility with a money center bank due December 31, 2001. The amount available under the bank credit facility is to be reduced by $3,125,000 each calendar quarter beginning March 31, 2000. Borrowings under the bank credit facility generally bear interest at an annual rate equal to the lender's announced Base Rate, subject to a Eurodollar pricing option at TransMontaigne's election. The average interest rate at October 31, 1997 was 6.79%. At October 31, 1997, TransMontaigne had advances of $35,000,000 outstanding under the bank credit facility. In addition, $2,600,000 of the facility was used to support a standby letter of credit to a bank to assist Lion Oil Company (Lion) in obtaining financing. 12 (8) MASTER SHELF AGREEMENT In April 1997 TransMontaigne entered into a Master Shelf Agreement with an institutional lender which provides that the lender will agree to quote, from time to time, an interest rate at which the lender would be willing to purchase, on an uncommitted basis, up to $100,000,000 of TransMontaigne's senior promissory notes which will mature in no more than 12 years, with an average life not in excess of 10 years. On April 17, 1997, TransMontaigne sold to the lender, under the Master Shelf Agreement, $50,000,000 of 7.85% Senior Notes due 2003 which amount was outstanding at October 31, 1997. (9) SENIOR SUBORDINATED DEBENTURES In March 1991, TransMontaigne issued $4,000,000 of 12 3/4% senior subordinated debentures which are guaranteed by certain subsidiaries and are due December 15, 2000, with interest payable semi-annually on June 15 and December 15. The debentures are subject to a required redemption of $2,000,000 on December 15, 1999 and December 15, 2000. The debentures may be prepaid prior to maturity at a premium, under certain circumstances. In conjunction with the issuance of these debentures, TransMontaigne issued warrants to purchase 248,686 shares of common stock. The warrant exercise price was reduced effective April 26, 1995 from $6.10 per share to $3.60 per share, through December 15, 2000. (10) RESTRICTED STOCK TransMontaigne has a restricted stock plan that provides for awards of common stock to certain key employees, subject to forfeiture if employment terminates prior to the vesting dates. The market value of shares awarded under the plan is recorded in stockholders' equity as unearned compensation. During the quarter ended October 31, 1997, the TransMontaigne Board of Directors approved the issuance of 44,000 shares to certain key employees. Compensation expense is recognized over a four year vesting period. 13 (11) BUSINESS SEGMENTS TransMontaigne's primary operating business segment prior to November 1, 1996 was logistical petroleum services related to pipelining, terminaling, storing and marketing refined petroleum products. During the quarter ended January 31, 1997, TransMontaigne acquired the Grasslands facilities, expanded other natural gas gathering and processing assets and conducted service operations in that business segment. During the six months ended October 31, 1997 both business segments were operational. Only the logistical petroleum service segment conducted operations during the six months ended October 31, 1996. These activities for the six month periods ended October 31, 1997 and 1996 are reflected in the following summary.
Revenues 1997 1996 ----------------------- -------------------- Logistical petroleum services $ 976,535,401 470,822,944 Gas gathering and processing services 30,713,676 - ----------------------- -------------------- $ 1,007,249,077 470,822,944 ======================= ==================== Operating income Logistical petroleum services $ 7,603,333 4,612,714 Gas gathering and processing services 3,679,356 - Corporate (600,000) - ----------------------- -------------------- $ 10,682,689 4,612,714 ======================= ==================== Identifiable assets at the end of the six month period (net of depreciation) Logistical petroleum services $ 133,542,670 100,540,432 Gas gathering and processing services 88,216,891 2,339,109 Corporate 70,649,697 58,172,946 ----------------------- -------------------- $ 292,409,258 161,052,487 ======================= ==================== Depreciation and amortization Logistical petroleum services $ 849,251 818,701 Gas gathering and processing services 2,467,808 - Corporate 220,129 136,327 ----------------------- -------------------- $ 3,537,188 955,028 ======================= ==================== Capital expenditures Logistical petroleum services $ 5,599,410 3,096,248 Gas gathering and processing services 6,073,585 2,339,109 Corporate 705,591 401,920 ----------------------- -------------------- $ 12,378,586 5,837,277 ======================= ====================
The Corporate business segment represents all of TransMontaigne's activities and assets not specifically identified with the primary business segments, including cash and cash equivalents, investments and other assets. 