UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 2001
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 001-11763
TRANSMONTAIGNE INC.
Delaware 06-1052062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2750 Republic Plaza, 370 Seventeenth Street
Denver, Colorado 80202
(Address, including zip code, of principal executive offices)
(303) 626-8200
(Telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of April 30, 2001 there were 31,751,669 shares of the registrant's Common
Stock outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2001 and June 30, 2000 (Unaudited).............................. 4
Consolidated Statements of Operations
Three Months and Nine Months Ended March 31, 2001 and 2000 (Unaudited).... 5
Consolidated Statements of Stockholders' Equity
Year Ended June 30, 2000 and Nine Months Ended
March 31, 2001 (Unaudited)................................................ 6
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2001 and 2000 (Unaudited)..................... 7
Notes to Consolidated Financial Statements................................ 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk................ 28
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................... 29
Signatures................................................................ 30
2
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of TransMontaigne Inc. ("the
Company") are included herein beginning on the following page.
3
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2001 and June 30, 2000 (Unaudited)
(In thousands)
March 31, June 31,
Assets 2001 2000
------ --------- ---------
Current assets:
Cash and cash equivalents $ 14,842 53,938
Trade accounts receivable, net 114,043 117,739
Inventories 185,049 240,867
Assets from price risk management activities 36,432 16,038
Prepaid expenses and other 6,597 6,074
----------- --------
356,963 434,656
----------- --------
Property, plant and equipment:
Land 15,778 15,885
Plant and equipment 351,087 345,052
Accumulated depreciation (52,423) (38,710)
----------- --------
314,442 322,227
----------- --------
Investments and other assets:
Investments in petroleum related assets 47,723 46,152
Deferred tax assets, net 17,751 19,168
Deferred debt issuance costs, net 8,132 10,274
Other assets, net 1,024 2,095
----------- --------
74,630 77,689
----------- --------
$ 746,035 834,572
=========== ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Trade accounts payable $ 67,935 103,685
Inventory due under exchange agreements 72,575 125,258
Liabilities from price risk management activities 15,551 30,376
Excise taxes payable 41,517 27,582
Other accrued liabilities 10,380 8,577
Current portion of long-term debt 2,370 4,370
----------- --------
210,328 299,848
----------- --------
Long-term debt, less current portion 202,849 202,625
Stockholders' equity:
Series A Convertible Preferred stock, par value $1,000 per share,
authorized 2,000,000 shares, issued and outstanding 172,454
shares at March 31, 2001, and 170,115 shares at
June 30, 2000, liquidation preference of $172,454 172,454 170,115
Common stock, par value $.01 per share, authorized
80,000,000 shares, issued and outstanding 31,735,969 shares at
March 31, 2001 and 30,730,524 shares at June 30, 2000 317 307
Capital in excess of par value 205,014 201,076
Unearned compensation (2,877) (1,465)
Accumulated deficit (42,050) (37,934)
----------- --------
332,858 332,099
----------- --------
$ 746,035 834,572
=========== ========
See accompanying notes to consolidated financial statements.
4
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months and Nine Months Ended March 31, 2001 and 2000 (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Three Months Ended
March 31, March 31,
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues: $ 1,278,387 1,209,470 3,782,830 3,681,502
Costs and expenses:
Product costs 1,245,523 1,175,296 3,696,391 3,603,635
Direct operating expenses 9,944 8,147 26,842 33,202
Impairment of long lived assets - - - 50,136
Selling, general and administrative 9,102 8,730 24,496 28,487
Depreciation and amortization 4,927 4,730 14,595 17,371
----------- ----------- ----------- -----------
1,269,496 1,196,903 3,762,324 3,732,831
----------- ----------- ----------- -----------
Operating income (loss) 8,891 12,567 20,506 (51,329)
Other income (expenses):
Dividend income from and equity in earnings of petroleum
related investments 766 345 2,505 1,119
Interest income 262 514 1,537 1,696
Interest expense (4,376) (4,667) (13,647) (23,424)
Other financing (cost) income (175) (224) 466 (714)
Amortization of deferred debt issuance costs (1,941) (872) (3,891) (6,663)
Unrealized loss on interest rate swap (2,679) - (3,491) -
Gain (loss) on disposition of assets - (1,566) 8 15,021
----------- ----------- ----------- -----------
(8,143) (6,470) (16,513) (12,965)
----------- ----------- ----------- -----------
Earnings (loss) before income taxes 748 6,097 3,993 (64,294)
Income tax (expense) benefit (284) (2,442) (1,517) 25,718
----------- ----------- ----------- -----------
Net earnings (loss) 464 3,655 2,476 (38,576)
Preferred stock dividends (2,339) (2,126) (6,592) (6,379)
----------- ----------- ----------- -----------
Net earnings (loss) attributable to
common stockholders $ (1,875) 1,529 (4,116) (44,955)
=========== =========== =========== ===========
Weighted average common
shares outstanding - basic and diluted
Basic 31,743 30,630 31,342 30,569
=========== =========== =========== ===========
Diluted 31,743 30,947 31,342 30,569
=========== =========== =========== ===========
Earnings (loss) per common share - basic and diluted
Basic $ (0.06) 0.05 (0.13) (1.47)
=========== =========== =========== ===========
Diluted $ (0.06) 0.05 (0.13) (1.47)
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
5
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Year Ended June 30, 2000 and Nine Months Ended March 31, 2001 (Unaudited)
(In thousands)
Capital in Retained earnings
Preferred Common excess of Unearned (accumulated
stock stock par value compensation deficit) Total
----------- ------ ---------- ------------ ----------------- -------
Balance at June 30, 1999 $ 170,115 305 197,123 - 8,509 376,052
Common stock issued for
options exercised - - 136 - - 136
Tax expense from vesting of
restricted stock - - (68) - - (68)
Unearned compensation related
to restricted stock awards - 2 1,863 (1,865) - -
Amortization of unearned
compensation - - - 400 - 400
Compensation expense related to
extension of exercise period
of options - - 2,022 - - 2,022
Preferred stock dividends - - - - (8,506) (8,506)
Net loss - - - - (37,937) (37,937)
----------- ------ ---------- ------------ ----------------- -------
Balance at June 30, 2000 170,115 307 201,076 (1,465) (37,934) 332,099
----------- ------ ---------- ------------ ----------------- -------
Common stock issued for
options and warrants exercised - 5 1,600 - - 1,605
Unearned compensation related
to restricted stock awards - 5 2,338 (2,343) - -
Amortization of unearned
compensation - - - 931 - 931
Preferred stock dividends 2,339 - - - (6,592) (4,253)
Net earnings - - - - 2,476 2,476
----------- ------ ---------- ------------ ----------------- -------
Balance at March 31, 2001 $ 172,454 317 205,014 (2,877) (42,050) 332,858
=========== ====== ========== ============ ================= =======
See accompanying notes to consolidated financial statements.
