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 ~~September 30, 2005~~March 31, 2006
	OR
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 001-32505

TRANSMONTAIGNE PARTNERS L.P.

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

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, ~~(as defined~~or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange ~~Act Rule 12b-2) Yes~~Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o No x

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 ~~October~~April 24, ~~2005,~~2006, there were 3,972,500 shares of the Registrant’s Common Limited Partner Units outstanding.

TABLE OF CONTENTS

		Page No.
	Part I. Financial Information
Item 1.	Unaudited Consolidated Financial Statements		4
	Consolidated balance sheets as of ~~September 30, 2005~~March 31, 2006 and ~~June 30,~~December 31, 2005		5
	Consolidated statements of operations for the three months ended ~~September 30,~~March 31, 2006 and 2005 ~~and 2004~~		6
	Consolidated statements of partners’ equity for the year ended June 30, 2005, six months ended December 31, 2005 and three months ended ~~September 30, 2005~~March 31, 2006		7
	Consolidated statements of cash flows for the three months ended ~~September 30,~~March 31, 2006 and 2005 ~~and 2004~~		8
	Notes to consolidated financial statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1820
Item 3.	Qualitative and Quantitative Disclosures about Market Risk		2327
Item 4.	Controls and Procedures		2427
	Part II. Other Information
Item 1A.	Risk Factors		28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 6.	Exhibits		2529

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains ~~certain~~ forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and ~~information relating to TransMontaigne Partners,~~Section 21E of the Securities Exchange Act of 1934, 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 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:~~

· ~~a reduction~~to those risk factors set forth in ~~revenues from TransMontaigne Inc., upon which we rely for a substantial majority of our revenues;~~

· ~~the continued creditworthiness of, and performance by, contract parties, including TransMontaigne Inc.;~~

· ~~a reduction or suspension of TransMontaigne Inc.’s obligations~~this report under the ~~terminaling services agreement;~~

· ~~TransMontaigne Inc.’s failure to continue to engage us to provide services after the expiration of the terminaling services agreement, or our failure to secure comparable alternative arrangements;~~

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

· ~~the failure to purchase additional refined product terminals from TransMontaigne Inc.;~~

· ~~timing, cost and other economic uncertainties related to the construction of new assets;~~

· ~~debt levels and restrictions~~heading “Item 1A. Risk Factors,” in ~~our debt agreements that may limit our operational flexibility;~~

· ~~the threat of terrorist attacks or war;~~

· ~~many hazards and operations risks, including adverse weather conditions;~~

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

· ~~liability for environmental claims;~~

· ~~conflicts of interest and the limited fiduciary duties of our general partner, which is controlled by TransMontaigne Inc.;~~

· ~~our failure to avoid federal income taxation as a corporation or the imposition of state level taxation; and~~

· ~~general economic, market or business conditions;~~

~~We do not intend to update these forward-looking statements except as required by law.~~Part II. Other Information.

Part I. Financial Information

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The interim unaudited consolidated financial statements of TransMontaigne Partners as of and for the three months ended ~~September 30, 2005,~~March 31, 2006, 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~~six months ended ~~June 30,~~December 31, 2005, together with our discussion and analysis of financial condition and results of operations, included in our ~~Annual~~Transition Report on Form 10-K filed on ~~September 13, 2005.~~March 2, 2006.

TransMontaigne Partners is a holding company with the following active wholly-owned subsidiaries during the three months ended ~~September 30, 2005.~~March 31, 2006.

· TransMontaigne Operating GP L.L.C.

· TransMontaigne Operating Company L.P.

· Coastal Terminals L.L.C.

· Razorback L.L.C.

· TPSI Terminals L.L.C.

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

TransMontaigne Partners L.P. and ~~subsidiarie~~ssubsidiaries
Consolidated balance sheets
(In thousands)

	September 30, 2005			June 30, 2005			March 31, 2006		December 31, 2005
ASSETS

Current assets:
Cash and cash equivalents		$	775	$	241		$	611		$	698
Trade accounts receivable, net		1,021		492			1,524			1,003
Due from TransMontaigne Inc., net		3,932		14			—			1,212
Prepaid expenses and other		280		302			693			338
		6,008		1,049			2,828			3,251
Property, plant and equipment, net		115,170		116,044			125,451			126,435
Other assets, net		2,072		2,243			1,731			1,901
		$	123,250	$	119,336		$	130,010		$	131,587
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable		$	933	$	2,180		$	857		$	1,784
Due to TransMontaigne Inc., net							96			—
Other accrued liabilities		1,697		1,424			1,936			1,239
		2,630		3,604			2,889			3,023
Long-term debt		31,000		28,307			45,508			28,000
Total liabilities		33,630		31,911			48,397			31,023
Partners’ equity:
Predecessor equity							—			10,176
Common unitholders		74,969		76,255			75,335			75,474
Subordinated unitholders		14,329		13,433			5,951			14,581
General partner interest		322		281			327			333
Deferred equity-based compensation		—		(2,544		)
		89,620		87,425			81,613			100,564
		$	123,250	$	119,336		$	130,010		$	131,587

See accompanying notes to consolidated financial statements.

TransMontaigne Partners L.P. and subsidiaries
Consolidated statements of operations
(In thousands, except per ~~share~~unit amounts)

	Three months ended September 30,						Three months ended March 31,
	2005			2004			2006			2005
Revenues	$	10,400		$	8,392		$	12,090		$	9,714
Costs and expenses:
Direct operating costs and expenses	(3,836		)	(4,086		)	(4,695		)	(4,059		)
Net operating margins	6,564			4,306
Costs and expenses:
Direct general and administrative expenses	(595		)	—			(1,100		)	—
Allocated general and administrative expenses	(700		)	(700		)	(812		)	(700		)
Allocated insurance expense	(67		)	(84		)	(82		)	(83		)
Depreciation and amortization	(1,567		)	(1,537		)	(1,942		)	(1,509		)
Total costs and expenses	(2,929		)	(2,321		)	(8,631		)	(6,351		)
Operating income	3,635			1,985			3,459			3,363
Other income (expenses):
Interest income	1			—			3			—
Interest expense	(464		)	—			(697		)	—
Amortization of deferred debt issuance costs	(46		)	—			(46		)	—
Total other expenses	(509		)	—			(740		)	—
Net earnings	3,126			1,985			2,719			3,363
Less earnings allocable to:
Predecessor	—			(1,985		)	—			(3,363		)
General partner interest	(63		)	—			(54		)	—
Net earnings allocable to limited partners	$	3,063		$	—		$	2,665		$	—
Net earnings per limited partners’ unit—basic and diluted	$	0.42		$	—		$	0.37		$	—
Weighted average limited partners’ units outstanding—basic and diluted	7,295			—			7,292			—

See accompanying notes to consolidated financial statements.

TransMontaigne Partners L.P. and subsidiaries
Consolidated statements of partners’ equity
Year ended June 30, 2005, six months ended December 31, 2005 and three months ended ~~September 30, 2005~~March 31, 2006
(In thousands)

	Predecessor				Common Units				Subordinated Units				General Partner Interest				Deferred Equity-Based Compensation				Total			Predecessor				Common Units				Subordinated Units				General Partner Interest				Deferred Equity-Based Compensation				Total
Balance June 30, 2004		118,657				—				—				—				—			118,657				$	118,657			$	—			$	—			$	—			$	—		$	118,657
Net earnings through May 26, 2005		9,730				—				—				—				—			9,730				9,730				—				—				—				—			9,730
Distributions and repayments, net		(11,399		)		—				—				—				—			(11,399		)		(11,399		)		—				—				—				—			(11,399		)
Proceeds from initial public offering of 3,852,500 common units, net of underwriters’ discount and offering expenses of $9,512		—				72,932				—				—				—			72,932				—				72,932				—				—				—			72,932
Proceeds from private placement of 450,000 subordinated units		—				—				7,945				—				—			7,945				—				—				7,945				—				—			7,945
Distribution to TransMontaigne Inc.		(111,461		)		—				—				—				—			(111,461		)		(111,461		)		—				—				—				—			(111,461		)
Allocation of predecessor equity in exchange for 120,000 common units, 2,872,266 subordinated units, and a 2% general partner interest (represented by 148,873 units)		(5,527		)		211				5,054				262				—			—				(5,527		)		211				5,054				262				—			—
Grant of 120,000 restricted common units under the long-term incentive plan		—				2,592				—				—				(2,592		)	—				—				2,592				—				—				(2,592		)	—
Amortization of deferred equity-based compensation related to restricted common units		—				—				—				—				48			48				—				—				—				—				48			48
Net earnings from May 27, 2005 through June 30, 2005		—				520				434				19				—			973				—				520				434				19				—			973
Balance June 30, 2005		—				76,255				13,433				281				(2,544		)	87,425				—				76,255				13,433				281				(2,544		)	87,425
Elimination of deferred equity-based compensation due to adoption of SFAS 123(R)		—				(2,544		)		—				—				2,544			—				—				(2,544		)		—				—				2,544			—
Distributions to unitholders for the period May 27, 2005 through June 30, 2005		—				(578		)		(499		)		(22		)		—			(1,099		)
Distributions to unitholders																									—				(2,119		)		(1,827		)		(81		)		—			(4,027		)
Amortization of deferred equity-based compensation related to restricted common units		—				168				—				—				—			168				—				323				—				—				—			323
Net earnings from July 1, 2005 through September 30, 2005		—				1,668				1,395				63				—			3,126
Balance September 30, 2005		$	—			$	74,969			$	14,329			$	322			$	—		$	89,620

Acquisition of Mobile terminal by Predecessor																									9,883				—				—				—				—			9,883
Net earnings from July 1, 2005 through December 31, 2005																									293				3,559				2,975				133				—			6,960
Balance December 31, 2005																									10,176				75,474				14,581				333				—			100,564
Distributions and repayments, net																									(756		)		—				—				—				—			(756		)
Contribution of Mobile terminal in exchange for $17.9 million																									(9,420		)		—				(8,515		)		—				—			(17,935		)
Distributions to unitholders																									—				(1,541		)		(1,329		)		(60		)		—			(2,930		)
Amortization of deferred equity-based compensation related to restricted common units																									—				162				—				—				—			162
Repurchase of 8,200 common units by our long-term incentive plan																									—				(211		)		—				—				—			(211		)
Net earnings from January 1, 2006 through March 31, 2006																									—				1,451				1,214				54				—			2,719
Balance March 31, 2006																									$	—			$	75,335			$	5,951			$	327			$	—		$	81,613

See accompanying notes to consolidated financial statements.