14 (12) LION OIL COMPANY INVESTMENT Effective May 1, 1997 TransMontaigne Holding Inc., a 65% owned subsidiary of TransMontaigne, issued to its 35% minority shareholders irrevocable proxies to vote their 35% share of the 27.75% interest in Lion owned by TransMontaigne Holding Inc. to assure that the 35% minority interest shareholders would continue to post their pro rata share of $1,400,000 in standby letters of credit to assist Lion in obtaining financing. Since the issuance of the irrevocable proxies reduced TransMontaigne's voting interest in Lion from 27.75% to 18.0375%, TransMontaigne changed its method of accounting for the investment in Lion from the equity method, under which the investment originally recorded at cost is adjusted to recognize TransMontaigne's share of Lion's net earnings or losses as incurred, to the historical cost method, under which the investment is recorded at cost and dividends or other distributions are recognized as received. As of May 1, 1997 the investment in Lion by TransMontaigne Holding Inc. representing its original cost plus accumulated net earnings was $15,586,097 and the related minority interest was $5,475,377. (13) SUBSEQUENT EVENT In November 1997 TransMontaigne acquired the common stock of seventeen corporations, known as the "ITAPCO Terminal Corporations", and certain related property and property interests. The acquisition included seventeen bulk liquid storage and distribution terminals located in eight states having total tankage capacity in excess of 3.3 million barrels, handling primarily petroleum products and chemicals together with the related operations of the terminals; seven contracts for providing management consulting services to non-owned bulk liquid storage and distribution terminals, pipelines and related facilities for third parties; and certain other assets. The purchase price was $32,000,000 cash less assumption of an outstanding bank loan of approximately $542,000 and was funded from the bank credit facility and cash reserves. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL TransMontaigne provides a broad range of integrated transportation, terminaling, supply, distribution, gathering, processing and marketing services to producers, refiners, distributors, marketers and end-users of petroleum products, natural gas and crude oil in the downstream sector of the petroleum industry. TransMontaigne is a holding company which conducts its operations through subsidiaries primarily in the mid-continent and Rocky Mountain regions of the United States. TransMontaigne does not explore for, or produce, crude oil or natural gas, and owns no crude oil or natural gas reserves. TransMontaigne owns and operates refined petroleum product, crude oil and natural gas assets. TransMontaigne refined petroleum product and crude oil assets consist primarily of approximately 750 miles of pipeline and ten storage and terminal facilities located in seven states with a combined tank storage capacity of approximately 4,850,000 barrels. Its natural gas gathering and processing assets consist of six gathering and processing systems in three states with combined throughput capacity of approximately 86 million cubic feet per day and over 2,700 miles of pipelines. TransMontaigne also utilizes refined petroleum products common carrier pipelines and terminals owned by third parties in order to increase product volumes marketed to its customers in other locations. Management believes that the use of all these facilities will allow TransMontaigne to significantly expand its geographic service area and the types of services it provides. The principal predecessor of TransMontaigne was formed in 1977 under the name of Continental Ozark Corporation. In April 1995, present management and certain institutional stockholders of TransMontaigne acquired control of Continental Ozark Corporation through a merger in which the name of the corporation was changed to TransMontaigne Oil Company. In June 1996, TransMontaigne and a publicly held corporation merged, with the stockholders of TransMontaigne receiving approximately 93% of the stock of the merged corporation. Since TransMontaigne present management assumed control in April 1995, TransMontaigne has raised approximately $117,000,000 in equity capital ($30,000,000 private placement in May 1995; $25,000,000 private placement in March 1996; and $62,000,000 public offering in February 1997); 16 established an initial $130,000,000 working capital and acquisition revolving bank credit facility (in December 1996) which converted to the present $85,000,000 bank credit facility due December 31, 2001 (in February 1997); and issued $50,000,000 of 7.85% Senior Notes due 2003 to an institutional lender under a $100,000,000 Master Shelf Agreement (in April 1997). In December 1996 TransMontaigne acquired the Grasslands natural gas gathering, processing, treating and fractionation system (the "Grasslands Facilities") for approximately $71,000,000 in cash and through October 31, 1997 has additionally invested approximately $16,000,000 in improvements and expansion of the Grasslands Facilities and other assets in its natural gas gathering and processing business segment. The Grasslands Facilities complement TransMontaigne's other natural gas gathering and processing facilities in the Williston Basin of the Rocky Mountain region, and enables TransMontaigne to provide expanded services to oil and gas producers as well as to end-users of natural gas liquids and natural gas. The Grasslands Facilities contributed approximately 91% of the total net operating margin of TransMontaigne's natural gas gathering and processing business segment during the six months ended October 31, 1997. In November 1997 TransMontaigne acquired the common stock of seventeen corporations, known as the "ITAPCO Terminal Corporations", and certain related property and property interests. The acquisition included seventeen bulk liquid storage and distribution terminals located in eight states having total tankage capacity in excess of 3.3 million barrels, handling primarily petroleum products and chemicals together with the related operations of the terminals; seven contracts for providing management consulting services to non-owned bulk liquid storage and distribution terminals, pipelines and related facilities for third parties; and certain other assets. The purchase price was $32,000,000 cash less assumption of an outstanding bank loan of approximately $542,000 and was funded from the bank credit facility and cash reserves. 