**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 September 30, 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, including zipcode, of principal executive offices)

**(303) 626-8200**

(Telephone number,including area code)

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Indicate by check markwhether the Registrant (1) has filed all reports required to be filed by Section 13of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the Registrant was required to file such report),and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

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

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

As of October 24,2005, there were 49,724,985 shares of the Registrant’s Common Stockoutstanding.

 

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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  September 30, 2005 and June 30, 2005                                                                                       |       | 6                 |       |
|       |       | Consolidated statements of  operations for the three months ended September 30, 2005 and 2004                                                                      |       | 7                 |       |
|       |       | Consolidated statements of  preferred stock and common stockholders’ equity for  the year ended June 30, 2005 and three months ended September 30,  2005 |       | 8                 |       |
|       |       | Consolidated statements of  cash flows for the three months ended September 30, 2005 and 2004                                                                      |       | 9                 |       |
|       |       | Notes to consolidated  financial statements                                                                                                                             |       | 10                |       |
| Item 2.    |       | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                                                                             |       | 32                |       |
| Item 3.    |       | Qualitative and Quantitative  Disclosures about Market Risk                                                                                                             |       | 54                |       |
| Item 4.    |       | Controls and Procedures                                                                                                                                                 |       | 58                |       |
| ** ** | ** ** | **Part II. Other Information**                                                                                                                                     | ** ** |              |       |
| Item 6.    |       | Exhibits                                                                                                                                                                |       | 59                |       |
|            |            |                                                                                                                                                                         |            |                   |            |  |

 

2

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**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKINGSTATEMENTS**

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

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

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

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

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

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

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

·       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 months ended September 30,2005, are included herein beginning on the following page. The accompanyingunaudited interim consolidated financial statements should be read inconjunction with our annual consolidated financial statements and related notesfor the year ended June 30, 2005, together with our discussion and analysisof financial condition and results of operations, included in our Annual Reporton Form 10-K filed on September 13, 2005.

TransMontaigne Inc.is a holding company with the following active subsidiaries during the threemonths ended September 30, 2005.

·       TransMontaigneProduct Services Inc. (“TPSI”)

·       TransMontaigneServices Inc.

·       TransMontaigneTransport Inc.

·       CoastalFuels Marketing, Inc.

·       CoastalTug and Barge, Inc.

·       TransMontaignePartners L.P.

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

5

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

| ** **                                                              | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------|------------|-------------------------|------------|
| **ASSETS**                                                              |       |                         |       |                    |       |   |   |
| Current assets:                                                         |       |                         |       |                    |       |   |   |
| Cash and cash equivalents                                               |       |                         | $          | 5,168                   |       |   | $ | 29,721 |   |
| Restricted cash held by  commodity broker                               |       |                         | 17,700     |                    |       | 10,436 |   |
| Trade accounts  receivable, net                                         |       |                         | 452,689    |                    |       | 381,771 |   |
| Inventories—discretionary  volumes                                 |       |                         | 331,309    |                    |       | 274,774 |   |
| Unrealized gains on  derivative contracts                               |       |                         | 39,068     |                    |       | 7,620 |   |
| Deferred tax assets                                                     |       |                         | 18,704     |                    |       | 18,401 |   |
| Prepaid expenses and  other                                             |       |                         | 5,814      |                    |       | 6,767 |   |
|                                                                    |       |                         | 870,452    |                    |       | 729,490 |   |
| Property, plant  and equipment, net                                     |       |                         | 359,270    |                    |       | 344,532 |   |
| Product linefill  and tank bottom volumes                               |       |                         | 24,702     |                    |       | 24,325 |   |
| Unrealized gains  on derivative contracts                               |       |                         | 2          |                    |       | — |   |
| Investment in Lion  Oil Company                                         |       |                         | 10,131     |                    |       | 10,131 |   |
| Deferred debt  issuance costs, net                                      |       |                         | 9,253      |                    |       | 9,778 |   |
| Other assets, net                                                       |       |                         | 42,874     |                    |       | 23,725 |   |
|                                                                    |       |                         | $          | 1,316,684               |       |   | $ | 1,141,981 |   |
| **LIABILITIES,  PREFERRED STOCK, AND COMMON STOCKHOLDERS’ EQUITY** |       |                         |       |                    |       |   |   |
| Current liabilities:                                                    |       |                         |       |                    |       |   |   |
| Commodity margin loan                                                   |       |                         | $          | 10,000                  |       |   | $ | — |   |
| Working capital credit  facility                                        |       |                         | 60,500     |                    |       | — |   |
| Trade accounts payable                                                  |       |                         | 227,230    |                    |       | 212,040 |   |
| Income taxes payable                                                    |       |                         | 8,427      |                    |       | 29,801 |   |
| Unrealized losses on  derivative contracts                              |       |                         | 100,203    |                    |       | 47,215 |   |
| Inventory due to others  under exchange agreements                      |       |                         | 59,544     |                    |       | 16,429 |   |
| Excise taxes payable                                                    |       |                         | 59,420     |                    |       | 79,597 |   |
| Other accrued liabilities                                               |       |                         | 27,024     |                    |       | 20,791 |   |
| Deferred revenue—supply  chain management services                 |       |                         | 2,731      |                    |       | 3,981 |   |
|                                                                    |       |                         | 555,079    |                    |       | 409,854 |   |
| Other liabilities:                                                      |       |                         |       |                    |       |   |   |
| Long-term debt                                                          |       |                         | 231,000    |                    |       | 228,307 |   |
| Deferred tax liabilities                                                |       |                         | 50,543     |                    |       | 46,413 |   |
| Unrealized losses on  derivative contracts                              |       |                         | 225        |                    |       | 234 |   |
| Total liabilities                                                       |       |                         | 836,847    |                    |       | 684,808 |   |
| Non-controlling  interests in TransMontaigne Partners                   |       |                         | 82,601     |                    |       | 81,440 |   |
| Series B redeemable  convertible preferred stock                   |       |                         | 20,826     |                    |       | 49,249 |   |
| Common stockholders’ equity:                                       |       |                         |       |                    |       |   |   |
| Common stock                                                            |       |                         | 498        |                    |       | 456 |   |
| Capital in excess of par  value                                         |       |                         | 321,959    |                    |       | 299,681 |   |
| Deferred stock-based  compensation                                      |       |                         | —     |                    |       | (7,042 | ) |
| Retained earnings                                                       |       |                         | 53,953     |                    |       | 33,389 |   |
|                                                                    |       |                         | 376,410    |                    |       | 326,484 |   |
|                                                                    |       |                         | $          | 1,316,684               |       |   | $ | 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  September 30,** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                               | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Supply, distribution,  and marketing:                                    |       |                                                 |       |   |   |
| Revenues                                                                 |       | $                                                    | 2,954,136  |   | $ | 2,029,252 |   |
| Cost of product sold and other direct costs and  expenses                |       | (2,905,517                                           | )          | (2,005,096 | ) |
| Net operating margins                                                    |       | 48,619                                               |       | 24,156 |   |
| Terminals, pipelines,  and tugs and barges:                              |       |                                                 |       |   |   |
| Revenues                                                                 |       | 29,225                                               |       | 26,472 |   |
| Direct operating costs and expenses                                      |       | (18,696                                              | )          | (14,407 | ) |
| Net operating margins                                                    |       | 10,529                                               |       | 12,065 |   |
| Total net operating margins                                              |       | 59,148                                               |       | 36,221 |   |
| Costs and expenses:                                                      |       |                                                 |       |   |   |
| Selling, general and administrative expenses                             |       | (11,554                                              | )          | (10,433 | ) |
| Depreciation and amortization                                            |       | (6,581                                               | )          | (5,807 | ) |
| Gain (loss) on disposition of assets, net                                |       | 1,118                                                |       | (3,599 | ) |
| Total costs and expenses                                                 |       | (17,017                                              | )          | (19,839 | ) |
| Operating income                                                         |       | 42,131                                               |       | 16,382 |   |
| Other income (expenses):                                                 |       |                                                 |       |   |   |
| Dividend income                                                          |       | 583                                                  |       | 381 |   |
| Interest income                                                          |       | 326                                                  |       | 39 |   |
| Interest expense                                                         |       | (5,918                                               | )          | (6,323 | ) |
| Other financing  costs:                                                  |       |                                                 |       |   |   |
| Amortization of deferred debt issuance costs                             |       | (525                                                 | )          | (706 | ) |
| Write-off of debt issuance costs related to  former bank credit facility |       | —                                               |       | (3,392 | ) |
| Total other expenses                                                     |       | (5,534                                               | )          | (10,001 | ) |
| Earnings before income taxes                                             |       | 36,597                                               |       | 6,381 |   |
| Income tax  expense                                                      |       | (13,907                                              | )          | (2,553 | ) |
| Non-controlling  interests share in earnings of TransMontaigne Partners  |       | (1,807                                               | )          | — |   |
| Net earnings                                                             |       | 20,883                                               |       | 3,828 |   |
| Earnings  allocable to preferred stock                                   |       | (1,713                                               | )          | (846 | ) |
| Net earnings attributable to common stockholders                         |       | $                                                    | 19,170     |   | $ | 2,982 |   |
| Earnings per share:                                                      |       |                                                 |       |   |   |
| Basic net earnings per common share                                      |       | $                                                    | 0.41       |   | $ | 0.08 |   |
| Diluted net earnings per common share                                    |       | $                                                    | 0.38       |   | $ | 0.07 |   |
| Weighted average common  shares outstanding:                             |       |                                                 |       |   |   |
| Basic                                                                    |       | 46,943                                               |       | 39,493 |   |
| Diluted                                                                  |       | 54,938                                               |       | 51,276 |   |

 

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 three months ended September 30, 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)                    |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | (7,042     | )                                             |       |   | 7,042 |   |   |   | — |   |   |   | — |   |   |
| Common stock  issued for options exercised                                                          |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | 194        |                                          |       |   | — |   |   |   | — |   |   |   | 194 |   |   |
| Amortization of  deferred stock-based compensation                                             |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | 894        |                                          |       |   | — |   |   |   | — |   |   |   | 894 |   |   |
| Preferred stock  dividends                                                                          |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | —     |                                          |       |   | — |   |   |   | (468 | ) |   |   | (468 | ) |   |
| Amortization of  premium on Series B redeemable convertible preferred stock          |       |                                | (149       | )                 |       |                                                | —     |                                    |       |                                           | —     |                                          |       |   | — |   |   |   | 149 |   |   |   | 149 |   |   |
| Conversion of  Series B redeemable convertible preferred stock into common stock               |       |                                | (28,274    | )                 |       |                                                | 42         |                                    |       |                                           | 28,232     |                                          |       |   | — |   |   |   | — |   |   |   | 28,274 |   |   |
| Net earnings                                                                                        |       |                                | —     |              |       |                                                | —     |                                    |       |                                           | —     |                                          |       |   | — |   |   |   | 20,883 |   |   |   | 20,883 |   |   |
| **Balance  at September 30, 2005**                                                             |       |                                | $          | 20,826            |       |                                                |       | $                                       | 498        |                                           |       |                                          | $          | 321,959 |   |   |   | $ | — |   |   |   | $ | 53,953 |   |   |   | $ | 376,410 |   |   |

 

See accompanying notes to consolidated financial statements.

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

| ** **                                                                       | ** ** | **Three months ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| **Cash flows from operating activities:**                                        |       |                                                 |       |   |   |
| Net earnings                                                                     |       | $                                                    | 20,883     |   | $ | 3,828 |   |
| Adjustments to reconcile  net earnings to net cash used in operating activities: |       |                                                 |       |   |   |
| Amortization of  deferred revenue                                                |       | (1,572                                               | )          | (1,048 | ) |
| Depreciation and  amortization                                                   |       | 6,581                                                |       | 5,807 |   |
| Deferred tax  expense                                                            |       | —                                               |       | 2,723 |   |
| Amortization of  deferred stock-based compensation                               |       | 894                                                  |       | 630 |   |
| Amortization of  deferred debt issuance costs                                    |       | 525                                                  |       | 706 |   |
| Write-off of  debt issuance costs                                                |       | —                                               |       | 3,392 |   |
| (Gain) loss on  disposition of assets, net                                       |       | (1,118                                               | )          | 3,599 |   |
| Net change in  unrealized (gains) losses on long-term derivative contracts       |       | (12                                                  | )          | 2,571 |   |
| Non-controlling  interests share in earnings of TransMontaigne Partners          |       | 1,807                                                |       | — |   |
| Changes in operating  assets and liabilities, net of effects from acquisitions:  |       |                                                 |       |   |   |
| Trade accounts  receivable, net                                                  |       | (50,272                                              | )          | 1,037 |   |
| Inventories—discretionary  volumes                                          |       | (52,652                                              | )          | (6,682 | ) |
| Prepaid expenses  and other                                                      |       | 75                                                   |       | 1,217 |   |
| Trade accounts  payable                                                          |       | 12,217                                               |       | (14,472 | ) |
| Income taxes  payable                                                            |       | (21,374                                              | )          | — |   |
| Inventory due to  others under exchange agreements                               |       | 43,115                                               |       | 310 |   |
| Unrealized (gains)  losses on derivative contracts                               |       | 21,862                                               |       | 14,051 |   |
| Excise taxes  payable and other accrued liabilities                              |       | (17,494                                              | )          | (21,093 | ) |
| Net cash provided  by (used in) operating activities                             |       | (36,535                                              | )          | (3,424 | ) |
| **Cash flows from investing activities:**                                        |       |                                                 |       |   |   |
| Acquisition of  Radcliff, net of cash acquired                                   |       | (52,054                                              | )          | — |   |
| Acquisition of  terminals, pipelines, tugs and barges                            |       | —                                               |       | (7,618 | ) |
| Additions to  property, plant and equipment—expansion of facilities         |       | (1,875                                               | )          | (1,086 | ) |
| Additions to  property, plant and equipment—maintain existing facilities    |       | (318                                                 | )          | (1,010 | ) |
| Increase in  restricted cash held by commodity broker                            |       | (7,036                                               | )          | (2,681 | ) |
| Proceeds from  disposition of assets                                             |       | 1,118                                                |       | — |   |
| Other                                                                            |       | —                                               |       | 5 |   |
| Net cash provided  by (used in) investing activities                             |       | (60,165                                              | )          | (12,390 | ) |
| **Cash flows from financing activities:**                                        |       |                                                 |       |   |   |
| Net borrowings of  debt                                                          |       | 63,193                                               |       | 22,000 |   |
| Net borrowings of  commodity margin loan                                         |       | 10,000                                               |       | 3,762 |   |
| Deferred debt  issuance costs                                                    |       | —                                               |       | (3,082 | ) |
| Common stock  issued for options exercised                                       |       | 194                                                  |       | 78 |   |
| Distributions paid  to non-controlling interests in TransMontaigne Partners      |       | (646                                                 | )          | — |   |
| Preferred stock  dividends paid in cash                                          |       | (594                                                 | )          | — |   |
| Net cash provided  by (used in) financing activities                             |       | 72,147                                               |       | 22,758 |   |
| Increase  (decrease) in cash and cash equivalents                                |       | (24,553                                              | )          | 6,944 |   |
| Cash and cash  equivalents at beginning of period                                |       | 29,721                                               |       | 6,158 |   |
| Cash and cash  equivalents at end of period                                      |       | $                                                    | 5,168      |   | $ | 13,102 |   |
| **Supplemental disclosures of cash flow  information:**                          |       |                                                 |       |   |   |
| Cash paid for  (refund of) income taxes                                          |       | $                                                    | 35,282     |   | $ | (170 | ) |
| Cash paid for interest  expense                                                  |       | $                                                    | 1,255      |   | $ | 2,239 |   |

 

See accompanying notes to consolidated financial statements.