6
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2001 and 2000 (Unaudited)
(In thousands)
Nine Months Ended
March 31,
------------------------------------------
2001 2000
------------------- ------------------
Cash flows from operating activities:
Net earnings (loss) $ 2,476 (38,576)
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 14,595 17,371
Deferred tax expense (benefit) 1,417 (25,718)
Gain on disposition of assets (8) (15,024)
Impairment of long lived assets - 50,136
Amortization of unearned compensation 931 239
Amortization of deferred debt issuance costs 3,891 6,663
Changes in operating assets and liabilities,
net of non-cash activities:
Trade accounts receivable 3,696 46,099
Inventories 55,818 185,312
Prepaid expenses and other (523) (1,007)
Trade accounts payable (35,750) (55,190)
Assets and liabilities from price risk
management activities (35,219) 16,678
Inventory due under exchange (52,683) 47,687
agreements
Excise taxes payable and other
accrued liabilities 15,738 1,513
------------------- ------------------
Net cash provided (used)
by operating activities (25,621) 236,183
------------------- ------------------
Cash flows from investing activities:
Purchases of property, plant and equipment (7,986) (52,894)
Proceeds from sale of assets 1,184 137,325
Decrease (increase) in investment and other assets, net (500) 574
------------------- ------------------
Net cash provided (used)
by investing activities (7,302) 85,005
------------------- ------------------
Cash flows from financing activities:
Repayments of long-term debt, net (1,776) (290,680)
Deferred debt issuance costs (1,749) (4,833)
Common stock issued for cash 1,605 92
Preferred stock dividends paid (4,253) (6,379)
------------------- ------------------
Net cash used
by financing activities (6,173) (301,800)
------------------- ------------------
Increase (decrease) in
cash and cash equivalents (39,096) 19,388
Cash and cash equivalents at beginning of period 53,938 13,927
------------------- ------------------
Cash and cash equivalents at end of period $ 14,842 33,315
=================== ==================
See accompanying notes to consolidated financial statements.
7
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Nature of Business and Basis of Presentation
TransMontaigne Inc., a Delaware corporation, ("the Company") provides a
broad range of integrated supply, distribution, marketing, terminaling,
storage and transportation services to producers, refiners, distributors,
marketers and industrial end-users of petroleum products, chemicals, crude
oil and other bulk liquids in the midstream sector of the petroleum and
chemical industries. The Company is a holding company that conducts the
majority of its operations through wholly owned subsidiaries primarily in
the Mid-Continent, Gulf Coast, Southeast, Mid-Atlantic and Northeast
regions of the United States.
The Company's commercial operations are divided into supply, distribution
and marketing of refined petroleum products; terminals, which includes
terminaling and storage services; and pipelines. The Company, through a
wholly owned subsidiary, historically provided selected natural gas
services including the gathering, processing, fractionating and marketing
of natural gas liquids ("NGL") and natural gas. This subsidiary was
divested as of December 31, 1999.
Principles of Consolidation and Use of Estimates
The consolidated financial statements included in this Form 10-Q have been
prepared by the Company 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 the Company's 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 the
Company believes that the disclosures are adequate to make the information
presented not misleading. These consolidated financial statements should be
read in conjunction with the financial statements and related notes,
together with management's discussion and analysis of financial condition
and results of operations included in the Company's Annual Report on Form
10-K for the year ended June 30, 2000.
The accounting and financial reporting policies of the Company and its
subsidiaries conform to generally accepted accounting principles and
prevailing industry practices. The consolidated financial statements
include all the majority owned subsidiaries of the Company. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Changes in
these estimates and assumptions will occur as a result of the passage of
time and the occurrence of future events, and actual results will differ
from the estimates.
"TransMontaigne" and "the Company" are used as collective references to
TransMontaigne Inc. and its subsidiaries and affiliates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
8
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001 (Unaudited)
(1) Summary of Significant Accounting Policies (continued)
Inventories
Inventories consist primarily of refined products stated at market.
Refined products due from third parties under exchange agreements are
included in inventory and recorded at current replacement cost. Refined
products due to third parties under exchange agreements are recorded at
current replacement cost. Adjustments resulting from changes in current
replacement cost for refined products due to or from third parties under
exchange agreements are reflected in product costs. The exchange agreements
are typically for a term of 30 days and are generally settled by delivering
product to or receiving product from the party to the exchange.
The Company's Risk Management Committee reviews the total inventory and
risk position on a regular basis in order to ensure compliance with the
Company's inventory management policies, including hedging and trading
activities. The Company has adopted policies under which changes to its net
inventory position subject to price risk requires the prior approval of the
Audit Committee.
Accounting for Price Risk Management
In connection with its products supply, distribution and marketing
commercial operations, the Company engages in price risk management
activities. The Company's price risk management activities are energy-
trading activities as defined by Emerging Issues Task Force Consensus 98-10
(EITF 98-10), Accounting for Contracts Involved in Energy Trading and Risk
Management Activities. As such, the financial instruments utilized are
marked to market in accordance with the guidance set forth in EITF 98-10.
Under the mark-to-market method of accounting, forwards, swaps, options and
other financial instruments with third parties are reflected at market
value, net of future physical delivery related costs, and are shown as
"Assets and Liabilities from Price Risk Management Activities" in the
Consolidated Balance Sheet. Unrealized gains and losses from newly
originated contracts, contract restructurings and the impact of price
movements are included in operating income. Changes in the assets and
liabilities from price risk management activities result primarily from
changes in the valuation of the portfolio of contracts, newly initiated
transactions and the timing of settlement relative to the receipt of cash
for certain contracts. The market prices used to value these transactions
reflect management's best estimate considering various factors including
closing exchange and over-the-counter quotations, time value and volatility
factors underlying the commitments. The values are adjusted to reflect the
potential impact of liquidating the Company's position in an orderly manner
over a reasonable period of time under present market conditions.
Contractual commitments are subject to risks including market value
fluctuations as well as counter party credit and liquidity risk. The
Company 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.
The cash flow impact of financial instruments and these risk management
activities are reflected in cash flows from operating activities in the
Consolidated Statement of Cash Flows.
9
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001 (Unaudited)
(1) Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment
Depreciation is computed using the straight-line and double-declining
balance methods. Estimated useful lives are 20 to 25 years for plant, which
includes buildings, storage tanks, and pipelines and 3 to 20 years for
equipment. All items of property, plant and equipment are carried at cost.
Expenditures that increase values, change capacities, or extend useful
lives are capitalized. Routine repairs and maintenance are expensed.
Computer software costs are capitalized and amortized over their useful
lives, generally not to exceed 5 years. The costs of installing certain
enterprise wide information systems are amortized over periods not
exceeding 10 years. The Company capitalizes interest on major projects
during construction.
Deferred Debt Issuance Costs
Deferred debt issuance costs related to the long-term credit agreements and
senior subordinated debentures are amortized on the interest method over
the term of the underlying debt instrument.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. 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.
Environmental Expenditures
Expenditures that relate to an existing condition caused by past
operations, and which do not contribute to current or future revenue
generation are expensed. Expenditures relating to current or future
revenues are expensed or capitalized as appropriate. Liabilities are
recorded when environmental assessment and/or clean-ups are probable and
the costs can be reasonably estimated.