17 CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report contains "forward-looking statements" within the meaning of the federal securities laws and may include the words or phrases "believes," "will depend," "will become" and "plans to" or similar expressions as well as other statements of expectations, beliefs, future strategies and comments concerning matters which are not historical facts. These forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those expressed in or implied by the statements including, but not limited to, the following: . that TransMontaigne will generate net margins from high sales volumes . that TransMontaigne will generate net margins affected by price volatility of products purchased and sold . that TransMontaigne will selectively and effectively hedge certain inventory positions . that TransMontaigne will be required to recognize a noncash financial statement loss through a lower of cost or market write-down of inventories . that TransMontaigne will incur unanticipated costs in complying with current and possibly future environmental regulations . that TransMontaigne will capitalize on the trend by other companies in the oil and gas industry to divest assets and outsource certain services . that TransMontaigne will replace the supply of dedicated natural gas reserves gathered and processed by its facilities. 18 RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, SIX MONTHS ENDED OCTOBER 31, ---------------------------------- -------------------------------- 1997 1996 1997 1996 ----------------- --------------- ---------------- ------------ PIPELINE OPERATIONS Volume (1) 4,728 4,761 9,755 9,765 Revenues (2) $ 3,180 3,227 6,394 6,061 Net Operating Margins (2) $ 1,701 1,868 3,431 3,380 Margin per barrel handled $ 0.3598 0.3924 0.3517 0.3461 TERMINAL OPERATIONS Volume (1) 307,000 177,000 593,000 352,000 Revenues (2) $ 2,234 1,200 4,368 2,375 Net Operating Margins (2) $ 1,445 796 2,895 1,748 Margin per gallon handled $ 0.0047 0.0045 0.0049 0.0050 PRODUCTS SUPPLY AND DISTRIBUTION OPERATIONS Volume (1) 909,000 435,000 1,665,000 746,000 Revenues (2) $ 523,190 272,344 965,773 462,387 Net Operating Margins (2) $ 2,446 1,971 6,026 3,598 Margin per gallon sold $ 0.0027 0.0045 0.0036 0.0048 GAS GATHERING AND PROCESSING OPERATIONS Inlet Volume (3) 5,523 - 10,064 - NGL Production (3) 25,056 - 48,762 - Residue Production (3) 4,250,322 - 7,905,394 - Revenues (2) $ 16,496 - 30,714 - Net Operating Margins (2) $ 4,357 - 7,792 - TOTAL OPERATIONS Revenues (2) $ 545,100 276,771 1,007,249 470,823 Net Operating Margins (2) $ 9,949 4,635 20,144 8,726 Net Earnings (2) $ 2,397 2,673 5,407 4,480
(1) Pipeline volumes are expressed in thousands of barrels (42 gallons per barrel); terminal and products supply and distribution volumes are expressed in thousands of gallons. (2) Revenues, net operating margins, and net earnings are expressed in thousands of dollars. Net operating margin represents revenues less direct operating expenses for pipeline and terminal operations; revenues less cost of refined petroleum products purchased for products supply and distribution operations, and revenues less cost of natural gas gathered, processed and sold and direct operating expenses for natural gas gathering and processing operations. 19 (3) Natural gas inlet volumes are expressed in million cubic feet; natural gas liquids (NGLs) production is expressed in thousands of gallons; and residue natural gas production is expressed in million British Thermal Units. Prior to the acquisition of the Grasslands Facilities in December 1996, TransMontaigne's revenues were derived from the logistical petroleum services business segment consisting primarily of transporting refined petroleum products (and to a lesser extent crude oil) in pipelines; storing and terminaling refined petroleum products; and refined petroleum products supply, distribution and marketing. Natural gas gathering and processing services became an important business segment with the acquisition of the Grasslands Facilities and will have a significant impact on TransMontaigne's future results of operations. Pipeline revenues are based on the volume of refined petroleum products or crude oil transported and the distance from the origin point to the delivery point. TransMontaigne's interstate pipeline systems transport refined petroleum products and their tariffs are regulated by the Federal Energy Regulatory Commission (the "FERC"). TransMontaigne's intrastate pipeline transports crude oil and its tariffs are not regulated by the FERC but are regulated by the Texas Railroad Commission. Terminal revenues are based on the volume of refined petroleum products handled, generally at a standard per gallon rate. Terminal fees are not regulated. Storage fees are generally based on a per gallon rate, which varies with the duration of the storage arrangement, the refined petroleum product stored and special handling requirements. Storage fees are not regulated. Direct operating expenses of pipelines and terminals include wages and employee benefits, utilities, communications, maintenance and repairs, property taxes, rent, insurance, vehicle expenses, environmental protection costs, materials and supplies. Products supply and distribution revenues are based on the volume of bulk sales of refined petroleum products and the wholesale distribution of refined petroleum products from terminals. Bulk purchase and sale transactions in quantities of 25,000 barrels to 50,000 barrels are common and are generally made at small margins. Wholesale distribution of refined petroleum products is conducted 20 from seven proprietary and seventy-one nonproprietary terminal truck loading rack locations and is primarily represented by truck load sales of 8,000 