Edgar Filing: TRANSMONTAIGNE INC

Exhibit
Number

Description of Exhibits

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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.

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.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2005

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 001-11763

TRANSMONTAIGNE INC.

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

1670 Broadway
Suite 3100
Denver, Colorado 80202

(Address, including zip code, of principal executive offices)

(303) 626-8200

(Telephone number, including area code)

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

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

Large accelerated filer o

Accelerated filer x

Non-accelerated filer o

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

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

TABLE OF CONTENTS

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains certain forward-looking statements and information relating to TransMontaigne Inc., including the following:

i. certain statements, including possible or assumed future results of operations, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations;”

ii. any statements contained herein or therein regarding the prospects for our business or any of our services;

iii. any statements preceded by, 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 statements contained herein or therein regarding matters that are not historical facts.

Our business and results of operations are subject to risks and uncertainties, many of which are beyond our ability to control or predict. Because of these risks and uncertainties, actual results may differ materially 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 risk factors, discussed in more detail under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2005, filed on September 13, 2005, are important factors that could cause actual results to differ materially from our expectations and may adversely affect our business and results of operations, include, but are not limited to:

· the availability of adequate supplies of and demand for petroleum products in the areas in which we operate;

· the effects of competition and our ability to renew customer contracts;

· the impact of petroleum product price fluctuations on our sales margins and the effect of changes in commodity prices on our liquidity;

· the success of our risk management activities;

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

· TransMontaigne Partners’ inability to pay the minimum quarterly distribution on the subordinated units that we own;

· continued creditworthiness of, and performance by, contract counterparties;

· the tax and other effects of the exercise of TransMontaigne Partners’ options to purchase our fixed assets;

· operational hazards and availability and cost of insurance on our assets and operations;

· the impact of any failure of our information technology systems;

· the availability of acquisition opportunities and successful integration and future performance of acquired assets;

· the threat of terrorist attacks or war;

· the impact of current and future laws and governmental regulations;

· the failure of TransMontaigne Partners to avoid federal income taxation as a corporation or the imposition of state level taxation;

· liability for environmental claims;

· the impact of the departure of any key officers; and

· general economic, market or business conditions.

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

Part I. Financial Information

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The interim unaudited consolidated financial statements of TransMontaigne Inc. as of and for the three and six months ended December 31, 2005, are included herein beginning on the following page. The accompanying unaudited interim consolidated financial statements should be read in conjunction with our annual consolidated financial statements and related notes for the year ended June 30, 2005, together with our discussion and analysis of financial condition and results of operations, included in our Annual Report on Form 10-K filed on September 13, 2005.

TransMontaigne Inc. is a holding company with the following active subsidiaries during the three and six months ended December 31, 2005.

· TransMontaigne Product Services Inc. (“TPSI”)

· TransMontaigne Services Inc.

· TransMontaigne Transport Inc.

· Coastal Fuels Marketing, Inc.

· Coastal Tug and Barge, Inc.

· TransMontaigne Partners L.P.

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

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

TransMontaigne Inc. and subsidiaries
Consolidated balance sheets
(In thousands)

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

See accompanying notes to consolidated financial statements.

TransMontaigne Inc. and subsidiaries
Consolidated statements of operations
(In thousands, except per share amounts)

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

See accompanying notes to consolidated financial statements.

TransMontaigne Inc. and subsidiaries
Consolidated statements of preferred stock and common stockholders’ equity
Year ended June 30, 2005 and six months ended December 31, 2005
(In thousands)

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

See accompanying notes to consolidated financial statements.

TransMontaigne Inc. and subsidiaries
Consolidated statements of cash flows
(In thousands)

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

See accompanying notes to consolidated financial statements.

TransMontaigne Inc. and subsidiaries
Notes to consolidated financial statements
December 31, 2005 and June 30, 2005

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation and Use of Estimates

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

Our accounting and financial reporting policies conform to accounting principles and practices generally accepted in the United States of America. The accompanying unaudited consolidated financial statements include the accounts of TransMontaigne Inc., a Delaware corporation (“TransMontaigne”), and its controlled subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation, except for throughput fees, storage fees, pipeline transportation fees, tug and barge fees and other fees charged to our supply, distribution and marketing operations by our terminals, pipelines, and tugs and barges. The related inter-company revenues and costs offset within total net operating margins in the accompanying consolidated statements of operations.

The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The following estimates, in our opinion, are subjective in nature, require the exercise of judgment, and involve complex analysis: allowance for doubtful accounts; fair value of inventories—discretionary volumes (used to evaluate the financial performance of our business segments); fair value of derivative contracts; and accrued environmental obligations. Changes in these estimates and assumptions will occur as a result of the passage of time and the occurrence of future events. Actual results could differ from these estimates.

(b) Nature of Business and Basis of Presentation

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

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

received net proceeds of approximately $73.0 million for the issuance and sale of 3,852,500 common units, after giving effect to the exercise of the underwriters’ over-allotment option, at the initial public offering price of $21.40 per common unit, and the payment of the underwriting discount, structuring fee and other offering costs of approximately $9.5 million. TransMontaigne Partners also received approximately $7.9 million for the issuance and sale of 450,000 subordinated units to an affiliate of Morgan Stanley Capital Group, Inc. in a separate private placement at a price of $17.65 per subordinated unit. We contributed seven refined products terminals located in Florida, the Razorback Pipeline, and two refined products terminals located in Mt. Vernon, Missouri and Rogers, Arkansas to TransMontaigne Partners in exchange for a 2% general partner interest, 2,872,266 subordinated units, and a distribution of $111.5 million. We also entered into an omnibus agreement and terminaling and transportation services agreement with TransMontaigne Partners. The omnibus agreement sets forth the terms on which we will provide TransMontaigne Partners with certain general and administrative services, insurance coverage and environmental and other indemnification, among other terms. We also have agreed to provide TransMontaigne Partners with certain options and rights of first refusal to purchase additional refined petroleum product terminal assets, and TransMontaigne Partners has agreed to provide us certain rights of first refusal with respect to its assets and additional terminal capacity added by TransMontaigne Partners in the future. Pursuant to the terminaling and transportation services agreement, we agreed to transport on TransMontaigne Partners’ Razorback Pipeline and to throughput in TransMontaigne Partners’ terminals a volume of refined product that will result in minimum revenues to TransMontaigne Partners of $5.0 million per calendar quarter.

(c) Accounting for Terminal, Pipeline, and Tug and Barge Activities

In connection with our terminal, pipeline, and tug and barge operations, we utilize the accrual method of accounting for revenues and expenses. We generate revenues in our terminal, pipeline, and tug and barge operations from throughput fees, storage fees, transportation fees, ship-assist fees, management fees and cost reimbursements, and fees from other ancillary services. Throughput revenues are recognized when the product is delivered to the customer; storage revenues are recognized ratably over the term of the storage contract; transportation revenues are recognized when the product has been delivered to the customer at the specified delivery location; ship-assist revenues are recognized when docking and other services are provided to marine vessels; management fees and cost reimbursements are recognized as the services are performed; and other service revenues are recognized as the services are performed.

Shipping and handling costs attributable to our terminal, pipeline, and tug and barge operations are included in direct operating costs and expenses in the accompanying consolidated statements of operations.

(d) Accounting for Supply, Distribution, and Marketing Activities

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

Shipping and handling costs attributable to our supply, distribution, and marketing operations are included in cost of product sold in the accompanying consolidated statements of operations.

(e) Accounting for Supply Chain Management Services Activities

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

Delivered fuel price management contracts involve the sales of committed quantities of specific motor fuels delivered to our customer’s proprietary fleet refueling locations at fixed prices for terms up to three years. Under retail price management contracts, customers commit for terms up to 18 months to a specific monthly quantity of product within one or more metropolitan areas and agree to a net settlement with us for the difference between a stipulated retail price index and our fixed contract price. Our logistical supply chain management arrangements permit our customers to use our proprietary web-based inventory management system for a fee, which typically is charged on a per gallon basis.

