**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,DC 20549**

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**FORM 10-Q**

**(Mark One)**

**x**                              QuarterlyReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**Forthe quarterly period ended December 31, 2005**

**OR**

**o**                                 TransitionReport Pursuant to Section 13 or 15(d) of the Securities Exchange Actof 1934

**CommissionFile Number 001-11763**

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**TRANSMONTAIGNE INC.**

| **Delaware**                                                     | **06-1052062**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction  of incorporation or organization) | (I.R.S. Employer  Identification No.) |

 

**1670 BroadwaySuite 3100Denver, Colorado 80202**

(Address, includingzip code, of principal executive offices)

**(303) 626-8200**

(Telephone number,including area code)

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Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorterperiod that the Registrant was required to file such report), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x  No o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check one):

| Large accelerated filer  o |   | Accelerated filer  x |   | Non-accelerated filer  o |
|--------------------------------------|--------|--------------------------------|--------|------------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Exchange Act Rule 12b-2)  Yes o  No  x

As of January 31, 2006, there were 49,579,933shares of the Registrant’s Common Stock outstanding.

 

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**TABLE OF CONTENTS**

|            | ** ** | ** **                                                                                                                                                          | ** ** | **Page No.** |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|
| ** ** | ** ** | **Part I.  Financial Information**                                                                                                                             | ** ** | ** **        |
| Item 1.    |       | Unaudited Consolidated Financial Statements                                                                                                                         |       | 5                 |
|       |       | Consolidated  balance sheets as of December 31, 2005 and June 30, 2005                                                                                    |       | 6                 |
|       |       | Consolidated statements of operations for the three  and six months ended December 31, 2005 and 2004                                                           |       | 7                 |
|       |       | Consolidated statements of preferred stock and common  stockholders’ equity for the year ended June 30, 2005 and six months  ended December 31, 2005 |       | 8                 |
|       |       | Consolidated statements of cash flows for the three  and six months ended December 31, 2005 and 2004                                                           |       | 9                 |
|       |       | Notes to consolidated financial statements                                                                                                                          |       | 10                |
| Item 2.    |       | Management’s Discussion and Analysis of Financial  Condition and  Results of Operations                                                                        |       | 33                |
| Item 3.    |       | Qualitative and Quantitative Disclosures about Market  Risk                                                                                                         |       | 63                |
| Item  4.   |       | Controls  and Procedures                                                                                                                                            |       | 66                |
| ** ** | ** ** | **Part II.  Other Information**                                                                                                                                |       |              |
| Item 6.    |       | Exhibits                                                                                                                                                            |       | 67                |

 

2

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**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKINGSTATEMENTS**

This Quarterly Report contains certain forward-lookingstatements and information relating to TransMontaigne Inc., including thefollowing:

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:

·       theavailability of adequate supplies of and demand for petroleum products in theareas in which we operate;

·       theeffects of competition and our ability to renew customer contracts;

·       theimpact of petroleum product price fluctuations on our sales margins and theeffect of changes in commodity prices on our liquidity;

·       thesuccess of our risk management activities;

·       volumesof refined petroleum product throughput or stored in our terminal facilities;

·       TransMontaignePartners’ inability to pay the minimum quarterly distribution on thesubordinated units that we own;

·       continuedcreditworthiness of, and performance by, contract counterparties;

·       thetax and other effects of the exercise of TransMontaigne Partners’ options topurchase our fixed assets;

·       operationalhazards and availability and cost of insurance on our assets and operations;

·       theimpact of any failure of our information technology systems;

·       theavailability of acquisition opportunities and successful integration and futureperformance of acquired assets;

·       thethreat of terrorist attacks or war;

·       theimpact of current and future laws and governmental regulations;

·       thefailure of TransMontaigne Partners to avoid federal income taxation as acorporation or the imposition of state level taxation;

3

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·       liabilityfor environmental claims;

·       theimpact of the departure of any key officers; and

·       generaleconomic, market or business conditions.

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

4

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**Part I. Financial Information**

**ITEM 1.**                UNAUDITEDCONSOLIDATED FINANCIAL STATEMENTS

The interim unaudited consolidated financialstatements of TransMontaigne Inc. as of and for the three and six monthsended December 31, 2005, are included herein beginning on the followingpage. The accompanying unaudited interim consolidated financial statementsshould be read in conjunction with our annual consolidated financial statementsand related 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 Inc.is a holding company with the following active subsidiaries during the threeand six months ended December 31, 2005.

·       TransMontaigneProduct Services Inc. (“TPSI”)

·       TransMontaigneServices Inc.

·       TransMontaigneTransport Inc.

·       CoastalFuels Marketing, Inc.

·       CoastalTug and Barge, Inc.

·       TransMontaignePartners L.P.

·       Radcliff/EconomyMarine Services, Inc. (since August 1, 2005)

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

5

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**TransMontaigne Inc. and subsidiariesConsolidated balance sheets(In thousands)**

| ** **                                                                        | ** ** | **December 31,  2005** | ** ** | **June 30,  2005** | ** ** |
|-----------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| **ASSETS**                                                                        |       |                        |       |                    |       |   |   |
| Current assets:                                                                   |       |                        |       |                    |       |   |   |
| Cash and cash  equivalents                                                        |       |                        | $          | 13,099                  |       |   | $ | 29,721 |   |
| Restricted cash held by  commodity broker                                         |       |                        | 1,383      |                    |       | 10,436 |   |
| Trade accounts  receivable, net                                                   |       |                        | 365,501    |                    |       | 381,771 |   |
| Inventories—discretionary  volumes                                           |       |                        | 222,731    |                    |       | 274,774 |   |
| Unrealized gains on  derivative contracts                                         |       |                        | 45,691     |                    |       | 7,620 |   |
| Income taxes recoverable                                                          |       |                        | 13,293     |                    |       | — |   |
| Deferred tax assets                                                               |       |                        | 18,704     |                    |       | 18,401 |   |
| Prepaid expenses and  other                                                       |       |                        | 7,053      |                    |       | 6,767 |   |
|                                                                              |       |                        | 687,455    |                    |       | 729,490 |   |
| Property, plant and  equipment, net                                               |       |                        | 362,412    |                    |       | 344,532 |   |
| Product linefill and  tank bottom volumes                                         |       |                        | 24,701     |                    |       | 24,325 |   |
| Investment in Lion Oil  Company                                                   |       |                        | 10,131     |                    |       | 10,131 |   |
| Deferred debt issuance  costs, net                                                |       |                        | 8,728      |                    |       | 9,778 |   |
| Other assets, net                                                                 |       |                        | 42,360     |                    |       | 23,725 |   |
|                                                                              |       |                        | $          | 1,135,787               |       |   | $ | 1,141,981 |   |
| **LIABILITIES, PREFERRED STOCK, AND  COMMON STOCKHOLDERS’ EQUITY** |       |                        |       |                    |       |   |   |
| Current liabilities:                                                              |       |                        |       |                    |       |   |   |
| Working capital credit  facility                                                  |       |                        | $          | 56,100                  |       |   | $ | — |   |
| Trade accounts payable                                                            |       |                        | 174,394    |                    |       | 212,040 |   |
| Income taxes payable                                                              |       |                        | —     |                    |       | 29,801 |   |
| Unrealized losses on  derivative contracts                                        |       |                        | 21,000     |                    |       | 47,215 |   |
| Inventory due to others  under exchange agreements                                |       |                        | 54,074     |                    |       | 16,429 |   |
| Excise taxes payable                                                              |       |                        | 82,116     |                    |       | 79,597 |   |
| Other accrued  liabilities                                                        |       |                        | 21,421     |                    |       | 20,791 |   |
| Deferred revenue—supply  chain management services                           |       |                        | 3,607      |                    |       | 3,981 |   |
|                                                                              |       |                        | 412,712    |                    |       | 409,854 |   |
| Other liabilities:                                                                |       |                        |       |                    |       |   |   |
| Long-term debt                                                                    |       |                        | 228,000    |                    |       | 228,307 |   |
| Deferred tax liabilities                                                          |       |                        | 50,543     |                    |       | 46,413 |   |
| Unrealized losses on  derivative contracts                                        |       |                        | —     |                    |       | 234 |   |
| Total liabilities                                                                 |       |                        | 691,255    |                    |       | 684,808 |   |
| Non-controlling interests  in TransMontaigne Partners                             |       |                        | 82,927     |                    |       | 81,440 |   |
| Series B redeemable  convertible preferred stock                             |       |                        | 20,717     |                    |       | 49,249 |   |
| Common stockholders’ equity:                                                 |       |                        |       |                    |       |   |   |
| Common stock                                                                      |       |                        | 484        |                    |       | 456 |   |
| Capital in excess of par  value                                                   |       |                        | 321,834    |                    |       | 299,681 |   |
| Deferred stock-based  compensation                                                |       |                        | —     |                    |       | (7,042 | ) |
| Retained earnings                                                                 |       |                        | 18,570     |                    |       | 33,389 |   |
|                                                                              |       |                        | 340,888    |                    |       | 326,484 |   |
|                                                                              |       |                        | $          | 1,135,787               |       |   | $ | 1,141,981 |   |

 

See accompanying notes to consolidated financial statements.

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**TransMontaigne Inc. and subsidiariesConsolidated statementsof operations(In thousands, except per share amounts)**

| ** **                                                                    | ** ** | **Three months ended  December 31,** | ** ** | **Six months ended  December 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2005**                                            | ** ** | **2004**                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| Supply, distribution,  and marketing:                                         |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                                                      |       | $                                                   | 2,185,263  |                                              | $          | 1,811,534 |   | $ | 4,841,491 |   | $ | 3,840,785 |   |
| Cost of product sold and other direct costs and  expenses                     |       | (2,226,160                                          | )          | (1,791,994                                        | )          | (4,833,769 | ) | (3,797,089 | ) |
| Net operating margins (deficiencies)                                          |       | (40,897                                             | )          | 19,540                                            |       | 7,722 |   | 43,696 |   |
| Terminals, pipelines,  and tugs and barges:                                   |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                                                      |       | 32,837                                              |       | 27,522                                            |       | 62,061 |   | 53,994 |   |
| Direct operating costs and expenses                                           |       | (17,943                                             | )          | (15,454                                           | )          | (36,638 | ) | (29,861 | ) |
| Net operating margins                                                         |       | 14,894                                              |       | 12,068                                            |       | 25,423 |   | 24,133 |   |
| Total net operating margins (deficiencies)                                    |       | (26,003                                             | )          | 31,608                                            |       | 33,145 |   | 67,829 |   |
| Costs and expenses:                                                           |       |                                                |       |                                              |       |   |   |   |   |
| Selling, general and administrative expenses                                  |       | (13,354                                             | )          | (11,802                                           | )          | (24,908 | ) | (22,235 | ) |
| Depreciation and amortization                                                 |       | (6,849                                              | )          | (5,727                                            | )          | (13,430 | ) | (11,534 | ) |
| Gain (loss) on disposition of assets, net                                     |       | 67                                                  |       | —                                            |       | 1,185 |   | (3,599 | ) |
| Total costs and expenses                                                      |       | (20,136                                             | )          | (17,529                                           | )          | (37,153 | ) | (37,368 | ) |
| Operating income (loss)                                                       |       | (46,139                                             | )          | 14,079                                            |       | (4,008 | ) | 30,461 |   |
| Other income (expenses):                                                      |       |                                                |       |                                              |       |   |   |   |   |
| Dividend income                                                               |       | —                                              |       | —                                            |       | 583 |   | 381 |   |
| Interest income                                                               |       | 131                                                 |       | 62                                                |       | 457 |   | 101 |   |
| Interest expense                                                              |       | (6,931                                              | )          | (6,618                                            | )          | (12,849 | ) | (12,941 | ) |
| Other financing  costs:                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Amortization of deferred debt issuance costs                                  |       | (525                                                | )          | (442                                              | )          | (1,050 | ) | (1,148 | ) |
| Write-off of debt issuance costs related to  former bank credit facility      |       | —                                              |       | —                                            |       | — |   | (3,392 | ) |
| Total other expenses                                                          |       | (7,325                                              | )          | (6,998                                            | )          | (12,859 | ) | (16,999 | ) |
| Earnings (loss) before income taxes                                           |       | (53,464                                             | )          | 7,081                                             |       | (16,867 | ) | 13,462 |   |
| Income tax  benefit (expense)                                                 |       | 20,316                                              |       | (2,832                                            | )          | 6,409 |   | (5,385 | ) |
| Non-controlling  interests’ share in earnings of TransMontaigne Partners |       | (2,047                                              | )          | —                                            |       | (3,854 | ) | — |   |
| Net earnings (loss)                                                           |       | (35,195                                             | )          | 4,249                                             |       | (14,312 | ) | 8,077 |   |
| Earnings  allocable to preferred stock                                        |       | (188                                                | )          | (935                                              | )          | (507 | ) | (1,771 | ) |
| Net earnings (loss) attributable to common  stockholders                      |       | $                                                   | (35,383    | )                                                 | $          | 3,314 |   | $ | (14,819 | ) | $ | 6,306 |   |
| Earnings (loss) per  share:                                                   |       |                                                |       |                                              |       |   |   |   |   |
| Basic net earnings (loss) per common share                                    |       | $                                                   | (0.73      | )                                                 | $          | 0.08 |   | $ | (0.31 | ) | $ | 0.16 |   |
| Diluted net earnings (loss) per common share                                  |       | $                                                   | (0.73      | )                                                 | $          | 0.08 |   | $ | (0.31 | ) | $ | 0.16 |   |
| Weighted average common  shares outstanding:                                  |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                                                         |       | 48,334                                              |       | 39,739                                            |       | 47,638 |   | 39,616 |   |
| Diluted                                                                       |       | 48,334                                              |       | 51,870                                            |       | 47,638 |   | 51,744 |   |

 

See accompanying notes to consolidated financial statements.

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**TransMontaigne Inc. and subsidiariesConsolidated statementsof preferred stock and common stockholders’ equityYear ended June 30, 2005 and six months ended December 31, 2005(In thousands)**

| ** **                                                                                         | ** ** | **Series B  Preferred  stock** | ** ** | **Common  stock** | ** ** | **Capital in  excess of  par value** | ** ** | **Deferred  stock-based  compensation** | ** ** | **Retained  earnings  (accumulated  deficit)** | ** ** | **Total  common  stockholders’  equity** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------|------------|-----------------------------------------------------|------------|-----------------------------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|
| **Balance at June 30, 2004**                                                                  |       |                                | $          | 77,719            |       |                                                |       | $                                       | 411        |                                           |       |                                          | $          | 251,775 |   |   |   | $ | (4,129 | ) |   |   | $ | (19,768 | ) |   |   | $ | 228,289 |   |   |
| Common stock issued for options exercised                                                     |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | 347        |                                          |       |   | — |   |   |   | — |   |   |   | 347 |   |   |
| Common stock repurchased from employees for  withholding taxes                                     |       |                                | —     |              |       |                                                | (1         | )                                       |       |                                           | (816       | )                                             |       |   | — |   |   |   | — |   |   |   | (817 | ) |   |
| Net tax effect arising from stock-based compensation                                          |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | 272        |                                          |       |   | — |   |   |   | — |   |   |   | 272 |   |   |
| Forfeiture of restricted stock awards prior to  vesting                                            |       |                                | —     |              |       |                                                | (2         | )                                       |       |                                           | (1,222     | )                                             |       |   | 1,224 |   |   |   | — |   |   |   | — |   |   |
| Deferred compensation related to restricted stock  awards                                          |       |                                | —     |              |       |                                                | 7          |                                    |       |                                           | 4,163      |                                          |       |   | (4,170 | ) |   |   | — |   |   |   | — |   |   |
| Amortization of deferred stock-based compensation                                             |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | —     |                                          |       |   | 2,625 |   |   |   | — |   |   |   | 2,625 |   |   |
| Warrant granted to MSCG in exchange for product  supply agreements                                 |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | 14,600     |                                          |       |   | — |   |   |   | — |   |   |   | 14,600 |   |   |
| Preferred stock dividends paid-in kind                                                             |       |                                | 1,087      |              |       |                                                | —     |                                    |       |                                           | —     |                                          |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Preferred stock dividends                                                                          |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | —     |                                          |       |   | — |   |   |   | (4,207 | ) |   |   | (4,207 | ) |   |
| Amortization of premium on  Series B Redeemable Convertible Preferred stock         |       |                                | (1,546     | )                 |       |                                                | —     |                                    |       |                                           | —     |                                          |       |   | — |   |   |   | 1,546 |   |   |   | 1,546 |   |   |
| Conversion of Series B Redeemable Convertible  Preferred stock into common stock              |       |                                | (28,011    | )                 |       |                                                | 41         |                                    |       |                                           | 27,970     |                                          |       |   | — |   |   |   | — |   |   |   | 28,011 |   |   |
| Deferred compensation related to  restricted TransMontaigne Partners’ common unit awards |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | 2,592      |                                          |       |   | (2,592 | ) |   |   | — |   |   |   | — |   |   |
| Net earnings                                                                                       |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | —     |                                          |       |   | — |   |   |   | 55,818 |   |   |   | 55,818 |   |   |
| **Balance at June 30, 2005**                                                                  |       |                                | $          | 49,249            |       |                                                |       | $                                       | 456        |                                           |       |                                          | $          | 299,681 |   |   |   | $ | (7,042 | ) |   |   | $ | 33,389 |   |   |   | $ | 326,484 |   |   |
| Elimination of deferred stock-based compensation due  to adoption of SFAS 123(R)              |       |                                | —     |              |       |                                                | (16        | )                                       |       |                                           | (7,026     | )                                             |       |   | 7,042 |   |   |   | — |   |   |   | — |   |   |
| Common stock issued for options exercised                                                     |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | 206        |                                          |       |   | — |   |   |   | — |   |   |   | 206 |   |   |
| Common stock repurchased from employees for  withholding taxes                                     |       |                                | —     |              |       |                                                | (1         | )                                       |       |                                           | (772       | )                                             |       |   | — |   |   |   | — |   |   |   | (773 | ) |   |
| Amortization of deferred stock-based compensation                                             |       |                                | —     |              |       |                                                | 4          |                                    |       |                                           | 1,513      |                                          |       |   | — |   |   |   | — |   |   |   | 1,517 |   |   |
| Preferred stock dividends                                                                          |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | —     |                                          |       |   | — |   |   |   | (766 | ) |   |   | (766 | ) |   |
| Amortization of premium on Series B redeemable  convertible preferred stock              |       |                                | (259       | )                 |       |                                                | —     |                                    |       |                                           | —     |                                          |       |   | — |   |   |   | 259 |   |   |   | 259 |   |   |
| Conversion of Series B redeemable convertible  preferred stock into common stock         |       |                                | (28,273    | )                 |       |                                                | 41         |                                    |       |                                           | 28,232     |                                          |       |   | — |   |   |   | — |   |   |   | 28,273 |   |   |
| Net loss                                                                                           |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | —     |                                          |       |   | — |   |   |   | (14,312 | ) |   |   | (14,312 | ) |   |
| **Balance  at December 31, 2005**                                                             |       |                                | $          | 20,717            |       |                                                |       | $                                       | 484        |                                           |       |                                          | $          | 321,834 |   |   |   | $ | — |   |   |   | $ | 18,570 |   |   |   | $ | 340,888 |   |   |

 

See accompanying notes to consolidated financial statements.

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**TransMontaigne Inc. and subsidiariesConsolidated statementsof cash flows(In thousands)**

| ** **                                                                                             | ** ** | **Three months ended  December 31,** | ** ** | **Six months ended  December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                             | ** ** | **2005**                                            | ** ** | **2004**                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Cash flows from operating  activities:**                                                             |       |                                                |       |                                              |       |   |   |   |   |
| Net earnings (loss)                                                                                    |       | $                                                   | (35,195    | )                                                 | $          | 4,249 |   | $ | (14,312 | ) | $ | 8,077 |   |
| Adjustments  to reconcile net earnings (loss) to net cash provided by (used in) operating  activities: |       |                                                |       |                                              |       |   |   |   |   |
| Amortization of deferred revenue                                                                       |       | (1,731                                              | )          | (1,641                                            | )          | (3,303 | ) | (2,689 | ) |
| Depreciation and amortization                                                                          |       | 6,849                                               |       | 5,727                                             |       | 13,430 |   | 11,534 |   |
| Deferred tax expense                                                                                   |       | —                                              |       | 2,837                                             |       | — |   | 5,560 |   |
| Amortization of deferred stock-based  compensation                                                     |       | 623                                                 |       | 646                                               |       | 1,517 |   | 1,276 |   |
| Amortization of deferred debt issuance costs                                                           |       | 525                                                 |       | 442                                               |       | 1,050 |   | 1,148 |   |
| Write-off of debt issuance costs                                                                       |       | —                                              |       | —                                            |       | — |   | 3,392 |   |
| (Gain) loss on disposition of assets, net                                                              |       | (67                                                 | )          | —                                            |       | (1,185 | ) | 3,599 |   |
| Net change in unrealized (gains) losses on long-term  derivative contracts                             |       | (223                                                | )          | (2,031                                            | )          | (235 | ) | 540 |   |
| Non-controlling interests’ share in earnings of  TransMontaigne Partners                          |       | 2,047                                               |       | —                                            |       | 3,854 |   | — |   |
| Changes  in operating assets and liabilities, net of effects from acquisitions:                        |       |                                                |       |                                              |       |   |   |   |   |
| Trade accounts receivable, net                                                                         |       | 87,188                                              |       | (33,127                                           | )          | 36,916 |   | (32,090 | ) |
| Inventories—discretionary volumes                                                                 |       | 108,578                                             |       | (101,204                                          | )          | 55,926 |   | (107,886 | ) |
| Prepaid expenses and other                                                                             |       | (1,239                                              | )          | (3,739                                            | )          | (1,164 | ) | (2,522 | ) |
| Trade accounts payable                                                                                 |       | (52,833                                             | )          | 47,336                                            |       | (40,616 | ) | 32,864 |   |
| Income taxes payable                                                                                   |       | (21,719                                             | )          | —                                            |       | (43,093 | ) | — |   |
| Inventory due to others under exchange agreements                                                      |       | (5,470                                              | )          | (10,850                                           | )          | 37,645 |   | (10,540 | ) |
| Unrealized (gains) losses on derivative contracts                                                      |       | (83,219                                             | )          | (32,663                                           | )          | (61,357 | ) | (18,612 | ) |
| Excise taxes payable and other accrued liabilities                                                     |       | 16,740                                              |       | 10,936                                            |       | (754 | ) | (10,157 | ) |
| Net cash provided by (used in) operating activities                                                    |       | 20,854                                              |       | (113,082                                          | )          | (15,681 | ) | (116,506 | ) |
| **Cash  flows from investing activities:**                                                             |       |                                                |       |                                              |       |   |   |   |   |
| Acquisition of Radcliff and Oklahoma City terminals,  net of cash acquired                             |       | (1,857                                              | )          | —                                            |       | (53,911 | ) | — |   |
| Acquisition of terminals, pipelines, tugs and barges                                                   |       | (3,948                                              | )          | (329                                              | )          | (3,948 | ) | (7,947 | ) |
| Additions to property, plant and equipment—expansion  of facilities                               |       | (2,050                                              | )          | (836                                              | )          | (3,925 | ) | (1,922 | ) |
| Additions to property, plant and equipment—maintain  existing facilities                          |       | (1,257                                              | )          | (731                                              | )          | (1,575 | ) | (1,741 | ) |
| (Increase) decrease in restricted cash held by  commodity broker                                       |       | 16,316                                              |       | 1,725                                             |       | 9,280 |   | (956 | ) |
| Proceeds from disposition of assets                                                                    |       | 469                                                 |       | —                                            |       | 1,587 |   | — |   |
| Other                                                                                                  |       | (133                                                | )          | —                                            |       | (133 | ) | 5 |   |
| Net cash provided by (used in) investing activities                                                    |       | 7,540                                               |       | (171                                              | )          | (52,625 | ) | (12,561 | ) |
| **Cash  flows from financing activities:**                                                             |       |                                                |       |                                              |       |   |   |   |   |
| Net borrowings of debt                                                                                 |       | (7,400                                              | )          | 107,000                                           |       | 55,793 |   | 129,000 |   |
| Net borrowings of commodity margin loan                                                                |       | (10,000                                             | )          | 2,698                                             |       | — |   | 6,460 |   |
| Deferred debt issuance costs                                                                           |       | —                                              |       | (286                                              | )          | — |   | (3,368 | ) |
| Common stock issued for options exercised                                                              |       | 11                                                  |       | —                                            |       | 206 |   | 78 |   |
| Common stock repurchased from employees for  withholding taxes                                         |       | (773                                                | )          | (767                                              | )          | (773 | ) | (767 | ) |
| Distributions paid to non-controlling interests in  TransMontaigne Partners                            |       | (1,721                                              | )          | —                                            |       | (2,368 | ) | — |   |
| Preferred stock dividends paid in cash                                                                 |       | (580                                                | )          | (1,110                                            | )          | (1,174 | ) | (1,110 | ) |
| Net cash provided by (used in) financing activities                                                    |       | (20,463                                             | )          | 107,535                                           |       | 51,684 |   | 130,293 |   |
| Increase (decrease) in cash and cash equivalents                                                       |       | 7,931                                               |       | (5,718                                            | )          | (16,622 | ) | 1,226 |   |
| Cash and cash equivalents at beginning of period                                                       |       | 5,168                                               |       | 13,102                                            |       | 29,721 |   | 6,158 |   |
| Cash and cash equivalents at end of period                                                             |       | $                                                   | 13,099     |                                              | $          | 7,384 |   | $ | 13,099 |   | $ | 7,384 |   |
| **Supplemental  disclosures of cash flow information:**                                                |       |                                                |       |                                              |       |   |   |   |   |
| Cash paid for (refund of) income taxes                                                                 |       | $                                                   | 1,403      |                                              | $          | (5 | ) | $ | 36,685 |   | $ | (175 | ) |
| Cash paid for  interest expense                                                                        |       | $                                                   | 11,059     |                                              | $          | 10,810 |   | $ | 12,314 |   | $ | 13,049 |   |

 

See accompanying notes to consolidated financial statements.

