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 December 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 February 12, 2002 there were 32,145,361 shares of the Registrant's Common
Stock outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements
Consolidated Balance Sheets
December 31, 2001 and June 30, 2001 (Unaudited) 4
Consolidated Statements of Operations
Three Months and Six Months Ended December 31, 2001 and 2000 (Unaudited) 5
Consolidated Statements of Stockholders' Equity
Year Ended June 30, 2001 and Six Months Ended December 31, 2001 (Unaudited) 6
Consolidated Statements of Cash Flows
Six Months Ended December 31, 2001 and 2000 (Unaudited) 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
Item 3. Qualitative and Quantitative Disclosures About Market Risk 36
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 37
Item 6. Exhibits and Reports on Form 8-K 38
Signatures 39
2
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of TransMontaigne Inc. are included
herein beginning on the following page. TransMontaigne Inc. is a holding
company with the following subsidiaries during the quarter ended December 31,
2001.
. TransMontaigne Product Services Inc. ("TPSI")
. TransMontaigne Terminaling Inc. ("TTI")
. TransMontaigne Pipeline Inc. ("TPI")
. TransMontaigne Holding Inc. ("THI")
. Refined Solutions Inc. ("RSI")
Effective December 31, 2001, TTI and TPI were merged into TPSI, which is
now our primary operating subsidiary.
We do not have any off balance sheet arrangements or special purpose
partnerships.
3
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2001 and June 30, 2001 (Unaudited)
(In thousands)
December 31, June 30,
Assets 2001 2001
------ ------------ --------
Current assets:
Cash and cash equivalents $ 1,905 13,759
Trade accounts receivable, net 136,409 79,050
Inventories 202,949 155,249
Unrealized gains on energy related contracts 67,369 41,419
Receivable from sale of assets - 29,033
Prepaid expenses and other 3,869 4,130
--------- --------
412,501 322,640
--------- --------
Property, plant and equipment:
Land 13,939 15,181
Plant and equipment 285,040 343,076
Accumulated depreciation (52,192) (54,025)
--------- --------
246,787 304,232
--------- --------
Investments and other assets:
Investments in petroleum related assets 11,816 47,760
Deferred tax assets 9,442 12,944
Deferred debt issuance costs, net 3,747 4,667
Other assets, net 4,604 2,977
--------- --------
29,609 68,348
--------- --------
$ 688,897 695,220
========= ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Trade accounts payable $133,002 73,749
Inventory due under exchange agreements - 76,754
Unrealized losses on energy related contracts 7,791 27,726
Excise taxes payable 57,340 32,025
Other accrued liabilities 14,991 12,591
--------- --------
213,124 222,845
--------- --------
Long-term debt 126,000 130,000
Stockholders' equity:
Series A Convertible Preferred stock, par value $1,000 per share,
authorized 2,000,000 shares, issued and outstanding 179,666
shares at December 31, 2001, and 174,825 shares at
June 30, 2001, liquidation preference of $179,666 179,666 174,825
Common stock, par value $.01 per share, authorized
80,000,000 shares, issued and outstanding 32,142,251 shares at
December 31, 2001 and 31,834,669 shares at June 30, 2001 322 318
Capital in excess of par value 206,745 205,256
Unearned compensation (3,251) (2,465)
Accumulated deficit (33,709) (35,559)
--------- --------
349,773 342,375
--------- --------
$ 688,897 695,220
========= ========
See accompanying notes to consolidated financial statements.
4
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months and Six Months Ended December 31, 2001 and 2000 (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
December 31, December 31,
(Unaudited) (Unaudited)
------------------------------------------------------------
2001 2000 2001 2000
-------- -------- -------- -------
Revenues $ 1,164,960 1,290,352 2,707,244 2,504,443
Costs and expenses:
Product costs 1,148,170 1,261,313 2,648,189 2,450,868
Direct operating expenses 6,662 8,496 13,836 16,898
Selling, general and administrative 8,185 8,157 16,650 15,394
Depreciation and amortization 4,024 4,821 8,306 9,668
------------ --------- --------- ---------
1,167,041 1,282,787 2,686,981 2,492,828
------------ --------- --------- ---------
Operating income (loss) (2,081) 7,565 20,263 11,615
Other income (expense):
Dividend income from and equity in earnings of
petroleum related investments 108 820 1,457 1,739
Interest income 315 477 423 1,275
Interest expense (1,652) (4,445) (3,581) (9,271)
Other financing costs (704) (1,234) (1,458) (2,447)
Gain (loss) on disposition of assets, net - 8 (1,295) 8
Gain (loss) on interest rate swap (727) (380) (5,017) 326
------------ --------- --------- ---------
(2,660) (4,754) (9,471) (8,370)
------------ --------- --------- ---------
Earnings (loss) before income taxes (4,741) 2,811 10,792 3,245
Income tax benefit (expense) 1,801 (1,068) (4,101) (1,233)
------------ --------- --------- ---------
Net earnings (loss) (2,940) 1,743 6,691 2,012
Preferred stock dividends (2,437) (2,127) (4,841) (4,253)
------------ --------- --------- ---------
Net earnings (loss) attributable to
common stockholders $ (5,377) (384) 1,850 (2,241)
============ ======== ========= =========
Weighted average common shares outstanding:
Basic 32,144 31,459 31,982 31,142
============ ======== ========= =========
Diluted 32,144 31,459 32,252 31,142
============ ======== ========= =========
Earnings (loss) per common share
Basic $ (0.17) (0.01) 0.06 (0.07)
============ ======== ========= =========
Diluted $ (0.17) (0.01) 0.06 (0.07)
============ ======== ========= =========
See accompanying notes to consolidated financial statements.
5
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Year Ended June 30, 2001 and Six Months Ended December 31, 2001 (Unaudited)
(In thousands)
Retained
Capital in earnings
Preferred Common excess of Unearned (accumulated
stock stock par value compensation deficit) Total
--------- ------ ---------- ------------ ------------ -----
Balance at June 30, 2000 $ 170,115 307 201,075 (1,465) (37,934) 332,098
Common stock issued for options
and warrants exercised - 6 1,891 - - 1,897
Net tax benefit arising from
stock based compensation - - (5) - - (5)
Unearned compensation related
to restricted stock awards - 5 2,295 (2,300) - -
Amortization of unearned compensation - - - 1,300 - 1,300
Preferred stock dividends, including
$4,710,000 paid-in-kind 4,710 - - - (8,963) (4,253)
Net earnings - - - - 11,338 11,338
--------- ---- ------- ------ ------- -------
Balance at June 30, 2001 $ 174,825 318 205,256 (2,465) (35,559) 342,375
--------- ---- ------- ------ ------- -------
Common stock issued for options
exercised - - 30 - - 30
Repurchased and retired stock from
employees for withholding taxes - - (71) - - (71)
Net tax benefit arising from stock
based compensation - - (18) - - (18)
Unearned compensation related to
restricted stock awards - 4 1,548 (1,552) - -
Amortization of unearned compensation - - - 766 - 766
Preferred stock dividends paid-in-kind 4,841 - - - (4,841) -
Net earnings - - - - 6,691 6,691
--------- ---- ------- ------ ------- -------
Balance at December 31, 2001 $ 179,666 322 206,745 (3,251) (33,709) 349,773
========= ==== ======= ====== ======= =======
See accompanying notes to consolidated financial statements.