TransMontaigne Partners L.P. and subsidiaries
Consolidated statements of cash flows
(In thousands)

	Three months ended September 30,						Three months ended March 31,
	2005			2004			2006			2005
Cash flows from operating activities:
Net earnings	$	3,126		$	1,985		$	2,719		$	3,363
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization	1,567			1,537			1,942			1,509
Amortization of deferred equity-based compensation	168			—			162			—
Amortization of deferred debt issuance costs	46			—			46			—
Changes in operating assets and liabilities, net of effects from acquisitions:
Trade accounts receivable, net	(529		)	(129		)	(521		)	(211		)
Due from TransMontaigne Inc., net	(3,918		)	—			1,308			—
Prepaid expenses and other	22			(53		)	(355		)	106
Trade accounts payable	(1,247		)	270			(927		)	(716		)
Other accrued liabilities	273			171			697			299
Net cash (used in) provided by operating activities	(492		)	3,781
Net cash provided by operating activities							5,071			4,350
Cash flows from investing activities:
Acquisition of Mobile terminal							(17,935		)	—
Additions to property, plant and equipment—expansion of facilities	(441		)	(446		)	(634		)	(500		)
Additions to property, plant and equipment—maintain existing facilities	(127		)	(376		)	(200		)	(237		)
Net cash (used in) investing activities	(568		)	(822		)	(18,769		)	(737		)
Cash flows from financing activities:
Net borrowings (repayments) of debt	2,693			—
Net borrowings of debt							17,508			—
Distributions paid to unitholders	(1,099		)	—			(2,930		)	—
Repurchase of common units by long-term incentive plan							(211		)	—
Distributions and repayments to TransMontaigne Inc.	—			(2,959		)	(756		)	(3,601		)
Net cash provided by (used in) financing activities	1,594			(2,959		)	13,611			(3,601		)
Increase in cash and cash equivalents	534			—
Increase (decrease) in cash and cash equivalents							(87		)	12
Cash and cash equivalents at beginning of period	241			2			698			2
Cash and cash equivalents at end of period	$	775		$	2		$	611		$	14
Supplemental disclosures of cash flow information:
Cash paid for interest							$	635		$	—

See accompanying notes to consolidated financial statements.

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

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) 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~~six months ended ~~June 30,~~December 31, 2005, together with our discussion and analysis of financial condition and results of operations, included in our ~~Annual~~Transition Report on Form 10-K filed on ~~September 13, 2005.~~March 2, 2006.

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 Partners L.P., a Delaware limited partnership (“Partners”), and its majority-owned subsidiaries. The accompanying consolidated financial statements include the assets, liabilities and results of operations of certain terminal and pipeline operations of TransMontaigne Inc. that were contributed to us at the closing of our initial public offering on May 27, 2005. Specifically, the TransMontaigne Inc. terminal and pipeline operations that were contributed to us are composed of seven Florida terminals, including terminals located in Tampa, Port Manatee, Fisher Island, Port Everglades (North), Port Everglades (South), Cape Canaveral, and Jacksonville; and the Razorback Pipeline system, including the terminals located at Mt. Vernon, Missouri and Rogers, Arkansas. On February 28, 2003, TransMontaigne Inc. acquired the Port Manatee, Fisher Island, Port Everglades (North), Cape Canaveral and Jacksonville terminal operations from an affiliate of El Paso Corporation. The consolidated financial statements also include the assets, liabilities and results of operations of these terminals and pipelines prior to their contribution by TransMontaigne Inc. to us. ~~Partners~~The consolidated financial statements also include the assets, liabilities and results of operations of the Mobile terminal that was ~~formed in 2005~~contributed to us by TransMontaigne Inc. (see Note 3 of Notes to consolidated financial statements). This acquisition was accounted for as a ~~Delaware master limited partnership initially~~transaction among entities under common control and, accordingly, prior periods have been restated to ~~own~~include the activity of the Mobile terminal since the date it was acquired by TransMontaigne Inc. (August 1, 2005). The contribution of the Mobile terminals’ assets and ~~operate refined petroleum products terminaling and pipeline assets.~~liabilities has been recorded at TransMontaigne Inc.’s carryover basis. All significant inter-company accounts and transactions have been eliminated in the preparation of the accompanying consolidated financial statements.

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; accrued asset retirement obligations; 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

TransMontaigne Partners ~~conducts its~~L.P. (“Partners”) was formed in 2005 as a Delaware master limited partnership initially to own and operate refined petroleum products terminaling and pipeline assets. We conduct our operations in the United States primarily along the U.S. Gulf Coast and in ~~Florida, Southwest Missouri and Northwest Arkansas. Partners provides~~the Midwest. We provide integrated terminaling, storage, pipeline and related services for

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

~~(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~ ~~(Continued)~~

companies engaged in the distribution and marketing of refined petroleum products and crude oil, including TransMontaigne Inc.

(c) Change in year end

We adopted a December 31 year end for financial and tax reporting purposes effective December 31, 2005. We previously maintained a June 30 year end for financial and tax reporting purposes.

(d) Basis of presentation

The accompanying consolidated financial statements include allocated general and administrative charges from TransMontaigne Inc. for indirect corporate overhead to cover costs of functions such as legal, accounting, treasury, engineering, environmental safety, information technology, and other corporate services (see Note 2 of Notes to consolidated financial statements). The allocated general and administrative charges were ~~$0.7~~$0.8 million and $0.7 million for the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ respectively. The accompanying consolidated financial statements also include allocated insurance charges from TransMontaigne Inc. for insurance premiums to cover costs of insuring activities such as property casualty, pollution, automobile, directors and officers’ liability, and other insurable risks. The allocated insurance charges were $0.3 million and $0.3 million for the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ respectively. Management believes that the allocated general and administrative charges and insurance charges are representative of the costs and expenses incurred by TransMontaigne Inc. for ~~the contributed terminal and pipeline~~managing Partners’ operations.

~~(d)~~(e) Accounting for terminal and pipeline operations

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

~~(e)~~(f) Environmental obligations

At ~~September 30, 2005~~March 31, 2006 and ~~June 30,~~December 31, 2005, we ~~were not aware~~have accrued environmental obligations of ~~any existing conditions that may cause us~~approximately $625,000, and $625,000, respectively, representing our best estimate of our remediation obligations (see Note 8 of Notes to ~~incur significant expenditures in the future for the remediation of existing contamination. As such, we have not reflected in the accompanying~~ consolidated financial ~~statements any liabilities for~~statements). The accrued environmental obligations at March 31, 2006 and December 31, 2005, represent amounts assumed in connection with the acquisition of the Oklahoma City terminal facility (see Note 3 of Notes to ~~be incurred in the future based on existing contamination.~~consolidated financial statements). Changes in our estimates and assumptions may occur as a result of the passage of time and the occurrence of future events.

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

~~TransMontaigne Partners L.P.~~(g) Asset retirement obligations

At March 31, 2006 and ~~subsidiaries~~
December 31, 2005, we have accrued asset retirement obligations of approximately $0.2 million and $0.2 million, respectively, representing our best estimate of our retirement obligations (see Note 8 of Notes to consolidated financial ~~statements (Continued)~~
~~September 30,~~statements). Asset retirement obligations are legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. The accrued asset retirement obligations at March 31, 2006 and December 31, 2005 represent costs we would incur in the future if we were to close certain terminals and ~~June 30,~~pipelines due to certain state-imposed obligations to close aboveground storage tanks upon abandoning the operations of the related tanks and regulations to safely abandon Federally regulated pipelines. Changes in our estimates and assumptions may occur as a result of the passage of time and the occurrence of future events.

In March 2005,

~~(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~ 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. We adopted the requirements of FIN 47 on January 1, 2006. The adoption of FIN 47 did not have a significant impact on our consolidated financial statements.