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**TransMontaigne Inc. and subsidiariesNotes to consolidatedfinancial statementsDecember 31, 2005 and June 30, 2005**

**(1)**   SUMMARYOF 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 Inc., a Delaware corporation (“TransMontaigne”),and its controlled subsidiaries. All significant inter-company accountsand transactions have been eliminated in consolidation, except for throughputfees, storage fees, pipeline transportation fees, tug and barge fees and otherfees charged to our supply, distribution and marketing operations by ourterminals, pipelines, and tugs and barges. The related inter-companyrevenues and costs offset within total net operating margins in theaccompanying consolidated statements of operations.

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 reportedamounts of revenues and expenses during the reporting periods. The followingestimates, in our opinion, are subjective in nature, require the exercise ofjudgment, and involve complex analysis: allowance for doubtful accounts; fairvalue of inventories—discretionary volumes (used to evaluate the financialperformance of our business segments); fair value of derivative contracts; andaccrued environmental obligations. Changes in these estimates and assumptionswill occur as a result of the passage of time and the occurrence of futureevents. Actual results could differ from these estimates.

**(b) Natureof Business and Basis of Presentation**

TransMontaigne Inc., a Delaware corporation based inDenver, Colorado, was formed in 1995 to create an independent refined petroleumproducts distribution and supply company. We are a holding company thatconducts operations in the United States primarily in the Gulf Coast, Florida,East Coast, and Midwest regions. We provide integrated terminal,transportation, storage, supply, distribution, and marketing services to refiners,wholesalers, distributors, marketers, and industrial and commercial end-usersof refined petroleum products. Our principal activities consist of (i) terminal,pipeline, and tug and barge operations, (ii) supply, distribution, andmarketing, and (iii) managing the activities of TransMontaigne PartnersL.P.

On May 27, 2005,TransMontaigne Partners L.P. (“TransMontaigne Partners”), a consolidatedsubsidiary of ours, completed its initial public offering of common units.TransMontaigne Partners 

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receivednet proceeds of approximately $73.0 million for the issuance and sale of3,852,500 common units, after giving effect to the exercise of the underwriters’over-allotment option, at the initial public offering price of $21.40 percommon unit, and the payment of the underwriting discount, structuring fee andother offering costs of approximately $9.5 million. TransMontaignePartners also received approximately $7.9 million for the issuance andsale of 450,000 subordinated units to an affiliate of Morgan Stanley CapitalGroup, Inc. in a separate private placement at a price of $17.65 persubordinated unit. We contributed seven refined products terminals located inFlorida, the Razorback Pipeline, and two refined products terminals located inMt. Vernon, Missouri and Rogers, Arkansas to TransMontaigne Partners inexchange for a 2% general partner interest, 2,872,266 subordinated units, and adistribution of $111.5 million. We also entered into an omnibus agreementand terminaling and transportation services agreement with TransMontaignePartners. The omnibus agreement sets forth the terms on which we will provideTransMontaigne Partners with certain general and administrative services,insurance coverage and environmental and other indemnification, among other terms.We also have agreed to provide TransMontaigne Partners with certain options andrights of first refusal to purchase additional refined petroleum productterminal assets, and TransMontaigne Partners has agreed to provide us certainrights of first refusal with respect to its assets and additional terminalcapacity added by TransMontaigne Partners in the future. Pursuant to theterminaling and transportation services agreement, we agreed to transport onTransMontaigne Partners’ Razorback Pipeline and to throughput in TransMontaignePartners’ terminals a volume of refined product that will result in minimumrevenues to TransMontaigne Partners of $5.0 million per calendar quarter.

**(c) Accountingfor Terminal, Pipeline, and Tug and Barge Activities**

In connection with our terminal, pipeline, and tug andbarge operations, we utilize the accrual method of accounting for revenues andexpenses. We generate revenues in our terminal, pipeline, and tug and bargeoperations from throughput fees, storage fees, transportation fees, ship-assistfees, management fees and cost reimbursements, and fees from other ancillaryservices. Throughput revenues are recognized when the product is delivered tothe customer; storage revenues are recognized ratably over the term of the storagecontract; transportation revenues are recognized when the product has beendelivered to the customer at the specified delivery location; ship-assistrevenues are recognized when docking and other services are provided to marinevessels; management fees and cost reimbursements are recognized as the servicesare performed; and other service revenues are recognized as the services areperformed.

Shipping and handlingcosts attributable to our terminal, pipeline, and tug and barge operations areincluded in direct operating costs and expenses in the accompanyingconsolidated statements of operations.

**(d) Accountingfor Supply, Distribution, and Marketing Activities**

In our supply, distribution and marketing operations,we purchase refined petroleum products, schedule them for delivery to ourterminals, as well as terminals owned by third parties, and then sell thoseproducts to our customers through rack spot sales, contract sales, and bulksales. Revenues from our sales of physical inventory are recognized pursuant tothe accrual method of accounting (i.e., when cash becomes due and payable to uspursuant to the terms of the sales contracts). Revenues from rack spot salesand contract sales are recognized when the product is delivered to the customerthrough a truck loading rack or marine fueling equipment. Revenues from bulksales are recognized when the title to the product is transferred to thecustomer, which generally occurs upon confirmation of the terms of the sale.

Shipping and handlingcosts attributable to our supply, distribution, and marketing operations areincluded in cost of product sold in the accompanying consolidated statements ofoperations.

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**(e) Accountingfor Supply Chain Management Services Activities**

We provide supply chain management services tocompanies and governmental entities that desire to outsource their fuel supplyfunction and to reduce the price volatility associated with their fuelsupplies. We offer three types of supply chain management services: deliveredfuel price management, retail price management, and logistical supply chainmanagement services.

Delivered fuel price management contracts involve thesales of committed quantities of specific motor fuels delivered to our customer’sproprietary fleet refueling locations at fixed prices for terms up to threeyears. Under retail price management contracts, customers commit for terms upto 18 months to a specific monthly quantity of product within one or moremetropolitan areas and agree to a net settlement with us for the differencebetween a stipulated retail price index and our fixed contract price. Ourlogistical supply chain management arrangements permit our customers to use ourproprietary web-based inventory management system for a fee, which typically ischarged on a per gallon basis.

Revenue from sales madepursuant to delivered fuel price management contracts are recognized when titleto the product is transferred to the customer, which generally occurs upondelivery of the product to the customer’s proprietary fleet refueling location.Revenue from sales made pursuant to retail price management contracts arerecognized when title to the product is transferred to the customer, whichgenerally occurs upon lifting of the product by the customer at the retailgasoline station. Revenue from logistical supply chain management services feesis recognized on a straight-line basis over the term of the contract.

**(f) Accountingfor Risk Management Activities**

We enter into riskmanagement contracts, principally NYMEX futures contracts, to manage ourexposure to changes in commodity prices. We evaluate our market risk exposurefrom an overall portfolio basis that considers changes in physical inventories—discretionaryvolumes held for immediate sale or exchange, inventory due to others underexchange agreements, open positions in derivative contracts, and open positionsin risk management contracts. We enter into risk management contracts thatoffset the changes in the values of our inventories—discretionary volumes heldfor immediate sale or exchange and derivative contracts. At December 31,2005 and June 30, 2005, our open positions in risk management contractsprincipally were NYMEX futures contracts (purchases and sales) and NYMEXoptions (calls and puts).

**(g) Accountingfor Derivative Contracts**

Our contract sales, bulk sales, delivered fuel pricemanagement, retail price management, risk management contracts and productsupply contracts qualify as derivative instruments pursuant to the requirementsof Statement of Financial Accounting Standards (“SFAS”) No. 133, *Accounting for Derivative Instruments and HedgingActivities*. All derivative contracts are required to be reported asassets and liabilities at fair value in the accompanying consolidated balancesheet in accordance with SFAS No. 133. The fair value of our derivativecontracts is included in “Unrealized gains or losses on derivative contracts”in the accompanying consolidated balance sheets. Changes in the fair value ofour derivative contracts are included in net operating margins attributable toour supply, distribution and marketing operations.

The estimated fair valueof our delivered fuel price management and retail price management contracts atorigination is deferred because our estimate of the fair value is not evidencedby quoted market prices or current market transactions for the contracts intheir entirety. The deferred revenue is amortized into income over therespective terms of the contracts as the products are delivered to the groundfleet customers. Subsequent changes in the fair value of our delivered fuelprice management and retail price management contracts are included in netoperating margins attributable to our supply, distribution, and marketingoperations.

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**(h) Presentation of Revenues**

We present revenue from our rack spot sales, contractsales, certain bulk sales, and delivered fuel price management contracts on agross basis in the accompanying consolidated statements of operations becauseour obligations under these arrangements are settled via transfer of title andrisk of loss of the product to the customer. Revenue from our retail pricemanagement contracts and risk management contracts are presented on a net basis(i.e., product costs are required to be netted directly against gross revenuesto arrive at net revenues) in the accompanying consolidated statements ofoperations because our obligations under these arrangements are settled on anet cash basis. The logistical supply chain management services fees do notinvolve the sale of inventory and, therefore, only the service fee is presentedin the accompanying consolidated statements of operations.

We have presented bulktransactions that were “booked out” on a net basis in the consolidatedstatements of operations (i.e., product costs are netted directly against grossrevenues to arrive at net revenues). A “book out” occurs when one party appearsmore than once for the sale and purchase of a specific grade of refined productfor a specific scheduling date to transport product on a particular common carrierpipeline. In that instance, we and other pipeline shippers agree not toschedule or deliver the refined product that originates and ends with the samecounterparty, but rather settle in cash the amounts due to or from eachintervening counterparty, thus booking out the transaction. For the threemonths ended December 31, 2005 and 2004, we booked out bulk transactionsof approximately $272.6 million and $700.9 million, respectively. Forthe six months ended December 31, 2005 and 2004, we booked out bulktransactions of approximately $902.5 million and $1,676.3 million,respectively. The booking out of a bulk transaction has no effect on our netoperating margins or net earnings.

**(i) Accountingfor Inventories—Discretionary Volumes**

Ourinventories—discretionary volumes consist of refined petroleum products,primarily gasolines, distillates, and No. 6 oil. Inventories—discretionaryvolumes are presented in the accompanying consolidated balance sheets ascurrent assets and are carried at the lower of cost (first-in, first-out) ormarket (replacement cost). Inventories—discretionary volumes are as follows (inthousands):

| ** **                                   | ** ** | **December 31, 2005** | ** ** | **June 30, 2005** | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **Amount**                      | ** ** | **Bbls**                    | ** ** | **Amount** | ** ** | **Bbls** | ** ** |
| Volumes held for  immediate sale or exchange |       | $                               | 93,060     |                        | 1,507      |   | $ | 153,123 |   | 2,415 |   |
| Volumes held for  base operations            |       | 129,671                         |       | 2,011                       |       | 121,651 |   | 2,011 |   |
| Inventories—discretionary  volumes      |       | $                               | 222,731    |                        | 3,518      |   | $ | 274,774 |   | 4,426 |   |

 

At December 31, 2005 and June 30, 2005, themarket value of our volumes held for immediate sale or exchange exceeded theircost basis by approximately $4.3 million and $2.1 million,respectively. At December 31, 2005 and June 30, 2005, the marketvalue of our volumes held for base operations exceeded their cost basis byapproximately $9.3 million and $0.2 million, respectively.

During the year ended June 30,2005, we decreased our volumes held for base operations by approximately 2.0million barrels as a result of our product supply agreement with Morgan StanleyCapital Group, Inc.

**(j) InventoryDue to Others Under Exchange Agreements**

We enter into exchangeagreements generally with major oil companies. Exchange agreements generallyare fixed-term agreements that involve our receipt of a specified volume ofproduct at one location in exchange for delivery by us of product at adifferent location. At December 31, 2005 and June 30, 2005, currentliabilities include inventory due to others under exchange agreements ofapproximately 768,000 barrels and 296,000 barrels, respectively, with a fairvalue of approximately 

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$54.1 millionand $16.4 million, respectively. The amount recorded represents the fairvalue of inventory due to others under exchange agreements at the respectivebalance sheet date.

**(k) Accountingfor Product Linefill and Tank Bottom Volumes**

Our product linefill and tank bottom volumes arerequired to be held for operating balances in the conduct of our overalloperating activities. We do not intend to sell or exchange these inventories inthe ordinary course of business and, therefore, we generally do not manage thecommodity price risks associated with these volumes.

At December 31, 2005and June 30, 2005, our product linefill and tank bottom volumes arepresented in the accompanying consolidated balance sheets as non-current assetsand are carried at the lower of cost (weighted average) or market (replacementcost). The replacement cost of our product linefill and tank bottom volumes isbased on the nearest quoted wholesale market price. At December 31, 2005and June 30, 2005, we had approximately 932,000 barrels and 925,000barrels, respectively, of product reflecting tank bottoms and linefill in ourpropriety terminal connections with an adjusted cost basis of approximately$24.7 million and $24.3 million, respectively. At December 31, 2005and June 30, 2005, the market value of our product linefill and tankbottom volumes exceeded their cost basis by approximately $42.8 millionand $34.8 million, respectively.

**(l) RestrictedCash Held by Commodity Broker**

Restricted cash representscash deposits held by our commodity broker to cover initial margin requirementsrelated to open NYMEX futures contracts.

**(m) Deferred Debt Issuance Costs**

Deferreddebt issuance costs are as follows (in thousands):

| ** **                                      | ** ** | **June 30,  2005** | ** ** | **Additions** | ** ** | **Amortization** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|---------------|------------|------------------|------------|-----------------------------|------------|
| Senior secured  working capital credit facility |       |                    | $          | 3,422         |       |             |       | $                           | —     |   |   |   | $ | (404 | ) |   |   | $ | 3,018 |   |   |
| Senior  subordinated notes                      |       |                    | 5,455      |          |       |             | —     |                        |       |   | (554 | ) |   |   | 4,901 |   |   |
| TransMontaigne  Partners’ credit facility  |       |                    | 901        |          |       |             | —     |                        |       |   | (92 | ) |   |   | 809 |   |   |
|                                            |       |                    | $          | 9,778         |       |             |       | $                           | —     |   |   |   | $ | (1,050 | ) |   |   | $ | 8,728 |   |   |

 

**(n) Environmental Obligations**

At December 31, 2005and June 30, 2005, we had accrued environmental obligations ofapproximately $6.3 million and $6.1 million, respectively,representing our best estimate of our remediation obligations (see Note 9of Notes to consolidated financial statements). During the six months ended December 31,2005, we made payments of approximately $1.5 million towards ourenvironmental remediation obligations. During the six months ended December 31,2005, we charged to income approximately $0.5 million to increase ourestimate of our future environmental remediation obligations. During the sixmonths ended December 31, 2005, we assumed approximately $1.2 million ofenvironmental remediation obligations in connection with our acquisition of theRadcliff and Oklahoma City terminals (see Note 2 of Notes to consolidatedfinancial statements). During the six months ended December 31, 2005 and2004, we received insurance recoveries of approximately $150,000 and $1.4million, respectively, which have been recognized as a reduction of directoperating costs and expenses in the accompanying consolidated statements ofoperations.

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**(o) Equity-Based Compensation Plans**

Forperiods ending prior to July 1, 2005, we accounted for our employee stockoption plans and restricted stock awards using the intrinsic value methodpursuant to APB Opinion No. 25, *Accountingfor Stock Issued to Employees*. If compensation cost for our stock-basedcompensation plans had been determined based on the fair value at the grantdates for awards under those plans pursuant to Statement of FinancialAccounting Standards No. 123, *Accountingfor Stock-Based Compensation*, our net earnings and earningsper common share would have been reduced to the pro forma amounts indicatedbelow (in thousands, except for per share amounts):

| ** **                                                                 | ** ** | **Three months ended  December 31, 2004** | ** ** | **Six months ended  December 31, 2004** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| Net earnings attributable  to common stockholders:                         |       |                                                          |       |                                                        |       |   |   |   |   |
| As reported                                                                |       |                                                          | $          | 3,314                                                       |       |   |   | $ | 6,306 |   |   |
| Amortization of the fair value of stock options  granted to employees |       |                                                          | (25        | )                                                           |       |   | (51 | ) |   |
| Pro forma                                                                  |       |                                                          | $          | 3,289                                                       |       |   |   | $ | 6,255 |   |   |
| Earnings per  share:                                                       |       |                                                          |       |                                                        |       |   |   |   |   |
| As reported                                                                |       |                                                          |       |                                                        |       |   |   |   |   |
| Basic                                                                      |       |                                                          | $          | 0.08                                                        |       |   |   | $ | 0.16 |   |   |
| Diluted                                                                    |       |                                                          | $          | 0.08                                                        |       |   |   | $ | 0.16 |   |   |
| Pro forma                                                                  |       |                                                          |       |                                                        |       |   |   |   |   |
| Basic                                                                      |       |                                                          | $          | 0.08                                                        |       |   |   | $ | 0.16 |   |   |
| Diluted                                                                    |       |                                                          | $          | 0.08                                                        |       |   |   | $ | 0.16 |   |   |

 

There were no options granted during the six monthsended December 31, 2005 and the years ended June 30, 2005, 2004 and2003. The weighted average fair value at grant dates for options granted duringthe year ended June 30, 2002 was $3.08. The primary assumptions used toestimate the fair value of options granted on the date of grant using the Black-Scholesoption-pricing model during the year ended June 30, 2002 were asfollows: no dividend yield, expected volatility of 79%, risk-free rate of4.49%, and expected life of 4 years.

Effective July 1, 2005, we adopted the provisionsof Statement of Financial Accounting Standards No. 123 (R), *Share-Based Payment*. This Statementrequires us to measure the cost of employee services received in exchange foran award of equity instruments based on the grant-date fair value of the award.That cost will be recognized over the period during which an employee isrequired to provide service in exchange for the award. We are required toestimate the number of equity instruments that are expected to vest inmeasuring the total compensation cost to be recognized over the related serviceperiod.

For awards granted prior to July 1, 2005, we arerequired to measure compensation cost for the portion of outstanding awards forwhich the requisite service has not yet been rendered (i.e., the unvestedportion of the award as of July 1, 2005). The compensation cost for theseawards is based on their relative grant-date fair values.

For awards granted on orafter July 1, 2005, compensation cost will be recognized over the serviceperiod on a straight-line basis. For awards granted before July 1, 2005,compensation cost is recognized over the related service period on anaccelerated basis pursuant to FASB Interpretation No. 28.

**(p) Earnings(Loss) Per Common Share**

Basicearnings (loss) per common share is calculated based on the weighted averagenumber of common shares outstanding during the period, excluding restrictedcommon stock subject to continuing vesting requirements. Diluted earnings(loss) per share is calculated based on the weighted average 

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number of common shares outstanding during the periodand, when dilutive, potential common shares from the exercise of stock optionsand warrants to purchase common stock and restricted common stock subject tocontinuing vesting requirements pursuant to the treasury stock method. Dilutedearnings (loss) per share also gives effect, when dilutive, to the conversionof the preferred stock pursuant to the if-converted method.

In the event dividends on a per share equivalent basisare declared on our common stock in excess of the dividends declared on the Series Bredeemable convertible preferred stock, the Series B redeemableconvertible preferred stock will participate as if the Series B redeemableconvertible preferred stock was converted into common stock. Accordingly, the Series Bredeemable convertible preferred stock has been determined to be a “participating”security for purposes of computing earnings per share.

**(q) Reclassifications**

Certain amounts in the prior period have beenreclassified to conform to the current period’s presentation. Net earnings(loss) and stockholders’ equity have not been affected by thesereclassifications.

**(2)**   ACQUISITIONS

On August 1,2005, we acquired all the outstanding shares of capital stock ofRadcliff/Economy Marine Services, Inc. (“Radcliff”) for a purchase priceof approximately $52.1 million, net of cash acquired of approximately $2.1million. The purchase price is composed of approximately $41.8 million paid incash plus the assumption of Radcliff’s existing outstanding debt ofapproximately $12.4 million. The acquisition includes three petroleum productsterminals, two in Mobile, Alabama and one in Pensacola, Florida, with combinedaggregate storage capacity of approximately 350,000 barrels, two tugboats, 6barges, and 12 tractors and associated trailers. The consolidatedfinancial statements include the results of operations of the Radcliff facilitiesfrom the closing date of the transaction (August 1, 2005). The purchaseprice was allocated to the assets and liabilities acquired based upon theestimated fair value of the assets and liabilities as of the acquisition date.

EffectiveOctober 31, 2005, TransMontaigne Partners purchased a refined productterminal with approximately 150,000 barrels of aggregate storage capacity inOklahoma City, Oklahoma from Magellan Pipeline Company, L.P. for approximately$1.9 million. The Oklahoma City terminal currently provides integratedterminaling services to a major oil company. Theaccompanying consolidated financial statements include the results ofoperations of the Oklahoma City terminal from the closing date of theacquisition (October 31, 2005).

Thepurchase price was allocated as follows (in thousands):

| ** **                                                                | ** ** | **Radcliff** | ** ** | **Oklahoma  City** | ** ** |
|---------------------------------------------------------------------------|------------|--------------|------------|--------------------|------------|
| Restricted cash                                                           |       | $            | 228        |               |       | $ | — |   |   |
| Trade accounts  receivable, net of allowance for doubtful accounts of $47 |       | 20,097       |       |               | —     |   |   |
| Discretionary  inventory, product linefill and tank bottom volumes        |       | 4,259        |       |               | —     |   |   |
| Prepaid expenses  and other                                               |       | 293          |       |               | —     |   |   |
| Property, plant  and equipment                                            |       | 16,779       |       |               | 2,493      |   |   |
| Deferred tax  assets                                                      |       | 303          |       |               | —     |   |   |
| Goodwill                                                                  |       | 19,384       |       |               | —     |   |   |
| Trade accounts  payable                                                   |       | (3,304       | )          |               | —     |   |   |
| Accrued  environmental obligations                                        |       | (605         | )          |               | (625       | ) |   |
| Deferred tax  liabilities                                                 |       | (4,130       | )          |               | —     |   |   |
| Due to former  Radcliff stockholders                                      |       | (1,000       | )          |               | —     |   |   |
| Other assumed  liabilities                                                |       | (250         | )          |               | (11        | ) |   |
| Cash paid, net of  cash acquired                                          |       | $            | 52,054     |               |       | $ | 1,857 |   |   |

 

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Theunaudited pro forma combined results of operations as if the acquisition of theRadcliff and Oklahoma City terminals had occurred on July 1, 2004 are asfollows (in thousands, except per share data):

| ** **                           | ** ** | ** ** | ** ** | **Three months ended** | ** ** |
|--------------------------------------|------------|------------|------------|----------------------------------|------------|
| ** **                           | ** ** | ** ** | ** ** | **December 31,**            | ** ** |
| ** **                           | ** ** | ** ** | ** ** | **2004**                         | ** ** |
| Revenue                              |       |       |       |                             | $          | 1,890,261 |   |   |
| Net earnings                         |       |       |       |                             | $          | 5,434 |   |   |
| Basic net earnings per  common share |       |       |       |                             | $          | 0.11 |   |   |

 

| ** **                                  | ** ** | **Six months ended** | ** ** | **Six months ended** | ** ** |
|---------------------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | **December 31,**          | ** ** | **December 31,**          | ** ** |
| ** **                                  | ** ** | **2005**                       | ** ** | **2004**                       | ** ** |
| Revenue                                     |       |                           | $          | 4,925,058                      |       |   |   | $ | 3,989,904 |   |   |
| Net earnings  (loss)                        |       |                           | $          | (14,347                        | )          |   |   | $ | 10,660 |   |   |
| Basic net earnings  (loss) per common share |       |                           | $          | (0.31                          | )          |   |   | $ | 0.21 |   |   |

 

**(3)**   DISPOSITION OFASSETS

Gain on disposition ofassets, net for the six months ended December 31, 2005, reflects the finalinsurance recovery of approximately $1.1 million on the involuntary conversionof our historical Pensacola terminal facilities and approximately $0.1 millionon the sale of the Wisconsin terminal. Loss on disposition of assets, net forthe six months ended December 31, 2004, consists principally of anapproximately $3.6 million loss on the involuntary conversion of ourhistorical Pensacola terminal facilities due to the damage caused by HurricaneIvan.

**(4)**   CONCENTRATIONOF CREDIT RISK AND TRADE ACCOUNTS RECEIVABLE

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

| ** **                            | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|---------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                            | ** ** | **2005**              | ** ** | **2005**          | ** ** |
| Trade accounts  receivable            |       |                  | $          | 366,367           |       |   | $ | 382,324 |   |
| Less allowance  for doubtful accounts |       |                  | (866       | )                 |       | (553 | ) |
|                                  |       |                  | $          | 365,501           |       |   | $ | 381,771 |   |

 

**(5)**   UNREALIZEDGAINS AND LOSSES ON DERIVATIVE CONTRACTS

Unrealizedgains and losses on derivative contracts are as follows (in thousands):

| ** **                         | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                         | ** ** | **2005**              | ** ** | **2005**          | ** ** |
| Unrealized  gains—current     |       |                  | $          | 45,691            |       |   | $ | 7,620 |   |
| Unrealized  gains—non-current |       |                  | —     |              |       | — |   |
| Unrealized gains—asset        |       |                  | 45,691     |              |       | 7,620 |   |
| Unrealized  losses—current    |       |                  | (21,000    | )                 |       | (47,215 | ) |
| Unrealized  losses—long-term  |       |                  | —     |              |       | (234 | ) |
| Unrealized losses—liability   |       |                  | (21,000    | )                 |       | (47,449 | ) |
| Net asset  (liability)             |       |                  | $          | 24,691            |       |   | $ | (39,829 | ) |

 

At December 31, 2005 and June 30, 2005,there were no unrealized gains or losses on NYMEX futures contracts becauseNYMEX futures contracts require daily settlement for changes in commodityprices on open futures contracts.

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At December 31, 2005,included in unrealized gains—current is an unrealized gain of approximately$7.4 million related to certain short positions taken in the NYMEX optionsmarket. At June 30, 2005, included in unrealized losses—current is anunrealized loss of approximately $3.6 million related to short positions takenin the NYMEX options market.