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**TransMontaigne Inc. and subsidiariesNotes to consolidatedfinancial statementsSeptember 30, 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 majority-owned subsidiaries. All significant inter-companyaccounts and transactions have been eliminated in consolidation, except forthroughput fees, storage fees, pipeline transportation fees, tug and barge feesand other fees charged to our supply, distribution and marketing operations byour terminals, pipelines, and tugs and barges. The related inter-companyrevenues and costs offset within total net operating margins in theaccompanying consolidated statement 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 torefiners, wholesalers, distributors, marketers, and industrial and commercialend-users of refined petroleum products. Our principal activities consistof (i) terminal, pipeline, and tug and barge operations, (ii) supply,distribution, and marketing, and (iii) managing the activities ofTransMontaigne Partners L.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 otherterms. We also have agreed to provide TransMontaigne Partners with certainoptions and rights of first refusal to purchase additional refined petroleumproduct terminal assets, and TransMontaigne Partners has agreed to provide uscertain rights of first refusal with respect to its assets and additionalterminal capacity added by TransMontaigne Partners in the future. Pursuant tothe terminaling and transportation services agreement, we agreed to transporton TransMontaigne Partners’ Razorback Pipeline and to throughput inTransMontaigne Partners’ terminals a volume of refined product that will resultin minimum revenues to TransMontaigne Partners of $5.0 million percalendar 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 thestorage contract; transportation revenues are recognized when the product hasbeen delivered 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 statement 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 statement 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 September 30,2005 and June 30, 2005, our open positions in risk management contractswere NYMEX futures contracts (purchases and sales) and NYMEX options (calls andputs).

**(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 sheet. 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 statement 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 statement 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 statement of operations.

We have presented bulktransactions that were “booked out” on a net basis in the consolidatedstatement 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 commoncarrier pipeline. 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 each interveningcounterparty, thus booking out the transaction. For the three months ended September 30,2005 and 2004, we booked out bulk transactions of approximately$332.0 million and $975.3 million, respectively. The booking out of abulk transaction has no effect on our net operating 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 sheet as currentassets and are carried at the lower of cost (first-in, first-out) or market(replacement cost). Inventories—discretionary volumes are as follows (inthousands):

| ** **                                   | ** ** | **September 30, 2005** | ** ** | **June 30, 2005** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **Amount**                       | ** ** | **Bbls**                    | ** ** | **Amount** | ** ** | **Bbls** | ** ** |
| Volumes held for  immediate sale or exchange |       | $                                | 170,866    |                        | 2,006      |   | $ | 153,123 |   | 2,415 |   |
| Volumes held for  base operations            |       | 160,443                          |       | 2,011                       |       | 121,651 |   | 2,011 |   |
| Inventories—discretionary  volumes      |       | $                                | 331,309    |                        | 4,017      |   | $ | 274,774 |   | 4,426 |   |

 

At September 30, 2005 and June 30, 2005, themarket value of our volumes held for immediate sale or exchange exceeded theircost basis by approximately $10.6 million and $2.1 million,respectively. At September 30, 2005 and June 30, 2005, the marketvalue of our volumes held for base operations exceeded their cost basis byapproximately $7.9 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 generally arefixed-term agreements that involve our receipt of a specified volume of productat one location in exchange for delivery by us of product at a differentlocation. At September 30, 2005 and June 30, 2005, currentliabilities include inventory due to others under exchange agreements ofapproximately 676,000 barrels and 296,000 barrels, respectively, with a fairvalue of approximately 

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$59.5 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 September 30, 2005and June 30, 2005, our product linefill and tank bottom volumes arepresented in the accompanying consolidated balance sheet 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 September 30, 2005and June 30, 2005, we had approximately 931,000 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 September 30, 2005and June 30, 2005, the market value of our product linefill and tankbottom volumes exceeded their cost basis by approximately $58.1 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** | ** ** | **September 30,  2005** | ** ** |
|-------------------------------------------------|------------|-------------------------|------------|---------------|------------|------------------|------------|------------------------------|------------|
| Senior secured  working capital credit facility |       |                    | $          | 3,422         |       |             |       | $                            | —     |   |   |   | $ | (202 | ) |   |   | $ | 3,220 |   |   |
| Senior  subordinated notes                      |       |                    | 5,455      |          |       |             | —     |                         |       |   | (277 | ) |   |   | 5,178 |   |   |
| TransMontaigne  Partners’ credit facility  |       |                    | 901        |          |       |             | —     |                         |       |   | (46 | ) |   |   | 855 |   |   |
|                                            |       |                    | $          | 9,778         |       |             |       | $                            | —     |   |   |   | $ | (525 | ) |   |   | $ | 9,253 |   |   |

 

**(n) Environmental Obligations**

At September 30, 2005and June 30, 2005, we had accrued environmental obligations ofapproximately $5.7 million and $6.1 million, respectively,representing our best estimate of our remediation obligations (see Note 9of Notes to consolidated financial statements). During the three months ended September 30,2005, we made payments of approximately $1.2 million towards ourenvironmental remediation obligations. During the three months ended September 30,2005, we charged to income approximately $0.2 million to increase ourestimate of our future environmental remediation obligations. During the threemonths ended September 30, 2005, we assumed approximately $0.6 million ofenvironmental remediation obligations in connection with our acquisition ofRadcliff (see Note 2 of Notes to consolidated financial statements). During thethree months ended September 30, 2005 and 2004, we received insurancerecoveries of approximately $0.1 million and $1.2 million, respectively, whichhave been recognized as a reduction of direct operating costs and expenses inthe accompanying consolidated statements of operations.

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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  September 30, 2004** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| Net earnings  (loss) attributable to common stockholders:             |       |                                                           |       |   |   |
| As reported                                                           |       |                                                           | $          | 2,982 |   |   |
| Amortization of the fair value of stock options  granted to employees |       |                                                           | (26        | ) |   |
| Pro forma                                                             |       |                                                           | $          | 2,956 |   |   |
| Earnings (loss)  per common share                                     |       |                                                           |       |   |   |
| As reported                                                           |       |                                                           |       |   |   |
| Basic                                                                 |       |                                                           | $          | 0.08 |   |   |
| Diluted                                                               |       |                                                           | $          | 0.07 |   |   |
| Pro forma                                                             |       |                                                           |       |   |   |
| Basic                                                                 |       |                                                           | $          | 0.07 |   |   |
| Diluted                                                               |       |                                                           | $          | 0.07 |   |   |

 

There were no options granted during the years ended June 30,2005, 2004 and 2003. The weighted average fair value at grant dates for optionsgranted during the year ended June 30, 2002 was $3.08. The primaryassumptions used to estimate the fair value of options granted on the date ofgrant using the Black-Scholes option-pricing model during the yearended June 30, 2002 were as follows: no dividend yield, expectedvolatility of 79%, risk-free rate of 4.49%, 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**

Basic earnings (loss) per common share is calculatedbased on the weighted average number of common shares outstanding during theperiod, excluding restricted common stock subject to continuing vestingrequirements. Diluted earnings (loss) per share is calculated based on theweighted average number of common shares outstanding during the period and,when dilutive, potential common shares from the exercise of stock options andwarrants to purchase common stock and restricted common stock 

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subject to continuingvesting requirements pursuant to the treasury stock method. Diluted earnings(loss) per share also gives effect, when dilutive, to the conversion of thepreferred stock pursuant to the if-converted method.

In the event dividends ona per share equivalent basis are declared on our common stock in excess of thedividends declared on the Series B redeemable convertible preferred stock,the Series B redeemable convertible preferred stock will participate as ifthe Series B redeemable convertible preferred stock was converted intocommon stock. Accordingly, the Series B redeemable convertible preferredstock has been determined to be a “participating” security for purposes ofcomputing earnings per share.

**(q) Reclassifications**

Certain amounts in theprior period have been reclassified to conform to the current period’spresentation. Net earnings and stockholders’ equity have not been affected bythese reclassifications.

**(2)   ACQUISITIONS**

OnAugust 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 Radclifffacilities from the closing date of the transaction (August 1, 2005). Thepurchase price was allocated to the assets and liabilities acquired based uponthe estimated fair value of the assets and liabilities as of the acquisitiondate. The purchase price was allocated as follows (in thousands):

| ** **                                                                | ** ** | **Radcliff** | ** ** |
|---------------------------------------------------------------------------|------------|--------------|------------|
| Trade accounts  receivable, net of allowance for doubtful accounts of $47 |       | $            | 20,097     |   |
| Discretionary  inventory, product linefill and tank bottom volumes        |       | 4,259        |       |
| Property, plant  and equipment                                            |       | 16,779       |       |
| Deferred tax  assets                                                      |       | 303          |       |
| Goodwill                                                                  |       | 19,384       |       |
| Other assets                                                              |       | 521          |       |
| Trade accounts  payable                                                   |       | (3,304       | )          |
| Accrued  environmental obligations                                        |       | (605         | )          |
| Deferred tax  liabilities                                                 |       | (4,130       | )          |
| Due to former  Radcliff stockholders                                      |       | (1,000       | )          |
| Other assumed  liabilities                                                |       | (250         | )          |
| Cash paid, net of  cash acquired                                          |       | $            | 52,054     |   |

 

Theunaudited pro forma combined results of operations as if the acquisition of theRadcliff facilities had occurred on July 1, 2004 are as follows (inthousands, except per share data):

| ** **               | ** ** | **Three months ended ** | ** ** | **Three months ended ** | ** ** |
|--------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **               | ** ** | **September 30,**                 | ** ** | **September 30,**                 | ** ** |
| ** **               | ** ** | **2005**                               | ** ** | **2004**                               | ** ** |
| Revenue                  |       |                                   | $          | 3,004,866                              |       |   |   | $ | 2,099,643 |   |   |
| Net earnings             |       |                                   | $          | 20,848                                 |       |   |   | $ | 5,226 |   |   |
| Basic earnings per share |       |                                   | $          | 0.41                                   |       |   |   | $ | 0.10 |   |   |

 

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**(3)   DISPOSITIONOF ASSETS**

Gain on disposition ofassets, net for the three months ended September 30, 2005, reflects thefinal insurance recovery of approximately $1.1 million on the involuntaryconversion of our historical Pensacola terminal facilities. Loss on dispositionof assets, net for the three months ended September 30, 2004, consistsprincipally of an approximately $3.6 million loss on the involuntaryconversion of our historical Pensacola terminal facilities due to the damagecaused by Hurricane Ivan.

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

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

| ** **                            | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|---------------------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                            | ** ** | **2005**               | ** ** | **2005**          | ** ** |
| Trade accounts  receivable            |       |                   | $          | 453,319           |       |   | $ | 382,324 |   |
| Less allowance  for doubtful accounts |       |                   | (630       | )                 |       | (553 | ) |
|                                  |       |                   | $          | 452,689           |       |   | $ | 381,771 |   |

 

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

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

| ** **                         | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|------------------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                         | ** ** | **2005**               | ** ** | **2005**          | ** ** |
| Unrealized gains—current      |       |                   | $          | 39,068            |       |   | $ | 7,620 |   |
| Unrealized  gains—non-current |       |                   | 2          |              |       | — |   |
| Unrealized gains—asset        |       |                   | 39,070     |              |       | 7,620 |   |
| Unrealized  losses—current    |       |                   | (100,203   | )                 |       | (47,215 | ) |
| Unrealized  losses—long-term  |       |                   | (225       | )                 |       | (234 | ) |
| Unrealized losses—liability   |       |                   | (100,428   | )                 |       | (47,449 | ) |
| Net asset  (liability)             |       |                   | $          | (61,358           | )          |   | $ | (39,829 | ) |

 

At September 30, 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 commodity priceson open futures contracts.

At September 30,2005, included in unrealized gains—current is an unrealized gain ofapproximately $0.2 million related to certain short positions taken in theNYMEX options market. At June 30, 2005, included in unrealized losses—currentis an unrealized loss of approximately $3.6 million related to short positionstaken in the NYMEX options market.

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

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

| ** **                          | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|-------------------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                          | ** ** | **2005**               | ** ** | **2005**          | ** ** |
| Prepaid insurance                   |       |                   | $          | 1,566             |       |   |   | $ | 2,246 |   |   |
| Amounts due from  insurance carrier |       |                   | 2,072      |              |       |   | 954 |   |   |
| Asset held for  sale                |       |                   | —     |              |       |   | 1,200 |   |   |
| Prepaid business  taxes             |       |                   | 322        |              |       |   | 552 |   |   |
| Additive  detergent                 |       |                   | 908        |              |       |   | 985 |   |   |
| Prepaid software  maintenance fees  |       |                   | 74         |              |       |   | 105 |   |   |
| Other                               |       |                   | 872        |              |       |   | 725 |   |   |
|                                |       |                   | $          | 5,814             |       |   |   | $ | 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 monthsended September 30, 2005, we decided to retain the land at our historicalPensacola terminal facilities to augment the Pensacola terminal facilities thatwe acquired from Radcliff (see Note 2 of Notes to consolidated financialstatements). In prior periods, asset held for sale was carried at the lower ofcost or fair value less costs of disposition and consisted of the land held forsale at our historical Pensacola terminal facilities.