6
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended December 31, 2001 and 2000 (Unaudited)
(In thousands)
Six Months Ended
December 31,
(Unaudited)
-----------------------------------
2001 2000
---------- ---------
Cash flows from operating activities:
Net earnings $ 6,691 2,012
Adjustments to reconcile net earnings to net
cash used by operating activities:
Depreciation and amortization 8,306 9,668
Equity in earnings of petroleum related investments (7) -
Deferred tax expense 3,502 1,152
Income tax benefit related to stock based compensation (18) -
Loss (gain) on disposition of assets 1,295 (8)
Amortization of unearned compensation 766 546
Amortization of deferred debt issuance costs 920 1,950
Provision for loss on transportation agreement 2,156 -
Unrealized loss on interest rate swap 3,168 -
Changes in operating assets and liabilities,
net of non-cash activities:
Trade accounts receivable (57,359) (2,936)
Prepaid expenses and other 261 1,365
Trade accounts payable 59,253 11,696
Net change in inventories and inventory due under exchange agreements (124,454) (8,530)
Net change in unrealized gains/losses on energy related contracts (45,885) (44,809)
Excise taxes payable and other accrued liabilities 19,091 1,623
--------- --------
Net cash used by operating activities (122,314) (26,271)
--------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,110) (6,172)
Proceeds from sales of assets 117,238 1,059
Increase in other assets, net (1,627) (62)
--------- --------
Net cash provided (used) by investing activities 114,501 (5,175)
--------- --------
Cash flows from financing activities:
Borrowings (repayments) of long-term debt, net (4,000) 4,818
Deferred debt issuance costs - (1,004)
Common stock issued 30 1,605
Repurchased and retired stock from employees for withholding taxes (71) -
Preferred stock dividends paid - (4,253)
--------- --------
Net cash provided (used) by financing activities (4,041) 1,166
--------- --------
Decrease in cash and cash equivalents (11,854) (30,280)
Cash and cash equivalents at beginning of period 13,759 53,938
--------- --------
Cash and cash equivalents at end of period $ 1,905 23,658
========= ========
See accompanying notes to consolidated financial statements.
7
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
Six Months Ended December 31, 2001 and 2000 (Unaudited)
(In thousands)
Six Months Ended
December 31,
(Unaudited)
-------------------------------
2001 2000
------ ------
Supplemental disclosures of cash flow information:
Sale of Little Rock facilities:
Proceeds receivable $ 29,033 -
--------- ---------
Cash received from sale $ 29,033 -
========= =========
Sale of West Shore shares:
Investment in West Shore $ 35,952 -
Loss on disposition (9,896) -
--------- ---------
Cash received from sale $ 26,056 -
========= =========
Sale of NORCO facilities:
Assets disposed $ 49,733 -
Liabilities recorded and liabilities retired 3,416 -
Gain on disposition 8,601 -
--------- ---------
Cash received from sale $ 61,750 -
========= =========
Other cash sales:
Cash received from sales $ 399 1,059
========= =========
See accompanying notes to consolidated financial statements.
8
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(1) Summary of Critical and Significant Accounting Policies
Nature of Business and Basis of Presentation
TransMontaigne Inc., a Delaware corporation ("TransMontaigne"), provides a
broad range of integrated supply, distribution, marketing, terminaling,
storage and transportation services to refiners, distributors, marketers and
industrial/commercial end-users of petroleum refined products (e.g.
gasoline, heating oil, etc.), chemicals, crude oil and other bulk liquids
("Product") in the midstream sector of the petroleum and chemical
industries. We are a holding company that conducts our operations primarily
in the Mid-Continent, Gulf Coast, Southeast, Mid-Atlantic and Northeast
regions of the United States.
Our commercial operations are divided into two main areas: Products supply,
distribution and marketing, and terminals and pipelines.
Principles of Consolidation and Use of Estimates
The consolidated financial statements included in this Form 10-Q have been
prepared by us 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 our
opinion, 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 we believe 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 our discussion and analysis of financial
condition and results of operations included in our Annual Report on
Form 10-K for the year ended June 30, 2001.
Our accounting and financial reporting policies conform to generally
accepted accounting principles and prevailing industry practices. The
financial statements include the accounts of TransMontaigne and its wholly-
owned subsidiaries on a consolidated basis. All significant intercompany
accounts and transactions have been eliminated in consolidation. Certain
amounts in the prior year have been reclassified to conform to the current
year's presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. 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 could differ from these estimates.
9
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(1) Summary of Critical and Significant Accounting Policies (continued)
Inventories
Our inventories consist of Products that are held and stated at market
value. Our inventory management activities are accounted for in accordance
with Emerging Issues Task Force Consensus 98-10 ("EITF 98-10"), Accounting
for Contracts Involved in Energy Trading and Risk Management Activities. As
such, all financial instruments utilized are marked-to-market in accordance
with the guidance set forth in EITF 98-10. The utilization of this mark-to-
market method of accounting requires that the effect of changes in prices
related to our physical inventory positions, along with any related hedges,
be included in net operating margins.
We maintain and market inventory that has different quality grades but is
interchangeable within these grades (e.g., premium, mid-grade, regular
unleaded gasoline). Our refined petroleum products inventories are traded in
futures markets; in large fungible bulk markets (Pasadena, TX; New York
Harbor; Chicago, IL; Tulsa, OK refining area; and Los Angeles, CA); and in
city specific wholesale markets. Quoted market prices (New York Mercantile
Exchange ("NYMEX"), Platt's-Bulk, and OPIS-Wholesale) are readily available
for these markets and are used by us in determining our inventory
valuations.
Our basis for inventory valuation is the utilization of the nearest quoted
NYMEX futures contract price, plus quoted basis differentials to the various
bulk market areas, plus Federal Energy Regulatory Commission regulated
transportation costs and industry recognized handling charges to city
specific wholesale markets. Quoted basis differentials are traded in the
over-the-counter petroleum markets and are easily verified by the various
cash brokers that facilitate trading.
We utilize this valuation methodology for all Products held by us in
storage, along with any valuation of a related exchange imbalance with a
trading partner. This methodology provides us a consistent means of valuing
inventory at a spot liquidation value and utilizes pricing components that
are verifiable via market price services and regulated pipeline tariffs.
Our Risk Management Committee reviews the total inventory and risk position
on a regular basis in order to ensure compliance with TransMontaigne's
inventory management policies, including hedging and trading activities. We
have adopted policies under which changes to our net risk position which is
subject to price risk, requires the prior approval of the Audit Committee.
10
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(1) Summary of Critical and Significant Accounting Policies (continued)
Accounting for Price Risk Management Activities
In connection with our Products supply, distribution and marketing
commercial operations, where we engage in price risk management activities
(forward energy trading contracts), we utilize mark-to-market accounting.
The utilization of the mark-to-market method of accounting requires that the
effect of changes in prices related to contractual positions, along with the
related hedges, be included in net operating margins. We enter into forward
physical energy contracts in both our marketing/logistics business and our
commercial end user marketing ("energy services") business. Our contracted
price agreed upon with a third party is compared against the estimated price
to replace the Product at the delivery location of the contract. The
difference between these two values is discounted to present-day dollars and
recorded as "Unrealized Gains (asset) or Losses (liability) on Energy
Related Contracts" in the Consolidated Balance Sheet, with an offsetting
entry to Product costs in the Consolidated Statements of Operations. Our
price risk management activities are energy-trading activities as defined by
EITF 98-10. As such, all financial instruments utilized are marked-to-market
in accordance with the guidance set forth in EITF 98-10.
Mark-to-market accounting assists us in evaluating positions and controlling
market risks. We record all positions at their daily net realizable value
(the cost to replace the positions at current values, i.e. replacement
costs), using a combination of published daily market closes and estimates
based on both market intelligence and historical market conditions.
For market locations in which we have access to physical Products via our
equity owned terminals, controlled pipeline space, and/or a
throughput/exchange arrangement, replacement cost is determined by adding
the quoted near month NYMEX futures quote to the appropriate basis
differential (depending on the market area that will supply the contract
location) and the transportation cost to deliver the Products from the bulk
trading location to the contract location.
For some of our contracts and contract locations, calculating replacement
cost relies on a degree of estimation in calculating the basis differentials
for deferred trading months and locations without a liquidly traded forward
cash market. For these markets (in which we cannot secure a forward traded
basis differential quote from a broker), our mark-to-market model estimates
the basis differentials based on a rolling historical average, which is
updated quarterly.
For market locations in which we do not have access to physical Products via
our equity owned terminals, controlled pipeline space, and/or a
throughput/exchange arrangement, we purchase Products on a spot basis from
approved vendors to satisfy our contractual obligations. In these contracts,
we are exposed to the differential between the bulk trading locations and
the city specific wholesale markets, as we do not control the pipeline and
terminal capacity to facilitate shipment of the physical Products. Our mark-
to-market model estimates this differential to each specific city.