**(6)**   PREPAIDEXPENSES AND OTHER CURRENT ASSETS

Prepaidexpenses and other current assets are as follows (in thousands):

| ** **                              | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                              | ** ** | **2005**              | ** ** | **2005**          | ** ** |
| Prepaid insurance                       |       |                  | $          | 3,537             |       |   |   | $ | 2,246 |   |   |
| Amounts due from  insurance carrier     |       |                  | —     |              |       |   | 954 |   |   |
| Asset held for  sale                    |       |                  | —     |              |       |   | 1,200 |   |   |
| Prepaid business  taxes                 |       |                  | 79         |              |       |   | 552 |   |   |
| Additive  detergent                     |       |                  | 946        |              |       |   | 985 |   |   |
| Prepaid software  maintenance fees      |       |                  | 78         |              |       |   | 105 |   |   |
| Amounts due from  Rio Vista/Penn Octane |       |                  | 1,300      |              |       |   | — |   |   |
| Other                                   |       |                  | 1,113      |              |       |   | 725 |   |   |
|                                    |       |                  | $          | 7,053             |       |   |   | $ | 6,767 |   |   |

 

Amounts due from insurance carrier represents ourremaining estimated proceeds to be received on insurance claims related to theinvoluntary conversion of our historical Pensacola terminal facilities due tothe damage caused by Hurricane Ivan. During the three months ended December 31,2005, we collected the final insurance recovery.

During the six months ended December 31, 2005, wedecided to retain the land at our historical Pensacola terminal facilities toaugment the Pensacola terminal facilities that we acquired from Radcliff (seeNote 2 of Notes to consolidated financial statements). In prior periods, assetheld for sale was carried at the lower of cost or fair value less costs ofdisposition and consisted of the land held for sale at our historical Pensacolaterminal facilities.

In connection with our duediligence review of certain assets and operations of Rio Vista and Penn Octane,we advanced approximately $1.3 million. The advance is due and payable ondemand and is secured by certain terminaling assets in Brownsville, Texas.

**(7)**   PROPERTY, PLANT ANDEQUIPMENT

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

| ** **                          | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|-------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                          | ** ** | **2005**              | ** ** | **2005**          | ** ** |
| Land                                |       |                  | $          | 43,173            |       |   | $ | 38,710 |   |
| Terminals,  pipelines and equipment |       |                  | 392,293    |              |       | 374,213 |   |
| Technology and  equipment           |       |                  | 14,614     |              |       | 14,751 |   |
| Tugs and barges                     |       |                  | 33,777     |              |       | 27,277 |   |
| Furniture,  fixtures and equipment  |       |                  | 6,806      |              |       | 6,784 |   |
| Construction in  progress           |       |                  | 2,499      |              |       | 1,747 |   |
|                                |       |                  | 493,162    |              |       | 463,482 |   |
| Less accumulated  depreciation      |       |                  | (130,750   | )                 |       | (118,950 | ) |
|                                |       |                  | $          | 362,412           |       |   | $ | 344,532 |   |

 

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**(8)**   OTHER ASSETS

Otherassets are as follows (in thousands):

| ** **                                                                                     | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                     | ** ** | **2005**              | ** ** | **2005**          | ** ** |
| Prepaid  transportation                                                                        |       |                  | $          | 737               |       |   | $ | 326 |   |
| Goodwill                                                                                       |       |                  | 26,237     |              |       | 6,853 |   |
| Product supply  agreement, net of accumulated amortization of $2,086 and $1,043, respectively  |       |                  | 12,514     |              |       | 13,557 |   |
| Acquired  intangible, net of accumulated amortization of $1,417 and  $1,167, respectively |       |                  | 1,083      |              |       | 1,333 |   |
| Commodity trading  membership                                                                  |       |                  | 1,500      |              |       | 1,500 |   |
| Deposits and  other assets                                                                     |       |                  | 289        |              |       | 156 |   |
|                                                                                           |       |                  | $          | 42,360            |       |   | $ | 23,725 |   |

 

Prepaid transportation relates to our contractualtransportation and deficiency agreement with an interstate product pipeline(see Note 16 of Notes to consolidated financial statements).

Goodwill represents the excess of the aggregatepurchase price over the fair value of the identifiable assets acquired.Goodwill is not amortized, but instead tested for impairment on an annual basisduring the three months ended June 30. We recognized approximately $6.9million of goodwill related to our November 1997 acquisition of the ITAPCOterminals and approximately $19.4 million of goodwill related to our August 2005acquisition of Radcliff.

On November 23, 2004, we granted to MSCG warrantsto acquire 5.5 million shares of our common stock at an exercise price of$6.60 per share as partial consideration for agreeing to enter into a 7-yearproduct supply agreement (see Note 15 of Notes to consolidated financialstatements). The value ascribed to the product supply agreement is beingamortized to income over the 7-year term of the agreement, commencing in January 2005.

Acquired intangible represents the right to use theCoastal Fuels trade name for a period of five years commencing February 28,2003. The cost of the acquired intangible is being amortized on a straight-linebasis over five years.

Commodity tradingmembership represents the purchase price we paid to acquire two seats on theNYMEX.

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**(9)**   OTHER ACCRUEDLIABILITIES

Otheraccrued liabilities are as follows (in thousands):

| ** **                                          | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                          | ** ** | **2005**              | ** ** | **2005**          | ** ** |
| Accrued  environmental obligations                  |       |                  | $          | 6,308             |       |   | $ | 6,148 |   |
| Accrued lease  abandonment                          |       |                  | 1,441      |              |       | 1,798 |   |
| Accrued  indemnities—NORCO                     |       |                  | 1,000      |              |       | 1,000 |   |
| Accrued  transportation and deficiency obligations  |       |                  | 254        |              |       | 640 |   |
| Accrued property  taxes                             |       |                  | 645        |              |       | 2,245 |   |
| Assumed litigation  costs—Coastal Fuels assets |       |                  | 325        |              |       | 325 |   |
| Dividend  payable—preferred stock              |       |                  | 301        |              |       | 708 |   |
| Accrued interest  payable                           |       |                  | 2,017      |              |       | 1,521 |   |
| Customer advances  and deposits                     |       |                  | 541        |              |       | 1,773 |   |
| Accrued  compensation and benefits                  |       |                  | 4,900      |              |       | 2,894 |   |
| Due to former  owners of Radcliff                   |       |                  | 1,000      |              |       | — |   |
| Accrued expenses  and other                         |       |                  | 2,689      |              |       | 1,739 |   |
|                                                |       |                  | $          | 21,421            |       |   | $ | 20,791 |   |

 

*Accrued Lease Abandonment.**  *We vacated certain office space inDenver, Colorado during June 2003 and we vacated certain excess space inAtlanta, Georgia during October 2002. In connection with our acquisitionof the Coastal Fuels assets during February 2003, we vacated a salesoffice in Coral Gables, Florida. The accrual for the abandonment of the officeleases represents the excess of the remaining lease payments subsequent tovacancy of the space by us over the estimated sublease rentals to be receivedbased on current market conditions. At December 31, 2005 and June 30,2005, the accrued liability for lease abandonment costs was approximately$1.4 million and $1.8 million, respectively.

| ** **                 | ** ** | **Accrued  liability at  June 30,  2005** | ** ** | **Change in  estimate  charged  to expense** | ** ** | **Amounts  paid during  the period** | ** ** | **Accrued  liability at  December 31,  2005** | ** ** |
|----------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                 | ** ** | **(in thousands)**                             | ** ** |
| Accrued lease  abandonment |       |                                                | $          | 1,798                                                  |       |                                           |       | $                                                       | —     |   |   |   | $ | (357 | ) |   |   | $ | 1,441 |   |   |
|                            |            |                                                     |            |                                                        |            |                                                |            |                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Weexpect to pay the accrued liability of approximately $1.4 million, net ofestimated sublease rentals, as follows (in thousands):

| **Years ending June 30:** | ** ** | ** ** | ** ** | **Lease  payments** | ** ** | **Estimated  sublease  rentals** | ** ** | **Accrued  liability** | ** ** |
|------------------------------------------|------------|------------|------------|---------------------|------------|----------------------------------|------------|------------------------|------------|
| 2006 (Remainder  of the year)            |       |       | $          | 530                 |       |                             |       | $                      | (181       | ) |   |   | $ | 349 |   |   |
| 2007                                     |       |       | 995        |                |       |                             | (346       | )                      |       |   | 649 |   |   |
| 2008                                     |       |       | 306        |                |       |                             | (159       | )                      |       |   | 147 |   |   |
| 2009                                     |       |       | 313        |                |       |                             | (165       | )                      |       |   | 148 |   |   |
| 2010                                     |       |       | 318        |                |       |                             | (170       | )                      |       |   | 148 |   |   |
|                                     |       |       | $          | 2,462               |       |                             |       | $                      | (1,021     | ) |   |   | $ | 1,441 |   |   |

 

**(10)**   DEFERREDREVENUE—SUPPLY CHAIN MANAGEMENT SERVICES

Weenter into price management contracts with ground fleet customers and jobbersthat permit them to fix the price of their fuel purchases. During the sixmonths ended December 31, 2005, we originated retail and delivered fuelprice management contracts with an estimated fair value of approximately 

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$2.9 million, representing the excess of theamounts we expect to receive from the ground fleet customers and jobbers overour estimate of the forward price curve of the underlying commodity adjusted forlocation differentials. We have deferred the estimated fair value of thesecontracts at origination because our estimate of the fair value is notevidenced by quoted market prices or current market transactions for thecontracts in their entirety. We amortize the deferred revenue into net revenuesattributable to our supply, distribution, and marketing operations over therespective terms of the contracts as the products are delivered. During the sixmonths ended December 31, 2005, we recognized approximately$3.3 million in revenues attributable to our supply, distribution andmarketing operations from the amortization of the deferred revenue from thesecontracts.

| ** **                                 | ** ** | **Deferred  revenue at  June 30, 2005** | ** ** | **Additions  during  the period** | ** ** | **Amounts  amortized  during  the period** | ** ** | **Deferred  revenue at  December 31, 2005** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                 | ** ** | **(in thousands)**                                | ** ** |
| Retail price  management contracts         |       |                                                   | $          | 968                                    |       |                                            |       | $                                                          | 2,510      |   |   |   | $ | (968 | ) |   |   | $ | 2,510 |   |   |
| Delivered fuel  price management contracts |       |                                                   | 3,013      |                                   |       |                                            | 419        |                                                       |       |   | (2,335 | ) |   |   | 1,097 |   |   |
|                                       |       |                                                   | $          | 3,981                                  |       |                                            |       | $                                                          | 2,929      |   |   |   | $ | (3,303 | ) |   |   | $ | 3,607 |   |   |

 

**(11)**   DEBT

Debtis as follows (in thousands):

| ** **                                      | ** ** | **December 31,  2005** | ** ** | **June 30,  2005** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Commodity margin  loan                          |       |                        | $          | —                  |       |   | $ | — |   |
| Senior secured  working capital credit facility |       |                        | 56,100     |                    |       | — |   |
| Senior  subordinated notes                      |       |                        | 200,000    |                    |       | 200,000 |   |
|                                            |       |                        | 256,100    |                    |       | 200,000 |   |
| TransMontaigne  Partners’ credit facility  |       |                        | 28,000     |                    |       | 28,307 |   |
|                                            |       |                        | 284,100    |                    |       | 228,307 |   |
| Less debt  classified as current                |       |                        | (56,100    | )                       |       | — |   |
| Long-term debt                                  |       |                        | $          | 228,000                 |       |   | $ | 228,307 |   |

 

*CommodityMargin Loan.**  *Wecurrently have a commodity margin loan agreement with our commodity broker thatallows us to borrow up to $10 million to fund certain initial andvariation margin requirements in commodities accounts maintained by us with ourcommodity broker. The entire unpaid principal amount of the loan, together withaccrued interest, is due and payable on demand. Outstanding loans bear interestat the average 90-day Treasury Bill rate plus 1.50% (5.6% at December 31,2005).

*SeniorSecured Working Capital Credit Facility.**  *The senior secured working capital creditfacility provides for a maximum borrowing line of credit equal to the lesser of(i) $400 million and (ii) the borrowing base ($404 millionat December 31, 2005), which is a function, among other things, of our cash,accounts receivable, inventory, exchanges, margin deposits and certain reserveadjustments as defined in the facility. Outstanding letters of credit($125 million at December 31, 2005) are counted against the maximumborrowing capacity available at any time. Borrowings under the senior securedworking capital credit facility bear interest (at our option) based on a baserate plus an applicable margin, or LIBOR plus an applicable margin; theapplicable margins are a function of the average excess borrowing baseavailability (as defined therein). Interest on loans under the senior securedworking capital credit facility is due and payable periodically, based on theapplicable interest rate and related interest period, generally each one, twoor three months. The weighted average interest rate on borrowings under thesenior secured working capital credit facility was 5.6% during the six monthsended December 31, 2005. In addition, we 

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pay a commitment feeranging from 0.25% to 0.50% per annum on the total amount of the unusedcommitments. Borrowings under the senior secured working capital creditfacility are secured by, among other things, our cash, accounts receivable,inventories, certain terminal facilities with an orderly liquidation value ofnot less than $100 million, and certain other current assets. The onlyfinancial covenant contained in the senior secured working capital creditfacility is a minimum fixed charge coverage ratio test that is computed on aquarterly basis and it is applicable whenever the average availability fallsbelow $50 million for the last month of any quarter (average availabilitywas $198 million for the month ended December 31, 2005). In thatevent, we must satisfy a minimum fixed charge coverage ratio requirement of110%. The principal balance of loans and any accrued and unpaid interest is dueand payable in full on the maturity date, September 13, 2009.

*TransMontaignePartners’ Credit Facility.**  *On May 9, 2005, TransMontaigne Partnersentered into a $75 million senior secured credit facility. The creditfacility provides for a maximum borrowing line of credit equal to the lesser of(i) $75 million and (ii) four times Consolidated EBITDA ofTransMontaigne Partners (as defined; $78.4 million at December 31,2005). Borrowings under the credit facility bear interest (at TransMontaignePartners’ 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 is dueand payable periodically, based on the applicable interest rate and relatedinterest period, generally either one, two or three months. The weightedaverage interest rate on borrowings under the TransMontaigne Partners’ creditfacility was 5.8% during the six months ended December 31, 2005. Inaddition, TransMontaigne Partners pays a commitment fee ranging from 0.375% to0.50% per annum on the total amount of the unused commitments. Borrowings underthe TransMontaigne Partners’ credit facility are secured by a lien onTransMontaigne Partners’ assets, including cash, accounts receivable,inventory, general intangibles, investment property, contract rights and realproperty, except for TransMontaigne Partners’ real property located in Florida.The terms of the credit facility include covenants that restrict TransMontaignePartners’ ability to make capital expenditures and cash distributions. The primaryfinancial covenants contained in the TransMontaigne Partners’ credit facilityare a total leverage ratio test (not to exceed four times) and an interestcoverage ratio test (not to be less than three times). The principal balance ofloans and any accrued and unpaid interest are due and payable in full on thematurity date, May 9, 2010.

*SeniorSubordinated Notes.**  *OnMay 30, 2003, we consummated the sale and issuance of $200 millionaggregate principal amount of 91¤8%Senior Subordinated Notes due 2010 and received proceeds of $194.5 million(net of underwriters’ discounts of $5.5 million). The Senior SubordinatedNotes mature on June 1, 2010 and interest is payable semi-annually inarrears on each June 1 and December 1 commencing on December 1,2003. The Senior Subordinated Notes are unsecured and subordinated to all ofour existing and future senior debt. Upon certain change of control events,each holder of the Senior Subordinated Notes may require us to repurchase allor a portion of its notes at a purchase price equal to 101% of the principalamount thereof, plus accrued interest. The indenture governing the SeniorSubordinated Notes contains covenants that, among other things, limit ourability to incur additional indebtedness, pay dividends on, redeem orrepurchase our common stock, make investments, make certain dispositions ofassets, engage in transactions with affiliates, create certain liens, andconsolidate, merge, or transfer all or substantially all of our assets. TheSenior Subordinated Notes are fully and unconditionally guaranteed on a jointand several basis by our subsidiaries other than (1) minor subsidiariesthat are inactive and have no assets or operations and (2) since May 27,2005, TransMontaigne Partners L.P. and its general partner and the wholly-ownedsubsidiaries of TransMontaigne Partners L.P.

We are a holding company for our subsidiaries, with noindependent assets or operations. Accordingly, we are dependent upon thedistribution of the earnings of our subsidiaries, whether in the form ofdividends, advances or payments on account of inter-company obligations,to service our debt obligations. There are no restrictions on our ability toobtain funds from our subsidiaries other than 

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TransMontaigne PartnersL.P. TransMontaigne Partners L.P. is not a party to the indenture governing theSenior Subordinated Notes and, therefore, TransMontaigne Partners L.P. and itssubsidiaries are not guarantors of the Senior Subordinated Notes.

Summarizedconsolidating financial information for TransMontaigne Inc. and theguarantor subsidiaries and TransMontaigne Partners and the non-guarantorsubsidiaries as of and for the three months ended December 31, 2005 is asfollows (in thousands):

| ** **                                                    | ** ** | **TransMontaigne Inc.  and guarantor  subsidiaries** | ** ** | **TransMontaigne  Partners and  non-guarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| **Assets**                                                    |       |                                                           |       |                                                               |       |             |       |             |       |   |   |   |   |   |   |
| Current assets                                                |       |                                                           | $          | 685,497                                                            |       |             |       | $                | 2,422      |   |   |   | $ | (464 | ) |   | $ | 687,455 |   |
| Property, plant  and equipment, net                           |       |                                                           | 245,634    |                                                               |       |             | 116,778    |             |       |   | — |   |   | 362,412 |   |
| Other assets                                                  |       |                                                           | 91,480     |                                                               |       |             | 1,901      |             |       |   | (7,461 | ) |   | 85,920 |   |
|                                                          |       |                                                           | $          | 1,022,611                                                          |       |             |       | $                | 121,101    |   |   |   | $ | (7,925 | ) |   | $ | 1,135,787 |   |
| **Liabilities  and Equity**                                   |       |                                                           |       |                                                               |       |             |       |             |       |   |   |   |   |   |   |
| Current  liabilities                                          |       |                                                           | $          | 410,463                                                            |       |             |       | $                | 2,713      |   |   |   | $ | (464 | ) |   | $ | 412,712 |   |
| Long-term  debt                                               |       |                                                           | 200,000    |                                                               |       |             | 28,000     |             |       |   | — |   |   | 228,000 |   |
| Other liabilities                                             |       |                                                           | 50,543     |                                                               |       |             | —     |             |       |   | — |   |   | 50,543 |   |
| Non-controlling  interests                                    |       |                                                           | —     |                                                               |       |             | —     |             |       |   | 82,927 |   |   | 82,927 |   |
| Preferred stock                                               |       |                                                           | 20,717     |                                                               |       |             | —     |             |       |   | — |   |   | 20,717 |   |
| Partners’ equity                                         |       |                                                           | —     |                                                               |       |             | 90,388     |             |       |   | (90,388 | ) |   | — |   |
| Common  stockholders’ equity                             |       |                                                           | 340,888    |                                                               |       |             | —     |             |       |   | — |   |   | 340,888 |   |
|                                                          |       |                                                           | $          | 1,022,611                                                          |       |             |       | $                | 121,101    |   |   |   | $ | (7,925 | ) |   | $ | 1,135,787 |   |
| **Statement  of Operations**                                  |       |                                                           |       |                                                               |       |             |       |             |       |   |   |   |   |   |   |
| Revenues                                                      |       |                                                           | $          | 2,206,998                                                          |       |             |       | $                | 11,102     |   |   |   | $ | — |   |   | $ | 2,218,100 |   |
| Cost of product  sold and direct operating costs and expenses |       |                                                           | (2,240,169 | )                                                                  |       |             | (3,934     | )                |       |   | — |   |   | (2,244,103 | ) |
| Costs and  expenses                                           |       |                                                           | (17,057    | )                                                                  |       |             | (3,079     | )                |       |   | — |   |   | (20,136 | ) |
| Other income  (expenses)                                      |       |                                                           | (5,283     | )                                                                  |       |             | (548       | )                |       |   | (1,494 | ) |   | (7,325 | ) |
| Income tax  benefit                                           |       |                                                           | 20,316     |                                                               |       |             | —     |             |       |   | — |   |   | 20,316 |   |
| Non-controlling  interests’ share in earnings            |       |                                                           | —     |                                                               |       |             | —     |             |       |   | (2,047 | ) |   | (2,047 | ) |
| Net earnings  (loss)                                          |       |                                                           | $          | (35,195                                                            | )          |             |       | $                | 3,541      |   |   |   | $ | (3,541 | ) |   | $ | (35,195 | ) |
| **Statement  of Cash Flows**                                  |       |                                                           |       |                                                               |       |             |       |             |       |   |   |   |   |   |   |
| Net cash provided  by operating activities                    |       |                                                           | $          | 12,528                                                             |       |             |       | $                | 8,326      |   |   |   | $ | — |   |   | $ | 20,854 |   |
| Net cash provided  by (used in) investing activities          |       |                                                           | 10,015     |                                                               |       |             | (2,475     | )                |       |   | — |   |   | 7,540 |   |
| Net cash (used  in) financing activities                      |       |                                                           | (14,535    | )                                                                  |       |             | (5,928     | )                |       |   | — |   |   | (20,463 | ) |
| Increase  (decrease) in cash and cash equivalents             |       |                                                           | 8,008      |                                                               |       |             | (77        | )                |       |   | — |   |   | 7,931 |   |
| Cash at beginning  of period                                  |       |                                                           | 4,393      |                                                               |       |             | 775        |             |       |   | — |   |   | 5,168 |   |
| Cash at end of period                                         |       |                                                           | $          | 12,401                                                             |       |             |       | $                | 698        |   |   |   | $ | — |   |   | $ | 13,099 |   |

 

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Summarizedconsolidating financial information for TransMontaigne Inc. and theguarantor subsidiaries and TransMontaigne Partners and the non-guarantorsubsidiaries for the six months ended December 31, 2005 is as follows (inthousands):

| ** **                                                    | ** ** | **TransMontaigne Inc.  and guarantor  subsidiaries** | ** ** | **TransMontaigne  Partners and  non-guarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| **Statement  of Operations**                                  |       |                                                           |       |                                                               |       |             |       |             |       |   |   |   |   |   |   |
| Revenues                                                      |       |                                                           | $          | 4,882,050                                                          |       |             |       | $                | 21,502     |   |   |   | $ | — |   |   | $ | 4,903,552 |   |
| Cost of product  sold and direct operating costs and expenses |       |                                                           | (4,862,637 | )                                                                  |       |             | (7,770     | )                |       |   | — |   |   | (4,870,407 | ) |
| Costs and  expenses                                           |       |                                                           | (31,145    | )                                                                  |       |             | (6,008     | )                |       |   | — |   |   | (37,153 | ) |
| Other income  (expenses)                                      |       |                                                           | (8,989     | )                                                                  |       |             | (1,057     | )                |       |   | (2,813 | ) |   | (12,859 | ) |
| Income tax  benefit                                           |       |                                                           | 6,409      |                                                               |       |             | —     |             |       |   | — |   |   | 6,409 |   |
| Non-controlling  interests’ share in earnings            |       |                                                           | —     |                                                               |       |             | —     |             |       |   | (3,854 | ) |   | (3,854 | ) |
| Net earnings  (loss)                                          |       |                                                           | $          | (14,312                                                            | )          |             |       | $                | 6,667      |   |   |   | $ | (6,667 | ) |   | $ | (14,312 | ) |
| **Statement  of Cash Flows**                                  |       |                                                           |       |                                                               |       |             |       |             |       |   |   |   |   |   |   |
| Net cash provided  by (used in) operating activities          |       |                                                           | $          | (23,515                                                            | )          |             |       | $                | 7,834      |   |   |   | $ | — |   |   | $ | (15,681 | ) |
| Net cash (used  in) investing activities                      |       |                                                           | (49,582    | )                                                                  |       |             | (3,043     | )                |       |   | — |   |   | (52,625 | ) |
| Net cash provided  by (used in) financing activities          |       |                                                           | 56,018     |                                                               |       |             | (4,334     | )                |       |   | — |   |   | 51,684 |   |
| Increase  (decrease) in cash and cash equivalents             |       |                                                           | (17,079    | )                                                                  |       |             | 457        |             |       |   | — |   |   | (16,622 | ) |
| Cash at beginning  of period                                  |       |                                                           | 29,480     |                                                               |       |             | 241        |             |       |   | — |   |   | 29,721 |   |
| Cash at end of period                                         |       |                                                           | $          | 12,401                                                             |       |             |       | $                | 698        |   |   |   | $ | — |   |   | $ | 13,099 |   |

 

For all periods ended after the issuance of the SeniorSubordinated Notes (May 30, 2003) and before the closing of TransMontaignePartners’ initial public offering (May 27, 2005), we had no subsidiariesthat had not guaranteed the Senior Subordinated Notes on a full andunconditional, joint and several basis, other than subsidiaries that wereminor. Accordingly, we have not presented consolidating financial informationas of and for the three and six months ended December 31, 2004, becausesuch information would be substantially duplicative with the accompanyingconsolidated financial statements. TransMontaigne Partners completed itsinitial public offering and commenced operations on May 27, 2005.