~~(f)~~(h) Equity-based compensation

For periods ending prior to July 1, 2005, we accounted for our equity-based compensation awards using the intrinsic value method pursuant to APB Opinion No. 25, Accounting for Stock Issued to Employees.

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

This Statement requires us to measure the cost 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.

Compensation cost ~~will be~~is recognized over the service period on a straight-line basis.

~~(g)~~(i) Income taxes

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

~~(h)~~(j) Net earnings per limited partners’ unit

Net earnings per limited partners’ unit are computed by dividing net earnings allocable to limited partners by the weighted average number of limited partnership units outstanding during the period. Net earnings allocable to limited partners are net of two percent of the earnings allocable to the general

partner. Basic and diluted net earnings per limited partners’ unit are the same because we currently have no ~~potentially~~ dilutive securities outstanding.

For the three months ended March 31, 2006, we excluded 58,000 restricted phantom units from the computation of diluted net earnings per limited partners’ unit because the unamortized deferred compensation exceeded the average quoted market price of our common units for the period.

(k) Reclassifications~~(i) Reclassifications~~

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

(2) TRANSACTIONS WITH TRANSMONTAIGNE INC.

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

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

~~(2) TRANSACTIONS WITH TRANSMONTAIGNE INC.~~ ~~(Continued)~~

administrative services for our benefit with respect to our assets. At March 31, 2006, the ~~contributed assets. The omnibus agreement further provides that we pay~~annual administrative fee payable to TransMontaigne Inc. an annual insurance reimbursement in the amount of $1.0 million for premiums on insurance policies covering the initially-contributed assets. The administrative fee may increase in the second and third years by the percentage increase in the consumer price index for the immediately preceding year, and the insurance reimbursement will increase in accordance with increases in the premiums payable under the relevant policies. In addition, ifwas approximately $3.3 million. If we acquire or construct additional assets, ~~during the term of the agreement,~~ TransMontaigne Inc. will propose a revised administrative fee covering the provision of services for such additional assets. If the conflicts committee of our general partner agrees to the revised administrative fee, TransMontaigne Inc. will provide services for the additional assets pursuant to the agreement. ~~After the three-year period, our general partner will determine the general and administrative expenses allocated to us.~~

The ~~$2.8 million~~ administrative fee includes expenses incurred by TransMontaigne Inc. to perform centralized corporate functions, such as legal, accounting, treasury, insurance administration and claims processing, health, safety and environmental, information technology, human resources, credit, payroll, taxes and engineering and other corporate services, to the extent such services are not outsourced by TransMontaigne Inc.

The ~~administrative fee does not include reimbursements~~omnibus agreement further provides that we pay TransMontaigne Inc. an insurance reimbursement for premiums on insurance policies covering our assets. At March 31, 2006 the annual insurance reimbursement payable to TransMontaigne Inc. was approximately $1.0 million. We also reimburse TransMontaigne Inc. for direct operating costs and expenses that TransMontaigne Inc. incurs on our behalf, such as salaries of operational personnel performing services on-site at our terminals and pipeline and the cost of their employee benefits, including 401(k) and health insurance benefits.

Under the omnibus agreement, TransMontaigne Inc. has agreed to indemnify us ~~for five years after~~through May 27, ~~2005~~2010 against certain potential environmental claims, losses and expenses associated with the operation of the initially contributed assets and occurring before May 27, 2005. TransMontaigne Inc.’s maximum liability for this indemnification obligation is $15 ~~million and~~million. TransMontaigne Inc. has no obligation to indemnify us for losses until such aggregate losses exceed $250,000. TransMontaigne Inc. has no indemnification obligations with respect to environmental claims made as a result of additions to or modifications of environmental laws promulgated after May 27, 2005. We have agreed to indemnify TransMontaigne Inc. against environmental liabilities related to our assets, to the extent these liabilities are not subject to TransMontaigne Inc.’s indemnification obligations.

Terminaling Services ~~Agreement.~~ Agreement—Florida Terminals and Razorback Pipeline System.We have a terminaling and transportation services agreement with TransMontaigne Inc. that will expire on December 31, 2011. Under this agreement, TransMontaigne Inc. agreed to transport on the Razorback Pipeline and throughput at our Florida, Missouri and Arkansas terminals a volume of refined products that will, at the fee and tariff schedule contained in the agreement, result in minimum revenues to us of $5 million per calendar quarter. If TransMontaigne Inc. fails to meet its minimum revenue commitment in any quarter, it must pay us the amount of any shortfall within 15 days following receipt of an invoice from us. A shortfall payment may be applied as a credit in the following four quarters after TransMontaigne Inc.’s minimum obligations are met. In exchange for TransMontaigne Inc.’s minimum revenue commitment, we agreed to provide TransMontaigne Inc. approximately 2.0 million barrels of light

oil storage capacity and approximately 1.4 million barrels of heavy oil storage capacity at certain of our Florida terminals.

~~TransMontaigne Partners L.P. and subsidiaries~~
~~Notes to consolidated financial statements (Continued)~~
~~September 30, 2005 and June 30, 2005~~
~~(2) TRANSACTIONS WITH TRANSMONTAIGNE INC. (Continued)~~
In the event of a force majeure event that renders performance impossible with respect to an asset for at least 30 days, TransMontaigne Inc.’s obligations would be temporarily suspended with respect to that asset. If a force majeure event continues for 30 days or more and results in a diminution in the storage capacity we make available to TransMontaigne Inc., TransMontaigne Inc.’s minimum revenue commitment would be reduced proportionately for the duration of the force majeure event. If such a force majeure event continues for twelve consecutive months or more, either party has the right to terminate the entire terminaling services agreement.
After the initial term, the terminaling services agreement will automatically renew for subsequent one-year periods, subject to either party’s right to terminate with six months’ notice. TransMontaigne Inc.’s obligations under the terminaling services agreement will not terminate if TransMontaigne Inc. no longer owns our general partner. TransMontaigne Inc. may assign the terminaling services agreement only with the consent of the conflicts committee of our general partner. Upon termination of the agreement, TransMontaigne Inc. has a right of first refusal to enter into a new terminaling services agreement with us, provided it pays no less than 105% of the fees offered by the third party.
Under the terminaling services agreement, we are responsible for all refined product losses in excess of 0.10% of the refined product we receive from TransMontaigne Inc. at our terminals. We are entitled to all product gains, including 0.10% of the refined product we receive from TransMontaigne Inc. at our terminals.
Terminaling Services Agreement—Oklahoma City Terminal.We have a revenue support agreement with TransMontaigne Inc. that provides that in the event any current third-party terminaling agreement should expire, TransMontaigne Inc. agrees to enter into a terminaling services agreement for a term commencing one year after the effective date of the date of acquisition of the Oklahoma City terminal and ending on November 1, 2012. The terminaling services agreement will provide that TransMontaigne Inc. agrees to throughput such volume of refined product as may be required to guarantee minimum revenues of $0.8 million per year. If TransMontaigne Inc. fails to meet its minimum revenue commitment in any year, it must pay us the amount of any shortfall within 15 days following receipt of an invoice from us. In exchange for TransMontaigne Inc.’s minimum revenue commitment, we agreed to provide TransMontaigne Inc. approximately 152,000 barrels of light oil storage capacity at our Oklahoma City terminal. TransMontaigne Inc.’s minimum revenue commitment currently is not in effect because a major oil company currently is under contract for the utilization of the light oil storage capacity at the terminal.
Terminaling Services Agreement—Mobile Terminal.We have a terminaling and transportation services agreement with TransMontaigne Inc. that will expire on December 31, 2012. Under this agreement, TransMontaigne Inc. agreed to throughput at our Mobile terminal a volume of refined products that will, at the fee and tariff schedule contained in the agreement, result in minimum revenues to us of $2.6 million per year. If TransMontaigne Inc. fails to meet its minimum revenue commitment in any year, it must pay us the amount of any shortfall within 15 days following receipt of an invoice from us. A shortfall payment may be applied as a credit in the following year after TransMontaigne Inc.’s minimum obligations are met. In exchange for TransMontaigne Inc.’s minimum revenue commitment, we agreed to provide TransMontaigne Inc. approximately 46,000 barrels of light oil storage capacity and approximately 65,000 barrels of heavy oil storage capacity at the terminal.
13

(3) ACQUISITIONS
Effective October 31, 2005, we purchased a refined product terminal with approximately 160,000 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 October 31, 2005. The adjusted 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. The adjusted purchase price was allocated as follows (in thousands):

Oklahoma
City
terminal

Property, plant and equipment

$
2,493

Acquisition related liabilities

(635
)

Cash paid

$
1,858

Acquisition-related liabilities include assumed environmental obligations of approximately $625,000 and accrued property taxes of approximately $10,000.
Effective January 1, 2006, we acquired a refined product terminal with approximately 230,000 barrels of aggregate storage capacity in Mobile, Alabama from TransMontaigne Inc. for approximately $17.9 million. The Mobile terminal currently provides integrated terminaling services to TransMontaigne Inc., a major oil company, a crude oil marketing company and a petro-chemical company. The contribution of the Mobile terminal by TransMontaigne Inc. to us has been recorded at carryover basis in a manner similar to a reorganization of entities under common control. As such, prior periods have been restated to include the assets, liabilities, and results of operations of the Mobile terminal from August 1, 2005, the date of acquisition by TransMontaigne Inc. from Radcliff/Economy Marine Services, Inc. The results of operations of the Mobile terminal for periods prior to their actual contribution to us have been allocated to our predecessor entity TransMontaigne Partners (Predecessor). The consideration we paid to TransMontaigne Inc. in excess of the carryover basis of the net assets contributed has been reflected in the accompanying consolidated balance sheet and changes in partners’ equity as a reduction of partners’ equity—subordinated units.
At December 31, 2005, the basis of the assets and liabilities of the Mobile terminal are as follows:

Mobile
terminal

Trade accounts receivable

$
81

Due from TransMontaigne Inc.

