**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

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**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  September 30, 2005**                                             |
| ** **     | **OR**                                                                                                  |
| **o**          | **Transition Report Pursuant to  Section 13 or 15(d) of the Securities Exchange Act of 1934** |

**Commission File Number 001-32505**

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**TRANSMONTAIGNE PARTNERS L.P.**

| **Delaware**                     |   | **34-2037221**                        |
|----------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |   | ** **                            |

**1670Broadway**

**Suite 3100**

**Denver, Colorado 80202**

(Address, including zipcode, of principal executive offices)

**(303) 626-8200**

(Telephone number,including area code)

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Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed by Section 13of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the Registrant was required to file such report),and (2) has been subject to such filing requirements for the past90 days. Yes x  No o

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes o  No x

Indicate by check markwhether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes o  No x

As of October 24, 2005, there were 3,972,500shares of the Registrant’s Common Limited Partner Units outstanding.

 

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**TABLE OF CONTENTS**

|         | ** ** | ** **                                                                                                                             | ** ** | **Page No.** |
|---------|------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|
|    | ** ** | **Part I.  Financial Information**                                                                                                |       |              |   |   |
| Item 1. |       | Unaudited  Consolidated Financial Statements                                                                                           |       |              | 4 |   |
|    |       | Consolidated balance sheets as of September 30,  2005 and June 30, 2005                                                      |       |              | 5 |   |
|    |       | Consolidated statements of operations for the three  months ended September 30, 2005 and 2004                                     |       |              | 6 |   |
|    |       | Consolidated statements of partners’ equity for the  year ended June 30, 2005 and three months ended September 30, 2005 |       |              | 7 |   |
|    |       | Consolidated statements of cash flows for the three  months ended September 30, 2005 and 2004                                     |       |              | 8 |   |
|    |       | Notes to consolidated financial statements                                                                                             |       |              | 9 |   |
| Item 2. |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                            |       |              | 18 |   |
| Item 3. |       | Qualitative and  Quantitative Disclosures about Market Risk                                                                            |       |              | 23 |   |
| Item 4. |       | Controls and  Procedures                                                                                                               |       |              | 24 |   |
|    | ** ** | **Part II.  Other Information**                                                                                                   |       |              |   |   |
| Item 6. |       | Exhibits                                                                                                                               |       |              | 25 |   |

 

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**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKINGSTATEMENTS**

This QuarterlyReport contains certain forward-looking statements and informationrelating to TransMontaigne Partners, including the following:

i.                    certainstatements, including possible or assumed future results of operations, in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations;”

ii.                any statementscontained herein or therein regarding the prospects for our business or any ofour services;

iii.            any statements precededby, followed by or that include the words “may,” “seeks,” “believes,” “expects,”“anticipates,” “intends,” “continues,” “estimates,” “plans,” “targets,” “predicts,”“attempts,” “is scheduled,” or similar expressions; and

iv.              other statementscontained herein or therein regarding matters that are not historical facts.

Our business and results of operations are subject torisks and uncertainties, many of which are beyond our ability to control orpredict. Because of these risks and uncertainties, actual results may differmaterially from those expressed or implied by forward-looking statements,and investors are cautioned not to place undue reliance on such statements,which speak only as of the date thereof.

The following riskfactors, discussed in more detail under the heading “Risk Factors” in ourAnnual Report on Form 10-K for the year ended June 30, 2005,filed on September 13, 2005, are important factors that could cause actualresults to differ materially from our expectations and may adversely affect ourbusiness and results of operations, include, but are not limited to:

·       a reduction in revenuesfrom TransMontaigne Inc., upon which we rely for a substantial majority ofour revenues;

·       the continuedcreditworthiness of, and performance by, contract parties, includingTransMontaigne Inc.;

·       a reduction or suspensionof TransMontaigne Inc.’s obligations under the terminaling servicesagreement;

·       TransMontaigne Inc.’sfailure to continue to engage us to provide services after the expiration ofthe terminaling services agreement, or our failure to secure comparablealternative arrangements;

·       the availability ofacquisition opportunities and successful integration and future performance ofacquired assets;

·       the failure to purchaseadditional refined product terminals from TransMontaigne Inc.;

·       timing, cost and othereconomic uncertainties related to the construction of new assets;

·       debt levels andrestrictions in our debt agreements that may limit our operational flexibility;

·       the threat of terroristattacks or war;

·       many hazards and operationsrisks, including adverse weather conditions;

·       the impact of current andfuture laws and governmental regulations;

·       liability for environmentalclaims;

·       conflicts of interest andthe limited fiduciary duties of our general partner, which is controlled byTransMontaigne Inc.;

·       our failure to avoidfederal income taxation as a corporation or the imposition of state leveltaxation; and

·       generaleconomic, market or business conditions;

We do not intend to update these forward-lookingstatements except as required by law.

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**Part I.Financial Information**

**ITEM 1.   UNAUDITED CONSOLIDATED FINANCIALSTATEMENTS**

The interim unaudited consolidated financialstatements of TransMontaigne Partners as of and for the three months endedSeptember 30, 2005, are included herein beginning on the following page.The accompanying unaudited interim consolidated financial statements should beread in conjunction with our annual consolidated financial statements andrelated notes for the year ended June 30, 2005, together with ourdiscussion and analysis of financial condition and results of operations,included in our Annual Report on Form 10-K filed on September 13,2005.

TransMontaigne Partnersis a holding company with the following active wholly-owned subsidiariesduring the three months ended September 30, 2005.

·       TransMontaigneOperating GP L.L.C.

·       TransMontaigneOperating Company L.P.

·       CoastalTerminals L.L.C.

·       RazorbackL.L.C.

·       TPSITerminals L.L.C.

We do not have off-balance-sheet arrangements(other than operating leases) or special-purpose entities.

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**TransMontaigne PartnersL.P. and subsidiariesConsolidated balance sheets**(In thousands)

| ** **                          | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** |
|-------------------------------------|------------|------------------------------|------------|-------------------------|------------|
| **ASSETS**                          | ** ** | ** **                   | ** ** | ** **              | ** ** |
|                                |       |                         |       |                    |       |   |   |
| Current assets:                     |       |                         |       |                    |       |   |   |
| Cash and cash equivalents           |       |                         | $          | 775                     |       |   | $ | 241 |   |
| Trade accounts receivable, net      |       |                         | 1,021      |                    |       | 492 |   |
| Due from TransMontaigne Inc., net   |       |                         | 3,932      |                    |       | 14 |   |
| Prepaid expenses and other          |       |                         | 280        |                    |       | 302 |   |
|                                |       |                         | 6,008      |                    |       | 1,049 |   |
| Property, plant  and equipment, net |       |                         | 115,170    |                    |       | 116,044 |   |
| Other assets, net                   |       |                         | 2,072      |                    |       | 2,243 |   |
|                                |       |                         | $          | 123,250                 |       |   | $ | 119,336 |   |
| **LIABILITIES  AND EQUITY**         |       |                         |       |                    |       |   |   |
| Current liabilities:                |       |                         |       |                    |       |   |   |
| Trade accounts payable              |       |                         | $          | 933                     |       |   | $ | 2,180 |   |
| Other accrued liabilities           |       |                         | 1,697      |                    |       | 1,424 |   |
|                                |       |                         | 2,630      |                    |       | 3,604 |   |
| Long-term  debt                     |       |                         | 31,000     |                    |       | 28,307 |   |
| Total liabilities                   |       |                         | 33,630     |                    |       | 31,911 |   |
| Partners’ equity:              |       |                         |       |                    |       |   |   |
| Common unitholders                  |       |                         | 74,969     |                    |       | 76,255 |   |
| Subordinated unitholders            |       |                         | 14,329     |                    |       | 13,433 |   |
| General partner interest            |       |                         | 322        |                    |       | 281 |   |
| Deferred equity-based compensation  |       |                         | —     |                    |       | (2,544 | ) |
|                                |       |                         | 89,620     |                    |       | 87,425 |   |
|                                |       |                         | $          | 123,250                 |       |   | $ | 119,336 |   |

 

See accompanying notes to consolidated financial statements.