Scheduledmaturities of debt at December 31, 2005 are as follows (in thousands):

| **Years ending June 30:** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|------------|------------|
| 2006                                     |       | $          | —     |       |
| 2007                                     |       | —     |       |
| 2008                                     |       | —     |       |
| 2009                                     |       | —     |       |
| 2010                                     |       | 284,100    |       |
|                                     |       | $          | 284,100    |       |

 

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**(12)**   PREFERRED STOCK

At December 31,2005 and June 30, 2005, we have authorized the issuance of up to 2,000,000shares of preferred stock. Preferred stock is as follows (in thousands, exceptshare data):

| ** **                                                                                                                                                                                                    | ** ** | **December 31,  2005** | ** ** | **June 30,  2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-------------------------|------------|
| Series B  redeemable convertible preferred stock, par value $0.01 per share, 100,000  shares authorized, 20,063 and 47,195 shares issued and outstanding,  liquidation preference of $20,063 and $47,195 |       |                        | $          | 20,717                  |       |   | $ | 49,249 |   |
|                                                                                                                                                                                                               |            |                             |            |                         |            |  |  |  |  |

 

At December 31, 2005 and June 30, 2005,there are 20,063 and 47,195 shares, respectively, of Series B redeemableconvertible preferred stock outstanding. During the six months ended December 31,2005, 27,132 shares of Series B redeemable convertible preferred stockwere converted into approximately 4.1 million shares of common stock at therequest of the holder.

The Series B redeemable convertible preferredstock has a liquidation value of $1,000 per share, bears dividends at the rateof 6% per annum of the liquidation value, and is mandatorily redeemable betweenJune 30, 2007 and December 31, 2007 for shares of common stock and/orcash at our option, subject to limitations on the total number of shares ofcommon stock permitted to be used in the exchange and issued to anystockholder. Dividends are cumulative and payable quarterly. The dividends arepayable in cash, unless precluded by contract or the senior secured workingcapital credit facility, in which case dividends are payable in additionalshares of Series B redeemable convertible preferred stock. The Series Bredeemable convertible preferred stock may be put to us, at the option of theholder, for cash equal to the greater of its liquidation value or conversionvalue upon the future occurrence of a fundamental change (including thoserelating to sale of substantially all of the assets, delisting of our commonstock from a national exchange, change in control, bankruptcy filing, and anevent of default that accelerates the repayment of our debt). We may call theoutstanding shares of Series B redeemable convertible preferred stockafter June 30, 2005 if certain specified conditions are met. The Series Bredeemable convertible preferred stock is convertible, at the option of theholder, into common stock at $6.60 per share, subject to adjustment upon theoccurrence of specified future events. The holders of the Series Bredeemable convertible preferred stock have the right to vote on all matters(except the election of directors) with the holders of the common stock (votingcollectively as a single class).

Preferred stock dividends on the Series Bredeemable convertible preferred stock were $0.5 million and$1.4 million for the six months ended December 31, 2005 and 2004,respectively. The amount of the Series B redeemable convertible preferredstock dividend recognized for financial reporting purposes for the six monthsended December 31, 2005 and 2004, is composed of the amount of thedividend payable and paid to the holders of the Series B redeemableconvertible preferred stock of $0.8 million and $2.2 million,respectively, offset by the amortization of the premium on the carrying amountof the Series B redeemable convertible preferred stock of$0.3 million and $0.8 million, respectively.

At its issuance date (June 28,2002), the fair value of the Series B redeemable convertible preferredstock exceeded its liquidation value. The carrying amount of the Series Bredeemable convertible preferred stock will be decreased ratably over its 5-yearterm until it equals its liquidation value with an equal reduction in theamount of preferred stock dividends recorded for financial reporting purposes.

**(13)**   COMMON STOCK

At December 31, 2005 and June 30, 2005, wewere authorized to issue up to 150,000,000 shares of common stock with a parvalue of $0.01 per share. At December 31, 2005 and June 30, 2005,there were 49,581,917 shares and 45,586,475 shares issued and outstanding,respectively. Our senior secured working capital credit facility, seniorsubordinated notes and the certificate of designations of our Series B 

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redeemable convertiblepreferred stock contain restrictions on the payment of dividends on our commonstock.

Wehave a restricted stock plan that provides for awards of common stock tocertain key employees, subject to forfeiture if employment terminates prior tothe applicable vesting dates. Information about restricted common stockactivity for the six months ended December 31, 2005 and the year ended June 30,2005 is as follows:

| ** **                                        | ** ** | **Total shares** | ** ** | **Vested shares** | ** ** | **Unvested shares** | ** ** |
|---------------------------------------------------|------------|-----------------------|------------|------------------------|------------|--------------------------|------------|
| Outstanding at  June 30, 2004                |       |                  | 2,178,003  |                   |       |                     | 553,795    |   |   |   | 1,624,208 |   |   |
| Granted                                           |       |                  | 689,200    |                   |       |                     | —     |   |   |   | 689,200 |   |   |
| Cancelled                                         |       |                  | (229,350   | )                      |       |                     | —     |   |   |   | (229,350 | ) |   |
| Repurchased from  employees for withholding taxes |       |                  | (131,625   | )                      |       |                     | (131,625   | ) |   |   | — |   |   |
| Vested                                            |       |                  | —     |                   |       |                     | 446,758    |   |   |   | (446,758 | ) |   |
| Outstanding at  June 30, 2005                |       |                  | 2,506,228  |                   |       |                     | 868,928    |   |   |   | 1,637,300 |   |   |
| Granted                                           |       |                  | 28,000     |                   |       |                     | —     |   |   |   | 28,000 |   |   |
| Cancelled                                         |       |                  | (72,325    | )                      |       |                     | —     |   |   |   | (72,325 | ) |   |
| Repurchased from  employees for withholding taxes |       |                  | (125,996   | )                      |       |                     | (125,996   | ) |   |   | — |   |   |
| Vested                                            |       |                  | —     |                   |       |                     | 406,830    |   |   |   | (406,830 | ) |   |
| Outstanding at  December 31, 2005            |       |                  | 2,335,907  |                   |       |                     | 1,149,762  |   |   |   | 1,186,145 |   |   |

 

On October 25, 2004, we granted awards of 689,200shares of restricted common stock to key employees. The deferred stock basedcompensation associated with those awards was approximately $4.2 million,which is being amortized into income over their four-year vesting period.

During the six months ended December 31, 2005, wegranted awards of 28,000 shares of restricted common stock to new employees.The deferred stock based compensation associated with those awards wasapproximately $236,000, which is being amortized into income over theirfour-year vesting period.

Amortization of deferredcompensation of approximately $1.5 million and $1.3 million isincluded in selling, general and administrative expense for the six monthsended December 31, 2005 and 2004, respectively.

**(14)**   STOCK OPTIONS

Informationabout stock option activity for the six months ended December 31, 2005 andthe year ended June 30, 2005, is as follows:

| ** **                                       | ** ** | **Shares** | ** ** | **Weighted  average  exercise  price** | ** ** |
|--------------------------------------------------|------------|------------|------------|----------------------------------------|------------|
| Outstanding at June 30, 2004 |       | 885,500    |       |                                   | $          | 4.48 |   |   |
| Cancelled                                        |       | (31,600    | )          |                                   | 3.75       |   |   |
| Exercised                                        |       | (85,998    | )          |                                   | 4.05       |   |   |
| Outstanding at  June 30, 2005               |       | 767,902    |       |                                   | 4.55       |   |   |
| Cancelled                                        |       | (3,000     | )          |                                   | 11.00      |   |   |
| Exercised                                        |       | (54,800    | )          |                                   | 3.75       |   |   |
| Outstanding at  December 31, 2005           |       | 710,102    |       |                                   | $          | 4.59 |   |   |
| Exercisable at  December 31, 2005           |       | 680,102    |       |                                   | $          | 4.57 |   |   |

 

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Informationabout stock options outstanding under the 1997 Plan at December 31, 2005,is as follows:

| ** **                                  | ** ** | ** ** | ** ** | ** **              | ** ** | ** **                                                | ** ** | **Options exercisable**                | ** ** |
|---------------------------------------------|------------|------------|------------|-------------------------|------------|-----------------------------------------------------------|------------|---------------------------------------------|------------|
| **Range of exercise prices** | ** ** | ** ** | ** ** | **Number  outstanding** | ** ** | **Weighted  average  remaining life  in years** | ** ** | **Weighted  average  exercise prices** | ** ** | **Number  exercisable** | ** ** | **Weighted  average  exercise  prices** | ** ** |
| $3.75 – 7.25       |       |       | 700,602    |                    |       |                                                      | 5.0        |                                        |       |   | $ | 4.48 |   |   |   | 670,602 |   |   |   | $ | 4.43 |   |   |
| $11.00 – 13.50                         |       |       | 8,500      |                    |       |                                                      | 3.0        |                                        |       |   | $ | 11.88 |   |   |   | 8,500 |   |   |   | $ | 11.88 |   |   |
| $17.25                                      |       |       | 1,000      |                    |       |                                                      | 1.7        |                                        |       |   | $ | 17.25 |   |   |   | 1,000 |   |   |   | $ | 17.25 |   |   |
|                                        |       |       | 710,102    |                    |       |                                                      |       |                                        |       |   |   |   |   |   | 680,102 |   |   |   |   |   |   |
|                                             |            |            |            |                         |            |                                                           |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(15)**   WARRANTS

On November 23, 2004,we granted to MSCG warrants to acquire 5.5 million shares of our commonstock at an exercise price of $6.60 per share as partial consideration foragreeing to enter into a 7-year product supply agreement. The fair valueof the warrants at the grant date of approximately $14.6 million wasrecorded as an increase to other assets (product supply agreement—seeNote 8 of Notes to consolidated financial statements) and additionalpaid-in capital. The primary assumptions used to estimate the fair value of thewarrants using the Black-Scholes option-pricing model were asfollows: no dividend yield, expected volatility of 41%, risk-free interest rateof 3.62%, and a contractual life of 5.3 years.

**(16)**   COMMITMENTS ANDCONTINGENCIES

*LegalProceedings.**  *Wehave been named as a defendant in various lawsuits and a party to various otherlegal proceedings, in the ordinary course of business, some of which arecovered in whole or in party by insurance. We believe that the outcome of suchlawsuits and other proceedings will not individually or in the aggregate have amaterial adverse effect on our consolidated financial condition, results ofoperations, or cash flows. At December 31, 2005 and June 30, 2005, wehave accrued obligations for legal settlements of approximately $0.3 millionand $0.3 million, respectively, representing our best estimate of our losscontingencies that are probable of occurrence (see Note 9 of Notes toconsolidated financial statements).

*Transportationand Deficiency Agreements.**  *In connection with our sale of two productdistribution facilities in Little Rock, Arkansas, we are potentially liable forpayments of up to approximately $0.7 million per year for a five-yearperiod through June 30, 2006. At June 30, 2005, we had an accrued liabilityof approximately $0.6 million representing our estimate of the futureamounts we expect to pay for the shortfall in volumes for the remainder of theterm of the agreement. During the six months ended December 31, 2005, wepaid approximately $0.4 million as settlement for our shortfall in volumes forthe year ended June 30, 2005.

At December 31,2005 and June 30, 2005, we have recognized approximately $0.7 millionand $0.3 million, respectively, of prepaid transportation in other assetssince we have a contractual right, after the end of the term of thetransportation agreement, to apply the amounts to charges for using theinterstate pipeline in the future (see Note 8 of Notes to consolidated financialstatements).

| ** **                                  | ** ** | **June 30,  2005** | ** ** | **Payments  during  the period** | ** ** | **Amounts  applied  during the  period** | ** ** | **Change in  estimate  during the  period** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|---------------------------------------|------------|-----------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                  | ** ** | **(in thousands)** | ** ** |
| Other  assets—prepaid transportation   |       |                    | $          | 326                                   |       |                                          |       | $                                                     | 411        |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | 737 |   |   |
| Accrued  liability—T&D obligations |       |                    | $          | (640                                  | )          |                                          |       | $                                                     | 386        |                        |       |   | $ | — |   |   |   | $ | — |   |   |   | $ | (254 | ) |   |

 

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*Operating Leases.**  *Future minimum lease payments underour non-cancelable operating leases are as follows (in thousands):

| **Years ending June 30:** | ** ** | ** ** | ** ** | **Office  space** | ** ** | **Vessel  charters** | ** ** | **Terminal and  pipeline capacity** | ** ** | **Property and  equipment** | ** ** |
|------------------------------------------|------------|------------|------------|-------------------|------------|----------------------|------------|-----------------------------------------------|------------|----------------------------------|------------|
| 2006 (Remainder  of the year)            |       | $          | 856        |              |       | $                    | 5,662      |                                          |       |                             | $          | 1,162 |   |   |   | $ | 242 |   |   |
| 2007                                     |       | 1,490      |       |              | 4,223      |                 |       |                                          | 2,477      |                             |       |   | 411 |   |   |
| 2008                                     |       | 1,648      |       |              | —     |                 |       |                                          | 2,413      |                             |       |   | 331 |   |   |
| 2009                                     |       | 1,630      |       |              | —     |                 |       |                                          | 807        |                             |       |   | 202 |   |   |
| 2010                                     |       | 1,695      |       |              | —     |                 |       |                                          | 92         |                             |       |   | 86 |   |   |
| Thereafter                               |       | 2,573      |       |              | —     |                 |       |                                          | 5          |                             |       |   | 194 |   |   |
|                                     |       | $          | 9,892      |              |       | $                    | 9,885      |                                          |       |                             | $          | 6,956 |   |   |   | $ | 1,466 |   |   |

 

Rentalexpense under operating leases is as follows (in thousands):

| ** **                      | ** ** | **Six months ended  December 31,** | ** ** |
|---------------------------------|------------|---------------------------------------------------|------------|
| ** **                      | ** ** | **2005**                                          | ** ** | **2004** | ** ** |
| Office space                    |       | $                                                 | 695        |   | $ | 800 |   |
| Vessel charters                 |       | 7,305                                             |       | 5,760 |   |
| Terminal and  pipeline capacity |       | 1,850                                             |       | 2,605 |   |
| Property and  equipment         |       | 359                                               |       | 238 |   |
|                            |       | $                                                 | 10,209     |   | $ | 9,403 |   |

 

**(17)**                        EARNINGSPER SHARE

Thefollowing table reconciles the computation of basic and diluted weightedaverage shares(in thousands):

| ** **                                                          | ** ** | **Three months  ended  December 31,** | ** ** | **Six months  ended  December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                          | ** ** | **2005**                                        | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Basic weighted  average shares                                      |       | 48,334                                          |       | 39,739                                        |       | 47,638 |   | 39,616 |   |
| Effect of dilutive  securities:                                     |       |                                            |       |                                          |       |   |   |   |   |
| Restricted common stock subject to continuing  vesting requirements |       | —                                          |       | 697                                           |       | — |   | 749 |   |
| Stock options                                                       |       | —                                          |       | 225                                           |       | — |   | 253 |   |
| Series B redeemable convertible preferred stock           |       | —                                          |       | 11,209                                        |       | — |   | 11,126 |   |
| MSCG warrants                                                       |       | —                                          |       | —                                        |       | — |   | — |   |
| Diluted weighted average  shares                                    |       | 48,334                                          |       | 51,870                                        |       | 47,638 |   | 51,744 |   |

 

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Weexclude potentially dilutive securities from our computation of dilutedearnings per share when their effect would be anti-dilutive. The followingsecurities were excluded from the dilutive earnings per share computation forthe three and six months ended December 31, 2005, as their inclusion wouldhave been anti-dilutive (in thousands):

| ** **                                                          | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                          | ** ** | **2005**              | ** ** |
| Restricted common  stock subject to continuing vesting requirements |       |                  | 1,186      |   |   |
| Stock options                                                       |       |                  | 710        |   |   |
| Series B  redeemable convertible preferred stock               |       |                  | 3,040      |   |   |
| MSCG warrants                                                       |       |                  | 5,500      |   |   |

 

**(18)**                        BUSINESSSEGMENTS

We provideintegrated terminal, transportation, storage, supply, distribution andmarketing services to refiners, wholesalers, distributors, marketers, andindustrial and commercial end-users of refined petroleum products. We conductbusiness in the following business segments:

·       *Terminals, pipelines, and tugs and barges*—consistsof an extensive terminal and pipeline infrastructure that handles refinedpetroleum products with transportation connections via pipelines, barges,vessels, rail cars and trucks to our facilities or to TransMontaigne Partners’facilities with an emphasis on transportation connections primarily through theColonial, Plantation, TEPPCO, Explorer and Magellan pipeline systems.

·       *Supply, distribution and marketing*—consistsof services for the supply and distribution of refined petroleum productsthrough rack spot sales, contract sales, and bulk sales in the physical andderivative markets, with retail, wholesale, industrial and commercial customersusing our terminal racks and marine refueling equipment, and providing relatedvalue-added fuel procurement and supply chain management services.

Our chief operating decision maker is our chiefexecutive officer (“CEO”). Our CEO reviews the financial performance of ourbusiness segments using a financial performance measure that is referred to byus as “margins and inventory management” for purposes of making operatingdecisions and assessing financial performance. Accordingly, we present “margins”for each of our two business segments: (i) terminals, pipelines, and tugsand barges and (ii) supply, distribution and marketing.

For the terminals, pipelines, and tugs and bargessegment, “margins” is composed of revenues less direct operating costs andexpenses. There are no differences between “margins” for our terminals,pipelines, and tugs and barges segment and the net operating margins reportedfor that segment in our accompanying historical financial statements.

Our CEO assesses the “margins and inventory management”of our supply, distribution, and marketing segment using financial informationthat is prepared pursuant to the mark-to-market method of accounting. Ourpresentation of “margins and inventory procurement” for the supply,distribution and marketing segment differs from net operating margins for thatsegment as presented in our accompanying historical consolidated statements ofoperations due to the treatment of our inventories—discretionary volumes (whichincludes both volumes held for immediate sale or exchange and volumes held forbase operating requirements). Inventories—discretionary volumes are reflectedat fair value, which matches the treatment of our derivative contracts (e.g.,volumes due to others under exchange agreements, forward purchase and saleagreements) and risk management contracts (principally NYMEX futurescontracts). Because our inventories—discretionary volumes are composed ofrefined petroleum products, which are commodities with established tradingmarkets and readily ascertainable market prices, we believe that the financialperformance of our supply, distribution and marketing segment can beappropriately evaluated 

29

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using the mark-to-marketmethod. Our inventories—discretionary volumes are carried at the lower of costor market in the accompanying historical consolidated balance sheets, while ourderivative and risk management contracts are carried at fair value. As aresult, if refined petroleum product prices are increasing during the end of aquarter, we may report in the accompanying historical statements of operationssignificant losses on derivative and risk management contracts and significantdeferred gains on discretionary inventory volumes at the end of that quarterand report significant gains on our beginning inventories—discretionary volumeswhen they are sold in the following quarter. Therefore, the effects of changesin the fair value of our inventories—discretionary volumes are included in “marginsand inventory management” attributable to our supply, distribution andmarketing segment in the period in which the fair value actually changes.

The differences between “margins and inventorymanagement” used by our CEO in reviewing the financial performance of ourbusiness segments and the net operating margins reported in our accompanyinghistorical financial statements are presented as “Inventory adjustments” in theaccompanying “Reconciliation to earnings before income taxes.”

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Thefinancial performance of our business segments is as follows (in thousands):

| ** **                                                                                                                                                  | ** ** | **Three months  ended  December 31,** | ** ** | **Six months  ended  December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                                                                  | ** ** | **2005**                                        | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Terminals,  pipelines, and tugs and barges:**                                                                                                             |       |                                            |       |                                          |       |   |   |   |   |
| TransMontaigne Partners L.P. facilities                                                                                                                     |       | $                                               | 7,168      |                                          | $          | 4,313 |   | $ | 13,732 |   | $ | 8,619 |   |
| Brownsville facilities                                                                                                                                      |       | 1,425                                           |       | 1,204                                         |       | 2,823 |   | 2,054 |   |
| Southeast facilities                                                                                                                                        |       | 4,324                                           |       | 5,798                                         |       | 7,616 |   | 10,809 |   |
| River facilities                                                                                                                                            |       | 583                                             |       | 302                                           |       | 623 |   | 953 |   |
| Other                                                                                                                                                       |       | 1,394                                           |       | 451                                           |       | 629 |   | 1,698 |   |
| Margins                                                                                                                                                     |       | 14,894                                          |       | 12,068                                        |       | 25,423 |   | 24,133 |   |
| **Supply, distribution and marketing:**                                                                                                                     |       |                                            |       |                                          |       |   |   |   |   |
| Light oils—marketing margins:                                                                                                                          |       |                                            |       |                                          |       |   |   |   |   |
| TransMontaigne Partners L.P. facilities                                                                                                                     |       | 3,850                                           |       | 4,246                                         |       | 10,880 |   | 6,946 |   |
| Southeast facilities                                                                                                                                        |       | 4,630                                           |       | 7,603                                         |       | (12,084 | ) | 8,596 |   |
| River facilities                                                                                                                                            |       | 1,670                                           |       | 759                                           |       | 2,694 |   | 1,518 |   |
| Other                                                                                                                                                       |       | 2,842                                           |       | 136                                           |       | 3,922 |   | 172 |   |
|                                                                                                                                                        |       | 12,992                                          |       | 12,744                                        |       | 5,412 |   | 17,232 |   |
| Heavy  oils—marketing margins                                                                                                                          |       | 7,349                                           |       | 5,406                                         |       | 10,809 |   | 7,976 |   |
| Supply chain  management services margins                                                                                                                   |       | (191                                            | )          | 3,608                                         |       | 989 |   | 6,648 |   |
| Margins                                                                                                                                                     |       | 20,150                                          |       | 21,758                                        |       | 17,210 |   | 31,856 |   |
| **Inventory procurement and management:**                                                                                                                   |       |                                            |       |                                          |       |   |   |   |   |
| Gains from risk management of light oil volumes to be  liquidated upon commencement of MSCG product supply agreement                                        |       | —                                          |       | 9,618                                         |       | — |   | 9,618 |   |
| Increase (decrease) in value of light oil volumes  nominated under the MSCG product supply agreement prior to receipt of  the product at our terminals |       | (51,678                                         | )          | —                                        |       | 27,406 |   | — |   |
| Increase (decrease) in value of base operating  inventory                                                                                                   |       | (29,394                                         | )          | (36,847                                       | )          | 17,030 |   | 3,109 |   |
| Gains (losses) from risk management of base operating  inventory and light oil volumes nominated under the MSCG product supply  agreement                   |       | 27,095                                          |       | —                                        |       | (1,660 | ) | — |   |
| Storage fees for light oil tank capacity                                                                                                                    |       | (457                                            | )          | (2,200                                        | )          | (914 | ) | (4,445 | ) |
| Other financial and costing variances, net                                                                                                                  |       | (11,498                                         | )          | 12,232                                        |       | (40,152 | ) | 10,028 |   |
| Trading activities, net                                                                                                                                     |       | —                                          |       | 1,031                                         |       | — |   | 28 |   |
| Inventory management                                                                                                                                        |       | (65,932                                         | )          | (16,166                                       | )          | 1,710 |   | 18,338 |   |
| Margins (deficiencies) and inventory management                                                                                                             |       | $                                               | (30,888    | )                                             | $          | 17,660 |   | $ | 44,343 |   | $ | 74,327 |   |
| **Reconciliation to earnings (loss) before income  taxes:**                                                                                                 |       |                                            |       |                                          |       |   |   |   |   |
| Margins  (deficiencies) and inventory management                                                                                                            |       | $                                               | (30,888    | )                                             | $          | 17,660 |   | $ | 44,343 |   | $ | 74,327 |   |
| **Inventory adjustments:**                                                                                                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Gains recognized on beginning  inventories—discretionary volumes                                                                                       |       | 18,452                                          |       | 24,158                                        |       | 2,369 |   | 3,712 |   |
| Gains deferred on ending inventories—discretionary  volumes                                                                                       |       | (13,567                                         | )          | (10,210                                       | )          | (13,567 | ) | (10,210 | ) |
| **Total net operating margins (deficiencies)**                                                                                                              |       | (26,003                                         | )          | 31,608                                        |       | 33,145 |   | 67,829 |   |
| **Other items:**                                                                                                                                            |       |                                            |       |                                          |       |   |   |   |   |
| Selling, general and administrative expenses                                                                                                                |       | (13,354                                         | )          | (11,802                                       | )          | (24,908 | ) | (22,235 | ) |
| Depreciation and amortization                                                                                                                               |       | (6,849                                          | )          | (5,727                                        | )          | (13,430 | ) | (11,534 | ) |
| Gain (loss) on disposition of assets, net                                                                                                                   |       | 67                                              |       | —                                        |       | 1,185 |   | (3,599 | ) |
| **Operating income (loss)**                                                                                                                                 |       | (46,139                                         | )          | 14,079                                        |       | (4,008 | ) | 30,461 |   |
| Other expense, net                                                                                                                                          |       | (7,325                                          | )          | (6,998                                        | )          | (12,859 | ) | (16,999 | ) |
| **Earnings  (loss) before income taxes**                                                                                                                    |       | $                                               | (53,464    | )                                             | $          | 7,081 |   | $ | (16,867 | ) | $ | 13,462 |   |

 

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Supplementalinformation regarding our revenues for our business segments is summarizedbelow (in thousands):

| ** **                                      | ** ** | **Three months  ended  December 31,** | ** ** | **Six months  ended  December 31,** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                        | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Terminals,  pipelines, and tugs and barges:** |       |                                            |       |                                          |       |   |   |   |   |
| Revenues from external customers                |       | $                                               | 12,985     |                                          | $          | 11,115 |   | $ | 27,009 |   | $ | 22,296 |   |
| Inter-segment revenues                          |       | 19,852                                          |       | 16,407                                        |       | 35,052 |   | 31,698 |   |
| Total revenues                                  |       | $                                               | 32,837     |                                          | $          | 27,522 |   | $ | 62,061 |   | $ | 53,994 |   |
| **Supply, distribution and marketing:**         |       |                                            |       |                                          |       |   |   |   |   |
| Revenues from external customers                |       | $                                               | 2,185,263  |                                          | $          | 1,811,534 |   | $ | 4,841,491 |   | $ | 3,840,785 |   |
| Inter-segment revenues                          |       | —                                          |       | —                                        |       | — |   | — |   |
| Total revenues                                  |       | $                                               | 2,185,263  |                                          | $          | 1,811,534 |   | $ | 4,841,491 |   | $ | 3,840,785 |   |

 

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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 consolidated financial statements). Certainof these accounting policies require the use of estimates. The following estimates,in our opinion, are subjective in nature, require the exercise of judgment, andinvolve complex analysis: allowance for doubtful accounts; fair value ofinventories—discretionary volumes (used to evaluate the financial performanceof our business segments); fair value of derivative contracts; and accruedenvironmental obligations. These estimates are based on our knowledge andunderstanding 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 SIX MONTHS ENDED DECEMBER 31, 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 1, 2005, we announced the closing ofthe acquisition of Radcliff/Economy Marine Services, Inc. (“Radcliff”) fora purchase price of approximately $52.1 million, net of cash acquired ofapproximately $2.1 million. The purchase price is composed of approximately$41.8 million paid in cash plus the assumption of Radcliff’s existingoutstanding debt of approximately $12.4 million. The acquisition includesthree petroleum products terminals, two in Mobile, Alabama and one inPensacola, Florida, with combined aggregate storage capacity of approximately350,000 barrels. In addition, we acquired two tugboats, 6 barges, 12 tractorsand associated trailers and approximately $22 million in net workingcapital.