**(7)   PROPERTY, PLANT AND EQUIPMENT**

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

| ** **                          | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|-------------------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                          | ** ** | **2005**               | ** ** | **2005**          | ** ** |
| Land                                |       |                   | $          | 42,910            |       |   | $ | 38,710 |   |
| Terminals,  pipelines and equipment |       |                   | 387,036    |              |       | 374,213 |   |
| Technology and  equipment           |       |                   | 14,754     |              |       | 14,751 |   |
| Tugs and barges                     |       |                   | 30,278     |              |       | 27,277 |   |
| Furniture,  fixtures and equipment  |       |                   | 6,784      |              |       | 6,784 |   |
| Construction in  progress           |       |                   | 2,394      |              |       | 1,747 |   |
|                                |       |                   | 484,156    |              |       | 463,482 |   |
| Less accumulated  depreciation      |       |                   | (124,886   | )                 |       | (118,950 | ) |
|                                |       |                   | $          | 359,270           |       |   | $ | 344,532 |   |

 

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**(8)   OTHERASSETS**

Otherassets are as follows (in thousands):

| ** **                                                                                    | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                                                                                    | ** ** | **2005**               | ** ** | **2005**          | ** ** |
| Prepaid  transportation                                                                       |       |                   | $          | 737               |       |   | $ | 326 |   |
| Goodwill                                                                                      |       |                   | 26,237     |              |       | 6,853 |   |
| Product supply  agreement, net of accumulated amortization of $1,564 and $1,043, respectively |       |                   | 13,036     |              |       | 13,557 |   |
| Acquired  intangible, net of accumulated amortization of $1,292 and $1,167,  respectively     |       |                   | 1,208      |              |       | 1,333 |   |
| Commodity trading  membership                                                                 |       |                   | 1,500      |              |       | 1,500 |   |
| Deposits and  other assets                                                                    |       |                   | 156        |              |       | 156 |   |
|                                                                                          |       |                   | $          | 42,874            |       |   | $ | 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 $6.60per 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 ACCRUED LIABILITIES**

Otheraccrued liabilities are as follows (in thousands):

| ** **                                          | ** ** | **September 30,** | ** ** | **June 30,** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                                          | ** ** | **2005**               | ** ** | **2005**          | ** ** |
| Accrued  environmental obligations                  |       |                   | $          | 5,736             |       |   | $ | 6,148 |   |
| Accrued lease  abandonment                          |       |                   | 1,620      |              |       | 1,798 |   |
| Accrued  indemnities—NORCO                     |       |                   | 1,000      |              |       | 1,000 |   |
| Accrued  transportation and deficiency obligations  |       |                   | 254        |              |       | 640 |   |
| Accrued property  taxes                             |       |                   | 2,689      |              |       | 2,245 |   |
| Assumed  litigation costs—Coastal Fuels assets |       |                   | 325        |              |       | 325 |   |
| Dividend  payable—preferred stock              |       |                   | 583        |              |       | 708 |   |
| Accrued interest  payable                           |       |                   | 6,152      |              |       | 1,521 |   |
| Customer advances  and deposits                     |       |                   | 1,462      |              |       | 1,773 |   |
| Accrued expenses  and other                         |       |                   | 7,203      |              |       | 4,633 |   |
|                                                |       |                   | $          | 27,024            |       |   | $ | 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 sales officein Coral Gables, Florida. The accrual for the abandonment of the office leasesrepresents the excess of the remaining lease payments subsequent to vacancy ofthe space by us over the estimated sublease rentals to be received based oncurrent market conditions. At September 30, 2005 and June 30, 2005,the accrued liability for lease abandonment costs was approximately$1.6 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  September 30,  2005** | ** ** |
|----------------------------|------------|---------------------------------------------------------|------------|----------------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                 | ** ** | **(in thousands)**                                 | ** ** |
| Accrued lease  abandonment |       |                                                    | $          | 1,798                                              |       |                                           |       | $                                                        | —     |   |   |   | $ | (178 | ) |   |   | $ | 1,620 |   |   |
|                            |            |                                                         |            |                                                    |            |                                                |            |                                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Weexpect to pay the accrued liability of approximately $1.6 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)            |       |       | $          | 789                 |       |                             |       | $                      | (261       | ) |   |   | $ | 528 |   |   |
| 2007                                     |       |       | 995        |                |       |                             | (346       | )                      |       |   | 649 |   |   |
| 2008                                     |       |       | 306        |                |       |                             | (159       | )                      |       |   | 147 |   |   |
| 2009                                     |       |       | 313        |                |       |                             | (165       | )                      |       |   | 148 |   |   |
| 2010                                     |       |       | 318        |                |       |                             | (170       | )                      |       |   | 148 |   |   |
|                                     |       |       | $          | 2,721               |       |                             |       | $                      | (1,101     | ) |   |   | $ | 1,620 |   |   |

 

**(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 threemonths ended September 30, 2005, we originated retail and delivered fuelprice management contracts with an estimated fair value of approximately$0.3 million, representing the excess of the amounts we expect to receivefrom the ground fleet customers and jobbers over our estimate of the forwardprice curve of the underlying commodity adjusted for location 

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differentials. We have deferred the estimated fairvalue of these contracts at origination because our estimate of the fair valueis not evidenced 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 thethree months ended September 30, 2005, we recognized approximately$1.6 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  September 30, 2005** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------|------------|-------------------------------------------------------------|------------|
| Retail price  management contracts         |       |                                                   | $          | 968                                    |       |                                            |       | $                                                           | —     |   |   |   | $ | (531 | ) |   |   | $ | 437 |   |   |
| Delivered fuel  price management contracts |       |                                                   | 3,013      |                                   |       |                                            | 322        |                                                        |       |   | (1,041 | ) |   |   | 2,294 |   |   |
|                                       |       |                                                   | $          | 3,981                                  |       |                                            |       | $                                                           | 322        |   |   |   | $ | (1,572 | ) |   |   | $ | 2,731 |   |   |

 

**(11)   DEBT**

Debtis as follows (in thousands):

| ** **                                      | ** ** | **September 30,  2005** | ** ** | **June 30,  2005** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|-------------------------|------------|
| Commodity margin  loan                          |       |                         | $          | 10,000                  |       |   | $ | — |   |
| Senior secured  working capital credit facility |       |                         | 60,500     |                    |       | — |   |
| Senior  subordinated notes                      |       |                         | 200,000    |                    |       | 200,000 |   |
|                                            |       |                         | 270,500    |                    |       | 200,000 |   |
| TransMontaigne  Partners’ credit facility  |       |                         | 31,000     |                    |       | 28,307 |   |
|                                            |       |                         | 301,500    |                    |       | 228,307 |   |
| Less debt  classified as current                |       |                         | (70,500    | )                       |       | — |   |
| Long-term debt                                  |       |                         | $          | 231,000                 |       |   | $ | 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 1.75% (5.3% at September 30,2005).

*SeniorSecured Working Capital Credit Facility.**  *The Senior Secured Working CapitalCredit Facility provides for a maximum borrowing line of credit equal to thelesser of (i) $400 million and (ii) the borrowing base($552 million at September 30, 2005), which is a function, amongother things, of our cash, accounts receivable, inventory, exchanges, margindeposits and certain reserve adjustments as defined in the facility.Outstanding letters of credit ($104 million at September 30, 2005)are counted against the maximum borrowing capacity available at any time.Borrowings under the Senior Secured Working Capital Credit Facility bearinterest (at our option) based on a base rate plus an applicable margin, orLIBOR plus an applicable margin; the applicable margins are a function of theaverage excess borrowing base availability (as defined therein). Interest onloans under the Senior Secured Working Capital Credit Facility will be due andpayable periodically, based on the applicable interest rate and relatedinterest period, generally each one, two or three months. The weighted averageinterest rate on borrowings under the Senior Secured Working Capital CreditFacility was 4.9% during the three months ended September 30, 2005. Inaddition, we will pay a commitment fee ranging from 0.25% to 0.50% per annum onthe total amount of the unused commitments. Borrowings under the Senior SecuredWorking Capital Credit Facility are secured by, among other things, our cash,accounts receivable, inventories, certain 

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terminal facilities withan orderly liquidation value of not less than $100 million, and certainother current assets. The only financial covenant contained in the SeniorSecured Working Capital Credit Facility is a minimum fixed charge coverageratio test that is computed on a quarterly basis and becomes applicablewhenever the average availability falls below $50 million for the lastmonth of any quarter (average availability was $288 million for the monthended September 30, 2005). In that event, we must satisfy a minimum fixedcharge coverage ratio requirement of 110%. The principal balance of loans andany accrued and unpaid interest will be due and payable in full on the maturitydate, September 13, 2009.

*TransMontaignePartners’ Credit Facility.**  *On May 9, 2005, TransMontaigne Partners enteredinto a $75 million senior secured credit facility. The credit facilityprovides for a maximum borrowing line of credit equal to the lesser of (i) $75 millionand (ii) four times Consolidated EBITDA of TransMontaigne Partners (asdefined; $68.2 million at September 30, 2005). Borrowings under thecredit facility bear interest (at TransMontaigne Partners’ option) based on abase rate plus an applicable margin, or LIBOR plus an applicable margin; theapplicable margins are a function of the total leverage ratio (as defined).Interest on loans under the credit facility will be due and payableperiodically, based on the applicable interest rate and related interestperiod, generally either one, two or three months. The weighted averageinterest rate on borrowings under the TransMontaigne Partners’ credit facilitywas 5.4% during the three months ended September 30, 2005. In addition,TransMontaigne Partners will pay a commitment fee ranging from 0.375% to 0.50%per annum on the total amount of the unused commitments. Borrowings under theTransMontaigne 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. Theprincipal balance of loans and any accrued and unpaid interest will be due andpayable in full on the maturity date, May 9, 2010.

The TransMontaigne Partners’ credit facility alsocontains customary representations and warranties (including those relating toorganization and authorization, compliance with laws, absence of defaults,material agreements and litigation) and customary events of default (includingthose relating to monetary defaults, covenant defaults, cross defaults andbankruptcy events). The primary financial covenants contained in theTransMontaigne Partners’ credit facility are a total leverage ratio test (notto exceed four times) and an interest coverage ratio test (not to be less thanthree times).

*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 Subordinated Notesmature on June 1, 2010 and interest is payable semi-annually in arrears oneach June 1 and December 1 commencing on December 1, 2003. TheSenior Subordinated Notes are unsecured and subordinated to all of our existingand future senior debt. Upon certain change of control events, each holder ofthe Senior Subordinated Notes may require us to repurchase all or a portion ofits notes at a purchase price equal to 101% of the principal amount thereof,plus accrued interest. The indenture governing the Senior Subordinated Notescontains covenants that, among other things, limit our ability to incuradditional indebtedness, pay dividends on, redeem or repurchase our commonstock, make investments, make certain dispositions of assets, engage intransactions with affiliates, create certain liens, and consolidate, merge, ortransfer all or substantially all of our assets. The Senior Subordinated Notesare fully and unconditionally guaranteed on a joint and several basis by oursubsidiaries other than (1) minor subsidiaries that are inactive and haveno assets or operations and (2) since May 27, 2005, TransMontaignePartners L.P. and its general partner and the wholly-owned subsidiaries ofTransMontaigne 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 

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obligations. There are norestrictions on our ability to obtain funds from our subsidiaries other thanTransMontaigne Partners L.P. TransMontaigne Partners L.P. is not a party to theindenture governing the Senior Subordinated Notes and, therefore,TransMontaigne Partners L.P. and its subsidiaries are not guarantors of theSenior 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 September 30, 2005 is asfollows:

| ** **                                                     | ** ** | **TransMontaigne Inc.  and guarantor  subsidiaries** | ** ** | **TransMontaigne  Partners and non-  guarantor  subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|
| **Assets**                                                     |       |                                                           |       |                                                                     |       |             |       |             |       |   |   |   |   |   |   |
| Current assets                                                 |       |                                                           | $          | 868,376                                                                  |       |             |       | $                | 6,008      |   |   |   | $ | (3,932 | ) |   | $ | 870,452 |   |
| Property, plant  and equipment, net                            |       |                                                           | 244,100    |                                                                     |       |             | 115,170    |             |       |   | — |   |   | 359,270 |   |
| Other assets                                                   |       |                                                           | 91,909     |                                                                     |       |             | 2,072      |             |       |   | (7,019 | ) |   | 86,962 |   |
|                                                           |       |                                                           | $          | 1,204,385                                                                |       |             |       | $                | 123,250    |   |   |   | $ | (10,951 | ) |   | $ | 1,316,684 |   |
| **Liabilities  and Equity**                                    |       |                                                           |       |                                                                     |       |             |       |             |       |   |   |   |   |   |   |
| Current  liabilities                                           |       |                                                           | $          | 556,381                                                                  |       |             |       | $                | 2,630      |   |   |   | $ | (3,932 | ) |   | $ | 555,079 |   |
| Long-term  debt                                                |       |                                                           | 200,000    |                                                                     |       |             | 31,000     |             |       |   | — |   |   | 231,000 |   |
| Other liabilities                                              |       |                                                           | 50,768     |                                                                     |       |             | —     |             |       |   | — |   |   | 50,768 |   |
| Non-controlling  interests                                     |       |                                                           | —     |                                                                     |       |             | —     |             |       |   | 82,601 |   |   | 82,601 |   |
| Preferred stock                                                |       |                                                           | 20,826     |                                                                     |       |             | —     |             |       |   | — |   |   | 20,826 |   |
| Partners’ equity                                          |       |                                                           | —     |                                                                     |       |             | 89,620     |             |       |   | (89,620 | ) |   | — |   |
| Common  stockholders’ equity                              |       |                                                           | 376,410    |                                                                     |       |             | —     |             |       |   | — |   |   | 376,410 |   |
|                                                           |       |                                                           | $          | 1,204,385                                                                |       |             |       | $                | 123,250    |   |   |   | $ | (10,951 | ) |   | $ | 1,316,684 |   |
| **Statement  of Operations**                                   |       |                                                           |       |                                                                     |       |             |       |             |       |   |   |   |   |   |   |
| Revenues                                                       |       |                                                           | $          | 2,972,961                                                                |       |             |       | $                | 10,400     |   |   |   | $ | — |   |   | $ | 2,983,361 |   |
| Cost of product  sold and direct  operating costs and expenses |       |                                                           | (2,920,377 | )                                                                        |       |             | (3,836     | )                |       |   | — |   |   | (2,924,213 | ) |
| Costs and  expenses                                            |       |                                                           | (14,088    | )                                                                        |       |             | (2,929     | )                |       |   | — |   |   | (17,017 | ) |
| Other income  (expenses)                                       |       |                                                           | (3,706     | )                                                                        |       |             | (509       | )                |       |   | (1,319 | ) |   | (5,534 | ) |
| Income tax  expense                                            |       |                                                           | (13,907    | )                                                                        |       |             | —     |             |       |   | — |   |   | (13,907 | ) |
| Non-controlling  interests share in  earnings                  |       |                                                           | —     |                                                                     |       |             | —     |             |       |   | (1,807 | ) |   | (1,807 | ) |
| Net earnings                                                   |       |                                                           | $          | 20,883                                                                   |       |             |       | $                | 3,126      |   |   |   | $ | (3,126 | ) |   | $ | 20,883 |   |
| **Statement  of Cash Flows**                                   |       |                                                           |       |                                                                     |       |             |       |             |       |   |   |   |   |   |   |
| Net cash (used  in) operating activities                       |       |                                                           | $          | (36,043                                                                  | )          |             |       | $                | (492       | ) |   |   | $ | — |   |   | $ | (36,535 | ) |
| Net cash (used  in) investing activities                       |       |                                                           | (59,597    | )                                                                        |       |             | (568       | )                |       |   | — |   |   | (60,165 | ) |
| Net cash provided  by financing  activities                    |       |                                                           | 70,553     |                                                                     |       |             | 1,594      |             |       |   | — |   |   | 72,147 |   |
| Increase  (decrease) in cash and cash equivalents              |       |                                                           | (25,087    | )                                                                        |       |             | 534        |             |       |   | — |   |   | (24,553 | ) |
| Cash at beginning  of period                                   |       |                                                           | 29,480     |                                                                     |       |             | 241        |             |       |   | — |   |   | 29,721 |   |
| Cash at end of period                                          |       |                                                           | $          | 4,393                                                                    |       |             |       | $                | 775        |   |   |   | $ | — |   |   | $ | 5,168 |   |

 

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 

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information as of and forthe three months ended September 30, 2004, because such information wouldbe substantially duplicative with the accompanying consolidated financialstatements. TransMontaigne Partners completed its initial public offering andcommenced operations on May 27, 2005.