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

(f) Accounting for Risk Management Activities

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

(g) Accounting for Derivative Contracts

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

The estimated fair value of our delivered fuel price management and retail price management contracts at origination is deferred because our estimate of the fair value is not evidenced by quoted market prices or current market transactions for the contracts in their entirety. The deferred revenue is amortized into income over the respective terms of the contracts as the products are delivered to the ground fleet customers. Subsequent changes in the fair value of our delivered fuel price management and retail price management contracts are included in net operating margins attributable to our supply, distribution, and marketing operations.

(h) Presentation of Revenues

We present revenue from our rack spot sales, contract sales, certain bulk sales, and delivered fuel price management contracts on a gross basis in the accompanying consolidated statements of operations because our obligations under these arrangements are settled via transfer of title and risk of loss of the product to the customer. Revenue from our retail price management contracts and risk management contracts are presented on a net basis (i.e., product costs are required to be netted directly against gross revenues to arrive at net revenues) in the accompanying consolidated statements of operations because our obligations under these arrangements are settled on a net cash basis. The logistical supply chain management services fees do not involve the sale of inventory and, therefore, only the service fee is presented in the accompanying consolidated statements of operations.

We have presented bulk transactions that were “booked out” on a net basis in the consolidated statements of operations (i.e., product costs are netted directly against gross revenues to arrive at net revenues). A “book out” occurs when one party appears more than once for the sale and purchase of a specific grade of refined product for a specific scheduling date to transport product on a particular common carrier pipeline. In that instance, we and other pipeline shippers agree not to schedule or deliver the refined product that originates and ends with the same counterparty, but rather settle in cash the amounts due to or from each intervening counterparty, thus booking out the transaction. For the three months ended December 31, 2005 and 2004, we booked out bulk transactions of approximately $272.6 million and $700.9 million, respectively. For the six months ended December 31, 2005 and 2004, we booked out bulk transactions of approximately $902.5 million and $1,676.3 million, respectively. The booking out of a bulk transaction has no effect on our net operating margins or net earnings.

(i) Accounting for Inventories—Discretionary Volumes

Our inventories—discretionary volumes consist of refined petroleum products, primarily gasolines, distillates, and No. 6 oil. Inventories—discretionary volumes are presented in the accompanying consolidated balance sheets as current assets and are carried at the lower of cost (first-in, first-out) or market (replacement cost). Inventories—discretionary volumes are as follows (in thousands):

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

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

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

(j) Inventory Due to Others Under Exchange Agreements

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

$54.1 million and $16.4 million, respectively. The amount recorded represents the fair value of inventory due to others under exchange agreements at the respective balance sheet date.

(k) Accounting for Product Linefill and Tank Bottom Volumes

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

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

(l) Restricted Cash Held by Commodity Broker

Restricted cash represents cash deposits held by our commodity broker to cover initial margin requirements related to open NYMEX futures contracts.

(m) Deferred Debt Issuance Costs

Deferred debt issuance costs are as follows (in thousands):

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

(n) Environmental Obligations

At December 31, 2005 and June 30, 2005, we had accrued environmental obligations of approximately $6.3 million and $6.1 million, respectively, representing our best estimate of our remediation obligations (see Note 9 of Notes to consolidated financial statements). During the six months ended December 31, 2005, we made payments of approximately $1.5 million towards our environmental remediation obligations. During the six months ended December 31, 2005, we charged to income approximately $0.5 million to increase our estimate of our future environmental remediation obligations. During the six months ended December 31, 2005, we assumed approximately $1.2 million of environmental remediation obligations in connection with our acquisition of the Radcliff and Oklahoma City terminals (see Note 2 of Notes to consolidated financial statements). During the six months ended December 31, 2005 and 2004, we received insurance recoveries of approximately $150,000 and $1.4 million, respectively, which have been recognized as a reduction of direct operating costs and expenses in the accompanying consolidated statements of operations.

(o) Equity-Based Compensation Plans

For periods ending prior to July 1, 2005, we accounted for our employee stock option plans and restricted stock awards using the intrinsic value method pursuant to APB Opinion No. 25, Accounting for Stock Issued to Employees. If compensation cost for our stock-based compensation plans had been determined based on the fair value at the grant dates for awards under those plans pursuant to Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, our net earnings and earnings per common share would have been reduced to the pro forma amounts indicated below (in thousands, except for per share amounts):

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

There were no options granted during the six months ended December 31, 2005 and the years ended June 30, 2005, 2004 and 2003. The weighted average fair value at grant dates for options granted during the year ended June 30, 2002 was $3.08. The primary assumptions used to estimate the fair value of options granted on the date of grant using the Black-Scholes option-pricing model during the year ended June 30, 2002 were as follows: no dividend yield, expected volatility of 79%, risk-free rate of 4.49%, and expected life of 4 years.

Effective July 1, 2005, we adopted the provisions of Statement of Financial Accounting Standards No. 123 (R), Share-Based Payment. This Statement requires us to measure the cost of employee services received in exchange for an 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 is required to provide service in exchange for the award. We are required to estimate the number of equity instruments that are expected to vest in measuring the total compensation cost to be recognized over the related service period.

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

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

(p) Earnings (Loss) Per Common Share

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

number of common shares outstanding during the period and, when dilutive, potential common shares from the exercise of stock options and warrants to purchase common stock and restricted common stock subject to continuing vesting requirements pursuant to the treasury stock method. Diluted earnings (loss) per share also gives effect, when dilutive, to the conversion of the preferred stock pursuant to the if-converted method.

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

(q) Reclassifications

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

(2) ACQUISITIONS

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

Effective October 31, 2005, TransMontaigne Partners purchased a refined product terminal with approximately 150,000 barrels of aggregate storage capacity in Oklahoma City, Oklahoma from Magellan Pipeline Company, L.P. for approximately $1.9 million. The Oklahoma City terminal currently provides integrated terminaling services to a major oil company. The accompanying consolidated financial statements include the results of operations of the Oklahoma City terminal from the closing date of the acquisition (October 31, 2005).

The purchase price was allocated as follows (in thousands):

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

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

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

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

(3) DISPOSITION OF ASSETS

Gain on disposition of assets, net for the six months ended December 31, 2005, reflects the final insurance recovery of approximately $1.1 million on the involuntary conversion of our historical Pensacola terminal facilities and approximately $0.1 million on the sale of the Wisconsin terminal. Loss on disposition of assets, net for the six months ended December 31, 2004, consists principally of an approximately $3.6 million loss on the involuntary conversion of our historical Pensacola terminal facilities due to the damage caused by Hurricane Ivan.

(4) CONCENTRATION OF CREDIT RISK AND TRADE ACCOUNTS RECEIVABLE

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

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

(5) UNREALIZED GAINS AND LOSSES ON DERIVATIVE CONTRACTS

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

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

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

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

(6) PREPAID EXPENSES AND OTHER CURRENT ASSETS

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

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

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

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

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

(7) PROPERTY, PLANT AND EQUIPMENT

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

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

(8) OTHER ASSETS

Other assets are as follows (in thousands):

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

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

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

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

Acquired intangible represents the right to use the Coastal 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-line basis over five years.

Commodity trading membership represents the purchase price we paid to acquire two seats on the NYMEX.