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**TransMontaigne PartnersL.P. and subsidiariesConsolidated statements of operations**(In thousands, except pershare amounts)

| ** **                                                                        | ** ** | **Three months ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Revenues                                                                          |       | $                                                    | 10,400     |   | $ | 8,392 |   |
| Direct operating  costs and expenses                                              |       | (3,836                                               | )          | (4,086 | ) |
| Net operating margins                                                             |       | 6,564                                                |       | 4,306 |   |
| Costs and expenses:                                                               |       |                                                 |       |   |   |
| Direct general and administrative expenses                                        |       | (595                                                 | )          | — |   |
| Allocated general and administrative expenses                                     |       | (700                                                 | )          | (700 | ) |
| Allocated insurance expense                                                       |       | (67                                                  | )          | (84 | ) |
| Depreciation and amortization                                                     |       | (1,567                                               | )          | (1,537 | ) |
| Total costs and expenses                                                          |       | (2,929                                               | )          | (2,321 | ) |
| Operating income                                                                  |       | 3,635                                                |       | 1,985 |   |
| Other income (expenses):                                                          |       |                                                 |       |   |   |
| Interest income                                                                   |       | 1                                                    |       | — |   |
| Interest expense                                                                  |       | (464                                                 | )          | — |   |
| Amortization of deferred debt issuance costs                                      |       | (46                                                  | )          | — |   |
| Total other expenses                                                              |       | (509                                                 | )          | — |   |
| Net earnings                                                                      |       | 3,126                                                |       | 1,985 |   |
| Less earnings allocable  to:                                                      |       |                                                 |       |   |   |
| Predecessor                                                                       |       | —                                               |       | (1,985 | ) |
| General partner interest                                                          |       | (63                                                  | )          | — |   |
| Net earnings allocable to limited partners                                        |       | $                                                    | 3,063      |   | $ | — |   |
| Net earnings per limited partners’ unit—basic and  diluted              |       | $                                                    | 0.42       |   | $ | — |   |
| Weighted average limited  partners’ units outstanding—basic and diluted |       | 7,295                                                |       | — |   |

 

See accompanying notes to consolidated financial statements.

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**TransMontaigne PartnersL.P. and subsidiariesConsolidated statements of partners’ equityYear ended June 30, 2005 and three months ended September 30, 2005**(In thousands)

| ** **                                                                                                                                                              | ** ** | **Predecessor** | ** ** | **Common  Units** | ** ** | **Subordinated  Units** | ** ** | **General  Partner  Interest** | ** ** | **Deferred  Equity-Based  Compensation** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|-------------------|------------|-------------------------|------------|--------------------------------|------------|------------------------------------------|------------|-----------|------------|
| **Balance June 30, 2004**                                                                                                                                          |       |            | 118,657    |              |       |                    | —     |                           |       |                                     | —     |      |       |   | — |   |   |   | — |   |   | 118,657 |   |
| Net earnings through May 26, 2005                                                                                                                             |       |            | 9,730      |              |       |                    | —     |                           |       |                                     | —     |      |       |   | — |   |   |   | — |   |   | 9,730 |   |
| Distributions and repayments, net                                                                                                                                       |       |            | (11,399    | )                 |       |                    | —     |                           |       |                                     | —     |      |       |   | — |   |   |   | — |   |   | (11,399 | ) |
| Proceeds from initial public offering of 3,852,500  common units, net of underwriters’ discount and offering expenses of $9,512                                    |       |            | —     |              |       |                    | 72,932     |                           |       |                                     | —     |      |       |   | — |   |   |   | — |   |   | 72,932 |   |
| Proceeds from private placement of 450,000  subordinated units                                                                                                          |       |            | —     |              |       |                    | —     |                           |       |                                     | 7,945      |      |       |   | — |   |   |   | — |   |   | 7,945 |   |
| Distribution to TransMontaigne Inc.                                                                                                                                |       |            | (111,461   | )                 |       |                    | —     |                           |       |                                     | —     |      |       |   | — |   |   |   | — |   |   | (111,461 | ) |
| Allocation of predecessor equity in exchange for  120,000 common units, 2,872,266 subordinated units, and a 2% general partner  interest (represented by 148,873 units) |       |            | (5,527     | )                 |       |                    | 211        |                           |       |                                     | 5,054      |      |       |   | 262 |   |   |   | — |   |   | — |   |
| Grant of 120,000 restricted common units under the  long-term incentive plan                                                                                            |       |            | —     |              |       |                    | 2,592      |                           |       |                                     | —     |      |       |   | — |   |   |   | (2,592 | ) |   | — |   |
| Amortization of deferred equity-based  compensation related to restricted common units                                                                                  |       |            | —     |              |       |                    | —     |                           |       |                                     | —     |      |       |   | — |   |   |   | 48 |   |   | 48 |   |
| Net earnings from May 27, 2005 through  June 30, 2005                                                                                                         |       |            | —     |              |       |                    | 520        |                           |       |                                     | 434        |      |       |   | 19 |   |   |   | — |   |   | 973 |   |
| **Balance June 30, 2005**                                                                                                                                          |       |            | —     |              |       |                    | 76,255     |                           |       |                                     | 13,433     |      |       |   | 281 |   |   |   | (2,544 | ) |   | 87,425 |   |
| Elimination of deferred equity-based  compensation due to adoption of SFAS 123(R)                                                                                       |       |            | —     |              |       |                    | (2,544     | )                              |       |                                     | —     |      |       |   | — |   |   |   | 2,544 |   |   | — |   |
| Distributions to unitholders for the period  May 27, 2005 through June 30, 2005                                                                               |       |            | —     |              |       |                    | (578       | )                              |       |                                     | (499       | )         |       |   | (22 | ) |   |   | — |   |   | (1,099 | ) |
| Amortization of deferred equity-based  compensation related to restricted common units                                                                                  |       |            | —     |              |       |                    | 168        |                           |       |                                     | —     |      |       |   | — |   |   |   | — |   |   | 168 |   |
| Net earnings from July 1, 2005 through  September 30, 2005                                                                                                    |       |            | —     |              |       |                    | 1,668      |                           |       |                                     | 1,395      |      |       |   | 63 |   |   |   | — |   |   | 3,126 |   |
| **Balance  September 30, 2005**                                                                                                                                    |       |            | $          | —            |       |                    |       | $                              | 74,969     |                                     |       |      | $          | 14,329 |   |   |   | $ | 322 |   |   |   | $ | — |   |   | $ | 89,620 |   |
|                                                                                                                                                                         |            |                 |            |                   |            |                         |            |                                |            |                                          |            |           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

See accompanying notes to consolidated financial statements.

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**TransMontaigne PartnersL.P. and subsidiariesConsolidated statements of cash flows**(In thousands)

| ** **                                                                       | ** ** | **Three months  ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2005**                                         | ** ** | **2004** | ** ** |
| **Cash flows from operating  activities:**                                       |       |                                             |       |   |   |
| Net earnings                                                                     |       | $                                                | 3,126      |   | $ | 1,985 |   |
| Adjustments to  reconcile net earnings to net cash used in operating activities: |       |                                             |       |   |   |
| Depreciation and amortization                                                    |       | 1,567                                            |       | 1,537 |   |
| Amortization of deferred equity-based  compensation                              |       | 168                                              |       | — |   |
| Amortization of deferred debt issuance costs                                     |       | 46                                               |       | — |   |
| Changes in  operating assets and liabilities, net of effects from acquisitions:  |       |                                             |       |   |   |
| Trade accounts receivable, net                                                   |       | (529                                             | )          | (129 | ) |
| Due from TransMontaigne Inc., net                                                |       | (3,918                                           | )          | — |   |
| Prepaid expenses and other                                                       |       | 22                                               |       | (53 | ) |
| Trade accounts payable                                                           |       | (1,247                                           | )          | 270 |   |
| Other accrued liabilities                                                        |       | 273                                              |       | 171 |   |
| Net cash (used in) provided by operating activities                              |       | (492                                             | )          | 3,781 |   |
| **Cash  flows from investing activities:**                                       |       |                                             |       |   |   |
| Additions to property, plant and equipment—expansion  of facilities         |       | (441                                             | )          | (446 | ) |
| Additions to property, plant and equipment—maintain  existing facilities    |       | (127                                             | )          | (376 | ) |
| Net cash (used in) investing activities                                          |       | (568                                             | )          | (822 | ) |
| **Cash  flows from financing activities:**                                       |       |                                             |       |   |   |
| Net borrowings (repayments) of debt                                              |       | 2,693                                            |       | — |   |
| Distributions paid to unitholders                                                |       | (1,099                                           | )          | — |   |
| Distributions and repayments to TransMontaigne Inc.                              |       | —                                           |       | (2,959 | ) |
| Net cash provided by (used in) financing activities                              |       | 1,594                                            |       | (2,959 | ) |
| Increase in cash and cash equivalents                                            |       | 534                                              |       | — |   |
| Cash and cash  equivalents at beginning of period                                |       | 241                                              |       | 2 |   |
| Cash and cash  equivalents at end of period                                      |       | $                                                | 775        |   | $ | 2 |   |

 

See accompanying notes to consolidated financial statements.