Scheduledmaturities of debt at September 30, 2005 are as follows (in thousands):

| **Years ending June 30:** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|------------|------------|
| 2005                                     |       | $          | 10,000     |       |
| 2006                                     |       | —     |       |
| 2007                                     |       | —     |       |
| 2008                                     |       | —     |       |
| 2009                                     |       | —     |       |
| Thereafter                               |       | 291,500    |       |
|                                     |       | $          | 301,500    |       |

 

**(12)   PREFERREDSTOCK**

At September 30,2005 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):

| ** **                                                                                                                                                                                                    | ** ** | **September 30,  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 |       |                         | $          | 20,826                  |       |   | $ | 49,249 |   |
|                                                                                                                                                                                                               |            |                              |            |                         |            |  |  |  |  |

 

At September 30, 2005 and June 30, 2005,there are 20,063 and 47,195 shares, respectively, of Series B redeemable convertiblepreferred stock outstanding. During the three months ended September 30,2005, 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 preferred stockhas a liquidation value of $1,000 per share, bears dividends at the rate of 6%per annum of the liquidation value, and is mandatorily redeemable between June 30,2007 and December 31, 2007 for shares of common stock and/or cash at ouroption, subject to limitations on the total number of shares of common stockpermitted to be used in the exchange and issued to any stockholder. Dividendsare cumulative and payable quarterly. The dividends are payable in cash, unlessprecluded by contract or the senior secured working capital credit facility, inwhich case dividends are payable in additional shares of Series B redeemableconvertible preferred stock. The Series B redeemable convertible preferredstock may be put to us, at the option of the holder, for cash equal to thegreater of its liquidation value or conversion value upon the future occurrenceof a fundamental change (including those relating to sale of substantially allof the assets, delisting of our common stock from a national exchange, changein control, bankruptcy filing, and an event of default that accelerates therepayment of our debt). We may call the outstanding shares of Series B redeemableconvertible preferred stock after June 30, 2005 if certain specifiedconditions are met. The Series B redeemable convertible preferred stock isconvertible, at the option of the holder, into common stock at $6.60 per share,subject to adjustment upon the occurrence of specified future events. Theholders of the Series B redeemable convertible preferred stock have theright to vote on all matters (except the election of directors) with theholders of the common stock (voting collectively as a single class).

Preferred stock dividends on the Series B redeemableconvertible preferred stock were $0.3 million and $0.7 million for thethree months ended September 30, 2005 and 2004, respectively. The amountof the Series B redeemable convertible preferred stock dividend recognizedfor financial reporting purposes for 

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the three months ended September 30,2005 and 2004, is composed of the amount of the dividend payable and paid tothe holders of the Series B redeemable convertible preferred stock of$0.5 million and $1.1 million, respectively, offset by the amortization ofthe premium on the carrying amount of the Series B redeemable convertible preferredstock of $0.2 million and $0.4 million, respectively.

At its issuance date (June 28,2002), the fair value of the Series B redeemable convertible preferred stockexceeded its liquidation value. The 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.

**(13)   COMMON STOCK**

At September 30, 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 September 30, 2005 and June 30, 2005,there were 49,753,938 shares and 45,586,475 shares issued and outstanding,respectively. Our senior secured working capital credit facility, senior subordinatednotes and the certificate of designations of our Series B 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 three months ended September 30, 2005 and the year endedJune 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                                           |       |                  | 20,000     |                   |       |                     | —     |   |   |   | 20,000 |   |   |
| Cancelled                                         |       |                  | (15,300    | )                      |       |                     | —     |   |   |   | (15,300 | ) |   |
| Outstanding at  September 30, 2005           |       |                  | 2,510,928  |                   |       |                     | 868,928    |   |   |   | 1,642,000 |   |   |

 

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.

On September 15, 2005, we granted awards of20,000 shares of restricted common stock to new employees. The deferred stockbased compensation associated with those awards was approximately $0.2 million,which is being amortized into income over their four-year vesting period.

Amortization of deferredcompensation of approximately $0.9 million and $0.6 million isincluded in selling, general and administrative expense for the three monthsended September 30, 2005 and 2004, respectively.

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**(14)**   STOCKOPTIONS

Informationabout stock option activity for the three months ended September 30, 2005and the 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       |   |   |
| Exercised                               |       | (51,800    | )          |                                   | 3.75       |   |   |
| Outstanding at  September 30, 2005 |       | 716,102    |       |                                   | $          | 4.61 |   |   |
| Exercisable at September 30, 2005  |       | 686,102    |       |                                   | $          | 4.59 |   |   |

 

Informationabout stock options outstanding under the 1997 Plan at September 30, 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                            |       |       | 703,602    |                    |       |                                                      | 5.5        |                                        |       |   | $ | 4.48 |   |   |   | 673,602 |   |   |   | $ | 4.45 |   |   |
| $11.00 - 13.50                          |       |       | 11,500     |                    |       |                                                      | 3.3        |                                        |       |   | $ | 11.65 |   |   |   | 11,500 |   |   |   | $ | 11.65 |   |   |
| $17.25                                  |       |       | 1,000      |                    |       |                                                      | 1.9        |                                        |       |   | $ | 17.25 |   |   |   | 1,000 |   |   |   | $ | 17.25 |   |   |
|                                    |       |       | 716,102    |                    |       |                                                      |       |                                        |       |   |   |   |   |   | 686,102 |   |   |   |   |   |   |
|                                         |            |            |            |                         |            |                                                           |            |                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(15)   WARRANTS**

On November 23,2004, we granted to MSCG warrants to acquire 5.5 million shares of ourcommon stock at an exercise price of $6.60 per share as partial considerationfor agreeing to enter into a 7-year product supply agreement. The fairvalue of 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 AND CONTINGENCIES**

*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 September 30, 2005 and June 30, 2005,we have 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 

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liability of approximately$0.6 million representing our estimate of the future amounts we expect topay for the shortfall in volumes for the remainder of the term of theagreement. During the three months ended September 30, 2005, we paidapproximately $0.4 million as settlement for our shortfall in volumes for theyear ended June 30, 2005.

At September 30,2005 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 the transportationagreement, to apply the amounts to charges for using the interstate pipeline inthe future (see Note 8 of Notes to consolidated financial statements).

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

 

*Operating Leases.**  *At September 30, 2005, futureminimum lease payments under our 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)            |       | $          | 1,128      |              |       | $                    | 3,423      |                                          |       |                             | $          | 1,619 |   |   |   | $ | 330 |   |   |
| 2007                                     |       | 1,490      |       |              | —     |                 |       |                                          | 1,573      |                             |       |   | 368 |   |   |
| 2008                                     |       | 1,648      |       |              | —     |                 |       |                                          | 1,160      |                             |       |   | 297 |   |   |
| 2009                                     |       | 1,630      |       |              | —     |                 |       |                                          | 195        |                             |       |   | 177 |   |   |
| 2010                                     |       | 1,695      |       |              | —     |                 |       |                                          | 92         |                             |       |   | 75 |   |   |
| Thereafter                               |       | 2,478      |       |              | —     |                 |       |                                          | 5          |                             |       |   | 194 |   |   |
|                                     |       | $          | 10,069     |              |       | $                    | 3,423      |                                          |       |                             | $          | 4,644 |   |   |   | $ | 1,441 |   |   |

 

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

| ** **                      | ** ** | **Three months  ended  September 30,** | ** ** |
|---------------------------------|------------|--------------------------------------------------|------------|
| ** **                      | ** ** | **2005**                                         | ** ** | **2004** | ** ** |
| Office space                    |       | $                                                | 342        |   | $ | 359 |   |
| Vessel charters                 |       | 1,108                                            |       | 3,133 |   |
| Terminal and  pipeline capacity |       | 925                                              |       | 1,371 |   |
| Property and  equipment         |       | 213                                              |       | 135 |   |
|                            |       | $                                                | 2,588      |   | $ | 4,998 |   |

 

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**(17)   EARNINGS PER SHARE**

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

| ** **                                                          | ** ** | **Three months  ended  September 30,** | ** ** |
|---------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                          | ** ** | **2005**                                         | ** ** | **2004** | ** ** |
| Basic weighted  average shares                                      |       | 46,943                                           |       | 39,493 |   |
| Effect of  dilutive securities:                                     |       |                                             |       |   |   |
| Restricted common stock subject to continuing  vesting requirements |       | 1,282                                            |       | 312 |   |
| Stock options                                                       |       | 418                                              |       | 262 |   |
| Series B redeemable convertible preferred stock                |       | 4,194                                            |       | 11,209 |   |
| MSCG warrants                                                       |       | 2,101                                            |       | — |   |
| Diluted weighted average  shares                                    |       | 54,938                                           |       | 51,276 |   |

 

Weexclude potentially dilutive securities from our computation of diluted earningsper share when their effect would be anti-dilutive. The following securitieswere excluded from the dilutive earnings per share computation for the threemonths ended September 30, 2005, as their inclusion would have beenanti-dilutive (in thousands):

| ** **                                            | ** ** | **September 30,** | ** ** |
|-------------------------------------------------------|------------|------------------------|------------|
| ** **                                            | ** ** | **2005**               | ** ** |
| Common stock  issuable upon exercise of stock options |       |                   | 13         |   |   |
|                                                       |            |                        |            |  |  |

 

For the three months endedSeptember 30, 2005, the stock options had a weighted average exerciseprice of $12.10 per share.

**(18)   BUSINESS SEGMENTS**

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 tugs and barges and (ii) supply, distribution and marketing.

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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 statement 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 be appropriatelyevaluated using the mark-to-market method. Our inventories—discretionaryvolumes are carried at the lower of cost or market in the accompanyinghistorical consolidated balance sheets, while our derivative and riskmanagement contracts are carried at fair value. As a result, if refinedpetroleum product prices are increasing during the end of a quarter, we mayreport in the accompanying historical statement of operations significantlosses on derivative and risk management contracts and significant deferredgains on discretionary inventory volumes at the end of that quarter and reportsignificant gains on our beginning inventories—discretionary volumes when theyare sold in the following quarter. Therefore, the effects of changes in thefair 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  September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                                  | ** ** | **2005**                                         | ** ** | **2004** | ** ** |
| **Terminals,  pipelines, and tugs and barges:**                                                                                             |       |                                             |       |   |   |
| TransMontaigne Partners L.P. facilities                                                                                                     |       | $                                                | 6,564      |   | $ | 4,306 |   |
| Brownsville facilities                                                                                                                      |       | 1,397                                            |       | 850 |   |
| Southeast facilities                                                                                                                        |       | 3,292                                            |       | 5,011 |   |
| River facilities                                                                                                                            |       | 41                                               |       | 651 |   |
| Other                                                                                                                                       |       | (765                                             | )          | 1,247 |   |
| Margins                                                                                                                                     |       | 10,529                                           |       | 12,065 |   |
| **Supply,  distribution and marketing:**                                                                                                    |       |                                             |       |   |   |
| Light  oils—marketing margins:                                                                                                         |       |                                             |       |   |   |
| TransMontaigne Partners L.P. facilities                                                                                                     |       | 7,030                                            |       | 2,700 |   |
| Brownsville facilities                                                                                                                      |       | —                                           |       | — |   |
| Southeast facilities                                                                                                                        |       | (16,714                                          | )          | 993 |   |
| River facilities                                                                                                                            |       | 1,024                                            |       | 759 |   |
| Other                                                                                                                                       |       | 1,080                                            |       | 36 |   |
|                                                                                                                                        |       | (7,580                                           | )          | 4,488 |   |
| Heavy oils—marketing margins                                                                                                           |       | 3,460                                            |       | 2,570 |   |
| Supply chain management services margins                                                                                                    |       | 1,180                                            |       | 3,040 |   |
| Margins                                                                                                                                     |       | (2,940                                           | )          | 10,098 |   |
| **Inventory  procurement and management:**                                                                                                  |       |                                             |       |   |   |
| Increase in value of light oil volumes nominated  under the MSCG product supply agreement prior to receipt of the product at  our terminals |       | 79,084                                           |       | — |   |
| Increase in value of base operating inventory                                                                                               |       | 46,424                                           |       | 39,956 |   |
| Losses from risk management of base operating  inventory and light oil volumes nominated under the MSCG product supply  agreement           |       | (28,755                                          | )          | — |   |
| Storage fees for light oil tank capacity                                                                                                    |       | (457                                             | )          | (2,245 | ) |
| Other financial and costing variances, net                                                                                                  |       | (28,654                                          | )          | (2,204 | ) |
| Trading activities, net                                                                                                                     |       | —                                           |       | (1,003 | ) |
| Inventory management                                                                                                                        |       | 67,642                                           |       | 34,504 |   |
| Margins and inventory management                                                                                                            |       | $                                                | 75,231     |   | $ | 56,667 |   |
| **Reconciliation  to earnings before income taxes:**                                                                                        |       |                                             |       |   |   |
| Margins and inventory management                                                                                                            |       | $                                                | 75,231     |   | $ | 56,667 |   |
| **Inventory  adjustments:**                                                                                                                 |       |                                             |       |   |   |
| Gains recognized on beginning  inventories—discretionary volumes                                                                       |       | 2,369                                            |       | 3,712 |   |
| Gains deferred on ending inventories—discretionary  volumes                                                                            |       | (18,452                                          | )          | (24,158 | ) |
| **Total net operating margins**                                                                                                             |       | 59,148                                           |       | 36,221 |   |
| **Other  items:**                                                                                                                           |       |                                             |       |   |   |
| Selling, general and administrative expenses                                                                                                |       | (11,554                                          | )          | (10,433 | ) |
| Depreciation and amortization                                                                                                               |       | (6,581                                           | )          | (5,807 | ) |
| Gain (loss) on disposition of assets, net                                                                                                   |       | 1,118                                            |       | (3,599 | ) |
| **Operating income**                                                                                                                        |       | 42,131                                           |       | 16,382 |   |
| Other expense, net                                                                                                                          |       | (5,534                                           | )          | (10,001 | ) |
| **Earnings before income taxes**                                                                                                            |       | $                                                | 36,597     |   | $ | 6,381 |   |