(9) OTHER ACCRUED LIABILITIES

Other accrued liabilities are as follows (in thousands):

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

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

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

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

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

(10) DEFERRED REVENUE—SUPPLY CHAIN MANAGEMENT SERVICES

We enter into price management contracts with ground fleet customers and jobbers that permit them to fix the price of their fuel purchases. During the six months ended December 31, 2005, we originated retail and delivered fuel price management contracts with an estimated fair value of approximately

$2.9 million, representing the excess of the amounts we expect to receive from the ground fleet customers and jobbers over our estimate of the forward price curve of the underlying commodity adjusted for location differentials. We have deferred the estimated fair value of these contracts at origination because our estimate of the fair value is not evidenced by quoted market prices or current market transactions for the contracts in their entirety. We amortize the deferred revenue into net revenues attributable to our supply, distribution, and marketing operations over the respective terms of the contracts as the products are delivered. During the six months ended December 31, 2005, we recognized approximately $3.3 million in revenues attributable to our supply, distribution and marketing operations from the amortization of the deferred revenue from these contracts.

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

(11) DEBT

Debt is as follows (in thousands):

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

Commodity Margin Loan. We currently have a commodity margin loan agreement with our commodity broker that allows us to borrow up to $10 million to fund certain initial and variation margin requirements in commodities accounts maintained by us with our commodity broker. The entire unpaid principal amount of the loan, together with accrued interest, is due and payable on demand. Outstanding loans bear interest at the average 90-day Treasury Bill rate plus 1.50% (5.6% at December 31, 2005).

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

pay a commitment fee ranging from 0.25% to 0.50% per annum on the total amount of the unused commitments. Borrowings under the senior secured working capital credit facility are secured by, among other things, our cash, accounts receivable, inventories, certain terminal facilities with an orderly liquidation value of not less than $100 million, and certain other current assets. The only financial covenant contained in the senior secured working capital credit facility is a minimum fixed charge coverage ratio test that is computed on a quarterly basis and it is applicable whenever the average availability falls below $50 million for the last month of any quarter (average availability was $198 million for the month ended December 31, 2005). In that event, we must satisfy a minimum fixed charge coverage ratio requirement of 110%. The principal balance of loans and any accrued and unpaid interest is due and payable in full on the maturity date, September 13, 2009.

TransMontaigne Partners’ Credit Facility. On May 9, 2005, TransMontaigne Partners entered into a $75 million senior secured credit facility. The credit facility provides for a maximum borrowing line of credit equal to the lesser of (i) $75 million and (ii) four times Consolidated EBITDA of TransMontaigne Partners (as defined; $78.4 million at December 31, 2005). Borrowings under the credit facility bear interest (at TransMontaigne Partners’ option) based on a base rate plus an applicable margin, or LIBOR plus an applicable margin; the applicable margins are a function of the total leverage ratio (as defined). Interest on loans under the credit facility is due and payable periodically, based on the applicable interest rate and related interest period, generally either one, two or three months. The weighted average interest rate on borrowings under the TransMontaigne Partners’ credit facility was 5.8% during the six months ended December 31, 2005. In addition, TransMontaigne Partners pays a commitment fee ranging from 0.375% to 0.50% per annum on the total amount of the unused commitments. Borrowings under the TransMontaigne Partners’ credit facility are secured by a lien on TransMontaigne Partners’ assets, including cash, accounts receivable, inventory, general intangibles, investment property, contract rights and real property, except for TransMontaigne Partners’ real property located in Florida. The terms of the credit facility include covenants that restrict TransMontaigne Partners’ ability to make capital expenditures and cash distributions. The primary financial covenants contained in the TransMontaigne Partners’ credit facility are a total leverage ratio test (not to exceed four times) and an interest coverage ratio test (not to be less than three times). The principal balance of loans and any accrued and unpaid interest are due and payable in full on the maturity date, May 9, 2010.

Senior Subordinated Notes. On May 30, 2003, we consummated the sale and issuance of $200 million aggregate 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 Notes mature on June 1, 2010 and interest is payable semi-annually in arrears on each June 1 and December 1 commencing on December 1, 2003. The Senior Subordinated Notes are unsecured and subordinated to all of our existing and future senior debt. Upon certain change of control events, each holder of the Senior Subordinated Notes may require us to repurchase all or a portion of its notes at a purchase price equal to 101% of the principal amount thereof, plus accrued interest. The indenture governing the Senior Subordinated Notes contains covenants that, among other things, limit our ability to incur additional indebtedness, pay dividends on, redeem or repurchase our common stock, make investments, make certain dispositions of assets, engage in transactions with affiliates, create certain liens, and consolidate, merge, or transfer all or substantially all of our assets. The Senior Subordinated Notes are fully and unconditionally guaranteed on a joint and several basis by our subsidiaries other than (1) minor subsidiaries that are inactive and have no assets or operations and (2) since May 27, 2005, TransMontaigne Partners L.P. and its general partner and the wholly-owned subsidiaries of TransMontaigne Partners L.P.

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

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

Summarized consolidating financial information for TransMontaigne Inc. and the guarantor subsidiaries and TransMontaigne Partners and the non-guarantor subsidiaries as of and for the three months ended December 31, 2005 is as follows (in thousands):

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

Summarized consolidating financial information for TransMontaigne Inc. and the guarantor subsidiaries and TransMontaigne Partners and the non-guarantor subsidiaries for the six months ended December 31, 2005 is as follows (in thousands):

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

For all periods ended after the issuance of the Senior Subordinated Notes (May 30, 2003) and before the closing of TransMontaigne Partners’ initial public offering (May 27, 2005), we had no subsidiaries that had not guaranteed the Senior Subordinated Notes on a full and unconditional, joint and several basis, other than subsidiaries that were minor. Accordingly, we have not presented consolidating financial information as of and for the three and six months ended December 31, 2004, because such information would be substantially duplicative with the accompanying consolidated financial statements. TransMontaigne Partners completed its initial public offering and commenced operations on May 27, 2005.

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

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

(12) PREFERRED STOCK

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

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

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

The Series B redeemable convertible preferred stock has 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 our option, subject to limitations on the total number of shares of common stock permitted to be used in the exchange and issued to any stockholder. Dividends are cumulative and payable quarterly. The dividends are payable in cash, unless precluded by contract or the senior secured working capital credit facility, in which case dividends are payable in additional shares of Series B redeemable convertible preferred stock. The Series B redeemable convertible preferred stock may be put to us, at the option of the holder, for cash equal to the greater of its liquidation value or conversion value upon the future occurrence of a fundamental change (including those relating to sale of substantially all of the assets, delisting of our common stock from a national exchange, change in control, bankruptcy filing, and an event of default that accelerates the repayment of our debt). We may call the outstanding shares of Series B redeemable convertible preferred stock after June 30, 2005 if certain specified conditions are met. The Series B redeemable convertible preferred stock is convertible, at the option of the holder, into common stock at $6.60 per share, subject to adjustment upon the occurrence of specified future events. The holders of the Series B redeemable convertible preferred stock have the right to vote on all matters (except the election of directors) with the holders of the common stock (voting collectively as a single class).

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

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

(13) COMMON STOCK

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

redeemable convertible preferred stock contain restrictions on the payment of dividends on our common stock.

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

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

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

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

Amortization of deferred compensation of approximately $1.5 million and $1.3 million is included in selling, general and administrative expense for the six months ended December 31, 2005 and 2004, respectively.

(14) STOCK OPTIONS

Information about stock option activity for the six months ended December 31, 2005 and 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
Cancelled	(3,000	)		11.00
Exercised	(54,800	)		3.75
Outstanding at December 31, 2005	710,102			$	4.59
Exercisable at December 31, 2005	680,102			$	4.57

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

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

(15) WARRANTS

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

(16) COMMITMENTS AND CONTINGENCIES

Legal Proceedings. We have been named as a defendant in various lawsuits and a party to various other legal proceedings, in the ordinary course of business, some of which are covered in whole or in party by insurance. We believe that the outcome of such lawsuits and other proceedings will not individually or in the aggregate have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. At December 31, 2005 and June 30, 2005, we have accrued obligations for legal settlements of approximately $0.3 million and $0.3 million, respectively, representing our best estimate of our loss contingencies that are probable of occurrence (see Note 9 of Notes to consolidated financial statements).