Earnings Per Common Share
Basic earnings per common share has been calculated based on the weighted
average number of common shares outstanding during the period. Diluted
earnings per share assumes conversion of dilutive convertible preferred
stocks and exercise of all stock options and warrants having exercise
prices less than the average market price of the common stock, using the
treasury stock method.
Reclassifications
Certain amounts in the accompanying consolidated financial statements for
prior periods have been reclassified to conform to the classifications used
in fiscal year 2001.
10
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001 (Unaudited)
(2) Disposition
Effective December 31, 1999, the Company sold its natural gas gathering
subsidiary, Bear Paw Energy Inc., ("BPEI") for cash consideration of $107.5
million, plus $23.7 million of retroactive reimbursement for all of the
capital expenditures made by the Company 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 the
Company. The $131.2 million total sale proceeds were used to reduce long-
term debt and for general corporate purposes.
(3) Acquisitions
On May 31, 2000, the Company acquired from Chevron U.S.A. Inc. two
petroleum products terminals located in Richmond and Montvale, Virginia for
approximately $3.2 million cash. These facilities are interconnected to the
Colonial pipeline system and include approximately 0.5 million barrels of
tankage.
The Company accounted for this acquisition using purchase method accounting
as of the effective date of the transaction. Accordingly, the purchase
price of the transaction was allocated to the assets and liabilities
acquired based upon the estimated fair value of the assets and liabilities
as of the acquisition date. The cash used for this acquisition was funded
by advances from the Company's bank credit facility.
11
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001 (Unaudited)
(4) Inventories
Inventories at March 31, 2001 and June 30, 2000 are as follows:
March 31, 2001 June 30, 2000
----------------------- -------------------------
(in thousands) (in thousands)
Refined petroleum products $ 112,474 115,609
Refined petroleum products due
under exchange agreements, net 72,575 125,258
----------------------- -------------------------
$ 185,049 240,867
======================= =========================
The Company manages inventory to maximize value and minimize risk by
utilizing risk and portfolio management disciplines including certain
hedging strategies, forward purchases and sales, swaps and other financial
instruments to manage market exposure. In managing inventory balances and
related financial instruments, management evaluates the market exposure
from an overall portfolio basis that considers both continuous movement of
inventory balances and related open positions in commodity trading
instruments.
The Company's refined petroleum products inventory consists primarily of
gasoline and distillates, the majority of which is held for sale or
exchange in the ordinary course of business. A portion of this inventory,
including line fill and tank bottoms, is required to be held for operating
balances in the conduct of the Company's daily supply, distribution and
marketing activities, and is maintained both in tanks and pipelines owned
by the Company and pipelines owned by third parties. As of March 31, 2001,
this portion of the Company's inventory (the minimum inventory) was
determined to be 2.0 million barrels. It is the Company's policy not to
hedge the price risk associated with its minimum inventory. As a result,
changes in the market value of the minimum inventory are marked to market
and are reflected as an increase or decrease in the carrying value of the
minimum inventory, with the corresponding unrealized gain or loss in
operating income. The unrealized loss on minimum inventory was $1.9 million
for the three months ended March 31, 2001 and $8.8 million for the nine
months ended March 31, 2001 (none in 2000).
(5) Property, Plant and Equipment
Property, plant and equipment at March 31, 2001 and June 30, 2000 is as
follows:
March 31, 2001 June 30, 2000
------------------------ ------------------------
(in thousands) (in thousands)
Land $ 15,778 15,885
Pipelines, rights of way
and equipment 36,859 36,369
Terminals and equipment 297,887 291,896
Other plant and equipment 16,341 16,787
------------------------ ------------------------
366,865 360,937
Less accumulated depreciation (52,423) (38,710)
------------------------ ------------------------
$ 314,442 322,227
======================== ========================
12
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001 (Unaudited)
(6) Investments in Petroleum related Assets
The Company, through its 65% ownership of TransMontaigne Holding Inc.,
effectively owns 18.04% of the common stock of Lion Oil Company ("Lion").
At March 31, 2001 and June 30, 2000, the Company's investment in Lion,
carried at cost, was approximately $10.1 million. The Company recorded
dividend income of approximately $0.7 million from Lion during the nine
months ended March 31, 2001 and none during the nine months ended March 31,
2000.
The Company, through its wholly owned subsidiary, TransMontaigne Pipeline
Inc., owns 20.38% of the common stock of West Shore Pipeline Company ("West
Shore") at March 31, 2001. Although the Company owns 20.38%, it does not
maintain effective management control and therefore carries its $35.9
million investment at cost. The Company recorded dividend income from West
Shore of approximately $1.7 million during the nine months ended March 31,
2001 and $1.1 million during the nine months ended March 31, 2000.
In August 2000, the Company converted its notes receivable and accrued
interest from ST Oil Company into an equity ownership position. At March
31, 2001, the Company's investment in ST Oil Company was approximately $1.7
million, representing a 30.02% equity ownership in ST Oil Company. There
was $0.1 million in equity income recorded during the nine months ended
March 31, 2001 and none during the nine months ended March 31, 2000.
(7) Long-term Debt
Long-term debt at March 31, 2001 and June 30, 2000 is as follows:
March 31, 2001 June 30, 2000
------------------------ ------------------------
(in thousands) (in thousands)
Bank Credit Facility $ 155,219 155,000
Senior promissory notes 50,000 50,000
12 3/4% senior subordinated
debentures, net of discount - 1,995
------------------------ ------------------------
205,219 206,995
Less current maturity 2,370 4,370
------------------------ ------------------------
$ 202,849 202,625
======================== ========================
At March 31, 2001, the Company's bank credit facility consisted of a $395
million credit facility that included a $300 million revolving component
due December 31, 2003 and a $95 million term component due June 30, 2006.
The term component has quarterly principal payments, which began 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 the Company's election. The average
interest rate under the bank credit facility was 8.4% and 9.8% at March 31,
2001 and June 30, 2000, respectively. Effective March 30, 2001, the bank
credit facility was amended to adjust certain covenants and reduce the $300
million revolving component to $240 million on July 1, 2001. As a result of
the amendment, $1.0 million of deferred debt issuance costs were expensed
in the three months ended March 31, 2001, and $0.7 million in deferred debt
issuance costs were recorded related to the amendment.
13
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001 (Unaudited)
(7) Long-term Debt (continued)
In August 1999, the Company entered into two "periodic knock-out" swap
agreements with money center banks to offset the exposure of an increase in
interest rates. Each swap was for a notional value of $150 million and
contained an expiration date of August 2003. The swaps contained a knockout
level at 6.75%, and they had a fixed interest rate of 5.48%. Prior to June
30, 2000, proceeds from the swap agreements were recorded as a reduction in
interest expense. Effective July 1, 2000, the estimated fair value of the
remaining interest rate swap was recorded as an asset/liability with a
corresponding debit/credit to other financing (cost) income upon the
adoption of the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, as the swaps were not designated as a
hedge as of that date. In August 2000, the Company terminated one of the
swap agreements, which did not have a material impact upon the financial
statements. As of March 31, 2001, the fair value of the remaining swap
agreement is a liability of $3.0 million, which is recorded in other
liabilities on the balance sheet. For the nine months ended March 31, 2001,
the Company recorded an unrealized loss on the interest rate swap of $3.5
million.