 

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

| ** **                                      | ** ** | **Three months  ended  September 30,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                      | ** ** | **2005**                                         | ** ** | **2004** | ** ** |
| **Terminals,  pipelines, and tugs and barges:** |       |                                             |       |   |   |
| Revenues from external customers                |       | $                                                | 14,025     |   | $ | 11,181 |   |
| Inter-segment revenues                          |       | 15,200                                           |       | 15,291 |   |
| Total revenues                                  |       | $                                                | 29,225     |   | $ | 26,472 |   |
| **Supply,  distribution and marketing:**        |       |                                             |       |   |   |
| Revenues from external customers                |       | $                                                | 2,954,136  |   | $ | 2,029,252 |   |
| Inter-segment revenues                          |       | —                                           |       | — |   |
| Total revenues                                  |       | $                                                | 2,954,136  |   | $ | 2,029,252 |   |

 

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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 THREE MONTHS ENDED SEPTEMBER 30, 2005**

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

On August 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 2 tugboats, 6 barges, 12 tractors andassociated trailers and approximately $22 million in net working capital.

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, 2005and September 24, 2005, Hurricane Katrina and Hurricane Rita caused severedamage along the United States Gulf Coast and into the southern United States. Wecurrently are not aware of any significant long-term damage to our facilitiescaused by these hurricanes.

**SUBSEQUENT EVENTS**

On October 20, 2005, TransMontaigne Partnersannounced that it declared a distribution of $0.40 per unit payable on November 8,2005 to the unitholders of record on October 31, 2005.

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

**RESULTSOF OPERATIONS—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. Ineffect, 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 bulk markets.For example, the low branded and unbranded price of unleaded gasoline in theCharlotte, North Carolina wholesale market from August 1, 2005 through October 30,2005 are as follows ($/gallon):

Through September 7, 2005, we sold product to ourcontract customers at our Southeast facilities based on the subsidized pricesbeing offered by major refiners to their branded customers in the wholesalemarket, resulting in realized losses on our light oil marketing margins. Wehistorically sell approximately 80,000 barrels per day of unbranded product atour Southeast facilities under contracts with OPIS indexes. On September 7,2005, we informed our contract customers at our Southeast facilities that wewere exercising our rights under our sales contracts to temporarily ceaseselling them product under the OPIS-based pricing provisions in their contractswith us. However, we offered to sell product to these customers under interimpricing provisions that would stay in effect until the pricing disparities inthe wholesale market subsided. From September 8, 2005 to October 10,2005, we averaged approximately 45,000 barrels per days under contracts withinterim pricing provisions. The interim pricing provisions were intended to 

33

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reflect the cost ofproduct in the bulk markets and the cost of transportation from the bulkmarkets to the wholesale markets. Numerous contract customers at our Southeastfacilities have submitted to us notices of dispute claiming that we did nothave the right to suspend the OPIS-pricing provisions in our sales contractswith these customers. To the extent that such disputes are not resolveddirectly with our customers, we will resolve such disputes through mediationand arbitration provisions of the applicable contracts. We continue to believethat we were within our rights under the contracts to impose interim pricingprovisions during the period of price disparities and market disruptions in thewholesale markets. We believe that the outcome of the disputes with ourcustomers will not individually or in the aggregate have a material adverseeffect on our consolidated financial condition, results of operations, or cashflows. At September 30, 2005, we have not accrued any reserves for potentialloss contingencies resulting from the disputes with our customers because sucha loss, in our view, is not probable of occurrence or reasonably estimable.

During the three months ended September 30, 2005,we experienced a significant increase in refined petroleum product prices andthe continued volatility of refined petroleum product prices.

Pricesfor refined petroleum products were higher during the three months ended September 30,2005, 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 months ended September 30, 2005 and 2004 are asfollows (in $/gallon):

| ** **         | ** ** | **Three months  ended  September 30,** | ** ** |
|--------------------|------------|--------------------------------------------------|------------|
| ** **         | ** ** | **2005**                                         | ** ** | **2004** | ** ** |
| Unleaded gasoline: |       |                                             |       |   |   |
| High               |       | $                                                | 3.1165     |   | $ | 1.3338 |   |
| Low                |       | $                                                | 1.4485     |   | $ | 1.0835 |   |
| Average            |       | $                                                | 1.9487     |   | $ | 1.2101 |   |
| Heating oil:       |       |                                             |       |   |   |
| High               |       | $                                                | 2.5675     |   | $ | 1.3798 |   |
| Low                |       | $                                                | 1.5295     |   | $ | 1.0253 |   |
| Average            |       | $                                                | 1.8223     |   | $ | 1.1505 |   |

 

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

Our light oil marketingmargins are affected by the supply and demand for light oil products in thewholesale delivery locations (e.g., terminal truck racks). While demand forlight oil products may be influenced by seasonality (e.g., higher demand forgasoline during the summer driving season and higher demand for heating oilduring the winter heating season), we believe that the availability of supplyof light oil products in the wholesale delivery markets has the mostsignificant impact on our ability to generate favorable light oil marketingmargins. The availability of supply of light oil products in the wholesaledelivery markets is impacted by a variety of factors, including theavailability of crude oil supplies, current utilization of refining capacity,the shape of the forward price curve in the futures market, refinery crackspreads, and availability of pipeline and vessel shipping capacity. Forexample, adequate crude oil supplies, high utilization of refining capacity, anincreasing forward price curve, favorable refinery crack spreads and availableshipping capacity would likely result in an abundance of light oil products inthe wholesale delivery markets. An abundance of light oil products in thewholesale delivery locations generally produces lower marketing margins.Conversely, tight crude oil supplies, refinery outages, a decreasing forwardprice curve, moderate refinery crack spreads and limited shipping capacitywould likely result in tight supply of light oil products in the wholesaledelivery markets. A tight supply of light oil products in the wholesaledelivery locations generally produces higher marketing margins.

During the three months ended September 30, 2005,the NYMEX futures market anticipated declining gasoline prices as the prices inthe current month were slightly higher than the prices in the prompt month(i.e., the immediately succeeding month). The combination of declining futureprices (referred to as a “backwardated” market) and refinery crack spreads athistoric highs encouraged refiners to maximize production and sell theirgasoline production in the bulk markets. A decline in gasoline 

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inventories in thewholesale delivery markets generally results in favorable margin opportunitieson gasoline sales. During the three months ended September 30, 2005, theNYMEX futures market anticipated rising heating oil prices as the prices in theprompt month (i.e., the immediately succeeding month) were slightly higher thanthe prices in the current month. The combination of anticipated higher futureprices (referred to as a “contango” market) and refinery crack spreads athistoric highs encouraged refiners to maximize production and ship theirdistillate production to the wholesale delivery markets. An increase indistillate inventories in the wholesale delivery markets generally results inlimited margin opportunities on distillate sales.

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 between themonth-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 September 30, 2005 are asfollows ($/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 supply causedin part by the Iraq war, the possibility of unplanned refinery outages and theincreased participation of hedge funds in the futures markets periodicallyresults in a lack of correlation between the cash market and the futures market(i.e., the physical cash markets are driven by supply and demand, whereas, thefutures markets are driven by geopolitical events and expectations). When thereis a lack of correlation between the cash market and the futures market, thecost of managing our commodity price risk may increase. Because of the overallhigh level of commodity prices combined with the possibility of an increase inthe cost of managing the commodity price risk associated with our discretionaryinventories, we distributed and transported fewer barrels of discretionaryinventories through our terminal infrastructure during the year ended June 30,2005 and the three months ended September 30, 2005, which resulted inlower 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**

Our marginsfor the terminal, pipelines, tugs and barges segment are identical to the netoperating margins for such segment described under “Results of Operations—HistoricalFinancial Statements.” Selected quarterly margins for the terminal, pipelines,tugs and barges segment for each of the three months ended September 30,2005 and 2004 are summarized below (in thousands):

| ** **                                  | ** ** | **Three months ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **September 30,  2005**     | ** ** | **September 30,  2004** | ** ** |
| **Terminals, pipelines, tugs and  barges:** |       |                             |       |   |   |   |   |   |   |
| TransMontaigne  Partners L.P. facilities:   |       |                             |       |   |   |   |   |   |   |
| Revenues                                    |       |                             | $          | 10,400 |   |   |   | $ | 8,392 |   |   |
| Direct operating costs and expenses         |       |                             | (3,836     | ) |   |   | (4,086 | ) |   |
| Net operating margins                       |       |                             | 6,564      |   |   |   | 4,306 |   |   |
| Brownsville facilities:                     |       |                             |       |   |   |   |   |   |   |
| Revenues                                    |       |                             | 2,785      |   |   |   | 2,178 |   |   |
| Direct operating costs and expenses         |       |                             | (1,388     | ) |   |   | (1,328 | ) |   |
| Net operating margins                       |       |                             | 1,397      |   |   |   | 850 |   |   |
| Southeast facilities:                       |       |                             |       |   |   |   |   |   |   |
| Revenues                                    |       |                             | 8,589      |   |   |   | 9,331 |   |   |
| Direct operating costs and expenses         |       |                             | (5,297     | ) |   |   | (4,320 | ) |   |
| Net operating margins                       |       |                             | 3,292      |   |   |   | 5,011 |   |   |
| River facilities:                           |       |                             |       |   |   |   |   |   |   |
| Revenues                                    |       |                             | 2,015      |   |   |   | 2,234 |   |   |
| Direct operating costs and expenses         |       |                             | (1,974     | ) |   |   | (1,583 | ) |   |
| Net operating margins                       |       |                             | 41         |   |   |   | 651 |   |   |
| Other:                                      |       |                             |       |   |   |   |   |   |   |
| Revenues                                    |       |                             | 5,436      |   |   |   | 4,337 |   |   |
| Direct operating costs and expenses         |       |                             | (6,201     | ) |   |   | (3,090 | ) |   |
| Net operating margins                       |       |                             | (765       | ) |   |   | 1,247 |   |   |
| **Margins**                                 |       |                             | $          | 10,529 |   |   |   | $ | 12,065 |   |   |

 

**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 statement 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 (seeNote 1(g) of Notes to consolidated financial statements). Duringdeclining commodity prices, we will recognize losses between the pricing dateand the date of receipt. Because of the significant increase in commodityprices experienced during the three months ended September 30, 2005, werecognized approximately $79.1 million of gains on approximately3.0 million barrels, which represents the average volume of barrels pricedunder the terms of the MSCG supply agreement but not yet delivered to ourterminals.

We maintain approximately 2.0 million barrels of baseoperating 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 September 30, 2005 and 2004, the value of our base operatinginventory increased by approximately $46.4 million and $40.0 million,respectively, due to rising commodity prices.

At September 30, 2005, we were managing thecommodity price risk associated with approximately 3.0 million barrels ofundelivered in-transit volumes supplied to our terminals under the MSCG supplyagreement. At September 30, 2005, the commodity price risk associated withthe approximately 2.0 million 

39

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barrels of base operatinginventory volumes was not managed. During the three months ended September 30,2005, we recognized losses of approximately $28.8 million from these riskmanagement activities.

Storage fees for light oil tank capacity decreasedduring the three months ended September 30, 2005 as compared to 2004, dueprincipally to the commencement of our terminaling services agreements withMSCG for tank capacity at our Southeast facilities that historically had beenleased to our supply, distribution and marketing operations.

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 the delay 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 actualinjection date 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 monthsended September 30, 2005, the basis bought was in excess of the basis soldresulting in unfavorable variances.