On August 16, 2005, we announced the signing ofpurchase agreements to acquire certain LPG assets and refined petroleumproducts tank capacity in Brownsville, Texas and Matamoros, Mexico from RioVista Energy Partners L.P. and Penn Octane Corporation for a total purchaseprice of approximately $27.5 million. The closing of the acquisition issubject to our completion of additional due diligence.

During the three months ended September 30, 2005,approximately 27,132 shares of Series B redeemable convertible preferredstock were converted into approximately 4.1 million shares of commonstock.

On August 29, 2005 and September 24, 2005,Hurricane Katrina and Hurricane Rita caused severe damage along the UnitedStates Gulf Coast and into the southern United States. We currently are notaware of any significant long-term damage to our facilities caused by thesehurricanes.

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.

On October 24, 2005, Hurricane Wilma struckFlorida. We currently are not aware of any significant long-term damage to ourfacilities caused by Hurricane Wilma.

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Effective October 31,2005, TransMontaigne Partners purchased a refined product terminal withapproximately 150,000 barrels of aggregate storage capacity in Oklahoma City,Oklahoma from Magellan Pipeline Company, L.P. for approximately $1.9 million.

**SUBSEQUENT EVENTS**

On January 12, 2006, we announced the signing ofa terminal exchange agreement with BP Plc.The transaction closed on January 31, 2006. Under the terms of theagreement, BP will own and operate6 terminals and we will own and operate 9 terminals, while the remaining 2terminals will be supplied separately and operated by us for the benefit ofboth companies. BP will be obligated to throughput approximately 24,500 barrelsper day through our owned facilities and we will be obligated to throughputapproximately 18,000 barrels per day through BP’s owned facilities.

On January 19, 2006,TransMontaigne Partners announced that it declared a distribution of $0.40 perunit payable on February 8, 2006 to the unitholders of record on January 31,2006.

**RESULTSOF OPERATIONS—MARKET CONDITIONS**

During September andthrough October 10, 2005, we witnessed substantial price disparities andmarket disruptions in the wholesale markets. The major refiners were pricingtheir branded products substantially below the price at which they wereoffering unbranded products in the wholesale market. The price of product inthe wholesale market generally reflects the cost of product at the tailgate ofthe refinery adjusted for the cost of transportation to the wholesale market.In effect, the major refiners were subsidizing the price of product in thewholesale markets; major refiners were charging their branded customerswholesale market prices that were below the cost of product in the bulkmarkets. For example, the low branded and unbranded price of unleaded gasolinein the Charlotte, North Carolina wholesale market from August 1, 2005through December 31, 2005 are as follows ($/gallon):

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From August 29, 2005 through September 7,2005, we sold product to our contract customers at our Southeast facilitiesbased on the subsidized prices being offered by major refiners to their brandedcustomers in the wholesale market, resulting in realized losses on our lightoil marketing margins of approximately $12 million. We historically sellapproximately 80,000 barrels per day of unbranded product at our Southeast facilitiesunder contracts with OPIS indexes. On September 7, 2005, we informed ourcontract customers at our Southeast facilities that we were exercising ourrights under our sales contracts to temporarily cease selling them productunder the OPIS-based pricing provisions in their contracts with us. However, weoffered to sell product to these customers under interim pricing provisionsthat would stay in effect until the pricing disparities in the wholesale marketsubsided. From September 8, 2005 to October 10, 2005, we averagedapproximately 45,000 barrels per days under contracts with interim pricingprovisions. The interim pricing provisions were intended to reflect the cost ofproduct in the bulk markets and the cost of transportation from the bulk marketsto the wholesale markets. To the extent that contract customers at ourSoutheast facilities submit to us notices of dispute claiming that we did nothave the right to suspend the OPIS-pricing provisions in our sales contractsand such disputes are not resolved directly with our customers, we will resolvesuch disputes through mediation and arbitration provisions of the applicablecontracts. We continue to believe that we were within our rights under thecontracts to impose interim pricing provisions during the period of pricedisparities and market disruptions in the wholesale markets. We believe thatthe outcome of the disputes with our customers will not individually or in theaggregate have a material adverse effect on our consolidated financial condition,results of operations, or cash flows. At December 31, 2005, we have notaccrued any reserves for potential loss contingencies resulting from thedisputes with our customers because such a loss, in our view, is not probableof occurrence.

Prices for refinedpetroleum products were higher during the three and six months ended December 31,2005, as compared to the same period in 2004, resulting in higher per unitrevenues from the sales of refined petroleum products. Prices for gasoline andheating oil for the three and six months ended December 31, 2005 and 2004are as follows (in $/gallon):

| ** **         | ** ** | **Three months  ended  December 31,** | ** ** | **Six months  ended  December 31,** | ** ** |
|--------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **         | ** ** | **2005**                                        | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Unleaded gasoline: |       |                                            |       |                                          |       |   |   |   |   |
| High               |       | 2.4255                                          |       | 1.4073                                        |       | 3.1165 |   | 1.4073 |   |
| Low                |       | 1.3605                                          |       | 0.9325                                        |       | 1.3605 |   | 0.9325 |   |
| Average            |       | 1.6066                                          |       | 1.2096                                        |       | 1.7776 |   | 1.2098 |   |
| Heating oil:       |       |                                            |       |                                          |       |   |   |   |   |
| High               |       | 2.5508                                          |       | 1.5610                                        |       | 2.5675 |   | 1.5610 |   |
| Low                |       | 1.5555                                          |       | 1.0748                                        |       | 1.5295 |   | 1.0253 |   |
| Average            |       | 1.8048                                          |       | 1.3219                                        |       | 1.8135 |   | 1.2362 |   |

 

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Relative month-endcommodity prices per gallon from June 30, 2004 to December 31, 2005(near-month NYMEX close on the last day of the month) are as follows($/gallon):

Our light oil marketing margins are affected by thesupply and demand for light oil products in the wholesale delivery locations(e.g., terminal truck racks). While demand for light oil products may beinfluenced by seasonality (e.g., higher demand for gasoline during the summerdriving season and higher demand for heating oil during the winter heatingseason), we believe that the availability of supply of light oil products inthe wholesale delivery markets has the most significant impact on our abilityto generate favorable light oil marketing margins. The availability of supplyof light oil products in the wholesale delivery markets is impacted by avariety of factors, including the availability of crude oil supplies, currentutilization of refining capacity, the shape of the forward price curve in thefutures market, refinery crack spreads, and availability of pipeline and vesselshipping capacity. For example, adequate crude oil supplies, high utilizationof refining capacity, an increasing forward price curve, favorable refinerycrack spreads and available shipping capacity would likely result in anabundance of light oil products in the wholesale delivery markets. An abundanceof light oil products in the wholesale delivery locations generally produceslower marketing margins. Conversely, tight crude oil supplies, refineryoutages, a decreasing forward price curve, moderate refinery crack spreads andlimited shipping capacity would likely result in tight supply of light oilproducts in the wholesale delivery markets. A tight supply of light oilproducts in the wholesale delivery locations generally produces highermarketing margins.

During the three months ended December 31, 2005,the NYMEX futures market anticipated rising gasoline and heating oil prices asthe prices in the prompt month (i.e., the immediately succeeding month) wereslightly higher than the prices in the current month. The combination ofanticipated higher future prices (referred to as a “contango” market) andfavorable refinery crack spreads encouraged refiners to maximize production andship their gasoline and distillate production to the wholesale deliverymarkets. An increase in gasoline and distillate inventories in the wholesaledelivery markets generally results in limited margin opportunities on wholesaledeliveries.

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Thevalue of petroleum products in any local delivery market is the sum of thecommodity price as reflected on the NYMEX and the basis differential for thatlocal delivery market. The basis differential for any local delivery market isthe spread between the cash price in the physical market and the quoted pricein the futures markets for the prompt month. For those physical and derivativepositions as to which we choose to manage the associated commodity price risk,the primary objective of our risk management strategy is to minimize thefinancial impact on us from changes in petroleum commodity prices affected byworld-wide crude oil and petroleum products supply and demand disruptions(e.g., the Iraq war, OPEC production quotas, disruptions due to hurricanes andother weather-related occurrences, foreign country work stoppages, andmajor refinery outages). We utilize NYMEX futures contracts to manage thefinancial impact on us from changes in commodity prices due to “world-wide”events. NYMEX futures contracts are obligations to purchase or sell a specificvolume of inventory at a fixed price at a future date. We believe that theutilization of NYMEX futures contracts to manage commodity price risk minimizesthe financial impact on us from changes in “world-wide” commodity prices. Wegenerally do not manage the financial impact on us from changes in basisdifferentials affected by local market supply and demand disruptions (e.g.,local pipeline delivery disruptions, local refinery outages, periodic change inlocal government specifications for gasolines and distillates, localseasonality in product demand, and disruptions due to local weather relatedoccurrences). The impacts on us from changes in basis differentials are asfollows:

| **Basis Differential**                                                                       | ** ** | ** ** | ** ** | **Change in Basis  Differential** | ** ** | **Net  Position** | ** ** | **Financial  Impact** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------|------------|---------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| Futures price in  excess of physical market price  (“negative basis differential”) |       |       | Increasing |                                        |       |              | Long       |                  |       |   | Loss |   |   |
| Futures price in  excess of physical market price                                                 |       |       | Increasing |                                        |       |              | Short      |                  |       |   | Gain |   |   |
| Futures price in  excess of physical market price                                                 |       |       | Decreasing |                                        |       |              | Long       |                  |       |   | Gain |   |   |
| Futures price in  excess of physical market price                                                 |       |       | Decreasing |                                        |       |              | Short      |                  |       |   | Loss |   |   |
| Physical market  price in excess of futures price  (“positive basis differential”) |       |       | Increasing |                                        |       |              | Long       |                  |       |   | Gain |   |   |
| Physical market  price in excess of futures price                                                 |       |       | Increasing |                                        |       |              | Short      |                  |       |   | Loss |   |   |
| Physical market  price in excess of futures price                                                 |       |       | Decreasing |                                        |       |              | Long       |                  |       |   | Loss |   |   |
| Physical market price in  excess of futures price                                                 |       |       | Decreasing |                                        |       |              | Short      |                  |       |   | Gain |   |   |

 

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The spread betweenthe month-end basis differential (quoted near-month NYMEX futures price and thecash price in the United States Gulf Coast market) and the monthly averagebasis differential from June 30, 2004 to December 31, 2005 are as follows($/gallon):

 

When we nominate refinedpetroleum products to be supplied by third parties at our terminals, we enterinto futures contracts (i.e., short futures contracts) to sell a correspondingamount of product to protect against price fluctuations for the underlyingcommodity. When we ultimately sell the underlying inventory to a customer, weunwind the related risk management contract. In order to effectively managecommodity price risk, we must predict when we will sell the underlying product.When we enter into a forward sale commitment to deliver product to a customerin the future at a fixed price, we enter into a futures contract (i.e., a longfutures contract) to purchase a corresponding amount of product to protectagainst price fluctuations for the underlying commodity. When we ultimatelydeliver the underlying product to a customer, we unwind the related riskmanagement contract. We believe that the uncertainties of crude oil supplycaused in part by the Iraq war, the possibility of unplanned refinery outagesand the increased participation of hedge funds in the futures marketsperiodically results in a lack of correlation between the cash market and thefutures market (i.e., the physical cash markets are driven by supply anddemand, whereas, the futures markets are driven by geopolitical events andexpectations). When there is a lack of correlation between the cash market andthe futures market, the cost of managing our commodity price risk may increase.Because of the overall high level of commodity prices combined with thepossibility of an increase in the cost of managing the commodity price riskassociated with our discretionary inventories, we distributed and transportedfewer barrels of discretionary inventories through our terminal infrastructureduring the year ended June 30, 2005 and the six months ended December 31,2005, which resulted in lower inventory volumes available for rack spot sales.

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**RESULTSOF OPERATIONS—BUSINESS SEGMENTS**

We are required to reportmeasures of profit and loss that are used by our chief operating decision maker(our Chief Executive Officer or CEO) in assessing the financial performance ofour reportable segments. Our CEO assesses the financial performance of each ofour reportable segments using a financial performance measure, which we referto as “margins and inventory management.”

**Terminals,pipelines, tugs and barges—margins**

Ourmargins for the terminal, pipelines, tugs and barges segment are identical tothe net operating margins for such segment described under “Results ofOperations—Historical Financial Statements.” Selected quarterly margins for theterminal, pipelines, tugs and barges segment for each of the three and sixmonths ended December 31, 2005 and 2004 are summarized below (inthousands):

| ** **                                  | ** ** | **Three months ended  December 31,** | ** ** | **Six months ended  December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                  | ** ** | **2005**                                            | ** ** | **2004**                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Terminals,  pipelines, tugs and barges:** |       |                                                |       |                                              |       |   |   |   |   |
| TransMontaigne Partners L.P. facilities:    |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                    |       | $                                                   | 11,102     |                                              | $          | 8,300 |   | $ | 21,502 |   | $ | 16,692 |   |
| Direct operating costs and expenses         |       | (3,934                                              | )          | (3,987                                            | )          | (7,770 | ) | (8,073 | ) |
| Net operating margins                       |       | 7,168                                               |       | 4,313                                             |       | 13,732 |   | 8,619 |   |
| Brownsville  facilities:                    |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                    |       | 2,873                                               |       | 2,493                                             |       | 5,658 |   | 4,671 |   |
| Direct operating costs and expenses         |       | (1,448                                              | )          | (1,289                                            | )          | (2,835 | ) | (2,617 | ) |
| Net operating margins                       |       | 1,425                                               |       | 1,204                                             |       | 2,823 |   | 2,054 |   |
| Southeast  facilities:                      |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                    |       | 8,693                                               |       | 9,684                                             |       | 17,282 |   | 19,015 |   |
| Direct operating costs and expenses         |       | (4,369                                              | )          | (3,886                                            | )          | (9,666 | ) | (8,206 | ) |
| Net operating margins                       |       | 4,324                                               |       | 5,798                                             |       | 7,616 |   | 10,809 |   |
| River facilities:                           |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                    |       | 2,386                                               |       | 2,240                                             |       | 4,400 |   | 4,474 |   |
| Direct operating costs and expenses         |       | (1,803                                              | )          | (1,938                                            | )          | (3,777 | ) | (3,521 | ) |
| Net operating margins                       |       | 583                                                 |       | 302                                               |       | 623 |   | 953 |   |
| Other:                                      |       |                                                |       |                                              |       |   |   |   |   |
| Revenues                                    |       | 7,783                                               |       | 4,805                                             |       | 13,219 |   | 9,142 |   |
| Direct operating costs and expenses         |       | (6,389                                              | )          | (4,354                                            | )          | (12,590 | ) | (7,444 | ) |
| Net operating margins                       |       | 1,394                                               |       | 451                                               |       | 629 |   | 1,698 |   |
| **Margins**                                 |       | $                                                   | 14,894     |                                              | $          | 12,068 |   | $ | 25,423 |   | $ | 24,133 |   |

 

**Supply,distribution and marketing—margins and inventory management**

Our presentation of “margins and inventory management”for the supply, distribution and marketing segment differs from net operatingmargins for that segment as presented in our accompanying historicalconsolidated statements of operations due to the treatment of our inventories—discretionaryvolumes (which includes both volumes held for immediate sale or exchange andvolumes held for base operating requirements). Inventories—discretionaryvolumes are reflected at fair value, which matches the treatment of ourderivative contracts (e.g., volumes due to others under exchange agreements,forward purchase and sale agreements) and risk management contracts(principally NYMEX futures contracts). Because our inventories—discretionaryvolumes are composed of refined petroleum products, which are commodities withestablished trading markets and readily ascertainable market prices, we believethat the financial 

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performance of our supply,distribution and marketing segment can be appropriately evaluated using themark-to-market method. Our inventories—discretionary volumes are carried at thelower of cost or market in the accompanying historical consolidated balancesheets, while our derivative and risk management contracts are carried at fairvalue. As a result, if refined petroleum product prices are increasing duringthe end of a quarter, we may report in the accompanying historical statement ofoperations significant losses on derivative and risk management contracts andsignificant deferred gains on discretionary inventory volumes at the end ofthat quarter and report significant gains on our beginning inventories—discretionaryvolumes when they are sold in the following quarter. Therefore, the effects ofchanges in the fair value of our inventories—discretionary volumes are includedin “margins and inventory management” attributable to our supply, distributionand marketing segment in the period in which the fair value actually changes.

*Marketingmargins.**  *Lightoil and heavy oil marketing margins are based on the actual selling price tothe customer, the cost of product sold and the standard cost of transportationand throughput. For purposes of computing our light oil margins, the cost ofproduct sold is based on the prior day’s market value of the product asdetermined in the United States Gulf Coast bulk market for all facilitiesexcept TransMontaigne Partner L.P. facilities. For TransMontaigne Partners L.P.facilities, the cost of product sold is based on an OPIS index.

Supply chain management services margins includemargins from the sale of refined petroleum products under delivered fuel pricemanagement contracts, net gains and losses from the settlement of retail pricemanagement contracts and fees from logistical supply chain management services.Margins under delivered fuel price management contracts are based on therelationship of the spread between the futures price and the physical wholesalemarket price at the date the contract was executed with the customer (referredto as “basis sold”) and the spread between the futures price and the physicalwholesale market price at the date the product was lifted by the customer(referred to as “basis bought”). Net gains and losses from the settlement of retailprice management contracts are based on basis sold and basis bought in theretail market. Fees from logistical supply chain management services arecharged on a per gallon basis for the use of our proprietary web-basedinventory management system.

*Inventoryprocurement and management.**  *During the three months ended March 31, 2005, wecommenced purchasing light oil product from MSCG for our Florida and Southeastmarketing activities. Pursuant to the terms of the MSCG supply agreement, theunit cost of the products is determined prior to their actual delivery to ourterminals. Consequently, during rising commodity prices, we will recognizegains between the date the product is priced and the date of its receiptbecause the MSCG supply agreement qualifies as a derivative contract (see Note 1(g) ofNotes to consolidated financial statements). During declining commodity prices,we will recognize losses between the pricing date and the date of receipt.Because of the significant increase (decrease) in commodity prices experiencedduring the three and six months ended December 31, 2005, we recognizedapproximately $(51.7) million and $27.4 million, respectively, of gains(losses) on approximately 3.0 million barrels, which represents theaverage volume of barrels priced under the terms of the MSCG supply agreementbut not yet delivered to our terminals. At December 31, 2005, we weremanaging the commodity price risk associated with approximately3.0 million barrels of undelivered in-transit volumes supplied to ourterminals under the MSCG supply agreement. During the three and six monthsended December 31, 2005, we recognized gains (losses) of approximately$27.1 million and $(1.7) million, respectively, from these risk managementactivities.

We maintain approximately 2.0 million barrels ofbase operating inventory in terminal facilities as safety stock to ensure anadequate supply of inventory to meet our delivery obligations to our customers.During periods of rising commodity prices, we will recognize increases in thevalue of these volumes, whereas during periods of declining commodity prices,we will recognize decreases in the value of these volumes. During the threemonths ended December 31, 2005 and 2004, the value of our base operatinginventory decreased by approximately $(29.4) million and $(36.8) million,respectively, due to declining commodity prices. During the six months ended December 31,2005 and 2004, the value of our base 

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operating inventoryincreased by approximately $17.0 million and $3.1 million, respectively,due to rising commodity prices. At December 31, 2005, the commodity pricerisk associated with the approximately 2.0 million barrels of baseoperating inventory volumes was not managed.

Storage fees for light oil tank capacity decreasedduring the three and six months ended December 31, 2005 as compared to2004, due principally to the commencement of our terminaling servicesagreements with MSCG for tank capacity at our Southeast facilities thathistorically had been leased to our supply, distribution and marketingoperations.

Other financial and costing variances, net include thefinancial variances (favorable and unfavorable) associated with the purchaseprice of our inventory volumes held for immediate sale or exchange, thecorrelation between the physical market and the futures market, the variancebetween our actual transportation and throughput charges and our standardcosts, and the net margins generated from bulk transactions. During periods ofstrong correlation between the physical and futures markets, we will recognizenominal variances. During periods of expanding spreads between the cash pricein the physical market and the quoted price in the futures markets for theprompt month, we will recognize gains (losses) if we are net short (long) inthe physical market. During periods of contracting spreads between the cashprice in the physical market and the quoted price in the futures markets forthe prompt month, we will recognize gains (losses) if we are net long (short)in the physical market. Other financial and costing variances, net wereunfavorably impacted by changes in the injection date of products into theColonial pipeline caused by Hurricanes Katrina and Rita. The cost of productpurchased under the MSCG product supply agreement is based on the actual injectiondate of products into the Colonial pipeline. We enter into risk managementcontracts to manage the commodity price risk associated with product purchasedunder the MSCG product supply agreement based on the expected injection date ofproducts into the Colonial pipeline. When the cost of product purchased underthe MSCG product supply agreement is determined by reference to a period oftime other than the period of time in which we entered into the associated riskmanagement contracts, we will recognize unfavorable variances during risingprices. We also recognize financial and costing variances based on therelationship of the spread between the futures price and the physical wholesalemarket price at the date product is priced under the MSCG product supplyagreement (referred to as “basis bought”) and the spread between the futuresprice and the physical wholesale market price at the date the product waslifted by the customer (referred to as “basis sold”). During the three and sixmonths ended December 31, 2005, the basis bought was in excess of thebasis sold resulting in unfavorable variances.