gallons. Natural gas gathering and processing revenues are based on the inlet volume of natural gas purchased from producers under both percentage of proceeds and fee based arrangements. Natural gas is gathered and processed into NGL products, principally propane, butane and natural gasoline. These products are transported by truck or pipeline to storage facilities from which they are further transported and marketed by TransMontaigne to wholesalers and end-users. Residue natural gas is delivered to and marketed through connections with interstate pipelines. Direct operating expenses of natural gas gathering and processing include wages and employee benefits, utilities, maintenance and repairs, property taxes, insurance, vehicle expenses, environmental protection costs, material and supplies. THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THREE MONTHS ENDED OCTOBER 31, 1996 The net operating margin from pipeline operations of $1,701,000 decreased 9%, or $167,000, in the current year quarter. This decrease resulted primarily from a 9% increase in operating costs of $120,000, primarily due to incremental power costs from additional long haul shipment volumes and increased field personnel costs, maintenance and vehicle expense. A decrease in the volumes of lower tariff short haul pipeline shipments, together with decreases in joint tariff participation, which were partially offset by a slight increase in the volumes of higher tariff long haul pipeline shipments, resulted in a 1% decrease in revenues of $47,000 in the current year quarter. The net operating margin from terminal operations of $1,445,000 increased 82%, or $649,000 in the current year quarter. This increase resulted from an overall 73% increase in volumes handled, primarily due to additional volumes at the East Chicago terminal facility acquired in December 1996 and new jet fuel contract volumes at the Indianapolis, Indiana terminal; offset in part by a 95% increase in terminal operating costs attributable to expanded East Chicago terminal operations, a new terminal lease, additional freight charges on products and increased field personnel costs and maintenance expenses. 21 The net operating margin from product sales of $2,446,000 increased 24%, or $475,000, in the current year quarter. Net revenues increased $250,846,000, or 92%, on additional volume of 474,000,000 gallons of products sold, an increase of 109%. The $.0027 net operating margin per gallon realized in the current year quarter decreased $.0018, or 40%, from the $.0045 per gallon realized during the prior year quarter, notwithstanding the significant increase in sales volume which was largely attributable to TransMontaigne's continuing and expanding supply, distribution and marketing program. The lower net operating margin was impacted by generally weaker pricing conditions in the bulk sales market. Overall, however, the increased product sales volume contributed to a small increase in long haul pipeline volumes and a large increase in terminal throughput volumes, which resulted in increasing the related revenues. By providing an integrated logistical service to customers through the effective utilization of its transportation, storage and terminaling facilities as well as its product supply, distribution and marketing capabilities, TransMontaigne's aggregate net operating margin from the logistical petroleum services business segment was $5,592,000 in the current year quarter, an increase of $957,000, or 21%, over the prior year quarter. The net operating margin from natural gas gathering and processing operations of $4,357,000 in the current year quarter is primarily attributable to the business activities of the Grasslands facilities, and also includes net operating margin contributions from the Marmarth, Baker, Lignite and Wiggins facilities as well as management fees from fifteen small natural gas gathering systems. The unaudited pro forma results of operations reflected in Note 3 to the Consolidated Financial Statements include the pro forma historical operating performance of the Grasslands facilities under prior ownership and are presented for comparative purposes. Included in the pro forma information are actual Grasslands Facilities revenues of $14,604,000 for the three months ended October 31, 1997 representing an increase of $1,945,000, or 15%, over pro forma historical revenues of $12,659,000 for the prior year quarter. This revenue increase was primarily due to improved product prices for NGLs and residue natural gas together with an increase in product volumes sold. The actual net operating margin from Grasslands Facilities operations for the current year quarter was $3,968,000, a 12% increase of $426,000 over the pro forma historical net operating margin of $3,542,000 for the prior year quarter. This increase resulted primarily from improved product prices and decreased operating expenses together with the impact of a conversion of a natural gas gathering agreement from a fee based to a percentage of proceeds arrangement. 