748

Property, plant and equipment, net

9,420

Trade accounts payable

(73
)
Predecessor equity

$
10,176

14

The results of operations previously reported by us and the combined amounts with the Mobile terminal as if the Mobile terminal had been contributed to us at the date of its acquisition (August 1, 2005) by TransMontaigne Inc. are as follows:

Six months ended
December 31, 2005

Revenues:

TransMontaigne Partners

$
21,502

Mobile terminal

1,406

Combined

$
22,908

Net earnings:

TransMontaigne Partners

$
6,667

Mobile terminal

293

Combined

$
6,960

(4) CONCENTRATION OF CREDIT RISK AND TRADE ACCOUNTS RECEIVABLE
Our primary market areas are located along the U.S. Gulf Coast and in ~~Florida, Southwest Missouri and Northwest Arkansas.~~the Midwest. We have a concentration of trade receivable balances due from companies engaged in the distribution and marketing of refined products and crude oil, and the United States government. These concentrations of customers may affect our overall credit risk in that the customers may be similarly affected by changes in economic, regulatory or other factors. Our customers’ historical and future credit positions are analyzed prior to extending credit. We manage our exposure to credit risk through credit analysis, credit approvals, credit limits and monitoring procedures, and for certain transactions we may request letters of credit, prepayments or guarantees. We maintain allowances for potentially uncollectible accounts receivable. ~~During the three months ended September 30, 2005 and 2004, we increased the allowance for doubtful accounts through a charge to income of approximately $nil and $25,000, respectively.~~
Trade accounts receivable, net consists of the following (in thousands):

September 30,
2005

June 30,
2005

March 31,
2006

December 31,
2005

Trade accounts receivable

$
1,021

$
492

$
1,524

$
1,003

Less allowance for doubtful accounts

—

—

—

—

$
1,021

$
492

$
1,524

$
1,003

TransMontaigne Inc. accounted for approximately ~~67%~~70% and ~~63%~~67% of our total revenues for the three months ended ~~September 30,~~March 31, 2006 and 2005, respectively. Marathon Petroleum Company LLC (“Marathon”) and ~~2004, respectively. Trigeant EP, Ltd. and its successors~~the previous asphalt storage customers accounted for ~~21%~~17% and ~~26%~~23% of our total revenues for the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ respectively. During February 2006, Marathon entered into a new five-year terminaling services agreement for asphalt storage capacity that replaces our previous customer, Gulf Atlantic Refining & Marketing, LP. In April 2005, Trigeant EP, Ltd. assigned its terminaling services contract with us to Gulf Atlantic Refining & Marketing, LP.
13

~~TransMontaigne Partners L.P. and subsidiaries~~
~~Notes to consolidated financial statements (Continued)~~
~~September 30, 2005 and June 30, 2005~~
~~(4)~~(5) PREPAID EXPENSES AND OTHER
Prepaid expenses and other are as follows (in thousands):

September 30,
2005

June 30,
2005

March 31,
2006

December 31,
2005

Additive detergent

$
265

$
290

$
334

$
307

Deposits and other assets

15

12

359

31

$
280

$
302

$
693

$
338

15

~~(5)~~(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net is as follows (in thousands):

September 30,
2005

June 30,
2005

March 31,
2006

December 31,
2005

Land

$
25,024

$
25,024

$
27,303

$
27,303

Terminals, pipelines and equipment

118,883

117,593

129,639

129,559

Furniture, fixtures and equipment

480

468

548

480

Construction in progress

7

741

949

263

144,394

143,826

158,439

157,605

Less accumulated depreciation

(29,224
)

(27,782
)

(32,988
)

(31,170
)

$
115,170

$
116,044

$
125,451

$
126,435

~~(6)~~(7) OTHER ASSETS
Other assets, net are as follows (in thousands):

September 30,
2005

June 30,
2005

Acquired intangible, net of accumulated amortization of $1,292 and $1,167

$
1,208

$
1,333

Deferred debt issuance costs, net of accumulated amortization of $61 and $15

855

901

Deposits and other assets

9

9

$
2,072

$
2,243

March 31,
2006

December 31,
2005

Acquired intangible, net of accumulated amortization of $1,542 and $1,417

$
958

$
1,083

Deferred debt issuance costs, net of accumulated amortization of $153 and $107

763

809

Deposits and other assets

10

9

$
1,731

$
1,901

Acquired intangible represents the right to use the Coastal Fuels trade name ~~for a period of five years.~~through February 28, 2008. The cost of the acquired intangible is being amortized on a straight-line basis over five years.
Deferred debt issuance costs are amortized using the interest method over the term of the credit facility (see Note 89 of Notes to consolidated financial statements).

~~TransMontaigne Partners L.P. and subsidiaries~~
~~Notes to consolidated financial statements (Continued)~~
~~September 30, 2005 and June 30, 2005~~
~~(7)~~(8) OTHER ACCRUED LIABILITIES
Other accrued liabilities are as follows (in thousands):

September 30,
2005

June 30,
2005

March 31,
2006

December 31,
2005

Accrued property taxes

$
1,101

$
785

$
510

$
58

Accrued environmental obligations

625

625

Customer advances and deposits

561

633

366

233

Asset retirement obligations

237

237

Accrued expenses and other

35

6

198

86

$
1,697

$
1,424

$
1,936

$
1,239

~~(8)~~(9) LONG-TERM DEBT
On May 9, 2005, we entered into a $75 million senior secured credit facility. At ~~September 30, 2005~~March 31, 2006 and ~~June 30,~~December 31, 2005, our outstanding borrowings under the credit facility were approximately ~~$31.0~~$45.5 million and ~~$28.3~~$28.0 million, respectively. 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 (as defined; ~~$68.2~~$86.9 million at ~~September 30, 2005)~~March 31, 2006). Borrowings under the credit facility bear interest (at our option) based on a base rate
16

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 our credit facility was ~~5.4%~~5.9% during the three months ended ~~September 30, 2005.~~March 31, 2006. In addition, we ~~will~~ pay a commitment fee ranging from 0.375% to 0.50% per annum on the total amount of the unused commitments. Borrowings under the credit facility are secured by a lien on our assets, including cash, accounts receivable, inventory, general intangibles, investment property, contract rights and real property, except for our real property located in Florida. The terms of the credit facility include covenants that restrict our ability to make cash distributions and acquisitions. The principal balance of loans and any accrued and unpaid interest will be due and payable in full on the maturity date, May 9, 2010.
The credit facility also contains customary representations and warranties (including those relating to 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 primary financial covenants contained in the 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). At ~~September 30, 2005,~~March 31, 2006, we were in compliance with the financial covenants contained in the credit facility.
On March 27, 2006, TransMontaigne Inc. announced that it had entered into a merger agreement with SemGroup, L.P. pursuant to which SemGroup, L.P. would acquire all of the outstanding capital stock of TransMontaigne Inc. We are not a party to that merger agreement. If TransMontaigne Inc. is acquired by a third party, the completion of such transaction would constitute a “change in control” under the credit facility and, therefore, would require a waiver from the lenders. Alternatively, the third party acquirer of TransMontaigne Inc. may elect to provide us with an alternative credit facility. In the merger agreement with TransMontaigne Inc., SemGroup, L.P. has agreed that the parties will not close the transaction unless either a waiver has been received from the lenders or comparable financing has been made available to us.
~~(9)~~(10) LONG-TERM INCENTIVE PLAN
TransMontaigne GP L.L.C. (“TransMontaigne GP”) is our general partner and manages our operations and activities. TransMontaigne Services Inc. is ~~an indirect~~a wholly-owned subsidiary of TransMontaigne Inc. and is the sole member of TransMontaigne GP. TransMontaigne Services Inc. adopted a long-term incentive plan for its employees and consultants and non-employee directors of our general partner. The long-term incentive plan currently permits the grant of awards covering an aggregate of ~~200,000~~345,895 units, which amount will automatically increase on an annual basis by 2% of the total

~~TransMontaigne Partners L.P. and subsidiaries~~
~~Notes to consolidated financial statements (Continued)~~
~~September 30, 2005 and June 30, 2005~~
~~(9) LONG-TERM INCENTIVE PLAN~~ ~~(Continued)~~
outstanding common and subordinated units at the end of the preceding fiscal year. Ownership in the awards is subject to forfeiture until the vesting date, but recipients have distribution and voting rights from the date of grant. The plan is administered by the compensation committee of the board of directors of our general partner. On January 19, 2006, we announced a program for the repurchase of outstanding common units for purposes of making subsequent grants of restricted units to key employees and non-employee directors of our general partner. As of March 31, 2006, we have repurchased approximately 8,200 common units pursuant to the program.
On March 31, 2006, TransMontaigne Services Inc. granted 58,000 restricted phantom units to its key employees and executive officers, and non-employee directors of our general partner. On May 27, 2005, TransMontaigne Services Inc. granted 120,000 restricted common units to its key employees and executive officers, and non-employee directors of our general partner. ~~Ownership in these units is subject to forfeiture until the vesting date, but recipients have distribution and voting rights from the date of grant.~~ We recognized deferred equity-based compensation of approximately $1.7 million and $2.6 million associated with the March 2006 and May 2005 grants, respectively, which isare being amortized to income over the four-year vesting period.
17