11
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(1) Summary of Critical and Significant Accounting Policies (continued)
Accounting for Price Risk Management Activities (continued)
We also use mark-to-market guidance under EITF 98-10 to value our forward
commitments under swap contracts. We enter into various swap agreements with
our trading partners and price risk management customers that settle against
a wide variety of wholesale and retail pricing indices. The purpose of these
arrangements can range from hedging forward price risk to attempting to
garner a value added margin for price risk management activities. In
accordance with our risk management policy, we utilize a combination of
futures contracts and over-the-counter forward contracts to hedge risk
associated with these contracts. Our methodology to calculate a forward
replacement cost for these instruments is consistent with our methodology
used to value our forward physical cash commitments. We use a rolling
historical average difference between the pricing index that the swap
contract utilizes (e.g. Department of Energy National and OPIS-Wholesale
indices) and the related NYMEX futures contract utilized to hedge the
commitment.
Contractual commitments are subject to risks including market value
fluctuations, as well as counter party credit and liquidity risk. We have
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 Statements of Cash Flows.
Accounting for Terminal and Pipeline Activities
In connection with our terminal and pipeline commercial operations, we
utilize the accrual method of accounting for revenue and expenses.
Environmental Obligations
We accrue for environmental costs that relate to existing conditions caused
by past operations when estimable. Environmental costs include initial site
surveys and environmental studies of potentially contaminated sites, costs
for remediation and restoration of sites determined to be contaminated and
ongoing monitoring costs, as well as fines, damages and other costs,
including direct internal and legal costs. Liabilities for environmental
costs at a specific site are initially recorded when it is reasonably
possible that we will be liable for such costs, and an estimate of the
associated costs can be made based on available information. Such an
estimate includes our share of the liability for each specific site and the
sharing of the amounts related to each site that will not be paid by other
potentially responsible parties, based on enacted laws and
adopted/regulations and policies. Adjustments to initial estimates are
recorded, from time to time, to reflect changing circumstances and estimates
based upon additional information developed in subsequent periods. Estimates
of our ultimate liabilities associated with environmental costs are
particularly difficult to make with certainty due to the number of variables
involved, including the early stage of investigation at certain sites, the
lengthy time frames required to complete remediation, technology changes,
alternatives available and the evolving nature of environmental laws and
regulations. At December 31, 2001, we had environmental reserves accrued of
approximately $2.4 million for our estimated remediation obligations. As of
June 30, 2001, we had an environmental reserve of approximately $0.7
million.
12
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(1) Summary of Critical and Significant Accounting Policies (continued)
Cash and Cash Equivalents
We consider all short-term investments with an original maturity of three
months or less to be cash equivalents.
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 capacity, 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.
Deferred Debt Issuance Costs
Deferred debt issuance costs relate to the Bank Credit Facility and the
senior promissory notes and are amortized on the interest method over the
term of the underlying debt instrument.
Income Taxes
We utilize 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.
Earnings Per Common Share
Basic earnings per common share have 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 the exercise of all stock options and warrants with exercise
prices less than the average market price of the common stock during the
period, using the treasury stock method.
13
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(1) Summary of Critical and Significant Accounting Policies (continued)
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS
No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. SFAS No. 141 also
specifies criteria intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, and
establishes that any purchase price allocable to an assembled workforce may
not be accounted for separately. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are
acquired in a purchase business combination completed after June 30, 2001
will not be amortized, but will continue to be evaluated for impairment in
accordance with the appropriate pre-SFAS No. 142 accounting literature. SFAS
No. 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142. SFAS No. 142
also requires that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual
values, and reviewed for impairment in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of.
We are required to adopt provisions of SFAS No. 141 immediately and SFAS No.
142 effective July 1, 2002. Goodwill and intangible assets acquired in
business combinations completed before July 1, 2001 will continue to be
amortized prior to the adoption of SFAS No. 142. The adoption of SFAS No.
141 will not have any impact on our financial statements, and we do not
expect the adoption of SFAS No. 142 will have any impact on our financial
statements.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The standard applies to legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and/or normal use of the
asset.
SFAS No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The fair value of the
liability is added to the carrying amount of the associated asset and this
additional carrying amount is depreciated over the life of the asset. The
liability is accreted at the end of each period through charges to operating
expense. If the obligation is settled for other than the carrying amount of
the liability, a gain or loss is recognized on settlement.
We are required and plan to adopt the provisions of SFAS No. 143 for the
quarter ending September 30, 2002. To accomplish this, we must identify all
legal obligations for asset retirement obligations, if any, and determine
the fair value of these obligations on the date of adoption. The
determination of fair value is complex and will require us to gather market
information and develop cash flow models. Additionally, we will be required
to develop processes to track and monitor these obligations. Because of the
effort necessary to comply with the adoption of SFAS No. 143, it is not
practicable for us to estimate the impact of adopting this statement at the
date of this report.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 2001. SFAS No. 144 establishes one accounting
model to be used for long-lived assets to be disposed of by sale and
broadens the presentation of discontinued operations to include more
disposal transactions. We are currently evaluating the requirements and
impact of this statement on our consolidated financial positions and results
of operations.
14
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(2) Dispositions
Effective June 30, 2001, we sold two petroleum distribution facilities in
Little Rock, Arkansas to Williams Energy Partners L.P. for $29.0 million.
The cash proceeds from the sales transaction were received on July 3, 2001.
We realized a net gain in June 2001 of approximately $22.1 million on the
sale. The proceeds from the sale were used to repay long-term debt and for
working capital needs.
On July 27, 2001, we sold 861 shares of the common stock of West Shore
Pipeline Company ("West Shore"), thereby reducing our ownership interest to
18.50%. The West Shore common stock was sold to Midwest Pipeline Company,
LLC for cash consideration of approximately $2.9 million. We realized a net
loss of approximately $1.1 million on this sale. As a result of this
transaction, we also recognized a loss on our remaining investment in West
Shore of approximately $8.8 million. We sold our remaining 18.50% interest
on October 29, 2001 to Buckeye Partners L.P. for cash consideration of
approximately $23.1 million, which approximated our adjusted book value. The
cash proceeds from both sales were used to repay long-term debt and for
working capital needs.
On July 31, 2001, we sold the NORCO Pipeline system and related terminals
("NORCO") to Buckeye Partners L.P. for cash consideration of approximately
$62.0 million and realized a net gain of approximately $8.6 million on the
sale. The proceeds from the sale were used to repay long-term debt and for
working capital needs.
(3) Inventories
Inventories at December 31, 2001 and June 30, 2001 are as follows:
December 31, 2001 June 30, 2001
----------------- -------------
(in thousands) (in thousands)
Refined petroleum products $202,949 78,495
Refined petroleum products due
under exchange agreements, net - 76,754
-------- -------
$202,949 155,249
======== =======
We manage discretionary inventory by utilizing risk and portfolio management
disciplines, including certain hedging strategies, forward purchases and
sales, swaps and other financial instruments to manage market exposure. In
managing these inventory balances and related financial instruments, we
evaluate the market exposure from an overall portfolio basis that considers
both continuous movement of inventory balances and related open positions in
commodity trading instruments.
Our 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 the above inventory (including
line fill and tank bottoms - the minimum inventory - "Mins"), is required to
be held for operating balances in the conduct of our daily supply,
distribution and marketing activities, and is maintained both in tanks and
pipelines owned by us and pipelines and tanks owned by third parties. In
order to maintain our trading and marketing activities, we cannot sell this
minimum inventory, and we manage it as if it were a long-term investment. As
such, it is our policy not to hedge the price risk associated with this
minimum inventory. However, due to the fact that all our inventory must
currently be accounted for under mark-to-market accounting in accordance
with EITF 98-10, we record non-cash unrealized gains and losses each period
for changes in the market prices of this minimum inventory. As of December
31, 2001 and June 30, 2001, our designated minimum inventory level was 2.0
million barrels. The unrealized loss relating to our minimum inventory was
$13.0 million and $6.9 million for the six months ended December 31, 2001
and 2000, respectively.