Transportation and Deficiency Agreements. In connection with our sale of two product distribution facilities in Little Rock, Arkansas, we are potentially liable for payments of up to approximately $0.7 million per year for a five-year period through June 30, 2006. At June 30, 2005, we had an accrued liability of approximately $0.6 million representing our estimate of the future amounts we expect to pay for the shortfall in volumes for the remainder of the term of the agreement. During the six months ended December 31, 2005, we paid approximately $0.4 million as settlement for our shortfall in volumes for the year ended June 30, 2005.

At December 31, 2005 and June 30, 2005, we have recognized approximately $0.7 million and $0.3 million, respectively, of prepaid transportation in other assets since we have a contractual right, after the end of the term of the transportation agreement, to apply the amounts to charges for using the interstate pipeline in the 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			December 31, 2005
	(in thousands)
Other assets—prepaid transportation		$	326			$	411		$	—		$	—		$	737
Accrued liability—T&D obligations		$	(640	)		$	386		$	—		$	—		$	(254	)

Operating Leases. Future minimum 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)	$	856		$	5,662		$	1,162		$	242
2007	1,490			4,223			2,477			411
2008	1,648			—			2,413			331
2009	1,630			—			807			202
2010	1,695			—			92			86
Thereafter	2,573			—			5			194
	$	9,892		$	9,885		$	6,956		$	1,466

Rental expense under operating leases is as follows (in thousands):

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

(17) EARNINGS PER SHARE

The following table reconciles the computation of basic and diluted weighted average shares
(in thousands):

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

We exclude potentially dilutive securities from our computation of diluted earnings per share when their effect would be anti-dilutive. The following securities were excluded from the dilutive earnings per share computation for the three and six months ended December 31, 2005, as their inclusion would have been anti-dilutive (in thousands):

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

(18) BUSINESS SEGMENTS

We provide integrated terminal, transportation, storage, supply, distribution and marketing services to refiners, wholesalers, distributors, marketers, and industrial and commercial end-users of refined petroleum products. We conduct business in the following business segments:

· Terminals, pipelines, and tugs and barges—consists of an extensive terminal and pipeline infrastructure that handles refined petroleum 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 the Colonial, Plantation, TEPPCO, Explorer and Magellan pipeline systems.

· Supply, distribution and marketing—consists of services for the supply and distribution of refined petroleum products through rack spot sales, contract sales, and bulk sales in the physical and derivative markets, with retail, wholesale, industrial and commercial customers using our terminal racks and marine refueling equipment, and providing related value-added fuel procurement and supply chain management services.

Our chief operating decision maker is our chief executive officer (“CEO”). Our CEO reviews the financial performance of our business segments using a financial performance measure that is referred to by us as “margins and inventory management” for purposes of making operating decisions 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.

For the terminals, pipelines, and tugs and barges segment, “margins” is composed of revenues less direct operating costs and expenses. There are no differences between “margins” for our terminals, pipelines, and tugs and barges segment and the net operating margins reported for 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 information that is prepared pursuant to the mark-to-market method of accounting. Our presentation of “margins and inventory procurement” for the supply, distribution and marketing segment differs from net operating margins for that segment as presented in our accompanying historical consolidated statements of operations due to the treatment of our inventories—discretionary volumes (which includes both volumes held for immediate sale or exchange and volumes held for base operating requirements). Inventories—discretionary volumes are reflected at fair value, which matches the treatment of our derivative 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—discretionary volumes are composed of refined petroleum products, which are commodities with established trading markets and readily ascertainable market prices, we believe that the financial performance of our supply, distribution and marketing segment can be appropriately evaluated

using the mark-to-market method. Our inventories—discretionary volumes are carried at the lower of cost or market in the accompanying historical consolidated balance sheets, while our derivative and risk management contracts are carried at fair value. As a result, if refined petroleum product prices are increasing during the end of a quarter, we may report in the accompanying historical statements of operations significant losses on derivative and risk management contracts and significant deferred gains on discretionary inventory volumes at the end of that quarter and report significant gains on our beginning inventories—discretionary volumes when they are sold in the following quarter. Therefore, the effects of changes in the fair value of our inventories—discretionary volumes are included in “margins and inventory management” attributable to our supply, distribution and marketing segment in the period in which the fair value actually changes.

The differences between “margins and inventory management” used by our CEO in reviewing the financial performance of our business segments and the net operating margins reported in our accompanying historical financial statements are presented as “Inventory adjustments” in the accompanying “Reconciliation to earnings before income taxes.”

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

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

Supplemental information regarding our revenues for our business segments is summarized below (in thousands):

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

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations and financial condition should be read in conjunction with the accompanying unaudited consolidated financial statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A summary of the significant accounting policies that we have adopted and followed in the preparation of our consolidated financial statements is detailed in our consolidated 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). Certain of these accounting policies require the use of estimates. The following estimates, in our opinion, are subjective in nature, require the exercise of judgment, and involve complex analysis: allowance for doubtful accounts; fair value of inventories—discretionary volumes (used to evaluate the financial performance of our business segments); fair value of derivative contracts; and accrued environmental obligations. These estimates are based on our knowledge and understanding of current conditions and actions we may take in the future. Changes in these estimates will occur as a result of the passage of time and the occurrence of future events. Subsequent changes in these estimates may have a significant impact on our financial condition and results of operations.

SIGNIFICANT DEVELOPMENTS DURING THE SIX MONTHS ENDED DECEMBER 31, 2005

On July 20, 2005, TransMontaigne Partners announced 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 of the acquisition of Radcliff/Economy Marine Services, Inc. (“Radcliff”) for a purchase price of approximately $52.1 million, net of cash acquired of approximately $2.1 million. The purchase price is composed of approximately $41.8 million paid in cash plus the assumption of Radcliff’s existing outstanding debt of approximately $12.4 million. The acquisition includes three petroleum products terminals, two in Mobile, Alabama and one in Pensacola, Florida, with combined aggregate storage capacity of approximately 350,000 barrels. In addition, we acquired two tugboats, 6 barges, 12 tractors and associated trailers and approximately $22 million in net working capital.

On August 16, 2005, we announced the signing of purchase agreements to acquire certain LPG assets and refined petroleum products tank capacity in Brownsville, Texas and Matamoros, Mexico from Rio Vista Energy Partners L.P. and Penn Octane Corporation for a total purchase price of approximately $27.5 million. The closing of the acquisition is subject to our completion of additional due diligence.

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

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

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

On October 24, 2005, Hurricane Wilma struck Florida. We currently are not aware of any significant long-term damage to our facilities caused by Hurricane Wilma.