22 General and administrative expenses increased $1,481,000, an 89% increase in the current year quarter, primarily due to additional personnel costs. In addition, office lease expense increased as well as regulatory reporting, travel, insurance, information systems and communication expenses. A significant portion of these expense increases was attributable to TransMontaigne's expanded natural gas gathering and processing business activities. Other income is primarily interest income. In the prior year quarter other income included TransMontaigne's share of Lion's earnings, net of related minority interests, of approximately $482,000 and also interest income of $431,000. The $150,000 increase in interest income in the current year quarter was due primarily to an increase in interest bearing cash balances held for future investments. Interest expense represents interest on the bank credit facility and senior promissory notes which were used primarily to finance the Grasslands Facilities acquisition, other continuing capital expenditures, additional inventory and accounts receivable. Also included is interest on TransMontaigne's senior subordinated debentures. Other financing costs principally includes commitment fees and amortization of debt acquisition costs paid in connection with the credit facility. Interest expense and financing costs during the current year quarter increased $978,000, or 134%, of which $872,000 was an increase in interest expense over the prior year quarter due primarily to an increase of approximately $43,000,000 in average outstanding debt over the prior year quarter. Earnings before income taxes of TransMontaigne for the current year quarter were $3,867,000, a 34% increase of $984,000 over the $2,883,000 for the prior year quarter. This improvement was primarily a result of the aggregate increase in the logistical petroleum services business segment net operating margin; the positive impact of the net operating margin contribution from the gas gathering and processing business segment attributable essentially to the Grasslands Facilities operations; and additional interest income. These increases were partially offset by increased general and administrative expenses, depreciation of $1,311,000 and interest expense, primarily attributable to the Grasslands Facilities. Income tax expense for the current year quarter of $1,470,000 is based upon estimated combined federal and state income tax whereas only state income tax was provided for the prior year quarter. At April 30, 1997 TransMontaigne determined that its net deferred tax assets would more likely than not be realized, and recognized an income tax benefit in the year ended April 30, 1997 for the remaining 23 balance of the previously recorded valuation allowance. As a result of this prior year recognition of the net deferred tax assets, deferred income tax expense of $1,406,000 was provided in the current year quarter against net earnings before income tax whereas a tax provision was not required in the prior year quarter. Net earnings of TransMontaigne for the current year quarter, after providing for income taxes, were $2,397,000 compared to $2,673,000 for the prior year quarter, a decrease of 10%. SIX MONTHS ENDED OCTOBER 31, 1997 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1996 The net operating margin from pipeline operations of $3,431,000 increased 2%, or $51,000, in the current six month period. This increase resulted primarily from a net increase in the volumes of higher tariff long haul pipeline shipments, together with increases in joint tariff participation and terminal facility rental income, resulting in a 5% increase in revenues of $333,000 which was partially offset by an 11% increase in operating costs of $282,000, primarily due to incremental power costs from additional long haul shipment volumes and increased field personnel costs, maintenance and vehicle expenses. The net operating margin from terminal operations of $2,895,000 increased 66%, or $1,147,000 in the current six month period. This increase resulted from an overall 68% increase in volumes handled, primarily due to additional volumes at the East Chicago terminal facility acquired in December 1996 and new jet fuel contract volumes at the Indianapolis, Indiana terminal; offset in part by a 135% increase in terminal operating costs attributable to expanded East Chicago terminal operations, a new terminal lease, additional freight charges on products and increased field personnel costs and maintenance expenses. The net operating margin from product sales of $6,026,000 increased 67%, or $2,428,000, in the current six month period. Net revenues increased $503,386,000, or 109%, on additional volume of 919,000,000 gallons of products sold, an increase of 123%. The $.0036 net operating margin per gallon realized in the six months ended decreased $.0012, or 25%, from the $.0048 per gallon realized during the prior year six month period, notwithstanding the significant increase in sales volume which was largely attributable to TransMontaigne's continuing and expanding supply, distribution and marketing program. The lower net operating margin was impacted by generally weaker pricing conditions in the 24 bulk sales market. Overall, however, the increased product sales volume contributed to a small increase in long haul pipeline volumes and a large increase terminal throughput volumes, which resulted in increasing the related revenues. By providing an integrated logistical service to customers through the effective utilization of its transportation, storage and terminaling facilities as well as its product supply, distribution and marketing capabilities, TransMontaigne's aggregate net operating margin from the logistical petroleum services business segment was $12,352,000 in the current six month period an increase of $3,626,000, or 42%, over the prior year six month period. The net operating margin from natural gas gathering and processing operations of $7,792,000 in the current six month period is primarily attributable to the business activities of the Grasslands facilities, and also includes net operating margin contributions from the Marmarth, Baker, Lignite and Wiggins facilities as well as management fees from fifteen small natural gas gathering systems. The unaudited pro forma results of operations reflected in Note 3 to the Consolidated Financial Statements include the pro forma historical operating performance of