Amortization of deferred equity-based compensation of approximately $0.2 million and $nil is included in direct general and administrative expense for the three months ended ~~September 30, 2005.~~March 31, 2006 and 2005, respectively.
Distributions paid to holders of restricted common units and restricted phantom units are treated as compensation expense for financial reporting purposes. Included in direct general and administrative expenses for the three months ended ~~September 30,~~March 31, 2006 and 2005, is approximately ~~$18,000~~$48,000 and $nil, respectively, of compensation expense related to distributions paid to holders of restricted ~~common~~ units.
~~(10)~~(11) COMMITMENTS AND CONTINGENCIES
Operating Leases.We lease property and equipment under non-cancelable operating leases that extend through April ~~2010.~~2021. At ~~September 30, 2005,~~March 31, 2006, future minimum lease payments under these non-cancelable operating leases are as follows (in thousands):
Years ending June 30:

Property and
equipment

Years ending December 31:

Property and
equipment

2006 (remainder of the year)
2006 (remainder of the year)

$
107

2006 (remainder of the year)

$
173

2007
2007

129

2007

225

2008
2008

123

2008

213

2009
2009

117

2009

169

2010
2010

97

2010

111

Thereafter
Thereafter

—

Thereafter

1,137

$
573

$
2,028

Rental expense under operating leases was approximately ~~$56~~$80,000 and ~~$81~~$70,000 for the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ respectively.
~~(11)~~(12) BUSINESS SEGMENTS
We provide integrated terminaling, storage, pipeline and related services to companies engaged in the distribution and marketing of refined petroleum products and crude oil. Our chief operating decision maker is TransMontaigne GP’s ~~chief executive officer~~Chief Executive Officer (“CEO”). TransMontaigne GP’s CEO reviews the financial performance of our business segments using disaggregated financial information about ~~“net operating margins”~~“margins” for purposes of making operating decisions and assessing financial performance. ~~“Net operating margins” is~~“Margins” are composed of revenues less direct operating costs and expenses. Accordingly, we present ~~“net operating margins”~~“margins” for each of our two business segments: (i) ~~Florida~~U.S. Gulf Coast terminals and (ii) ~~Razorback Pipeline system.~~

~~TransMontaigne Partners L.P.~~Midwest terminals and ~~subsidiaries~~
~~Notes to consolidated financial statements (Continued)~~
~~September 30, 2005 and June 30, 2005~~pipeline.
~~(11) BUSINESS SEGMENTS~~ ~~(Continued)~~18

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

Three months ended
September 30,

Three months ended
March 31,

2005

2004

2006

2005

Florida Terminals:

U.S. Gulf Coast Terminals:

Throughput and additive injection fees, net

$
4,472

$
2,284

$
5,589

$
2,503

Terminaling storage fees

2,884

4,526

2,549

4,787

Pipeline transportation fees

—

—

—

—

Other

1,561

523

2,209

1,343

Revenues

8,917

7,333

10,347

8,633

Direct operating costs and expenses

(3,425
)
(3,641
)

(4,373
)
(3,826
)
Net operating margins

5,492

3,692

Razorback Pipeline System:

Margins

5,974

4,807

Midwest Terminals and Pipeline:

Throughput and additive injection fees, net

520

469

769

441

Terminaling storage fees

—

—

—

—

Pipeline transportation fees

633

550

594

534

Other

330

40

380

106

Revenues

1,483

1,059

1,743

1,081

Direct operating costs and expenses

(411
)
(445
)

(322
)
(233
)
Net operating margins

1,072

614

Total net operating margins

6,564

4,306

Margins

1,421

848

Total margins

7,395

5,655

Direct general and administrative expenses

(595
)
—

(1,100
)
—

Allocated general and administrative expenses

(700
)
(700
)

(812
)
(700
)
Allocated insurance expense

(67
)
(84
)

(82
)
(83
)
Depreciation and amortization

(1,567
)
(1,537
)

(1,942
)
(1,509
)
Operating income

3,635

1,985

3,459

3,363

Other income (expense), net

(509
)
—

(740
)
—

Net earnings

$
3,126

$
1,985

$
2,719

$
3,363

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

Three months ended September 30, 2005

Three months ended March 31, 2006

Florida
Terminals

Razorback
Pipeline System

Total

U.S. Gulf
Coast
Terminals

Midwest
Terminals and
Pipeline

Total

Revenues from external customers

$
3,399

$
—

$
3,399

$
3,276

$
301

$
3,577

Revenues from TransMontaigne Inc.

5,518

1,483

7,001

7,071

1,442

8,513

Revenues

$
8,917

$
1,483

$
10,400

$
10,347

$
1,743

$
12,090

Identifiable assets

$
112,027

$
11,223

$
123,250

$
115,261

$
14,749

$
130,010

Capital expenditures

$
568

$
—

$
568

$
796

$
38

$
834

Three months ended September 30, 2004

Three months ended March 31, 2005

Florida
Terminals

Razorback
Pipeline System

Total

U.S. Gulf
Coast
Terminals

Midwest
Terminals and
Pipeline

Total

Revenues from external customers

$
3,130

$
—

$
3,130

$
3,172

$
—

$
3,172

Revenues from TransMontaigne Inc.

4,203

1,059

5,262

5,461

1,081

6,542

Revenues

$
7,333

$
1,059

$
8,392

$
8,633

$
1,081

$
9,714

Identifiable assets

$
108,959

$
10,377

$
119,336

$
108,369

$
9,982

$
118,351

Capital expenditures

$
822

$
—

$
822

$
731

$
6

$
737

1719

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~~six months ended ~~June 30,~~December 31, 2005, included in our ~~Annual~~Transition Report on Form 10-K filed on ~~September 13, 2005~~March 2, 2006 (see Note 1 of Notes to the 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; accrued asset retirement obligations; 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 THREE MONTHS ENDED ~~SEPTEMBER 30, 2005~~MARCH 31, 2006
~~On July 20, 2005,~~Effective January 1, 2006, we acquired a refined product terminal in Mobile, Alabama from 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.~~Inc. in exchange for approximately $17.9 million.
On August 29, 2005 and September 24, 2005, Hurricane Katrina and Hurricane Rita, respectively, 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.
~~SUBSEQUENT EVENTS~~
~~On October 20, 2005, TransMontaigne Partners~~January 19, 2006, we announced ~~that it declared~~ a distribution of $0.40 per unit payable on ~~November~~February 8, ~~2005~~2006 to ~~the~~ unitholders of record on ~~October~~January 31, ~~2005. That distribution represents the minimum quarterly distribution~~2006.
On January 19, 2006, we announced a program for the ~~period July 1, 2005 through September 30, 2005.~~repurchase, from time to time, of outstanding common units of the Partnership for purposes of making subsequent grants of restricted units under the Partnership’s Long-Term Incentive Plan to key employees and executive officers of TransMontaigne Services Inc. and the non-employee directors of our general partner. The Partnership anticipates repurchasing annually up to approximately $1.2 million of aggregate market value of its outstanding common units for this purpose. However, there is no guarantee as to the exact number of units or dollar amount that will be repurchased, and the purchases may be discontinued at any time.
On ~~October 24, 2005, Hurricane Wilma struck Florida. Our facilities~~February 20, 2006, we entered into a new five-year terminaling services agreement with Marathon Petroleum Company LLC (“Marathon”) regarding approximately 1.0 million barrels of asphalt storage capacity throughout our Florida facilities. The terminaling services agreement with Gulf Atlantic Operations LLC (“Gulf Atlantic”) for the utilization of this asphalt storage capacity has been amended to allow for cancellations coinciding with the effective dates within the terminaling services agreement with Marathon. Effective May 1, 2006, our terminaling services agreement with Gulf Atlantic expired. The change from Gulf Atlantic to Marathon is not expected to have ~~returned~~a material impact on our results of operations or cash flows.
On March 27, 2006, TransMontaigne Inc. announced that it had entered into a merger agreement with SemGroup, L.P. pursuant to ~~normal operations~~which SemGroup, L.P. would acquire all of the outstanding capital stock of TransMontaigne Inc. We are not a party to that merger agreement and ~~are delivering product in their respective markets.~~cannot be certain when such transaction, or any other transaction that might involve the acquisition of TransMontaigne Inc. will close, or if it will close at all. If TransMontaigne Inc. were acquired by a third party, such third party also would control our operations. We currently ~~are not aware~~cannot predict whether or in what manner any third party that acquires control of ~~any significant long-term damage~~our general partner would change our operations, if at all.
20

SUBSEQUENT EVENTS
On April 19, 2006, we announced a distribution of $0.43 per unit payable on May 9, 2006 to ~~our facilities caused by Hurricane Wilma.~~unitholders of record on April 28, 2006.
RESULTS OF OPERATIONS—THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2006 AND 2005 ~~AND 2004~~
In reviewing our historical results of operations, you should be aware that the historical results of operations of TransMontaigne Inc.’s terminals and pipeline prior to being contributed to us are reflected in the ~~closing of our initial public offering on May 27, 2005, reflect the~~accompanying financial ~~results of~~statements as being attributable to our predecessor entity “TransMontaigne Partners (Predecessor).” The contribution of certain TransMontaigne Inc. terminal and pipeline operations to us was recorded for financial reporting purposes at carryover basis in a manner similar to a reorganization of entities under common control. The historical revenues include only actual amounts received from third parties who utilized our Florida terminals, and TransMontaigne Inc. for use of our Razorback Pipeline system and Florida terminals.