SUBSEQUENT EVENTS

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

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

RESULTS OF OPERATIONS—MARKET CONDITIONS

During September and through October 10, 2005, we witnessed substantial price disparities and market disruptions in the wholesale markets. The major refiners were pricing their branded products substantially below the price at which they were offering unbranded products in the wholesale market. The price of product in the wholesale market generally reflects the cost of product at the tailgate of the refinery adjusted for the cost of transportation to the wholesale market. In effect, the major refiners were subsidizing the price of product in the wholesale markets; major refiners were charging their branded customers wholesale 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 the Charlotte, North Carolina wholesale market from August 1, 2005 through December 31, 2005 are as follows ($/gallon):

From August 29, 2005 through September 7, 2005, we sold product to our contract customers at our Southeast facilities based on the subsidized prices being offered by major refiners to their branded customers in the wholesale market, resulting in realized losses on our light oil marketing margins of approximately $12 million. We historically sell approximately 80,000 barrels per day of unbranded product at our Southeast facilities under contracts with OPIS indexes. On September 7, 2005, we informed our contract customers at our Southeast facilities that we were exercising our rights under our sales contracts to temporarily cease selling them product under the OPIS-based pricing provisions in their contracts with us. However, we offered to sell product to these customers under interim pricing provisions that would stay in effect until the pricing disparities in the wholesale market subsided. From September 8, 2005 to October 10, 2005, we averaged approximately 45,000 barrels per days under contracts with interim pricing provisions. The interim pricing provisions were intended to reflect the cost of product in the bulk markets and the cost of transportation from the bulk markets to the wholesale markets. To the extent that contract customers at our Southeast facilities submit to us notices of dispute claiming that we did not have the right to suspend the OPIS-pricing provisions in our sales contracts and such disputes are not resolved directly with our customers, we will resolve such disputes through mediation and arbitration provisions of the applicable contracts. We continue to believe that we were within our rights under the contracts to impose interim pricing provisions during the period of price disparities and market disruptions in the wholesale markets. We believe that the outcome of the disputes with our customers will not individually or in the aggregate have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. At December 31, 2005, we have not accrued any reserves for potential loss contingencies resulting from the disputes with our customers because such a loss, in our view, is not probable of occurrence.

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

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

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

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

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

The value of petroleum products in any local delivery market is the sum of the commodity price as reflected on the NYMEX and the basis differential for that local delivery market. The basis differential for any local delivery market is the spread between the cash price in the physical market and the quoted price in the futures markets for the prompt month. For those physical and derivative positions as to which we choose to manage the associated commodity price risk, the primary objective of our risk management strategy is to minimize the financial impact on us from changes in petroleum commodity prices affected by world-wide crude oil and petroleum products supply and demand disruptions (e.g., the Iraq war, OPEC production quotas, disruptions due to hurricanes and other weather-related occurrences, foreign country work stoppages, and major refinery outages). We utilize NYMEX futures contracts to manage the financial impact on us from changes in commodity prices due to “world-wide” events. NYMEX futures contracts are obligations to purchase or sell a specific volume of inventory at a fixed price at a future date. We believe that the utilization of NYMEX futures contracts to manage commodity price risk minimizes the financial impact on us from changes in “world-wide” commodity prices. We generally do not manage the financial impact on us from changes in basis differentials affected by local market supply and demand disruptions (e.g., local pipeline delivery disruptions, local refinery outages, periodic change in local government specifications for gasolines and distillates, local seasonality in product demand, and disruptions due to local weather related occurrences). The impacts on us from changes in basis differentials are as follows:

Basis Differential

Change in Basis
Differential

Net
Position

Financial
Impact

Futures price in excess of physical market price
(“negative basis differential”)

Increasing

Long

Loss

Futures price in excess of physical market price

Increasing

Short

Gain

Futures price in excess of physical market price

Decreasing

Long

Gain

Futures price in excess of physical market price

Decreasing

Short

Loss

Physical market price in excess of futures price
(“positive basis differential”)

Increasing

Long

Gain

Physical market price in excess of futures price

Increasing

Short

Loss

Physical market price in excess of futures price

Decreasing

Long

Loss

Physical market price in excess of futures price

Decreasing

Short

Gain

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

When we nominate refined petroleum products to be supplied by third parties at our terminals, we enter into futures contracts (i.e., short futures contracts) to sell a corresponding amount of product to protect against price fluctuations for the underlying commodity. When we ultimately sell the underlying inventory to a customer, we unwind the related risk management contract. In order to effectively manage commodity price risk, we must predict when we will sell the underlying product. When we enter into a forward sale commitment to deliver product to a customer in the future at a fixed price, we enter into a futures contract (i.e., a long futures contract) to purchase a corresponding amount of product to protect against price fluctuations for the underlying commodity. When we ultimately deliver the underlying product to a customer, we unwind the related risk management contract. We believe that the uncertainties of crude oil supply caused in part by the Iraq war, the possibility of unplanned refinery outages and the increased participation of hedge funds in the futures markets periodically results 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, the futures markets are driven by geopolitical events and expectations). When there is a lack of correlation between the cash market and the futures market, the cost of managing our commodity price risk may increase. Because of the overall high level of commodity prices combined with the possibility of an increase in the cost of managing the commodity price risk associated with our discretionary inventories, we distributed and transported fewer barrels of discretionary inventories through our terminal infrastructure during the year ended June 30, 2005 and the six months ended December 31, 2005, which resulted in lower inventory volumes available for rack spot sales.

RESULTS OF OPERATIONS—BUSINESS SEGMENTS

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

Terminals, pipelines, tugs and barges—margins

Our margins for the terminal, pipelines, tugs and barges segment are identical to the net operating margins for such segment described under “Results of Operations—Historical Financial Statements.” Selected quarterly margins for the terminal, pipelines, tugs and barges segment for each of the three and six months ended December 31, 2005 and 2004 are summarized below (in thousands):

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

Supply, distribution and marketing—margins and inventory management

Our presentation of “margins and inventory management” for the supply, distribution and marketing segment differs from net operating margins for that segment as presented in our accompanying historical consolidated statements of operations due to the treatment of our inventories—discretionary volumes (which includes both volumes held for immediate sale or exchange and volumes held for base operating requirements). Inventories—discretionary volumes are reflected at fair value, which matches the treatment of our derivative 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—discretionary volumes are composed of refined petroleum products, which are commodities with established trading markets and readily ascertainable market prices, we believe that the financial

performance of our supply, distribution and marketing segment can be appropriately evaluated using the mark-to-market method. Our inventories—discretionary volumes are carried at the lower of cost or market in the accompanying historical consolidated balance sheets, while our derivative and risk management contracts are carried at fair value. As a result, if refined petroleum product prices are increasing during the end of a quarter, we may report in the accompanying historical statement of operations significant losses on derivative and risk management contracts and significant deferred gains on discretionary inventory volumes at the end of that quarter and report significant gains on our beginning inventories—discretionary volumes when they are sold in the following quarter. Therefore, the effects of changes in the fair value of our inventories—discretionary volumes are included in “margins and inventory management” attributable to our supply, distribution and marketing segment in the period in which the fair value actually changes.

Marketing margins. Light oil and heavy oil marketing margins are based on the actual selling price to the customer, the cost of product sold and the standard cost of transportation and throughput. For purposes of computing our light oil margins, the cost of product sold is based on the prior day’s market value of the product as determined in the United States Gulf Coast bulk market for all facilities except 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 include margins from the sale of refined petroleum products under delivered fuel price management contracts, net gains and losses from the settlement of retail price management contracts and fees from logistical supply chain management services. Margins under delivered fuel price management contracts are based on the relationship of the spread between the futures price and the physical wholesale market price at the date the contract was executed with the customer (referred to as “basis sold”) and the spread between the futures price and the physical wholesale 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 retail price management contracts are based on basis sold and basis bought in the retail market. Fees from logistical supply chain management services are charged on a per gallon basis for the use of our proprietary web-based inventory management system.

Inventory procurement and management. During the three months ended March 31, 2005, we commenced purchasing light oil product from MSCG for our Florida and Southeast marketing activities. Pursuant to the terms of the MSCG supply agreement, the unit cost of the products is determined prior to their actual delivery to our terminals. Consequently, during rising commodity prices, we will recognize gains between the date the product is priced and the date of its receipt because the MSCG supply agreement qualifies as a derivative contract (see Note 1(g) of Notes to consolidated financial statements). During declining commodity prices, we will recognize losses between the pricing date and the date of receipt. Because of the significant increase (decrease) in commodity prices experienced during the three and six months ended December 31, 2005, we recognized approximately $(51.7) million and $27.4 million, respectively, of gains (losses) on approximately 3.0 million barrels, which represents the average volume of barrels priced under the terms of the MSCG supply agreement but not yet delivered to our terminals. At December 31, 2005, we were managing the commodity price risk associated with approximately 3.0 million barrels of undelivered in-transit volumes supplied to our terminals under the MSCG supply agreement. During the three and six months ended December 31, 2005, we recognized gains (losses) of approximately $27.1 million and $(1.7) million, respectively, from these risk management activities.