the Grasslands facilities under prior ownership and are presented for comparative purposes. Included in the pro forma information are actual Grasslands Facilities revenues of $27,193,000 for the six months ended October 31, 1997 representing an increase of $3,545,000, or 15%, over pro forma historical revenues of $23,648,000 for the prior year six month period. This revenue increase was primarily due to improved product prices for NGLs and residue natural gas together with an increase in product volumes sold. The actual net operating margin from Grasslands Facilities operations for the current six month period was $7,128,000, a 13% increase of $839,000 over the pro forma historical net operating margin of $6,289,000 for the prior year six month period. This increase resulted primarily from improved product prices and decreased operating expenses together with the impact of a conversion of a natural gas gathering agreement from a fee based to a percentage of proceeds arrangement. General and administrative expenses increased $2,766,000, an 88% increase in the current six month period, primarily due to additional personnel costs. In addition, office lease expense increased as well as employee relocation, regulatory reporting, travel, insurance, information systems and communication expenses. A significant portion of these expense increases was attributable to TransMontaigne's expanded natural gas gathering and processing business activities. 25 Other income is primarily interest income. In the prior year six month period other income included TransMontaigne's share of Lion's earnings, net of related minority interests, of approximately $291,000 and also interest income of $893,000. The $253,000 increase in interest income in the current six month period was due primarily to an increase in interest bearing cash balances held for future investments. Interest expense represents interest on the bank credit facility and senior promissory notes which were used primarily to finance the Grasslands Facilities acquisition, other continuing capital expenditures, additional inventory and accounts receivable. Also included is interest on TransMontaigne's senior subordinated debentures. Other financing costs principally includes commitment fees and amortization of debt acquisition costs paid in connection with the credit facility. Interest expense and financing costs during the six months ended increased $1,981,000, or 145%, of which $1,769,000 was an increase in interest expense over the prior year six month period due primarily to an increase of approximately $42,000,000 in average outstanding debt over the prior year six month period. Earnings before income taxes of TransMontaigne for the current six month period were $8,477,000, a 78% increase of $3,727,000 over the $4,750,000 for the prior year six month period. This improvement was primarily a result of the aggregate increase in the logistical petroleum services business segment net operating margin; the positive impact of the net operating margin contribution from the gas gathering and processing business segment attributable essentially to the inclusion of the Grasslands Facilities operations; and additional interest income. These increases were partially offset by increased general and administrative expenses, depreciation of $2,582,000 and interest expenses primarily attributable to the Grasslands Facilities. Income tax expense for the current six month period of $3,070,000 is based upon estimated combined federal and state income tax whereas only state income tax was provided for the prior year six month period. At April 30, 1997 TransMontaigne determined that its net deferred tax assets would more likely than not be realized, and recognized an income tax benefit in the year ended April 30, 1997 for the remaining balance of the previously recorded valuation allowance. As a result of this prior year recognition of the net deferred tax assets, deferred income tax expense of $2,906,000 was provided in the current six month period against net earnings before income tax whereas a tax provision was not required in the prior year six month period. 26 Net earnings of TransMontaigne for the current six month period, after providing for income taxes, were $5,407,000 compared to $4,480,000 for the prior year six month period, an increase of 21%. LIQUIDITY AND CAPITAL RESOURCES The following summary reflects TransMontaigne's comparative net cash flows for the six months ended October 31, 1997 and 1996.
Six Months Ended October 31, ---------------------------------- 1997 1996 ---------------- ---------------- Net cash (used) by operating activities $ (2,638,000) (10,383,000) Net cash (used) by investing activities $ (12,588,000) (4,044,000) Net cash provided by financing activities $ 24,606,000 9,025,000
Net cash used by operating activities in the current year six month period decreased $7,745,000 from the prior year six month period. This decrease in net cash used, which represents an increase in net cash generated over the prior year six month period, resulted from increased net earnings, depreciation and amortization; deferred income tax expense; decreased trade receivables from refined petroleum products and NGL sales; increased inventory due under exchange agreements; and increased excise taxes payable. Partially offsetting the foregoing were decreased trade payables to suppliers of inventory; and increased petroleum product inventory levels required to meet expanded levels of pipeline, terminaling and products supply and distribution operations during the current year six month period. Net cash used by investing activities in the current year six month period increased $8,544,000 from the prior year six month period. This increase