The following selected historical financial statement measures are derived from our unaudited interim financial statements for the three months ended ~~September 30,~~March 31, 2006 and 2005 ~~and 2004~~ (in thousands):

Three months ended
September 30,

Three months ended
March 31,

2005

2004

2006

2005

Net operating margins

$
6,564

$
4,306

Revenues

$
12,090

$
9,714

Direct operating costs and expenses

$
(4,695
)
$
(4,059
)
Operating income

$
3,635

$
1,985

$
3,459

$
3,363

Net earnings

$
3,126

$
1,985

$
2,719

$
3,363

Net cash provided by (used in) operating activities

$
(492
)
$
3,781

$
5,071

$
4,350

Net cash provided by (used in) investing activities

$
(568
)
$
(822
)

$
(18,769
)
$
(737
)
Net cash provided by (used in) financing activities

$
1,594

$
(2,959
)

$
13,611

$
(3,601
)

~~(1)~~Revenues.          ~~Net operating margins represents revenues, less direct operating costs and expenses.~~
The ~~net operating margins~~revenues for the three months ended ~~September 30,~~March 31, 2006 and 2005, were approximately ~~$6.6~~$12.1 million ~~compared to~~and $9.7 million, respectively. Effective October 31, 2005, we acquired the Oklahoma City terminal from Magellan Pipeline Company, L.P. for approximately ~~$4.3~~$1.9 million and on January 1, 2006 we acquired the Mobile terminal from TransMontaigne Inc. for approximately $17.9 million. For the three months ended ~~September 30, 2004. The increase of~~March 31, 2006, the Oklahoma City terminal contributed approximately ~~$2.3~~$0.3 million in ~~net operating margins for 2005 as compared to 2004 was due principally to an increase~~revenues and the Mobile terminal contributed approximately $0.8 million in ~~net operating margins of approximately $1.8 million at the Florida facilities and approximately $0.5 at the Razorback Pipeline system.~~
revenues. Our ~~net operating margins~~revenues are as follows (in thousands):

Three months ended
September 30,

Three months ended
March 31,

2005

2004

2006

2005

Throughput and additive injection fees, net

$
4,992

$
2,753

$
6,358

$
2,944

Terminaling storage fees

2,884

4,526

2,549

4,787

Pipeline transportation fees

633

550

594

534

Reimbursed costs

38

29

Management fees and reimbursed costs

309

30

Other

1,853

534

2,280

1,419

Revenue

10,400

8,392

Less direct operating costs and expenses

(3,836
)
(4,086
)
Net operating margins

$
6,564

$
4,306

Revenues

$
12,090

$
9,714

Throughput and additive injection fees, net.   Terminal throughput and additive injection fees, net were approximately ~~$5.0~~$6.4 million and ~~$2.8~~$2.9 million for the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ respectively. The increase of approximately ~~$2.2~~$3.5 million in throughput and additive injection fees, net for ~~2005~~2006 as compared to ~~2004~~2005 was due principally to the conversion of the fees charged on heavy oil ~~marketing~~ volumes to a throughput agreement and ~~increases in light oil throughput volumes at~~ the ~~Florida facilities.~~acquisition of the Oklahoma City and Mobile terminals. For the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ we delivered approximately ~~93,800~~109,200 barrels and ~~86,000~~94,500 barrels per day of light oil throughput volumes, respectively, at our terminals.
21

The terminaling services agreement with TransMontaigne Inc. converted the fees charged on heavy oil ~~marketing~~ volumes from a storage agreement to a throughput agreement effective June 1, 2005. The throughput fees charged on heavy oil ~~marketing~~ volumes were approximately ~~$1.8~~$2.0 million for the three months ended ~~September 30, 2005.~~March 31, 2006. For the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ we delivered approximately ~~32,000~~37,400 barrels and ~~27,300~~41,200 barrels per day, respectively, of heavy oil ~~marketing~~ volumes for TransMontaigne Inc. at our terminals.
Included in the throughput and additive injection fees, net for the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ are fees charged to TransMontaigne Inc. of approximately ~~$4.9~~$5.9 million and ~~$2.7~~$2.9 million, respectively.

Terminaling storage fees.   Terminaling storage fees were approximately ~~$2.9~~$2.5 million and ~~$4.5~~$4.8 million for the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ respectively. The decrease of approximately ~~$1.6~~$2.3 million in terminaling storage fees for ~~2005~~2006 as compared to ~~2004~~2005 was due principally to the conversion of the fees charged on heavy oil ~~marketing~~ volumes from a storage agreement to a throughput agreement offset by an annual increase in storage fees charged to our customers at the Florida facilities and the execution in April 2005 of a new two-year terminaling services agreement with a marketer of residual fuel oil.agreement.
Included in the terminaling storage fees for the three months ended ~~September 30,~~March 31, 2006 and 2005 ~~and 2004~~ are fees charged to TransMontaigne Inc. of approximately ~~$0.3 million~~$nil and ~~$2.2~~$2.5 million, respectively, for the storage of ~~residual fuel oil.~~heavy oil volumes.
Pipeline transportation fees.   For the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ we earned pipeline transportation fees of approximately $0.6 million and ~~$0.6~~$0.5 million, respectively. For the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ we averaged approximately ~~13,800~~13,200 barrels and ~~12,200~~11,900 barrels per day of transported product on the Razorback Pipeline. ~~During the three months ended September 30, 2004, the tariff charged for transporting barrels on the Razorback Pipeline increased to $0.50 per barrel from $0.47 per barrel.~~
Included in pipeline transportation fees for the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ are fees charged to TransMontaigne Inc. of approximately $0.6 million and ~~$0.6~~$0.5 million, respectively.
~~Reimbursed~~Management fees and reimbursed costs.   We manage and operate for a major oil company certain tank capacity at our Port Everglades (South) terminal and receive a reimbursement of costs. Effective May 27, 2005, we manage and operate on behalf of TransMontaigne Inc. certain tank capacity owned by a utility and receive a management fee from TransMontaigne Inc. For the three months ended ~~September 30,~~March 31, 2006 and 2005, management fees and ~~2004, cost reimbursements~~reimbursed costs were approximately ~~$38,000~~$309,000 and ~~$29,000,~~$30,000, respectively.
Included in management fees and reimbursed costs for the three months ended March 31, 2006 and 2005, are fees charged to TransMontaigne Inc. of approximately $0.3 million and $nil, respectively.
Other revenue.   For the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ other revenue was approximately ~~$1.9~~$2.3 million and ~~$0.5~~$1.4 million, respectively. The increase of approximately ~~$1.4~~$0.9 million in other revenue for ~~2005~~2006 as compared to ~~2004~~2005 was due principally to an increase ~~of approximately $1.1 million~~ at the Florida facilities and ~~approximately $0.3 million at~~ the ~~Razorback Pipeline system.~~acquisition of the Oklahoma City and Mobile terminals.
Included in other revenue for the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ are fees charged to TransMontaigne Inc. of approximately ~~$1.1~~$1.7 million and ~~$nil,~~$0.6 million, respectively.
22

Direct operating costs and expenses.   For the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ the direct operating costs and expenses of our operations were approximately ~~$3.8~~$4.7 million and $4.1 million, respectively. For the three months ended March 31, 2006, the Oklahoma City terminal contributed approximately $0.1 million in direct operating costs and expenses and the Mobile terminal contributed approximately $0.3 million in direct operating costs and expenses. The direct operating costs and expenses of our operations are as follows (in thousands):

Three months
ended
September 30,

Three months
ended
March 31,

2005

2004

2006

2005

Wages and employee benefits

$
1,289

$
1,222

$
1,277

$
1,249

Utilities and communication charges

337

339

419

338

Repairs and maintenance

827

1,415

1,447

1,137

Allocated property and casualty insurance costs

183

166

168

167

Office, rentals and property taxes

522

529

645

606

Vehicles and fuel costs

355

248

434

320

Environmental compliance costs

202

102

132

147

Other

121

65

173

95

Direct operating costs and expenses

$
3,836

$
4,086

$
4,695

$
4,059

The ~~decrease~~increase of approximately ~~$0.3~~$0.6 million in direct operating costs and expenses for ~~2005~~2006 as compared to ~~2004~~2005 was due principally to ~~decreases~~an increase at the Florida ~~facilities.~~facilities and the acquisition of the Oklahoma City and Mobile terminals.