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Forthe three months ended December 31, 2005 and 2004, the margins(deficiencies) and inventory management attributable to our supply,distribution and marketing segment were $(45.8) million and$5.6 million, respectively. For the six months ended December 31,2005 and 2004, the margins and inventory management attributable to our supply,distribution and marketing segment were $18.9 million and$50.2 million, respectively.

| ** **                                                                                                                                                       | ** ** | **Three months ended  December 31,** | ** ** | **Six months ended  December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                                                                                                       | ** ** | **2005**                                            | ** ** | **2004**                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                                                       | ** ** | **(in thousands)**                             | ** ** |
| **Supply, distribution and  marketing:**                                                                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Light  oils—marketing margins:                                                                                                                              |       |                                                |       |                                              |       |   |   |   |   |
| TransMontaigne Partners L.P. facilities                                                                                                                          |       | $                                                   | 3,850      |                                              | $          | 4,246 |   | $ | 10,880 |   | $ | 6,946 |   |
| Brownsville facilities                                                                                                                                           |       | —                                              |       | —                                            |       | — |   | — |   |
| Southeast facilities                                                                                                                                             |       | 4,630                                               |       | 7,603                                             |       | (12,084 | ) | 8,596 |   |
| River facilities                                                                                                                                                 |       | 1,670                                               |       | 759                                               |       | 2,694 |   | 1,518 |   |
| Other                                                                                                                                                            |       | 2,842                                               |       | 136                                               |       | 3,922 |   | 172 |   |
|                                                                                                                                                             |       | 12,992                                              |       | 12,744                                            |       | 5,412 |   | 17,232 |   |
| Heavy oils—marketing margins                                                                                                                                |       | 7,349                                               |       | 5,406                                             |       | 10,809 |   | 7,976 |   |
| Supply chain management services margins                                                                                                                         |       | (191                                                | )          | 3,608                                             |       | 989 |   | 6,648 |   |
| Margins                                                                                                                                                          |       | 20,150                                              |       | 21,758                                            |       | 17,210 |   | 31,856 |   |
| **Inventory  procurement and management:**                                                                                                                       |       |                                                |       |                                              |       |   |   |   |   |
| Gains from risk management of light oil volumes to  be liquidated upon commencement of MSCG product supply agreement                                             |       | —                                              |       | 9,618                                             |       | — |   | 9,618 |   |
| Increase (decrease) in value of light oil volumes  nominated under the MSCG product supply agreement prior to receipt of  the product at our terminals |       | (51,678                                             | )          | —                                            |       | 27,406 |   | — |   |
| Increase (decrease) in value of base operating  inventory                                                                                                        |       | (29,394                                             | )          | (36,847                                           | )          | 17,030 |   | 3,109 |   |
| Gains (losses) from risk management of base  operating inventory and light oil volumes nominated under the MSCG  product supply agreement              |       | 27,095                                              |       | —                                            |       | (1,660 | ) | — |   |
| Storage fees for light oil tank capacity                                                                                                                         |       | (457                                                | )          | (2,200                                            | )          | (914 | ) | (4,445 | ) |
| Other financial and costing variances, net                                                                                                                       |       | (11,498                                             | )          | 12,232                                            |       | (40,152 | ) | 10,028 |   |
| Trading activities, net                                                                                                                                          |       | —                                              |       | 1,031                                             |       | — |   | 28 |   |
| Inventory management                                                                                                                                             |       | (65,932                                             | )          | (16,166                                           | )          | 1,710 |   | 18,338 |   |
| Margins  (deficiencies) and inventory management                                                                                                                 |       | $                                                   | (45,782    | )                                                 | $          | 5,592 |   | $ | 18,920 |   | $ | 50,194 |   |

 

Ourlight oil marketing margins in points ($0.0001) per gallon for the three andsix months ended December 31, 2005 and 2004 are as follows:

| ** **                               | ** ** | **Three months ended  December 31,** | ** ** | **Six months ended  December 31,** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                            | ** ** | **2004**                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Light  oils—marketing margins:**  |       |                                                |       |                                              |       |   |   |   |   |   |   |   |   |   |   |
| TransMontaigne Partners’ facilities |       |                                                | 122        |                                              |       |   | 184 |   |   | 179 |   |   | 147 |   |   |
| Southeast facilities                     |       |                                                | 95         |                                              |       |   | 150 |   |   | (119 | ) |   | 84 |   |   |
| River facilities                         |       |                                                | 561        |                                              |       |   | 200 |   |   | 381 |   |   | 200 |   |   |
| Other                                    |       |                                                | 309        |                                              |       |   | 16 |   |   | 209 |   |   | 9 |   |   |
| All  facilities—weighted average    |       |                                                | 118        |                                              |       |   | 148 |   |   | 18 |   |   | 97 |   |   |

 

42

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Our light oil marketingvolumes in average barrels per day for the three and six months ended December 31,2005 and 2004 are as follows: 

| ** **                               | ** ** | **Three months ended  December 31,** | ** ** | **Six months ended  December 31,** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                            | ** ** | **2004**                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Light oils—marketing volumes:**   |       |                                                |       |                                              |       |   |   |   |   |
| TransMontaigne Partners’ facilities |       | 81,672                                              |       | 59,565                                            |       | 78,817 |   | 61,411 |   |
| Southeast facilities                     |       | 126,015                                             |       | 131,418                                           |       | 131,801 |   | 137,173 |   |
| River facilities                         |       | 7,697                                               |       | 9,800                                             |       | 9,145 |   | 9,800 |   |
| Other                                    |       | 23,801                                              |       | 21,875                                            |       | 24,244 |   | 29,990 |   |

 

Thedifferences between “margins and inventory management” used by our CEO inreviewing the financial performance of our business segments and the netoperating margins reported in our accompanying historical financial statementsfor the three and six months ended December 31, 2005 and 2004, are asfollows (in thousands): 

| ** **                                                                      | ** ** | **Three months ended  December 31,** | ** ** | **Six months ended  December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                      | ** ** | **2005**                                            | ** ** | **2004**                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Reconciliation to net operating  margins (deficiencies):**                    |       |                                                |       |                                              |       |   |   |   |   |
| **Margins  (deficiencies) and inventory management**                            |       | $                                                   | (45,782    | )                                                 | $          | 5,592 |   | $ | 18,920 |   | $ | 50,194 |   |
| Gains recognized on beginning  inventories—discretionary volumes           |       | 18,452                                              |       | 24,158                                            |       | 2,369 |   | 3,712 |   |
| Gains deferred on ending inventories—discretionary  volumes                |       | (13,567                                             | )          | (10,210                                           | )          | (13,567 | ) | (10,210 | ) |
| **Net operating margins  (deficiencies)—historical  financial statements** |       | $                                                   | (40,897    | )                                                 | $          | 19,540 |   | $ | 7,722 |   | $ | 43,696 |   |

 

**RESULTSOF OPERATIONS—HISTORICAL FINANCIAL STATEMENTS**

Thefollowing selected historical financial statement measures are derived from ourunaudited interim financial statements for the three and six months ended December 31,2005 and 2004 (in thousands): 

| ** **                                           | ** ** | **Three months ended  December 31,** | ** ** | **Six months ended  December 31,** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                           | ** ** | **2005**                                            | ** ** | **2004**                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net operating margins (deficiencies)  (1):           |       |                                                |       |                                              |       |   |   |   |   |
| Supply, distribution, and marketing                  |       | $                                                   | (40,897    | )                                                 | $          | 19,540 |   | $ | 7,722 |   | $ | 43,696 |   |
| Terminals, pipelines, tugs and barges                |       | 14,894                                              |       | 12,068                                            |       | 25,423 |   | 24,133 |   |
| Operating income  (loss)                             |       | (46,139                                             | )          | 14,079                                            |       | (4,008 | ) | 30,461 |   |
| Earnings (loss)  before income taxes                 |       | (53,464                                             | )          | 7,081                                             |       | (16,867 | ) | 13,462 |   |
| Net earnings  (loss)                                 |       | (35,195                                             | )          | 4,249                                             |       | (14,312 | ) | 8,077 |   |
| Net cash provided  by (used in) operating activities |       | 20,854                                              |       | (113,082                                          | )          | (15,681 | ) | (116,506 | ) |
| Net cash provided  by (used in) investing activities |       | 7,540                                               |       | (171                                              | )          | (52,625 | ) | (12,561 | ) |
| Net cash provided by  (used in) financing activities |       | (20,463                                             | )          | 107,535                                           |       | 51,684 |   | 130,293 |   |
|                                                      |            |                                                     |            |                                                   |            |  |  |  |  |  |  |  |  |

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(1)          Netoperating margins represents revenues, less cost of product sold and otherdirect operating costs and expenses.

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**THREEMONTHS ENDED DECEMBER 31, 2005 AS COMPARED TO THREE MONTHS ENDED DECEMBER 31,2004**

We reported net earnings(loss) of $(35.2) million for the three months ended December 31,2005, compared to net earnings of $4.2 million for the three months ended December 31,2004. After earnings allocable to preferred stock, the net earnings (loss)attributable to common stockholders was $(35.4) million for the threemonths ended December 31, 2005, compared to net earnings of$3.3 million for the three months ended December 31, 2004. Basicearnings (loss) per common share for the three months ended December 31,2005 and 2004, was $(0.73) and $0.08, respectively, based on 48.3 millionand 39.7 million weighted average common shares outstanding, respectively.Diluted earnings (loss) per common share for the three months ended December 31,2005 and 2004, was $(0.73) and $0.08, respectively, based upon48.3 million and 51.9 million weighted average diluted sharesoutstanding, respectively.

**Terminals,pipelines, and tugs and barges**

In ourterminals, pipelines, and tugs and barges operations, we provide distributionrelated services to wholesalers, distributors, marketers, retail gasolinestation operators, cruise-ship operators and industrial and commercialend-users of refined petroleum products and other commercial liquids. The netoperating margins from our terminals, pipelines, and tugs and barges operationsfor the three months ended December 31, 2005 were $14.9 million,compared to $12.1 million for the three months ended December 31,2004. On August 1, 2005, we acquired Radcliff, which includes threepetroleum products terminals, two tugboats, 6 barges, and 12 tractors andassociated trailers. The results of operations of Radcliff are included fromthe closing date of the transaction (August 1, 2005). For the three monthsended December 31, 2005, Radcliff generated approximately $3.0 million inrevenues and approximately $2.1 million in direct operating costs and expenses.The net operating margins from our terminals, pipelines, and tugs and bargesoperations are as follows (in thousands):

| ** **                                   | ** ** | **Three months ended  December 31,** | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                   | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| Throughput and  additive injection fees, net |       | $                                                   | 14,161     |   | $ | 9,925 |   |
| Storage fees                                 |       | 6,856                                               |       | 9,088 |   |
| Pipeline  transportation fees                |       | 1,093                                               |       | 1,087 |   |
| Tugs and barges                              |       | 4,960                                               |       | 3,499 |   |
| Management fees  and cost reimbursements     |       | 1,245                                               |       | 1,313 |   |
| Other                                        |       | 4,522                                               |       | 2,610 |   |
| Revenues                                     |       | 32,837                                              |       | 27,522 |   |
| Less direct operating costs and expenses     |       | (17,943                                             | )          | (15,454 | ) |
| Net operating  margins                       |       | $                                                   | 14,894     |   | $ | 12,068 |   |

 

*Throughput and additiveinjection fees, net.*   We own and operate aterminal infrastructure that handles products with transportation connectionsvia pipelines, barges, rail cars and trucks. We earn throughput fees for eachbarrel of product that is distributed at our terminals through our supply andmarketing efforts, through exchange agreements, or for third parties. Terminalthroughput fees are based on the volume of products distributed at the facility’struck loading racks, generally at a standard rate per barrel of product. Weprovide injection services in connection with the delivery of product at ourterminals. These fees generally are based on the volume of product injected anddelivered over the rack at our terminals.

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Exchange agreements providefor the exchange of product at one delivery location for product at a differentlocation. We generally receive a terminal throughput fee based on the volume ofthe product exchanged, in addition to the cost of transportation from thereceipt location to the exchange delivery location. For the three months ended December 31,2005 and 2004, we averaged approximately 49,000 and 50,000 barrels per day,respectively, of delivered volumes under exchange agreements.

Terminal throughput and additive injection fees, netwere approximately $14.2 million and $9.9 million for the threemonths ended December 31, 2005 and 2004, respectively. The increase of approximately$4.3 million in terminal throughput and additive injection fees, net is dueprincipally to approximately $3.0 million of throughput fees charged onmarketing volumes at the TransMontaigne Partners’ facilities, approximately$0.9 million of throughput fees resulting from the acquisition of Radcliff, anincrease of approximately $0.5 million at our Brownsville facilities and anincrease of approximately $0.2 million at our River facilities offset by adecrease of approximately $0.3 million at our Southeast facilities. For thethree months ended December 31, 2005 and 2004, we averaged approximately370,000 barrels and 308,000 barrels per day, respectively, of throughputvolumes at our terminals, including volumes under exchange agreements.

Included in the terminalthroughput and additive injection fees, net for the three months ended December 31,2005 and 2004, are fees charged to TransMontaigne’s supply, distribution andmarketing segment of approximately $11.8 million and $8.4 million,respectively.

*Storage fees.*   Welease storage capacity at our terminals to third parties and, prior to May 27,2005, our supply, distribution and marketing segment. Terminal storage feesgenerally are based on a per barrel of leased capacity per month rate and willvary with the duration of the storage agreement and the type of product stored.

Terminal storage fees wereapproximately $6.9 million and $9.1 million for the three monthsended December 31, 2005 and 2004, respectively. The decrease of$2.2 million in storage fees was due principally to a decrease in storagefees of approximately $1.5 million resulting from the conversion of the feescharged on heavy oil marketing volumes from a storage agreement to a throughputagreement and a decrease of approximately $0.6 million in storage fees chargedat our Southeast facilities resulting from the commencement of terminaling servicesagreements with MSCG.

Included in the terminalstorage fees for the three months ended December 31, 2005 and 2004, arefees charged to TransMontaigne’s supply, distribution and marketing segment ofapproximately $nil and $3.5 million, respectively.

*Pipeline transportationfees.*   We own an interstate products pipelineoperating from Mt. Vernon, Missouri to Rogers, Arkansas (the “RazorbackPipeline”), together with associated terminal facilities at Mt. Vernon andRogers. We earn pipeline transportation fees at our Razorback Pipeline based onthe volume of product transported and the distance from the origin point to thedelivery point. We also earn transportation fees at our Port Evergladespipeline hydrant system based on the volume of product delivered to cruiseships and freight vessels.

For the three months endedDecember 31, 2005 and 2004, we earned pipeline transportation fees ofapproximately $1.1 million and $1.1 million, respectively.

Included in the pipelinetransportation fees for the three months ended December 31, 2005 and 2004,are fees charged to TransMontaigne’s supply, distribution and marketing segmentof approximately $1.1 million and $1.1 million, respectively.

*Tugs and barges.*   Wecurrently own and operate 14 tugboats and 19 barges that deliver product tocruise ships and other marine vessels for refueling and to transport third-partyproduct from our storage tanks to our customers’ facilities. Our tugboats earnfees for providing docking and other ship-assist 

45

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services to cruise andcargo ships and other marine vessels. Bunkering fees are based on the volumeand type of product sold, transportation fees are based on the volume ofproduct that is shipped and the distance to the delivery point, and docking andother ship-assist services are based on a per docking per tugboat basis.

For the three months endedDecember 31, 2005 and 2004, we earned bunkering fees, transportation fees,and other ship-assist services fees of approximately $5.0 million and$3.5 million, respectively. The increase of $1.5 million in tug and bargefees is due principally to approximately $1.2 million of fees resulting fromthe acquisition of Radcliff.

Included in the tugs andbarges fees for the three months ended December 31, 2005 and 2004, arefees charged to TransMontaigne’s supply, distribution and marketing segment ofapproximately $3.4 million and $1.8 million, respectively.

*Management fees and costreimbursements.*   We manage and operate for amajor oil company 17 terminals that are adjacent to our Southeast facilitiesand receive a reimbursement of costs. We manage and operate for another majoroil company certain tank capacity at TransMontaigne Partners’ Port Everglades(South) terminal and receive a reimbursement of costs. We also manage andoperate for a foreign oil company a bi-directional products pipeline connectedto our Brownsville, Texas terminal facility.

For the three months endedDecember 31, 2005 and 2004, we earned management fees and costreimbursements from our terminal and pipeline operations of approximately$1.2 million and $1.3 million, respectively.

*Other revenues.*   Inaddition to providing storage and distribution services at our terminalfacilities, we also provide ancillary services including heating and mixing ofstored products and product transfer services. We also recognize gains from thesale of product to our supply, distribution and marketing operation resultingfrom the excess of product deposited by third parties into our terminals overthe amount of product that the customer is contractually permitted to withdrawfrom those terminals.

For the three months endedDecember 31, 2005 and 2004, other revenues from our terminals, pipelines,and tugs and barges operations were approximately $4.5 million and$2.6 million, respectively. The increase of $1.9 million in other revenuesis due principally to approximately $1.5 million in product gains andapproximately $0.9 million from the acquisition of Radcliff offset by adecrease in ancillary services of approximately $0.5 million.

Included in other revenuesfor the three months ended December 31, 2005 and 2004, are fees charged toTransMontaigne’s supply, distribution and marketing segment of approximately$3.6 million and $1.6 million, respectively.

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*Direct operating costs and expenses.*   Thedirect operating costs and expenses of the terminals, pipelines, and tugs andbarges operations include the directly related wages and employee benefits,utilities, communications, maintenance and repairs, property taxes, rent,vehicle expenses, environmental compliance costs, materials and supplies. Forthe three months ended December 31, 2005 and 2004, the direct operatingcosts and expenses of the terminals, pipelines, and tugs and barges wereapproximately $17.9 million and $15.5 million, respectively. For thethree months ended December 31, 2005, Radcliff generated approximately$2.1 million in direct operating costs and expenses. The direct operating costsand expenses of our terminals, pipelines, and tugs and barges operations are asfollows (in thousands):

| ** **                                                 | ** ** | **Three months ended  December 31,** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                 | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| Wages and  employee benefits                               |       | $                                                   | 6,942      |   | $ | 6,613 |   |
| Utilities and  communication charges                       |       | 1,223                                               |       | 964 |   |
| Repairs and  maintenance                                   |       | 4,630                                               |       | 3,945 |   |
| Property and  casualty insurance costs                     |       | 928                                                 |       | 855 |   |
| Office, rentals  and property taxes                        |       | 1,674                                               |       | 1,460 |   |
| Vehicles and fuel  costs                                   |       | 1,351                                               |       | 668 |   |
| Environmental  compliance costs                            |       | 1,004                                               |       | 853 |   |
| Other                                                      |       | 206                                                 |       | 307 |   |
| Less—property and  environmental insurance recoveries |       | (15                                                 | )          | (211 | ) |
| Direct operating  costs and expenses                       |       | $                                                   | 17,943     |   | $ | 15,454 |   |

 

**Supply, distribution and marketing**

Thenet operating margins (deficiencies) from our supply, distribution andmarketing operations for the three months ended December 31, 2005, were$(40.9) million, compared to $19.5 million for the three months endedDecember 31, 2004. For the three months ended December 31, 2005,Radcliff generated approximately $43.4 million in revenues and approximately$2.1 million in net operating margins. The net operating margins from oursupply, distribution and marketing operations are as follows (in thousands):

| ** **                                                 | ** ** | **Three months ended  December 31,** | ** ** |
|------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                 | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| Rack spot sales                                            |       | $                                                   | 246,419    |   | $ | 162,779 |   |
| Contract sales                                             |       | 1,423,079                                           |       | 1,026,841 |   |
| Bulk sales                                                 |       | 298,601                                             |       | 475,463 |   |
| Supply chain  management services                          |       | 217,164                                             |       | 146,451 |   |
| Total revenues                                             |       | 2,185,263                                           |       | 1,811,534 |   |
| Cost of product  sold                                      |       | (2,334,940                                          | )          | (1,854,355 | ) |
| Net (deficiencies) before other direct costs and  expenses |       | (149,677                                            | )          | (42,821 | ) |
| Other direct  costs and expenses:                          |       |                                                |       |   |   |
| Net gains on risk management activities                    |       | 32,539                                              |       | 27,668 |   |
| Change in unrealized losses on derivative contracts        |       | 76,241                                              |       | 34,693 |   |
| Net operating  margins (deficiencies)                      |       | $                                                   | (40,897    | ) | $ | 19,540 |   |

 

We sell our products to customers primarily throughthree types of arrangements: rack spot sales, contract sales and bulk sales.

*Rack spot sales.**  *Rack spot sales are sales tocommercial and industrial end-users, independent retailers, cruise-shipoperators and jobbers that do not involve continuing contractual obligations topurchase or deliver product. Rack spot sales are priced and delivered on adaily basis through truck 

47

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loading racks or marinefueling equipment. Our selling price of a particular product on a particularday at a particular terminal is a function of our supply at that terminal, ourestimate of the costs to replenish the product at that terminal, our desire toreduce inventory levels at that terminal that day, and other factors. Rack spotsales are recognized as revenues when the product is delivered to the customerthrough the truck loading rack or marine fueling equipment.

Rack spot sales wereapproximately $246.4 million and $162.8 million for the three monthsended December 31, 2005 and 2004, respectively. The increase ofapproximately $83.6 million is due principally to higher commodity pricesduring 2005 and a slight increase in volumes made available to our rack spotcustomers. For the three months ended December 31, 2005 and 2004, weaveraged approximately 35,000 and 32,000 barrels per day, respectively, ofdelivered volumes under rack spot sales.

*Contract sales.**  *Contract sales are sales tocommercial and industrial end users, independent retailers, cruise-shipoperators, and jobbers that are made pursuant to negotiated contracts,generally ranging from one to six months in duration. Contract sales providethese customers with a specified volume of product during the agreement term.At the customer’s option, the pricing of the product delivered under a contractsale may be fixed at a stipulated price per gallon, or it may vary based onchanges in published indices. Contract sales are recognized as revenues whenthe product is delivered to the customer through the truck loading rack ormarine fueling equipment.

Contract sales were approximately$1,423.1 million and $1,026.8 million for the three months ended December 31,2005 and 2004, respectively. The increase of approximately $396.3 millionis due principally to higher commodity prices and a slight increase in volumesdelivered to our contract customers. For the three months ended December 31,2005 and 2004, we averaged approximately 223,000 and 215,000 barrels perday, respectively, of delivered volumes under contract sales.

*Bulksales.**  *Bulksales are sales of large quantities of product to wholesalers, distributors,and marketers in major cash markets typically prior to the product beinginjected into the common carrier pipeline. We also make bulk sales of productsprior to their scheduled delivery to us while the product is being transportedin the common carrier pipelines or by barge or vessel.

Bulk sales were approximately $298.6 million and$475.5 million for the three months ended December 31, 2005 and 2004,respectively. The decrease of approximately $176.9 million is dueprincipally to a decrease in volumes transferred to our bulk customers offsetby higher commodity prices during 2005. We have decreased the volumestransferred to our bulk customers due principally to a reduction in the numberof barrels we maintain in the bulk markets as a result of a change in businessstrategy caused in part by higher commodity prices and the cost of executingour risk management strategies. For the three months ended December 31,2005 and 2004, we averaged approximately 42,000 and 91,000 barrelsper day, respectively, of delivered volumes under bulk sales.

*Supplychain management services contracts.**  *We provide supply chain managementservices to companies and governmental entities that desire to outsource theirfuel supply function and to reduce the price volatility associated with theirfuel supplies. We offer three types of supply chain management services:delivered fuel price management, retail price management and logistical supplychain management services.

Sales pursuant to supply chain management servicescontracts were approximately $217.2 million and $146.5 million forthe three months ended December 31, 2005 and 2004, respectively. Theincrease of approximately $70.7 million is due principally to highercommodity prices. For the three months ended December 31, 2005 and 2004,we averaged approximately 30,000 barrels and 30,000 barrels per day,respectively, of delivered volumes under supply chain management servicescontracts.

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*Cost of product sold.**  *The cost of product sold includesthe cost of the product inventory sold on a first-in, first-out basis, pipelinetransportation and other freight costs, terminal throughput, additive andstorage costs, and commissions. Cost of product sold is approximately$2,334.9 million and $1,854.4 million for the three months ended December 31,2005 and 2004, respectively. Cost of product sold is as follows (in thousands):

| ** **                               | ** ** | **Three months ended  December 31,** | ** ** |
|------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| Inventory product  costs                 |       | $                                                   | 2,296,806  |   | $ | 1,814,220 |   |
| Transportation  and related charges      |       | 24,907                                              |       | 25,245 |   |
| Throughput,  storage and related charges |       | 12,066                                              |       | 14,113 |   |
| Other                                    |       | 1,161                                               |       | 777 |   |
| Cost of product  sold                    |       | $                                                   | 2,334,940  |   | $ | 1,854,355 |   |

 

*Netgains (losses) on risk management activities.**  *Our risk management strategygenerally is intended to maintain a balanced position of forward salecommitments against our discretionary inventories held for immediate sale orexchange, inventory volumes due to others under exchange agreements, openpositions in derivative contracts, and open positions in risk managementcontracts, thereby reducing exposure to commodity price fluctuations. Weevaluate our exposure to commodity price risk from an overall portfolio basisand offset that position with risk management contracts, principally NYMEXfutures contracts.

When we nominate refined petroleum products to besupplied by third parties at our terminals, we enter into futures contracts(i.e., short futures contracts) to sell a corresponding amount of product toprotect against price fluctuations for the underlying commodity. When weultimately sell the underlying inventory to a customer, we unwind the relatedrisk management contract. In order to effectively manage commodity price risk,we must predict when we will sell the underlying product.

When we enter into a forward sale commitment todeliver product to a customer in the future at a fixed price, we enter into afutures contract (i.e., a long futures contract) to purchase a correspondingamount of product to protect against price fluctuations for the underlyingcommodity. When we ultimately deliver the underlying product to a customer, weunwind the related risk management contract.

During a period of rising prices, long (short) futurescontracts will increase (decrease) in value resulting in a gain (loss). Duringa period of declining prices, our long (short) futures contracts will decrease(increase) in value resulting in a loss (gain).

Net gains (losses) on riskmanagement activities were approximately $32.5 million and$27.7 million for the three months ended December 31, 2005 and 2004,respectively.

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**Costs and expenses**

Selling,general and administrative expenses for the three months ended December 31,2005, were $13.4 million, compared to $11.8 million for the threemonths ended December 31, 2004. For the three months ended December 31,2005, Radcliff incurred approximately $0.6 million in selling, general andadministrative expenses. Selling, general and administrative expenses are asfollows (in thousands):

| ** **                                         | ** ** | **Three months ended  December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                         | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| Wages and  employee benefits                       |       | $                                                   | 9,055      |   | $ | 9,566 |   |
| Office costs,  utilities and communication charges |       | 1,276                                               |       | 1,010 |   |
| Accounting and  legal expenses                     |       | 1,722                                               |       | 591 |   |
| Property and  casualty insurance                   |       | 222                                                 |       | 227 |   |
| Other                                              |       | 1,079                                               |       | 408 |   |
| Selling, general  and administrative expenses      |       | $                                                   | 13,354     |   | $ | 11,802 |   |

 

Depreciation and amortization for the three monthsended December 31, 2005 and 2004, was $6.8 million and$5.7 million, respectively. The increase of $1.1 million indepreciation and amortization for the three months ended December 31, 2005as compared to December 31, 2004 is due principally to the depreciation oncurrent year additions and the amortization of the product supply agreement.

Gain (loss) on dispositionof assets, net for the three months ended December 31, 2005 and 2004 wasapproximately $67,000 and $nil, respectively. Effective December 31, 2005,we sold our Wisconsin terminal for net proceeds of approximately $0.5 millionand recognized a gain on disposition of approximately $67,000.

**Other income and expenses**

Interest income for the three months ended December 31,2005, was $131,000, as compared to $62,000 for the three months ended December 31,2004. Pursuant to our cash management practices, excess cash balances are usedto pay down our outstanding borrowings, if any, under our senior securedworking capital credit facility and commodity margin loan and, then invested inshort-term investments.

Interestexpense for the three months ended December 31, 2005, was$6.9 million, compared to $6.6 million during the three months ended December 31,2004. Interest expense is as follows (in thousands):

| ** **                                      | ** ** | **Three months ended  December 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| TransMontaigne  Partners’ credit facility  |       | $                                                   | 504        |   | $ | — |   |
| Senior secured  working capital credit facility |       | 1,382                                               |       | 1,610 |   |
| Senior  subordinated notes                      |       | 4,562                                               |       | 4,562 |   |
| Letters of credit                               |       | 425                                                 |       | 425 |   |
| Commodity margin  loan                          |       | 58                                                  |       | 21 |   |
| Interest expense                                |       | $                                                   | 6,931      |   | $ | 6,618 |   |

 

Other financing costs, netfor the three months ended December 31, 2005, were $0.5 million,compared to $0.4 million for the three months ended December 31,2004.

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**Income taxes**

Income tax benefit(expense) was $20.3 million and $(2.8) million for the three monthsended December 31, 2005 and 2004, respectively, which represents aneffective combined federal and state income tax rate of 38% and 40%,respectively.

**Preferred stock dividends**

Preferred stock dividendson our Series B redeemable convertible preferred stock were$0.2 million and $0.7 million for the three months ended December 31,2005 and 2004, respectively. At its issuance (June 28, 2002), the fairvalue of the Series B redeemable convertible preferred stock exceeded itsliquidation value. The initial carrying amount of the Series B redeemableconvertible preferred stock will be decreased ratably over its 5-yearterm until it equals its liquidation value with an equal reduction in theamount of preferred stock dividends recorded for financial reporting purposes.For the three months ended December 31, 2005 and 2004, the amount of thedividend recognized for financial reporting purposes is composed of the amountof the dividend payable to the holders of the Series B redeemableconvertible preferred stock of $0.3 million and $1.1 million, respectively,offset by the amortization of the premium on the carrying amount of the Series Bredeemable convertible preferred stock of $0.1 million and$0.4 million, respectively.