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

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

Storage fees for light oil tank capacity decreased during the three and six months ended December 31, 2005 as compared to 2004, due principally to the commencement of our terminaling services agreements with MSCG for tank capacity at our Southeast facilities that historically had been leased to our supply, distribution and marketing operations.

Other financial and costing variances, net include the financial variances (favorable and unfavorable) associated with the purchase price of our inventory volumes held for immediate sale or exchange, the correlation between the physical market and the futures market, the variance between our actual transportation and throughput charges and our standard costs, and the net margins generated from bulk transactions. During periods of strong correlation between the physical and futures markets, we will recognize nominal variances. During periods of expanding spreads between the cash price in the physical market and the quoted price in the futures markets for the prompt month, we will recognize gains (losses) if we are net short (long) in the physical market. During periods of contracting spreads between the cash price in the physical market and the quoted price in the futures markets for the prompt month, we will recognize gains (losses) if we are net long (short) in the physical market. Other financial and costing variances, net were unfavorably impacted by changes in the injection date of products into the Colonial pipeline caused by Hurricanes Katrina and Rita. The cost of product purchased under the MSCG product supply agreement is based on the actual injection date of products into the Colonial pipeline. We enter into risk management contracts to manage the commodity price risk associated with product purchased under the MSCG product supply agreement based on the expected injection date of products into the Colonial pipeline. When the cost of product purchased under the MSCG product supply agreement is determined by reference to a period of time other than the period of time in which we entered into the associated risk management contracts, we will recognize unfavorable variances during rising prices. We also recognize financial and costing variances based on the relationship of the spread between the futures price and the physical wholesale market price at the date product is priced under the MSCG product supply agreement (referred to as “basis bought”) and the spread between the futures price and the physical wholesale market price at the date the product was lifted by the customer (referred to as “basis sold”). During the three and six months ended December 31, 2005, the basis bought was in excess of the basis sold resulting in unfavorable variances.

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

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

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

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

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

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

The differences between “margins and inventory management” used by our CEO in reviewing the financial performance of our business segments and the net operating margins reported in our accompanying historical financial statements for the three and six months ended December 31, 2005 and 2004, are as follows (in thousands):

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

RESULTS OF OPERATIONS—HISTORICAL FINANCIAL STATEMENTS

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

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

(1) Net operating margins represents revenues, less cost of product sold and other direct operating costs and expenses.

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

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

Terminals, pipelines, and tugs and barges

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

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

Throughput and additive injection fees, net. We own and operate a terminal infrastructure that handles products with transportation connections via pipelines, barges, rail cars and trucks. We earn throughput fees for each barrel of product that is distributed at our terminals through our supply and marketing efforts, through exchange agreements, or for third parties. Terminal throughput fees are based on the volume of products distributed at the facility’s truck loading racks, generally at a standard rate per barrel of product. We provide injection services in connection with the delivery of product at our terminals. These fees generally are based on the volume of product injected and delivered over the rack at our terminals.

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

Terminal throughput and additive injection fees, net were approximately $14.2 million and $9.9 million for the three months ended December 31, 2005 and 2004, respectively. The increase of approximately $4.3 million in terminal throughput and additive injection fees, net is due principally to approximately $3.0 million of throughput fees charged on marketing volumes at the TransMontaigne Partners’ facilities, approximately $0.9 million of throughput fees resulting from the acquisition of Radcliff, an increase of approximately $0.5 million at our Brownsville facilities and an increase of approximately $0.2 million at our River facilities offset by a decrease of approximately $0.3 million at our Southeast facilities. For the three months ended December 31, 2005 and 2004, we averaged approximately 370,000 barrels and 308,000 barrels per day, respectively, of throughput volumes at our terminals, including volumes under exchange agreements.

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

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

Terminal storage fees were approximately $6.9 million and $9.1 million for the three months ended December 31, 2005 and 2004, respectively. The decrease of $2.2 million in storage fees was due principally to a decrease in storage fees of approximately $1.5 million resulting from the conversion of the fees charged on heavy oil marketing volumes from a storage agreement to a throughput agreement and a decrease of approximately $0.6 million in storage fees charged at our Southeast facilities resulting from the commencement of terminaling services agreements with MSCG.

Included in the terminal storage fees for the three months ended December 31, 2005 and 2004, are fees charged to TransMontaigne’s supply, distribution and marketing segment of approximately $nil and $3.5 million, respectively.

Pipeline transportation fees. We own an interstate products pipeline operating from Mt. Vernon, Missouri to Rogers, Arkansas (the “Razorback Pipeline”), together with associated terminal facilities at Mt. Vernon and Rogers. We earn pipeline transportation fees at our Razorback Pipeline based on the volume of product transported and the distance from the origin point to the delivery point. We also earn transportation fees at our Port Everglades pipeline hydrant system based on the volume of product delivered to cruise ships and freight vessels.

For the three months ended December 31, 2005 and 2004, we earned pipeline transportation fees of approximately $1.1 million and $1.1 million, respectively.

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

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

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

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

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

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

Other revenues. In addition to providing storage and distribution services at our terminal facilities, we also provide ancillary services including heating and mixing of stored products and product transfer services. We also recognize gains from the sale of product to our supply, distribution and marketing operation resulting from the excess of product deposited by third parties into our terminals over the amount of product that the customer is contractually permitted to withdraw from those terminals.

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

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

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

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

Supply, distribution and marketing

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

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

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

loading racks or marine fueling equipment. Our selling price of a particular product on a particular day at a particular terminal is a function of our supply at that terminal, our estimate of the costs to replenish the product at that terminal, our desire to reduce inventory levels at that terminal that day, and other factors. Rack spot sales are recognized as revenues when the product is delivered to the customer through the truck loading rack or marine fueling equipment.

Rack spot sales were approximately $246.4 million and $162.8 million for the three months ended December 31, 2005 and 2004, respectively. The increase of approximately $83.6 million is due principally to higher commodity prices during 2005 and a slight increase in volumes made available to our rack spot customers. For the three months ended December 31, 2005 and 2004, we averaged approximately 35,000 and 32,000 barrels per day, respectively, of delivered volumes under rack spot sales.

Contract sales. Contract sales are sales to commercial and industrial end users, independent retailers, cruise-ship operators, and jobbers that are made pursuant to negotiated contracts, generally ranging from one to six months in duration. Contract sales provide these customers with a specified volume of product during the agreement term. At the customer’s option, the pricing of the product delivered under a contract sale may be fixed at a stipulated price per gallon, or it may vary based on changes in published indices. Contract sales are recognized as revenues when the product is delivered to the customer through the truck loading rack or marine fueling equipment.

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

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

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

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

Sales pursuant to supply chain management services contracts were approximately $217.2 million and $146.5 million for the three months ended December 31, 2005 and 2004, respectively. The increase of approximately $70.7 million is due principally to higher commodity prices. For the three months ended December 31, 2005 and 2004, we averaged approximately 30,000 barrels and 30,000 barrels per day, respectively, of delivered volumes under supply chain management services contracts.

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

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

Net gains (losses) on risk management activities. Our risk management strategy generally is intended to maintain a balanced position of forward sale commitments against our discretionary inventories held for immediate sale or exchange, inventory volumes due to others under exchange agreements, open positions in derivative contracts, and open positions in risk management contracts, thereby reducing exposure to commodity price fluctuations. We evaluate our exposure to commodity price risk from an overall portfolio basis and offset that position with risk management contracts, principally NYMEX futures contracts.