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**TransMontaigne Partners L.P. and subsidiaries Notes to consolidated financial statements September 30, 2005 and June 30, 2005**

**(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**(a) Principlesof Consolidation and Use of Estimates**

The accompanying unaudited consolidated financialstatements in this Quarterly Report on Form 10-Q have been preparedpursuant to the rules and regulations of the Securities and ExchangeCommission. Accordingly, these statements reflect adjustments (consisting onlyof normal recurring entries), which are, in our opinion, necessary for a fairpresentation of the financial results for the interim periods presented.Certain information and notes normally included in annual financial statementshave been condensed in or omitted from these interim financial statementspursuant to such rules and regulations. These consolidated financialstatements should be read in conjunction with the consolidated financialstatements and related notes for the year ended June 30, 2005, togetherwith our discussion and analysis of financial condition and results ofoperations, included in our Annual Report on Form 10-K filed on September 13,2005.

Our accounting and financial reporting policiesconform to accounting principles and practices generally accepted in the UnitedStates of America. The accompanying unaudited consolidated financial statementsinclude the accounts of TransMontaigne Partners L.P., a Delaware limitedpartnership (“Partners”), and its majority-owned subsidiaries. Theaccompanying consolidated financial statements include the assets, liabilitiesand results of operations of certain terminal and pipeline operations ofTransMontaigne Inc. that were contributed to us at the closing of ourinitial public offering on May 27, 2005. Specifically, theTransMontaigne Inc. terminal and pipeline operations that were contributedto us are composed of seven Florida terminals, including terminals located inTampa, Port Manatee, Fisher Island, Port Everglades (North), Port Everglades(South), Cape Canaveral, and Jacksonville; and the Razorback Pipeline system,including the terminals located at Mt. Vernon, Missouri and Rogers, Arkansas.On February 28, 2003, TransMontaigne Inc. acquired the Port Manatee,Fisher Island, Port Everglades (North), Cape Canaveral and Jacksonvilleterminal operations from an affiliate of El Paso Corporation. The consolidatedfinancial statements also include the assets, liabilities and results ofoperations of these terminals and pipelines prior to their contribution byTransMontaigne Inc. to us. Partners was formed in 2005 as a Delawaremaster limited partnership initially to own and operate refined petroleumproducts terminaling and pipeline assets. All significant inter-companyaccounts and transactions have been eliminated in the preparation of theaccompanying consolidated financial statements.

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires us to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reported amountsof revenues and expenses during the reporting periods. The following estimates,in our opinion, are subjective in nature, require the exercise of judgment, andinvolve complex analysis: allowance for doubtful accounts; and accruedenvironmental obligations. Changes in these estimates and assumptions willoccur as a result of the passage of time and the occurrence of future events.Actual results could differ from these estimates.

**(b) Nature of business**

Partners conducts itsoperations in the United States primarily in Florida, Southwest Missouri andNorthwest Arkansas. Partners provides integrated terminaling, storage, pipelineand related services for 

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**TransMontaigne Partners L.P. and subsidiaries Notes to consolidated financial statements (Continued) September 30, 2005 and June 30, 2005**

**(1) SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

companiesengaged in the distribution and marketing of refined petroleum products andcrude oil, including TransMontaigne Inc.

**(c) Basis of presentation**

The accompanyingconsolidated financial statements include allocated general and administrativecharges from TransMontaigne Inc. for indirect corporate overhead to covercosts of functions such as legal, accounting, treasury, engineering,environmental safety, information technology, and other corporate services (seeNote 2 of Notes to consolidated financial statements). The allocatedgeneral and administrative charges were $0.7 million and $0.7 millionfor the three months ended September 30, 2005 and 2004, respectively. Theaccompanying consolidated financial statements also include allocated insurancecharges from TransMontaigne Inc. for insurance premiums to cover costs ofinsuring activities such as property casualty, pollution, automobile, directorsand officers’ liability, and other insurable risks. The allocated insurancecharges were $0.3 million and $0.3 million for the three months endedSeptember 30, 2005 and 2004, respectively. Management believes that theallocated general and administrative charges and insurance charges arerepresentative of the costs and expenses incurred by TransMontaigne Inc.for the contributed terminal and pipeline operations.

**(d) Accountingfor terminal and pipeline operations**

In connection with ourterminal and pipeline operations, we utilize the accrual method of accountingfor revenue and expenses. We generate revenues in our terminal and pipelineoperations from throughput fees, storage fees, transportation fees, and feesfrom other ancillary services. Throughput revenue is recognized when theproduct is delivered to the customer; storage revenue is recognized ratablyover the term of the storage contract; transportation revenue is recognizedwhen the product has been delivered to the customer at the specified deliverylocation; and ancillary service revenue is recognized as the services areperformed.

**(e) Environmental obligations**

At September 30, 2005 and June 30, 2005, wewere not aware of any existing conditions that may cause us to incursignificant expenditures in the future for the remediation of existingcontamination. As such, we have not reflected in the accompanying consolidatedfinancial statements any liabilities for environmental obligations to beincurred in the future based on existing contamination. Changes in ourestimates and assumptions may occur as a result of the passage of time and theoccurrence of future events.

TransMontaigne Inc.has indemnified us through May 2010 against certain potentialenvironmental claims, losses and expenses associated with the operation of theinitially-contributed assets and occurring before May 27, 2005, upto a maximum liability not to exceed $15 million for this indemnificationobligation (see Note 2 of Notes to consolidated financial statements).

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**TransMontaigne Partners L.P. and subsidiaries Notes to consolidated financial statements (Continued) September 30, 2005 and June 30, 2005**

**(1) SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES (Continued)**

**(f) Equity-basedcompensation**

For periods ending prior to July 1, 2005, weaccounted for our equity-based compensation awards using the intrinsic valuemethod pursuant to APB Opinion No. 25, *Accountingfor Stock Issued to Employees*.

Effective July 1, 2005, we adopted the provisionsof Statement of Financial Accounting Standards No. 123 (R), *Share-Based Payment*. The adoption of thisStatement did not have an impact on our consolidated financial statements,except for the elimination of deferred equity-based compensation from partners’equity.

This Statement requires us to measure the cost ofemployee services received in exchange for an award of equity instruments basedon the grant-date fair value of the award. That cost will be recognized overthe period during which an employee is required to provide service in exchangefor the award. We are required to estimate the number of equity instrumentsthat are expected to vest in measuring the total compensation cost to berecognized over the related service period. For awards granted prior to July 1,2005, we are required to measure compensation cost for the portion ofoutstanding awards for which the requisite service has not yet been rendered(i.e., the unvested portion of the award as of July 1, 2005). Thecompensation cost for these awards is based on their relative grant-date fairvalues.

Compensation cost will berecognized over the service period on a straight-line basis.

**(g) Income taxes**

No provision for incometaxes has been reflected in the accompanying consolidated financial statementsbecause Partners is treated as a partnership for federal and state incometaxes. As a partnership, all income, gains, losses, expenses, deductions andtax credits generated by Partners will flow through to the unitholders of thepartnership.

**(h) Netearnings per limited partners’ unit**

Net earnings per limitedpartners’ unit are computed by dividing net earnings allocable to limitedpartners by the weighted average number of limited partnership unitsoutstanding during the period. Net earnings allocable to limited partners arenet of two percent of the earnings allocable to the general partner. Basic anddiluted net earnings per limited partners’ unit are the same because wecurrently have no potentially dilutive securities outstanding.

**(i) Reclassifications**

Certain amounts in theprior period have been reclassified to conform to the current period’spresentation. Net earnings and partners’ equity have not been affected by thesereclassifications.