**SIXMONTHS ENDED DECEMBER 31, 2005 AS COMPARED TO SIX MONTHS ENDED DECEMBER 31,2004**

We reported net earnings(loss) of $(14.3) million for the six months ended December 31, 2005,compared to net earnings of $8.1 million for the six months ended December 31,2004. After earnings allocable to preferred stock, the net earnings (loss)attributable to common stockholders was $(14.8) million for the six monthsended December 31, 2005, compared to net earnings of $6.3 million forthe six months ended December 31, 2004. Basic earnings (loss) per commonshare for the six months ended December 31, 2005 and 2004, was $(0.31) and$0.16, respectively, based on 47.6 million and 39.6 million weightedaverage common shares outstanding, respectively. Diluted earnings (loss) percommon share for the six months ended December 31, 2005 and 2004, was$(0.31) and $0.16, respectively, based upon 47.6 million and51.7 million weighted average diluted shares outstanding, respectively.

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**Terminals,pipelines, and tugs and barges**

Thenet operating margins from our terminals, pipelines, and tugs and barges operationsfor the six months ended December 31, 2005 were $25.4 million,compared to $24.1 million for the six months ended December 31, 2004.On August 1, 2005, we acquired Radcliff, which includes six petroleumproducts terminals, two tugboats, 6 barges, and 12 tractors and associatedtrailers. The results of operations of Radcliff are included from the closingdate of the transaction (August 1, 2005). For the six months ended December 31,2005, Radcliff generated approximately $4.0 million in revenues and approximately$2.8 million in direct operating costs and expenses. The net operating marginsfrom our terminals, pipelines, and tugs and barges operations are as follows(in thousands):

| ** **                                   | ** ** | **Six months ended  December 31,** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                   | ** ** | **2005**                                          | ** ** | **2004** | ** ** |
| Throughput and  additive injection fees, net |       | $                                                 | 27,742     |   | $ | 20,236 |   |
| Storage fees                                 |       | 13,696                                            |       | 18,132 |   |
| Pipeline  transportation fees                |       | 1,882                                             |       | 1,805 |   |
| Tugs and barges                              |       | 8,595                                             |       | 6,799 |   |
| Management fees  and cost reimbursements     |       | 2,575                                             |       | 2,525 |   |
| Other                                        |       | 7,571                                             |       | 4,497 |   |
| Revenues                                     |       | 62,061                                            |       | 53,994 |   |
| Less direct operating costs and expenses     |       | (36,638                                           | )          | (29,861 | ) |
| Net operating  margins                       |       | $                                                 | 25,423     |   | $ | 24,133 |   |

 

*Throughputand additive injection fees, net.  *We earnthroughput fees for each barrel of product that is distributed at our terminalsthrough our supply and marketing efforts, through exchange agreements, or forthird parties. Terminal throughput fees are based on the volume of productsdistributed at the facility’s truck loading racks, generally at a standard rateper barrel of product. We provide injection services in connection with thedelivery of product at our terminals. These fees generally are based on thevolume of product injected and delivered over the rack at our terminals.

Exchange agreements provide for the exchange ofproduct at one delivery location for product at a different location. Wegenerally receive a terminal throughput fee based on the volume of the productexchanged, in addition to the cost of transportation from the receipt locationto the exchange delivery location. For the six months ended December 31,2005 and 2004, we averaged approximately 51,000 and 48,000 barrels per day,respectively, of delivered volumes under exchange agreements.

Terminal throughput and additive injection fees, netwere approximately $27.7 million and $20.2 million for the six monthsended December 31, 2005 and 2004, respectively. The increase of approximately$7.5 million in terminal throughput and additive injection fees, net is dueprincipally to approximately $5.3 million of throughput fees charged onmarketing volumes at the TransMontaigne Partners’ facilities, approximately$1.9 million of throughput fees resulting from the acquisition of Radcliff andan increase of approximately $1.0 million at our Brownsville facilities offsetby a decrease of approximately $0.4 million at our Southeast facilities. Forthe six months ended December 31, 2005 and 2004, we averaged approximately369,000 barrels and 321,000 barrels per day, respectively, of throughputvolumes at our terminals, including volumes under exchange agreements.

Included in the terminal throughput and additiveinjection fees, net for the six months ended December 31, 2005 and 2004,are fees charged to TransMontaigne’s supply, distribution and marketing segmentof approximately $22.5 million and $17.2 million, respectively.

*Storagefees.*   We lease storagecapacity at our terminals to third parties and, prior to May 27, 2005, oursupply, distribution and marketing segment. Terminal storage fees generally arebased on a per barrel 

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of leased capacity permonth rate and will vary with the duration of the storage agreement and thetype of product stored.

Terminal storage fees were approximately$13.7 million and $18.1 million for the six months ended December 31,2005 and 2004, respectively. The decrease of $4.4 million in storage feeswas due principally to a decrease in storage fees of approximately $3.2 millionresulting from the conversion of the fees charged on heavy oil marketingvolumes from a storage agreement to a throughput agreement and a decrease ofapproximately $1.4 million in storage fees charged at our Southeast facilitiesresulting from the commencement of terminaling services agreements with MSCG.

Included in the terminal storage fees for the sixmonths ended December 31, 2005 and 2004, are fees charged toTransMontaigne’s supply, distribution and marketing segment of approximately$nil and $7.0 million, respectively.

*Pipelinetransportation fees.*   We own an interstateproducts pipeline operating from Mt. Vernon, Missouri to Rogers, Arkansas (the “RazorbackPipeline”), together with associated terminal facilities at Mt. Vernon andRogers. We earn pipeline transportation fees at our Razorback Pipeline based onthe volume of product transported and the distance from the origin point to thedelivery point. We also earn transportation fees at our Port Evergladespipeline hydrant system based on the volume of product delivered to cruiseships and freight vessels.

For the six months ended December 31, 2005 and2004, we earned pipeline transportation fees of approximately $1.9 millionand $1.8 million, respectively.

Included in the pipeline transportation fees for thesix months ended December 31, 2005 and 2004, are fees charged toTransMontaigne’s supply, distribution and marketing segment of approximately$1.9 million and $1.8 million, respectively.

*Tugsand barges.*   We currently own and operate 14tugboats and 19 barges that deliver product to cruise ships and other marinevessels for refueling and to transport third-party product from ourstorage tanks to our customers’ facilities. Our tugboats earn fees forproviding docking and other ship-assist services to cruise and cargo ships andother marine vessels. Bunkering fees are based on the volume and type ofproduct sold, transportation fees are based on the volume of product that isshipped and the distance to the delivery point, and docking and othership-assist services are based on a per docking per tugboat basis.

For the six months ended December 31, 2005 and2004, we earned bunkering fees, transportation fees, and other ship-assistservices fees of approximately $8.6 million and $6.8 million,respectively. The increase of $1.8 million in tug and barge fees is dueprincipally to approximately $1.2 million of fees resulting from theacquisition of Radcliff.

Included in the tugs and barges fees for the sixmonths ended December 31, 2005 and 2004, are fees charged toTransMontaigne’s supply, distribution and marketing segment of approximately$5.2 million and $3.2 million, respectively.

*Managementfees and cost reimbursements.*   We manage andoperate for a major oil company 17 terminals that are adjacent to ourSoutheast facilities and receive a reimbursement of costs. We manage andoperate for another major oil company certain tank capacity at TransMontaignePartners’ Port Everglades (South) terminal and receive a reimbursement ofcosts. We also manage and operate for a foreign oil company a bi-directionalproducts pipeline connected to our Brownsville, Texas terminal facility.

For the six months ended December 31, 2005 and2004, we earned management fees and cost reimbursements from our terminal andpipeline operations of approximately $2.6 million and $2.5 million,respectively.

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*Otherrevenues.*   In addition to providing storage anddistribution services at our terminal facilities, we also provide ancillaryservices including heating and mixing of stored products and product transferservices. We also recognize gains from the sale of product to our supply,distribution and marketing operation resulting from the excess of productdeposited by third parties into our terminals over the amount of product thatthe customer is contractually permitted to withdraw from those terminals.

For the six months ended December 31, 2005 and2004, other revenues from our terminals, pipelines, and tugs and bargesoperations were approximately $7.6 million and $4.5 million,respectively. The increase of $3.1 million in other revenues is due principallyto approximately $2.6 million in product gains and approximately $0.9 millionfrom the acquisition of Radcliff offset by a decrease in ancillary services ofapproximately $0.6 million.

Included in other revenues for the six months ended December 31,2005 and 2004, are fees charged to TransMontaigne’s supply, distribution andmarketing segment of approximately $5.4 million and $2.5 million,respectively.

*Direct operating costs andexpenses.*   The direct operating costs andexpenses of the terminals, pipelines, and tugs and barges operations includethe directly related wages and employee benefits, utilities, communications,maintenance and repairs, property taxes, rent, vehicle expenses, environmentalcompliance costs, materials and supplies. For the six months ended December 31,2005 and 2004, the direct operating costs and expenses of the terminals,pipelines, and tugs and barges were approximately $36.6 million and$29.9 million, respectively. For the six months ended December 31,2005, Radcliff generated approximately $2.8 million in direct operating costsand expenses. The direct operating costs and expenses of our terminals,pipelines, and tugs and barges operations are as follows (in thousands):

| ** **                                                 | ** ** | **Six months ended  December 31,** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                 | ** ** | **2005**                                          | ** ** | **2004** | ** ** |
| Wages and  employee benefits                               |       | $                                                 | 14,216     |   | $ | 12,884 |   |
| Utilities and  communication charges                       |       | 2,463                                             |       | 1,968 |   |
| Repairs and  maintenance                                   |       | 9,674                                             |       | 8,260 |   |
| Property and  casualty insurance costs                     |       | 1,933                                             |       | 1,630 |   |
| Office, rentals  and property taxes                        |       | 3,196                                             |       | 2,863 |   |
| Vehicles and fuel  costs                                   |       | 2,427                                             |       | 1,321 |   |
| Environmental  compliance costs                            |       | 2,266                                             |       | 1,834 |   |
| Other                                                      |       | 613                                               |       | 545 |   |
| Less—property and  environmental insurance recoveries |       | (150                                              | )          | (1,444 | ) |
| Direct operating  costs and expenses                       |       | $                                                 | 36,638     |   | $ | 29,861 |   |

 

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**Supply,distribution and marketing**

Thenet operating margins from our supply, distribution and marketing operationsfor the six months ended December 31, 2005, were $7.7 million,compared to $43.7 million for the six months ended December 31, 2004.For the six months ended December 31, 2005, Radcliff generatedapproximately $76.0 million in revenues and approximately $4.3 million in netoperating margins. The net operating margins from our supply, distribution andmarketing operations are as follows (in thousands):

| ** **                                                         | ** ** | **Six months ended  December 31,** | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                         | ** ** | **2005**                                          | ** ** | **2004** | ** ** |
| Rack spot sales                                                    |       | $                                                 | 590,787    |   | $ | 398,204 |   |
| Contract sales                                                     |       | 2,870,734                                         |       | 2,021,419 |   |
| Bulk sales                                                         |       | 947,278                                           |       | 1,138,536 |   |
| Supply chain  management services                                  |       | 432,692                                           |       | 282,626 |   |
| Total revenues                                                     |       | 4,841,491                                         |       | 3,840,785 |   |
| Cost of product  sold                                              |       | (4,874,501                                        | )          | (3,832,424 | ) |
| Net margins (deficiencies) before other direct costs  and expenses |       | (33,010                                           | )          | 8,361 |   |
| Other direct costs and  expenses:                                  |       |                                              |       |   |   |
| Net gains (losses) on risk management activities                   |       | (9,895                                            | )          | 17,263 |   |
| Change in unrealized losses on derivative contracts                |       | 50,627                                            |       | 18,072 |   |
| Net operating  margins                                             |       | $                                                 | 7,722      |   | $ | 43,696 |   |

 

We sell our products to customers primarily throughthree types of arrangements: rack spot sales, contract sales and bulk sales.

*Rackspot sales.**  *Rackspot sales are sales to commercial and industrial end-users, independentretailers, cruise-ship operators and jobbers that do not involve continuingcontractual obligations to purchase or deliver product. Rack spot sales arepriced and delivered on a daily basis through truck loading racks or marinefueling equipment. Our selling price of a particular product on a particularday at a particular terminal is a function of our supply at that terminal, ourestimate of the costs to replenish the product at that terminal, our desire toreduce inventory levels at that terminal that day, and other factors. Rack spotsales are recognized as revenues when the product is delivered to the customerthrough the truck loading rack or marine fueling equipment.

Rack spot sales were approximately $590.8 millionand $398.2 million for the six months ended December 31, 2005 and2004, respectively. The increase of approximately $192.6 million is dueprincipally to higher commodity prices during 2005. For the six months ended December 31,2005 and 2004, we averaged approximately 41,000 and 41,000 barrels per day,respectively, of delivered volumes under rack spot sales.

*Contractsales.**  *Contractsales are sales to commercial and industrial end users, independent retailers,cruise-ship operators, and jobbers that are made pursuant to negotiatedcontracts, generally ranging from one to six months in duration. Contract salesprovide these customers with a specified volume of product during the agreementterm. At the customer’s option, the pricing of the product delivered under acontract sale may be fixed at a stipulated price per gallon, or it may varybased on changes in published indices. Contract sales are recognized asrevenues when the product is delivered to the customer through the truckloading rack or marine fueling equipment.

Contract sales were approximately$2,870.7 million and $2,021.4 million for the six months ended December 31,2005 and 2004, respectively. The increase of approximately $849.3 millionis due principally to higher commodity prices and a slight increase in volumesdelivered to our contract customers. For the 

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six months ended December 31,2005 and 2004, we averaged approximately 218,000 and 215,000 barrels perday, respectively, of delivered volumes under contract sales.

*Bulksales.**  *Bulksales are sales of large quantities of product to wholesalers, distributors,and marketers in major cash markets typically prior to the product beinginjected into the common carrier pipeline. We also make bulk sales of productsprior to their scheduled delivery to us while the product is being transportedin the common carrier pipelines or by barge or vessel.

Bulk sales were approximately $947.3 million and$1,138.5 million for the six months ended December 31, 2005 and 2004,respectively. The decrease of approximately $191.2 million is dueprincipally to a decrease in volumes transferred to our bulk customers offsetby higher commodity prices during 2005. We have decreased the volumestransferred to our bulk customers due principally to a reduction in the numberof barrels we maintain in the bulk markets as a result of a change in businessstrategy caused in part by higher commodity prices and the cost of executingour risk management strategies. For the six months ended December 31, 2005and 2004, we averaged approximately 66,000 and 117,000 barrels per day,respectively, of delivered volumes under bulk sales.

*Supplychain management services contracts.**  *We provide supply chain managementservices to companies and governmental entities that desire to outsource theirfuel supply function and to reduce the price volatility associated with theirfuel supplies. We offer three types of supply chain management services:delivered fuel price management, retail price management and logistical supplychain management services.

Sales pursuant to supply chain management servicescontracts were approximately $432.7 million and $282.6 million forthe six months ended December 31, 2005 and 2004, respectively. Theincrease of approximately $150.1 million is due principally to highercommodity prices during 2005. For the six months ended December 31, 2005and 2004, we averaged approximately 31,000 barrels and 31,000 barrels per day,respectively, of delivered volumes under supply chain management servicescontracts.

*Cost of product sold.**  *The cost of product sold includesthe cost of the product inventory sold on a first-in, first-out basis, pipelinetransportation and other freight costs, terminal throughput, additive andstorage costs, and commissions. Cost of product sold is approximately$4,874.5 million and $3,832.4 million for the six months ended December 31,2005 and 2004, respectively. Cost of product sold is as follows(in thousands):

| ** **                               | ** ** | **Six months ended  December 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                          | ** ** | **2004** | ** ** |
| Inventory product  costs                 |       | $                                                 | 4,798,712  |   | $ | 3,748,443 |   |
| Transportation  and related charges      |       | 49,369                                            |       | 53,299 |   |
| Throughput,  storage and related charges |       | 24,444                                            |       | 29,793 |   |
| Other                                    |       | 1,976                                             |       | 889 |   |
| Cost of product  sold                    |       | $                                                 | 4,874,501  |   | $ | 3,832,424 |   |

 

*Netgains (losses) on risk management activities.**  *Our risk management strategygenerally is intended to maintain a balanced position of forward salecommitments against our discretionary inventories held for immediate sale orexchange, inventory volumes due to others under exchange agreements, openpositions in derivative contracts, and open positions in risk managementcontracts, thereby reducing exposure to commodity price fluctuations. Weevaluate our exposure to commodity price risk from an overall portfolio basisand offset that position with risk management contracts, principally futurescontracts on the NYMEX.

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When we nominate refined petroleum products to besupplied by third parties at our terminals, we enter into futures contracts(i.e., short futures contracts) to sell a corresponding amount of product toprotect against price fluctuations for the underlying commodity. When weultimately sell the underlying inventory to a customer, we unwind the relatedrisk management contract. In order to effectively manage commodity price risk,we must predict when we will sell the underlying product.

When we enter into a forward sale commitment todeliver product to a customer in the future at a fixed price, we enter into afutures contract (i.e., a long futures contract) to purchase a correspondingamount of product to protect against price fluctuations for the underlyingcommodity. When we ultimately deliver the underlying product to a customer, weunwind the related risk management contract.

During a period of rising prices, long (short) futurescontracts will increase (decrease) in value resulting in a gain (loss). Duringa period of declining prices, our long (short) futures contracts will decrease(increase) in value resulting in a loss (gain).

Net gains (losses) on riskmanagement activities were approximately $(9.9) million and$17.3 million for the six months ended December 31, 2005 and 2004,respectively.

**Costs and expenses**

Selling,general and administrative expenses for the six months ended December 31,2005, were $24.9 million, compared to $22.2 million for the sixmonths ended December 31, 2004. For the six months ended December 31,2005, Radcliff incurred approximately $1.1 million in selling, general andadministrative expenses. Selling, general and administrative expenses are asfollows (in thousands):

| ** **                                         | ** ** | **Six months ended  December 31,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                         | ** ** | **2005**                                          | ** ** | **2004** | ** ** |
| Wages and  employee benefits                       |       | $                                                 | 17,458     |   | $ | 17,872 |   |
| Office costs,  utilities and communication charges |       | 2,430                                             |       | 2,083 |   |
| Accounting and  legal expenses                     |       | 3,067                                             |       | 987 |   |
| Property and  casualty insurance                   |       | 424                                               |       | 439 |   |
| Other                                              |       | 1,529                                             |       | 854 |   |
| Selling, general  and administrative expenses      |       | $                                                 | 24,908     |   | $ | 22,235 |   |

 

Depreciation and amortization for the six months endedDecember 31, 2005 and 2004, was $13.4 million and $11.5 million,respectively. The increase of $1.9 million in depreciation andamortization for the six months ended December 31, 2005 as compared to December 31,2004 is due principally to the depreciation on current year additions and theamortization of the product supply agreement.

Gain (loss) on dispositionof assets, net for the six months ended December 31, 2005 and 2004 wasapproximately $1.2 million and $(3.6) million, respectively. During the sixmonths ended December 31, 2005, we agreed upon the final insurancerecovery of approximately $1.1 million on the involuntary conversion of ourhistorical Pensacola terminal facilities. During the six months ended December 31,2004, we suffered an involuntary conversion of our historical Pensacolaterminal facilities due to the damage caused by Hurricane Ivan.

**Other income and expenses**

Dividend income for the six months ended December 31,2005, was $0.6 million, as compared to $0.4 million for the six months ended December 31,2004. During the six months ended December 31, 2005, we receivedapproximately $0.2 million in dividends from our commodity trading membership.During the six 

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months ended December 31,2005 and 2004, we received approximately $0.4 million and $0.4 million,respectively, in dividends from Lion Oil Company.

Interest income for the six months ended December 31,2005, was $0.5 million, as compared to $0.1 million for the six months ended December 31,2004. Pursuant to our cash management practices, excess cash balances are usedto pay down our outstanding borrowings, if any, under our senior securedworking capital credit facility and commodity margin loan and, then invested inshort-term investments.

Interestexpense for the six months ended December 31, 2005, was$12.8 million, compared to $12.9 million during the six months ended December 31,2004. Interest expense is as follows (in thousands):

| ** **                                      | ** ** | **Six months ended  December 31,** | ** ** |
|-------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                          | ** ** | **2004** | ** ** |
| TransMontaigne  Partners’ credit facility  |       | $                                                 | 968        |   | $ | — |   |
| Senior secured  working capital credit facility |       | 1,865                                             |       | 1,799 |   |
| Senior  subordinated notes                      |       | 9,124                                             |       | 9,124 |   |
| Former credit  facility                         |       | —                                            |       | 1,331 |   |
| Letters of credit                               |       | 803                                               |       | 627 |   |
| Commodity margin  loan                          |       | 89                                                |       | 60 |   |
| Interest expense                                |       | $                                                 | 12,849     |   | $ | 12,941 |   |

 

Other financing costs, netfor the six months ended December 31, 2005, were $1.1 million,compared to $4.5 million for the six months ended December 31, 2004.During the six months ended December 31, 2004, we wrote off the debtissuance costs of approximately $3.4 million associated with our former creditfacility. On September 13, 2004, we repaid our former credit facility withproceeds from our senior secured working capital credit facility.

**Income taxes**

Income tax benefit(expense) was $6.4 million and $(5.4) million for the six monthsended December 31, 2005 and 2004, respectively, which represents aneffective combined federal and state income tax rate of 38% and 40%,respectively.

**Preferred stock dividends**

Preferred stock dividendson our Series B redeemable convertible preferred stock were$0.5 million and $1.4 million for the six months ended December 31,2005 and 2004, respectively. At its issuance (June 28, 2002), the fairvalue of the Series B redeemable convertible preferred stock exceeded itsliquidation value. The initial carrying amount of the Series B redeemableconvertible preferred stock will be decreased ratably over its 5-yearterm until it equals its liquidation value with an equal reduction in theamount of preferred stock dividends recorded for financial reporting purposes.For the six months ended December 31, 2005 and 2004, the amount of thedividend recognized for financial reporting purposes is composed of the amountof the dividend payable to the holders of the Series B redeemable convertiblepreferred stock of $0.8 million and $2.2 million, respectively,offset by the amortization of the premium on the carrying amount of the Series Bredeemable convertible preferred stock of $0.3 million and$0.8 million, respectively.

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**LIQUIDITY,CAPITAL RESOURCES, AND COMMODITY PRICE RISK**

At December 31, 2005, our current assets exceededour current liabilities by $274.7 million, as compared to$319.6 million at June 30, 2005.

Ourinventories—discretionary volumes are presented in the accompanying consolidatedbalance sheet as current assets and are carried at the lower of cost or market.Inventories—discretionary volumes are as follows (in thousands):

| ** **                                   | ** ** | **December 31, 2005** | ** ** | **June 30, 2005** | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **Amount**                      | ** ** | **Bbls**                    | ** ** | **Amount** | ** ** | **Bbls** | ** ** |
| Volumes held for  immediate sale or exchange |       | $                               | 93,060     |                        | 1,507      |   | $ | 153,123 |   | 2,415 |   |
| Volumes held for  base operations            |       | 129,671                         |       | 2,011                       |       | 121,651 |   | 2,011 |   |
| Inventories—discretionary  volumes      |       | $                               | 222,731    |                        | 3,518      |   | $ | 274,774 |   | 4,426 |   |

 

Ourvolumes held for immediate sale or exchange generally are subject to price riskmanagement. Our base operating inventory volumes generally are not subject toprice risk management. Based on the current level of our operations, we haveestablished our base operating inventory volumes, exclusive of product linefilland tank bottom volumes, at approximately 2.0 million barrels. Changes inour operation, such as the acquisition of additional terminals, increases inour contract sales volumes or entering into product supply agreements, mayresult in changes in the volume of our base operating inventory volumes. Inventories—discretionaryvolumes are composed of the following (in thousands):

| ** **                              | ** ** | **December 31, 2005** | ** ** | **June 30, 2005** | ** ** |
|-----------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|
| ** **                              | ** ** | **Amount**                      | ** ** | **Bbls**                    | ** ** | **Amount** | ** ** | **Bbls** | ** ** |
| Gasolines                               |       | $                               | 72,257     |                        | 1,060      |   | $ | 136,247 |   | 2,123 |   |
| Distillates                             |       | 100,858                         |       | 1,345                       |       | 113,670 |   | 1,657 |   |
| No. 6 oil  and other               |       | 49,616                          |       | 1,113                       |       | 24,857 |   | 646 |   |
| Inventories—discretionary  volumes |       | $                               | 222,731    |                        | 3,518      |   | $ | 274,774 |   | 4,426 |   |

 

Ourproduct linefill and tank bottom volumes consist of refined products held inour proprietary terminal pipeline connections and tank bottoms. Our productlinefill and tank bottom volumes are not held for sale or exchange in theordinary course of business. Our product linefill and tank bottom volumes arepresented in the accompanying consolidated balance sheet as non-current assetsand are carried at original cost adjusted for impairment write-downs tocurrent market values. Product linefill and tank bottom volumes consist of thefollowing (in thousands):

| ** **                                | ** ** | **December 31, 2005** | ** ** | **June 30, 2005** | ** ** |
|-------------------------------------------|------------|---------------------------------|------------|-----------------------------|------------|
| ** **                                | ** ** | **Amount**                      | ** ** | **Bbls**                    | ** ** | **Amount** | ** ** | **Bbls** | ** ** |
| Gasolines                                 |       | $                               | 14,267     |                        |       | 522 |   |   | $ | 14,267 |   |   | 522 |   |   |
| Distillates                               |       | 9,016                           |       |                        | 355        |   |   | 8,774 |   |   | 351 |   |   |
| No. 6 oil  and other                 |       | 1,418                           |       |                        | 55         |   |   | 1,284 |   |   | 52 |   |   |
| Product linefill and  tank bottom volumes |       | $                               | 24,701     |                        |       | 932 |   |   | $ | 24,325 |   |   | 925 |   |   |

 

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Thefollowing table indicates the maturities of our derivative contracts, includingthe credit quality of our counterparties to those contracts with unrealizedgains at December 31, 2005.

| ** **                      | ** ** | **Fair value of contracts**    | ** ** |
|---------------------------------|------------|-----------------------------------------------|------------|
| ** **                      | ** ** | **Maturity less  than 1 year** | ** ** | ** Maturity   1-3 years** | ** ** | **Maturity in  excess of  3 years** | ** ** | **Total** | ** ** |
| ** **                      | ** ** | **(in thousands)**                       | ** ** |
| Unrealized  gain—asset     |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment grade                |       |                                          | $          | 17,797 |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 17,797 |   |
| Non-investment grade            |       |                                          | 389        |   |   |   | — |   |   |   | — |   |   | 389 |   |
| No external rating              |       |                                          | 27,505     |   |   |   | — |   |   |   | — |   |   | 27,505 |   |
|                            |       |                                          | 45,691     |   |   |   | — |   |   |   | — |   |   | 45,691 |   |
| Unrealized  loss—liability |       |                                          | (21,000    | ) |   |   | — |   |   |   | — |   |   | (21,000 | ) |
| Net unrealized  gain—asset |       |                                          | $          | 24,691 |   |   |   | $ | — |   |   |   | $ | — |   |   | $ | 24,691 |   |

 

At December 31, 2005, there were no unrealizedgains or losses on NYMEX futures contracts because NYMEX futures contractsrequire daily settlement for changes in commodity prices on open futurescontracts. At December 31, 2005, included in unrealized gain position—currentis an unrealized gain of approximately $7.4 million related to certain shortpositions taken in the NYMEX options market.