In April 1997, the Company entered into a Master Shelf Agreement with an
institutional lender. On April 17, 1997 and December 16, 1997, the Company
sold $50 million of 7.85% and $25 million of 7.22% Senior Notes due April
17, 2003 and October 17, 2004, respectively. On January 20, 2000, the
Company paid down $25 million of the $50 million of 7.85% senior notes with
a portion of the proceeds from the sale of BPEI.
Each of the bank credit facility and 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, cash distributions and open
inventory positions. As of March 31, 2001, the Company was in compliance
with all such tests contained in the amended agreements.
As of March 31, 2001, the Company had redeemed all of the originally issued
$4 million of 12.75% senior subordinated debentures that were guaranteed by
certain subsidiaries. This debt was redeemed through the lender's exercise
of common stock warrants and cash. The first payment was made on December
15, 1999 for $2.0 million in cash and the final $2.0 million was redeemed
on December 15, 2000 for $1.1 million in cash and $0.9 million in warrants
exercised.
Cash payments for interest were approximately $14.5 million and $22.9
million for the nine months ended March 31, 2001 and 2000, respectively.
14
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2001 (Unaudited)
(8) Stockholders' Equity
On March 25, 1999 and March 30, 1999, the Company closed a private
placement of $170.1 million 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. The dividends are payable in either cash
or additional preferred shares. If the dividends are paid-in-kind with
additional preferred shares, the number of additional preferred shares
issued in lieu of a cash payment is determined by multiplying the cash
dividend that would have been paid by 110%. These new shares are used in
calculating all future dividends. During the three month period ended March
31, 2001, the Company elected to pay-in-kind the preferred dividend,
resulting in a non-cash dividend expense of $2.3 million for the quarter.
For the nine month period ended March 31, 2001, the cash dividend payment
was $4.3 million and non-cash payment was $2.3 million. For the nine month
period ended March 31, 2000, the cash dividend payment was $6.4 million and
the non-cash payment was $0.0. The Company may redeem all, but not less
than all, of the then outstanding shares of the Preferred Stock on December
31, 2003 at the liquidation value of $1,000 per share plus any accrued but
unpaid dividends thereon through the redemption date (the "Mandatory
Redemption Price"). The Mandatory Redemption Price shall be paid, at the
Company's election, in cash or shares of common stock, or any combination
thereof, subject to limitations on the total number of common shares
permitted to be used in the exchange, and issued to any shareholder. For
purposes of calculating the number of shares of common stock to be
received, each such share of common stock shall be valued at 90 percent of
the average market price for the common stock for the 20 consecutive
business days prior to the redemption date. 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 the Company 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 acquisitions and for general corporate purposes.
(9) Restricted Stock
The Company 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 nine months ended March 31, 2001, the Company's
Board of Directors awarded 505,180 shares of restricted stock. Of the
amount issued, 261,280 shares were issued to employees in exchange for the
cancellation of 1,681,300 stock options with exercise prices ranging from
$11.00 to $17.25 per share that had been issued to the employees in prior
years. Amortization of unearned compensation of approximately $0.9 million
is included in selling, general and administrative expense for the nine
months ended March 31, 2001 and $0.2 million is included in the selling,
general and administrative expense for the nine months ended March 31,
2000.
(10) Litigation
The Company is a party to various claims and litigation in its normal
course of business. Although no assurances can be given, the Company's
management believes that the ultimate resolution of such claims and
litigation, individually or in the aggregate, will not have a material
adverse impact on the Company's financial position, results of operations,
or liquidity.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
TransMontaigne Inc., a Delaware corporation, ("the Company") provides a
broad range of integrated supply, distribution, marketing, terminaling, storage
and transportation services to producers, refiners, distributors, marketers and
industrial end-users of petroleum products, chemicals, crude oil and other bulk
liquids in the midstream sector of the petroleum and chemical industries. The
Company is a holding company that conducts the majority of its operations
through wholly owned subsidiaries primarily in the Mid-Continent, Gulf Coast,
Southeast, Mid-Atlantic and Northeast regions of the United States.
The Company's commercial operations are divided into supply, distribution
and marketing of refined petroleum products; terminals, which includes
terminaling and storage services; and pipelines. The Company, through a wholly
owned subsidiary, historically provided selected natural gas services including
the gathering, processing, fractionating and marketing of natural gas liquids
("NGL") and natural gas. This subsidiary was divested as of December 31, 1999.
Commercial Operations
Product Supply, Distribution and Marketing
Through its wholly owned subsidiary, TransMontaigne Product Services Inc.
("TPSI"), the Company provides product services, consisting of the bulk purchase
and sale of refined petroleum products, the wholesale marketing of products at
terminal truck loading rack locations, sales of refined products to regional and
national industrial end-users, restructuring of existing long-term contracts,
and the management of the Company's commodity portfolio. In addition, TPSI
provides risk management products and services to gasoline and distillate
customers that minimize the risk associated with movements in prices and
location-based price differentials. TPSI's risk management products and
services are designed to provide stability to customers in markets impacted by
commodity price volatility. TPSI provides these services to customers for
periods as short as one month to terms that will span several years. The type
and length of contracts provided by TPSI will vary based upon market conditions,
customer desires and the risk profile desired by the individual customer. As a
result of these variables, these types of contracts are not predictable and can
cause earnings to fluctuate from one period to the next.
TPSI's products supply, distribution and marketing services revenues and
fees are generated from bulk sales and exchanges of refined petroleum products
to major 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 and risk management logistical services arrangements to wholesale,
retail and industrial end-users. Refined petroleum products storage and forward
sales transactions enable TPSI to purchase refined petroleum products inventory;
utilize proprietary and leased tankage as well as line space controlled by TPSI
in major common carrier pipelines; arbitrage location product prices
differentials and transportation costs; store inventory; and, depending upon
market conditions, lock in margins through sales in the futures cash market or
by using NYMEX contracts. Wholesale distribution of refined petroleum products
is conducted from proprietary and non-proprietary truck loading terminal,
storage and delivery locations. Fuel and risk management logistical services
provide both TPSI's large and small volume customers an assured, ratable and
cost effective 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.
TPSI enjoys incremental margin opportunities by utilizing its storage
capacity and inventory position when the market environment is in contango or a
carry position (where nearby futures prices are lower than succeeding periods).
16
Terminals
Through its wholly owned subsidiary, TransMontaigne Terminaling Inc.
("TTI"), the Company owns and operates an extensive terminal infrastructure that
handles petroleum products, chemicals and other bulk liquids with transportation
connections via pipeline, barges, rail cars and trucks to TTI facilities or to
third party facilities with an emphasis on transportation connections primarily
through the Colonial, Plantation, Texas Eastern and Williams pipeline systems.
Products terminal revenues are based on volumes handled, generally at a
standard industry fee. Terminal fees are not regulated. The terminals receive
petroleum products in bulk quantities from connecting pipeline systems and barge
dock facilities. Products are stored in bulk at the terminals and made
available to wholesale, shipping and exchange customers who transport the
products by truck to commercial and retail destinations and then to the end-
user. TPSI markets refined petroleum products over truck loading racks at TTI
owned terminals, as well as through exchanges with numerous companies at other
non-owned terminals located throughout the Company's distribution area.