Costs and expenses.   Direct general and administrative expenses for the three months ended ~~September 30, 2005,~~March 31, 2006, were approximately ~~$0.6~~$1.1 million, compared to approximately $nil for the three months ended ~~September 30, 2004.~~March 31, 2005. Direct general and administrative expenses are as follows (in thousands):

Three months
ended
September 30,

Three months
ended
March 31,

2005

2004

2006

2005

Accounting and legal expenses

$
366

$
—

Accounting expenses

$
599

$
—

Legal expenses

205

—

Independent director fees

30

—

30

—

Amortization of deferred equity-based compensation

168

—

162

—

Compensation expense on distributions paid to holders of restricted common units

18

—

Compensation expense on distributions paid to holders of restricted units

48

—

Other

13

—

56

—

Direct general and administrative expenses

$
595

$
—

$
1,100

$
—

The accompanying consolidated financial statements include allocated general and administrative charges from TransMontaigne Inc. for allocations of indirect corporate overhead to cover costs of centralized corporate functions such as legal, accounting, treasury, insurance administration and claims processing, health, safety and environmental, information technology, human resources, credit, payroll, taxes, engineering and other corporate services. The allocated general and administrative expenses were approximately ~~$0.7~~$0.8 million and $0.7 million for the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ respectively.
The accompanying consolidated financial statements also include allocated insurance charges from TransMontaigne Inc. for allocations of insurance premiums to cover costs of insuring activities such as property casualty, pollution, automobile, directors and officers, and other insurable risks. The allocated
23

insurance expenses are presented in the accompanying consolidated statements of operations as follows (in thousands):

Three months
ended
September 30,

Three months
ended
March 31,

2005

2004

2006

2005

Direct operating costs and expenses

$
183

$
166

$
168

$
167

General and administrative expenses

67

84

82

83

Total allocated insurance costs

$
250

$
250

$
250

$
250

Depreciation and amortization expense for the three months ended ~~September 30,~~March 31, 2006 and 2005, ~~and 2004,~~ was ~~$1.6~~$1.9 million and $1.5 million, respectively. The increase of approximately ~~$0.1~~$0.4 million in depreciation and amortization expense for ~~2005~~2006 as compared to ~~2004~~2005 was due principally to depreciation and amortization expense on current year additions to property, plant, and ~~equipment.~~equipment and the acquisition of the Oklahoma City and Mobile terminals.
Interest expense was approximately ~~$0.5~~$0.7 million and $nil for the three months ended ~~September 30,~~March 31, 2006 and 2005, respectively, related to borrowings and commitment fees under our senior secured credit facility.
21

LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund our distributions to our unitholders, capital expenditures and our working capital requirements. Currently, our principal sources of funds to meet our liquidity needs are cash generated by operations, borrowings under our credit facility and debt and equity offerings.
Capital expenditures, excluding acquisitions, for the three months ended ~~September 30, 2005,~~March 31, 2006, were approximately ~~$0.6~~$0.8 million for terminal and pipeline facilities and assets to support these facilities. Future capital expenditures will depend on numerous factors, including the availability, economics and cost of appropriate acquisitions which we identify and evaluate; the economics, cost and required regulatory approvals with respect to the expansion and enhancement of existing systems and facilities; 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.
Senior Secured Credit Facility.   On May 9, 2005, we 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 (as defined; ~~$68.2~~$86.9 million at ~~September 30, 2005)~~March 31, 2006). Borrowings under the 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 total leverage ratio (as defined). Interest on loans under the credit facility will be due and payable periodically, based on the applicable interest rate and related interest period, generally either one, two or three months. In addition, we will pay a commitment fee ranging from 0.375% to 0.50% per annum on the total amount of the unused commitments. Borrowings under the credit facility are secured by a lien on our assets, including cash, accounts receivable, inventory, general intangibles, investment property, contract rights and real property, except for our real property located in Florida. The terms of the credit facility include covenants that restrict our ability to make cash distributions and acquisitions. We may make distributions of cash to the extent of our “available cash” as defined in our partnership agreement. We may make acquisitions meeting the definition of “permitted acquisitions” which include: acquisitions in which the consideration paid for such acquisition, together with the consideration paid for other acquisitions in the same fiscal year, does not exceed $15,000,000; acquisitions that arise from the exercise of options under the omnibus agreement with TransMontaigne Inc. provided that any cash consideration is not obtained from borrowings under the credit facility; and acquisitions in which we have (1) provided the agent prior written documentation in form and substance reasonably satisfactory to the agent demonstrating our pro forma
24

compliance with all financial and other covenants contained herein after giving effect to such acquisition and (2) satisfied all other conditions precedent to such acquisition which the agent may reasonably require in connection therewith. The principal balance of loans and any accrued and unpaid interest will be due and payable in full on the maturity date, May 9, 2010.
The 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 primary financial covenants contained in the 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). These financial covenants are based on a defined financial performance measure within the credit facility known as “Consolidated EBITDA.”
On March 27, 2006, TransMontaigne Inc. announced that it had entered into a merger agreement with SemGroup, L.P. pursuant to which SemGroup, L.P. would acquire all of the outstanding capital stock of TransMontaigne Inc. We are not a party to that merger agreement. If TransMontaigne Inc. is acquired by a third party, the completion of such transaction would constitute a “change in control” under the credit facility and, therefore, would require a waiver from the lenders. Alternatively, the third party acquirer of TransMontaigne Inc. may elect to provide us with an alternative credit facility. In the merger agreement with TransMontaigne Inc., SemGroup, L.P. has agreed that the parties will not close the transaction unless either a waiver has been received from the lenders or comparable financing has been made available to us.
25

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

Three Months Ended

Twelve Months
Ended

Three Months Ended

Twelve Months
Ended

December 31,

March 31,

June 30,

September 30,

September 30,

June 30,

September 30,

December 31,

March 31,

March 31,

2004

2005

2005

2005

2005

2005

2005

2005

2006

2006

Financial performance debt covenant test:

Consolidated EBITDA, as stipulated in the credit facility

$
3,663

$
3,663

$
4,341

$
5,371

$
17,038

$
4,341

$
5,371

$
6,216

$
7,390

$
23,318

Consolidated funded indebtedness

$
31,000

$
45,508

Total leverage ratio

1.82x

1.95
x

Consolidated EBITDA, as stipulated in the credit facility

$
4,341

$
5,371

$
5,873

$
5,566

$
21,151

Consolidated interest expense, as stipulated in the credit facility

$
392

$
392

$
409

$
464

$
1,657

$
409

$
464

$
505

$
697

$
2,075

Interest coverage ratio

10.28x

10.19
x

Reconciliation of Consolidated EBITDA to cash flows provided by (used in) operating activities:

Consolidated EBITDA

$
5,371

Consolidated EBITDA for total leverage ratio

$
4,341

$
5,371

$
6,216

$
7,390

Less pro forma adjustments related to acquisitions

—

(343
)

(1,824
)

Consolidated EBITDA for interest coverage ratio

5,371

5,873

5,566

Interest expense

(464
)

(464
)

(505
)

(697
)

Changes in operating assets and liabilities

(5,399
)

(5,399
)

2,957

202

Cash flows (used by) operating activities

$
(492
)

Cash flows provided by (used by) operating activities

$
(492
)

$
8,325

$
5,071

If we were to fail either financial performance covenant, or any other covenant contained in the credit facility, we would seek a waiver from our lenders under such facility. If we were unable to obtain a waiver from our lenders and the default remained uncured after any applicable grace period, we would be in breach of the credit facility, and the lenders would be entitled to declare all outstanding borrowings immediately due and payable.
We believe that our future cash expected to be provided by operating activities, available borrowing capacity under our credit facility, 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 credit facility (May 2010).
26

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~~Transition Report on Form 10-K for the ~~year~~six months ended ~~June 30,~~December 31, 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~~Transition Report on Form 10-K for the ~~year~~six months ended ~~June 30,~~December 31, 2005.
Market risk is the risk of loss arising from adverse changes in market rates and prices. The principal market risk to which we are exposed is interest rate risk associated with borrowings under our senior secured credit facility. Borrowings under our senior secured credit facility will bear interest at a variable rate based on LIBOR or the lender’s base rate. We currently do not manage our exposure to interest rates,

but we may in the future. At ~~September 30, 2005,~~March 31, 2006, we had outstanding borrowings of ~~$31.0~~$45.5 million under our senior secured credit facility. Based on the outstanding balance of our variable-interest-rate debt at ~~September 30, 2005,~~March 31, 2006, and assuming market interest rates increase or decrease by 100 basis points, the potential annual increase or decrease in interest expense is approximately ~~$0.3~~$0.5 million.
We generally do not purchase or market products that we handle or transport and, therefore, we do not have material direct exposure to changes in commodity prices, except for the value of product gains and losses arising from our terminaling services agreements with our customers. We do not use derivative commodity instruments to manage the commodity risk associated with the product we may own at any given time. Generally, to the extent we are entitled to retain product pursuant to terminaling services agreements with our customers, we sell the product to TransMontaigne Inc. As a result, we do not have a material direct exposure to commodity price fluctuations.