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

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

Costs and expenses

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

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

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

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

Other income and expenses

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

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

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

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

Income taxes

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

Preferred stock dividends

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

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

We reported net earnings (loss) of $(14.3) million for the six months ended December 31, 2005, compared to net earnings of $8.1 million for the six months ended December 31, 2004. After earnings allocable to preferred stock, the net earnings (loss) attributable to common stockholders was $(14.8) million for the six months ended December 31, 2005, compared to net earnings of $6.3 million for the six months ended December 31, 2004. Basic earnings (loss) per common share for the six months ended December 31, 2005 and 2004, was $(0.31) and $0.16, respectively, based on 47.6 million and 39.6 million weighted average common shares outstanding, respectively. Diluted earnings (loss) per common share for the six months ended December 31, 2005 and 2004, was $(0.31) and $0.16, respectively, based upon 47.6 million and 51.7 million weighted average diluted shares outstanding, respectively.

Terminals, pipelines, and tugs and barges

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

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

Throughput and additive injection fees, net. We earn throughput fees for each barrel of product that is distributed at our terminals through our supply and marketing efforts, through exchange agreements, or for third parties. Terminal throughput fees are based on the volume of products distributed at the facility’s truck loading racks, generally at a standard rate per barrel of product. We provide injection services in connection with the delivery of product at our terminals. These fees generally are based on the volume of product injected and delivered over the rack at our terminals.

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

Terminal throughput and additive injection fees, net were approximately $27.7 million and $20.2 million for the six months ended December 31, 2005 and 2004, respectively. The increase of approximately $7.5 million in terminal throughput and additive injection fees, net is due principally to approximately $5.3 million of throughput fees charged on marketing volumes at the TransMontaigne Partners’ facilities, approximately $1.9 million of throughput fees resulting from the acquisition of Radcliff and an increase of approximately $1.0 million at our Brownsville facilities offset by a decrease of approximately $0.4 million at our Southeast facilities. For the six months ended December 31, 2005 and 2004, we averaged approximately 369,000 barrels and 321,000 barrels per day, respectively, of throughput volumes at our terminals, including volumes under exchange agreements.

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

of leased capacity per month rate and will vary with the duration of the storage agreement and the type of product stored.

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

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

For the six months ended December 31, 2005 and 2004, we earned pipeline transportation fees of approximately $1.9 million and $1.8 million, respectively.

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

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

For the six months ended December 31, 2005 and 2004, we earned bunkering fees, transportation fees, and other ship-assist services fees of approximately $8.6 million and $6.8 million, respectively. The increase of $1.8 million in tug and barge fees is due principally to approximately $1.2 million of fees resulting from the acquisition of Radcliff.

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

For the six months ended December 31, 2005 and 2004, we earned management fees and cost reimbursements from our terminal and pipeline operations of approximately $2.6 million and $2.5 million, respectively.

For the six months ended December 31, 2005 and 2004, other revenues from our terminals, pipelines, and tugs and barges operations were approximately $7.6 million and $4.5 million, respectively. The increase of $3.1 million in other revenues is due principally to approximately $2.6 million in product gains and approximately $0.9 million from the acquisition of Radcliff offset by a decrease in ancillary services of approximately $0.6 million.

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

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

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

Supply, distribution and marketing

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

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

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

Rack spot sales. Rack spot sales are sales to commercial and industrial end-users, independent retailers, cruise-ship operators and jobbers that do not involve continuing contractual obligations to purchase or deliver product. Rack spot sales are priced and delivered on a daily basis through truck loading racks or marine fueling equipment. Our selling price of a particular product on a particular day at a particular terminal is a function of our supply at that terminal, our estimate of the costs to replenish the product at that terminal, our desire to reduce inventory levels at that terminal that day, and other factors. Rack spot sales are recognized as revenues when the product is delivered to the customer through the truck loading rack or marine fueling equipment.

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

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

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

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

Sales pursuant to supply chain management services contracts were approximately $432.7 million and $282.6 million for the six months ended December 31, 2005 and 2004, respectively. The increase of approximately $150.1 million is due principally to higher commodity prices during 2005. For the six months ended December 31, 2005 and 2004, we averaged approximately 31,000 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 includes the cost of the product inventory sold on a first-in, first-out basis, pipeline transportation and other freight costs, terminal throughput, additive and storage costs, and commissions. Cost of product sold is approximately $4,874.5 million and $3,832.4 million for the six months ended December 31, 2005 and 2004, respectively. Cost of product sold is as follows
(in thousands):

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

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

Costs and expenses

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

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

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

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

Other income and expenses

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

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

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

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

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

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

Income taxes

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

Preferred stock dividends

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

LIQUIDITY, CAPITAL RESOURCES, AND COMMODITY PRICE RISK

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

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

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

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

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

Our product linefill and tank bottom volumes consist of refined products held in our proprietary terminal pipeline connections and tank bottoms. Our product linefill and tank bottom volumes are not held for sale or exchange in the ordinary course of business. Our product linefill and tank bottom volumes are presented in the accompanying consolidated balance sheet as non-current assets and are carried at original cost adjusted for impairment write-downs to current market values. Product linefill and tank bottom volumes consist of the following (in thousands):

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

The following table indicates the maturities of our derivative contracts, including the credit quality of our counterparties to those contracts with unrealized gains at December 31, 2005.

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

At December 31, 2005, there were no unrealized gains or losses on NYMEX futures contracts because NYMEX futures contracts require daily settlement for changes in commodity prices on open futures contracts. At December 31, 2005, included in unrealized gain position—current is an unrealized gain of approximately $7.4 million related to certain short positions taken in the NYMEX options market.

The following table includes information about the changes in the fair value of our derivative contracts for the six months ended December 31, 2005 (in thousands):

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

Excluding acquisitions, capital expenditures for the three and six months ended December 31, 2005, were $7.3 million and $9.4 million, respectively, for terminal and pipeline facilities and assets to support these facilities. Future capital expenditures will depend on numerous factors, including the availability, economics and cost of appropriate acquisitions which we identify and evaluate; the economics, cost and required regulatory approvals with respect to the expansion and enhancement of existing systems and facilities; customer demand for the services we provide; local, state and federal governmental regulations; environmental compliance requirements; and the availability of debt financing and equity capital on acceptable terms.

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

The senior secured working capital credit facility is our primary means of short-term liquidity to finance working capital requirements. The senior secured working capital credit facility contains affirmative and negative covenants (including limitations on indebtedness, limitations on dividends and other distributions, limitations on certain inter-company transactions, limitations on mergers, consolidation and the disposition of assets, limitations on investments and acquisitions and limitations on liens) that are customary for a facility of this nature. The senior secured working capital credit 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 financial covenant contained in the senior secured working capital credit facility is a minimum fixed charge coverage ratio test that is tested on a quarterly basis whenever the average availability falls below $50 million for the last month of any quarter (average availability was approximately $198 million for the month ended December 31, 2005). In that event, we must satisfy a minimum fixed charge coverage ratio requirement of 110%. The fixed charge coverage ratio is based on a defined financial performance measure within the senior secured working capital credit facility known as “fixed charges EBITDA.”

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

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

If we were to fail the fixed charge ratio covenant, or any 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 unable to obtain a waiver from our lenders, we would be in breach of the senior secured working capital credit facility and the lenders would be entitled to declare all outstanding borrowings immediately due and payable. In addition, a default under the senior secured working capital credit facility would trigger a cross-default provision in the indenture covering our senior subordinated notes.