**(2) TRANSACTIONS WITH TRANSMONTAIGNE INC.**

*Omnibus Agreement.  *OnMay 27, 2005, we entered into an omnibus agreement withTransMontaigne Inc. and our general partner. Under the omnibus agreementwe pay TransMontaigne Inc. an annual administrative fee in the amount of$2.8 million for the provision of various general and 

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**TransMontaigne Partners L.P. and subsidiaries Notes to consolidated financial statements (Continued) September 30, 2005 and June 30, 2005**

**(2) TRANSACTIONSWITH TRANSMONTAIGNE INC. (Continued)**

administrative servicesfor our benefit with respect to the contributed assets. The omnibus agreementfurther provides that we pay TransMontaigne Inc. an annual insurancereimbursement in the amount of $1.0 million for premiums on insurancepolicies covering the initially-contributed assets. The administrativefee may increase in the second and third years by the percentage increase inthe consumer price index for the immediately preceding year, and the insurancereimbursement will increase in accordance with increases in the premiumspayable under the relevant policies. In addition, if we acquire or constructadditional assets during the term of the agreement, TransMontaigne Inc.will propose a revised administrative fee covering the provision of servicesfor such additional assets. If the conflicts committee of our general partneragrees to the revised administrative fee, TransMontaigne Inc. will provideservices for the additional assets pursuant to the agreement. After thethree-year period, our general partner will determine the general andadministrative expenses allocated to us.

The $2.8 million administrative fee includesexpenses incurred by TransMontaigne Inc. to perform centralized corporatefunctions, such as legal, accounting, treasury, insurance administration andclaims processing, health, safety and environmental, information technology,human resources, credit, payroll, taxes and engineering and other corporateservices, to the extent such services are not outsourced byTransMontaigne Inc. The administrative fee does not include reimbursementsfor direct expenses TransMontaigne Inc. incurs on our behalf, such assalaries of operational personnel performing services on-site at our terminalsand pipeline and the cost of their employee benefits, including 401(k) andhealth insurance benefits.

Under the omnibus agreement, TransMontaigne Inc.has agreed to indemnify us for five years after May 27, 2005 againstcertain potential environmental claims, losses and expenses associated with theoperation of the assets and occurring before May 27, 2005.TransMontaigne Inc.’s maximum liability for this indemnificationobligation is $15 million and has no obligation to indemnify us for lossesuntil such aggregate losses exceed $250,000. TransMontaigne Inc. has noindemnification obligations with respect to environmental claims made as aresult of additions to or modifications of environmental laws promulgated afterMay 27, 2005. We have agreed to indemnify TransMontaigne Inc. againstenvironmental liabilities related to our assets, to the extent theseliabilities are not subject to TransMontaigne Inc.’s indemnificationobligations.

*Terminaling Services Agreement.  *Wehave a terminaling and transportation services agreement withTransMontaigne Inc. that will expire on December 31, 2011. Under thisagreement, TransMontaigne Inc. agreed to transport on the RazorbackPipeline and throughput at our terminals a volume of refined products thatwill, at the fee and tariff schedule contained in the agreement, result inminimum revenues to us of $5 million per calendar quarter. IfTransMontaigne Inc. fails to meet its minimum revenue commitment in anyquarter, it must pay us the amount of any shortfall within 15 daysfollowing receipt of an invoice from us. A shortfall payment may be applied asa credit in the following four quarters after TransMontaigne Inc.’sminimum obligations are met. In exchange for TransMontaigne Inc.’s minimumrevenue commitment, we agreed to provide TransMontaigne Inc. approximately2.0 million barrels of light oil storage capacity and approximately1.4 million barrels of heavy oil storage capacity at certain of ourFlorida terminals.

12

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**TransMontaigne Partners L.P. and subsidiaries Notes to consolidated financial statements (Continued) September 30, 2005 and June 30, 2005**

**(2) TRANSACTIONSWITH TRANSMONTAIGNE INC. (Continued)**

In the event of a forcemajeure event, that renders performance impossible with respect to an asset forat least 30 days, TransMontaigne Inc.’s obligations would be temporarilysuspended with respect to that asset. If a force majeure event continues for30 days or more and results in a diminution in the storage capacity wemake available to TransMontaigne Inc., TransMontaigne Inc.’s minimumrevenue commitment would be reduced proportionately for the duration of theforce majeure event. If such a force majeure event continues for twelveconsecutive months or more, either party has the right to terminate the entireterminaling services agreement.

After the initial term,the terminaling services agreement will automatically renew for subsequentone-year periods, subject to either party’s right to terminate with six months’notice. TransMontaigne Inc.’s obligations under the terminaling servicesagreement will not terminate if TransMontaigne Inc. no longer owns ourgeneral partner. TransMontaigne Inc. may assign the terminaling servicesagreement only with the consent of the conflicts committee of our generalpartner. Upon termination of the agreement, TransMontaigne Inc. has a rightof first refusal to enter into a new terminaling services agreement with us,provided it pays no less than 105% of the fees offered by the third party.

Under the agreement, weare responsible for all refined product losses in excess of 0.10% of the refinedproduct we receive from TransMontaigne Inc. at our terminals. We areentitled to all product gains, including 0.10% of the refined product wereceive from TransMontaigne Inc. at our terminals.

**(3) CONCENTRATION OF CREDIT RISK AND TRADEACCOUNTS RECEIVABLE**

Our primary market areasare located in Florida, Southwest Missouri and Northwest Arkansas. We have aconcentration of trade receivable balances due from companies engaged in thedistribution and marketing of refined products and crude oil, and the UnitedStates government. These concentrations of customers may affect our overallcredit risk in that the customers may be similarly affected by changes ineconomic, regulatory or other factors. Our customers’ historical and futurecredit positions are analyzed prior to extending credit. We manage our exposureto credit risk through credit analysis, credit approvals, credit limits andmonitoring procedures, and for certain transactions we may request letters ofcredit, prepayments or guarantees. We maintain allowances for potentiallyuncollectible accounts receivable. During the three months ended September 30,2005 and 2004, we increased the allowance for doubtful accounts through acharge to income of approximately $nil and $25,000, respectively.

Tradeaccounts receivable, net consists of the following (in thousands):

| ** **                            | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** |
|---------------------------------------|------------|------------------------------|------------|-------------------------|------------|
| Trade accounts  receivable            |       |                         | $          | 1,021                   |       |   |   | $ | 492 |   |   |
| Less allowance  for doubtful accounts |       |                         | —     |                    |       |   | — |   |   |
|                                  |       |                         | $          | 1,021                   |       |   |   | $ | 492 |   |   |

 

TransMontaigne Inc.accounted for approximately 67% and 63% of our total revenues for the threemonths ended September 30, 2005 and 2004, respectively. TrigeantEP, Ltd. and its successors accounted for 21% and 26% of our totalrevenues for the three months ended September 30, 2005 and 2004,respectively. In April 2005, Trigeant EP, Ltd. assigned itsterminaling services contract with us to Gulf Atlantic Refining &Marketing, LP.

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**TransMontaigne Partners L.P. and subsidiaries Notes to consolidated financial statements (Continued) September 30, 2005 and June 30, 2005**

**(4) PREPAID EXPENSESAND OTHER**

Prepaidexpenses and other are as follows (in thousands):

| ** **                 | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** |
|----------------------------|------------|------------------------------|------------|-------------------------|------------|
| Additive  detergent        |       |                         | $          | 265                     |       |   |   | $ | 290 |   |   |
| Deposits and  other assets |       |                         | 15         |                    |       |   | 12 |   |   |
|                       |       |                         | $          | 280                     |       |   |   | $ | 302 |   |   |

 

**(5) PROPERTY, PLANTAND EQUIPMENT**

Property,plant and equipment, net is as follows (in thousands):

| ** **                          | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** |
|-------------------------------------|------------|------------------------------|------------|-------------------------|------------|
| Land                                |       |                         | $          | 25,024                  |       |   | $ | 25,024 |   |
| Terminals,  pipelines and equipment |       |                         | 118,883    |                    |       | 117,593 |   |
| Furniture,  fixtures and equipment  |       |                         | 480        |                    |       | 468 |   |
| Construction in  progress           |       |                         | 7          |                    |       | 741 |   |
|                                |       |                         | 144,394    |                    |       | 143,826 |   |
| Less accumulated  depreciation      |       |                         | (29,224    | )                       |       | (27,782 | ) |
|                                |       |                         | $          | 115,170                 |       |   | $ | 116,044 |   |

 

**(6) OTHER ASSETS**

Otherassets are as follows (in thousands):

| ** **                                                                    | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------|------------|-------------------------|------------|
| Acquired  intangible, net of accumulated amortization of $1,292 and $1,167    |       |                         | $          | 1,208                   |       |   |   | $ | 1,333 |   |   |
| Deferred debt  issuance costs, net of accumulated amortization of $61 and $15 |       |                         | 855        |                    |       |   | 901 |   |   |
| Deposits and  other assets                                                    |       |                         | 9          |                    |       |   | 9 |   |   |
|                                                                          |       |                         | $          | 2,072                   |       |   |   | $ | 2,243 |   |   |

 

Acquired intangible represents the right to use theCoastal Fuels trade name for a period of five years. The cost of the acquiredintangible is being amortized on a straight-line basis over five years.