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Forthe three months ended September 30, 2005 and 2004, the margins andinventory management attributable to our supply, distribution and marketingsegment were $64.7 million and $44.6 million, respectively.

| ** **                                                                                                                                  | ** ** | **Three months ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                  | ** ** | **September 30,  2005**     | ** ** | **September 30,  2004** | ** ** |
| **Supply,  distribution and marketing:**                                                                                                    |       |                             |       |   |   |   |   |   |   |
| Light oils—marketing margins:                                                                                                          |       |                             |       |   |   |   |   |   |   |
| TransMontaigne Partners L.P. facilities                                                                                                     |       |                             | $          | 7,030 |   |   |   | $ | 2,700 |   |   |
| Brownsville facilities                                                                                                                      |       |                             | —     |   |   |   | — |   |   |
| Southeast facilities                                                                                                                        |       |                             | (16,714    | ) |   |   | 993 |   |   |
| River facilities                                                                                                                            |       |                             | 1,024      |   |   |   | 759 |   |   |
| Other                                                                                                                                       |       |                             | 1,080      |   |   |   | 36 |   |   |
|                                                                                                                                        |       |                             | (7,580     | ) |   |   | 4,488 |   |   |
| Heavy oils—marketing margins                                                                                                           |       |                             | 3,460      |   |   |   | 2,570 |   |   |
| Supply chain management services margins                                                                                                    |       |                             | 1,180      |   |   |   | 3,040 |   |   |
| Margins                                                                                                                                     |       |                             | (2,940     | ) |   |   | 10,098 |   |   |
| **Inventory procurement and management:**                                                                                                   |       |                             |       |   |   |   |   |   |   |
| Increase in value of light oil volumes nominated  under the MSCG product supply agreement prior to receipt of the product at  our terminals |       |                             | 79,084     |   |   |   | — |   |   |
| Increase in value of base operating inventory                                                                                               |       |                             | 46,424     |   |   |   | 39,956 |   |   |
| Losses from risk management of base operating  inventory and light oil volumes nominated under the MSCG product supply  agreement |       |                             | (28,755    | ) |   |   | — |   |   |
| Storage fees for light oil tank capacity                                                                                                    |       |                             | (457       | ) |   |   | (2,245 | ) |   |
| Other financial and costing variances, net                                                                                                  |       |                             | (28,654    | ) |   |   | (2,204 | ) |   |
| Trading activities, net                                                                                                                     |       |                             | —     |   |   |   | (1,003 | ) |   |
| Inventory management                                                                                                                        |       |                             | 67,642     |   |   |   | 34,504 |   |   |
| Margins and  inventory management                                                                                                           |       |                             | $          | 64,702 |   |   |   | $ | 44,602 |   |   |

 

Ourlight oil marketing margins in points ($0.0001) per gallon for three monthsended September 30, 2005 and 2004 are as follows:

| ** **                               | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **September 30,  2005**     | ** ** | **September 30,  2004** | ** ** |
| **Light oils—marketing margins:**   |       |                             |       |   |   |   |   |   |   |
| TransMontaigne Partners’ facilities |       |                             | 240        |   |   |   | 110 |   |   |
| Southeast facilities                     |       |                             | (314       | ) |   |   | 18 |   |   |
| River facilities                         |       |                             | 250        |   |   |   | 200 |   |   |
| Other                                    |       |                             | 113        |   |   |   | 2 |   |   |
| All  facilities—weighted average    |       |                             | (79        | ) |   |   | 46 |   |   |

 

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Ourlight oil marketing volumes in average barrels per day for the three monthsended September 30, 2005 and 2004 are as follows:

| ** **                               | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------|------------|----------------------------------|------------|
| ** **                               | ** ** | **September 30,  2005**     | ** ** | **September 30,  2004** | ** ** |
| **Light  oils—marketing volumes:**  |       |                             |       |   |   |   |   |   |   |
| TransMontaigne Partners’ facilities |       |                             | 75,962     |   |   |   | 63,256 |   |   |
| Southeast facilities                     |       |                             | 137,586    |   |   |   | 142,928 |   |   |
| River facilities                         |       |                             | 10,592     |   |   |   | 9,800 |   |   |
| Other                                    |       |                             | 24,688     |   |   |   | 38,104 |   |   |
|                                     |       |                             | 248,828    |   |   |   | 254,088 |   |   |

 

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 months ended September 30, 2005 and 2004, are as follows (inthousands):

| ** **                                                            | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                            | ** ** | **September 30,  2005**     | ** ** | **September 30,  2004** | ** ** |
| **Reconciliation to net operating  margins:**                         |       |                             |       |   |   |   |   |   |   |
| **Margins  and inventory management**                                 |       |                             | $          | 64,702 |   |   |   | $ | 44,602 |   |   |
| Gains recognized on beginning  inventories—discretionary volumes |       |                             | 2,369      |   |   |   | 3,712 |   |   |
| Gains deferred on ending inventories—discretionary  volumes      |       |                             | (18,452    | ) |   |   | (24,158 | ) |   |
| **Net operating  margins—historical financial statements**       |       |                             | $          | 48,619 |   |   |   | $ | 24,156 |   |   |

 

**RESULTSOF OPERATIONS—HISTORICAL FINANCIAL STATEMENTS**

The following selected historical financial statementmeasures are derived from our unaudited interim financial statements for thethree months ended September 30, 2005 and 2004 (in thousands):

| ** **                                           | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **September 30,  2005**     | ** ** | **September 30,  2004** | ** ** |
| Net operating  margins(1):                           |       |                             |       |   |   |   |   |   |   |
| Supply, distribution, and marketing                  |       |                             | $          | 48,619 |   |   |   | $ | 24,156 |   |   |
| Terminals, pipelines, tugs and barges                |       |                             | $          | 10,529 |   |   |   | $ | 12,065 |   |   |
| Operating income                                     |       |                             | $          | 42,131 |   |   |   | $ | 16,382 |   |   |
| Earnings before  income taxes                        |       |                             | $          | 36,597 |   |   |   | $ | 6,381 |   |   |
| Net earnings                                         |       |                             | $          | 20,883 |   |   |   | $ | 3,828 |   |   |
| Net cash provided  by (used in) operating activities |       |                             | $          | (36,535 | ) |   |   | $ | (3,424 | ) |   |
| Net cash provided  by (used in) investing activities |       |                             | $          | (60,165 | ) |   |   | $ | (12,390 | ) |   |
| Net cash provided by  (used in) financing activities |       |                             | $          | 72,147 |   |   |   | $ | 22,758 |   |   |

----

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

**THREEMONTHS ENDED SEPTEMBER 30, 2005 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30,2004**

We reported net earningsof $20.9 million for the three months ended September 30, 2005, comparedto net earnings of $3.8 million for the three months ended September 30,2004. After earnings allocable to 

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preferredstock, the net earnings attributable to common stockholders was$19.2 million for the three months ended September 30, 2005, compared tonet earnings of $3.0 million for the three months ended September 30,2004. Basic earnings per common share for the three months ended September 30,2005 and 2004, was $0.41 and $0.08, respectively, based on 46.9 millionand 39.5 million weighted average common shares outstanding, respectively.Diluted earnings per common share for the three months ended September 30, 2005and 2004, was $0.38 and $0.07, respectively, based upon 54.9 million and51.3 million weighted average diluted shares outstanding, 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 September 30, 2005 were $10.5 million, comparedto $12.1 million for the three months ended September 30, 2004. On August1, 2005, we acquired Radcliff, which includes three petroleum productsterminals, 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 three months ended September30, 2005, Radcliff generated approximately $1.0 million in revenues andapproximately $0.7 million in direct operating costs and expenses. The netoperating margins from our terminals, pipelines, and tugs and barges operationsare as follows (in thousands):

| ** **                                   | ** ** | **Three months ended  September 30,** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                   | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Throughput and  additive injection fees, net |       | $                                                    | 13,581     |   | $ | 10,311 |   |
| Storage fees                                 |       | 6,840                                                |       | 9,044 |   |
| Pipeline  transportation fees                |       | 789                                                  |       | 718 |   |
| Tugs and barges                              |       | 3,635                                                |       | 3,300 |   |
| Management fees  and cost reimbursements     |       | 1,330                                                |       | 1,212 |   |
| Other                                        |       | 3,050                                                |       | 1,887 |   |
| Revenues                                     |       | 29,225                                               |       | 26,472 |   |
| Less direct operating costs and expenses     |       | (18,696                                              | )          | (14,407 | ) |
| Net operating  margins                       |       | $                                                    | 10,529     |   | $ | 12,065 |   |

 

*Throughputand additive injection fees, net.*   We own andoperate a terminal infrastructure that handles products with transportationconnections via pipelines, barges, rail cars and trucks. We earn throughputfees for each barrel of product that is distributed at our terminals throughour supply and marketing efforts, through exchange agreements, or for thirdparties. 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 three months ended September 30,2005 and 2004, we averaged approximately 52,000 and 47,000 barrels per day,respectively, of delivered volumes under exchange agreements.

Terminal throughput and additive injection fees, netwere approximately $13.6 million and $10.3 million for the threemonths ended September 30, 2005 and 2004, respectively. The increase of 

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approximately $3.3 millionin terminal throughput and additive injection fees, net is due principally toapproximately $1.8 million of throughput fees charged on heavy oil marketingvolumes at the TransMontaigne Partners’ facilities, approximately $1.0 millionof throughput fees resulting from the acquisition of Radcliff and an increaseof approximately $0.5 million at our Brownsville facilities. For the three monthsended September 30, 2005 and 2004, we averaged approximately 376,000 barrelsand 334,000 barrels per day, respectively, of throughput volumes at ourterminals, including volumes under exchange agreements.

Included in the terminal throughput and additiveinjection fees, net for the three months ended September 30, 2005 and 2004, arefees charged to TransMontaigne's supply, distribution and marketing segment ofapproximately $10.7 million and $8.8 million, respectively.

*Storagefees.*   We lease storage capacity at our terminalsto third parties and our supply, distribution and marketing segment. Terminalstorage fees generally are based on a per barrel of leased capacity per monthrate and will vary with the duration of the storage agreement and the type ofproduct stored.

Terminal storage fees were approximately$6.8 million and $9.0 million for the three months ended September30, 2005 and 2004, respectively. The decrease of $2.2 million in storagefees was due principally to a decrease in storage fees of approximately $1.9million resulting from the conversion of the fees charged on heavy oilmarketing volumes from a storage agreement to a throughput agreement and adecrease of approximately $0.5 million in storage fees charged at our Southeastfacilities resulting from the commencement of terminaling services agreementswith MSCG.

Included in the terminal storage fees for the threemonths ended September 30, 2005 and 2004, are fees charged to TransMontaigne'ssupply, distribution and marketing segment of approximately $nil and$3.5 million, respectively.

*Pipelinetransportation fees.*   We own an interstateproducts pipeline operating from Mt. Vernon, Missouri to Rogers, Arkansas (the"Razorback Pipeline"), together with associated terminal facilitiesat Mt. Vernon and Rogers. We earn pipeline transportation fees at our RazorbackPipeline based on the volume of product transported and the distance from theorigin point to the delivery point. We also earn transportation fees at ourPort Everglades pipeline hydrant system based on the volume of productdelivered to cruise ships and freight vessels.

For the three months ended September 30, 2005 and2004, we earned pipeline transportation fees of approximately $0.8 millionand $0.7 million, respectively.

Included in the pipeline transportation fees for thethree months ended September 30, 2005 and 2004, are fees charged toTransMontaigne's supply, distribution and marketing segment of approximately$0.8 million and $0.7 million, respectively.

*Tugsand barges.*   We currently own and operate 14tugboats and 20 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 three months ended September 30, 2005 and2004, we earned bunkering fees, transportation fees, and other ship-assistservices fees of approximately $3.6 million and $3.3 million,respectively.

Included in the tugs and barges fees for the threemonths ended September 30, 2005 and 2004, are fees charged to TransMontaigne'ssupply, distribution and marketing segment of approximately $1.8 millionand $1.4 million, respectively.

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*Managementfees and cost reimbursements.*   We manage and operatefor a major oil company 17 terminals that are adjacent to our Southeastfacilities and receive a reimbursement of costs. We manage and operate foranother major oil company certain tank capacity at TransMontaigne Partners’Port Everglades (South) terminal and receive a reimbursement of costs. We alsomanage and operate for a foreign oil company a bi-directional products pipelineconnected to our Brownsville, Texas terminal facility.

For the three months ended September 30, 2005 and 2004,we earned management fees and cost reimbursements from our terminal andpipeline operations of approximately $1.3 million and $1.2 million,respectively.

*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 three months ended September 30, 2005 and2004, other revenues from our terminals, pipelines, and tugs and bargesoperations was approximately $3.1 million and $1.9 million,respectively.

Included in other revenues for the three months endedSeptember 30, 2005 and 2004, are fees charged to TransMontaigne's supply,distribution and marketing segment of approximately $1.8 million and$0.9 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 three months ended September30, 2005 and 2004, the direct operating costs and expenses of the terminals,pipelines, and tugs and barges were approximately $18.7 million and$14.4 million, respectively. The direct operating costs and expenses ofour terminals, pipelines, and tugs and barges operations are as follows (inthousands):

| ** **                                                 | ** ** | **Three months ended  September 30,** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                 | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Wages and  employee benefits                               |       | $                                                    | 7,274      |   | $ | 6,271 |   |
| Utilities and  communication charges                       |       | 1,240                                                |       | 1,004 |   |
| Repairs and  maintenance                                   |       | 5,044                                                |       | 4,315 |   |
| Property and  casualty insurance costs                     |       | 1,005                                                |       | 775 |   |
| Office, rentals  and property taxes                        |       | 1,522                                                |       | 1,403 |   |
| Vehicles and fuel  costs                                   |       | 1,075                                                |       | 653 |   |
| Environmental  compliance costs                            |       | 1,262                                                |       | 981 |   |
| Other                                                      |       | 409                                                  |       | 238 |   |
| Less—property and  environmental insurance recoveries |       | (135                                                 | )          | (1,233 | ) |
| Direct operating  costs and expenses                       |       | $                                                    | 18,696     |   | $ | 14,407 |   |

 

45

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**Supply, distribution and marketing**

Thenet operating margins from our supply, distribution and marketing operationsfor the three months ended September 30, 2005, were $48.6 million,compared to $24.2 million for the three months ended September 30,2004. For the three months ended September 30, 2005, Radcliff generatedapproximately $44.4 million in revenues and approximately $2.2 million in netoperating margins. The net operating margins from our supply, distribution andmarketing operations are as follows (in thousands):

| ** **                                          | ** ** | **Three months ended  September 30,** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                          | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Rack spot sales                                     |       | $                                                    | 344,368    |   | $ | 235,425 |   |
| Contract sales                                      |       | 1,447,655                                            |       | 994,578 |   |
| Bulk sales                                          |       | 946,586                                              |       | 663,074 |   |
| Supply chain  management services                   |       | 215,527                                              |       | 136,175 |   |
| Total revenues                                      |       | 2,954,136                                            |       | 2,029,252 |   |
| Cost of product  sold                               |       | (2,837,468                                           | )          | (1,978,070 | ) |
| Net margin before other direct costs and expenses   |       | 116,668                                              |       | 51,182 |   |
| Other direct costs and  expenses:                   |       |                                                 |       |   |   |
| Net losses on risk management activities            |       | (42,434                                              | )          | (10,405 | ) |
| Change in unrealized losses on derivative contracts |       | (25,615                                              | )          | (16,621 | ) |
| Net operating  margins                              |       | $                                                    | 48,619     |   | $ | 24,156 |   |

 

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 $344.4 millionand $235.4 million for the three months ended September 30, 2005 and2004, respectively. The increase of approximately $109.0 million is dueprincipally to higher commodity prices during 2005 offset by a slight decreasein volumes made available to our rack spot customers. The increase in commodityprices combined with the possibility of increased costs of executing our riskmanagement strategies resulted in our distributing and transporting fewerbarrels of discretionary inventories held for immediate sale or exchangethrough our terminal infrastructure during the three months ended September 30,2005, resulting in lower inventory volumes available for rack spot sales. Forthe three months ended September 30, 2005 and 2004, we averagedapproximately 47,000 and 50,000 barrels per day, respectively, of deliveredvolumes 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 truck loadingrack or marine fueling equipment.