in net cash used, which represents a decrease in net cash generated over the prior year six month period, resulted from capital expenditures of $12,379,000 for additions and improvements to pipeline, terminals and natural gas gathering and processing facilities, including approximately $6,074,000 for expansion of the Grasslands facilities and other assets in the 27 natural gas gathering and processing business segment. During the prior year six month period capital expenditures were $5,837,000 and $2,316,000 in cash was received in connection with an acquisition. Net cash provided by financing activities in the current year six month period increased $15,581,000 from the prior year six month period. This increase, which represents a net cash increase over the prior year six month period, resulted from net long-term borrowings primarily related to the improvement and expansion of natural gas gathering and processing facilities and terminal facilities. EBITDA represents earnings before income taxes plus interest expense and other financing costs and depreciation and amortization. Management uses EBITDA as part of its overall assessment of TransMontaigne's performance by analyzing and comparing EBITDA between reporting periods. Management believes that, in addition to cash flow from operations and net earnings as indicators of operating performance, EBITDA is used increasingly by the financial community to measure operating effectiveness and as a method to evaluate the market value of companies like TransMontaigne. EBITDA is also used to evaluate TransMontaigne's ability to incur and service debt and to fund capital expenditures, although it is not considered in isolation or a substitute for the other measurements of performance and liquidity. EBITDA for the current year six month period was $15,365,000, a 117% increase over EBITDA of $7,075,000 for the prior year six month period, and was generally consistent with management's expectations, based upon TransMontaigne's operations and economic conditions. Several anticipated sources of revenues which would have contributed additional EBITDA in the current year six month period were either delayed or did not fully reach expected volume levels. These delays and reduced volumes are considered by management to be only temporary and should not impact TransMontaigne's future operating performance. Capital expenditures during the current year six month period were $12,379,000 and for the year ending April 30, 1998 are estimated to be approximately $60,000,000 for pipeline, terminal and natural gas gathering and processing facilities, including assets to support these facilities, and including the $32,000,000 expended in connection with the acquisition of the ITAPCO terminals in November, 1997. On a regular basis management identifies and is offered prospective asset acquisitions which are analyzed and evaluated to determine their operational suitability and potential financial contribution to TransMontaigne's cash flow, net earnings and EBITDA. Future capital expenditures will depend on numerous factors in addition to operating and financial considerations, including the availability, economics and cost of appropriate asset acquisitions; the economics, cost and required regulatory 28 approvals of expanding and enhancing existing systems and facilities; the demand for the services TransMontaigne provides; local, state and federal governmental regulations; the evaluation of environmental considerations and compliance requirements; fuel conservation efforts; and the availability, to the extent required, of financing on acceptable terms. In February 1997, TransMontaigne closed a public offering of 4,357,000 shares of its common stock of which 4,035,000 shares were issued and sold by TransMontaigne and 322,000 shares were sold by certain selling stockholders. The net proceeds to TransMontaigne, based on the public offering price of $14.25 per share, were $53,506,000 after deducting underwriting discounts and commissions and offering costs, of which $45,000,000 was used to repay a portion of the long-term debt incurred under its bank credit facility and the balance added to working capital. In March 1997 the underwriters' overallotment option to purchase an additional 557,543 shares and the Merrill Lynch Growth Fund antidilution right to purchase an additional 98,390 shares were both exercised and TransMontaigne received additional net proceeds of $8,809,000 which was added to working capital. The TransMontaigne bank credit facility at October 31, 1997 is an $85,000,000 revolving credit facility with a money center bank due December 31, 2001. The amount available under the bank credit facility is to be reduced by $3,125,000 each calendar quarter beginning March 31, 2000. Borrowings under the bank credit facility generally bear interest at an annual rate equal to the lender's announced Base Rate, subject to a Eurodollar pricing option at TransMontaigne's election. The average interest rate at October 31, 1997 was 6.79%. At October 31, 1997, TransMontaigne had advances of $35,000,000 outstanding under the bank credit facility; $2,600,000 of the facility was used to support a standby letter of credit to a bank to assist Lion in obtaining financing. In April 1997 TransMontaigne entered into a Master Shelf Agreement with an institutional lender which provides that the lender will agree to quote, from time to time, an interest rate at which the lender would be willing to purchase, on an uncommitted basis, up to $100,000,000 of TransMontaigne's senior promissory notes which will mature in no more than 12 years, with an average life not in excess of 10 years. 