Deferred debt issuancecosts are amortized using the interest method over the term of the creditfacility (see Note 8 of Notes to consolidated financial statements).

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**TransMontaigne Partners L.P. and subsidiaries Notes to consolidated financial statements (Continued) September 30, 2005 and June 30, 2005**

**(7) OTHER ACCRUEDLIABILITIES**

   Otheraccrued liabilities are as follows (in thousands):

| ** **                      | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** |
|---------------------------------|------------|------------------------------|------------|-------------------------|------------|
| Accrued property  taxes         |       |                         | $          | 1,101                   |       |   |   | $ | 785 |   |   |
| Customer advances  and deposits |       |                         | 561        |                    |       |   | 633 |   |   |
| Accrued expenses  and other     |       |                         | 35         |                    |       |   | 6 |   |   |
|                            |       |                         | $          | 1,697                   |       |   |   | $ | 1,424 |   |   |

 

**(8) LONG-TERM DEBT**

On May 9, 2005, we entered into a$75 million senior secured credit facility. At September 30, 2005 andJune 30, 2005, our outstanding borrowings under the credit facility wereapproximately $31.0 million and $28.3 million, respectively. The creditfacility provides for a maximum borrowing line of credit equal to the lesser of(i) $75 million and (ii) four times Consolidated EBITDA (asdefined; $68.2 million at September 30, 2005). Borrowings under thecredit facility bear interest (at our option) based on a base rate plus anapplicable margin, or LIBOR plus an applicable margin; the applicable marginsare a function of the total leverage ratio (as defined). Interest on loansunder the credit facility is due and payable periodically, based on theapplicable interest rate and related interest period, generally either one, twoor three months. The weighted average interest rate on borrowings under ourcredit facility was 5.4% during the three months ended September 30, 2005.In addition, we will pay a commitment fee ranging from 0.375% to 0.50% perannum on the total amount of the unused commitments. Borrowings under thecredit facility are secured by a lien on our assets, including cash, accountsreceivable, inventory, general intangibles, investment property, contractrights and real property, except for our real property located in Florida. Theterms of the credit facility include covenants that restrict our ability tomake cash distributions and acquisitions. The principal balance of loans andany accrued and unpaid interest will be due and payable in full on the maturitydate, May 9, 2010.

The credit facility alsocontains customary representations and warranties (including those relating toorganization and authorization, compliance with laws, absence of defaults,material agreements and litigation) and customary events of default (includingthose relating to monetary defaults, covenant defaults, cross defaults andbankruptcy events). The primary financial covenants contained in the creditfacility are a total leverage ratio test (not to exceed four times) and aninterest coverage ratio test (not to be less than three times). At September 30,2005, we were in compliance with the financial covenants contained in thecredit facility.

**(9) LONG-TERMINCENTIVE PLAN**

TransMontaigne GP L.L.C. (“TransMontaigne GP”) is ourgeneral partner and manages our operations and activities. TransMontaigneServices Inc. is an indirect wholly-owned subsidiary ofTransMontaigne Inc. and is the sole member of TransMontaigne GP.TransMontaigne Services Inc. adopted a long-term incentive plan for itsemployees and consultants and non-employee directors of our general partner.The long-term incentive plan currently permits the grant of awards covering anaggregate of 200,000 units, which amount will automatically increase on anannual basis by 2% of the total 

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**TransMontaigne Partners L.P. and subsidiaries Notes to consolidated financial statements (Continued) September 30, 2005 and June 30, 2005**

**(9) LONG-TERMINCENTIVE PLAN (Continued)**

outstanding common andsubordinated units at the end of the preceding fiscal year. The plan isadministered by the compensation committee of the board of directors of ourgeneral partner.

On May 27, 2005, TransMontaigneServices Inc. granted 120,000 restricted common units to its key employeesand executive officers, and non-employee directors of our general partner.Ownership in these units is subject to forfeiture until the vesting date, butrecipients have distribution and voting rights from the date of grant. Werecognized deferred equity-based compensation of approximately$2.6 million, which is being amortized to income over the four-yearvesting period.

Amortization of deferred equity-basedcompensation of approximately $0.2 million is included in direct general andadministrative expense for the three months ended September 30, 2005.

Distributions paid toholders of restricted common units are treated as compensation expense forfinancial reporting purposes. Included in direct general and administrativeexpenses for the three months ended September 30, 2005 is approximately$18,000 of compensation expense related to distributions paid to holders ofrestricted common units.

**(10) COMMITMENTS ANDCONTINGENCIES**

*Operating Leases.  *We lease propertyand equipment under non-cancelable operating leases that extend through April 2010.At September 30, 2005, future minimum lease payments under thesenon-cancelable operating leases are as follows (in thousands):

| **Years ending June 30:** | ** ** | ** ** | ** ** | **Property and  equipment** | ** ** |
|------------------------------------------|------------|------------|------------|----------------------------------|------------|
| 2006 (remainder  of the year)            |       |       | $          | 107                              |       |   |
| 2007                                     |       |       | 129        |                             |       |
| 2008                                     |       |       | 123        |                             |       |
| 2009                                     |       |       | 117        |                             |       |
| 2010                                     |       |       | 97         |                             |       |
| Thereafter                               |       |       | —     |                             |       |
|                                     |       |       | $          | 573                              |       |   |

 

Rental expense underoperating leases was approximately $56 and $81 for the three months ended September 30,2005 and 2004, respectively.

**(11) BUSINESS SEGMENTS**

We provide integrated terminaling, storage, pipelineand related services to companies engaged in the distribution and marketing ofrefined petroleum products and crude oil. Our chief operating decision maker isTransMontaigne GP’s chief executive officer (“CEO”).TransMontaigne GP’s CEO reviews the financial performance of our businesssegments using disaggregated financial information about “net operating margins”for purposes of making operating decisions and assessing financial performance.“Net operating margins” is composed of revenues less direct operating costs andexpenses. Accordingly, we present “net operating margins” for each of our twobusiness segments: (i) Florida terminals and (ii) Razorback Pipelinesystem.