15
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(4) Unrealized Gains/Losses on Energy Related Contracts, Net
Unrealized gains and losses on energy related contracts at December 31, 2001
and June 30, 2001 are as follows:
December 31, 2001 June 30, 2001
----------------- -------------
(in thousands) (in thousands)
Unrealized gains $ 67,369 41,419
Unrealized losses (7,791) (27,726)
-------- -------
Net asset position $ 59,578 13,693
======== ======
(5) Property, Plant and Equipment
Property, plant and equipment at December 31, 2001 and June 30, 2001 is as
follows:
December 31, 2001 June 30, 2001
----------------- -------------
(in thousands) (in thousands)
Land $ 13,939 15,181
Pipelines, rights of way
and equipment 11,842 36,776
Terminals and equipment 256,629 289,715
Other plant and equipment 16,569 16,585
--------- -------
298,979 358,257
Less accumulated depreciation 52,192 54,025
--------- -------
$ 246,787 304,232
========= =======
16
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(6) Investments in Petroleum Related Assets
Investments in petroleum related assets at December 31, 2001 and June 30,
2001 is as follows:
December 31, 2001 June 30, 2001
----------------- -------------
(in thousands) (in thousands)
Lion Oil Company $10,131 10,131
ST Oil Company 1,685 1,677
West Shore - 35,952
------- ------
$11,816 47,760
======= ======
We effectively own 18.04% of the common stock of Lion Oil Company ("Lion"),
an Arkansas based refinery, through our 65% ownership of TransMontaigne
Holding Inc. We recorded dividend income of approximately $0.8 million from
Lion during the six months ended December 31, 2001 and $0.7 million during
the six months ended December 31, 2000.
In August 2000, we converted our note receivable and accrued interest from
ST Oil Company into a 30.02% equity ownership position. We recorded less
than $0.1 million of equity income during the six months ended December 31,
2001 and 2000.
Through our wholly-owned subsidiary, TransMontaigne Pipeline Inc., we owned
20.38% of the common stock of West Shore. Although we owned 20.38%, we did
not maintain effective management control and therefore carried our
investment at cost. On July 27, 2001, we sold 861 shares of the common stock
of West Shore thereby reducing our ownership interest to 18.50%. The West
Shore common stock was sold to Midwest Pipeline Company, LLC for cash
consideration of approximately $2.9 million. We realized a net loss of
approximately $1.1 million on this sale. As a result of this transaction, we
also recognized a loss on our remaining investment in West Shore of
approximately $8.8 million. We sold our remaining 18.50% interest on October
29, 2001 to Buckeye Partners L.P. for cash consideration of approximately
$23.1 million, which approximated our adjusted book value. We recorded
dividend income from West Shore of approximately $0.7 million during the six
months ended December 31, 2001 and $1.0 million for the six months ended
December 31, 2000.
(7) Other Assets, Net
Other assets at December 31, 2001 and June 30, 2001 is as follows:
December 31, 2001 June 30, 2001
----------------- -------------
(in thousands) (in thousands)
Prepaid transportation $2,884 2,601
Commodity trading membership 1,500 -
Deposits and other assets 220 376
------ -----
$4,604 2,977
====== =====
Prepaid transportation relates to our contractual transportation and
deficiency agreements with three interstate refined petroleum pipelines. See
note 12.
17
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(8) Long-Term Debt
Long-term debt at December 31, 2001 and June 30, 2001 is as follows:
December 31, 2001 June 30, 2001
----------------- --------------
(in thousands) (in thousands)
Bank Credit Facility $101,000 80,000
Senior promissory notes 25,000 50,000
-------- -------
126,000 130,000
Less current maturity - -
-------- -------
$126,000 130,000
======== =======
Our Bank Credit Facility consists of a $240 million revolving credit
facility and a $45 million letter of credit facility that is due December
31, 2003. Borrowings under the credit facility bear interest, based upon our
option, at either the lender's Alternate Base Rate plus a spread, or LIBOR
plus a spread, as in effect at the time of the borrowings and is adjusted
monthly, bimonthly, quarterly or semi-annually.
In April 1997, we entered into a Master Shelf Agreement (senior promissory
notes) with an institutional lender. On July 6, 2001, we repaid and retired
the outstanding $25 million of 7.85% Senior Notes with a portion of the
proceeds from the sale of the Little Rock terminal. The remaining borrowings
consist of 7.22% Senior Notes due October 17, 2004.
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 December 31, 2001, we were in compliance with all
such tests contained in the respective agreements.
The average interest rate under the Bank Credit Facility was 5.1% and 10.1%
at December 31, 2001 and 2000, respectively. Cash payments for interest were
approximately $3.6 million and $9.7 million for six months ended December
31, 2001 and 2000, respectively.
Pursuant to the letter of credit facility, we had outstanding letters of
credit with third parties in the amount of $10.4 million and $12.3 million
at December 31, 2001 and June 30, 2001, respectively. At December 31, 2001,
all outstanding letters of credit expire within one year.
We have a $150 million notional value "periodic knock-out" swap agreement
with a money center bank to offset the exposure of an increase in variable
interest rates on our bank debt. This swap agreement expires in August 2003.
The swap settles monthly and contains a knock-out level on the one-month
LIBOR at or above 6.75%, and has a fixed interest rate of 5.48%. The swap
agreement provides that we pay a fixed interest rate of 5.48% on the
notional amount in exchange for a variable rate based on LIBOR so long as
the one-month LIBOR interest rate does not rise above 6.75%. If the one-
month LIBOR rate rises above 6.75%, the swap knocks out and no payments are
due under the agreement until such time as the one-month LIBOR rate declines
below 6.75%.
18
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(8) Long-Term Debt (continued)
As of December 31, 2001 and June 30, 2001, the fair market value of the
swap agreement was a liability of $6.3 million and $3.1 million
respectively, which was recorded in other liabilities. For the six months
ended December 31, 2001, we recorded an unrealized loss on the interest
rate swap of $3.2 million and a realized loss of $1.8 million that we paid
to the swap counter party. We recorded an unrealized loss on the interest
rate swap of $0.8 million and a realized gain of $1.1 million that was paid
to us by our swap counter party, for the six months ended December 31,
2000.
(9) Stockholders' Equity
On March 25, 1999 and March 30, 1999, we 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%. During the six months ended December 31, 2001, we
elected to pay-in-kind the preferred dividends. For the six months ended
December 31, 2001, paid-in-kind dividends were $4.8 million. For the six
months ended December 31, 2000 cash dividend payments were $4.3 million.
We 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 our 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 us 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.
(10) Restricted Stock
We have 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. Amortization of
unearned compensation of approximately $0.8 million and $0.5 million is
included in selling, general and administrative expense for the six months
ended December 31, 2001 and 2000, respectively. As provided for in the
plan, during the six months ended December 31, 2001, 12,548 shares were
repurchased and retired from employees, to pay the withholding taxes due
when restricted shares vested.
19
TRANSMONTAIGNE INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 (Unaudited)
--------------------------------------------------------------------------------
(11) Litigation
We have been a defendant in various lawsuits and a party to various other
legal proceedings, in the ordinary course of business, some of which are
covered in whole or in part by insurance. We believe that the outcome of
such lawsuits and other proceedings will not individually or in the
aggregate have a material adverse effect on our consolidated financial
condition, results of operations or cash flows.
(12) Commitments and Contingencies
In connection with our June 30, 2001 sale of the two petroleum distribution
facilities in Little Rock, Arkansas, we are liable for payments of up to
$725,000 per year for a five-year period through June 30, 2006. The amount
that we are potentially liable for each year is based on the actual
throughput volumes of the facility for each year as compared to the
contractual thresholds, of 20,000 and 32,500 barrels per day ("BPD"). If
actual volumes exceed 32,500 BPD, we will not be obligated to pay any of
the $725,000 for that given year. If actual volumes are between the 20,000
and 32,500 BPD, we will be obligated to pay a prorated portion of the
$725,000. If actual volumes are less than 20,000 BPD, we are obligated to
pay the entire $725,000.
We also are subject to three transportation and deficiency agreements
("T&D's") with three separate refined petroleum product interstate pipeline
companies. Each agreement calls for guaranteed minimum shipping volumes
over the term of the agreements. If actual volumes shipped are less than
the guaranteed minimum volumes, we must make payment to the counter party
for any shortfall at the contracted pipeline tariff. Such payments are
accounted for as prepaid transportation, since we have a contractual
timeframe, after the end of the term of the T&D, to apply the amounts to
charges for using the interstate pipeline. We monitor the actual volumes
shipped against our obligations to determine if the T&D payments made will
ultimately be recouped. In order to do this, we have to estimate our future
shipping volumes.