46

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Contract sales were approximately$1,447.7 million and $994.6 million for the three months ended September 30,2005 and 2004, respectively. The increase of approximately $453.1 millionis due principally to higher commodity prices offset by a slight decrease involumes delivered to our contract customers. For the three months ended September 30,2005 and 2004, we averaged approximately 213,000 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 $946.6 million and$663.1 million for the three months ended September 30, 2005 and2004, respectively. The increase of approximately $283.5 million is dueprincipally to higher commodity prices during 2005 offset by a decrease involumes transferred to our bulk customers. 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 September 30,2005 and 2004, we averaged approximately 180,000 and 357,000 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 $215.5 million and $136.2 million forthe three months ended September 30, 2005 and 2004, respectively. Theincrease of approximately $79.3 million is due principally to highercommodity prices and a slight increase in volumes delivered to our existingcustomer base. For the three months ended September 30, 2005 and 2004, weaveraged approximately 32,000 barrels and 31,000 barrels per day, respectively,of delivered volumes under supply chain management services contracts.

*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$2,837.5 million and $1,978.1 million for the three months ended September 30,2005 and 2004, respectively. Cost of product sold is as follows (in thousands):

| ** **                               | ** ** | **Three months ended  September 30,** | ** ** |
|------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Inventory product  costs                 |       | $                                                    | 2,799,811  |   | $ | 1,934,215 |   |
| Transportation  and related charges      |       | 24,462                                               |       | 28,054 |   |
| Throughput,  storage and related charges |       | 12,378                                               |       | 15,680 |   |
| Other                                    |       | 817                                                  |       | 121 |   |
| Cost of product  sold                    |       | $                                                    | 2,837,468  |   | $ | 1,978,070 |   |

 

*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 

47

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basis and offset thatposition with risk management contracts, principally futures contracts on theNYMEX.

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 we ultimatelysell the underlying inventory to a customer, we unwind the related riskmanagement contract. In order to effectively manage commodity price risk, wemust 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 $(42.4) million and $(10.4) millionfor the three months ended September 30, 2005 and 2004, respectively, dueprincipally to rising commodity prices during these periods.

**Costs and expenses**

Selling,general and administrative expenses for the three months ended September 30,2005, were $11.6 million, compared to $10.4 million for the threemonths ended September 30, 2004. For the three months ended September 30,2005, Radcliff incurred approximately $0.5 million in selling, general andadministrative expenses. Selling, general and administrative expenses are asfollows (in thousands):

| ** **                                         | ** ** | **Three months ended  September 30,** | ** ** |
|----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                         | ** ** | **2005**                                             | ** ** | **2004** | ** ** |
| Wages and  employee benefits                       |       | $                                                    | 8,403      |   | $ | 8,306 |   |
| Office costs,  utilities and communication charges |       | 1,153                                                |       | 1,073 |   |
| Accounting and  legal expenses                     |       | 1,345                                                |       | 396 |   |
| Property and  casualty insurance                   |       | 202                                                  |       | 212 |   |
| Other                                              |       | 451                                                  |       | 446 |   |
| Selling, general  and administrative expenses      |       | $                                                    | 11,554     |   | $ | 10,433 |   |

 

During the three months ended September 30, 2004,we awarded retention bonuses of approximately $1.4 million to our employees(excluding officers of the Company) to retain our employees during theevaluation of our strategic alternatives.

Depreciation and amortization for the three monthsended September 30, 2005 and 2004, was $6.6 million and$5.8 million, respectively. The increase of $0.8 million indepreciation and amortization for the three months ended September 30,2005 as compared to September 30, 2004 is due principally to thedepreciation on current year additions and the amortization of the productsupply agreement.

Gain (loss) on dispositionof assets, net for the three months ended September 30, 2005 and 2004 wasapproximately $1.1 million and $(3.6) million, respectively. During the threemonths ended September 30, 2005, we agreed upon the final insurancerecovery of approximately $1.1 million on the involuntary conversion of ourhistorical Pensacola terminal facilities. During the three months ended September 30,2004, we suffered an involuntary conversion of our historical Pensacolaterminal facilities due to the damage caused by Hurricane Ivan.

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**Other income and expenses**

Dividend income for the three months ended September 30,2005, was $0.6 million, as compared to $0.4 million for the three months ended September 30,2004. During the three months ended September 30, 2005, we receivedapproximately $0.2 million in dividends from our commodity trading membership. Duringthe three months ended September 30, 2005 and 2004, we receivedapproximately $0.4 million and $0.4 million, respectively, in dividends fromLion Oil Company.

Interest income for the three months ended September 30,2005, was $0.3 million, as compared to $39,000 for the three months ended September 30,2004. 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 September 30, 2005, was$5.9 million, compared to $6.3 million during the three months ended September 30,2004. Interest expense is as follows (in thousands):

| ** **                                      | ** ** | **Three months ended  September 30,** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                      | ** ** | **   2005   **         | ** ** | **   2004   ** | ** ** |
| TransMontaigne  Partners’ credit facility  |       |                                                 | $          | 464 |   |   |   | $ | — |   |   |
| Senior secured  working capital credit facility |       |                                                 | 483        |   |   |   | 189 |   |   |
| Senior subordinated  notes                      |       |                                                 | 4,562      |   |   |   | 4,562 |   |   |
| Former credit  facility                         |       |                                                 | —     |   |   |   | 1,331 |   |   |
| Letters of credit                               |       |                                                 | 378        |   |   |   | 202 |   |   |
| Commodity margin  loan                          |       |                                                 | 31         |   |   |   | 39 |   |   |
| Interest expense                                |       |                                                 | $          | 5,918 |   |   |   | $ | 6,323 |   |   |

 

Other financing costs, netfor the three months ended September 30, 2005, were $0.5 million,compared to $4.1 million for the three months ended September 30,2004. During the three months ended September 30, 2004, we wrote-off thedebt issuance costs of approximately $3.4 million associated with our formercredit facility. On September 13, 2004, we repaid our former creditfacility with proceeds from our senior secured working capital credit facility.

**Income taxes**

Income tax expense was$13.9 million and $2.6 million for the three months ended September 30,2005 and 2004, respectively, which represents an effective combined federal andstate income tax rate of 38% and 40%, respectively.

**Preferred stock dividends**

Preferred stock dividends on our Series B redeemableconvertible preferred stock were $0.3 million and $0.7 million forthe three months ended September 30, 2005 and 2004, respectively. At itsissuance (June 28, 2002), the fair value of the Series B redeemable convertiblepreferred stock exceeded its liquidation value. The initial carrying amount ofthe Series B redeemable convertible preferred stock will be decreasedratably over its 5-year term until it equals its liquidation value with anequal reduction in the amount of preferred stock dividends recorded forfinancial reporting purposes. For the three months ended September 30,2005 and 2004, the amount of the dividend recognized for financial reportingpurposes is composed of the amount of the dividend payable to the holders ofthe Series B redeemable convertible preferred stock of $0.5 millionand $1.1 million, respectively, offset by the amortization of the premiumon the carrying amount of the Series B redeemable convertible preferred stockof $0.2 million and $0.4 million, respectively.

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

At September 30, 2005, our current assetsexceeded our current liabilities by $315.4 million, as compared to$319.6 million at June 30, 2005.

Our inventories—discretionary volumes are presented inthe accompanying consolidated balance sheet as current assets and are carriedat the lower of cost or market. Inventories—discretionary volumes are asfollows (in thousands):

| ** **                                   | ** ** | **September 30, 2005** | ** ** | **June 30, 2005** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **Amount**                       | ** ** | **Bbls**                    | ** ** | **Amount** | ** ** | **Bbls** | ** ** |
| Volumes held for  immediate sale or exchange |       | $                                | 170,866    |                        | 2,006      |   | $ | 153,123 |   | 2,415 |   |
| Volumes held for  base operations            |       | 160,443                          |       | 2,011                       |       | 121,651 |   | 2,011 |   |
| Inventories—discretionary  volumes      |       | $                                | 331,309    |                        | 4,017      |   | $ | 274,774 |   | 4,426 |   |

 

Ourvolumes held for immediate sale or exchange generally are subject to price riskmanagement. Inventories—discretionary volumes held for immediate sale orexchange are as follows (in thousands):

| ** **                                   | ** ** | **September 30, 2005** | ** ** | **June 30, 2005** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **Amount**                       | ** ** | **Bbls**                    | ** ** | **Amount** | ** ** | **Bbls** | ** ** |
| Gasolines                                    |       | $                                | 82,294     |                        | 908        |   | $ | 77,524 |   | 1,185 |   |
| Distillates                                  |       | 79,773                           |       | 934                         |       | 64,191 |   | 932 |   |
| No. 6 oil  and other                    |       | 8,799                            |       | 164                         |       | 11,408 |   | 298 |   |
| Volumes held for  immediate sale or exchange |       | $                                | 170,866    |                        | 2,006      |   | $ | 153,123 |   | 2,415 |   |

 

Ourbase operating inventory volumes generally are not subject to price riskmanagement. Based on the current level of our operations, we have establishedour base operating inventory volumes, exclusive of product linefill and tankbottom volumes, at approximately 2.0 million barrels. Changes in ouroperation, such as the acquisition of additional terminals, increases in ourcontract sales volumes or entering into product supply agreements, may resultin changes in the volume of our base operating inventory volumes. Inventories—baseoperating inventory volumes are as follows (in thousands):

| ** **                        | ** ** | **September 30, 2005** | ** ** | **June 30, 2005** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
| ** **                        | ** ** | **Amount**                       | ** ** | **Bbls**                    | ** ** | **Amount** | ** ** | **Bbls** | ** ** |
| Gasolines                         |       | $                                | 83,327     |                        | 938        |   | $ | 58,723 |   | 938 |   |
| Distillates                       |       | 60,825                           |       | 725                         |       | 49,479 |   | 725 |   |
| No. 6 oil  and other         |       | 16,291                           |       | 348                         |       | 13,449 |   | 348 |   |
| Volumes held for base  operations |       | $                                | 160,443    |                        | 2,011      |   | $ | 121,651 |   | 2,011 |   |

 

Theactivity in our base operating inventory volumes is summarized as follows (inthousands):

| ** **                               | ** ** | **Amount** | ** ** | **Barrels** | ** ** |
|------------------------------------------|------------|------------|------------|-------------|------------|
| As of  June 30, 2004                |       | $          | 181,412    |        | 4,050      |   |
| Net reduction in  base operating volumes |       | (99,471    | )          | (2,039      | )          |
| Change in FIFO  cost basis               |       | 43,978     |       | —      |       |
| Lower of cost or  market write-down      |       | (4,268     | )          | —      |       |
| As of  June 30, 2005                |       | 121,651    |       | 2,011       |       |
| Change in FIFO  cost basis               |       | 39,601     |       | —      |       |
| Lower of cost or  market write-down      |       | (809       | )          | —      |       |
| As of September 30,  2005           |       | $          | 160,443    |        | 2,011      |   |

 

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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):

| ** **                                | ** ** | **September 30, 2005** | ** ** | **June 30, 2005** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|
| ** **                                | ** ** | **Amount**                       | ** ** | **Bbls**                    | ** ** | **Amount** | ** ** | **Bbls** | ** ** |
| Gasolines                                 |       | $                                | 14,267     |                        |       | 522 |   |   | $ | 14,267 |   |   | 522 |   |   |
| Distillates                               |       | 8,993                            |       |                        | 354        |   |   | 8,774 |   |   | 351 |   |   |
| No. 6 oil  and other                 |       | 1,442                            |       |                        | 55         |   |   | 1,284 |   |   | 52 |   |   |
| Product linefill and  tank bottom volumes |       | $                                | 24,702     |                        |       | 931 |   |   | $ | 24,325 |   |   | 925 |   |   |

 

Thefollowing table indicates the maturities of our derivative contracts, includingthe credit quality of our counterparties to those contracts with unrealizedgains at September 30, 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                        |       |                                          | $          | 17,334 |   |   |   | $ | 2 |   |   |   | $ | — |   |   | $ | 17,336 |   |
| Non-investment grade                    |       |                                          | 400        |   |   |   | — |   |   |   | — |   |   | 400 |   |
| No external rating                      |       |                                          | 21,334     |   |   |   | — |   |   |   | — |   |   | 21,334 |   |
|                                    |       |                                          | 39,068     |   |   |   | 2 |   |   |   | — |   |   | 39,070 |   |
| Unrealized  loss—liability         |       |                                          | (100,203   | ) |   |   | (225 | ) |   |   | — |   |   | (100,428 | ) |
| Net unrealized  (loss)—(liability) |       |                                          | $          | (61,135 | ) |   |   | $ | (223 | ) |   |   | $ | — |   |   | $ | (61,358 | ) |

 

At September 30, 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 September 30, 2005, included in unrealized gain position—currentis an unrealized gain of approximately $0.2 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 three months ended September 30, 2005 (inthousands):

| Fair value at  June 30, 2005                                                                  |   | $       | (39,829 | ) |
|----------------------------------------------------------------------------------------------------|--------|---------|---------|---|
| Amounts realized  or otherwise settled during the period                                           |   | 28,471  |    |
| Fair value of  contracts originated during the period, which are included in deferred revenue |   | 322     |    |
| Change in fair  value attributable to change in commodity prices                                   |   | (50,322 | )       |
| Fair value at  September 30, 2005                                                             |   | $       | (61,358 | ) |

 

Excluding acquisitions, capital expenditures for thethree months ended September 30, 2005, were $2.2 million for terminaland pipeline facilities and assets to support these facilities. Future capitalexpenditures will depend on numerous factors, including the availability,economics and cost of appropriate acquisitions which we identify and evaluate;the economics, cost and required regulatory approvals with respect to theexpansion and enhancement of existing systems and facilities; customer 

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demand for the services weprovide; local, state and federal governmental regulations; environmentalcompliance requirements; and the availability of debt financing and equitycapital on acceptable terms.

Our senior secured working capital credit facility asin effect at September 30, 2005 provides for a maximum borrowing line ofcredit that was the lesser of (i) $400 million and (ii) theborrowing base (as defined; $552 million at September 30, 2005). Theborrowing 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 September 30, 2005, we had borrowings of$60.5 million outstanding and letters of credit of $104 millionoutstanding under the senior secured working capital credit facility. We alsohad the ability to borrow an additional $235 million under the facilitybased on the borrowing base computation at September 30, 2005. Alloutstanding borrowings under the senior secured working capital credit facilityare due and payable on September 13, 2009.