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**TransMontaigne Partners L.P. and subsidiaries Notes to consolidated financial statements (Continued) September 30, 2005 and June 30, 2005**

**(11) BUSINESS SEGMENTS (Continued)**

The financial performanceof our business segments is as follows (in thousands):

| ** **                                    | ** ** | **Three months ended  September 30,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                    | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| **Florida  Terminals:**                       |       |                                                 |       |   |   |
| Throughput and  additive injection fees, net  |       | $                                                    | 4,472      |   | $ | 2,284 |   |
| Terminaling  storage fees                     |       | 2,884                                                |       | 4,526 |   |
| Pipeline  transportation fees                 |       | —                                               |       | — |   |
| Other                                         |       | 1,561                                                |       | 523 |   |
| Revenues                                      |       | 8,917                                                |       | 7,333 |   |
| Direct operating costs and expenses           |       | (3,425                                               | )          | (3,641 | ) |
| Net operating margins                         |       | 5,492                                                |       | 3,692 |   |
| **Razorback  Pipeline System:**               |       |                                                 |       |   |   |
| Throughput and  additive injection fees, net  |       | 520                                                  |       | 469 |   |
| Terminaling  storage fees                     |       | —                                               |       | — |   |
| Pipeline  transportation fees                 |       | 633                                                  |       | 550 |   |
| Other                                         |       | 330                                                  |       | 40 |   |
| Revenues                                      |       | 1,483                                                |       | 1,059 |   |
| Direct operating costs and expenses           |       | (411                                                 | )          | (445 | ) |
| Net operating margins                         |       | 1,072                                                |       | 614 |   |
| Total net operating  margins                  |       | 6,564                                                |       | 4,306 |   |
| Direct general and administrative expenses    |       | (595                                                 | )          | — |   |
| Allocated general and administrative expenses |       | (700                                                 | )          | (700 | ) |
| Allocated insurance expense                   |       | (67                                                  | )          | (84 | ) |
| Depreciation and amortization                 |       | (1,567                                               | )          | (1,537 | ) |
| Operating income                              |       | 3,635                                                |       | 1,985 |   |
| Other income (expense), net                   |       | (509                                                 | )          | — |   |
| Net earnings                                  |       | $                                                    | 3,126      |   | $ | 1,985 |   |

 

Supplementalinformation about our business segments is summarized below (in thousands):

| ** **                         | ** ** | **Three months ended September 30, 2005** | ** ** |
|------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                         | ** ** | **Florida  Terminals**                                             | ** ** | **Razorback  Pipeline System** | ** ** | **Total** | ** ** |
| Revenues from  external customers  |       |                                                               | $          | 3,399 |   |   |   | $ | — |   |   | $ | 3,399 |   |
| Revenues from  TransMontaigne Inc. |       |                                                               | 5,518      |   |   |   | 1,483 |   |   | 7,001 |   |
| Revenues                           |       |                                                               | $          | 8,917 |   |   |   | $ | 1,483 |   |   | $ | 10,400 |   |
| Identifiable  assets               |       |                                                               | $          | 112,027 |   |   |   | $ | 11,223 |   |   | $ | 123,250 |   |
| Capital expenditures               |       |                                                               | $          | 568 |   |   |   | $ | — |   |   | $ | 568 |   |

 

| ** **                         | ** ** | **Three months ended September 30, 2004** | ** ** |
|------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                         | ** ** | **Florida  Terminals**                                             | ** ** | **Razorback  Pipeline System** | ** ** | **Total** | ** ** |
| Revenues from  external customers  |       |                                                               | $          | 3,130 |   |   |   | $ | — |   |   | $ | 3,130 |   |
| Revenues from  TransMontaigne Inc. |       |                                                               | 4,203      |   |   |   | 1,059 |   |   | 5,262 |   |
| Revenues                           |       |                                                               | $          | 7,333 |   |   |   | $ | 1,059 |   |   | $ | 8,392 |   |
| Identifiable  assets               |       |                                                               | $          | 108,959 |   |   |   | $ | 10,377 |   |   | $ | 119,336 |   |
| Capital expenditures               |       |                                                               | $          | 822 |   |   |   | $ | — |   |   | $ | 822 |   |

 

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**ITEM 2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussionand analysis of the results of operations and financial condition should beread in conjunction with the accompanying unaudited consolidated financialstatements.

**CRITICALACCOUNTING POLICIES AND ESTIMATES**

A summary of thesignificant accounting policies that we have adopted and followed in thepreparation of our consolidated financial statements is detailed in ourconsolidated financial statements for the year ended June 30, 2005,included in our Annual Report on Form 10-K filed on September 13,2005 (see Note 1 of Notes to the consolidated financial statements).Certain of these accounting policies require the use of estimates. The followingestimates, in our opinion, are subjective in nature, require the exercise ofjudgment, and involve complex analysis: allowance for doubtful accounts; andaccrued environmental obligations. These estimates are based on our knowledgeand understanding of current conditions and actions we may take in the future.Changes in these estimates will occur as a result of the passage of time andthe occurrence of future events. Subsequent changes in these estimates may havea significant impact on our financial condition and results of operations.

**SIGNIFICANTDEVELOPMENTS DURING THE THREE MONTHS ENDED SEPTEMBER 30, 2005**

On July 20, 2005, TransMontaigne Partnersannounced that it declared a distribution of $0.15 per unit payable on August 9,2005 to the unitholders of record on July 29, 2005.

On August 29, 2005and September 24, 2005, Hurricane Katrina and Hurricane Rita,respectively, caused severe damage along the United States Gulf Coast and intothe southern United States. We currently are not aware of any significantlong-term damage to our facilities caused by these hurricanes.

**SUBSEQUENT EVENTS**

On October 20, 2005, TransMontaigne Partnersannounced that it declared a distribution of $0.40 per unit payable on November 8,2005 to the unitholders of record on October 31, 2005. That distributionrepresents the minimum quarterly distribution for the period July 1, 2005through September 30, 2005.

On October 24, 2005,Hurricane Wilma struck Florida. Our facilities have returned to normaloperations and are delivering product in their respective markets. We currentlyare not aware of any significant long-term damage to our facilities caused byHurricane Wilma.

**RESULTSOF OPERATIONS—THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004**

In reviewing our historical results of operations, youshould be aware that the historical results of operations prior to the closingof our initial public offering on May 27, 2005, reflect the financialresults of our predecessor entity “TransMontaigne Partners (Predecessor).” Thecontribution of certain TransMontaigne Inc. terminal and pipelineoperations to us was recorded for financial reporting purposes at carryoverbasis in a manner similar to a reorganization of entities under common control.The historical revenues include only actual amounts received from third partieswho utilized our Florida terminals, and TransMontaigne Inc. for use of ourRazorback Pipeline system and Florida terminals.

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Thefollowing selected historical financial statement measures are derived from ourunaudited interim financial statements for the three months ended September 30,2005 and 2004 (in thousands):

| ** **                                           | ** ** | **Three months ended  September 30,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                           | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Net operating  margins                               |       | $                                                    | 6,564      |   | $ | 4,306 |   |
| Operating income                                     |       | $                                                    | 3,635      |   | $ | 1,985 |   |
| Net earnings                                         |       | $                                                    | 3,126      |   | $ | 1,985 |   |
| Net cash provided  by (used in) operating activities |       | $                                                    | (492       | ) | $ | 3,781 |   |
| Net cash provided  by (used in) investing activities |       | $                                                    | (568       | ) | $ | (822 | ) |
| Net cash provided by  (used in) financing activities |       | $                                                    | 1,594      |   | $ | (2,959 | ) |

 

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(1)          Net operating marginsrepresents revenues, less direct operating costs and expenses.

The net operating margins for the three months ended September 30,2005 were approximately $6.6 million, compared to approximately$4.3 million for the three months ended September 30, 2004. The increaseof approximately $2.3 million in net operating margins for 2005 ascompared to 2004 was due principally to an increase in net operating margins ofapproximately $1.8 million at the Florida facilities and approximately$0.5 at the Razorback Pipeline system.

Ournet operating margins are as follows (in thousands):

| ** **                                   | ** ** | **Three months ended  September 30,** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                   | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Throughput and  additive injection fees, net |       | $                                                    | 4,992      |   | $ | 2,753 |   |
| Terminaling  storage fees                    |       | 2,884                                                |       | 4,526 |   |
| Pipeline  transportation fees                |       | 633                                                  |       | 550 |   |
| Reimbursed costs                             |       | 38                                                   |       | 29 |   |
| Other                                        |       | 1,853                                                |       | 534 |   |
| Revenue                                      |       | 10,400                                               |       | 8,392 |   |
| Less direct operating costs and expenses     |       | (3,836                                               | )          | (4,086 | ) |
| Net operating  margins                       |       | $                                                    | 6,564      |   | $ | 4,306 |   |

 

***Throughput andadditive injection fees, net.******  ***Terminalthroughput and additive injection fees, net were approximately$5.0 million and $2.8 million for the three months ended September 30,2005 and 2004, respectively. The increase of approximately $2.2 million inthroughput and additive injection fees, net for 2005 as compared to 2004 wasdue principally to the conversion of the fees charged on heavy oil marketingvolumes to a throughput agreement and increases in light oil throughput volumesat the Florida facilities. For the three months ended September 30, 2005and 2004, we delivered approximately 93,800 barrels and 86,000 barrels per dayof light oil throughput volumes, respectively, at our terminals.