On May 30, 2003, we consummated the sale and issuance 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). We used the net proceeds from the offering of the Notes to repay a $200 million term loan. The Notes mature on June 1, 2010 and interest is payable semi-annually in arrears on each June 1 and December 1 commencing on December 1, 2003. The Notes are unsecured and subordinated to all of our existing and future senior debt. Upon certain change of control events, each holder of the Notes may require us to repurchase all or a portion of its notes at a purchase price equal to 101% of the principal amount thereof, plus accrued interest.

Off-balance sheet arrangements

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

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

We believe that our current working capital position; future cash expected to be provided by operating activities; available borrowing capacity under our senior secured working capital credit facility and commodity margin loan; and our relationship with institutional lenders and equity investors should enable us to meet our planned capital and liquidity requirements through at least the maturity date of our senior secured working capital credit facility (September 2009).

NEW ACCOUNTING PRONOUNCEMENTS

In March 2005, the FASB issued FASB Interpretation No. 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations—an interpretation of SFAS 143,” which requires companies to recognize a liability for the fair value of a legal obligation to perform asset-retirement activities that are conditional on a 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 not anticipate the adoption will have a significant impact on our consolidated financial statements.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in Item 3 updates, and should be read in conjunction with, information set forth in Part II, Item 7A in our Annual Report on Form 10-K for the year ended June 30, 2005, in addition to the interim unaudited consolidated financial statements, accompanying notes and management’s discussion and analysis of financial condition and results of operations presented in Items 1 and 2 of this Quarterly Report on Form 10-Q. There are no material changes in the market risks faced by us from those reported in our Annual Report on Form 10-K for the year ended June 30, 2005.

Commodity risk

work stoppages, and major refinery outages). We utilize NYMEX futures contracts to manage the financial impact on us from changes in commodity prices due to “world-wide” events. NYMEX futures contracts are obligations to purchase or sell a specific volume of inventory at a fixed price at a future date. We believe that the utilization of NYMEX futures contracts to manage commodity price risk minimizes the financial impact on us from changes in “world-wide” commodity prices. We generally do not manage the financial impact on us from changes in basis differentials affected by local market supply and demand disruptions (e.g., local pipeline delivery disruptions, local refinery outages, periodic change in local government specifications for gasolines and distillates, local seasonality in product demand, and disruptions due to local weather related occurrences). The impacts on us from changes in basis differentials are as follows:

Basis Differential

Change in Basis
Differential

Net
Position

Financial
Impact

Futures price in excess of physical market price
(“negative basis differential”)

Increasing

Long

Loss

Futures price in excess of physical market price

Increasing

Short

Gain

Futures price in excess of physical market price

Decreasing

Long

Gain

Futures price in excess of physical market price

Decreasing

Short

Loss

Physical market price in excess of futures price
(“positive basis differential”)

Increasing

Long

Gain

Physical market price in excess of futures price

Increasing

Short

Loss

Physical market price in excess of futures price

Decreasing

Long

Loss

Physical market price in excess of futures price

Decreasing

Short

Gain

The physical and derivative positions that expose us to commodity price risk and an indication of whether those positions were actively managed under the our risk management strategies during the three months ended December 31, 2005 are as follows:

Position

Derivative
Contract

Subject to
Commodity
Price Risk

Commodity
Price
Risk Actively
Managed

Long (Short)
Position at
December 31, 2005
(in 000’s barrels)

Fixed-price forward purchase commitments prior to receipt of the product at our terminal

Yes

3,000

Discretionary inventory held for immediate sale or exchange

Yes

1,507

Discretionary volumes held for base operations

Yes

2,011

Product linefill and tank bottom volumes

Yes

932

Fixed-price forward sale commitments

Yes

(1,111

)

Inventory due to others under exchange agreements

Yes

(768

)

Risk management contracts—NYMEX futures contracts

Yes

—

(692

)

Risk management contracts—NYMEX options

Yes

—

(1,180

)

Our risk management strategies and practices currently do not qualify for “hedge accounting” for financial reporting purposes because we do not designate and associate the risk management contracts as hedges of specific physical and derivative positions and we do not document and test the effectiveness of the relationship between the risk management contracts and the physical and derivative positions.

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

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

Our risk management policy permits management the discretion to manage the commodity price risk relating to all discretionary volumes, including those volumes designated as base operating inventory volumes and the undelivered in-transit volumes supplied to our terminals under the product supply agreement with MSCG. At December 31, 2005, we were managing the commodity price risk associated with approximately 2.2 million barrels of undelivered in-transit volumes supplied to our terminals under the product supply agreement with MSCG. At December 31, 2005, we did not manage the commodity price risk on approximately 3.7 million barrels composed of approximately 2.0 million barrels of discretionary inventories held for base operations, approximately 0.8 million barrels of undelivered in-transit volumes supplied to our terminals under the product supply agreement with MSCG and approximately 0.9 million barrels of product linefill and tank bottoms.

Except for our discretionary volumes held for base operations, when we take title and accept risk of loss on refined petroleum products supplied by third parties at our terminals, we enter into futures contracts (i.e., short futures contracts) to sell a corresponding amount of product to protect against price fluctuations for the underlying commodity. In order to effectively manage commodity price risk, we must predict when we will sell the underlying product. When we ultimately sell the underlying inventory to a customer, we terminate the related futures contract. If there is correlation in price changes between the forward price curve in the futures market and the value of physical products in the cash market, the net changes in our variation margin position should be offset by the net operating margins we receive when we sell the underlying discretionary inventory. Therefore, in order to effectively manage commodity price risk, we must predict when we will sell the underlying product. If we fail to accurately predict the timing of those future sales, and the product remains in our inventory longer than the expiration date of the futures contract, we must settle the old futures contract and enter into a new futures contract to sell the product to manage the commodity price risk against the same inventory. Furthermore, we may be unable to precisely match the underlying product in our futures contracts with the exact type of product in our physical inventory. To the extent that price fluctuations of the product covered by the NYMEX futures contract do not match the price fluctuations of the product in our physical inventory, our exposure may not be mitigated.

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

When our discretionary inventory volumes held for immediate sale or exchange exceeds our fixed-price forward sale commitments, we will maintain a net short futures position. When our fixed-price forward sale commitments exceed our discretionary inventory volumes held for immediate 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 declining prices, our long (short) futures contracts will decrease (increase) in value resulting in a loss (gain). Therefore, if we are in a net short futures position during periods of rising commodity prices, we expect to recognize significant net margin before other direct costs and expenses from the sale of the physical product offset by significant net losses on risk management activities resulting in overall net operating margins that are in line with expectations. Conversely, if we are in a net short futures position during periods of declining

commodity prices, we expect to recognize minimal, if any, net margin before other direct costs and expenses from the sale of the physical product offset by significant net gains on risk management activities resulting in overall net operating margins that are, again, in line with expectations.

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

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

At December 31, 2005, a $0.05 per gallon unfavorable change in commodity prices relative to our open positions in derivative contracts and risk management contracts would have resulted in the recognition of a loss (realized and unrealized) of approximately $1.6 million. However, the fair value of our discretionary inventory held for immediate sale or exchange would have increased by approximately $3.2 million. The gain from the increase in the fair value of our discretionary inventory volumes held for immediate sale or exchange will not be recognized for financial reporting purposes until those volumes have been sold to customers, which may be in an accounting period subsequent to the accounting period in which the losses on derivative contracts and risk management contracts are recognized.

Interest rate risk

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

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officers (whom we refer to as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officers, the effectiveness of our disclosure controls and procedures as of December 31, 2005, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of December 31, 2005, our disclosure controls and procedures were effective.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated February 9, 2006	TRANSmONTAIGNE INC.
	(Registrant)
	By:	/s/ DONALD H. ANDERSON
		Donald H. Anderson
		*President and Chief Executive Officer*
		/s/ RANDALL J. LARSON
		Randall J. Larson
		*Executive Vice President, Chief Financial Officer, and Chief Accounting Officer*

EXHIBIT INDEX