As of December 31, 2001, we have recorded approximately $2.9 million of
prepaid transportation costs under these T&D's. Under one of the T&D
agreements, we have estimated that future payments totaling $2.6 million
that will be required will not be recoverable and accordingly we have
established a liability in Other Accrued Liabilities for this estimated
future obligation.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following review of our financial condition and results of operations
should be read in conjunction with the Consolidated Financial Statements.
Material period-to-period variances in the consolidated statements of income are
discussed under "Results of Operations." The "Liquidity and Capital Resources"
section analyzes cash flows and financial position. These Consolidated Financial
Statements should be read in conjunction with the financial statements and
related notes, together with our discussion and analysis of financial condition
and results of operations included in our Annual Report on Form 10-K for the
year ended June 30, 2001.
Our commercial operations are divided into two main areas: Product supply,
distribution and marketing, and terminals and pipelines, which includes
terminaling, storage services, and pipeline transportation.
Commercial Operations
Product Supply, Distribution and Marketing
We provide Product services, consisting of the bulk purchase and sale of
Products, the wholesale marketing of Products at terminal truck loading rack
locations, and sales of Products to regional and national industrial end-users.
In addition, we provide risk management products and services to gasoline and
distillate customers that minimize the customer's exposure to both commodity
price movements and location-based differentials. We provide 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 us will vary based upon
market conditions, customer needs and the risk profile desired by the individual
customer. These risk-managing contracts are not entered into on a ratable basis
and can cause net operating margins to fluctuate from one period to the next.
The Product supply, distribution and marketing operations generally
utilizes the asset base and associated Product market demand for the geographic
areas surrounding our terminal and pipeline assets to market and trade various
Products and provide specialized services to our customers. We purchase
Products at prevailing prices from refiners and producers at production points
and common trading locations. These Products are then shipped via barge,
TransMontaigne-owned pipelines or third party-owned pipelines to our terminals
or to third party terminal locations. We can also arrange for the movement of
these Products through exchange agreements with third parties. From these
terminal locations, the Products are made available to our customers either
through contract sales, exchange agreements or daily priced rack sales.
Our margins are generated from bulk sales and exchanges of Products with
major and large independent energy companies; wholesale distribution and sales
of Products to jobbers and retailers; distribution and sales of Products to
regional and national commercial/industrial end-users; wholesale storage and
marketing contracts of Products; and tailored short and long-term fuel and risk
management logistical services arrangements to wholesale, retail and
commercial/industrial end-users. Product storage and forward sales transactions
enable us to purchase Products inventory; utilize proprietary and leased
tankage, as well as line space controlled by us in major common carrier
pipelines; arbitrage location product prices differentials and transportation
costs; store inventory; and, depending upon market conditions, realize margins
through sales in the future cash market or by using NYMEX contracts. Wholesale
distribution of Products is conducted from proprietary and non-proprietary truck
loading terminal, storage and delivery locations. Fuel and risk management
logistical services provide both our large and small volume customers an
assured, ratable and cost effective delivered source of Products supply through
proprietary pipelines and terminals, as well as through non-proprietary
pipeline, terminal, truck, rail and barge distribution channels.
21
Product Supply, Distribution and Marketing (continued)
Generally, as we purchase a Product, we simultaneously attempt to establish
or "lock-in" a margin by selling the Product for physical delivery to third
party users or by entering into a future delivery obligation, such as a futures
contract on the NYMEX. We seek to maintain a balanced position until we deliver
or take delivery of the physical Product associated with each transaction,
thereby minimizing or eliminating exposure to price fluctuations occurring after
the initial transactions. However, certain basis risks (the risk that price
relationships between delivery points, types of Product or delivery periods will
change) cannot be completely hedged or eliminated. It is our policy not to
acquire Products, futures contracts or other derivative products for the purpose
of speculating on the commodity price. Risk management policies have been
established by the Risk Management Committee to monitor and control these price
risks. The Risk Management Committee is comprised of senior executives of
TransMontaigne.
In addition, we provide "supply chain management" services to our
commercial and industrial customers. Through our "supply chain management"
arrangements, we provide services to our customers downstream of the Products
rack location. A customer of our "supply chain management" services receives
the benefits of our web computer technology enabling the customers to minimize
their total energy costs while meeting their volumetric needs. As a result of
this service, a customer can reduce the processing time associated with
dispatching Product to its physical locations, processing payments associated
with Product purchases at both bulk and retail locations, and obtain other costs
savings associated with procuring its Product demands. By aggregating the
demands of various customers, we are able to leverage the demand and build
relationships with other companies along the supply and distribution chain that
benefit all the parties through reductions in the "back office" processing costs
associated with buying and selling Products.
In connection with our Products supply, distribution and marketing
operations, where we engage in price risk management activities, we utilize
mark-to-market accounting.
Terminals and Pipelines
We own and operate an extensive terminal infrastructure that handles
Products with transportation connections via pipelines, barges, rail cars and
trucks to TransMontaigne-owned facilities or to third party facilities with an
emphasis on transportation connections primarily through the Colonial,
Plantation, Texas Eastern, Explorer and Williams pipeline systems. The terminal
and pipeline commercial operations depend in large part on the level of demand
for Products by end users in the geographic locations served by such facilities
and the ability and willingness of our customers to supply such demand by
utilizing our terminals and pipelines as opposed to the terminals and pipelines
of other companies. Our Product supply, distribution and marketing effort
"directs" volumes through our terminals and pipelines wherever possible, which
provides us with an advantage over many of our terminal competitors who are not
involved in the marketing of Products.
The net margin for terminals and pipelines is calculated as terminal
revenue plus storage revenue plus pipeline revenue less direct operating costs.
Terminal revenues are based on the volume of Products handled at the facility's
loading racks, generally at a standard rate per gallon. Storage fees are
generally based on a per barrel rate or tankage capacity committed and will vary
with the duration of the arrangement, the product stored and special handling
requirements, particularly when certain types of chemicals and other bulk
liquids are involved. Pipeline revenues are based on the volume of Products
transported and the distance from the origin point to the delivery point. The
operating expenses of the terminals and pipelines include the direct related
wages and employee benefits, utilities, communications, maintenance and repairs,
property taxes, rent, vehicle expenses, environmental compliance costs,
materials and supplies. We cannot predict the impact of future fuel
conservation measures, alternate fuel requirements, governmental regulation,
technological advances in fuel economy, demographic changes, weather conditions,
crop prices, and energy-generation devices, all of which could reduce the demand
for Products in the areas served by TransMontaigne.
In connection with our terminal and pipeline commercial operations, we
utilize the accrual method of accounting for revenue and expenses.
22
CRITICAL ACCOUNTING POLICIES
Our accounting policies for inventories, price risk management activities, and
environmental obligations, are considered to be critical in the presentation of
our consolidated financial statements. These policies, and the underlying
financial statement accounts, require the use of estimates, management
judgments, or valuation methods, which could fluctuate if different assumptions
or conditions were to prevail. In recording our inventory at market, we must
estimate basis differentials and/or transportation costs to be applied to quoted
market prices for the products. Accounting for price risk management activities
requires us to select among acceptable valuation models, select appropriate
discount rates, and estimate basis differentials and/or transportation costs to
be applied to quoted market prices. Accounting for price risk management
activities, requires that we provide an estimate for losses in the event a
counter party defaults the performance of its obligations.