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 contains affirmativeand negative covenants (including limitations on indebtedness, limitations ondividends 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)that are 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 $288 millionfor the month ended September 30, 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 the seniorsecured 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 September 30,2005, is as follows:

| ** **                                                                                                    | ** ** | **Three Months Ended** | ** ** | **Twelve  Months  Ended** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------|------------|
| ** **                                                                                                    | ** ** | **December 31,**            | ** ** | **March 31,**        | ** ** | **June 30,** | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                    | ** ** | **2004**                         | ** ** | **2005**                  | ** ** | **2005** | ** ** | **2005** | ** ** | **2005** | ** ** |
| **Financial performance debt  covenant test:**                                                                |       |                             |       |                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated adjusted EBITDA                                                                                  |       |                             | $          | 42,705                    |       |   |   | $ | 62,846 |   |   | $ | (980 | ) |   | $ | 13,087 |   |   |   | $ | 117,658 |   |   |
| Capital expenditures                                                                                          |       |                             | (1,896     | )                         |       |   | (1,616 | ) |   | (3,361 | ) |   | (2,193 | ) |   |   | (9,066 | ) |   |
| TransMontaigne Partners’ capital expenditures                                                            |       |                             | —     |                      |       |   | — |   |   | 222 |   |   | 568 |   |   |   | 790 |   |   |
| Cash (paid for) refund of income taxes                                                                   |       |                             | 5          |                      |       |   | (2 | ) |   | (29,704 | ) |   | (13,907 | ) |   |   | (43,608 | ) |   |
| Preferred stock dividends paid in cash                                                                        |       |                             | (1,110     | )                         |       |   | (1,110 | ) |   | (1,281 | ) |   | (301 | ) |   |   | (3,802 | ) |   |
| Fixed charges EBITDA                                                                                          |       |                             | $          | 39,704                    |       |   |   | $ | 60,118 |   |   | $ | (35,104 | ) |   | $ | (2,746 | ) |   |   | $ | 61,972 |   |   |
| Fixed charges for the period                                                                                  |       |                             | $          | 6,556                     |       |   |   | $ | 6,226 |   |   | $ | 5,009 |   |   | $ | 5,126 |   |   |   | $ | 22,917 |   |   |
| Fixed charge coverage ratio based on rolling four  consecutive quarters                                       |       |                             |       |                      |       |   |   |   |   |   |   |   |   |   |   |   | 270 | % |   |
| **Reconciliation of consolidated  adjusted EBITDA to cash flows provided by (used in) operating activities:** |       |                             |       |                      |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Consolidated adjusted EBITDA                                                                                  |       |                             | $          | 42,705                    |       |   |   | $ | 62,846 |   |   | $ | (980 | ) |   | $ | 13,087 |   |   |   | $ | 117,658 |   |   |
| TransMontaigne Partners’ operating income                                                                |       |                             | —     |                      |       |   | — |   |   | 1,364 |   |   | 3,635 |   |   |   | 4,999 |   |   |
| TransMontaigne Partners’ depreciation and  amortization                                                  |       |                             | —     |                      |       |   | — |   |   | 674 |   |   | 1,567 |   |   |   | 2,241 |   |   |
| Cash distributions from TransMontaigne Partners                                                               |       |                             | —     |                      |       |   | — |   |   | — |   |   | (453 | ) |   |   | (453 | ) |   |
| Gain on disposition of assets, net                                                                            |       |                             | —     |                      |       |   | (2,993 | ) |   | (735 | ) |   | — |   |   |   | (3,728 | ) |   |
| Gains recognized on beginning  inventories—discretionary volumes held for immediate sale or exchange     |       |                             | 4,405      |                      |       |   | 6,093 |   |   | 10,311 |   |   | 2,125 |   |   |   | 4,405 |   |   |
| Gains deferred on ending inventories—discretionary  volumes held for immediate sale or exchange          |       |                             | (6,093     | )                         |       |   | (10,311 | ) |   | (2,125 | ) |   | (10,576 | ) |   |   | (10,576 | ) |   |
| Increase in FIFO cost basis of base operating  inventory volumes                                              |       |                             | (18,715    | )                         |       |   | 32,769 |   |   | 8,339 |   |   | 39,601 |   |   |   | 61,994 |   |   |
| Lower of cost or market write-downs on base  operating inventory volumes                                      |       |                             | (2,496     | )                         |       |   | — |   |   | (1,772 | ) |   | (809 | ) |   |   | (5,077 | ) |   |
| Interest expense, net                                                                                         |       |                             | (6,556     | )                         |       |   | (6,226 | ) |   | (5,011 | ) |   | (5,129 | ) |   |   | (22,922 | ) |   |
| TransMontaigne Partners’ interest expense, net                                                           |       |                             | —     |                      |       |   | — |   |   | (167 | ) |   | (463 | ) |   |   | (630 | ) |   |
| Cash (paid for) refund of income taxes                                                                   |       |                             | 5          |                      |       |   | (2 | ) |   | (29,704 | ) |   | (13,907 | ) |   |   | (43,608 | ) |   |
| Amortization of deferred revenue                                                                              |       |                             | (1,641     | )                         |       |   | (2,376 | ) |   | (1,841 | ) |   | (1,572 | ) |   |   | (7,430 | ) |   |
| Amortization of deferred stock-based  compensation                                                            |       |                             | 646        |                      |       |   | 697 |   |   | 652 |   |   | 894 |   |   |   | 2,889 |   |   |
| Net change in unrealized (gains) losses on long-term  derivative contracts                                    |       |                             | (2,031     | )                         |       |   | (88 | ) |   | 296 |   |   | (12 | ) |   |   | (1,835 | ) |   |
| Change in operating assets and  liabilities                                                                   |       |                             | (123,311   | )                         |       |   | 174,692 |   |   | (67,173 | ) |   | (64,523 | ) |   |   | (80,315 | ) |   |
| Cash flows  provided by (used in) operating activities                                                        |       |                             | $          | (113,082                  | )          |   |   | $ | 255,101 |   |   | $ | (87,872 | ) |   | $ | (36,535 | ) |   |   | $ | 17,612 |   |   |

 

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If we were to fail the fixed charge ratio covenant, orany other covenant contained in the senior secured working capital credit facility,we would seek a waiver from our lenders under such facility. If we were unableto obtain a waiver from our lenders, we would be in breach of the senior securedworking capital credit facility and the lenders would be entitled to declareall outstanding borrowings immediately due and payable. In addition, a defaultunder the senior secured working capital credit facility would trigger a cross-defaultprovision in the indenture covering our senior subordinated notes.

On May 30, 2003, we consummated the sale andissuance of $200 million aggregate principal amount 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.

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

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**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 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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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 September 30, 2005 areas follows:

| **Position**                                                                              | ** ** | ** ** | ** ** | **Derivative  Contract** | ** ** | **Subject to  Commodity  Price Risk** | ** ** | **Commodity  Price  Risk Actively  Managed** | ** ** | **Long (Short)  Position at  September 30, 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        |   |   |   | 2,006 |   |   |
| Discretionary  volumes held for base operations                                           |       |       | No         |                     |       |                                            | Yes        |                                              |       |                                                                                                     | No         |   |   |   | 2,011 |   |   |
| Product linefill  and tank bottom volumes                                                 |       |       | No         |                     |       |                                            | Yes        |                                              |       |                                                                                                     | No         |   |   |   | 925 |   |   |
| Fixed-price  forward sale commitments                                                     |       |       | Yes        |                     |       |                                            | Yes        |                                              |       |                                                                                                     | Yes        |   |   |   | (1,062 | ) |   |
| Inventory due to  others under exchange agreements                                        |       |       | Yes        |                     |       |                                            | Yes        |                                              |       |                                                                                                     | Yes        |   |   |   | (676 | ) |   |
| Risk management  contracts—NYMEX futures contracts                                   |       |       | Yes        |                     |       |                                            | Yes        |                                              |       |                                                                                                     | —     |   |   |   | (1,142 | ) |   |
| Risk management  contracts—NYMEX options                                             |       |       | Yes        |                     |       |                                            | Yes        |                                              |       |                                                                                                     | —     |   |   |   | (1,260 | ) |   |

 

Our risk management strategies and practices currentlydo not qualify for “hedge accounting” for financial reporting purposes becausewe do not designate and associate the risk management contracts as hedges ofspecific physical and derivative positions and we do not document and test theeffectiveness of the relationship between the risk management contracts and thephysical and derivative positions.

We evaluate our exposure to commodity price risk froman overall portfolio basis. Our risk management strategies are intended tomaintain a balanced position of discretionary inventories held for immediatesale or exchange, fixed-price forward purchase commitments, inventory dueto others under exchange agreements, fixed-price forward sale commitmentsand risk management contracts, thereby reducing exposure to commodity pricefluctuations. To the extent that we do not manage the commodity price riskrelating to a position that is subject to commodity price risk and commodityprices move adversely, we could suffer losses on that position. If, however,prices move favorably, we would realize a gain that we would not realize ifsubstantially all of our positions were managed.

Our risk management policy permits management thediscretion to manage the commodity price risk relating to all discretionaryvolumes, including those volumes designated as base operating inventory volumesand the undelivered in-transit volumes supplied to our terminals under theproduct supply agreement with MSCG. At September 30, 2005, we weremanaging the commodity price risk associated with approximately2.3 million barrels of undelivered in-transit volumes supplied to ourterminals under the product supply agreement with MSCG. At September 30,2005, we did not manage the commodity price risk on approximately3.8 million barrels composed of approximately 0.2 million barrels ofdiscretionary inventories held for immediate sale or exchange, approximately2.0 million barrels of discretionary inventories held for base operations,approximately 0.7 million barrels of undelivered in-transit volumessupplied to our terminals under the product supply agreement with MSCG andapproximately 0.9 million barrels of product linefill and tank bottoms.

Except for our discretionary volumes held for baseoperations, when we take title and accept risk of loss on refined petroleumproducts supplied by third parties at our terminals, we enter into futurescontracts (i.e., short futures contracts) to sell a corresponding amount ofproduct to protect against price fluctuations for the underlying commodity. Inorder to effectively manage commodity price risk, we must predict when we willsell the underlying product. When we ultimately sell the underlying inventoryto a customer, we terminate the related futures contract. If there iscorrelation in price changes between the 

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forward price curve in thefutures market and the value of physical products in the cash market, the netchanges in our variation margin position should be offset by the net operatingmargins we receive when we sell the underlying discretionary inventory.Therefore, in order to effectively manage commodity price risk, we must predictwhen we will sell the underlying product. If we fail to accurately predict thetiming of those future sales, and the product remains in our inventory longerthan the expiration date of the futures contract, we must settle the oldfutures contract and enter into a new futures contract to sell the product tomanage the commodity price risk against the same inventory. Furthermore, we maybe unable to precisely match the underlying product in our futures contractswith the exact type of product in our physical inventory. To the extent thatprice fluctuations of the product covered by the NYMEX futures contract do notmatch the price fluctuations of the product in our physical inventory, ourexposure may not be mitigated.

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. We may be unable to preciselymatch the underlying product in our futures contracts with the exact type ofproduct in our fixed-price forward sale commitment. To the extent thatprice fluctuations of the product covered by the NYMEX futures contract do notmatch the price fluctuations of the product in our fixed-price forwardsale commitment, our exposure may not be mitigated.

When our discretionary inventory volumes held forimmediate sale or exchange exceeds our fixed-price forward salecommitments, we will maintain a net short futures position. When our fixed-priceforward sale commitments exceed our discretionary inventory volumes held forimmediate sale or exchange, we will maintain a net long futures position.During a period of rising prices, long (short) futures contracts will increase(decrease) in value resulting in a gain (loss). During a period of decliningprices, our long (short) futures contracts will decrease (increase) in valueresulting in a loss (gain). Therefore, if we are in a net short futuresposition during periods of rising commodity prices, we expect to recognizesignificant net margin before other direct costs and expenses from the sale ofthe physical product offset by significant net losses on risk managementactivities resulting in overall net operating margins that are in line withexpectations. Conversely, if we are in a net short futures position duringperiods of declining commodity prices, we expect to recognize minimal, if any,net margin before other direct costs and expenses from the sale of the physicalproduct offset by significant net gains on risk management activities resultingin overall net operating margins that are, again, in line with expectations.

For the three months ended September 30, 2005 and2004, we recognized net gains (losses) on risk management activities ofapproximately $(42.4) million and $(10.4) million, respectively, dueprincipally to rising commodity prices and a net short (long) futures position.

The NYMEX requires an initial margin deposit to open afutures contract. At September 30, 2005 and June 30, 2005, we hadapproximately $17.7 million and $10.4 million, respectively, ondeposit to cover our initial margin requirements on open NYMEX futurescontracts. NYMEX futures contracts also require daily settlements for changesin commodity prices. Unfavorable commodity price changes subject us tovariation margin calls that require us to make cash payments to the NYMEX inamounts that may be material. At September 30, 2005, a $0.05 per gallonunfavorable change in commodity prices would have required us to make a cashpayment of approximately $5.0 million to cover the variation margin.Conversely, a $0.05 per gallon favorable change in commodity prices would havepermitted us to receive approximately $5.0 million. We use our availablecash and credit lines to fund these margin calls, but such funding requirementscould exceed our ability to access capital.

At September 30,2005, a $0.05 per gallon unfavorable change in commodity prices relative to ouropen positions in derivative contracts and risk management contracts would haveresulted in the 

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recognitionof a loss (realized and unrealized) of approximately $8.6 million.However, the fair value of our discretionary inventory held for immediate saleor exchange would have increased by approximately $4.1 million. The gainfrom the increase in the fair value of our discretionary inventory volumes heldfor immediate 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.

**Interest rate risk**

At September 30,2005, we had outstanding borrowings of $60.5 million under our Senior SecuredWorking Capital Credit Facility and $10.0 million under our commodity marginloan. We are exposed to interest rate risk because our Senior Secured WorkingCapital Credit Facility and commodity margin loan are variable-rate-basedcredit facilities. Based on the outstanding balance of ourvariable-interest-rate debt at September 30, 2005, and assuming marketinterest rates increase or decrease by 100 basis points, the potential annualincrease or decrease in interest expense is approximately $0.7 million.

**ITEM 4.**                CONTROLSAND PROCEDURES

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

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

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**Part II. Other Information**

**ITEM 6.**                EXHIBITS

Exhibits:

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

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

| Dated November 9, 2005 | TRANSMONTAIGNE  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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