Storage of refined petroleum products, chemicals and other bulk liquids at
TTI-owned facilities pending delivery is an integral service function. Storage
fees are generally based on a per barrel rate or on tankage capacity committed
and will vary with the duration of the storage arrangement, the product stored
and special handling requirements. Storage fees are not regulated. Ancillary
services, including injection of shipper-furnished or TTI-furnished additives,
are also available for a fee at TTI terminals.
Chemicals and other bulk liquids terminal revenues are based upon the type
and volume of the liquids handled, including any special temperature
maintenance, labor-intensive loading/off-loading requirements or other handling
services. These terminal fees are not regulated; are generally negotiated on an
individual contract basis with a term of one year or less; and typically are at
rates which exceed those for handling petroleum products due to the particular
nature of the products handled.
Pipelines
Through its wholly owned subsidiary, TransMontaigne Pipeline Inc. ("TPI"),
the Company owns and operates an approximate 480-mile refined petroleum products
pipeline from Ft. Madison, Iowa through Chicago, Illinois to Toledo, Ohio (the
"NORCO Pipeline") with TTI owning the associated storage facilities located at
Hartsdale and East Chicago, Indiana and Toledo, Ohio and related product
distribution facilities located at South Bend, Indiana; Peoria, Illinois; and
Bryan, Ohio. The NORCO Pipeline has delivery facilities located at Elkhart,
Indiana and Chillicothe and Galesburg, Illinois. The NORCO Pipeline system is
interconnected to all major mid-continent common carriers. TPI also owns a 60%
interest in a 67-mile refined petroleum products pipeline operating from Mt.
Vernon, Missouri to Rogers, Arkansas (the "Razorback Pipeline"), together with
associated product distribution facilities at Mt. Vernon and Rogers. The
Razorback Pipeline is the only refined petroleum products pipeline providing
transportation services to northwest Arkansas. TPI also owns and operates an
approximate 220-mile crude oil gathering pipeline system, with approximately
627,500 barrels of tank storage capacity, located in east Texas (the "CETEX
pipeline").
TPI owns a 20.38% common stock interest in West Shore Pipe Line Company,
which owns an approximate 600-mile common carrier petroleum products pipeline
system which operates between the Chicago refining corridor locations of East
Chicago, Indiana; Blue Island, Joliet and Lemont, Illinois; north through
metropolitan Chicago, Illinois; along the western edge of Lake Michigan to
Milwaukee and Green Bay, Wisconsin; and west to Rockford and Peru, Illinois, and
Madison, Wisconsin. The pipeline serves approximately 55 locations, including 4
refineries, the Chicago-O'Hare and Milwaukee airports, and 49 refined petroleum
products terminals in the Chicago, Illinois area and the upper Mid-West region
of the United States.
In general, a shipper owns the refined petroleum products or crude oil and
transfers custody of the products to the NORCO or Razorback pipelines, or the
crude oil to the CETEX pipeline, for shipment to a delivery location at which
point custody again transfers. Tariffs for the transportation service are
regulated and are charged by TPI to shippers based upon the origination point on
the pipelines to the point of product delivery. These tariffs do not include
fees for the storage of products at the NORCO and Razorback pipeline storage
facilities or crude oil at the CETEX pipeline storage facilities. Fees for the
terminaling and storage of products at TTI terminals are separately charged when
those facilities are utilized.
17
Pipelines (continued)
TPI's pipeline business depends in large part on the level of demand for
refined petroleum products in the markets served by the pipelines, together with
the ability and willingness of refiners and marketers having access to the
pipelines to supply that demand by shipments through these pipelines.
Competition is based primarily on pipeline operational dependability, quality of
customer service provided and proximity to end-users, although product pricing
at either the origin or terminal destination on a pipeline may outweigh
transportation cost considerations. The Company believes that high capital
costs, tariff regulation, environmental considerations, problems in acquiring
rights-of-way and TPI's existing available capacity make it unlikely that
additional competing pipeline systems comparable in size to the NORCO and
Razorback pipelines will be built in the near term.
Natural Gas Services
The Company divested its wholly owned subsidiary, Bear Paw Energy Inc.,
effective December 31, 1999.
18
PAGE>
Selected financial data for the Company's operations and resulting
earnings (loss) before taxes summarized below (in thousands):
Three Months Nine Months
Ended Ended
March 31, March 31,
-------------------------- ---------------------------
2001 2000 2001 2000
-------- ------------ --------- ------------
Net operating margins (1):
Product Supply, Distribution and Marketing:
Sales, exchanges and product arbitrage $ 14,640 17,682 33,815 13,696
Realized losses related to minimum inventory - (2,429) - (12,855)
Unrealized losses related to mark to market
accounting for the minimum inventory (1,940) - (8,821) -
-------- ------------ --------- ------------
12,700 15,253 24,994 841
Terminals 9,414 9,260 30,545 26,402
Pipelines 806 1,514 4,058 5,734
Natural Gas Services (2) - - - 11,688
-------- ------------ --------- ------------
Total net operating margins 22,920 26,027 59,597 44,665
Impairment of long lived assets - - - 50,136
Selling, general and administrative expenses 9,102 8,730 24,496 28,487
Depreciation and amortization expenses 4,927 4,730 14,595 17,371
-------- ------------ --------- ------------
Operating income (loss) 8,891 12,567 20,506 (51,329)
Dividend income from and equity in earnings of petroleum
related investments 766 345 2,505 1,119
Interest income 262 514 1,537 1,696
Interest expense and other financing cost (4,551) (4,891) (13,181) (24,138)
Amortization of deferred debt issuance cost (1,941) (872) (3,891) (6,663)
Unrealized loss on interest rate swap (2,679) - (3,491) -
Gain (loss) on disposition of assets - (1,566) 8 15,021
-------- ------------ --------- ------------
Earnings (loss) before income taxes $ 748 6,097 3,993 (64,294)
======== ============ ========= ============
(1) Net operating margins represent revenues less product costs and direct
operating expenses.
(2) The Company's natural gas services operations were divested as of
December 31, 1999.
Selected volumetric and per unit margin data:
Three Months Nine Months
Ended Ended
March 31, March 31,
--------------------------- --------------------------
2001 2000 2001 2000
--------- ------------- --------- ------------
Terminal volumes - bbls/day 610,929 561,654 610,634 615,096
Terminals net operating margin per barrel $ 0.171 0.181 0.183 0.156
Pipeline volumes - bbls/day 74,487 70,306 73,492 87,837
Pipelines net operating margin per barrel $ 0.120 0.237 0.202 0.237
19
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO
THREE MONTHS ENDED MARCH 31, 2000
The Company reported net earnings of $0.5 million and $3.7 million for the
three months ended March 31, 2001 and 2000, respectively. After preferred stock
dividends, the net loss attributable to common stockholders was $1.9 million for
the three months ended March 31, 2001, compared to net earnings of $1.5 million
for the three months ended March 31, 2000. Loss per common share for the three
months ended March 31, 2001 was $0.06 basic and diluted based on 31.7 million
weighted average basic and diluted shares outstanding compared to earnings of
$0.05 basic and diluted for the three months ended March 31, 2000.