23
RESULTS OF OPERATIONS
Selected financial data regarding our operations are summarized below (in
thousands):
Three Months Ended Six Months Ended
December 31, December 31,
------------------ -----------------
2001 2000 2001 2000
------ ------ ------ ------
Net operating margins (1):
Product supply, distribution and marketing:
Sales, exchanges and product arbitrage $ 13,729 10,865 41,328 19,175
Unrealized losses recognized for the
minimum inventory (12,114) (2,353) (12,963) (6,881)
-------- ------ ------- -------
1,615 8,512 28,365 12,294
Terminals and pipelines 8,513 12,031 16,854 24,383
-------- ------ ------- -------
Total net operating margins 10,128 20,543 45,219 36,677
Selling, general and administrative expenses (8,185) (8,157) (16,650) (15,394)
Depreciation and amortization (4,024) (4,821) (8,306) (9,668)
-------- ------ ------- -------
Operating income (loss) (2,081) 7,565 20,263 11,615
Dividend income from and equity in earnings of petroleum
related investments 108 820 1,457 1,739
Interest income 315 477 423 1,275
Interest expense (1,652) (4,445) (3,581) (9,271)
Other financing costs (704) (1,234) (1,458) (2,447)
Gain (loss) on disposition of assets, net - 8 (1,295) 8
Gain (loss) on interest rate swap (727) (380) (5,017) 326
-------- ------ ------- -------
Earnings (loss) before income taxes (4,741) 2,811 10,792 3,245
Income tax benefit (expense) 1,801 (1,068) (4,101) (1,233)
-------- ------ ------- -------
Net earnings (loss) (2,940) 1,743 6,691 2,012
Preferred stock dividends (2,437) (2,127) (4,841) (4,253)
-------- ------ ------- -------
Net earnings (loss) attributable to
common stockholders $ (5,377) (384) 1,850 (2,241)
======== ====== ======= =======
(1) Net operating margins represent revenues less product costs and direct
operating expenses.
Selected volumetric data (Barrels Per Day):
Six Months Ended
December 31, 2001
-------------------------------------------------------------------------------------------
July August September October November December Average
-------------------------------------------------------------------------------------------
Retained Facilities 493,718 509,482 449,859 510,510 499,524 489,831 492,154
Disposed Facilities 92,045 - - - - - 15,341
------- ------- ------- ------- ------- ------- -------
Current period volumes 585,763 509,482 449,859 510,510 499,524 489,831 507,495
======= ======= ======= ======= ======= ======= =======
Six Months Ended
December 31, 2000
-------------------------------------------------------------------------------------------
July August September October November December Average
-------------------------------------------------------------------------------------------
Retained Facilities 489,164 494,829 485,849 501,788 480,769 473,961 487,727
Disposed Facilities 134,616 125,071 127,236 125,543 114,995 108,697 122,693
------- ------- ------- ------- ------- ------- -------
Prior period volumes 623,780 619,900 613,085 627,331 595,764 582,658 610,420
======= ======= ======= ======= ======= ======= =======
24
THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO
THREE MONTHS ENDED DECEMBER 31, 2000
We reported a net loss of $2.9 million for the three months ended December
31, 2001, compared to net earnings of $1.7 million for the three months ended
December 31, 2000. After Preferred Stock dividends, the net losses attributable
to common stockholders was $5.4 million compared to $0.4 million for the three
months ended December 31, 2001 and 2000, respectively. Loss per common share
was $.17 based on 32.1 million weighted average basic shares outstanding
compared to a loss of $.01 per share based on 31.5 million weighted average
basic shares outstanding, for the three months ended December 31, 2001 and 2000,
respectively.
Our lower net operating margins in the current period, as compared to the
prior years period, is due primarily to an increase of $9.7 million in the non-
cash charge recognized for the minimum inventory, the absence of approximately
$2.9 million in net operating margins contributed by the divested facilities in
the prior comparable period, and a $2.6 million charge relating to a
transportation and deficiency agreement with a pipeline company, all offset
somewhat by higher margins realized in our Product supply, distribution and
marketing activities.
Product Supply, Distribution and Marketing
The net operating margin reported for the Product supply, distribution and
marketing commercial operations include margins realized on sales, exchanges and
Product arbitrage. During the current quarter, the absolute price of crude oil
and refined products has continued to decline. The current oversupply situation
has dropped the value of the energy commodities and has created a "carry" or
"contango" market structure whereby the current value of the commodity is less
than the value quoted in a future month. This market structure enables both us
and our customers the opportunity to utilize our or other's terminal
infrastructure to store Products to capture the price differentials. A contango
market may lessen the volatility in the Product markets and could reduce future
arbitrage opportunities. During the current quarter, we have purchased and
stored approximately 5.5 million barrels of additional refined products to take
advantage of the contango market and the pricing spreads between current and
future months. Mark-to-market accounting will create future volatility in our
net operating margins due to these pricing spreads either widening or narrowing
from the original spread relationship. If the spreads widen (narrow), marking
these storage volumes and the related forward hedges to market will produce
unrealized losses (gains) in interim reporting periods. These negative
(positive) results will reverse and the originally anticipated spread will be
recognized during the future periods when the physical inventory is delivered
against the short future position.
Our 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. In order to maintain our trading and marketing activities,
we cannot sell our minimum inventory, and we manage it as if it were a long-term
investment. As such, it is our policy not to hedge the price risk associated
with this minimum inventory. However, due to the fact that all our inventory
must currently be accounted for under mark-to-market accounting in accordance
with EITF 98-10, we record non-cash unrealized gains and losses on this minimum
inventory. As of December 31, 2001, our designated minimum inventory level was
2.0 million barrels. The unrealized loss relating to our minimum inventory was
$12.1 million and $2.4 million for the three months ended December 31, 2001 and
2000, respectively.
25
Terminals and Pipelines
The net operating margin from our terminal and pipeline operations for the
three months ended December 31, 2001 was $8.5 million, compared to $12.0 million
for the three months ended December 31, 2000, a decrease of $3.5 million. Since
we sold our Little Rock terminal on June 30, 2001 and sold the NORCO system on
July 31, 2001, we realized no margins from the Little Rock terminal or the NORCO
system in the three months ended December 31, 2001 compared to the prior period
where net operating margins were approximately $2.9 million. We also
experienced increased operating costs in our terminal network, primarily from
increased repair and maintenance expenses and labor costs associated with
additional security measures, which reduced our margins in the current period.
Selling, General, Administrative and Other
Selling, general and administrative expenses for the three months ended
December 31, 2001 were $8.2 million, compared to $8.2 million for the three
months ended December 31, 2000, a change of less than $0.1 million. There was a
decrease in wages and a reduction in travel and entertainment during the current
period. The decreased costs were offset by an increase in consulting services
used by us as we are undertaking a program in the current year to enhance the
capabilities of our computer systems associated with the Product supply,
distribution and marketing and supply chain management activities. In addition,
we had an increase in the amount of incentive-based compensation expense
recorded by us in the current period and an increase in communication costs.
Depreciation and amortization for the three months ended December 31, 2001
was $4.0 million, compared to $4.8 million for the three months ended December
31, 2000. The reduction is due to the sale of the Little Rock terminal and the
NORCO system.
Dividend income from and equity in earnings of petroleum related
investments for the three months ended December 31, 2001 was $0.1 million
compared to $0.8 million for the three months ended December 31, 2000, a
decrease of $0.7 million. The decrease resulted from us receiving no dividend
from Lion and a $0.1 million dividend from West Shore during the three months
ended December 31, 2001, in comparison to a $0.4 million dividend from Lion and
a $0.4 million dividend from West Shore during the three months ended December
31, 2000.
Interest income for the three months ended December 31, 2001 was $0.3
million, compared to $0.5 million for the three months ended December 31, 2000,
a decrease of $0.2 million. The decrease in interest income was due primarily
to a decrease in interest bearing cash balances and lower interest rates during
the current quarter.
Interest expense for the three months ended December 31, 2001 was $1.7
million, compared to $4.4 million during the three months ended December 31,
2000, a decrease of $2.7 million. This reduction was primarily attributable to
a reduction in the amount of our outstanding debt as a result of the application
of proceeds from asset dispositions and a reduction in our borrowing rate under
our Bank Credit Facility due to declining LIBOR rates.
Other financing costs for the three months ended December 31, 2001 were
$0.7 million, compared to $1.2 million for the three months ended December 31,
2000. The reduction was attributable to a reduction in the amount of
amortization of deferred debt issuance costs during the current period. These
deferred fees were reduced in our fiscal quarter ended June 30, 2001 as a result
of our paying off the bank term loan and a portion of the Master Shelf
Agreement.