Thefollowing table includes information about the changes in the fair value of ourderivative contracts for the six months ended December 31, 2005 (inthousands):

| Fair value at  June 30, 2005                                                                   |   | $      | (39,829 | )      |
|-----------------------------------------------------------------------------------------------------|--------|--------|---------|--------|
| Amounts realized  or otherwise settled during the period                                            |   | 57,546 |    |
| Fair value of  contracts originated during the period, which are included in  deferred revenue |   | 2,929  |    |
| Change in fair  value attributable to change in commodity prices                                    |   | 4,045  |    |
| Fair value at  December 31, 2005                                                               |   | $      | 24,691  |   |

 

Excluding acquisitions, capital expenditures for thethree and six months ended December 31, 2005, were $7.3 million and$9.4 million, respectively, for terminal and pipeline facilities and assets tosupport these facilities. Future capital expenditures will depend on numerousfactors, including the availability, economics and cost of appropriateacquisitions which we identify and evaluate; the economics, cost and requiredregulatory approvals with respect to the expansion and enhancement of existing systemsand facilities; customer demand for the services we provide; local, state andfederal governmental regulations; environmental compliance requirements; andthe availability of debt financing and equity capital on acceptable terms.

Our senior secured working capital credit facility asin effect at December 31, 2005 provides for a maximum borrowing line ofcredit that was the lesser of (i) $400 million and (ii) theborrowing base (as defined; $404 million at December 31, 2005).The borrowing base is a function of our cash, accounts receivable, inventory,exchanges, margin deposits, and certain reserve adjustments as defined in thefacility. The maximum borrowing amount is reduced by the amount of letters ofcredit that are outstanding. At December 31, 2005, we had borrowings of$56.1 million outstanding and letters of credit of $125 millionoutstanding under the senior secured working capital credit facility. We alsohad the ability to borrow an additional $169 million under the facilitybased on the borrowing base computation at December 31, 2005. Alloutstanding borrowings under the senior secured working capital credit facilityare due and payable on September 13, 2009.

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The senior secured working capital credit facility isour primary means of short-term liquidity to finance working capitalrequirements. The senior secured working capital credit facility containsaffirmative and negative covenants (including limitations on indebtedness,limitations on dividends and other distributions, limitations on certain inter-companytransactions, limitations on mergers, consolidation and the disposition ofassets, limitations on investments and acquisitions and limitations on liens) thatare customary for a facility of this nature. The senior secured working capitalcredit facility also contains customary representations and warranties(including those relating to corporate organization and authorization,compliance with laws, absence of defaults, material agreements and litigation)and customary events of default (including those relating to monetary defaults,covenant defaults, cross defaults and bankruptcy events). The only financialcovenant contained in the senior secured working capital credit facility is aminimum fixed charge coverage ratio test that is tested on a quarterly basiswhenever the average availability falls below $50 million for the lastmonth of any quarter (average availability was approximately $198 millionfor the month ended December 31, 2005). In that event, we must satisfy aminimum fixed charge coverage ratio requirement of 110%. The fixed chargecoverage ratio is based on a defined financial performance measure within thesenior secured working capital credit facility known as “fixed charges EBITDA.”

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Thecomputation of the fixed charge coverage ratio for the twelve months ended December 31,2005, is as follows (in thousands):

| ** **                                                                                                    | ** ** | **Three Months Ended** | ** ** | **Twelve  Months  Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------|------------|
| ** **                                                                                                    | ** ** | **March 31,**               | ** ** | **June 30,**         | ** ** | **September 30,** | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                    | ** ** | **2005**                         | ** ** | **2005**                  | ** ** | **2005** | ** ** | **2005** | ** ** | **2005** | ** ** |
| **Financial performance debt  covenant test:**                                                                |       |                             |       |                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated  adjusted EBITDA                                                                                 |       |                             | $          | 62,846                    |       |   | $ | (980 | ) |   | $ | 13,087 |   |   |   | $ | (19,356 | ) |   |   | $ | 55,597 |   |   |
| Capital  expenditures                                                                                         |       |                             | (1,616     | )                         |       | (3,361 | ) |   | (2,193 | ) |   |   | (3,307 | ) |   |   | (10,477 | ) |   |
| TransMontaigne  Partners’ capital expenditures                                                           |       |                             | —     |                      |       | 222 |   |   | 568 |   |   |   | 616 |   |   |   | 1,406 |   |   |
| Cash (paid for)  refund of income taxes                                                                       |       |                             | (2         | )                         |       | (29,704 | ) |   | (13,907 | ) |   |   | 20,316 |   |   |   | (23,297 | ) |   |
| Preferred stock  dividends paid in cash                                                                       |       |                             | (1,110     | )                         |       | (1,281 | ) |   | (301 | ) |   |   | (301 | ) |   |   | (2,993 | ) |   |
| Fixed charges  EBITDA                                                                                         |       |                             | $          | 60,118                    |       |   | $ | (35,104 | ) |   | $ | (2,746 | ) |   |   | $ | (2,032 | ) |   |   | $ | 20,236 |   |   |
| Fixed charges for  the period                                                                                 |       |                             | $          | 6,226                     |       |   | $ | 5,009 |   |   | $ | 5,126 |   |   |   | $ | 6,299 |   |   |   | $ | 22,660 |   |   |
| Fixed charge  coverage ratio based on rolling four consecutive quarters                                       |       |                             |       |                      |       |   |   |   |   |   |   |   |   |   |   |   | 89 | % |   |
| **Reconciliation of consolidated  adjusted EBITDA to cash flows provided by (used in) operating activities:** |       |                             |       |                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated  adjusted EBITDA                                                                                 |       |                             | $          | 62,846                    |       |   | $ | (980 | ) |   | $ | 13,087 |   |   |   | $ | (19,356 | ) |   |   | $ | 55,597 |   |   |
| TransMontaigne  Partners’ operating income                                                               |       |                             | —     |                      |       | 1,364 |   |   | 3,635 |   |   |   | 4,089 |   |   |   | 9,088 |   |   |
| TransMontaigne  Partners’ depreciation and amortization                                                  |       |                             | —     |                      |       | 674 |   |   | 1,567 |   |   |   | 1,626 |   |   |   | 3,867 |   |   |
| Cash distributions  from TransMontaigne Partners                                                              |       |                             | —     |                      |       | — |   |   | (453 | ) |   |   | (1,208 | ) |   |   | (1,661 | ) |   |
| Gain on  disposition of assets, net                                                                           |       |                             | (2,993     | )                         |       | (735 | ) |   | — |   |   |   | — |   |   |   | (3,728 | ) |   |
| Gains recognized  on beginning inventories—discretionary volumes held for immediate sale or  exchange    |       |                             | 6,093      |                      |       | 10,311 |   |   | 2,125 |   |   |   | 10,576 |   |   |   | 6,093 |   |   |
| Gains deferred on  ending inventories—discretionary volumes held for immediate sale or exchange          |       |                             | (10,311    | )                         |       | (2,125 | ) |   | (10,576 | ) |   |   | (4,311 | ) |   |   | (4,311 | ) |   |
| Increase in FIFO  cost basis of base operating inventory volumes                                              |       |                             | 32,769     |                      |       | 8,339 |   |   | 39,601 |   |   |   | (30,773 | ) |   |   | 49,936 |   |   |
| Lower of cost or  market write-downs on base operating inventory volumes                                      |       |                             | —     |                      |       | (1,772 | ) |   | (809 | ) |   |   | — |   |   |   | (2,581 | ) |   |
| Interest expense,  net                                                                                        |       |                             | (6,226     | )                         |       | (5,011 | ) |   | (5,129 | ) |   |   | (6,299 | ) |   |   | (22,665 | ) |   |
| TransMontaigne  Partners’ interest expense, net                                                          |       |                             | —     |                      |       | (167 | ) |   | (463 | ) |   |   | (501 | ) |   |   | (1,131 | ) |   |
| Cash (paid for)  refund of income taxes                                                                       |       |                             | (2         | )                         |       | (29,704 | ) |   | (13,907 | ) |   |   | 20,316 |   |   |   | (23,297 | ) |   |
| Amortization of  deferred revenue                                                                             |       |                             | (2,376     | )                         |       | (1,841 | ) |   | (1,572 | ) |   |   | (1,731 | ) |   |   | (7,520 | ) |   |
| Amortization of  deferred stock-based compensation                                                            |       |                             | 697        |                      |       | 652 |   |   | 894 |   |   |   | 623 |   |   |   | 2,866 |   |   |
| Net change in  unrealized (gains) losses on long-term derivative contracts                                    |       |                             | (88        | )                         |       | 296 |   |   | (12 | ) |   |   | (223 | ) |   |   | (27 | ) |   |
| Change in  operating assets and liabilities                                                                   |       |                             | 174,692    |                      |       | (67,173 | ) |   | (64,523 | ) |   |   | 48,026 |   |   |   | 91,022 |   |   |
| Cash flows provided by  (used in) operating activities                                                        |       |                             | $          | 255,101                   |       |   | $ | (87,872 | ) |   | $ | (36,535 | ) |   |   | $ | 20,854 |   |   |   | $ | 151,548 |   |   |

 

If we were to fail the fixed charge ratio covenant, orany other covenant contained in the senior secured working capital creditfacility, we would seek a waiver from our lenders under such facility. If wewere unable to obtain a waiver from our lenders, we would be in breach of thesenior secured working capital credit facility and the lenders would beentitled to declare all outstanding borrowings immediately due and payable. Inaddition, a default under the senior secured working capital credit facilitywould trigger a cross-default provision in the indenture covering oursenior subordinated notes.

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On May 30, 2003, weconsummated the sale and issuance of $200 million aggregate principalamount of 91¤8%senior subordinated notes due 2010 (“Notes”) and received proceeds of$194.5 million (net of underwriters’ discounts of $5.5 million). Weused the net proceeds from the offering of the Notes to repay a$200 million term loan. The Notes mature on June 1, 2010 and interestis payable semi-annually in arrears on each June 1 and December 1commencing on December 1, 2003. The Notes are unsecured and subordinatedto all of our existing and future senior debt. Upon certain change of controlevents, each holder of the Notes may require us to repurchase all or a portionof its notes at a purchase price equal to 101% of the principal amount thereof,plus accrued interest.

**Off-balance sheet arrangements**

We have outstanding letters of credit with thirdparties in the amount of $125 million, which expire within one year.

See Notes 9, 11, 12 and 16 of Notes to consolidatedfinancial statements for additional information regarding our contractualobligations and off-balance sheet arrangements that may affect our results ofoperations and financial condition.

We believe that ourcurrent working capital position; future cash expected to be provided byoperating activities; available borrowing capacity under our senior securedworking capital credit facility and commodity margin loan; and our relationshipwith institutional lenders and equity investors should enable us to meet ourplanned capital and liquidity requirements through at least the maturity dateof our senior secured working capital credit facility (September 2009).

**NEW ACCOUNTING PRONOUNCEMENTS**

In March 2005, theFASB issued FASB Interpretation No. 47 (“FIN 47”), “Accounting forConditional Asset Retirement Obligations—an interpretation of SFAS 143,”which requires companies to recognize a liability for the fair value of a legalobligation to perform asset-retirement activities that are conditional ona future event, if the amount can be reasonably estimated. For TransMontaigne,FIN 47 is effective for annual reporting periods beginning after December 15,2005. We are evaluating the requirements under FIN 47 and do notanticipate the adoption will have a significant impact on our consolidatedfinancial statements.

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

The information containedin Item 3 updates, and should be read in conjunction with, information setforth in Part II, Item 7A in our Annual Report on Form 10-K forthe year ended June 30, 2005, in addition to the interim unauditedconsolidated financial statements, accompanying notes and management’sdiscussion and analysis of financial condition and results of operationspresented in Items 1 and 2 of this Quarterly Report on Form 10-Q.There are no material changes in the market risks faced by us from thosereported in our Annual Report on Form 10-K for the year ended June 30,2005.

**Commodity risk**

Thevalue of petroleum products in any local delivery market is the sum of thecommodity price as reflected on the NYMEX and the basis differential for thatlocal delivery market. The basis differential for any local delivery market isthe spread between the cash price in the physical market and the quoted pricein the futures markets for the prompt month. For those physical and derivativepositions as to which we choose to manage the associated commodity price risk,the primary objective of our risk management strategy is to minimize thefinancial impact on us from changes in petroleum commodity prices affected byworld-wide crude oil and petroleum products supply and demand disruptions(e.g., the Iraq war, OPEC production quotas, disruptions due to hurricanes andother weather-related occurrences, foreign country 

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work stoppages, and major refinery outages). Weutilize NYMEX futures contracts to manage the financial impact on us fromchanges in commodity prices due to “world-wide” events. NYMEX futures contractsare obligations to purchase or sell a specific volume of inventory at a fixedprice at a future date. We believe that the utilization of NYMEX futurescontracts to manage commodity price risk minimizes the financial impact on usfrom changes in “world-wide” commodity prices. We generally do not manage thefinancial impact on us from changes in basis differentials affected by localmarket supply and demand disruptions (e.g., local pipeline deliverydisruptions, local refinery outages, periodic change in local governmentspecifications for gasolines and distillates, local seasonality in productdemand, and disruptions due to local weather related occurrences). The impactson us from changes in basis differentials are as follows:

| **Basis Differential**                                                                  | ** ** | ** ** | ** ** | **Change in Basis  Differential** | ** ** | **Net  Position** | ** ** | **Financial  Impact** | ** ** |
|----------------------------------------------------------------------------------------------|------------|------------|------------|---------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| Futures price in  excess of physical market price  (“negative basis differential”) |       |       | Increasing |                                        |       |              | Long       |                  |       |   | Loss |   |   |
| Futures price in  excess of physical market price                                            |       |       | Increasing |                                        |       |              | Short      |                  |       |   | Gain |   |   |
| Futures price in  excess of physical market price                                            |       |       | Decreasing |                                        |       |              | Long       |                  |       |   | Gain |   |   |
| Futures price in  excess of physical market price                                            |       |       | Decreasing |                                        |       |              | Short      |                  |       |   | Loss |   |   |
| Physical market  price in excess of futures price  (“positive basis differential”) |       |       | Increasing |                                        |       |              | Long       |                  |       |   | Gain |   |   |
| Physical market  price in excess of futures price                                            |       |       | Increasing |                                        |       |              | Short      |                  |       |   | Loss |   |   |
| Physical market  price in excess of futures price                                            |       |       | Decreasing |                                        |       |              | Long       |                  |       |   | Loss |   |   |
| Physical market price in  excess of futures price                                            |       |       | Decreasing |                                        |       |              | Short      |                  |       |   | Gain |   |   |

 

Thephysical and derivative positions that expose us to commodity price risk and anindication of whether those positions were actively managed under the our riskmanagement strategies during the three months ended December 31, 2005 areas follows:

| **Position**                                                                                    | ** ** | ** ** | ** ** | **Derivative  Contract** | ** ** | **Subject to  Commodity  Price Risk** | ** ** | **Commodity  Price  Risk Actively  Managed** | ** ** | **Long (Short)  Position at  December 31, 2005  (in 000’s barrels)** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------|------------|--------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|
| Fixed-price  forward purchase commitments prior to receipt of the product at our  terminal |       |       | Yes        |                     |       |                                            | Yes        |                                              |       |                                                                                                    | Yes        |   |   |   | 3,000 |   |   |
| Discretionary  inventory held for immediate sale or exchange                                    |       |       | No         |                     |       |                                            | Yes        |                                              |       |                                                                                                    | Yes        |   |   |   | 1,507 |   |   |
| Discretionary  volumes held for base operations                                                 |       |       | No         |                     |       |                                            | Yes        |                                              |       |                                                                                                    | No         |   |   |   | 2,011 |   |   |
| Product linefill  and tank bottom volumes                                                       |       |       | No         |                     |       |                                            | Yes        |                                              |       |                                                                                                    | No         |   |   |   | 932 |   |   |
| Fixed-price  forward sale commitments                                                           |       |       | Yes        |                     |       |                                            | Yes        |                                              |       |                                                                                                    | Yes        |   |   |   | (1,111 | ) |   |
| Inventory due to  others under exchange agreements                                              |       |       | Yes        |                     |       |                                            | Yes        |                                              |       |                                                                                                    | Yes        |   |   |   | (768 | ) |   |
| Risk management  contracts—NYMEX futures contracts                                         |       |       | Yes        |                     |       |                                            | Yes        |                                              |       |                                                                                                    | —     |   |   |   | (692 | ) |   |
| Risk management  contracts—NYMEX options                                                   |       |       | Yes        |                     |       |                                            | Yes        |                                              |       |                                                                                                    | —     |   |   |   | (1,180 | ) |   |

 

Ourrisk management strategies and practices currently do not qualify for “hedgeaccounting” for financial reporting purposes because we do not designate andassociate the risk management contracts as hedges of specific physical andderivative positions and we do not document and test the effectiveness of therelationship between the risk management contracts and the physical andderivative positions.

Weevaluate our exposure to commodity price risk from an overall portfolio basis.Our risk management strategies are intended to maintain a balanced position ofdiscretionary inventories held for 

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immediate sale or exchange, fixed-price forwardpurchase commitments, inventory due to others under exchange agreements, fixed-priceforward sale commitments and risk management contracts, thereby reducingexposure to commodity price fluctuations. To the extent that we do not managethe commodity price risk relating to a position that is subject to commodityprice risk and commodity prices move adversely, we could suffer losses on thatposition. If, however, prices move favorably, we would realize a gain that wewould not realize if substantially all of our positions were managed.

Ourrisk management policy permits management the discretion to manage thecommodity price risk relating to all discretionary volumes, including thosevolumes designated as base operating inventory volumes and the undeliveredin-transit volumes supplied to our terminals under the product supply agreementwith MSCG. At December 31, 2005, we were managing the commodity price riskassociated with approximately 2.2 million barrels of undeliveredin-transit volumes supplied to our terminals under the product supply agreementwith MSCG. At December 31, 2005, we did not manage the commodity pricerisk on approximately 3.7 million barrels composed of approximately2.0 million barrels of discretionary inventories held for base operations,approximately 0.8 million barrels of undelivered in-transit volumessupplied to our terminals under the product supply agreement with MSCG and approximately0.9 million barrels of product linefill and tank bottoms.

Exceptfor our discretionary volumes held for base operations, when we take title andaccept risk of loss on refined petroleum products supplied by third parties atour terminals, we enter into futures contracts (i.e., short futures contracts)to sell a corresponding amount of product to protect against price fluctuationsfor the underlying commodity. In order to effectively manage commodity pricerisk, we must predict when we will sell the underlying product. When weultimately sell the underlying inventory to a customer, we terminate therelated futures contract. If there is correlation in price changes between the forwardprice curve in the futures market and the value of physical products in the cashmarket, the net changes in our variation margin position should be offset bythe net operating margins we receive when we sell the underlying discretionaryinventory. Therefore, in order to effectively manage commodity price risk, wemust predict when we will sell the underlying product. If we fail to accuratelypredict the timing of those future sales, and the product remains in ourinventory longer than the expiration date of the futures contract, we mustsettle the old futures contract and enter into a new futures contract to sellthe product to manage the commodity price risk against the same inventory.Furthermore, we may be unable to precisely match the underlying product in ourfutures contracts with the exact type of product in our physical inventory. Tothe extent that price fluctuations of the product covered by the NYMEX futurescontract do not match the price fluctuations of the product in our physicalinventory, our exposure may not be mitigated.

Whenwe enter into a forward sale commitment to deliver product to a customer in thefuture at a fixed price, we enter into a futures contract (i.e., a long futurescontract) to purchase a corresponding amount of product to protect againstprice fluctuations for the underlying commodity. When we ultimately deliver theunderlying product to a customer, we unwind the related risk managementcontract. We may be unable to precisely match the underlying product in ourfutures contracts with the exact type of product in our fixed-priceforward sale commitment. To the extent that price fluctuations of the productcovered by the NYMEX futures contract do not match the price fluctuations ofthe product in our fixed-price forward sale commitment, our exposure maynot be mitigated.

Whenour discretionary inventory volumes held for immediate sale or exchange exceedsour fixed-price forward sale commitments, we will maintain a net shortfutures position. When our fixed-price forward sale commitments exceedour discretionary inventory volumes held for immediate sale or exchange, wewill maintain a net long futures position. During a period of rising prices,long (short) futures contracts will increase (decrease) in value resulting in again (loss). During a period of declining prices, our long (short) futurescontracts will decrease (increase) in value resulting in a loss (gain).Therefore, if we are in a net short futures position during periods of risingcommodity prices, we expect to recognize significant net margin before otherdirect costs and expenses from the sale of the physical product offset bysignificant net losses on risk management activities resulting in overall netoperating margins that are in line with expectations. Conversely, if we are ina net short futures position during periods of declining 

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commodity prices, we expect to recognize minimal, ifany, net margin before other direct costs and expenses from the sale of thephysical product offset by significant net gains on risk management activitiesresulting in overall net operating margins that are, again, in line withexpectations.

Forthe three months ended December 31, 2005 and 2004, we recognized net gains(losses) on risk management activities of approximately $32.5 million and$27.7 million, respectively. For the six months ended December 31, 2005and 2004, we recognized net gains (losses) on risk management activities ofapproximately $(9.9) million and $17.3 million, respectively.

TheNYMEX requires an initial margin deposit to open a futures contract. At December 31,2005 and June 30, 2005, we had approximately $1.4 million and$10.4 million, respectively, on deposit to cover our initial marginrequirements on open NYMEX futures contracts. NYMEX futures contracts alsorequire daily settlements for changes in commodity prices. Unfavorable commodityprice changes subject us to variation margin calls that require us to make cashpayments to the NYMEX in amounts that may be material. At December 31,2005, a $0.05 per gallon unfavorable change in commodity prices would haverequired us to make a cash payment of approximately $3.9 million to coverthe variation margin. Conversely, a $0.05 per gallon favorable change incommodity prices would have permitted us to receive approximately$3.9 million. We use our available cash and credit lines to fund thesemargin calls, but such funding requirements could exceed our ability to accesscapital.

At December 31, 2005, a $0.05 per gallonunfavorable change in commodity prices relative to our open positions inderivative contracts and risk management contracts would have resulted in the recognitionof a loss (realized and unrealized) of approximately $1.6 million.However, the fair value of our discretionary inventory held for immediate saleor exchange would have increased by approximately $3.2 million. The gain fromthe increase in the fair value of our discretionary inventory volumes held forimmediate sale or exchange will not be recognized for financial reportingpurposes until those volumes have been sold to customers, which may be in anaccounting period subsequent to the accounting period in which the losses onderivative contracts and risk management contracts are recognized.

**Interestrate risk**

At December 31, 2005, we had outstandingborrowings of $56.1 million under our senior secured working capital creditfacility and $28.0 million under TransMontaigne Partners’ credit facility. Weare exposed to interest rate risk because our senior secured working capitalcredit facility and TransMontaigne Partners’ credit facility arevariable-rate-based credit facilities. Based on the outstanding balance of ourvariable-interest-rate debt at December 31, 2005, and assuming marketinterest rates increase or decrease by 100 basis points, the potential annualincrease or decrease in interest expense is approximately $0.8 million.

**ITEM4.**                CONTROLS ANDPROCEDURES

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed by us in the reports that we file orsubmit to the Securities and Exchange Commission under the Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized and reported withinthe time periods specified by the Commission’s rules and forms, and thatinformation is accumulated and communicated to our management, including ourprincipal executive and principal financial officers (whom we refer to as ourCertifying Officers), as appropriate to allow timely decisions regardingrequired disclosure. Our management evaluated, with the participation of ourCertifying Officers, the effectiveness of our disclosure controls andprocedures as of December 31, 2005, pursuant to Rule 13a-15(b) underthe Exchange Act. Based upon that evaluation, our Certifying Officers concludedthat, as of December 31, 2005, our disclosure controls and procedures wereeffective.

Therewere no changes in our internal control over financial reporting that occurredduring the fiscal quarter ended December 31, 2005 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover 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 February 9, 2006 | TRANSmONTAIGNE  INC. |
|-----------------------------|----------------------|
|                        | (Registrant)         |
|                        | By:                  |   | /s/ DONALD H. ANDERSON |
|                        | ** **           | ** ** | **Donald H. Anderson** |
|                        | *** ***         | *** *** | ***President and 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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