Product Supply, Distribution and Marketing
TPSI's Product Supply, Distribution and Marketing margins are classified
into two main components: (a) minimum inventory management and (b) sales,
exchanges and arbitrage.
Minimum inventory management: During the fourth quarter of fiscal 2000, the
Company embarked upon a thorough review of its inventory management strategies.
As a result, the Company lowered its required minimum inventory level from over
3.8 million barrels to the current level of 2.0 million barrels. The Company
also changed its strategy regarding the risk management associated with this
minimum inventory. Prior to the fourth quarter of fiscal 2000, the Company was
hedging the minimum inventory in the futures market and then rolling the hedging
contracts from month to month in a backwardated market (i.e., nearby futures
prices were higher than succeeding periods). In connection with its new risk
management strategy, the Company removed the hedging contracts on its minimum
inventory, thereby eliminating any future cash costs associated with rolling
forward the hedging contracts in a backwardated market. During last year's
comparable quarter, the Company incurred $2.4 million of losses related to the
rolling of the minimum inventory hedges. As a result of removing the hedging
contracts, the valuation of the minimum inventories started floating with the
market and any increase or decrease in valuation was marked to market on a daily
basis with the resulting unrealized gains and losses recognized in operating
income. For the current quarter, the $1.9 million unrealized loss on inventory
was a non-cash charge that was due to a reduction in the commodity value of the
Company's minimum inventory.
Sales, exchanges and arbitrage: The net operating margin from sales,
exchanges and arbitrage decreased by $3.0 million in the third quarter 2001 as
compared to the same period in 2000. The market has remained in a backwardated
position since last year; however, market volatility has created opportunities
to exploit price differentials between various geographic locations. These
opportunities are the result of supply disruptions in the gasoline and
distillate market, concerns regarding the availability of distillate for the
Northeastern portion of the United States, and increased demand for refined
products. As a result of these market opportunities, TPSI was able to generate
basis arbitrage margins during the quarter ended March 31, 2001, and the quarter
ended March 31, 2000. The ability to generate these arbitrage margins was
greater and lasted for a longer period during the prior year quarter, which
resulted in the margin difference between the two comparable quarters.
Terminals
The net operating margin from terminal operations for the three months
ended March 31, 2001 was $9.4 million compared to $9.3 million for the three
months ended March 31, 2000, an increase of $0.1 million. The increase in net
operating margin resulted from an approximately $1.4 million increase in
revenues and an increase of approximately $1.3 million in operating costs.
Approximately 30% of the revenue increase was attributable to the Company's new
Baton Rouge dock facility which was placed in service in May 2000, with the
remaining increase coming from new tank rental agreements at several of the
Company's terminals. The increase in operating costs was attributable to higher
variable costs like power and supplies due to increased electricity and
transport costs. Additionally, the increased throughput at the Company's
terminal facilities increased the amount of variable operating costs.
Pipelines
The net operating margin from pipeline operations for the three months
ended March 31, 2001 was $0.8 million compared to $1.5 million for the three
months ended March 31, 2000, a decrease of $0.7 million. The decrease in net
operating margin resulted from an approximately $0.1 million reduction in
pipeline revenues and an increase of approximately $0.8 million in operating
costs. The increased operating costs resulted from increased variable costs
like power to run the pumps along the Norco pipeline system. Additionally, the
Company incurred incremental costs for ongoing remediation work along the
Company's pipeline systems.
20
Corporate and Other
Selling, general and administrative expenses for the three months ended
March 31, 2001 were $9.1 million compared to $8.7 million for the three months
ended March 31, 2000. Compensation expense decreased by $0.4 million during the
current quarter reflecting the elimination of $1.1 million in corporate staff
positions in the current period offset by the effect of $0.7 million of increase
in other employee costs during the quarter. The Company had an increase in non-
employee insurance costs of $0.3 million, an increase of $0.4 million in
professional services and an increase of $0.1 million in computer and
communication costs in the current quarter.
Depreciation and amortization expense for the three months ended March 31,
2001 was $4.9 million compared to $4.7 million for the three months ended
March 31, 2000.
Dividend income from and equity in earnings from petroleum related
investments for the three months ended March 31, 2001 was $0.8 million compared
to $0.3 million for the three months ended March 31, 2000, an increase of $0.5
million resulting primarily from a one-time special dividend received from West
Shore Pipeline Company for a land sale.
Interest income for the three months ended March 31, 2001 was $0.3 million
compared to $0.5 million for the three months ended March 31, 2000, a decrease
of $0.2 million, reflecting decreased invested cash balances.
Interest expense, other financing cost and amortization of deferred debt
issuance costs during the three months ended March 31, 2001 were $6.5 million
compared to $5.8 million during the three months ended March 31, 2000, an
increase of $0.7 million, which was primarily due to reductions in the effective
borrowing rate under the Company's revolving credit facility offset by increased
amortization of deferred financing costs associated with amending the Company's
revolving credit facility.
Income tax expense was $0.3 million for the three months ended March 31,
2001, which represents an effective combined federal and state income tax rate
of 38%. Income tax expense was $2.4 million for the three months ended
March 31, 2000.
Preferred stock dividends on the Series A Convertible Preferred Stock were
$2.3 million and $2.1 million for the three months ended March 31, 2001 and
2000, respectively. The increase in the current quarter was as a result of the
Company electing to pay-in-kind the preferred dividends for the quarter ended
March 31, 2001.
21
RESULTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 2001 COMPARED TO
NINE MONTHS ENDED MARCH 31, 2000
The Company reported net earnings of $2.5 million for the nine months ended
March 31, 2001, compared to a net loss of $38.6 million for the nine months
ended March 31, 2000. After preferred stock dividends, the net loss
attributable to common stockholders was $4.1 million and $45.0 million for the
nine months ended March 31, 2001 and 2000, respectively. Loss per common share
for the nine months ended March 31, 2001 was $0.13 basic and diluted based on
31.3 million weighted average basic and diluted shares outstanding compared to a
loss of $1.47 basic and diluted for the nine months ended March 31, 2000.
Product Supply, Distribution and Marketing
TPSI's Product Supply, Distribution and Marketing margins are classified
into two main components: (a) minimum inventory management and (b) sales,
exchanges and arbitrage.
Minimum inventory management: During the fourth fiscal quarter of 2000, the
Company embarked upon a thorough review of its inventory management strategies.
As a result, the Company lowered its required minimum inventory level from over
3.8 million barrels to the current level of 2.0 million barrels. The Company
also changed its strategy regarding the risk management associated with this
minimum inventory. Prior to the fourth quarter of fiscal 2000, the Company was
hedging the minimum inventory in the futures market and then rolling the hedging
contracts from month to month in a backwardated market. In connection with its
new risk management strategy, the Company removed the hedging contracts on its
minimum inventory, thereby eliminating any future cash costs associated with
rolling forward the hedging contracts in a backwardated market. During last
year's comparable nine month period, the Company incurred $12.9 million of
losses related to the rolling of the minimum inventory hedges. As a result of
removing the hedging contracts, the valuation of the minimum inventories started
floating with the market and any increase or decrease in valuation was marked to
market on a daily basis with the resulting unrealized gains and losses
recognized in operating income. For the current nine month period, the $8.8
million unrealized loss on inventory was a non-cash charge that was due to a
reduction in the commodity value of the Company's minimum inventory.