For the three months ended December 31, 2001, we recorded an unrealized
gain on the interest rate swap of $0.4 million, which represents the change in
the fair market value of the interest rate swap from September 30, 2001 to
December 31, 2001. We also realized a loss of $1.1 million on the interest rate
swap, which represented payments associated with the monthly settlements of the
interest rate swap for the three months ended December 31, 2001. In the three
months ended December 31, 2000, the realized gain on the interest rate swap was
$0.4 million and the unrealized loss was $0.8 million. The unrealized and
realized losses on the interest rate swap are a result of changes in LIBOR rates
during the periods.
26
Selling, General, Administrative and Other (continued)
Income tax benefit was $1.8 million for the three months ended December 31,
2001, which represents an effective combined federal and state income tax rate
of 38.0%. Income tax expense was $1.1 million for the three months ended
December 31, 2000, which represents an effective combined federal and state
income tax rate of 38.0%.
Dividends on the Preferred Stock were $2.4 million and $2.1 million for the
three months ended December 31, 2001 and 2000, respectively. The increase in
the current year dividend resulted from our election to pay the preferred
dividends for the quarter ended December 31, 2001 "in-kind" by issuing
additional shares of Preferred Stock.
27
SIX MONTHS ENDED DECEMBER 31, 2001 COMPARED TO
SIX MONTHS ENDED DECEMBER 31, 2000
We reported net earnings of $6.7 million for the six months ended December
31, 2001, compared to $2.0 million for the six months ended December 31, 2000.
After preferred stock dividends, the net earnings attributable to common
stockholders was $1.9 million and a net loss of $2.2 million for the six months
ended December 31, 2001 and 2000, respectively. Earnings per common share for
the six months ended December 31, 2001 was $.06 based on 32.0 million weighted
average basic shares outstanding compared to a loss of $.07 per share for the
six months ended December 31, 2000 based upon 31.1 million weighted average
basic shares outstanding.
Our improved net operating margins in the current period, as compared to
the prior year's comparable period, is primarily attributable to increased
margins from our Product supply, distribution and marketing activities despite
the absence of approximately $5.5 million in net operating margins contributed
by the facilities we divested of in the prior comparable period, an increase of
$6.1 million in the non-cash charge recognized for the minimum inventory and a
charge of $2.6 million relating to a transportation and deficiency agreement
with a pipeline company.
Product Supply, Distribution and Marketing
The net operating margin reported for the Product supply, distribution and
marketing commercial operations include margins realized on sales, exchanges and
Product arbitrage. During the six-month period, we were able to benefit from
the market volatility opportunities that were caused by a Chicago refinery
disruption in August, which significantly increased throughput on our Midwest
(Mississippi River) corridor terminals. This disruption fueled the price
differentials (for both gasoline and distillates) between the Gulf Coast,
Chicago and Group (Mid-Continent) regions and created significant basis
arbitrage opportunities. During the disruption, our Product marketing group,
utilizing our own, as well as third party, pipeline and terminal
infrastructures, was able to help supply a portion of the increased demand in
the Chicago and Group market areas.
Immediately after the attack of September 11, 2001, we temporarily
suspended operations of our facilities nationwide for approximately 12 hours to
assess the security of our facilities and potential pipeline supply disruptions.
Since September 12, 2001, throughput volumes to the facilities have returned to
normal levels.
Also, during the current six months, the "carry" or "contango" market has
enabled us the opportunity to utilize our terminal infrastructure to purchase
and store Products to capture the price differentials by selling the Product in
a later period at a higher price. During the six months ended December 31,
2001, we have purchased and stored approximately 6.0 million barrels of refined
products to take advantage of this contango market and the pricing spreads
between current and future months. Mark-to-market accounting will create future
volatility in our net operating margins due to these pricing spreads either
widening or narrowing from the original spread relationship. If the spreads
widen (narrow) marking these storage volumes and the related forward hedges to
market will produce unrealized losses (gains) in interim reporting periods.
These negative (positive) results will reverse and the originally anticipated
spread will be recognized during the future periods when the physical inventory
is delivered against the short future position.
Our 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. In order to maintain our trading and marketing activities,
we cannot sell our minimum inventory, and we manage it as if it were a long-term
investment. As such, it is our policy not to hedge the price risk associated
with this minimum inventory. However, due to the fact that all our inventory
must currently be accounted for under mark-to-market accounting in accordance
with EITF 98-10, we record non-cash unrealized gains and losses on this minimum
inventory. As of December 31, 2001, our designated minimum inventory level was
2.0 million barrels. The unrealized loss relating to our minimum inventory was
$13.0 million and $6.9 million for the six months ended December 31, 2001 and
2000, respectively.
28
Terminals and Pipelines
The net operating margin from terminal and pipeline operations for the six
months ended December 31, 2001 was $16.9 million, compared to $24.4 million for
the six months ended December 31, 2000, a decrease of $7.5 million. Since we
sold our Little Rock terminal on June 30, 2001 and sold the NORCO system on July
31, 2001, we realized no margins from the Little Rock terminal and only one
month of earnings from the NORCO system in the six months ended December 31,
2001 compared to the prior period. The impact from the asset sales was
approximately $5.5 million reduction in margin during the current period. We
also experienced increased operating costs in our terminal network, primarily
from increased repair and maintenance expenses and labor costs associated with
additional security measures, which reduced our margins in the current period.
Selling, General, Administrative and Other
Selling, general and administrative expenses for the six months ended
December 31, 2001 were $16.7 million, compared to $15.4 million for the six
months ended December 31, 2000, an increase of $1.3 million. The increase is
primarily attributable to an increase in consulting services used by us as we
are undertaking a program in the current year to enhance the capabilities of our
computer systems associated with the Product supply, distribution and marketing
group, an increase in the amount of incentive-based compensation expense
recorded by us in the current period and an increase in communication costs.
The increased costs were partially offset by lower wages and a reduction in
travel and entertainment during the current period.
Depreciation and amortization for the six months ended December 31, 2001
was $8.3 million, compared to $9.7 million for the six months ended December 31,
2000. The reduction is due to the sale of the Little Rock terminal and the
NORCO system.
Dividend income from and equity in earnings of petroleum related
investments for the six months ended December 31, 2001 was $1.5 million compared
to $1.7 million for the six months ended December 31, 2000, a decrease of $0.2
million. The decrease resulted from a decrease in the dividend from West Shore
during the six months ended December 31, 2001 due to the sale of the West Shore
common stock.
Interest income for the six months ended December 31, 2001 was $0.4
million, compared to $1.3 million for the six months ended December 31, 2000, a
decrease of $0.9 million. The decrease in interest income was due primarily to
a decrease in interest bearing cash balances and lower interest rates during the
current period.
Interest expense for the six months ended December 31, 2001 was $3.6
million, compared to $9.3 million during the six months ended December 31, 2000,
a decrease of $5.7 million. This reduction was primarily attributable to a
reduction in the amount of our outstanding debt as a result of the application
of proceeds from asset dispositions and a reduction in our borrowing rate under
our Bank Credit Facility due to declining LIBOR rates.
Other financing costs for the six months ended December 31, 2001 were $1.5
million, compared to $2.4 million for the six months ended December 31, 2000.
The reduction was attributable to a reduction in the amount of amortization of
deferred debt issuance costs during the current period. These deferred fees
were reduced in our last fiscal year ended June 30, 2001 as a result of our
paying off the bank term loan and a portion of the Master Shelf Agreement.
Loss on the disposition of assets was $1.3 million for the six months ended
December 31, 2001, and less than $0.1 million of gains were recognized in the
comparable period ended December 31, 2000.
For the six months ended December 31, 2001, we recorded an unrealized loss
on the interest rate swap of $3.2 million for the change in the fair market
value of the interest rate swap from June 30, 2001 to December 31, 2001. We
also realized a loss of $1.8 million on the interest rate swap, which
represented payments associated with the monthly settlement of the swap. In the
six months ended December 31, 2000, the realized gain on the interest rate swap
was $1.1 million and the unrealized loss was $0.8 million. The unrealized and
realized losses on the interest rate swap are a result of changes in the LIBOR
rates during the periods.
29
Selling, General, Administrative and Other (continued)
Income tax expense was $4.1 million for the six months ended December 31,
2001, which represents an effective combined federal and state income tax rate
of 38.0%. Income tax expense was $1.2 million for the six months ended December
31, 2000, which represents an effective combined federal and state income tax
rate of 38.0%.