The terminaling services agreement withTransMontaigne Inc. converted the fees charged on heavy oil marketingvolumes from a storage agreement to a throughput agreement effective June 1,2005. The throughput fees charged on heavy oil marketing volumes wereapproximately $1.8 million for the three months ended September 30,2005. For the three months ended September 30, 2005 and 2004, we deliveredapproximately 32,000 barrels and 27,300 barrels per day, respectively, of heavyoil marketing volumes for TransMontaigne Inc. at our terminals.

Included in the throughput and additive injectionfees, net for the three months ended September 30, 2005 and 2004, are feescharged to TransMontaigne Inc. of approximately $4.9 million and$2.7 million, respectively.

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***Terminaling storagefees.******  ***Terminaling storage fees wereapproximately $2.9 million and $4.5 million for the three monthsended September 30, 2005 and 2004, respectively. The decrease ofapproximately $1.6 million in terminaling storage fees for 2005 ascompared to 2004 was due principally to the conversion of the fees charged onheavy oil marketing volumes from a storage agreement to a throughput agreementoffset by an annual increase in storage fees charged to our customers at theFlorida facilities and the execution in April 2005 of a new two-yearterminaling services agreement with a marketer of residual fuel oil.

Included in the terminaling storage fees for the threemonths ended September 30, 2005 and 2004 are fees charged toTransMontaigne Inc. of approximately $0.3 million and$2.2 million, respectively, for the storage of residual fuel oil.

***Pipelinetransportation fees.******  ***For the three months ended September 30,2005 and 2004, we earned pipeline transportation fees of approximately$0.6 million and $0.6 million, respectively. For the three monthsended September 30, 2005 and 2004, we averaged approximately 13,800barrels and 12,200 barrels per day of transported product on the RazorbackPipeline. During the three months ended September 30, 2004, the tariffcharged for transporting barrels on the Razorback Pipeline increased to $0.50per barrel from $0.47 per barrel.

Included in pipeline transportation fees for the threemonths ended September 30, 2005 and 2004, are fees charged toTransMontaigne Inc. of approximately $0.6 million and$0.6 million, respectively.

***Reimbursed costs.******  ***We manage andoperate for a major oil company certain tank capacity at our Port Everglades(South) terminal and receive a reimbursement of costs. For the three monthsended September 30, 2005 and 2004, cost reimbursements were approximately$38,000 and $29,000, respectively.

***Other revenue.******  ***For the threemonths ended September 30, 2005 and 2004, other revenue was approximately$1.9 million and $0.5 million, respectively. The increase ofapproximately $1.4 million in other revenue for 2005 as compared to 2004was due principally to an increase of approximately $1.1 million at theFlorida facilities and approximately $0.3 million at the RazorbackPipeline system.

Included in other revenue for the three months ended September 30,2005 and 2004, are fees charged to TransMontaigne Inc. of approximately$1.1 million and $nil, respectively.

***Direct operating costs and expenses.******  ***For the threemonths ended September 30, 2005 and 2004, the direct operating costs andexpenses of our operations were approximately $3.8 million and$4.1 million, respectively. The direct operating costs and expenses of ouroperations are as follows (in thousands):

| ** **                                       | ** ** | **Three months  ended  September 30,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                       | ** ** | **2005**                                         | ** ** | **2004** | ** ** |
| Wages and  employee benefits                     |       | $                                                | 1,289      |   | $ | 1,222 |   |
| Utilities and  communication charges             |       | 337                                              |       | 339 |   |
| Repairs and  maintenance                         |       | 827                                              |       | 1,415 |   |
| Allocated  property and casualty insurance costs |       | 183                                              |       | 166 |   |
| Office, rentals  and property taxes              |       | 522                                              |       | 529 |   |
| Vehicles and fuel  costs                         |       | 355                                              |       | 248 |   |
| Environmental  compliance costs                  |       | 202                                              |       | 102 |   |
| Other                                            |       | 121                                              |       | 65 |   |
| Direct operating  costs and expenses             |       | $                                                | 3,836      |   | $ | 4,086 |   |

 

The decrease of approximately $0.3 million indirect operating costs and expenses for 2005 as compared to 2004 was dueprincipally to decreases at the Florida facilities.

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***Costs and expenses.******  ***Direct generaland administrative expenses for the three months ended September 30, 2005,were approximately $0.6 million, compared to approximately $nil for the threemonths ended September 30, 2004. Direct general and administrativeexpenses are as follows (in thousands):

| ** **                                                                        | ** ** | **Three months  ended  September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                         | ** ** | **2004** | ** ** |
| Accounting and  legal expenses                                                    |       | $                                                | 366        |   |   | $ | — |   |   |
| Independent  director fees                                                        |       | 30                                               |       |   | — |   |   |
| Amortization of  deferred equity-based compensation                               |       | 168                                              |       |   | — |   |   |
| Compensation  expense on distributions paid to holders of restricted common units |       | 18                                               |       |   | — |   |   |
| Other                                                                             |       | 13                                               |       |   | — |   |   |
| Direct general  and administrative expenses                                       |       | $                                                | 595        |   |   | $ | — |   |   |

 

The accompanying consolidated financial statementsinclude allocated general and administrative charges fromTransMontaigne Inc. for allocations of indirect corporate overhead tocover costs of centralized corporate functions such as legal, accounting,treasury, insurance administration and claims processing, health, safety andenvironmental, information technology, human resources, credit, payroll, taxes,engineering and other corporate services. The allocated general andadministrative expenses were approximately $0.7 million and$0.7 million for the three months ended September 30, 2005 and 2004,respectively.

Theaccompanying consolidated financial statements also include allocated insurancecharges from TransMontaigne Inc. for allocations of insurance premiums tocover costs of insuring activities such as property casualty, pollution,automobile, directors and officers, and other insurable risks. The allocatedinsurance expenses are presented in the accompanying consolidated statements ofoperations as follows (in thousands):

| ** **                           | ** ** | **Three months  ended  September 30,** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|
| ** **                           | ** ** | **2005**                                         | ** ** | **2004** | ** ** |
| Direct operating  costs and expenses |       | $                                                | 183        |   | $ | 166 |   |
| General and  administrative expenses |       | 67                                               |       | 84 |   |
| Total allocated  insurance costs     |       | $                                                | 250        |   | $ | 250 |   |

 

Depreciation and amortization expense for the threemonths ended September 30, 2005 and 2004, was $1.6 million and$1.5 million, respectively. The increase of approximately$0.1 million in depreciation and amortization expense for 2005 as comparedto 2004 was due principally to depreciation and amortization expense on currentyear additions to property, plant, and equipment.

Interest expense was approximately $0.5 million forthe three months ended September 30, 2005 related to borrowings andcommitment fees under our senior secured credit facility.

 

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**LIQUIDITY AND CAPITAL RESOURCES**

Our primary liquidity needs are to fund ourdistributions to our unitholders, capital expenditures and our working capitalrequirements. Currently, our principal sources of funds to meet our liquidityneeds are cash generated by operations, borrowings under our credit facilityand debt and equity offerings.

Capital expenditures for the three months ended September 30,2005, were approximately $0.6 million for terminal and pipeline facilitiesand assets to support these facilities. Future capital expenditures will dependon numerous factors, including the availability, economics and cost ofappropriate acquisitions which we identify and evaluate; the economics, costand required regulatory approvals with respect to the expansion and enhancementof existing systems and facilities; customer demand for the services weprovide; local, state and federal governmental regulations; environmentalcompliance requirements; and the availability of debt financing and equitycapital on acceptable terms.