Sales, exchanges and arbitrage: The net operating margin from sales,
exchanges and arbitrage increased by $20.1 million during the current nine month
period ending March 31, 2001, as compared to the same period in 2000. TPSI
began the prior year comparable nine month period with over 10.0 million barrels
of discretionary inventory (inventory in excess of minimum inventory). During
the period from July 1, 1999 through September 30, 1999, the Company hedged this
discretionary inventory in a carry market. During this same period, the Company
elected to start liquidating this discretionary inventory. The impact of these
two items allowed the Company to recognize over $6.0 million in margins.
However, as the products market switched into a backwardated position, the
hedging of discretionary inventory combined with the losses on other forward
positions, resulted in an approximate $8.0 million loss during the second
quarter of the prior period. The market has remained in a backwardated position
since last year; however, market volatility has created arbitrage and term
industrial market opportunities during the current nine month period ended
March 31, 2001. These opportunities are the result of supply disruptions in the
gasoline and distillate market, concerns regarding the availability of
distillate for the Northeastern portion of the United States, and increased
demand for refined products. As a result of these market opportunities, TPSI was
able to generate basis arbitrage margins during the nine month period ended
March 31, 2001. In addition TPSI initiated and restructured existing term
contracts with its commercial and industrial end use customers generating
incremental margins from these transactions during the current nine month period
ending March 31, 2001.
22
Terminals
The net operating margin from terminal operations for the nine months ended
March 31, 2001 was $30.5 million compared to $26.4 million for the nine months
ended March 31, 2000, an increase of $4.1 million. The increase in net
operating margin resulted from an approximately $3.6 million increase in
revenues and a decrease of approximately $0.5 million in operating costs.
Approximately 50% of the revenue increase was attributable to the Company's new
Baton Rouge dock facility which was placed in service in May 2000, with the
remaining increase coming from new tank rental agreements at several of the
Company's terminals. On a per barrel basis, the Company is enjoying higher net
margins due to these reduced operating costs. A portion of the volume reduction
through the terminals is attributable to the fact that the products market
entered into a backwardated position during the quarter ended December 31, 1999
and has maintained that position throughout the current year. As a result, the
Company has experienced a reduction in the amount of tank space leased to
customers that in prior periods were dedicated to capturing the carry market for
refined products from one quarter to the next.
Pipelines
The net operating margin from pipeline operations for the nine months ended
March 31, 2001 was $4.1 million compared to $5.7 million for the nine months
ended March 31, 2000, a decrease of $1.6 million. The decrease in net operating
margin resulted from an approximately $0.9 million reduction in pipeline
revenues and an increase of approximately $0.7 million in operating costs. The
majority of the revenue reduction was attributable to lower volumes being
shipped through the Company's NORCO Pipeline during the current nine month
period. This reduction resulted from fewer barrels being moved through the
Company's NORCO Pipeline around the Chicago hub area, which was attributable to
changes in Chicago area refinery demands and throughputs. These barrels
generate low margins for the Company due to the short transport distances. The
increase in operating costs were the result of higher environmental remediation
costs associated with operating the Company's Cetex crude oil system and Norco
pipeline system, during the current nine month period as well as increased
utility related costs due to higher electric and transport fuel costs.
Natural Gas Services
The Company's natural gas services operation owned and operated by BPEI was
divested effective December 31, 1999.
Corporate and Other
Selling, general and administrative expenses for the nine months ended
March 31, 2001 were $24.5 million compared to $28.5 million for the nine months
ended March 31, 2000. Compensation expense decreased by $2.6 million during the
current nine month period reflecting the elimination of $3.0 million in
corporate staff positions in the current period offset by the effect of $0.4
million of increases in other employee related costs. In addition, the Company
significantly lowered travel costs during the current nine month period by
approximately $0.8 million and had reductions in professional services,
communications, and other corporate items, which resulted in additional expense
reductions of approximately $0.6 million during the current period.
Depreciation and amortization expense for the nine months ended March 31,
2001 was $14.6 million compared to $17.4 million for the nine months ended
March 31, 2000. The decrease was due primarily to the disposition of the natural
gas services assets of BPEI.
Dividend income from and equity in earnings from petroleum related
investments for the nine months ended March 31, 2001 was $2.5 million compared
to $1.1 million for the nine months ended March 31, 2000, an increase of $1.4
million. This increase is primarily due to dividends that were received from
Lion Oil Company during the nine months ended March 31, 2001 that were not
received during the 2000 comparable period and a special one-time dividend from
West Shore Pipeline Company for a land sale.
Interest income for the nine months ended March 31, 2001 was $1.5 million
compared to $1.7 million for the nine months ended March 31, 2000, a decrease of
$0.2 million, reflecting decreased invested cash balances.
23
Corporate and Other (continued)
Interest expense, other financing cost and amortization of deferred debt
issuance costs during the nine months ended March 31, 2001 were $17.1 million
compared to $30.8 million during the nine months ended March 31, 2000, a
decrease of $13.7 million, which was primarily due to a reduction in long term
debt, using proceeds from the sale of BPEI and the sale of excess inventory.
The Company revised its inventory strategy during the fourth quarter of 2000 and
was able to reduce its inventory. The decrease is also a result of the
reduction in the Company's effective borrowing rate under its revolving credit
facility due to the reduction in the libor rates during the current period.
Income tax expense was $1.5 million for the nine months ended March 31,
2001, which represents an effective combined federal and state income tax rate
of 38%. Income tax benefit was $25.7 million for the nine months ended March
31, 2000, which was primarily attributable to an impairment charge on long lived
assets and the higher interest expenses incurred by the Company during the prior
nine month period.
Preferred stock dividends on the Series A Convertible Preferred Stock were
$6.6 million and $6.4 million for the nine months ended March 31, 2001 and 2000,
respectively. The increase in the current nine months was as a result of the
Company electing to pay-in-kind the preferred dividends for the quarter ended
March 31, 2001.
24
LIQUIDITY AND CAPITAL RESOURCES
The Company 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 the Company to meet its current capital
requirements.
The following summary reflects the Company's comparative EBITDA, adjusted
EBITDA, and net cash flows for the three months and nine months ended March 31,
2001 and 2000 (in thousands):
Three Months Nine Months
Ended Ended
March 31, March 31,
------------------------------- ------------------------------
2001 2000 2001 2000
------------- ------------- ----------- --------------
EBITDA (1) $ 14,584 17,642 37,606 17,297
Adjusted EBITDA (2) $ 16,524 17,642 46,427 17,297
Net cash provided (used) by operating activities $ (350) 1,051 (25,621) 236,183
Net cash provided (used) by investing activities $ (2,129) 130,906 (7,302) 85,005
Net cash used by financing activities $ (7,339) (134,657) (6,173) (301,800)
(1) EBITDA is defined as total net operating margins less selling, general and
administrative expenses plus dividend income from petroleum related
investments. The Company 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 the Company to
incur and service debt and to fund capital expenditures. In evaluating
EBITDA, the Company 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 direct
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 the
Company's operating performance or to cash flows from operating activities
(as determined in accordance with GAAP) as a measure of liquidity. The
Company's method of calculating EBITDA may differ from methods used by
other companies, and as a result, EBITDA measures disclosed herein might
not be comparable to other similarly titled measures used by other
companies.