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 ~~September 30, 2005,~~March 31, 2006, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of ~~September 30, 2005,~~March 31, 2006, 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 ~~September 30, 2005~~March 31, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2427

Part II. Other ~~information~~Information

ITEM 1A. RISK FACTORS

The following risk factors, discussed in more detail in “Item 1A. Risk Factors,” in our Transition Report on Form 10-K for the six months ended December 31, 2005, filed on March 2, 2006, which risk factors are expressly incorporated into this report by reference, 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:

· a reduction in revenues from TransMontaigne Inc., upon which we rely for a substantial majority of our revenues;

· the continued creditworthiness of, and performance by, contract parties, including TransMontaigne Inc.;

· a reduction or suspension of TransMontaigne Inc.’s obligations under the terminaling services agreement;

· TransMontaigne Inc.’s failure to continue to engage us to provide services after the expiration of the terminaling services agreement, or our failure to secure comparable alternative arrangements;

· the impact on our facilities or operations of extreme weather conditions, such as hurricanes, and other operational hazards;

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

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

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

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

· the threat of terrorist attacks or war;

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

· liability for environmental claims;

· conflicts of interest and the limited fiduciary duties of our general partner, which is controlled by TransMontaigne Inc.;

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

· general economic, market or business conditions;

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table covers the purchases of our common units by, or on behalf of, the Partnership during the three months ended March 31, 2006 covered by this report.

Period	Total Number of Common Units Purchased		Average Price Paid per Common Unit			Total Number of Common Units Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Common Units that May Yet Be Purchased Under the Plans or Programs
January		—		—			—		$	1,200,000
February		1,700		$	25.40		1,700		$	1,156,814
March		6,500		$	25.89		6,500		$	988,503
		8,200		$	25.79		8,200

All repurchases were made in the open market pursuant to a program announced on January 19, 2006 for the repurchase, from time to time, of our outstanding common units for purposes of making subsequent grants of restricted units under our Long-Term Incentive Plan to key employees and officers of TransMontaigne Services Inc. and the non-employee directors of our general partner. We anticipate repurchasing annually up to approximately $1.2 million of aggregate market value of our outstanding common units for this purpose. However, there is no guarantee as to the exact number of units or dollar amount that will be repurchased, and the purchases may be discontinued at any time.

ITEM 6. EXHIBITS

Exhibits:

~~31.1~~2.1		~~Certification of Chief Executive Officer pursuant~~Facilities Sale Agreement, dated January 1, 2006, between Radcliff/Economy Marine Services, Inc. and TransMontaigne Partners L.P. (incorporated by reference to ~~Section 302~~Exhibit 2.1 of the ~~Sarbanes-Oxley Act of 2002.~~Current Report on Form 8-K filed by TransMontaigne Partners L.P. with the SEC on January 1, 2006).
10.1		Form of TransMontaigne Services Inc. Long-Term Incentive Plan Employee Award Agreement (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed by TransMontaigne Partners L.P. with the SEC on April 6, 2006).
~~31.2~~10.2		~~Certification~~Form of ~~Chief Financial Officer pursuant~~TransMontaigne Services Inc. Long-Term Incentive Plan Non-Employee Director Award Agreement (incorporated by reference to ~~Section 302~~Exhibit 10.3 of the ~~Sarbanes-Oxley Act of 2002.~~Current Report on Form 8-K filed by TransMontaigne Partners L.P. with the SEC on April 6, 2006).
10.3
~~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 November 9, 2005~~	~~TRANSMONTAIGNE PARTNERS~~Terminaling Services Agreement, dated February 20, 2006, between Marathon Petroleum Company LLC and TransMontaigne Partners L.P. ~~(Registrant)~~

	~~By:~~	~~/s/~~ ~~DONALD H. ANDERSON~~
		~~Donald H. Anderson~~
		~~Chief Executive Officer~~
		~~/s/~~ ~~RANDALL J. LARSON~~
		~~Randall J. Larson~~
		~~Executive Vice President, Chief Financial~~
		~~Officer, and Chief Accounting Officer~~

~~EXHIBIT INDEX~~

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

2729

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 May 9, 2006	TRANSMONTAIGNE PARTNERS L.P.
	(Registrant)
	By:	/s/ DONALD H. ANDERSON
		Donald H. Anderson
		Chief Executive Officer
		/s/ RANDALL J. LARSON
		Randall J. Larson
		Executive Vice President, Chief Financial
		Officer, and Chief Accounting Officer

EXHIBIT INDEX

Exhibit Number		Description of Exhibits
2.1		Facilities Sale Agreement, dated January 1, 2006, between Radcliff/Economy Marine Services, Inc. and TransMontaigne Partners L.P. (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by TransMontaigne Partners L.P. with the SEC on January 1, 2006).
10.1		Form of TransMontaigne Services Inc. Long-Term Incentive Plan Employee Award Agreement (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K filed by TransMontaigne Partners L.P. with the SEC on April 6, 2006).
10.2		Form of TransMontaigne Services Inc. Long-Term Incentive Plan Non-Employee Director Award Agreement (incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K filed by TransMontaigne Partners L.P. with the SEC on April 6, 2006).
10.3*		Terminaling Services Agreement, dated February 20, 2006, between Marathon Petroleum Company LLC and TransMontaigne Partners L.P.
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.

* Filed herewith.

	Oklahoma City terminal
Property, plant and equipment		$	2,493
Acquisition related liabilities		(635		)
Cash paid		$	1,858

	Mobile terminal
Trade accounts receivable	$	81
Due from TransMontaigne Inc.	748
Property, plant and equipment, net	9,420
Trade accounts payable	(73		)
Predecessor equity	$	10,176

	Six months ended December 31, 2005
Revenues:
TransMontaigne Partners		$	21,502
Mobile terminal		1,406
Combined		$	22,908
Net earnings:
TransMontaigne Partners		$	6,667
Mobile terminal		293
Combined		$	6,960

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

Years ending June 30:		Property and equipment
Years ending December 31:						Property and equipment
2006 (remainder of the year)	2006 (remainder of the year)		$	107	2006 (remainder of the year)		$	173
2007	2007		129		2007		225
2008	2008		123		2008		213
2009	2009		117		2009		169
2010	2010		97		2010		111
Thereafter	Thereafter		—		Thereafter		1,137
			$	573			$	2,028

	Three months ended September 30, 2005								Three months ended March 31, 2006
	Florida Terminals			Razorback Pipeline System			Total		U.S. Gulf Coast Terminals		Midwest Terminals and Pipeline			Total
Revenues from external customers		$	3,399		$	—	$	3,399	$	3,276		$	301	$	3,577
Revenues from TransMontaigne Inc.		5,518			1,483		7,001		7,071			1,442		8,513
Revenues		$	8,917		$	1,483	$	10,400	$	10,347		$	1,743	$	12,090
Identifiable assets		$	112,027		$	11,223	$	123,250	$	115,261		$	14,749	$	130,010
Capital expenditures		$	568		$	—	$	568	$	796		$	38	$	834

	Three months ended September 30, 2004								Three months ended March 31, 2005
	Florida Terminals			Razorback Pipeline System			Total		U.S. Gulf Coast Terminals		Midwest Terminals and Pipeline			Total
Revenues from external customers		$	3,130		$	—	$	3,130	$	3,172		$	—	$	3,172
Revenues from TransMontaigne Inc.		4,203			1,059		5,262		5,461			1,081		6,542
Revenues		$	7,333		$	1,059	$	8,392	$	8,633		$	1,081	$	9,714
Identifiable assets		$	108,959		$	10,377	$	119,336	$	108,369		$	9,982	$	118,351
Capital expenditures		$	822		$	—	$	822	$	731		$	6	$	737

	Three Months Ended													Twelve Months Ended			Three Months Ended															Twelve Months Ended
	December 31,			March 31,			June 30,			September 30,				September 30,			June 30,			September 30,				December 31,				March 31,				March 31,
	2004			2005			2005			2005				2005			2005			2005				2005				2006				2006
Financial performance debt covenant test:
Consolidated EBITDA, as stipulated in the credit facility		$	3,663		$	3,663		$	4,341		$	5,371			$	17,038		$	4,341		$	5,371			$	6,216			$	7,390			$	23,318
Consolidated funded indebtedness															$	31,000																	$	45,508
Total leverage ratio															1.82x																		1.95		x
Consolidated EBITDA, as stipulated in the credit facility																		$	4,341		$	5,371			$	5,873			$	5,566			$	21,151
Consolidated interest expense, as stipulated in the credit facility		$	392		$	392		$	409		$	464			$	1,657		$	409		$	464			$	505			$	697			$	2,075
Interest coverage ratio															10.28x																		10.19		x
Reconciliation of Consolidated EBITDA to cash flows provided by (used in) operating activities:
Consolidated EBITDA											$	5,371
Consolidated EBITDA for total leverage ratio																		$	4,341		$	5,371			$	6,216			$	7,390
Less pro forma adjustments related to acquisitions																					—				(343		)		(1,824		)
Consolidated EBITDA for interest coverage ratio																					5,371				5,873				5,566
Interest expense											(464		)								(464		)		(505		)		(697		)
Changes in operating assets and liabilities											(5,399		)								(5,399		)		2,957				202
Cash flows (used by) operating activities											$	(492	)
Cash flows provided by (used by) operating activities																					$	(492	)		$	8,325			$	5,071