29 At October 31, 1997, TransMontaigne had outstanding under the Master Shelf Agreement, $50,000,000 of 7.85% Senior Notes due 2003. The bank credit facility agreement and the Master Shelf Agreement contain a negative pledge covenant by TransMontaigne and its subsidiaries and are secured by the stock of the subsidiaries. These agreements also include financial tests relating to fixed charges coverage, leverage ratio, consolidated tangible net worth, distributions and inventory positions. At October 31, 1997, TransMontaigne was in compliance with all of such tests. As of April 30, 1997, TransMontaigne's fiscal year end, it had approximately $18,339,000 of net operating loss carryforwards for federal income tax purposes which are available to offset taxable income through 2010. Due to changes in ownership which occurred prior to April 30, 1997, the use of these net operating loss carryforwards to offset taxable income is limited to approximately $4,300,000 annually. As a result of the merger in June 1996, TransMontaigne acquired additional net operating loss carryforwards of approximately $7,892,000, which are included in the aggregate net operating loss carryforwards; are limited to approximately $1,300,000 annually; and a portion of the tax benefit of which was recognized as a net reduction of goodwill recorded in the acquisition. At October 31, 1997 TransMontaigne had working capital of $99,434,000, availability under its bank credit facility of $47,400,000 and additional borrowing capacity of $50,000,000 under the Master Shelf Agreement. Management believes that TransMontaigne's current working capital position; future cash provided by operating activities; proceeds from the private placement or public offering of common stock; available borrowing permitted under its bank credit facility agreement and the Master Shelf Agreement; additional borrowing allowed under those agreements; and its relationship with institutional lenders and equity investors should enable it to meet its future capital requirements. 30 EBITDA AS AN ALTERNATIVE MEASURE OF FINANCIAL PERFORMANCE EBITDA is earnings (loss) before income taxes plus interest expense and other financing costs and depreciation and amortization. TransMontaigne believes that, in addition to cash flow from operations and net earnings (loss), EBITDA is a useful financial performance measurement for assessing operating performance since it provides an additional basis to evaluate the ability of TransMontaigne to incur and service debt and to fund capital expenditures. In evaluating EBITDA, TransMontaigne believes that consideration should be given, among other things, to the amount by which EBITDA exceeds interest costs for the period, how EBITDA compares to principal repayments on debt for the period and how EBITDA compares to capital expenditures for the period. To evaluate EBITDA, the components of EBITDA such as revenue and operating expenses and the variability of such components over time, should also be considered. EBITDA should not be construed, however, as an alternative to operating income (loss) (as determined in accordance with generally accepted accounting principles (GAAP)) as an indicator of TransMontaigne's operating performance or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. TransMontaigne's method of calculating EBITDA may differ from methods used by other companies, and as a result, EBITDA measures disclosed herein may not be comparable to other similarly titled measures used by other companies. 31 PART II. OTHER INFORMATION - -------------------------- ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting held on August 28, 1997, the stockholders of the Company (a) elected seven directors; (b) approved the Company's Equity Incentive Plan; and (c) ratified the appointment of KPMG Peat Marwick LLP as independent auditors for the Company for the fiscal year ending April 30, 1998. The following persons were elected as directors: Cortlandt S. Dietler Richard E. Gathright John A. Hill Bryan H. Lawrence Harold R. Logan, Jr. William E. Macaulay Edwin H. Morgens 18,900,540 votes were cast for each of the nominees and 66,827 votes were withheld for each. 16,725,496 votes were cast in favor of approval of the Equity Incentive Plan. 1,235,504 votes were cast against the Plan, 35,178 votes abstained and there were 972,230 broker non-votes. With respect to the ratification of the appointment of KPMG Peat Marwick LLP as independent auditors for the company for the fiscal year ending April 30, 1998, 18,964,263 votes were cast in favor of such ratification, 1,569 votes were cast against such ratifications, 2,576 votes abstained from voting and there were no broker non-votes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 Equity Incentive Plan. Incorporated by reference to the Registrant's definitive proxy statement filed August 8, 1997, with respect to its annual meeting held August 28, 1997, file no. 001- 11763. 27 Financial Data Schedule. FILED HEREWITH (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended October 31, 1997. 32 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: December 12, 1997 TRANSMONTAIGNE OIL COMPANY (Registrant) /s/ CORTLANDT S. DIETLER -------------------------------------------- Cortlandt S. Dietler Chairman and Chief Executive Officer /s/ RODNEY S. PLESS -------------------------------------------- Rodney S. Pless Vice President and Controller (Principal Accounting Officer) 33 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS APR-30-1998 MAY-01-1997 OCT-31-1997 45,764,652 0 39,926,328 0 64,452,354 152,683,589 133,577,721 (14,171,962) 292,409,258 53,249,906 88,964,467 0 0 259,144 144,460,364 292,409,258 0 1,007,249,077 0 996,566,388 0 0 3,067,523 8,477,037 3,070,000 5,407,037 0 0 0 5,407,037 0.20 0.20
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