Dividends on the Preferred Stock were $4.8 million and $4.3 million for the
six months ended December 31, 2001 and 2000, respectively. The increase in the
current year dividend resulted from our election to pay the preferred dividends
for the six months ended December 31, 2001 "in-kind" by issuing additional
shares of Preferred Stock.
30
LIQUIDITY AND CAPITAL RESOURCES
The following summary reflects our comparative EBITDA, adjusted EBITDA and
net cash flows for the three months and six months ended December 31, 2001 and
2000 (in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- ---------------------------
2001 2000 2001 2000
------ ------ ------ ------
EBITDA (1) $ 2,051 13,206 30,026 23,022
Adjusted EBITDA (2) $ 14,165 15,559 42,989 29,903
Net cash used by operating activities $ (65,318) (8,872) (122,314) (26,271)
Net cash provided (used) by investing activities $ 20,702 (962) 114,501 (5,175)
Net cash provided (used) by financing activities $ 36,929 (2,693) (4,041) 1,166
(1) EBITDA is defined as total net operating margin, less selling, general and
administrative expenses, plus dividend income from petroleum related
investments. We believe 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 our ability to incur and service debt and to fund capital
expenditures. In evaluating EBITDA, we believe 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 GAAP) as an indicator of our operating performance, or to cash flows
from operating activities (as determined in accordance with GAAP) as a
measure of liquidity. Our 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 recognized for
our minimum inventory. We believe that Adjusted EBITDA is the most useful
measure in evaluating our performance because it eliminates the impact on
operating results from the revaluation of our minimum inventory.
31
LIQUIDITY AND CAPITAL RESOURCES (continued)
We received approximately $117 million of cash from asset sales during the
six-month period ended December 31, 2001. During this period, we also increased
our inventories by $137 million by purchasing 6.0 million barrels of refined
petroleum products. This inventory was purchased to take advantage of this
contango market structure. Also during the period, the company repaid long term
debt by $4.0 million. The cash proceeds received from assets sales, combined
with the cash provided from operating activities, funded the increase in
inventory and other working capital requirements.
Refined petroleum products inventories at December 31, 2001 and June 30,
2001 are as follows:
December 31, 2001 June 30, 2001
--------------------- ---------------------
(in thousands) (in thousands)
Amount Bbls Amount Bbls
--------------------- ---------------------
Refined petroleum products - Mins $ 45,298 2,000 $ 58,261 2,000
Refined petroleum products - Discretionary 157,651 6,758 20,234 468
---------- ----- ---------- -----
202,949 8,758 78,495 2,468
Refined petroleum products due to others under exchange
agreements - 76,754 2,778
---------- ----- ---------- -----
$ 202,949 8,758 $ 155,249 5,246
========== ===== ========== =====
Relative month-end commodity prices from June 30, 2001 to December 31, 2001
are as follows:
Heating
Crude Oil Gasoline
----- ------- --------
Relative commodity prices
(NYMEX close on last day of month)
6/30/01 $26.25 .709 .721
7/31/01 26.35 .697 .732
8/31/01 27.20 .766 .806
9/30/01 23.43 .664 .680
10/31/01 21.18 .598 .552
11/30/01 19.44 .532 .534
12/31/01 19.84 .551 .573
32
LIQUIDITY AND CAPITAL RESOURCES (continued)
The following table indicates the maturities of our unrealized gain
position by the credit quality of our contract counter parties at December 31,
2001.
Fair value of Contracts (in thousands)
----------------------------------------------------------------------------------------------
Maturity Maturity
less than 1 Maturity Maturity in excess Total Fair
year 1-3 years 4-5 years of 5 years Value
----------- --------- --------- ---------- ----------
Investment grade $26,948 647 27,595
Non-investment grade 17,137 10,999 28,136
No external rating 10,933 705 11,638
------- ------ ------- ------ ------
Unrealized gain position $55,018 12,351 - - 67,369
======= ====== ======= ====== ======
Due to the volatility that can occur in refined petroleum product prices,
the following table estimates the sensitivity of the fair market value of our
net asset position at December 31, 2001.
$ per gallon change
--------------------------------------------------
+.0.0 +.10 +.05 -.05 -.10
------- ------ ------ ------ ------
Investment grade $23,547 18,081 20,814 26,280 29,013
Non-investment grade 27,812 13,754 20,783 34,840 41,869
No external rating 8,219 8,620 8,419 8,019 7,818
------- ------ ------ ------ ------
Net asset position $59,578 40,455 50,016 69,139 78,700
======= ====== ====== ====== ======
If refined petroleum product prices decline, a significant portion of the
above referenced change in net asset position would require cash for upfront
margin calls. Conversely, if refined product prices were to increase, a
significant portion of the above referenced change in net asset position would
generate cash by the return of related margin calls. We have contractual rights
with some of our counter parties that require them to post additional letters of
credit or cash deposits, to diminish our counter party exposure and related cash
margin calls.
Our Bank Credit Facility consists of a $240 million revolving credit
facility due December 31, 2003. At December 31, 2001, we had borrowings of $101
million outstanding under the Bank Credit Facility at an average interest cost
of 5.1%. We had working capital of $199.4 million and availability under our
Bank Credit Facility of approximately $139.0 million and availability under our
letter of credit facility of $34.6 million. The availability under the Bank
Credit Facility is calculated weekly and is based upon our working capital. At
December 31, 2001, we had $25.0 million of 7.22% senior promissory notes due
October 17, 2004 outstanding under the Master Shelf Agreement.
Each of the Bank Credit Facility and Master Shelf Agreement is secured by
certain current assets and fixed assets, and each also includes financial
covenants relating to fixed charge coverage, current ratio, maximum leverage
ratio, consolidated tangible net worth, cash distributions and open inventory
positions. As of December 31, 2001, we were in compliance with all such
covenants.
We believe that our current working capital position; future cash provided
by operating activities; available borrowing capacity under the Bank Credit
Facility and the Master Shelf Agreement; and our relationship with institutional
lenders and equity investors should enable us to meet our planned capital and
liquidity requirements.
33
LIQUIDITY AND CAPITAL RESOURCES (continued)
Capital expenditures anticipated for the fiscal year ending June 30, 2002
are estimated to be $4.5 million for terminal and pipeline facilities, and
assets to support these facilities. Future capital expenditures will depend on
numerous factors, including the availability, economics and cost of appropriate
acquisitions which we identify and evaluate; 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 we provide; local,
state and federal governmental regulations; environmental compliance
requirements; and the availability of debt financing and equity capital on
acceptable terms.
34
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 we believe that our
expectations are based on reasonable assumptions, we can give no assurance that
our goals will be achieved. Important factors, which could cause actual results
to differ materially from those in the forward-looking statements, include:
. that we will expand our business
. that we will generate net operating margins from high sales volumes
. that we will generate net operating margins affected by price volatility
of Products purchased and sold
. that we will enter into transactions with counter parties having the
ability to meet their financial commitments to us
. that we will incur unanticipated costs in complying with current and
future environmental regulations
. that we will capitalize on the trend by other companies in the oil and
gas industry to divest assets and outsource certain services
. that we will acquire strategically located operating facilities from
third parties
. that we will generate working capital internally, or have the ability to
access debt and equity resources, to meet our capital requirements.
35
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 our Annual Report
on Form 10-K for the year ended June 30, 2001, 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 us from those
reported in our Annual Report on Form 10-K for the year ended June 30, 2001.
36
PART II. OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the TransMontaigne Annual Meeting of Stockholders held on November 15, 2001,
the stockholders of TransMontaigne elected eight directors to serve until the
next Annual Meeting of Stockholders and until their successors have been elected
and qualified.
The following persons were elected as directors:
Votes For Votes Against Abstentions
Cortlandt S. Dietler 19,644,654 430,083 0
Donald H. Anderson 19,644,644 430,093 0
Peter B. Griffin 18,928,647 1,146,090 0
Ben A. Guill 19,592,999 481,738 0
John A. Hill 18,847,068 1,227,669 0
Bryan H. Lawrence 18,925,947 1,148,790 0
Harold R. Logan, Jr. 19,648,654 426,083 0
Edwin H. Morgens 19,671,878 402,859 0
37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
There are no exhibits.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended December
31, 2001.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 13, 2002 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
39