***Senior SecuredCredit Facility.******  ***On May 9, 2005, we enteredinto a $75 million senior secured credit facility. The credit facilityprovides for a maximum borrowing line of credit equal to the lesser of (i) $75 millionand (ii) four times Consolidated EBITDA (as defined; $68.2 million atSeptember 30, 2005). Borrowings under the credit facility bear interest(at our option) based on a base rate plus an applicable margin, or LIBOR plusan applicable margin; the applicable margins are a function of the totalleverage ratio (as defined). Interest on loans under the credit facility willbe due and payable periodically, based on the applicable interest rate andrelated interest period, generally either one, two or three months. Inaddition, we will pay a commitment fee ranging from 0.375% to 0.50% per annumon the total amount of the unused commitments. Borrowings under the creditfacility are secured by a lien on our assets, including cash, accountsreceivable, inventory, general intangibles, investment property, contractrights and real property, except for our real property located in Florida. Theterms of the credit facility include covenants that restrict our ability tomake cash distributions and acquisitions. We may make distributions of cash to theextent of our “available cash” as defined in our partnership agreement. We maymake acquisitions meeting the definition of “permitted acquisitions” whichinclude: acquisitions in which the consideration paid for such acquisition,together with the consideration paid for other acquisitions in the same fiscalyear, does not exceed $15,000,000; acquisitions that arise from the exercise ofoptions under the omnibus agreement with TransMontaigne Inc. provided thatany cash consideration is not obtained from borrowings under the creditfacility; and acquisitions in which we have (1) provided the agent priorwritten documentation in form and substance reasonably satisfactory to theagent demonstrating our pro forma compliance with all financial and othercovenants contained herein after giving effect to such acquisition and (2) satisfiedall other conditions precedent to such acquisition which the agent mayreasonably require in connection therewith. The principal balance of loans andany accrued and unpaid interest will be due and payable in full on the maturitydate, May 9, 2010.

The credit facility also contains customaryrepresentations and warranties (including those relating to corporateorganization and authorization, compliance with laws, absence of defaults,material agreements and litigation) and customary events of default (includingthose relating to monetary defaults, covenant defaults, cross defaults andbankruptcy events). The primary financial covenants contained in the creditfacility are a total leverage ratio test (not to exceed four times) and aninterest coverage ratio test (not to be less than three times). These financialcovenants are based on a defined financial performance measure within thecredit facility known as “Consolidated EBITDA.”

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Forthe periods prior to our initial public offering on May 27, 2005, thecredit facility stipulates our Consolidated EBITDA at approximately$3.7 million per quarter and consolidated interest expense atapproximately $0.4 million per quarter. Those assumptions are reflected inthe following calculation of the “total leverage ratio” and “interest coverageratio” contained in the credit facility.

| ** **                                                                                            | ** ** | **Three Months Ended** | ** ** | **Twelve Months  Ended** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-------------------------------|------------|
| ** **                                                                                            | ** ** | **December 31,**            | ** ** | **March 31,**            | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                            | ** ** | **2004**                         | ** ** | **2005**                      | ** ** | **2005** | ** ** | **2005** | ** ** | **2005** | ** ** |
| **Financial  performance debt covenant test:**                                                        |       |                             |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated EBITDA, as stipulated in the credit  facility                                            |       |                             | $          | 3,663                         |       |   |   | $ | 3,663 |   |   |   | $ | 4,341 |   |   |   | $ | 5,371 |   |   |   | $ | 17,038 |   |   |
| Consolidated funded indebtedness                                                                      |       |                             |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 31,000 |   |   |
| Total leverage ratio                                                                                  |       |                             |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 1.82x |   |   |
| Consolidated interest expense, as stipulated in the  credit facility                                  |       |                             | $          | 392                           |       |   |   | $ | 392 |   |   |   | $ | 409 |   |   |   | $ | 464 |   |   |   | $ | 1,657 |   |   |
| Interest coverage ratio                                                                               |       |                             |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   | 10.28x |   |   |
| **Reconciliation  of Consolidated EBITDA to cash flows provided by (used in) operating  activities:** |       |                             |       |                          |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated EBITDA                                                                                   |       |                             |       |                          |       |   |   |   |   |   |   |   |   |   | $ | 5,371 |   |   |   |   |   |   |
| Interest expense                                                                                      |       |                             |       |                          |       |   |   |   |   |   |   |   |   |   | (464 | ) |   |   |   |   |   |
| Changes in operating assets and liabilities                                                           |       |                             |       |                          |       |   |   |   |   |   |   |   |   |   | (5,399 | ) |   |   |   |   |   |
| Cash flows (used  by) operating activities                                                       |       |                             |       |                          |       |   |   |   |   |   |   |   |   |   | $ | (492 | ) |   |   |   |   |   |

 

If we were to fail either financial performancecovenant, or any other covenant contained in the credit facility, we would seeka waiver from our lenders under such facility. If we were unable to obtain awaiver from our lenders and the default remained uncured after any applicablegrace period, we would be in breach of the credit facility, and the lenderswould be entitled to declare all outstanding borrowings immediately due andpayable.

We believe that our futurecash expected to be provided by operating activities, available borrowingcapacity under our credit facility, and our relationship with institutionallenders and equity investors should enable us to meet our planned capital andliquidity requirements through at least the maturity date of our creditfacility (May 2010).

**ITEM 3.**                QUALITATIVEAND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in Item 3 updates, andshould be read in conjunction with, information set forth in Part II, Item7A in our Annual Report on Form 10-K for the year ended June 30,2005, in addition to the interim unaudited consolidated financial statements,accompanying notes and management’s discussion and analysis of financialcondition and results of operations presented in Items 1 and 2 of thisQuarterly Report on Form 10-Q. There are no material changes in themarket risks faced by us from those reported in our Annual Report on Form 10-Kfor the year ended June 30, 2005.

Market risk is the risk of loss arising from adversechanges in market rates and prices. The principal market risk to which we areexposed is interest rate risk associated with borrowings under our seniorsecured credit facility. Borrowings under our senior secured credit facilitywill bear interest at a variable rate based on LIBOR or the lender’s base rate.We currently do not manage our exposure to interest rates, 

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but we may in the future.At September 30, 2005, we had outstanding borrowings of $31.0 millionunder our senior secured credit facility. Based on the outstanding balance ofour variable-interest-rate debt at September 30, 2005, and assumingmarket interest rates increase or decrease by 100 basis points, the potentialannual increase or decrease in interest expense is approximately $0.3 million.

We generally do notpurchase or market products that we handle or transport and, therefore, we donot have material direct exposure to changes in commodity prices, except forthe value of product gains and losses arising from our terminaling servicesagreements with our customers. We do not use derivative commodity instrumentsto manage the commodity risk associated with the product we may own at anygiven time. Generally, to the extent we are entitled to retain product pursuantto terminaling services agreements with our customers, we sell the product toTransMontaigne Inc. As a result, we do not have a material direct exposureto commodity price fluctuations.

**ITEM 4.   CONTROLS AND PROCEDURES**

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed by us in thereports that we file or submit to the Securities and Exchange Commission underthe Securities Exchange Act of 1934, as amended, is recorded, processed,summarized and reported within the time periods specified by the Commission’s rules andforms, and that information is accumulated and communicated to our management,including our principal executive and principal financial officers (whom we referto as our Certifying Officers), as appropriate to allow timely decisionsregarding required disclosure. Our management evaluated, with the participationof our Certifying Officers, the effectiveness of our disclosure controls andprocedures as of September 30, 2005, pursuant to Rule 13a-15(b) underthe Exchange Act. Based upon that evaluation, our Certifying Officers concludedthat, as of September 30, 2005, our disclosure controls and procedureswere effective.

There were no changes in our internal control overfinancial reporting that occurred during the fiscal quarter ended September 30,2005 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

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**Part II. Other information**

**ITEM 6.   EXHIBITS**

Exhibits:

| 31.1   |   | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                      |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                           |
| 31.2   |   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                      |
|   |   |                                                                                                                                                           |
| 32.1   |   | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                                                           |
| 32.2   |   | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
| Dated November 9, 2005 | TRANSMONTAIGNE PARTNERS L.P.

(Registrant) |
|-----------------------------|--------------------------------------------|
|                        |
|                        | By:                                        | /s/ DONALD H. ANDERSON |
|                        |                                       | **Donald H. Anderson** |
|                        | ** **                                 | **Chief Executive Officer** |
|                        | ** **                                 | /s/  RANDALL J. LARSON |
|                        | ** **                                 | **Randall J. Larson** |
|                        | ** **                                 | **Executive Vice President, Chief Financial** |
|                        | ** **                                 | **Officer, and Chief Accounting Officer** |

 

 

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**EXHIBIT INDEX**

| Exhibit  Number | ** ** | **Description of Exhibits**                                                                                                                                    |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1            |       | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                     |
| 31.2            |       | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley  Act of 2002.                                                     |
| 32.1            |       | Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2            |       | Certification of Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

 

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