(2) Adjusted EBITDA is defined as EBITDA plus unrealized losses or less
unrealized gains relating to mark to market accounting for the minimum
inventory. The Company believes that Adjusted EBITDA is also useful in
evaluating the performance of the Company because it eliminates the
fluctuating impact on operating results from the continual revaluation of
the Company's minimum inventory.
25
LIQUIDITY AND CAPITAL RESOURCES (continued)
The improvement in Adjusted EBITDA for the nine months ended March 31, 2001
as compared to the 2000 nine month period, is primarily due to a $32.9 million
increase in operating margin in the Company's product supply group, a $2.5
million increase in operating performance in the terminaling/pipeline
operations, a $4.0 million reduction in selling, general and administrative
expenses as a result of the Company's restructuring program, a $1.4 million
increase in dividend income, and is offset by an $11.7 million reduction in
margins due to the sale of BPEI.
Net cash used by operating activities of $25.6 million for the nine months
ended March 31, 2001 was attributable primarily to decreases in the amount of
inventory due under exchanges and an increase in assets from price risk
management activities, offset by a reduction in the Company's physical
inventory, an increase in trade accounts payable and an increase in excise taxes
payable. The net cash provided by operating activities of $236.2 million for
the nine months ended March 31, 2000 was attributable primarily to a reduction
in the Company's physical inventory, an increase in the amount of inventory due
under exchanges, an increase in excise taxes payable and a reduction of trade
accounts receivable, offset by a reduction in trade accounts payable.
Net cash used by investing activities was $7.3 million during the nine
months ended March 31, 2001 as compared to $85.0 million provided by investing
activities during the nine months ended March 31, 2000, as the Company continued
its growth through construction of new facilities and improvements to existing
operating facilities, while the prior nine month period included the proceeds
from the sale of the BPEI assets, offset by asset acquisitions.
Net cash used by financing activities for the nine months ended March 31,
2001 of $6.2 million included $1.8 million of bank repayments. Net cash used by
financing activities for the nine months ended March 31, 2000 of $301.8 million
included repayment of long-term debt totaling $290.7 million as a result of the
sale of BPEI and a reduction in the Company's inventory.
In February 2000, the Company amended its bank credit facility led by Fleet
National Bank (formerly BankBoston, N.A). The amended bank credit facility
includes a $300 million revolving component due December 31, 2003 and a $95
million term component due June 30, 2006. The term component has quarterly
principal payments, which began in September 2000. Borrowings under the bank
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 bank
credit facility includes a $20 million same day revolving swing line under which
advances may be drawn at an interest rate comparable to the Eurodollar Rate. In
March 2001, the bank credit facility was amended to adjust certain covenants and
reduce the $300 million revolving component to $240 million on July 1, 2001.
The reduction in the credit facility was due to the fact that the Company was
not utilizing this portion of the revolver but was paying commitment fees on
this underutilized capacity.
At March 31, 2001, the Company had borrowings of $155.2 million outstanding
under the bank credit facility. The average interest rate at March 31, 2001 was
8.4%.
At March 31, 2001, the Company had outstanding under the Master Shelf
Agreement, $25 million of 7.85% Senior Notes due April 17, 2003 and $25 million
of 7.22% Senior Notes due October 17, 2004. The Master Shelf Agreement was
amended in February 2000 and in March 2001 in connection with the amendment of
the bank credit facility.
Each of the bank credit facility and 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, cash distributions and open inventory
positions. As of March 31, 2001, the Company was in compliance with all such
tests.
At March 31, 2001, the Company had working capital of $146.6 million and
availability under its bank credit facility of approximately $63.8 million.
Capital expenditures anticipated for the year ending June 30, 2001 are
estimated to be $10 million for terminal and pipeline facilities, and assets to
support these facilities, and could exceed that amount if additional facilities
enhancement projects and possible acquisitions being considered by the Company
materialize. Future capital expenditures will depend on numerous factors,
including the availability, economics and cost of appropriate acquisitions which
the Company 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 the Company
provides; local, state and federal governmental regulations; environmental
compliance requirements; and the availability of debt financing and equity
capital on acceptable terms.
26
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Although the Company believes that its
expectations are based on reasonable assumptions, it can give no assurance that
its goals will be achieved. Important factors which could cause actual results
to differ materially from those in the forward-looking statements include:
. that the Company will expand its business
. that the Company will generate net operating margins from high sales
volumes
. that the Company will generate net operating margins affected by price
volatility of products purchased and sold
. that the Company will enter into transactions with counter parties
having the ability to meet their financial commitments to the Company
. that the Company will incur unanticipated costs in complying with
current and future environmental regulations
. that the Company will capitalize on the trend by other companies in the
oil and gas industry to divest assets and outsource certain services
. that the Company will acquire strategically located operating facilities
from third parties
. that the Company will generate working capital internally, or have the
ability to access debt and equity resources, to meet its capital
requirements.
27
ITEM 3. QUALITATIVE AND QUANTITATIVE 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 the Company's
Annual Report on Form 10-K for the year ended June 30, 2000, in addition to the
interim 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 the Company from
those reported in its Annual Report on Form 10-K for the year ended June 30,
2000.
28
PART II. OTHER INFORMATION
---------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 1, dated as of July 31, 2000, to the Fourth Amended
and Restated Credit Agreement between TransMontaigne Inc. and
Fleet National Bank (formerly known as BankBoston, N.A.,) as
Agent, dated as of February 11, 2000. FILED HEREWITH.
10.2 Amendment No. 2, dated as of March 30, 2001, to the Fourth
Amended and Restated Credit Agreement between TransMontaigne Inc.
and Fleet National Bank (formerly known as BankBoston, N.A.,) as
Agent, dated as of February 11, 2000. FILED HEREWITH.
10.3 Letter Amendment No. 1, dated as of July 31, 2000, to the Amended
and Restated Master Shelf Agreement among TransMontaigne Inc.,
The Prudential Insurance Company of America and U.S. Private
Placement Fund dated as of February 14, 2000. FILED HEREWITH.
10.4 Letter Amendment No. 2, dated as of March 30, 2001, to the
Amended and Restated Master Shelf Agreement among TransMontaigne
Inc., The Prudential Insurance Company of America and U.S.
Private Placement Fund dated as of February 14, 2000. FILED
HEREWITH.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March 31,
2001.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 15, 2001 TRANSMONTAIGNE INC.
(Registrant)
/s/ DONALD H. ANDERSON
----------------------
Donald H. Anderson
President, Chief Executive and Chief
Operating Officer
/s/ RODNEY R. HILT
-------------------
Rodney R. Hilt
Vice President, Controller
and Chief Accounting Officer
30